<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant (X)
Filed by a Party other than the Registrant ( )
Check the appropriate box:
( ) Preliminary Proxy Statement ( ) Confidential, for Use of the
Commission Only (as permitted
by Rule 14a-6(e)(2))
(X) Definitive Proxy Statement
( ) Definitive Additional Materials
( ) Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
Diversified Senior Services, Inc.
(Name of Registrant as Specified in its Charter)
(Name of Person(s) Filing Proxy Statement, if other than Registrant)
Payment of Filing Fee (Check the appropriate box):
(X) No fee required
( ) Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
4) Proposed maximum aggregate value of transaction:
5) Total fee paid:
( ) Fee paid previously with preliminary materials.
( ) Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
2) Form, Schedule, or Registration Statement No.:
3) Filing Party:
4) Date Filed:
<PAGE>
DIVERSIFIED SENIOR SERVICES, INC.
915 WEST FOURTH STREET
WINSTON-SALEM, NORTH CAROLINA 27101
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To be Held May 29, 1998
NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders of
Diversified Senior Services, Inc. (the "Company") will be held at the Piedmont
Club, One Triad Plaza, Winston-Salem, North Carolina on Friday, May 29, 1998 at
10:00 o'clock a.m. EDST for the following purposes:
1. To elect two (2) Class One Directors;
2. To ratify and approve the appointment of The Daniel Professional Group,
Inc. as auditors for the Company for year ending December 31, 1998;
3. To transact such other business as may properly come before the meeting
or any adjournment thereof.
The transfer books of the Company will not be closed. The date fixed by
management as the record date for the determination of shareholders entitled to
notice of and to vote at the Annual Meeting or any adjournment thereof is the
close of business on Monday, April 6, 1998.
By Order of the Board of Directors
JOANNE RAGAN, Secretary
Winston-Salem, North Carolina
April 22, 1998
- --------------------------------------------------------------------------------
IF YOU ARE UNABLE TO ATTEND THE MEETING IN PERSON, MANAGEMENT REQUESTS THAT
YOU SIGN AND DATE THE ENCLOSED PROXY AND MAIL IT AT ONCE IN THE ENCLOSED
ENVELOPE WHICH REQUIRES NO POSTAGE IF MAILED WITHIN THE UNITED STATES.
- --------------------------------------------------------------------------------
<PAGE>
DIVERSIFIED SENIOR SERVICES, INC.
915 WEST FOURTH STREET
WINSTON-SALEM, NORTH CAROLINA 27101
PROXY STATEMENT
ANNUAL MEETING OF SHAREHOLDERS
To be Held May 29, 1998
The accompanying proxy is solicited on behalf of the Board of Directors of
Diversified Senior Services, Incorporated, North Carolina corporation, (the
"Company") for use at the Annual Meeting of Shareholders (the "Annual Meeting")
to be held on Friday, May 29, 1998 at 10:00 o'clock a.m. at the Piedmont Club,
One Triad Plaza, Winston-Salem, North Carolina. The proxy may be revoked at any
time before it is voted by: (a) giving written notice to the Secretary of the
Company before the Annual Meeting; (b) attending the Annual Meeting and
announcing at such meeting that such shareholder elects to revoke his proxy; or
(c) delivering a proxy bearing a later date to the Company before the Annual
Meeting or to a person attending the meeting. The cost of the preparation of the
Proxy Statement and solicitation of proxies, which is anticipated to be the
amount normally expended for such a solicitation, will be borne by the Company,
including the charges and expenses of brokerage firms and others for forwarding
solicitation material to beneficial owners of stock. The solicitation will be by
mail. Certain officers and regular employees of the Company may solicit proxies
by letter, telephone and personal interview. No additional compensation shall be
paid to any such persons participating in such solicitation.
The Company intends to mail Proxy Statements, Forms of Proxy and Annual
Reports to shareholders on or about April 22, 1998.
The principal executive offices of the Company are located at 915 West
Fourth Street, Winston-Salem, North Carolina 27101.
Shareholders of record at the close of business on Monday, April 6, 1998
and no other persons shall be entitled to notice of, and to vote at, the Annual
Meeting. The shares represented by all properly executed proxies which are
received prior to the final call for delivery of proxies at the meeting will be
voted in accordance with the directions given thereon. If no directions are
given on a proxy, the shares represented by such proxy will be counted for
purposes of determining the presence of a quorum and will be voted for the
nominees for directors named herein and for the selection of auditors named
herein. A shareholder marking the proxy "Abstain" will be counted as present for
determining a quorum, but will not be counted as voting in favor or against the
particular proposal from which the shareholder has elected to abstain.
As of April 6, 1998, the Company had 3,300,000 shares of Common Stock, no
par value per share (the "Common Stock"), outstanding and entitled to vote on
all matters to be acted on at the Annual Meeting. Each shareholder is entitled
to one vote for each share of Common Stock owned by such holder. At the election
of directors, each shareholder is entitled to vote the number of shares held by
him or her for as many persons as there are directors to be elected. The
shareholders will not be entitled to cumulative voting.
1
<PAGE>
A majority of the shares of the Company entitled to vote represented in
person or by proxy shall constitute a quorum at the Annual Meeting. For purposes
of determining the presence of a quorum, all signed proxies shall be included as
shares represented by proxy regardless of whether or how the proxy has been
voted. As of April 6, 1998, to the knowledge of the directors and executive
officers, only the officers and directors indicated below beneficially owned
more than 5% of the outstanding stock of the Company.
The following is a schedule of Common Stock beneficially owned by all
directors and Executive Officers as a group as of April 6, 1998:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
AMOUNT AND PERCENT
NAME AND ADDRESS OF NATURE OF OF
TYPE OF CLASS BENEFICIAL OWNER(1) BENEFICIAL OWNER CLASS
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Common Stock THE(2)................................... 1,800,000 54.5%
Common Stock William G. Benton(3)..................... 1,243,579 37.1
Common Stock Susan L. Christiansen(4)................. 295,200 8.9
Common Stock G. L. Clark, Jr. (5)..................... 289,750 8.7
Common Stock Deborah O. Robinson (6).................. 27,720 *
Common Stock Sandra T. Walker......................... 0 0
Common Stock Walter H. Ettinger, Jr. (7).............. 200 *
Common Stock Perry C. Craven(7)....................... 200 *
Common Stock All directors and executive officers as a
group (7 persons)........................ 1,856,649 55.0%
</TABLE>
NOTES:
(1) The address of all persons listed is 915 West Fourth Street,
Winston-Salem, NC 27101.
(2) As described in notes 2 through 5 below, the shares owned by THE are
beneficially owned primarily by the executive officers of the Company.
(3) Mr. Benton owns, directly or indirectly, 65.6% of the issued and
outstanding shares of THE. In addition to his beneficial interest in
the shares owned by THE, Mr. Benton owns 12,000 shares directly and
has the right to acquire 52,579 shares if he exercises an option to
convert deferred compensation to stock.
(4) Ms. Christiansen owns, directly or indirectly, 16.4% of the issued and
outstanding shares of THE.
(5) Mr. Clark owns, directly or indirectly, 14.7%% of the issued and
outstanding shares of THE. In addition to his beneficial interest in
the shares owned by THE, Mr. Clark owns 1,000 shares directly and has
the right to acquire 24,150 shares if he exercises an option to
convert deferred compensation to stock.
(6) Ms. Robinson owns, directly or indirectly, 1.54% of the issued and
outstanding shares of THE, which is less than 1% of the Company's
outstanding Common Stock.
(7) Ms. Craven and Dr. Ettinger were each awarded 200 shares under the
Company's 1997 Stock Incentive Plan, which is less than 1% of the
Company's outstanding Common Stock. It is anticipated these shares
will be issued within the next 60 days.
- -----------------------------
* less than 1%
2
<PAGE>
As of April 6, 1998, THE owned 100% of the issued and outstanding Series A
preferred stock of the Company. The Series A preferred stock is nonvoting, is
subordinate to the Common Stock for payment of dividends, has a stated
liquidation value of $5 per share which is subordinate to a preferred
distribution to holders of Common Stock equal to $10 per share, may be converted
to Common Stock at $6 per share after September 30, 1999 and is not redeemable
at the option of the holder.
Members of management intend to vote their shares of Common Stock in favor
of the proposals.
It is expected that the following business will be considered at the Annual
Meeting and action taken thereon.
1. ELECTION OF DIRECTORS -- The Articles of Incorporation provide that the
number of directors of the Company constituting the entire Board of Directors
shall be not less than three nor more than 12 directors, with the actual number
constituting the entire Board of Directors to be established by resolution
adopted from time to time by the Board of Directors. The Board of Directors has
established the number of directors at five. The Board of Directors consists of
three classes and directors of one class are elected each year for a term of
three years. Class One directors have terms expiring at the Annual Meeting of
Shareholders to be held May 29, 1998. The Class One directors whose terms will
expire at the Annual Shareholder Meeting and who are being nominated for
re-election shall be elected to hold office until the third succeeding Annual
Meeting of Shareholders.
The Class One directors who have been nominated for election to a
three-year term are as follows: G. L. Clark, Jr. and Perry C. Craven
Management knows of no reason why the nominees for election as directors
will not be available for election or, if elected, will not be able to serve. If
any individual nominee shall not be available for election as contemplated, it
is the intention of those persons named in the proxy to vote for such other
persons as the directors of the Company may recommend. The Form of Proxy does
not authorize a vote for more than two directors.
Unless otherwise directed, the enclosed proxy will be voted in favor of G.
L. Clark, Jr. and Perry C. Craven in the election of directors, both of whom are
currently members of the Board of Directors. The election of each nominee
requires the favorable vote of a plurality of all votes cast by the holders of
the Common Stock. Abstentions and broker non-votes are not counted in the
election of directors and thus have no effect.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE "FOR" THE
ELECTION OF EACH NOMINEE FOR DIRECTOR.
NOMINEES FOR DIRECTORS; DIRECTORS; AND CERTAIN STOCK OWNERSHIP
Set forth below are the names of the nominees for election to the Board of
Directors, both of whom are currently directors of the Company; the names of the
directors whose terms are not subject to re-election at this meeting; the
principal occupation or employment of both nominees and other directors during
the past five years and positions held with the Company by such directors; the
Common Stock of the Company beneficially owned by each of them as of April 6,
1998 and certain other information with respect to such persons:
3
<PAGE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
SHARES
BENEFICIALLY PERCENTAGE OF
PRINCIPAL OCCUPATION OR EMPLOYER FOR DIRECTOR OWNED AS OF OUTSTANDING
NAME AGE LAST FIVE YEARS SINCE APRIL 6, 1998 SHARES
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
William G. Benton (4) 52 Chairman of the Board and Chief 1996 1,243,579 37.1
Executive Officer since inception.
Mr. Benton is a Director, President and the
controlling shareholder of Taylor House
Enterprises, Limited ("THE") since its
incorporation in 1991. THE, through its
subsidiary corporations, engages in the
commercial real estate business in the areas
of multifamily apartments, hotels, shopping
centers, and restaurants. Mr. Benton
originally developed and serves as General
Partner on many of the Section 8 elderly
properties that the Company manages. From
1988 through September 1994, Mr. Benton
served as Chief Executive Officer 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 real
estate investment trust.
Susan L. Christiansen (5) 45 President, Chief Operating Officer and 1996 295,200 8.9
Director 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. Ms.
Christiansen is a licensed real estate broker
in North Carolina, South Carolina and West
Virginia and serves as the principal broker
of Residential Properties Management, Inc.,
("RPM") the Company's wholly-owned property
management subsidiary.
G. L. Clark, Jr. (2), (6) 52 Treasurer, Chief Financial Officer and 1996 289,750 8.7
Director 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
4
<PAGE>
Vice President and Chief Financial
Officer of HEP from 1988 until its
merger in 1994. Mr. Clark is a
Certified Public Accountant.
Perry C. Craven (1), (2), 57 Director. Ms. Perry C. Craven has been 1997 200 *
(3), (7) 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.
Ms. Craven has served as a director of
the Company since June 10, 1997.
Walter H. Ettinger, Jr. 45 Director. Dr. Walter H. Ettinger, Jr. 1997 200 *
(1), (3), (7) 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. Dr. Ettinger has served as a
director of the Company since June 10,
1997.
</TABLE>
NOTES:
(1) Member of Audit Committee. The Audit Committee is responsible for
matters relating to executive compensation.
(2) The indicated directors are nominees for re-election at the meeting of
shareholders.
(3) The indicated directors are Independent Directors.
(4) Mr. Benton owns, directly or indirectly 65.6% of the issued and
outstanding shares of THE. In addition to his beneficial interest in
the shares owned by THE, Mr. Benton owns 12,000 shares directly and
has the right to acquire 52,579 shares if he exercises an option to
convert deferred compensation to stock.
(5) Ms. Christiansen owns, directly or indirectly 16.4% of the issued and
outstanding shares of THE.
(6) Mr. Clark owns, directly or indirectly 14.7%% of the issued and
outstanding shares of THE. In addition to his beneficial interest in
the shares owned by THE, Mr. Clark owns 1,000 shares directly and has
the right to acquire 24,150 shares if he exercises an option to
convert deferred compensation to stock.
(7) Ms. Craven and Dr. Ettinger were each awarded 200 shares under the
Company's 1997 Stock Incentive Plan, which is less than 1% of the
Company's outstanding Common Stock. It is anticipated these shares
will be issued within the next 60 days.
- ---------------------------
* less than 1%
5
<PAGE>
The Board of Directors of the Company has a standing Audit Committee. The
members of the Audit Committee are indicated in the preceding table. The first
meeting of the Audit Committee was held in February 1998, after completion of
the Company's initial public offering, for the purposes of determining the scope
of the engagement of the Company's auditors for the audit of financial
statements for fiscal year ended December 31, 1997 and to recommend the
selection of The Daniel Professional Group, Inc. to serve as the Company's
auditors for year ending December 31, 1998. As discussed in more detail below,
the Audit Committee also reviews compensation matters and administers the
Company's 1997 Stock Incentive Plan. See "Plan" and "Report on Compensation
Matters" below. The Board of Directors held five meetings during the fiscal year
ended December 31, 1997. During 1997, each of the directors then in office
attended in excess of 75% of the aggregate of the total number of meetings of
the Board of Directors and the total number of meetings of all the committees on
which such director served.
The Company's executive officers are appointed annually by, and serve at
the discretion of, the Board of Directors. 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
Chief Executive Officer and President, respectively, of Benton Investment
Company.
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT.
Section 16(a) of the Securities Exchange Act of 1934 (the "1934 Act")
requires the Company's executive officers and directors, and persons who own
more than ten percent of the Company's Common Stock to file reports of ownership
and changes in ownership with the Securities and Exchange Commission (the
"SEC"). Executive officers and directors, and persons who own more than ten
percent of the Company's Common Stock are required by SEC regulations to furnish
the Company with copies of all Section 16(a) forms they file. Because the
closing of the Company's public offering of Common Stock did not occur until
1998, these regulations were not applicable to the Company's executive officers
and directors, and ten percent shareholders during the fiscal year ended
December 31, 1997.
CERTAIN INFORMATION WITH RESPECT TO DIRECTORS AND OFFICERS
DIRECTOR COMPENSATION
For year ended December 31, 1997, the Company's directors who are not full
time employees of the Company received $250 for each meeting attended. For year
ending December 31, 1998, the Company increased compensation to directors who
are not full-time employees of the Company to $1,000 per quarter. Non-employee
directors were also awarded 200 shares of Common Stock in February 1998, which
shares have not yet been issued. In addition, the Company reimburses directors
for out-of-pocket and travel expenses incurred for their attendance at meetings.
6
<PAGE>
EXECUTIVE COMPENSATION.
The following table reflects all compensation earned by William G. Benton,
the Chief Executive Officer, and the four other most highly compensated
executive officers of the Company for the year ended December 31, 1997.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
- ----------------------------------------------------------------------------------------------------------------------
ANNUAL COMPENSATION LONG-TERM COMPENSATION
------------------------------------------------------------------------
AWARDS PAYOUTS
-------------------------------------
NAME OTHER SECURITIES
AND ANNUAL RESTRICTED UNDERLYING ALL OTHER
PRINCIPAL COMPEN- STOCK OPTIONS/ LTIP COMPEN-
POSITION YEAR SALARY(1) BONUS SATION AWARDS SARS PAYOUTS SATION
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
William G. Benton.........1997 $146,632 $48,316 - - 52,579 - -
Chief Executive Officer
--------------------------------------------------------------------------------------------
1996 189,264 84,132 - - - -
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
Susan L. Christiansen.....1997 104,000 4,500 - - 3,600 - -
Chief Operating Officer
--------------------------------------------------------------------------------------------
1996 104,000 14,500 - - - - -
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
G. L. Clark, Jr...........1997 99,250 24,625 - - 24,150 - -
Chief Financial Officer
--------------------------------------------------------------------------------------------
1996 94,500 36,750 - - - - -
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
Deborah O. Robinson.......1997 60,000 6,000 - - - - -
Chief Accounting Officer
--------------------------------------------------------------------------------------------
1996 60,000 - - - - - -
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
Sandra T. Walker..........1997 89,615 6,000 - - - - -
Executive Vice President
--------------------------------------------------------------------------------------------
1996 89,615 - - - - - -
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Each of the employees in the table accrued a portion of their 1997
salary listed above. Mr. Benton accrued $146,632. Ms. Christiansen
accrued $14,000. Mr. Clark accrued $99,250. Ms. Robinson accrued
$10,000. Ms. Walker accrued $10,000. Under an agreement with the
Company, those employees agreeing to accrue a portion of base
compensation for the first six months of the year are entitled to
repayment of the accrued compensation, plus a bonus equal to 50% of
the accrued compensation. All such accruals ceased December 31, 1997.
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.
-------------
Directors as a Group Year Cash Accrued
-------------------- ---- ---- -------
Number of Persons (5) 1997 $ 93,000 $260,882
1996 $117,000 $270,764
7
<PAGE>
EMPLOYMENT AGREEMENTS
Mr. Benton, Mr. Clark and Ms. Christiansen have employment agreements with
the Company. The employment agreements provide for base salaries 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 severance 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. As of December 31, 1997, 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 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 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 Internal
Revenue Code of 1986, as amended ("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 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).
8
<PAGE>
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 December 31, 1997, no grants of options have been made under the
Stock Incentive Plan. 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.
9
<PAGE>
OPTION/SAR GRANTS IN YEAR ENDED DECEMBER 31, 1997
(INDIVIDUAL GRANTS)
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------
NAME NUMBER OF PERCENT OF TOTAL EXERCISE OR EXPIRATION
SECURITIES OPTION/SARS BASE PRICE DATE
UNDERLYING GRANTED TO ($/SH)
OPTIONS/SARS EMPLOYEES IN
GRANTED FISCAL YEAR
-----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
William G. Benton 52,579 65.4% $ 2.50 6/30/99
-----------------------------------------------------------------------------------------------------------
Susan L. Christiansen 3,600 4.5% $ 5.00 6/30/99
-----------------------------------------------------------------------------------------------------------
G. L. Clark, Jr. 24,150 30.1% $ 2.50 6/30/99
-----------------------------------------------------------------------------------------------------------
Deborah O. Robinson - - - -
-----------------------------------------------------------------------------------------------------------
Sandra T. Walker - - - -
-----------------------------------------------------------------------------------------------------------
AGGREGATE OPTION/SAR EXERCISES IN YEAR ENDED DECEMBER 31, 1997
AND OPTION/SAR VALUES AT DECEMBER 31, 1997
-----------------------------------------------------------------------------------------------------------
NAME SHARES ACQUIRED VALUE REALIZED NUMBER OF VALUE OF
ON EXERCISE UNEXERCISED UNEXERCISED
($) SECURITIES IN-THE-MONEY
(#) UNDERLYING OPTIONS/SARS
OPTIONS/SARS AT FY-END ($)
AT FY-END (#) EXERCISABLE/
EXERCISABLE/ UNEXERCISABLE
UNEXERCISABLE
-----------------------------------------------------------------------------------------------------------
William G. Benton - - 0/52,579 0/$131,448(1)
-----------------------------------------------------------------------------------------------------------
Susan L. Christiansen - - 0/3,600 - (1)
-----------------------------------------------------------------------------------------------------------
G. L. Clark, Jr. - - 0/24,150 0/$ 60,375(1)
-----------------------------------------------------------------------------------------------------------
Deborah O. Robinson - - - -
-----------------------------------------------------------------------------------------------------------
Sandra T. Walker - - - -
-----------------------------------------------------------------------------------------------------------
</TABLE>
(1) The "In-The-Money" value is based on the initial public offering price
of the Common Stock in January 1998.
--------------------
10
<PAGE>
REPORT OF AUDIT COMMITTEE ON COMPENSATION
THE FOLLOWING REPORT OF THE AUDIT COMMITTEE ON COMPENSATION IS PROVIDED FOR
INFORMATION PURPOSES ONLY AND SHALL NOT BE DEEMED TO BE SOLICITATION MATERIAL OR
TO BE FILED WITH THE SECURITIES AND EXCHANGE COMMISSION.
1. The Committee and General Philosophy. The Company's compensation
policies are determined by the Audit Committee of the Board of
Directors which makes its compensation recommendations to the full
Board of Directors for approval. The Committee is comprised of two
directors of the Company, neither of whom is employed by the Company.
In addition to making recommendations with respect to compensation, the
Committee also administers the Company's 1997 Stock Incentive Plan. The
plan is described above.
The Company's approach to compensation places primary emphasis on team
performance and secondary emphasis on individual performance. As such,
compensation is awarded to all employees as a whole with specific
allocations based on deemed contribution to the team effort.
The Company's compensation program currently is comprised of two
elements: base salary and incentive pay. Base salaries of executive
officers are generally in the 50th percentile or below the base
salaries in comparable companies. Incentive pay is based on the
Company's incentive plan and is comprised of a combination of points,
cash and fair market value stock options, with the amount tied to
specific performance measures.
2. Incentive Pay Plan. The Company has contracted with Abernathy &
Associates, Memphis, Tennessee for assistance in setting up its
Incentive Pay Plan. Each employee of the Company will have individual,
team and Company based performance measures that will be reviewed
monthly. Because of the startup nature of the Company's business, it is
anticipated that amounts awarded in 1998 will be based on a points
redeemable for goods basis. It is anticipated that the plan will be
implemented during the third quarter of 1998.
3. Compensation to Chief Executive Officer. Mr. Benton voluntarily lowered
his base salary from $189,264 to $104,000 during 1997 so that a larger
percentage of his compensation would be based on performance. Mr.
Benton's performance measures for 1998 are based on the Company meeting
its development goals and the performance of the Company's Common Stock
in the market.
PERRY C. CRAVEN WALTER H. ETTINGER, JR.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On July 1, 1996, the Company acquired 100% of RPM from THE through the
exchange of 2,277,678 shares of the Company's Common Stock for RPM stock. No
value was assigned to the
11
<PAGE>
Company's 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 $73,610
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.
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 $501.
From time to time, the Company advances or borrows funds from THE or other
related entities. These transactions have resulted in balances of $233,616 due
to the Company from affiliated partnerships, and $76,791 due to the Company from
the parent and subsidiaries of the parent. In addition, the account payable to
THE was converted to a note payable to the parent during 1996. On September 30,
1997, the Company issued 178,386 shares of preferred stock to the parent company
in exchange for the note payable to the parent in the amount of $891,930. The
remaining amount of $76,554 was reclassified to an account payable. The interest
rate on this note was 8.25% per annum and interest expense of $27,191 was
accrued for the nine months ended September 30, 1997. There was no interest
income received from related parties during the year ended December 31, 1997 and
the period ended December 31, 1996. Accounts payable to 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
policy of the Company and its subsidiaries is to provide a 50% matching
contribution to each employee participant for contributions up to the first 5%
of compensation. The Company's contributions for years ended December 31, 1997
and the period ended December 31, 1996 were $21,465 and $11,613, respectively.
Management fee income for the year ended December 31, 1997 and the period
ended December 31, 1996 includes $288,385 and $143,774, respectively, earned
from partnerships, a general partner of which is a beneficial shareholder of
THE; $26,237 of such income is included in trade accounts receivable at December
31, 1997 and $30,835 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
$550,946 and $250,354, respectively, for the year ended December 31, 1997 and
for the period ended December 31, 1996.
On January 14, 1998, the Company completed its public offering of 1,500,000
shares of Common Stock at $5.00 per share, for gross proceeds of $7,500,000.
Expenses of the offering totaled $1,175,821 for net proceeds of $6,324,179. See
Note 12 for a pro forma balance sheet as
12
<PAGE>
if the Company completed the public offering and paid certain loans and accrued
expenses on December 31, 1997.
The Company granted the underwriter in the public offering warrants to
purchase 150,000 shares of Common Stock exercisable for four years, commencing
12 months after the closing of the offering, at an exercise price of $6.75.
In January, 1998, the Company formed a wholly-owned subsidiary, DSS
Funding, Inc. ("DSSF"), a North Carolina corporation, for the purpose of
securing permanent financing for the assisted living facilities which the
Company develops, as well as third party owners. The Company loaned DSSF
$250,000 secured by a non-interest bearing note and will provide working capital
for the subsidiary.
2. RATIFICATION AND APPROVAL OF THE APPOINTMENT OF THE DANIEL PROFESSIONAL
GROUP, INC. AS THE COMPANY'S INDEPENDENT AUDITORS FOR 1998 -- The Board of
Directors, upon recommendation of the Audit Committee, has selected The Daniel
Professional Group, Inc. as the Company's independent auditors for 1998.
Although not required, the Board of Directors is submitting its selection to the
shareholders for ratification. The Daniel Professional Group, Inc. has served as
the Company's independent auditor since its inception in 1996 and has served as
independent auditor for THE since 1991. A representative of The Daniel
Professional Group, Inc. will be present at the meeting and will have the
opportunity to make a statement if so desired and available to answer questions.
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE "FOR" THE
RATIFICATION OF SELECTION OF THE DANIEL PROFESSIONAL GROUP, INC. AS THE
COMPANY'S INDEPENDENT AUDITORS FOR 1998. The proposal will be adopted if
approved by a majority of the Company's shares represented in person or proxy at
the Annual Meeting, assuming the presence of a quorum. Proxies solicited by the
Board will be voted in favor of the ratification unless shareholders specify
otherwise on their proxies.
3. DATE FOR THE RECEIPT OF PROPOSALS -- In order for shareholder proposals
to be included in the proxy materials for the 1999 Annual Meeting, any such
proposal must be received by the Company at its executive offices not later than
November 15, 1998, and meet all other applicable requirements for inclusion
therein.
By Order of the Board of Directors
WILLIAM G. BENTON, Chairman
April 22, 1998
13
<PAGE>
********************************************************************************
APPENDIX
PROXY
DIVERSIFIED SENIOR SERVICES, INC.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned, revoking previous proxies of such shares of common
stock, hereby appoints WILLIAM G. BENTON and SUSAN L. CHRISTIANSEN, or either of
them, proxies for the undersigned with several power of substitution or
resubstitution, to vote all shares of common stock of Diversified Senior
Serivces, Inc. held of record by the undersigned on April 6, 1998 at the Annual
Meeting of Shareholders to be held on May 29, 1998, or any adjournment as
follows:
(To be signed on the reverse side)
<PAGE>
Please date, sign and mail your
proxy card back as soon as possible!
Annual Meeting of Stockholders
DIVERSIFIED SENIOR SERVICES, INC.
May 29, 1998
Please Detach and Mail in the Envelope Provided
A [X] Please mark your
votes as in this
example.
<TABLE>
<CAPTION>
FOR all nominees
listed at right (except as WITHHOLD AUTHORITY
marked to the to vote for all nominees
contrary below). listed at right:
<S> <C> <C> <C>
1. ELECTION
OF
DIRECTORS [ ] [ ] Nominees: For Three Year Term
Expiring in 2001:
Instruction: To withhold authority to vote for any G.L. Clark, Jr.
individual, strike a line through the nominee's Perry C. Craven
name in the list at right.
</TABLE>
FOR AGAINST ABSTAIN
2. Ratification and approval of the appointment [ ] [ ] [ ]
of The Daniel Professional Group, Inc.
as auditors for the Company for year
ending December 31, 1998.
3. In their discretion, upon any other matters that may properly come
before the Annual Meeting or any adjournment thereof.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER AS DIRECTED
HEREIN BY THE STOCKHOLDER(S). IF NO DIRECTION IS MADE THIS PROXY WILL BE VOTED
"FOR" THE ELECTION OF ALL NOMINEES AND FOR SUCH OTHER MATTERS AS MAY
PROPERLY COME BEFORE THE MEETING.
PLEASE MARK, SIGN, DATE, AND RETURN THIS PROXY CARD PROMPTLY IN THE ENCLOSED
ENVELOPE.
SIGNATURE(S) OF SHAREHOLDER(S)____________________________________
__________________________________________________DATE _______1998
SIGNATURE IF HELD JOINTLY
NOTE: PLEASE SIGN YOUR NAME(S) EXACTLY AS PRINTED ON THIS PROXY. IF SHARES ARE
HELD IN JOINT ACCOUNT, EACH JOINT OWNER SHOULD SIGN.
