UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION

                                   FORM 10-KSB

(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
    OF 1934

                   For the fiscal year ended December 31, 1997

                                       OR
[ ] TRANSITION  REPORT  PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES 
    EXCHANGE ACT OF 1934 

                 For the transition period from______ to______

                          Commission file number 0-8187
                             GREENBRIAR CORPORATION
             (Exact name of Registrant as specified in its charter)

           Nevada                                             75-2399477
(State or other jurisdiction of                              (IRS Employer
 Incorporation or organization)                              Identification No.)

 4265 Kellway Circle, Dallas, Texas                            75244
(Address of principal executive offices)                      (Zip Code)

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

Securities registered pursuant to Section 12(b) of the Act:
                                                      Name of Each Exchange
      Title of Each Class                              on Which Registered
      -------------------                             -----------------------
    Common Stock, $.01 par value                      American Stock Exchange

Securities registered pursuant to Section 12(g) of the Act:  None

Check  whether the issuer (1) filed all reports  required to be filed by Section
13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months (or
for such shorter period that the issuer was required to file such reports),  and
(2) has been subject to such filing requirements for the past 90 days.

                        YES [ X ]        NO [   ]

Check if there is no disclosure of delinquent  filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure  will be contained,  to
the best of issuer's  knowledge,  in definitive proxy or information  statements
incorporated  by reference  in Part III of this Form 10-KSB or any  amendment to
this Form 10-KSB. [X]

The  aggregate  market value of the voting stock held by  non-affiliates  of the
issuer,  computed by reference to the closing sales price on March 31, 1998, was
approximately $34,713,000.

At March 31, 1998, the issuer had outstanding  approximately 6,769,000 shares of
par value $.01 Common Stock.

Documents Incorporated by Reference

Part III of this Annual Report on Form 10-KSB  incorporates  certain information
by reference from the definitive  Proxy  Statement for the  registrant's  Annual
Meeting of Stockholders to be held on May 29, 1998.

Transitional Small Business Disclosure Format (check one):

                             YES [   ]    NO [X]

<PAGE>

<TABLE>
<CAPTION>

                                                         
                             GREENBRIAR CORPORATION
                      Index to Annual Report on Form 10-KSB
                       Fiscal year ended December 31, 1997




PART I                                                                                                PAGE
<S>                                                                                                     <C>    

Item 1:           Description of Business                                                                3
Item 2:           Description of Properties                                                             16
Item 3:           Legal Proceedings                                                                     16
Item 4:           Submission of Matters to a Vote of Security Holders                                   17


PART II

Item 5:           Market for Common Equity and Related Stockholder Matters                              17
Item 6:           Management's Discussion and Analysis or Plan of Operation                             17
Item 7:           Financial Statements                                                                  21
Item 8:           Changes in and Disagreements with Accountants on
                  Accounting and Financial Disclosure                                                   22


Part III

Item 9:           Directors, Executive Officers, Promoters and Control Persons; Compliance
                  With Section 16(a) of the Exchange Act                                                22
Item 10:          Executive Compensation                                                                22
Item 11:          Security Ownership of Certain Beneficial Owners and
                  Management                                                                            22
Item 12:          Certain Relationships and Related Transactions                                        22


Part IV

Item 13:          Exhibits and Reports On Form 8-K                                                      22

</TABLE>


                                       2
<PAGE>


                                     PART I


ITEM 1:  DESCRIPTION OF BUSINESS     
------   -----------------------

Overview and Background of Assisted Living Operations

Greenbriar Corporation (the "Company") is a leading assisted living company that
operates assisted and full service  independent living  communities  designed to
serve the needs of the elderly  population.  Assisted living residents generally
comprise  frail elderly  persons who require  assistance  with the activities of
daily living such as ambulation, bathing, eating, personal hygiene, grooming and
dressing,  but who do not generally require more expensive skilled nursing care.
Independent  living residents  typically require only occasional  assistance but
receive  other  support  services.  In addition,  the Company also  develops and
operates  communities for residents  suffering from Alzheimer's or other related
dementia, a growing specialty within the assisted living industry.

As of March 31, 1998, the Company  operated 55 communities in 12 states,  with a
capacity of 4,260  residents,  consisting of 52 communities in which the Company
has  ownership or leasehold  interests and three  communities  managed for third
parties. One of the Company's leased properties is managed by a third party. The
Company plans to pursue an aggressive  growth strategy  through  development and
construction  and, when  opportunities  arise, to acquire other  communities and
assisted living companies through strategic acquisitions.  As of March 31, 1998,
the  Company  had  three  assisted  living  communities  with  capacity  for 138
residents under construction or development.

The Company existed from 1981 until 1989 as a real estate  investment  trust. In
late 1989, control of the Company changed to current  management,  who undertook
to dispose of its REIT  properties  and establish a new focus on services to and
products  for  the  elderly.  In 1991  the  REIT  was  reorganized  as a  Nevada
Corporation.  Until 1994, the Company's business was the acquisition,  operation
and sale of retirement,  nursing and other  healthcare  communities,  as well as
commercial  real  estate,  and the  manufacture  and sale or  lease of  mobility
assistance  equipment.  In 1994 the  Company  decided  to  change  its  business
emphasis  to the  assisted  living  industry,  and by early 1996 it had sold its
existing  nursing homes and  retirement  centers,  most of its  commercial  real
estate, and its mobility equipment subsidiaries.

Beginning in 1995 the Company began developing and constructing  assisted living
communities;   however,   the  significant  growth  that  occurred  was  through
acquisitions that were completed in 1996 and 1997.

Acquisition of Wedgwood Retirement Inns, Inc.

Effective March 31, 1996,  Greenbriar  acquired  Wedgwood  Retirement Inns, Inc.
("Wedgwood"),  which along with its  principals  owned  various  interests in 15
predecessor  entities,  each of which  owned,  leased  or  managed  at least one
assisted or independent living community.

Wedgwood  was  one  of  the  first  builders  and  management  companies  in the
retirement and assisted living industry. At the time of the acquisition Wedgwood
owned and managed 1,292 units of  full-service  retirement and assisted  living,
including some that provided  Alzheimer's  care. The communities were located in
six states: Washington,  Oregon, California,  Idaho, New Mexico and Texas. As of
March 1996,  Wedgwood had three communities under  construction,  containing 225
assisted living units and Alzheimer's beds.

Wedgwood  was  purchased  from 23  individuals,  all of whom were  unrelated  to
Greenbriar, who received 1,624,958 shares of Greenbriar common stock.

Acquisition of American Care Communities, Inc.

Effective  December 31, 1996, the Company issued  1,300,000 shares of its Common
Stock in exchange  for all of the  outstanding  common  stock of  American  Care
Communities,  Inc. ("American Care").  American Care owned or leased 15 assisted
living  communities with approximately  1,350 units,  located primarily in North
Carolina and managed one community  for a third party.  The merger was accounted
for as a pooling of  interests  and,  accordingly,  the  Company's  consolidated


                                       3


<PAGE>

financial  statements  were  restated to include the accounts and  operations of
American Care for all periods prior to the merger.

Acquisition of The Windsor Group

In October 1997 Greenbriar  issued 160,000 shares of Greenbriar  common stock in
the  acquisition of the Windsor Group.  The Windsor Group owned and operated two
communities  in  South  Carolina  with a  resident  capacity  of 162 and had two
communities under construction and expansion underway in one of the two existing
communities.  The  completion  of that  construction  will  provide  the service
capacity for an additional 122 residents.

Acquisition of Villa Residential Care Homes, Inc.

On December 29, 1997,  Greenbriar acquired Dallas, Texas based Villa Residential
Care Homes, Inc., and related partnerships ("Villa").  Villa leased and operated
12  assisted  living  communities  in Texas with a resident  capacity  of 955. A
Greenbriar  subsidiary  became the  managing  general  partner of the  operating
partnerships.

The purchase price was 184,476 shares of registered  Greenbriar common stock and
10,464,321  operating  partnership  units  convertible  after a one year holding
period  into  536,990  shares  of  Greenbriar  common  stock  subject  to future
registration  rights.  An additional 85,984 shares of common stock and 1,568,904
operating  partnership  unites  convertible  into 80,510  shares of common stock
subject to future  registration  rights may be issued  within two years based on
certain of the communities meeting performance requirements. The total number of
Greenbriar  common  shares to be issued in the  transaction  will  therefore  be
between 721,466 and 887,960.

Real Estate Operations

As of March 31, 1998, the Company owned three shopping centers in Georgia. While
all the centers are  profitable,  they do not fit into the Company's  long range
strategic plans and commitment to the assisted living  industry.  The Company is
actively attempting to sell all the centers.

The Assisted Living IndustryAssisted Living Industry

The  Company  believes  that the  assisted  living  industry  is  emerging  as a
preferred alternative to meet the growing demand for a cost-effective setting in
which to care for the  elderly who do not  require  the more  intensive  medical
attention   provided  by  a  skilled  nursing   center,   but  who  cannot  live
independently  due to  physical or  cognitive  frailties.  In general,  assisted
living represents a combination of housing, general support services and 24-hour
a day  personal  care  services  designed  to aid  elderly  residents  with  the
activities of daily living  ("ADLs").  Certain  assisted living  communities may
also provide assistance to residents with low acuity medical needs, or may offer
higher levels of personal assistance for incontinent residents or residents with
Alzheimer's  disease or other  forms of  dementia.  Generally,  assisted  living
residents  have higher  levels of need than those of  residents  of  independent
retirement  living  communities  but lower  than those of  residents  in skilled
nursing centers.  Annual  expenditures in the assisted living industry have been
estimated to be approximately $12 billion,  including  communities  ranging from
"board  and care" to  full-service  assisted  living  communities  such as those
operated by the Company.

The Company believes that assisted living is one of the fastest growing segments
of elderly care and will  continue to experience  significant  growth due to the
following:

         Consumer  Preference.  The Company  believes  that  assisted  living is
         increasingly  becoming the setting  preferred by prospective  residents
         and their  families  in which to care for the frail  elderly.  Assisted
         living offers residents greater  independence in a residential setting,
         which the  Company  believes  results in a higher  quality of life than
         that experienced in more  institutional or clinical  settings,  such as
         skilled nursing centers.

         Demographic  and Social  Trends.  The target  market for the  Company's
         services is  generally  persons 75 years and older,  one of the fastest
         growing segments of the U.S.  population.  According to the U.S. Census
         Bureau, the portion of the U.S. population age 75 and older is expected
         to increase by 31%,  from  approximately  13.2  million in 1990 to over
         16.6  million  by the year 2000,  and the number of persons  age 85 and
         older is expected to increase  approximately  41% during the 1990s from
         3.1  million  to  approximately  4.5  million.  It  is  estimated  that
         approximately  57%  of the  population  of  seniors  over  age 85  need
         assistance  with ADLs and  approximately  50% of such  seniors  develop
         Alzheimer's disease or other forms of dementia. According to the United
         States Bureau of the Census,  the median net worth of householders  age
         75 and older has  increased  from  $61,491  in 1988 to $76,541 in 1992.



                                       4


<PAGE>

         Accordingly,  the Company  believes  that the number of seniors who are
         able to afford  high-quality  residential  environments,  such as those
         offered by the Company, has increased in recent years.

         Lower Average Cost.  The Company  believes that the average annual cost
         to residents  receiving  assisted living care in the Company's assisted
         living  communities  is  significantly  less than the cost of receiving
         similar  care in a skilled  nursing  center.  According  to the  Marion
         Merrell Dow Inc. Managed Care Digest Series, Institutional Digest 1995,
         the  average  annual  cost per person in 1994 in the United  States for
         private nursing home care was approximately $36,000.

         Changing Supply of Long-term Care Beds. Most of the states in which the
         Company currently operates have enacted  certificate of need ("CON") or
         similar  legislation  that  restricts  the supply of  licensed  nursing
         center beds.  These laws generally  limit the  construction  of nursing
         centers  and the  addition  of beds or  services  to  existing  nursing
         centers,  and hence tend to limit the available  supply of  traditional
         nursing  home beds.  In  addition,  some  long-term  care  centers have
         started to convert  traditional  nursing home beds into sub-acute beds.
         The Company also  believes that high  construction  costs and limits on
         government reimbursement for the full cost of construction and start-up
         expenses  also will  constrain  the growth  and  supply of  traditional
         nursing home centers and beds. The Company expects that this tightening
         supply of nursing beds coupled with the aging population will create an
         increased demand for assisted living communities.

Business Strategy

The Company  believes that  significant  growth  opportunities  exist to provide
assisted living services to the rapidly growing elderly population.  The Company
has aggressively  expanded its operations through the acquisition of communities
and assisted living  companies.  The Company also seeks to improve the operating
performance  of  its  communities  through  the  continued  enhancement  of  its
operations.  The Company is developing and  constructing  communities in markets
where it already has its management  infrastructure in place and in markets that
are underserved.

The majority of the Company's current communities are operated and marketed on a
private-pay, single occupancy basis. Most double occupancy is non-related people
who are state-assisted residents. Most of the Company's state-assisted residents
are in Texas and North Carolina  communities.  Texas is one of a few states that
has a Medicaid waiver program currently operating. North Carolina has one of the
best reimbursement  rates in the nation for assisted living and was a pioneer in
supporting the development of assisted living as one way of containing  costs of
caring for the state's aging population.

As  America  ages,   the  Company   believes  that  more  states  will  adopt  a
reimbursement  policy  similar to Texas and North  Carolina,  primarily a double
occupancy approach.  Some, however, may stress a single occupancy approach.  The
Company believes that the assisted living industry will primarily  continue as a
private-pay   industry  for  the  foreseeable   future,   but  may  become  more
price-sensitive  as more people need assisted  living and for longer periods due
to increased life spans. Costs of caring for an aging America may become more of
a private-pay, state-assisted partnership than currently exists.

The  Company  uses the same  development  strategy  for  special  care  units in
combined  Alzheimer's and assisted living  communities and in dedicated  special
care  communities.  The units and common space are designed for  flexibility  so
that they can be primarily  single  occupancy or  primarily  double  occupancy -
again, based on market demand.

The Company  believes  that this  occupancy-flexible  development  strategy will
provide a competitive  advantage over its  competitors who do not have units and
common space large enough to readily accommodate double occupancy.

The top  management  of the Company has  extensive  acquisition  experience  and
contacts in the assisted  living and long-term care  industry.  The rapid growth
achieved this past year came primarily from  acquisitions.  The Company believes
that  acquisition  is the best way to meet its growth  goals.  The full  service
retirement and assisted living industry is very fragmented and still primarily a
single proprietor business.

                                       5

<PAGE>


Acquisition  Strategy.  The  Company  may  acquire  one or more  communities  or
assisted  living  companies  as a means to enter new  markets  and may also make
acquisitions  within its  existing  regions  to gain  further  market  share and
leverage  its  existing  operating  infrastructure.   In  reviewing  acquisition
opportunities,  the Company  considers,  among  other  things,  the  competitive
climate, the current reputation of the community or the operator, the quality of
the  management,  the need to reposition  the community in the  marketplace  and
costs  associated   therewith,   the  construction  quality  and  any  need  for
renovations of the community and the opportunity to improve or enhance operating
results.

Operating Strategy. The Company's operating strategy is to achieve and sustain a
strong competitive  position within its chosen markets as well as to continue to
enhance the performance of its operations. The Company also will seek to enhance
its current  operations by (i) maintaining and improving  occupancy rates at its
communities;  (ii) opportunistically increasing resident service fees; and (iii)
improving operating efficiencies.

Offer Residents  Customized Care and Service Packages.  The Company  continually
seeks  to  expand  its  range of  services  to meet  the  evolving  needs of its
residents.  The Company  offers each of its  residents a  personalized  assisted
living  service plan which may include any  combination  of basic  support care,
personal  care,  supplemental  services,   wellness  services,  and  if  needed,
Alzheimer's and special care services,  subject to the level of services allowed
to be offered by the licensing in place at each community.  By offering services
in an "unbundled"  manner,  charging only for the services  needed and involving
the active  participation of the resident,  the Company is able to customize its
service  plans to meet the specific  needs of each  resident.  As a result,  the
Company  believes  that it is  able  to  maximize  customer  satisfaction  while
avoiding  the high cost of  delivering  all  services to all  residents  without
regard  to need or  choice.  The care  plan for each  resident  is  periodically
reviewed and updated by the Company, the resident, the resident's family and the
resident's physician.

Maintain  and Improve  Occupancy  Rates.  The Company also seeks to maintain and
improve  occupancy  rates by  continuing  to (i) attract new  residents  through
marketing  programs  directed  towards  family  decision  makers,  namely  adult
children and potential  residents,  (ii) actively seek referrals from hospitals,
rehabilitation  hospitals,  physicians'  clinics,  home healthcare  agencies and
other acute and  sub-acute  healthcare  providers  in the markets  served by the
Company and (iii) develop new market niches such as respite care, adult day care
and other specialty care programs sought by caregivers.

Selectively  Increase  Service Pricing  Levels.  The Company  regularly  reviews
opportunities  to increase  resident  service fees within its existing  markets,
while maintaining  competitive market positions.  In keeping with this strategy,
the Company will  continue to offer high  quality  assisted  living  services at
average to above average prices and generally target private-pay residents.  The
Company's  private-pay residents are typically seniors who can afford to pay for
services  from both  their own and their  families'  financial  resources.  Such
resources may include social  security,  investments,  proceeds from the sale of
their residence,  contributions  from family members and insurance proceeds from
long-term care insurance policies.

Improve Operating  Efficiencies.  The Company seeks to improve operating results
of its communities by actively  monitoring and managing its operating  costs. In
addition,  the Company believes that  concentrating  communities within selected
geographic  regions  may enable the  Company to achieve  operating  efficiencies
through  economies  of scale,  reduce  corporate  overhead  and provide for more
effective  management  supervision and financial  controls.  The Company is also
able to obtain volume discounts through enhanced  purchasing power for a variety
of items including food supplies, insurance, equipment and other items.

Offer Alzheimer's  Dedicated  Communities.  As of March 1998, the Company had 17
communities with distinct special care wings specifically  designed to serve the
needs of  individuals  with  Alzheimer's  disease  and other  forms of  dementia
through the provision of a variety of specialty care services. The Company plans
to build a portion of its new communities with a distinct Alzheimer's wing which
will allow the Company to offer this  service to the elderly  with this  disease
and other forms of dementia,  will create an opportunity for residents to age in
place within the same community,  and will allow special security and support of
Alzheimer's  residents.  The  Company  believes  this will allow it to  continue
serving  residents  for a  longer  period  of  time,  and  provide  a  desirable
alternative  for its  residents  and their  families.  However,  most of the new
communities will be designed to be flexible enough to allow the Alzheimer's wing
to be used only for assisted living  residents if demand for Alzheimer's care is
not  adequate  to  justify  maintaining  a  distinct  Alzheimer's  program  in a


                                       6


<PAGE>

particular  community.  The  Company's  experience  and research  indicate  that
Alzheimer's  residents  often  respond  better by sharing a suite  with  another
Alzheimer's   resident   rather  than  being  in  a  single   occupancy   suite.
Consequently,  the Company's  Alzheimer's  programs are designed to allow double
occupancy, although rooms are available on a single occupancy basis.

Assisted Living Services

The Company offers a wide range of full service  retirement and assisted  living
care and services to its  residents.  The  residents are allowed to select among
the services  offered beyond basic support services and are charged only for the
services  they need.  Management  believes  this  provides  the  Company  with a
competitive  advantage  over other  service  providers in the industry who offer
discrete  levels of  services  and base their  charges on the level of  services
offered  regardless  of whether a resident  requires or uses all of the services
available at a particular level.

The services offered by the Company can generally be categorized as follows:

               Basic Support  Services.  These services include  providing up to
               three  meals per day in a common  dining  room,  special  dietary
               planning,  laundry,  general  housekeeping,  organized social and
               other  activities,   transportation,   communities   maintenance,
               utilities (except telephone) and 24-hour security monitoring.

               Supplemental   Services.   These  services  include   performing,
               coordinating  or assisting  with bill paying,  banking,  personal
               shopping,  transportation,  appointments,  pet care and  reminder
               services.

               Personal  Care  Services.   These  services   include   providing
               assistance  with  activities  of daily living (the ADL's) such as
               ambulation,  bathing,  eating,  dressing,  personal  hygiene  and
               grooming.

               Wellness  Services.  These services  include  assistance with the
               administration  of medication  and health  monitoring by a nurse,
               which are provided as permitted by government regulation.

               Alzheimer's and Special Care Services. The Company has a distinct
               Alzheimer's  special care wing in 17 of its existing  communities
               and generally plans to include a distinct Alzheimer's wing in the
               communities  constructed  and  developed  by the  Company for the
               assisted  living  market.  Alzheimer's  care  includes  a  higher
               24-hour staff ratio to provide  oversight  and activity  programs
               scheduled  around-the-clock  in the  Alzheimer's  wing,  which is
               secured  from  the  rest of the  building  and  includes  secured
               outdoor walking paths.

Properties

Operating  Communities.  The following table sets forth certain information with
respect to communities  that were operated by the Company at March 31, 1998. The
Company owns,  leases,  holds equity interest in or manages,  on behalf of third
parties, these communities.  The Company considers its communities to be in good
operating condition and suitable for the purpose for which they are being used.


<TABLE>

<CAPTION>
                              EXISTING COMMUNITIES
                                                                                            Company
                                                          Care                Resident     Operations
         Community                  Location              Level      Units   Capacity(     Commenced       Ownership
         ---------                  --------              -----      -----   ----------    ---------       ---------
<S>                                                                              <C>
                                                                                 1)               <C>      <C>
Owned, leased  by Company:
Berne Village               New Bern, NC              S, FE, DC          156         165         Oct-93    Owned (2)
Camelot                     Harlingen, TX             S                  172         172         Sep-94    Owned (2)
Corpus Christi Northwest    Corpus Christi, TX        FE                  48          64           1990   Leased (3)
Corpus Christi South        Corpus Christi, TX        FE                  76          86           1996   Leased (3)
Country Oaks of Chiefland   Chiefland, FL             FE                  37          58         Dec-95    Owned (2)
Countrytime Inn             Kings Mountain, NC        FE, DC              32          54         Jun-95    Owned (2)
Crown Pointe (6)            Corona, CA                S, FE,             136         136         Jan-93     Owned (2,5)

                                       7

<PAGE>

Granbury                    Granbury, TX              FE                  36          43         Jan-98   Leased (3)
Graybrier                   Southern Pines, NC        FE, DC              56          92         Feb-94    Owned (2)
Greenbriar at Camelot       Harlingen, TX             FE, DC              82          98         Jan-98   Leased (3)
Greenbriar at Denison       Denison, TX               FE, DC              44          67         May-96    Owned (2)
Greenbriar at Muskogee      Muskogee, OK              FE                  48          69         Mar-97    Owned (2)
Greenbriar at Sherman       Sherman, TX               FE                  48          73         Mar-98    Owned (2)
Greenbriar at Wilmington    Wilmington, NC            FE                  64          64           1988   Leased (3)
Harlingen                   Harlingen, TX             FE                  23          46           1990   Leased (3)
Hermitage House             Bladenboro, NC            FE                  59          59           1986   Leased (3)
La Villa                    Roswell, NM               FE, DC              80          91         Nov-96   Leased (3)
Lincolnshire                Lincoln City, OR          S, FE               64          64         Nov-95    Owned (2)
Maranatha Manor             Spartanburg, SC           FE,DC               31          51           1997    Owned (2)
Meadowbrook Place           Baker, OR                 FE                  50          50         Dec-92    Owned (2)
Mount Olive                 Mount Olive               FE                  65         103           1985   Leased (3)
Mt. Pleasant Private        Mt. Pleasant, TX          FE                  34          40           1993   Leased (3)
Mt. Pleasant State          Mt. Pleasant, TX          FE                  17          34           1989   Leased (3)
Neawanna by the Sea         Seaside, OR               S, FE               59          59         Jan-90 Leased (4,7,10)
Oak Park, Clermont          Clermont, FL              FE                  59          61         Nov-97   Leased (3)
Oak Park, Ft Worth          Fort Worth, TX            FE                 150         150         Jan-98   Leased (3)
Oakridge                    Sanford, NC               FE                  47          85         Dec-95   Leased (3)
Pacific Pointe              King City, OR             S                  113         113         Jan-93   Leased (3)
Palm House                  Fort Worth, TX            S                  155         155           1985   Leased (3)
Red Oak Manor               Greenville, NC            FE                  30          58         Feb-95   Leased (3)
Rose Garden Estates         Ritzville, WA             FE                  21          21         Nov-95    Owned (2)
Rose Manor of Cary          Cary, NC                  FE, DC              55          61         Oct-96    Owned (2)
Rose Tara Plantation        King, NC                  FE                  38          65         Sep-94    Owned (2)
Rose Terrace of Wendell     Wendell, NC               FE, DC              52         100         May-94   Leased (3)
Rose Vista Village of       Fayetteville, NC          S, FE               64          94         Feb-95   Leased (3)
Fayetteville
Rose Vista Village of       Goldsboro, NC             S, FE               63          93         Feb-95   Leased (3)
Goldsboro
Rose Vista Village of       Kinston, NC               S, FE               64          93         Feb-95   Leased (3)
Kinston
Rose Vista Village of       Wilson, NC                S, FE, DC           76         119         Feb-95   Leased (3)
Wilson
Royal Oaks                  Sanford, NC               FE                  25          40         Dec-95   Leased (3)
Summer Hill                 Oak Harbor, WA            FE                  59          61         Feb-94    Owned (2)
Sweetwater Springs          Lithia Springs, GA        FE, DC              48          48         Oct-96   Leased (9)
Tandy                       Fort Worth, TX            FE                  81         108           1984   Leased (3)
The Terrace                 Portland, OR              FE, DC              65          69         May-91    Owned (2)
Tyler                       Tyler, TX                 FE                  44          64           1991   Leased (3)
Villa del Rey Merced        Merced, CA                S                   92          92         Dec-79   Leased (3)
Villa del Rey Roswell       Roswell, NM               S, FE              133         133         Oct-88  Leased (4,7)
Villa del Rey Visalia       Visalia, CA               S                   98          98         Dec-79   Leased (3)
Villa del Sol               Roswell, NM               S                   12          12         Dec-95    Owned (2)
Wedgwood Terrace            Lewiston, ID              FE, DC              40          51         Nov-95    Owned (2)
Windsor House Greenville    Greenville, SC            FE, DC              31          50         Nov-97    Owned (2)
Windsor House West          Spartanburg, SC           FE, DC              74         111           1991    Owned (2)
Wolfforth                   Wolfforth, TX             FE                  26          46         Jan-98   Leased (3)

Subtotal/Average                                                       3,332       4,089
                                                                       -----       -----

Managed, but owned by third party
Homeplace                   Burlington, WA            DC                  21          36         Feb-98     Managed
Scarborough Terrace         Scarborough, ME           FE, DC              64          75         Jan-96     Managed
Timberhill Place            Corvallis, OR             FE                  60          60         May-95     Managed


Total                                                                  3,477       4,260
                                                                       =====       =====
                                                                          
</TABLE>

                                       8

<PAGE>

<TABLE>
<CAPTION>
                         COMMUNITIES UNDER CONSTRUCTION

                                                          Care                Resident Anticipated     Anticipated
         Community                  Location              Level       Units   Capacity   Opening        Ownership
          -------                    -------             -------     -------  -------    -------         -------
<S>                                                                                 <C>     <C>            <C>  
Spartanburg expansion       Spartanburg, SC                FE              30       30      Q2 98          Own
Windsor House Florence      Florence, SC                   FE              26       42      Q2 98          Own

Total                                                                      56       72
                                                                         ----     ----
</TABLE>

                  Occupancy
Key:
   S  - basic support and supplemental services are offered.
   FE - basic  support,  supplemental,  personal care and wellness  services are
        offered  ("Frail  Elderly"). 
   DC - Alzheimer's  and special care services are offered ("Dementia Care").
   
(1)      Anticipated   number  of  residents,   although   capacity  exists  for
         additional residents with double occupancy of more units.
(2)      Subject to first mortgage.  Historically,  each community has generally
         been  pledged  as  collateral  on a  single  mortgage  or deed of trust
         securing a note payable to a bank, financial institution, individual or
         other lender.  The mortgages and deeds of trust mature between 1998 and
         2018 and bear  interest at fixed and variable  interest  rates  ranging
         from 7.5% to 11.35% as of December 31, 1997. The Crown Pointe community
         is subject to a mortgage and note payable to the  Redevelopment  Agency
         of the City of  Corona,  California,  is  payable  into a sinking  fund
         semi-annually  in increasing  amounts from $65,000 to $420,000  through
         May 2015, and bears interest at a variable  interest rate equal to 5.6%
         at December 31, 1996.  Future  communities  owned and  mortgaged by the
         Company will likely be pledged as collateral for mortgage credit lines,
         which  relate to more  than one  community.  See Item 6.  "Management's
         Discussion  and Analysis or Plan of  Operation - Liquidity  and Capital
         Resources."
(3)      Leased from third party individuals or partnership. Initial lease terms
         generally range from 10 to 20 years,  and mature between 1999 and 2011.
         The  Company  is  responsible  for all costs  including  repairs to the
         community,  property  taxes and  other  direct  operating  costs of the
         community.  Leases  generally  include  clauses  that allow for rent to
         increase  over time based on a specified  schedule or on an increase in
         the  consumer  price  index.  Generally,  the  Company has an option to
         purchase the community  after a specified  period,  or at expiration of
         the lease,  at a price  generally equal to market value. As of December
         31,  1997,  the Company  had  available,  subject to  periodic  review,
         commitments  for  approximately  $90 million of lease  credit lines for
         future communities.  See Item 6. "Management's  Discussion and Analysis
         or Plan of Operation - Liquidity and Capital Resources."
(4)      Community is leased from a Real Estate  Investment Trust. The lease was
         part of a sale - leaseback transaction. The lease commenced in 1994 and
         expires in 2009. The Company has an option to purchase the community in
         2004 and in 2009 for an amount  equal to the greater of the sales price
         or the current replacement cost less actual depreciation.
(5)      Company owns 60% of real estate and the lessee.
(6)      Crown  Pointe is being  expanded  and  construction  is  expected to be
         complete  in April.  Upon  completion,  there  will be 165 units with a
         capacity of 168.  Five of these units will be  designated  as Alzheimer
         units with an effective capacity of eight.
(7)      Company owns 49% of lessee.  Victor L. Lund, a director of the Company,
         owns the other  51%,  and the  Company  has an option to  purchase  his
         interests in these entities for $10,000.
(8)      Of these units,  114 have been sold to residents who then pay a reduced
         monthly fee. The Company  agrees to repurchase  the units that are sold
         at a price ranging from 65% to 80% of the fair market value at the date
         of  repurchase,  based upon the number of years the resident  owned the
         unit.
(9)      Leased from a REIT for 15 years  expiring in 2011. 
(10)     Property is managed by third party.

Plans for  Construction.  The  Company  generally  retains  independent  general
contractors to construct its  communities.  The Company  approves all aspects of
development   including,   among  other  things,   site  selection,   plans  and
specifications,  the proposed construction budget and selection of the architect
and general  contractor.  The Company estimates the average  capitalized cost to
develop,   construct  and  open  a  community   (including   land   acquisition,
architectural and engineering, construction period interest and loan fees) to be
approximately  $75,000  per unit,  and average  construction  time for a typical
community to be  approximately  twelve to eighteen  months,  depending  upon the
number of units. The Company estimates that, once opened, it takes approximately
six to twelve  additional months after licensure for each community to achieve a
stabilized  occupancy level of 92% or higher. The Company  anticipates that each
community  will  have  an  average  operating  loss  (before   depreciation)  of
approximately  $350,000  prior  to  reaching  stabilized  occupancy.   Expansion
projects generally cost less to build and to lease up.

                                       9

<PAGE>


Development and Construction  Risks. The Company's growth strategy is dependent,
in part,  on its  ability  to  develop  and  construct  additional  communities.
Development  projects generally are subject to various risks,  including zoning,
permitting,  healthcare  licensing  and  construction  delays that may result in
construction cost overruns, longer development periods and, accordingly,  higher
than anticipated start-up losses. Although the Company has extensive development
experience,  closely manages each development project and regularly monitors the
contractors  constructing  the  Company's  communities,  project  management  is
subject to a number of  contingencies  over which the  Company  has little or no
control and which might adversely affect project costs and completion time. Such
contingencies  include  shortages  of,  or the  inability  to  obtain,  labor or
materials,  the  inability  of  contractors  to perform  under their  contracts,
strikes,   adverse  weather   conditions  and  changes  in  applicable  laws  or
regulations or in the method of applying such laws and regulations.  The Company
intends to rely on third-party  developers to construct some of the new assisted
living  communities  planned by the Company.  There can be no assurance that the
Company will not experience  difficulties  in working with  developers,  project
managers,  general  contractors and  subcontractors,  any of which  difficulties
could result in increased  construction  costs and delays.  As a result of these
various factors,  there can be no assurance that the Company will not experience
construction  delays,  that it will be successful in developing and constructing
currently planned or additional communities or that any developed community will
be economically successful. If the Company's planned development is delayed, the
Company's business, operating results and financial condition could be adversely
affected.

Need for Additional Financing; Risk of Rising Interest Rates, Development Delays
and Cost  Overruns.  To achieve its growth  objectives,  the  Company  will need
sufficient  financial  resources  to  fund  its  development,  construction  and
acquisition activities.  Accordingly, the Company's future growth will depend on
its ability to obtain  additional  financing on  acceptable  terms.  The Company
expects to experience  negative cash flow from operations for at least 12 months
following  March 1998 as it continues to develop and construct  assisted  living
communities.  There can be no assurance that any newly  constructed  communities
will achieve a stabilized occupancy rate and attain a resident mix that meet the
Company's  expectations  or  generate  sufficient  positive  cash  flow to cover
operating and financing  costs  associated  with such  communities.  The Company
will,  from time to time,  seek  additional  funding  through  public or private
financing, including equity or debt financing. If additional funds are raised or
acquisitions  are made in  exchange  for  equity  securities,  stockholders  may
experience   dilution.   Further,   such  equity  securities  may  have  rights,
preferences or privileges senior to those of the Common Stock. To the extent the
Company  finances  its  activities  through  debt,   sale/leaseback  or  leasing
arrangements,  the Company  may become  subject to certain  financial  and other
covenants  which may restrict  its ability to pursue its rapid growth  strategy.
There can be no assurance that adequate equity,  debt,  sale/leaseback  or lease
financing will be available as needed or on terms  acceptable to the Company.  A
lack of  available  funds  may  require  the  Company  to delay,  scale  back or
eliminate all or some of its development and acquisition projects and could have
a material  adverse effect on the Company's  business,  financial  condition and
results of operations. See Item 6. "Management's Discussion and Analysis or Plan
of Operation - Liquidity and Capital Resources."

Repair and Maintenance.  The Company conducts routine repairs and maintenance of
its  communities  on a  regular  basis,  as  needed.  Several  of the  Company's
communities acquired in the Wedgwood,  American Care and Villa acquisitions have
been in operation for ten years or more.  The Company has no other current plans
for significant expenditures relating to its existing communities, and considers
them to be in good repair and working order.

Community Description

The Company's existing communities as of March 1998 range in size from 12 to 165
units,  are from one to three  stories,  and from 10,000 to 148,000 square feet.
Most of the new  communities  to be  constructed  by the Company will have 60 or
more units,  one or two stories and 35,000 to 70,000 square feet. Each community
has or will have a large  family room,  usually  equipped  with a  fireplace,  a
spacious open dining area, library, TV room,  commercial kitchen,  beauty salon,
laundry,  and indoor and outdoor  recreational  areas.  Units generally range in
size from  approximately 330 to 400 square feet for a studio unit, to 470 to 650
square feet for a one bedroom unit, and 680 to 850 square feet for a two bedroom
unit.  Assisted living units typically include a private bathroom,  kitchenette,
closets,  living and sleeping areas, as well as a lockable door,  emergency call
system,  individual temperature controls, fire alarm and sprinkler system, among
other amenities.

                                       10

<PAGE>


Alzheimer's  care units are  approximately  the same size as studios and contain
only sleeping,  limited storage and, in some of the units,  bathroom areas. Most
do not have emergency call systems but do have sprinkler and fire alarm systems.

Operations

The day-to-day operations of each community are managed by an Executive Director
who is responsible for all operations of the community, including overseeing the
quality  of  care  and  services,  marketing,  coordinating  social  activities,
monitoring  financial  performance and ensuring  appropriate  maintenance of the
grounds and building. The Company also consults with outside providers,  such as
pharmacists and dieticians,  to assist  residents with medication  review,  menu
planning and  response to any special  dietary  needs.  Personal  care,  dietary
services,  housekeeping  and laundry  services are  performed  primarily by line
staff who are either  part or  full-time  employees  of the  Company and who are
trained  to  perform a  variety  of such  services.  Most  building  maintenance
services are  performed by part or full-time  employees,  while  elevator,  HVAC
maintenance  and  landscaping  services are  generally  performed by third party
contractors.

The Company's senior management and other personnel located at the Dallas, Texas
executive  office and King City,  Oregon and  Spartanburg,  South  Carolina area
offices provide support services to each of the Company's communities, including
development of operational  standards,  budgets and quality assurance  programs,
recruiting,  training,  and  financial  and  accounting  services,  such as data
processing,  accounts payable, billing and payroll services. Corporate personnel
and community Executive Directors  collaborate with respect to the establishment
of community goals and strategies,  quality assurance oversight,  development of
Company policies and procedures, development and implementation of new programs,
cash management, human resource management and community development.

The Company has attracted and  continues to seek highly  dedicated,  experienced
personnel.  The Company has created  formal  training  programs  accompanied  by
review and evaluation  procedures to help ensure quality care for its residents.
The Company has a national learning center at its Dallas corporate  headquarters
to provide training for community Executive  Directors and other personnel.  The
Company   believes  that  education,   training  and  development   enhance  the
effectiveness  of its  employees.  All  employees  are  required to complete the
Company's  training  program,  which  includes a core  curriculum  comprised  of
personal  care  basics,  job  related  specific  training,  Alzheimer's  disease
processes,  first aid, fire safety,  nutrition,  infection  control and customer
service.  Executive  Directors  receive  training  in all of these  areas,  plus
marketing,  community relations,  healthcare management, life skills programming
and  fiscal  management.  In  addition  to  classroom  training,  the  Company's
communities   provide  new  employees  with  on  the  job  training,   utilizing
experienced staff as trainers and mentors.

Quality Assurance

The Company  coordinates  quality assurance  programs at each of its communities
through its  corporate  headquarters  staff and through its regional  operations
staff.  The Company's  commitment to quality  assurance is designed to achieve a
high  degree  of  resident  and  family  member  satisfaction  with the care and
services  provided  by  the  Company.   In  addition  to  ongoing  training  and
performance  reviews of all employees,  the Company's  quality control  measures
include:

The Greenbriar Way. At Greenbriar the foremost  mission is excellence in service
to  residents.  To that  end,  the  Company's  leadership  dedicates  itself  to
excellence in the supervision and professional  development of Service Partners,
whose day-to-day duty is to provide that service.

The Company's  philosophy of  management  is to  demonstrate  by its actions and
require  from its Service  Partners  high  standards of personal  integrity;  to
develop a climate  of  openness  and trust;  to  demonstrate  respect  for human
dignity in every circumstance; to be supportive in all relationships; to promote
teamwork by involving  Service Partners in the management of their own work; and
to promote the free expression of ideas and opinions.

The Quality Initiative.  The Greenbriar Initiative for Quality is the product of
a collaborative  effort of corporate  leadership and  Greenbriar's  Professional


                                       11

<PAGE>

Advisory  Board  to  provide  the  underlying   philosophy  for  the  Greenbriar
commitment  to deliver  quality in the lives of  residents,  their  families and
friends,  the Service Partners and owners and all who come under the umbrella of
Greenbriar Corporation.

It is rooted in the belief that life for the  residents  can be  meaningful  and
fulfilling and that residents can and should make the decisions concerning their
daily life. The Initiative for Quality  partners with "The Greenbriar  Way", the
program for Service Partner training and performance, and becomes the consistent
way in which care is provided throughout the day.

The  Initiative  for Quality and The  Greenbriar  Way  distinguish  the Company.
Through it individuals will come to the Greenbriar  Communities not only to live
but to life.

The Company has employed Herbert Shore,  Ed.D.,  president of Shore & Associates
Geriatric and Elderly Services,  Dallas, Texas, as a Quality of Life Consultant.
He has been a long  term care  administrator  and has  previously  taught at the
Center for  Studies  in Aging at the  University  of North  Texas.  His  primary
responsibility  is to assist  management  in  developing  and  implementing  the
Company's Quality of Life Initiative.

Family and Resident  Feedback.  The Company surveys residents on an annual basis
to monitor  the  quality of  services  provided  to  residents  and the level of
satisfaction  of  residents  and  their  families.   The  Company  is  presently
implementing  surveys of family  members of  residents to monitor the quality of
services.  The Company also plans to establish an "800" number customer response
line to encourage feedback from residents, family members, and other visitors in
it's communities.

Regular Community  Inspections.  Community inspections are conducted by regional
vice presidents and other regional staff on a regular basis.  These  inspections
cover the appearance of the exterior and grounds; the appearance and cleanliness
of the interior;  the professionalism  and friendliness of staff;  resident care
plans; the quality of activities and the dining program; observance of residents
in their daily living activities;  and compliance with governmental regulations.
A  detailed  community  audit  program  is used to assure  the  inspections  are
thorough and to facilitate corrective action, if required.

Marketing

The Company's  marketing  and sales efforts are  undertaken on both regional and
local levels.  This effort is intended to create  awareness of the community and
its  services  among   prospective   residents,   their   families,   other  key
decision-makers and professional referral sources. The corporate marketing staff
develops overall  strategies for promoting the community  throughout its markets
and continuously  assesses the success of its efforts.  Most communities have on
staff  a  Company  relations   coordinator  dedicated  to  sales  and  marketing
activities,  who is guided and trained by  corporate  marketing  personnel.  For
smaller  communities  who do not have a  community  relations  coordinator,  the
Executive Director performs these sales and marketing functions.

Prior to opening new communities,  the Company commences an aggressive marketing
campaign by opening a sales office in close  proximity to the community.  During
this pre-opening  marketing  period,  the Company's  personnel  actively contact
local  referral  sources,  which  generally  account  for a majority of resident
referrals.  In addition, the Company typically engages in more traditional types
of marketing activities,  such as direct mailings, print advertising,  signs and
yellow page advertising. These marketing activities and media advertisements are
directed to potential residents and their adult children, who often comprise the
primary  decision  makers for  placing a frail  elderly  relative in an assisted
living setting.

Government Regulation

Healthcare is an area of extensive and frequent  regulatory change. In contrast,
the assisted living industry is relatively new and, accordingly,  the manner and
extent to which it is regulated at the federal and state levels is evolving.

In the  states in which the  Company  operates,  a license  is not  required  to
provide basic support services.  Currently, assisted living and Alzheimer's care
communities are not  specifically  regulated as such by the federal  government.

                                       12


<PAGE>

However,  the Company's  communities  are subject to regulation and licensing by
state and  local  health  and  social  service  agencies  and  other  regulatory
authorities.  Although  regulatory  requirements vary from state to state, these
requirements  generally address,  among other things, staff education,  training
and records;  staffing levels; community services,  including administration and
assistance   with   self-administration   of  medication;   physical   community
specifications;  size and furnishing of community  units and common areas;  food
and housekeeping  services;  emergency evacuation plans; and resident rights and
responsibilities.  Most of the  Company's  communities  are  required to possess
state  licenses  in order to provide  the levels  and types of  services  in the
states in which they operate.  A limited number of the Company's  communities is
not required to possess such licenses,  however, because they do not supply care
and/or  supervision  to an extent  requiring  them to be  licensed  under  their
respective  state's laws. The Company's  communities are also subject to various
state or local  building  codes and other  ordinances,  including  safety codes.
Management  anticipates  that  the  states  which  are  establishing  regulatory
frameworks for assisted living  communities  will require  licensing of assisted
living communities and will establish varying  requirements with respect to such
licensing.  The Company  has  obtained  all  required  licenses  for each of its
communities  and expects that it will obtain all required  licenses for each new
community. Each of the Company's licenses must be renewed annually.

Currently,  only a few states have certificate of need ("CON")  requirements for
assisted living  communities.  If federal and state  reimbursements  increase or
there  is  overbuilding   in  the  industry,   other  states  may  initiate  CON
requirements. If this occurs, the operators who can grow rapidly in the next few
years could have a distinct  advantage,  inasmuch as this barrier to entry could
limit  overbuilding  and  competition,  such as  occurred in some  nursing  home
markets in the past.

Like healthcare  centers,  assisted  living  communities are subject to periodic
survey  or  inspection  by  governmental  authorities.  From time to time in the
ordinary  course of  business,  the Company  receives  deficiency  reports.  The
Company reviews such reports and seeks to take  appropriate  corrective  action.
Although most inspection deficiencies are resolved through a plan of correction,
the reviewing  agency  typically is authorized to take action against a licensed
community where  deficiencies are noted in the inspection  process.  Such action
may include  imposition of fines,  imposition of a  provisional  or  conditional
license or suspension or revocation of a license or other sanctions. Any failure
by the  Company to comply  with  applicable  requirements  could have a material
adverse  effect on the Company's  business,  financial  condition and results of
operations.  The  Company  believes  that  its  communities  are in  substantial
compliance with all applicable regulatory requirements.

A few states  have  already  elected to  participate  in the  Medicaid  Home and
Community  Care  Options Act of 1990  ("MHCCOA")  and several  other  states are
studying the program.  Texas, where the Company is headquartered,  is one of the
states that have already  elected to participate  in the program.  Under MHCCOA,
states now have the option to use  Medicaid  funds to support  services  for low
income,  frail older persons, in places of residence other than nursing centers.
The program allows the state to amend its Medicaid statutes to use funds in this
manner,  thus avoiding the repeated process of obtaining a Medicaid waiver.  Any
community  participating  in this payment program must meet all applicable state
and federal rules and regulations.

The Company participates in federal and state reimbursement  programs.  However,
the Company  expects the bulk of its  revenues  to come from  private  payments.
Conversely,  if the  proposed  Medicaid  block  grants are signed into law,  the
Company could  experience a dramatic  increase in revenues  from these  sources,
particularly  with respect to its double occupancy units.  Many of the Company's
existing and to be built communities can accommodate  double occupancy and still
provide a quality lifestyle.

The Americans with Disabilities Act ("ADA"),  enacted July 26, 1990, has had and
will have a major effect on the full service residential retirement and assisted
living industry. The communities developed or acquired by the Company must be in
compliance with this act. The Fair Housing Amendments Act of 1988 also prohibits
discrimination  against the handicapped in the sale or rental of a dwelling,  or
in the provision of services or communities in connection  with such a dwelling.
This  intensifies the need to be in compliance  with the ADA.  Regulation of the
industry  is likely to  increase,  particularly  for those  providers  accepting
Medicaid reimbursements.

In compliance with the underlying  state bond financing,  rents at one community
in Oregon  must be  approved  by an agency of the state.  Two other  communities
financed  with  loans   guaranteed  by  the  Department  of  Housing  and  Urban
Development  ("HUD") have rents  requiring  approval by HUD. The Company has not
experienced any denials of requested rents or rent increases.

                                       13

<PAGE>


Competition

The long-term  care industry  generally is highly  competitive  and the assisted
living and  Alzheimer's  care businesses in particular have and will continue to
become  increasingly  competitive in the future. The Company competes with other
assisted  living  companies  and  numerous  other  companies  providing  similar
long-term  care  alternatives  such as  home  health  agencies,  community-based
service  programs,  retirement  communities and  convalescent  centers  (nursing
homes). In addition,  the Company competes with a number of tax-exempt nonprofit
organizations  which can finance capital  expenditures on a tax-exempt  basis or
receive  charitable  contributions  unavailable  to the  Company  and  which are
generally  exempt from income tax. In most markets where the company operates or
plans to operate the level of competition  is increasing  both from regional and
national  providers  and local  providers.  The  Company  expects  this trend to
continue and many markets may be overbuilt.  If  reimbursement  programs such as
the medicaid waiver program  increases,  assisted living  competition  will grow
from existing and new companies focusing  primarily on assisted living.  Nursing
home  centers  that  provide  long-term  care  services  are  also a  source  of
competition  for the  Company,  particularly  with respect to  Alzheimer's  care
services.  Many of the Company's present and potential  competitors have, or may
have access to, greater financial,  management and other resources than those of
the Company.  There can be no assurance that competitive pressures will not have
a material adverse effect on the Company.

The Company  competes with other  providers of elderly  residential  care on the
basis of the breadth and quality of its services, the quality of its communities
and price. The Company believes that it competes favorably in these areas and in
its recruitment and retention of qualified  healthcare  personnel and reputation
among local referral sources.  The Company also competes with other providers of
long-term care in the acquisition and development of additional communities.

As noted,  the Company  competes  with other  providers of  long-term  care with
respect to attracting and retaining  qualified and skilled personnel.  In recent
years,  the  healthcare   industry  has  experienced  a  shortage  of  qualified
healthcare  professionals.  The Company's  operations require few professionally
certified (RN or LPN) staff,  primarily for supervision of care staff. While the
Company  has  been  able  to  retain  the  services  of an  adequate  number  of
professionals to staff its communities  appropriately and maintain its standards
of quality care,  there can be no assurance  that  continued  shortages will not
affect the ability of the Company to maintain the desired staffing levels.

The  Company  is  seeking  sites  and   acquisition   candidates   primarily  in
non-metropolitan  communities  located in the western,  southern  and  southeast
regions of the United States that are not currently  served or are under served.
It is  identifying  these  markets and intends to provide  premier  services and
amenities at average to above average prices.  It is also providing special care
services in a  residential  setting for those with memory loss and  Alzheimer's,
the  primary  cause of memory  loss.  These  residents  are not mixed with other
assisted living residents.  The Company believes that this combination of target
markets and  services  may improve its ability to compete  with  non-specialized
assisted living communities and nursing homes.

Insurance

The provision of personal and  healthcare  services  entails an inherent risk of
liability.  Compared to more institutional long-term care communities,  assisted
living communities of the type operated by the Company,  especially its dementia
care  communities,  offer  residents a greater degree of  independence  in their
daily lives.  This increased  level of  independence,  however,  may subject the
resident  and the  Company  to  certain  risks  that  would be  reduced  in more
institutionalized  settings. The Company currently maintains liability insurance
intended to cover such claims which it believes is adequate  based on the nature
of the risks, its historical experience and industry standards. The Company also
carries  property  insurance on each community in amounts that it believes to be
adequate and standard in the industry.

Environmental Matters

Under  various  federal,  state and local  environmental  laws,  ordinances  and
regulations,  a current or  previous  owner or  operator  of real  estate may be
required to investigate and clean up hazardous or toxic  substances or petroleum

                                       14

<PAGE>

product  releases at such  property,  and may be held  liable to a  governmental
entity or to third parties for property damage and for  investigation  and clean
up costs  incurred by such parties in connection  with the  contamination.  Such
laws typically impose clean up  responsibility  and liability  without regard to
whether  the  owner  or  operator   knew  of  or  caused  the  presence  of  the
contaminants, and the liability under such laws has been interpreted to be joint
and several  unless the harm is divisible  and there is a  reasonable  basis for
allocation of responsibility. The costs of investigation, remediation or removal
of such substances may be substantial,  and the presence of such substances,  or
the failure to  remediate  properly  such  property,  may  adversely  affect the
owner's  ability to sell or lease such property or to borrow using such property
as  collateral.  In  addition,  some  environmental  laws  create  a lien on the
contaminated  site in favor of the government for damages and costs it incurs in
connection  with the  contamination.  Persons who  arrange  for the  disposal or
treatment of hazardous or toxic  substances  also may be liable for the costs of
removal or redemption of such substances at the disposal or treatment community,
whether or not such community is owned or operated by such person.  Finally, the
owner or operator of a site may be subject to common law claims by third parties
based on damages and costs resulting from environmental  contamination emanating
from a site.

The  Company  has  conducted  environmental  assessments  of all  of  the  sites
currently  under  construction  or  development,  as well as  thirty-two  of its
existing  communities  that it  operates  plus one  community  it leases that is
operated by a third party. These assessments have not revealed any environmental
liability that the Company  believes would have a material adverse effect on the
Company's business, assets or results of operations, nor is the Company aware of
any such  environmental  liability.  Wedgwood has operated,  for periods ranging
from 2 to 19 years,  nine communities for which  environmental  assessments have
not been  obtained.  The Company  believes  that all of its  communities  are in
compliance  in all material  respects  with all  federal,  state and local laws,
ordinances and regulations  regarding hazardous or toxic substances or petroleum
products. The Company has not been notified by any governmental  authority,  and
is not  otherwise  aware,  of any  material  non-compliance,  liability or claim
relating to hazardous or toxic  substances  or petroleum  products in connection
with any of its communities.

Control by Insiders

As of March 31, 1998,  the  Company's  officers and  directors and entities with
which  they  are  affiliated  beneficially  owned  approximately  62.5%  of  the
outstanding  shares of Common Stock; Mr. James R. Gilley,  Chairman of the Board
of the  Company,  a  corporation  wholly  owned by him, and his spouse and adult
children (as individuals or as trustees for various family trusts), beneficially
owned an aggregate of approximately 31.9% of the outstanding Common Stock of the
Company,  Mr.  Victor L. Lund,  a director  of the  Company  and the  founder of
Wedgwood,  beneficially owned  approximately  16.4% of the outstanding shares of
Common Stock, and Floyd B. Rhoades, President and Chief Executive Officer of the
Company and a founder of American Care,  beneficially owned  approximately 12.5%
of the outstanding  shares of Common Stock. In addition,  the Gilley family owns
series D Voting Preferred Stock,  which for stockholder votes, is the equivalent
of 675,000 Common Shares.  Accordingly,  such individuals will have the ability,
by voting their shares in concert, to control or significantly influence (i) the
election of the Company's Board of Directors and, thus, the direction and future
operations of the Company,  and (ii) the outcome of all other matters  submitted
to the Company's stockholders,  including mergers, consolidations,  and the sale
of all or substantially all of the Company's assets. In addition,  the Company's
officers and  directors,  including  James R. Gilley,  currently hold options or
conversion  rights to acquire  988,000 shares of Common Stock,  certain of which
options are subject to vesting  requirements.  The issuance of additional shares
of Common  Stock  pursuant to the  exercise of these  stock  options  granted to
management  under the Company's stock option plan,  would increase the number of
shares held by the Company's executive officers and directors in the future.

Anti-Takeover Provisions

The Company's Articles of Incorporation and Bylaws contain,  among other things,
provisions (i)  establishing a classified  board of directors;  (ii) authorizing
shares of preferred  stock with respect to which the Board of Directors  has the
power to fix the rights,  preferences,  privileges and restrictions  without any
further vote or action by the stockholders;  (iii) requiring holders of at least
80% of the  outstanding  Common Stock to join  together in  requesting a special
meeting of stockholders;  and (iv) prohibiting  removal of a director other than
for  "cause",  and then only if the  holders of at least 80% of the  outstanding
Common  Stock vote for such  removal.  The  Company is also  subject to Sections
78.411-78.444  of the Nevada  Revised  Statutes  (the  "Control  Act")  which in
general  prohibits any business  combination  involving the Company and a person
that  beneficially  owns  10% or  more of the  outstanding  Common  Stock  or an

                                       15

<PAGE>


affiliate  or  associate  of the Company who within the past three years was the
beneficial  owner,  directly or  indirectly,  or 10% or more of the  outstanding
Common Stock, except under certain circumstances. The application of the Control
Act and/or the provisions of the Company's  Articles of Incorporation and Bylaws
could delay,  deter or prevent a merger,  consolidation,  tender offer, or other
business  combination or change of control  involving the Company that some or a
majority of the Company's  stockholders  might  consider to be in their personal
best  interests,  including  offers or attempted  takeovers that might otherwise
result in such  stockholders  receiving a premium  over the market  price of the
Common Stock,  and may adversely  affect the market price of, and the voting and
other rights of, the holders of Common Stock.

Employees

At March 31, 1998, the Company employed approximately 1834 employees,  including
1294 full-time and 540 part-time  employees.  The Company  believes it maintains
good  relationships  with its  employees.  None of the  Company's  employees are
represented by a collective bargaining group.

Corporate Offices
Offices
The Company's  principal office is a 27,500 square feet building that it owns in
Dallas, Texas. The Company's Dallas office will meet the Company's needs for the
foreseeable future.



ITEM 2:  DESCRIPTION OF PROPERTIES       
------   -------------------------

     See Item 1 for a  discussion of properties owned or leased by the Company.


ITEM 3:  LEGAL PROCEEDINGS      
------   ----------------

The  Company  is  involved  from  time to time in  legal  proceedings  that  are
incidental to its business.  The  following are the legal  proceedings  that are
pending at March 1998.



Southern Care Corp.  vs Greenbriar, et al.

In Southern Care Corp. v. Medical Resource Companies of America, (former name of
Greenbriar)  Civil  Action No.  94-1132-K,  Superior  Court of  Chatham  County,
Georgia,  the  plaintiff  seeks  damages  exceeding  $1,500,000  relating to the
management  and  operation of four nursing  homes the Company sold to plaintiff.
The  Company  has filed a  counterclaim  for breach of the  management  contract
between the homes and a Company subsidiary.

The  Company  does not  believe it has  breached  any  obligation  to  Plaintiff
regarding  management of the nursing homes and does not believe  Plaintiff  will
prevail on the merits, although there can be no assurance in this regard. At the
same  time  that  Plaintiff  unilaterally  and  without  notice  terminated  the
management   contract,   the  Plaintiff  also  claimed  that   indebtedness   of
approximately $6.7 million assigned to the Company was discharged.

In 1995 the  plaintiff  and the  Company  each filed  cross  motions for summary
judgment on the issue of whether the indebtedness was discharged. On December 3,
1997 the  Georgia  Court of Appeals  granted  Greenbriar's  motion  for  summary
judgment where they determined  that the  indebtedness  was not  discharged.  In
February 1998 the Georgia  Supreme Court refused to hear the matter.  The amount
of indebtedness,  including accrued interest, is approximately $ 11 million. The
Company's basis for financial  statement  purposes in the  indebtedness,  net of
related deferred gains, is approximately $ 4.2 million.

                                       16

<PAGE>



Health Care Property Investors vs. Greenbriar, et al.

In October,  1996,  Health Care Property  Investors,  Inc. filed a complaint for
unspecified  damages  against  the  Company,  Victor L. Lund,  a director of the
Company, and related entities and others. Health Care Property Investors alleges
that  entities  related  to the  Company  had  breached  terms of two  leases of
communities  through a transfer of control of the tenant  without the payment of
"transfer  consideration"  called for in the leases.  In  addition,  Health Care
Property  Investors  alleges  that the Company  tortuously  interfered  with the
leases because of the transfer.

In October 1997 the court granted a motion for summary  judgment which was filed
on behalf of all the  defendants  in the case.  HCPI has  agreed  not to file an
appeal and reimburse the Company for a majority of their legal fees.

Benetic Financial vs. Wedgwood et al.

The  plaintiff  seeks to collect  in excess of  $1,000,000  on an  alleged  loan
brokerage  agreement.  There  is no  signed  loan  brokerage  agreement  between
Wedgwood and the plaintiff in this action. Plaintiff alleges that he delivered a
loan brokerage agreement to Wedgwood, which they verbally accepted.

In October  1997 a directed  verdict was  entered in favor of  Wedgwood  and all
other defendants.  Wedgwood and another defendant were awarded  reimbursement of
their legal fees.  The Company has been  notified  that Benetic has appealed the
court's ruling.

The Company has been named as defendant in other lawsuits in the ordinary course
of business.  Management  is of the opinion that these  lawsuits will not have a
material effect on the financial condition of the Company.


ITEM 4:  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
------   ---------------------------------------------------

No  matters  were  submitted  to a vote of  security  holders  during the fourth
quarter of the year ended December 31, 1997.

                                     Part II

ITEM 5:  MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
------   --------------------------------------------------------

The Company's Common Stock is traded under the symbol "GBR" and is listed on the
American Stock Exchange.  The high and low closing sales prices of the Company's
Common Stock on the American Stock Exchange during the last two fiscal years:

<TABLE>
                                     1997                               1996
                           ------------------------            ------------------------
                            High               Low             High              Low
                            ----               ---             ----              ---
<S>                                                                             <C>       
First Quarter              $19 1/4          $13 7/8           $16 3/4           $9 7/16
Second Quarter              23               18 1/8            17 5/8            14
Third Quarter               23 1/4           19 1/2            17 3/8            15 5/8
Fourth Quarter              21               17 5/8            16                12 3/8

</TABLE>


The above prices have been  adjusted to reflect a one for five reverse  split of
the Common Stock that occurred on December 1, 1995.

The Company has not paid cash  dividends on its Common Stock during at least the
last ten fiscal years and, for the  foreseeable  future,  the Company expects to
retain all  earnings  to finance the future  expansion  and  development  of its
business.  Any  determination to pay cash dividends in the future will be at the
discretion  of the Board of Directors  and will be  dependent  on the  Company's
financial condition,  results of operations,  contractual restrictions,  capital
requirements,  business  prospects  and  such  other  factors  as the  Board  of
Directors deems relevant.  The Company's  ability to pay dividends in the future
may be limited by the terms of future debt financing and other arrangements.



                                       17

<PAGE>


No dividends  can be paid on the  Company's  common  stock if  dividends  are in
arrears on the Company's  preferred  stock.  All dividend  payments on preferred
stock are current.

The closing  price on the Company's  common stock on March 31, 1998,  was $14.06
per share.  As of March 31,  1998,  there  were  3,823  holders of record of the
Company's common stock.


ITEM 6:  MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
------   ---------------------------------------------------------      

Overview

During  1994 the  Company  began a series of steps to focus its  business on the
development,  management  and  ownership  of  assisted  living  properties.  The
Company's  historical  businesses  during  the past  five  years  have  included
ownership and operation of skilled nursing and retirement  centers,  real estate
investments  and manufacture  and leasing of electric  convenience  vehicles and
wheelchairs.   The  nursing  and  retirement  centers  and  convenience  vehicle
businesses have been sold, and the real estate investments are being liquidated.
During 1994,  the Company  began  independently  to develop its assisted  living
business,  began  construction  of its first assisted  living  community in July
1995,  and opened such  community to residents on May 30, 1996. By July 1, 1996,
the Company (not  including the  communities  of Wedgwood and American Care) had
three additional  assisted living  communities under  construction.  In order to
increase  the  Company's  presence  in  the  assisted  living  industry,  create
geographic  diversity and obtain  experienced  personnel,  the Company  acquired
Wedgwood in March 1996,  American Care in December 1996, Windsor in October 1997
and Villa in December 1997. The acquisitions of Wedgwood, Windsor and Villa have
been accounted for as purchases,  and the historical financial statements of the
Company do not include any  revenues or earnings  (losses)  attributed  to those
operations  prior to the  acquisition.  The American Care  acquisition  has been
accounted  for  as a  pooling  of  interests  and,  accordingly,  the  Company's
financial  statements  have been restated to include the accounts and operations
of American Care for all periods prior to the acquisition.



Liquidity and Capital Resources

At December 31, 1997, the Company had working capital of $3,037,000.

In  December  1997 the Company  sold Series F and Series G preferred  shares for
$22,000,000 less selling and offering costs of $453,000. Payment was received in
January 1998.

The Series F voting preferred stock has a liquidation  value of $10.00 per share
and each share is  convertible  into 5.7 shares of common stock.  The holder has
the option to convert  beginning  in  January  2000 and must  convert by January
2001. Cumulative dividends are payable in cash at a rate of 6%.

The Series G  preferred  stock has a  liquidation  value of $10.00 per share and
each share is  convertible  into 5.7 shares of common stock.  The holder has the
option to convert  beginning in January  2000 and must convert by January  2001.
Cumulative dividends are payable in cash at a rate of 6%.

In  connection  with the sale,  the  Company  entered  into an  agreement  which
provides that, on the date of conversion,  if the value of the Company's  common
stock has not increased at the annual rate of at least 14% during the period the
preferred shares are outstanding, the Company is required to make a Cash Payment
(the Cash  Payment)  to the  preferred  stockholders  equal to the market  price
deficiency on the shares received upon conversions.

The 14% guaranteed return will be accredited by a charge to accumulate  deficit.
The amount of the Cash Payment  that would be required  assuming  conversion  at
each  balance  sheet  date  will be  transferred  from  stockholders  equity  to
temporary  equity.  At December  31, 1997,  no Cash Payment  would have been due
assuming conversion took place.


                                       18

<PAGE>


Throughout  1997 and into 1998 the Company has been  refinancing  certain of its
long term debt. In July 1997 and January 1998 the Company refinanced the debt on
a total  of six of its  communities  resulting  in a  lower  interest  rate  and
additional working capital of $2,800,000 and $1,935,000 respectively.

As of  December  31,  1997,  the  Company  has  loans in  place or has  received
commitments for future financing,  subject,  in the case of the commitments,  to
final documentation, as follows:

     (i)  Health Care REIT,  Inc. has issued a commitment to provide $90 million
          to acquire and pay 100% of the  construction  costs of assisted living
          communities  to be leased to the Company.  The term of the leases will
          be the maximum term  available for operating  lease  treatment but not
          less than 13 years plus three five-year  renewal  options.  The credit
          facility  will expire on December 31,  2000.  A 1 % commitment  fee is
          required,  as each lease is entered  into.  The Company  will have the
          option  to  purchase  each  community  at the end of the  term for its
          original  cost plus 50% of the increase in its fair market  value.  As
          additional  security to the lessor,  the Company will provide a letter
          of credit for 5% of the  amount  financed,  a first  lien on  personal
          property  and  receivables  of the  community,  and  subordination  of
          management fees and rentals from subtenants.



     (ii) In 1995 Investors  Real Estate Trust  ("IRET")  issued a commitment to
          provide 100% of the construction costs up to $2,810,000 for Sweetwater
          Springs in Lithia  Springs,  Georgia that opened in October 1996. Upon
          completion  the  community  was leased to the Company for a term of 15
          years. In 1996 the commitment was increased by $1,540,000 to a maximum
          of  $4,350,000  in order to provide for the  construction  of a second
          phase of the  community  consisting  of 16  Alzheimer's  special  care
          units.  The Company has an option to purchase  the  Community  at fair
          market  value during the first nine months of the  fourteenth  year of
          the lease. The lease is secured by the community.

Construction of the second phase has been deferred indefinitely.  Though some of
the additional  funding has been  utilized,  the remaining  funds  available are
considered sufficient to complete the second phase.

In addition to development and construction financing, described above, Comerica
Bank-Texas  has issued a commitment  to provide  $1,600,000 to finance buses and
other vehicles to transport residents of the Company's communities. Each vehicle
will be financed at 90% of cost and the loan for each  vehicle will be amortized
over 48 months.  The interest  rate will be prime plus one percent.  As of March
31, 1998, the company has used $600,000 of this commitment. The Company believes
it  has  adequate   resources  to  complete  its  communities   currently  under
construction  and  development  and plans to use the  balance of such  committed
sources  and its net  working  capital in excess of  operating  needs for future
development of assisted living communities.

Future  development  activities  of the Company  are  dependent  upon  obtaining
capital and financing through various means,  including  financing obtained from
sale/leaseback  transactions,   construction  financing,  long-term  state  bond
financing, debt or equity offerings and, to the extent available, cash generated
from  operations.  There can be no  assurance  that the Company  will be able to
obtain adequate capital to finance its projected growth.

Fiscal 1997 as Compared to Fiscal 1996

Revenues and  Operating  Expenses  from  Assisted  Living  Operations.  Revenues
increased to $38,979,000 in 1997 as compared to $29,785,000 in 1996. The primary
reasons for the increase  were the  acquisition  of Wedgwood  and the  continued
growth of Greenbriar. Wedgwood was acquired effective March 31, 1996 and as such
the financial  statements for 1996 reflect nine months of operations as compared
to twelve  months of  operations  in 1997.  In  addition,  the  Company's  total
communities  increased  from 32 at December 31, 1996 to 52 at December 31, 1997.
Community  operating  expenses,  which  consist  of  assisted  living  community
expenses,  lease expense and depreciation and amortization,  were $34,306,000 in
1997 as  compared  to  $25,152,000  in  1996.  The  primary  reasons  for  these
increases,  as discussed above, is the acquisition of Wedgwood and the continued
growth of Greenbriar.

                                       19

<PAGE>

<TABLE>
<CAPTION>

                          Year Ended, December 31, 1997
                             (Amounts in thousands)


                                                      Stabilized             Start-up
                                                      Communities          Communities            Total
                                                      -----------          -----------           -------
<S>                                                                             <C>              <C>     
Assisted Living Community Income                        $35,926               $3,053             $38,979


Assisted Living Community Operating Expenses            23,197                3,113              26,310
                                                        ------                -----              ------


Gross Operating Income                                  12,730                 (61)              12,669


Lease Expense                                            4,285                 378                4,663


Community Depreciation & Amortization                    2,614                 719                3,333
                                                         -----                 ---                -----


Income (Loss) from Community Operations                 $5,830               ($1,157)            $4,673

</TABLE>


         (1)      Stabilized  communities are those  communities  that have been
                  operating for one year or have achieved  stabilized  occupancy
                  of 95% or more.
         (2)      Start-up  communities are those communities that have not been
                  operating  for one  year or have  not  achieved  a  stabilized
                  occupancy of 95% or more.

Corporate General and Administrative Expenses. These expenses were $5,652,000 in
1997 as compared to $6,731,000 in 1996. The overall decrease, despite the growth
of the Company,  was due to the  consolidation of accounting and  administrative
functions into the Dallas office. During 1996 Greenbriar,  Wedgwood and American
Care  were  operated  as three  separate  companies.  Each  company  had its own
corporate office, executive officers, corporate staff, accounting department and
other related costs. In the first quarter of 1997 these corporate functions were
centralized in Dallas.

Interest and Dividend Income.  Interest and dividend income was $479,000 in 1997
as  compared  to  $771,000  in 1996.  The  decrease is due to a decrease in cash
available for investment.

Interest Expense.  These expenses increased to $6,801,000 in 1997 as compared to
$4,457,000  in 1996.  The  increase  is due to the  increase  in the  number  of
communities the Company owned in 1997 as compared to in 1996.

Other income (expenses)                             (Amounts in thousands)

                                                  Year ended December 31,
                                                  1997                1996
Write-off of note receivable                      $(2,000)            $ _
Write-off of investment securities                 (2,100)              _
Gain of settlement of litigation                    2,409               _
Prepayment penalty on mortgage payable             (1,300)              _
Other                                                 (5)             626
                                                  --------        -------

                                                  $(2,996)           $625
                                                  ---------       -------


                                       20

<PAGE>

In December 1997 management  determined that it was in the best interests of the
Company  to  exchange  its note  receivable  of  $2,000,000  for  certain of the
borrower's  trade  receivables.  Due to the  uncertainty  as to the value of the
trade  receivables  the Company has fully written off the note and has placed no
value on the trade  receivables.  Further,  the Company has  preferred  stock of
$2,100,000 in the above borrower.  Due to deteriorating  financial  condition of
the borrower the Company has fully written off it's investment.

When the Company  acquired  Wedgwood  certain  representations  were made by the
seller.  Subsequent  to the  acquisition  two  lawsuits  were filed  against the
Company and the seller.  In October 1977 the Company and the seller entered into
an  agreement  whereby the Company  would  indemnify  the seller for any damages
resulting  from the lawsuits and agreed to assume  responsibility  for all legal
fees  associated  with the  lawsuits.  In return the  seller  agreed to give the
Company 125,000 shares of Greenbriar stock. Subsequent to the agreement both the
defendants  were awarded a summary  judgment and a directed  verdict,  including
legal fees,  by the  respective  courts.  The Company has recorded a gain on the
transaction of the fair market value of the stock, net of legal fees.

In  October  the  Company  agreed to an early  payoff on a loan on three of it's
communities.  The loan,  which was  refinanced at a lower rate of interest had a
prepayment penalty.

Discontinued  Operations.  Earnings from discontinued  operations consist of the
real estate  operations that are classified for sale. The real estate operations
had net earnings of $153,000 in 1997 and $238,000 in 1996.  The decrease in 1997
was a result of the sale of the North  Carolina  shopping  center in April 1997.
The sale resulted in a gain of $323,000, net of income tax, in 1997.

Deferred  Taxes.  At December 31, 1997,  the Company had a deferred tax asset of
$2,632,000. The asset is expected to be recovered within 2-3 years from earnings
of current operations as well as gains from sales of assets.

Fiscal 1996 as Compared to Fiscal 1995

Revenues and  Operating  Expenses  from  Assisted  Living  Operations.  Revenues
increased  to  $29,785,000  in 1996 as  compared  to  $7,964,000  in  1995.  The
principal  reasons for the  increase  were the  acquisition  of Wedgwood and the
growth of American Care. Wedgwood was acquired effective March 31, 1996, and the
financial  statements  reflect  nine months  operations  with  respect to the 16
communities acquired in the Wedgwood acquisition. American Care in December 1995
acquired the remaining 70% of five assisted  living  communities  in which a 30%
minority  interest had been acquired in January 1995.  The increase was also due
to the  acquisition  by American Care of one assisted  living  community in June
1995 and three assisted  living  communities in December 1995.  Assisted  living
community operations, lease expense,  depreciation and amortization and interest
expense all  increased  substantially  in 1996 as compared to 1995.  The primary
reason for these  increases,  as discussed above, is the acquisition of Wedgwood
and the growth of American Care.

Corporate General and Administrative Expenses. These expenses were $6,731,000 in
1996 as  compared  to  $3,948,000  in 1995.  The  increase  in these  costs  was
primarily due to the  acquisition of Wedgwood and American Care. The increase in
the size of the Company, as well as the geographic  dispersion of the properties
being managed requires additional general and administrative costs. In addition,
during  1996,  Greenbriar,  American  Care and Wedgwood  were  operated as three
separate  companies.  Each  company  had its  own  corporate  office,  executive
officers,  corporate staff,  accounting  department and other related costs (See
Merger and Transition Expenses).

Merger and Transition Expenses.  During 1996, both Greenbriar and American Care,
as  separate  companies,  were  attempting  to raise  money  through the capital
markets.  On a combined basis,  the costs of these efforts were $774,000,  which
the companies expensed during 1996.

The  acquisition  of  American  Care  has been  accounted  for as a  pooling  of
interests.  This method of accounting requires the companies to expense the cost
of the combination.  The cost of lawyers,  accountants,  investment  bankers and
other expenses  related to the combination  that was incurred by both Greenbriar
and American Care was approximately $983,000. These costs were expensed in 1996.

                                       21


<PAGE>


A key  component of the  acquisition  of American  Care was the  opportunity  it
provided for long-term cost savings by consolidating  the accounting,  legal and
other administrative functions of Greenbriar, American Care and Wedgwood. In the
fourth  quarter of 1996, the Company  recorded a one-time  charge to earnings of
$1,079,000 to reflect the anticipated cost of consolidating the three companies.

Discontinued Operations.  Earnings from discontinued operations reflect the real
estate  operations,  which are currently  held for sale. In February  1996,  the
Company's sale of American Mobility Inc. resulted in a gain on sale, net of tax,
of approximately $520,000.

Deferred  Taxes.  At December 31, 1996,  the Company had a deferred tax asset of
$868,000.  The asset is expected to be recovered  within 2-3 years from earnings
of current operations as well as gains from sales of assets.

Effect of Inflation

The  Company's  principal  sources  of  revenues  are from  resident  fees  from
Company-owned  or leased  assisted  living  communities and management fees from
communities  operated by the Company for third  parties.  The  operation  of the
communities  is affected by rental rates that are highly  dependent  upon market
conditions and the  competitive  environment in the areas where the  communities
are located. Compensation to employees is the principal cost element relative to
the  operations of the  communities.  Although the Company has not  historically
experienced  any adverse  effects of  inflation  on salaries or other  operating
expenses,  there can be no  assurance  that such  trends  will  continue or that
should inflationary pressures arise that the Company will be able to offset such
costs by increasing rental rates or management fees.

Forward Looking Statements

Certain statements  included in this  Management's'  Discussion and Analysis are
forward looking  statements that predict the future  development of the Company.
The  realization  of these  predictions  will be subject to a number of variable
contingencies,  and there is no assurance that they will occur or be realized in
the time frame proposed.  The risks associated with the potential  actualization
of the Company's plans include:  contractor delays, the availability and cost of
financing,  availability of managerial  oversight and regulatory  approvals,  to
name a few.

ITEM 7:  FINANCIAL STATEMENTS
------   --------------------

     The financial statements required by this Item begin at page F-1 hereof.

ITEM 8:  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
------   --------------------------------------------------------------- 
         FINANCIAL DISCLOSURE
         --------------------

         None.

                                    PART III


The information  required by Items 9, 10, 11 and 12 is incorporated by reference
into this Form 10-KSB from the  Company's  definitive  Proxy  Statement  for its
Annual Meeting of Stockholders to be held May 29, 1998,  which  definitive Proxy
Statement will be filed with the Securities and Exchange Commission on or before
April 30, 1998.


ITEM 13: EXHIBITS AND REPORTS ON FORM 8-K
-------  --------------------------------

     (a)  The following  exhibits required to be filed by Item 601 of Regulation
S-B are filed as part of this Annual Report on Form 10-KSB:

Exhibit
Number            Description of Exhibits
-------           -----------------------

   2.1.1          Stock Purchase Agreement between Villa Residential Care Homes,
                  Inc.,  William A. Shirley,  Jr. and  Greenbriar  Corporation 
                  ("Registrant")(filed as Exhibit 2.1.1 to Registrant's Form 8-K
                  Current Report on January 13, 1998 and incorporated herein by 
                  this reference).

   2.1.2          Exchange Agreement between Villa Residential Care Homes-Corpus
                  Christi South, L.P. and Greenbriar Corporation  ("Registrant")
                  (filed  as  Exhibit  2.1.2 to  Registrant's  Form 8-K  Current
                  Report on January  13,  1998 and  incorporated  herein by this
                  reference).


   2.1.3          Exchange    Agreement    between   Villa    Residential   Care
                  Homes-Granbury, L.P. and Greenbriar Corporation ("Registrant")
                  (filed  as  Exhibit  2.1.3 to  Registrant's  Form 8-K  Current
                  Report on January  13,  1998 and  incorporated  herein by this
                  reference).

   2.1.4          Exchange  Agreement  between Villa  Residential Care Homes-Oak
                  Park, L.P. and Greenbriar Corporation ("Registrant") (filed as
                  Exhibit  2.1.4 to  Registrant's  Form 8-K  Current  Report  on
                  January 13, 1998 and incorporated herein by this reference).


   2.1.5          Exchange  Agreement  between Villa Residential Care Homes-Fort
                  Worth East,  L.P. and  Greenbriar  Corporation  ("Registrant")
                  (filed  as  Exhibit  2.1.5 to  Registrant's  Form 8-K  Current
                  Report on January  13,  1998 and  incorporated  herein by this
                  reference).

   2.1.6          Exchange  Agreement  between William A. Shirley,  Jr., Lucy M.
                  Brody  and  C.  Kent  Harrington  and  Greenbriar  Corporation
                  ("Registrant")  (filed as Exhibit 2.1.6 to  Registrant's  Form
                  8-K Current Report on January 13, 1998 and incorporated herein
                  by this reference).

   *2.2.1         Stock Purchase  Agreement  between Lone Star Opportunity Fund,
                  L.P. and Greenbriar Corporation  ("Registrant").

   *2.2.2         Certificate of Voting Powers, Designations, Preferences  and 
                  Rights of  Registrant's  Series F Senior Convertible Preferred
                  Stock dated December 31, 1997.

   *2.2.3         Certificate of Voting Powers,  Designations,  Preferences  and
                  Rights of Registrant's Series G Senior Non-Voting  Convertible
                  Preferred Stock dated December 31, 1997.

   *2.2.4         Form of Registration  Rights Agreement between  Registrant and
                  Lone Star Opportunity  Fund, L.P. as regards  1,400,000 shares
                  of Registrant's  Series F Senior  Convertible  Preferred Stock
                  and 800,000 shares of Registrant's  Series G Senior Non-Voting
                  Preferred Stock.

   *2.2.5         Agreement   between  Lone  Star  Opportunity  Fund,  L.P.  and
                  Registrant  regarding  certain  minimum values of Registrant's
                  stock.

   *2.2.6         Agreement on  Form of Promissory  Note between  Registrant and
                  Lone Star Opportunity Fund, L.P.

   *2.2.7         Form of Promissory Note agreed to by Registrant and Lone Star 
                  Opportunity  Fund, L.P. in Exhibit 2.2.7 of Registrant's Form 
                  10-KSB and filed herewith.

    3.1           Articles of  Incorporation  of Medical  Resource  Companies of
                  America  ("Registrant")  (filed as Exhibit 3.1 to Registrant's
                  Form S-4 Registration  Statement,  Registration  No. 33-55968,
                  and incorporated herein by this reference).

   3.1.1          Restated Articles of Incorporation of Greenbriar Corporation.

                                       23

<PAGE>


    3.2           Bylaws of  Registrant  (filed as Exhibit 3.2 to  Registrant's 
                  Form S-4  Registration  Statement,  Registration No. 33-55968,
                  and incorporated herein by this reference).

    3.2.1         Amendment to Section 3.1 of the Bylaws of  Registrant  adopted
                  upon  approval  of the  Merger  (filed  as  Exhibit  3.2.1  to
                  Registrant's Form S-4 Registration Statement, Registration No.
                  33-55968, and incorporated herein by this reference).

   3.3            Certificate of Decrease in Authorized and Issued Shares.

   4.1            Certificate  of  Designations,  Preferences  and  Rights  of 
                  Preferred Stock dated October 7, 1992 relating to Registrant's
                  Series A Preferred Stock (filed as Exhibit 4.1 to Registrant's
                  Form S-4  Registration  Statement, Registration  No. 33-55968,
                  and  incorporated  herein  by  this reference).

   4.1.2          Certificate  of   Designations,   Preferences  and  Rights  of
                  Preferred  Stock dated May 7, 1993,  relating to  Registrant's
                  Series  B  Preferred   Stock   (filed  as  Exhibit   4.1.2  to
                  Registrant's Form S-3 Registration Statement, Registration No.
                  33-64840, and incorporated herein by this reference.

   4.1.3          Certificate  of   Designations,   Preferences  and  Rights  of
                  Preferred   Stock   dated   August  18,   1993,   relating  to
                  Registrants'  Series C Preferred Stock (filed as Exhibit 4.1.3
                  to  Registrant's  Form 10-KSB for the year ended  December 31,
                  1993).

   4.1.3.1        Amendment to  Certificate  of  Designations,  Preferences  and
                  Rights of Preferred  Stock dated August 18, 1993,  relating to
                  Registrants' Series C Preferred Stock.

   4.1.4          Certificate  of   Designations,   Preferences  and  Rights  of
                  Preferred Stock dated March 15, 1996, relating to Registrants'
                  Series D Preferred Stock.

   4.1.5          Certificate  of   Designations,   Preferences  and  Rights  of
                  Preferred Stock dated March 15, 1996, relating to Registrants'
                  Series E Preferred Stock.

   4.3.2          Registration Rights Agreement  dated  April  27,  1990 between
                  Registrant's predecessor and  International  Health  Products,
                  Inc. (assumed by Registrant), which has been assigned  to JRG
                  Investments,  Inc.,  relating  to  4,150,000  shares  (830,000
                  post  December  1995  shares)  of  Registrant's  Common Stock,
                  the benefits of which were further  assigned  to  Professional
                  Investors  Insurance,  Inc. as to 600,000 shares (120,000 post
                  December 1995 shares) in November 1992 (filed on June 5, 1990,
                  as an Exhibit to the Registrant's predecessor's Current Report
                  on Form 8-K and incorporated herein by reference).

    4.3.3         Form of  Assignment of  Registration  Rights  Agreement  dated
                  September   30,  1992  between  JRG   Investments,   Inc.  and
                  Professional  Investors  Insurance,  Inc.  relating to 600,000
                  shares  (120,000 post  December  1995 shares) of  Registrant's
                  Common Stock (filed as Exhibit 4.3.3 to Registrant's  Form S-4
                  Registration   Statement,   Registration  No.  33-55968,   and
                  incorporated herein by this reference).

    4.4           Form of Registration  Rights  Agreement dated December 1, 1991
                  between Registrant and W. Michael Gilley (filed as Exhibit 4.4
                  to Registrant's Form S-4 Registration Statement,  Registration
                  No.
                  33-55968, and incorporated herein by this reference).

   4.5.1          Stock Purchase Agreement dated May 7, 1993 for the purchase of
                  Complete Corporation and Remuda Acquisition Corporation (filed
                  as  Exhibit  4.5.1 to  Registrant's  Form  10-KSB for the year
                  ended December 31, 1993).

   4.5.2          Registration Rights Agreement dated May 7, 1993 granted to the
                  shareholders  of Complete  tion and Remuda  Acquisition  Corp.
                  (filed as Exhibit  4.5.2 to  Registrant's  Form 10-KSB for the
                  year ended December 31, 1993).


                                       24

<PAGE>


   4.5.3          Agreement and Plan of Merger dated June 30, 1994 with New Life
                  Treatment Centers,  Inc. relating to the disposition of Remuda
                  Ranch Center for Anorexia and Bulimia,  Inc. (filed as Exhibit
                  4.5.3 to Registrant's  Form 10-KSB for the year ended December
                  31, 1994).

   4.5.4          Amended and Restated  Certificate of Incorporation of New Life
                  Treatment Centers, Inc.(filed as Exhibit 4.5.4 to Registrant's
                  Form 10-KSB for the year ended December 31, 1994).

   4.5.5          Registration Right Agreement dated July 29, 1994 re. New Life 
                  Treatment Centers, Inc.(filed as Exhibit 4.5.5 to Registrant's
                  Form 10-KSB for the year ended December 31, 1994).

   4.5.6          Restricted  Stock  Agreement dated July 29, 1994 re. New Life
                  Treatment Centers, Inc. filed as Exhibit 4.5.6 to Registrant's
                  Form 10-KSB for the year ended December 31, 1994).

   4.6.1          Stock  Purchase  Agreement  dated  August  16,  1993  for  the
                  issuance of Series C Preferred  Stock (filed as Exhibit  4.6.1
                  to  Registrant's  Form 10-KSB for the year ended  December 31,
                  1993).

   4.6.2          Stock  Purchase  Agreement  dated August 16, 1993 between Clay
                  Capital Corporation and Altman Nursing, Inc. (filed as Exhibit
                  4.6.2 to Registrant's  Form 10-KSB for the year ended December
                  31, 1993).

   4.7.1          Stock Purchase Agreement dated January 30, 1996 between Joseph
                  L.  Durant,  Innovative  Health  Services,  Inc.  and  Medical
                  Resource  Companies  of  America  (filed as  Exhibit  4.7.1 to
                  Registrant's   Form  8-K,   dated   February  20,  1996,   and
                  incorporated herein by this reference).

   4.8.1          Stock Purchase Agreement dated March 15, 1996 between Wedgwood
                  Retirement Inns, Inc.,  Victor L. Lund, Paul Dendy, Mark Hall,
                  Frank R. Reeves, Doris Thornsbury, Teresa Waldroff and Medical
                  Resource  Companies of America (filed with  Registrant's  8-K,
                  dated  March  15,  1996,  and  incorporated   herein  by  this
                  reference).

   4.8.2          Amendment to Stock Purchase  Agreement  (dated March 15, 1996)
                  dated March 15, 1996 between  Wedgwood  Retirement Inns, Inc.,
                  Victor L. Lund, Paul Dendy, Mark Hall, Frank R. Reeves,  Doris
                  Thornsbury,  Teresa Waldroff and Medical Resource Companies of
                  America  (filed with  Registrant's  8-K, dated March 15, 1996,
                  and incorporated herein by this reference).

   4.9.1          Amendment to Agreement  and Plan of Merger dated  November 21,
                  1996,  among Registrant and American Care  Communities,  Inc.,
                  Floyd B.  Rhoades and Gary L. Smith  (filed with  Registrant's
                  Form 8-K dated  December 31, 1966 and  incorporated  herein by
                  reference).

   4.9.2          Amendment to Agreement and Plan of Merger dated December 30, 
                  1996.

   4.9.3          Registration Rights Agreement dated December 30, 1996 between 
                  Registrant and Floyd B. Rhoades.

   4.9.4          Employment  Agreement  dated  December 30, 1996 with  Floyd B.
                  Rhoades.

   10.3.2         Form of  $62,500  Promissory  Note  dated  December  27,  1991
                  payable to  Registrant by Gene S.  Bertcher  representing  the
                  purchase  price for 250,000  shares (50,000 post December 1995
                  shares) of Registrant's  Common Stock (filed as Exhibit 10.3.2
                  to Registrant's Form S-4 Registration Statement,  Registration
                  No. 33-55968, and incorporated herein by this reference).

   10.3.3         Form of Renewal of  Promissory  Note dated  October  14,  1992
                  extending the maturity date of the Promissory  Note referenced
                  in Exhibit  10.3.2  (filed as Exhibit  10.3.3 to  Registrant's
                  Form S-4  Registration  Statement,  Registration No. 33-55968,
                  and incorporated herein by this reference).

   10.3.4         Form of Security Agreement - Pledge (Nonrecourse) between Gene
                  S.  Bertcher  and  Registrant  securing  the  Promissory  Note
                  referenced  in Exhibit  13.3.2.  (Filed as  Exhibit  10.3.4 to

                                       25

<PAGE>

                  Registrant's Form S-4 Registration Statement, Registration No.
                  33-55968, and incorporated herein by this reference).

   10.4.1         Form of Stock Option to purchase  150,000  shares (30,000 post
                  December 1995 shares) of  Registrant's  Common Stock issued to
                  Robert L. Griffis on October 12, 1992 (filed as Exhibit 10.4.1
                  to Registrant's Form S-4 Registration Statement,  Registration
                  No. 33-55968, and incorporated herein by this reference).

   10.4.2         Form of $75,000 Promissory Note dated October 12, 1992 payable
                  to Registrant by Robert L. Griffis  representing  the purchase
                  price for 150,000 shares (30,000 post December 1995 shares) of
                  Registrant's   Common  Stock  (filed  as  Exhibit   10.4.2  to
                  Registrant's Form S-4 Registration Statement, Registration No.
                  33-55968, and incorporated herein by this reference).

   10.4.3         Form of  Security  Agreement  - Pledge  (Nonrecourse)  between
                  Registrant and Robert L. Griffis  securing the Promissory Note
                  referenced  in  Exhibit  10.4.2  (filed as  Exhibit  10.4.3 to
                  Registrant's Form S-4 Registration Statement, Registration No.
                  33-55968, and incorporated
                  herein by this reference).

   10.6.1         Form of Stock Option to purchase  100,000  shares (20,000 post
                  December 1995 shares) of  Registrant's  Common Stock issued to
                  Oscar  Smith on  October 1, 1992  (filed as Exhibit  10.6.1 to
                  Registrant's Form S-4 Registration Statement, Registration No.
                  33-55968, and incorporated herein by this reference).

   10.6.2         Form of $50,000  Promissory Note dated October 1, 1992 payable
                  to Registrant by Oscar Smith  representing  the purchase price
                  for 100,000  shares  (20,000  post  December  1995  shares) of
                  Registrant's   Common  Stock  (filed  as  Exhibit   10.6.2  to
                  Registrant's Form S-4 Registration Statement, Registration No.
                  33-55968, and incorporated herein by this reference).

   10.6.3         Form of  Security  Agreement  - Pledge  (Nonrecourse)  between
                  Registrant  and  Oscar  Smith  securing  the  Promissory  Note
                  referenced  in  Exhibit  10.6.2  (filed as  Exhibit  10.6.3 to
                  Registrant's Form S-4 Registration Statement, Registration No.
                  33-55968, and incorporated herein by this reference).

   10.7.1         Form of Stock Option to purchase  80,000  shares  (16,000 post
                  December 1995 shares) of  Registrant's  Common Stock issued to
                  Lonnie  Yarbrough on October 12, 1992 (filed as Exhibit 10.7.1
                  to Registrant's Form S-4 Registration Statement,  Registration
                  No. 33-55968, and incorporated herein by this reference).

   10.7.2         Form of $40,000 Promissory Note dated October 12, 1992 payable
                  to Registrant by Lonnie  Yarbrough  representing  the purchase
                  price for 80,000 shares  (16,000 post December 1995 shares) of
                  Registrant's   Common  Stock  (filed  as  Exhibit   10.7.2  to
                  Registrant's Form S-4 Registration Statement, Registration No.
                  33-55968, and incorporated herein by this reference).

   10.7.3         Form of  Security  Agreement  - Pledge  (Nonrecourse)  between
                  Registrant and Lonnie  Yarbrough  securing the Promissory Note
                  referenced  in  Exhibit  10.7.2  (filed as  Exhibit  10.7.3 to
                  Registrant's Form S-4 Registration Statement, Registration No.
                  33-55968, and incorporated
                  herein by this reference).

   10.8.1         Form of Stock Option to purchase  80,000  shares  (16,000 post
                  December 1995 shares) of  Registrant's  Common Stock issued to
                  Dennis  McGuire on October 1, 1992 (filed as Exhibit 10.8.1 to
                  Registrant's Form S-4 Registration Statement, Registration No.
                  33-55968, and incorporated herein by this reference).

   10.8.2         Form of $40,000  Promissory Note dated October 1, 1992 payable
                  to  Registrant  by Dennis  McGuire  representing  the purchase
                  price for 80,000 shares  (16,000 post December 1995 shares) of
                  Registrant's   Common  Stock  (filed  as  Exhibit   10.8.2  to
                  Registrant's Form S-4 Registration Statement, Registration No.
                  33-55968, and incorporated herein by this reference).

                                       26

<PAGE>


   10.8.3         Form of  Security  Agreement  - Pledge  (Nonrecourse)  between
                  Registrant  and Dennis McGuire  securing the  Promissory  Note
                  referenced  in  Exhibit  10.8.2  (filed as  Exhibit  10.8.3 to
                  Registrant's Form S-4 Registration Statement, Registration No.
                  33-55968, and incorporated
                  herein by this reference).

   10.9.1         Form of Stock  Option to purchase  10,000  shares  (2,000 post
                  December 1995 shares) of  Registrant's  Common Stock issued to
                  Michael  Merrell on October 12, 1992 (filed as Exhibit  10.9.1
                  to Registrant's Form S-4 Registration Statement,  Registration
                  No. 33-55968, and incorporated herein by this reference).

   10.9.2         Form of $5,000  Promissory Note dated October 12, 1992 payable
                  to Registrant  by Michael  Merrell  representing  the purchase
                  price for 10,000  shares  (2,000 post December 1995 shares) of
                  Registrant's   Common  Stock  (filed  as  Exhibit   10.9.2  to
                  Registrant's Form S-4 Registration Statement, Registration No.
                  33-55968, and incorporated herein by this reference).

   10.9.3         Form of  Security  Agreement  - Pledge  (Nonrecourse)  between
                  Registrant and Michael  Merrell  securing the Promissory  Note
                  referenced  in  Exhibit  10.9.2  (filed as  Exhibit  10.9.3 to
                  Registrant's Form S-4 Registration Statement, Registration No.
                  33-55968, and incorporated
                  herein by this reference).

   10.9.4         Form of $187,000  promissory  note dated  December  29,  1994,
                  payable to Registrant by W. Michael  Gilley  representing  the
                  purchase  price for 150,000  shares (30,000 post December 1995
                  shares) of Registrant's  Common Stock (filed as Exhibit 10.9.4
                  to  Registrant's  Form 10-KSB for the year ended  December 31,
                  1994).

   10.9.5         Form of Security  Agreement-Pledge  between  Registrant and W.
                  Michael  Gilley  securing the  promissory  note  referenced in
                  Exhibit 10.9.4 (filed as Exhibit 10.9.5 to  Registrant's  Form
                  10-KSB for the year ended December 31, 1994).

   10.9.6         Form of $62,500  promissory  note  dated  December  29,  1994,
                  payable to Registrant by L.A. Tuttle representing the purchase
                  price of 50,000  shares  (10,000 post December 1995 shares) of
                  Registrant's   Common  Stock  (filed  as  Exhibit   10.9.6  to
                  Registrant's  Form  10-KSB  for the year  ended  December  31,
                  1994).

   10.9.7         For of Security  Agreement-Pledge  between Registrant and L.A.
                  Tuttle  securing  the  promissory  note  reference  in Exhibit
                  10.9.6 (filed as Exhibit  10.9.7 to  Registrant's  Form 10-KSB
                  for the year ended December 31, 1994).

   10.12          Employment  Agreement  and  Agreement Not to  Compete  between
                  Registrant  and Dennis McGuire dated November  1, 1990  (filed
                  as  Exhibit  10.12  to  Registrant's   Form S-4   Registration
                  Statement,  Registration No. 33-55968, and incorporated herein
                  by this reference).

   10.13          Registrant's 1992 Stock Option Plan (filed as Exhibit 10.13 to
                  Registrant's Form S-4 Registration Statement, Registration No.
                  33-55968, and incorporated herein by this reference).

   10.20.2        Contract of Sale dated  December 28, 1994 with Autumn  America
                  Retirement, Ltd. regarding the sale of Fountainview Retirement
                  Center (filed as Exhibit 10.20.2 to  Registrant's  Form 10-KSB
                  for year ended December 31, 1994).

   10.20.3        Exchange  Agreement  dated  December  20,  1994 to settle  the
                  Fountainview second mortgage profit  participation,  (filed as
                  Exhibit  10.20.3 to  Registrant's  Form  10-KSB for year ended
                  December 31, 1994).

                                       27

<PAGE>


   10.21.1        Extended and  Consolidated  Promissory Note  in the  principal
                  amount of $5,700,000 dated effective May 23, 1992  payable  by
                  JRG  Investment  Co.,  Inc. to M.S.  Holding Co. Corp.  (filed
                  as Exhibit 10.22.1  to  Registrant's  Form   S-4  Registration
                  Statement, Registration  No. 33-55968, and incorporated herein
                  by this reference).

   10.22.2        Extended and  Consolidated  Pledge  Agreement dated  effective
                  May 23, 1992 between JRG Investment Co., Inc. and M.S. Holding
                  Co. Corp. securing  the  Note  referenced  in  Exhibit 10.22.1
                  (filed  as  Exhibit  10.22.2  to  Registrant's  Form S-4
                  Registration   Statement,  Registration   No.  33-55968,  and
                  incorporated herein by this reference).

   10.22.3        Pledge  Agreement  dated as of May 23, 1992  between  James R
                  Gilley and M.S. Holding Co. Corp. (filed as Exhibit 10.22.3 to
                  Registrant's  Form S-4  Registration  Statement,  Registration
                  No. 33-55968, and incorporated herein by this reference).

   10.22.4        Irrevocable  Proxy from James R. Gilley to  M.S.  Holding  Co.
                  Corp.  relating to shares of capital stock  of  JRG Investment
                  Co., Inc. (filed  as Exhibit  10.22.4 to Registrant's Form S-4
                  Registration  Statement,  Registration  No.  33-55968, and
                  incorporated herein by this reference).

   10.22.5        Blank   Assignment  and  Power  of  Attorney   signed  by  JRG
                  Investment Co., Inc. relating to 482,000 (96,400 post December
                  1995  shares)  shares of  Registrant's  Common Stock (filed as
                  Exhibit   10.22.5  to  Registrant's   Form  S-4   Registration
                  Statement,  Registration No. 33-55968, and incorporated herein
                  by this reference).

   10.22.6        Blank   Assignment  and  Power  of  Attorney   signed  by  JRG
                  Investment  Co., Inc.  relating to 1,268,000  shares  (236,600
                  post December 1995 shares) of Registrant's Common Stock (filed
                  as  Exhibit  10.22.6  to  Registrant's  Form S-4  Registration
                  Statement,  Registration No. 33-55968, and incorporated herein
                  by this reference).

   10.22.7        Three Blank  Assignments  and Powers of Attorney signed by JRG
                  Investment Co., Inc., each relating to 600,000 shares (120,000
                  post December 1995 shares) of Registrant's Common Stock (filed
                  as  Exhibit  10.22.7  to  Registrant's  Form S-4  Registration
                  Statement, Registration No.
                  33-55968, and incorporated herein by this reference).

   10.22.8        Blank   Assignment  and  Power  of  Attorney   signed  by  JRG
                  Investment   Co.,  Inc.   relating  to  2,281,818   shares  of
                  Registrant's   Common  Stock  (filed  as  Exhibit  10.22.8  to
                  Registrant's Form S-4 Registration Statement, Registration No.
                  33-55968, and incorporated herein by this reference).

   10.22.9        Blank   Assignment  and  Power  of  Attorney   signed  by  JRG
                  Investment   Co.,   Inc.   relating   to  905,557   shares  of
                  Registrant's  Series  A  Preferred  Stock  (filed  as  Exhibit
                  10.22.9  to  Registrant's  Form  S-4  Registration  Statement,
                  Registration  No. 33-55968,  and  incorporated  herein by this
                  reference).

   10.23          Purchase and Sale  Agreement  dated  February 1, 1993 for  the
                  purchase of nursing homes  in Houston  and San Antonio,  Texas
                  (filed as Exhibit 10.23 to Registrant's Form S-4  Registration
                  Statement, Registration No. 33-55968, and incorporated  herein
                  by this reference).

   10.23.3        Assets Purchase Agreement dated December 13, 1994 with Hermann
                  Park Manor and HCCI-Houston, Inc. for the Sale of Hermann Park
                  manor (filed as Exhibit  10.23.3 to  Registrant's  Form 10-KSB
                  for the year ended December 31, 1994).

   10.23.4        Assets  Purchase  Agreement  dated December 13, 1994 with Alta
                  Vista Nursing Center, Inc. and HCCI-Houston, Inc. for the Sale
                  of Alta Vista  Nursing  Center  (filed as  Exhibit  10.23.4 to
                  Registrant's  Form  10-KSB  for the year  ended  December  31,
                  1994).
                                       28

<PAGE>


   10.25.1        Agreement  dated  September  14, 1994 to terminate  and settle
                  Executive  Employment Agreement with Arthur G. Weiss (filed as
                  Exhibit 10.25.1 to Registrant's Form 10-KSB for the year ended
                  December 31, 1994).

   10.30.2        Memorandum of Understanding  amending Exhibit 10.30.1.  (Filed
                  as Exhibit  10.30.2 to  Registrant's  Form 10-KSB for the year
                  ended December 31, 1993).

   10.30.3        Letter  dated  January 6,  1995,  terminating  Stock  Purchase
                  Agreement   relating  to  Bankers  Protective  Life  Insurance
                  Company. (Filed as Exhibit 10.30.3 to Registrant's Form 10-KSB
                  for the year ended December 31, 1994).

   10.33          Stock  Option   Agreement  dated  November  21,  1993  between
                  Registrant  and Arthur G.  Weiss.  (Filed as Exhibit  10.33 to
                  Registrant's  Form  10-KSB  for the year  ended  December  31,
                  1993).

   10.34          Stock  Option   Agreement  dated  November  21,  1993  between
                  Registrant  and Gene S.  Bertcher.  (Filed as Exhibit 10.34 to
                  Registrant's  Form  10-KSB  for the year  ended  December  31,
                  1993).

   10.35.1        Purchase Agreement dated December 6, 1994 with Arizona Baptist
                  Retirement  Centers,  Inc.  for the Sale of  Rivermont  at the
                  Trails.  (Filed as Exhibit 10.35.1 to Registrant's Form 10-KSB
                  for the year ended December 31, 1994).

   10.36          Stock  Option  Agreement  dated  December 31, 1996  between 
                  Registrant and  James R. Gilley  covering  200,000  shares  of
                  Common Stock.

   10.37          Employment Agreements dated December 31, 1996

   10.38          Stock Purchase Warrant dated December 31, 1996 between 
                  registrant and The April Trust

   *22.1          Subsidiaries of Registrant.

   *23.1          Consent of Grant Thornton.

   *27.1          Financial Data Schedule required by Item 601 of Regulation S-B


*    Filed herewith.

        (b)       Reports on Form 8-K  -  none




                                       29

<PAGE>


SIGNATURES


In accordance  with Section 13 or 15(d) of the  Securities  Exchange Act of 1934
(the "Act"), the Company has duly caused this Annual Report on Form 10-KSB to be
signed on its behalf by the undersigned, thereunto duly authorized.


                                             GREENBRIAR CORPORATION



April 8, 1998                                By:    /s/ Gene S. Bertcher
                                                    ----------------------
                                                    Gene S. Bertcher
                                                    Executive Vice President and
                                                    Chief Financial Officer
                                                    (Principal Financial and
                                                    Accounting Officer)








                                       30


<PAGE>


                                   SIGNATURES

In  accordance  with  Section  13 or 15(d) of the  Securities  Act of 1934,  the
Registrant  caused  this  report to be signed on its behalf by the  undersigned,
thereunto duly authorized.


                             GREENBRIAR CORPORATION


April 8, 1998       By:      /s/ Floyd B. Rhoades
                             --------------------

                            Floyd B. Rhoades, President, Chief Executive Officer

In accordance  with the  Securities  Exchange Act of 1934,  this report has been
signed below by the  following  persons on behalf of the  Registrant  and in the
capacities and on the dates indicated.

                                         
April 8, 1998               /s/ James R. Gilley
                            -------------------
                             James R. Gilley, Chairman of the Board and Director

April 8, 1998               /s/ Floyd B. Rhoades
                            ---------------------
                            Floyd B. Rhoades, President, Chief Executive Officer
                            and Director

April 8, 1998               /s/ Don C.  Benton
                            ------------------
                            Don C. Benton, Director

April 8, 1998               /s/ Paul G. Chrysson
                            --------------------
                           Paul G. Chrysson, Director

April 8, 1998              /s/ Matthew G. Gallins
                           ----------------------
                           Matthew G. Gallins, Director

April 8, 1998              /s/ Michael E. McMurray
                           -----------------------
                           Michael E. McMurray, Director

April 8, 1998              /s/ Victor L. Lund
                           ------------------
                           Victor L. Lund, Director






                                       31

<PAGE>


   





               Report of Independent Certified Public Accountants




Board of Directors and Stockholders
Greenbriar Corporation


We have  audited  the  accompanying  consolidated  balance  sheet of  Greenbriar
Corporation  and   subsidiaries  as  of  December  31,  1997,  and  the  related
consolidated statements of operations,  changes in stockholders' equity and cash
flows  for each of the two  years in the  period  then  ended.  These  financial
statements are the responsibility of the Company's management.

We  conducted  our  audits  in  accordance  with  generally   accepted  auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe our audits provide a reasonable basis for our opinion.

In our opinion,  the financial  statements  referred to above present fairly, in
all  material  respects,  the  consolidated  financial  position  of  Greenbriar
Corporation  and  subsidiaries  as of December  31, 1997,  and the  consolidated
results of their  operations and their  consolidated  cash flows for each of the
two years in the period  then  ended,  in  conformity  with  generally  accepted
accounting principles.




GRANT THORNTON LLP

Dallas, Texas
March 13, 1998







                                      F-1

<PAGE>




                                                       
                             Greenbriar Corporation

                           CONSOLIDATED BALANCE SHEET
                             (Amounts in thousands)




                                                             December 31,
                   ASSETS                                       1997
                                                             ------------

CURRENT ASSETS
    Cash and cash equivalents                                $     23
    Accounts receivable - trade                                 1,162
    Stock subscription receivable                              22,000
    Other current assets                                        1,317
                                                             --------

               Total current assets                            24,502

REAL ESTATE OPERATIONS HELD FOR SALE,
    at lower of cost or market                                  3,097

DEFERRED INCOME TAX BENEFIT                                     2,632

INVESTMENT IN SECURITIES, AT COST                               2,025

MORTGAGE NOTE RECEIVABLE, net of deferred
    gain of $3,083                                              3,617

PROPERTY AND EQUIPMENT, AT COST
    Land  and improvements                                     12,114
    Buildings and improvements                                 80,758
    Equipment and furnishings                                   5,898
    Construction in progress                                    4,864
                                                             --------
                                                              103,634
       Less accumulated depreciation                            5,486
                                                             --------
                                                               98,148

DEPOSITS                                                        3,619

GOODWILL AND OTHER INTANGIBLES                                 12,129

OTHER ASSETS                                                    1,474
                                                             --------
                                                             $151,243
                                                             ========


                                      F-2

<PAGE>



        
                             Greenbriar Corporation

                     CONSOLIDATED BALANCE SHEET - CONTINUED
                (Amounts in thousands, except per share amounts)



                                                                    December 31,
    LIABILITIES AND STOCKHOLDERS' EQUITY                                 1997
                                                                    ------------

CURRENT LIABILITIES
    Current maturities of long-term debt                                $13,403
    Notes payable - affiliate                                             1,479
    Accounts payable - trade                                              1,883
    Accrued expenses                                                      3,345
    Other current liabilities                                             1,798
                                                                         ------

               Total current liabilities                                 21,908

MORTGAGE NOTES COLLATERALIZED BY
    REAL ESTATE HELD FOR SALE                                               893

LONG-TERM DEBT                                                           54,851

FINANCING OBLIGATIONS                                                    10,815

OTHER LONG-TERM LIABILITIES                                                 259

STOCKHOLDERS' EQUITY
    Preferred stock                                                         289
    Common stock, $.01 par value; authorized, 20,000 shares;
       issued and outstanding, 7,300                                         73
    Additional paid-in capital                                           83,339
    Accumulated deficit                                                 (18,669)
                                                                       --------
                                                                         65,032
    Less stock purchase notes receivable (including $2,250 from
       related parties)                                                  (2,515)
                                                                         62,517
                                                                       --------
                                                                       $151,243
                                                                       ========






         The accompanying notes are an integral part of this statement.

                                       F-3


<PAGE>

                    
<TABLE>
<CAPTION>
                                                        
                             Greenbriar Corporation

                      CONSOLIDATED STATEMENTS OF OPERATIONS
                    (Amounts in thousands, except share data)


                                                                           Year ended
                                                                          December 31,
                                                                      ---------------------
                                                                         1997         1996
                                                                         ----         -----
<S>                                                                                  <C>     

Revenue
    Assisted living operations                                        $ 38,824       $29,673
    Other                                                                  155           112
                                                                          ----          ----
                                                                        38,979        29,785
Operating expenses
    Assisted living operations                                          26,310        19,439
    Lease expense                                                        4,663         3,712
    Facility depreciation and amortization                               3,333         2,001
    General and administrative                                           5,652         6,731
    Merger and transition expense                                           -          2,836
                                                                           ---        ------
                                                                        39,958        34,719
               Operating loss                                             (979)       (4,934)

Other income (expense)
    Interest and dividend income                                           479           771
    Interest expense                                                    (6,801)       (4,457)
    Other income (expense), net                                         (2,996)          625
                                                                       -------          ----
                                                                        (9,318)       (3,061)

               Loss from continuing  operations
                   before income taxes                                 (10,297)       (7,995)

Income tax benefit                                                      (4,115)       (2,400)
                                                                       -------       -------

               Loss from continuing operations                          (6,182)       (5,595)

Discontinued operations
    Earnings from operations, net of income taxes                          153           238
    Gain on disposal, net of income taxes                                  322           520
                                                                          ----          ----

               NET LOSS                                                 (5,707)       (4,837)

Preferred stock dividend requirement                                      (334)         (365)
                                                                         -----         -----

Loss allocable to common stockholders                                  $(6,041)      $(5,202)
                                                                        ======        ======

Income (loss) per share
    Continuing operations                                                $(.99)       $(1.13)
    Discontinued operations                                                .07           .14
                                                                          ----          ----

    Net loss                                                             $(.92)       $ (.99)
                                                                          ====         =====

Weighted average number of common shares outstanding                     6,582         5,259

</TABLE>


         The accompanying notes are an integral part of this statement.

                                       F-4

<PAGE>

<TABLE>

<CAPTION>

                             Greenbriar Corporation

            CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
                             (Amounts in thousands)

                                                                                                                
<S>                                                                                 <C>           <C>         <C>           <C>  
                                                                            
                                                                                                                Stock            
                                        Preferred stock           Common stock      Additional                 purchase   
                                       -----------------       -----------------     paid in       Accumulated  notes    
                                       Shares     Amount       Shares     Amount     capital         deficit   receivable    Total
                                       ------     ------       ------     ------    ---------       ---------  ----------   ------
  

Balances at January 1, 1996                34       $ 3         4,752       $48      $34,565       $ (7,418)     $(2,573)   $24,625

    Issuance of preferred stock         2,625       264            -        -         15,938             -            -      16,202
    Conversion of preferred stock      (1,970)     (197)        1,731        17          180             -            -          -
    Purchase of common stock               -         -            (12)       -          (123)            -            -        (123)
    Dividends on preferred stock            1        -             -         -            72           (387)          -        (315)
    Capital contribution                   -         -             -         -           600             -            -         600
    Net loss                               -         -             -         -            -          (4,837)          -      (4,837)
                                          ---       ---           ---       ---          ---        -------          ---     ------

Balances at December 31, 1996             690        70         6,471        65       51,232        (12,642)      (2,573)    36,152

    Issuance of common stock
       under stock option plans            -         -             28        -           318             -            -         318
    Issuance of common stock
       for acquisitions                    -         -            851         8       12,919             -            -      12,927
    Issuance of preferred stock         2,200       220            -         -        21,327             -            -      21,547
    Purchase of common stock               -         -           (125)       (1)      (2,408)            -            -      (2,409)
    Payments on stock purchase notes
       receivable                          -         -             -         -            -              -            58         58
    Conversion of preferred stock         (14)       (1)           75         1           -              -            -          -
    Dividends on preferred stock           -         -             -         -            -            (320)          -        (320)
    Net loss                               -         -             -         -            -          (5,707)          -      (5,707)
    Other                                  -         -             -         -           (49)            -            -         (49)
                                          ---       ---           ---       ---         ----            ---          ---       ----

Balances at December 31, 1997           2,876     $ 289         7,300       $73      $83,339       $(18,669)     $(2,515)   $62,517
                                        =====      ====         =====        ==       ======        =======       ======     ======

</TABLE>


         The accompanying notes are an integral part of this statement.

                                      F-5

<PAGE>

<TABLE>
<CAPTION>
                                                                             
                             Greenbriar Corporation

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                             (Amounts in thousands)



                                                                                        Year ended
                                                                                       December 31,
                                                                                  ----------------------
                                                                                     1997         1996
                                                                                  --------      --------
<S>                                                                               <C>           <C> 

Cash flows from operating activities
    Net loss                                                                      $ (5,707)     $ (4,837)
    Adjustments to reconcile net loss to net
       cash used in operating activities
          Discontinued operations                                                     (475)         (758)
          Depreciation and amortization                                              3,333         2,001
          Gain on settlement of litigation                                          (2,409)           -
          Loss on sales of assets                                                       -             19
          Write-off of note receivable                                               2,000            -
          Write-off of investment securities                                         2,100            -
          Stock dividends on investment securities                                     (39)         (133)
          Capital contributions as payment for services                                 -            600
          Deferred income taxes                                                     (4,115)       (1,979)
          Changes in operating assets and liabilities,
             net of effect of acquisition
                Accounts receivable                                                   (572)          255
                Other current and noncurrent assets                                  1,338           905
                Accounts payable and other liabilities                              (2,007)        2,893
                                                                                    ------        ------

                   Net cash used in operating activities of
                       continuing operations                                        (6,553)       (1,034)

    Net cash provided by (used in) operating activities
       of discontinued operations                                                       66           (85)
                                                                                       ---          -----

                   Net cash used in operating activities                            (6,487)       (1,119)


</TABLE>



        The accompanying notes are an integral part of these statements.

                                      F-6

<PAGE>
        

<TABLE>
       
<CAPTION>
                                                 
                             Greenbriar Corporation

                CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
                             (Amounts in thousands)

<S>                                                                                           <C>       <C>  <C>   


                                                                                                    Year ended
                                                                                                   December 31,
                                                                                                ------------------
                                                                                                1997          1996
                                                                                                ----          ----
Cash flows from investing activities
    Collections of notes receivable                                                           $   126         $ 123
    Purchase of property and equipment                                                         (3,970)      (16,534)
    Additions to notes receivable                                                                  -            (23)
    Investing activities of discontinued operations                                             2,941            -
    Net cash received in acquisition of business                                                   -            739
                                                                                               ------        ------

                   Net cash provided by (used in)
                       investing activities                                                      (903)      (15,695)

Cash flows from financing activities
    Proceeds from borrowings                                                                    4,705        15,461
    Payments on debt                                                                              (17)       (1,426)
    Dividends on preferred stock                                                                 (320)         (315)
    Purchase of common and preferred stock                                                         -           (123)
    Deposits on financing obligations                                                              -         (1,622)
    Exercise of stock options                                                                     318            -
    Financing activities of discontinued operations                                                (8)           -
    Other                                                                                         (49)           -
                                                                                               ------        ------

                Net cash provided by (used in)
                  financing activities                                                          4,629        11,975
                                                                                               ------        ------

                NET DECREASE IN CASH
                   AND CASH EQUIVALENTS                                                        (2,761)       (4,839)

Cash and cash equivalents at beginning of year                                                  2,784         7,623
                                                                                              -------       -------

Cash and cash equivalents at end of year                                                      $    23       $ 2,784
                                                                                              =======       =======

</TABLE>

        The accompanying notes are an integral part of these statements.

                                      F-7

<PAGE>




                                                                           
                             Greenbriar Corporation

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS




NOTE A - NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING
         POLICIES

    Nature of Operations
    --------------------

    Greenbriar  Corporation's  business consists of development and operation of
    assisted  living  communities  located  throughout the United States,  which
    provide housing, hospitality and personal and healthcare services to elderly
    individuals.  At  December  31,  1997,  the Company  had 53  communities  in
    operation in 12 states with a total capacity for 4,089 residents.

    A summary of the significant  accounting policies applied in the preparation
    of the accompanying consolidated financial statements follows.

    Principles of Consolidation
    ---------------------------

    The  consolidated  financial  statements  include the accounts of Greenbriar
    Corporation and its majority-owned subsidiaries (collectively, the Company).
    All significant intercompany transactions and accounts have been eliminated.

    Assisted Living Facility Revenue
    --------------------------------

    Assisted  living  community   revenue  is  reported  at  the  estimated  net
    realizable value based upon expected amounts to be recovered from residents,
    third party payors, and others for services  rendered.  Services provided by
    certain of the  Company's  communities  are  reimbursed  under various state
    assistance plans.

    Depreciation
    ------------

    Depreciation  is provided  for in amounts  sufficient  to relate the cost of
    property and equipment to operations  over their  estimated  service  lives,
    ranging from 3 to 40 years.  Depreciation  is computed by the  straight-line
    method.

    Profit Recognition on Sales of Real Estate
    ------------------------------------------

    Gains  on sales of real  estate  are  recognized  when the  requirements  of
    Statement of Financial Accounting Standards No. 66, "Accounting for Sales of
    Real Estate," are met. Until the  requirements  for full profit  recognition
    have been met, a transaction is accounted for using either the deposit, cost
    recovery,  installment sale, or financing  method,  whichever is appropriate
    under the circumstances.

    Use of Estimates
    ----------------

    In preparing  financial  statements in conformity  with  generally  accepted
    accounting  principles,   management  is  required  to  make  estimates  and
    assumptions  that affect the reported  amounts of assets and liabilities and
    the  disclosure  of  contingent  assets and  liabilities  at the date of the
    financial  statements and revenues and expenses during the reporting period.
    Actual results could differ from those estimates.




                                      F-8

<PAGE>


                             Greenbriar Corporation

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED




NOTE A - NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING
         POLICIES - Continued

    Cash Equivalents
    ----------------

    The Company considers all short-term  deposits and money market  investments
    with a maturity of less than three months to be cash equivalents.

    Impairment of Notes Receivable
    ------------------------------

    A note  receivable  is  identified  as  impaired  when it is  probable  that
    interest and principal  will not be collected  according to the  contractual
    terms of the note agreement. The accrual of interest is discontinued on such
    notes,  and no income is recognized  until all past due amounts of principal
    and interest are recovered in full.

    Impairment of Long-Lived Assets
    -------------------------------

    The  Company  reviews  its  long-lived   assets  and  certain   identifiable
    intangibles for impairment when events or changes in circumstances  indicate
    that the carrying amount of the assets may not be recoverable.  In reviewing
    recoverability,  the Company  estimates  the future  cash flows  expected to
    result from using the assets and eventually disposing of them. If the sum of
    the expected future cash flows  (undiscounted  and without interest charges)
    is less  than the  carrying  amount  of the  asset,  an  impairment  loss is
    recognized based on the asset's fair value.

    Stock Options
    -------------

    The Company has elected to follow  Accounting  Principles  Board Opinion No.
    25,   Accounting  for  Stock  Issued  to  Employees  (APB  25)  and  related
    interpretations in accounting for its employee stock options.  Under APB 25,
    because the exercise price of employee stock options equals the market price
    of the underlying  stock on the date of grant,  no  compensation  expense is
    recorded.  The  Company  has  adopted  the  disclosure-only   provisions  of
    Statement of Financial Accounting Standards No.
    123, "Accounting for Stock-Based Compensation" (SFAS 123).

    Goodwill and Other Intangibles
    ------------------------------

    Goodwill is being  amortized  on the  straight-line  method over a period of
    fifteen years. Other intangibles include deferred financing costs, which are
    being  amortized  over the terms of the  related  borrowings  under a method
    which approximates the interest method.

    Earnings (Loss) Per Common Share
    --------------------------------

    In the  fourth  quarter of 1997,  the  Company  adopted  the  provisions  of
    Statement of Financial  Accounting  Standards No. 128,  "Earnings Per Share"
    (SFAS 128). In accordance with SFAS 128, the Company computes basic earnings
    (loss) per  common  share  based on the  weighted  average  number of common
    shares  outstanding.  Diluted  earnings  per share is computed  based on the
    weighted  average  number of common  shares  outstanding  plus the number of
    additional  common  shares  that would  have been  outstanding  if  dilutive
    potential  common  shares had been  issued.  In 1997 and 1996 all  potential
    common shares were anti-dilutive.  Accordingly, the adoption of SFAS 128 had
    no effect on 1997 and 1996 loss per share amounts.


                                      F-9

<PAGE>

                             Greenbriar Corporation

              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED


NOTE B - ACQUISITIONS

    Wedgwood Retirement Inns, Inc. and Affiliates
    ---------------------------------------------

    In March 1996,  the  Company  acquired  substantially  all of the assets and
    liabilities  of a number of companies  under  common  control and managed by
    Wedgwood Retirement Inns, Inc.  (Wedgwood).  The business of these companies
    consists of the operation of 15 assisted living and Alzheimer's communities.
    To structure the Wedgwood  acquisition as a tax-free  exchange,  the Company
    also acquired a shopping  center in North  Carolina from James R. Gilley and
    members of his family  (the Gilley  Group).  Due to the fact that the Gilley
    Group is a majority  stockholder  of  Greenbriar  and owner of the  shopping
    center,  the  property was recorded at the Gilley  Group's  historical  cost
    basis of approximately $2,300,000. Consideration given was 675,000 shares of
    Series D preferred  stock.  Wedgwood's  assets were valued at  approximately
    $58,000,000  ($54,000,000 of property and equipment) and liabilities assumed
    were  approximately  $44,000,000.  In exchange,  Greenbriar issued 1,949,950
    shares of Series E preferred stock, valued at approximately $14,000,000,  to
    the Wedgwood shareholders.  In 1996, the stockholders of the Company granted
    conversion  rights to the series E preferred stock and it was converted into
    approximately 1,600,000 shares of the Company's common stock. The operations
    of Wedgewood have been reflected in the consolidated financial statements of
    the Company since April 1, 1996.

    Windsor Group LLC and Affiliates
    --------------------------------

    In October 1997, the Company  acquired all of the assets and  liabilities of
    Windsor Group LLC  (Windsor) and all of the common stock of three  companies
    who were affiliates of Windsor.  The business of these companies consists of
    the  operation  of three  assisted  living  communities  in South  Carolina.
    Consideration  given was 130,000 shares of the Company's common stock valued
    at approximately  $2,533,000.  Additionally,  upon completion of a community
    under  construction,  the Company will issue 28,531 additional shares of its
    common stock.  Assets acquired were valued at approximately  $12,100,000 and
    liabilities assumed were approximately $9,567,000. The operations of Windsor
    and affiliates have been reflected in the consolidated  financial statements
    of the Company since October 1, 1997.

    Villa Residential Care Homes, Inc.
    ----------------------------------

    On December 31, 1997,  the Company  acquired all of the  outstanding  common
    stock of Villa Residential Care Homes, Inc. (Villa). Additionally, through a
    newly created  partnership,  the Company  acquired  lease rights and assumed
    certain  liabilities  of a number of entities  affiliated  with  Villa.  The
    business of these entities  consists of the operation of 12  assisted-living
    communities throughout Texas.  Consideration given was 184,476 shares of the
    Company's  common stock and 10,464,321  units of the  partnership  valued at
    approximately  $10,394,000.  The operating partnership units are convertible
    after a one-year  holding period into 536,990 shares of the Company's common
    stock. For accounting  purposes,  the common shares into which the operating
    units will be converted  have been included in  outstanding  common  shares.
    Assets  acquired,  which consist  primarily of lease rights,  were valued at
    $11,100,000 and liabilities assumed were approximately $706,000.



                                      F10

<PAGE>


                             Greenbriar Corporation

              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED


NOTE B - ACQUISITIONS - Continued

    The following  table presents pro forma  unaudited  consolidated  results of
    operations for the years ended December 31, 1997 and 1996, assuming that the
    acquisitions had taken place at the beginning of the periods presented.  The
    pro  forma  results  are  not  necessarily  indicative  of  the  results  of
    operations  that would have occurred had the  acquisitions  been made at the
    beginning of the periods  presented,  or of future  results of operations of
    the combined companies (in thousands, except per share data):

                                                                Year ended
                                                               December 31,
                                                            -------------------
                                                              1997        1996
                                                            -------     -------
       Revenue                                              $49,701     $42,248
       Loss from continuing operations                      $(6,801)    $(6,544)
       Net loss                                             $(6,326)    $(5,786)
       Preferred stock dividend requirement                  $ (334)     $ (445)
       Loss from continuing operations allocable
          to common stockholders                            $(7,135)    $(6,989)
       Loss allocable to common stockholders                $(6,660)    $(6,231)
       Loss per share
          Continuing operations                               $(.96)    $(1.14)
          Net loss                                            $(.90)    $(1.02)

    American Care Communities, Inc.
    -------------------------------

    On December  31, 1996,  the Company  issued  1,300,000  shares of its common
    stock in exchange for all of the  outstanding  common stock of American Care
    Communities,  Inc.  (American  Care). At the date of  acquisition,  American
    Care,  owned or leased 15 assisted  living  communities  with  approximately
    1,350  units,  located  primarily  in North  Carolina.  The  merger has been
    accounted  for as a pooling of  interests  and  accordingly,  the  Company's
    consolidated   financial  statements  have  been  restated  to  include  the
    operations of American Care for all periods prior to the merger.

    In  connection  with the merger,  a  shareholder  of American  Care  settled
    certain of American Care's obligations in exchange for approximately  45,000
    shares of the Company's common stock received in the merger.  For accounting
    purposes,  this  transaction,  valued at $600,000,  has been  reflected as a
    contribution  of  capital  with  a   corresponding   charge  to  operations.
    Additionally,  the  Company  incurred  expenses  related  to the  merger  of
    $983,000,  expenses  related  to  attempted  capital  market  activities  of
    $774,000  and  accrued  severance  costs  related  to  the  closure  of  the
    administrative  offices of American Care and Wedgwood of  $1,079,000.  These
    amounts  have been  included in the  statement of  operations  as merger and
    transition expense.


                                      F-11


<PAGE>


                             Greenbriar Corporation

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-CONTINUTED


NOTE B - ACQUISITIONS - Continued

    Separate  results  of  operations  for the period  prior to the merger  with
American Care are as follows (in thousands):

                                                                Year ended
                                                              December 31, 1996
                                                              -----------------
       Revenue
          Greenbriar                                             $13,523
          American Care                                           16,262

          Combined                                               $29,785

       Earnings (loss) from continuing operations
          Greenbriar                                             $(3,483)
          American Care                                           (2,112)

          Combined                                               $(5,595)

       Net earnings (loss)
          Greenbriar                                             $(2,725)
          American Care                                           (2,112)

          Combined                                               $(4,837)
                                                                 =======

NOTE C - DISCONTINUED OPERATIONS

    In 1995,  management  decided to sell the  mobility  products  segment.  The
    segment  was sold in  February  1996 for 8%  preferred  stock,  which is not
    marketable,  and notes valued at approximately  $4,300,000,  based upon fair
    value as  determined  by the  Board of  Directors.  A gain of  approximately
    $788,000, less applicable income taxes of $268,000 was recorded in 1996.

    In 1996,  the  Company  entered  into  negotiations  to sell  its  remaining
    non-assisted   living  real  estate  assets.   Accordingly,   the  Company's
    non-assisted   living  real  estate   operations   have  been  reflected  as
    discontinued operations. Management expects that the proceeds from the sales
    will be at least equal to the carrying value of the real estate assets.

    In  1997,  the  Company  sold  one  of  its  real  estate  assets  for  cash
    consideration  and recorded a gain of $491,000, less applicable income taxes
    of $169,000.

    The  operations  of the real  estate  segment  have  been  presented  in the
    accompanying financial statements as discontinued operations.


                                      F-12


<PAGE>


                             Greenbriar Corporation

              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-CONTINUTED


NOTE C - DISCONTINUED OPERATIONS - Continued

    Summarized   operating   results  of  these  segments  are  as  follows  (in
    thousands):

<TABLE>
                                                                                                   Year ended
                                                                                                  December 31,
                                                                                               --------------------
                                                                                               1997            1996
                                                                                               ----            ----
<S>                                                                                           <C>           <C>    

       Revenues                                                                                $702            $864
                                                                                                ===             ===

       Earnings before income taxes                                                            $235            $361

       Income tax expense                                                                        82             123
                                                                                                ---             ---

             Net earnings                                                                      $153            $238
                                                                                                ===             ===


NOTE D - CASH FLOW INFORMATION

    Supplemental information on cash flows and noncash investing and financing 
    transactions is as follows (in thousands):
                                                                                                   Year ended
                                                                                                  December 31,
                                                                                              --------------------
                                                                                                1997          1996
                                                                                              -------       -------
     Supplemental cash flow information
        Interest paid                                                                         $ 6,981       $ 4,460
        Income taxes paid                                                                          23            95

     Supplemental data on noncash investing and financing activities
        Stock dividend paid on preferred shares                                                    -             72
        Preferred stock subscribed                                                             22,000            -
        Purchase of common stock in exchange for assumption of liabilities                      2,409            -

     Sale of subsidiary
        Securities and note received                                                          $    -       $ (4,300)
        Assets sold                                                                                -          3,780
        Gain on sale                                                                               -            520
                                                                                              -------      --------

             Net cash effect of sale of subsidiary                                            $    -       $      -
                                                                                              =======      ========

   Business acquired
     Fair value of assets acquired                                                           $ 23,200      $ 59,890
     Cash received                                                                                 -            739
     Common stock issued                                                                      (12,927)      (16,202)
                                                                                              -------       -------

           Liabilities assumed                                                                $10,273      $ 44,427
                                                                                               ======       =======

</TABLE>

                                      F-13


<PAGE>


                             Greenbriar Corporation

              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED

NOTE E - DEBT

    Long-term debt is comprised of the following (in thousands):

<TABLE>

<S>                                                                                                <C>
                                                                                          December 31,
                                                                                             1997
       Notes payable to financial  institutions maturing through 2015; fixed and          ------------
          variable interest rates ranging from 7.5% to 11.75% ; collateralized
          by, property, fixtures, equipment and the assignment of rents                    $30,090

       Notes  payable  to  individuals  and  companies  maturing  through  2022;
          variable   and  fixed   interest   rates   ranging   from  7%  to  12%
          collateralized  by  real  property,   personal   property,   fixtures,
          equipment and the assignment
          of rents                                                                           9,544

       Note  payable  to  the  Redevelopment  Agency  of  the  City  of  Corona,
          California,  payable into a sinking fund  semi-annually  in increasing
          amounts from $65 to $420 through May 1, 2015;  variable  interest rate
          of 5.6% at December 31, 1997; collateralized by personal
          property, land, fixtures and rents                                                 7,495

       Notes payable to related parties maturing in 2001; interest rates ranging
          from 9.25% to 12%.                                                                   897

       Notes payable to financial  institution  maturing in 1997  through  2000;
          interest at prime plus .50% to 1.25%; collateralized by property
          and equipment                                                                      8,023

       Mortgage note payable to a financial institution maturing in 2007;
          interest at 11.35%; collateralized by property and equipment                      11,413

       Other                                                                                   792
                                                                                            68,254
          Less:  current maturities                                                         13,403
                                                                                            ------
                                                                                           $54,851
                                                                                            ======
</TABLE>

                                      F-14

<PAGE>


                             Greenbriar Corporation

              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED

NOTE E - DEBT - Continued

     Aggregate  annual  principal  maturities of long-term  debt at December 31,
     1997 are as follows (in thousands):

          1998                                                 $13,403
          1999                                                   4,467
          2000                                                   1,364
          2001                                                   3,324
          Thereafter                                             9,217
                                                                36,479
                                                                ------
                                                               $68,254
                                                               =======

     Certain of the loan agreements contain various restrictive covenants, which
     require,  among others things, the maintenance of certain financial ratios,
     as defined.


NOTE F - FINANCING OBLIGATIONS

    The  Company   operates   two   communities   that  are   financed   through
    sale-leaseback obligations. At the end of the tenth year of the fifteen-year
    leases,  the Company  has  options to  repurchase  the  communities  for the
    greater  of the  sales  prices  or  their  current  replacement  costs  less
    depreciation  plus land at current fair market  values.  Accordingly,  these
    transactions  have been  accounted  for as  financings,  and the Company has
    recorded the proceeds  from the sales as financing  obligations,  classified
    the  lease  payments  as  interest   expense  and  continues  to  carry  the
    communities on its books and record  depreciation.  Payments under the lease
    agreements are $1,167 for each of the years 1998 through 2001.


NOTE G - OPERATING LEASES

    The Company leases certain  retirement  centers under operating leases which
    expire through the year 2011 and has various equipment operating leases. The
    leases  provide  that the Company pay for  property  taxes,  insurance,  and
    maintenance.

    Future  minimum  payments  following  December  31,  1997 are as follows (in
    thousands):

          1998                                   $ 10,601
          1999                                     10,915
          2000                                     10,343
          2001                                      9,912
          Thereafter                               10,073
                                                   69,376
                                                 --------
                                                 $121,220
                                                 ========

   Lease expense in  1997 and 1996  was $4,663,000 and $3,712,000, respectively.
   Certain leases  contain rent  escalation  clauses which are based upon future
   events or changes in indices.



                                      F-15

<PAGE>

                             Greenbriar Corporation

              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED


NOTE H - INCOME TAXES

    At December 31, 1997,  the Company had net operating loss  carryforwards  of
    approximately  $22,000,000  which  expire  between  1999 and 2012.  However,
    approximately  $5,100,000 of these net  operating  loss  carryforwards  have
    limitations that restrict utilization to approximately  $600,000 for any one
    year. Also, carryforwards of $1,800,000, which expire between 2006 and 2008,
    may only be used to offset  future  taxable  income of the  subsidiaries  in
    which the losses were generated.

    The following is a summary of the components of income tax expense (benefit)
    from continuing operations (in thousands):

                                                              Year ended
                                                             December 31,
                                                            -----------------
                                                           1997          1996
                                                           ----          ----
          Current                                       $     -       $    23
          Deferred                                       (4,115)       (2,423)
                                                         ------        ------

                                                        $(4,115)      $(2,400)
                                                        =======        ======
    
    Deferred tax assets,  liabilities and associated  valuation  allowances were
comprised of the following (in thousands):

                                                             December 31,
                                                                1997
                                                             ------------
       Deferred tax assets:                                                   
          Net operating loss carryforwards                     $ 7,501
          Note receivable                                          680
          Investment in securities                                 651
          Alternative minimum tax credit carryforwards             207
          Charitable contribution carryforwards                    438
          Accounts receivable                                      165
          Accrued expenses                                         178
          Financing obligations                                  1,802
          Other                                                    281
                                                                  ----

       Total deferred tax assets                                11,903

       Deferred tax liabilities:
          Property and equipment                                (9,271)

                 Net deferred tax asset                        $ 2,632
                                                                ======


                                      F-16


<PAGE>

                             Greenbriar Corporation

              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED


NOTE H - INCOME TAXES - Continued

    Management  expects the net deferred tax asset will be recovered  within two
to three years from the Company's  earnings from operations or gains on sales of
assets.

    Following  is a  reconciliation  of  income  tax  expense  from   continuing
    operations with the amount of tax computed  at the federal statutory rate of
    34% (in thousands):

<TABLE>

                                                                                         Year ended
                                                                                        December 31,
                                                                                    ---------------------
                                                                                      1997          1996
                                                                                    -------        -------
<S>                                                                             <C> <C>           <C>   

       Tax benefit at the statutory rate                                            $(3,501)      $(2,718)
       Change in deferred tax asset valuation allowance, exclusive
          of additions for business purchased in 1996                                  (418)          418
       Other                                                                           (196)         (100)
                                                                                      -----         -----

       Tax benefit                                                                  $(4,115)      $(2,400)
                                                                                     ======        ======

    Changes in the deferred tax valuation allowance result from assessments made
    by the Company each year of its expected future taxable income  available to
    absorb its carryforwards.


NOTE I - STOCKHOLDERS' EQUITY

    Preferred Stock

    Preferred stock consists of the following (amounts in thousands,  except per
share amounts):

                                                                                              December 31,
                                                                                                 1997
                                                                                             --------------
       Series B cumulative convertible preferred stock, $.10 par value; liquidation
          value of $100; authorized, 100 shares; issued and outstanding, 1 share                  $  1

       Series D cumulative convertible preferred stock, $.10 par value; liquidation
          value of $3,375; authorized, issued ad outstanding, 675 shares                            68

       Series F voting cumulative convertible preferred stock, $.10 par value; liquidation
       value of $14,000; authorized, issued and outstanding, 1,400 shares                          140

       Series G cumulative convertible preferred stock, $.10 par value; liquidation
          value of $8,000; authorized, issued and outstanding, 800 shares                           80
                                                                                                   ---

                                                                                                  $289
                                                                                                  ====
    The Series B preferred  stock has a liquidation  value of $100 per share and
    is convertible into common stock over a ten-year period at prices escalating
    from  $25.00 per share in 1993 to $55.55 per share by 2001.  Dividends  at a
    rate of 6% are  payable  in cash or  preferred  shares at the  option of the
    Company.

</TABLE>



                                      F-17

<PAGE>


                             Greenbriar Corporation

              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED

NOTE I - STOCKHOLDERS' EQUITY - Continued

    The Series D preferred stock has a liquidation  value of $5 per share and is
    convertible into common stock at $10.00 per share.  Dividends are payable in
    cash at a rate of 9.5%.

    The Series F voting  preferred  stock has a liquidation  value of $10.00 per
    share and each share is  convertible  into .57 shares of common  stock.  The
    Series F shareholders  have the rights,  as a class,  to elect one member of
    the  Company's   board  of  directors  and  to  approve  or  reject  certain
    transactions,  including any mergers or spin-offs involving the Company. The
    holder has the option to convert  beginning in January 2000 and must convert
    by January 2001. Dividends are payable in cash at a rate of 6%.

    The Series G preferred stock has a liquidation value of $10.00 per share and
    each share is  convertible  into .57 shares of common stock.  The holder has
    the option to convert  beginning in January 2000 and must convert by January
    2001. Dividends are payable in cash at a rate of 6%.

    The Series F and Series G preferred  shares were sold in December  1997  for
    $22,000,000,  less  selling and  offering  costs of  $453,000.  Payment  was
    received in January 1998. In connection  with the sale, the Company  entered
    into an agreement  which provides  that, on the date of conversion,  if  the
    value of the Company's  common stock has not increased at an annual rate  of
    at least 14% during the period the  preferred  shares are  outstanding,  the
    Company  is  required  to make a Cash  Payment  (the Cash  Payment)  to  the
    preferred  stockholders  equal to the market price deficiency on  the shares
    received upon conversion.

    The 14%  guaranteed  return  will be  accreted  by a charge  to  accumulated
    deficit.  The amount of the Cash  Payment  that would be  required  assuming
    conversion at each balance sheet date will be transferred from stockholders'
    equity to temporary equity. At December 31, 1997, no Cash Payment would have
    been due assuming conversion took place.

    Stock Options
    -------------

    In 1993, the Company  established a long-term incentive plan (the 1993 Plan)
    for the benefit of certain key employees. Under the 1993 Plan, up to 217,500
    shares of the  Company's  common stock are reserved  for  issuance.  Options
    granted to employees under the 1993 Plan become exercisable over a period as
    determined  by the Company and may be  exercised up to a maximum of 10 years
    from date of grant. In 1997, the Company adopted the 1997 Stock Option Plan,
    under which up to 500,000  shares of the Company's  common stock are reserve
    for issuance.

    In 1996 and 1997, the Company  granted to the Chairman of the Board options,
    not covered by either plan,  for 200,000 shares and 400,000 shares of common
    stock,  respectively,  which are exercisable  immediately and expire in 2006
    through  2007.  Additionally,  in 1997,  the  Company  granted  to the Chief
    Executive Officer options, not covered by either plan, for 200,000 shares of
    common stock, which are exercisable immediately and expire in 2007.


                                      F-18


<PAGE>


                             Greenbriar Corporation

              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED

NOTE I - STOCKHOLDERS' EQUITY - Continued

    SFAS 123 requires  disclosure of pro forma net earnings (loss) and pro forma
    net  income  (loss)  per share as if the fair  value  based  method had been
    applied in measuring  compensation cost for stock-based awards granted after
    January 1, 1995. The pro forma amounts are not necessarily representative of
    the effects of stock-based  awards on future pro forma net income (loss) and
    pro forma  net  income  (loss)  per share  because  those pro forma  amounts
    exclude the pro forma compensation expense related to unvested stock options
    granted before 1995.

    Reported and pro forma net loss and net loss per share amounts are set forth
    below (in thousands, except per share data):

<TABLE>
<S>                                                                                       <C> <C>         <C> 

                                                                                                1997          1996
                                                                                               ------        -----
         Net loss allocable to common stockholders (amounts in thousands)
              As reported                                                                     $(5,707)      $(4,837)
              Pro forma                                                                       $(8,696)      $(8,153)

         Net loss per share
              As reported                                                                     $  (.92)      $  (.99)
              Pro forma                                                                       $ (1.32)      $ (1.55)

    The fair value of these options was estimated at the date of grant using the
    Black-Scholes  option  pricing  model  with the  following  weighted-average
    assumptions:  expected  volatility of 37 percent for 1997 and 35 percent for
    1996;  risk-free  interest rates of 5.9 percent for 1997 and 7.0 percent for
    1996; no dividend yield; and weighted average expected lives of 7.3 years.

    Additional  information  with respect to options outstanding at December 31,
    1997, and changes for the two years then ended was as follows:


                                                                                                  1997
                                                                                          -------------------------
                                                                                                           Weighted
                                                                                                           average
                                                                                                           exercise
                                                                                          Shares             price
                                                                                          -------          --------

       Outstanding at beginning of year                                                   587,500            $12.20
          Granted                                                                         440,000             17.52
          Exercised                                                                       (27,500)            11.59
                                                                                         --------             -----

       Outstanding at end of year                                                       1,000,000            $14.20
                                                                                        =========             =====

       Options exercisable at December 31, 1997                                           992,000            $14.23
                                                                                         ========             =====

       Weighted  average fair value per share of options granted during 1997 was
       $9.14.

</TABLE>


                                      F-19

<PAGE>


<TABLE>
<CAPTION>

                             Greenbriar Corporation

              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED

<S>                                                                             <C>     <C>        <C>     <C>    

NOTE I - STOCKHOLDERS' EQUITY - Continued

                                                                                                   1996
                                                                                         --------------------------
                                                                                                           Weighted
                                                                                                           average
                                                                                                           exercise
                                                                                           Shares            price
                                                                                         --------          --------
       Outstanding at beginning of year                                                   155,500            $12.83
          Granted                                                                         432,000             11.98
                                                                                          -------            ------

       Outstanding at end of year                                                         587,500            $12.20
                                                                                          =======             =====

       Weighted  average fair value per share of options granted during 1996 was
$7.72.


    Information  about  stock  options  outstanding  at  December  31,  1997  is
summarized as follows:

                                                                         Options outstanding
                                                                        Weighted average
                                                       Number              remaining               Weighted average
       Range of exercise prices                       outstanding        contractual life           exercise price
       ------------------------                       -----------       --------------------       -----------------    

       $10.00 to $15.00                                558,000                       6.6                      11.58
       $15.00 to $17.75                                442,000                       9.5                     $17.51
                                                      --------

                                                     1,000,000
                                                     =========

                                                                                       Options exercisable
                                                                                 Number               Weighted average
      Range of exercise prices                                                 exercisable            exercise price
      ------------------------                                                 -----------            ----------------

      $10.00 to $15.00                                                          550,000                      11.58
      $15.00 to $17.75                                                          442,000                     $17.51
                                                                                -------

                                                                                992 ,000
                                                                                ========

</TABLE>


                                      F-20



<PAGE>

                             Greenbriar Corporation

              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED


NOTE J - OTHER INCOME (EXPENSE)

    Other income (expenses) consists of the following: (amounts in thousands)

<TABLE>

                                                                    Year ended December 31,
                                                                    ----------------------
                                                                    1997                1996
                                                                    ----                ----
<S>                                                                                     <C>   

    Write-off of note receivable                                  $(2,000)               $ -
    Write-off of investment securities                             (2,100)                 -
    Gain on settlement of litigation                                2,409                  -
    Prepayment penalty on mortgage note payable                    (1,300)                 -
    Other                                                              (5)                625
                                                                  -------                 ---

                                                                  $(2,996)               $625
                                                                   ======                 ===

</TABLE>

    In December 1997, management determined that it was in the best interests of
    the Company to exchange its note receivable of $2,000,000 for certain of the
    borrower's trade receivables.  Due to the uncertainty as to the value of the
    trade  receivables the Company has fully written off the note and has placed
    no value on the trade receivables.  Further, the Company has preferred stock
    of  $2,300,000  in  the  above  borrower.  Due  to  deteriorating  financial
    condition of the borrower the Company has fully written off its investment.

    When the Company acquired Wedgwood certain  representations were made by the
    seller.  Subsequent to the  acquisition  two lawsuits were filed against the
    Company and the seller.  In October 1997, the Company and the seller entered
    into an agreement  whereby the Company  would  indemnify  the seller for any
    damages resulting from the lawsuits and agreed to assume  responsibility for
    all legal fees associated with the lawsuits. In return, the seller agreed to
    give the Company  125,000  shares of  Greenbriar  stock.  Subsequent  to the
    agreement both the defendants were awarded a summary judgment and a directed
    verdict,  including  legal fees, by the respective  courts.  The Company has
    recorded a gain on the  transaction  of the fair market  value of the stock,
    net of legal fees.

    In  October,  the Company  agreed to an early  payoff on a loan on three of 
    its communities.  The loan, which was refinanced at a lower rate of interest
    had a prepayment penalty.


NOTE K - CONTINGENCIES

    The Company is defendant in several other  lawsuits  arising in the ordinary
    course of business.  Management  of the Company is of the opinion that these
    lawsuits  will not have a  material  effect on the  consolidated  results of
    operations, cash flows or financial position of the Company.




                                      F-21


<PAGE>

                             Greenbriar Corporation

              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED

NOTE L - FAIR VALUE OF FINANCIAL INSTRUMENTS

    The following  methods and assumptions  were used to estimate the fair value
    of each  class of  financial  instruments  for  which it is  practicable  to
    estimate values at December 31, 1997:

    Cash and cash equivalents  -  The carrying amount  approximates fair  value
    because of the short maturity of these instruments.

    Investment  in  securities  -  The  investment  in  securities  consists  of
    convertible  preferred  stock of a private  company.  Fair  value,  based on
    estimated future discounted cash flows, approximates carrying value.

    Mortgage  note  receivable  - The  mortgage  note  receivable  consists of a
    $6,700,000 note with a stated interest rate of 14% due in 2021 from Southern
    Care Corp.  Although the note is in default due to  non-payment of interest,
    management  believes the value of the  underlying  collateral is adequate to
    recover the carrying value.

    Long-term debt - The fair value of the Company's long-term debt is estimated
    based on market rates for the same or similar issues.  The carrying value of
    long-term debt approximates its fair value.

    Accounts  receivable and payable and note payable - affiliate - The carrying
    amount approximates fair value because of their short maturity.

    The  estimated  fair value of the  Company's  financial  instruments  are as
    follows (in thousands):

                                                           December 31, 1997
                                                          -------------------
                                                          Carrying       Fair
                                                           amount       value
       Financial assets
          Cash and cash equivalents                           $ 23        $ 23
          Accounts receivable - trade                        1,162       1,162
          Investment in securities                           2,025       2,025
          Mortgages receivable                               6,683       6,683

       Financial liabilities
          Accounts payable - trade                          (1,883)     (1,883)
          Notes payable - affiliate                         (1,479)     (1,479)
          Long-term debt collateralized by properties
              under contract of sale                          (893)       (893)
          Long-term debt                                   (68,254)    (68,254)





    
                                  F-22

<PAGE>

                             Greenbriar Corporation

              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED


NOTE L - NOTES RECEIVABLE

    Stock Purchase Notes

<TABLE>
                                                                                            December 31,
                                                                                                1997
                                                                                           --------------
                                                                                           (In thousands)
<S>                                                                                        <C>     

    Related party
       Note from James R. Gilley, chief executive officer, principal
          and interest at 5-1/2%, due November 2003                                           $2,250

    Other                                                                                        265

                                                                                              $2,515
                                                                                               =====

    All stock purchase notes are  collateralized  by common stock of the Company
and are presented in the balance sheet as a deduction from stockholders' equity.

    Mortgage Notes
                                                                                            December 31,
                                                                                                1996
                                                                                           -------------
                                                                                           (In thousands)

    Mortgage notes receivable consist of amounts due from a corporation
       and bear interest at 14% per annum, payable annually.  The notes
       are due in 2021 and are collateralized by a third lien on real property                $6,700
                                                                                               =====
</TABLE>

    In connection with certain litigation in which the Company is defendant, the
    maker of the  aforementioned  note  stopped  making  the  interest  payments
    required  under the note.  As a result,  the Company  ceased  recording  the
    accrual of interest income.  Had the Company been accruing  interest on this
    note, the amount recognized would have been  approximately  $900,000 in 1997
    and 1996. No interest income was recognized on this note in 1997 or 1996.

    Based on the value of the  underlying  collateral  at December 31, 1997,  no
impairment reserve is required for this note.


NOTE M - FOURTH QUARTER ADJUSTMENTS

    During the fourth quarter of 1997, the Company wrote off  a note  receivable
    and an investment in securities in the aggregate amount of  $4,100,000.  See
    Note J.

    During the fourth quarter of 1996,  the Company wrote  off certain  offering
    costs of  approximately  $670,000  and  notes  receivable  of  approximately
    $400,000.   Additionally,  the  Company   made  other  adjustments  reducing
    earnings by approximately $200,000.

                                      F-23


<PAGE>








                                 EXHIBIT 2.2.1



















<PAGE>

                          STOCK PURCHASE AGREEMENT

                                     between

                             GREENBRIAR CORPORATION

                                       and

                        LONE STAR OPPORTUNITY FUND, L.P.


                          Dated as of December 31, 1997



  













                                                       
                                       1

<PAGE>


<TABLE>

<CAPTION>
                                TABLE OF CONTENTS

                                                                                                         Page
<S>                                                                             <C>                      <C>    

         Section 1.        Definitions.....................................................................1

         Section 2.        Purchase and Sale of Securities.................................................9
                  2.1.     Purchase, Sale and Issuance of Preferred Stock and Conversion
                           Shares..........................................................................9
                  2.2.     The Closing....................................................................10
                  2.3.     Expenses.......................................................................10

         Section 3.        Representations and Warranties of Greenbriar...................................11
                  3.1.     Due Organization and Authority.................................................11
                  3.2.     Validity of Sale, etc..........................................................11
                  3.3.     Exchange Act Filings...........................................................13
                  3.4.     Tribunal Consents..............................................................13
                  3.5.     Litigation.....................................................................14
                  3.6.     No Conflicts...................................................................14
                  3.7.     No Material Misstatements......................................................14
                  3.8.     Subsidiaries...................................................................14
                  3.9.     Minute Books...................................................................15
                  3.10.    Voting Agreements, Stockholders' Agreements, etc...............................15
                  3.11.    Material Adverse Effect........................................................15
                  3.12.    Private Offering...............................................................15
                  3.13.    Laws...........................................................................15
                  3.14.    Investment Company Act.........................................................16
                  3.15.    Affiliate Transactions.........................................................16
                  3.16.    Environmental Compliance.......................................................16
                  3.17.    Taxes..........................................................................16
                  3.18.    Insurance......................................................................17
                  3.19.    Labor Issues...................................................................17
                  3.20.    Benefit Plans..................................................................17
                  3.21.    Financial Statements...........................................................18
                  3.22.    Accounting Matters.............................................................18
                  3.23.    Licenses.......................................................................18
                  3.24.    No Stabilization...............................................................18
                  3.25.    Title to Property..............................................................18
                  3.26.    Stock Exchange.................................................................19
                  3.27.    Foreign Compliance.............................................................19
                  3.28.    Nevada Law Exemptions..........................................................19

         Section 4.        Representations and Warranties of Purchaser....................................19
                  4.1.     Due Organization and Authorization.............................................19
                  4.2.     Purchase for Purchaser's Account...............................................20
                  4.3.     Compliance.....................................................................20



 
                                      - i -

<PAGE>



         Section 5.        Pre-Closing Covenants..........................................................20
                  5.1.     Access and Investigation.......................................................20
                  5.2.     Operation of the Businesses of Greenbriar......................................20
                  5.3.     Restrictions on Certain Actions................................................20
                  5.4.     Required Approvals.............................................................21
                  5.5.     Notification...................................................................21
                  5.6.     No Negotiation.................................................................21
                  5.7.     Public Disclosure..............................................................21
                  5.8.     Efforts........................................................................22

         Section 6.        Covenants of Greenbriar........................................................22
                  6.1.     Use of Proceeds................................................................22
                  6.2.     Sale of Greenbriar.............................................................22
                  6.3.     Rights Relating to Board of Directors..........................................22
                  6.4.     Taxes..........................................................................22
                  6.5.     Delivery Expenses..............................................................23
                  6.6.     Replacement of Instruments.....................................................23
                  6.7.     Rule 144.......................................................................23
                  6.8.     Financial Statements, Reports and Documents....................................23
                  6.9.     Inspection of Property.........................................................25
                  6.10.    Conduct of Business............................................................25
                  6.11.    Insurance......................................................................25
                  6.12.    Maintenance of Property........................................................25
                  6.13.    Books and Records..............................................................25
                  6.14.    Notices........................................................................25
                  6.15.    Authorizations and Approvals...................................................26
                  6.16.    Payment of Obligations.........................................................26
                  6.17.    Employee Plans.................................................................26
                  6.18.    Environmental Matters..........................................................27
                  6.19.    Distributions..................................................................27
                  6.20.    Transactions with Affiliates...................................................28
                  6.21.    Loans, Advances and Investments................................................28
                  6.22.    Issuance of Shares.............................................................28
                  6.23.    Assignment.....................................................................28
                  6.24.    Accounting Methods.............................................................28
                  6.25.    Government Regulations.........................................................28
                  6.26.    Compliance with Laws and Documents.............................................29
                  6.27.    Maintenance of Stock Listing...................................................29
                  6.28.    Total Liabilities to Equity Ratio..............................................29
                  6.29.    Total Long Term Debt to Equity Ratio...........................................29
                  6.30.    Dividend Coverage Ratio........................................................29
                  6.31.    Total Long Term Debt to Book Capitalization....................................29
                  6.32.    Total Debt to Adjusted Book Capitalization.....................................29
                  6.33.    Total Debt and Capitalized Operating Lease Expense Obligations
                           to Adjusted Book Capitalization and Capitalized Operating Lease
                           Expense Obligations............................................................29
                  6.34.    Refinancing Existing Property Debt.............................................30
                  6.35.    Total Net Property Debt to Real Property Book Value............................30
                  6.36.    HSR Filings....................................................................30


 
                                     - ii -

<PAGE>




         Section 7.        Conditions to Closing..........................................................30
                  7.1.     Conditions to Obligations of Purchaser.........................................30
                  7.2.     Conditions to Obligations of Greenbriar........................................33

         Section 8.        Post-Conversion Rights.........................................................33
                  8.1.     Board Representation on Greenbriar.............................................33

         Section 9.        Miscellaneous..................................................................34
                  9.1.     Notices........................................................................34
                  9.2.     Termination....................................................................34
                  9.3.     Indemnification................................................................35
                  9.4.     Restrictive Legend.............................................................37
                  9.5.     Assignment, Successors and Assigns.............................................37
                  9.6.     Amendment and Waiver, etc......................................................37
                  9.7.     Duplicate Originals............................................................37
                  9.8.     Severability...................................................................37
                  9.9.     Governing Law..................................................................38
                  9.10.    Specific Performance...........................................................38
                  9.11.    Entire Agreement...............................................................38
                  9.12.    Headings Descriptive...........................................................38
                  9.13.    Finder's Fees..................................................................38
                  9.14.    Exculpation Among Purchasers...................................................38
                  9.15.    Arbitration....................................................................39



</TABLE>


 
                                     - iii -

<PAGE>




                         TABLE OF EXHIBITS AND SCHEDULES


Exhibit A-1 - Series F Certificate of Designation

Exhibit A-2 - Series G Certificate of Designation

Exhibit B - Registration Rights Agreement

Exhibit C - [INTENTIONALLY DELETED]

Exhibit D - Agreement

Exhibit E - Legal Opinions

Schedule A - List of Affiliates

Schedule B - Existing Property Group

Schedule C - Permitted Liens

Schedule 3.2(a) - Outstanding Options and Warrants of Greenbriar

Schedule 3.2(f) - Holders of Registration Rights of Greenbriar

Schedule 3.5 - Litigation of Greenbriar

Schedule 3.6 - Conflicts of Greenbriar

Schedule 3.8 - Ownership of Subsidiaries of Greenbriar

Schedule 3.15 - Affiliated Transactions of Greenbriar

Schedule 3.17 - Taxes of Greenbriar

Schedule 3.20 - Benefit Plans of Greenbriar

Schedule 3.25 - Title to Property of Greenbriar

Schedule 6.21 - Loans by Greenbriar



                                     - iv -

<PAGE>



                            STOCK PURCHASE AGREEMENT


         THIS STOCK  PURCHASE  AGREEMENT  dated as of  December  31,  1997 (this
"Agreement"),  is entered  into by and among  Greenbriar  Corporation,  a Nevada
corporation  ("Greenbriar"),  and Lone Star  Opportunity  Fund, L.P., a Delaware
limited partnership ("Purchaser").

         Purchaser,  hereby  subscribes for (i) an aggregate of 1,400,000 shares
of Greenbriar's Series F Senior Convertible Preferred Stock, $0.10 par value per
share (the "Series F Senior Preferred Stock"), at a purchase price of $10.00 per
share,  with the rights,  restrictions,  preferences and privileges as stated in
the Series F  Certificate  of  Designation  with  respect to the Series F Senior
Preferred  Stock  attached  hereto as Exhibit A-1 (the "Series F Certificate  of
Designation")  and as provided by law and (ii) an aggregate of 800,000 shares of
Greenbriar's Series G Senior Non-Voting  Convertible  Preferred Stock, $0.10 par
value per  share  (the  "Series  G Senior  Non-Voting  Preferred  Stock"),  at a
purchase price of $10.00 per share, with the rights,  restrictions,  preferences
and privileges as stated in the  Certificate of Designation  with respect to the
Series G Senior  Non-Voting  Preferred Stock attached hereto as Exhibit A-2 (the
"Series G  Certificate  of  Designation")  and as provided by law. The Preferred
Stock is convertible into shares of Greenbriar's  common stock,  $0.01 par value
per share (the  "Greenbriar  Common  Stock"),  as stated in the  Certificate  of
Designations.
Accordingly, the parties hereto agree as follows:

         Section 1. Definitions

         As used herein, the following terms shall have the following meanings:

         "1996 Form 10-K" means  Greenbriar's  Annual  Report on Form 10-KSB for
the year ended December 31, 1996.

         "Act" means the  Securities  Act of 1933,  as  amended,  or any similar
federal statute, and the rules and regulations of the Commission thereunder, all
as the same shall be in effect at the relevant time.

         "Adjusted  Book  Capitalization" means  Book Capitalization  plus Total
Short Term Debt.

         "Affiliate" means, with respect to a specified Person, any other Person
directly or indirectly  controlling or controlled by or under direct or indirect
common  control  with such  specified  Person and,  with  respect to any fund or
trust,  any Person  which is a  participant  in or  beneficiary  of such fund or
trust. For purposes of this definition,  "control" when used with respect to any
specified  Person means the power to direct the  management and policies of such
Person,  whether  through the  ownership  of voting  securities,  by contract or
otherwise;   and  the  terms   "controlling"   and  "controlled"  have  meanings
correlative to the foregoing.  Notwithstanding the foregoing  provisions of this
definition  (a) in no event shall any Purchaser  (or any  Affiliate  thereof) be
deemed to be an Affiliate of Greenbriar and (b) the Persons listed on Schedule A
shall be deemed to be Affiliates of  Greenbriar  for purposes of this  Agreement
and the other Transaction Documents.




                                      - 1 -

<PAGE>



         "Agreement" has the meaning set forth in the preamble.

         "Articles  of  Incorporation"  means the Articles of  Incorporation  of
Greenbriar,  as in  effect  on the date  hereof  and as at any time  amended  or
otherwise modified.

         "Asserted Liability" has the meaning set forth in Section 9.3(c).

         "Book Capitalization" means Total Long Term Debt plus Total
Stockholders' Equity.

         "Bylaws"  means  the  bylaws  of  Greenbriar,  as in effect on the date
hereof and as at any time amended or otherwise modified.

         "Capital Lease" means any capital lease or sublease that is required by
GAAP to be capitalized on a balance sheet.

         "Capitalized  Operating  Lease  Expense  Obligations"  means  the total
annual  operating  lease  expense that is required to be considered an operating
lease expense on an income statement multiplied by eight (8).

         "Certificate  of  Designations"  means  the  Series  F  Certificate  of
Designation and the Series G Certificate of Designation.

         "Closing" has the meaning set forth in Section 2.2(a).

         "Code" has the meaning set forth in Section 3.20.

         "Commission" means the Securities and Exchange  Commission or any other
similar or successor agency of the federal government administering the Act.

         "Conversion  Shares" means the shares of  Greenbriar  Common Stock into
which the Preferred  Stock is  convertible  or converted in accordance  with the
Certificate of Designations.

         "Debt" of any Person means, at any time and without duplication (a) all
obligations  required by GAAP to be classified upon that Person's  balance sheet
as liabilities, (b) liabilities secured (or for which the holder of the Debt has
an  existing  Right,  contingent  or  otherwise,  to be so  secured) by any Lien
existing on property owned or acquired by that Person, (c) obligations that have
been (or under GAAP should be) capitalized for financial reporting purposes, and
(d) all guaranties,  endorsements,  and other contingent obligations for Debt of
others.

         "Distribution"  means,  with respect to any shares of any capital stock
or other equity  securities  issued by a Person (a) the retirement,  redemption,
purchase,  or  other  acquisition  for  value  of  those  securities,   (b)  the
declaration  or payment of any dividend on or with respect to those  securities,
(c) any loan or advance by that  Person to, or other  investment  by that Person
in,  the  holder of any of those  securities  and (d) any other  payment by that
Person with respect to those securities.




                                      - 2 -

<PAGE>



         "EBITDA"  means,  for any  period,  net  income  before  provision  for
interest,  taxes,  depreciation  and  amortization  that would be reflected on a
consolidated  income statement of Greenbriar and the  Subsidiaries  prepared for
such period in accordance with GAAP.

         "Environmental  Indemnity  Agreement" means, with respect to a company,
any agreement (including, without limitation,  insurance policies) known to such
company  or  any  of  its  subsidiaries  by  which  such  company,  any  of  its
subsidiaries  or a Predecessor  is (or may  reasonably  claim to be) entitled to
receive reimbursement or other payment on account of any Environmental Liability
other than any  agreements  (a) in the  nature of  environmental  consulting  or
engineering  agreements  for  professional  services  or (b) the  terms of which
preclude such company, any of its subsidiaries or a Predecessor from asserting a
claim  for  reimbursement  or other  payment  on  account  of any  Environmental
Liability.

         "Environmental  Investigation"  means,  with respect to a company,  any
health, safety, or environmental site assessment,  investigation, study, review,
audit, compliance audit, or compliance review conducted at any time or from time
to  time  upon  the  order  or  request  of any  Tribunal,  or at the  voluntary
instigation  of such  company or any of its  subsidiaries,  concerning  any Real
Property or the business  operations or activities of such company or any of its
subsidiaries,  including,  without  limitation  (a) air, soil,  groundwater,  or
surface-water  sampling and monitoring,  (b) repair,  cleanup,  remediation,  or
detoxification,  (c) preparation and  implementation  of any closure,  remedial,
spill,  emergency,  or other plans, and (d) any health, safety, or environmental
compliance audit or review.

         "Environmental  Law" means any  applicable  Law that relates to (a) the
condition of air, ground or surface water, soil, or other  environmental  media,
(b) the  environment  or natural  resources,  (c)  safety or health,  or (d) the
regulation of any contaminants,  wastes,  and Hazardous  Substances,  including,
without limitation, CERCLA, OSHA, the Hazardous Materials Transportation Act (49
U.S.C. ss. 1801 et seq.), the Resource  Conservation and Recovery Act (42 U.S.C.
ss. 6901 et seq.),  the Clean Water Act (33 U.S.C.  ss. 1251 et seq.), the Clean
Air Act (42 U.S.C.  ss.  7401 et seq.),  the Toxic  Substances  Control  Act (15
U.S.C. ss. 2601 et seq.), the Federal  Insecticide,  Fungicide,  and Rodenticide
Act  (7  U.S.C.  ss.  136  et  seq.),  the  Emergency   Planning  and  Community
Right-to-Know Act (42 U.S.C. ss. 11001 et seq.), the Safe Drinking Water Act (42
U.S.C.  ss. 201 and ss. 300f et seq.), the Rivers and Harbors Act (33 U.S.C. ss.
401 et seq.),  the Oil  Pollution  Act (33 U.S.C.  ss. 2701 et seq.),  analogous
state and local Laws, and any analogous future enacted or adopted Law, or (c) to
the Release or threatened Release of Hazardous Substances.

         "Environmental  Liability" means any liability,  loss,  fine,  penalty,
charge,  lien,  damage,  cost,  or expense of any kind that results  directly or
indirectly, in whole or in part (a) from the violation of any Environmental Law,
(b) from the Release or threatened Release of any Hazardous Substance,  (c) from
removal,  remediation, or other actions in response to the Release or threatened
Release of any Hazardous Substance, (d) from personal injury, death, or property
damage which occurs as a result of any company's use, storage,  handling, or the
Release  or  threatened  Release  of a  Hazardous  Substance,  or (e)  from  any
Environmental Investigation performed at, on, or for any Real Property.

         "Environmental   Permit"   means   any   permit,   license,   or  other
authorization from any Tribunal that is required under any Environmental Law for
the lawful conduct of any business, process, or other activity.



                                      - 3 -

<PAGE>



         "Environmental Report" means any written or verbal report memorializing
any Environmental Investigation.

         "ERISA" means the Employee Retirement Income Security Act of 1974.

         "ERISA Plans" has the meaning set forth in Section 3.20.

         "Event of Default" has the meaning set forth in the Certificate of 
Designations.

         "Exchange Act" means the  Securities  Exchange Act of 1934, as amended,
or any similar federal statute,  and the rules and regulations of the Commission
thereunder, all as the same shall be in effect at the relevant time.

         "Existing Property Debt" means, as of any date,  mortgage notes payable
collateralized  by the  Existing  Property  Group that would be  reflected  on a
consolidated  balance sheet of Greenbriar  and the  Subsidiaries  prepared as of
such date in accordance with GAAP.

         "Existing Property Group" means the properties described on Schedule B.

         "Funded Debt" means,  at any time and without  duplication,  the sum of
(a) the balance of any obligation for borrowed money that is required by GAAP to
be shown as a liability,  plus (b) the total net rentals  (net of any  interest,
Taxes,  or other  expenses  included in those  rentals)  payable  under  Capital
Leases.

         "GAAP"  means  those  generally  accepted  accounting   principles  and
practices  which are used in the  United  States and  recognized  as such by the
American Institute of Certified Public Accountants acting through its Accounting
Principles Board or by the Financial Accounting Standards Board or through other
appropriate boards or committees thereof and which are consistently  applied for
all periods to present fairly in all material  respects the financial  position,
results of operations  and operating  cash flow on a  consolidated  basis of the
party,  except that any accounting  principle or practice required to be changed
by the Accounting  Principles Board or Financial  Accounting Standards Board (or
other  appropriate  board or  committee)  in order to  continue  as a  generally
accepted accounting principle or practice may be so changed.

         "Gilley   Affiliates"  means  James  R.  Gilley,   Sylvia  Gilley,  JRG
Investment Company,  Inc., April Trust, September Trust, October Trust, November
Trust,  December Trust,  Nita Dry, Todd Dry, Donna Gilley,  Elizabeth Gilley, W.
Michael  Gilley,  Caroline  Gilley,  or any other trusts  controlled by James R.
Gilley.

         "Greenbriar" has the meaning set forth in the preamble.

         "Greenbriar Common Stock" has the meaning set forth in the preamble.

         "Hazardous  Substance"  means  (a) any  substance  that  is  reasonably
expected  to  require  removal,   remediation,   or  other  response  under  any
Environmental  Law, (b) any substance that is designated,  defined or classified
as a hazardous waste,  hazardous material,  pollutant,  contaminant,  explosive,
corrosive,  flammable,   infectious,   carcinogenic,   mutagenic,   radioactive,
dangerous,  or  toxic  or  hazardous  substance  under  any  Environmental  Law,
including, without



                                      - 4 -

<PAGE>



limitation, any hazardous substance within the meaning of ss.101(14) of CERCLA,
(c)  petroleum,  oil,  gasoline,  natural gas, fuel oil,  motor oil,  waste oil,
diesel  fuel,  jet fuel,  and other  petroleum  hydrocarbons,  (d)  asbestos and
asbestos-containing materials in any form, (e) polychlorinated biphenyls, or (f)
urea formaldehyde foam.

         "HSR  Act"  means  Section  7A of  the  Clayton  Act  (Title  II of the
Hart-Scott-Rodino Antitrust Improvements Act of 1976), as amended (including any
successor act), and the rules and regulations promulgated thereunder.

         "Indemnitee" and "Indemnitor" have the respective meanings set forth in
Section 9.3(c).

         "Laws"  means all  applicable  statutes,  laws,  treaties,  ordinances,
rules, regulations,  orders, writs, injunctions,  decrees, judgments,  opinions,
and interpretations of any Tribunal.

         "License" has the meaning set forth in Section 3.23.

         "Lien" means any lien, mortgage, security interest, pledge, assignment,
charge,  title  retention  agreement,  or  encumbrance of any kind and any other
arrangement for a creditor's claim to be satisfied from assets or proceeds prior
to the claims of other creditors or the owners.

         "Litigation" means any action by or before any Tribunal.

         "Loan  Agreement"  means that certain Loan  Agreement  dated October 8,
1997, by and among RHP, Greenbriar and Purchaser.

         "Losses" means expenses, damages, deficiencies,  liabilities, payments,
fines, penalties,  litigation, demands, defenses, judgments,  proceedings, costs
(including   engineering   costs,  costs  of  remediation  and  related  capital
expenditures),   obligations,   settlement  costs,  and  reasonable  attorneys',
accountants'  and  other   professional   advisors'  fees  (including  costs  of
investigation and preparation) of any kind or nature whatsoever.

         "Material  Adverse  Effect"  means  any  circumstance  or  event  that,
individually  or  collectively,  is  reasonably  expected  to  result in any (a)
material  impairment  of (i) the  ability of  Greenbriar  to perform  any of its
payment or other material obligations in connection with the Preferred Stock, or
(ii) the  ability  of any  holder of  Preferred  Stock to  enforce  any of those
obligations or any of their  respective  rights in connection with the Preferred
Stock,  (b) material and adverse effect on the assets,  liabilities,  prospects,
results of operations or financial condition of Greenbriar and the Subsidiaries,
taken as a whole or (c) Event of Default or Potential Default.  Circumstances or
events will be deemed to have a material and adverse  effect if it or they would
result in losses in excess of $250,000  individually  or $500,000  collectively;
provided,  however,  for purposes of Sections  3.11 and 6.14,  circumstances  or
events will be deemed to have a material and adverse  effect if it or they would
result in losses in excess of $500,000 individually or $1,000,000 collectively.

         "Multiemployer  Plan" means, with respect to a company, a multiemployer
plan as defined in Sections  3(37) or 4001(a)(3)  of ERISA or Section  414(f) of
the Code to which such company or any of its  subsidiaries  (or any Person that,
for purposes of Title IV of ERISA, is



                                      - 5 -

<PAGE>



a member of such company's controlled group or is under common control with such
company  within the meaning of Section 414 of the Code) is making,  or has made,
or is accruing, or has accrued, an obligation to make contributions.

         "OSHA" means the Occupational Safety and Health Act of 1970, 29 U.S.C.
ss.651 ---- et seq.

         "PBGC" means the Pension Benefit Guaranty Corporation.

         "Permitted  Combination"  means  (i) a Sale  of  Greenbriar  or (ii) an
acquisition by Greenbriar in the ordinary course of its business as described in
the 1996 Form 10-K.

         "Permitted Holders" means James R. Gilley and his Affiliates.

         "Permitted  Liens"  means (a) liens  described  on  Schedule C attached
hereto, (b) pledges or deposits made to secure payment of worker's  compensation
insurance  (or  to  participate   in  any  fund  in  connection   with  worker's
compensation  insurance),  unemployment  insurance,  pensions or social security
programs,  (c)  liens  imposed  by  mandatory  provisions  of  law  such  as for
materialmen's,  mechanics',  warehousemen's  and other like liens arising in the
ordinary course of business, securing debt whose payment is not yet due, (d) for
taxes,  assessments and  governmental  charges or liens imposed upon a Person or
upon such  Person's  income,  profits or  property,  if the same are not due and
payable  or if the  same  are  being  contested  in good  faith  and as to which
adequate  cash reserves  have been  provided,  (e) liens arising from good faith
deposits in  connection  with  lenders,  leases,  real estate bids or  contracts
(other than contracts involving the borrowing of money),  pledges or deposits to
secure  public or statutory  obligations  and deposits to secure (or in lieu of)
surety,  stay,  appeal or customs  bonds and  deposits  to secure the payment of
taxes,   assessments,   customs,   duties  or  other  similar  charges,  or  (f)
encumbrances consisting of zoning restrictions,  easements or other restrictions
on the use of Real  Property,  provided that such items do not impair the use of
such  property  for the  purposes  intended,  and none of which is  violated  by
existing or proposed structures or land use.

         "Person" means any individual, corporation, partnership, joint venture,
association,   joint  stock  company,  trust,   unincorporated  organization  or
Tribunal.

         "Potential  Default" means any event's occurrence or any circumstance's
existence that would,  upon any required notice,  time lapse, or both, become an
Event of Default.

         "Predecessor"  means,  with respect to a company,  any Person for whose
obligations  and  liabilities  such  company  or  any  of  its  subsidiaries  is
reasonably  expected to be liable as the result of any merger,  de facto merger,
stock  purchase,  asset  purchase or  divestiture,  combination,  joint venture,
investment, reclassification, or other similar business transaction.

         "Preferred Stock" means the Series F Senior Preferred Stock and the 
Series G Senior Non-Voting Preferred Stock.

         "Preferred  Stock  Representatives"  means (i) a Person  designated  in
writing by a majority of the holders of the Series F Senior  Preferred  Stock to
represent  such  holders  with  respect  to  certain  matters  pursuant  to this
Agreement and the other Transaction Documents



                                      - 6 -

<PAGE>



and (ii) a Person  designated  in writing by a  majority  of the  holders of the
Series G Senior  Non-Voting  Preferred  Stock to  represent  such  holders  with
respect to certain matters pursuant to this Agreement and the other  Transaction
Documents.

         "Purchaser" has the meaning set forth in the preamble.

         "Purchaser Indemnitees" has the meaning set forth in Section 9.3(b).

         "Real Property" means, with respect to a company, any land,  buildings,
fixtures,  and  other  improvements  to land now or in the  future  directly  or
indirectly  owned  by such  company  or any of its  subsidiaries,  leased  to or
otherwise  operated by such company or any of its subsidiaries,  or subleased by
such company or any of its subsidiaries to any other Person.

         "Real Property Book Value" means, as of any date, the value of the Real
Property of Greenbriar  that would be reflected on a consolidated  balance sheet
of Greenbriar and the  Subsidiaries  prepared as of such date in accordance with
GAAP.

         "Redeemable  Preferred  Stock" means,  as of any date,  the  redeemable
preferred stock of Greenbriar that would be reflected on a consolidated  balance
sheet of Greenbriar and the Subsidiaries  prepared as of such date in accordance
with GAAP.

         "Registration  Rights Agreement" means that certain Registration Rights
Agreement to be entered into at the Closing  between  Greenbriar and the holders
of the Preferred Stock and attached hereto as Exhibit B.

         "Release"  means any spilling,  leaking,  pumping,  pouring,  emitting,
emptying,   discharging,   injecting,  escaping,  leaching,  dumping,  disposal,
migrating, or other movement into the air, ground or surface water, or soil.

         "Responsible  Officer" means the chairman,  president,  chief executive
officer,  chief financial officer, chief accounting officer, or treasurer of the
referenced company.

         "Rights" means rights, remedies, powers, privileges, and benefits.

         "Sale of Greenbriar"  means (i) a merger or  consolidation in which all
shares of Greenbriar Common Stock are exchanged for cash,  securities of another
entity, or a combination of cash and securities of another entity or (ii) a cash
tender offer to purchase all of the outstanding  shares of Greenbriar is made to
the stockholders of Greenbriar and accepted by a majority of such stockholders.

         "Senior Preferred Dividend" means, for any period, the dividend payable
to the holders of the Series F Senior  Preferred  Stock for such period plus any
unpaid  dividends  from prior  periods  payable  to the  holders of the Series F
Senior Preferred Stock.

         "September 1997 Form 10-Q" means Greenbriar's  Quarterly Report on Form
10-QSB for the period ended September 30, 1997.




                                      - 7 -

<PAGE>



         "Special  Asset  Sale Trigger" has  the meaning  set forth  in  the 
Certificate of Designations.

         "Series B Junior Preferred Stock" means Greenbriar's Series B Preferred
Stock, $0.10 par value per share.

         "Series D Junior Preferred Stock" means Greenbriar's Series D Preferred
Stock, $0.10 par value per share.

         "Series F Certificate of Designation" has the meaning set forth in the 
preamble.

         "Series F Senior Preferred Stock" has the meaning set forth in the
preamble.

         "Series G Certificate of Designation" has the meaning set forth in the 
preamble.

         "Series G Senior Non-Voting Preferred Stock" has the meaning set forth 
in the preamble.

         "Spin-off"  means  the  pro  rata  distribution  by  Greenbriar  of the
outstanding  shares of common stock of a Subsidiary to the holders of Greenbriar
Common Stock to effect the spin-off of such Subsidiary.

         "Stock  Option  Plans" means  Greenbriar's  1992 Stock Option Plan,  as
amended,  and Greenbriar's 1997 Stock Option Plan which shall be consistent with
the copies of such plans delivered to purchasers of the Preferred Stock prior to
the date of Closing, as the same may be amended from time to time with the prior
approval of each Preferred Stock Representative.

         "Subsidiaries"   means  all  the  corporations,   partnerships,   joint
ventures,  business trusts or other legal entities in which  Greenbriar,  either
directly  or  indirectly  through  one or more  intermediaries,  owns  or  holds
beneficial or record ownership of at least a majority of the outstanding  voting
shares or equity  interests.  Each of the Subsidiaries is sometimes  referred to
herein individually as a "Subsidiary."

         "Syndication  Program" means a program of selling real estate to public
or private syndications consisting of partnerships, limited liability companies,
or limited liability partnerships where ownership of such entities is offered to
passive investors for cash and/or notes.

         "Taxes" mean, for any Person, taxes, assessments, or other governmental
charges  or  levies  imposed  upon it,  its  income,  or any of its  properties,
franchises or assets.

         "Total Debt" means Total Long Term Debt plus Total Short Term Debt.

         "Total  Liabilities"  means the total  liabilities  of Greenbriar  that
would  be  reflected  on a  consolidated  balance  sheet of  Greenbriar  and the
Subsidiaries  prepared as of such date in  accordance  with GAAP,  but shall not
include the  Preferred  Stock,  unless the Preferred  Stock  becomes  Redeemable
Preferred Stock.




                                      - 8 -

<PAGE>



         "Total Long Term Debt" means,  as of any date, the total long term debt
of  Greenbriar  that  would be  reflected  on a  consolidated  balance  sheet of
Greenbriar and the Subsidiaries prepared as of such date in accordance with GAAP
plus Redeemable Preferred Stock, if any; provided, however, Total Long Term Debt
shall not include (i) the Preferred  Stock,  unless the Preferred  Stock becomes
Redeemable  Preferred  Stock or (ii) financing  obligations  of Greenbriar  that
would  be  reflected  on a  consolidated  balance  sheet of  Greenbriar  and the
Subsidiaries prepared as of such date in accordance with GAAP.

         "Total Net Property Debt" means, as of any date, mortgage notes payable
collateralized by Real Property of Greenbriar minus cash that would be reflected
on a consolidated  balance sheet of Greenbriar and the Subsidiaries  prepared as
of such date in accordance with GAAP.

         "Total  Short Term Debt"  means,  as of any date,  the total short term
debt of Greenbriar  that would be reflected on a  consolidated  balance sheet of
Greenbriar  and the  Subsidiaries  prepared as of such date in  accordance  with
GAAP.

         "Total  Stockholders'   Equity"  means,  as  of  any  date,  the  total
stockholders'  equity of  Greenbriar  that would be reflected on a  consolidated
balance sheet of  Greenbriar  and the  Subsidiaries  prepared as of such date in
accordance  with GAAP;  provided,  that in no event  shall  Total  Stockholders'
Equity include the Preferred Stock.

         "Transaction  Documents"  means  this  Agreement,  the  Certificate  of
Designations,  the Registration  Rights Agreement,  the Agreement dated the date
hereof between Greenbriar and Purchaser and attached hereto as Exhibit D and the
certificate(s) evidencing the Preferred Stock and any other related documents.

         "Tribunal" means any (a) local, state, territorial, federal, or foreign
judicial, executive,  regulatory,  administrative,  legislative, or governmental
agency,  board,  bureau,  commission,   department,  or  other  instrumentality,
including without limitation,  the Commission,  (b) private arbitration board or
panel,  (c) central bank or (d) any  subdivisions of the entities listed in (a),
(b) or (c) above.

         "Voting  Stock"  means the total voting power of all classes of capital
stock then  outstanding of a company and normally  entitled to vote in elections
of directors of such company.

         Section 2. Purchase and Sale of Securities

                    2.1. Purchase,  Sale and  Issuance of  Preferred  Stock and
Conversion Shares.  Subject to the terms and conditions herein set forth, at the
Closing  Greenbriar  shall  issue and sell to  Purchaser,  and  Purchaser  shall
purchase from  Greenbriar,  1,400,000  shares of Series F Senior Preferred Stock
and 800,000 shares of Series G Senior Non-Voting Preferred Stock in exchange for
consideration  payable  to  Greenbriar  consisting  of  cash  in the  amount  of
$22,000,000. Payment of such cash consideration for the Preferred Stock shall be
made on the date hereof by wire or intrabank  transfer of immediately  available
funds to Greenbriar.




                                      - 9 -

<PAGE>



                    2.2. The Closing.

                    (a) The purchase and sale of the Preferred  Stock shall take
                    place at the offices of Purchaser at 10:00 a.m., on or about
                    January  9,  1998,  or at  such  other  time  and  place  as
                    Greenbriar and Purchaser shall mutually agree (such time and
                    place are hereby designated as the "Closing").

                    (b)   Greenbriar   shall   deliver  to  Purchaser  a  single
                    certificate  for the Series F Senior  Preferred  Stock and a
                    single  certificate  for  the  Series  G  Senior  Non-Voting
                    Preferred Stock, registered in the name of Purchaser, except
                    that, if Purchaser shall notify  Greenbriar in writing prior
                    to such issuance that it desires  certificates for Preferred
                    Stock to be issued in other  denominations  or registered in
                    the  name or  names  of any  Person  or  Persons,  then  the
                    certificates  for  Preferred  Stock  shall be issued to such
                    Person or nominee in the denominations and registered in the
                    name  or  names  specified  in such  notice  so long as such
                    Person makes the same representations as Purchaser set forth
                    in  Sections  4.2  and 4.3  hereof.  Concurrently  with  the
                    issuance of the  Preferred  Stock,  Greenbriar  shall pay to
                    Purchaser,  in  immediately  available  funds,  all expenses
                    described  in Section  2.3 which have been  incurred  before
                    Closing  and  are in  excess  of  the  $25,000  deposit  and
                    $256,372.00  paid  on  October  16,  1997  to  Purchaser  by
                    Greenbriar in connection with such expenses.

                    (c)  Purchaser  shall have made  payment  for the  Preferred
                    Stock.

                    (d) At the Closing,  Purchaser and Greenbriar  shall execute
                    and deliver each of the Transaction Documents to which it is
                    a party.

                    2.3. Expenses. Whether or not the Preferred Stock is sold to
Purchaser, (a) Greenbriar shall pay all costs and expenses incurred by Purchaser
relating to the negotiation, execution and delivery of this Agreement, the other
Transaction  Documents  and the  issuance  of the  Preferred  Stock  (including,
without  limitation,  (i) fees,  office  charges  and  expenses  of  counsel  to
Purchaser,  including, but not limited to, Haynes and Boone, LLP, and reasonable
third party, outside accounting and other out-of-pocket costs and (ii) all costs
and  expenses  related  to the  transactions  between  Greenbriar  and Lone Star
contemplated before this Agreement); and (b) Greenbriar shall pay all reasonable
costs and expenses incurred by Purchaser (i) relating to any amendments, waivers
or consents under this Agreement and the other Transaction  Documents;  and (ii)
incident to the  enforcement by Purchaser of, or the protection or  preservation
of any right or remedy of Purchaser under, this Agreement, the other Transaction
Documents,  the Articles of  Incorporation,  or any other  document or agreement
furnished  pursuant  hereto or thereto or in  connection  herewith or  therewith
(including,  without limitation, fees and expenses of counsel). Greenbriar shall
pay all reasonable costs and expenses incurred by Purchaser  relating to any and
all filings related to the HSR Act (including,  without limitation, fees, office
charges and expenses of counsel to Purchaser).  Greenbriar  shall pay such costs
and expenses, to the extent then payable, pursuant to the Loan Agreement, on the
date of issuance of the Preferred Stock or from time to time consistent with the
terms of the Loan  Agreement  within five  business  days of demand by Purchaser
against presentation, in each such case, of a statement thereof.



                                     - 10 -

<PAGE>



         Section 3. Representations and Warranties of Greenbriar

         Greenbriar  hereby  represents and warrants to Purchaser that as of the
date of  Greenbriar's  execution  of this  Agreement  and as of the  date of the
Closing:

                    3.1. Due  Organization  and   Authority.   Greenbriar  is  a
corporation duly organized, validly existing and in good standing under the laws
of the State of Nevada and has all requisite  corporate  power and authority (a)
to own and operate its properties and assets and to carry on its business as now
conducted and as set forth in the September  1997 Form 10-Q,  (b) to execute and
deliver this Agreement and the other  Transaction  Documents to which Greenbriar
is a party,  (c) to perform the terms  hereof and thereof and (d) to  consummate
the transactions  contemplated hereby and thereby.  Greenbriar is duly qualified
and is  authorized  to transact  business  and is in good  standing as a foreign
corporation  in each  jurisdiction  in which  it owns or  leases  properties  or
conducts any business so as to require such qualification,  except where failure
to so qualify would not have a Material Adverse Effect. Greenbriar has taken all
action  necessary to authorize the execution,  delivery and  performance of this
Agreement,  the other  Transaction  Documents  and the  issuance and sale of the
Preferred  Stock and the conversion into the Conversion  Shares.  This Agreement
has been duly authorized,  executed and delivered and constitutes a legal, valid
and  binding  obligation  of  Greenbriar,   enforceable  against  Greenbriar  in
accordance  with its terms,  except as enforcement may be limited by bankruptcy,
insolvency,  reorganization,  moratorium or similar laws or equitable principles
relating to or limiting  creditors'  rights  generally.  Each of the Transaction
Documents  have been duly  authorized by Greenbriar  and, when duly executed and
delivered  by  Greenbriar  will be a legal,  valid  and  binding  obligation  of
Greenbriar,  enforceable against Greenbriar in accordance with its terms, except
as  enforcement  may  be  limited  by  bankruptcy,  insolvency,  reorganization,
moratorium  or similar  laws or  equitable  principles  relating  to or limiting
creditors' rights generally.

                    3.2. Validity of Sale, etc.

                    (a) On the  date  of this  Agreement,  there  are  7,396,647
               shares  of  Greenbriar  Common  Stock,  128  shares  of  Series B
               Preferred  Stock,  and 675,000 shares of Series D Preferred Stock
               issued and outstanding. All of the issued shares of capital stock
               of Greenbriar  have been duly and validly  authorized and issued,
               are fully  paid and  non-assessable  and have not been  issued in
               violation of any preemptive or other similar rights or applicable
               securities  laws.  Upon the issuance of the Preferred Stock under
               this Agreement, the total number of shares of capital stock which
               Greenbriar  has  authority to issue will be  110,000,000  shares,
               consisting of 100,000,000  shares of Greenbriar  Common Stock and
               10,000,000  shares of Preferred  Stock, of which 1,400,000 shares
               will be designated as Series F Senior  Preferred  Stock,  800,000
               shares will be designated as Series G Senior Non-Voting Preferred
               Stock,  100,000  shares  will be  designated  as  Series B Junior
               Preferred Stock and 675,000 shares will be designated as Series D
               Junior  Preferred  Stock, and (ii) there will be 7,396,647 shares
               of Greenbriar  Common Stock,  1,400,000 shares of Series F Senior
               Preferred  Stock,  800,000  shares of Series G Senior  Non-Voting
               Preferred  Stock,  128 shares of Series B Junior Preferred Stock,
               675,000  shares of Series D Junior  Preferred  Stock  issued  and
               outstanding.  On the date of this  Agreement  and on the  Closing
               Date,  Greenbriar has and will have no shares of treasury  stock.
               There  are  no  outstanding   subscriptions,   rights,  warrants,
               options, calls, exchangeable or convertible securities,



                                     - 11 -

<PAGE>



               commitments  of sale or liens  related to or entitling any person
               to  purchase  or  otherwise  to acquire any shares of the capital
               stock of, or other ownership  interest in,  Greenbriar other than
               exchange rights, convertible securities,  options and warrants to
               purchase an aggregate of 1,958,571  shares of  Greenbriar  Common
               Stock as set forth on Schedule 3.2(a) hereto.

                    (b) The Preferred  Stock shall,  when issued against payment
               therefor  in  accordance   with  this  Agreement  and  the  other
               Transaction  Documents,  be duly  authorized and validly  issued,
               fully paid and nonassessable  and free from all taxes,  liens and
               charges.  The Preferred  Stock when issued will not be subject to
               any preemptive or other similar rights of any security  holder of
               Greenbriar or any of the Subsidiaries  other than any such rights
               granted pursuant to the Agreement and the Transaction Documents.

                    (c) Greenbriar has reserved and has available such number of
               Conversion  Shares as shall permit the  compliance  by Greenbriar
               with its obligations to deliver Conversion Shares pursuant to the
               Certificate of Designations and the other Transaction  Documents.
               Greenbriar shall at all times reserve and keep available,  solely
               for the purpose of the  conversion  of the Preferred  Stock,  the
               Greenbriar  Shares  in  order to  effect  the  conversion  of the
               Preferred  Stock,  subject to a reduction by the number of shares
               of Greenbriar Common Stock that have previously been delivered in
               any  conversion  of  Preferred  Stock;  all  of  such  shares  of
               Greenbriar  Common Stock which are issuable to the holders of the
               Preferred  Stock  by way of  conversion  are,  and  will  be when
               issued,  duly  authorized  and  validly  issued,  fully  paid and
               nonassessable,  and free from all taxes,  liens and charges.  All
               Conversion Shares shall,  when delivered,  in accordance with the
               provisions of the Certificate of Designations, be duly authorized
               and validly issued,  fully paid and  nonassessable  and free from
               all  taxes,  liens and  charges.  Greenbriar  shall take all such
               actions as may be necessary to assure that all Conversion  Shares
               may be so delivered  without  violation of any  applicable law or
               governmental  regulation  or any  requirements  of  any  domestic
               securities  exchange or national market upon which the Conversion
               Shares may be listed.  The Conversion Shares shall not be subject
               to any preemptive or other similar rights of any security  holder
               of  Greenbriar  or any of the  Subsidiaries  other  than any such
               rights  granted  pursuant to the  Agreement  and the  Transaction
               Documents.

                    (d) No  order  suspending  or  preventing  the  sale  of the
               Preferred Stock or the Conversion  Shares in any jurisdiction has
               been issued or threatened or, to the knowledge of Greenbriar,  is
               contemplated.

                    (e)  None of the  issuance  and  sale by  Greenbriar  of the
               Preferred  Stock and delivery of the  Conversion  Shares upon the
               conversion of the Preferred  Stock,  the execution or delivery of
               this  Agreement  and  the  other   Transaction   Documents,   the
               performance  by  Greenbriar  of  its  obligations  hereunder  and
               thereunder,  the  consummation of the  transactions  contemplated
               herein  and  therein  and  the  conduct  by  Greenbriar  and  the
               Subsidiaries of their businesses  conflicts or will conflict with
               or results or will  result in any breach or  violation  of any of
               the terms or provisions of, or  constitutes or will  constitute a
               default  under,  or results  or will  result in the  creation  or
               imposition  of any Lien upon any property or assets of Greenbriar
               or any of the  Subsidiaries  pursuant  to the terms  of:  (i) the
               certificate of



                                     - 12 -

<PAGE>



               incorporation,  articles of incorporation or bylaws of Greenbriar
               or  any  of  the  Subsidiaries,   (ii)  any  license,   contract,
               indenture,  mortgage,  installment sale agreement, lease, deed of
               trust,  voting trust agreement,  stockholders'  agreement,  note,
               loan, credit agreement,  purchase order,  agreement or instrument
               evidencing an obligation for borrowed money or other agreement or
               instrument to which  Greenbriar or any of the  Subsidiaries  is a
               party or by which  Greenbriar or any of the  Subsidiaries  may be
               bound or to which the property or assets of  Greenbriar or any of
               the  Subsidiaries  is  subject  or  affected  or  (iii)  any  Law
               applicable  to  Greenbriar  or  any of  the  Subsidiaries  of any
               Tribunal  having  jurisdiction  over  Greenbriar  or  any  of the
               Subsidiaries or any of their respective activities or properties;
               except any violation or default under the foregoing  clauses (ii)
               or (iii) as would not have a Material Adverse Effect.

                    (f) There is not in effect on the date hereof any  agreement
               by   Greenbriar   (other  than  this   Agreement  and  the  other
               Transaction   Documents)   pursuant   to  which  any  holders  of
               securities  of  Greenbriar  have a right to cause  Greenbriar  to
               register such securities under the Act other than as set forth on
               Schedule 3.2(f) hereto.

                    3.3. Exchange Act Filings.  Greenbriar is subject to Section
13 or 15(d) of the Exchange  Act. The documents  filed  pursuant to the Exchange
Act, when they were filed with the Commission (or, if any amendment with respect
to any such document was filed, when such amendment was filed),  complied in all
material  respects with the requirements of the Exchange Act and did not contain
an untrue statement of a material fact or omit to state a material fact required
to be stated  therein or necessary in order to make the  statements  therein not
misleading;  and any documents  filed  subsequent to the date of this Agreement,
when filed with the Commission, will conform in all respects to the requirements
of the Act and the Exchange Act, as  applicable,  and will not contain an untrue
statement  of a material  fact or omit to state a material  fact  required to be
stated  therein  or  necessary  in  order  to make the  statements  therein  not
misleading.  All reports and statements required to be filed by Greenbriar under
the Act and the  Exchange  Act have  been  filed,  together  with  all  exhibits
required to be filed  therewith.  The documents  and  agreements so filed are in
full force and effect on the date hereof.

                    3.4. Tribunal Consents.  Neither the nature of Greenbriar or
of any Subsidiary,  or of any of their respective businesses or properties,  nor
any relationship  between Greenbriar or any Subsidiary and any other Person, nor
(except  as  expressly  provided  for in this  Agreement)  any  circumstance  in
connection  with  the  offer,  issue  or sale  of the  Preferred  Stock  and the
conversion into the Conversion Shares is such as to require consent, approval or
authorization of, or filing, registration or qualification with, any Tribunal on
the part of  Greenbriar  as a condition  to the  execution  and delivery of this
Agreement and the other  Transaction  Documents,  or the execution and filing of
the   Certificate  of   Designations   or  any  amendment  of  the  Articles  of
Incorporation  required  in  connection  with the  authorization,  offer,  sale,
issuance and/or  conversion of the Preferred Stock or the Conversion  Shares and
the consummation of the Transactions  contemplated by the Transaction Documents,
other than  consents,  approvals,  etc.,  the absence of which or the failure to
obtain,  individually or in the aggregate, cannot reasonably be expected to have
a Material  Adverse  Effect.  No actions or filings of Greenbriar,  Purchaser or
their Affiliates are


                                   - 13 -

<PAGE>



required  under the HSR Act with  respect to the  execution  and  closing of the
transactions contemplated by this Agreement.

                    3.5.  Litigation.  Other than as  described in the 1996 Form
10-K, the September 1997 Form 10-Q and Schedule 3.5 hereto,  there is no action,
suit,  proceeding,  litigation or governmental  proceeding pending or threatened
or, to the knowledge of Greenbriar,  contemplated against (or circumstances that
are reasonably  likely to give rise to the same), or involving the properties or
businesses  of,  Greenbriar or any of the  Subsidiaries  which (i) questions the
validity of the capital  stock of Greenbriar  or any of the  Subsidiaries,  this
Agreement, the other Transaction Documents or any action taken or to be taken by
Greenbriar or any of the  Subsidiaries  pursuant to or in  connection  with this
Agreement  or the other  Transaction  Documents  or (ii)  would  have a Material
Adverse Effect.

                    3.6.  No  Conflicts.  Except as set forth in  Schedule  3.6,
neither  Greenbriar  nor  any of the  Subsidiaries  (i) is in  violation  of its
certificate of  incorporation,  articles of incorporation or bylaws;  (ii) is in
default in the performance of any obligation,  agreement or condition  contained
in any license,  contract,  indenture,  mortgage,  installment  sale  agreement,
lease, deed of trust,  voting trust agreement,  stockholders'  agreement,  note,
loan, credit agreement,  purchase order,  agreement or instrument  evidencing an
obligation  for  borrowed  money  or  other  agreement  or  instrument  to which
Greenbriar or any of the  Subsidiaries is a party or by which  Greenbriar or any
of the  Subsidiaries  may be  bound  or to  which  the  property  or  assets  of
Greenbriar  or any of the  Subsidiaries  is subject or affected;  or (iii) is in
violation  in any  respect of any Law  applicable  to  Greenbriar  or any of the
Subsidiaries of any Tribunal having  jurisdiction  over Greenbriar or any of the
Subsidiaries  or any of their  respective  activities or properties,  except any
violation or default under the foregoing clauses (ii) or (iii) as would not have
a Material  Adverse  Effect,  and no other  party  under any such  agreement  or
instrument to which either  Greenbriar or any of the Subsidiaries is a party is,
to the knowledge of any executive  officer of Greenbriar or any Subsidiary after
reasonable inquiry,  in default in any material respect  thereunder,  other than
any such default that would not have a Material Adverse Effect.

                    3.7.  No  Material   Misstatements.   To  the  best  of  its
knowledge,  no  representation,  warranty,  or statement by  Greenbriar  in this
Agreement,  the other  Transaction  Documents  or in any  written  statement  or
certificate furnished or to be furnished to Purchaser pursuant to this Agreement
or the other Transaction  Documents  contains any untrue statement of a material
fact or,  when taken  together,  omits a  material  fact  necessary  to make the
statements made herein or therein not misleading.

                    3.8.  Subsidiaries.  Each  Subsidiary is duly  organized and
validly  existing under the laws of its  jurisdiction of organization  and is in
good standing under such laws, with power and authority (corporate and other) to
own its  properties  and conduct its business as now  conducted and as presently
proposed to be  conducted,  and has been duly  qualified  and is  authorized  to
transact  business  and is in good  standing  as a foreign  corporation  in each
jurisdiction  in which it owns or leases  properties or conducts any business so
as to require such  qualification,  except where failure to so qualify would not
have a Material Adverse Effect.  Greenbriar does not own or control, directly or
indirectly,  any  corporation,  association  or  other  entity  other  than  the
Subsidiaries.  All of the Subsidiaries as of the date hereof and the date of the
Closing are set forth on  Schedule  3.8.  Except as set forth on  Schedule  3.8,
Greenbriar  owns,  either  directly  or  through  other  Subsidiaries,  good and
marketable title to


                                     - 14 -

<PAGE>



all of the  outstanding  shares of capital stock  (capital stock for purposes of
this  Agreement  includes  partnership  interests and membership  interests,  in
addition to common stock and preferred stock) of each  Subsidiary,  in each case
free and clear of all liens, charges, claims,  encumbrances,  pledges,  security
interests defects or other restrictions or equities of any kind whatsoever;  and
all of the  outstanding  shares of capital stock of the  Subsidiaries  have been
duly authorized and validly issued and are fully paid and non-assessable and not
issued in violation of any  preemptive  or other  similar  rights or  applicable
securities  laws.  There are no  outstanding  subscriptions,  rights,  warrants,
options, calls,  exchangeable or convertible securities,  commitments of sale or
liens related to or entitling any person to purchase or otherwise to acquire any
shares of the capital stock of, or other ownership interest in, any Subsidiary.

                    3.9.  Minute  Books.  The minute books of each of Greenbriar
and the  Subsidiaries  contain a complete summary of all meetings and actions of
the directors and stockholders of each of Greenbriar and the Subsidiaries  since
the time of their respective incorporation and reflect all transactions referred
to in such minutes accurately in all respects.

                    3.10.  Voting  Agreements,  Stockholders'  Agreements,  etc.
Neither  Greenbriar  nor any of the  Subsidiaries  is a party to or bound by any
instrument,  agreement or other arrangement,  including, but not limited to, any
voting  trust   agreement,   stockholders'   agreement  or  other  agreement  or
instrument,  affecting  any  securities  or rights or  obligations  of  security
holders of Greenbriar or any of the Subsidiaries,  other than in connection with
the Preferred Stock to be issued pursuant to this Agreement.

                    3.11.  Material  Adverse  Effect.  There has been no action,
condition,  change or  circumstance  that has  resulted,  or to the knowledge of
Greenbriar  will result,  in a Material  Adverse  Effect since the filing of the
September  1997 Form 10-Q by  Greenbriar  with the  Commission,  other  than (i)
litigation  which could  result in a write off of up to  $4,300,000  of mortgage
notes and accrued  interest and cash  disbursements  by  Greenbriar in excess of
$1,500,000  in the  aggregate in  connection  with the Southern  Care v. Medical
Resources et al. litigation;  (ii) a prepayment penalty not to exceed $1,300,000
to Health and  Retirement  Properties  Trust,  and (iii) a judgment  which could
result in cash  disbursements  by  Greenbriar  in excess  of  $1,000,000  in the
aggregate  in  connection  with  the  Carmen  Puentes  v.   CareAmerica  et  al.
litigation.

                    3.12.  Private  Offering.  Neither  Greenbriar nor any other
Person acting on behalf of Greenbriar has offered any of the Preferred  Stock or
any similar securities of Greenbriar for sale to, or solicited offers to buy any
thereof from, or otherwise  approached or negotiated  with respect  thereto with
any prospective purchasers who are not accredited investors,  as defined in Rule
501 of Regulation D promulgated  under the Act.  Greenbriar  agrees that neither
Greenbriar  nor  anyone  acting on its  behalf  has  offered  or will  offer the
Preferred Stock or any part thereof or any similar  securities for issue or sale
to, or has  solicited or will solicit any offer to acquire any of the same from,
anyone so as to bring the  issuance and sale of the  Preferred  Stock within the
provisions of Section 5 of the Act.

                    3.13.  Laws.  Each of Greenbriar  and the  Subsidiaries  has
complied in all respects with all Laws applicable to it or its businesses  other
than violations which would not have a Material Adverse Effect.


                                     - 15 -

<PAGE>




                    3.14.  Investment  Company Act.  Neither  Greenbriar nor any
Subsidiary is, and after giving effect to the issuance and sale of the Preferred
Stock,  will be,  an  "investment  company,"  or an  entity  "controlled"  by an
"investment  company," as such terms are defined in the United States Investment
Company Act of 1940, as amended.

                    3.15. Affiliate  Transactions.  To the best of its knowledge
and except as set forth on Schedule 3.15, no officer,  director or 5% or greater
stockholder  of Greenbriar or any of the  Subsidiaries,  or any  "affiliate"  or
"associate" (as these terms are defined in Rule 405  promulgated  under the Act)
of any of the foregoing  persons or entities,  has, or has had which will have a
Material  Adverse Effect going  forward,  either  directly or indirectly,  (i) a
material  interest in any person or entity which (A) furnishes or sells services
or products  which are furnished or sold or are proposed to be furnished or sold
by  Greenbriar  or any of the  Subsidiaries  or (B)  purchases  from or sells or
furnishes to Greenbriar or any of the Subsidiaries any goods or services or (ii)
a material beneficiary interest in any contract or agreement to which Greenbriar
or any of the  Subsidiaries  is a party  or by  which  Greenbriar  or any of the
Subsidiaries  may be bound or  affected.  Except as set forth in Schedule  3.15,
there are no existing agreements, arrangements,  understandings or transactions,
or proposed agreements, arrangements, understandings or transactions, between or
among Greenbriar or any of the Subsidiaries and any such officer,  director,  5%
or greater  stockholder,  "affiliate"  or  "associate."  For the purpose of this
Section 3.15,  interests which may be excluded from  disclosure  pursuant to the
instructions  to items  of  Regulation  S-K  shall  be  deemed  to be per se not
material.

                    3.16.   Environmental   Compliance.   To  the  best  of  its
knowledge,  neither Greenbriar nor any Subsidiary (i) has violated,  or has been
notified or is  otherwise  aware that it is liable with  respect to  obligations
under,  any  applicable  Environmental  Law, lacks  Environmental  Permits or is
violating  any term or  condition  of any  Environmental  Permit;  (ii)  owns or
occupies  any Real  Property  on which  there  has been a Release  of  Hazardous
Substances,  or which may  reasonably be expected to be adversely  affected by a
Release  of  Hazardous  Substances  released  at another  location;  or (iii) is
otherwise exposed to any Environmental Liability, except as to clauses (i), (ii)
and  (iii),  for such  instances  of  noncompliance  or  Releases  of  Hazardous
Substances which,  either singly or in the aggregate,  would not have a Material
Adverse Effect.

                    3.17.  Taxes. To the best of its knowledge and except as set
forth on Schedule  3.17,  all tax returns  required to be filed by Greenbriar or
the  Subsidiaries in all  jurisdictions  have been timely and duly filed,  other
than those filings being  contested in good faith or except where the failure to
so file any such returns could not, individually or in the aggregate, reasonably
be  expected  to have a Material  Adverse  Effect.  There are no tax  returns of
Greenbriar or the Subsidiaries that are currently being audited by state,  local
or federal taxing  authorities or agencies (and with respect to which Greenbriar
or the Subsidiaries have received notice),  where the findings of such audit, if
adversely  determined,  would result in a Material  Adverse  Effect.  All taxes,
including withholding taxes, penalties and interest, assessments, fees and other
charges due or claimed to be due from such entities  have been paid,  other than
those being  contested in good faith and for which  adequate  reserves have been
provided or those currently payable without penalty or interest or except if the
failure to so pay could not  reasonably  be expected to have a Material  Adverse
Effect.  No transfer  tax,  stamp duty or other  similar tax is payable by or on
behalf of Purchaser in


                                     - 16 -

<PAGE>



connection  with (i) the issuance by Greenbriar  of the Preferred  Stock and the
conversion  into the  Conversion  Shares,  (ii) the purchase by Purchaser of the
Preferred Stock from  Greenbriar or (iii) the  consummation by Greenbriar of any
of its obligations under this Agreement.

                    3.18.  Insurance.  Each of Greenbriar  and the  Subsidiaries
maintains   insurance  covering  its  properties,   operations,   personnel  and
businesses  which  insures  against  such  losses and risks as are  adequate  in
accordance with its reasonable  business  judgment.  Neither  Greenbriar nor any
Subsidiary  has  received  notice from any insurer or agent of such insurer that
substantial  capital  improvements or other expenditures will have to be made in
order to continue such insurance.  All such insurance is outstanding and duly in
force on the date hereof and shall be outstanding  and duly in force at the date
of the Closing.

                    3.19. Labor Issues. To the best of its knowledge, Greenbriar
and the  Subsidiaries  are in substantial  compliance  with all federal,  state,
local and foreign laws and  regulations  respecting  employment  and  employment
practices,  terms and conditions of employment and wages and hours. There are no
pending  investigations  involving  Greenbriar or any of the Subsidiaries by the
U.S.  Department of Labor or any other  governmental  agency responsible for the
enforcement of such federal, state, local or foreign laws and regulations. There
is no unfair labor practice charge or complaint against Greenbriar or any of the
Subsidiaries  pending before the National Labor  Relations  Board or any strike,
picketing,  boycott, dispute, slowdown or stoppage pending or threatened against
or involving Greenbriar or any of the Subsidiaries.  No representation  question
exists respecting the employees of Greenbriar or any of the Subsidiaries, and no
collective  bargaining  agreement or  modification  thereof is  currently  being
negotiated by Greenbriar or any of the Subsidiaries. No grievance or arbitration
proceeding  is pending  under any  expired  or  existing  collective  bargaining
agreements of Greenbriar or any of the  Subsidiaries.  No material labor dispute
with the employees of Greenbriar  or any of the  Subsidiaries  exists or, to the
knowledge  of  Greenbriar  after  reasonable  inquiry,  is imminent  and neither
Greenbriar nor any Subsidiary is aware of any existing or imminent general labor
disturbance by the employees of any of its principal suppliers, manufacturers or
contractors  which  could  reasonably  be  expected  to have a Material  Adverse
Effect.

                    3.20. Benefit Plans. To the best of its knowledge, except as
identified on Schedule 3.20 attached hereto,  neither  Greenbriar nor any of the
Subsidiaries  maintains,  sponsors or  contributes to any program or arrangement
that is an "employee pension benefit plan" an "employee welfare benefit plan" or
a  "multi-employer  plan" ("ERISA  Plans") as such terms are defined in Sections
3(2), 3(1) and 3(37),  respectively,  of ERISA. Except as identified on Schedule
3.20 attached hereto,  neither Greenbriar nor any of the Subsidiaries  maintains
or  contributes  to, now or at any time  previously,  a defined  benefit plan as
defined  in  Section  3(35) of  ERISA.  No  ERISA  Plan  (or any  trust  created
thereunder)  has  engaged in a  "prohibited  transaction"  within the meaning of
Section 406 of ERISA or Section  4975 of the Internal  Revenue Code of 1986,  as
amended (the "Code") which could subject  Greenbriar or any of the  Subsidiaries
to any  material  tax  penalty  on  prohibited  transactions  and  which has not
adequately been corrected.  No "accumulated  funding  deficiency" (as defined in
Section 302 of ERISA) or any of the events set forth in Section 4043(b) of ERISA
(other than events with respect to which the 30-day notice under Section 4043 of
ERISA has been  waived) has occurred  with respect to any employee  benefit plan
which might reasonably be expected to have a Material Adverse Effect. Each ERISA
Plan is in compliance in all material  respects with the  reporting,  disclosure
and other requirements of the Code and ERISA as they relate



                                     - 17 -

<PAGE>



to such ERISA Plan.  Determination  letters have been received from the Internal
Revenue Service with respect to each ERISA Plan which is intended to comply with
Code Section  401(a)  stating that such ERISA Plan and the  attendant  trust are
qualified  thereunder.  Neither  Greenbriar nor any of the Subsidiaries has ever
completely or partially withdrawn from a Multiemployer Plan of Greenbriar.

                    3.21.   Financial   Statements.   The  audited  consolidated
financial statements and the related notes of Greenbriar and the Subsidiaries as
of and for the year  ended  December  31,  1996 and the  unaudited  consolidated
financial statements and the related notes of Greenbriar and the Subsidiaries as
of and for the nine month period ended September 30, 1997,  copies of which have
been  delivered to Purchaser,  have been  prepared in  conformity  with GAAP and
fairly present in all material  respects the  consolidated  financial  position,
results of operations  and cash flows of Greenbriar and the  Subsidiaries  as of
the dates and throughout the periods therein specified.

                    3.22.   Accounting  Matters.  Each  of  Greenbriar  and  the
Subsidiaries  maintains a system of internal  accounting  controls sufficient to
provide  reasonable  assurance that (i)  transactions are executed in accordance
with  management's  general or specific  authorizations;  (ii)  transactions are
recorded  as  necessary  to  permit  preparation  of  financial   statements  in
conformity with GAAP and to maintain  accountability for assets; (iii) access to
financial  assets is permitted only in accordance with  management's  general or
specific  authorization  and (iv) the  recorded  accountability  for  assets  is
compared with the existing assets at reasonable intervals and appropriate action
is taken with respect thereto. Grant Thornton, who has audited certain financial
statements  of  Greenbriar  and  the  Subsidiaries,  is  an  independent  public
accounting  firm as  defined  by the Act and the  rules and  regulations  of the
Commission thereunder.

                    3.23.  Licenses.  Each of  Greenbriar  and the  Subsidiaries
holds all licenses, franchises, permits, consents,  registrations,  certificates
and  other  approvals   (including,   without  limitation,   those  relating  to
environmental  matters and worker health and safety)  (individually  a "License"
and  collectively,  "Licenses")  required for the conduct of its business as now
being conducted except where the failure to hold such Licenses,  individually or
in the  aggregate,  cannot  reasonably  be expected  to have a Material  Adverse
Effect.

                    3.24.  No  Stabilization.  To the  best  of  its  knowledge,
neither  Greenbriar or any of the  Subsidiaries,  nor any of its  Affiliates has
taken or will take, directly or indirectly,  any action designed to or which has
constituted or which might be expected to cause or result in, under the Exchange
Act or otherwise,  stabilization or manipulation of the price of any security of
Greenbriar  to  facilitate  the sale or  resale  of the  Preferred  Stock or the
Conversion Shares or otherwise.

                    3.25.  Title  to  Property.   Each  of  Greenbriar  and  the
Subsidiaries  has  good and  marketable  title  to,  or  valid  and  enforceable
leasehold estates in, all items of real and personal property which are material
to its business, in each case free and clear of all liens,  mortgages,  charges,
claims,   encumbrances,   pledges,   security   interests,   defects  and  other
restrictions  except the Permitted  Liens,  those  disclosed in Schedule 3.25 or
those which are not material in amount and do not  materially  adversely  affect
the use made or proposed to be made of such property.



                                     - 18 -

<PAGE>




                    3.26.  Stock  Exchange.   The  Greenbriar  Common  Stock  is
registered  pursuant to Section  12(b) of the Exchange  Act, and is approved for
trading on the American Stock  Exchange  under the symbol "GBR."  Greenbriar has
taken no action that was  designed to  terminate,  or that is likely to have the
effect of  terminating,  trading of the Greenbriar  Common Stock on the American
Stock Exchange, nor has Greenbriar received any notification that the Commission
or the American Stock Exchange is contemplating terminating such trading.

                    3.27.  Foreign  Compliance.  To the  best of its  knowledge,
neither  Greenbriar  nor any of the  Subsidiaries  has, nor to the  knowledge of
Greenbriar,  has any officer,  director or employee of  Greenbriar or any of the
Subsidiaries  or any other person  acting on behalf of  Greenbriar or any of the
Subsidiaries, for the benefit of Greenbriar or any such Subsidiaries at any time
during the last five years,  (i) made any unlawful gift or  contribution  to any
candidate for federal,  state,  local or foreign  political office, or failed to
disclose fully any such gift or  contribution  in violation of law, or (ii) made
any payment to any  federal,  state,  local or foreign  governmental  officer or
official,  which would be reasonably likely to subject  Greenbriar or any of the
Subsidiaries  to any  significant  damage or penalty in any civil,  criminal  or
governmental   litigation   or  proceeding   (domestic  or  foreign).   Each  of
Greenbriar's and the Subsidiaries'  internal  accounting controls are sufficient
to cause  Greenbriar  and the  Subsidiaries  to comply with the Foreign  Corrupt
Practices Act of 1977, as amended.

                    3.28.  Nevada  Law  Exemptions.  None  of  the  issuance  by
Greenbriar and the purchase by Purchaser of the Preferred  Stock and delivery to
Purchaser of the Conversion  Shares upon the conversion of the Preferred  Stock,
the execution or delivery of this Agreement and the other Transaction Documents,
and the  consummation of the  transactions  contemplated  herein and therein (i)
conflicts or will conflict  with,  (ii) violates or will result in any violation
of or (iii)  restricts  or will  restrict  any future  transactions  or business
combinations  involving  Purchaser or any of its affiliates and Greenbriar,  any
Subsidiary,  Greenbriar  capital stock,  Greenbriar,  any of its subsidiaries or
Greenbriar  capital stock  pursuant to, in each case,  any of the  provisions of
Nevada law, including,  but not limited to Sections  78.378-78.3793 and Sections
78.411-78.444 of Chapter 78 of the Nevada Revised Statutes.

         Section 4. Representations and Warranties of Purchaser

         Purchaser hereby represents,  warrants and covenants to Greenbriar that
as of the date of Greenbriar's execution of this Agreement and as of the date of
the Closing:

                    4.1. Due  Organization  and  Authorization.  Purchaser is  a
limited  partnership  duly organized and validly  existing under the laws of the
State of  Delaware  and has all  requisite  power and  authority  (i) to own and
operate its  properties and assets and to carry on its business as now conducted
and as  presently  proposed to be  conducted,  (ii) to execute and deliver  this
Agreement and the other Transaction Documents, (iii) to perform the terms hereof
and thereof and (iv) to  consummate  the  transactions  contemplated  hereby and
thereby.  Purchaser has taken all action  necessary to authorize the  execution,
delivery and performance of this Agreement,  the other Transaction Documents and
the purchase of the Preferred Stock and the conversion of the Conversion Shares.




                                     - 19 -

<PAGE>



                    4.2. Purchase for Purchaser's Account.  Purchaser represents
and warrants to Greenbriar that it is purchasing and will purchase the Preferred
Stock,  for its own  account,  with no  present  intention  of  distributing  or
reselling the Preferred  Stock or the Conversion  Shares or any part thereof and
that such  Purchaser  is prepared to bear the  economic  risk of  retaining  the
Preferred Stock and the Conversion Shares for an indefinite  period, all without
prejudice,  however,  to the right of such  Purchaser at any time, in accordance
with this  Agreement and the other  Transaction  Documents,  lawfully to sell or
otherwise  dispose of all or any part of the Preferred  Stock or the  Conversion
Shares held by it.  Purchaser  represents  and warrants that it is an accredited
investor,  as such term is defined in Rule 501 of Regulation D promulgated under
the Act.

                    4.3. Compliance.  Purchaser acknowledges that Greenbriar has
not  registered the Preferred  Stock and that  Greenbriar has not registered the
Conversion Shares under the Act, and Purchaser agrees that neither the Preferred
Stock  nor the  Conversion  Shares  shall be sold or  offered  for sale  without
registration under the Act or the availability of an exemption therefrom, nor in
violation of any other law of the United States of America or any state thereof,
and the certificates  representing  such shares shall bear a legend with respect
thereto.

         Section 5. Pre-Closing Covenants

                    5.1.  Access  and  Investigation.  Between  the date of this
Agreement and the date of Closing, Greenbriar shall, and shall cause each of its
respective  subsidiaries  to,  (a)  afford  Purchaser  and  its  representatives
reasonably full and free access during normal business hours to Greenbriar's and
Greenbriar's  personnel,  properties,  contracts,  books and records,  and other
documents and data, (b) furnish Purchaser and its representatives with copies of
all such contracts,  books and records, and other existing documents and data as
Purchaser  may   reasonably   request,   and  (c)  furnish   Purchaser  and  its
representatives with such additional  financial,  operating,  and other data and
information  as Purchaser may reasonably  request;  provided,  that  Purchaser's
access under this Section 5.1 shall not unduly  interfere with the operations of
Greenbriar.

                    5.2. Operation of the Businesses of Greenbriar.  Between the
date of this  Agreement and the date of Closing,  except as otherwise  expressly
permitted herein, Greenbriar shall, and shall cause each Subsidiaries to:

                    (a) conduct the business of Greenbriar and the  Subsidiaries
               only in the ordinary course of business; and

                    (b) use commercially  reasonable  efforts to preserve intact
               the  current   business   organization   of  Greenbriar  and  the
               Subsidiaries,   keep   available  the  services  of  the  current
               officers,   employees,   and   agents  of   Greenbriar   and  the
               Subsidiaries,  and  maintain  the  relations  and  goodwill  with
               suppliers,  customers,  landlords,  creditors, employees, agents,
               and others having business  relationships with Greenbriar and the
               Subsidiaries.

                    5.3. Restrictions on Certain  Actions.  Except as  otherwise
expressly   permitted  herein,  from  and after  the date  hereof to  the  day 
immediately  following the  issuance of  Preferred Stock hereunder, Greenbriar 
shall not (without the written consent of



                                     - 20 -

<PAGE>



Purchaser which, for the purposes of the filing of board resolutions,  shall not
be unreasonably withheld):

                    (a)  directly  or  indirectly   declare,   make,  incur  any
               liability  to  make,   or  pay  any   Distribution,   except  for
               Distributions  to the holders of Series B Junior  Preferred Stock
               and Series D Junior  Preferred  Stock required  pursuant to their
               respective certificate of designations; or

                    (b) make,  and shall not permit any of the  Subsidiaries  to
               make, any amendment to the  certificate of  incorporation  or the
               articles of  incorporation  or bylaws of any such company or file
               any  resolution  of the board of  directors  with its  respective
               Office of the Secretary of State.

                    5.4.  Required  Approvals.  As promptly as practicable after
the date of this  Agreement,  Greenbriar  and  Purchaser  shall make all filings
required to be made by them in order to consummate the transactions contemplated
by the Transaction Documents. Between the date of this Agreement and the date of
Closing,  each party shall  cooperate  with the other party with  respect to all
filings  that a party elects to make or is required to make in  connection  with
the transactions contemplated by the Transaction Documents.

                    5.5.  Notification.  Between the date of this  Agreement and
the date of  Closing,  each party  shall  promptly  notify the other  parties in
writing if it becomes aware of any fact or condition  that causes or constitutes
a breach of any of its  representations  and  warranties  as of the date of this
Agreement,  or if it  becomes  aware of the  occurrence  after  the date of this
Agreement of any fact or condition that would (except as expressly  contemplated
by this Agreement)  cause or constitute a breach of any such  representation  or
warranty  had  such  representation  or  warranty  been  made as of the  time of
occurrence or discovery of such fact or condition.  During the same period, each
party shall promptly notify the other parties of the occurrence of any breach of
any covenant in this  Agreement or of the  occurrence of any event that may make
the satisfaction of the conditions in this Agreement impossible or unlikely.

                    5.6.  No  Negotiation.  Until  such  time,  if any,  as this
Agreement is terminated  pursuant to Section 9.2,  Greenbriar,  their Affiliates
and their representatives shall not directly or indirectly solicit, initiate, or
encourage any inquiries or proposals from,  discuss or negotiate  with,  provide
any  non-public  information  to, or  consider  the  merits  of any  unsolicited
inquiries or proposals from, any Person (other than  Purchaser)  relating to any
transaction  which  (i)  contemplates  replacing  or  finding a  substitute  for
Purchaser in any financing or equity transaction or (ii) places Greenbriar in an
economic position similar to that contemplated by the Transaction Documents.

                    5.7. Public  Disclosure.  Prior to the Closing,  none of the
parties  hereto,  nor any of their  representatives  shall,  without  the  prior
written consent of the other parties,  which shall not be unreasonably withheld,
make any  statement,  public  announcement  or release to the press or any other
third party with respect to their discussions or this Agreement or permit any of
its  employees or agents to make any such  statement,  announcement  or release,
until such time as any party may be required by law, regulation,  order or other
requirement to make disclosure, including, but not limited to, disclosures made



                                     - 21 -

<PAGE>



by  Greenbriar to respond to the  Commission,  the American  Stock  Exchange and
lender requirements.

                    5.8.  Efforts.  Between the date of this  Agreement  and the
date of Closing,  each party shall use commercially  reasonable efforts to cause
the conditions in this Agreement to be satisfied.

         Section 6. Covenants of Greenbriar

         Greenbriar  hereby  covenants to the holders of  Preferred  Stock that,
unless waived in writing by each Preferred Stock Representative,  on the date of
this Agreement and thereafter:

                    6.1. Use of Proceeds.  Greenbriar  shall use the proceeds of
approximately  $22,000,000  from the sale of the Preferred Stock (a) to purchase
real estate assets  consistent  with the  description of  Greenbriar's  business
contained  in 1996 Form 10-K,  (b) to use for working  capital,  (c) to pay down
debt and (d) to invest in short term state and federal government securities.

                    6.2. Sale of Greenbriar.  Greenbriar shall not permit a Sale
of Greenbriar;  provided, however, a Sale of Greenbriar will not be considered a
breach of this  Agreement  provided  that the mandatory  conversion  pursuant to
Section 6.3 of each Certificate of Designation is consummated.

                    6.3. Rights Relating to Board of Directors.  Greenbriar will
promptly execute and deliver to any individual elected to the Board of Directors
by the holders of Series F Senior Preferred Stock, an agreement by Greenbriar to
advance  expenses,  indemnify and hold harmless such  individual for any and all
actions  taken by such  individual  in his  capacity as a member of the Board of
Directors  to  the  fullest  extent  permitted  by the  laws  of  the  state  of
incorporation  of  Greenbriar.  If the  laws of the  state of  incorporation  of
Greenbriar  thereafter  are  amended  to  further  permit   indemnification  and
advancement of expenses,  then Greenbriar shall advance expenses,  indemnify and
hold harmless to the fullest extent  permitted by such laws, as so amended.  Any
repeal or modification  of this Section 6.3 shall be prospective  only and shall
not  adversely  affect the rights set forth in this  Section 6.3 existing at the
time of such repeal or modification.

                    6.4.  Taxes.  Greenbriar  shall  pay all Taxes  (other  than
federal,  state or local income taxes) which may be payable in  connection  with
the execution and delivery of this Agreement and the other Transaction Documents
or the  issuance and sale of the  Preferred  Stock and the  conversion  into the
Conversion  Shares  hereunder  or in  connection  with any  modification  of the
Preferred Stock or Conversion  Shares and shall save Purchaser  harmless without
limitation  as to time  against  any  and all  liabilities  with  respect  to or
resulting  from  any  delay in  paying,  or  omission  to pay  such  Taxes.  The
obligations of Greenbriar  under this Section 6.4 shall survive any  redemption,
repurchase or acquisition of Preferred Stock or Conversion  Shares by Greenbriar
and the termination of this Agreement.  Greenbriar  shall,  and shall cause each
Subsidiary  to,  promptly  pay when due any and all Taxes  except Taxes that are
being contested in good faith by lawful and appropriate  proceedings  diligently
conducted,  against which reserve or other  provision  required by GAAP has been
made,  and in  respect  of  which  levy and  execution  of any Lien has been and
continues  to be  stayed.  Greenbriar  shall  not,  and  shall  not  permit  any
Subsidiary to, use any



                                     - 22 -

<PAGE>



proceeds of the sale of the Preferred Stock to pay the wages of employees unless
a timely  payment to or deposit with the United States of America of all amounts
of Tax required to be deducted  and withheld  with respect to such wages is also
made.

                    6.5.  Delivery  Expenses.   If  any  holder  surrenders  any
certificate for Preferred Stock or Conversion Shares to Greenbriar or a transfer
agent of  Greenbriar  for exchange for  instruments  of other  denominations  or
registered in another name or names, Greenbriar shall cause such new instruments
to be issued and shall pay the cost of delivering the surrendered instrument and
any new  instruments  issued in  substitution or replacement for the surrendered
instrument  to and from the office of Purchaser  from and to  Greenbriar  or its
transfer agent, duly insured,  other than any required stamp,  taxes or transfer
taxes.

                    6.6. Replacement of Instruments.  Upon receipt by Greenbriar
of evidence  reasonably  satisfactory  to it of the  ownership  of and the loss,
theft, destruction or mutilation of any certificate or instrument evidencing any
Preferred Stock or Greenbriar Common Stock; and

                    (a) in the case of loss,  theft or destruction,  Greenbriar,
               at its expense,  shall  execute,  register  and deliver,  in lieu
               thereof,  a new  certificate  or instrument  for (or covering the
               purchase  of) an  equal  number  of  shares  of  Series  F Senior
               Preferred Stock,  Series G Senior  Non-Voting  Preferred Stock or
               Greenbriar  Common  Stock upon  receipt of  indemnity  reasonably
               satisfactory  to it (provided that, if the owner of the same is a
               commercial bank or an institutional  lender or investor,  its own
               agreement of indemnity shall be deemed to be satisfactory); or

                    (b)  in  the  case  of   mutilation,   upon   surrender  and
               cancellation thereof,  Greenbriar, at its expense, shall execute,
               register and  deliver,  in lieu  thereof,  a new  certificate  or
               instrument  for (or  covering the purchase of) an equal number of
               shares  of  Series  F  Senior  Preferred  Stock,  Series G Senior
               Non-Voting Preferred Stock or Greenbriar Common Stock.

                    6.7. Rule 144. At all times,  in order to permit  holders of
Preferred Stock or Greenbriar  Common Stock to sell the same, if they so desire,
pursuant to Rule 144 or 144A  promulgated by the Commission (or any successor to
such  rule),  Greenbriar  shall  comply  with all rules and  regulations  of the
Commission  applicable  in  connection  with  use of Rule  144 and  144A (or any
successor  rules  thereto),  including the provision of  information  concerning
Greenbriar  and the timely filing of all reports with the Commission in order to
enable  such  holders,  if they so  elect,  to  utilize  Rule 144 or  144A,  and
Greenbriar  shall cause any  restrictive  legends to be removed and any transfer
restrictions  to be rescinded  with  respect to any sale of  Preferred  Stock or
Greenbriar Common Stock which is exempt from registration under the Act pursuant
to Rule 144 or 144A.

                    6.8. Financial Statements, Reports and Documents. Greenbriar
shall deliver to each Preferred Stock Representative, each of the following:

                    (a) Quarterly  Statements.  Unless  duplicative of paragraph
               (d) below,  as soon as  available  and in any event  within fifty
               (50) days after the end of each  quarterly  fiscal period (except
               the  last)  of each  fiscal  year of  Greenbriar,  copies  of the
               consolidated  and  consolidating  balance sheet of Greenbriar and
               the consolidated



                                     - 23 -

<PAGE>



               Subsidiaries as of the end of such quarterly  fiscal period,  and
               statements  of  income  and  retained  earnings  and  changes  in
               financial   position   of   Greenbriar   and   the   consolidated
               Subsidiaries for that quarterly fiscal period and for the portion
               of the fiscal year ending with such period,  in each case setting
               forth in  comparative  form  the  figures  for the  corresponding
               period of the preceding  fiscal year,  all in reasonable  detail,
               and  certified by the Chief  Financial  Officer of  Greenbriar as
               being true and correct and as having been  prepared in accordance
               with GAAP, subject to year-end audit adjustments;

                    (b) Annual  Statements.  Unless duplicative of paragraph (d)
               below,  as soon as available and in any event within  one-hundred
               and five  (105)  days  after  the  close of each  fiscal  year of
               Greenbriar,  copies of the consolidated and consolidating balance
               sheet of Greenbriar and the  consolidated  Subsidiaries as of the
               close of such fiscal year and  statements  of income and retained
               earnings and changes in financial positions of Greenbriar and the
               consolidated  Subsidiaries  for such  fiscal  year,  in each case
               setting forth in  comparative  form the figures for the preceding
               fiscal  year,  all in  reasonable  detail and  accompanied  by an
               opinion  thereon  (which  shall not be qualified by reason of any
               limitation imposed by Greenbriar) of Grant Thornton,  or of other
               independent  public  accountants of recognized  national standing
               selected by Greenbriar and  satisfactory  to each Preferred Stock
               Representative,  to the effect that such  consolidated  financial
               statements   have  been   prepared   in   accordance   with  GAAP
               consistently  maintained and applied (except for changes in which
               such  accountants  concur)  and  that  the  examination  of  such
               accounts in connection  with such  financial  statements has been
               made in accordance  with generally  accepted  auditing  standards
               and,  accordingly,  includes such tests of the accounting records
               and such other auditing  procedures as were considered  necessary
               in the circumstances;

                    (c) Audit Reports.  Promptly upon receipt thereof,  one copy
               of each written  report  submitted to Greenbriar  by  independent
               accountants  in any annual,  quarterly or special  audit made, it
               being  understood  and agreed  that all audit  reports  which are
               furnished to each Preferred Stock Representative pursuant to this
               Section 6.8 shall be treated as confidential,  but nothing herein
               contained  shall  limit or impair the right of the holders of the
               Preferred  Stock to  disclose  such  reports  to any  appropriate
               Tribunal,  or to use such  information to the extent pertinent to
               an  evaluation  of  the  obligations  of  Greenbriar   under  the
               Transaction  Documents,  or to enforce  compliance with the terms
               and  conditions  of the  Transaction  Documents,  or to take  any
               lawful action which holders of the Preferred Stock deem necessary
               to protect their interests under the Transaction Documents;

                    (d)  SEC and  Other  Reports.  Promptly  upon  its  becoming
               available,  one copy of each financial statement,  report, notice
               or proxy statement sent by Greenbriar to  stockholders  generally
               and of each regular or periodic report, registration statement or
               prospectus  filed by Greenbriar  with any securities  exchange or
               the Commission or any successor  agency,  and of any order issued
               by any Tribunal in any proceeding to which Greenbriar is a party;
               and

                    (e)  Compliance  Certificate.  Within the earlier of (i) the
               filing of a quarterly  or annual  report with the  Commission  or
               (ii)  fifty  (50)  days  after the end of each  quarterly  fiscal
               period (except the last) of each fiscal year of Greenbriar


                                     - 24 -

<PAGE>



               and  one-hundred  and five  (105)  days  after  the close of each
               fiscal year of  Greenbriar,  a certificate  executed by the Chief
               Financial  Officer  or Chief  Executive  Officer  of  Greenbriar,
               stating that a review of the activities of Greenbriar during such
               fiscal  quarter  has been  made  under his  supervision  and that
               Greenbriar  has observed,  performed and fulfilled each and every
               obligation  and covenant  contained  herein and is not in default
               under  any  of the  same  or,  if any  such  default  shall  have
               occurred,  specifying the nature and status thereof,  and setting
               forth a  computation  in  reasonable  detail as of the end of the
               period covered by such  statements,  of compliance  with Sections
               6.28-6.35 hereof.

                    6.9.  Inspection  of Property.  In addition to any rights of
the holders of the Preferred Stock under  applicable law to inspect the property
of Greenbriar,  Greenbriar shall permit each Preferred Stock  Representative  or
his  representative,  upon reasonable  notice,  during normal business hours and
while accompanied by a representative from Greenbriar,  to (i) visit and inspect
any of the  properties  of  Greenbriar  and any  Subsidiary,  (ii)  examine  the
corporate and  financial  records of Greenbriar  and the  Subsidiaries  and make
copies thereof or extracts  therefrom and (iii) conduct tests or investigations,
subject to the rights of tenants.

                    6.10.  Conduct of  Business.  Greenbriar  shall carry on and
conduct,  and cause each Subsidiary to carry on and conduct, its business in the
same manner and in the same fields of  enterprise as it is conducted on the date
hereof,  or in the  real  estate  business;  and do,  and,  unless  merged  into
Greenbriar, cause each Subsidiary to do, all things necessary to (i) remain duly
incorporated, validly existing and in good standing as a domestic corporation in
its  jurisdiction  of  incorporation,  (ii) maintain all requisite  authority to
conduct its business in each jurisdiction in which its business is conducted and
(iii) use commercially reasonable efforts to maintain all licenses, permits, and
franchises  necessary  for its  business.  Greenbriar  shall not,  and shall not
permit any Subsidiary to, directly or indirectly, engage in any businesses other
than those to which it is engaged as of the date hereof,  or discontinue  any of
its  existing  lines of  business  or  substantially  alter its  method of doing
business  except  Greenbriar  and any  Subsidiary  may engage in the real estate
business.

                    6.11. Insurance.  Greenbriar shall maintain,  and cause each
Subsidiary to maintain, insurance covering its properties, operations, personnel
and  businesses  which insures  against such losses and risks as are adequate in
accordance with its reasonable business judgment.

                    6.12.  Maintenance of Property.  Greenbriar  shall maintain,
and cause each  Subsidiary  to maintain,  all of its  tangible  property in good
condition and repair and make all necessary replacements thereof and operate the
same properly, efficiently and in a prudent manner.

                    6.13.  Books and Records.  Greenbriar  shall  maintain,  and
cause each Subsidiary to maintain,  books,  records,  and accounts  necessary to
prepare financial statements in accordance with GAAP.

                    6.14. Notices. Except as disclosed in the 1996 Form 10-K and
the September  1997 Form 10-Q,  this  Agreement  and the  documents  referred to
herein,   Greenbriar   shall  promptly  give  notice  to  each  Preferred  Stock
Representative of (i) any



                                     - 25 -

<PAGE>



Material  Adverse  Effect,  (ii) the  occurrence and the date of a Special Asset
Sale  Trigger,  (iii) the  existence  and  status  of any  Litigation  that,  if
determined  adverse to Greenbriar or any Subsidiary,  would result in a Material
Adverse  Effect or (iv) any default  under any material  agreement,  contract or
other  instrument to which  Greenbriar or any  Subsidiary is a party or by which
any of their  properties are bound,  or any  acceleration of the maturity of any
Debt owing by Greenbriar or any Subsidiary;  in each case, specifying the nature
thereof and what action Greenbriar has taken, is taking, or proposes to take.

                    6.15.  Authorizations  and Approvals.  Greenbriar shall, and
shall cause each Subsidiary to, use commercially  reasonable efforts to promptly
obtain,  from time to time at its own expense,  all such governmental  licenses,
authorizations,  consents, permits and approvals as may be required to enable it
to comply  with its  obligations  hereunder  and  under  the  other  Transaction
Documents.

                    6.16.  Payment of Obligations.  Greenbriar  shall, and shall
cause each  Subsidiary to, promptly pay (or renew and extend) as they become due
all of its material  obligations and all lawful claims which,  if unpaid,  might
give  rise  to a  Lien  upon  any of  its  properties  or  assets  (unless  such
obligations  or  claims  are  being  contested  in  good  faith  by  appropriate
proceedings).

                    6.17. Employee Plans. As soon as possible and within 30 days
after  Greenbriar  knows or has  reason  to know  that  any  event  which  would
constitute a reportable  event under  Section  4043(b) of Title IV of ERISA with
respect to any employee  pension or other benefit plan of Greenbriar  subject to
ERISA  has  occurred,  or  that  the  PBGC  has  instituted  or  will  institute
proceedings  under ERISA to  terminate  that plan,  deliver a  certificate  of a
Responsible  Officer of Greenbriar  setting forth details as to that  reportable
event and the  action  which  Greenbriar  proposes  to take with  respect to it,
together  with a copy  of any  notice  of that  reportable  event  which  may be
required  to be  filed  with  the  PBGC,  or any  notice  delivered  by the PBGC
evidencing its intent to institute  those  proceedings or any notice to the PBGC
that the plan is to be terminated,  as the case may be. For all purposes of this
section,  Greenbriar  is deemed to have all  knowledge or knowledge of all facts
attributable to the plan administrator under ERISA.

         Except where not a Material  Adverse Effect,  Greenbriar shall not, and
shall not  permit  any  Subsidiary  to,  permit  (i) any ERISA  Plan to incur an
"accumulated  funding deficiency" (as defined in Section 302 of ERISA or Section
412 of the Code),  (ii) Greenbriar or any Subsidiary to incur liability,  except
for liabilities for premiums that have been paid or that are not past due, under
ERISA to the PBGC in  connection  with any ERISA Plan,  (iii)  Greenbriar or any
Subsidiary to withdraw in whole or in part from participation in a Multiemployer
Plan,   (iv)   Greenbriar  or  any  Subsidiary  to  engage  in  any  "prohibited
transaction"  (as defined in Section 406 of ERISA or Section  4975 of the Code),
(v) a  "reportable  event"  (as  defined  in  Section  4043 of  ERISA) to occur,
excluding  events for which the notice  requirement  is waived under  applicable
PBGC regulations,  (vi) Greenbriar, an Affiliate of Greenbriar or any Subsidiary
to have any liability under or be subject to any Lien under ERISA,  the Code, or
any similar  provisions  of any Law of Canada or any of its  provinces  to or on
account  of  any  employee  benefit  plan,   program,   scheme,  or  arrangement
established  or  maintained  by  Greenbriar,  an Affiliate of  Greenbriar or any
Subsidiary or to which Greenbriar,  an Affiliate of Greenbriar or any Subsidiary
contributes  or had an  obligation  to  contribute,  (vii) any ERISA Plan not to
comply in all material respects, both in


 
                                     - 26 -

<PAGE>



form and operation,  with ERISA and the Code, and (viii) any Multiemployer  Plan
of Greenbriar to be in reorganization within the meaning of ss. 418 of the Code.

                    6.18.      Environmental Matters.

                    (a) Greenbriar  shall make available to each Preferred Stock
               Representative (i) a copy of all future Environmental Reports, if
               any, and reports or notices to any Tribunal  about any Release of
               Hazardous Substances, if any, in Greenbriar's or any Subsidiary's
               possession  or  prepared  by or on  behalf of  Greenbriar  or any
               Subsidiary  in  respect of any Real  Property,  and (ii) a report
               within ten Business Days after Greenbriar or any Subsidiary first
               has knowledge or reason to believe that any unreported Release of
               a Hazardous  Substance has occurred at any Real Property that (A)
               requires  or has  resulted  in any report or other  notice to any
               Tribunal under any  Environmental Law or (B) results or threatens
               to result  in the  presence  of any  Hazardous  Substance  in the
               environment  in  a  quantity,  concentration,   state,  or  other
               condition that substantially  exceeds any applicable standard for
               the  protection  of human  health  or the  environment  under any
               Environmental Law.

                    (b) Greenbriar shall, and shall cause each Subsidiary to use
               commercially reasonable efforts to, (i) obtain and keep in effect
               all  Environmental  Permits in  substantial  compliance  with all
               Environmental  Laws,  (ii)  operate  and manage  its  businesses,
               processes,  and other  activities in substantial  compliance with
               all Environmental Laws,  Environmental Permits, and Environmental
               Indemnity  Agreements  of  Greenbriar  and in a  manner  to avoid
               incurring  Environmental  Liabilities,  to prevent any Release of
               Hazardous  Substances in any material  amounts or in  substantial
               violation of any  Environmental  Law, and to minimize the risk of
               loss  or  damage  in  the  event  of  any  Release  of  Hazardous
               Substances,  (iii) keep each Environmental Indemnity Agreement of
               Greenbriar in full force and effect according to its terms,  take
               all steps that may be necessary or  appropriate  to timely assert
               and  receive  payment or all claims  under it, and (to the extent
               that  the  material  remediation  or  indemnity   protections  or
               benefits   provided  by  it  would  be   jeopardized)   and  (iv)
               continuously and diligently carry out such removal,  remedial, or
               other response  actions as may be necessary or appropriate (A) in
               respect   of   each   matter   that    constitutes    substantial
               non-compliance  with any  Environmental Law and (B) to prevent or
               minimize  potential  Environmental  Liabilities from any of those
               matters  or any  Release  of  Hazardous  Substances,  unless  the
               failure to do any of the foregoing actions in clauses (i) through
               (iv) cannot  reasonably  be  expected to have a Material  Adverse
               Effect.

                    6.19.  Distributions.   Greenbriar  shall  not  directly  or
indirectly  declare,  make,  incur any liability to make or pay any Distribution
except:

                    (a)  Distributions  paid in the  form of  additional  common
               stock;

                    (b)   Distributions  to  the  holders  of  Series  B  Junior
               Preferred  Stock and  Series D Junior  Preferred  Stock  required
               pursuant to their respective certificate of designations;




                                     - 27 -

<PAGE>



                    (c) Distributions  paid to the holders of Series F Preferred
               Stock and Series G Preferred Stock; and

                    (d)  Distributions  by Greenbriar if (i) no Event of Default
               or Potential Default exists or would exist after giving effect to
               the Distribution and (ii) the total (without  duplication) of all
               of those  Distributions  declared or paid (including the proposed
               Distribution)   over  the  12  months  prior  to  such   proposed
               Distribution  do not exceed a 15%  annualized  yield based on the
               closing  stock price of the  Greenbriar  Common Stock on the date
               such Distribution is declared.

         Greenbriar  shall not permit any  Subsidiary  to directly or indirectly
declare,  make,  incur  any  liability  to make or pay any  Distribution  except
Distributions   to  Greenbriar  or  any  Subsidiary;   provided  that  any  such
Distribution to a Subsidiary is ultimately paid to Greenbriar.

                    6.20.  Transactions  with Affiliates.  Greenbriar shall not,
and shall not permit any Subsidiaries to, enter into any transaction with any of
its Affiliates  (excluding  Greenbriar and the Subsidiaries) except transactions
(i) in the ordinary  course of business and upon fair and  reasonable  terms not
less favorable to Greenbriar and the  Subsidiaries  than could be obtained in an
arm's-length  transaction with a Person that was not its Affiliate or (ii) which
do not exceed  $60,000  individually  and $100,000 in the  aggregate  during any
fiscal year.

                    6.21. Loans, Advances and Investments. Greenbriar shall not,
and shall not permit any  Subsidiary  to, make any loan,  advance,  extension of
credit,  or  capital  contribution  to  any  other  Person,  other  than  (i) to
Greenbriar  or any  Subsidiary,  (ii) for an  amount  less than  $50,000  in the
aggregate  to such Person,  (iii) as set forth on Schedule  6.21 or (iv) a fully
secured  loan in  connection  with a purchase or sale of  companies  and/or real
estate.

                    6.22.  Issuance of Shares.  Greenbriar  shall not permit any
Subsidiary  to issue,  sell or  otherwise  dispose of, any shares of its capital
stock or other securities, or rights, warrants or options to purchase or acquire
any shares or securities, other than to Greenbriar or any Subsidiary.

                    6.23. Assignment. Greenbriar shall not, and shall not permit
any Subsidiary to, assign or transfer any of its Rights,  duties, or obligations
under this Agreement.

                    6.24.  Accounting  Methods.  Greenbriar shall not, and shall
not permit any  Subsidiary  to,  change its method of  accounting  except (i) to
conform  any new  Subsidiary's  accounting  methods to  Greenbriar's  accounting
methods,  (ii) as  required  by GAAP or  (iii)  as  required  by SEC  rules  and
regulations.

                    6.25.  Government  Regulations.  Greenbriar  shall not,  and
shall not  permit any  Subsidiary  to,  conduct  its  business  in a way that it
becomes regulated under the Investment  Company Act of 1940, as amended,  or the
Public Utility Holding Company Act of 1935, as amended.




                                     - 28 -

<PAGE>



                    6.26.  Compliance with Laws and Documents.  Greenbriar shall
use  commercially   reasonable  efforts  not  to,  and  shall  use  commercially
reasonable  efforts not to permit any  Subsidiary to, (i) violate the provisions
of the articles of  incorporation  or certificate of  incorporation or bylaws of
Greenbriar or any  Subsidiary;  (ii) violate or be in default in the performance
of any obligation,  agreement or condition  contained in any license,  contract,
indenture,  mortgage,  installment sale agreement,  lease, deed of trust, voting
trust agreement, stockholders' agreement, note, loan, credit agreement, purchase
order,  agreement or instrument  evidencing an obligation  for borrowed money or
other agreement or instrument to which  Greenbriar or any of the Subsidiaries is
a party or by which  Greenbriar  or any of the  Subsidiaries  may be bound or to
which the property or assets of Greenbriar or any of the Subsidiaries is subject
or affected,  if that violation or default alone,  or when  aggregated  with all
other violations,  would result in a Material Adverse Effect;  (iii) violate any
Law applicable to Greenbriar or any of the  Subsidiaries  of any Tribunal having
jurisdiction  over  Greenbriar  or  any  of the  Subsidiaries  or  any of  their
respective activities or properties, if that violation alone, or when aggregated
with all other  violations,  would result in a Material Adverse Effect;  or (iv)
violate any obligation,  provision, condition, covenant or requirement contained
in the  Transaction  Documents,  if that  violation or default would result in a
Material Adverse Effect.

                    6.27.  Maintenance of Stock Listing.  The Greenbriar  Common
Stock shall,  at all times,  (i) be registered  pursuant to Section 12(b) of the
Exchange Act, and (ii) be approved for trading on the American  Stock  Exchange,
the New York Stock Exchange or the Nasdaq National Market.

                    6.28.  Total  Liabilities to Equity Ratio.  Greenbriar shall
not permit the ratio of Total Liabilities to Total  Stockholders'  Equity, as of
any fiscal quarter end, to be greater than 3 to 1.

                    6.29. Total Long Term Debt to Equity Ratio. Greenbriar shall
not permit the ratio of Total Long Term Debt to Total  Stockholders'  Equity, as
of any fiscal quarter end, to be greater than 2.75 to 1.

                    6.30.  Dividend Coverage Ratio.  Greenbriar shall not permit
the ratio of EBITDA  (excluding  all gains and losses  attributable  to sales of
real estate) to Senior Preferred Dividend, as reported in any fiscal quarter, to
be less than 1.5 to 1.

                    6.31.   Total   Long  Term  Debt  to  Book   Capitalization.
Greenbriar shall not permit Total Long Term Debt to exceed seventy-five  percent
(75%) of Book Capitalization, as of any fiscal quarter end.

                    6.32. Total Debt to Adjusted Book Capitalization. Greenbriar
shall not permit  Total Debt to exceed  seventy-five  percent  (75%) of Adjusted
Book Capitalization, as of any fiscal quarter end.

                    6.33.  Total Debt and  Capitalized  Operating  Lease Expense
Obligations to Adjusted Book  Capitalization  and  Capitalized  Operating  Lease
Expense  Obligations.  Greenbriar  shall not permit Total Debt plus  Capitalized
Operating  Lease Expense  Obligations  to exceed  seventy-five  percent (75%) of
Adjusted  Book   Capitalization   plus   Capitalized   Operating  Lease  Expense
Obligations, as of any fiscal quarter end.



                                     - 29 -

<PAGE>




                    6.34.  Refinancing Existing Property Debt.  Greenbriar shall
not, and shall not permit any Subsidiary to, refinance  Existing  Property Debt,
unless the aggregate  loan amount does not exceed  seventy-one  percent (71%) of
the appraised value of the collateral in such refinancing.

                    6.35.  Total Net Property  Debt to Real Property Book Value.
Greenbriar  shall not  permit  the level of Total  Net  Property  Debt to exceed
seventy-one  and  eight-tenths  (71.8%) of Real Property  Book Value,  as of any
fiscal quarter end.

                    6.36.  HSR Filings.  Greenbriar  shall (a) upon  Purchaser's
request,  take all actions necessary to make the filings of it or its Affiliates
under  the  HSR  Act  with  respect  to the  transactions  contemplated  by this
Agreement,  (b) comply with any request for additional  information  received by
each party or its  Affiliates  from the Federal  Trade  Commission  or Antitrust
Division of the  Department  of Justice  pursuant to the HSR Act, (c)  cooperate
with the other party in  connection  with such party's  filings,  if  necessary,
under  the HSR Act,  and (d)  request,  if  applicable  or if  necessary,  early
termination of the applicable waiting period.

         Section 7. Conditions to Closing

                    7.1. Conditions to Obligations of Purchaser. The obligations
of Purchaser hereunder are subject to the fulfillment, at or before the Closing,
of each of the following  conditions (all or any of which may be waived in whole
or in part by  Purchaser).  Greenbriar  shall  use all  commercially  reasonable
efforts to fulfill, at or before the Closing,  such of the following  conditions
(or portions thereof) over which they have control.

                    (a)  Greenbriar  shall have  delivered to Purchaser (in form
               and substance satisfactory to Purchaser and its counsel):

                         (i) a  certificate,  dated  the  date  hereof,  of  the
                    Secretary  or  an  Assistant  Secretary  of  Greenbriar  (A)
                    attaching a true and complete copy of the resolutions of the
                    Board  of  Directors  of  Greenbriar,  and of all  documents
                    evidencing other necessary  corporate or stockholder  action
                    (in form and substance  satisfactory to Purchaser and to its
                    counsel) taken by Greenbriar in connection  with the matters
                    contemplated  by this  Agreement  and the other  Transaction
                    Documents,  (B) attaching a true and complete copy of Bylaws
                    of  Greenbriar  and each  Subsidiary,  (C) setting forth the
                    incumbency of the officer or officers of Greenbriar who sign
                    this   Agreement  and  the  other   Transaction   Documents,
                    including  therein a signature  specimen of such  officer or
                    officers and (D) covering such other matters,  and with such
                    other  attachments  thereto,  as  Purchaser  may  reasonably
                    request;

                         (ii) a  certificate  of  incorporation  or  articles of
                    incorporation of Greenbriar and each Subsidiary certified by
                    the Office of the Secretary of State under the laws of their
                    respective states of incorporation;

                         (iii) a  certificate  of good standing  (including  tax
                    status,  if applicable)  of Greenbriar  and each  Subsidiary
                    under the laws of their



                                     - 30 -

<PAGE>



                    respective   states   of   incorporation   and  as   foreign
                    corporations  in every  state in which they own  property or
                    conduct business;

                         (iv) an opinion of Glast,  Phillips & Murray,  P.C.  in
                    the form attached hereto as Exhibit E;

                         (v) such other  documents and evidence  relating to the
                    matters   contemplated   by  this  Agreement  or  the  other
                    Transaction  Documents as the holders or their counsel shall
                    reasonably require.

                         (b) The  representations  and  warranties of Greenbriar
                    contained  in  Section  3,  shall  be true  on  and,  in all
                    material respects, as of the Closing with the same effect as
                    though such  representations and warranties had been made on
                    and as of the date of the Closing.

                         (c)  Greenbriar  shall have performed and complied with
                    all  agreements,   obligations,   covenants  and  conditions
                    contained  in  this  Agreement  and  the  other  Transaction
                    Documents that are required to be performed or complied with
                    by it on or before the  Closing;  and no Event of Default or
                    Potential  Default  exists on or before the  Closing or as a
                    result of the consummation of the transactions  contemplated
                    hereby.

                         (d) The  Chairman  of the  Board  of  Greenbriar  shall
                    deliver  to   Purchaser   at  the   Closing  a   certificate
                    certifying,  to the best of his  knowledge and as applicable
                    to each of their companies, that the conditions specified in
                    paragraphs  (b),  (c),  (e), (i), (j), (k) and (l) have been
                    fulfilled.

                         (e) All authorizations,  approvals, or permits, if any,
                    of any  governmental  authority  or  regulatory  body of the
                    United  States or of any state  thereof that are required in
                    connection   with  the  lawful  issuance  and  sale  of  the
                    Preferred  Stock  and the  conversion  into  the  Conversion
                    Shares pursuant to this Agreement and the other  Transaction
                    Documents  shall be duly  obtained  and  effective as of the
                    Closing.

                         (f) Each of the  Transaction  Documents shall have been
                    duly executed and delivered by all of the respective parties
                    thereto  (other than  Purchaser)  and shall be in full force
                    and effect.

                         (g)  Greenbriar  shall  have filed the  Certificate  of
                    Designations  with the  Secretary  of State of the  State of
                    Nevada.

                         (h) Greenbriar shall have paid all expenses required to
                    be  paid  by it  pursuant  to this  Agreement  and the  Loan
                    Agreement.

                         (i)  Greenbriar  shall have  received  approval,  where
                    required, to consummate the transactions contemplated by the
                    Transaction  Documents  from or pursuant  to any  applicable
                    governmental or regulatory  authority or law and/or from any
                    stock exchange,  including, but not limited to, the issuance
                    and listing of the Conversion Shares from the American Stock
                    Exchange.



                                     - 31 -

<PAGE>



                         (j) There shall not be in effect on the date of Closing
                    any writ, judgment,  injunction, decree, or similar order of
                    any court or governmental authority restraining,  enjoining,
                    or  otherwise   preventing   consummation   of  any  of  the
                    transactions  contemplated  by this  Agreement  or the other
                    Transaction Documents.

                         (k) There  shall  not be  instituted,  pending,  or, to
                    Greenbriar's  knowledge,   threatened,   any  action,  suit,
                    investigation,  or other  proceeding in,  before,  or by any
                    court, governmental or regulatory authority, or other Person
                    to restrain,  enjoin, or otherwise  prevent  consummation of
                    any of the  transactions  contemplated  by this Agreement or
                    the other Transaction Documents.

                         (l) Greenbriar shall have duly authorized, approved and
                    filed   any  and  all   amendments   to  the   Articles   of
                    Incorporation,   resolutions   or  documents   necessary  to
                    consummate the transactions  contemplated by the Transaction
                    Documents.

                         (m) All waiting  periods  applicable to this  Agreement
                    and the transactions  contemplated hereby under the HSR Act,
                    if any, shall have expired or been terminated.

                         (n) The  Preferred  Stock ranks  senior with respect to
                    the right to receive  dividends and assets upon liquidation,
                    dissolution  or  winding  up of  Greenbriar  to the Series B
                    Junior  Preferred  Stock and the  Series D Junior  Preferred
                    Stock.

                         (o)  Greenbriar  has  reserved  and has  available  the
                    Conversion  Shares in order to effect the  conversion of the
                    Preferred  Stock,  which shares,  when issued,  will be duly
                    authorized and validly issued, fully paid and nonassessable,
                    and free from all taxes, liens and charges.

                         (p)  Those  documents  provided  for in the  Additional
                    Delivery  Agreement  dated of even date  herewith  have been
                    delivered.

                         (q) Purchaser has notified  Greenbriar  that  Purchaser
                    has  received  final  approval  of the  consummation  of the
                    transactions   contemplated   by  this  Agreement  from  its
                    investment committee.

                         (r) All indebtedness  under the Loan Agreement has been
                    paid in full together  with all accrued and unpaid  interest
                    through such repayment date.

                         (s) All  expenses  described  in Section  2.3  incurred
                    through the date of Closing have been paid in full.

                         (t) The Purchaser and  Greenbriar  shall have agreed to
                    the terms of a promissory  note as  contemplated  in Section
                    8.6 of the Series F Certificate of  Designation  and Section
                    8.5 of the Series G Certificate of Designation.




                                     - 32 -

<PAGE>



                    7.2.   Conditions  to   Obligations   of   Greenbriar.   The
obligations of Greenbriar hereunder are subject to the fulfillment, at or before
the Closing,  of each of the  following  conditions  (all or any of which may be
waived in whole or in part by Greenbriar).  Purchaser shall use all commercially
reasonable efforts to fulfill,  at or before the Closing,  such of the following
conditions (or portions thereof) over which it has control.

                         (a) The  representations  and  warranties  of Purchaser
                    contained  in  Section  4  shall  be  true  on and as of the
                    Closing with the same effect as though such  representations
                    and  warranties  had been  made on and as of the date of the
                    Closing.

                         (b)  Purchaser  shall have  performed and complied with
                    all  agreements,   obligations,   covenants  and  conditions
                    contained  in  this  Agreement  and  the  other  Transaction
                    Documents that are required to be performed or complied with
                    by it on or before the Closing.

                         (c) All authorizations,  approvals, or permits, if any,
                    of any  governmental  authority  or  regulatory  body of the
                    United  States or of any state  thereof that are required in
                    connection  with the lawful  purchase of the Preferred Stock
                    and the conversion  into the Conversion  Shares  pursuant to
                    this Agreement and the other Transaction  Documents shall be
                    duly obtained and effective as of the Closing.

                         (d) Each of the  Transaction  Documents shall have been
                    duly executed and delivered by all of the respective parties
                    thereto (other than  Greenbriar)  and shall be in full force
                    and effect.

                         (e) Purchaser shall have made payment for the Preferred
                    Stock.

                         (f) All waiting  periods  applicable to this  Agreement
                    and the transactions  contemplated hereby under the HSR Act,
                    if any, shall have expired or been terminated.

         Section 8. Post-Conversion Rights

                    8.1. Board  Representation  on  Greenbriar.  Subsequent to a
conversion by Purchaser of Preferred  Stock for Conversion  Shares and until the
earlier of (i) the first  anniversary  of the date that Purchaser no longer owns
any shares of Preferred  Stock or (ii) the date that Purchaser no longer owns at
least 5% of the issued and  outstanding  shares of Greenbriar,  Purchaser  shall
have the right,  at any time that there is not at least one director  serving on
the Board of Directors of  Greenbriar  pursuant to this Section 8.1 or any other
provision  contained  in the  Transaction  Documents,  to  nominate at least one
member of the Board of Directors of  Greenbriar,  and  Greenbriar  shall use its
best  efforts to cause such  nominee to be elected to the Board of  Directors of
Greenbriar as soon as possible, and in any event not later than sixty days after
such  nomination is made. Any director  elected  pursuant to this Section 8.1 is
subject to  removal,  and any  vacancy in the office of such  director  shall be
filled,  only by Purchaser.  If, for any reason  whatsoever,  Purchaser does not
have a member on the Board of  Directors  of  Greenbriar  during the time period
discussed  above,  Purchaser may appoint an observer who may attend all meetings
(including  committee  meetings) of the Board of Directors of Greenbriar and who
shall  be  entitled  to the  same  expense  reimbursement  as the  Directors  of
Greenbriar.



                                     - 33 -

<PAGE>




         Section 9. Miscellaneous

                    9.1. Notices. All notices, notifications, demands, requests,
waivers,  consents  or other  communications  under this  Agreement  shall be in
writing and shall be deemed to have been duly given,  unless  explicitly  stated
otherwise,  (i) if mailed registered or certified mail, postage prepaid,  return
receipt  requested,  three days after being  deposited in the mail; (ii) if sent
via overnight  courier,  the next business day after being  deposited  with such
courier;  (iii) if sent by telecopier (with written confirmation of receipt), on
that day, or if  telecopied  on a day that is not a business  day,  the next day
that  is a  business  day,  provided  that a copy  is  mailed  by  certified  or
registered mail (return receipt  requested);  or (iv) if delivered by hand (with
written  confirmation  of receipt) on that day, or if delivered on a day that is
not a business  day, the next day that is a business  day; in each case,  to the
appropriate  addresses and telecopier  numbers set forth below (or to such other
addresses and telecopier numbers as a party may designate by notice to the other
parties):

                If to Greenbriar:               Greenbriar Corporation
                                                4265 Kellway Circle
                                                Addison, Texas 75244-2033
                                                Attention: Gene S. Bertcher
                                                Telecopy No.: (972) 407-8735

                with copy to:                   Mark E. Bennett, Esq.
                                                14933 Oaks North Drive
                                                Dallas, TX 75231
                                                Telecopy No.: (972) 407-8426

                If to Purchaser:                Lone Star Opportunity Fund, L.P.
                                                600 N. Pearl Street
                                                Suite 1550, LB 161
                                                Dallas, Texas 76140
                                                Attention: Sam F. Hines
                                                Telecopy No.: (214) 754-8301

                with copy to:                   Haynes and Boone, LLP
                                                901 Main Street, Suite 3100
                                                Dallas, Texas 75202
                                                Attention: W. Scott Wallace
                                                Telecopy No.: (214) 651-5940

         If to any other Person who is the  registered  holder of any  Preferred
Stock or Conversion  Shares, to the address for the purpose of such holder as it
appears in the stock ledger of Greenbriar.

                    9.2.       Termination.

                         (a) Termination  Events.  This Agreement may, by notice
                    given prior to or at the Closing, be terminated:




                                     - 34 -

<PAGE>



                         (i) by either  Greenbriar  or  Purchaser  if a material
                    breach of any provision of this Agreement has been committed
                    by the other  party and such  breach has not been  waived in
                    writing;

                         (ii) by Purchaser if any of the  conditions  in Section
                    7.1 has not been  satisfied  as of the date of Closing or if
                    satisfaction  of such a condition  is or becomes  impossible
                    (other than  through the failure of Purchaser to comply with
                    its obligations  under this Agreement) and Purchaser has not
                    waived such condition on or before the date of Closing;

                         (iii) by Greenbriar if any of the conditions in Section
                    7.2 has not  been  satisfied  of the date of  Closing  or if
                    satisfaction  of such a condition  is or becomes  impossible
                    (other than through the failure of Greenbriar to comply with
                    its obligations under this Agreement) and Greenbriar has not
                    waived such condition on or before the date of Closing;

                         (iv)  by  mutual  written  consent  of  Greenbriar  and
                    Purchaser; or

                         (v) by either  Greenbriar  or  Purchaser if the Closing
                    has not  occurred  (other  than  through  the failure of any
                    party  seeking to terminate  this  Agreement to comply fully
                    with its  obligations  under  this  Agreement)  on or before
                    January  12,  1998,  or such later date as the  parties  may
                    agree upon.

                         (b)  Effect  of  Termination.  Each  party's  right  of
                    termination  under this  Section  9.2 is in  addition to any
                    other rights it may have under this  Agreement or otherwise,
                    and the  exercise of a right of  termination  will not be an
                    election  of  remedies.  If  this  Agreement  is  terminated
                    pursuant to this Section 9.2, all further obligations of the
                    parties under this Agreement  (other than the obligations of
                    Greenbriar  under  Section  2.3  and  of all  parties  under
                    Section 9.3) shall  terminate;  provided,  however,  that if
                    this  Agreement  is  terminated  by a party  because  of the
                    breach of the Agreement by the other party or because one or
                    more  of  the   conditions   to  the   terminating   party's
                    obligations  under  this  Agreement  is not  satisfied  as a
                    result  of the other  party's  failure  to  comply  with its
                    obligations  under this Agreement,  the terminating  party's
                    right to  pursue  all  legal  remedies  shall  survive  such
                    termination unimpaired.

                    9.3.       Indemnification.

                         (a) Indemnification Obligations of Greenbriar.  Subject
                    to the other  provisions  of this  Section  9.3,  Greenbriar
                    shall defend, indemnify, and hold harmless Purchaser and its
                    successors  and  assigns,   and  its  officers,   directors,
                    stockholders,     agents,     affiliates    and    employees
                    (collectively,  the  "Greenbriar  Indemnitees"),   from  and
                    against,  and  promptly  reimburse  them  for,  any  and all
                    Losses,  without  regard  to the  cause or  causes  thereof,
                    directly  or  indirectly  arising  out of,  resulting  from,
                    relating  to or in  connection  with  (i) any  breach  of or
                    inaccuracy in any  representation  or warranty of Greenbriar
                    contained in this Agreement, any Transaction Document or any
                    schedule or exhibit hereto or thereto; or (ii) any breach



                                     - 35 -

<PAGE>



                    of  or   non-performance   of  any  covenant  of  Greenbriar
                    contained in this Agreement, any Transaction Document or any
                    schedule or exhibit hereto or thereto.

                         (b) Indemnification  Obligations of Purchaser.  Subject
                    to the other provisions of this Section 9.3, Purchaser shall
                    defend,  indemnify,  and hold  harmless  Greenbriar  and its
                    respective  heirs,  legal  representatives,  successors  and
                    assigns (collectively,  the "Purchaser  Indemnitees"),  from
                    and against,  and promptly  reimburse  them for, any and all
                    Losses,  without  regard  to the  cause or  causes  thereof,
                    directly  or  indirectly  arising  out of,  resulting  from,
                    relating  to or in  connection  with  (i) any  breach  of or
                    inaccuracy in any representation or warranty of Purchaser in
                    this Agreement,  any Transaction Document or any schedule or
                    exhibit  hereto  or  thereto;  or  (ii)  any  breach  of  or
                    nonperformance   of  any   covenant  of  Purchaser  in  this
                    Agreement,  any  Transaction  Document  or any  schedule  or
                    exhibit hereto or thereto.

                         (c) Notice and Opportunity to Defend.

                         (i) If  any  of  Greenbriar  Indemnitees  or  Purchaser
                    Indemnitees  (each, an "Indemnitee")  receives notice of any
                    claim  or  commencement  of any  action  or  proceeding  (an
                    "Asserted  Liability")  with respect to which another person
                    (the  "Indemnitor") is obligated to provide  indemnification
                    pursuant  to  Section   9.3(a)  or  Section   9.3(b),   such
                    Indemnitee shall promptly give the Indemnitor notice thereof
                    by certified  mail,  describing  the  Asserted  Liability in
                    reasonable  detail and  indicating  the amount (which may be
                    estimated)  of the  loss,  expense,  damage,  liability,  or
                    obligation   that  has  been  or  may  be  asserted  by  the
                    Indemnitee against the Indemnitor.

                         (ii) The failure of the  Indemnitee to give such notice
                    shall  not  result  in a loss of the  Indemnitee's  right to
                    indemnification  under this  Section 9.3 unless such failure
                    prejudices  the  Indemnitor's  ability to defend against the
                    Asserted Liability.

                         (iii)  No  settlement  or  compromise  of  an  Asserted
                    Liability may be made by the Indemnitee  without the written
                    consent of the Indemnitor.

                         (iv) If the Indemnitor so elects,  the  Indemnitor,  at
                    the  Indemnitor's  expense,  shall assume the defense of the
                    Asserted  Liability  and  shall  have the right to settle or
                    compromise the same, except that if the Indemnitee's counsel
                    reasonably  objects to such  assumption  on the ground  that
                    there may be legal defenses available to the Indemnitee that
                    are different from or in addition to those  available to the
                    Indemnitor,  then the  Indemnitee  shall  have the  right to
                    employ  separate  counsel  approved by the Indemnitor at the
                    Indemnitee's sole expense.

                         (v)  If  the  Indemnitor  assumes  the  defense  of the
                    Asserted  Liability,  the Indemnitor shall not be liable for
                    the fees and expenses of the  Indemnitee's  counsel incurred
                    thereafter in connection with the Asserted Liability.




                                     - 36 -

<PAGE>



                         (d)  Survival.  All  warranties,   representations  and
                    covenants made by Greenbriar herein or in any certificate or
                    other  instrument  delivered  by  either of them or on their
                    behalf  under  this  Agreement  and  the  other  Transaction
                    Documents  shall be  considered  to have been relied upon by
                    Purchaser  and shall  survive the issuance of the  Preferred
                    Stock regardless of any  investigation  made by or on behalf
                    of  Purchaser.  All  statements in any such  certificate  or
                    other    instrument    so   delivered    shall    constitute
                    representations and warranties by Greenbriar, as applicable,
                    hereunder.

                         All  representations,  warranties and covenants made by
                    Purchaser  herein  shall be  considered  to have been relied
                    upon  by  Greenbriar  and  shall  survive  the  issuance  to
                    Purchaser  of  the   Preferred   Stock   regardless  of  any
                    investigation made by Greenbriar or on their behalf.

                    9.4.   Restrictive   Legend.   Unless  and  until  otherwise
permitted by this Agreement,  each  certificate for Preferred Stock issued under
this  Agreement  and each  certificate  for any  Preferred  Stock  issued to any
subsequent  transferee  of any such  certificate  shall be stamped or  otherwise
imprinted with a legend in substantially the following form:

                    "The  shares  evidenced  by this  certificate  have not been
         registered  under the  Securities  Act of 1933, as amended,  and may be
         reoffered  and sold only if  registered  pursuant to the  provisions of
         said Securities Act or if an exemption from registration is available."

                    9.5. Assignment, Successors and Assigns. Except as otherwise
expressly  provided herein,  this Agreement shall inure to the benefit of and be
binding  upon the  successors  and  assigns  of each of the  parties  whether so
expressed or not. This Agreement may not be assigned without the written consent
of all other parties; provided,  however, Purchaser may assign all of its rights
and obligations hereunder to one of its subsidiaries, provided that prior to the
Closing no assignment may be made except to a subsidiary with  sufficient  funds
to satisfy Purchaser's payment obligations under this Agreement.

                    9.6.  Amendment  and  Waiver,  etc.  This  Agreement  may be
amended only with the written consent of Greenbriar and Purchaser. No failure or
delay on the part of Greenbriar or Purchaser in exercising  any right,  power or
remedy  hereunder  shall  operate as a waiver  thereof,  nor shall any single or
partial  exercise  of any such  right,  power or  remedy  preclude  any other or
further  exercise  thereof or the exercise of any other right,  power or remedy.
The remedies  provided for herein are  cumulative  and are not  exclusive of any
remedies that may be available to Greenbriar or Purchaser at law or in equity or
otherwise.  No waiver of or consent to any  departure by Greenbriar or Purchaser
from any provision of this Agreement shall be effective unless signed in writing
by the other parties.

                    9.7. Duplicate Originals. Two or more duplicate originals of
this Agreement may be signed by the parties,  each of which shall be an original
but all of which together shall constitute one and the same instrument.

                    9.8. Severability.  In the event that any one or more of the
provisions contained herein, or the application thereof in any circumstance,  is
held   invalid,   illegal  or   unenforceable,   the   validity,   legality  and
enforceability of any such provision in every other



                                     - 37 -

<PAGE>



respect and of the remaining  provisions  contained herein shall not be affected
or impaired thereby.

                    9.9.  Governing  Law. This  Agreement  shall be construed in
accordance with and governed by the internal laws of the State of Texas, without
respect to conflicts of laws principles.

                    9.10.   Specific   Performance.   Greenbriar  and  Purchaser
acknowledge  that the other parties have no adequate  remedy at law for breaches
by Greenbriar or Purchaser of its obligations hereunder or under the Transaction
Documents,  and accordingly  Greenbriar and Purchaser irrevocably agree that the
other  parties shall be entitled to the remedy of specific  performance  granted
pursuant to Section 9.15 below, and waives any right Greenbriar or Purchaser may
have to object to such remedy.

                    9.11.   Entire   Agreement.   This   Agreement,   the  other
Transaction Documents and the documents referred to herein constitute the entire
agreement  among the  parties and no party shall be liable or bound to any other
party in any manner by any warranties,  representations,  or covenants except as
specifically set forth herein or therein.

                    This  Agreement   supercedes  that  certain  Stock  Purchase
Agreement  among  Residential  Healthcare   Properties,   Inc.,  Greenbriar  and
Purchaser  dated as of October  8, 1997 (the  "October  8, 1997  Stock  Purchase
Agreement")  only  in the  event  that  the  transactions  contemplated  by this
Agreement  are closed,  otherwise the October 8, 1997 Stock  Purchase  Agreement
shall remain in full force and effect.

                    9.12. Headings Descriptive. The titles and subtitles used in
this  Agreement  are used for  convenience  only and are not to be considered in
construing or interpreting this Agreement.

                    9.13.  Finder's Fees. Each party  represents that it neither
is nor will be obligated for any finder's fee or  commission in connection  with
this transaction, other than as specifically described below.

                    Purchaser   agrees  to  indemnify   and  to  hold   harmless
Greenbriar  from any liability for any commission or  compensation in the nature
of a finder's fee (and the cost and expenses of defending against such liability
or asserted  liability)  for which  Purchaser or any of its officers,  partners,
employees, or representatives is responsible.

                    Greenbriar  agrees to indemnify and hold harmless  Purchaser
from any  liability  for any  commission  or  compensation  in the  nature  of a
finder's fee (and the costs and expenses of defending  against such liability or
asserted liability) for which Greenbriar or any of their officers, employees, or
representatives is responsible,  including without limitation,  any fees owed by
Greenbriar to Southwest Securities.

                    9.14.  Exculpation Among Purchasers.  Purchaser acknowledges
that it is not  relying  upon  any  person,  firm  or  corporation,  other  than
Greenbriar and its officers and directors,  in making its investment or decision
to invest in  Greenbriar.  Purchaser  agrees that neither it nor its  respective
controlling persons, officers, directors, partners, agents or employees shall be
liable for any action heretofore or hereafter taken or omitted to be taken



                                     - 38 -

<PAGE>




by any of them in connection  with the Preferred  Stock (and  Greenbriar  Common
Stock delivered upon conversion thereof).

                    9.15.  Arbitration.  THE  PARTIES  AGREE THAT IF ANY DISPUTE
SHOULD ARISE UNDER THE TERMS AND PROVISIONS OF THIS AGREEMENT, EACH PARTY WAIVES
ANY RIGHT TO COMMENCE LEGAL ACTION OR  ARBITRATION  OTHER THAN AS PROVIDED UNDER
THE TERMS OF THIS  AGREEMENT,  AND THIS  AGREEMENT  SHALL  PROVIDE  THE SOLE AND
EXCLUSIVE REMEDY FOR RESOLUTION OF DISPUTES.

                               (a)   THE DETERMINATION OF THE ARBITRATOR SHALL
         BE FINAL AND BINDING UPON EACH PARTY AND EACH PARTY SPECIFICALLY WAIVES
         ANY RIGHT TO CLAIM THAT THE  ARBITRATOR  HAS  EXCEEDED THE SCOPE OF THE
         ARBITRATION, HAS DISREGARDED EVIDENCE OR PRINCIPLES OF LAW, AND FURTHER
         WAIVES ANY RIGHT TO  DISCLAIM  THE  QUALIFICATION  OR  FUNCTION  OF THE
         ARBITRATOR IN ANY MANNER OR FASHION.

                               (b)   APPOINTMENT OF THE ARBITRATOR SHALL BE MADE
         BY MUTUAL  AGREEMENT OF THE PARTIES.  IF THE PARTIES  CANNOT AGREE UPON
         THE  IDENTIFICATION  OF THE ARBITRATOR WITHIN THIRTY (30) DAYS FROM THE
         MAILING OF THE  OBJECTION,  A PETITION FOR  APPOINTMENT  OF  ARBITRATOR
         SHALL BE FILED WITH THE SUPERIOR COURT OF THE COUNTY OF DALLAS,  TEXAS.
         THE  ARBITRATION  SHALL  BE  HELD  IN  DALLAS,  TEXAS  PURSUANT  TO THE
         COMMERCIAL ARBITRATION RULES OF THE AMERICAN ARBITRATION ASSOCIATION.

                               (c)   THE ARBITRATOR'S FEES AND FEES AND COSTS OF
         PETITIONING  FOR THE  APPOINTMENT  OF THE  ARBITRATOR  SHALL BE PAID BY
         GREENBRIAR. THE ARBITRATOR UPON RENDERING ITS AWARD SHALL DETERMINE THE
         PARTY THAT PREVAILED  BASED UPON WRITTEN  STATEMENTS MADE BY EACH PARTY
         AT THE  COMMENCEMENT  OF THE  ARBITRATION  AS TO  THE  POSITION  OF THE
         PARTIES AND THEIR  ALTERNATIVES FOR SETTLING THE MATTER. A STATEMENT OF
         A PROPOSED SETTLEMENT SHALL NOT BE BINDING UPON ANY PARTY AND SHALL NOT
         BE CONSIDERED AS EVIDENCE BY THE  ARBITRATOR  EXCEPT TO THE EXTENT THAT
         THE ARBITRATOR UPON MAKING ITS SOLE AND INDEPENDENT DETERMINATION SHALL
         DETERMINE  THE PARTY  WHICH  PREVAILED  BASED  UPON THE  PROPOSALS  FOR
         SETTLEMENT  OF THE MATTER MADE BY EACH PARTY AND SHALL  DETERMINE  THAT
         THE  NON-PREVAILING  PARTY  SHALL  PAY  SOME  OR ALL OF  THE  COSTS  OF
         ARBITRATION  INCLUDING  ANY COSTS  INCURRED  BY THE  ARBITRATOR  AND IN
         EMPLOYING  EXPERTS  TO ADVISE  THE  ARBITRATOR  IN  REGARD TO  SPECIFIC
         SUBJECTS OR  QUESTIONS.  THE  ARBITRATOR  MAY FURTHER AWARD THE COST OF
         ATTORNEYS  FEES  OR  EXPERT  WITNESSES  CONSULTED  OR  EMPLOYED  IN THE
         PREPARATION  OR  PRESENTATION  OF  EVIDENCE  TO THE  ARBITRATOR  BY THE
         PREVAILING PARTY IF, IN THE ARBITRATOR'S DETERMINATION, THE POSITION OF
         THE  NONPREVAILING  PARTY WAS NOT REASONABLY TAKEN OR MAINTAINED OR WAS
         BASED



                                     - 39 -

<PAGE>



         UPON A FAILURE TO EXCHANGE OR COMMUNICATE PROPERLY INFORMATION WITH THE
         PREVAILING PARTY IN REGARD TO THE SUBJECT SUBMITTED TO ARBITRATION.

                               (d)   THE ARBITRATOR'S DETERMINATION MAY FURTHER
         PROVIDE FOR  PROSPECTIVE  ENFORCEMENT AND DIRECTIONS FOR THE PARTIES TO
         COMPLY WITH INCLUDING WITHOUT LIMITATION PERMANENT INJUNCTIVE RELIEF OR
         SPECIFIC PERFORMANCE. UNDER SUCH CIRCUMSTANCES,  THE ARBITRATOR'S AWARD
         SHALL BE BINDING UPON THE PARTIES AND SHALL BE UNDERTAKEN AND PERFORMED
         BY EACH OF THE PARTIES UNTIL SUCH TIME AS THE  ARBITRATOR'S  DIRECTIONS
         TO THE PARTY SHALL LAPSE BY THEIR TERM, OR THE ARBITRATOR  SHALL NOTIFY
         THE PARTIES  THAT THOSE TERMS ARE NO LONGER IN FORCE OR EFFECT OR SHALL
         MODIFY THOSE TERMS.

                               (e)   NOTWITHSTANDING THE FOREGOING, ANY PARTY
         MAY APPEAL THE ARBITRATOR'S DETERMINATION IF SUCH APPEAL IS
         BASED SOLELY ON THE BASIS THAT THE ARBITRATOR HAS MADE AN
         INCORRECT INTERPRETATION OF LAW.






                                     - 40 -

<PAGE>


         IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Stock Purchase Agreement as of the date first above written.

                              GREENBRIAR CORPORATION,
                              a Nevada corporation



                         By:
                              Gene S. Bertcher
                              Executive Vice President


                              LONE STAR OPPORTUNITY FUND, L.P.,
                              a Delaware limited partnership

                         By:  Lone Star Partners, L.P., its General Partner

                         By:  Lone Star Management Co., Ltd., its
                              General Partner


                         By:
                              Name:
                              Title:




                                     - 41 -

<PAGE>











                                 ESHIBIT 2.2.2



















<PAGE>













                   CERTIFICATE OF VOTING POWERS, DESIGNATIONS,
                    PREFERENCES, AND RELATIVE, PARTICIPATING,
                       OPTIONAL OR OTHER SPECIAL RIGHTS OF
                   SERIES F SENIOR CONVERTIBLE PREFERRED STOCK




















<PAGE>


<TABLE>

                                TABLE OF CONTENTS
                                                                           

                                                                                                     Page
                                                                            
<S>                                                                             <C>                  <C>

         1.       Certain Definitions...................................................................1

         2.       Ranking of the Series F Senior Preferred Stock........................................8

         3.       Dividends; Restricted Payments........................................................9
                  3.1      Dividend Payment Dates.......................................................9
                  3.2      Record Date..................................................................9
                  3.3      Restricted Payments..........................................................9

         4.       Liquidation Rights....................................................................9

         5.       Voting Rights of Series F Senior Preferred Stock......................................9
                  5.1      Special Rights in Electing Directors.........................................9
                  5.2      Class Voting Rights.........................................................10

         6.       Conversion...........................................................................11
                  6.1      Right of Holder to Conversion...............................................11
                  6.2      Mechanics of Conversion by Holder...........................................11
                  6.3      Mandatory Conversion........................................................11
                  6.4      Adjustments to Conversion Price for Diluting Issues
                           or Other Transactions.......................................................11
                  6.5      No Impairment...............................................................19
                  6.6      Certificate as to Adjustments...............................................19
                  6.7      Notices of Record Date......................................................19

         7.       Covenants of Greenbriar..............................................................20
                  7.1      Board of Directors..........................................................20
                  7.2      Greenbriar Common Stock.....................................................20
                  7.3      Cash Reserves after a Special Asset Sale Trigger............................20

         8.       Events of Default....................................................................20
                  8.1      Notice of Event of Default..................................................20
                  8.2      Dividends During Event of Default...........................................20
                  8.3      Election of Directors.......................................................21
                  8.4      Put Option..................................................................21
                  8.5      Special Asset Sale Trigger..................................................22
                  8.6      Change in Management........................................................22
                  8.7      Remedies Cumulative.........................................................23

         9.       No Reissuance........................................................................23


</TABLE>


                                       (i)

<PAGE>



                             GREENBRIAR CORPORATION

                   Certificate of Voting Powers, Designations,
                    Preferences, and Relative, Participating,
                       Optional or Other Special Rights of
                   Series F Senior Convertible Preferred Stock

         We, Floyd B. Rhoades,  President, and Robert L. Griffis,  Secretary, of
Greenbriar ("Greenbriar"), a corporation organized and existing under Chapter 78
of the Nevada  Revised  Statutes,  in accordance  with the provisions of Section
78.1955 of the Nevada Revised Statutes thereof, DO HEREBY CERTIFY:

         That,  pursuant to authority  conferred  upon the Board of Directors by
the  Articles  of  Incorporation,  as  amended,  of  Greenbriar,  said  Board of
Directors, at a meeting of the Board of Directors held pursuant to Chapter 78 of
the  Nevada  Revised  Statutes,  duly  adopted a  resolution  providing  for the
issuance of one million four hundred thousand (1,400,000) shares of a new series
of preferred  stock  designated as Series F Senior  Convertible  Preferred Stock
(the "Series F Senior Preferred Stock"), which resolution is as follows:

         RESOLVED, that pursuant to the Articles of Incorporation of Greenbriar,
there be and hereby is authorized  and created a series of preferred  stock,  to
consist  of  1,400,000  shares  with a par value of $0.10 per share and a stated
value of $10.00 per share and that the voting powers, designations, preferences,
and relative,  participating,  optional or other special  rights of the Series F
Senior  Preferred  Stock and the  qualifications,  limitations  or  restrictions
thereof be as follows:

         1.       Certain Definitions.

         The following terms shall have the following meanings:

         "1996 Form 10-K" means  Greenbriar's  Annual  Report on Form 10-KSB for
the year ended December 31, 1996.

         "5-day  Average  Price" per share of common stock,  for purposes of any
provision  herein at the date  specified  in such  provision,  means the average
closing  price of such common stock on the  American  Stock  Exchange,  New York
Stock  Exchange  or  Nasdaq  National  Market  over  the  5-trading  day  period
immediately prior to such date.

         "20-day  Average Price" per share of common stock,  for purposes of any
provision  herein at the date  specified  in such  provision,  means the average
closing  price of such common stock on the  American  Stock  Exchange,  New York
Stock  Exchange  or  Nasdaq  National  Market  over the  20-trading  day  period
immediately prior to such date.

         "Act" means the Securities Act of 1933, as amended.

         "Additional Shares of Greenbriar  Nonpreferred  Stock" means all shares
of Greenbriar  Nonpreferred  Stock issued by  Greenbriar  after the Closing Date
other than (i) any shares of Greenbriar Common Stock issued pursuant to options,
rights or warrants to purchase  Greenbriar  Common Stock issued  pursuant to the
Stock Option Plans; provided that (a) such



                                        1

<PAGE>



issuances  do not exceed in the  aggregate  500,000  shares and (b) the exercise
price under such options, rights and warrants shall be payable in cash and shall
be not less than the greater of the Conversion Price or the Fair Market Price on
the date of issuance of the option, right or warrant,  (ii) shares of Greenbriar
Common  Stock,  either sold to  employees  of  Greenbriar  or  contributed  as a
matching  contribution  at a price not less than the then  current  Fair  Market
Price  pursuant to  Greenbriar's  401(k)  plan,  (iii) any shares of  Greenbriar
Common Stock issued to James R. Gilley  pursuant to an option he currently holds
to purchase  400,000  shares,  and,  pursuant to his  employment  agreement with
Greenbriar,  any shares of Greenbriar Common Stock issued pursuant to options he
will receive for 200,000  shares on December 31, 1997,  1998 and 1999,  (iv) any
shares of  Greenbriar  Common  Stock  issued to the April  Trust  pursuant  to a
warrant to purchase  108,000 shares,  (v) any shares of Greenbriar  Common Stock
issued to the April  Trust  pursuant to a right to convert  Greenbriar  Series D
Preferred Stock into 337,500 shares,  (vi) any shares of Greenbriar Common Stock
issued to Lone Star  pursuant to a right to convert  Greenbriar  Series F Senior
Preferred Stock and Series G Senior  Non-Voting  Preferred  Stock, and (vii) any
shares of Greenbriar  Common Stock  exchanged with investors in the  Syndication
Program.

         "Affiliate" has the meaning set forth in the Purchase Agreement.

         "Asset Sale Repurchase Notice" has the meaning set forth in Section 8.5

         "Business Day" means any day other than a Saturday,  a Sunday,  any day
on which the New York Stock Exchange is closed or any other day on which banking
institutions in New York are authorized or required by law to be closed.

         "Certificate of Designation" means  this Certificate of  Voting Powers,
Designations,  Preferences,  and  Relative,  Participating,  Optional  or  Other
Special Rights of Series F Senior Preferred Stock.

         "Change in Management" has the meaning set forth in Section 8.6.

         "Change in Management Repurchase Notice"  has the  meaning set forth in
Section 8.6.

         "Change in Management Repurchase Shares" has  the meaning  set forth in
Section 8.6.

         "Change of Control of  Greenbriar"  means,  with respect to Greenbriar,
the occurrence of any of the following events: (i) any "person" (as such term is
used in  Sections  13(d) and 14(d) of the  Exchange  Act) other  than  Permitted
Holders is or becomes  the  "beneficial  owner" (as  defined in Rules  13d-3 and
13d-5  under the  Exchange  Act,  except  that a person  shall be deemed to have
"beneficial  ownership"  of all  shares  that any such  person  has the right to
acquire,  whether such right is exercisable  immediately or after the passage of
time,  directly  or  indirectly)  of  more  than  40% of  the  Voting  Stock  of
Greenbriar;  or (ii) individuals who at the date hereof constituted the Board of
Directors of Greenbriar  (together with any new directors whose election by such
Board or whose  nomination  for election by the  stockholders  of Greenbriar was
approved  by a vote of the  majority of the  directors  then still in office who
were either  directors  at the  beginning  of such  period or whose  election or
nomination  for election  was  previously  so approved)  cease for any reason to
constitute  a majority  of the Board of  Directors  then in  office,  other than
pursuant to the provisions of this Certificate of


 
                                        2

<PAGE>



Designation or the Purchase Agreement;  provided,  however, a Sale of Greenbriar
is not considered a Change of Control of Greenbriar.

         "Closing  Date"  means the date of the closing of the first sale of the
Series F Senior Preferred Stock.

         "Commission" means the Securities and Exchange  Commission or any other
similar or successor agency of the federal government administering the Act.

         "Computation Date" means:

                  (i) with  respect to Section  6.4(c),  the  earlier of (a) the
         date on which  Greenbriar  shall  enter  into a firm  contract  for the
         issuance of Additional Shares of Greenbriar  Nonpreferred  Stock or (b)
         the  date  of  actual  issuance  of  Additional  Shares  of  Greenbriar
         Nonpreferred Stock; provided,  that with respect to Section 6.4(c), the
         Computation  Date in connection with an acquisition by Greenbriar using
         common  stock  as all or a part of the  consideration  shall  mean  the
         effective   date  of  issuance  of  Additional   Shares  of  Greenbriar
         Nonpreferred Stock;

                  (ii) with respect to Section 6.4(d),  the earliest to occur of
         (a) the date on which  Greenbriar shall take a record of the holders of
         its Greenbriar  Nonpreferred Stock for the purpose of entitling them to
         receive any warrants,  options or other  rights,  (b) the date on which
         Greenbriar  shall  enter  into a firm  contract  for  the  issuance  of
         warrants,  options or other rights and (c) the date of actual  issuance
         of warrants, options or other rights; and

                  (iii) with respect to Section 6.4(e),  the earliest of (a) the
         date on which  Greenbriar  shall  take a record of the  holders  of its
         Greenbriar  Nonpreferred  Stock for the  purpose of  entitling  them to
         receive any Greenbriar  Convertible  Securities,  (b) the date on which
         Greenbriar  shall  enter  into a firm  contract  for  the  issuance  of
         Greenbriar  Convertible  Securities and (c) the date of actual issuance
         of Greenbriar Convertible Securities.

         "Conversion  Price"  initially  means  $17.50 and shall be adjusted and
         readjusted from time to time as provided in Section 6.

         "Default Date" has the meaning set forth in Section 8.2.

         "Event of Default" means the occurrence of any of the following:

                  (i) Greenbriar  shall fail to comply with any of the covenants
         in Section 6 of the Purchase Agreement;  provided,  that in the case of
         the  covenants  contained  in Sections  6.4-6.18  and  6.24-6.27 of the
         Purchase Agreement,  failure to comply shall not be considered an Event
         of Default if such failure is cured or  compliance is waived in writing
         by the Preferred Stock Representative  within 30 days after the date on
         which the failure to comply first occurs; provided further, that in the
         case of the  covenants  contained  in  Sections  6.28  and  6.29 of the
         Purchase Agreement,  failure to comply shall not be considered an Event
         of Default  if (i)  compliance  is waived in  writing by the  Preferred
         Stock Representative  within 30 days or (ii) the ratio corresponding to
         each



                                        3

<PAGE>



         covenant  is less than  4.5,  4.25 and 4.5,  respectively,  to 1 at the
         quarter  end on which the  failure  to  comply  first  occurs  and such
         covenant  is fully  complied  with at the next  quarter  end;  provided
         further, that in the case of the covenant contained in Sections 6.30 of
         the Purchase  Agreement,  failure to comply shall not be  considered an
         Event  of  Default  if (i)  compliance  is  waived  in  writing  by the
         Preferred  Stock  Representative  within  30  days or  (ii)  the  ratio
         contained  in  such  covenant  is 2 to 1 for  the  two  quarter  period
         comprised  of the quarter in which the failure to comply  first  occurs
         and the following  quarter;  provided further,  that in the case of the
         covenants  contained in Sections  6.31-6.35 of the Purchase  Agreement,
         failure to comply  shall not be  considered  an Event of Default if (i)
         compliance is waived in writing by the Preferred  Stock  Representative
         within 30 days or (ii) the percentage corresponding to each covenant is
         less than 85% at the quarter  end on which the failure to comply  first
         occurs and such  covenant is fully  complied  with at the next  quarter
         end.

                  (ii) If  Greenbriar  fails to pay the  holders of the Series F
         Senior Preferred Stock all accrued  dividends in full for two quarters,
         whether or not such payment is legally permissible;

                  (iii) Greenbriar shall purport to take any action specified in
         Section 5.2 of this  Certificate of  Designation  without the requisite
         vote of the holders of the Series F Senior Preferred Stock;

                  (iv) James R. Gilley and the Gilley  Affiliates shall cease to
         own at least 1,500,000  shares of Greenbriar  Common Stock,  subject to
         appropriate  adjustments  in  connection  with a stock  split  or other
         similar events;

                  (v)      There shall occur a Change of Control of Greenbriar;

                  (vi) Greenbriar shall fail to comply with any of the covenants
         contained in Section 7 of this  Certificate  of  Designation;  provided
         that failure to comply shall not be  considered  an Event of Default if
         such  failure  is cured or  compliance  is  waived  in  writing  by the
         Preferred Stock  Representative  within 10 days after the date on which
         the failure to comply first occurs;

                  (vii)  The  commencement  of  an  involuntary  case  or  other
         proceeding   against   Greenbriar  or  any   Subsidiary,   which  seeks
         liquidation,  reorganization  or other relief with respect to it or its
         debts or other  liabilities  under any bankruptcy,  insolvency or other
         similar law now or hereafter in effect or seeking the  appointment of a
         trustee, receiver,  liquidator,  custodian or other similar official of
         it or any  substantial  part of its property,  or the entry of an order
         for relief against  Greenbriar or any Subsidiary in any such case under
         the United  States  Bankruptcy  Code which is not  dismissed  within 60
         days; or

                  (viii) The  commencement by Greenbriar or any Subsidiary of or
         the approval by a majority of the Board of Directors of  Greenbriar  or
         any  Subsidiary  of the  commencement  of a  voluntary  case  or  other
         proceeding,  seeking  liquidation,  reorganization or other relief with
         respect  to  itself  or  its  debts  or  other  liabilities  under  any
         bankruptcy,  insolvency or other similar law now or hereafter in effect
         or  seeking  the  appointment  of  a  trustee,  receiver,   liquidator,
         custodian or other similar



                                        4

<PAGE>



         official of it or any substantial  part of its property,  or consent to
         any such relief or to the  appointment  of or taking  possession by any
         such  official in an  involuntary  case or other  proceeding  commenced
         against it, or the making by Greenbriar or any  Subsidiary of a general
         assignment  for the benefit of  creditors,  or failure by Greenbriar or
         any  Subsidiary  generally to or written  admission of its inability to
         pay its  debts  generally  as they  become  due,  or the  taking of any
         corporate action to authorize or effect any of the foregoing.

         "Exchange Act" means the  Securities  Exchange Act of 1934, as amended,
or any similar federal statute,  and the rules and regulations of the Commission
thereunder, all as the same shall be in effect at the time.

         "Fair  Market  Price" per share of common  stock,  for  purposes of any
provision  herein at the date specified in such provision,  means the greater of
(i) the 5-Day  Average  Price of such  common  stock or (ii) the 20-Day  Average
Price of such common stock; provided, that the Fair Market Price of common stock
issued in connection  with an  acquisition  by Greenbriar  shall mean the 20-Day
Average Price of such common stock. Notwithstanding any of the foregoing, if the
common  stock that is being  valued has not been  listed on the  American  Stock
Exchange,  New York Stock Exchange or Nasdaq  National  Market for such 5 and 20
business day periods,  then the Fair Market Price per share of such common stock
shall be deemed to be the  greater of (i) the net book value per share of common
stock,  determined in accordance  with GAAP, or (ii) the fair value per share of
common stock determined pursuant to the Valuation Procedure.

         "GAAP"  means  those  generally  accepted  accounting   principles  and
practices  which are used in the  United  States and  recognized  as such by the
American Institute of Certified Public Accountants acting through its Accounting
Principles Board or by the Financial Accounting Standards Board or through other
appropriate boards or committees thereof and which are consistently  applied for
all periods to present fairly in all material  respects the financial  position,
results of operations  and operating  cash flow on a  consolidated  basis of the
party,  except that any accounting  principle or practice required to be changed
by the Accounting  Principles Board or Financial  Accounting Standards Board (or
other  appropriate  board or  committee)  in order to  continue  as a  generally
accepted accounting principle or practice may be so changed.

         "Gilley   Affiliates"  means  James  R.  Gilley,   Sylvia  Gilley,  JRG
Investment Company,  Inc., April Trust, September Trust, October Trust, November
Trust,  December Trust,  Nita Dry, Todd Dry, Donna Gilley,  Elizabeth Gilley, W.
Michael  Gilley,  Caroline  Gilley,  or any other trusts  controlled by James R.
Gilley.

         "Greenbriar" means Greenbriar Corporation, a Nevada corporation.

         "Greenbriar  Common Stock" means  Greenbriar's  common stock, $0.01 par
value per share.

         "Greenbriar  Convertible  Securities"  means evidences of indebtedness,
shares of stock or other  securities  which are convertible into or exchangeable
for Additional Shares of Greenbriar  Nonpreferred  Stock,  either immediately or
upon the arrival of a specified date or the happening of a specified event.



                                        5

<PAGE>



         "Greenbriar Nonpreferred Stock" means Greenbriar Common Stock and shall
also include stock of Greenbriar of any other class which is not preferred as to
dividends or assets to be received  upon  liquidation  or  dissolution  over any
other class of stock of Greenbriar and which is not subject to redemption.

         "IRR" means compounded annual rate of return.

         "Junior Stock" has the meaning set forth in Section 2.

         "Liquidation  Amount" means $10.00, plus a sum equal to all accumulated
but unpaid dividends (including  dividends,  if any, payable pursuant to Section
8.2) and interest  thereon,  if any,  through the date of payment  thereof,  per
share of Series F Senior Preferred Stock.

         "Liquidation  Value" means the  Liquidation  Amount with respect to all
issued and outstanding  Series F Senior  Preferred  Stock plus any  unreimbursed
costs and expenses payable to the holders of the Series F Senior Preferred Stock
pursuant to the Purchase Agreement.

         "Lone Star" means Lone Star Opportunity  Fund, L.P., a Delaware limited
partnership.

         "Mandatory  Conversion  Date"  means  the  earlier  of  (i)  the  third
anniversary  of the date of issuance of the Series F Senior  Preferred  Stock or
(ii) the date of a Sale of Greenbriar.

         "Permitted  Combination"  means  (i) a  Sale  of  Greenbriar,  (ii)  an
acquisition by Greenbriar in the ordinary course of its business as described in
the 1996 Form 10-K, or (iii) where there is a Special Asset Sale Trigger.

         "Permitted Holders" means James R. Gilley and his Affiliates.

         "Permitted  Investments"  shall mean (a) marketable direct  obligations
issued or  unconditionally  guaranteed by the United States government or issued
by an agency or instrumentality  thereof and backed by the full faith and credit
of the United States of America, in each case maturing within 180 days after the
date of acquisition  thereof;  (b) marketable direct  obligations  issued by any
state of the United States of America or any political  subdivision  of any such
state or any public  instrumentality  thereof maturing within 180 days after the
date of acquisition thereof and, at the time of acquisition,  having a rating of
"a" or higher from Standard & Poor's  Corporation  ("S&P") and Moody's Investors
Service,  Inc.  ("Moody's") and not listed in Credit Watch published by S&P; (c)
commercial  paper  maturing  no more  than 90 days  after  the date of  creation
thereof  and, at the time of  acquisition,  having a rating of at least a-1 from
S&P and P-1 from Moody's; (d) domestic and Eurodollar certificates of deposit or
time deposits or bankers  acceptances  maturing within 90 days after the date of
acquisition  thereof  issued by Escrow Agent or any  commercial  bank  organized
under the laws of the United  States of America  or any state  thereof  having a
rating of "a" or higher from S&P and Moody's;  and (e) money market funds having
an average portfolio maturity,  at the time of acquisition  thereof, of not more
than 90 days,  which money  market  funds are required to invest at least 95% of
their assets in instruments described in this definition.




                                        6

<PAGE>



         "Potential  Default" means any event's occurrence or any circumstance's
existence that would,  upon any required notice,  time lapse, or both, become an
Event of Default.

         "Preferred Stock  Representative"  means a Person designated in writing
by a majority of the holders of the Series F Senior Preferred Stock to represent
such holders with respect to certain matters  pursuant to this Agreement and the
Purchase Agreement.

         "Purchase  Agreement"  means  that  certain  Stock  Purchase  Agreement
between  Greenbriar and Lone Star Opportunity  Fund, L.P.,  whereby the Series F
Senior  Preferred  Stock  is  being  issued,  as  amended  from  time to time in
accordance  with the terms  thereof.  A copy of the  Purchase  Agreement,  as so
amended, is maintained at the principal executive offices of Greenbriar and will
be  furnished,  upon  written  request,  to any  holders  of the Series F Senior
Preferred Stock without charge.

         "Repurchase Notice" has the meaning set forth in Section 8.4.

         "Repurchase Promissory Note" has the meaning set forth in Section 8.6.

         "Repurchase Shares" has the meaning set forth in Section 8.5.

         "Sale of Greenbriar"  means (i) a merger or  consolidation in which all
shares of Greenbriar Common Stock are exchanged for cash,  securities of another
entity, or a combination of cash and securities of another entity or (ii) a cash
tender offer to purchase all of the outstanding  shares of Greenbriar is made to
the shareholders of Greenbriar and accepted by a majority of such shareholders.

         "Series B Junior Preferred Stock" means Greenbriar's Series B Preferred
Stock, $0.10 par value per share.

         "Series D Junior Preferred Stock" means Greenbriar's Series D Preferred
Stock, $0.10 par value per share.

         "Series F Senior Preferred  Stock" has  the  meaning set forth  in  the
preamble.

         "Series G Senior Non-Voting Preferred Stock" means Greenbriar's Series 
G Senior Non-Voting Convertible Preferred Stock.

         "Series G Certificate of Designation" means Greenbriar's Certificate of
Voting Powers, Designations,  Preferences, and Relative, Participating, Optional
or Other  Special  Rights of Series G Senior  Non-Voting  Convertible  Preferred
Stock as filed with the Secretary of State of Nevada.

         "Special  Asset Sale Trigger"  means any sale,  lease,  sale/leaseback,
assignment,  transfer or other disposition of assets, which when aggregated with
all sales, leases, sale/leasebacks, assignments, transfers or other dispositions
of assets in one or more independent or related  transactions  from the later of
the date hereof or the date of the last Special Asset Sale  Trigger,  (i) have a
total aggregate  consideration  received for such  dispositions in excess of $25
million of cash,  indebtedness  assumed and the present  fair value of any other
consideration,  including,  but not  limited  to the  present  fair value of any
earnouts



                                        7

<PAGE>



or (ii) dispose of a total aggregate number of operated  properties of five. The
dispositions described above specifically include, but are not limited to, sales
of  operating  leases  and  management  contracts  and  sales  as a part  of the
Syndication Program.

         "Spin-off"  means  the  pro  rata  distribution  by  Greenbriar  of the
outstanding  shares of common stock of a Subsidiary to the holders of Greenbriar
Common Stock to effect the spin-off of such Subsidiary.

         "Stock  Option  Plans"  means  Greenbriar's  1997 Stock Option Plan and
Greenbriar's 1992 Stock Option Plan, as amended,  which shall be consistent with
the  copies  of such  plans  delivered  to  purchasers  of the  Series  F Senior
Preferred  Stock prior to the Closing Date, as the same may be amended from time
to time with the prior approval of the Preferred Stock Representative.

         "Subsidiaries"   means  all  the  corporations,   partnerships,   joint
ventures,  business trusts or other legal entities in which  Greenbriar,  either
directly  or  indirectly  through  one or more  intermediaries,  owns  or  holds
beneficial or record ownership of at least a majority of the outstanding  voting
shares or other equity interests. Each of the Subsidiaries is sometimes referred
to herein individually as a "Subsidiary."

         "Syndication  Program" means a program of selling real estate to public
or private syndications consisting of partnerships, limited liability companies,
or limited liability partnerships where ownership of such entities is offered to
passive investors for cash and/or notes.

         "Tribunal" means any (a) local, state, territorial, federal, or foreign
judicial, executive,  regulatory,  administrative,  legislative, or governmental
agency, board, bureau,  commission,  department,  or other instrumentality,  (b)
private arbitration board or panel or (c) central bank.

         "Valuation Procedure" has the meaning set forth in Section 6.4(b).

         "Voting  Stock"  means the total voting power of all classes of capital
stock then  outstanding of a company and normally  entitled to vote in elections
of directors of such company.

         2.       Ranking of the Series F Senior Preferred Stock.

         So long as any  shares  of  Series F Senior  Preferred  Stock  shall be
outstanding,  the Series F Senior Preferred Stock shall rank senior with respect
to the  rights to receive  dividends  and to receive  assets  upon  liquidation,
dissolution  or winding up of Greenbriar to the  Greenbriar  Common Stock and to
all other  series of  preferred  stock or  classes  or series of  capital  stock
hereafter or  heretofore  established  by the Board of  Directors of  Greenbriar
(collectively,  the "Junior Stock"),  which includes, but is not limited to, the
Series B Junior  Preferred Stock and the Series D Junior  Preferred  Stock.  The
Series F Senior Preferred Stock shall rank pari passu with respect to the rights
to receive  dividends and to receive  assets upon  liquidation,  dissolution  or
winding up of Greenbriar to Greenbriar's  Series G Senior  Non-Voting  Preferred
Stock.




                                        8

<PAGE>




         3.       Dividends; Restricted Payments.

         3.1 Dividend  Payment Dates.  The holders of Series F Senior  Preferred
Stock shall be entitled  to  receive,  when,  as and if declared by the Board of
Directors of  Greenbriar  out of funds legally  available  for that  purpose,  a
quarterly  dividend of $0.15 per share  payable in cash on the last Business Day
of March,  June,  September  and December of each year  commencing  on March 31,
1998,  which payment shall  include pro rated daily  dividends  from the date of
original issue of the Series F Senior Preferred Stock. Dividends on the Series F
Senior  Preferred  Stock shall be cumulative  from the date of original issue of
the Series F Senior  Preferred  Stock,  whether or not at the time such dividend
shall  accrue  or become  due there  shall be funds  legally  available  for the
payment of dividends. All accrued and unpaid dividends, whether or not earned or
declared,  shall bear interest from the respective payment date until paid at an
annual rate of 12% per annum.

         3.2 Record Date. The Board of Directors shall fix a record date for the
determination  of holders of the Series F Senior  Preferred  Stock  entitled  to
receive payment of a dividend  declared thereon  (including  dividends,  if any,
payable pursuant to Section 8.2), which record date shall be not more than sixty
(60) days prior to the date fixed for the payment thereof.

         3.3 Restricted Payments. Unless full cumulative dividends on the Series
F Senior  Preferred Stock have been paid (including  dividends,  if any, payable
pursuant to Section 8.2), no dividends or other  distributions shall be declared
or paid or set apart for  payment  upon any  Junior  Stock nor shall any  Junior
Stock be redeemed,  purchased or otherwise  acquired by  Greenbriar  (other than
upon  conversion  under  the  terms  of  said  Junior  Stock  for  consideration
consisting  solely of shares of Greenbriar  Common Stock) for any  consideration
(or any payment made to or available  for a sinking fund for the  redemption  of
any shares of such stock) by Greenbriar.

         4.       Liquidation Rights.

         Upon any  liquidation,  dissolution  or  winding  up of the  affairs of
Greenbriar,  no distribution  shall be made or declared or set apart for payment
to the holders of any Junior Stock unless, prior to the first such distribution,
the  holders of the Series F Senior  Preferred  Stock  shall have  received  the
Liquidation Value. If the assets  distributable in any such event to the holders
of the Series F Senior Preferred Stock are insufficient to permit the payment to
such  holders of the full  preferential  amounts to which they may be  entitled,
such  assets  shall be  distributed  ratably  among the  holders of the Series F
Senior Preferred Stock in proportion to the full  preferential  amount each such
holder would otherwise be entitled to receive.

         5.       Voting Rights of Series F Senior Preferred Stock.

         5.1 Special Rights in Electing  Directors.  The holders of the Series F
Senior  Preferred Stock shall at all times have the right following the Closing,
as a class, to elect at least one member of the Board of Directors of Greenbriar
who is subject  to  removal,  and whose  vacancy  shall be  filled,  only by the
holders of the Series F Senior Preferred Stock; provided, that in the event that
the holders of the Series F Senior  Preferred  Stock do not exercise their right
to elect a board member, they may appoint an observer who may attend



                                        9

<PAGE>



all  meetings  (including  committee  meetings)  of the  Board of  Directors  of
Greenbriar  and who  shall be  entitled  to the same  expense  reimbursement  as
Directors of Greenbriar. Any person elected or nominated for this position shall
provide to Greenbriar  information  required to be disclosed in filings with the
Commission.

         5.2  Class  Voting  Rights.  So long as any  shares  of Series F Senior
Preferred  Stock are  outstanding,  in  addition to any other vote or consent of
shareholders  required by law or by the Articles of Incorporation of Greenbriar,
the  approval of the  holders of Series F Senior  Preferred  Stock,  acting as a
single class, shall be necessary for effecting or validating:

                  (i)  Any  amendment,  alteration  or  repeal  of  any  of  the
         provisions  of  the  Articles  of   Incorporation   or  the  Bylaws  of
         Greenbriar;  including, but not limited to, any amendment,  alteration,
         repeal or filing of any Certificate of Designation of Greenbriar or any
         resolution  of the Board of  Directors  of  Greenbriar  filed  with the
         Office of the Secretary of State of Nevada;

                  (ii)  The  authorization,  creation  or  issuance  of,  or the
         increase in the  authorized  amount of, any shares of capital  stock of
         any class or  series or any  security  convertible  into  shares of any
         class or series of any  security  ranking  prior to or on a parity with
         the  shares  of  Series F Senior  Preferred  Stock  in the  payment  of
         dividends  or  in  the  distribution  of  assets  on  any  liquidation,
         dissolution, or winding up of Greenbriar;

                  (iii) The merger or  consolidation  of Greenbriar with or into
         any  other  corporation  or  other  entity,   other  than  a  Permitted
         Combination;

                  (iv) Any  reorganization,  restructuring,  recapitalization or
         other  similar  transaction  of  Greenbriar;  other  than  a  Permitted
         Combination; or

                  (v)      Any Spin-off.

         With  respect to any matter that  requires  the  approval of holders of
Series F Senior Preferred Stock acting  separately as a class or any action that
may be taken by the holders of Series F Senior  Preferred  Stock,  such approval
shall be deemed to be given or such action taken by the affirmative  vote of the
holders of a majority  of the  outstanding  shares of Series F Senior  Preferred
Stock,  given in person or by proxy, by written consent or at the annual meeting
of  Greenbriar's  shareholders,  or a special  meeting in lieu thereof,  or at a
special  meeting  of the  holders of shares of Series F Senior  Preferred  Stock
called for the purpose of voting on such matter or action.  Upon  receipt of the
written  request  of the  holders  of 20% or more of the  outstanding  shares of
Series F Senior Preferred Stock, the Secretary of Greenbriar shall call and give
notice of a special  meeting of the  holders  of the  Series F Senior  Preferred
Stock for the purpose  specified in such  request,  which  meeting shall be held
within 30 days after delivery of such request to Greenbriar at such place in the
continental  United States as specified in such written  request;  provided that
the Secretary  shall not be required to call such a special  meeting in the case
of any such  request  received  less than 30 days  before  the date fixed for an
annual meeting of Greenbriar's shareholders.




                                       10

<PAGE>



         6.       Conversion.

         The Series F Senior Preferred Stock shall be convertible as follows:

         6.1 Right of Holder to  Conversion.  Each  share of the Series F Senior
Preferred  Stock shall be  convertible,  without  the payment of any  additional
consideration by the holder thereof and at the option of the holder thereof,  at
any time after the earlier of (i) the second anniversary of the date of original
issuance of Series F Senior Preferred Stock,  (ii) an Event of Default under any
of clauses (ii)  through  (viii) of the  definition  of "Event of Default" or an
Event of  Default  resulting  from the  failure  of  Greenbriar  to comply  with
Sections 6.1, 6.3, 6.10,  6.19,  6.20,  6.22,  6.27-6.35 or 6.37 of the Purchase
Agreement,  in whole or in part,  (iii) a Special  Asset Sale  Trigger or (iv) a
Change in Management,  at the office of Greenbriar or any transfer agent for the
Series F Senior  Preferred Stock,  into a number of shares of Greenbriar  Common
Stock determined by dividing the Liquidation Value of the shares so converted by
the Conversion Price, plus, in lieu of any fractional share to which such holder
would otherwise be entitled,  cash equal to such fraction multiplied by the Fair
Market Price.

         6.2 Mechanics of  Conversion by Holder.  In order for any holder of the
Series F Senior  Preferred  Stock to  convert  the same into  Greenbriar  Common
Stock,  the holder shall  surrender to Greenbriar at the office of Greenbriar or
of any transfer agent for the Series F Senior  Preferred  Stock, the certificate
or certificates  representing such Series F Senior Preferred Stock,  accompanied
by  written  notice to  Greenbriar  that the holder  elects to convert  all or a
specified  number of such shares and stating  therein the  holder's  name or the
name  or  names  of the  holder's  nominees  in  which  the  holder  wishes  the
certificate  or  certificates  for  Greenbriar  Common  Stock  to be  issued  or
transferred.  Greenbriar  shall, as soon as practicable  thereafter,  deliver at
such office to such  holder of the Series F Senior  Preferred  Stock,  or to the
holder's  nominee or nominees,  a certificate or certificates  representing  the
number  of shares  of  Greenbriar  Common  Stock to which  the  holder  shall be
entitled as aforesaid  and, if less than the full number of shares of the Series
F  Senior  Preferred  Stock  evidenced  by  such   surrendered   certificate  or
certificates being converted, a new certificate or certificates,  of like tenor,
for the number of shares of the Series F Senior  Preferred  Stock  evidenced  by
such surrendered certificate less the number of such shares being converted. Any
conversion  made at the  election  of a holder of the Series F Senior  Preferred
Stock  shall be  deemed  to have  been  made  immediately  prior to the close of
business on the date of such surrender of the Series F Senior Preferred Stock to
be  converted,  and the person or persons  entitled  to receive  the  Greenbriar
Common Stock issuable upon  conversion  shall be treated for all purposes as the
record holder or holders of such Greenbriar Common Stock on such date.

         6.3 Mandatory Conversion.  On the Mandatory Conversion Date, each share
of the  Series F  Senior  Preferred  Stock  must be  converted  into  shares  of
Greenbriar Common Stock based upon the conversion  provisions herein and subject
to any adjustments as provided in this Agreement.

         6.4      Adjustments to Conversion Price for Diluting Issues or Other 
Transactions:

                  (a) Stock Dividends, Subdivisions and Combinations. In case at
         any time or from time to time Greenbriar shall:




                                       11

<PAGE>



                           (1) take a record of the  holders  of its  Greenbriar
                  Nonpreferred  Stock  for  the  purpose  of  entitling  them to
                  receive  a  dividend  payable  in, or other  distribution  of,
                  Greenbriar Nonpreferred Stock;

                           (2)  subdivide its  outstanding  shares of Greenbriar
                  Nonpreferred   Stock  into  a  larger   number  of  shares  of
                  Greenbriar Nonpreferred Stock; or

                           (3)  combine  its  outstanding  shares of  Greenbriar
                  Nonpreferred   Stock  into  a  smaller  number  of  shares  of
                  Greenbriar Nonpreferred Stock;

         then the Conversion Price in effect  immediately after the happening of
         any such  event  shall  be  proportionately  decreased,  in case of the
         happening of events  described in  subparagraphs  (1) or (2) above,  or
         proportionately increased, in case of the happening of events described
         in subparagraph (3) above.

                  (b) Certain Other Dividends and Distributions.  In case at any
         time or from time to time Greenbriar shall take a record of the holders
         of its Greenbriar  Nonpreferred Stock for the purpose of entitling them
         to receive any dividend or other distribution of:

                           (1) cash, to the extent, but only to the extent, that
                  such  distribution  together with all such  dividends  paid or
                  declared   after  the  date   hereof,   does  not  exceed  the
                  consolidated net income,  net of consolidated  net losses,  of
                  Greenbriar and its consolidated subsidiaries earned subsequent
                  to the date hereof determined in accordance with GAAP;

                           (2) any  evidence  of its  indebtedness  (other  than
                  Greenbriar  Convertible  Securities),  any shares of its stock
                  (other  than  Additional  Shares  of  Greenbriar  Nonpreferred
                  Stock) or any  other  securities  or  property  of any  nature
                  whatsoever   (other  than  cash  and  other  than   Greenbriar
                  Convertible  Securities  or  Additional  Shares of  Greenbriar
                  Nonpreferred Stock); or

                           (3) any warrants or other rights to subscribe  for or
                  purchase  any  evidences  of  its  indebtedness   (other  than
                  Greenbriar  Convertible  Securities),  any shares of its stock
                  (other  than  Additional  Shares  of  Greenbriar  Nonpreferred
                  Stock) or any  other  securities  or  property  of any  nature
                  whatsoever   (other  than  cash  and  other  than   Greenbriar
                  Convertible  Securities  or  Additional  Shares of  Greenbriar
                  Nonpreferred Stock);

         then the  Conversion  Price in effect  shall be adjusted to that number
         determined  by  multiplying  the  Conversion  Price then in effect by a
         fraction (x) the  numerator of which shall be the Fair Market Price per
         share  of  Greenbriar  Common  Stock  immediately  prior to the date of
         taking  such  record  minus  the  portion  applicable  to one  share of
         Greenbriar  Common Stock of any such cash so  distributable  and of the
         fair value of any and all such  evidences  of  indebtedness,  shares of
         stock, other securities or property,  or warrants or other subscription
         or purchase  rights so  distributable  and (y) the denominator of which
         shall be the Fair Market  Price per share of  Greenbriar  Common  Stock
         immediately prior to the date of taking such record.  The fair value of
         any and all such evidences of indebtedness, shares of stock,



                                       12

<PAGE>



         other  securities  or property,  or warrants or other  subscription  or
         purchase  rights,   shall  be  determined  pursuant  to  the  Valuation
         Procedure.  The "Valuation  Procedure" is a determination of fair value
         of any  property  made in good  faith  by the  Board  of  Directors  of
         Greenbriar;  provided  that,  if  the  Preferred  Stock  Representative
         objects  to such  determination  within 10 days of  receipt  of written
         notification  thereof,  then the fair value of such  property  shall be
         determined  in good  faith by a  recognized  national  investment  bank
         selected  by  unanimous  vote or consent of the Board of  Directors  of
         Greenbriar,  which investment bank is not reasonably objected to by the
         Preferred  Stock   Representative.   The  fees  and  expenses  of  such
         investment bank shall be paid by one-half by Greenbriar and one-half by
         the holders of the Series F Senior Preferred Stock. A  reclassification
         of  the  Greenbriar   Nonpreferred  Stock  into  shares  of  Greenbriar
         Nonpreferred  Stock and  shares of any  other  class of stock  shall be
         deemed a  distribution  by Greenbriar to the holders of its  Greenbriar
         Nonpreferred  Stock of such shares of such other class of stock  within
         the meaning of this Section  6.4(b) and, if the  outstanding  shares of
         Greenbriar Nonpreferred Stock shall be changed into a larger or smaller
         number  of shares of  Greenbriar  Nonpreferred  Stock as a part of such
         reclassification,  shall be deemed a subdivision or combination, as the
         case may be, of the outstanding shares of Greenbriar Nonpreferred Stock
         within the meaning of Section 6.4(a).

                  (c) Issuance of Additional  Shares of Greenbriar  Nonpreferred
         Stock. In case at any time or from time to time after the Closing Date,
         Greenbriar  shall (except as hereinafter  provided)  issue,  whether in
         connection  with  the  merger  of  a  corporation  into  Greenbriar  or
         otherwise, any Additional Shares of Greenbriar Nonpreferred Stock for a
         consideration  per share less than either the  Conversion  Price or the
         Fair  Market  Price  per  share  of  Greenbriar  Common  Stock  on  the
         Computation  Date,  then the Conversion  Price shall be adjusted to the
         lower of either:

                           (1)  that  number   determined  by  multiplying   the
                  Conversion   Price  in  effect   immediately   prior  to  such
                  adjustment  by a fraction (x) the  numerator of which shall be
                  the number of shares of Greenbriar  Nonpreferred  Stock,  plus
                  the number of shares of  Greenbriar  Nonpreferred  Stock which
                  the  aggregate  consideration  for the  total  number  of such
                  Additional Shares of Greenbriar  Nonpreferred  Stock so issued
                  would purchase at the greater of the  Conversion  Price or the
                  Fair Market Price per share of Greenbriar Common Stock and (y)
                  the  denominator  of which  shall be the  number  of shares of
                  Greenbriar   Nonpreferred   Stock  plus  the  number  of  such
                  Additional Shares of Greenbriar  Nonpreferred Stock so issued;
                  or

                           (2) the  value of the  consideration  per  share  for
                  which such Additional Shares of Greenbriar  Nonpreferred Stock
                  were  issued (or, in the case of  adjustments  under  Sections
                  6.4(d) or 6.4(e), are issuable).

         No adjustment of the Conversion  Price shall be made under this Section
         6.4(c)  upon  the  issuance  of any  Additional  Shares  of  Greenbriar
         Nonpreferred  Stock which are issued  pursuant  to the  exercise of any
         warrants or other  subscription  or purchase  rights or pursuant to the
         exercise  of any  conversion  or  exchange  rights  in  any  Greenbriar
         Convertible  Securities,  if any such adjustment  shall previously have
         been made upon the  issuance of such  warrants or other  rights or upon
         the issuance of such



                                       13

<PAGE>



         Greenbriar  Convertible Securities (or upon the issuance of any warrant
         or other rights therefor) pursuant to Section 6.4(d) or 6.4(e).

                  (d) Issuance of Warrants,  Options or Other Rights. In case at
         any time or from time to time after the Closing Date,  Greenbriar shall
         take a record of the holders of its Greenbriar  Nonpreferred  Stock for
         the purpose of entitling  them to receive a  distribution  of, or shall
         otherwise issue, any warrants, options or other rights to subscribe for
         or purchase any Additional Shares of Greenbriar  Nonpreferred  Stock or
         any Greenbriar  Convertible  Securities and the consideration per share
         for which Additional Shares of Greenbriar Nonpreferred Stock may at any
         time thereafter be issuable pursuant to such warrants, options or other
         rights  or  pursuant  to  the  terms  of  such  Greenbriar  Convertible
         Securities  shall be less than either the Conversion  Price or the Fair
         Market Price per share of  Greenbriar  Common Stock on the  Computation
         Date,  then the  Conversion  Price  shall be  adjusted  as  provided in
         Section 6.4(c). Such adjustment shall be made on the basis that (i) the
         maximum number of Additional  Shares of Greenbriar  Nonpreferred  Stock
         issuable  pursuant  to all such  warrants,  options or other  rights or
         necessary to effect the  conversion or exchange of all such  Greenbriar
         Convertible  Securities  shall be deemed to have been  issued as of the
         Computation Date, and (ii) the aggregate consideration for such maximum
         number of Additional Shares of Greenbriar  Nonpreferred  Stock shall be
         deemed to be the  minimum  consideration  received  and  receivable  by
         Greenbriar  for the issuance of such  Additional  Shares of  Greenbriar
         Nonpreferred  Stock pursuant to such warrants,  options or other rights
         or pursuant to the terms of such Greenbriar Convertible Securities.

                  (e) Issuance of Greenbriar Convertible Securities.  In case at
         any time or from time to time after the Closing Date,  Greenbriar shall
         take a record of the holders of its Greenbriar  Nonpreferred  Stock for
         the purpose of entitling  them to receive a  distribution  of, or shall
         otherwise  issue,  any  Greenbriar   Convertible   Securities  and  the
         consideration  per  share  for which  Additional  Shares of  Greenbriar
         Nonpreferred  Stock may at any time thereafter be issuable  pursuant to
         the terms of such Greenbriar  Convertible Securities shall be less than
         either  the  Conversion  Price or the Fair  Market  Price  per share of
         Greenbriar  Common Stock on the  Computation  Date, then the Conversion
         Price shall be adjusted as provided in Section 6.4(c). Such adjustments
         shall be made on the basis that (i) the  maximum  number of  Additional
         Shares  of  Greenbriar  Nonpreferred  Stock  necessary  to  effect  the
         conversion or exchange of all such  Greenbriar  Convertible  Securities
         shall be deemed to have been  issued as of the  Computation  Date,  and
         (ii) the aggregate  consideration for such maximum number of Additional
         Shares  of  Greenbriar  Nonpreferred  Stock  shall be  deemed to be the
         minimum  consideration  received and  receivable by Greenbriar  for the
         issuance of such  Additional  Shares of Greenbriar  Nonpreferred  Stock
         pursuant to the terms of such  Greenbriar  Convertible  Securities.  No
         adjustment  of the  Conversion  Price shall be made under this  Section
         6.4(e) upon the issuance of any Greenbriar Convertible Securities which
         are  issued   pursuant  to  the  exercise  of  any  warrants  or  other
         subscription or purchase rights therefor,  if any such adjustment shall
         previously  have been made upon the issuance of such  warrants or other
         rights pursuant to Section 6.4(d).




                                       14

<PAGE>



                  (f)  Superseding  Adjustment of Conversion  Price.  If, at any
         time after any adjustment of the Conversion  Price shall have been made
         pursuant to the foregoing  Section 6.4(d) or 6.4(e) on the basis of the
         issuance  of  warrants  or  other  rights  or  the  issuance  of  other
         Greenbriar Convertible  Securities,  or after any new adjustment of the
         Conversion Price shall have been made pursuant to this Section 6.4(f):

                           (1) all of such  warrants,  options  or rights or the
                  right of  conversion  or  exchange  in such  other  Greenbriar
                  Convertible   Securities  shall  expire,   and  none  of  such
                  warrants,  options or rights,  or the right of  conversion  or
                  exchange  in  respect  of such  other  Greenbriar  Convertible
                  Securities, as the case may be, shall have been exercised; or

                           (2) the consideration per share, for which Additional
                  Shares of Greenbriar  Nonpreferred Stock are issuable pursuant
                  to all of such warrants, options or rights or the terms of all
                  of such  other  Greenbriar  Convertible  Securities,  shall be
                  increased solely by virtue of provisions therein contained for
                  an automatic increase in such consideration per share upon the
                  arrival of a specified  date or the  happening  of a specified
                  event,  and none of such warrants,  options or rights,  or the
                  right of  conversion  or  exchange  in  respect  of such other
                  Greenbriar Convertible  Securities,  as the case may be, shall
                  have been exercised;

         such  previous  adjustment  shall be  rescinded  and  annulled  and the
         Additional Shares of Greenbriar Nonpreferred Stock which were deemed to
         have been issued by virtue of the  computation  made in connection with
         the  adjustment so rescinded and annulled  shall no longer be deemed to
         have  been  issued  by  virtue  of  such  computation.   Thereupon,   a
         recomputation  shall be made of the effect of such warrants,  rights or
         options  or other  Greenbriar  Convertible  Securities  on the basis of
         treating  any such  warrants,  options  or  rights  or any  such  other
         Greenbriar  Convertible  Securities  which then remain  outstanding  as
         having  been  granted  or  issued  immediately  after  the time of such
         increase of the  consideration  per share for such Additional Shares of
         Greenbriar  Nonpreferred  Stock are  issuable  under such  warrants  or
         rights or other Greenbriar Convertible  Securities;  and, if and to the
         extent  called for by the  foregoing  provisions of this Section 6.4 on
         the basis aforesaid,  a new adjustment of the Conversion Price shall be
         made, which new adjustment  shall supersede the previous  adjustment so
         rescinded and annulled.

                  (g) Other  Provisions  Applicable  to  Adjustments  Under this
         Section.  The following provisions shall be applicable to the making of
         adjustments of the Conversion Price  hereinbefore  provided for in this
         Section 6.4:

                           (1) Treasury Stock. The sale or other  disposition of
                  any issued  shares of Greenbriar  Nonpreferred  Stock owned or
                  held by or for the  account of  Greenbriar  shall be deemed an
                  issuance thereof for purposes of this Section 6.4.

                           (2) Computation of Consideration.  To the extent that
                  any Additional Shares of Greenbriar  Nonpreferred Stock or any
                  Greenbriar Convertible Securities or any warrants,  options or
                  other rights to subscribe for or purchase



                                       15

<PAGE>



                  any Additional Shares of Greenbriar  Nonpreferred Stock or any
                  Greenbriar  Convertible  Securities shall be issued solely for
                  cash consideration,  the consideration  received by Greenbriar
                  therefor  shall be deemed to be the amount of cash received by
                  Greenbriar   therefor,   or,  if  such  Additional  Shares  of
                  Greenbriar   Nonpreferred  Stock  or  Greenbriar   Convertible
                  Securities  are offered by Greenbriar  for  subscription,  the
                  subscription   price,   or,  if  such  Additional   Shares  of
                  Greenbriar   Nonpreferred  Stock  or  Greenbriar   Convertible
                  Securities  are sold to  underwriters  or  dealers  for public
                  offering without a subscription  offering,  the initial public
                  offering price, in any such case excluding any amounts paid or
                  receivable  for  accrued  interest  or accrued  dividends  and
                  without deduction of any  compensation,  discounts or expenses
                  paid or incurred by Greenbriar for and in the underwriting of,
                  or  otherwise  in  connection  with,  the issue  thereof.  The
                  consideration   for  any   Additional   Shares  of  Greenbriar
                  Nonpreferred Stock issuable pursuant to any warrants,  options
                  or other rights to subscribe for or purchase the same shall be
                  the  consideration  received or receivable  by Greenbriar  for
                  issuing  such  warrant,  options  or  other  rights,  plus the
                  additional   consideration  payable  to  Greenbriar  upon  the
                  exercise  of such  warrants,  options  or  other  rights.  The
                  consideration   for  any   Additional   Shares  of  Greenbriar
                  Nonpreferred  Stock  issuable  pursuant  to the  terms  of any
                  Greenbriar  Convertible  Securities shall be the consideration
                  received or receivable by Greenbriar  for issuing any warrants
                  or other rights to subscribe for or purchase  such  Greenbriar
                  Convertible Securities, plus the consideration paid or payable
                  to Greenbriar in respect of the  subscription  for or purchase
                  of such Greenbriar Convertible Securities, plus the additional
                  consideration, if any, payable to Greenbriar upon the exercise
                  of the right of  conversion  or  exchange  in such  Greenbriar
                  Convertible Securities.  To the extent that any issuance shall
                  be for a  consideration  other  than  solely  for cash,  then,
                  except as herein otherwise expressly  provided,  the amount of
                  such  consideration  shall be deemed  to be the fair  value of
                  such  consideration at the time of such issuance as determined
                  pursuant to the Valuation Procedure.

                           (3)  When  Adjustments  to be made.  The  adjustments
                  required  by the  preceding  subsections  of this  Section 6.4
                  shall be made  whenever  and as often as any  specified  event
                  requiring an adjustment shall occur, except that no adjustment
                  of the Conversion Price that would otherwise be required shall
                  be made (except in the case of a subdivision or combination of
                  shares of the Greenbriar Nonpreferred Stock as provided for in
                  Section  6.4(a)) unless and until such  adjustment,  either by
                  itself or with other  adjustments not previously made, adds or
                  subtracts  at  least  $0.05  to  the  Conversion   Price,   as
                  determined  in  good  faith  by  the  Board  of  Directors  of
                  Greenbriar.  Any adjustment representing a change of less than
                  such minimum amount shall be carried  forward and made as soon
                  as such adjustment,  together with other adjustments  required
                  by this Section 6.4 and not previously made, would result in a
                  minimum  adjustment.  For the purpose of any  adjustment,  any
                  specified  event shall be deemed to have occurred at the close
                  of business on the date of its occurrence.




                                       16

<PAGE>



                           (4) Fractional  Interests.  In computing  adjustments
                  under this Section  6.4,  fractional  interests in  Greenbriar
                  Nonpreferred  Stock shall be taken into account to the nearest
                  one-thousandth of a share.

                           (5) When Adjustment Not Required. If Greenbriar shall
                  take a record of the  holders of its  Greenbriar  Nonpreferred
                  Stock for the purpose of entitling  them to receive a dividend
                  or  distribution or subscription or purchase rights and shall,
                  thereafter   and   before   the   distribution    thereof   to
                  shareholders,  legally abandon its plan to pay or deliver such
                  dividend, distribution,  subscription or purchase rights, then
                  thereafter  no  adjustment  shall be required by reason of the
                  taking of such record and any such adjustment  previously made
                  in respect thereof shall be rescinded and annulled.

                  (h) Merger,  Consolidation  or Disposition of Assets.  In case
         Greenbriar  shall merge or  consolidate  into another  corporation,  or
         shall sell,  transfer or otherwise  dispose of all or substantially all
         of its  property,  assets or  business to another  corporation,  except
         where there is a Special Asset Sale Trigger,  and pursuant to the terms
         of such merger, consolidation or disposition, shares of common stock of
         the  successor  or  acquiring  corporation  are  to be  received  by or
         distributed to the holders of Greenbriar  Nonpreferred Stock, then each
         holder of a share of the Series F Senior Preferred Stock shall have the
         right thereafter to receive,  upon exercise of such share of the Series
         F Senior  Preferred  Stock,  shares of common stock each comprising the
         number  of  shares  of  common  stock  of the  successor  or  acquiring
         corporation   receivable   upon  or  as  a  result   of  such   merger,
         consolidation  or  disposition  of assets by a holder of the  number of
         shares of Greenbriar  Common Stock into which one share of the Series F
         Senior  Preferred  Stock could be converted  immediately  prior to such
         event.  If,  pursuant  to the terms of such  merger,  consolidation  or
         disposition of assets, any cash, shares of stock or other securities or
         property  of  any  nature  whatsoever   (including  warrants  or  other
         subscription  or purchase  rights) are to be received by or distributed
         to the holders of Greenbriar  Nonpreferred  Stock in addition to common
         stock of the successor or acquiring  corporation,  then the  Conversion
         Price  in  effect  shall  be  adjusted  to that  number  determined  by
         multiplying  the Conversion  Price then in effect by a fraction (x) the
         numerator  of  which  shall  be the  Fair  Market  Price  per  share of
         Greenbriar  Common  Stock  immediately  prior  to the  closing  of such
         merger,  consolidation or disposition  minus the portion  applicable to
         one share of Greenbriar  Common Stock of any such cash so distributable
         and of the fair value of any such  shares of stock or other  securities
         or property so received or distributed and (y) the denominator of which
         shall be the Fair Market  Price per share of  Greenbriar  Common  Stock
         immediately  prior to the  closing  of such  merger,  consolidation  or
         disposition.  The  fair  value  of any  such  shares  of stock or other
         securities or property  shall be  determined  pursuant to the Valuation
         Procedure. In case of any such merger,  consolidation or disposition of
         assets, the successor acquiring  corporation shall expressly assume the
         due and punctual  observance and performance of each and every covenant
         and condition hereof to be performed and observed by Greenbriar and all
         of  the  obligations  and  liabilities   hereunder,   subject  to  such
         modification  as shall be necessary to provide for  adjustments  to the
         Conversion Price which shall be as nearly  equivalent as practicable to
         the  adjustments  provided for in this Section 6.4. For the purposes of
         this  Section  6.4(h),  "common  stock of the  successor  or  acquiring
         corporation"  shall  include  stock of such  corporation  of any class,
         which is not preferred



                                       17

<PAGE>



         as to  dividends  or  assets  over  any  other  class  of stock of such
         corporation  and which is not  subject  to  redemption,  and shall also
         include  any  evidences  of  indebtedness,  shares  of  stock  or other
         securities  which are  convertible  into or  exchangeable  for any such
         stock,  either  immediately  or upon the arrival of a specified date or
         the happening of a specified event, and any warrants or other rights to
         subscribe for or purchase any such stock.  The foregoing  provisions of
         this  Section  6.4(h)  shall  similarly  apply to  successive  mergers,
         consolidations or dispositions of assets.

                  (i) Purchases or Redemptions. In case at any time or from time
         to time after the Closing Date, Greenbriar shall (except as hereinafter
         provided)  purchase or redeem any  Greenbriar  Common Stock,  warrants,
         options or other rights to  subscribe  for,  purchase,  convert into or
         exchange  for  Greenbriar  Common Stock for a  consideration  per share
         greater than the Fair Market Price per share of Greenbriar Common Stock
         on the Computation Date, then the Conversion Price shall be adjusted to
         the lower of either:

                           (1)  that  number   determined  by  multiplying   the
                  Conversion   Price  in  effect   immediately   prior  to  such
                  adjustment  by a fraction (x) the  numerator of which shall be
                  the  number of  shares of  Greenbriar  Common  Stock  plus the
                  number  of such  shares  or share  equivalents  of  Greenbriar
                  Common Stock,  warrants,  options or other rights to subscribe
                  for, purchase,  convert into or exchange for Greenbriar Common
                  Stock so  purchased  or redeemed  and (y) the  denominator  of
                  which  shall be the  number  of shares  of  Greenbriar  Common
                  Stock,  plus the  number  of shares  or share  equivalents  of
                  Greenbriar Common Stock which the aggregate  consideration for
                  the total number of such  Greenbriar  Common Stock,  warrants,
                  options or other rights to subscribe  for,  purchase,  convert
                  into or exchange for  Greenbriar  Common Stock so purchased or
                  redeemed  would purchase at the Fair Market Price per share of
                  Greenbriar Common Stock; or

                           (2) the  value of the  consideration  per  share  for
                  which such Greenbriar Common Stock, warrants, options or other
                  rights to subscribe  for,  purchase,  convert into or exchange
                  for Greenbriar Common Stock were purchased or redeemed.

         No adjustment of the Conversion  Price shall be made under this Section
         6.4(c)  upon  the  issuance  of any  Additional  Shares  of  Greenbriar
         Nonpreferred  Stock which are issued  pursuant  to the  exercise of any
         warrants or other  subscription  or purchase  rights or pursuant to the
         exercise  of any  conversion  or  exchange  rights  in  any  Greenbriar
         Convertible  Securities,  if any such adjustment  shall previously have
         been made upon the  issuance of such  warrants or other  rights or upon
         the issuance of such  Greenbriar  Convertible  Securities  (or upon the
         issuance of any warrant or other rights  therefor)  pursuant to Section
         6.4(d) or 6.4(e).

                  (j) Other Action Affecting  Greenbriar  Nonpreferred Stock. In
         case at any time or from time to time Greenbriar  shall take any action
         affecting  its  Greenbriar  Nonpreferred  Stock,  other  than an action
         described  in  any  of  the  foregoing  Sections  6.4(a)  through  (i),
         inclusive,  then,  unless in the opinion of the Board of Directors such
         action will not have a materially adverse effect upon the rights of the



                                       18

<PAGE>




         holders of the Series F Senior  Preferred  Stock,  the Conversion Price
         shall be  adjusted  in such  manner  and at such  time as the  Board of
         Directors  may  in  good  faith   determine  to  be  equitable  in  the
         circumstances.

         6.5 No Impairment.  Other than in connection  with the amendment of its
Articles of  Incorporation  approved by the  requisite  number of  stockholders,
Greenbriar   will  not,   through  any   reorganization,   transfer  of  assets,
consolidation,  merger,  dissolution,  issue or sale of  securities or any other
voluntary action,  avoid the observance or performance of any of the terms to be
observed or  performed  hereunder  by  Greenbriar  but will at all times in good
faith assist in the carrying out of all the  provisions of this Section 6 and in
the taking of all such action as may be  necessary  or  appropriate  in order to
protect the  conversion  rights of the holders of the Series F Senior  Preferred
Stock against  impairment.  Without  limiting the  generality of the  foregoing,
Greenbriar  (i) will not permit the par value of any shares of stock at the time
receivable upon the conversion of the Series F Senior  Preferred Stock to exceed
the  Conversion  Price then in effect,  (ii) will take all such action as may be
necessary  or  appropriate  in order that  Greenbriar  may  validly  and legally
deliver fully paid nonassessable shares of stock on the conversion of the Series
F Senior  Preferred  Stock,  and (iii) will not issue any  Additional  Shares of
Greenbriar  Nonpreferred Stock or Greenbriar  Convertible Securities or take any
action which  results in any  adjustment  of the  Conversion  Price if the total
number of shares of Greenbriar  Common Stock required to be delivered after such
issuance or action upon the  conversion  of all the then  outstanding  shares of
Series F Senior  Preferred  Stock will exceed the number of shares of Greenbriar
Common Stock and available for the purpose of delivery upon such conversion.

         6.6  Certificate  as  to  Adjustments.  Upon  the  occurrence  of  each
adjustment or readjustment  of the Conversion  Price pursuant to this Section 6,
Greenbriar at  Greenbriar's  expense shall promptly  compute such  adjustment or
readjustment  in  accordance  with the terms hereof and furnish to the Preferred
Stock Representative a certificate setting forth such adjustment or readjustment
and showing in detail the facts upon which such  adjustment or  readjustment  is
based, including a statement of (i) the consideration received or to be received
by Greenbriar for any Additional Shares of Greenbriar  Nonpreferred Stock issued
or sold or deemed to have been issued,  (ii) the number of shares of  Greenbriar
Nonpreferred  Stock  outstanding  or  deemed  to be  outstanding,  and (iii) the
Conversion  Price  in  effect  immediately  prior  to such  issue or sale and as
adjusted  and  readjusted  on account  thereof,  showing how it was  calculated.
Greenbriar  shall,  upon  the  written  request  at any  reasonable  time of the
Preferred Stock Representative,  furnish or cause to be furnished to such holder
a like certificate setting forth (i) the Conversion Price at the time in effect,
showing  how it was  calculated,  and (ii) the  number of  shares of  Greenbriar
Common Stock and the amount,  if any, of other  property which at the time would
be received upon the conversion of the Series F Senior Preferred Stock.

         6.7 Notices of Record Date. In the event of any taking by Greenbriar of
a  record  of the  holders  of any  class  of  securities  for  the  purpose  of
determining  the  holders  thereof who are  entitled to receive any  dividend or
other distribution, or any right to subscribe for, purchase or otherwise acquire
any  shares of stock of any class or any other  securities  or  property,  or to
receive any other  right,  Greenbriar  shall mail to each holder of the Series F
Senior Preferred Stock at least 10 days prior to the date specified  therein,  a
notice  specifying  the date on which  any such  record  is to be taken  for the
purpose of such dividend or distribution.



                                       19

<PAGE>




         7.       Covenants of Greenbriar.

         Without   the   prior   written   consent   of  the   Preferred   Stock
Representative, Greenbriar shall comply with each of the following covenants.

         7.1 Board of  Directors.  So long as any  shares of the Series F Senior
Preferred  Stock shall  remain  outstanding,  Greenbriar  shall not increase the
number  of  directors  above  nine  except in  connection  with the right of the
holders of the Series F Senior Preferred Stock to appoint directors.

         7.2 Greenbriar Common Stock.  Greenbriar shall at all times reserve and
keep available enough shares of Greenbriar Common Stock to effect the conversion
of the Series F Senior Preferred Stock,  subject to (i) appropriate  adjustments
in connection with a stock split or other similar events and (ii) a reduction by
the  number of shares of  Greenbriar  Common  Stock  that have  previously  been
delivered upon conversion of Series F Senior Preferred Stock; all of such shares
of  Greenbriar  Common  Stock which are  issuable to the holders of the Series F
Senior  Preferred  Stock  by  way of  conversion,  will  be  when  issued,  duly
authorized and validly issued,  fully paid and nonassessable,  and free from all
taxes, liens and charges.

         7.3 Cash Reserves after a Special Asset Sale Trigger. Commencing on the
date nine  months  after the date of a Special  Asset Sale  Trigger,  Greenbriar
shall, at all times, maintain cash or Permitted Investments in excess of the sum
of (i) the current  Liquidation Value of the Series F Senior Preferred Stock and
(ii) the current  Liquidation  Value (as defined in the Series G Certificate  of
Designation) of the Series G Senior Non-Voting Preferred Stock.

         8.       Events of Default.

         8.1 Notice of Event of Default.  Upon an Event of Default or  Potential
Default,  Greenbriar  shall provide  written  notice of such Event of Default or
Potential Default, including the date on which such event first occurred, to the
Preferred  Stock  Representative  within 10 days  after the  occurrence  of such
event. Any Event of Default or Potential Default may be waived in writing by the
Preferred Stock  Representative  at any time, in which case Sections 8.2 through
8.4 shall not apply with respect to such Event of Default or Potential  Default;
provided,  however,  that no such  waiver of an Event of  Default  or  Potential
Default  shall be  deemed  to be a waiver  of any  other  Event  of  Default  or
Potential Default.

         8.2 Dividends  During Event of Default.  Upon the occurrence and during
the  continuance  of an Event of  Default  resulting  from  (i) the  failure  of
Greenbriar to comply with any of the  covenants  contained in Sections 6.1, 6.3,
6.8, 6.10, 6.19,  6.20,  6.22, 6.24 and 6.27- 6.37 of the Purchase  Agreement or
(ii)  any  of the  events  specified  in  clauses  (ii)  through  (viii)  of the
definition of "Event of Default," the holders of outstanding  shares of Series F
Senior  Preferred  Stock shall be entitled to receive,  in addition to all other
dividends  payable  hereunder to holders of shares of Series F Senior  Preferred
Stock and when,  as and if  declared  by the  Board of  Directors,  out of funds
legally  available for the payment of dividends,  cumulative  preferential  cash
dividends accruing from the date of the Event of Default (the "Default Date") in
an amount per share per annum equal to $1.20 per share,



                                       20

<PAGE>



payable  quarterly  on the last  Business  Day of  March,  June,  September  and
December of each year.  Dividends on the Series F Senior  Preferred  Stock shall
accrue  (whether  or not  declared)  on a daily  basis and  shall be  cumulative
(whether  or not in any  Dividend  Period  there  shall be  funds of  Greenbriar
legally  available for the payment of such dividends).  The first dividend shall
accrue from the Default Date through the last Business Day of the first calendar
quarter to end after the Default Date, and subsequent  dividends shall accrue on
a daily basis during the dividend period for which they are payable.

         8.3  Election  of  Directors.   Upon  the  occurrence  and  during  the
continuance of an Event of Default resulting from any of the events specified in
clauses (ii) through (viii) of the definition of "Event of Default," the holders
of  shares of Series F Senior  Preferred  Stock  shall  have the  right,  acting
separately as a class, to elect a number of persons to the Board of Directors of
Greenbriar that will  constitute 70% of the Board of Directors.  Upon the taking
of such  action,  the  maximum  authorized  number  of  members  of the Board of
Directors  shall  automatically  increase by the number of directors so elected,
and the vacancies so created shall be filled by the persons elected  pursuant to
this Section  8.3. In the event that upon the  election of directors  under this
Section 8.3,  Greenbriar is required  under Rule 14f-1 under the Exchange Act to
file with the Commission and transmit to its stockholders  certain  information,
Greenbriar  shall take such action as promptly as  practicable,  and the term of
office of the  directors  so elected  shall  begin upon the  termination  of the
10-day  period  prescribed  by such Rule.  A director  elected by the holders of
Series F Senior  Preferred  Stock pursuant to this Section 8.3 shall serve until
his successor is duly elected and qualified, until his removal or until his term
terminates as provided  below.  Such a director may be removed  without cause at
any time by action,  and only by such action, of the holders of shares of Series
F Senior  Preferred  Stock. If the office of a director elected pursuant to this
Section  8.3  becomes  vacant  by  reason  of  death,  resignation,  retirement,
disqualification,  removal from office or otherwise,  such vacancy may be filled
by the  action,  and only by such  action,  of the holders of shares of Series F
Senior Preferred Stock. At such time as the Event of Default giving rise to this
right to elect directors has been cured,  such right shall terminate,  the terms
of any directors  elected  pursuant to this Section 8.3 shall  terminate and the
maximum  number of authorized  members of the Board of Directors  shall decrease
automatically  to the  maximum  number  of  authorized  members  of the Board of
Directors in effect  immediately before any action was taken pursuant hereto. At
any time when the  special  voting  rights of the holders of the Series F Senior
Preferred Stock provided in this Section 8.3 shall have become operative and not
have been  exercised,  a proper  officer of Greenbriar  shall,  upon the written
request  of the  holders  of record  of at least  20% of the  shares of Series F
Senior  Preferred  Stock  then   outstanding   addressed  to  the  Secretary  of
Greenbriar,  call a  special  meeting  of the  holders  of the  Series  F Senior
Preferred Stock for the purpose of electing the allotted directors to be elected
by the Series F Senior  Preferred  Stock.  Such meeting  shall be held within 30
days  after  delivery  of  such  request  to  Greenbriar  at such  place  in the
continental United States as may be specified in such written request;  provided
that the Secretary  shall not be required to call such a special  meeting in the
case of any such request received less than 30 days before the date fixed for an
annual meeting of Greenbriar's stockholders.

         8.4 Put Option.  Upon the  occurrence of an Event of Default  resulting
from (i) the failure of Greenbriar to comply with any of the covenants contained
in Sections  6.1,  6.3,  6.10,  6.19,  6.20,  6.22,  6.27-6.35  of the  Purchase
Agreement or (ii) any of the events specified in clauses (iii) through (viii) of
the definition of "Event of Default," each holder of shares of



                                       21

<PAGE>



Series F Senior  Preferred  Stock  shall  have the right,  by written  notice to
Greenbriar (the "Repurchase  Notice") within 90 days after the occurrence of the
Event of Default,  to require that Greenbriar  repurchase,  out of funds legally
available  therefor,  any or all of such  holder's  shares  of  Series  F Senior
Preferred Stock for an amount in cash equal to 120% of the Liquidation  Value of
the shares of Series F Senior  Preferred  Stock to be repurchased as of the date
of the holder's Repurchase Notice. Any Repurchase Notice shall be accompanied by
duly endorsed certificates  representing the shares of Series F Senior Preferred
Stock to be repurchased.  Upon receipt of a Repurchase Notice,  Greenbriar shall
make  payment  in  cash  of  the  appropriate  amount  to the  holder  requiring
repurchase  with  five  Business  Days of the date  such  Repurchase  Notice  is
received, unless prior to such payment,  Greenbriar receives written notice from
such holder that such holder is withdrawing its requirement of the repurchase of
its shares of Series F Senior Preferred Stock.

         8.5 Special Asset Sale Trigger. Upon a Special Asset Sale Trigger, each
holder of shares of Series F Senior  Preferred  Stock  shall have the right,  by
written notice to Greenbriar  (the "Asset Sale  Repurchase  Notice") within nine
months  after  written  notice  to the  Preferred  Stock  Representative  of the
occurrence  of  a  Special  Asset  Sale  Trigger,  to  require  that  Greenbriar
repurchase,  out of funds legally available therefor, a specified number of such
holder's shares (the  "Repurchase  Shares") of Series F Senior  Preferred Stock.
The Repurchase Shares may be all or any portion of such holder's total shares of
Series F Senior Preferred  Stock. The Repurchase  Shares shall be repurchased by
Greenbriar for an amount in cash equal to the aggregate Liquidation Value of the
Repurchase  Shares  plus the greater  of: (i) 20% of the  aggregate  Liquidation
Value of the  Repurchase  Shares or (ii) a 20% IRR on the aggregate  Liquidation
Value of the  Repurchase  Shares,  in each case,  as of the date of the holder's
Asset  Sale  Repurchase  Notice.  Any  Asset  Sale  Repurchase  Notice  shall be
accompanied by duly endorsed  certificates  representing the Repurchase  Shares.
Upon receipt of a Asset Sale Repurchase Notice, Greenbriar shall make payment in
cash of the  appropriate  amount to the holder  requiring  repurchase  with five
Business Days of the date such Asset Sale Repurchase Notice is received,  unless
prior to such payment,  Greenbriar receives written notice from such holder that
such holder is withdrawing  its  requirement of the repurchase of the Repurchase
Shares.

         8.6 Change in  Management.  If at any time after the date  hereof,  (i)
James R.  Gilley  is not  serving  as  Chairman  of the  Board of  Directors  of
Greenbriar  for any  reason  and (ii) the  Preferred  Stock  Representative  has
proposed one or more candidates for Mr. Gilley's  replacement that is willing to
serve  regardless of whether or not any of such  candidate(s)  are acceptable to
Greenbriar,  unless  within  15 days of the date Mr.  Gilley  ceases to serve as
Chairman  Mr.  Gilley's  replacement  as  Chairman  is  mutually  agreed upon by
Greenbriar and the Preferred Stock  Representative,  there shall have occurred a
"Change in  Management"  which  shall give to each  holder of shares of Series F
Senior  Preferred  Stock the right, by written notice to Greenbriar (the "Change
in Management  Repurchase  Notice")  within 90 days after the  occurrence of the
Change in  Management,  to  require  that  Greenbriar  repurchase,  out of funds
legally  available  therefor,  a specified  number of such holder's  shares (the
"Change in Management  Repurchase  Shares") of Series F Senior  Preferred Stock.
The Change in  Management  Repurchase  Shares may be all or any  portion of such
holder's  total  shares  of  Series F Senior  Preferred  Stock.  The  Change  in
Management Repurchase Shares shall be repurchased by Greenbriar for an amount in
cash  equal to the  aggregate  Liquidation  Value of the  Change  in  Management
Repurchase  Shares  plus the greater  of: (i) 20% of the  aggregate  Liquidation
Value of the Change in Management Repurchase Shares or (ii) a 20%



                                       22

<PAGE>


IRR on the aggregate  Liquidation  Value of the Change in Management  Repurchase
Shares,  in each  case,  as of the date of the  holder's  Change  in  Management
Repurchase  Notice.  Any  Change  in  Management   Repurchase  Notice  shall  be
accompanied by duly endorsed certificates  representing the Change in Management
Repurchase  Shares  which  shall be free  and  clear of all  claims,  liens  and
encumbrances.  Upon  receipt  of  a  Change  in  Management  Repurchase  Notice,
Greenbriar  shall execute a full recourse  promissory  note for the  appropriate
amount to the holder  requiring  repurchase (the "Repurchase  Promissory  Note")
within  five  Business  Days of the date such  Change in  Management  Repurchase
Notice is received,  unless prior to such payment,  Greenbriar  receives written
notice from such holder that such holder is withdrawing  its  requirement of the
repurchase  of the  Change  in  Management  Repurchase  Shares.  The  Repurchase
Promissory  Note shall be (a) in a form agreed to by Greenbriar  and the initial
purchaser of the Series F Senior Preferred Stock, (b) for a term of one (1) year
from the date of the Change in  Management  Repurchase  Notice,  with 50% of the
principal together with all accrued interest due six (6) months from the date of
the Change in Management Repurchase Notice, (c) shall bear interest at the lower
of eighteen  percent  (18%) or the highest rate allowed by law, and (d) shall be
secured  by the  highest  available  lien on all of the  property  and assets of
Greenbriar  and the  Subsidiaries  reasonably  sufficient to secure such holders
right of repayment,  including all ownership  interests of all  subsidiaries  of
Greenbriar,  except where such lien (i) is in violation  of its  certificate  of
incorporation,  articles of  incorporation or bylaws of Greenbriar or any of the
Subsidiaries;  (ii) would create a default in the performance of any obligation,
agreement or condition contained in any license, contract, indenture,  mortgage,
installment  sale  agreement,  lease,  deed of trust,  voting  trust  agreement,
stockholders' agreement, note, loan, credit agreement, purchase order, agreement
or instrument  evidencing an obligation for borrowed money or other agreement or
instrument to which Greenbriar or any of the Subsidiaries is a party or by which
Greenbriar or any of the  Subsidiaries  may be bound or to which the property or
assets of Greenbriar or any of the Subsidiaries is subject or affected; or (iii)
would create a violation in any respect of any Law  applicable  to Greenbriar or
any of the Subsidiaries,  that would have a Material Adverse Effect.  Such liens
shall be of the same priority as between all holders requiring  repurchase.  The
Repurchase  Promissory  Note shall be due and payable  immediately if Greenbriar
fails to perfect liens on property and assets of Greenbriar and the Subsidiaries
reasonably  sufficient  to secure such  holders  right of  repayment  within ten
Business  Days of the date  such  Change  in  Management  Repurchase  Notice  is
received, unless prior to such delivery, Greenbriar receives written notice from
such holder that such holder is withdrawing its requirement of the repurchase of
its shares of Series F Senior Preferred Stock.

         8.7 Remedies  Cumulative.  In addition to the remedies  stated  herein,
each holder of Series F Senior  Preferred  Stock will also have any other rights
that  such  holder  may be  entitled  to under  any  agreement  or  pursuant  to
applicable law.

         9.       No Reissuance.

         No shares of Series F Senior  Preferred Stock acquired by Greenbriar by
reason of  redemption,  purchase,  conversion or otherwise  shall be reissued as
Series F Senior Preferred Stock.



                                       23

<PAGE>













                                 EXHIBIT 2.2.3











<PAGE>













                   CERTIFICATE OF VOTING POWERS, DESIGNATIONS,
                    PREFERENCES, AND RELATIVE, PARTICIPATING,
                       OPTIONAL OR OTHER SPECIAL RIGHTS OF
             SERIES G SENIOR NON-VOTING CONVERTIBLE PREFERRED STOCK





















<PAGE>

<TABLE>
<CAPTION>


                                TABLE OF CONTENTS

                                                                                                               Page

<S>                                                                             <C>                             <C>    

         1.       Certain Definitions.............................................................................1

         2.       Ranking of the Series G Senior Non-Voting Preferred Stock.......................................8

         3.       Dividends; Restricted Payments..................................................................9
                  3.1      Dividend Payment Dates.................................................................9
                  3.2      Record Date............................................................................9
                  3.3      Restricted Payments....................................................................9

         4.       Liquidation Rights..............................................................................9

         5.       Voting Rights of Series G Senior Non-Voting Preferred Stock.....................................9
                  5.1      No Voting Rights in Electing Directors.................................................9
                  5.2      Class Voting Rights....................................................................9

         6.       Conversion.....................................................................................10
                  6.1      Right of Holder to Conversion.........................................................10
                  6.2      Mechanics of Conversion by Holder.....................................................11
                  6.3      Mandatory Conversion..................................................................11
                  6.4      Adjustments to Conversion Price for Diluting Issues
                           or Other Transactions.................................................................11
                  6.5      No Impairment.........................................................................18
                  6.6      Certificate as to Adjustments.........................................................19
                  6.7      Notices of Record Date................................................................19

         7.       Covenants of Greenbriar........................................................................19
                  7.1      Greenbriar Common Stock...............................................................19
                  7.2      Cash Reserves after a Special Asset Sale Trigger......................................20

         8.       Events of Default..............................................................................20
                  8.1      Notice of Event of Default............................................................20
                  8.2      Dividends During Event of Default.....................................................20
                  8.3      Put Option............................................................................20
                  8.4      Special Asset Sale Trigger............................................................21
                  8.5      Change in Management..................................................................21
                  8.6      Remedies Cumulative...................................................................22

         9.       No Reissuance..................................................................................22

</TABLE>



                                       (i)

<PAGE>



                             GREENBRIAR CORPORATION

                   Certificate of Voting Powers, Designations,
                    Preferences, and Relative, Participating,
                       Optional or Other Special Rights of
             Series G Senior Non-Voting Convertible Preferred Stock

         We, Floyd B. Rhoades,  President, and Robert L. Griffis,  Secretary, of
Greenbriar ("Greenbriar"), a corporation organized and existing under Chapter 78
of the Nevada  Revised  Statutes,  in accordance  with the provisions of Section
78.1955 of the Nevada Revised Statutes thereof, DO HEREBY CERTIFY:

         That,  pursuant to authority  conferred  upon the Board of Directors by
the  Articles  of  Incorporation,  as  amended,  of  Greenbriar,  said  Board of
Directors, at a meeting of the Board of Directors held pursuant to Chapter 78 of
the  Nevada  Revised  Statutes,  duly  adopted a  resolution  providing  for the
issuance of eight hundred thousand (800,000) shares of a new series of preferred
stock designated as Series G Senior Non-Voting  Convertible Preferred Stock (the
"Series G Senior Non-Voting Preferred Stock"), which resolution is as follows:

         RESOLVED, that pursuant to the Articles of Incorporation of Greenbriar,
there be and hereby is authorized  and created a series of preferred  stock,  to
consist of 800,000 shares with a par value of $0.10 per share and a stated value
of $10.00 per share and that the voting powers,  designations,  preferences, and
relative, participating, optional or other special rights of the Series G Senior
Non-Voting  Convertible  Preferred Stock and the qualifications,  limitations or
restrictions thereof be as follows:

         1.       Certain Definitions.

         The following terms shall have the following meanings:

         "1996 Form 10-K" means  Greenbriar's  Annual  Report on Form 10-KSB for
the year ended December 31, 1996.

         "5-day  Average  Price" per share of common stock,  for purposes of any
provision  herein at the date  specified  in such  provision,  means the average
closing  price of such common stock on the  American  Stock  Exchange,  New York
Stock  Exchange  or  Nasdaq  National  Market  over  the  5-trading  day  period
immediately prior to such date.

         "20-day  Average Price" per share of common stock,  for purposes of any
provision  herein at the date  specified  in such  provision,  means the average
closing  price of such common stock on the  American  Stock  Exchange,  New York
Stock  Exchange  or  Nasdaq  National  Market  over the  20-trading  day  period
immediately prior to such date.

         "Act" means the Securities Act of 1933, as amended.

         "Additional Shares of Greenbriar  Nonpreferred  Stock" means all shares
of Greenbriar  Nonpreferred  Stock issued by  Greenbriar  after the Closing Date
other than (i) any shares of Greenbriar Common Stock issued pursuant to options,
rights or warrants to purchase  Greenbriar  Common Stock issued  pursuant to the
Stock  Option  Plans;  provided  that (a) such  issuances  do not  exceed in the
aggregate 500,000 shares and (b) the exercise price under such



                                        1

<PAGE>



options, rights and warrants shall be payable in cash and shall be not less than
the  greater of the  Conversion  Price or the Fair  Market  Price on the date of
issuance of the  option,  right or warrant,  (ii)  shares of  Greenbriar  Common
Stock,  either sold to  employees of  Greenbriar  or  contributed  as a matching
contribution  at a price  not less  than  the then  current  Fair  Market  Price
pursuant to  Greenbriar's  401(k) plan,  (iii) any shares of  Greenbriar  Common
Stock  issued to James R.  Gilley  pursuant to an option he  currently  holds to
purchase  400,000  shares,  and,  pursuant  to  his  employment  agreement  with
Greenbriar,  any shares of Greenbriar Common Stock issued pursuant to options he
will receive for 200,000  shares on December 31, 1997,  1998 and 1999,  (iv) any
shares of  Greenbriar  Common  Stock  issued to the April  Trust  pursuant  to a
warrant to purchase  108,000 shares,  (v) any shares of Greenbriar  Common Stock
issued to the April  Trust  pursuant to a right to convert  Greenbriar  Series D
Preferred Stock into 337,500 shares,  (vi) any shares of Greenbriar Common Stock
issued to Lone Star  pursuant to a right to convert  Greenbriar  Series F Senior
Preferred Stock and Series G Senior  Non-Voting  Preferred  Stock, and (vii) any
shares of Greenbriar  Common Stock  exchanged with investors in the  Syndication
Program.

         "Affiliate" has the meaning set forth in the Purchase Agreement.

         "Asset Sale Repurchase Notice" has the meaning set forth in Section 8.4

         "Business Day" means any day other than a Saturday,  a Sunday,  any day
on which the New York Stock Exchange is closed or any other day on which banking
institutions in New York are authorized or required by law to be closed.

         "Certificate of Designation" means this Certificate of Voting Powers, 
Designations,  Preferences,  and  Relative,  Participating,  Optional  or  Other
Special Rights of Series G Senior Non-Voting Convertible Preferred Stock.

         "Change in Management" has the meaning set forth in Section 8.5.

         "Change in Management Repurchase Notice" has the meaning set forth in 
Section 8.5.

         "Change in Management Repurchase Shares" has the meaning set forth in 
Section 8.5.

         "Change of Control of  Greenbriar"  means,  with respect to Greenbriar,
the occurrence of any of the following events: (i) any "person" (as such term is
used in  Sections  13(d) and 14(d) of the  Exchange  Act) other  than  Permitted
Holders is or becomes  the  "beneficial  owner" (as  defined in Rules  13d-3 and
13d-5  under the  Exchange  Act,  except  that a person  shall be deemed to have
"beneficial  ownership"  of all  shares  that any such  person  has the right to
acquire,  whether such right is exercisable  immediately or after the passage of
time,  directly  or  indirectly)  of  more  than  40% of  the  Voting  Stock  of
Greenbriar;  or (ii)  individuals  who at date hereof  constituted  the Board of
Directors of Greenbriar  (together with any new directors whose election by such
Board or whose  nomination  for election by the  stockholders  of Greenbriar was
approved  by a vote of the  majority of the  directors  then still in office who
were either  directors  at the  beginning  of such  period or whose  election or
nomination  for election  was  previously  so approved)  cease for any reason to
constitute  a majority  of the Board of  Directors  then in  office,  other than
pursuant to the  provisions of this  Certificate  of Designation or the Purchase
Agreement; provided, however, a Sale of Greenbriar is not considered a Change of
Control of Greenbriar.



 
                                        2

<PAGE>



         "Closing  Date"  means the date of the closing of the first sale of the
Series G Senior Non-Voting Preferred Stock.

         "Commission" means the Securities and Exchange  Commission or any other
similar or successor agency of the federal government administering the Act.

         "Computation Date" means:

                  (i) with  respect to Section  6.4(c),  the  earlier of (a) the
         date on which  Greenbriar  shall  enter  into a firm  contract  for the
         issuance of Additional Shares of Greenbriar  Nonpreferred  Stock or (b)
         the  date  of  actual  issuance  of  Additional  Shares  of  Greenbriar
         Nonpreferred Stock; provided,  that with respect to Section 6.4(c), the
         Computation  Date in connection with an acquisition by Greenbriar using
         common  stock  as all or a part of the  consideration  shall  mean  the
         effective   date  of  issuance  of  Additional   Shares  of  Greenbriar
         Nonpreferred Stock;

                  (ii) with respect to Section 6.4(d),  the earliest to occur of
         (a) the date on which  Greenbriar shall take a record of the holders of
         its Greenbriar  Nonpreferred Stock for the purpose of entitling them to
         receive any warrants,  options or other  rights,  (b) the date on which
         Greenbriar  shall  enter  into a firm  contract  for  the  issuance  of
         warrants,  options or other rights and (c) the date of actual  issuance
         of warrants, options or other rights; and

                  (iii) with respect to Section 6.4(e),  the earliest of (a) the
         date on which  Greenbriar  shall  take a record of the  holders  of its
         Greenbriar  Nonpreferred  Stock for the  purpose of  entitling  them to
         receive any Greenbriar  Convertible  Securities,  (b) the date on which
         Greenbriar  shall  enter  into a firm  contract  for  the  issuance  of
         Greenbriar  Convertible  Securities and (c) the date of actual issuance
         of Greenbriar Convertible Securities.

         "Conversion  Price"  initially  means  $17.50 and shall be adjusted and
readjusted from time to time as provided in Section 6.

         "Default Date" has the meaning set forth in Section 8.2.

         "Event of Default" means the occurrence of any of the following:

                  (i) Greenbriar  shall fail to comply with any of the covenants
         in Section 6 of the Purchase Agreement;  provided,  that in the case of
         the  covenants  contained  in Sections  6.4-6.18  and  6.24-6.27 of the
         Purchase Agreement,  failure to comply shall not be considered an Event
         of Default if such failure is cured or  compliance is waived in writing
         by the Preferred Stock Representative  within 30 days after the date on
         which the failure to comply first occurs; provided further, that in the
         case of the  covenants  contained  in  Sections  6.28  and  6.29 of the
         Purchase Agreement,  failure to comply shall not be considered an Event
         of Default  if (i)  compliance  is waived in  writing by the  Preferred
         Stock Representative  within 30 days or (ii) the ratio corresponding to
         each covenant is less than 4.5, 4.25 and 4.5, respectively, to 1 at the
         quarter  end on which the  failure  to  comply  first  occurs  and such
         covenant  is fully  complied  with at the next  quarter  end;  provided
         further, that in the case of the covenant contained in Sections 6.30 of
         the Purchase  Agreement,  failure to comply shall not be  considered an
         Event


D-476684.7
                                        3

<PAGE>



         of Default  if (i)  compliance  is waived in  writing by the  Preferred
         Stock Representative within 30 days or (ii) the ratio contained in such
         covenant is 2 to 1 for the two quarter period  comprised of the quarter
         in which the failure to comply first occurs and the following  quarter;
         provided  further,  that in the  case  of the  covenants  contained  in
         Sections 6.31-6.35 of the Purchase  Agreement,  failure to comply shall
         not be  considered  an Event of Default if (i)  compliance is waived in
         writing by the Preferred  Stock  Representative  within 30 days or (ii)
         the percentage  corresponding  to each covenant is less than 85% at the
         quarter  end on which the  failure  to  comply  first  occurs  and such
         covenant is fully complied with at the next quarter end.

                  (ii) If  Greenbriar  fails to pay the  holders of the Series G
         Senior Non-Voting Preferred Stock all accrued dividends in full for two
         quarters, whether or not such payment is legally permissible;

                  (iii) Greenbriar shall purport to take any action specified in
         Section 5.2 of this  Certificate of  Designation  without the requisite
         vote of the holders of the Series G Senior Non-Voting Preferred Stock;

                  (iv) James R. Gilley and the Gilley  Affiliates shall cease to
         own at least 1,500,000  shares of Greenbriar  Common Stock,  subject to
         appropriate  adjustments  in  connection  with a stock  split  or other
         similar events;

                  (v)      There shall occur a Change of Control of Greenbriar;

                  (vi) Greenbriar shall fail to comply with any of the covenants
         contained in Section 7 of this  Certificate  of  Designation;  provided
         that failure to comply shall not be  considered  an Event of Default if
         such  failure  is cured or  compliance  is  waived  in  writing  by the
         Preferred Stock  Representative  within 10 days after the date on which
         the failure to comply first occurs;

                  (vii)  The  commencement  of  an  involuntary  case  or  other
         proceeding   against   Greenbriar  or  any   Subsidiary,   which  seeks
         liquidation,  reorganization  or other relief with respect to it or its
         debts or other  liabilities  under any bankruptcy,  insolvency or other
         similar law now or hereafter in effect or seeking the  appointment of a
         trustee, receiver,  liquidator,  custodian or other similar official of
         it or any  substantial  part of its property,  or the entry of an order
         for relief against  Greenbriar or any Subsidiary in any such case under
         the United  States  Bankruptcy  Code which is not  dismissed  within 60
         days; or

                  (viii) The  commencement by Greenbriar or any Subsidiary of or
         the approval by a majority of the Board of Directors of  Greenbriar  or
         any  Subsidiary  of the  commencement  of a  voluntary  case  or  other
         proceeding,  seeking  liquidation,  reorganization or other relief with
         respect  to  itself  or  its  debts  or  other  liabilities  under  any
         bankruptcy,  insolvency or other similar law now or hereafter in effect
         or  seeking  the  appointment  of  a  trustee,  receiver,   liquidator,
         custodian or other similar  official of it or any  substantial  part of
         its property, or consent to any such relief or to the appointment of or
         taking  possession by any such official in an involuntary case or other
         proceeding  commenced  against it, or the making by  Greenbriar  or any
         Subsidiary of a general  assignment  for the benefit of  creditors,  or
         failure  by  Greenbriar  or  any  Subsidiary  generally  to or  written
         admission of its inability to pay



                                        4

<PAGE>



         its debts  generally as they become due, or the taking of any corporate
         action to authorize or effect any of the foregoing.

         "Exchange Act" means the  Securities  Exchange Act of 1934, as amended,
or any similar federal statute,  and the rules and regulations of the Commission
thereunder, all as the same shall be in effect at the time.

         "Fair  Market  Price" per share of common  stock,  for  purposes of any
provision  herein at the date specified in such provision,  means the greater of
(i) the 5-Day  Average  Price of such  common  stock or (ii) the 20-Day  Average
Price of such common stock; provided, that the Fair Market Price of common stock
issued in connection  with an  acquisition  by Greenbriar  shall mean the 20-Day
Average Price of such common stock. Notwithstanding any of the foregoing, if the
common  stock that is being  valued has not been  listed on the  American  Stock
Exchange,  New York Stock Exchange or Nasdaq  National  Market for such 5 and 20
business day periods,  then the Fair Market Price per share of such common stock
shall be deemed to be the  greater of (i) the net book value per share of common
stock,  determined in accordance  with GAAP, or (ii) the fair value per share of
common stock determined pursuant to the Valuation Procedure.

         "GAAP"  means  those  generally  accepted  accounting   principles  and
practices  which are used in the  United  States and  recognized  as such by the
American Institute of Certified Public Accountants acting through its Accounting
Principles Board or by the Financial Accounting Standards Board or through other
appropriate boards or committees thereof and which are consistently  applied for
all periods to present fairly in all material  respects the financial  position,
results of operations  and operating  cash flow on a  consolidated  basis of the
party,  except that any accounting  principle or practice required to be changed
by the Accounting  Principles Board or Financial  Accounting Standards Board (or
other  appropriate  board or  committee)  in order to  continue  as a  generally
accepted accounting principle or practice may be so changed.

         "Gilley   Affiliates"  means  James  R.  Gilley,   Sylvia  Gilley,  JRG
Investment Company,  Inc., April Trust, September Trust, October Trust, November
Trust,  December Trust,  Nita Dry, Todd Dry, Donna Gilley,  Elizabeth Gilley, W.
Michael  Gilley,  Caroline  Gilley,  or any other trusts  controlled by James R.
Gilley.

         "Greenbriar" means Greenbriar Corporation, a Nevada corporation.

         "Greenbriar  Common Stock" means  Greenbriar's  common stock, $0.01 par
value per share.

         "Greenbriar  Convertible  Securities"  means evidences of indebtedness,
shares of stock or other  securities  which are convertible into or exchangeable
for Additional Shares of Greenbriar  Nonpreferred  Stock,  either immediately or
upon the arrival of a specified date or the happening of a specified event.

         "Greenbriar Nonpreferred Stock" means Greenbriar Common Stock and shall
also include stock of Greenbriar of any other class which is not preferred as to
dividends or assets to be received  upon  liquidation  or  dissolution  over any
other class of stock of Greenbriar and which is not subject to redemption.




                                        5

<PAGE>



         "IRR" means compounded annual rate of return.

         "Junior Stock" has the meaning set forth in Section 2.

         "Liquidation  Amount" means $10.00, plus a sum equal to all accumulated
but unpaid dividends (including  dividends,  if any, payable pursuant to Section
8.2) and interest  thereon,  if any,  through the date of payment  thereof,  per
share of Series G Senior Non-Voting Preferred Stock.

         "Liquidation  Value" means the  Liquidation  Amount with respect to all
issued  and  outstanding  Series G Senior  Non-Voting  Preferred  Stock plus any
unreimbursed  costs and  expenses  payable to the holders of the Series G Senior
Non-Voting Preferred Stock pursuant to the Purchase Agreement.

         "Lone Star" means Lone Star Opportunity  Fund, L.P., a Delaware limited
partnership.

         "Mandatory  Conversion  Date"  means  the  earlier  of  (i)  the  third
anniversary of the date of issuance of the Series G Senior Non-Voting  Preferred
Stock or (ii) the date of a Sale of Greenbriar.

         "Permitted  Combination"  means  (i) a  Sale  of  Greenbriar,  (ii)  an
acquisition by Greenbriar in the ordinary course of its business as described in
the 1996 Form 10-K, or (iii) where there is a Special Asset Sale Trigger.

         "Permitted Holders" means James R. Gilley and his Affiliates.

         "Permitted  Investments"  shall mean (a) marketable direct  obligations
issued or  unconditionally  guaranteed by the United States government or issued
by an agency or instrumentality  thereof and backed by the full faith and credit
of the United States of America, in each case maturing within 180 days after the
date of acquisition  thereof;  (b) marketable direct  obligations  issued by any
state of the United States of America or any political  subdivision  of any such
state or any public  instrumentality  thereof maturing within 180 days after the
date of acquisition thereof and, at the time of acquisition,  having a rating of
"a" or higher from Standard & Poor's  Corporation  ("S&P") and Moody's Investors
Service,  Inc.  ("Moody's") and not listed in Credit Watch published by S&P; (c)
commercial  paper  maturing  no more  than 90 days  after  the date of  creation
thereof  and, at the time of  acquisition,  having a rating of at least a-1 from
S&P and P-1 from Moody's; (d) domestic and Eurodollar certificates of deposit or
time deposits or bankers  acceptances  maturing within 90 days after the date of
acquisition  thereof  issued by Escrow Agent or any  commercial  bank  organized
under the laws of the United  States of America  or any state  thereof  having a
rating of "a" or higher from S&P and Moody's;  and (e) money market funds having
an average portfolio maturity,  at the time of acquisition  thereof, of not more
than 90 days,  which money  market  funds are required to invest at least 95% of
their assets in instruments described in this definition.

         "Potential  Default" means any event's occurrence or any circumstance's
existence that would,  upon any required notice,  time lapse, or both, become an
Event of Default.




                                        6

<PAGE>



         "Preferred Stock  Representative"  means a Person designated in writing
by a majority of the holders of the Series G Senior  Non-Voting  Preferred Stock
to  represent  such holders  with  respect to certain  matters  pursuant to this
Agreement and the Purchase Agreement.

         "Purchase  Agreement"  means  that  certain  Stock  Purchase  Agreement
between  Greenbriar and Lone Star Opportunity  Fund, L.P.,  whereby the Series G
Senior Non-Voting  Preferred Stock is being issued, as amended from time to time
in accordance with the terms thereof.  A copy of the Purchase  Agreement,  as so
amended, is maintained at the principal executive offices of Greenbriar and will
be  furnished,  upon  written  request,  to any  holders  of the Series G Senior
Non-Voting Preferred Stock without charge.

         "Repurchase Notice" has the meaning set forth in Section 8.3.

         "Repurchase Promissory Note" has the meaning set forth in Section 8.5.

         "Repurchase Shares" has the meaning set forth in Section 8.4.

         "Sale of Greenbriar"  means (i) a merger or  consolidation in which all
shares of Greenbriar Common Stock are exchanged for cash,  securities of another
entity, or a combination of cash and securities of another entity or (ii) a cash
tender offer to purchase all of the outstanding  shares of Greenbriar is made to
the shareholders of Greenbriar and accepted by a majority of such shareholders.

         "Series B Junior Preferred Stock" means Greenbriar's Series B Preferred
Stock, $0.10 par value per share.

         "Series D Junior Preferred Stock" means Greenbriar's Series D Preferred
Stock, $0.10 par value per share.

         "Series F Senior Preferred Stock" means Greenbriar's Series F Senior
Convertible Preferred Stock.

         "Series F Certificate of Designation" means Greenbriar's Certificate of
Voting Powers, Designations,  Preferences, and Relative, Participating, Optional
or Other Special Rights of Series F Senior Convertible  Preferred Stock as filed
with the Secretary of State of Nevada.

         "Series G Senior Non-Voting Preferred Stock" has the meaning set forth 
in the preamble.

         "Special  Asset Sale Trigger"  means any sale,  lease,  sale/leaseback,
assignment,  transfer or other disposition of assets, which when aggregated with
all sales, leases, sale/leasebacks, assignments, transfers or other dispositions
of assets in one or more independent or related  transactions  from the later of
the date hereof or the date of the last Special Asset Sale  Trigger,  (i) have a
total aggregate  consideration  received for such  dispositions in excess of $25
million of cash,  indebtedness  assumed and the present  fair value of any other
consideration,  including,  but not  limited  to the  present  fair value of any
earnouts or (ii) dispose of a total aggregate  number of operated  properties of
five. The dispositions described above specifically include, but are not limited
to, sales of operating  leases and  management  contracts and sales as a part of
the Syndication Program.




                                        7

<PAGE>



         "Spin-off"  means  the  pro  rata  distribution  by  Greenbriar  of the
outstanding  shares of common stock of a Subsidiary to the holders of Greenbriar
Common Stock to effect the spin-off of such Subsidiary.

         "Stock  Option  Plans"  means  Greenbriar's  1997 Stock Option Plan and
Greenbriar's 1992 Stock Option Plan, as amended,  which shall be consistent with
the  copies  of such  plans  delivered  to  purchasers  of the  Series  G Senior
Non-Voting Preferred Stock prior to the Closing Date, as the same may be amended
from time to time with the prior approval of the Preferred Stock Representative.

         "Subsidiaries"   means  all  the  corporations,   partnerships,   joint
ventures,  business trusts or other legal entities in which  Greenbriar,  either
directly  or  indirectly  through  one or more  intermediaries,  owns  or  holds
beneficial or record ownership of at least a majority of the outstanding  voting
shares or other equity interests. Each of the Subsidiaries is sometimes referred
to herein individually as a "Subsidiary."

         "Syndication  Program" means a program of selling real estate to public
or private syndications consisting of partnerships, limited liability companies,
or limited liability partnerships where ownership of such entities is offered to
passive investors for cash and/or notes.

         "Tribunal" means any (a) local, state, territorial, federal, or foreign
judicial, executive,  regulatory,  administrative,  legislative, or governmental
agency, board, bureau,  commission,  department,  or other instrumentality,  (b)
private arbitration board or panel or (c) central bank.

         "Valuation Procedure" has the meaning set forth in Section 6.4(b).

         "Voting  Stock"  means the total voting power of all classes of capital
stock then  outstanding of a company and normally  entitled to vote in elections
of directors of such company.

         2. Ranking of the Series G Senior Non-Voting Preferred Stock.

         So long as any  shares of Series G Senior  Non-Voting  Preferred  Stock
shall be outstanding,  the Series G Senior Non-Voting Preferred Stock shall rank
senior with  respect to the rights to receive  dividends  and to receive  assets
upon  liquidation,  dissolution  or winding up of Greenbriar  to the  Greenbriar
Common Stock and to all other series of preferred  stock or classes or series of
capital stock  hereafter or heretofore  established by the Board of Directors of
Greenbriar  (collectively,  the  "Junior  Stock"),  which  includes,  but is not
limited  to,  the  Series  B  Junior  Preferred  Stock  and the  Series D Junior
Preferred Stock. The Series G Senior Non-Voting  Preferred Stock shall rank pari
passu with respect to the rights to receive dividends and to receive assets upon
liquidation,  dissolution or winding up of Greenbriar to  Greenbriar's  Series F
Senior Preferred Stock.




                                        8

<PAGE>



         3.       Dividends; Restricted Payments.

         3.1 Dividend Payment Dates.  The holders of Series G Senior  Non-Voting
Preferred  Stock shall be entitled to receive,  when,  as and if declared by the
Board of  Directors  of  Greenbriar  out of  funds  legally  available  for that
purpose,  a quarterly  dividend  of $0.15 per share  payable in cash on the last
Business Day of March,  June,  September and December of each year commencing on
March 31, 1998,  which payment shall include pro rated daily  dividends from the
date of  original  issue  of the  Series G Senior  Non-Voting  Preferred  Stock.
Dividends on the Series G Senior Non-Voting  Preferred Stock shall be cumulative
from the date of  original  issue of the  Series G Senior  Non-Voting  Preferred
Stock, whether or not at the time such dividend shall accrue or become due there
shall be funds legally  available for the payment of dividends.  All accrued and
unpaid  dividends,  whether or not earned or declared,  shall bear interest from
the respective payment date until paid at an annual rate of 12% per annum.

         3.2 Record Date. The Board of Directors shall fix a record date for the
determination  of  holders  of the Series G Senior  Non-Voting  Preferred  Stock
entitled to receive payment of a dividend declared thereon (including dividends,
if any,  payable  pursuant to Section 8.2),  which record date shall be not more
than sixty (60) days prior to the date fixed for the payment thereof.

         3.3 Restricted Payments. Unless full cumulative dividends on the Series
G Senior Non-Voting Preferred Stock have been paid (including dividends, if any,
payable pursuant to Section 8.2), no dividends or other  distributions  shall be
declared  or paid or set apart for payment  upon any Junior  Stock nor shall any
Junior Stock be redeemed,  purchased or otherwise  acquired by Greenbriar (other
than upon  conversion  under the terms of said  Junior  Stock for  consideration
consisting  solely of shares of Greenbriar  Common Stock) for any  consideration
(or any payment made to or available  for a sinking fund for the  redemption  of
any shares of such stock) by Greenbriar.

         4.       Liquidation Rights.

         Upon any  liquidation,  dissolution  or  winding  up of the  affairs of
Greenbriar,  no distribution  shall be made or declared or set apart for payment
to the holders of any Junior Stock unless, prior to the first such distribution,
the holders of the Series G Senior NonVoting Preferred Stock shall have received
the  Liquidation  Value.  If the assets  distributable  in any such event to the
holders of the Series G Senior  Non-Voting  Preferred Stock are  insufficient to
permit the  payment to such  holders of the full  preferential  amounts to which
they may be entitled, such assets shall be distributed ratably among the holders
of the Series G Senior  Non-Voting  Preferred  Stock in  proportion  to the full
preferential amount each such holder would otherwise be entitled to receive.

         5. Voting Rights of Series G Senior Non-Voting Preferred Stock.

         5.1 No Voting Rights in Electing Directors. The holders of the Series G
Senior  Non-Voting  Preferred Stock shall have no rights to vote in the election
of the Board of Directors of Greenbriar.

         5.2  Class  Voting  Rights.  So long as any  shares  of Series G Senior
Non-Voting  Preferred  Stock are  outstanding,  in addition to any other vote or
consent of shareholders



                                        9

<PAGE>



required by law or by the Articles of Incorporation of Greenbriar,  the approval
of the holders of Series G Senior Non-Voting Preferred Stock, acting as a single
class, shall be necessary for effecting or validating:

                  (i)  Any  amendment,  alteration  or  repeal  of  any  of  the
         provisions  of  the  Articles  of   Incorporation   or  the  Bylaws  of
         Greenbriar;  including, but not limited to, any amendment,  alteration,
         repeal or filing of any Certificate of Designation of Greenbriar or any
         resolution  of the Board of  Directors  of  Greenbriar  filed  with the
         Office of the Secretary of State of Nevada;

                  (ii)  The  authorization,  creation  or  issuance  of,  or the
         increase in the  authorized  amount of, any shares of capital  stock of
         any class or  series or any  security  convertible  into  shares of any
         class or series of any  security  ranking  prior to or on a parity with
         the shares of Series G Senior Non-Voting Preferred Stock in the payment
         of  dividends  or in the  distribution  of assets  on any  liquidation,
         dissolution, or winding up of Greenbriar;

                  (iii) The merger or  consolidation  of Greenbriar with or into
         any  other  corporation  or  other  entity,   other  than  a  Permitted
         Combination;

                  (iv) Any  reorganization,  restructuring,  recapitalization or
         other  similar  transaction  of  Greenbriar;  other  than  a  Permitted
         Combination; or

                  (v)  Any Spin-off.

         With  respect to any matter that  requires  the  approval of holders of
Series G Senior  Non-Voting  Preferred Stock acting separately as a class or any
action that may be taken by the holders of Series G Senior Non-Voting  Preferred
Stock,  such  approval  shall be deemed to be given or such action  taken by the
affirmative  vote of the  holders of a  majority  of the  outstanding  shares of
Series G Senior  Non-Voting  Preferred  Stock,  given in person or by proxy,  by
written  consent or at the annual  meeting of  Greenbriar's  shareholders,  or a
special  meeting in lieu  thereof,  or at a special  meeting  of the  holders of
shares of Series G Senior  Non-Voting  Preferred Stock called for the purpose of
voting on such  matter or action.  Upon  receipt of the  written  request of the
holders of 20% or more of the outstanding  shares of Series G Senior  Non-Voting
Preferred  Stock,  the Secretary of  Greenbriar  shall call and give notice of a
special meeting of the holders of the Series G Senior Non-Voting Preferred Stock
for the purpose specified in such request, which meeting shall be held within 30
days  after  delivery  of  such  request  to  Greenbriar  at such  place  in the
continental  United States as specified in such written  request;  provided that
the Secretary  shall not be required to call such a special  meeting in the case
of any such  request  received  less than 30 days  before  the date fixed for an
annual meeting of Greenbriar's shareholders.

         6.       Conversion.

         The Series G Senior Non-Voting  Preferred Stock shall be convertible as
follows:

         6.1 Right of Holder to  Conversion.  Each  share of the Series G Senior
Non-Voting  Preferred  Stock  shall be  convertible,  without the payment of any
additional  consideration  by the holder thereof and at the option of the holder
thereof, at any time after the earlier of (i) the second anniversary of the date
of original issuance of Series G Senior Non-Voting



                                       10

<PAGE>



Preferred  Stock,  (ii) an Event of Default  under any of clauses  (ii)  through
(viii) of the definition of "Event of Default" or an Event of Default  resulting
from the failure of Greenbriar to comply with  Sections  6.1, 6.3,  6.10,  6.19,
6.20, 6.22,  6.27-6.35 or 6.37 of the Purchase  Agreement,  in whole or in part,
(iii) a Special Asset Sale Trigger or (iv) a Change in Management, at the office
of Greenbriar or any transfer agent for the Series G Senior NonVoting  Preferred
Stock, into a number of shares of Greenbriar Common Stock determined by dividing
the Liquidation Value of the shares so converted by the Conversion Price,  plus,
in lieu of any  fractional  share  to  which  such  holder  would  otherwise  be
entitled, cash equal to such fraction multiplied by the Fair Market Price.

         6.2 Mechanics of  Conversion by Holder.  In order for any holder of the
Series G Senior  Non-Voting  Preferred Stock to convert the same into Greenbriar
Common  Stock,  the  holder  shall  surrender  to  Greenbriar  at the  office of
Greenbriar or of any transfer agent for the Series G Senior Non-Voting Preferred
Stock,  the  certificate  or  certificates  representing  such  Series  G Senior
Non-Voting Preferred Stock, accompanied by written notice to Greenbriar that the
holder  elects to convert all or a  specified  number of such shares and stating
therein the holder's name or the name or names of the holder's nominees in which
the holder wishes the certificate or certificates for Greenbriar Common Stock to
be issued or transferred.  Greenbriar shall, as soon as practicable  thereafter,
deliver  at such  office  to such  holder  of the  Series  G  Senior  Non-Voting
Preferred  Stock,  or to the holder's  nominee or  nominees,  a  certificate  or
certificates  representing  the number of shares of  Greenbriar  Common Stock to
which the holder  shall be  entitled  as  aforesaid  and,  if less than the full
number of shares of the Series G Senior Non-Voting  Preferred Stock evidenced by
such surrendered  certificate or certificates being converted, a new certificate
or certificates,  of like tenor, for the number of shares of the Series G Senior
Non-Voting  Preferred Stock evidenced by such  surrendered  certificate less the
number of such shares being converted.  Any conversion made at the election of a
holder of the Series G Senior Non-Voting Preferred Stock shall be deemed to have
been  made  immediately  prior  to the  close  of  business  on the date of such
surrender of the Series G Senior Non-Voting Preferred Stock to be converted, and
the person or persons  entitled to receive the Greenbriar  Common Stock issuable
upon  conversion  shall be treated  for all  purposes  as the  record  holder or
holders of such Greenbriar Common Stock on such date.

         6.3 Mandatory Conversion.  On the Mandatory Conversion Date, each share
of the Series G Senior Non-Voting  Preferred Stock must be converted into shares
of  Greenbriar  Common  Stock based upon the  conversion  provisions  herein and
subject to any adjustments as provided in this Agreement.

         6.4 Adjustments to Conversion Price for Diluting Issues or Other
Transactions:

                  (a) Stock Dividends, Subdivisions and Combinations. In case at
         any time or from time to time Greenbriar shall:

                           (1) take a record of the  holders  of its  Greenbriar
                  Nonpreferred  Stock  for  the  purpose  of  entitling  them to
                  receive  a  dividend  payable  in, or other  distribution  of,
                  Greenbriar Nonpreferred Stock;

                           (2)  subdivide its  outstanding  shares of Greenbriar
                  Nonpreferred   Stock  into  a  larger   number  of  shares  of
                  Greenbriar Nonpreferred Stock; or




                                       11

<PAGE>



                           (3)  combine  its  outstanding  shares of  Greenbriar
                  Nonpreferred   Stock  into  a  smaller  number  of  shares  of
                  Greenbriar Nonpreferred Stock;

         then the Conversion Price in effect  immediately after the happening of
         any such  event  shall  be  proportionately  decreased,  in case of the
         happening of events  described in  subparagraphs  (1) or (2) above,  or
         proportionately increased, in case of the happening of events described
         in subparagraph (3) above.

                  (b) Certain Other Dividends and Distributions.  In case at any
         time or from time to time Greenbriar shall take a record of the holders
         of its Greenbriar  Nonpreferred Stock for the purpose of entitling them
         to receive any dividend or other distribution of:

                           (1) cash, to the extent, but only to the extent, that
                  such  distribution  together with all such  dividends  paid or
                  declared   after  the  date   hereof,   does  not  exceed  the
                  consolidated net income,  net of consolidated  net losses,  of
                  Greenbriar and its consolidated subsidiaries earned subsequent
                  to the date hereof determined in accordance with GAAP;

                           (2) any  evidence  of its  indebtedness  (other  than
                  Greenbriar  Convertible  Securities),  any shares of its stock
                  (other  than  Additional  Shares  of  Greenbriar  Nonpreferred
                  Stock) or any  other  securities  or  property  of any  nature
                  whatsoever   (other  than  cash  and  other  than   Greenbriar
                  Convertible  Securities  or  Additional  Shares of  Greenbriar
                  Nonpreferred Stock); or

                           (3) any warrants or other rights to subscribe  for or
                  purchase  any  evidences  of  its  indebtedness   (other  than
                  Greenbriar  Convertible  Securities),  any shares of its stock
                  (other  than  Additional  Shares  of  Greenbriar  Nonpreferred
                  Stock) or any  other  securities  or  property  of any  nature
                  whatsoever   (other  than  cash  and  other  than   Greenbriar
                  Convertible  Securities  or  Additional  Shares of  Greenbriar
                  Nonpreferred Stock);

         then the  Conversion  Price in effect  shall be adjusted to that number
         determined  by  multiplying  the  Conversion  Price then in effect by a
         fraction (x) the  numerator of which shall be the Fair Market Price per
         share  of  Greenbriar  Common  Stock  immediately  prior to the date of
         taking  such  record  minus  the  portion  applicable  to one  share of
         Greenbriar  Common Stock of any such cash so  distributable  and of the
         fair value of any and all such  evidences  of  indebtedness,  shares of
         stock, other securities or property,  or warrants or other subscription
         or purchase  rights so  distributable  and (y) the denominator of which
         shall be the Fair Market  Price per share of  Greenbriar  Common  Stock
         immediately prior to the date of taking such record.  The fair value of
         any and all such  evidences  of  indebtedness,  shares of stock,  other
         securities or property,  or warrants or other  subscription or purchase
         rights,  shall be determined pursuant to the Valuation  Procedure.  The
         "Valuation  Procedure" is a determination of fair value of any property
         made in good faith by the Board of  Directors of  Greenbriar;  provided
         that,  if  the   Preferred   Stock   Representative   objects  to  such
         determination  within  10  days  of  receipt  of  written  notification
         thereof,  then the fair value of such  property  shall be determined in
         good  faith  by a  recognized  national  investment  bank  selected  by
         unanimous  vote or consent  of the Board of  Directors  of  Greenbriar,
         which investment bank is not reasonably objected to by the



                                       12

<PAGE>



         Preferred  Stock   Representative.   The  fees  and  expenses  of  such
         investment bank shall be paid by one-half by Greenbriar and one-half by
         the  holders  of the  Series G Senior  Non-Voting  Preferred  Stock.  A
         reclassification  of the Greenbriar  Nonpreferred  Stock into shares of
         Greenbriar  Nonpreferred  Stock and shares of any other  class of stock
         shall be deemed a  distribution  by  Greenbriar  to the  holders of its
         Greenbriar  Nonpreferred  Stock of such  shares of such other  class of
         stock within the meaning of this Section 6.4(b) and, if the outstanding
         shares of Greenbriar  Nonpreferred Stock shall be changed into a larger
         or smaller number of shares of Greenbriar  Nonpreferred Stock as a part
         of such reclassification, shall be deemed a subdivision or combination,
         as  the  case  may  be,  of  the   outstanding   shares  of  Greenbriar
         Nonpreferred Stock within the meaning of Section 6.4(a).

                  (c) Issuance of Additional  Shares of Greenbriar  Nonpreferred
         Stock. In case at any time or from time to time after the Closing Date,
         Greenbriar  shall (except as hereinafter  provided)  issue,  whether in
         connection  with  the  merger  of  a  corporation  into  Greenbriar  or
         otherwise, any Additional Shares of Greenbriar Nonpreferred Stock for a
         consideration  per share less than either the  Conversion  Price or the
         Fair  Market  Price  per  share  of  Greenbriar  Common  Stock  on  the
         Computation  Date,  then the Conversion  Price shall be adjusted to the
         lower of either:

                           (1)  that  number   determined  by  multiplying   the
                  Conversion   Price  in  effect   immediately   prior  to  such
                  adjustment  by a fraction (x) the  numerator of which shall be
                  the number of shares of Greenbriar  Nonpreferred  Stock,  plus
                  the number of shares of  Greenbriar  Nonpreferred  Stock which
                  the  aggregate  consideration  for the  total  number  of such
                  Additional Shares of Greenbriar  Nonpreferred  Stock so issued
                  would purchase at the greater of the  Conversion  Price or the
                  Fair Market Price per share of Greenbriar Common Stock and (y)
                  the  denominator  of which  shall be the  number  of shares of
                  Greenbriar   Nonpreferred   Stock  plus  the  number  of  such
                  Additional Shares of Greenbriar  Nonpreferred Stock so issued;
                  or

                           (2) the  value of the  consideration  per  share  for
                  which such Additional Shares of Greenbriar  Nonpreferred Stock
                  were  issued (or, in the case of  adjustments  under  Sections
                  6.4(d) or 6.4(e), are issuable).

         No adjustment of the Conversion  Price shall be made under this Section
         6.4(c)  upon  the  issuance  of any  Additional  Shares  of  Greenbriar
         Nonpreferred  Stock which are issued  pursuant  to the  exercise of any
         warrants or other  subscription  or purchase  rights or pursuant to the
         exercise  of any  conversion  or  exchange  rights  in  any  Greenbriar
         Convertible  Securities,  if any such adjustment  shall previously have
         been made upon the  issuance of such  warrants or other  rights or upon
         the issuance of such  Greenbriar  Convertible  Securities  (or upon the
         issuance of any warrant or other rights  therefor)  pursuant to Section
         6.4(d) or 6.4(e).

                  (d) Issuance of Warrants,  Options or Other Rights. In case at
         any time or from time to time after the Closing Date,  Greenbriar shall
         take a record of the holders of its Greenbriar  Nonpreferred  Stock for
         the purpose of entitling  them to receive a  distribution  of, or shall
         otherwise issue, any warrants, options or other rights to subscribe for
         or purchase any Additional Shares of Greenbriar  Nonpreferred  Stock or
         any Greenbriar  Convertible  Securities and the consideration per share
         for which



                                       13

<PAGE>



         Additional  Shares  of  Greenbriar  Nonpreferred  Stock may at any time
         thereafter  be  issuable  pursuant to such  warrants,  options or other
         rights  or  pursuant  to  the  terms  of  such  Greenbriar  Convertible
         Securities  shall be less than either the Conversion  Price or the Fair
         Market Price per share of  Greenbriar  Common Stock on the  Computation
         Date,  then the  Conversion  Price  shall be  adjusted  as  provided in
         Section 6.4(c). Such adjustment shall be made on the basis that (i) the
         maximum number of Additional  Shares of Greenbriar  Nonpreferred  Stock
         issuable  pursuant  to all such  warrants,  options or other  rights or
         necessary to effect the  conversion or exchange of all such  Greenbriar
         Convertible  Securities  shall be deemed to have been  issued as of the
         Computation Date, and (ii) the aggregate consideration for such maximum
         number of Additional Shares of Greenbriar  Nonpreferred  Stock shall be
         deemed to be the  minimum  consideration  received  and  receivable  by
         Greenbriar  for the issuance of such  Additional  Shares of  Greenbriar
         Nonpreferred  Stock pursuant to such warrants,  options or other rights
         or pursuant to the terms of such Greenbriar Convertible Securities.

                  (e) Issuance of Greenbriar Convertible Securities.  In case at
         any time or from time to time after the Closing Date,  Greenbriar shall
         take a record of the holders of its Greenbriar  Nonpreferred  Stock for
         the purpose of entitling  them to receive a  distribution  of, or shall
         otherwise  issue,  any  Greenbriar   Convertible   Securities  and  the
         consideration  per  share  for which  Additional  Shares of  Greenbriar
         Nonpreferred  Stock may at any time thereafter be issuable  pursuant to
         the terms of such Greenbriar  Convertible Securities shall be less than
         either  the  Conversion  Price or the Fair  Market  Price  per share of
         Greenbriar  Common Stock on the  Computation  Date, then the Conversion
         Price shall be adjusted as provided in Section 6.4(c). Such adjustments
         shall be made on the basis that (i) the  maximum  number of  Additional
         Shares  of  Greenbriar  Nonpreferred  Stock  necessary  to  effect  the
         conversion or exchange of all such  Greenbriar  Convertible  Securities
         shall be deemed to have been  issued as of the  Computation  Date,  and
         (ii) the aggregate  consideration for such maximum number of Additional
         Shares  of  Greenbriar  Nonpreferred  Stock  shall be  deemed to be the
         minimum  consideration  received and  receivable by Greenbriar  for the
         issuance of such  Additional  Shares of Greenbriar  Nonpreferred  Stock
         pursuant to the terms of such  Greenbriar  Convertible  Securities.  No
         adjustment  of the  Conversion  Price shall be made under this  Section
         6.4(e) upon the issuance of any Greenbriar Convertible Securities which
         are  issued   pursuant  to  the  exercise  of  any  warrants  or  other
         subscription or purchase rights therefor,  if any such adjustment shall
         previously  have been made upon the issuance of such  warrants or other
         rights pursuant to Section 6.4(d).

                  (f)  Superseding  Adjustment of Conversion  Price.  If, at any
         time after any adjustment of the Conversion  Price shall have been made
         pursuant to the foregoing  Section 6.4(d) or 6.4(e) on the basis of the
         issuance  of  warrants  or  other  rights  or  the  issuance  of  other
         Greenbriar Convertible  Securities,  or after any new adjustment of the
         Conversion Price shall have been made pursuant to this Section 6.4(f):

                           (1) all of such  warrants,  options  or rights or the
                  right of  conversion  or  exchange  in such  other  Greenbriar
                  Convertible   Securities  shall  expire,   and  none  of  such
                  warrants,  options or rights,  or the right of  conversion  or
                  exchange  in  respect  of such  other  Greenbriar  Convertible
                  Securities, as the case may be, shall have been exercised; or



                                       14

<PAGE>




                           (2) the consideration per share, for which Additional
                  Shares of Greenbriar  Nonpreferred Stock are issuable pursuant
                  to all of such warrants, options or rights or the terms of all
                  of such  other  Greenbriar  Convertible  Securities,  shall be
                  increased solely by virtue of provisions therein contained for
                  an automatic increase in such consideration per share upon the
                  arrival of a specified  date or the  happening  of a specified
                  event,  and none of such warrants,  options or rights,  or the
                  right of  conversion  or  exchange  in  respect  of such other
                  Greenbriar Convertible  Securities,  as the case may be, shall
                  have been exercised;

         such  previous  adjustment  shall be  rescinded  and  annulled  and the
         Additional Shares of Greenbriar Nonpreferred Stock which were deemed to
         have been issued by virtue of the  computation  made in connection with
         the  adjustment so rescinded and annulled  shall no longer be deemed to
         have  been  issued  by  virtue  of  such  computation.   Thereupon,   a
         recomputation  shall be made of the effect of such warrants,  rights or
         options  or other  Greenbriar  Convertible  Securities  on the basis of
         treating  any such  warrants,  options  or  rights  or any  such  other
         Greenbriar  Convertible  Securities  which then remain  outstanding  as
         having  been  granted  or  issued  immediately  after  the time of such
         increase of the  consideration  per share for such Additional Shares of
         Greenbriar  Nonpreferred  Stock are  issuable  under such  warrants  or
         rights or other Greenbriar Convertible  Securities;  and, if and to the
         extent  called for by the  foregoing  provisions of this Section 6.4 on
         the basis aforesaid,  a new adjustment of the Conversion Price shall be
         made, which new adjustment  shall supersede the previous  adjustment so
         rescinded and annulled.

                  (g) Other  Provisions  Applicable  to  Adjustments  Under this
         Section.  The following provisions shall be applicable to the making of
         adjustments of the Conversion Price  hereinbefore  provided for in this
         Section 6.4:

                           (1) Treasury Stock. The sale or other  disposition of
                  any issued  shares of Greenbriar  Nonpreferred  Stock owned or
                  held by or for the  account of  Greenbriar  shall be deemed an
                  issuance thereof for purposes of this Section 6.4.

                           (2) Computation of Consideration.  To the extent that
                  any Additional Shares of Greenbriar  Nonpreferred Stock or any
                  Greenbriar Convertible Securities or any warrants,  options or
                  other  rights to  subscribe  for or  purchase  any  Additional
                  Shares  of  Greenbriar  Nonpreferred  Stock or any  Greenbriar
                  Convertible   Securities  shall  be  issued  solely  for  cash
                  consideration,   the  consideration   received  by  Greenbriar
                  therefor  shall be deemed to be the amount of cash received by
                  Greenbriar   therefor,   or,  if  such  Additional  Shares  of
                  Greenbriar   Nonpreferred  Stock  or  Greenbriar   Convertible
                  Securities  are offered by Greenbriar  for  subscription,  the
                  subscription   price,   or,  if  such  Additional   Shares  of
                  Greenbriar   Nonpreferred  Stock  or  Greenbriar   Convertible
                  Securities  are sold to  underwriters  or  dealers  for public
                  offering without a subscription  offering,  the initial public
                  offering price, in any such case excluding any amounts paid or
                  receivable  for  accrued  interest  or accrued  dividends  and
                  without deduction of any  compensation,  discounts or expenses
                  paid or incurred by Greenbriar for and in the underwriting of,
                  or otherwise in



                                       15

<PAGE>



                  connection with, the issue thereof.  The consideration for any
                  Additional  Shares of Greenbriar  Nonpreferred  Stock issuable
                  pursuant to any warrants, options or other rights to subscribe
                  for or purchase the same shall be the  consideration  received
                  or receivable by Greenbriar for issuing such warrant,  options
                  or other rights, plus the additional  consideration payable to
                  Greenbriar  upon the  exercise  of such  warrants,  options or
                  other rights.  The  consideration for any Additional Shares of
                  Greenbriar  Nonpreferred  Stock issuable pursuant to the terms
                  of  any  Greenbriar   Convertible   Securities  shall  be  the
                  consideration received or receivable by Greenbriar for issuing
                  any warrants or other rights to subscribe for or purchase such
                  Greenbriar Convertible Securities, plus the consideration paid
                  or payable to Greenbriar in respect of the subscription for or
                  purchase of such Greenbriar Convertible  Securities,  plus the
                  additional  consideration,  if any, payable to Greenbriar upon
                  the  exercise of the right of  conversion  or exchange in such
                  Greenbriar  Convertible  Securities.  To the  extent  that any
                  issuance  shall be for a  consideration  other than solely for
                  cash, then, except as herein otherwise expressly provided, the
                  amount  of such  consideration  shall be deemed to be the fair
                  value of such  consideration  at the time of such  issuance as
                  determined pursuant to the Valuation Procedure.

                           (3)  When  Adjustments  to be made.  The  adjustments
                  required  by the  preceding  subsections  of this  Section 6.4
                  shall be made  whenever  and as often as any  specified  event
                  requiring an adjustment shall occur, except that no adjustment
                  of the Conversion Price that would otherwise be required shall
                  be made (except in the case of a subdivision or combination of
                  shares of the Greenbriar Nonpreferred Stock as provided for in
                  Section  6.4(a)) unless and until such  adjustment,  either by
                  itself or with other  adjustments not previously made, adds or
                  subtracts  at  least  $0.05  to  the  Conversion   Price,   as
                  determined  in  good  faith  by  the  Board  of  Directors  of
                  Greenbriar.  Any adjustment representing a change of less than
                  such minimum amount shall be carried  forward and made as soon
                  as such adjustment,  together with other adjustments  required
                  by this Section 6.4 and not previously made, would result in a
                  minimum  adjustment.  For the purpose of any  adjustment,  any
                  specified  event shall be deemed to have occurred at the close
                  of business on the date of its occurrence.

                           (4) Fractional  Interests.  In computing  adjustments
                  under this Section  6.4,  fractional  interests in  Greenbriar
                  Nonpreferred  Stock shall be taken into account to the nearest
                  one-thousandth of a share.

                           (5) When Adjustment Not Required. If Greenbriar shall
                  take a record of the  holders of its  Greenbriar  Nonpreferred
                  Stock for the purpose of entitling  them to receive a dividend
                  or  distribution or subscription or purchase rights and shall,
                  thereafter   and   before   the   distribution    thereof   to
                  shareholders,  legally abandon its plan to pay or deliver such
                  dividend, distribution,  subscription or purchase rights, then
                  thereafter  no  adjustment  shall be required by reason of the
                  taking of such record and any such adjustment  previously made
                  in respect thereof shall be rescinded and annulled.

                  (h) Merger,  Consolidation  or Disposition of Assets.  In case
         Greenbriar  shall merge or  consolidate  into another  corporation,  or
         shall sell, transfer or otherwise



                                       16

<PAGE>



         dispose of all or substantially all of its property, assets or business
         to another  corporation,  except  where  there is a Special  Asset Sale
         Trigger,  and  pursuant to the terms of such merger,  consolidation  or
         disposition,  shares  of common  stock of the  successor  or  acquiring
         corporation  are to be  received  by or  distributed  to the holders of
         Greenbriar  Nonpreferred  Stock,  then  each  holder  of a share of the
         Series  G Senior  Non-Voting  Preferred  Stock  shall  have  the  right
         thereafter  to  receive,  upon  exercise  of such share of the Series G
         Senior  Non-Voting   Preferred  Stock,  shares  of  common  stock  each
         comprising  the number of shares of common  stock of the  successor  or
         acquiring  corporation  receivable  upon or as a result of such merger,
         consolidation  or  disposition  of assets by a holder of the  number of
         shares of Greenbriar  Common Stock into which one share of the Series G
         Senior Non-Voting Preferred Stock could be converted  immediately prior
         to such event. If, pursuant to the terms of such merger,  consolidation
         or disposition of assets, any cash, shares of stock or other securities
         or  property  of any nature  whatsoever  (including  warrants  or other
         subscription  or purchase  rights) are to be received by or distributed
         to the holders of Greenbriar  Nonpreferred  Stock in addition to common
         stock of the successor or acquiring  corporation,  then the  Conversion
         Price  in  effect  shall  be  adjusted  to that  number  determined  by
         multiplying  the Conversion  Price then in effect by a fraction (x) the
         numerator  of  which  shall  be the  Fair  Market  Price  per  share of
         Greenbriar  Common  Stock  immediately  prior  to the  closing  of such
         merger,  consolidation or disposition  minus the portion  applicable to
         one share of Greenbriar  Common Stock of any such cash so distributable
         and of the fair value of any such  shares of stock or other  securities
         or property so received or distributed and (y) the denominator of which
         shall be the Fair Market  Price per share of  Greenbriar  Common  Stock
         immediately  prior to the  closing  of such  merger,  consolidation  or
         disposition.  The  fair  value  of any  such  shares  of stock or other
         securities or property  shall be  determined  pursuant to the Valuation
         Procedure. In case of any such merger,  consolidation or disposition of
         assets, the successor acquiring  corporation shall expressly assume the
         due and punctual  observance and performance of each and every covenant
         and condition hereof to be performed and observed by Greenbriar and all
         of  the  obligations  and  liabilities   hereunder,   subject  to  such
         modification  as shall be necessary to provide for  adjustments  to the
         Conversion Price which shall be as nearly  equivalent as practicable to
         the  adjustments  provided for in this Section 6.4. For the purposes of
         this  Section  6.4(h),  "common  stock of the  successor  or  acquiring
         corporation"  shall  include  stock of such  corporation  of any class,
         which is not  preferred  as to dividends or assets over any other class
         of stock of such  corporation  and which is not subject to  redemption,
         and shall also include any evidences of  indebtedness,  shares of stock
         or other  securities which are convertible into or exchangeable for any
         such stock,  either immediately or upon the arrival of a specified date
         or the happening of a specified event, and any warrants or other rights
         to subscribe for or purchase any such stock.  The foregoing  provisions
         of this Section  6.4(h) shall  similarly  apply to successive  mergers,
         consolidations or dispositions of assets.

                  (i) Purchases or Redemptions. In case at any time or from time
         to time after the Closing Date, Greenbriar shall (except as hereinafter
         provided)  purchase or redeem any  Greenbriar  Common Stock,  warrants,
         options or other rights to  subscribe  for,  purchase,  convert into or
         exchange  for  Greenbriar  Common Stock for a  consideration  per share
         greater than the Fair Market Price per share of Greenbriar Common Stock
         on the Computation Date, then the Conversion Price shall be adjusted to
         the lower of either:



                                       17

<PAGE>




                           (1)  that  number   determined  by  multiplying   the
                  Conversion   Price  in  effect   immediately   prior  to  such
                  adjustment  by a fraction (x) the  numerator of which shall be
                  the  number of  shares of  Greenbriar  Common  Stock  plus the
                  number  of such  shares  or share  equivalents  of  Greenbriar
                  Common Stock,  warrants,  options or other rights to subscribe
                  for, purchase,  convert into or exchange for Greenbriar Common
                  Stock so  purchased  or redeemed  and (y) the  denominator  of
                  which  shall be the  number  of shares  of  Greenbriar  Common
                  Stock,  plus the  number  of shares  or share  equivalents  of
                  Greenbriar Common Stock which the aggregate  consideration for
                  the total number of such  Greenbriar  Common Stock,  warrants,
                  options or other rights to subscribe  for,  purchase,  convert
                  into or exchange for  Greenbriar  Common Stock so purchased or
                  redeemed  would purchase at the Fair Market Price per share of
                  Greenbriar Common Stock; or

                           (2) the  value of the  consideration  per  share  for
                  which such Greenbriar Common Stock, warrants, options or other
                  rights to subscribe  for,  purchase,  convert into or exchange
                  for Greenbriar Common Stock were purchased or redeemed.

         No adjustment of the Conversion  Price shall be made under this Section
         6.4(c)  upon  the  issuance  of any  Additional  Shares  of  Greenbriar
         Nonpreferred  Stock which are issued  pursuant  to the  exercise of any
         warrants or other  subscription  or purchase  rights or pursuant to the
         exercise  of any  conversion  or  exchange  rights  in  any  Greenbriar
         Convertible  Securities,  if any such adjustment  shall previously have
         been made upon the  issuance of such  warrants or other  rights or upon
         the issuance of such  Greenbriar  Convertible  Securities  (or upon the
         issuance of any warrant or other rights  therefor)  pursuant to Section
         6.4(d) or 6.4(e).

                  (j) Other Action Affecting  Greenbriar  Nonpreferred Stock. In
         case at any time or from time to time Greenbriar  shall take any action
         affecting  its  Greenbriar  Nonpreferred  Stock,  other  than an action
         described  in  any  of  the  foregoing  Sections  6.4(a)  through  (i),
         inclusive,  then,  unless in the opinion of the Board of Directors such
         action will not have a materially adverse effect upon the rights of the
         holders  of  the  Series  G  Senior  Non-Voting  Preferred  Stock,  the
         Conversion  Price  shall be adjusted in such manner and at such time as
         the Board of Directors  may in good faith  determine to be equitable in
         the circumstances.

         6.5 No Impairment.  Other than in connection  with the amendment of its
Articles of  Incorporation  approved by the  requisite  number of  stockholders,
Greenbriar   will  not,   through  any   reorganization,   transfer  of  assets,
consolidation,  merger,  dissolution,  issue or sale of  securities or any other
voluntary action,  avoid the observance or performance of any of the terms to be
observed or  performed  hereunder  by  Greenbriar  but will at all times in good
faith assist in the carrying out of all the  provisions of this Section 6 and in
the taking of all such action as may be  necessary  or  appropriate  in order to
protect the conversion  rights of the holders of the Series G Senior  Non-Voting
Preferred  Stock  against  impairment.  Without  limiting the  generality of the
foregoing,  Greenbriar  (i) will not permit the par value of any shares of stock
at the time  receivable  upon the  conversion  of the Series G Senior  NonVoting
Preferred  Stock to exceed the Conversion  Price then in effect,  (ii) will take
all such action as may be necessary or appropriate in order that  Greenbriar may
validly and legally


                                       18

<PAGE>



deliver fully paid nonassessable shares of stock on the conversion of the Series
G Senior  NonVoting  Preferred  Stock,  and (iii) will not issue any  Additional
Shares of Greenbriar  Nonpreferred Stock or Greenbriar Convertible Securities or
take any action which results in any adjustment of the  Conversion  Price if the
total number of shares of Greenbriar Common Stock required to be delivered after
such issuance or action upon the conversion of all the then  outstanding  shares
of Series G Senior  Non-Voting  Preferred Stock will exceed the number of shares
of  Greenbriar  Common Stock and available for the purpose of delivery upon such
conversion.

         6.6  Certificate  as  to  Adjustments.  Upon  the  occurrence  of  each
adjustment or readjustment  of the Conversion  Price pursuant to this Section 6,
Greenbriar at  Greenbriar's  expense shall promptly  compute such  adjustment or
readjustment  in  accordance  with the terms hereof and furnish to the Preferred
Stock Representative a certificate setting forth such adjustment or readjustment
and showing in detail the facts upon which such  adjustment or  readjustment  is
based, including a statement of (i) the consideration received or to be received
by Greenbriar for any Additional Shares of Greenbriar  Nonpreferred Stock issued
or sold or deemed to have been issued,  (ii) the number of shares of  Greenbriar
Nonpreferred  Stock  outstanding  or  deemed  to be  outstanding,  and (iii) the
Conversion  Price  in  effect  immediately  prior  to such  issue or sale and as
adjusted  and  readjusted  on account  thereof,  showing how it was  calculated.
Greenbriar  shall,  upon  the  written  request  at any  reasonable  time of the
Preferred Stock Representative,  furnish or cause to be furnished to such holder
a like certificate setting forth (i) the Conversion Price at the time in effect,
showing  how it was  calculated,  and (ii) the  number of  shares of  Greenbriar
Common Stock and the amount,  if any, of other  property which at the time would
be received  upon the  conversion  of the Series G Senior  Non-Voting  Preferred
Stock.

         6.7 Notices of Record Date. In the event of any taking by Greenbriar of
a  record  of the  holders  of any  class  of  securities  for  the  purpose  of
determining  the  holders  thereof who are  entitled to receive any  dividend or
other distribution, or any right to subscribe for, purchase or otherwise acquire
any  shares of stock of any class or any other  securities  or  property,  or to
receive any other  right,  Greenbriar  shall mail to each holder of the Series G
Senior  Non-Voting  Preferred Stock at least 10 days prior to the date specified
therein,  a notice  specifying  the date on which any such record is to be taken
for the purpose of such dividend or distribution.

         7.       Covenants of Greenbriar.

         Without   the   prior   written   consent   of  the   Preferred   Stock
Representative, Greenbriar shall comply with each of the following covenants.

         7.1 Greenbriar Common Stock.  Greenbriar shall at all times reserve and
keep available enough shares of Greenbriar Common Stock to effect the conversion
of the Series G Senior  Non-Voting  Preferred Stock,  subject to (i) appropriate
adjustments in connection  with a stock split or other similar events and (ii) a
reduction  by the  number  of  shares  of  Greenbriar  Common  Stock  that  have
previously  been  delivered  upon  conversion  of  Series  G  Senior  Non-Voting
Preferred  Stock;  all of such  shares  of  Greenbriar  Common  Stock  which are
issuable to the holders of the Series G Senior Non-Voting Preferred Stock by way
of conversion,  will be when issued,  duly authorized and validly issued,  fully
paid and nonassessable, and free from all taxes, liens and charges.



                                       19

<PAGE>



         7.2 Cash Reserves after a Special Asset Sale Trigger. Commencing on the
date nine  months  after the date of a Special  Asset Sale  Trigger,  Greenbriar
shall, at all times, maintain cash or Permitted Investments in excess of the sum
of (i) the current  Liquidation Value of the Series F Senior Preferred Stock and
(ii) the current  Liquidation  Value (as defined in the Series G Certificate  of
Designation) of the Series G Senior Non-Voting Preferred Stock.

         8.       Events of Default.

         8.1 Notice of Event of Default.  Upon an Event of Default or  Potential
Default,  Greenbriar  shall provide  written  notice of such Event of Default or
Potential Default, including the date on which such event first occurred, to the
Preferred  Stock  Representative  within 10 days  after the  occurrence  of such
event. Any Event of Default or Potential Default may be waived in writing by the
Preferred Stock  Representative  at any time, in which case Sections 8.2 through
8.4 shall not apply with respect to such Event of Default or Potential  Default;
provided,  however,  that no such  waiver of an Event of  Default  or  Potential
Default  shall be  deemed  to be a waiver  of any  other  Event  of  Default  or
Potential Default.

         8.2 Dividends  During Event of Default.  Upon the occurrence and during
the  continuance  of an Event of  Default  resulting  from  (i) the  failure  of
Greenbriar to comply with any of the  covenants  contained in Sections 6.1, 6.3,
6.8, 6.10, 6.19, 6.20, 6.22, 6.24,  6.27-6.35 of the Purchase  Agreement or (ii)
any of the events  specified in clauses (ii) through (viii) of the definition of
"Event  of  Default,"  the  holders  of  outstanding  shares  of Series G Senior
NonVoting Preferred Stock shall be entitled to receive, in addition to all other
dividends  payable  hereunder to holders of shares of Series G Senior Non-Voting
Preferred  Stock and when, as and if declared by the Board of Directors,  out of
funds legally  available for the payment of dividends,  cumulative  preferential
cash  dividends  accruing  from the date of the Event of Default  (the  "Default
Date") in an  amount  per share  per  annum  equal to $1.20 per  share,  payable
quarterly on the last  Business Day of March,  June,  September  and December of
each year.  Dividends on the Series G Senior  Non-Voting  Preferred  Stock shall
accrue  (whether  or not  declared)  on a daily  basis and  shall be  cumulative
(whether  or not in any  Dividend  Period  there  shall be  funds of  Greenbriar
legally  available for the payment of such dividends).  The first dividend shall
accrue from the Default Date through the last Business Day of the first calendar
quarter to end after the Default Date, and subsequent  dividends shall accrue on
a daily basis during the dividend period for which they are payable.

         8.3 Put Option.  Upon the  occurrence of an Event of Default  resulting
from (i) the failure of Greenbriar to comply with any of the covenants contained
in Sections  6.1,  6.3,  6.10,  6.19,  6.20,  6.22,  6.27-6.35  of the  Purchase
Agreement or (ii) any of the events specified in clauses (iii) through (viii) of
the  definition of "Event of Default,"  each holder of shares of Series G Senior
Non-Voting Preferred Stock shall have the right, by written notice to Greenbriar
(the  "Repurchase  Notice")  within 90 days after the occurrence of the Event of
Default, to require that Greenbriar  repurchase,  out of funds legally available
therefor,  any or all of such  holder's  shares  of  Series G Senior  Non-Voting
Preferred Stock for an amount in cash equal to 120% of the Liquidation  Value of
the shares of Series G Senior Non-Voting Preferred Stock to be repurchased as of
the date of the  holder's  Repurchase  Notice.  Any  Repurchase  Notice shall be
accompanied by duly endorsed  certificates  representing  the shares of Series G
Senior  Non-Voting  Preferred  Stock  to  be  repurchased.  Upon  receipt  of  a
Repurchase  Notice,  Greenbriar  shall make  payment in cash of the  appropriate
amount to the holder  requiring  repurchase  with five Business Days of the date
such Repurchase Notice is


                                       20

<PAGE>



received, unless prior to such payment,  Greenbriar receives written notice from
such holder that such holder is withdrawing its requirement of the repurchase of
its shares of Series G Senior Non-Voting Preferred Stock.

         8.4 Special Asset Sale Trigger. Upon a Special Asset Sale Trigger, each
holder of shares of Series G Senior  Non-Voting  Preferred  Stock shall have the
right,  by written  notice to Greenbriar  (the "Asset Sale  Repurchase  Notice")
within nine months after written notice to the Preferred Stock Representative of
the  occurrence  of a Special  Asset Sale  Trigger,  to require that  Greenbriar
repurchase,  out of funds legally available therefor, a specified number of such
holder's  shares  (the  "Repurchase  Shares")  of  Series  G  Senior  Non-Voting
Preferred  Stock.  The  Repurchase  Shares  may be all or any  portion  of  such
holder's  total  shares  of  Series G Senior  Non-Voting  Preferred  Stock.  The
Repurchase Shares shall be repurchased by Greenbriar for an amount in cash equal
to the aggregate Liquidation Value of the Repurchase Shares plus the greater of:
(i) 20% of the aggregate  Liquidation  Value of the Repurchase  Shares or (ii) a
20% IRR on the aggregate  Liquidation  Value of the Repurchase  Shares,  in each
case, as of the date of the holder's  Asset Sale  Repurchase  Notice.  Any Asset
Sale  Repurchase  Notice  shall be  accompanied  by duly  endorsed  certificates
representing  the  Repurchase  Shares.  Upon receipt of a Asset Sale  Repurchase
Notice,  Greenbriar shall make payment in cash of the appropriate  amount to the
holder requiring  repurchase with five Business Days of the date such Asset Sale
Repurchase Notice is received, unless prior to such payment, Greenbriar receives
written notice from such holder that such holder is withdrawing  its requirement
of the repurchase of the Repurchase Shares.

         8.5 Change in  Management.  If at any time after the date  hereof,  (i)
James R.  Gilley  is not  serving  as  Chairman  of the  Board of  Directors  of
Greenbriar  for any  reason  and (ii) the  Preferred  Stock  Representative  has
proposed one or more candidates for Mr. Gilley's  replacement that is willing to
serve  regardless of whether or not any of such  candidate(s)  are acceptable to
Greenbriar,  unless  within  15 days of the date Mr.  Gilley  ceases to serve as
Chairman  Mr.  Gilley's  replacement  as  Chairman  is  mutually  agreed upon by
Greenbriar and the Preferred Stock  Representative,  there shall have occurred a
"Change in  Management"  which  shall give to each  holder of shares of Series G
Senior  Non-Voting  Preferred  Stock the right,  by written notice to Greenbriar
(the  "Change  in  Management  Repurchase  Notice")  within  90 days  after  the
occurrence of the Change in Management,  to require that Greenbriar  repurchase,
out of funds legally  available  therefor,  a specified  number of such holder's
shares  (the  "Change  in  Management  Repurchase  Shares")  of  Series G Senior
Non-Voting  Preferred Stock. The Change in Management  Repurchase  Shares may be
all or any portion of such holder's  total shares of Series G Senior  Non-Voting
Preferred Stock. The Change in Management Repurchase Shares shall be repurchased
by Greenbriar for an amount in cash equal to the aggregate  Liquidation Value of
the Change in Management  Repurchase  Shares plus the greater of: (i) 20% of the
aggregate  Liquidation  Value of the Change in Management  Repurchase  Shares or
(ii) a 20% IRR on the  aggregate  Liquidation  Value of the Change in Management
Repurchase  Shares,  in each  case,  as of the date of the  holder's  Change  in
Management  Repurchase Notice. Any Change in Management  Repurchase Notice shall
be  accompanied  by  duly  endorsed  certificates  representing  the  Change  in
Management  Repurchase Shares which shall be free and clear of all claims, liens
and  encumbrances.  Upon receipt of a Change in  Management  Repurchase  Notice,
Greenbriar  shall execute a full recourse  promissory  note for the  appropriate
amount to the holder  requiring  repurchase (the "Repurchase  Promissory  Note")
within  five  Business  Days of the date such  Change in  Management  Repurchase
Notice is received,  unless prior to such payment,  Greenbriar  receives written
notice from such holder that such holder is withdrawing its requirement of



                                       21

<PAGE>


the  repurchase of the Change in Management  Repurchase  Shares.  The Repurchase
Promissory  Note shall be (a) in a form agreed to by Greenbriar  and the initial
purchaser of the Series G Senior  Non-Voting  Preferred Stock, (b) for a term of
one (1) year from the date of the Change in Management  Repurchase Notice,  with
50% of the principal  together with all accrued interest due six (6) months from
the date of the Change in Management  Repurchase Notice, (c) shall bear interest
at the lower of eighteen  percent  (18%) or the highest rate allowed by law, and
(d) shall be secured by the highest  available  lien on all of the  property and
assets of Greenbriar and the Subsidiaries  reasonably  sufficient to secure such
holders   right  of  repayment,   including  all  ownership   interests  of  all
subsidiaries  of  Greenbriar,  except where such lien (i) is in violation of its
certificate of incorporation,  articles of incorporation or bylaws of Greenbriar
or any of the  Subsidiaries;  (ii) would create a default in the  performance of
any  obligation,  agreement  or condition  contained  in any license,  contract,
indenture,  mortgage,  installment sale agreement,  lease, deed of trust, voting
trust agreement, stockholders' agreement, note, loan, credit agreement, purchase
order,  agreement or instrument  evidencing an obligation  for borrowed money or
other agreement or instrument to which  Greenbriar or any of the Subsidiaries is
a party or by which  Greenbriar  or any of the  Subsidiaries  may be bound or to
which the property or assets of Greenbriar or any of the Subsidiaries is subject
or  affected;  or (iii)  would  create a  violation  in any  respect  of any Law
applicable to Greenbriar or any of the Subsidiaries,  that would have a Material
Adverse Effect.  Such liens shall be of the same priority as between all holders
requiring  repurchase.  The Repurchase  Promissory Note shall be due and payable
immediately  if  Greenbriar  fails to perfect  liens on  property  and assets of
Greenbriar  and the  Subsidiaries  reasonably  sufficient to secure such holders
right  of  repayment  within  ten  Business  Days of the  date  such  Change  in
Management  Repurchase  Notice  is  received,  unless  prior  to such  delivery,
Greenbriar  receives  written  notice  from  such  holder  that  such  holder is
withdrawing  its  requirement of the repurchase of its shares of Series G Senior
Non-Voting Preferred Stock.

         8.6 Remedies  Cumulative.  In addition to the remedies  stated  herein,
each  holder of Series G Senior  Non-Voting  Preferred  Stock will also have any
other rights that such holder may be entitled to under any agreement or pursuant
to applicable law.

         9.       No Reissuance.

         No shares of Series G Senior  Non-Voting  Preferred  Stock  acquired by
Greenbriar by reason of redemption,  purchase,  conversion or otherwise shall be
reissued as Series G Senior Non-Voting Preferred Stock.





                                       22

<PAGE>











EXHIBIT 2.2.4














<PAGE>
                        REGISTRATION RIGHTS AGREEMENT


         This  Registration  Rights  Agreement (this  "Agreement") is made as of
January 9, 1998, by and between  Greenbriar  Corporation,  a Nevada  corporation
("Greenbriar"),  and Lone  Star  Opportunity  Fund,  L.P.,  a  Delaware  limited
partnership  ("Purchaser").  Greenbriar  proposes  to  issue  and  sell  to  the
Purchaser,  upon the terms set forth in a Stock Purchase  Agreement  dated as of
December 31, 1997 (the "Purchase  Agreement"),  1,400,000 shares of Greenbriar's
Series F Senior  Convertible  Preferred  Stock (the  "Series F Senior  Preferred
Stock")  and  800,000  shares  of  Greenbriar's   Series  G  Senior   Non-Voting
Convertible  Preferred Stock (the "Series G Senior Non-Voting Preferred Stock").
The Series F Senior Preferred Stock and the Series G Senior Non-Voting Preferred
Stock are  convertible  into Common Stock (as defined  below) as provided in the
Purchase Agreement. As an inducement to the Purchaser to enter into the Purchase
Agreement  and in  satisfaction  of a condition to the  Purchaser's  obligations
thereunder,  Greenbriar  agrees  with  the  Purchaser,  for the  benefit  of the
Purchaser and the other Holders (as defined below), as follows:

         1.       Certain Definitions.

         As used in this Agreement,  the following  initially  capitalized terms
have the following meanings:

         "Agreement" is defined in the preamble to this Agreement.

         "Commission" means the Securities and Exchange  Commission or any other
federal agency at the time administering the Securities Act.

         "Common Stock" means the common stock, $0.01 par value per share, of
          Greenbriar.

         "Exchange Act" means the  Securities  Exchange Act of 1934, as amended,
or  any  similar  successor  federal  statute  and  the  rules  and  regulations
thereunder, all as the same shall be in effect from time to time.

         "Greenbriar" is defined in the preamble to this Agreement.

         "Holder" means a Person owning Registrable Securities.

         "Person"  means  an  individual,   partnership,   corporation,  limited
liability  company,  trust or  unincorporated  organization,  or a government or
agency or political subdivision thereof.

         "Prospectus"   means  the  prospectus   included  in  the  Registration
Statement,  as amended or supplemented  by any prospectus  supplement and by all
other amendments thereto,  including post-effective amendments, and all material
incorporated by reference into such prospectus.

         "Purchase Agreement" is defined in the preamble to this Agreement.

         "Purchaser" is defined in the preamble to this Agreement.



                                        1

<PAGE>



         "Registrable  Securities"  means (i) shares of Common  Stock  issued or
transferred  pursuant to the conversion of the Series F Senior  Preferred  Stock
and the Series G Senior  Non-Voting  Preferred  Stock and (ii) any Common  Stock
issued as a dividend or other distribution with respect to or in exchange for or
in replacement of the shares referenced in (i) above.

         "Registration  Statement"  means any  registration  statement under the
Securities  Act that is filed by  Greenbriar  to register  sales of  Registrable
Securities by Holders, whether or not such registration statement also registers
the issuance or sale of other securities.

         "Request  Notice" means a written  request,  approved by Holders of not
less than a majority of the outstanding Registrable Securities,  that Greenbriar
effect a registration of all or part of the Registrable Securities.

         "Series F Senior Preferred Stock" is defined in the preamble to this
Agreement.

         "Series G Senior Non-Voting Preferred Stock" is defined in the preamble
to this Agreement.

         "Securities  Act" means the Securities Act of 1933, as amended,  or any
similar successor federal statute and the rules and regulations thereunder,  all
as the same shall be in effect from time to time.

         "Underwritten  Offering"  means a registration  in which  securities of
Greenbriar are sold to an underwriter for re-offering to the public.

         2.       Requested Registration.

                  (a) The Holders of not less than a majority of the outstanding
Registrable  Securities may, at any time,  issue a Request Notice to Greenbriar,
requesting  Greenbriar to effect registration under the Securities Act of all or
any part of the Registrable Securities,  for sale in the manner specified in the
Request Notice, provided that such sale will have an aggregate offering price of
at least  $3,000,000.  Greenbriar  shall  give  written  notice of the  proposed
registration  to all  other  Holders  within  5  business  days  of  receipt  by
Greenbriar  of the  Request  Notice.  Greenbriar  shall use its best  efforts to
include in such  registration  all the Registrable  Securities  specified by any
other  Holder in a written  request and  received by  Greenbriar  within 25 days
after the notice to other Holders is mailed or delivered by Greenbriar.

         The Request  Notice shall  specify the number of shares of  Registrable
Securities  proposed  to be sold by the  Holders  making  such  demand  request.
Greenbriar  shall file a  registration  statement  for the  registration  of the
Registrable  Securities requested to be registered in the Request Notice as soon
as  practicable  and in any event  within 60 days  after  receiving  the  demand
request (the "Required Filing Date") and shall use all  commercially  reasonable
efforts to cause the same to be declared effective by the Commission as promptly
as  practicable  after such filing;  provided,  that,  subject to Section  2(d),
Greenbriar need effect only two demand registrations pursuant to this Section 2.




                                        2

<PAGE>



                  (b) Greenbriar  will not effect any other  registration of any
of its  securities,  whether for its own  account or that of any other  security
holder, from the date of receipt of a Request Notice until the completion of the
distribution  of all securities  thereunder;  provided that on or after the 60th
day after the effective  date of a  Registration  Statement  filed in connection
with a Request  Notice,  Greenbriar  may  effect  the  registration  of (i) debt
securities by the Company only for its own account or (ii) equity  securities by
the Company only for its own account,  which equity securities will be issued as
consideration for an acquisition by the Company.

                  (c) If any of the  Registrable  Securities  included under the
Registration  Statement  are  to  be  sold  in  an  Underwritten  Offering,  the
investment  banker or  investment  bankers  and  manager or  managers  that will
administer  the  offering  will be  selected by the Holders of 50 percent of the
Registrable Securities to be registered,  provided,  however, that such managing
underwriters shall be reasonably satisfactory to Greenbriar.

                  (d) A  registration  shall not count as a Demand  Registration
until it has become effective (unless the Requesting  Holders withdraw all their
Registrable  Securities,  in which  case  such  demand  shall  count as a Demand
Registration  unless the  Requesting  Holders pay all  registration  expenses in
connection  with such  withdrawn  registration);  provided that if, after it has
become  effective,   an  offering  of  Registrable   Securities  pursuant  to  a
registration is interfered with by any stop order,  injunction or other order or
requirement  of the  Commission  or other  governmental  agency or  court,  such
registration shall be deemed not to have been effected.

                  (e)  Notwithstanding  the  foregoing,  the  provisions of this
Section  2 are  subject  to  the  terms  of  the  existing  registration  rights
agreements  listed on and the waivers  contained in Exhibit A hereto,  except to
the extent waived.

         3.       Piggyback Registration.

                  (a) If Greenbriar  proposes at any time to register any of its
securities  either for its own  account or the  account of a security  holder or
holders (other than a registration  relating solely to employee benefit plans, a
registration  on  Form  S-4 or a  registration  relating  solely  to a Rule  145
transaction)  Greenbriar will promptly,  but in no event less than 45 days prior
to the initial filing with the Commission of such registration  statement,  give
written notice to the Holders.  Such notice shall specify,  to the extent known,
the anticipated filing date, the number of securities  proposed to be registered
and the general distribution arrangements.  Greenbriar will use its best efforts
to include in such registration and in any underwriting  involved  therein,  all
the Registrable  Securities specified in a written request or requests,  made by
any Holder and received by  Greenbriar  within 30 days after the written  notice
from  Greenbriar is mailed or delivered by Greenbriar.  Such written request may
specify all or a part of a Holder's Registrable Securities.

                  (b) Greenbriar may, at any time prior to the  effectiveness of
any  such  registration,  abandon  the  proposed  offering;  provided,  however,
Greenbriar  shall give written notice of such abandonment to each Holder as soon
as  practical,  but in no event  more than 20 days  after the  determination  to
abandon such registration.




                                        3

<PAGE>



                  (c) The number of  Registrable  Securities  to be  included in
such  registration  may be reduced or  eliminated  if and to the extent,  in the
reasonable opinion of the managing underwriter of such offering,  such inclusion
would materially  jeopardize the successful marketing of the securities proposed
to sold therein.  If the aggregate number of securities must be limited pursuant
to this Section,  the total number of securities  that may be included  shall be
allocated first to Greenbriar or Holders  initiating a request for  registration
under Section 2, and then pro rata among the Holders and other security  holders
requesting their  securities of Greenbriar to be registered  pursuant to similar
piggy-back registration rights on the basis of the number of shares requested to
be included in such  registration  by each Holder or other holder having similar
piggy-back  registration  rights.  If a Holder is not entitled to include all of
its Registrable  Securities in such registration,  then such Holder may elect to
withdraw its request to include any or all of its Registrable Securities in such
registration.

                  (d) All  Holders  proposing  to  distribute  their  securities
through such  underwriting  shall, if reasonably  requested by Greenbriar or the
managing  underwriter in connection  with such  registration,  (i) agree to sell
such   Registrable   Securities  on  the  basis  provided  in  any  underwriting
arrangements entered into in connection therewith, (ii) complete and execute all
questionnaires,  powers of attorney,  indemnities,  underwriting  agreements and
other  documents  that  are  required  under  the  terms  of  such  underwriting
arrangements and (iii) promptly provide any information  requested,  in writing,
by Greenbriar or the managing underwriter.

                  (e) If a Holder decides not to include all of its  Registrable
Securities  in any  registration  pursuant to this  Section,  such Holder  shall
nevertheless continue to have the right to include any Registrable Securities in
any subsequent Registration Statement(s) as may be filed by Greenbriar.

         4. Registration on Form S-3.

                  (a)  Greenbriar  shall use its best  efforts  to  qualify  for
registration  on Form S-3 or any  comparable or successor  form or forms.  After
Greenbriar  has  qualified  for the use of Form S-3,  in  addition to the rights
contained in the foregoing  provisions of Section 2, the Holders of  Registrable
Securities  shall  have the  right to  request  registrations  on Form S-3 (such
requests shall be in writing and shall state the number of shares of Registrable
Securities  to be disposed of and the intended  methods of  disposition  of such
shares by such Holder or Holders);  provided, however, that Greenbriar shall not
be obligated to effect any such  registration if (i) the Holders,  together with
the holders of any other securities of Greenbriar  entitled to inclusion in such
registration,  propose to sell Registrable  Securities and such other securities
(if any) on Form S-3 at an aggregate price to the public of less than $3,000,000
or (ii) in a given  twelve-month  period,  Greenbriar  has effected one (1) such
registration in any such period.

                  (b) If a request  complying with the  requirements  of Section
4(a) is delivered to Greenbriar,  the provisions of Sections 2(b) and (c) hereof
shall apply to such registration.





                                        4

<PAGE>



                  (c)  Notwithstanding  the  foregoing,  the  provisions of this
Section  4 are  subject  to  the  terms  of  the  existing  registration  rights
agreements  listed on and the waivers  contained in Exhibit A hereto,  except to
the extent waived.

         5.       Registration Procedures.

         In  connection  with any  registration  to permit the sale or resale of
Registrable  Securities  pursuant to this  Agreement,  Greenbriar  shall use its
reasonable best efforts to:

                  (a) Keep such registration  effective for a period of 120 days
or until the Holders have completed the distribution as specified in the Request
Notice, whichever first occurs; provided,  however, (i) that such 120-day period
shall be extended  for a period of time equal to the period the Holder  refrains
from selling any securities  included in such  registration at the request of an
underwriter  of any  securities  of  Greenbriar;  and  (ii)  in the  case of any
registration  of  Registrable  Securities  on Form S-3 which are  intended to be
offered on a continuous or delayed basis, such 120-day period shall be extended,
if  necessary,  to keep the  registration  statement  effective  until  all such
Registrable  Securities are sold,  provided that Rule 145, or any successor rule
under the Securities Act,  permits an offering on a continuous or delayed basis,
and provided  further that  applicable  rules under the Securities Act governing
the obligation to file a post-effective  amendment  permit,  in lieu of filing a
post-effective  amendment that (A) includes any  Prospectus  required by Section
10(a)(3) of the Securities  Act or (B) reflects  facts or events  representing a
material or fundamental  change in the information set forth in the Registration
Statement, the incorporation by reference of information required to be included
in (A) and (B) above to be  contained  in  periodic  reports  filed  pursuant to
Section 13 or 15(d) of the Exchange Act in the Registration Statement;

                  (b) Furnish to each Holder,  prior to the filing  thereof with
the Commission,  a copy of the Registration Statement and each amendment thereto
or each  amendment or supplement to the  Prospectus  included  therein and shall
make Greenbriar's  representatives available for discussion of such document and
other customary due diligence matters, and shall use its best efforts to reflect
in each such document,  when so filed with the Commission,  such comments as any
Holder reasonably may propose;

                  (c) Take any and all actions as may be  necessary  so that (i)
the Registration Statement and any amendment thereto and the Prospectus complies
in all material  respects with the Securities Act and the rules and  regulations
thereunder, (ii) the Registration Statement and any amendment thereto (in either
case, other than with respect to written information  furnished to Greenbriar by
or on behalf of any Holder specifically for inclusion therein) does not, when it
becomes  effective,  contain an untrue  statement of a material  fact or omit to
state a material  fact  required to be stated  therein or  necessary to make any
statement  therein  not  misleading  and (iii) the  Prospectus  (other than with
respect to such  information  from Holders) does not include an untrue statement
of a material fact or omit to state a material  fact  necessary in order to make
the  statements  therein,  in light of the  circumstances  under which they were
made, not misleading;




                                        5

<PAGE>



                  (d) Keep the Registration Statement continuously effective and
provide all requisite  financial  statements for the period specified in Section
5(a);  and upon the  occurrence  of any event that would cause the  Registration
Statement or any amendment  thereto or the  Prospectus (i) to contain a material
misstatement  or omission or (ii) not to be  effective  and usable for resale of
Registrable Securities during the period required by this Agreement,  Greenbriar
shall file promptly an appropriate  amendment or supplement to the  Registration
Statement,  in the case of  clause  (i),  correcting  any such  misstatement  or
omission, and, in the case of either clause (i) or (ii), use its reasonable best
efforts to cause such amendment to be declared  effective and such  Registration
Statement  and the  related  Prospectus  to become  usable  for  their  intended
purpose(s) as soon as practicable thereafter;

                  (e) Prepare and file with the Commission  such  amendments and
post-effective  amendments to the Registration  Statement as may be necessary to
keep the Registration Statement effective for the applicable period set forth in
Section 5(a); cause the Prospectus to be supplemented by any required Prospectus
supplement,  and as so  supplemented  to be filed pursuant to Rule 424 under the
Securities Act, and to comply fully with the applicable  provisions of Rules 424
and 430A  under the  Securities  Act in a timely  manner;  and  comply  with the
provisions  of  the  Securities  Act  with  respect  to the  disposition  of all
securities covered by the Registration Statement during the applicable period in
accordance  with the intended  method or methods of  distribution by the sellers
thereof set forth in the Registration Statement or supplement to the Prospectus;

                  (f) As soon as  practicable,  advise the Holders (which advice
pursuant  to clauses  (ii)-(iv)  shall be deemed to include  an  instruction  to
suspend the use of the  Prospectus  until the requisite  changes have been made)
and, if requested by such Persons, to confirm such advice in writing:

                    i.   when the  Prospectus  or any  supplement  or  amendment
                         thereto has been filed with the Commission and when the
                         Registration Statement or any post-effective  amendment
                         thereto has become effective;

                    ii.  of any request by the  Commission for amendments to the
                         Registration  Statement or amendments or supplements to
                         the Prospectus or for additional  information  relating
                         thereto;

                    iii. of the  issuance  by the  Commission  of any stop order
                         suspending  the   effectiveness   of  the  Registration
                         Statement under the Securities Act or of the suspension
                         by any state securities commission of the qualification
                         of the  Registrable  Securities for offering or sale in
                         any  jurisdiction,  or the initiation of any proceeding
                         for any of the preceding purposes; and

                    iv.  of the  existence  of any fact or the  happening of any
                         event that makes any  statement of a material fact made
                         in the  Registration  Statement,  the  Prospectus,  any
                         amendment  or  supplement   thereto,  or  any  document
                         incorporated  by  reference  therein  untrue,  or  that
                         requires  the making of any  additions to or changes in
                         the  Registration  Statement or the  Prospectus so that
                         the  Registration  Statement and the  Prospectus do not
                         contain an untrue  statement of a material  fact and do
                         not omit



                                        6

<PAGE>



                         to  state a material fact required to be stated therein
                         or necessary   to  make the  statements   therein   not
                         misleading;

                  (g) If at any time the  Commission  shall issue any stop order
suspending  the  effectiveness  of the  Registration  Statement,  or  any  state
securities  commission  or  other  regulatory  authority  shall  issue  an order
suspending the qualification or exemption from  qualification of the Registrable
Securities  under state  securities or blue sky laws,  obtain the  withdrawal or
lifting of such order at the earliest possible time;

                  (h) Furnish to each Holder and each of the underwriter(s),  if
any, without charge,  at least one copy of the  Registration  Statement and each
post-effective  amendment  thereto,   including  all  financial  statements  and
schedules,  documents  incorporated  by reference  therein and, if the Holder so
requests in writing,  all exhibits (including exhibits  incorporated  therein by
reference);

                  (i) Deliver to each Holder and each of the underwriter(s),  if
any,  without  charge,  as  many  copies  of  the  Prospectus   (including  each
preliminary prospectus) included in the Registration Statement and any amendment
or supplement  thereto as such Persons may  reasonably  request;  and Greenbriar
consents to the use of the Prospectus by each of the selling Holders and each of
the underwriter(s),  if any, in connection with the offering and the sale of the
Registrable  Securities covered by the Prospectus or any amendment or supplement
thereto;

                  (j) Prior to any public offering  pursuant to the Registration
Statement,  register or qualify or  cooperate  with the  Holders of  Registrable
Securities  registered  thereunder,  the  underwriter(s),   if  any,  and  their
respective counsel in connection with the registration and qualification of such
Registrable   Securities   under  the  securities  or  blue  sky  laws  of  such
jurisdictions as such Holders or underwriters  reasonably request in writing and
do any and all other acts or things  necessary  or advisable to enable the offer
and  sale  in  such  jurisdictions  of such  Registrable  Securities;  provided,
however,  that  Greenbriar  will not be  required  to  qualify  generally  to do
business in any  jurisdiction  where it is not then so  qualified or to take any
action that would subject it to general service of process or to taxation, other
than as to matters and transactions relating to the Registration  Statement,  in
any jurisdiction where it is not then so subject;

                  (k)  Cause  the   Registrable   Securities   covered   by  the
Registration  Statement  to  be  registered  with  or  approved  by  such  other
governmental agencies or authorities as may be necessary to enable the seller or
sellers thereof or the underwriter(s),  if any, to consummate the disposition of
such Registrable Securities, subject to the provision contained in Section 5(f);
provided,  however, that Greenbriar's  obligations pursuant to this Section 5(k)
shall not  extend to  actions  necessary  to enable  the  seller or  sellers  of
Registrable  Securities  or  the  underwriter(s),  if  any,  to  consummate  the
disposition of such Registrable Securities if such actions are necessary only as
a result of the status of such seller or sellers or  underwriter(s) as regulated
entities  under any  regulatory  regime  other than the  securities  laws of the
United States or any state thereof;

                  (l) Unless any Registrable  Securities  shall be in book-entry
form  only,  cooperate  with the  Holders  and the  underwriter(s),  if any,  to
facilitate  the timely  preparation  and delivery of  certificates  representing
Registrable Securities to be sold under the



                                        7

<PAGE>



Registration   Statement,   free  of  any   restrictive   legends  and  in  such
denominations and registered in such names as the Holders or the underwriter(s),
if any,  may  request in  connection  with the sales of  Registrable  Securities
pursuant to the Registration Statement;

                  (m) Upon the occurrence of any event  contemplated  by Section
5(f)(ii)-(iv),  file  (and  have  declared  effective  as  soon as  possible)  a
post-effective  amendment  to the  Registration  Statement  or an  amendment  or
supplement to the Prospectus or any document  incorporated by reference  therein
or file any other  required  document so that,  as  thereafter  delivered to the
purchasers of Registrable Securities,  the Prospectus will not contain an untrue
statement  of a material  fact or omit to state any material  fact  necessary to
make the statements therein in light of the circumstances  under which they were
made not misleading.  Each Holder of Registrable Securities registered under the
Registration  Statement  agrees by  acquisition of such  Registrable  Securities
that, upon receipt of any notice from Greenbriar of the existence of any fact of
the kind described in Section  5(f)(ii)-(iv)  hereof, such Holder will forthwith
discontinue  disposition of Registrable  Securities pursuant to the Registration
Statement  until such  Holder  receives  copies of the  supplemented  or amended
Prospectus contemplated by this Section 5(m), or until such Holder is advised in
writing by Greenbriar  that the use of the Prospectus  may be resumed,  and such
Holder has received copies of any additional or  supplemental  filings which are
incorporated by reference in the Prospectus. If so directed by Greenbriar,  each
Holder will deliver to Greenbriar (at  Greenbriar's  expense) all copies,  other
than permanent file copies then in such Holder's  possession,  of the Prospectus
covering  such  Registrable  Securities  current  at the time of receipt of such
notice.  In the event  Greenbriar  shall give any such  notice,  the time period
regarding  Greenbriar's   obligations  to  maintain  the  effectiveness  of  the
Registration Statement set forth in Section 5(a) hereof shall be extended by the
number of days  during the period from and  including  the date of the giving of
such notice  pursuant to Section 5(f) hereof to and including the date when such
Holder shall have received the copies of the supplemented or amended  Prospectus
contemplated by this Section 5(m);

                  (n) Provide  CUSIP numbers for all  Registrable  Securities at
the time of any distribution thereof to Holders, in each case not later than the
effective date of the Registration  Statement,  and provide a transfer agent and
registrar for the Common Stock;

                  (o)  Cooperate  and assist in any filings  required to be made
with the NASD and in the performance of any due diligence  investigation  by any
underwriter (including any "qualified independent underwriter") that is required
to be retained in accordance with the rules and regulations of the NASD, and use
its best efforts to cause the  Registration  Statement to become  effective  and
approved by such  governmental  agencies or  authorities  as may be necessary to
enable the Holders selling Registrable  Securities to consummate the disposition
of such securities;

                  (p) Comply with all  applicable  rules and  regulations of the
Commission,  and make generally  available to its security  holders or otherwise
provide in  accordance  with  Section  11(a) of the  Securities  Act, as soon as
practicable after the effective date of the Registration  Statement, an earnings
statement satisfying the provisions of Section 11(a) of the Securities Act;

                  (q) Request a Holder of  Registrable  Securities to furnish to
Greenbriar such  information  regarding such Holder and the distribution of such
Holder's securities thereunder


                                        8

<PAGE>



as  Greenbriar  may from time to time  reasonably  require for  inclusion in the
Registration  Statement and  Greenbriar may exclude from such  registration  the
Registrable  Securities  of any Holder  that fails to furnish  such  information
within a reasonable time after receiving such request;

                  (r) If  requested  by the  Holders of  Registrable  Securities
being sold in an Underwritten Offering or the underwriter(s)  thereof,  promptly
incorporate  in  the  Registration  Statement  or  Prospectus,   pursuant  to  a
supplement or post-effective  amendment, if necessary,  such information as such
Holders and  underwriter(s),  if any, may  reasonably  request to have  included
therein, which may include, without limitation, information relating to the plan
of distribution of the Registrable  Securities,  information with respect to the
amount of Registrable Securities being sold to such underwriter(s), the purchase
price being paid therefor and with respect to any other terms of the offering of
the  Registrable  Securities  to be sold in such  offering;  and shall  make all
required filings of such Prospectus  supplement or  post-effective  amendment as
soon  as  practicable  after  Greenbriar  is  notified  of  the  matters  to  be
incorporated in such Prospectus supplement or post-effective amendment;

                  (s)  Enter  into  such  customary  agreements   (including  an
underwriting agreement in customary form, if applicable) and take all such other
appropriate  actions in order to expedite or facilitate  the  disposition of the
Registrable Securities pursuant to the Registration Statement, and in connection
therewith,  Greenbriar shall (i) make such representations and warranties to the
Holders of Registrable  Securities registered thereunder and the underwriter(s),
if any,  in form,  substance  and scope as are  customarily  made by  issuers to
underwriters in primary underwritten offerings;  (ii) obtain opinions of counsel
to Greenbriar and updates  thereof (which counsel and opinions,  in form,  scope
and substance,  shall be reasonably  satisfactory to such  underwriters  and the
Holders of a majority  of the  outstanding  Registrable  Securities  being sold)
addressed  to each such  Holder and  underwriter  covering  such  matters as are
customarily  covered in opinions  requested in  underwritten  offerings and such
other matters as may be reasonably  requested by such Holders and  underwriters;
(iii) if and to the extent permitted by Statement of Auditing  Standards No. 72,
obtain  comfort  letters  and  updates  thereof  from  Greenbriar's  independent
certified public accountants addressed to the underwriters  requesting the same,
such  letters  to  be in  customary  form  and  covering  matters  of  the  type
customarily  covered in comfort letters in connection with primary  underwritten
offerings,  and affirming the matters set forth in the comfort letters delivered
pursuant to the  underwriting or other  agreement,  without  exception;  (iv) in
connection with an Underwritten  Offering only, set forth in full or incorporate
by reference in the underwriting  agreement the  indemnification  provisions and
procedures  of Section 8 hereof with  respect to all  parties to be  indemnified
pursuant to said Section; and (v) deliver such documents and certificates as may
be reasonably  requested by such Holders or underwriters to evidence  compliance
with  Section  5(m)  and  with  any  customary   conditions   contained  in  the
underwriting agreement or other agreement entered into by Greenbriar pursuant to
this Section 5(s). The foregoing  actions set forth in clauses (i), (ii), (iii),
(iv) and (v) of this Section  5(s) shall be performed at each closing  under any
underwriting or similar agreement as and to the extent required  thereunder.  If
at any time the  representations  and warranties of Greenbriar  contemplated  in
clause (i) above cease to be true and  correct,  Greenbriar  shall so advise the
Purchaser and the underwriter(s),  if any, and each selling Holder promptly and,
if requested by such Persons, shall confirm such advice in writing;



                                        9

<PAGE>



                  (t) Make  available at reasonable  times for inspection by the
Holders of the  Registrable  Securities,  any underwriter  participating  in any
disposition  pursuant  to  the  Registration  Statement,  and  any  attorney  or
accountant retained by any such Holders or underwriters, all financial and other
records,  pertinent  corporate  documents and  properties of Greenbriar  and its
subsidiaries; and cause Greenbriar's officers, directors and employees to supply
all information reasonably requested by any such Holder,  underwriter,  attorney
or accountant in connection with the  Registration  Statement  subsequent to the
filing thereof as is customary for similar due diligence examinations; provided,
however,  that any information  that is designated in writing by Greenbriar,  in
good faith, as confidential at the time of delivery of such information shall be
kept  confidential  by  such  Holders  or  any  such  underwriter,  attorney  or
accountant, unless such disclosure is made in connection with a court proceeding
or  required  by law,  or  such  information  becomes  available  to the  public
generally  or  through a third  party  without  an  accompanying  obligation  of
confidentiality;  and  provided,  further  that  the  foregoing  inspection  and
information  gathering shall, to the greatest extent possible, be coordinated on
behalf of the  Holders  and the other  parties  entitled  thereto by one counsel
designated by and on behalf of such Holders and other parties;

                  (u) Subject to any applicable rules thereto,  cause all Common
Stock included among the Registrable  Securities to be listed on each securities
exchange on which the Common Stock is listed;

                  (v) Provide promptly to each Holder upon request each document
filed with the Commission pursuant to the requirements of Section 13 and Section
15 of the Exchange Act.

         6.       Registration Expenses.

                  (a) Greenbriar shall bear all expenses  incurred in connection
with the performance of or compliance with its obligations under this Agreement,
including   without   limitation  all  registration   filing,   application  and
qualification  fees, fees and expenses of compliance with securities or blue sky
laws,  printing expenses,  messenger,  delivery and telephone expenses and fees,
and  disbursements of counsel for Greenbriar,  all independent  certified public
accountants  and other  persons  retained  by  Greenbriar,  all of  Greenbriar's
internal expenses relating to such registration (including,  without limitation,
all salaries and expenses of its  officers  and  employees  performing  legal or
accounting  duties),  the expense of any annual audit or quarterly  review,  the
expense of any  liability  insurance  and the  expenses and fees for listing the
securities  to be  registered  on each  securities  exchange  on  which  similar
securities issued by Greenbriar are then listed.

                  (b)  Each  Holder  will  pay  any  discounts  and  commissions
incurred upon the sale of securities by it under such registration.

         7.       Prior Approval of  Subsequent Registration  Rights.  From  and
after the date of this  Agreement and  until  no Registrable  Securities  remain
outstanding,  without the prior written consent of the Holders, Greenbriar shall
not grant (i) any new demand  registration  rights to any Person or (ii) any new
piggy-back  registration  rights to any Person  unless such rights are expressly
made  subject  to the prior  right of  Holders  to  include  any or all of their
Registrable  Securities  before  such other  Person  includes  any shares in any
registration  relating to an underwritten public offering with respect to which,
in the opinion of the



                                       10

<PAGE>



managing  underwriter,  the inclusion in the offering of all shares requested to
be  registered  by all Persons  holding  registration  rights  would  materially
jeopardize the successful marketing of the securities to be sold.

         8.       Indemnification and Contribution.

                  (a) In connection with any Registration Statement,  Greenbriar
shall  indemnify  and  hold  harmless  each  Holder,  its  officers,  directors,
partners,  employees,  representatives  and agents, and each Person who controls
such Holder within the meaning of the Securities Act or the Exchange Act against
any and all losses, claims,  damages,  liabilities or expenses,  insofar as such
losses, claims, damages, liabilities or expenses (or actions in respect thereof)
which arise out of or are based upon any untrue or alleged  untrue  statement of
material fact  contained in the  Registration  Statement,  or any  Prospectus or
preliminary  Prospectus or any amendment thereof or supplement thereto, or arise
out of or are based upon any  omission or alleged  omission  to state  therein a
material fact required to be stated  therein or necessary to make the statements
therein not misleading, and agrees to reimburse each such indemnified Person for
any legal or other  expenses  reasonably  incurred  by them in  connection  with
investigating or defending any such loss, claim, damage,  liability,  expense or
action, as such expenses are incurred;  provided,  however, that Greenbriar will
not be liable in any case to the  extent  that any such loss,  claim,  damage or
liability  arises out of or is based upon an untrue or alleged untrue  statement
or omission or alleged  omission made therein in reliance upon and in conformity
with written  information  furnished to  Greenbriar  by or on behalf of any such
Holder and contained in, on the effective date of, a  Registration  Statement or
any amendment thereto.

         Greenbriar  also agrees to  indemnify  or  contribute  to losses of, as
provided in Section 8(d),  any  underwriters  of Registrable  Securities,  their
officers, directors,  partners,  employees,  representatives and agents and each
Person,  if any, who controls  any such  underwriter  (within the meaning of the
Securities Act) on substantially  the same basis as that of the  indemnification
of the Holders  provided in Section 8(a) and shall,  if requested by any Holder,
enter into an underwriting agreement reflecting such agreement.

                  (b) Each selling  Holder,  severally  and not  jointly,  shall
indemnify  and hold harmless  Greenbriar,  its  officers,  directors,  partners,
employees,  representatives  and agents and each  Person,  if any,  who controls
Greenbriar  (within  the  meaning of the  Securities  Act)  against  any and all
losses,  claims,  damages,  liabilities  or  expenses  to the same extent as the
foregoing  indemnity  contained in Section 8(a) hereof resulting from any untrue
or alleged  untrue  statement of material  fact  contained  in the  Registration
Statement  or any  amendment  thereof or  supplement  thereto or any omission or
alleged  omission to state therein a material fact required to be stated therein
or necessary to make the statements  therein not  misleading to the extent,  but
only to the extent,  that such loss,  claim,  damage or liability  relates to or
arises from  information  relating to such Holder  furnished  in writing by such
Holder specifically for use in the Registration  Statement;  provided,  however,
that the  obligation to indemnify  will be individual to each Holder and will be
limited to the amount of net  proceeds  received by such Holder from the sale of
Registrable Securities pursuant to the Registration Statement.

                  (c) Any Person  entitled to  indemnification  hereunder  shall
give notice as promptly as reasonably  practicable to each indemnifying party of
any claim or action



                                       11

<PAGE>




commenced  against  it in respect of which  indemnity  may be sought  hereunder;
provided,  however,  that failure to so notify an  indemnifying  party shall not
relieve such indemnifying party from any obligation that it may have pursuant to
this  Section  except  to the  extent  that it has  been  materially  prejudiced
(through the  forfeiture  of  substantive  rights or defenses) by such  failure;
provided  further,  however,  that the failure to notify the indemnifying  party
shall not relieve it from any liability that it may have to an indemnified party
otherwise  than on account  of this  indemnity  agreement.  If any such claim or
action shall be brought against an indemnified  party,  the  indemnifying  party
shall be  entitled  to  participate  therein  and, to the extent that it wishes,
jointly with any other  similarly  notified  indemnifying  party,  to assume the
defense thereof with counsel satisfactory to the indemnified party. After notice
from the indemnifying  party to the indemnified  party of its election to assume
the defense of such claim or action,  the indemnifying party shall not be liable
to the  indemnified  party under this  Section  for any legal or other  expenses
subsequently  incurred by the  indemnified  party in connection with the defense
thereof;  provided,  however,  that an indemnified  party will have the right to
employ its own  counsel in any such  action,  but the fees,  expenses  and other
charges of such counsel will be at the expense of such indemnified  party unless
(i) the employment of counsel by the  indemnified  party has been  authorized in
writing by the  indemnifying  party,  (ii) the indemnified  party has reasonably
concluded  (based  on  advice  of  counsel)  that  there  may be legal  defenses
available  to it or other  indemnified  parties  that are  different  from or in
addition  to those  available  to the  indemnifying  party,  (iii) a conflict or
potential  conflict exists (based on advice of counsel to the indemnified party)
between  the  indemnified  party  and  indemnifying  party  (in  which  case the
indemnifying  party will not have the right to direct the defense of such action
on behalf of the indemnified  party) or (iv) the  indemnifying  party has not in
fact  employed  counsel to assume the defense of such action within a reasonable
time after receiving notice of the commencement of the action,  in each of which
cases the  fees,  disbursements  and other  charges  of  counsel  will be at the
expense  of the  indemnifying  party  or  parties.  It is  understood  that  the
indemnifying  party or parties shall not, in connection  with any  proceeding or
related  proceedings  in  the  same  jurisdiction,   be  liable  for  the  fees,
disbursements  and other charges of more than one separate firm of attorneys (in
addition to any local counsel) at any one time for all such indemnified party or
parties.  Each  indemnified  party,  as a condition to the indemnity  agreements
contained in Sections 8(a) and 8(b), shall use all efforts to cooperate with the
indemnifying  party in the defense of any such action or claim.  No indemnifying
party shall be liable for any settlement or any such action effected without its
written consent,  but if settled with its written consent or if there be a final
judgment of the plaintiff in any such action,  the indemnifying  party agrees to
indemnify and hold harmless any  indemnified  party from and against any loss or
liability by reason of such settlement or judgment. No indemnifying party shall,
without  the  prior  written  consent  of  the  indemnified  party,  effect  any
settlement  of any  pending  or  threatened  proceeding  in respect of which any
indemnified  party is or could have been a party and  indemnity  could have been
sought hereunder by such indemnified party,  unless such settlement  includes an
unconditional  release of such  indemnified  party from all  liability on claims
that are the subject matter of such proceeding.

                  (d) If the  indemnification  provided for in this Section 8 is
unavailable to or insufficient to hold harmless an indemnified  party, then each
applicable indemnifying party shall contribute to such amount paid or payable by
such  indemnified  party in such  proportion  as is  appropriate  to reflect the
relative  fault of  Greenbriar  on the one hand and the  Holders on the other in
connection  with the  actions,  statements  or omissions  that  resulted in such
losses,  claims,  damages,  liabilities  or  expenses  (or  actions  in  respect
thereof), as well as any



                                       12

<PAGE>



other relevant equitable considerations.  The relative fault shall be determined
by reference to, among other things,  whether any action in question,  including
any untrue or alleged untrue statement of a material fact or omission or alleged
omission  of a  material  fact,  has  been  taken  or made  by,  or  relates  to
information  supplied by Greenbriar on the one hand or the Holders on the other,
and  the  parties'  relative  intent,  knowledge,   access  to  information  and
opportunity to correct or prevent such action, statement or omission. The amount
paid  or  payable  by a  party  as a  result  of any  losses,  claims,  damages,
liabilities  or  expenses  (or actions in respect  thereof),  shall be deemed to
include,  subject to the  limitations  set forth in Section  8(c),  any legal or
other fees or expenses  reasonably incurred by such party in connection with any
investigation or proceedings.

         The parties  hereto  agree that it would not be just and  equitable  if
contribution  pursuant  to  this  Section  8(d)  were  determined  by  pro  rata
allocation or by any other method of allocation  that does not take into account
the equitable considerations referred to in the immediately preceding paragraph.
No person guilty of fraudulent  misrepresentation (within the meaning of Section
11(f) of the Securities Act) shall be entitled any contribution  from any person
who  was  not  guilty  of  such  fraudulent   misrepresentation.   The  Holders'
obligations in this Section 8(d) to contribute are several in proportion and not
joint.

         9. Rules 144 and 144A.  Greenbriar  shall use  commercially  reasonable
efforts to file the reports  required to be filed by it under the Securities Act
and the Exchange Act in a timely  manner and, if at any time  Greenbriar  is not
required to file such reports,  it will,  upon the written request of any Holder
of Registrable Securities,  make publicly available other information so long as
necessary to permit sales of such Holder's  securities pursuant to Rules 144 and
144A.  Greenbriar  covenants that it will take such further action as any Holder
of Registrable  Securities may reasonably  request,  all to the extent  required
from time to time to enable such Holder to sell securities pursuant to Rules 144
and 144A (including the requirements of Rule 144A(d)(4)).

         10.      Miscellaneous.

                  (a) Amendments  and Waivers.  The provisions of this Agreement
may not be  amended,  modified  or  supplemented,  and  waivers or  consents  to
departures from the provisions  hereof may not be given,  unless  Greenbriar has
obtained the written consent of the Holders.  Notwithstanding  the foregoing,  a
waiver or consent to depart from the provisions  hereof with respect to a matter
that relates exclusively to the rights of the Holders of Registrable  Securities
being sold pursuant to the Registration  Statement and that does not directly or
indirectly  affect  the rights of other  Holders  may be given by Holders of the
Registrable Securities being sold.

                  (b) Notices. All notices and other communications provided for
or permitted hereunder shall be made in writing by hand-delivery, certified mail
(return receipt requested),  telecopier,  or air courier guaranteeing  overnight
delivery:

                i.    if to a Holder, at the address of such Holder maintained
                      by Greenbriar;

                ii.   if to the Purchaser, at the address set forth in the 
                      Purchase Agreement;

                iii.  if to Greenbriar, at its address set forth in the Purchase
                      Agreement;


 
                                       13

<PAGE>




or to such other  addresses as the recipient  party has specified to the sending
party by prior written notice to the sending party.

         All such notices and  communications  shall be deemed to have been duly
given:  at the time  delivered by hand, if personally  delivered;  five business
days after being deposited in the mail, certified,  return receipt requested and
postage  prepaid,  if mailed;  when receipt is  acknowledged  by the recipient's
telecopier machine, if telecopied; and on the next business day, if delivered to
a next-day air courier.

                  (c)  Remedies.  In the event of a breach by Greenbriar or by a
Holder of any of their respective obligations under this Agreement,  each Holder
or Greenbriar, as the case may be, in addition to being entitled to exercise all
rights  granted by law,  including  recovery  of  damages,  will be  entitled to
specific  performance  of its rights under this  Agreement.  Greenbriar and each
Holder agree that monetary  damages would not be adequate  compensation  for any
loss  incurred  by  reason of a breach  by it of any of the  provisions  of this
Agreement and hereby further agree that, in the event of any action for specific
performance in respect of such breach,  it shall waive the defense that a remedy
at law would be adequate.

                  (d) Severability.  The remedies provided herein are cumulative
and not  exclusive  of any  remedies  provided by law.  If any term,  provision,
covenant  or  restriction  of this  Agreement  is held by a court  of  competent
jurisdiction to be invalid, illegal, void or unenforceable, the remainder of the
terms,  provisions,  covenants and restrictions set forth herein shall remain in
full force and effect and shall in no way be affected,  impaired or invalidated.
It is hereby  stipulated  and  declared to be the  intention of the parties that
they  would  have  executed  the  remaining  terms,  provisions,  covenants  and
restrictions  without  including  any of such  that  may be  hereafter  declared
invalid, illegal, void or unenforceable.

                  (e) No Inconsistent Agreements.  Greenbriar will not hereafter
enter into any agreement  with respect to its securities  which is  inconsistent
with or violates the rights granted to the Holders in this Agreement. The rights
granted to the Holders  hereunder  do not in any way  conflict  with and are not
inconsistent  with the rights granted to the holders of Greenbriar's  securities
under any agreement in effect on the date hereof.

                  (f)  Successors  and Assigns.  All covenants and agreements in
this  Agreement by or on behalf of any of the parties hereto will bind and inure
to the benefit of their respective heirs, executors, administrators, successors,
legal  representatives  and  assigns.  In  addition,  whether or not any express
assignment has been made,  the  provisions of this  Agreement  which are for the
benefit  of  Holders  are also for the  benefit  of,  and  enforceable  by,  any
subsequent Holder.

                  (g)  Counterparts.  This  Agreement  may be executed in two or
more counterparts, any one of which need not contain the signatures of more than
one party, but all such counterparts  taken together will constitute one and the
same Agreement.

                  (h) Descriptive  Headings.  The  descriptive  headings of this
Agreement are inserted for convenience only and do not constitute a part of this
Agreement.




                                       14

<PAGE>



                  (i) Governing Law. ALL QUESTIONS  CONCERNING THE CONSTRUCTION,
VALIDITY AND INTERPRETATION OF THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
IN  ACCORDANCE  WITH THE  DOMESTIC  LAWS OF THE STATE OF TEXAS,  WITHOUT  GIVING
EFFECT TO ANY CHOICE OF LAW OR CONFLICT OF LAW PROVISION OR RULE (WHETHER OF THE
STATE OF TEXAS OR ANY OTHER  JURISDICTION)  THAT WOULD CAUSE THE  APPLICATION OF
THE LAWS OF ANY JURISDICTION OTHER THAN THE STATE OF TEXAS.

                  (j) Entire Agreement.  This Agreement  together with the other
operative  documents  described  in the  Purchase  Agreement  is intended by the
parties as a final  expression of their  agreement and intended to be a complete
and exclusive statement of the agreement and understanding of the parties hereto
in respect of the subject matter  contained  herein.  There are no restrictions,
promises, warranties or undertakings,  other than those set forth or referred to
herein  with  respect to the  registration  rights  granted by  Greenbriar  with
respect to the  Registrable  Securities.  This  Agreement  supersedes  all prior
agreements and  understandings  between the parties with respect to such subject
matter.





                                       15

<PAGE>



         IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Registration Rights Agreement as of the date first above written.


GREENBRIAR CORPORATION,
a Nevada corporation


By:
       Name:
       Title:


LONE STAR OPPORTUNITY FUND, L.P.,
a Delaware limited partnership

By:    Lone Star Partners, L.P., its General
       Partner

By:    Lone Star Management Co., Ltd., its
       General Partner


By:
       Name:
       Title:




                                       16

<PAGE>





                                    EXHIBIT A

                 Certain Existing Registration Rights Agreements
















                                     

<PAGE>











                                 EXHIBIT 2.2.5













<PAGE>


                                    AGREEMENT


     THIS  AGREEMENT  (this  "Agreement")  dated as of December  31,  1997,  and
effective  upon the date of  issuance  of shares of Series F Senior  Convertible
Preferred Stock and Series G Senior  Non-Voting  Convertible  Preferred Stock of
Greenbriar,  is entered  into by and between  Greenbriar  Corporation,  a Nevada
corporation  ("Greenbriar"),  and Lone Star  Opportunity  Fund, L.P., a Delaware
limited partnership ("Lone Star").

     Section 1. Definitions.

     "5-day  Average  Price"  per share of common  stock,  for  purposes  of any
provision  herein at the date  specified  in such  provision,  means the average
closing  price of such common stock on the  American  Stock  Exchange,  New York
Stock  Exchange  or  Nasdaq  National  Market  over  the  5-trading  day  period
immediately prior to such date.

     "20-day  Average  Price" per share of common  stock,  for  purposes  of any
provision  herein at the date  specified  in such  provision,  means the average
closing  price of such common stock on the  American  Stock  Exchange,  New York
Stock  Exchange  or  Nasdaq  National  Market  over the  20-trading  day  period
immediately prior to such date.

     "Agreement" has the meaning set forth in the preamble to this Agreement.

     "Dividends" means dividends paid by Greenbriar and received by Lone Star on
the Series F Senior Preferred Stock and the Series G Senior Non-Voting Preferred
Stock.

     "Fair  Market  Price"  per  share of  common  stock,  for  purposes  of any
provision  herein at the date specified in such  provision,  means the lesser of
(i) the 5-Day  Average  Price of such  common  stock or (ii) the 20-Day  Average
Price of such common  stock;  provided,  that if such common  stock has not been
listed  on the  American  Stock  Exchange,  New York  Stock  Exchange  or Nasdaq
National  Market for such periods,  then the Fair Market Price per share of such
common  stock  shall be  deemed to be the  lesser of (i) the net book  value per
share of common  stock,  determined  in  accordance  with GAAP, or (ii) the fair
value per share of common stock determined pursuant to the Valuation Procedure.

     "Greenbriar" means Greenbriar Corporation, a Nevada corporation.

     "Greenbriar  Common  Stock"  means the common  stock,  par value  $0.01 per
share, of Greenbriar.

     "Lone Star" has the meaning set forth in the preamble to this Agreement.

     "Make Whole  Amount" means the greater of (i) Present Value o 1.2t and (ii)
zero.  Please  refer to  Exhibit A for  sample  calculations  of the Make  Whole
Amount.

     "Payment  Date" means ten business  days after the date on which all of the
Series F  Senior  Preferred  Stock  and all of the  Series  G Senior  Non-Voting
Preferred  Stock have been (i)  converted  to  Greenbriar  Common  Stock or (ii)
repurchased by Greenbriar from Lone Star



                                      - 1 -

<PAGE>



pursuant to the terms of Sections  8.4, 8.5 and 8.6 of the Series F  Certificate
of  Designation  or Sections  8.3,  8.4 and 8.5 of the Series G  Certificate  of
Designation.

     "Present  Value" means  $22,000,000 - E  ((Dividendst + Value Received t) /
1.2t)

     "Series F Certificate of Designation"  means the Certificate of Designation
of Greenbriar relating to the Series F Senior Preferred Stock.

     "Series F Senior  Preferred  Stock"  means the Series F Senior  Convertible
Preferred Stock, par value $0.01 per share, of Greenbriar.

     "Series G Certificate of Designation"  means the Certificate of Designation
of Greenbriar relating to the Series G Senior Non-Voting Preferred Stock.

     "Series G Senior  Non-Voting  Preferred  Stock"  means the  Series G Senior
Non-Voting   Convertible   Preferred  Stock,  par  value  $0.01  per  share,  of
Greenbriar.

     "Special Sale Trigger" means any sale, lease,  sale/leaseback,  assignment,
transfer  or  other  disposition  of  assets,  which  (i) has a total  aggregate
consideration  received for such dispositions in excess of $125 million of cash,
indebtedness  assumed,  and potential earnouts and the present fair value of any
other  consideration,  and  (ii)  assigns  or  subleases  substantially  all  of
Greenbriar's  operated properties which are leased from others, except where the
consent is required from the landlord of such  property and such landlord  fails
to consent to such  assignment or sublease.  The  dispositions  described  above
specifically  include,  but are not limited to,  sales of  operating  leases and
management contracts and sales as a part of the Syndication Program.

     "Syndication  Program"  means a program of selling real estate to public or
private syndications consisting of partnerships, limited liability companies, or
limited  liability  partnerships  where ownership of such entities is offered to
passive investors for cash and/or notes.

     "t" means the time elapsed  from the date hereof  expressed in fractions of
years.

     "Valuation  Procedure"  means a determination of fair value of any property
made in good  faith by the  Board of  Directors;  provided  that,  if Lone  Star
objects to such determination  within 10 days of receipt of written notification
thereof,  then the fair value of such property shall be determined in good faith
by a recognized  national  investment bank selected by unanimous vote or consent
of the Board of Directors,  which investment bank is not reasonably  objected to
by Lone Star.  The fees and  expenses of such  investment  bank shall be paid by
one-half by Greenbriar and one-half by Lone Star.

     "Value  Received"  means, as of any date that shares of the Series F Senior
Preferred Stock or the Series G Senior Non-Voting Preferred Stock are converted,
exchanged or  repurchased,  the sum of (i) the Fair Market  Price of  Greenbriar
Common Stock on the date such stock was  converted  multiplied  by the number of
shares of  Greenbriar  Common Stock issued to Lone Star in  connection  with the
conversion of the Series F Senior  Preferred  Stock on such date,  (ii) the Fair
Market Price of  Greenbriar  Common  Stock on the date such stock was  exchanged
multiplied by the number of shares of Greenbriar Common Stock transferred



                                      - 2 -

<PAGE>



to Lone Star in exchange for the Series G Senior  Non-Voting  Preferred Stock on
such date,  (iii) the amount of cash received by Lone Star for the repurchase of
the  Series F Senior  Preferred  Stock on such date and (iv) the  amount of cash
received  by Lone  Star for the  repurchase  of the  Series G Senior  Non-Voting
Preferred Stock on such date.

     Section 2. Payment Obligation. On the Payment Date, Greenbriar shall pay to
Lone Star cash in an amount equal to the Make Whole  Amount by wire  transfer to
an account designated by Lone Star at least two business days before the Payment
Date.

     Section 3. Termination. This Agreement shall terminate upon the earlier of:

     (a) Payment in full of the payment obligation set forth in Section 2 above;

     (b) A  determination  pursuant to the terms of this Agreement that the Make
Whole Amount is zero (0) as of the Payment Date; and

     (c) One year after the date on which Lone Star receives written notice from
Greenbriar  of a Special  Sale  Trigger,  but in no event  earlier than one year
after the actual date upon which a Special Sale Trigger occurs.

     Section 4. Miscellaneous.

     (a)  Notices.  All  notices,  notifications,  demands,  requests,  waivers,
consents or other  communications  under this Agreement  shall be in writing and
shall be deemed to have been duly given, unless explicitly stated otherwise, (i)
if mailed certified mail, postage prepaid, return receipt requested,  three days
after being deposited in the mail; (ii) if sent via overnight courier,  the next
business  day  after  being  deposited  with  such  courier;  (iii)  if  sent by
telecopier (with written confirmation of receipt), on that day, or if telecopied
on a day that is not a  business  day,  the next  day  that is a  business  day;
provided that a copy is mailed by certified mail (return receipt requested);  or
(iv) if delivered by hand (with written confirmation of receipt) on that day, or
if  delivered  on a day  that is not a  business  day,  the  next  day that is a
business day; in each case, to the appropriate  addresses and telecopier numbers
set forth below (or to such other  addresses and  telecopier  numbers as a party
may designate by notice to the other parties):

                  If to Greenbriar: Greenbriar Corporation
                               4265 Kellway Circle
                            Addison, Texas 75244-2033
                            Attention: Gene Bertcher
                          Telecopy No.: (972) 407-8726

                  with copy to:  Mark E. Bennett
                                 14933 Oaks North Drive
                                 Dallas, Texas  75240
                                 Telecopy No.: (214) 373-6810




                                      - 3 -

<PAGE>



                  If to Lone Star:  Lone Star Opportunity Fund, L.P.
                                    600 N. Pearl Street
                                    Suite 1550, LB 161
                                    Dallas, Texas 76140
                                    Attention: Sam F. Hines
                                    Telecopy No.: (214) 754-8301

                  with copy to:     Haynes and Boone, LLP
                                    901 Main Street, Suite 3100
                                    Dallas, Texas 75202
                                    Attention: W. Scott Wallace
                                    Telecopy No.: (214) 651-5940

     (b) Successors and Assigns.  Except as otherwise expressly provided herein,
this Agreement  shall inure to the benefit of and be binding upon the successors
and assigns of each of the parties whether so expressed or not.

     (c) Amendment and Waiver,  etc. This Agreement may be amended only with the
written  consent of Greenbriar and Lone Star. No failure or delay on the part of
Greenbriar or Lone Star in exercising any right, power or remedy hereunder shall
operate as a waiver  thereof,  nor shall any single or partial  exercise  of any
such right,  power or remedy preclude any other or further  exercise  thereof or
the exercise of any other  right,  power or remedy.  The  remedies  provided for
herein  are  cumulative  and are  not  exclusive  of any  remedies  that  may be
available to Greenbriar or Lone Star at law or in equity or otherwise. No waiver
of or consent to any  departure by Greenbriar or Lone Star from any provision of
this Agreement shall be effective unless signed in writing by the other parties.

     (d) Duplicate Originals.  Two or more duplicate originals of this Agreement
may be signed by the  parties,  each of which  shall be an  original  but all of
which together shall constitute one and the same instrument.

     (e)  Severability.  In the  event  that  any one or more of the  provisions
contained  herein,  or the  application  thereof  in any  circumstance,  is held
invalid, illegal or unenforceable,  the validity, legality and enforceability of
any such  provision  in every  other  respect  and of the  remaining  provisions
contained herein shall not be affected or impaired thereby.

     (f) Governing Law. This Agreement shall be construed in accordance with and
governed  by the  internal  laws of the  State  of  Texas,  without  respect  to
conflicts of laws principles.

     (g) Entire Agreement. This Agreement constitutes the entire agreement among
the  parties  and no party  shall be liable  or bound to any other  party in any
manner by any warranties,  representations,  or covenants except as specifically
set forth herein or therein.

     (h) Headings  Descriptive.  The titles and subtitles used in this Agreement
are used for  convenience  only and are not to be  considered  in  construing or
interpreting this Agreement.



                                      - 4 -

<PAGE>



     (i)  Arbitration.  THE PARTIES AGREE THAT IF ANY DISPUTE SHOULD ARISE UNDER
THE TERMS AND  PROVISIONS  OF THIS  AGREEMENT,  EACH  PARTY  WAIVES ANY RIGHT TO
COMMENCE LEGAL ACTION OR  ARBITRATION  OTHER THAN AS PROVIDED UNDER THE TERMS OF
THIS AGREEMENT,  AND THIS AGREEMENT SHALL PROVIDE THE SOLE AND EXCLUSIVE  REMEDY
FOR RESOLUTION OF DISPUTES.

          (i) THE  DETERMINATION  OF THE  ARBITRATOR  SHALL BE FINAL AND BINDING
     UPON EACH PARTY AND EACH PARTY SPECIFICALLY  WAIVES ANY RIGHT TO CLAIM THAT
     THE ARBITRATOR HAS EXCEEDED THE SCOPE OF THE  ARBITRATION,  HAS DISREGARDED
     EVIDENCE OR PRINCIPLES OF LAW, AND FURTHER WAIVES ANY RIGHT TO DISCLAIM THE
     QUALIFICATION OR FUNCTION OF THE ARBITRATOR IN ANY MANNER OR FASHION.

          (ii)  APPOINTMENT OF THE ARBITRATOR  SHALL BE MADE BY MUTUAL AGREEMENT
     OF THE PARTIES.  IF THE PARTIES CANNOT AGREE UPON THE IDENTIFICATION OF THE
     ARBITRATOR  WITHIN  THIRTY (30) DAYS FROM THE MAILING OF THE  OBJECTION,  A
     PETITION FOR  APPOINTMENT  OF  ARBITRATOR  SHALL BE FILED WITH THE SUPERIOR
     COURT OF THE  COUNTY OF DALLAS,  TEXAS.  THE  ARBITRATION  SHALL BE HELD IN
     DALLAS, TEXAS PURSUANT TO THE COMMERCIAL  ARBITRATION RULES OF THE AMERICAN
     ARBITRATION ASSOCIATION.

          (iii) THE ARBITRATOR'S  FEES AND FEES AND COSTS OF PETITIONING FOR THE
     APPOINTMENT OF THE ARBITRATOR  SHALL BE PAID BY GREENBRIAR.  THE ARBITRATOR
     UPON  RENDERING ITS AWARD SHALL  DETERMINE THE PARTY THAT  PREVAILED  BASED
     UPON  WRITTEN  STATEMENTS  MADE BY EACH  PARTY AT THE  COMMENCEMENT  OF THE
     ARBITRATION  AS TO THE POSITION OF THE PARTIES AND THEIR  ALTERNATIVES  FOR
     SETTLING  THE MATTER.  A STATEMENT  OF A PROPOSED  SETTLEMENT  SHALL NOT BE
     BINDING  UPON ANY  PARTY AND SHALL NOT BE  CONSIDERED  AS  EVIDENCE  BY THE
     ARBITRATOR  EXCEPT TO THE EXTENT THAT THE  ARBITRATOR  UPON MAKING ITS SOLE
     AND  INDEPENDENT  DETERMINATION  SHALL  DETERMINE THE PARTY WHICH PREVAILED
     BASED UPON THE  PROPOSALS  FOR  SETTLEMENT OF THE MATTER MADE BY EACH PARTY
     AND SHALL DETERMINE THAT THE NON-PREVAILING  PARTY SHALL PAY SOME OR ALL OF
     THE COSTS OF ARBITRATION INCLUDING ANY COSTS INCURRED BY THE ARBITRATOR AND
     IN  EMPLOYING  EXPERTS  TO ADVISE  THE  ARBITRATOR  IN  REGARD TO  SPECIFIC
     SUBJECTS  OR  QUESTIONS.  THE  ARBITRATOR  MAY  FURTHER  AWARD  THE COST OF
     ATTORNEYS FEES OR EXPERT WITNESSES CONSULTED OR EMPLOYED IN THE PREPARATION
     OR PRESENTATION  OF EVIDENCE TO THE ARBITRATOR BY THE PREVAILING  PARTY IF,
     IN THE ARBITRATOR'S DETERMINATION,  THE POSITION OF THE NONPREVAILING PARTY
     WAS NOT  REASONABLY  TAKEN OR  MAINTAINED  OR WAS BASED  UPON A FAILURE  TO
     PROPERLY  EXCHANGE OR COMMUNICATE  INFORMATION WITH THE PREVAILING PARTY IN
     REGARD TO THE SUBJECT SUBMITTED TO ARBITRATION.



                                      - 5 -

<PAGE>



          (iv)  THE   ARBITRATOR'S   DETERMINATION   MAY  FURTHER   PROVIDE  FOR
     PROSPECTIVE  ENFORCEMENT  AND  DIRECTIONS  FOR THE  PARTIES TO COMPLY  WITH
     INCLUDING  WITHOUT  LIMITATION  PERMANENT  INJUNCTIVE  RELIEF  OR  SPECIFIC
     PERFORMANCE.  UNDER SUCH  CIRCUMSTANCES,  THE  ARBITRATOR'S  AWARD SHALL BE
     BINDING UPON THE PARTIES AND SHALL BE  UNDERTAKEN  AND PERFORMED BY EACH OF
     THE PARTIES  UNTIL SUCH TIME AS THE  ARBITRATOR'S  DIRECTIONS  TO THE PARTY
     SHALL LAPSE BY THEIR TERM, OR THE ARBITRATOR  SHALL NOTIFY THE PARTIES THAT
     THOSE TERMS ARE NO LONGER IN FORCE OR EFFECT OR SHALL MODIFY THOSE TERMS.

          (v)   NOTWITHSTANDING   THE  FOREGOING,   ANY  PARTY  MAY  APPEAL  THE
     ARBITRATOR'S DETERMINATION IF SUCH APPEAL IS BASED SOLELY ON THE BASIS THAT
     THE ARBITRATOR HAS MADE AN INCORRECT INTERPRETATION OF LAW.






                                      - 6 -

<PAGE>



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

                               GREENBRIAR CORPORATION,
                               a Nevada corporation



                               By:
                                    Name:
                                    Title:


                               LONE STAR OPPORTUNITY FUND, L.P.,
                               a Delaware limited partnership

                               By: Lone Star Partners, L.P., its General Partner

                               By: Lone Star Management Co., Ltd., its
                                   General Partner


                               By:
                                   Name:
                                   Title:






                                      - 7 -

<PAGE>







                                    EXHIBIT A

                      Sample Calculations of Target Amount


















                                      - 8 -

<PAGE>









                                 EXHIBIT 2.2.6













<PAGE>


                      AGREEMENT ON FORM OF PROMISSORY NOTE


     THIS AGREEMENT ON FORM OF PROMISSORY NOTE (this  "Agreement") is made as of
the _____ day of January,  1998, by and among Greenbriar  Corporation,  a Nevada
corporation  ("Greenbriar"),  and Lone Star  Opportunity  Fund, L.P., a Delaware
limited  partnership  ("Purchaser").  Reference  is made to that  certain  Stock
Purchase Agreement (the "Purchase  Agreement") dated as of December 31, 1997, by
and between  Greenbriar  and Purchaser.  Capitalized  terms used but not defined
herein shall have the meanings assigned to such terms in the Purchase Agreement.


                              W I T N E S S E T H:

     WHEREAS, Greenbriar and Purchaser are parties to the Purchase Agreement and
the Transaction Documents; and

     WHEREAS,  Greenbriar and Purchaser  desire to agree on a form of promissory
note to satisfy the conditions in Section 7.1(t) of the Purchase Agreement.

     NOW  THEREFORE,  Greenbriar  and Purchaser do hereby agree that the Form of
Promissory Note attached hereto as Exhibit A shall be the form of the Repurchase
Promissory  Note  defined  in  Section  8.6  of  the  Series  F  Certificate  of
Designation and Section 8.5 of the Series G Certificate of Designation.


            [The remainder of this page is intentionally left blank]














<PAGE>




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


                              GREENBRIAR CORPORATION,
                              a Nevada corporation



                              By:
                                  Gene S. Bertcher
                                  Executive Vice President


                              LONE STAR OPPORTUNITY FUND, L.P.,
                              a Delaware limited partnership

                              By:  Lone Star Partners, L.P., its General Partner

                              By:  Lone Star Management Co., Ltd., its
                                                   General Partner


                              By:
                                   Name:
                                   Title:











<PAGE>








                                 EXHIBIT 2.2.7













<PAGE>



                                 PROMISSORY NOTE


$                                  Dallas, Texas
  ----------------                                            ------------------


     FOR VALUE RECEIVED, the undersigned,                      ,[            and
          ] (the "Maker") hereby unconditionally promises to pay to the order of
      ("Payee"), at                    , or such other address given to Maker by
Payee, the principal sum of            AND /100 DOLLARS ($ ), in lawful money of
the United  States of America in  immediately  available  funds,  together  with
interest  (calculated on the basis of a 365 or 366-day year, as appropriate,  on
the unpaid principal balance from day-to-day  remaining,  computed from the date
of advance until  maturity at the rate per annum which shall from  day-to-day be
equal  to  the  lesser  of (a)  the  Maximum  Rate,  or (b)  18%  (the  "Rate").
Notwithstanding the foregoing, if at any time, the Rate shall exceed the Maximum
Rate,  thereby  causing the interest upon this Note to be limited to the Maximum
Rate,  then any  subsequent  reductions in the Rate shall not reduce the rate of
interest  charged  hereunder  below the Maximum  Rate until the total  amount of
interest  accrued  hereon equals the amount of interest which would have accrued
hereon if the  Fluctuating  Rate had at all times  been in  effect.  Capitalized
terms used in this Note and not otherwise defined herein shall have the meanings
assigned to such terms in -----------.

     Section 1.  Definitions.  When used in this Note, the following terms shall
have the respective meanings specified herein or in the section referred to:

     "Business  Day" shall  mean a day upon  which  business  is  transacted  by
national banks in Dallas, Texas.

     "Collateral  Documents"  shall mean any deed of trust,  mortgage,  security
agreement,  guaranty  or  other  Collateral  Documents  executed  in  connection
herewith and securing payment of this Note.

     "Event of  Default"  shall  have the  meaning  ascribed  to it in Section 7
hereof.

     "Maturity Date" means [one year].

     "Maximum Rate" means the highest  non-usurious rate of interest (or, if the
context so requires, an amount calculated at such rate) which the holder of this
note is allowed  to  contract  for,  charge,  take,  reserve,  or receive  under
applicable law after taking into account,  to the extent  required by applicable
law, any and all relevant payments or charges made in connection with this note.
To the  extent the laws of the State of Texas are  applicable  for  purposes  of
determining the Maximum Rate, for purposes of TEX. REV. CIV. STAT. ANN.  Article
5069-1D.001,  as it may be from  time  to time  amended,  the  "applicable  rate
ceiling" shall be the "weekly  ceiling" from time to time in effect,  as limited
by Article  5069-1D.009;  provided,  however,  that to the extent  permitted  by
applicable  law,  the  holder of this  note  reserves  the  right to change  the
"applicable rate ceiling" from time to time without notice to Maker.

     "Obligation" shall mean all indebtedness,  liabilities and obligations,  of
every kind and character, of Maker, now or hereafter existing in favor of Payee,
regardless  of whether they are direct,  indirect,  primary,  secondary,  joint,
several, joint and several, liquidated, unliquidated, fixed or contingent, and


                                      - 1 -

<PAGE>



regardless of whether the same may, prior to their  acquisition by Payee,  be or
have been payable to some other person or entity, including, but not limited to,
all indebtedness,  liabilities and obligations arising under this Note and under
the Collateral Documents.

     "Purchase  Agreement"  means  the  Stock  Purchase  Agreement  dated  as of
December 31, 1997.

     Section 2.  Payment.  The principal of and interest upon this Note shall be
due and payable as follows:

     (a) Interest, computed as aforesaid, shall be due and payable semi-annually
as it accrues, commencing , 19 , and at the Maturity Date; and

     (b) The principal of this Note shall be due and payable in one  installment
in the amount of $_____________  (50% of the original  principal amount) on (six
months),  and in one final payment equal to the entire unpaid principal  balance
of this Note on the Maturity Date.

     Should the principal of, or any installment of the principal of or interest
upon, this Note become due and payable on any day other than a Business Day, the
maturity  thereof  shall be extended to the next  succeeding  Business  Day, and
interest  shall be payable  with  respect to such  extension.  All  payments  of
principal  of and  interest  on this  Note  shall  be made by  Maker to Payee in
federal or other  immediately  available funds.  Payments made to Payee by Maker
hereunder shall be applied first to accrued interest and then to principal.

     All past due principal of and, to the extent  permitted by applicable  law,
interest upon this Note shall bear interest at the Maximum Rate.

     Section  3.  Covenants.  Until  payment  in full of the Note and all  other
obligations and liabilities of Maker hereunder,  Maker agrees and covenants that
(unless Payee shall otherwise consent in writing):

     (a) Maker shall  conduct its  business in an orderly and  efficient  manner
consistent  with  good  business  practices  and in  accordance  with all  valid
regulations,  laws,  and orders of any  governmental  authority  and will act in
accordance  with customary  industry  standards in maintaining and operating its
assets, properties, and investments;

     (b) Maker shall  maintain  complete and  accurate  books and records of its
transactions in accordance with generally accepted  accounting  principles,  and
will  give  Payee  access  during  business  hours to all  books,  records,  and
documents of Maker and permit Payee to make and take away copies thereof;

     (c) Maker shall deliver to Payee such financial  statements,  data, revenue
summaries  and other  information  describing  and  pertaining  to the financial
condition,  business,  and  properties of Maker as Payee shall from time to time
reasonably request;

     (d) Maker shall furnish to Payee,  immediately  upon becoming  aware of the
existence of any  condition or event  constituting  an Event of Default or event
which,  with the  giving  of  notice  or the  passage  of time,  or both,  would
constitute an Event of Default,  written notice specifying the nature and period
of  existence  thereof and any action  which Maker is taking or proposes to take
with respect thereto;


                                      - 2 -

<PAGE>



     (e) Maker shall promptly  notify Payee of: (i) any material  adverse change
in its  financial  condition  or business;  (ii) any default  under any material
agreement,  contract,  or other instrument to which Maker is a party or by which
any of its  properties  are bound,  or any  acceleration  of any maturity of any
indebtedness  owing by Maker:  (iii)  any  material  adverse  claim  against  or
affecting Maker or any of its properties;  and (iv) any litigation, or any claim
or controversy  which might become the subject of  litigation,  against Maker or
affecting any of Maker's  property,  if such litigation or potential  litigation
might, in the event of an unfavorable outcome, have a material adverse effect on
Maker's financial condition or business or might cause an Event of Default;

     (f) Maker  shall  promptly  furnish  to Payee,  at  Payee's  request,  such
additional  financial  or  other  information  concerning  assets,  liabilities,
operations,  and transactions of Maker as Payee may from time to time reasonably
request;

     (g)  Maker  shall  promptly  pay all  lawful  claims,  whether  for  labor,
materials or otherwise, which might or could, if unpaid, become a lien or charge
on any property or assets of Maker,  unless and to the extent only that the same
are being contested in good faith by appropriate proceedings and reserves deemed
adequate by Payee have been established therefor;

     (h) Maker shall maintain,  and cause each of its  subsidiaries to maintain,
insurance  covering its properties,  operations,  personnel and businesses which
insures  against  such losses and risks as are adequate in  accordance  with its
reasonable business judgment; and

     (i) Maker shall preserve and maintain all licenses, privileges, franchises,
certificates,  and the like necessary for the operation of its business,  except
where such failure shall not result in a material adverse effect.

     (j) All  covenants  in the  Purchase  Agreement  shall remain in full force
until the Note and all interest is paid.

     4.  Negative  Covenants.  Until  payment  in full of the Note and all other
obligations  and liabilities of Maker  hereunder,  Maker covenants that it shall
not (unless Payee shall otherwise consent in writing):

     (a) incur or assume any  indebtedness or borrow money,  except for: (i) the
Loan;  (ii) trade debt incurred in the ordinary  course of business;  (iii) debt
reflected on Maker's balance sheet as of --------------;

     (b) endorse,  guarantee,  or otherwise become liable for the obligations of
any person,  firm, or  corporation,  except for (i)  endorsements  of negotiable
instruments by Maker in the ordinary  course of business and (ii)  guaranties of
outstanding indebtedness of a wholly owned subsidiary;

     (c) mortgage, assign, encumber,  hypothecate,  or grant a security interest
in any of Maker's assets, except to Payee (provided, however, that the foregoing
shall not apply to inchoate  liens for taxes which are not  delinquent  or which
are being  contested in good faith and liens  resulting  from deposits to secure
the  payments  of  workmen's  compensation  or social  security or to secure the
performance  of bids or contracts in the ordinary  course of business other than
in connection with any transaction described in paragraph (a) above);



                                      - 3 -

<PAGE>



     (e) Merge or consolidate  with or into any other  corporation or entity and
engage in any reorganization,  restructuring,  recapitalization or other similar
transaction of Maker.

     (f) pay any dividends on any of its outstanding stock, or purchase, redeem,
or repurchase any of its stock;

     Section 5. Waiver.  Maker and each surety,  endorser,  guarantor  and other
party ever  liable  for  payment  of any sums of money  payable  upon this Note,
jointly and severally waive presentment,  demand, protest, notice of protest and
non-payment or other notice of default,  notice of acceleration and intention to
accelerate  or other notice of any kind,  and agree that their  liability  under
this Note  shall not be  affected  by any  renewal or  extension  in the time of
payment  hereof,  or in any  indulgences,  or by any  release  or  change in any
security  for the  payment  of this  Note,  and  hereby  consent  to any and all
renewals, extensions, indulgences, releases or changes, regardless of the number
of such renewals, extensions, indulgences, releases or changes.

     No waiver by Payee of any of its rights or remedies  hereunder or under any
other  document  evidencing  or  securing  this  Note  or  otherwise,  shall  be
considered a waiver of any other  subsequent  right or remedy of Payee; no delay
or omission in the  exercise or  enforcement  by Payee of any rights or remedies
shall  ever be  construed  as a waiver of any  right or remedy of Payee;  and no
exercise or  enforcement  of any such  rights or remedies  shall ever be held to
exhaust any right or remedy of Payee.

     Section 6. Security. This Note is secured by, (describe collateral).

     Section 7. Events of Default  and  Remedies.  An "Event of  Default"  shall
exist  hereunder if any one or more of the  following  events shall occur and be
continuing:  (a) Maker shall fail to pay when due any  principal of, or interest
upon, this Note or the Obligation;  (b) any  representation  or warranty made by
Maker or Guarantor to Payee herein or in any of the Collateral  Documents  shall
prove to be untrue or  inaccurate  in any material  respect;  (c) default  shall
occur  in the  performance  of  any of the  covenants  or  agreements  of  Maker
contained herein, in the Collateral  Documents or in any other document executed
or delivered to Payee in  connection  herewith;  (d) default  shall occur in the
payment  of any  material  indebtedness  of  Maker  or  Guarantor,  or any  such
indebtedness  shall become due before its stated maturity by acceleration of the
maturity  thereof or otherwise or shall become due by its terms and shall not be
promptly paid or extended; (e) any of the Collateral Documents shall cease to be
legal,  valid,  binding agreements  enforceable  against any party executing the
same in  accordance  with the  respective  terms  thereof or shall in any way be
terminated or become or be declared  ineffective  or inoperative or shall in any
way  whatsoever  cease  to  give  or  provide  the  respective  liens,  security
interests, rights, titles, interests, remedies, powers or privileges intended to
be created thereby; (f) Maker or Guarantor shall (1) apply for or consent to the
appointment  of a receiver,  trustee,  intervenor,  custodian or  liquidator  of
itself or of all or a  substantial  part of its  assets,  (2) be  adjudicated  a
bankrupt or insolvent or file a voluntary  petition for  bankruptcy  or admit in
writing  that it is  unable  to pay its  debts as they  become  due,  (3) make a
general  assignment for the benefit of creditors,  (4) file a petition or answer
seeking  reorganization or an arrangement with creditors or to take advantage of
any bankruptcy or insolvency  laws, or (5) file an answer admitting the material
allegations of, or consent to, or default in answering, a petition filed against
it in any bankruptcy, reorganization or insolvency proceeding, or take corporate
action for the purpose of effecting any of the foregoing; (g) an order, judgment
or decree  shall be  entered  by any court of  competent  jurisdiction  or other
competent  authority  approving a petition  seeking  reorganization  of Maker or
Guarantor or  appointing a receiver,  trustee,  intervenor  or liquidator of any
such person, or of all or substantially  all


                                      - 4 -

<PAGE>



of its or their  assets,  and such  order,  judgment  or decree  shall  continue
unstayed  and in  effect  for a period  of sixty  (60)  days;  (h) the  guaranty
agreement  executed  by  any  Guarantor  in  connection  with  the  indebtedness
evidenced  by this  Note  shall  for any  reason  cease to be in full  force and
effect,  or be declared null and void or  unenforceable  in whole or in part; or
the validity or enforceability of such guaranty agreement shall be challenged or
denied by Guarantor;  or (i) Payee's liens,  mortgages or security  interests in
any of the collateral for this Note should become unenforceable,  or cease to be
first priority liens, mortgages or security interests.

     If Maker fails or refuses to pay any part of the  principal  of or interest
upon this Note or the  Obligation as the same become due, or upon the occurrence
of any Event of Default  hereunder or under any other  agreement  or  instrument
securing  or  assuring  the  payment  of this  Note or  executed  in  connection
herewith,  including  without  limitation  the Loan Agreement and the Collateral
Documents,  then in any such event the holder  hereof may,  at its  option,  (i)
declare the entire unpaid balance of principal of and accrued  interest upon the
Obligation to be immediately  due and payable  without  presentment or notice of
any kind which Maker waives pursuant to Section 5 herein,  (ii) reduce any claim
to judgment;  and/or (iii) pursue and enforce any of Payee's rights and remedies
available  pursuant  to any  applicable  law  or  agreement  including,  without
limitation,  foreclosing  all  liens and  security  interests  securing  payment
thereof  or any part  thereof;  provided,  however,  in the case of any Event of
Default  specified in Paragraph (f) or (g) above with respect to Maker,  without
any notice to Maker or any other act by Payee, Maker's right to request advances
under this Note shall  thereupon  terminate  and the  principal  of and interest
accrued  on  this  Note  shall  become   immediately  due  and  payable  without
presentment,  demand,  protest  or other  notice of any  kind,  all of which are
hereby waived by Maker.

     Section 8.  Notice.  Whenever  this Note  requires  or permits  any notice,
approval,  request or demand  from one party to another,  the notice,  approval,
request or demand must be in writing and shall be deemed to have been given when
personally  served or when  deposited in the United States mails,  registered or
certified,  return receipt  requested,  addressed to the party to be notified at
the following  address (or at such other address as may have been  designated by
written notice):

         Payee:
                  -----------------
                  -----------------
                  -----------------

         Maker:
                  -----------------
                  -----------------
                  -----------------

     In the event that the holder hereof shall fail to give notice of default to
Maker as  provided  herein,  the sole and  exclusive  remedy  of Maker  for such
failure shall be to seek appropriate  equitable relief to enforce this agreement
to give  such  notice  and to  have  any  acceleration  of the  maturity  hereof
postponed or revoked and foreclosure proceedings in connection therewith delayed
or  terminated  pending  or upon the  curing of such  default  in the manner and
during the period of time hereinbefore set out, and Maker shall have no right to
damages or any other type of relief not herein  specifically set out against the
holder  hereof,  all of which  damages or other relief are  expressly  waived by
Maker.  The  foregoing  is not  intended  and  shall  not be  deemed  under  any
circumstances  to require the holder hereof to give notice of any type or nature
to Maker not expressly required by other provisions of this Note.


                                      - 5 -

<PAGE>



     Section 9.  Voluntary  Prepayment.  Maker  reserves the right to prepay the
outstanding principal balance of this Note, in whole or in part, at any time and
from time to time, without premium or penalty. Any such prepayment shall be made
together  with  payment of  interest  accrued on the amount of  principal  being
prepaid  through  the  date of such  prepayment,  and  shall be  applied  to the
installments of principal due hereunder in the inverse order of maturity.

     Section 10.  Usury Laws.  Regardless  of any  provisions  contained in this
Note,  the Payee shall never be deemed to have  contracted for or be entitled to
receive,  collect or apply as interest on the Note,  any amount in excess of the
Maximum  Rate,  and,  in the event Payee ever  receives,  collects or applies as
interest any such excess, such amount which would be excessive interest shall be
applied to the reduction of the unpaid  principal  balance of this Note, and, if
the principal  balance of this Note is paid in full, any remaining  excess shall
forthwith be paid to Maker.  In determining  whether or not the interest paid or
payable under any specific contingency exceeds the Maximum Rate, Maker and Payee
shall, to the maximum extent  permitted under  applicable law, (i)  characterize
any non-principal payment (other than payments which are expressly designated as
interest  payments  hereunder)  as an expense,  fee, or premium,  rather than as
interest,  (ii) exclude voluntary  prepayments and the effect thereof, and (iii)
spread the total amount of interest  throughout the entire  contemplated term of
this Note so that the interest rate is uniform throughout such term.

     Section 11. Costs.  The loan evidenced by this Note shall be closed without
expense to Payee, it being understood and agreed that all expenses necessary and
usual to a  transaction  of this kind shall be paid by Maker,  such  expenses to
include  but not to be limited  to:  [(i)  title  insurance  premiums  and other
related title insurance  company costs;  (ii) recording fees; (iii) costs of the
survey of the Property;  (iv)  reasonable  attorneys' fees arising in connection
with the  negotiation  and  preparation  of this  Note and all  documents  to be
executed  in  connection  with this  Note,  and (v) loan  brokerage,  finders or
similar  fees.]  If  this  Note  is  placed  in the  hands  of an  attorney  for
collection,  or if it is  collected  through any legal  proceeding  at law or in
equity, or in bankruptcy,  receivership or other court proceedings, Maker agrees
to pay all costs of collection,  including,  but not limited to, court costs and
reasonable attorneys' fees, including all costs of appeal.

     Section 12. Applicable Law. This Note is being executed and delivered,  and
is intended to be performed in the State of Texas. Except to the extent that the
laws of the United States may apply to the terms hereof, the substantive laws of
the State of Texas shall  govern the  validity,  construction,  enforcement  and
interpretation  of this Note. In the event of a dispute  involving  this Note or
any  other  instruments  executed  in  connection   herewith,   the  undersigned
irrevocably  agrees  that  venue  for such  dispute  shall  lie in any  court of
competent jurisdiction in Dallas County, Texas.

     The  perfection,  validity and  enforcement  of the Deed of Trust and other
Collateral  Documents,  to the extent  they  involve the  creation,  perfection,
validity and enforcement of liens against the Mortgaged  Property,  are intended
to be governed by the laws of the State of [ . All other  aspects of the lending
transaction [contemplated by the Loan Agreement, and the indebtedness] evidenced
by the Note, and all other documents executed in connection therewith,  shall be
governed by the laws of the State of] Texas or the laws of the United States, as
applicable.


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



                                      - 6 -

<PAGE>










                                  EXHIBIT 22.1













<PAGE>

                             Greenbriar Corporation
                                  Subsidiaries

Altman Nursing, Inc
American Care Properties I, Inc.
American Care Communities of Sanford, Inc.
American Care Communities of Florida, Inc.
American Country Time, Inc.
American Care Communities, Inc.
Assisted Lending, Inc.
Berne Village, Inc.
CareAmerica, Inc.
Carolina Care Communities, Inc.
Complete Corporation
Crown Pointe, Inc.
Crown Pointe Development - Corona (LP)
Equivest Roswell Square, Inc.
Equivest, Inc.
Equivest West, Inc.
Equivest Fairington, Ltd.
Equivest Oak Tree, Ltd.
Equivest Properties, Inc.
Graybrier, Inc.
Greenbriar Payroll Company
Greenbriar Corporation
Greenbriar Leasing Corporation
Greenbriar Financial Corporation
Harlingen Retirement LC
Hermiston Assisted Living, Inc.
Kellway Corporation
King City Retirement Corporation
Lake James, Inc.
Lewiston Group LLC
Liberty Acquired Brain Injury Habilitation Services, Inc.
Lincolnshire Partners
Maranatha Manor of Spartanburg, Inc.
Medical Concepts, Inc.
MRC Assisted Living, Inc.
Neawanna By The Sea Limited Partnership
Oak Harbor Retirement Center, Inc.
Oak Harbor Retirement Center LP
Oak Park-Clermont, Inc.
Paradise-Greenbriar, Inc.
Remuda Acquisition Corp.
Residential Healthcare Properties, Inc.
Residential Healthcare Properties of Texas, Inc.
Retirement Housing Associates (LP)
Rhoades/Powell, Inc.
Rose Arbor of Ocala, Inc.
Rose Garden Estates LLC
Rose Manor of Cary, Inc.
Rose Tara Plantation, Inc.
Rose Terrace of Wendell, Inc.
Roswell Retirement Ltd. Co.
Roswell Senior Apartments Ltd. Co.
RRSP, Inc.
Sweetwater Springs Group, LLC
Tara Management, Inc.
The Greenbriar at Sherman, Inc.
The Terrace Retirement, Inc.
The Greenbriar at Muskogee, Inc.
The Denison-Greenbriar Inc.
The Briarcliff at Texarkana, Inc.
Transferco, Inc.
Villa Residential Care Homes - Corpus Christi South, L.P.
Villa Residential Care Homes -Arlington L. L.P. (49%)
Villa Residential Care Homes - Granbury, L.P.
Villa Residential Care Homes, Inc.
Villa Del Rey-Roswell Limited Partnership
Villa Residential Care Homes - Oak Park, L.P.
Villa Residential Care Homes - Forth Worth, L.P.
Villa Del Rey-Seaside, Inc.
VLS & Associates, Inc.
Wedgwood Corporation
Wedgwood Retirement Inns, Inc.
Windsor House Florence, Inc.
Windsor House West, Inc.
Windsor House Greenville, LLC


<PAGE>










                                  EXHIBIT 23.1











<PAGE>



 

              Consent of Independent Certified public Accountants


We have  issued our report  dated  March 13,  1998  accompanying  the  financial
statements included in Greenbriar  Corporation of Form 10-KSB for the year ended
December 31, 1997. We hereby consent to the  incorporation  by reference of said
report in the  Registration  Statements  of Greenbriar  Corporation  on Form S-3
(File No. 33-64840) and Form S-8 (File No. 33-65856 and 33-33985).

/s/ Grant Thornton LLP
----------------------
GRANT THORNTON LLP

Dallas, Texas
April 14, 1998