Exhibit 1.1
1,500,000 Shares
DIVERSIFIED SENIOR SERVICES, INC.
Common Stock
UNDERWRITING AGREEMENT
New York, New York
November __, 1997
Strasbourger Pearson Tulcin
Wolff Incorporated
61 Broadway
Suite 2800
New York, New York 10006
Diversified Senior Services, Inc., a North Carolina
corporation (the "Company"), hereby confirms its agreement with you. The Company
proposes to issue and sell to you (the "Underwriter") pursuant to this
Underwriting Agreement (the "Agreement") an aggregate of 1,500,000 shares (the
"Shares") of the Company's Common Stock, no par value per share (the "Common
Stock").
You have advised the Company that you desire to purchase the
Shares. The Company confirms the agreement made by it with respect to the
purchase of the Shares by the Underwriter, as follows:
1. Representations and Warranties of the Company and THE. The
Company and Taylor House Enterprises, Limited ("THE") represent and warrant to,
and agree with, the Underwriter that:
(a) A registration statement on Form SB-2 (File No.
333-34367) with respect to the Shares, including a prospectus subject to
completion, has been filed by the Company with the Securities and Exchange
Commission (the "Commission") under the Securities Act of 1933, as amended (the
"Act") and in conformity with the requirements of the Act and the rules and
regulations of the Commission thereunder (the "Rules and Regulations"), and one
or more amendments to such registration statement may have been so filed and
such registration statement has been delivered to you. After the execution of
this Agreement, the Company will
file with the Commission either (i) if such registration statement, as it
may have been amended, has been declared by the Commission to be effective under
the Act, either (A) if the Company relies on Rule 434 under the Act, a Term
Sheet (as hereinafter defined) relating to the Shares, that shall identify the
Preliminary Prospectus (as hereinafter defined) that it supplements containing
such information as is required or permitted by Rules 434, 430A and 424(b) under
the Act or (B) if the Company does not rely on Rule 434 under the Act, a
prospectus in the form most recently included in an amendment to such
registration statement (or, if no such amendment shall have been filed, in such
registration statement), with such changes or insertions as are required by Rule
430A under the Act or permitted by Rule 424(b) under the Act, and in the case of
either clause (i)(A) or (i)(B) of this sentence as have been provided to and
approved by you prior to the execution of this Agreement, or (ii) if such
registration statement, as it may have been amended, has not been declared by
the Commission to be effective under the Act, an amendment to such registration
statement, including a form of prospectus, a copy of which amendment has been
furnished to and approved by you prior to the execution of this Agreement. The
Company may also file a related registration statement with the Commission
pursuant to Rule 462(b) under the Act for the purpose of registering certain
additional Shares, which registration shall be effective upon filing with the
Commission. As used in this Agreement, the term "Registration Statement" means
the registration statement initially filed relating to the Shares, as amended at
the time when it was or is declared effective, including all financial schedules
and exhibits thereto and including any information omitted therefrom pursuant to
Rule 430A under the Act and included in the Prospectus (as hereinafter defined),
and including any registration statement filed with the Commission pursuant to
Rule 462(b); the term "Preliminary Prospectus" means each prospectus subject to
completion filed with such registration statement or any amendment thereto
(including the prospectus subject to completion, if any, included in the
Registration Statement or any amendment thereto at the time it was or is
declared effective); the term "Prospectus" means:
i) if the Company relies on Rule 434 under the Act,
the Term Sheet relating to the Shares that is first filed
pursuant to Rule 424(b)(7) under the Act, together with the
Preliminary Prospectus identified therein that such Term Sheet
supplements;
ii) if the Company does not rely on Rule 434 under
the Act, the prospectus first filed with the Commission
pursuant to Rule 424(b) under the Act; or
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iii) if the Company does not rely on Rule 434 under
the Act and if no prospectus is required to be filed pursuant
to Rule 424(b) under the Act, the prospectus included in the
Registration Statement;
and the term "Term Sheet" means any term sheet that satisfies the requirements
of Rule 434 under the Act. Any reference herein to the "date" of a Prospectus
that includes a Term Sheet shall mean the date of such Term Sheet.
(b) The Commission has not issued any order
preventing or suspending use of the Registration Statement or any Preliminary
Prospectus. When any Preliminary Prospectus was filed with the Commission it (i)
contained all statements required to be stated therein in accordance with, and
complied in all material respects with the requirements of, the Act and the
Rules and Regulations and (ii) did not include any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading. When the Registration
Statement or any amendment thereto was or is declared effective, it (i)
contained or will contain all statements required to be stated therein in
accordance with, and complied or will comply in all material respects with the
requirements of, the Act and the Rules and Regulations and (ii) did not or will
not include any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the statements
therein not misleading. When the Prospectus or any Term Sheet that is a part
thereof or any amendment or supplement to the Prospectus is filed with the
Commission pursuant to Rule 424(b) (or, if the Prospectus or part thereof or
such amendment or supplement is not required to be so filed, when the
Registration Statement or the amendment thereto containing such amendment or
supplement to the Prospectus was or is declared effective) and on the Closing
Date, the Prospectus, as amended or supplemented at any such time, (i) contained
or will contain all statements required to be stated therein in accordance with,
and complied or will comply in all material respects with the requirements of,
the Act and the Rules and Regulations and (ii) did not or will not include any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary in order to make the statements therein, in
the light of the circumstances under which they were made, not misleading. The
foregoing provisions of this paragraph (b) do not apply to statements or
omissions made in any Preliminary Prospectus, the Registration Statement or any
amendment thereto or the Prospectus or any amendment or supplement thereto in
reliance upon and in conformity with written information furnished to the
Company by you specifically for use therein. It is understood that the
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statements set forth in the Prospectus on the cover page with respect to fees
and discounts, paragraph three (3) under the heading "Underwriting" and the
identity of counsel to the Underwriter under the heading "Legal Matters"
constitute the only information furnished in writing by or on behalf of the
Underwriter for inclusion in the Registration Statement, the Preliminary
Prospectus and Prospectus, as the case may be.
(c) If the Company has elected to rely on Rule
462(b) and the Registration Statement has not been declared effective (i) the
Company has filed a Registration Statement in compliance with, and that is
effective upon filing pursuant, to Rule 462(b) and has received confirmation of
its receipt and (ii) the Company has given irrevocable instructions for
transmission of the applicable filing fee in connection with the filing of the
Rule 462(b) Registration Statement, in compliance with Rule 111 promulgated
under the Act or the Commission has received payment of such filing fee.
(d) Each of the Company and its wholly-owned
subsidiary, Residential Properties Management, Inc. ("Subsidiary") has been duly
organized and is validly existing as a corporation in good standing under the
laws of the jurisdiction of its incorporation, with full power and authority
(corporate and other) to own its properties and conduct its business as
described in the Registration Statement and Prospectus and is duly qualified or
licensed to do business as a foreign corporation and is in good standing in each
other jurisdiction in which the nature of its business or the character or
location of its properties requires such qualification, except where the failure
to so qualify will not materially affect the condition (financial or otherwise),
business, properties, prospects, net worth or results of operations of the
Company and the Subsidiary, taken as a whole. Residential Properties Management,
Inc. is the only subsidiary of the Company, whether direct or indirect. The
Company does not control, directly or indirectly, any corporation (other than
the Subsidiary), partnership, joint venture, association or other business
organization.
(e) The authorized, issued and outstanding capital
stock of the Company is as set forth in the Prospectus under "Capitalization;"
the shares of issued and outstanding capital stock of the Company set forth
thereunder have been duly authorized, validly issued and are fully paid and
nonassessable; except as set forth in the Prospectus, no options, warrants or
other rights to purchase, agreements or other obligations to issue, or
agreements or other rights to convert any obligation into, any shares of capital
stock of the Company have been
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granted or entered into by the Company; and the Common Stock conforms to all
statements relating thereto contained in the Registration Statement and
Prospectus.
(f) The Shares and the shares of Common Stock to be
issued upon exercise of the Underwriter's Warrants (as hereinafter defined) when
issued and delivered pursuant to this Agreement, will be duly authorized,
validly issued, fully paid and nonassessable and free of preemptive rights of
any security holder of the Company. The Underwriter's Warrants when issued, paid
for and delivered in accordance with the terms of the Warrant Agreement (as
hereinafter defined), will be duly authorized, validly issued, fully paid and
nonassessable and free of preemptive rights of any security holder of the
Company. Neither the filing of the Registration Statement nor the offering or
sale of the Shares as contemplated in this Agreement gives rise to any rights,
other than those which have been waived or satisfied, for or relating to the
registration of any shares of Common Stock, except as described in the
Registration Statement.
(g) Each of this Agreement and the Warrant Agreement
have been duly and validly authorized, executed and delivered by the Company
and, assuming due execution by the other party hereto and thereto, constitute
valid and binding obligations of the Company enforceable against the Company in
accordance with their terms, except as enforceability may be limited by
applicable bankruptcy, insolvency or other laws affecting the rights of
creditors generally and the discretion of the courts in granting equitable
remedies. The Company has full power and lawful authority to authorize, issue
and sell the Shares to be sold by it hereunder on the terms and conditions set
forth herein. No consent, approval, authorization or order of, or any filing or
declaration with, any governmental authority is required for the consummation of
the transactions contemplated by this Agreement or in connection with the
issuance and sale of the Shares or the Underwriter's Warrants by the Company,
except such as have been obtained under the Act or the Rules and Regulations and
such as may be required under state securities or Blue Sky laws or the bylaws
and rules of the National Association of Securities Dealers, Inc. (the "NASD")
in connection with the purchase and distribution by the Underwriter of the
Shares and the Underwriter's Warrants to be sold by the Company.
(h) Except as described in the Prospectus, neither
the Company nor the Subsidiary is in violation, breach or default (which
includes any event that has occurred which,
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with notice or lapse of time or both, would constitute a default) of or under,
and consummation of the transactions herein contemplated and the fulfillment of
the terms of this Agreement or the terms of any agreement contemplated hereby
will not conflict with, or result in a breach of, any of the terms or provisions
of, or constitute a default under, or result in the creation or imposition of
any lien, charge or encumbrance upon any of the property or assets of the
Company or the Subsidiary pursuant to the terms of any indenture, mortgage, deed
of trust, loan agreement or other agreement or instrument to which the Company
or the Subsidiary is a party or by which the Company or the Subsidiary may be
bound or to which any of the property or assets of the Company or the Subsidiary
is subject, nor will such action result in any violation of the provisions of
the articles of incorporation or any order, rule or regulation applicable to the
Company or the Subsidiary of any court or any regulatory authority or other
governmental body having jurisdiction over the Company or the Subsidiary.
(i) Subject to the qualifications stated in the
Prospectus, the Company or the Subsidiary has good and marketable title to all
properties and assets described in the Prospectus as owned by them, free and
clear of all liens, charges, encumbrances or restrictions, except such as are
not materially significant or important in relation to its business; all of the
material leases and subleases under which the Company or the Subsidiary is the
lessor or sublessor of properties or assets or under which the Company or the
Subsidiary holds properties or assets as lessee or sublessee as described in the
Prospectus are in full force and effect, and, except as described in the
Prospectus, neither the Company nor the Subsidiary is in default in any material
respect with respect to any of the terms or provisions of any of such leases or
subleases, and no claim has been asserted by anyone adverse to rights of the
Company or the Subsidiary as lessor, sublessor, lessee or sublessee under any of
the leases or subleases mentioned above, or affecting or questioning the right
of the Company or the Subsidiary to continued possession of the leased or
subleased premises or assets under any such lease or sublease except as
described or referred to in the Prospectus; and the Company or the Subsidiary
owns or leases all such properties described in the Prospectus as are necessary
to its operations as now conducted and, except as otherwise stated in the
Prospectus, as proposed to be conducted as set forth in the Prospectus.
(j) The Company (either directly or through its
Subsidiary) has valid and subsisting options to purchase the properties
described in the Registration Statement and Prospectus (or, if the Prospectus is
not in existence, the most
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recent Preliminary Prospectus) under the caption "Business Development Division"
as being subject to such purchase options, which purchase options expire in the
manner described in the Registration Statement and Prospectus (or, if the
Prospectus is not in existence, the most recent Preliminary Prospectus). The
Company has entered into purchase and sale agreements dated
______________________ (collectively, the "North Carolina Purchase Agreements")
with each of ___________________________ (collectively, the "Sellers") for the
purchase by the Company of _______________________________. Title insurance in
favor of the Company or the Subsidiary is in full force and effect with respect
to each such property described in the Registration Statement and Prospectus
(or, if the Prospectus is not in existence, the most recent Preliminary
Prospectus) as owned by the Company, in amounts at least equal to the purchase
price paid by the Company or any Subsidiary for such property.
(k) The Company has full right, power and authority
to enter into each North Carolina Purchase Agreement and to consummate the
transactions provided for thereof; each North Carolina Purchase Agreement has
been duly authorized, executed and delivered by the Company; each North Carolina
Purchase Agreement is a valid and binding agreement of the Company enforceable
in accordance with its terms, except as limited by applicable bankruptcy,
insolvency, reorganization, moratorium or other laws now or hereafter in effect
relating to or affecting creditors' rights generally or by general principles of
equity relating to the availability of remedies; none of the execution or
delivery of any North Carolina Purchase Agreement by the Company, the
performance by the Company of its obligations thereunder, or the consummation by
the Company of the transactions contemplated therein, conflicts or will conflict
with or results or will result in any breach or violation of any of the terms or
provisions of, or constitute a default under, or result in the creation or
imposition of any encumbrance upon, any property or assets of the Company or the
Subsidiary pursuant to (A) the terms of the articles of incorporation or bylaws
of the Company, in each case as amended, as the case may be; (B) the terms of
any contract or other agreement to which the Company is (or, upon consummation
of the transactions contemplated by the North
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Carolina Purchase Agreements, will be) a party or by which it is bound or to
which any of its assets or properties is (or, upon consummation of the
transactions contemplated by the North Carolina Purchase Agreements, will be)
subject, the conflict, breach or violation of which would, individually or in
the aggregate, have a material adverse effect on the condition (financial or
otherwise), business, properties, prospects, net worth or results of operations
of the Company and the Subsidiary, taken as a whole, as if the transactions
contemplated by the North Carolina Purchase Agreements had been consummated; (C)
any statute, rule or regulation of any governmental authority having (or that,
upon consummation of the transactions contemplated by the North Carolina
Purchase Agreement, will have) jurisdiction over the Company or the Subsidiary
or any of their respective activities or properties, the conflict, breach or
violation of which would, individually or in the aggregate, have a material
adverse effect on the condition (financial or otherwise), business, properties,
prospects, net worth or results of operations of the Company and the Subsidiary,
taken as a whole, as if the transactions contemplated by the North Carolina
Purchase Agreements had been consummated; or (D) the terms of any judgment,
decree or order of any arbitrator or governmental authority having (or that,
upon consummation of the transactions contemplated by the North Carolina
Purchase Agreement, will have) such jurisdiction, the conflict, breach or
violation of which would, individually or in the aggregate, have a material
adverse effect on the condition (financial or otherwise), business, properties,
prospects, net worth or results of operations of the Company and the Subsidiary,
taken as a whole, as if the transactions contemplated by the North Carolina
Purchase Agreements had been consummated;
(l) The Daniel Professional Group, Inc., who has
given its report on certain financial statements filed and to be filed with the
Commission as a part of the Registration Statement, which are incorporated in
the Prospectus, are with respect to the Company and the Subsidiary, independent
public accountants as required by the Act and the Rules and Regulations.
(m) The consolidated financial statements and the
related notes of the Company and the Subsidiary, the financial statements and
the related notes of the Subsidiary, any supplementary financial information,
any related schedules and the pro forma financial statements of the Company and
the Subsidiary set forth in the Registration Statement and the Prospectus
present fairly (i) the consolidated financial position and results of operations
and changes in financial position of the Company and the Subsidiary on the basis
stated in the Registration Statement, at the respective dates and for the
respective periods to which they apply and (ii) the financial position and
results of operations and changes in financial position of the Subsidiary on the
basis stated in the Registration Statement, at the respective dates and for the
respective periods to which they apply. Said financial statements and notes,
supplementary financial information, related schedules and pro forma financial
statements have been prepared in accordance with generally accepted accounting
principles ("GAAP") applied on a basis which is consistent
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during the periods involved. The financial data with respect to the Company and
the Subsidiary set forth in the Prospectus under the captions "Summary Financial
Information," "Capitalization," and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" fairly present, on the basis
stated in the Prospectus, the information set forth therein and have been
compiled on a basis consistent with that of the audited financial statements
included in the Prospectus. No other financial statements are required by Form
SB-2 or otherwise to be included in the Registration Statement or the
Prospectus. There has been no material adverse change in the condition
(financial or otherwise), business, properties, prospects, net worth or results
of operations of the Company and the Subsidiary, taken as a whole, from the
latest information set forth in the Registration Statement or the Prospectus,
except as properly described in the Prospectus; and there is no fact known to
the Company which could reasonably be expected to have a material and adverse
effect on the future prospects of the Company or the Subsidiary (other than
political or economic matter of general applicability or as properly described
in the Prospectus).
(n) Subsequent to the respective dates as of which
information is given in the Registration Statement and Prospectus, neither the
Company nor the Subsidiary has paid or declared any dividends or other
distributions of any kind on any class of its capital stock nor has incurred any
liabilities or obligations, direct or contingent, not in the ordinary course of
business, or entered into any transaction not in the ordinary course of
business, which is material to the business of the Company and the Subsidiary,
taken as a whole, and there has not been any change in the capital stock of, or
any material incurrence of long-term debt by the Company or the Subsidiary or
any material issuance of options, warrants or other rights to purchase the
capital stock of the Company or the Subsidiary or any material adverse change or
any material development involving, so far as the Company can now reasonably
foresee, a prospective adverse change in the condition (financial or otherwise),
net worth, results of operations, business, key personnel or properties of the
Company or the Subsidiary which would be material to the business or condition
(financial or otherwise) of the Company and the Subsidiary, taken as a whole,
and neither the Company nor the Subsidiary has become a party to, and neither
the business nor the property of the Company or the Subsidiary has become the
subject of, any material litigation whether or not in the ordinary course of
business.
(o) Except as set forth in the Prospectus, there is
not now pending or threatened, any action, suit or proceeding
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to which the Company or the Subsidiary is a party before or by any court or
governmental agency or body, which might result in any material adverse change
in the condition (financial or otherwise), business, properties, prospects, net
worth, or results of operations of the Company and the Subsidiary, taken as a
whole, nor are there any actions, suits or proceedings related to environmental
matters or related to discrimination on the basis of age, sex, religion or race;
and no labor disputes involving the employees of the Company or the Subsidiary
exist or are threatened which might be expected to materially adversely affect
the condition (financial or otherwise), business, properties, prospects, net
worth or results of operations of the Company and the Subsidiary, taken as a
whole.
(p) Except as disclosed in the Prospectus, the
Company and the Subsidiary have sufficient licenses, permits, certificates and
other governmental authorizations as are required for the conduct of its
business or the ownership of its property as described in the Prospectus and are
in all material respects complying therewith. Neither the Company nor the
Subsidiary has received any notice of proceedings relating to the revocation or
modification of any such certificate, authorization or permit nor, to the
knowledge of the Company, none of the activities or business of the Company or
the Subsidiary are in violation of, or cause the Company or the Subsidiary to
violate, any law, rule, regulation or order of the United States, any state,
county or locality, or of any agency or body of the United States or of any
state, county or locality, the violation of which would have a material adverse
impact upon the condition (financial or otherwise), business, properties,
prospects, net worth or results of operations of the Company and the Subsidiary,
taken as a whole. Without limiting the generality of the foregoing, except as
disclosed in the Prospectus, each of the facilities or apartment complexes
operated or managed by the Company or the Subsidiary so designated as
participating in the Housing and Urban Development ("HUD") program or the Rural
Development ("RD") program are certified to participate in such programs.
(q) Neither the Company nor the Subsidiary have
directly or indirectly, at any time (i) made any contributions to any candidate
for political office, or failed to disclose fully any such contribution in
violation of law or (ii) made any payment to any state, federal or foreign
governmental officer or official, or other person charged with similar public or
quasi-public duties, other than payments or contributions required or allowed by
applicable law. The Company's and the Subsidiary's internal accounting controls
and procedures are
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sufficient to cause the Company and the Subsidiary to comply in all material
respects with the Foreign Corrupt Practices Act of 1977, as amended.
(r) On the Closing Date (as hereinafter defined) all
transfer or other taxes (including franchise, capital stock or other tax, other
than income taxes, imposed by any jurisdiction), if any, which are required to
be paid in connection with the sale and transfer of the Shares to the
Underwriter hereunder will have been fully paid or provided for by the Company
and all laws imposing such taxes will have been fully complied with.
(s) There is no document or contract of a character
required to be described in the Registration Statement or Prospectus (or, if the
Prospectus is not in existence, the most recent Preliminary Prospectus) or to be
filed as an exhibit to the Registration Statement which is not described or
filed as required.
(t) The Company has not taken nor will take,
directly or indirectly, any action designed to cause or result in, or which has
constituted or which might reasonably be expected to constitute, the
stabilization or manipulation of the price of the Shares. The Company has not
distributed and will not distribute any offering material in connection with the
offering and sale of the Shares other than the Preliminary Prospectus and the
Registration Statement, the Prospectus or other materials permitted or required
by the Act.
(u) The Company has not entered into any agreement
pursuant to which any person is entitled, either directly or indirectly, to
compensation from the Company for services as a finder in connection with the
public offering referred to herein.
(v) There are no holders of shares of Common Stock
or other securities of the Company having rights to register such Common Stock
or other securities under the Registration Statement.
(w) The Company has entered into employment
contracts with its principal executive officers, including William G. Benton,
Susan L. Christiansen and G.L. Clark, Jr., and the description of such
employment agreements in the Prospectus is true, correct and complete.
(x) No labor dispute with the employees of the
Company or the Subsidiary exists or is threatened or imminent that could result
in a material adverse change in the condition
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(financial or otherwise), business, properties, prospects, net worth or results
of operations of the Company and the Subsidiary, taken as a whole, except as
described in or contemplated by the Prospectus (or, if the Prospectus is not in
existence, the most recent Preliminary Prospectus).
(y) The Company and the Subsidiary own or possess,
or can acquire on reasonable terms, all material patents, patent applications,
trademarks, service marks, trade names, licenses, copyrights and proprietary or
other confidential information currently employed by them in connection with
their respective businesses, and neither the Company nor the Subsidiary has
received any notice of infringement of or conflict with asserted rights of any
third party with respect to any of the foregoing which, singly or in the
aggregate, if the subject of an unfavorable decision, ruling or finding, would
result in a material adverse change in the condition (financial or otherwise),
business, properties, prospects, net worth or results of operations of the
Company and the Subsidiary, taken as a whole, except as described in or
contemplated by the Prospectus (or, if the Prospectus is not in existence, the
most recent Preliminary Prospectus).
(z) The Company and the Subsidiary are insured by
insurers of recognized financial responsibility against such losses and risks
and in such amounts as are prudent and customary in the businesses in which they
are engaged; neither the Company nor the Subsidiary has been refused any
insurance coverage sought or applied for; and neither the Company nor the
Subsidiary has any reason to believe that it will not be able to renew its
existing insurance coverage as and when such coverage expires or to obtain
similar coverage from similar insurers as may be necessary to continue its
business at a cost that would not materially and adversely affect the condition
(financial or otherwise), business, properties, prospects, net worth or results
of operations of the Company and the Subsidiary, taken as a whole, except as
described in or contemplated by the Prospectus (or, if the Prospectus is not in
existence, the most recent Preliminary Prospectus).
(aa) The Subsidiary is not prohibited, directly or
indirectly, from paying any dividends to the Company, from making any other
distribution on such Subsidiary's capital stock, from repaying to the Company
any loans or advances to such Subsidiary from the Company or from transferring
any of such Subsidiary's property or assets to the Company, except as described
in or contemplated by the Prospectus (or, if the Prospectus is not in existence,
the most recent Preliminary Prospectus).
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(bb) The Company will conduct its operations in a
manner that will not subject it to registration as an investment company under
the Investment Company Act of 1940, as amended, and this transaction will not
cause the Company to become an investment company subject to registration under
such Act.
(cc) Each of the Company and the Subsidiary have
filed all foreign, federal, state and local tax returns that are required to be
filed or has requested extensions thereof (except in any case in which the
failure so to file would not have a material adverse effect on the Company and
the Subsidiary, taken as a whole) and have paid all taxes required to be paid
and any other assessment, fine or penalty levied, to the extent that any of the
foregoing is due and payable, except for any such assessment, fine or penalty
that is currently being contested in good faith or as described in or
contemplated by the Prospectus (or, if the Prospectus is not in existence, the
most recent Preliminary Prospectus).
(dd) Any certificate signed by any officer of the
Company and delivered to the Underwriter or to counsel for the Underwriter shall
be deemed a representation and warranty made by the Company to the Underwriter
as to the matters covered thereby and shall be deemed incorporated herein in its
entirety and shall be effective as if such representation and warranty were made
herein.
(ee) Except for the shares of capital stock of the
Subsidiary owned by the Company, neither the Company nor the Subsidiary owns any
shares of stock or any other equity securities of any corporation or has any
equity interest in any firm, partnership, association or other entity, except as
described in or contemplated by the Prospectus (or, if the Prospectus is not in
existence, the most recent Preliminary Prospectus).
(ff) The books, records and accounts and systems of
internal accounting controls of the Company and the Subsidiary currently comply
with the requirements of Section 13(b)(2) of the Securities Exchange Act of
1934, as amended (the "Exchange Act"). The Company and the Subsidiary each
maintain a system of internal accounting controls sufficient to provide
reasonable assurance that (1) transactions are executed in accordance with
management's general or specific authorizations; (2) transactions are recorded
as necessary to permit preparation of financial statements in conformity with
generally accepted accounting principles and to maintain asset accountability;
(3) access to assets is permitted only in accordance with management's general
or specific authorization; and (4) the
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recorded accountability for assets is compared with the existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.
(gg) No statement, representation, warranty or
covenant made by the Company in this Agreement or made in any certificate or
document required by this Agreement to be delivered to the Underwriter is or
will be, when made, inaccurate, untrue or incorrect in any material respect,
unless such statement, representation, warranty or covenant is qualified as to
materiality, in which case it is not or will not be, when made, inaccurate,
untrue or incorrect.
(hh) The Shares have been approved for listing on
the NASDAQ SmallCap Market, subject only to notice of issuance.
(ii) The business, operations and facilities of the
Company and the Subsidiary have been and are being conducted in compliance in
all material respects with all applicable laws, ordinances, rules, regulations,
licenses, permits, approvals, plans, authorizations or requirements relating to
occupational safety and health, or pollution, or protection of health or the
environment (including, without limitation, those relating to emissions,
discharges, releases or threatened releases of pollutants, contaminants or
hazardous or toxic substances, materials or wastes into ambient air, surface
water, groundwater or land, or relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling of
chemical substances, pollutants, contaminants or hazardous or toxic substances,
materials or wastes, whether solid, gaseous or liquid in nature) of any
governmental department, commission, board, bureau, agency or instrumentality of
the United States or any state or political subdivision thereof, and all
applicable judicial or administrative agency or regulatory decrees, awards,
judgments and orders relating thereto; and neither the Company nor the
Subsidiary has received any notice from any governmental instrumentality or any
third party alleging any violation thereof or liability thereunder (including,
without limitation, liability for costs of investigating or remediating sites
containing hazardous substances and/or damages to natural resources), which
violation would have, or could reasonably be expected to have, a material
adverse effect on the condition (financial or otherwise), business, properties,
prospects, net worth or results of operations of the Company and the Subsidiary,
taken as a whole. The intended use and occupancy of each of the facilities owned
or operated by the Company or the Subsidiary complies in all material respects
with all applicable codes and zoning laws and regulations and there is no
pending or, to the knowledge of the
14
Company, threatened condemnation, zoning change, environmental or other
proceeding or action that will in any material respect adversely affect the size
of, use of, improvements on, construction on, or access to such facilities.
(jj) Each executive officer, director and
shareholder of the Company has delivered to the Underwriter an agreement (the
"Lockup Agreement"), in substantially the form of Annex I, to the effect that
he, she or it will not, for a period of two years after the date hereof, without
the prior written consent of the Underwriter, offer to sell, sell, contract to
sell, grant any option to purchase or otherwise dispose (or announce any offer,
sale, grant of any option to purchase or other disposition) of any shares of
Common Stock or securities convertible into, or exchangeable or exercisable for,
shares of Common Stock, except for bona fide private sales or transfers of
shares of Common Stock to purchasers or transferees provided that such person
agrees in writing to be bound by the terms of the Lockup Agreement.
(kk) No transaction has occurred between or among
the Company or any of its affiliates, officers or directors or any affiliate or
affiliates of any such officer or director that is required to be described in
and is not described in the registration Statement and the Prospectus.
2. Purchase, Delivery and Sale of the Shares.
-----------------------------------------
(a) Subject to the terms and conditions of this
Agreement, and upon the basis of
the representations, warranties and agreements herein contained, the Company
agrees to issue and sell to the Underwriter, and the Underwriter agrees to buy
from the Company, at $______ per share, at the place and time hereinafter
specified, 1,500,000 shares of Common Stock.
(b) Delivery of the Shares against payment therefor
shall take place at the offices of Stroock & Stroock & Lavan LLP, 180 Maiden
Lane, New York, New York (or at such other place as may be designated by
agreement between you and the Company) at 10:00 a.m., New York time, on November
__, 1997, or at such later time and date as you may designate but not later than
ten (10) days from the effective date of the Registration Statement (the
"Effective Date"), such time and date of payment and delivery for the Shares
being herein called the "Closing Date."
(c) The Company will make the certificates for the
Shares to be purchased by the Underwriter hereunder available to you for
inspection at least one (1) full business
15
day prior to the Closing Date. The certificates shall be in such names and
denominations as you may request at least two (2) full business days prior to
the Closing Date. Time shall be of the essence, and delivery of the certificates
representing the Shares at the time and place specified in this Agreement is a
further condition to the obligations of the Underwriter.
Definitive certificates in negotiable form
for the Shares, to be purchased by the Underwriter hereunder will be delivered
by the Company to you on the Closing Date, against payments of the purchase
price therefor, by certified or bank cashier's checks in New York Clearing House
funds, payable to the order of the Company.
It is understood that the Underwriter
proposes to offer the Shares to be purchased hereunder to the public, upon the
terms and conditions set forth in the Registration Statement, after the
Registration Statement becomes effective.
(d) On the Closing, the Company will further issue
and sell to you or, at your direction, to your respective bona fide officers,
for a total purchase price of $______, warrants entitling the holders thereof
to purchase 150,000 shares of Common Stock (which number is equal to 10% of the
amount of Shares purchased pursuant to this Agreement), at an initial exercise
price of $_, per share (the "Underwriter's Warrants") for a period of four (4)
years, such period to commence twelve (12) months after the Effective Date. Such
Underwriter's Warrants shall contain such other terms and provisions as may be
set forth in an agreement with respect thereto (the "Warrant Agreement")
executed and delivered by the Company and you simultaneously with the execution
and delivery of this Agreement. As provided in the Warrant Agreement, you may
designate that the Underwriter's Warrants be issued in varying amounts directly
to your respective bona fide officers and not to you. Such designation will be
made by you only if you determine that such issuances would not violate the
interpretations of the National Association of Securities Dealers, Inc. relating
to the review of corporate financing arrangements. The holders of the
Underwriter's Warrants will be entitled to the registration rights set forth in
Section 10 of the Warrant Agreement.
3. Covenants of the Company. The Company covenants and agrees
with the Underwriter as to the matters set forth in subparagraphs (a) through
(p) below and the Company and THE,
16
jointly and severally, agree with the Underwriter as to the matters set forth in
subparagraphs (q) and (r) below:
(a) The Company will use its best efforts to cause the
Registration Statement, if not effective at the time of execution of this
Agreement, and any amendments thereto to become effective as promptly as
possible. If required, the Company will file the Prospectus or any Term Sheet
that constitutes a part thereof and any amendment or supplement thereto with the
Commission in the manner and within the time period required by Rules 434 and
424(b) under the Act. During any time when a prospectus relating to the Shares
is required to be delivered under the Act, the Company (i) will comply with all
requirements imposed upon it by the Act and the Rules and Regulations to the
extent necessary to permit the continuance of sales of or dealings in the Shares
in accordance with the provisions hereof and of the Prospectus, as then amended
or supplemented, and (ii) except as required by law, will not file with the
Commission the Prospectus, Term Sheet or the amendment referred to in the second
sentence of Section 1(a) hereof, any amendment or supplement to such Prospectus,
Term Sheet or any amendment to the Registration Statement of which the
Underwriter previously have been advised and furnished with a copy for a
reasonable period of time prior to the proposed filing and as to which filing
the Underwriter shall not have given their consent. The Company will prepare and
file with the Commission, in accordance with the Rules and Regulations, promptly
upon request by the Underwriter or counsel for the Underwriter, any amendments
to the Registration Statement or amendments or supplements to the Prospectus
that may be necessary or advisable in connection with the distribution of the
Shares by the Underwriter, and will use its best efforts to cause any such
amendment to the Registration Statement to be declared effective by the
Commission as promptly as possible. The Company will advise the Underwriter,
promptly after receiving notice thereof, of the time when the Registration
Statement or any amendment thereto has been filed or declared effective or the
Prospectus or any amendment or supplement thereto has been filed and will
furnish the Underwriter with copies of such documents and provide evidence
satisfactory to the Underwriter of each such filing or effectiveness.
The Company will advise the Underwriter, promptly
after receiving notice or obtaining knowledge thereof, of (i) the issuance by
the Commission of any stop order suspending the effectiveness of the
Registration Statement or any amendment thereto or any stop order or any order
preventing or suspending the use of any Preliminary Prospectus or the Prospectus
or any amendment or supplement thereto, (ii) the suspension of the qualification
of the Shares for offering or sale in any
17
jurisdiction, (iii) the institution, threatening or contemplation of any
proceeding for any such purpose or (iv) any request made by the Commission for
amending the Registration Statement, for amending or supplementing the
Prospectus or for additional information. The Company will use its best efforts
to prevent the issuance of any such stop order and, if any such order or stop
order is issued, to obtain the withdrawal thereof as promptly as possible.
The Company has caused to be delivered to you copies
of each Preliminary Prospectus, and the Company has consented and hereby
consents to the use of such copies for the purposes permitted by the Act. The
Company authorizes the Underwriter and dealers to use the Prospectus in
connection with the sale of the Shares for such period as, in the opinion of
counsel to the Underwriter, the use thereof is required to comply with the
applicable provisions of the Act and the Rules and Regulations. In case of the
happening, at any time within such period as a Prospectus is required under the
Act to be delivered in connection with sales by an underwriter, of any event of
which the Company has knowledge and which materially affects the Company or the
securities of the Company or which, in the opinion of counsel for the Company or
counsel for the Underwriter, should be set forth in an amendment of the
Registration Statement or a supplement to the Prospectus in order to make the
statements therein not then misleading, in light of the circumstances existing
at the time the Prospectus is required to be delivered to a purchaser of the
Shares, or in case it shall be necessary to amend or supplement the Prospectus
to comply with law or with the Rules and Regulations, the Company will notify
you promptly and forthwith prepare and furnish to you copies of such amended
Prospectus or of such supplement to be attached to the Prospectus, in such
quantities as you may reasonably request, in order that the Prospectus, as so
amended or supplemented, will not contain any untrue statement of a material
fact or omit to state any material fact necessary in order to make the
statements in the Prospectus, in light of the circumstances under which they
were made, not misleading. The preparation and furnishing of any such amendment
or supplement to the Registration Statement or amended Prospectus or supplement
to be attached to the Prospectus shall be without expense to the Underwriter,
except that in case the Underwriter is required, in connection with the sale of
the stock, to deliver a Prospectus ninety (90) days or more after the effective
date of the Registration Statement, the Company will upon request of and at the
expense of the Underwriter, amend or supplement the Registration Statement and
Prospectus and furnish the Underwriter with reasonable quantities of
prospectuses complying with Section 10(a)(3) of the Act.
18
The Company will comply with the Act, the Rules and
Regulations and the Exchange Act and the rules and regulations thereunder in
connection with the offering and issuance of the Shares.
(b) The Company will use its best efforts to qualify
to register the Shares for sale under the securities or "blue sky" laws of such
jurisdictions as the Underwriter may reasonably designate and will make such
application and furnish such information as may be required for that purpose and
to comply with such laws, provided the Company shall not be required to qualify
as a foreign corporation or a dealer in securities or to execute a general
consent to service of process in any jurisdiction in any action other than one
arising out of the offering or sale of the Shares. The Company will, from time
to time, prepare and file such statements and reports as are or may be required
to continue such qualification in effect for so long a period as the Underwriter
may reasonably request.
(c) If the sale of the Shares provided for herein is
not consummated for any reason caused by the Company, the Company shall pay all
costs and expenses incident to the performance of the Company's obligations
hereunder including, but not limited to, all of the expenses itemized in Section
8, including the accountable expenses of the Underwriter, including legal fees,
but in no event shall such costs and expenses exceed the sum of $180,000, less a
credit for any amounts previously paid to the Underwriter.
(d) For so long as the Company is a reporting
company under either Section 12(g) or 15(d) of the Exchange Act, the Company, at
its expense, will furnish to its stockholders an annual report (including
financial statements audited by independent public accountants) in reasonable
detail and, at its own expense, will furnish to you during the period ending
five (5) years from the date hereof; (i) as soon as practicable after the end of
each fiscal year, a balance sheet of the Company as at the end of such fiscal
year, together with statements of income, changes in stockholders' equity and
cash flows of the Company for such fiscal year, all in reasonable detail and
accompanied by a copy of the certificate or report thereon of independent
accountants; (ii) as soon as they are available, a copy of all reports
(financial or other) mailed to security holders; (iii) as soon as they are
available, a copy of all nonconfidential reports and financial statements
furnished to or filed with the Commission; and (iv) such other information as
you may from time to time reasonably request.
19
(e) In the event the Company has an active
subsidiary or subsidiaries, such financial statements referred to in subsection
(d) above will be furnished on a consolidated basis to the extent the accounts
of the Company and its subsidiary or subsidiaries are consolidated in reports
furnished to its stockholders generally.
(f) The Company will deliver to you at or before the
Closing Date two (2) signed copies of the Registration Statement, including all
financial statements and exhibits filed therewith, and of all amendments
thereto, and will deliver to the Underwriter such number of copies of the
Registration Statement, including financial statements but without exhibits, as
the Underwriter may reasonably request. The Company will deliver to or upon the
order of the Underwriter, from time to time until the effective date of the
Registration Statement, as many copies of any Preliminary Prospectus as the
Underwriter may reasonably request. The Company will deliver to the Underwriter
on the effective date of the Registration Statement and thereafter for so long
as a Prospectus is required to be delivered under the Act, from time to time, as
many copies of the Prospectus, in final form, or as thereafter amended or
supplemented, as the Underwriter may from time to time reasonably request.
(g) The Company will make generally available to its
security holders and deliver to you as soon as it is practicable to do so, but
in no event later than ninety (90) days after the end of twelve (12) months
after its current fiscal quarter, an earnings statement (which need not be
audited) covering a period of at least twelve (12) consecutive months beginning
after the effective date of the Registration Statement, which shall satisfy the
requirements of Section 11(a) of the Act.
(h) The Company will apply the net proceeds from the
sale of the Shares for the purposes set forth under "Use of Proceeds" in the
Prospectus, and will file such reports with the Commission with respect to the
sale of the Shares and the application of the proceeds therefrom as may be
required pursuant to Rule 463 under the Act.
(i) The Company will promptly, upon your written
request, prepare and file with the Commission any amendments or supplements to
the Registration Statement, Preliminary Prospectus or Prospectus and take any
other action which, in the reasonable opinion of Stroock & Stroock & Lavan LLP,
counsel to the Underwriter, may be reasonably necessary or advisable in
connection with the distribution of the Shares, and will use its
20
best efforts to cause the same to become effective as promptly as possible.
(j) The Company will reserve and keep available that
maximum number of its authorized but unissued shares of Common Stock which are
issuable upon exercise of the Underwriter's Warrants outstanding from time to
time.
(k) Upon completion of this offering, the Company
will make all filings required, including registration under the Exchange Act,
to obtain the listing of its Common Stock on the NASDAQ SmallCap Market, and
will effect and will use its best efforts to maintain such listings for at least
five (5) years from the date of this Agreement.
(l) The Company represents that it has not taken and
agrees that it will not take, directly or indirectly, any action designed to or
which might reasonably be expected to cause or result in the stabilization or
manipulation of the price of the Shares or to facilitate the sale or resale of
the Shares. The Company has not distributed and will not distribute any offering
material in connection with the offering and sale of the Shares other than the
Preliminary Prospectus and the Registration Statement, the Prospectus or other
materials permitted or required by the Act.
(m) On the Closing Date and simultaneously with the
delivery of the Shares, the Company shall execute and deliver to Strasbourger
Pearson Tulcin Wolff Incorporated and its designees the Underwriter's Warrants
for an initial exercise price of $ per share. The Underwriter's Warrants
will be in the form as filed as an exhibit to the Registration Statement.
(n) During the one hundred eighty (180) day period
commencing on the Closing Date, the Company will not, without the prior written
consent of the Underwriter, grant options to purchase shares of Common Stock at
a price less than the initial public offering price except as may be provided by
the Company's currently existing stock option plan as described in the
Prospectus. To the extent that such stock option plan allows, the Company may
issue shares upon exercise of the options.
21
(o) For a period of two (2) years from the Effective
Date, the Company, at its expense, shall cause its regularly engaged independent
certified public accountants to review (but not audit) the Company's financial
statements for each of the first three (3) fiscal quarters prior to the
announcement of quarterly financial information, the filing of the Company's
10-QSB quarterly report and the mailing of quarterly financial information to
stockholders.
(p) Pending completion of the offering and for a
period of ninety (90) days thereafter, the Company will not issue press releases
or engage in other publicity without the Underwriter's prior consent.
(q) For a period of two years from the Closing Date,
the Company will not, nor will it allow, without the prior written consent of
the Underwriter, the executive officers, directors or certain holders of any
class of equity securities of the Company to, sell, grant any option or warrant
for the sale, or otherwise dispose of, directly or indirectly, any shares of
Common Stock or other equity securities of the Company (including any shares
obtained through the exercise of options granted under the Company's Stock
Incentive Plan (as such term is defined in the Prospectus) or any securities
convertible into, exercisable for or exchangeable for shares of Common Stock or
other equity securities of the Company, provided, however, that with respect to
any issuances of securities by the Company such consent may not be unreasonably
withheld, and the Company may issue options for up to 400,000 shares of Common
Stock under its Stock Incentive Plan without such consent.
(r) On the Closing Date, the Company will furnish
you with (a) Lockup Agreement, in the form of Annex I hereto, from each of the
officers, directors and certain holders of any class of equity securities of the
Company not to sell any shares of Common Stock or other equity securities of the
Company, held by each prior to the Effective Date or obtained through exercise
of options granted under the Stock Incentive Plan, for a period of twenty-four
(24) months from the Closing Date, without your prior written consent, which
consent may not be unreasonably withheld; provided that the aforementioned
restrictions do not apply to private sales or transactions of Common Stock to
purchasers or transferees who agree in writing to be bound by the terms set
forth herein.
4. Conditions of Underwriter's Obligations. The obligations of
the Underwriter to purchase and pay for the Shares which it has agreed to
purchase hereunder, are subject to the accuracy (as of the date hereof and as of
the Closing Date of and compliance with the representations and warranties of
the Company herein, to the performance by the Company of its obligations
hereunder, and to the following conditions:
22
(a) The Registration Statement shall have become
effective, and you shall have received notice thereof not later than 10:00 a.m.,
New York time, on the day following the date of this Agreement, or at such later
time or on such later date as to which you may agree in writing; on or prior to
the Closing Date, no stop order suspending the effectiveness of the Registration
Statement shall have been issued, and no proceedings for that or any similar
purpose shall have been instituted or shall be pending or, to your knowledge or
to the knowledge of the Company, shall be contemplated by the Commission; any
request on the part of the Commission for additional information shall have been
complied with to the reasonable satisfaction of Stroock & Stroock & Lavan LLP,
counsel to the Underwriter; and no stop order shall be in effect denying or
suspending the effectiveness of such qualification, nor shall any stop order
proceedings with respect thereto be instituted or pending or threatened under
such law.
(b) On the Closing Date, you shall have received the
opinion, dated as of the Closing Date, of House Law Firm, counsel for the
Company, in form and substance satisfactory to counsel for the Underwriter, to
the effect that:
(i) Each of the Company and the
Subsidiary has been duly organized and is validly existing as
a corporation in good standing under the laws of the
jurisdiction of its incorporation, with full power and
authority (corporate and other) to own its properties and
conduct its business as described in the Registration
Statement and Prospectus and is duly qualified or licensed to
do business as a foreign corporation and is in good standing
in each other jurisdiction in which the nature of its
business or the character or location of its properties
requires such qualification, except where the failure to so
qualify would not have a material adverse effect on the
condition (financial or otherwise), business, properties,
prospects, net worth or results of operations of the Company
and the Subsidiary, taken as a whole.
(ii) (a) Each of the Company and the
Subsidiary has obtained, or is in the process of obtaining,
all licenses, permits and other governmental authorizations
as are required for to the conduct of its business or the
ownership of its properties as described in the Prospectus;
(b) such licenses, permits and other governmental
23
authorizations obtained are in full force and effect; (c)
each of the Company and the Subsidiary is in all material
respects in compliance therewith.
(iii) The authorized capitalization
of the Company is as set forth under "Capitalization" in the
Prospectus; all shares of the Company's outstanding stock
requiring authorization for issuance by the Company's board
of directors have been duly authorized, validly issued, are
fully paid and nonassessable and conform to the description
thereof contained in the Prospectus; the outstanding shares
of Common Stock of the Company have not been issued in
violation of the preemptive rights of any shareholder, and
the shareholders of the Company do not have any preemptive
rights or other rights to subscribe for or to purchase, nor
are there any restrictions upon the voting or transfer of any
of the Shares; the Shares conform to the description thereof
contained in the Prospectus; the Shares have been duly
authorized and, when issued and delivered pursuant to this
Agreement, will be duly and validly issued, fully paid,
nonassessable, free of preemptive rights and no personal
liability will attach to the ownership thereof; and to the
best of such counsel's knowledge, neither the filing of the
Registration Statement nor the offering or sale of the Shares
as contemplated by this Agreement gives rise to any
registration rights or other rights, other than those which
have been waived or satisfied for or relating to the
registration of any shares of Common Stock
(iv) This Agreement and the Warrant
Agreement, have been duly and validly authorized, executed
and delivered by the Company and, assuming due execution and
delivery of this Agreement and the Warrant Agreement by the
other parties thereto, payment by the Underwriter for the
Shares offered pursuant to this Agreement and payment by the
Underwriter for the Underwriter's Warrants, are the valid and
legally binding obligations of the Company, except as
enforceability may be limited by bankruptcy, insolvency or
similar laws affecting the enforcement of creditors' rights
in general; and except that no opinion is expressed as to the
enforceability of the indemnity provisions contained in
Section 6 or the contribution provisions contained in Section
7 of this Agreement.
24
(v) The certificates evidencing the
Shares are in due and proper form; the Underwriter's Warrants
will be exercisable for shares of Common Stock of the Company
in accordance with the terms of the Warrant Agreement and at
the prices therein provided for; the shares of Common Stock
of the Company issuable upon exercise of the Underwriter's
Warrants have been duly authorized and reserved for issuance
upon such exercise, and such shares, when issued upon
exercise in accordance with the terms of such warrants and at
the price provided for, will be duly and validly issued,
fully paid and nonassessable.
(vi) Such counsel knows of no
pending or threatened legal or governmental proceedings to
which either the Company or the Subsidiary is a party which
could materially adversely affect the condition (financial or
otherwise), business, properties, prospects, net worth or
results of operations of the Company and the Subsidiary,
taken as a whole, or which question the validity of the
Common Stock of the Company, the Shares, this Agreement, the
Warrant Agreement, the Underwriter's Warrants or of any
action taken or to be taken by the Company pursuant to this
Agreement, the Warrant Agreement, or the Underwriter's
Warrants, and no such proceedings are known to such counsel
to be contemplated against the Company or the Subsidiary;
there are no governmental proceedings or regulations required
to be described or referred to in the Registration Statement
which are not so described or referred to.
(vii) The Company is not in
violation of or default under, nor will the execution and
delivery of this Agreement, the Warrant Agreement or the
Underwriter's Warrants, and the incurrence of the obligations
herein or therein set forth and the consummation of the
transactions herein or therein contemplated, result in a
violation of, or constitute a default under the Company's
articles of incorporation or by-laws, in the performance or
observance of any material obligations, agreements, covenants
or conditions contained in any bond, debenture, note or other
evidence of indebtedness or in any contract, indenture,
mortgage, loan agreement, lease, joint venture or other
agreement or instrument to which the Company or the
25
Subsidiary is a party or by which the Company or the
Subsidiary or any of their properties may be bound or in
violation of any material order, rule, regulation, writ,
injunction, or decree of any domestic government,
governmental instrumentality or court.
(viii) The Registration Statement
has become effective under the Act, and no stop order
suspending the effectiveness of the Registration Statement is
in effect, and no proceedings for that purpose have been
instituted or are pending before, or threatened by, the
Commission; the Registration Statement and the Prospectus
(except for the financial statements and other financial data
contained therein, or omitted therefrom, as to which such
counsel need express no opinion) comply as to form in all
material respects with the applicable requirements of the Act
and the Rules and Regulations.
(ix) All descriptions in the
Registration Statement and the Prospectus, and any amendment
or supplement thereto, of contracts and other documents are
accurate and fairly present the information required to be
shown, and such counsel is familiar with all contracts and
other documents referred to in the Registration Statement,
and such counsel does not know of any contracts or documents
of a character required to be summarized or described therein
or to be filed as exhibits thereto which are not so
summarized, described or filed.
(x) No authorization, approval,
consent, or license of any governmental or regulatory
authority or agency is necessary in connection with the
authorization, issuance, transfer, sale or delivery of the
Shares by the Company, in connection with the execution,
delivery and performance of this Agreement or the Warrant
Agreement by the Company, or in connection with the taking of
any action contemplated herein or therein, or the issuance of
the Underwriter's Warrants or the Common Stock underlying the
Underwriter's Warrants, other than registrations or
qualifications of such stock under applicable state or
foreign securities or "Blue Sky" laws and registration under
the Act.
(xi) The statements in the
Registration Statement under the captions "Business,"
"Management," "Principal Shareholders," "Certain
Transactions,"
26
"Description of Securities and Shares Eligible for Future
Sale" have been reviewed by such counsel and, insofar as they
refer to descriptions of agreements, statements of law,
descriptions of statutes, licenses, rules or regulations or
legal conclusions, are correct in all material respects.
Such counsel shall also state that such
counsel has participated in the preparation of the Registration Statement and
the Prospectus, and nothing has come to the attention of such counsel to cause
such counsel to have reason to believe that the Registration Statement or any
amendment thereto at the time it became effective contained any untrue statement
of a material fact required to be stated therein or omitted to state any
material fact required to be stated therein or necessary to make the statements
therein not misleading or that the Prospectus or any supplement thereto contains
any untrue statement of a material fact or omits to state a material fact
necessary in order to make the statements therein, in light of the circumstances
under which they were made, not misleading (except, in the case of both the
Registration Statement and any amendment thereto and the Prospectus and any
supplement thereto, for the financial statements, notes thereto and other
financial information and statistical data contained therein, as to which such
counsel need express no opinion).
Such opinion shall also cover such matters
incident to the transactions contemplated hereby as the Underwriter or counsel
for the Underwriter shall reasonably request. In rendering such opinion, such
counsel may rely upon certificates of any officer of the Company or public
officials as to matters of fact; and may rely as to all matters of law other
than the law of the United States or of the State of North Carolina upon
opinions of counsel satisfactory to you, in which case the opinion shall state
that they have no reason to believe that you and they are not entitled to so
rely.
(c) All corporate proceedings and other
legal matters relating to this Agreement, the Registration Statement, the
Prospectus and other related matters shall be satisfactory to or approved by
Stroock & Stroock & Lavan LLP, counsel to the Underwriter, and you shall have
received from such counsel a signed opinion, dated as of the Closing Date, with
respect to the validity of the issuance of the Shares, the form of the
Registration Statement and Prospectus (other than the financial statements,
notes thereto and other financial data contained therein), the execution of this
Agreement and other related matters as you may reasonably require. The Company
shall have
27
furnished to counsel for the Underwriter such documents as they may
reasonably request for the purpose of enabling them to render such opinion.
(d) You shall have received a letter on and as of
Effective Date of the Registration Statement and again on and as of the Closing
Date from The Daniel Professional Group, Inc., independent public accountants
for the Company, substantially in the form approved by you.
(e) At the Closing Date, (i) the representations and
warranties of the Company contained in this Agreement shall be true and correct
with the same effect as if made on and as of the Closing Date, and the Company
shall have performed all of its obligations hereunder and satisfied all the
conditions on its part to be satisfied at or prior to such Closing Date; (ii)
the Registration Statement and the Prospectus and any amendments or supplements
thereto shall contain all statements which are required to be stated therein in
accordance with the Act and the Rules and Regulations and in all material
respects conform to the requirements thereof, and neither the Registration
Statement nor the Prospectus nor any amendment or supplement thereto shall
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements therein
not misleading; (iii) there shall have been, since the respective dates as of
which information is given, no material adverse change in the condition
(financial or otherwise), business, properties, prospects, net worth, results of
operations, capital stock, long-term or short-term debt or general affairs of
the Company and the Subsidiary, taken as a whole, from that set forth in the
Registration Statement and the Prospectus, except changes which the Registration
Statement and Prospectus indicate might occur after the effective date of the
Registration Statement, and neither the Company nor the Subsidiary shall have
incurred any material liabilities or agreement not in the ordinary course of
business other than as referred to in the Registration Statement and Prospectus;
(iv) except as set forth in the Prospectus, no action, suit or proceeding at law
or in equity shall be pending or threatened against the Company or the
Subsidiary which would be required to be set forth in the Registration
Statement, and no proceedings shall be pending or threatened against the Company
or the Subsidiary before or by any commission, board or administrative agency in
the United States or elsewhere, wherein an unfavorable decision, ruling or
finding would materially adversely affect the condition (financial or
otherwise), business, properties, prospects, net worth or results of operations
of the Company and the Subsidiary, taken as a whole; and (v) you shall receive
at the Closing Date a certificate signed by each of the Chairman of
28
the Board or the President and the principal financial or accounting officer of
the Company, dated as of the Closing Date, evidencing compliance with the
provisions of this subsection (e).
(f) If any of the conditions herein provided for in
this Section shall not have been fulfilled as of the date indicated, this
Agreement and all obligations of the Underwriter under this Agreement may be
canceled at, or at any time prior to, the Closing Date by the Underwriter by
notifying the Company of such cancellation in writing or by telegram at or prior
to the Closing Date. Any such cancellation shall be without liability of the
Underwriter to the Company.
5. Conditions of the Company's Obligations. The obligation of
the Company to sell and deliver the Shares is subject to the following
conditions:
(a) The Registration Statement shall have become
effective not later than 10:00 a.m., New York time, on the day following the
date of this Agreement, or on such later date as the Company and the Underwriter
may agree to in writing.
(b) At the Closing Date no stop orders suspending
the effectiveness of the Registration Statement shall have been issued under the
Act or any proceedings therefor initiated or threatened by the Commission.
6. Indemnification.
---------------
(a) The Company and THE, jointly and severally,
agree to indemnify and hold harmless the Underwriter and each person, if any,
who controls the Underwriter within the meaning of the Act, the Underwriter's
counsel and the Company's counsel against any losses, claims, damages or
liabilities, joint or several (which shall, for all purposes of this Agreement,
include, but not be limited to, all reasonable costs of defense and
investigation and all attorneys' fees), to which the Underwriter, any
controlling person, the Underwriter's counsel or the Company's counsel may
become subject, under the Act or otherwise, insofar, as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are based
upon any untrue statement or alleged untrue statement of any material fact
contained in (i) the Registration Statement, any Preliminary Prospectus, the
Prospectus, or any amendment or supplement thereto; (ii) any "Blue Sky"
application or other document executed by the Company specifically for the
purpose or based upon written information furnished by the Company filed in any
state or other jurisdiction in order to qualify any or all
29
of the Shares, under the securities laws thereof (any such application, document
or information being hereinafter called a "Blue Sky Application"), or arise out
of or are based upon the omission or alleged omission to state in the
Registration Statement, any Preliminary Prospectus, Prospectus, or any amendment
or supplement thereto, or in any Blue Sky Application, a material fact required
to be stated therein or necessary to make the statements therein not misleading;
provided, however, that the Company and THE will not be liable in any such case
to the extent, but only to the extent, that any such loss, claim, damage or
liability arises out of or is based upon an untrue statement or alleged untrue
statement or omission or alleged omission made in reliance upon and in
conformity with written or oral information furnished to the Company by or on
behalf of the Underwriter or oral misrepresentations or omissions in connection
therewith specifically for use in the preparation of the Registration Statement
or any such amendment or supplement thereof or any such Blue Sky Application or
any such Preliminary Prospectus or the Prospectus of any such amendment or
supplement thereto. The Company and THE shall not be obligated to indemnify the
Underwriter for a violation of state securities or "Blue Sky" laws for liability
occasioned by reason of such Underwriter's (or its agent's) failure to have been
registered as a broker-dealer (or agent) or the failure of the securities to
have been registered or qualified in a jurisdiction where such Underwriter (or
its agent) is determined to have sold such security. This indemnity will be in
addition to any liability which the Company or THE may otherwise have.
(b) The Underwriter will indemnify and hold harmless
the Company, each of its directors, each nominee (if any) for director named in
the Prospectus, each of its officers who have signed the Registration Statement,
each person, if any, who controls the Company within the meaning of the Act, the
Underwriter's counsel and the Company's counsel against any losses, claims,
damages or liabilities (which shall, for all purposes of this Agreement,
include, but not be limited to, all costs of defense and investigation and all
attorneys' fees) to which the Company, any such director, nominee, officer or
controlling person, the Underwriter's counsel or the Company's counsel may
become subject under the Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are based
upon any untrue statement or alleged untrue statement of any material fact
contained in the Registration Statement, any Preliminary Prospectus, the
Prospectus, or any amendment or supplement thereto, or arise out of or are based
upon the omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, in each
30
case to the extent, but only to the extent, that such untrue statement or
alleged untrue statement or omission or alleged omission was made in the
Registration Statement, any preliminary Prospectus, the Prospectus, or any
amendment or supplement thereto, in reliance upon and in conformity with written
information furnished to the Company by you specifically for use in the
preparation thereof. The Underwriter shall indemnify the Company for any
violation of state securities or "Blue Sky" laws for liability occasioned by
reason of such Underwriter's (or its agent's) failure to have been registered as
a broker-dealer (or agent) or the failure of the securities to have been
registered or qualified in a jurisdiction which such Underwriter (or agent) is
determined to have sold such security. This indemnity will be in addition to any
liability which the Underwriter may otherwise have.
(c) Promptly after receipt by an indemnified party
under this Section of notice of the commencement of any action, such indemnified
party will, if a claim in respect thereof is to be made against the indemnifying
party under this Section, notify in writing the indemnifying party of the
commencement thereof; but the omission so to notify the indemnifying party will
not relieve it from any liability which it may have to any indemnified party
otherwise than under this Section. In case any such action is brought against
any indemnified party, and it notifies the indemnifying party of the
commencement thereof, the indemnifying party will be entitled to participate in,
and, to the extent that it may wish, jointly with any other indemnifying party
similarly notified, to assume the defense thereof, subject to the provisions
herein stated, with counsel reasonably satisfactory to such indemnified party,
and after notice from the indemnifying party to such indemnified party of its
election so to assume the defense thereof, the indemnifying party will not be
liable to such indemnified party under this Section for any legal or other
expenses subsequently incurred by such indemnified party in connection with the
defense thereof other than the reasonable costs of investigation. The
indemnified party shall have the right to employ separate counsel in any such
action and to participate in the defense thereof, but the fees and expenses of
such counsel shall not be at the expense of the indemnifying party if the
indemnifying party has assumed the defense of the action with counsel reasonably
satisfactory to the indemnified party; provided that if the indemnified party is
the Underwriter or a person who controls the Underwriter within the meaning of
the Act, the fees and expenses of such counsel shall be at the expense of the
indemnifying party if (i) the employment of such counsel has been specifically
authorized in writing by the indemnifying party or (ii) the named parties to any
such action
31
(including any impleaded parties) include both the Underwriter or such
controlling person and the indemnifying party and, the Underwriter reasonably
determines that it is advisable for the Underwriter or controlling persons to be
represented by separate counsel (in which case the indemnifying party shall not
have the right to assume the defense of such action on behalf of the Underwriter
or such controlling person, it being understood, however, that the indemnifying
party shall not, in connection with any one such action or separate but
substantially similar or related 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 the Underwriter and
controlling persons, which firm shall be designated in writing by you). No
settlement of any action against an indemnified party shall be made without the
consent of the indemnifying party, which shall not be unreasonably withheld in
light of all factors of importance to such indemnified party.
7. Contribution. In order to provide for just and equitable
contribution under the Act in any case in which (i) the Underwriter makes claim
for indemnification pursuant to Section 6 hereof but it is judicially determined
(by the entry of a final judgment or decree by a court of competent jurisdiction
and the expiration of time to appeal or the denial of the last right of appeal)
that such indemnification may not be enforced in such case, notwithstanding the
fact that the express provisions of Section 6 provide for indemnification in
such case or (ii) contribution under the Act may be required on the part of the
Underwriter or the Company or THE in circumstances for which indemnification is
provided for pursuant to Section 6, then the Company and THE in the aggregate,
and the Underwriter shall contribute to the aggregate losses, claims, damages or
liabilities to which they may be subject (which shall for all purposes of this
Agreement include, but not be limited to, all reasonable costs of defense and
investigation and all reasonable attorneys' fees) in either such case (after
contribution from others) in such proportions that the Underwriter is
responsible in the aggregate for that portion of such losses, claims, damages or
liabilities represented by the percentage that the underwriting discount per
share appearing on the cover page of the Prospectus bears to the public offering
price appearing thereon, and the Company and THE shall be responsible for the
remaining portion; provided, however, that, if such allocation is not permitted
by applicable law, then the relative fault of the Company and THE and the
Underwriter, in the aggregate, in connection with the statements or omissions
which resulted in such damages and other relevant equitable
32
considerations shall also be considered. The relative fault shall be determined
by reference to, among other things, whether in the case of an untrue statement
or a material fact or the omission to state a material fact, such statement or
omission relates to information supplied by the Company or the Underwriter, and
the parties' relevant intent, knowledge, access to information and opportunity
to correct or prevent such untrue statement or omission. The Company, THE and
the Underwriter agree that it would not be just and equitable if the respective
obligations of the Company, THE and the Underwriter to contribute pursuant to
this Section 7 were to be determined by pro rata or per capital allocation of
the aggregate damages (even if the Underwriter and its controlling persons in
the aggregate were treated as one entity for such purpose) or by any other
method of allocation that does not take account of the equitable considerations
referred to in the first sentence of this Section 7. No person guilty of a
fraudulent misrepresentation (within the meaning of Section 11(f) of the Act)
shall be entitled to contribution from any person who is not guilty of such
fraudulent misrepresentation. For the purpose of this paragraph, each officer,
director, or other person who controls the Underwriter within the meaning of
Section 15 of the Act shall have the same rights to contribution as such
Underwiter and each officer, director, or other person, including but not
limited to THE, who controls the Company within the meaning of Section 15 of the
Act shall have the same rights to contribution as the Company . If the full
amount of the contribution specified in this paragraph is not permitted by law,
then the Underwriter and each person who controls the Underwriter shall be
entitled to contribution from the Company and THE to the full extent permitted
by law. The foregoing contribution agreement shall in no way affect the
contribution liabilities of any persons having liability under Section 11 of the
Act other than the Company and the Underwriter. No contribution shall be
requested with regard to the settlement of any matter from any party who did not
consent to the settlement; provided, however, that such consent shall not be
unreasonably withheld in light of all factors of importance to such party.
8. Costs and Expenses.
(a) Whether or not this Agreement becomes effective
or the sale of the Shares to the Underwriter is consummated, the Company will
pay all costs and expenses incident to the performance of this Agreement
including, but not limited to, the fees and expenses of counsel to the Company
and of the Company's accountants; the costs and expenses incident to the
preparation, printing, filing and distribution under the Act of the Registration
Statement (including the financial
33
statements therein and all amendments and exhibits thereto), Preliminary
Prospectus and Prospectus, as amended or supplemented; all expenses, including
fees, disbursements and other charges of counsel to the Underwriter, in
connection with any filing required by the NASD relating to the offering of the
Shares contemplated hereby; all expenses, including fees, disbursements and
other charges of counsel to the Underwriter, in connection with the
qualification of the Shares under the state securities or blue sky laws which
the Underwriter shall designate; the cost of printing and furnishing to the
Underwriter copies of the Registration Statement, each Preliminary Prospectus,
the Prospectus, this Agreement, and the Blue Sky Memorandum and the cost of
printing the certificates representing the Shares. The Company shall pay any and
all taxes (including any transfer, franchise, capital stock or other tax imposed
by any jurisdiction) on sales to the Underwriter hereunder. The Company will
also pay all costs and expenses incident to the furnishing of any amended
Prospectus or of any supplement to be attached to the Prospectus as called for
in Section 3(a) of this Agreement except as otherwise set forth in said Section.
(b) In addition to the foregoing expenses the
Company shall at the Closing Date pay to Strasbourger Pearson Tulcin Wolff
Incorporated a non-accountable expense allowance equal to __% of the gross
proceeds of the sale of the Shares of which $________ has been paid. In the
event the transactions contemplated hereby are not consummated by reason of any
action by the Underwriter (except if such prevention is based upon a breach by
the Company of any covenant, representation or warranty contained herein or
because any other condition to the Underwriter's obligations hereunder required
to be fulfilled by the Company is not fulfilled), the Company shall not be
liable to the Underwriter for any out-of-pocket accountable expenses except that
the Underwriter may retain all monies paid to it prior to the termination of the
underwriting, but only to the extent of out-of-pocket accountable expenses
incurred by the Underwriter, and the Underwriter shall return to the Company all
monies received in excess of its out-of-pocket accountable expenses. In the
event the transactions contemplated hereby are not consummated by reason of any
action of the Company or because of a breach by the Company of any covenant,
representation or warranty contained herein, the Company shall be liable for the
out-of-pocket accountable expenses incurred by the Underwriter, including
attorneys' fees, but which in no event shall exceed the sum of $_______, less a
credit of any amounts previously paid by the Company to the Underwriter, and the
Underwriter shall return to the Company all monies received in excess of its
out-of-pocket accountable expenses.
34
(c) No person is entitled either directly or
indirectly to compensation from the Company, from the Underwriter or from any
other person for services as a finder in connection with the proposed offering,
and the Company agrees to indemnify and hold harmless the Underwriter against
any losses, claims, damages or liabilities, joint or several, which shall, for
all purposes of this Agreement, include, but not be limited to, all costs of
defense and investigation and all attorneys' fees, to which the Company, the
Underwriter or person may become subject insofar as such losses, claims, damages
or liabilities (or actions in respect thereof) arise out of or are based upon
the claim of any person (other than an employee of the party claiming indemnity)
or entity that he or it is entitled to a finder's fee in connection with the
proposed offering by reason of such person's or entity's influence or prior
contact with the indemnifying party.
9. Effective Date. This Agreement shall become effective upon
its execution, except that you may, at your option, delay its effectiveness
until 11:00 a.m., New York time, on the first full business day following the
Effective Date of the Registration Statement, or at such earlier time after the
Effective Date of the Registration Statement as you in your discretion shall
first commence the initial public offering by the Underwriter of any of the
Shares. The time of the initial public offering shall mean the time of release
by you of the first newspaper advertisement with respect to the Shares, or the
time when the Shares are first generally offered by you to dealers by letter or
telegram, whichever shall first occur. This Agreement may be terminated by you
at any time before it becomes effective as provided above, except that Sections
3(c), 6, 7, 8, 12, 13, 14 and 15 hereof shall remain in effect notwithstanding
such termination.
10. Termination.
(a) This Agreement, except for Sections 3(c), 6, 7,
8, 12, 13, 14 and 15 hereof, may be terminated by you at any time prior to the
Closing Date if in your judgment it is impracticable to offer for sale or to
enforce contracts made by the Underwriter for the resale of the Shares agreed to
be purchased hereunder by reason of (i) the Company having sustained a material
loss, whether or not insured, by reason of fire, earthquake, flood, accident or
other calamity, or from any labor dispute or court or government action, order
or decree; (ii) trading in securities on the New York Stock Exchange, the
American Stock Exchange, and/or the NASDAQ SmallCap Market having been generally
suspended or limited; (iii) material
35
governmental restrictions having been imposed on trading in securities generally
(not in force and effect on the date hereof); (iv) a banking moratorium having
been declared by federal or New York State authorities; (v) an outbreak of major
international hostilities or other national or international calamity having
occurred; (vi) the passage by the Congress of the United States, or by any state
legislative body of similar impact, of any act or measure, or the adoption of
any orders, rules or regulations by any governmental body or any authoritative
accounting institute or board, or any governmental executive, which is
reasonably believed likely by the Underwriter to have a material impact on the
condition (financial or otherwise), business, properties, prospects or financial
statements of the Company or on the market for the securities offered hereby;
(vii) any material adverse change in the financial or securities markets in the
United States, particularly in the over-the-counter market, having occurred
since the date of this Agreement, or (viii) any material adverse change having
occurred, since the respective dates of which information is given in the
Registration Statement and Prospectus, in the condition (financial or
otherwise), business, properties, prospects, net worth or results of operations
of the Company, whether or not arising in the ordinary course of business.
(b) If you elect to prevent this Agreement from
becoming effective or to terminate this Agreement as provided in this Section 10
or in Section 9, the Company shall be promptly notified by you, by telephone or
telegram, confirmed by letter.
11. Warrants. At or before the Closing Date, the Company will
sell to Strasbourger Pearson Tulcin Wolff Incorporated the Underwriters'
Warrants to purchase an aggregate of 150,000 shares of the Common Stock of the
Company for an aggregate consideration of $_______ upon the terms and conditions
set forth in the Warrant Agreement. In the event of conflict in the terms of
this Agreement and the Underwriter's Warrants, the language of the Underwriter's
Warrants shall control.
12. Representations, Warranties and Agreements to Survive
Delivery. The respective indemnities, agreements, representations, warranties
and other statements of the Company, THE and the Underwriter set forth in or
made pursuant to this Agreement will remain in full force and effect, regardless
of any investigation made by or on behalf of the Underwriter, the Company or any
of its officers or directors or any controlling person and will survive delivery
of and payment for the Shares and the termination of this Agreement.
36
13. Notices. Any communications specifically required
hereunder to be in writing, if sent to the Underwriter, will be mailed,
delivered or telegraphed and confirmed to them at Strasbourger Pearson Tulcin
Wolff Incorporated, 61 Broadway, Suite 2800, New York, New York 10006, with a
copy sent to Stroock & Stroock & Lavan LLP, 180 Maiden Lane, New York, New York
10038-4982, Attention: James R. Tanenbaum or if sent to the Company, will be
mailed, delivered or telegraphed and confirmed to it at Diversified Senior
Services, Inc., 915 West Fourth Street, Winston-Salem, North Carolina 27101,
Attention: Susan L. Christiansen, with a copy to House Law Firm, 3325 Healy
Drive, Winston-Salem, North Carolina 27103, Attention: Don R. House.
14. Parties in Interest. The Agreement herein set forth is
made solely for the benefit of the Underwriter, the Company and any person
controlling the Company or the Underwriter, and the directors of the Company,
nominees for directors (if any) named in the Prospectus, its officers who have
signed the Registration Statement, and their respective executors,
administrators, successors and assigns, and no other person shall acquire or
have any right under or by virtue of this Agreement. The term "successors and
assigns" shall not include any purchaser, as such purchaser, from the
Underwriter of the Shares.
15. Applicable Law. THIS AGREEMENT WILL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO
AGREEMENTS MADE AND TO BE ENTIRELY PERFORMED WITHIN NEW YORK.
37
If the foregoing is in accordance with your understanding of
our agreement, kindly sign and return this agreement, whereupon it will become a
binding agreement among the Company, THE and the Underwriter in accordance with
its terms.
Very truly yours,
DIVERSIFIED SENIOR SERVICES, INC.
By:___________________________
Name:
Title:
TAYLOR HOUSE ENTERPRISES, LTD.
By:___________________________
Name:
Title:
The foregoing Underwriting Agreement is hereby confirmed and
accepted as of the date first above written.
STRASBOURGER PEARSON TULCIN
WOLFF INCORPORATED
By:__________________________
Name:
Title:
38
ANNEX I
FORM OF LOCK-UP
Strasbourger Pearson Tulcin Wolff
Incorporated
61 Broadway, Suite 2800
New York, New York 10006
Ladies and Gentlemen:
Reference is made to the Underwriting Agreement, dated
November __, 1997 (the "Underwriting Agreement"), between Diversified Senior
Services, Inc., a North Carolina corporation (the "Company"), and Strasbourger
Pearson Tulcin Wolff Incorporated (the "Underwriter"). Capitalized terms used
herein and not defined herein shall have the same meanings ascribed to them in
the Underwriting Agreement.
1. In consideration of the Underwriting Agreement, the
undersigned hereby agrees not to, without the prior written consent of the
Underwriter and except as set forth in Section 2, offer, sell or otherwise
dispose of any shares of the Company's Common Stock, without par value (the
"Common Stock"), or any securities convertible into or exercisable or
exchangeable for, or any rights to purchase or acquire, Common Stock owned by
the undersigned for a period of twenty-four (24) months after the date of the
Underwriting Agreement.
2. The restrictions set forth in Section 1 shall not apply to
private sales or transfers of Common Stock to purchasers or transferees who
agree in writing to be bound by the terms set forth herein.
Dated: November __, 1997
Very truly yours,
39