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, 1997
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
(Exact name of Registrant as specified in its charter)
Nevada 75-2399477
(State or other jurisdiction of (IRS Employer
Incorporation or organization) Identification No.)
4265 Kellway Circle, Dallas, Texas 75244
(Address of principal executive offices) (Zip Code)
Registrant'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 aggregate market value of the voting stock held by non-affiliates of the
issuer, computed by reference to the closing sales price on March 31, 1998, was
approximately $34,713,000.
At March 31, 1998, the issuer had outstanding approximately 6,769,000 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 29, 1998.
Transitional Small Business Disclosure Format (check one):
YES [ ] NO [X]
<PAGE>
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<CAPTION>
GREENBRIAR CORPORATION
Index to Annual Report on Form 10-KSB
Fiscal year ended December 31, 1997
PART I PAGE
<S> <C>
Item 1: Description of Business 3
Item 2: Description of Properties 16
Item 3: Legal Proceedings 16
Item 4: Submission of Matters to a Vote of Security Holders 17
PART II
Item 5: Market for Common Equity and Related Stockholder Matters 17
Item 6: Management's Discussion and Analysis or Plan of Operation 17
Item 7: Financial Statements 21
Item 8: Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 22
Part III
Item 9: Directors, Executive Officers, Promoters and Control Persons; Compliance
With Section 16(a) of the Exchange Act 22
Item 10: Executive Compensation 22
Item 11: Security Ownership of Certain Beneficial Owners and
Management 22
Item 12: Certain Relationships and Related Transactions 22
Part IV
Item 13: Exhibits and Reports On Form 8-K 22
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PART I
ITEM 1: DESCRIPTION OF BUSINESS
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Overview and Background of Assisted Living Operations
Greenbriar Corporation (the "Company") is a leading assisted living company that
operates assisted and full service 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 31, 1998, the Company operated 55 communities in 12 states, with a
capacity of 4,260 residents, consisting of 52 communities in which the Company
has ownership or leasehold interests and three communities managed for third
parties. One of the Company's leased properties 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 31, 1998,
the Company had three assisted living communities with capacity for 138
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 to and
products for 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.
Beginning in 1995 the Company began developing and constructing assisted living
communities; however, the significant growth that occurred was through
acquisitions that were completed in 1996 and 1997.
Acquisition of Wedgwood Retirement Inns, Inc.
Effective March 31, 1996, Greenbriar acquired 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 provided 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, who received 1,624,958 shares of 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 was accounted
for as a pooling of interests and, accordingly, the Company's consolidated
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financial statements were restated to include the accounts and operations of
American Care for all periods prior to the merger.
Acquisition of The Windsor Group
In October 1997 Greenbriar issued 160,000 shares of Greenbriar common stock in
the acquisition of the Windsor Group. The Windsor Group owned and operated two
communities in South Carolina with a resident capacity of 162 and had two
communities under construction and expansion underway in one of the two existing
communities. The completion of that construction will provide the service
capacity for an additional 122 residents.
Acquisition of Villa Residential Care Homes, Inc.
On December 29, 1997, Greenbriar acquired Dallas, Texas based Villa Residential
Care Homes, Inc., and related partnerships ("Villa"). Villa leased and operated
12 assisted living communities in Texas with a resident capacity of 955. A
Greenbriar subsidiary became the managing general partner of the operating
partnerships.
The purchase price was 184,476 shares of registered Greenbriar common stock and
10,464,321 operating partnership units convertible after a one year holding
period into 536,990 shares of Greenbriar common stock subject to future
registration rights. An additional 85,984 shares of common stock and 1,568,904
operating partnership unites convertible into 80,510 shares of common stock
subject to future registration rights may be issued within two years based on
certain of the communities meeting performance requirements. The total number of
Greenbriar common shares to be issued in the transaction will therefore be
between 721,466 and 887,960.
Real Estate Operations
As of March 31, 1998, the Company owned three shopping centers in Georgia. 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.
The Assisted Living IndustryAssisted 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 $12 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:
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 31%, from approximately 13.2 million in 1990 to over
16.6 million by the year 2000, and the number of persons age 85 and
older is expected to increase approximately 41% during the 1990s from
3.1 million to approximately 4.5 million. It is 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.
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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.
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 underserved.
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 Texas and North Carolina communities. Texas is one of a few states that
has a Medicaid waiver program currently operating. 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 Texas and 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.
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.
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 primarily from acquisitions. The Company believes
that acquisition is the best way to meet its growth goals. The full service
retirement and assisted living industry is very fragmented and still primarily a
single proprietor business.
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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.
Offer 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, 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 both 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.
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 is also
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 1998, the Company had 17
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
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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 full service retirement and 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 monitoring.
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 17 of its existing communities
and generally plans to include a distinct Alzheimer's wing in the
communities constructed and developed by the Company for the
assisted living market. 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 certain information with
respect to communities that were operated by the Company at March 31, 1998. The
Company owns, leases, holds equity interest in or manages, on 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.
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EXISTING COMMUNITIES
Company
Care Resident Operations
Community Location Level Units Capacity( Commenced Ownership
--------- -------- ----- ----- ---------- --------- ---------
<S> <C>
1) <C> <C>
Owned, leased by Company:
Berne Village New Bern, NC S, FE, DC 156 165 Oct-93 Owned (2)
Camelot Harlingen, TX S 172 172 Sep-94 Owned (2)
Corpus Christi Northwest Corpus Christi, TX FE 48 64 1990 Leased (3)
Corpus Christi South Corpus Christi, TX FE 76 86 1996 Leased (3)
Country Oaks of Chiefland Chiefland, FL FE 37 58 Dec-95 Owned (2)
Countrytime Inn Kings Mountain, NC FE, DC 32 54 Jun-95 Owned (2)
Crown Pointe (6) Corona, CA S, FE, 136 136 Jan-93 Owned (2,5)
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Granbury Granbury, TX FE 36 43 Jan-98 Leased (3)
Graybrier Southern Pines, NC FE, DC 56 92 Feb-94 Owned (2)
Greenbriar at Camelot Harlingen, TX FE, DC 82 98 Jan-98 Leased (3)
Greenbriar at Denison Denison, TX FE, DC 44 67 May-96 Owned (2)
Greenbriar at Muskogee Muskogee, OK FE 48 69 Mar-97 Owned (2)
Greenbriar at Sherman Sherman, TX FE 48 73 Mar-98 Owned (2)
Greenbriar at Wilmington Wilmington, NC FE 64 64 1988 Leased (3)
Harlingen Harlingen, TX FE 23 46 1990 Leased (3)
Hermitage House Bladenboro, NC FE 59 59 1986 Leased (3)
La Villa Roswell, NM FE, DC 80 91 Nov-96 Leased (3)
Lincolnshire Lincoln City, OR S, FE 64 64 Nov-95 Owned (2)
Maranatha Manor Spartanburg, SC FE,DC 31 51 1997 Owned (2)
Meadowbrook Place Baker, OR FE 50 50 Dec-92 Owned (2)
Mount Olive Mount Olive FE 65 103 1985 Leased (3)
Mt. Pleasant Private Mt. Pleasant, TX FE 34 40 1993 Leased (3)
Mt. Pleasant State Mt. Pleasant, TX FE 17 34 1989 Leased (3)
Neawanna by the Sea Seaside, OR S, FE 59 59 Jan-90 Leased (4,7,10)
Oak Park, Clermont Clermont, FL FE 59 61 Nov-97 Leased (3)
Oak Park, Ft Worth Fort Worth, TX FE 150 150 Jan-98 Leased (3)
Oakridge Sanford, NC FE 47 85 Dec-95 Leased (3)
Pacific Pointe King City, OR S 113 113 Jan-93 Leased (3)
Palm House Fort Worth, TX S 155 155 1985 Leased (3)
Red Oak Manor Greenville, NC FE 30 58 Feb-95 Leased (3)
Rose Garden Estates Ritzville, WA FE 21 21 Nov-95 Owned (2)
Rose Manor of Cary Cary, NC FE, DC 55 61 Oct-96 Owned (2)
Rose Tara Plantation King, NC FE 38 65 Sep-94 Owned (2)
Rose Terrace of Wendell Wendell, NC FE, DC 52 100 May-94 Leased (3)
Rose Vista Village of Fayetteville, NC S, FE 64 94 Feb-95 Leased (3)
Fayetteville
Rose Vista Village of Goldsboro, NC S, FE 63 93 Feb-95 Leased (3)
Goldsboro
Rose Vista Village of Kinston, NC S, FE 64 93 Feb-95 Leased (3)
Kinston
Rose Vista Village of Wilson, NC S, FE, DC 76 119 Feb-95 Leased (3)
Wilson
Royal Oaks Sanford, NC FE 25 40 Dec-95 Leased (3)
Summer Hill Oak Harbor, WA FE 59 61 Feb-94 Owned (2)
Sweetwater Springs Lithia Springs, GA FE, DC 48 48 Oct-96 Leased (9)
Tandy Fort Worth, TX FE 81 108 1984 Leased (3)
The Terrace Portland, OR FE, DC 65 69 May-91 Owned (2)
Tyler Tyler, TX FE 44 64 1991 Leased (3)
Villa del Rey Merced Merced, CA S 92 92 Dec-79 Leased (3)
Villa del Rey Roswell Roswell, NM S, FE 133 133 Oct-88 Leased (4,7)
Villa del Rey Visalia Visalia, CA S 98 98 Dec-79 Leased (3)
Villa del Sol Roswell, NM S 12 12 Dec-95 Owned (2)
Wedgwood Terrace Lewiston, ID FE, DC 40 51 Nov-95 Owned (2)
Windsor House Greenville Greenville, SC FE, DC 31 50 Nov-97 Owned (2)
Windsor House West Spartanburg, SC FE, DC 74 111 1991 Owned (2)
Wolfforth Wolfforth, TX FE 26 46 Jan-98 Leased (3)
Subtotal/Average 3,332 4,089
----- -----
Managed, but owned by third party
Homeplace Burlington, WA DC 21 36 Feb-98 Managed
Scarborough Terrace Scarborough, ME FE, DC 64 75 Jan-96 Managed
Timberhill Place Corvallis, OR FE 60 60 May-95 Managed
Total 3,477 4,260
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<TABLE>
<CAPTION>
COMMUNITIES UNDER CONSTRUCTION
Care Resident Anticipated Anticipated
Community Location Level Units Capacity Opening Ownership
------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C>
Spartanburg expansion Spartanburg, SC FE 30 30 Q2 98 Own
Windsor House Florence Florence, SC FE 26 42 Q2 98 Own
Total 56 72
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Occupancy
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 1998 and
2018 and bear interest at fixed and variable interest rates ranging
from 7.5% to 11.35% as of December 31, 1997. 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 5.6%
at December 31, 1996. Future communities owned and mortgaged by the
Company will likely be pledged as collateral 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, 1997, the Company had available, subject to periodic review,
commitments for approximately $90 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) Crown Pointe is being expanded and construction is expected to be
complete in April. Upon completion, there will be 165 units with a
capacity of 168. Five of these units will be designated as Alzheimer
units with an effective capacity of eight.
(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, 114 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.
(10) Property is managed by third party.
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 $75,000 per unit, and average construction time for a typical
community to be approximately twelve to eighteen 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 92% 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. Expansion
projects generally cost less to build and to lease up.
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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
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 months
following March 1998 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 lease
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, American Care and Villa acquisitions have
been in operation for ten years or more. 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 1998 range in size from 12 to 165
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 60 or
more 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 680 to 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.
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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.
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 the
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
staff 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 Spartanburg, South Carolina area
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:
The Greenbriar Way. At Greenbriar the foremost mission is excellence in service
to residents. To that end, the Company's leadership dedicates itself to
excellence in the supervision and professional development of Service Partners,
whose day-to-day duty is to provide that service.
The Company's philosophy of management is to demonstrate by its actions and
require from its Service Partners high standards of personal integrity; to
develop a climate of openness and trust; to demonstrate respect for human
dignity in every circumstance; to be supportive in all relationships; to promote
teamwork by involving Service Partners in the management of their own work; and
to promote the free expression of ideas and opinions.
The Quality Initiative. The Greenbriar Initiative for Quality is the product of
a collaborative effort of corporate leadership and Greenbriar's Professional
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Advisory Board to provide the underlying philosophy for the Greenbriar
commitment to deliver quality in the lives of residents, their families and
friends, the Service Partners and owners and all who come under the umbrella of
Greenbriar Corporation.
It is rooted in the belief that life for the residents can be meaningful and
fulfilling and that residents can and should make the decisions concerning their
daily life. The Initiative for Quality partners with "The Greenbriar Way", the
program for Service Partner training and performance, and becomes the consistent
way in which care is provided throughout the day.
The Initiative for Quality and The Greenbriar Way distinguish the Company.
Through it individuals will come to the Greenbriar Communities not only to live
but to life.
The Company has employed Herbert Shore, Ed.D., president of Shore & Associates
Geriatric and Elderly Services, Dallas, Texas, as a Quality of Life Consultant.
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. His primary
responsibility is to assist management in developing and implementing the
Company's Quality of Life Initiative.
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. The Company also plans to establish an "800" number customer response
line to encourage feedback from residents, family members, and other visitors in
it's communities.
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 both regional and
local levels. This effort is intended to create awareness of the community 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 community throughout its markets
and continuously assesses the success of its efforts. Most communities have on
staff a Company relations coordinator dedicated to sales and marketing
activities, who is guided and trained by corporate marketing personnel. For
smaller communities who do not have a 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.
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.
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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 in the
states in which they operate. A limited number of the Company's communities is
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 a few states 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.
A few 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 payments.
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 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.
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Competition
The long-term care industry generally is highly competitive and the assisted
living and Alzheimer's care businesses in particular have and will continue to
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. In most markets where the company operates or
plans to operate the level of competition is increasing both from regional and
national providers and local providers. The Company expects this trend to
continue and many markets may be overbuilt. If reimbursement programs such as
the medicaid waiver program increases, assisted living 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 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
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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 thirty-two 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 2 to 19 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, 1998, the Company's officers and directors and entities with
which they are affiliated beneficially owned approximately 62.5% 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 31.9% of the outstanding Common Stock of the
Company, Mr. Victor L. Lund, a director of the Company and the founder of
Wedgwood, beneficially owned approximately 16.4% 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 12.5%
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 988,000 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.
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 in
general prohibits any business combination involving the Company and a person
that beneficially owns 10% or more of the outstanding Common Stock or an
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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.
Employees
At March 31, 1998, the Company employed approximately 1834 employees, including
1294 full-time and 540 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
Offices
The Company's principal office is a 27,500 square feet building that it owns in
Dallas, Texas. The Company's Dallas office will meet the Company's needs for the
foreseeable future.
ITEM 2: DESCRIPTION OF PROPERTIES
- ------ -------------------------
See Item 1 for a discussion of properties owned or leased by the Company.
ITEM 3: LEGAL PROCEEDINGS
- ------ ----------------
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 1998.
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.
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. 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.
In 1995 the plaintiff and the Company each filed cross motions for summary
judgment on the issue of whether the indebtedness was discharged. On December 3,
1997 the Georgia Court of Appeals granted Greenbriar's motion for summary
judgment where they determined that the indebtedness was not discharged. In
February 1998 the Georgia Supreme Court refused to hear the matter. The amount
of indebtedness, including accrued interest, is approximately $ 11 million. The
Company's basis for financial statement purposes in the indebtedness, net of
related deferred gains, is approximately $ 4.2 million.
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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 L. 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.
In October 1997 the court granted a motion for summary judgment which was filed
on behalf of all the defendants in the case. HCPI has agreed not to file an
appeal and reimburse the Company for a majority of their legal fees.
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.
In October 1997 a directed verdict was entered in favor of Wedgwood and all
other defendants. Wedgwood and another defendant were awarded reimbursement of
their legal fees. The Company has been notified that Benetic has appealed the
court's ruling.
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 of the Company.
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- ------ ---------------------------------------------------
No matters were submitted to a vote of security holders during the fourth
quarter of the year ended December 31, 1997.
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>
1997 1996
------------------------ ------------------------
High Low High Low
---- --- ---- ---
<S> <C>
First Quarter $19 1/4 $13 7/8 $16 3/4 $9 7/16
Second Quarter 23 18 1/8 17 5/8 14
Third Quarter 23 1/4 19 1/2 17 3/8 15 5/8
Fourth Quarter 21 17 5/8 16 12 3/8
</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 financing and other arrangements.
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No dividends can be paid on the Company's common stock if dividends are in
arrears on the Company's preferred stock. All dividend payments on preferred
stock are current.
The closing price on the Company's common stock on March 31, 1998, was $14.06
per share. As of March 31, 1998, there were 3,823 holders of record of the
Company's common stock.
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, American Care in December 1996, Windsor in October 1997
and Villa in December 1997. The acquisitions of Wedgwood, Windsor and Villa have
been accounted for as purchases, and the historical financial statements of the
Company do not include any revenues or earnings (losses) attributed to those
operations 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, 1997, the Company had working capital of $3,037,000.
In December 1997 the Company sold Series F and Series G preferred shares for
$22,000,000 less selling and offering costs of $453,000. Payment was received in
January 1998.
The Series F voting preferred stock has a liquidation value of $10.00 per share
and each share is convertible into 5.7 shares of common stock. The holder has
the option to convert beginning in January 2000 and must convert by January
2001. Cumulative dividends are payable in cash at a rate of 6%.
The Series G preferred stock has a liquidation value of $10.00 per share and
each share is convertible into 5.7 shares of common stock. The holder has the
option to convert beginning in January 2000 and must convert by January 2001.
Cumulative dividends are payable in cash at a rate of 6%.
In connection with the sale, the Company entered into an agreement which
provides that, on the date of conversion, if the value of the Company's common
stock has not increased at the annual rate of at least 14% during the period the
preferred shares are outstanding, the Company is required to make a Cash Payment
(the Cash Payment) to the preferred stockholders equal to the market price
deficiency on the shares received upon conversions.
The 14% guaranteed return will be accredited by a charge to accumulate deficit.
The amount of the Cash Payment that would be required assuming conversion at
each balance sheet date will be transferred from stockholders equity to
temporary equity. At December 31, 1997, no Cash Payment would have been due
assuming conversion took place.
18
<PAGE>
Throughout 1997 and into 1998 the Company has been refinancing certain of its
long term debt. In July 1997 and January 1998 the Company refinanced the debt on
a total of six of its communities resulting in a lower interest rate and
additional working capital of $2,800,000 and $1,935,000 respectively.
As of December 31, 1997, 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 $90 million
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
be the maximum term available for operating lease treatment but not
less than 13 years plus three five-year renewal options. The credit
facility will expire on December 31, 2000. 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.
(ii) 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 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. As of March
31, 1998, the company has used $600,000 of this commitment. 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 1997 as Compared to Fiscal 1996
Revenues and Operating Expenses from Assisted Living Operations. Revenues
increased to $38,979,000 in 1997 as compared to $29,785,000 in 1996. The primary
reasons for the increase were the acquisition of Wedgwood and the continued
growth of Greenbriar. Wedgwood was acquired effective March 31, 1996 and as such
the financial statements for 1996 reflect nine months of operations as compared
to twelve months of operations in 1997. In addition, the Company's total
communities increased from 32 at December 31, 1996 to 52 at December 31, 1997.
Community operating expenses, which consist of assisted living community
expenses, lease expense and depreciation and amortization, were $34,306,000 in
1997 as compared to $25,152,000 in 1996. The primary reasons for these
increases, as discussed above, is the acquisition of Wedgwood and the continued
growth of Greenbriar.
19
<PAGE>
<TABLE>
<CAPTION>
Year Ended, December 31, 1997
(Amounts in thousands)
Stabilized Start-up
Communities Communities Total
----------- ----------- -------
<S> <C> <C>
Assisted Living Community Income $35,926 $3,053 $38,979
Assisted Living Community Operating Expenses 23,197 3,113 26,310
------ ----- ------
Gross Operating Income 12,730 (61) 12,669
Lease Expense 4,285 378 4,663
Community Depreciation & Amortization 2,614 719 3,333
----- --- -----
Income (Loss) from Community Operations $5,830 ($1,157) $4,673
</TABLE>
(1) Stabilized communities are those communities that have been
operating for one year or have achieved stabilized occupancy
of 95% or more.
(2) Start-up communities are those communities that have not been
operating for one year or have not achieved a stabilized
occupancy of 95% or more.
Corporate General and Administrative Expenses. These expenses were $5,652,000 in
1997 as compared to $6,731,000 in 1996. The overall decrease, despite the growth
of the Company, was due to the consolidation of accounting and administrative
functions into the Dallas office. During 1996 Greenbriar, Wedgwood and American
Care were operated as three separate companies. Each company had its own
corporate office, executive officers, corporate staff, accounting department and
other related costs. In the first quarter of 1997 these corporate functions were
centralized in Dallas.
Interest and Dividend Income. Interest and dividend income was $479,000 in 1997
as compared to $771,000 in 1996. The decrease is due to a decrease in cash
available for investment.
Interest Expense. These expenses increased to $6,801,000 in 1997 as compared to
$4,457,000 in 1996. The increase is due to the increase in the number of
communities the Company owned in 1997 as compared to in 1996.
Other income (expenses) (Amounts in thousands)
Year ended December 31,
1997 1996
Write-off of note receivable $(2,000) $ _
Write-off of investment securities (2,100) _
Gain of settlement of litigation 2,409 _
Prepayment penalty on mortgage payable (1,300) _
Other (5) 626
-------- -------
$(2,996) $625
--------- -------
20
<PAGE>
In December 1997 management determined that it was in the best interests of the
Company to exchange its note receivable of $2,000,000 for certain of the
borrower's trade receivables. Due to the uncertainty as to the value of the
trade receivables the Company has fully written off the note and has placed no
value on the trade receivables. Further, the Company has preferred stock of
$2,100,000 in the above borrower. Due to deteriorating financial condition of
the borrower the Company has fully written off it's investment.
When the Company acquired Wedgwood certain representations were made by the
seller. Subsequent to the acquisition two lawsuits were filed against the
Company and the seller. In October 1977 the Company and the seller entered into
an agreement whereby the Company would indemnify the seller for any damages
resulting from the lawsuits and agreed to assume responsibility for all legal
fees associated with the lawsuits. In return the seller agreed to give the
Company 125,000 shares of Greenbriar stock. Subsequent to the agreement both the
defendants were awarded a summary judgment and a directed verdict, including
legal fees, by the respective courts. The Company has recorded a gain on the
transaction of the fair market value of the stock, net of legal fees.
In October the Company agreed to an early payoff on a loan on three of it's
communities. The loan, which was refinanced at a lower rate of interest had a
prepayment penalty.
Discontinued Operations. Earnings from discontinued operations consist of the
real estate operations that are classified for sale. The real estate operations
had net earnings of $153,000 in 1997 and $238,000 in 1996. The decrease in 1997
was a result of the sale of the North Carolina shopping center in April 1997.
The sale resulted in a gain of $323,000, net of income tax, in 1997.
Deferred Taxes. At December 31, 1997, the Company had a deferred tax asset of
$2,632,000. 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 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.
Corporate General and Administrative Expenses. These expenses were $6,731,000 in
1996 as compared to $3,948,000 in 1995. The increase in these costs was
primarily due to the acquisition of Wedgwood and American Care. The increase in
the size of 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.
21
<PAGE>
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.
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.
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.
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.
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 29, 1998, which definitive Proxy
Statement will be filed with the Securities and Exchange Commission on or before
April 30, 1998.
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
- ------- -----------------------
2.1.1 Stock Purchase Agreement between Villa Residential Care Homes,
Inc., William A. Shirley, Jr. and Greenbriar Corporation
("Registrant")(filed as Exhibit 2.1.1 to Registrant's Form 8-K
Current Report on January 13, 1998 and incorporated herein by
this reference).
2.1.2 Exchange Agreement between Villa Residential Care Homes-Corpus
Christi South, L.P. and Greenbriar Corporation ("Registrant")
(filed as Exhibit 2.1.2 to Registrant's Form 8-K Current
Report on January 13, 1998 and incorporated herein by this
reference).
2.1.3 Exchange Agreement between Villa Residential Care
Homes-Granbury, L.P. and Greenbriar Corporation ("Registrant")
(filed as Exhibit 2.1.3 to Registrant's Form 8-K Current
Report on January 13, 1998 and incorporated herein by this
reference).
2.1.4 Exchange Agreement between Villa Residential Care Homes-Oak
Park, L.P. and Greenbriar Corporation ("Registrant") (filed as
Exhibit 2.1.4 to Registrant's Form 8-K Current Report on
January 13, 1998 and incorporated herein by this reference).
2.1.5 Exchange Agreement between Villa Residential Care Homes-Fort
Worth East, L.P. and Greenbriar Corporation ("Registrant")
(filed as Exhibit 2.1.5 to Registrant's Form 8-K Current
Report on January 13, 1998 and incorporated herein by this
reference).
2.1.6 Exchange Agreement between William A. Shirley, Jr., Lucy M.
Brody and C. Kent Harrington and Greenbriar Corporation
("Registrant") (filed as Exhibit 2.1.6 to Registrant's Form
8-K Current Report on January 13, 1998 and incorporated herein
by this reference).
*2.2.1 Stock Purchase Agreement between Lone Star Opportunity Fund,
L.P. and Greenbriar Corporation ("Registrant").
*2.2.2 Certificate of Voting Powers, Designations, Preferences and
Rights of Registrant's Series F Senior Convertible Preferred
Stock dated December 31, 1997.
*2.2.3 Certificate of Voting Powers, Designations, Preferences and
Rights of Registrant's Series G Senior Non-Voting Convertible
Preferred Stock dated December 31, 1997.
*2.2.4 Form of Registration Rights Agreement between Registrant and
Lone Star Opportunity Fund, L.P. as regards 1,400,000 shares
of Registrant's Series F Senior Convertible Preferred Stock
and 800,000 shares of Registrant's Series G Senior Non-Voting
Preferred Stock.
*2.2.5 Agreement between Lone Star Opportunity Fund, L.P. and
Registrant regarding certain minimum values of Registrant's
stock.
*2.2.6 Agreement on Form of Promissory Note between Registrant and
Lone Star Opportunity Fund, L.P.
*2.2.7 Form of Promissory Note agreed to by Registrant and Lone Star
Opportunity Fund, L.P. in Exhibit 2.2.7 of Registrant's Form
10-KSB and filed herewith.
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.
23
<PAGE>
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. 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 tion and Remuda Acquisition Corp.
(filed as Exhibit 4.5.2 to Registrant's Form 10-KSB for the
year ended December 31, 1993).
24
<PAGE>
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).
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.
10.3.2 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 (Nonrecourse) between Gene
S. Bertcher and Registrant securing the Promissory Note
referenced in Exhibit 13.3.2. (Filed as Exhibit 10.3.4 to
25
<PAGE>
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 (Nonrecourse) 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 (Nonrecourse) 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).
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 (Nonrecourse) 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).
26
<PAGE>
10.8.3 Form of Security Agreement - Pledge (Nonrecourse) 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 (Nonrecourse) 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).
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).
10.12 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).
10.20.2 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).
27
<PAGE>
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).
10.22.2 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).
10.22.3 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).
10.22.4 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).
10.22.5 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).
10.22.6 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).
10.22.7 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).
10.22.8 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).
10.22.9 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).
10.23 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).
28
<PAGE>
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.
*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
29
<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 8, 1998 By: /s/ Gene S. Bertcher
----------------------
Gene S. Bertcher
Executive Vice President and
Chief Financial Officer
(Principal Financial and
Accounting Officer)
30
<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 8, 1998 By: /s/ Floyd B. Rhoades
--------------------
Floyd B. Rhoades, President, Chief Executive Officer
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 8, 1998 /s/ James R. Gilley
-------------------
James R. Gilley, Chairman of the Board and Director
April 8, 1998 /s/ Floyd B. Rhoades
---------------------
Floyd B. Rhoades, President, Chief Executive Officer
and Director
April 8, 1998 /s/ Don C. Benton
------------------
Don C. Benton, Director
April 8, 1998 /s/ Paul G. Chrysson
--------------------
Paul G. Chrysson, Director
April 8, 1998 /s/ Matthew G. Gallins
----------------------
Matthew G. Gallins, Director
April 8, 1998 /s/ Michael E. McMurray
-----------------------
Michael E. McMurray, Director
April 8, 1998 /s/ Victor L. Lund
------------------
Victor L. Lund, Director
31
<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, 1997, 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. These financial
statements are the responsibility of the Company's management.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Greenbriar
Corporation and subsidiaries as of December 31, 1997, and the consolidated
results of their operations and their consolidated cash flows for each of the
two years in the period then ended, in conformity with generally accepted
accounting principles.
GRANT THORNTON LLP
Dallas, Texas
March 13, 1998
F-1
<PAGE>
Greenbriar Corporation
CONSOLIDATED BALANCE SHEET
(Amounts in thousands)
December 31,
ASSETS 1997
------------
CURRENT ASSETS
Cash and cash equivalents $ 23
Accounts receivable - trade 1,162
Stock subscription receivable 22,000
Other current assets 1,317
--------
Total current assets 24,502
REAL ESTATE OPERATIONS HELD FOR SALE,
at lower of cost or market 3,097
DEFERRED INCOME TAX BENEFIT 2,632
INVESTMENT IN SECURITIES, AT COST 2,025
MORTGAGE NOTE RECEIVABLE, net of deferred
gain of $3,083 3,617
PROPERTY AND EQUIPMENT, AT COST
Land and improvements 12,114
Buildings and improvements 80,758
Equipment and furnishings 5,898
Construction in progress 4,864
--------
103,634
Less accumulated depreciation 5,486
--------
98,148
DEPOSITS 3,619
GOODWILL AND OTHER INTANGIBLES 12,129
OTHER ASSETS 1,474
--------
$151,243
========
F-2
<PAGE>
Greenbriar Corporation
CONSOLIDATED BALANCE SHEET - CONTINUED
(Amounts in thousands, except per share amounts)
December 31,
LIABILITIES AND STOCKHOLDERS' EQUITY 1997
------------
CURRENT LIABILITIES
Current maturities of long-term debt $13,403
Notes payable - affiliate 1,479
Accounts payable - trade 1,883
Accrued expenses 3,345
Other current liabilities 1,798
------
Total current liabilities 21,908
MORTGAGE NOTES COLLATERALIZED BY
REAL ESTATE HELD FOR SALE 893
LONG-TERM DEBT 54,851
FINANCING OBLIGATIONS 10,815
OTHER LONG-TERM LIABILITIES 259
STOCKHOLDERS' EQUITY
Preferred stock 289
Common stock, $.01 par value; authorized, 20,000 shares;
issued and outstanding, 7,300 73
Additional paid-in capital 83,339
Accumulated deficit (18,669)
--------
65,032
Less stock purchase notes receivable (including $2,250 from
related parties) (2,515)
62,517
--------
$151,243
========
The accompanying notes are an integral part of this statement.
F-3
<PAGE>
<TABLE>
<CAPTION>
Greenbriar Corporation
CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in thousands, except share data)
Year ended
December 31,
---------------------
1997 1996
---- -----
<S> <C>
Revenue
Assisted living operations $ 38,824 $29,673
Other 155 112
---- ----
38,979 29,785
Operating expenses
Assisted living operations 26,310 19,439
Lease expense 4,663 3,712
Facility depreciation and amortization 3,333 2,001
General and administrative 5,652 6,731
Merger and transition expense - 2,836
--- ------
39,958 34,719
Operating loss (979) (4,934)
Other income (expense)
Interest and dividend income 479 771
Interest expense (6,801) (4,457)
Other income (expense), net (2,996) 625
------- ----
(9,318) (3,061)
Loss from continuing operations
before income taxes (10,297) (7,995)
Income tax benefit (4,115) (2,400)
------- -------
Loss from continuing operations (6,182) (5,595)
Discontinued operations
Earnings from operations, net of income taxes 153 238
Gain on disposal, net of income taxes 322 520
---- ----
NET LOSS (5,707) (4,837)
Preferred stock dividend requirement (334) (365)
----- -----
Loss allocable to common stockholders $(6,041) $(5,202)
====== ======
Income (loss) per share
Continuing operations $(.99) $(1.13)
Discontinued operations .07 .14
---- ----
Net loss $(.92) $ (.99)
==== =====
Weighted average number of common shares outstanding 6,582 5,259
</TABLE>
The accompanying notes are an integral part of this statement.
F-4
<PAGE>
<TABLE>
<CAPTION>
Greenbriar Corporation
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(Amounts in thousands)
<S> <C> <C> <C> <C>
Stock
Preferred stock Common stock Additional purchase
----------------- ----------------- paid in Accumulated notes
Shares Amount Shares Amount capital deficit receivable Total
------ ------ ------ ------ --------- --------- ---------- ------
Balances at January 1, 1996 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
Issuance of common stock
under stock option plans - - 28 - 318 - - 318
Issuance of common stock
for acquisitions - - 851 8 12,919 - - 12,927
Issuance of preferred stock 2,200 220 - - 21,327 - - 21,547
Purchase of common stock - - (125) (1) (2,408) - - (2,409)
Payments on stock purchase notes
receivable - - - - - - 58 58
Conversion of preferred stock (14) (1) 75 1 - - - -
Dividends on preferred stock - - - - - (320) - (320)
Net loss - - - - - (5,707) - (5,707)
Other - - - - (49) - - (49)
--- --- --- --- ---- --- --- ----
Balances at December 31, 1997 2,876 $ 289 7,300 $73 $83,339 $(18,669) $(2,515) $62,517
===== ==== ===== == ====== ======= ====== ======
</TABLE>
The accompanying notes are an integral part of this statement.
F-5
<PAGE>
<TABLE>
<CAPTION>
Greenbriar Corporation
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
Year ended
December 31,
----------------------
1997 1996
-------- --------
<S> <C> <C>
Cash flows from operating activities
Net loss $ (5,707) $ (4,837)
Adjustments to reconcile net loss to net
cash used in operating activities
Discontinued operations (475) (758)
Depreciation and amortization 3,333 2,001
Gain on settlement of litigation (2,409) -
Loss on sales of assets - 19
Write-off of note receivable 2,000 -
Write-off of investment securities 2,100 -
Stock dividends on investment securities (39) (133)
Capital contributions as payment for services - 600
Deferred income taxes (4,115) (1,979)
Changes in operating assets and liabilities,
net of effect of acquisition
Accounts receivable (572) 255
Other current and noncurrent assets 1,338 905
Accounts payable and other liabilities (2,007) 2,893
------ ------
Net cash used in operating activities of
continuing operations (6,553) (1,034)
Net cash provided by (used in) operating activities
of discontinued operations 66 (85)
--- -----
Net cash used in operating activities (6,487) (1,119)
</TABLE>
The accompanying notes are an integral part of these statements.
F-6
<PAGE>
<TABLE>
<CAPTION>
Greenbriar Corporation
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
(Amounts in thousands)
<S> <C> <C> <C>
Year ended
December 31,
------------------
1997 1996
---- ----
Cash flows from investing activities
Collections of notes receivable $ 126 $ 123
Purchase of property and equipment (3,970) (16,534)
Additions to notes receivable - (23)
Investing activities of discontinued operations 2,941 -
Net cash received in acquisition of business - 739
------ ------
Net cash provided by (used in)
investing activities (903) (15,695)
Cash flows from financing activities
Proceeds from borrowings 4,705 15,461
Payments on debt (17) (1,426)
Dividends on preferred stock (320) (315)
Purchase of common and preferred stock - (123)
Deposits on financing obligations - (1,622)
Exercise of stock options 318 -
Financing activities of discontinued operations (8) -
Other (49) -
------ ------
Net cash provided by (used in)
financing activities 4,629 11,975
------ ------
NET DECREASE IN CASH
AND CASH EQUIVALENTS (2,761) (4,839)
Cash and cash equivalents at beginning of year 2,784 7,623
------- -------
Cash and cash equivalents at end of year $ 23 $ 2,784
======= =======
</TABLE>
The accompanying notes are an integral part of these statements.
F-7
<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 communities located throughout the United States, which
provide housing, hospitality and personal and healthcare services to elderly
individuals. At December 31, 1997, the Company had 53 communities in
operation in 12 states with a total capacity for 4,089 residents.
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 community 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 communities are reimbursed under various state
assistance plans.
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-8
<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 has elected to follow Accounting Principles Board Opinion No.
25, Accounting for Stock Issued to Employees (APB 25) and related
interpretations in accounting for its employee stock options. Under APB 25,
because the exercise price of employee stock options equals the market price
of the underlying stock on the date of grant, no compensation expense is
recorded. The Company has adopted the disclosure-only provisions of
Statement of Financial Accounting Standards No.
123, "Accounting for Stock-Based Compensation" (SFAS 123).
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.
Earnings (Loss) Per Common Share
--------------------------------
In the fourth quarter of 1997, the Company adopted the provisions of
Statement of Financial Accounting Standards No. 128, "Earnings Per Share"
(SFAS 128). In accordance with SFAS 128, the Company computes basic earnings
(loss) per common share based on the weighted average number of common
shares outstanding. Diluted earnings per share is computed based on the
weighted average number of common shares outstanding plus the number of
additional common shares that would have been outstanding if dilutive
potential common shares had been issued. In 1997 and 1996 all potential
common shares were anti-dilutive. Accordingly, the adoption of SFAS 128 had
no effect on 1997 and 1996 loss per share amounts.
F-9
<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 15 assisted living and Alzheimer's communities.
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 Wedgewood have been reflected in the consolidated financial statements of
the Company since April 1, 1996.
Windsor Group LLC and Affiliates
--------------------------------
In October 1997, the Company acquired all of the assets and liabilities of
Windsor Group LLC (Windsor) and all of the common stock of three companies
who were affiliates of Windsor. The business of these companies consists of
the operation of three assisted living communities in South Carolina.
Consideration given was 130,000 shares of the Company's common stock valued
at approximately $2,533,000. Additionally, upon completion of a community
under construction, the Company will issue 28,531 additional shares of its
common stock. Assets acquired were valued at approximately $12,100,000 and
liabilities assumed were approximately $9,567,000. The operations of Windsor
and affiliates have been reflected in the consolidated financial statements
of the Company since October 1, 1997.
Villa Residential Care Homes, Inc.
----------------------------------
On December 31, 1997, the Company acquired all of the outstanding common
stock of Villa Residential Care Homes, Inc. (Villa). Additionally, through a
newly created partnership, the Company acquired lease rights and assumed
certain liabilities of a number of entities affiliated with Villa. The
business of these entities consists of the operation of 12 assisted-living
communities throughout Texas. Consideration given was 184,476 shares of the
Company's common stock and 10,464,321 units of the partnership valued at
approximately $10,394,000. The operating partnership units are convertible
after a one-year holding period into 536,990 shares of the Company's common
stock. For accounting purposes, the common shares into which the operating
units will be converted have been included in outstanding common shares.
Assets acquired, which consist primarily of lease rights, were valued at
$11,100,000 and liabilities assumed were approximately $706,000.
F10
<PAGE>
Greenbriar Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED
NOTE B - ACQUISITIONS - Continued
The following table presents pro forma unaudited consolidated results of
operations for the years ended December 31, 1997 and 1996, assuming that the
acquisitions had taken place at the beginning of the periods presented. The
pro forma results are not necessarily indicative of the results of
operations that would have occurred had the acquisitions been made at the
beginning of the periods presented, or of future results of operations of
the combined companies (in thousands, except per share data):
Year ended
December 31,
-------------------
1997 1996
------- -------
Revenue $49,701 $42,248
Loss from continuing operations $(6,801) $(6,544)
Net loss $(6,326) $(5,786)
Preferred stock dividend requirement $ (334) $ (445)
Loss from continuing operations allocable
to common stockholders $(7,135) $(6,989)
Loss allocable to common stockholders $(6,660) $(6,231)
Loss per share
Continuing operations $(.96) $(1.14)
Net loss $(.90) $(1.02)
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). At the date of acquisition, American
Care, owned or leased 15 assisted living communities 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 Wedgwood of $1,079,000. These
amounts have been included in the statement of operations as merger and
transition expense.
F-11
<PAGE>
Greenbriar Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-CONTINUTED
NOTE B - ACQUISITIONS - Continued
Separate results of operations for the period prior to the merger with
American Care are as follows (in thousands):
Year ended
December 31, 1996
-----------------
Revenue
Greenbriar $13,523
American Care 16,262
Combined $29,785
Earnings (loss) from continuing operations
Greenbriar $(3,483)
American Care (2,112)
Combined $(5,595)
Net earnings (loss)
Greenbriar $(2,725)
American Care (2,112)
Combined $(4,837)
=======
NOTE C - DISCONTINUED OPERATIONS
In 1995, management decided to sell the mobility products segment. The
segment was sold in February 1996 for 8% preferred stock, which is not
marketable, and notes valued at approximately $4,300,000, based upon fair
value as determined by the Board of Directors. A gain of approximately
$788,000, less applicable income taxes of $268,000 was recorded in 1996.
In 1996, the Company entered into negotiations to sell its remaining
non-assisted living real estate assets. Accordingly, the Company's
non-assisted living real estate operations have been reflected as
discontinued operations. Management expects that the proceeds from the sales
will be at least equal to the carrying value of the real estate assets.
In 1997, the Company sold one of its real estate assets for cash
consideration and recorded a gain of $491,000, less applicable income taxes
of $169,000.
The operations of the real estate segment have been presented in the
accompanying financial statements as discontinued operations.
F-12
<PAGE>
Greenbriar Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-CONTINUTED
NOTE C - DISCONTINUED OPERATIONS - Continued
Summarized operating results of these segments are as follows (in
thousands):
<TABLE>
Year ended
December 31,
--------------------
1997 1996
---- ----
<S> <C> <C>
Revenues $702 $864
=== ===
Earnings before income taxes $235 $361
Income tax expense 82 123
--- ---
Net earnings $153 $238
=== ===
NOTE D - CASH FLOW INFORMATION
Supplemental information on cash flows and noncash investing and financing
transactions is as follows (in thousands):
Year ended
December 31,
--------------------
1997 1996
------- -------
Supplemental cash flow information
Interest paid $ 6,981 $ 4,460
Income taxes paid 23 95
Supplemental data on noncash investing and financing activities
Stock dividend paid on preferred shares - 72
Preferred stock subscribed 22,000 -
Purchase of common stock in exchange for assumption of liabilities 2,409 -
Sale of subsidiary
Securities and note received $ - $ (4,300)
Assets sold - 3,780
Gain on sale - 520
------- --------
Net cash effect of sale of subsidiary $ - $ -
======= ========
Business acquired
Fair value of assets acquired $ 23,200 $ 59,890
Cash received - 739
Common stock issued (12,927) (16,202)
------- -------
Liabilities assumed $10,273 $ 44,427
====== =======
</TABLE>
F-13
<PAGE>
Greenbriar Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED
NOTE E - DEBT
Long-term debt is comprised of the following (in thousands):
<TABLE>
<S> <C>
December 31,
1997
Notes payable to financial institutions maturing through 2015; fixed and ------------
variable interest rates ranging from 7.5% to 11.75% ; collateralized
by, property, fixtures, equipment and the assignment of rents $30,090
Notes payable to individuals and companies maturing through 2022;
variable and fixed interest rates ranging from 7% to 12%
collateralized by real property, personal property, fixtures,
equipment and the assignment
of rents 9,544
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, 1997; collateralized by personal
property, land, fixtures and rents 7,495
Notes payable to related parties maturing in 2001; interest rates ranging
from 9.25% to 12%. 897
Notes payable to financial institution maturing in 1997 through 2000;
interest at prime plus .50% to 1.25%; collateralized by property
and equipment 8,023
Mortgage note payable to a financial institution maturing in 2007;
interest at 11.35%; collateralized by property and equipment 11,413
Other 792
68,254
Less: current maturities 13,403
------
$54,851
======
</TABLE>
F-14
<PAGE>
Greenbriar Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED
NOTE E - DEBT - Continued
Aggregate annual principal maturities of long-term debt at December 31,
1997 are as follows (in thousands):
1998 $13,403
1999 4,467
2000 1,364
2001 3,324
Thereafter 9,217
36,479
------
$68,254
=======
Certain of the loan agreements contain various restrictive covenants, which
require, among others things, the maintenance of certain financial ratios,
as defined.
NOTE F - FINANCING OBLIGATIONS
The Company operates two communities that are financed through
sale-leaseback obligations. At the end of the tenth year of the fifteen-year
leases, the Company has options to repurchase the communities for the
greater of the sales prices or their current replacement costs less
depreciation plus land at current fair market values. Accordingly, these
transactions have been accounted for as financings, and the Company has
recorded the proceeds from the sales as financing obligations, classified
the lease payments as interest expense and continues to carry the
communities on its books and record depreciation. Payments under the lease
agreements are $1,167 for each of the years 1998 through 2001.
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, 1997 are as follows (in
thousands):
1998 $ 10,601
1999 10,915
2000 10,343
2001 9,912
Thereafter 10,073
69,376
--------
$121,220
========
Lease expense in 1997 and 1996 was $4,663,000 and $3,712,000, respectively.
Certain leases contain rent escalation clauses which are based upon future
events or changes in indices.
F-15
<PAGE>
Greenbriar Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED
NOTE H - INCOME TAXES
At December 31, 1997, the Company had net operating loss carryforwards of
approximately $22,000,000 which expire between 1999 and 2012. 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):
Year ended
December 31,
-----------------
1997 1996
---- ----
Current $ - $ 23
Deferred (4,115) (2,423)
------ ------
$(4,115) $(2,400)
======= ======
Deferred tax assets, liabilities and associated valuation allowances were
comprised of the following (in thousands):
December 31,
1997
------------
Deferred tax assets:
Net operating loss carryforwards $ 7,501
Note receivable 680
Investment in securities 651
Alternative minimum tax credit carryforwards 207
Charitable contribution carryforwards 438
Accounts receivable 165
Accrued expenses 178
Financing obligations 1,802
Other 281
----
Total deferred tax assets 11,903
Deferred tax liabilities:
Property and equipment (9,271)
Net deferred tax asset $ 2,632
======
F-16
<PAGE>
Greenbriar Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED
NOTE H - INCOME TAXES - Continued
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.
Following is a reconciliation of income tax expense from continuing
operations with the amount of tax computed at the federal statutory rate of
34% (in thousands):
<TABLE>
Year ended
December 31,
---------------------
1997 1996
------- -------
<S> <C> <C> <C>
Tax benefit at the statutory rate $(3,501) $(2,718)
Change in deferred tax asset valuation allowance, exclusive
of additions for business purchased in 1996 (418) 418
Other (196) (100)
----- -----
Tax benefit $(4,115) $(2,400)
====== ======
Changes 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
Preferred Stock
Preferred stock consists of the following (amounts in thousands, except per
share amounts):
December 31,
1997
--------------
Series B cumulative convertible preferred stock, $.10 par value; liquidation
value of $100; authorized, 100 shares; issued and outstanding, 1 share $ 1
Series D cumulative convertible preferred stock, $.10 par value; liquidation
value of $3,375; authorized, issued ad outstanding, 675 shares 68
Series F voting cumulative convertible preferred stock, $.10 par value; liquidation
value of $14,000; authorized, issued and outstanding, 1,400 shares 140
Series G cumulative convertible preferred stock, $.10 par value; liquidation
value of $8,000; authorized, issued and outstanding, 800 shares 80
---
$289
====
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. Dividends at a
rate of 6% are payable in cash or preferred shares at the option of the
Company.
</TABLE>
F-17
<PAGE>
Greenbriar Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED
NOTE I - STOCKHOLDERS' EQUITY - Continued
The Series D preferred stock has a liquidation value of $5 per share and is
convertible into common stock at $10.00 per share. Dividends are payable in
cash at a rate of 9.5%.
The Series F voting preferred stock has a liquidation value of $10.00 per
share and each share is convertible into .57 shares of common stock. The
Series F shareholders have the rights, as a class, to elect one member of
the Company's board of directors and to approve or reject certain
transactions, including any mergers or spin-offs involving the Company. The
holder has the option to convert beginning in January 2000 and must convert
by January 2001. Dividends are payable in cash at a rate of 6%.
The Series G preferred stock has a liquidation value of $10.00 per share and
each share is convertible into .57 shares of common stock. The holder has
the option to convert beginning in January 2000 and must convert by January
2001. Dividends are payable in cash at a rate of 6%.
The Series F and Series G preferred shares were sold in December 1997 for
$22,000,000, less selling and offering costs of $453,000. Payment was
received in January 1998. In connection with the sale, the Company entered
into an agreement which provides that, on the date of conversion, if the
value of the Company's common stock has not increased at an annual rate of
at least 14% during the period the preferred shares are outstanding, the
Company is required to make a Cash Payment (the Cash Payment) to the
preferred stockholders equal to the market price deficiency on the shares
received upon conversion.
The 14% guaranteed return will be accreted by a charge to accumulated
deficit. The amount of the Cash Payment that would be required assuming
conversion at each balance sheet date will be transferred from stockholders'
equity to temporary equity. At December 31, 1997, no Cash Payment would have
been due assuming conversion took place.
Stock Options
-------------
In 1993, the Company established a long-term incentive plan (the 1993 Plan)
for the benefit of certain key employees. Under the 1993 Plan, up to 217,500
shares of the Company's common stock are reserved for issuance. Options
granted to employees under the 1993 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 1997, the Company adopted the 1997 Stock Option Plan,
under which up to 500,000 shares of the Company's common stock are reserve
for issuance.
In 1996 and 1997, the Company granted to the Chairman of the Board options,
not covered by either plan, for 200,000 shares and 400,000 shares of common
stock, respectively, which are exercisable immediately and expire in 2006
through 2007. Additionally, in 1997, the Company granted to the Chief
Executive Officer options, not covered by either plan, for 200,000 shares of
common stock, which are exercisable immediately and expire in 2007.
F-18
<PAGE>
Greenbriar Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED
NOTE I - STOCKHOLDERS' EQUITY - Continued
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 after
January 1, 1995. The pro forma amounts are not necessarily 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 loss and net loss per share amounts are set forth
below (in thousands, except per share data):
<TABLE>
<S> <C> <C> <C>
1997 1996
------ -----
Net loss allocable to common stockholders (amounts in thousands)
As reported $(5,707) $(4,837)
Pro forma $(8,696) $(8,153)
Net loss per share
As reported $ (.92) $ (.99)
Pro forma $ (1.32) $ (1.55)
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 37 percent for 1997 and 35 percent for
1996; risk-free interest rates of 5.9 percent for 1997 and 7.0 percent for
1996; no dividend yield; and weighted average expected lives of 7.3 years.
Additional information with respect to options outstanding at December 31,
1997, and changes for the two years then ended was as follows:
1997
-------------------------
Weighted
average
exercise
Shares price
------- --------
Outstanding at beginning of year 587,500 $12.20
Granted 440,000 17.52
Exercised (27,500) 11.59
-------- -----
Outstanding at end of year 1,000,000 $14.20
========= =====
Options exercisable at December 31, 1997 992,000 $14.23
======== =====
Weighted average fair value per share of options granted during 1997 was
$9.14.
</TABLE>
F-19
<PAGE>
<TABLE>
<CAPTION>
Greenbriar Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED
<S> <C> <C> <C> <C>
NOTE I - STOCKHOLDERS' EQUITY - Continued
1996
--------------------------
Weighted
average
exercise
Shares price
-------- --------
Outstanding at beginning of year 155,500 $12.83
Granted 432,000 11.98
------- ------
Outstanding at end of year 587,500 $12.20
======= =====
Weighted average fair value per share of options granted during 1996 was
$7.72.
Information about stock options outstanding at December 31, 1997 is
summarized as follows:
Options outstanding
Weighted average
Number remaining Weighted average
Range of exercise prices outstanding contractual life exercise price
------------------------ ----------- -------------------- -----------------
$10.00 to $15.00 558,000 6.6 11.58
$15.00 to $17.75 442,000 9.5 $17.51
--------
1,000,000
=========
Options exercisable
Number Weighted average
Range of exercise prices exercisable exercise price
------------------------ ----------- ----------------
$10.00 to $15.00 550,000 11.58
$15.00 to $17.75 442,000 $17.51
-------
992 ,000
========
</TABLE>
F-20
<PAGE>
Greenbriar Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED
NOTE J - OTHER INCOME (EXPENSE)
Other income (expenses) consists of the following: (amounts in thousands)
<TABLE>
Year ended December 31,
----------------------
1997 1996
---- ----
<S> <C>
Write-off of note receivable $(2,000) $ -
Write-off of investment securities (2,100) -
Gain on settlement of litigation 2,409 -
Prepayment penalty on mortgage note payable (1,300) -
Other (5) 625
------- ---
$(2,996) $625
====== ===
</TABLE>
In December 1997, management determined that it was in the best interests of
the Company to exchange its note receivable of $2,000,000 for certain of the
borrower's trade receivables. Due to the uncertainty as to the value of the
trade receivables the Company has fully written off the note and has placed
no value on the trade receivables. Further, the Company has preferred stock
of $2,300,000 in the above borrower. Due to deteriorating financial
condition of the borrower the Company has fully written off its investment.
When the Company acquired Wedgwood certain representations were made by the
seller. Subsequent to the acquisition two lawsuits were filed against the
Company and the seller. In October 1997, the Company and the seller entered
into an agreement whereby the Company would indemnify the seller for any
damages resulting from the lawsuits and agreed to assume responsibility for
all legal fees associated with the lawsuits. In return, the seller agreed to
give the Company 125,000 shares of Greenbriar stock. Subsequent to the
agreement both the defendants were awarded a summary judgment and a directed
verdict, including legal fees, by the respective courts. The Company has
recorded a gain on the transaction of the fair market value of the stock,
net of legal fees.
In October, the Company agreed to an early payoff on a loan on three of
its communities. The loan, which was refinanced at a lower rate of interest
had a prepayment penalty.
NOTE K - CONTINGENCIES
The Company is 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, cash flows or financial position of the Company.
F-21
<PAGE>
Greenbriar Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED
NOTE L - 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, 1997:
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 a private company. Fair value, based on
estimated future discounted cash flows, approximates carrying value.
Mortgage note receivable - The mortgage note receivable consists of a
$6,700,000 note with a stated interest rate of 14% due in 2021 from Southern
Care Corp. Although the note is in default due to non-payment of interest,
management believes the value of the underlying collateral is adequate to
recover the carrying value.
Long-term debt - The fair value of the Company's long-term debt is estimated
based on market rates for the same or similar issues. The carrying value of
long-term debt approximates its fair value.
Accounts receivable and payable and note payable - affiliate - 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):
December 31, 1997
-------------------
Carrying Fair
amount value
Financial assets
Cash and cash equivalents $ 23 $ 23
Accounts receivable - trade 1,162 1,162
Investment in securities 2,025 2,025
Mortgages receivable 6,683 6,683
Financial liabilities
Accounts payable - trade (1,883) (1,883)
Notes payable - affiliate (1,479) (1,479)
Long-term debt collateralized by properties
under contract of sale (893) (893)
Long-term debt (68,254) (68,254)
F-22
<PAGE>
Greenbriar Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED
NOTE L - NOTES RECEIVABLE
Stock Purchase Notes
<TABLE>
December 31,
1997
--------------
(In thousands)
<S> <C>
Related party
Note from James R. Gilley, chief executive officer, principal
and interest at 5-1/2%, due November 2003 $2,250
Other 265
$2,515
=====
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
December 31,
1996
-------------
(In thousands)
Mortgage notes receivable consist of amounts due from a corporation
and bear interest at 14% per annum, payable annually. The notes
are due in 2021 and are collateralized by a third lien on real property $6,700
=====
</TABLE>
In connection with certain litigation in which the Company is defendant, the
maker of the aforementioned 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 1997
and 1996. No interest income was recognized on this note in 1997 or 1996.
Based on the value of the underlying collateral at December 31, 1997, no
impairment reserve is required for this note.
NOTE M - FOURTH QUARTER ADJUSTMENTS
During the fourth quarter of 1997, the Company wrote off a note receivable
and an investment in securities in the aggregate amount of $4,100,000. See
Note J.
During the fourth quarter of 1996, the Company wrote off certain offering
costs of approximately $670,000 and notes receivable of approximately
$400,000. Additionally, the Company made other adjustments reducing
earnings by approximately $200,000.
F-23
<PAGE>
EXHIBIT 2.2.1
<PAGE>
STOCK PURCHASE AGREEMENT
between
GREENBRIAR CORPORATION
and
LONE STAR OPPORTUNITY FUND, L.P.
Dated as of December 31, 1997
1
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
<S> <C> <C>
Section 1. Definitions.....................................................................1
Section 2. Purchase and Sale of Securities.................................................9
2.1. Purchase, Sale and Issuance of Preferred Stock and Conversion
Shares..........................................................................9
2.2. The Closing....................................................................10
2.3. Expenses.......................................................................10
Section 3. Representations and Warranties of Greenbriar...................................11
3.1. Due Organization and Authority.................................................11
3.2. Validity of Sale, etc..........................................................11
3.3. Exchange Act Filings...........................................................13
3.4. Tribunal Consents..............................................................13
3.5. Litigation.....................................................................14
3.6. No Conflicts...................................................................14
3.7. No Material Misstatements......................................................14
3.8. Subsidiaries...................................................................14
3.9. Minute Books...................................................................15
3.10. Voting Agreements, Stockholders' Agreements, etc...............................15
3.11. Material Adverse Effect........................................................15
3.12. Private Offering...............................................................15
3.13. Laws...........................................................................15
3.14. Investment Company Act.........................................................16
3.15. Affiliate Transactions.........................................................16
3.16. Environmental Compliance.......................................................16
3.17. Taxes..........................................................................16
3.18. Insurance......................................................................17
3.19. Labor Issues...................................................................17
3.20. Benefit Plans..................................................................17
3.21. Financial Statements...........................................................18
3.22. Accounting Matters.............................................................18
3.23. Licenses.......................................................................18
3.24. No Stabilization...............................................................18
3.25. Title to Property..............................................................18
3.26. Stock Exchange.................................................................19
3.27. Foreign Compliance.............................................................19
3.28. Nevada Law Exemptions..........................................................19
Section 4. Representations and Warranties of Purchaser....................................19
4.1. Due Organization and Authorization.............................................19
4.2. Purchase for Purchaser's Account...............................................20
4.3. Compliance.....................................................................20
- i -
<PAGE>
Section 5. Pre-Closing Covenants..........................................................20
5.1. Access and Investigation.......................................................20
5.2. Operation of the Businesses of Greenbriar......................................20
5.3. Restrictions on Certain Actions................................................20
5.4. Required Approvals.............................................................21
5.5. Notification...................................................................21
5.6. No Negotiation.................................................................21
5.7. Public Disclosure..............................................................21
5.8. Efforts........................................................................22
Section 6. Covenants of Greenbriar........................................................22
6.1. Use of Proceeds................................................................22
6.2. Sale of Greenbriar.............................................................22
6.3. Rights Relating to Board of Directors..........................................22
6.4. Taxes..........................................................................22
6.5. Delivery Expenses..............................................................23
6.6. Replacement of Instruments.....................................................23
6.7. Rule 144.......................................................................23
6.8. Financial Statements, Reports and Documents....................................23
6.9. Inspection of Property.........................................................25
6.10. Conduct of Business............................................................25
6.11. Insurance......................................................................25
6.12. Maintenance of Property........................................................25
6.13. Books and Records..............................................................25
6.14. Notices........................................................................25
6.15. Authorizations and Approvals...................................................26
6.16. Payment of Obligations.........................................................26
6.17. Employee Plans.................................................................26
6.18. Environmental Matters..........................................................27
6.19. Distributions..................................................................27
6.20. Transactions with Affiliates...................................................28
6.21. Loans, Advances and Investments................................................28
6.22. Issuance of Shares.............................................................28
6.23. Assignment.....................................................................28
6.24. Accounting Methods.............................................................28
6.25. Government Regulations.........................................................28
6.26. Compliance with Laws and Documents.............................................29
6.27. Maintenance of Stock Listing...................................................29
6.28. Total Liabilities to Equity Ratio..............................................29
6.29. Total Long Term Debt to Equity Ratio...........................................29
6.30. Dividend Coverage Ratio........................................................29
6.31. Total Long Term Debt to Book Capitalization....................................29
6.32. Total Debt to Adjusted Book Capitalization.....................................29
6.33. Total Debt and Capitalized Operating Lease Expense Obligations
to Adjusted Book Capitalization and Capitalized Operating Lease
Expense Obligations............................................................29
6.34. Refinancing Existing Property Debt.............................................30
6.35. Total Net Property Debt to Real Property Book Value............................30
6.36. HSR Filings....................................................................30
- ii -
<PAGE>
Section 7. Conditions to Closing..........................................................30
7.1. Conditions to Obligations of Purchaser.........................................30
7.2. Conditions to Obligations of Greenbriar........................................33
Section 8. Post-Conversion Rights.........................................................33
8.1. Board Representation on Greenbriar.............................................33
Section 9. Miscellaneous..................................................................34
9.1. Notices........................................................................34
9.2. Termination....................................................................34
9.3. Indemnification................................................................35
9.4. Restrictive Legend.............................................................37
9.5. Assignment, Successors and Assigns.............................................37
9.6. Amendment and Waiver, etc......................................................37
9.7. Duplicate Originals............................................................37
9.8. Severability...................................................................37
9.9. Governing Law..................................................................38
9.10. Specific Performance...........................................................38
9.11. Entire Agreement...............................................................38
9.12. Headings Descriptive...........................................................38
9.13. Finder's Fees..................................................................38
9.14. Exculpation Among Purchasers...................................................38
9.15. Arbitration....................................................................39
</TABLE>
- iii -
<PAGE>
TABLE OF EXHIBITS AND SCHEDULES
Exhibit A-1 - Series F Certificate of Designation
Exhibit A-2 - Series G Certificate of Designation
Exhibit B - Registration Rights Agreement
Exhibit C - [INTENTIONALLY DELETED]
Exhibit D - Agreement
Exhibit E - Legal Opinions
Schedule A - List of Affiliates
Schedule B - Existing Property Group
Schedule C - Permitted Liens
Schedule 3.2(a) - Outstanding Options and Warrants of Greenbriar
Schedule 3.2(f) - Holders of Registration Rights of Greenbriar
Schedule 3.5 - Litigation of Greenbriar
Schedule 3.6 - Conflicts of Greenbriar
Schedule 3.8 - Ownership of Subsidiaries of Greenbriar
Schedule 3.15 - Affiliated Transactions of Greenbriar
Schedule 3.17 - Taxes of Greenbriar
Schedule 3.20 - Benefit Plans of Greenbriar
Schedule 3.25 - Title to Property of Greenbriar
Schedule 6.21 - Loans by Greenbriar
- iv -
<PAGE>
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT dated as of December 31, 1997 (this
"Agreement"), is entered into by and among Greenbriar Corporation, a Nevada
corporation ("Greenbriar"), and Lone Star Opportunity Fund, L.P., a Delaware
limited partnership ("Purchaser").
Purchaser, hereby subscribes for (i) an aggregate of 1,400,000 shares
of Greenbriar's Series F Senior Convertible Preferred Stock, $0.10 par value per
share (the "Series F Senior Preferred Stock"), at a purchase price of $10.00 per
share, with the rights, restrictions, preferences and privileges as stated in
the Series F Certificate of Designation with respect to the Series F Senior
Preferred Stock attached hereto as Exhibit A-1 (the "Series F Certificate of
Designation") and as provided by law and (ii) an aggregate of 800,000 shares of
Greenbriar's Series G Senior Non-Voting Convertible Preferred Stock, $0.10 par
value per share (the "Series G Senior Non-Voting Preferred Stock"), at a
purchase price of $10.00 per share, with the rights, restrictions, preferences
and privileges as stated in the Certificate of Designation with respect to the
Series G Senior Non-Voting Preferred Stock attached hereto as Exhibit A-2 (the
"Series G Certificate of Designation") and as provided by law. The Preferred
Stock is convertible into shares of Greenbriar's common stock, $0.01 par value
per share (the "Greenbriar Common Stock"), as stated in the Certificate of
Designations.
Accordingly, the parties hereto agree as follows:
Section 1. Definitions
As used herein, the following terms shall have the following meanings:
"1996 Form 10-K" means Greenbriar's Annual Report on Form 10-KSB for
the year ended December 31, 1996.
"Act" means the Securities Act of 1933, as amended, or any similar
federal statute, and the rules and regulations of the Commission thereunder, all
as the same shall be in effect at the relevant time.
"Adjusted Book Capitalization" means Book Capitalization plus Total
Short Term Debt.
"Affiliate" means, with respect to a specified Person, any other Person
directly or indirectly controlling or controlled by or under direct or indirect
common control with such specified Person and, with respect to any fund or
trust, any Person which is a participant in or beneficiary of such fund or
trust. For purposes of this definition, "control" when used with respect to any
specified Person means the power to direct the management and policies of such
Person, whether through the ownership of voting securities, by contract or
otherwise; and the terms "controlling" and "controlled" have meanings
correlative to the foregoing. Notwithstanding the foregoing provisions of this
definition (a) in no event shall any Purchaser (or any Affiliate thereof) be
deemed to be an Affiliate of Greenbriar and (b) the Persons listed on Schedule A
shall be deemed to be Affiliates of Greenbriar for purposes of this Agreement
and the other Transaction Documents.
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"Agreement" has the meaning set forth in the preamble.
"Articles of Incorporation" means the Articles of Incorporation of
Greenbriar, as in effect on the date hereof and as at any time amended or
otherwise modified.
"Asserted Liability" has the meaning set forth in Section 9.3(c).
"Book Capitalization" means Total Long Term Debt plus Total
Stockholders' Equity.
"Bylaws" means the bylaws of Greenbriar, as in effect on the date
hereof and as at any time amended or otherwise modified.
"Capital Lease" means any capital lease or sublease that is required by
GAAP to be capitalized on a balance sheet.
"Capitalized Operating Lease Expense Obligations" means the total
annual operating lease expense that is required to be considered an operating
lease expense on an income statement multiplied by eight (8).
"Certificate of Designations" means the Series F Certificate of
Designation and the Series G Certificate of Designation.
"Closing" has the meaning set forth in Section 2.2(a).
"Code" has the meaning set forth in Section 3.20.
"Commission" means the Securities and Exchange Commission or any other
similar or successor agency of the federal government administering the Act.
"Conversion Shares" means the shares of Greenbriar Common Stock into
which the Preferred Stock is convertible or converted in accordance with the
Certificate of Designations.
"Debt" of any Person means, at any time and without duplication (a) all
obligations required by GAAP to be classified upon that Person's balance sheet
as liabilities, (b) liabilities secured (or for which the holder of the Debt has
an existing Right, contingent or otherwise, to be so secured) by any Lien
existing on property owned or acquired by that Person, (c) obligations that have
been (or under GAAP should be) capitalized for financial reporting purposes, and
(d) all guaranties, endorsements, and other contingent obligations for Debt of
others.
"Distribution" means, with respect to any shares of any capital stock
or other equity securities issued by a Person (a) the retirement, redemption,
purchase, or other acquisition for value of those securities, (b) the
declaration or payment of any dividend on or with respect to those securities,
(c) any loan or advance by that Person to, or other investment by that Person
in, the holder of any of those securities and (d) any other payment by that
Person with respect to those securities.
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"EBITDA" means, for any period, net income before provision for
interest, taxes, depreciation and amortization that would be reflected on a
consolidated income statement of Greenbriar and the Subsidiaries prepared for
such period in accordance with GAAP.
"Environmental Indemnity Agreement" means, with respect to a company,
any agreement (including, without limitation, insurance policies) known to such
company or any of its subsidiaries by which such company, any of its
subsidiaries or a Predecessor is (or may reasonably claim to be) entitled to
receive reimbursement or other payment on account of any Environmental Liability
other than any agreements (a) in the nature of environmental consulting or
engineering agreements for professional services or (b) the terms of which
preclude such company, any of its subsidiaries or a Predecessor from asserting a
claim for reimbursement or other payment on account of any Environmental
Liability.
"Environmental Investigation" means, with respect to a company, any
health, safety, or environmental site assessment, investigation, study, review,
audit, compliance audit, or compliance review conducted at any time or from time
to time upon the order or request of any Tribunal, or at the voluntary
instigation of such company or any of its subsidiaries, concerning any Real
Property or the business operations or activities of such company or any of its
subsidiaries, including, without limitation (a) air, soil, groundwater, or
surface-water sampling and monitoring, (b) repair, cleanup, remediation, or
detoxification, (c) preparation and implementation of any closure, remedial,
spill, emergency, or other plans, and (d) any health, safety, or environmental
compliance audit or review.
"Environmental Law" means any applicable Law that relates to (a) the
condition of air, ground or surface water, soil, or other environmental media,
(b) the environment or natural resources, (c) safety or health, or (d) the
regulation of any contaminants, wastes, and Hazardous Substances, including,
without limitation, CERCLA, OSHA, the Hazardous Materials Transportation Act (49
U.S.C. ss. 1801 et seq.), the Resource Conservation and Recovery Act (42 U.S.C.
ss. 6901 et seq.), the Clean Water Act (33 U.S.C. ss. 1251 et seq.), the Clean
Air Act (42 U.S.C. ss. 7401 et seq.), the Toxic Substances Control Act (15
U.S.C. ss. 2601 et seq.), the Federal Insecticide, Fungicide, and Rodenticide
Act (7 U.S.C. ss. 136 et seq.), the Emergency Planning and Community
Right-to-Know Act (42 U.S.C. ss. 11001 et seq.), the Safe Drinking Water Act (42
U.S.C. ss. 201 and ss. 300f et seq.), the Rivers and Harbors Act (33 U.S.C. ss.
401 et seq.), the Oil Pollution Act (33 U.S.C. ss. 2701 et seq.), analogous
state and local Laws, and any analogous future enacted or adopted Law, or (c) to
the Release or threatened Release of Hazardous Substances.
"Environmental Liability" means any liability, loss, fine, penalty,
charge, lien, damage, cost, or expense of any kind that results directly or
indirectly, in whole or in part (a) from the violation of any Environmental Law,
(b) from the Release or threatened Release of any Hazardous Substance, (c) from
removal, remediation, or other actions in response to the Release or threatened
Release of any Hazardous Substance, (d) from personal injury, death, or property
damage which occurs as a result of any company's use, storage, handling, or the
Release or threatened Release of a Hazardous Substance, or (e) from any
Environmental Investigation performed at, on, or for any Real Property.
"Environmental Permit" means any permit, license, or other
authorization from any Tribunal that is required under any Environmental Law for
the lawful conduct of any business, process, or other activity.
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"Environmental Report" means any written or verbal report memorializing
any Environmental Investigation.
"ERISA" means the Employee Retirement Income Security Act of 1974.
"ERISA Plans" has the meaning set forth in Section 3.20.
"Event of Default" has the meaning set forth in the Certificate of
Designations.
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
or any similar federal statute, and the rules and regulations of the Commission
thereunder, all as the same shall be in effect at the relevant time.
"Existing Property Debt" means, as of any date, mortgage notes payable
collateralized by the Existing Property Group that would be reflected on a
consolidated balance sheet of Greenbriar and the Subsidiaries prepared as of
such date in accordance with GAAP.
"Existing Property Group" means the properties described on Schedule B.
"Funded Debt" means, at any time and without duplication, the sum of
(a) the balance of any obligation for borrowed money that is required by GAAP to
be shown as a liability, plus (b) the total net rentals (net of any interest,
Taxes, or other expenses included in those rentals) payable under Capital
Leases.
"GAAP" means those generally accepted accounting principles and
practices which are used in the United States and recognized as such by the
American Institute of Certified Public Accountants acting through its Accounting
Principles Board or by the Financial Accounting Standards Board or through other
appropriate boards or committees thereof and which are consistently applied for
all periods to present fairly in all material respects the financial position,
results of operations and operating cash flow on a consolidated basis of the
party, except that any accounting principle or practice required to be changed
by the Accounting Principles Board or Financial Accounting Standards Board (or
other appropriate board or committee) in order to continue as a generally
accepted accounting principle or practice may be so changed.
"Gilley Affiliates" means James R. Gilley, Sylvia Gilley, JRG
Investment Company, Inc., April Trust, September Trust, October Trust, November
Trust, December Trust, Nita Dry, Todd Dry, Donna Gilley, Elizabeth Gilley, W.
Michael Gilley, Caroline Gilley, or any other trusts controlled by James R.
Gilley.
"Greenbriar" has the meaning set forth in the preamble.
"Greenbriar Common Stock" has the meaning set forth in the preamble.
"Hazardous Substance" means (a) any substance that is reasonably
expected to require removal, remediation, or other response under any
Environmental Law, (b) any substance that is designated, defined or classified
as a hazardous waste, hazardous material, pollutant, contaminant, explosive,
corrosive, flammable, infectious, carcinogenic, mutagenic, radioactive,
dangerous, or toxic or hazardous substance under any Environmental Law,
including, without
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limitation, any hazardous substance within the meaning of ss.101(14) of CERCLA,
(c) petroleum, oil, gasoline, natural gas, fuel oil, motor oil, waste oil,
diesel fuel, jet fuel, and other petroleum hydrocarbons, (d) asbestos and
asbestos-containing materials in any form, (e) polychlorinated biphenyls, or (f)
urea formaldehyde foam.
"HSR Act" means Section 7A of the Clayton Act (Title II of the
Hart-Scott-Rodino Antitrust Improvements Act of 1976), as amended (including any
successor act), and the rules and regulations promulgated thereunder.
"Indemnitee" and "Indemnitor" have the respective meanings set forth in
Section 9.3(c).
"Laws" means all applicable statutes, laws, treaties, ordinances,
rules, regulations, orders, writs, injunctions, decrees, judgments, opinions,
and interpretations of any Tribunal.
"License" has the meaning set forth in Section 3.23.
"Lien" means any lien, mortgage, security interest, pledge, assignment,
charge, title retention agreement, or encumbrance of any kind and any other
arrangement for a creditor's claim to be satisfied from assets or proceeds prior
to the claims of other creditors or the owners.
"Litigation" means any action by or before any Tribunal.
"Loan Agreement" means that certain Loan Agreement dated October 8,
1997, by and among RHP, Greenbriar and Purchaser.
"Losses" means expenses, damages, deficiencies, liabilities, payments,
fines, penalties, litigation, demands, defenses, judgments, proceedings, costs
(including engineering costs, costs of remediation and related capital
expenditures), obligations, settlement costs, and reasonable attorneys',
accountants' and other professional advisors' fees (including costs of
investigation and preparation) of any kind or nature whatsoever.
"Material Adverse Effect" means any circumstance or event that,
individually or collectively, is reasonably expected to result in any (a)
material impairment of (i) the ability of Greenbriar to perform any of its
payment or other material obligations in connection with the Preferred Stock, or
(ii) the ability of any holder of Preferred Stock to enforce any of those
obligations or any of their respective rights in connection with the Preferred
Stock, (b) material and adverse effect on the assets, liabilities, prospects,
results of operations or financial condition of Greenbriar and the Subsidiaries,
taken as a whole or (c) Event of Default or Potential Default. Circumstances or
events will be deemed to have a material and adverse effect if it or they would
result in losses in excess of $250,000 individually or $500,000 collectively;
provided, however, for purposes of Sections 3.11 and 6.14, circumstances or
events will be deemed to have a material and adverse effect if it or they would
result in losses in excess of $500,000 individually or $1,000,000 collectively.
"Multiemployer Plan" means, with respect to a company, a multiemployer
plan as defined in Sections 3(37) or 4001(a)(3) of ERISA or Section 414(f) of
the Code to which such company or any of its subsidiaries (or any Person that,
for purposes of Title IV of ERISA, is
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a member of such company's controlled group or is under common control with such
company within the meaning of Section 414 of the Code) is making, or has made,
or is accruing, or has accrued, an obligation to make contributions.
"OSHA" means the Occupational Safety and Health Act of 1970, 29 U.S.C.
ss.651 ---- et seq.
"PBGC" means the Pension Benefit Guaranty Corporation.
"Permitted Combination" means (i) a Sale of Greenbriar or (ii) an
acquisition by Greenbriar in the ordinary course of its business as described in
the 1996 Form 10-K.
"Permitted Holders" means James R. Gilley and his Affiliates.
"Permitted Liens" means (a) liens described on Schedule C attached
hereto, (b) pledges or deposits made to secure payment of worker's compensation
insurance (or to participate in any fund in connection with worker's
compensation insurance), unemployment insurance, pensions or social security
programs, (c) liens imposed by mandatory provisions of law such as for
materialmen's, mechanics', warehousemen's and other like liens arising in the
ordinary course of business, securing debt whose payment is not yet due, (d) for
taxes, assessments and governmental charges or liens imposed upon a Person or
upon such Person's income, profits or property, if the same are not due and
payable or if the same are being contested in good faith and as to which
adequate cash reserves have been provided, (e) liens arising from good faith
deposits in connection with lenders, leases, real estate bids or contracts
(other than contracts involving the borrowing of money), pledges or deposits to
secure public or statutory obligations and deposits to secure (or in lieu of)
surety, stay, appeal or customs bonds and deposits to secure the payment of
taxes, assessments, customs, duties or other similar charges, or (f)
encumbrances consisting of zoning restrictions, easements or other restrictions
on the use of Real Property, provided that such items do not impair the use of
such property for the purposes intended, and none of which is violated by
existing or proposed structures or land use.
"Person" means any individual, corporation, partnership, joint venture,
association, joint stock company, trust, unincorporated organization or
Tribunal.
"Potential Default" means any event's occurrence or any circumstance's
existence that would, upon any required notice, time lapse, or both, become an
Event of Default.
"Predecessor" means, with respect to a company, any Person for whose
obligations and liabilities such company or any of its subsidiaries is
reasonably expected to be liable as the result of any merger, de facto merger,
stock purchase, asset purchase or divestiture, combination, joint venture,
investment, reclassification, or other similar business transaction.
"Preferred Stock" means the Series F Senior Preferred Stock and the
Series G Senior Non-Voting Preferred Stock.
"Preferred Stock Representatives" means (i) a Person designated in
writing by a majority of the holders of the Series F Senior Preferred Stock to
represent such holders with respect to certain matters pursuant to this
Agreement and the other Transaction Documents
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and (ii) a Person designated in writing by a majority of the holders of the
Series G Senior Non-Voting Preferred Stock to represent such holders with
respect to certain matters pursuant to this Agreement and the other Transaction
Documents.
"Purchaser" has the meaning set forth in the preamble.
"Purchaser Indemnitees" has the meaning set forth in Section 9.3(b).
"Real Property" means, with respect to a company, any land, buildings,
fixtures, and other improvements to land now or in the future directly or
indirectly owned by such company or any of its subsidiaries, leased to or
otherwise operated by such company or any of its subsidiaries, or subleased by
such company or any of its subsidiaries to any other Person.
"Real Property Book Value" means, as of any date, the value of the Real
Property of Greenbriar that would be reflected on a consolidated balance sheet
of Greenbriar and the Subsidiaries prepared as of such date in accordance with
GAAP.
"Redeemable Preferred Stock" means, as of any date, the redeemable
preferred stock of Greenbriar that would be reflected on a consolidated balance
sheet of Greenbriar and the Subsidiaries prepared as of such date in accordance
with GAAP.
"Registration Rights Agreement" means that certain Registration Rights
Agreement to be entered into at the Closing between Greenbriar and the holders
of the Preferred Stock and attached hereto as Exhibit B.
"Release" means any spilling, leaking, pumping, pouring, emitting,
emptying, discharging, injecting, escaping, leaching, dumping, disposal,
migrating, or other movement into the air, ground or surface water, or soil.
"Responsible Officer" means the chairman, president, chief executive
officer, chief financial officer, chief accounting officer, or treasurer of the
referenced company.
"Rights" means rights, remedies, powers, privileges, and benefits.
"Sale of Greenbriar" means (i) a merger or consolidation in which all
shares of Greenbriar Common Stock are exchanged for cash, securities of another
entity, or a combination of cash and securities of another entity or (ii) a cash
tender offer to purchase all of the outstanding shares of Greenbriar is made to
the stockholders of Greenbriar and accepted by a majority of such stockholders.
"Senior Preferred Dividend" means, for any period, the dividend payable
to the holders of the Series F Senior Preferred Stock for such period plus any
unpaid dividends from prior periods payable to the holders of the Series F
Senior Preferred Stock.
"September 1997 Form 10-Q" means Greenbriar's Quarterly Report on Form
10-QSB for the period ended September 30, 1997.
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"Special Asset Sale Trigger" has the meaning set forth in the
Certificate of Designations.
"Series B Junior Preferred Stock" means Greenbriar's Series B Preferred
Stock, $0.10 par value per share.
"Series D Junior Preferred Stock" means Greenbriar's Series D Preferred
Stock, $0.10 par value per share.
"Series F Certificate of Designation" has the meaning set forth in the
preamble.
"Series F Senior Preferred Stock" has the meaning set forth in the
preamble.
"Series G Certificate of Designation" has the meaning set forth in the
preamble.
"Series G Senior Non-Voting Preferred Stock" has the meaning set forth
in the preamble.
"Spin-off" means the pro rata distribution by Greenbriar of the
outstanding shares of common stock of a Subsidiary to the holders of Greenbriar
Common Stock to effect the spin-off of such Subsidiary.
"Stock Option Plans" means Greenbriar's 1992 Stock Option Plan, as
amended, and Greenbriar's 1997 Stock Option Plan which shall be consistent with
the copies of such plans delivered to purchasers of the Preferred Stock prior to
the date of Closing, as the same may be amended from time to time with the prior
approval of each Preferred Stock Representative.
"Subsidiaries" means all the corporations, partnerships, joint
ventures, business trusts or other legal entities in which Greenbriar, either
directly or indirectly through one or more intermediaries, owns or holds
beneficial or record ownership of at least a majority of the outstanding voting
shares or equity interests. Each of the Subsidiaries is sometimes referred to
herein individually as a "Subsidiary."
"Syndication Program" means a program of selling real estate to public
or private syndications consisting of partnerships, limited liability companies,
or limited liability partnerships where ownership of such entities is offered to
passive investors for cash and/or notes.
"Taxes" mean, for any Person, taxes, assessments, or other governmental
charges or levies imposed upon it, its income, or any of its properties,
franchises or assets.
"Total Debt" means Total Long Term Debt plus Total Short Term Debt.
"Total Liabilities" means the total liabilities of Greenbriar that
would be reflected on a consolidated balance sheet of Greenbriar and the
Subsidiaries prepared as of such date in accordance with GAAP, but shall not
include the Preferred Stock, unless the Preferred Stock becomes Redeemable
Preferred Stock.
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"Total Long Term Debt" means, as of any date, the total long term debt
of Greenbriar that would be reflected on a consolidated balance sheet of
Greenbriar and the Subsidiaries prepared as of such date in accordance with GAAP
plus Redeemable Preferred Stock, if any; provided, however, Total Long Term Debt
shall not include (i) the Preferred Stock, unless the Preferred Stock becomes
Redeemable Preferred Stock or (ii) financing obligations of Greenbriar that
would be reflected on a consolidated balance sheet of Greenbriar and the
Subsidiaries prepared as of such date in accordance with GAAP.
"Total Net Property Debt" means, as of any date, mortgage notes payable
collateralized by Real Property of Greenbriar minus cash that would be reflected
on a consolidated balance sheet of Greenbriar and the Subsidiaries prepared as
of such date in accordance with GAAP.
"Total Short Term Debt" means, as of any date, the total short term
debt of Greenbriar that would be reflected on a consolidated balance sheet of
Greenbriar and the Subsidiaries prepared as of such date in accordance with
GAAP.
"Total Stockholders' Equity" means, as of any date, the total
stockholders' equity of Greenbriar that would be reflected on a consolidated
balance sheet of Greenbriar and the Subsidiaries prepared as of such date in
accordance with GAAP; provided, that in no event shall Total Stockholders'
Equity include the Preferred Stock.
"Transaction Documents" means this Agreement, the Certificate of
Designations, the Registration Rights Agreement, the Agreement dated the date
hereof between Greenbriar and Purchaser and attached hereto as Exhibit D and the
certificate(s) evidencing the Preferred Stock and any other related documents.
"Tribunal" means any (a) local, state, territorial, federal, or foreign
judicial, executive, regulatory, administrative, legislative, or governmental
agency, board, bureau, commission, department, or other instrumentality,
including without limitation, the Commission, (b) private arbitration board or
panel, (c) central bank or (d) any subdivisions of the entities listed in (a),
(b) or (c) above.
"Voting Stock" means the total voting power of all classes of capital
stock then outstanding of a company and normally entitled to vote in elections
of directors of such company.
Section 2. Purchase and Sale of Securities
2.1. Purchase, Sale and Issuance of Preferred Stock and
Conversion Shares. Subject to the terms and conditions herein set forth, at the
Closing Greenbriar shall issue and sell to Purchaser, and Purchaser shall
purchase from Greenbriar, 1,400,000 shares of Series F Senior Preferred Stock
and 800,000 shares of Series G Senior Non-Voting Preferred Stock in exchange for
consideration payable to Greenbriar consisting of cash in the amount of
$22,000,000. Payment of such cash consideration for the Preferred Stock shall be
made on the date hereof by wire or intrabank transfer of immediately available
funds to Greenbriar.
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2.2. The Closing.
(a) The purchase and sale of the Preferred Stock shall take
place at the offices of Purchaser at 10:00 a.m., on or about
January 9, 1998, or at such other time and place as
Greenbriar and Purchaser shall mutually agree (such time and
place are hereby designated as the "Closing").
(b) Greenbriar shall deliver to Purchaser a single
certificate for the Series F Senior Preferred Stock and a
single certificate for the Series G Senior Non-Voting
Preferred Stock, registered in the name of Purchaser, except
that, if Purchaser shall notify Greenbriar in writing prior
to such issuance that it desires certificates for Preferred
Stock to be issued in other denominations or registered in
the name or names of any Person or Persons, then the
certificates for Preferred Stock shall be issued to such
Person or nominee in the denominations and registered in the
name or names specified in such notice so long as such
Person makes the same representations as Purchaser set forth
in Sections 4.2 and 4.3 hereof. Concurrently with the
issuance of the Preferred Stock, Greenbriar shall pay to
Purchaser, in immediately available funds, all expenses
described in Section 2.3 which have been incurred before
Closing and are in excess of the $25,000 deposit and
$256,372.00 paid on October 16, 1997 to Purchaser by
Greenbriar in connection with such expenses.
(c) Purchaser shall have made payment for the Preferred
Stock.
(d) At the Closing, Purchaser and Greenbriar shall execute
and deliver each of the Transaction Documents to which it is
a party.
2.3. Expenses. Whether or not the Preferred Stock is sold to
Purchaser, (a) Greenbriar shall pay all costs and expenses incurred by Purchaser
relating to the negotiation, execution and delivery of this Agreement, the other
Transaction Documents and the issuance of the Preferred Stock (including,
without limitation, (i) fees, office charges and expenses of counsel to
Purchaser, including, but not limited to, Haynes and Boone, LLP, and reasonable
third party, outside accounting and other out-of-pocket costs and (ii) all costs
and expenses related to the transactions between Greenbriar and Lone Star
contemplated before this Agreement); and (b) Greenbriar shall pay all reasonable
costs and expenses incurred by Purchaser (i) relating to any amendments, waivers
or consents under this Agreement and the other Transaction Documents; and (ii)
incident to the enforcement by Purchaser of, or the protection or preservation
of any right or remedy of Purchaser under, this Agreement, the other Transaction
Documents, the Articles of Incorporation, or any other document or agreement
furnished pursuant hereto or thereto or in connection herewith or therewith
(including, without limitation, fees and expenses of counsel). Greenbriar shall
pay all reasonable costs and expenses incurred by Purchaser relating to any and
all filings related to the HSR Act (including, without limitation, fees, office
charges and expenses of counsel to Purchaser). Greenbriar shall pay such costs
and expenses, to the extent then payable, pursuant to the Loan Agreement, on the
date of issuance of the Preferred Stock or from time to time consistent with the
terms of the Loan Agreement within five business days of demand by Purchaser
against presentation, in each such case, of a statement thereof.
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Section 3. Representations and Warranties of Greenbriar
Greenbriar hereby represents and warrants to Purchaser that as of the
date of Greenbriar's execution of this Agreement and as of the date of the
Closing:
3.1. Due Organization and Authority. Greenbriar is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Nevada and has all requisite corporate power and authority (a)
to own and operate its properties and assets and to carry on its business as now
conducted and as set forth in the September 1997 Form 10-Q, (b) to execute and
deliver this Agreement and the other Transaction Documents to which Greenbriar
is a party, (c) to perform the terms hereof and thereof and (d) to consummate
the transactions contemplated hereby and thereby. Greenbriar is duly qualified
and is authorized to transact business and is in good standing as a foreign
corporation in each jurisdiction in which it owns or leases properties or
conducts any business so as to require such qualification, except where failure
to so qualify would not have a Material Adverse Effect. Greenbriar has taken all
action necessary to authorize the execution, delivery and performance of this
Agreement, the other Transaction Documents and the issuance and sale of the
Preferred Stock and the conversion into the Conversion Shares. This Agreement
has been duly authorized, executed and delivered and constitutes a legal, valid
and binding obligation of Greenbriar, enforceable against Greenbriar in
accordance with its terms, except as enforcement may be limited by bankruptcy,
insolvency, reorganization, moratorium or similar laws or equitable principles
relating to or limiting creditors' rights generally. Each of the Transaction
Documents have been duly authorized by Greenbriar and, when duly executed and
delivered by Greenbriar will be a legal, valid and binding obligation of
Greenbriar, enforceable against Greenbriar in accordance with its terms, except
as enforcement may be limited by bankruptcy, insolvency, reorganization,
moratorium or similar laws or equitable principles relating to or limiting
creditors' rights generally.
3.2. Validity of Sale, etc.
(a) On the date of this Agreement, there are 7,396,647
shares of Greenbriar Common Stock, 128 shares of Series B
Preferred Stock, and 675,000 shares of Series D Preferred Stock
issued and outstanding. All of the issued shares of capital stock
of Greenbriar have been duly and validly authorized and issued,
are fully paid and non-assessable and have not been issued in
violation of any preemptive or other similar rights or applicable
securities laws. Upon the issuance of the Preferred Stock under
this Agreement, the total number of shares of capital stock which
Greenbriar has authority to issue will be 110,000,000 shares,
consisting of 100,000,000 shares of Greenbriar Common Stock and
10,000,000 shares of Preferred Stock, of which 1,400,000 shares
will be designated as Series F Senior Preferred Stock, 800,000
shares will be designated as Series G Senior Non-Voting Preferred
Stock, 100,000 shares will be designated as Series B Junior
Preferred Stock and 675,000 shares will be designated as Series D
Junior Preferred Stock, and (ii) there will be 7,396,647 shares
of Greenbriar Common Stock, 1,400,000 shares of Series F Senior
Preferred Stock, 800,000 shares of Series G Senior Non-Voting
Preferred Stock, 128 shares of Series B Junior Preferred Stock,
675,000 shares of Series D Junior Preferred Stock issued and
outstanding. On the date of this Agreement and on the Closing
Date, Greenbriar has and will have no shares of treasury stock.
There are no outstanding subscriptions, rights, warrants,
options, calls, exchangeable or convertible securities,
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commitments of sale or liens related to or entitling any person
to purchase or otherwise to acquire any shares of the capital
stock of, or other ownership interest in, Greenbriar other than
exchange rights, convertible securities, options and warrants to
purchase an aggregate of 1,958,571 shares of Greenbriar Common
Stock as set forth on Schedule 3.2(a) hereto.
(b) The Preferred Stock shall, when issued against payment
therefor in accordance with this Agreement and the other
Transaction Documents, be duly authorized and validly issued,
fully paid and nonassessable and free from all taxes, liens and
charges. The Preferred Stock when issued will not be subject to
any preemptive or other similar rights of any security holder of
Greenbriar or any of the Subsidiaries other than any such rights
granted pursuant to the Agreement and the Transaction Documents.
(c) Greenbriar has reserved and has available such number of
Conversion Shares as shall permit the compliance by Greenbriar
with its obligations to deliver Conversion Shares pursuant to the
Certificate of Designations and the other Transaction Documents.
Greenbriar shall at all times reserve and keep available, solely
for the purpose of the conversion of the Preferred Stock, the
Greenbriar Shares in order to effect the conversion of the
Preferred Stock, subject to a reduction by the number of shares
of Greenbriar Common Stock that have previously been delivered in
any conversion of Preferred Stock; all of such shares of
Greenbriar Common Stock which are issuable to the holders of the
Preferred Stock by way of conversion are, and will be when
issued, duly authorized and validly issued, fully paid and
nonassessable, and free from all taxes, liens and charges. All
Conversion Shares shall, when delivered, in accordance with the
provisions of the Certificate of Designations, be duly authorized
and validly issued, fully paid and nonassessable and free from
all taxes, liens and charges. Greenbriar shall take all such
actions as may be necessary to assure that all Conversion Shares
may be so delivered without violation of any applicable law or
governmental regulation or any requirements of any domestic
securities exchange or national market upon which the Conversion
Shares may be listed. The Conversion Shares shall not be subject
to any preemptive or other similar rights of any security holder
of Greenbriar or any of the Subsidiaries other than any such
rights granted pursuant to the Agreement and the Transaction
Documents.
(d) No order suspending or preventing the sale of the
Preferred Stock or the Conversion Shares in any jurisdiction has
been issued or threatened or, to the knowledge of Greenbriar, is
contemplated.
(e) None of the issuance and sale by Greenbriar of the
Preferred Stock and delivery of the Conversion Shares upon the
conversion of the Preferred Stock, the execution or delivery of
this Agreement and the other Transaction Documents, the
performance by Greenbriar of its obligations hereunder and
thereunder, the consummation of the transactions contemplated
herein and therein and the conduct by Greenbriar and the
Subsidiaries of their businesses conflicts or will conflict with
or results or will result in any breach or violation of any of
the terms or provisions of, or constitutes or will constitute a
default under, or results or will result in the creation or
imposition of any Lien upon any property or assets of Greenbriar
or any of the Subsidiaries pursuant to the terms of: (i) the
certificate of
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incorporation, articles of incorporation or bylaws of Greenbriar
or any of the Subsidiaries, (ii) any license, contract,
indenture, mortgage, installment sale agreement, lease, deed of
trust, voting trust agreement, stockholders' agreement, note,
loan, credit agreement, purchase order, agreement or instrument
evidencing an obligation for borrowed money or other agreement or
instrument to which Greenbriar or any of the Subsidiaries is a
party or by which Greenbriar or any of the Subsidiaries may be
bound or to which the property or assets of Greenbriar or any of
the Subsidiaries is subject or affected or (iii) any Law
applicable to Greenbriar or any of the Subsidiaries of any
Tribunal having jurisdiction over Greenbriar or any of the
Subsidiaries or any of their respective activities or properties;
except any violation or default under the foregoing clauses (ii)
or (iii) as would not have a Material Adverse Effect.
(f) There is not in effect on the date hereof any agreement
by Greenbriar (other than this Agreement and the other
Transaction Documents) pursuant to which any holders of
securities of Greenbriar have a right to cause Greenbriar to
register such securities under the Act other than as set forth on
Schedule 3.2(f) hereto.
3.3. Exchange Act Filings. Greenbriar is subject to Section
13 or 15(d) of the Exchange Act. The documents filed pursuant to the Exchange
Act, when they were filed with the Commission (or, if any amendment with respect
to any such document was filed, when such amendment was filed), complied in all
material respects with the requirements of the Exchange Act and did not contain
an untrue statement of a material fact or omit to state a material fact required
to be stated therein or necessary in order to make the statements therein not
misleading; and any documents filed subsequent to the date of this Agreement,
when filed with the Commission, will conform in all respects to the requirements
of the Act and the Exchange Act, as applicable, and will not contain an untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary in order to make the statements therein not
misleading. All reports and statements required to be filed by Greenbriar under
the Act and the Exchange Act have been filed, together with all exhibits
required to be filed therewith. The documents and agreements so filed are in
full force and effect on the date hereof.
3.4. Tribunal Consents. Neither the nature of Greenbriar or
of any Subsidiary, or of any of their respective businesses or properties, nor
any relationship between Greenbriar or any Subsidiary and any other Person, nor
(except as expressly provided for in this Agreement) any circumstance in
connection with the offer, issue or sale of the Preferred Stock and the
conversion into the Conversion Shares is such as to require consent, approval or
authorization of, or filing, registration or qualification with, any Tribunal on
the part of Greenbriar as a condition to the execution and delivery of this
Agreement and the other Transaction Documents, or the execution and filing of
the Certificate of Designations or any amendment of the Articles of
Incorporation required in connection with the authorization, offer, sale,
issuance and/or conversion of the Preferred Stock or the Conversion Shares and
the consummation of the Transactions contemplated by the Transaction Documents,
other than consents, approvals, etc., the absence of which or the failure to
obtain, individually or in the aggregate, cannot reasonably be expected to have
a Material Adverse Effect. No actions or filings of Greenbriar, Purchaser or
their Affiliates are
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required under the HSR Act with respect to the execution and closing of the
transactions contemplated by this Agreement.
3.5. Litigation. Other than as described in the 1996 Form
10-K, the September 1997 Form 10-Q and Schedule 3.5 hereto, there is no action,
suit, proceeding, litigation or governmental proceeding pending or threatened
or, to the knowledge of Greenbriar, contemplated against (or circumstances that
are reasonably likely to give rise to the same), or involving the properties or
businesses of, Greenbriar or any of the Subsidiaries which (i) questions the
validity of the capital stock of Greenbriar or any of the Subsidiaries, this
Agreement, the other Transaction Documents or any action taken or to be taken by
Greenbriar or any of the Subsidiaries pursuant to or in connection with this
Agreement or the other Transaction Documents or (ii) would have a Material
Adverse Effect.
3.6. No Conflicts. Except as set forth in Schedule 3.6,
neither Greenbriar nor any of the Subsidiaries (i) is in violation of its
certificate of incorporation, articles of incorporation or bylaws; (ii) is in
default in the performance of any obligation, agreement or condition contained
in any license, contract, indenture, mortgage, installment sale agreement,
lease, deed of trust, voting trust agreement, stockholders' agreement, note,
loan, credit agreement, purchase order, agreement or instrument evidencing an
obligation for borrowed money or other agreement or instrument to which
Greenbriar or any of the Subsidiaries is a party or by which Greenbriar or any
of the Subsidiaries may be bound or to which the property or assets of
Greenbriar or any of the Subsidiaries is subject or affected; or (iii) is in
violation in any respect of any Law applicable to Greenbriar or any of the
Subsidiaries of any Tribunal having jurisdiction over Greenbriar or any of the
Subsidiaries or any of their respective activities or properties, except any
violation or default under the foregoing clauses (ii) or (iii) as would not have
a Material Adverse Effect, and no other party under any such agreement or
instrument to which either Greenbriar or any of the Subsidiaries is a party is,
to the knowledge of any executive officer of Greenbriar or any Subsidiary after
reasonable inquiry, in default in any material respect thereunder, other than
any such default that would not have a Material Adverse Effect.
3.7. No Material Misstatements. To the best of its
knowledge, no representation, warranty, or statement by Greenbriar in this
Agreement, the other Transaction Documents or in any written statement or
certificate furnished or to be furnished to Purchaser pursuant to this Agreement
or the other Transaction Documents contains any untrue statement of a material
fact or, when taken together, omits a material fact necessary to make the
statements made herein or therein not misleading.
3.8. Subsidiaries. Each Subsidiary is duly organized and
validly existing under the laws of its jurisdiction of organization and is in
good standing under such laws, with power and authority (corporate and other) to
own its properties and conduct its business as now conducted and as presently
proposed to be conducted, and has been duly qualified and is authorized to
transact business and is in good standing as a foreign corporation in each
jurisdiction in which it owns or leases properties or conducts any business so
as to require such qualification, except where failure to so qualify would not
have a Material Adverse Effect. Greenbriar does not own or control, directly or
indirectly, any corporation, association or other entity other than the
Subsidiaries. All of the Subsidiaries as of the date hereof and the date of the
Closing are set forth on Schedule 3.8. Except as set forth on Schedule 3.8,
Greenbriar owns, either directly or through other Subsidiaries, good and
marketable title to
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all of the outstanding shares of capital stock (capital stock for purposes of
this Agreement includes partnership interests and membership interests, in
addition to common stock and preferred stock) of each Subsidiary, in each case
free and clear of all liens, charges, claims, encumbrances, pledges, security
interests defects or other restrictions or equities of any kind whatsoever; and
all of the outstanding shares of capital stock of the Subsidiaries have been
duly authorized and validly issued and are fully paid and non-assessable and not
issued in violation of any preemptive or other similar rights or applicable
securities laws. There are no outstanding subscriptions, rights, warrants,
options, calls, exchangeable or convertible securities, commitments of sale or
liens related to or entitling any person to purchase or otherwise to acquire any
shares of the capital stock of, or other ownership interest in, any Subsidiary.
3.9. Minute Books. The minute books of each of Greenbriar
and the Subsidiaries contain a complete summary of all meetings and actions of
the directors and stockholders of each of Greenbriar and the Subsidiaries since
the time of their respective incorporation and reflect all transactions referred
to in such minutes accurately in all respects.
3.10. Voting Agreements, Stockholders' Agreements, etc.
Neither Greenbriar nor any of the Subsidiaries is a party to or bound by any
instrument, agreement or other arrangement, including, but not limited to, any
voting trust agreement, stockholders' agreement or other agreement or
instrument, affecting any securities or rights or obligations of security
holders of Greenbriar or any of the Subsidiaries, other than in connection with
the Preferred Stock to be issued pursuant to this Agreement.
3.11. Material Adverse Effect. There has been no action,
condition, change or circumstance that has resulted, or to the knowledge of
Greenbriar will result, in a Material Adverse Effect since the filing of the
September 1997 Form 10-Q by Greenbriar with the Commission, other than (i)
litigation which could result in a write off of up to $4,300,000 of mortgage
notes and accrued interest and cash disbursements by Greenbriar in excess of
$1,500,000 in the aggregate in connection with the Southern Care v. Medical
Resources et al. litigation; (ii) a prepayment penalty not to exceed $1,300,000
to Health and Retirement Properties Trust, and (iii) a judgment which could
result in cash disbursements by Greenbriar in excess of $1,000,000 in the
aggregate in connection with the Carmen Puentes v. CareAmerica et al.
litigation.
3.12. Private Offering. Neither Greenbriar nor any other
Person acting on behalf of Greenbriar has offered any of the Preferred Stock or
any similar securities of Greenbriar for sale to, or solicited offers to buy any
thereof from, or otherwise approached or negotiated with respect thereto with
any prospective purchasers who are not accredited investors, as defined in Rule
501 of Regulation D promulgated under the Act. Greenbriar agrees that neither
Greenbriar nor anyone acting on its behalf has offered or will offer the
Preferred Stock or any part thereof or any similar securities for issue or sale
to, or has solicited or will solicit any offer to acquire any of the same from,
anyone so as to bring the issuance and sale of the Preferred Stock within the
provisions of Section 5 of the Act.
3.13. Laws. Each of Greenbriar and the Subsidiaries has
complied in all respects with all Laws applicable to it or its businesses other
than violations which would not have a Material Adverse Effect.
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3.14. Investment Company Act. Neither Greenbriar nor any
Subsidiary is, and after giving effect to the issuance and sale of the Preferred
Stock, will be, an "investment company," or an entity "controlled" by an
"investment company," as such terms are defined in the United States Investment
Company Act of 1940, as amended.
3.15. Affiliate Transactions. To the best of its knowledge
and except as set forth on Schedule 3.15, no officer, director or 5% or greater
stockholder of Greenbriar or any of the Subsidiaries, or any "affiliate" or
"associate" (as these terms are defined in Rule 405 promulgated under the Act)
of any of the foregoing persons or entities, has, or has had which will have a
Material Adverse Effect going forward, either directly or indirectly, (i) a
material interest in any person or entity which (A) furnishes or sells services
or products which are furnished or sold or are proposed to be furnished or sold
by Greenbriar or any of the Subsidiaries or (B) purchases from or sells or
furnishes to Greenbriar or any of the Subsidiaries any goods or services or (ii)
a material beneficiary interest in any contract or agreement to which Greenbriar
or any of the Subsidiaries is a party or by which Greenbriar or any of the
Subsidiaries may be bound or affected. Except as set forth in Schedule 3.15,
there are no existing agreements, arrangements, understandings or transactions,
or proposed agreements, arrangements, understandings or transactions, between or
among Greenbriar or any of the Subsidiaries and any such officer, director, 5%
or greater stockholder, "affiliate" or "associate." For the purpose of this
Section 3.15, interests which may be excluded from disclosure pursuant to the
instructions to items of Regulation S-K shall be deemed to be per se not
material.
3.16. Environmental Compliance. To the best of its
knowledge, neither Greenbriar nor any Subsidiary (i) has violated, or has been
notified or is otherwise aware that it is liable with respect to obligations
under, any applicable Environmental Law, lacks Environmental Permits or is
violating any term or condition of any Environmental Permit; (ii) owns or
occupies any Real Property on which there has been a Release of Hazardous
Substances, or which may reasonably be expected to be adversely affected by a
Release of Hazardous Substances released at another location; or (iii) is
otherwise exposed to any Environmental Liability, except as to clauses (i), (ii)
and (iii), for such instances of noncompliance or Releases of Hazardous
Substances which, either singly or in the aggregate, would not have a Material
Adverse Effect.
3.17. Taxes. To the best of its knowledge and except as set
forth on Schedule 3.17, all tax returns required to be filed by Greenbriar or
the Subsidiaries in all jurisdictions have been timely and duly filed, other
than those filings being contested in good faith or except where the failure to
so file any such returns could not, individually or in the aggregate, reasonably
be expected to have a Material Adverse Effect. There are no tax returns of
Greenbriar or the Subsidiaries that are currently being audited by state, local
or federal taxing authorities or agencies (and with respect to which Greenbriar
or the Subsidiaries have received notice), where the findings of such audit, if
adversely determined, would result in a Material Adverse Effect. All taxes,
including withholding taxes, penalties and interest, assessments, fees and other
charges due or claimed to be due from such entities have been paid, other than
those being contested in good faith and for which adequate reserves have been
provided or those currently payable without penalty or interest or except if the
failure to so pay could not reasonably be expected to have a Material Adverse
Effect. No transfer tax, stamp duty or other similar tax is payable by or on
behalf of Purchaser in
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connection with (i) the issuance by Greenbriar of the Preferred Stock and the
conversion into the Conversion Shares, (ii) the purchase by Purchaser of the
Preferred Stock from Greenbriar or (iii) the consummation by Greenbriar of any
of its obligations under this Agreement.
3.18. Insurance. Each of Greenbriar and the Subsidiaries
maintains insurance covering its properties, operations, personnel and
businesses which insures against such losses and risks as are adequate in
accordance with its reasonable business judgment. Neither Greenbriar nor any
Subsidiary has received notice from any insurer or agent of such insurer that
substantial capital improvements or other expenditures will have to be made in
order to continue such insurance. All such insurance is outstanding and duly in
force on the date hereof and shall be outstanding and duly in force at the date
of the Closing.
3.19. Labor Issues. To the best of its knowledge, Greenbriar
and the Subsidiaries are in substantial compliance with all federal, state,
local and foreign laws and regulations respecting employment and employment
practices, terms and conditions of employment and wages and hours. There are no
pending investigations involving Greenbriar or any of the Subsidiaries by the
U.S. Department of Labor or any other governmental agency responsible for the
enforcement of such federal, state, local or foreign laws and regulations. There
is no unfair labor practice charge or complaint against Greenbriar or any of the
Subsidiaries pending before the National Labor Relations Board or any strike,
picketing, boycott, dispute, slowdown or stoppage pending or threatened against
or involving Greenbriar or any of the Subsidiaries. No representation question
exists respecting the employees of Greenbriar or any of the Subsidiaries, and no
collective bargaining agreement or modification thereof is currently being
negotiated by Greenbriar or any of the Subsidiaries. No grievance or arbitration
proceeding is pending under any expired or existing collective bargaining
agreements of Greenbriar or any of the Subsidiaries. No material labor dispute
with the employees of Greenbriar or any of the Subsidiaries exists or, to the
knowledge of Greenbriar after reasonable inquiry, is imminent and neither
Greenbriar nor any Subsidiary is aware of any existing or imminent general labor
disturbance by the employees of any of its principal suppliers, manufacturers or
contractors which could reasonably be expected to have a Material Adverse
Effect.
3.20. Benefit Plans. To the best of its knowledge, except as
identified on Schedule 3.20 attached hereto, neither Greenbriar nor any of the
Subsidiaries maintains, sponsors or contributes to any program or arrangement
that is an "employee pension benefit plan" an "employee welfare benefit plan" or
a "multi-employer plan" ("ERISA Plans") as such terms are defined in Sections
3(2), 3(1) and 3(37), respectively, of ERISA. Except as identified on Schedule
3.20 attached hereto, neither Greenbriar nor any of the Subsidiaries maintains
or contributes to, now or at any time previously, a defined benefit plan as
defined in Section 3(35) of ERISA. No ERISA Plan (or any trust created
thereunder) has engaged in a "prohibited transaction" within the meaning of
Section 406 of ERISA or Section 4975 of the Internal Revenue Code of 1986, as
amended (the "Code") which could subject Greenbriar or any of the Subsidiaries
to any material tax penalty on prohibited transactions and which has not
adequately been corrected. No "accumulated funding deficiency" (as defined in
Section 302 of ERISA) or any of the events set forth in Section 4043(b) of ERISA
(other than events with respect to which the 30-day notice under Section 4043 of
ERISA has been waived) has occurred with respect to any employee benefit plan
which might reasonably be expected to have a Material Adverse Effect. Each ERISA
Plan is in compliance in all material respects with the reporting, disclosure
and other requirements of the Code and ERISA as they relate
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to such ERISA Plan. Determination letters have been received from the Internal
Revenue Service with respect to each ERISA Plan which is intended to comply with
Code Section 401(a) stating that such ERISA Plan and the attendant trust are
qualified thereunder. Neither Greenbriar nor any of the Subsidiaries has ever
completely or partially withdrawn from a Multiemployer Plan of Greenbriar.
3.21. Financial Statements. The audited consolidated
financial statements and the related notes of Greenbriar and the Subsidiaries as
of and for the year ended December 31, 1996 and the unaudited consolidated
financial statements and the related notes of Greenbriar and the Subsidiaries as
of and for the nine month period ended September 30, 1997, copies of which have
been delivered to Purchaser, have been prepared in conformity with GAAP and
fairly present in all material respects the consolidated financial position,
results of operations and cash flows of Greenbriar and the Subsidiaries as of
the dates and throughout the periods therein specified.
3.22. Accounting Matters. Each of Greenbriar and the
Subsidiaries maintains a system of internal accounting controls sufficient to
provide reasonable assurance that (i) transactions are executed in accordance
with management's general or specific authorizations; (ii) transactions are
recorded as necessary to permit preparation of financial statements in
conformity with GAAP and to maintain accountability for assets; (iii) access to
financial assets is permitted only in accordance with management's general or
specific authorization and (iv) the recorded accountability for assets is
compared with the existing assets at reasonable intervals and appropriate action
is taken with respect thereto. Grant Thornton, who has audited certain financial
statements of Greenbriar and the Subsidiaries, is an independent public
accounting firm as defined by the Act and the rules and regulations of the
Commission thereunder.
3.23. Licenses. Each of Greenbriar and the Subsidiaries
holds all licenses, franchises, permits, consents, registrations, certificates
and other approvals (including, without limitation, those relating to
environmental matters and worker health and safety) (individually a "License"
and collectively, "Licenses") required for the conduct of its business as now
being conducted except where the failure to hold such Licenses, individually or
in the aggregate, cannot reasonably be expected to have a Material Adverse
Effect.
3.24. No Stabilization. To the best of its knowledge,
neither Greenbriar or any of the Subsidiaries, nor any of its Affiliates has
taken or will take, directly or indirectly, any action designed to or which has
constituted or which might be expected to cause or result in, under the Exchange
Act or otherwise, stabilization or manipulation of the price of any security of
Greenbriar to facilitate the sale or resale of the Preferred Stock or the
Conversion Shares or otherwise.
3.25. Title to Property. Each of Greenbriar and the
Subsidiaries has good and marketable title to, or valid and enforceable
leasehold estates in, all items of real and personal property which are material
to its business, in each case free and clear of all liens, mortgages, charges,
claims, encumbrances, pledges, security interests, defects and other
restrictions except the Permitted Liens, those disclosed in Schedule 3.25 or
those which are not material in amount and do not materially adversely affect
the use made or proposed to be made of such property.
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3.26. Stock Exchange. The Greenbriar Common Stock is
registered pursuant to Section 12(b) of the Exchange Act, and is approved for
trading on the American Stock Exchange under the symbol "GBR." Greenbriar has
taken no action that was designed to terminate, or that is likely to have the
effect of terminating, trading of the Greenbriar Common Stock on the American
Stock Exchange, nor has Greenbriar received any notification that the Commission
or the American Stock Exchange is contemplating terminating such trading.
3.27. Foreign Compliance. To the best of its knowledge,
neither Greenbriar nor any of the Subsidiaries has, nor to the knowledge of
Greenbriar, has any officer, director or employee of Greenbriar or any of the
Subsidiaries or any other person acting on behalf of Greenbriar or any of the
Subsidiaries, for the benefit of Greenbriar or any such Subsidiaries at any time
during the last five years, (i) made any unlawful gift or contribution to any
candidate for federal, state, local or foreign political office, or failed to
disclose fully any such gift or contribution in violation of law, or (ii) made
any payment to any federal, state, local or foreign governmental officer or
official, which would be reasonably likely to subject Greenbriar or any of the
Subsidiaries to any significant damage or penalty in any civil, criminal or
governmental litigation or proceeding (domestic or foreign). Each of
Greenbriar's and the Subsidiaries' internal accounting controls are sufficient
to cause Greenbriar and the Subsidiaries to comply with the Foreign Corrupt
Practices Act of 1977, as amended.
3.28. Nevada Law Exemptions. None of the issuance by
Greenbriar and the purchase by Purchaser of the Preferred Stock and delivery to
Purchaser of the Conversion Shares upon the conversion of the Preferred Stock,
the execution or delivery of this Agreement and the other Transaction Documents,
and the consummation of the transactions contemplated herein and therein (i)
conflicts or will conflict with, (ii) violates or will result in any violation
of or (iii) restricts or will restrict any future transactions or business
combinations involving Purchaser or any of its affiliates and Greenbriar, any
Subsidiary, Greenbriar capital stock, Greenbriar, any of its subsidiaries or
Greenbriar capital stock pursuant to, in each case, any of the provisions of
Nevada law, including, but not limited to Sections 78.378-78.3793 and Sections
78.411-78.444 of Chapter 78 of the Nevada Revised Statutes.
Section 4. Representations and Warranties of Purchaser
Purchaser hereby represents, warrants and covenants to Greenbriar that
as of the date of Greenbriar's execution of this Agreement and as of the date of
the Closing:
4.1. Due Organization and Authorization. Purchaser is a
limited partnership duly organized and validly existing under the laws of the
State of Delaware and has all requisite power and authority (i) to own and
operate its properties and assets and to carry on its business as now conducted
and as presently proposed to be conducted, (ii) to execute and deliver this
Agreement and the other Transaction Documents, (iii) to perform the terms hereof
and thereof and (iv) to consummate the transactions contemplated hereby and
thereby. Purchaser has taken all action necessary to authorize the execution,
delivery and performance of this Agreement, the other Transaction Documents and
the purchase of the Preferred Stock and the conversion of the Conversion Shares.
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4.2. Purchase for Purchaser's Account. Purchaser represents
and warrants to Greenbriar that it is purchasing and will purchase the Preferred
Stock, for its own account, with no present intention of distributing or
reselling the Preferred Stock or the Conversion Shares or any part thereof and
that such Purchaser is prepared to bear the economic risk of retaining the
Preferred Stock and the Conversion Shares for an indefinite period, all without
prejudice, however, to the right of such Purchaser at any time, in accordance
with this Agreement and the other Transaction Documents, lawfully to sell or
otherwise dispose of all or any part of the Preferred Stock or the Conversion
Shares held by it. Purchaser represents and warrants that it is an accredited
investor, as such term is defined in Rule 501 of Regulation D promulgated under
the Act.
4.3. Compliance. Purchaser acknowledges that Greenbriar has
not registered the Preferred Stock and that Greenbriar has not registered the
Conversion Shares under the Act, and Purchaser agrees that neither the Preferred
Stock nor the Conversion Shares shall be sold or offered for sale without
registration under the Act or the availability of an exemption therefrom, nor in
violation of any other law of the United States of America or any state thereof,
and the certificates representing such shares shall bear a legend with respect
thereto.
Section 5. Pre-Closing Covenants
5.1. Access and Investigation. Between the date of this
Agreement and the date of Closing, Greenbriar shall, and shall cause each of its
respective subsidiaries to, (a) afford Purchaser and its representatives
reasonably full and free access during normal business hours to Greenbriar's and
Greenbriar's personnel, properties, contracts, books and records, and other
documents and data, (b) furnish Purchaser and its representatives with copies of
all such contracts, books and records, and other existing documents and data as
Purchaser may reasonably request, and (c) furnish Purchaser and its
representatives with such additional financial, operating, and other data and
information as Purchaser may reasonably request; provided, that Purchaser's
access under this Section 5.1 shall not unduly interfere with the operations of
Greenbriar.
5.2. Operation of the Businesses of Greenbriar. Between the
date of this Agreement and the date of Closing, except as otherwise expressly
permitted herein, Greenbriar shall, and shall cause each Subsidiaries to:
(a) conduct the business of Greenbriar and the Subsidiaries
only in the ordinary course of business; and
(b) use commercially reasonable efforts to preserve intact
the current business organization of Greenbriar and the
Subsidiaries, keep available the services of the current
officers, employees, and agents of Greenbriar and the
Subsidiaries, and maintain the relations and goodwill with
suppliers, customers, landlords, creditors, employees, agents,
and others having business relationships with Greenbriar and the
Subsidiaries.
5.3. Restrictions on Certain Actions. Except as otherwise
expressly permitted herein, from and after the date hereof to the day
immediately following the issuance of Preferred Stock hereunder, Greenbriar
shall not (without the written consent of
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Purchaser which, for the purposes of the filing of board resolutions, shall not
be unreasonably withheld):
(a) directly or indirectly declare, make, incur any
liability to make, or pay any Distribution, except for
Distributions to the holders of Series B Junior Preferred Stock
and Series D Junior Preferred Stock required pursuant to their
respective certificate of designations; or
(b) make, and shall not permit any of the Subsidiaries to
make, any amendment to the certificate of incorporation or the
articles of incorporation or bylaws of any such company or file
any resolution of the board of directors with its respective
Office of the Secretary of State.
5.4. Required Approvals. As promptly as practicable after
the date of this Agreement, Greenbriar and Purchaser shall make all filings
required to be made by them in order to consummate the transactions contemplated
by the Transaction Documents. Between the date of this Agreement and the date of
Closing, each party shall cooperate with the other party with respect to all
filings that a party elects to make or is required to make in connection with
the transactions contemplated by the Transaction Documents.
5.5. Notification. Between the date of this Agreement and
the date of Closing, each party shall promptly notify the other parties in
writing if it becomes aware of any fact or condition that causes or constitutes
a breach of any of its representations and warranties as of the date of this
Agreement, or if it becomes aware of the occurrence after the date of this
Agreement of any fact or condition that would (except as expressly contemplated
by this Agreement) cause or constitute a breach of any such representation or
warranty had such representation or warranty been made as of the time of
occurrence or discovery of such fact or condition. During the same period, each
party shall promptly notify the other parties of the occurrence of any breach of
any covenant in this Agreement or of the occurrence of any event that may make
the satisfaction of the conditions in this Agreement impossible or unlikely.
5.6. No Negotiation. Until such time, if any, as this
Agreement is terminated pursuant to Section 9.2, Greenbriar, their Affiliates
and their representatives shall not directly or indirectly solicit, initiate, or
encourage any inquiries or proposals from, discuss or negotiate with, provide
any non-public information to, or consider the merits of any unsolicited
inquiries or proposals from, any Person (other than Purchaser) relating to any
transaction which (i) contemplates replacing or finding a substitute for
Purchaser in any financing or equity transaction or (ii) places Greenbriar in an
economic position similar to that contemplated by the Transaction Documents.
5.7. Public Disclosure. Prior to the Closing, none of the
parties hereto, nor any of their representatives shall, without the prior
written consent of the other parties, which shall not be unreasonably withheld,
make any statement, public announcement or release to the press or any other
third party with respect to their discussions or this Agreement or permit any of
its employees or agents to make any such statement, announcement or release,
until such time as any party may be required by law, regulation, order or other
requirement to make disclosure, including, but not limited to, disclosures made
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by Greenbriar to respond to the Commission, the American Stock Exchange and
lender requirements.
5.8. Efforts. Between the date of this Agreement and the
date of Closing, each party shall use commercially reasonable efforts to cause
the conditions in this Agreement to be satisfied.
Section 6. Covenants of Greenbriar
Greenbriar hereby covenants to the holders of Preferred Stock that,
unless waived in writing by each Preferred Stock Representative, on the date of
this Agreement and thereafter:
6.1. Use of Proceeds. Greenbriar shall use the proceeds of
approximately $22,000,000 from the sale of the Preferred Stock (a) to purchase
real estate assets consistent with the description of Greenbriar's business
contained in 1996 Form 10-K, (b) to use for working capital, (c) to pay down
debt and (d) to invest in short term state and federal government securities.
6.2. Sale of Greenbriar. Greenbriar shall not permit a Sale
of Greenbriar; provided, however, a Sale of Greenbriar will not be considered a
breach of this Agreement provided that the mandatory conversion pursuant to
Section 6.3 of each Certificate of Designation is consummated.
6.3. Rights Relating to Board of Directors. Greenbriar will
promptly execute and deliver to any individual elected to the Board of Directors
by the holders of Series F Senior Preferred Stock, an agreement by Greenbriar to
advance expenses, indemnify and hold harmless such individual for any and all
actions taken by such individual in his capacity as a member of the Board of
Directors to the fullest extent permitted by the laws of the state of
incorporation of Greenbriar. If the laws of the state of incorporation of
Greenbriar thereafter are amended to further permit indemnification and
advancement of expenses, then Greenbriar shall advance expenses, indemnify and
hold harmless to the fullest extent permitted by such laws, as so amended. Any
repeal or modification of this Section 6.3 shall be prospective only and shall
not adversely affect the rights set forth in this Section 6.3 existing at the
time of such repeal or modification.
6.4. Taxes. Greenbriar shall pay all Taxes (other than
federal, state or local income taxes) which may be payable in connection with
the execution and delivery of this Agreement and the other Transaction Documents
or the issuance and sale of the Preferred Stock and the conversion into the
Conversion Shares hereunder or in connection with any modification of the
Preferred Stock or Conversion Shares and shall save Purchaser harmless without
limitation as to time against any and all liabilities with respect to or
resulting from any delay in paying, or omission to pay such Taxes. The
obligations of Greenbriar under this Section 6.4 shall survive any redemption,
repurchase or acquisition of Preferred Stock or Conversion Shares by Greenbriar
and the termination of this Agreement. Greenbriar shall, and shall cause each
Subsidiary to, promptly pay when due any and all Taxes except Taxes that are
being contested in good faith by lawful and appropriate proceedings diligently
conducted, against which reserve or other provision required by GAAP has been
made, and in respect of which levy and execution of any Lien has been and
continues to be stayed. Greenbriar shall not, and shall not permit any
Subsidiary to, use any
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proceeds of the sale of the Preferred Stock to pay the wages of employees unless
a timely payment to or deposit with the United States of America of all amounts
of Tax required to be deducted and withheld with respect to such wages is also
made.
6.5. Delivery Expenses. If any holder surrenders any
certificate for Preferred Stock or Conversion Shares to Greenbriar or a transfer
agent of Greenbriar for exchange for instruments of other denominations or
registered in another name or names, Greenbriar shall cause such new instruments
to be issued and shall pay the cost of delivering the surrendered instrument and
any new instruments issued in substitution or replacement for the surrendered
instrument to and from the office of Purchaser from and to Greenbriar or its
transfer agent, duly insured, other than any required stamp, taxes or transfer
taxes.
6.6. Replacement of Instruments. Upon receipt by Greenbriar
of evidence reasonably satisfactory to it of the ownership of and the loss,
theft, destruction or mutilation of any certificate or instrument evidencing any
Preferred Stock or Greenbriar Common Stock; and
(a) in the case of loss, theft or destruction, Greenbriar,
at its expense, shall execute, register and deliver, in lieu
thereof, a new certificate or instrument for (or covering the
purchase of) an equal number of shares of Series F Senior
Preferred Stock, Series G Senior Non-Voting Preferred Stock or
Greenbriar Common Stock upon receipt of indemnity reasonably
satisfactory to it (provided that, if the owner of the same is a
commercial bank or an institutional lender or investor, its own
agreement of indemnity shall be deemed to be satisfactory); or
(b) in the case of mutilation, upon surrender and
cancellation thereof, Greenbriar, at its expense, shall execute,
register and deliver, in lieu thereof, a new certificate or
instrument for (or covering the purchase of) an equal number of
shares of Series F Senior Preferred Stock, Series G Senior
Non-Voting Preferred Stock or Greenbriar Common Stock.
6.7. Rule 144. At all times, in order to permit holders of
Preferred Stock or Greenbriar Common Stock to sell the same, if they so desire,
pursuant to Rule 144 or 144A promulgated by the Commission (or any successor to
such rule), Greenbriar shall comply with all rules and regulations of the
Commission applicable in connection with use of Rule 144 and 144A (or any
successor rules thereto), including the provision of information concerning
Greenbriar and the timely filing of all reports with the Commission in order to
enable such holders, if they so elect, to utilize Rule 144 or 144A, and
Greenbriar shall cause any restrictive legends to be removed and any transfer
restrictions to be rescinded with respect to any sale of Preferred Stock or
Greenbriar Common Stock which is exempt from registration under the Act pursuant
to Rule 144 or 144A.
6.8. Financial Statements, Reports and Documents. Greenbriar
shall deliver to each Preferred Stock Representative, each of the following:
(a) Quarterly Statements. Unless duplicative of paragraph
(d) below, as soon as available and in any event within fifty
(50) days after the end of each quarterly fiscal period (except
the last) of each fiscal year of Greenbriar, copies of the
consolidated and consolidating balance sheet of Greenbriar and
the consolidated
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Subsidiaries as of the end of such quarterly fiscal period, and
statements of income and retained earnings and changes in
financial position of Greenbriar and the consolidated
Subsidiaries for that quarterly fiscal period and for the portion
of the fiscal year ending with such period, in each case setting
forth in comparative form the figures for the corresponding
period of the preceding fiscal year, all in reasonable detail,
and certified by the Chief Financial Officer of Greenbriar as
being true and correct and as having been prepared in accordance
with GAAP, subject to year-end audit adjustments;
(b) Annual Statements. Unless duplicative of paragraph (d)
below, as soon as available and in any event within one-hundred
and five (105) days after the close of each fiscal year of
Greenbriar, copies of the consolidated and consolidating balance
sheet of Greenbriar and the consolidated Subsidiaries as of the
close of such fiscal year and statements of income and retained
earnings and changes in financial positions of Greenbriar and the
consolidated Subsidiaries for such fiscal year, in each case
setting forth in comparative form the figures for the preceding
fiscal year, all in reasonable detail and accompanied by an
opinion thereon (which shall not be qualified by reason of any
limitation imposed by Greenbriar) of Grant Thornton, or of other
independent public accountants of recognized national standing
selected by Greenbriar and satisfactory to each Preferred Stock
Representative, to the effect that such consolidated financial
statements have been prepared in accordance with GAAP
consistently maintained and applied (except for changes in which
such accountants concur) and that the examination of such
accounts in connection with such financial statements has been
made in accordance with generally accepted auditing standards
and, accordingly, includes such tests of the accounting records
and such other auditing procedures as were considered necessary
in the circumstances;
(c) Audit Reports. Promptly upon receipt thereof, one copy
of each written report submitted to Greenbriar by independent
accountants in any annual, quarterly or special audit made, it
being understood and agreed that all audit reports which are
furnished to each Preferred Stock Representative pursuant to this
Section 6.8 shall be treated as confidential, but nothing herein
contained shall limit or impair the right of the holders of the
Preferred Stock to disclose such reports to any appropriate
Tribunal, or to use such information to the extent pertinent to
an evaluation of the obligations of Greenbriar under the
Transaction Documents, or to enforce compliance with the terms
and conditions of the Transaction Documents, or to take any
lawful action which holders of the Preferred Stock deem necessary
to protect their interests under the Transaction Documents;
(d) SEC and Other Reports. Promptly upon its becoming
available, one copy of each financial statement, report, notice
or proxy statement sent by Greenbriar to stockholders generally
and of each regular or periodic report, registration statement or
prospectus filed by Greenbriar with any securities exchange or
the Commission or any successor agency, and of any order issued
by any Tribunal in any proceeding to which Greenbriar is a party;
and
(e) Compliance Certificate. Within the earlier of (i) the
filing of a quarterly or annual report with the Commission or
(ii) fifty (50) days after the end of each quarterly fiscal
period (except the last) of each fiscal year of Greenbriar
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and one-hundred and five (105) days after the close of each
fiscal year of Greenbriar, a certificate executed by the Chief
Financial Officer or Chief Executive Officer of Greenbriar,
stating that a review of the activities of Greenbriar during such
fiscal quarter has been made under his supervision and that
Greenbriar has observed, performed and fulfilled each and every
obligation and covenant contained herein and is not in default
under any of the same or, if any such default shall have
occurred, specifying the nature and status thereof, and setting
forth a computation in reasonable detail as of the end of the
period covered by such statements, of compliance with Sections
6.28-6.35 hereof.
6.9. Inspection of Property. In addition to any rights of
the holders of the Preferred Stock under applicable law to inspect the property
of Greenbriar, Greenbriar shall permit each Preferred Stock Representative or
his representative, upon reasonable notice, during normal business hours and
while accompanied by a representative from Greenbriar, to (i) visit and inspect
any of the properties of Greenbriar and any Subsidiary, (ii) examine the
corporate and financial records of Greenbriar and the Subsidiaries and make
copies thereof or extracts therefrom and (iii) conduct tests or investigations,
subject to the rights of tenants.
6.10. Conduct of Business. Greenbriar shall carry on and
conduct, and cause each Subsidiary to carry on and conduct, its business in the
same manner and in the same fields of enterprise as it is conducted on the date
hereof, or in the real estate business; and do, and, unless merged into
Greenbriar, cause each Subsidiary to do, all things necessary to (i) remain duly
incorporated, validly existing and in good standing as a domestic corporation in
its jurisdiction of incorporation, (ii) maintain all requisite authority to
conduct its business in each jurisdiction in which its business is conducted and
(iii) use commercially reasonable efforts to maintain all licenses, permits, and
franchises necessary for its business. Greenbriar shall not, and shall not
permit any Subsidiary to, directly or indirectly, engage in any businesses other
than those to which it is engaged as of the date hereof, or discontinue any of
its existing lines of business or substantially alter its method of doing
business except Greenbriar and any Subsidiary may engage in the real estate
business.
6.11. Insurance. Greenbriar shall maintain, and cause each
Subsidiary to maintain, insurance covering its properties, operations, personnel
and businesses which insures against such losses and risks as are adequate in
accordance with its reasonable business judgment.
6.12. Maintenance of Property. Greenbriar shall maintain,
and cause each Subsidiary to maintain, all of its tangible property in good
condition and repair and make all necessary replacements thereof and operate the
same properly, efficiently and in a prudent manner.
6.13. Books and Records. Greenbriar shall maintain, and
cause each Subsidiary to maintain, books, records, and accounts necessary to
prepare financial statements in accordance with GAAP.
6.14. Notices. Except as disclosed in the 1996 Form 10-K and
the September 1997 Form 10-Q, this Agreement and the documents referred to
herein, Greenbriar shall promptly give notice to each Preferred Stock
Representative of (i) any
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Material Adverse Effect, (ii) the occurrence and the date of a Special Asset
Sale Trigger, (iii) the existence and status of any Litigation that, if
determined adverse to Greenbriar or any Subsidiary, would result in a Material
Adverse Effect or (iv) any default under any material agreement, contract or
other instrument to which Greenbriar or any Subsidiary is a party or by which
any of their properties are bound, or any acceleration of the maturity of any
Debt owing by Greenbriar or any Subsidiary; in each case, specifying the nature
thereof and what action Greenbriar has taken, is taking, or proposes to take.
6.15. Authorizations and Approvals. Greenbriar shall, and
shall cause each Subsidiary to, use commercially reasonable efforts to promptly
obtain, from time to time at its own expense, all such governmental licenses,
authorizations, consents, permits and approvals as may be required to enable it
to comply with its obligations hereunder and under the other Transaction
Documents.
6.16. Payment of Obligations. Greenbriar shall, and shall
cause each Subsidiary to, promptly pay (or renew and extend) as they become due
all of its material obligations and all lawful claims which, if unpaid, might
give rise to a Lien upon any of its properties or assets (unless such
obligations or claims are being contested in good faith by appropriate
proceedings).
6.17. Employee Plans. As soon as possible and within 30 days
after Greenbriar knows or has reason to know that any event which would
constitute a reportable event under Section 4043(b) of Title IV of ERISA with
respect to any employee pension or other benefit plan of Greenbriar subject to
ERISA has occurred, or that the PBGC has instituted or will institute
proceedings under ERISA to terminate that plan, deliver a certificate of a
Responsible Officer of Greenbriar setting forth details as to that reportable
event and the action which Greenbriar proposes to take with respect to it,
together with a copy of any notice of that reportable event which may be
required to be filed with the PBGC, or any notice delivered by the PBGC
evidencing its intent to institute those proceedings or any notice to the PBGC
that the plan is to be terminated, as the case may be. For all purposes of this
section, Greenbriar is deemed to have all knowledge or knowledge of all facts
attributable to the plan administrator under ERISA.
Except where not a Material Adverse Effect, Greenbriar shall not, and
shall not permit any Subsidiary to, permit (i) any ERISA Plan to incur an
"accumulated funding deficiency" (as defined in Section 302 of ERISA or Section
412 of the Code), (ii) Greenbriar or any Subsidiary to incur liability, except
for liabilities for premiums that have been paid or that are not past due, under
ERISA to the PBGC in connection with any ERISA Plan, (iii) Greenbriar or any
Subsidiary to withdraw in whole or in part from participation in a Multiemployer
Plan, (iv) Greenbriar or any Subsidiary to engage in any "prohibited
transaction" (as defined in Section 406 of ERISA or Section 4975 of the Code),
(v) a "reportable event" (as defined in Section 4043 of ERISA) to occur,
excluding events for which the notice requirement is waived under applicable
PBGC regulations, (vi) Greenbriar, an Affiliate of Greenbriar or any Subsidiary
to have any liability under or be subject to any Lien under ERISA, the Code, or
any similar provisions of any Law of Canada or any of its provinces to or on
account of any employee benefit plan, program, scheme, or arrangement
established or maintained by Greenbriar, an Affiliate of Greenbriar or any
Subsidiary or to which Greenbriar, an Affiliate of Greenbriar or any Subsidiary
contributes or had an obligation to contribute, (vii) any ERISA Plan not to
comply in all material respects, both in
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form and operation, with ERISA and the Code, and (viii) any Multiemployer Plan
of Greenbriar to be in reorganization within the meaning of ss. 418 of the Code.
6.18. Environmental Matters.
(a) Greenbriar shall make available to each Preferred Stock
Representative (i) a copy of all future Environmental Reports, if
any, and reports or notices to any Tribunal about any Release of
Hazardous Substances, if any, in Greenbriar's or any Subsidiary's
possession or prepared by or on behalf of Greenbriar or any
Subsidiary in respect of any Real Property, and (ii) a report
within ten Business Days after Greenbriar or any Subsidiary first
has knowledge or reason to believe that any unreported Release of
a Hazardous Substance has occurred at any Real Property that (A)
requires or has resulted in any report or other notice to any
Tribunal under any Environmental Law or (B) results or threatens
to result in the presence of any Hazardous Substance in the
environment in a quantity, concentration, state, or other
condition that substantially exceeds any applicable standard for
the protection of human health or the environment under any
Environmental Law.
(b) Greenbriar shall, and shall cause each Subsidiary to use
commercially reasonable efforts to, (i) obtain and keep in effect
all Environmental Permits in substantial compliance with all
Environmental Laws, (ii) operate and manage its businesses,
processes, and other activities in substantial compliance with
all Environmental Laws, Environmental Permits, and Environmental
Indemnity Agreements of Greenbriar and in a manner to avoid
incurring Environmental Liabilities, to prevent any Release of
Hazardous Substances in any material amounts or in substantial
violation of any Environmental Law, and to minimize the risk of
loss or damage in the event of any Release of Hazardous
Substances, (iii) keep each Environmental Indemnity Agreement of
Greenbriar in full force and effect according to its terms, take
all steps that may be necessary or appropriate to timely assert
and receive payment or all claims under it, and (to the extent
that the material remediation or indemnity protections or
benefits provided by it would be jeopardized) and (iv)
continuously and diligently carry out such removal, remedial, or
other response actions as may be necessary or appropriate (A) in
respect of each matter that constitutes substantial
non-compliance with any Environmental Law and (B) to prevent or
minimize potential Environmental Liabilities from any of those
matters or any Release of Hazardous Substances, unless the
failure to do any of the foregoing actions in clauses (i) through
(iv) cannot reasonably be expected to have a Material Adverse
Effect.
6.19. Distributions. Greenbriar shall not directly or
indirectly declare, make, incur any liability to make or pay any Distribution
except:
(a) Distributions paid in the form of additional common
stock;
(b) Distributions to the holders of Series B Junior
Preferred Stock and Series D Junior Preferred Stock required
pursuant to their respective certificate of designations;
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(c) Distributions paid to the holders of Series F Preferred
Stock and Series G Preferred Stock; and
(d) Distributions by Greenbriar if (i) no Event of Default
or Potential Default exists or would exist after giving effect to
the Distribution and (ii) the total (without duplication) of all
of those Distributions declared or paid (including the proposed
Distribution) over the 12 months prior to such proposed
Distribution do not exceed a 15% annualized yield based on the
closing stock price of the Greenbriar Common Stock on the date
such Distribution is declared.
Greenbriar shall not permit any Subsidiary to directly or indirectly
declare, make, incur any liability to make or pay any Distribution except
Distributions to Greenbriar or any Subsidiary; provided that any such
Distribution to a Subsidiary is ultimately paid to Greenbriar.
6.20. Transactions with Affiliates. Greenbriar shall not,
and shall not permit any Subsidiaries to, enter into any transaction with any of
its Affiliates (excluding Greenbriar and the Subsidiaries) except transactions
(i) in the ordinary course of business and upon fair and reasonable terms not
less favorable to Greenbriar and the Subsidiaries than could be obtained in an
arm's-length transaction with a Person that was not its Affiliate or (ii) which
do not exceed $60,000 individually and $100,000 in the aggregate during any
fiscal year.
6.21. Loans, Advances and Investments. Greenbriar shall not,
and shall not permit any Subsidiary to, make any loan, advance, extension of
credit, or capital contribution to any other Person, other than (i) to
Greenbriar or any Subsidiary, (ii) for an amount less than $50,000 in the
aggregate to such Person, (iii) as set forth on Schedule 6.21 or (iv) a fully
secured loan in connection with a purchase or sale of companies and/or real
estate.
6.22. Issuance of Shares. Greenbriar shall not permit any
Subsidiary to issue, sell or otherwise dispose of, any shares of its capital
stock or other securities, or rights, warrants or options to purchase or acquire
any shares or securities, other than to Greenbriar or any Subsidiary.
6.23. Assignment. Greenbriar shall not, and shall not permit
any Subsidiary to, assign or transfer any of its Rights, duties, or obligations
under this Agreement.
6.24. Accounting Methods. Greenbriar shall not, and shall
not permit any Subsidiary to, change its method of accounting except (i) to
conform any new Subsidiary's accounting methods to Greenbriar's accounting
methods, (ii) as required by GAAP or (iii) as required by SEC rules and
regulations.
6.25. Government Regulations. Greenbriar shall not, and
shall not permit any Subsidiary to, conduct its business in a way that it
becomes regulated under the Investment Company Act of 1940, as amended, or the
Public Utility Holding Company Act of 1935, as amended.
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6.26. Compliance with Laws and Documents. Greenbriar shall
use commercially reasonable efforts not to, and shall use commercially
reasonable efforts not to permit any Subsidiary to, (i) violate the provisions
of the articles of incorporation or certificate of incorporation or bylaws of
Greenbriar or any Subsidiary; (ii) violate or be in default in the performance
of any obligation, agreement or condition contained in any license, contract,
indenture, mortgage, installment sale agreement, lease, deed of trust, voting
trust agreement, stockholders' agreement, note, loan, credit agreement, purchase
order, agreement or instrument evidencing an obligation for borrowed money or
other agreement or instrument to which Greenbriar or any of the Subsidiaries is
a party or by which Greenbriar or any of the Subsidiaries may be bound or to
which the property or assets of Greenbriar or any of the Subsidiaries is subject
or affected, if that violation or default alone, or when aggregated with all
other violations, would result in a Material Adverse Effect; (iii) violate any
Law applicable to Greenbriar or any of the Subsidiaries of any Tribunal having
jurisdiction over Greenbriar or any of the Subsidiaries or any of their
respective activities or properties, if that violation alone, or when aggregated
with all other violations, would result in a Material Adverse Effect; or (iv)
violate any obligation, provision, condition, covenant or requirement contained
in the Transaction Documents, if that violation or default would result in a
Material Adverse Effect.
6.27. Maintenance of Stock Listing. The Greenbriar Common
Stock shall, at all times, (i) be registered pursuant to Section 12(b) of the
Exchange Act, and (ii) be approved for trading on the American Stock Exchange,
the New York Stock Exchange or the Nasdaq National Market.
6.28. Total Liabilities to Equity Ratio. Greenbriar shall
not permit the ratio of Total Liabilities to Total Stockholders' Equity, as of
any fiscal quarter end, to be greater than 3 to 1.
6.29. Total Long Term Debt to Equity Ratio. Greenbriar shall
not permit the ratio of Total Long Term Debt to Total Stockholders' Equity, as
of any fiscal quarter end, to be greater than 2.75 to 1.
6.30. Dividend Coverage Ratio. Greenbriar shall not permit
the ratio of EBITDA (excluding all gains and losses attributable to sales of
real estate) to Senior Preferred Dividend, as reported in any fiscal quarter, to
be less than 1.5 to 1.
6.31. Total Long Term Debt to Book Capitalization.
Greenbriar shall not permit Total Long Term Debt to exceed seventy-five percent
(75%) of Book Capitalization, as of any fiscal quarter end.
6.32. Total Debt to Adjusted Book Capitalization. Greenbriar
shall not permit Total Debt to exceed seventy-five percent (75%) of Adjusted
Book Capitalization, as of any fiscal quarter end.
6.33. Total Debt and Capitalized Operating Lease Expense
Obligations to Adjusted Book Capitalization and Capitalized Operating Lease
Expense Obligations. Greenbriar shall not permit Total Debt plus Capitalized
Operating Lease Expense Obligations to exceed seventy-five percent (75%) of
Adjusted Book Capitalization plus Capitalized Operating Lease Expense
Obligations, as of any fiscal quarter end.
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6.34. Refinancing Existing Property Debt. Greenbriar shall
not, and shall not permit any Subsidiary to, refinance Existing Property Debt,
unless the aggregate loan amount does not exceed seventy-one percent (71%) of
the appraised value of the collateral in such refinancing.
6.35. Total Net Property Debt to Real Property Book Value.
Greenbriar shall not permit the level of Total Net Property Debt to exceed
seventy-one and eight-tenths (71.8%) of Real Property Book Value, as of any
fiscal quarter end.
6.36. HSR Filings. Greenbriar shall (a) upon Purchaser's
request, take all actions necessary to make the filings of it or its Affiliates
under the HSR Act with respect to the transactions contemplated by this
Agreement, (b) comply with any request for additional information received by
each party or its Affiliates from the Federal Trade Commission or Antitrust
Division of the Department of Justice pursuant to the HSR Act, (c) cooperate
with the other party in connection with such party's filings, if necessary,
under the HSR Act, and (d) request, if applicable or if necessary, early
termination of the applicable waiting period.
Section 7. Conditions to Closing
7.1. Conditions to Obligations of Purchaser. The obligations
of Purchaser hereunder are subject to the fulfillment, at or before the Closing,
of each of the following conditions (all or any of which may be waived in whole
or in part by Purchaser). Greenbriar shall use all commercially reasonable
efforts to fulfill, at or before the Closing, such of the following conditions
(or portions thereof) over which they have control.
(a) Greenbriar shall have delivered to Purchaser (in form
and substance satisfactory to Purchaser and its counsel):
(i) a certificate, dated the date hereof, of the
Secretary or an Assistant Secretary of Greenbriar (A)
attaching a true and complete copy of the resolutions of the
Board of Directors of Greenbriar, and of all documents
evidencing other necessary corporate or stockholder action
(in form and substance satisfactory to Purchaser and to its
counsel) taken by Greenbriar in connection with the matters
contemplated by this Agreement and the other Transaction
Documents, (B) attaching a true and complete copy of Bylaws
of Greenbriar and each Subsidiary, (C) setting forth the
incumbency of the officer or officers of Greenbriar who sign
this Agreement and the other Transaction Documents,
including therein a signature specimen of such officer or
officers and (D) covering such other matters, and with such
other attachments thereto, as Purchaser may reasonably
request;
(ii) a certificate of incorporation or articles of
incorporation of Greenbriar and each Subsidiary certified by
the Office of the Secretary of State under the laws of their
respective states of incorporation;
(iii) a certificate of good standing (including tax
status, if applicable) of Greenbriar and each Subsidiary
under the laws of their
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<PAGE>
respective states of incorporation and as foreign
corporations in every state in which they own property or
conduct business;
(iv) an opinion of Glast, Phillips & Murray, P.C. in
the form attached hereto as Exhibit E;
(v) such other documents and evidence relating to the
matters contemplated by this Agreement or the other
Transaction Documents as the holders or their counsel shall
reasonably require.
(b) The representations and warranties of Greenbriar
contained in Section 3, shall be true on and, in all
material respects, as of the Closing with the same effect as
though such representations and warranties had been made on
and as of the date of the Closing.
(c) Greenbriar shall have performed and complied with
all agreements, obligations, covenants and conditions
contained in this Agreement and the other Transaction
Documents that are required to be performed or complied with
by it on or before the Closing; and no Event of Default or
Potential Default exists on or before the Closing or as a
result of the consummation of the transactions contemplated
hereby.
(d) The Chairman of the Board of Greenbriar shall
deliver to Purchaser at the Closing a certificate
certifying, to the best of his knowledge and as applicable
to each of their companies, that the conditions specified in
paragraphs (b), (c), (e), (i), (j), (k) and (l) have been
fulfilled.
(e) All authorizations, approvals, or permits, if any,
of any governmental authority or regulatory body of the
United States or of any state thereof that are required in
connection with the lawful issuance and sale of the
Preferred Stock and the conversion into the Conversion
Shares pursuant to this Agreement and the other Transaction
Documents shall be duly obtained and effective as of the
Closing.
(f) Each of the Transaction Documents shall have been
duly executed and delivered by all of the respective parties
thereto (other than Purchaser) and shall be in full force
and effect.
(g) Greenbriar shall have filed the Certificate of
Designations with the Secretary of State of the State of
Nevada.
(h) Greenbriar shall have paid all expenses required to
be paid by it pursuant to this Agreement and the Loan
Agreement.
(i) Greenbriar shall have received approval, where
required, to consummate the transactions contemplated by the
Transaction Documents from or pursuant to any applicable
governmental or regulatory authority or law and/or from any
stock exchange, including, but not limited to, the issuance
and listing of the Conversion Shares from the American Stock
Exchange.
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<PAGE>
(j) There shall not be in effect on the date of Closing
any writ, judgment, injunction, decree, or similar order of
any court or governmental authority restraining, enjoining,
or otherwise preventing consummation of any of the
transactions contemplated by this Agreement or the other
Transaction Documents.
(k) There shall not be instituted, pending, or, to
Greenbriar's knowledge, threatened, any action, suit,
investigation, or other proceeding in, before, or by any
court, governmental or regulatory authority, or other Person
to restrain, enjoin, or otherwise prevent consummation of
any of the transactions contemplated by this Agreement or
the other Transaction Documents.
(l) Greenbriar shall have duly authorized, approved and
filed any and all amendments to the Articles of
Incorporation, resolutions or documents necessary to
consummate the transactions contemplated by the Transaction
Documents.
(m) All waiting periods applicable to this Agreement
and the transactions contemplated hereby under the HSR Act,
if any, shall have expired or been terminated.
(n) The Preferred Stock ranks senior with respect to
the right to receive dividends and assets upon liquidation,
dissolution or winding up of Greenbriar to the Series B
Junior Preferred Stock and the Series D Junior Preferred
Stock.
(o) Greenbriar has reserved and has available the
Conversion Shares in order to effect the conversion of the
Preferred Stock, which shares, when issued, will be duly
authorized and validly issued, fully paid and nonassessable,
and free from all taxes, liens and charges.
(p) Those documents provided for in the Additional
Delivery Agreement dated of even date herewith have been
delivered.
(q) Purchaser has notified Greenbriar that Purchaser
has received final approval of the consummation of the
transactions contemplated by this Agreement from its
investment committee.
(r) All indebtedness under the Loan Agreement has been
paid in full together with all accrued and unpaid interest
through such repayment date.
(s) All expenses described in Section 2.3 incurred
through the date of Closing have been paid in full.
(t) The Purchaser and Greenbriar shall have agreed to
the terms of a promissory note as contemplated in Section
8.6 of the Series F Certificate of Designation and Section
8.5 of the Series G Certificate of Designation.
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<PAGE>
7.2. Conditions to Obligations of Greenbriar. The
obligations of Greenbriar hereunder are subject to the fulfillment, at or before
the Closing, of each of the following conditions (all or any of which may be
waived in whole or in part by Greenbriar). Purchaser shall use all commercially
reasonable efforts to fulfill, at or before the Closing, such of the following
conditions (or portions thereof) over which it has control.
(a) The representations and warranties of Purchaser
contained in Section 4 shall be true on and as of the
Closing with the same effect as though such representations
and warranties had been made on and as of the date of the
Closing.
(b) Purchaser shall have performed and complied with
all agreements, obligations, covenants and conditions
contained in this Agreement and the other Transaction
Documents that are required to be performed or complied with
by it on or before the Closing.
(c) All authorizations, approvals, or permits, if any,
of any governmental authority or regulatory body of the
United States or of any state thereof that are required in
connection with the lawful purchase of the Preferred Stock
and the conversion into the Conversion Shares pursuant to
this Agreement and the other Transaction Documents shall be
duly obtained and effective as of the Closing.
(d) Each of the Transaction Documents shall have been
duly executed and delivered by all of the respective parties
thereto (other than Greenbriar) and shall be in full force
and effect.
(e) Purchaser shall have made payment for the Preferred
Stock.
(f) All waiting periods applicable to this Agreement
and the transactions contemplated hereby under the HSR Act,
if any, shall have expired or been terminated.
Section 8. Post-Conversion Rights
8.1. Board Representation on Greenbriar. Subsequent to a
conversion by Purchaser of Preferred Stock for Conversion Shares and until the
earlier of (i) the first anniversary of the date that Purchaser no longer owns
any shares of Preferred Stock or (ii) the date that Purchaser no longer owns at
least 5% of the issued and outstanding shares of Greenbriar, Purchaser shall
have the right, at any time that there is not at least one director serving on
the Board of Directors of Greenbriar pursuant to this Section 8.1 or any other
provision contained in the Transaction Documents, to nominate at least one
member of the Board of Directors of Greenbriar, and Greenbriar shall use its
best efforts to cause such nominee to be elected to the Board of Directors of
Greenbriar as soon as possible, and in any event not later than sixty days after
such nomination is made. Any director elected pursuant to this Section 8.1 is
subject to removal, and any vacancy in the office of such director shall be
filled, only by Purchaser. If, for any reason whatsoever, Purchaser does not
have a member on the Board of Directors of Greenbriar during the time period
discussed above, Purchaser may appoint an observer who may attend all meetings
(including committee meetings) of the Board of Directors of Greenbriar and who
shall be entitled to the same expense reimbursement as the Directors of
Greenbriar.
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<PAGE>
Section 9. Miscellaneous
9.1. Notices. All notices, notifications, demands, requests,
waivers, consents or other communications under this Agreement shall be in
writing and shall be deemed to have been duly given, unless explicitly stated
otherwise, (i) if mailed registered or certified mail, postage prepaid, return
receipt requested, three days after being deposited in the mail; (ii) if sent
via overnight courier, the next business day after being deposited with such
courier; (iii) if sent by telecopier (with written confirmation of receipt), on
that day, or if telecopied on a day that is not a business day, the next day
that is a business day, provided that a copy is mailed by certified or
registered mail (return receipt requested); or (iv) if delivered by hand (with
written confirmation of receipt) on that day, or if delivered on a day that is
not a business day, the next day that is a business day; in each case, to the
appropriate addresses and telecopier numbers set forth below (or to such other
addresses and telecopier numbers as a party may designate by notice to the other
parties):
If to Greenbriar: Greenbriar Corporation
4265 Kellway Circle
Addison, Texas 75244-2033
Attention: Gene S. Bertcher
Telecopy No.: (972) 407-8735
with copy to: Mark E. Bennett, Esq.
14933 Oaks North Drive
Dallas, TX 75231
Telecopy No.: (972) 407-8426
If to Purchaser: Lone Star Opportunity Fund, L.P.
600 N. Pearl Street
Suite 1550, LB 161
Dallas, Texas 76140
Attention: Sam F. Hines
Telecopy No.: (214) 754-8301
with copy to: Haynes and Boone, LLP
901 Main Street, Suite 3100
Dallas, Texas 75202
Attention: W. Scott Wallace
Telecopy No.: (214) 651-5940
If to any other Person who is the registered holder of any Preferred
Stock or Conversion Shares, to the address for the purpose of such holder as it
appears in the stock ledger of Greenbriar.
9.2. Termination.
(a) Termination Events. This Agreement may, by notice
given prior to or at the Closing, be terminated:
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<PAGE>
(i) by either Greenbriar or Purchaser if a material
breach of any provision of this Agreement has been committed
by the other party and such breach has not been waived in
writing;
(ii) by Purchaser if any of the conditions in Section
7.1 has not been satisfied as of the date of Closing or if
satisfaction of such a condition is or becomes impossible
(other than through the failure of Purchaser to comply with
its obligations under this Agreement) and Purchaser has not
waived such condition on or before the date of Closing;
(iii) by Greenbriar if any of the conditions in Section
7.2 has not been satisfied of the date of Closing or if
satisfaction of such a condition is or becomes impossible
(other than through the failure of Greenbriar to comply with
its obligations under this Agreement) and Greenbriar has not
waived such condition on or before the date of Closing;
(iv) by mutual written consent of Greenbriar and
Purchaser; or
(v) by either Greenbriar or Purchaser if the Closing
has not occurred (other than through the failure of any
party seeking to terminate this Agreement to comply fully
with its obligations under this Agreement) on or before
January 12, 1998, or such later date as the parties may
agree upon.
(b) Effect of Termination. Each party's right of
termination under this Section 9.2 is in addition to any
other rights it may have under this Agreement or otherwise,
and the exercise of a right of termination will not be an
election of remedies. If this Agreement is terminated
pursuant to this Section 9.2, all further obligations of the
parties under this Agreement (other than the obligations of
Greenbriar under Section 2.3 and of all parties under
Section 9.3) shall terminate; provided, however, that if
this Agreement is terminated by a party because of the
breach of the Agreement by the other party or because one or
more of the conditions to the terminating party's
obligations under this Agreement is not satisfied as a
result of the other party's failure to comply with its
obligations under this Agreement, the terminating party's
right to pursue all legal remedies shall survive such
termination unimpaired.
9.3. Indemnification.
(a) Indemnification Obligations of Greenbriar. Subject
to the other provisions of this Section 9.3, Greenbriar
shall defend, indemnify, and hold harmless Purchaser and its
successors and assigns, and its officers, directors,
stockholders, agents, affiliates and employees
(collectively, the "Greenbriar Indemnitees"), from and
against, and promptly reimburse them for, any and all
Losses, without regard to the cause or causes thereof,
directly or indirectly arising out of, resulting from,
relating to or in connection with (i) any breach of or
inaccuracy in any representation or warranty of Greenbriar
contained in this Agreement, any Transaction Document or any
schedule or exhibit hereto or thereto; or (ii) any breach
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<PAGE>
of or non-performance of any covenant of Greenbriar
contained in this Agreement, any Transaction Document or any
schedule or exhibit hereto or thereto.
(b) Indemnification Obligations of Purchaser. Subject
to the other provisions of this Section 9.3, Purchaser shall
defend, indemnify, and hold harmless Greenbriar and its
respective heirs, legal representatives, successors and
assigns (collectively, the "Purchaser Indemnitees"), from
and against, and promptly reimburse them for, any and all
Losses, without regard to the cause or causes thereof,
directly or indirectly arising out of, resulting from,
relating to or in connection with (i) any breach of or
inaccuracy in any representation or warranty of Purchaser in
this Agreement, any Transaction Document or any schedule or
exhibit hereto or thereto; or (ii) any breach of or
nonperformance of any covenant of Purchaser in this
Agreement, any Transaction Document or any schedule or
exhibit hereto or thereto.
(c) Notice and Opportunity to Defend.
(i) If any of Greenbriar Indemnitees or Purchaser
Indemnitees (each, an "Indemnitee") receives notice of any
claim or commencement of any action or proceeding (an
"Asserted Liability") with respect to which another person
(the "Indemnitor") is obligated to provide indemnification
pursuant to Section 9.3(a) or Section 9.3(b), such
Indemnitee shall promptly give the Indemnitor notice thereof
by certified mail, describing the Asserted Liability in
reasonable detail and indicating the amount (which may be
estimated) of the loss, expense, damage, liability, or
obligation that has been or may be asserted by the
Indemnitee against the Indemnitor.
(ii) The failure of the Indemnitee to give such notice
shall not result in a loss of the Indemnitee's right to
indemnification under this Section 9.3 unless such failure
prejudices the Indemnitor's ability to defend against the
Asserted Liability.
(iii) No settlement or compromise of an Asserted
Liability may be made by the Indemnitee without the written
consent of the Indemnitor.
(iv) If the Indemnitor so elects, the Indemnitor, at
the Indemnitor's expense, shall assume the defense of the
Asserted Liability and shall have the right to settle or
compromise the same, except that if the Indemnitee's counsel
reasonably objects to such assumption on the ground that
there may be legal defenses available to the Indemnitee that
are different from or in addition to those available to the
Indemnitor, then the Indemnitee shall have the right to
employ separate counsel approved by the Indemnitor at the
Indemnitee's sole expense.
(v) If the Indemnitor assumes the defense of the
Asserted Liability, the Indemnitor shall not be liable for
the fees and expenses of the Indemnitee's counsel incurred
thereafter in connection with the Asserted Liability.
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<PAGE>
(d) Survival. All warranties, representations and
covenants made by Greenbriar herein or in any certificate or
other instrument delivered by either of them or on their
behalf under this Agreement and the other Transaction
Documents shall be considered to have been relied upon by
Purchaser and shall survive the issuance of the Preferred
Stock regardless of any investigation made by or on behalf
of Purchaser. All statements in any such certificate or
other instrument so delivered shall constitute
representations and warranties by Greenbriar, as applicable,
hereunder.
All representations, warranties and covenants made by
Purchaser herein shall be considered to have been relied
upon by Greenbriar and shall survive the issuance to
Purchaser of the Preferred Stock regardless of any
investigation made by Greenbriar or on their behalf.
9.4. Restrictive Legend. Unless and until otherwise
permitted by this Agreement, each certificate for Preferred Stock issued under
this Agreement and each certificate for any Preferred Stock issued to any
subsequent transferee of any such certificate shall be stamped or otherwise
imprinted with a legend in substantially the following form:
"The shares evidenced by this certificate have not been
registered under the Securities Act of 1933, as amended, and may be
reoffered and sold only if registered pursuant to the provisions of
said Securities Act or if an exemption from registration is available."
9.5. Assignment, Successors and Assigns. Except as otherwise
expressly provided herein, this Agreement shall inure to the benefit of and be
binding upon the successors and assigns of each of the parties whether so
expressed or not. This Agreement may not be assigned without the written consent
of all other parties; provided, however, Purchaser may assign all of its rights
and obligations hereunder to one of its subsidiaries, provided that prior to the
Closing no assignment may be made except to a subsidiary with sufficient funds
to satisfy Purchaser's payment obligations under this Agreement.
9.6. Amendment and Waiver, etc. This Agreement may be
amended only with the written consent of Greenbriar and Purchaser. No failure or
delay on the part of Greenbriar or Purchaser in exercising any right, power or
remedy hereunder shall operate as a waiver thereof, nor shall any single or
partial exercise of any such right, power or remedy preclude any other or
further exercise thereof or the exercise of any other right, power or remedy.
The remedies provided for herein are cumulative and are not exclusive of any
remedies that may be available to Greenbriar or Purchaser at law or in equity or
otherwise. No waiver of or consent to any departure by Greenbriar or Purchaser
from any provision of this Agreement shall be effective unless signed in writing
by the other parties.
9.7. Duplicate Originals. Two or more duplicate originals of
this Agreement may be signed by the parties, each of which shall be an original
but all of which together shall constitute one and the same instrument.
9.8. Severability. In the event that any one or more of the
provisions contained herein, or the application thereof in any circumstance, is
held invalid, illegal or unenforceable, the validity, legality and
enforceability of any such provision in every other
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<PAGE>
respect and of the remaining provisions contained herein shall not be affected
or impaired thereby.
9.9. Governing Law. This Agreement shall be construed in
accordance with and governed by the internal laws of the State of Texas, without
respect to conflicts of laws principles.
9.10. Specific Performance. Greenbriar and Purchaser
acknowledge that the other parties have no adequate remedy at law for breaches
by Greenbriar or Purchaser of its obligations hereunder or under the Transaction
Documents, and accordingly Greenbriar and Purchaser irrevocably agree that the
other parties shall be entitled to the remedy of specific performance granted
pursuant to Section 9.15 below, and waives any right Greenbriar or Purchaser may
have to object to such remedy.
9.11. Entire Agreement. This Agreement, the other
Transaction Documents and the documents referred to herein constitute the entire
agreement among the parties and no party shall be liable or bound to any other
party in any manner by any warranties, representations, or covenants except as
specifically set forth herein or therein.
This Agreement supercedes that certain Stock Purchase
Agreement among Residential Healthcare Properties, Inc., Greenbriar and
Purchaser dated as of October 8, 1997 (the "October 8, 1997 Stock Purchase
Agreement") only in the event that the transactions contemplated by this
Agreement are closed, otherwise the October 8, 1997 Stock Purchase Agreement
shall remain in full force and effect.
9.12. Headings Descriptive. The titles and subtitles used in
this Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
9.13. Finder's Fees. Each party represents that it neither
is nor will be obligated for any finder's fee or commission in connection with
this transaction, other than as specifically described below.
Purchaser agrees to indemnify and to hold harmless
Greenbriar from any liability for any commission or compensation in the nature
of a finder's fee (and the cost and expenses of defending against such liability
or asserted liability) for which Purchaser or any of its officers, partners,
employees, or representatives is responsible.
Greenbriar agrees to indemnify and hold harmless Purchaser
from any liability for any commission or compensation in the nature of a
finder's fee (and the costs and expenses of defending against such liability or
asserted liability) for which Greenbriar or any of their officers, employees, or
representatives is responsible, including without limitation, any fees owed by
Greenbriar to Southwest Securities.
9.14. Exculpation Among Purchasers. Purchaser acknowledges
that it is not relying upon any person, firm or corporation, other than
Greenbriar and its officers and directors, in making its investment or decision
to invest in Greenbriar. Purchaser agrees that neither it nor its respective
controlling persons, officers, directors, partners, agents or employees shall be
liable for any action heretofore or hereafter taken or omitted to be taken
- 38 -
<PAGE>
by any of them in connection with the Preferred Stock (and Greenbriar Common
Stock delivered upon conversion thereof).
9.15. Arbitration. THE PARTIES AGREE THAT IF ANY DISPUTE
SHOULD ARISE UNDER THE TERMS AND PROVISIONS OF THIS AGREEMENT, EACH PARTY WAIVES
ANY RIGHT TO COMMENCE LEGAL ACTION OR ARBITRATION OTHER THAN AS PROVIDED UNDER
THE TERMS OF THIS AGREEMENT, AND THIS AGREEMENT SHALL PROVIDE THE SOLE AND
EXCLUSIVE REMEDY FOR RESOLUTION OF DISPUTES.
(a) THE DETERMINATION OF THE ARBITRATOR SHALL
BE FINAL AND BINDING UPON EACH PARTY AND EACH PARTY SPECIFICALLY WAIVES
ANY RIGHT TO CLAIM THAT THE ARBITRATOR HAS EXCEEDED THE SCOPE OF THE
ARBITRATION, HAS DISREGARDED EVIDENCE OR PRINCIPLES OF LAW, AND FURTHER
WAIVES ANY RIGHT TO DISCLAIM THE QUALIFICATION OR FUNCTION OF THE
ARBITRATOR IN ANY MANNER OR FASHION.
(b) APPOINTMENT OF THE ARBITRATOR SHALL BE MADE
BY MUTUAL AGREEMENT OF THE PARTIES. IF THE PARTIES CANNOT AGREE UPON
THE IDENTIFICATION OF THE ARBITRATOR WITHIN THIRTY (30) DAYS FROM THE
MAILING OF THE OBJECTION, A PETITION FOR APPOINTMENT OF ARBITRATOR
SHALL BE FILED WITH THE SUPERIOR COURT OF THE COUNTY OF DALLAS, TEXAS.
THE ARBITRATION SHALL BE HELD IN DALLAS, TEXAS PURSUANT TO THE
COMMERCIAL ARBITRATION RULES OF THE AMERICAN ARBITRATION ASSOCIATION.
(c) THE ARBITRATOR'S FEES AND FEES AND COSTS OF
PETITIONING FOR THE APPOINTMENT OF THE ARBITRATOR SHALL BE PAID BY
GREENBRIAR. THE ARBITRATOR UPON RENDERING ITS AWARD SHALL DETERMINE THE
PARTY THAT PREVAILED BASED UPON WRITTEN STATEMENTS MADE BY EACH PARTY
AT THE COMMENCEMENT OF THE ARBITRATION AS TO THE POSITION OF THE
PARTIES AND THEIR ALTERNATIVES FOR SETTLING THE MATTER. A STATEMENT OF
A PROPOSED SETTLEMENT SHALL NOT BE BINDING UPON ANY PARTY AND SHALL NOT
BE CONSIDERED AS EVIDENCE BY THE ARBITRATOR EXCEPT TO THE EXTENT THAT
THE ARBITRATOR UPON MAKING ITS SOLE AND INDEPENDENT DETERMINATION SHALL
DETERMINE THE PARTY WHICH PREVAILED BASED UPON THE PROPOSALS FOR
SETTLEMENT OF THE MATTER MADE BY EACH PARTY AND SHALL DETERMINE THAT
THE NON-PREVAILING PARTY SHALL PAY SOME OR ALL OF THE COSTS OF
ARBITRATION INCLUDING ANY COSTS INCURRED BY THE ARBITRATOR AND IN
EMPLOYING EXPERTS TO ADVISE THE ARBITRATOR IN REGARD TO SPECIFIC
SUBJECTS OR QUESTIONS. THE ARBITRATOR MAY FURTHER AWARD THE COST OF
ATTORNEYS FEES OR EXPERT WITNESSES CONSULTED OR EMPLOYED IN THE
PREPARATION OR PRESENTATION OF EVIDENCE TO THE ARBITRATOR BY THE
PREVAILING PARTY IF, IN THE ARBITRATOR'S DETERMINATION, THE POSITION OF
THE NONPREVAILING PARTY WAS NOT REASONABLY TAKEN OR MAINTAINED OR WAS
BASED
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<PAGE>
UPON A FAILURE TO EXCHANGE OR COMMUNICATE PROPERLY INFORMATION WITH THE
PREVAILING PARTY IN REGARD TO THE SUBJECT SUBMITTED TO ARBITRATION.
(d) THE ARBITRATOR'S DETERMINATION MAY FURTHER
PROVIDE FOR PROSPECTIVE ENFORCEMENT AND DIRECTIONS FOR THE PARTIES TO
COMPLY WITH INCLUDING WITHOUT LIMITATION PERMANENT INJUNCTIVE RELIEF OR
SPECIFIC PERFORMANCE. UNDER SUCH CIRCUMSTANCES, THE ARBITRATOR'S AWARD
SHALL BE BINDING UPON THE PARTIES AND SHALL BE UNDERTAKEN AND PERFORMED
BY EACH OF THE PARTIES UNTIL SUCH TIME AS THE ARBITRATOR'S DIRECTIONS
TO THE PARTY SHALL LAPSE BY THEIR TERM, OR THE ARBITRATOR SHALL NOTIFY
THE PARTIES THAT THOSE TERMS ARE NO LONGER IN FORCE OR EFFECT OR SHALL
MODIFY THOSE TERMS.
(e) NOTWITHSTANDING THE FOREGOING, ANY PARTY
MAY APPEAL THE ARBITRATOR'S DETERMINATION IF SUCH APPEAL IS
BASED SOLELY ON THE BASIS THAT THE ARBITRATOR HAS MADE AN
INCORRECT INTERPRETATION OF LAW.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Stock Purchase Agreement as of the date first above written.
GREENBRIAR CORPORATION,
a Nevada corporation
By:
Gene S. Bertcher
Executive Vice President
LONE STAR OPPORTUNITY FUND, L.P.,
a Delaware limited partnership
By: Lone Star Partners, L.P., its General Partner
By: Lone Star Management Co., Ltd., its
General Partner
By:
Name:
Title:
- 41 -
<PAGE>
ESHIBIT 2.2.2
<PAGE>
CERTIFICATE OF VOTING POWERS, DESIGNATIONS,
PREFERENCES, AND RELATIVE, PARTICIPATING,
OPTIONAL OR OTHER SPECIAL RIGHTS OF
SERIES F SENIOR CONVERTIBLE PREFERRED STOCK
<PAGE>
<TABLE>
TABLE OF CONTENTS
Page
<S> <C> <C>
1. Certain Definitions...................................................................1
2. Ranking of the Series F Senior Preferred Stock........................................8
3. Dividends; Restricted Payments........................................................9
3.1 Dividend Payment Dates.......................................................9
3.2 Record Date..................................................................9
3.3 Restricted Payments..........................................................9
4. Liquidation Rights....................................................................9
5. Voting Rights of Series F Senior Preferred Stock......................................9
5.1 Special Rights in Electing Directors.........................................9
5.2 Class Voting Rights.........................................................10
6. Conversion...........................................................................11
6.1 Right of Holder to Conversion...............................................11
6.2 Mechanics of Conversion by Holder...........................................11
6.3 Mandatory Conversion........................................................11
6.4 Adjustments to Conversion Price for Diluting Issues
or Other Transactions.......................................................11
6.5 No Impairment...............................................................19
6.6 Certificate as to Adjustments...............................................19
6.7 Notices of Record Date......................................................19
7. Covenants of Greenbriar..............................................................20
7.1 Board of Directors..........................................................20
7.2 Greenbriar Common Stock.....................................................20
7.3 Cash Reserves after a Special Asset Sale Trigger............................20
8. Events of Default....................................................................20
8.1 Notice of Event of Default..................................................20
8.2 Dividends During Event of Default...........................................20
8.3 Election of Directors.......................................................21
8.4 Put Option..................................................................21
8.5 Special Asset Sale Trigger..................................................22
8.6 Change in Management........................................................22
8.7 Remedies Cumulative.........................................................23
9. No Reissuance........................................................................23
</TABLE>
(i)
<PAGE>
GREENBRIAR CORPORATION
Certificate of Voting Powers, Designations,
Preferences, and Relative, Participating,
Optional or Other Special Rights of
Series F Senior Convertible Preferred Stock
We, Floyd B. Rhoades, President, and Robert L. Griffis, Secretary, of
Greenbriar ("Greenbriar"), a corporation organized and existing under Chapter 78
of the Nevada Revised Statutes, in accordance with the provisions of Section
78.1955 of the Nevada Revised Statutes thereof, DO HEREBY CERTIFY:
That, pursuant to authority conferred upon the Board of Directors by
the Articles of Incorporation, as amended, of Greenbriar, said Board of
Directors, at a meeting of the Board of Directors held pursuant to Chapter 78 of
the Nevada Revised Statutes, duly adopted a resolution providing for the
issuance of one million four hundred thousand (1,400,000) shares of a new series
of preferred stock designated as Series F Senior Convertible Preferred Stock
(the "Series F Senior Preferred Stock"), which resolution is as follows:
RESOLVED, that pursuant to the Articles of Incorporation of Greenbriar,
there be and hereby is authorized and created a series of preferred stock, to
consist of 1,400,000 shares with a par value of $0.10 per share and a stated
value of $10.00 per share and that the voting powers, designations, preferences,
and relative, participating, optional or other special rights of the Series F
Senior Preferred Stock and the qualifications, limitations or restrictions
thereof be as follows:
1. Certain Definitions.
The following terms shall have the following meanings:
"1996 Form 10-K" means Greenbriar's Annual Report on Form 10-KSB for
the year ended December 31, 1996.
"5-day Average Price" per share of common stock, for purposes of any
provision herein at the date specified in such provision, means the average
closing price of such common stock on the American Stock Exchange, New York
Stock Exchange or Nasdaq National Market over the 5-trading day period
immediately prior to such date.
"20-day Average Price" per share of common stock, for purposes of any
provision herein at the date specified in such provision, means the average
closing price of such common stock on the American Stock Exchange, New York
Stock Exchange or Nasdaq National Market over the 20-trading day period
immediately prior to such date.
"Act" means the Securities Act of 1933, as amended.
"Additional Shares of Greenbriar Nonpreferred Stock" means all shares
of Greenbriar Nonpreferred Stock issued by Greenbriar after the Closing Date
other than (i) any shares of Greenbriar Common Stock issued pursuant to options,
rights or warrants to purchase Greenbriar Common Stock issued pursuant to the
Stock Option Plans; provided that (a) such
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issuances do not exceed in the aggregate 500,000 shares and (b) the exercise
price under such options, rights and warrants shall be payable in cash and shall
be not less than the greater of the Conversion Price or the Fair Market Price on
the date of issuance of the option, right or warrant, (ii) shares of Greenbriar
Common Stock, either sold to employees of Greenbriar or contributed as a
matching contribution at a price not less than the then current Fair Market
Price pursuant to Greenbriar's 401(k) plan, (iii) any shares of Greenbriar
Common Stock issued to James R. Gilley pursuant to an option he currently holds
to purchase 400,000 shares, and, pursuant to his employment agreement with
Greenbriar, any shares of Greenbriar Common Stock issued pursuant to options he
will receive for 200,000 shares on December 31, 1997, 1998 and 1999, (iv) any
shares of Greenbriar Common Stock issued to the April Trust pursuant to a
warrant to purchase 108,000 shares, (v) any shares of Greenbriar Common Stock
issued to the April Trust pursuant to a right to convert Greenbriar Series D
Preferred Stock into 337,500 shares, (vi) any shares of Greenbriar Common Stock
issued to Lone Star pursuant to a right to convert Greenbriar Series F Senior
Preferred Stock and Series G Senior Non-Voting Preferred Stock, and (vii) any
shares of Greenbriar Common Stock exchanged with investors in the Syndication
Program.
"Affiliate" has the meaning set forth in the Purchase Agreement.
"Asset Sale Repurchase Notice" has the meaning set forth in Section 8.5
"Business Day" means any day other than a Saturday, a Sunday, any day
on which the New York Stock Exchange is closed or any other day on which banking
institutions in New York are authorized or required by law to be closed.
"Certificate of Designation" means this Certificate of Voting Powers,
Designations, Preferences, and Relative, Participating, Optional or Other
Special Rights of Series F Senior Preferred Stock.
"Change in Management" has the meaning set forth in Section 8.6.
"Change in Management Repurchase Notice" has the meaning set forth in
Section 8.6.
"Change in Management Repurchase Shares" has the meaning set forth in
Section 8.6.
"Change of Control of Greenbriar" means, with respect to Greenbriar,
the occurrence of any of the following events: (i) any "person" (as such term is
used in Sections 13(d) and 14(d) of the Exchange Act) other than Permitted
Holders is or becomes the "beneficial owner" (as defined in Rules 13d-3 and
13d-5 under the Exchange Act, except that a person shall be deemed to have
"beneficial ownership" of all shares that any such person has the right to
acquire, whether such right is exercisable immediately or after the passage of
time, directly or indirectly) of more than 40% of the Voting Stock of
Greenbriar; or (ii) individuals who at the date hereof constituted the Board of
Directors of Greenbriar (together with any new directors whose election by such
Board or whose nomination for election by the stockholders of Greenbriar was
approved by a vote of the majority of the directors then still in office who
were either directors at the beginning of such period or whose election or
nomination for election was previously so approved) cease for any reason to
constitute a majority of the Board of Directors then in office, other than
pursuant to the provisions of this Certificate of
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Designation or the Purchase Agreement; provided, however, a Sale of Greenbriar
is not considered a Change of Control of Greenbriar.
"Closing Date" means the date of the closing of the first sale of the
Series F Senior Preferred Stock.
"Commission" means the Securities and Exchange Commission or any other
similar or successor agency of the federal government administering the Act.
"Computation Date" means:
(i) with respect to Section 6.4(c), the earlier of (a) the
date on which Greenbriar shall enter into a firm contract for the
issuance of Additional Shares of Greenbriar Nonpreferred Stock or (b)
the date of actual issuance of Additional Shares of Greenbriar
Nonpreferred Stock; provided, that with respect to Section 6.4(c), the
Computation Date in connection with an acquisition by Greenbriar using
common stock as all or a part of the consideration shall mean the
effective date of issuance of Additional Shares of Greenbriar
Nonpreferred Stock;
(ii) with respect to Section 6.4(d), the earliest to occur of
(a) the date on which Greenbriar shall take a record of the holders of
its Greenbriar Nonpreferred Stock for the purpose of entitling them to
receive any warrants, options or other rights, (b) the date on which
Greenbriar shall enter into a firm contract for the issuance of
warrants, options or other rights and (c) the date of actual issuance
of warrants, options or other rights; and
(iii) with respect to Section 6.4(e), the earliest of (a) the
date on which Greenbriar shall take a record of the holders of its
Greenbriar Nonpreferred Stock for the purpose of entitling them to
receive any Greenbriar Convertible Securities, (b) the date on which
Greenbriar shall enter into a firm contract for the issuance of
Greenbriar Convertible Securities and (c) the date of actual issuance
of Greenbriar Convertible Securities.
"Conversion Price" initially means $17.50 and shall be adjusted and
readjusted from time to time as provided in Section 6.
"Default Date" has the meaning set forth in Section 8.2.
"Event of Default" means the occurrence of any of the following:
(i) Greenbriar shall fail to comply with any of the covenants
in Section 6 of the Purchase Agreement; provided, that in the case of
the covenants contained in Sections 6.4-6.18 and 6.24-6.27 of the
Purchase Agreement, failure to comply shall not be considered an Event
of Default if such failure is cured or compliance is waived in writing
by the Preferred Stock Representative within 30 days after the date on
which the failure to comply first occurs; provided further, that in the
case of the covenants contained in Sections 6.28 and 6.29 of the
Purchase Agreement, failure to comply shall not be considered an Event
of Default if (i) compliance is waived in writing by the Preferred
Stock Representative within 30 days or (ii) the ratio corresponding to
each
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covenant is less than 4.5, 4.25 and 4.5, respectively, to 1 at the
quarter end on which the failure to comply first occurs and such
covenant is fully complied with at the next quarter end; provided
further, that in the case of the covenant contained in Sections 6.30 of
the Purchase Agreement, failure to comply shall not be considered an
Event of Default if (i) compliance is waived in writing by the
Preferred Stock Representative within 30 days or (ii) the ratio
contained in such covenant is 2 to 1 for the two quarter period
comprised of the quarter in which the failure to comply first occurs
and the following quarter; provided further, that in the case of the
covenants contained in Sections 6.31-6.35 of the Purchase Agreement,
failure to comply shall not be considered an Event of Default if (i)
compliance is waived in writing by the Preferred Stock Representative
within 30 days or (ii) the percentage corresponding to each covenant is
less than 85% at the quarter end on which the failure to comply first
occurs and such covenant is fully complied with at the next quarter
end.
(ii) If Greenbriar fails to pay the holders of the Series F
Senior Preferred Stock all accrued dividends in full for two quarters,
whether or not such payment is legally permissible;
(iii) Greenbriar shall purport to take any action specified in
Section 5.2 of this Certificate of Designation without the requisite
vote of the holders of the Series F Senior Preferred Stock;
(iv) James R. Gilley and the Gilley Affiliates shall cease to
own at least 1,500,000 shares of Greenbriar Common Stock, subject to
appropriate adjustments in connection with a stock split or other
similar events;
(v) There shall occur a Change of Control of Greenbriar;
(vi) Greenbriar shall fail to comply with any of the covenants
contained in Section 7 of this Certificate of Designation; provided
that failure to comply shall not be considered an Event of Default if
such failure is cured or compliance is waived in writing by the
Preferred Stock Representative within 10 days after the date on which
the failure to comply first occurs;
(vii) The commencement of an involuntary case or other
proceeding against Greenbriar or any Subsidiary, which seeks
liquidation, reorganization or other relief with respect to it or its
debts or other liabilities under any bankruptcy, insolvency or other
similar law now or hereafter in effect or seeking the appointment of a
trustee, receiver, liquidator, custodian or other similar official of
it or any substantial part of its property, or the entry of an order
for relief against Greenbriar or any Subsidiary in any such case under
the United States Bankruptcy Code which is not dismissed within 60
days; or
(viii) The commencement by Greenbriar or any Subsidiary of or
the approval by a majority of the Board of Directors of Greenbriar or
any Subsidiary of the commencement of a voluntary case or other
proceeding, seeking liquidation, reorganization or other relief with
respect to itself or its debts or other liabilities under any
bankruptcy, insolvency or other similar law now or hereafter in effect
or seeking the appointment of a trustee, receiver, liquidator,
custodian or other similar
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official of it or any substantial part of its property, or consent to
any such relief or to the appointment of or taking possession by any
such official in an involuntary case or other proceeding commenced
against it, or the making by Greenbriar or any Subsidiary of a general
assignment for the benefit of creditors, or failure by Greenbriar or
any Subsidiary generally to or written admission of its inability to
pay its debts generally as they become due, or the taking of any
corporate action to authorize or effect any of the foregoing.
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
or any similar federal statute, and the rules and regulations of the Commission
thereunder, all as the same shall be in effect at the time.
"Fair Market Price" per share of common stock, for purposes of any
provision herein at the date specified in such provision, means the greater of
(i) the 5-Day Average Price of such common stock or (ii) the 20-Day Average
Price of such common stock; provided, that the Fair Market Price of common stock
issued in connection with an acquisition by Greenbriar shall mean the 20-Day
Average Price of such common stock. Notwithstanding any of the foregoing, if the
common stock that is being valued has not been listed on the American Stock
Exchange, New York Stock Exchange or Nasdaq National Market for such 5 and 20
business day periods, then the Fair Market Price per share of such common stock
shall be deemed to be the greater of (i) the net book value per share of common
stock, determined in accordance with GAAP, or (ii) the fair value per share of
common stock determined pursuant to the Valuation Procedure.
"GAAP" means those generally accepted accounting principles and
practices which are used in the United States and recognized as such by the
American Institute of Certified Public Accountants acting through its Accounting
Principles Board or by the Financial Accounting Standards Board or through other
appropriate boards or committees thereof and which are consistently applied for
all periods to present fairly in all material respects the financial position,
results of operations and operating cash flow on a consolidated basis of the
party, except that any accounting principle or practice required to be changed
by the Accounting Principles Board or Financial Accounting Standards Board (or
other appropriate board or committee) in order to continue as a generally
accepted accounting principle or practice may be so changed.
"Gilley Affiliates" means James R. Gilley, Sylvia Gilley, JRG
Investment Company, Inc., April Trust, September Trust, October Trust, November
Trust, December Trust, Nita Dry, Todd Dry, Donna Gilley, Elizabeth Gilley, W.
Michael Gilley, Caroline Gilley, or any other trusts controlled by James R.
Gilley.
"Greenbriar" means Greenbriar Corporation, a Nevada corporation.
"Greenbriar Common Stock" means Greenbriar's common stock, $0.01 par
value per share.
"Greenbriar Convertible Securities" means evidences of indebtedness,
shares of stock or other securities which are convertible into or exchangeable
for Additional Shares of Greenbriar Nonpreferred Stock, either immediately or
upon the arrival of a specified date or the happening of a specified event.
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"Greenbriar Nonpreferred Stock" means Greenbriar Common Stock and shall
also include stock of Greenbriar of any other class which is not preferred as to
dividends or assets to be received upon liquidation or dissolution over any
other class of stock of Greenbriar and which is not subject to redemption.
"IRR" means compounded annual rate of return.
"Junior Stock" has the meaning set forth in Section 2.
"Liquidation Amount" means $10.00, plus a sum equal to all accumulated
but unpaid dividends (including dividends, if any, payable pursuant to Section
8.2) and interest thereon, if any, through the date of payment thereof, per
share of Series F Senior Preferred Stock.
"Liquidation Value" means the Liquidation Amount with respect to all
issued and outstanding Series F Senior Preferred Stock plus any unreimbursed
costs and expenses payable to the holders of the Series F Senior Preferred Stock
pursuant to the Purchase Agreement.
"Lone Star" means Lone Star Opportunity Fund, L.P., a Delaware limited
partnership.
"Mandatory Conversion Date" means the earlier of (i) the third
anniversary of the date of issuance of the Series F Senior Preferred Stock or
(ii) the date of a Sale of Greenbriar.
"Permitted Combination" means (i) a Sale of Greenbriar, (ii) an
acquisition by Greenbriar in the ordinary course of its business as described in
the 1996 Form 10-K, or (iii) where there is a Special Asset Sale Trigger.
"Permitted Holders" means James R. Gilley and his Affiliates.
"Permitted Investments" shall mean (a) marketable direct obligations
issued or unconditionally guaranteed by the United States government or issued
by an agency or instrumentality thereof and backed by the full faith and credit
of the United States of America, in each case maturing within 180 days after the
date of acquisition thereof; (b) marketable direct obligations issued by any
state of the United States of America or any political subdivision of any such
state or any public instrumentality thereof maturing within 180 days after the
date of acquisition thereof and, at the time of acquisition, having a rating of
"a" or higher from Standard & Poor's Corporation ("S&P") and Moody's Investors
Service, Inc. ("Moody's") and not listed in Credit Watch published by S&P; (c)
commercial paper maturing no more than 90 days after the date of creation
thereof and, at the time of acquisition, having a rating of at least a-1 from
S&P and P-1 from Moody's; (d) domestic and Eurodollar certificates of deposit or
time deposits or bankers acceptances maturing within 90 days after the date of
acquisition thereof issued by Escrow Agent or any commercial bank organized
under the laws of the United States of America or any state thereof having a
rating of "a" or higher from S&P and Moody's; and (e) money market funds having
an average portfolio maturity, at the time of acquisition thereof, of not more
than 90 days, which money market funds are required to invest at least 95% of
their assets in instruments described in this definition.
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"Potential Default" means any event's occurrence or any circumstance's
existence that would, upon any required notice, time lapse, or both, become an
Event of Default.
"Preferred Stock Representative" means a Person designated in writing
by a majority of the holders of the Series F Senior Preferred Stock to represent
such holders with respect to certain matters pursuant to this Agreement and the
Purchase Agreement.
"Purchase Agreement" means that certain Stock Purchase Agreement
between Greenbriar and Lone Star Opportunity Fund, L.P., whereby the Series F
Senior Preferred Stock is being issued, as amended from time to time in
accordance with the terms thereof. A copy of the Purchase Agreement, as so
amended, is maintained at the principal executive offices of Greenbriar and will
be furnished, upon written request, to any holders of the Series F Senior
Preferred Stock without charge.
"Repurchase Notice" has the meaning set forth in Section 8.4.
"Repurchase Promissory Note" has the meaning set forth in Section 8.6.
"Repurchase Shares" has the meaning set forth in Section 8.5.
"Sale of Greenbriar" means (i) a merger or consolidation in which all
shares of Greenbriar Common Stock are exchanged for cash, securities of another
entity, or a combination of cash and securities of another entity or (ii) a cash
tender offer to purchase all of the outstanding shares of Greenbriar is made to
the shareholders of Greenbriar and accepted by a majority of such shareholders.
"Series B Junior Preferred Stock" means Greenbriar's Series B Preferred
Stock, $0.10 par value per share.
"Series D Junior Preferred Stock" means Greenbriar's Series D Preferred
Stock, $0.10 par value per share.
"Series F Senior Preferred Stock" has the meaning set forth in the
preamble.
"Series G Senior Non-Voting Preferred Stock" means Greenbriar's Series
G Senior Non-Voting Convertible Preferred Stock.
"Series G Certificate of Designation" means Greenbriar's Certificate of
Voting Powers, Designations, Preferences, and Relative, Participating, Optional
or Other Special Rights of Series G Senior Non-Voting Convertible Preferred
Stock as filed with the Secretary of State of Nevada.
"Special Asset Sale Trigger" means any sale, lease, sale/leaseback,
assignment, transfer or other disposition of assets, which when aggregated with
all sales, leases, sale/leasebacks, assignments, transfers or other dispositions
of assets in one or more independent or related transactions from the later of
the date hereof or the date of the last Special Asset Sale Trigger, (i) have a
total aggregate consideration received for such dispositions in excess of $25
million of cash, indebtedness assumed and the present fair value of any other
consideration, including, but not limited to the present fair value of any
earnouts
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or (ii) dispose of a total aggregate number of operated properties of five. The
dispositions described above specifically include, but are not limited to, sales
of operating leases and management contracts and sales as a part of the
Syndication Program.
"Spin-off" means the pro rata distribution by Greenbriar of the
outstanding shares of common stock of a Subsidiary to the holders of Greenbriar
Common Stock to effect the spin-off of such Subsidiary.
"Stock Option Plans" means Greenbriar's 1997 Stock Option Plan and
Greenbriar's 1992 Stock Option Plan, as amended, which shall be consistent with
the copies of such plans delivered to purchasers of the Series F Senior
Preferred Stock prior to the Closing Date, as the same may be amended from time
to time with the prior approval of the Preferred Stock Representative.
"Subsidiaries" means all the corporations, partnerships, joint
ventures, business trusts or other legal entities in which Greenbriar, either
directly or indirectly through one or more intermediaries, owns or holds
beneficial or record ownership of at least a majority of the outstanding voting
shares or other equity interests. Each of the Subsidiaries is sometimes referred
to herein individually as a "Subsidiary."
"Syndication Program" means a program of selling real estate to public
or private syndications consisting of partnerships, limited liability companies,
or limited liability partnerships where ownership of such entities is offered to
passive investors for cash and/or notes.
"Tribunal" means any (a) local, state, territorial, federal, or foreign
judicial, executive, regulatory, administrative, legislative, or governmental
agency, board, bureau, commission, department, or other instrumentality, (b)
private arbitration board or panel or (c) central bank.
"Valuation Procedure" has the meaning set forth in Section 6.4(b).
"Voting Stock" means the total voting power of all classes of capital
stock then outstanding of a company and normally entitled to vote in elections
of directors of such company.
2. Ranking of the Series F Senior Preferred Stock.
So long as any shares of Series F Senior Preferred Stock shall be
outstanding, the Series F Senior Preferred Stock shall rank senior with respect
to the rights to receive dividends and to receive assets upon liquidation,
dissolution or winding up of Greenbriar to the Greenbriar Common Stock and to
all other series of preferred stock or classes or series of capital stock
hereafter or heretofore established by the Board of Directors of Greenbriar
(collectively, the "Junior Stock"), which includes, but is not limited to, the
Series B Junior Preferred Stock and the Series D Junior Preferred Stock. The
Series F Senior Preferred Stock shall rank pari passu with respect to the rights
to receive dividends and to receive assets upon liquidation, dissolution or
winding up of Greenbriar to Greenbriar's Series G Senior Non-Voting Preferred
Stock.
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3. Dividends; Restricted Payments.
3.1 Dividend Payment Dates. The holders of Series F Senior Preferred
Stock shall be entitled to receive, when, as and if declared by the Board of
Directors of Greenbriar out of funds legally available for that purpose, a
quarterly dividend of $0.15 per share payable in cash on the last Business Day
of March, June, September and December of each year commencing on March 31,
1998, which payment shall include pro rated daily dividends from the date of
original issue of the Series F Senior Preferred Stock. Dividends on the Series F
Senior Preferred Stock shall be cumulative from the date of original issue of
the Series F Senior Preferred Stock, whether or not at the time such dividend
shall accrue or become due there shall be funds legally available for the
payment of dividends. All accrued and unpaid dividends, whether or not earned or
declared, shall bear interest from the respective payment date until paid at an
annual rate of 12% per annum.
3.2 Record Date. The Board of Directors shall fix a record date for the
determination of holders of the Series F Senior Preferred Stock entitled to
receive payment of a dividend declared thereon (including dividends, if any,
payable pursuant to Section 8.2), which record date shall be not more than sixty
(60) days prior to the date fixed for the payment thereof.
3.3 Restricted Payments. Unless full cumulative dividends on the Series
F Senior Preferred Stock have been paid (including dividends, if any, payable
pursuant to Section 8.2), no dividends or other distributions shall be declared
or paid or set apart for payment upon any Junior Stock nor shall any Junior
Stock be redeemed, purchased or otherwise acquired by Greenbriar (other than
upon conversion under the terms of said Junior Stock for consideration
consisting solely of shares of Greenbriar Common Stock) for any consideration
(or any payment made to or available for a sinking fund for the redemption of
any shares of such stock) by Greenbriar.
4. Liquidation Rights.
Upon any liquidation, dissolution or winding up of the affairs of
Greenbriar, no distribution shall be made or declared or set apart for payment
to the holders of any Junior Stock unless, prior to the first such distribution,
the holders of the Series F Senior Preferred Stock shall have received the
Liquidation Value. If the assets distributable in any such event to the holders
of the Series F Senior Preferred Stock are insufficient to permit the payment to
such holders of the full preferential amounts to which they may be entitled,
such assets shall be distributed ratably among the holders of the Series F
Senior Preferred Stock in proportion to the full preferential amount each such
holder would otherwise be entitled to receive.
5. Voting Rights of Series F Senior Preferred Stock.
5.1 Special Rights in Electing Directors. The holders of the Series F
Senior Preferred Stock shall at all times have the right following the Closing,
as a class, to elect at least one member of the Board of Directors of Greenbriar
who is subject to removal, and whose vacancy shall be filled, only by the
holders of the Series F Senior Preferred Stock; provided, that in the event that
the holders of the Series F Senior Preferred Stock do not exercise their right
to elect a board member, they may appoint an observer who may attend
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all meetings (including committee meetings) of the Board of Directors of
Greenbriar and who shall be entitled to the same expense reimbursement as
Directors of Greenbriar. Any person elected or nominated for this position shall
provide to Greenbriar information required to be disclosed in filings with the
Commission.
5.2 Class Voting Rights. So long as any shares of Series F Senior
Preferred Stock are outstanding, in addition to any other vote or consent of
shareholders required by law or by the Articles of Incorporation of Greenbriar,
the approval of the holders of Series F Senior Preferred Stock, acting as a
single class, shall be necessary for effecting or validating:
(i) Any amendment, alteration or repeal of any of the
provisions of the Articles of Incorporation or the Bylaws of
Greenbriar; including, but not limited to, any amendment, alteration,
repeal or filing of any Certificate of Designation of Greenbriar or any
resolution of the Board of Directors of Greenbriar filed with the
Office of the Secretary of State of Nevada;
(ii) The authorization, creation or issuance of, or the
increase in the authorized amount of, any shares of capital stock of
any class or series or any security convertible into shares of any
class or series of any security ranking prior to or on a parity with
the shares of Series F Senior Preferred Stock in the payment of
dividends or in the distribution of assets on any liquidation,
dissolution, or winding up of Greenbriar;
(iii) The merger or consolidation of Greenbriar with or into
any other corporation or other entity, other than a Permitted
Combination;
(iv) Any reorganization, restructuring, recapitalization or
other similar transaction of Greenbriar; other than a Permitted
Combination; or
(v) Any Spin-off.
With respect to any matter that requires the approval of holders of
Series F Senior Preferred Stock acting separately as a class or any action that
may be taken by the holders of Series F Senior Preferred Stock, such approval
shall be deemed to be given or such action taken by the affirmative vote of the
holders of a majority of the outstanding shares of Series F Senior Preferred
Stock, given in person or by proxy, by written consent or at the annual meeting
of Greenbriar's shareholders, or a special meeting in lieu thereof, or at a
special meeting of the holders of shares of Series F Senior Preferred Stock
called for the purpose of voting on such matter or action. Upon receipt of the
written request of the holders of 20% or more of the outstanding shares of
Series F Senior Preferred Stock, the Secretary of Greenbriar shall call and give
notice of a special meeting of the holders of the Series F Senior Preferred
Stock for the purpose specified in such request, which meeting shall be held
within 30 days after delivery of such request to Greenbriar at such place in the
continental United States as specified in such written request; provided that
the Secretary shall not be required to call such a special meeting in the case
of any such request received less than 30 days before the date fixed for an
annual meeting of Greenbriar's shareholders.
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6. Conversion.
The Series F Senior Preferred Stock shall be convertible as follows:
6.1 Right of Holder to Conversion. Each share of the Series F Senior
Preferred Stock shall be convertible, without the payment of any additional
consideration by the holder thereof and at the option of the holder thereof, at
any time after the earlier of (i) the second anniversary of the date of original
issuance of Series F Senior Preferred Stock, (ii) an Event of Default under any
of clauses (ii) through (viii) of the definition of "Event of Default" or an
Event of Default resulting from the failure of Greenbriar to comply with
Sections 6.1, 6.3, 6.10, 6.19, 6.20, 6.22, 6.27-6.35 or 6.37 of the Purchase
Agreement, in whole or in part, (iii) a Special Asset Sale Trigger or (iv) a
Change in Management, at the office of Greenbriar or any transfer agent for the
Series F Senior Preferred Stock, into a number of shares of Greenbriar Common
Stock determined by dividing the Liquidation Value of the shares so converted by
the Conversion Price, plus, in lieu of any fractional share to which such holder
would otherwise be entitled, cash equal to such fraction multiplied by the Fair
Market Price.
6.2 Mechanics of Conversion by Holder. In order for any holder of the
Series F Senior Preferred Stock to convert the same into Greenbriar Common
Stock, the holder shall surrender to Greenbriar at the office of Greenbriar or
of any transfer agent for the Series F Senior Preferred Stock, the certificate
or certificates representing such Series F Senior Preferred Stock, accompanied
by written notice to Greenbriar that the holder elects to convert all or a
specified number of such shares and stating therein the holder's name or the
name or names of the holder's nominees in which the holder wishes the
certificate or certificates for Greenbriar Common Stock to be issued or
transferred. Greenbriar shall, as soon as practicable thereafter, deliver at
such office to such holder of the Series F Senior Preferred Stock, or to the
holder's nominee or nominees, a certificate or certificates representing the
number of shares of Greenbriar Common Stock to which the holder shall be
entitled as aforesaid and, if less than the full number of shares of the Series
F Senior Preferred Stock evidenced by such surrendered certificate or
certificates being converted, a new certificate or certificates, of like tenor,
for the number of shares of the Series F Senior Preferred Stock evidenced by
such surrendered certificate less the number of such shares being converted. Any
conversion made at the election of a holder of the Series F Senior Preferred
Stock shall be deemed to have been made immediately prior to the close of
business on the date of such surrender of the Series F Senior Preferred Stock to
be converted, and the person or persons entitled to receive the Greenbriar
Common Stock issuable upon conversion shall be treated for all purposes as the
record holder or holders of such Greenbriar Common Stock on such date.
6.3 Mandatory Conversion. On the Mandatory Conversion Date, each share
of the Series F Senior Preferred Stock must be converted into shares of
Greenbriar Common Stock based upon the conversion provisions herein and subject
to any adjustments as provided in this Agreement.
6.4 Adjustments to Conversion Price for Diluting Issues or Other
Transactions:
(a) Stock Dividends, Subdivisions and Combinations. In case at
any time or from time to time Greenbriar shall:
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(1) take a record of the holders of its Greenbriar
Nonpreferred Stock for the purpose of entitling them to
receive a dividend payable in, or other distribution of,
Greenbriar Nonpreferred Stock;
(2) subdivide its outstanding shares of Greenbriar
Nonpreferred Stock into a larger number of shares of
Greenbriar Nonpreferred Stock; or
(3) combine its outstanding shares of Greenbriar
Nonpreferred Stock into a smaller number of shares of
Greenbriar Nonpreferred Stock;
then the Conversion Price in effect immediately after the happening of
any such event shall be proportionately decreased, in case of the
happening of events described in subparagraphs (1) or (2) above, or
proportionately increased, in case of the happening of events described
in subparagraph (3) above.
(b) Certain Other Dividends and Distributions. In case at any
time or from time to time Greenbriar shall take a record of the holders
of its Greenbriar Nonpreferred Stock for the purpose of entitling them
to receive any dividend or other distribution of:
(1) cash, to the extent, but only to the extent, that
such distribution together with all such dividends paid or
declared after the date hereof, does not exceed the
consolidated net income, net of consolidated net losses, of
Greenbriar and its consolidated subsidiaries earned subsequent
to the date hereof determined in accordance with GAAP;
(2) any evidence of its indebtedness (other than
Greenbriar Convertible Securities), any shares of its stock
(other than Additional Shares of Greenbriar Nonpreferred
Stock) or any other securities or property of any nature
whatsoever (other than cash and other than Greenbriar
Convertible Securities or Additional Shares of Greenbriar
Nonpreferred Stock); or
(3) any warrants or other rights to subscribe for or
purchase any evidences of its indebtedness (other than
Greenbriar Convertible Securities), any shares of its stock
(other than Additional Shares of Greenbriar Nonpreferred
Stock) or any other securities or property of any nature
whatsoever (other than cash and other than Greenbriar
Convertible Securities or Additional Shares of Greenbriar
Nonpreferred Stock);
then the Conversion Price in effect shall be adjusted to that number
determined by multiplying the Conversion Price then in effect by a
fraction (x) the numerator of which shall be the Fair Market Price per
share of Greenbriar Common Stock immediately prior to the date of
taking such record minus the portion applicable to one share of
Greenbriar Common Stock of any such cash so distributable and of the
fair value of any and all such evidences of indebtedness, shares of
stock, other securities or property, or warrants or other subscription
or purchase rights so distributable and (y) the denominator of which
shall be the Fair Market Price per share of Greenbriar Common Stock
immediately prior to the date of taking such record. The fair value of
any and all such evidences of indebtedness, shares of stock,
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other securities or property, or warrants or other subscription or
purchase rights, shall be determined pursuant to the Valuation
Procedure. The "Valuation Procedure" is a determination of fair value
of any property made in good faith by the Board of Directors of
Greenbriar; provided that, if the Preferred Stock Representative
objects to such determination within 10 days of receipt of written
notification thereof, then the fair value of such property shall be
determined in good faith by a recognized national investment bank
selected by unanimous vote or consent of the Board of Directors of
Greenbriar, which investment bank is not reasonably objected to by the
Preferred Stock Representative. The fees and expenses of such
investment bank shall be paid by one-half by Greenbriar and one-half by
the holders of the Series F Senior Preferred Stock. A reclassification
of the Greenbriar Nonpreferred Stock into shares of Greenbriar
Nonpreferred Stock and shares of any other class of stock shall be
deemed a distribution by Greenbriar to the holders of its Greenbriar
Nonpreferred Stock of such shares of such other class of stock within
the meaning of this Section 6.4(b) and, if the outstanding shares of
Greenbriar Nonpreferred Stock shall be changed into a larger or smaller
number of shares of Greenbriar Nonpreferred Stock as a part of such
reclassification, shall be deemed a subdivision or combination, as the
case may be, of the outstanding shares of Greenbriar Nonpreferred Stock
within the meaning of Section 6.4(a).
(c) Issuance of Additional Shares of Greenbriar Nonpreferred
Stock. In case at any time or from time to time after the Closing Date,
Greenbriar shall (except as hereinafter provided) issue, whether in
connection with the merger of a corporation into Greenbriar or
otherwise, any Additional Shares of Greenbriar Nonpreferred Stock for a
consideration per share less than either the Conversion Price or the
Fair Market Price per share of Greenbriar Common Stock on the
Computation Date, then the Conversion Price shall be adjusted to the
lower of either:
(1) that number determined by multiplying the
Conversion Price in effect immediately prior to such
adjustment by a fraction (x) the numerator of which shall be
the number of shares of Greenbriar Nonpreferred Stock, plus
the number of shares of Greenbriar Nonpreferred Stock which
the aggregate consideration for the total number of such
Additional Shares of Greenbriar Nonpreferred Stock so issued
would purchase at the greater of the Conversion Price or the
Fair Market Price per share of Greenbriar Common Stock and (y)
the denominator of which shall be the number of shares of
Greenbriar Nonpreferred Stock plus the number of such
Additional Shares of Greenbriar Nonpreferred Stock so issued;
or
(2) the value of the consideration per share for
which such Additional Shares of Greenbriar Nonpreferred Stock
were issued (or, in the case of adjustments under Sections
6.4(d) or 6.4(e), are issuable).
No adjustment of the Conversion Price shall be made under this Section
6.4(c) upon the issuance of any Additional Shares of Greenbriar
Nonpreferred Stock which are issued pursuant to the exercise of any
warrants or other subscription or purchase rights or pursuant to the
exercise of any conversion or exchange rights in any Greenbriar
Convertible Securities, if any such adjustment shall previously have
been made upon the issuance of such warrants or other rights or upon
the issuance of such
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Greenbriar Convertible Securities (or upon the issuance of any warrant
or other rights therefor) pursuant to Section 6.4(d) or 6.4(e).
(d) Issuance of Warrants, Options or Other Rights. In case at
any time or from time to time after the Closing Date, Greenbriar shall
take a record of the holders of its Greenbriar Nonpreferred Stock for
the purpose of entitling them to receive a distribution of, or shall
otherwise issue, any warrants, options or other rights to subscribe for
or purchase any Additional Shares of Greenbriar Nonpreferred Stock or
any Greenbriar Convertible Securities and the consideration per share
for which Additional Shares of Greenbriar Nonpreferred Stock may at any
time thereafter be issuable pursuant to such warrants, options or other
rights or pursuant to the terms of such Greenbriar Convertible
Securities shall be less than either the Conversion Price or the Fair
Market Price per share of Greenbriar Common Stock on the Computation
Date, then the Conversion Price shall be adjusted as provided in
Section 6.4(c). Such adjustment shall be made on the basis that (i) the
maximum number of Additional Shares of Greenbriar Nonpreferred Stock
issuable pursuant to all such warrants, options or other rights or
necessary to effect the conversion or exchange of all such Greenbriar
Convertible Securities shall be deemed to have been issued as of the
Computation Date, and (ii) the aggregate consideration for such maximum
number of Additional Shares of Greenbriar Nonpreferred Stock shall be
deemed to be the minimum consideration received and receivable by
Greenbriar for the issuance of such Additional Shares of Greenbriar
Nonpreferred Stock pursuant to such warrants, options or other rights
or pursuant to the terms of such Greenbriar Convertible Securities.
(e) Issuance of Greenbriar Convertible Securities. In case at
any time or from time to time after the Closing Date, Greenbriar shall
take a record of the holders of its Greenbriar Nonpreferred Stock for
the purpose of entitling them to receive a distribution of, or shall
otherwise issue, any Greenbriar Convertible Securities and the
consideration per share for which Additional Shares of Greenbriar
Nonpreferred Stock may at any time thereafter be issuable pursuant to
the terms of such Greenbriar Convertible Securities shall be less than
either the Conversion Price or the Fair Market Price per share of
Greenbriar Common Stock on the Computation Date, then the Conversion
Price shall be adjusted as provided in Section 6.4(c). Such adjustments
shall be made on the basis that (i) the maximum number of Additional
Shares of Greenbriar Nonpreferred Stock necessary to effect the
conversion or exchange of all such Greenbriar Convertible Securities
shall be deemed to have been issued as of the Computation Date, and
(ii) the aggregate consideration for such maximum number of Additional
Shares of Greenbriar Nonpreferred Stock shall be deemed to be the
minimum consideration received and receivable by Greenbriar for the
issuance of such Additional Shares of Greenbriar Nonpreferred Stock
pursuant to the terms of such Greenbriar Convertible Securities. No
adjustment of the Conversion Price shall be made under this Section
6.4(e) upon the issuance of any Greenbriar Convertible Securities which
are issued pursuant to the exercise of any warrants or other
subscription or purchase rights therefor, if any such adjustment shall
previously have been made upon the issuance of such warrants or other
rights pursuant to Section 6.4(d).
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(f) Superseding Adjustment of Conversion Price. If, at any
time after any adjustment of the Conversion Price shall have been made
pursuant to the foregoing Section 6.4(d) or 6.4(e) on the basis of the
issuance of warrants or other rights or the issuance of other
Greenbriar Convertible Securities, or after any new adjustment of the
Conversion Price shall have been made pursuant to this Section 6.4(f):
(1) all of such warrants, options or rights or the
right of conversion or exchange in such other Greenbriar
Convertible Securities shall expire, and none of such
warrants, options or rights, or the right of conversion or
exchange in respect of such other Greenbriar Convertible
Securities, as the case may be, shall have been exercised; or
(2) the consideration per share, for which Additional
Shares of Greenbriar Nonpreferred Stock are issuable pursuant
to all of such warrants, options or rights or the terms of all
of such other Greenbriar Convertible Securities, shall be
increased solely by virtue of provisions therein contained for
an automatic increase in such consideration per share upon the
arrival of a specified date or the happening of a specified
event, and none of such warrants, options or rights, or the
right of conversion or exchange in respect of such other
Greenbriar Convertible Securities, as the case may be, shall
have been exercised;
such previous adjustment shall be rescinded and annulled and the
Additional Shares of Greenbriar Nonpreferred Stock which were deemed to
have been issued by virtue of the computation made in connection with
the adjustment so rescinded and annulled shall no longer be deemed to
have been issued by virtue of such computation. Thereupon, a
recomputation shall be made of the effect of such warrants, rights or
options or other Greenbriar Convertible Securities on the basis of
treating any such warrants, options or rights or any such other
Greenbriar Convertible Securities which then remain outstanding as
having been granted or issued immediately after the time of such
increase of the consideration per share for such Additional Shares of
Greenbriar Nonpreferred Stock are issuable under such warrants or
rights or other Greenbriar Convertible Securities; and, if and to the
extent called for by the foregoing provisions of this Section 6.4 on
the basis aforesaid, a new adjustment of the Conversion Price shall be
made, which new adjustment shall supersede the previous adjustment so
rescinded and annulled.
(g) Other Provisions Applicable to Adjustments Under this
Section. The following provisions shall be applicable to the making of
adjustments of the Conversion Price hereinbefore provided for in this
Section 6.4:
(1) Treasury Stock. The sale or other disposition of
any issued shares of Greenbriar Nonpreferred Stock owned or
held by or for the account of Greenbriar shall be deemed an
issuance thereof for purposes of this Section 6.4.
(2) Computation of Consideration. To the extent that
any Additional Shares of Greenbriar Nonpreferred Stock or any
Greenbriar Convertible Securities or any warrants, options or
other rights to subscribe for or purchase
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any Additional Shares of Greenbriar Nonpreferred Stock or any
Greenbriar Convertible Securities shall be issued solely for
cash consideration, the consideration received by Greenbriar
therefor shall be deemed to be the amount of cash received by
Greenbriar therefor, or, if such Additional Shares of
Greenbriar Nonpreferred Stock or Greenbriar Convertible
Securities are offered by Greenbriar for subscription, the
subscription price, or, if such Additional Shares of
Greenbriar Nonpreferred Stock or Greenbriar Convertible
Securities are sold to underwriters or dealers for public
offering without a subscription offering, the initial public
offering price, in any such case excluding any amounts paid or
receivable for accrued interest or accrued dividends and
without deduction of any compensation, discounts or expenses
paid or incurred by Greenbriar for and in the underwriting of,
or otherwise in connection with, the issue thereof. The
consideration for any Additional Shares of Greenbriar
Nonpreferred Stock issuable pursuant to any warrants, options
or other rights to subscribe for or purchase the same shall be
the consideration received or receivable by Greenbriar for
issuing such warrant, options or other rights, plus the
additional consideration payable to Greenbriar upon the
exercise of such warrants, options or other rights. The
consideration for any Additional Shares of Greenbriar
Nonpreferred Stock issuable pursuant to the terms of any
Greenbriar Convertible Securities shall be the consideration
received or receivable by Greenbriar for issuing any warrants
or other rights to subscribe for or purchase such Greenbriar
Convertible Securities, plus the consideration paid or payable
to Greenbriar in respect of the subscription for or purchase
of such Greenbriar Convertible Securities, plus the additional
consideration, if any, payable to Greenbriar upon the exercise
of the right of conversion or exchange in such Greenbriar
Convertible Securities. To the extent that any issuance shall
be for a consideration other than solely for cash, then,
except as herein otherwise expressly provided, the amount of
such consideration shall be deemed to be the fair value of
such consideration at the time of such issuance as determined
pursuant to the Valuation Procedure.
(3) When Adjustments to be made. The adjustments
required by the preceding subsections of this Section 6.4
shall be made whenever and as often as any specified event
requiring an adjustment shall occur, except that no adjustment
of the Conversion Price that would otherwise be required shall
be made (except in the case of a subdivision or combination of
shares of the Greenbriar Nonpreferred Stock as provided for in
Section 6.4(a)) unless and until such adjustment, either by
itself or with other adjustments not previously made, adds or
subtracts at least $0.05 to the Conversion Price, as
determined in good faith by the Board of Directors of
Greenbriar. Any adjustment representing a change of less than
such minimum amount shall be carried forward and made as soon
as such adjustment, together with other adjustments required
by this Section 6.4 and not previously made, would result in a
minimum adjustment. For the purpose of any adjustment, any
specified event shall be deemed to have occurred at the close
of business on the date of its occurrence.
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(4) Fractional Interests. In computing adjustments
under this Section 6.4, fractional interests in Greenbriar
Nonpreferred Stock shall be taken into account to the nearest
one-thousandth of a share.
(5) When Adjustment Not Required. If Greenbriar shall
take a record of the holders of its Greenbriar Nonpreferred
Stock for the purpose of entitling them to receive a dividend
or distribution or subscription or purchase rights and shall,
thereafter and before the distribution thereof to
shareholders, legally abandon its plan to pay or deliver such
dividend, distribution, subscription or purchase rights, then
thereafter no adjustment shall be required by reason of the
taking of such record and any such adjustment previously made
in respect thereof shall be rescinded and annulled.
(h) Merger, Consolidation or Disposition of Assets. In case
Greenbriar shall merge or consolidate into another corporation, or
shall sell, transfer or otherwise dispose of all or substantially all
of its property, assets or business to another corporation, except
where there is a Special Asset Sale Trigger, and pursuant to the terms
of such merger, consolidation or disposition, shares of common stock of
the successor or acquiring corporation are to be received by or
distributed to the holders of Greenbriar Nonpreferred Stock, then each
holder of a share of the Series F Senior Preferred Stock shall have the
right thereafter to receive, upon exercise of such share of the Series
F Senior Preferred Stock, shares of common stock each comprising the
number of shares of common stock of the successor or acquiring
corporation receivable upon or as a result of such merger,
consolidation or disposition of assets by a holder of the number of
shares of Greenbriar Common Stock into which one share of the Series F
Senior Preferred Stock could be converted immediately prior to such
event. If, pursuant to the terms of such merger, consolidation or
disposition of assets, any cash, shares of stock or other securities or
property of any nature whatsoever (including warrants or other
subscription or purchase rights) are to be received by or distributed
to the holders of Greenbriar Nonpreferred Stock in addition to common
stock of the successor or acquiring corporation, then the Conversion
Price in effect shall be adjusted to that number determined by
multiplying the Conversion Price then in effect by a fraction (x) the
numerator of which shall be the Fair Market Price per share of
Greenbriar Common Stock immediately prior to the closing of such
merger, consolidation or disposition minus the portion applicable to
one share of Greenbriar Common Stock of any such cash so distributable
and of the fair value of any such shares of stock or other securities
or property so received or distributed and (y) the denominator of which
shall be the Fair Market Price per share of Greenbriar Common Stock
immediately prior to the closing of such merger, consolidation or
disposition. The fair value of any such shares of stock or other
securities or property shall be determined pursuant to the Valuation
Procedure. In case of any such merger, consolidation or disposition of
assets, the successor acquiring corporation shall expressly assume the
due and punctual observance and performance of each and every covenant
and condition hereof to be performed and observed by Greenbriar and all
of the obligations and liabilities hereunder, subject to such
modification as shall be necessary to provide for adjustments to the
Conversion Price which shall be as nearly equivalent as practicable to
the adjustments provided for in this Section 6.4. For the purposes of
this Section 6.4(h), "common stock of the successor or acquiring
corporation" shall include stock of such corporation of any class,
which is not preferred
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as to dividends or assets over any other class of stock of such
corporation and which is not subject to redemption, and shall also
include any evidences of indebtedness, shares of stock or other
securities which are convertible into or exchangeable for any such
stock, either immediately or upon the arrival of a specified date or
the happening of a specified event, and any warrants or other rights to
subscribe for or purchase any such stock. The foregoing provisions of
this Section 6.4(h) shall similarly apply to successive mergers,
consolidations or dispositions of assets.
(i) Purchases or Redemptions. In case at any time or from time
to time after the Closing Date, Greenbriar shall (except as hereinafter
provided) purchase or redeem any Greenbriar Common Stock, warrants,
options or other rights to subscribe for, purchase, convert into or
exchange for Greenbriar Common Stock for a consideration per share
greater than the Fair Market Price per share of Greenbriar Common Stock
on the Computation Date, then the Conversion Price shall be adjusted to
the lower of either:
(1) that number determined by multiplying the
Conversion Price in effect immediately prior to such
adjustment by a fraction (x) the numerator of which shall be
the number of shares of Greenbriar Common Stock plus the
number of such shares or share equivalents of Greenbriar
Common Stock, warrants, options or other rights to subscribe
for, purchase, convert into or exchange for Greenbriar Common
Stock so purchased or redeemed and (y) the denominator of
which shall be the number of shares of Greenbriar Common
Stock, plus the number of shares or share equivalents of
Greenbriar Common Stock which the aggregate consideration for
the total number of such Greenbriar Common Stock, warrants,
options or other rights to subscribe for, purchase, convert
into or exchange for Greenbriar Common Stock so purchased or
redeemed would purchase at the Fair Market Price per share of
Greenbriar Common Stock; or
(2) the value of the consideration per share for
which such Greenbriar Common Stock, warrants, options or other
rights to subscribe for, purchase, convert into or exchange
for Greenbriar Common Stock were purchased or redeemed.
No adjustment of the Conversion Price shall be made under this Section
6.4(c) upon the issuance of any Additional Shares of Greenbriar
Nonpreferred Stock which are issued pursuant to the exercise of any
warrants or other subscription or purchase rights or pursuant to the
exercise of any conversion or exchange rights in any Greenbriar
Convertible Securities, if any such adjustment shall previously have
been made upon the issuance of such warrants or other rights or upon
the issuance of such Greenbriar Convertible Securities (or upon the
issuance of any warrant or other rights therefor) pursuant to Section
6.4(d) or 6.4(e).
(j) Other Action Affecting Greenbriar Nonpreferred Stock. In
case at any time or from time to time Greenbriar shall take any action
affecting its Greenbriar Nonpreferred Stock, other than an action
described in any of the foregoing Sections 6.4(a) through (i),
inclusive, then, unless in the opinion of the Board of Directors such
action will not have a materially adverse effect upon the rights of the
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holders of the Series F Senior Preferred Stock, the Conversion Price
shall be adjusted in such manner and at such time as the Board of
Directors may in good faith determine to be equitable in the
circumstances.
6.5 No Impairment. Other than in connection with the amendment of its
Articles of Incorporation approved by the requisite number of stockholders,
Greenbriar will not, through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any other
voluntary action, avoid the observance or performance of any of the terms to be
observed or performed hereunder by Greenbriar but will at all times in good
faith assist in the carrying out of all the provisions of this Section 6 and in
the taking of all such action as may be necessary or appropriate in order to
protect the conversion rights of the holders of the Series F Senior Preferred
Stock against impairment. Without limiting the generality of the foregoing,
Greenbriar (i) will not permit the par value of any shares of stock at the time
receivable upon the conversion of the Series F Senior Preferred Stock to exceed
the Conversion Price then in effect, (ii) will take all such action as may be
necessary or appropriate in order that Greenbriar may validly and legally
deliver fully paid nonassessable shares of stock on the conversion of the Series
F Senior Preferred Stock, and (iii) will not issue any Additional Shares of
Greenbriar Nonpreferred Stock or Greenbriar Convertible Securities or take any
action which results in any adjustment of the Conversion Price if the total
number of shares of Greenbriar Common Stock required to be delivered after such
issuance or action upon the conversion of all the then outstanding shares of
Series F Senior Preferred Stock will exceed the number of shares of Greenbriar
Common Stock and available for the purpose of delivery upon such conversion.
6.6 Certificate as to Adjustments. Upon the occurrence of each
adjustment or readjustment of the Conversion Price pursuant to this Section 6,
Greenbriar at Greenbriar's expense shall promptly compute such adjustment or
readjustment in accordance with the terms hereof and furnish to the Preferred
Stock Representative a certificate setting forth such adjustment or readjustment
and showing in detail the facts upon which such adjustment or readjustment is
based, including a statement of (i) the consideration received or to be received
by Greenbriar for any Additional Shares of Greenbriar Nonpreferred Stock issued
or sold or deemed to have been issued, (ii) the number of shares of Greenbriar
Nonpreferred Stock outstanding or deemed to be outstanding, and (iii) the
Conversion Price in effect immediately prior to such issue or sale and as
adjusted and readjusted on account thereof, showing how it was calculated.
Greenbriar shall, upon the written request at any reasonable time of the
Preferred Stock Representative, furnish or cause to be furnished to such holder
a like certificate setting forth (i) the Conversion Price at the time in effect,
showing how it was calculated, and (ii) the number of shares of Greenbriar
Common Stock and the amount, if any, of other property which at the time would
be received upon the conversion of the Series F Senior Preferred Stock.
6.7 Notices of Record Date. In the event of any taking by Greenbriar of
a record of the holders of any class of securities for the purpose of
determining the holders thereof who are entitled to receive any dividend or
other distribution, or any right to subscribe for, purchase or otherwise acquire
any shares of stock of any class or any other securities or property, or to
receive any other right, Greenbriar shall mail to each holder of the Series F
Senior Preferred Stock at least 10 days prior to the date specified therein, a
notice specifying the date on which any such record is to be taken for the
purpose of such dividend or distribution.
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7. Covenants of Greenbriar.
Without the prior written consent of the Preferred Stock
Representative, Greenbriar shall comply with each of the following covenants.
7.1 Board of Directors. So long as any shares of the Series F Senior
Preferred Stock shall remain outstanding, Greenbriar shall not increase the
number of directors above nine except in connection with the right of the
holders of the Series F Senior Preferred Stock to appoint directors.
7.2 Greenbriar Common Stock. Greenbriar shall at all times reserve and
keep available enough shares of Greenbriar Common Stock to effect the conversion
of the Series F Senior Preferred Stock, subject to (i) appropriate adjustments
in connection with a stock split or other similar events and (ii) a reduction by
the number of shares of Greenbriar Common Stock that have previously been
delivered upon conversion of Series F Senior Preferred Stock; all of such shares
of Greenbriar Common Stock which are issuable to the holders of the Series F
Senior Preferred Stock by way of conversion, will be when issued, duly
authorized and validly issued, fully paid and nonassessable, and free from all
taxes, liens and charges.
7.3 Cash Reserves after a Special Asset Sale Trigger. Commencing on the
date nine months after the date of a Special Asset Sale Trigger, Greenbriar
shall, at all times, maintain cash or Permitted Investments in excess of the sum
of (i) the current Liquidation Value of the Series F Senior Preferred Stock and
(ii) the current Liquidation Value (as defined in the Series G Certificate of
Designation) of the Series G Senior Non-Voting Preferred Stock.
8. Events of Default.
8.1 Notice of Event of Default. Upon an Event of Default or Potential
Default, Greenbriar shall provide written notice of such Event of Default or
Potential Default, including the date on which such event first occurred, to the
Preferred Stock Representative within 10 days after the occurrence of such
event. Any Event of Default or Potential Default may be waived in writing by the
Preferred Stock Representative at any time, in which case Sections 8.2 through
8.4 shall not apply with respect to such Event of Default or Potential Default;
provided, however, that no such waiver of an Event of Default or Potential
Default shall be deemed to be a waiver of any other Event of Default or
Potential Default.
8.2 Dividends During Event of Default. Upon the occurrence and during
the continuance of an Event of Default resulting from (i) the failure of
Greenbriar to comply with any of the covenants contained in Sections 6.1, 6.3,
6.8, 6.10, 6.19, 6.20, 6.22, 6.24 and 6.27- 6.37 of the Purchase Agreement or
(ii) any of the events specified in clauses (ii) through (viii) of the
definition of "Event of Default," the holders of outstanding shares of Series F
Senior Preferred Stock shall be entitled to receive, in addition to all other
dividends payable hereunder to holders of shares of Series F Senior Preferred
Stock and when, as and if declared by the Board of Directors, out of funds
legally available for the payment of dividends, cumulative preferential cash
dividends accruing from the date of the Event of Default (the "Default Date") in
an amount per share per annum equal to $1.20 per share,
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payable quarterly on the last Business Day of March, June, September and
December of each year. Dividends on the Series F Senior Preferred Stock shall
accrue (whether or not declared) on a daily basis and shall be cumulative
(whether or not in any Dividend Period there shall be funds of Greenbriar
legally available for the payment of such dividends). The first dividend shall
accrue from the Default Date through the last Business Day of the first calendar
quarter to end after the Default Date, and subsequent dividends shall accrue on
a daily basis during the dividend period for which they are payable.
8.3 Election of Directors. Upon the occurrence and during the
continuance of an Event of Default resulting from any of the events specified in
clauses (ii) through (viii) of the definition of "Event of Default," the holders
of shares of Series F Senior Preferred Stock shall have the right, acting
separately as a class, to elect a number of persons to the Board of Directors of
Greenbriar that will constitute 70% of the Board of Directors. Upon the taking
of such action, the maximum authorized number of members of the Board of
Directors shall automatically increase by the number of directors so elected,
and the vacancies so created shall be filled by the persons elected pursuant to
this Section 8.3. In the event that upon the election of directors under this
Section 8.3, Greenbriar is required under Rule 14f-1 under the Exchange Act to
file with the Commission and transmit to its stockholders certain information,
Greenbriar shall take such action as promptly as practicable, and the term of
office of the directors so elected shall begin upon the termination of the
10-day period prescribed by such Rule. A director elected by the holders of
Series F Senior Preferred Stock pursuant to this Section 8.3 shall serve until
his successor is duly elected and qualified, until his removal or until his term
terminates as provided below. Such a director may be removed without cause at
any time by action, and only by such action, of the holders of shares of Series
F Senior Preferred Stock. If the office of a director elected pursuant to this
Section 8.3 becomes vacant by reason of death, resignation, retirement,
disqualification, removal from office or otherwise, such vacancy may be filled
by the action, and only by such action, of the holders of shares of Series F
Senior Preferred Stock. At such time as the Event of Default giving rise to this
right to elect directors has been cured, such right shall terminate, the terms
of any directors elected pursuant to this Section 8.3 shall terminate and the
maximum number of authorized members of the Board of Directors shall decrease
automatically to the maximum number of authorized members of the Board of
Directors in effect immediately before any action was taken pursuant hereto. At
any time when the special voting rights of the holders of the Series F Senior
Preferred Stock provided in this Section 8.3 shall have become operative and not
have been exercised, a proper officer of Greenbriar shall, upon the written
request of the holders of record of at least 20% of the shares of Series F
Senior Preferred Stock then outstanding addressed to the Secretary of
Greenbriar, call a special meeting of the holders of the Series F Senior
Preferred Stock for the purpose of electing the allotted directors to be elected
by the Series F Senior Preferred Stock. Such meeting shall be held within 30
days after delivery of such request to Greenbriar at such place in the
continental United States as may be specified in such written request; provided
that the Secretary shall not be required to call such a special meeting in the
case of any such request received less than 30 days before the date fixed for an
annual meeting of Greenbriar's stockholders.
8.4 Put Option. Upon the occurrence of an Event of Default resulting
from (i) the failure of Greenbriar to comply with any of the covenants contained
in Sections 6.1, 6.3, 6.10, 6.19, 6.20, 6.22, 6.27-6.35 of the Purchase
Agreement or (ii) any of the events specified in clauses (iii) through (viii) of
the definition of "Event of Default," each holder of shares of
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<PAGE>
Series F Senior Preferred Stock shall have the right, by written notice to
Greenbriar (the "Repurchase Notice") within 90 days after the occurrence of the
Event of Default, to require that Greenbriar repurchase, out of funds legally
available therefor, any or all of such holder's shares of Series F Senior
Preferred Stock for an amount in cash equal to 120% of the Liquidation Value of
the shares of Series F Senior Preferred Stock to be repurchased as of the date
of the holder's Repurchase Notice. Any Repurchase Notice shall be accompanied by
duly endorsed certificates representing the shares of Series F Senior Preferred
Stock to be repurchased. Upon receipt of a Repurchase Notice, Greenbriar shall
make payment in cash of the appropriate amount to the holder requiring
repurchase with five Business Days of the date such Repurchase Notice is
received, unless prior to such payment, Greenbriar receives written notice from
such holder that such holder is withdrawing its requirement of the repurchase of
its shares of Series F Senior Preferred Stock.
8.5 Special Asset Sale Trigger. Upon a Special Asset Sale Trigger, each
holder of shares of Series F Senior Preferred Stock shall have the right, by
written notice to Greenbriar (the "Asset Sale Repurchase Notice") within nine
months after written notice to the Preferred Stock Representative of the
occurrence of a Special Asset Sale Trigger, to require that Greenbriar
repurchase, out of funds legally available therefor, a specified number of such
holder's shares (the "Repurchase Shares") of Series F Senior Preferred Stock.
The Repurchase Shares may be all or any portion of such holder's total shares of
Series F Senior Preferred Stock. The Repurchase Shares shall be repurchased by
Greenbriar for an amount in cash equal to the aggregate Liquidation Value of the
Repurchase Shares plus the greater of: (i) 20% of the aggregate Liquidation
Value of the Repurchase Shares or (ii) a 20% IRR on the aggregate Liquidation
Value of the Repurchase Shares, in each case, as of the date of the holder's
Asset Sale Repurchase Notice. Any Asset Sale Repurchase Notice shall be
accompanied by duly endorsed certificates representing the Repurchase Shares.
Upon receipt of a Asset Sale Repurchase Notice, Greenbriar shall make payment in
cash of the appropriate amount to the holder requiring repurchase with five
Business Days of the date such Asset Sale Repurchase Notice is received, unless
prior to such payment, Greenbriar receives written notice from such holder that
such holder is withdrawing its requirement of the repurchase of the Repurchase
Shares.
8.6 Change in Management. If at any time after the date hereof, (i)
James R. Gilley is not serving as Chairman of the Board of Directors of
Greenbriar for any reason and (ii) the Preferred Stock Representative has
proposed one or more candidates for Mr. Gilley's replacement that is willing to
serve regardless of whether or not any of such candidate(s) are acceptable to
Greenbriar, unless within 15 days of the date Mr. Gilley ceases to serve as
Chairman Mr. Gilley's replacement as Chairman is mutually agreed upon by
Greenbriar and the Preferred Stock Representative, there shall have occurred a
"Change in Management" which shall give to each holder of shares of Series F
Senior Preferred Stock the right, by written notice to Greenbriar (the "Change
in Management Repurchase Notice") within 90 days after the occurrence of the
Change in Management, to require that Greenbriar repurchase, out of funds
legally available therefor, a specified number of such holder's shares (the
"Change in Management Repurchase Shares") of Series F Senior Preferred Stock.
The Change in Management Repurchase Shares may be all or any portion of such
holder's total shares of Series F Senior Preferred Stock. The Change in
Management Repurchase Shares shall be repurchased by Greenbriar for an amount in
cash equal to the aggregate Liquidation Value of the Change in Management
Repurchase Shares plus the greater of: (i) 20% of the aggregate Liquidation
Value of the Change in Management Repurchase Shares or (ii) a 20%
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<PAGE>
IRR on the aggregate Liquidation Value of the Change in Management Repurchase
Shares, in each case, as of the date of the holder's Change in Management
Repurchase Notice. Any Change in Management Repurchase Notice shall be
accompanied by duly endorsed certificates representing the Change in Management
Repurchase Shares which shall be free and clear of all claims, liens and
encumbrances. Upon receipt of a Change in Management Repurchase Notice,
Greenbriar shall execute a full recourse promissory note for the appropriate
amount to the holder requiring repurchase (the "Repurchase Promissory Note")
within five Business Days of the date such Change in Management Repurchase
Notice is received, unless prior to such payment, Greenbriar receives written
notice from such holder that such holder is withdrawing its requirement of the
repurchase of the Change in Management Repurchase Shares. The Repurchase
Promissory Note shall be (a) in a form agreed to by Greenbriar and the initial
purchaser of the Series F Senior Preferred Stock, (b) for a term of one (1) year
from the date of the Change in Management Repurchase Notice, with 50% of the
principal together with all accrued interest due six (6) months from the date of
the Change in Management Repurchase Notice, (c) shall bear interest at the lower
of eighteen percent (18%) or the highest rate allowed by law, and (d) shall be
secured by the highest available lien on all of the property and assets of
Greenbriar and the Subsidiaries reasonably sufficient to secure such holders
right of repayment, including all ownership interests of all subsidiaries of
Greenbriar, except where such lien (i) is in violation of its certificate of
incorporation, articles of incorporation or bylaws of Greenbriar or any of the
Subsidiaries; (ii) would create a default in the performance of any obligation,
agreement or condition contained in any license, contract, indenture, mortgage,
installment sale agreement, lease, deed of trust, voting trust agreement,
stockholders' agreement, note, loan, credit agreement, purchase order, agreement
or instrument evidencing an obligation for borrowed money or other agreement or
instrument to which Greenbriar or any of the Subsidiaries is a party or by which
Greenbriar or any of the Subsidiaries may be bound or to which the property or
assets of Greenbriar or any of the Subsidiaries is subject or affected; or (iii)
would create a violation in any respect of any Law applicable to Greenbriar or
any of the Subsidiaries, that would have a Material Adverse Effect. Such liens
shall be of the same priority as between all holders requiring repurchase. The
Repurchase Promissory Note shall be due and payable immediately if Greenbriar
fails to perfect liens on property and assets of Greenbriar and the Subsidiaries
reasonably sufficient to secure such holders right of repayment within ten
Business Days of the date such Change in Management Repurchase Notice is
received, unless prior to such delivery, Greenbriar receives written notice from
such holder that such holder is withdrawing its requirement of the repurchase of
its shares of Series F Senior Preferred Stock.
8.7 Remedies Cumulative. In addition to the remedies stated herein,
each holder of Series F Senior Preferred Stock will also have any other rights
that such holder may be entitled to under any agreement or pursuant to
applicable law.
9. No Reissuance.
No shares of Series F Senior Preferred Stock acquired by Greenbriar by
reason of redemption, purchase, conversion or otherwise shall be reissued as
Series F Senior Preferred Stock.
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EXHIBIT 2.2.3
<PAGE>
CERTIFICATE OF VOTING POWERS, DESIGNATIONS,
PREFERENCES, AND RELATIVE, PARTICIPATING,
OPTIONAL OR OTHER SPECIAL RIGHTS OF
SERIES G SENIOR NON-VOTING CONVERTIBLE PREFERRED STOCK
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
<S> <C> <C>
1. Certain Definitions.............................................................................1
2. Ranking of the Series G Senior Non-Voting Preferred Stock.......................................8
3. Dividends; Restricted Payments..................................................................9
3.1 Dividend Payment Dates.................................................................9
3.2 Record Date............................................................................9
3.3 Restricted Payments....................................................................9
4. Liquidation Rights..............................................................................9
5. Voting Rights of Series G Senior Non-Voting Preferred Stock.....................................9
5.1 No Voting Rights in Electing Directors.................................................9
5.2 Class Voting Rights....................................................................9
6. Conversion.....................................................................................10
6.1 Right of Holder to Conversion.........................................................10
6.2 Mechanics of Conversion by Holder.....................................................11
6.3 Mandatory Conversion..................................................................11
6.4 Adjustments to Conversion Price for Diluting Issues
or Other Transactions.................................................................11
6.5 No Impairment.........................................................................18
6.6 Certificate as to Adjustments.........................................................19
6.7 Notices of Record Date................................................................19
7. Covenants of Greenbriar........................................................................19
7.1 Greenbriar Common Stock...............................................................19
7.2 Cash Reserves after a Special Asset Sale Trigger......................................20
8. Events of Default..............................................................................20
8.1 Notice of Event of Default............................................................20
8.2 Dividends During Event of Default.....................................................20
8.3 Put Option............................................................................20
8.4 Special Asset Sale Trigger............................................................21
8.5 Change in Management..................................................................21
8.6 Remedies Cumulative...................................................................22
9. No Reissuance..................................................................................22
</TABLE>
(i)
<PAGE>
GREENBRIAR CORPORATION
Certificate of Voting Powers, Designations,
Preferences, and Relative, Participating,
Optional or Other Special Rights of
Series G Senior Non-Voting Convertible Preferred Stock
We, Floyd B. Rhoades, President, and Robert L. Griffis, Secretary, of
Greenbriar ("Greenbriar"), a corporation organized and existing under Chapter 78
of the Nevada Revised Statutes, in accordance with the provisions of Section
78.1955 of the Nevada Revised Statutes thereof, DO HEREBY CERTIFY:
That, pursuant to authority conferred upon the Board of Directors by
the Articles of Incorporation, as amended, of Greenbriar, said Board of
Directors, at a meeting of the Board of Directors held pursuant to Chapter 78 of
the Nevada Revised Statutes, duly adopted a resolution providing for the
issuance of eight hundred thousand (800,000) shares of a new series of preferred
stock designated as Series G Senior Non-Voting Convertible Preferred Stock (the
"Series G Senior Non-Voting Preferred Stock"), which resolution is as follows:
RESOLVED, that pursuant to the Articles of Incorporation of Greenbriar,
there be and hereby is authorized and created a series of preferred stock, to
consist of 800,000 shares with a par value of $0.10 per share and a stated value
of $10.00 per share and that the voting powers, designations, preferences, and
relative, participating, optional or other special rights of the Series G Senior
Non-Voting Convertible Preferred Stock and the qualifications, limitations or
restrictions thereof be as follows:
1. Certain Definitions.
The following terms shall have the following meanings:
"1996 Form 10-K" means Greenbriar's Annual Report on Form 10-KSB for
the year ended December 31, 1996.
"5-day Average Price" per share of common stock, for purposes of any
provision herein at the date specified in such provision, means the average
closing price of such common stock on the American Stock Exchange, New York
Stock Exchange or Nasdaq National Market over the 5-trading day period
immediately prior to such date.
"20-day Average Price" per share of common stock, for purposes of any
provision herein at the date specified in such provision, means the average
closing price of such common stock on the American Stock Exchange, New York
Stock Exchange or Nasdaq National Market over the 20-trading day period
immediately prior to such date.
"Act" means the Securities Act of 1933, as amended.
"Additional Shares of Greenbriar Nonpreferred Stock" means all shares
of Greenbriar Nonpreferred Stock issued by Greenbriar after the Closing Date
other than (i) any shares of Greenbriar Common Stock issued pursuant to options,
rights or warrants to purchase Greenbriar Common Stock issued pursuant to the
Stock Option Plans; provided that (a) such issuances do not exceed in the
aggregate 500,000 shares and (b) the exercise price under such
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<PAGE>
options, rights and warrants shall be payable in cash and shall be not less than
the greater of the Conversion Price or the Fair Market Price on the date of
issuance of the option, right or warrant, (ii) shares of Greenbriar Common
Stock, either sold to employees of Greenbriar or contributed as a matching
contribution at a price not less than the then current Fair Market Price
pursuant to Greenbriar's 401(k) plan, (iii) any shares of Greenbriar Common
Stock issued to James R. Gilley pursuant to an option he currently holds to
purchase 400,000 shares, and, pursuant to his employment agreement with
Greenbriar, any shares of Greenbriar Common Stock issued pursuant to options he
will receive for 200,000 shares on December 31, 1997, 1998 and 1999, (iv) any
shares of Greenbriar Common Stock issued to the April Trust pursuant to a
warrant to purchase 108,000 shares, (v) any shares of Greenbriar Common Stock
issued to the April Trust pursuant to a right to convert Greenbriar Series D
Preferred Stock into 337,500 shares, (vi) any shares of Greenbriar Common Stock
issued to Lone Star pursuant to a right to convert Greenbriar Series F Senior
Preferred Stock and Series G Senior Non-Voting Preferred Stock, and (vii) any
shares of Greenbriar Common Stock exchanged with investors in the Syndication
Program.
"Affiliate" has the meaning set forth in the Purchase Agreement.
"Asset Sale Repurchase Notice" has the meaning set forth in Section 8.4
"Business Day" means any day other than a Saturday, a Sunday, any day
on which the New York Stock Exchange is closed or any other day on which banking
institutions in New York are authorized or required by law to be closed.
"Certificate of Designation" means this Certificate of Voting Powers,
Designations, Preferences, and Relative, Participating, Optional or Other
Special Rights of Series G Senior Non-Voting Convertible Preferred Stock.
"Change in Management" has the meaning set forth in Section 8.5.
"Change in Management Repurchase Notice" has the meaning set forth in
Section 8.5.
"Change in Management Repurchase Shares" has the meaning set forth in
Section 8.5.
"Change of Control of Greenbriar" means, with respect to Greenbriar,
the occurrence of any of the following events: (i) any "person" (as such term is
used in Sections 13(d) and 14(d) of the Exchange Act) other than Permitted
Holders is or becomes the "beneficial owner" (as defined in Rules 13d-3 and
13d-5 under the Exchange Act, except that a person shall be deemed to have
"beneficial ownership" of all shares that any such person has the right to
acquire, whether such right is exercisable immediately or after the passage of
time, directly or indirectly) of more than 40% of the Voting Stock of
Greenbriar; or (ii) individuals who at date hereof constituted the Board of
Directors of Greenbriar (together with any new directors whose election by such
Board or whose nomination for election by the stockholders of Greenbriar was
approved by a vote of the majority of the directors then still in office who
were either directors at the beginning of such period or whose election or
nomination for election was previously so approved) cease for any reason to
constitute a majority of the Board of Directors then in office, other than
pursuant to the provisions of this Certificate of Designation or the Purchase
Agreement; provided, however, a Sale of Greenbriar is not considered a Change of
Control of Greenbriar.
2
<PAGE>
"Closing Date" means the date of the closing of the first sale of the
Series G Senior Non-Voting Preferred Stock.
"Commission" means the Securities and Exchange Commission or any other
similar or successor agency of the federal government administering the Act.
"Computation Date" means:
(i) with respect to Section 6.4(c), the earlier of (a) the
date on which Greenbriar shall enter into a firm contract for the
issuance of Additional Shares of Greenbriar Nonpreferred Stock or (b)
the date of actual issuance of Additional Shares of Greenbriar
Nonpreferred Stock; provided, that with respect to Section 6.4(c), the
Computation Date in connection with an acquisition by Greenbriar using
common stock as all or a part of the consideration shall mean the
effective date of issuance of Additional Shares of Greenbriar
Nonpreferred Stock;
(ii) with respect to Section 6.4(d), the earliest to occur of
(a) the date on which Greenbriar shall take a record of the holders of
its Greenbriar Nonpreferred Stock for the purpose of entitling them to
receive any warrants, options or other rights, (b) the date on which
Greenbriar shall enter into a firm contract for the issuance of
warrants, options or other rights and (c) the date of actual issuance
of warrants, options or other rights; and
(iii) with respect to Section 6.4(e), the earliest of (a) the
date on which Greenbriar shall take a record of the holders of its
Greenbriar Nonpreferred Stock for the purpose of entitling them to
receive any Greenbriar Convertible Securities, (b) the date on which
Greenbriar shall enter into a firm contract for the issuance of
Greenbriar Convertible Securities and (c) the date of actual issuance
of Greenbriar Convertible Securities.
"Conversion Price" initially means $17.50 and shall be adjusted and
readjusted from time to time as provided in Section 6.
"Default Date" has the meaning set forth in Section 8.2.
"Event of Default" means the occurrence of any of the following:
(i) Greenbriar shall fail to comply with any of the covenants
in Section 6 of the Purchase Agreement; provided, that in the case of
the covenants contained in Sections 6.4-6.18 and 6.24-6.27 of the
Purchase Agreement, failure to comply shall not be considered an Event
of Default if such failure is cured or compliance is waived in writing
by the Preferred Stock Representative within 30 days after the date on
which the failure to comply first occurs; provided further, that in the
case of the covenants contained in Sections 6.28 and 6.29 of the
Purchase Agreement, failure to comply shall not be considered an Event
of Default if (i) compliance is waived in writing by the Preferred
Stock Representative within 30 days or (ii) the ratio corresponding to
each covenant is less than 4.5, 4.25 and 4.5, respectively, to 1 at the
quarter end on which the failure to comply first occurs and such
covenant is fully complied with at the next quarter end; provided
further, that in the case of the covenant contained in Sections 6.30 of
the Purchase Agreement, failure to comply shall not be considered an
Event
D-476684.7
3
<PAGE>
of Default if (i) compliance is waived in writing by the Preferred
Stock Representative within 30 days or (ii) the ratio contained in such
covenant is 2 to 1 for the two quarter period comprised of the quarter
in which the failure to comply first occurs and the following quarter;
provided further, that in the case of the covenants contained in
Sections 6.31-6.35 of the Purchase Agreement, failure to comply shall
not be considered an Event of Default if (i) compliance is waived in
writing by the Preferred Stock Representative within 30 days or (ii)
the percentage corresponding to each covenant is less than 85% at the
quarter end on which the failure to comply first occurs and such
covenant is fully complied with at the next quarter end.
(ii) If Greenbriar fails to pay the holders of the Series G
Senior Non-Voting Preferred Stock all accrued dividends in full for two
quarters, whether or not such payment is legally permissible;
(iii) Greenbriar shall purport to take any action specified in
Section 5.2 of this Certificate of Designation without the requisite
vote of the holders of the Series G Senior Non-Voting Preferred Stock;
(iv) James R. Gilley and the Gilley Affiliates shall cease to
own at least 1,500,000 shares of Greenbriar Common Stock, subject to
appropriate adjustments in connection with a stock split or other
similar events;
(v) There shall occur a Change of Control of Greenbriar;
(vi) Greenbriar shall fail to comply with any of the covenants
contained in Section 7 of this Certificate of Designation; provided
that failure to comply shall not be considered an Event of Default if
such failure is cured or compliance is waived in writing by the
Preferred Stock Representative within 10 days after the date on which
the failure to comply first occurs;
(vii) The commencement of an involuntary case or other
proceeding against Greenbriar or any Subsidiary, which seeks
liquidation, reorganization or other relief with respect to it or its
debts or other liabilities under any bankruptcy, insolvency or other
similar law now or hereafter in effect or seeking the appointment of a
trustee, receiver, liquidator, custodian or other similar official of
it or any substantial part of its property, or the entry of an order
for relief against Greenbriar or any Subsidiary in any such case under
the United States Bankruptcy Code which is not dismissed within 60
days; or
(viii) The commencement by Greenbriar or any Subsidiary of or
the approval by a majority of the Board of Directors of Greenbriar or
any Subsidiary of the commencement of a voluntary case or other
proceeding, seeking liquidation, reorganization or other relief with
respect to itself or its debts or other liabilities under any
bankruptcy, insolvency or other similar law now or hereafter in effect
or seeking the appointment of a trustee, receiver, liquidator,
custodian or other similar official of it or any substantial part of
its property, or consent to any such relief or to the appointment of or
taking possession by any such official in an involuntary case or other
proceeding commenced against it, or the making by Greenbriar or any
Subsidiary of a general assignment for the benefit of creditors, or
failure by Greenbriar or any Subsidiary generally to or written
admission of its inability to pay
4
<PAGE>
its debts generally as they become due, or the taking of any corporate
action to authorize or effect any of the foregoing.
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
or any similar federal statute, and the rules and regulations of the Commission
thereunder, all as the same shall be in effect at the time.
"Fair Market Price" per share of common stock, for purposes of any
provision herein at the date specified in such provision, means the greater of
(i) the 5-Day Average Price of such common stock or (ii) the 20-Day Average
Price of such common stock; provided, that the Fair Market Price of common stock
issued in connection with an acquisition by Greenbriar shall mean the 20-Day
Average Price of such common stock. Notwithstanding any of the foregoing, if the
common stock that is being valued has not been listed on the American Stock
Exchange, New York Stock Exchange or Nasdaq National Market for such 5 and 20
business day periods, then the Fair Market Price per share of such common stock
shall be deemed to be the greater of (i) the net book value per share of common
stock, determined in accordance with GAAP, or (ii) the fair value per share of
common stock determined pursuant to the Valuation Procedure.
"GAAP" means those generally accepted accounting principles and
practices which are used in the United States and recognized as such by the
American Institute of Certified Public Accountants acting through its Accounting
Principles Board or by the Financial Accounting Standards Board or through other
appropriate boards or committees thereof and which are consistently applied for
all periods to present fairly in all material respects the financial position,
results of operations and operating cash flow on a consolidated basis of the
party, except that any accounting principle or practice required to be changed
by the Accounting Principles Board or Financial Accounting Standards Board (or
other appropriate board or committee) in order to continue as a generally
accepted accounting principle or practice may be so changed.
"Gilley Affiliates" means James R. Gilley, Sylvia Gilley, JRG
Investment Company, Inc., April Trust, September Trust, October Trust, November
Trust, December Trust, Nita Dry, Todd Dry, Donna Gilley, Elizabeth Gilley, W.
Michael Gilley, Caroline Gilley, or any other trusts controlled by James R.
Gilley.
"Greenbriar" means Greenbriar Corporation, a Nevada corporation.
"Greenbriar Common Stock" means Greenbriar's common stock, $0.01 par
value per share.
"Greenbriar Convertible Securities" means evidences of indebtedness,
shares of stock or other securities which are convertible into or exchangeable
for Additional Shares of Greenbriar Nonpreferred Stock, either immediately or
upon the arrival of a specified date or the happening of a specified event.
"Greenbriar Nonpreferred Stock" means Greenbriar Common Stock and shall
also include stock of Greenbriar of any other class which is not preferred as to
dividends or assets to be received upon liquidation or dissolution over any
other class of stock of Greenbriar and which is not subject to redemption.
5
<PAGE>
"IRR" means compounded annual rate of return.
"Junior Stock" has the meaning set forth in Section 2.
"Liquidation Amount" means $10.00, plus a sum equal to all accumulated
but unpaid dividends (including dividends, if any, payable pursuant to Section
8.2) and interest thereon, if any, through the date of payment thereof, per
share of Series G Senior Non-Voting Preferred Stock.
"Liquidation Value" means the Liquidation Amount with respect to all
issued and outstanding Series G Senior Non-Voting Preferred Stock plus any
unreimbursed costs and expenses payable to the holders of the Series G Senior
Non-Voting Preferred Stock pursuant to the Purchase Agreement.
"Lone Star" means Lone Star Opportunity Fund, L.P., a Delaware limited
partnership.
"Mandatory Conversion Date" means the earlier of (i) the third
anniversary of the date of issuance of the Series G Senior Non-Voting Preferred
Stock or (ii) the date of a Sale of Greenbriar.
"Permitted Combination" means (i) a Sale of Greenbriar, (ii) an
acquisition by Greenbriar in the ordinary course of its business as described in
the 1996 Form 10-K, or (iii) where there is a Special Asset Sale Trigger.
"Permitted Holders" means James R. Gilley and his Affiliates.
"Permitted Investments" shall mean (a) marketable direct obligations
issued or unconditionally guaranteed by the United States government or issued
by an agency or instrumentality thereof and backed by the full faith and credit
of the United States of America, in each case maturing within 180 days after the
date of acquisition thereof; (b) marketable direct obligations issued by any
state of the United States of America or any political subdivision of any such
state or any public instrumentality thereof maturing within 180 days after the
date of acquisition thereof and, at the time of acquisition, having a rating of
"a" or higher from Standard & Poor's Corporation ("S&P") and Moody's Investors
Service, Inc. ("Moody's") and not listed in Credit Watch published by S&P; (c)
commercial paper maturing no more than 90 days after the date of creation
thereof and, at the time of acquisition, having a rating of at least a-1 from
S&P and P-1 from Moody's; (d) domestic and Eurodollar certificates of deposit or
time deposits or bankers acceptances maturing within 90 days after the date of
acquisition thereof issued by Escrow Agent or any commercial bank organized
under the laws of the United States of America or any state thereof having a
rating of "a" or higher from S&P and Moody's; and (e) money market funds having
an average portfolio maturity, at the time of acquisition thereof, of not more
than 90 days, which money market funds are required to invest at least 95% of
their assets in instruments described in this definition.
"Potential Default" means any event's occurrence or any circumstance's
existence that would, upon any required notice, time lapse, or both, become an
Event of Default.
6
<PAGE>
"Preferred Stock Representative" means a Person designated in writing
by a majority of the holders of the Series G Senior Non-Voting Preferred Stock
to represent such holders with respect to certain matters pursuant to this
Agreement and the Purchase Agreement.
"Purchase Agreement" means that certain Stock Purchase Agreement
between Greenbriar and Lone Star Opportunity Fund, L.P., whereby the Series G
Senior Non-Voting Preferred Stock is being issued, as amended from time to time
in accordance with the terms thereof. A copy of the Purchase Agreement, as so
amended, is maintained at the principal executive offices of Greenbriar and will
be furnished, upon written request, to any holders of the Series G Senior
Non-Voting Preferred Stock without charge.
"Repurchase Notice" has the meaning set forth in Section 8.3.
"Repurchase Promissory Note" has the meaning set forth in Section 8.5.
"Repurchase Shares" has the meaning set forth in Section 8.4.
"Sale of Greenbriar" means (i) a merger or consolidation in which all
shares of Greenbriar Common Stock are exchanged for cash, securities of another
entity, or a combination of cash and securities of another entity or (ii) a cash
tender offer to purchase all of the outstanding shares of Greenbriar is made to
the shareholders of Greenbriar and accepted by a majority of such shareholders.
"Series B Junior Preferred Stock" means Greenbriar's Series B Preferred
Stock, $0.10 par value per share.
"Series D Junior Preferred Stock" means Greenbriar's Series D Preferred
Stock, $0.10 par value per share.
"Series F Senior Preferred Stock" means Greenbriar's Series F Senior
Convertible Preferred Stock.
"Series F Certificate of Designation" means Greenbriar's Certificate of
Voting Powers, Designations, Preferences, and Relative, Participating, Optional
or Other Special Rights of Series F Senior Convertible Preferred Stock as filed
with the Secretary of State of Nevada.
"Series G Senior Non-Voting Preferred Stock" has the meaning set forth
in the preamble.
"Special Asset Sale Trigger" means any sale, lease, sale/leaseback,
assignment, transfer or other disposition of assets, which when aggregated with
all sales, leases, sale/leasebacks, assignments, transfers or other dispositions
of assets in one or more independent or related transactions from the later of
the date hereof or the date of the last Special Asset Sale Trigger, (i) have a
total aggregate consideration received for such dispositions in excess of $25
million of cash, indebtedness assumed and the present fair value of any other
consideration, including, but not limited to the present fair value of any
earnouts or (ii) dispose of a total aggregate number of operated properties of
five. The dispositions described above specifically include, but are not limited
to, sales of operating leases and management contracts and sales as a part of
the Syndication Program.
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"Spin-off" means the pro rata distribution by Greenbriar of the
outstanding shares of common stock of a Subsidiary to the holders of Greenbriar
Common Stock to effect the spin-off of such Subsidiary.
"Stock Option Plans" means Greenbriar's 1997 Stock Option Plan and
Greenbriar's 1992 Stock Option Plan, as amended, which shall be consistent with
the copies of such plans delivered to purchasers of the Series G Senior
Non-Voting Preferred Stock prior to the Closing Date, as the same may be amended
from time to time with the prior approval of the Preferred Stock Representative.
"Subsidiaries" means all the corporations, partnerships, joint
ventures, business trusts or other legal entities in which Greenbriar, either
directly or indirectly through one or more intermediaries, owns or holds
beneficial or record ownership of at least a majority of the outstanding voting
shares or other equity interests. Each of the Subsidiaries is sometimes referred
to herein individually as a "Subsidiary."
"Syndication Program" means a program of selling real estate to public
or private syndications consisting of partnerships, limited liability companies,
or limited liability partnerships where ownership of such entities is offered to
passive investors for cash and/or notes.
"Tribunal" means any (a) local, state, territorial, federal, or foreign
judicial, executive, regulatory, administrative, legislative, or governmental
agency, board, bureau, commission, department, or other instrumentality, (b)
private arbitration board or panel or (c) central bank.
"Valuation Procedure" has the meaning set forth in Section 6.4(b).
"Voting Stock" means the total voting power of all classes of capital
stock then outstanding of a company and normally entitled to vote in elections
of directors of such company.
2. Ranking of the Series G Senior Non-Voting Preferred Stock.
So long as any shares of Series G Senior Non-Voting Preferred Stock
shall be outstanding, the Series G Senior Non-Voting Preferred Stock shall rank
senior with respect to the rights to receive dividends and to receive assets
upon liquidation, dissolution or winding up of Greenbriar to the Greenbriar
Common Stock and to all other series of preferred stock or classes or series of
capital stock hereafter or heretofore established by the Board of Directors of
Greenbriar (collectively, the "Junior Stock"), which includes, but is not
limited to, the Series B Junior Preferred Stock and the Series D Junior
Preferred Stock. The Series G Senior Non-Voting Preferred Stock shall rank pari
passu with respect to the rights to receive dividends and to receive assets upon
liquidation, dissolution or winding up of Greenbriar to Greenbriar's Series F
Senior Preferred Stock.
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3. Dividends; Restricted Payments.
3.1 Dividend Payment Dates. The holders of Series G Senior Non-Voting
Preferred Stock shall be entitled to receive, when, as and if declared by the
Board of Directors of Greenbriar out of funds legally available for that
purpose, a quarterly dividend of $0.15 per share payable in cash on the last
Business Day of March, June, September and December of each year commencing on
March 31, 1998, which payment shall include pro rated daily dividends from the
date of original issue of the Series G Senior Non-Voting Preferred Stock.
Dividends on the Series G Senior Non-Voting Preferred Stock shall be cumulative
from the date of original issue of the Series G Senior Non-Voting Preferred
Stock, whether or not at the time such dividend shall accrue or become due there
shall be funds legally available for the payment of dividends. All accrued and
unpaid dividends, whether or not earned or declared, shall bear interest from
the respective payment date until paid at an annual rate of 12% per annum.
3.2 Record Date. The Board of Directors shall fix a record date for the
determination of holders of the Series G Senior Non-Voting Preferred Stock
entitled to receive payment of a dividend declared thereon (including dividends,
if any, payable pursuant to Section 8.2), which record date shall be not more
than sixty (60) days prior to the date fixed for the payment thereof.
3.3 Restricted Payments. Unless full cumulative dividends on the Series
G Senior Non-Voting Preferred Stock have been paid (including dividends, if any,
payable pursuant to Section 8.2), no dividends or other distributions shall be
declared or paid or set apart for payment upon any Junior Stock nor shall any
Junior Stock be redeemed, purchased or otherwise acquired by Greenbriar (other
than upon conversion under the terms of said Junior Stock for consideration
consisting solely of shares of Greenbriar Common Stock) for any consideration
(or any payment made to or available for a sinking fund for the redemption of
any shares of such stock) by Greenbriar.
4. Liquidation Rights.
Upon any liquidation, dissolution or winding up of the affairs of
Greenbriar, no distribution shall be made or declared or set apart for payment
to the holders of any Junior Stock unless, prior to the first such distribution,
the holders of the Series G Senior NonVoting Preferred Stock shall have received
the Liquidation Value. If the assets distributable in any such event to the
holders of the Series G Senior Non-Voting Preferred Stock are insufficient to
permit the payment to such holders of the full preferential amounts to which
they may be entitled, such assets shall be distributed ratably among the holders
of the Series G Senior Non-Voting Preferred Stock in proportion to the full
preferential amount each such holder would otherwise be entitled to receive.
5. Voting Rights of Series G Senior Non-Voting Preferred Stock.
5.1 No Voting Rights in Electing Directors. The holders of the Series G
Senior Non-Voting Preferred Stock shall have no rights to vote in the election
of the Board of Directors of Greenbriar.
5.2 Class Voting Rights. So long as any shares of Series G Senior
Non-Voting Preferred Stock are outstanding, in addition to any other vote or
consent of shareholders
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required by law or by the Articles of Incorporation of Greenbriar, the approval
of the holders of Series G Senior Non-Voting Preferred Stock, acting as a single
class, shall be necessary for effecting or validating:
(i) Any amendment, alteration or repeal of any of the
provisions of the Articles of Incorporation or the Bylaws of
Greenbriar; including, but not limited to, any amendment, alteration,
repeal or filing of any Certificate of Designation of Greenbriar or any
resolution of the Board of Directors of Greenbriar filed with the
Office of the Secretary of State of Nevada;
(ii) The authorization, creation or issuance of, or the
increase in the authorized amount of, any shares of capital stock of
any class or series or any security convertible into shares of any
class or series of any security ranking prior to or on a parity with
the shares of Series G Senior Non-Voting Preferred Stock in the payment
of dividends or in the distribution of assets on any liquidation,
dissolution, or winding up of Greenbriar;
(iii) The merger or consolidation of Greenbriar with or into
any other corporation or other entity, other than a Permitted
Combination;
(iv) Any reorganization, restructuring, recapitalization or
other similar transaction of Greenbriar; other than a Permitted
Combination; or
(v) Any Spin-off.
With respect to any matter that requires the approval of holders of
Series G Senior Non-Voting Preferred Stock acting separately as a class or any
action that may be taken by the holders of Series G Senior Non-Voting Preferred
Stock, such approval shall be deemed to be given or such action taken by the
affirmative vote of the holders of a majority of the outstanding shares of
Series G Senior Non-Voting Preferred Stock, given in person or by proxy, by
written consent or at the annual meeting of Greenbriar's shareholders, or a
special meeting in lieu thereof, or at a special meeting of the holders of
shares of Series G Senior Non-Voting Preferred Stock called for the purpose of
voting on such matter or action. Upon receipt of the written request of the
holders of 20% or more of the outstanding shares of Series G Senior Non-Voting
Preferred Stock, the Secretary of Greenbriar shall call and give notice of a
special meeting of the holders of the Series G Senior Non-Voting Preferred Stock
for the purpose specified in such request, which meeting shall be held within 30
days after delivery of such request to Greenbriar at such place in the
continental United States as specified in such written request; provided that
the Secretary shall not be required to call such a special meeting in the case
of any such request received less than 30 days before the date fixed for an
annual meeting of Greenbriar's shareholders.
6. Conversion.
The Series G Senior Non-Voting Preferred Stock shall be convertible as
follows:
6.1 Right of Holder to Conversion. Each share of the Series G Senior
Non-Voting Preferred Stock shall be convertible, without the payment of any
additional consideration by the holder thereof and at the option of the holder
thereof, at any time after the earlier of (i) the second anniversary of the date
of original issuance of Series G Senior Non-Voting
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Preferred Stock, (ii) an Event of Default under any of clauses (ii) through
(viii) of the definition of "Event of Default" or an Event of Default resulting
from the failure of Greenbriar to comply with Sections 6.1, 6.3, 6.10, 6.19,
6.20, 6.22, 6.27-6.35 or 6.37 of the Purchase Agreement, in whole or in part,
(iii) a Special Asset Sale Trigger or (iv) a Change in Management, at the office
of Greenbriar or any transfer agent for the Series G Senior NonVoting Preferred
Stock, into a number of shares of Greenbriar Common Stock determined by dividing
the Liquidation Value of the shares so converted by the Conversion Price, plus,
in lieu of any fractional share to which such holder would otherwise be
entitled, cash equal to such fraction multiplied by the Fair Market Price.
6.2 Mechanics of Conversion by Holder. In order for any holder of the
Series G Senior Non-Voting Preferred Stock to convert the same into Greenbriar
Common Stock, the holder shall surrender to Greenbriar at the office of
Greenbriar or of any transfer agent for the Series G Senior Non-Voting Preferred
Stock, the certificate or certificates representing such Series G Senior
Non-Voting Preferred Stock, accompanied by written notice to Greenbriar that the
holder elects to convert all or a specified number of such shares and stating
therein the holder's name or the name or names of the holder's nominees in which
the holder wishes the certificate or certificates for Greenbriar Common Stock to
be issued or transferred. Greenbriar shall, as soon as practicable thereafter,
deliver at such office to such holder of the Series G Senior Non-Voting
Preferred Stock, or to the holder's nominee or nominees, a certificate or
certificates representing the number of shares of Greenbriar Common Stock to
which the holder shall be entitled as aforesaid and, if less than the full
number of shares of the Series G Senior Non-Voting Preferred Stock evidenced by
such surrendered certificate or certificates being converted, a new certificate
or certificates, of like tenor, for the number of shares of the Series G Senior
Non-Voting Preferred Stock evidenced by such surrendered certificate less the
number of such shares being converted. Any conversion made at the election of a
holder of the Series G Senior Non-Voting Preferred Stock shall be deemed to have
been made immediately prior to the close of business on the date of such
surrender of the Series G Senior Non-Voting Preferred Stock to be converted, and
the person or persons entitled to receive the Greenbriar Common Stock issuable
upon conversion shall be treated for all purposes as the record holder or
holders of such Greenbriar Common Stock on such date.
6.3 Mandatory Conversion. On the Mandatory Conversion Date, each share
of the Series G Senior Non-Voting Preferred Stock must be converted into shares
of Greenbriar Common Stock based upon the conversion provisions herein and
subject to any adjustments as provided in this Agreement.
6.4 Adjustments to Conversion Price for Diluting Issues or Other
Transactions:
(a) Stock Dividends, Subdivisions and Combinations. In case at
any time or from time to time Greenbriar shall:
(1) take a record of the holders of its Greenbriar
Nonpreferred Stock for the purpose of entitling them to
receive a dividend payable in, or other distribution of,
Greenbriar Nonpreferred Stock;
(2) subdivide its outstanding shares of Greenbriar
Nonpreferred Stock into a larger number of shares of
Greenbriar Nonpreferred Stock; or
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(3) combine its outstanding shares of Greenbriar
Nonpreferred Stock into a smaller number of shares of
Greenbriar Nonpreferred Stock;
then the Conversion Price in effect immediately after the happening of
any such event shall be proportionately decreased, in case of the
happening of events described in subparagraphs (1) or (2) above, or
proportionately increased, in case of the happening of events described
in subparagraph (3) above.
(b) Certain Other Dividends and Distributions. In case at any
time or from time to time Greenbriar shall take a record of the holders
of its Greenbriar Nonpreferred Stock for the purpose of entitling them
to receive any dividend or other distribution of:
(1) cash, to the extent, but only to the extent, that
such distribution together with all such dividends paid or
declared after the date hereof, does not exceed the
consolidated net income, net of consolidated net losses, of
Greenbriar and its consolidated subsidiaries earned subsequent
to the date hereof determined in accordance with GAAP;
(2) any evidence of its indebtedness (other than
Greenbriar Convertible Securities), any shares of its stock
(other than Additional Shares of Greenbriar Nonpreferred
Stock) or any other securities or property of any nature
whatsoever (other than cash and other than Greenbriar
Convertible Securities or Additional Shares of Greenbriar
Nonpreferred Stock); or
(3) any warrants or other rights to subscribe for or
purchase any evidences of its indebtedness (other than
Greenbriar Convertible Securities), any shares of its stock
(other than Additional Shares of Greenbriar Nonpreferred
Stock) or any other securities or property of any nature
whatsoever (other than cash and other than Greenbriar
Convertible Securities or Additional Shares of Greenbriar
Nonpreferred Stock);
then the Conversion Price in effect shall be adjusted to that number
determined by multiplying the Conversion Price then in effect by a
fraction (x) the numerator of which shall be the Fair Market Price per
share of Greenbriar Common Stock immediately prior to the date of
taking such record minus the portion applicable to one share of
Greenbriar Common Stock of any such cash so distributable and of the
fair value of any and all such evidences of indebtedness, shares of
stock, other securities or property, or warrants or other subscription
or purchase rights so distributable and (y) the denominator of which
shall be the Fair Market Price per share of Greenbriar Common Stock
immediately prior to the date of taking such record. The fair value of
any and all such evidences of indebtedness, shares of stock, other
securities or property, or warrants or other subscription or purchase
rights, shall be determined pursuant to the Valuation Procedure. The
"Valuation Procedure" is a determination of fair value of any property
made in good faith by the Board of Directors of Greenbriar; provided
that, if the Preferred Stock Representative objects to such
determination within 10 days of receipt of written notification
thereof, then the fair value of such property shall be determined in
good faith by a recognized national investment bank selected by
unanimous vote or consent of the Board of Directors of Greenbriar,
which investment bank is not reasonably objected to by the
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Preferred Stock Representative. The fees and expenses of such
investment bank shall be paid by one-half by Greenbriar and one-half by
the holders of the Series G Senior Non-Voting Preferred Stock. A
reclassification of the Greenbriar Nonpreferred Stock into shares of
Greenbriar Nonpreferred Stock and shares of any other class of stock
shall be deemed a distribution by Greenbriar to the holders of its
Greenbriar Nonpreferred Stock of such shares of such other class of
stock within the meaning of this Section 6.4(b) and, if the outstanding
shares of Greenbriar Nonpreferred Stock shall be changed into a larger
or smaller number of shares of Greenbriar Nonpreferred Stock as a part
of such reclassification, shall be deemed a subdivision or combination,
as the case may be, of the outstanding shares of Greenbriar
Nonpreferred Stock within the meaning of Section 6.4(a).
(c) Issuance of Additional Shares of Greenbriar Nonpreferred
Stock. In case at any time or from time to time after the Closing Date,
Greenbriar shall (except as hereinafter provided) issue, whether in
connection with the merger of a corporation into Greenbriar or
otherwise, any Additional Shares of Greenbriar Nonpreferred Stock for a
consideration per share less than either the Conversion Price or the
Fair Market Price per share of Greenbriar Common Stock on the
Computation Date, then the Conversion Price shall be adjusted to the
lower of either:
(1) that number determined by multiplying the
Conversion Price in effect immediately prior to such
adjustment by a fraction (x) the numerator of which shall be
the number of shares of Greenbriar Nonpreferred Stock, plus
the number of shares of Greenbriar Nonpreferred Stock which
the aggregate consideration for the total number of such
Additional Shares of Greenbriar Nonpreferred Stock so issued
would purchase at the greater of the Conversion Price or the
Fair Market Price per share of Greenbriar Common Stock and (y)
the denominator of which shall be the number of shares of
Greenbriar Nonpreferred Stock plus the number of such
Additional Shares of Greenbriar Nonpreferred Stock so issued;
or
(2) the value of the consideration per share for
which such Additional Shares of Greenbriar Nonpreferred Stock
were issued (or, in the case of adjustments under Sections
6.4(d) or 6.4(e), are issuable).
No adjustment of the Conversion Price shall be made under this Section
6.4(c) upon the issuance of any Additional Shares of Greenbriar
Nonpreferred Stock which are issued pursuant to the exercise of any
warrants or other subscription or purchase rights or pursuant to the
exercise of any conversion or exchange rights in any Greenbriar
Convertible Securities, if any such adjustment shall previously have
been made upon the issuance of such warrants or other rights or upon
the issuance of such Greenbriar Convertible Securities (or upon the
issuance of any warrant or other rights therefor) pursuant to Section
6.4(d) or 6.4(e).
(d) Issuance of Warrants, Options or Other Rights. In case at
any time or from time to time after the Closing Date, Greenbriar shall
take a record of the holders of its Greenbriar Nonpreferred Stock for
the purpose of entitling them to receive a distribution of, or shall
otherwise issue, any warrants, options or other rights to subscribe for
or purchase any Additional Shares of Greenbriar Nonpreferred Stock or
any Greenbriar Convertible Securities and the consideration per share
for which
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Additional Shares of Greenbriar Nonpreferred Stock may at any time
thereafter be issuable pursuant to such warrants, options or other
rights or pursuant to the terms of such Greenbriar Convertible
Securities shall be less than either the Conversion Price or the Fair
Market Price per share of Greenbriar Common Stock on the Computation
Date, then the Conversion Price shall be adjusted as provided in
Section 6.4(c). Such adjustment shall be made on the basis that (i) the
maximum number of Additional Shares of Greenbriar Nonpreferred Stock
issuable pursuant to all such warrants, options or other rights or
necessary to effect the conversion or exchange of all such Greenbriar
Convertible Securities shall be deemed to have been issued as of the
Computation Date, and (ii) the aggregate consideration for such maximum
number of Additional Shares of Greenbriar Nonpreferred Stock shall be
deemed to be the minimum consideration received and receivable by
Greenbriar for the issuance of such Additional Shares of Greenbriar
Nonpreferred Stock pursuant to such warrants, options or other rights
or pursuant to the terms of such Greenbriar Convertible Securities.
(e) Issuance of Greenbriar Convertible Securities. In case at
any time or from time to time after the Closing Date, Greenbriar shall
take a record of the holders of its Greenbriar Nonpreferred Stock for
the purpose of entitling them to receive a distribution of, or shall
otherwise issue, any Greenbriar Convertible Securities and the
consideration per share for which Additional Shares of Greenbriar
Nonpreferred Stock may at any time thereafter be issuable pursuant to
the terms of such Greenbriar Convertible Securities shall be less than
either the Conversion Price or the Fair Market Price per share of
Greenbriar Common Stock on the Computation Date, then the Conversion
Price shall be adjusted as provided in Section 6.4(c). Such adjustments
shall be made on the basis that (i) the maximum number of Additional
Shares of Greenbriar Nonpreferred Stock necessary to effect the
conversion or exchange of all such Greenbriar Convertible Securities
shall be deemed to have been issued as of the Computation Date, and
(ii) the aggregate consideration for such maximum number of Additional
Shares of Greenbriar Nonpreferred Stock shall be deemed to be the
minimum consideration received and receivable by Greenbriar for the
issuance of such Additional Shares of Greenbriar Nonpreferred Stock
pursuant to the terms of such Greenbriar Convertible Securities. No
adjustment of the Conversion Price shall be made under this Section
6.4(e) upon the issuance of any Greenbriar Convertible Securities which
are issued pursuant to the exercise of any warrants or other
subscription or purchase rights therefor, if any such adjustment shall
previously have been made upon the issuance of such warrants or other
rights pursuant to Section 6.4(d).
(f) Superseding Adjustment of Conversion Price. If, at any
time after any adjustment of the Conversion Price shall have been made
pursuant to the foregoing Section 6.4(d) or 6.4(e) on the basis of the
issuance of warrants or other rights or the issuance of other
Greenbriar Convertible Securities, or after any new adjustment of the
Conversion Price shall have been made pursuant to this Section 6.4(f):
(1) all of such warrants, options or rights or the
right of conversion or exchange in such other Greenbriar
Convertible Securities shall expire, and none of such
warrants, options or rights, or the right of conversion or
exchange in respect of such other Greenbriar Convertible
Securities, as the case may be, shall have been exercised; or
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(2) the consideration per share, for which Additional
Shares of Greenbriar Nonpreferred Stock are issuable pursuant
to all of such warrants, options or rights or the terms of all
of such other Greenbriar Convertible Securities, shall be
increased solely by virtue of provisions therein contained for
an automatic increase in such consideration per share upon the
arrival of a specified date or the happening of a specified
event, and none of such warrants, options or rights, or the
right of conversion or exchange in respect of such other
Greenbriar Convertible Securities, as the case may be, shall
have been exercised;
such previous adjustment shall be rescinded and annulled and the
Additional Shares of Greenbriar Nonpreferred Stock which were deemed to
have been issued by virtue of the computation made in connection with
the adjustment so rescinded and annulled shall no longer be deemed to
have been issued by virtue of such computation. Thereupon, a
recomputation shall be made of the effect of such warrants, rights or
options or other Greenbriar Convertible Securities on the basis of
treating any such warrants, options or rights or any such other
Greenbriar Convertible Securities which then remain outstanding as
having been granted or issued immediately after the time of such
increase of the consideration per share for such Additional Shares of
Greenbriar Nonpreferred Stock are issuable under such warrants or
rights or other Greenbriar Convertible Securities; and, if and to the
extent called for by the foregoing provisions of this Section 6.4 on
the basis aforesaid, a new adjustment of the Conversion Price shall be
made, which new adjustment shall supersede the previous adjustment so
rescinded and annulled.
(g) Other Provisions Applicable to Adjustments Under this
Section. The following provisions shall be applicable to the making of
adjustments of the Conversion Price hereinbefore provided for in this
Section 6.4:
(1) Treasury Stock. The sale or other disposition of
any issued shares of Greenbriar Nonpreferred Stock owned or
held by or for the account of Greenbriar shall be deemed an
issuance thereof for purposes of this Section 6.4.
(2) Computation of Consideration. To the extent that
any Additional Shares of Greenbriar Nonpreferred Stock or any
Greenbriar Convertible Securities or any warrants, options or
other rights to subscribe for or purchase any Additional
Shares of Greenbriar Nonpreferred Stock or any Greenbriar
Convertible Securities shall be issued solely for cash
consideration, the consideration received by Greenbriar
therefor shall be deemed to be the amount of cash received by
Greenbriar therefor, or, if such Additional Shares of
Greenbriar Nonpreferred Stock or Greenbriar Convertible
Securities are offered by Greenbriar for subscription, the
subscription price, or, if such Additional Shares of
Greenbriar Nonpreferred Stock or Greenbriar Convertible
Securities are sold to underwriters or dealers for public
offering without a subscription offering, the initial public
offering price, in any such case excluding any amounts paid or
receivable for accrued interest or accrued dividends and
without deduction of any compensation, discounts or expenses
paid or incurred by Greenbriar for and in the underwriting of,
or otherwise in
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connection with, the issue thereof. The consideration for any
Additional Shares of Greenbriar Nonpreferred Stock issuable
pursuant to any warrants, options or other rights to subscribe
for or purchase the same shall be the consideration received
or receivable by Greenbriar for issuing such warrant, options
or other rights, plus the additional consideration payable to
Greenbriar upon the exercise of such warrants, options or
other rights. The consideration for any Additional Shares of
Greenbriar Nonpreferred Stock issuable pursuant to the terms
of any Greenbriar Convertible Securities shall be the
consideration received or receivable by Greenbriar for issuing
any warrants or other rights to subscribe for or purchase such
Greenbriar Convertible Securities, plus the consideration paid
or payable to Greenbriar in respect of the subscription for or
purchase of such Greenbriar Convertible Securities, plus the
additional consideration, if any, payable to Greenbriar upon
the exercise of the right of conversion or exchange in such
Greenbriar Convertible Securities. To the extent that any
issuance shall be for a consideration other than solely for
cash, then, except as herein otherwise expressly provided, the
amount of such consideration shall be deemed to be the fair
value of such consideration at the time of such issuance as
determined pursuant to the Valuation Procedure.
(3) When Adjustments to be made. The adjustments
required by the preceding subsections of this Section 6.4
shall be made whenever and as often as any specified event
requiring an adjustment shall occur, except that no adjustment
of the Conversion Price that would otherwise be required shall
be made (except in the case of a subdivision or combination of
shares of the Greenbriar Nonpreferred Stock as provided for in
Section 6.4(a)) unless and until such adjustment, either by
itself or with other adjustments not previously made, adds or
subtracts at least $0.05 to the Conversion Price, as
determined in good faith by the Board of Directors of
Greenbriar. Any adjustment representing a change of less than
such minimum amount shall be carried forward and made as soon
as such adjustment, together with other adjustments required
by this Section 6.4 and not previously made, would result in a
minimum adjustment. For the purpose of any adjustment, any
specified event shall be deemed to have occurred at the close
of business on the date of its occurrence.
(4) Fractional Interests. In computing adjustments
under this Section 6.4, fractional interests in Greenbriar
Nonpreferred Stock shall be taken into account to the nearest
one-thousandth of a share.
(5) When Adjustment Not Required. If Greenbriar shall
take a record of the holders of its Greenbriar Nonpreferred
Stock for the purpose of entitling them to receive a dividend
or distribution or subscription or purchase rights and shall,
thereafter and before the distribution thereof to
shareholders, legally abandon its plan to pay or deliver such
dividend, distribution, subscription or purchase rights, then
thereafter no adjustment shall be required by reason of the
taking of such record and any such adjustment previously made
in respect thereof shall be rescinded and annulled.
(h) Merger, Consolidation or Disposition of Assets. In case
Greenbriar shall merge or consolidate into another corporation, or
shall sell, transfer or otherwise
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dispose of all or substantially all of its property, assets or business
to another corporation, except where there is a Special Asset Sale
Trigger, and pursuant to the terms of such merger, consolidation or
disposition, shares of common stock of the successor or acquiring
corporation are to be received by or distributed to the holders of
Greenbriar Nonpreferred Stock, then each holder of a share of the
Series G Senior Non-Voting Preferred Stock shall have the right
thereafter to receive, upon exercise of such share of the Series G
Senior Non-Voting Preferred Stock, shares of common stock each
comprising the number of shares of common stock of the successor or
acquiring corporation receivable upon or as a result of such merger,
consolidation or disposition of assets by a holder of the number of
shares of Greenbriar Common Stock into which one share of the Series G
Senior Non-Voting Preferred Stock could be converted immediately prior
to such event. If, pursuant to the terms of such merger, consolidation
or disposition of assets, any cash, shares of stock or other securities
or property of any nature whatsoever (including warrants or other
subscription or purchase rights) are to be received by or distributed
to the holders of Greenbriar Nonpreferred Stock in addition to common
stock of the successor or acquiring corporation, then the Conversion
Price in effect shall be adjusted to that number determined by
multiplying the Conversion Price then in effect by a fraction (x) the
numerator of which shall be the Fair Market Price per share of
Greenbriar Common Stock immediately prior to the closing of such
merger, consolidation or disposition minus the portion applicable to
one share of Greenbriar Common Stock of any such cash so distributable
and of the fair value of any such shares of stock or other securities
or property so received or distributed and (y) the denominator of which
shall be the Fair Market Price per share of Greenbriar Common Stock
immediately prior to the closing of such merger, consolidation or
disposition. The fair value of any such shares of stock or other
securities or property shall be determined pursuant to the Valuation
Procedure. In case of any such merger, consolidation or disposition of
assets, the successor acquiring corporation shall expressly assume the
due and punctual observance and performance of each and every covenant
and condition hereof to be performed and observed by Greenbriar and all
of the obligations and liabilities hereunder, subject to such
modification as shall be necessary to provide for adjustments to the
Conversion Price which shall be as nearly equivalent as practicable to
the adjustments provided for in this Section 6.4. For the purposes of
this Section 6.4(h), "common stock of the successor or acquiring
corporation" shall include stock of such corporation of any class,
which is not preferred as to dividends or assets over any other class
of stock of such corporation and which is not subject to redemption,
and shall also include any evidences of indebtedness, shares of stock
or other securities which are convertible into or exchangeable for any
such stock, either immediately or upon the arrival of a specified date
or the happening of a specified event, and any warrants or other rights
to subscribe for or purchase any such stock. The foregoing provisions
of this Section 6.4(h) shall similarly apply to successive mergers,
consolidations or dispositions of assets.
(i) Purchases or Redemptions. In case at any time or from time
to time after the Closing Date, Greenbriar shall (except as hereinafter
provided) purchase or redeem any Greenbriar Common Stock, warrants,
options or other rights to subscribe for, purchase, convert into or
exchange for Greenbriar Common Stock for a consideration per share
greater than the Fair Market Price per share of Greenbriar Common Stock
on the Computation Date, then the Conversion Price shall be adjusted to
the lower of either:
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(1) that number determined by multiplying the
Conversion Price in effect immediately prior to such
adjustment by a fraction (x) the numerator of which shall be
the number of shares of Greenbriar Common Stock plus the
number of such shares or share equivalents of Greenbriar
Common Stock, warrants, options or other rights to subscribe
for, purchase, convert into or exchange for Greenbriar Common
Stock so purchased or redeemed and (y) the denominator of
which shall be the number of shares of Greenbriar Common
Stock, plus the number of shares or share equivalents of
Greenbriar Common Stock which the aggregate consideration for
the total number of such Greenbriar Common Stock, warrants,
options or other rights to subscribe for, purchase, convert
into or exchange for Greenbriar Common Stock so purchased or
redeemed would purchase at the Fair Market Price per share of
Greenbriar Common Stock; or
(2) the value of the consideration per share for
which such Greenbriar Common Stock, warrants, options or other
rights to subscribe for, purchase, convert into or exchange
for Greenbriar Common Stock were purchased or redeemed.
No adjustment of the Conversion Price shall be made under this Section
6.4(c) upon the issuance of any Additional Shares of Greenbriar
Nonpreferred Stock which are issued pursuant to the exercise of any
warrants or other subscription or purchase rights or pursuant to the
exercise of any conversion or exchange rights in any Greenbriar
Convertible Securities, if any such adjustment shall previously have
been made upon the issuance of such warrants or other rights or upon
the issuance of such Greenbriar Convertible Securities (or upon the
issuance of any warrant or other rights therefor) pursuant to Section
6.4(d) or 6.4(e).
(j) Other Action Affecting Greenbriar Nonpreferred Stock. In
case at any time or from time to time Greenbriar shall take any action
affecting its Greenbriar Nonpreferred Stock, other than an action
described in any of the foregoing Sections 6.4(a) through (i),
inclusive, then, unless in the opinion of the Board of Directors such
action will not have a materially adverse effect upon the rights of the
holders of the Series G Senior Non-Voting Preferred Stock, the
Conversion Price shall be adjusted in such manner and at such time as
the Board of Directors may in good faith determine to be equitable in
the circumstances.
6.5 No Impairment. Other than in connection with the amendment of its
Articles of Incorporation approved by the requisite number of stockholders,
Greenbriar will not, through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any other
voluntary action, avoid the observance or performance of any of the terms to be
observed or performed hereunder by Greenbriar but will at all times in good
faith assist in the carrying out of all the provisions of this Section 6 and in
the taking of all such action as may be necessary or appropriate in order to
protect the conversion rights of the holders of the Series G Senior Non-Voting
Preferred Stock against impairment. Without limiting the generality of the
foregoing, Greenbriar (i) will not permit the par value of any shares of stock
at the time receivable upon the conversion of the Series G Senior NonVoting
Preferred Stock to exceed the Conversion Price then in effect, (ii) will take
all such action as may be necessary or appropriate in order that Greenbriar may
validly and legally
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deliver fully paid nonassessable shares of stock on the conversion of the Series
G Senior NonVoting Preferred Stock, and (iii) will not issue any Additional
Shares of Greenbriar Nonpreferred Stock or Greenbriar Convertible Securities or
take any action which results in any adjustment of the Conversion Price if the
total number of shares of Greenbriar Common Stock required to be delivered after
such issuance or action upon the conversion of all the then outstanding shares
of Series G Senior Non-Voting Preferred Stock will exceed the number of shares
of Greenbriar Common Stock and available for the purpose of delivery upon such
conversion.
6.6 Certificate as to Adjustments. Upon the occurrence of each
adjustment or readjustment of the Conversion Price pursuant to this Section 6,
Greenbriar at Greenbriar's expense shall promptly compute such adjustment or
readjustment in accordance with the terms hereof and furnish to the Preferred
Stock Representative a certificate setting forth such adjustment or readjustment
and showing in detail the facts upon which such adjustment or readjustment is
based, including a statement of (i) the consideration received or to be received
by Greenbriar for any Additional Shares of Greenbriar Nonpreferred Stock issued
or sold or deemed to have been issued, (ii) the number of shares of Greenbriar
Nonpreferred Stock outstanding or deemed to be outstanding, and (iii) the
Conversion Price in effect immediately prior to such issue or sale and as
adjusted and readjusted on account thereof, showing how it was calculated.
Greenbriar shall, upon the written request at any reasonable time of the
Preferred Stock Representative, furnish or cause to be furnished to such holder
a like certificate setting forth (i) the Conversion Price at the time in effect,
showing how it was calculated, and (ii) the number of shares of Greenbriar
Common Stock and the amount, if any, of other property which at the time would
be received upon the conversion of the Series G Senior Non-Voting Preferred
Stock.
6.7 Notices of Record Date. In the event of any taking by Greenbriar of
a record of the holders of any class of securities for the purpose of
determining the holders thereof who are entitled to receive any dividend or
other distribution, or any right to subscribe for, purchase or otherwise acquire
any shares of stock of any class or any other securities or property, or to
receive any other right, Greenbriar shall mail to each holder of the Series G
Senior Non-Voting Preferred Stock at least 10 days prior to the date specified
therein, a notice specifying the date on which any such record is to be taken
for the purpose of such dividend or distribution.
7. Covenants of Greenbriar.
Without the prior written consent of the Preferred Stock
Representative, Greenbriar shall comply with each of the following covenants.
7.1 Greenbriar Common Stock. Greenbriar shall at all times reserve and
keep available enough shares of Greenbriar Common Stock to effect the conversion
of the Series G Senior Non-Voting Preferred Stock, subject to (i) appropriate
adjustments in connection with a stock split or other similar events and (ii) a
reduction by the number of shares of Greenbriar Common Stock that have
previously been delivered upon conversion of Series G Senior Non-Voting
Preferred Stock; all of such shares of Greenbriar Common Stock which are
issuable to the holders of the Series G Senior Non-Voting Preferred Stock by way
of conversion, will be when issued, duly authorized and validly issued, fully
paid and nonassessable, and free from all taxes, liens and charges.
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7.2 Cash Reserves after a Special Asset Sale Trigger. Commencing on the
date nine months after the date of a Special Asset Sale Trigger, Greenbriar
shall, at all times, maintain cash or Permitted Investments in excess of the sum
of (i) the current Liquidation Value of the Series F Senior Preferred Stock and
(ii) the current Liquidation Value (as defined in the Series G Certificate of
Designation) of the Series G Senior Non-Voting Preferred Stock.
8. Events of Default.
8.1 Notice of Event of Default. Upon an Event of Default or Potential
Default, Greenbriar shall provide written notice of such Event of Default or
Potential Default, including the date on which such event first occurred, to the
Preferred Stock Representative within 10 days after the occurrence of such
event. Any Event of Default or Potential Default may be waived in writing by the
Preferred Stock Representative at any time, in which case Sections 8.2 through
8.4 shall not apply with respect to such Event of Default or Potential Default;
provided, however, that no such waiver of an Event of Default or Potential
Default shall be deemed to be a waiver of any other Event of Default or
Potential Default.
8.2 Dividends During Event of Default. Upon the occurrence and during
the continuance of an Event of Default resulting from (i) the failure of
Greenbriar to comply with any of the covenants contained in Sections 6.1, 6.3,
6.8, 6.10, 6.19, 6.20, 6.22, 6.24, 6.27-6.35 of the Purchase Agreement or (ii)
any of the events specified in clauses (ii) through (viii) of the definition of
"Event of Default," the holders of outstanding shares of Series G Senior
NonVoting Preferred Stock shall be entitled to receive, in addition to all other
dividends payable hereunder to holders of shares of Series G Senior Non-Voting
Preferred Stock and when, as and if declared by the Board of Directors, out of
funds legally available for the payment of dividends, cumulative preferential
cash dividends accruing from the date of the Event of Default (the "Default
Date") in an amount per share per annum equal to $1.20 per share, payable
quarterly on the last Business Day of March, June, September and December of
each year. Dividends on the Series G Senior Non-Voting Preferred Stock shall
accrue (whether or not declared) on a daily basis and shall be cumulative
(whether or not in any Dividend Period there shall be funds of Greenbriar
legally available for the payment of such dividends). The first dividend shall
accrue from the Default Date through the last Business Day of the first calendar
quarter to end after the Default Date, and subsequent dividends shall accrue on
a daily basis during the dividend period for which they are payable.
8.3 Put Option. Upon the occurrence of an Event of Default resulting
from (i) the failure of Greenbriar to comply with any of the covenants contained
in Sections 6.1, 6.3, 6.10, 6.19, 6.20, 6.22, 6.27-6.35 of the Purchase
Agreement or (ii) any of the events specified in clauses (iii) through (viii) of
the definition of "Event of Default," each holder of shares of Series G Senior
Non-Voting Preferred Stock shall have the right, by written notice to Greenbriar
(the "Repurchase Notice") within 90 days after the occurrence of the Event of
Default, to require that Greenbriar repurchase, out of funds legally available
therefor, any or all of such holder's shares of Series G Senior Non-Voting
Preferred Stock for an amount in cash equal to 120% of the Liquidation Value of
the shares of Series G Senior Non-Voting Preferred Stock to be repurchased as of
the date of the holder's Repurchase Notice. Any Repurchase Notice shall be
accompanied by duly endorsed certificates representing the shares of Series G
Senior Non-Voting Preferred Stock to be repurchased. Upon receipt of a
Repurchase Notice, Greenbriar shall make payment in cash of the appropriate
amount to the holder requiring repurchase with five Business Days of the date
such Repurchase Notice is
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received, unless prior to such payment, Greenbriar receives written notice from
such holder that such holder is withdrawing its requirement of the repurchase of
its shares of Series G Senior Non-Voting Preferred Stock.
8.4 Special Asset Sale Trigger. Upon a Special Asset Sale Trigger, each
holder of shares of Series G Senior Non-Voting Preferred Stock shall have the
right, by written notice to Greenbriar (the "Asset Sale Repurchase Notice")
within nine months after written notice to the Preferred Stock Representative of
the occurrence of a Special Asset Sale Trigger, to require that Greenbriar
repurchase, out of funds legally available therefor, a specified number of such
holder's shares (the "Repurchase Shares") of Series G Senior Non-Voting
Preferred Stock. The Repurchase Shares may be all or any portion of such
holder's total shares of Series G Senior Non-Voting Preferred Stock. The
Repurchase Shares shall be repurchased by Greenbriar for an amount in cash equal
to the aggregate Liquidation Value of the Repurchase Shares plus the greater of:
(i) 20% of the aggregate Liquidation Value of the Repurchase Shares or (ii) a
20% IRR on the aggregate Liquidation Value of the Repurchase Shares, in each
case, as of the date of the holder's Asset Sale Repurchase Notice. Any Asset
Sale Repurchase Notice shall be accompanied by duly endorsed certificates
representing the Repurchase Shares. Upon receipt of a Asset Sale Repurchase
Notice, Greenbriar shall make payment in cash of the appropriate amount to the
holder requiring repurchase with five Business Days of the date such Asset Sale
Repurchase Notice is received, unless prior to such payment, Greenbriar receives
written notice from such holder that such holder is withdrawing its requirement
of the repurchase of the Repurchase Shares.
8.5 Change in Management. If at any time after the date hereof, (i)
James R. Gilley is not serving as Chairman of the Board of Directors of
Greenbriar for any reason and (ii) the Preferred Stock Representative has
proposed one or more candidates for Mr. Gilley's replacement that is willing to
serve regardless of whether or not any of such candidate(s) are acceptable to
Greenbriar, unless within 15 days of the date Mr. Gilley ceases to serve as
Chairman Mr. Gilley's replacement as Chairman is mutually agreed upon by
Greenbriar and the Preferred Stock Representative, there shall have occurred a
"Change in Management" which shall give to each holder of shares of Series G
Senior Non-Voting Preferred Stock the right, by written notice to Greenbriar
(the "Change in Management Repurchase Notice") within 90 days after the
occurrence of the Change in Management, to require that Greenbriar repurchase,
out of funds legally available therefor, a specified number of such holder's
shares (the "Change in Management Repurchase Shares") of Series G Senior
Non-Voting Preferred Stock. The Change in Management Repurchase Shares may be
all or any portion of such holder's total shares of Series G Senior Non-Voting
Preferred Stock. The Change in Management Repurchase Shares shall be repurchased
by Greenbriar for an amount in cash equal to the aggregate Liquidation Value of
the Change in Management Repurchase Shares plus the greater of: (i) 20% of the
aggregate Liquidation Value of the Change in Management Repurchase Shares or
(ii) a 20% IRR on the aggregate Liquidation Value of the Change in Management
Repurchase Shares, in each case, as of the date of the holder's Change in
Management Repurchase Notice. Any Change in Management Repurchase Notice shall
be accompanied by duly endorsed certificates representing the Change in
Management Repurchase Shares which shall be free and clear of all claims, liens
and encumbrances. Upon receipt of a Change in Management Repurchase Notice,
Greenbriar shall execute a full recourse promissory note for the appropriate
amount to the holder requiring repurchase (the "Repurchase Promissory Note")
within five Business Days of the date such Change in Management Repurchase
Notice is received, unless prior to such payment, Greenbriar receives written
notice from such holder that such holder is withdrawing its requirement of
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the repurchase of the Change in Management Repurchase Shares. The Repurchase
Promissory Note shall be (a) in a form agreed to by Greenbriar and the initial
purchaser of the Series G Senior Non-Voting Preferred Stock, (b) for a term of
one (1) year from the date of the Change in Management Repurchase Notice, with
50% of the principal together with all accrued interest due six (6) months from
the date of the Change in Management Repurchase Notice, (c) shall bear interest
at the lower of eighteen percent (18%) or the highest rate allowed by law, and
(d) shall be secured by the highest available lien on all of the property and
assets of Greenbriar and the Subsidiaries reasonably sufficient to secure such
holders right of repayment, including all ownership interests of all
subsidiaries of Greenbriar, except where such lien (i) is in violation of its
certificate of incorporation, articles of incorporation or bylaws of Greenbriar
or any of the Subsidiaries; (ii) would create a default in the performance of
any obligation, agreement or condition contained in any license, contract,
indenture, mortgage, installment sale agreement, lease, deed of trust, voting
trust agreement, stockholders' agreement, note, loan, credit agreement, purchase
order, agreement or instrument evidencing an obligation for borrowed money or
other agreement or instrument to which Greenbriar or any of the Subsidiaries is
a party or by which Greenbriar or any of the Subsidiaries may be bound or to
which the property or assets of Greenbriar or any of the Subsidiaries is subject
or affected; or (iii) would create a violation in any respect of any Law
applicable to Greenbriar or any of the Subsidiaries, that would have a Material
Adverse Effect. Such liens shall be of the same priority as between all holders
requiring repurchase. The Repurchase Promissory Note shall be due and payable
immediately if Greenbriar fails to perfect liens on property and assets of
Greenbriar and the Subsidiaries reasonably sufficient to secure such holders
right of repayment within ten Business Days of the date such Change in
Management Repurchase Notice is received, unless prior to such delivery,
Greenbriar receives written notice from such holder that such holder is
withdrawing its requirement of the repurchase of its shares of Series G Senior
Non-Voting Preferred Stock.
8.6 Remedies Cumulative. In addition to the remedies stated herein,
each holder of Series G Senior Non-Voting Preferred Stock will also have any
other rights that such holder may be entitled to under any agreement or pursuant
to applicable law.
9. No Reissuance.
No shares of Series G Senior Non-Voting Preferred Stock acquired by
Greenbriar by reason of redemption, purchase, conversion or otherwise shall be
reissued as Series G Senior Non-Voting Preferred Stock.
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EXHIBIT 2.2.4
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REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (this "Agreement") is made as of
January 9, 1998, by and between Greenbriar Corporation, a Nevada corporation
("Greenbriar"), and Lone Star Opportunity Fund, L.P., a Delaware limited
partnership ("Purchaser"). Greenbriar proposes to issue and sell to the
Purchaser, upon the terms set forth in a Stock Purchase Agreement dated as of
December 31, 1997 (the "Purchase Agreement"), 1,400,000 shares of Greenbriar's
Series F Senior Convertible Preferred Stock (the "Series F Senior Preferred
Stock") and 800,000 shares of Greenbriar's Series G Senior Non-Voting
Convertible Preferred Stock (the "Series G Senior Non-Voting Preferred Stock").
The Series F Senior Preferred Stock and the Series G Senior Non-Voting Preferred
Stock are convertible into Common Stock (as defined below) as provided in the
Purchase Agreement. As an inducement to the Purchaser to enter into the Purchase
Agreement and in satisfaction of a condition to the Purchaser's obligations
thereunder, Greenbriar agrees with the Purchaser, for the benefit of the
Purchaser and the other Holders (as defined below), as follows:
1. Certain Definitions.
As used in this Agreement, the following initially capitalized terms
have the following meanings:
"Agreement" is defined in the preamble to this Agreement.
"Commission" means the Securities and Exchange Commission or any other
federal agency at the time administering the Securities Act.
"Common Stock" means the common stock, $0.01 par value per share, of
Greenbriar.
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
or any similar successor federal statute and the rules and regulations
thereunder, all as the same shall be in effect from time to time.
"Greenbriar" is defined in the preamble to this Agreement.
"Holder" means a Person owning Registrable Securities.
"Person" means an individual, partnership, corporation, limited
liability company, trust or unincorporated organization, or a government or
agency or political subdivision thereof.
"Prospectus" means the prospectus included in the Registration
Statement, as amended or supplemented by any prospectus supplement and by all
other amendments thereto, including post-effective amendments, and all material
incorporated by reference into such prospectus.
"Purchase Agreement" is defined in the preamble to this Agreement.
"Purchaser" is defined in the preamble to this Agreement.
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"Registrable Securities" means (i) shares of Common Stock issued or
transferred pursuant to the conversion of the Series F Senior Preferred Stock
and the Series G Senior Non-Voting Preferred Stock and (ii) any Common Stock
issued as a dividend or other distribution with respect to or in exchange for or
in replacement of the shares referenced in (i) above.
"Registration Statement" means any registration statement under the
Securities Act that is filed by Greenbriar to register sales of Registrable
Securities by Holders, whether or not such registration statement also registers
the issuance or sale of other securities.
"Request Notice" means a written request, approved by Holders of not
less than a majority of the outstanding Registrable Securities, that Greenbriar
effect a registration of all or part of the Registrable Securities.
"Series F Senior Preferred Stock" is defined in the preamble to this
Agreement.
"Series G Senior Non-Voting Preferred Stock" is defined in the preamble
to this Agreement.
"Securities Act" means the Securities Act of 1933, as amended, or any
similar successor federal statute and the rules and regulations thereunder, all
as the same shall be in effect from time to time.
"Underwritten Offering" means a registration in which securities of
Greenbriar are sold to an underwriter for re-offering to the public.
2. Requested Registration.
(a) The Holders of not less than a majority of the outstanding
Registrable Securities may, at any time, issue a Request Notice to Greenbriar,
requesting Greenbriar to effect registration under the Securities Act of all or
any part of the Registrable Securities, for sale in the manner specified in the
Request Notice, provided that such sale will have an aggregate offering price of
at least $3,000,000. Greenbriar shall give written notice of the proposed
registration to all other Holders within 5 business days of receipt by
Greenbriar of the Request Notice. Greenbriar shall use its best efforts to
include in such registration all the Registrable Securities specified by any
other Holder in a written request and received by Greenbriar within 25 days
after the notice to other Holders is mailed or delivered by Greenbriar.
The Request Notice shall specify the number of shares of Registrable
Securities proposed to be sold by the Holders making such demand request.
Greenbriar shall file a registration statement for the registration of the
Registrable Securities requested to be registered in the Request Notice as soon
as practicable and in any event within 60 days after receiving the demand
request (the "Required Filing Date") and shall use all commercially reasonable
efforts to cause the same to be declared effective by the Commission as promptly
as practicable after such filing; provided, that, subject to Section 2(d),
Greenbriar need effect only two demand registrations pursuant to this Section 2.
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(b) Greenbriar will not effect any other registration of any
of its securities, whether for its own account or that of any other security
holder, from the date of receipt of a Request Notice until the completion of the
distribution of all securities thereunder; provided that on or after the 60th
day after the effective date of a Registration Statement filed in connection
with a Request Notice, Greenbriar may effect the registration of (i) debt
securities by the Company only for its own account or (ii) equity securities by
the Company only for its own account, which equity securities will be issued as
consideration for an acquisition by the Company.
(c) If any of the Registrable Securities included under the
Registration Statement are to be sold in an Underwritten Offering, the
investment banker or investment bankers and manager or managers that will
administer the offering will be selected by the Holders of 50 percent of the
Registrable Securities to be registered, provided, however, that such managing
underwriters shall be reasonably satisfactory to Greenbriar.
(d) A registration shall not count as a Demand Registration
until it has become effective (unless the Requesting Holders withdraw all their
Registrable Securities, in which case such demand shall count as a Demand
Registration unless the Requesting Holders pay all registration expenses in
connection with such withdrawn registration); provided that if, after it has
become effective, an offering of Registrable Securities pursuant to a
registration is interfered with by any stop order, injunction or other order or
requirement of the Commission or other governmental agency or court, such
registration shall be deemed not to have been effected.
(e) Notwithstanding the foregoing, the provisions of this
Section 2 are subject to the terms of the existing registration rights
agreements listed on and the waivers contained in Exhibit A hereto, except to
the extent waived.
3. Piggyback Registration.
(a) If Greenbriar proposes at any time to register any of its
securities either for its own account or the account of a security holder or
holders (other than a registration relating solely to employee benefit plans, a
registration on Form S-4 or a registration relating solely to a Rule 145
transaction) Greenbriar will promptly, but in no event less than 45 days prior
to the initial filing with the Commission of such registration statement, give
written notice to the Holders. Such notice shall specify, to the extent known,
the anticipated filing date, the number of securities proposed to be registered
and the general distribution arrangements. Greenbriar will use its best efforts
to include in such registration and in any underwriting involved therein, all
the Registrable Securities specified in a written request or requests, made by
any Holder and received by Greenbriar within 30 days after the written notice
from Greenbriar is mailed or delivered by Greenbriar. Such written request may
specify all or a part of a Holder's Registrable Securities.
(b) Greenbriar may, at any time prior to the effectiveness of
any such registration, abandon the proposed offering; provided, however,
Greenbriar shall give written notice of such abandonment to each Holder as soon
as practical, but in no event more than 20 days after the determination to
abandon such registration.
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(c) The number of Registrable Securities to be included in
such registration may be reduced or eliminated if and to the extent, in the
reasonable opinion of the managing underwriter of such offering, such inclusion
would materially jeopardize the successful marketing of the securities proposed
to sold therein. If the aggregate number of securities must be limited pursuant
to this Section, the total number of securities that may be included shall be
allocated first to Greenbriar or Holders initiating a request for registration
under Section 2, and then pro rata among the Holders and other security holders
requesting their securities of Greenbriar to be registered pursuant to similar
piggy-back registration rights on the basis of the number of shares requested to
be included in such registration by each Holder or other holder having similar
piggy-back registration rights. If a Holder is not entitled to include all of
its Registrable Securities in such registration, then such Holder may elect to
withdraw its request to include any or all of its Registrable Securities in such
registration.
(d) All Holders proposing to distribute their securities
through such underwriting shall, if reasonably requested by Greenbriar or the
managing underwriter in connection with such registration, (i) agree to sell
such Registrable Securities on the basis provided in any underwriting
arrangements entered into in connection therewith, (ii) complete and execute all
questionnaires, powers of attorney, indemnities, underwriting agreements and
other documents that are required under the terms of such underwriting
arrangements and (iii) promptly provide any information requested, in writing,
by Greenbriar or the managing underwriter.
(e) If a Holder decides not to include all of its Registrable
Securities in any registration pursuant to this Section, such Holder shall
nevertheless continue to have the right to include any Registrable Securities in
any subsequent Registration Statement(s) as may be filed by Greenbriar.
4. Registration on Form S-3.
(a) Greenbriar shall use its best efforts to qualify for
registration on Form S-3 or any comparable or successor form or forms. After
Greenbriar has qualified for the use of Form S-3, in addition to the rights
contained in the foregoing provisions of Section 2, the Holders of Registrable
Securities shall have the right to request registrations on Form S-3 (such
requests shall be in writing and shall state the number of shares of Registrable
Securities to be disposed of and the intended methods of disposition of such
shares by such Holder or Holders); provided, however, that Greenbriar shall not
be obligated to effect any such registration if (i) the Holders, together with
the holders of any other securities of Greenbriar entitled to inclusion in such
registration, propose to sell Registrable Securities and such other securities
(if any) on Form S-3 at an aggregate price to the public of less than $3,000,000
or (ii) in a given twelve-month period, Greenbriar has effected one (1) such
registration in any such period.
(b) If a request complying with the requirements of Section
4(a) is delivered to Greenbriar, the provisions of Sections 2(b) and (c) hereof
shall apply to such registration.
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(c) Notwithstanding the foregoing, the provisions of this
Section 4 are subject to the terms of the existing registration rights
agreements listed on and the waivers contained in Exhibit A hereto, except to
the extent waived.
5. Registration Procedures.
In connection with any registration to permit the sale or resale of
Registrable Securities pursuant to this Agreement, Greenbriar shall use its
reasonable best efforts to:
(a) Keep such registration effective for a period of 120 days
or until the Holders have completed the distribution as specified in the Request
Notice, whichever first occurs; provided, however, (i) that such 120-day period
shall be extended for a period of time equal to the period the Holder refrains
from selling any securities included in such registration at the request of an
underwriter of any securities of Greenbriar; and (ii) in the case of any
registration of Registrable Securities on Form S-3 which are intended to be
offered on a continuous or delayed basis, such 120-day period shall be extended,
if necessary, to keep the registration statement effective until all such
Registrable Securities are sold, provided that Rule 145, or any successor rule
under the Securities Act, permits an offering on a continuous or delayed basis,
and provided further that applicable rules under the Securities Act governing
the obligation to file a post-effective amendment permit, in lieu of filing a
post-effective amendment that (A) includes any Prospectus required by Section
10(a)(3) of the Securities Act or (B) reflects facts or events representing a
material or fundamental change in the information set forth in the Registration
Statement, the incorporation by reference of information required to be included
in (A) and (B) above to be contained in periodic reports filed pursuant to
Section 13 or 15(d) of the Exchange Act in the Registration Statement;
(b) Furnish to each Holder, prior to the filing thereof with
the Commission, a copy of the Registration Statement and each amendment thereto
or each amendment or supplement to the Prospectus included therein and shall
make Greenbriar's representatives available for discussion of such document and
other customary due diligence matters, and shall use its best efforts to reflect
in each such document, when so filed with the Commission, such comments as any
Holder reasonably may propose;
(c) Take any and all actions as may be necessary so that (i)
the Registration Statement and any amendment thereto and the Prospectus complies
in all material respects with the Securities Act and the rules and regulations
thereunder, (ii) the Registration Statement and any amendment thereto (in either
case, other than with respect to written information furnished to Greenbriar by
or on behalf of any Holder specifically for inclusion therein) does not, when it
becomes effective, contain an untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make any
statement therein not misleading and (iii) the Prospectus (other than with
respect to such information from Holders) does not include an untrue statement
of a material fact or omit to state a material fact necessary in order to make
the statements therein, in light of the circumstances under which they were
made, not misleading;
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(d) Keep the Registration Statement continuously effective and
provide all requisite financial statements for the period specified in Section
5(a); and upon the occurrence of any event that would cause the Registration
Statement or any amendment thereto or the Prospectus (i) to contain a material
misstatement or omission or (ii) not to be effective and usable for resale of
Registrable Securities during the period required by this Agreement, Greenbriar
shall file promptly an appropriate amendment or supplement to the Registration
Statement, in the case of clause (i), correcting any such misstatement or
omission, and, in the case of either clause (i) or (ii), use its reasonable best
efforts to cause such amendment to be declared effective and such Registration
Statement and the related Prospectus to become usable for their intended
purpose(s) as soon as practicable thereafter;
(e) Prepare and file with the Commission such amendments and
post-effective amendments to the Registration Statement as may be necessary to
keep the Registration Statement effective for the applicable period set forth in
Section 5(a); cause the Prospectus to be supplemented by any required Prospectus
supplement, and as so supplemented to be filed pursuant to Rule 424 under the
Securities Act, and to comply fully with the applicable provisions of Rules 424
and 430A under the Securities Act in a timely manner; and comply with the
provisions of the Securities Act with respect to the disposition of all
securities covered by the Registration Statement during the applicable period in
accordance with the intended method or methods of distribution by the sellers
thereof set forth in the Registration Statement or supplement to the Prospectus;
(f) As soon as practicable, advise the Holders (which advice
pursuant to clauses (ii)-(iv) shall be deemed to include an instruction to
suspend the use of the Prospectus until the requisite changes have been made)
and, if requested by such Persons, to confirm such advice in writing:
i. when the Prospectus or any supplement or amendment
thereto has been filed with the Commission and when the
Registration Statement or any post-effective amendment
thereto has become effective;
ii. of any request by the Commission for amendments to the
Registration Statement or amendments or supplements to
the Prospectus or for additional information relating
thereto;
iii. of the issuance by the Commission of any stop order
suspending the effectiveness of the Registration
Statement under the Securities Act or of the suspension
by any state securities commission of the qualification
of the Registrable Securities for offering or sale in
any jurisdiction, or the initiation of any proceeding
for any of the preceding purposes; and
iv. of the existence of any fact or the happening of any
event that makes any statement of a material fact made
in the Registration Statement, the Prospectus, any
amendment or supplement thereto, or any document
incorporated by reference therein untrue, or that
requires the making of any additions to or changes in
the Registration Statement or the Prospectus so that
the Registration Statement and the Prospectus do not
contain an untrue statement of a material fact and do
not omit
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to state a material fact required to be stated therein
or necessary to make the statements therein not
misleading;
(g) If at any time the Commission shall issue any stop order
suspending the effectiveness of the Registration Statement, or any state
securities commission or other regulatory authority shall issue an order
suspending the qualification or exemption from qualification of the Registrable
Securities under state securities or blue sky laws, obtain the withdrawal or
lifting of such order at the earliest possible time;
(h) Furnish to each Holder and each of the underwriter(s), if
any, without charge, at least one copy of the Registration Statement and each
post-effective amendment thereto, including all financial statements and
schedules, documents incorporated by reference therein and, if the Holder so
requests in writing, all exhibits (including exhibits incorporated therein by
reference);
(i) Deliver to each Holder and each of the underwriter(s), if
any, without charge, as many copies of the Prospectus (including each
preliminary prospectus) included in the Registration Statement and any amendment
or supplement thereto as such Persons may reasonably request; and Greenbriar
consents to the use of the Prospectus by each of the selling Holders and each of
the underwriter(s), if any, in connection with the offering and the sale of the
Registrable Securities covered by the Prospectus or any amendment or supplement
thereto;
(j) Prior to any public offering pursuant to the Registration
Statement, register or qualify or cooperate with the Holders of Registrable
Securities registered thereunder, the underwriter(s), if any, and their
respective counsel in connection with the registration and qualification of such
Registrable Securities under the securities or blue sky laws of such
jurisdictions as such Holders or underwriters reasonably request in writing and
do any and all other acts or things necessary or advisable to enable the offer
and sale in such jurisdictions of such Registrable Securities; provided,
however, that Greenbriar will not be required to qualify generally to do
business in any jurisdiction where it is not then so qualified or to take any
action that would subject it to general service of process or to taxation, other
than as to matters and transactions relating to the Registration Statement, in
any jurisdiction where it is not then so subject;
(k) Cause the Registrable Securities covered by the
Registration Statement to be registered with or approved by such other
governmental agencies or authorities as may be necessary to enable the seller or
sellers thereof or the underwriter(s), if any, to consummate the disposition of
such Registrable Securities, subject to the provision contained in Section 5(f);
provided, however, that Greenbriar's obligations pursuant to this Section 5(k)
shall not extend to actions necessary to enable the seller or sellers of
Registrable Securities or the underwriter(s), if any, to consummate the
disposition of such Registrable Securities if such actions are necessary only as
a result of the status of such seller or sellers or underwriter(s) as regulated
entities under any regulatory regime other than the securities laws of the
United States or any state thereof;
(l) Unless any Registrable Securities shall be in book-entry
form only, cooperate with the Holders and the underwriter(s), if any, to
facilitate the timely preparation and delivery of certificates representing
Registrable Securities to be sold under the
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Registration Statement, free of any restrictive legends and in such
denominations and registered in such names as the Holders or the underwriter(s),
if any, may request in connection with the sales of Registrable Securities
pursuant to the Registration Statement;
(m) Upon the occurrence of any event contemplated by Section
5(f)(ii)-(iv), file (and have declared effective as soon as possible) a
post-effective amendment to the Registration Statement or an amendment or
supplement to the Prospectus or any document incorporated by reference therein
or file any other required document so that, as thereafter delivered to the
purchasers of Registrable Securities, the Prospectus will not contain an untrue
statement of a material fact or omit to state any material fact necessary to
make the statements therein in light of the circumstances under which they were
made not misleading. Each Holder of Registrable Securities registered under the
Registration Statement agrees by acquisition of such Registrable Securities
that, upon receipt of any notice from Greenbriar of the existence of any fact of
the kind described in Section 5(f)(ii)-(iv) hereof, such Holder will forthwith
discontinue disposition of Registrable Securities pursuant to the Registration
Statement until such Holder receives copies of the supplemented or amended
Prospectus contemplated by this Section 5(m), or until such Holder is advised in
writing by Greenbriar that the use of the Prospectus may be resumed, and such
Holder has received copies of any additional or supplemental filings which are
incorporated by reference in the Prospectus. If so directed by Greenbriar, each
Holder will deliver to Greenbriar (at Greenbriar's expense) all copies, other
than permanent file copies then in such Holder's possession, of the Prospectus
covering such Registrable Securities current at the time of receipt of such
notice. In the event Greenbriar shall give any such notice, the time period
regarding Greenbriar's obligations to maintain the effectiveness of the
Registration Statement set forth in Section 5(a) hereof shall be extended by the
number of days during the period from and including the date of the giving of
such notice pursuant to Section 5(f) hereof to and including the date when such
Holder shall have received the copies of the supplemented or amended Prospectus
contemplated by this Section 5(m);
(n) Provide CUSIP numbers for all Registrable Securities at
the time of any distribution thereof to Holders, in each case not later than the
effective date of the Registration Statement, and provide a transfer agent and
registrar for the Common Stock;
(o) Cooperate and assist in any filings required to be made
with the NASD and in the performance of any due diligence investigation by any
underwriter (including any "qualified independent underwriter") that is required
to be retained in accordance with the rules and regulations of the NASD, and use
its best efforts to cause the Registration Statement to become effective and
approved by such governmental agencies or authorities as may be necessary to
enable the Holders selling Registrable Securities to consummate the disposition
of such securities;
(p) Comply with all applicable rules and regulations of the
Commission, and make generally available to its security holders or otherwise
provide in accordance with Section 11(a) of the Securities Act, as soon as
practicable after the effective date of the Registration Statement, an earnings
statement satisfying the provisions of Section 11(a) of the Securities Act;
(q) Request a Holder of Registrable Securities to furnish to
Greenbriar such information regarding such Holder and the distribution of such
Holder's securities thereunder
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<PAGE>
as Greenbriar may from time to time reasonably require for inclusion in the
Registration Statement and Greenbriar may exclude from such registration the
Registrable Securities of any Holder that fails to furnish such information
within a reasonable time after receiving such request;
(r) If requested by the Holders of Registrable Securities
being sold in an Underwritten Offering or the underwriter(s) thereof, promptly
incorporate in the Registration Statement or Prospectus, pursuant to a
supplement or post-effective amendment, if necessary, such information as such
Holders and underwriter(s), if any, may reasonably request to have included
therein, which may include, without limitation, information relating to the plan
of distribution of the Registrable Securities, information with respect to the
amount of Registrable Securities being sold to such underwriter(s), the purchase
price being paid therefor and with respect to any other terms of the offering of
the Registrable Securities to be sold in such offering; and shall make all
required filings of such Prospectus supplement or post-effective amendment as
soon as practicable after Greenbriar is notified of the matters to be
incorporated in such Prospectus supplement or post-effective amendment;
(s) Enter into such customary agreements (including an
underwriting agreement in customary form, if applicable) and take all such other
appropriate actions in order to expedite or facilitate the disposition of the
Registrable Securities pursuant to the Registration Statement, and in connection
therewith, Greenbriar shall (i) make such representations and warranties to the
Holders of Registrable Securities registered thereunder and the underwriter(s),
if any, in form, substance and scope as are customarily made by issuers to
underwriters in primary underwritten offerings; (ii) obtain opinions of counsel
to Greenbriar and updates thereof (which counsel and opinions, in form, scope
and substance, shall be reasonably satisfactory to such underwriters and the
Holders of a majority of the outstanding Registrable Securities being sold)
addressed to each such Holder and underwriter covering such matters as are
customarily covered in opinions requested in underwritten offerings and such
other matters as may be reasonably requested by such Holders and underwriters;
(iii) if and to the extent permitted by Statement of Auditing Standards No. 72,
obtain comfort letters and updates thereof from Greenbriar's independent
certified public accountants addressed to the underwriters requesting the same,
such letters to be in customary form and covering matters of the type
customarily covered in comfort letters in connection with primary underwritten
offerings, and affirming the matters set forth in the comfort letters delivered
pursuant to the underwriting or other agreement, without exception; (iv) in
connection with an Underwritten Offering only, set forth in full or incorporate
by reference in the underwriting agreement the indemnification provisions and
procedures of Section 8 hereof with respect to all parties to be indemnified
pursuant to said Section; and (v) deliver such documents and certificates as may
be reasonably requested by such Holders or underwriters to evidence compliance
with Section 5(m) and with any customary conditions contained in the
underwriting agreement or other agreement entered into by Greenbriar pursuant to
this Section 5(s). The foregoing actions set forth in clauses (i), (ii), (iii),
(iv) and (v) of this Section 5(s) shall be performed at each closing under any
underwriting or similar agreement as and to the extent required thereunder. If
at any time the representations and warranties of Greenbriar contemplated in
clause (i) above cease to be true and correct, Greenbriar shall so advise the
Purchaser and the underwriter(s), if any, and each selling Holder promptly and,
if requested by such Persons, shall confirm such advice in writing;
9
<PAGE>
(t) Make available at reasonable times for inspection by the
Holders of the Registrable Securities, any underwriter participating in any
disposition pursuant to the Registration Statement, and any attorney or
accountant retained by any such Holders or underwriters, all financial and other
records, pertinent corporate documents and properties of Greenbriar and its
subsidiaries; and cause Greenbriar's officers, directors and employees to supply
all information reasonably requested by any such Holder, underwriter, attorney
or accountant in connection with the Registration Statement subsequent to the
filing thereof as is customary for similar due diligence examinations; provided,
however, that any information that is designated in writing by Greenbriar, in
good faith, as confidential at the time of delivery of such information shall be
kept confidential by such Holders or any such underwriter, attorney or
accountant, unless such disclosure is made in connection with a court proceeding
or required by law, or such information becomes available to the public
generally or through a third party without an accompanying obligation of
confidentiality; and provided, further that the foregoing inspection and
information gathering shall, to the greatest extent possible, be coordinated on
behalf of the Holders and the other parties entitled thereto by one counsel
designated by and on behalf of such Holders and other parties;
(u) Subject to any applicable rules thereto, cause all Common
Stock included among the Registrable Securities to be listed on each securities
exchange on which the Common Stock is listed;
(v) Provide promptly to each Holder upon request each document
filed with the Commission pursuant to the requirements of Section 13 and Section
15 of the Exchange Act.
6. Registration Expenses.
(a) Greenbriar shall bear all expenses incurred in connection
with the performance of or compliance with its obligations under this Agreement,
including without limitation all registration filing, application and
qualification fees, fees and expenses of compliance with securities or blue sky
laws, printing expenses, messenger, delivery and telephone expenses and fees,
and disbursements of counsel for Greenbriar, all independent certified public
accountants and other persons retained by Greenbriar, all of Greenbriar's
internal expenses relating to such registration (including, without limitation,
all salaries and expenses of its officers and employees performing legal or
accounting duties), the expense of any annual audit or quarterly review, the
expense of any liability insurance and the expenses and fees for listing the
securities to be registered on each securities exchange on which similar
securities issued by Greenbriar are then listed.
(b) Each Holder will pay any discounts and commissions
incurred upon the sale of securities by it under such registration.
7. Prior Approval of Subsequent Registration Rights. From and
after the date of this Agreement and until no Registrable Securities remain
outstanding, without the prior written consent of the Holders, Greenbriar shall
not grant (i) any new demand registration rights to any Person or (ii) any new
piggy-back registration rights to any Person unless such rights are expressly
made subject to the prior right of Holders to include any or all of their
Registrable Securities before such other Person includes any shares in any
registration relating to an underwritten public offering with respect to which,
in the opinion of the
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managing underwriter, the inclusion in the offering of all shares requested to
be registered by all Persons holding registration rights would materially
jeopardize the successful marketing of the securities to be sold.
8. Indemnification and Contribution.
(a) In connection with any Registration Statement, Greenbriar
shall indemnify and hold harmless each Holder, its officers, directors,
partners, employees, representatives and agents, and each Person who controls
such Holder within the meaning of the Securities Act or the Exchange Act against
any and all losses, claims, damages, liabilities or expenses, insofar as such
losses, claims, damages, liabilities or expenses (or actions in respect thereof)
which arise out of or are based upon any untrue or alleged untrue statement of
material fact contained in the Registration Statement, or any Prospectus or
preliminary Prospectus or any amendment thereof or supplement thereto, or arise
out of or are based upon any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, and agrees to reimburse each such indemnified Person for
any legal or other expenses reasonably incurred by them in connection with
investigating or defending any such loss, claim, damage, liability, expense or
action, as such expenses are incurred; provided, however, that Greenbriar will
not be liable in any case to the extent that any such loss, claim, damage or
liability arises out of or is based upon an untrue or alleged untrue statement
or omission or alleged omission made therein in reliance upon and in conformity
with written information furnished to Greenbriar by or on behalf of any such
Holder and contained in, on the effective date of, a Registration Statement or
any amendment thereto.
Greenbriar also agrees to indemnify or contribute to losses of, as
provided in Section 8(d), any underwriters of Registrable Securities, their
officers, directors, partners, employees, representatives and agents and each
Person, if any, who controls any such underwriter (within the meaning of the
Securities Act) on substantially the same basis as that of the indemnification
of the Holders provided in Section 8(a) and shall, if requested by any Holder,
enter into an underwriting agreement reflecting such agreement.
(b) Each selling Holder, severally and not jointly, shall
indemnify and hold harmless Greenbriar, its officers, directors, partners,
employees, representatives and agents and each Person, if any, who controls
Greenbriar (within the meaning of the Securities Act) against any and all
losses, claims, damages, liabilities or expenses to the same extent as the
foregoing indemnity contained in Section 8(a) hereof resulting from any untrue
or alleged untrue statement of material fact contained in the Registration
Statement or any amendment thereof or supplement thereto or any omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading to the extent, but
only to the extent, that such loss, claim, damage or liability relates to or
arises from information relating to such Holder furnished in writing by such
Holder specifically for use in the Registration Statement; provided, however,
that the obligation to indemnify will be individual to each Holder and will be
limited to the amount of net proceeds received by such Holder from the sale of
Registrable Securities pursuant to the Registration Statement.
(c) Any Person entitled to indemnification hereunder shall
give notice as promptly as reasonably practicable to each indemnifying party of
any claim or action
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commenced against it in respect of which indemnity may be sought hereunder;
provided, however, that failure to so notify an indemnifying party shall not
relieve such indemnifying party from any obligation that it may have pursuant to
this Section except to the extent that it has been materially prejudiced
(through the forfeiture of substantive rights or defenses) by such failure;
provided further, however, that the failure to notify the indemnifying party
shall not relieve it from any liability that it may have to an indemnified party
otherwise than on account of this indemnity agreement. If any such claim or
action shall be brought against an indemnified party, the indemnifying party
shall be entitled to participate therein and, to the extent that it wishes,
jointly with any other similarly notified indemnifying party, to assume the
defense thereof with counsel satisfactory to the indemnified party. After notice
from the indemnifying party to the indemnified party of its election to assume
the defense of such claim or action, the indemnifying party shall not be liable
to the indemnified party under this Section for any legal or other expenses
subsequently incurred by the indemnified party in connection with the defense
thereof; provided, however, that an indemnified party will have the right to
employ its own counsel in any such action, but the fees, expenses and other
charges of such counsel will be at the expense of such indemnified party unless
(i) the employment of counsel by the indemnified party has been authorized in
writing by the indemnifying party, (ii) the indemnified party has reasonably
concluded (based on advice of counsel) that there may be legal defenses
available to it or other indemnified parties that are different from or in
addition to those available to the indemnifying party, (iii) a conflict or
potential conflict exists (based on advice of counsel to the indemnified party)
between the indemnified party and indemnifying party (in which case the
indemnifying party will not have the right to direct the defense of such action
on behalf of the indemnified party) or (iv) the indemnifying party has not in
fact employed counsel to assume the defense of such action within a reasonable
time after receiving notice of the commencement of the action, in each of which
cases the fees, disbursements and other charges of counsel will be at the
expense of the indemnifying party or parties. It is understood that the
indemnifying party or parties shall not, in connection with any proceeding or
related proceedings in the same jurisdiction, be liable for the fees,
disbursements and other charges of more than one separate firm of attorneys (in
addition to any local counsel) at any one time for all such indemnified party or
parties. Each indemnified party, as a condition to the indemnity agreements
contained in Sections 8(a) and 8(b), shall use all efforts to cooperate with the
indemnifying party in the defense of any such action or claim. No indemnifying
party shall be liable for any settlement or any such action effected without its
written consent, but if settled with its written consent or if there be a final
judgment of the plaintiff in any such action, the indemnifying party agrees to
indemnify and hold harmless any indemnified party from and against any loss or
liability by reason of such settlement or judgment. No indemnifying party shall,
without the prior written consent of the indemnified party, effect any
settlement of any pending or threatened proceeding in respect of which any
indemnified party is or could have been a party and indemnity could have been
sought hereunder by such indemnified party, unless such settlement includes an
unconditional release of such indemnified party from all liability on claims
that are the subject matter of such proceeding.
(d) If the indemnification provided for in this Section 8 is
unavailable to or insufficient to hold harmless an indemnified party, then each
applicable indemnifying party shall contribute to such amount paid or payable by
such indemnified party in such proportion as is appropriate to reflect the
relative fault of Greenbriar on the one hand and the Holders on the other in
connection with the actions, statements or omissions that resulted in such
losses, claims, damages, liabilities or expenses (or actions in respect
thereof), as well as any
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other relevant equitable considerations. The relative fault shall be determined
by reference to, among other things, whether any action in question, including
any untrue or alleged untrue statement of a material fact or omission or alleged
omission of a material fact, has been taken or made by, or relates to
information supplied by Greenbriar on the one hand or the Holders on the other,
and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such action, statement or omission. The amount
paid or payable by a party as a result of any losses, claims, damages,
liabilities or expenses (or actions in respect thereof), shall be deemed to
include, subject to the limitations set forth in Section 8(c), any legal or
other fees or expenses reasonably incurred by such party in connection with any
investigation or proceedings.
The parties hereto agree that it would not be just and equitable if
contribution pursuant to this Section 8(d) were determined by pro rata
allocation or by any other method of allocation that does not take into account
the equitable considerations referred to in the immediately preceding paragraph.
No person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) shall be entitled any contribution from any person
who was not guilty of such fraudulent misrepresentation. The Holders'
obligations in this Section 8(d) to contribute are several in proportion and not
joint.
9. Rules 144 and 144A. Greenbriar shall use commercially reasonable
efforts to file the reports required to be filed by it under the Securities Act
and the Exchange Act in a timely manner and, if at any time Greenbriar is not
required to file such reports, it will, upon the written request of any Holder
of Registrable Securities, make publicly available other information so long as
necessary to permit sales of such Holder's securities pursuant to Rules 144 and
144A. Greenbriar covenants that it will take such further action as any Holder
of Registrable Securities may reasonably request, all to the extent required
from time to time to enable such Holder to sell securities pursuant to Rules 144
and 144A (including the requirements of Rule 144A(d)(4)).
10. Miscellaneous.
(a) Amendments and Waivers. The provisions of this Agreement
may not be amended, modified or supplemented, and waivers or consents to
departures from the provisions hereof may not be given, unless Greenbriar has
obtained the written consent of the Holders. Notwithstanding the foregoing, a
waiver or consent to depart from the provisions hereof with respect to a matter
that relates exclusively to the rights of the Holders of Registrable Securities
being sold pursuant to the Registration Statement and that does not directly or
indirectly affect the rights of other Holders may be given by Holders of the
Registrable Securities being sold.
(b) Notices. All notices and other communications provided for
or permitted hereunder shall be made in writing by hand-delivery, certified mail
(return receipt requested), telecopier, or air courier guaranteeing overnight
delivery:
i. if to a Holder, at the address of such Holder maintained
by Greenbriar;
ii. if to the Purchaser, at the address set forth in the
Purchase Agreement;
iii. if to Greenbriar, at its address set forth in the Purchase
Agreement;
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or to such other addresses as the recipient party has specified to the sending
party by prior written notice to the sending party.
All such notices and communications shall be deemed to have been duly
given: at the time delivered by hand, if personally delivered; five business
days after being deposited in the mail, certified, return receipt requested and
postage prepaid, if mailed; when receipt is acknowledged by the recipient's
telecopier machine, if telecopied; and on the next business day, if delivered to
a next-day air courier.
(c) Remedies. In the event of a breach by Greenbriar or by a
Holder of any of their respective obligations under this Agreement, each Holder
or Greenbriar, as the case may be, in addition to being entitled to exercise all
rights granted by law, including recovery of damages, will be entitled to
specific performance of its rights under this Agreement. Greenbriar and each
Holder agree that monetary damages would not be adequate compensation for any
loss incurred by reason of a breach by it of any of the provisions of this
Agreement and hereby further agree that, in the event of any action for specific
performance in respect of such breach, it shall waive the defense that a remedy
at law would be adequate.
(d) Severability. The remedies provided herein are cumulative
and not exclusive of any remedies provided by law. If any term, provision,
covenant or restriction of this Agreement is held by a court of competent
jurisdiction to be invalid, illegal, void or unenforceable, the remainder of the
terms, provisions, covenants and restrictions set forth herein shall remain in
full force and effect and shall in no way be affected, impaired or invalidated.
It is hereby stipulated and declared to be the intention of the parties that
they would have executed the remaining terms, provisions, covenants and
restrictions without including any of such that may be hereafter declared
invalid, illegal, void or unenforceable.
(e) No Inconsistent Agreements. Greenbriar will not hereafter
enter into any agreement with respect to its securities which is inconsistent
with or violates the rights granted to the Holders in this Agreement. The rights
granted to the Holders hereunder do not in any way conflict with and are not
inconsistent with the rights granted to the holders of Greenbriar's securities
under any agreement in effect on the date hereof.
(f) Successors and Assigns. All covenants and agreements in
this Agreement by or on behalf of any of the parties hereto will bind and inure
to the benefit of their respective heirs, executors, administrators, successors,
legal representatives and assigns. In addition, whether or not any express
assignment has been made, the provisions of this Agreement which are for the
benefit of Holders are also for the benefit of, and enforceable by, any
subsequent Holder.
(g) Counterparts. This Agreement may be executed in two or
more counterparts, any one of which need not contain the signatures of more than
one party, but all such counterparts taken together will constitute one and the
same Agreement.
(h) Descriptive Headings. The descriptive headings of this
Agreement are inserted for convenience only and do not constitute a part of this
Agreement.
14
<PAGE>
(i) Governing Law. ALL QUESTIONS CONCERNING THE CONSTRUCTION,
VALIDITY AND INTERPRETATION OF THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE DOMESTIC LAWS OF THE STATE OF TEXAS, WITHOUT GIVING
EFFECT TO ANY CHOICE OF LAW OR CONFLICT OF LAW PROVISION OR RULE (WHETHER OF THE
STATE OF TEXAS OR ANY OTHER JURISDICTION) THAT WOULD CAUSE THE APPLICATION OF
THE LAWS OF ANY JURISDICTION OTHER THAN THE STATE OF TEXAS.
(j) Entire Agreement. This Agreement together with the other
operative documents described in the Purchase Agreement is intended by the
parties as a final expression of their agreement and intended to be a complete
and exclusive statement of the agreement and understanding of the parties hereto
in respect of the subject matter contained herein. There are no restrictions,
promises, warranties or undertakings, other than those set forth or referred to
herein with respect to the registration rights granted by Greenbriar with
respect to the Registrable Securities. This Agreement supersedes all prior
agreements and understandings between the parties with respect to such subject
matter.
15
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Registration Rights Agreement as of the date first above written.
GREENBRIAR CORPORATION,
a Nevada corporation
By:
Name:
Title:
LONE STAR OPPORTUNITY FUND, L.P.,
a Delaware limited partnership
By: Lone Star Partners, L.P., its General
Partner
By: Lone Star Management Co., Ltd., its
General Partner
By:
Name:
Title:
16
<PAGE>
EXHIBIT A
Certain Existing Registration Rights Agreements
<PAGE>
EXHIBIT 2.2.5
<PAGE>
AGREEMENT
THIS AGREEMENT (this "Agreement") dated as of December 31, 1997, and
effective upon the date of issuance of shares of Series F Senior Convertible
Preferred Stock and Series G Senior Non-Voting Convertible Preferred Stock of
Greenbriar, is entered into by and between Greenbriar Corporation, a Nevada
corporation ("Greenbriar"), and Lone Star Opportunity Fund, L.P., a Delaware
limited partnership ("Lone Star").
Section 1. Definitions.
"5-day Average Price" per share of common stock, for purposes of any
provision herein at the date specified in such provision, means the average
closing price of such common stock on the American Stock Exchange, New York
Stock Exchange or Nasdaq National Market over the 5-trading day period
immediately prior to such date.
"20-day Average Price" per share of common stock, for purposes of any
provision herein at the date specified in such provision, means the average
closing price of such common stock on the American Stock Exchange, New York
Stock Exchange or Nasdaq National Market over the 20-trading day period
immediately prior to such date.
"Agreement" has the meaning set forth in the preamble to this Agreement.
"Dividends" means dividends paid by Greenbriar and received by Lone Star on
the Series F Senior Preferred Stock and the Series G Senior Non-Voting Preferred
Stock.
"Fair Market Price" per share of common stock, for purposes of any
provision herein at the date specified in such provision, means the lesser of
(i) the 5-Day Average Price of such common stock or (ii) the 20-Day Average
Price of such common stock; provided, that if such common stock has not been
listed on the American Stock Exchange, New York Stock Exchange or Nasdaq
National Market for such periods, then the Fair Market Price per share of such
common stock shall be deemed to be the lesser of (i) the net book value per
share of common stock, determined in accordance with GAAP, or (ii) the fair
value per share of common stock determined pursuant to the Valuation Procedure.
"Greenbriar" means Greenbriar Corporation, a Nevada corporation.
"Greenbriar Common Stock" means the common stock, par value $0.01 per
share, of Greenbriar.
"Lone Star" has the meaning set forth in the preamble to this Agreement.
"Make Whole Amount" means the greater of (i) Present Value o 1.2t and (ii)
zero. Please refer to Exhibit A for sample calculations of the Make Whole
Amount.
"Payment Date" means ten business days after the date on which all of the
Series F Senior Preferred Stock and all of the Series G Senior Non-Voting
Preferred Stock have been (i) converted to Greenbriar Common Stock or (ii)
repurchased by Greenbriar from Lone Star
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<PAGE>
pursuant to the terms of Sections 8.4, 8.5 and 8.6 of the Series F Certificate
of Designation or Sections 8.3, 8.4 and 8.5 of the Series G Certificate of
Designation.
"Present Value" means $22,000,000 - E ((Dividendst + Value Received t) /
1.2t)
"Series F Certificate of Designation" means the Certificate of Designation
of Greenbriar relating to the Series F Senior Preferred Stock.
"Series F Senior Preferred Stock" means the Series F Senior Convertible
Preferred Stock, par value $0.01 per share, of Greenbriar.
"Series G Certificate of Designation" means the Certificate of Designation
of Greenbriar relating to the Series G Senior Non-Voting Preferred Stock.
"Series G Senior Non-Voting Preferred Stock" means the Series G Senior
Non-Voting Convertible Preferred Stock, par value $0.01 per share, of
Greenbriar.
"Special Sale Trigger" means any sale, lease, sale/leaseback, assignment,
transfer or other disposition of assets, which (i) has a total aggregate
consideration received for such dispositions in excess of $125 million of cash,
indebtedness assumed, and potential earnouts and the present fair value of any
other consideration, and (ii) assigns or subleases substantially all of
Greenbriar's operated properties which are leased from others, except where the
consent is required from the landlord of such property and such landlord fails
to consent to such assignment or sublease. The dispositions described above
specifically include, but are not limited to, sales of operating leases and
management contracts and sales as a part of the Syndication Program.
"Syndication Program" means a program of selling real estate to public or
private syndications consisting of partnerships, limited liability companies, or
limited liability partnerships where ownership of such entities is offered to
passive investors for cash and/or notes.
"t" means the time elapsed from the date hereof expressed in fractions of
years.
"Valuation Procedure" means a determination of fair value of any property
made in good faith by the Board of Directors; provided that, if Lone Star
objects to such determination within 10 days of receipt of written notification
thereof, then the fair value of such property shall be determined in good faith
by a recognized national investment bank selected by unanimous vote or consent
of the Board of Directors, which investment bank is not reasonably objected to
by Lone Star. The fees and expenses of such investment bank shall be paid by
one-half by Greenbriar and one-half by Lone Star.
"Value Received" means, as of any date that shares of the Series F Senior
Preferred Stock or the Series G Senior Non-Voting Preferred Stock are converted,
exchanged or repurchased, the sum of (i) the Fair Market Price of Greenbriar
Common Stock on the date such stock was converted multiplied by the number of
shares of Greenbriar Common Stock issued to Lone Star in connection with the
conversion of the Series F Senior Preferred Stock on such date, (ii) the Fair
Market Price of Greenbriar Common Stock on the date such stock was exchanged
multiplied by the number of shares of Greenbriar Common Stock transferred
- 2 -
<PAGE>
to Lone Star in exchange for the Series G Senior Non-Voting Preferred Stock on
such date, (iii) the amount of cash received by Lone Star for the repurchase of
the Series F Senior Preferred Stock on such date and (iv) the amount of cash
received by Lone Star for the repurchase of the Series G Senior Non-Voting
Preferred Stock on such date.
Section 2. Payment Obligation. On the Payment Date, Greenbriar shall pay to
Lone Star cash in an amount equal to the Make Whole Amount by wire transfer to
an account designated by Lone Star at least two business days before the Payment
Date.
Section 3. Termination. This Agreement shall terminate upon the earlier of:
(a) Payment in full of the payment obligation set forth in Section 2 above;
(b) A determination pursuant to the terms of this Agreement that the Make
Whole Amount is zero (0) as of the Payment Date; and
(c) One year after the date on which Lone Star receives written notice from
Greenbriar of a Special Sale Trigger, but in no event earlier than one year
after the actual date upon which a Special Sale Trigger occurs.
Section 4. Miscellaneous.
(a) Notices. All notices, notifications, demands, requests, waivers,
consents or other communications under this Agreement shall be in writing and
shall be deemed to have been duly given, unless explicitly stated otherwise, (i)
if mailed certified mail, postage prepaid, return receipt requested, three days
after being deposited in the mail; (ii) if sent via overnight courier, the next
business day after being deposited with such courier; (iii) if sent by
telecopier (with written confirmation of receipt), on that day, or if telecopied
on a day that is not a business day, the next day that is a business day;
provided that a copy is mailed by certified mail (return receipt requested); or
(iv) if delivered by hand (with written confirmation of receipt) on that day, or
if delivered on a day that is not a business day, the next day that is a
business day; in each case, to the appropriate addresses and telecopier numbers
set forth below (or to such other addresses and telecopier numbers as a party
may designate by notice to the other parties):
If to Greenbriar: Greenbriar Corporation
4265 Kellway Circle
Addison, Texas 75244-2033
Attention: Gene Bertcher
Telecopy No.: (972) 407-8726
with copy to: Mark E. Bennett
14933 Oaks North Drive
Dallas, Texas 75240
Telecopy No.: (214) 373-6810
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<PAGE>
If to Lone Star: Lone Star Opportunity Fund, L.P.
600 N. Pearl Street
Suite 1550, LB 161
Dallas, Texas 76140
Attention: Sam F. Hines
Telecopy No.: (214) 754-8301
with copy to: Haynes and Boone, LLP
901 Main Street, Suite 3100
Dallas, Texas 75202
Attention: W. Scott Wallace
Telecopy No.: (214) 651-5940
(b) Successors and Assigns. Except as otherwise expressly provided herein,
this Agreement shall inure to the benefit of and be binding upon the successors
and assigns of each of the parties whether so expressed or not.
(c) Amendment and Waiver, etc. This Agreement may be amended only with the
written consent of Greenbriar and Lone Star. No failure or delay on the part of
Greenbriar or Lone Star in exercising any right, power or remedy hereunder shall
operate as a waiver thereof, nor shall any single or partial exercise of any
such right, power or remedy preclude any other or further exercise thereof or
the exercise of any other right, power or remedy. The remedies provided for
herein are cumulative and are not exclusive of any remedies that may be
available to Greenbriar or Lone Star at law or in equity or otherwise. No waiver
of or consent to any departure by Greenbriar or Lone Star from any provision of
this Agreement shall be effective unless signed in writing by the other parties.
(d) Duplicate Originals. Two or more duplicate originals of this Agreement
may be signed by the parties, each of which shall be an original but all of
which together shall constitute one and the same instrument.
(e) Severability. In the event that any one or more of the provisions
contained herein, or the application thereof in any circumstance, is held
invalid, illegal or unenforceable, the validity, legality and enforceability of
any such provision in every other respect and of the remaining provisions
contained herein shall not be affected or impaired thereby.
(f) Governing Law. This Agreement shall be construed in accordance with and
governed by the internal laws of the State of Texas, without respect to
conflicts of laws principles.
(g) Entire Agreement. This Agreement constitutes the entire agreement among
the parties and no party shall be liable or bound to any other party in any
manner by any warranties, representations, or covenants except as specifically
set forth herein or therein.
(h) Headings Descriptive. The titles and subtitles used in this Agreement
are used for convenience only and are not to be considered in construing or
interpreting this Agreement.
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<PAGE>
(i) Arbitration. THE PARTIES AGREE THAT IF ANY DISPUTE SHOULD ARISE UNDER
THE TERMS AND PROVISIONS OF THIS AGREEMENT, EACH PARTY WAIVES ANY RIGHT TO
COMMENCE LEGAL ACTION OR ARBITRATION OTHER THAN AS PROVIDED UNDER THE TERMS OF
THIS AGREEMENT, AND THIS AGREEMENT SHALL PROVIDE THE SOLE AND EXCLUSIVE REMEDY
FOR RESOLUTION OF DISPUTES.
(i) THE DETERMINATION OF THE ARBITRATOR SHALL BE FINAL AND BINDING
UPON EACH PARTY AND EACH PARTY SPECIFICALLY WAIVES ANY RIGHT TO CLAIM THAT
THE ARBITRATOR HAS EXCEEDED THE SCOPE OF THE ARBITRATION, HAS DISREGARDED
EVIDENCE OR PRINCIPLES OF LAW, AND FURTHER WAIVES ANY RIGHT TO DISCLAIM THE
QUALIFICATION OR FUNCTION OF THE ARBITRATOR IN ANY MANNER OR FASHION.
(ii) APPOINTMENT OF THE ARBITRATOR SHALL BE MADE BY MUTUAL AGREEMENT
OF THE PARTIES. IF THE PARTIES CANNOT AGREE UPON THE IDENTIFICATION OF THE
ARBITRATOR WITHIN THIRTY (30) DAYS FROM THE MAILING OF THE OBJECTION, A
PETITION FOR APPOINTMENT OF ARBITRATOR SHALL BE FILED WITH THE SUPERIOR
COURT OF THE COUNTY OF DALLAS, TEXAS. THE ARBITRATION SHALL BE HELD IN
DALLAS, TEXAS PURSUANT TO THE COMMERCIAL ARBITRATION RULES OF THE AMERICAN
ARBITRATION ASSOCIATION.
(iii) THE ARBITRATOR'S FEES AND FEES AND COSTS OF PETITIONING FOR THE
APPOINTMENT OF THE ARBITRATOR SHALL BE PAID BY GREENBRIAR. THE ARBITRATOR
UPON RENDERING ITS AWARD SHALL DETERMINE THE PARTY THAT PREVAILED BASED
UPON WRITTEN STATEMENTS MADE BY EACH PARTY AT THE COMMENCEMENT OF THE
ARBITRATION AS TO THE POSITION OF THE PARTIES AND THEIR ALTERNATIVES FOR
SETTLING THE MATTER. A STATEMENT OF A PROPOSED SETTLEMENT SHALL NOT BE
BINDING UPON ANY PARTY AND SHALL NOT BE CONSIDERED AS EVIDENCE BY THE
ARBITRATOR EXCEPT TO THE EXTENT THAT THE ARBITRATOR UPON MAKING ITS SOLE
AND INDEPENDENT DETERMINATION SHALL DETERMINE THE PARTY WHICH PREVAILED
BASED UPON THE PROPOSALS FOR SETTLEMENT OF THE MATTER MADE BY EACH PARTY
AND SHALL DETERMINE THAT THE NON-PREVAILING PARTY SHALL PAY SOME OR ALL OF
THE COSTS OF ARBITRATION INCLUDING ANY COSTS INCURRED BY THE ARBITRATOR AND
IN EMPLOYING EXPERTS TO ADVISE THE ARBITRATOR IN REGARD TO SPECIFIC
SUBJECTS OR QUESTIONS. THE ARBITRATOR MAY FURTHER AWARD THE COST OF
ATTORNEYS FEES OR EXPERT WITNESSES CONSULTED OR EMPLOYED IN THE PREPARATION
OR PRESENTATION OF EVIDENCE TO THE ARBITRATOR BY THE PREVAILING PARTY IF,
IN THE ARBITRATOR'S DETERMINATION, THE POSITION OF THE NONPREVAILING PARTY
WAS NOT REASONABLY TAKEN OR MAINTAINED OR WAS BASED UPON A FAILURE TO
PROPERLY EXCHANGE OR COMMUNICATE INFORMATION WITH THE PREVAILING PARTY IN
REGARD TO THE SUBJECT SUBMITTED TO ARBITRATION.
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<PAGE>
(iv) THE ARBITRATOR'S DETERMINATION MAY FURTHER PROVIDE FOR
PROSPECTIVE ENFORCEMENT AND DIRECTIONS FOR THE PARTIES TO COMPLY WITH
INCLUDING WITHOUT LIMITATION PERMANENT INJUNCTIVE RELIEF OR SPECIFIC
PERFORMANCE. UNDER SUCH CIRCUMSTANCES, THE ARBITRATOR'S AWARD SHALL BE
BINDING UPON THE PARTIES AND SHALL BE UNDERTAKEN AND PERFORMED BY EACH OF
THE PARTIES UNTIL SUCH TIME AS THE ARBITRATOR'S DIRECTIONS TO THE PARTY
SHALL LAPSE BY THEIR TERM, OR THE ARBITRATOR SHALL NOTIFY THE PARTIES THAT
THOSE TERMS ARE NO LONGER IN FORCE OR EFFECT OR SHALL MODIFY THOSE TERMS.
(v) NOTWITHSTANDING THE FOREGOING, ANY PARTY MAY APPEAL THE
ARBITRATOR'S DETERMINATION IF SUCH APPEAL IS BASED SOLELY ON THE BASIS THAT
THE ARBITRATOR HAS MADE AN INCORRECT INTERPRETATION OF LAW.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement as of the date first above written.
GREENBRIAR CORPORATION,
a Nevada corporation
By:
Name:
Title:
LONE STAR OPPORTUNITY FUND, L.P.,
a Delaware limited partnership
By: Lone Star Partners, L.P., its General Partner
By: Lone Star Management Co., Ltd., its
General Partner
By:
Name:
Title:
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<PAGE>
EXHIBIT A
Sample Calculations of Target Amount
- 8 -
<PAGE>
EXHIBIT 2.2.6
<PAGE>
AGREEMENT ON FORM OF PROMISSORY NOTE
THIS AGREEMENT ON FORM OF PROMISSORY NOTE (this "Agreement") is made as of
the _____ day of January, 1998, by and among Greenbriar Corporation, a Nevada
corporation ("Greenbriar"), and Lone Star Opportunity Fund, L.P., a Delaware
limited partnership ("Purchaser"). Reference is made to that certain Stock
Purchase Agreement (the "Purchase Agreement") dated as of December 31, 1997, by
and between Greenbriar and Purchaser. Capitalized terms used but not defined
herein shall have the meanings assigned to such terms in the Purchase Agreement.
W I T N E S S E T H:
WHEREAS, Greenbriar and Purchaser are parties to the Purchase Agreement and
the Transaction Documents; and
WHEREAS, Greenbriar and Purchaser desire to agree on a form of promissory
note to satisfy the conditions in Section 7.1(t) of the Purchase Agreement.
NOW THEREFORE, Greenbriar and Purchaser do hereby agree that the Form of
Promissory Note attached hereto as Exhibit A shall be the form of the Repurchase
Promissory Note defined in Section 8.6 of the Series F Certificate of
Designation and Section 8.5 of the Series G Certificate of Designation.
[The remainder of this page is intentionally left blank]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement as of the date first above written.
GREENBRIAR CORPORATION,
a Nevada corporation
By:
Gene S. Bertcher
Executive Vice President
LONE STAR OPPORTUNITY FUND, L.P.,
a Delaware limited partnership
By: Lone Star Partners, L.P., its General Partner
By: Lone Star Management Co., Ltd., its
General Partner
By:
Name:
Title:
<PAGE>
EXHIBIT 2.2.7
<PAGE>
PROMISSORY NOTE
$ Dallas, Texas
---------------- ------------------
FOR VALUE RECEIVED, the undersigned, ,[ and
] (the "Maker") hereby unconditionally promises to pay to the order of
("Payee"), at , or such other address given to Maker by
Payee, the principal sum of AND /100 DOLLARS ($ ), in lawful money of
the United States of America in immediately available funds, together with
interest (calculated on the basis of a 365 or 366-day year, as appropriate, on
the unpaid principal balance from day-to-day remaining, computed from the date
of advance until maturity at the rate per annum which shall from day-to-day be
equal to the lesser of (a) the Maximum Rate, or (b) 18% (the "Rate").
Notwithstanding the foregoing, if at any time, the Rate shall exceed the Maximum
Rate, thereby causing the interest upon this Note to be limited to the Maximum
Rate, then any subsequent reductions in the Rate shall not reduce the rate of
interest charged hereunder below the Maximum Rate until the total amount of
interest accrued hereon equals the amount of interest which would have accrued
hereon if the Fluctuating Rate had at all times been in effect. Capitalized
terms used in this Note and not otherwise defined herein shall have the meanings
assigned to such terms in -----------.
Section 1. Definitions. When used in this Note, the following terms shall
have the respective meanings specified herein or in the section referred to:
"Business Day" shall mean a day upon which business is transacted by
national banks in Dallas, Texas.
"Collateral Documents" shall mean any deed of trust, mortgage, security
agreement, guaranty or other Collateral Documents executed in connection
herewith and securing payment of this Note.
"Event of Default" shall have the meaning ascribed to it in Section 7
hereof.
"Maturity Date" means [one year].
"Maximum Rate" means the highest non-usurious rate of interest (or, if the
context so requires, an amount calculated at such rate) which the holder of this
note is allowed to contract for, charge, take, reserve, or receive under
applicable law after taking into account, to the extent required by applicable
law, any and all relevant payments or charges made in connection with this note.
To the extent the laws of the State of Texas are applicable for purposes of
determining the Maximum Rate, for purposes of TEX. REV. CIV. STAT. ANN. Article
5069-1D.001, as it may be from time to time amended, the "applicable rate
ceiling" shall be the "weekly ceiling" from time to time in effect, as limited
by Article 5069-1D.009; provided, however, that to the extent permitted by
applicable law, the holder of this note reserves the right to change the
"applicable rate ceiling" from time to time without notice to Maker.
"Obligation" shall mean all indebtedness, liabilities and obligations, of
every kind and character, of Maker, now or hereafter existing in favor of Payee,
regardless of whether they are direct, indirect, primary, secondary, joint,
several, joint and several, liquidated, unliquidated, fixed or contingent, and
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<PAGE>
regardless of whether the same may, prior to their acquisition by Payee, be or
have been payable to some other person or entity, including, but not limited to,
all indebtedness, liabilities and obligations arising under this Note and under
the Collateral Documents.
"Purchase Agreement" means the Stock Purchase Agreement dated as of
December 31, 1997.
Section 2. Payment. The principal of and interest upon this Note shall be
due and payable as follows:
(a) Interest, computed as aforesaid, shall be due and payable semi-annually
as it accrues, commencing , 19 , and at the Maturity Date; and
(b) The principal of this Note shall be due and payable in one installment
in the amount of $_____________ (50% of the original principal amount) on (six
months), and in one final payment equal to the entire unpaid principal balance
of this Note on the Maturity Date.
Should the principal of, or any installment of the principal of or interest
upon, this Note become due and payable on any day other than a Business Day, the
maturity thereof shall be extended to the next succeeding Business Day, and
interest shall be payable with respect to such extension. All payments of
principal of and interest on this Note shall be made by Maker to Payee in
federal or other immediately available funds. Payments made to Payee by Maker
hereunder shall be applied first to accrued interest and then to principal.
All past due principal of and, to the extent permitted by applicable law,
interest upon this Note shall bear interest at the Maximum Rate.
Section 3. Covenants. Until payment in full of the Note and all other
obligations and liabilities of Maker hereunder, Maker agrees and covenants that
(unless Payee shall otherwise consent in writing):
(a) Maker shall conduct its business in an orderly and efficient manner
consistent with good business practices and in accordance with all valid
regulations, laws, and orders of any governmental authority and will act in
accordance with customary industry standards in maintaining and operating its
assets, properties, and investments;
(b) Maker shall maintain complete and accurate books and records of its
transactions in accordance with generally accepted accounting principles, and
will give Payee access during business hours to all books, records, and
documents of Maker and permit Payee to make and take away copies thereof;
(c) Maker shall deliver to Payee such financial statements, data, revenue
summaries and other information describing and pertaining to the financial
condition, business, and properties of Maker as Payee shall from time to time
reasonably request;
(d) Maker shall furnish to Payee, immediately upon becoming aware of the
existence of any condition or event constituting an Event of Default or event
which, with the giving of notice or the passage of time, or both, would
constitute an Event of Default, written notice specifying the nature and period
of existence thereof and any action which Maker is taking or proposes to take
with respect thereto;
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<PAGE>
(e) Maker shall promptly notify Payee of: (i) any material adverse change
in its financial condition or business; (ii) any default under any material
agreement, contract, or other instrument to which Maker is a party or by which
any of its properties are bound, or any acceleration of any maturity of any
indebtedness owing by Maker: (iii) any material adverse claim against or
affecting Maker or any of its properties; and (iv) any litigation, or any claim
or controversy which might become the subject of litigation, against Maker or
affecting any of Maker's property, if such litigation or potential litigation
might, in the event of an unfavorable outcome, have a material adverse effect on
Maker's financial condition or business or might cause an Event of Default;
(f) Maker shall promptly furnish to Payee, at Payee's request, such
additional financial or other information concerning assets, liabilities,
operations, and transactions of Maker as Payee may from time to time reasonably
request;
(g) Maker shall promptly pay all lawful claims, whether for labor,
materials or otherwise, which might or could, if unpaid, become a lien or charge
on any property or assets of Maker, unless and to the extent only that the same
are being contested in good faith by appropriate proceedings and reserves deemed
adequate by Payee have been established therefor;
(h) Maker shall maintain, and cause each of its subsidiaries to maintain,
insurance covering its properties, operations, personnel and businesses which
insures against such losses and risks as are adequate in accordance with its
reasonable business judgment; and
(i) Maker shall preserve and maintain all licenses, privileges, franchises,
certificates, and the like necessary for the operation of its business, except
where such failure shall not result in a material adverse effect.
(j) All covenants in the Purchase Agreement shall remain in full force
until the Note and all interest is paid.
4. Negative Covenants. Until payment in full of the Note and all other
obligations and liabilities of Maker hereunder, Maker covenants that it shall
not (unless Payee shall otherwise consent in writing):
(a) incur or assume any indebtedness or borrow money, except for: (i) the
Loan; (ii) trade debt incurred in the ordinary course of business; (iii) debt
reflected on Maker's balance sheet as of --------------;
(b) endorse, guarantee, or otherwise become liable for the obligations of
any person, firm, or corporation, except for (i) endorsements of negotiable
instruments by Maker in the ordinary course of business and (ii) guaranties of
outstanding indebtedness of a wholly owned subsidiary;
(c) mortgage, assign, encumber, hypothecate, or grant a security interest
in any of Maker's assets, except to Payee (provided, however, that the foregoing
shall not apply to inchoate liens for taxes which are not delinquent or which
are being contested in good faith and liens resulting from deposits to secure
the payments of workmen's compensation or social security or to secure the
performance of bids or contracts in the ordinary course of business other than
in connection with any transaction described in paragraph (a) above);
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<PAGE>
(e) Merge or consolidate with or into any other corporation or entity and
engage in any reorganization, restructuring, recapitalization or other similar
transaction of Maker.
(f) pay any dividends on any of its outstanding stock, or purchase, redeem,
or repurchase any of its stock;
Section 5. Waiver. Maker and each surety, endorser, guarantor and other
party ever liable for payment of any sums of money payable upon this Note,
jointly and severally waive presentment, demand, protest, notice of protest and
non-payment or other notice of default, notice of acceleration and intention to
accelerate or other notice of any kind, and agree that their liability under
this Note shall not be affected by any renewal or extension in the time of
payment hereof, or in any indulgences, or by any release or change in any
security for the payment of this Note, and hereby consent to any and all
renewals, extensions, indulgences, releases or changes, regardless of the number
of such renewals, extensions, indulgences, releases or changes.
No waiver by Payee of any of its rights or remedies hereunder or under any
other document evidencing or securing this Note or otherwise, shall be
considered a waiver of any other subsequent right or remedy of Payee; no delay
or omission in the exercise or enforcement by Payee of any rights or remedies
shall ever be construed as a waiver of any right or remedy of Payee; and no
exercise or enforcement of any such rights or remedies shall ever be held to
exhaust any right or remedy of Payee.
Section 6. Security. This Note is secured by, (describe collateral).
Section 7. Events of Default and Remedies. An "Event of Default" shall
exist hereunder if any one or more of the following events shall occur and be
continuing: (a) Maker shall fail to pay when due any principal of, or interest
upon, this Note or the Obligation; (b) any representation or warranty made by
Maker or Guarantor to Payee herein or in any of the Collateral Documents shall
prove to be untrue or inaccurate in any material respect; (c) default shall
occur in the performance of any of the covenants or agreements of Maker
contained herein, in the Collateral Documents or in any other document executed
or delivered to Payee in connection herewith; (d) default shall occur in the
payment of any material indebtedness of Maker or Guarantor, or any such
indebtedness shall become due before its stated maturity by acceleration of the
maturity thereof or otherwise or shall become due by its terms and shall not be
promptly paid or extended; (e) any of the Collateral Documents shall cease to be
legal, valid, binding agreements enforceable against any party executing the
same in accordance with the respective terms thereof or shall in any way be
terminated or become or be declared ineffective or inoperative or shall in any
way whatsoever cease to give or provide the respective liens, security
interests, rights, titles, interests, remedies, powers or privileges intended to
be created thereby; (f) Maker or Guarantor shall (1) apply for or consent to the
appointment of a receiver, trustee, intervenor, custodian or liquidator of
itself or of all or a substantial part of its assets, (2) be adjudicated a
bankrupt or insolvent or file a voluntary petition for bankruptcy or admit in
writing that it is unable to pay its debts as they become due, (3) make a
general assignment for the benefit of creditors, (4) file a petition or answer
seeking reorganization or an arrangement with creditors or to take advantage of
any bankruptcy or insolvency laws, or (5) file an answer admitting the material
allegations of, or consent to, or default in answering, a petition filed against
it in any bankruptcy, reorganization or insolvency proceeding, or take corporate
action for the purpose of effecting any of the foregoing; (g) an order, judgment
or decree shall be entered by any court of competent jurisdiction or other
competent authority approving a petition seeking reorganization of Maker or
Guarantor or appointing a receiver, trustee, intervenor or liquidator of any
such person, or of all or substantially all
- 4 -
<PAGE>
of its or their assets, and such order, judgment or decree shall continue
unstayed and in effect for a period of sixty (60) days; (h) the guaranty
agreement executed by any Guarantor in connection with the indebtedness
evidenced by this Note shall for any reason cease to be in full force and
effect, or be declared null and void or unenforceable in whole or in part; or
the validity or enforceability of such guaranty agreement shall be challenged or
denied by Guarantor; or (i) Payee's liens, mortgages or security interests in
any of the collateral for this Note should become unenforceable, or cease to be
first priority liens, mortgages or security interests.
If Maker fails or refuses to pay any part of the principal of or interest
upon this Note or the Obligation as the same become due, or upon the occurrence
of any Event of Default hereunder or under any other agreement or instrument
securing or assuring the payment of this Note or executed in connection
herewith, including without limitation the Loan Agreement and the Collateral
Documents, then in any such event the holder hereof may, at its option, (i)
declare the entire unpaid balance of principal of and accrued interest upon the
Obligation to be immediately due and payable without presentment or notice of
any kind which Maker waives pursuant to Section 5 herein, (ii) reduce any claim
to judgment; and/or (iii) pursue and enforce any of Payee's rights and remedies
available pursuant to any applicable law or agreement including, without
limitation, foreclosing all liens and security interests securing payment
thereof or any part thereof; provided, however, in the case of any Event of
Default specified in Paragraph (f) or (g) above with respect to Maker, without
any notice to Maker or any other act by Payee, Maker's right to request advances
under this Note shall thereupon terminate and the principal of and interest
accrued on this Note shall become immediately due and payable without
presentment, demand, protest or other notice of any kind, all of which are
hereby waived by Maker.
Section 8. Notice. Whenever this Note requires or permits any notice,
approval, request or demand from one party to another, the notice, approval,
request or demand must be in writing and shall be deemed to have been given when
personally served or when deposited in the United States mails, registered or
certified, return receipt requested, addressed to the party to be notified at
the following address (or at such other address as may have been designated by
written notice):
Payee:
-----------------
-----------------
-----------------
Maker:
-----------------
-----------------
-----------------
In the event that the holder hereof shall fail to give notice of default to
Maker as provided herein, the sole and exclusive remedy of Maker for such
failure shall be to seek appropriate equitable relief to enforce this agreement
to give such notice and to have any acceleration of the maturity hereof
postponed or revoked and foreclosure proceedings in connection therewith delayed
or terminated pending or upon the curing of such default in the manner and
during the period of time hereinbefore set out, and Maker shall have no right to
damages or any other type of relief not herein specifically set out against the
holder hereof, all of which damages or other relief are expressly waived by
Maker. The foregoing is not intended and shall not be deemed under any
circumstances to require the holder hereof to give notice of any type or nature
to Maker not expressly required by other provisions of this Note.
- 5 -
<PAGE>
Section 9. Voluntary Prepayment. Maker reserves the right to prepay the
outstanding principal balance of this Note, in whole or in part, at any time and
from time to time, without premium or penalty. Any such prepayment shall be made
together with payment of interest accrued on the amount of principal being
prepaid through the date of such prepayment, and shall be applied to the
installments of principal due hereunder in the inverse order of maturity.
Section 10. Usury Laws. Regardless of any provisions contained in this
Note, the Payee shall never be deemed to have contracted for or be entitled to
receive, collect or apply as interest on the Note, any amount in excess of the
Maximum Rate, and, in the event Payee ever receives, collects or applies as
interest any such excess, such amount which would be excessive interest shall be
applied to the reduction of the unpaid principal balance of this Note, and, if
the principal balance of this Note is paid in full, any remaining excess shall
forthwith be paid to Maker. In determining whether or not the interest paid or
payable under any specific contingency exceeds the Maximum Rate, Maker and Payee
shall, to the maximum extent permitted under applicable law, (i) characterize
any non-principal payment (other than payments which are expressly designated as
interest payments hereunder) as an expense, fee, or premium, rather than as
interest, (ii) exclude voluntary prepayments and the effect thereof, and (iii)
spread the total amount of interest throughout the entire contemplated term of
this Note so that the interest rate is uniform throughout such term.
Section 11. Costs. The loan evidenced by this Note shall be closed without
expense to Payee, it being understood and agreed that all expenses necessary and
usual to a transaction of this kind shall be paid by Maker, such expenses to
include but not to be limited to: [(i) title insurance premiums and other
related title insurance company costs; (ii) recording fees; (iii) costs of the
survey of the Property; (iv) reasonable attorneys' fees arising in connection
with the negotiation and preparation of this Note and all documents to be
executed in connection with this Note, and (v) loan brokerage, finders or
similar fees.] If this Note is placed in the hands of an attorney for
collection, or if it is collected through any legal proceeding at law or in
equity, or in bankruptcy, receivership or other court proceedings, Maker agrees
to pay all costs of collection, including, but not limited to, court costs and
reasonable attorneys' fees, including all costs of appeal.
Section 12. Applicable Law. This Note is being executed and delivered, and
is intended to be performed in the State of Texas. Except to the extent that the
laws of the United States may apply to the terms hereof, the substantive laws of
the State of Texas shall govern the validity, construction, enforcement and
interpretation of this Note. In the event of a dispute involving this Note or
any other instruments executed in connection herewith, the undersigned
irrevocably agrees that venue for such dispute shall lie in any court of
competent jurisdiction in Dallas County, Texas.
The perfection, validity and enforcement of the Deed of Trust and other
Collateral Documents, to the extent they involve the creation, perfection,
validity and enforcement of liens against the Mortgaged Property, are intended
to be governed by the laws of the State of [ . All other aspects of the lending
transaction [contemplated by the Loan Agreement, and the indebtedness] evidenced
by the Note, and all other documents executed in connection therewith, shall be
governed by the laws of the State of] Texas or the laws of the United States, as
applicable.
----------------------------------------
- 6 -
<PAGE>
EXHIBIT 22.1
<PAGE>
Greenbriar Corporation
Subsidiaries
Altman Nursing, Inc
American Care Properties I, Inc.
American Care Communities of Sanford, Inc.
American Care Communities of Florida, Inc.
American Country Time, Inc.
American Care Communities, Inc.
Assisted Lending, Inc.
Berne Village, Inc.
CareAmerica, Inc.
Carolina Care Communities, Inc.
Complete Corporation
Crown Pointe, Inc.
Crown Pointe Development - Corona (LP)
Equivest Roswell Square, Inc.
Equivest, Inc.
Equivest West, Inc.
Equivest Fairington, Ltd.
Equivest Oak Tree, Ltd.
Equivest Properties, Inc.
Graybrier, Inc.
Greenbriar Payroll Company
Greenbriar Corporation
Greenbriar Leasing Corporation
Greenbriar Financial Corporation
Harlingen Retirement LC
Hermiston Assisted Living, Inc.
Kellway Corporation
King City Retirement Corporation
Lake James, Inc.
Lewiston Group LLC
Liberty Acquired Brain Injury Habilitation Services, Inc.
Lincolnshire Partners
Maranatha Manor of Spartanburg, Inc.
Medical Concepts, Inc.
MRC Assisted Living, Inc.
Neawanna By The Sea Limited Partnership
Oak Harbor Retirement Center, Inc.
Oak Harbor Retirement Center LP
Oak Park-Clermont, Inc.
Paradise-Greenbriar, Inc.
Remuda Acquisition Corp.
Residential Healthcare Properties, Inc.
Residential Healthcare Properties of Texas, Inc.
Retirement Housing Associates (LP)
Rhoades/Powell, Inc.
Rose Arbor of Ocala, Inc.
Rose Garden Estates LLC
Rose Manor of Cary, Inc.
Rose Tara Plantation, Inc.
Rose Terrace of Wendell, Inc.
Roswell Retirement Ltd. Co.
Roswell Senior Apartments Ltd. Co.
RRSP, Inc.
Sweetwater Springs Group, LLC
Tara Management, Inc.
The Greenbriar at Sherman, Inc.
The Terrace Retirement, Inc.
The Greenbriar at Muskogee, Inc.
The Denison-Greenbriar Inc.
The Briarcliff at Texarkana, Inc.
Transferco, Inc.
Villa Residential Care Homes - Corpus Christi South, L.P.
Villa Residential Care Homes -Arlington L. L.P. (49%)
Villa Residential Care Homes - Granbury, L.P.
Villa Residential Care Homes, Inc.
Villa Del Rey-Roswell Limited Partnership
Villa Residential Care Homes - Oak Park, L.P.
Villa Residential Care Homes - Forth Worth, L.P.
Villa Del Rey-Seaside, Inc.
VLS & Associates, Inc.
Wedgwood Corporation
Wedgwood Retirement Inns, Inc.
Windsor House Florence, Inc.
Windsor House West, Inc.
Windsor House Greenville, LLC
<PAGE>
EXHIBIT 23.1
<PAGE>
Consent of Independent Certified public Accountants
We have issued our report dated March 13, 1998 accompanying the financial
statements included in Greenbriar Corporation of Form 10-KSB for the year ended
December 31, 1997. 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 and 33-33985).
/s/ Grant Thornton LLP
- ----------------------
GRANT THORNTON LLP
Dallas, Texas
April 14, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the Form
10-KSB audited consolidated balance sheet as of December 31, 1997 and the
audited consolidated statement of earnings for the year ended December 31, 1997
and is qualified in its entirety by reference to such financials statements.
(all numbers except earnings per share in 1,000s)
</LEGEND>
<CIK> 0000105744
<NAME> Greenbriar Corporation
<MULTIPLIER> 1
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<EXCHANGE-RATE> 1
<CASH> 23
<SECURITIES> 0
<RECEIVABLES> 1,162
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 24,502
<PP&E> 103,634
<DEPRECIATION> 5,486
<TOTAL-ASSETS> 151,243
<CURRENT-LIABILITIES> 21,908
<BONDS> 55,744
0
289
<COMMON> 73
<OTHER-SE> 62,155
<TOTAL-LIABILITY-AND-EQUITY> 151,243
<SALES> 0
<TOTAL-REVENUES> 38,979
<CGS> 0
<TOTAL-COSTS> 39,958
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,801
<INCOME-PRETAX> (10,297)
<INCOME-TAX> 4,115
<INCOME-CONTINUING> (6,182)
<DISCONTINUED> 475
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,707)
<EPS-PRIMARY> (.92)
<EPS-DILUTED> 0
</TABLE>
