-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, No7nkhMgmj7OXdP7NtoP+u9Dh36TtSj5yYs/wMEoumF9ZO0GuDKlqNjymwsIATGX JhEJ2YVpoZ2IyR9NsrJY4w== 0001010549-01-500011.txt : 20010418 0001010549-01-500011.hdr.sgml : 20010418 ACCESSION NUMBER: 0001010549-01-500011 CONFORMED SUBMISSION TYPE: 10KSB PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20001231 FILED AS OF DATE: 20010417 FILER: COMPANY DATA: COMPANY CONFORMED NAME: GREENBRIAR CORP CENTRAL INDEX KEY: 0000105744 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-SKILLED NURSING CARE FACILITIES [8051] IRS NUMBER: 752399477 STATE OF INCORPORATION: NV FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10KSB SEC ACT: SEC FILE NUMBER: 000-08187 FILM NUMBER: 1603721 BUSINESS ADDRESS: STREET 1: 4265 KELLWAY CIRCLE CITY: ADDISON STATE: TX ZIP: 75244 BUSINESS PHONE: 2144078400 MAIL ADDRESS: STREET 1: 4265 KELLWAY CIRCLE CITY: ADDISON STATE: TX ZIP: 75244 FORMER COMPANY: FORMER CONFORMED NAME: MEDICAL RESOURCE COMPANIES OF AMERICA DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: WESPAC INVESTORS TRUST DATE OF NAME CHANGE: 19900605 10KSB 1 green10ksbbody.txt UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 FORM 10-K (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, 2000 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 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, Addison, Texas 75001 (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 Indicate by check mark 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 [ ] Indicate by check mark if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-K 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-K or any amendment to this Form 10-K. [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 29, 2001, was approximately $1,360,000. At March 30, 2001, the issuer had outstanding approximately 8,320,000 shares of par value $.01 Common Stock. Documents Incorporated by Reference: None GREENBRIAR CORPORATION Index to Annual Report on Form 10-K Fiscal year ended December 31, 2000 Part I.........................................................................3 ITEM 1: DESCRIPTION OF BUSINESS.............................................3 ITEM 2: DESCRIPTION OF PROPERTIES..........................................13 ITEM 3: LEGAL PROCEEDINGS..................................................13 ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS................15 Part II.......................................................................16 ITEM 5: MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS...........16 ITEM 6: SELECTED FINANCIAL DATA............................................16 ITEM 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION..........17 ITEM 7A: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK........21 ITEM 8: FINANCIAL STATEMENTS...............................................21 ITEM 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE...............................................21 Part III......................................................................22 ITEM 10: DIRECTORS AND EXECUTIVE OFFICERS..................................22 ITEM 11: EXECUTIVE COMPENSATION............................................23 ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT....28 ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS....................30 Part IV.......................................................................32 ITEM 14: EXHIBITS AND REPORTS ON FORM 8-K..................................32 2 PART I ITEM 1: DESCRIPTION OF BUSINESS - ------------------------------- Overview and Background of Assisted Living Operations Greenbriar Corporation (the "Company") is an 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 forms of dementia, a growing specialty within the assisted living industry. As of March 30, 2001, the Company operated 28 communities in 10 states, with a capacity of 2,221 residents, consisting of 18 communities that are owned and 10 that are leased from third parties. The Company existed from 1974 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 properties and establish a new focus on services and products for the elderly. In 1991 the Company 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, sold its existing nursing homes and retirement centers, most of its commercial real estate and its mobility equipment subsidiaries. In 1995 the Company began developing and constructing assisted living communities. However, the significant growth that subsequently occurred was through acquisitions that were completed in 1996 and 1997. The Assisted Living Industry The Company believes that the assisted living industry has become the 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") on a scheduled and unscheduled basis. Many 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. There are some assisted living communities, and this is a growing trend, which provide care for higher levels of acuity. Generally, assisted living residents have higher levels of need than residents of independent retirement communities but lower levels than residents in skilled nursing centers. Annual expenditures in the assisted living industry have been estimated to be approximately $18 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. According to the National Center for Assisted Living, there are more than 28,000 assisted living residences in the U.S. housing more than one million people. Demographic & 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 (the average age of a resident in Assisted Living is typically age 84 or older and that resident is either widowed or single). According to the U.S. Census Bureau, the portion of the U.S. population age 75 and older will have increased by 28.7%, from approximately 13.0 million in 1990 to over 16.8 million by the year 2000, and the number of persons age 85 and older is expected to have increased 37.3% during the 1990s. This age group is projected to increase by 33.2% between the years 2000 and 2010. It is estimated by the United States Bureau of census that approximately 50% of the population of seniors over age 85 need assistance with ADLs and 3 approximately 50% of such seniors develop Alzheimer's disease or other forms of dementia. According to Claritas, Inc., a nationally recognized demographics provider, 59% of householders over age 80 in 2000 had incomes of $15,000 and above and 40 % had incomes of $25,000 and above. 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. According to a 1998 study by the National Investment Conference (NIC), reported incomes and net worth of residents in assisted living communities are substantially lower than currently presumed by feasibility standards and industry benchmarks ($25,000 or more annual income). However, the same study states that residents are more willing to spend down assets and family members are providing more assistance than previously estimated. If the study is correct, this has dramatic implications for the future of the industry as it indicates that the industry's potential market could be two to three times larger than previously thought. Because of severe overbuilding in many markets, the NIC prediction has not been proved or disproved at this time. Lower Average Cost - The Company believes that the average annual cost to residents receiving assisted living care in the Company's communities is significantly less than the cost of receiving similar care in a skilled nursing center. 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. These laws 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 will also 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 of the population will create an increasing demand for assisted living communities. Finally, changes in Medicare reimbursement regulations have had a very negative impact on the nursing home industry. A high percentage of nursing homes are in bankruptcy and many have closed, further reducing the number of available beds and discouraging development of new beds. However, upscale private nursing homes seem to be experiencing an upturn and new construction of private pay nursing homes appears to be increasing in some markets. Business Strategy The Company believes that significant growth opportunities exist to provide assisted living and full service independent living services to the rapidly growing elderly population. The Company has expanded its operations through the acquisition of assisted living and full service independent living companies. The Company also seeks to improve the profitability of its communities through continued enhancement of its operations. The majority of the Company's communities are operated and marketed on a private-pay, single-occupancy basis. Double occupancy residents are non-related people who are usually state-assisted. Most of the Company's state-assisted residents are in Texas and North Carolina communities. Most of the states now have a currently operating Medicaid waiver program (allowing a state to set its own disbursement standards for Medicaid funds - such as payment for assisted living services). North Carolina was a pioneer in supporting the development of assisted living as one way of containing the cost of caring for its aging population and has one of the best assisted living reimbursement rates in the nation. The Company believes that the assisted living industry will continue as a private-pay industry for the foreseeable future, but may become more price-sensitive as more people need assisted living for longer periods due to increased life spans. Costs of caring for an aging America may become more of a private-pay and state-assisted partnership than currently exists. However, although Medicaid coverage is common and becoming more so, participation is still low. Texas had only approximately 1,634 people participating in its Medicaid assisted living program in 2000. This number increased to 2,135 as of February 28, 2001. The Company is no longer pursuing growth by new development but in the past used the same development strategy for special care units in combined Alzheimer's and assisted living communities and dedicated special care communities. Using this strategy, the units and common space were designed for flexibility so that they could be primarily single occupancy but also be used as double occupancy - again, based on market demand. The Company believes that this occupancy-flexible development strategy will provide an advantage over its competitors who do not have units and common space large enough to readily accommodate double occupancy. The Company's top management has extensive acquisition experience and contacts in the assisted and full service independent living industry. The Company believes that growing by acquisition is the best way to meet its growth goals. The full service independent living retirement and assisted living industry is very fragmented and still primarily a single proprietor business. 4 Acquisition Strategy - The Company may acquire one or more communities or entire assisted living and full service independent living retirement companies as a means of entry into 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 its operator, the quality of its management, the need and costs to reposition the community in the marketplace, the construction quality and any need for renovations of the community and the opportunity to improve or enhance a community's operating results. The Company also sells some of the communities it acquires when they no longer fit with the Company's long-range strategy. 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 seeks to enhance 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, all subject to the level of services allowed to be offered by the licensing in place at each community. The Company offers services on both a "point for services basis" and "level of service basis." Charges for services are based on each community's price structure. The Company uses active participation of the resident, the responsible party, the resident's personal physician and other appropriate support team members in determining the level of care needed on an individual basis, whether using the point or level of service system. 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 for need or choice. The care plan for each resident is reviewed and updated at least quarterly by 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 of 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 family's financial resources. Such resources may include social security, investments, proceeds from the sale of a residence, contributions from family members and insurance proceeds from long-term care insurance policies. Improve Operating Efficiencies - The Company seeks to improve the 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, reducing corporate and regional overhead and providing for more effective management supervision and financial controls. The Company has also become a member of HPSI, a nationwide purchasing group, to further leverage its ability to reduce and control purchasing costs. Offer Alzheimer's and Other Dementia Services - As of March 30, 2001, the Company had 11 communities with distinct special care wings specifically designed to serve the needs of individuals with Alzheimer's disease and other forms of dementia. In some of its existing communities, the Company plans to convert a portion of its existing units into a distinct Alzheimer's wing which will allow the Company to offer services to the elderly with these diseases, will create an opportunity for residents to remain longer within the same community and will allow special security and support for Alzheimer's and dementia residents. The Company's experience indicates 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 for single occupancy. 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 specific services or level of services they need. 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, maintenance, utilities (except telephone), security and 24-hour emergency call monitoring. 5 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 - Alzheimer's care includes a higher 24-hour staff ratio to provide oversight and around-the-clock scheduled activities. An Alzheimer's care wing is secured from the rest of the building. 6
Properties Operating Communities - The following table sets forth certain information with respect to communities that were operated by the Company at March 30, 2001. The Company owns or leases these communities. The Company considers its communities to be in good operating condition and suitable for the purpose for which they are being used. Community Care Resident Operations Community Location Level Units Capacity(1) Commenced Ownership - ---------------------------------------------------------------------------------------------------------------- Berne Village New Bern, NC S, FE, DC 151 174 Oct-93 Owned (2) Camelot Harlingen, TX S 57 57 Sep-94 Owned (2) Camelot Assisted Living Harlingen, TX FE, DC 83 99 Jan-98 Leased (3) Countrytime Inn Kings Mountain, NC FE 25 42 Jun-95 Owned (2) Crown Pointe Corona, CA S, FE, DC 163 168 Jan-93 Owned (2,5) Graybrier Southern Pines, NC FE, DC 55 95 Feb-94 Owned (2) Greenbriar at Denison Denison, TX FE, DC 44 52 May-96 Owned (2) Greenbriar at Muskogee Muskogee, OK FE 48 48 Mar-97 Owned (2) Greenbriar at Sherman Sherman, TX FE 48 53 Mar-98 Owned (2) La Villa Roswell, NM FE, DC 82 91 Nov-96 Leased (3) Meadowbrook Place Baker, OR FE 50 50 Dec-92 Owned (2) Neawanna by the Sea Seaside, OR S, FE 58 58 Jan-90 Leased (4,6) Oak Park, Ft Worth Fort Worth, TX FE 150 150 Jan-98 Leased (3) Pacific Pointe King City, OR S 114 114 Jan-93 Leased (3) Palm House Fort Worth, TX S 155 154 1985 Leased (3) Rose Garden Estates Ritzville, WA FE 21 21 Nov-95 Owned (2) Rose Tara Plantation King, NC FE 38 65 Sep-94 Owned (2) Summer Hill Oak Harbor, WA FE 59 61 Feb-94 Owned (2) Sweetwater Springs Lithia Springs, GA FE, DC 48 48 Oct-96 Leased (7) The Terrace Portland, OR FE 65 65 May-91 Owned Villa del Rey Merced Merced, CA S 92 92 Dec-79 Leased (8) Villa del Rey Roswell Roswell, NM S 135 132 Oct-88 Leased (4,6) Villa del Rey Visalia Visalia, CA S 98 98 Dec-79 Leased (8) Villa del Sol Roswell, NM S 12 12 Dec-95 Owned (2) Wedgwood Terrace Lewiston, ID FE, DC 38 47 Nov-95 Owned (2) Windsor House Florence Florence, SC FE, DC 26 37 Sep-98 Owned (2) Windsor House Greenville Greenville, SC FE, DC 31 41 Nov-97 Owned (2) Windsor House West Spartanburg, SC FE, DC 76 97 1991 Owned (2) - ----------------------------------------------------------------------------------------------------------------- Total 2,022 2,221
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) Reflects licensed capacity for Assisted Living and Dementia Care and actual number of units for Independent Living. (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 2000 and 2037 and bear interest at fixed and variable interest rates ranging from 7.5% to 11.35% as of December 31, 2000. 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 5.55% at December 31, 2000. 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 7,"Management's Discussion and Analysis or Plan of Operation - Liquidity and Capital Resources." 7 (3) Leased from third party individuals or partnership. Initial lease terms generally range from 10 to 20 years, and mature between 2002 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. (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) 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. (7) Leased from a REIT for 15 years expiring in 2011. (8) Company leases on a month-to-month basis with a 90-day notice required by either party to terminate the lease. Repair and Maintenance - The Company conducts routine repairs and maintenance, as needed, of its communities on a regular basis. Several of the Company's communities 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 30, 2001 range in size from 12 to 163 units, are from one to three stories and from 10,000 to 150,000 square feet. Most communities 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, 470 to 650 square feet for a one-bedroom unit and 680 to 850 square feet for a two-bedroom unit. Assisted living units, among other amenities, typically include a private bathroom, kitchenette, closets, living and sleeping areas, a lockable door, emergency call system, individual room temperature controls and fire alarm and sprinkler systems. Alzheimer's care units are approximately the same size as studios and contain only sleeping, limited storage and, in some 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. Part or full-time employees perform most building maintenance services, while third party contractors generally perform elevator, HVAC maintenance and landscaping services. The Company's senior management and other personnel, located at the Addison, Texas home office, provide support services to each of the Company's regions and its communities, including development of operational standards, budgets and quality assurance programs, recruiting, training and financial and accounting and data processing services such as accounts payable, billing and payroll. Corporate personnel, regional directors of operations 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 and 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 believes that education, training and development enhance the effectiveness of its employees. All employees are required to complete training programs which include 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 and fiscal management. In addition to some classroom training, the Company's communities provide new employees with on the job training, utilizing experienced staff as trainers and mentors. 8 Quality Assurance The Company coordinates quality assurance programs at each of its communities through its corporate headquarters staff and through its regional operations staff. A commitment to quality assurance is designed to achieve a high degree of resident and family member satisfaction with the care and services the Company provides. 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 employees 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 employees 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 employees in the management of their own work and to promote the free expression of ideas and opinions. The Greenbriar Chaplaincy Program - The Company has employed a Chaplain and he has established a "Spirituality in Aging" program that helps the Company's goal of meeting the emotional and spiritual needs of its residents, their families, and the employees of Greenbriar. The Chaplain is available for immediate support on a toll free number and visits the Company's communities on a scheduled basis to conduct training seminars for residents, families, employees and the public. 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 chairman, president and chief executive officer is personally involved in resident satisfaction surveys on a routine basis and the investigation and resolution of resident and family complaints. Regular Community Inspections - Community inspections are conducted by corporate personnel (including the vice president of construction and maintenance, the vice president of operations and the director of medical services) and 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 ensure the inspections are thorough and to facilitate required corrective action. Marketing The Company's marketing and sales efforts are undertaken at corporate, regional and local levels. These efforts are intended to create awareness of a community and its services among prospective residents, their families, other key decision-makers and professional referral sources. The Company develops overall strategies for promoting its communities throughout its markets and continuously assesses the success of these efforts. Most communities have, on staff, a community relations coordinator dedicated to sales and marketing activities and is guided and trained by corporate and operational personnel. For smaller communities who do not have a community relations coordinator, the Executive Director performs the sales and marketing functions. The Company engages in traditional types of marketing activities, such as special events, 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. 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 at a steady pace. Currently, most states have a licensure category or statute that uses the term "assisted living." Several states are proposing regulations using the term. More than forty states have specific language in statute, licensure regulations (including states with draft regulations) or Medicaid policy that addresses the philosophy of assisted living. Several states, including Texas and North Carolina have or are reviewing licensure regulations and increasing the role of state personnel in monitoring and controlling the assisted living industry. 9 Currently, assisted living and Alzheimer's care communities are not specifically regulated as such by the Federal Government. However, the Company's communities are subject to regulation and licensing by state and local health, 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 and 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 that they offer. A limited number of the Company's communities are not required to possess such licenses 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 and local building codes and other ordinances, including safety codes. Management anticipates that states establishing regulatory frameworks for assisted living communities will require the 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. Each of the Company's licenses must be renewed annually. Currently, only a few states have CON requirements for assisted living communities. If Federal and state reimbursement increase or overbuilding continues in the industry other states may initiate CON requirements. This is not happening at this time and there is significant overbuilding in many markets. Consequently most major companies have either stopped or greatly reduced their development programs. Conversely, small operators and individual entrepreneurs continue to build, even in overbuilt markets. 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 takes 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. As noted earlier, the Company participates in Federal and state reimbursement programs. However, the Company expects the bulk of its revenues to come from private payments. The Americans with Disabilities Act ("ADA"), enacted July 26, 1990, has had and will continue to have a major effect on the full service residential retirement and assisted living industry. The communities 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 in connection with such a dwelling. This intensifies the need to be in compliance with ADA. Regulation of the industry is likely to increase, particularly for those providers accepting Medicaid reimbursements. Federal and state governments regulate various aspects of the Company's business. The Company is subject to Federal and state anti-remuneration laws, such as the Federal health care program anti-kickback law that governs various types of financial arrangements among health care providers and others who may be in a position to refer or recommend patients to these providers. This law prohibits direct and indirect payments that are intended to induce the referral of patients to, the arranging of services by, or the recommending of a particular provider of health care items or services. The Federal health care program anti-kickback law has been interpreted to apply to some contractual relationships between health care providers and sources of patient referral. Similar state laws vary from state to state, are sometimes vague and have rarely been interpreted by courts or regulatory agencies. Violation of these laws can result in loss of license, civil or criminal penalties and exclusion of health care providers or suppliers from furnishing covered items or services to beneficiaries of the Federal health care program. The Company cannot be sure that these laws will be interpreted consistently with its practices. The Company is subject to the Fair Labor Standards Act, which governs such matters as minimum wage, overtime and other working conditions. Many of the Company's employees are paid at rates related to the Federal minimum wage and accordingly, increases in the minimum wage will result in an increase in labor costs. In compliance with 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. Management is not aware of any non-compliance by the Company with applicable regulatory requirements that would have a material adverse effect on the Company's financial condition or results of operations. 10 Competition The long-term care industry 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 healthcare 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 rapidly increasing both from regional, national and local providers. The Company expects this trend to continue and many markets are already overbuilt and more will be overbuilt in the future. If reimbursement programs, such as the Medicaid waiver program, increase, 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 on price. The Company believes that it competes favorably in these areas and in its recruitment and retention of qualified 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. The Company also competes with other providers of long-term care in 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 some 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. In some markets, non-licensed staff has become a recruitment challenge. Unemployment rates are significantly below the national average in a few markets. 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 that 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 product releases at the 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 the property or to borrow using the 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 that person or corporation. 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 on most of its existing communities that it operates plus one community it leases. 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 or is the Company aware of any such environmental liability. The Company owns nine communities that have been operated for periods ranging from 2 to 19 years 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. 11 Control by Insiders As of March 30, 2001, the Company's officers, directors and affiliated entities owning more than 5% of the Company's outstanding stock owned approximately 45.5% of the outstanding shares of Common Stock. Mr. James R. Gilley, President, Chief Executive Officer and Chairman of the Board of the Company, and one corporation wholly owned by him and his spouse, beneficially owned an aggregate of approximately 25.9% of the outstanding Common Stock of the Company. Mr. Victor L. Lund, a director of the Company and the founder of Wedgwood (a company acquired by the Company in 1996), beneficially owned approximately 14.6% of the outstanding shares of Common Stock. Mr. William Shirley, a director of the Company, due principally from the sale to the Company of assisted living communities, beneficially owns approximately 5% of the outstanding Common Stock of the Company. In addition, the Gilley family owns series D Voting Preferred Stock, which is the equivalent of 675,000 Voting Shares. Accordingly, such individuals will have the ability, by voting their shares in concert, to 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 1,168,000 shares of Common Stock. The issuance of additional shares of Common Stock pursuant to the exercise of these stock options granted 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 with staggered term of service (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 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 30, 2001, the Company employed 1091 employees, including 746 full-time and 345 part-time employees. The Company believes it maintains good relationships with its employees. None of the Company's employees are represented by a collective bargaining group. Corporate Offices The Company's principal office is a 27,500 square foot building that it owns in Addison, Texas. The Company has sold this office building in the first quarter of 2001 and will be relocating to approximately 12,000 square feet of leased space in Addison, Texas in April of 2001. The leased space will meet the Company's needs for the foreseeable future. 12 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 30, 2001. LSOF Pooled Equity L.P. vs Greenbriar Corporation In LSOF Pooled Equity L.P. vs Greenbriar Corporation, Cause # 00-08824, 162nd Judicial District Court of Dallas County, Texas the plaintiff seeks to have the court affirm that its action taken on October 30, 2001 to convert its preferred stock into approximately 80% of Greenbriar outstanding common stock was proper. In December 1997 the Company sold Series F and Series G convertible preferred shares for $22,000,000 less selling and offering costs of $453,000. Payment was received on January 13, 1998. The preferred stockholders receive a cash dividend of 6% payable quarterly. The sale was to Lone Star Opportunity Fund, L.P. Subsequent to the initial transaction the preferred stock was sold or transferred to LSOF Pooled Equity L.P. ("LSOF"). 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 ("Cash Payment") to the preferred stockholders equal to the market price deficiency on the shares received upon conversion. In January 2000 Greenbriar and the preferred stockholders entered into an agreement whereby Greenbriar would redeem the Series F & G preferred stock from proceeds generated from the sale or refinancing of certain assets ("the redemption agreement"). In connection with the redemption agreement the Company paid LSOF a total of $4,760,000 during 2000. The original agreement provides the Series F & G preferred stockholders the option to convert beginning January 13, 2000. The agreement further provides for a mandatory redemption on January 13, 2001. Greenbriar received a notice dated October 30, 2000, from LSOF advising that they were electing to convert the outstanding shares of preferred stock into common stock. Such notice set forth the holder's position that, as a result of certain employee stock options issued by the Company, the conversion price of the preferred stock had been reduced from $17.50 per share to $0.69 per share, and that the Company must issue 27,502,855 shares of common stock upon conversion. If such shares were issued, they would constitute approximately 80% of the Company's outstanding common stock and represent a change in the control of Greenbriar. The Company would be forced to obtain stockholder approval of the issuance of such a large block of common stock or face a delisting of its common stock on the American Stock Exchange. In the event such conversion occurred, the Company's obligation to pay the holder the Cash Payment distribution that is due upon a conversion or redemption of preferred stock would be reduced from approximately $27,166,000 to approximately $8,600,000. The Company believes that the conversion price was not properly subject to adjustment and, if the holder were to have converted, it would be at the $17.50 conversion price stated in the terms of the preferred stock agreement. The Company's position is based, in part, upon the holder's failure to follow all procedures for adjustment and conversion at the adjusted price and on the Company's rescission of the employee stock options that were the basis for the holder's purported adjustment. LSOF filed a declaratory judgment action in the State District Court in Dallas County, Texas seeking a finding that it is entitled to a $0.69 conversion price. The Company filed specific denials and affirmative defenses and counterclaims in defense of such action, seeking, among other things, a contrary ruling that the conversion price was not adjusted. On January 11, 2001, the preferred stockholder filed an application in the lawsuit filed in October, to obtain a temporary restraining order to prevent the Company from converting the preferred stock into common stock at the rate of $17.50 per share pursuant to the mandatory conversion clause of the preferred stock, appointing any new board members or from engaging in any transactions not in the ordinary course of business. The court denied the injunction on the basis that the plaintiff had adequate legal remedies and had failed to show that the Registrant was threatening to take any immediate actions to the detriment of the plaintiff. On January 13, 2001, the Company took the action mandated by the terms of the Series F and G Convertible Preferred Stock to convert the shares of Series F and G Convertible Preferred Stock remaining outstanding into 1,054,202 shares of common stock and acknowledged its obligation to pay the holder the approximate $27,166,000 "make-whole" amount as funds for repayment become lawfully available. 13 On January 15, 2001, the Company received a notice dated January 12, 2001 from the former holder of the preferred stock to the effect that the Company was in default of the Preferred Stock Purchase Agreement for failing to provide a quarterly compliance certificate, failing to meet various financial covenants and failing to notify the holder of such defaults. LSOF contends that these alleged breaches of covenants triggered penalty dividends under the terms of the preferred stock and that Greenbriar's failure to pay those penalty dividends entitles the LSOF to appoint 70% of the Board of Directors. The Company disputes all such defaults and alternatively claims that such defaults have been waived, reformed or that LSOF is estopped from asserting them. The Company further disputes that any penalty dividends were due under the terms of the preferred stock agreement. The State District Court ("the Court") has set July 23, 2001 as the trial date for this matter. On March 29, 2001, the Court considered a motion brought by LSOF seeking partial summary judgment on certain issues. On April 5, 2001, the judge in this case signed an order granting LSOF's motion as follows: (a) The correct conversion price of the Series F and Series G Preferred Stock was $0.69 per share based upon Greenbriar's issuance of $0.69 per share options. (b) LSOF's Conversion Notice complied with the requirement for conversion under the Certificates of Designation. (c) The conversion price remained $0.69 per share even if Greenbriar rescinded the $0.69 per share options after LSOF served its conversion notice based on $0.69 per share of Greenbriar common stock. The Company has filed a Motion for Reconsideration and the judge has scheduled a hearing for April 19, 2001. Should the Company not prevail in its motion, the order signed on April 5, will be a material factor at the trial on July 23, 2001. 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. In a matter before the same court the plaintiff and the Company, in 1995, each filed for summary judgment as to whether a $6,700,000 indebtedness had been discharged. On December 3, 1997 the Georgia Court of Appeals granted Greenbriar's motion for summary judgment where they determined that the indebtedness had not been discharged. In February 1998 the Georgia Supreme Court refused to hear the matter. The plaintiff subsequently asked the Superior Court to review the matter again. On June 19, 2000 the Superior Court of Chatham County entered a judgment whereby all the claims by the plaintiff were dismissed with prejudice and any and all pending motions filed by the plaintiff in these cases were denied. The court further ruled that Greenbriar was entitled to the $6,700,000 indebtedness plus interest thereon, unpaid management fees and attorney's fees. The judgment totaled $18,688,000. Lifestyles, Senior Housing Managers, LLC v. Greenbriar et al In 1995 Lifestyles Senior Housing Managers, LLC (Lifestyles) entered into a contract to manage an assisted living community in Seaside, OR named Neawanna By the Sea (Neawanna). In March 2000 Lifestyles organized and held a meeting with the executive director of Neawanna for the purpose of offering her the position of manager of an assisted living community not affiliated with Greenbriar. Greenbriar believes the action of Lifestyles represented a breach of their fiduciary duty as the manager and terminated the management contract. Lifestyles believes their termination was unjustified, seeks damages of approximately $800,000 and demanded the matter be submitted to binding arbitration, which is called for in the management contract. The arbitration hearing was held on February 19-21, 2001. On April 9, 2001, the Company was notified that the arbitration panel had awarded Lifestyles $400,000. The Company is considering its legal options but has recorded the award to Lifestyles as well as related legal fees and other costs in its financial statement for 2000. 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, results of operations or cash flows of the Company. 14 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, 2000. 15
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: 2000 1999 High Low High Low --------------------- --------------------- First Quarter $3.98 $ .69 $3.25 $2.06 Second Quarter 1.63 1.00 2.50 2.00 Third Quarter 1.31 .63 2.13 1.63 Fourth Quarter .88 .25 1.63 .50 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 pay down long-term debt and 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. No dividends can be paid on the Company's common stock if dividends are in arrears on the Company's preferred stock. The closing price on the Company's common stock on March 5, 2001, was $0.40 per share. As of March 28, 2001, there were 2,412 holders of record of the Company's common stock. ITEM 6: SELECTED FINANCIAL DATA - ------------------------------- (Amounts in thousands, except per share data) For the Years Ended December 31, 2000 1999 1998 1997 1996 --------- --------- --------- --------- --------- Operating revenue $ 41,261 $ 41,260 $ 53,521 $ 38,979 $ 29,785 Operating expenses 38,850 38,323 55,216 39,958 34,719 Write down of assets 7,461 -- -- -- -- --------- --------- --------- --------- --------- Operating profit (loss) (5,050) 2,937 (1,695) (979) (4,934) Earnings (loss) from continuing operations before income taxes $ (10,623) $ 82 $ (10,602) $ (10,297) $ (7,995) Basic and diluted loss per common share $ (1.96) $ (.62) $ (1.86) $ (.92) $ (.99) BALANCE SHEET DATA: Total assets $ 102,588 $ 119,908 $ 130,353 $ 151,243 $ 116,701 Long-term debt $ 50,887 $ 50,477 $ 58,154 $ 54,851 $ 54,717 Total liabilities $ 68,944 $ 69,425 $ 78,516 $ 88,726 $ 80,549 Preferred stock redemption obligation $ 26,988 $ 27,763 $ 21,748 -- -- Total stockholders' equity $ 6,656 $ 22,720 $ 30,089 $ 62,517 $ 36,152
ITEM 7: 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, convenience vehicle businesses and real estate investments have been sold. 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 that 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. At December 31, 1997 the Company operated 55 communities that were owned, leased or managed for third parties. 16 During the third quarter of 1998 the Company made several strategic decisions as to its future direction. It was decided that the Company redirect itself with the following objectives: o Terminate existing management contracts whereby the Company would manage communities for a fee. As of January 1, 1998 the Company had 2 such contracts. o Reduce the percentage of residents in the Company's communities who were dependent on direct assistance from governmental agencies for payment of their fees. As of January 1, 1998 approximately 50% of the residents at the Company's communities received government assistance. o Move toward direct ownership of the communities operated by the Company as opposed to long-term lease arrangements. As of January 1, 1998 approximately 50% of the Company's communities were operated under long-term lease arrangements. o Divest communities with limited future profit potential or geographic locations that were isolated from other Company operations. As of December 31, 1998 the Company had terminated its management contracts to manage for others and reduced to 31 the number of Communities that it operated. In 1999 the Company disposed of one community that was subleased to a local operator. The Company owned or had current options to purchase all but five of its communities. The percentage of residents who were private pay was approximately 90%. Fiscal 2000 as Compared to Fiscal 1999 Revenues and Operating Expenses from Assisted Living Operations. Revenues increased to $41,261,000 in 2000 compared to $41,260,000 in 1999. Community operating expenses, which consist of assisted living community expense, lease expense and depreciation and amortization, were $33,402,000 in 2000 as compared to $34,010,000 in 1999. There were two communities disposed of in 1999 and another two communities disposed of in 2000. The revenue and community operating expenses for these four communities in 1999 and 2000 respectively were $2,948,000 and $2,776,000 compared to $995,000 and $1,210,000. In addition to the decrease in revenue and community operating expenses from the disposition of these four communities, there has been an increase in the same store revenue in 2000 that is attributable to an increase in both census and average rental rates. This increase in census has also resulted in a corresponding increase in community operating expenses. The community operating expense margin increased from 18% in 1999 to 19% in 2000. Corporate General and Administrative Expenses. These expenses were $5,448,000 in 2000 as compared to $4,313,000 in 1999. The increase in the corporate general and administrative expenses between 2000 and 1999 is primarily a result of the increase in corporate legal expenses associated with the ongoing litigation with LSOF and the arbitration award in the Lifestyles, Senior Housing Managers matter. See further discussion of legal proceedings at Item 3: Legal Proceedings. Write-off of Impaired Assets and Related Expenses. In 2000, the Company recorded a write-off of impaired assets and related expenses of $7,461,000. 17 In 1992 the Company sold four nursing homes to Southern Care Corporation and a subsidiary of the Company entered into a management agreement to manage the nursing homes. In 1994 Southern Care terminated the management agreement and informed the Company that they believed the notes due to the Company from the sale of the nursing homes in 1992 were invalid. The matter has been in the courts since 1995 and legal issues were resolved in June 2000 when Greenbriar was awarded a judgment of $18,688,000 for the notes, interest, amounts due for the management contract and reimbursement of legal fees. The assets had a recorded value of $4,525,000. The Company was informed that the financial condition of the four nursing homes had deteriorated, that they failed to make the mortgage payment, and that the first mortgage holder foreclosed on the property in June 2000. The Company is actively pursuing collection of its judgment from Southern Care as well as from its officers, directors and a third party trustee. However, under the circumstances the Company is writing off the entire $4,525,000 (see Item 3: Legal Proceedings for more information regarding Southern Care Corporation). The Company decided in 2000 to dispose of two assisted living communities, which are not meeting operating performance expectations. These communities were written down to net realizable value at June 30, 2000. One of these communities was disposed of in the quarter ending September 30, 2000. Also, a third community whose operations have deteriorated was written down based on management's estimate of future cash flows pursuant to the provisions of Statement of Financial Accounting Standards No. 121. In addition certain receivables associated with these properties were written off. These write offs substantially account for the remainder of the write-off of impaired assets and related expenses Interest and Dividend Income. Interest and dividend income was $406,000 in 2000 as compared to $599,000 in 1999. In the fourth quarter of 1999, the Company entered into an agreement to sell its preferred stock in New Life Corporation. Prior to this agreement, the Company had been receiving quarterly cash dividends on this preferred stock. Interest Expenses. These expenses increased to $5,759,000 in 2000 as compared to $5,632,000 in 1999. Interest expense decreased $275,000 as a result of the disposition of two owned communities in 1999. The increase in 2000 interest expense for communities owned in both 1999 and 2000 is a result of the increase in variable interest rates throughout 2000. Other income (expense), net. Other income (expense) was ($220,000) in 2000 and $2,178,000 in 1999. The 2000 expense of ($220,000) is the result of a gain on the divestiture of assets in the amount of $49,000 and the minority interest in one community of ($359,000) as well as the amortization of deferred income of $72,000. The divestiture of assets included three parcels of raw land and two communities that did not meet the Company's long-term strategies. The 1999 income is primarily the result of the divestiture of assets. The preferred stock investment in NewLife Corporation was disposed of resulting in a gain of $2,166,000. In addition, the disposition of two assisted living communities that did not meet the Company's long-term strategies resulted in a loss of ($186,000). Fiscal 1999 as Compared to Fiscal 1998 Revenues and Operating Expenses from Assisted Living Operations. Revenues decreased to $41,260,000 in 1999 compared to $53,521,000 in 1998. Community operating expenses, which consist of assisted living community expense, lease expense and depreciation and amortization, were $34,010,000 in 1999 as compared to $49,924,000 in 1998. The primary reason for the decrease was the disposition of twenty-two communities during 1998 that did not meet the Company's strategic objectives. The revenues and related expenses for these communities for 1998 were $14,879,000 and $16,490,000 respectively. After consideration of these dispositions, the increases in both revenue and expenses are a result of increased census at the existing communities. Corporate General and Administrative Expenses. These expenses were $4,313,000 in 1999 as compared to $5,292,000 in 1998. The decrease in the expense is a result of the reorganization of the regional and corporate offices that resulted in the elimination of one of the regional offices and a reduction in the corporate staff in the third quarter of 1998. Interest and Dividend Income. Interest and dividend income was $599,000 in 1999 as compared to $1,094,000 in 1998. In the first quarter of 1998, the Company received proceeds from the sale of preferred stock of $22,000,000. These funds were used during 1998 to fund operations and pay down debt. The decrease in interest income in 1999 is due to less cash available for investment purposes. In addition, in the fourth quarter of 1999, the Company entered into an agreement to sell its preferred stock in New Life Corporation. Prior to this agreement, the Company had been receiving quarterly cash dividends on this preferred stock. 18 Interest Expenses. These expenses decreased to $5,632,000 in 1999 as compared to $6,432,000 in 1998. The decrease is reflective of the sale of an owned community in the third quarter of 1998 as well as the payoff of approximately $2,500,000 of debt in the first quarter of 1998. Other income (expense), net. Other income for 1999 was $2,178,000. This income is primarily the result of the divestiture of assets. A preferred stock investment in another company was disposed of resulting in a gain of $2,166,000. In addition, the disposition of two assisted living communities that did not meet the Company's long-term strategies resulted in a loss of ($186,000). The other income (expense) for 1998 was ($3,009,000). This expense is a result of the divestiture of 22 communities in six separate transactions with third parties and the termination of 3 agreements to manage communities for third parties. Nine leased communities in North Carolina, whose primary reimbursement source was Medicaid, were transferred to a Florida based company for no consideration. The leases on two other North Carolina communities, whose primary pay or source was Medicaid, were terminated. One other owned North Carolina community was sold to a company for proceeds of $5,800,000. A leased community in Florida was sold to a Tennessee based company for proceeds of $375,000. Eight leased communities in Texas, whose primary reimbursement source was Medicaid, were transferred to a Fort Worth based company. One other owned community in Oregon was subleased to a local operator. The transaction involving the transfer of the eight Texas leased communities was a three party transaction since all of the eight communities were leased from one REIT. In this transaction, the Company obtained an option to purchase the remaining five communities leased from this REIT for $28,000,000. The loss on these divestitures is a result of the book values of these properties being in excess of any consideration received. Liquidity and Capital Resources At December 31, 2000, the Company had current assets of $3,862,000 and current liabilities of $6,585,000. In December 1997 the Company sold Series F and Series G convertible preferred shares for $22,000,000 less selling and offering costs of $453,000. Payment was received on January 13, 1998. The preferred stockholders receive a cash dividend of 6% payable quarterly. The sale was to Lone Star Opportunity Fund, L.P. Subsequent to the initial transaction the preferred stock was sold or transferred to LSOF Pooled Equity L.P. ("LSOF"). 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 ("Cash Payment") to the preferred stockholders equal to the market price deficiency on the shares received upon conversion. The 14% guaranteed return is being 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, 2000, a Cash Payment of approximately $26,988,000 would have been due assuming conversion took place on that date. In January 2000 Greenbriar and the preferred stockholders entered into an agreement whereby Greenbriar would redeem the Series F & G preferred stock from proceeds generated from the sale or refinancing of certain assets ("the redemption agreement"). In connection with the redemption agreement the Company paid LSOF a total of $4,760,000 during 2000. The original agreement provides the Series F & G preferred stockholders the option to convert beginning January 13, 2000. The agreement further provides for a mandatory redemption on January 13, 2001. Greenbriar received a notice dated October 30, 2000, from LSOF advising that they were electing to convert the outstanding shares of preferred stock into common stock. Such notice sets forth the holder's position that, as a result of certain employee stock options issued by the Company, the conversion price of the Preferred Stock had been reduced from $17.50 per share to $0.69 per share, and that the Company must issue 27,502,855 shares of common stock upon conversion. If such shares were issued, they would constitute approximately 80% of the Company's common stock and represent a change in the control of Greenbriar. The Company would be forced to obtain stockholder approval of the issuance of such a large block of common stock or face a delisting of its common stock on the American Stock Exchange. In the event such conversion occurred, the Company's obligation to pay the holder the "make-whole" distribution that is due upon a conversion or redemption of preferred stock would be reduced from approximately $27,166,000 to approximately $8,600,000. The Company believes that the conversion price was not properly subject to adjustment, and, if the holder were to have converted, it would be at the $17.50 conversion price stated in the terms of the preferred stock agreement. The Company's position is based, in part, upon the holder's failure to follow all procedures for adjustment and conversion at the adjusted price, and on the Company's rescission of the employee stock options that were the basis for the holder's purported adjustment. 19 LSOF filed a declaratory judgment action in the State District Court in Dallas County, Texas seeking a finding that it is entitled to a $0.69 conversion price. The Company filed specific denials and affirmative defenses and counterclaims in defense of such action, seeking, among other things, a contrary ruling that the conversion price was not adjusted (see Item 3: Legal Proceedings for more information on LSOF). On January 13, 2001, the Company took the action mandated by the terms of the Series F and G Convertible Preferred Stock to convert the shares of Series F and G Convertible Preferred Stock remaining outstanding into 1,054,202 shares of common stock and acknowledged its obligation to pay the holder the approximate $27,166,000 Cash Payment amount as funds for repayment become lawfully available. Although the preferred stock has been converted to common stock the Company is still obligated to pay LSOF the Cash Payment amount. If Greenbriar ultimately prevails in its dispute with LSOF the amount owed is approximately $27,166,000. Greenbriar is continuing its plan to sell or refinance its existing assets to repay LSOF. Although there can be no assurance that the Company will be successful, at current interest rates and property values Greenbriar believes it can obtain sufficient cash to meet all its financial obligations including repaying LSOF. Subsequent to December 31, 2000, the Company sold their corporate office building in Addison, Texas and received net cash proceeds of $1,477,772. The corporate office will be relocating in April 2001 to approximately 10,000 square feet of leased space in Addison, Texas. In addition, the Company also sold certain garden homes and related property that was adjacent to Camelot Retirement subsequent to December 31, 2000 and received net cash of $866,280. 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 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 "Safe Harbor" Statement under the Private Securities Litigation Reform Act of 1995: A number of the matters and subject areas discussed in this filing that are not historical or current facts deal with potential future circumstances, operations, and prospects. The discussion of such matters and subject areas is qualified by the inherent risks and uncertainties surrounding future expectations generally, and also may materially differ from Greenbriar Corporation's actual future experience involving any one or more of such matters and subject areas relating to interest rate fluctuations, ability to obtain adequate debt and equity financing, demand, pricing, competition, construction, licensing, permitting, construction delays on new developments contractual and licensure, and other delays on the disposition, transition, or restructuring of currently or previously owned, leased or managed communities in the Company's portfolio, and the ability of the Company to continue managing its costs and cash flow while maintaining high occupancy rates and market rate assisted living charges in its assisted living communities. Greenbriar Corporation has attempted to identify, in context, certain of the factors that they currently believe may cause actual future experience and results to differ from Greenbriar Corporation's current expectations regarding the relevant matter or subject area. These and other risks and uncertainties are detailed in the Company's reports filed with the Securities and Exchange Commission (SEC), including Greenbriar Corporation's Annual Reports on Form 10-K and Quarterly Reports on Form 10-Q. ITEM 7A: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK - ------------------------------------------------------------------- The Company is subject to market risk from exposure to changes in interest rates based on its financing, investing, and cash management activities. The Company utilizes a balanced mix of debt maturities along with both fixed-rate and variable-rate debt to manage its exposures to changes in interest rates. (See Management's Discussion and Analysis - Liquidity and Capital Resources appearing elsewhere in this Form 10-K.) If market interest rates average 1% (100 basis points) more in 2001 than they did in 2000, the Company's interest expense would increase and income before income taxes would decrease by approximately $300,000 based on the amount of debt outstanding at December 31,2000. The Company does not expect changes in interest rates to have a material effect on income or cash flows in fiscal 2001, although there can be no assurances that interest rates will not significantly change. 20 ITEM 8: FINANCIAL STATEMENTS - ---------------------------- The financial statements required by this Item begin at page F-1 hereof. ITEM 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND ---------------------------------------------------------------------- FINANCIAL DISCLOSURE -------------------- None. 21 PART III ITEM 10: DIRECTORS AND EXECUTIVE OFFICERS - ----------------------------------------- Directors and Business Experience Class I Term expires in 2001 - -------------------- James R. Gilley Mr. Gilley has been Chairman of the Company since Age 66 November 1989 and was President and Chief Executive Officer from November 1989 until December 16, 1996. He was re-elected as President and Chief Executive Officer on October 2, 1998. Gene S. Bertcher Mr. Bertcher has been Executive Vice President, Chief Age 52 Financial Officer and Treasurer of the Company since November 1989 and was a director from November 1989 until September 1996 and re-elected to the board in 1999. He is a certified public accountant Paul G. Chrysson Mr. Chrysson has been a director of the Company since Age 46 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 Wachovia Bank-Forsyth County, Winston-Salem, North Carolina 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. Class II Term expires in 2002 - -------------------- Matthew G. Gallins Mr. Gallins has been a director of the Company since Age 44 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 is a director of Southern Community Bank in Winston-Salem, North Carolina and has served on the boards of various charitable organizations. Victor L. Lund Mr. Lund has been a director of the Company since 1996. He founded 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, Mr. Lund was Chairman of the Board, President and Chief Executive Officer, positions he held until the Company acquired Wedgwood. He continues to serve as Chairman of the board of Wedgwood. Class III Term expires in 2003 - -------------------- Don C. Benton Mr. Benton has been a director of the Company since Age 46 June 1994. He 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. He also served in that capacity for the Argyle Specialty Hospital. Mr. Benton is a Licensed Chemical Dependency Counselor and a Certified Alcohol and Drug Abuse Counselor. William A. Shirley, Jr. Mr. Shirley has been a director of the Company since Age 57 1998. He was Chairman of the Board and President of Villa Residential Care Homes, Inc. from 1989 until its acquisition by the Company on December 31, 1997. Mr. Shirley is President of Pascal Enterprises, a real estate investment company wholly owned by Mr. Shirley. 22 Other Executive Officers and Business Experience Robert L. Griffis Mr. Griffis has been Senior Vice President of the Age 65 Company since November 1992, 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. Organization of the Board of directors The board of directors has the following committees: Committee Members --------- ------- Executive James R. Gilley - Chairman Victor L. Lund Paul G. Chrysson Audit Matthew G. Gallins - Chairman Paul G. Chrysson William A. Shirley, Jr. Compensation Committee Matthew G. Gallins, Chairman Don C. Benton Paul G. Chrysson Conflicts of Interest Paul G. Chrysson - Chairman Don C. Benton Matthew G. Gallins The executive committee conducts the normal business operations of the Company and acts as the nominating committee. The audit committee recommends an independent auditor for the Company, consults with such independent auditor and reviews the Company's financial statements. The compensation committee fixes the compensation of officers and key employees of the Company and administers the Company's stock option plans. The conflicts of interest committee receives and investigates any reports of or perceived conflicts of interest in any activities undertaken by the Company. The board of directors met once and approved four actions by unanimous consent, the audit committee met once and the compensation committee met once during 2000. Section 16(a) Beneficial Ownership Reporting Compliance Based solely upon a review of Forms 3, 4 and 5 furnished to the Company pursuant to Rule 16a-3(e) promulgated under the Securities Exchange Act of 1934 (the "Exchange Act"), or upon written representations received by the Company, the Company is not aware of any failure by any director, officer or beneficial owner of more than 10% of the Company's common stock to file with the Securities and Exchange Commission, on a timely basis, any Form 3, 4 or 5 relating to 1998. 23
ITEM 11: EXECUTIVE COMPENSATION - ------------------------------- The following tables set forth the compensation paid by the Company for services rendered during the fiscal years ended December 31, 2000, 1999 and 1998 to the Chief Executive Officer of the Company and to the other executive officers of the Company whose total annual salary in 2000 exceeded $100,000, the number of options granted to any of such persons during 2000 and the value of the unexercised options held by any of such persons on December 31, 2000. Summary Compensation Table Long Term Compensation- Number of Shares of Name and Annual Common Stock All Principal Compensation- Underlying Other Position Year Salary Options Compensation(1) - ----------------------------- ---- -------------- ------------ --------------- James R. Gilley, 2000 $460,000 200,000 $5,500 Chairman, President and Chief 1999 479,000 200,000 6,500 Executive Officer 1998 414,000 200,000 6,500 Gene S. Bertcher, 2000 185,000 - $4,500 Executive Vice President and 1999 198,000 200,000 4,500 Chief Financial Officer 1998 162,000 100,000 - Robert L. Griffis, 2000 100,000 - - Senior Vice President 1999 111,000 - - 1998 90,000 30,000 - (1) Constitutes directors' fees paid by the Company to the named individuals. Option Grants Table (Option Grants in Last Fiscal Year) Number of Percent of Securities Total Options Underlying Granted to Exercise or Options Employees in Base Price Expiration Name Granted Fiscal Year Per Share Date - --------------- ----------- ------------- ----------- ---------- James R. Gilley 200,000 100% $0.38 12/31/10 Aggregated Option Exercises in Last Fiscal Year and FY-End Option Values Value of Unexercised Number of Securities In-the-Money Shares Underlying Unexercised Options at 1999 Acquired Value Options at 1999 FY-End FY-End Name on Exercise Realized Exercisable Unexercisable Exercisable Unexercisable ---- ----------- -------- ----------- ------------- ----------- ------------- James R. Gilley -- -- 1,000,000 -- -- -- Gene S. Bertcher -- -- 20,000 -- -- --
Stock Option Plan The compensation committee administers the Company's 1992 Stock Option Plan, as amended (the "1992 Plan"), 1997 Stock Option Plan (the "1997 Plan") and the 2000 Stock Option Plan (the "2000 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 and 2000 Plan. Under the three 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, none of the Plans has a pre-set formula or criteria for determining the number of options that may be granted. The exercise price for an option granted 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, 500,000 shares of common stock under the 1997 Plan and 500,000 shares of common stock under the 2000 Plan. As of March 26, 2001 options have been granted for 188,000 shares reserved under the 1992 Plan. No options are issued for the 1997 or 2000 Plans. 24 Compensation of Directors The Company pays each director a fee of $2,500 per year, plus a meeting fee of $1,000 for each board meeting attended. Employment Agreements The Company has an employment agreement with James R. Gilley, Chairman, President and Chief Executive Officer, dated January 1, 1997 that provides for a three-year term that recommences each day. The agreement provides for a base salary of $460,000 and 200,000 fully vested non-qualified stock options each year through 2000 in lieu of any cash bonus. The agreement may be terminated only upon resignation, mutual consent or for good cause. The Company has an employment agreement with Gene S. Bertcher, Executive Vice President and Chief Financial Officer. The agreement, dated January 1, 1997, provides for a two-year term that recommences each day. The agreement provides for compensation of $180,000 per year, discretionary bonus and may be terminated early only upon resignation, mutual consent or for good cause. Compensation Committee Report The compensation paid to the Company's executive officers is reviewed and approved annually by the compensation committee of the board of directors. The compensation committee consists entirely of non-employee directors. Current members of the committee are Messrs. Benton, Chrysson and Gallins. In addition to approving annual compensation for the Company's executive officers, the compensation committee approves any incentive awards for executive officers and other key employees, any stock option grants and additional benefits such as the Company's 401(k) plan. The Company's compensation philosophy is to attract, retain and reward executives who have shown they are capable of leading the Company in achieving its business objectives and performance goals. These objectives include preserving and increasing the Company's asset value; positioning the Company's operations in geographic markets offering long term, profitable growth opportunities; preserving and enhancing stockholder value and keeping the Company competitive in its marketing and operations. The accomplishment of these objectives is measured against conditions prevalent in the assisted living industry. In recent years the industry has grown to be a highly competitive industry for residents, real estate and services in a rapidly changing regional and national environment. The compensation committee determined that the primary forms of executive compensation should be base salary and stock options. The Company's performance is a key consideration (to the extent that such performance can be fairly attributed or related to an executive's performance) and each executive's responsibilities and capabilities are key considerations. The committee strives to keep executive base salaries competitive for comparable positions in other corporations where possible. In addition, the committee believes in equity compensation wherein executives will be additionally rewarded based on increasing the Company's stockholder value. Base salaries are predicated on a number of factors, including: o recommendation of the Chief Executive Officer; o knowledge of similarly situated executives at other companies; o the executive's position and responsibilities within the Company; o the compensation committee's subjective evaluation of the executive's contribution to the Company's performance; o the executive's experience and o the term of the executive's tenure with the Company. Chief Executive Officer Compensation James R. Gilley, President and Chief Executive Officer, has an employment agreement with the Company providing, among other things, his base salary and other benefits. As a result, the compensation committee did not review compensation for the Chief Executive Officer position. Compensation Committee Matthew Gallins, Chairman Don Benton Paul Chrysson 25 PERFORMANCE GRAPH The following graph compares the cumulative total return on a $100 investment in the Company's common stock on December 31, 1996 through December 31, 2000, based on the Company's closing stock price on December 31, for each of those years. The same information is provided for the Standard & Poor 500 index and for an industry peer group1. [GRAPHIC OMITTED] - ----------- 1 The company considers its peer group to be public companies whose business is primarily in the assisted living industry. Those companies are Alterra Healthcare Corporation, ARV Assisted Living, Inc., Assisted Living Concepts, Inc., Emeritus Corporation, Regent Assisted Living, Inc. and Sunrise Assisted Living, Inc. 26
ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT - ----------------------------------------------------------------------- The following table sets forth as of March 26, 2001, certain information with respect to all stockholders known by the Company to own beneficially more than 5% of the outstanding common stock and Series D preferred stock (which are the only outstanding classes of securities of the Company, except for Series B preferred stock, the ownership of which is immaterial), as well as information with respect to the Company's common stock and Series D preferred stock owned beneficially by each director, director nominee, and current executive officer whose compensation from the Company in 2000 exceeded $100,000, and by all directors and executive officers as a group. Unless otherwise indicated, each of these stockholders has sole voting and investment power with respect to the shares beneficially owned. Preferred Stock Common Stock ----------------------- --------------------------------------------- Number of shares Assuming Full Number Percent Number Percent Conversion of Preferred Percent Name and Address of of of of Stock and of of Beneficial Owner Shares Series Shares Class Options by Holder Class ------------------------------- ---------- ------- --------- ------- ----------------------- ------- Series D Preferred Stock(1) James R. Gilley(2 & 3) 675,000 100% 2,340,851 24.8% 2,678,351 27.4% 4265 Kellway Circle Addison TX 75001 Sylvia M. Gilley(2 & 3) 675,000 100% 2,340,851 24.8% 2,678,351 27.4% 6211 Georgian Court Dallas TX 75240 Victor L. Lund(4) -- -- 1,214,961 14.6% 1,214,961 14.6% 816 NE 87th Avenue Vancouver WA 98664 Floyd B. Rhoades(5) -- -- 951,820 11.2% 951,820 11.2% 95 Argonaut Street Aliso Viego CA 92656 Gene S. Bertcher(6) -- -- 66,000 * 66,000 * 4265 Kellway Circle Addison TX 75001 Robert L. Griffis(7) -- -- 30,000 * 30,000 * 4265 Kellway Circle Addison TX 75001 Matthew G. Gallins(8) -- -- 10,000 * 10,000 * 715 Stadium Drive Winston-Salem NC 27101 Paul G. Chrysson(8) -- -- 10,000 * 10,000 * 1045 Burke Street Winston-Salem NC 27101 Don C. Benton(8) -- -- 10,000 * 10,000 * Arrowhead Ranch Route 1 Clarksville, TX 75246 William A. Shirley, Jr.(9) -- -- 412,435 5.0% 412,435 5.0% 2621 State Street Dallas TX 75204 LSOF Pooled Equity, LP(10) -- -- 1,054,202 12.7% 1,054,202 12.7% 600 N Pearl Street, Suite 1550 Dallas TX 75201 American Realty Trust, Inc.(11) 10670 North Central Expressway -- -- 97,500 1.2% 97,500 1.2% Suite 300 Dallas TX 75231 Basic Capital Management, -- -- 141,260 1.7% 141,260 1.7% Inc.(11) 10670 North Central Expressway Suite 600 Dallas TX 75231 Nevada Sea Investments, Inc.(11) -- -- 72,800 * 72,800 * 10670 North Central Expressway Suite 501 Dallas TX 75231 International Health Products, -- -- 249,085 3.0% 249,085 3.0% Inc.(11) 10670 North Central Expressway Suite 410 Dallas TX 75231 Davister Corporation (11) -- -- 251,200 3.0% 251,200 3.0% 10670 North Central Expressway Suite 410 Dallas TX 75231 Institutional Capital -- -- 242,500 2.9% 242,500 2.9% Corporation (11) 10670 North Central Expressway Suite 411 Dallas TX 75231 All executive officers and 675,000 100% 4,094,247 50.0% 4,431,747 52.0% directors as a group(1 & 2) (eight persons)
27 * 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 500,000 shares of common stock owned by JRG Investments Co., Inc., a corporation wholly owned by James R. Gilley ("JRG"); 732,851 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 $0.38 per share, exercisable through December 31, 2010; 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; options to James R. Gilley to purchase 200,000 shares of common stock at $2.50 per share, exercisable through December 31, 2008; options to James R. Gilley to purchase 200,000 shares of common stock at $0.69 per share exercisable through December 31, 2009; a warrant to purchase 108,000 shares at an exercise price of $10.00 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 $2,996,373. 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 2008, when the entire principal balance and all accrued interest are due. The 200,000 shares purchased by the grantor trust collateralize the note. The grantor trust and Mr. Gilley (as co-maker) have personal recourse only for the first 20% of the principal balance. (4) Consists of 1,214,961 shares of common stock owned by Mr. Lund. (5) Consists of 751,820 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 1,192 shares owned by his spouse. Mr. Rhoades disclaims beneficial ownership of shares owned by his spouse. (6) Consists of 46,000 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. (7) In November 1992, Mr. Griffis obtained a loan from the Company for $75,000 that was used to exercise options to purchase 30,000 shares of the Company's common stock. The shares purchased by Mr. Griffis collateralize the loan. (8) Consists of options to purchase 10,000 shares of common stock for $17.75 per share. (9) Includes 412,435 shares of common stock owned of record by Mr. Shirley. (10) In accordance with the terms of conversion in the preferred stock agreement dated January 13, 1998 on January 13, 2001 the Series F & G Preferred Stock issued by Greenbriar was converted into 1,054,202 shares of Greenbriar common stock. The holder of the preferred stock is disputing the conversion. They maintain a conversion occurred on October 30, 2000 and they were entitled to receive 27,502,855 shares. This matter is currently being litigated (see Item 3: Legal Proceedings, Item 7: Management Discussion and Analysis and the footnotes to the financial statements). (11) 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 1,054,345 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. 28 ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS - ------------------------------------------------------- The following paragraphs describe certain transactions between the Company and any stockholder beneficially owning more than 5% of the outstanding common stock, the executive officers and directors of the Company and members of the immediate family or affiliates of any of them, which occurred since the beginning of the 1997 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, President and Chief Executive Officer 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 non-recourse. 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 October 1, 2002. 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: 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 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 piggyback registration other than underwriting fees, discounts and 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: 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 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. The Company agreed to pay all expenses of the demand or piggyback registration, other than underwriting fees, discounts and 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. 29 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. That warrant contains anti-dilution clauses requiring a reduction in the exercise price to adjust for any issuance 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. In the first quarter of 2000 the Company redeemed 267,000 shares of the Series G Preferred Stock. The outstanding Series F preferred stock and Series G preferred stock is convertible into 1,104,572 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: 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; the Company agreed to give the holders of common stock "piggyback" 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 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, piggyback or Form S-3 registration, other than underwriting fees, discounts and commissions. 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. 30 PART IV ITEM 14: EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K - ------------------------------------------------------------------------ (d) The following documents are filed as a part of the report: (1) FINANCIAL STATEMENTS: The following financial statements of the Registrant and the Report of Independent Public Accountants therein are filled as part of this Report on Form 10-K: Report of Independent Certified Public Accountants............F-1 Consolidated Balance Sheets...................................F-2 Consolidated Statement of Operations..........................F-4 Consolidated Statement of Changes in Stockholders' Equity.....F-5 Consolidated Statements of Cash Flows.........................F-6 Notes to Consolidated Financial Statements....................F-8 (2) FINANCIAL STATEMENT SCHEDULES: Financial statement schedules have been omitted because the information required to be set forth therein is not applicable, is immaterial or is shown in the consolidated financial statements or notes thereto. (e) REPORTS ON FORM 8-k: Form 8-K filed on November 14, 2000, disclosing under Item 1: Changes in Control of Registrant, a dispute in litigation over the number of shares to which LSOF Pooled Equity, L.P. is entitled upon conversion of preferred stock into common stock. (f) Exhibits: The following exhibits are filed as part of, or incorporated by reference into, this Report on Form 10-K: Exhibit Number Description of Exhibit -------- ------------------------------------------------------------ 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") filed as Exhibit 2.2.1 of Registrant's Form 10-KSB for the year ended December 31, 1997. 31 Exhibit Number Description of Exhibit -------- ------------------------------------------------------------ 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 filed as Exhibit 2.2.4 of Registrant's Form 10-KSB for the year ended December 31, 1997. 2.2.5 Agreement between Lone Star Opportunity Fund, L.P. and Registrant regarding certain minimum values of Registrant's stock filed as Exhibit 2.2.5 of Registrant's Form 10-KSB for the year ended December 31, 1997. 3.1 Articles of Incorporation of Medical Resource Companies of America ("Registrant") (filed as Exhibit 3.1 to Registrant's Form S-4 Registration Statement, Registration No. 33-55968, and incorporated herein by this reference). 3.1.1 Restated Articles of Incorporation of Greenbriar Corporation. 3.2 Bylaws of Registrant (filed as Exhibit 3.2 to Registrant's Form S-4 Registration Statement, Registration No. 33-55968, and incorporated herein by this reference). 3.2.1 Amendment to Section 3.1 of the Bylaws of Registrant adopted upon approval of the Merger (filed as Exhibit 3.2.1 to Registrant's Form S-4 Registration Statement, Registration No. 33-55968, and incorporated herein by this reference). 3.3 Certificate of Decrease in Authorized and Issued Shares. 4.1.2 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. 4.1.4 Certificate of Designations, Preferences and Rights of Preferred Stock dated March 15, 1996, relating to Registrants' Series D Preferred Stock. 4.1.6 Certificate of Voting Powers, Designations, Preferences and Rights of Registrant's Series F Senior Convertible Preferred Stock dated December 31, 1997, filed as Exhibit 2.2.2 of Registrant's Form 10-KSB for the year ended December 31, 1997. 4.1.7 Certificate of Voting Powers, Designations, Preferences and Rights of Registrant's Series G Senior Non-Voting Convertible Preferred Stock dated December 31, 1997, filed as Exhibit 2.2.3 of Registrant's Form 10-KSB for the year ended December 31, 1997. 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 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). 32 Exhibit Number Description of Exhibit -------- ------------------------------------------------------------ 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 (non-recourse) between Registrant and Lonnie Yarbrough securing the Promissory Note referenced in Exhibit 10.7.2 (filed as Exhibit 10.7.3 to Registrant's Form S-4 Registration Statement, Registration No. 33-55968, and incorporated herein by this reference). 10.9.6 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 Form 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). 10.13.1 Registrant's 1992 Stock Option Plan (filed as Exhibit 10.13 to Registrant's Form S-4 Registration Statement, Registration No. 33-55968, and incorporated herein by this reference). 10.13.2 Registrant's 1997 Stock Option Plan (filed as Exhibit 4.1 to Registrant's Form S-8 Registration Statement, Registration No. 333-33985 and incorporated herein by this reference). 10.13.3 Registrant's 2000 Stock Option Plan (filed as Exhibit 4.1 to Registrant's Form S-8 Registration Statement, Registration No. 333-50868 and incorporated herein by this reference). 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). 33 Exhibit Number Description of Exhibit -------- ------------------------------------------------------------ 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). 10.37 Employment Agreements dated December 31, 1996 10.38 Stock Purchase Warrant dated December 31, 1996 between registrant and The April Trust 10.39* Portfolio Divestiture Agreement between certain subsidiaries of the Company, the Company, Health Care REIT and HCRI Texas Properties, Ltd. 21.1* Subsidiaries of Registrant. 23.1* Consent of Grant Thornton. * Filed herewith. 34 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-K to be signed on its behalf by the undersigned, thereunto duly authorized. GREENBRIAR CORPORATION March 30, 2001 By: /s/ Gene S. Bertcher ---------------------------- Gene S. Bertcher Executive Vice President and Chief Financial Officer (Principal Financial and Accounting Officer) 35 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 March 30, 2001 By: /s/James R. Gilley --------------------------------------------------- James R. Gilley, President, Chief Executive Officer and Chairman of the Board of Directors 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. March 30, 2001 /s/ James R. Gilley -------------------- James R. Gilley, President, Chief Executive Officer and Chairman of the Board of Directors March 30, 2001 /s/ Don C. Benton ------------------ Don C. Benton, Director March 30, 2001 /s/ Gene S. Bertcher --------------------- Gene S. Bertcher, Executive Vice President, Chief Financial Officer and Director March 30, 2001 /s/ Paul G. Chrysson --------------------- Paul G. Chrysson, Director March 30, 2001 /s/ Matthew G. Gallins ----------------------- Matthew G. Gallins, Director March 30, 2001 /s/ Victor L. Lund ------------------- Victor L. Lund, Director March 30, 2001 /s/ William A. Shirley, Jr. ---------------------------- William A. Shirley, Jr., Director 36 Report of Independent Certified Public Accountants Board of Directors and Stockholders Greenbriar Corporation We have audited the accompanying consolidated balance sheets of Greenbriar Corporation and subsidiaries as of December 31, 2000 and 1999, and the related consolidated statements of operations, changes in stockholders' equity and cash flows for each of the three years in the period ended December 31, 2000. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. 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, 2000 and 1999, and the consolidated results of their operations and their consolidated cash flows for each of the three years in the period ended December 31, 2000, in conformity with accounting principles generally accepted in the United States of America. /s/ Grant Thornton, L.L.P. - --------------------------- Dallas, Texas March 29, 2001, except for Note K, as to which the date is April 5, 2001 F-1 Greenbriar Corporation and Subsidiaries CONSOLIDATED BALANCE SHEETS (Amounts in thousands) December 31, ASSETS 2000 1999 -------- -------- CURRENT ASSETS Cash and cash equivalents $ 2,287 $ 8,814 Accounts receivable - trade 470 182 Other current assets 1,105 848 -------- -------- Total current assets 3,862 9,844 DEFERRED INCOME TAX BENEFIT 4,750 4,750 MORTGAGE NOTE RECEIVABLE, net of deferred gain of $3,083 -- 3,617 PROPERTY AND EQUIPMENT, AT COST Land and improvements 9,716 11,179 Buildings and improvements 75,723 76,848 Equipment and furnishings 6,615 6,586 -------- -------- 92,054 94,613 Less accumulated depreciation and amortization 12,410 9,888 -------- -------- 79,644 84,725 DEPOSITS 3,834 3,907 LEASE RIGHTS AND OTHER INTANGIBLES 9,347 10,439 OTHER ASSETS 1,151 2,626 -------- -------- $102,588 $119,908 ======== ======== The accompanying notes are an integral part of these statements. F-2
Greenbriar Corporation and Subsidiaries CONSOLIDATED BALANCE SHEETS - CONTINUED (Amounts in thousands, except share amounts) December 31, LIABILITIES AND STOCKHOLDERS' EQUITY 2000 1999 --------- --------- CURRENT LIABILITIES Current maturities of long-term debt $ 2,538 $ 3,317 Accounts payable - trade 1,445 2,072 Accrued expenses 1,934 1,345 Other current liabilities 668 678 --------- --------- Total current liabilities 6,585 7,412 LONG-TERM DEBT 50,887 50,477 FINANCING OBLIGATIONS 10,815 10,815 OTHER LONG-TERM LIABILITIES 657 721 --------- --------- Total liabilities 68,944 69,425 PREFERRED STOCK REDEMPTION OBLIGATION 26,988 27,763 STOCKHOLDERS' EQUITY Preferred stock; liquidation value of $3,475 254 289 Common stock, $.01 par value; authorized, 20,000,000 shares; issued and outstanding, 7,514,000 shares 76 76 Additional paid-in capital 60,219 61,520 Accumulated deficit (51,526) (36,798) --------- --------- 9,023 25,087 Less stock purchase notes receivable (including $2,250 from related parties) (2,367) (2,367) --------- --------- 6,656 22,720 --------- --------- $ 102,588 $ 119,908 ========= =========
The accompanying notes are an integral part of these statements. F-3
Greenbriar Corporation and Subsidiaries CONSOLIDATED STATEMENTS OF OPERATIONS (Amounts in thousands, except share data) Year ended December 31, 2000 1999 1998 -------- -------- -------- Revenue Assisted living operations $ 41,261 $ 41,260 $ 53,428 Other -- -- 93 -------- -------- -------- 41,261 41,260 53,521 Operating expenses Assisted living operations 24,750 24,836 35,965 Lease expense 4,912 5,197 9,552 Facility depreciation and amortization 3,740 3,977 4,407 General and administrative 5,448 4,313 5,292 Write-down of properties 7,461 -- 560 -------- -------- -------- 46,311 38,323 55,776 -------- -------- -------- Operating profit (loss) (5,050) 2,937 (2,255) Other income (expense) Interest and dividend income 406 599 1,094 Interest expense (5,759) (5,632) (6,432) Other income (expense), net (220) 2,178 (3,009) -------- -------- -------- (5,573) (2,855) (8,347) -------- -------- -------- Earnings (loss) from continuing operations before income taxes (10,623) 82 (10,602) Income tax benefit -- -- (1,896) -------- -------- -------- Earnings (loss) from continuing operations (10,623) 82 (8,706) Discontinued operations Loss from operations, net of income taxes -- -- (34) Loss on disposal, net of income taxes -- -- (169) -------- -------- -------- NET EARNINGS (LOSS) (10,623) 82 (8,909) Preferred stock dividend requirement (4,105) (4,720) (4,600) -------- -------- -------- Loss allocable to common stockholders $(14,728) $ (4,638) $(13,509) ======== ======== ======== Loss per share - basic and diluted Continuing operations $ (1.96) $ (.62) $ (1.83) Discontinued operations -- -- (.03) -------- -------- -------- Net loss $ (1.96) $ (.62) $ (1.86) ======== ======== ======== Weighted average number of common shares outstanding 7,514 7,514 7,275
The accompanying notes are an integral part of this statement. F-4
Greenbriar Corporation and Subsidiaries CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (Amounts in thousands) Preferred stock Common stock Additional -------------------- -------------------- paid in Accumulated Shares Amount Shares Amount capital deficit -------- -------- -------- -------- -------- -------- Balances at January 1, 1998 2,876 $ 289 7,300 $ 73 $ 83,339 $(18,669) Issuance of common stock -- -- 250 2 435 -- Purchase of common stock -- -- (36) 1 (472) -- Dividends on preferred stock, including accretion of $2,970 -- -- -- -- 2,970 (4,592) Issuance costs for preferred stock -- -- -- -- (263) -- Accretion of redemption obligation - preferred stock -- -- -- -- (21,748) -- Reduction of stock purchase notes receivable -- -- -- -- -- -- Net loss -- -- -- -- -- (8,909) -------- -------- -------- -------- -------- -------- Balance at December 31, 1998 2,876 289 7,514 76 64,261 (32,170) Dividends on preferred stock, including accretion of $3,080 -- -- -- -- 3,080 (4,710) Accretion of redemption obligation - preferred stock -- -- -- -- (6,015) -- Escrow stock released -- -- -- -- 194 -- Net earnings -- -- -- -- -- 82 -------- -------- -------- -------- -------- -------- Balance at December 31, 1999 2,876 289 7,514 76 61,520 (36,798) Dividends on preferred stock, including accretion of $2,649 -- -- -- -- 2,649 (4,105) Redemption of preferred stock (355) (35) -- -- (4,725) -- Reduction of redemption obligation - preferred stock -- -- -- -- 775 -- Net loss -- -- -- -- -- (10,623) -------- -------- -------- -------- -------- -------- Balance at December 31, 2000 2,521 $ 254 7,514 $ 76 $ 60,219 $(51,526) ======== ======== ======== ======== ======== ======== Stock purchase notes receivable Total -------- -------- Balances at January 1, 1998 $ (2,515) $ 62,517 Issuance of common stock -- 437 Purchase of common stock -- (471) Dividends on preferred stock, including accretion of $2,970 -- (1,622) Issuance costs for preferred stock -- (263) Accretion of redemption obligation - preferred stock -- (21,748) Reduction of stock purchase notes receivable 148 148 Net loss -- (8,909) -------- -------- Balance at December 31, 1998 (2,367) 30,089 Dividends on preferred stock, including accretion of $3,080 -- (1,630) Accretion of redemption obligation - preferred stock -- (6,015) Escrow stock released -- 194 Net earnings -- 82 -------- -------- Balance at December 31, 1999 (2,367) 22,720 Dividends on preferred stock, including accretion of $2,649 -- (1,456) Redemption of preferred stock -- (4,760) Reduction of redemption obligation - preferred stock -- 775 Net loss -- (10,623) -------- -------- Balance at December 31, 2000 $ (2,367) $ 6,656 ======== ========
The accompanying notes are an integral part of this statement. F-5
Greenbriar Corporation and Subsidiaries CONSOLIDATED STATEMENTS OF CASH FLOWS (Amounts in thousands) Year ended December 31, -------------------------------- 2000 1999 1998 -------- -------- -------- Cash flows from operating activities Net earnings (loss) $(10,623) $ 82 $ (8,909) Adjustments to reconcile net earnings (loss) to net cash provided by (used in) operating activities Discontinued operations -- -- 203 Depreciation and amortization 3,740 3,977 4,407 Gain on sale of assets (49) -- -- Gain on sale of investment -- (2,166) -- Loss on write down of impaired assets 7,461 -- 560 Loss on sales of assets -- 186 2,924 Deferred income taxes -- -- (2,118) Changes in operating assets and liabilities Accounts receivable (288) 266 714 Other current and noncurrent assets (750) (367) (3,206) Accounts payable and other liabilities 750 (1,570) (312) -------- -------- -------- Net cash provided by (used in) operating activities of continuing operations 241 408 (5,737) Net cash provided by operating activities of discontinued operations -- -- 93 -------- -------- -------- Net cash provided by (used in) operating activities 241 408 (5,644)
The accompanying notes are an integral part of this statement. F-6
Greenbriar Corporation and Subsidiaries CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED (Amounts in thousands) Year ended December 31, -------------------------------- 2000 1999 1998 -------- -------- -------- Cash flows from investing activities Purchase of property and equipment (1,796) (1,764) (4,843) Investing activities of discontinued operations -- -- 1,500 Proceeds from sale of investments -- 4,331 -- Proceeds from sale of property 1,014 1,861 -- -------- -------- -------- Net cash provided by (used in) investing activities (782) 4,428 (3,343) Cash flows from financing activities Proceeds from borrowings 3,956 2,290 18,539 Payments on debt (3,725) (2,706) (23,195) Dividends on preferred stock (1,457) (1,630) (1,622) Purchase and retirement of common stock -- -- (471) Collection of stock subscription receivable -- -- 21,737 Redemption of preferred stock and preferred stock redemption obligation (4,760) -- -- -------- -------- -------- Net cash provided by (used in) financing activities (5,986) (2,046) 14,988 -------- -------- -------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (6,527) 2,790 6,001 Cash and cash equivalents at beginning of year 8,814 6,024 23 -------- -------- -------- Cash and cash equivalents at end of year $ 2,287 $ 8,814 $ 6,024 ======== ======== ========
The accompanying notes are an integral part of these statements. F-7 Greenbriar Corporation and Subsidiaries 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 of America, which provide housing, healthcare, hospitality and personal services to elderly individuals. At December 31, 2000, the Company had 28 communities in operation in 10 states with a total capacity for 2,221 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) and are prepared on the basis of accounting principles generally accepted in the United States of America. All significant intercompany transactions and accounts have been eliminated. Assisted Living Community 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. Use of Estimates ---------------- In preparing financial statements in conformity with accounting principles generally accepted in the United States of America, 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 Greenbriar Corporation and Subsidiaries 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 use of 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, if 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). Lease Rights and Other Intangibles ---------------------------------- Lease rights are amortized by the straight-line method over the lives of the related leases. Goodwill is being amortized by the straight-line method over a period of fifteen years. Earnings (Loss) Per Common Share -------------------------------- Basic earnings (loss) per common share is 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 2000, 1999 and 1998, stock options for 1,208,500, 1,216,000 and 1,000,000 shares, respectively, were excluded from diluted shares outstanding because their effect was anti-dilutive. F-9
Greenbriar Corporation and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED NOTE B - DISCONTINUED OPERATIONS 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. In 1998, the Company sold one of its real estate assets and recorded a loss of $255,370, less applicable income tax benefits of $86,000. The operations of the non-assisted living real estate segment have been presented in the accompanying financial statements as discontinued operations. The operating results of these segments for 1998 were as follows (in thousands): revenues of $170, loss before income taxes of $34, and net loss of $34. NOTE C - CASH FLOW INFORMATION Supplemental information on cash flows is as follows (in thousands): Year ended December 31, --------------------------------- 2000 1999 1998 ------ ------ ------ Supplemental cash flow information Interest paid $5,752 $5,613 $6,333 Income taxes paid 13 170 25 NOTE D - STOCK PURCHASE NOTES RECEIVABLE December 31, 2000 1999 ------ ----- (In thousands) Related party Note from James R. Gilley, chief executive officer, principal and interest at 5.50%, due November 2008 $2,250 $2,250 Other 117 117 ------ ------ $2,367 $2,367 ====== ======
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. F-10
Greenbriar Corporation and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED NOTE E - LEASE RIGHTS AND OTHER INTANGIBLES Lease rights and other intangibles consist of the following: December 31, 2000 1999 ------- ------- Lease rights, net of accumulated amortization of $1,458 and $1,259 in 2000 and 1999 $ 3,447 $ 4,958 Lease buyout options 5,607 5,157 Goodwill 293 324 ------- ------- $ 9,347 $10,439 ======= =======
At December 31, 1998, the Company exchanged its operating lease rights on eight assisted living communities for more favorable options to purchase five assisted living communities (the Option Communities) currently being leased and operated by the Company. The purchase price under the options is the lessor's acquisition cost, and the options are exercisable from December 1999 through December 2001. The lease agreements on the Option Communities have implicit interest rates of approximately 12%. The Company believes that financing of assisted living communities can be obtained at this time at interest rates substantially less than 12%. For financial statement purposes, the capitalized costs related to the eight leases exchanged in 1998 were allocated to the Option Communities as Lease Buyout Options. No gain or loss was recorded. Upon exercise of the purchase options, these costs will be amortized over the term of the related debt. NOTE F - 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, 2000 and 1999: Cash and cash equivalents - The carrying amount approximates fair value because of the short maturity of these instruments. 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 - trade and note payable - affiliate - The carrying amount approximates fair value because of their short maturity. F-11
Greenbriar Corporation and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED NOTE G - DEBT Long-term debt is comprised of the following (in thousands): December 31, 2000 1999 ------- ------- Notes payable to financial institutions maturing through 2018; fixed and variable interest rates ranging from 7.5% to 11.75% ; collateralized by property, fixtures, equipment and the assignment of rents $27,991 $27,488 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 4,477 4,572 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 5.5% at December 31, 2000; collateralized by personal property, land, fixtures and rents 6,895 7,110 Mortgage note payable to a financial institution maturing in 2003; interest rate of 8.86%; collateralized by property and equipment 13,972 13,972 Other 90 652 ------- ------- 53,425 53,794 Less current maturities 2,538 3,317 ------- ------- $50,887 $50,477 ======= ======= Aggregate annual principal maturities of long-term debt at December 31, 2000 are as follows (in thousands): 2001 $ 2,538 2002 8,842 2003 14,670 2004 780 2005 837 Thereafter 25,758 ------- $53,425
Certain of the loan agreements contain various restrictive covenants, which require, among others things, the maintenance of certain financial ratios, as defined. F-12 Greenbriar Corporation and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED NOTE H - 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 $1,167,000 for each of the year through 2009. NOTE I - OPERATING LEASES The Company leases certain communities under operating leases which expire through the year 2011 and has various equipment operating leases. The leases provide that the Company pay property taxes, insurance, and maintenance. Future minimum payments following December 31, 2000 are as follows (in thousands): 2001 $ 3,894 2002 3,860 2003 3,296 2004 3,350 2005 3,403 Thereafter 13,497 ------- $31,300 Lease expense in 2000, 1999 and 1998 was $4,911,706, $5,196,893, and $9,551,525, respectively. NOTE J - INCOME TAXES At December 31, 2000, the Company had net operating loss carryforwards of approximately $48,000,000 which expire between 2002 and 2020. However, approximately $11,000,000 of these net operating loss carryforwards have limitations that restrict utilization to approximately $1,530,000 for any one year. The following is a summary of the components of income tax expense (benefit) from continuing operations (in thousands): Year ended December 31, ---------------------------------------- 2000 1999 1998 ------- ------- ------- Current $ - $ - $ 222 Deferred - - (2,118) ------- ------- ------- $ - $ - $(1,896) ======= ======= ======= F-13
Greenbriar Corporation and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED NOTE J - INCOME TAXES - Continued Deferred tax assets and liabilities were comprised of the following (in thousands): December 31, 2000 1999 ------- ------- Deferred tax assets: Net operating loss carryforwards $12,784 $10,450 Note receivable 680 1,462 Alternative minimum tax credit carryforwards 235 235 Charitable contribution carryforwards 5 438 Accounts receivable 32 85 Accrued expenses 798 426 Financing obligations 1,802 1,802 Other 545 754 ------- ------- Total deferred tax assets 16,881 15,652 Deferred tax liabilities - property and equipment (8,791) (9,806) Valuation allowance (3,340) (1,096) ------- ------- Net deferred tax asset $ 4,750 $ 4,750 ======= ======= In 1999, the Company determined that its net operating loss carryforwards should be approximately $1,200,000 less than the amount reported at December 31, 1998, primarily as a result of an Internal Revenue Service examination. The amount of the related deferred tax asset has been accordingly reduced by $424,000 at December 31, 1999. A corresponding reduction was made in the valuation allowance. 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): Year ended December 31, ----------------------------- 2000 1999 1998 ------- ------- ------- Tax expense (benefit) at the statutory rate $(3,612) $ 27 $(3,605) Expiration of carryforwards 433 -- -- Change in deferred tax asset valuation allowance 2,244 (49) 1,520 Nondeductible loss on write-down of properties 400 -- -- Nondeductible amortization 150 15 15 Other 385 7 174 ------- ------- ------- Tax benefit $ -- $ -- $(1,896) ======= ======= =======
F-14
Greenbriar Corporation and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED NOTE J - INCOME TAXES - Continued 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. In the third quarter of 1998, management determined that the Company's operating results were less than what was initially expected in its profitability model. Accordingly, the Company began providing a valuation allowance for the deferred tax benefits resulting from losses occurring after that date. The Company believes that it is more likely than not that the net deferred tax asset at December 31, 2000 of $4,750,000 will be recovered from future sale of properties. However, this evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available. NOTE K - STOCKHOLDERS' EQUITY Preferred Stock Preferred stock consists of the following (amounts in thousands, except per share amounts): Year ended December 31, 2000 1999 ---- ---- Series B cumulative convertible preferred stock, $.10 par value; liquidation value of $100; authorized, 100 shares; issued and outstanding, 1 share $ 1 $ 1 Series D cumulative convertible preferred stock, $.10 par value; liquidation value of $3,375; authorized, issued and outstanding, 675 shares 68 68 Series F voting cumulative convertible preferred stock, $.10 par value; liquidation value of $14,000; authorized, issued and outstanding, 1,400 shares at December 31, 2000 and 1999 140 140 Series G cumulative convertible preferred stock, $.10 par value; liquidation value of $4,450 and $8,000; authorized, 800 shares; issued and outstanding, 445 and 800 shares at December 31, 2000 and 1999, respectively. 45 80 ---- ---- $254 $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. 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%. F-15 Greenbriar Corporation and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED NOTE K - STOCKHOLDERS' EQUITY - Continued The Series F voting preferred stock has a liquidation value of $10.00 per share, which is less than the amount recorded for the Preferred Stock Redemption Obligation, and each share is convertible into .57 shares of common stock. The Series F shareholder has 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, which is less than the amount recorded for the Preferred Stock Redemption Obligation, 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 to LSOF Pooled Equity, L.P. (LSOF) one investor in December 1997 for $22,000,000, less selling and offering costs of $716,000. 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 LSOF equal to the market price deficiency on the shares received upon conversion. The 14% guaranteed return is accreted by a charge to accumulated deficit. The amount of the Cash Payment that would be required assuming conversion at each balance sheet date is transferred from stockholders' equity to Preferred Stock Redemption Obligation. At December 31, 2000, a Cash Payment of $27,565,000 would have been due assuming conversion took place. During 2000, the Company made payments totaling $4,760,000 to redeem 355,150 shares of the Series G preferred stock, pursuant to an agreement that it would redeem additional shares from the proceeds generated from the sale of assets or from refinancings. The Company received a notice dated October 30, 2000, from LSOF, advising that it was electing to convert the outstanding shares of preferred stock into common stock. Such notice sets forth LSOF's position that, as a result of certain employee stock options issued by the Company, the conversion price of the preferred stock had been reduced from $17.50 per share to $0.69 per share, and that the Company must issue 27,475,362 shares of common stock upon conversion. If such shares were issued, they would constitute approximately 80% of the Company's common stock and represent a change in control of the Company. The Company is required to obtain stockholder approval of the issuance of such a large block of common stock or face a delisting of its common stock on the American Stock Exchange. In the event such conversion occurred, the Company's obligation for the cash payment that is due upon a conversion or redemption of preferred stock would be reduced from approximately $27,000,000 recorded. F-16 Greenbriar Corporation and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED NOTE K - STOCKHOLDERS' EQUITY - Continued The Company believes that the conversion price was not properly subject to adjustment, and, if the holder were to convert, it would be at the current $17.50 conversion price. The Company's position is based, in part, upon LSOF's failure to follow all procedures for adjustment and conversion at the adjusted price, and on the Company's recission of the employee stock options that were the basis for the holder's purported adjustment. LSOF has filed a declaratory judgment action in the State District Court in Dallas County, Texas seeking a finding that it is entitled to a $0.69 conversion price. The Company intends to defend such action and seek a contrary ruling that the conversion price was not adjusted. On January 13, 2001, the Company took the action mandated by the terms of the Series F and G preferred stock to convert the shares remaining outstanding into 1,054,202 shares of common stock and acknowledged its obligation to pay the holder the approximate $27,166,000 cash payment as funds for repayment become lawfully available. On January 15, 2001, the Company received a notice LSOF to the effect that the Company was in default of the Preferred Stock Purchase Agreement for failing to provide a quarterly compliance certificate, failing to meet various financial covenants and failing to notify the holder of such defaults. LSOF contends that these alleged breaches of covenants triggered penalty dividends of $1.20 per share under the terms of the preferred stock and that Greenbriar's failure to pay those penalty dividends entitles the LSOF to appoint 70% of the Board of Directors. The Company disputes all such defaults and alternatively claims that such defaults have been waived, reformed or that the holder is estopped from asserting them. The Company further disputes that any penalty dividends were due under the terms of the preferred stock agreement. Any penalty dividends paid would reduce the amount of the cash payment. The State District Court has set July 23, 2001 as the trial date for this matter. On March 29, 2001, the Court considered a motion brought by LSOF seeking partial summary judgment on certain issues. On April 5, 2001, the judge in this case signed an order granting LSOF's motion as follows: (a) The correct conversion price of the Series F and Series G preferred stock was $0.69 per share based upon Greenbriar's issuance of $0.69 per share options. (b) LSOF's Conversion Notice complied with the requirement for conversion under the Certificates of Designation. The Company has filed a Motion for Reconsideration and the judge has scheduled a hearing for April 19, 2001. Should the Company not prevail in its motion, the order signed on April 5 will be a material factor at the trial on July 23, 2001. The conversion of the Series F and Series G preferred stock at $0.69 per share would result in LSOF owning approximately 79% of the Company's outstanding stock, based on the number of shares outstanding at December 31, 2000. F-17
Greenbriar Corporation and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED NOTE K - STOCKHOLDERS' EQUITY - Continued Other ----- In connection with the acquisition of certain lease rights in 1997, a wholly-owned partnership issued partnership units to the seller. The partnership units are convertible 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. Subsequent to December 31, 2000, 255,200 shares of the Company's stock was issued upon conversion. Stock Options ------------- In 1992, 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 2000, the Company adopted the 2000 Stock Option Plan, under which up to 500,000 shares of the Company's common stock are reserve for issuance. The Company has also granted options to an officer during 1996 through 2000, aggregating 1,000,000 shares not covered by either plan. These options were granted at market, were exercisable immediately, and expire 10 years from date of grant. SFAS 123 requires disclosure of pro forma net earnings (loss) and pro forma net earnings (loss) per share as if the fair value 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): 2000 1999 1998 -------- -------- -------- Net loss allocable to common stockholders (amounts in thousands) As reported $(14,728) $ (4,638) $(13,509) Pro forma $(15,080) $ (5,287) $(13,937) Net loss per share As reported $(1.96) $(.62) $(1.86) Pro forma $(2.00) $(.78) $(1.92)
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 87 percent for 2000, 83 percent for 1999, and 100 percent for 1998, risk-free interest rates of 5.6 percent for 2000, 6.1 percent for 1999, and 5.5 percent for 1998; no dividend yield; and weighted average expected lives of 7.3 years. F-18 Greenbriar Corporation and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED NOTE K - STOCKHOLDERS' EQUITY - Continued Information with respect to options outstanding at December 31, 2000, and changes for 1998 - 2000 is as follows: 1998 -------------------------- Weighted average exercise Shares price --------- -------- Outstanding at beginning of year 1,000,000 $14.23 Granted 216,000 2.96 --------- ------ Outstanding at end of year 1,216,000 $12.36 ========= ====== Options exercisable at December 31, 1998 1,199,333 $12.29 ========= ====== Weighted average fair value per share of options granted during 1998 was $2.14. 1999 -------------------------- Weighted average exercise Shares price --------- -------- Outstanding at beginning of year 1,216,000 $12.29 Granted 1,061,800 1.37 Forfeitures (5,500) 20.19 --------- ------ Outstanding at end of year 2,272,300 $ 7.21 ========= ====== Options exercisable at December 31, 1999 1,834,933 $ 8.46 ========= ====== Weighted average fair value per share of options granted during 1999 was $1.11. F-20
Greenbriar Corporation and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED NOTE K - STOCKHOLDERS' EQUITY - Continued 2000 --------------------------- Weighted average exercise Shares price ---------- -------- Outstanding at beginning of year 2,272,300 $7.21 Granted 200,000 .38 Cancelled, rescinded, and annulled (1,061,800) 3.27 Forfeitures (2,000) 15.75 ---------- ----- Outstanding at end of year 1,408,500 $9.19 ========== ===== Options exercisable at December 31, 2000 1,405,000 $9.16 ========== ===== Weighted average fair value per share of options granted during 2000 was $.30. Additional information about stock options outstanding at December 31, 2000 is summarized as follows: Options outstanding ---------------------------------------------------------------- Weighted average Number remaining Weighted average Range of exercise prices outstanding contractual life exercise price ------------------------ ----------- ------------------ ---------------- $.38 to $.69 400,000 9.5 .53 $2.00 to $3.00 200,000 8.0 2.50 $10.00 to $14.00 358,000 5.6 12.04 $15.00 to $21.00 450,500 6.5 17.58 --------- 1,408,500 ========= Options exercisable --------------------------------------------- Number Weighted average Range of exercise prices exercisable exercise price ------------------------ ----------- ---------------- $.38 to $.69 400,000 .53 $2.00 to $3.00 200,000 2.50 $10.00 to $14.00 358,000 12.04 $15.00 to $21.00 447,000 17.56 --------- 1,405,000 =========
F-20 Greenbriar Corporation and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED NOTE L - OTHER INCOME (EXPENSE) Other income (expenses) consists of the following: (amounts in thousands) Year ended December 31, -------------------------------------- 2000 1999 1998 ------ ------ ------ Gain on sale of investments $ - $2,166 $ - Loss on sale of property - (186) (2,924) Other (220) 198 (85) ------ ------ ------- $ (220) $2,178 $(3,009) ====== ====== ======= In 1998, management decided to reduce the percentage of residents in the Company's communities who were dependent on direct assistance from government agencies for payment of their fees, and to dispose of certain communities that were not profitable. As a result, the Company (1) sold two communities located in North Carolina and Florida to third parties for consideration of $6,175,000, (2) assigned the leases on eleven communities located in North Carolina and Texas to third parties for no consideration, (3) terminated the leases on two properties located in North Carolina, and (4) subleased one property located in Oregon to a third party. The aforementioned sales and disposals resulted in an aggregate loss of $2,924,000. In November of 1999 the Company sold investments in preferred stock which resulted in a gain of $2,166,000. NOTE M - WRITE-OFF OF IMPAIRED ASSETS At June 30, 2000, the Company recorded a write-off of impaired assets and related expenses of $7,461,000. In 1992, the Company sold four nursing homes to Southern Care Corporation (Southern Care), and a subsidiary of the Company entered into a management agreement to manage the nursing homes. In 1994, Southern Care terminated the management agreement and informed the Company that they believed the notes due to the Company from the sale of the nursing homes in 1992 were invalid. The matter has been in the courts since 1995 and legal issues were resolved in June 2000 when Greenbriar was awarded a judgment of $18,688,000 for the notes, interest, amounts due for the management contract and reimbursement of legal fees. The assets had a recorded value of $4,525,000. The Company was informed during 2000 that the financial condition of Southern Care had deteriorated, that it was delinquent on mortgage payments on the homes, and that the first mortgage holder foreclosed on the homes in June 2000. The Company is actively pursuing collection of its judgment from Southern Care as well as from its officers, directors and a third party trustee. However, under the circumstances, the Company is writing off the entire $4,525,000. F-21
Greenbriar Corporation and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED NOTE M - WRITE-OFF OF IMPAIRED ASSETS - Continued The Company decided to dispose of two assisted living communities which are not meeting operating performance expectations. These communities were written down to net realizable value at June 30, 2000. One of these communities was disposed of in the quarter ending September 30, 2000 with no additional write-off required. Also, a third community whose operations have deteriorated was written down based on management's estimate of future cash flows pursuant to the provisions of Statement of Financial Accounting Standards No. 121. In addition, certain receivables associated with these properties were written off. These write-offs substantially account for the remainder of the write-off of impaired assets and related expenses. NOTE N - CONTINGENCIES The Company is defendant in various lawsuits generally 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. See Note K regarding litigation with the holder of the Series F and Series G preferred stock. NOTE O - QUARTERLY DATA (UNAUDITED) Year ended December 31, 2000 ------------------------------------------------------------ First Second Third Fourth Quarter Quarter Quarter Quarter --------- --------- --------- --------- Revenue $10,522 $10,319 $10,263 $10,157 Operating expenses 9,635 16,885 9,409 10,382 Net loss (619) (7,990) (571) (1,443) Preferred stock dividend requirement (1,047) (1,028) (1,028) (1,002) Loss allocable to common shareholders (1,396) (9,018) (1,599) (2,715) Loss per common share - basic and diluted (.19) (1.20) (.21) (.36) Year ended December 31, 1999 ------------------------------------------------------------ First Second Third Fourth Quarter Quarter Quarter Quarter --------- --------- --------- --------- Revenue $10,159 $10,292 $10,421 $10,388 Operating expenses 9,488 9,671 9,709 9,455 Net earnings (loss) (465) (576) (786) 1,909 Preferred stock dividend requirement (1,169) (1,177) (1,189) (1,185) Loss allocable to common shareholders (1,634) (1,753) (1,975) 724 Loss per common share- basic and diluted (.22) (.24) (.27) (.10)
F-22 EX-10.39 2 green10kex1039.txt PORTFOLIO DIVESTITURE AGREEMENT Exhibit 10.39 PORTFOLIO DIVESTITURE AGREEMENT This Portfolio Divestiture Agreement ("Agreement") is made effective as of March 20, 2001 by and among the following: o HARLINGEN RETIREMENT, LC, a limited liability company organized under the laws of the State of Texas ("Harlingen"); and o RESIDENTIAL HEALTHCARE PROPERTIES OF TEXAS, INC., a corporation organized under the laws of the State of Texas ("RHP of Texas"); and o ROSWELL RETIREMENT, LTD. Co., a limited liability company organized under the laws of the State of New Mexico ("Roswell"); and o VILLA RESIDENTIAL CARE HOMES-OAK PARK, L.P., a limited partnership organized under the laws of the State of Texas ("Villa" and with Harlingen, RHP of Texas and Roswell, sometimes referred to herein, individually and collectively, as "Obligor"); and o GREENBRIAR CORPORATION, INC., a corporation organized under the laws of the State of Nevada ("Greenbriar"); and o kellway corporation, a corporation organized under the laws of the State of Texas ("Kellway"); and o RESIDENTIAL HEALTHCARE PROPERTIES, INC., a corporation organized under the laws of the State of Nevada ("RHP"); and o VILLA RESIDENTIAL CARE HOMES, INC., a corporation organized under the laws of the State of Texas ("VRCH"); and o WEDGWOOD RETIREMENT INNS, INC., a corporation organized under the laws of the State of Washington ("Wedgwood" and with Greenbriar, Kellway, RHP and VRCH sometimes referred to herein, individually and collectively, as "Guarantor"), each of the above having its chief executive office at 4265 Kellway Circle, Addison, Texas 75244; and o HEALTH CARE REIT, INC., a corporation organized under the laws of the State of Delaware ("HCN"); and o HCRI Texas Properties, Ltd., a limited partnership organized under the laws of the State of Texas ("HCRI Texas" and, individually and collectively with HCN "HCRI"), each of HCN and HCRI Texas having its chief executive office at One SeaGate, Suite 1500, P.O. Box 1475, Toledo, Ohio 43603-1475. RECITALS A. HCRI and certain of the Obligors entered into a certain Loan Agreement and certain Lease Agreements as identified on Exhibit A hereto ("Financing Agreements"). Under the terms of the Financing Agreements, HCRI granted to Obligor loan or lease financing for the properties (the "Financed Properties") as identified on Exhibit A hereto. For purposes hereof, those Financed Properties that are subject to a Lease Agreement are sometimes referred to herein as "Leased Properties" and the Financed Property that is subject to a Loan Agreement is sometimes referred to herein as "Mortgaged Property". For purposes hereof, "Financing Documents" means, collectively, the "Loan Documents" and "Lease Documents" as defined in the Financing Agreements. B. Each Obligor is currently an Affiliate of Greenbriar. C. Any capitalized term that is not defined herein shall have the meaning set forth in the respective Loan Agreement or Lease Agreement, as applicable. D. Each Guarantor has guaranteed the obligations of each Obligor under each Loan Agreement and Lease Agreement pursuant to one or more Unconditional and Continuing Guaranties (individually and collectively, the "Guaranty"). E. HCRI and Obligor, with the consent of Guarantor, have reached an agreement pursuant to which HCRI agreed to the divestiture by Obligor of the Financed Properties under certain circumstances. F. HCRI and Obligor, with the consent of Guarantor, desire to enter this Agreement in order to implement the divestiture agreement. NOW, THEREFORE, in consideration of the agreements set forth herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged by all parties, and intending to be legally bound, each party agrees as follows: 1. Right to Prepay. Subject to the terms of this Agreement, Obligor may prepay its obligations to HCRI under the Financing Agreements (the "Prepayable Obligations") during the period from the date hereof until and including December 31, 2001 (the "Prepayment Period"). 1.1 General. Subject to the terms hereof, on or before April 30, 2001, Obligor shall on the same day [i] purchase from HCRI The Palm House and Oak Park Retirement Center; and [ii] prepay to HCRI the loan secured by the Mortgaged Property, being all of the Financed Properties in Tranche 1. Subject to the terms hereof, any Obligor may, during the Prepayment Period, on the same day purchase from HCRI both of the Leased Properties (the whole of each Leased Property, but not any part of a Leased Property) in Tranche 2, provided that all of the Financed Properties in Tranche 1 shall be refinanced or prepaid prior to any of the Financed Properties in Tranche 2. Obligor shall make a good faith effort to prepay all of the Prepayable Obligations on or before the end of the Prepayment Period. 1.2 Tranche 1 Extension. In the event all of the Financed Properties in Tranche 1 are not closed by April 30, 2001, Obligor can elect to [i] terminate this Agreement or [ii] pay to HCRI the sum of Fifty Thousand Dollars ($50,000.00) ("Extension Payment") to extend the closing date for the Tranche 1 Financed Properties to May 31, 2001. If Obligor pays to HCRI the Extension Payment to extend the closing date for the Tranche 1 Financed Properties to May 31, 2001, and then does not close all of the Tranche 1 Financed Properties by May 31, 2001, HCRI or Obligor has the right to terminate this Agreement. If this Agreement is so terminated, HCRI shall retain the Extension Payment and the Deposit, as hereinafter defined, as liquidated damages. 1.3 Harlingen Restriction. Obligor acknowledges that Camelot Retirement of Harlingen ("Camelot Retirement") and Greenbriar at Camelot ("Camelot Assisted Living") are integrated facilities. Obligor agrees that one of the conditions to HCRI's consent to refinance Camelot Retirement prior to Camelot Assisted Living is the agreement of Obligor that Obligor shall not sell Camelot Retirement without HCRI's prior written consent until after Obligor has acquired Camelot Assisted Living. HCRI agrees that it's consent shall be dependant upon Obligor [i] demonstrating to HCRI that Camelot Assisted Living can operate independently of Camelot Retirement and [ii] delivering to HCRI a Letter of Credit, which complies with the terms and conditions for Letters of Credit set forth in the Financing Agreements, in the amount equal to fifty percent (50%) of the sale proceeds from the sale of Camelot Retirement. At the time of the prepayment of the loan serviced by the Mortgaged Property, Obligor shall grant HCRI a lien on the Mortgaged Property to secure Obligor's obligations under this ss.1.3, said Deed of Trust to contain terms and conditions mutually agreeable to Obligor and HCRI. 1.4 Conditions Precedent to Right to Prepay. Obligor's right to prepay the Prepayable Obligations is subject to satisfaction of the following conditions on or before the Closing, as hereinafter defined, of any such prepayment. (a) Notice. HCRI must receive from Obligor a written notice of its intent to prepay the Prepayable Obligations at least 15 days prior to the closing date for either Tranche or the expiration of the Prepayment Period. Notwithstanding the foregoing, for a prepayment to occur after December 15, 2001, Obligor may give such notice at any time during December 2001. Obligor shall use its best efforts to maximize the length of any notice given in December 2001. (b) Sequence of Prepayment. The sequence of prepayment is specifically set forth herein. In the event Obligor proposes a different sequence, HCRI shall, within its absolute and sole discretion, determine the sequence of prepayment, based upon its evaluation of the remaining Financed Properties, including debt service coverage and census, but in no event shall the Financed Property identified on Exhibit A as Oak Park Retirement Center be purchased prior to the Obligor having [i] purchased the Financed Property identified on Exhibit A as The Palm House and [ii] prepaid the loan secured by the Mortgaged Property. 1.5 Prepayment Amount. (a) General. The amount of the Prepayable Obligations for each Financed Property (the "Prepayment Amount") shall equal: (i) With respect to each Leased Property, (a) the applicable amount set forth on Exhibit B as of the date specified for each of the Leased Properties ("Base Amount"), plus (b) any Lease Advances made by HCRI after the date hereof, plus (c) accrued and unpaid Rent, plus (d) Termination Fee, as defined in ss.1.5(b), plus (e) HCRI's "out-of-pocket expenses" as defined in ss.1.5(d). (ii) With respect to the Mortgaged Property, (a) the applicable amount set forth on Exhibit B as of the date specified for the Mortgaged Property, plus (b) any Loan Advances made by HCRI after the date hereof, plus (c) accrued and unpaid interest, plus (d) HCRI's "out-of-pocket expenses" as defined in ss.1.5(d), less (e) any previously paid Paydown Amount (as defined in ss.1.5(e) below). (b) Termination Fee. Obligor shall pay a termination fee ("Termination Fee") as set forth below upon the exercise of an option to purchase a Leased Property and prepay the Prepayable Obligation in the following amount: (i) With respect to each Financed Property in Tranche 1, as identified on Exhibit A, an amount equal to one percent (1%) of the Base Amount if the Prepayment Amount is paid on or before March 31, 2001, an amount equal to one and one-half percent (1 1/2%) of the Base Amount if the Prepayment Amount is paid after March 31, 2001 but on or before April 30, 2001, an amount equal to two percent (2%) of the Base Amount if the Prepayment Amount is paid after April 30, 2001 but on or before June 30, 2001, and an amount equal to three percent (3%) of the Base Amount if the Prepayment Amount is paid after June 30, 2001 but on or before December 31, 2001. (ii) With respect to each Financed Property in Tranche 2, as identified on Exhibit A, an amount equal to two percent (2%) of the Base Amount if the Prepayment Amount is paid after January 1, 2001 but on or before June 30, 2001, and an amount equal to three percent (3%) of the Base Amount if the Prepayment Amount is paid after June 30, 2001 but on or before December 31, 2001. (c) Other Closing Expenses. Obligor shall pay all reasonable out-of-pocket costs in connection with this Agreement and the arrangements outlined herein, including but not limited to legal fees and all closing costs (including transfer taxes and conveyance fees) in connection with the refinancing or purchase of the Financed Properties. Without limiting the foregoing, it is agreed that HCRI shall not be responsible for any closing costs and expenses in connection with the prepayment of the applicable Prepayable Obligations or, as applicable, the sale of the applicable Leased Property from HCRI to Obligor or the release of HCRI's security interest in the applicable Mortgaged Property. HCRI shall cooperate with Obligor to minimize Obligor's out-of-pocket costs and expenses. The legal fees of HCRI with respect to this Agreement, but not including any subsequent transactions contemplated herein, shall not exceed Twenty-five Thousand Dollars ($25,000.00). (d) Out-of-Pocket Costs. Without limiting any other provision hereof, for the purposes of this Agreement, HCRI's "out-of-pocket expenses" shall mean HCRI's reasonable attorney fees and any travel expenses reasonably incurred by HCRI in connection with the closing of the purchase or refinancing of any of the Financed Properties. (e) Paydown. Provided HCRI has agreed to the sequence, at the time of the purchase or paydown of any one but not all of the Financed Properties in Tranche 1, Obligor shall in addition to the Prepayment Amount pay an additional amount equal to ten percent (10%) of the then outstanding Lease Amount for all Financed Properties ("Paydown Amount"). The Paydown Amount shall be applied by HCRI to the then outstanding Lease or Loan Amounts in HCRI's sole discretion. (f) Deposit. Obligor has on deposit with HCRI Fifty Thousand Dollars ($50,000.00) ("Deposit"). In addition to the rights set forth in ss.1.2, if Obligor fails to purchase or prepay all of the Financed Properties in each of the Tranches as set forth herein, HCRI shall be entitled to the Deposit. At the time of the sale of the last Financed Property, the Deposit and the Extension Payment shall be applied to the Prepayment Amount. 1.6 Closing. Any prepayment of Prepayable Obligations hereunder by Obligor shall close prior to expiration of the Prepayment Period and on a date agreed to by HCRI and Obligor ("Closing"). At the Closing, Obligor shall pay the Prepayment Amount, and all closing costs in immediately available funds and HCRI shall, as applicable [i] convey title to the applicable Leased Property to Obligor by a transferable and recordable limited or special warranty deed and bill of sale; or [ii] release its security interest in the applicable Mortgaged Property. Obligor acknowledges that the Leased Properties will be acquired "AS IS" without any representations or warranties. Except as otherwise provided herein, the terms and conditions set forth in the Financing Agreements relating to the acquisition of a Leased Property shall be applicable to each acquisition under this Agreement. If there are any discrepancies between the applicable Financing Agreement and this Agreement, the terms and conditions of this Agreement shall prevail. 1.7 Failure to Exercise Right to Prepay. If Obligor for any reason does not exercise its right to prepay the Prepayable Obligations in accordance with the terms and conditions hereof, Obligor shall be deemed to have forfeited all right to make any such prepayment under the terms hereof and Obligor shall pay to HCRI within 10 days following the expiration of the Prepayment Period an amount equal to five percent (5%) of the then outstanding Loan Amount and Lease Amount, unless this Agreement has been terminated by Obligor pursuant to ss.1.2. Obligor acknowledges and agrees that the right to prepay the Prepayable Obligations hereunder automatically expires at the end of the Prepayment Period. 1.8 Financing Agreements. While this Agreement remains in effect, the provisions of this ss.1 supersede and amend all conflicting provisions in the Financing Agreements related to the payoff or purchase of any of the Financed Properties. In the event all of the Financed Properties have not been purchased or refinanced during the Prepayment Period, the provisions of the Financing Agreements related to the payoff or purchase of any Financed Properties shall be reinstated as if they were never superseded or amended by this Agreement. 2. Application of Excess Funding Amounts. Obligor intends to prepay the Prepayable Obligations in conjunction with the sale or refinancing of the Financed Properties. To the extent there are any sale or refinancing proceeds with respect to any Financed Property (net of closing costs) in excess of the Prepayable Obligations with respect to such Financed Property (the "Excess Funds"), Obligor shall, at the Closing, deliver to HCRI a Letter of Credit equal to one-third (1/3) of such Excess Funds ("Excess Funds Letter of Credit"). In the event all of the Financed Properties within a Tranche, as identified on Exhibit A, have been purchased or refinanced during the Prepayment Period, HCRI shall deliver to Obligor the Excess Funds Letter of Credit relating to the Financed Properties in that Tranche. In the event all of the Financed Properties within a Tranche, as identified on Exhibit A, have not been purchased or refinanced during the Prepayment Period, HCRI shall be entitled to draw the full amount under the Excess Funds Letter of Credit relating to the Financed Properties in the Tranche. The Excess Funds Letter of Credit shall comply with the terms and conditions applicable to letters of credit set forth in the Financing Agreements. 3. Letters of Credit. 3.1 Increases upon Certain Prepayments. The amount of each Letter of Credit (as defined in the Financing Agreements) shall be increased or decreased from time to time upon any payment of any Prepayable Obligations so as to equal in the aggregate ten percent (10%) of the then outstanding Loan Amount or Lease Amount, as applicable. Upon the repayment in full of all Prepayable Obligations with respect to any Financing Agreement, the Letter of Credit as defined in such Financing Agreement, shall be released by HCRI. The Letters of Credit equal to the aggregate of ten percent (10%) shall be delivered at the time of Closing of a Financed Property. 4. Monetary Obligations. All monetary obligations of Obligor under this Agreement are deemed to be monetary obligations under the respective Financing Agreement. 5. Reaffirmation. Each Obligor reaffirms the Financing Agreements and all other Financing Documents as amended hereby. Each Guarantor hereby reaffirms its obligations under its respective Guaranty. 6. Events of Default. The failure of any Obligor or any Guarantor to perform any covenant or to conform to any warranty or representation under this Agreement, and such failure continues for more than 10 days after written notice thereof is given to Obligor by HCRI, or the occurrence of an "Event of Default" (after taking into account any applicable notice or cure periods) as defined in any of the Financing Documents or any Guaranty (as any of the same may be modified by this Agreement), will constitute an immediate event of default under this Agreement and each Financing Agreement ("Event of Default"). The occurrence of any Event of Default (after taking into account applicable notice or cure periods as provided for above) shall constitute an immediate default and any additional applicable notice, grace or cure period provided in the respective Financing Document or Guaranty is hereby waived by Obligor and each Guarantor. 7. Cumulative Rights and Remedies. Upon the occurrence of any Event of Default as defined herein and at any time thereafter until HCRI waives the default in writing or acknowledges cure of the default in writing, at HCRI's option, without declaration, notice of dishonor, protest, noting for protest, or any other notice, or demand of any kind (all of which Obligor hereby waives), HCRI may exercise any and all rights and remedies provided in any Financing Agreement, any Financing Document or any Guaranty. 8. Construction of Rights and Remedies. This Section applies to all rights and remedies of HCRI under this Agreement, any Financing Agreement, any Financing Document or Guaranty or arising at law or in equity. 8.1 Cumulative. All rights and remedies are cumulative to each other. 8.2 Consent to Remedies. Each Obligor and each Guarantor consent to all rights and remedies of HCRI. 8.3 No Waivers. No waiver of any of HCRI's rights and remedies under this Agreement, any Financing Document or any Guaranty shall be effective against HCRI unless the waiver is in writing and signed by HCRI. No delay or omission by HCRI in exercising any right or remedy shall operate as a waiver of the right or remedy or any other right or remedy. A waiver on any one occasion shall not be construed as a bar to or a waiver of any right or remedy on any other occasion. Each right and remedy of HCRI may be exercised individually or concurrently with others and as often and in such order as HCRI may choose. 8.4 No Obligation to Exercise Remedies. HCRI is not required to commence any action or proceeding or to pursue any remedy against any Obligor, Guarantor or any successor in interest. 8.5 No Marshaling. HCRI may proceed, at its election, against all security for the Prepayable Obligations or against any item or items of such security from time to time, and no action against any item or items of security shall bar subsequent actions against any item or items of security. 9. Release of HCRI. As additional consideration for HCRI's entering into this Agreement, each Obligor and Guarantor jointly and severally releases and forever discharges HCRI and any of HCRI's officers, directors, agents, employees, accountants, attorneys and representatives, as well as the respective heirs, personal representatives, successors, and assigns of any or all of them (collectively called the "HCRI Group") from any and all claims, demands, debts, actions, causes of action, suits, contracts, agreements, obligations, accounts, defenses, offsets and liabilities of any kind or character whatsoever, known or unknown, suspected or unsuspected, in contract or in tort, at law or in equity, including without limitation, such claims and defenses as fraud, mistake, duress, and usury, any Obligor or Guarantor ever had, now have, or might hereafter have (to the extent relating to periods prior to the date hereof) against the HCRI Group, jointly or severally, for or by reason of any matter, cause or thing whatsoever which relates to or arises from, in whole or in part, directly or indirectly, [i] the Prepayable Obligations; [ii] any Financing Agreement; [iii] any Guaranty; and [iv] any other agreement, document or instrument relating to or securing any of the foregoing. Each Obligor and Guarantor agrees that none of them shall commence, join, prosecute, or participate in any suit or other proceeding in a position that is adverse to the HCRI Group arising directly or indirectly from any of the foregoing matters. The provisions of this paragraph shall survive the termination of this Agreement. 10. Voluntary Agreement. Each Obligor and Guarantor represents and warrants that [i] each is represented by legal counsel (or has knowingly declined legal counsel) in regard to the transactions provided for by this Agreement and that such counsel has explained to each of them the significance of the terms, and the meaning and effect of this Agreement and all other related documents; [ii] each is fully aware and clearly understands all of the terms and provisions contained in this Agreement and in all other related documents; [iii] each has voluntarily, with full knowledge and without coercion or duress of any kind entered into this Agreement and the documents executed in connection with this Agreement; [iv] each is not relying on any representations either written or oral, express or implied, made to any of them by HCRI other than as set forth in this Agreement; [v] this Agreement essentially reflects a proposal each Obligor made to HCRI on its own initiative; and [vi] the consideration received by each Obligor and Guarantor to enter into this Agreement and the arrangement contemplated by this Agreement has been actual and sufficient. 11. Bankruptcy Proceedings. If any Obligor files a petition in bankruptcy or is the subject of any petition under Title 11 of the U.S. Code as amended, such Obligor shall assume or reject its respective Financing Agreement(s) within 60 days of the petition date. 12. Waivers. Obligor waives [i] any notice required by statute or other law as a condition to bringing an action for possession of, or eviction from, any of the Financed Property; [ii] any right of re-entry or repossession with respect to the Financed Property; [iii] any right to a trial by jury in any action or proceeding arising out of or relating to this Agreement, any Financing Agreement, any Financing Document or any Guaranty; [iv] any objections, defenses, claims or rights with respect to the exercise by HCRI of any rights or remedies under this Agreement, any Financing Agreement, any Financing Document or any Guaranty; [v] all presentments, demands for performance, notices of nonperformance, protest, notices of protest, notices of dishonor and any other notice or demand of any kind arising under or relating to this Agreement, any Financing Agreement, any Financing Document or any Guaranty; and [vi] all notices of the existence, creation or incurring of any obligation or advance under this Agreement, any Financing Agreement, any Financing Document or any Guaranty before or after this date. 13. Miscellaneous. 13.1 Performance Obligations. Each Obligor and Guarantor shall perform their respective obligations and conform to all representations and warranties under the Financing Agreements, the Financing Documents, the Guaranties and this Agreement (collectively, the "Obligations"). 13.2 Term of Agreement. Unless otherwise terminated by a writing signed by all parties, this Agreement shall continue in full force and effect until the Obligations have been paid or satisfied in full. 13.3 Governing Law. The laws of the State of Ohio shall govern the construction of this Agreement and the rights and duties of the parties hereunder. If any provision of this Agreement, or the application thereof to anyone or any circumstances, shall be adjudged invalid or unenforceable to any extent, the application of the remainder of the provisions of this Agreement shall not be affected thereby. Each provision of this Agreement shall be valid and enforceable to the fullest extent permitted by law. 13.4 Time is of the Essence. Time is of the essence in the performance of this Agreement. 13.5 Amendment. This Agreement may be amended only by a writing signed by all parties. 13.6 Waivers Concerning Obligor and Guarantors. None of the following will be a course of dealing, estoppel, waiver, or implied amendment on which any party to this Agreement, a Financing Agreement, Guaranty or any Financing Document may rely: [i] HCRI's acceptance of one or more late payments or partial performance of this Agreement, a Financing Agreement, Guaranty or any Financing Document; [ii] HCRI's current forbearance from exercising any right or remedy under this Agreement, a Financing Agreement, Guaranty or any Financing Document; or [iii] HCRI's forbearance from exercising any right or remedy under this Agreement, a Financing Agreement, Guaranty or any Financing Document on any one or more occasions. Obligor and Guarantors [i] warrant that each has received good and valuable consideration for executing this Agreement; and [ii] warrant that none has executed this Agreement in reliance upon the existence of the security for or guaranty or promise of the performance of this Agreement or any financial information or valuation information supplied by HCRI. No obligations of any party to this Agreement shall be affected by [i] any default in any Financing Agreement, Financing Document or Guaranty; [ii] the unenforceability of or defect in any Financing Agreement, Financing Document or Guaranty; [iii] any decline in the value of any interest in any property which is the subject of this Agreement or any Financing Agreement, Financing Document or Guaranty; or [iv] the death, incompetence, insolvency, dissolution, liquidation or winding up of affairs of any party to this Agreement or any Financing Agreement, Financing Document or Guaranty or the start of insolvency proceedings by or against any such party. Each party to this Agreement, each Financing Agreement, each Financing Document, and each Guaranty waives all suretyship and other similar defenses. Obligor and Guarantors waive all rights of subrogation arising out of this Agreement or any Financing Agreement, Financing Document or Guaranty, and no other party to any Financing Agreement or Financing Document may enforce any right of subrogation or contribution unless and until all obligations of Obligor to HCRI are paid in full. Obligor and Guarantor [i] waive notice of all advances against the loans and leases made subject to the Financing Agreements before this date; and [ii] waive protest and all other notices relating to any default in any Financing Agreement or Financing Document. [THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK] IN WITNESS WHEREOF, the parties hereto have executed or caused this Agreement to be executed as of the date set forth at the beginning. Signed and acknowledged in the presence of: HARLINGEN RETIREMENT, LC By: Wedgwood Retirement Inns, Inc. Managing Member Signature /s/ Teresa Priest By: /s/ Gene S. Bertcher -------------------------- -------------------------------- Print Name Teresa Priest ------------------------ Title: President ------------------------ Signature /s/ Lauren Dunn -------------------------- Print Name Lauren Dunn ------------------------- RESIDENTIAL HEALTHCARE PROPERTIES OF TEXAS, INC. Signature /s/ Teresa Priest By: /s/ Gene S. Bertcher -------------------------- -------------------------------- Print Name Teresa Priest ------------------------ Title: President ------------------------ Signature /s/ Lauren Dunn -------------------------- Print Name Lauren Dunn ------------------------- ROSWELL RETIREMENT, LTD. CO. By: Wedgwood Retirement Inns, Inc. Managing Member Signature /s/ Teresa Priest By: /s/ Gene S. Bertcher -------------------------- -------------------------------- Print Name Teresa Priest ------------------------ Title: President ------------------------ Signature /s/ Lauren Dunn -------------------------- Print Name Lauren Dunn ------------------------- VILLA RESIDENTIAL CARE HOMES-OAK PARK, L.P. By: Kellway Corporation Managing General Partner Signature /s/ Teresa Priest By: /s/ Gene S. Bertcher -------------------------- -------------------------------- Print Name Teresa Priest ------------------------ Title: President ------------------------ Signature /s/ Lauren Dunn -------------------------- Print Name Lauren Dunn ------------------------- HEALTH CARE REIT, INC. Signature /s/ Rita J. Rogge By: /s/ George Chapman -------------------------- -------------------------------- Print Name Rita J. Rogge ------------------------- Title: Chairman, CEO & President -------------------------- Signature /s/ Kathleen A. Sullivan -------------------------- Print Name Kathleen A. Sullivan ------------------------- HCRI TEXAS PROPERTIES, LTD. By: Health Care REIT, Inc. General Partner Signature /s/ Rita J. Rogge By: /s/ George Chapman -------------------------- -------------------------------- Print Name Rita J. Rogge ------------------------- Title: Chairman, CEO & President ------------------------- Signature /s/ Kathleen A. Sullivan -------------------------- Print Name Kathleen A. Sullivan ------------------------- ACKNOWLEDGMENT OF GUARANTORS The undersigned Guarantors hereby [i] consent to the foregoing Portfolio Divestiture Agreement and Amendment of Lease and Loan Documents ("Agreement"); [ii] agree to be bound by the terms and provisions of the Agreement to the extent applicable to Guarantor; [iii] affirm each Guaranty of each Guarantor in favor of HCRI which shall remain in full force and effect; and [iv] waive any suretyship defenses arising in connection with the Agreement, effective as of the date first set forth above. GREENBRIAR CORPORATION, INC. By: /s/Gene S. Bertcher ------------------------------------ Title: Executive Vice President ---------------------------- KELLWAY CORPORATION By: /s/Gene S. Bertcher ------------------------------------ Title: President ---------------------------- RESIDENTIAL HEALTHCARE PROPERTIES, INC. By: /s/Gene S. Bertcher ------------------------------------ Title: President ---------------------------- VILLA RESIDENTIAL CARE HOMES, INC. By: /s/Gene S. Bertcher ------------------------------------ Title: President ---------------------------- WEDGWOOD RETIREMENT INNS, INC. By: /s/Gene S. Bertcher ------------------------------------ Title: President ----------------------------
EXHIBIT A DESCRIPTION OF FINANCING AGREEMENTS AND FINANCED PROPERTIES - --------------------------------------------------------------------------------------------------------- TRANCHE 1 - --------------------------------------------------------------------------------------------------------- LANDLORD TENANT/MORTGAGOR TRANSACTION TYPE FINANCED PROPERTY - --------------------------- ---------------------------- ---------------- ------------------------------- HCRI Texas Properties, Ltd. Residential Healthcare Lease The Palm House Properties of Texas, Inc. 3501 Renzel Blvd. Fort Worth, TX County: Tarrant - --------------------------- ---------------------------- ---------------- ------------------------------- HCRI Texas Properties, Ltd. Harlingen Retirement, LC Loan Camelot Retirement of Harlingen 1000 Camelot Dr. Harlingen, TX County: Cameron - --------------------------- ---------------------------- ---------------- ------------------------------- HCRI Texas Properties, Ltd. Villa Residential Care Lease Oak Park Retirement Center Homes-Oak Park, L.P. 4242 Bryant Irvin Rd. Benbrook, TX County: Tarrant - --------------------------- ---------------------------- ---------------- ------------------------------- TRANCHE 2 - --------------------------------------------------------------------------------------------------------- LANDLORD TENANT/MORTGAGOR TRANSACTION TYPE FINANCED PROPERTY - --------------------------- ---------------------------- ---------------- ------------------------------- Health Care REIT, Inc. Roswell Retirement, Ltd. Co. Lease La Villa 2725 N. Pennsylvania Ave. Roswell, NM County: Chaves - --------------------------- ---------------------------- ---------------- ------------------------------- HCRI Texas Properties, Ltd. Harlingen Retirement, LC Lease Greenbriar at Camelot 900 Camelot Dr. Harlingen, TX County: Cameron - ---------------------------------------------------------------------------------------------------------
EXHIBIT B BASE AMOUNTS - -------------------------------------------------------------------------------- FACILITY 1ST QUARTER 2ND QUARTER 3RD QUARTER 4TH QUARTER 2001 2001 2001 2001 - ------------------------------- ----------- ------------ ----------- ----------- Oak Park Retirement Center 8,035,032 7,988,808 7,942,582 7,896,357 - ------------------------------- ----------- ------------ ----------- ----------- La Villa 5,306,651 5,278,254 5,249,858 5,221,461 - ------------------------------- ----------- ------------ ----------- ----------- The Palm House 4,045,770 4,017,321 3,988,872 3,960,423 - ------------------------------- ----------- ------------ ----------- ----------- Camelot Retirement of Harlingen 4,402,429 4,390,679 4,378,592 4,366,157 - ------------------------------- ----------- ------------ ----------- ----------- Greenbriar at Camelot 5,728,024 5,700,608 5,673,193 5,645,777 - -------------------------------------------------------------------------------- (g) EX-21.1 3 green10kex211.txt SUBSIDIARIES OF REGISTRANT Exhibit 21.1 Greenbriar Corporation Subsidiaries American Care Communities, Inc. Wedgwood Retirement Inns, Inc. American Care Communities of Sanford, Inc. Wedgwood Terrace, Inc. American Country Time, Inc. Windsor House Florence, Inc. Berne Village, Inc. Windsor House Greenville, LLC Berne Village Retirement, Inc. Windsor House West, Inc. CareAmerica, Inc. Crown Pointe, Inc. Crown Pointe Development-Corona, LP Graybrier, Inc. Greenbriar Financial Corporation Greenbriar Management, Inc. Greenbriar Payroll Company Harlingen Retirement LC Hermiston Assisted Living, Inc. Kellway Corporation King City Retirement Corporation Lewiston Group LLC Liberty Acquired Brain Injury Habilitation Services, Inc. MRC Assisted Living, Inc. Neawanna By The Sea Limited Partnership Oak Harbor Retirement Center, Inc. Oak Harbor Retirement Center Partners, LP Paradise-Greenbriar, Inc. Residential Healthcare Properties, Inc. Residential Healthcare Properties of Texas, Inc. Retirement Housing Associates, LP Rose Garden Estates, Inc. Rose Garden Estates, LLC Rose Tara Plantation, Inc. Rose Terrace of Wendell, Inc. Roswell Retirement, LP Roswell Senior Apartments, Ltd. Co. Senior Living Management, Inc. SLM-Oak Park, Inc. Sweetwater Springs Group, LLC The Briarcliff at Texarkana, Inc. The Denison-Greenbriar, Inc. The Greenbriar at Muskogee, Inc. The Greenbriar at Sherman, Inc. The Terrace Retirement, Inc. Transferco, Inc. Villa Del Rey-Roswell, LP Villa Del Rey-Seaside, Inc. Villa Residential Care Homes-Arlington LP Villa Residential Care Homes-Corpus Christi South LP Villa Residential Care Homes-Ft. Worth East, LP Villa Residential Care Homes-Granbury, LP Villa Residential Care Homes-Oak Park, LP VLS & Associates, Inc. EX-23.1 4 green10ksbex231.txt CONSENT OF GRANT THORNTON Exhibit 23.1 Consent of Independent Certified Public Accountants We have issued our report dated March 29, 2001, except for Note K as to which the date is April 5, 2001, accompanying the consolidated financial statements included in the Annual Report of Greenbriar Corporation, Inc. on Form 10-K for the year ended December 31, 2000. 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 on Form S-8 (File No. 33-65856, 33-33985 and 33-64840). GRANT THORNTON, LLP Dallas, Texas March 29, 2001 -----END PRIVACY-ENHANCED MESSAGE-----