UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
FORM 10-KSB/A
Amendment No. 1
(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-None
This filing adds Part III detailed information as the definitive Proxy Statement
was not filed as planned.
Transitional Small Business Disclosure Format (check one):
YES [ ] NO [X]
<PAGE>
PART III
--------
ITEM 9: DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
- --------------------------------------------------------------------
Name Age Position
James R. Gilley 64 Chairman of the Board
Floyd B. Rhoades 57 President & Chief Executive Officer
Gene S. Bertcher 49 Executive Vice President
Chief Financial Officer
Robert L. Griffis 62 Senior Vice President
Don C. Benton 43 Director
Paul G. Chrysson 43 Director
Matthew G. Gallins 42 Director
Victor L. Lund 69 Director
Michael E. McMurray 43 Director
James R. Gilley has been Chairman of the Company since November 1989 and was
President and Chief Executive Officer from November 1989 until December 31,
1996.
Floyd B. Rhoades has been a Director and Chief Executive Officer of the Company
since December 31, 1996. He has been the Chairman, President and Chief Executive
Officer of American Care Communities, Inc. ("American Care") since its inception
in 1992. American Care became a wholly owned subsidiary of the Company on
December 31, 1996. From 1985 to 1991 Mr. Rhoades served as President of Living
Centers. In 1992 Mr. Rhoades was the recipient of the National Council of
Aging's Distinguished Service Award. He was the founding President of the North
Carolina Assisted Living Association, and he is a Board Member of the
Accreditation Commission for Home Care.
Gene S. Bertcher has been Executive Vice President and Chief Financial Officer
and Treasurer of the Company since November 1989 and was a Director from
November 1989 until September 1996. He is a certified public accountant.
Robert L. Griffis has been Senior Vice President of the Company since November
1992 and Secretary since June 1994 and was a Director from June 1994 until
September 1996. For the nine years prior to becoming an officer of the Company,
he was involved in the healthcare industry, as Senior Vice President of
Retirement Corporation of America, Senior Vice President of National Heritage,
Inc., President of Health Resources, Inc., President of the long term care
division of Clinitex Corp., and from 1991 to 1992 as a consultant to the
Company.
Don C. Benton has been a Director since June 1994. Mr. Benton currently serves
as a consultant to various twelve step ministry programs. He was Director of
Twelve Step Ministries, Lovers Lane United Methodist Church of Dallas from 1991
until 1997 and has been a Consultant for Spiritual Counseling and Education for
the Addiction Recovery Center since 1993 and also served in that capacity for
the Argyle Specialty Hospital. He has served as unit coordinator, admissions
coordinator, and milieu therapist for various hospitals and facilities
throughout Texas since 1988. He is a Licensed Chemical Dependency Counselor, and
a Certified Alcohol and Drug Abuse Counselor.
2
<PAGE>
Paul G. Chrysson has been a Director since May 1995. He is President of C.B.
Development Co., Inc., a North Carolina real estate developer, a position he has
held for over five years. Mr. Chrysson is a member of the boards of directors of
Boddie-Noell Properties, Inc. and the Board of Advisors of Wachovia Bank-Winston
Salem and has served on the boards of various charitable organizations. He has
been a licensed real estate agent since 1974 and a licensed contractor since
1978.
Matthew G. Gallins has been a Director since June 1994. Since 1990, Mr. Gallins
has been a Director, President and Chief Operations Officer of Gallins Vending
Company, Inc., a food services vending company. He has also been the owner and
served as Vice President and Secretary of Exit Inc. (d.b.a. Tomatoz Grill), a
restaurant, since 1993. He is a Foundation Board Director for Tanglewood Park in
North Carolina, a Member of the Annual Campaign Fund for the United Way, and
past Chairman of Special Events Solicitation Committee for the Forsyth County
Mental Health Association. He is director of Southern Community Bank in
Winston-Salem, North Carolina.
Victor L. Lund was the founder of Wedgwood Retirement Inns, Inc. ("Wedgwood") in
1977. Wedgwood became a wholly owned subsidiary of the Company on March 31,
1996. For most of Wedgwood's existence, he was the Chairman of the Board,
President and Chief Executive Officer, positions he held until Wedgwood was
acquired by the Company. He presently continues to serve as Chairman of the
Board of Wedgwood.
Michael E. McMurray has been a Director since May 1991. Since July 1987, Mr.
McMurray has been Vice President of Investments for Prudential Securities. Prior
to joining Prudential Securities, Mr. McMurray was a financial consultant for
Shearson Lehman Hutton from 1983 until July 1987.
<TABLE>
<CAPTION>
ITEM 10: EXECUTIVE COMPENSATION
- ----------------------------------------
Summary Compensation Table
Long Term
Compensation-
Name and Number of
Principal Shares of
Position Annual Common Stock All
--------- Compensation- Underlying Other
Year Salary Options Compensation(1)
---- ------------- ------------- ---------------
<S> <C> <C>
James R. Gilley, 1997 $460,000 200,000 $6,500
Chairman(2) 1996 460,000 200,000 8,500
1995 460,000 200,000 7,500
Floyd B. Rhoades 1997 200,000 200,000 6,500
President and Chief 1996 152,000 - -
Executive Officer(2) 1995 153,000 - -
Gene S. Bertcher, 1997 180,000 - -
Executive Vice 1996 180,000 - 7,500
President and Chief 1995 172,500 - 6,500
Financial Officer
3
<PAGE>
Long Term
Compensation-
Name and Number of
Principal Shares of
Position Annual Common Stock All
--------- Compensation- Underlying Other
Year Salary Options Compensation(1)
---- -------------- -------------- ---------------
Robert L. Griffis, 1997 100,000 - -
Senior Vice President 1996 120,000 - 7,500
1995 115,000 - 6,500
Paul W. Dendy (3)
Executive Vice President 1997 125,000 - -
1996 131,250 10,000 7,500
1995 75,000 - -
- -------------------------
</TABLE>
(1) Constitutes directors' fees paid by the Company to the named individuals.
(2) James R. Gilley served as President and Chief Executive Officer until
December 31, 1996. Floyd B. Rhoades was named President and Chief
Executive Officer on December 31, 1996.
(3) Paul W. Dendy ceased to be an executive officer in May 1998. His
compensation for 1995 and a portion of 1996 represent compensation paid
by Wedgwood Retirement Inns, Inc. prior to its acquisition by the
Company on March 31, 1996.
<TABLE>
<CAPTION>
Option Grants Table
(Option Grants in Last Fiscal Year)
Percent of
Number of Securities Total Options Exercise or
Underlying Granted to Employees in Base Price Expiration
Name Options Granted Fiscal Year Per Share Date
---- ----------------- ------------ ---------- -----
<S> <C> <C>
James R. Gilley 200,000 50% $17.50 12/31/07
Floyd B. Rhoades 200,000 50% 17.50 12/31/07
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
Aggregated Option Exercises in Last Fiscal
Year and FY-End Option Values
Value of Unexercised
Number of Securities In-the-Money
Underlying Unexercised Options at 1997
Shares Acquired Value Options at 1997 FY-End FY-End
---------------------- -------
Name on Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
---- ----------- -------- ------------------------- ----------- -------------
<S> <C> <C> <C>
James R. Gilley - - 600,000 - $2,244,000 $-
Floyd B. Rhoades - - 200,000 - - -
Gene S. Bertcher - - 20,000 - 127,500 -
Paul W. Dendy - - 10,000 - 63,750 -
Stock Option Plan
</TABLE>
The Compensation Committee administers the Company's 1992 Stock Option
Plan, as amended (the "1992 Plan"), and 1997 Stock Option Plan (the "1997
Plan"), each of which provides for grants of incentive and non-qualified stock
options to the Company's executive officers, as well as its directors and other
key employees, and consultants in the case of the 1997 Plan. Under both Plans,
options are granted to provide incentives to participants to promote long-term
performance of the Company and specifically, to retain and motivate senior
management in achieving a sustained increase in stockholder value. Currently,
neither Plan has a pre-set formula or criteria for determining the number of
options that may be granted. The exercise price for an option granted under both
Plans is determined by the Compensation Committee, in an amount not less than
100 percent of the fair market value of the Company's Common Stock on the date
of grant. The Compensation Committee reviews and evaluates the overall
compensation package of the executive officers and determines the awards based
on the overall performance of the Company and the individual performance of the
executive officers. The Company currently has reserved 217,500 shares of Common
Stock for issuance under the 1992 Plan and 500,000 shares of Common Stock under
the 1997 Plan. As of the date of this Proxy Statement, options had been granted
for all but 63,500 shares reserved under the 1992 Plan and no options had been
granted under the 1997 Plan.
Employment Agreements
Effective December 31, 1996, the Company entered into an employment
agreement with Floyd B. Rhoades to become the President and Chief Executive
Officer of the Company. Mr. Rhoades' agreement is for a term of three years,
with an annual salary of $200,000.
Effective January 1, 1997, the Company entered into an Employment
Agreement with James R. Gilley to serve as Chairman for a three year term that
recommences each day. The Agreement provides for base salary of $460,000 and
200,000 fully vested, non-qualified stock options each year in lieu of any cash
bonus. The Agreement may be terminated early only upon resignation, mutual
consent or for good cause.
Also effective January 1, 1997, the Company entered into an Employment
Agreement with Gene S. Bertcher to serve as Executive Vice President for a two
year term that recommences each day. The Agreement provides for base salary of
$180,000 and discretionary bonus, and may be terminated early only upon
resignation, mutual consent, or for good cause.
5
<PAGE>
<TABLE>
<CAPTION>
ITEM 11: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
- --------------------------------------------------------------------------------
Preferred Stock Common Stock
------------------------ ---------------------------------------------------------------
Number of Shares
Number Percent Number Percent Assuming Full Percent
Name & Address of of of of Conversion of Preferred of
of Beneficial Owner Shares Series Shares Class Stock & Options By Holder Class
<S> <C> <C> <C>
Series D Preferred Stock(1)
------------------------
James R. Gilley 675,0002 100% 3,607,1513 35.0% 2,944,651 37.9%
4265 Kellway Circle
Addison TX 75244
Sylvia M. Gilley 675,0002 100% 2,607,1513 35.0% 2,944,651 37.9%
6211 Georgian Court
Dallas TX 75240
Victor L. Lund - - 1,214,961 18.0% 1,214,961 18.0%
816 NE 87th Avenue
Vancouver WA 98664
Floyd B. Rhoades - - 1,022,0004 14.7% 1,022,000 14.7%
4265 Kellway Circle
Addison TX 75244
Gene S. Bertcher - - 74,0005 1.1% 74,000 1.1%
4265 Kellway Circle
Addison TX 75244
Robert L. Griffis - - 30,0006 * 30,000 *
4265 Kellway Circle
Addison TX 75244
Michael E. McMurray - - 10,0007 * 10,000 *
5330 Merrick Road
Massapequa NY 11758
Matthew G. Gallins - - 15,0008 * 15,000 *
715 Stadium Drive
Winston-Salem NC 27101
Paul G. Chrysson - - 10,0009 * 10,000 *
1045 Burke Street
Winston-Salem NC 27101
Don C. Benton - - 10,00010 * 10,000 *
Arrowhead Ranch
Route 1
Clarksville TX 75246
William A. Shirley, Jr. - - 568,44611 7.7% 568,446 *
2621 State Street
Dallas TX 75204
Series F & G Preferred Stock(12)
----------------------------
Lone Star Opportunity Fund, LP 2,200,00013 100% - - 1,257,143 15.7%
600 N Pearl Street, Suite 1550
Dallas TX 75201
American Realty Trust, Inc.14 - - 197,500 2.9% 197,500 2.9%
10670 North Central Expressway
Suite 300
Dallas TX 75231
6
<PAGE>
Preferred Stock Common Stock
------------------------- ---------------------------------------------------------------
Number of Shares
Number Percent Number Percent Assuming Full Percent
Name & Address of of of of Conversion of Preferred of
of Beneficial Owner Shares Series Shares Class Stock & Options By Holder Class
Basic Capital Management, Inc.14 - - 141,260 2.1% 141,260 2.1%
10670 North Central Expressway
Suite 300
Dallas TX 75231
Nevada Sea Investments, Inc.14 - - 72,800 1.1% 72,800 1.1%
10670 North Central Expressway
Suite 300
Dallas TX 75231
International Health Products, Inc.14 - - 249,085 3.7% 249,085 3.7%
10670 North Central Expressway
Suite 300
Dallas TX 75231
Davister Corporation 14 - - 251,200 3.7% 251,200 3.7%
10670 North Central Expressway
Suite 300
Dallas TX 75231
Institutional Capital Corporation 14 - - 242,500 3.6% 242,500 3.6%
10670 North Central Expressway
Suite 300
Dallas TX 75231
All executive officers & directors & 675,0001 & 2 100% 5,561,558 68.1% 5,899,058 69.4%
director nominees as a group (10
persons)
</TABLE>
- ---------------------------------
* Less than one percent
(1) Represents Series D Preferred Stock which votes with Common Stock and
Series B Preferred Stock as one class. Series D Preferred Stock is
convertible into Common Stock at a rate of one share of Common Stock for
two shares of Series D Preferred Stock.
(2) The shares are owned by a grantor trust for the benefit of Mr. and Mrs.
Gilley. Sylvia M. Gilley is the spouse of James R. Gilley.
(3) Consists of 972,851 shares of Common Stock owned by JRG Investments Co.,
Inc., a corporation wholly owned by James R. Gilley ("JRG"); 390,300 shares
of Common Stock owned by a grantor trust for the benefit of James R. and
Sylvia M. Gilley; options to James R. Gilley to purchase 200,000 shares of
Common Stock at $10.75 per share, exercisable through December 1, 2000;
options to James R. Gilley to purchase 200,000 shares of Common Stock at
$13.275 per share, exercisable through December 31, 2006; options to James
R. Gilley to purchase 200,000 shares of Common Stock at $17.50 per share,
exercisable through December 31, 2007; a warrant to purchase 108,000 shares
at an exercise price of $12.98 per share, exercisable through October 1,
2006, owned by the grantor trust for the benefit of Mr. and Mrs. Gilley;
and 536,000 shares of Common Stock owned of record by Mrs. Gilley. Other
than shares owned by the grantor trust, Mrs. Gilley disclaims any
beneficial ownership of the shares owned by Mr. Gilley and JRG. Mr. Gilley
and JRG disclaim beneficial ownership of the shares owned by Mrs. Gilley.
Mr. Gilley has pledged all of his shares in JRG to Institutional Capital
Corporation (formerly known as MS Holding Corp.), a non-affiliated entity,
as collateral for repayment of a promissory note payable by JRG to
Institutional Capital Corporation in the remaining principal amount of
7
<PAGE>
$2,996,373. The note requires payment of annual interest only until
December 31, 1998, when the principal balance and all accrued interest is
due and payable. Of the shares of Common Stock owned by the grantor trust,
200,000 shares were acquired by the trust from the Company in November 1993
in consideration of a $2,250,000 partial recourse promissory note executed
by the grantor trust and Mr. Gilley (as co-maker). This note bears interest
at an annual rate of 5.5% until November 2003, when the entire principal
balance and all accrued interest is due. The note is collateralized by the
200,000 shares purchased by the grantor trust, and the grantor trust and
Mr. Gilley (as co-maker) have personal recourse only for the first 20% of
the principal balance.
(4) Consists of 820,000 shares of Common Stock owned by Mr. Rhoades, options to
Mr. Rhoades to purchase 200,000 shares of Common Stock at $17.50 per share,
and 2,000 shares owned by his spouse. Mr. Rhoades disclaims beneficial
ownership of the shares owned by his spouse.
(5) Consists of 54,000 shares of Common Stock issued for promissory notes of
$92,500, for which 13,000 shares are currently pledged as collateral, and
options to purchase 20,000 shares of Common Stock for $11.25 per share, all
of which are vested.
(6) In November 1992, Mr. Griffis obtained a loan from the Company for $75,000
which was used to exercise options to purchase 30,000 shares of the
Company's Common Stock. The loan is collateralized by the shares purchased
by Mr. Griffis.
(7) Consists of options to purchase 10,000 shares of Common Stock for $17.75
per share.
(8) Consists of 3,000 shares of Common Stock owned by Matthew G. Gallins LLC,
2,000 shares of Common Stock owned by Mr. Gallins' minor children, for
which he serves as custodian, and options to Mr. Gallins to purchase 10,000
shares of Common Stock for $17.75 per share.
(9) Consists of options to purchase 10,000 shares of Common Stock for $17.75
per share.
(10) Consists of options to purchase 10,000 shares of Common Stock for $17.75
per share.
(11) Includes 85,155 shares of Common Stock owned of record by Mr. Shirley and
483,291 shares of Common Stock which Mr. Shirley may acquire upon
conversion of certain limited partnership units.
(12) The holders of Series F Convertible Preferred Stock ("Series F Preferred
Stock") are entitled to elect one memberto the Board, but this right has
not been exercised by such holders. Series F Preferred Stock is not
otherwise entitled to vote except with regard to certain matters that
effect changes to its rights and preferences. Series G Senior Non-Voting
Convertible Preferred Stock ("Series G Preferred Stock") is not entitled to
vote except with regard to certain matters that effect changes to its
rights and preferences.
(13) There are 1,400,000 shares of Series F Preferred Stock outstanding and
800,000 shares of Series G Preferred Stockoutstanding. The Series F
Preferred Stock and Series G Preferred Stock presently are convertible into
800,000 shares of Common Stock and 457,143 shares of Common Stock,
respectively.
(14) Based on a Schedule 13D, dated April 8, 1998, filed by each of these
entities and by Gene E. Phillips, each of these entities owns of record the
number of shares set forth for such entity in the table above and each of
such entities and Mr. Phillips disclaim they filed such Schedule 13D as a
"group". According to the Schedule 13D, Basic Capital Management, Inc. may
be deemed to beneficially own 311,560 shares, including the shares owned of
record by American Realty Trust, Inc. and Nevada Sea Investments, Inc., and
Mr. Phillips may be deemed to beneficially own all 1,154,345 shares owned
of record and beneficially by these six entities. In the Schedule 13D, Mr.
Phillips does not affirm beneficial ownership of any of these shares.
8
<PAGE>
ITEM 12: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The following paragraphs describe certain transactions between the Company and
(i) any stockholder beneficially owning more than 5% of the outstanding Common
Stock, (ii) the executive officers and directors of the Company and (iii)
members of the immediate family or affiliates of any of the foregoing, which
transactions occurred since the beginning of the 1996 fiscal year.
On November 19, 1993 the Company sold 200,000 unregistered shares of its Common
Stock, to The April Trust, a grantor trust for the benefit of James R. Gilley,
Chairman of the Board of the Company, and his wife, at a price equal to the
closing price of the shares on the American Stock Exchange on that date ($11.25)
per share for consideration consisting of a $2,250,000 promissory note (for
which Mr. Gilley is a co-maker) for the full purchase price thereof, of which
20% of the principal amount of the note is a recourse obligation of Mr. Gilley
and the grantor trust and the balance of the note is nonrecourse. Such note
bears interest at the rate of 5.5% per annum, which accrues and is payable along
with all principal upon maturity on November 18, 2003, and is secured by a
pledge of the stock back to the Company to hold as collateral for payment of the
note pending payment in full. On December 16,1996, the Compensation Committee
extended the due date of such note to November 18, 2008.
Gene S. Bertcher and Robert L. Griffis, officers of the Company, are indebted to
the Company for an aggregate of $92,500 and $75,000, respectively, for notes
issued in payment for shares of Common Stock. Mr. Bertcher's notes are secured
by a pledge of 13,000 shares of Common Stock. Mr. Griffis" note is secured by a
pledge of his 30,000 shares. Such notes bear interest at a rate equal to any
cash or stock dividends declared on the purchased stock, and are due in a single
installment for each such note on or before December 31, 1999.
As part of the Wedgwood Acquisition and as an accommodation to the Sellers to
assist them to help achieve a tax-free acquisition, James R. Gilley and members
of his family agreed to contribute a retail property in North Carolina to the
Company in exchange for 675,000 shares of the Company's Series D Preferred
Stock. Mr. Gilley and his family had owned the retail property for over five
years. The consideration received by James R. Gilley and members of his family,
valued at $3,375,000, was based upon an independent appraisal of the North
Carolina shopping center. The Series D Preferred Stock is unregistered, has no
trading market unless converted to Common Stock, and is entitled to one vote per
share on all matters to come before a meeting of stockholders. The Series D
Preferred Stock bears a cumulative quarterly dividend of 9.5% per year, which
approximates the cash flow Mr. Gilley and his family members were receiving from
the retail property prior to its contribution to the Company. The Series D
Preferred Stock is convertible into unregistered shares of Common Stock at a
ratio of one share of Common Stock for two shares of Series D Preferred Stock.
Mr. Gilley and his family members and affiliates transferred all of the shares
of Series D Preferred Stock to The April Trust effective April 1997.
The Company agreed to register the shares of Common Stock into which the Series
D Preferred Stock is convertible under limited circumstances, as follows: (i)
the Company agreed to give the holders of such shares the right to demand
registration of all or a portion of the Common Stock upon conversion provided
holders of at least a majority of the shares join in such demand; and (ii) the
Company agreed to give the holders of Common Stock "piggy-back" registration
rights to include all or a portion of the shares in any other registration
statement filed by the Company under the Securities Act (other than on Form S-8
or Form S-4), subject to certain rights of the Company not to include all or a
portion of such shares under certain circumstances. The Company agreed to pay
all expenses of the demand or piggy-back registration, other than underwriting
fees, discounts or commissions.
The Company agreed to register the shares of Common Stock into which the Series
E Preferred Stock was converted in connection with the Wedgwood Acquisition, a
large percentage of which is held by Victor L. Lund, under limited
circumstances, as follows: (i) commencing two years after the closing of the
Wedgwood Acquisition, the Company agreed to give the holders of such shares the
right to demand registration of all or a portion of the Common Stock provided at
least a majority of the shares join in such demand; and (ii) the Company agreed
to give the holders of the Common Stock "piggy-back" registration rights to
include all or a portion of the shares in any other registration statement filed
by the Company under the Securities Act (other than on Form S-8 or Form S-4),
subject to certain rights of the Company not to include all or a portion of such
shares under certain circumstances.
9
<PAGE>
The Company agreed to pay all expenses of the demand or piggy-back registration,
other than underwriting fees, discounts or commissions.
In connection with the Wedgwood Acquisition, the Company entered into a
Construction Management Agreement with Victor L. Lund pursuant to which Mr. Lund
agreed to serve, for three years following closing of the Wedgwood Acquisition,
as a construction manager to oversee construction for the Company of up to 20
assisted living facilities, including those that provide Alzheimer's care,
during the term of the agreement. The Construction Management Agreement was
terminated by mutual agreement in October 1997. Mr. Lund received monthly fees
based on the percentage of completion of each facility with a total fee of
$150,000 for each facility successfully completed, less any distributions paid
to Mr. Lund from any partnership or limited liability company in which Mr. Lund
and the Company both own equity interests. Mr. Lund was responsible for paying
the costs of any construction supervisors or similar on-site personnel employed
by him to satisfy his oversight duties to the Company. Mr. Lund owns a 51%
equity interest and the Company owns a 49% equity interest in two limited
partnerships. The Company has an option to buy Mr. Lund's interests in these
partnerships for $10,000.
Various representations were made to the Company in connection with the Wedgwood
Acquisition. Subsequent to the acquisition, two lawsuits were filed against the
Company and Victor L. Lund. In October 1997, the Company and Mr. Lund entered
into an agreement whereby the Company would indemnify him for any damages
resulting from the lawsuits and to agree to assume responsibility for all legal
fees associated with the lawsuits. In return, Mr. Lund agreed to give the
Company 125,000 shares of Common Stock. Subsequent to entering into this
agreement, the Company and Mr. Lund were awarded a summary judgment and a
directed verdict, including legal fees, by the respective courts.
Victor L. Lund and Mark W. Hall, a former officer of the Company, made loans to
Wedgwood of $880,158 during several years prior to the Company's acquisition of
Wedgwood to partially fund construction and acquisition of facilities, and for
working capital. The notes bear interest at rates ranging from 9.25% to 10.50%
and were due on demand. The remaining balances of these loans were paid in full
in March 1998. In addition, as of June 30, 1998, Mr. Lund has guaranteed
repayment of approximately $11,000,000 of Wedgwood indebtedness and the Company
has agreed to indemnify Mr. Lund against any liability under his guarantees.
In 1996, The April Trust purchased a Stock Purchase Warrant from an unaffiliated
holder to purchase 108,000 shares of Common Stock at an exercise price of $12.98
per share. Such warrant contains anti-dilution clauses requiring a reduction in
the exercise price to adjust for any issuances of Common Stock at a price less
than the exercise price, which had occurred and would occur in connection with
the merger with American Care. To eliminate any future conflicts and
negotiations of changes in the exercise price, the warrant was amended to fix
the exercise price at $10.00 and to extend the termination date until October 1,
2006.
On January 13, 1998, Lone Star Opportunity Fund, L.P. ("Lone Star") purchased
1,400,000 shares of Series F Preferred Stock and 800,000 shares of Series G
Preferred Stock for an aggregate purchase price of $22,000,000. The Series F
Preferred Stock and Series G Preferred Stock are convertible into 1,257,143
shares of Common Stock. The Company agreed to register the shares of Common
Stock into which the Series F Preferred Stock and Series G Preferred Stock are
convertible under limited circumstances, as follows: (i) the Company agreed to
give the holders of such shares the right to demand registration on two
occasions of all or a portion of the Common Stock upon conversion provided
holders of at least a majority of the shares join in such demand and the
aggregate offering price is equal to at least $3 million; (ii) the Company
agreed to give the holders of Common Stock "piggy-back" registration rights to
include all or a portion of the shares in any other registration statement filed
by the Company under the Securities Act (other than on Form S-8 or Form S-4),
subject to certain rights of the Company not to include all or a portion of such
shares under certain circumstances; and (iii) the Company agreed to register the
shares on Form S-3 upon conversion, if Form S-3 is available to the Company, as
long as the aggregate offering price for the shares registered on such Form S-3
were at least equal to $3 million and provided the Company will not be required
to effect more than one registration on Form S-3 during any twelve month period.
The Company agreed to pay all expenses of any demand, piggy-back or Form S-3
registration, other than underwriting fees, discounts or commissions.
10
<PAGE>
It is the policy of the Company that all transactions between the Company and
any officer or director, or any of their affiliates, must be approved by the
Conflict of Interest Committee, which is comprised of non-management members of
the Board of Directors of the Company. All of the transactions described above
were approved.
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
July 8, 1998 By: /s/ Gene S. Bertcher
----------------------
Gene S. Bertcher
Executive Vice President and
Chief Financial Officer
(Principal Financial and
Accounting Officer)
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