SECURITIES AND EXCHANGE COMMISSION

                              Washington, DC 20549
                             ----------------------




                                    FORM 8-K


                                 CURRENT REPORT



     Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

       Date of Report (date of earliest event reported): December 31, 1997


                             GREENBRIAR CORPORATION

             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)




        NEVADA                         0-8187                   75-2399477
    -------------                   ------------             ------------------
(State or other jurisdiction        (Commission              (IRS Employer
 of incorporation)                   File Number)            Identification No.)






                    4265 Kellway Circle, Addison, Texas 75244

               (Address of principal executive offices) (Zip Code)



Registrant's telephone number, including area code:  (972) 407-8400















Item 1.           Changes in Control of Registrant.

                           Not Applicable


Item 2.           Acquisition or Disposition of Assets.

Acquisition of Villa Residential Care Homes, Inc. and related partnerships

     On December 31, 1997, the Company  acquired Villa  Residential  Care Homes,
Inc. ("Villa"),  a private company, by acquiring all of the outstanding stock of
Villa. At the same time four partnerships  owned  substantially by the owners of
Villa were reorganized into umbrella  partnerships and a wholly owned subsidiary
of the Registrant was admitted to those  partnerships  both as a Class B limited
partner  owning  100% of the Class B limited  partnership  interests  and as the
managing  general  partner  owning  in the  aggregate  80%  of  the  partnership
interests.  Through its subsidiary,  the Registrant is entitled to a substantial
preferred  return on its  investment  in the  umbrella  partnerships.  Two other
partnerships were terminated and the Registrant, through a subsidiary,  acquired
the partnership assets.  Finally, a subsidiary of the Registrant was admitted as
a limited partner in another partnership controlled by Villa's prior owners, and
now  owns  49%  of the  partnership  interests.  Villa  will  manage  all of the
properties.

     Villa and the related  partnerships,  headquartered in Dallas, Texas, lease
and operate a total of 12 assisted  living  communities in Texas with a capacity
for 955  residents.  The twelve  communities  are located in  Harlingen,  Tyler,
Arlington, Benbrook, Granbury, Wollforth, Corpus Christi (2), Fort Worth (2) and
Mt. Pleasant (2).

     The   consideration  for  the  Villa  acquisition  was  184,476  shares  of
registered Greenbriar common stock and 10,464,321 operating partnership units in
the  umbrella  partnerships  convertible  after a one year  holding  period into
536,990  shares of  common  stock  subject  to future  registration  rights.  An
additional  85,984  shares of registered  common stock and  1,568,904  operating
partnership  units  convertible  into 80,510  shares of common stock  subject to
future  registration  rights may be issued  within two years based on certain of
the communities meeting performance requirements. The total number of Greenbriar
common shares to be issued in the transaction  will therefore be between 721,466
and  887,960.  Such  consideration  was  determined  by means  of  arms'  length
negotiations  among the parties.  Umbrella  partnerships  are often used in real
estate acquisitions due to their tax advantages to the sellers.




Item 3.           Bankruptcy or Receivership.

                           Not Applicable


Item 4.           Changes in Registrant's Certifying Accountant.

                           Not Applicable










Item 5.           Other Events.

                          Not Applicable


Item 6.           Resignations of Registrant's Directors.

                          Not Applicable


Item 7.           Financial Statements and Exhibits.


                  (a)      The financial  statement  information  required to be
                           filed with respect to this  acquisition will be filed
                           by amendment.

                  (b)      The  pro  forma   financial   statement   information
                           required to be filed with respect to this acquisition
                           will be filed by amendment.

                  (c)      Exhibits

                         (2.1.1) - Stock Purchase Agreement
                         (2.1.2) - Exchange Agreement-Villa Residential
                             Care Homes-Corpus Christi South, L.P.
                         (2.1.3) - Exchange Agreement-Villa Residential 
                                   Care Homes-Granbury, L.P.
                         (2.1.4) - Exchange Agreement-Villa Residential 
                                   Care Homes-Oak Park, L.P.
                         (2.1.5) - Exchange Agreement-Villa Residential 
                                   Care Homes-Fort Worth East, L.P.
                         (2.1.6) - Agreement and Assignment of Partnership
                             Interests


Item 8.           Change in Fiscal Year.

                             Not Applicable



















                                   SIGNATURES



     Pursuant to the  requirement  of the  Securities  Exchange Act of 1934, the
registrant  has duly  caused  this  report  to be  signed  on its  behalf by the
undersigned hereunto duly authorized.


                                              GREENBRIAR CORPORATION


Dated:   January 13, 1998                     By:    /s/ Gene Bertcher
                                                     ------------------------
                                              Name:  Gene Bertcher

                                              Title: Chief Financial Officer









EXHIBIT 2.1.1

                            STOCK PURCHASE AGREEMENT

     THIS STOCK PURCHASE  AGREEMENT  (this  "Agreement"),  is entered into as of
December  ___,  1997  between  Villa  Residential  Care  Homes,  Inc.,  a  Texas
corporation (the "Company"),  William A. Shirley, Jr. (the  "Shareholder"),  who
owns  100% of the  issued  and  outstanding  common  stock of the  Company,  and
Greenbriar Corporation, a Nevada corporation ("Purchaser").

                                   ARTICLE I.
                                  THE EXCHANGE

     SECTION  1.1 The  Exchange.  Upon the terms and  subject to the  conditions
hereof,  the Shareholder  will exchange all of his shares of common stock of the
Company (the  "Shares")  for a certain  number of shares of  Purchaser's  common
stock so that  Purchaser will own 100% of the issued and  outstanding  equity of
the  Company  and the  Shareholder  will  own  shares  of  Purchaser  as soon as
practicable  following  the  satisfaction  or  waiver,  if  permissible,  of the
conditions set forth in Article VI hereof.  Purchaser and the Shareholder intend
that this Agreement and the  transactions  provided for herein shall  constitute
and  qualify  as a plan of  reorganization  within  the  provisions  of  Section
368(a)(1)(B) of the Internal Revenue Code, as amended (the "Code").

     SECTION  1.2  Closing.  The  closing of the  transaction  set forth in this
Agreement (the  "Closing")  will take place,  upon and subject to the conditions
hereof, as soon as practicable after the mutual agreement of the Shareholder and
the  Purchaser  that all  conditions  described  in  Article  VI below have been
satisfied or waived by the applicable  party,  but not later than three (3) days
following the written indication by Health Care REIT, Inc. of its willingness to
close the purchase,  from the Company,  of the properties listed on the attached
Exhibit A (the  "Properties")  (the "Property Sale") and to lease the Properties
to  Residential  Healthcare  Properties,  Inc.  (the date of such Closing  being
referred  to  herein as the  "Closing  Date").  The  Property  Sale  will  occur
simultaneously  with the  Closing.  The  Closing  will be held at the offices of
Andrews & Kurth L.L.P.,  in Dallas Texas,  at a mutually  agreeable  time on the
Closing Date, for the purpose of implementing all transactions described in this
Agreement.

     SECTION 1.3 Consideration.

     (a) The purchase price (the "Purchase  Price") for the Shares shall consist
of 166,516 shares of newly issued,  fully paid, and non-assessable  common stock
of the  Purchaser,  par value $0.01 per share,  ("Purchaser  Common  Stock") and
$4.71,  in lieu of  fractional  shares  based  on the  current  market  price of
Purchaser  Common Stock.  All shares of Purchaser  Common Stock  included in the
Purchase  Price shall be  registered  shares of the Purchaser and shall bear the
customary Rule 145 legend.  The Purchaser  Common Stock included in the Purchase
Price will be requested from  Purchaser's  transfer agent at Closing and will be
issued immediately upon consummation of the Closing. The Purchaser hereby agrees
to amend or supplement the current Form S-4 Registration  Statement  (Commission
File No.  333-28525),  if and to the extent necessary to comply with federal and
state  securities laws, to permit the Shareholder to resell the Purchaser Common
Stock.

     (b) In addition, 39,633 shares of Purchaser Common Stock will be held by an
escrow  agent  designated  by  the  Shareholder  and  reasonably  acceptable  to




   
Purchaser (the "Escrow  Agent"),  in escrow,  (the  "Harlingen Earn Out Bonus").
During the period  commencing  on December ___, 1997 and ending on December ___,
1998 (the "Earn Out  Period"),  the Escrow  Agent shall  release  the  Purchaser
Common  Stock  held as the  Harlingen  Earn  Out  Bonus to the  Shareholder,  in
accordance with an escrow agreement (the "Escrow Agreement") entered into by and
between  the Escrow  Agent,  the  Shareholder  and the  Purchaser,  based on the
occupancy of the property  described in Exhibit A as the Harlingen Property (the
"Harlingen Property"). Each calendar month during the Earn Out Period in which:

          (i) the average occupancy rate of the Harlingen Property, expressed as
     a percent (the "Harlingen Average Occupancy"), during such month, exceeds

          (ii)  the  greater  of (A) 83% or (B) the  highest  Harlingen  Average
     Occupancy for any preceding  calendar month subsequent to the Closing Date,
     up to 95% (each such month, a "Harlingen Earn Out Month"),

the Shareholder shall be entitled to receive a portion of the Harlingen Earn Out
Bonus.  The Escrow Agreement shall provide that, in each such Harlingen Earn Out
Month, the Escrow Agent shall release  Purchaser Common Stock to the Shareholder
within 25 days  after the end of such  calendar  month.  The number of shares of
Purchaser  Common Stock to be released to the  Shareholder  with respect to each
Harlingen Earn Out Month shall be calculated as the lesser of:

          (i) the number of shares of  Purchaser  Common  Stock  included in the
     Harlingen Earn Out Bonus not previously released to the Shareholder, or

          (ii) (A) the  Harlingen  Average  Occupancy  for such  month  less the
     highest  Harlingen  Average  Occupancy  for any  preceding  calendar  month
     subsequent to the Closing Date,  divided by (B) 12%,  multiplied by (C) the
     number of shares of Purchaser  Common Stock  included in the Harlingen Earn
     Out Bonus.

The Harlingen Average  Occupancy shall be calculated using Purchaser's  standard
daily occupancy  report,  shall only count occupants paying rent for such period
and shall be rounded down to the nearest percent.

     (c) In addition,  46,351  shares of Purchaser  Common Stock will be held by
the Escrow Agent, in escrow,  (the "Wolfforth Earn Out Bonus").  During the Earn
Out Period,  the Escrow Agent shall release the  Purchaser  Common Stock held as
the Wolfforth Earn Out Bonus to the  Shareholder,  in accordance with the Escrow
Agreement,  based on the occupancy of the property described in Exhibit A as the
Wolfforth  Property (the "Wolfforth  Property").  Each calendar month during the
Earn Out Period in which:

                  (i) the  average  occupancy  rate of the  Wolfforth  Property,
         expressed as a percent (the "Wolfforth Average Occupancy"), during such
         month, exceeds

                  (ii)  the  greater  of (A)  81% or (B) the  highest  Wolfforth
         Average  Occupancy for any preceding  calendar month  subsequent to the
         Closing  Date,  up to 95%  (each  such  month,  a  "Wolfforth  Earn Out
         Month"),


                                        2




the Shareholder shall be entitled to receive a portion of the Wolfforth Earn Out
Bonus.  The Escrow Agreement shall provide that, in each such Wolfforth Earn Out
Month, the Escrow Agent shall release  Purchaser Common Stock to the Shareholder
within 25 days  after the end of such  calendar  month.  The number of shares of
Purchaser  Common Stock to be released to the  Shareholder  with respect to each
Wolfforth Earn Out Month shall be calculated as the lesser of:

          (i) the number of shares of  Purchaser  Common  Stock  included in the
     Wolfforth Earn Out Bonus not previously released to the Shareholder, or

          (ii) (A) the  Wolfforth  Average  Occupancy  for such  month  less the
     highest  Wolfforth  Average  Occupancy  for any  preceding  calendar  month
     subsequent to the Closing Date,  divided by (B) 14%,  multiplied by (C) the
     number of shares of Purchaser  Common Stock  included in the Wolfforth Earn
     Out Bonus.

The Wolfforth Average  Occupancy shall be calculated using Purchaser's  standard
daily occupancy  report,  shall only count occupants paying rent for such period
and shall be rounded down to the nearest percent.

     (d) Any  dividends or  distributions  (of whatever form or type) payable on
the Purchaser  Common Stock being held in escrow as contemplated in this Section
1.3, shall be held for the benefit of the  Shareholder,  such that to the extent
that  Purchaser  Common  Stock  becomes  releasable  to  the  Shareholder,   the
Shareholder  shall receive any of such  dividends or  distributions  at the time
that they receive the Purchaser Common Stock.

                                   ARTICLE II.
                            PURCHASE PRICE ADJUSTMENT

     SECTION 2.1 Closing  Balance Sheet.  As soon as  practicable  following the
Closing,  and effective as of the day of the Closing,  the  Shareholder  and the
Purchaser  shall prepare a closing  sheet of the Company (the  "Closing  Balance
Sheet").  The Closing  Balance  Sheet shall  contain a listing of the  Company's
current  assets and current  liabilities,  both  determined in  accordance  with
generally  accepted  accounting  principles  and the  Company's  past  valuation
practices  for such items,  including  a  reasonable  reserve for  uncollectible
accounts  receivable.  In the event of any disagreement  between the Shareholder
and the Company over the valuation of any item on the Closing Balance Sheet, the
Purchaser,  at its sole  expense,  shall  appoint  Grant  Thornton  LLP  ("Grant
Thornton")  to  calculate  the  disputed  item.  Following  completion  of Grant
Thornton's  procedures  and receipt by the Purchaser and the  Shareholder of the
recommendation  of Grant  Thornton as to how to resolve the disputed  item,  the
Shareholder may, in its sole discretion,  appoint an accounting firm selected by
the Shareholder (the "Shareholder's Accountant") to calculate the disputed item.
Following completion of the procedures of the Shareholder's  Accountant,  if the
recommendation  of such  accounting  firmdiffers  materially  from that of Grant
Thornton  or is  not  acceptable  to  the  Purchaser,  Grant  Thornton  and  the
Shareholder's  Accountant  shall  together  select  a third  accounting  firm to
resolve the disputed item, and such third  accounting  firm's  decision shall be
final and binding. If Grant Thornton and the Shareholder's Accountant are unable
to agree on the appointment of a third  accounting  firm, such third  accounting
firm shall be appointed by an arbitrator by the American Arbitration Association
and such accounting firm's decision shall be final and binding.


                                        3




     SECTION  2.2  Adjustment.  To the extent  the  current  liabilities  of the
Company exceed the current assets on the Closing Balance Sheet,  the Shareholder
shall  pay such  difference  to the  Purchaser  in cash  within  ten days  after
delivery of the  Closing  Balance  Sheet.  To the extent  current  assets of the
Company  exceed the  current  liabilities  on the  Closing  Balance  Sheet,  the
Purchaser  4 shall  pay  such  difference  to the  Shareholder  in  cash  and/or
additional Purchaser Common Stock (at an agreed upon value of $19.487 per share)
within ten days after delivery of the report of the Closing Balance Sheet.

     SECTION 2.3 Post-Closing  Refunds of Tenant  Deposits.  During the one year
period  commencing on the Closing Date and ending on the one year anniversary of
the Closing Date, the Shareholder  shall be obligated to pay to the Purchaser in
cash the amount of any tenant  deposits  with respect to any of the  Properties,
net  of any  non-refundable  portion  of  such  tenant  deposits,  provided  the
reimbursement  of such  deposits  shall  only be due from the  Shareholder  with
respect to persons  that are  tenants  on,  and have paid such  deposits  to the
Company on or before,  the Closing Date and cease to be a tenant during such one
year period. Any such refund must be properly documented by the Company, and the
Purchaser or the Company  shall have provided the  Shareholder  with such proper
documentation.  The  Purchaser  shall not request  any payment  pursuant to this
Section 2.3 more often than once each calendar month, and the Shareholder  shall
have ten days from the date of receipt of the proper documentation to pay to the
Purchaser any amounts then due.  Notwithstanding  the  foregoing,  if any of the
Properties  are  sold or the  Purchaser  or  Company  is  sold,  or any  similar
transaction occurs during the one year period commencing on the Closing Date and
ending on the one year  anniversary  of the Closing  Date and the other party in
such  transaction  requires  the  Company to credit to them at closing  the full
amount of the tenant  deposits then validly due and  outstanding  to third party
tenants pursuant to arm's length  transactions (such amount being referred to as
the "Subsequent Sale Credit"),  the Shareholder  shall be obligated to reimburse
the Purchaser that portion of the Subsequent  Sale Credit that relates to tenant
deposits,  net of any  non-refundable  portion  of such  tenant  deposits,  with
respect to persons  that are  tenants  on,  and have paid such  deposits  to the
Company as of, the Closing Date.


                                  ARTICLE III.
                         REPRESENTATIONS AND WARRANTIES
                         OF THE COMPANY AND SHAREHOLDER

     The Company and the Shareholder,  severally but not jointly,  represent and
warrant to the Purchaser as follows:

     SECTION 3.1  Organization and  Qualification.  The Company is a corporation
duly  organized,  validly  existing and in good  standing  under the laws of the
State of Texas.  The Company has all requisite  corporate power and authority to
own or operate  its  properties  and  conduct  its  business  as it is now being
conducted.  The  Company is duly  qualified  and in good  standing  as a foreign
corporation or entity  authorized to do business in each of the jurisdictions in
which the  character  of the  properties  owned or held under lease by it or the
nature of the  business  transacted  by it makes such  qualification  necessary,
except where the failure to be so qualified and in good standing  would not have
a Material  Adverse  Effect.  The Company has  delivered to  Purchaser  true and
correct copies of the Articles of Incorporation and Bylaws of the Company.



                                        4



        
     SECTION 3.2  Capitalization.  The  authorized  capital stock of the Company
consists  of (a)  500,000  shares of  common  stock,  par value  $1.00 per share
("Company Common Stock"),  of which 4,500 shares were outstanding as of the date
hereof  and (b)  100,000  shares of  preferred  stock,  of which no shares  were
outstanding as of the date hereof. Except as described in the Company Disclosure
Schedule,  since  December  31,  1996,  the Company has not issued any shares or
other capital stock,  and has not  repurchased or redeemed any shares of Company
Common  Stock.  All issued and  outstanding  shares of Company  Common Stock are
validly issued,  fully paid,  non-assessable  and free of preemptive rights. The
Shareholder owns 100% of the issued and outstanding common stock of the Company.
Except as described in the Company Disclosure Schedule, there are no outstanding
subscriptions,  options, convertible securities,  warrants or claims of any kind
issued or  granted by or binding  on the  Company  to issue any  security  of or
equity  interest  in the  Company.  The  Company  does not own 5% or more of the
equity (or securities convertible into 5% or more of the equity) in any company.

     SECTION  3.3  Authority  Relative  to this  Agreement.  The Company has all
requisite  corporate  power and authority to execute and deliver this  Agreement
and to  consummate  the  transactions  contemplated  hereby.  The  execution and
delivery of this Agreement and the consummation of the transactions contemplated
hereby  have been duly and  validly  authorized  by the Board of  Directors  and
shareholders of the Company,  and no other corporate  proceedings on the part of
the Company will, as of the Closing, be necessary to authorize this Agreement or
to consummate the transactions so contemplated. This Agreement has been duly and
validly executed and delivered by the Company, and this Agreement  constitutes a
valid and binding agreement of the Company,  enforceable  against the Company in
accordance  with  and  subject  to its  terms  and  conditions,  subject  to (i)
applicable bankruptcy, insolvency,  reorganization,  moratorium or other similar
laws now or hereafter in effect  relating the relief of debtors  generally,  and
(ii) general principles of equity.

     SECTION 3.4  Financial  Statements.  The Company has delivered to Purchaser
copies of its reviewed and unaudited financial statements from inception through
September 30, 1997 (the  "Company  Financial  Statements").  Each of the Company
Financial Statements fairly presents the financial position of the Company as of
its date,  and each of the related  consolidated  statements of  operations  and
retained  earnings  and  cash  flows or  equivalent  statements  in the  Company
Financial Statements (including any related notes and schedules) fairly presents
the results of operations, retained earnings and cash flows, as the case may be,
of the  Company  for the  period  set  forth  therein  (subject  in the  case of
unaudited interim  statements,  to normal year-end  adjustments) in each case in
accordance  with  generally  accepted  accounting  principles  applicable to the
particular entity consistently  applied throughout the periods involved,  except
as may be noted therein. The accounts receivable, notes receivable and any other
contingent  assets  reflected on the latest  balance  sheet of the Company arose
from bona fide transactions in the ordinary course of business, and, to the best
of the Company and the Shareholder's knowledge, are not subject to any offset or
counterclaim other than as reflected in such balance sheet.

     SECTION 3.5 Consents and  Approvals;  No Violation.  Except as described in
the Company  Disclosure  Schedule,  neither the  execution  and delivery of this
Agreement by the Company nor the consummation of the  transactions  contemplated
hereby nor compliance by the Company with any of the provisions  hereof will (a)
conflict  with or  result in any  breach of any  provision  of the  Articles  of

                                       5



Incorporation,  Bylaws  or other  organization  documents  of the  Company,  (b)
require any  consent,  approval,  authorization  or permit of, or filing with or
notification  to,  any  governmental  authority  , except  (i)  pursuant  to the
Securities  Act of 1933, as amended (the  "Securities  Act") and the  Securities
Exchange Act of 1934,  as amended (the  "Exchange  Act"),  (ii) such filings and
approvals as may be required under the "blue sky",  takeover or securities  laws
of various states,  (iii) such consent,  approval,  authorization  or permits as
have been  obtained or filing or  notification  as have been done, or (iv) where
the failure to obtain such consent,  approval,  authorization  or permit,  or to
make such filing or  notification,  would not in the  aggregate  have a Material
Adverse Effect (as defined  herein),  (c) result in a material  default (with or
without  due  notice  or lapse of time or both)  (or give  rise to any  right of
termination, cancellation or acceleration) under any of the terms, conditions or
provisions of any note, bond, mortgage, indenture, Contract (as defined herein),
license,  agreement or other  instrument or obligation to which the Company is a
party or by which the Company or any of its assets may be bound, except for such
defaults (or rights of termination,  cancellation or  acceleration)  as to which
requisite waivers or consents have been requested and obtained, or which, in the
aggregate,  would not have a Material Adverse Effect, (d) result in the creation
or  imposition  of any lien,  charge or other  encumbrance  on the assets of the
Company, or (e) violate any order, writ,  injunction,  decree,  statute, rule or
regulation applicable to the Company or any of its assets, except for violations
which would not in the aggregate have a Material Adverse Effect.

     SECTION 3.6 No  Litigation.  Except as disclosed in the Company  Disclosure
Schedule,  (i) there are no material  actions or suits,  or any  proceedings  or
investigations by any governmental agency or regulatory body pending against the
Company, the Shareholder or, to the knowledge of the Company or the Shareholder,
the  Properties;  (ii) the Company  has not  received  notice of any  threatened
actions,   suits,   proceedings  or  investigations  against  the  Company,  the
Shareholder or  theProperties  at law or in equity,  or before any  governmental
board, agency or authority which, if determined  adversely to the Company or the
Shareholder,  would  materially and adversely  affect the Properties or title to
the  Properties  (or any part  thereof),  the right to operate the Properties as
presently   operated,   or  the  financial  condition  of  the  Company  or  the
Shareholder; (iii) there are no unsatisfied or outstanding judgments against the
Company, the Shareholder or, to the knowledge of the Company or the Shareholder,
the  Properties;  (iv)  there  is no  labor  dispute  materially  and  adversely
affecting the operation or business conducted by the Company, the Shareholder or
the  Properties;  and (v) the Company  does not have  knowledge  of any facts or
circumstances  which might reasonably form the basis for any such action,  suit,
or proceeding.

         SECTION 3.7  Compliance  with Law and Permits.  To the knowledge of the
Shareholder  and the Company,  the Company has owned and operated its properties
and assets in substantial compliance with the provisions and requirements of all
laws,  orders,  regulations,  rules and ordinances  issued or promulgated by all
Governmental  Authorities having jurisdiction with respect thereto, except where
the failure to own and operate such  properties  and assets in  compliance  with
such  provisions  and  requirements  would not  reasonably be expected to have a
Material  Adverse  Effect.  All material  governmental  certificates,  consents,
permits,  licenses  or other  authorizations  with  regard to the  ownership  or
operation by the Company of its properties and assets have been obtained, and to
the knowledge of the Shareholder and the Company no violation  exists in respect

                                       6




of such licenses, permits or authorizations,  except where the failure to obtain
and hold  such  permits,  or any  violation  thereof  by the  Company  would not
reasonably be expected to have a Material  Adverse  Effect.  To the knowledge of
the Shareholder and the Company,  none of the documents and materials filed with
or  furnished to any  governmental  authority  with  respect to the  properties,
assets or businesses of the Company  contains any untrue statement of a material
fact or fails to state a material fact necessary to make the statements  therein
not misleading.

     SECTION 3.8 Changes.  Except as expressly contemplated by this Agreement or
as  reflected  in the Company  Disclosure  Schedule or in the Company  Financial
Statements, since December 31, 1996, the Company has conducted its business only
in the  ordinary  and usual  course,  and,  except  as set forth in the  Company
Disclosure  Schedule  or in  the  Company  Financial  Statements,  none  of  the
following has occurred,  except as shall have occurred in the ordinary course of
its business:

     (a) any material  adverse  change in the  condition  (financial  or other),
results  of  operations,  business,  assets,  customer,  supplier  and  employee
relations of the Company;

     (b) any  change in  accounting  methods,  principles  or  practices  by the
Company materially affecting its assets, liabilities or business, except insofar
as  may  have  been  required  by a  change  in  generally  accepted  accounting
principles;

     (c) any damage,  destruction or loss,  whether or not covered by insurance,
resulting in a Material Adverse Change of the Company;

     (d) any declaration, setting aside or payment of dividends or distributions
in  respect  of Company  Common  Stock,  or any  redemption,  purchase  or other
acquisition of any of the securities of the Company;

     (e) any issuance by the Company of, or  commitment of the Company to issue,
any Company Common Stock or other capital stock or securities  convertible  into
or exchangeable or exercisable for Company Common Stock or other capital stock;

     (f) any entry by the Company into any commitment or transaction material to
the condition (financial or other), business or operations of the Company, taken
as a whole,  which is not in the ordinary course of business and consistent with
past practice;

     (g) any revaluation by the Company of any of its assets,  including without
limitation,  writing  down the value of assets or writing  off notes or accounts
receivable  other than in the ordinary  course of business and  consistent  with
past practice;

     (h) any  agreement by the Company to do any of the things  described in the
preceding  clauses  (a)  through  (g) other than as  expressly  contemplated  or
provided for herein; or

     (i) any  waiver by the  Company of any rights  that,  singularly  or in the
aggregate,  would  have a  Material  Adverse  Effect  to the  business,  assets,
financial condition, or results of operation of the Company.

                                       7



     SECTION  3.9  Definitions,   Representations,   and  Warranties  Concerning
Environmental Matters.

     (a) Definitions:

          (i)  "Environmental  Claim"  shall  mean  any and all  administrative,
     regulatory or judicial actions, suits, demands, demand letters, directives,
     claims, liens,  investigations,  proceedings or notices of noncompliance or
     violation  (written  or oral) by any person  alleging  potential  liability
     (including,  without  limitation,   potential  liability  for  enforcement,
     investigatory  costs, cleanup costs,  governmental  response costs, removal
     costs,  remedial  costs,  natural  resources  damages,   property  damages,
     personal injuries or penalties) arising out of, based on or resulting from:
     (A) the  presence  or release  into the  environment  of any  Environmental
     Hazardous  Materials at any location,  whether or not owned by the Company;
     or (B)  circumstances  forming  the  basis  of  any  violation  or  alleged
     violation of any Environmental Law; or (C) any and all claims by any person
     seeking damages, contribution, indemnification, cost recovery, compensation
     or injunctive  relief resulting from the presence or Environmental  Release
     of any Environmental Hazardous Materials.

          (ii)  "Environmental  Laws"  shall  mean  all  federal,  state,  local
     statute,  law,  rule,  ordinance,  code,  policy,  rule of  common  law and
     regulations  relating to  pollution  or  protection  of human health or the
     environment  (including,  without  limitation,  ambient air, surface water,
     groundwater,   land  surface  or  subsurface  strata),  including,  without
     limitation,  laws and  regulations  relating to  Environmental  Releases or
     threatened  Environmental Releases of Environmental Hazardous Materials, or
     otherwise  relating  to the  manufacture,  processing,  distribution,  use,
     treatment,  storage,  disposal,  transport  or  handling  of  Environmental
     Hazardous Materials that are presently in effect.

          (iii)   "Environmental   Hazardous  Materials"  shall  mean:  (A)  any
     petroleum or petroleum  products,  radioactive  materials,  asbestos in any
     form that is or could become friable,  urea  formaldehyde  foam insulation,
     transformers  or other equipment that contain  dissolved  fluid  containing
     polychlorinated  biphenyls  (PCBs),  and radon gas; and (B) any  chemicals,
     materials  or  substances  which  are now  defined  as or  included  in the
     definition  of  "hazardous   substances,"  "hazardous  wastes,"  "hazardous
     materials,"  "extremely hazardous wastes,"  "restricted  hazardous wastes,"
     "toxic substances,"  "toxic pollutants," or words of similar import,  under
     any Environmental Law; and (C) any other chemical,  material,  substance or
     waste,  exposure  to which  is  prohibited,  limited  or  regulated  by any
     governmental authority.

          (iv) "Environmental  Release" shall mean any release, spill, emission,
     leaking, injection,  deposit, disposal,  discharge,  dispersed, leaching or
     migration  into  the  atmosphere,   soil,  surface  water,  groundwater  or
     property.

     (b) Except as set forth in the Company  Disclosure  Schedule,  the Company:
(i) is  currently  and at all  times in the past has been in  compliance  in all
material  respects  with  all  applicable  Environmental  Laws  and (ii) has not


                                       8




received any communication  (written or oral) from a governmental authority that
alleges  that  the  Company  is  or  was  not  in  compliance   with  applicable
Environmental Laws.

     (c) Except as set forth in the Company Disclosure Schedule, the Shareholder
and the Company have, to their knowledge,  obtained all environmental health and
safety   permits,   registrations,    approvals,   licenses   and   governmental
authorizations  (collectively,  the "Environmental  Permits")  necessary for its
operations, and to their knowledge all such permits are in good standing and, to
their knowledge, the Shareholder and the Company are in material compliance with
all  terms  and  conditions  of  the  Environmental   Permits.  A  list  of  all
Environmental Permits is included in the Company Disclosure Schedule.

     (d) Except as set forth in the  Company  Disclosure  Schedule,  there is no
Environmental  Claim  pending or, to the  knowledge  of the  Shareholder  or the
Company,  threatened  against the Company;  or pending  against any person whose
liability  for any  Environmental  Claim the Company has or may have retained or
assumed either contractually or by operation of law; or pending against any real
or personal  property or operations  which the Company owns,  leases,  operates,
uses or manages.

     (e)  Except  as  set  forth  in the  Company  Disclosure  Schedule,  to the
knowledge of the Shareholder and the Company,  there have been no  Environmental
Releases of any Environmental  Hazardous  Material on real property owned, used,
leased,  managed  or  operated  by  the  Company,   specifically  including  the
Properties, that require reporting or other response under Environmental Laws.

     (f)  Except  as  set  forth  in the  Company  Disclosure  Schedule,  to the
knowledge of the Shareholder and the Company,  Environmental Hazardous Materials
have not at any time been generated,  used,  treated,  recycled or stored on, or
transported to or from, or disposed of on the Properties.

     (g)  Except  as  set  forth  in the  Company  Disclosure  Schedule,  to the
knowledge of the Shareholder  and the Company:  there are not now and never have
been any  underground  storage  tanks or  pipelines  located at, on or under the
Properties; there is no asbestos contained in, forming part of, or contaminating
any part of the  Properties;  no  polychlorinated  biphenyls  (PCBs)  are  used,
stored,  located at or contaminate any part of the  Properties;  and, no wetland
areas as defined by federal, state or local law are located on the Properties.

     (h)  Except  as  set  forth  in the  Company  Disclosure  Schedule,  to the
knowledge  of the  Shareholder  and the  Company,  no real  property at any time
owned,  operated,  leased,  used  or  controlled  by the  Company,  specifically
including the Properties, is currently listed on the National Priorities List or
the Comprehensive Environmental Response, Compensation and Liability Information
System,  both  promulgated  under  the  Comprehensive   Environmental  Response,
Compensation  and  Liability  Act of 1980,  as  amended  ("CERCLA"),  or, to the
knowledge of the Shareholder and the Company,  on any comparable  state or local
list and the Company has not received  any written  notice from any person under
or relating to a violation of CERCLA or any comparable state or local law.


                                       9



     (i) To the  knowledge  of the  Shareholder  and the  Company,  no  off-site
location at which the Company has  disposed or arranged  for the disposal of any
waste is listed on the National  Priorities  List or on any comparable  state or
local list and the Company has not received  any written  notice from any person
with respect to any  off-site  location,  of potential or actual  liability or a
written request for information  from any government or person under or relating
to CERCLA or any comparable state or local law.

     (j) The Company  Disclosure  Schedule  includes a list of all environmental
studies,  audits,  or  investigations  that have been  conducted  by the Company
regarding the Properties.  All books,  records,  environmental studies or audits
provided to the Purchaser,  to the knowledge of the Shareholder and the Company,
are accurate and true in all material respects.  The Company has given Purchaser
access  to all  records  and  files  in its  possession  at both  its  corporate
headquarters and its facilities currently owned, operated, leased, managed, used
or  controlled  by the  Company,  including,  without  limitation,  all reports,
studies,  analyses,  tests or monitoring  results pertaining to the existence of
Environmental  Hazardous Materials or any other environmental  concerns relating
to facilities or properties owned, operated, leased, managed, used or controlled
by  the  Company  or  concerning   compliance   with  or  liability   under  any
Environmental Laws and the Occupational  Safety and Health Act or the equivalent
such Act under state law.

     (k)  Except  as  set  forth  in the  Company  Disclosure  Schedule,  to the
knowledge of the Shareholder and the Company,  the Properties are not subject to
any United States or state environmental liens.

     (l) Except as set forth in the Company  Disclosure  Schedule and except for
construction contracts, financing transactions,  purchase agreements and related
documents entered into in the ordinary course of business,  the Company is not a
party,  whether as a direct  signatory or as  successor,  assign or  third-party
beneficiary,  or otherwise bound, to any contract (excluding  insurance policies
disclosed  on the  Company  Disclosure  Schedule)  under  which the  Company  is
obligated  by, or entitled to the  benefits  of,  directly  or  indirectly,  any
representation,  warranty,  indemnification,   covenant,  restriction  or  other
undertaking concerning Environmental Laws or the environmental conditions of the
Properties.

     (m) Except as set forth in the Company  Disclosure  Schedule and except for
construction contracts, financing transactions,  purchase agreements and related
documents  entered into in the ordinary course of business,  the Company has not
released any other person from any claim under any  Environmental  Law or waived
any rights  concerning  the  environmental  condition of the  Properties,  which
release or waiver would have a Material Adverse Effect on the Company.

     (n)  The  Company  Disclosure  Schedule  contains  a list  of  all  current
insurance policies covering the Properties or operation of the Company.

     (o) The  Properties  are, to the best of the  Shareholder's  and  Company's
knowledge,  in good repair and working order, reasonable wear and tear excepted,
and  are  not in  immediate  need  of  any  major  repair  or  material  capital
expenditure except as noted on the Company Disclosure Schedule.


                                       10



     SECTION 3.10 ERISA Matters.  The Company and all Employee  Benefit Plans as
defined in Section 3(3) of the Employee  Retirement Income Security Act of 1974,
as amended  ("ERISA"),  that cover any of its employees  (which Employee Benefit
Plans are listed on the Company  Disclosure  Schedule),  comply in all  material
respects with all applicable  laws,  requirements and orders under ERISA and the
Code,  the breach or violation of which would have a Material  Adverse Effect on
the Company; the present value of all the assets of each of its Employee Benefit
Plans that it is subject to Title IV of ERISA equals or exceeds to the knowledge
of the Shareholder  the present value of all of the benefits  accrued under each
such  Employee  Benefit Plan as of the end of most recent plan year with respect
to such plan ending  prior to the date  hereof,  calculated  on the basis of the
actuarial  assumptions used in the last actuarial evaluation for each such plan;
none of the  employees  of the  Company is covered  by a  collective  bargaining
agreement;  the  Company  has never  contributed  to a  "multiemployer  plan" as
defined in Section  3(37) of ERISA;  neither the Employee  Benefit Plans nor any
fiduciary or administrator thereof has engaged in a "prohibited  transaction" as
defined in Section 406 of ERISA or, where  applicable,  Section 4975 of the Code
for which no exemption is applicable,  that may have any Material Adverse Effect
on the Company,  nor to the  knowledge of the  Shareholder  and the Company have
there been any "reportable events" as defined in Section 4043 of ERISA for which
the thirty-day notice has not been waived.

     SECTION 3.11 Taxes, Tax Returns.

     (a) The Company has delivered to Purchaser copies of all federal income tax
returns and all  schedules  and exhibits  thereto of the Company for each of the
last two fiscal years.  Except as set forth on the Company Disclosure  Schedule,
the Company has duly and timely  filed in correct  form all  federal,  state and
local information returns and tax returns required to be filed by it on or prior
to the date hereof (all such returns to the knowledge of the Shareholder and the
Company  being  accurate  and  complete in all  material  respects)  and, to the
knowledge of the  Shareholder  and the Company,  has duly paid or made provision
for the  payment  of all taxes and other  governmental  charges  which have been
incurred or are due or claimed to be due from them by any governmental authority
(including,  without limitation, those due in respect of the Properties, income,
business,  capital stock,  franchises,  licenses, sales and payrolls) other than
taxes or other charges (i) which are not yet  delinquent or are being  contested
in good faith and set forth in the Company  Disclosure  Schedule,  (ii) have not
been finally  determined or (iii) that would not have a Material  Adverse Effect
on the Company.  The liabilities and reserves for taxes in the Company Financial
Statements  are  sufficient  to the best of the  Company  and the  Shareholder's
knowledge  in the  aggregate  for the payment of all unpaid  federal,  state and
local taxes  (including  any  interest  or  penalties  thereon),  whether or not
disputed or accrued,  for the period ended December 31, 1996 through the Closing
Date or for any year or period prior  thereto,  and for which the Company may be
liable in its own right or as  transferee of the assets of, or successor to, any
corporation, person, association, partnership, joint venture or other entity.

     (b) To the  knowledge of the  Shareholder  and the Company,  (i) proper and
accurate amounts have been withheld by the Company from its employees and others
for all prior  periods  in  compliance  in all  material  respects  with the tax
withholding   provisions  of  applicable  federal,  state  and  local  laws  and
regulations,  and proper due diligence  steps have been taken in connection with
back-up  withholding,  (ii) federal,  state and local returns which are accurate


                                       11



and  complete in all  material  respects  have been filed by the Company for all
periods  for which  returns  were due with  respect to income  tax  withholding,
Social  Security  and  unemployment  taxes and (iii) the  amounts  shown on such
returns to be due and  payable  have been paid in full,  or  adequate  provision
therefore has been included by the Company in the most recent Company  Financial
Statements.

     SECTION  3.12  Undisclosed  Liabilities.  The  Company is not liable for or
subject to any  Liabilities  (as  hereinafter  defined),  except (a) Liabilities
adequately  disclosed  or  reserved  for in the most  recent  Company  Financial
Statements and not  heretofore  paid or discharged,  (b)  Liabilities  under any
contract,   commitment  or  agreement  specifically  disclosed  on  the  Company
Disclosure Schedule or (c) Liabilities incurred,  consistent with past practice,
in or as a result of the  ordinary  course of business of the Company  since the
date of the most recent Company Financial Statements. As used in this Agreement,
the term "Liability" or  "Liabilities"  includes any material direct or indirect
liability,  indebtedness,  obligation,  guarantee  or  endorsement  (other  than
endorsements of notes,  bills,  and checks  presented to banks for collection or
deposit in the ordinary course of business).

     SECTION  3.13 Tax Audits.  Except as  disclosed  in the Company  Disclosure
Schedule,  (i) no audit of any material  federal,  state or local U.S. return of
the Company is  currently in progress,  nor has the Company been  notified  that
such an audit is contemplated by any taxing authority,  (ii) the Company has not
extended any statute of limitations with respect to the period for assessment of
any federal, state or local U.S. tax, (iii) the Company does not contemplate the
filing of an  amendment  to any return,  which  amendment  would have a Material
Adverse Effect on the Company,  and (iv) to the knowledge of the Shareholder and
the  Company,  the  Company  does not  have any  actual  or  potential  material
liability for any tax obligation of any taxpayer other than the Company.  Except
as  disclosed  in the Company  Disclosure  Schedule,  there are no material  tax
claims  pending  against the Company and there are no material tax claims to the
knowledge of the Shareholder and the Company  threatened to be asserted  against
the Company.  For purposes of this Section 3.13, "tax" and "taxes" shall include
all income, gross receipt, franchise, excise, real and personal property, sales,
ad valorem,  employment,  withholding  and other taxes  imposed by any  foreign,
federal,  state,  municipal,  local, or other governmental  authority  including
assessments in the nature of taxes.

     SECTION 3.14 No Default; Compliance.

     (a)  Except  as  set  forth  in the  Company  Disclosure  Schedule,  to the
knowledge of the  Shareholder  and the  Company,  the Company is not in material
default under, and no condition exists that with notice or lapse of time or both
would  constitute a material  default  under,  (i) any material  mortgage,  loan
agreement,  indenture,  evidence of indebtedness or other instrument  evidencing
borrowed  money to which the  Company is a party or by which the  Company or its
properties  is bound,  (ii) any  judgment,  order or  injunction  of any  court,
arbitrator or governmental agency or (iii) any other agreement, contract, lease,
license or other instrument, which default or potential default might reasonably
be expected to have a Material Adverse Effect.

     (b) Except as set forth in the Company Disclosure Schedule, the Company has
complied in all material respects with all laws, regulations,  orders, judgments
or decrees of any federal or state court or governmental authority applicable to
its businesses and  operations,  non-compliance  with which might  reasonably be
expected to have a Material Adverse Effect.

                                       12




     SECTION 3.15 Representations and Warranties Continuing. The representations
and  warranties  set forth  herein  shall be true and correct on the date hereof
(except to the  extent any such  representation  or  warranty  speaks of another
date) and, subject to an update of the Company Disclosure  Schedule from time to
time,  at all times prior to the Closing as if made from time to time,  prior to
the Closing, including, without limitation, at the Closing.

     SECTION 3.16 Contracts and  Commitments.  Except as listed and described in
the Company Disclosure Schedule or the Company Financial Statements, the Company
is not a party  to,  nor is it or its  assets  bound  by any  written  covenant,
contract, agreement or understanding (a "Contract"), including the following:

     (a) Contract  with any present or former  stockholder,  director,  officer,
employee or consultants;

     (b) Contract with any labor union or other representative of employees;

     (c)  Contract  for the future  purchase  of, or payment  for,  supplies  or
products, or for the performance of services by a third party, involving payment
or potential payment by the Company of $25,000 or more under any one Contract or
series of related Contracts;

     (d)  Any  Contract,   including,   without   limitation,   any  outstanding
quotations,  bids or  proposals,  to sell  goods or to  perform  services  in an
aggregate amount in excess of $25,000;

     (e) Distributorship,  representative or sales agency agreement, contract or
commitment;

     (f)  Conditional  sale agreement or lease under which the Company is either
the seller or  purchaser,  lessor or lessee,  involving  annualized  payments or
potential payments by or to the Company that are in excess of $25,000;

     (g) Contract (including,  without limitation,  any note,  debenture,  bond,
conditional  sale or equipment trust  agreement,  letter of credit  agreement or
loan  agreement)  for the  borrowing  or  lending  of money  more  than  $25,000
(including,  without  limitation,  those  to  or  from  officers,  directors  or
shareholders  of the Company,  or any  affiliates or members of their  immediate
families, for a line of credit, or for a guarantee, security, indemnitee, pledge
or undertaking of the indebtedness or obligations of any other person);

     (h) Contract for any charitable or political contribution;

     (i) Contract for any capital expenditure involving future payments,  which,
together with future  payments under all other  existing  Contracts for the same
capital project, are in excess of $25,000;

     (j) Contract limiting or restraining the Company from engaging or competing
in any  lines  of  business  with  any  person,  nor,  to the  knowledge  of the
Shareholder  and the Company,  is any officer or employee of the Company subject
to any such agreement, contract or commitment;

                                       13





     (k) License, franchise, distributorship or other Contract relating in whole
or in part to any ideas,  technical  assistance or other  know-how of or used by
the Company;

     (l) Contract  calling for future  payment  greater  than  $25,000  which is
expected to continue for more than six months from the date hereof;

     (m) Any guaranty,  direct or indirect, of any person of any contract, lease
or agreement in an amount greater than $25,000 entered into by the Company.

Except as may be disclosed on the Company  Disclosure  Schedule:  to the best of
the Company and the Shareholder's knowledge, each of the Contracts listed on the
Company  Disclosure  Schedule is valid and  enforceable  in accordance  with its
terms  except to the extent such  enforceability  may be limited by  bankruptcy,
insolvency,  reorganization  or other  laws and  judicial  decisions  of general
application  relating to or  affecting  the  enforcement  of  creditors'  rights
generally or by general equitable principles; to the best of the Company and the
Shareholder's  knowledge,  the  Company  and the other  parties  thereto  are in
substantial  compliance with the provisions thereof;  except as may be disclosed
on the Company Disclosure  Schedule,  neither the Company nor any other party is
(or by reason  of the  consummation  of the  transactions  contemplated  by this
Agreement, will be) in default in the performance,  observance or fulfillment of
any  obligation,  covenant  or  condition  contained  therein  and no event  has
occurred  or  is  anticipated  to  occur  (including  the  consummation  of  the
transactions contemplated by this Agreement) which with or without the giving of
notice or lapse of time, or both,  would  constitute a default or give the right
of termination thereunder which would have a Material Adverse Effect.

     SECTION  3.17  Title  to  Property.  Except  as  disclosed  on the  Company
Disclosure Schedule or in the most recent Company Financial Statements,  (i) the
Company  has good and  indefeasible  title to its  property  and assets that are
material to the Company's  business on a  consolidated  basis,  exclusive of the
Properties  which are owned by Health Care REIT,  Inc.,  (ii) such  property and
assets  are  insured  to the extent  they are of a type for which  insurance  is
generally  available,  (iii) such  property and assets are free and clear of all
security interests,  liens, encumbrances and encroachments of a material nature,
except for liens for current taxes not yet due and payable.

     SECTION 3.18 Insurance and Bank Accounts.

     (a) The Company Disclosure Schedule sets forth a complete and accurate list
of all insurance policies in force naming the Company or any of its employees as
an insured or  beneficiary  or as a loss payable  payee or for which the Company
has paid or is obligated to pay all or part of the premiums. The Company has not
received notice of any pending or threatened  termination or retroactive premium
increase with respect thereto,  and the Company is in compliance in all material
respects with all conditions  contained  therein.  There are no pending material
claims  against such  insurance by the Company as to which  insurers have denied
liability, no defenses provided by insurers under reservations of rights, and no
material  claim under such  insurance  that has not been  properly  filed by the
Company.

                                       14




     (b)  The  Company  Disclosure  Schedule  contains  a list of all  bank  and
investment  accounts  maintained by the Company,  including the account numbers,
recent balance, institution, and persons having signing authority.

     SECTION 3.19 Employees.  The Disclosure  Statement sets forth a list of the
employees of the Company,  stating with respect to each, the name,  date of hire
and rate of compensation. Except as described in the Disclosure Statement, there
are  no  claims  or  disputes  pending  with  any  employee  regarding  workers'
compensation,  unemployment benefits,  discrimination  (including discrimination
based on any  disability),  or  compensation,  and no  employment  or collective
bargaining agreements are in effect covering any such person.

     SECTION   3.20   Investment   Representations.   Each   Shareholder   is  a
knowledgeable  and  experienced  investor  and  has  had an  opportunity  to ask
questions and review  information about the business and financial  condition of
the Purchaser.  Each Shareholder acknowledges receipt of an Annual Report of the
Purchaser and all filed Quarterly Reports since the date of the Annual Report.

     SECTION  3.21  Parties In  Possession.  Except as  disclosed in the Company
Disclosure Schedule, there are no parties in possession of any of the Properties
or  any  portion  thereof  as  managers,  lessees,  tenants  at  sufferance,  or
trespassers.

     SECTION  3.22  Condition  Of  The  Properties.  To  the  knowledge  of  the
Shareholder  and the Company,  all of the  mechanical  and  electrical  systems,
heating and air conditioning systems, plumbing, water and sewer systems, and all
other items of mechanical equipment or appliances are materially in good working
order,  condition and repair, are of sufficient size and capacity to service the
Properties  for the use of such  properties  as  personal  care  facilities  and
conform with all applicable  ordinances and regulations,  and with all building,
zoning,  fire,  safety,  and  other  codes,  laws  and  orders.  The  buildings,
structures  and  other  improvements,  including  the roof and  foundation,  are
structurally sound and free from leaks and other defects.

     SECTION 3.23 Compliance with Laws. To the best of the Shareholder's and the
Company's  knowledge,  there is no violation of, or noncompliance  with, (i) any
laws,  orders,  rules or regulations,  ordinances or codes of any kind or nature
whatsoever  relating to the  Properties  or the  ownership or operation  thereof
(including without limitation,  building, fire, health,  occupational safety and
health,  zoning and land use, planning and environmental laws, orders, rules and
regulations);  (ii)  any  covenants,   conditions,   restrictions  or  agreement
affecting or relating to the ownership,  use or occupancy of the Properties;  or
(iii) any order,  writ,  regulation or decree relating to any matter referred to
in (i) or (ii) above.

     SECTION 3.24 Access.  Access to the Properties is directly from a dedicated
public  right-of-way  without any easement.  To the knowledge of the Shareholder
and the  Company,  there  is no fact of  condition  which  would  result  in the
termination  or reduction of the current  access to and from the  Properties  to
such right-of-way.

     SECTION  3.25  Utilities.  There  are  available  at  the  Properties  gas,
municipal  water,  and  sanitary  sewer  lines,  storm  sewers,  electrical  and
telephone  services in operating  condition which are adequate for the operation

                                       15



of the Properties at a reasonable  cost.  The  Properties  have direct access to
utility lines located in a dedicated public  right-of-way  without any easement.
Except as set forth on the Company Disclosure Schedule,  as of the Closing Date,
there is no pending or, to the  knowledge  of the  Shareholder  or the  Company,
threatened  governmental or third party  proceeding which would impair or result
in the termination of such utility availability.

     SECTION  3.26  Condemnation  and  Assessments.  Except  as set forth in the
Company  Disclosure  Schedule,  neither the  Shareholder  nor the  Company  have
received  notice  of,  and  there  are  no  pending  or,  to  the  best  of  the
Shareholder's and the Company's knowledge,  threatened condemnation,  assessment
or similar proceedings  affecting or relating to the Properties,  or any portion
thereof, or any utilities, sewers, roadways or other public improvements serving
the Properties.

     SECTION  3.27  Zoning.  Except  as  disclosed  in  the  Company  Disclosure
Schedule, to the knowledge of the Shareholder,  (i) the use and operation of the
Properties as personal care  facilities is a permitted use under the  applicable
zoning code; (ii) no special use permits, conditional use permits, variances, or
exceptions have been granted or are needed for such use of the Properties; (iii)
the  Properties  are not located in any  special  districts  such as  historical
districts or overlay districts; and (iv) the Properties have been constructed in
accordance  with and the  Properties  comply with all  applicable  zoning  laws,
including  but  not  limited  to,  dimensional,   parking,  setback,  screening,
landscaping, sign and curb cut requirements.

                                   ARTICLE IV.
                         REPRESENTATIONS AND WARRANTIES
                                  OF PURCHASER

     Purchaser  represents  and warrants to the Company and the  Shareholder  as
follows:

     SECTION 4.1 Organization and Qualification. Purchaser is a corporation duly
organized,  validly existing and in good standing under the laws of the State of
Nevada.  All  Subsidiaries  of the  Purchaser  are legal  entities that are duly
organized,  validly  existing  and in good  standing  under  the  laws of  their
respective  jurisdictions  of  incorporation.  Each  of the  Purchaser  and  its
Subsidiaries  has all  requisite  power  and  authority  to own or  operate  its
properties and conduct its business as it is now being conducted.  The Purchaser
and each of its Subsidiaries is duly qualified and in good standing as a foreign
corporation or entity  authorized to do business in each of the jurisdictions in
which the  character  of the  properties  owned or held under lease by it or the
nature of the  business  transacted  by it makes such  qualification  necessary,
except where the failure to be so qualified and in good standing  would not have
a Material  Adverse Effect on the Purchaser.  The Purchaser has delivered to the
Company true and correct copies of the Articles of  Incorporation  and Bylaws of
the Purchaser.

     SECTION 4.2 Capitalization; Subsidiaries.

     (a) The authorized  capital stock of the Purchaser  consists of 100,000,000
shares of Purchaser Common Stock, and 10,000,000  shares of preferred stock, par
value $0.10 per share. As of the date hereof,  approximately 7,126,189 shares of
Purchaser  Common  Stock   (including   400,000  shares  issued  to  Residential
Healthcare Properties, Inc., a subsidiary of Purchaser ("RHP") as collateral for

                                       16




a loan to RHP,  125,000 shares redeemed from an affiliate of Purchaser that will
be  contributed  to RHP,  and  60,049  shares  held  in  escrow  pursuant  to an
acquisition  agreement),  128 shares of Series B  Preferred  Stock,  and 675,000
shares of Series D Preferred Stock (together the "Preferred Shares") were issued
and  outstanding.  The Preferred  Shares are convertible  into 341,071 shares of
Purchaser Common Stock. Except as described in the Purchaser Disclosure Schedule
or the Purchaser SEC Reports (as defined  below),  since  December 31, 1996, the
Purchaser has not issued any shares of capital stock, and has not repurchased or
redeemed  any  shares  of its  capital  stock.  Neither  the  Purchaser  nor any
Subsidiary has any shares of its capital stock reserved for issuance, except for
570,000 shares of Purchaser Common Stock, none of which is outstanding, issuable
pursuant to stock  options and warrants and 341,071  shares of Purchaser  Common
Stock reserved for issuance upon  conversion of the Preferred  Shares.  No other
options,  warrants or other securities  convertible into Purchaser Common Stock,
any security  convertible  into Purchaser  Common Stock,  or any other Purchaser
security are outstanding.  All issued and outstanding shares of capital stock of
Purchaser are validly issued, fully paid,  non-assessable and free of preemptive
rights.

     (b)  Except  as set  forth  in the  Purchaser  Disclosure  Schedule  or the
Purchaser SEC Reports, all of the outstanding shares of capital stock of each of
the  Purchaser's  Subsidiaries  are  owned,  directly  or  indirectly,   by  the
Purchaser,  beneficially  and of  record.  Except as set forth in the  Purchaser
Disclosure  Schedule or in the Purchaser  Financial  Statements or Purchaser SEC
Reports,  all of such shares of capital stock of the Subsidiaries are owned free
and clear of all liens,  charges,  encumbrances,  rights of  others,  mortgages,
pledges  or  security  interests,  and  are not  subject  to any  agreements  or
understandings  among any persons with respect to the voting or transfer of such
shares.  Except  as  described  in  the  Purchaser  Disclosure  Schedule  or the
Purchaser  SEC  Reports,  there  are  no  outstanding  subscriptions,   options,
convertible  securities,  warrants or claims of any kind issued or granted by or
binding on the  Purchaser  to purchase or  otherwise  acquire any security of or
equity interest in any of such  Subsidiaries.  All of the outstanding  shares of
capital  stock of each such  Subsidiary  have been duly  authorized  and validly
issued  and are  fully  paid and  non-assessable,  and none has been  issued  in
violation of the preemptive rights of any stockholder.

     SECTION 4.3  Authority  Relative to this  Agreement.  The Purchaser has all
requisite  corporate  power and authority to execute and deliver this  Agreement
and to  consummate  the  transactions  contemplated  hereby.  The  execution and
delivery of this Agreement and the consummation of the transactions contemplated
hereby have been duly and validly  authorized  by the Boards of Directors of the
Purchaser,  and no other corporate  proceedings on the part of the Purchaser are
necessary to authorize  this  Agreement or to  consummate  the  transactions  so
contemplated. This Agreement has been duly and validly executed and delivered by
the Purchaser,  and this Agreement  constitutes a valid and binding agreement of
the Purchaser,  enforceable against the Purchaser in accordance with and subject
to its terms and conditions,  subject to (i) applicable bankruptcy,  insolvency,
reorganization,  moratorium  or other  similar  laws now or  hereafter in effect
relating the relief of debtors generally, and (ii) general principles of equity.

     SECTION 4.4 SEC Reports.  Since January 1, 1993 the Purchaser has filed all
required  forms,  reports  and  documents  ("Purchaser  SEC  Reports")  with the
Securities  and  Exchange  Commission  (the  "SEC")  required  to be filed by it
pursuant  to the  federal  securities  laws and the SEC  rules  and  regulations
thereunder,  all of  which  have  complied  in all  material  respects  with all

                                       17




applicable  requirements  of the  Securities  Act and the Exchange  Act, and the
rules and interpretive releases promulgated  thereunder.  None of such Purchaser
SEC Reports,  including without limitation any financial  statements,  notes, or
schedules included therein, at the time filed, contained,  or, if to be filed in
the future will contain,  any untrue  statement of a material  fact, or omitted,
omit or will omit to state a  material  fact  required  to be stated  therein or
necessary in order to make the statements therein, in light of the circumstances
under  which  they  were  made,  not  misleading.  For the last  two (2)  years,
Purchaser has filed on a timely basis all  Purchaser SEC Reports  required to be
filed with the SEC.

     Each of the  consolidated  balance sheets in or  incorporated  by reference
into the Purchaser  SEC Reports  fairly  presents the financial  position of the
entity or entities  to which it relates as of its date,  and each of the related
consolidated  statements of operations  and retained  earnings and cash flows or
equivalent  statements in the Purchaser SEC Reports (including any related notes
and schedules) fairly presents the results of operations,  retained earnings and
cash  flows,  as the case may be, of the entity or  entities to which it relates
for the period  set forth  therein  (subject  in the case of  unaudited  interim
statements,  to normal  year-end audit  adjustments)  in each case in accordance
with  generally  accepted  accounting  principles  applicable to the  particular
entity  consistently  applied throughout the periods involved,  except as may be
noted therein. The consolidated  financial statements included or to be included
in the Purchaser SEC Reports are hereinafter sometimes  collectively referred to
as the "Purchaser Financial Statements."

     SECTION 4.5 Consents and  Approvals;  No Violation.  Except as described in
the Purchaser  Disclosure  Schedule,  neither the execution and delivery of this
Agreement by the Purchaser nor the consummation of the transactions contemplated
hereby nor compliance by the Purchaser  with any of the  provisions  hereof will
(a)  conflict  with or result in any breach of any  provision of the Articles of
Incorporation or By-laws or other organization documents of the Purchaser or any
Subsidiary,  (b) require any consent,  approval,  authorization or permit of, or
filing with or notification to, any governmental authority,  except (i) pursuant
to the  Securities  Act and the Exchange Act, (ii) such filings and approvals as
may be required  under the "blue sky",  takeover or  securities  laws of various
states,  (iii) such  consent,  approval,  authorization  or permits as have been
obtained or filing or  notification as have been done, or (iv) where the failure
to obtain  such  consent,  approval,  authorization  or permit,  or to make such
filing or  notification,  would not in the  aggregate  have a  Material  Adverse
Effect, (c) result in a material default (with or without due notice or lapse of
time or  both)  (or  give  rise to any  right of  termination,  cancellation  or
acceleration)  under any of the terms,  conditions  or  provisions  of any note,
bond, mortgage,  indenture,  Contract, license, agreement or other instrument or
obligation  to which the Purchaser or any of its  Subsidiaries  is a party or by
which the Purchaser,  any of its Subsidiaries or any of their respective  assets
may be bound,  except for such defaults (or rights of termination,  cancellation
or acceleration)  as to which requisite  waivers or consents have been requested
and  obtained  or which,  in the  aggregate,  would not have a Material  Adverse
Effect,  (d) result in the creation or imposition  of any lien,  charge or other
encumbrance  on the assets of the Purchaser or any of its  Subsidiaries,  or (e)
violate  any  order,  writ,  injunction,  decree,  statute,  rule or  regulation
applicable to the Purchaser,  any of its Subsidiaries or any of their respective
assets,  except for violations  which would not in the aggregate have a Material
Adverse Effect.

     SECTION 4.6 No Litigation.  Except as described in the Purchaser Disclosure
Schedule  or the  Purchaser  SEC  Reports,  (a) there is no  action,  claim,  or


                                       18



proceeding pending or, to the knowledge of the Purchaser,  threatened,  to which
the Purchaser or any of its Subsidiaries is or would be a party before any court
or governmental  authority acting in an adjudicative  capacity or any arbitrator
or arbitration  tribunal with respect to which there is a reasonable  likelihood
of a determination  having, or which, insofar as reasonably can be foreseen,  in
the future would have a Material  Adverse Effect on the  Purchaser;  (b) neither
the Purchaser nor any of its  Subsidiaries is subject to any outstanding  order,
writ,  injunction or decree; and (c) since December 31, 1996, there have been no
claims made or actions or proceedings brought against any officer or director of
the Purchaser  arising out of or pertaining to any action or omission within the
scope of his employment or position with the Purchaser,  which claim,  action or
proceeding  would involve a Material  Adverse Effect on the Purchaser taken as a
whole.   All  material   litigation  and  other   administrative,   judicial  or
quasi-judicial  proceedings to which the Purchaser is a party or to which it has
been threatened to the Purchaser's  knowledge to be made a party,  are described
in the Purchaser Disclosure Schedule.

     SECTION  4.7  Compliance  with  Law  and  Permits.  To its  knowledge,  the
Purchaser and its  Subsidiaries  have owned and operated  their  properties  and
assets in substantial  compliance  with the provisions and  requirements  of all
laws,  orders,  regulations,  rules and ordinances  issued or promulgated by all
governmental  authorities having jurisdiction with respect thereto, except where
the failure to own and operate such  properties  and assets in  compliance  with
such  provisions  and  requirements  would not  reasonably be expected to have a
Material  Adverse  Effect.  All material  governmental  certificates,  consents,
permits,  licenses  or other  authorizations  with  regard to the  ownership  or
operation by the Purchaser or its  Subsidiaries of their  respective  properties
and assets  have been  obtained  and to its  knowledge  no  violation  exists in
respect of such licenses, permits or authorizations, except where the failure to
obtain and hold such permits,  or any violation  thereof by the Purchaser or its
Subsidiaries,  would not  reasonably  be  expected  to have a  Material  Adverse
Effect.  To its  knowledge,  none of the documents  and materials  filed with or
furnished to any governmental  authority with respect to the properties,  assets
or businesses of the Purchaser or its Subsidiaries contains any untrue statement
of a  material  fact or fails to state a  material  fact  necessary  to make the
statements therein not misleading.

     SECTION 4.8 Changes.  Except as expressly contemplated by this Agreement or
as reflected in the Purchaser  Disclosure Schedule or in the Purchaser Financial
Statements or Purchaser SEC Reports,  since December 31, 1996, the Purchaser and
its  Subsidiaries  have conducted  their business only in the ordinary and usual
course, and, except as set forth in the Purchaser  Disclosure Schedule or in the
Purchaser Financial  Statements or Purchaser SEC Reports,  none of the following
has  occurred,  except as shall  have  occurred  in the  ordinary  course of its
business:

     (a) any material  adverse  change in the  condition  (financial  or other),
results  of  operations,  business,  assets,  customer,  supplier  and  employee
relations of the Purchaser and its Subsidiaries, taken as a whole;

     (b) any  change in  accounting  methods,  principles  or  practices  by the
Purchaser  materially  affecting  its assets,  liabilities  or business,  except
insofar as may have been required by a change in generally  accepted  accounting
principles;

     (c) any damage,  destruction or loss,  whether or not covered by insurance,
resulting in a Material Adverse Change of the Purchaser and its Subsidiaries;


                                       19




     (d) any declaration, setting aside or payment of dividends or distributions
in respect of the Purchaser  Common Stock, or any redemption,  purchase or other
acquisition of any of the securities of the Purchaser or its Subsidiaries;

     (e) any issuance by the  Purchaser  of, or  commitment  of the Purchaser to
issue,  any  Purchaser  Common  Stock  or  other  capital  stock  or  securities
convertible  into or exchangeable  or exercisable for Purchaser  Common Stock or
other capital stock;

     (f)  any  entry  by the  Purchaser  or any of  its  Subsidiaries  into  any
commitment  or  transaction  material  to the  condition  (financial  or other),
business or operations of the Purchaser and its Subsidiaries,  taken as a whole,
which is not in the  ordinary  course  of  business  and  consistent  with  past
practice;

     (g) any  revaluation by the Purchaser or any of its  Subsidiaries of any of
their respective assets, including without limitation, writing down the value of
assets or writing off notes or accounts  receivable  other than in the  ordinary
course of business and consistent with past practice;

     (h) any agreement by the Purchaser to do any of the things described in the
preceding  clauses  (a)  through  (g) other than as  expressly  contemplated  or
provided for herein; or

     (i) any waiver by the  Purchaser or any of its  Subsidiaries  of any rights
that,  singularly or in the  aggregate,  are material to the  business,  assets,
financial  condition,   or  results  of  operation  of  the  Purchaser  and  its
Subsidiaries, taken as a whole.

     SECTION  4.9  Representations,   and  Warranties  Concerning  Environmental
Matters.

     (a) Except as set forth in the Purchaser Disclosure Schedule, the Purchaser
and all of its Subsidiaries:  (i) are currently and at all times in the past has
been in compliance in all material  respects with all  applicable  Environmental
Laws;  and (ii) have not  received  any  communication  (written or oral) from a
governmental authority that alleges that the Purchaser or a Subsidiary is or was
not in compliance with applicable Environmental Laws.

     (b) Except as set forth in the Purchaser Disclosure Schedule, the Purchaser
and the Subsidiaries have to their knowledge  obtained all environmental  health
and  safety  permits,   registrations,   approvals,  licenses  and  governmental
authorizations  (collectively,  the "Environmental  Permits")  necessary for its
operations,  and to their knowledge all such permits are in good standing and to
their knowledge the Purchaser and the  Subsidiaries  are in material  compliance
with all  terms  and  conditions  of the  Environmental  Permits.  A list of all
Environmental Permits is included in the Purchaser Disclosure Schedule.

         (c) Except as set forth in the Purchaser Disclosure Schedule,  there is
no  Environmental  Claim  pending or, to the  knowledge of the  Purchaser or any
Subsidiary,  threatened  against the  Purchaser  or any  Subsidiary;  or pending
against any person whose liability for any Environmental  Claim the Purchaser or
a Subsidiary  has or may have  retained or assumed  either  contractually  or by
operation of law; or pending against any real or personal property or operations
which the Purchaser or a Subsidiary owns, leases, operates, uses or manages.

                                       20




     (d)  Except  as set  forth in the  Purchaser  Disclosure  Schedule,  to the
knowledge of the Purchaser and the Subsidiaries there have been no Environmental
Releases of any Environmental  Hazardous  Material on real property owned, used,
leased,  managed or operated by the  Purchaser or any  Subsidiary,  specifically
including  the  Properties,  that  require  reporting  or other  response  under
Environmental Laws.

     (e)  Except  as set  forth in the  Purchaser  Disclosure  Schedule,  to the
knowledge of the Purchaser,  Environmental  Hazardous  Materials have not at any
time been generated,  used, treated, recycled or stored on, or transported to or
from, or disposed of on the Properties.

     (f)  Except  as set  forth in the  Purchaser  Disclosure  Schedule,  to the
knowledge  of the  Purchaser:  there  are  not  now  and  never  have  been  any
underground  storage tanks or pipelines  located at, on or under the Properties;
there is no asbestos contained in, forming part of, or contaminating any part of
the Properties; no polychlorinated biphenyls (PCBs) are used, stored, located at
or contaminate any part of the  Properties;  and, no wetland areas as defined by
federal, state or local law are located on the Properties.

     (g)  Except  as set  forth in the  Purchaser  Disclosure  Schedule,  to the
knowledge  of the  Purchaser,  no real  property  at any time  owned,  operated,
leased,  used or controlled by the Purchaser or a Subsidiary is currently listed
on the National  Priorities List or the  Comprehensive  Environmental  Response,
Compensation  and  Liability  Information  System,  or to the  knowledge  of the
Purchaser on any comparable state or local list and neither the Purchaser or any
Subsidiary  has received any written notice from any person under or relating to
a violation of CERCLA or any comparable state or local law.

     (h) To the knowledge of the  Purchaser,  no off-site  location at which the
Purchaser  or any  Subsidiary  has  disposed or arranged for the disposal of any
waste is listed on the National  Priorities  List or on any comparable  state or
local list and neither the Purchaser nor any Subsidiary has received any written
notice from any person with  respect to any off-site  location,  of potential or
actual  liability or a written  request for  information  from any government or
person under or relating to CERCLA or any comparable state or local law.

     (i)  Except  as set  forth in the  Purchaser  Disclosure  Schedule,  to the
knowledge of the Purchaser the  Properties  are not subject to any United States
or state environmental liens.

     (j) Except as set forth in the Purchaser Disclosure Schedule, the Purchaser
and the  Subsidiaries  are not a  party,  whether  as a direct  signatory  or as
successor,  assign  or  third-party  beneficiary,  or  otherwise  bound,  to any
contract  (excluding  insurance policies  disclosed on the Purchaser  Disclosure
Schedule)  under which the  Purchaser  or any  Subsidiary  is  obligated  by, or
entitled  to the  benefits  of,  directly  or  indirectly,  any  representation,
warranty, indemnification, covenant, restriction or other undertaking concerning
Environmental Laws or the environmental conditions of the Properties.

     (k) Except as set forth in the Purchaser Disclosure  Schedule,  neither the
Purchaser nor any  Subsidiary has released any other person from any claim under


                                       21




any  Environmental  Law  or  waived  any  rights  concerning  the  environmental
condition  of the  Properties,  which  release  or waiver  would have a Material
Adverse Effect on the Purchaser.

     SECTION 4.10 ERISA Matters. The Purchaser, each of its Subsidiaries and all
Employee  Benefit  Plans as defined in Section 3(3) of ERISA,  that cover any of
its or their employees (which Employee Benefit Plans are listed on the Purchaser
Disclosure   Schedule),   comply  in  all  material   respects  with  all  laws,
requirements  and orders  under ERISA and the Code,  the breach or  violation of
which  would  have  a  Material   Adverse   Effect  on  the  Purchaser  and  its
Subsidiaries,  taken as a whole;  the present value of all the assets of each of
its  Employee  Benefit  Plans that it is subject to Title IV of ERISA  equals or
exceeds  to the  knowledge  of the  Purchaser  the  present  value of all of the
benefits  accrued  under each such  Employee  Benefit Plan as of the end of most
recent  plan year with  respect to such plan  ending  prior to the date  hereof,
calculated on the basis of the actuarial  assumptions used in the last actuarial
evaluation for each such plan;  none of the employees of the Purchaser or any of
its Subsidiaries is covered by a collective  bargaining  agreement;  neither the
Purchaser nor any of its  Subsidiaries  has ever contributed to a "multiemployer
plan" as defined in Section 3(37) of ERISA;  neither the Employee  Benefit Plans
nor  any  fiduciary  or  administrator  thereof  has  engaged  in a  "prohibited
transaction"  as defined in Section 406 of ERISA or, where  applicable,  Section
4975 of the  Code  for  which  no  exemption  is  applicable,  that may have any
Material Adverse Effect on the Purchaser and its Subsidiaries, taken as a whole,
nor to the knowledge of the Purchaser have there been any "reportable events" as
defined in Section  4043 of ERISA for which the  thirty-day  notice has not been
waived.

     SECTION 4.11 Taxes, Tax Returns.

     (a)  Except  as set  forth  on the  Purchaser  Disclosure  Schedule  or the
Purchaser SEC Reports,  each of the Purchaser and its  Subsidiaries for which it
files  returns has duly and timely filed in correct form all federal,  state and
local  information  returns and tax returns  required to be filed by it and such
Subsidiaries  on or prior to the date hereof (all such returns to the  knowledge
of the Purchaser  being accurate and complete in all material  respects) and, to
the knowledge of the Purchaser,  has duly paid or made provision for the payment
of all taxes and other governmental  charges which have been incurred or are due
or claimed to be due from them by any governmental authority (including, without
limitation, those due in respect of their properties,  income, business, capital
stock,  franchises,  licenses,  sales and  payrolls)  other  than taxes or other
charges (i) which are not yet  delinquent  or are being  contested in good faith
and set forth in the Purchaser Disclosure Schedule or the Purchaser SEC Reports,
(ii) have not been  finally  determined  or (iii)  that  would  have a  Material
Adverse Effect on the Purchaser.  The  liabilities and reserves for taxes in the
Purchaser  Financial  Statements are sufficient in the aggregate for the payment
of all  unpaid  federal,  state and  local  taxes  (including  any  interest  or
penalties  thereon),  whether or not  disputed or accrued,  for the period ended
December  31, 1996 or for any year or period  prior  thereto,  and for which the
Purchaser  or any of its  Subsidiaries  may be  liable  in its own  right  or as
transferee  of  the  assets  of,  or  successor  to,  any  corporation,  person,
association, partnership, joint venture or other entity.

     (b) To the knowledge of the Purchaser, (i) proper and accurate amounts have
been  withheld by the Purchaser and its  Subsidiaries  from their  employees and
others for all prior periods in compliance in all material respects with the tax
withholding   provisions  of  applicable  federal,  state  and  local  laws  and


                                       22



regulations,  and proper due diligence  steps have been taken in connection with
back-up  withholding,  (ii) federal,  state and local returns which are accurate
and complete in all material  respects have been filed by the Purchaser and each
of its  Subsidiaries  for all periods for which returns were due with respect to
income tax  withholding,  Social Security and  unemployment  taxes and (iii) the
amounts  shown on such returns to be due and payable have been paid in full,  or
adequate  provision  therefore  has been  included by the  Purchaser in the most
recent Purchaser Financial Statements.

     SECTION 4.12  Undisclosed  Liabilities.  The Purchaser is not liable for or
subject to any  Liabilities,  except (a)  Liabilities  adequately  disclosed  or
reserved for in the most recent Purchaser Financial  Statements or Purchaser SEC
Reports  and not  heretofore  paid or  discharged,  (b)  Liabilities  under  any
contract,  commitment  or  agreement  specifically  disclosed  on the  Purchaser
Disclosure Schedule or the Purchaser SEC Reports (and Purchaser  represents that
it has adequately  reserved for any such liabilities if so required by generally
accepted accounting  principles),  or (c) Liabilities incurred,  consistent with
past  practice,  in or as a result of the  ordinary  course of  business  of the
Purchaser  since the date of the most  recent  Purchaser  Financial  Statements.
Since the date of the most recent Purchaser  Financial  Statements,  no Material
Adverse Event has occurred with respect to Purchaser.

     SECTION 4.13 Tax Audits.  Except as disclosed in the  Purchaser  Disclosure
Schedule or the  Purchaser  SEC Reports,  (i) no audit of any material  federal,
state or local U.S.  return of the  Purchaser or any  Subsidiary is currently in
progress,  nor has the  Purchaser or any  Subsidiary  been notified that such an
audit is  contemplated by any taxing  authority,  (ii) neither the Purchaser nor
any  Subsidiary  has  extended  any statute of  limitations  with respect to the
period for assessment of any federal, state or local U.S. tax, (iii) neither the
Purchaser  nor any  Subsidiary  contemplates  the filing of an  amendment to any
return,  which amendment would have a Material  Adverse Effect on the Purchaser,
and (iv) neither the  Purchaser nor any  Subsidiary  has any actual or potential
material  liability for any tax obligation of any taxpayer  (including,  without
limitation,  any  affiliated  group  of  corporations  or other  entities  which
included the Purchaser or any  Subsidiary  during a prior period) other than the
Purchaser or its Subsidiaries.  Except as disclosed in the Purchaser  Disclosure
Schedule or the Purchaser SEC Reports,  there are no material tax claims pending
against the Purchaser or any  Subsidiary and there are no material tax claims to
the knowledge of the Purchaser  threatened to be asserted  against the Purchaser
or any  Subsidiary.  For purposes of this Section 4.13,  "tax" and "taxes" shall
include  all  income,  gross  receipt,  franchise,  excise,  real  and  personal
property, sales, ad valorem, employment,  withholding and other taxes imposed by
any foreign,  federal, state, municipal,  local, or other governmental authority
including assessments in the nature of taxes.

     SECTION 4.14 No Default; Compliance.

     (a)  Except  as set  forth  in the  Purchaser  Disclosure  Schedule  or the
Purchaser SEC Reports,  neither the Purchaser nor any of its  Subsidiaries is in
material  default  under,  and no condition  exists that with notice or lapse of
time or both would constitute a material  default under, (i) any mortgage,  loan
agreement,  indenture,  evidence of indebtedness or other instrument  evidencing
borrowed  money to which either the  Purchaser or any of its  Subsidiaries  is a
party  or by  which  either  the  Purchaser  or any of its  Subsidiaries  or its
properties  is bound,  (ii) any  judgment,  order or  injunction  of any  court,
arbitrator or governmental agency or (iii) any other agreement, contract, lease,
license or other instrument, which default or potential default might reasonably
be expected to have a Material Adverse Effect.

                                       23




     (b)  Except  as set  forth  in the  Purchaser  Disclosure  Schedule  or the
Purchaser SEC Reports,  the Purchaser and each of its Subsidiaries have complied
in all  material  respects  with all laws,  regulations,  orders,  judgments  or
decrees of any federal or state court or  governmental  authority  applicable to
their  respective  businesses and  operations,  non-compliance  with which might
reasonably be expected to have a Material Adverse Effect.

     SECTION 4.15 Representations and Warranties Continuing. The representations
and  warranties  set forth  herein  shall be true and correct on the date hereof
(except to the  extent any such  representation  or  warranty  speaks of another
date) and,  subject to an update to the  Purchaser  Disclosure  Schedule and the
Purchaser  SEC Reports,  from time to time, at all times prior to the Closing as
if made from time to time, prior to the Closing including,  without  limitation,
at the Closing.

     SECTION  4.17  Title to  Property.  Except as  disclosed  on the  Purchaser
Disclosure  Schedule or in the most recent Purchaser Financial  Statements,  (i)
the Purchaser and each of its Subsidiaries  has good and  indefeasible  title to
its real  property  and other  property  and  assets  that are  material  to the
Purchaser's  business on a consolidated basis, (ii) such real property and other
property  and  assets are  insured  to the  extent  they are of a type for which
insurance is generally  available,  (iii) such real property and other  property
and assets are free and clear of all security interests, liens, encumbrances and
encroachments of a material  nature,  except for liens for current taxes not yet
due and payable.

     SECTION 4.18 Insurance.  The Company has not received notice of any pending
or threatened  termination or retroactive  premium  increase with respect to any
insurance  policies in force naming the Purchaser or any of its  Subsidiaries or
any  employees  of any of them as an  insured  or  beneficiary  hereto,  and the
Company and its Subsidiaries are in compliance in all material respects with all
conditions contained therein.  There are no pending material claims against such
insurance by the Purchaser or any of its  Subsidiaries as to which insurers have
denied liability, no defenses provided by insurers under reservations of rights,
and no material  claim under such  insurance that has not been properly filed by
the Purchaser or any of its Subsidiaries.

     SECTION 4.19  Employees.  Except as described in the Disclosure  Statement,
there are no claims or disputes  pending  with any employee  regarding  workers'
compensation,  unemployment benefits,  discrimination  (including discrimination
based on any  disability),  or  compensation,  and no  employment  or collective
bargaining agreements are in effect covering any such person.

     SECTION 4.20 Purchaser  Common Stock.  The Purchaser Common Stock will have
been duly  authorized  and,  when  issued in  accordance  with the terms of this
Agreement,  will  (i) be  validly  authorized  and  issued  and  fully  paid and
nonassessable,  (ii) have been  issued  pursuant  to an  effective  registration
statement  and (iii) have been properly  registered  for trading on the American
Stock Exchange.  No shareholder of Purchaser will have any preemptive  rights or
dissenter's right with respect to the issuance of the Purchaser Common Stock.

                                       24




     SECTION   4.21    Registration    Statement.    The    Purchaser    has   a
presently-effective  Registration  Statement  on Form S-4  (Commission  File No.
333-28525) (the "Registration Statement"), pursuant to which the Purchaser shall
issue the Purchaser  Common Stock issued to the  Shareholder on the Closing Date
pursuant to this Agreement.  The Registration  Statement currently does not, and
will not, on the Closing Date,  contain any untrue statement of a material fact,
or omit to state any materi al fact  required to be stated  therein or necessary
in order to make the statements  therein,  in light of the  circumstances  under
which they were made, not misleading.

                                   ARTICLE V.
                                    COVENANTS

     SECTION 5.1 Conduct of Business of the Company.  Except as  contemplated by
this  Agreement  or  disclosed in the Company  Disclosure  Schedule,  during the
period  from the date of this  Agreement  to the  Closing,  the  Company and its
Subsidiaries will each conduct their operations  according to their ordinary and
usual course of business and consistent with past practice. Without limiting the
generality of the foregoing,  and except as otherwise expressly provided in this
Agreement or disclosed in the Company Disclosure  Schedule,  neither the Company
nor any of its  Subsidiaries  will,  prior to the  Closing,  without  the  prior
written consent of Purchaser (a) issue,  sell or pledge, or authorize or propose
the issuance,  sale or pledge of (i)  additional  shares of capital stock of any
class, or securities  convertible into any such shares, or any rights,  warrants
or options to acquire any such  shares or other  convertible  securities,  other
than pursuant to  commitments  outstanding at the date hereof and referred to in
Section  3.2,  or (ii) any  other  securities  in  respect  of, in lieu of or in
substitution for, capital stock outstanding on the date hereof;  (b) purchase or
otherwise acquire, or propose to purchase or otherwise acquire,  any outstanding
securities; (c) declare or pay any dividend or distribution on any shares of its
capital  stock;  (d) authorize,  recommend,  propose or announce an intention to
authorize,  recommend or propose,  or enter into an agreement in principle or an
agreement with respect to, any merger,  consolidation  or business  combination,
any acquisition of a material amount of assets or securities, any disposition of
a  material  amount  of  assets  or  securities  or any  material  change in its
capitalization,  or any  entry  into a  material  contract  or  any  release  or
relinquishment  of any material  contract rights,  not in the ordinary course of
business;  (e) propose or adopt any  amendments  to its charter or by-laws;  (f)
enter into, assign or terminate,  or amend in any material respect, any Contract
other than in the ordinary course of business; (g) acquire, dispose of, encumber
or relinquish any material  asset (other than sale of real  properties at prices
equal to or greater than their carrying values); (h) waive, compromise or settle
any  right or claim  that  would  materially  adversely  affect  the  ownership,
operation or value of any asset;  (i) make any capital  expenditures  other than
pursuant to existing  capital  expenditure  programs  that are  disclosed in the
Company Disclosure Schedule or in the ordinary course of business;  (j) allow or
permit the  expiration,  termination  or  cancellation  at any time prior to the
Closing of any of the insurance  policies or coverages or surety bonds currently
maintained  by or on  behalf  of the  Company  unless  replaced  with a  policy,
coverage or bond having  substantially  the same  coverage and similar terms and
conditions;   (k)  increase,   directly  or  indirectly,  the  salary  or  other
compensation  of any officer or member of management,  enter into any employment
agreement  with any person or pay or enter into any agreement to pay any bonuses
or other  extraordinary  compensation  to any  officer of the  Company or to any
member of management or other  employees,  or institute any general  increase in
rates of compensation  for its employees,  or increase,  directly or indirectly,

                                       26




any  provisions  or other  benefits  of any of such  persons  other  than in the
ordinary  course of business;  or (l) waive,  settle or compromise  any material
litigation  or  other  claim  on a  basis  materially  adverse  to the  Company.
NOTWITHSTANDING ANYTHING HEREIN TO THE CONTRARY, THE COMPANY MAY DECLARE AND PAY
A DIVIDEND OR DISTRIBUTION ON ITS SHARES OF CAPITAL STOCK OR REDEEM A PORTION OF
SUCH CAPITAL STOCK ON OR BEFORE CLOSING UP TO THE NET PROCEEDS RECEIVED FROM THE
SALE OF THE  PROPERTIES TO HEALTH CARE REIT,  INC.,  LESS ALL LEGAL FEES PAID OR
PAYABLE BY THE COMPANY  RELATING IN ANY WAY TO THE TRANSACTION SET FORTH IN THIS
AGREEMENT.  "NET  PROCEEDS" IS DEFINED FOR THESE  PURPOSES AS ALL CASH  RECEIVED
LESS ALL SECURED AND SHAREHOLDER DEBT, TITLE INSURANCE PREMIUMS AND SURVEY FEES,
BUT EXPLICITLY  EXCLUDING ANY ENVIRONMENTAL SURVEY FEES AND APPRAISAL FEES. SUCH
NET PROCEEDS ARE SET FORTH ON THE ATTACHED SCHEDULE 5.1.


     SECTION 5.2 Access to Information.

     (a) Between the date of this  Agreement  and the Closing,  the parties will
afford to one another and their  authorized  representatives  reasonable  access
(subject to tenants'  rights) to the assisted living  facilities,  offices,  and
other  real  property  and to the  books  and  records  of  such  party  and its
Subsidiaries,  will permit the parties  and their  representatives  to make such
reasonable  inspections  as they may require and will cause their  officers  and
those of their  Subsidiaries  to furnish the  parties and their  representatives
with such  financial and operating  data,  environmental  assessments  and other
information  with respect to the  business and real  property of the parties and
their  Subsidiaries  as they and  their  representatives  may from  time to time
reasonably request. No inspection or examination by either party will constitute
a waiver of any claim against the other party for misrepresentation or breach of
this Agreement.

     (b) The parties will hold and will cause their  representatives  to hold in
strict  confidence,  unless compelled to disclose by judicial or  administrative
process,  or, in the  opinion of  counsel,  by other  requirements  of law,  all
documents and  information  concerning  the parties  furnished to them and their
representatives  in  connection  with  the  transactions  contemplated  by  this
Agreement  (except to the extent that such information can be shown to have been
(i)  in  the  public   domain   through  no  fault  of  the   parties  or  their
representatives,  or (ii)  later  lawfully  acquired  by the  parties  or  their
representatives  from other sources  unless they or their  representatives  know
that such other sources are not entitled to disclose such  information) and will
not release or disclose  such  information  to any other  person,  except  their
auditors,  attorneys,  financial  advisors and other consultants and advisors in
connection with this Agreement,  provided that such person shall have first been
advised  of  the   confidentiality   provision  of  this  Section  5.2.  If  the
transactions contemplated by this Agreement are not consummated, such confidence
shall be maintained  except to the extent such  information can be shown to have
been  (i)  in  the  public  domain  through  no  fault  of  Purchaser  or  their
representatives,   or  (ii)  later   lawfully   acquired   by  the   parties  or
representatives  from other sources,  and, if requested by the other party will,
and will cause its agents, auditors,  consultants,  representatives and advisors
to, return to the other or destroy all copies of written information furnished.

     (c) Purchaser  agrees to furnish the Shareholder  with, upon their request,
the Purchaser SEC Reports and, at the time of filing,  copies of all reports and
filing  (including  exhibits  and  schedules)  filed by  Purchaser  with the SEC
between the date hereof and the Closing.



                                       26



     SECTION  5.3 Best  Efforts.  Subject  to the  terms and  conditions  herein
provided,  and to the fiduciary duties of the Boards of Directors of the parties
under  applicable  law, each of the parties  hereto agrees to use its reasonable
efforts to take,  or cause to be taken,  all  action,  and to do, or cause to be
done,  all things  necessary,  proper or  advisable  under  applicable  laws and
regulations to consummate and make effective the  transactions  contemplated  by
this Agreement,  including without limitation,  causing the conditions set forth
in  Article  VI to be met.  In case at any time after the  Closing  any  further
action is necessary  or  desirable to carry out the purposes of this  Agreement,
the proper officers and directors of each party to this Agreement shall take all
such necessary action.

     SECTION 5.4 Consents.  Purchaser  and the Company each will use  reasonable
efforts to obtain  such  consents  of third  parties to  agreements  which would
otherwise be violated by closing this Agreement,  to take all actions  necessary
to effect the transactions  contemplated  hereby,  and to make such filings with
governmental  authorities necessary to consummate the transactions  contemplated
by this Agreement.

     SECTION 5.5 Public  Announcements.  Purchaser  and the Company will consult
with each other before issuing any press release or otherwise  making any public
statements  with respect to the existence of this  Agreement and shall not issue
any  such  press  release  or make  any  such  public  statement  prior  to such
consultation, except as may be required by law or by obligations pursuant to any
listing agreement with any national securities exchange.

     SECTION 5.6 Noncompete Agreements.

     (a) For a period of one year following the date of Closing, the Shareholder
shall not directly or  indirectly  (i) act or serve as an employee  (except in a
capacity  which does not involve  management,  executive  policy-making,  sales,
marketing,  product development,  finance, or accounting activities or advice to
management,  sales,  marketing,  development or accounting personnel),  officer,
director,  manager,  trustee,  agent,  operator,  advisor, or consultant for any
Competing  Business  (as defined  below)  operating  within the Area (as defined
below);  (ii) have any  beneficial  ownership or equity  interest  (except for a
passive  ownership  interest  of less than five  percent in any  company) in any
Competing  Business  operating within the Area, whether such interest is derived
as a sole proprietor,  partner, shareholder,  beneficiary, or otherwise, or have
any right, option, agreement,  understanding, or arrangement to acquire any such
interest; (iii) solicit, divert, or appropriate,  or attempt to solicit, divert,
or  appropriate  to or for a Competing  Business  the  business of any person or
entity  located within the Area which was a customer of the Company on or within
one year prior to the Closing Date (or later  termination  of employment) or the
business of which the Company had solicited within one year prior to the Closing
Date  (or  later  termination  of  employment)  or  (iv)  solicit,   divert,  or
appropriate, or attempt to solicit, divert, or appropriate to or for a Competing
Business the  employment,  directly or indirectly,  of any person located within
the Area which was an employee of the Company on or within one year prior to the
Closing Date (or later termination of employment of such Shareholder); provided,
however,  this Section  5.6(a) shall not  restrict  any such  activities  by the
Shareholder  in  relation  to his  business  activities  as of the date  hereof,
including all such business activities involving or related to:

     (A)  the  Shareholder's  Class A  limited  partnership  interest  in  Villa
          Residential Care Homes-Corpus  Christi South,  L.P., Villa Residential
          Care   Homes-Fort   Worth   East,   L.P.,   Villa   Residential   Care


                                       27



          Homes-Granbury,  L.P. and Villa Residential Care Homes-Oak Park, L.P.,
          each of which are Texas limited partnerships;

     (B)  the  Shareholder's  ownership  interest in  VRCH-Dallas,  Inc.,  Villa
          Residential Care Homes,  Arlington,  Inc., VRCH South,  Inc.,  VRCH-FW
          East, Inc., VRCH-Granbury, Inc. and VRCH-Oak Park, Inc., each of which
          are Texas corporations; or

     (C)  the Shareholder's  limited  partnership  interest in Villa Residential
          Care  Homes-Arlington I, L.P. and Villa Residential Care Homes-Dallas,
          L.P., each of which are Texas limited partnerships.

     (b)  (i)  Notwithstanding  anything  to  the  contrary  herein  (including,
specifically,  Section 5.06(a)),  the Shareholder shall be entitled to engage in
the development and operation of assisted living facilities  wholly-owned by the
Shareholder (a "Facility") in a Permissible Development Area (as defined below),
subject to the provisions and  limitations  set forth herein.  In the event that
the  Shareholder  wishes to develop a Facility in the limits of any city or town
that  Purchaser  (or  any  Subsidiary  of  Purchaser)  is  not  engaged  in  the
management,  operation or lease of an assisted living facility (the "Permissible
Development Area"),  Purchaser shall be notified in writing no later than ninety
(90) days prior to the entering into any agreement for the  acquisition or lease
of a site for the development of the Facility.  Such notification shall include,
in reasonable detail, a description of the proposed development, market studies,
and such other  information  as may be  reasonably  necessary  to  evaluate  the
proposed development.  Upon such notification,  Purchaser shall have the option,
exercisable within thirty (30) days after receipt of such notification, to elect
to manage the Facility  upon terms and  conditions  customary  in the  industry.
Further, Purchaser shall have the right of "first refusal" to purchase, lease or
manage  any  Facility  developed  by the  Shareholder  during  the  term  of the
restriction  set forth in  Section  5.06(a)  above in  accordance  with  Section
5.06(b)(ii) below.

     (b) (ii) During the term of the  restriction  set forth in Section  5.06(a)
above,  before offering the Facility for sale,  lease or management (but not for
mortgage),  Shareholder  shall give Purchaser  notice of its intention to do so,
specifying the minimum purchase price,  cash down and deferred payment terms, if
any,  including  interest rate,  amortization  period and balloon  payment date,
types or amounts of security  required and guarantees,  term of lease and rental
rates,  or terms of  management  agreement,  and all  other  material  terms and
conditions  which  Shareholder  is  willing to accept  ("Shareholder's  Offer").
Purchaser,  its successors and assigns,  shall have a period of thirty (30) days
following the date of Shareholder's Offer to elect to purchase,  lease or manage
the Facility for the price,  lease or management terms and other terms set forth
therein.  If Purchaser accepts  Shareholder's  Offer, in the case of a sale, the
purchase  and sale  shall  take  place on the  date and in  accordance  with the
procedures  set forth  therein  but in any event  Purchaser  shall have at least
ninety (90) days after the date of acceptance of Shareholder's  Offer to conduct
due  diligence,  to  obtain  financing,  and  close.  In the  case of a lease or
management  agreement,  Purchaser  shall  have sixty (60) days after the date of
acceptance of  Shareholder's  Offer to conduct its due  diligence.  If Purchaser
fails to give Shareholder notice of acceptance within thirty (30) days after the
date of Shareholder's  Offer, or (except as hereinafter  expressly  provided) if
Purchaser  gives notice of acceptance and thereafter  fails to close within such
sixty  (60)  day  period  or to  enter  into a  management  agreement  or  lease


                                       28



agreement,  for any reason other than Shareholder's  default, such offer and all
rights of  Purchaser  under this  Section  shall lapse,  and  Shareholder  shall
thereafter  be free to sell and convey,  or to lease or enter into a  management
agreement   for  the  Facility  with  any  party  on  the  terms  set  forth  in
Shareholder's  Offer. If Shareholder  does not enter into a binding purchase and
sale  agreement,  lease  agreement or management  agreement,  upon the terms set
forth in  Shareholder's  Offer  or  Shareholder  desires  to  accept  materially
different  terms,  then all of the provisions of this Section shall again apply.
In addition,  if at any time during the term set forth in Section 5.06(a) above,
Shareholder  receives an offer to  purchase,  lease,  or manage the Facility (an
"Unsolicited  Offer") on terms which Shareholder desires to accept,  Shareholder
shall, before  unconditionally  accepting such Unsolicited Offer, first offer to
sell the Facility to Purchaser on the same terms and conditions as are set forth
therein, which offer shall constitute  Shareholder's Offer with exactly the same
force and effect as an offer made in accordance  with the first sentence of this
Section.

     (c) For the purposes of this Section 5.6,  "Competing  Business"  means any
business which is engaged in the ownership or management of retirement, assisted
living or  Alzheimer's  care  residences and  facilities.  "Area" shall mean any
state of the United States in which the Purchaser or its  Subsidiaries  owned or
managed one or more assisted living  facilities at the date of this Agreement or
at any time  thereafter  that the  Shareholder is employed by the Purchaser or a
Subsidiary.

     (d) If any Shareholder commits a breach, or threatens to commit a breach of
the  provisions  of  subsection  (a) above,  Purchaser  shall have the right and
remedy to have the  provisions of subsection  (a)  specifically  enforced by any
court having jurisdiction, it being acknowledged and agreed that any such breach
or threatened breach will cause  irreparable  injury to Purchaser and that money
damages will not provide an adequate remedy to Purchaser.

     (e) If any of the covenants  contained in subsection (a) above, or any part
thereof, are hereafter construed to be invalid or unenforceable,  the same shall
not affect the remainder of the covenant or covenants, which shall be given full
effect, without regard to the invalid portions.

     (f) If any of the covenants  contained in subsection (a) above, or any part
thereof,  are held to be unenforceable  because of the scope or duration of such
provision or the  geographic  area covered  thereby,  the parties agree that the
court  making  such  determination  shall  have the power to reduce  the  scope,
duration,  or area of such  provision  and, in its reduced form,  said provision
shall then be enforceable.

     SECTION 5.7 Management and Operations of the Properties. Except in the case
of a change of control of Purchaser,  the  Purchaser  shall cause the Company to
continue to manage and operate the Properties  and each of the other  properties
that is subject to a management agreement set forth on Exhibit C attached hereto
for a minimum  period of two (2) years  from the  Closing  Date,  in each  case,
pursuant to the respective subleases and management agreements set forth in such
Exhibit C. Additionally, Purchaser shall cause each of the management agreements
and  subleases  to remain  in full  force and  effect  during  such two (2) year
period.

     SECTION 5.8 Voting of Shares.  The  Shareholder  agrees that, if it becomes
necessary for the Purchaser to submit to a vote of its  stockholders  a proposal

                                       29



to approve the  spin-off  of the shares of  Residential  Healthcare  Properties,
Inc.,  he will vote all of his shares of the Common  Stock of the  Purchaser  in
favor of such proposal.

                                   ARTICLE VI.
                  CONDITIONS TO CONSUMMATION OF THIS AGREEMENT

     SECTION 6.1 Conditions to Consummation of this Agreement by Purchaser.  The
obligation of Purchaser to consummate the  transactions  contemplated  herein is
subject to the satisfaction of the following conditions at or before the Closing
Date:

     (a) The Board of  Directors  of the  Purchaser  shall  have  approved  this
Agreement.

     (b) Since the date of this  Agreement,  there  shall have been no  material
adverse  change in the  business,  properties,  or  financial  condition  of the
Company.

     (c) All parties  shall have  delivered  all  documents  and taken all other
actions required by this Agreement.

     (d) All representations and warranties of each party contained herein shall
be  true  in  all  material  respects  as of  the  Closing  Date,  except  as to
transactions contemplated by this Agreement or representations which are as of a
specific date.

     (e) Purchaser shall have been furnished with such  certificates of officers
of Company, in form and substance reasonably satisfactory to Purchaser, dated as
of the Closing  Date,  certifying  to such matters as Purchaser  may  reasonably
request,  including  but  not  limited  to the  fulfillment  of  the  conditions
specified in this Section.

     (f) No statute,  rule,  regulation,  executive order, decree, or injunction
shall  have been  enacted,  entered,  promulgated  or  enforced  by any court of
competent  jurisdiction in the United States or domestic governmental  authority
which prohibits or restricts the consummation of this Agreement.

     (g) At the Closing,  each Shareholder shall deliver a release of all claims
he may have against the Company or any Subsidiary.

     (h) The transactions  contemplated by the agreements listed on the attached
Exhibit B shall also close.

     (i) The  Shareholder  shall have caused to be delivered to the Purchaser an
opinion of counsel to the  Shareholder  dated as of the Effective  Date, in form
and  substance  reasonably  satisfactory  to the  Purchaser,  as to  each of the
matters set forth in Sections  3.1,  3.2, 3.3 and 3.6 and such other  matters as
the  Purchaser  may  reasonably  request,  which  opinion may contain  customary
exceptions and qualifications.


                                       30



     SECTION 6.2 Conditions to Consummation of this Agreement by Shareholder and
Company.  The  obligation of the  Shareholder  and the Company to consummate the
transactions contemplated herein is subject to the satisfaction of the following
conditions at or before the Closing Date:

     (a) Since the date of this  Agreement,  there  shall have been no  material
adverse change in the business, properties, or financial condition of Purchaser.

     (b) All parties  shall have  delivered  all  documents  and taken all other
actions required by this Agreement.

     (c) All representations and warranties of each party contained herein shall
be  true  in  all  material  respects  as of  the  Closing  Date,  except  as to
transactions contemplated by this Agreement or representations which are as of a
specific date.

     (d) The  Shareholder  shall have been furnished with such  certificates  of
officers of Purchaser,  in form and  substance  reasonably  satisfactory  to the
Shareholder,  dated as of the Closing  Date,  certifying  to such matters as the
Company may reasonably request,  including but not limited to the fulfillment of
the conditions specified in this Section.

     (e) All consents,  approvals,  authorizations and permits of or filing with
or  notifications to any Government  Authority  necessary for the performance by
the Purchaser of this Agreement shall have been obtained,  and no statute, rule,
regulation,  executive  order,  decree,  or injunction  shall have been enacted,
entered,  promulgated or enforced by any court of competent  jurisdiction in the
United States or domestic  governmental  authority  which prohibits or restricts
the consummation of this Agreement.

     (f) The transactions  contemplated by the agreements listed on the attached
Exhibit B shall also close.

     (g) The Purchaser  shall have caused to be delivered to the Company and the
Shareholder,  an opinion of counsel to the  Purchaser  dated as of the Effective
Date, in form and substance  satisfactory to the Shareholder,  as to each of the
matters set forth in Sections  4.1,  4.2, 4.3 and 4.6 and such other  matters as
the  Shareholder  may reasonably  request,  which opinion may contain  customary
exceptions and qualifications.

                                  ARTICLE VII.
                         TERMINATION, AMENDMENTS; WAIVER

     SECTION  7.1  Termination.   This  Agreement  may  be  terminated  and  the
transactions  contemplated  hereby may be abandoned at any time  notwithstanding
approval thereof by the Purchaser and the Shareholder, but prior to the Closing:

     (a) by mutual written  consent duly  authorized by the  Shareholder and the
Board of Directors of Purchaser and the Company;

                                       31




     (b) by Purchaser or the  Shareholder if the Closing shall not have occurred
on or before  December  31,  1997,  unless  such  failure is caused by the party
seeking termination;

     (c) by Purchaser or the Shareholder if any court of competent  jurisdiction
or other governmental  authority shall have issued an order, decree or ruling or
taken any other action  restraining,  enjoining or  otherwise  prohibiting  this
Agreement or if litigation or  proceedings  shall be pending that are reasonably
likely to result in any of the foregoing;

     (d)  by  the  Shareholder,  if  Purchaser  shall  not  have  performed  all
obligations required to be performed by them under this Agreement,  except where
any failures to perform would, in the aggregate,  not materially impair or delay
the ability of Purchaser and the Shareholder to effect this Agreement;

     (e) by the  Shareholder or Purchaser,  if there shall have been a breach of
any of the covenants  contained herein or if any representation or warranty made
by any other party is untrue in any material respect;

     SECTION  7.2 Effect of  Termination.  In the event of the  termination  and
abandonment  of this  Agreement  pursuant to Section 7.1, this  Agreement  shall
forthwith  become void and have no effect,  without any liability on the part of
any  party  or  its  directors,  officers,  or  shareholders,   other  than  for
intentional breach or the provisions of Sections 5.2(b).

     SECTION 7.3  Amendment.  This  Agreement may be amended only by means of an
instrument in writing signed on behalf of all the parties.

     SECTION  7.4  Extension;  Waiver.  At any time  prior to the  Closing,  the
parties hereto, by action taken by or on behalf of the Shareholder and the Board
of Directors of the Company and the  Purchaser,  may (a) extend the time for the
performance  of any of the  obligations  or other  acts of any other  applicable
party hereto, (b) waive any inaccuracies in the  representations  and warranties
contained herein by any other  applicable party or in any document,  certificate
or writing delivered  pursuant hereto by an other applicable party, or (c) waive
compliance with any of the agreements of any other  applicable party or with any
conditions  to its own  obligations.  Any  agreement  on the  part of any  other
applicable  party to any such  extension  or waiver  shall be valid  only if set
forth in an instrument in writing signed on behalf of such party.

                                  ARTICLE VIII.
                                 INDEMNIFICATION

     SECTION 8.1 Purchaser's Right to Indemnification. The Shareholder shall and
does  hereby  indemnify  and hold  harmless,  Purchaser,  and its  shareholders,
directors,  officers,  employees,  agents and  representatives  from any and all
liabilities,  obligations,  claims,  contingencies,  damages, costs and expenses
(including all court costs and reasonable attorneys' fees) that Purchaser or any
such other  indemnified  party may suffer or incur as a result of or relating to
(i) the material breach or inaccuracy of any of the representations, warranties,
covenants  or  agreements  made by  Company  and/or  the  Shareholder  herein or
pursuant hereto, (ii) any loss,  liability or claim resulting from the operation
of the  Company  prior to the  Closing  Date,  and  (iii)  any  loss,  including


                                       32



attorneys' fees and expenses,  resulting from any litigation against the Company
pending  on the  Closing  Date,  whether  or not  disclosed  to  Purchaser.  The
Shareholder's  liability under this Section shall be limited to the value of the
Purchaser  Common  Stock  included in the  Purchase  Price and  received by such
Shareholder.  The Shareholder may satisfy any such obligation under this Section
by transferring Purchaser Common Stock valued on the basis of the greater of (i)
the Current Market Price on the Closing Date or (ii) the Current Market Price on
the 20th  trading day after the date notice was given of the claim.  Except with
respect to any  amounts due by the  Shareholder  pursuant to Section 2.2 and 2.3
hereof,  the  obligation  of the Company and the  Shareholder  to indemnify  the
Purchaser  pursuant to this Section 8.1 shall be effective only if the aggregate
amount of such indemnity exceeds $25,000; provided,  however, once the aggregate
amount of such indemnity  exceeds $25,000,  the  indemnification  obligations of
each of the  Shareholder  and the Company  shall be  effective as to all amounts
incurred by the Purchaser,  subject to the limitations set forth in this Section
8.1.

     SECTION 8.2 Company's or Shareholder's Right to Indemnification.  Purchaser
shall and does hereby indemnify and hold Company and the Shareholder,  and their
directors, officers, employees, agents and representatives harmless from any and
all liabilities, obligations, claims, contingencies, damages, costs and expenses
(including all court costs and reasonable  attorneys'  fees) that Company or any
such  indemnified  party may suffer or incur as a result of or relating  to: (a)
the breach or inaccuracy,  or any alleged  breach or  inaccuracy,  of any of the
representations, warranties, covenants or agreements made by Purchaser herein or
pursuant  hereto;  (b) any  personal  guaranty  or personal  obligations  of the
Shareholder  in  connection  with  a  Company   obligation,   including  without
limitations  any  amounts  drawn on the  Company's  letters  of credit  that are
guaranteed by the Shareholder; and (c) those liabilities,  obligations,  claims,
contingencies  and  encumbrances  accruing  or  arising  after  the  Closing  in
connection  with the business of the  Purchaser,  except to the extent that such
liabilities, obligations, claims, contingencies or encumbrances are attributable
to a breach of  warranty,  representation  or  covenant  by  Company  and/or the
Shareholder prior to the Closing.

     SECTION   8.3  Notice.   The  party   seeking   indemnification   hereunder
("Indemnitee") shall promptly,  and within 30 days after notice to it (notice to
Indemnitee  being the filing of any  action,  receipt of any claim in writing or
similar  form of actual  notice)  of any claim as to which it asserts a right to
indemnification,   notify  the  party  from  whom   indemnification   is  sought
("Indemnitor")  of such claim.  Indemnitee  shall bill  Indemnitor  for any such
claims no more frequently than on a monthly basis, and Indemnitor shall promptly
pay (or cause to be paid)  Indemnitee upon receipt of any such bill. The failure
of Indemnitee to give the notification to Indemnitor  contemplated above in this
Section shall not relieve  Indemnitor  from any liability or obligation  that it
may have  pursuant  to this  Agreement  unless the  failure to give such  notice
within such time shall have been  materially  prejudicial to it, and in no event
shall  the  failure  to give  such  notification  relieve  Indemnitor  from  any
liability it may have other than pursuant to this Agreement.

     SECTION  8.4  Third-Party  Claims.  If any  claim  for  indemnification  by
Indemnitee  arises out of an action or claim by a person other than  Indemnitee,
Indemnitor  may,  by written  notice to  Indemnitee,  undertake  to conduct  the
defense  thereof  and to take  all  other  steps or  proceedings  to  defeat  or
compromise  any such  action or claim,  including  the  employment  of  counsel;
provided that Indemnitor shall  reasonably  consider the advice of Indemnitee as
to the defense or compromise of such actions and claims,  and  Indemnitee  shall
have the right to  participate,  at its own expense,  in such  proceedings,  but
control of such proceedings shall remain exclusively with Indemnitor;  provided,

                                       33



however,  if defendants in any action include the Indemnitee and the Indemnitor,
and the Indemnitee  shall have been advised by its counsel in writing that there
are material legal defenses available to the Indemnitee which are different from
or in addition to those available to the Indemnitor,  the Indemnitee  shall have
the right to employ its own counsel in such action, and, in such event, the fees
and expenses of such counsel shall be born by the Indemnitor.  If the Indemnitor
shall  not  assume  the  defense  of any  such  claim  or  litigation  resulting
therefrom,  the  Indemnitee  may defend  against any such claim or litigation in
such manner as it may deem  appropriate and the Indemnitee may settle such claim
or litigation on such terms as it may deem appropriate;  provided, however, that
any such  settlement  shall be subject to the prior  consent of the  Indemnitor,
which consent shall not be unreasonably  withheld.  Indemnitee shall provide all
reasonable  cooperation  to  Indemnitor  in  connection  with such  proceedings.
Counsel  and  auditor  costs  and  expenses  and  court  costs  and  fees of all
proceedings  with  respect  to any  such  action  or  claim  shall  be  borne by
Indemnitor. If any such claim is made hereunder and Indemnitor does not elect to
undertake the defense thereof by written notice to Indemnitee,  Indemnitee shall
be entitled to control such  proceedings and shall be entitled to indemnity with
respect  thereto  pursuant to the terms of this Article VIII. To the extent that
Indemnitor  undertakes the defense of such claim by written notice to Indemnitee
and diligently pursues such defense at its expense, Indemnitee shall be entitled
to   indemnification   hereunder  only  to  the  extent  that  such  defense  is
unsuccessful  as  determined  by a  final  judgment  of  a  court  of  competent
jurisdiction,  or by written acknowledgment of the parties. Within ten (10) days
after final  determination  with respect to a third party claim,  the Indemnitor
shall pay to the Indemnitee the costs incurred by Indemnitee in respect of which
indemnity  may be  sought  pursuant  to  this  Article  VIII.  In the  case of a
non-third party claim,  payment of damages  incurred by the Indemnitee  shall be
made by the  Indemnitor  within  ten (10) days after  receipt  of the  indemnity
notice by Indemnitor.

     SECTION  8.5 Time to  Assert  Claims;  Survivability.  Any  claim  asserted
pursuant to Section 8.1 or Section 8.2 above must be asserted by written  notice
given by one party to the  other on or  before  the  second  anniversary  of the
Closing Date. All representations and warranties of the parties contained herein
shall survive the Closing for a period of two years.

     SECTION  8.6  Access  to  Records.  Shareholder,  or its  agents,  shall be
afforded  reasonable  access to the Purchaser's  books and records during normal
business  hours upon  reasonable  notice for the purpose of verifying  any claim
against Shareholder  hereunder.  Shareholder,  or its agents, may be required to
sign an appropriate  confidentiality  agreement prior to any inspection of books
and records hereunder.

     SECTION 8.7 Arbitration. All disputes under this Agreement shall be settled
by arbitration in Dallas,  Texas before three arbitrators  pursuant to the rules
of the American Arbitration Association.  Each party shall select one arbitrator
and the two  arbitrators  shall select a third.  Arbitration may be commenced at
any time by any party  hereto  giving  written  notice to each other  party to a
dispute that such dispute has been  referred to  arbitration  under this Section
8.7. Any award rendered by the arbitrators  shall be conclusive and binding upon
the parties hereto; provided,  however, that any such award shall be accompanied
by a written  opinion  giving the  reasons  for the award.  This  provision  for
arbitration shall be specifically enforceable by the parties and the decision of
the arbitrators shall be final and binding and there shall be no right of appeal
therefrom,  except  for  alleged  errors of law.  Each  party  shall pay its own
expenses of  arbitration  and the expenses of the  arbitrators  shall be equally


                                       34




shared;  provided,  however, that if in the opinion of the arbitrators any claim
for  indemnification  or any defense or objection thereto was unreasonable,  the
arbitrators  may  assess,  as  part  of  their  award,  all or any  part  of the
arbitration expenses of the other party (including  reasonable  attorney's fees)
and of the  arbitrators  against  the party  raising  such  unreasonable  claim,
defense or objection.

                                   ARTICLE IX.
                                  MISCELLANEOUS

     SECTION 9.1 Parties in Interest.  This Agreement  shall be binding upon and
inure solely to the benefit of each party hereto, and nothing in this Agreement,
express or  implied,  is intended  to or shall  confer upon any other  person or
persons any rights,  benefits or remedies of any nature  whatsoever  under or by
reason of this Agreement.

     SECTION  9.2  Brokerage  Fees and  Commissions.  The  Shareholder  shall be
responsible  for  payment  to C. Kent  Harrington  with  funds  that are not the
Company's any brokerage  commissions  resulting from this Agreement,  except for
commissions  payable to Joe P. Foor, for which  Purchaser  shall be responsible.
Purchaser   represents   that  it  has  incurred  no  obligation  for  brokerage
commissions except to Joe P. Foor.

     SECTION 9.3 Entire  Agreement;  Assignment.  This Agreement (a) constitutes
the entire agreement among the parties with respect to the subject matter hereof
and supersedes all other prior agreements and  understandings,  both written and
oral, among the parties or any of them with respect to the subject matter hereof
and (b) shall not be assigned by operation of law or otherwise.

     SECTION 9.4 Validity.  The invalidity or  unenforceability of any provision
of this Agreement shall not affect the validity or  enforceability  of any other
provisions  of this  Agreement,  each of which  shall  remain in full  force and
effect.

     SECTION 9.5  Notices.  All  notices,  requests,  claims,  demands and other
communications  hereunder  shall be in writing  and shall be deemed to have been
duly given when  delivered  in person,  by  facsimile  telegram or telex,  or by
registered or certified mail (postage prepaid,  return receipt requested) to the
respective parties as follows:










  

                                     35





         (a)      If to the Company:

                           Villa Residential Care Homes, Inc.
                           2621 State Street
                           Dallas, Texas  75204
                           Attention: William A. Shirley, Jr.

                  If to the Shareholder:

                           William A. Shirley, Jr.
                           2621 State Street
                           Dallas, Texas  75204

                  in each case, with a copy to:

                           Andrews & Kurth, L.L.P.
                           1717 Main Street, Suite 3700
                           Dallas, Texas  75201
                           Attention:   Kathleen J. Wu

         (b)      If to Purchaser:

                           Greenbriar Corporation
                           4265 Kellway Circle
                           Addison, Texas  75244
                           Attention:  Gene S. Bertcher

                  with a copy to:

                           Mark E.  Bennett, Esq.
                           14933 Oaks North Drive
                           Dallas, Texas 75240

or to such  other  address  as the  person  to whom  notice  is  given  may have
previously  furnished  to the others in  writing  in the manner set forth  above
(provided  that  notice of any change of address  shall be  effective  only upon
receipt thereof).

     SECTION  9.6  GOVERNING  LAW.  THIS  AGREEMENT  SHALL  BE  GOVERNED  BY AND
CONSTRUED IN ACCORDANCE  WITH THE LAWS OF THE STATE OF TEXAS,  REGARDLESS OF THE
LAWS THAT MIGHT  OTHERWISE  GOVERN UNDER  APPLICABLE  PRINCIPLES OF CONFLICTS OF
LAWS THEREOF.

         SECTION 9.7 Descriptive  Headings.  The descriptive headings herein are
inserted for convenience of reference only and are not intended to be part of or
to affect the meaning or interpretation of this Agreement.

                                       36




     SECTION 9.8  Counterparts.  This  Agreement  may be executed in two or more
counterparts,  each of which shall be deemed to be an original, but all of which
together shall constitute one and the same agreement.

     SECTION 9.9 Expenses.  Except as otherwise  provided herein,  the Purchaser
and Shareholder  shall bear and pay all costs and expenses  incurred by it or on
its behalf in connection with the transactions contemplated hereunder, including
fees and expenses of its own financial or other consultants, investment bankers,
accountants and counsel.

     SECTION 9.10 Certain Definitions.

     (a)  "Material  Adverse  Effect"  shall  mean  any  adverse  change  in the
financial  condition,  assets,  business  or  operations  of any  party  and its
Subsidiaries which is material to such party taken as a whole.

     (b)  "Subsidiary"  shall mean,  when used with reference to an entity,  any
corporation,  a majority of the outstanding voting securities of which are owned
directly or indirectly by such entity.  When referring to Purchaser,  Subsidiary
shall also mean Residential Healthcare  Properties,  Inc., a Nevada corporation,
and all of its  subsidiaries,  whether currently owned by Purchaser or not. Such
term shall  also  refer to any other  partnership,  limited  partnership,  joint
venture, trust, or other business entity in which a party hereto owns a material
interest.

     SECTION 9.12 Disclosure Schedule.  Both the Company Disclosure Schedule and
the Purchaser  Disclosure  Schedule  shall contain all  information  required to
disclose fully any exception or  qualification to this Agreement and shall cross
reference the section of this Agreement so qualified.



                  [Remainder of page intentionally left blank]











                                       37




     IN WITNESS  WHEREOF,  each of the parties has caused this  Agreement  to be
executed on its behalf by its officers thereunto duly authorized,  all as of the
day and year set forth above.

                                         GREENBRIAR CORPORATION,
                                         a Nevada corporation


                                         By:
                                             James R. Gilley, Chairman


                                         VILLA RESIDENTIAL CARE HOMES, INC.,
                                         a Texas corporation


                                         By:
                                             William A. Shirley, Jr.
                                             President


                                         SHAREHOLDER:


                                         -------------------------------------
                                         William A. Shirley, Jr.


     The  undersigned  spouse  of  William  A.  Shirley,  Jr.,  the  Shareholder
executing the foregoing Agreement, hereby executes this Agreement in evidence of
her agreement and consent to the  disposition  of the shares of capital stock of
the Company referred to herein and to all other provisions hereof.


                                         -------------------------------------
                                         Colleen Shirley
















                                    EXHIBIT A
                                    ---------

                                 THE PROPERTIES

                          [Exhibit begins on next page]
































                                    EXHIBIT B
                                    ---------

                    TRANSACTIONS TO BE COMPLETED PRIOR TO OR
             CONTEMPORANEOUSLY WITH THE EXECUTION OF THIS AGREEMENT.

     1. Each of the Management  Agreements and Subleases  described in Exhibit C
to this Agreement.

     2. First  Amended and Restated  Agreement of Limited  Partnership  of Villa
Residential Care Homes - Corpus Christi South, L.P.

     3. First  Amended and Restated  Agreement of Limited  Partnership  of Villa
Residential Care Homes - Fort Worth East, L.P.

     4. First  Amended and Restated  Agreement of Limited  Partnership  of Villa
Residential Care Homes - Granbury, L.P.

     5. First  Amended and Restated  Agreement of Limited  Partnership  of Villa
Residential Care Homes - Oak Park, L.P.

     6. Exchange  Agreement by and between  Greenbriar  Corporation,  William A.
Shirley,  Jr. and C. Kent Harrington  regarding the Class A Limited  Partnership
Units of Villa Residential Care Homes - Corpus Christi South, L.P.

     7. Exchange  Agreement by and between  Greenbriar  Corporation,  William A.
Shirley,  Jr. and C. Kent Harrington  regarding the Class A Limited  Partnership
Units of Villa Residential Care Homes - Fort Worth, East, L.P.

     8. Exchange  Agreement by and between  Greenbriar  Corporation,  William A.
Shirley,  Jr. and C. Kent Harrington  regarding the Class A Limited  Partnership
Units of Villa Residential Care Homes - Granbury, L.P.

     9. Exchange  Agreement by and between  Greenbriar  Corporation,  William A.
Shirley,  Jr. and C. Kent Harrington  regarding the Class A Limited  Partnership
Units of Villa Residential Care Homes - Oak Park, L.P.

     10. Registration  Rights Agreement by and between William A. Shirley,  Jr.,
C. Kent Harrington and Greenbriar Corporation.

     11. Agreement and Assignment of Partnership Interest by and between William
A. Shirley,  Jr., Lucy M. Brody, C. Kent Harrington and Greenbriar  Corporation.
regarding the partnership  interest in Villa  Residential Care Homes - Arlington
I, L.P.






                                    EXHIBIT C
                                    ---------

                       MANAGEMENT AGREEMENTS AND SUBLEASES

Management Agreements:
- ----------------------

     1.  Management  Services  Agreement  dated as of December ___, 1997 between
Villa Residential Care Homes, Inc., as the Manager,  and Residential  Healthcare
Properties,  Inc., as the Operator, with respect to that certain assisted living
facility located in Corpus Christi, Texas, known as Corpus Christi Northwest.

     2.  Management  Services  Agreement  dated as of December ___, 1997 between
Villa Residential Care Homes,  Inc., as the Manager,  and Villa Residential Care
Homes - Corpus  Christi  South,  L.P.,  as the  Operator,  with  respect to that
certain  assisted living facility  located in Corpus  Christi,  Texas,  known as
Corpus Christi South III aka Everhart.

     3.  Management  Services  Agreement  dated as of December ___, 1997 between
Villa Residential Care Homes,  Inc., as the Manager,  and Villa Residential Care
Homes - Fort Worth East,  L.P.,  as the  Operator,  with respect to that certain
assisted living facility located in Fort Worth, Texas, known as Tandy Village.

     4.  Management  Services  Agreement  dated as of December ___, 1997 between
Villa Residential Care Homes,  Inc., as the Manager,  and Villa Residential Care
Homes - Granbury,  L.P., as the Operator,  with respect to that certain assisted
living facility located in Granbury, Texas, known as The Oaks of Granbury.


Subleases:
- ----------

     1. Lease Agreement dated as of December ___, 1997 between Villa Residential
Care Homes, Inc., as the Lessee, and Residential Healthcare Properties, Inc., as
the Lessor, with respect to that certain assisted living facility located in Mt.
Pleasant, Texas, known as Mt. Pleasant.

     2. Lease Agreement dated as of December ___, 1997 between Villa Residential
Care Homes, Inc., as the Lessee, and Residential Healthcare Properties, Inc., as
the Lessor,  with respect to that certain  assisted living  facility  located in
Harlingen, Texas, known as Harlingen.

     3. Lease Agreement dated as of December ___, 1997 between Villa Residential
Care Homes, Inc., as the Lessee, and Residential Healthcare Properties, Inc., as
the Lessor,  with respect to that certain  assisted living  facility  located in
Wolfforth, Texas, known as Wolfforth.

     4. Lease Agreement dated as of December ___, 1997 between Villa Residential
Care Homes, Inc., as the Lessee, and Residential Healthcare Properties, Inc., as
the Lessor,  with respect to that certain  assisted living  facility  located in
Tyler, Texas, known as Tyler.





     5. Lease Agreement dated as of December ___, 1997 between Villa Residential
Care Homes, Inc., as Lessee, and Residential Healthcare Properties, Inc., as the
Lessor,  with respect to that certain  apartment  complex located in Fort Worth,
Texas, known as Palm House.

     6. Lease Agreement dated as of December ___, 1997 between Villa Residential
Care Homes,  Inc., as the Lessee,  and Villa  Residential Care Homes - Oak Park,
L.P.,  as the Lessor,  with respect to that  certain  assisted  living  facility
located in Oak Park, Texas, known as Oak Park.






























                                  SCHEDULE 5.1
                                  ------------
                                  NET PROCEEDS














































                          PURCHASER DISCLOSURE SCHEDULE
                          -----------------------------









































EXHIBIT 2.1.2

                               EXCHANGE AGREEMENT
                               ------------------

             Villa Residential Care Homes-Corpus Christi South, L.P.


     This  Exchange  Agreement  (the  "Agreement")  is made as of the ___ day of
December, 1997 by and between Greenbriar Corporation,  a Nevada corporation (the
"Company"),  William A. Shirley, Jr., and C. Kent Harrington and their permitted
assignees hereunder, the (collectively, the "Original Partners").

     WHEREAS,  the  Original  Partners  wish to induce  the  Company  and/or its
subsidiaries to manage and operate the properties  managed and operated by Villa
Residential Care  Homes-Corpus  Christi South, L.P. (the  "Partnership")  and to
manage the affairs of the Partnership; and

     WHEREAS,  pursuant to that certain First Amended and Restated  Agreement of
Limited  Partnership of Villa Residential Care Homes-Corpus  Christi South, L.P.
(the "Partnership  Agreement") dated as of the date hereof, Kellway Corporation,
a subsidiary of the Company, was admitted as the Managing General Partner and as
the Class B Limited Partner of the Partnership, and the partnership interests of
the Original  Partners in the  Partnership  were  converted into Class A Limited
Partnership Units of the Partnership (the "Class A Units"); and

     WHEREAS, as an inducement to the acceptance by the Original Partners of the
Class A Units pursuant to the Partnership  Agreement,  the Company has agreed to
exchange  shares of its Common  Stock (as  defined  below) for the Class A Units
held by the Original  Partners and the Partnership has agreed to allow the Class
A Units to be exchanged for shares of the Common Stock.

     NOW,  THEREFORE,  in consideration of the premises and the mutual covenants
and agreements herein contained and other good and valuable  consideration,  the
receipt and  sufficiency  of which is hereby  acknowledged,  the parties  hereby
agree as follows:


                                    ARTICLE I

                               CERTAIN DEFINITIONS
                               -------------------

     "Agreement" shall have the meaning set forth in the Preamble hereto.

     "Change in Control" shall mean,  after the date of this Agreement,  (i) the
occurrence  of an event of a nature  that would be  required  to be  reported in
response  to  Item 1 or  Item 2 of a Form  8-K  Current  Report  of the  Company
promulgated  pursuant  to Sections 13 and 15(d) of the  Exchange  Act;  provided
that,  without  limitation,  such a Change  in  Control  shall be deemed to have
occurred if any  "person,"  as such term is used in Sections  13(d) and 14(d) of
the Exchange Act (other than the Company, any trustee or other fiduciary holding
securities under any employee benefit plan of the Company, or any company owned,
directly or indirectly,  by the stockholders of the Company in substantially the
same proportions as their ownership of stock of the Company), is or becomes the
 

                                                    





"beneficial  owner" (as defined in Rule 13d-3 under the Exchange Act),  directly
or indirectly,  of securities of the Company  representing  twenty-five  percent
(25%) or more of the combined  voting power of the  Company's  then  outstanding
securities;   (ii)  the   stockholders  of  the  Company  approve  a  merger  or
consolidation of the Company with any other corporation,  other than a merger or
consolidation  that  would  result  in the  voting  securities  of  the  Company
outstanding  immediately  prior  thereto  continuing  to  represent  (either  by
remaining  outstanding  or by being  converted  into  voting  securities  of the
surviving entity) more than eighty percent (80%) of the combined voting power of
the voting  securities  of the  Company  or such  surviving  entity  outstanding
immediately after such merger or consolidation; provided, however, that a merger
or consolidation  effected to implement a reorganization or  recapitalization of
the Company, or a similar transaction  (collectively,  a  "Reorganization"),  in
which no "person" acquires more than twenty percent (20%) of the combined voting
power of the Company's then outstanding securities shall not constitute a Change
in Control of the Company;  or (iii) the  stockholders  of the Company approve a
plan of  complete  liquidation  of the Company or an  agreement  for the sale or
disposition by the Company of all or substantially all of the Company's assets.

     "Class A Units" shall have the meaning set forth in the Preamble hereto.

     "Closing  Date" shall have the meaning  given such term in the  Partnership
Agreement.

     "Common  Stock"  shall mean the common  stock of the Company  issued by the
Company to one or more of the  Original  Partners  upon  exchange of any Class A
Units hereunder.

     "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended.

     "Exchange Rights" shall have the meaning set forth in Section 2.1 hereof.

     "Notice of  Exchange"  shall  have the  meaning  set forth in  Section  2.1
hereof.

     "Original  Partners"  shall  have the  meaning  set  forth in the  Preamble
hereof.

     "Partnership  Agreement"  shall have the meaning set forth in the  Preamble
hereof.

     "Registration Rights Agreement" shall mean that certain Registration Rights
Agreement  dated  the date  hereof by and  between  each of the  parties  hereto
relating to the resale registration rights of the Original Partners with respect
to the Common  Stock to be  received  in  connection  with the  exercise  of the
Exchange Right pursuant to this Agreement.

     "Securities Act" shall mean the Securities Act of 1933, as amended.

Capitalized  terms  not  otherwise  defined  have the  meaning  set forth in the
Partnership Agreement.

 
                                       -2-






                                   ARTICLE II

                                 EXCHANGE RIGHTS
                                 ---------------

     Section 2.1 Exchange  Rights.  Subject to the limitations set forth in this
Article II, each Original Partner shall have the right (such right, an "Exchange
Right") to require the Company to issue  shares of Common  Stock in exchange for
all or a portion of the Class A Units  (the  "Affected  Class A Units")  held by
such Original Partner upon thirty (30) days prior written notice to the Company,
which notice shall be in the form of a Notice of  Exchange;  provided,  however,
the Class A Units held by each  Original  Partner may be exchanged for shares of
the  Common  Stock  only on and after the  earlier to occur of (i) the first day
after the one year anniversary date of this Agreement and (ii) the date on which
a Change in Control of Company  occurs.  The Company  shall satisfy the Exchange
Right  of  the  Original   Partner  through  the  issuance  of  fully  paid  and
non-assessable shares of Common Stock within 30 days of receipt of the Notice of
Exchange,  but not sooner  than the date such shares are  registered  for resale
under the Registration Rights Agreement. Affected Class A Units are exchangeable
for shares of the Common  Stock at the rate of one (1) share of Common Stock for
each 19.487 of such Affected  Class A Units;  provided,  however,  the number of
shares  of  Common  Stock  shall be  determined  prior to  giving  effect to any
securities  issued or issuable  with respect to the Common Stock by way of stock
dividend  or  stock  split  or in  connection  with  a  combination  of  shares,
recapitalization,  merger,  consolidation or other  reorganization  or otherwise
occurring after the date of this Agreement.

     Section 2.2 Company's  Covenants  Relating to the Rights. The Company shall
at all  times  reserve  for  issuance  such  amount  of  Common  Stock as may be
necessary  to enable the  Original  Partners to exchange all Class A Units which
are from time to time outstanding.

     Section  2.3   Conditions   Precedent   to   Issuance   of  Common   Stock.
Notwithstanding anything to the contrary herein provided, the Company shall have
no  obligation  to issue to an Original  Partner  shares of Common Stock unless,
together with a Notice of Exchange,  such Original Partner executes and delivers
to the Company a subscription letter agreement in the form of Exhibit B hereto.

     Section 2.4  Representations  and  Warranties  of the Company.  The Company
represents  and warrants to the Original  Partner  exercising its Exchange Right
pursuant  to this  Agreement  that the  Common  Stock  which is to be issued and
delivered to the Original Partner pursuant to the terms of this Agreement,  when
so issued and delivered will be validly  authorized and issued and will be fully
paid and  non-assessable  and free and clear of any liens, and such Common Stock
will not be subject to any  limitations on free  transferability  other than any
restrictions  imposed  pursuant  to  this  Agreement,  the  Registration  Rights
Agreement or state or federal securities laws.


 
                                       -3-





                                   ARTICLE III

                                  MISCELLANEOUS
                                  -------------

     Section 3.1  Amendments  and  Waivers.  This  Agreement  may be modified or
amended only by a writing  signed by the Company and the  Original  Partners who
hold an amount of Class A Units at least equal to  two-thirds of all the Class A
Units then outstanding.

     Section 3.2 No Waiver.  No failure to exercise and no delay in  exercising,
on the Company's or the Original  Partners' part, any right,  power or privilege
hereunder  shall  operate as a waiver  thereof,  nor shall any single or partial
exercise  of any  right,  power or  privilege  hereunder  preclude  any other or
further exercise thereof or the exercise of any other right, power or privilege.
The rights and remedies  herein provided are cumulative and not exclusive of any
rights or remedies provided by law.

     Section 3.3 Survival of Agreements.  All agreements and covenants contained
herein or made in writing by or on behalf of the Company in connection  with the
transactions  contemplated  hereby shall  survive the  execution and delivery of
this Agreement.

     Section 3.4  Assignment.  The Original  Partners cannot assign or otherwise
transfer  their rights  under this  Agreement  without the prior  consent of the
Company  except by inheritance  or devise;  provided,  however that the Original
Partner shall be allowed to assign its rights  hereunder,  to any party to which
it may assign its Class A Units pursuant to the  Partnership  Agreement but only
if (i) all  requirements  for assignments of the Class A Units from the Original
Partner to such assignees pursuant to the Partnership  Agreement shall have been
met and (ii) the Original  Partner shall provide  advance  written notice of any
assignment to the Company.  Any such assignee  complying  with the  requirements
heretofore set forth shall be entitled to further assign,  pledge or hypothecate
their rights hereunder to an Institutional Lender (as defined in the Partnership
Agreement),  subject to (a) compliance  with the  provisions of the  Partnership
Agreement for pledge or  hypothecation  of the Class A Units and (b)  compliance
with item (ii) heretofore provided with respect to assignment to the assignees.

     Section 3.5 Binding Effect and Benefits.  This  Agreement  shall be binding
upon and shall inure to the benefit of the  Company and its  successors  and the
Original Partners and their permitted successors, assigns and transferees.

     Section  3.6 Entire  Agreement.  This  Agreement  constitutes  the full and
entire  understanding  and  agreement  between  the  parties  with regard to the
subjects hereof.

     Section 3.7  Severability  of  Provisions.  In case any  provision  of this
Agreement shall be invalid, illegal or unenforceable, the validity, legality and
enforceability  of the remaining  provisions shall not in any way be affected or
impaired  thereby.  Such provisions shall be deemed to be modified to the extent
necessary to render it legal, valid and enforceable, and if no such modification
shall  render it legal,  valid and  enforceable,  then this  Agreement  shall be

 

                                       -4-




construed as if not containing the provision held to be invalid,  and the rights
and obligations of the parties shall be construed and enforced accordingly.

     Section 3.8 Certain  Litigation  Costs. In the event of litigation  between
the Company and the Original Partners regarding the matters  encompassed by this
Agreement,  the prevailing party in a final non-appealable judgment from a court
of competent  jurisdiction  (following  such final  judgment)  shall be promptly
reimbursed  by the other party (or  parties)  thereto for all of its  reasonably
incurred  out-of-pocket  costs and expenses connected directly to the litigation
matters upon which such party has prevailed.

     Section  3.9   Notices.   All   notices,   requests,   consents  and  other
communications hereunder shall be in writing and shall be by telecopy, facsimile
transmission  (confirmed by U. S. mail),  telegraph,  hand delivery or mailed by
certified or registered mail postage prepaid, returned receipt requested, to the
addressed  set forth below or to such other  address as any party may advise the
other party in a written notice given in accordance with this Section.

         if to the Company:

         Greenbriar Corporation
         4265 Kellway Circle
         Addison, TX  75244
         Attention: Gene S. Bertcher
         Telecopy Number:  (972) 407-8426

         if to the Original Partners:

         William A. Shirley, Jr.
         Villa Residential Care Homes, Inc.
         2621 State Street
         Dallas, TX  75204
         Telecopy Number: (214) 871-0090

         and

         C. Kent Harrington
         Harrington, Moran, Barksdale & Day
         306 West 7th Street
         415 Fort Worth Club Building
         Ft. Worth, TX  76102
         Telecopy Number: (817) 335-0800


Any notice or other  communication so addressed and so mailed shall be deemed to
have been given when duly delivered or sent.

 
                                       -5-







     Section  3.10  Construction.  This  Agreement  shall  be  governed  by  and
construed  in  accordance  with the laws of the State of Texas,  without  giving
effect to the conflict of laws provisions thereof.  The descriptive  headings of
the several  sections and subsections  hereof are for convenience only and shall
not  control or effect  the  meaning of  construction  of any of the  provisions
hereof.

     Section 3.11 Counterparts.  This Agreement may be executed in any number of
counterparts,  each of which shall be deemed to be an original, but all of which
together shall constitute a single original instrument.

     Section 3.12 Effectiveness.  This Agreement shall only become effective, if
at all, on the Closing Date.



 
                                       -6-





     IN WITNESS  WHEREOF,  the parties hereto have executed this Agreement as of
the day and year first above written.

                                        GREENBRIAR CORPORATION


                                        By:
                                        Name:
                                        Title:



                                        ----------------------------------------
                                        William A. Shirley, Jr.


                                        ----------------------------------------
                                        C. Kent Harrington


     The  undersigned  hereby executes this Agreement for purposes of consenting
to the exchange of the Class A Units for shares of Common Stock  pursuant to the
terms of this Agreement.


                                   VILLA RESIDENTIAL CARE HOMES-
                                   CORPUS CHRISTI SOUTH, L.P.


                                   By: Kellway Corporation, a Texas corporation,
                                       its managing general partner


                                        By:
                                        Name:
                                        Title:



 
                                   





                                    EXHIBIT A

                             FORM OF EXCHANGE NOTICE


     The undersigned  hereby irrevocably (i) exchanges ________ Class A Units in
Villa  Residential Care Homes-Corpus  Christi South,  L.P., (ii) surrenders such
Class A Units and all right, title and interest therein,  and (iii) directs that
the Common Stock of Greenbriar Corporation (the "Common Stock") deliverable upon
exchange be delivered to the address  specified  below, and registered or placed
in the name(s) and at the address(es) specified below.

     The undersigned  hereby  represents and warrants that (i) it has full power
and  authority to exchange all of its right,  title and interest in such Class A
Units into shares of the Common Stock,  (ii) such Class A Units so exchanged are
free and clear of all liens and other encumbrances of whatever nature, and (iii)
it will assume and pay any state or local  transfer tax that may be payable as a
result  of the  transfer  of such  Class A Units;  provided,  however,  that the
undersigned  shall not be responsible for paying any state or local transfer tax
arising out of this exchange.

Dated:

Name of Original Partner:

                                        ----------------------------------------

Signature of Original Partner:



                                        ----------------------------------------
                                        By:
                                        Title:



Address:
                                        ----------------------------------------
                                        (Street Address)

                                        ----------------------------------------
                                        (City)       (State)   (Zip Code)

Signature [Attested or Witnessed by]:


 
                                                        





                                    EXHIBIT B

                          SUBSCRIPTION LETTER AGREEMENT





                           ------------------, ------



Greenbriar Corporation
4265 Kellway Circle
Addison, TX  75244

         Re: Exchange Agreement dated December ___, 1997

Gentlemen:

     Pursuant to the terms and  conditions  of that certain  Exchange  Agreement
dated  December  ___,  1997  (the  "Exchange   Agreement")   between  Greenbriar
Corporation (the "Company"), William A. Shirley, Jr. and C. Kent Harrington, the
undersigned hereby delivers this subscription letter agreement to the Company as
a  condition  to the  exercise by the  undersigned  of the  Exchange  Rights (as
defined in the Exchange Agreement).

     As a condition  to its  exercise of the Exchange  Rights,  the  undersigned
hereby makes the following representations and warranties:

          1. The undersigned is an "Accredited Investor" as such term is defined
     in  Section  501(a)  of  the  Securities  Act  of  1933,  as  amended  (the
     "Securities Act"). The undersigned  warrants that it has such knowledge and
     experience in financial and business matters as to be capable of evaluating
     the merits and risks of its  investment  in the Common Stock (as defined in
     the Exchange Agreement).  The undersigned has had the opportunity to obtain
     from the Company any and all  information,  to the extent  possessed by the
     Company or obtainable with reasonable efforts by the Company,  necessary to
     evaluate the merits and risks of an  investment in the Common Stock and has
     concluded, based on such information and other information previously known
     to the undersigned,  to invest in the Common Stock pursuant to the Exchange
     Agreement.

          2. The  undersigned  acknowledges  that the shares of the Common Stock
     may lack  liquidity  as compared  with other  securities  investments.  The
     undersigned  acknowledges  that  it  must  bear  the  economic  risk of its
     investment in the Common Stock for an  indefinite  period of time since the
     Common Stock has not been registered under the Securities Act and therefore
     cannot be sold unless they are subsequently registered or an exemption from








     registration  available;  provided,  however, that such Common Stock may be
     sold in  connection  with any  effective  registration  statement  filed on
     behalf  of the  undersigned  in  accordance  with the  Registration  Rights
     Agreement, in compliance with the terms and conditions of such registration
     statement.

          3. The  undersigned  is  acquiring  the  Common  Stock for  investment
     purposes  only,  for its own  account and not as a nominee or agent for any
     other person or entity, and not with a view to, or for resale in connection
     with, any distribution thereof within the meaning of the Securities Act.

          4. The undersigned  acknowledges  that the Company is transferring the
     Common Stock to the undersigned  without  registration under the Securities
     Act. The  undersigned  further  acknowledges  that  representatives  of the
     Company have  advised the  undersigned  that no state or federal  agency or
     instrumentality  has made any finding or determination as to the investment
     in the Common Stock, nor has any state or federal agency or instrumentality
     made any  recommendation  with respect to any purchase or investment in the
     Common Stock.


                                         [Name of Undersigned]




                                         ---------------------------------------






 
                                       -2-






EXHIBIT 2.1.3

                               EXCHANGE AGREEMENT

                   Villa Residential Care Homes-Granbury, L.P.


     This  Exchange  Agreement  (the  "Agreement")  is made as of the ___ day of
December, 1997 by and between Greenbriar Corporation,  a Nevada corporation (the
"Company"),  William A. Shirley, Jr., and C. Kent Harrington and their permitted
assignees hereunder, the (collectively, the "Original Partners").

     WHEREAS,  the  Original  Partners  wish to induce  the  Company  and/or its
subsidiaries to manage and operate the properties  managed and operated by Villa
Residential  Care  Homes-Granbury,  L.P. (the  "Partnership")  and to manage the
affairs of the Partnership; and

         WHEREAS,  pursuant to that certain First Amended and Restated Agreement
of Limited  Partnership  of Villa  Residential  Care  Homes-Granbury,  L.P. (the
"Partnership  Agreement") dated as of the date hereof,  Kellway  Corporation,  a
subsidiary of the Company,  was admitted as the Managing  General Partner and as
the Class B Limited Partner of the Partnership, and the partnership interests of
the Original  Partners in the  Partnership  were  converted into Class A Limited
Partnership Units of the Partnership (the "Class A Units"); and

         WHEREAS, as an inducement to the acceptance by the Original Partners of
the Class A Units pursuant to the Partnership Agreement,  the Company has agreed
to exchange  shares of its Common Stock (as defined below) for the Class A Units
held by the Original  Partners and the Partnership has agreed to allow the Class
A Units to be exchanged for shares of the Common Stock.

     NOW,  THEREFORE,  in consideration of the premises and the mutual covenants
and agreements herein contained and other good and valuable  consideration,  the
receipt and  sufficiency  of which is hereby  acknowledged,  the parties  hereby
agree as follows:


                                    ARTICLE I

                               CERTAIN DEFINITIONS
                               -------------------

     "Agreement" shall have the meaning set forth in the Preamble hereto.

     "Change in Control" shall mean,  after the date of this Agreement,  (i) the
occurrence  of an event of a nature  that would be  required  to be  reported in
response  to  Item 1 or  Item 2 of a Form  8-K  Current  Report  of the  Company
promulgated  pursuant  to Sections 13 and 15(d) of the  Exchange  Act;  provided
that,  without  limitation,  such a Change  in  Control  shall be deemed to have
occurred if any  "person,"  as such term is used in Sections  13(d) and 14(d) of
the Exchange Act (other than the Company, any trustee or other fiduciary holding
securities under any employee benefit plan of the Company, or any company owned,
directly or indirectly,  by the stockholders of the Company in substantially the
same proportions as their ownership of stock of the Company), is or becomes the








"beneficial  owner" (as defined in Rule 13d-3 under the Exchange Act),  directly
or indirectly,  of securities of the Company  representing  twenty-five  percent
(25%) or more of the combined  voting power of the  Company's  then  outstanding
securities;   (ii)  the   stockholders  of  the  Company  approve  a  merger  or
consolidation of the Company with any other corporation,  other than a merger or
consolidation  that  would  result  in the  voting  securities  of  the  Company
outstanding  immediately  prior  thereto  continuing  to  represent  (either  by
remaining  outstanding  or by being  converted  into  voting  securities  of the
surviving entity) more than eighty percent (80%) of the combined voting power of
the voting  securities  of the  Company  or such  surviving  entity  outstanding
immediately after such merger or consolidation; provided, however, that a merger
or consolidation  effected to implement a reorganization or  recapitalization of
the Company, or a similar transaction  (collectively,  a  "Reorganization"),  in
which no "person" acquires more than twenty percent (20%) of the combined voting
power of the Company's then outstanding securities shall not constitute a Change
in Control of the Company;  or (iii) the  stockholders  of the Company approve a
plan of  complete  liquidation  of the Company or an  agreement  for the sale or
disposition by the Company of all or substantially all of the Company's assets.

     "Class A Units" shall have the meaning set forth in the Preamble hereto.

     "Closing  Date" shall have the meaning  given such term in the  Partnership
Agreement.

     "Common  Stock"  shall mean the common  stock of the Company  issued by the
Company to one or more of the  Original  Partners  upon  exchange of any Class A
Units hereunder.

     "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended.

     "Exchange Rights" shall have the meaning set forth in Section 2.1 hereof.

     "Notice of  Exchange"  shall  have the  meaning  set forth in  Section  2.1
hereof.

     "Original  Partners"  shall  have the  meaning  set  forth in the  Preamble
hereof.

     "Partnership  Agreement"  shall have the meaning set forth in the  Preamble
hereof.

     "Registration Rights Agreement" shall mean that certain Registration Rights
Agreement  dated  the date  hereof by and  between  each of the  parties  hereto
relating to the resale registration rights of the Original Partners with respect
to the Common  Stock to be  received  in  connection  with the  exercise  of the
Exchange Right pursuant to this Agreement.

     "Securities Act" shall mean the Securities Act of 1933, as amended.

     Capitalized  terms not otherwise  defined have the meaning set forth in the
Partnership Agreement.

 
                                       -2-






                                   ARTICLE II

                                 EXCHANGE RIGHTS
                                 ---------------

     Section 2.1 Exchange  Rights.  Subject to the limitations set forth in this
Article II, each Original Partner shall have the right (such right, an "Exchange
Right") to require the Company to issue  shares of Common  Stock in exchange for
all or a portion of the Class A Units  (the  "Affected  Class A Units")  held by
such Original Partner upon thirty (30) days prior written notice to the Company,
which notice shall be in the form of a Notice of  Exchange;  provided,  however,
the Class A Units held by each  Original  Partner may be exchanged for shares of
the  Common  Stock  only on and after the  earlier to occur of (i) the first day
after the one year anniversary date of this Agreement and (ii) the date on which
a Change in Control of Company  occurs.  The Company  shall satisfy the Exchange
Right  of  the  Original   Partner  through  the  issuance  of  fully  paid  and
non-assessable shares of Common Stock within 30 days of receipt of the Notice of
Exchange,  but not sooner  than the date such shares are  registered  for resale
under the Registration Rights Agreement. Affected Class A Units are exchangeable
for shares of the Common  Stock at the rate of one (1) share of Common Stock for
each 19.487 of such Affected  Class A Units;  provided,  however,  the number of
shares  of  Common  Stock  shall be  determined  prior to  giving  effect to any
securities  issued or issuable  with respect to the Common Stock by way of stock
dividend  or  stock  split  or in  connection  with  a  combination  of  shares,
recapitalization,  merger,  consolidation or other  reorganization  or otherwise
occurring after the date of this Agreement.

     Section 2.2 Company's  Covenants  Relating to the Rights. The Company shall
at all  times  reserve  for  issuance  such  amount  of  Common  Stock as may be
necessary  to enable the  Original  Partners to exchange all Class A Units which
are from time to time outstanding.

     Section  2.3   Conditions   Precedent   to   Issuance   of  Common   Stock.
Notwithstanding anything to the contrary herein provided, the Company shall have
no  obligation  to issue to an Original  Partner  shares of Common Stock unless,
together with a Notice of Exchange,  such Original Partner executes and delivers
to the Company a subscription letter agreement in the form of Exhibit B hereto.

     Section 2.4  Representations  and  Warranties  of the Company.  The Company
represents  and warrants to the Original  Partner  exercising its Exchange Right
pursuant  to this  Agreement  that the  Common  Stock  which is to be issued and
delivered to the Original Partner pursuant to the terms of this Agreement,  when
so issued and delivered will be validly  authorized and issued and will be fully
paid and  non-assessable  and free and clear of any liens, and such Common Stock
will not be subject to any  limitations on free  transferability  other than any
restrictions  imposed  pursuant  to  this  Agreement,  the  Registration  Rights
Agreement or state or federal securities laws.


 
                                       -3-





                                   ARTICLE III

                                  MISCELLANEOUS
                                  -------------

     Section 3.1  Amendments  and  Waivers.  This  Agreement  may be modified or
amended only by a writing  signed by the Company and the  Original  Partners who
hold an amount of Class A Units at least equal to  two-thirds of all the Class A
Units then outstanding.

     Section 3.2 No Waiver.  No failure to exercise and no delay in  exercising,
on the Company's or the Original  Partners' part, any right,  power or privilege
hereunder  shall  operate as a waiver  thereof,  nor shall any single or partial
exercise  of any  right,  power or  privilege  hereunder  preclude  any other or
further exercise thereof or the exercise of any other right, power or privilege.
The rights and remedies  herein provided are cumulative and not exclusive of any
rights or remedies provided by law.

     Section 3.3 Survival of Agreements.  All agreements and covenants contained
herein or made in writing by or on behalf of the Company in connection  with the
transactions  contemplated  hereby shall  survive the  execution and delivery of
this Agreement.

     Section 3.4  Assignment.  The Original  Partners cannot assign or otherwise
transfer  their rights  under this  Agreement  without the prior  consent of the
Company  except by inheritance  or devise;  provided,  however that the Original
Partner shall be allowed to assign its rights  hereunder,  to any party to which
it may assign its Class A Units pursuant to the  Partnership  Agreement but only
if (i) all  requirements  for assignments of the Class A Units from the Original
Partner to such assignees pursuant to the Partnership  Agreement shall have been
met and (ii) the Original  Partner shall provide  advance  written notice of any
assignment to the Company.  Any such assignee  complying  with the  requirements
heretofore set forth shall be entitled to further assign,  pledge or hypothecate
their rights hereunder to an Institutional Lender (as defined in the Partnership
Agreement),  subject to (a) compliance  with the  provisions of the  Partnership
Agreement for pledge or  hypothecation  of the Class A Units and (b)  compliance
with item (ii) heretofore provided with respect to assignment to the assignees.

     Section 3.5 Binding Effect and Benefits.  This  Agreement  shall be binding
upon and shall inure to the benefit of the  Company and its  successors  and the
Original Partners and their permitted successors, assigns and transferees.

     Section  3.6 Entire  Agreement.  This  Agreement  constitutes  the full and
entire  understanding  and  agreement  between  the  parties  with regard to the
subjects hereof.

     Section 3.7  Severability  of  Provisions.  In case any  provision  of this
Agreement shall be invalid, illegal or unenforceable, the validity, legality and
enforceability  of the remaining  provisions shall not in any way be affected or
impaired  thereby.  Such provisions shall be deemed to be modified to the extent
necessary to render it legal, valid and enforceable, and if no such modification

 
                                       -4-





shall  render it legal,  valid and  enforceable,  then this  Agreement  shall be
construed as if not containing the provision held to be invalid,  and the rights
and obligations of the parties shall be construed and enforced accordingly.

     Section 3.8 Certain  Litigation  Costs. In the event of litigation  between
the Company and the Original Partners regarding the matters  encompassed by this
Agreement,  the prevailing party in a final non-appealable judgment from a court
of competent  jurisdiction  (following  such final  judgment)  shall be promptly
reimbursed  by the other party (or  parties)  thereto for all of its  reasonably
incurred  out-of-pocket  costs and expenses connected directly to the litigation
matters upon which such party has prevailed.

     Section  3.9   Notices.   All   notices,   requests,   consents  and  other
communications hereunder shall be in writing and shall be by telecopy, facsimile
transmission  (confirmed by U. S. mail),  telegraph,  hand delivery or mailed by
certified or registered mail postage prepaid, returned receipt requested, to the
addressed  set forth below or to such other  address as any party may advise the
other party in a written notice given in accordance with this Section.

         if to the Company:

         Greenbriar Corporation
         4265 Kellway Circle
         Addison, TX  75244
         Attention: Gene S. Bertcher
         Telecopy Number:  (972) 407-8426

         if to the Original Partners:

         William A. Shirley, Jr.
         Villa Residential Care Homes, Inc.
         2621 State Street
         Dallas, TX  75204
         Telecopy Number: (214) 871-0090

         and

         C. Kent Harrington
         Harrington, Moran, Barksdale & Day
         306 West 7th Street
         415 Fort Worth Club Building
         Ft. Worth, TX  76102
         Telecopy Number: (817) 335-0800


Any notice or other  communication so addressed and so mailed shall be deemed to
have been given when duly delivered or sent. 


                                       -5-







     Section  3.10  Construction.  This  Agreement  shall  be  governed  by  and
construed  in  accordance  with the laws of the State of Texas,  without  giving
effect to the conflict of laws provisions thereof.  The descriptive  headings of
the several  sections and subsections  hereof are for convenience only and shall
not  control or effect  the  meaning of  construction  of any of the  provisions
hereof.

     Section 3.11 Counterparts.  This Agreement may be executed in any number of
counterparts,  each of which shall be deemed to be an original, but all of which
together shall constitute a single original instrument.

     Section 3.12 Effectiveness.  This Agreement shall only become effective, if
at all, on the Closing Date.



 
                                       -6-





     IN WITNESS  WHEREOF,  the parties hereto have executed this Agreement as of
the day and year first above written.

                                   GREENBRIAR CORPORATION


                                   By:
                                   Name:
                                   Title:



                                   ---------------------------------------------
                                   William A. Shirley, Jr.


                                   ---------------------------------------------
                                   C. Kent Harrington


     The  undersigned  hereby executes this Agreement for purposes of consenting
to the exchange of the Class A Units for shares of Common Stock  pursuant to the
terms of this Agreement.


                                    VILLA RESIDENTIAL CARE HOMES-
                                    GRANBURY, L.P.


                                    By: Kellway Corporation, a Texas corporation
                                        its managing general partner


                                        By:
                                        Name:
                                        Title:



 
                                     





                                    EXHIBIT A

                             FORM OF EXCHANGE NOTICE


     The undersigned  hereby irrevocably (i) exchanges ________ Class A Units in
Villa Residential Care Homes-Granbury,  L.P., (ii) surrenders such Class A Units
and all right,  title and interest  therein,  and (iii)  directs that the Common
Stock of Greenbriar  Corporation (the "Common Stock")  deliverable upon exchange
be delivered to the address  specified  below,  and  registered or placed in the
name(s) and at the address(es) specified below.

     The undersigned  hereby  represents and warrants that (i) it has full power
and  authority to exchange all of its right,  title and interest in such Class A
Units into shares of the Common Stock,  (ii) such Class A Units so exchanged are
free and clear of all liens and other encumbrances of whatever nature, and (iii)
it will assume and pay any state or local  transfer tax that may be payable as a
result  of the  transfer  of such  Class A Units;  provided,  however,  that the
undersigned  shall not be responsible for paying any state or local transfer tax
arising out of this exchange.

Dated:

Name of Original Partner:

                                             -----------------------------------



                                             -----------------------------------
Signature of Original Partner:


                                             By:
                                             Title:



Address:
                                             -----------------------------------
                                             (Street Address)


                                             -----------------------------------
                                             (City)        (State)   (Zip Code)

Signature [Attested or Witnessed by]:







                                    EXHIBIT B

                          SUBSCRIPTION LETTER AGREEMENT





                           ------------------, ------



Greenbriar Corporation
4265 Kellway Circle
Addison, TX  75244

         Re: Exchange Agreement dated December ___, 1997

Gentlemen:

     Pursuant to the terms and  conditions  of that certain  Exchange  Agreement
dated  December  ___,  1997  (the  "Exchange   Agreement")   between  Greenbriar
Corporation (the "Company"), William A. Shirley, Jr. and C. Kent Harrington, the
undersigned hereby delivers this subscription letter agreement to the Company as
a  condition  to the  exercise by the  undersigned  of the  Exchange  Rights (as
defined in the Exchange Agreement).

     As a condition  to its  exercise of the Exchange  Rights,  the  undersigned
hereby makes the following representations and warranties:

          1. The undersigned is an "Accredited Investor" as such term is defined
     in  Section  501(a)  of  the  Securities  Act  of  1933,  as  amended  (the
     "Securities Act"). The undersigned  warrants that it has such knowledge and
     experience in financial and business matters as to be capable of evaluating
     the merits and risks of its  investment  in the Common Stock (as defined in
     the Exchange Agreement).  The undersigned has had the opportunity to obtain
     from the Company any and all  information,  to the extent  possessed by the
     Company or obtainable with reasonable efforts by the Company,  necessary to
     evaluate the merits and risks of an  investment in the Common Stock and has
     concluded, based on such information and other information previously known
     to the undersigned,  to invest in the Common Stock pursuant to the Exchange
     Agreement.

          2. The  undersigned  acknowledges  that the shares of the Common Stock
     may lack  liquidity  as compared  with other  securities  investments.  The
     undersigned  acknowledges  that  it  must  bear  the  economic  risk of its
     investment in the Common Stock for an  indefinite  period of time since the
     Common Stock has not been registered under the Securities Act and therefore
     cannot be sold unless they are subsequently registered or an exemption from



                                      -1-




     registration  available;  provided,  however, that such Common Stock may be
     sold in  connection  with any  effective  registration  statement  filed on
     behalf  of the  undersigned  in  accordance  with the  Registration  Rights
     Agreement, in compliance with the terms and conditions of such registration
     statement.

          3. The  undersigned  is  acquiring  the  Common  Stock for  investment
     purposes  only,  for its own  account and not as a nominee or agent for any
     other person or entity, and not with a view to, or for resale in connection
     with, any distribution thereof within the meaning of the Securities Act.

          4. The undersigned  acknowledges  that the Company is transferring the
     Common Stock to the undersigned  without  registration under the Securities
     Act. The  undersigned  further  acknowledges  that  representatives  of the
     Company have  advised the  undersigned  that no state or federal  agency or
     instrumentality  has made any finding or determination as to the investment
     in the Common Stock, nor has any state or federal agency or instrumentality
     made any  recommendation  with respect to any purchase or investment in the
     Common Stock.


                                        [Name of Undersigned]



                                        ----------------------------------------



 
                                       -2-



EXHIBIT 2.1.4

                               EXCHANGE AGREEMENT

                   Villa Residential Care Homes-Oak Park, L.P.


     This  Exchange  Agreement  (the  "Agreement")  is made as of the ___ day of
December, 1997 by and between Greenbriar Corporation,  a Nevada corporation (the
"Company"),  William A. Shirley, Jr., and C. Kent Harrington and their permitted
assignees hereunder, the (collectively, the "Original Partners").

     WHEREAS,  the  Original  Partners  wish to induce  the  Company  and/or its
subsidiaries to manage and operate the properties  managed and operated by Villa
Residential  Care Homes-Oak  Park,  L.P. (the  "Partnership")  and to manage the
affairs of the Partnership; and

     WHEREAS,  pursuant to that certain First Amended and Restated  Agreement of
Limited  Partnership  of  Villa  Residential  Care  Homes-Oak  Park,  L.P.  (the
"Partnership  Agreement") dated as of the date hereof,  Kellway  Corporation,  a
subsidiary of the Company,  was admitted as the Managing  General Partner and as
the Class B Limited Partner of the Partnership, and the partnership interests of
the Original  Partners in the  Partnership  were  converted into Class A Limited
Partnership Units of the Partnership (the "Class A Units"); and

     WHEREAS, as an inducement to the acceptance by the Original Partners of the
Class A Units pursuant to the Partnership  Agreement,  the Company has agreed to
exchange  shares of its Common  Stock (as  defined  below) for the Class A Units
held by the Original  Partners and the Partnership has agreed to allow the Class
A Units to be exchanged for shares of the Common Stock.

     NOW,  THEREFORE,  in consideration of the premises and the mutual covenants
and agreements herein contained and other good and valuable  consideration,  the
receipt and  sufficiency  of which is hereby  acknowledged,  the parties  hereby
agree as follows:


                                    ARTICLE I

                               CERTAIN DEFINITIONS
                               -------------------

         "Agreement" shall have the meaning set forth in the Preamble hereto.

     "Change in Control" shall mean,  after the date of this Agreement,  (i) the
occurrence  of an event of a nature  that would be  required  to be  reported in
response  to  Item 1 or  Item 2 of a Form  8-K  Current  Report  of the  Company
promulgated  pursuant  to Sections 13 and 15(d) of the  Exchange  Act;  provided
that,  without  limitation,  such a Change  in  Control  shall be deemed to have
occurred if any  "person,"  as such term is used in Sections  13(d) and 14(d) of
the Exchange Act (other than the Company, any trustee or other fiduciary holding
securities under any employee benefit plan of the Company, or any company owned,
directly or indirectly,  by the stockholders of the Company in substantially the
same proportions as their ownership of stock of the Company),  is or becomes the
 
                                                     




"beneficial  owner" (as defined in Rule 13d-3 under the Exchange Act),  directly
or indirectly,  of securities of the Company  representing  twenty-five  percent
(25%) or more of the combined  voting power of the  Company's  then  outstanding
securities;   (ii)  the   stockholders  of  the  Company  approve  a  merger  or
consolidation of the Company with any other corporation,  other than a merger or
consolidation  that  would  result  in the  voting  securities  of  the  Company
outstanding  immediately  prior  thereto  continuing  to  represent  (either  by
remaining  outstanding  or by being  converted  into  voting  securities  of the
surviving entity) more than eighty percent (80%) of the combined voting power of
the voting  securities  of the  Company  or such  surviving  entity  outstanding
immediately after such merger or consolidation; provided, however, that a merger
or consolidation  effected to implement a reorganization or  recapitalization of
the Company, or a similar transaction  (collectively,  a  "Reorganization"),  in
which no "person" acquires more than twenty percent (20%) of the combined voting
power of the Company's then outstanding securities shall not constitute a Change
in Control of the Company;  or (iii) the  stockholders  of the Company approve a
plan of  complete  liquidation  of the Company or an  agreement  for the sale or
disposition by the Company of all or substantially all of the Company's assets.

     "Class A Units" shall have the meaning set forth in the Preamble hereto.

     "Closing  Date" shall have the meaning  given such term in the  Partnership
Agreement.

     "Common  Stock"  shall mean the common  stock of the Company  issued by the
Company to one or more of the  Original  Partners  upon  exchange of any Class A
Units hereunder.

     "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended.

     "Exchange Rights" shall have the meaning set forth in Section 2.1 hereof.

     "Notice of  Exchange"  shall  have the  meaning  set forth in  Section  2.1
hereof.

     "Original  Partners"  shall  have the  meaning  set  forth in the  Preamble
hereof.

     "Partnership  Agreement"  shall have the meaning set forth in the  Preamble
hereof.

     "Registration Rights Agreement" shall mean that certain Registration Rights
Agreement  dated  the date  hereof by and  between  each of the  parties  hereto
relating to the resale registration rights of the Original Partners with respect
to the Common  Stock to be  received  in  connection  with the  exercise  of the
Exchange Right pursuant to this Agreement.

     "Securities Act" shall mean the Securities Act of 1933, as amended.

Capitalized  terms  not  otherwise  defined  have the  meaning  set forth in the
Partnership Agreement.

 
                                       -2-






                                   ARTICLE II

                                 EXCHANGE RIGHTS
                                 ---------------

     Section 2.1 Exchange  Rights.  Subject to the limitations set forth in this
Article II, each Original Partner shall have the right (such right, an "Exchange
Right") to require the Company to issue  shares of Common  Stock in exchange for
all or a portion of the Class A Units  (the  "Affected  Class A Units")  held by
such Original Partner upon thirty (30) days prior written notice to the Company,
which notice shall be in the form of a Notice of  Exchange;  provided,  however,
the Class A Units held by each  Original  Partner may be exchanged for shares of
the  Common  Stock  only on and after the  earlier to occur of (i) the first day
after the one year anniversary date of this Agreement and (ii) the date on which
a Change in Control of Company  occurs.  The Company  shall satisfy the Exchange
Right  of  the  Original   Partner  through  the  issuance  of  fully  paid  and
non-assessable shares of Common Stock within 30 days of receipt of the Notice of
Exchange,  but not sooner  than the date such shares are  registered  for resale
under the Registration Rights Agreement. Affected Class A Units are exchangeable
for shares of the Common  Stock at the rate of one (1) share of Common Stock for
each 19.487 of such Affected  Class A Units;  provided,  however,  the number of
shares  of  Common  Stock  shall be  determined  prior to  giving  effect to any
securities  issued or issuable  with respect to the Common Stock by way of stock
dividend  or  stock  split  or in  connection  with  a  combination  of  shares,
recapitalization,  merger,  consolidation or other  reorganization  or otherwise
occurring after the date of this Agreement.

     Section 2.2 Company's  Covenants  Relating to the Rights. The Company shall
at all  times  reserve  for  issuance  such  amount  of  Common  Stock as may be
necessary  to enable the  Original  Partners to exchange all Class A Units which
are from time to time outstanding.

     Section  2.3   Conditions   Precedent   to   Issuance   of  Common   Stock.
Notwithstanding anything to the contrary herein provided, the Company shall have
no  obligation  to issue to an Original  Partner  shares of Common Stock unless,
together with a Notice of Exchange,  such Original Partner executes and delivers
to the Company a subscription letter agreement in the form of Exhibit B hereto.

     Section 2.4  Representations  and  Warranties  of the Company.  The Company
represents  and warrants to the Original  Partner  exercising its Exchange Right
pursuant  to this  Agreement  that the  Common  Stock  which is to be issued and
delivered to the Original Partner pursuant to the terms of this Agreement,  when
so issued and delivered will be validly  authorized and issued and will be fully
paid and  non-assessable  and free and clear of any liens, and such Common Stock
will not be subject to any  limitations on free  transferability  other than any
restrictions  imposed  pursuant  to  this  Agreement,  the  Registration  Rights
Agreement or state or federal securities laws.


 
                                       -3-





                                   ARTICLE III
                                  MISCELLANEOUS
                                  -------------

     Section 3.1  Amendments  and  Waivers.  This  Agreement  may be modified or
amended only by a writing  signed by the Company and the  Original  Partners who
hold an amount of Class A Units at least equal to  two-thirds of all the Class A
Units then outstanding.

     Section 3.2 No Waiver.  No failure to exercise and no delay in  exercising,
on the Company's or the Original  Partners' part, any right,  power or privilege
hereunder  shall  operate as a waiver  thereof,  nor shall any single or partial
exercise  of any  right,  power or  privilege  hereunder  preclude  any other or
further exercise thereof or the exercise of any other right, power or privilege.
The rights and remedies  herein provided are cumulative and not exclusive of any
rights or remedies provided by law.

     Section 3.3 Survival of Agreements.  All agreements and covenants contained
herein or made in writing by or on behalf of the Company in connection  with the
transactions  contemplated  hereby shall  survive the  execution and delivery of
this Agreement.

     Section 3.4  Assignment.  The Original  Partners cannot assign or otherwise
transfer  their rights  under this  Agreement  without the prior  consent of the
Company  except by inheritance  or devise;  provided,  however that the Original
Partner shall be allowed to assign its rights  hereunder,  to any party to which
it may assign its Class A Units pursuant to the  Partnership  Agreement but only
if (i) all  requirements  for assignments of the Class A Units from the Original
Partner to such assignees pursuant to the Partnership  Agreement shall have been
met and (ii) the Original  Partner shall provide  advance  written notice of any
assignment to the Company.  Any such assignee  complying  with the  requirements
heretofore set forth shall be entitled to further assign,  pledge or hypothecate
their rights hereunder to an Institutional Lender (as defined in the Partnership
Agreement),  subject to (a) compliance  with the  provisions of the  Partnership
Agreement for pledge or  hypothecation  of the Class A Units and (b)  compliance
with item (ii) heretofore provided with respect to assignment to the assignees.

     Section 3.5 Binding Effect and Benefits.  This  Agreement  shall be binding
upon and shall inure to the benefit of the  Company and its  successors  and the
Original Partners and their permitted successors, assigns and transferees.

     Section  3.6 Entire  Agreement.  This  Agreement  constitutes  the full and
entire  understanding  and  agreement  between  the  parties  with regard to the
subjects hereof.

     Section 3.7  Severability  of  Provisions.  In case any  provision  of this
Agreement shall be invalid, illegal or unenforceable, the validity, legality and
enforceability  of the remaining  provisions shall not in any way be affected or
impaired  thereby.  Such provisions shall be deemed to be modified to the extent
necessary to render it legal, valid and enforceable, and if no such modification

 
                                       -4-





shall  render it legal,  valid and  enforceable,  then this  Agreement  shall be
construed as if not containing the provision held to be invalid,  and the rights
and obligations of the parties shall be construed and enforced accordingly.

     Section 3.8 Certain  Litigation  Costs. In the event of litigation  between
the Company and the Original Partners regarding the matters  encompassed by this
Agreement,  the prevailing party in a final non-appealable judgment from a court
of competent  jurisdiction  (following  such final  judgment)  shall be promptly
reimbursed  by the other party (or  parties)  thereto for all of its  reasonably
incurred  out-of-pocket  costs and expenses connected directly to the litigation
matters upon which such party has prevailed.

     Section  3.9   Notices.   All   notices,   requests,   consents  and  other
communications hereunder shall be in writing and shall be by telecopy, facsimile
transmission  (confirmed by U. S. mail),  telegraph,  hand delivery or mailed by
certified or registered mail postage prepaid, returned receipt requested, to the
addressed  set forth below or to such other  address as any party may advise the
other party in a written notice given in accordance with this Section.

         if to the Company:

         Greenbriar Corporation
         4265 Kellway Circle
         Addison, TX  75244
         Attention: Gene S. Bertcher
         Telecopy Number:  (972) 407-8426

         if to the Original Partners:

         William A. Shirley, Jr.
         Villa Residential Care Homes, Inc.
         2621 State Street
         Dallas, TX  75204
         Telecopy Number: (214) 871-0090

         and

         C. Kent Harrington
         Harrington, Moran, Barksdale & Day
         306 West 7th Street
         415 Fort Worth Club Building
         Ft. Worth, TX  76102
         Telecopy Number: (817) 335-0800


 
                                       -5-





Any notice or other  communication so addressed and so mailed shall be deemed to
have been given when duly delivered or sent.

     Section  3.10  Construction.  This  Agreement  shall  be  governed  by  and
construed  in  accordance  with the laws of the State of Texas,  without  giving
effect to the conflict of laws provisions thereof.  The descriptive  headings of
the several  sections and subsections  hereof are for convenience only and shall
not  control or effect  the  meaning of  construction  of any of the  provisions
hereof.

     Section 3.11 Counterparts.  This Agreement may be executed in any number of
counterparts,  each of which shall be deemed to be an original, but all of which
together shall constitute a single original instrument.

     Section 3.12 Effectiveness.  This Agreement shall only become effective, if
at all, on the Closing Date.



 
                                       -6-





     IN WITNESS  WHEREOF,  the parties hereto have executed this Agreement as of
the day and year first above written.

                                        GREENBRIAR CORPORATION


                                        By:
                                        Name:
                                        Title:



                                        -------------------------------
                                        William A. Shirley, Jr.


                                        -------------------------------
                                        C. Kent Harrington


     The  undersigned  hereby executes this Agreement for purposes of consenting
to the exchange of the Class A Units for shares of Common Stock  pursuant to the
terms of this Agreement.


                                  VILLA RESIDENTIAL CARE HOMES-
                                  OAK PARK, L.P.


                                  By:   Kellway Corporation, a Texas corporation
                                        its managing general partner


                                        By:
                                        Name:
                                        Title:



 
                                       -7-





                                    EXHIBIT A

                             FORM OF EXCHANGE NOTICE


     The undersigned  hereby irrevocably (i) exchanges ________ Class A Units in
Villa  Residential Care Homes-Oak Park, L.P., (ii) surrenders such Class A Units
and all right,  title and interest  therein,  and (iii)  directs that the Common
Stock of Greenbriar  Corporation (the "Common Stock")  deliverable upon exchange
be delivered to the address  specified  below,  and  registered or placed in the
name(s) and at the address(es) specified below.

     The undersigned  hereby  represents and warrants that (i) it has full power
and  authority to exchange all of its right,  title and interest in such Class A
Units into shares of the Common Stock,  (ii) such Class A Units so exchanged are
free and clear of all liens and other encumbrances of whatever nature, and (iii)
it will assume and pay any state or local  transfer tax that may be payable as a
result  of the  transfer  of such  Class A Units;  provided,  however,  that the
undersigned  shall not be responsible for paying any state or local transfer tax
arising out of this exchange.

Dated:

Name of Original Partner:

                                        ----------------------------------------

Signature of Original Partner:

                                        ----------------------------------------
                                        By:
                                        Title:



Address:
                                        ----------------------------------------
                                        (Street Address)


                                        ----------------------------------------
                                        (City)            (State)   (Zip Code)

Signature [Attested or Witnessed by]:


 
                                       -8-





                                    EXHIBIT B

                          SUBSCRIPTION LETTER AGREEMENT





                                            ------------------, ------



Greenbriar Corporation
4265 Kellway Circle
Addison, TX  75244

         Re:  Exchange Agreement dated December ___, 1997

Gentlemen:

     Pursuant to the terms and  conditions  of that certain  Exchange  Agreement
dated  December  ___,  1997  (the  "Exchange   Agreement")   between  Greenbriar
Corporation (the "Company"), William A. Shirley, Jr. and C. Kent Harrington, the
undersigned hereby delivers this subscription letter agreement to the Company as
a  condition  to the  exercise by the  undersigned  of the  Exchange  Rights (as
defined in the Exchange Agreement).

     As a condition  to its  exercise of the Exchange  Rights,  the  undersigned
hereby makes the following representations and warranties:

          1. The undersigned is an "Accredited Investor" as such term is defined
     in  Section  501(a)  of  the  Securities  Act  of  1933,  as  amended  (the
     "Securities Act"). The undersigned  warrants that it has such knowledge and
     experience in financial and business matters as to be capable of evaluating
     the merits and risks of its  investment  in the Common Stock (as defined in
     the Exchange Agreement).  The undersigned has had the opportunity to obtain
     from the Company any and all  information,  to the extent  possessed by the
     Company or obtainable with reasonable efforts by the Company,  necessary to
     evaluate the merits and risks of an  investment in the Common Stock and has
     concluded, based on such information and other information previously known
     to the undersigned,  to invest in the Common Stock pursuant to the Exchange
     Agreement.

          2. The  undersigned  acknowledges  that the shares of the Common Stock
     may lack  liquidity  as compared  with other  securities  investments.  The
     undersigned  acknowledges  that  it  must  bear  the  economic  risk of its
     investment in the Common Stock for an  indefinite  period of time since the
     Common Stock has not been registered under the Securities Act and therefore
     cannot be sold unless they are subsequently registered or an exemption from


 



     registration  available;  provided,  however, that such Common Stock may be
     sold in  connection  with any  effective  registration  statement  filed on
     behalf  of the  undersigned  in  accordance  with the  Registration  Rights
     Agreement, in compliance with the terms and conditions of such registration
     statement.

          3. The  undersigned  is  acquiring  the  Common  Stock for  investment
     purposes  only,  for its own  account and not as a nominee or agent for any
     other person or entity, and not with a view to, or for resale in connection
     with, any distribution thereof within the meaning of the Securities Act.

          4. The undersigned  acknowledges  that the Company is transferring the
     Common Stock to the undersigned  without  registration under the Securities
     Act. The  undersigned  further  acknowledges  that  representatives  of the
     Company have  advised the  undersigned  that no state or federal  agency or
     instrumentality  has made any finding or determination as to the investment
     in the Common Stock, nor has any state or federal agency or instrumentality
     made any  recommendation  with respect to any purchase or investment in the
     Common Stock.


                                              [Name of Undersigned]




                                              ----------------------------------


 
                                       -2-




EXHIBIT 2.1.5

                               EXCHANGE AGREEMENT

               Villa Residential Care Homes-Fort Worth East, L.P.


     This  Exchange  Agreement  (the  "Agreement")  is made as of the ___ day of
December, 1997 by and between Greenbriar Corporation,  a Nevada corporation (the
"Company"),  William A. Shirley, Jr., and C. Kent Harrington and their permitted
assignees hereunder, the (collectively, the "Original Partners").

     WHEREAS,  the  Original  Partners  wish to induce  the  Company  and/or its
subsidiaries to manage and operate the properties  managed and operated by Villa
Residential Care Homes-Fort Worth East, L.P. (the  "Partnership")  and to manage
the affairs of the Partnership; and

     WHEREAS,  pursuant to that certain First Amended and Restated  Agreement of
Limited  Partnership of Villa  Residential Care Homes-Fort Worth East, L.P. (the
"Partnership  Agreement") dated as of the date hereof,  Kellway  Corporation,  a
subsidiary of the Company,  was admitted as the Managing  General Partner and as
the Class B Limited Partner of the Partnership, and the partnership interests of
the Original  Partners in the  Partnership  were  converted into Class A Limited
Partnership Units of the Partnership (the "Class A Units"); and

     WHEREAS, as an inducement to the acceptance by the Original Partners of the
Class A Units pursuant to the Partnership  Agreement,  the Company has agreed to
exchange  shares of its Common  Stock (as  defined  below) for the Class A Units
held by the Original  Partners and the Partnership has agreed to allow the Class
A Units to be exchanged for shares of the Common Stock.

     NOW,  THEREFORE,  in consideration of the premises and the mutual covenants
and agreements herein contained and other good and valuable  consideration,  the
receipt and  sufficiency  of which is hereby  acknowledged,  the parties  hereby
agree as follows:


                                    ARTICLE I

                               CERTAIN DEFINITIONS
                               -------------------

     "Agreement" shall have the meaning set forth in the Preamble hereto.

     "Change in Control" shall mean,  after the date of this Agreement,  (i) the
occurrence  of an event of a nature  that would be  required  to be  reported in
response  to  Item 1 or  Item 2 of a Form  8-K  Current  Report  of the  Company
promulgated  pursuant  to Sections 13 and 15(d) of the  Exchange  Act;  provided
that,  without  limitation,  such a Change  in  Control  shall be deemed to have
occurred if any  "person,"  as such term is used in Sections  13(d) and 14(d) of
the Exchange Act (other than the Company, any trustee or other fiduciary holding
securities under any employee benefit plan of the Company, or any company owned,
directly or indirectly,  by the stockholders of the Company in substantially the
same proportions as their ownership of stock of the Company), is or becomes the







"beneficial  owner" (as defined in Rule 13d-3 under the Exchange Act),  directly
or indirectly,  of securities of the Company  representing  twenty-five  percent
(25%) or more of the combined  voting power of the  Company's  then  outstanding
securities;   (ii)  the   stockholders  of  the  Company  approve  a  merger  or
consolidation of the Company with any other corporation,  other than a merger or
consolidation  that  would  result  in the  voting  securities  of  the  Company
outstanding  immediately  prior  thereto  continuing  to  represent  (either  by
remaining  outstanding  or by being  converted  into  voting  securities  of the
surviving entity) more than eighty percent (80%) of the combined voting power of
the voting  securities  of the  Company  or such  surviving  entity  outstanding
immediately after such merger or consolidation; provided, however, that a merger
or consolidation  effected to implement a reorganization or  recapitalization of
the Company, or a similar transaction  (collectively,  a  "Reorganization"),  in
which no "person" acquires more than twenty percent (20%) of the combined voting
power of the Company's then outstanding securities shall not constitute a Change
in Control of the Company;  or (iii) the  stockholders  of the Company approve a
plan of  complete  liquidation  of the Company or an  agreement  for the sale or
disposition by the Company of all or substantially all of the Company's assets.

     "Class A Units" shall have the meaning set forth in the Preamble hereto.

     "Closing  Date" shall have the meaning  given such term in the  Partnership
Agreement.

     "Common  Stock"  shall mean the common  stock of the Company  issued by the
Company to one or more of the  Original  Partners  upon  exchange of any Class A
Units hereunder.

     "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended.

     "Exchange Rights" shall have the meaning set forth in Section 2.1 hereof.

     "Notice of  Exchange"  shall  have the  meaning  set forth in  Section  2.1
hereof.

     "Original  Partners"  shall  have the  meaning  set  forth in the  Preamble
hereof.

     "Partnership  Agreement"  shall have the meaning set forth in the  Preamble
hereof.

     "Registration Rights Agreement" shall mean that certain Registration Rights
Agreement  dated  the date  hereof by and  between  each of the  parties  hereto
relating to the resale registration rights of the Original Partners with respect
to the Common  Stock to be  received  in  connection  with the  exercise  of the
Exchange Right pursuant to this Agreement.

     "Securities Act" shall mean the Securities Act of 1933, as amended.

Capitalized  terms  not  otherwise  defined  have the  meaning  set forth in the
Partnership Agreement.

                                       -2-






                                   ARTICLE II

                                 EXCHANGE RIGHTS
                                 ---------------

     Section 2.1 Exchange  Rights.  Subject to the limitations set forth in this
Article II, each Original Partner shall have the right (such right, an "Exchange
Right") to require the Company to issue  shares of Common  Stock in exchange for
all or a portion of the Class A Units  (the  "Affected  Class A Units")  held by
such Original Partner upon thirty (30) days prior written notice to the Company,
which notice shall be in the form of a Notice of  Exchange;  provided,  however,
the Class A Units held by each  Original  Partner may be exchanged for shares of
the  Common  Stock  only on and after the  earlier to occur of (i) the first day
after the one year anniversary date of this Agreement and (ii) the date on which
a Change in Control of Company  occurs.  The Company  shall satisfy the Exchange
Right  of  the  Original   Partner  through  the  issuance  of  fully  paid  and
non-assessable shares of Common Stock within 30 days of receipt of the Notice of
Exchange,  but not sooner  than the date such shares are  registered  for resale
under the Registration Rights Agreement. Affected Class A Units are exchangeable
for shares of the Common  Stock at the rate of one (1) share of Common Stock for
each 19.487 of such Affected  Class A Units;  provided,  however,  the number of
shares  of  Common  Stock  shall be  determined  prior to  giving  effect to any
securities  issued or issuable  with respect to the Common Stock by way of stock
dividend  or  stock  split  or in  connection  with  a  combination  of  shares,
recapitalization,  merger,  consolidation or other  reorganization  or otherwise
occurring after the date of this Agreement.

     Section 2.2 Company's  Covenants  Relating to the Rights. The Company shall
at all  times  reserve  for  issuance  such  amount  of  Common  Stock as may be
necessary  to enable the  Original  Partners to exchange all Class A Units which
are from time to time outstanding.

     Section  2.3   Conditions   Precedent   to   Issuance   of  Common   Stock.
Notwithstanding anything to the contrary herein provided, the Company shall have
no  obligation  to issue to an Original  Partner  shares of Common Stock unless,
together with a Notice of Exchange,  such Original Partner executes and delivers
to the Company a subscription letter agreement in the form of Exhibit B hereto.

     Section 2.4  Representations  and  Warranties  of the Company.  The Company
represents  and warrants to the Original  Partner  exercising its Exchange Right
pursuant  to this  Agreement  that the  Common  Stock  which is to be issued and
delivered to the Original Partner pursuant to the terms of this Agreement,  when
so issued and delivered will be validly  authorized and issued and will be fully
paid and  non-assessable  and free and clear of any liens, and such Common Stock
will not be subject to any  limitations on free  transferability  other than any
restrictions  imposed  pursuant  to  this  Agreement,  the  Registration  Rights
Agreement or state or federal securities laws.

 
                                       -3-






                                   ARTICLE III

                                  MISCELLANEOUS
                                  -------------

     Section 3.1  Amendments  and  Waivers.  This  Agreement  may be modified or
amended only by a writing  signed by the Company and the  Original  Partners who
hold an amount of Class A Units at least equal to  two-thirds of all the Class A
Units then outstanding.

     Section 3.2 No Waiver.  No failure to exercise and no delay in  exercising,
on the Company's or the Original  Partners' part, any right,  power or privilege
hereunder  shall  operate as a waiver  thereof,  nor shall any single or partial
exercise  of any  right,  power or  privilege  hereunder  preclude  any other or
further exercise thereof or the exercise of any other right, power or privilege.
The rights and remedies  herein provided are cumulative and not exclusive of any
rights or remedies provided by law.

     Section 3.3 Survival of Agreements.  All agreements and covenants contained
herein or made in writing by or on behalf of the Company in connection  with the
transactions  contemplated  hereby shall  survive the  execution and delivery of
this Agreement.

     Section 3.4  Assignment.  The Original  Partners cannot assign or otherwise
transfer  their rights  under this  Agreement  without the prior  consent of the
Company  except by inheritance  or devise;  provided,  however that the Original
Partner shall be allowed to assign its rights  hereunder,  to any party to which
it may assign its Class A Units pursuant to the  Partnership  Agreement but only
if (i) all  requirements  for assignments of the Class A Units from the Original
Partner to such assignees pursuant to the Partnership  Agreement shall have been
met and (ii) the Original  Partner shall provide  advance  written notice of any
assignment to the Company.  Any such assignee  complying  with the  requirements
heretofore set forth shall be entitled to further assign,  pledge or hypothecate
their rights hereunder to an Institutional Lender (as defined in the Partnership
Agreement),  subject to (a) compliance  with the  provisions of the  Partnership
Agreement for pledge or  hypothecation  of the Class A Units and (b)  compliance
with item (ii) heretofore provided with respect to assignment to the assignees.

     Section 3.5 Binding Effect and Benefits.  This  Agreement  shall be binding
upon and shall inure to the benefit of the  Company and its  successors  and the
Original Partners and their permitted successors, assigns and transferees.

     Section  3.6 Entire  Agreement.  This  Agreement  constitutes  the full and
entire  understanding  and  agreement  between  the  parties  with regard to the
subjects hereof.

     Section 3.7  Severability  of  Provisions.  In case any  provision  of this
Agreement shall be invalid, illegal or unenforceable, the validity, legality and
enforceability  of the remaining  provisions shall not in any way be affected or
impaired  thereby.  Such provisions shall be deemed to be modified to the extent
necessary to render it legal, valid and enforceable, and if no such modification
shall  render it legal,  valid and  enforceable,  then this  Agreement  shall be
construed as if not containing the provision held to be invalid,  and the rights
and obligations of the parties shall be construed and enforced accordingly.



                                       -4-



 
     Section 3.8 Certain  Litigation  Costs. In the event of litigation  between
the Company and the Original Partners regarding the matters  encompassed by this
Agreement,  the prevailing party in a final non-appealable judgment from a court
of competent  jurisdiction  (following  such final  judgment)  shall be promptly
reimbursed  by the other party (or  parties)  thereto for all of its  reasonably
incurred  out-of-pocket  costs and expenses connected directly to the litigation
matters upon which such party has prevailed.

     Section  3.9   Notices.   All   notices,   requests,   consents  and  other
communications hereunder shall be in writing and shall be by telecopy, facsimile
transmission  (confirmed by U. S. mail),  telegraph,  hand delivery or mailed by
certified or registered mail postage prepaid, returned receipt requested, to the
addressed  set forth below or to such other  address as any party may advise the
other party in a written notice given in accordance with this Section.

         if to the Company:

         Greenbriar Corporation
         4265 Kellway Circle
         Addison, TX  75244
         Attention: Gene S. Bertcher
         Telecopy Number:  (972) 407-8426

         if to the Original Partners:

         William A. Shirley, Jr.
         Villa Residential Care Homes, Inc.
         2621 State Street
         Dallas, TX  75204
         Telecopy Number: (214) 871-0090

         and

         C. Kent Harrington
         Harrington, Moran, Barksdale & Day
         306 West 7th Street
         415 Fort Worth Club Building
         Ft. Worth, TX  76102
         Telecopy Number: (817) 335-0800

Any notice or other  communication so addressed and so mailed shall be deemed to
have been given when duly delivered or sent.

 
                                       -5-







     Section  3.10  Construction.  This  Agreement  shall  be  governed  by  and
construed  in  accordance  with the laws of the State of Texas,  without  giving
effect to the conflict of laws provisions thereof.  The descriptive  headings of
the several  sections and subsections  hereof are for convenience only and shall
not  control or effect  the  meaning of  construction  of any of the  provisions
hereof.

     Section 3.11 Counterparts.  This Agreement may be executed in any number of
counterparts,  each of which shall be deemed to be an original, but all of which
together shall constitute a single original instrument.

     Section 3.12 Effectiveness.  This Agreement shall only become effective, if
at all, on the Closing Date.



 
                                       -6-





     IN WITNESS  WHEREOF,  the parties hereto have executed this Agreement as of
the day and year first above written.

                                        GREENBRIAR CORPORATION


                                        By:
                                        Name:
                                        Title:



                                        ----------------------------------------
                                        William A. Shirley, Jr.


                                        ----------------------------------------
                                        C. Kent Harrington


     The  undersigned  hereby executes this Agreement for purposes of consenting
to the exchange of the Class A Units for shares of Common Stock  pursuant to the
terms of this Agreement.


                                  VILLA RESIDENTIAL CARE HOMES-
                                  FORT WORTH EAST, L.P.


                                  By:  Kellway Corporation, a Texas corporation,
                                       its managing general partner


                                       By:
                                       Name:
                                       Title:



 
                                       -7-





                                    EXHIBIT A

                             FORM OF EXCHANGE NOTICE


     The undersigned  hereby irrevocably (i) exchanges ________ Class A Units in
Villa  Residential Care Homes-Forth Worth East, L.P., (ii) surrenders such Class
A Units and all right,  title and interest  therein,  and (iii) directs that the
Common Stock of Greenbriar  Corporation  (the "Common Stock")  deliverable  upon
exchange be delivered to the address  specified  below, and registered or placed
in the name(s) and at the address(es) specified below.

     The undersigned  hereby  represents and warrants that (i) it has full power
and  authority to exchange all of its right,  title and interest in such Class A
Units into shares of the Common Stock,  (ii) such Class A Units so exchanged are
free and clear of all liens and other encumbrances of whatever nature, and (iii)
it will assume and pay any state or local  transfer tax that may be payable as a
result  of the  transfer  of such  Class A Units;  provided,  however,  that the
undersigned  shall not be responsible for paying any state or local transfer tax
arising out of this exchange.

Dated:

Name of Original Partner:
                                        ----------------------------------------


Signature of Original Partner:
                                        ----------------------------------------
                                        By:
                                        Title:



Address:
                                        ----------------------------------------
                                        (Street Address)


                                        ----------------------------------------
                                        (City)              (State)   (Zip Code)

Signature [Attested or Witnessed by]:


 
                                       -8-





                                    EXHIBIT B

                          SUBSCRIPTION LETTER AGREEMENT





                           ------------------, ------



Greenbriar Corporation
4265 Kellway Circle
Addison, TX  75244

         Re: Exchange Agreement dated December ___, 1997

Gentlemen:

     Pursuant to the terms and  conditions  of that certain  Exchange  Agreement
dated  December  ___,  1997  (the  "Exchange   Agreement")   between  Greenbriar
Corporation (the "Company"), William A. Shirley, Jr. and C. Kent Harrington, the
undersigned hereby delivers this subscription letter agreement to the Company as
a  condition  to the  exercise by the  undersigned  of the  Exchange  Rights (as
defined in the Exchange Agreement).

     As a condition  to its  exercise of the Exchange  Rights,  the  undersigned
hereby makes the following representations and warranties:

          1. The undersigned is an "Accredited Investor" as such term is defined
     in  Section  501(a)  of  the  Securities  Act  of  1933,  as  amended  (the
     "Securities Act"). The undersigned  warrants that it has such knowledge and
     experience in financial and business matters as to be capable of evaluating
     the merits and risks of its  investment  in the Common Stock (as defined in
     the Exchange Agreement).  The undersigned has had the opportunity to obtain
     from the Company any and all  information,  to the extent  possessed by the
     Company or obtainable with reasonable efforts by the Company,  necessary to
     evaluate the merits and risks of an  investment in the Common Stock and has
     concluded, based on such information and other information previously known
     to the undersigned,  to invest in the Common Stock pursuant to the Exchange
     Agreement.

          2. The  undersigned  acknowledges  that the shares of the Common Stock
     may lack  liquidity  as compared  with other  securities  investments.  The
     undersigned  acknowledges  that  it  must  bear  the  economic  risk of its
     investment in the Common Stock for an  indefinite  period of time since the
     Common Stock has not been registered under the Securities Act and therefore
     cannot be sold unless they are subsequently registered or an exemption from





     registration  available;  provided,  however, that such Common Stock may be
     sold in  connection  with any  effective  registration  statement  filed on
     behalf  of the  undersigned  in  accordance  with the  Registration  Rights
     Agreement, in compliance with the terms and conditions of such registration
     statement.

          3. The  undersigned  is  acquiring  the  Common  Stock for  investment
     purposes  only,  for its own  account and not as a nominee or agent for any
     other person or entity, and not with a view to, or for resale in connection
     with, any distribution thereof within the meaning of the Securities Act.

          4. The undersigned  acknowledges  that the Company is transferring the
     Common Stock to the undersigned  without  registration under the Securities
     Act. The  undersigned  further  acknowledges  that  representatives  of the
     Company have  advised the  undersigned  that no state or federal  agency or
     instrumentality  has made any finding or determination as to the investment
     in the Common Stock, nor has any state or federal agency or instrumentality
     made any  recommendation  with respect to any purchase or investment in the
     Common Stock.


                                        [Name of Undersigned]



                                        ----------------------------------------



 
                                       -2-




EXHIBIT 2.1.6

                AGREEMENT AND ASSIGNMENT OF PARTNERSHIP INTERESTS

     This Agreement and Assignment of Partnership  Interests (this  "Agreement")
is made and entered  into as of the ____ day of December,  1997,  by and between
WILLIAM  A.  SHIRLEY,  JR.("Shirley"),  LUCY  M.  BRODY  ("Brody")  and C.  KENT
HARRINGTON  ("Harrington")  (individually,  each an "Assignor" and collectively,
the "Assignors"), and GREENBRIAR CORPORATION ("Assignee").

                              W I T N E S S E T H:

     WHEREAS,  Assignors are Limited  Partners in VILLA  RESIDENTIAL  CARE HOMES
- -ARLINGTON, I, L.P., a Texas limited partnership (the "Partnership");

     WHEREAS,  Shirley  owns  a  90.21%  limited  partnership  interest  in  the
Partnership, Brody owns an 8.78% limited partnership interest in the Partnership
and Harrington owns a .01% limited partnership interest in the partnership;

     WHEREAS,   Shirley   desires  to  assign  and  transfer  a  44.65%  limited
partnership interest in the Partnership to Assignee, Brody desires to assign and
transfer a 4.35% limited partnership interest in the Partnership to Assignee and
Harrington desires to assign and transfer a .005% limited  partnership  interest
in the Partnership to the Assignee, such that, collectively, Assignee acquires a
49.005% limited partnership interest in the Partnership;

     WHEREAS,  Assignee  desires to acquire the  respective  percentages of each
Assignor's  right,  title  and  interest  in the  Partnership  set  forth in the
preceding paragraph (the "Assigned  Partnership  Interests"),  totally a 49.005%
limited partnership interest in the Partnership;

     NOW,  THEREFORE,  in consideration  of the premises,  warranties and mutual
covenants  set forth  herein  and other  good and  valuable  consideration,  the
receipt and  sufficiency  of which are hereby  acknowledged,  the parties hereto
agree as follows:

     1. Assignment of Partnership Interests.  Each Assignor hereby transfers and
assigns to  Assignee,  and  Assignee  hereby  accepts  from each  Assignor,  the
respective Assigned Partnership Interest owned by such Assignor,  including, but
not limited  to, all right,  title and  interest of such  Assignor in and to the
properties (real and personal), capital, cash flow distributions and profits and
losses of the Partnership attributable to the Assigned Partnership Interest.

     2. Effective  Date. The assignment  herein is effective as of December ___,
1997,  and  from and  after  that  date the net  profits  or net  losses  of the
Partnership  attributable to the Assigned Partnership Interest shall be credited
or charged, as the case may be, to Assignee, and not to Assignors.

     3.  Consideration.  The  consideration  for the Partnership  Interest shall
consist of 17,961 shares of newly issued,  fully paid and non-assessable  common
stock of the Assignee, par value $0.01per share, 16,365 of such shares being due
to Shirley,  1,594 of such  sharesbeing  due to Brody and 2 of such shares being
due to Harrington.


 
                                       -2-





     4. Representations and Warranties of Assignors.  Each Assignor individually
represents  and warrants to Assignee  that:  (a) such  Assignor is the legal and
beneficial  owner of the  Assigned  Partnership  Interest  attributable  to such
Assignor and has full authority to convey and has hereby  conveyed good title to
the Assigned Partnership Interest;  (b) the Assigned Partnership Interest is not
subject to any lien or assessments by any of such Assignor's creditors or by any
other party;  (c) to such  Assignor's  knowledge,  there are no actions,  suits,
proceedings or claims  affecting its respective  Assigned  Partnership  Interest
that  are  threatened  or  pending,  (d)  there  are no  other  partners  in the
Partnership or any other parties who have any right,  title or interest in or to
the Assigned Partnership  Interests,  and (e) it has obtained the consent of any
third parties required in order for such Assignor to make this assignment.

     5. Future  Cooperation  on  Subsequent  Documents.  Assignors  and Assignee
mutually  agree to  cooperate  at all times from and after the date  hereof with
respect to the supplying of any information requested by the other regarding any
of the matters  described  in this  Agreement,  and each agrees to execute  such
future deeds, bills of sale, assignments,  releases or other documents as may be
reasonably  requested for the purpose of giving effect to,  evidencing or giving
notice of the transactions described herein.

     6. Capital  Indemnification  by Assignors.  Each Assignor hereby  severally
indemnifies  and agrees to hold  harmless  Assignee  against any and all losses,
liabilities,   costs  (including,   without  limitation,   attorneys'  fees  and
expenses), expenses, penalties,  judgments, damages, claims and demands of every
kind and character  arising out of or in connection  with any of such Assignor's
individual  liabilities,  obligations and  responsibilities  with respect to the
Partnership of whatever kind or nature, whether arising from notes,  guarantees,
endorsements, liens, property, tax assessments, leases, loans, advances or other
similar  written  obligations  incurred in  connection  with the business of the
Partnership or which have arisen or may arise by reason of any past,  present or
future contract,  promissory note, mortgage,  negligent act or omission,  or any
other  event  pertaining  to  the  Partnership,   the  properties  and  business
operations,  and liabilities arising out of any act on the part of such Assignor
which would constitute fraud,  wrongful or unauthorized  actions.  Each Assignor
agrees to give notice to Assignee of any claim for which such Assignor  would be
liable  hereunder  promptly after any such claim is asserted  against or becomes
known to such Assignor.  Neither Assignee nor any successors or assigns thereof,
shall be deemed by this  Agreement  to have  waived any cause of action or claim
that Assignee may have by virtue of fraud,  wrongful or unauthorized  actions of
Assignors,  and each Assignor  agrees to indemnify  Assignee from any such loss,
claim, damage or expense arising from such conduct.

     7. Successors and Assigns.  This Agreement shall be binding upon, and shall
inure to the benefit of, the parties hereto and their successors and assigns.

     8. Survival of Representations. The representations,  warranties, covenants
and  agreements  of the parties  contained in this  Agreement  shall survive the
execution hereof for a period of one year.

     9.  Modification  and  Waiver.  No  supplement,   modification,  waiver  or
termination of this  Agreement or any provisions  hereof shall be binding unless
executed in writing by the parties to be bound thereby. 

 
                                       -3-





No waiver of any of the provisions of this Agreement  shall  constitute a waiver
of any  other  provision  (whether  or  not  similar),  nor  shall  such  waiver
constitute a continuing waiver unless otherwise expressly provided.

     10.  GOVERNING  LAW. THIS AGREEMENT IS BEING EXECUTED AND IS INTENDED TO BE
PERFORMED  IN THE  STATE OF  TEXAS,  AND  SHALL BE  CONSTRUED  AND  ENFORCED  IN
ACCORDANCE WITH THE LAWS OF THAT STATE.



 
                                       -4-




     IN WITNESS WHEREOF, this Agreement is executed as of the day and year first
above written.

                                               ASSIGNORS:



                                               By:
                                                        WILLIAM A. SHIRLEY, JR.



                                               By:
                                                        LUCY M. BRODY



                                               By:
                                                        C. KENT HARRINGTON


                                               ASSIGNEE:

                                               GREENBRIAR CORPORATION



                                               By:
                                               Name:
                                               Title:




                                       -5-