SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934
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 ss. 240.14a-11(c) or ss. 240.14a-12
DIVERSIFIED SENIOR SERVICES, INC.
(Name of Registrant as Specified in Its Charter)
JOANNE RAGAN, SECRETARY
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required.
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1) 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:
NOTES:
DIVERSIFIED SENIOR SERVICES, INC.
915 WEST FOURTH STREET
WINSTON-SALEM, NORTH CAROLINA 27101
April 13, 1999
To our Shareholders:
You are cordially invited to attend the 1999 Annual Meeting of Shareholders of
Diversified Senior Services, Inc. at 10:00 A.M., local time, on May 13, 1999, at
Somerset Court of Mocksville, 150 Ken Dwiggins Drive, Mocksville, North
Carolina.
The Notice of Meeting and Proxy Statement on the following pages describe the
matters to be presented at the meeting.
It is important that your shares be represented at this meeting to assure the
presence of a quorum. Whether or not your plan to attend the meeting, we hope
that you will have your stock represented by signing, dating and returning your
proxy in the enclosed envelope, as soon as possible. Your stock will be voted in
accordance with the instructions you have given in your proxy.
Thank-you for your continued support.
Sincerely,
William G. Benton
Chairman of the Board
DIVERSIFIED SENIOR SERVICES, INC.
915 WEST FOURTH STREET
WINSTON-SALEM, NORTH CAROLINA 27101
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 13, 1999
NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders of
Diversified Senior Services, Inc. (the "Company") will be held at Somerset Court
of Mocksville, 150 Ken Dwiggins Drive, Mocksville, North Carolina, on May 13,
1999, at 10:00 A.M., local time, for the following purposes:
1. To elect one class of Directors for a term expiring in 2002;
2. To ratify the appointment of The Daniel Professional Group, Inc. as
independent accountants for the Company for the fiscal year ending
December 31, 1999;
3. To approve the consummation of a private placement of the Company's
12% Series B Cumulative Convertible Preferred Stock (the "Series B
Convertible Preferred Stock"), initially representing 37.9% of the
issued and outstanding Common Stock of the Company, on a as
converted basis, and to approve the issuance of all shares of the
Company's Common Stock which the Company would be entitled to issue
upon conversion of the Series B Convertible Preferred Stock; and
4. To transact such other business as may properly come before the
meeting or any adjournment thereof.
A Proxy Statement, form of Proxy and the Annual Report to Shareholders
of the Company for fiscal year ended December 31, 1998, including financial
statements (the "Annual Report), are enclosed herewith. Common Shareholders of
record at the close of business on March 26, 1999 will be entitled to notice of
and to vote at the meeting and any adjournment(s) thereof. The stock transfer
books of the Company will remain open between the record date and the date of
the meeting. At least 10 days prior to the meeting, a complete list of the
Shareholders entitled to vote will be available for inspection by any
Shareholder, for any purpose germane to the meeting, during ordinary business
hours, at the executive offices of the Company. Should you receive more than one
Proxy because your shares are registered in different names and addresses, each
Proxy should be signed and returned to assure that all your shares will be
voted. You may revoke your Proxy at any time prior to the meeting.
In the event there are not sufficient votes for a quorum or to approve
or ratify any of the foregoing proposals at the time of the meeting, the meeting
may be adjourned by a vote of the majority of the votes cast by the Shareholders
entitled to vote thereon.
The Board of Directors of Diversified Senior Services, Inc. hopes that
you will find it convenient to attend the meeting in person. In any event,
please mark, sign, date and return the enclosed proxy to make sure that your
shares are represented at the meeting. If you attend the meeting, you may vote
your stock personally even though you have sent in your proxy.
By Order of the Board of Directors,
JOANNE RAGAN
SECRETARY
Winston-Salem, North Carolina
April 13, 1999
PLEASE DATE, SIGN AND MAIL THE ACCOMPANYING FORM OF PROXY
AS PROMPTLY AS POSSIBLE IN THE ENCLOSED ENVELOPE.
DIVERSIFIED SENIOR SERVICES, INC.
915 WEST FOURTH STREET
WINSTON-SALEM, NORTH CAROLINA 27101
PROXY STATEMENT
ANNUAL MEETING OF SHAREHOLDERS
To be Held May 13, 1999
Your vote is very important. For this reason the Board of Directors is
requesting that you allow your Common Stock to be represented at the Annual
Meeting by the Proxies named in the enclosed Proxy Card. This Proxy Statement is
being sent to you in connection with this request and has been prepared for the
Board of Directors by the Company's management. The Proxy Statement is being
sent to Shareholders on or about April 13, 1999.
GENERAL INFORMATION ABOUT VOTING
WHO CAN VOTE: You are entitled to vote your Common Stock if our records showed
that you held your stock as of March 26, 1999. At the close of business on March
26, 1999, 3,301,400 shares of Common Stock were outstanding and entitled to
vote. Each share of Common Stock has one vote. The enclosed Proxy Card shows the
number of shares that you are entitled to vote. Your individual vote is
confidential and will not be disclosed to third parties.
VOTING BY PROXY: If your Common Stock is held by a broker, bank or other
nominee, you will receive instructions from them that you must follow to have
your shares voted, If you hold your shares in your own name as a holder of
record, you may instruct the Proxies how to vote your Common Stock by signing,
dating and mailing the Proxy Card in the postage paid envelope included with
this Proxy Statement. Of course you can always come to the meeting and vote your
shares in person. If you give voting instructions on your Proxy Card, the
Proxies will vote your shares in accordance with those instructions. If you sign
and return your Proxy Card without giving specific voting instructions, your
shares will be voted as recommended by the Board of Directors. The Company is
not now aware of any other matters to be presented except for those described in
this Proxy Statement. If any matters not described in this Proxy Statement are
presented at the meeting, the Proxies will use their own judgment to determine
how to vote your shares. If the meeting is adjourned, the Proxies may vote your
shares on the new meeting date, unless you have revoked your proxy instructions.
HOW TO REVOKE PROXY INSTRUCTIONS: To revoke your proxy instructions, you must
either (1) inform the Secretary in writing before your shares have been voted by
the Proxies at the meeting, (2) deliver later proxy instructions or (3) attend
the meeting and vote your shares in person.
HOW VOTES ARE COUNTED: The Annual Meeting will be held if a majority of the
outstanding Common Stock entitled to vote is represented at the meeting. If you
have returned valid proxy instructions or attend the meeting in person, your
shares will be counted for the purpose of determining whether there is a quorum,
even if you wish to abstain from voting on some or all matters presented to the
meeting.
COST OF THIS PROXY SOLICITATION: The Company will pay the cost of the proxy
solicitation, which is expected to be the normal amount spent for a proxy
solicitation. 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 will be paid for these activities. The
Company will, upon request, reimburse brokers, banks and other nominees for
their expenses in sending proxy materials to their principals and obtaining
their proxies.
ATTENDING THE ANNUAL MEETING: The Annual Meeting will be held on Thursday, May
13, 1999 at 10:00 o'clock a.m. at Somerset Court of Mocksville, 150 Ken Dwiggins
Drive, Mocksville, North Carolina. If you are a beneficial owner of Common Stock
held by a bank or a broker (i.e., in "street name") and you want to vote your
shares in person at the meeting, you will have to get a proxy in your name from
the registered holder.
1
PROPOSAL 1: ELECTION OF DIRECTORS
Two of the five-member Board of Directors are to be elected at the Annual
Meeting. Upon election, these two directors will hold office until the third
succeeding Annual Meeting of Shareholders. The persons who have been nominated
for election to a three-year term are Susan L. Christiansen and Walter E.
Ettinger, M.D.
VOTE REQUIRED: Directors must be elected by a plurality of all votes cast
at the meeting. This means that the nominees receiving the greatest number of
votes will be elected. Votes withheld for any director will not be counted.
VOTING BY THE PROXIES: The Proxies will vote your shares in accordance with
your instructions. If you have not given specific instructions to the contrary,
your shares will be voted to approve the election of the nominees named in the
Proxy Statement. Although the Company knows of no reason why any of the nominees
would not be able to serve, if any nominee is not available for election, the
Proxies would vote your Common Stock to approve the election of any substitute
nominee proposed by the Board of Directors. The Board may also choose to reduce
the number of directors to be elected as permitted by our Bylaws.
GENERAL INFORMATION ABOUT THE NOMINEES AND OTHER DIRECTORS: Both of the
nominees are currently Directors. Both have agreed to be named in this Proxy
Statement and to serve if elected. Each nominee attended at least 75% of the
meetings of the Board and committees on which the nominee served in the last
year. The following table provides biographical information about both the
nominees and the other directors of the Company.
- --------------------------------------------------------------------------------
Principal Occupation or Employer for Last
Name Age Five Years
- --------------------------------------------------------------------------------
William G. Benton 53 Chairman of the Board and Chief 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. Mr. Benton originally
developed and serves as General Partner on
many of the Section 8 elderly properties that
the Company manages. 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 from 1988 through
September 1994 when HEP merged with Omega
Healthcare Investors, Inc. He is also a
director of Tanger Factory Outlet Centers,
Inc., a New York Stock Exchange-listed real
estate investment trust.
Susan L. Christiansen(2) 46 President, Chief Operating Officer and
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 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. 53 Treasurer, Chief Financial Officer and
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 Vice President and Chief
Financial Officer of HEP from 1988 until its
merger in 1994. Mr. Clark is a Certified
Public Accountant.
2
Perry C. Craven (1), (3) 58 Director. Ms. Perry C. Craven has been the
sole shareholder and director of Perry C.
Craven Associates, Inc. since 1977, a company
that 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. 46 Director. Dr. Walter H. Ettinger, Jr. has
(1), (2), (3) served as Executive Vice President of
Physician Services at Virtua Health, Marlton
New Jersey since June 1998. From 1987 to June
1998, Dr. Ettinger was an 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.
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.
ABOUT THE BOARD AND ITS COMMITTEES: The Board of Directors of the Company
has a standing Audit Committee. The members of the Audit Committee are indicated
in the preceding table. During 1998 the Audit Committee met three times to
determine the scope of the engagement of the Company's auditors 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 three meetings during the fiscal
year ended December 31, 1998.
DIRECTOR COMPENSATION: For year ended December 31, 1998, the Company's
directors who are not full time employees of the Company received $1,000 per
quarter. Non-employee directors were also awarded 200 shares of Common Stock in
February 1998. In addition, the Company reimburses directors for out-of-pocket
and travel expenses incurred for their attendance at meetings.
3
The following is a schedule of Common Stock and Common Stock equivalents
beneficially owned as of March 26, 1999 by each nominee for director, the
executive officers named in the Summary Compensation Table and all directors and
executive officers as a group. Unless otherwise indicated, each of the named
individuals and each member of the group has sole voting power and sole
investment power with respect to the shares shown.
- ---------------------------------------------------------------------------------------------------------------------------
AMOUNT AND PERCENT
NAME AND ADDRESS OF NATURE OF OF
TYPE OF CLASS BENEFICIAL OWNER(1) BENEFICIAL OWNER CLASS
- ---------------------------------------------------------------------------------------------------------------------------
Common Stock THE(2)................................... 1,853,700 56.1%
Common Stock William G. Benton(3)..................... 1,319,403 39.3
Common Stock Susan L. Christiansen(4)................. 328,007 9.9
Common Stock G. L. Clark, Jr. (5)..................... 325,144 9.8
Common Stock Deborah O. Robinson (6).................. 50,521 1.5
Common Stock Sandra T. Walker......................... 3,000 *
Common Stock Bernie Gawley............................ 5,000 *
Common Stock All directors and executive officers as a
group (8 persons)........................ 1,980,975 58.2%
NOTES:
(1) The address of all persons listed is 915 West Fourth Street, Winston-Salem,
NC 27101.
(2) As described in notes 3 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 30,150 shares directly, shares control
of 17,500 shares owned by an employee partnership and has options for
57,579 shares.
(4) Ms. Christiansen owns, directly or indirectly, 16.4% of the issued and
outstanding shares of THE. In addition to her beneficial interest in the
shares owned by THE, Ms. Christiansen owns 1,500 shares directly, shares
control of 17,500 shares owned by an employee partnership and has options
for 5,000 shares.
(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 6,000 shares directly, shares control of 17,500
shares owned by an employee partnership and has options for 29,150 shares.
(6) Ms. Robinson owns, directly or indirectly, 1.54% of the issued and
outstanding shares of THE. In addition to her beneficial interest in the
shares owned by THE, Ms. Robinson owns 370 shares directly, shares
beneficial ownership of 17,500 shares owned by an employee partnership and
has options for 3,000 shares.
- -----------------------------
* less than 1%
As of March 26, 1999, 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.
4
EXECUTIVE COMPENSATION
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 later in the Proxy Statement.
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.
(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 1999 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.
5
EXECUTIVE COMPENSATION TABLES
I. 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
- --------------------------------------- ---- -------- -------- ------------ ------- ------------
William G. Benton 1998 $104,000 $ 26,000 -- -- --
Chief Executive Officer 1997 146,632 48,316
1996 189,264 84,132
Susan L. Christiansen ................. 1998 104,000 3,500 -- -- --
Chief Operating Officer 1997 104,000 4,500
1996 104,000 14,500
G. L. Clark, Jr ...................... 1998 104,000 26,000 -- -- --
Chief Financial Officer 1997 99,250 24,625
1996 94,500 36,750
Sandra T. Walker ...................... 1998 90,000 2,500 -- -- --
Executive Vice President 1997 89,615 6,000
1996 89,615 --
Bernard T. Gawley ..................... 1998 87,500 -- -- -- --
President, DSS Funding 1997 -- --
1996 -- --
- ----------------------
(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. 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. 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
$2.50 per share.
6
- ----------------------------------------------------------------------------------------------------------------
II. STOCK OPTION/SAR GRANTS TABLE -- 1998 GRANTS
- ----------------------------------------------------------------------------------------------------------------
NAME NUMBER OF PERCENT OF TOTAL EXERCISE OR EXPIRATION
SECURITIES OPTION/SARS BASE PRICE DATE
UNDERLYING GRANTED TO ($/SH)
OPTIONS/SARS EMPLOYEES
GRANTED IN FISCAL YEAR
- -----------------------------------------------------------------------------------------------------------------
William G. Benton 5,000 11.1% $ 5.225 2/10/2003
- ------------------------------------------------------------------------------------------------------------------
Susan L. Christiansen 5,000 11.1% $ 4.75 2/10/2003
- ------------------------------------------------------------------------------------------------------------------
G. L. Clark, Jr. 5,000 11.1% $ 4.75 2/10/2003
- ------------------------------------------------------------------------------------------------------------------
Sandra T. Walker 3,000 6.7% $ 4.75 2/10/2003
- ------------------------------------------------------------------------------------------------------------------
Bernard T. Gawley 5,000 11.1% $ 4.75 2/10/2003
- ------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
III. AGGREGATE OPTION/SAR EXERCISES IN 1998 AND
OPTION/SAR VALUES AS OF YEAR -END 1998
- -----------------------------------------------------------------------------------------------------------------------
NAME SHARES VALUE NUMBER OF VALUE(1)
ACQUIRED REALIZED UNEXERCISED OF
ON SECURITIES UNEXERCISED
EXERCISE ($) UNDERLYING IN-THE-MONEY
OPTIONS/SARS OPTIONS/SARS
(#) AT FY-END AT FY-END
(#) ($)
EXERCISABLE/ EXERCISABLE/
UNEXERCISABLE UNEXERCISABLE
- -----------------------------------------------------------------------------------------------------------------------
William G. Benton - - 57,579/0 $98,586/0
- -----------------------------------------------------------------------------------------------------------------------
Susan L. Christiansen - - 5,000/0 $0/0
- -----------------------------------------------------------------------------------------------------------------------
G. L. Clark, Jr. - - 29,150/0 $45,281/0
- -----------------------------------------------------------------------------------------------------------------------
Sandra T. Walker - - 3,000/0 $0/0
- -----------------------------------------------------------------------------------------------------------------------
Bernard T. Gawley - - 5,000/0 $0/0
- -----------------------------------------------------------------------------------------------------------------------
(1) Value is based on closing price per share of the Common Stock on December
31, 1998.
- --------------------
EMPLOYMENT AGREEMENTS: Mr. Benton, Ms. Christiansen, Mr. Clark and Mr.
Gawley 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.
7
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. The Company granted 47,000 stock options to certain
employees at an exercise price ranging from $4.75 to $5.225, the market value of
the shares at the date of grant. The stock options are 100% vested and have a
five-year term. Warrants for 45,000 shares were issued with a four-year term, a
one-year vesting schedule and exercise prices ranging from $6.00 to $9.00 per
share. Warrants for 50,000 shares have a four-year term, one year vesting
schedule and an exercise price of $6.75 per share. All the warrants were issued
to third parties for services rendered. At December 31, 1998, a total of 142,000
stock options and warrants are outstanding, 1,400 common shares have been issued
and 356,600 shares are available for granting. At December 31, 1997, no grants
had been made.
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). 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.
8
ADDITIONAL INFORMATION ABOUT DIRECTORS AND EXECUTIVE OFFICERS
SECTION 16(A) REPORTING COMPLIANCE: The Company's directors and executive
officers file reports with the Securities and Exchange Commission and The Nasdaq
Stock Market indicating the number of shares of any class of Company equity
securities they owned when they became a director or executive officer and,
after that, any change in their ownership of Company equity securities. Copies
of any of these reports must also be provided to us. These reports are required
by Section 16(a) of the Securities Exchange Act of 1934. The Company has
reviewed the copies of the reports that we have received and written
representations from the individuals required to file the reports. Based on this
review, we believe that each of our independent directors has complied with
applicable reporting requirements for transactions in Company securities during
1998. The executive officers (Mr. Benton, Ms. Christiansen and Ms. Robinson) and
THE inadvertently filed late Forms 4 reporting the purchase by THE of an
aggregate of 1,700 shares (two transactions) and 16,600 shares (seven
transactions) of Common Stock in July and November, respectively. In addition,
Mr. Benton inadvertently filed a late Form 4 reporting the purchase of 2,500
shares of Common Stock in November.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS: 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.
From time to time, the Company advances or borrows funds from THE or other
related entities. Note 2 to the financial statements for the year ended December
31, 1998 schedules those advances and repayments to and advances and repayments
from such related parties. These transactions have resulted in balances of
$233,616 due to the Company from affiliated partnerships, and $2,859,709 due to
the Company from THE and subsidiaries of THE. 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 years ended December 31, 1998 and 1997. Accounts
payable to related parties bear no interest and have no scheduled repayment
terms.
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.
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, 1998
and 1997 were $33,595 and $21,465, respectively.
Management fee income for the years ended December 31, 1998 and 1997 includes
$293,753 and $288,385, respectively, earned from partnerships, a general partner
of which is a beneficial shareholder of THE. At December 31, 1998 and 1997,
$26,431 and $26,237, respectively, of such fees are included in trade accounts
receivable and $25,525 is included in accounts receivable-affiliates at December
31, 1998. 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 $591,450 and $550,946, respectively,
for the years ended December 31, 1998 and 1997.
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.
9
PROPOSAL 2: APPOINTMENT OF INDEPENDENT ACCOUNTANTS
The Board of Directors, upon recommendation of the Audit Committee, has
selected The Daniel Professional Group, Inc., 4400 Silas Creek Parkway, Suite
200, Winston-Salem, NC 27104, as the Company's independent accountants to
examine the financial statements of the Company and its subsidiaries for the
year ending December 31, 1999, and to perform other appropriate accounting
services. for 1998. A resolution will be presented to the meeting to ratify the
appointment. The affirmative vote of a majority of the number of votes entitled
to be cast by the Common Stock represented at the meeting is needed to ratify
the appointment. If the Shareholders do not ratify the appointment of The Daniel
Professional Group, Inc., the selection of independent accountants will be
reconsidered by the Board of Directors.
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 THE APPOINTMENT OF THE DANIEL PROFESSIONAL GROUP, INC.
_______________________________________________________________________________
PROPOSAL 3: APPROVAL OF ISSUANCE OF SERIES B PREFERRED STOCK AND ADDITIONAL
SHARES OF COMMON STOCK UPON CONVERSION OF THE SERIES B PREFERRED STOCK
On March 15, 1999, the Board of Directors Classified 3,000 shares of the
Company's authorized but as yet undesignated capital as 12% Series B Cumulative
Convertible Preferred Stock (the "Series B Shares"). The Company anticipates
that in April 1999, it will enter into a Securities Purchase Agreement (the
"Series B Agreement") with certain investors pursuant to which the Company will
issue up to 2,500 of the Series B Shares in a private placement during 1999. The
Series B Shares will have a stated value of $2,000 per share but no par value
and will bear interest at an annual rate of 12% payable semi-annually.
Additionally, the Series B Agreement will provide that in the event the closing
bid price of the Common Stock does not equal a specified amount at specified
times, the Company will issue to the holders of the Series B Shares an aggregate
of 178,571 shares of Common Stock (the "Additional Shares"). The gross proceeds
of the offering of all 2,500 Series B Shares will be $5,000,000, before
deducting expenses. The Company will use the net proceeds of the sale of the
Series B Shares to develop assisted living and senior housing residences and for
general corporate purposes.
The Series B Shares will be immediately convertible to shares of Common
Stock at a conversion price of $4.00 per share during the 270 days after the
initial sale of the Series B Shares and, after such period, at the lower of
$4.00 per share or the lowest closing bid price of the Company's Common Stock
during the 30 trading days preceding the date of conversion (the "Look Back
Period"); provided, however, each of the investors will agree that in no event
shall it be permitted to convert any Series B Shares in excess of the number of
such shares upon the conversion of which when added to any shares of Common
Stock then owned by such investor would exceed 9.99% of the number of shares of
the Company's Common Stock then issued and outstanding. Prior to conversion into
Common Stock, the holders of the Series B Shares will not have voting rights.
The Series B Agreement will prohibit the purchasers, and any of their
affiliates, from engaging in shorting transactions with respect to the Company's
Common Stock at any time the Common Stock is trading below $8.00 per share. The
Company will agree to use its best efforts to register the Series B Shares and
the underlying shares of Common Stock within 180 days after the initial sale of
the Series B Shares. Attached to this Proxy Statement as Exhibit A are the
Articles of Amendment to the Company's Articles of Incorporation which contain
the complete designation, powers, preferences and rights of the Series B Shares.
The conversion price for the Series B Shares could be less than the greater
of the current book or market value of the Common Stock on the date of
conversion if the Common Stock has been subject to a closing bid price lower
than $4.00 per share during the Look Back Period and/or the Common Stock is
trading at greater than $4.00 per share. Under such circumstances, The Nasdaq
Stock Market, Inc.'s Marketplace Rules require shareholder approval
for the issuance of any Common Stock in excess of 20% of the Common Stock
outstanding (the "Excess Shares") immediately prior to the conversion. If all
2,500 Series B Shares were converted at $4.00 per share, a total of
10
1,250,000 new shares of Common Stock would be issued, representing 37.9% of the
Common Stock outstanding as of March 26, 1999. Accordingly, the full conversion
of the Series B Shares into shares of Common Stock would result in substantial
dilution to the current holders of the Common Stock. If the conversion price is
reduced below $4.00 per share pursuant to the provisions of the Look Back
Period, or if the Additional Shares are issued, the level of such dilution would
increase. A resolution will be presented to the meeting to consent to issuance
of the Common Stock underlying the conversion rights of the Series B Shares and
the Additional Shares, if required. The affirmative vote of a majority of the
number of votes entitled to be cast by the Common Stock represented at the
meeting is needed to approve the issuance of such shares of Common Stock.
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE "FOR" THE APPROVAL
OF THE ISSUANCE OF THE SERIES B SHARES, THE ISSUANCE OF THE ADDITIONAL SHARES
AND THE ISSUANCE OF THE UNDERLYING SHARES OF COMMON STOCK UPON CONVERSION OF THE
SERIES B SHARES.
SHAREHOLDER PROPOSALS AND NOMINATIONS FOR THE 2000 ANNUAL MEETING
Shareholder proposals to be included in the Proxy Statement for our next
annual meeting of Shareholders must be received by the Company's Secretary not
later than November 15, 1999. In addition, a proposal must meet all other
requirements of the Securities and Exchange Commission, North Carolina corporate
law and the Company's By-laws. A copy of the Company's By-laws may be obtained
from the Secretary.
By Order of the Board of Directors
WILLIAM G. BENTON, Chairman
April 13, 1999
11
EXHIBIT A
ARTICLES OF AMENDMENT
INCORPORATING CERTIFICATE OF DESIGNATION, POWERS, PREFERENCES
AND RIGHTS OF PREFERRED STOCK OF DIVERSIFIED SENIOR SERVICES, INC.
TO BE DESIGNATED 12% SERIES B CUMULATIVE CONVERTIBLE PREFERRED STOCK
STATE OF NORTH CAROLINA
DEPARTMENT OF THE SECRETARY OF STATE
ARTICLES OF AMENDMENT
BUSINESS CORPORATION
Pursuant to ss.55-10-06 of the General Statutes of North Carolina, the
undersigned corporation hereby submits the following Articles of Amendment for
the purposes of amending its Articles of Incorporation.
1. The name of the corporation is: DIVERSIFIED SENIOR SERVICES, INC.
2. The text of each amendment adopted is as follows (STATE BELOW OR ATTACH):
SEE EXHIBIT "A" ATTACHED HERETO AND MADE A PART HEREOF
3. If an amendment provides for an exchange, reclassification, or cancellation
of issued shares, provisions for implementing the amendment, if not
contained in the amendment itself, are as follows:
N/A
4. The date of adoption of each amendment was as follows: March 15, 1999
5. (Check either a, b, c, or d, whichever is applicable)
a. _____ The amendment(s) was (were) duly adopted by the incorporators
prior to the issuance of shares.
b. The amendment(s) was (were) duly adopted by the board or directors prior
to the issuance of shares.
c. X The amendment(s) was (were) duly adopted by the board or directors
without shareholder action as shareholder action was not required because
(SET FORTH A BRIEF EXPLANATION OF WHY SHAREHOLDER ACTION WAS NOT REQUIRED)
THE ARTICLES OF INCORPORATION OF THE COMPANY AUTHORIZE THE DIRECTORS SO TO
ACT.
d. _____ The amendment(s) was (were) approved by shareholder action, and
such shareholder approval was obtained as required by Chapter 55 of the
North Carolina General Statutes.
6. These articles will be effective upon filing, unless a delayed time and
date is specified:
-----------------------------------------------------------------------
This the 19th day of March, 1999.
DIVERSIFIED SENIOR SERVICES, INC.
---------------------------------
Name Of Corporation
/S/ SUSAN L. CHRISTIANSEN
---------------------------------
Signature
SUSAN L. CHRISTIANSEN, PRESIDENT
--------------------------------
Type or Print name and Title
CERTIFICATE OF DESIGNATION, POWERS,
PREFERENCES AND RIGHTS OF THE SERIES
OF
PREFERRED STOCK
OF
DIVERSIFIED SENIOR SERVICES, INC.
TO BE DESIGNATED
12% SERIES B CUMULATIVE CONVERTIBLE PREFERRED STOCK
Pursuant to Section 55-6-02 of the North Carolina Business Corporation Act,
we, the undersigned, Susan L. Christiansen and Joanne Ragan, being respectively
the President and the Secretary of Diversified Senior Services, Inc. (the
"COMPANY"), a Company organized and existing under the North Carolina Business
Corporation Act, DO HEREBY CERTIFY that the following resolution was duly
adopted by the Board of Directors of the Company by unanimous written consent,
and that said resolution has not been rescinded or amended and is in full force
and effect at the date hereof:
RESOLVED, that, pursuant to authority expressly granted to and vested in
the Board of Directors by the provisions of the Articles of Incorporation, as
amended to date, the Board of Directors hereby creates a series of a series of
Preferred Stock of the Company, no par value per share and a stated value of
$2,000 per share, to be designated "12% Series B Cumulative Convertible
Preferred Stock" and to consist of Three Thousand (3,000) shares, and hereby
fixes the powers, designations, preferences and relative, participating,
optional and other rights of the shares of such series, and the qualifications,
limitations, or restrictions thereof (in addition to those provisions set forth
in the Articles of Incorporation, as amended, which are applicable to the 12%
Series B Cumulative Convertible Preferred Stock), as follows:
Section 1. DESIGNATION, AMOUNT, PAR VALUE, STATED VALUE AND RANK. The
series of Preferred stock shall be designated as 12% Series B Cumulative
Convertible Preferred Stock (the "SERIES B PREFERRED STOCK"), and the number of
shares so designated shall be 3,000 (which shall not be subject to increase
without the consent of the holders of the Series B Preferred Stock ("HOLDERS")).
Each share of Series B Preferred Stock shall have a no par value per share and a
stated value of $2000 per share (the "STATED VALUE").
The Series B Preferred Stock shall rank senior to the Junior Securities (as
defined below) and all other series of preferred stock of the Company issued and
outstanding on the Original Issue Date as to distributions and upon liquidation,
dissolution or winding up.
SECTION 2. DIVIDENDS.
(a) AMOUNT OF DIVIDENDS. The holders of Series B Preferred Stock shall
be entitled to receive, in preference to the holders of Common Stock or any
other Junior Securities, cumulative annual dividends at the annual rate of 12%
of the Stated Value in cash for each share of Series B Preferred Stock held.
Such dividends shall be payable as and when declared by the Board of Directors
out of the assets of the Company legally available for payment thereof.
Dividends shall be paid in cash. Dividends payable to holders of Series B
Preferred Stock, as aforesaid, whether or not declared by the Board of
Directors, shall accrue from and after the date of original issuance of the
Series B Preferred Stock and shall be paid semi-annually in arrears on the first
business day of January and July in each year (each, a "Dividend Date"),
commencing on July 1, 1999. Dividends will be payable to holders of record as
they appear on the stock books of the Company on the record date, which will be
the December 15 or June 15, as the case may be, before the related Dividend
Date.
(b) PAYMENT OF DIVIDENDS ON COMMON STOCK AND JUNIOR SECURITIES. No
cash dividends may be paid, or funds set apart for payment, on shares of any
class of Junior Securities until all accrued dividends on the Series B Preferred
Stock have been paid in full or declared and funds set apart for payment thereof
in full. Additionally, the Company shall not declare or make any dividend or
distribution
Exhibit A-1
with respect to Common Stock, other than regular cash dividends or dividends
payable solely in shares of Common Stock, unless each holder of Series B
Preferred Stock concurrently receives dividends or distributions equal in amount
and in the same kind of property (whether cash, securities or other property) as
such holder would be entitled to receive if all of the outstanding Series B
Preferred Stock were converted into Common Stock as of the record date of such
dividend or distribution with respect to Common Stock. As used herein, the term
"regular cash dividends" shall mean any cash dividend publicly characterized by
the Board of Directors at the time of its declaration as a regular dividend,
whether payable on a quarterly, semi-annual or annual basis.
Section 3. JUNIOR SECURITIES. So long as any Series B Preferred Stock shall
remain outstanding, neither the Company nor any subsidiary thereof shall redeem,
purchase or otherwise acquire otherwise than upon conversion or exchange
directly or indirectly any Junior Securities, nor shall the Company directly or
indirectly pay or declare any dividend or make any distribution (other than a
dividend or distribution described in Section 6) upon, nor shall any
distribution be made in respect of, any Junior Securities, nor shall any monies
be set aside for or applied to the purchase or redemption (through a sinking
fund or otherwise) of any Junior Securities.
Section 4. VOTING RIGHTS. The holders of Series B Preferred Stock shall
have no right to vote, except as otherwise required by North Carolina law.
However, so long as any shares of Series B Preferred Stock are outstanding, the
Company shall not and shall cause its subsidiaries not to, without the written
consent of the holders of 66 2/3% of the shares of the Series B Preferred Stock
then outstanding, (a) amend, alter or change the preferences or rights of any
series or class of capital stock of the Company (including the Series B
Preferred Stock) or the qualifications, limitations or restrictions thereof if
such amendment, alteration or change adversely affects the powers, preferences
or rights given to the Series B Preferred Stock, (b) alter or amend this
Certificate of Designation, (c) authorize or create any class or series of any
class of capital stock ranking as to distribution of assets upon a Liquidation
(as defined in Section 5) or otherwise senior to the Series B Preferred Stock,
(d) amend its Articles of Incorporation, bylaws or other charter documents so as
to affect adversely any rights of any Holders, (e) increase the authorized
number of shares of Series B Preferred Stock, and (f) enter into any agreement
with respect to the foregoing.
Section 5. LIQUIDATION. Upon any liquidation, dissolution or winding-up of
the Company, whether voluntary or involuntary (a "LIQUIDATION"), the Holders
shall be entitled to receive out of the assets of the Company, whether such
assets are capital or surplus, for each share of Series B Preferred Stock an
amount equal to the Stated Value before any distribution or payment shall be
made to the holders of any Junior Securities, and if the assets of the Company
shall be insufficient to pay in full such amounts, then the entire assets to be
distributed to the holders of Series B Preferred Stock shall be distributed
among the holders of Series B Preferred Stock and the holders of all securities
ranking PARI PASSU to the Series B Preferred Stock ratably in accordance with
the respective amounts that would be payable on such shares if all amounts
payable thereon were paid in full. A sale, conveyance or disposition of all or
substantially all of the assets of the Company or the effectuation by the
Company of a transaction or series of related transactions in which more than
50% of the voting power of the Company is disposed of, or a consolidation or
merger of the Company with or into any other company or companies shall not be
treated as a Liquidation, but instead shall be subject to the provisions of
Section 6(c)(ii). The Company shall mail written notice of any such Liquidation,
not less than 45 days prior to the payment date stated therein, to each record
holder of Series B Preferred Stock.
Exhibit A-2
Section 6. CONVERSION.
(a) (i) Each share of Series B Preferred Stock shall be convertible
into shares of Common Stock (subject to Section 6(a)(ii) and Section 6(a)(iii))
at the Conversion Ratio (as defined in Section 9) at the option of the Holder in
whole or in part at any time after the Original Issue Date. The Holders shall
effect conversions by surrendering the certificate or certificates representing
the shares of Series B Preferred Stock to be converted to the Company, together
with the form of conversion notice attached hereto as EXHIBIT A (the "CONVERSION
NOTICE"). Each Conversion Notice shall specify the number of shares of Series B
Preferred Stock to be converted. The date on which such conversion is to be
effected shall be the date the Holder delivers such Conversion Notice by
facsimile (the "CONVERSION DATE"). Subject to Sections 6(a)(ii) and 6(b) hereof,
each Conversion Notice, once given, shall be irrevocable. If the Holder is
converting less than all shares of Series B Preferred Stock represented by the
certificate or certificates tendered by the Holder with the Conversion Notice,
or if a conversion hereunder cannot be effected in full for any reason, the
Company shall promptly deliver to such Holder (in the manner and within the time
set forth in Section 6(b)) a certificate for such number of shares as have not
been converted.
(ii) If on the Conversion Date applicable to any conversion, (A) the
Common Stock is then listed for trading on the Nasdaq National Market, the
New York Stock Exchange, the American Stock Exchange or The Nasdaq Small
Cap Market, (B) the Conversion Price then in effect is such that the
aggregate number of shares of Common Stock that would then be issuable upon
conversion of all outstanding shares of Series B Preferred Stock, together
with any shares of Common Stock previously issued upon conversion of Series
B Preferred Stock, would equal or exceed 20% of the number of shares of
Common Stock outstanding on the Original Issue Date (the "ISSUABLE
MAXIMUM"), and (C) the Company has not previously obtained (or attempted
pursuant to clause (1) of this subsection to obtain) Shareholder Approval
(as defined below), then the Company shall issue to any Holder so
requesting conversion of Series B Preferred Stock its pro rata portion of
the Issuable Maximum in the same ratio that the number of shares of Series
B Preferred Stock held by any such Holder bears to all shares of Series B
Preferred Stock then outstanding and, with respect to any shares of Common
Stock that otherwise would have been issuable to such Holder in respect of
the Conversion Notice at issue in excess of the Issuable Maximum, the
Company shall at the Holder's request, (1) as promptly as possible but in
no event later than 45 days after such Conversion Date, convene a meeting
of the holders of the Common Stock and use its best efforts to obtain the
Shareholder Approval or a waiver of such approval from The Nasdaq Stock
Market or the appropriate exchange, and (2) as promptly as possible from
time to time, after a written request by the Holder, issue shares of Common
Stock at a Conversion Price equal to the Per Share Market Value on the
Trading Day immediately preceding the date of such request for all or a
portion of the shares of Series B Preferred Stock held by such Holder as
would cause the number of shares of Common Stock issuable upon such
conversion to exceed the Issuable Maximum. "SHAREHOLDER APPROVAL" means the
approval by a majority of the total votes cast on the proposal, in person
or by proxy, at a meeting of the shareholders of the Company held in
accordance with the Company's Articles of Incorporation and bylaws, of the
issuance by the Company of shares of Common Stock exceeding the Issuable
Maximum as a consequence of the conversion of Series B Preferred Stock into
Common Stock at a price less than the greater of the book or market value
on the Original Issue Date as and to the extent required pursuant to Rule
4460(i) or Rule 4310(c)(25) of The Nasdaq Stock Market, Inc.'s Marketplace
Rules (or any successor or replacement provision thereof).
(iii) In no event shall a Holder be permitted to convert any shares of
Series B Preferred Stock in excess of the number of such shares upon the
conversion of which, (x) the number of shares of Common Stock owned by such
Holder (other than shares of Common Stock issuable upon conversion of
shares of Series B Preferred Stock) plus (y) the number of shares of Common
Stock issuable upon such conversion of such shares of Series B Preferred
Stock, would be equal to or exceed (z) 9.999% of the number of shares of
Common Stock then issued and outstanding, including shares issuable on
conversion of the Series B Preferred Stock held by such
Holder after application of this Section 6(a)(iii). As used herein,
beneficial ownership shall be determined in accordance with Section 13(d)
of the Exchange Act and the rules and regulations
Exhibit A-3
thereunder. To the extent that the limitation contained in this Section
6(a)(iii) applies, the determination of whether shares of Series B
Preferred Stock are convertible (in relation to other securities owned by a
Holder) and of which shares of Series B Preferred Stock are convertible
shall be in the sole discretion of such Holder, and the submission of
shares of Series B Preferred Stock for conversion shall be deemed to be
such Holder's determination of whether such shares of Series B Preferred
Stock are convertible (in relation to other securities owned by a Holder)
and of which shares of Series B Preferred Stock are convertible, in each
case subject to such aggregate percentage limitation, and the Company shall
have no obligation to verify or confirm the accuracy of such determination.
Nothing contained herein shall be deemed to restrict the right of a Holder
to convert such shares of Series B Preferred Stock at such time as such
conversion will not violate the provisions of this paragraph. The
provisions of this Section 6(a)(iii) may be waived by a Holder of Series B
Preferred Stock as to itself (and solely as to itself) upon not less than
75 days prior notice to the Company, and the provisions of this Section
6(a)(iii) shall continue to apply until such 75th day (or later, if stated
in the notice of waiver). No conversion in violation of this paragraph but
otherwise in accordance with this Certificate of Designation shall affect
the status of the securities issued upon such conversion as validly issued,
fully-paid and nonassessable.
(b) (i) Not later than seven (7) Trading Days after any Conversion Date,
tthe Company will deliver to the applicable Holder by express courier (A) a
certificate or certificates which shall be free of restrictive legends and
trading restrictions (other than those required by SECTION 3.1(B) of the
Purchase Agreement) representing the number of shares of Common Stock being
acquired upon the conversion of shares of Series B Preferred Stock (subject to
reduction pursuant to Section 6(a)(ii) and Section 6(a)(iii)), and (B) one or
more certificates representing the number of shares of Series B Preferred Stock
not converted. If in the case of any Conversion Notice such certificate or
certificates are not delivered to or as directed by the applicable Holder by the
seventh Trading Day after the Conversion Date (the "DELIVERY DATE"), the holder
shall be entitled by written notice to the Company at any time on or before its
receipt of such certificate or certificates thereafter, to rescind such
conversion, in which event the Company shall immediately return the certificates
representing the shares of Series B Preferred Stock tendered for conversion,
whereupon the Company and the Holder shall each be restored to their respective
positions immediately prior to the delivery of such notice of revocation, except
that any amounts described in Sections 6(b)(ii) and (iii) shall be payable
through the date notice of rescission is given to the Company.
(ii) The Company understands that a delay in the delivery of the
shares of Common Stock upon conversion of shares of Series B Preferred
Stock and failure to deliver certificates representing the unconverted
shares of Series B Preferred Stock beyond the Delivery Date could result in
economic loss to the Holder. If the Company fails to deliver to the Holder
such certificate or certificates pursuant to this Section hereunder by the
Delivery Date, the Company shall pay to such Holder, in cash, an amount per
Trading Day for each Trading Day until the earlier of the date such
certificates are delivered or the date the conversion is rescinded pursuant
to Section 6(b)(i) above, together with interest on such amount at a rate
of 15% per annum, accruing until such amount and any accrued interest
thereon is paid in full, equal to (i) 1% of the Stated Value of the shares
of Series B Preferred Stock requested to be converted for the first five
Trading Days after the Delivery Date and (ii) 2% of the Stated Value of the
shares of Series B Preferred Stock requested to be converted for each
Trading Day thereafter (which amounts shall be paid as liquidated damages
and not as a penalty). Nothing herein shall limit a Holder's right to
pursue actual damages for the Company's failure to deliver certificates
representing shares of Common Stock upon conversion within the period
specified herein (including, without limitation, damages relating to any
purchase of shares of Common Stock by such Holder to make delivery on a
sale effected in anticipation of receiving certificates representing shares
of Common Stock upon conversion, as provided in Section 6(b)(iii) below),
and such Holder shall have the right to pursue all remedies available to it
at law or in equity (including, without limitation, a decree of specific
performance and/or injunctive relief).
(iii) In addition to any other rights available to the Holder, if the
Company fails to deliver to the Holder such certificate or certificates
pursuant to Section 6(b)(i) by the Delivery Date and if after the Delivery
Date the Holder purchases (in an open market transaction or
Exhibit A-4
otherwise) shares of Common Stock to deliver in satisfaction of a sale by
such Holder of the Underlying Shares which the Holder anticipated receiving
upon such conversion (a "Buy-In"), then the Company shall pay in cash to
the Holder (in addition to any remedies available to or elected by the
Holder) the amount by which (A) the Holder's total purchase price
(including brokerage commissions, if any) for the shares of Common Stock so
purchased exceeds (B) the aggregate Stated Value of the shares of Series B
Preferred Stock for which such conversion was not timely honored, together
with interest thereon at a rate of 15% per annum, accruing until such
amount and any accrued interest thereon is paid in full (which amount shall
be paid as liquidated damages and not as a penalty). For example, if the
Holder purchases shares of Common Stock having a total purchase price of
$11,000 to cover a Buy-In with respect to an attempted conversion of
$10,000 aggregate Stated Value of the shares of Series B Preferred Stock,
the Company shall be required to pay the Holder $1,000, plus interest. The
Holder shall provide the Company written notice indicating the amounts
payable to the Holder in respect of the Buy-In.
(c) (i) Prior to December 14, 1999, the conversion price for each share of
Series B Preferred Stock (the "CONVERSION PRICE") in effect on any Conversion
Date shall be $4.00. On and after December 14, 1999, the Conversion Price for
each share of Series B Preferred Stock in effect on any Conversion Date shall be
the lesser of (A) $4.00 and (B) an the Per Share Market Value for the Trading
Day having the lowest Per Share Market Value during the thirty Trading Days
prior to the Conversion Date, except that if during any period (a "BLACK-OUT
PERIOD"), a Holder is unable to trade any Common Stock issued or issuable upon
conversion of Series B Preferred Stock immediately due to the postponement of
filing or delay or suspension of effectiveness of a registration statement or
because the Company has otherwise informed such Holder that an existing
prospectus cannot be used at that time in the sale or transfer of such Common
Stock, such Holder shall have the option but not the obligation on any
Conversion Date within ten Trading Days following the expiration of the
Black-out Period of using the Conversion Price applicable on such Conversion
Date or any Conversion Price selected by such Holder that would have been
applicable had such Conversion Date been at any earlier time during the
Black-out Period or within the ten Trading Days thereafter.
(ii) In case the Company after the Original Issue Date shall do any of
the following (each, a "TRIGGERING EVENT") (a) consolidate with or merge
into any other person and the Company shall not be the continuing or
surviving Company of such consolidation or merger, or (b) permit any other
person to consolidate with or merge into the Company and the Company shall
be the continuing or surviving person but, in connection with such
consolidation or merger, any capital stock of the Company shall be changed
into or exchanged for securities of any other person or cash or any other
property, or (c) transfer all or substantially all of its properties or
assets to any other person, or (d) effect a capital reorganization or
reclassification of its capital stock, the holders of the Series B
Preferred Stock then outstanding shall have the right thereafter to convert
such shares only into the shares of stock and other securities, cash and
property receivable upon or deemed to be held by holders of Common Stock
following such Triggering Event, and the holders of the Series B Preferred
Stock shall be entitled upon such event to receive such amount of
securities, cash or property as the shares of the Common Stock of the
Company into which such shares of Series B Preferred Stock could have been
converted immediately prior to such Triggering Event would have been
entitled. The terms of any such Triggering Event shall include such terms
so as to continue to give to the holder of Series B Preferred Stock the
right to receive the securities, cash or property set forth in this Section
6(c)(ii) upon any conversion following such Triggering Event. This
provision shall similarly apply to successive Triggering Events.
(iii) If:
A. the Company shall declare a dividend (or any other
distribution) on its Common Stock; or
B. the Company shall declare a special nonrecurring cash
dividend on or a redemption of its Common Stock; or
Exhibit A-5
C. the Company shall authorize the granting to all holders of
the Common Stock rights or warrants to subscribe for or
purchase any shares of capital stock of any class or of any
rights; or
D. the approval of any shareholders of the Company shall be
required in connection with any Triggering Event; or
E. the Company shall authorize the voluntary or involuntary
dissolution, liquidation or winding up of the affairs of the
Company;
then the Company shall cause to be filed at each office or agency maintained for
the purpose of conversion of Series B Preferred Stock, and shall cause to be
mailed to the Holders of Series B Preferred Stock at their last addresses as
they shall appear upon the stock books of the Company, at least 30 calendar days
prior to the applicable record or effective date hereinafter specified, a notice
stating (x) the date on which a record is to be taken for the purpose of such
dividend, distribution, redemption, rights or warrants, or if a record is not to
be taken, the date as of which the holders of Common Stock of record to be
entitled to such dividend, distributions, redemption, rights or warrants are to
be determined or (y) the date on which such reclassification, consolidation,
merger, sale, transfer or share exchange is expected to become effective or
close, and the date as of which it is expected that holders of Common Stock of
record shall be entitled to exchange their shares of Common Stock for
securities, cash or other property deliverable upon such reclassification,
consolidation, merger, sale, transfer or share exchange; PROVIDED, HOWEVER, that
the failure to mail such notice or any defect therein or in the mailing thereof
shall not affect the validity of the corporate action required to be specified
in such notice. Holders are entitled to convert shares of Series B Preferred
Stock during the 30-day period commencing the date of such notice to the
effective date of the event triggering such notice.
(d) The Company covenants that it will at all times reserve and keep
available out of its authorized and unissued Common Stock solely for the purpose
of issuance upon conversion of Series B Preferred Stock free from preemptive
rights or any other actual contingent purchase rights of persons other than the
holders of Series B Preferred Stock, not less than such number of shares of
Common Stock as shall (subject to any additional requirements of the Company as
to reservation of such shares set forth in the Purchase Agreement) be issuable
(taking into account the adjustments and restrictions of Section 6(c)) upon the
conversion of all outstanding shares of Series B Preferred Stock. The Company
covenants that all shares of Common Stock that shall be so issuable shall, upon
issue, be duly and validly authorized, issued and fully paid, nonassessable and
freely tradable.
(e) Upon a conversion hereunder the Company shall not be required to issue
stock certificates representing fractions of shares of Common Stock, but may if
otherwise permitted, make a cash payment in respect of any final fraction of a
share based on the Per Share Market Value at such time. If the Company elects
not, or is unable, to make such a cash payment, the holder of a share of Series
B Preferred Stock shall be entitled to receive, in lieu of the final fraction of
a share, one whole share of Common Stock.
(f) The issuance of certificates for shares of Common Stock on conversion
of Series B Preferred Stock shall be made without charge to the holders thereof
for any documentary stamp or similar taxes that may be payable in respect of the
issue or delivery of such certificate.
(g) Shares of Series B Preferred Stock converted into Common Stock shall be
canceled and shall have the status of authorized but unissued shares of
undesignated preferred stock.
(h) Any and all notices or other communications or deliveries to be
provided by the holders of the Series B Preferred Stock hereunder, including,
without limitation, any Conversion Notice, shall be in writing and delivered
personally, by facsimile or sent by a nationally recognized overnight courier
service, addressed to the attention of the President and to the Secretary of the
Company at the facsimile telephone number or address of the principal place of
business of the Company as set forth in the Purchase Agreement. Any and all
notices or other communications or deliveries to be provided by the Company
Exhibit A-6
hereunder shall be in writing and delivered personally, by facsimile or sent by
a nationally recognized overnight courier service, addressed to each Holder of
Series B Preferred Stock at the facsimile telephone number or address of such
holder appearing on the books of the Company, or if no such facsimile telephone
number or address appears, at the principal place of business of the Holder. Any
notice or other communication or deliveries hereunder shall be deemed given and
effective on the earlier of (i) the date of transmission, if such notice or
communication is delivered via facsimile at the facsimile telephone number
specified in this Section prior to 5:00 p.m., New York City time, (ii) the date
after the date of transmission, if such notice or communication is delivered via
facsimile at the facsimile telephone number specified in this Section later than
5:00 p.m., New York City time, on any date and earlier than 11:59 p.m., New York
City time, on such date, (iii) receipt, if sent by a nationally recognized
overnight courier service, or (iv) actual receipt by the party to whom such
notice is required to be given.
(i) In the event a Holder shall elect to convert any shares of Series B
Preferred Stock as provided herein, the Company cannot refuse conversion based
on any claim that such Holder or any one associated or affiliated with such
Holder has been engaged in any violation of law, unless, an injunction from a
court or regulatory body, on notice, restraining and or adjoining conversion of
all or of said shares of Series B Preferred Stock shall have issued and the
Company posts a surety bond for the benefit of such Holder in the amount of the
difference between the Conversion Price and the Per Share Market Value on the
Trading Day preceding the date of the attempted conversion multiplied by the
number of shares of Series B Preferred Stock sought to be converted, which bond
shall remain in effect until the completion of arbitration/litigation of the
dispute and the proceeds of which shall be payable to such Holder in the event
it obtains judgment. Any Holder which becomes subject to an injunction of the
type described in the preceding sentence shall notify the Company of such within
one day of becoming aware of such injunction.
Section 7. OPTIONAL REDEMPTION.
(a) REDEMPTION RIGHT. The Company shall have the right to redeem the
outstanding Series B Preferred Stock, in whole or in part, at any time and from
time to time, from and after the first day on which Per Share Market Value
exceeds $8.00 by paying to the holders thereof in cash 100% of the Stated Value,
together with all accrued and unpaid dividends thereon through the Redemption
Date (as defined in below).
(b) NOTICE OF REDEMPTION. If any shares of Series B Preferred Stock
are to be redeemed pursuant to Section 7(a) hereof, notice thereof (the
"Redemption Notice") shall be sent at least 30 and not more than 60 days prior
to the date fixed for redemption (the "Redemption Date") to each holder of
record whose Series B Preferred Stock is to be redeemed, by first class mail,
postage pre-paid, to such holder at such holder's address as the same shall
appear on the books of the Company. The Redemption Notice shall state (a) the
Redemption Date, (b) the redemption price, (c) the then current Conversion Rate,
(d) that the shares called for redemption may be converted at any time before
the close of business on the business day preceding the Redemption Date, (e)
that holders who want to convert shares of Series B Preferred Stock must satisfy
the requirements of Section 6(a) hereof, (f) the place at which certificates for
shares of Series B Preferred Stock called for redemption must be surrendered to
collect the redemption price, (g) that dividends on shares of Series B Preferred
Stock called for redemption cease to accrue at the close of the last day of
business prior to the Redemption Date and (h) the Section of this Certificate of
Designation, Powers, Preferences and Rights pursuant to which they are to be
redeemed.
(c) PARTIAL REDEMPTION. If less than all of the outstanding shares of
Series B Preferred Stock are to be redeemed, the shares to be redeemed shall be
determined PRO RATA or by lot in a manner fixed by the Board of Directors. On or
after the Redemption Date, each holder of shares of Series B Preferred Stock
that were called for redemption shall present and surrender the certificate or
certificates for such shares to the Company at the place designated in the
Redemption Notice and thereupon the redemption price of such shares shall be
paid to, or to the order of, the person whose name appears on such certificate
or certificates as the owner thereof. From and after the Redemption Date, unless
the Company shall default in the payment of redemption price pursuant to the
Redemption Notice, all dividends on the Series B Preferred Stock shall cease to
accrue and all rights of the holders thereof as stockholders of the Company,
except the right to receive the redemption price (but without interest thereon),
shall cease and
Exhibit A-7
terminate. Any and all shares of Series B Preferred Stock redeemed, purchased
or otherwise acquired by the Company thereafter shall be cancelled and returned
to the status of authorized and unissued Preferred Stock.
(d) TRANSFER BOOKS. To facilitate the redemption of any shares of
Series B Preferred Stock, the Board of Directors is authorized to cause the
transfer books for such Series B Preferred Stock to be closed as to the shares
to be redeemed, unless the rules of any national securities exchange or
automated quotation system on which the Series B Preferred Stock may be listed
or quoted prohibit the closing of such transfer books.
Section 8. NO PREEMPTIVE RIGHTS. No holder of Series B Preferred Stock
shall have any preemptive or preferential right of subscription to any shares of
stock of the Company, or to options, warrants or other interests therein or
therefor, or to any obligations convertible into stock of the Company, issued or
sold, or any right of subscription to any thereof other than such, if any, as
the Board of Directors, in its discretion, from time to time may determine and
at such price or prices as the Board of Directors from time to time may fix
pursuant to the authority conferred by the Company's Articles of Incorporation.
Section 9. DEFINITIONS. For the purposes hereof, the following terms shall
have the following meanings:
"COMMON STOCK" means the common stock, no par value, of the Company and
stock of any other class into which such shares may hereafter have been
reclassified or changed.
"CONVERSION RATIO" means, at any time, a fraction, of which the numerator
is Stated Value and of which the denominator is the Conversion Price at such
time.
"INDEPENDENT APPRAISER" means a nationally recognized or major regional
investment banking firm or firm of independent certified public accountants of
recognized standing (which may be the firm that regularly examines the financial
statements of the Company) that is regularly engaged in the business of
appraising the capital stock or assets of corporations or other entities as
going concerns, and which is not affiliated with either the Company or any
Holder.
"JUNIOR SECURITIES" means the Common Stock and all other equity securities
of the Company which are junior in rights and liquidation preference to the
Series B Preferred Stock.
"NASDAQ" means the National Association of Securities Dealers Automated
Quotation System.
"ORIGINAL ISSUE DATE" shall mean the date of the first issuance of any
shares of the Series B Preferred Stock regardless of the number of transfers of
any particular shares of Series B Preferred Stock and regardless of the number
of certificates which may be issued to evidence such Series B Preferred Stock.
"PER SHARE MARKET VALUE" means on any particular date (a) the closing bid
price per share of the Common Stock on such date on The Nasdaq Small-Cap Market,
the Nasdaq National Market or other registered national stock exchange on which
the Common Stock is then listed or if there is no such price on such date, then
the closing bid price on such exchange or quotation system on the date nearest
preceding such date, or (b) if the Common Stock is not listed then on The Nasdaq
Small-Cap Market, the Nasdaq National Market or any registered national stock
exchange, the closing bid price for a share of Common Stock in the
over-the-counter market, as reported by NASDAQ or in the National Quotation
Bureau Incorporated or similar organization or agency succeeding to its
functions of reporting prices) at the close of business on such date, or (c) if
the Common Stock is not then reported by the National Quotation Bureau
Incorporated (or similar organization or agency succeeding to its functions of
reporting prices), then the average of the "Pink Sheet" quotes for the relevant
conversion period, as determined in good faith by the holder, or (d) if the
Common Stock is not then publicly traded the fair market value of a share of
Common Stock as determined by an Independent Appraiser selected in good faith by
the holders of a majority in interest of the shares of the Series B Preferred
Stock; PROVIDED, HOWEVER, that the Company, after receipt of
Exhibit A-8
the determination by such Independent Appraiser, shall have the right to
select an additional Independent Appraiser, in which case, the fair market value
shall be equal to the average of the determinations by each such Independent
Appraiser; and PROVIDED, FURTHER that all determinations of the Per Share Market
Value shall be appropriately adjusted for any stock dividends, stock splits or
other similar transactions during such period. The determination of fair market
value by an Independent Appraiser shall be based upon the fair market value of
the Issuer determined on a going concern basis as between a willing buyer and a
willing seller and taking into account all relevant factors determinative of
value, and shall be final and binding on all parties. In determining the fair
market value of any shares of Common Stock, no consideration shall be given to
any restrictions on transfer of the Common Stock imposed by agreement or by
federal or state securities laws, or to the existence or absence of, or any
limitations on, voting rights.
"PERSON" means an individual or Company, partnership, trust, incorporated
or unincorporated association, joint venture, limited liability company, joint
stock company, government (or an agency or subdivision thereof) or other entity
of any kind.
"PURCHASE AGREEMENT" means the Securities Purchase Agreement, dated as of
the Original Issue Date, among the Company and the original holders of the
Series B Preferred Stock.
"REGISTRATION RIGHTS AGREEMENT" means the Registration Rights Agreement,
dated as of the Original Issue Date, by and among the Company and the original
Holders.
"TRADING DAY" means (a) a day on which the Common Stock is traded on The
Nasdaq Small-Cap Market, the Nasdaq National Market or other registered national
stock exchange on which the Common Stock has been listed, or (b) if the Common
Stock is not listed on The Nasdaq Small-Cap Market, the Nasdaq National Market
or any registered national stock exchange, a day or which the Common Stock is
traded in the over-the-counter market, as reported by the OTC Bulletin Board, or
(c) if the Common Stock is not quoted on the OTC Bulletin Board, a day on which
the Common Stock is quoted in the over-the-counter market as reported by the
National Quotation Bureau Incorporated (or any similar organization or agency
succeeding its functions of reporting prices); PROVIDED, HOWEVER, that in the
event that the Common Stock is not listed or quoted as set forth in (a), (b) and
(c) hereof, then Trading Day shall mean any day except Saturday, Sunday and any
day which shall be a legal holiday or a day on which banking institutions in the
State of New York are authorized or required by law or other government action
to close.
"UNDERLYING SHARES" means the number of shares of Common Stock into which
the Shares are convertible in accordance with the terms hereof and the Purchase
Agreement.
IN WITNESS WHEREOF, we have subscribed this document on the date indicated
below and do hereby affirm, under the penalties of perjury, that the statements
contained therein have been examined by us and are true and correct.
Date: March 19, 1999
/S/ SUSAN L. CHRISTIANSEN
----------------------------
Name: Susan L. Christiansen
Title: President
/S/ JOANNE RAGAN
-----------------------------
Name: Joanne Ragan
Title: Secretary
Exhibit A-9
EXHIBIT A
DIVERSIFIED SENIOR SERVICES, INC.
CONVERSION NOTICE
Reference is made to the Certificate of Designation, Powers, Preferences and
Rights of the Series of Preferred Stock of Diversified Senior Services, Inc. to
be Designated 12% Series B Cumulative Convertible Preferred Stock (the
"CERTIFICATE OF DESIGNATION"). In accordance with and pursuant to the
Certificate of Designation, the undersigned hereby elects to convert the number
of shares of 12% Series B Cumulative Convertible Preferred Stock, no par value
per share and stated value $2,000 per share (the "PREFERRED SHARES"), of
Diversified Senior Services, Inc., a North Carolina Company (the "COMPANY"),
indicated below into shares of Common Stock, no par value (the "COMMON STOCK"),
of the Company, by tendering the stock certificates(s) representing the share(s)
of Preferred Shares specified below as of the date specified below.
Date of Conversion:
Number of Preferred Shares to be converted:
Stock certificate no(s). of Preferred Shares to be converted:
The Common Stock have been sold pursuant to the Registration Statement (as
defined in the Registration Rights Agreement): YES_____ NO_____
Please confirm the following information:
Conversion Price: $______________
Number of shares of Common Stock to be issued:
------------------------
Please issue the Common Stock into which the Preferred Shares are being
converted and, if applicable, any check drawn on an account of the Company in
the following name and to the following address:
Issued to: ________________________________________________________
Facsimile Number: _________________________________________________
Authorization: ____________________________________________________
By: _______________________________________________________________
Title: ____________________________________________________________
Dated: ____________________________________________________________
Account Number: ____________________________________________________
(if electronic book entry transfer)
Transaction Code Number: ___________________________________________
(if electronic book entry transfer)
Exhibit A-10
Please detach and Mail in the Envelope Provided
A. [X] Please mark your
votes as in this
example.
For all nominees
listed at right (except as WITHOLD AUTHORITY
marked to the to vote for all nominees
contrary below). listed at right:
1. Election of
Directors [ ] [ ] Nominees: For Three
Year Term
Expiring in 2002:
Instruction: To withold authority to vote for any Susan L. Christiansen
individual, strick a line through the nominee's Walter H. Ettinger, Jr.
name in the list at right.
FOR AGAINST ABSTAIN
2. Ratification of the appointment [ ] [ ] [ ]
of the Daniel Professional Group, Inc.
as auditors for the Company for year
ending December 31, 1999.
FOR AGAINST ABSTAIN
3. Approval of Issuance of Series B Preferred [ ] [ ] [ ]
Stock and Additional Shares of Common Stock
upon Conversion of the Series B Preferred
Stock
4. 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 SHAREHOLDER(S). IF NO DIRECTION IS MADE THIS PROXY WILL BE VOTED
"FOR" THE ELECTION OF ALL NOMINEES ABOVE 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 ________________________, 1999
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.