AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 26, 1997
REGISTRATION STATEMENT NO. 333-
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
DIVERSIFIED SENIOR SERVICES, INC.
(Name of small business issuer in its charter)
NORTH CAROLINA 8050 56-1973923
(State or other (Primary (I.R.S. Employer
jurisdiction Standard Identification
of incorporation Industrial No.)
or organization) Classification
Code Number)
915 WEST FOURTH STREET
WINSTON-SALEM, NORTH CAROLINA 27101
(910) 724-1000
(Address and telephone number of principal executive offices)
915 WEST FOURTH STREET
WINSTON-SALEM, NORTH CAROLINA 27101
(Address of principal place of business or intended principal
place of business)
SUSAN L. CHRISTIANSEN
915 WEST FOURTH STREET
WINSTON-SALEM, NORTH CAROLINA 27101
(910) 724-1000
(Name, address and telephone number of agent for service)
COPIES TO:
DON R. HOUSE JAMES R. TANENBAUM
HOUSE LAW FIRM STROOCK & STROOCK
3325 Healy Dr. & LAVAN LLP
Winston-Salem, 180 Maiden Lane
N.C. 27103 New York, N.Y.
(910) 768-2225 10038
(212) 806-5400
Approximate date of proposed sale to the public:
As soon as practicable after this Registration Statement becomes effective.
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering.
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering.
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box.
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CALCULATION OF REGISTRATION FEE
==============================================================================================================================
Title of each class of Amount to be Proposed maximum Proposed maximum Amount of
securities to be registered registered offering price per share aggregate offering price registration fee
(1) (1)
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<S> <C> <C> <C> <C>
Common Stock, no par value... 1,200,000 $5.00 $6,000,000 $1,818.18
- ------------------------------------------------------------------------------------------------------------------------------
Underwriter's Warrants(2).... 120,000 $0.01 $ 1,200 (3)
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Common Stock, no par value... 120,000 $6.00 $ 720,000 $ 218.18
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TOTAL $2,036.36
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(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457 (o).
(2) Each Underwriter's Warrant entitles the Underwriter to purchase one share of
Common Stock at a price equal to 120% of the initial public offering price
per share.
(3) No additional fee required pursuant to Rule 457(g).
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The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This Prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED ,1997
1,200,000 Shares
DIVERSIFIED SENIOR SERVICES, INC.
Common Stock
Diversified Senior Services, Inc., a North Carolina corporation (the
"Company"), is offering (the "Offering") for sale 1,200,000 shares of Common
Stock, no par value (the "Common Stock"). Prior to the Offering, there has been
no public market for the Common Stock and no assurances can be given that a
public market will develop following the completion of the Offering or, if
developed, that it will be sustained. Application has been made for the Common
Stock to be included in the Nasdaq SmallCap Market under the symbol "DSSI." The
initial public offering price (the "Offering Price") has been negotiated by the
Company and Strasbourger Pearson Tulcin Wolff Incorporated, as underwriter (the
"Underwriter"), and is not related to asset value, net worth or any other
established criteria of value. See "Underwriting" for a discussion of the
factors considered in determining the Offering Price. It currently is
anticipated that the Offering Price will be between $4.00 and $6.00 per share.
---------------
AN INVESTMENT IN THESE SECURITIES INVOLVES A HIGH DEGREE OF RISK AND IMMEDIATE
SUBSTANTIAL DILUTION OF THE BOOK VALUE OF THE COMMON STOCK FROM THE
INITIAL PUBLIC OFFERING PRICE. ACCORDINGLY, THE SECURITIES
OFFERED HEREBY SHOULD NOT BE PURCHASED BY ANYONE
WHO CANNOT AFFORD A LOSS OF HIS ENTIRE INVESTMENT.
SEE "RISK FACTORS" BEGINNING ON PAGE 8.
----------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR
HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
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=======================================================================================================================
PRICE TO PUBLIC UNDERWRITING DISCOUNTS
PUBLIC AND COMMISSIONS(1) PROCEEDS TO COMPANY(2)
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<S> <C> <C> <C>
Per Share............................... $ $ $
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Total................................... $ $ $
=======================================================================================================================
(1) Does not reflect additional compensation to be received by the Underwriter,
including (a) a non-accountable expense allowance of $180,000 of which
$100,000 has been paid; (b) Underwriter's Warrants entitling the
Underwriter to purchase up to 120,000 shares of Common Stock at a price
equal to $ per share for a period of four years commencing one year from
the effective date of the Registration Statement of which this Prospectus
forms a part (the "Underwriter's Warrants"); and (c) a financial consulting
fee of $100,000. In addition, the Company has agreed to indemnify the
Underwriter against certain civil liabilities. See "Underwriting."
(2) Before deducting expenses of the Offering payable by the
Company, estimated at $905,500, excluding the Underwriter's
non- accountable expense allowance. See "Underwriting."
---------------
</TABLE>
The shares of Common Stock are being offered by the Underwriter on a "firm
commitment" basis, when, as, and if delivered to and accepted by the
Underwriter, and subject to approval of certain legal matters by counsel for the
Underwriter. The Underwriter reserves the right to withdraw, cancel or modify
such offer and to reject orders either in whole or in part. It is expected that
delivery of the certificates evidencing the shares of Common Stock offered
hereby will be made at the offices of counsel to the Underwriter on or about ,
1997.
---------------
STRASBOURGER PEARSON TULCIN WOLFF
INCORPORATED
THE DATE OF THIS PROSPECTUS IS , 1997
---------------------------
<PAGE>
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS THAT
STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK OFFERED
HEREBY, INCLUDING PURCHASES OF THE COMMON STOCK TO STABILIZE ITS MARKET PRICE,
PURCHASES OF THE COMMON STOCK TO COVER SOME OR ALL OF A SHORT POSITION IN THE
COMMON STOCK MAINTAINED BY THE UNDERWRITER AND THE IMPOSITION OF PENALTY BIDS.
FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
-2-
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO, AND
SHOULD BE READ IN CONJUNCTION WITH, THE MORE DETAILED INFORMATION AND FINANCIAL
STATEMENTS (INCLUDING THE NOTES THERETO) APPEARING ELSEWHERE IN THIS PROSPECTUS.
EACH PROSPECTIVE INVESTOR IS URGED TO READ THIS PROSPECTUS IN ITS ENTIRETY. ALL
REFERENCES TO THE "COMPANY" IN THIS PROSPECTUS ARE REFERENCES TO DIVERSIFIED
SENIOR SERVICES, INC. ("DSS") AND ITS WHOLLY-OWNED SUBSIDIARY, RESIDENTIAL
PROPERTIES MANAGEMENT, INC. ("RPM").
THE COMPANY
GENERAL
Diversified Senior Services, Inc. ("DSS" or the "Company") was founded in
May 1996 to develop and manage assisted living residences, to provide home care
services to the frail elderly and to manage low and moderate income apartment
complexes. Management believes that there is a growing demand for assisted
living residences for the low and moderate income frail elderly, specifically in
the Company's targeted areas of smaller cities and towns of North Carolina and
throughout the Southeast. Although the Company has been operating for less than
two years, through affiliates of the Company, senior management has over 20
years of experience in developing and operating housing specifically designed
for this target population with a concentration in Eastern North Carolina. The
Company's two-year growth objective is to develop at least 16 new assisted
living residences, with a capacity of approximately 960 residents. The Company
is in the early stages of its assisted living development program, with eleven
sites optioned to date and three feasibility studies completed. The Company
intends for the majority of the projects it develops to be owned by or sold to
qualified non-profit organizations, with the Company retaining management
contracts for these projects. By transferring ownership of the properties to
non-profit organizations, the Company expects to be able to utilize tax-exempt
bonds to finance the majority of its facilities, while at the same time carrying
little real estate on its balance sheet. With respect to the Company's current
cash generating operations, as of the date of this Prospectus, the Company
manages 62 apartment complexes, 31% of which are owned by non-profit
organizations, consisting of approximately 2,393 rental units of low and
moderate income rent-subsidized apartments, 56% of which are occupied by the
elderly. The Company also currently provides approximately 1,400 hours of home
care services per month.
The Company was formed in May 1996 as a wholly owned subsidiary of Taylor
House Enterprises, Limited ("THE") and began operations in July 1996. THE is a
privately-held corporation controlled by the Company's senior management. DSS
was initially capitalized with $100 and its parent, THE, received 100 shares of
Common Stock. In July 1996, THE exchanged all of the stock of its wholly owned
subsidiary, RPM, for 2,277,678 shares of DSS. Effective June 30, 1997, THE
returned 477,778 shares of Common Stock to DSS which DSS retired leaving
1,800,000 shares of Common Stock issued and outstanding. RPM, now a wholly-owned
subsidiary of the Company, manages 2,393 rental housing units located across
four states: North Carolina, South Carolina, West Virginia and Pennsylvania. The
Company's management contracts have initial terms of one to three years, with
varying renewal provisions. Of the 62 RPM management contracts, 37, or 60%, are
controlled by affiliates and 25, or 40%, are controlled by third parties.
Currently, apartment management provides the majority of the Company's revenues.
The Company's home care activities are limited to providing personal care
services to the same population targeted for its assisted living residences. The
Company does not provide medical services and, as such, is not subject to the
regulatory burdens of that market, nor the attendant legal liabilities. The
Company utilizes its home care business for two primary purposes: (i) to provide
services to residents of its existing subsidized senior apartments; and (ii) to
establish operating procedures for delivery of personal care services at its
future assisted living residences.
-3-
<PAGE>
BUSINESS STRATEGY
The Company's growth is expected to come primarily from developing and
managing assisted living residences. The Company expects its future assisted
living residences to serve as the foundation from which to provide a continuum
of care for low to moderate income senior citizens. The Company has already
developed and implemented its policies, procedures and operating systems for
providing personal care services and has hired its core staff for the personal
care division. Assisted living management is the combination of providing
personal care and real estate management services, both businesses in which the
Company is already involved and in which the Company's senior management has
extensive experience. The Company has developed a 60-unit assisted living
prototype for development primarily in small to mid-sized communities with
populations of under 75,000, whose target resident will be a low to moderate
income frail, elderly individual. In addition, the Company will continually
review apartment management opportunities and may add to its management
portfolio.
Once the Company's assisted living residences have been developed, DSS will
be able to offer low and moderate income elderly individuals a continuum of
living arrangements: apartments managed specifically for the needs of the
elderly; home care services provided in such apartment facilities if, such
individual requires such assistance; and, finally, assisted living residences
when a greater level of support becomes necessary.
The Company expects to achieve its business objectives by implementing the
following strategies:
SELECTIVELY LOCATING ASSISTED LIVING RESIDENCES. During its initial phase
of development, the Company will locate some of its assisted living facilities
within close proximity to the Company's managed apartment complexes. Such
locations offer immediate benefits to the Company. Since over 56% of the
Company's apartments are occupied by low and moderate income elderly tenants,
when an elderly tenant needs to move into an assisted living residence, the
Company will be well positioned to be the provider of choice. In addition, since
over 31% of the Company's apartment complexes are owned by non-profit
organizations, the Company already has numerous relationships with regional
non-profit organizations, many of which are expected to become the ultimate
owners of the Company's assisted living facilities. Lastly, the Company expects
to be able to utilize certain staff positions in both apartment complexes and
assisted living facilities, namely maintenance staff and certain providers of
personal care, helping control costs at both locations.
DEVELOPING ASSISTED LIVING FACILITIES SPECIFICALLY DESIGNED FOR LOW AND
MODERATE INCOME RESIDENTS. Each assisted living residence developed by the
Company will be designed, constructed and managed to be profitable with only
public pay residents, while providing features typically found in residences
designed for the private pay population, such as private bedrooms, personal
lavatories and diverse common areas. As such, for each private pay resident, for
whom monthly fees are typically $150 to $300 per month higher, the Company
expects to generate significantly greater profits. Most moderate income
residents will typically begin their residence as private pay individuals and
will convert to public pay only when such individual's personal resources are
exhausted. Since the Company's cost structure for its assisted living residences
has been designed based on complete occupancy by public pay residents, when
these changes occur the Company expects profitability to be maintained. In
addition, because many assisted living residences only accept residents who have
resources to cover a minimum time period, typically 18 months or longer, the
Company anticipates that demand for the Company's residences will be high among
the moderate income frail elderly who may not have the resources to cover such
an extended period of time.
ACCESSING FAVORABLE FINANCING. Because of management's extensive experience
working with non-profit organizations, particularly entities which qualify for
Section 501(c)(3) treatment under the Internal Revenue Code of 1986, as amended
("501(c)(3)s"), the Company intends to use tax-exempt bonds to finance the
majority of its assisted living residences. This low-cost financing vehicle
provides the Company with a competitive cost advantage. The Company also
receives the added benefit of not carrying significant amounts of real estate on
its balance sheet, freeing up capital for new developments. In addition, future
earnings will not be charged with the associated depreciation and amortization.
-4-
<PAGE>
TRANSFERRING EXPERIENCE TO ASSISTED LIVING RESIDENCES. Assisted living is
the combination of providing senior housing and providing home care services.
The Company and its affiliates have extensive experience in developing housing
for low and moderate income seniors and disabled persons. Several of the
Company-managed apartment complexes currently provide regular activities,
communal meals, laundry facilities, and other amenities frequently associated
with assisted living residences. In addition, the Company currently provides
home care services to low and moderate income frail elderly. The home care
services provided by the Company include assistance with dressing, personal
hygiene, medication management, preparation of simple meals, assistance with
mobility, dental, hair and skin care and maintenance of a safe environment.
These services are identical to those required in an assisted living residence.
The Company's staff is experienced in providing and documenting these services,
assessing and developing individual care plans, maintaining client records,
regulatory compliance, quality assurance and Medicaid billing. Thus, the Company
believes it already possesses the personnel skills and management systems
required for assisted living care.
JOINT VENTURES AND CONVERSIONS. Management anticipates growth opportunities
in addition to those provided by its own independent development activities. The
Company is developing alliances with local government agencies, such as public
housing authorities, dedicated to providing housing and services to the low
income elderly and disabled. The Company intends to explore joint ventures with
local agencies which provide assisted living to its targeted population. These
activities may include newly developed facilities as well as the conversion of
sections of existing subsidized senior housing to assisted living residences.
The Company is in the preliminary stages of developing newly constructed
assisted living with the housing authority of one North Carolina community and
exploring the conversion to assisted living of two residential floors in two
existing subsidized senior housing complexes. Management sees these joint
venture and conversion opportunities as a method of providing assisted living in
larger communities, as well as in the small to medium sized communities
currently targeted by the Company.
The Company's principal offices are located at 915 West Fourth Street,
Winston-Salem, North Carolina 27101 and its telephone number at that address is
(910) 724-1000.
-5-
<PAGE>
THE OFFERING
Common Stock Offered.................... 1,200,000 shares
Common Stock Outstanding
after the Offering................... 3,000,000 Shares(1)
Use of Proceeds......................... The Company intends to apply the net
proceeds of this Offering (i) to
repay outstanding debt,
approximately $1.38 million as of
August 15, 1997; (ii) to fund the
development and construction of
assisted living facilities,
approximately $3 million; and, (iii)
for general corporate purposes.
Proposed Nasdaq SmallCap
Market Symbol.......................... DSSI
(1) Does not include (i) 120,000 shares of Common Stock issuable upon the
exercise of the Underwriter's Warrants, and (ii) an aggregate of 80,329
options to purchase Common Stock at exercise prices between $2.50 and $5.00
per share held by certain members of senior management. See "Underwriting"
and "Principal Shareholders."
RISK FACTORS
An investment in the Common Stock offered hereby is speculative and
involves a high degree of risk. See "Risk Factors."
-6-
<PAGE>
SUMMARY FINANCIAL INFORMATION
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
The summary financial information set forth below is derived from the more
detailed financial statements appearing elsewhere in this Prospectus. This
information should be read in conjunction with such financial statements,
including the notes thereto. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Overview."
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED SIX MONTHS ENDED
STATEMENT OF OPERATIONS DATA: DECEMBER 31, 1995(1) DECEMBER 31, 1996(2) JUNE 30, 1997
--------------------------------------------------------------------------------
<S> <C> <C> <C>
Income __ $2,319 $1,180
Operating income (loss) __ (676) (399)
Net income (loss) $87 (881) (662)
Net income (loss) per share $ 868 $(.39) $(.29)
</TABLE>
<TABLE>
<CAPTION>
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JUNE 30, 1997
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BALANCE SHEET DATA: ACTUAL AS ADJUSTED(3)
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<S> <C> <C>
Current assets $ 163 $ 3,860
Current liabilities 1,762 544
Working capital (1,599) 3,316
Total assets 1,377 5,074
Total liabilities 2,732 1,514
Accumulated deficit (1,355) (1,355)
Stockholders' equity (1,355) 3,560
(deficit)
</TABLE>
(1) These results reflect the results of operations of RPM only. RPM was not
actively engaged in business during 1995; its activities were limited to
investing activities, thus the net income shown resulted from those
investing activities.
(2) Pro forma as if DSS had been incorporated and had owned the stock of RPM on
January 1, 1996.
(3) Gives effect to the sale of the Common Stock offered hereby and the
application of the estimated net proceeds therefrom.
See "Use of Proceeds."
UNLESS OTHERWISE INDICATED, THE INFORMATION IN THIS PROSPECTUS DOES NOT
GIVE EFFECT TO AND DOES NOT INCLUDE: (I) 500,000 SHARES OF COMMON STOCK RESERVED
FOR ISSUANCE UPON THE EXERCISE OF STOCK OPTIONS UNDER THE COMPANY'S STOCK OPTION
PLAN, OF WHICH NO OPTIONS TO PURCHASE SHARES HAVE BEEN GRANTED, (II) 120,000
SHARES OF COMMON STOCK ISSUABLE UPON THE EXERCISE OF THE UNDERWRITER'S WARRANTS,
AND (III) AN AGGREGATE OF 80,329 OPTIONS TO PURCHASE COMMON STOCK AT EXERCISE
PRICES BETWEEN $2.50 AND $5.00 PER SHARE HELD BY CERTAIN MEMBERS OF SENIOR
MANAGEMENT. SEE "MANAGEMENT-STOCK INCENTIVE PLAN," "PRINCIPAL SHAREHOLDERS"
AND "UNDERWRITING."
-7-
<PAGE>
RISK FACTORS
THE SECURITIES OFFERED HEREBY ARE SPECULATIVE IN NATURE AND INVOLVE A HIGH
DEGREE OF RISK. ACCORDINGLY, IN ANALYZING AN INVESTMENT IN THESE SECURITIES,
PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER, ALONG WITH OTHER MATTERS
REFERRED TO HEREIN, THE FOLLOWING RISK FACTORS. NO INVESTOR SHOULD PARTICIPATE
IN THIS OFFERING UNLESS SUCH INVESTOR CAN AFFORD A COMPLETE LOSS OF HIS OR HER
INVESTMENT. PROSPECTIVE INVESTORS SHOULD NOTE THAT THIS PROSPECTUS CONTAINS
CERTAIN "FORWARD-LOOKING STATEMENTS," AS SUCH TERM IS DEFINED IN THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995, INCLUDING, WITHOUT LIMITATION,
STATEMENTS CONTAINING THE WORDS "BELIEVES," "ANTICIPATES," "EXPECTS," "INTENDS,"
"SHOULD," "SEEKS TO," AND SIMILAR WORDS. PROSPECTIVE INVESTORS ARE CAUTIONED
THAT ANY SUCH FORWARD-LOOKING STATEMENTS ARE NOT GUARANTEES OF FUTURE
PERFORMANCE AND INVOLVE RISKS AND UNCERTAINTIES. ACTUAL RESULTS MAY DIFFER
MATERIALLY FROM THOSE IN THE FORWARD-LOOKING STATEMENTS AS A RESULT OF VARIOUS
FACTORS, INCLUDING BUT NOT LIMITED TO, THE RISK FACTORS SET FORTH IN THIS
PROSPECTUS. THE ACCOMPANYING INFORMATION CONTAINED IN THIS PROSPECTUS IDENTIFIES
CERTAIN IMPORTANT FACTORS THAT COULD CAUSE SUCH DIFFERENCES.
LACK OF OPERATING HISTORY; SUBSTANTIAL LOSSES
The Company was incorporated in May 1996 and, effective July 1, 1996,
acquired all of the outstanding capital stock of RPM, a company with substantial
subsidized apartment management experience. Through RPM, the Company began its
apartment management operations in July 1996. Also in July 1996 the Company
became a licensed home care agency under the laws of the State of North Carolina
and began providing home care services in August 1996. However, the Company's
growth plan is predicated almost exclusively on developing and managing assisted
living residences, a market in which the Company has no prior experience. The
Company experienced a net loss of $692,984 for the period from inception to
December 31, 1996 and a net loss of $662,068 for the six months ended June 30,
1997. With respect to most of the Company's intended operations (other than
apartment management), the Company has no operating history to provide
assurances that the Company can successfully implement its growth plans and thus
become profitable. The Company plans to begin and expand its operations as soon
as reasonably practicable. The Company will immediately incur significant
expenses for acquisitions, development and other activities. The Company's
success will depend on its ability to achieve and maintain profitability and to
successfully manage the Company's growth.
CAPITAL REQUIREMENTS
The Company estimates that the net proceeds of this Offering, in
conjunction with other sources of funds, should provide adequate capital for the
Company's operation and growth over the next 24 months. The Company's ability to
sustain any operating losses and to otherwise meet its growth objectives will
depend, in part, on its ability to obtain additional financing on acceptable
terms from available financing sources, specifically the tax-exempt bonds that
the Company intends to be the predominant long-term financing source for its
assisted living residences. In addition, raising additional funds through the
issuance of equity securities could cause existing shareholders to experience
further dilution and could adversely affect the market price of the Common
Stock. The Company intends to finance future requirements through a combination
of its cash reserves, including the net proceeds of this Offering, additional
construction and permanent indebtedness or public or private sales of debt
securities or capital stock. There can be no assurance, however, that funds will
be available on terms favorable to the Company or that such funds will be
available when needed. The Company's inability to obtain additional financing on
acceptable terms could delay or eliminate some or all of the Company's growth
plans.
ABILITY TO MANAGE GROWTH
The Company intends to expand its operations through development and
management of assisted living residences and, to a lesser extent, through
expansion of the Company's home care services. The Company currently plans to
develop 16 assisted living facilities over the next two years, with an estimated
aggregate capacity for 960 residents. The Company's ability to develop
successfully assisted living residences will depend on a number of factors,
including, but not limited to, the Company's ability to acquire suitable
development sites at reasonable prices; and the Company's success in obtaining
necessary zoning, licensing, and other required governmental permits and
authorizations. In addition, the Company's development plans are subject to
numerous factors over which it has little or no control, including competition
-8-
<PAGE>
for developable properties; shortages of labor or materials; changes in
applicable laws or regulations or their enforcement; strikes; and adverse
weather conditions. As a result of these 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 assisted living
residences, or that any developed assisted living residences will be
economically successful. If the Company's development schedule is delayed, the
Company's growth plans could be adversely affected. Additionally, the Company
anticipates that the development and construction of additional assisted living
residences will involve a substantial commitment of capital with little or no
revenue associated with facilities under development, the consequence of which
could be an adverse impact on the Company's liquidity.
Although senior management of the Company has extensive experience in
providing housing for low and moderate income, frail elderly, the Company has
limited experience in developing and managing assisted living residences. The
Company's growth plans will also place significant demands on the Company's
management and operating personnel, which demands may divert management
resources away for the existing apartment management operations. Such diversion
of resources may cause apartment management operations to suffer. The Company's
ability to manage its future growth effectively will require it to improve its
operational, financial, and management information systems and to continue to
attract, retain, train, motivate, and manage key employees. If the Company is
unable to manage its growth effectively, its business, results of operations,
and financial condition will be adversely affected. See "Business--Business
Strategy."
DEVELOPMENT IN CONCENTRATED GEOGRAPHIC AREAS
The Company's growth strategy involves the development of assisted living
residences in a concentrated geographic area. See "Business -- Business
Strategy." Accordingly, the Company's results of operations and growth plans may
be adversely affected by a number of factors, including regional and local
economic conditions, general real estate market conditions, including the supply
and proximity of senior living communities, competitive conditions, and
applicable local laws and regulations. See "Business-Development Division."
DISCRETIONARY USE OF PROCEEDS
A significant portion of the net proceeds of this Offering will be
allocated to the development of assisted living facilities which are ready to
begin construction subject to arranging construction financing. Although the
Company has options for eleven assisted living sites, the Company has made no
firm commitments to acquire or develop any additional sites or facilities. The
Company will have broad discretion in developing and selecting potential sites
and acquisitions and, accordingly, will have broad discretion in using the net
proceeds of this Offering. See "Use of Proceeds."
COMPETITION
The management of low and moderate income apartments and assisted living
facilities and the provision of home care services is highly competitive and the
Company expects that its businesses will become increasingly competitive in the
future. The Company will continue to face competition from numerous local,
regional and national providers of assisted living and long-term care whose
facilities and services are on either end of the senior care continuum. The
Company will compete with a range of providers based on many factors, including
cost, quality of care, services provided, reputation, geographic location and
family preferences. While there are currently few existing assisted living
facilities in the market the Company intends to serve, and even fewer serving
the low to moderate income frail elderly, the Company expects that as assisted
living receives increased attention and the number of states which include
assisted living in their Medicaid waiver programs increases, competition will
grow from new market entrants, including companies focusing primarily on
assisted living. Moreover, in implementing the Company's expansion program, the
Company expects to face competition for development and acquisition of assisted
living residences. Some of the Company's present and potential competitors are
significantly larger and have, or may obtain, greater financial resources than
those of the Company. Consequently, there can be no assurance that the Company
will not encounter increased competition in the future, which could limit its
ability to attract residents or expand its business and could have a material
adverse effect on the Company.
-9-
<PAGE>
GOVERNMENT REGULATION
Federal, state and local governments regulate various aspects of the
Company's business. The development and operation of assisted living residences,
the management of subsidized housing and the provision of home care services are
subject to federal, state and local licensure, certification, and inspection
laws that regulate, among other matters, the number of licensed beds, the
provision of services, the distribution of pharmaceuticals, billing practices
and policies, equipment, staffing (including professional licensing), operating
policies and procedures, fire prevention measures, environmental matters, and
compliance with building and safety codes. Changes in or the adoption of such
laws and regulations, or new interpretations of existing laws and regulations,
could have a significant effect on methods and costs of doing business and
amounts of reimbursement from governmental and other payors. The Company's
success will depend upon its ability to satisfy the applicable regulations and
requirements and to procure and maintain required licenses and subsidies. There
can be no assurance, however, that federal, state or local laws or regulatory
procedures will not be imposed or expanded which might adversely affect the
Company.
A joint committee of the North Carolina Senate and House Representatives
has proposed a bill that would impose a 12-month moratorium on assisted living
licensure in North Carolina. The bill was originally drafted by the Human
Resource Subcommittee of the North Carolina House of Representatives
Appropriations Committee. As drafted, the bill provides several exclusions that
would exempt the Company's currently proposed activities based on the current
status of development (binding options entered into before August 15, 1997) and
the proposed location of facilities (counties with vacancies of less than 15% or
a special determination by a county's board of commissioners that a special need
exists). The purpose of the moratorium would be to study adult care homes in
North Carolina to determine whether the existing licensure procedures need to be
modified. "Adult care homes" now include everything from group homes to old
style rest homes to new assisted living facilities. If the bill is enacted into
law, the Company's current pipeline of developments should provide the Company
with adequate development activity during the moratorium period. Although it is
anticipated that the moratorium will result in stricter licensure procedures in
North Carolina, management believes that the alternative provided by the Company
will be the type of quality, cost effective assisted living that will be favored
by the State. In addition, the Company also intends to focus on expanding its
operations beyond the boundaries of North Carolina.
Federal and state anti-remuneration laws, such as "anti-kickback" laws,
govern certain financial arrangements among health care providers and others who
may be in a position to refer or recommend patients to such providers. These
laws prohibit, among other things, certain direct and indirect payments that are
intended to induce the referral of patients to, the arranging for services by,
or the recommending of, a particular provider of health care items or services.
Federal anti-kickback laws have been broadly interpreted to apply to certain
contractual relationships between health care providers and sources of patient
referral. Similar state laws vary, are sometimes vague, and seldom have been
interpreted by courts or regulatory agencies. Violation of these laws can result
in loss of licensure, civil and criminal penalties, and exclusion of health care
providers or suppliers from participation in the Medicare and Medicaid programs.
There can be no assurance that such laws will be interpreted in a manner
consistent with the practices of the Company.
Under the Americans with Disabilities Act of 1990, all places of public
accommodation are required to meet certain federal requirements related to
access and use by disabled persons. A number of additional federal, state and
local laws exist that also may require modifications to existing and planned
communities to create access to the properties by disabled persons. Although the
Company believes that its managed apartment complexes and planned assisted
living residences are or will be substantially in compliance with present
requirements or are exempt therefrom, if required changes involve a greater
expenditure than anticipated or must be made on a more accelerated basis than
anticipated, additional costs would be incurred by the Company. Further
legislation may impose additional burdens or restrictions with respect to access
by disabled persons, the costs of compliance with which could be substantial.
See "Business--Regulation."
-10-
<PAGE>
DEPENDENCE ON THIRD PARTY PAYORS
The Company intends to focus its assisted living operations on the low and
moderate income frail elderly. It is anticipated that a large portion of the
residents in the Company's facilities will not have the resources to pay for the
Company's services, and the Company will depend, to a significant extent, on the
public pay systems in the states in which the Company's assisted living
residences are to be located. The Company's initial facilities will be located
in the State of North Carolina. The State of North Carolina currently provides
special assistance to cover the cost of room and board for qualified recipients.
In addition, North Carolina provides limited Medicaid funds to cover personal
care services and enhanced personal care services for these qualified
recipients. Considering the substantial savings incurred by the State of North
Carolina by providing these services in an assisted living setting, as opposed
to a traditional nursing home, the Company anticipates that the North Carolina
special assistance program will continue to be favorable to the assisted living
alternative. Potential investors should be aware, however, that adverse changes
in general economic factors affecting North Carolina's health care industry, or
in North Carolina laws and regulatory environment, including special assistance
and Medicaid reimbursement rates and qualifying standards, could have a material
adverse effect on the Company. In addition, as the Company expands its business
into other states, it will depend upon the reimbursement systems of such states.
The public pay programs as then in effect in such states will be a significant
consideration in determining whether to expand into any such state.
DEPENDENCE ON KEY PERSONNEL
The success of the Company's business will be highly dependent upon the
services of its management team, specifically its executive officers: William G.
Benton, CEO; Susan L. Christiansen, COO; and, G.L. Clark, Jr., CFO All three
individuals have employment contracts with the Company, however, the loss of the
services of one or more of these employees could adversely affect the Company.
See "Management-Executive Compensation; Employment Agreements."
LACK OF OWNERSHIP OF REAL ESTATE
Although the Company may own a small percentage of the acquired and
developed assisted living facilities, it is anticipated that most properties
will be owned by a third party non-profit entity and that the Company will
operate the facilities pursuant to a management contract. Although the assisted
living management agreements are anticipated to have a minimum rolling term of
three years renewable annually, and it is anticipated that the Company's
interest will be further protected by a fee for termination without cause during
the contract term and, further, that the Company will have an option to purchase
the facilities at fair market value, these protections do not afford the same
rights as direct ownership.
DEVELOPMENT AND CONSTRUCTION RISKS
During the next two years, the Company plans to develop or acquire
approximately 16 new assisted living facilities with a capacity of approximately
960 residents. The Company's ability to achieve its development plans will
depend upon a variety of factors, many of which are beyond the Company's
control. There can be no assurance that the Company will not suffer delays in
its development program, which could slow the Company's growth. The successful
development of additional assisted living residences will involve a number of
risks, including the possibility that the Company may be unable to locate
suitable sites at acceptable prices or may be unable to obtain, or may
experience delays in obtaining, necessary zoning, land use, building, occupancy,
licensing and other required governmental permits and authorizations. The
Company may also incur construction costs that exceed original estimates, may
not complete construction projects on schedule and may experience competition in
the search for suitable development sites. The Company will be relying on
third-party general contractors to construct its assisted living residences.
There can be no assurance that the Company will not experience difficulties in
working with general contractors and subcontractors, which could result in
increased construction costs and delays. Accordingly, if the Company is unable
to achieve its development plans, it could be adversely affected.
-11-
<PAGE>
FACILITIES MANAGEMENT, STAFFING, AND LABOR COSTS
The Company competes with other providers of senior living and home care
services with respect to attracting and retaining qualified personnel. A
shortage of skilled personnel may require the Company to enhance its wage and
benefits package in order to compete in the hiring and retention of such
personnel or to hire more expensive temporary personnel. The Company will also
depend on the available labor pool of semi-skilled and unskilled employees in
each of the markets in which it operates. No assurance can be given that the
Company's labor costs will not increase, or that, if they do increase, they can
be matched by corresponding increases in rates charged by the Company. Any
significant failure by the Company to attract and retain qualified management
and staff personnel, to control its labor costs, or to pass on any increased
labor costs through rate increases could have a material adverse effect on the
Company.
CONTROL BY PARENT
Upon completion of the Offering, THE will beneficially own approximately
60% of the outstanding shares of Common Stock. The outstanding voting securities
of THE are owned by a small group of investors, including the officers and
directors of the Company. A super majority of the voting securities of THE are
subject to a voting trust agreement electing William G. Benton as voting trustee
and a shareholders' agreement which grants THE and William G. Benton, Susan L.
Christiansen and G.L. Clark, Jr. a right of first refusal on any transfer of
stock and an option to buy all shares of any deceased, disabled or terminated
shareholder. Both of the agreements provide that William G. Benton, Susan L.
Christiansen and G.L. Clark, Jr. shall serve as the directors of THE.
Accordingly, the shares of Common Stock of the Company owned by THE will be
voted at the discretion of Mr. Benton, Ms. Christiansen and Mr. Clark.
Accordingly, such persons will have the ability to elect all of the Company's
Board of Directors and to determine the outcome of most matters submitted to the
Company's shareholders. Furthermore, such control could preclude any unsolicited
acquisition of the Company and, consequently, adversely affect the market price
of the Common Stock. See "Principal Shareholders."
ABSENCE OF PRIOR PUBLIC MARKET AND POSSIBLE VOLATILITY OF STOCK
PRICE
Prior to the Offering, there has been no public market for the Company's
Common Stock. There can be no assurance that an active public market for the
Common Stock will develop or that, if developed, such market will be sustained.
The offering price of the Common Stock offered hereby has been determined by
negotiations between the Company and the Underwriter and may not be indicative
of the price that may prevail in the public market upon the completion of the
Offering. See "Underwriting." Consequently, there can be no assurance that the
market price for the Common Stock will not fall below the offering price.
The market price of the Common Stock will be influenced by many factors,
including the depth and liquidity of the market for the Common Stock, investor
perceptions of the Company and its industry, and general economic and market
conditions. The market price of the Common Stock may also be significantly
influenced by factors such as quarter-to-quarter variations in the Company's
results of operations and conditions in the industry.
POSSIBLE DELISTING OF SECURITIES; PENNY STOCK RULES;
UNDERWRITER'S POTENTIAL INFLUENCE ON THE MARKET
Application has been made for the Common Stock to be included in the Nasdaq
SmallCap market under the symbol "DSSI." While the Company presently meets the
required standards for continued inclusion in the Nasdaq SmallCap Market, there
can be no assurance that it will continue to be able to do so. If the Company
should fail to meet one or more of such standards, the Common Stock would be
subject to deletion from Nasdaq SmallCap Market. If this should occur, trading,
if any, in the Common Stock would then continue to be conducted in the
over-the-counter market on the Electronic Bulletin Board, a National Association
of Securities Dealers, Inc. ("NASD") -- sponsored inter-dealer quotation system,
or in what are commonly referred to as "pink sheets." As a result, an investor
may find it more difficult to dispose of, or to obtain accurate quotations as to
the market value of, the Common Stock. In addition, if the Common Stock ceases
to be quoted on Nasdaq SmallCap Market and the Company fails to meet certain
other criteria, trading in the Common Stock would be subject to Securities and
Exchange Commission (the "Commission") rules regulating broker-dealer practices
in connection with transactions in "penny stocks." If the Common Stock became
-12-
<PAGE>
subject to the penny stock rules, many brokers may be unwilling to engage in
transactions in the Common Stock because of the added disclosure requirements,
thereby making it more difficult for purchasers of Common Stock in this Offering
to dispose of their securities.
Assuming the Common Stock is accepted for trading on the Nasdaq SmallCap
Market, the Underwriter may from time to time following the completion of this
Offering act as a market-maker and otherwise effect transactions in the Common
Stock. The Underwriter is not legally obligated by law or by contract to
continue such trading, which may be discontinued at any time. See
"Underwriting." Any such cessation could have a material adverse effect upon the
price and liquidity of the Common Stock. The Underwriter is subject to the
supervision of various governmental and self-regulatory organizations, as well
as certain capital requirements. Such regulatory authorities periodically
investigate and audit the activities of broker-dealers, such as the Underwriter.
In the event the Underwriter is required to curtail or cease operations as a
result of administrative actions instituted by the regulatory authorities or
because of lack of capital, the price and liquidity of the Common Stock may be
materially adversely affected by the reduced participation or complete absence
of the Underwriter from the market.
DILUTION
The Offering involves an immediate and substantial dilution to investors of
$4.06 per share (assuming an initial offering price of $5.00, the midpoint of
the range) between the net tangible book value per share immediately after the
Offering and the offering price of each share of Common Stock offered hereby,
which dilution amounts to 81% of the offering price. See "Dilution."
NO DIVIDENDS
The Company has not paid any cash dividends on its Common Stock since its
inception and does not currently anticipate paying dividends on its Common Stock
in the foreseeable future.
LIABILITY AND INSURANCE
The provision of home care services entails an inherent risk of liability.
In recent years, participants in the long-term care industry have been become
subject to an increasing number of lawsuits alleging malpractice or related
legal theories, many of which involve large claims and significant defense
costs. The Company will maintain liability insurance intended to cover such
claims. There can be no assurance, however, that claims in excess of the
Company's insurance coverage, or claims not covered by the Company's insurance
coverage (e.g., claims for punitive damages) will not arise. A successful claim
against the Company not covered by, or in excess of, the Company's insurance
coverage could have a material adverse effect upon the Company. Claims against
the Company, regardless of their merit or eventual outcome, may also have a
material adverse effect upon the Company's ability to attract residents or
expand its business and would require management to devote time to matters
unrelated to the operation of the Company's business. In addition, insurance
policies are subject to annual renewal and there can be no assurance that the
Company will be able to maintain liability insurance coverage or that, if such
coverage is available, it will be on acceptable terms.
ENVIRONMENTAL RISKS
Under various federal, state and local environmental laws, ordinances and
regulations, a current or previous owner or operator of real property may be
held liable for the cost of removal or remediation of certain hazardous or toxic
substances, including, without limitation, asbestos-containing materials that
could be located on, in or under such property. Such laws and regulations often
impose liability whether or not the owner or operator knew of, or was
responsible for, the presence of the hazardous or toxic substances. The costs of
any required remediation or removal of these substances could be substantial and
the liability of an owner or operator as to any property is generally not
limited under such laws and regulations and could exceed the property's value
and the aggregate assets of the owner or operator. The presence of these
substances or failure to remediate such substances properly may also adversely
affect the owner's ability to sell or rent the property.
-13-
<PAGE>
EFFECT OF OUTSTANDING OPTIONS AND WARRANTS; FUTURE SALES OF
COMMON STOCK
As of the date of this Prospectus, there are outstanding stock options to
purchase an aggregate of 80,329 shares of Common Stock at per share exercise
prices ranging from $2.50 to $5.00. In connection with this Offering, the
Company is also issuing the Underwriter's Warrants to purchase 120,000 shares of
Common Stock, at an exercise price of $ per share. The exercise of such
outstanding stock options and the Warrants will dilute the percentage ownership
of the Company's shareholders, and any sales in the public market of shares of
Common Stock underlying such stock options and warrants may adversely affect
prevailing market prices for the Common Stock. Moreover, the terms upon which
the Company will be able to obtain additional equity capital may be adversely
affected since the holders of such outstanding securities can be expected to
exercise them at a time when the Company would, in all likelihood, be able to
obtain any needed capital on terms more favorable to the Company than those
provided in such stock option and warrants. In addition, the Company has granted
certain demand and piggyback registration rights to the Underwriter with respect
to the securities issuable upon exercise of the Underwriter's Warrants. See
"Management--Stock Option Plan," "Description of Securities" and "Underwriting."
Sales of the Company's Common Stock in the public market after this
Offering could adversely affect the market price of the Common Stock. See
"Description of Securities" and "Shares Eligible for Future Sale."
EFFECTS OF CERTAIN ANTI-TAKEOVER PROVISIONS
Certain provisions of the Company's Articles of Incorporation and Bylaws
and the North Carolina Business Corporation Act ("NCBCA") could delay or
frustrate the removal of incumbent directors and could make difficult a merger,
tender offer or proxy contest involving the Company, even if such events could
be viewed as beneficial by the Company's shareholders. For example, the Board of
Directors has the ability to issue "blank check" preferred stock without
shareholder approval. Although the Company does not currently plan to issue any
preferred stock, the rights of the holders of Common Stock may be materially
limited or qualified by the issuance of preferred stock. The Company's Articles
of Incorporation also require an 80% vote of each outstanding class of stock for
a number of "Business Combinations" with a person who, together with affiliates
and associates, owned 20% or more of the corporation's outstanding voting shares
(an "interested shareholder") at any time during the two-year period prior to
the proposed Business Combination. See "Description of Securities."
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<PAGE>
DILUTION
The difference between the public offering price per share of Common Stock
and the pro forma net tangible book value per share of Common Stock of the
Company after this Offering constitutes the dilution per share of Common Stock
to investors in this Offering. Net tangible book value per share is determined
by dividing the net tangible book value (total tangible assets less total
liabilities) by the number of outstanding shares of Common Stock.
At June 30, 1997, the Company had a negative net tangible book value of
approximately $(2,090,730), or approximately $(1.16) per share of Common Stock
(based on 1,800,000 shares of Common Stock outstanding). After giving effect to
the sale of the Common Stock offered hereby at an assumed price of $5.00 per
share (less underwriting discounts and estimated expenses of this Offering), the
net tangible book value at that date would have been approximately $2,823,770,
or approximately $.94 per share. This represents an immediate increase in net
tangible book value of $2.10 per share to the existing shareholders, and an
immediate dilution of $4.06 per share to purchasers of the Common Stock in this
Offering.
The following table illustrates the per share dilution, without giving
effect to results of operations of the Company subsequent to June 30, 1997:
<TABLE>
<CAPTION>
<S> <C> <C>
Offering price per share $5.00
Net tangible book value before Offering $(1.16)
Increase attributable to new investors 2.10
-----
Net tangible book value after Offering .94
----
Dilution to new investors 4.06
====
</TABLE>
The following table summarizes the number and percentage of shares of
Common Stock purchased from the Company, the amount and percentage of
consideration paid and the average price per share paid by the existing
shareholder and by new investors pursuant to this Offering:
<TABLE>
<CAPTION>
PERCENT OF AVERAGE
SHARES TOTAL TOTAL PERCENT OF TOTAL PRICE PER
ISSUED(1) SHARES CONSIDERATION CONSIDERATION SHARE
------------ --------- ------------- ------------ --------
<S> <C> <C> <C> <C> <C>
Existing Shareholders............... 1,800,000 60% $ 100 0% $0
New Investors....................... 1,200,000 40% $6,000,000 100% $5.00
------------- ------------ -------- ------------ ---------
Total.......................... 3,000,000 100% $6,000,100 100% $2.00
============ ========= ============= ============ ========
</TABLE>
(1) Does not include (i) 120,000 shares of Common Stock
issuable upon the Exercise of the Underwriter's
Warrants, and (ii) an aggregate of 80,329 options to
purchase Common Stock at exercise prices between $2.50
and $5.00 per share held by certain members of senior
management. See "Underwriting," and
"Management--Executive Compensation; Employment Agreements."
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<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the Common Stock offered
hereby (at an assumed public offering price of $5.00 per share of Common Stock)
are estimated to be approximately $4,914,500. The Company intends to apply the
net proceeds as follows: (i) $1,387,104 (the outstanding balance at August 15,
1997) to pay down the Company's line of credit, which currently bears interest
at the prime rate, (ii) $3,000,000 for the initial development of 8 to 12
assisted living facilities, and (iii) for general corporate purposes.
Proceeds not immediately required for the purposes described above will be
invested in United States government securities, short term certificates of
deposit, money market funds or other investment grade, short term interest
bearing investments.
DIVIDEND POLICY
The Company has never paid any cash dividends on its Common Stock and it is
currently the intention of the Company not to pay cash dividends on its Common
Stock in the foreseeable future. Management intends to reinvest earnings, if
any, in the development and expansion of the Company's business. Any future
declaration of cash dividends will be at the discretion of the Board of
Directors and will depend upon the earnings, capital requirements and financial
position of the Company, general economic conditions and other pertinent
factors.
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<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company (i) at
June 30, 1997 and (ii) as adjusted to give effect to the sale of the Common
Stock offered hereby and the application of the estimated net proceeds
therefrom, assuming an initial offering price of $5.00 per share, the midpoint
of the range. See "Use of Proceeds."
<TABLE>
<CAPTION>
As of June 30, 1997
-----------------------------
Debt: ACTUAL AS ADJUSTED
------------ --------------
<S> <C> <C>
Current liabilities.............................$1,761,564 $ 543,737
Long-term debt.................................. 970,167 970,167
Total liabilities............................ 2,731,731 1,513,904
</TABLE>
<TABLE>
<CAPTION>
STOCKHOLDERS' EQUITY:
<S> <C> <C>
Preferred Stock, no par value, 100,000,000
shares authorized; none issued or
outstanding.................................. -- --
Common Stock, no par value, 100,000,000 shares
authorized; 1,800,000 shares issued and
outstanding, actual; 3,000,000 shares issued
and outstanding, as adjusted................ -- --
Additional paid-in capital..................... 100 4,914,600
Accumulated deficit............................ (1,355,052) (1,355,052)
----------- ------------
Total stockholders' equity (deficit)........ (1,354,952) 3,559,548
----------- ------------
TOTAL CAPITALIZATION..................... $1,376,779 $5,073,452
========== ===========
</TABLE>
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<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THE DISCUSSION AND ANALYSIS BELOW SHOULD BE READ IN CONJUNCTION WITH THE
FINANCIAL STATEMENTS OF THE COMPANY AND THE NOTES TO FINANCIAL STATEMENTS
INCLUDED ELSEWHERE IN THIS PROSPECTUS.
OVERVIEW
DDS was formed in May 1996 as a wholly owned subsidiary of THE and began
operations in July 1996. DSS was capitalized with $100 and its parent, THE,
received 100 shares of Common Stock. THE provided working capital to DSS during
its start-up phase. Upon formation, DSS agreed to take responsibility for
deferred salaries and bonuses for certain executives of THE for the period
January 1, 1996 through June 30, 1996.
In July 1996, THE exchanged all of the stock of its wholly owned subsidiary
RPM for 2,277,678 shares of DSS. RPM was formed in March 1989 to manage
government subsidized multi-family and elderly residential rental apartments.
From 1993 through 1995, RPM was inactive. Effective January 1, 1996, RPM
purchased certain assets including management contract rights from an affiliate
and resumed its business of managing apartments. Since July 1, 1996, the
financial statements of DSS are consolidated statements of DSS and RPM.
Effective June 30, 1997, THE returned 477,778 shares of Common Stock to DSS
which DSS retired leaving 1,800,000 shares of Common Stock issued and
outstanding.
The Company anticipates a moderate growth in the number of apartment units
managed and also expects that income will increase due to inflationary effects
on rents. All personnel located at the apartments who manage the apartments and
perform maintenance are employees of the Company. However, the apartments
reimburse the Company for the services of the on site personnel. The Company
anticipates a moderate growth in reimbursement income as a result of increases
in salaries of on site personnel and an increase in the number of apartment
complexes under management.
The Company began offering home care services in August 1996 at selected
apartment locations. Management anticipates that growth in home care service
income will continue at a moderate, controlled pace as it begins to offer these
services to elderly residents in other apartments that it manages. However,
management does not expect the income from these services to be material with
respect to the total income of the Company over the next several years.
Because the Company has not yet completed development of any assisted
living residences, it has not recognized any development fee income or
management fee income from its assisted living development activities. The
policy of the Company is to recognize development fee income when the
construction of the facility is completed and a certificate of occupancy is
issued. The Company expects to earn a fee of approximately $225,000 per
facility. Three sites have been optioned and determined to be feasible;
construction is expected to start at all three in 1997. Eight more sites have
been located and are in the feasibility study process. The construction process
is estimated to be nine to twelve months. Once construction on an assisted
living residence is completed, the Company will begin to recognize management
fee income for those properties. Management believes that in the near future the
development and management of assisted living facilities will provide the vast
majority of the Company's revenues and profits.
All the operating expenses of the Company are related to the personnel
directly performing the management services and the corporate management staff.
Between 85% and 90% of the expenses are for salaries and benefits. The remaining
expenses are administrative expenses that support the activities of the
personnel such as travel, rent, telephone and office expenses. Since the
Company's inception, the operating staff increases have been due primarily to
the entrance of the Company into the home care business. However, the corporate
staff has grown over that same period of time because of the need to have
adequate personnel in place to develop the assisted living residences.
Management expects that expenses associated with operating personnel will
continue to increase significantly as the Company expands, but management does
not expect to increase the number of corporate staff significantly during the
next several years.
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<PAGE>
DSS and RPM are both incorporated in North Carolina and, as C corporations,
file their federal income tax returns as part of a consolidated group with THE.
A provision for income tax benefit has been recorded in 1996 since the losses of
DSS and RPM can be applied to income in the consolidated group. No such
provision has been recorded in 1997 since there may not be adequate income
within the consolidated group to utilize losses from DSS and RPM. Upon the
completion of this Offering, DSS and RPM will cease filing tax returns as part
of the THE consolidated group and will file their own consolidated federal
return. DSS and RPM file separate state returns since North Carolina income tax
regulations do not permit filing consolidated returns.
The Company owns office furniture and computer equipment that is being
depreciated, but most of its depreciation and amortization expense is the
amortization of the management contract rights. The management contract rights
were purchased by RPM from an affiliate on January 1, 1996 and September 1,
1996. Most of these contracts are being amortized over a three-year period. The
Company expects to extend the contracts at the end of the three years at no
additional cost to the Company.
RESULTS OF OPERATIONS
To provide a meaningful comparison in the discussion below, pro forma
financial information for the six months ended June 30, 1996 is presented as if
DSS had been incorporated and had acquired RPM on January 1, 1996. The pro forma
operating statement is presented in Note 3 to the Company's financial statements
for the six months ended June 30, 1997.
SIX MONTHS ENDED JUNE 30, 1997 COMPARED TO SIX MONTHS ENDED JUNE 30, 1996
Total income increased $100,497, or 9.3% to $1,180,456 for the six months
ended June 30, 1997 from $1,079,959 in the six moths ended June 30, 1996. During
the same period, the Company's total expenses increased $214,829 , or 13.2%, to
$1,842,524 from $1,627,695. As a result, the Company's net loss before income
tax benefit increased $114,332, or 20.9%, to $662,068 for the six months ended
June 30, 1997 from $547,736 for the six months ended June 30, 1996.
INCOME
Total income increased $100,497, or 9.3%, to $1,180,456 for the six months
ended June 30, 1997 from $1,079,959 in the six months ended June 30, 1996. The
increase in revenues was primarily due to increases in management fees and home
care revenues.
MANAGEMENT FEES. Management fees increased $42,670, or 10.8%, to $437,416 for
the six months ended June 30, 1997 from $394,746 for the six months ended June
30, 1996. This increase was the result of managing more units and increased rent
collected at the apartments.
HOME CARE INCOME. Home care operations began in August 1996. Revenues for the
first six months of 1997 were $66,163.
REIMBURSEMENT INCOME. Reimbursement income decreased $8,336, or 1.2%, to
$676,877 for the six months ended June 30, 1997 from $685,213 for the six months
ended June 30, 1996. This decrease was primarily the result of reduced number of
personnel employed at the apartment sites.
EXPENSES
Total expenses increased $214,829, or 13.2%, to $1,842,524 for the six
months ended June 30, 1997 from $1,627,695 for the six months ended June 30,
1996. The increase in expenses was primarily the result of increased personnel
expense and related administrative and other expense.
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<PAGE>
PERSONNEL EXPENSE. Personnel expense increased $117,773, or 9.0%, to $1,424,493
for the six months ended June 30, 1997 from $1,306,720 for the six months ended
June 30, 1996. The increase in personnel expense was primarily due to increased
staffing in the Company's home care business.
ADMINISTRATION AND OTHER EXPENSES. Administrative and other expenses which
consist primarily of office and administrative, rent, insurance and travel
expenses increased $38,474, or 32.9%, to $155,240 for the six months ended June
30, 1997 from $116,766 for the six months ended June 30, 1996. The increase in
administrative expense was primarily due to an increase in personnel.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization decreased $3,567,
or 1.6%, to $215,857 for the six months ended June 30, 1997 from $219,424 for
the six months ended June 30, 1996. The decrease in depreciation and
amortization was attributable to the completion of depreciation of certain
equipment.
INTEREST EXPENSE. Interest expense increased $46,194, or 1.6%, to $46,934 for
the six months ended June 30, 1997 from $740 for the six months ended June 30,
1996. The increase in interest expense was attributable to increased bank
borrowings which were used to cover the Company's operating deficit and start-up
expenses.
YEAR ENDED DECEMBER 31, 1996 COMPARED TO THE YEAR ENDED DECEMBER
31, 1995
With respect to fiscal year 1996 compared to fiscal year 1995, there are no
meaningful comparisons since DSS did not exist in 1995 and RPM had no operations
as an apartment manager during 1995. RPM's only income and expenses in 1995
resulted from its investments in securities, sales of securities and interest
expense on a note payable. The operating statement discussed below is the pro
forma operating statement for the year ended December 31, 1996 as if DSS had
been incorporated and had acquired RPM on January 1. 1996. The pro forma
operating statement is presented in Note 10 to the DSS financial statements for
the period ended December 31, 1996.
Total income was $2,335,229 for the year ended December 31, 1996. During
the same period, the Company's total expenses were $3,566,283. As a result, the
Company's net loss before the provision for income tax benefit was $1,231,054.
The provision for income tax benefit was $349,800, resulting in a net loss of
$881,254.
Income was made up of management fees of $833,426, home care income of
$18,797 and reimbursement income of $1,467,051 and other income of $15,955.
Expenses included personnel expense of $2,702,843, administrative and other
expenses of $307,676 and depreciation and amortization expense of $555,764.
FINANCIAL CONDITION
JUNE 30, 1997 COMPARED TO DECEMBER 31, 1996
The Company had current assets of $163,396 on June 30, 1997 and $217,825 on
December 31, 1996. The primary asset in current assets is accounts receivable.
The Company had accounts receivable of $100,371 on June 30, 1997 and $133,649 on
December 31, 1996. The receivables decreased due to the collection of a single
receivable of approximately $35,000. The Company expects receivables to increase
as the Company increases management of apartment units and assisted living
residences.
Furniture and equipment decreased to $69,887 at June 30, 1997 from $88,451
at December 31, 1996 due to depreciation expense. Intangible assets decreased to
$735,778 at June 30, 1997 from $918,071 at December 31, 1996 due to amortization
expense.
Development costs increased to $154,102 at June 30, 1997 from $132,350 at
December 31, 1996 due to continuing development activities with respect to
assisted living residences. Development costs will either be recouped with the
successful completion of a facility or written off if a site is determined not
to be feasible.
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Accounts receivable-affiliates, primarily fees receivable from affiliated
partnerships, did not change from $253,616.
Total liabilities increased $428,534 to $2,731,731 at June 30, 1997 from
$2,303,197 at December 31, 1996 primarily due to increases in the deferred
salaries and bonuses of $210,144 and the note payable-bank of $286,205.
Accounts payable and accrued expenses decreased by $18,367 from $122,009 at
December 31, 1996 to $103,642 at June 30, 1997 and payables to THE and other
affiliates decreased $54,347 from $814,691 at December 31, 1996 to $760,344 at
June 30, 1997. There was a slight increase in interest payable of $4,899 from
$6,587 at December 31, 1996 to $11,486 at June 30, 1997.
Shareholder's deficit increased from $692,884 at December 31, 1996 to
$1,354,952 by the loss for six months ended June 30, 1997.
LIQUIDITY AND CAPITAL RESOURCES
The Company has operated, and expects to continue to operate, on a negative
cash flow basis due to start- up expenses and length of the development cycle.
Currently, the Company's primary cash requirements include covering operating
deficits and development expenses related to the development, construction and
fill-up of assisted living residences. The Company has relied upon its parent,
THE, and its bank lender to provide it with operating cash.
The Company has a bank credit line to support its daily operating
requirements and initial assisted living developments. It is a $1.5 million
credit line with a variable interest rate, based on the prime rate, renewable in
January 1998. This line of credit is fully secured by securities owned by an
affiliate.
The net proceeds of the Offering will be used to pay off the outstanding
balance under the bank line of credit, provide $3 million in development working
capital for the assisted living projects and for general corporate purposes. The
Company anticipates that the net proceeds from the Offering, together with the
funds available under its credit facility will be sufficient to fund its
operations for the next twelve months, if the Company's future operations are
consistent with management's expectations. The Company may need additional
financing thereafter. There can be no assurance that the Company will be able to
obtain financing on a favorable or timely basis. The type, timing and terms of
financing selected by the Company will depend on its cash needs, the
availability of other financing sources and the prevailing conditions in the
financial markets.
THE advanced funds to cover operating deficits for DSS and RPM in 1995 and
1996. In 1996, THE helped DSS secure a bank loan by providing collateral and
guaranteeing the loan. After the equity offering is completed and the bank loan
is repaid, THE will not offer either its collateral or its guarantee to DSS in
future bank financings.
INFLATION AND INTEREST RATES
Inflation has minimal impact on the daily operations of the Company.
Increases in salaries and administrative expenses are offset by increases in
management fees that are computed as a percentage of rent and resident service
fees. Increases in resident service fees may lag behind inflation since the
amount of the fee is based on a cost reimbursement by public sources. Except for
the lag time, however, the Company expects the reimbursement to keep pace with
inflation.
The primary concern regarding inflation is in interest rate fluctuations.
High interest rates would increase the cost of building new facilities and could
slow down the Company's development plans. Also, during a period of rapid
inflation, interest rates could become so expensive that it would not be
economical to use tax exempt bond financing for permanent financing.
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CERTAIN ACCOUNTING CONSIDERATIONS
SFAS NO. 123
In October 1995, FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation" ("SFAS No. 123"). SFAS No. 123 establishes financial accounting
and reporting standards for stock-based employee compensation plans. Those plans
include all arrangements by which employees receive shares of stock or other
equity instruments of the employer or the employer incurs liabilities to
employees in amounts based on the price of the employer's stock. Examples are
stock purchase plans, stock options, restricted stock awards, and stock
appreciation rights. This statement also applies to transactions in which an
entity issues its equity instruments to acquire goods or services from
non-employees. Those transactions must be accounted for, or at least disclosed
in the case of stock options, based on the fair value of the consideration
received or the fair value of the equity instruments issued, whichever is more
reliably measurable. The accounting requirements of SFAS No. 123 are effective
for financial statements for fiscal years beginning after December 15, 1995, or
for an earlier fiscal year for which SFAS No. 123 is initially adopted for
recognizing compensation cost. The statement permits a company to choose either
a new fair value-based method or the current APB Opinion No. 25 intrinsic
value-based method of accounting for its stock-based compensation arrangements.
The Company adopted its Stock Incentive Plan (as defined herein) effective
January 1, 1997 but no grants have been made through the date hereof.
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BUSINESS
GENERAL
The Company was founded in May 1996 to develop and manage assisted living
residences, to provide home care services to the frail elderly and to manage low
and moderate income apartment complexes. Management believes that there is a
growing demand for assisted living residences developed for the low and moderate
income frail elderly, specifically in the Company's targeted areas of smaller
cities and towns of North Carolina and throughout the Southeast. Although the
Company has been operating for less than two years, through affiliates of the
Company, senior management has over 20 years of experience in developing and
operating housing specifically designed for this target population with a
concentration in Eastern North Carolina. The Company's two-year growth objective
is to develop at least 16 new assisted living residences, with a capacity of
approximately 960 residents. The Company is in the early stages of its assisted
living development program, with eleven sites optioned to date and three
feasibility studies completed. The Company intends for the majority of the
projects it develops to be owned by or sold to qualified non-profit
organizations, with the Company retaining management contracts for these
projects. By transferring ownership of the properties to non-profit
organizations, the Company expects to be able to utilize tax-exempt bonds to
finance the majority of its facilities, while at the same time carrying little
real estate on its balance sheet. With respect to the Company's current cash
generating operations, as of the date of this Prospectus, the Company manages 62
apartment complexes, consisting of approximately 2,393 rental units of low and
moderate income rent subsidized apartments, 31% of which are owned by non-profit
organizations and 56% of which are occupied by the elderly. The Company also
currently provides approximately 1,400 hours of home care services per month.
The Company was formed in May 1996 as a wholly owned subsidiary of THE and
began operations in July 1996. THE is a privately-held corporation controlled by
the Company's senior management. DSS was initially capitalized with $100 and its
parent, THE, received 100 shares of Common Stock. In July 1996, THE exchanged
all of the stock of its wholly owned subsidiary RPM for 2,277,678 shares of DSS.
Effective June 30, 1997, THE returned 477,778 shares of Common Stock to DSS
which DSS retired leaving 1,800,000 shares of Common Stock issued and
outstanding. RPM, now a wholly-owned subsidiary of the Company, manages 2,393
rental housing units located across four states: North Carolina, South Carolina,
West Virginia and Pennsylvania. The Company's management contracts have initial
terms of one to three years, with varying renewal provisions. Of the 62
complexes managed by RPM, 37, or 60%, are controlled by affiliates and 25, or
40%, are controlled by third parties. Currently, apartment management provides
the majority of the Company's revenues.
The Company's home care activities are limited to providing personal care
services to the same population targeted for its assisted living residences. The
Company does not provide medical services and, as such, is not subject to the
regulatory burdens of that market, nor the attendant legal liabilities. The
Company utilizes its home care business for two primary purposes: (i) to provide
services to residents of its existing subsidized senior apartments; and (ii) to
establish operating procedures for delivery of personal care services at its
future assisted living residences.
BUSINESS STRATEGY
The Company's growth is expected to come primarily from developing and
managing assisted living residences. The Company expects its future assisted
living residences to serve as the foundation from which to provide a continuum
of care for low to moderate income senior citizens. The Company has already
developed and implemented its policies, procedures and operating systems for
providing personal care services and has hired its core staff for the personal
care division. Assisted living management is the combination of providing
personal care and real estate management services, both businesses in which the
Company is already involved and in which the Company's senior management has
extensive experience. The Company has developed a 60-unit assisted living
prototype for development primarily in small to mid-sized communities with
populations of under 75,000, whose target resident will be a low to moderate
income frail, elderly individual. In addition, the Company will continually
review apartment management opportunities and may add to its management
portfolio.
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Once the Company's assisted living residences have been developed, DSS will
be able to offer low and moderate income elderly individuals a continuum of
living arrangements spanning the course of many years: apartments managed
specifically for the needs of the elderly; home care services provided in such
apartment facilities if, and when, such individual may come to require such
assistance; and, finally, assisted living residences for that time when a
greater level of support may become necessary.
The Company expects to achieve its business objectives by implementing the
following strategies:
SELECTIVELY LOCATING ASSISTED LIVING RESIDENCES. During its initial phase
of development, the Company will locate some of its assisted living facilities
within close proximity to one of the Company's managed apartment complexes. Such
locations offer immediate benefits to the Company. Since over 56% of the
Company's apartments are occupied by low and moderate income elderly tenants,
when an elderly tenant needs to move into an assisted living residence, the
Company will be well positioned to be the provider of choice. In addition, since
over 31% of the Company's apartment complexes are owned by non-profit
organizations, the Company already has numerous relationships with regional
non-profit organizations, many of which are expected to become the ultimate
owners of the assisted living facilities. Lastly, the Company expects to be able
to utilize certain staff positions in both apartment complexes and assisted
living facilities, namely maintenance staff and certain providers of personal
care, thus help to control costs at both locations.
DEVELOPING ASSISTED LIVING FACILITIES SPECIFICALLY DESIGNED FOR LOW AND
MODERATE INCOME RESIDENTS. Each assisted living residence developed by the
Company will be designed, constructed and managed so as to be profitable with
only public pay residents, even while providing features typically found in
residences designed for the private pay population, such as private bedrooms,
personal lavatories and many diverse common areas located in various areas of
the residence. As such, for each private pay resident, for whom monthly fees are
typically $150 to $300 per month higher, the Company expects to generate
significantly greater profits. Most moderate income resident will typically
begin their residence as private pay individuals and will convert to public pay
only when such individual's personal resources are exhausted. Since the
Company's cost structure for its assisted living residences has been designed
based on complete occupancy by public pay residents, even when these changes
occur the Company expects profitability at any given location to be maintained.
In addition, because many assisted living residences only accept residents who
have resources to cover a minimum time period, typically 18 months or longer,
the Company anticipates that demand for the Company's residences will be high
among the moderate income frail elderly who may not have the resources to cover
such an extended period of time.
ACCESSING FAVORABLE FINANCING. Because of management's extensive experience
working with non-profit organizations, particularly 501(c)(3)s, the Company
intends to use tax-exempt bonds to finance the majority of its assisted living
residences. This low-cost financing vehicle provides the Company with a
competitive cost advantage. The Company also receives the added benefit of not
carrying significant amounts of real estate on its balance sheet, thus freeing
up capital for new developments. In addition, future earnings will not be
charged with the associated depreciation and amortization.
TRANSFERRING EXPERIENCE TO ASSISTED LIVING RESIDENCES. Assisted living is
the combination of providing senior housing with the provision of home care
services. The Company and its affiliates have extensive experience in developing
housing for low and moderate income seniors and disabled persons. Several of the
Company- managed apartment complexes currently provide regular activities,
communal meals, laundry facilities, and other amenities frequently associated
with assisted living. In addition, the Company currently provides home care
services to low and moderate income frail elderly. The home care services
provided by the Company include assistance with dressing, personal hygiene,
medication management, preparation of simple meals, assistance with mobility,
dental, hair and skin care and maintenance of a safe environment. These services
are identical to those required to be provided in an assisted living residences.
The Company's staff is experienced in providing and documenting these services,
assessing and developing individual care plans, maintaining client records,
regulatory compliance, quality assurance and Medicaid billing. Thus, the Company
believes it already possesses the personnel skills and management systems
required in providing assisted living.
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JOINT VENTURES AND CONVERSIONS. Management anticipates growth opportunities
in addition to those provided by its own independent development activities. The
Company is developing alliances with local government agencies such as public
housing authorities dedicated to providing housing and services to the low
income elderly and disabled. The Company intends to explore joint ventures with
local agencies which provide assisted living to its targeted population. These
activities may include newly developed facilities as well as the conversion of
sections of existing subsidized senior housing to assisted living residences.
The Company is in the preliminary stages of developing newly constructed
assisted living with the housing authority of one North Carolina community and
exploring the conversion to assisted living of two residential floors in two
existing subsidized senior housing complexes. Management sees these joint
venture and conversion opportunities as a method of providing assisted living in
larger communities, as well as in the small to medium sized communities
currently targeted by the Company.
ORGANIZATION
The Company is organized into three divisions: (i) developing assisted
living facilities; (ii) managing assisted living facilities targeted to the low
and moderate income frail elderly residents and (iii) managing low and moderate
income, rent subsidized apartments, primarily for the elderly.
DEVELOPMENT DIVISION
The Company has designed a 60-unit prototype assisted living residence for
development primarily in communities with a population under 75,000. The target
resident is a low-to-moderate income, frail elderly individual with moderate
income equaling the area median income, and low income beginning at
approximately 50% of median income. Based on its own industry surveys, the
Company believes that there are currently few competitors who have targeted the
Company's demographic and regional market: the low-to-moderate income frail
elderly population of the Southeast, especially in rural areas. The Company will
target specific geographic areas where the only existing competition is old
style rest homes, home care and nursing homes.
The Company breaks down development of assisted living facilities into
three major phases as follows: (a) development consisting of town and site
selection, marketing and environmental studies, acquiring local permits,
obtaining financing and construction contracts (4 to 6 months); (b) construction
(9 to 12 months); and (c) fill-up (3 to 9 months). Once a project is completed,
obtaining and qualifying residents is generally not a problem because of the
existing demand for assisted living facilities. The Company intends to utilize
both corporate and on-site marketing teams and anticipates a period of 3 to 9
months to fill-up a location. Management anticipates some private pay residents,
but intends to develop properties that can be profitable with only public pay
residents.
The Company's current plan anticipates that most facilities it develops
will be owned by qualified non- profit 501(c)(3)s. In management's opinion,
non-profit ownership offers the best overall financing available for these
facilities, while at the same time allowing the Company to keep its balance
sheet relatively free of real estate. The Company may own or lease some of the
properties to be developed, depending upon financing, investment and marketing
considerations. The Company anticipates construction and permanent funding for
the facilities would be tax-exempt bond financing, Federal Housing
Administration financing or a sale/lease back with a health care REIT or other
real estate holding entity. The Company expects to combine 3 to 5 properties in
a package for non-profit owners since bond financing is more efficient with loan
amounts of $7.5 million and above. Therefore, the Company may own and operate
completed properties until enough can be packaged together for financing.
The Company currently has 11 sites under option in the State of North
Carolina. Sites located in the three North Carolina communities of Rocky Mount,
Goldsboro and Southern Pines have received favorable feasibility analysis and
have been selected for the first round of development. The Company is in the
process of obtaining feasibility analyses on the remaining eight controlled
sites. The Company intends to maintain a geographic focus in North Carolina
developing approximately 3 to 5 facilities at a time. In the future, the Company
will advance into surrounding states, maintaining the same focus on small to
mid-sized communities with a relatively large low and moderate income elderly
population with an emphasis on developing newly constructed assisted living
facilities. Initially, the Company anticipates developing 8 projects, in groups
of four, per year but intends to increase the number to 12 to 14 per year. The
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Company believes the increased pace of development can be achieved with current
staffing levels. More importantly, management believe that such a heightened
development pace will bring greater economies of scale to project financings and
that demand for assisted living units among the low and moderate income
population in the medium sized markets that the Company is targeting will
sustain that pace. Development will be slightly staggered so that the Company
will not be taking delivery of all projects in the same month, but financing
will typically be arranged in packages of three to five properties. Turnkey
costs, including all development fees to the Company, for the 60-unit prototype
are estimated to average $2,581,000 for the first 8 projects. In the initial
phases of development, the Company intends to locate some facilities near its
existing subsidized elderly apartments. Such location creates many
cross-marketing opportunities for the Company. However, management believes that
its prototype assisted living residences can be successfully developed
independently.
The Company will enter into management contracts with non-profit owners
that provide for the development of newly constructed assisted living
residences. Once a potential site is located, feasibility and due diligence is
completed, the prospective non-profit owner will make a final commitment to the
site, subject to financing. In general, tax-exempt bond financing proceeds will
be used for both construction and permanent financing. In this situation, the
Company will assign its option to acquire a site to the non-profit for exercise,
and title in the property will go directly to the non-profit owner. The Company
will be entitled to a base development fee equal to 10% of total development
costs, less the development fee. The Company may receive an additional 5%
development fee for a total maximum fee of 15% of development costs, based on
achieving certain performance goals and cost efficiencies.
With respect to all of the current assisted living projects in development,
management has completed all of the internal analysis necessary to bring each to
what is commonly called the mortgage package phase. For each project planned for
the initial stage of development, the Company has some form of site control
(actual ownership or an option to purchase), a schematic architectural plan and
an estimate from a proposed contractor, and the Company's own market study. With
respect to three of the sites, the Company has received a favorable feasibility
analysis from an independent market feasibility company and is in the process of
obtaining feasibility analyses on the remaining eight sites. In addition, if
required by the lender, the Company will also engage a third party appraiser.
The Company's approach to individual markets for potential development is
centered on senior management's long-term experience with mid-size and rural
markets. Consequently, senior managers of the Company perform the thorough
internal market analysis at the beginning of the site acquisition process. This
internal work is then carefully reassessed by a third party market study just
prior to entering into a formal commitment to the development, which typically
takes place when the site is acquired and construction commences. Management
believes that this approach provides the safest way to ensure a feasible
development in a timely and cost efficient manner.
Prior to the Company's final commitment to proceed with a site, the project
will typically have a designated non-profit owner committed to purchase the
facility when the necessary financing to fund the purchase is in place. The
purchase price will be the sum of the net proceeds of the financing DSS
arranges. The Company currently has relationships with several qualified
non-profits and intends to develop new ones with area hospitals as the Company
continues to grow. In all cases, the Company will have an option to purchase and
other safeguards to protect its long term interest in the properties.
As an alternative, the Company may consider more conventional
sale/leaseback arrangements with for- profit organizations. However, at this
time, management believes that for-profit organizations cannot compete with
financing alternatives available to non-profits. Management also believes that
developing assisted living residences for the low and moderate income frail
elderly for non-profits, as opposed to for-profit organization, will be better
received by localities.
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With respect to architectural plans, specifications and construction
contracts, the Company intends to negotiate guaranteed not-to-exceed contracts
and not to put the work out for bid. The architect currently retained by the
Company has extensive elderly housing and healthcare experience.
Developments will be staged to begin as previous developments reach
stabilized operations to maintain a pipeline of proposed projects with all
preliminary internal work done and land under option. The Company intends that a
few excess projects will always be in the pipeline because some proposed
projects will not prove feasible after final analysis.
In addition to the foregoing development activities in which the Company
will develop newly constructed assisted living residences for management by the
Company in communities of 75,000 or less, the Company intends to participate in
development activities as a joint venturer with local government agencies and
non-profit organizations dedicated to providing housing and services to the low
income elderly. As part of these activities, the Company may perform development
activities for the construction or rehabilitation of a facility on a fee basis
with the Company having no further participation in the operation of the
facility upon completion of construction. Likewise, the Company may enter into
agreements to manage an existing property on behalf of a government agency or
non-profit owner.
The Company currently manages several subsidized apartment complexes for
low and moderate income elderly individuals, which meet many of the physical
requirements of a licensed assisted living facility. That is, the facilities
have wide hallways, communal dining rooms, kitchens, laundry facilities,
activity rooms and other common areas available for use by residents. The
Company is currently working closely with its architect and the North Carolina
Division of Facility Services regarding the potential conversion of two floors
of existing apartment complexes to licensed assisted living residences.
Management believes that joint ventures and conversion opportunities provide an
attractive means of establishing a presence in larger communities with
populations in excess of 75,000, as well as in small to medium sized
communities.
ASSISTED LIVING MANAGEMENT DIVISION
All developed assisted living residences will be managed either on a
management contract, cancelable only under very specific conditions or pursuant
to a lease between the owner and a single purpose wholly-owned subsidiary of the
Company formed specifically for the project. The term of the management contract
or lease will be for a minimum of three years, rolling forward each year unless
notice of termination is given. In addition, the Company will have an option to
purchase any project and will receive a fee if the management agreement is
terminated without cause.
Management views assisted living operations as a combination of home care
services and real estate management services, both current operations of the
Company. Thus, this division will combine these two skills in buildings that the
Company will have developed and financed specifically for the low and moderate
income, public pay frail elderly market.
The assisted living operations division will begin full operation when the
first Company-developed assisted living residences come on line. However, with
respect to the home care component of assisted living, the Company has already
instituted a successful pilot program in which the Company is providing home
care services to low and moderate income frail elderly residents at some of the
apartment complexes that it manages as well as in private homes. These home care
services are funded by state Medicaid programs as well as private payors. The
home care services provided by the Company include assistance with dressing,
personal hygiene, medication management, preparation of simple meals, assistance
with mobility, dental, hair and skin care and maintenance of a safe environment.
The Company also has staff experienced in providing and documenting these
services, assessing and developing individual care plans, maintaining client
records, regulatory compliance, quality assurance and Medicaid billing. These
services are identical to those which the Company will be providing at its
assisted living residences. Through this pilot program the Company has
established the operating procedures which will be utilized in delivering home
care services at its assisted living residences. The Company has focused its
activities on having an exemplary operation with respect to client care,
documentation, policies and procedures and quality assurance. The Company had
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its first on-site survey of its home care operations by the State of North
Carolina on May 16, 1997. The survey resulted in a deficiency-free finding by
the State. The State specifically complimented the Company's self-audit and
compliance procedures.
Until DSS reaches a certain level of assisted living units under
management, currently estimated to be approximately eight properties, this
division will, in part, be operated with personnel already providing home care
and apartment management services. There will, therefore, be some significant
operating savings to the Company as a whole. For example, with respect to real
estate management, the Company anticipates being able to share maintenance
personnel between assisted living residences and nearby apartment complexes that
the Company manages. The same overlap feature will apply to certified nurse's
aides and choreworkers who currently perform their duties in individual homes or
apartments and who can provide those same services in the assisted living
residences. However, key on-site personnel, such as the facility administrator,
will not be shared or assigned duties outside their respective property. Sharing
will take place at the service provider level only on an as-available basis.
Although the primary conduit for the Company's home care services in the
future will be its assisted living residences, the Company intends to continue
providing these services to individuals in apartments and private homes.
APARTMENT MANAGEMENT DIVISION
Affiliates of the Company have been in the business of developing and
managing senior housing for more than 20 years. Of the 62 complexes currently
managed by the Company, the Company controls 37, representing 1,351 units,
either through the direct ownership of management rights or through ownership by
an affiliated entity. The remaining 40 complexes, representing 1,443 units are
owned by third parties. Approximately 31% of the complexes are owned by
non-profit organizations.
The Company manages apartments in North Carolina, South Carolina,
Pennsylvania and West Virginia. Generally the managed properties receive
government subsidies through favorable financing and/or direct rent
contributions under programs administered by Housing and Urban Development
("HUD") or Rural Development ("RD," formerly the Farmer's Home Administration).
Approximately 39% of the units under management are eligible for rent subsidies
under Housing Assistance Payment ("HAP") contracts. The treatment of HAP
contracts upon expiration is under review by the United States Congress. No
current HAP affecting the Company's managed properties is up for renewal until
1999. The effect of the expiration of an individual property's HAP without
renewal varies and depends on the HUD determined fair market rent for the
specific market area.
Management fees for government assisted housing are frequently higher than
fees for management of conventional apartments because of the added layers of
paperwork required to comply with government programs. The Company typically
receives a percentage of rent revenues ranging from 6% to 8% or a flat monthly
fee for occupied units. In addition, the Company receives a stated monthly
bookkeeping fee for all HUD properties it manages. The management agreements are
approved by the applicable government agency and are relatively standardized.
The initial term of a HUD management contract is two years with one-year
renewals thereafter. A typical RD management contract has a three-year term and
must be executed every three years. The Company's apartment management contracts
have initial terms of one to three years, with varying renewal provisions; the
Company's history of contract renewal has been excellent.
As discussed above, management anticipates modest savings in operating
costs for both the properties managed in the apartment management division and
those in the assisted living management division. Because many of the initial
assisted living residences will be in close proximity to existing apartment
complexes managed by the Company, management believes that through the sharing
of certain personnel, mostly maintenance and property staff, operating costs in
both divisions will be lowered. An additional, very important benefit from the
Company's experience managing low and moderate income elderly properties is that
it gives management excellent operating histories to use as comparisons for the
assisted living residences. However, perhaps most important for cross- marketing
purposes, through its apartment management division the Company has established
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relationships with over a 1,000 low and moderate income elderly tenants. These
relationships give the Company a unique platform from which to develop its home
care and assisted living operations.
ASSISTED LIVING INDUSTRY
The Company believes that the assisted living industry is evolving as the
preferred alternative to meet the growing demands for a cost effective setting
for seniors who cannot live independently due to physical or cognitive frailties
but who do not require the more intensive medical attention provided by a
skilled nursing facility.
Generally, assisted living represents a combination of housing and 24-hour
per day personal support services designed to assist seniors with the activities
of daily living ("ADLs"), which include bathing, eating, personal hygiene,
grooming, ambulating and dressing. Certain assisted living facilities may offer
higher levels of personal assistance for residents with Alzheimer's disease or
other forms of dementia.
Assisted living facilities in North Carolina generally fall into three
types: downscale, dormitory and institutional style rest homes with shared
bathrooms; newly constructed, high fee, upscale, residential style facilities;
and traditional nursing homes with assisted living beds. The Company's prototype
residence is distinguishable from the traditional rest home or downscale
dormitory style in several respects. The Company's residences are residential in
style, provide suites with a private bath and two bedrooms, each with separate
entrance and temperature control, and provide spacious common areas that are
comparable to those in the upscale model. The Company's prototype follows the
high fee, upscale residential style in all aspects other than price.
The Company believes that a number of factors will allow assisted living
companies to continue as one of the fastest growing segments of senior care:
SUPPLY/DEMAND IMBALANCE. While the senior population is growing
significantly, the supply of skilled nursing beds per thousand is declining.
This imbalance may be attributed to a number of factors in addition to the aging
of the population. Many states, in an effort to maintain controls of Medicaid
expenditures on long-term care, have implemented more restrictive certificate of
need regulations or similar legislation that restricts the supply of licensed
skilled nursing facility beds. Additionally, acuity-based reimbursement systems
have encouraged skilled nursing facilities to focus on higher acuity patients.
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 skilled nursing beds. These
factors, taken in combination, result in relatively fewer skilled nursing beds
available for the increasing number of seniors who require assistance with ADLs
but do not require 24-hour medical attention.
COST EFFECTIVENESS. The average annual cost for a patient in a skilled
nursing home can exceed $75,000 per year in certain markets. In contrast,
assisted living services are provided at a cost which is generally 30% to 50%
lower than skilled nursing facilities located in the same region.
DEMOGRAPHICS AND CHANGING FAMILY DYNAMICS. The target market for the
Company's services are persons generally 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
28.7%, from approximately 13.0 million in 1990 to approximately 16.8 million by
the year 2000, and the number of persons age 85 and older, as a segment of the
U.S. population, is expected to increase by 45%, from approximately 3.0 million
in 1990 to over 4.3 million by the year 2000. Furthermore, the number of persons
afflicted with Alzheimer's disease is also expected to grow in the coming years.
According to data published by the Alzheimer's Association, this group will grow
from the current 3.8 million people to 4.8 million, or an increase of 26.3%, by
the year 2000. As Alzheimer's disease and other forms of dementia are more
likely to occur as a person ages, the increasing life expectancy of seniors is
expected to result in a greater number of persons afflicted with Alzheimer's
disease and other forms of dementia in future years absent breakthroughs in
medical research.
CONSUMER PREFERENCE. The Company believes that assisted living is
increasingly becoming the setting preferred by prospective residents as well as
their families, who are often the decision makers for seniors. Assisted living
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is a cost effective alternative to other types of facilities, offers seniors
greater independence and allows them to age in place in a residential setting.
COMPETITION
The assisted living industry is highly competitive, fragmented,
characterized by numerous small operators but also with large, public,
well-financed competitors. The scope of assisted living services varies
substantially from one operator to another and with the requirements of one
state to another. The Company believes that residential style assisted living
offers an attractive approach to providing residential and personal care
services for the elderly, particularly in light of (i) the increased emphasis by
both federal and state governments on containing costs; (ii) limitations imposed
in many states on the construction of additional skilled nursing facilities,
which have generally increased the level of care provided in such facilities and
forced less acute elderly to seek alternative care arrangements; and (iii) the
decreasing availability of family care. The primary consumers of assisted living
residences are persons over the age of 65.
The competition in managing subsidized housing for the elderly is
substantial with competition from numerous local, regional and national
companies, many of whom have greater financial resources than those of the
Company. There is increasing demand for such facilities due to the increasing
population of elderly in the United States but growth in this industry is
dependent upon the availability of government financing and subsidies which are
currently being restricted and undergoing reassessment and change. Many of the
current managers of such facilities are companies affiliated with the original
developers in the Company's geographic region. The Company does not anticipate
substantial near-term growth in this segment of its business and is not
dependent on such growth for future profitability. Management of the Company has
over twenty years experience in subsidized housing and extensive experience
interacting with governmental agencies, so the Company should be positioned to
take advantage of this business if and when conditions change.
REGULATORY MATTERS
The assisted living operations of the Company are subject to substantial
regulation by federal, state and local governmental agencies which vary among
the types of facilities and from state to state. Assisted living facilities are
generally subject to less regulation than other licensed health care providers
but more regulation than standard congregate care or independent living
facilities. However, the Company anticipates that additional regulations and
licensing requirements will likely be imposed by the states and the federal
government. Currently, North Carolina requires licenses to provide the assisted
living services provided by the Company but not a certificate of need. The North
Carolina legislature is considering a bill that imposes a 12 month moratorium on
assisted living licensure. As currently drafted, the bill provides several
exclusions that would exempt the Company's proposed activities based on the
current status of development and the proposed location of the facilities. The
purpose of the moratorium is to study adult care homes in North Carolina to
determine whether the existing licensure procedures need to be modified. "Adult
care homes" now include everything from group homes to old style rest homes to
new assisted living facilities. It is anticipated that the moratorium will
result in stricter licensure procedures in North Carolina.
The licensing statutes typically establish physical plant specifications,
resident care policies and services, administration and staffing requirements,
financial requirements, emergency service procedures plus after construction
approval of the as-built building and the Company's operating policies and
procedures. The Company's facilities must also comply with the requirements of
the Americans With Disabilities Act and are subject to various local building
codes and other ordinances, including fire safety codes. The Company is a
provider of services under Medicaid programs and is subject to Medicaid
regulations designed to limit fraud and abuse, violations of which could result
in civil and criminal penalties and exclusion from participation in Medicaid
programs. The Company believes it is in substantial compliance with all
applicable regulatory requirements. No actions are pending against the Company
for non-compliance with any regulatory requirement.
The targeted residents for the Company's facilities are eligible for
several types of public funds in North Carolina. North Carolina's Division of
Special Assistance of the Department of Social Services pays a monthly maximum
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of $874 for room and board. This payment is funded from the federal Supplemental
Security Income program ("SSI") and state supplements. In addition, the state
Medicaid program provides funds for personal care services. The State and County
are each responsible for half of the Medicaid payment. The amount available
depends on the services required. Finally, an allowance of 50 cents per day is
paid by Medicaid to fund medically related resident transportation.
Subsidized apartments are also subject to substantial regulations primarily
from HUD/FHA and the Rural Development Agency, as applicable. In most states,
subsidized apartments are also subject to state and local building and fire
codes.
Providers of personal care services in North Carolina must obtain a license
from the Department of Facility Services. There are different levels of
licensure depending on the nature of the services provided. A provider must
obtain a Certificate of Need ("CON") to participate in the Medicare-funded Home
Health Program, which generally entails the provision of skilled medical
services and therapies. No CON is required to participate in the Medicaid funded
personal care service ("PCS") program which is available to the low income
elderly in their place of residence nor the Community Access Program ("CAP")
which provides extensive personal care and related services for the low income
disabled. The Company participates in both the PCS and CAP programs. The
reimbursement rate is currently $11.60 per hour. Eligible participants in the
PCS program can receive up to a maximum of 80 hours of personal care services
each month. Services include assistance with the basic ADL's including bathing,
dressing, grooming, transfers, personal hygiene, assistance with medication
monitoring, maintaining a safe and clean environment, household management and
simple meal preparation, The Company's personal care revenues for 1996 and 1997
were funded 97% and 90% respectively by the Medicaid PCS program.
FACILITIES/PROPERTIES
The Company subleases 90% of the office and administrative building located
at 915 West Fourth Street, Winston-Salem, North Carolina from THE at a monthly
rent of $2,700 plus its share of property insurance and maintenance expenses.
There is no written sub-lease and the base lease between THE and an independent
third party has a remaining term of approximately two and one-half years.
EMPLOYEES
As of August 15, 1997, the Company had 146 employees, 54 of whom are
full-time. None of the Company's employees are subject to collective bargaining
agreements and none of the employees have been on strike in the past three
years.
LEGAL PROCEEDINGS
As of the date of this Prospectus, the Company is not a party to any legal
proceedings which could have a materially negative impact on the Company.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The directors and executive officers of the Company are as follows:
William G. Benton 52 Chairman of the Board and Chief
Executive Officer
Susan L. Christiansen 44 President, Chief Operating Officer and
Director
G. L. Clark, Jr. 52 Treasurer, Chief Financial Officer and
Director
Perry C. Craven 57 Director
Walter H. Ettinger, Jr. 45 Director
Mr. William G. Benton has served as Chief Executive Officer and Chairman of
the Board of the Company since inception. Mr. Benton is a Director, President
and the controlling shareholder of THE since its incorporation in 1991, and
served as a director, an executive officer and sole shareholder of predecessor
corporations since 1983. THE, through its predecessor and subsidiary
corporations, has engaged in the commercial real estate business in the areas of
multifamily apartments, hotels, shopping centers, long-term health care
facilities and restaurants. Mr. Benton originally developed and serves as
General Partner on many of the Section 8 elderly properties which the Company
manages. From 1988 through September 1994, Mr. Benton served as CEO and director
of Health Equity Properties Incorporated ("HEP"), a New York Stock Exchange
listed real estate investment trust with over $150 million in long-term health
care assets. At the time of the merger of HEP and Omega Healthcare Investors,
Inc., Mr. Benton was the Chairman of the Board and Chief Executive Officer of
HEP. He is also a director of Tanger Factory Outlet Centers, Inc., a New York
Stock Exchange-listed REIT.
Ms. Susan L. Christiansen has served as President and Chief Operating
Officer and has been a director of the Company since inception. Ms Christiansen
is an officer, director, General Counsel and a shareholder of THE. Ms.
Christiansen served as Vice President, General Counsel and Secretary of HEP from
1990 until its merger in 1994. She has 20 years of experience in legal and
financial matters affecting senior housing-with-services. Ms. Christiansen also
has extensive experience with compliance with various government regulations and
in managerial and personnel matters. Ms. Christiansen is also a licensed real
estate broker in North Carolina.
Mr. G.L. Clark, Jr. has served as Chief Financial Officer and has been a
director of the Company since inception. Mr. Clark is a Director, Chief
Financial Officer and a shareholder of THE, and has been Chairman of the Board
of RPM since January 1, 1996. Mr. Clark served as Vice President and Chief
Financial Officer of HEP from 1988 until its merger in 1994. Mr. Clark is a
Certified Public Accountant and has been involved in financial and accounting
aspects of low and moderate income housing and long-term health care facilities
since 1983.
Ms. Perry C. Craven has been the sole shareholder and director of Perry C.
Craven Associates, Inc. since 1977, a company which specializes in elderly
housing development, non-profit development, housing training, rural housing
development and communications.
Dr. Walter H. Ettinger, Jr. has been Associate Professor of Medicine, Head
of Section of Internal Medicine and Gerontology, Department of Medicine, Bowman
Gray School of Medicine, Winston-Salem, North Carolina and Deputy Director of
the J. Paul Sticht Center on Aging, Bowman Gray/Baptist Hospital Medical Center
since 1987. From 1985 to 1987 he was Assistant Professor of Medicine, Division
of Geriatrics and Gerontology, The John Hopkins University School of Medicine,
Baltimore, Maryland, and from 1982 to 1987 was on the staff of Francis Scott Key
Medical Center, Baltimore, Maryland.
The Company's executive officers are appointed annually by, and serve at
the discretion of, the Board of Directors. All directors hold office until the
next annual meeting of the Company or until their successors have been duly
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elected or qualified. There are no family relationships among any of the
executive officers and directors of the Company.
In July 1995, Grandfather Mountain Limited Partnership, which owns a
shopping center in Boone, North Carolina, filed a Chapter 11 Reorganization
under the Federal Bankruptcy Laws because both the anchor tenant, Roses
Department Store, and the lender, Mutual Savings and Loan Association,
Morganton, North Carolina filed for Reorganization. Benton Investment Company, a
wholly-owned subsidiary of THE, is one of the two General Partners of
Grandfather Mountain Limited Partnership, Mr. Benton and Mr. Clark serve as CEO
and President of Benton Investment Company, respectively.
DIRECTOR COMPENSATION
The Company's directors receive $250 for their attendance at meetings. The
Company intends to compensate directors but has not determined the level of
compensation. In addition, the Company will reimburse directors for out-
of-pocket and travel expenses incurred for their attendance at meetings.
EXECUTIVE COMPENSATION; EMPLOYMENT AGREEMENTS
During the fiscal year ended December 31, 1996, THE, the Company's parent,
paid and/or accrued compensation to Mr. Benton, Mr. Clark and Ms. Christiansen
for pre-incorporation services rendered to the Company. The Company has agreed
to assume the liability for all accrued but unpaid compensation and to reimburse
THE for all compensation prior to the Company's date of incorporation. Ms.
Walker and Ms. Robinson were paid by the Company's wholly-owned subsidiary, RPM
for the fiscal year ended December 31, 1996.
The following table reflects all compensation earned by the named employees
of the Company for the year ended December 31, 1996.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
LONG-TERM
COMPENSATION ALL OTHER
ANNUAL COMPENSATION AWARDS COMPENSATION
------------------------------------------------------------------------------------------------
SECURITIES
OTHER ANNUAL UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY(1) BONUS COMPENSATION OPTIONS COMPENSATION
<S> <C> <C> <C> <C> <C> <C>
William G. Benton........... 1996 $189,264(2) $84,132 - - -
Chief Executive Officer
Susan L. Christiansen....... 1996 104,000 14,500 - - -
Chief Operating Officer
G.L. Clark, Jr.............. 1996 94,500 36,750 - - -
Chief Financial Officer
Deborah O. Robinson......... 1996 60,000 - - - -
Chief Accounting Officer
Sandra T. Walker............ 1996 89,615 - - - -
Executive Vice President
</TABLE>
----------------------
(1) Each of the employees in the table accrued a portion of their 1996 salary
listed above. Mr. Benton accrued $168,264 . Ms. Christiansen accrued
$29,000. Mr. Clark accrued $73,500. Ms. Robinson accrued $5,000. Ms. Walker
accrued $5,000. Under an agreement with the Company, those employees
agreeing to accrue a portion of base compensation are entitled to repayment
of the accrued compensation, plus a bonus equal to 50% of the accrued
compensation. Mr. Benton and Mr. Clark are entitled to purchase shares of
the Company's common stock with the bonus portion attributed to accrued
compensation at a purchase price of $2.50 per share. Ms. Christiansen is
entitled to purchase shares of the Company's common stock with the bonus
portion attributable to accrued compensation at a purchase price of $5.00
per share. Additional amounts of compensation have been accrued during
1997. See below. Management anticipates that all such accruals will cease
by December 31, 1997.
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(2) Mr. Benton agreed to reduce his base annual salary from $189,264 to
$104,000 per year beginning January 1, 1997. In addition to his base
compensation, Mr. Benton will continue to be entitled to a performance
bonus.
No Directors other than those who are full time employees of the Company
received any compensation during 1996.
DIRECTORS AS A GROUP CASH ACCRUED
Number of Persons (5) $117,000 $270,764
Salaries for executives and other management personnel of $292,906 have
been accrued during 1996 and $135,703 during the first six months of 1997.
Employees agreeing to the accrual of a portion of their base salary are entitled
to receive payment of accrued amounts, plus a bonus equal to 50% of the accrued
amount. Management anticipates that all such accruals will cease by December 31,
1997.
EMPLOYMENT AGREEMENTS
Mr. Benton, Mr. Clark and Ms. Christiansen have employment agreements with
the Company. The employment agreements provide for a base salary with increases
as authorized by the Board of Directors. The Agreements are for terms of five
years, with each day worked being deemed to extend the term by an additional
day.
The agreements provide for the payment to each executive officer of a
lump-sum severance payment if the Company terminates such executive's employment
during the term of the agreements other than for cause, or if the employment is
terminated for certain reasons, including a change of control of the Company.
The lump-sum payment is equal to three times the amount of such executive's
average base salary for the previous 5 years. These three employment agreements
contain terms prohibiting solicitation of Company employees for 18 months after
termination, non-disclosure of confidential information and return of all
Company documents.
STOCK INCENTIVE PLAN
The Company's 1997 Stock Incentive Plan (the "Stock Incentive Plan") was
adopted by the Company's Board of Directors and approved by the sole shareholder
in January 1997. A total of 500,000 shares of Common Stock have been reserved
for issuance under the Stock Incentive Plan. Stock options, stock appreciation
rights, restricted stock and deferred stock may be granted under the Stock
Incentive Plan to key employees and directors or consultants of the Company or a
subsidiary. To date, no options to purchase shares have been granted under the
Stock Incentive Plan.
The Stock Incentive Plan will be administered by a Committee (the "Stock
Incentive Committee") consisting of at least two disinterested directors. The
Stock Incentive Plan requires that the members of the Stock Incentive Committee
be "disinterested persons" within the meaning of Rule 16b-3, as from time to
time amended, under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"). The Stock Incentive Committee has the authority, within
limitations as set forth in the Stock Incentive Plan, to establish rules and
regulations concerning the Stock Incentive Plan, to determine the persons to
whom options may be granted, the number of shares of Common Stock to be covered
by each option, and the terms and provisions of the option to be granted. In
addition, the Stock Incentive Committee has the authority, subject to the terms
of the Stock Incentive Plan, to determine the appropriate adjustments in the
terms of each outstanding option in the event of a change in the Common Stock or
the Company's capital structure.
Options granted under the Stock Incentive Plan may be either incentive
stock options ("ISO's") within the meaning of Section 422 of the Code, or
non-qualified stock options ("NQSOs"), as the Stock Incentive Committee may
determine. The exercise price of an option will be fixed by the Stock Incentive
Committee on the date of grant, except that (i) the exercise price of an ISO
granted to any individual who owns (directly or by attribution) shares of Common
Stock possessing more than 10% of the total combined voting power of all classes
of outstanding stock of the Company (a "10% Owner") must be at least equal to
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110% of the fair market value of the Common Stock on the date of grant and (ii)
the exercise price of an ISO granted to any individual other than a 10% Owner
must be at least equal to the fair market value of the Common Stock on the date
of the grant. Any options granted must expire within ten years from the date of
grant (five years in the case of an ISO granted to a 10% Owner). Shares subject
to options granted under the Stock Incentive Plan which expire, terminate or are
canceled without having been exercised in full become available again for option
grants. No options shall be granted under the Stock Incentive Plan more than ten
years after the adoption of the Stock Incentive Plan.)
Options are exercisable by the holder subject to terms fixed by the Stock
Incentive Committee. However, an option will be exercisable immediately upon the
happening of any of the following (but in no event during the six- month period
following the date of grant or subsequent to the expiration of the term of an
option): (i) the holder's retirement on or after attainment of age 65; (ii) the
holder's disability or death; or (iii) the occurrence of such special
circumstances or events as the Stock Incentive Committee determines merits
special consideration. Under the Stock Incentive Plan, a holder generally may
pay the exercise price in cash, by check, by delivery to the Company of shares
of Common Stock already owned by the holder or, in certain circumstances, in
shares issuable in connection with the options, or by such other method as the
Stock Incentive Committee may permit from time to time.
Options granted under the Stock Incentive Plan will be non-transferable and
non-assignable; provided, however, that the estate of a deceased holder may
exercise any options held by the decedent. If an option holder terminates
employment or consultancy with the Company or service as a director of the
Company while holding an unexercised option, the option will terminate
immediately, but the option holder will have until the end of the 90th business
day following his or her termination of employment or service to exercise the
option. However, all options held by an option holder will terminate immediately
if the termination is for cause or voluntarily on the part of the employee.
The Stock Incentive Plan may be terminated and may be modified or amended
by the Stock Incentive Committee or the Board of Directors at any time;
provided, however, that (i) no modification or amendment either increasing the
aggregate number of shares which may be issued under options or to any
individual, increasing materially the benefits accruing to participants under
the Stock Incentive Plan, or materially modifying the requirements as to
eligibility to receive options will be effective without shareholder approval of
such amendment and (ii) no such termination, modification or amendment of the
Stock Incentive Plan will alter or affect the terms of any then outstanding
options without the consent of the holders thereof.
OPTION GRANTS
As of the date hereof, no grants of options under the Stock Incentive Plan
have been made. However, separately from the Stock Incentive Plan, 80,329
options have been granted to Mr. William Benton, Ms. Susan Christiansen and Mr.
G.L. Clark, Jr. in consideration for their deferral of certain cash
compensation.
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PRINCIPAL SHAREHOLDERS
THE owns 1,800,000 shares of Common Stock and is the sole shareholder of
the Company. Upon completion of the Offering, THE will continue to own
approximately 60% of the Company's Common Stock.
The outstanding voting securities of THE are owned by a small group of
investors, including the officers and directors of the Company. A super majority
of the voting securities of THE are subject to a voting trust agreement electing
William G. Benton as voting trustee and a shareholders' agreement which grants
THE and William G. Benton, Susan L. Christiansen and G.L. Clark, Jr. a right of
first refusal on any transfer of stock and an option to buy all shares of any
deceased, disabled or terminated shareholder. Both of the agreements provide
that William G. Benton, Susan L. Christiansen and G.L. Clark, Jr. shall serve as
the directors of THE. Accordingly, the shares of Common Stock of the Company
owned by THE will be voted at the discretion of Mr. Benton, Ms. Christiansen and
Mr. Clark. Such persons effectively will control the outcome of all matters
submitted to shareholders for approval, including the election of directors of
the Company.
The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock as of June 30, 1997, and as adjusted to
reflect the sale of the Common Stock offered hereby, by (i) each shareholder
known by the Company to be the beneficial owner of five percent or more of the
outstanding Common Stock, (ii) each director and Named Officer of the Company
individually, and (iii) all directors and executive officers as a group. In each
case, the address of the beneficial owner is the address of the principal
executive offices of the Company.
<TABLE>
<CAPTION>
Number of Shares PERCENTAGE
NAME BENEFICIALLY OWNED(1)
BEFORE OFFERING AFTER OFFERING
<S> <C> <C> <C>
THE(1).................................. 1,800,000 100% 60.0%
William G. Benton(2).................... 1,179,000 65.5 39.3%
Susan L. Christiansen(3)................ 295,200 16.4 9.8
G.L. Clark, Jr. (4) 264,600 14.7 8.8
Walter H. Ettinger, Jr.................. 0 0 0
Perry C. Craven......................... 0 0 0
All directors and executive officers as
a group (5 persons).................... 1,738,000 96.6% 58.0%
</TABLE>
(1) In May 1996, THE contributed $100 for 100 shares of Common Stock of the
Company. In July 1996, THE exchanged all of the issued and outstanding
shares of RPM. for 2,277,678 shares of Common Stock of the Company.
Effective June 30, 1997, THE returned 477,778 shares which DSS retired.
(2) Mr. Benton owns, directly or indirectly 65.6% of the issued and outstanding
shares of THE. Shares held does not include 52,579 shares of the Company
that Mr. Benton is entitled to if he exercises an option to convert
deferred compensation to stock.
(3) Ms. Christiansen owns, directly or indirectly 16.4% of the issued and
outstanding shares of THE. Shares held does not include 3,600 shares of the
Company that Ms. Christiansen is entitled to if she exercises an option to
convert deferred compensation to stock.
(4) Mr. Clark owns, directly or indirectly 14.7%% of the issued and outstanding
shares of THE. Shares held does not include 24,150 shares of the Company
that Mr. Clark is entitled to if he exercises an option to convert deferred
compensation to stock.
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CERTAIN TRANSACTIONS
On January 1, 1996, RPM purchased certain assets, consisting of management
contracts valued at $1,209,060, trade accounts receivable of $119,023, land
valued at $70,536 and furniture and equipment valued at $121,659 from an entity
related through common ownership with RPM, by assuming certain liabilities of
THE. The value of the assets acquired was determined based on the fair value of
the liabilities assumed, and was allocated to the assets according to their
relative values. The value allocated to the management contracts was
approximately 1.5 times annual fees.
On January 1, 1996, RPM transferred its investment in securities available
for sale, and the associated margin account payable to THE, the parent, in a
non-cash transaction which exchanged the securities at a market value of
$494,693, less unrealized gains of $270,214 and relief of a liability to THE of
$48,344, for the assumption of a margin account by THE of $185,509 and a
reduction of the paid-in capital in excess of par by $87,314. The transaction
was recorded at book value on the records of both companies.
On July 1, 1996, the Company acquired 100% of RPM from THE through the
exchange of 2,277,678 shares of DSS common stock for RPM stock. No value was
assigned to the DSS common stock issued since RPM had no positive book value at
that date. The acquisition was treated as a purchase for reporting purposes.
On September 1, 1996, RPM acquired additional assets and assumed certain
liabilities of an affiliate, consisting of management contract rights of
$200,340 in exchange for a reduction of accounts receivable from the affiliate
of $110,903 and the assumption of accounts payable to THE of $89,437. The value
of the assets acquired was the fair value of the liabilities assumed and the
fair value of the reduction of the receivable. The value of the management
contracts approximates 1.5 times annual fees.
Management fee income of RPM includes $143,434 and $284,296, for the six
months ended June 30, 1997, and the year ended December 31, 1996, respectively,
earned from partnerships, a general partner of which is the beneficial
shareholder of the Company; $24,348 and $30,835 of such fees were included in
accounts receivable at June 30, 1997, and December 31, 1996. In addition, the
Company was reimbursed for payments made through its central payroll system for
payroll and related expenses by such partnerships of $236,439 and $473,313 for
the six months ended June 30, 1997 and the year ended December 31, 1996,
respectively.
Beginning in May 1997, the Company entered into a month to month lease with
THE, its parent, for office space for THE's corporate headquarters with required
monthly rent payments of $2,700. In addition, RPM leases computer equipment from
THE, which requires monthly payments of $404.
From time to time, the Company advances or borrows funds from THE or other
related entities. Note 2 to the financial statements for the six months ended
June 30, 1997 schedules those advances and repayments to and advances and
repayments from such related parties. These transactions have resulted in
balances of $253,616 due to the Company from affiliates, and $22,755 due from
the Company to affiliates. In addition, the account payable to THE was converted
to a note payable to the parent during 1996. The non-interest bearing note,
which has a balance of $737,589 at June 30, 1997, is due 366 days after payment
is demanded by the parent. Accounts payable to or receivable from related
parties bear no interest and have no scheduled repayment terms.
On June 30, 1997, the Company retired 477,778 shares of Common Stock,
leaving 1,800,000 shares outstanding on that date.
The Company participates in a defined contribution savings incentive plan
covering substantially all of its and its subsidiaries' full time employees. The
Company and its subsidiaries are required to provide a 50% matching contribution
to each employee participant for contributions up to the first 5% of
compensation. The Company's required contributions for the six months ended June
30, 1997 and the twelve months ended December 31, 1996 were $5,783 and $11,613,
respectively.
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DESCRIPTION OF SECURITIES
GENERAL
The authorized capital stock of the Company consists of 100,000,000 shares
of Common Stock, no par value. As of the date of this Prospectus, 1,800,000
shares of Common Stock are outstanding and all of such shares authorized are
held of record by THE. See "Principal Shareholders." After the completion of
this Offering there will be 3,000,000 shares of Common Stock outstanding.
COMMON STOCK
The holders of Common Stock are entitled to one vote for each share held of
record on all matters to be voted on by shareholders. There is no cumulative
voting with respect to the election of directors, with the result that the
holders of more than 50% of the shares voted can elect all of the directors then
being elected. The holders of Common Stock are entitled to receive dividends
when, as and if declared by the Board of Directors out of funds legally
available therefor. In the event of liquidation, dissolution or winding up of
the Company, the holders of Common Stock are entitled to share ratably in all
assets remaining available for distribution to them after payment of liabilities
and after provision has been made for each class of stock, if any, having
preference over the Common Stock. Holders of shares of Common Stock, as such,
have no redemption, preemptive or other subscription rights, and there are no
conversion provisions applicable to the Common Stock. All of the outstanding
shares of Common Stock are fully paid and nonassessable.
PREFERRED STOCK
The Company's authorized shares of Preferred Stock may be issued in one or
more series and classes, and the Board of Directors is authorized, without
further action by the shareholders, to designate the preferences, limitations
and relative rights of shares of each series, including dividend, voting,
redemption and conversion rights. The Company believes that the availability of
Preferred Stock issuable in series will provide increased flexibility for
structuring possible future financings and acquisitions, if any, and in meeting
other corporate needs. It is not possible to state the actual effect of the
authorization and issuance of any series of Preferred Stock upon the rights of
holders of Common Stock until the Board of Directors determines the specific
preferences, limitations and relative rights of a series of Preferred Stock.
However, such effects might include, among other things, restricting dividends
on the Common Stock, diluting the voting power of the Common Stock, or impairing
liquidation rights of such shares without further action by holders of the
Common Stock. In addition, under various circumstances, the issuance of
Preferred Stock may have the effect of facilitating, as well as impeding or
discouraging, a merger, tender offer, proxy contest, the assumption of control
by a holder of a large block of the Company's securities or the removal of
incumbent management. Issuances of Preferred Stock could also adversely effect
the market price of the Common Stock. The Company has no present plan to issue
any shares of Preferred Stock.
WARRANTS
In connection with this Offering, the Company will issue to the Underwriter
warrants to purchase an additional 120,000 shares of Common Stock
("Underwriter's Warrants").
Each Underwriter's Warrant will entitle the registered holder to purchase
one share of the Company's Common Stock at an exercise price of $ per share
during the four-year period commencing one year from the date of this
Prospectus. No fractional shares of Common Stock will be issued in connection
with the exercise of Underwriter's Warrants. Upon exercise, the Company will pay
the holder of the value of any such fractional shares in cash, based upon the
market value of the Common Stock at such time.
Unless extended by the Company at its discretion, the Underwriter's
Warrants will expire at 5:00 p.m., New York time, on the fifth anniversary of
the date of this Prospectus. In the event a holder of Underwriter's Warrants
fails to exercise the Underwriter's Warrants prior to their expiration, the
Underwriter's Warrants will expire and the holder thereof will have no further
rights with respect to the Underwriter's Warrants.
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<PAGE>
The Company may redeem the Underwriter's Warrants at a price of $ per
Underwriter's Warrant, at any time once they become exercisable upon not less
than 30 days prior written notice if the last sale price of the Common Stock has
been at least per share for the 20 consecutive trading days ending on
the third day prior to the date on which the notice is given.
No Underwriter's Warrants will be exercisable unless at the time of
exercise there is a current prospectus covering the shares of Common Stock
issuable upon exercise of such Underwriter's Warrants under an effective
registration statement filed with the Commission and such shares have been
qualified for sale or are exempt from qualification under the securities laws of
the state or residence of the holder of such Underwriter's Warrants. Although
the Company intends to have all shares so qualified for sale in those states
where the Securities are being offered and to maintain a current prospectus
relating thereto until the expiration of the Underwriter's Warrants, subject to
the terms of the warrant agreement, there can be no assurance that it will be to
do so.
A holder of Underwriter's Warrants will not have any rights, privileges or
liabilities as a shareholder of the Company prior to exercise of the
Underwriter's Warrants. The Company is required to keep available a sufficient
number of authorized shares of Common Stock to permit exercise of the
Underwriter's Warrants.
The exercise price of the Underwriter's Warrants and the number of share
issuable upon exercise of the Underwriter's Warrants will be subject to
adjustment to protect against dilution in the event of stock dividends, stock
splits, combinations, subdivisions and reclassifications. No assurance can be
given that the market price of the Company's Common Stock will exceed the
exercise price of the Underwriter's Warrants at any time during the exercise
period.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Company's securities is ,
and its telephone number is .
INDEMNIFICATION OF OFFICERS AND DIRECTORS
The NCBCA allows a corporation's articles of incorporation to contain a
provision limiting a director's personal liability to the corporation and its
shareholders for monetary damages. No such provision may limit a director's
liability for: (i) acts or omissions known by the director to conflict with the
best interests of the corporation; (ii) liability for unlawful distributions;
(iii) any transactions from which the director received an improper personal
benefit; or (iv) acts or omissions occurring prior to the effective date of such
provision of the articles of incorporation. The Company's Articles of
Incorporation limit the personal liability of its directors for monetary damages
to the fullest extent permitted by the NCBCA.
The NCBCA contains provisions setting forth conditions under which a
corporation may indemnify its directors, officers, employees and agents from any
liability incurred in their activities on behalf of the corporation. The NCBCA
permits indemnification unless, in connection with a proceeding by or in the
right of the corporation, the person seeking indemnification is adjudged liable
to the corporation or, in connection with a proceeding charging the receipt of
an improper personal benefit, the person seeking indemnification is adjudged to
have improperly received a benefit.
The Company's Articles of Incorporation provide indemnify to the fullest
extent of North Carolina law to all persons serving as Directors and Officers of
the Corporation against all liability and litigation expense, including but not
limited to reasonable attorneys' fees, arising out of their status as such or
their activities in the foregoing capacities. The Company's Articles of
Incorporation also provide that, to the fullest extent permitted by applicable
law, no director of the Company shall have any personal liability arising out of
any action for monetary damages for breach of his or her duty as a director.
-39-
<PAGE>
NORTH CAROLINA LAW
The NCBCA contains control shares acquisition statutes limiting the ability
of others to make tender offers for the shares of companies incorporated in
North Carolina. Under this statute, if "control shares" are acquired in "control
share acquisitions," then the "control shares" acquired have no voting rights
unless allowed by the affirmative vote of the shareholders by majority vote of
all shares entitled to be cast on the issue, excluding the interested shares.
"Control shares" are shares which, when aggregated with shares already owned,
give a person a certain threshold of voting power. "Control share acquisitions"
are acquisitions in which control shares are acquired. The NCBCA further
provides that in the event that the shareholders elect to give voting rights to
the control shares, then, in certain instances, the other holders of a
corporation's stock have the right to require that corporation to redeem their
shares. The Company has specifically waived the protections of this statute in
its articles of incorporation.
The NCBCA also contains prohibitions on business combinations with
interested shareholders. The NCBCA generally prohibits certain "business
combinations" with interested shareholders for a period of five years from the
date on which the person became an interested shareholder unless the business
combination is recommended by the board of directors and approved by the
affirmative vote of 95% of the votes entitled to be cast on the matter and by
the affirmative vote of two-thirds of the votes held by holders other than the
interested shareholder entitled to be cast on the matter. An interested
shareholder is a shareholder that beneficially owns, directly or indirectly, 20%
or more of the voting power of the outstanding voting stock of a corporation or
is or was an affiliate or associate of a corporation and at any time during the
two-year period prior the date in question owned 20% or more of the voting power
of the outstanding voting stock of the corporation. The "business combinations"
that are prohibited include: (i) any merger, consolidation or share exchange
with an interested shareholder or affiliate; (ii) any sale, lease, transfer or
other disposition of the corporation's assets to an interested shareholder or
affiliate; (iii) the issuance or transfer of any equity securities of the
corporation representing 5% or more of the total market value of the
corporation's outstanding stock to an interested shareholder or affiliate; (iv)
the adoption of a plan of liquidation of the corporation where an interested
shareholder or affiliate receives anything other than cash; (v) certain
transactions that would have the effect of increasing by 5% or more the
proportionate amount of shares held by an interested shareholder or affiliate;
and (vi) the receipt by an interested shareholder or affiliate of certain direct
or indirect benefits from the corporation.
Certain "Fair Price" exemptions from the special voting requirements are
available under this statute based on the amount of consideration to be paid to
the holders of the shares being acquired. Generally, the exemption provide that
the amount paid for the corporation's stock in the business combination must be
in excess of a statutorily prescribed amount based on preset formulas involving
the highest per share price paid by the acquirer during a defined period. The
Company has specifically waived the protections of these statutes in their
Articles of Incorporation.
The Company's Articles of Incorporation prohibit the Company from entering
into certain business arrangements with "interested shareholders" without the
affirmative vote of 80% of the Company's shares entitled to vote thereon. An
interested shareholder is an entity that beneficially owns, directly or
indirectly, more than 20% of the voting shares of the Company. The prohibited
business combinations include transactions such as mergers and asset sales with
the interested shareholder. The affirmative vote of 80% of the shareholders is
not required, however, if, in connection with the business combination, the
shareholders receive cash in exchange for their shares equal to the highest
per-share price paid by the interested shareholder in acquiring any of his
holdings or if the business combination is approved by a majority of the
Company's disinterested directors.
These provisions of the NCBCA could have the effect of delaying, deferring
or preventing a change in control of the Company.
-40-
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this Offering, the Company will have outstanding
3,000,000 shares of Common Stock, not including shares of Common Stock issuable
upon exercise of outstanding options or the Underwriter's Warrants. Of these
outstanding shares, the 1,200,000 shares of Common Stock sold to the public in
this Offering may be freely traded without restriction or further registration
under the Securities Act, except that any shares that may be held by an
"affiliate" of the Company (as that term is defined in the rules and regulations
under the Securities Act) may be sold only pursuant to a registration under the
Securities Act or pursuant to an exemption from registration under the
Securities Act, including the exemption provided by Rule 144 adopted under the
Securities Act.
The 1,800,000 shares of Common Stock outstanding prior to this Offering are
"restricted securities" as that term is defined in Rule 144 under the Securities
Act ("Restricted Shares") and may not be sold unless such sale is registered
under the Securities Act, or is made pursuant to an exemption from registration
under the Securities Act, including the exemption provided by Rule 144. THE has
agreed that for a period of 24 months from the date of this Prospectus, it will
not sell any of its shares without the prior consent of the Underwriter.
Accordingly, all of such shares will be available for sale pursuant to Rule 144
commencing , 1999. In addition, all of the officers and directors of the Company
have agreed not to sell any of their shares of Common Stock for a period of
months from the date of this Prospectus without the consent of the Underwriter.
Such lock-up, however, does not apply to any shares purchased in this Offering
or thereafter in the public market.
The Company has been advised by the Underwriter that in determining whether
to give or withhold consent to any sale within the applicable lock-up periods,
it will consider whether such sale would have an adverse effect on the market
for the Company's Common Stock. Depending upon the trading market for the Common
Stock, sales of a significant number of shares or sales by an affiliate may have
an adverse effect on the market for the Company's Common Stock.
In general, under Rule 144 as currently in effect, a shareholder (or
shareholders whose shares are aggregated) who has beneficially owned any
Restricted Shares for at least one year (including a shareholder who may be
deemed to be an affiliate of the Company), will be entitled to sell, within any
three-month period, that number of shares that does not exceed the greater of
(i) 1% of the then outstanding shares of Common Stock or (ii) the average weekly
trading volume of the Common Stock during the four calendar weeks preceding the
date on which notice of such sale is given to the Securities and Exchange
Commission, provided certain public information, manner of sale and notice
requirements are satisfied. A shareholder who is deemed to be an affiliate of
the Company, including members of the Board of Directors and senior management
of the Company, will still need to comply with the restrictions and requirements
of Rule 144, other than the one-year holding period requirement, in order to
sell shares of Common Stock that are not Restricted Securities, unless such sale
is registered under the Securities Act. A shareholder (or shareholders whose
shares are aggregated) who is deemed not to have been an affiliate of the
Company at any time during the 90 days preceding a sale by such shareholder, and
who has beneficially owned Restricted Shares for at least two years, will be
entitled to sell such shares under Rule 144 without regard to the volume
limitations described above.
In addition, any employee, officer or director of or consultant to the
Company who purchased his or her shares pursuant to a written compensatory plan
or contract may be entitled to rely on the resale provisions of Rule 701. Rule
701 permits affiliates to sell their Rule 701 shares under Rule 144 without
complying with the holding period requirements of Rule 144. Rule 701 further
provides that non-affiliates may sell such shares in reliance on Rule 144
without having to comply with the public information, volume limitation or
notice provisions of Rule 144. In both cases, a holder of Rule 701 shares is
required to wait until 90 days after the date of this Prospectus.
Prior to this Offering, there has been no public trading market for the
Common Stock of the Company, and no predictions can be made of the effect, if
any, that future sales of shares or the availability of shares for sale will
have on the market price prevailing from time to time. Nevertheless, sales of
substantial amounts of the Common Stock in the public market could adversely
affect the then-prevailing market price.
-41-
<PAGE>
REGISTRATION RIGHTS
See "Underwriting" for information concerning demand and piggyback
registration rights of the holder of the Underwriter's Warrants.
UNDERWRITING
Subject to the terms and conditions set forth in the Underwriting
Agreement, the Company has agreed to sell 1,200,000 shares of Common Stock to
Strasbourger Pearson Tulcin Wolff Incorporated (the "Underwriter"). The
Underwriter will be obligated to purchase all of such shares of Common Stock if
any are purchased.
The Common Stock being offered by the Company to the public is being
offered at a price of $5.00 per share as set forth on the cover page of this
Prospectus. The Common Stock is offered by the Underwriter subject to receipt
and acceptance by it, to the right to reject any order, in whole or in part, to
approval of certain legal matters by counsel and to certain other documents.
The Underwriter has advised that sales to certain dealers may be made at
the Offering Price less a concession not in excess of % or $ per share. After
the initial public offering, the Offering Price and other selling terms may be
changed by the Underwriter. The Underwriter does not intend to confirm sales of
more than one percent of the shares of Common Stock offered hereby to any
accounts over which it exercises discretionary authority.
The Company has agreed to sell the Common Stock to the Underwriter at a
discount of 10% of the Offering Price. The Company has also agreed to pay the
Underwriter a non-accountable expense allowance of 3% of the gross proceeds of
the Offering to be paid at closing, $50,000 of which has been advanced to the
Underwriter. In the event this Offering is not completed because the Company
prevents such completion or breaches any covenant, representation or warranty
contained in the Underwriting Agreement, the Underwriter shall be reimbursed for
all actual accountable out-of-pocket costs and expenses incident to the
performance of the Company's obligations set forth in the Underwriting
Agreement, including the accountable expenses of the Underwriter, including
legal fees, but in no event to exceed the sum of $180,000, less a credit for any
amounts previously paid to the Underwriter. In the event this Offering is not
completed because the Underwriter prevents its completion (unless such
prevention is based upon a breach by the Company of any covenant, representation
or warranty contained in the Underwriting Agreement), the Company shall not be
liable for the Underwriter's expenses, except that the Underwriter may retain
the $50,000 to the extent that the Underwriter has incurred accountable costs
previously paid to it.
Prior to the Offering, there has not been a market for the Common Stock.
Consequently, the Offering Price has been determined by negotiations between the
Company and the Underwriter. The major factors considered by the Company and the
Underwriter in determining the Offering Price of the Common Stock, in addition
to prevailing market conditions, were the Company's historical performance and
growth rates; the history of, and prospects for, the industry in which the
Company operates; an assessment of the Company's management, business potential
and earning prospects; the market prices of publicly traded common stocks of
comparable companies; and the present state of the Company's development. Based
upon their analysis of these factors, all of which are applicable to the
Company, the Company and the Underwriter believe that the Offering Price bears a
relationship to the assets, book value and other criteria of value applicable to
the Company.
The Company has agreed to indemnify the Underwriter against certain
liabilities, including liabilities under the Securities Act arising out of, or
based upon, any untrue statement or alleged untrue statement of any material
fact contained in this Prospectus or the Registration Statement on Form SB-2 of
which this Prospectus is a part. Insofar as indemnification for liabilities
arising under the Securities Act may be provided to officers, directors or
persons controlling the Company, the Company has been informed that, in the
opinion of the Commission, such indemnification is against public policy and
therefore unenforceable.
-42-
<PAGE>
As part of the consideration to the Underwriter for its services in
connection with the Offering, the Company has agreed to grant to the Underwriter
warrants (the "Underwriter's Warrants") to purchase 120,000 shares of Common
Stock exercisable for a period of four years, commencing 12 months after the
date of this Offering, at an exercise price of $ per share, subject to certain
adjustments. The exercise price of the Underwriter's Warrants was determined by
negotiation between the Company and Underwriter and should not be deemed to
reflect any estimate of the intrinsic value of either the Underwriter's Warrants
or the underlying Common Stock. The Underwriter's Warrants contain anti-dilution
provisions in event of any recapitalization, split-up of shares or certain stock
dividends, as well as certain registration rights. The Underwriter's Warrants
cannot be transferred, sold, assigned or hypothecated, in whole or in part
(other than by will or pursuant to the laws of descent and distribution) except
to officers of the Underwriter. Furthermore, if any of the Underwriter's
Warrants are transferred after one year following the effective date of the
Company's Registration Statement on Form SB-2 (the "Registration Statement") of
which this Prospectus forms a part, such warrants must be exercised immediately
upon transfer, and if not exercised immediately upon transfer, such warrants
will lapse. The Company has agreed that, upon the request of the then holder(s)
of a majority of the Underwriter's Warrants and the underlying securities, if
issued, which were originally issued to the Underwriter or its designees, made
at any time within the period commencing one year and ending four years after
the effective date of the Registration Statement of which this Prospectus forms
a part, the Company will file, at its sole expense, not more than once, a
registration statement under the Securities Act, registering or qualifying the
shares underlying the Underwriter's Warrants for public sale. The Company has
also agreed, with certain limitations, that if at any time within the period
commencing one year and ending four years after such effective date, it should
file a registration statement with the Commission pursuant to the Securities
Act, the Company, at its own expense (other than seller's commissions and the
expenses of seller's counsel or others hired by seller), will offer to said
holder(s) the opportunity to register or qualify the shares underlying the
Underwriter's Warrants. In addition, the Company has agreed to cooperate with
the holders of the Underwriter's Warrants and the underlying securities in
preparing and signing any other registration statement at the holder's expense
not more than once.
For the life of the Underwriter's Warrants, the holders thereof are given
the opportunity to profit from a rise in the market price of Common Stock which
may result in a dilution of the interest of the holders of Common Stock. The
Company may find it more difficult to raise additional equity capital if it
should be needed for the business of the Company while the Underwriter's
Warrants are outstanding. At any time when the holders of the Underwriter's
Warrants might be expected to exercise them, the Company would probably be able
to obtain additional equity capital on terms more favorable than those provided
by the Underwriter's Warrants. Any profit realized on the sale of the securities
issuable upon the exercise of the Underwriter's Warrants may be deemed
additional underwriting compensation. As described above, the Company has
granted to the Underwriter certain registration rights with respect to the
Underwriter's Warrants and the securities issuable thereunder.
The Company, its officers, directors and THE have agreed with the
Underwriter that such shareholders will not publicly sell or otherwise dispose
of any of their shares of Common Stock (nor any shares which may be issued upon
exercise of options or warrants granted to the shareholders) for a period of two
years from the closing of this Offering without the prior written consent of the
Underwriter, which consent cannot be unreasonably withheld.
In addition, the Company has entered into a consulting agreement (the
"Consulting Agreement") with the Underwriter whereby the Underwriter has agreed
to provide certain advisory services to the Company for a period of two years
from the closing of the Offering for a fee of $50,000 per year, or an aggregate
of $100,000.
The foregoing is a summary of certain terms of the Underwriting Agreement,
the Consulting Agreement and the Warrant Agreement relating to the Underwriter's
Warrants, copies of which were filed with the Commission as exhibits to the
Registration Statement. Reference is hereby made to such exhibits for a detailed
description of the provisions thereof as summarized above. See "Additional
Information."
In connection with the Offering, the Underwriter and selling group members
(if any) and its affiliated may engage in transactions that stabilize, maintain
or otherwise affect the market price of the Common Stock. Such transactions may
include stabilization transactions effected in accordance with Rule 104 of
Regulation M, pursuant to which such persons may bid for or purchase Common
Stock for the purpose of stabilizing its market price. The Underwriter also may
-43-
<PAGE>
create a short position for the account of the Underwriter by selling more
Common Stock in connection with the Offering then it is committed to purchase
from the Company, and in such case may purchase Common Stock in the open market
following completion of the Offering to cover all or a portion of such short
position. In addition, the Underwriter may impose "penalty bids" under
contractual arrangements whereby it may reclaim from an a dealer participating
in the Offering for its account, the selling concession with respect to the
Common Stock that is distributed in the Offering but subsequently purchased for
its account in the open market. Any of the transactions described in this
paragraph may result in the maintenance of the price of the Common Stock at a
level above that which might otherwise prevail in the open market. None of the
transactions described in this paragraph is required, and, if any is undertaken,
may be discontinued at any time.
LEGAL MATTERS
The legality of the shares of Common Stock offered hereby will be passed
upon for the Company by House Law Firm. Certain legal matters in connection with
the Offering will be passed upon for the Underwriter by Stroock & Stroock &
Lavan LLP.
EXPERTS
The consolidated financial statements of DSS and Subsidiary as of December
31, 1996 and for the period from May 17, 1996 (date of inception) to December
31, 1996, included in this Prospectus and in the related Registration Statement,
have been audited by The Daniel Professional Group, Inc., independent auditors,
as set forth in their report thereon, and are included in reliance upon such
report given upon the authority of such firm as experts in accounting and
auditing.
The statements of operations, changes in stockholder's equity (deficit),
and cash flows for the six months ended June 30, 1996 and the year ended
December 31, 1995 of RPM included in this Prospectus and in the related
Registration Statement, have been audited by the Daniel Professional Group,
Inc., independent auditors, as set forth in their report thereon appearing
elsewhere herein and in the Registration Statement, and are included in reliance
upon such report given upon the authority of such firm as experts in accounting
and auditing.
ADDITIONAL INFORMATION
The Company has filed with the Commission a Registration Statement on Form
SB-2 under the Securities Act with respect to the shares of Common Stock offered
hereby. This Prospectus does not contain all of the information set forth in the
Registration Statement and the exhibits and schedules thereto. For further
information with respect to the Company and the shares of Common Stock,
reference is hereby made to the Registration Statement and the exhibits and
schedules filed as a part thereof. Statements contained in this Prospectus as to
the contents of any contract or other document are not necessarily complete and,
in each instance, reference is made to the copy of such contract or other
document filed as an exhibit to the Registration Statement, each such statement
being qualified in all respects by such reference. The Registration Statement,
including exhibits and schedules thereto, may be inspected and copied at the
public reference facilities maintained by the Commission at 450 Fifth Street,
N.W., Washington, D.C., and at the Commission's Regional Offices located at 7
World Trade Center, New York, New York 10048 and 500 West Madison Street, Suite
1400, Northwestern Atrium Center, Chicago, Illinois 60661. Copies of such
materials may also be obtained at prescribed rates from the Public Reference
Section of the Commission, Washington, D.C. 20549. The Commission maintains a
site on the world wide web at http://www.sec.gov that contains reports, proxy
statements and information regarding registrants that file electronically with
the Commission.
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<PAGE>
DIVERSIFIED SENIOR SERVICES, INC.
INDEX TO FINANCIAL STATEMENTS
PAGE
Management's Responsibility for Financial Reporting................... F-2
DIVERSIFIED SENIOR SERVICES, INC.
Consolidated Financial Statements for the six months ended June 30,
1997 and Unconsolidated Statements of Operations, Changes in
Shareholder's Deficit and Cash Flows for the
period from May 17, 1996 (Date of Inception) to
June 30, 1996................................................. F-3
Notes to Consolidated Financial Statements, June 30, 1997..... F-7
Independent Auditors' Report.................................. F-10
Consolidated Financial Statements for the period from
May 17, 1996 (Date of Inception) to December 31, 1996......... F-11
Notes to Consolidated Financial Statements, December
31, 1996...................................................... F-16
Supplemental Schedule of Consolidating Statements of
Operations for the period from May 17, 1996 (Date of
Inception) to December 31, 1996............................... F-27
RESIDENTIAL PROPERTIES MANAGEMENT, INC.
Independent Auditors' Report.................................. F-28
Statements of Operations, Changes in Shareholder's
Equity (Deficit), and Cash Flows for the six months
ended June 30, 1996 and the year ended December 31, 1995...... F-29
Notes to Statements of Operations, Changes
in Shareholder's Equity (Deficit),
and Cash Flows for the six months ended June 30, 1996 and the
year ended December 31, 1995................................... F-33
F-1
<PAGE>
MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL REPORTING
The consolidated financial statements of Diversified Senior Services, Inc. and
Residential Properties Management, Inc. have been prepared by management, which
is responsible for their integrity and objectivity. These statements have been
prepared in conformity with generally accepted accounting principles ("GAAP")
and, where appropriate, reflect estimates based on judgments of management.
The system of internal controls for the companies is designed to provide
reasonable assurance that company assets are safeguarded from loss or
unauthorized use or disposition, and that transactions are executed in
accordance with management's authorization and properly recorded to permit the
preparation of financial statements in accordance with GAAP. This system is
augmented by careful selection and training of qualified personnel, proper
division of responsibilities, the dissemination of written policies and
procedures, and frequent review by management to monitor its effectiveness.
The Board of Directors oversees management's financial reporting
responsibilities and programs for ethical business conduct. As part of these
responsibilities, the directors meet periodically with management to discuss the
financial statements and administrative and financial controls.
William G. Benton G.L. Clark, Jr.
Chairman of the Board Vice President
and Chief Executive Officer and Chief Financial Officer
F-2
<PAGE>
DIVERSIFIED SENIOR SERVICES, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
June 30, 1997
<TABLE>
<CAPTION>
ASSETS
Current assets:
<S> <C>
Cash and cash equivalents $ 17,563
Accounts receivable - trade 100,371
Refundable income taxes 32,853
Prepaid expenses 12,609
--------------------
163,396
Furniture and equipment, net 69,887
Intangible assets, net 735,778
Development costs 154,102
Accounts receivable - affiliates (Note 2) 253,616
--------------------
$1,376,779
====================
</TABLE>
<TABLE>
<CAPTION>
LIABILITIES
Current liabilities:
<S> <C>
Accounts payable and accrued expenses $103,642
Interest payable 11,486
Note payable - bank 1,217,827
Deferred salaries 428,609
--------------------
1,761,564
Deferred bonuses 209,823
Accounts payable - affiliates (Note 2) 22,755
Note payable - affiliate (Note 2) 737,589
--------------------
2,731,731
--------------------
</TABLE>
<TABLE>
<CAPTION>
SHAREHOLDER'S DEFICIT
Preferred stock, no par; authorized 100,000,000
shares; no shares issued and outstanding
Common stock, no par; authorized 100,000,000
<S> <C>
shares; 1,800,000 shares issued and outstanding 100
Accumulated deficit (1,355,052)
--------------------
(1,354,952)
--------------------
$ 1,376,779
====================
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-3
<PAGE>
DIVERSIFIED SENIOR SERVICES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
(UNCONSOLIDATED)
FOR THE PERIOD
FOR THE SIX MAY 17, 1996
MONTHS ENDED (DATE OF INCEPTION)
JUNE 30, TO JUNE 30,
1997 1996
Income:
<S> <C> <C>
Management fees $ 437,416 $ -
Reimbursement income 676,877 -
Home care income 66,163 -
1,180,456 -
Expenses:
Personnel related 1,424,493 255,265
Administrative 114,259 -
Other 40,981 -
----------------------- -----------------------
1,579,733 255,265
Operating loss 399,277 255,265
Other expenses:
Depreciation and amortization 215,857 -
Interest expense 46,934 -
Net loss $ 662,068 $ 255,265
Net loss per share $ .29 $ 2,553
Weighted number of shares outstanding 2,277,778 100
======================= ======================
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-4
<PAGE>
DIVERSIFIED SENIOR SERVICES, INC. AND SUBSIDIARY
STATEMENTS OF CHANGES IN SHAREHOLDER'S DEFICIT
For the Six Months Ended June 30, 1997 and December 31, 1996
and for the Period May 17, 1996 (Date of Inception) to June 30, 1996
<TABLE>
<CAPTION>
COMMON COMMON ACCUMULATED TOTAL
SHARES STOCK DEFICIT DEFICIT
----------------- --------------- -------------------- -------------------
<S> <C> <C> <C> <C>
Balance, May 17, 1996 - $ - $ - $ -
Issuance of common stock 100 100 - 100
Net loss for the period
May 17, 1996
(Date of Inception) to
June 30, 1996 - - (255,265) (255,265)
Balance, June 30, 1996 100 100 (255,265) (255,165)
Issuance of common stock 2,277,678 - - -
Net loss for the six months ended
December 31, 1996 - - (437,719) (437,719)
Balance, December 31, 1996 2,277,778 100 (692,984) (692,884)
Net loss for the six months ended
June 30, 1997 - - (662,068) (662,068)
Retirement of common stock (477,778) - - -
Balance, June 30, 1997 1,800,000 $100 $ (1,355,052) $(1,354,952)
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-5
<PAGE>
DIVERSIFIED SENIOR SERVICES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
Increase (Decrease) in Cash and Cash Equivalents
<TABLE>
<CAPTION>
(UNCONSOLIDATED)
FOR THE PERIOD
FOR THE SIX MAY 17, 1996
MONTHS ENDED (DATE OF INCEPTION)
JUNE 30, TO JUNE 30,
1997 1996
Operating activities:
<S> <C> <C>
Net loss $ (662,068) $ (255,265)
Adjustments to reconcile net loss to net cash
used by operating activities:
Depreciation and amortization 215,857 -
Changes in operating assets and liabilities:
Accounts receivable (1,972) -
Prepaid expenses 7,582 -
Accounts payable, trade (18,367) -
Accounts payable, affiliates 7,824 -
Interest payable 4,899 -
Deferred salaries and bonuses 210,144 255,265
Total adjustments 425,967 255,265
Net cash used by operating activities (236,101) -
Investing activities:
Investment in franchise fees (15,000) -
Development costs paid (21,752) -
Payment of organization costs - (4,552)
Other 35,250 -
Net cash used by investing activities (1,502) (4,552)
Financing activities:
Proceeds from bank line of credit 286,205 -
Advances and repayments to affiliates (62,171) -
Advances and repayments from affiliates - 4,552
Contribution of capital - 100
Net cash provided by financing activities 224,034 4,652
Net increase (decrease) in cash (13,569) 100
Cash and cash equivalents - beginning 31,132 -
Cash and cash equivalents - ending $17,563 $100
Cash payments for interest $42,035 $-
Cash payments for taxes $- $-
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-6
<PAGE>
Diversified Senior Services, Inc. and Subsidiary
Notes to Consolidated Financial Statements
June 30, 1997
(Continued)
NOTE 1: SELECTED DISCLOSURES
The accompanying unaudited consolidated financial statements, which are for
interim periods, do not include all disclosures provided in the annual
consolidated financial statements. These unaudited consolidated financial
statements should be read in conjunction with the consolidated financial
statements and the footnotes thereto for the period from May 17, 1996 (Date of
Inception) to December 31, 1996 of Diversified Senior Services, Inc. ("DSS").
In the opinion of management, the accompanying unaudited consolidated financial
statements contain all adjustments (which are of a normal recurring nature)
necessary for a fair presentation of the financial statements. The results of
operations for the six months ended June 30, 1997, are not necessarily
indicative of the results to be expected for the full year.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reporting amount of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of income and expenses during the reporting period. Actual
results could differ from those estimates.
F-7
<PAGE>
Diversified Senior Services, Inc. and Subsidiary
Notes to Consolidated Financial Statements
June 30, 1997
(Continued)
NOTE 2: RELATED PARTY TRANSACTIONS
From time to time, the Company advances or borrows funds from the parent, Taylor
House Enterprises, Limited (THE), or other related entities. The following
schedule summarizes related party activities for the six months ended June 30,
1997.
<TABLE>
<CAPTION>
NOTE
DUE FROM DUE TO PAYABLE
AFFILIATES AFFILIATES AFFILIATE TOTAL
--------------- --------------- -------------- ----------------
Amounts due (to) from affiliates
at December 31, 1996:
Management fees due from
<S> <C> <C> <C> <C>
related partnerships $ 253,616 $ - $ - $ 253,616
Amounts due to related partnership - (20,000) - (20,000)
Amounts due to other related entities - (2,755) - (2,755)
Advances due to affiliate - (33,415) - (33,415)
Issuance of note to parent - - (758,521) (758,521)
253,616 (56,170) (758,521) (561,075)
Repayment to affiliate - 33,415 - 33,415
Computer equipment lease payments
due parent - - (2,424) (2,424)
Rent due parent - - (5,400) (5,400)
Repayments to parent - - 28,756 28,756
Balance, June 30, 1997 $ 253,616 $ (22,755) $ (737,589) $ (506,728)
</TABLE>
There was no interest income received from or interest expense paid or accrued
to related parties during the six months ended June 30, 1997. Accounts payable
to related parties bear no interest and have no scheduled repayment terms.
Management fee income includes $143,434 earned from partnerships, a general
partner of which is a beneficial shareholder of THE; $24,348 of such fees are
included in trade accounts receivable at June 30, 1997. In addition, the Company
was reimbursed for payments made through its central payroll system for payroll
and related expenses, by partnerships related through common ownership, of
$236,429 for the period ended June 30, 1997.
On June 30, 1997, the Company retired 477,778 shares of common stock, leaving
1,800,000 shares outstanding.
F-8
<PAGE>
Diversified Senior Services, Inc. and Subsidiary
Notes to Consolidated Financial Statements
June 30, 1997
(Continued)
NOTE 3: PRO FORMA CONSOLIDATING STATEMENT OF OPERATIONS
The following pro forma consolidating statement of operations for the six
months ended June 30, 1996 is presented as if the Company were incorporated and
had acquired RPM on January 1, 1996.
<TABLE>
<CAPTION>
PRO FORMA
DSS, RPM, INC. CONSOLIDATED
Income:
<S> <C> <C> <C>
Management fees $ - $ 394,746 $ 394,746
Reimbursement income - 685,213 685,213
- 1,079,959 1,079,959
Expenses:
Personnel related 255,265 1,051,455 1,306,720
Administrative - 88,836 88,836
Other - 27,930 27,930
255,265 1,168,221 1,423,486
Operating loss 255,265 88,262 343,527
Other (income) expenses:
Depreciation and amortization - 219,424 219,424
Interest and other income - (15,955) (15,955)
Interest and other expense - 740 740
Loss before provision for 255,265 292,471 547,736
income tax benefit
Provision for income tax benefit - (104,200) (104,200)
Net loss $ 255,265 $ 188,271 $ 443,536
Net loss per share $ .19
Weighted number of shares outstanding 2,277,778
</TABLE>
NOTE 4: PROVISION FOR INCOME TAXES
A provision for income tax benefit has not been established since the
earnings of the parent and the amount of loss carryforward which could be used
to offset such earnings cannot be reasonably estimated at June 30, 1997.
F-9
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors of
Diversified Senior Services, Inc.
Winston-Salem, North Carolina
We have audited the accompanying consolidated balance sheet of Diversified
Senior Services, Inc. and Subsidiary (the Company) as of December 31, 1996, and
the related consolidated statements of operations, changes in shareholder's
deficit and of cash flows for the period from inception on May 17, 1996 to
December 31, 1996. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit 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 that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Diversified
Senior Services, Inc. and Subsidiary as of December 31, 1996, and the results of
its operations and cash flows for the period then ended, as described above, in
conformity with generally accepted accounting principles.
Our audit was made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The supplemental schedule of
consolidating statements of operations for the period from May 17, 1996 to
December 31, 1996 is presented for the purposes of additional analysis and is
not a required part of the basic financial statements. Such information has been
subjected to the auditing procedures applied in the audit of the basic financial
statements and, in our opinion, is fairly stated in all material respects in
relation to the basic financial statements taken as a whole.
The Daniel Professional Group, Inc.
/s/ The Daniel Professional Group, Inc.
August 6, 1997
Winston-Salem, North Carolina
F-10
<PAGE>
DIVERSIFIED SENIOR SERVICES, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
December 31, 1996
<TABLE>
<CAPTION>
ASSETS
Current assets:
<S> <C>
Cash and cash equivalents $ 31,132
Accounts receivable - trade 32,853
Refundable income tax 32,853
Prepaid expenses 20,191
_______________
217,825
Furniture and equipment, net (Note 3) 88,451
Intangible assets, net (Note 4) 918,071
Development costs 132,350
Accounts receivable - affiliates (Note 2) 253,616
______________
$ 1,610,313
==============
</TABLE>
<TABLE>
<CAPTION>
LIABILITIES
Current liabilities:
<S> <C>
Accounts payable and accrued expenses $ 122,009
Interest payable 6,587
Deferred salaries 292,906
______________
421,502
Deferred bonuses 135,382
Accounts payable - affiliates (Note 2) 56,170
Note payable - affiliate (Notes 2 and 5) 758,521
Note payable - bank (Note 5) 931,622
______________
2,303,197
______________
</TABLE>
<TABLE>
<CAPTION>
SHAREHOLDER'S DEFICIT
Preferred stock, no par; authorized 100,000,000
shares; no shares issued and outstanding
Common stock, no par; authorized 100,000,000
<S> <C>
shares; 2,277,778 shares issued and outstanding 100
Accumulated deficit (692,984)
_____________
(692,884)
_____________
$ 1,610,313
=============
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-11
<PAGE>
DIVERSIFIED SENIOR SERVICES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF OPERATIONS
For the Period from May 17, 1996 (Date of Inception) to December 31, 1996
<TABLE>
<CAPTION>
Income:
<S> <C>
Management fees $ 438,680
Reimbursement income 781,838
Home care income 18,797
_______________
1,239,315
_______________
Expenses:
Personnel related 1,651,388
Administrative 111,232
Other 64,490
_______________
1,827,110
_______________
Operating loss 587,795
Other expenses:
Depreciation and amortization 336,340
Interest expense 14,449
_______________
Loss before provision for income tax benefit 938,584
Provision for income tax benefit (245,600)
_______________
Net loss $ 692,984
===============
Net loss per share $ .38
===============
Weighted number of shares outstanding 1,838,236
===============
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-12
<PAGE>
DIVERSIFIED SENIOR SERVICES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDER'S DEFICIT
For the Period from May 17, 1996 (Date of Inception) to December 31,1996
<TABLE>
<CAPTION>
Common Common Accumulated Total
Shares Stock Deficit Deficit
________ ________ ___________ ___________
<S> <C> <C> <C> <C>
Balance, May 17, 1996 - $ - $ - $ -
Issuance of common stock 100 100 - 100
Issuance of common stock 2,277,678 - - -
Net loss for the period ended
December 31, 1996 - - (692,984) (692,984)
_________ ________ ___________ ___________
Balance, December 31, 1996 2,277,778 $ 100 $(692,984) $(692,884)
========= ======== =========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-13
<PAGE>
DIVERSIFIED SENIOR SERVICES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
For the Period from May 17, 1996 (Date of Inception) to December 31, 1996
Increase (Decrease) in Cash and Cash Equivalents
<TABLE>
<CAPTION>
Operating activities:
<S> <C>
Net loss $(692,984)
__________
Adjustments to reconcile net loss to net cash
used by operating activities:
Depreciation and amortization 336,340
Changes in operating assets and liabilities:
Accounts receivable (14,615)
Prepaid expenses (11,930)
Accounts payable, trade 24,200
Accounts payable, affiliates (240,752)
Interest payable 6,587
Deferred salaries and bonuses 428,288
__________
Total adjustments 528,118
__________
Net cash used by operating activities (164,866)
__________
Investing activities:
Purchase of furniture and equipment (2,903)
Development costs paid (58,499)
Payment of organization costs (9,586)
Other (35,250)
__________
Net cash used by investing activities (106,238)
__________
Financing activities:
Contribution of capital 100
Proceeds from bank line of credit 931,622
Advances and repayments to affiliates (668,991)
Advances and repayments from affiliates 48,882
Payment of finance costs (13,887)
__________
Net cash provided by financing activities 297,726
__________
Net increase in cash 26,622
Cash and cash equivalents - beginning -
Cash held by subsidiary at date of acquisition 4,510
__________
Cash and cash equivalents - ending $ 31,132
=========
Cash payments for interest $ 7,862
=========
Cash payments for income taxes $ -
=========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-14
<PAGE>
DIVERSIFIED SENIOR SERVICES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
(continued)
Supplemental schedule of non-cash investing and financing
activities For the Period from May 17, 1996 (Date of
Inception) to December 31, 1996
On July 1, 1996, Taylor House Enterprises Limited (THE), the parent, exchanged
100% of the stock of Residential Properties Management, Inc. (RPM) for 2,277,678
shares of DSS in a non-cash transaction.
On September 1, 1996, RPM, the subsidiary, acquired certain assets and assumed
certain liabilities of an affiliate, as follows:
<TABLE>
<CAPTION>
Assets:
<S> <C>
Management contract rights acquired $ 200,340
Reduction of accounts receivable from affiliate $(110,903)
Liabilities:
Accounts payable to THE assumed $( 89,437)
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-15
<PAGE>
Diversified Senior Services, Inc. and Subsidiary
Notes to Consolidated Financial Statements
December 31, 1996
NOTE 1: ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Diversified Senior Services, Inc. (the Company), a North Carolina
corporation, was formed on May 17, 1996, to continue the operation of apartment
management for the low income elderly and other properties, to provide home care
for residents of the apartments and others, to manage assisted living facilities
for the low income elderly, and to develop and construct or acquire and
refinance assisted living facilities and apartments for the elderly. It began
operations on July 1, 1996 and its operations are currently being conducted in
North Carolina. The Company is owned by Taylor House Enterprises, Limited (THE),
a privately owned North Carolina corporation. In July 1996, THE exchanged 100%
of the stock of Residential Properties Management, Inc. (RPM), a wholly owned
subsidiary of THE, for 2,277,678 shares of common stock of the Company. RPM
manages approximately 2500 housing units in North Carolina, South Carolina, West
Virginia, and Pennsylvania for the owners of THE and for third parties.
The following significant accounting policies have been followed in the
preparation of the Company's financial statements.
CONSOLIDATION
The consolidated financial statements include the assets, liabilities, and
operations of RPM, a 100% owned subsidiary of the Company. All significant
inter-company transactions have been eliminated in consolidation.
CASH EQUIVALENTS
For purposes of the statement of cash flows, the Company considers all
highly liquid investments purchased within three months of maturity to be
cash equivalents.
ACCOUNTS RECEIVABLE - TRADE
Accounts receivable - trade consists of management fees and reimbursements
for administrative services due from partnerships whose properties are
managed by RPM, and home care income which is due primarily from Medicaid
of North Carolina. The general partners of the partnerships are liable for
the payment of the receivables if the partnerships do not have adequate
cash flow; therefore, the Company considers such accounts receivable to be
fully collectible. The Company and its subsidiary provide services to
customers and clients on a noncollateralized basis.
F-16
<PAGE>
Diversified Senior Services, Inc. and Subsidiary
Notes to Consolidated Financial Statements
December 31, 1996
(Continued)
NOTE 1: ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
FURNITURE AND EQUIPMENT
Furniture and equipment are stated at cost. Depreciation is determined
using the straight line method and is based on the estimated useful lives
of the related assets of three (3) to five (5) years. Expenditures for
maintenance and repairs which do not improve or extend the life of an asset
are expensed as incurred. Major renewals and betterments are charged to the
property accounts. Upon retirement or sale of an asset, its cost and
related accumulated depreciation are removed from the property accounts and
any gain or loss is recorded as income or expense.
INTANGIBLE ASSETS
Management contract rights represent the contractual rights purchased to
allow the Company to manage various apartment or housing projects and are
amortized on a straight line basis over the lives of the contracts, which
range from three (3) to seven (7) years.
Finance costs consist of expenses incurred for the bank line of credit, and
are amortized over the life of the loan.
Organization costs include expenses incurred during the start up of the
Company, and are amortized ratably over sixty (60) months, beginning July
1, 1996.
DEVELOPMENT COSTS
Development costs are expenses that are capitalized during the development
stage on new assisted living facilities. The costs are reimbursed upon the
completion of construction and sale of the facilities to the permanent
owner of the real estate. Costs for abandoned sites are written off when
the sites are considered not feasible.
NET INCOME (LOSS) PER SHARE
Net income (loss) per share is computed based on the weighted average
number of common shares outstanding for the period.
ADVERTISING
The costs of advertising and marketing programs are expensed as incurred.
F-17
<PAGE>
Diversified Senior Services, Inc. and Subsidiary
Notes to Consolidated Financial Statements
December 31, 1996
(Continued)
NOTE 1: ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
ESTIMATES AND ASSUMPTIONS
The preparation of financial statements in conformity with generally
accepted accounting principles (GAAP) requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of income and expenses during
the reporting period. Actual results could differ from those estimates.
INCOME TAXES
The Company is a C corporation and files its federal income tax return as a
part of a consolidated group with THE as the parent. Federal tax expense or
benefit is allocated based on net income or loss for each entity in the
consolidated group. North Carolina state income tax regulations do not
permit filing of consolidated income tax returns. Accordingly, the Company
and its subsidiary file separate state corporate income tax returns.
The Company uses the asset and liability approach for financial accounting
and reporting for income taxes and deferred tax assets and liabilities. If
it is more likely than not that some portion or all of a deferred tax asset
will not be realized, a valuation allowance is recognized.
INCOME RECOGNITION
Management fee income is assessed as a percentage of rent collected at
apartments. Income is recognized monthly as rent collections are made.
Reimbursement income consists of amounts reimbursed or due to the Company
from properties managed for the services of management and maintenance
personnel employed by the Company.
Home care income is recognized at the time the service is provided.
PREFERRED STOCK
The Company's Articles of Incorporation provide authority for the issuance
of 100,000,000 shares of preferred stock, no par value. The Company has not
issued such stock, nor have attributes or preferences been established.
F-18
<PAGE>
Diversified Senior Services, Inc. and Subsidiary
Notes to Consolidated Financial Statements
December 31, 1996
(Continued)
NOTE 2: RELATED PARTY TRANSACTIONS
On July 1, 1996, the Company, a 100% owned subsidiary of THE, acquired 100%
of RPM from THE. RPM is a management company formed in 1989 to manage
residential apartments, many of which are HUD or RECD (formerly FmHA)
subsidized. The acquisition was accomplished by the exchange of 2,277,678 shares
of common stock of DSS for 100% of the stock (100 shares) of RPM. No value was
assigned to the stock at the time of acquisition, as RPM had no positive book
value at the date of acquisition. The acquisition was treated as a purchase for
reporting purposes. The results of operations are included in the financial
statements of DSS from July 1, 1996 to December 31, 1996. In addition, a pro
forma financial statement has been included in Note 10 which includes a full
year of operations of RPM as if DSS were incorporated and had acquired RPM on
January 1, 1996.
On September 1, 1996, RPM purchased certain management contract rights from
an entity related through common ownership. The purchase was funded by RPM
reducing its receivable due from the affiliate by $110,903 and by assuming the
affiliate's account payable due THE in the amount of $89,437. The value of the
asset acquired of $200,340, was determined by the fair value of the reduction in
the account receivable and the fair value of the liability assumed.
Development costs totaling $50,000 were incurred by THE on behalf of the
Company during the period ended December 31, 1996.
RPM leases certain computer equipment from THE under operating lease
agreements expiring in 2001. These lease agreements are included in the lease
information disclosed in Note 8.
From time to time, the Company advances or borrows funds from the parent,
THE, or other related entities.
F-19
<PAGE>
<TABLE>
<CAPTION>
Diversified Senior Services, Inc. and Subsidiary
Notes to Consolidated Financial Statements
December 31, 1996
(Continued)
NOTE 2: RELATED PARTY TRANSACTIONS (CONTINUED)
The following schedule summarizes the related party activities for the
period ended December 31, 1996.
Note
Due from Due to Payable
Affiliates Affiliates Affiliate Total
<S> <C> <C> <C> <C>
Amounts due (to) from affiliates:
Amounts due to (from) RPM at date of
acquisition:
Management fees due from related
partnerships $ 257,673 $ - $ - $ 257,673
Advances due from affiliate 50,441 - 50,441
Amounts due to related partnership - (20,000) - (20,000)
Amounts due to other related entities - (2,755) - (2,755)
Advances due to parent - (1,506,955) - (1,506,955)
--------- ----------- --------- ------------
308,114 (1,529,710) - (1,221,596)
Issuance of note to parent - 829,296 (829,296) -
Working capital advances from affiliate 38,996 - - 38,996
Receipts from related partnerships (4,057) - - (4,057)
Purchase of management contract rights
from affiliate (89,437) (110,903) - (200,340)
Development costs incurred by parent - (50,000) - (50,000)
Repayment of development costs - 50,000 - 50,000
Computer equipment lease payments due
parent - (4,848) - (4,848)
Working capital advances from parent - (44,825) - (44,825)
Repayments to parent - 559,220 70,775 629,995
Tax benefit of operating losses due from
parent - 245,600 - 245,600
--------- ----------- --------- ------------
Balance, December 31, 1996 $ 253,616 $ (56,170) $ (758,521) $(561,075)
========== =========== ============ ==========
</TABLE>
There was no interest income received from or interest expense paid or
accrued to related parties during the period ended December 31, 1996. Accounts
payable to related parties bear no interest and have no scheduled repayment
terms. See Note 5 for the terms of the note payable to affiliate.
F-20
<PAGE>
Diversified Senior Services, Inc. and Subsidiary
Notes to Consolidated Financial Statements
December 31, 1996
(Continued)
NOTE 2: RELATED PARTY TRANSACTIONS (CONTINUED)
Management fee income includes $143,774 earned from partnerships, a general
partner of which is a beneficial shareholder of THE; $30,835 of such income is
included in trade accounts receivable at December 31, 1996. In addition, the
Company was reimbursed for payments made through its central payroll system for
payroll and related expenses, by partnerships which are related through common
ownership, of $250,354 for the period ended December 31, 1996.
NOTE 3: FURNITURE AND EQUIPMENT
The Company has furniture and equipment as follows at December 31, 1996:
<TABLE>
<CAPTION>
<S> <C>
Computer equipment $ 84,679
Office furniture 39,794
_____________
124,473
Less accumulated depreciation 36,022
_____________
$ 88,451
</TABLE>
Depreciation expense for the period ended December 31, 1996 was
$18,108.
NOTE 4: INTANGIBLE ASSETS
Intangible assets consist of the following at December 31, 1996:
<TABLE>
<CAPTION>
<S> <C>
Management contract rights $ 1,258,732
Finance costs 13,887
Organization costs 9,586
_____________
$ 1,282,205
Less accumulated amortization 364,134
_____________
$ 918,071
</TABLE>
Amortization expense for the period ended December 31, 1996 was
$318,232.
F-21
<PAGE>
Diversified Senior Services, Inc. and Subsidiary
Notes to Consolidated Financial Statements
December 31, 1996
(Continued)
NOTE 5: NOTES PAYABLE
<TABLE>
<CAPTION>
Notes payable consist of the following at December 31, 1996:
Bank line of credit, bearing
interest at prime (8.25% at
December 31, 1996), payable
quarterly, originally maturing
October 1997. The note is
guaranteed by THE, and 61,303
shares of Omega Healthcare
Investors, Inc. common stock
owned by THE are pledged as
collateral for the loan. In
July 1997, the Company
modified its line of credit by
increasing the authorized
amount to $1.5 million and
extending the maturity date to
<S> <C>
January 1998. $ 931,622
Note payable to THE, bearing no interest, payable
366 days after demand 758,521
-----------
Notes payable due during 1998 $ 1,690,143
===========
</TABLE>
NOTE 6: SAVINGS INCENTIVE PLAN
The Company participates in a defined contribution savings incentive plan
covering substantially all of its full time employees. The Company is required
to provide a 50% matching contribution to each employee participant for
contributions up to the first 5% of compensation. On January 1, 1996, the plan
was amended to cover substantially all employees of the controlled group of
companies owned by THE. The Company's required contribution for the period ended
December 31, 1996 was $6,085.
NOTE 7: PROVISION FOR INCOME TAXES
Deferred taxes are recorded based upon differences between the financial
statement and tax bases of assets and liabilities and for available tax loss
carryforwards. The primary temporary difference between the financial statement
and tax bases of assets and liabilities consists of accrued compensation for the
Company's majority beneficial owner. In addition, the Company and subsidiary
have available deferred tax assets related to state income tax loss
carryforwards. A valuation allowance is provided to reduce the deferred tax
assets to a level which, more likely than not, will be realized. The net
deferred assets reflect management's estimate of the amount which will be
realized from future profitability. At December 31, 1996, deferred tax assets of
DSS and RPM were $122,268, and $55,069, respectively, totaling $177,337. The
Company has established a valuation allowance of 100% of the assets. Deferred
tax assets of RPM totaled $25,444 on July 1, 1996, the date it was acquired by
DSS. Again, management established a valuation allowances of 100% of the
deferred assets. There were no deferred tax liabilities at December 31, 1996.
F-22
<PAGE>
Diversified Senior Services, Inc. and Subsidiary
Notes to Consolidated Financial Statements
December 31, 1996
(Continued)
NOTE 7: PROVISION FOR INCOME TAXES (CONTINUED)
DSS and RPM had state loss carryforwards of $340,108 and $710,562
respectively, available at December 31, 1996 to be applied against future
taxable income. The tax loss carryforwards are subject to examination by taxing
authorities and if not previously utilized, expire December 31, 2001.
The Company files a consolidated federal return with its parent, THE;
therefore, loss carryforwards for federal purposes have been utilized.
The provision for income tax benefit of $245,600 is for losses used by the
parent in the federal consolidated income tax return for the year ended December
31, 1996.
NOTE 8: COMMITMENTS AND CONTINGENCIES
Various litigation occurs from time to time in the normal course of
business of the Company. These issues are not considered to be significant to
the financial statements of the Company and management does not contemplate
losses in regard to such issues. There was no outstanding litigation at December
31, 1996.
The Company has various operating leases for office space and equipment.
Future minimum lease payments of $70,042 are as follows for the years ending
December 31:
<TABLE>
<CAPTION>
<S> <C>
1997 $ 36,869
1998 $ 15,558
1999 $ 9,673
2000 $ 4,848
2001 $ 3,094
</TABLE>
Rent expense for the period ended December 31, 1996 was $43,292. Beginning
in May 1997, the Company entered into a month-to-month lease with THE, the
parent, for office space for its corporate headquarters with required monthly
rent payments of $2,700. In addition, RPM leases certain computer equipment from
THE under operating lease agreements expiring in 2001, with monthly payments of
$404.
F-23
<PAGE>
Diversified Senior Services, Inc. and Subsidiary
Notes to Consolidated Financial Statements
December 31, 1996
(Continued)
NOTE 9: SUBSEQUENT EVENTS
During the period January 1, 1997 to August 6, 1997, the Company has
accelerated its development activities. As of August 6, 1997, the Company has
control, through options or direct ownership, of several tracts of land
throughout North Carolina for development of assisted living facilities. The
Company has obtained favorable market feasibility analyses on three of the
sites. The Company will hold these properties as nominee for the nonprofit owner
until such time as the proposed bond financing for such property is ready to
close.
Effective January 1, 1997, the Board of Directors approved five-year
employment agreements with certain officers of the Company. Under the terms of
the agreements, the Company agreed to assume responsibility for accrued but
unpaid salaries incurred by the Company's parent relating to the startup
activities of the Company of $271,263 during 1996 and $148,882 during 1997.
These salaries have been recorded as expense during the periods.
In addition, officers are entitled to a bonus in the amount of 50% of the
stated amounts of the unpaid salaries in consideration for the deferral. Again,
these bonuses have been recorded as expenses during the periods. The agreements
permit the bonus amount to be used for the purchase of stock ranging from 50% to
100% of the offering price of the shares on the public market.
The agreements provide for the payment to each executive officer of a lump
sum severance payment if the Company terminates such executive's employment
during the term of the agreements other than for cause, or if the employment is
terminated for certain reasons, including a change of control of the Company.
The lump sum payment is equal to three times the amount of such executive's
average base salary for the previous five years.
Effective January 1, 1997, the Directors and shareholder adopted the
Company's 1997 Stock Incentive Plan for 500,000 shares of common stock, which
authorizes the Board (or future committee) to issue stock options, stock
appreciation rights, restricted stock and deferred stock subject to the Plan and
such other terms as set by the Board. As of August 6, 1997, no grants have been
made.
F-24
<PAGE>
Diversified Senior Services, Inc. and Subsidiary
Notes to Consolidated Financial Statements
December 31, 1996
(Continued)
NOTE 9: SUBSEQUENT EVENTS (CONTINUED)
The Company currently proposes to undertake a public offering of 1,200,000
shares of common stock. The Company has entered into an engagement letter with
an investment banking firm for a firm underwriting of the stock. The Company has
agreed to sell the stock to the underwriter at a discount of 10% of the public
offering price. The Company has also agreed to pay the underwriter a
non-accountable expense allowance of $180,000, $100,000 of which will be
advanced during the registration process. The Company is obligated to pay up to
$180,000 of the underwriter's expense if the stock is not sold. As additional
compensation, the Company will grant the underwriter warrants to purchase
120,000 shares of common stock exercisable for four years, commencing 12 months
after the closing of the offering, at an exercise price equal to 120% of the
public offering price. In addition, the Company will contract with the
underwriter for advisory services for two years after the completion of the
offering for $50,000 per year. The entire $100,000 obligation will be prepaid at
the completion of the equity offering.
On June 30, 1997, the Company retired 477,778 shares of its common stock,
leaving 1,800,000 shares outstanding.
F-25
<PAGE>
Diversified Senior Services, Inc. and Subsidiary
Notes to Consolidated Financial Statements
December 31, 1996
(Continued)
NOTE 10: PRO FORMA CONSOLIDATING STATEMENT OF OPERATIONS
The following consolidating statement of operations includes the full year
of operations of RPM as if it were acquired on January 1, 1996, and as if DSS
were incorporated on January 1, 1996.
<TABLE>
<CAPTION>
Pro forma
DSS, Inc. RPM, Inc. Consolidated
----------- ------------ --------------
<S> <C> <C> <C>
Income:
Management fees $ - $ 833,426 $833,426
Reimbursement income - 1,467,051 1,467,051
Home care income 18,797 - 18,797
--------- --------- ---------
18,797 2,300,477 2,319,274
--------- --------- ---------
Expenses:
Personnel related 559,285 2,143,558 2,702,843
Administrative 17,058 183,010 200,068
Other 16,621 75,798 92,419
--------- --------- ---------
592,964 2,402,366 2,995,330
--------- --------- ---------
Operating loss 574,167 101,889 676,056
Other (income) expenses:
Depreciation and amortization 3,930 551,834 555,764
Interest and other income - (15,955) (15,955)
Interest and other expense 14,449 740 15,189
--------- --------- ---------
Loss before provision for income tax benefit 592,546 638,508 1,231,054
Provision for income tax benefit (115,600) (234,200) (349,800)
--------- --------- ---------
Net loss $476,946 $ 404,308 $ 881,254
======== ======== =========
Net loss per share $ .39
=========
Weighted number of shares outstanding 2,277,778
=========
</TABLE>
F-26
<PAGE>
<TABLE>
<CAPTION>
DIVERSIFIED SENIOR SERVICES, INC. AND SUBSIDIARY
Supplemental Schedule of Consolidating Statements of Operations
For the Period from May 17, 1996 (Date of Inception) to December 31, 1996
DSS, Inc. RPM, Inc.(1) Consolidated
----------- ------------ ------------
<S> <C> <C> <C>
Income
Management fees $ - $ 438,680 $ 438,680
Reimbursement income - 781,838 781,838
Home care income 18,797 - 18,797
----------- ------------ ------------
18,797 1,220,518 1,239,315
----------- ------------ ------------
Expenses:
Personnel related 559,285 1,092,103 1,651,388
Administrative 17,058 94,174 111,232
Other 16,621 47,869 64,490
----------- ------------ ------------
592,964 1,234,146 1,827,110
----------- ------------ ------------
Operating loss 574,167 13,628 587,795
Other expenses:
Depreciation and amortization 3,930 332,410 336,340
Interest and other expenses 14,449 - 14,449
----------- ------------ ------------
Loss before provision for income tax benefit 592,546 346,038 938,584
Provision for income tax benefit (115,600) (130,000) (245,600)
----------- ------------ ------------
Net loss $ 476,946 $ 216,038 $ 692,984
=========== ============ ===========
</TABLE>
(1) Operations from the date of acquisition, July 1, 1996 to December 31, 1996
F-27
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors of
Residential Properties Management, Inc.
Winston-Salem, North Carolina
We have audited the accompanying statements of operations, changes in
shareholder's equity (deficit) and cash flows of Residential Properties
Management, Inc. (the Company) for the six month period ended June 30, 1996 and
the year ended December 31, 1995. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit 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, evidenced 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 that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the stockholder's equity (deficit) of Residential
Properties Management, Inc. as of June 30, 1996 and December 31, 1995, and the
results of its operations and cash flows for the periods then ended, as
described above, in conformity with generally accepted accounting principles.
The Daniel Professional Group, Inc.
/s/ The Daniel Professional Group, Inc.
August 6, 1997
Winston-Salem, North Carolina
F-28
<PAGE>
RESIDENTIAL PROPERTIES MANAGEMENT, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE SIX FOR THE YEAR
MONTHS ENDED ENDED
JUNE 30, DECEMBER 31,
1996 1995
------------ --------------
Income
<S> <C> <C>
Management fees $ 394,746 $ -
Reimbursement income 685,213 -
----------- -------------
1,079,959 -
----------- -------------
Expenses:
Personnel related 1,051,455 -
Administrative 88,836 -
Other 27,930 -
------------ ------------
1,168,221 -
------------ ------------
Operating loss (88,262) -
Other income (expenses):
Depreciation and amortization (219,424) -
Interest and other income 15,955 52,507
Gain on sale of stock available for sale - 99,108
Interest and other expense (740) (19,690)
---------- -------------
Income (loss) before provision for income
tax benefit (expenses) (292,471) 131,925
Provision for income tax benefit (expense) 104,200 (45,100)
---------- -------------
Net income (loss) $(188,271) $86,825
=========== ============
Net earnings (loss) per share $ (1,883) $ 868
Shares outstanding 100 100
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-29
<PAGE>
RESIDENTIAL PROPERTIES MANAGEMENT, INC.
STATEMENTS OF CHANGES IN SHAREHOLDER'S EQUITY (DEFICIT)
For the Six Months Ended June 30, 1996 and the Year Ended December 31, 1995
<TABLE>
<CAPTION>
Unrealized Retained Total
Common Common Paid-in Gain on Earnings Equity
Shares Stock Capital Investments (Deficit) (Deficit)
-------- ------- --------- ----------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1995 100 $ 100 $ 87,314 $309,164 $ 96,406 $492,984
Unrealized loss on securities - - - (38,950) - (38,950)
available for sale
Net income for the year ended - - - - 86,825 86,825
December 31, 1995 ----- ----- ------- -------- ------- -------
Balance, December 31, 1995 100 100 87,314 270,214 183,231 540,859
Transfer securities available - - (87,314) (270,214) - (357,528)
for sale to parent
Net loss for the six months - - - - (188,271) (188,271)
ended June 30, 1996 ----- ----- ------- -------- ------- -------
Balance, June 30, 1996 100 $ 100 $ - $ - $ (5,040) $ (4,940)
===== ===== ======= ======== ======= =======
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-30
<PAGE>
RESIDENTIAL PROPERTIES MANAGEMENT, INC.
STATEMENTS OF CASH FLOWS
Increase (Decrease) in Cash and Cash Equivalents
<TABLE>
<CAPTION>
FOR THE SIX FOR THE YEAR
MONTHS ENDED ENDED
JUNE 30, DECEMBER 31,
1996 1995
Operating activities:
<S> <C> <C>
Net income (loss) $ (188,271) $ 86,825
------------ ---------
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization $ 219,424 $ -
Gain on sale of investments - (99,108)
Changes in operating assets and liability:
Accounts receivable 40,137 -
Dividends receivable - 13,912
Interest receivable - (16,000)
Prepaid expenses (10,639) -
Accounts payable 97,809 2,498
Advances to affiliates (104,200) 19,590
----------- ---------
Total adjustments 242,531 (79,108)
----------- ---------
Net cash provided by operating activities 54,260 7,717
----------- ---------
Investing activities:
Proceeds from sale of investments - 134,396
Other (3,315) 4,985
----------- ---------
Net cash provided (used) by investing activities (3,315) 139,381
----------- ---------
Financing activities:
Advances and repayments to affiliates (50,441) (344,773)
Advances and repayments from affiliates 2,005 -
Increase in margin payable - 185,509
----------- ---------
Net cash used by financing activities (48,436) (159,264)
----------- ---------
Net increase (decrease) in cash 2,509 (12,166)
Cash and cash equivalents - beginning 2,001 14,167
----------- ---------
Cash and cash equivalents - ending $ 4,510 $ 2,001
=========== =========
Cash payments for interest $ - $ -
=========== =========
Cash payments for income taxes $ - $ -
=========== =========
</TABLE>
F-31
<PAGE>
RESIDENTIAL PROPERTIES MANAGEMENT, INC.
STATEMENTS OF CASH FLOWS (continued)
Supplemental schedule of non-cash investing and financing activities for the six
months ended June 30, 1996 and the year ended December 31, 1995
On January 1, 1996, the Company's investment in securities available for sale
and associated margin account payable were transferred to THE, the parent, in a
non-cash transaction as follows:
<TABLE>
<CAPTION>
Assets:
<S> <C>
Investment in securities, at market $ (494,693)
Liabilities:
Margin payable $ 185,509
Accounts payable THE $ (48,344)
Equity:
Unrealized gains on investment $ 270,214
Paid in capital in excess of par $ 87,314
</TABLE>
In addition, as described in Note 6 to the financial statements,
the Company acquired certain assets and assumed certain
liabilities of an affiliate, in a non-cash transaction as follows:
<TABLE>
<CAPTION>
Assets acquired:
<S> <C>
Management contract rights $1,209,060
Land $ 70,536
Furniture and equipment $ 121,569
Accounts receivable - trade $ 119,023
Liabilities assumed:
Accounts payable THE $(1,520,188)
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-32
<PAGE>
Residential Properties Management, Inc.
Notes to Financial Statements
For the Six Months Ended June 30, 1996 and the Year Ended December 31, 1995
NOTE 1: ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Residential Properties Management, Inc. (the Company), a North Carolina
corporation, was formed on March 29, 1989, to manage government subsidized
multi-family and elderly resident rental apartments through management contracts
with the owners of the real estate. The apartments are subsidized through Rural
Economic and Community Development, Section 515, and Housing and Urban
Development, Section 8 programs. The Company also manages properties developed
under the Low-Income Housing Tax Credit program as well as conventional
apartments and homes. The Company's operations are located primarily in North
Carolina, South Carolina, West Virginia and Pennsylvania.
The following significant accounting policies have been followed in the
preparation of the Company's financial statements.
CASH EQUIVALENTS
For purposes of the statement of cash flows, the Company considers all
highly liquid investments purchased within three months of maturity to
be cash equivalents.
ACCOUNTS RECEIVABLE - TRADE
Accounts receivable - trade consists of management fees and
reimbursements for administrative services due from partnerships whose
properties are managed by the Company. The general partners of the
partnerships are liable for the payment of the receivables if the
partnerships do not have adequate cash flow; therefore, the Company
considers such accounts receivable to be fully collectable. The Company
provides services to customers on a ` basis.
FURNITURE AND EQUIPMENT
Furniture and equipment are stated at cost. Depreciation is determined
using the straight line method and is based on estimated useful lives
of the related assets of three (3) to five (5) years. Expenditures for
maintenance and repairs which do not improve or extend the life of an
asset are expensed as incurred. Major renewals and betterments are
charged to the property accounts. Upon retirement or sale of an asset,
its cost and related accumulated depreciation are removed from the
property accounts and any gain or loss is recorded in income or
expense.
F-33
<PAGE>
Residential Properties Management, Inc.
Notes to Financial Statements
For the Six Months Ended June 30, 1996 and the Year Ended December 31, 1995
(Continued)
NOTE 1: ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INTANGIBLE ASSETS
Intangible assets consist of management contract rights, which
represent the contractual rights purchased to allow the Company to
manage various apartment or housing projects and are amortized on a
straight-line basis over the lives of the contracts which range from
three (3) to seven (7) years.
INCOME TAXES
The Company is a C corporation and files its federal income tax return
as part of a consolidated group with its parent, Taylor House
Enterprises, Limited (THE). Federal tax expense or benefit is allocated
based upon the net income or loss of each entity of the consolidated
group. North Carolina state income tax regulations do not permit filing
of consolidated income tax returns. Accordingly, the Company files a
separate state corporate income tax return.
The Company uses the asset and liability approach for financial
accounting and reporting for income taxes and deferred tax assets and
liabilities. If it is more likely than not that some portion or all of
a deferred tax asset will not be realized, a valuation allowance is
recognized.
INCOME RECOGNITION
Management fee income is assessed as a percentage of rent collected at
the apartments. Income is recognized in the month rent collections are
made.
Reimbursement income consists of amounts reimbursed or due to the
Company from the properties managed for the services of management and
maintenance personnel employed by the Company.
ADVERTISING
The costs of advertising and marketing programs are expensed as incurred.
NET INCOME (LOSS) PER SHARE
Net income (loss) per share is computed based on the weighted average
number of common shares outstanding for the respective periods.
F-34
<PAGE>
Residential Properties Management, Inc.
Notes to Financial Statements
For the Six Months Ended June 30, 1996 and the Year Ended December 31, 1995
(Continued)
NOTE 1: ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
MARKETABLE SECURITIES
The Company follows SFAS No. 115, "Accounting for Certain Investments
in Debt and Equity Securities." SFAS No. 115 requires certain
investments to be categorized as either trading, available for sale, or
held to maturity. Trading securities are reported at fair value, with
changes in fair value included in earnings. Available for sale
securities are reported at fair value, with net unrealized gains and
losses recorded as a special component of stockholders' equity. Held to
maturity debt securities are carried at amortized cost. Fair values are
determined based upon quoted market prices. The cost of securities sold
is determined using the average cost method.
At December 31, 1995, all of the Company's investments were in equity
securities, classified as available for sale securities.
ESTIMATES AND ASSUMPTIONS
The preparation of financial statements in conformity with generally
accepted accounting principles (GAAP) requires management to make
estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of income
and expenses during the reporting period. Actual results could differ
from those estimates.
F-35
<PAGE>
Residential Properties Management, Inc.
Notes to Financial Statements
For the Six Months Ended June 30, 1996 and the Year Ended December 31, 1995
(Continued)
NOTE 2: RELATED PARTY TRANSACTIONS
As discussed in Note 6, the Company purchased assets consisting of
management contract rights, trade accounts receivable, land, furniture and
equipment from an entity related through common ownership.
From time to time, the Company advances or borrows funds from the parent or
other related entities. In addition, due to filing federal consolidated income
tax returns, the parent sometimes funds the income tax expense of the Company.
The following schedule summarizes related party activities for the six
months ended June 30, 1996 and for the year ended December 31, 1995.
<TABLE>
<CAPTION>
Due from Due to
Affiliates Affiliates Total
----------- ----------- -------------
<S> <C> <C> <C>
Amounts due (to) from affiliates at January 1, 1995:
Management fees due from related partnerships $ 257,673 $ - $ 257,673
Advances due from affiliate 220,540 - 220,540
Interest receivable from affiliate 16,658 - 16,658
Amounts due to related partnership - (20,000) (20,000)
Amounts due to other related entities - (2,755) (2,755)
Advances due to parent - (618,999) (618,999)
------------ ----------- -------------
Balance, January 1, 1995 494,871 (641,754) (146,883)
Interest assessed to affiliate 16,000 - 16,000
Advance to parent - 340,693 340,693
Payment of income taxes by parent - (19,590) (19,590)
Repayment of advances to parent - 4,080 4,080
------------ ----------- ------------
Balance, December 31, 1995 510,871 (316,571) 194,300
Purchase of assets from affiliate (1,520,188) - (1,520,188)
Assumption of affiliate's liability to parent 1,266,990 (1,266,990) -
Transfer of securities and associated margin account to parent - (48,344) (48,344)
Working capital advance to affiliate 50,441 - 50,441
Working capital advance from parent - (2,005) (2,005)
Tax benefit of operating losses due from parent - 104,200 104,200
------------ ----------- ------------
Balance June 30, 1996 $ 308,114 $(1,529,710) $(1,221,596)
============ =========== ============
</TABLE>
F-36
<PAGE>
Residential Properties Management, Inc.
Notes to Financial Statements
For the Six Months Ended June 30, 1996 and the Year Ended December 31, 1995
(Continued)
NOTE 2: RELATED PARTY TRANSACTIONS (CONTINUED)
Interest income from related party notes receivable was $16,000 for the
year ended December 31, 1995. There was no interest income received from or
interest expense paid or accrued to related parties during the six months ended
June 30, 1996. Accounts payable to affiliates bear no interest and have no
scheduled repayment terms.
Management fee income includes $140,522 for the six months ended June 30,
1996 earned from partnerships, a general partner of which is a beneficial
shareholder of the Company; $20,141 of such fees are included in trade accounts
receivable at June 30, 1996. In addition, the Company was reimbursed for
payments made through its central payroll system for payroll and related
expenses, by partnerships related through common ownership of $222,959 for the
period ended June 30, 1996.
NOTE 3: FURNITURE AND EQUIPMENT
<TABLE>
<CAPTION>
The Company has furniture and equipment as follows at June 30, 1996:
<S> <C>
Computer equipment $ 84,679
Office furniture and equipment 36,890
-------------
121,569
Less accumulated depreciation 17,914
-------------
$ 103,655
</TABLE>
The Company held no furniture and equipment at June 30, 1995.
Depreciation expense was $17,914 for the six months ended June 30, 1996.
NOTE 4: INTANGIBLE ASSETS
<TABLE>
<CAPTION>
Intangible assets consist of the following at June 30, 1996:
<S> <C>
Management contract rights $ 1,209,060
Less accumulated amortization 201,510
------------
$ 1,007,550
</TABLE>
Amortization expense was $201,510 for the six months ended June 30, 1996.
As further discussed in Notes 2 and 6 management contract rights were
purchased from an entity related through common ownership.
F-37
<PAGE>
Residential Properties Management, Inc.
Notes to Financial Statements
For the Six Months Ended June 30, 1996 and the Year Ended December 31, 1995
(Continued)
NOTE 5: INVESTMENT IN EQUITY SECURITIES
At December 31, 1995, the Company held equity securities consisting of
common stock in Omega Healthcare Investors, Inc. ("Omega"). In January 1996, the
Omega stock and related accounts were transferred to the parent at book value.
The following information is presented with regard to the stock:
<TABLE>
<CAPTION>
DECEMBER 31, 1995
-----------------
<S> <C>
Fair Value $ 494,693
Unrealized gains $ (270,214)
Unrealized losses $ -
</TABLE>
Market values were based on quoted market prices. The change in the
unrealized gains for the year ended December 31, 1995 was a decrease of $38,750.
Proceeds from the sale of securities were $134,396 for the year ended
December 31, 1995, and gross realized gains of $99,108 have been recognized. The
average cost method is used to determine cost basis when calculating realized
gains and losses.
Margin payable at December 31, 1995 to a securities firm bears interest at
the prime rate and is payable on demand. The stock in Omega is collateral for
the margin account.
NOTE 6: PURCHASE OF ASSETS
On January 1, 1996, the Company purchased certain assets, consisting of
management contract rights, trade accounts receivable, land, and furniture and
equipment from an affiliate, by assuming certain liabilities to THE. The value
of the assets acquired was determined by the fair value of the liability
assumed, and was allocated to assets according to the relative value of assets
acquired as follows:
<TABLE>
<CAPTION>
<S> <C>
Management contracts $ 1,209,060
Land 70,536
Furniture and equipment 121,569
Accounts receivable 119,023
------------
$ 1,520,188
============
</TABLE>
F-38
<PAGE>
Residential Properties Management, Inc.
Notes to Financial Statements
For the Six Months Ended June 30, 1996 and the Year Ended December 31, 1995
(Continued)
NOTE 7: SAVINGS INCENTIVE PLAN
The Company participates in a defined contribution savings incentive plan
covering substantially all of its full time employees. The Company is required
to provide a 50% matching contribution to each employee participant for
contributions up to the first 5% of compensation. On January 1, 1996 the plan
was amended to cover substantially all employees of the controlled group of
companies owned by THE. The Company's required contributions for the period
ended June 30, 1996 were $5,528. The Company did not participate in the plan
during 1995.
NOTE 8: PROVISION FOR INCOME TAXES
Deferred taxes are recorded based upon differences between the financial
statement and tax bases of assets and liabilities and for available tax loss
carryforwards. As there are no significant temporary differences between the
financial statement and tax bases of assets and liabilities, deferred tax assets
are related primarily to state tax loss carryforwards. A valuation allowance is
provided to reduce the deferred tax assets to a level which, more likely than
not, will be realized. At June 30, 1996, deferred tax assets totaled $25,444.
The Company has established a valuation allowance of 100% of this asset. There
were no deferred tax assets or liabilities at December 31, 1995.
The provision for income tax expense (benefit) attributable to continuing
operations consists of the following:
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
Currently payable (refundable):
<S> <C> <C>
State income tax $ - $ 8,900
Federal income tax (benefit) (104,200) 36,200
---------- ---------
Provision for income tax expense (benefit) $ (104,200) $45,100
</TABLE>
The Company had state loss carryforwards available of $328,309 at June 30, 1996
to be applied against future taxable income. The tax loss carryforward is
subject to examination by taxing authorities and if not previously utilized,
will expire December 31, 2001.
F-39
<PAGE>
Residential Properties Management, Inc.
Notes to Financial Statements
For the Six Months Ended June 30, 1996 and the Year Ended December 31, 1995
(Continued)
NOTE 9: COMMITMENTS AND CONTINGENCIES
Various litigation occurs from time to time in the normal course of business.
These issues are not considered to be significant to the financial statements of
the Company and management does not contemplate losses with regard to such
issues. There was no outstanding litigation at June 30, 1996.
The Company has various operating leases for office space and equipment. Future
minimum lease payments of $101,135 are as follows at June 30, 1996:
<TABLE>
<CAPTION>
<S> <C>
Six months ending December 31, 1996 $ 31,093
Years ending December 31, 1997 $ 36,869
1998 $ 15,558
1999 $ 9,673
2000 $ 4,848
2001 $ 3,094
</TABLE>
Total rent expense for the period ended June 30, 1996 was $33,169. The Company
incurred no lease expense during 1995. Beginning in May, 1997, the Company
entered into a month-to-month lease with THE, the parent, for office space for
its corporate headquarters with required monthly rent payments of $1,350. In
addition the Company leases certain computer equipment from the parent under
operating lease agreements expiring in 2001 with monthly payments of $404.
F-40
<PAGE>
No dealer, salesperson or any other person has been authorized to give any
information or to make any representations in connection with this offering
other than those contained in this Prospectus and, if given or made, such
information or representations must not be relied on as having been authorized
by the Company or by the Underwriter. This Prospectus does not constitute an
offer to sell or solicitation of an offer to buy any security other than the
securities offered by this Prospectus, or an offer to sell or a solicitation of
an offer to buy any securities by any person in any jurisdiction in which such
offer or solicitation is not authorized or is unlawful. The delivery of this
Prospectus shall not, under any circumstances, create any implication that the
information herein is correct as of any time subsequent to the date of this
Prospectus.
TABLE OF CONTENTS
PAGE
Prospectus Summary......................................................... 3
Risk Factors............................................................... 8
Dilution................................................................... 15
Use of Proceeds............................................................ 16
Dividend Policy............................................................ 16
Capitalization............................................................. 17
Management's Discussion and Analysis
of Financial Condition and Results
of Operations ........................................................... 18
Business................................................................... 23
Management................................................................. 32
Principal Shareholders..................................................... 36
Certain Transactions....................................................... 37
Description of Securities.................................................. 38
Shares Eligible for Future Sale............................................ 41
Underwriting............................................................... 42
Legal Matters.............................................................. 44
Experts.................................................................... 44
Additional Information .................................................... 44
Index to Financial Statements............................................. F-1
Until ______________, 1997 (25 days after the date of this Prospectus), all
dealers effecting transactions in the registered securities, whether or not
participating in this distribution, may be required to deliver a Prospectus.
This is in addition to the obligation of dealers to deliver a Prospectus when
acting as underwriters and with respect to their unsold allotments or
subscriptions.
<PAGE>
DIVERSIFIED SENIOR SERVICES, INC.
1,200,000 SHARES
---------------------------------------
PROSPECTUS
---------------------------------------
--------------- --, 1997
STRASBOURGER PEARSON
TULCIN WOLFF
INCORPORATED
120 Wall Street
New York, New York 10005
(212) 952-7500
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The North Carolina Business Corporation Act ("NCBCA") allows a
corporation's articles of incorporation to contain a provision limiting a
director's personal liability to the corporation and its shareholders for
monetary damages. No such provision may limit a director's liability for: (i)
acts or omissions known by the director to conflict with the best interests of
the corporation; (ii) liability for unlawful distributions; (iii) any
transactions from which the director received an improper personal benefit; or
(iv) acts or omissions occurring prior to the effective date of such provision
of the articles of incorporation. The Registrant's Articles of Incorporation
limit the personal liability of its directors for monetary damages to the
fullest extent permitted by the NCBCA.
The NCBCA contains provisions setting forth conditions under which a
corporation may indemnify its directors, officers, employees and agents from any
liability incurred in their activities on behalf of the corporation. The NCBCA
permits indemnification unless, in connection with a proceeding by or in the
right of the corporation, the person seeking indemnification is adjudged liable
to the corporation or, in connection with a proceeding charging the receipt of
an improper personal benefit, the person seeking indemnification is adjudged to
have improperly received a benefit.
ARTICLE SIX of the Registrant's Articles of Incorporation provide that: "To
the fullest extent permitted by applicable law, as it now exists or may
hereafter be amended, the Corporation shall indemnify all persons serving as
Directors and Officers of the Corporation against all liability and litigation
expense, including but not limited to reasonable attorneys' fees, arising out of
their status as such or their activities in the foregoing capacities, regardless
of when such status existed or activity occurred and regardless of whether or
not they are Directors or Officers of the Corporation at the time such
indemnification is sought or obtained. Without limiting the generality of the
foregoing, such persons may also recover from the Corporation all reasonable
costs, expense and attorney's fees in connection with the enforcement of rights
to indemnification granted by this Article. The provisions of this Article are
in addition to and not in limitation of the power of the Corporation to receive
the benefit, any other or further indemnification, insurance, elimination of
liability or other right or benefit which is either required by the NORTH
CAROLINA BUSINESS CORPORATION ACT or permitted thereby and duly adopted by the
Corporation in accordance therewith."
ARTICLE SEVEN of the Registrant's Articles of Incorporation provide that:
"To the fullest extent permitted by applicable law, as it now exists or may
hereafter be amended, no Director of the Corporation shall have any personal
liability arising out of any action, whether by or in the right of the
Corporation or otherwise, for monetary damages for breach of his or her duty as
a Director. This Article shall not impair any right to receive indemnity or
insurance from the Corporation or any third party which any Director may now or
hereafter have. Any repeal or modification of this Article shall not impair or
otherwise adversely affect any limitation on, or elimination of, the personal
liability of a Director effected hereby with respect to acts or omissions
occurring prior to such repeal or modification."
II-1
<PAGE>
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The Registrant estimates that expenses payable by it in connection with the
offering described in this Registration Statement (other than the underwriting
discount and commissions) will be as follows:
<TABLE>
<CAPTION>
<S> <C>
SEC filing fee................................................$ 2,036.36
Nasdaq filing fee.............................................$ 3,000.00
Printing and engraving expenses...............................$ 30,000.00
Accounting fees and expenses..................................$ 25,000.00
Legal fees and expenses.......................................$ 75,000.00
Blue sky qualification fees and expenses......................$ 10,000.00
Transfer Agent................................................$ 10,000.00
Miscellaneous.................................................$ 50,000.00
---------
Total.....................................................$ 205,036.36
==========
</TABLE>
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.
The Registrant was formed in May 1996 as a wholly owned subsidiary of
Taylor House Enterprises, Limited and began operations in July 1996. The
Registrant was initially capitalized with $100 and its parent, Taylor House
Enterprises, Limited, received 100 shares of Common Stock. In July 1996, Taylor
House Enterprises, Limited exchanged all of the stock of its wholly owned
subsidiary Residential Property Management, Inc. for 2,277,678 shares of the
Registrant. Effective June 30, 1997, Taylor House Enterprises, Limited returned
477,778 shares of Common Stock to the Registrant which the Registrant retired
leaving 1,800,000 shares of Common Stock issued and outstanding.
ITEM 27. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) The following exhibits are filed as part of this Registration
Statement:
EXHIBIT NO. DESCRIPTION
* 1.1 Form of Underwriting Agreement
* 1.3 Form of Financial Consulting Agreement between the Company
and the Underwriter
3.1 Articles of Incorporation of the Registrant
3.2 Bylaws of the Registrant, as amended
* 4.1 Specimen stock certificate of the Company's Common Stock
* 4.2 Form of Underwriter's Warrant Agreement
5 Opinion of House Law Firm
10.1 Employment Agreement dated as of January 1, 1997 between the
Company and William G. Benton, as amended
10.2 Employment Agreement dated as of January 1, 1997 between the
Company and Susan L. Christiansen, as amended
II-2
<PAGE>
10.3 Employment Agreement dated as of January 1, 1997 between the
Company and G. L. Clark, Jr., as amended
* 10.4 Forms of lock-up agreements
10.5 The Company's 1997 Stock Incentive Plan
10.6 Loan Agreement dated July 21, 1997 between the Company and
Centura Bank
* 15 Letter on unaudited interim financial information
23.1 Consent of The Daniel Professional Group, Inc.
23.2 Consent of House Law Firm (included in its opinion filed as
Exhibit 5)
24 Power of Attorney (included on the signature page of the
Company's Registration Statement on Form SB-2)
- --------------------------------
*To be filed by amendment
(b) Financial Statement Schedules:
Schedules for which provision is made in the applicable accounting
regulations of the Commission are not required under the related instructions or
are not applicable, and therefore have been omitted.
ITEM 28. UNDERTAKINGS.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the Company
pursuant to the foregoing provisions, or otherwise, the Company has been advised
that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act and
is therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Company of expenses
incurred or paid by a director, officer or controlling person of the Company in
the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Company will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of a
registration statement in reliance upon Rule 430A and contained in the form of
prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of the registration
statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-3
<PAGE>
The undersigned registrant hereby undertakes that it will:
(1) File, during any period in which it offers or sells securities, a
post-effective amendment to this registration statement to:
(i) Include any prospectus required by Section 10(a)(3) of the Securities
Act;
(ii) Reflect in the prospectus any facts or events which, individually
or together, represent a fundamental change in the information in the
registration statement;
(iii) Include any additional or changed material information on the plan of
distribution.
(2) For determining liability under the Securities Act, treat each
post-effective amendment as a new registration statement of the securities
offered and the offering of the securities at the time to be the initial bona
fide offering.
(3) File a post-effective amendment to remove from registration any of the
securities that remain unsold at the end of the offering.
II-4
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form SB-2 and authorized this Registration
Statement to be signed on its behalf by the undersigned in the City of
Winston-Salem, State of North Carolina, on the 26th day of August, 1997.
DIVERSIFIED SENIOR SERVICES, INC.
By: /S/ WILLIAM G. BENTON
William G. Benton, Chairman of the Board
and Chief Executive Officer
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints William
G. Benton and Susan L. Christiansen his true and lawful attorney-in-fact and
agent, each acting alone, with full power of substitution and resubstitution for
him and in his name, place and stead, in any and all capacities to sign any and
all amendments including post-effective amendments to this Registration
Statement, and to file the same, with all exhibits thereto, and other documents
in connection therewith, with the Securities and Exchange Commission, granting
unto said attorneys-in-fact and agents, each acting alone, full power and
authority to do and perform each and every act and thing requisite and necessary
to be done in and about the premises, as fully and to all intents and purposes
as he might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, each acting alone, or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
In accordance with the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/S/ WILLIAM G. BENTON Chairman of the Board August 26, 1997
- -----------------------------
William G. Benton and Chief Executive Officer
/S/ SUSAN L. CHRISTIANSEN Chief Operating Officer August 26, 1997
- -----------------------------
Susan L. Christiansen and Director
/S/ G.L. CLARK, JR. Chief Financial Officer, August 26, 1997
- -----------------------------
G.L. Clark, Jr. Treasurer and Director
/S/ PERRY C. CRAVEN Director August 26, 1997
- -----------------------------
Perry C. Craven
/S/ WALTER H. ETTINGER, JR. Director August 26, 1997
- -----------------------------
Walter H. Ettinger, Jr.
<PAGE>
INDEX TO EXHIBITS
Exhibit
NO. DESCRIPTION OF EXHIBIT PAGE
- ------- ---------------------- ----
* 1.1 Form of Underwriting Agreement........................................
* 1.3 Form of Financial Consulting Agreement between the Company and
the Underwriter.......................................................
3.1 Articles of Incorporation of the Registrant...........................
3.2 Bylaws of the Registrant, as amended..................................
* 4.1 Specimen stock certificate of the Company's Common Stock..............
* 4.2 Form of Underwriter's Warrant Agreement...............................
5 Opinion of House Law Firm ............................................
10.1 Employment Agreement dated as of January 1, 1997 between the
Company and William G. Benton, as amended.............................
10.2 Employment Agreement as of January 1, 1997 between the Company
and Susan L. Christiansen, as amended.................................
10.3 Employment Agreement as of January 1, 1997 between the Company
and G. L. Clark, Jr., as amended......................................
* 10.4 Forms of lock-up agreements...........................................
10.5 The Company's 1997 Stock Incentive Plan...............................
10.6 Loan Agreement dated July 21, 1997 between the Company and
Centura Bank..........................................................
* 15 Letter on unaudited interim financial information.....................
23.1 Consent of The Daniel Professional Group, Inc.........................
23.2 Consent of House Law Firm (included in its opinion
filed as Exhibit 5)...................................................
24 Power of Attorney (included on the signature page of the
Company's Registration Statement on Form SB-2)........................
- --------------------------------
*To be filed by amendment
EXHIBIT 3.1
ARTICLES OF INCORPORATION
OF
DIVERSIFIED SENIOR SERVICES, INC.
The undersigned, hereby submits these Articles of Incorporation for the
purpose of forming a business corporation under and by virtue of the laws of the
State of North Carolina, as contained in Chapter 55 of the General Statutes of
North Carolina, entitled the "NORTH CAROLINA BUSINESS CORPORATION ACT," and to
that end does hereby set forth:
ARTICLE ONE
The name of the Corporation is DIVERSIFIED SENIOR SERVICES, INC.
ARTICLE TWO
The Corporation shall have authority to issue two classes of stock, and the
total number authorized shall be One Hundred Million (100,000,000) shares of
Common Stock, and One Hundred Million (100,000,000) shares of Preferred Stock. A
description of the different classes of stock of the Corporation and a statement
of the designations and the powers, preferences and rights, and the
qualifications, limitations and restrictions thereof in respect of each class of
stock are as follows:
1. ISSUANCE IN SERIES. The Common or Preferred Stock may be issued from
time to time in one or more series, or either or both of the Common or Preferred
Stock may be divided into additional classes and such classes into one or more
series. The terms of a class or series shall be as specified in the resolution
or resolutions adopted by the Board of Directors providing for the issue of such
class or series, which resolution or resolutions the Board of Directors is
hereby expressly authorized to adopt. Such resolution or resolutions with
respect to a class or series shall specify, if applicable: (a) the number of
shares to constitute such class or series and the distinctive designation
thereof; (b) the annual dividend rate, if any, on the shares of such class or
series and the date or dates from which dividends shall accrue, whether such
dividends shall be cumulative, and, if cumulative, the date or dates from which
dividends shall accumulate; (c) the time or times and price or prices of
redemption, if any, of the shares; (d) the terms and conditions of a retirement
or sinking fund, if any, for the purchase or redemption of the shares; (e) the
amount which the shares shall be entitled to receive in the event of any
liquidation, dissolution or winding up of the Corporation; (f) the terms and
conditions, if any, on which the shares shall be convertible into, or
exchangeable for, shares of any other class or classes, or other series of the
same or another class, of the Corporation; (g) the voting rights, if any, in
addition to those granted herein; (h) the conditions and restrictions, if any,
on the payment of dividends or on the making of other distributions on, or the
purchases, redemption or other acquisition by the Corporation or any subsidiary,
of Common Stock or of any other class or series of shares of the Corporation
ranking junior to any shares as to dividends or upon liquidation; (i) the
conditions, if any, on the creation of indebtedness of the Corporation, or any
<PAGE>
subsidiary; (j) the par value, if any, of such class or series; and (k) such
other preferences, rights, restrictions and qualifications as shall not be
inconsistent herewith. In the absence of a resolution establishing any class or
series, all shares shall rank equally and be identical in all respects. At all
times that shares of the Corporation are outstanding, there shall be outstanding
one or more shares that together have unlimited voting rights and one or more
shares that together are entitled to receive the net assets of the Corporation
upon dissolution.
All shares of the Common Stock shall rank equally and all shares of the
Preferred Stock shall rank equally, and be identical within their classes in all
respects regardless of series, except as to terms which may be specified by the
Board of Directors pursuant to the above provisions. All shares of any one
series of a class of Common or Preferred Stock shall be of equal rank and
identical in all respects, except that shares of any one series issued at
different times may differ as to the dates which dividends thereon shall accrue
and be cumulative.
2. PREFERENCE AS TO DIVIDENDS. The resolution or resolutions adopted by the
Board of Directors providing for the issue of a class or series of Preferred
Stock may provide that the holders of such Preferred Stock shall be entitled to
receive, when and as declared by the Board of Directors, but only out of funds
legally available for the payment of dividends, cash dividends at the annual
rate for each particular series as herein provided or as may be fixed by the
Board of Directors in such resolution or resolutions, and no more, payable on
the dates fixed therefor to the shareholders of record on the respective dates
set or determined as provided in the North Carolina Business Corporation Act for
the purpose set by the Board of Directors in advance of payment of each
particular dividend.
3. PREFERENCE ON LIQUIDATION, DISSOLUTION OR WINDING UP. In the event of
any liquidation, dissolution or winding up of the Corporation, before any
payment or distribution of the assets of the Corporation (whether capital or
surplus) shall be made to or set apart for the holders of Common Stock, the
holders of the shares of each series of Preferred Stock shall be entitled to
receive the payment, if any, at the rate fixed or determined as provided in any
resolution or resolutions adopted by the Board of Directors providing for the
issue of such series. If, upon any liquidation, dissolution or winding up of the
Corporation, the assets of the Corporation, or proceeds thereof, distributable
among the holders of the shares of Preferred Stock shall be insufficient to pay
in full the preferential amount aforesaid, then such assets or the proceeds
thereof shall be distributed among such holders ratably in accordance with the
respective amounts that would be payable on such shares if all amounts payable
thereon were paid in full. For the purposes of this paragraph, neither the
merger nor consolidation of the Corporation into or with any other corporation,
nor the voluntary sale, conveyance, exchange or transfer (for cash, shares of
stock, securities, or other consideration) of all or substantially all of the
property or assets of the Corporation shall be deemed a liquidation of the
Corporation.
4. REDEMPTION OF PREFERRED STOCK. The Corporation may redeem the Common and
Preferred Stock of any series at the time outstanding at the times, in the
amounts, in the manner and at the price or prices fixed or determined as
provided in any resolution or resolutions adopted by the Board of Directors
providing for the issue of such shares, including the amount of the premium, if
any, payable upon such redemption. In case of the redemption of only a portion
-2-
<PAGE>
of any class or series of Common or Preferred Stock at the time outstanding, the
shares of such class or series so to be redeemed may be selected by lot or in
such other manner as the Board of Directors may determine. To the extent not
otherwise specified herein, the Board of Directors shall have full power and
authority to prescribe the terms and conditions upon which the Common and
Preferred Stock shall be redeemed from time to time.
5. CONVERSION. The shares of Common and Preferred Stock of any series may
be designated as convertible into, or exchangeable for, shares of any other
class or series of shares of the Corporation upon such terms and conditions as
shall be fixed or determined by the Board of Directors in any resolution
providing for the issue of any shares of Common or Preferred Stock.
6. COMMON STOCK JUNIOR TO PREFERRED STOCK. The Common Stock is junior to
the Preferred Stock and is subject to all the rights, privileges, preferences
and priorities of the Preferred Stock as herein set forth or as may be stated or
determined as provided in any resolution or resolutions of the Board of
Directors providing for the issue of Preferred Stock.
7. DIVIDENDS. Subject to the prior and superior right of the Preferred
Stock, and subject to the provisions and on the conditions set forth herein and
in the NORTH CAROLINA BUSINESS CORPORATION ACT, or in any resolution or
resolutions providing for the issue of a series of Preferred Stock, such
dividends (payable in cash stock, property or otherwise) as may be determined by
the Board of Directors may be declared and paid on the Common Stock from time to
time.
8. LIQUIDATION, DISSOLUTION, OR WINDING UP. In the event of any
liquidation, dissolution or winding up of the affairs of the Corporation, after
payment to the holders of Preferred Stock of the amount to which they are
entitled pursuant to any resolution or resolutions of the Board of Directors
providing for the issue of a series of Preferred Stock, the holders of Common
Stock shall be entitled to share ratably in all assets then remaining subject to
distribution to the shareholders.
9. GENERAL VOTING RIGHTS. Except when otherwise required by law or
otherwise provided herein or in any resolution of the Board of Directors
providing for the issuance of any particular class or series of Preferred Stock,
the exclusive voting power of the Corporation shall be vested in the Common
Stock of the Corporation. Unless otherwise provided in the resolution or
resolutions adopted by the Board of Directors providing for the issue of any
shares of Common Stock, each share of Common Stock shall entitle the holder
thereof to one vote at all meetings of the shareholders of the Corporation.
10. OTHER PROVISIONS. In addition to the rights granted above in this
Article, shares of Common or Preferred Stock of any class or series may be
issued with such voting powers, full or limited, or no voting powers, and such
designations, preferences and relative participating, option or special rights,
and qualifications, limitations or restrictions thereof, as shall be stated and
expressed in the resolution or resolutions providing for the issue of such stock
adopted by the Board of Directors. Any of the voting powers, designations,
preferences, rights and qualifications, limitations or restrictions of any such
class or series of shares may be made dependent upon facts ascertainable outside
-3-
<PAGE>
the resolution or resolutions of the Board of Directors providing for the issue
of such shares by the Board of Directors provided the manner in which such facts
shall operate upon the voting powers, designations, preferences, rights and
qualifications, limitations or restrictions of such class or series is clearly
set forth in the resolution or resolutions providing for the issue of such
shares adopted by the Board of Directors.
ARTICLE THREE
The management of the business and the conduct of the affairs of the
Corporation shall be vested in its Board of Directors. The number of Directors
of the Corporation constituting the entire Board of Directors shall be no less
than three (3) nor more than twelve (12), with the actual number constituting
the entire Board of Directors at any given time to be established by resolution
adopted from time to time by the Board of Directors. No decrease in the number
of Directors constituting the Board of Directors shall shorten the term of any
incumbent director. The Board of Directors shall be staggered by division into
three (3) classes, each class to be as nearly equal in number as possible, with
the term of office of Directors of the first class to expire at the first annual
meeting of shareholders after their appointment by the Incorporator, the term of
office of Directors of the second class to expire at the second annual meeting
after their appointment by the Incorporator, and the term of office of Directors
of the third class to expire at the third annual meeting of shareholders after
their appointment by the Incorporator. At each annual meeting of shareholders
after such classification and appointment or election, the number of Directors
equal to the number in the class whose term expires at the time of such meeting
shall be elected to hold office until the third succeeding annual meeting of
shareholders. No election of directors need be by written ballot. Determination
of the number and qualification of any independent directors who may serve on
the Board of Directors (the "Independent Directors") shall be made in accordance
with the Bylaws of the Corporation.
ARTICLE FOUR
In addition to any vote of shareholders otherwise required by law or by the
terms of any other provision of these Articles of Incorporation, the affirmative
vote of at least eighty percent (80%) of the votes entitled to be cast thereon
by the holders of each series of outstanding shares of Common and Preferred
Stock shall be required for the approval of any Business Combination (as
hereinafter defined) between the Corporation and any Interested Shareholder (as
hereinafter defined), unless in connection with the Business Combination the
holders of Common and Preferred Stock will receive cash in exchange for their
shares in an amount not less than the highest per share price paid by the
Interested Shareholder in acquiring any of its holdings in the Corporation's
stock, regardless of class or series.
1. BUSINESS COMBINATION DEFINED. For purposes of this Article, "Business
Combination" shall meant (i) any merger, consolidation or share exchange
involving the Corporation and an Interested Shareholder, (ii) any sale, lease or
exchange of all or substantially all of the property or assets of the
Corporation to an Interested Shareholder, (iii) any sale, lease or exchange
(other than of shares of stock of the Corporation) of all or substantially all
of the
-4-
<PAGE>
property or assets of an Interested Shareholder to the Corporation or a
subsidiary of the Corporation, (iv) the issuance of any securities by the
Corporation or a subsidiary of the Corporation to an Interested Shareholder, (v)
the acquisition by the Corporation or a subsidiary of the Corporation of any
securities issued by an Interested Shareholder, (vi) any reclassification of the
stock of the Corporation or any recapitalization involving such stock
consummated within five (5) years after an Interested Shareholder becomes an
Interested Shareholder, and (vii) any agreement, contract or other arrangement
providing for any of the foregoing transactions.
2. INTERESTED SHAREHOLDER DEFINED. For purposes of this Article, the term
"Interested Shareholder" shall mean (i) any individual, corporation, partnership
or other person or entity that together with its "affiliates" and "associates"
(as defined in Rule 12b-2 of the Securities Exchange Act of 1934) "beneficially"
owns (as defined in Rule 13-D-3 of the Securities Exchange Act of 1934) in the
aggregate twenty percent (20%) or more of any class or series of the outstanding
shares of the Corporation, (ii) any "affiliate" or "associate" of such
individual, corporation, partnership or other person or entity, and (iii) any
person or entity that, within two (2) years after an Interested Shareholder
becomes an Interested Shareholder, is assigned or succeeds to such Interested
Shareholder's beneficial ownership of any of the shares of the Corporation, if
such assignment or succession occurred in the course of a transaction or series
of transactions not involving a public offering under the Securities Act of
1933.
3. PRICE ADJUSTMENT. For purposes of this Article, the price per share of
the stock of the Corporation shall be adjusted to reflect stock dividends, stock
splits and any similar reclassification of the Corporation or any
recapitalization involving any shares of the Corporation.
4. APPLICABILITY. The requirements of this Article shall not apply if the
Business Combination is approved by a majority of the Corporation's
Disinterested Directors. For purposes of these Articles of Incorporation, the
term "Disinterested Directors" shall mean those Directors of the Corporation
each of whom was a member of the Board of Directors of the Corporation
immediately prior to the time that any Interested Shareholder became an
Interested Shareholder and each of whom is unaffiliated with, and not a nominee
of, an Interested Shareholder, and shall include any successor of a
Disinterested Director who is recommended by a majority of Disinterested
Directors then on the Board of Directors.
5. DISCRETION OF THE BOARD OF DIRECTORS. A majority of the Disinterested
Directors shall have the power and duty to determine, on the basis of
information known to them after such inquiry as they deem reasonable, all facts
they deem necessary to effect compliance with this Article, and the good faith
determination of a majority of the Disinterested Directors on such matters shall
be conclusive and binding for all purposes of this Article.
6. AMENDMENT. This Article may not be repealed or amended in any respect,
and no provision inconsistent herewith may be adopted, unless such action is
approved (i) if no Interested Shareholder exists on the record date for
determining shareholders entitled to vote on such repeal or amendment, by the
affirmative vote of the holders of not less than a majority of the outstanding
shares of each series of shares of the Corporation entitled to vote, or
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such greater vote as may be required by applicable law, or (ii) if an Interested
Shareholder exists on the record date for determining shareholders entitled to
vote on such repeal or amendment, by the affirmative vote of the holders of not
less than eighty percent (80%) of the outstanding shares of each series of
shares of the Corporation entitled to vote, or such greater vote as may be
required by applicable law.
ARTICLE FIVE
The following additional provisions, including certain matters in
connection with holding shares of the Corporation, are adopted for the
regulation of the internal affairs of the Corporation:
1. FURTHER POWERS OF THE BOARD OF DIRECTORS. In furtherance and not in
limitation of the powers conferred by applicable law, the Board of Directors is
expressly authorized to do any and all of the following:
(a) To restrict the transfer of shares in the manner provided for in these
Articles of Incorporation or the Bylaws;
(b) To authorize, subject to shareholder approval, if any, and other
conditions, if any, as are required by any applicable statute, rule or
regulation, the execution and performance by the Corporation of one or more
agreements with any person, corporation, association, company, trust,
partnership (limited or general) or other organization whereby, subject to the
supervision and control of the Board of Directors, any such other person,
corporation, association, company, trust, partnership (limited or general), or
other organization shall render or make available to the Corporation managerial,
investment advisory and/or related services office space and other services and
facilities (including, if deemed advisable by the Board of Directors, the
management or supervision of the investments of the Corporation) upon such terms
and conditions as may be provided in such agreement or agreements (including, if
deemed fair and reasonable by the Board of Directors, the compensation payable
thereunder by the Corporation);
(c) To authorize any agreement of the character described in subparagraph
1(b) of this Article or other transaction with any person, corporation,
association, company, trust, partnership (limited or general), or other
organization, even though one or more of the members of the Board of Directors
or Officers of the Corporation may be the other party to any such agreement or
an officer, director, shareholder, affiliate or member of such other party, and
no such agreement or transaction shall be invalidated or rendered voidable
solely by reason of the existence of any such relationship if (1) the existence
is disclosed or known: (i) to the Board of Directors, and the Board of Directors
authorizes approves or ratifies the agreement or transaction by the affirmative
vote of a majority of the Board of Directors, including the affirmative vote of
a majority of all Independent directors; or (ii) to the shareholders entitled to
vote and the agreement or transaction is authorized, approved or ratified by a
majority of votes cast by such shareholders without regard to the votes of
shares owned of record or beneficially by the Directors interested therein or
such other party; or (2) the Board of Directors determines in good faith, by
means of review, appraisal or other determination by members of the Board of
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Directors, agents of the Corporation or otherwise, that the contract is fair and
reasonable to the Corporation; provided, however, that the disclosure,
ratification and fairness provisions of this subparagraph are satisfied, any
member of the Board of Directors who is also a director or officer of such other
party or who is so interested or associated with such other party may be counted
in determining the existence of a quorum at any meeting of the Board of
Directors which shall authorize any such agreement or transaction, and may vote
thereat to authorize any such agreement or transaction, as if the Director were
not such director or officer of such other party or not so interested or
associated;
(d) To allot and authorize the issuance of the authorized but unused shares
of the Corporation for such consideration as the Board of Directors may deem
advisable, subject to such limitations as may be set forth in these Articles of
Incorporation or in the NORTH CAROLINA BUSINESS CORPORATION ACT or other
applicable law and subject to the condition that all shares issued by the
Corporation shall at all times be fully paid and nonassessable;
(e) To authorize the issuance and fix the terms, conditions, and provisions
of options to purchase or subscribe for shares of the Corporation, including the
option price or prices for which shares of the Corporation may be purchased or
subscribed;
(f) To re-adopt, amend or repeal the original or other Bylaws of the
Corporation or any specific provisions thereof, regardless of any prior
shareholder action with respect thereto; and
(g) To sell, lease, exchange, contribute or otherwise dispose of all or
substantially all of the Corporation's property to a corporation, all the shares
of which are owned by the Corporation, without the necessity of any shareholder
approval.
2. The determination as to any of the following matters made by or pursuant
to the direction of the Board of Directors consistent with these Articles of
Incorporation and in the absence of willful misfeasance, bad faith, gross
negligence or reckless disregard of duties, shall be final and conclusive and
shall be binding upon the Corporation and every holder of shares of the
Corporation, namely, the amount of net income of the Corporation for any period
and the amount of net assets in excess of capital, undivided profits or excess
of profits over losses on sales of assets; the amount, purpose, time of
creation, increase or decrease, alteration or cancellation of any reserves or
charges and the propriety thereof (whether or not any obligation or liability
for which such reserves or charges shall have been created shall have been paid
or discharged); the fair value, or any sale, bid or asked price to be applied in
determining the fair value, of any asset owned or held by the Corporation; and
any matter relating to the acquisition, holding and disposition of any assets by
the Corporation.
3. The enumeration and definition of particular powers of the board of
Directors included in the foregoing shall in no way be limited or restricted by
reference to or inference from the terms of any other clause of this or any
other provision of these Articles of Incorporation, or construed as or deemed by
inference or otherwise in any manner to exclude or
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limit the powers conferred upon the Board of Directors under the NORTH
CAROLINA BUSINESS CORPORATION ACT, as it now exists or may hereafter be amended.
ARTICLE SIX
To the fullest extent permitted by applicable law, as it now exists or may
hereafter be amended, the Corporation shall indemnify all persons serving as
Directors and Officers of the Corporation against all liability and litigation
expense, including but not limited to reasonable attorneys' fees, arising out of
their status as such or their activities in the foregoing capacities, regardless
of when such status existed or activity occurred and regardless of whether or
not they are Directors or Officers of the Corporation at the time such
indemnification is sought or obtained. Without limiting the generality of the
foregoing, such persons may also recover from the Corporation all reasonable
costs, expense and attorneys' fees in connection with the enforcement of rights
to indemnification granted by this Article. The provisions of this Article are
in addition to and not in limitation of the power of the Corporation with
respect to, and the rights of any Director or Officer of the Corporation to
receive the benefit of, any other or further indemnification, insurance,
elimination of liability or other right or benefit which is either required by
the NORTH CAROLINA BUSINESS CORPORATION ACT or permitted thereby and duly
adopted by the Corporation in accordance therewith.
ARTICLE SEVEN
To the fullest extent permitted by applicable law, as it now exists or may
hereafter be amended, no Director of the Corporation shall have any personal
liability arising out of any action, whether by or in the right of the
Corporation or otherwise, for monetary damages for breach of his or her duty as
a Director. This Article shall not impair any right to receive indemnity or
insurance from the Corporation or any third party which any Director may now or
hereafter have. Any repeal or modification of this Article shall not impair or
otherwise adversely affect any limitation on, or elimination of, the personal
liability of a Director effected hereby with respect to acts or omissions
occurring prior to such repeal or modification.
ARTICLE EIGHT
Neither the provisions of Article 9 of the NORTH CAROLINA BUSINESS
CORPORATION ACT, entitled "The North Carolina Shareholder Protection Act"
(N.C.G.S. Section 55-9-1 ET SEQ.), nor the provisions of Article 9A of the NORTH
CAROLINA BUSINESS CORPORATION ACT, entitled "The North Carolina Control Share
Acquisition Act" (N.C.G.S. Section 55-9A-01 ET SEQ.), shall be applicable to the
Corporation.
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ARTICLE NINE
The address of the initial registered office of the Corporation is 915 West
Fourth Street, Winston-Salem, Forsyth County, North Carolina 27101, and the name
of the initial registered agent at such address is Susan L. Christiansen.
ARTICLE TEN
The name and address of the Incorporator are:
NAME ADDRESS
Susan L. Christiansen 915 West Fourth Street
Winston Salem, NC 27101
ARTICLE ELEVEN
From time to time any of the provisions of these Articles of Incorporation
may be amended, altered or repealed, and other provisions authorized by, and
laws of the State of North Carolina at the time in force may be added or
inserted in the manner and at the time prescribed by said laws, subject to
compliance with all limitations, required votes of shares and other requirements
called for by these Articles of Incorporation, and all rights at any time
conferred upon the shareholders.
IN WITNESS WHEREOF, I have hereunto set my hand and seal, this 15th day of
May, 1996.
INCORPORATOR:
/S/ SUSAN L. CHRISTIANSEN
Susan L. Christiansen
EXHIBIT 3.2
BYLAWS
OF
DIVERSIFIED SENIOR SERVICES, INC.
ARTICLE I
NAME AND OFFICES
Section 1.1 NAME. The name of the Company is Diversified Senior Services,
Inc. and, for the purposes of these Bylaws, is referred to as the Corporation.
Section 1.2 PRINCIPAL OFFICE. The principal office of the Corporation shall
be located at such place, within or without the State of North Carolina, as
shall be determined from time to time by the Board of Directors and as shall
have been so designated most recently in the annual report of the Corporation or
amendment thereto, filed with the North Carolina Secretary of State pursuant to
the North Carolina Business Corporation Act.
Section 1.3 REGISTERED OFFICE. The Corporation shall maintain a registered
office in the State of North Carolina as required by law, which may be, but need
not be, identical with the principal office.
Section 1.4 OTHER OFFICES. The Corporation may have offices at such other
places, either within or without the State of North Carolina, as the Board of
Directors may from time to time determine, or as the affairs of the Corporation
may require.
ARTICLE II
DIRECTORS
Section 2.1 GENERAL POWERS. All corporate powers of the Corporation shall
be exercised by or under the authority of, and the business and affairs of the
Corporation shall be managed under the direction of, the Board of Directors.
Section 2.2 NUMBER, TERM AND QUALIFICATION. The number of directors of the
Corporation shall be no less than three and no more than twelve, with the actual
number constituting the entire Board of Directors at any given time to be
established by resolution adopted from time to time by the Board of Directors.
The number of directors may be increased or decreased from the stated minimum
and maximum by the Board of Directors by not more than thirty percent (30%)
during any 12-month period, as shall be determined from time to time by
resolution of the Board of Directors adopted by affirmative vote of not less
than a majority of the directors then in office. Notwithstanding the foregoing,
no such resolution reducing the number of directors below the number of
directors then in office shall of itself have the effect of removing any
director prior to the expiration of such director's term of office. Any
positions on the Board of Directors created by an increase in the number of
directors pursuant to such a resolution and not filled by the shareholders shall
be treated as vacancies to be filled by and in the discretion of the Board of
Directors. The number of directors fixed pursuant to such a resolution shall be
deemed to be the number of directors prescribed by these Bylaws.
The Board of Directors shall be staggered by division into three classes,
each class to be as nearly equal in number as possible, with the term of office
of directors of the first class to expire at the first annual meeting of
shareholders after their election, the term of office of directors of the second
class to expire at the second annual meeting of shareholders after their
election, and the term of office of directors of the third class to expire at
the third annual meeting of shareholders after their election. At each annual
meeting of shareholders after such classification and election, the number of
directors equal to the number of the class whose term
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expires at the time of such meeting shall be elected to hold office until
the third succeeding annual meeting of shareholders. Each director shall hold
office until his death, resignation, retirement, removal or disqualification, or
until his successor shall have been elected and qualified.
Directors need not be residents of the State of North Carolina or
shareholders of the Corporation.
Section 2.3 ELECTION OF DIRECTORS. Except as provided in Section 2.6, and
subject to the provisions of Section 2.2, directors shall be elected at the
annual meeting of shareholders.
Section 2.4 VOTING FOR DIRECTORS. Directors shall be elected by a plurality
of the votes cast by the shares entitled to vote in the election of directors at
a meting at which a quorum is present. Except as provided in the Articles of
Incorporation or required by applicable law, shareholders have no right to
cumulate their votes for directors.
Section 2.5 REMOVAL. Except as otherwise provided in the Articles of
Incorporation or by applicable law, a director may be removed from office with
or without cause by a vote of shareholders of the voting group entitled to elect
such directors, provided a quorum exists and the number of votes cast in favor
of such removal exceeds the number of votes cast against such removal. A
director may not be removed by the shareholders at a meeting unless the notice
of the meeting states that a purpose of the meeting is removal of such director.
If any directors are so removed, new directors may be elected at the same
meeting.
Section 2.6 VACANCIES. A vacancy occurring in the Board of Directors,
including positions not filled by the shareholders of those resulting from an
increase in the number of directors, may be filled by a majority of the
remaining directors, though less than a quorum, or by the sole remaining
director. The shareholders may elect a director at any time to fill any vacancy
not filled by the directors.
Section 2.7 COMPENSATION. The Board of Directors, in its discretion, may
compensate directors for their services as such and may provide for the payment
of all expenses reasonably incurred by directors in attending meetings of the
Board or of any Committee or in the performance of their other duties as
directors. Nothing herein contained, however, shall be construed to preclude any
director from serving the Corporation in any other capacity and receiving
compensation therefor.
Section 2.8 COMMITTEES. The Board of Directors, by resolution adopted by a
majority of the number of directors then in office, may designate and appoint
from among its members one or more Committees, each consisting of two or more
directors, who shall serve as members of such Committee at the pleasure of the
Board of Directors. Each such Committee, to the extent provided in such
resolution, shall have and may exercise all of the authority of the Board of
Directors in the management of the Corporation, except that no such Committee
shall have authority to: (a) authorize dividends or other distributions not
permitted by applicable law to be authorized by a Committee; (b) approve or
propose to approve shareholders action that applicable law requires to be
approved by shareholders; (c) fill vacancies on the Board of Directors or on any
Committee; (d) amend the Articles of Incorporation; (e) adopt, amend or repeal
bylaws; (f) approve a plan of merger not requiring shareholder approval; (g)
authorize or approve reacquisition of shares, except according to a formula or
method prescribed by the Board of Directors; (h) authorize or approve the
issuance or sale or contract for sale of shares, or determine the designation
and relative rights, preferences and limitations of a class or series of shares
(except that the Board of Directors may authorize a Committee or a senior
executive officer to do so within limits specifically prescribed by the Board of
Directors); or (i) amend or
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repeal any resolution of the Board of Directors that
by its terms provides that it is not so amendable or repealable. Nothing herein
shall preclude the Board of Directors from establishing and appointing any
committee, whether of directors or otherwise, not having or exercising the
authority of the Board of Directors.
ARTICLE III
MEETING OF DIRECTORS
Section 3.1 REGULAR MEETINGS. A regular annual meeting of the Board of
Directors shall be held immediately after, and at the same place as, the annual
meeting or substitute annual meeting of shareholders. In addition, the Board of
Directors may provide, by resolution, the time and place, either within or
without the State of North Carolina, for the holding of additional regular
meetings.
Section 3.2 SPECIAL MEETINGS. Special meetings of the Board of Directors
may be called by or at the request of the Chairman of the Board (if there shall
be a person holding such office), the Chief Executive Officer or any two
directors. Such meetings may be held either within or without the State of North
Carolina.
Section 3.3 NOTICE OF MEETINGS. Regular meetings of the Board of Directors
may be held without notice.
The person or persons calling a special meeting of the Board of Directors
shall, at least two days before the meeting, give notice thereof by any usual
means of communication. Such notice need not specify the purpose for which the
meeting is called.
A director's attendance at or participation in a meeting shall constitute a
waiver by such director of notice of such meeting, unless the director at the
beginning of the meeting (or promptly upon his or her arrival) objects to
holding the meeting or to the transaction of business at the meeting and does
not thereafter vote for or assent to action taken at the meeting.
Section 3.4 QUORUM. A majority of the number of directors fixed or
prescribed by these Bylaws shall be required for, and shall constitute, a quorum
for the transaction of business at any meeting of the Board of Directors.
However, in the event of vacancies on the Board of Directors, then a quorum
shall consist of a majority of the directors in office.
Section 3.5 MANNER OF ACTING. Except as otherwise provided in these Bylaws
or required by applicable law, the affirmative vote of a majority of the
directors present at a meeting of the Board of Directors shall be the act of the
Board of Directors, if a quorum is present when the vote is taken.
Section 3.6 ORGANIZATION. Each meeting of the Board of Directors shall be
presided over by the Chairman of the Board (if there shall be a person holding
such office), or, in the absence or at the request of the Chairman of the Board,
by the Chief Executive Officer, and in their absence or at their request, by any
person selected to preside by vote of a majority of the directors present. The
Secretary, or in the absence or at the request of the Secretary, any person
designated by the person presiding at the meeting, shall act as secretary of the
meeting.
Section 3.7 ACTION WITHOUT MEETING. Action required or permitted to be
taken by the Board of Directors or a Committee at a meeting may be taken without
a meeting if one or more written consents describing the action taken are signed
by each of the directors or members of the Committee, as the case may be,
whether before or after the action so taken, and filed with corporate records or
the minutes of the proceedings of the Board or Committee. Action so taken
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is effective when the last director or Committee member signs such consent,
unless the consent specifies a different effective date. Such consent has the
effect of a meeting vote and may be described as such in any document.
Section 3.8 PARTICIPATION BY CONFERENCE TELEPHONE. Any one or more
directors or members of a Committee may participate in a meeting of the Board of
Directors or Committee by means of a conference telephone or similar
communications device that allows all persons participating in the meeting to
simultaneously hear each other during the meeting, and such participation in a
meeting shall be deemed presence in person at such meeting.
ARTICLE IV
OFFICERS
Section 4.1 GENERAL. The officers of the Corporation shall consist of a
Chief Executive Officer (who shall be either the Chairman of the Board or the
President, as provided in these Bylaws), a President, a Secretary and a
Treasurer, and may also include a Chairman of the Board, a Chief Operating
Officer, and such Vice Presidents, Assistant Secretaries, Assistant Treasurers
and other officers as may be appointed by the Board of Directors or otherwise
provided in these Bylaws. Any two or more offices may be simultaneously held by
the same person, but no person may act in more than one capacity where action of
two or more officers is required. The title of any officer may include any
additional designation descriptive of such officer's duties as the Board of
Directors may prescribe.
Section 4.2 APPOINTMENT AND TERM. The officers of the Corporation shall be
appointed from time to time by the Board of Directors; PROVIDED, that the Board
of Directors may authorize a duly appointed officer to appoint one or more other
officers or assistant officers, other than appointment of the Chief Executive
Officer, the Chairman of the Board, the President or the Chief Operating
Officer. Each officer shall serve as such at the pleasure of the Board of
Directors.
Section 4.3 REMOVAL. Any officer may be removed by the Board of Directors
at any time with or without cause; but such removal shall not itself affect the
contract rights, if any, of the person so removed.
Section 4.4 COMPENSATION. The compensation of all officers of the
Corporation shall be fixed by, or in the manner prescribed by, the Board of
Directors.
Section 4.5 CHIEF EXECUTIVE OFFICER. If there is a Chairman of the Board
and the Board of Directors designates the Chairman of the Board as the Chief
Executive Officer, then the Chairman of the Board shall be the Chief Executive
Officer of the Corporation. Subject to the direction and control of the Board of
Directors, the Chief Executive Officer shall supervise and control the
management of the Corporation and shall have such duties and authority as are
normally incident to the position of chief executive officer of a corporation
and such other duties and authority as may be prescribed from time to time by
the Board of Directors or as are provided for elsewhere in these Bylaws. The
title of the Chairman of the Board or President, as the case may be, serving as
the Chief Executive Officer may, but need not, also refer to his or her position
as Chief Executive Officer.
Section 4.6 CHAIRMAN OF THE BOARD. The Board of Directors may, but need
not, appoint from among its members an officer designated as the Chairman of the
Board. If there is appointed a Chairman of the Board and such Chairman of the
Board is also designated by the Board of Directors to be the Chief Executive
Officer, then the Chairman of the Board shall have all of the duties and
authority of the Chief Executive Officer and shall also, when present, preside
over meetings of the Board of Directors. If there is a Chairman of the Board but
such Chairman of the Board is not also designated as the Chief Executive
Officer, then the Chairman of the Board shall, when present, preside over
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meetings of the Board of Directors and shall have such other duties and
authority as may be prescribed from time to time by the Board of Directors or as
are provided for elsewhere in these Bylaws.
Section 4.7 CHIEF OPERATING OFFICER. If there is appointed a Chairman of
the Board who is also the Chief Executive Officer, then the President shall be
the Chief Operating Officer. If the President is the Chief Executive Officer,
then the President shall also serve as the Chief Operating Officer unless the
Board of Directors shall designate some other officer of the Corporation as the
Chief Operating Officer. Subject to the direction and control of the Chief
Executive Officer and the Board of Directors, the Chief Operating Officer shall
supervise and control the operations of the Corporation, shall have such duties
and authority as are normally incident to the position of chief operating
officer of a corporation and such other duties as may be prescribed from time to
time by the Chief Executive Officer or the Board of Directors, and, in the
absence or disability of the Chief Executive Officer, shall have the authority
and perform the duties of the Chief Executive Officer. The title of the
President or other officer serving as the Chief Operating Officer may, but need
not, also refer to his or her position as Chief Operating Officer.
Section 4.8 PRESIDENT. Unless there is appointed a Chairman of the Board
who is also designated the Chief Executive Officer, the President shall be the
Chief Executive Officer of the Corporation and shall have all of the duties and
authority of that office. If the President is not the Chief Executive Officer,
then the President shall be the Chief Operating Officer and shall have all of
the duties and authority of that office. If the president shall be the Chief
Executive Officer and no other officer shall have been designated by the Board
of Directors as the Chief Operating Officer, then the President shall also have
all of the duties and authority of the Chief Operating Officer. Unless otherwise
specified by the Board of Directors, the President shall serve as the Agency
Administrator. The President shall also have such other duties and authority as
may be prescribed from time to time by the Board of Directors.
Section 4.9 VICE PRESIDENT. The Vice President, and if there be more than
one, the Executive Vice President or other Vice President designated by the
Board of Directors, shall, in the absence or disability of the President, have
the authority and perform the duties of said office (including the duties and
authority of the President as either Chief Executive Officer or Chief Operating
Officer or both, if the President serves as such). In addition, each Vice
President shall perform such other duties and have such other powers as are
normally incident to the office of Vice President or as shall be prescribed by
the Chief Executive Officer, the Chief Operating Officer or the Board of
Directors.
Section 4.10 SECRETARY. The Secretary shall have the responsibility and
authority to maintain and authenticate the records of the Corporation; shall
keep, or cause to be kept, accurate records of the acts and proceedings of all
meetings of shareholders, directors and Committees; shall give, or cause to be
given, all notices required by law and by these Bylaws; shall have general
charge of the corporate books and records and of the corporate seal, and shall
affix the corporate seal to any lawfully executed instrument requiring it; shall
have general charge of the stock transfer books of the Corporation and shall
keep, or cause to be kept, all records of shareholders as are required by
applicable law or these Bylaws; shall sign such instruments as may require the
signature of the Secretary; and, in general, shall perform all duties incident
to the office of Secretary and such other duties as may be assigned to him or
her from time to time by the Chief Executive Officer, the Chief Operating
Officer, or the Board of Directors.
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Section 4.11 TREASURER. The Treasurer shall have custody of all funds and
securities belonging to the Corporation and shall receive, deposit or disburse
the same under the direction of the Board of Directors; shall keep, or cause to
be kept, full and accurate accounts of the finances of the Corporation in books
especially provided for that purpose, and shall generally have charge over the
Corporation's accounting and financial records; shall cause a true statement of
its assets and liabilities as of the close of each fiscal year, and of the
results of its operations and of cash flows for such fiscal year, all in
reasonable detail, including particulars as to convertible securities then
outstanding, to be made as soon as practicable after the end of such fiscal
year. The Treasurer shall also prepare and file, or cause to be prepared and
filed, all reports and returns required by Federal, State or local law and shall
generally perform all other duties incident to the office of Treasurer and such
other duties as may be assigned to him or her from time to time by the Chief
Executive Officer, the Chief Operating Officer or the Board of Directors.
Section 4.12 ASSISTANT SECRETARIES AND ASSISTANT TREASURERS. The Assistant
Secretaries and Assistant Treasurers, if any, shall, in the absence or
disability of the Secretary or the Treasurer, respectively, have all the powers
and perform all of the duties of those offices, and they shall in general
perform such other duties as shall be assigned to them by the Secretary or the
Treasurer, respectively, or by the Chief Executive Officer, the Chief Operating
Officer or the Board of Directors.
ARTICLE V
ADVISORY COMMITTEE
Section 5.1 GENERAL. In addition to the committees established by the Board
of Directors pursuant to Article II of these Bylaws, an Advisory Committee is
hereby established to assist the Corporation in evaluation of its programs and
to establish and review policies, procedures, and programs. The Advisory
Committee shall be comprised of a minimum of five members and a maximum of
twelve members as determined from time to time by the Board of Directors.
Membership on the Advisory Committee shall include at least one physician, one
registered nurse, who shall serve as the Corporation's Nursing Supervisor or
Director of Nursing, the President of the Corporation, and appropriate
representation from the community.
Section 5.2 DUTIES. The duties of the Advisory Committee shall be as
follows: (a) to aid in the promotion of home care services and assisted living
within the community; (b) to review and approve selected policies, i.e.,
patient/client care/service policies and procedures; (c) to annually review the
Corporation's policies governing scope of services; admission and discharge;
clinical records; emergency care; and program evaluation; (d) to assist in the
planning of new programs or additions to existing programs; and (e) to provide a
support system for the Board of Directors and the Corporation in making
recommendations and evaluations of all areas of the Corporation as designated by
the President of the Corporation.
Section 5.2 MEETINGS. A regular annual meeting of the Advisory Committee
shall be held immediately prior to and at the same place as the annual meeting
or substitute annual meeting of shareholders. In addition, the Advisory
Committee shall meet regularly on a quarterly basis, at such time and place,
either within or without the state of North Carolina, and at such other times,
as the Advisory Committee may determine from time to time.
Section 5.3 VACANCIES. Any vacancy occurring in the Advisory Committee
shall be filled by the President of the Corporation subject to ratification at
the next regular meeting of the Board of Directors.
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Section 5.4 REMOVAL. Any member of the Advisory Committee may be removed at
any time with or without cause by a majority of the entire Board of Directors,
as determined pursuant to these Bylaws.
Section 5.5 Minutes. The Advisory Committee shall keep regular minutes of
its proceedings and report the same to the Board when required.
ARTICLE VI
MEETINGS OF SHAREHOLDERS
Section 6.1 PLACE OF MEETINGS. All meetings of shareholders shall be held
at the principal office of the Corporation, or at such other place, either
within or without the State of North Carolina, as shall be designated by the
Board of Directors.
Section 6.2 ANNUAL MEETINGS. The annual meeting of the shareholders shall
be held each year at such date and time as shall be designated by the Board of
Directors, for the purpose of electing directors of the Corporation and for the
transaction of such other business as may be properly brought before the
meeting.
Section 6.3 SUBSTITUTE ANNUAL MEETINGS. If the annual meeting shall not be
held on the date designated by these Bylaws, a substitute annual meeting may be
called in accordance with the provisions of Section 2.4. A meeting so called
shall be designated and treated for all purposes as the annual meeting.
Section 6.4 SPECIAL MEETINGS. Special meetings of the shareholders may be
called at any time or at the request of the Chief Executive Officer or the Board
of Directors. Unless the Corporation is a "public corporation" (as defined in
the North Carolina Business Corporation Act), a special meeting of the
shareholders shall also be called upon the written demand or demands of the
holders of at least ten percent (10%) of all votes entitled to be cast on any
issue proposed to be considered at such meeting pursuant to such demand or
demands, provided such demand or demands describe the purpose or purposes for
which said special meeting is to be held and are signed, dated and delivered to
the Secretary of the Corporation. Notice of a special meeting called at the
demand of shareholders shall be given within thirty (30) days after the date of
receipt by the Secretary of the demand or demands requiring the call of such
special meeting.
Section 6.5 NOTICE OF MEETINGS. Written or printed notice stating the date,
time and place of the meeting shall be given not less than ten (10) nor more
than sixty (60) days before the date thereof, either personally or by mail, at
the direction of the person or persons calling the meeting, to each shareholder
entitled to vote at such meeting and each other shareholder entitled to notice
pursuant to the Articles of Incorporation or applicable law.
In the case of a special meeting, the notice of meeting shall specifically
state the purpose or purposes for which the meeting is called. In the case of an
annual meeting, the notice of meeting need not specifically state the purpose or
purposes thereof or the business to be transacted thereat unless such statement
is expressly required by the provisions of these Bylaws or by applicable law.
If a meeting is adjourned for more than 120 days after the date fixed for
the original meeting, or if a new record date is fixed for the adjourned
meeting, or if the date, time and place for the adjourned meeting is not
announced prior to adjournment, then notice of the adjourned meeting shall be
given as in the case of an original meeting; otherwise, it is not necessary to
give any notice of the adjourned meeting other than by announcement at the
meeting at which the
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adjournment is taken.
A shareholder's attendance at a meeting constitutes a waiver by such
shareholder of (a) objection to lack of notice or defective notice of the
meeting, unless the shareholder at the beginning of the meeting objects to
holding the meeting or transacting business at the meeting, and (b) objection to
consideration of a particular matter at the meeting that is not within the
purpose or purposes described in the notice of the meting, unless the
shareholder objects to considering the matter before it is voted upon.
Section 6.6 RECORD DATE. For the purpose of determining shareholders
entitled to notice of or to vote at any meeting of shareholders or any
adjournment thereof, or in order to make a determination of shareholders for any
proper purpose, the Board of Directors may fix in advance a date as the record
date for one or more voting groups for any such determination of shareholders,
such record date in any case to be not more than seventy (70) days immediately
preceding the date of the meeting or the date on which the particular action,
requiring such determination of shareholders, is to be taken.
If no record date is fixed for the determination of shareholders entitled
to notice of or to vote at a meeting of shareholders, the close of business on
the day before the date on which notice of the meeting is first mailed to
shareholders shall be the record date for such determination of shareholders.
A determination of shareholders entitled to notice of or to vote at a
shareholders' meeting is effective for any adjournment of the meeting unless the
Board of Directors fixes a new record date for the adjourned meeting, which it
must do if the meeting is adjourned to a date more than 120 days after the date
fixed for the original meeting.
Section 6.7 SHAREHOLDERS' LIST. Not later than two (2) business days after
the date notice of a meeting of shareholders is first given, the Secretary or
other officer or person having charge of the stock transfer books of the
Corporation shall prepare an alphabetical list of the shareholders entitled to
notice of such meeting, with the address of and number of shares held by each,
arranged by voting group (and by class or series of shares within each voting
group), which list shall be kept on file at the principal office of the
Corporation (or such other place in the city where the meeting is to be held as
may be identified in the notice of the meeting) for the period commencing two
(2) business days after notice of the meeting is first given and continuing
through such meeting, and which list shall be available for inspection by any
shareholder, or his or her agent or attorney, upon his or her demand, at any
time during regular business hours. This list shall also be produced and kept
open at the time and place of the meeting and shall be subject to inspection by
any shareholder, or his or her agent or attorney, during the whole time of the
meeting and any adjournment thereof.
Section 6.8 QUORUM. The holders of shares entitled to a majority of votes
entitled to be cast by a voting group (as described in Section 9), present in
person or represented by proxy, shall constitute a quorum of such voting group
at all meetings of shareholders for purposes of acting on any matter for which
action by such voting group is required. If there is no quorum at the opening of
a meeting of shareholders, such meeting may be adjourned from time to time by
the vote of a majority of the shares voting on the motion to adjourn; and, at
any adjourned meeting which a quorum is present, any business may be transacted
which might have been transacted at the original meeting.
Once a share is represented for any purpose at a meeting, it is deemed
present for quorum purposes for the remainder of the meeting and for any
adjournment thereof unless a new record date is or must be set for that
adjourned meeting.
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Section 6.9 ORGANIZATION. Each meeting of shareholders shall be presided
over by the Chief Executive Officer, or, in the absence or at the request of the
Chief Executive Officer, by such other officer as the Chief Executive Officer or
the Board of Directors may designate, or in their absence and in the absence of
such designation, by any person selected to preside by plurality vote of the
shares represented and entitled to vote at the meeting, with each share having
the same number of votes to which it would be entitled on any other matter on
which all shares represented and entitled to vote at the meeting would be
entitled to vote. The Secretary, or in the absence or at the request of the
Secretary, any person designated by the person presiding at the meeting, shall
act as secretary of the meeting.
Section 6.10 VOTING OF SHARES. Except as otherwise provided in the Articles
of Incorporation of the Corporation, each outstanding share, regardless of
class, having the right to vote on a matter or matters submitted to a vote at a
meeting of shareholders shall be entitled to one vote on each such matter. A
shareholder may vote in person or by proxy.
Except in the election of directors (as provided for in Section 3.4), if a
quorum of a voting group exists, action on a matter by such voting group is
approved by such voting group if the votes cast within such voting group
favoring the action exceed the votes cast within such voting group opposing the
action, unless a greater number of affirmative votes is required by law or the
Articles of Incorporation or a Bylaw adopted by the shareholders. If the
Articles of Incorporation, a Bylaw adopted by the shareholders or applicable law
provides for voting on a matter by two or more voting groups, action is taken on
that matter only when approved by each of those voting groups counted
separately; PROVIDED, that action may be taken by one voting group on a matter
even though no action is taken at the same time by another voting group entitled
to vote on the matter.
Voting on all matters including the election of directors shall be by voice
vote or by a show of hands unless, as to any matter, the holders of shares
entitled to at least twenty-five percent (25%) of the votes of shares
represented at the meeting and entitled to vote on that matter shall demand,
prior to the voting on such matter, a ballot vote on such matter.
As used in these Bylaws, the term "voting group" means all shares of one or
more classes or series that, under the Articles of Incorporation or applicable
law, are entitled to vote and be counted together collectively on a matter at a
meeting of shareholders. All shares entitled by the Articles of Incorporation or
applicable law to vote generally on the matter are for that purpose a single
voting group. So long as the Corporation shall have only one class of shares
outstanding and the voting rights of all shares of such class are identical,
then all such outstanding shares shall constitute a single voting group and the
sole voting group, except to the extent that applicable law or the Articles of
Incorporation requires that any of such shares be treated as a separate voting
group.
Section 6.11 PROXIES. Shares may be voted either in person or by one or
more agents authorized by a written proxy executed by the shareholder or his
duly authorized attorney-in-fact. A proxy shall not be valid after the
expiration of eleven (11) months from the date of its execution, unless the
person executing it specifies therein the length of time for which it is to
continue in force, or limits its use to a particular meeting.
Section 6.12 ACTION WITHOUT MEETING. Any action required or permitted to be
taken at a meeting of the shareholders may be taken without a meeting if one or
more written consents, setting forth the action so taken, shall be signed by all
of the persons who would be entitled to vote upon such action at a meeting,
whether before or after the action so taken, and delivered to the Corporation to
be included in the corporate minute book or filed with the corporate records.
Such consent has the same effect as a meeting vote and may be described as such
in any
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documents. In the case of any action proposed to be so taken by written
consent that, if to be taken at a meeting, would require that notice be given to
nonvoting shareholders, the Corporation shall give such nonvoting shareholders
written notice of the proposed action at least ten (10) days before the action
is taken, which notice shall contain or be accompanied by the same material
that, under applicable law, would have been required to be sent to nonvoting
shareholders in a notice of such a meeting.
ARTICLE VII
CONTRACTS, LOANS AND DEPOSITS
Section 7.1 CONTRACTS. The Board of Directors may authorize any officer or
officers, agent or agents, to enter into any contract or execute and deliver any
document or instrument on behalf of the Corporation, and such authority may be
general or confined to specific instances. Any resolution of the Board of
Directors authorizing the execution of documents by the proper officers of the
Corporation or by the officers generally and not specifying particular officers
shall be deemed to authorize such execution by the Chief Executive Officer, the
Chief Operating Officer, the Chairman of the Board, the President, or any Vice
President, or by any other officer if such execution is within the scope of the
duties and of such other office. The Board of Directors may by resolution
authorize such execution by means of one or more facsimile signatures.
Section 7.2 LOANS. No loans shall be contracted on behalf of the
Corporation and no evidences of indebtedness shall be issued in its name unless
authorized by the Board of Directors. Such authority may be general or confined
to specific instances.
Section 7.3 CHECKS AND DRAFTS. All checks, drafts or other orders for the
payment of money issued in the name of the Corporation shall be signed by such
officer or officers, agent or agents of the Corporation, and in such manner, as
shall from time to time be determined by resolution of the Board of Directors.
Section 7.4 DEPOSITS. All funds of the Corporation not otherwise employed
or invested shall be deposited from time to time to the credit of the
Corporation in such depositories as the Board of Directors direct.
ARTICLE VIII
SHARE CERTIFICATES
Section 8.1 CERTIFICATES FOR SHARES. Unless the Board of Directors
authorizes the issue of some or all of the shares of any or all classes or
series without certificates, certificates representing shares of the Corporation
shall be issued, in such form as the Board of Directors shall determine, to
every shareholder for the fully paid shares owned by him. These certificates
shall be signed by the Chief Executive Officer, the Chief Operating Officer, the
Chairman of the Board, the President or a Vice President and by the Secretary,
an Assistant Secretary, the Treasurer or an Assistant Treasurer, either manually
or in facsimile (provided that certificates bearing facsimile signatures of both
officers shall be manually countersigned by a registrar, transfer agent or other
authenticating agent). They shall be consecutively numbered or otherwise
identified; and the name and address of the persons to whom they are issued,
with the number of shares and the date of issue, shall be entered on the stock
transfer books of the Corporation.
Section 8.2 TRANSFER OF SHARES. Transfer of shares represented by
certificates shall be made on the stock transfer books of the Corporation only
upon the surrender of the certificates for the shares sought to be transferred
by the record holder thereof or by his or her duly authorized agent, transferee
or legal representative, or as otherwise provided by applicable law. All
certificates surrendered for transfer shall be canceled before new certificates
for the transferred shares shall be issued.
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Section 8.3 LOST CERTIFICATES. The Board of Directors may authorize the
issuance of a new share certificate in place of a certificate claimed to have
been lost, destroyed or wrongfully taken, upon receipt of an affidavit of such
fact from the person claiming the loss or destruction. When authorizing such
issuance of a new certificate, the Board may require the claimant to give the
Corporation a bond in such sum and with such sureties as it may direct to
indemnify the Corporation against loss from any claim with respect to the
certificate claimed to have been lost, destroyed or wrongfully taken; or the
Board may, by resolution reciting that the circumstances justify such action,
authorize the issuance of the new certificate without requiring such a bond with
respect to a certificate claimed to have been lost or destroyed. Any such
authorization by the Board of Directors may be general or confined to specific
instances. Nothing herein shall require the Board of Directors to authorize the
issuance of any such replacement certificate under any circumstances in which
the Corporation is not required to issue such certificate, this provision being
permissive and not mandatory.
ARTICLE IX
RECORDS AND REPORTS
Section 9.1 GENERAL. The Corporation shall keep all records and submit and
file all reports and filings as are required by applicable law. Unless the Board
of Directors otherwise directs, the Treasurer shall be responsible for keeping,
or causing to be kept, all financial and accounting records of the Corporation
and for submitting or filing, or causing to be submitted or filed, all reports
and filings of a financial or accounting nature, and the Secretary shall be
responsible for keeping, or causing to be kept, all other records and for
submitting or filing, or causing to be submitted or filed, all other reports and
filings.
The Corporation shall keep as permanent records minutes of all meetings of
its incorporators, shareholders and Board of Directors, a record of all actions
taken by the shareholders or Board of Directors without a meeting, and a record
of all actions taken by Committees of the Board of Directors. The Corporation
shall maintain appropriate accounting records. The Corporation or its agent
shall maintain a record of its shareholders, in a form that permits preparation
of a list of the names and addresses of all shareholders, in alphabetical order
by class of shares showing the number and class of shares held by each. The
Corporation shall maintain its records in written form or in another form
capable of conversion into written form within a reasonable time.
Section 9.2 RECORDS AT PRINCIPAL OFFICE. The Corporation shall keep a copy
of the following records at the Corporation's principal office:
(a) Its Articles or restated Articles of Incorporation and all amendments
to them currently in effect;
(b) Its Bylaws or restated Bylaws and all amendments to them currently in
effect;
(c) Resolutions adopted by the Board of Directors creating one or more
classes or series of shares, and fixing their relative rights,
preferences, and limitations, if shares issued pursuant to those
resolutions are outstanding;
(d) The minutes of all shareholders' meetings, and records of all action
taken by shareholders without a meeting, for the past three years;
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(e) All written communications to shareholders generally within the past
three years and the financial statements required by law to be made
available to the shareholders for the past three years;
(f) A list of the names and business addresses of its current directors
and officers; and
(g) Its most recent annual report delivered to the North Carolina
Secretary of State pursuant to the North Carolina Business Corporation
Act.
Section 9.3 FINANCIAL STATEMENTS. The Corporation shall make available to
its shareholders annual financial statements, which may be consolidated or
combined statements of the Corporation and one or more of its subsidiaries, as
appropriate, that include a balance sheet as of the end of the fiscal year, an
income statement for that year, and a statement of cash flows for the year
unless that information appears elsewhere in the financial statements. If
financial statements are prepared for the Corporation on the basis of generally
accepted accounting principles, the annual financial statements shall also be
prepared on that basis.
If the annual financial statements are reported upon by a public
accountant, such accountant's report shall accompany them. If not, the
statements shall be accompanied by a statement of the President or the Treasurer
or other person responsible for the Corporation's accounting records:
(a) Stating his or her reasonable belief whether the statements were
prepared on the basis of generally accepted accounting principles and,
if not, describing the basis of preparation; and
(b) Describing any respects in which the statements were not prepared on a
basis of accounting consistent with the statements prepared for the
preceding year.
The Corporation shall mail the annual financial statements, or a written
notice of their availability, to each shareholder within 120 days after the
close of each fiscal year; provided that the failure of the Corporation to
comply with this requirement shall not constitute the basis for any claim of
damages by any shareholder unless such failure was in bad faith. Thereafter, on
written request from a shareholder who was not mailed the statements, the
Corporation shall mail such shareholder the latest financial statements.
Section 9.4 OTHER REPORTS TO SHAREHOLDERS. If the Corporation is not a
public corporation and it indemnifies or advances expenses to a director in
connection with a proceeding by or in the right of the Corporation, the
Corporation shall report the indemnification or advance in writing to the
shareholders with or before notice of the next shareholders' meeting.
If the Corporation is not a public corporation and it issues or authorizes
the issuance of shares for promissory notes or for promises to render services
in the future, other than in a transaction or pursuant to a plan previously
approved by a majority of the shares entitled to vote thereon, the Corporation
shall report in writing to the shareholders the number of shares authorized or
issued, and the consideration received by the Corporation, with or before the
notice of the next shareholders' meeting.
Section 9.5 ANNUAL REPORT. The Corporation shall prepare and deliver to the
North Carolina Secretary of State for filing each year the annual report
required by the North Carolina Business Corporation Act. Such annual report
shall be filed each year within 60 days after the end of the month in which the
Corporation was incorporated, or at such other time as is then required by
applicable law. The Corporation may, and when required by law shall, file all
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necessary or appropriate corrections and amendments to such annual report, and
shall promptly file an amendment to its annual report to reflect any change in
the location of the principal office of the Corporation.
ARTICLE X
GENERAL PROVISIONS
Section 10.1 DIVIDENDS. The Board of Directors may from time to time
declare, and the Corporation may pay, dividends on its outstanding shares in the
manner and upon the terms and conditions provided by law and the Articles of
Incorporation of the Corporation. The Board of Directors may fix in advance a
record date for determining the shareholders entitled to a dividend. If such
record date is not fixed by the Board of Directors, the date the Board of
Directors authorizes such dividend shall be the record date.
Section 10.2 SEAL. The corporate seal of the Corporation shall consist of
two concentric circles between or within which are the name of the Corporation,
the state of incorporation, the year of incorporation and the word "SEAL." The
seal may be used by causing it or a facsimile thereof to be impressed, affixed,
stamped or reproduced by any means. Any officer of the Corporation authorized to
execute or attest a document on behalf of the Corporation may affix or reproduce
on such document, as and for the corporate seal of the Corporation, a seal in
any other form sufficient to evidence that it is intended by such officer to
represent the corporate seal of the Corporation, in which case such seal shall
be as effective as the corporate seal in the form herein prescribed.
Section 10.3 NOTICE AND WAIVER OF NOTICE. Except as otherwise provided in
the Articles of Incorporation or these Bylaws, any notice permitted or required
to be given pursuant to these Bylaws may be given in any manner permitted by
applicable law and with the effect therein provided. Without limiting the
generality of the foregoing, written notice by the Corporation to a shareholder
is effective when deposited in the United States mail with postage thereon
prepaid and correctly addressed to the shareholder's address shown in the
Corporation's current record of shareholders.
Whenever any notice is required to be given to any shareholder or director
under the provisions of the North Carolina Business Corporation Act or under the
provisions of the Articles of Incorporation or Bylaws of the Corporation, a
waiver thereof in writing signed by the person or persons entitled to such
notice and included in the minutes or filed with the corporate records, whether
done before or after the time stated in the notice, shall be equivalent to the
giving of such notice.
Section 10.4 FISCAL YEAR. The fiscal year of the Corporation shall be fixed
by resolution of the Board of Directors.
Section 10.5 INDEMNIFICATION. Any person who at any time serves or has
served as a director of the Corporation shall have a right to be indemnified by
the Corporation to the fullest extent permitted by law against (a) expenses,
including reasonable attorneys' fees, actually and necessarily incurred by him
or her in connection with any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative, whether
formal or informal, and whether or not brought by or on behalf of the
Corporation, arising out of his or her status as such director, or service, at
the request of the Corporation, as a director, officer, partner, trustee,
employee or agent of any other corporation, partnership, joint venture, trust or
other enterprise or as a trustee or administrator under an employee benefit
plan, or his or her activities in any of the foregoing capacities, and (b) any
liability incurred by him, including without limitation, satisfaction of any
judgment, money decree, fine (including any excise tax
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assessed with respect to an employee benefit plan), penalty or settlement, for
which he or she may have become liable in connection with any such action, suit
or proceeding.
The Board of Directors of the Corporation shall take all such action as may
be necessary and appropriate to authorize the Corporation to pay the
indemnification required by this Bylaw, including without limitation, to the
extent necessary, (a) making a good faith evaluation of the manner in which the
claimant for indemnity acted and of the reasonable amount of indemnity due him
or her and (b) giving notice to and obtaining approval by the shareholders of
the Corporation.
Expenses incurred by a director in defending an action, suit or proceeding
may be paid by the Corporation in advance of the final disposition of such
action, suit or proceeding upon receipt of an undertaking by or on behalf of the
director to pay such amount unless it shall ultimately be determined that he or
she is entitled to be indemnified by the Corporation against such expenses.
Any person who at any time after the adoption of this Bylaw serves or has
served as a director of the Corporation shall be deemed to be doing or to have
done so in reliance upon, and as consideration for, the right of indemnification
provided herein, and any modification or repeal of these provisions for
indemnification shall be prospective only and shall not affect any rights or
obligations existing at the time of such modification or repeal. Such right
shall inure to the benefit of the legal representatives of any such person,
shall not be exclusive of any other rights to which such person may be entitled
apart from the provisions of this Bylaw, and shall not be limited by the
provisions for indemnification in Sections 55-8-51 through 55-8-56 of the North
Carolina Business Corporation Act or any successor statutory provisions.
Any person who is entitled to indemnification by the Corporation hereunder
shall also be entitled to reimbursement of reasonable costs, expenses and
attorneys' fees incurred in obtaining such indemnification.
Section 10.6 CONSTRUCTION. All references in these Bylaws to "shareholder"
or "shareholders" refer to the person or persons in whose names shares are
registered in the records of the Corporation, except to the extent that a
beneficial owner of shares that are registered in the name of a nominee is
recognized by the Corporation as a "shareholder" in accordance with a procedure
therefor that the Corporation may, but need not, establish pursuant to
applicable law. All personal pronouns used in these Bylaws shall include persons
of any gender. All terms used herein and not specifically defined herein but
defined in the North Carolina Business Corporation Act shall have the same
meanings herein as given under the North Carolina Business Corporation Act,
unless the context otherwise requires.
Section 10.7 AMENDMENTS. Except as otherwise provided herein or in the
Articles of Incorporation or by applicable law, these Bylaws may be amended or
repealed and new bylaws may be adopted by action of the Board of Directors or
the shareholders.
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AMENDMENT TO BYLAWS
OF
DIVERSIFIED SENIOR SERVICES, INC.
Article V, Section 5.1, of the Bylaws of Diversified Senior Services, Inc.,
is hereby amended to read as follows:
ARTICLE V
ADVISORY COMMITTEE
Section 5.1 GENERAL. In addition to the committees established by the Board
of Directors pursuant to Article II of these Bylaws, the Corporation may, at the
option of the Board of Directors, set up an Advisory Committee to assist the
Corporation in evaluation of its programs and to establish and review policies,
procedures, and programs. The Advisory Committee shall be comprised of a minimum
of five members and a maximum of twelve members as determined from time to time
by the Board of Directors. Membership on the Advisory Committee shall include at
least one physician, one registered nurse, who shall serve as the Corporation's
Nursing Supervisor or Director of Nursing, the President of the Corporation, and
appropriate representation from the community.
This Amendment was approved by the Board of Directors and the sole
Shareholder of the Corporation effective the 24th day of June, 1997.
EXHIBIT 5
HOUSE LAW FIRM
3325 HEALY DRIVE
WINSTON-SALEM, NORTH CAROLINA 27103
August 26, 1997
Diversified Senior Services, Inc.
915 West Fourth Street
Winston-Salem, North Carolina 27101
RE: 1997 SECURITIES AND EXCHANGE COMMISSION
REGISTRATION STATEMENT
Gentlemen:
We are special counsel to Diversified Senior Services, Inc. (the "Company")
in connection with the SEC Form SB-2 Registration Statement dated August 25,
1997. Except where otherwise noted, capitalized terms used but not otherwise
defined herein have the meanings given them in the Legal Opinion Accord (the
"Accord") of the American Bar Association Section of Business Law (1991).
This Opinion Letter is governed by, and shall be interpreted in accordance
with the Accord. As a consequence, it is subject to a number of qualifications,
exceptions, definitions, limitations on coverage, and other limitations, all as
more particularly described in the Accord, and this Opinion Letter should be
read in conjunction therewith. The law covered by the opinions expressed herein
is limited to the laws of the State of North Carolina and the Federal law of the
United States.
1. The Company has been duly incorporated under the laws of the State of
North Carolina and is validly existing as a corporation in good
standing under the laws of that state.
2. The Common Stock and Warrants, upon their issuance, sale and delivery
in accordance with the terms of the Prospectus contained in the
Registration Statement will be duly and validly issued and
nonassessable.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement relating to the Common Stock and Warrants and to the
reference to us under the heading "Legal Matters" in the Prospectus contained
therein. In given such consent, we do not thereby admit that we are in the
category of person whose consent is required under Section 7 of the Act.
Sursum Corda,
HOUSE LAW FIRM
/s/ Don R. House
Don R. House
EXHIBIT 10.1
EXECUTIVE EMPLOYMENT AGREEMENT
BETWEEN
DIVERSIFIED SENIOR SERVICES, INC.
AND
WILLIAM G. BENTON
THIS EMPLOYMENT AGREEMENT (the "Agreement") is dated as of this 1st day of
January, 1997 ("Effective Date") by and between DIVERSIFIED SENIOR SERVICES,
INC., a North Carolina corporation (the "Company"), and WILLIAM G. BENTON (the
"Executive").
1. EMPLOYMENT AND DUTIES. The Company hereby employs Executive and Executive
accepts employment with the Company as the Company's Chairman of the Board
and Chief Executive Officer, or in such other position of the same or
greater stature as the Company may direct or desire, subject at all times
to the control of the Company's Board of Directors ("Board"). Executive
shall perform such other or additional duties as shall reasonably be
assigned to him from time to time by the Board, which duties shall be those
customarily performed by a corporate officer having executive
responsibilities of the indicated offices in a business similar to the
Company.
2. EXTENT OF SERVICES. Executive shall use his best efforts, skills and
abilities to promote the interest of the Company, and, subject to Paragraph
1, will perform such duties as are assigned to him by the Board.
3. TERM. The term of this Agreement shall be for five (5) years from the
Effective Date and shall be extended a day for each day Executive is
employed by the Company so that the Agreement shall always be effective for
a term ending five (5) years from his most recent date of employment with
the Company subject to the following:
A. TERMINATION BY THE COMPANY:
(1) CAUSE OR MATERIAL BREACH: The Company may terminate this
Agreement at any time for Cause or Material Breach hereof by
Executive. As used herein, "Cause" is defined to mean:
(i) any act of fraud, misappropriation, embezzlement or like act
of dishonesty;
(ii) conviction of a felony;
(iii) material failure to perform the services and duties
described herein (except in the case of death or
disability), material violation of any of the provisions set
forth herein, or material breach of any fiduciary duty to
the Company, if the material failure, violation or breach
unreasonably continues after written notice thereof is given
to Executive by the Company;
(iv) if Executive is guilty of gross misconduct, misfeasance or
malfeasance in connection with his employment hereunder
which shall include, but not be limited to, excessive
absences from work, failure to follow reasonable directives
from the Board, neglect of duty, negligence, disloyalty,
dishonesty, intemperance, immorality, disobedience of the
Company's rules, disrespect, unnecessarily
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endangering, damaging or destroying life or property, or
similar conduct injurious to the Company; or
(v) other behavior which adversely reflects on the reputation of
the Company such as substance abuse, public intoxication,
etc.
As used herein "Material Breach" is defined to mean a material
violation of any of the provisions and conditions set forth
herein. In the event of termination for Cause or Material Breach
by Executive, the Company shall continue to pay Executive his
then current salary for thirty (30) days following the date of
the delivery of the notice of termination, which date shall be
for all purposes of this Agreement, the date of termination of
his employment.
(2) FUNDAMENTAL CHANGES: Notwithstanding anything herein contained to
the contrary, the Company may terminate this Agreement, subject
to Executive's rights to severance pay under Paragraph 5 hereof,
upon thirty (30) days notice to Executive, upon the happening of
any of the following events:
(i) the bankruptcy, receivership or dissolution of the Company;
(ii) the sale by the Company of substantially all of its assets
to a single purchaser or a group of associated or affiliated
purchasers who are not affiliated with the Company;
(iii) the sale, exchange or other disposition, in one transaction
to an entity or entities not affiliated with the Company, of
more than 50% of the outstanding capital stock of the
Company other than a sale, exchange or disposition of the
capital stock of the Company resulting from a public or
private offering of capital stock or other security
convertible into capital stock of the Company which offering
is sponsored or initiated by the Company and approved by its
Board of Directors.
(iv) a bona fide decision by the Company to terminate its
business and liquidate its assets; or
(v) the merger or consolidation of the Company in a transaction
in which the stockholders of the Company receive less than
50% of the outstanding voting stock of the new or continuing
entity.
B. DISABILITY: If Executive becomes disabled (as hereinafter defined) the
Company may, if Executive has not returned to active full-time
employment with the Company, terminate his employment by furnishing
him notice of such termination and the Company shall be obligated to
pay Executive his salary to the date of such notice, which date shall
be for all purposes of this Agreement the date of termination of his
employment. As used herein, Executive shall be deemed to be "disabled"
if he:
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(1) has been declared legally incompetent by a final decree of a
court of competent jurisdiction (the date of such decree being
deemed to be the date on which the disability occurred);
(2) receives disability insurance benefits for a period of six (6)
consecutive months from any disability income insurance policy
maintained by the Company; or
(3) has become permanently disabled, which shall be deemed to exist
upon a determination by the Board:
(i) that Executive has become physically or mentally
incapacitated or disabled; and
(ii) that such incapacity or disability has continued for a
period of six (6) consecutive months or for shorter periods
aggregating nine (9) months during any consecutive fifteen
(15)-month period.
In determining disability under item (3) above, the Board shall rely
upon the written opinion of the physician regularly attending
Executive in determining whether a disability is deemed to exist. If
the Board disagrees with the opinion of such physician, the Board may
choose a second physician, and the two (2) physicians shall choose a
third physician, and the written opinion of a majority of the three
(3) physicians shall be conclusive as to Executive's disability. The
date of any written opinion conclusively finding Executive to be
disabled is the date on which the disability will deemed to have
occurred. The expenses associated with the utilization of any
physician other than the physician regularly attending Executive shall
be borne solely by the Company. Executive hereby consents to any
required medical examination and agrees to furnish any medical
information requested by the Company and to waive any applicable
physician/patient privilege that may arise because of such
determination.
C. DEATH: If Executive shall die, thereupon his employment shall
terminate, and the Company shall pay his salary for three months after
the month in which Executive dies.
D. EARLY RETIREMENT: The Company currently does not have an early
retirement policy, and, therefore, no rights to early retirement shall
obtain for Executive.
4. SALARY, OTHER COMPENSATION AND BENEFITS. As compensation for the services
to be rendered by Executive to the Company pursuant to this Agreement,
Executive shall be paid the following compensation and shall receive the
following benefits:
A. SALARY: Executive's initial annual salary shall be as set forth on the
"Schedule of Compensation" attached to this Agreement as Exhibit A and
made a part hereof by this reference. Such salary shall be payable in
accordance with the Company's regular payroll procedures. In the event
Executive receives any periodic payments representing lost
compensation under any health, disability, accident and/or salary
continuation insurance policy, the premiums for which have been paid
by the Company, the amount of salary that Executive would be entitled
to receive from the Company shall be decreased by the amount of such
payments. The Company
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<PAGE>
and Executive from time to time by mutual
agreement may reflect increases in Executive's Base Compensation by
entering any such increase upon Exhibit A. If an increase is entered
on Exhibit A and duly signed by the Company and Executive, such entry
shall constitute an amendment to this Agreement as of the effective
date of such entry designated in such Exhibit A and shall supersede
the compensation provided for in this Section 4.01 or any other
increase or increases previously made in Exhibit A. In the event that
the Company requests and Executive agrees to the deferral of part or
all of Executive's compensation, Executive shall be entitled to
repayment of such base amount, plus an additional amount as shall be
provided in detail on the "Schedule for Repayment and Computation of
Deferred Compensation" attached to this Agreement as Exhibit B and
made a part of this Agreement by this reference. The parties
acknowledge that the Company has assumed the liability for certain
accrued, but unpaid, compensation due to Executive for startup
activities incurred by the Company's parent organization prior to the
incorporation of the Company, and relating to fiscal year ended
December 31, 1996, which amounts are reflected and subject to the
terms set forth on Exhibit B. At the time of any entry on Exhibit B,
such entry shall be duly signed by the Company and Executive and such
entry shall constitute an amendment to this Agreement as of the
effective date of such entry designed in such Exhibit B.
B. BONUS: In addition to Executive's salary as described above, for each
of the Company's fiscal years during the term of this Agreement,
Executive shall have the right to participate in any bonus plan of the
Company. The Board shall determine the parameters of any bonus plan
and it shall be a duty of Executive as Chief Executive Officer to
determine the allocation of such total amount among participating
employees.
C. EXPENSES: Executive shall be entitled to reimbursement for all
reasonable travel and other business expenses incurred by him in the
performance of services under this Agreement upon presentation of
expense statements or vouchers and such other supporting information
as the Company may reasonably request.
D. OTHER COMPENSATION: In the discretion of the Board, Executive may be
entitled to receive additional compensation in excess of Executive's
salary and incentive compensation as set forth in Paragraphs 4.a. and
b. Subject to the terms of any of the Company's employee benefit
plans, agreements and arrangements, Executive shall be entitled to
participate in the major medical, hospitalization, life insurance,
vacation, sick leave or disability, pension or retirement,
profit-sharing, stock-based incentive and other fringe benefit plans
maintained by the Company for the benefit of employees of the Company
in like positions of responsibility as Executive.
5. SEVERANCE PAY:
A. SEVERANCE PAY EVENTS; SEVERANCE PAY; SEVERANCE PAY CAP: In the event
the Company terminates Executive's employment without either Cause or
a Material Breach by Executive, as both terms are defined herein; or
in the event a
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Fundamental Change occurs and within three (3) months prior to or
eighteen (18) months after such Fundamental Change, the Company:
(1) terminates Executive's employment for reasons other than Cause,
Material Breach, death or disability;
(2) removes Executive as Chairman of the Board and/or Chief Executive
Officer of the Company or otherwise causes a meaningful reduction
in Executive's title, duties or responsibilities;
(3) reduces Executive's base salary; or
(4) requires Executive to relocate beyond a 30-mile radius from
either the Company's principal office in Winston-Salem, North
Carolina or Executive's then current principal residence,
(any of the foregoing events herein deemed to be a "Severance Pay
Event"), the Company shall pay to Executive an amount of severance pay
equal to the following, less one (1) dollar: (i) three (3) times the
Executive's average annual base compensation received for the
immediately preceding five (5) fiscal years; or, (ii) if Executive has
been employed by the Company for less than five (5) years, then the
annualized average of any base compensation received during such
period. This provision is intended to comply with the definitions set
forth in Sections 280G(b)(3) and (d)(1) and (2) of the Internal
Revenue Code of 1986, as amended (the "Code"). For purposes of this
Agreement, the term "Severance Pay Cap" shall mean the maximum amount
which may be paid to Executive without constituting an "excess
parachute payment" under Section 280G(b) of the Code. The value of any
non-cash benefit or any deferred cash payments shall be determined by
the Company in accordance with the principles of Section 280G(d)(3)
and (4) of the Code. The Company reserves the right, after
consultation with its chosen tax counsel, to make a reasonable
determination of the Severance Pay Cap under Section 280G of the Code.
It is the intention of the parties hereto that Executive's Severance
Pay shall not exceed an amount which is deductible in full by the
Company when paid if this alternative method of calculation is chosen
except as permitted under Paragraph 5.b. hereof.
The Company shall pay such Severance Pay to Executive thirty (30) days
after the Severance Pay Event. As used herein, the term "Fundamental
Change" shall mean the events described in paragraphs 3.a.(2)(ii),
(iii) or (v) or a change in control of the Company's Board of
Directors as presently constituted.
B. ACCRUED BONUS: The Company shall pay to Executive, not later than the
twentieth (20th) day following the date of such termination of
employment or Severance Pay Event, a lump sum amount equal to any
bonus compensation which has been allocated, accrued or awarded for a
fiscal year preceding the date of such termination of employment or
Severance Pay Event, but has not yet been paid, and in no event shall
such payment be a reduction in Severance Pay.
6. CONFIDENTIAL INFORMATION AND DISCOVERIES: Executive agrees that all
information of a technical or business nature such as know-how, trade
secrets, secret business information,
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plans, data, processes, techniques, etc., except such information and
skills generally known in the Company's trade and business, information
made public by the Company or generally of a public nature, and knowledge
of Executive not constituting a trade secret (the "Confidential
Information"), acquired by Executive in the course of his employment by the
Company, is a valuable business property right of the Company. Executive
agrees that such Confidential Information, whether in written, verbal or
model form, shall not be disclosed to anyone outside the employment of the
Company without the express written authorization of the Company. The
Confidential Information shall include, without limitation, vendor lists
and records, customer lists, business policies, business methods, financial
information and any other similar material of any kind relating to the
business of the Company. In the event of an actual or threatened breach of
this provision, the Company shall be entitled to an injunction restraining
Executive from such action, and the Company shall not be prohibited in
obtaining such equitable relief or from pursuing any other available
remedies for such breach or threatened breach, including recovery of
damages from Executive.
7. SOLICITATION OF EMPLOYEES: Executive agrees that for a period of eighteen
(18) months following the termination of Executive's employment with the
Company, Executive shall not directly or indirectly, personally or with any
other employees, agents or otherwise, on behalf of himself or any other
person, firm or corporation, solicit or cause any person under his control
to solicit any employee of the Company, or any employee of any Company
subsidiary or affiliate, to terminate his or her employment with the
Company or such subsidiary or affiliate. In the event of an actual or
threatened breach of this provision, the Company shall be entitled to an
injunction restraining Executive from such action, and the Company shall
not be prohibited in obtaining such equitable relief or from pursuing any
other available remedies for such breach or threatened breach, including
recovery of damages from Executive.
8. ENFORCEMENT: Both parties recognize that the services to be rendered under
this Agreement by Executive are special, unique and of extraordinary
character and that in the event of the breach by Executive of any of the
terms and conditions of this Agreement to be performed by him, then the
Company shall be entitled, if it so elects, to institute and prosecute
proceedings in any court of competent jurisdiction, either at law or in
equity, to obtain damages for any breach hereof, or to enjoin Executive
from performing acts prohibited hereby, but nothing herein contained shall
be construed to prevent such other remedy in the courts as the Company may
elect to invoke.
9. RETURN OF DOCUMENTS: Upon the termination of this Agreement, Executive
shall forthwith return and deliver to the Company and shall not retain any
original or copies of any books, papers, price lists or vendor contracts,
bids or customer lists, files, books of account, notebooks and other
documents and data relating to the performance of services rendered by
Executive hereunder, all of which materials are hereby agreed to be the
property of the Company.
10. PLACE OF EXECUTIVE'S RESIDENCE: The Company shall not require Executive to
relocate his place of residence, principal or otherwise, except upon
Executive's consent. If Executive consents to any change of residence, the
Company shall pay all reasonable relocation expenses.
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11. RESIGNATION UPON TERMINATION: In the event of termination of this Agreement
other than by death, Executive shall, and shall be deemed to have, resigned
from all positions held with the Company, including without limitation, any
position as a director, officer, agent, trustee or consultant of the
Company or any affiliate of the Company effective the date of termination
of employment.
12. ARBITRATION: Any claim, dispute or controversy arising out of or relating
to this Agreement, the parties' relationship under this Agreement or the
breach of this Agreement, shall be determined by a single arbitrator
pursuant to the applicable rules of practice and procedures of either the
Private Adjudication Center, Inc., an affiliate of the Duke University
School of Law, or of the American Arbitration Association, as such rules
shall be in effect at the time the demand for arbitration is filed, at the
Company's sole election. The parties hereby agree that the arbitration
proceeding shall be private and confidential and shall not be published in
any form or manner. The location of the arbitration shall be at the Private
Adjudication Center's facilities at the Duke Law School, Durham, North
Carolina in the event that the Company elects to apply the rules of
practice and procedure of the Center or shall be in Winston-Salem, North
Carolina in the event the Company elects to apply the rules of the American
Arbitration Association. The decision of the arbitrator shall be final and
binding. Judgment to enforce the decision or award of the arbitrator may be
entered in any court having jurisdiction and the parties hereby agree not
to object to the jurisdiction of the North Carolina General Court of
Justice for such purpose. Nothing contained herein shall in any way deprive
the Company of its claim to obtain an injunction or other equitable relief
arising out of Executive's breach of the provisions of Sections 6 and 7 of
this Agreement. In the event of the termination of Executive's employment,
Executive's sole remedy shall be arbitration as herein provided. The
parties agree that no punitive damages shall be awarded pursuant to any
claim brought hereunder.
The parties agree that service of process relating to any arbitration
proceeding shall be made by certified mail. In any judicial proceeding to
enforce this agreement to arbitrate, the only issues to be determined shall
be the existence of the agreement to arbitrate and the failure of one party
to comply with that agreement, and those issues shall be determined
summarily by the court without a jury. All other issues shall be decided by
the arbitrator, whose decision therein shall be final and binding. There
may be no appeal of an order compelling arbitration except as part of an
appeal concerning confirmation of the decision of the arbitrator.
13. MISCELLANEOUS:
A. NOTICES: Any notice required or permitted to be given under this
Agreement shall be sufficient if in writing and if sent by registered
or certified mail to Executive or the Company at the address set forth
below their signatures at the end of this Agreement or to such other
address as they shall notify each other in writing.
B. ASSIGNMENT: This Agreement shall be binding upon and inure to the
benefit of the Company and its successors and assigns and Executive
and his personal representatives, heirs, legatees and beneficiaries,
but shall not be assignable by Executive.
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<PAGE>
C. APPLICABLE LAW: This Agreement shall be construed in accordance with
the laws of the State of North Carolina in every respect, including
without limitation, validity, interpretation and performance.
D. HEADINGS: Section headings and numbers herein are included for
convenience of reference only and this Agreement is not to be
construed with reference thereto. If there be any conflict between
such numbers and headings and the text hereof, the text shall control.
E. SEVERABILITY: If for any reason any portion of this Agreement shall be
held invalid or unenforceable, it is agreed that the same shall not
affect the validity or enforceability of the remainder hereof.
F. ENTIRE AGREEMENT: This Agreement contains the entire agreement of the
parties with respect to its subject matter and supersedes all previous
agreements between the parties. No director, officer, employee or
representative of the Company has any authority to make any
representations or promises in connection with this Agreement or the
subject matter hereof that is not contained herein, and Executive
represents and warrants that he has not executed this Agreement in
reliance upon any such representation or promise. No modification of
this Agreement shall be valid unless made in writing and signed by the
parties hereto.
G. WAIVER OF BREACH: The waiver by a party hereto of a breach of any
provision of this Agreement by the other party hereto shall not
operate or be construed as a waiver of any subsequent breach by such
party.
H. COUNTERPARTS: This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original, but all
of which together shall constitute one agreement.
I. IMPLIED TERMS: The terms, conditions, obligations and duties expressed
in this Agreement are in addition to any duties and obligations
implied in law to an employment relationship except where any
expressed condition is contrary to the implied condition and in which
case, the express condition will apply and control.
J. BINDING DETERMINATIONS: All reasonable determinations and
interpretations of the Code and this Agreement made by the Company or
its chosen tax counsel, shall be binding and conclusive on all parties
hereto.
K. WITHHOLDING OF TAXES: The Company may withhold from any benefits
payable under this Agreement all federal, state and other taxes as
shall be required pursuant to any law or governmental regulation or
ruling.
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IN WITNESS WHEREOF, the Company has caused this Agreement to be executed by
its duly authorized officer and Executive has signed this Agreement as of
the day and year first above written.
COMPANY:
DIVERSIFIED SENIOR SERVICES, INC.
By: /S/ SUSAN L. CHRISTIANSEN
EXECUTIVE:
/S/ WILLIAM G. BENTON (SEAL)
William G. Benton
915 West Fourth Street
Winston-Salem, NC, 27101
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EXHIBIT A
SCHEDULE OF COMPENSATION
The undersigned hereby agree that the Base Compensation due Executive under
Section 4.01 of the attached Agreement shall be $104,000, payable in accordance
with the Company's regular payroll procedures beginning January 1, 1997, and for
each successive year thereafter during the remaining term of the Agreement,
unless and until further changed by mutual agreement as provided in Section
4.01.
This the 24th day of June, 1997.
COMPANY:
DIVERSIFIED SENIOR SERVICES, INC.
By: /S/ SUSAN L. CHRISTIANSEN
EXECUTIVE:
/S/ WILLIAM G. BENTON (SEAL)
William G. Benton
915 West Fourth Street
Winston-Salem, North Carolina 27101
<PAGE>
EXHIBIT B
SCHEDULE FOR REPAYMENT
AND COMPUTATION OF DEFERRED COMPENSATION
The undersigned hereby agree that accrued but unpaid compensation due Executive
under Section 4.01 of the attached Agreement for the period January 1, 1996
through December 31, 1996 is due and payable to Executive as follows:
Base Compensation $168,263
Bonus Compensation $84,132
In addition, Executive is due accrued, but unpaid, compensation for the period
January 1, 1997 through June 30, 1997, as follows:
Base Compensation $94,632
Bonus Compensation $47,316
The parties agree that the total Bonus in the amount of $131,448, at the
election of Executive, may be paid in cash or may be used by Executive to
purchase shares of the common stock of the Company at a purchase price of $5.00
per share. Executive shall have the right to purchase such stock until the
latest to occur of the following: (a) June 30, 2002, or (b) a period of one year
from the date upon which the Company offers to pay Executive the total bonus
amount in cash. The parties agree that the purchase of stock provided for in
this Exhibit B may be made in whole or in part until such time as Executive has
received the entire amount of the Bonus described herein.
THIS the 24th day of June, 1997.
COMPANY:
DIVERSIFIED SENIOR SERVICES, INC.
By: /S/ SUSAN L. CHRISTIANSEN
EXECUTIVE:
/S/ WILLIAM G. BENTON (SEAL)
William G. Benton
915 West Fourth Street
Winston-Salem, North Carolina 27101
<PAGE>
EXHIBIT B
AMENDED AND RESTATED
SCHEDULE FOR REPAYMENT
AND COMPUTATION OF DEFERRED COMPENSATION
The undersigned hereby agree that accrued but unpaid compensation due Executive
under Section 4.01 of the attached Agreement for the period January 1, 1996
through December 31, 1996 is due and payable to Executive as follows:
Base Compensation $168,263
Bonus Compensation $84,132
In addition, Executive is due accrued, but unpaid, compensation for the period
January 1, 1997 through June 30, 1997, as follows:
Base Compensation $94,632
Bonus Compensation $47,316
The parties agree that the total Bonus in the amount of $131,448, at the
election of Executive, may be paid in cash or may be used by Executive to
purchase shares of the common stock of the Company at a purchase price equal to
50% of the public price per share pursuant to any public sale of stock by the
Company. Executive shall have the right to purchase such stock until the latest
to occur of the following: (a) June 30, 2002, or (b) a period of one year from
the date upon which the Company offers to pay Executive the total bonus amount
in cash. The parties agree that the purchase of stock provided for in this
Exhibit B may be made in whole or in part until such time as Executive has
received the entire amount of the Bonus described herein.
THIS the 6th day of August, 1997.
COMPANY:
DIVERSIFIED SENIOR SERVICES, INC.
By: /S/ SUSAN L. CHRISTIANSEN
EXECUTIVE:
/S/ WILLIAM G. BENTON (SEAL)
William G. Benton
915 West Fourth Street
Winston-Salem, North Carolina 27101
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<PAGE>
EXECUTIVE EMPLOYMENT AGREEMENT
BETWEEN
DIVERSIFIED SENIOR SERVICES, INC.
AND
SUSAN L. CHRISTIANSEN
EFFECTIVE AS OF JANUARY 1, 1997
THIS AGREEMENT, made and entered into as of the 1st day of January, 1997, by and
between DIVERSIFIED SENIOR SERVICES, INC., a North Carolina corporation
("Company") and SUSAN L. CHRISTIANSEN, a resident of the State of North Carolina
("Executive").
W I T N E S S E T H:
The parties, for and in consideration of the mutual and reciprocal covenants and
agreements contained in this Agreement, do contract and agree as follows:
ARTICLE I
PURPOSE AND EMPLOYMENT
The purpose of this Agreement is to define the relationship between the Company,
as an employer, and Executive, as an employee. By the execution of this
Agreement, the Company employs Executive and Executive accepts employment by the
Company.
ARTICLE II
DEFINITIONS
The following terms (in alphabetical order) shall have the meanings set forth
opposite such terms for purposes of this Agreement:
2.01 AGREEMENT: means this Executive Employment Agreement between Diversified
Senior Services, Inc. and Susan L. Christiansen, effective as of January 1,
1997, and as may be amended from time to time.
2.02 BASE COMPENSATION: means the annual salary amount payable to Executive by
the Company pursuant to Section 4.01, as such amount may be adjusted from
time to time.
2.03 BOARD: means the Board of Directors of the Company.
2.04 CEO: means the Chief Executive Officer of the Company.
2.05 CODE: means the Internal Revenue Code of 1986, as amended from time to
time.
2.06 COMMITTEE: means the Compensation Committee of the Board of Directors of
Diversified Senior Services, Inc. or any successor committee of the Board
which deals with compensation.
2.07 COMPANY: means Diversified Senior Services, Inc., a North Carolina
corporation.
2.08 EFFECTIVE DATE: means January 1, 1997.
2.09 EXCESS PARACHUTE PAYMENTS: means "excess parachute payments" as that term
is defined under Code Section 280G(b).
<PAGE>
2.10 EXECUTIVE: means Susan L. Christiansen, a North Carolina resident, Social
Security number ###-##-####.
2.11 FUNDAMENTAL CHANGE: means any of the following events:
(a) the sale by the Company of substantially all of its assets to a single
purchaser or a group of associated or affiliated purchasers who are
not affiliated with the Company;
(b) the sale, exchange or other disposition, in one transaction to an
entity or entities not affiliated with the Company, of more than fifty
percent (50%) of the outstanding capital stock of the Company other
than a sale, exchange or disposition of the capital stock of the
Company resulting from a public or private offering of capital stock
or other security convertible into capital stock of the Company which
offering is sponsored or initiated by the Company and approved by the
Board;
(c) the merger or consolidation of the Company in a transaction in which
the stockholders of the Company receive less than fifty percent (50%)
of the outstanding voting stock of the new or continuing entity;
(d) a change in control of the Board as constituted as of the Effective
Date.
2.12 NORMAL RETIREMENT: means retirement by Executive from employment with the
Company after the date she attains age seventy-five (75) or such earlier
age as requested by Executive and approved by the Committee.
2.13 SEVERANCE EVENTS: means a termination without cause by the Company at any
time in accordance with Section 3.04(a) of the Executive's employment with
the Company or, upon the occurrence of a Fundamental Change and within
three (3) months before or eighteen (18) months after such Fundamental
Change:
(a) a meaningful reduction in Executive's title, duties or
responsibilities by the Company;
(b) a greater than ten percent (10%) reduction of Executive's Base
Compensation by the Company; or
(c) a Company-required relocation of Executive's workplace beyond a
30-mile radius from either the Company's principal office in
Winston-Salem, North Carolina or Executive's then current principal
residence.
2.14 TOTAL DISABILITY: means a physical or mental condition arising after
Executive commences employment with the Company which totally and
permanently prevents her from performing her usual and customary duties as
an employee of the Company. Executive will be deemed to have suffered a
Total Disability when she:
(a) has been declared legally incompetent by a final decree of a court of
competent jurisdiction (the date of such decree being deemed to be the
date on which the disability occurred);
(b) receives disability insurance benefits for a period of six (6)
consecutive months from any disability income insurance policy
maintained by the Company; or
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(c) has become permanently disabled, which shall be deemed to exist upon a
determination by the Board:
(1) that Executive has become physically or mentally incapacitated or
disabled; and
(2) that such incapacity or disability has continued for a period of
six (6) consecutive months or for shorter periods aggregating
nine (9) months during any consecutive fifteen (15) month period.
ARTICLE III
TERMS AND DUTIES
3.01 TERM. The term of this Agreement shall be for five (5) years from the
Effective Date and shall be extended a day for each day Executive is
employed by the Company on or before her seventieth (70th) birthday, so
that the Agreement shall always be effective for a term ending with the
date of the earlier of Executive's seventy-fifth (75th) birthday or five
(5) years from her most recent date of employment with the Company.
3.02 DUTIES. Executive shall serve as the Company's President and Chief
Operating Officer, or in such other position of the same or greater stature
as the Company may direct or desire, subject at all times to the control of
the CEO. Executive shall perform such other or additional duties as shall
reasonable be assigned to her from time to time by the CEO, which duties
shall be those customarily performed by a corporate officer having
executive responsibilities of the position in which she is employed under
this Agreement and in a business similar to the Company. During the term of
this Agreement, Executive also agrees to serve, if elected, as an officer
and director of any subsidiary or affiliate of the Company and to provide
services to other entities as directed by the CEO.
3.03 EXTENT OF SERVICES. Executive shall use her best efforts to devote her
entire business time, attention, skills, abilities and energies to promote
the business and best interest of this Company, and will perform such
duties as are assigned to her by the CEO, in accordance with and pursuant
to all of the terms and conditions contained in this Agreement, and shall,
during the term of this Agreement, be engaged in any other business
activity only if reasonably approved by the CEO, regardless of whether such
activity is pursued for gain, profit, or other pecuniary advantage;
provided, however, this Section 3.03 shall not prevent Executive from
investing her assets in such form or manner as will not require any
services by Executive in the operation of the affairs of the companies in
which such investments are made. Executive shall serve in such other
executive capacity or capacities as may be specified from time to time by
the CEO.
3.04 TERMINATION OF EMPLOYMENT.
(A) WITHOUT CAUSE. Either party may terminate this Agreement without cause
at any time, including the occurrence of a Fundamental Change, upon
thirty (30) days written notice to the other party. Upon such
termination by the Company, the Company shall be obligated to continue
to pay Executive the Base Compensation amount due Executive under
Section 4.01 through the date of termination, plus any other
compensation due her under Article V. Upon such termination by
Executive for any reason other than Normal Retirement, the Company
shall be obligated to pay Executive only the Base Compensation amount
due Executive under Section 4.01 through the date of termination. Upon
such termination by
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Executive upon her Normal Retirement, the Company shall be obligated
to pay Executive only the Base Compensation amount due Executive under
Section 4.01 for the three (3) months following the date of
termination.
(B) WITH CAUSE. The Company may terminate this Agreement with cause at any
time immediately upon delivery of written notice to Executive. Upon
such termination, the Company shall be obligated to continue to pay
Executive only the Base Compensation amount due Executive under
Section 4.01 for thirty (30) days following the date of the delivery
of the notice of termination, which date shall be for all purposes of
this Agreement, the date of termination of her employment.
Executive's employment shall be considered terminated with cause if
terminated for (1) any act of fraud, misappropriation, embezzlement or
similar act involving malfeasance or moral turpitude; (2) conviction
of a felony of a heinous nature; (3) material failure to perform the
services and duties described herein (except in the case of death or
disability), material violation of any Agreement provisions, or
material breach of any fiduciary duty to the Company, if the material
failure, violation or breach unreasonably continues after written
notice of the breach or violation is given to the Executive by the
Company; (4) gross misconduct, misfeasance or malfeasance in
connection with her employment under this Agreement, which shall
include, but not be limited to, excessive absences from work, failure
to follow reasonable directives from the CEO, neglect of duty,
negligence, disloyalty, directly or indirectly accepting or soliciting
any business of the type conducted by the Company during the term of
this Agreement in direct competition with the Company, without prior
authorization of the Board, dishonesty, intemperance, immorality,
disobedience of the Company's rules, disrespect, unnecessarily
endangering, damaging or destroying life or property, or similar
conduct injurious to the Company; or (5) other behavior which
adversely reflects on the reputation of the Company such as substance
abuse, public intoxication, etc.
Whether cause for such termination exists shall be determined by the
CEO. If on or before the date of such determination by the CEO, the
individual who, as of the Effective Date, is CEO has retired, become
disabled or died, the Committee shall make such determination and the
Committee's determination of cause shall be subject to arbitration as
described in Article VII.
(C) TOTAL DISABILITY. Upon the Total Disability of Executive during the
term of this Agreement, this Agreement shall terminate immediately and
the Company shall be obligated to continue to pay Executive only the
Base Compensation amount due Executive under Section 4.01 for the
three (3) months following the date of termination.
In determining Total Disability under Section 2.14 for purposes of
this Section 3.04(c), the Board shall rely upon the written opinion of
the physician regularly attending Executive in determining whether a
disability is deemed to exist. If the Board disagrees with the opinion
of such physician, the Board may choose a second physician, and the
two (2) physicians shall choose a third physician, and the written
opinion of a majority of the three (3) physicians shall be conclusive
as to Executive's disability. The date of any written opinion
conclusively finding
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Executive to be disabled is the date on which the disability will be
deemed to have occurred. The expenses associated with the utilization
of any physician other than the physician regularly attending
Executive shall be borne by the Company. Executive hereby consents to
any required medical examination and agrees to furnish any medical
examination and agrees to furnish any medical information requested by
the Company and to waive any applicable physician/patient privilege
that may arise because of such determination.
(D) DEATH. Upon the death of Executive during the term of this Agreement,
this Agreement shall terminate immediately and Executive's estate
shall be entitled to receive the Base Compensation amount due
Executive under Section 4.01 for the three (3) months following the
Executive's date of death.
(E) EARLY RETIREMENT. The Company currently does not have an early
retirement policy and, therefore, the Executive shall not obtain any
rights to early retirement under this Agreement.
ARTICLE IV
BASE COMPENSATION, BONUSES, BENEFITS AND PERQUISITES
4.01 BASE COMPENSATION AND BONUSES. For all the services to be rendered by
Executive pursuant to her Agreement, the Company shall pay Executive a Base
Compensation as set forth on the "Schedule of Compensation" attached to
this Agreement as Exhibit A and made a part hereof by this reference. Said
Compensation shall be payable in accordance with the Company's regular
payroll procedures. In the event Executive receives any periodic payments
representing lost compensation under any health, disability, accident
and/or salary continuation insurance policy, the premiums for which have
been paid by the Company, the amount of salary that Executive would be
entitled to receive from the Company shall not be decreased by the amount
of such payments. Executive shall also be entitled to any cash bonuses as
may be granted by the Company from time to time with regard to her services
as an employee of the Company. The Company and Executive from time to time
by mutual agreement may reflect increases in Executive's Base Compensation
by entering any such increase upon Exhibit A. If an increase is entered on
Exhibit A and duly signed by the Company and Executive, such entry shall
constitute an amendment to this Agreement as of the effective date of such
entry designated in such Exhibit A and shall supersede the Base
Compensation provided for in this Section 4.01 or any other increase or
increases previously made in Exhibit A. In the event that the Company
requests and Executive agrees to the deferral of part or all of Executive's
Base Compensation, Executive shall be entitled to repayment of such base
amount, plus an additional amount as shall be provided in detail on the
"Schedule for Repayment and Computation of Deferred Compensation" attached
to this Agreement as Exhibit B and made a part of this Agreement by this
reference. The parties acknowledge that the Company has assumed the
liability for certain accrued, but unpaid, compensation due to Executive
for startup activities incurred by the Company's parent organization prior
to the incorporation of the Company, and relating to fiscal year ended
December 31, 1996, which amounts are reflected and subject to the terms set
forth on Exhibit B. At the time of any entry on Exhibit B, such entry shall
be duly signed by the Company and Executive and such entry shall constitute
an amendment to this Agreement as of the effective date of such entry
designed in such Exhibit B.
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4.02 EXPENSE REIMBURSEMENT. Executive shall be entitled to reimbursement for all
reasonable travel and other business expenses incurred by her in the
performance of services under this Agreement. In addition, Executive is
encouraged and expected to maintain her professional credentials as an
attorney for the benefit of the Company and she shall be entitled to
reimbursement for all reasonable expenses incurred by her in connection
with maintaining such credentials, including meetings, professional
conventions, continuing education courses, licensing within the state of
North Carolina, membership in relevant national or North Carolina state
professional societies and associations and, if deemed necessary by the
Company, related errors and omissions or other professional liability
insurance. All expenses described under this Section 4.02 shall be
reimbursed by the Company upon presentation of expense statements or
vouchers and such other supporting information as the Company may
reasonably request.
4.03 EMPLOYEE BENEFITS AND PERQUISITES. Based on her years of service, her
compensation (but only to the extent provided under Section 4.01 and as
permitted to be taken into account under the Code) and her position with
the Company, Executive shall be entitled to participate in the major
medical, hospitalization, life insurance, vacation, sick leave or
disability, pension or retirement, profit-sharing, stock-based incentive
and other fringe benefit plans which are generally provided by the Company
to its similarly situated employees and the Company agrees to provide such
basic benefits. Further, for each Year of the term of this Agreement, in
the discretion of the Board, the Company shall provide and Executive
receive any and all working facilities, perquisites and incentives, and
such other benefits to the extent they are generally provided and continue
to be provided by the Company to its other similarly situated executives
during the Year. For purposes of identifying the benefits and perquisites
contemplated by this Section 4.03, except as prohibited or found to be
discriminatory under current provisions of the Employee Retirement Income
Security Act of 1974 or applicable North Carolina law, Executive's years of
service to the Company shall include the thirteen (13) years she provided
services to the Company as an attorney before her hire as an employee of
the Company, and the seven (7) years Executive was employed by the
Company's affiliates. .
ARTICLE V
SEVERANCE PAY
5.01 ELIGIBILITY.
(a) In addition to any amounts due under Section 3.04 of this Agreement or
any other benefit or incentive plan of the Company, executive shall
receive a lump sum compensatory payment from the Company as determined
in Section 5.02, if during the term of this Agreement a Severance
Event occurs. In no event shall the Severance Pay amount determined
under Section 5.02 be reduced by the amount of any payments or
benefits due under any other plan or program outside of this Article
V, unless specifically taken into account in Section 5.02(a).
(b) Executive shall not be entitled to any Severance Pay amount under this
Article V, if Executive's employment with the Company is terminated
with cause under Section 3.04(b) or as a result of her Normal
Retirement, death, Total Disability, or voluntary termination by her
of this Agreement under Section 3.04(a).
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5.02 PAYMENT AMOUNT AND TIMING.
(A) AMOUNT. The Company shall pay to Executive an amount referred to in
this Article V as "Severance Pay." Subject to adjustment as provided
in Section 5.03(b), the Severance Pay to be received by the Executive
shall be an amount equal to the following, less one dollar ($1.00):
(a) three (3) times the Executive's average Base Compensation received
for the immediately preceding five (5) fiscal years; or, (b) if
Executive has been employed by the Company for less than five (5)
years, then the annualized average of any Base Compensation received
during such period. This provision is intended to comply with the
definitions set forth in Code Sections 280G(b)(3) and (d)(1) and (2).
For purposes of this Agreement, the term "Severance Pay Cap" shall
mean the maximum amount which may be paid to Executive without
constituting an Excess Parachute Payment. The value of any non-cash
benefit of any deferred cash payments shall be determined by the
Company in accordance with the principles of Code Section 280G(d)(3)
and (4). The Company reserves the right, after consultation with its
chosen tax counsel, to make a reasonable determination of the
Severance Pay Cap under Code Section 280G. It is the intention of the
parties to this Agreement that Executive's Severance Pay shall not
exceed an amount which is deductible in full by the Company when paid,
except as permitted under Section 5.02(c).
(B) TIMING. The Company shall pay the Severance Pay amount determined
under this Section 5.02 in a single lump sum to Executive not later
than thirty (30) days after the Severance Event occurs.
5.03 REIMBURSEMENT FOR EXCISE TAX AND ADDED INCOME TAX.
(a) The Severance Pay provided under Section 5.02 is not intended to be
treated as an Excess Parachute Payment. The Company shall take such
actions as may be available and practical, and Executive shall
cooperate with any such actions, to provide clear and convincing
evidence to the Internal Revenue Service and/or the State of North
Carolina that any such payments were not contingent upon a change in
Company ownership and otherwise were not Excess Parachute Payments.
(b) If, despite the efforts of the Company and Executive, the Internal
Revenue Service successfully treats all or any portion of those
payments as Excess Parachute Payments, the Company shall protect
Executive from depletion of the amount of such payments by reimbursing
her for the effects of any additional federal or State of North
Carolina income or excise taxes payable as a result of such payments,
including any reimbursement under this Section 5.03. Such
reimbursement shall be made to Executive by the Company as an annual
payment for each affected taxable year of Executive, in addition to
any payments due under Section 5.01, in an amount equal to the amount
of any Section 5.01 payments treated by the Internal Revenue Service
as Excess Parachute Payments for such taxable year multiplied by a
fraction with (1) as the numerator and (2) as the denominator, where
(1) is the combined excise tax rate applicable to such Excess
Parachute Payments under Code Section 4999 and any similar State
of North Carolina excise tax rate, and
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(2) is the difference of 1.0 minus both (A) the combined federal
excise tax rate applicable to such Excess Parachute Payments
under Code Section 4999 and any similar State of North Carolina
excise tax rate, and (B) the combined marginal federal and State
of North Carolina income tax rate applicable to the additional
payment provided under this Section 5.03(b) for the taxable year
of Executive for which such payment is considered to be taxable
income.
ARTICLE VI
INFORMATION, DOCUMENT AND EMPLOYEE SOLICITATION
6.01 CONFIDENTIAL INFORMATION AND DISCOVERIES. Executive agrees that all
information of a technical or business nature such as know-how, trade
secrets, secret business information, plans, data processes, techniques,
etc., except such information and skills generally known in the Company's
trade and business, information made public by the Company or generally of
a public nature, and knowledge of Executive not constituting a trade secret
("Confidential Information"), acquired by Executive in the course of her
employment by the Company, is a valuable business property right of the
Company. Executive agrees, that such Confidential Information, whether in
written, verbal or model form, shall not be disclosed to anyone outside the
employment of the Company without the express written authorization of the
Company. Confidential Information shall include, without limitation, vendor
lists and records, customer lists, business policies, business methods,
financial information and any other similar material of any kind relating
to the business of the Company. In the event of an actual or threatened
breach of this provision, the Company shall be entitled to an injunction
restraining Executive from such action, and the Company shall not be
prohibited in obtaining such equitable relief or from pursuing any other
available remedies for such breach or threatened breach, including recovery
of damages from Executive.
6.02 RETURN OF DOCUMENTS. Upon the termination of this Agreement, Executive
shall forthwith return and deliver to the Company and shall not retain any
original or copies of any books, papers, price lists or vendor contracts,
bids or customer lists, files, books of account, notebooks and other
documents and data relating to the performance of services rendered by
Executive hereunder, all of which materials are hereby agreed to be the
property of the Company.
6.03 SOLICITATION OF EMPLOYEES. Executive agrees that for a period of eighteen
(18) months following the termination of Executive's employment with the
Company, Executive shall not directly or indirectly, personally or with any
other employees, agents or otherwise, on behalf of himself or any other
person, firm or corporation, solicit or cause any person under her control
to solicit any employee of the Company, or any employee of any Company
subsidiary to affiliate to terminate her or her employment with the Company
or such subsidiary or affiliate. In the event of an actual or threatened
breach of this provision, the Company shall be entitled to an injunction
restraining Executive from such action, and the Company shall not be
prohibited in obtaining such equitable relief or from pursing any other
available remedies for such breach of threatened breach including recovery
of damages from Executive.
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ARTICLE VII
ARBITRATION
Any claim, dispute or controversy arising out of or relating to this Agreement,
the parties relationship under this Agreement or the breach of this Agreement
shall be determined by a single arbitrator pursuant to the applicable rules of
practice and procedures of either the Private Adjudication Center, Inc., an
affiliate of the Duke University School of Law, or of the American Arbitration
Association, as such rules shall be in effect at the time the demand for
arbitration is filed, at the Company's sole election. The parties hereby agree
that the arbitration proceeding shall be private and confidential and shall not
be published in any form or manner. The location of the arbitration shall be at
the Private Adjudication Center's facilities at the Duke Law School, Durham,
North Carolina in the event that the Company elects to apply the rules of
practice and procedure of the Center or shall be in Winston-Salem, North
Carolina in the event the Company elects to apply the rules of the American
Arbitration Association. The decision of the arbitrator shall be final and
binding Judgment to enforce the decision or award of the arbitrator may be
entered in any court having jurisdiction and the parties hereby agree not to
object to the jurisdiction of the North Carolina General Court of Justice for
such purpose. Nothing contained herein shall in any way deprive the Company of
its claim to obtain an injunction or other equitable relief arising out of
Executive's breach of the provisions of Articles IV and VII. In the event of the
termination of Executive's employment, Executive's sole remedy shall be
arbitration as herein provide. The parties agree that no punitive damages shall
be awarded pursuant to any claim brought hereunder.
The parties agree that service of process relating to any arbitration proceeding
shall be made by certified mail. In any judicial proceeding to enforce this
agreement to arbitrate, the only issues to be determined shall be the existence
of the agreement to arbitrate and the failure of one party to comply with that
agreement, and those issues shall be determined summarily by the court without a
jury. All other issues shall be decided by the arbitrator, whose decision
therein shall be final and binding. There may be no appeal of an order
compelling arbitration except as part of an appeal concerning confirmation of
the decision of the arbitrator.
ARTICLE VIII
MISCELLANEOUS
8.01 PLACE OF EXECUTIVE'S RESIDENCE. The Company shall not require Executive to
relocate her place of residence, principal or otherwise, except upon
Executive's consent. If Executive consents to any change of residence, the
Company shall pay all reasonable relocation expenses.
8.02 RESIGNATION UPON TERMINATION. In the event of termination of this Agreement
other than by death, Executive shall, and shall be deemed to have, resigned
from all positions held with the Company, including without limitation, any
position as a director, officer, agent, trustee or consultant of the
Company or any affiliate of the Company effective the date of termination
of employment.
8.03 ENFORCEMENT. Both parties recognize that the services to be rendered under
this Agreement by Executive are special, unique and of extraordinary
character and that in the event of the breach by Executive of any of the
terms and conditions of this Agreement to be performed by her, then the
Company shall be entitled, if it so elects, to institute and prosecute
proceedings in any court of competent jurisdiction, either at law or in
equity, to obtain damages for any breach hereof, or to enjoin Executive
from performing acts prohibited hereby, but nothing herein contained shall
be construed to prevent such other remedy in the courts as the Company may
elect to invoke.
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8.04 WAIVER OF BREACH. The waiver by a party hereto of a breach of any provision
of this Agreement by the other party hereto shall not operate or be
construed as a waiver of any subsequent breach by such party.
8.05 SELF-INTEREST. Executive shall not vote or decide upon any matter related
directly or indirectly to her or any right of her to claim any benefit
under the Agreement.
8.06 NOTICES. Any notice required or permitted to be given under this Agreement
shall be sufficient if in writing and if sent by registered or certified
mail to executive or the Company at the address set forth below their
signatures at the end of this Agreement or to such other address as they
shall notify each other in writing.
8.07 WITHHOLDING OF TAXES. The Company may withhold from any benefits payable
under this Agreements all federal, state and other taxes as shall be
required pursuant to any law or governmental regulation or ruling.
8.08 TAX EFFECTS. The Company makes no warranties or representations with regard
to the tax effects or results of this Agreement. Executive shall be deemed
to have relied upon her own tax advisors with regard to such effects.
8.09 ADMINISTRATION. This Agreement shall be administered, with the advice and
consent of the Committee, by the CEO. All reasonable determinations and
interpretations of the Code and this Agreement made by the Company or its
chosen tax counsel, shall be binding and conclusive on all parties to this
Agreement.
8.10 BURDEN AND BENEFIT. This Agreement shall be binding upon and inure to the
benefit of the Company and its successors and assigns and Executive and her
personal representatives, heirs, legatees and beneficiaries, but shall not
be assignable by Executive.
8.11 CONSTRUCTION. This Agreement shall be construed in accordance with the laws
of the State of North Carolina in every respect, including without
limitation, validity. interpretation and performance. Words used in this
Agreement, other than as specifically defined in Article II, have the
meaning their context dictates. If, however, a situation arises in which an
undefined word in this Agreement has a different meaning in legal usage
than that in common use, and its is unclear to the parties which usage is
proper under the circumstances, the ambiguity shall be resolved by the
Committee in favor of the meaning in common usage. Headings and
sub-headings have been added only for convenience of reference and shall
have no substantive effect. References to the masculine gender shall
include the feminine and the singular the plural whenever appropriate.
8.12 ENTIRE AGREEMENT. This Agreement supersedes all prior discussions and
agreements by and between the Company, or any of its officers, directors
employees, or agents, and Executive with respect to all matters relating to
the employment by Company of Executive and all other matters contained in
this Agreement
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<PAGE>
constitute the sole and entire Agreement with respect to such employment.
Any representation, inducement, promise or agreement, whether oral or
written, between the Company, or any of its officers, directors employees,
or agents, an Executive which is not embodied in this Agreement shall be of
no force and effect and Executive represents and warrants that she has not
executed this Agreement in reliance upon any such representation or
promise.
8.13 IMPLIED TERMS. The terms, conditions, obligations and duties expressed in
this Agreement are in addition to any duties and obligations implied in law
to an employment relationship except where any expressed condition is
contrary to the implied condition and in which case, the express condition
will apply and control.
8.14 AUTHORITY. All of the provisions of this Agreement required to be approved
y the Committee have been so approved and authorized. Any other action to
be taken by the Company under the terms of this Agreement shall be by the
affirmative vote of a majority of those members of the Committee.
8.15 AMENDMENT. This Agreement may be amended as provided in Section 4.021 or at
any other time by the written mutual agreement of Executive and the Company
executed in a form similar to that of this original Agreement.
8.16 SEVERABILITY. If any term, covenant or condition of this Agreement or its
application to any person or circumstance shall to any extent be found to
be invalid or unenforceable by a court of competent jurisdiction, the
remainder of this Agreement or the application of such term, covenant or
condition to persons or under conditions other than those for which it is
held invalid or unenforceable, shall not be affected by such holding and
each such remaining portion of this Agreement shall be valid and be
enforced to the fullest extent permitted by law.
8.17 COUNTERPARTS. This Agreement may be executed in one or more counterparts,
each of which shall be deemed to be an original, but all of which together
shall constitute one agreement.
IN WITNESS WHEREOF, the Company has caused this Agreement to be executed by its
duly authorized officer and Executive has signed this Agreement as of the day
and year first above written.
COMPANY:
DIVERSIFIED SENIOR SERVICES, INC.
By: /S/ WILLIAM G. BENTON
EXECUTIVE:
/S/ SUSAN L. CHRISTIANSEN (SEAL)
Susan L. Christiansen
915 West Fourth Street
Winston-Salem, North Carolina 27101
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EXHIBIT A
SCHEDULE OF COMPENSATION
The undersigned hereby agree that the Base Compensation due Executive under
Section 4.01 of the attached Agreement shall be $104,000, payable in accordance
with the Company's regular payroll procedures beginning January 1, 1997, and for
each successive year thereafter during the remaining term of the Agreement,
unless and until further changed by mutual agreement as provided in Section
4.01.
This the 24th day of June, 1997.
COMPANY:
DIVERSIFIED SENIOR SERVICES, INC.
By: /S/ WILLIAM G. BENTON
EXECUTIVE:
/S/ SUSAN L. CHRISTIANSEN (SEAL)
Susan L. Christiansen
915 West Fourth Street
Winston-Salem, North Carolina 27101
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EXHIBIT B
SCHEDULE FOR REPAYMENT
AND COMPUTATION OF DEFERRED COMPENSATION
The undersigned hereby agree that accrued but unpaid compensation due Executive
under Section 4.01 of the attached Agreement for the period January 1, 1996
through December 31, 1996 is due and payable to Executive as follows:
Base Compensation $29,500
Bonus Compensation $14,500
In addition, Executive is due accrued, but unpaid, compensation for the period
January 1, 1997 through June 30, 1997, as follows:
Base Compensation $7,000
Bonus Compensation $3,500
The parties agree that the total Bonus in the amount of $18,000, at the election
of Executive, may be paid in cash or may be used by Executive to purchase shares
of the common stock of the Company at a purchase price of $10.00 per share.
Executive shall have the right to purchase such stock until the latest to occur
of the following: (a) June 30, 2002, or (b) a period of one year from the date
upon which the Company offers to pay Executive the total bonus amount in cash.
The parties agree that the purchase of stock provided for in this Exhibit B may
be made in whole or in part until such time as Executive has received the entire
amount of the Bonus described herein.
THIS the 24th day of June, 1997.
COMPANY:
DIVERSIFIED SENIOR SERVICES, INC.
By: /S/ WILLIAM G. BENTON
EXECUTIVE:
/S/ SUSAN L. CHRISTIANSEN (SEAL)
Susan L. Christiansen
915 West Fourth Street
Winston-Salem, North Carolina 27101
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EXHIBIT B
AMENDED AND RESTATED
SCHEDULE FOR REPAYMENT
AND COMPUTATION OF DEFERRED COMPENSATION
The undersigned hereby agree that accrued but unpaid compensation due Executive
under Section 4.01 of the attached Agreement for the period January 1, 1996
through December 31, 1996 is due and payable to Executive as follows:
Base Compensation $29,500
Bonus Compensation $14,500
In addition, Executive is due accrued, but unpaid, compensation for the period
January 1, 1997 through June 30, 1997, as follows:
Base Compensation $7,000
Bonus Compensation $3,500
The parties agree that the total Bonus in the amount of $18,000, at the election
of Executive, may be paid in cash or may be used by Executive to purchase shares
of the common stock of the Company at a purchase price equal to the public price
per share pursuant to any public sale of stock by the Company. Executive shall
have the right to purchase such stock until the latest to occur of the
following: (a) June 30, 2002, or (b) a period of one year from the date upon
which the Company offers to pay Executive the total bonus amount in cash. The
parties agree that the purchase of stock provided for in this Exhibit B may be
made in whole or in part until such time as Executive has received the entire
amount of the Bonus described herein.
THIS the 6th day of August, 1997.
COMPANY:
DIVERSIFIED SENIOR SERVICES, INC.
By: /S/ WILLIAM G. BENTON
EXECUTIVE:
/S/ SUSAN L. CHRISTIANSEN (SEAL)
Susan L. Christiansen
915 West Fourth Street
Winston-Salem, North Carolina 27101
EXECUTIVE EMPLOYMENT AGREEMENT
BETWEEN
DIVERSIFIED SENIOR SERVICES, INC.
AND
G. L. CLARK, JR.
EFFECTIVE AS OF JANUARY 1, 1997
THIS AGREEMENT, made and entered into as of the 1st day of January, 1997, by and
between DIVERSIFIED SENIOR SERVICES, INC., a North Carolina corporation
("Company") and G. L. CLARK, JR., a resident of the State of North Carolina
("Executive").
W I T N E S S E T H:
The parties, for and in consideration of the mutual and reciprocal covenants and
agreements contained in this Agreement, do contract and agree as follows:
ARTICLE I
PURPOSE AND EMPLOYMENT
The purpose of this Agreement is to define the relationship between the Company,
as an employer, and Executive, as an employee. By the execution of this
Agreement, the Company employs Executive and Executive accepts employment by the
Company.
ARTICLE II
DEFINITIONS
The following terms (in alphabetical order) shall have the meanings set forth
opposite such terms for purposes of this Agreement:
2.01 AGREEMENT: means this Executive Employment Agreement between
Diversified Senior Services, Inc. and G. L. Clark, Jr., effective as
of January 1, 1997, and as may be amended from time to time.
2.02 BASE COMPENSATION: means the annual salary amount payable to Executive
by the Company pursuant to Section 4.01, as such amount may be
adjusted from time to time.
2.03 BOARD: means the Board of Directors of the Company.
2.04 CEO: means the Chief Executive Officer of the Company.
2.05 CODE: means the Internal Revenue Code of 1986, as amended from time to
time.
2.06 COMMITTEE: means the Compensation Committee of the Board of Directors
of Diversified Senior Services, Inc. or any successor committee of the
Board which deals with compensation.
2.07 COMPANY: means Diversified Senior Services, Inc., a North Carolina
corporation.
2.08 EFFECTIVE DATE: means January 1, 1997.
2.09 EXCESS PARACHUTE PAYMENTS: means "excess parachute payments" as that
term is defined under Code Section 280G(b).
<PAGE>
2.10 EXECUTIVE: means G. L. Clark, Jr., a North Carolina resident, Social
Security number ###-##-####.
2.11 FUNDAMENTAL CHANGE: means any of the following events:
(a) the sale by the Company of substantially all of its assets to a
single purchaser or a group of associated or affiliated
purchasers who are not affiliated with the Company;
(b) the sale, exchange or other disposition, in one transaction to an
entity or entities not affiliated with the Company, of more than
fifty percent (50%) of the outstanding capital stock of the
Company other than a sale, exchange or disposition of the capital
stock of the Company resulting from a public or private offering
of capital stock or other security convertible into capital stock
of the Company which offering is sponsored or initiated by the
Company and approved by the Board;
(c) the merger or consolidation of the Company in a transaction in
which the stockholders of the Company receive less than fifty
percent (50%) of the outstanding voting stock of the new or
continuing entity;
(d) a change in control of the Board as constituted as of the
Effective Date.
2.12 NORMAL RETIREMENT: means retirement by Executive from employment with
the Company after the date he attains age seventy-five (75) or such
earlier age as requested by Executive and approved by the Committee.
2.13 SEVERANCE EVENTS: means a termination without cause by the Company at
any time in accordance with Section 3.04(a) of the Executive's
employment with the Company or, upon the occurr of a Fundamental
Change and within three (3) months before or eighteen (18) months
after such Fundamental Change:
(a) a meaningful reduction in Executive's title, duties or
responsibilities by the Company;
(b) a greater than ten percent (10%) reduction of Executive's Base
Compensation by the Company; or
(c) a Company-required relocation of Executive's workplace beyond a
30-mile radius from either the Company's principal office in
Winston-Salem, North Carolina or Executive's then current
principal residence.
2.14 TOTAL DISABILITY: means a physical or mental condition arising after
Executive commences employment with the Company which totally and
permanently prevents him from performing his usual and customary
duties as an employee of the Company. Executive will be deemed to have
suffered a Total Disability when he:
(a) has been declared legally incompetent by a final decree of a
court of competent jurisdiction (the date of such decree being
deemed to be the date on which the disability occurred);
(b) receives disability insurance benefits for a period of six (6)
consecutive months from any disability income insurance policy
maintained by the Company; or
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(c) has become permanently disabled, which shall be deemed to exist
upon a determination by the Board:
(1) that Executive has become physically or mentally
incapacitated or disabled; and
(2) that such incapacity or disability has continued for a
period of six (6) consecutive months or for shorter periods
aggregating nine (9) months during any consecutive fifteen
(15) month period.
ARTICLE III
TERMS AND DUTIES
3.01 TERM. The term of this Agreement shall be for five (5) years from the
Effective Date and shall be extended a day for each day Executive is
employed by the Company on or before his seventieth (70th) birthday,
so that the Agreement shall always be effective for a term ending with
the date of the earlier of Executive's seventy-fifth (75th) birthday
or five (5) years from his most recent date of employment with the
Company.
3.02 DUTIES. Executive shall serve as the Company's Executive Vice
President and Chief Financial Officer, or in such other position of
the same or greater stature as the Company may direct or desire,
subject at all times to the control of the CEO. Executive shall
perform such other or additional duties as shall reasonable be
assigned to him from time to time by the CEO, which duties shall be
those customarily performed by a corporate officer having executive
responsibilities of the position in which he is employed under this
Agreement and in a business similar to the Company. During the term of
this Agreement, Executive also agrees to serve, if elected, as an
officer and director of any subsidiary or affiliate of the Company and
to provide services to other entities as directed by the CEO.
3.03 EXTENT OF SERVICES. Executive shall use his best efforts to devote his
entire business time, attention, skills, abilities and energies to
promote the business and best interest of this Company, and will
perform such duties as are assigned to him by the CEO, in accordance
with and pursuant to all of the terms and conditions contained in this
Agreement, and shall, during the term of this Agreement, be engaged in
any other business activity only if reasonably approved by the CEO,
regardless of whether such activity is pursued for gain, profit, or
other pecuniary advantage; provided, however, this Section 3.03 shall
not prevent Executive from investing his assets in such form or manner
as will not require any services by Executive in the operation of the
affairs of the companies in which such investments are made. Executive
shall serve in such other executive capacity or capacities as may be
specified from time to time by the CEO.
3.04 TERMINATION OF EMPLOYMENT.
(A) WITHOUT CAUSE. Either party may terminate this Agreement without
cause at any time, including the occurrence of a Fundamental
Change, upon thirty (30) days written notice to the other party.
Upon such termination by the Company, the Company shall be
obligated to continue to pay Executive the Base Compensation
amount due Executive under Section 4.01 through the date of
termination, plus any other compensation due him under Article V.
Upon such termination by
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Executive for any reason other than Normal Retirement, the
Company shall be obligated to pay Executive only the Base
Compensation amount due Executive under Section 4.01 through the
date of termination. Upon such termination by Executive upon his
Normal Retirement, the Company shall be obligated to pay
Executive only the Base Compensation amount due Executive under
Section 4.01 for the three (3) months following the date of
termination.
(B) WITH CAUSE. The Company may terminate this Agreement with cause
at any time immediately upon delivery of written notice to
Executive. Upon such termination, the Company shall be obligated
to continue to pay Executive only the Base Compensation amount
due Executive under Section 4.01 for thirty (30) days following
the date of the delivery of the notice of termination, which date
shall be for all purposes of this Agreement, the date of
termination of his employment.
Executive's employment shall be considered terminated with cause
if terminated for (1) any act of fraud, misappropriation,
embezzlement or similar act involving malfeasance or moral
turpitude; (2) conviction of a felony of a heinous nature; (3)
material failure to perform the services and duties described
herein (except in the case of death or disability), material
violation of any Agreement provisions, or material breach of any
fiduciary duty to the Company, if the material failure, violation
or breach unreasonably continues after written notice of the
breach or violation is given to the Executive by the Company; (4)
gross misconduct, misfeasance or malfeasance in connection with
his employment under this Agreement, which shall include, but not
be limited to, excessive absences from work, failure to follow
reasonable directives from the CEO, neglect of duty, negligence,
disloyalty, directly or indirectly accepting or soliciting any
business of the type conducted by the Company during the term of
this Agreement in direct competition with the Company, without
prior authorization of the Board, dishonesty, intemperance,
immorality, disobedience of the Company's rules, disrespect,
unnecessarily endangering, damaging or destroying life or
property, or similar conduct injurious to the Company; or (5)
other behavior which adversely reflects on the reputation of the
Company such as substance abuse, public intoxication, etc.
Whether cause for such termination exists shall be determined by
the CEO. If on or before the date of such determination by the
CEO, the individual who, as of the Effective Date, is CEO has
retired, become disabled or died, the Committee shall make such
determination and the Committee's determination of cause shall be
subject to arbitration as described in Article VII.
(C) TOTAL DISABILITY. Upon the Total Disability of Executive during
the term of this Agreement, this Agreement shall terminate
immediately and the Company shall be obligated to continue to pay
Executive only the Base Compensation amount due Executive under
Section 4.01 for the three (3) months following the date of
termination.
In determining Total Disability under Section 2.14 for purposes
of this Section 3.04(c), the Board shall rely upon the written
opinion of the physician regularly
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attending Executive in determining whether a disability is deemed
to exist. If the Board disagrees with the opinion of such
physician, the Board may choose a second physician, and the two
(2) physicians shall choose a third physician, and the written
opinion of a majority of the three (3) physicians shall be
conclusive as to Executive's disability. The date of any written
opinion conclusively finding Executive to be disabled is the date
on which the disability will be deemed to have occurred. The
expenses associated with the utilization of any physician other
than the physician regularly attending Executive shall be borne
by the Company. Executive hereby consents to any required medical
examination and agrees to furnish any medical examination and
agrees to furnish any medical information requested by the
Company and to waive any applicable physician/patient privilege
that may arise because of such determination.
(D) DEATH. Upon the death of Executive during the term of this
Agreement, this Agreement shall terminate immediately and
Executive's estate shall be entitled to receive the Base
Compensation amount due Executive under Section 4.01 for the
three (3) months following the Executive's date of death.
(E) EARLY RETIREMENT. The Company currently does not have an early
retirement policy and, therefore, the Executive shall not obtain
any rights to early retirement under this Agreement.
ARTICLE IV
BASE COMPENSATION, BONUSES, BENEFITS AND PERQUISITES
4.01 BASE COMPENSATION AND BONUSES. For all the services to be rendered by
Executive pursuant to his Agreement, the Company shall pay Executive a
Base Compensation as set forth on the "Schedule of Compensation"
attached to this Agreement as Exhibit A and made a part hereof by this
reference. Said Compensation shall be payable in accordance with the
Company's regular payroll procedures. In the event Executive receives
any periodic payments representing lost compensation under any health,
disability, accident and/or salary continuation insurance policy, the
premiums for which have been paid by the Company, the amount of salary
that Executive would be entitled to receive from the Company shall not
be decreased by the amount of such payments. Executive shall also be
entitled to any cash bonuses as may be granted by the Company from
time to time with regard to his services as an employee of the
Company. The Company and Executive from time to time by mutual
agreement may reflect increases in Executive's Base Compensation by
entering any such increase upon Exhibit A. If an increase is entered
on Exhibit A and duly signed by the Company and Executive, such entry
shall constitute an amendment to this Agreement as of the effective
date of such entry designated in such Exhibit A and shall supersede
the Base Compensation provided for in this Section 4.01 or any other
increase or increases previously made in Exhibit A. In the event that
the Company requests and Executive agrees to the deferral of part or
all of Executive's Base Compensation, Executive shall be entitled to
repayment of such base amount, plus an additional amount as shall be
provided in detail on the "Schedule for Repayment and Computation of
Deferred Compensation" attached to this Agreement as Exhibit B and
made a part of this Agreement by this reference. The parties
acknowledge that the
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Company has assumed the liability for certain accrued, but unpaid,
compensation due to Executive for startup activities incurred by the
Company's parent organization prior to the incorporation of the
Company, and relating to fiscal year ended December 31, 1996, which
amounts are reflected and subject to the terms set forth on Exhibit B.
At the time of any entry on Exhibit B, such entry shall be duly signed
by the Company and Executive and such entry shall constitute an
amendment to this Agreement as of the effective date of such entry
designed in such Exhibit B.
4.02 EXPENSE REIMBURSEMENT. Executive shall be entitled to reimbursement
for all reasonable travel and other business expenses incurred by him
in the performance of services under this Agreement. In addition,
Executive is encouraged and expected to maintain his professional
credentials as a Certified Public Accountant for the benefit of the
Company and he shall be entitled to reimbursement for all reasonable
expenses incurred by him in connection with maintaining such
credentials, including meetings, professional conventions, continuing
education courses, licensing within the state of North Carolina,
membership in relevant national or North Carolina state professional
societies and associations and, if deemed necessary by the Company,
related errors and omissions or other professional liability
insurance. All expenses described under this Section 4.02 shall be
reimbursed by the Company upon presentation of expense statements or
vouchers and such other supporting information as the Company may
reasonably request.
4.03 EMPLOYEE BENEFITS AND PERQUISITES. Based on his years of service, his
compensation (but only to the extent provided under Section 4.01 and
as permitted to be taken into account under the Code) and his position
with the Company, Executive shall be entitled to participate in the
major medical, hospitalization, life insurance, vacation, sick leave
or disability, pension or retirement, profit-sharing, stock-based
incentive and other fringe benefit plans which are generally provided
by the Company to its similarly situated employees and the Company
agrees to provide such basic benefits. Further, for each Year of the
term of this Agreement, in the discretion of the Board, the Company
shall provide and Executive receive any and all working facilities,
perquisites and incentives, and such other benefits to the extent they
are generally provided and continue to be provided by the Company to
its other similarly situated executives during the Year. For purposes
of identifying the benefits and perquisites contemplated by this
Section 4.03, except as prohibited or found to be discriminatory under
current provisions of the Employee Retirement Income Security Act of
1974 or applicable North Carolina law, Executive's years of service to
the Company shall include the four (4) years he provided services to
the Company as a Certified Public Accountant before his hire as an
employee of the Company, and the twelve (12) years Executive was
employed by the Company's affiliates.
ARTICLE V
SEVERANCE PAY
5.01 ELIGIBILITY.
(a) In addition to any amounts due under Section 3.04 of this
Agreement or any other benefit or incentive plan of the Company,
executive shall receive a lump sum
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compensatory payment from the Company as determined in Section
5.02, if during the term of this Agreement a Severance Event
occurs. In no event shall the Severance Pay amount determined
under Section 5.02 be reduced by the amount of any payments or
benefits due under any other plan or program outside of this
Article V, unless specifically taken into account in Section
5.02(a).
(b) Executive shall not be entitled to any Severance Pay amount under
this Article V, if Executive's employment with the Company is
terminated with cause under Section 3.04(b) or as a result of his
Normal Retirement, death, Total Disability, or voluntary
termination by him of this Agreement under Section 3.04(a).
5.02 PAYMENT AMOUNT AND TIMING.
(A) AMOUNT. The Company shall pay to Executive an amount referred to
in this Article V as "Severance Pay." Subject to adjustment as
provided in Section 5.03(b), the Severance Pay to be received by
the Executive shall be an amount equal to the following, less one
dollar ($1.00): (a) three (3) times the Executive's average Base
Compensation received for the immediately preceding five (5)
fiscal years; or, (b) if Executive has been employed by the
Company for less than five (5) years, then the annualized average
of any Base Compensation received during such period. This
provision is intended to comply with the definitions set forth in
Code Sections 280G(b)(3) and (d)(1) and (2). For purposes of this
Agreement, the term "Severance Pay Cap" shall mean the maximum
amount which may be paid to Executive without constituting an
Excess Parachute Payment. The value of any non-cash benefit of
any deferred cash payments shall be determined by the Company in
accordance with the principles of Code Section 280G(d)(3) and
(4). The Company reserves the right, after consultation with its
chosen tax counsel, to make a reasonable determination of the
Severance Pay Cap under Code Section 280G. It is the intention of
the parties to this Agreement that Executive's Severance Pay
shall not exceed an amount which is deductible in full by the
Company when paid, except as permitted under Section 5.02(c).
(B) TIMING. The Company shall pay the Severance Pay amount determined
under this Section 5.02 in a single lump sum to Executive not
later than thirty (30) days after the Severance Event occurs.
5.03 REIMBURSEMENT FOR EXCISE TAX AND ADDED INCOME TAX.
(a) The Severance Pay provided under Section 5.02 is not intended to
be treated as an Excess Parachute Payment. The Company shall take
such actions as may be available and practical, and Executive
shall cooperate with any such actions, to provide clear and
convincing evidence to the Internal Revenue Service and/or the
State of North Carolina that any such payments were not
contingent upon a change in Company ownership and otherwise were
not Excess Parachute Payments.
(b) If, despite the efforts of the Company and Executive, the
Internal Revenue Service successfully treats all or any portion
of those payments as Excess Parachute Payments, the Company shall
protect Executive from depletion of the amount of
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such payments by reimbursing him for the effects of any
additional federal or State of North Carolina income or excise
taxes payable as a result of such payments, including any
reimbursement under this Section 5.03. Such reimbursement shall
be made to Executive by the Company as an annual payment for each
affected taxable year of Executive, in addition to any payments
due under Section 5.01, in an amount equal to the amount of any
Section 5.01 payments treated by the Internal Revenue Service as
Excess Parachute Payments for such taxable year multiplied by a
fraction with (1) as the numerator and (2) as the denominator,
where
(1) is the combined excise tax rate applicable to such Excess
Parachute Payments under Code Section 4999 and any similar
State of North Carolina excise tax rate, and
(2) is the difference of 1.0 minus both (A) the combined federal
excise tax rate applicable to such Excess Parachute Payments
under Code Section 4999 and any similar State of North
Carolina excise tax rate, and (B) the combined marginal
federal and State of North Carolina income tax rate
applicable to the additional payment provided under this
Section 5.03(b) for the taxable year of Executive for which
such payment is considered to be taxable income.
ARTICLE VI
INFORMATION, DOCUMENT AND EMPLOYEE SOLICITATION
6.01 CONFIDENTIAL INFORMATION AND DISCOVERIES. Executive agrees that all
information of a technical or business nature such as know-how, trade
secrets, secret business information, plans, data processes,
techniques, etc., except such information and skills generally known
in the Company's trade and business, information made public by the
Company or generally of a public nature, and knowledge of Executive
not constituting a trade secret ("Confidential Information"), acquired
by Executive in the course of his employment by the Company, is a
valuable business property right of the Company. Executive agrees,
that such Confidential Information, whether in written, verbal or
model form, shall not be disclosed to anyone outside the employment of
the Company without the express written authorization of the Company.
Confidential Information shall include, without limitation, vendor
lists and records, customer lists, business policies, business
methods, financial information and any other similar material of any
kind relating to the business of the Company. In the event of an
actual or threatened breach of this provision, the Company shall be
entitled to an injunction restraining Executive from such action, and
the Company shall not be prohibited in obtaining such equitable relief
or from pursuing any other available remedies for such breach or
threatened breach, including recovery of damages from Executive.
6.02 RETURN OF DOCUMENTS. Upon the termination of this Agreement, Executive
shall forthwith return and deliver to the Company and shall not retain
any original or copies of any books, papers, price lists or vendor
contracts, bids or customer lists, files, books of account, notebooks
and other documents and data relating to the performance of services
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rendered by Executive hereunder, all of which materials are hereby
agreed to be the property of the Company.
6.03 SOLICITATION OF EMPLOYEES. Executive agrees that for a period of
eighteen (18) months following the termination of Executive's
employment with the Company, Executive shall not directly or
indirectly, personally or with any other employees, agents or
otherwise, on behalf of himself or any other person, firm or
corporation, solicit or cause any person under his control to solicit
any employee of the Company, or any employee of any Company subsidiary
to affiliate to terminate his or her employment with the Company or
such subsidiary or affiliate. In the event of an actual or threatened
breach of this provision, the Company shall be entitled to an
injunction restraining Executive from such action, and the Company
shall not be prohibited in obtaining such equitable relief or from
pursuing any other available remedies for such breach of threatened
breach including recovery of damages from Executive.
ARTICLE VII
ARBITRATION
Any claim, dispute or controversy arising out of or relating to this Agreement,
the parties relationship under this Agreement or the breach of this Agreement
shall be determined by a single arbitrator pursuant to the applicable rules of
practice and procedures of either the Private Adjudication Center, Inc., an
affiliate of the Duke University School of Law, or of the American Arbitration
Association, as such rules shall be in effect at the time the demand for
arbitration is filed, at the Company's sole election. The parties hereby agree
that the arbitration proceeding shall be private and confidential and shall not
be published in any form or manner. The location of the arbitration shall be at
the Private Adjudication Center's facilities at the Duke Law School, Durham,
North Carolina in the event that the Company elects to apply the rules of
practice and procedure of the Center or shall be in Winston-Salem, North
Carolina in the event the Company elects to apply the rules of the American
Arbitration Association. The decision of the arbitrator shall be final and
binding Judgment to enforce the decision or award of the arbitrator may be
entered in any court having jurisdiction and the parties hereby agree not to
object to the jurisdiction of the North Carolina General Court of Justice for
such purpose. Nothing contained herein shall in any way deprive the Company of
its claim to obtain an injunction or other equitable relief arising out of
Executive's breach of the provisions of Articles IV and VII. In the event of the
termination of Executive's employment, Executive's sole remedy shall be
arbitration as herein provide. The parties agree that no punitive damages shall
be awarded pursuant to any claim brought hereunder.
The parties agree that service of process relating to any arbitration proceeding
shall be made by certified mail. In any judicial proceeding to enforce this
agreement to arbitrate, the only issues to be determined shall be the existence
of the agreement to arbitrate and the failure of one party to comply with that
agreement, and those issues shall be determined summarily by the court without a
jury. All other issues shall be decided by the arbitrator, whose decision
therein shall be final and binding. There may be no appeal of an order
compelling arbitration except as part of an appeal concerning confirmation of
the decision of the arbitrator.
ARTICLE VIII
MISCELLANEOUS
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8.01 PLACE OF EXECUTIVE'S RESIDENCE. The Company shall not require
Executive to relocate his place of residence, principal or otherwise,
except upon Executive's consent. If Executive consents to any change
of residence, the Company shall pay all reasonable relocation
expenses.
8.02 RESIGNATION UPON TERMINATION. In the event of termination of this
Agreement other than by death, Executive shall, and shall be deemed to
have, resigned from all positions held with the Company, including
without limitation, any position as a director, officer, agent,
trustee or consultant of the Company or any affiliate of the Company
effective the date of termination of employment.
8.03 ENFORCEMENT. Both parties recognize that the services to be rendered
under this Agreement by Executive are special, unique and of
extraordinary character and that in the event of the breach by
Executive of any of the terms and conditions of this Agreement to be
performed by him, then the Company shall be entitled, if it so elects,
to institute and prosecute proceedings in any court of competent
jurisdiction, either at law or in equity, to obtain damages for any
breach hereof, or to enjoin Executive from performing acts prohibited
hereby, but nothing herein contained shall be construed to prevent
such other remedy in the courts as the Company may elect to invoke.
8.04 WAIVER OF BREACH. The waiver by a party hereto of a breach of any
provision of this Agreement by the other party hereto shall not
operate or be construed as a waiver of any subsequent breach by such
party.
8.05 SELF-INTEREST. Executive shall not vote or decide upon any matter
related directly or indirectly to him or any right of his to claim any
benefit under the Agreement.
8.06 NOTICES. Any notice required or permitted to be given under this
Agreement shall be sufficient if in writing and if sent by registered
or certified mail to executive or the Company at the address set forth
below their signatures at the end of this Agreement or to such other
address as they shall notify each other in writing.
8.07 WITHHOLDING OF TAXES. The Company may withhold from any benefits
payable under this Agreements all federal, state and other taxes as
shall be required pursuant to any law or governmental regulation or
ruling.
8.08 TAX EFFECTS. The Company makes no warranties or representations with
regard to the tax effects or results of this Agreement. Executive
shall be deemed to have relied upon his own tax advisors with regard
to such effects.
8.09 ADMINISTRATION. This Agreement shall be administered, with the advice
and consent of the Committee, by the CEO. All reasonable
determinations and interpretations of the Code and this Agreement made
by the Company or its chosen tax counsel, shall be binding and
conclusive on all parties to this Agreement.
8.10 BURDEN AND BENEFIT. This Agreement shall be binding upon and inure to
the benefit of the Company and its successors and assigns and
Executive and his personal representatives, heirs, legatees and
beneficiaries, but shall not be assignable by Executive.
8.11 CONSTRUCTION. This Agreement shall be construed in accordance with the
laws of the State of North Carolina in every respect, including
without limitation, validity.
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interpretation and performance. Words used in this Agreement, other
than as specifically defined in Article II, have the meaning their
context dictates. If, however, a situation arises in which an
undefined word in this Agreement has a different meaning in legal
usage than that in common use, and its is unclear to the parties which
usage is proper under the circumstances, the ambiguity shall be
resolved by the Committee in favor of the meaning in common usage.
Headings and sub-headings have been added only for convenience of
reference and shall have no substantive effect. References to the
masculine gender shall include the feminine and the singular the
plural whenever appropriate.
8.12 ENTIRE AGREEMENT. This Agreement supersedes all prior discussions and
agreements by and between the Company, or any of its officers,
directors employees, or agents, and Executive with respect to all
matters relating to the employment by Company of Executive and all
other matters contained in this Agreement constitute the sole and
entire Agreement with respect to such employment. Any representation,
inducement, promise or agreement, whether oral or written, between the
Company, or any of its officers, directors employees, or agents, an
Executive which is not embodied in this Agreement shall be of no force
and effect and Executive represents and warrants that he has not
executed this Agreement in reliance upon any such representation or
promise.
8.13 IMPLIED TERMS. The terms, conditions, obligations and duties expressed
in this Agreement are in addition to any duties and obligations
implied in law to an employment relationship except where any
expressed condition is contrary to the implied condition and in which
case, the express condition will apply and control.
8.14 AUTHORITY. All of the provisions of this Agreement required to be
approved by the Committee have been so approved and authorized. Any
other action to be taken by the Company under the terms of this
Agreement shall be by the affirmative vote of a majority of those
members of the Committee.
8.15 AMENDMENT. This Agreement may be amended as provided in Section 4.01
or at any other time by the written mutual agreement of Executive and
the Company executed in a form similar to that of this original
Agreement.
8.16 SEVERABILITY. If any term, covenant or condition of this Agreement or
its application to any person or circumstance shall to any extent be
found to be invalid or unenforceable by a court of competent
jurisdiction, the remainder of this Agreement or the application of
such term, covenant or condition to persons or under conditions other
than those for which it is held invalid or unenforceable, shall not be
affected by such holding and each such remaining portion of this
Agreement shall be valid and be enforced to the fullest extent
permitted by law.
8.17 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original, but all
of which together shall constitute one agreement.
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Agreement to be executed by its
duly authorized officer and Executive has signed this Agreement as of the day
and year first above written.
COMPANY:
DIVERSIFIED SENIOR SERVICES, INC.
By: /S/ SUSAN L. CHRISTIANSEN
EXECUTIVE:
/S/ G.L. CLARK, JR. (SEAL)
G. L. Clark, Jr.
915 West Fourth Street
Winston-Salem, North Carolina 27101
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EXHIBIT A
SCHEDULE OF COMPENSATION
The undersigned hereby agree that the Base Compensation due Executive under
Section 4.01 of the attached Agreement shall be $104,000 payable in accordance
with the Company's regular payroll procedures beginning January 1, 1997, and for
each successive year thereafter during the remaining term of the Agreement,
unless and until further changed by mutual agreement as provided in Section
4.01.
This the 24th day of June, 1997.
COMPANY:
DIVERSIFIED SENIOR SERVICES, INC.
By: /S/ SUSAN L. CHRISTIANSEN
EXECUTIVE:
/S/ G.L. CLARK, JR. (SEAL)
G. L. Clark, Jr.
915 West Fourth Street
Winston-Salem, North Carolina 27101
<PAGE>
EXHIBIT B
SCHEDULE FOR REPAYMENT
AND COMPUTATION OF DEFERRED COMPENSATION
The undersigned hereby agree that accrued but unpaid compensation due Executive
under Section 4.01 of the attached Agreement for the period January 1, 1996
through December 31, 1996 is due and payable to Executive as follows:
Base Compensation $73,500
Bonus Compensation $36,750
In addition, Executive is due accrued, but unpaid, compensation for the period
January 1, 1997 through June 30, 1997, as follows:
Base Compensation $47,250
Bonus Compensation $23,625
The parties agree that the total Bonus in the amount of $60,375, at the election
of Executive, may be paid in cash or may be used by Executive to purchase shares
of the common stock of the Company at a purchase price of $5.00 per share.
Executive shall have the right to purchase such stock until the latest to occur
of the following: (a) June 30, 2002, or (b) a period of one year from the date
upon which the Company offers to pay Executive the total bonus amount in cash.
The parties agree that the purchase of stock provided for in this Exhibit B may
be made in whole or in part until such time as Executive has received the entire
amount of the Bonus described herein.
THIS the 24th day of June, 1997.
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COMPANY:
DIVERSIFIED SENIOR SERVICES, INC.
By: /S/ SUSAN L. CHRISTIANSEN
EXECUTIVE:
/S/ G.L. CLARK, JR. (SEAL)
G. L. Clark, Jr.
915 West Fourth Street
Winston-Salem, North Carolina 27101
<PAGE>
EXHIBIT B
AMENDED AND RESTATED
SCHEDULE FOR REPAYMENT
AND COMPUTATION OF DEFERRED COMPENSATION
The undersigned hereby agree that accrued but unpaid compensation due Executive
under Section 4.01 of the attached Agreement for the period January 1, 1996
through December 31, 1996 is due and payable to Executive as follows:
Base Compensation $73,500
Bonus Compensation $36,750
In addition, Executive is due accrued, but unpaid, compensation for the period
January 1, 1997 through June 30, 1997, as follows:
Base Compensation $47,250
Bonus Compensation $23,625
The parties agree that the total Bonus in the amount of $60,375, at the election
of Executive, may be paid in cash or may be used by Executive to purchase shares
of the common stock of the Company at a purchase price equal to 50% of the
public price per share pursuant to any public sale of stock by the Company.
Executive shall have the right to purchase such stock until the latest to occur
of the following: (a) June 30, 2002, or (b) a period of one year from the date
upon which the Company offers to pay Executive the total bonus amount in cash.
The parties agree that the purchase of stock provided for in this Exhibit B may
be made in whole or in part until such time as Executive has received the entire
amount of the Bonus described herein.
THIS the 6th day of August, 1997.
COMPANY:
DIVERSIFIED SENIOR SERVICES, INC.
By: /S/ SUSAN L. CHRISTIANSEN
EXECUTIVE:
/S/ G.L. CLARK, JR. (SEAL)
G. L. Clark, Jr.
915 West Fourth Street
Winston-Salem, North Carolina 27101
EXHIBIT 10.5
DSS 1997 STOCK INCENTIVE PLAN
EFFECTIVE DATE: JANUARY 1, 1997
ARTICLE I
ESTABLISHMENT
The DSS 1997 Stock Incentive Plan ("PLAN") is hereby established by
Diversified Senior Services, Inc. ("COMPANY"). The purpose of the Plan is to
promote the overall financial objectives of the Company and its stockholders by
motivating those persons selected to participate in the Plan to achieve
long-term growth in stockholder equity in the Company and by retaining the
association of those individuals who are instrumental in achieving this growth.
The Plan is adopted effective as of January 1, 1997.
ARTICLE II
DEFINITIONS
For purposes of the Plan, the following terms are defined as set forth
below:
"AFFILIATE" means any individual, corporation, partnership, association,
joint-stock company, trust, unincorporated association or other entity (other
than the Company) that directly, or indirectly through one or more
intermediaries, controls, is controlled by, or is under common control with, the
Company including, without limitation, any member of an affiliated group of
which the Company is a common parent corporation as provided in Section 1504 of
the Code.
"AGREEMENT" or "AWARD AGREEMENT" means, individually or collectively, any
agreement entered into pursuant to the Plan pursuant to which an Award is
granted to a Participant.
"AWARD" means a Stock Option, Stock Appreciation Right, Restricted Stock or
Deferred Stock.
"BOARD OF DIRECTORS" or "BOARD" means the Board of Directors of the Company.
"CAUSE" means, for purposes of whether and when a Participant has incurred a
Termination of Employment for Cause, any act or omission which permits the
Company to terminate the written agreement or arrangement between the
Participant and the Company or an Affiliate for Cause as defined in such
agreement or arrangement, or if there is no such agreement or arrangement or the
agreement or arrangement does not define the term "CAUSE," then Cause means,
unless otherwise defined in the Agreement (or Award Agreement) with respect to
the corresponding Award, (a) any act or failure to act deemed to constitute
cause under the Company's established practices, policies or guidelines
applicable to the Participant or (b) the Participant's act or act of omission
which constitutes gross misconduct with respect to the Company or an Affiliate
in any material respect, including, without limitation, an act or act of
omission of a criminal nature, the result of which is detrimental to the
interests of the Company or an Affiliate, or conduct or the omission of conduct
which constitutes a material breach of Participant's duty of loyalty to the
Company or an Affiliate.
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"CHANGE IN CONTROL" and "CHANGE IN CONTROL PRICE" have the meanings set forth in
Sections 11.2 and 11.3, respectively.
"CODE" or "INTERNAL REVENUE CODE" means the Internal Revenue Code of 1986, as
amended, final Treasury Regulations thereunder and any subsequent Internal
Revenue Code.
"COMMISSION" means the Securities and Exchange Commission or any successor
agency.
"COMMITTEE" means the person or persons appointed by the Board of Directors to
administer the Plan, as further described in the Plan.
"COMMON STOCK" means the shares of the Common Stock, no par value, whether
presently or hereafter issued, and any other stock or security resulting from
adjustment thereof as described hereinafter or the common stock of any successor
to the Company which is designated for the purpose of the Plan.
"COMPANY" means Diversified Senior Services, Inc., a North Carolina corporation,
and includes any successor or assignee corporation or corporations into which
the Company may be merged, changed or consolidated; any corporation for whose
securities the securities of the Company are exchanged; and any assignee of or
successor to substantially all of the assets of the Company.
"DEFERRED STOCK" means an award made pursuant to Article IX.
"DISABILITY" means a mental or physical illness that entitles the Participant to
receive benefits under the long term disability plan of the Company or an
Affiliate, or if the Participant is not covered by such a plan or the
Participant is not an employee of the Company or an Affiliate, a mental or
physical illness that renders a Participant totally and permanently incapable of
performing the Participant's duties for the Company or an Affiliate.
Notwithstanding the foregoing, a Disability will not qualify under this Plan if
it is the result of (i) a willfully self-inflicted injury or willfully
self-induced sickness; or (ii) an injury or disease contracted, suffered, or
incurred, while participating in a criminal offense. The determination of
Disability will be made by the Committee. The determination of Disability for
purposes of this Plan will not be construed to be an admission of disability for
any other purpose.
"DISINTERESTED PERSON" has the meaning set forth in Rule 16b-3(d)(3), or any
successor definition adopted by the Commission, provided the person is also an
"OUTSIDE DIRECTOR" under Section 162(m) of the Code.
"EFFECTIVE DATE" means January 1, 1997.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended, and the
rules and regulations promulgated thereunder.
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"FAIR MARKET VALUE" means the value determined on the basis of the good faith
determination of the Committee, without regard to whether the Common Stock is
restricted or represents a minority interest, pursuant to the applicable method
described below:
(a) if the Common Stock is listed on a national securities exchange or
quoted on the NASDAQ National Market ("NASDAQ"), the closing price of the
Common Stock on the relevant date, as reported by the principal national
exchange on which such shares are traded (in the case of an exchange) or by
the NASDAQ, as the case may be;
(b) if the Common Stock is not listed on a national securities exchange or
quoted on the NASDAQ, but is actively traded in the over-the-counter
market, the average of the closing bid and asked prices for the Common
Stock on the relevant date, or the most recent preceding date for which
such quotations are reported; and
(c) if, on the relevant date, the Common Stock is not publicly traded or
reported as described in (a) or (b), the value determined in good faith by
the Committee.
"GRANT DATE" means the date that as of which an Award is granted pursuant to the
Plan.
"INCENTIVE STOCK OPTION" means any Stock Option intended to be and designated as
an "INCENTIVE STOCK OPTION" within the meaning of Section 422 of the Code.
"NON-QUALIFIED STOCK OPTION" means an Option to purchase Common Stock in the
Company granted under the Plan other than an incentive stock option within the
meaning of Section 422 of the Code.
"OPTION PERIOD" means the period during which the Option will be exercisable in
accordance with the Agreement and Article VI.
"OPTION PRICE" means the price at which the Common Stock may be purchased under
an Option as provided in Section 6.3.
"PARTICIPANT" means a person who satisfies the eligibility conditions of Article
V and to whom an Award has been granted by the Committee under the Plan, and if
a Representative is appointed for a Participant or a former spouse becomes a
Representative, then the term "PARTICIPANT" means such appointed Representative,
successor Representative, or spouse as the case may be. The term also includes a
trust for the benefit of the Participant, the Participant's parents, spouse or
descendants, or a custodian under a uniform gifts to minors act or similar
statute for the benefit of the Participant's descendants, to the extent
permitted by the Committee and not inconsistent with the Rule 16b-3.
Notwithstanding the foregoing, the term "TERMINATION OF EMPLOYMENT" means the
Termination of Employment of the Participant.
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"PLAN" means the DSS 1997 Stock Incentive Plan, as herein set forth and as may
be amended from time to time.
"REPRESENTATIVE" means (a) the person or entity acting as the executor or
administrator of a Participant's estate pursuant to the last will and testament
of a Participant or pursuant to the laws of the jurisdiction in which the
Participant had the Participant's primary residence at the date of the
Participant's death; (b) the person or entity acting as the guardian or
temporary guardian of a Participant; (c) the person or entity which is the
beneficiary of the Participant upon or following the Participant's death; or (d)
any person to whom an Option has been permissibly transferred; provided that
only one of the foregoing will be the Representative at any point in time as
determined under applicable law and recognized by the Committee.
"RESTRICTED STOCK" means an award under Article VIII.
"RETIREMENT" means the Participant's Termination of Employment after attaining
either the normal retirement age or the early retirement age as defined in the
principal (as determined by the Committee) tax-qualified plan of the Company or
an Affiliate, if the Participant is covered by such plan, and if the Participant
is not covered by such a plan, then age 65, or age 55 with the accrual of 10
years of service.
"RULE 16B-3" means Rule 16b-3, as promulgated under the Exchange Act, as amended
from time to time, or any successor thereto.
"SECURITIES ACT" means the Securities Act of 1933, as amended, and the rules and
regulations promulgated thereunder.
"STOCK APPRECIATION RIGHT" means a right granted under Article VII.
"STOCK OPTION" or "OPTION" means an option granted under Article VI.
"TERMINATION OF EMPLOYMENT" means the occurrence of any act or event, whether
pursuant to an employment agreement or otherwise, that actually or effectively
causes or results in the person's ceasing, for whatever reason, to be an
officer, director, employee, consultant or advisor of the Company or of any
Affiliate, or to be an officer, director, employee, consultant or advisor of any
entity that provides services to the Company or an Affiliate, including, without
limitation, death, Disability, dismissal, severance at the election of the
Participant, Retirement, or severance as a result of the discontinuance,
liquidation, sale or transfer by the Company or its Affiliates of all businesses
owned or operated by the Company or its Affiliates. With respect to any person
who is not an employee of the Company or an Affiliate, the Agreement will
establish what act or event will constitute a Termination of Employment for
purposes of the Plan. A Termination of Employment will occur for an employee who
is employed by an Affiliate if the Affiliate ceases to be an Affiliate and the
Participant does not immediately thereafter become an employee of the Company or
an Affiliate.
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In addition, certain other terms used herein have definitions given to them in
the first place in which they are used.
ARTICLE III
ADMINISTRATION
3.1 COMMITTEE STRUCTURE AND AUTHORITY. The Plan will be administered by the
Committee. After the Company has an effective registration statement under the
Securities Act for the Common Stock, the Committee, except as provided herein,
will be comprised of such number of Disinterested Persons (and no other persons)
as is required for application of Rule 16b-3. In the absence of appointment of
the Committee the entire Board of Directors will constitute the Committee. A
majority of the Committee will constitute a quorum at any meeting thereof
(including telephone conference) and the acts of a majority of the members
present, or acts approved in writing by a majority of the entire Committee
without a meeting, will be the acts of the Committee for purposes of this Plan.
The Committee may authorize any one or more of its members or an officer of the
Company to execute and deliver documents on behalf of the Committee. A member of
the Committee will not exercise any discretion respecting himself or herself
under the Plan. The Board will have the authority to remove, replace or fill any
vacancy of any member of the Committee upon notice to the Committee and the
affected member. Any member of the Committee may resign upon notice to the
Board. The Committee may allocate among one or more of its members, or may
delegate to one or more of its agents, such duties and responsibilities as it
determines.
Among other things, the Committee will have the authority, subject to the terms
of the Plan:
(a) to select those persons to whom Awards may be granted from time to
time;
(b) to determine whether and to what extent Stock Options, Stock
Appreciation Rights, Restricted Stock and Deferred Stock or any combination
thereof are to be granted hereunder;
(c) to determine the number of shares of Common Stock to be covered by each
Award granted hereunder;
(d) to determine the terms and conditions of any Award granted hereunder
(including, without limitation, the Option Price, the Option Period, any
exercise restriction or limitation and any exercise acceleration,
forfeiture or waiver regarding any Award and the shares of Common Stock
relating thereto);
(e) to adjust the terms and conditions, at any time or from time to time,
of any Award, subject to the limitations of Section 12.1;
(f) to determine to what extent and under what circumstances Common Stock
and other amounts payable with respect to an Award will be deferred;
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(g) to determine under what circumstances an Award may be settled in cash
or Common Stock;
(h) to provide for the forms of Agreement to be utilized in connection with
the Plan;
(i) to determine whether a Participant has a Disability or a Retirement;
(j) to determine what securities law requirements are applicable to the
Plan, Awards, and the issuance of shares of Common Stock and to require of
a Participant that appropriate action be taken with respect to such
requirements;
(k) to cancel, with the consent of the Participant or as otherwise provided
in the Plan or an Agreement, outstanding Awards;
(l) to require as a condition of the exercise of an Award or the issuance
or transfer of a certificate of Common Stock, the withholding from a
Participant of the amount of any federal, state or local taxes as may be
necessary in order for the Company or any other employer to obtain a
deduction or as may be otherwise required by law;
(m) to determine whether and with what effect a Participant has incurred a
Termination of Employment;
(n) to determine whether the Company or any other person has a right or
obligation to purchase Common Stock from a Participant and, if so, the
terms and conditions on which such Common Stock is to be purchased;
(o) to determine the restrictions or limitations on the transfer of Common
Stock;
(p) to determine whether an Award is to be adjusted, modified or purchased,
or is to become fully exercisable, under the Plan or the terms of an
Agreement;
(q) to determine the permissible methods of Award exercise and payment,
including cashless exercise arrangements;
(r) to adopt, amend and rescind such rules and regulations as, in its
opinion, may be advisable in the administration of the Plan; and
(s) to appoint and compensate agents, counsel, auditors or other
specialists to aid it in the discharge of its duties.
The Committee will have the authority to adopt, alter and repeal such
administrative rules, guidelines and practices governing the Plan as it may,
from time to time, deem advisable, to interpret the terms and provisions of the
Plan and any Award issued under the Plan (and any Agreement) and to otherwise
supervise the administration of the Plan. The Committee's policies and
procedures may differ with respect to Awards granted at different times.
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Any determination made by the Committee pursuant to the provisions of the Plan
will be made in its sole discretion, and in the case of any determination
relating to an Award, may be made at the time of the grant of the Award or,
unless in contravention of any express term of the Plan or an Agreement, at any
time thereafter. All decisions made by the Committee pursuant to the provisions
of the Plan will be final and binding on all persons, including the Company and
Participants. No determination will be subject to DE NOVO review if challenged
in court.
ARTICLE IV
STOCK SUBJECT TO PLAN
4.1 NUMBER OF SHARES. Subject to the adjustment under Section 4.6, the total
number of shares of Common Stock reserved and available for distribution
pursuant to Awards under the Plan will be 500,000 shares of Common Stock
authorized for issuance on the Effective Date. Such shares may consist, in whole
or in part, of authorized and unissued shares or treasury shares.
4.2 RELEASE OF SHARES Subject to Section 7.3(f), if any shares of Common Stock
that have been optioned cease to be subject to an Award, if any shares of Common
Stock that are subject to any Award are forfeited or if any Award otherwise
terminates without issuance of shares of Common Stock being made to the
Participant, such shares, in the discretion of the Committee, may again be
available for distribution in connection with Awards under the Plan.
4.3 RESTRICTIONS ON SHARES. Shares of Common Stock issued upon exercise of an
Award will be subject to the terms and conditions specified herein and to such
other terms, conditions and restrictions as the Committee in its discretion may
determine or provide in the Award Agreement. The Company will not be required to
issue or deliver any certificates for shares of Common Stock, cash or other
property prior to (i) the listing of such shares on any stock exchange (or other
public market) on which the Common Stock may then be listed (or regularly
traded), (ii) the completion of any registration or qualification of such shares
under federal or state law, or any ruling or regulation of any government body
which the Committee determines to be necessary or advisable, and (iii) the
satisfaction of any applicable withholding obligation in order for the Company
or an Affiliate to obtain a deduction with respect to the exercise of an Award.
The Company may cause any certificate for any share of Common Stock to be
delivered to be properly marked with a legend or other notation reflecting the
limitations on transfer of such Common Stock as provided in this Plan or as the
Committee may otherwise require. The Committee may require any person exercising
an Award to make such representations and furnish such information as it may
consider appropriate in connection with the issuance or delivery of the shares
of Common Stock in compliance with applicable law or otherwise. Fractional
shares will not be delivered, but will be rounded to the next lower whole number
of shares.
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4.4 STOCKHOLDER RIGHTS. No person will have any rights of a stockholder as to
shares of Common Stock subject to an Award until, after proper exercise of the
Award or other action required, such shares have been recorded on the Company's
official stockholder records as having been issued or transferred. Upon exercise
of the Award or any portion thereof, the Company will have thirty (30) days in
which to issue the shares, and the Participant will not be treated as a
stockholder for any purpose whatsoever prior to such issuance. No adjustment
will be made for cash dividends or other rights for which the record date is
prior to the date such shares are recorded as issued or transferred in the
Company's official stockholder records, except as provided herein or in an
Agreement.
4.5 BEST EFFORTS TO REGISTER. The Company will register under the Securities Act
the Common Stock delivered or deliverable pursuant to Awards on Commission Form
S-8 if available to the Company for this purpose (or any successor or alternate
form that is substantially similar to that form to the extent available to
effect such registration), in accordance with the rules and regulations
governing such forms, as soon as the Committee, in its sole discretion, deems
such registration appropriate. The Company will use its best efforts to cause
the registration statement to become effective and will file such supplements
and amendments to the registration statement as may be necessary to keep the
registration statement in effect until the earliest of (a) one year following
the expiration of the Option Period of the last Option outstanding, (b) the date
the Company is no longer a reporting company under the Exchange Act and (c) the
date all Participants have disposed of all shares delivered pursuant to any
Award.
4.6 ANTI-DILUTION. In the event of any Company stock dividend, stock split,
combination or exchange of shares, recapitalization or other change in the
capital structure of the Company, corporate separation or division of the
Company (including, but not limited to, a split-up, spin-off, split-off or
distribution to Company stockholders other than a normal cash dividend), sale by
the Company of all or a substantial portion of its assets (measured on either a
stand-alone or consolidated basis), reorganization, rights offering, a partial
or complete liquidation, or any other corporate transaction, Company share
offering or event involving the Company and having an effect similar to any of
the foregoing, then the Committee will adjust or substitute, as the case may be,
the number of shares of Common Stock available for Awards under the Plan, the
number of shares of Common Stock covered by outstanding Awards, the exercise
price per share of outstanding Awards, and any other characteristics or terms of
the Awards as the Committee deems necessary or appropriate to reflect equitably
the effects of such changes to the Participants; provided, however, that any
fractional shares resulting from such adjustment will be eliminated by rounding
to the next lower whole number of shares with appropriate payment for such
fractional share as will reasonably be determined by the Committee.
ARTICLE V
ELIGIBILITY
5.1 ELIGIBILITY. Except as herein provided, the persons who will be eligible to
participate in the Plan and be granted Awards will be those persons who are
officers, directors, employees, consultants or advisors of the Company or any
Affiliate including, without limitation, the
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officers, directors and employeesof any other entity which provides services to
the Company or any Affiliate, who are in a position, in the opinion of the
Committee, to make contributions to the growth, management, protection and
success of the Company and its Affiliates. Of those persons described in the
preceding sentence, the Committee may, from time to time, select persons to be
granted Awards and determine the terms and conditions with respect thereto. In
making any such selection and in determining the form of the Award, the
Committee may give consideration to the functions and responsibilities of the
person's contributions to the Company and its Affiliates, the value of the
individual's service to the Company and its Affiliates and such other factors
deemed relevant by the Committee. The Committee may designate in writing any
person who is not eligible to participate in the Plan if such person would
otherwise be eligible to participate in the Plan.
ARTICLE VI
STOCK OPTIONS
6.1 GENERAL. The Committee will have authority to grant Options under the Plan
at any time or from time to time. Stock Options may be granted alone or in
addition to other Awards and may be either Incentive Stock Options or
Non-Qualified Stock Options. An Option will entitle the Participant to receive
shares of Common Stock upon exercise of such Option, subject to the
Participant's satisfaction in full of any conditions, restrictions or
limitations imposed in accordance with the Plan or an Agreement (the terms and
provisions of which may differ from other Agreements) including without
limitation, payment of the Option Price.
6.2 GRANT AND EXERCISE. The grant of a Stock Option will occur as of the date
the Committee determines. Each Option granted under this Plan will be evidenced
by an Agreement, in a form approved by the Committee, which will embody the
terms and conditions of such Option and which will be subject to the express
terms and conditions set forth in the Plan. Such Agreement will become effective
upon execution by the Participant. Only a person who is a common-law employee of
the Company, any parent corporation of the Company or a subsidiary of the
Company (as such terms are defined in Section 424 of the Code) on the date of
grant will be eligible to be granted an Option which is intended to be and is an
Incentive Stock Option. To the extent that any Stock Option is not designated as
an Incentive Stock Option or even if so designated does not qualify as an
Incentive Stock Option, it will constitute a Non-Qualified Stock Option.
Anything in the Plan to the contrary notwithstanding, no term of the Plan
relating to Incentive Stock Options will be interpreted, amended or altered, nor
will any discretion or authority granted under the Plan be exercised, so as to
disqualify the Plan under Section 422 of the Code or, without the consent of the
Participant affected, to disqualify any Incentive Stock Option under such
Section 422.
6.3 TERMS AND CONDITIONS. Stock Options will be subject to such terms and
conditions as will be determined by the Committee, including the following:
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(a) OPTION PERIOD. The Option Period of each Stock Option will be fixed by
the Committee; provided that no Stock Option will be exercisable more than
10 years after the date the Stock Option is granted. In the case of an
Incentive Stock Option granted to an individual who owns more than 10% of
the combined voting power of all classes of stock of the Company, a
corporation which is a parent corporation of the Company or any subsidiary
of the Company (each as defined in Section 424 of the Code), the Option
Period will not exceed five (5) years from the date of grant. No Option
which is intended to be an Incentive Stock Option will be granted more than
10 years from the date the Plan is adopted by the Company or the date the
Plan is approved by the stockholders of the Company, whichever is earlier.
(b) OPTION PRICE. The Option Price per share of the Common Stock
purchasable under an Option will be determined by the Committee; provided,
however, that the Option Price per share for any Option intended to qualify
as an Incentive Stock Option will be not less than the Fair Market Value
per share on the date the Option is granted. If such Option is intended to
qualify as an Incentive Stock Option and is granted to an individual who
owns or who is deemed to own stock possessing more than 10% of the combined
voting power of all classes of stock of the Company, a corporation which is
a parent corporation of the Company or any subsidiary of the Company (each
as defined in Section 424 of the Code), the Option Price per share will not
be less than 110% of such Fair Market Value per share.
(c) EXERCISABILITY. Subject to Section 11.1, Stock Options will be
exercisable at such time or times and subject to such terms and conditions
as will be determined by the Committee. If the Committee provides that any
Stock Option is exercisable only in installments, the Committee may at any
time waive such installment exercise provisions, in whole or in part. In
addition, the Committee may at any time accelerate the exercisability of
any Stock Option.
(d) METHOD OF EXERCISE. Subject to the provisions of this Article VI, a
Participant may exercise Stock Options, in whole or in part, at any time
during the Option Period by the Participant's giving written notice of
exercise on a form provided by the Committee (if available) to the Company
specifying the number of shares of Common Stock subject to the Stock Option
to be purchased. Such notice will be accompanied by payment in full of the
purchase price by cash or check or such other form of payment as the
Company may accept. If approved by the Committee, payment in full or in
part may also be made (i) by delivering Common Stock already owned by the
Participant having a total Fair Market Value on the date of such delivery
equal to the Option Price; (ii) by the execution and delivery of a note or
other evidence of indebtedness (and any security agreement thereunder)
satisfactory to the Committee and permitted in accordance with Section
6.3(e); (iii) by authorizing the Company to retain shares of Common Stock
which would otherwise be issuable upon exercise of the Option having a
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total Fair Market Value on the date of delivery equal to the Option Price;
(iv) by the delivery of cash by a broker-dealer to whom the Participant has
submitted a notice of exercise (in accordance with Part 220, Chapter II,
Title 12 of the Code of Federal Regulations, so-called "CASHLESS"
exercise); or (v) by any combination of the foregoing. If payment of the
Option Price of a Non-Qualified Stock Option is made in whole or in part in
the form of Restricted Stock or Deferred Stock, the number of shares of
Common Stock to be received upon such exercise that is equal to the number
of shares of Restricted Stock or Deferred Stock used for payment of the
Option Price will be subject to the same forfeiture restrictions or
deferral limitations to which such Restricted Stock or Deferred Stock was
subject, unless otherwise determined by the Committee. In the case of an
Incentive Stock Option, the right to make a payment in the form of already
owned shares of Common Stock of the same class as the Common Stock subject
to the Stock Option may be authorized only at the time the Stock Option is
granted. No shares of Common Stock will be issued until full payment
therefor has been made. Subject to any forfeiture restrictions or deferral
limitations that may apply if a Stock Option is exercised using Restricted
Stock or Deferred Stock, a Participant will have all of the rights of a
stockholder of the Company holding the class of Common Stock that is
subject to such Stock Option (including, if applicable, the right to vote
the shares and the right to receive dividends), when the Participant has
given written notice of exercise, has paid in full for such shares, and
such shares have been recorded on the Company's official stockholder
records as having been issued or transferred.
(e) COMPANY LOAN OR GUARANTEE. Upon the exercise of any Option and subject
to the pertinent Agreement and the discretion of the Committee, the Company
may at the request of the Participant:
(i) lend to the Participant, with recourse, an amount equal to such
portion of the Option Price as the Committee may determine; or
(ii) guarantee a loan obtained by the Participant from a third-party
for the purpose of tendering the Option Price.
The terms and conditions of any loan or guarantee, including the term,
interest rate, and any security interest thereunder, will be determined by
the Committee, except that no extension of credit or guarantee will
obligate the Company for an amount to exceed the lesser of the aggregate
Fair Market Value per share of the Common Stock on the date of exercise,
less the par value of the shares of Common Stock to be purchased upon the
exercise of the Award, or the amount permitted under applicable laws or the
regulations and rules of the Federal Reserve Board and any other
governmental agency having jurisdiction.
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(f) NON-TRANSFERABILITY OF OPTIONS. Except as provided herein or in an
Agreement, no Stock Option or interest therein will be transferable by the
Participant other than by will or by the laws of descent and distribution,
and all Stock Options will be exercisable during the Participant's lifetime
only by the Participant. If the Committee adopts Securities Exchange Act
Release 34-28869 of the Securities Exchange Commission the Committee may
permit an Award to be transferred pursuant to a domestic relations order
which would be a "QUALIFIED DOMESTIC RELATIONS ORDER" as defined in Section
414 of the Code if such section applied to the Award, but only to the
extent consistent with an Award's intended status as an Incentive Stock
Option.
6.4 TERMINATION BY REASON OF DEATH. Unless otherwise provided in an Agreement or
determined by the Committee, if a Participant incurs a Termination of Employment
due to death, any unexpired and unexercised Stock Option held by such
Participant will thereafter be fully exercisable for a period of 90 days
following the date of the appointment of a Representative (or such other period
or no period as the Committee may specify) or until the expiration of the Option
Period, whichever period is the shorter.
6.5 TERMINATION BY REASON OF DISABILITY. Unless otherwise provided in an
Agreement or determined by the Committee, if a Participant incurs a Termination
of Employment due to a Disability, any unexpired and unexercised Stock Option
held by such Participant will thereafter be fully exercisable by the Participant
for the period of ninety (90) days (or such other period or no period as the
Committee may specify) immediately following the date of such Termination of
Employment or until the expiration of the Option Period, whichever period is
shorter, and the Participant's death at any time following such Termination of
Employment due to Disability will not affect the foregoing. In the event of
Termination of Employment by reason of Disability, if an Incentive Stock Option
is exercised after the expiration of the exercise periods that apply for
purposes of Section 422 of the Code, such Stock Option will thereafter be
treated as a NonQualified Stock Option.
6.6 OTHER TERMINATION. Unless otherwise provided in an Agreement or determined
by the Committee, if a Participant incurs a Termination of Employment due to
Retirement, or the Termination of Employment is involuntary on the part of the
Participant (but is not due to death or Disability or with Cause), any Stock
Option held by such Participant will thereupon terminate, except that such Stock
Option, to the extent then exercisable, may be exercised for the lesser of the
90-day period commencing with the date of such Termination of Employment or
until the expiration of the Option Period. If the Participant incurs a
Termination of Employment which is either (a) voluntary on the part of the
Participant (and is not due to Retirement) or (b) with Cause, the Option will
terminate immediately. The death or Disability of a Participant after a
Termination of Employment otherwise provided herein will not extend the time
permitted to exercise an Option.
6.7 CASHING OUT OF OPTION. Unless otherwise provided in the Agreement, on
receipt of written notice of exercise, the Committee may elect to cash out all
or part of the portion of any Stock Option to be exercised by paying the
Participant an amount, in cash or Common Stock,
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equal to the excess of the FairMarket Value of the Common Stock that is subject
to the Option over the Option Price times the number of shares of Common Stock
subject to the Option on the effective date of such cash out. Cash outs relating
to Options held by Participants who are actually or potentially subject to
Section 16(b) of the Exchange Act will comply with the "WINDOW PERIOD"
provisions of Rule 16b-3, to the extent applicable, and, in the case of cash
outs of Non-Qualified Stock Options held by such Participants, the Committee may
determine Fair Market Value under the pricing rule set forth in Section 7.3(b).
ARTICLE VII
STOCK APPRECIATION RIGHTS
7.1 GENERAL. The Committee will have authority to grant Stock Appreciation
Rights under the Plan at any time or from time to time. Subject to the
Participant's satisfaction in full of any conditions, restrictions or
limitations imposed in accordance with the Plan or an Agreement, a Stock
Appreciation Right will entitle the Participant to surrender to the Company the
Stock Appreciation Right and to be paid therefor in shares of the Common Stock,
cash or a combination thereof as herein provided, the amount described in
Section 7.3(b).
7.2 GRANT. Stock Appreciation Rights may be granted in conjunction with all or
part of any Stock Option granted under the Plan, in which case the exercise of
the Stock Appreciation Right will require the cancellation of a corresponding
portion of the Stock Option, and the exercise of a Stock Option will result in
the cancellation of a corresponding portion of the Stock Appreciation Right. In
the case of a Non-Qualified Stock Option, such rights may be granted either at
or after the time of grant of such Stock Option. In the case of an Incentive
Stock Option, such rights may be granted only at the time of grant of such Stock
Option. A Stock Appreciation Right may also be granted on a stand alone basis.
The grant of a Stock Appreciation Right will occur as of the date the Committee
determines. Each Stock Appreciation Right granted under this Plan will be
evidenced by an Agreement, which will embody the terms and conditions of such
Stock Appreciation Right and which will be subject to the terms and conditions
set forth in the Plan.
7.3 TERMS AND CONDITIONS. Stock Appreciation Rights will be subject to such
terms and conditions as will be determined by the Committee, including the
following:
(a) PERIOD AND EXERCISE. The term of a Stock Appreciation Right will be
established by the Committee. If granted in conjunction with a Stock
Option, the Stock Appreciation Right will have a term which is the same as
the Option Period and will be exercisable only at such time or times and to
the extent the related Stock Options would be exercisable in accordance
with the provisions of Article VI. A Stock Appreciation Right which is
granted on a stand alone basis will be for such period and will be
exercisable at such times and to the extent provided in an Agreement. Stock
Appreciation Rights will be exercised by the Participant's giving written
notice of exercise on a form provided by the Committee (if available) to
the Company specifying the portion of the Stock Appreciation Right to be
exercised.
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(b) AMOUNT. Upon the exercise of a Stock Appreciation Right granted in
conjunction with a Stock Option, a Participant will be entitled to receive
an amount in cash, shares of Common Stock or both as determined by the
Committee or as otherwise permitted in an Agreement equal in value to the
excess of the Fair Market Value per share of Common Stock over the Option
Price per share of Common Stock specified in the related Agreement
multiplied by the number of shares in respect of which the Stock
Appreciation Right is exercised. In the case of a Stock Appreciation Right
granted on a stand alone basis, the Agreement will specify the value to be
used in lieu of the Option Price per share of Common Stock. The aggregate
Fair Market Value per share of the Common Stock will be determined as of
the date of exercise of such Stock Appreciation Right.
(c) SPECIAL RULES. In the case of Stock Appreciation Rights relating to
Stock Options held by Participants who are actually or potentially subject
to Section 16(b) of the Exchange Act:
(i) The Committee may require that such Stock Appreciation Rights be
exercised only in accordance with the applicable "WINDOW PERIOD"
provisions of Rule 16b-3;
(ii) The Committee may provide that the amount to be paid upon
exercise of such Stock Appreciation Rights (other than those relating
to Incentive Stock Options) during a Rule 16b-3 "WINDOW PERIOD" will
be based on the highest mean sales price of the Common Stock on the
principal exchange on which the Common Stock is traded, NASDAQ or
other relevant market for determining value on any day during such
"WINDOW PERIOD"; and
(iii) No Stock Appreciation Right will be exercisable during the first
six months of its term, except that this limitation will not apply in
the event of death or Disability of the Participant prior to the
expiration of the six-month period.
(d) NON-TRANSFERABILITY OF STOCK APPRECIATION RIGHTS. Stock Appreciation
Rights will be transferable only when and to the extent that a Stock Option
would be transferable under the Plan unless otherwise provided in an
Agreement.
(e) TERMINATION. A Stock Appreciation Right will terminate at such time as
a Stock Option would terminate under the Plan, unless otherwise provided in
an Agreement.
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(f) EFFECT ON SHARES UNDER THE PLAN. Upon the exercise of a Stock
Appreciation Right, the Stock Option or part thereof to which such Stock
Appreciation Right is related will be deemed to have been exercised for the
purpose of the limitation set forth in Section 4.2 on the number of shares
of Common Stock to be issued under the Plan, but only to the extent of the
number of shares of Common Stock covered by the Stock Appreciation Right at
the time of exercise based on the value of the Stock Appreciation Right at
such time.
(g) INCENTIVE STOCK OPTION. A Stock Appreciation Right granted in tandem
with an Incentive Stock Option will not be exercisable unless the Fair
Market Value of the Common Stock on the date of exercise exceeds the Option
Price. In no event will any amount paid pursuant to the Stock Appreciation
Right exceed the difference between the Fair Market Value on the date of
exercise and the Option Price.
ARTICLE VIII
RESTRICTED STOCK
8.1 GENERAL. The Committee will have authority to grant Restricted Stock under
the Plan at any time or from time to time. Shares of Restricted Stock may be
awarded either alone or in addition to other Awards granted under the Plan. The
Committee will determine the persons to whom and the time or times at which
grants of Restricted Stock will be awarded, the number of shares of Restricted
Stock to be awarded to any Participant, the time or times within which such
Awards may be subject to forfeiture, and any other terms and conditions of the
Awards. Each Award will be confirmed by, and be subject to the terms of, an
Agreement. The Committee may condition the grant of Restricted Stock upon the
attainment of specified performance goals by the Participant or by the Company
or an Affiliate (including a division or department of the Company or an
Affiliate) for or within which the Participant is primarily employed or upon
such other factors or criteria as the Committee may determine. The provisions of
Restricted Stock Awards need not be the same with respect to any Participant.
8.2 AWARDS AND CERTIFICATES. Notwithstanding the limitations on issuance of
shares of Common Stock otherwise provided in the Plan, each Participant
receiving an Award of Restricted Stock will be issued a certificate in respect
of such shares of Restricted Stock. Such certificate will be registered in the
name of such Participant and will bear an appropriate legend referring to the
terms, conditions, and restrictions applicable to such Award as determined by
the Committee. The Committee may require that the certificates evidencing such
shares be held in custody by the Company until the restrictions thereon have
lapsed and that, as a condition of any Award of Restricted Stock, the
Participant must have delivered a stock power, endorsed in blank, relating to
the Common Stock covered by such Award.
8.3 TERMS AND CONDITIONS. Shares of Restricted Stock will be subject to the
following terms and conditions:
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(a) LIMITATIONS ON TRANSFERABILITY. Subject to the provisions of the Plan
and the Agreement, during a period set by the Committee, commencing with
the date of such Award (the "RESTRICTION PERIOD"), the Participant will not
be permitted to sell, assign, transfer, pledge or otherwise encumber any
interest in shares of Restricted Stock.
(b) RIGHTS. Except as provided in Section 8.3(a), the Participant will
have, with respect to the shares of Restricted Stock, all of the rights of
a stockholder of the Company holding the class of Common Stock that is the
subject of the Restricted Stock, including, if applicable, the right to
vote the shares and the right to receive any cash dividends. Unless
otherwise determined by the Committee and subject to the Plan, cash
dividends on the class of Common Stock that is the subject of the
Restricted Stock will be automatically deferred and reinvested in
additional Restricted Stock, and dividends on the class of Common Stock
that is the subject of the Restricted Stock payable in Common Stock will be
paid in the form of Restricted Stock of the same class as the Common Stock
on which such dividend was paid.
(c) ACCELERATION. Based on service, performance by the Participant or by
the Company or the Affiliate, including any division or department for
which the Participant is employed, or such other factors or criteria as the
Committee may determine, the Committee may provide for the lapse of
restrictions in installments and may accelerate the vesting of all or any
part of any Award and waive the restrictions for all or any part of such
Award.
(d) FORFEITURE. Unless otherwise provided in an Agreement or determined by
the Committee, if the Participant incurs a Termination of Employment during
the Restriction Period due to death or Disability, the restrictions will
lapse and the Participant will be fully vested in the Restricted Stock.
Except to the extent otherwise provided in the applicable Agreement and the
Plan, upon a Participant's Termination of Employment for any reason during
the Restriction Period other than death or Disability, all shares of
Restricted Stock still subject to restriction will be forfeited by the
Participant, except the Committee will have the discretion to waive in
whole or in part any or all remaining restrictions with respect to any or
all of such Participant's shares of Restricted Stock.
(e) DELIVERY. If and when the Restriction Period expires without a prior
forfeiture of the Restricted Stock subject to such Restriction Period,
unlegended certificates for such shares will be delivered to the
Participant.
(f) ELECTION. A Participant may elect to further defer receipt of the
Restricted Stock for a specified period or until a specified event, subject
in each case to the Committee's approval and to such terms as are
determined by the Committee. Subject to any exceptions adopted by the
Committee, such election must be made one year prior to completion of the
Restriction Period.
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ARTICLE IX
DEFERRED STOCK
9.1 GENERAL. The Committee will have authority to grant Deferred Stock under the
Plan at any time or from time to time. Shares of Deferred Stock may be awarded
either alone or in addition to other Awards granted under the Plan. The
Committee will determine the persons to whom and the time or times at which
Deferred Stock will be awarded, the number of shares of Deferred Stock to be
awarded to any Participant, the duration of the period (the "DEFERRAL PERIOD")
prior to which the Common Stock will be delivered, and the conditions under
which receipt of the Common Stock will be deferred and any other terms and
conditions of the Awards. Each Award will be confirmed by, and be subject to the
terms of, an Agreement. The Committee may condition the grant of Deferred Stock
upon the attainment of specified performance goals by the Participant or by the
Company or an Affiliate, including a division or department of the Company or an
Affiliate for or within which the Participant is primarily employed, or upon
such other factors or criteria as the Committee may determine. The provisions of
Deferred Stock Awards need not be the same with respect to any Participant.
9.2 TERMS AND CONDITIONS. Deferred Stock Awards will be subject to the following
terms and conditions:
(a) LIMITATIONS ON TRANSFERABILITY. Subject to the provisions of the Plan
and the Agreement, Deferred Stock Awards, or any interest therein, may not
be sold, assigned, transferred, pledged or otherwise encumbered during the
Deferral Period. At the expiration of the Deferral Period (or Elective
Deferral Period as defined in Section 9.2(e), where applicable), the
Committee may elect to deliver Common Stock, cash equal to the Fair Market
Value of such Common Stock or a combination of cash and Common Stock, to
the Participant for the shares covered by the Deferred Stock Award.
(b) RIGHTS. Unless otherwise determined by the Committee and subject to the
Plan, cash dividends on the Common Stock that is the subject of the
Deferred Stock Award will be automatically deferred and reinvested in
additional Deferred Stock, and dividends on the Common Stock that is the
subject of the Deferred Stock Award payable in Common Stock will be paid in
the form of Deferred Stock of the same class as the Common Stock on which
such dividend was paid.
(c) ACCELERATION. Based on service, performance by the Participant or by
the Company or the Affiliate, including any division or department for
which the Participant is employed, or such other factors or criteria as the
Committee may determine, the Committee may provide for the lapse of
deferral limitations in installments and may accelerate the vesting of all
or any part of any Award and waive the deferral limitations for all or any
part of such Award.
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(d) FORFEITURE. Unless otherwise provided in an Agreement or determined by
the Committee, if the Participant incurs a Termination of Employment during
the Deferral Period due to death or Disability, the restrictions will lapse
and the Participant will be fully vested in the Deferred Stock. Unless
otherwise provided in an Agreement or determined by the Committee, upon a
Participant's Termination of Employment for any reason during the Deferral
Period other than death or Disability, the rights to the shares still
covered by the Award will be forfeited by the Participant, except the
Committee will have the discretion to waive in whole or in part any or all
remaining deferral limitations with respect to any or all of such
Participant's Deferred Stock.
(e) ELECTION. A Participant may elect to further defer receipt of the
Deferred Stock payable under an Award (or an installment of an Award) for a
specified period or until a specified event, subject in each case to the
Committee's approval and to such terms as are determined by the Committee.
Subject to any exceptions adopted by the Committee, such election must be
made at one year prior to completion of the Deferral Period for the Award
(or of the applicable installment thereof).
ARTICLE X
PROVISIONS APPLICABLE TO STOCK ACQUIRED UNDER THE PLAN
10.1 TRANSFER OF SHARES. Subject to the restriction in any Agreement or any
other transfer restriction contained in any agreement between a Participant and
the Company, a Participant may at any time make a transfer of shares of Common
Stock received pursuant to the exercise of an Award to his parents, spouse or
descendants or to any trust for the benefit of the foregoing or to a custodian
under a uniform gifts to minors act or similar statute for the benefit of any of
the Participant's descendants. Any transfer of shares received pursuant to the
exercise of an Award will not be permitted or valid unless and until the
transferee agrees to be bound by the provisions of the Plan, and any provision
respecting Common Stock under the Agreement, provided that "TERMINATION OF
EMPLOYMENT" will continue to refer to the Termination of Employment of the
Participant.
10.2 LIMITED TRANSFER DURING OFFERING. If there is an effective registration
statement under the Securities Act pursuant to which shares of Common Stock are
offered for sale in an underwritten offering, a Participant may not, during the
period requested by the underwriters managing the registered public offering,
effect any public sale or distribution of shares received directly or indirectly
pursuant to an exercise of an Award.
10.3 COMMITTEE DISCRETION. The Committee may in its sole discretion include in
any Agreement an obligation that the Company purchase a Participant's shares of
Common Stock received upon the exercise of an Award (including the purchase of
any unexercised Awards
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which have not expired), or may obligate a Participant to sell shares of Common
Stock to the Company upon such terms and conditions as the Committee may
determine and set forth in an Agreement. The provisions of this Article X will
be construed by the Committee in its sole discretion, and will be subject to
such other terms and conditions as the Committee may from time to time
determine. Notwithstanding any provision herein to the contrary, the Company may
upon determination by the Committee assign its right to purchase shares of
Common Stock under this Article X, whereupon the assignee of such right will
have all the rights, duties and obligations of the Company with respect to
purchase of the shares of Common Stock.
10.4 NO COMPANY OBLIGATION. None of the Company, an Affiliate, or the Committee
will have any duty or obligation to affirmatively disclose to a record or
beneficial holder of Common Stock or an Award, and such holder will have no
right to be advised of, any material information regarding the Company or any
Affiliate at any time prior to, upon or in connection with receipt or the
exercise of an Award or the Company's purchase of Common Stock or an Award from
such holder in accordance with the terms hereof.
ARTICLE XI
CHANGE IN CONTROL PROVISIONS
11.1 IMPACT OF EVENT. An Agreement may provide that in the event of a Change in
Control (as defined in Section 11.2):
(a) Any Stock Appreciation Rights and Stock Options outstanding as of the
date such Change in Control and not then exercisable will become fully
exercisable to the full extent of the original grant.
(b) The restrictions and deferral limitations applicable to any Restricted
Stock and Deferred Stock will lapse, and such Restricted Stock and Deferred
Stock will become free of all restrictions and become fully vested and
transferable to the full extent of the original grant.
(c) After the Company has an effective registration under the Securities
Act (other than on a Form S-8), a Participant will have the right, whether
or not the Award is fully exercisable or may be otherwise realized by the
Participant, by giving notice during the 60-day period from and after a
Change in Control to the Company, to elect to surrender all or part of the
Award to the Company and to receive cash, within 30 days of such notice, in
an amount equal to the amount by which the "CHANGE IN CONTROL PRICE" (as
defined in Section 11.3) per share of Common Stock on the date of such
election exceeds the amount which the Participant must pay to exercise the
Award per share of Common Stock under the Award (the "SPREAD") multiplied
by the number of shares of Common Stock granted under the Award as to which
the right granted under this Section 11.1 have been exercised; provided,
however, that if the end of such 60-day period
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from and after a Change in Control is within six months of the date of
grant of the Award held by a Participant (except a Participant who has died
during such six month period) who is an officer or director of the Company
(within the meaning of Section 16(b) of the Exchange Act), such Award will
be cancelled in exchange for a payment to the Participant, at the time of
the Participant's Termination of Employment, equal to the Spread multiplied
by the number of shares of Common Stock granted under the Award, plus
interest on such amount at the prime rate compounded annually and
determined from time to time. With respect to any Participant who is an
officer or director of the Company (within the meaning of Section 16(b) of
the Exchange Act), the 60-day period will be extended, if necessary, to
include the "WINDOW PERIOD" of Rule 16(b)-3 which first commences on or
after the date of the Change in Control, and the Committee will have sole
discretion, if necessary, to approve the Participant's exercise hereunder
and the date in which the Spread is calculated may be adjusted, if
necessary, to a later date if necessary to avoid liability to such
Participant under Section 16(b).
11.2 DEFINITION OF CHANGE IN CONTROL. For purposes of this Plan, unless
otherwise specified in the Agreement (or Award Agreement) with respect to the
corresponding Award, a "CHANGE IN CONTROL" will be deemed to have occurred if
(a) any corporation, person or other entity (other than the Company, a
majority-owned subsidiary of the Company or any of its subsidiaries, or an
employee benefit plan (or related trust) sponsored or maintained by the
Company), including a "GROUP" as defined in Section 13(d)(3) of the Securities
Exchange Act of 1934, as amended, becomes the beneficial owner of stock
representing more than eighty percent of the combined voting power of the
Company's then outstanding securities; (b)(i) the stockholders of the Company
approve a definitive agreement to merge or consolidate the Company with or into
another corporation other than a majority-owned subsidiary of the Company, or to
sell or otherwise dispose of all or substantially all of the Company's assets,
and (ii) the persons who were the members of the Board of Directors prior to
such approval do not represent a majority of the directors of the surviving,
resulting or acquiring entity or the parent thereof; or (c) the stockholders of
the Company approve a plan of liquidation of the Company.
11.3 CHANGE IN CONTROL PRICE. For purposes of the Plan, unless otherwise
specified in the Agreement (or Award Agreement) with respect to the
corresponding Award, "CHANGE IN CONTROL PRICE" means the higher of (a) the
highest reported sales price of a share of Common Stock in any transaction
reported on the principal exchange on which such shares are listed or on NASDAQ
during the 60-day period prior to and including the date of a Change in Control
or (b) if the Change in Control is the result of a tender or exchange offer or a
Corporate Transaction, the highest price per share of Common Stock paid in such
tender or exchange offer or a Corporate Transaction, except that, in the case of
Incentive Stock Options and Stock Appreciation Rights relating to Incentive
Stock Options, such price will be based only on the Fair Market Value of the
Common Stock on the date such Incentive Stock Option or Stock Appreciation Right
is exercised. To the extent that the consideration paid in any such transaction
described above consists all or in part of securities or other non-cash
consideration, the value of such securities or other non-cash consideration will
be determined in the sole discretion of the Committee.
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ARTICLE XII
MISCELLANEOUS
12.1 AMENDMENTS AND TERMINATION. The Board may amend, alter, or discontinue the
Plan at any time, but no amendment, alteration or discontinuation may be made
which would (a) impair the rights of a Participant under a Stock Option, Stock
Appreciation Right, Restricted Stock Award or Deferred Stock Award theretofore
granted without the Participant's consent, except such an amendment made to
cause the Plan to qualify for the exemption provided by Rule 16b-3 or (b)
disqualify the Plan from the exemption provided by Rule 16b-3. In addition, no
such amendment may be made without the approval of the Company's stockholders to
the extent such approval is required by law or agreement.
The Committee may amend the Plan at any time provided that (a) no amendment may
impair the rights of any Participant under any Award theretofore granted without
the Participant's consent, (b) no amendment may disqualify the Plan from the
exemption provided by Rule 16b-3 and (c) any amendment may be subject to the
approval or rejection of the Board.
The Committee may amend the terms of any Award or other Award theretofore
granted, prospectively or retroactively, but no such amendment may impair the
rights of any Participant without the Participant's consent, except such an
amendment made to cause the Plan or Award to qualify for the exemption provided
by Rule 16b-3. The Committee may also substitute new Stock Options or Stock
Appreciation Rights for previously granted Stock Options, including previously
granted Stock Options or Stock Appreciation Rights having higher Option Prices
but no such substitution may be made which would impair the rights of the
Participant under such Stock Options or Stock Appreciation Rights theretofore
granted without the Participant's consent.
Subject to the above provisions, the Board will have authority to amend the Plan
to take into account changes in law and tax and accounting rules, as well as
other developments, and to grant Awards which qualify for beneficial treatment
under such rules without stockholder approval.
12.2 UNFUNDED STATUS OF PLAN. It is intended that the Plan be an "UNFUNDED" plan
for incentive and deferred compensation. The Committee may authorize the
creation of trusts or other arrangements to meet the obligations created under
the Plan to deliver Common Stock or make payments; provided, however, that,
unless the Committee otherwise determines, the existence of such trusts or other
arrangements is consistent with the "UNFUNDED" status of the Plan.
12.3 GENERAL PROVISIONS.
(a) REPRESENTATION. The Committee may require each person purchasing or
receiving shares pursuant to an Award to represent to and agree with the
Company in writing that such person is acquiring the shares without a view
to the
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distribution thereof. The certificates for such shares may include any
legend which the Committee deems appropriate to reflect any restrictions on
transfer.
(b) NO ADDITIONAL OBLIGATION. Nothing in the Plan will prevent the Company
or an Affiliate from adopting other or additional compensation arrangements
for its employees.
(c) WITHHOLDING. No later than the date as of which an amount first becomes
includable in the gross income of the Participant for income tax purposes
with respect to any Award, the Participant will pay to the Company (or
other entity identified by the Committee), or make arrangements
satisfactory to the Company or other entity identified by the Committee
regarding the payment of, any Federal, state, local or foreign taxes of any
kind required by law to be withheld with respect to such amount required in
order for the Company or an Affiliate to obtain a current deduction. If the
Participant disposes of shares of Common Stock acquired pursuant to an
Incentive Stock Option in any transaction considered to be a disqualifying
transaction under the Code, the Participant must give written notice of
such transfer and the Company will have the right to deduct any taxes
required by law to be withheld from any amounts otherwise payable to the
Participant. Unless otherwise determined by the Committee, withholding
obligations may be settled with Common Stock, including Common Stock that
is part of the Award that gives rise to the withholding requirement,
provided that any applicable requirements under Section 16 of the Exchange
Act are satisfied. The obligations of the Company under the Plan will be
conditional on such payment or arrangements, and the Company and its
Affiliates will, to the extent permitted by law, have the right to deduct
any such taxes from any payment otherwise due to the Participant.
(d) REINVESTMENT. The reinvestment of dividends in additional Deferred or
Restricted Stock at the time of any dividend payment will only be
permissible if sufficient shares of Common Stock are available under the
Plan for such reinvestment (taking into account then outstanding Options
and other Awards).
(e) REPRESENTATION. The Committee will establish such procedures as it
deems appropriate for a Participant to designate a Representative to whom
any amounts payable in the event of the Participant's death are to be paid.
(f) CONTROLLING LAW. The Plan and all Awards made and actions taken
thereunder will be governed by and construed in accordance with the laws of
the State of Illinois (other than its law respecting choice of law) except
to the extent the General Corporation Law of the State of Delaware would be
mandatorily applicable. The Plan will be construed to comply with all
applicable law and to avoid liability to the Company, an Affiliate or a
Participant, including, without limitation, liability under Section 16(b)
of the Exchange Act.
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(g) OFFSET. Any amounts owed to the Company or an Affiliate by the
Participant of whatever nature may be offset by the Company from the value
of any shares of Common Stock, cash or other thing of value under this Plan
or an Agreement to be transferred to the Participant, and no shares of
Common Stock, cash or other thing of value under this Plan or an Agreement
will be transferred unless and until all disputes between the Company and
the Participant have been fully and finally resolved and the Participant
has waived all claims to such against the Company or an Affiliate.
12.4 MITIGATION OF EXCISE TAX. If any payment or right accruing to a Participant
under this Plan (without the application of this Section 12.4), either alone or
together with other payments or rights accruing to the Participant from the
Company or an Affiliate ("TOTAL PAYMENTS") would constitute a "PARACHUTE
PAYMENT" (as defined in Section 280G of the Code and regulations thereunder),
such payment or right will be reduced to the largest amount or greatest right
that will result in no portion of the amount payable or right accruing under the
Plan being subject to an excise tax under Section 4999 of the Code or being
disallowed as a deduction under Section 280G of the Code. The determination of
whether any reduction in the rights or payments under this Plan is to apply will
be made by the Committee in good faith after consultation with the Participant,
and such determination will be conclusive and binding on the Participant. The
Participant will cooperate in good faith with the Committee in making such
determination and providing the necessary information for this purpose. The
foregoing provisions of this Section 12.4 will apply with respect to any person
only if, after reduction for any applicable federal excise tax imposed by
Section 4999 of the Code and federal income tax imposed by the Code, the Total
Payments accruing to such person would be less than the amount of the Total
Payments as reduced, if applicable, under the foregoing provisions of the Plan
and after reduction for only federal income taxes.
12.5 RIGHTS WITH RESPECT TO CONTINUANCE OF EMPLOYMENT. Nothing in this Plan will
be deemed to alter the relationship between the Company or an Affiliate and a
Participant, or the contractual relationship between a Participant and the
Company or an Affiliate if there is a written contract regarding such
relationship. Nothing in this Plan will be construed to constitute a contract of
employment between the Company or an Affiliate and a Participant. The Company or
an Affiliate and each of the Participants continue to have the right to
terminate the employment or service relationship at any time for any reason,
except as provided in a written contract. The Company or an Affiliate will have
no obligation to retain the Participant in its employ or service as a result of
this Plan. There will be no inference as to the length of employment or service
hereby, and the Company or an Affiliate reserves the same rights to terminate
the Participant's employment or service as existed prior to the individual
becoming a Participant in this Plan.
12.6 AWARDS IN SUBSTITUTION FOR AWARDS GRANTED BY OTHER CORPORATIONS. Awards may
be granted under the Plan from time to time in substitution for awards held by
employees, directors or service providers of other corporations who are about to
become officers, directors or employees of the Company or an Affiliate as the
result of a merger or consolidation of the employing corporation with the
Company or an Affiliate, or the acquisition by the Company or an Affiliate of
the assets of the employing corporation, or the acquisition by the Company or
-23-
<PAGE>
Affiliate of the stock of the employing corporation, as the result of which it
becomes a designated employer under the Plan. The terms and conditions of the
Awards so granted may vary from the terms and conditions set forth in this Plan
at the time of such grant as the majority of the members of the Committee may
deem appropriate to conform, in whole or in part, to the provisions of the
awards in substitution for which they are granted.
12.7 PROCEDURE FOR ADOPTION. Any Affiliate of the Company may by resolution of
such Affiliate's board of directors, with the consent of the Board of Directors
and subject to such conditions as may be imposed by the Board of Directors,
adopt the Plan for the benefit of its employees as of the date specified in the
board resolution.
12.8 PROCEDURE FOR WITHDRAWAL. Any Affiliate which has adopted the Plan may, by
resolution of the board of directors of such Affiliate, with the consent of the
Board of Directors and subject to such conditions as may be imposed by the Board
of Directors, terminate its adoption of the Plan.
12.9 DELAY. If at the time a Participant incurs a Termination of Employment
(other than due to Cause) or if at the time of a Change in Control, the
Participant is subject to "SHORT-SWING" liability under Section 16 of the
Exchange Act, any time period provided for under the Plan or an Agreement to the
extent necessary to avoid the imposition of liability will be suspended and
delayed during the period the Participant would be subject to such liability,
but not more than six months and one day and not to exceed the Option Period, or
the period for exercise of a Stock Appreciation Right as provided in the
Agreement, whichever is shorter. The Company will have the right to suspend or
delay any time period described in the Plan or an Agreement if the Committee
determines that the action may constitute a violation of any law or result in
liability under any law to the Company, an Affiliate or a stockholder of the
Company until such time as the action required or permitted will not constitute
a violation of law or result in liability to the Company, an Affiliate or a
stockholder of the Company. The Committee will have the discretion to suspend
the application of the provisions of the Plan required solely to comply with
Rule 16b- 3 if the Committee determines that Rule 16b-3 does not apply to the
Plan.
12.10 HEADINGS. The headings in this Plan are for reference purposes only and
will not affect the meaning or interpretation of this Plan.
12.11 SEVERABILITY. If any provision of this Plan is for any reason held to be
invalid or unenforceable, such invalidity or unenforceability will not affect
any other provision of this Plan, and this Plan will be construed as if such
invalid or unenforceable provision were omitted.
12.12 SUCCESSORS AND ASSIGNS. This Plan will inure to the benefit of and be
binding upon each successor and assign of the Company. All obligations imposed
upon a Participant, and all rights granted to the Company hereunder, will be
binding upon the Participant's heirs, legal representatives and successors.
-24-
<PAGE>
12.13 ENTIRE AGREEMENT. This Plan and the Agreement constitute the entire
agreement with respect to the subject matter hereof and thereof, provided that
in the event of any inconsistency between the Plan and the Agreement, the terms
and conditions of this Plan will control.
<PAGE>
TABLE OF CONTENTS
PAGE
EXHIBIIT 10.6
CENTURA. COMMERCIAL NOTE
UNSECURED/SECURED
- -------------------------
CUSTOMER NO. Winston-Salem , NC
- -------------------------
- -------------------------
NOTE NO. July 21, 1997
- -------------------------
$1,500,000.00
__
/_/ Master Note
- -------------------------------------------------------------------------------
FOR VALUE RECEIVED, the undersigned, jointly and severally, promise(s) to pay to
CENTURA BANK ("Bank"), or order, the sum of ONE MILLION FIVE HUNDRED THOUSAND
AND 00/100---------------------------------------------------------------------
Dollars ($1,500,000.00) or so much as shall have been disbursed from time to
time and remains unpaid, including or together with interest at the rate and
payable in the manner hereinafter stated. Principal and interest shall be
payable at any banking office of Bank in the city or town indicated above, or
such other place as the holder of this Note may designate.
- -------------------------------------------------------------------------------
INTEREST RATE (ONE OF THE FOLLOWING MUST BE SELECTED. TERMS APPEARING NEXT TO
BLOCKS NOT CHECKED ARE DELETED.) All payments made on this Note will be applied
first to accrued interest and then to principal. Interest will accrue on the
unpaid principal balance at the rate set forth below until maturity and will
accrue on any unpaid interest before maturity and on any unpaid balance after
maturity as set forth on the reverse side of this Note. Interest payable on this
Note per annum will be at the rate of:
<TABLE>
<CAPTION>
<S> <C> <C>
/_/ Centura Index Rate +--------------------- /_/ Centura Prime Rate +---------------------% /_/ ------------------------% Fixed
/_/ Business Base Rate +---------------------% |X| Wall Street Journal Prime + 0.00% /_/ Other --------------------
</TABLE>
- ------------------------------------------------------------------------------
"Centura Index Rate" and "Centura Prime Rate" are Bank's variable rate base
indices and are defined on the reverse side hereof.
<TABLE>
<CAPTION>
<S> <C> <C>
Interest will be calculated on the basis of: |X| Actual days/360 day year /_/ Actual days/365 day year /_/ Other ----------------
</TABLE>
Adjustments to rates subject to change will be made without prior notice at the
sole option of Bank and will be effective:
|X| *As of the date the rate changes. /_/ Other ---------------------------
(Asterisked term selected if no term checked.)
- -------------------------------------------------------------------------------
PRINCIPAL PAYMENTS TERMS (ONE OF THE FOLLOWING MUST BE SELECTED. PAYMENT TERMS
NOT CHECKED ARE DELETED.) Principal (and interest if indicated under Interest
and Payment Terms below) shall be payable as follows:
/_/ Payable on demand, or on _______________________________, 19_____ if demand
is not sooner made (the time of payment is herein referred to as "Maturity").
|X| Payable in one single payment on JANUARY 21, 1997 (herein referred to as
"Maturity").
/_/ Payable in _______________________ equal consecutive _______________________
payments of $_______________________________ each, commencing
(monthly, quarterly, semi-annual, etc.)
on ______________________________________, 19___ and on the same day of each
such calendar period thereafter and one final payment of the entire balance due
on ______________________________________, 19___ (herein referred to as
"Maturity").
/_/ Other -------------------------------------------------------------------
- ------------------------------------------------------------------------------
INTEREST PAYMENT TERMS (ONE OF THE FOLLOWING MUST BE SELECTED. PAYMENT TERMS NOT
CHECKED ARE DELETED.) Interest shall be payable as follows:
|X| Payable QUARTERLY beginning ----------------------------------- OCTOBER 1,
1997 and consecutively on the same -------------------------------- --
calendar day of each such calendar day of each such calendar period thereafter.
/_/ The payment amount selected above under "PRINCIPAL PAYMENT TERMS' includes
interest.
- -------------------------------------------------------------------------------
PREPAYMENT (ONE OF THE FOLLOWING MUST BE SELECTED. PREPAYMENT TERM NOT CHECKED
IS DELETED. ASTERISKED TERM SELECTED IF NO TERM CHECKED.)
|X| *This Note may be prepaid in whole or in part at any time
without any fee.
/_/ This Note may be prepaid in whole or in part at any time only on payment of
the following fee:------------------------------------------------------
- --------------------------------------------------------------------------------
LOAN AGREEMENT AND SECURITY (ONE OR MORE OF THE FOLLOWING MUST BE SELECTED. LOAN
AGREEMENT AND SECURITY TERMS APPEARING NEXT TO BLOCKS NOT CHECKED ARE DELETED.)
/_/ The Bank and undersigned have entered into a Loan Agreement dated
- --------------------------------------------------------------------------
/_/ UNSECURED. This Note is unsecured except as provided in the Loan Agreement,
if any, and in paragraphs 1 and 2 below.
|X| SECURED. This Note is secured by collateral described in the following
security instruments: /_/ Assignment of Life Insurance dated /_/ Assignment of
Time Deposit dated _______________________ /_/ Deed of Trust dated
________________ covering:
- -----------------------------------------------------------------------------
|X| Collateral Pledge and Security Agreement dated 10-10-96 covering: 61,303
shares of Omega Healthcare Investor, Inc.
/_/ Security Agreement dated _________________________ covering:
- ---------------------------------------------------------------------------
/_/ Other---------------------------------------------------------------------
1) At maturity of this Note, or upon default, Bank is authorized and empowered
to apply to the payment hereof, any and all money deposited in Bank in the
name of or to the credit of each party, without advance notice, and is
authorized to offset any obligation of Bank to any party to the payment
hereof.
2) Collateral securing other loans of each party with Bank may also secure this
loan and this loan may also be supported by separate Guaranty Agreement(s).
- -------------------------------------------------------------------------------
ADDITIONAL TERMS: THIS NOTE IS SUBJECT TO THE ADDITIONAL TERMS AND PROVISIONS
CONTAINED ON THE REVERSE SIDE, WHICH ARE EXPRESSLY MADE A PART OF THIS NOTE BY
REFERENCE
IN WITNESS WHEREOF, this Note is executed (i) if by individuals, by
hereunto setting their hands under seal by adoption of the word "SEAL" appearing
next to the individuals' names, (ii) if by a corporation, by the duly authorized
officer(s) of the corporation on its behalf under seal by adoption of the
facsimile seal printed hereon for such purpose or, if an impression seal appears
hereon, by affixing such impression seal, or (iii) if by a partnership, by the
duly authorized partner(s) of the partnership on its behalf under seal by
adoption of the word "SEAL" appearing next to the name of the partnership and/or
the signatures of the partner(s), on the day and year first above written.
---------------
________________________(SEAL) CUSTOMER NUMBER DIVERSIFIED CUSTOMER
(INDIVIDUAL) SENIOR SERVICES, NUMBER
INC. (SEAL)
(PARTNERSHIP OR
CORPORATION)
<PAGE>
---------------
________________________(SEAL) CUSTOMER NUMBER
(INDIVIDUAL) By: S// ( SEAL)
--------------------------------
Vice President/CFO
---------------
________________________(SEAL) CUSTOMER NUMBER
INDIVIDUAL) By: S// ( SEAL)
--------------------------------
(Title)
________________________(SEAL) CUSTOMER NUMBER Attest: CORP.
(INDIVIDUAL) S// SEAL
--------------------------------
Secretary
DEFAULT Any of the following shall constitute an event of default:
(1) the failure to make when due any payment described
herein, whether of principal, interest or otherwise; (2) the
failure of any party hereto to perform any of the terms and
conditions written into the Loan Agreement or security
instrument(s) securing this Note or any guaranty agreement
or security instrument(s) securing such guaranty agreement
which apply to this Note; (3) the death, dissolution,
merger, consolidation or termination of existence of any
party; or if any party is a corporation with thirty-five
(35) or fewer shareholders, the aggregate transfer(s) of
voting shares in such party whereby persons or entities not
owning on the date hereof, singly or in the aggregate, 50%
or more of the voting shares of such party, become the
owner(s), singly or in the aggregate, of 50% or more of such
voting shares, or if such party is a limited or general
partnership, any change in general partnership interest(s)
in such party; (4) the application for the appointment of a
receiver for any party or the filing of a petition under any
provisions of the Bankruptcy Code or Act by or against any
party or any assignment for the benefit of creditors by or
against any party; (5) the failure of any party to furnish
from time to time, at the Bank's request, financial
information with respect to such party; (6) a determination
by Bank that it deems itself insecure or that an adverse
change in the financial condition of any party has occurred
since the date hereof; (7) the failure of any party to
perform any other obligation to Bank; (8) the termination of
any guaranty agreement which applies to this Note.
LATE CHARGES,
EXPENSES AND
ACCELERATION Each party agrees to pay any late charges permitted by
applicable law that Bank may, in its discretion, charge for
late payments. If this Note is not paid in full whenever it
becomes due and payable, each party agrees to pay all costs
and expenses of collection, including a reasonable
attorney's fee in the amount of (15) percent of the then
outstanding balance. Upon the occurrence of an event of
default, the entire unpaid balance of this Note shall, at
the option of Bank, become immediately due and payable,
without notice or demand. Failure to exercise the option to
accelerate shall not constitute a waiver of the right to
exercise same in the event of any subsequent default.
INTEREST Upon the nonpayment of any payment of interest described
herein, the Bank, at its option and without accelerating
this Note, may accrue interest on such unpaid interest at
the rate(s) applicable hereunder from time to time until
maturity of this Note. After maturity of this Note, whether
by acceleration or otherwise, interest will accrue on the
unpaid principal of this Note and any accrued but unpaid
interest at the contract rate provided for herein until this
Note is paid in full. After entry of judgment, interest
shall accrue at the contract rate provided for herein,
provided however, if the loan evidenced by this Note was
extended for personal, family, household or agricultural
purposes, interest shall be at the legal rate as in effect
from time to time not to exceed the contract rate. The
purpose of the loan represented by Borrower to Bank on the
application for this loan shall control the interest rate
charged after judgment.
THIS IS A VARIABLE RATE NOTE, unless denoted as a fixed rate
note. Any change in the contract rate of interest will equal
the change in the variable rate index to which the contract
rate is tied, but will not exceed the maximum contract rate
permitted by applicable law, or the maximum rate specified
on the form of this Note, if any, whichever is lower.
The "Centura Prime Rate" is one of the Bank's variable rate
base indices for credit extensions and is set by Bank at its
discretion based on the Bank's perception of market interest
rate levels, trends and a general economic conditions. It is
not tied to any specific index published by any third party
and is not represented by Bank to be the lowest rate at
which Bank extends credit.
The "Business Base Rate" is one of the Bank's variable rate
base indices for credit extensions and is set by Bank at its
discretion based on the bank's perception of market interest
rate levels and trends for commercial loans to small
business borrowers and on general economic conditions. It is
not tied to any specific index published by any third party.
It is not the same as and it is not tied to the Centura
Prime Rate. It will typically be higher than the Centura
Prime Rate.
The "Centura Index Rate" is one of the Bank's variable rate
base indices for credit extensions and is set by Bank at its
discretion based on the Bank's cost of funds and on the
Bank's perception of market interest rate levels, trends and
general economic conditions. It is not tied to any specific
index published by any third party. It is not the same as
and it is not tied to the Centura Prime Rate. It will
typically be higher than the Centura Prime Rate.
The "Wall Street Journal Prime Rate" is defined as that
interest rate listed as the PRIME RATE as published each
business day in the Money Rates guide in the Money &
investing section of The Wall Street Journal, Eastern
Edition (if more than one rate is listed, the lowest rate
will be used). The Wall Street Journal Prime Rate is not
represented by Bank to be the lowest rate at which Bank
extends credit. Borrower understands that Bank may make
other loans based on other indices as well.
WAIVER Each party waives presentment, demand, protest and notice of
dishonor, waives any rights which they may have to require
Bank to proceed against any other person or property, agrees
that without notice to any party and without affecting any
party's liability, Bank, at any time or times, may grant
extension of the time for payment or other indulgences to
any party or permit the renewal, amendment or modification
of this Note, the Loan Agreement or security instrument(s),
or permit the substitution, exchange or release of any
security for this Note and may add or release any party
primarily or secondarily liable, and agrees that Bank may
apply all moneys made available to it from any party of the
proceeds from the disposition of any security for this Note
either to this Note or to any other obligation of any of the
parties to Bank, as Bank may elect from time to time.
PARTIES Each signatory of this Note is herein sometimes referred to
as "Party" or collectively as "Parties" and each agrees to
be liable hereunder jointly and severally. This Note shall
apply to and bind each party's heirs, personal
representatives, successors and assigns. All references in
this Note to Bank shall include the holder thereof and this
Note shall inure to the benefit of any holder, its
successors and assigns. Each party acknowledges that
Customer Numbers may be added to this Note at the places
indicated after execution of this Note by the parties and
that the information under the heading "BANK USE ONLY" may
also be completed by Bank after execution of this Note by
the parties. Each party agrees to Bank inserting Customer
Numbers and the information under the heading "BANK USE
ONLY" after execution of this Note by the party and that the
insertion of such information shall not affect the validity
of this Note or the liability of each party hereunder. In
addition, in the event the date of the Note is omitted from
the upper right corner on the obverse side hereof, each
party consents that the Bank may insert the date for
administrative purposes of identifying the Note and that
this consent is without prejudice to any party's right to
dispute the accuracy of the date so inserted. However, such
insertion shall not affect the validity of this Note or the
liability of each party hereunder.
<PAGE>
PARTIES' DUE
DILIGENCE All parties hereto acknowledge and represent that they have
relied upon their own due diligence in making their own
independent evaluations of the purposes for which the
proceeds of this Note will be used and the business affairs
and financial condition of all parties hereto, and they will
continue to be responsible for making their own appraisals
of such matters. The parties hereto have not relied upon and
will not hereafter rely upon Bank for such information for
such appraisal or other assessment or review and, further,
will not rely upon any such information which may not or
hereafter be prepared by Bank for any appraisals regarding
the purposes for which the proceeds of this Note will be
used or the parties hereto.
CREDIT The Bank is authorized to investigate from time to
INVESTIGATION time the credit of each party and to answer questions
relating to the Bank's credit experience with each party.
MASTER NOTE If this Note is designated on its face as a MASTER NOTE,
then this Note evidences a revolving line of credit under
the Loan Agreement or security instrument(s) and each party
shall be liable for only so much of the principal amount as
shall be equal to the total of the amounts advanced to or
for each party by the Bank from time to time less all
payments made by or for each party and applied by the Bank
to principal, and for interest on each such advance, all as
shown on Bank's books and records which shall be prima facie
evidence of the amount owned.
- -------------------------------------------------------------------------------
BANK USE ONLY (THIS SECTION IS NOT A For Real Estate Loans Only
PART OF THIS NOTE)
City #_____________ Branch # Collateral Location Code
_____________ Officer _____________
Comp. Call Code * _____________ Collateral Type Code
Purpose Code _____________
Loan Grade ____ CRA Code _____ SIC Conforming/Nonconforming
Code _____ (mark either C or N)
*Loans secured by real estate should
have a Real Estate Comp. Call Code.
Tied to Line ( ) Yes ( ) No #
___________ Revolving Note ( ) Yes
( ) No
Appraised Value
Participation Purchased ( ) Yes ( $___________________________
) No Correspondent # _______________ 1 - Revenues * $1 million
___ 2-Revenues * $1 million
---
Business/property address:
------------------------------
Amount Advanced $_____________
Effective Date __________________ ______________________________
<TABLE>
<CAPTION>
GUARANTEED BY:
Name Customer # Notice Percent
<S> <C> <C> <C>
========================== ========================== ========================== ==========================
========================== ========================== ========================== ==========================
</TABLE>
<PAGE>
CENTURA. UNCONDITIONAL GUARANTY
JULY 21, 1997
(Date of Execution and Delivery)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
OBLIGOR(S): DIVERSIFIED SENIOR SERVICES, INC. 915 WEST FOURTH STREET, WINSTON-SALEM, FORSYTH NC
_____________________________________________________________________________________________________________________
(Print Full Name) (No. Street or RFD) (City) (County) (State)
GUARANTOR(S):TAYLOR HOUSE ENTERPRISES, LTD. 915 WEST FOURTH STREET WINSTON-SALEM, FORSYTH NC
_____________________________________________________________________________________________________________________
(Print Full Names) (No. Street or RFD) (City) (County) (State)
OBLIGEE: CENTURA BANK: PO BOX 5039, 2150 COUNTRY CLUB ROAD, WINSTON-SALEM, FORSYTH NC
______________________________________________________________________________________________________________________
(Mailing Address)(No. and Street) (City) (County) (State)
</TABLE>
WHEREAS, the above OBLIGOR(S) (hereinafter jointly and severally termed
"CUSTOMER") desire(s) to obtain extensions of credit and/or a continuation of
credit extensions and/or to engage in business transactions and enter into
various contractual relationships and otherwise to deal with CENTURA BANK
(hereinafter termed "BANK"); and
WHEREAS, BANK is unwilling to extend or continue to extend credit to and/or to
engage in business transactions and entire into various contractual
relationships with, and otherwise to deal with CUSTOMER; unless it receives an
unconditional continuing, joint and several guaranty from the above identified,
undersigned GUARANTOR(S) (each, any and all of whom are hereinafter termed
"GUARANTOR"), covering all "Obligations of CUSTOMER," as hereinafter defined.
NOW THEREFORE, in connection of, the premises and of other good and valuable
consideration, and IN ORDER TO INDUCE BANK, from time to time, in its sole
discretion TO EXTEND OR CONTINUE TO EXTEND CREDIT (with or without security) TO
AND/OR TO ENGAGE IN BUSINESS TRANSACTIONS AND ENTER INTO VARIOUS CONTRACTUAL
RELATIONSHIPS WITH CUSTOMER (without limiting the generality of the foregoing,
this Guaranty is being given in order to induce BANK to lease and/or sell real,
personal and/or mixed property to CUSTOMER, to purchase or discount any
Acceptances, Accounts, Chattel Paper, Checks, Contracts, Contract Rights,
Drafts, General Intangibles, Instruments, Investment Securities, Land Contracts,
Purchase Money Security Agreements (Conditional Sale Contracts of real and/or
personal property), Real and/or Personal Property Leases, or any other
instruments or evidences of indebtedness (with or without recourse) upon which
CUSTOMER, jointly or severally, is or may be liable as maker, co-maker,
indorser, acceptor, guarantor, surety or otherwise AND OTHERWISE TO DEAL WITH
CUSTOMER), GUARANTOR (jointly and severally, if more than one) HEREBY ABSOLUTELY
AND UNCONDITIONALLY GUARANTEES TO BANK and its successors and assigns, THE DUE
AND PUNCTUAL PAYMENT OF ALL INDEBTEDNESS, OBLIGATIONS AND LIABILITIES OF SAID
CUSTOMER TO BANK, and all claims of BANK, against the CUSTOMER primary or
secondary (whether by way of indorsement or otherwise), whether now existing or
hereafter arising, whether arising out of contract(s), tort(s) or otherwise,
whether created directly with BANK or acquired by BANK through assignment,
indorsement or otherwise; whether matured or unmatured; whether absolute or
contingent; whether joint or several; whether secured or unsecured; whether
monetary or nonmonetary; whether liquidated or unliquidated, as and when the
same become due and payable (whether by acceleration or otherwise), in
accordance with the terms of any instruments, accounts receivable, security
agreements, land and/or other contracts, drafts, leases, chattel paper, debts,
obligations or liabilities evidencing any such indebtedness, obligations,
liabilities, or claims, including all renewals, extensions, substitutions and/or
modifications thereof (all indebtedness, obligations and liabilities of the
CUSTOMER to BANK and claims of BANK against CUSTOMER, including all of the
foregoing, being hereinafter collectively termed "Obligations of CUSTOMER")
PROVIDED, HOWEVER, THAT the maximum liability, jointly and severally, of the
undersigned GUARANTORS hereunder, at any one time outstanding, with respect to
the aggregate principal amount of the "Obligations of CUSTOMER," shall not
exceed the sum of money here specified, plus all interest or Financing Charges
thereon, Costs of Court, default interest thereon, late payment charges and the
reasonable attorney's fees of BANK, TO WIT:
ONE MILLION FIVE HUNDRED THOUSAND AND 00/100 ($1,500,000.00).
- -------------------------------------------------------------------------------
FURTHER if the Obligations of CUSTOMER or this Guaranty are referred to an
attorney-at-law, including BANK'S in-house counsel, for collection, whether or
not suit is commenced, Guarantor expressly hereby agrees to pay all legal
expenses and the reasonable attorneys' fees. GUARANTOR hereby stipulates and
agrees that, if suit is instituted, 15% of the total amount(s) due hereunder and
remaining unpaid at the time suit is instituted by BANK shall be deemed to be
the "reasonable attorneys' fees."
In order to implement the foregoing and as additional inducements to BANK,
GUARANTOR further covenants and agrees:
1. This guaranty is and shall remain an unconditional and continuing guaranty
of payment and not of collection, shall remain in full force and effect
irrespective of any interruption(s) in the business or other dealings and
relations of CUSTOMER with BANK and shall apply to and guarantee the due and
punctual payment of all "Obligations of CUSTOMER" due by CUSTOMER to BANK. To
that end, GUARANTOR hereby expressly waives any right to require BANK to bring
any action against any CUSTOMER or any other person(s) or to require that resort
be had to any security or to any balance(s) of any deposit or other account(s)
or debt(s) or credit(s) on the books of BANK in favor of CUSTOMER or any other
person(s) and without limiting the generality of the foregoing, undersigned
GUARANTOR herewith expressly waives any rights he otherwise might have had under
the provisions of G.S. SS.26.7, ET SEQ. and/or other North Carolina Laws to
require BANK to attempt to recover against CUSTOMER and/or to realize upon any
securities or collateral security which BANK holds for the Obligations of
CUSTOMER. Any GUARANTOR may, by a WRITTEN NOTICE, delivered personally to or
received by certified or registered United States Mail by an Officer of BANK
actually involved in the transactions being guaranteed hereby, at the address of
BANK first above given, terminate this Guaranty with respect to all "Obligations
of CUSTOMER" incurred or contracted by CUSTOMER, acquired by BANK, or otherwise
arising more than thirty (30) business days after the date on which such WRITTEN
NOTICE is so delivered to or received by said BANK officer. Such written notice
of termination shall be the sole and exclusive method for terminating this
Guaranty as to future Obligations of CUSTOMER and notwithstanding termination,
this Guaranty and all security given for this Guaranty and/or the Obligations of
CUSTOMER shall remain in full force and effect as to all Obligations of CUSTOMER
incurred, existing, or arising in any
<PAGE>
manner pre-termination, incuding, without limitation, all Obligations of
CUSTOMER arising under loan commitments which exist pre-termination and all
Obligations of CUSTOMER under lines of credit and/or revolving lines of credit
for advances both pre- and post-termination.
2. TIME IS OF THE ESSENCE HEREOF. Any notice(s) to GUARANTOR shall be
sufficiently given, if mailed to the first above stated address(es) of
GUARANTOR.
3. This Guaranty Agreement constitutes the ENTIRE AGREEMENT between the
parties with respect to this Guaranty, and no waivers or modifications shall be
valid unless they are reduced to writing, duly executed by the party to be
charged thereby, and expressly approved in writing by an Officer of BANK
actually involved in the transactions being guaranteed hereby. This Guaranty
does not terminate, cancel, supersede, renew, or substitute for any existing
guarantee to BANK by any GUARANTOR, unless expressly provided herein, and the
execution and delivery hereafter to BANK by any GUARANTOR of a new guarantee
shall not terminate, cancel, supersede, or be a renewal or substitution for this
Guaranty, unless expressly provided therein, and all rights and remedies of BANK
hereunder, under any existing guarantee, or under any guarantee hereafter given
to BANK by any GUARANTOR shall be cumulative and may be enforced singly or
concurrently.
4. If any process is issued or ordered to be served upon BANK, seeking to
seize CUSTOMER'S and/or GUARANTOR'S rights and/or interests in any bank
account(s), such bank account(s) shall be deemed to have been and shall be
set-off against any and all "Obligations of CUSTOMER" and/or all obligations and
liabilities of GUARANTOR hereunder, as of the time of the issuance of any such
writ or process, whether or not CUSTOMER, GUARANTOR and/or BANK shall then have
been served with notice therewith.
5. All moneys available to and/or received by BANK for application toward
payment of (or reduction of) the "Obligations of CUSTOMER" may be applied by
BANK to such individual debt(s) in such manner, and apportioned in such
amount(s) and at such time(s), as BANK, in its sole discretion, may deem
suitable or desirable.
6. As security for any and all liabilities of GUARANTOR hereunder, now
existing or hereafter arising, GUARANTOR hereby grants BANK a security interest
in any and all moneys or other property (i.e., goods and merchandise, as well as
all documents relative thereto, also, funds, investment securities, chooses in
action and any and all other forms of property, whether real, personal or mixed,
and any right, title, or interest of GUARANTOR therein or thereto) and/or the
proceeds thereof, which have been or may hereafter be, deposited or left with
BANK (or with any agent or other third party acting on BANK'S behalf) by or for
the account or credit of GUARANTOR, including (without limitation of the
foregoing), any property in which GUARANTOR may have any interest. Further,
where any obligation of GUARANTOR is due and unpaid BANK hereunder, BANK is
herewith authorized to exercise its right of Set-Off or "Bank Lien" as to any
moneys deposited in demand, checking, time, savings, or other accounts or any
nature maintained in and with it by any of the undersigned, without advance
notice. Such right of Set-Off shall also be applicable and exercised by BANK, in
its sole discretion, where BANK is indebted to any GUARANTOR by reason of any
Certificate(s) of Deposit, Bond(s), Note(s) or otherwise.
7. GUARANTOR acknowledges that any termination of liability hereunder, as
provided for in paragraph 1 above shall not terminate this Guaranty as to
existing Obligations of CUSTOMER nor release GUARANTOR from full liability for
"Obligations of CUSTOMER" hereby guaranteed and then in existence including,
without limitation, all Obligations of CUSTOMER arising under loan commitments
which exist pre-termination and all Obligations of CUSTOMER under lines of
credit and for revolving lines of credit for advances subsequent to the
effective date of termination, or from full liability for renewal(s) or
extension(s) of the "Obligations of CUSTOMER" in whole or in part, whether such
renewals or extensions are made before or after the effective date of such
termination, and with or without notice to GUARANTOR, and for substitution
therefor, or modifications thereof.
8. The termination of the Guaranty by one or more GUARANTORS, or the release,
settlement or compromise by BANK with respect to any one or more GUARANTORS,
shall not affect the obligations of liability of the remaining GUARANTORS
hereunder, and as to the remaining GUARANTORS, this Guaranty shall continue in
effect as if such GUARANTORS had been the only GUARANTORS executing this
Guaranty.
9. GUARANTOR agrees that his liability hereunder shall not be diminished by
any failure on the part of BANK to prefect or continue perfection of (by filing,
recording or otherwise) any security interest(s) it may have in any property
securing this Unconditional Guaranty and/or the "Obligations of CUSTOMER"
secured hereby and hereunder.
10. GUARANTOR further hereby consents and agrees that BANK may at any time,
or from time to time, in its sole discretion: (i) renew, extend or otherwise
change the time of payment, and/or the manner, place or terms of payment of any
or all of the "Obligations of CUSTOMER" or otherwise modify the Obligations of
CUSTOMER; (ii) grant indulgences generally from time to time to the CUSTOMER
and/or any other person liable for the "Obligations of CUSTOMER"; (iii)
exchange, release and/or surrender all or any of the collateral security, or any
part(s) thereof, by whomsoever deposited, which is or may hereafter be held by
it or in which it has a lien or security interest in connection with all or any
of the "Obligations of CUSTOMER" and/or any liabilities or obligations of
GUARANTOR hereunder; (iv) sell or otherwise dispose of and/or purchase all or
any of any such collateral at public or private sale, or to or through any
Investment Securities Broker, and after deducting all costs and expenses of
every kind for collection, preparation for sale, sale or delivery, the net
proceeds of any such sale(s) or other disposition may be applied by BANK upon
all or any of the "Obligations of CUSTOMER"; and (v) settle or compromise with
the Customer, any insurance carrier and/or any other person(s) liable thereon,
any and all of the "Obligations of CUSTOMER," and/or subordinate the payment of
all or any part of same, to the payment of any other debts or claims, which may
at any time(s) be due or owing to BANK and/or any other persons(s); all in such
manner and upon such terms as BANK may deem proper and/or desirable, and without
notice to or further assent from GUARANTOR, it being agreed that GUARANTOR shall
be and remain bound upon this Unconditional Guaranty, irrespective of the
existence, value or condition of any collateral, or the impairment of any
collateral (to include, without limitation, failure to perfect a security
interest in collateral), or the unenforceability of any of the Obligations of
CUSTOMER or the discharge of or release of CUSTOMER from liability for any of
the Obligations of CUSTOMER and notwithstanding any such change, exchange,
settlement, compromise, surrender, release, sale or other disposition,
application, renewal or extension and notwithstanding also that the "Obligations
of CUSTOMER" may at any time(s) exceed the aggregate principal sum hereinabove
prescribed (if any such limiting sum appears). If BANK should request GUARANTOR
to consent to any of the foregoing, such request and/or consent by GUARANTOR
shall not constitute a waiver by BANK of the provisions of this paragraph which
permit such actions without GUARANTOR's consent, nor of any other provision of
this Guaranty relating to acts or inactions of BANK and such request and/or
consent shall not create a course of dealing between BANK and GUARANTOR that
would require the consent of GUARANTOR to any of the foregoing in the future.
Further, this Guaranty shall not be construed to impose any obligation on BANK
to extend or continue to extend credit or otherwise deal with CUSTOMER at any
time.
11. If CUSTOMER is an organization, this Guaranty covers all "Obligations of
CUSTOMER" purporting to be created or undertaken on behalf of such organization
by any officer, partner, manager or agent of such organization, without regard
to the actual authority of any such officer, partner, manager or agent, whether
or not corporate or partnership resolutions, proper or otherwise, are given by
any CUSTOMER to BANK, and/or whether or not such purported organizations are
legally chartered or organized.
<PAGE>
12. This Unconditional Continuing Guaranty shall be binding upon GUARANTOR,
and the heirs, executors, administrators, successors and assigns of GUARANTOR;
and it shall inure to the benefit of, and be enforceable by BANK, and its
successors, transferees and assigns. The death of GUARANTOR shall not terminate
any liability hereunder. This Unconditional Guaranty shall remain in force after
GUARANTOR's death until written notice of termination, sent by a legal
representative of GUARANTOR, is received by BANK as set forth in paragraph 1
above and such termination shall be limited as provided in paragraphs 1 and 7
above.
13. This Unconditional Guaranty shall be deemed to have been made under and
shall be governed by the Laws of the State of North Carolina in all respects,
including matters of construction, validity and performance. Further, all terms
of expressions contained herein which are defined in Articles 1, 3, or 9 of the
North Carolina Uniform Commercial Code shall have the same meaning herein as in
said Articles of said Code.
14. No waiver by BANK of any default(s) by GUARANTOR or CUSTOMER shall
operate as a waiver of any other default or of the same default on a future
occasion. If more than one person has signed this Guaranty, such parties are
jointly and severely obligated hereunder. Further, use of the masculine of
neuter pronoun herein shall include the masculine, feminine OR neuter, and also
the plural. The term "GUARANTOR," as used herein, shall (if signed by more than
one person) mean the "GUARANTORS and each of them." If any GUARANTOR shall be a
partnership, the obligations, liabilities and agreements on the part of such
GUARANTOR shall remain in full force and effect and fully applicable
notwithstanding any changes in the individuals composing the partnership.
Further, the "GUARANTOR" shall include in such event any altered or successive
partnerships, it being also understood that the predecessor partnership(s) and
their partners shall not thereby be released from any obligations or liabilities
hereunder, BANK, or any other holder hereof, may correct patent errors in this
Guaranty.
15. GUARANTOR hereby waives: (i) notice of acceptance of this Guaranty; (ii)
notice(s) of extensions of credit and/or continuations of credit extensions to
CUSTOMER by BANK; (iii) notice(s) of entering into and engaging in business
transactions and/or contractual relationships and any other dealings between
CUSTOMER and BANK; (iv) presentment and/or demand for payment of any of the
"Obligations of CUSTOMER"; (v) protest or notice of dishonor or default to
GUARANTOR or to any other person with respect to any of the "Obligations of
CUSTOMER" or with respect to any security therefor; (vi) all other notices to
which GUARANTOR might otherwise be entitled; (vii) any demand for payment under
this Guaranty; (viii) any defense of any kind which the CUSTOMER might have; and
(ix) application of any other defenses available to GUARANTOR.
16. Anything contained herein to the contrary notwithstanding, if for any
reason the effective rate of interest on any of the Obligations of CUSTOMER
should exceed the maximum lawful contract rate, the effective rate of such
obligation(s) shall be deemed reduced to and shall be such maximum lawful
contract rate, and any sums of interest which have been collected in excess of
such maximum lawful contract rate shall be applied as a credit against the
unpaid principal balance due hereunder.
17. In the event any provision(s) of this instrument should be left blank or
incomplete, GUARANTOR hereby authorizes and empowers BANK to supply and complete
the necessary information to complete or fill in the blank provision(s).
18. Should any one or more provisions of this Unconditional Guaranty be
determined to be illegal or unenforceable by a court of competent jurisdiction,
the other provisions shall remain in full force and effect.
19. In the event of a change in, or amendment or modification of the legal
status or existence of the CUSTOMER, this Guaranty shall continue and shall also
cover the indebtedness of the CUSTOMER under the new or amended status,
according to the terms hereof guaranteeing the Obligations of the original
CUSTOMER.
20. The obligation of any GUARANTOR executing this Unconditional Guaranty
shall not be dependent upon the subsequent execution hereof by any other person.
21. GUARANTOR shall provide BANK with such financial information as BANK may
from time to time request. Any statement of account or records that bind the
CUSTOMER shall be binding against the GUARANTOR and the records of BANK
maintained in the ordinary course of its business with respect to the
Obligations of CUSTOMER shall be binding on GUARANTOR in all respects,
including, without limitation, the extent and nature of the Obligations of
CUSTOMER and the liabilities of GUARANTOR under this Guaranty.
22. GUARANTOR warrants and covenants that GUARANTOR has made such inquiries
as GUARANTOR deems necessary in order to ascertain the financial condition of
CUSTOMER, and has, in fact, ascertained the financial condition of CUSTOMER and
is satisfied with such financial condition, that GUARANTOR has adequate means to
obtain from CUSTOMER, on a continuing basis, information concerning the
financial condition of CUSTOMER, and that GUARANTOR has not relied, and will not
rely, on BANK to provide such information, now or in the future.
23. GUARANTOR agrees that in the event judgment or any court order or
administrative order for turnover or recovery is entered against BANK (whether
by consent, compromise, settlement or otherwise) for, or BANK is required or
agrees to repay (i) the amount of any monetary payment or transfer of any
property (whether real, personal or mixed, tangible or intangible, or the value
thereof) made to BANK by or on behalf of the CUSTOMER and/or GUARANTOR for
credit to the Obligations of CUSTOMER, or (ii) the amount of any set-off(s)
exercised by BANK and credited to Obligations of CUSTOMER, the then in such
event (and notwithstanding the prior discharge or satisfaction in whole or in
part of any or all Obligations of CUSTOMER due BANK or the written or stamped
notation of cancellation, release or satisfaction affixed to this GUARANTY or
any instrument of indebtedness evidencing the Obligations of CUSTOMER, or any
prior notice of the termination of this Guaranty as to future debts of CUSTOMER)
the amount of value of any such payments, property or set-off(s) recovered from
BANK shall be deemed to be Obligations of CUSTOMER and this GUARANTY and the
liabilities of GUARANTOR hereunder shall be automatically revived and reinstated
and shall continue and remain in full force and effect as to the same, together
with interest thereon from date of recovery at the rate(s) applicable to the
Obligations of CUSTOMER to which such payments, transfers or set-off(s) were
credited, costs of court, and the reasonable attorney's fees incurred by BANK in
connection therewith.
24. GUARANTOR further expressly waives, for BANK'S benefit and the benefit of
CUSTOMER and any other guarantor, maker or endorser of the Obligations of
CUSTOMER, any and all rights of recourse against CUSTOMER, or any other
guarantor, maker, or endorser of the Obligations of CUSTOMER, or property or
assets of the same, arising out of any payment made under or pursuant to this
GUARANTY, including any claim or subrogation, reimbursement, exoneration,
contribution or indemnity that the undersigned GUARANTOR may have against the
CUSTOMER, any other guarantor, or maker or endorser of the Obligations of
CUSTOMER. GUARANTOR will not enter into any contract or agreement in violation
of the provisions hereinabove, and any such purported contract or agreement
shall be void ab initio.
25. EVENTS OF DEFAULT. GUARANTOR shall be in default under this Unconditional
Guaranty upon the happening of any of the following events, circumstances or
conditions, to wit:
(a) Default in the payment or performance of any of the obligations or of any
covenant, warranty or liability contained or referred to herein, or contained in
any other contract or agreement of CUSTOMER and/or GUARANTOR with BANK, whether
now existing or hereafter arising; or
(b) Any warranty, representation or statement made or furnished to BANK by or
on behalf of CUSTOMER and/or GUARANTOR, in connection with this Guaranty
Agreement or to
<PAGE>
induce BANK to extend credit or otherwise deal with CUSTOMER and/or GUARANTOR
proving to have been false in any material respect when made or furnished; or
(c) Death, dissolution, termination of existence, insolvency, business
failure, appointment of a Receiver of any part of the property of, Assignment
for the Benefit of Creditors by, or the commencement of any proceeding under any
State or Federal Bankruptcy or Insolvency Laws by or against GUARANTOR and/or
CUSTOMER; or
(d) Failure of a corporate CUSTOMER and/or GUARANTOR to maintain its
corporate existence in good standing; or
(e) Upon the entry of any monetary judgment or the assessment and/or filing
of any tax lien against either CUSTOMER and/or GUARANTOR or upon the issuance of
any writ of garnishment of attachment against any property of, debts due or
rights of CUSTOMER and/or GUARANTOR, to specifically include the commencement of
any action of proceeding to seize moneys of either CUSTOMER and/or GUARANTOR on
deposit in any bank account with BANK; or
(f) If BANK should otherwise deem itself, any security interests, its
collateral or property, or the "Obligations of CUSTOMER" guaranteed hereby and
hereunder and/or the liability of GUARANTOR hereunder unsafe or insecure, or
should BANK, in good faith, believe that the prospect of payment or other
performance by CUSTOMER and/or GUARANTOR is impaired.
26. REMEDIES OF DEFAULT. Upon the occurrence of any of the foregoing events,
circumstances, or conditions of default, all of the obligations evidenced herein
and secured or guaranteed hereby shall immediately be due and payable without
notice. Further, BANK shall then have all of the rights and remedies granted
hereunder, all of the rights and remedies of a Secured Party and/or
Holder-in-Due Course under the North Carolina Uniform Commercial Code and/or
under other Laws of North Carolina.
27. GUARANTOR acknowledges that GUARANTOR has read this Guaranty and fully
understands the rights granted to BANK herein, and the waiver of rights of
GUARANTOR. GUARANTOR further acknowledges that each of the terms contained
herein is a material inducement to BANK to extend credit to the CUSTOMER and is
necessary in order for the BANK to fully realize the benefits of BANK'S
bargained for agreement with the CUSTOMER and GUARANTOR.
This Guaranty is secured by: _________________________________________________
______________________________________________________________________________
IN WITNESS WHEREOF, this Guaranty is executed (i) if by individuals, by hereunto
setting their hands under seal by adoption of the word "SEAL" appearing next to
the individuals' names, (ii) if by a corporation, by the duly authorized
officers of the corporation on its behalf under seal by adoption of the
facsimile seal printed hereon for such purpose or, if an impression seal appears
hereon, by affixing such impression seal, or (iii) if by a partnership, by the
duly authorized partners of the partnership on its behalf under seal by adoption
of the word "SEAL" appearing next to the name of the partnership and/or the
signatures of the partners, on the day and year first above written.
TAYLOR HOUSE ENTERPRISES, LTD.
_______________________________(SEAL)
(NAME OF CORPORATION OR PARTNERSHIP)
Attest:
By: /S/ G.L. CLARK, JR. (SEAL)
Vice President & CFO (TITLE)
____________________ Secretary
___________________________(SEAL)
CORP
____ ___________________________(SEAL)
SEAL
___________________________(SEAL)
___________________________(SEAL)
EXHIIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the use in the registration statement of Diversified Senior
Services, Inc. on Form SB (FDorm SB, No. 2) of our reports dated August 6, 1997,
relating to the consolidated financial statements of Diversified Senior
Services, Inc. and Subsidiary and the statements of operations, changes in
stockholder's equity (deficit), and cash flows for Residential Properties
Management, Inc. appearing in the Information Statement-Prospectus, which is a
part of this Registration Statement, and to the reference to us under the
heading "Experts" in such Information Statement-Prospectus.
/S/ THE DANIEL PROFESSIONAL GROUP, INC.
AUGUST 25, 1997
Winston-Salem, North Carolina
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF DIVERSIFIED SENIOR SERVICES, INC. FOR THE SIX MONTHS
ENDED JUNE 30, 1997 AND FOR THE PERIOD FROM MAY 17, 1996 (DATE OF INCEPTION) TO
DECEMBER 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 6-MOS 8-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1996
<PERIOD-START> JAN-01-1997 MAY-17-1996
<PERIOD-END> JUN-30-1997 DEC-31-1996
<CASH> 18 31
<SECURITIES> 0 0
<RECEIVABLES> 100 134
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 163 218
<PP&E> 124 124
<DEPRECIATION> 54 36
<TOTAL-ASSETS> 1,377 1,610
<CURRENT-LIABILITIES> 1,762 422
<BONDS> 0 0
0 0
0 0
<COMMON> 0 0
<OTHER-SE> (1,355) (693)
<TOTAL-LIABILITY-AND-EQUITY> 1,377 1,610
<SALES> 1,180 1,239
<TOTAL-REVENUES> 1,180 1,239
<CGS> 1,580 1,827
<TOTAL-COSTS> 1,580 1,827
<OTHER-EXPENSES> 216 336
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 47 14
<INCOME-PRETAX> (662) (939)
<INCOME-TAX> 0 (246)
<INCOME-CONTINUING> (662) (693)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (662) (693)
<EPS-PRIMARY> (.29) (.38)
<EPS-DILUTED> (.29) (.38)
</TABLE>
