Exhibit 10.1
SECURITIES PURCHASE AGREEMENT
Among
DIVERSIFIED SENIOR SERVICES, INC.,
and
AUSTINVEST ANSTALT BALZERS,
ESQUIRE TRADE & FINANCE INC.
AMRO INTERNATIONAL, S.A.,
NESHER, INC.,
GUARANTEE & FINANCE CORP.
and
TAYLOR HOUSE ENTERPRISES, LIMITED
Dated as of May 3, 1999
TABLE OF CONTENTS
Page
ARTICLE I PURCHASE AND SALE OF PREFERRED STOCK
1.1 Purchase and Sale..........................................1
1.2 Purchase Price.............................................2
1.3 The Closings...............................................2
ARTICLE II REPRESENTATIONS AND WARRANTIES
2.1 Representations, Warranties and Agreements of the
Company....................................................4
2.2 Representations and Warranties of the Purchasers..........12
ARTICLE III OTHER AGREEMENTS OF THE PARTIES
3.1 Transfer Restrictions.....................................13
3.2 Stop Transfer Instruction.................................14
3.3 Furnishing of Information.................................14
3.4 Blue Sky Laws.............................................15
3.5 Integration...............................................15
3.6 Certain Agreements........................................15
3.7 Listing and Reservation of Underlying Shares;
Compliance with Law.......................................15
3.8 Notice of Breaches........................................16
3.9 Conversion Obligations of the Company.....................17
3.10 Use of Proceeds...........................................17
3.11 Indemnification...........................................17
3.12 Sales of Preferred Stock..................................18
3.13 Subsequent Sales and Registrations........................19
3.14 Shareholder Approval......................................19
3.15 Restriction on Indebtedness...............................19
3.16 Incorporation of Certificate of Designation By Reference..20
3.17 Tangible Net Worth........................................20
3.18 Conversion of Shares......................................20
3.19 Short Sales...............................................20
3.20 Put Option................................................20
3.21 Public Relations Firm.....................................22
3.22 Performance Payments......................................22
3.23 Other Agreements..........................................23
ARTICLE IV CONDITIONS
4.1 Conditions Precedent to Sale of the Initial
Preferred Stock...........................................23
4.2 Conditions Precedent to the Obligation of the
Purchasers to Purchase the Additional Preferred Stock.....25
ARTICLE V MISCELLANEOUS
5.1 Fees and Expenses.........................................28
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5.2 Entire Agreement; Amendments..............................28
5.3 Notices...................................................28
5.4 Amendments; Waivers.......................................29
5.5 Headings..................................................29
5.6 Successors and Assigns....................................29
5.7 No Third Party Beneficiaries..............................30
5.8 Governing Law.............................................30
5.9 Survival..................................................30
5.10 Execution.................................................30
5.11 Publicity.................................................30
5.12 Consent to Jurisdiction; Attorneys' Fees..................30
5.13 Waiver of Jury Trial......................................31
5.14 Severability..............................................31
5.15 Remedies..................................................32
5.16 Independent Nature of Purchasers' Obligations and Rights..32
Schedules and Exhibits
Schedule 1 - Purchasers of Preferred Stock
Schedule 2.1(a) - Organization and Qualification; Subsidiaries
Schedule 2.1(c) - Capitalization; Rights to Acquire Capital Stock
Schedule 2.1(f) - Consents and Approvals
Schedule 2.1(g) - Litigation; Proceedings
Schedule 2.1(n) - Certain Fees
Schedule 2.1(r) - Listing and Maintenance Requirements Compliance
Schedule 2.1(u) - Registration Rights, Rights of Participation
Schedule 2.1(v) - Title
Schedule 2.1(w) - Regulatory Permits
Schedule 2.1(aa) - Year 2000 Compliance
Schedule 3.13 - Subsequent Sales and Registrations
Schedule 3.18 - Conversion of Shares
Exhibit A - Certificate of Designation
Exhibit B - Registration Rights Agreement
Exhibit C - Legal Opinion of House & Ingersoll
Exhibit D - Transfer Agent Instructions
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SECURITIES PURCHASE AGREEMENT
SECURITIES PURCHASE AGREEMENT (this "Agreement"), dated as of May 3,
1999, among Diversified Senior Services, Inc., a North Carolina corporation (the
"Company"), Austinvest Anstalt Balzers ("Austinvest"), Esquire Trade & Finance
Inc. ("Esquire"), Amro International, S.A. ("Amro"), Nesher, Inc. ("Nesher"),
Guarantee & Finance Corp. ("Guarantee") and Taylor House Enterprises, Limited
("THE"). Austinvest, Esquire, Amro, Nesher, Guarantee and THE are each referred
to herein as a "Purchaser" and are collectively referred to herein as the
"Purchasers."
WHEREAS, subject to the terms and conditions set forth in this
Agreement, the Company desires to issue and sell to the Purchasers, and the
Purchasers desire to acquire from the Company, shares of the Company's Series B
Convertible Preferred Stock, no par value per share and stated value of $2,000
per share (the "Preferred Stock").
NOW, THEREFORE, in consideration of the mutual covenants contained in
this Agreement, the Company and each Purchaser agree as follows:
ARTICLE I
PURCHASE AND SALE OF PREFERRED STOCK
1.1 Purchase and Sale.
(a) Subject to the terms and conditions set forth herein, the
Company shall issue and sell to the Purchasers, and the Purchasers,
severally and not jointly, shall purchase from the Company up to 2,500
shares of Preferred Stock. Notwithstanding anything to the contrary
set forth in this Agreement, the aggregate number of shares of
Preferred Stock to be sold hereunder shall not exceed 2,500.
(b) The Preferred Stock shall have the respective rights,
preferences and privileges set forth in the Certificate of Designation
of the Company (the "Certificate of Designation") the form of which is
annexed hereto as Exhibit A, which shall be approved by the Purchasers
and the Company's Board of Directors (the "Board of Directors") and
filed and accepted for filing on or prior to the Initial Closing Date
(as defined below) by the Company with the Secretary of State of the
State of North Carolina.
For purposes of this Agreement, "Trading Day," "Per Share Market
Value," "Conversion Date," "Conversion Notice," "Redemption Notice," "Redemption
Date" and "Original Issue Date" shall have the meanings set forth in the
Certificate of Designation.
1.2 Purchase Price. The purchase price per share of Preferred Stock
shall be $2000.00.
1.3 The Closings.
(a) The Initial Closing.
(i) The closing of the purchase and sale of the Initial
Preferred Stock (as defined below) (the "Initial Closing") shall
take place at the offices of Stroock & Stroock & Lavan LLP, 180
Maiden Lane, New York, New York 10038-4982, immediately following
the execution hereof or such later date or different location as
the parties shall agree in writing, but not prior to the date
that the conditions set forth in Section 4.1 have been satisfied
or waived by the appropriate party. The date of the Initial
Closing, is hereinafter referred to as the "Initial Closing
Date." At the Initial Closing, the Company shall sell and issue
to the Purchasers, and the Purchasers shall, severally and not
jointly, purchase from the Company, 1,500 shares of Preferred
Stock (the "Initial Preferred Stock") for an aggregate purchase
price of $3,000,000 (the "Initial Purchase Price").
(ii) At the Initial Closing (a) the Company shall deliver to
each Purchaser (1) stock certificates representing the shares of
Preferred Stock (the "Initial Shares") purchased by such
Purchaser as set forth next to such Purchaser's name on Schedule
1 attached hereto, each registered in the name of such Purchaser
and (2) all other documents, instruments and writings required to
have been delivered at or prior to the Initial Closing by the
Company pursuant to this Agreement and the Registration Rights
Agreement, dated the date hereof, by and among the Company and
the Purchasers, in the form of Exhibit B annexed hereto (the
"Registration Rights Agreement"), and (b) each Purchaser shall
deliver to the Company (1) the portion of the Initial Purchase
Price set forth next to its name on Schedule 1, in United States
dollars in immediately available funds by wire transfer to an
account designated in writing by the Company for such purpose on
or prior to the Initial Closing Date, and (2) all documents,
instruments and writings required to have been delivered at or
prior to the Initial Closing by such Purchaser pursuant to this
Agreement and the Registration Rights Agreement.
(b) Subsequent Closings.
(i) Second Closing. (A) Subject to the terms and conditions
set forth in Section 4.2 and elsewhere in this Agreement, on the
date on which the initial Registration Statement (as defined in
the Registration Rights Agreement) is filed with the Securities
and Exchange Commission (the "Commission") with respect to the
Preferred Stock, the Company shall deliver a written notice to
the Purchasers (a "Second Closing Notice") requiring the
Purchasers to purchase, severally and not jointly, an additional
357.50 shares of Preferred Stock (the "Second Tranche Preferred
Stock") for an aggregate purchase price of $715,000 (the "Second
Tranche Purchase Price"). At the Second Closing each Purchaser
shall be obligated (subject to the terms and conditions herein)
to purchase such
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portion of the Second Tranche Preferred Stock sold by the Company
as set forth opposite such Purchaser's name on Schedule 1 at the
purchase prices set forth on Schedule 1. The closing of the
purchase and sale of the Second Tranche Preferred Stock (the
"Second Closing") shall take place in the same manner as the
Initial Closing on such date indicated in the Second Closing
Notice (which may not be prior to the 10th day after receipt by
the Purchasers of the Second Closing Notice or as otherwise
agreed to by the parties); provided, however, that in no case
shall the Second Closing take place unless and until the
conditions listed in Section 4.2 have been satisfied or waived by
the appropriate party. The date of the Second Closing is
hereinafter referred to as the "Second Closing Date."
(B) At the Second Closing (a) the Company shall deliver to
each Purchaser (1) stock certificates representing the shares of
Preferred Stock (the "Second Tranche Shares") purchased by such
Purchaser as set forth next to such Purchaser's name on Schedule
1 attached hereto, each registered in the name of such Purchaser
and (2) all other documents, instruments and writings required to
have been delivered at or prior to the Second Closing by the
Company pursuant to this Agreement and the Registration Rights
Agreement, and (b) each Purchaser shall deliver to the Company
(1) the portion of the Second Tranche Purchase Price set forth
next to its name on Schedule 1, in United States dollars in
immediately available funds by wire transfer to an account
designated in writing by the Company for such purpose on or prior
to the Second Closing Date, and (2) all documents, instruments
and writings required to have been delivered at or prior to the
Second Closing by such Purchaser pursuant to this Agreement and
the Registration Rights Agreement.
(ii) Third Closing. (A) Subject to the terms and conditions
set forth in Section 4.2 and elsewhere in this Agreement, during
the time specified below the Company shall deliver a written
notice to the Purchasers (a "Third Closing Notice") requiring the
Purchasers to purchase an additional 367.50 shares of Preferred
Stock (the "Third Tranche Preferred Stock" and together with the
Second Tranche Preferred Stock, the "Additional Preferred Stock")
for an aggregate purchase price of $735,000 (the "Third Tranche
Purchase Price"). The Company shall deliver a Third Closing
Notice no earlier than 60 days after the date on which the
initial Registration Statement filed with the Commission with
respect to the Preferred Stock has been declared effective by the
Commission and no later than 90 days after such effective date.
At the Third Closing each Purchaser shall be obligated (subject
to the terms and conditions herein) to purchase such portion of
the Third Tranche Preferred Stock sold by the Company as set
forth opposite such Purchaser's name on Schedule 1 at the
purchase prices set forth on Schedule 1. The closing of the
purchase and sale of the Third Tranche Preferred Stock (the
"Third Closing") shall take place in the same manner as the
Initial Closing, on such date indicated in the Third Closing
Notice (which may not be prior to the 10th day after receipt by
the Purchasers of the Third Closing Notice or as otherwise agreed
to by the parties); provided, however, that in no case shall
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the Third Closing take place unless and until the conditions
listed in Section 4.2 have been satisfied or waived by the
appropriate party. The date of the Third Closing is hereinafter
referred to as the "Third Closing Date.")
(B) At the Third Closing (a) the Company shall deliver to
each Purchaser (1) stock certificates representing the shares of
Preferred Stock (the "Third Tranche Shares" and together with the
Initial Shares and the Second Tranche Shares, the "Shares")
purchased by such Purchaser as set forth next to such Purchaser's
name on Schedule 1 attached hereto, each registered in the name
of such Purchaser and (2) all other documents, instruments and
writings required to have been delivered at or prior to the Third
Closing by the Company pursuant to this Agreement and the
Registration Rights Agreement, and (b) each Purchaser shall
deliver to the Company (1) the portion of the Third Tranche
Purchase Price set forth next to its name on Schedule 1, in
United States dollars in immediately available funds by wire
transfer to an account designated in writing by the Company for
such purpose on or prior to the Third Closing Date, and (2) all
documents, instruments and writings required to have been
delivered at or prior to the Third Closing by such Purchaser
pursuant to this Agreement and the Registration Rights Agreement.
The Second Closing and the Third Closing are hereinafter
collectively referred to as the "Subsequent Closings," and the
Second Closing Date and the Third Closing Date are hereinafter
referred to as the "Subsequent Closing Dates."
ARTICLE II
REPRESENTATIONS AND WARRANTIES
2.1 Representations, Warranties and Agreements of the Company. The
Company hereby makes the following representations and warranties to the
Purchasers:
(a) Organization and Qualification; Subsidiaries. The Company is
a corporation, duly organized, validly existing and in good standing
under the laws of the State of North Carolina, with the requisite
corporate power and authority to own and use its properties and assets
and to carry on its business as currently conducted. The Company has
no subsidiaries other than as set forth in Schedule 2.1(a)
(collectively, the "Subsidiaries"). Each of the Subsidiaries is a
corporation, duly organized, validly existing and in good standing
under the laws of the jurisdiction of its incorporation or
organization (as applicable), with the full corporate power and
authority to own and use its properties and assets and to carry on its
business as currently conducted. Each of the Company and the
Subsidiaries is duly qualified to do business and is in good standing
as a foreign corporation in each jurisdiction in which the nature of
the business conducted or property owned by it makes such
qualification necessary, except where the failure to be so qualified
or in good standing, as the case may be, would not, individually or in
the aggregate, (x) adversely affect the legality, validity or
enforceability of the Preferred
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Stock or any of the Transaction Documents (as defined below), (y) have
or result in a material adverse effect on the results of operations,
assets, prospects insofar as it may reasonably be foreseen, or
financial condition of the Company and the Subsidiaries, taken as a
whole or (z) adversely impair the Company's ability to perform fully
on a timely basis its obligations under any Transaction Document,
including, without limitation, the Company's covenant under Section
3.7 hereof (any of (x), (y) or (z), being a "Material Adverse
Effect").
(b) Authorization; Enforcement. The Company has the requisite
corporate power and authority to enter into and to consummate the
transactions contemplated by this Agreement and the other Transaction
Documents, and otherwise to carry out its obligations hereunder and
thereunder. This Agreement, the Registration Rights Agreement and the
Certificate of Designation are collectively referred to as the
"Transaction Documents." The execution and delivery of each of the
Transaction Documents by the Company and the consummation by it of the
transactions contemplated hereby and thereby have been duly authorized
by all necessary action on the part of the Company and no further
action is required by the Company. Each of the Transaction Documents
has been duly executed by the Company and when delivered in accordance
with the terms hereof will constitute the legal, valid and binding
obligation of the Company, enforceable against the Company in
accordance with its terms, except as such enforceability may be
limited by applicable bankruptcy, insolvency, reorganization,
moratorium, liquidation or similar laws relating to, or affecting
generally the enforcement of, creditors' rights and remedies or by
other equitable principles of general application. Neither the Company
nor any Subsidiary is in violation of any of the provisions of its
respective certificate of incorporation, bylaws or other
organizational documents. Prior to the Initial Closing Date the
Certificate of Designation has been filed with the Secretary of State
of the State of North Carolina and will be in full force and effect,
enforceable against the Company in accordance with the terms thereof.
(c) Capitalization; Rights to Acquire Capital Stock. The
authorized, issued and outstanding capital stock of the Company as of
May 3, 1999, is set forth in Schedule 2.1(c). All issued and
outstanding shares of capital stock of the Company and each Subsidiary
have been duly authorized and validly issued and are fully paid and
non-assessable. Except as disclosed in Schedule 2.1(c), no shares of
the capital stock of the Company are entitled to preemptive or similar
rights, nor is any holder of the capital stock of the Company entitled
to preemptive or similar rights arising out of any agreement or
understanding with the Company by virtue of any of the Transaction
Documents. Except as disclosed in Schedule 2.1(c), as of May 3, 1999,
there are no outstanding options, warrants, script rights to subscribe
to, calls, written commitments or, to the knowledge of the Company,
oral commitments relating to, or, except as a result of the purchase
and sale of the Shares, securities, rights or obligations convertible
into or exchangeable for, or giving any Person any right to subscribe
for or acquire any shares of the Company's common stock, no par value
(the "Common Stock"), or contracts, commitments, understandings,
written arrangements or, to the knowledge of the Company, oral
arrangements by which the Company or any Subsidiary is or may become
bound to issue
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additional shares of Common Stock, or securities or rights convertible
or exchangeable into shares of Common Stock. Except as set forth on
Schedule 2.1(c), and, to the best knowledge of the Company, no Person
or group of related Persons beneficially owns (as determined pursuant
to Rule 13d-3 promulgated under the Securities Exchange Act of 1934,
as amended (the "Exchange Act")) or has the right to acquire by
agreement with or by obligation binding upon the Company beneficial
ownership of in excess of 5% of the Common Stock. A "Person" means an
individual or corporation, 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. The Common Stock is quoted and is listed
for trading on The Nasdaq Small-Cap Market. Except as set forth on
Schedule 2.1(c), the Company has received no notice, either oral or
written, with respect to the continued eligibility of the Common Stock
for such listing, and the Company has maintained all requirements for
the continuation of such listing.
(d) Issuance of Preferred Stock. The Preferred Stock has been
duly authorized, and when issued and paid for in accordance with the
terms hereof, shall be validly issued, fully paid and nonassessable,
free and clear of all liens, encumbrances, and rights of first refusal
of any kind (collectively, "Liens"). The Preferred Stock upon issuance
will not subject the holders thereof to personal liability by reason
of being such holders. The Company has and, at the Initial Closing
Date and the each Subsequent Closing Date (each, a "Closing Date"), as
the case may be, will have and at all times while the Shares are
outstanding will maintain an adequate reserve of duly authorized
shares of Common Stock to enable it to perform its obligations under
this Agreement and the Certificate of Designation with respect to the
number of Shares issued and outstanding at such Closing Date and in no
circumstances shall such reserved and available shares of Common Stock
be less than 175% of the maximum number of shares of Common Stock
which would be issuable upon conversion of the Shares issued pursuant
to the terms hereof with respect to the number of Shares issued and
outstanding at such Closing Date were such conversion effected on the
Initial Closing Date. The shares of Common Stock issuable upon
conversion of the Shares are referred to herein as the "Underlying
Shares." When the Shares are converted into the Underlying Shares in
accordance with the Certificate of Designation, the Underlying Shares
will be duly authorized, validly issued, fully paid and nonassessable,
free and clear of all Liens. The Shares and the Underlying Shares are
referred to herein as the "Securities."
(e) No Conflicts. The execution, delivery and performance of this
Agreement and the other Transaction Documents by the Company and the
consummation by the Company of the transactions contemplated hereby
and thereby do not and will not (i) conflict with or violate any
provision of its certificate of incorporation, bylaws or other
organizational documents (each as amended through the date hereof) or
(ii) subject to obtaining the consents referred to in Section 2.1(f),
conflict with, or constitute a default (or an event which with notice
or lapse of time or both would become a default) under, or give to
others any rights of termination, amendment, acceleration or
cancellation of, any agreement, indenture or instrument (evidencing a
Company debt or otherwise) to which
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the Company is a party or by which any property or asset of the
Company is bound or affected, (iii) result in a violation of any law,
rule, regulation, order, judgment, injunction, decree or other
restriction of any court or governmental authority to which the
Company is subject (including Federal and state securities laws and
regulations), or by which any material property or asset of the
Company is bound or affected, or (iv) result in the creation of
imposition of a Lien upon any of the Securities or any of the assets
of the Company, or any of its Affiliates (as such term is defined
under Rule 405 promulgated under the Securities Act (as defined
herein)), except in the case of each of clauses (ii) and (iii), such
conflicts, defaults, terminations, amendments, accelerations,
cancellations and violations as would not, individually or in the
aggregate, have or result in a Material Adverse Effect. The business
of the Company is not being conducted in violation of any law,
ordinance or regulation of any governmental authority except for any
such violation as would not, individually or in the aggregate, have or
result in a Material Adverse Effect.
(f) Consents and Approvals. Except as specifically set forth in
Schedule 2.1(f), neither the Company nor any Subsidiary is required to
obtain any consent, waiver, authorization or order of, give any notice
to, or make any filing or registration with, any court or other
federal, state, local or other governmental authority or other Person
in connection with the execution, delivery and performance by the
Company of the Transaction Documents, other than (i) the approval of
the Board of Directors and the filing of the Certificate of
Designation with respect to the Preferred Stock with the Secretary of
State of the State of North Carolina, which filing and approvals with
respect to the Preferred Stock shall be effected prior to the Initial
Closing Date, (ii) the filing of the Registration Statement with the
Commission, which shall be filed in accordance with and in the time
periods set forth in the Registration Rights Agreement, (iii) the
application(s) or any letter(s) acceptable to The Nasdaq Small-Cap
Market for the listing of the Underlying Shares with The Nasdaq
Small-Cap Market (and with any other national securities exchange or
market on which the Common Stock is then listed), and (iv) any
filings, notices or registrations under applicable federal and state
securities laws (together with the consents, waivers, authorizations,
orders, notices and filings referred to in Schedule 2.1(f), the
"Required Approvals").
(g) Litigation; Proceedings. Except as specifically set forth in
Schedule 2.1(g) there is no action, suit, notice of violation,
proceeding or investigation pending or, to the knowledge of the
Company, threatened against or affecting the Company or any of the
Subsidiaries or any of their respective properties before or by any
court, governmental or administrative agency or regulatory authority
(federal, state, county, local or foreign) which (i) adversely affects
or challenges the legality, validity or enforceability of any of the
Transaction Documents or the Securities or (ii) would reasonably be
expected to, individually or in the aggregate, have a Material Adverse
Effect.
(h) No Default or Violation. Neither the Company nor any
Subsidiary (i) is in default under or in violation of any indenture,
loan or credit agreement or any other agreement or instrument to which
it is a party or by which it or any of its properties is bound which
would reasonably be expected to, individually or in the aggregate,
have a
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Material Adverse Effect, (ii) is in violation of any order of any
court, arbitrator or governmental body applicable to it, or (iii) is
in violation of any statute, rule or regulation of any governmental
authority to which it is subject, which violation would reasonably be
expected to, individually or in the aggregate, have a Material Adverse
Effect.
(i) Schedules. The Schedules to this Agreement furnished by or on
behalf of the Company do not contain any untrue statement of a
material fact or omit to state any material fact necessary in order to
make the statements made therein not misleading.
(j) Private Offering. The Company and all Persons acting on its
behalf have not made, and will not make, offers or sales of the
Preferred Stock, and any securities that might be integrated with
offers and sales of the Preferred Stock, except to "accredited
investors" (as defined in Regulation D ("Regulation D") under the
Securities Act of 1933, as amended (the "Securities Act")) without any
general solicitation or advertising and otherwise in compliance with
the conditions of Regulation D. The offer and sale by the Company to
the Purchasers of the Shares and the Underlying Shares into which the
Shares are convertible is exempt from the registration requirements of
the Securities Act.
(k) SEC Documents; Financial Statements; No Adverse Change. The
Company has filed all reports required to be filed by it under the
Exchange Act, including pursuant to Section 13(a) or 15(d) thereof,
since the Company became subject to such filings (the foregoing
materials being collectively referred to herein as the "SEC
Documents") on a timely basis or has received a valid extension of
such time of filing and has filed any such SEC Documents prior to the
expiration of any such extension. As of their respective dates, the
SEC Documents complied in all material respects with the requirements
of the Exchange Act and the rules and regulations of the Commission
promulgated thereunder, and none of the SEC Documents, when filed,
contained any untrue statement of a material fact or omitted to state
a material fact required to be stated therein or necessary in order to
make the statements therein not misleading. All material agreements to
which the Company is a party or to which the property or assets of the
Company are subject have been filed as exhibits to the SEC Documents
as required; neither the Company nor any of the Subsidiaries is in
breach of any agreement where such breach would reasonably be expected
to, individually or in the aggregate, have a Material Adverse Effect.
The financial statements of the Company included in the SEC Documents
comply in all material respects with applicable accounting
requirements and the rules and regulations of the Commission with
respect thereto as in effect at the time of filing. Such financial
statements have been prepared in accordance with United States
generally accepted accounting principles applied on a consistent basis
during the periods involved, except as may be otherwise specified in
such financial statements or the notes thereto, and fairly present in
all material respects the financial position of the Company as of and
for the dates thereof and the results of operations and cash flows for
the periods then ended, subject, in the case of unaudited statements,
to normal year-end audit adjustments. Since the date of the financial
statements included in the Company's last filed Annual Report on Form
10-K for the period ended December 31, 1998, there has been no event,
occurrence or development that has had, or would reasonably be
expected
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to have, a Material Adverse Effect which has not been specifically
disclosed to the Purchasers by the Company. The Company last filed
audited financial statements with the Commission on March 31, 1999,
and has not received any comments from the Commission in respect
thereof.
(l) Seniority. No class of equity securities of the Company is
senior to the Preferred Stock in right of payment, whether upon
liquidation, dissolution or otherwise.
(m) Investment Company. The Company is not, and is not controlled
by or under common control with an affiliate of, an "investment
company" within the meaning of the Investment Company Act of 1940, as
amended.
(n) Certain Fees. Except as specifically set forth in Schedule
2.1(n), no fees or commissions will be payable by the Company to any
broker, financial advisor, finder, investment banker, or bank with
respect to the transactions contemplated by this Agreement. The
Purchasers shall have no obligation with respect to any fees or with
respect to any claims made by or on behalf of other Persons for fees
of a type contemplated in this Section 2.1(n) that may be due in
connection with the transactions contemplated by this Agreement. The
Company shall indemnify and hold harmless each of the Purchasers, its
employees, officers, directors, agents, and partners, and their
respective Affiliates, from and against all claims, losses, damages,
costs (including the costs of preparation and attorney's fees) and
expenses suffered in respect of any such claimed or existing fees.
(o) Solicitation Materials. The Company has not distributed any
offering materials in connection with the offering and sale of the
Securities. The Company confirms that it has not provided the
Purchasers or their agents or counsel with any information that
constitutes or might constitute material non-public information. The
Company understands and confirms that the Purchasers shall be relying
on the foregoing representations in effecting transactions in
securities of the Company.
(p) Form SB-2 Eligibility. The Company is, and at each Closing
Date will be, eligible to register securities (including the
Underlying Shares) for resale with the Commission under Form SB-2
promulgated under the Securities Act.
(q) Exclusivity. The Company shall not issue and sell the
Preferred Stock to any Person other than the Purchasers pursuant to
this Agreement other than with the specific prior written consent of
each of the Purchasers.
(r) Listing and Maintenance Requirements Compliance. Except as
set forth on Schedule 2.1(r), the Company has not in the three years
preceding the date hereof received notice (written or oral) from any
stock exchange, market or trading facility on which the Common Stock
is or has been listed (or on which it has been quoted) to the effect
that the Company is not in compliance with the listing or maintenance
requirements of such exchange or market. Except as specifically set
forth on Schedule 2.1(r), after
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giving effect to the transactions contemplated in this Agreement, the
Company believes that it is in compliance with all such maintenance
requirements.
(s) Patents and Trademarks. The Company has, or has rights to
use, all patents, patent applications, trademarks, trademark
applications, service marks, trade names, copyrights, licenses and
rights (collectively, the "Intellectual Property Rights") which are
necessary for use in connection with its business, as currently
conducted and as described in the SEC Documents, and which the failure
to so have would have a Material Adverse Effect.
(t) Acknowledgment of Dilution. The Company acknowledges that the
issuance of the Underlying Shares upon conversion of the Shares in
accordance with the Certificate of Designation may result in dilution
of the outstanding shares of Common Stock, which dilution may be
substantial under certain market conditions. The Company further
acknowledges that its obligation to issue the Underlying Shares upon
conversion of the Shares in accordance with the Certificate of
Designation is unconditional and absolute regardless of the effect of
any such dilution.
(u) Registration Rights; Rights of Participation. Except as
described on Schedule 2.1(u) hereto, (A) the Company has not granted
or agreed to grant to any Person any rights (including "piggy-back"
registration rights) to have any securities of the Company registered
with the Commission or any other governmental authority which has not
been satisfied and (B) except as set forth on Schedule 2.1(c) hereto,
no Person, including, but not limited to, current or former
shareholders of the Company, underwriters, brokers or agents, has any
right of first refusal, preemptive right, right of participation, or
any similar right to participate in the transactions contemplated by
this Agreement or any other Transaction Document.
(v) Title. Except as disclosed in Schedule 2.1(v), the Company
and the Subsidiaries have good and marketable title to, or the right
to use, all personal property owned by them which is material to the
business of the Company and the Subsidiaries, in each case free and
clear of all Liens, except for liens, claims or encumbrances as do not
materially affect the value of such property and do not interfere with
the use made and proposed to be made of such property by the Company
and the Subsidiaries. Except as disclosed in Schedule 2.1(v), neither
the Company nor any of its Subsidiaries owns any real property. Any
real property and facilities held under lease by the Company and the
Subsidiaries are held by them under valid, subsisting and enforceable
leases with such exceptions as are not material and do not interfere
with the use made and proposed to be made of such property and
buildings by the Company and the Subsidiaries.
(w) Regulatory Permits. Except as disclosed in Schedule 2.1(w),
the Company and the Subsidiaries possess all franchises, certificates,
licenses, authorizations and permits or similar authority issued by
the appropriate federal, state or foreign regulatory authorities
necessary to conduct their respective businesses as described in the
SEC Documents except where the failure to possess such permits would
not, individually or in
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the aggregate, have a Material Adverse Effect ("Material Permits"),
and neither the Company nor any such Subsidiary has received any
notice of proceedings relating to the revocation or modification of
any Material Permit.
(x) Insurance. The Company and each Subsidiary maintains property
and casualty, general liability, workers' compensation and other
similar types of insurance with financially sound and reputable
insurers that is adequate, consistent with industry standards. Neither
the Company nor any Subsidiary has received notice from, and has any
knowledge of any threat by, any insurer (that has issued any insurance
policy to the Company or any Subsidiary) that such insurer intends to
deny coverage under or cancel, discontinue or not renew any insurance
policy presently in force.
(y) Taxes. All applicable tax returns required to be filed by the
Company and each of the Subsidiaries have been filed, or if not yet
filed have been granted extensions of the filing dates which
extensions have not expired, and all taxes, assessments, fees and
other governmental charges upon the Company, the Subsidiaries, or upon
any of their respective properties, income or franchises, shown in
such returns and on assessments received by the Company or the
Subsidiaries to be due and payable have been paid, or adequate
reserves therefor have been set up if any of such taxes are being
contested in good faith; or if any of such tax returns have not been
filed or if any such taxes have not been paid or so reserved for, the
failure to so file or to pay would not in the aggregate or
individually have a Material Adverse Effect.
(z) No Integrated Offering. Neither the Company, nor any of its
Affiliates, nor any Person acting on its or their behalf, has directly
or indirectly made any offers or sales in any security or solicited
any offers to buy any securities under circumstances that would
require registration of any such securities under the Securities Act
or cause the offering of the Securities pursuant to this Agreement to
be integrated with prior offerings by the Company for purposes of the
Securities Act or any applicable shareholder approval provisions,
including, without limitation, under the rules and regulations of The
Nasdaq Stock Market, as applicable. The Company has not conducted any
offering that will be integrated with the issuance of the Securities
solely for purpose of Rules 4460(i) or 4310(c)(25) of The Nasdaq Stock
Market, Inc.'s Marketplace Rules.
(aa) Year 2000 Compliance. The Company has initiated a review and
assessment of all areas within its and each Subsidiaries' business and
operations that could be adversely affected by the "Year 2000 Problem"
(that is, the risk that computer applications used by the Company or
any of the Subsidiaries may be unable to recognize and perform
properly date-sensitive functions involving certain dates prior to and
any date after December 31, 1999). Based on the foregoing, except as
set forth on Schedule 2.1(aa), the Company believes that the computer
applications that are currently material to its or any Subsidiaries'
business and operations are reasonably expected to be able to perform
properly date-sensitive functions for all dates before and after
January 1, 2000, except to the extent that a failure to do so would
not reasonably be expected to have a Material Adverse Effect.
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2.2 Representations and Warranties of the Purchasers. Each of the
Purchasers, severally and not jointly, hereby represents and warrants to the
Company as follows:
(a) Investment Intent. Such Purchaser is acquiring the Securities
for its own account for investment purposes only and not with a view
to or for distributing or reselling such Securities or any part
thereof or interest therein, without prejudice, however, to such
Purchaser's right, subject to the provisions of this Agreement and the
Registration Rights Agreement, at all times to sell or otherwise
dispose of all or any part of such Securities pursuant to an effective
registration statement under the Securities Act and in compliance with
applicable State securities laws or under an exemption from such
registration.
(b) Purchaser Status. At the time such Purchaser was offered the
Securities, and at each Closing Date, (i) it was and will be, an
"accredited investor" (as defined in Regulation D), and (ii) such
Purchaser either alone or together with its representatives, had and
will have such knowledge, sophistication and experience in business
and financial matters so as to be capable of evaluating the merits and
risks of the prospective investment in the Securities, and had and
will have so evaluated the merits and risks of such investment. Such
Purchaser has the authority and is duly and legally qualified to
purchase and own the Securities.
(c) Ability of Purchaser to Bear Risk of Investment. Such
Purchaser is able to bear the economic risk of an investment in the
Securities and, at the present time, is able to afford a complete loss
of such investment.
(d) Reliance. Each Purchaser understands and acknowledges that
(i) the Securities are being offered and sold to the Purchaser without
registration under the Securities Act in a private placement that is
exempt from the registration provisions of the Securities Act under
Section 4(2) of the Securities Act or Regulation D promulgated
thereunder and (ii) the availability of such exemption, depends in
part on, and the Company will rely upon the accuracy and truthfulness
of, the foregoing representations and such Purchaser hereby consents
to such reliance.
(e) Authorization; Enforcement. Each Purchaser has the requisite
corporate power and authority to enter into and to consummate the
transactions contemplated by this Agreement, and otherwise to carry
out its obligations hereunder. The execution and delivery of this
Agreement by each Purchaser and the consummation by each of them of
the transactions contemplated hereby have been duly authorized by all
necessary action on the part of such Purchaser and no further action
is required by such Purchaser. This Agreement has been duly executed
by each Purchaser and when delivered in accordance with the terms
hereof will constitute the legal, valid and binding obligation of such
Purchaser, enforceable against such Purchaser in accordance with its
terms, except as such enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium, liquidation or
similar laws relating to, or affecting generally the enforcement of,
creditors' rights and remedies or by other equitable principles of
general application.
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(f) Financing. Each Purchaser has cash or marketable securities
available in an amount sufficient to fund such Purchasers commitments
hereunder.
(g) Document Review. Each Purchaser has received and reviewed
copies of all filings made by the Company under the Securities Act and
the Exchange Act during the 12 months preceding the date hereof.
ARTICLE III
OTHER AGREEMENTS OF THE PARTIES
3.1 Transfer Restrictions.
(a) If any Purchaser should decide to dispose of any Shares (and
upon conversion thereof any of the Underlying Shares) held by it, each
Purchaser understands and agrees that it may do so only pursuant to an
effective registration statement under the Securities Act, to the
Company or pursuant to an available exemption from the registration
requirements of the Securities Act. In connection with any transfer of
any Securities other than pursuant to an effective registration
statement or to the Company, the Company may require the transferor
thereof to provide to the Company a written opinion of counsel, the
form and substance of which opinion shall be reasonably satisfactory
to the Company, to the effect that such transfer does not require
registration of such transferred securities under the Securities Act.
Notwithstanding the foregoing, the Company hereby consents to and
agrees to register (i) any transfer of Securities by one Purchaser to
another Purchaser, and agrees that no documentation other than
executed transfer documents shall be required for any such transfer,
and (ii) any transfer by any Purchaser to an Affiliate of such
Purchaser or to an Affiliate of another Purchaser, or any transfer
among any such Affiliates, provided that transferee certifies in
writing to the Company that it is an "accredited investor" (as defined
in Regulation D). Any such transferee shall agree in writing to be
bound by the terms of this Agreement and shall have the rights of a
Purchaser under this Agreement and the Registration Rights Agreement.
(b) Each Purchaser agrees to the imprinting, so long as is
required by this Section 3.1(b), of the following legend on the
Securities:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED WITH
THE SECURITIES AND EXCHANGE COMMISSION IN RELIANCE UPON AN EXEMPTION
FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES
ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION
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NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT.
The Underlying Shares issuable upon conversion of the Shares
shall not contain the legend set forth above if such conversion or
exercise occurs at any time while the Registration Statement is
effective under the Securities Act and upon the sale of the Underlying
Shares by the Purchasers or in the event there is not an effective
Registration Statement at such time, if in the written opinion of
counsel to the Company (such opinion to be furnished at the sole
expense of the Company at the request of a Purchaser) such legend is
not required under applicable requirements of the Securities Act
(including judicial interpretations and pronouncements issued by the
staff of the Commission). The Company agrees that it will provide each
Purchaser, upon request, with a certificate or certificates
representing Underlying Shares, free from such legend at such time as
such legend is no longer required hereunder.
3.2 Stop Transfer Orders; Suspension of Qualification. The Company may
not make any notation on its records or give instructions to any transfer agent
of the Company which enlarge the restrictions of transfer set forth in Section
3.1. The Company will advise the Purchasers, promptly after it receives notice
of issuance by the Commission, any state securities commission or any other
regulatory authority of any stop order or of any order preventing or suspending
the use of any offering of any securities of the Company, or of the suspension
of the qualification of the Common Stock for offering or sale in any
jurisdiction, or the initiation of any proceeding for any such purpose.
3.3 Furnishing of Information. As long as any Purchaser owns Shares,
the Company covenants to timely file (or obtain extensions in respect thereof
and file within the applicable grace period) all reports required to be filed by
the Company after the date hereof pursuant to Section 13(a) or 15(d) of the
Exchange Act and to promptly furnish the Purchasers with true and complete
copies of all such filings. As long as any Purchaser owns Securities, if the
Company is not required to file reports pursuant to Section 13(a) or 15(d) of
the Exchange Act, it will prepare and furnish to the Purchasers and make
publicly available in accordance with Rule 144(c) promulgated under the
Securities Act annual and quarterly financial statements, together with a
discussion and analysis of such financial statements in form and substance
substantially similar to those that would otherwise be required to be included
in reports required by Section 13(a) or 15(d) of the Exchange Act, as well as
any other information required thereby, in the time period that such filings
would have been required to have been made under the Exchange Act. The Company
further covenants that it will take such further action as any holder of
Preferred Stock may reasonably request, all to the extent required from time to
time to enable such Person to sell Underlying Shares without registration under
the Securities Act within the limitation of the exemptions provided by Rule 144
promulgated under the Securities Act, including the legal opinion referenced
above in Section 3.1. Upon the request of any such Person, the Company shall
deliver to such Person a written certification of a duly authorized officer as
to whether it has complied with such requirements.
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3.4 Blue Sky Laws. In accordance with the Registration Rights
Agreement, the Company shall qualify the Underlying Shares under the securities
or Blue Sky laws of such jurisdictions as the Purchasers may request and shall
continue such qualification at all times through the third anniversary of the
last Closing Date.
3.5 Integration. The Company shall not sell, offer for sale or solicit
offers to buy or otherwise negotiate in respect of any security (as defined in
Section 2 of the Securities Act) that would be integrated with the offer or sale
of the Securities in a manner that would require the registration under the
Securities Act of the sale of any or all of such securities to any Purchaser.
3.6 Certain Agreements. As long as any Purchaser owns Shares, the
Company shall not and shall cause the Subsidiaries not to, without the consent
of the holders of all of the Shares then outstanding, (i) amend its certificate
of incorporation, bylaws or other charter documents so as to adversely affect
any rights of any Purchaser; (ii) declare, authorize, set aside or pay any
dividend or other distribution with respect to the Common Stock except as
permitted under the Certificate of Designation and as would not adversely affect
the rights of any Purchaser hereunder or under the Certificate of Designation;
(iii) repay, repurchase or offer to repay, repurchase or otherwise acquire
shares of its Common Stock in any manner; (iv) issue any series of preferred
stock or other securities with rights senior (in respect of liquidations,
dividends, preferences and similar rights) to those of the Shares; or (v) enter
into any agreement with respect to any of the foregoing.
3.7 Listing and Reservation of Underlying Shares; Compliance with Law.
(a) The Company shall (i) not later than the eleventh Business
Day prior to the applicable Closing Date prepare and file with The
Nasdaq Small-Cap Market (as well as any other national securities
exchange or market on which the Common Stock is then listed) an
additional shares listing application or a letter acceptable to The
Nasdaq Small-Cap Market covering and listing a number of shares of
Common Stock which is at least equal to 175% of the maximum number of
Underlying Shares then issuable, (ii) take all steps necessary to
cause the Underlying Shares to be approved for listing in The Nasdaq
Small-Cap Market (as well as on any other national securities exchange
or market on which the Common Stock is then listed) as soon as
possible thereafter and (iii) provide to the Purchasers evidence of
such listing, and the Company shall maintain the listing of its Common
Stock on such market. As used herein, "Business Day" means 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 generally
are authorized or required by law or other government actions to
close.
(b) The Company shall at all times have authorized and reserved
for issuance upon conversion of the Shares pursuant to the terms of
the Certificate of Designation the number of shares of Common Stock
required to provide for the conversion of the Shares.
(c) Until at least two (2) years after the last of the Shares has
been converted into Underlying Shares, (i) the Company will cause its
Common Stock to continue to be
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registered under Sections 12(b) or 12(g) of the Exchange Act, will
comply in all respects with its reporting and filing obligations under
such Exchange Act, will comply with all requirements related to any
registration statement filed pursuant to this Agreement or the
Registration Rights Agreement and will not take any action or file any
document (whether or not permitted by the Securities Act or the
Exchange Act or the rules and regulations thereunder) to terminate or
suspend such registration or to terminate or suspend its reporting and
filing obligations under the Securities Act and Exchange Act, except
as permitted herein and (ii) the Company will take all action within
its power to continue the listing or trading of its Common Stock on
The Nasdaq Small-Cap Market and will comply in all respects with the
Company's reporting, filing and other obligations under the bylaws or
rules of the NASD and The Nasdaq Stock Market.
(d) The Company covenants to maintain the quotation of its Common
Stock on the Nasdaq Small-Cap Market (or quotation on the Nasdaq
National Market or listing on the New York Stock Exchange or American
Stock Exchange in substitution thereof) until such a time that all of
the Shares have been redeemed or two-years have past following to last
conversion of Shares into shares of Common Stock. A breach of this
covenant by the Company while any Purchaser is holding any Shares
shall allow such Purchaser to demand complete redemption of its Shares
in accordance with the terms set forth in Section 3.20, provided,
however, that (1) such redemption may be demanded at any time
following delisting of the Company's Common Stock, (2) such redemption
will not be subject to the volume limitations set forth in Section
3.20 and (3) such redemption will have a 20% Total Return (as defined
herein) applied to it.
3.8 Notice of Breach.
(a) Each of the Company and each Purchaser shall give prompt
written notice to the other of any breach of any representation,
warranty or other agreement contained in this Agreement, the
Certificate of Designation or the Registration Rights Agreement, as
well as any events or occurrences arising after the date hereof and
prior to any Closing Date, which would reasonably be likely to cause
any representation or warranty or other agreement of such party, as
the case may be, contained herein to be incorrect or breached as of
such Closing Date. However, no disclosure by any party pursuant to
this Section 3.8 shall be deemed to cure any breach of any
representation, warranty or other agreement contained herein or in the
Registration Rights Agreement.
(b) Notwithstanding the generality of Section 3.8(a), the Company
shall promptly notify each Purchaser of any notice or claim (written
or oral) that it receives from any lender of the Company to the effect
that the consummation of the transactions contemplated hereby, by the
Certificate of Designation and by the Registration Rights Agreement
violates or would violate any written agreement or understanding
between such lender and the Company, and the Company shall promptly
furnish by facsimile to each Purchaser a copy of any written statement
in support of or relating to such claim or notice.
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(c) The default by any Purchaser of any of its obligations,
representations or warranties under any Transaction Document shall not
be imputed to, and shall have no effect upon, any other Purchaser or
affect the Company's obligations under the Transaction Documents to
any non-defaulting Purchaser or to the defaulting Purchaser with
respect to any outstanding Shares or Underlying Shares.
3.9 Conversion Obligations of the Company. The Company covenants to
convert Shares and to deliver the Underlying Shares in accordance with the terms
and conditions and within the time period set forth in the Certificate of
Designation.
3.10 Use of Proceeds. The Company shall use all of the proceeds from
the sale of the Preferred Stock for the development or acquisition of senior
housing facilities or assisted living facilities or leasehold interests therein
and not for the satisfaction of any portion of Company borrowings outside the
normal course of business, including, without limitation, any obligation or
liability of any kind owed to a shareholder, officer or director of the Company,
or to redeem Company equity or equity-equivalent securities. Pending application
of the proceeds of this placement in the manner permitted hereby, the Company
will invest such proceeds in interest bearing accounts and/or short-term,
investment grade interest bearing securities.
3.11 Indemnification. The Company also will indemnify and hold the
Purchasers harmless against any and all losses, claims, damages or liabilities
to any such Person (including, without limitation, in connection with any
action, proceeding or investigation brought by or against any such Person,
including by shareholders of the Company) in connection with or as a result of
any matter referred to in the Transaction Documents, including, without
limitation, for any misrepresentation by the Company, for breaches of
representations and warranties contained in any of the Transaction Documents,
and for any breach, non-compliance or nonfulfillment by the Company of any
covenant, agreement or undertaking to be complied with or performed by it
contained in or pursuant to the Transaction Documents, except to the extent that
it is finally judicially determined that such losses, claims, damages or
liabilities resulted solely from the gross negligence or bad faith of the
Purchasers. If for any reason the foregoing indemnification is unavailable to
such Purchaser or is insufficient to hold such Person harmless, then the Company
shall contribute to the amount paid or payable by such Purchaser as a result of
such loss, claim, damage or liability in such proportion as is appropriate to
reflect the relative economic interests of the Company and its shareholders on
the one hand and the Purchasers on the other hand in the matters contemplated by
the Transaction Documents as well as the relative fault of the Company and the
Purchasers with respect to such loss, claim, damage or liability and any other
relevant equitable considerations. The reimbursement, indemnity and contribution
obligations of the Company under this paragraph shall be in addition to any
liability which the Company may otherwise have, shall extend upon the same terms
and conditions to any affiliate of the Purchasers and the partners, directors,
agents, employees and controlling persons (if any), as the case may be, of the
Purchasers and any such affiliate, and shall be binding upon and inure to the
benefit of any successors, assigns, heirs and personal representatives of the
Company, the Purchasers, any such affiliate and any such Person. The Company
also agrees that neither the Purchasers nor any of such Affiliates, partners,
directors, agents, employees or controlling persons shall have any liability to
the Company or any Person asserting claims on behalf of or in
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right of the Company in connection with or as a result of any matter referred to
in this Agreement except to the extent that it is finally judicially determined
that any losses, claims, damages, liabilities or expenses incurred by the
Company result solely from the gross negligence or bad faith of, or knowing
breach of this Agreement by, the Purchasers. Promptly after receipt by the
Purchasers or any affiliate, partners, directors, agents, employees and
controlling persons, as the case may be, of notice of any claim or other
commencement of any action in respect of which indemnity may be sought, such
party will notify the Company in writing of the receipt or commencement thereof
and the Company shall have the right to assume the defense of such claim or
action (including the employment of counsel reasonably satisfactory to the
indemnified parties and the payment of fees and expenses of such counsel). The
indemnified party shall cooperate with the Company and the Company's counsel in
the defense of such claim or action. The Purchasers understand that the Company
shall not in connection with any one such claim or action or separate but
substantially similar related claims or actions in the same jurisdiction arising
out of the same general allegations or circumstances, be liable for the
reasonable fees and expenses of more than one separate firm of attorneys for all
of the indemnified parties unless the defense of one indemnified party is unique
or separate from that of another indemnified party or one or more legal defenses
are available to an indemnified party but not to other indemnified parties
subject to the same claim or action. In the event the Company does not promptly
assume the defense of a claim or action, the indemnified parties shall have the
right to employ counsel reasonably satisfactory to the Company, at the Company's
expense, to defend such claim or action. The indemnified party shall not admit
any liability with respect to the claim or action or settle, compromise, pay or
discharge the same without the prior written consent of the Company so long as
the Company is reasonably contesting or defending the same in good faith. The
Company shall not compromise, settle or discharge any claim or action without
the Purchasers' consent, as applicable, which consent will not be unreasonably
withheld, unless there is no finding or admission of any violation of any law
against the indemnified party and the sole relief is monetary damages paid in
full by the Company. Any right to trial by jury with respect to any action or
proceeding arising in connection with or any matter referred to in this
Agreement is hereby waived by the parties hereto. The provisions of this Section
3.11 shall survive any termination or completion of the Transaction Documents.
3.12 Sales of Preferred Stock. The Company shall not sell any shares
of Preferred Stock other than the Shares, other than as permitted in Section
3.13.
3.13 Subsequent Sales and Registrations. (a) Until such a time that
all of the Shares have been converted into shares of Common Stock or have been
redeemed, the Company shall not, directly or indirectly, without the prior
written consent of the Purchasers, offer, sell, grant any option to purchase, or
otherwise dispose of (or announce any offer, sale, grant of any option to
purchase or other disposition) any of its convertible debt, preferred stock,
equity-equivalent securities or any instrument that permits the holder thereof
to acquire Common Stock at a conversion price less than $4.00, except (i) the
granting of options or warrants to employees, officers, directors and
consultants, and the issuance of shares upon exercise of options granted, under
any stock option plan heretofore or hereinafter duly adopted by the Company,
(ii) shares issued upon exercise of any currently outstanding warrants and upon
conversion of any currently outstanding convertible preferred stock in each case
disclosed in Schedule 2.1(c), (iii) shares of
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Common Stock issued upon conversion of Shares, and (iv) shares of Common Stock
issued in connection with the transactions described on Schedule 3.13.
(b) Other than Underlying Shares and other "Registrable Securities"
(as defined in the Registration Rights Agreement) to be registered in accordance
with the Registration Rights Agreement, the Company shall not, for a period of
not less than 90 Trading Days after the dates that any registration statement
relating to the Securities is declared effective by the Commission, without the
prior written consent of the Purchasers, (i) register for resale any securities
of the Company, or (ii) issue or sell any of its or any of its Affiliates'
equity or equity-equivalent securities except for (A) securities issued upon the
exercise or conversion of the securities set forth on Schedule 2.1(c) or (B)
securities sold pursuant to the Company's employee benefit plans. Any days that
any Purchaser is unable to sell Underlying Shares under the Registration
Statement shall be added to such 90 Trading Day period for the purposes of (i)
and (ii) above.
3.14 Shareholder Approval. The Company shall, as promptly as possible,
but in no event later than 75 days after the Initial Closing Date, convene a
shareholders' meeting, held in accordance with the Company's Articles of
Incorporation and bylaws, and use its best efforts to obtain the approval
("Shareholder Approval") by a majority of the total votes cast on the proposal
at such shareholders' meeting, in person or by proxy, of the issuance of the
Underlying Shares as a consequence of the conversion of the Shares, in a number
exceeding the maximum number of shares of Common Stock issuable without
shareholder approval 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).
3.15 Restriction on Indebtedness. Until such time as all of the Shares
have been converted into shares of Common Stock or have been redeemed, the
Company shall not, without the written consent of 75% of the holders of interest
of the then outstanding Shares, incur any indebtedness except for: (i)
indebtedness existing as of the Initial Closing, (ii) indebtedness (including
guarantees thereof) secured by real property (including leasehold interests)
incurred by the Company in connection with the development of, or purchase of,
such real property, provided that such indebtedness does not exceed 80% of the
fair market value of the property interest securing such indebtedness at the
time such indebtedness is put in place or (iii) any guarantees of lines of
credit used specifically to finance the working capital of affiliates which
develop senior housing or assisted living facilities; provided, however, that
prior to such time as all of the Shares are converted into shares of Common
Stock, the aggregate amount of the guarantees referenced in this sub-clause
(iii) outstanding at any one time shall not exceed $3,000,000.
3.16 Incorporation of Certificate of Designation By Reference. The
Certificate of Designation is hereby incorporated herein by reference and made a
part hereof.
3.17 Tangible Net Worth. Until such time as all of the Shares have
been converted into shares of Common Stock or have been redeemed, the Company
will maintain a tangible net worth (determined in accordance with United States
generally accepted accounting principals applied on a consistent basis) of at
least $4,000,000. At any time the Company becomes aware
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that its tangible net worth falls below $4,000,000, it will immediately notify
the Purchasers of such fact. Notwithstanding the foregoing, within 45 days of
the end of each of the Company's first three fiscal quarters, and with 90 days
of the end of the Company's fiscal year, the Company's Chief Financial Officer
will supply the Purchasers with a written certification that the Company is in
compliance with this covenant. At any time the Company's tangible net worth
falls below $4,000,000, any Purchaser may, but is not required to, give the
Company 90 days notice that the Company must redeem all of such Purchaser's
Shares at 100% of the Stated Value, together with all accrued and unpaid
dividends through the date of such redemption. Failure by the Company to timely
redeem such Shares after receiving such demand will result in a penalty payable
by the Company to such Purchaser in an amount equal to 3% of the aggregate
Stated Value for each 30-day period (or any portion thereof) following the date
upon which redemption was demanded.
3.18 Conversion of Shares. Until the Company has received Shareholder
Approval, none of the Purchasers shall be issued shares of Common Stock upon the
conversion of the Shares, at a price per share of Common Stock less than the Per
Share Market Value in excess of the number of shares of Common Stock set forth
opposite each of the Purchasers' name on Schedule 3.18 hereto.
3.19 Short Sales. At any time the Common Stock is trading below $8.00
per share, no Purchaser, nor any Affiliate (as such term is defined under Rule
405 promulgated under the Securities Act) of any Purchaser, shall engage in a
short selling transaction in respect of the Common Stock.
3.20 Put Option.
(a) Any Purchaser shall have the right to cause the Company to redeem
a portion of such Purchaser's Shares, at any time and from time to time, after
May 3, 2002 at 100% of the Stated Value, together with all accrued and unpaid
dividends thereon through the date of redemption plus a Put Premium (as defined
below). The maximum number of Shares, expressed as a percentage of the total
number of Shares issued, that may be redeemed in any of the periods set forth
below pursuant to this Section 3.20 is set forth in the table below. To achieve
such a result, no Purchaser, for any period set below, may request redemption of
more than that percentage, set forth below, of its Shares held as of the
beginning of such period. In addition, each Purchaser may request only up to
three such redemptions during any of the periods set forth below. The "Put
Premium" shall be an additional payment by the Company to the Purchaser in an
amount such that when added to the total dividends paid to such Purchaser
through the date of redemption will yield an annual percentage rate of return
("Total Return") to such Purchaser set forth below opposite the period in which
such redemption occurs. Whereas all dividends paid on the Shares shall be cash
dividends, the additional amount represented by the Put Premium may, at the
option of the Purchaser, be paid in cash or in shares of registered Common
Stock.
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Redemption Maximum Percentage
Date of Shares Redeemed Total Return
May 3, 2002 -
May 4, 2003 33% 18%
May 3, 2003 -
May 4, 2004 66% 19%
May 3, 2004 and thereafter 100% 20%
(b) If any Shares are to be redeemed pursuant to this Section 3.20,
notice thereof (the "Redemption Notice") shall be sent at least 90 days prior to
the date requested for redemption (the "Redemption Date") to the Company. The
Redemption Notice shall state the Redemption Date and whether the Purchaser
wishes to receive the Put Premium in cash or registered Common Stock. At any
time prior to the Redemption Date, or such later date if the Company fails to
redeem such Shares on the Redemption Date, the Purchaser may retract the
Redemption Notice and submit a Conversion Notice in lieu thereof.
3.21 Public Relations Firm. Until such a time as all of the Shares
have been converted into shares of Common Stock or have been redeemed, the
Company shall retain a public relations firm reasonably satisfactory to the
Purchasers; provided, however, that (i) the Company shall not be required to
terminate any existing or future such engagement at such a time that the Company
would incur penalties or additional costs in doing so and (ii) subject to the
reasonable approval of the Purchasers, the Company shall retain absolute
discretion as to which public relations firm is so employed.
3.22 Performance Payments. The parties hereto agree that if during the
180 days following the Initial Closing, the closing bid price for the Common
Stock, on at least five Trading Days during such period, is not at least $14.00
per share, then on the 185th day following the Initial Closing, THE, the
majority stockholder of the Company as of the date of this Agreement, shall
transfer, out of its holdings of the Company's Common Stock, shares of
unregistered Common Stock to the Company in the following amounts, and, on the
190th day following the Initial Closing, the Company shall deliver such shares
of unregistered Common Stock to the Purchasers, other than THE, (to be
distributed to all Purchasers, other than THE, pro rata in accordance with each
such Purchaser's participation set forth on Schedule 1) in the following
aggregate amounts: (i) if only the Initial Closing has occurred, 245,000 shares
of Common Stock; (ii) if the Registration Statement has been filed with the
Commission and the Initial Closing and the Second Closing have occurred, 302,917
shares of Common Stock; (iii) if the Registration Statement has been filed with
and declared effective by the Commission and each of the Initial Closing, the
Second Closing and the Third Closing have occurred, 362,500 shares of Common
Stock. In addition, the Company shall use its best efforts to register such
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shares of Common Stock under the same terms and condition as the Shares and the
Underlying Shares are being registered pursuant to the Registration Rights
Agreement.
3.23 Other Agreements.
(a) The Company will only exercise its right to redeem the Shares
pursuant to Section 7 of the Certificate of Designation after: (i) the Company
has received Shareholder Approval and (ii) the Registration Statement has been
declared (and remains) effective or, in lieu thereof, the Purchasers may sell
the Shares pursuant to Rule 144 of the Securities Act without being subject to
the volume restrictions of such rule.
(b) In no event shall the Company issue a Redemption Notice for that
amount of Shares, if, when applied pro rata to the Purchasers, any Purchaser
would, if such Purchaser elected to convert its Shares prior to the Redemption
Date, violate the provisions of Section 6(a)(iii) of the Certificate of
Designation.
(c) Notwithstanding the provisions of Section 7(c) of the Certificate
of Designation, partial redemption shall be made pro rata, and not by lot.
(d) Upon receipt of a Redemption Notice, a Purchaser may convert all
or any of its Shares at any time and from time to time before the close of
business on the business day preceding the Redemption Date.
(e) Notwithstanding anything to the contrary in the Certificate of
Designation, if the Company shall be required to post a surety bond pursuant to
Section 6(i) of the Certificate of Designation, the amount of the bond shall be
equal to the aggregate stated value of the Shares to be converted plus 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 sought to be converted.
ARTICLE IV
CONDITIONS
4.1 Conditions Precedent to Sale of the Initial Preferred Stock.
(a) Conditions Precedent to the Obligation of the Company to Sell
the Initial Preferred Stock. The obligation of the Company to sell the
Initial Preferred Stock hereunder is subject to the satisfaction or
waiver by the Company, at or before the Initial Closing, of each of
the following conditions:
(i) Accuracy of the Purchasers' Representations and
Warranties. The representations and warranties of each Purchaser
shall be true and correct in all
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material respects as of the date when made and as of the Initial
Closing Date, as though made on and as of such date;
(ii) Performance by the Purchasers. Each Purchaser shall
have performed, satisfied and complied in all material respects
with all covenants, agreements and conditions required by this
Agreement to be performed, satisfied or complied with by such
Purchaser at or prior to the Initial Closing; and
(iii) No Injunction. No statute, rule, regulation, executive
order, decree, ruling or injunction shall have been enacted,
entered, promulgated or endorsed by any court or governmental
authority of competent jurisdiction which prohibits the
consummation of any of the transactions contemplated by this
Agreement or the Registration Rights Agreement.
(b) Conditions Precedent to the Obligation of the Purchasers to
Purchase the Initial Preferred Stock. The obligation of each Purchaser
hereunder to acquire and pay for the Initial Preferred Stock is
subject to the satisfaction or waiver by such Purchaser, at or before
the Initial Closing, of each of the following conditions:
(i) Accuracy of the Company's Representations and
Warranties. The representations and warranties of the Company set
forth in this Agreement and in the Registration Rights Agreement
shall be true and correct in all material respects as of the date
when made and as of the Initial Closing Date as though made on
and as of such date;
(ii) Performance by the Company. The Company shall have
performed, satisfied and complied with in all material respects
all covenants, agreements and conditions required by this
Agreement to be performed, satisfied or complied with by the
Company at or prior to the Initial Closing;
(iii) No Injunction. No statute, rule, regulation, executive
order, decree, ruling or injunction shall have been enacted,
entered, promulgated or endorsed by any court or governmental
authority of competent jurisdiction which prohibits the
consummation of any of the transactions contemplated by this
Agreement, the Certificate of Designation or the Registration
Rights Agreement;
(iv) Adverse Changes. Since the date of the financial
statements included in the Company's Quarterly Report on Form
10-Q or Annual Report on Form 10-K, whichever is more recent,
last filed prior to the date of this Agreement, no event which
had a Material Adverse Effect and no material adverse change in
the financial condition of the Company shall have occurred (for
purposes hereof changes in the market price of the Common Stock
may be considered as a factor in determining whether there has
occurred an event which has had a Material Adverse Effect or
whether a material adverse change has occurred);
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(v) No Suspensions of Trading in Common Stock. The trading
in the Common Stock shall not have been suspended by the
Commission or on The Nasdaq Small-Cap Market which suspension
shall remain in effect;
(vi) Legal Opinion. The Company shall have delivered to the
Purchasers the opinion of House and Ingersoll outside counsel to
the Company, in substantially the forms annexed hereto as Exhibit
C;
(vii) Required Approvals. All approvals required pursuant to
clauses (i) and (iv) of the definition of "Required Approvals"
shall have been obtained;
(viii) Shares of Common Stock. On or prior to the Initial
Closing Date, the Company shall have duly reserved the number of
Underlying Shares required by the Transaction Documents to be
reserved for issuance upon conversion of the Shares;
(ix) Delivery of Stock Certificates. At Closing, the Company
shall deliver to each Purchaser or such Purchaser's designee, the
stock certificate(s) representing the Initial Shares, registered
in the name of such Purchaser, each in form satisfactory to the
Purchaser;
(x) Registration Rights Agreement. The Company shall have
executed and delivered the Registration Rights Agreement;
(xi) Certificate of Designation. The Certificate of
Designation shall have been duly approved by the Board of
Directors and filed with and accepted by the Secretary of State
of the State of North Carolina, and the Company shall have
delivered a copy thereof to each Purchaser certified as filed by
the office of the Secretary of State of the State of North
Carolina;
(xii) Transfer Agent Instructions. The Irrevocable Transfer
Agent Instructions, in the form of Exhibit D annexed hereto,
shall have been delivered to and acknowledged in writing by the
Company's transfer agent; and
(xiii) Officer's Certificate. On the Initial Closing Date
the Company shall deliver to the Purchasers an Officer's
Certificate dated the Initial Closing Date and signed by an
executive officer of the Company confirming the accuracy of the
Company's representations, warranties and covenants as of such
Closing Date and confirming the compliance by the Company with
the conditions precedent set forth in this Section 4.1 as of the
Initial Closing Date.
4.2 Conditions Precedent to the Obligation of the Purchasers to
Purchase the Additional Preferred Stock. The obligation of each Purchaser
hereunder to acquire and pay for
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the Additional Preferred Stock is subject to the satisfaction or waiver by each
Purchaser, at or before the Subsequent Closing, of each of the following
conditions:
(a) Initial Closing; Subsequent Closings. The Initial Closing
shall have occurred, and with respect to the Third Tranche Preferred
Stock, the Second Closing shall have occurred;
(b) Accuracy of the Company's Representations and Warranties. The
representations and warranties of the Company contained herein and in
the Registration Rights Agreement shall be true and correct as of the
date when made and as of any Subsequent Closing Date, as though made
on and as of such date, except where the event causing such
representation or warranty to be untrue or incorrect would not result
in a Material Adverse Effect;
(c) Performance by the Company. The Company shall have performed,
satisfied and complied in all material respects with all covenants,
agreements and conditions required by this Agreement, the Certificate
of Designation and the Registration Rights Agreement to be performed,
satisfied or complied with by the Company at or prior to any
Subsequent Closing Date;
(d) Registration Statements. With respect to the Third Closing,
the Registration Statement with respect to the Underlying Shares
issuable on conversion of all Shares shall have been declared
effective under the Securities Act by the Commission; and on the Third
Closing Date such Registration Statement shall be effective, not
subject to any stop order and not be subject to any suspension
pursuant to Section 3(n) of the Registration Rights Agreement, and
shall have been effective and shall not have been subject to any stop
order for the 30 Trading Days prior to the Third Closing Date and no
stop order shall be pending or threatened as of the Third Closing
Date;
(e) No Injunction. No statute, rule, regulation, executive order,
decree, ruling or injunction shall have been enacted, entered,
promulgated or endorsed by any court of governmental authority of
competent jurisdiction which prohibits the consummation of any of the
transactions contemplated by this Agreement, the Certificate of
Designation or the Registration Rights Agreement relating to the
issuance, conversion or exercise of any of the Securities;
(f) No Suspensions of Trading in Common Stock. The trading in the
Common Stock shall not have been suspended by the Commission or on The
Nasdaq Small-Cap Market (except for any suspension of trading of
limited duration solely to permit dissemination of material
information regarding the Company);
(g) Listing of Common Stock. The Common Stock shall have been at
all times since the Initial Closing Date listed for trading on The
Nasdaq Small-Cap Market, and the Company shall have no knowledge of
any action or proceeding, pending or threatened, that may result in
the delisting of the Common Stock from the Nasdaq Small-
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Cap Market or any event, fact or circumstance that may result in the
delisting of the Common Stock from the Nasdaq Small-Cap Market;
(h) Change of Control. No Change of Control shall have occurred
since the Initial Closing Date. "Change of Control" means the
occurrence of any of (i) an acquisition after the date hereof by an
individual or legal entity or "group" (as described in Rule 13d5(b)(1)
promulgated under the Exchange Act) of in excess of 50% of the voting
securities of the Company, (ii) a replacement of more than one-half of
the members of the Board of Directors which is not approved by those
individuals who are members of the Board of Directors on the date
hereof in one or a series of related transactions, (iii) the merger of
the Company with or into another entity, consolidation or sale of all
or substantially all of the assets of the Company in one or a series
of related transactions or (iv) the execution by the Company of an
agreement to which the Company is a party or by which it is bound,
providing for any of the events set forth above in (i), (ii) or (iii);
(i) Legal Opinion. The Company shall have delivered to the
Purchasers the opinion of the Company's legal counsel, in
substantially the form annexed hereto as Exhibit C, dated the
Subsequent Closing Date;
(j) Required Approvals. All Required Approvals shall have been
obtained;
(k) Shares of Common Stock. On any Subsequent Closing Date the
Company shall have duly reserved the number of Underlying Shares
required by this Agreement to be reserved for issuance upon conversion
of the Shares;
(l) Delivery of Stock Certificates. The Company shall have
delivered to each Purchaser or such Purchaser's designee the stock
certificate(s) representing the Second Tranche Shares, in the case of
the Second Closing, and representing the Third Tranche Shares, in the
case of the Third Closing, registered in the name of such Purchaser,
each in form satisfactory to such Purchaser;
(m) Performance of Conversion. The Company shall have delivered
Underlying Shares upon conversion of Shares and otherwise performed
its obligations in accordance with the terms, conditions and timing
requirements of the Certificate of Designation;
(n) Transfer Agent Instructions. The Irrevocable Transfer Agent
Instructions, in the form of Exhibit D annexed hereto, shall have been
delivered to and acknowledged in writing by the Company's transfer
agent;
(o) Officer's Certificate. On each Subsequent Closing Date the
Company shall deliver to the Purchasers an Officer's Certificate dated
such Subsequent Closing Date and signed by an executive officer of the
Company confirming the accuracy of the Company's representations,
warranties and covenants as of such Subsequent Closing Date and
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confirming the compliance by the Company with the conditions precedent
set forth in this Section 4.2 as of such Subsequent Closing Date; and
(p) Shareholder Approval. The Company shall have obtained
Shareholder Approval.
ARTICLE V
MISCELLANEOUS
5.1 Fees and Expenses. The Company shall pay the legal fees and
expenses of Stroock & Stroock & Lavan LLP, counsel for the Purchasers, incident
to the negotiation, preparation, execution, delivery and performance of this
Agreement and the other Transaction Documents. The Company shall pay the fees
and expenses of its advisers, counsel, accountants and other experts, if any,
and all other expenses incurred by the Company incident to the negotiation,
preparation, execution, delivery and performance of this Agreement and the other
Transaction Documents. The Company shall pay all stamp and other taxes and
duties levied in connection with the issuance of the Securities pursuant to the
Transaction Documents.
5.2 Entire Agreement; Amendments. This Agreement, together with the
Exhibits and Schedules hereto and the other Transaction Documents, contain the
entire understanding of the parties with respect to the subject matter hereof
and supersede all prior agreements and understandings, oral or written, with
respect to such matters.
5.3 Notices. Any and all notices or other communications or deliveries
required or permitted to be provided hereunder shall be in writing and 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 for notice prior to 5:00 p.m., New York City time, on
a Business Day, (ii) the Business Day after the date of transmission, if such
notice or communication is delivered via facsimile at the facsimile telephone
number specified for notice 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) the
Business Day following the date of mailing, if sent by nationally recognized
overnight courier service or (iv) actual receipt by the party to whom such
notice is required to be given. The addresses for such communications shall be
with respect to each Purchaser at its address set forth under its name on
Schedule 1 attached hereto, or with respect to the Company, addressed to:
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Diversified Senior Services, Inc.
915 West Fourth Street
Winston-Salem, North Carolina 27101
Attention: Susan L. Christiansen
Facsimile No.: (336) 724-9955
or to such other address or addresses or facsimile number or numbers as any such
party may most recently have designated in writing to the other parties hereto
by such notice. Copies of notices to any Purchaser shall be sent to Stroock &
Stroock & Lavan LLP, 180 Maiden Lane, New York New York 10038-4982, Attention:
James R. Tanenbaum, Esq., Facsimile No.: (212) 806-6006. Copies of notices to
the Company shall be sent to House and Ingersoll, 3325 Healy Drive,
Winston-Salem, North Carolina, 27130, Attention: Donald House, Esq., Facsimile
No.: (336) 768-3369.
5.4 Amendments; Waivers. No provision of this Agreement may be waived
or amended except in a written instrument signed, in the case of an amendment,
by both the Company and the Purchasers; or, in the case of a waiver, by the
party against whom enforcement of any such waiver is sought. No waiver of any
default with respect to any provision, condition or requirement of this
Agreement shall be deemed to be a continuing waiver in the future or a waiver of
any other provision, condition or requirement hereof, nor shall any delay or
omission of either party to exercise any right hereunder in any manner impair
the exercise of any such right accruing to it thereafter. Notwithstanding the
foregoing, no such amendment shall be effective to the extent that it applies to
less than all of the holders of the Preferred Stock outstanding. The Company
shall not offer or pay any consideration to a Purchaser for consenting to such
an amendment or waiver unless the same consideration is offered to each
Purchaser and the same consideration is paid to each Purchaser which consents to
such amendment or waiver.
5.5 Headings. The headings herein are for convenience only, do not
constitute a part of this Agreement and shall not be deemed to limit or affect
any of the provisions hereof.
5.6 Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the parties and their successors and permitted assigns.
The Company may not assign this Agreement or any rights or obligations hereunder
without the prior written consent of each of the Purchasers. Each Purchaser may
assign this Agreement or any rights or obligations hereunder (i) to its
affiliates or to another Purchaser without the prior written consent of the
Company and (ii) to any other Person with the prior written consent of the
Company, such consent not to be unreasonably withheld, except that any assignee
must make the representations and warranties set forth in Section 2.2 and
otherwise comply with the terms of this Agreement otherwise applicable to its
assignor. This provision shall not limit a Purchaser's right to transfer
securities or transfer or assign rights under the Registration Rights Agreement.
5.7 No Third Party Beneficiaries. This Agreement is intended for the
benefit of the parties hereto and their respective permitted successors and
assigns and is not for the benefit of, nor may any provision hereof be enforced
by, any other Person.
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5.8 Governing Law. This Agreement shall be governed by and construed
and enforced in accordance with the laws of the State of New York, without
regard to the principles of conflicts of law thereof.
5.9 Survival. The agreements, covenants, representations, warranties
and provisions contained in this Agreement shall survive the delivery of the
Preferred Stock pursuant to this Agreement and each Closing hereunder and any
conversion of the Shares.
5.10 Execution. This Agreement may be executed in two or more
counterparts, all of which when taken together shall be considered one and the
same agreement and shall become effective when counterparts have been signed by
each party and delivered to the other party, it being understood that all
parties need not sign the same counterpart. In the event that any signature is
delivered by facsimile transmission, such signature shall create a valid and
binding obligation of the party executing (or on whose behalf such signature is
executed) the same with the same force and effect as if such facsimile signature
page were an original thereof.
5.11 Publicity. The Company and each Purchaser shall consult with each
other in issuing any press releases or otherwise making public statements with
respect to the transactions contemplated hereby and neither party shall issue
any such press release or otherwise make any such public statement without the
prior written consent of the other, which consent shall not be unreasonably
withheld or delayed, except that no prior consent shall be required if such
disclosure is required by law, in which such case the disclosing party shall
provide the other Party with prior notice of such public statement. The Company
shall not publicly or otherwise disclose the names of any of the Purchasers
without each such Purchaser's prior written consent unless otherwise required by
law, in which case the Company shall inform such Purchaser of such disclosure in
writing prior to making such disclosure.
5.12 Consent to Jurisdiction; Attorneys' Fees (a) The Company
(including, but not limited to, its affiliates, subsidiaries, officers,
directors and controlling persons) and each Purchaser hereby (i) irrevocably
submits to the exclusive jurisdiction of any New York State court or Federal
court sitting in the Borough of Manhattan, The City of New York in any action
related to, connected with or arising out of, in whole or in part, the
Transaction Documents, including, but not limited to, transactions in the
securities of the Company subsequent to the purchase by such Purchaser or
Persons claimed to be affiliated with such Purchaser, (ii) agrees that all
claims in such action shall be decided in such court, (iii) waives, to the
fullest extent it may effectively do so, the defense of inconvenient forum and
(iv) consents to the service of process by certified mail, return receipt
requested. Nothing herein shall affect the right of any party to serve legal
process in any manner permitted by law or affect its right to bring any action
in any other court.
(b) In connection with any dispute between the Company and any
Purchaser, related to, connected with or arising out of, in whole or in part,
the Transaction Documents including, but not limited to, transactions in the
securities of the Company subsequent to the purchase, by a Purchaser or Persons
claimed to be affiliated to a Purchaser, the prevailing party shall be awarded
all reasonable attorneys' fees and expenses incurred by it. In that connection
fees and expenses
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actually paid by a party in connection with the litigation of any dispute shall
be deemed presumably reasonable.
(c) In the event that any Purchaser or any Person claimed to be
affiliated or associated with such Purchaser becomes involved in any capacity in
any action, proceeding or investigation brought by or against any Person,
including shareholders of the Company, in connection with or as a result of any
matter referred to in the Transaction Documents, the Company will reimburse such
Purchaser and/or those claimed to be affiliated or associated with such
Purchaser for its legal fees and expenses and other expenses (including the cost
of any investigation and preparation) incurred in connection therewith, as those
fees and expenses are incurred; provided, however, that if at the conclusion of
such action, proceeding or investigation it shall be finally judicially
determined by a court of competent jurisdiction that indemnity for such fees and
expenses is contrary to law, or that such Purchaser is not the prevailing party
then in that event, such Purchaser and/or any other Person having received such
advances of fees and expenses shall reimburse the Company in full for the sums
advanced.
(d) The provisions of this Section 5.12 shall survive any termination
or completion of the Transaction Documents.
5.13 Waiver of Jury Trial (a) The parties hereto each waive their
respective rights to a trial by jury of any claim or cause of action based upon
or arising out of or related to the Transaction Documents, or the transactions
contemplated by the Transaction Documents, in any action, proceeding or other
litigation of any type brought by any of the parties against any other party or
parties, whether with respect to contract claims, tort claims, or otherwise. The
parties hereto each agree that any such claim or cause of action shall be tried
by a court trial without a jury. Without limiting the foregoing, the parties
further agree that their respective right to a trial by jury is waived by
operation of this Section 5.13 as to any action, counterclaim or other
proceeding which seeks, in whole or in part, to challenge the validity or
enforceability of any of the Transaction Documents or any provision hereof or
thereof. The waiver shall apply to any subsequent amendments, renewals,
supplements or modifications to any of the Transaction Documents.
(b) The provisions of this Section 5.13 shall survive any termination
or completion of the Transaction Documents.
5.14 Severability. If any term, provision, covenant or restriction of
this Agreement is held to be invalid, illegal, void or unenforceable in any
respect, the remainder of the terms, provisions, covenants and restrictions set
forth herein shall remain in full force and effect and shall in no way be
affected, impaired or invalidated, and the parties hereto shall use their
reasonable efforts to find and employ an alternative means to achieve the same
or substantially the same result as that contemplated by such term, provision,
covenant or restriction. It is hereby stipulated and declared to be the
intention of the parties that they would have executed the remaining terms,
provisions, covenants and restrictions without including any of such that may be
hereafter declared invalid, illegal, void or unenforceable.
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5.15 Remedies. In addition to being entitled to exercise all rights
provided herein or granted by law, including recovery of damages, the Purchasers
will be entitled to specific performance of the obligations of the Company under
the Transaction Documents and injunctive relief. Each of the Company and the
Purchasers (severally and not jointly) agree that monetary damages would not be
adequate compensation for any loss incurred by reason of any breach of its
obligations described in the foregoing sentence and hereby agrees to waive in
any action for specific performance of any such obligation or injunctive relief
the defense that a remedy at law would be adequate.
5.16 Independent Nature of Purchasers' Obligations and Rights. The
obligations of each Purchaser hereunder is several and not joint with the
obligations of the other Purchasers hereunder, and no Purchaser shall be
responsible in any way for the performance of the obligations of any other
Purchaser hereunder. Nothing contained herein or in any other agreement or
document delivered at any Closing, and no action taken by any Purchaser pursuant
hereto or thereto, shall be deemed to constitute the Purchasers as a
partnership, an association, a joint venture or any other kind of entity, or
create a presumption that the Purchasers are in any way acting in concert with
respect to such obligations or the transactions contemplated by this Agreement.
Each Purchaser shall be entitled to protect and enforce its rights, including
without limitation the rights arising out of this Agreement or out of the other
Transaction Documents, and it shall not be necessary for any other Purchaser to
be joined as an additional party in any proceeding for such purpose.
[Remainder of Page Intentionally Left Blank]
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IN WITNESS WHEREOF, the parties hereto have caused this Securities
Purchase Agreement to be duly executed by their respective authorized persons as
of the date first indicated above.
DIVERSIFIED SENIOR SERVICES, INC.
By: /s/ Susan L. Christiansen
-------------------------------
Susan L. Christiansen
President
AUSTINVEST ANSTALT BALZERS
By: /s/ Walter Grill
-------------------------------
Name: Walter Grill
Title: Director
ESQUIRE TRADE & FINANCE INC.
By: /s/ Roland R. Winiger
-------------------------------
Name: Roland R. Winiger
Title: Director
AMRO INTERNATIONAL, S.A.
By: /s/ H. U. Bachofen
-------------------------------
Name: H. U. Bachofen
Title: Director
NESHER, INC.
By: /s/ David Grin
--------------------------------
Name: David Grin
Title:
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GUARANTEE & FINANCE CORP.
By: /s/ Marcus Katz
--------------------------------
Name: Marcus Katz
Title:
TAYLOR HOUSE ENTERPRISES, LIMITED
By: /s/ G. L. Clark, Jr.
--------------------------------
Name: G. L. Clark, Jr.
Title: C.F.O.
-33-
Schedule 1
Aggregate Aggregate Aggregate
Stated Stated Stated
Value of Value of Value of
Preferred Number of Preferred Number of Preferred Number of
Name of Stock Shares Stock Shares Stock Shares
Purchaser Purchased Purchased in Purchased Purchased in Purchased Purchased in
in Initial Initial in Initial Initial in Initial Initial
Closing Closing Closing Closing Closing Closing
Austinvest Anstalt
Balzers $1,200,000 600 $275,000 137.5 $275,000 137.5
Esquire Trade
& Finance Inc. $1,130,000 565 $300,000 150 $320,000 160
Amro Inter-
national, $300,000 150 $100,000 50 $100,000 50
S.A.
Nesher, Inc. $60,000 30 $20,000 10 $20,000 10
Guarantee &
Finance $250,000 125 $0 0 $0 0
Corp.
Taylor House $60,000 30 $20,000 10 $20,000 10
Enterprises,
Limited
============ ========= ============ ========== ============ ===========
Total $3,000,000 1,500 $715,000 357.5 $735,000 367.5