SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of
1934 (Amendment No. 1)
Filed by the Registrant [X]
Filed by a Party other than
the Registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement [ ] Confidential for Use
of the Commission Only
[ ] Definitive Proxy Statement (as permitted by Rule
[ ] Definitive Additional Materials 14a-6(e)(2)
[ ] Soliciting Material Pursuant to
Rule 14a-11(c) or Rule 14a-12
Ethika Corporation (Formerly Dixie National Corporation)
- - - ------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
- - - ------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(i)(2)
or Item 22 (a)(2) of Schedule 14A.
[ ] $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
[1] Title of each class of securities to which transaction applies:
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[2] Aggregate number of securities to which transaction applies:
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[3] Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee is
calculated and state how it was determined):
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[4] Proposed maximum aggregate value of transaction:
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[5] Total fee paid:
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<PAGE>
[ ] Fee paid previously with preliminary material
[ ] Check box if any part of the fee is offset as provided by Exchange Rule
0-11 (a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
[1] Amount previously paid:
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[2] Form, Schedule, or Registration Statement No.:
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[3] Filing Party:
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[4] Date Filed:
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<PAGE>
ETHIKA CORPORATION
(FORMERLY DIXIE NATIONAL CORPORATION)
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
SEPTEMBER 26, 1996
August 27, 1996
To the Shareholders:
Notice is hereby given that the Annual Meeting of Shareholders of Ethika
Corporation (formerly Dixie National Corporation) will be held at the Harvey
Hotel, 200 East Amite Street, Jackson, Mississippi, 39201 on Thursday,
September 26, 1996 at 10 a.m. (CST) for the following purposes:
I. To consider and vote upon a recommendation from the Board of Directors
that the Shareholders approve an amendment of the Bylaws to decrease the
number of authorized Board of Director members from the current minimum
of nine and maximum of twenty-five to a minimum of five and a maximum of
fifteen.
II. To fix the number of and to elect the Board of Directors for the ensuing
year or until their successors are duly elected.
III. To consider and vote upon the ratification of the selection of Price
Waterhouse, LLP as independent auditors of the Corporation for the year
ending December 31, 1996.
IV. To transact such other business as may properly come before the meeting
or any adjournment thereof.
The close of business on Monday, August 19, 1996 is the Record Date for the
determination of Shareholders entitled to vote at the Annual Meeting and to
receive Notice thereof. The stock transfer books of the Corporation will not
be closed.
WHETHER OR NOT YOU EXPECT TO BE PRESENT AT THE MEETING, PLEASE MARK, DATE, AND
SIGN THE ENCLOSED PROXY CARD, AND RETURN IT IN THE ENVELOPE PROVIDED. IN THE
EVENT YOU ARE ABLE TO ATTEND THE MEETING, YOU MAY REVOKE YOUR PROXY AND VOTE
YOUR SHARES IN PERSON.
BY ORDER OF THE BOARD OF DIRECTORS
Jerry M. Greer
Secretary
<PAGE>
ETHIKA CORPORATION
(Formerly Dixie National Corporation)
107 The Executive Center
Hilton Head Island, South Carolina 29928
PROXY STATEMENT
FOR THE ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD THURSDAY, SEPTEMBER 26, 1996
SOLICITATION
The enclosed Proxy is being solicited by the Board of Directors of Ethika
Corporation ("Corporation") for use at the Annual Meeting of Shareholders of
the Corporation to be held at the Harvey Hotel 200 East Amite Street, Jackson,
Mississippi 39201 on Thursday, September 26, 1996 at 10 a.m. (CST) and any
adjournment or postponement thereof. Shareholders may revoke their Proxy by
written notice to the Corporation at any time prior to the exercise thereof or
by attendance at the meeting and voting their shares in person. The
solicitation will be primarily by mail but may also be by telephone,
telegraph, or oral communications by Officers or regular employees. The cost
of soliciting Proxies will be borne by the Corporation. The term
"Corporation," as used herein, includes the Corporation under its present and
former name (Dixie National Corporation) and the Corporation's subsidiaries as
the context indicates. This Proxy Statement and accompanying Proxy Card are
being mailed to Shareholders on or about August 27, 1996.
Shares represented by a properly executed and returned Proxy Card will be
voted at the Annual Meeting in accordance with the instructions indicated
thereon, or if no instructions are indicated, the Proxy will be voted FOR an
amendment to the Bylaws to decrease the minimum and maximum number of
Directors; FOR the Board of Directors to consist of seven members; FOR the
election of the seven nominees of the Board of Directors to serve as Directors
of the Corporation; and FOR the ratification of the selection of Price
Waterhouse, LLP as independent auditors of the Corporation for the year ending
December 31, 1996.
VOTING SECURITIES
Shareholders of record at the close of business on August 19, 1996 will be
entitled to Notice of and to vote at the Annual Meeting. On August 19, 1996
there were 13,097,661 shares of common stock of the Corporation outstanding
and entitled to vote. Each outstanding share of common stock is entitled to
one vote per share on each matter submitted to a vote at the Annual Meeting
except with respect to the election of Directors, in which Shareholders have
cumulative voting rights. Cumulative voting means that each Shareholder will
be entitled to cast as many votes as he or she has shares of common stock
multiplied by the number of Directors to be elected, and all such votes may be
cast for a single nominee or may be distributed among the Directors to be
voted for as he/she sees fit. To exercise cumulative voting rights by Proxy, a
Shareholder must clearly designate the number of votes to be cast for any
given nominee.
1
<PAGE>
The presence in person or by Proxy of a majority of the outstanding shares
shall constitute a quorum for the transaction of business at the Annual
Meeting. Abstentions will be counted for purposes of determining the presence
or absence of a quorum. Abstentions are considered as a vote against any
matter other than the election of Directors as to which a Shareholder may vote
for a nominee or withhold authority to vote. "Broker non-votes" which occur
when brokers are not permitted to exercise discretionary voting authority for
beneficial owners who have not provided any voting instructions, are not
counted for quorum purposes or any vote. To the extent that voting
instructions are provided to brokers as to any proposal, the shares will be
counted for purposes of determining a quorum and the outcome of the vote. The
Chairman of the Board of the Corporation will appoint two inspectors of
election. The inspectors will take charge of, and will count, the votes and
ballots cast at the Annual Meeting and will make a written report on their
determination.
OWNERSHIP OF VOTING SECURITIES BY CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table sets forth pertinent information as to the beneficial
ownership of the Corporation's common stock as of August 19, 1996 of persons
known by the Corporation to be holders of 5% or more of the outstanding common
stock. Information as to the number of shares beneficially owned has been
furnished by the persons named in the table and by reference to documents
filed with the Securities and Exchange Commission by holders of 5% or more of
such common stock.
<TABLE>
<CAPTION>
NAME AND ADDRESS SHARES PERCENT
OF BENEFICIAL OWNER BENEFICIALLY OWNED OF CLASS
- - - ------------------- ------------------ --------
<S> <C> <C>
Constance G. Grewell 2,064,770 (1) 15.8%
100 Executive Way
Ponte Vedra Beach, FL 32082
S.L. Reed, Jr. 772,286 (2) (3) 5.9%
107 The Executive Center
Hilton Head Island, SC 29928
<FN>
(1) Constance G. Grewell acquired her shares in the acquisition of Text
Retrieval Systems, Inc. by the Corporation on April 2, 1996. She was the
principal stockholder of Text Retrieval Systems, Inc. See "Certain
Relationships and Related Transactions" under "Executive Compensation and
Related Transactions."
2
<PAGE>
(2) Includes shares issuable upon exercise of stock options. See "Security
Ownership of Management" below.
(3) Includes shares held in name of spouse, minor child, or other relatives or
persons as to some of which the owner has shared voting or investment
power, but to which beneficial ownership is disclaimed. See "Security
Ownership of Management" below.
</FN>
</TABLE>
SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth information as to the beneficial ownership of
the Corporation's common stock as of August 19, 1996, by each Director,
nominee, Executive Officer named in the Summary Compensation Table and by all
Directors and Officers as a group.
<TABLE>
<CAPTION>
NAME OF SHARES PERCENT
BENEFICIAL OWNER BENEFICIALLY OWNED OF CLASS
<S> <C> <C>
Marcia C. Cohen 5,000 (1) Less than 1.0%
T.H. Etheridge 216,827 (1)(2) 1.6%
Robert B. Neal 410,198 (1)(2) 3.0%
Joseph D. Pegram 28,043 (1) Less than 1.0%
S.L. Reed, Jr. 772,286 (1)(2) 5.4%
Herbert G. Rogers, III 107,128 (1)(2) Less than 1.0%
Anthony J. Spuria 130,391 Less than 1.0%
William D. Stubblefield None -0-
Directors, nominees, and
Executive Officers as a
group (10 persons) 1,810,058 (1) 13.8%
<FN>
(1) Includes shares issuable upon exercise of stock options as follows: Each
non-employee Director - 5,000 shares; S.L. Reed, Jr., Chairman of the
Board and Chief Executive Officer, - 100,000; shares; G. Thomas Reed,
President and Chief Operating Officer, - 50,000 shares; David E. Williams,
Senior Vice President and Treasurer, - 10,000 shares.
(2) Includes shares held in the name of spouse, minor child or other relatives
or persons, as to some of which shares the owner named has shared voting
or investment power, but as to which beneficial ownership is disclaimed,
as follows: T.H. Etheridge - 37,510 shares; Robert B. Neal - 1,368 shares;
S. L. Reed, Jr. - 558,422 shares; and Herbert G. Rogers, III - 27,479
shares.
</FN>
</TABLE>
3
<PAGE>
I. AMENDMENT OF CORPORATION BYLAWS
Article III, Section 6 of the Corporation's Bylaws, in pertinent part,
provides that "The number of Directors of the Corporation shall not be less
than nine nor more than 25." The Bylaws further provide, in Article X, that
the Bylaws may be amended by the Board of Directors at any regular or special
meeting of the Board of Directors. At a meeting held on July 10, 1996, the
Board of Directors unanimously voted to amend Article III, Section 6 of the
Bylaws to reduce the number of Directors to not less than five nor more than
fifteen, subject to approval of Shareholders. The proposed Bylaw amendment is
being submitted for Shareholder approval because of the requirements of
Section 79-4-8.03(c) of the Mississippi Corporation law, which states that
after shares are issued, "only the Shareholders may change the [minimum and
maximum] range for the size of the Board."
Until the resignations in July 1996 of three Directors, the Board was
comprised of nine Directors. The Board does not intend to fill all of the
vacancies created by the recent resignations and recommends that, in view of
the changed nature of the Corporation's operations, the Shareholders approve
the proposed Bylaw amendment reducing the minimum and maximum number of
Directors. Since the sale of the Corporation's former subsidiary, Dixie
National Life Insurance Company ("Dixie Life"), in October 1995, the
Corporation has been in a transition period during which it relocated its
headquarters, developed a new management organization, and pursued a business
plan focused on the acquisition of companies involved in applied technology.
The nature of its new business, as it is expected to develop, is such that a
large Board of Directors is no longer necessary for the efficient oversight
and supervision of the Corporation's operations.
The Board believes that a minimum of five and a maximum of fifteen Directors
is an appropriate range in view of the proposed future business activities of
the Corporation and recommends that the Shareholders vote FOR the Bylaw
amendment. All of the Corporation's Directors and Officers have indicated that
they will vote FOR the amendment to the Bylaws.
VOTE REQUIRED FOR APPROVAL
A favorable vote of a majority of those shares voting in person or by Proxy is
required to approve the Bylaw amendment.
II. ELECTION OF DIRECTORS
In addition to establishing the minimum and maximum number of Directors,
Article III, Section 6 of the Bylaws of the Corporation also provides that the
number of Directors shall be fixed annually by the Shareholders at each Annual
Meeting. The Board of Directors recommends that the Board of Directors of the
Corporation for the ensuing year consist of seven Directors and further
recommends the election of the nominees listed below, each Director to hold
office until the next Annual Meeting of Shareholders or until his/her
successor shall be duly elected and qualified. Shareholders may also nominate
candidates for Director at any Meeting of Shareholders at which Directors are
to be elected. Proxies will not be voted for more than seven nominees.
4
<PAGE>
With the exception of Messrs. Spuria and Stubblefield, each nominee is a
member of the present Board and was elected thereto by a vote of the
Shareholders at the 1995 Annual Meeting. Management has no reason to believe
that any substitute nominee or nominees will be required.
The following table indicates the age, year first elected a Director, and
principal occupation or employment for the past five years of each nominee. In
addition, the table also indicates any Committee of the Board of Directors of
the Corporation on which the nominee serves.
<TABLE>
<S> <C>
MARCIA C. COHEN Ms. Cohen, 47, has been a Director since 1995. She is
Senior Vice President, Corporate Development, of
Montgomery General Hospital in Olney, Maryland. Ms.
Cohen is a member of the Finance and Business
Strategy Committee, Nominating and Stockholder
Relations Committee, and the Personnel and
Compensation Committee.
ROBERT B. NEAL Mr. Neal, 58, has been a Director since 1970. He is
Vice Chairman and a Director of Dixie Life which was
sold by the Corporation to Standard Life Insurance of
Indiana in October 1995. Mr. Neal is a member of the
Audit and Compliance Committee and the Nominating and
Stockholder Relations Committee.
JOSEPH D. PEGRAM Mr. Pegram, 59, has served as a Director since 1991.
He is an attorney in Oxford, Mississippi. Mr. Pegram
is a member of the Audit and Compliance Committee.
S.L. REED, JR. Mr. Reed, 60, has been a Director since 1980. He is a
Director of Delta Industries, Inc., HillFisher Farms,
Inc.; Producers' Feed Co., Reed Enterprises, Inc.;
and Venture SystemSource, Inc. Mr. Reed has been
Chairman of the Board of Directors since January 1995
and Chief Executive Officer of the Corporation since
February 1995 and is a member of the Executive
Committee.
HERBERT G. ROGERS, III Mr. Rogers, 53, previously served as a Director from
April 6, 1990 to April 5, 1991 and from April 3, 1992
to present. He is President of Rogers Agency, Inc.,
Rogers LP-Gas Company, Rogers Investments, Inc.,
Mississippi Realty, Inc., and Roell Realty Corp. of
New Albany, Mississippi. In addition, he is a
Director of the Nashoba Bank and Chairman of the
Board of The Gentry Furniture Corporation. Mr. Rogers
serves as a member of the Finance and Business
Strategy Committee and the Personnel and Compensation
Committee.
5
<PAGE>
ANTHONY J. SPURIA Mr. Spuria, 60, is a nominee for election as a
Director at the Annual Meeting. He is Chief Executive
Officer of A la Cart, Inc., a Charlotte, NC based
producer of meal delivery systems for the healthcare
industry. He began his career as an industrial
engineer at Raytheon and later to Sylvania. Mr.
Spuria served as a cost analyst at RCA and a
corporate manager with Fairchild Industries.
WILLIAM D. STUBBLEFIELD Mr. Stubblefield, 52, is a nominee for election as a
Director at the Annual Meeting. He served two years
as a faculty member at the School of Business and
Industry, Florida A&M University. Over the past four
years, Mr. Stubblefield has been actively involved
with Volunteers in Medicine and IMAGES of Hilton Head
Island. He was formerly the Chairman and CEO of
Medical Graphics Corporation, St. Paul, Minnesota.
</TABLE>
During fiscal year 1995, the Board of Directors of the Corporation held twelve
meetings. Each member of the Board of Directors attended more than 90% of the
meetings of the Board and appropriate Committee meetings.
All Committees of the Board are appointed by the Chairman of the Board and
ratified by the Board of Directors. Committees of the Board of Directors
consist of the following:
(1) Audit and Compliance Committee - Reviews audit plans, controls, and the
Annual Report of the Corporation with independent auditors. Monitors
regulatory compliance activities of the Corporation. During fiscal year
1995, the Audit and Compliance Committee held four meetings.
(2) Executive Committee - Subject to statutory limitations, has concurrent
authority of the Board of Directors. During fiscal year 1995, the
Executive Committee of the Corporation held four meetings.
(3) Nominating and Stockholder Relations Committee - Serves as screening and
nominating committee for Board of Directors and monitors Shareholder
relations activities of the Corporation. A nominee for the Board of
Directors recommended by a Shareholder should be submitted to this
Committee. During fiscal year 1995, the Nominating and Stockholder
Committee held two meetings.
7
<PAGE>
(4)Personnel and Compensation Committee - Reviews and approves compensation
for all Corporate Officers and employee benefit plans of the Corporation.
During fiscal year 1995, the Personnel and Compensation Committee held
three meetings.
During 1996, the Board of Directors formed the Finance and Business Strategy
Committee which reviews and approves financial reports of the Corporation and
its operations. The Committee also reviews Management recommendations related
to business strategies and acquisition proposals.
The Corporation was the subject of an investigation by the Securities and
Exchange Commission ("SEC") which was resolved by means of a settlement.
Pursuant to the settlement on March 9, 1994, the United States District Court
for the District of Columbia entered final judgments of permanent injunction
against the Corporation and Robert B. Neal, a Director and former President of
the Corporation. The judgments were entered on the basis of a complaint filed
by the SEC. The Corporation and Mr. Neal each consented to the entry of final
judgments of permanent injunction without admitting or denying the allegations
contained in the SEC's complaint. The final judgments to which the Corporation
and Mr. Neal consented enjoin them from violating or aiding and abetting
future violations of sections of the Securities Act of 1933 and the Securities
and Exchange Act of 1934 and certain rules thereunder.
8
<PAGE>
<TABLE>
EXECUTIVE OFFICERS
<CAPTION>
EXECUTIVE OFFICER
NAME AGE SINCE
------------------------ --- -----------------
<S> <C> <C>
S. L. Reed, Jr. 60 1995 (1)
Chairman and
Chief Executive Officer
G. Thomas Reed 46 1995 (1)
President and
Chief Operating Officer
David E. Williams 47 1995
Senior Vice President,
Treasurer, and
Chief Financial Officer
<FN>
(1) S.L. Reed, Jr. and G. Thomas Reed are not related.
</FN>
</TABLE>
VOTE REQUIRED FOR ELECTION
Fixing the number of Directors at seven requires a favorable vote of a
majority of those shares voting in person or by Proxy. The seven nominees
receiving the highest number of votes shall be elected to the Board.
The Board recommends that you vote FOR a Board consisting of seven Directors
and FOR the election of each of the seven nominees to be Directors of the
Corporation.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
During 1995 the Corporation granted to each of its non-employee Directors an
option to purchase 5,000 shares of the Corporation's common stock. The
Corporation understands that such Directors did not file Forms 4 or 5 as to
the grant of those options on a timely basis. The Corporation is advised that
the required Forms, which include other purchases during 1995, have since been
filed by such persons. S.L. Reed, Jr., Chairman of the Board and Chief
Executive Officer of the Corporation, did not timely file a Form 5 as to
certain 1995 purchases of the Corporation's common stock, and G. Thomas Reed
did not timely file a Form 5 to report the grant to him during 1995 of an
option for 25,000 shares of the Corporation's common stock and certain other
purchases of common stock made in 1995.
8
<PAGE>
EXECUTIVE COMPENSATION AND RELATED INFORMATION
SUMMARY COMPENSATION TABLE
The following Summary Compensation Table sets forth for each of the last three
years ended December 31, 1995, information concerning the total compensation
paid or awarded to the Corporation's Chief Executive Officers for services
rendered in all capacities to the Corporation and its subsidiaries. The total
compensation of none of the Corporation's Officers exceeded $100,000 in 1995.
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION/
NUMBER OF
ANNUAL SECURITIES ALL OTHER
NAME AND COMPENSATION UNDERLYING COMPENSATION
PRINCIPAL POSITION YEAR SALARY BONUS OPTIONS
---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
S.L. Reed, Jr. 1995 (1) $ 25,346 $0 50,000 $0
Chairman and CEO 1994 $ 0 $0 $0
1993 $ 0 $0 $0
Robert B. Neal 1995 (2) $ 92,071 $0 5,000 $0
Former President 1994 $125,269 $0 $2,505 (3)
1993 $125,269 $0 $2,575 (3)
<FN>
(1) Commenced employment January 1995
(2) Terminated employment as an Officer in October 1995
(3) Includes the Corporation's contributions under its former qualified profit
sharing plans for employees including Officers
</FN>
</TABLE>
OPTION GRANTS IN 1995
The following table sets forth information concerning options to purchase
shares of common stock which were granted during 1995 to the individuals named
in the Summary Compensation Table.
9
<PAGE>
<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE VALUE
AT ASSUMED
ANNUAL RATES OF
STOCK PRICE
APPRECIATION FOR
OPTION TERM
INDIVIDUAL GRANTS 10 YEARS
-----------------------------------------------------------------------------------------------
Number of % of Total
Securities Options
Underlying Granted to
Options Employees in Exercise Expiration
Name Granted Fiscal Year Price Date 5% 10%
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
S.L. Reed, Jr. 50,000 (1) 40% $0.85 11/16/05 $1.085 $2.20
Robert B. Neal 5,000 (2) 4% $0.91 04/01/05 $1.025 $2.36
<FN>
(1) These options begin vesting on November 16, 1996 at the rate of 20% per
year for five years. This option is subject to acceleration if employee is
terminated without cause.
(2) These options vested April 1, 1996.
</FN>
</TABLE>
FISCAL YEAR END OPTION VALUE TABLE
The following table sets forth information as of December 31, 1995 concerning
the unexercised options held by Officers named in the Summary Compensation
Table, none of whom exercised options in 1995. Options are "in-the-money" when
the fair market of underlying common stock exceeds the exercise price of the
option. The closing price of common stock on December 31, 1995 was $1 per
share.
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money Options at
Name Options at December 31, 1995 December 31, 1995
-------------------------------------------------------------------------------------
EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
<S> <C> <C> <C> <C>
S.L. Reed, Jr. None 50,000 None $7,500
Robert B. Neal 5,000 None $450 None
</TABLE>
10
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Corporation's Subordinated Convertible Notes which were due May 1, 1995
were extended in connection with the sale of Dixie Life. The Corporation
satisfied the Subordinated Convertible Notes upon the sale of Dixie Life.
Robert B. Neal, a Director of the Corporation, held $100,000 of the Notes.
On July 1, 1996 S.L. Reed, Jr., Chief Executive Officer of the Corporation,
was granted options to purchase an additional 50,000 shares of the
Corporation's common stock at $.50 per share, exercisable at the rate of 20%
per year beginning on July 1,1997 until June 30, 2007.
In 1995 G. Thomas Reed, President of the Corporation, received $65,096 as
compensation for his services to the Corporation which commenced in April
1995. On April 5, 1995 he was granted options to purchase 25,000 shares of the
Corporation's common stock at $.78 per share exercisable at the rate of 20%
per year beginning April 5, 1996. On July 1, 1996 he was granted options to
purchase an additional 25,000 shares of the Corporation's common stock at $.50
per share exercisable the rate of 20% per year beginning July 1, 1997 until
June 30, 2007.
On April 2, 1996 the Corporation completed the acquisition of 100% of the
outstanding stock of Text Retrieval Systems, Inc. ("TRS"). The Corporation had
previously acquired a 35% initial ownership interest in TRS in October 1995 as
part of a financing agreement entered into with the prior owners of TRS. Under
the terms of its agreement, the Corporation issued 100,000 shares of its
common stock to the prior owners and granted TRS a $750,000 line of credit for
working capital purposes. To complete the acquisition of TRS, the Corporation
issued 2,500,000 additional shares of its stock.
TRS is based in Ponte Vedra Beach, Florida and publishes electronic libraries
that link related data sources for convenient access by personal computers.
Since its incorporation in 1994, TRS has been involved in the development and
packaging of software used in its electronic libraries and in the marketing of
its product. As of March 31, 1996, on an unaudited basis, TRS had total assets
of $140,883, and for the nine months then ended, revenues of $21,325, and a
net loss of $999,265.
Constance G. Grewell, who owns 2,064,770 shares, or 15.8% of the Corporation's
outstanding common stock, was the principal shareholder of the outstanding
stock of TRS at the time of its acquisition by the Corporation. Mrs. Grewell
acquired her shares of common stock of the Corporation in the TRS transaction.
Also, Anthony J. Spuria, a nominee for election to the Board of Directors, was
a minority stockholder in TRS and received 130,391 shares of common stock of
the Corporation in the transaction. On April 2, 1996 the high and low sales
price for the Corporation's common stock, as reported by NASDAQ was $.72.
11
<PAGE>
DIRECTORS' COMPENSATION
Directors who are not employees of the Corporation are paid a monthly base fee
of $400 and receive $250 per day per meeting attended. As a group, the eight
non-employee Directors of the Corporation were paid $44,750 during the year
1995. As Chief Executive Officer of the Corporation, S.L. Reed, Jr. received
no additional compensation for his services as Chairman of the Board.
At a meeting held on March 24, 1995 the Corporation's Board of Directors
approved granting each non-employee Director an option to purchase 5,000
shares of the Corporation's common stock at the average bid and ask price as
quoted by NASDAQ on April 3, 1995. These options were exercisable immediately
upon granting and expire on March 31, 2005. If a person ceases being a
Director of the Corporation, his/her option will be cancelled 30 days
thereafter.
III. RATIFICATION OF SELECTION OF AUDITORS
CHANGE IN INDEPENDENT AUDITORS
At its July 10, 1996 meeting, the Board of Director, following the
recommendation of the Audit and Compliance Committee, appointed Price
Waterhouse, LLP as the Corporation's independent auditors for the 1996 fiscal
year.
Horne C.P.A. Group of Jackson, Mississippi served as the independent auditors
of the Corporation and its Subsidiaries since December 2, 1992 until July 10,
1996. During the two most recent years ended December 31, 1994 and 1995 and
during the interim period of January 1, 1996 to July 10, 1996, there were no
disagreements with Horne C.P.A. Group, on any matter of accounting principles
or practices, financial statement disclosures, or auditing scope or
procedures, which disagreements, if not resolved to the satisfaction of Horne
C.P.A. Group, would have caused them to make reference to the subject matter
of the disagreements in connection with their reports.
Horne C.P.A. Group's reports on the Corporation's consolidated financial
statements for the past two years had no adverse opinion nor any disclaimer of
opinion, nor were they qualified or modified as to uncertainty, audit scope,
or accounting principles.
The Board made this change in auditors due to the fact that the home office of
the Corporation was relocated from Jackson, Mississippi to Hilton Head Island,
South Carolina, and the future plans of the Corporation are such that its
needs can best be served by utilizing a national accounting firm.
The Board of Directors recommends that the Shareholders of the Corporation
ratify the appointment of the firm of Price Waterhouse, LLP as independent
auditors to examine the financial statements of the Corporation and its
subsidiaries for the year ending December 31, 1996. A representative of Horne
CPA Group will be at the Annual Meeting and will have the opportunity to make
a statement if he so desires and will be available to respond to appropriate
questions during the meeting. A representative of Price Waterhouse, LLP will
not attend the meeting. A favorable vote of a majority of those shares voting,
in person or by Proxy, is required for ratification of the selection of
auditors.
12
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SHAREHOLDER PROPOSALS
Any Shareholder desiring to have a proposal considered for inclusion in the
Proxy Statement to be distributed in connection with the Corporation's Annual
Meeting to be held in 1997 is requested to submit such proposal in writing to
the Corporation, Attention Corporate Secretary, no later than January 31,
1997.
IV. OTHER MATTERS
The Management of the Corporation knows of no other matters which may come
before the Meeting except for the approval of the Minutes of the last Annual
Meeting of Shareholders.
Copies of the Corporation's Annual Report on Form 10-K for the year ended
December 31, 1995 containing audited financial statements, and other
information regarding the Corporation were mailed to all Shareholders of
record as of August 19, 1996.
PLEASE DATE, SIGN, AND RETURN THE ENCLOSED PROXY CARD TO THE CORPORATION
PROMPTLY.
August 27, 1996
Jerry M. Greer
Secretary
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ETHIKA CORPORATION
PROXY FOR ANNUAL MEETING OF SHAREHOLDERS
To Be Held Thursday, September 26, 1996
KNOW ALL MEN BY THESE PRESENTS, that the undersigned hereby constitutes and
appoints: Marcia C. Cohen, Joseph D. Pegram, and Herbert G. Rogers, III or any
two of them, with the power of substitution, as his/her proxy to appear and
vote all of the shares of common stock standing in the name of the undersigned
at the Annual Meeting of Shareholders of Ethika Corporation to be held at the
Harvey Hotel, 200 East Amite Street, Jackson, Mississippi, on the 26th day of
September, 1996 at 10 a.m. (CST) and at any and all adjournments thereof; and
the undersigned instructs said attorneys to vote:
1. For [ ], against [ ], or abstain [ ] the Amendment of the Bylaws of the
Corporation to decrease the minimum and maximum number of authorized
Directors.
2. For [ ], against [ ], or abstain [ ] the Board of Directors for the
forthcoming year to be composed of seven members.
3. For [ ] or to withhold such vote [ ] the election of seven (7) Directors
as nominated by the Board of Directors and named in the Proxy Statement.
TO WITHHOLD AUTHORITY TO VOTE FOR A PARTICULAR NOMINEE, STRIKE THE NAME OR
NAMES OF THE PERSON (S) FOR WHOM YOU WISH AUTHORITY TO BE WITHHELD FROM
THE LIST BELOW. To cumulate votes for any one or more nominees, please
indicate in the space next to the nominees' name the number of votes to be
cast (up to a total for all nominees, equal to the total number of shares
you own multiplied by 7.)
Cohen ____________ Rogers, III ____________
Neal ____________ Spuria ____________
Pegram ____________ Stubblefield ____________
Reed, Jr. ____________
4. For [ ], against [ ], or abstain [ ] ratification of the appointment of
Price Waterhouse, LLP as independent auditors for the year ending December
31, 1996.
The shares represented by the Proxy will be voted as specified. IF NO CHOICE
IS SPECIFIED, THE PROXY WILL BE VOTED FOR Proposals 1, 2, 3, and 4. The
undersigned hereby acknowledges receipt of the Proxy Statement dated August
27, 1996.
_________________________________ __________________________
Print Shareholder Name Sign Shareholder Name
Date: ___________________________
THIS PROXY IS SOLICITED ON BEHALF OF
THE BOARD OF DIRECTORS OF THE CORPORATION.