SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934
[ X ] Filed by the registrant
[ ] Filed by a party other than the registrant
Check the appropriate box:
[ X ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only
(as permitted by Rule 14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to ss. 240.14a-11(c) or ss. 240.14a-12
Ethika Corporaton (formerly known as Dixie National Corporation)
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
<PAGE>
ETHIKA CORPORATION
107 The Executive Center
Hilton Head Island, South Carolina 29928
PROXY STATEMENT
For the Annual Meeting of Shareholders
To be Held Friday, September 26, 1997
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 Crowne Plaza Hotel, 130 Shipyard Drive, Hilton
Head Island, South Carolina on Friday, September 26, 1997 at 9 a.m. (Eastern)
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 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 22, 1997.
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 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; FOR approval of
the 1997 Equity Incentive Plan; and FOR the ratification of the selection of
Price Waterhouse, LLP as independent auditors of the Corporation for the year
ending December 31, 1997.
VOTING SECURITIES
Shareholders of record at the close of business on August 13, 1997 will be
entitled to Notice of and to vote at the Annual Meeting. On August 13, 1997
there were _________ 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.
<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.
I. 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.
Each nominee is a member of the present Board and was elected thereto by a vote
of the Shareholders at the Annual Meeting held in 1996. 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.
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
MARCIA C. COHEN Ms. Cohen, 48, has been a Director since 1995. She is Senior
Vice President, Corporate Development, of Montgomery General
Hospital in Olney, Maryland.
Ms. Cohen is Chairman of the Personnel and Compensation
Committee and a member of the Nominating and Stockholder
Relations Committee.
ROBERT B. NEAL Mr. Neal, 59, 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 Chairman of the Nominating and
Stockholder Relations Committee and a member of the Audit and
Compliance Committee.
JOSEPH D. PEGRAM Mr. Pegram, 58, has served as a Director since 1991. He is an
attorney in Oxford, Mississippi. Mr. Pegram is Chairman of
the Audit and Compliance Committee and a member of the
Nominating and Stockholder Relations Committee.
S.L. REED, JR. Mr. Reed, 61, has been a Director since 1980. He is a
Director of Delta Industries, Inc., HillFisher Farms, Inc.;
Producers' Feed Co., and Reed Enterprises, 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 Chairman of the Executive Committee.
HERBERT G. ROGERS, III Mr. Rogers, 54, 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 is Chairman of the
Finance and Business Strategy Committee and a member of the
Personnel and Compensation Committee.
ANTHONY J. SPURIA Mr. Spuria, 60, has been a Director since 1996. He is Chief
Executive Officer of A la Cart, Inc., a Charlotte, NC based
producer of meal delivery systems for the healthcare
industry. Mr. Spuria is a member of the Executive Committee;
Audit and Compliance Committee; and the Finance and Business
Strategy Committee.
WILLIAM D. STUBBLEFIELD Mr. Stubblefield, 53, has been a Director since 1996. 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. Mr. Stubblefield is a
member of the Executive Committee, the Finance and Business
Strategy Committee, and the Personnel and Compensation
Committee.
</TABLE>
<PAGE>
During fiscal year 1996, the Board of Directors of the Corporation held seven
meetings. Each member of the Board of Directors attended at least 75% 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
1996, the Audit and Compliance Committee held two meetings.
(2) Executive Committee - Subject to statutory limitations, has concurrent
authority of the Board of Directors. During fiscal year 1996, the Executive
Committee of the Corporation held one meeting.
(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 1996, the Nominating and Stockholder Committee
held two meetings.
(4) Personnel and Compensation Committee - Reviews and approves compensation for
all Corporate Officers and employee benefit plans of the Corporation. During
fiscal year 1996, the Personnel and Compensation Committee held two
meetings.
(5) The Finance and Business Strategy Committee - Reviews and approves financial
reports of the Corporation and its operations. The Committee also reviews
Management recommendations related to business strategies and acquisition
proposals. During fiscal year 1996, the Finance and Business Strategy
Committee held two meetings.
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.
<PAGE>
<TABLE>
Executive Officers
<CAPTION>
Executive Officer
Name Age Since
---- --- -----------------
<S> <C> <C>
S. L. Reed, Jr. 61 1995 (1)
Chairman and
Chief Executive Officer
G. Thomas Reed 47 1995 (1)
President and
Chief Operating Officer
David E. Williams 48 1996
Senior Vice President, Treasurer,
and
Chief Financial Officer
</TABLE>
- -----------------
(1) S.L. Reed, Jr. and G. Thomas Reed are not related.
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.
<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, 1996, information concerning the total compensation
paid or awarded to the Corporation's Chief Executive Officer 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 1996.
<TABLE>
<CAPTION>
Annual Long Term Compensation/
Name and Compensation Number of Securities All Other
Principal Position Year Salary Bonus Underlying Options Compensation
- --------------------------- ------------ ---------------------------- ------------------------ --------------
<S> <C> <C> <C> <C> <C>
S.L. Reed, Jr. 1996 $36,000 $0 50,000 $0
Chairman and CEO 1995 (1) $25,346 $0 50,000 $0
</TABLE>
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(1) Commenced employment January 1995
<PAGE>
Option Grants in 1996
The following table sets forth information concerning options to purchase shares
of common stock which were granted during 1996 to the individuals named in the
<TABLE>
<CAPTION>
Potential Realizable Value at
Assumed Annual Rates of Stock
Price Appreciation for Option
Individual Grants Term 10 Years
- --------------------------------------------------------------------------------- ----------------------------------
Number of % of Total
Securities Options Granted
Underlying to Employees in Exercise Expiration
Name Options Granted Fiscal Year Price Date 5% 10%
- --------------------- ------------------- ------------------ ------------- -------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
S.L. Reed, Jr. 50,000 (1) 38% $0.59 05/05/05 $48,052 $76,515
</TABLE>
- ----------------------
(1) These options begin vesting on July 10, 1997 at the rate of 20% per year for
five years. This option is subject to acceleration if employee is terminated
without cause.
Fiscal Year End Option Value Table
The following table sets forth information as of December 31, 1996 concerning
the unexercised options held by Officers named in the Summary Compensation
Table, none of whom exercised options in 1996. 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, 1996 was $0.56 per
share.
<TABLE>
<CAPTION>
Number of Securities Underlying Value of Unexercised In-the-Money
Unexercised Options at December 31, Options at
Name 1996 December 31, 1996
- -------------------- --------------------------------------- ----------------------------------------
Exercisable Unexercisable Exercisable Unexercisable
----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
S.L. Reed, Jr. 10,000 90,000 None None
</TABLE>
<PAGE>
Certain Relationships and Related Transactions
On July 10, 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 $.59 per share, exercisable at the rate of 20% per year
beginning on July 10,1997 until May 5, 2005. On May 30, 1997 he was granted
options to purchase an additional 50,000 shares of the Corporation's common
stock at $.42 per share, which vest at a rate of 20% per year beginning on May
30, 1998 until May 5, 2005.
In 1996 G. Thomas Reed, President of the Corporation, received $90,639 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 10, 1996 he was granted options to
purchase an additional 25,000 shares of the Corporation's common stock at $.59
per share which vest at a rate of 20% per year beginning July 10, 1997 until May
5, 2005. On May 30, 1997 he was granted 25,000 additional shares of the
Corporation's common stock at $.42 per share, which vest at a rate of 20% per
year beginning on May 30, 1998 until May 5, 2005.
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 shares of contingently returnable common stock. The shares are
returnable to the Corporation if certain 1997 earnings targets are not achieved.
If earnings targets are not totally met, the former TRS shareholders will return
all or part of these contingent shares to the Corporation.
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 and prior to the acquisition date, 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 contingently returnable shares, or
13.6% 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 of the contingently returnable 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.
On August 17, 1996 the Corporation acquired 100% of the outstanding shares of
Compass Data Systems, Inc. ("CDS"), a privately-held corporation. CDS is located
in Salt Lake City, Utah and publishes electronic information providing turnkey
reference services to a wide variety of industries and organizations. Among its
principal product offerings are state tax law reference libraries which keep
subscribers current on tax law changes.
<PAGE>
CDS began operations in May 1991 and currently employs 10 full-time employees.
At April 30, 1996, the most current fiscal year end prior to acquisition, CDS
had assets of $157,246 with no significant liabilities. Revenues for the year
were $450,477 generating pre-tax income of $7,790.
The transaction was completed through an exchange of stock. The Corporation
issued 363,306 shares of its common stock to Eric R. Fredrickson and 363,306
shares of its common stock to Sherry Fredrickson, the sole shareholders of CDS.
Immediately following the closing, the combined shares owned by the
Fredrickson's constituted 5.4% of the total outstanding shares of common stock
of the Corporation. In addition, Mr. Fredrickson entered into a two-year
employment contract at an annual salary of $62,500 plus bonus based upon
performance. He also entered into a two-year non-compete contract for which he
received $50,000 at closing and received an additional $50,000 on January 1,
1997.
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 six
non-employee Directors of the Corporation were paid $46,650 during fiscal year
1996. As Chief Executive Officer of the Corporation, S.L. Reed, Jr. received no
additional compensation for his services as Chairman of the Board.
<PAGE>
II. APPROVAL OF 1997 EQUITY INCENTIVE PLAN
INTRODUCTION
On July 31, 1997 the Board adopted the 1997 Equity Incentive Plan (the "Plan"),
subject to stockholder approval. A copy of the Plan is attached as Exhibit A.
Under the proposed Plan, the Company may grant to officers, directors, key
employees and consultants stock options, stock appreciation rights and
restricted stock awards. Your Board believes that the Plan will form an
important part of the Company's overall compensation program. The Plan will
support the Company's ongoing efforts to develop and retain qualified leaders
and will give the Company the ability to provide those individuals with
incentives that are directly linked to the profitability of the Company's
businesses and increases in stockholder value.
SUMMARY OF PLAN
The following general description of certain features of the Plan is qualified
in its entirety by reference to Exhibit A.
ELIGIBILITY. Officers, directors, employees and certain consultants of the
Company, its subsidiaries and its affiliates who are responsible for or
contribute to the management, growth and profitability of the Company will be
eligible to receive awards under the Plan. No determination has been made as to
which of the eligible participants will receive grants under the Plan, and
therefore, the benefits to be allocated to any individual or to various groups
of employees are not presently determinable.
ADMINISTRATION. It is currently anticipated that the Plan will be administered
by the Personnel and Compensation Committee or a subcommittee thereof. This
Committee will select the individuals to whom awards will be granted and will
set the terms of such awards. The Committee may delegate its authority under the
Plan to officers of the Company, subject to Board-approved guidelines, with
respect to employees who are not "executive officers" of the Company.
SHARES RESERVED FOR DISTRIBUTION. Up to 4,000,000 shares of Common Stock may be
issued under the Plan, representing less than 25% of the Company's shares
outstanding. No more than 30% of the shares issuable under the Plan may be
awarded as restricted stock. The shares of Common Stock subject to any award
that terminates, expires or is cashed out without payment being made in the form
of Common Stock will again be available for distribution under the Plan, as will
shares that are used by an employee to pay withholding taxes or as payment for
the exercise price of an award.
STOCK OPTIONS. The Plan will permit the granting of incentive stock options
("ISOs"), which qualify for special tax treatment, and non-qualified stock
options. The exercise price for options will not be less than the fair market
value of Common Stock on the date of grant. The Plan permits the Committee to
elect to cancel an option upon exercise by the holder and pay the holder, in
cash or Common Stock, the difference between the fair market value of the shares
covered by the option and the exercise price.
STOCK APPRECIATION RIGHTS ("SARS"). SARs may also be granted either singly or in
combination with underlying stock options. SARs entitle the holder upon exercise
to receive an amount in any combination of cash or Common Stock (as determined
by the Committee) equal in value to the excess of the fair market value of the
shares covered by such right over the grant price. The grant price for SARs will
not be less than the fair market value of the Common Stock on the date of grant.
<PAGE>
RESTRICTED STOCK. Shares of restricted Common Stock may also be awarded. The
restricted stock would vest and become transferable upon the satisfaction of
conditions set forth in the applicable award agreement. The minimum vesting
period would be one year. Restricted stock awards may be subject to forfeiture
if, for example, the recipient's employment terminates before the award vests.
Except as specified at the time of grant, holders of restricted stock will have
voting rights and the right to receive dividends on their restricted shares.
CHANGE IN CONTROL PROVISIONS. The Plan provides that in the event of a "Change
in Control" (as defined in the plan), all stock options and SARs will become
immediately exercisable, the restrictions applicable to outstanding restricted
stock and other stock-based awards will lapse, and, unless otherwise determined
by the Committee, the value of outstanding stock options, SARs, restricted stock
and other stock-based awards will be cashed out on the basis of the highest
price paid (or offered) during the preceding 60-day period.
FEDERAL INCOME TAX CONSEQUENCES
Non-qualified Stock Options. Non-qualified stock options granted under the Plan
are not taxable to an employee at grant but result in taxation at exercise, at
which time the employee will recognize ordinary income in an amount equal to the
difference between the option exercise price and the fair market value of the
shares on the exercise date. The Company will be entitled to deduct a
corresponding amount as a business expense in the year the employee recognizes
this income.
Incentive Stock Options. An employee will generally not recognize income on
receipt or exercise of an ISO so long as he or she has been an employee of the
Company or its subsidiaries from the date the option was granted until three
months before the date of exercise; however, the amount by which the fair market
value of the stock at the time of exercise exceeds the option price is a
required adjustment for purposes of the alternative minimum tax applicable to
the employee. If the employee holds the stock received on exercise of the option
for one year after exercise (and for two years from the date of grant of the
option), any difference between the amount realized upon the disposition of the
stock and the amount paid for the stock will be treated as long-term capital
gain (or loss, if applicable) to the employee. If the employee exercises an ISO
and satisfies these holding period requirements, the Company may not deduct any
amount in connection with the ISO.
In contrast, if an employee exercises an ISO but does not satisfy the holding
period requirements with respect to the stock acquired on exercise, the employee
generally will recognize ordinary income in the year of the disposition equal to
the excess, if any, of the fair market value of the stock on the date of
exercise over the option price; and any excess of the amount realized on the
disposition over the fair market value on the date of exercise will be taxed as
long- or short-term capital gain (as applicable). If, however, the fair market
value of the stock on the date of disposition is less than on the date of
exercise, the employee will recognize ordinary income equal only to the
difference between the amount realized on disposition and the option price. In
either event, the Company will be entitled to deduct an amount equal to the
amount constituting ordinary income to the employee in the year of the premature
disposition.
<PAGE>
Stock Appreciation Rights. There are no immediate tax consequences to an
employee when an SAR is granted. When an employee exercises the right to the
appreciation in fair market value of stock represented by an SAR, payments made,
whether in cash or stock, are included in the employee's gross income. The
Company will be entitled to deduct the same amount as a business expense at the
time. When payments are made in stock, the included amount and corresponding
deduction equal the fair market value of the stock on the date of exercise.
Restricted Stock. The federal income tax consequences of restricted stock awards
depend on the restrictions imposed on the stock. Generally, the fair market
value of the stock received will be included in the employee's gross income at
receipt unless the property is subject to a substantial risk of forfeiture (and
is either nontransferable or after transfer remains subject to such risk of
forfeiture). In this case, taxation will be deferred until the first taxable
year the stock is no longer subject to substantial risk of forfeiture. The
employee may, however, make a tax election to include the value of the stock in
gross income in the year of receipt despite such restrictions. Generally, the
Company will be entitled to deduct the fair market value of the stock
transferred to the employee as a business expense in the year the employee
includes the compensation in income.
Section 162(m) of the IRC places a $1 million annual limit on the deductible
compensation of certain executives of publicly traded corporations. The limit,
however, does not apply to "qualified performance-based compensation." The
Company believes that awards of options, SARs and certain other "performance-
based compensation" awards under the Plan will qualify for the performance-based
compensation exception to the deductibility limit, assuming that the Plan is
approved by stockholders.
State tax consequences may in some cases differ from those described above.
Awards under the Plan will in some instances be made to employees who are
subject to tax in jurisdictions other than the United States and may result in
tax consequences differing from those described above.
OTHER INFORMATION
If approved by stockholders, the Plan will be effective on July 31, 1997, and
will expire on July 30, 2007, unless terminated earlier, or extended, by your
Board. Any awards granted before the Plan expires or is terminated may extend
beyond the expiration or termination date. The Board may amend the Plan at any
time, provided that no such amendment will be made without stockholder approval
if such approval is required under applicable law, or if such amendment would:
(i) decrease the minimum exercise or grant price for stock options, SARs and
similar awards; or (ii) increase the number of shares that may be issued under
the plan.
The Plan provides that awards are not transferable except in the event of the
participant's death or unless otherwise required by law. Other terms and
conditions of each award will be set forth in award agreements, which can be
amended by the Committee. The Committee may require or permit deferral of the
payment of awards and may provide for the payment of interest or other earnings
on deferred amounts or the payment of dividend equivalents where the deferred
amounts are denominated in stock equivalents. Awards under the Plan may earn
dividends or dividend equivalents, as determined by the Committee.
<PAGE>
Under the Plan, no employee may receive awards that cover in the aggregate more
than 10% of the shares reserved for distribution.
It is presently intended that the Plan constitute an "unfunded" plan for
incentive compensation. The plan authorizes the creation of trusts and other
arrangements to facilitate or ensure payment of the Company's obligations.
On July 31, 1997, the average of the closing bid and asked prices of the Common
Stock as reported in the NASDAQ System was $0.37.
Vote Required for Approval
A favorable vote of a majority of those shares voting in person or by Proxy is
required to approve the 1997 Equity Incentive Plan.
The Board recommends that the Shareholders vote FOR approval of the 1997 Equity
Incentive Plan. All of the Corporation's Directors and Officers have indicated
that they will vote FOR approval of the 1997 Equity Incentive Plan.
<PAGE>
III. RATIFICATION OF SELECTION OF AUDITORS
At its July 31, 1997 meeting, the Board of Directors, following the
recommendation of the Audit and Compliance Committee, appointed Price
Waterhouse, LLP to continue as the Corporation's independent auditors for the
1997 fiscal year.
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, 1997. A representative of Price
Waterhouse 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 favorable vote of a majority of those shares
voting, in person or by Proxy, is required for ratification of the selection of
auditors.
<PAGE>
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 1998 is requested to submit such proposal in writing to
the Corporation, Attention: Corporate Secretary, no later than January 31, 1998.
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 1, 1997 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
of Beneficial Owner Beneficially Owned Class
- --------------------- ------------------ ----------
<S> <C> <C>
Constance G. Grewell 2,064,770 (1) 13.6%
100 Executive Way
Ponte Vedra Beach, FL 32082
S.L. Reed, Jr. 738,286 (2) (3) 5.0%
107 The Executive Center
Hilton Head Island, SC 29928
Eric R. Fredrickson/Sherry Fredrickson 751,612 (4) 5.0%
Compass Data Systems, Inc.
967 East Murray-Holladay Road
Salt Lake City, UT 84117
</TABLE>
- ---------------
(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) 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.
(4) Includes 363,306 shares received by Eric R. Fredrickson and 363,306 shares
received by his spouse, Sherry Fredrickson, August 17, 1996 in exchange for
all of the outstanding shares of Compass Data Systems, Inc. See "Certain
Relationships and Related Transactions."
<PAGE>
Security Ownership of Management
The following table sets forth information as to the beneficial ownership of the
Corporation's common stock as of August 1, 1997, by each Director, nominee,
Executive Officer named in the Summary Compensation Table and by all Directors
and Executive 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%
Robert B. Neal 411,072 (1)(2) 2.7%
Joseph D. Pegram 28,043 (1) Less than 1.0%
S.L. Reed, Jr. 738,286 (1)(2) 5.0%
Herbert G. Rogers, III 107,128 (1)(2) Less than 1.0%
Anthony J. Spuria 157,991 Less than 1.0%
William D. Stubblefield Less than 1.0%
5,000 (1)
Directors, nominees, and
Executive Officers as a group
(9 persons) 1,512,520 (1) Less than 10.0%
</TABLE>
- --------------------
(1) Includes shares issuable upon exercise of vested stock options as follows:
Each non-employee Director - 5,000 shares; S.L. Reed, Jr., Chairman of the
Board and Chief Executive Officer, - 20,000; shares; G. Thomas Reed,
President and Chief Operating Officer, - 15,000 shares; David E. Williams,
Senior Vice President and Treasurer, - 2,000 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: Robert B. Neal - 1,368 shares; S. L. Reed, Jr. - 253,833 shares;
and Herbert G. Rogers, III - 27,479 shares.
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 for the year ended December 31, 1996
containing audited financial statements and other information regarding the
Corporation were mailed to all Shareholders of record as of July 1, 1997 and as
of August 13, 1997.
Please date, sign, and return the enclosed Proxy Card to the Corporation
promptly.
August 28, 1997
David E. Williams
Secretary
<PAGE>
PROXY FOR ANNUAL MEETING OF SHAREHOLDERS
ETHIKA CORPORATION
[ X ] PLEASE MARK VOTES AS IN THIS EXAMPLE
ANNUAL MEETING OF SHAREHOLDERS
Friday, September 26, 1997
KNOW ALL MEN BY THESE PRESENTS, that the undersigned hereby constitutes and
appoints: Marcia C. Cohen, William D. Stubblefield, 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 Crowne Plaza Resort Hotel, 130 Shipyard Drive, Hilton Head Island,
South Carolina, on the 26th day of September, 1997 at 9 a.m. (EST) and at any
and all adjournments thereof; and the undersigned instructs said attorneys to
vote:
1. The Board of Directors for the forthcoming year to be composed of seven
members, and
[ ] FOR [ ] AGAINST [ ] ABSTAIN
the election of the seven (7) Directors as nominated by the Board of
Directors and named in the Proxy Statement except where noted.
[ ] FOR [ ] (1) WITHHOLD [ ] (2) CUMULATIVE
Cohen ______ Reed, Jr. ______ Stubblefield ______
Neal ______ Rogers, III ______
Pegram ______ Spuria ______
INSTRUCTION:(1) To withhold authority to vote for an individual nominee write NO
next to that nominee's name (2) To cumulate votes for any one or more nominees,
check the box "Cumulative", indicate in the space, next to the nominee's name,
the number of votes to be cas which must equal and not to exceed the total
number of shares you own multiplied by 7.
2. The 1997 Equity Incentive Plan.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. The ratification of the appointment of Price Waterhouse, LLP as independent
auditors for the year ending December 31, 1997.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
<PAGE>
This Proxy is solicited on behalf of the Board of Directors of the Corporation.
Sign and date this Proxy in the box below.
If no choice is specified, the Proxy will be voted FOR Proposals 1, 2, 3 and 4.
________________________________________
Date
________________________________________
Shareholder sign above
________________________________________
Co-holder (if any) sign above
Detach above card, sign, date and mail in postage paid envelope provided.
ETHIKA CORPORATION
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF THE CORPORATION.
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 above
signed hereby acknowledges receipt of the Proxy Statement dated August 22, 1997.
PLEASE ACT PROMPTLY
SIGN, DATE & MAIL YOUR PROXY CARD TODAY
<PAGE>
ETHIKA CORPORATION
1997 EQUITY INCENTIVE PLAN
SECTION 1
PURPOSE
The purpose of this Plan is to promote the interests of the Company,
its Subsidiaries and its shareholders by enabling the Company and its
Subsidiaries to attract, retain and motivate employees and other Key Persons or
those who will become employees or Key Persons, and to align the interests of
those individuals and the Company's shareholders. To do this, the Plan offers
equity-based opportunities providing such employees and Key Persons with a
proprietary interest in maximizing the growth, profitability and overall success
of the Company and its Subsidiaries.
SECTION 2
DEFINITIONS
Each term set forth in this Section shall have the meaning set forth
opposite such term for purposes of this Plan and, for purposes of such
definitions, the singular shall include the plural and the plural shall include
the singular.
2.1 Award means an award or grant of an Option, Restricted Stock or a
Stock Appreciation Right made to a Participant under this Plan
2.2 Award Agreement means the agreement executed by a Participant
pursuant to this Plan in connection with the granting of an Award.
2.3 Board means the Board of Directors of the Company, as constituted
from time to time.
2.4 Change of Control has the meaning set forth in Section 16.
2.5 Code means the Internal Revenue Code of 1986, as amended.
2.6 Committee means the committee of the Board established to
administer the Plan, if appointed under Section 5 of the Plan.
2.7 Common Stock means the $1.00 par value common stock of the Company.
2.8 Company means Ethika Corporation, a Mississippi corporation, and
any successor to such organization.
2.9 Employee means an employee of the Company, a Subsidiary or a
Parent.
2.10 Exchange Act means the Securities Exchange Act of 1934, as
amended.
2.11 Fair Market Value means on, or with respect to, any given date(s),
the average of the closing bid and asked prices of the Common Stock, as reported
in the NASDAQ quotation system for such date(s) or, if the Common Stock was not
traded on such date(s), on the next preceding day or days on which the Common
Stock was traded are not reported in such system, the Fair Market Value of a
share of the Common Stock shall be determined in good faith by the Board.
2.12 ISO means an option granted under this Plan to purchase Shares
which is intended by the Company to satisfy the requirements of Section 422 of
the Code as an incentive stock option.
2.13 Key Person means (i) a member of the Board who is not an Employee
or (ii) a consultant, distributor or other person who has rendered valuable
services to the Company, a Subsidiary or a Parent.
2.14 Non-ISO means an option granted under this Plan to purchase Shares
which is not intended by the Company to satisfy the requirements of Section 422
of the Code.
2.15 Option means an ISO, a Non-ISO or a Reload Stock Option.
2.16 Option Price means the price which shall be paid to purchase one
(1) Share upon the exercise of an Option granted under this Plan.
2.17 Optionee means the grantee of an Option.
2.18 Parent means any corporation which is a parent corporation of the
Company within the meaning of Section 424(e) of the Code.
2.19 Participant means any individual who is selected from time to time
to receive an Award under the Plan.
2.20 Plan means Ethika Corporation 1997 Equity Incentive Plan, as
amended from time to time.
2.21 Restricted Stock means Shares granted pursuant to Section 9.
2.22 Restricted Stock Grant means a grant of Restricted Stock under
this Plan.
2.23 Share means a share of the Common Stock of the Company.
2.24 Stock Appreciation Right means an Award grant made to a
Participant of the type described in Section 10 of this Plan.
2.25 Subsidiary means any corporation which is a subsidiary corporation
of the Company within the meaning of Section 424(f) of the Code.
2.26 Surrendered Shares means the Shares described in Section 8.7 which
(in lieu of being purchased) are surrendered for cash or Shares, or for a
combination of cash and Shares, in accordance with Section 8.7.
2.27 Reload Stock Options means any Non-ISO automatically granted
pursuant to the provisions of Section 8.8 of this Plan and the relevant Award
Agreement.
2.28 Ten Percent Shareholder means a person who owns (after taking into
account the attribution rules of Section 424(d) of the Code) more than ten
percent (10%) of the total combined voting power of all classes of shares of
either the Company, a Subsidiary or a Parent.
SECTION 3
SHARES SUBJECT TO PLAN
The total number of Shares that may be issued pursuant to Options,
Restricted Stock Grants or Stock Appreciation Rights granted under this Plan
shall not exceed Four Million (4,000,000), as adjusted below and pursuant to
Section 13. Such Shares shall be reserved to the extent that the Company deems
appropriate from authorized but unissued Shares and from Shares which have been
reacquired by the Company. Furthermore, any Shares subject to an Option,
Restricted Stock Grant or Stock Appreciation Right granted hereunder which
remain after the cancellation, expiration or exchange of such Option, Restricted
Stock Grant or Stock Appreciation Right shall again become available for use
under this Plan, but any Surrendered Shares which remain after the surrender of
an Option under Section 8.7 shall not again become available for use under this
Plan.
SECTION 4
EFFECTIVE DATE
The effective date of this Plan shall be the date it is adopted by the
Board, provided the shareholders of the Company approve this Plan within twelve
(12) months after such effective date. If such effective date comes before such
shareholder approval, any Awards granted under this Plan before the date of such
approval shall automatically be granted subject to such approval.
SECTION 5
ADMINISTRATION
5.1 The Committee. This Plan shall be administered by the Committee.
The Committee shall be appointed from time to time by the Board and shall
consist of not less than three (3) of the then members of the Board who are
Non-Employee Directors (within the meaning of Rule 16b-3(b)(3) promulgated
pursuant to the Exchange Act) of the Company. Consistent with the Bylaws of the
Company, members of the Committee shall serve at the pleasure of the Board and
the Board, subject to the immediately preceding sentence, may at any time and
from time to time remove members from, or add members to, the Committee.
5.2 Powers of the Committee. The Committee, acting in its absolute
discretion, shall exercise such powers and take such action as expressly called
for under this Plan. The Committee shall have the power to interpret this Plan
and, subject to Section 15, to take such other action in the administration and
operation of the Plan as it deems equitable under the circumstances. The
Committee's actions shall be binding on the Company, on each affected
Participant, and on each other person directly or indirectly affected by such
action.
5.3 Liability Limitation. Neither the Board nor the Committee, nor any
member of either, shall be liable for any act, omission, interpretation,
construction or determination made in good faith in connection with the Plan (or
any Award Agreement), and the members of the Board and the Committee shall be
entitled to indemnification and reimbursement by the Company in respect of any
claim, loss, damage or expense (including, without limitation, attorneys' fees)
arising or resulting therefrom to the fullest extent permitted by law and/or
under any directors and officers liability insurance coverage which may be in
effect from time to time.
SECTION 6
ELIGIBILITY
Except as provided below, only Employees, or those who will become
Employees, shall be eligible for the grant of an Award under this Plan, but no
Employee shall have the right to be granted an Award under this Plan merely as a
result of his or her status as an Employee. Consultants, or those who will
become Consultants, may be eligible, subject to approval by the Committee, for
the grant of Awards under this Plan, but only if the Consultant has provided
valuable services to the Company, a Subsidiary or a Parent and provided any
Option granted to such Consultant may not be an ISO.
SECTION 7
GRANT OF AWARDS
7.1 Selection by Committee. The Committee, in its absolute discretion,
may grant Awards under this Plan from time to time and shall have the right to
grant new Awards in exchange for outstanding Awards. Awards shall be granted to
Employees or Consultants selected by the Committee and the Committee shall be
under no obligation whatsoever to grant Awards to all Employees or Consultants,
to grant Awards uniformly or to grant all Awards subject to the same terms and
conditions. In determining Employee(s) or Consultant(s) to whom an Award shall
be granted and the number of Shares to be covered by such Award, the Committee
may take into account the recommendations of the President of the Company and
its other officers, the duties of the Employee or Consultant, the present and
potential contributions of the Employee or Consultant to the success of the
Company, the anticipated number of years of service remaining before the
attainment by the Employee of retirement age, and other factors deemed relevant
by the Committee, in its sole discretion, in connection with accomplishing the
purpose of this Plan. An Employee or Consultant who has been granted an Award,
whether under this Plan or otherwise, may be granted one or more additional
Awards.
7.2 Award Agreements. Each grant of an Award shall be evidenced by an
Award Agreement and shall incorporate such terms and conditions as the
Committee, acting in its absolute discretion, deems consistent with the terms of
this Plan. Additionally, each Award Agreement evidencing an Option shall specify
whether the Option is an ISO or Non-ISO.
7.3 Maximum Awards. The total number of shares of Restricted Stock and
other shares of Common Stock subject to or underlying Stock Options and SARs
awarded to any participant during the term of this Plan shall not exceed 10% of
the shares of Common Stock reserved for distribution pursuant to the Plan. An
amount not in excess of 30% of the shares of Common Stock reserved for
distribution pursuant to the Plan may be issued pursuant to Restricted Stock
Awards and Other Stock-Based Awards.
SECTION 8
STOCK OPTIONS
8.1 Terms and Conditions. Options granted under the Plan shall be in
respect of Common Stock and may be in the form of an ISO, Non-ISO or Reload
Stock Option. Such Options shall be subject to the terms and conditions set
forth in this Section 8 and any additional terms and conditions, not
inconsistent with the express terms and provisions of the Plan, as the Committee
shall set forth in the relevant Award Agreement.
8.2 Option Price. If an Option is an ISO or a Reload Stock Option, the
Option Price for each Share subject to such Option shall be no less than the
Fair Market Value of a Share on the date such Option is granted or, if such
Option is granted to a Ten Percent Shareholder, the Option Price for each Share
subject to such Option shall be no less than 110% of the Fair Market Value of a
Share on the date such Option is granted. If an Option is a Non-ISO, the Option
Price for each Share shall be no less than the minimum price required by
applicable state law or by the Company's governing instrument, whichever price
is greater. The Option Price shall be payable in full upon the exercise of any
Option, and an Award Agreement, at the discretion of the Committee may provide
for the payment of the Option Price either in cash or in Shares acceptable to
the Committee or in any combination of cash and Shares acceptable to the
Committee. Any payment made in Shares shall be treated as equal to the Fair
Market Value of such Shares on the date the properly endorsed certificate for
such Shares is delivered to the Committee (or to its delegate). Notwithstanding
the above, and in the sole discretion of the Committee, an Option may be
exercised as to a portion or all (as determined by the Committee) of the number
of Shares specified in the Award Agreement by delivery to the Company of a
secured promissory note to be executed by the Optionee. The promissory note
shall include, along with such other terms and conditions as the Committee shall
determine, provisions in a form approved by the Committee under which (1) the
balance of the aggregate purchase price shall be payable in equal installments
over such period and shall bear interest at such rate (which shall not be less
than the prime bank loan rate as determined by the Committee) as the Committee
shall approve and (2) the Optionee shall be personally liable for payment of the
unpaid principal balance and all accrued but unpaid interest.
8.3 Option Exercise Period. Each Option granted under this Plan shall
be exercisable in whole or in part at such time or times as set forth in the
related Award Agreement, but no Award Agreement shall:
(a) make an Option exercisable before the date such
Option is granted or;
(b) make an Option exercisable after the earlier of the:
(i) the date such Option is exercised in full;
or
(ii) the date which is the tenth (10th)
anniversary of the date such Option is
granted, if such Option is a Non-ISO or an
ISO granted to a non-Ten Percent
Shareholder, or the date which is the fifth
(5th) anniversary of the date such Option is
granted, if such Option is an ISO granted to
a Ten Percent Shareholder.
8.4 Vesting. In respect of any Option granted under this Plan, unless
otherwise (a) determined by the Committee (in its sole discretion) at any time
and from time to time in respect of any such Option, or (b) provided in the
Award Agreement or in the Participant's employment agreement in respect of any
such Option, such Option shall become exercisable as to the aggregate number of
shares of Common Stock underlying such Option, as determined on the date of
grant, at the rate of 20% upon the first anniversary of the date of grant of the
Option and an additional 20% on each anniversary date thereafter, provided the
Participant is then employed by the Company and/or one of its Subsidiaries upon
each such date.
8.5 Acceleration of Vesting upon Death, Disability or Retirement.
Notwithstanding anything to the contrary contained in Section 8.4, such Option
shall become one hundred percent (100%) exercisable as to the aggregate number
of shares of Common Stock underlying such Option upon the death, Disability or
Retirement of the Participant.
8.6 Non-Transferable. No Option granted under this Plan shall be
transferable by a Participant other than by will or by the laws of descent and
distribution, and such Option shall be exercisable during a Participant's
lifetime only by the Participant. The person or persons to whom an Option is
transferred by will or by the laws of descent and distribution thereafter shall
be treated as the Participant.
8.7 Surrender of Options.
(a) General Rule. The Committee, acting in its absolute
discretion, may incorporate a provision in an Award
Agreement to allow a Participant to surrender his or
her Option in whole or in part in lieu of the
exercise in whole or in part of that Option on any
date that:
(i) the Fair Market Value of the Shares subject
to such Option exceeds the Option Price for
such Shares; and
(ii) the Option to purchase such Shares is
otherwise exercisable.
(b) Procedure. The surrender of an Option in whole or in part
shall be effected by the delivery of the Award Agreement to the Committee (or to
its delegate) together with a statement signed by the Participant which
specifies the number of Shares ("Surrendered Shares") as to which the
Participant surrenders his or her Option and how he or she desires payment be
made for such Surrendered Shares.
(c) Payment. A Participant in exchange for his or her
Surrendered Shares shall receive a payment in cash or in Shares, or in a
combination of cash and Shares, equal in amount on the date such surrender is
effected to the excess of the Fair Market Value of the Surrendered Shares on
such date over the Option Price for the Surrendered Shares. The Committee acting
in its absolute discretion can approve or disapprove a Participant's request for
payment in whole or in part in cash and can make that payment in cash or in such
combination of cash and Shares as the Committee deems appropriate. A request for
payment only in Shares shall be approved and made in Shares to the extent
payment can be made in whole Shares and (at the Committee's discretion) in cash
in lieu of any fractional Shares.
(d) Restrictions. Any Award Agreement for an Option which
incorporates a provision to allow a Participant to surrender his or her Option
in whole or in part also shall incorporate such additional restrictions on the
exercise or surrender of such Option as the Committee deems necessary to satisfy
the conditions to the exemption under Rule 16b-3 (or any successor exemption) to
Section 16(b) of the Exchange Act.
8.8 Reload Stock Options. The Committee may, in its sole discretion,
provide in any Award Agreement in respect of any Non-ISO that if the Participant
delivers shares of the Company's Common Stock already owned by such Participant
for at least six (6) months in full or partial payment of the exercise price of
such Non-ISO, the Participant shall automatically (subject to the limitations
contained in Section 3) and immediately thereupon be granted a Reload Stock
Option to purchase that number of shares of Common Stock delivered by the
Participant to the Company (on such terms as the Committee may prescribe under
and in accordance with the Plan).
SECTION 9
RESTRICTED STOCK
9.1. Terms and Conditions. Awards of Restricted Stock shall be subject
to the terms and conditions set forth in this Section 9 and any additional terms
and conditions, not inconsistent with the express terms and provisions of the
Plan, as the Committee shall set forth in the relevant Award Agreement.
Restricted Stock may be granted alone or in addition to any other Awards under
the Plan. Subject to the terms of the Plan, the Committee shall determine the
number of Shares of Restricted Stock to be granted to a Participant and the
Committee may provide or impose different terms and conditions on any particular
Restricted Stock Award made to any Participant. With respect to each Participant
receiving an Award of Restricted Stock, there shall be issued a stock
certificate (or certificates) in respect of such Restricted Stock. Such stock
certificate(s) shall be registered in the name of such Participant, shall be
accompanied by a stock power duly executed by such Participant, and shall bear,
among other required legends, the following legend:
"The transferability of this certificate and the shares of
stock represented hereby are subject to the terms and
conditions (including, without limitation, forfeiture events)
contained in the Ethika Corporation 1997 Equity Incentive Plan
and an Award Agreement entered into between the registered
owner hereof and Ethika Corporation. Copies of such Plan and
Award Agreement are on file in the office of the Secretary of
Ethika Corporation, Hilton Head, South Carolina. Ethika
Corporation will furnish to the recordholder of the
certificate, without charge and upon written request at its
principal place of business, a copy of such Plan and Award
Agreement. Ethika Corporation reserves the right to refuse to
record the transfer of this certificate until all such
restrictions are satisfied, all such terms are complied with
and all such conditions are satisfied."
Such stock certificate evidencing such shares shall, in the sole discretion of
the Committee, be deposited with and held in custody by the Company until the
restrictions thereon shall have lapsed and all of the terms and conditions
applicable to such grant shall have been satisfied.
9.2 Restricted Stock Award. An Award of Restricted Stock is an Award of
shares of Common Stock granted to a Participant, subject to such restrictions,
terms and conditions as the Committee deems appropriate, including, without
limitation, (a) restrictions on the sale, assignment, transfer, hypothecation or
other disposition of such shares, (b) the requirement that the Participant
deposit such shares with the Company while such shares are subject to such
restrictions, and (c) the requirement that such shares be forfeited upon
termination of employment for specified reasons within a specified period of
time or for other reasons (including, without limitation, the failure to achieve
designated performance goals).
9.3 Restriction Period. In accordance with Sections 9.1 and 9.2 of the
Plan and unless otherwise determined by the Committee (in its sole discretion)
at any time and from time to time, Restricted Stock shall only become
unrestricted and vested in the Participant in accordance with such vesting
schedule relating to such Restricted Stock, if any, as the Committee may
establish in the relevant Award Agreement (the "Restriction Period").
Notwithstanding the preceding sentence, in no event shall the Restriction Period
be less than six (6) months after the date of grant of the Award. During the
Restriction Period, such stock shall be and remain unvested and a Participant
may not sell, assign, transfer, pledge, encumber or otherwise dispose of or
hypothecate such Award. Upon satisfaction of the vesting schedule and any other
applicable restrictions, terms and conditions, the Participant shall be entitled
to receive payment of the Restricted Stock or a portion thereof, as the case may
be, as provided in Section 9.4 of the Plan.
9.4 Payment of Restricted Share Grants. After the satisfaction and/or
lapse of the restrictions, terms and conditions established by the Committee in
respect of a grant of Restricted Shares, a new certificate, without the legend
set forth in Section 8.1 of the Plan, for the number of shares of Common Stock
which are no longer subject to such restrictions, terms and conditions shall, as
soon as practicable thereafter, be delivered to the Participant.
9.5 Shareholder Rights. A Participant shall have, with respect to the
shares of Common Stock underlying a grant of Restricted Shares, all of the
rights of a shareholder of such stock (except as such rights are limited or
restricted under the Plan or in the relevant Award Agreement). Any stock
dividends paid in respect of unvested Restricted Shares shall be treated as
additional Restricted Shares and shall be subject to the same restrictions and
other terms and conditions that apply to the unvested Restricted Shares in
respect of which such stock dividends are issued.
SECTION 10
STOCK APPRECIATION RIGHTS
10.1 Terms and Conditions. The grant of Stock Appreciation Rights under
this Plan shall be subject to the terms and conditions set forth in this Section
10 and any additional terms and conditions, not inconsistent with the express
terms and provisions of this Plan, as the Committee shall set forth in the
relevant Award Agreement.
10.2 Stock Appreciation Rights. A Stock Appreciation Right is an Award
granted with respect to a specified number of shares of Common Stock entitling a
Participant to receive an amount equal to the excess of the Fair Market Value of
a share of Common Stock on the date of exercise over the Fair Market Value of a
share of Common Stock on the date of grant of the Stock Appreciation Right,
multiplied by the number of shares of Common Stock with respect to which the
Stock Appreciation Right shall have been exercised.
10.3 Grant. A Stock Appreciation Right may be granted in addition to any
other Award under this Plan or in tandem with or independent of a Non-ISO.
10.4 Date of Exercise. Unless otherwise provided in the Participant's
employment agreement or the Award Agreement in respect of any Stock Appreciation
Right, a Stock Appreciation Right may be exercised by a Participant, in
accordance with and subject to all of the procedures established by the
Committee, in whole or in part at any time and from time to time during its
specified term. Notwithstanding the preceding sentence, in no event shall a
Stock Appreciation Right be exercisable prior to the date which is six (6)
months after the date on which the Stock Appreciation Right was granted or prior
to the exercise of any Non-ISO with which it is granted in tandem. The Committee
may also provide, as set forth in the relevant Award Agreement and without
limitation, that some Stock Appreciation Rights shall be automatically exercised
and settled on one or more fixed dates specified therein by the Committee.
10.5 Form of Payment. Upon exercise of a Stock Appreciation Right,
payment may be made in cash, in Restricted Stock or in shares of unrestricted
Common Stock, or in any combination thereof, as the Committee, in its sole
discretion, shall determine and provide in the relevant Award Agreement.
10.6 Tandem Grant. The right of a Participant to exercise a tandem Stock
Appreciation Right shall terminate to the extent such Participant exercises the
Non-ISO to which such Stock Appreciation Right is related.
SECTION 11
SECURITIES REGISTRATION
Each Award Agreement may provide that, upon the receipt of Shares as a
result of the surrender or exercise of an Award, the Employee or Consultant
shall, if so requested by the Company, hold such Shares for investment and not
with a view of resale or distribution to the public and, if so requested by the
Company, shall deliver to the Company a written statement satisfactory to the
Company to that effect. Each Award Agreement also may provide that, if so
requested by the Company, the Employee or Consultant shall make a written
representation to the Company that he or she will not sell or offer to sell any
of such Shares unless a registration statement shall be in effect with respect
to such Shares under the Securities Act of 1933, as amended ("1933 Act") and any
applicable state securities law or unless he or she shall have furnished to the
Company an opinion, in form and substance satisfactory to the Company, of legal
counsel acceptable to the Company, that such registration is not required.
Certificates representing the Shares transferred upon the grant, exercise or
surrender of an Award granted under this Plan may at the discretion of the
Company bear a legend to the effect that such Shares have not been registered
under the 1933 Act or any applicable state securities law and that such Shares
may not be sold or offered for sale in the absence of an effective registration
statement as to such Shares under the 1933 Act and any applicable state
securities law or an opinion, in form and substance satisfactory to the Company,
of legal counsel acceptable to the Company, that such registration is not
required.
SECTION 12
LIFE OF PLAN
No Award shall be granted under this Plan on or after the tenth (10th)
anniversary of the effective date of the Plan, in which case the Plan otherwise
shall continue in effect until the later of (i) all outstanding Options have
been terminated, surrendered or exercised in full or no longer are exercisable,
(ii) all restrictions on Shares transferred as Restricted Stock have lapsed, or
(iii) all Stock Appreciation Rights shall have been exercised or expired.
SECTION 13
ADJUSTMENT
The number of Shares reserved under Section 3 of this Plan and the
number of Shares subject to Awards granted under this Plan and the exercise
price or other price per Share relating to outstanding Awards shall be adjusted
by the Committee in an equitable manner to reflect any change in the
capitalization of the Company, including, but not limited to, such changes as
stock dividends or stock splits. Furthermore, the Committee shall have the right
to adjust (in a manner which satisfies the requirements of Section 424(a) of the
Code) the number of Shares reserved under Section 3 of this Plan and the number
of Shares subject to Awards granted under this Plan and the exercise price or
other price per Share relating to outstanding Awards in the event of any
corporate transaction described in Section 424(a) of the Code which provides for
the substitution or assumption of such Awards. If any adjustment under this
Section 13 creates a fractional Share or a right to acquire a fractional Share,
such fractional Share shall be disregarded and the number of Shares reserved
under this Plan and the number subject to any Awards granted under this Plan
shall be the next lower number of Shares, rounding all fractions downward. An
adjustment made under this Section 13 by the Committee shall be conclusive and
binding on all affected persons and, further, shall not constitute an increase
in the number of Shares reserved under Section 3 of this Plan.
SECTION 14
SALE OR MERGER OF THE COMPANY
If the Company agrees to sell substantially all of its assets for cash
or property or for a combination of cash and property or agrees to any merger,
consolidation, reorganization, division or other transaction in which Shares are
converted into another security or into the right to receive securities or
property and such agreement does not provide for the assumption or substitution
of the Options and Stock Appreciation Rights granted under this Plan, each
Option and Stock Appreciation Right, at the direction and discretion of the
Committee, or as is otherwise provided in the Award Agreements, may be canceled
unilaterally by the Company in exchange for the whole Shares (or, subject to
satisfying the conditions to the exemption under Rule 16b-3 or any successor
exemption to Section 16(b) of the Exchange Act, for the whole Shares and the
cash in lieu of a fractional Share) which each Employee or Consultant otherwise
would receive if he or she had the right to surrender his or her outstanding
Option or Stock Appreciation Right in full under Section 8.6 of this Plan and he
or she exercised that right exclusively for Shares on a date fixed by the
Committee which comes before such sale or other corporate transaction.
SECTION 15
AMENDMENT OR TERMINATION
This Plan may be amended by the Board from time to time to the extent
that the Board deems necessary or appropriate; provided, however, no such
amendment shall be made absent the approval of the shareholders of the Company
(1) to increase the number of Shares reserved under Section 3, except as set
forth in Section 13, (2) to extend the maximum life of the Plan under Section 12
or the maximum exercise period under Section 8.3, (3) to decrease the minimum
Option Price under Section 8.2, or (4) to change the designation of Employees or
Consultants eligible for Options under Section 6. The Board also may suspend the
granting of Awards under this Plan at any time and may terminate this Plan at
any time; provided, however, the Company shall not have the right to modify,
amend or cancel any Award granted before such suspension or termination unless
(i) the Employee or Consultant consents in writing to such modification,
amendment or cancellation or (ii) there is a dissolution or liquidation of the
Company or a transaction described in Section 13 or Section 14 of this Plan.
SECTION 16
CHANGE OF CONTROL
16.1 Acceleration of Awards Vesting. Anything in the Plan to the
contrary notwithstanding, if a Change of Control of the Company occurs (a) all
Options and/or Stock Appreciation Rights then unexercised and outstanding shall
become fully vested and exercisable as of the date of the Change of Control, and
(b) all restrictions, terms and conditions applicable to all Restricted Shares
then outstanding shall be deemed lapsed and satisfied as of the date of the
Change of Control. The immediately preceding sentence shall apply to only those
Participants (i) who are employed by the Company and/or one of its Subsidiaries
as of the date of the Change of Control, or (ii) to whom Section 16.3 below is
applicable.
16.2 Payment After Change of Control. Notwithstanding anything to the
contrary in the Plan, within thirty (30) days after a Change of Control occurs,
(a) the holder of an Award of Restricted Shares vested under Section 16.1(b)
above shall receive a new certificate for such shares without the legend set
forth in Section 9 of the Plan (and, in the case only of a Change of Control
under Section 16.4(a) of the Plan, such holder shall have the right, but not the
obligation, to elect, within ten (10) business days after the Participant has
actual or constructive knowledge of the occurrence of such Change of Control, to
require the Company to purchase such shares from the Participant at their then
Fair Market Value, and (b) in the case only of a Change of Control under Section
16.4(a) of the Plan, the holders of any Options and/or Stock Appreciation Rights
shall have the right, but not the obligation, to elect, within ten (10) business
days after the Participant has actual or constructive knowledge of the
occurrence of such Change of Control, to require the Company to purchase such
Stock Options and/or Stock Appreciation Rights from the Participant for an
aggregate amount equal to the then aggregate Fair Market Value of the Common
Stock underlying such Awards tendered, less the aggregate exercise price of such
tendered Awards.
16.3 Termination as a Result of a Change of Control. Anything in the
Plan to the contrary notwithstanding, if a Change of Control occurs and if the
Participant's employment is terminated before such Change of Control and it is
reasonably demonstrated by the Participant that such employment termination (a)
was at the request, directly or indirectly, of a third party who has taken steps
reasonably calculated to effect the Change of Control, or (b) otherwise arose in
connection with or in anticipation of the Change of Control, then for purposes
of this Section 16, the Change of Control shall be deemed to have occurred
immediately prior to such Participant's employment termination (for all purposes
other than those set forth in Section 16.2(c) of the Plan).
16.4 Change of Control. For the purpose of this Agreement, "Change of
Control" shall mean:
(a) The acquisition by an individual, entity or group (within
the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act) of beneficial
ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act)
of 25% or more of either (i) the shares of the Common Stock, or (ii) the
combined voting power of the voting securities of the Company entitled to vote
generally in the election of directors (the "Voting Securities"); provided,
however, that the following acquisitions shall not constitute a Change of
Control: (x) any acquisition by any employee benefit plan (or related trust)
sponsored or maintained by the Company or any Subsidiary, (y) any acquisition by
any underwriter in connection with any firm commitment underwriting of
securities to be issued by the Company, or (z) any acquisition by any
corporation if, immediately following such acquisition, more than 80% of the
then outstanding shares of common stock of such corporation and the combined
voting power of the then outstanding voting securities of such corporation
(entitled to vote generally in the election of directors), is beneficially
owned, directly or indirectly, by all or substantially all of the individuals
and entities who, immediately prior to such acquisition, were the beneficial
owners of the Common Stock and the Voting Securities in substantially the same
proportions, respectively, as their ownership, immediately prior to such
acquisition, of the Common Stock and Voting Securities; or
(b) Individuals who, as of the effective date of the Plan,
constitute the Board (the "Incumbent Board") cease thereafter for any reason to
constitute at least a majority of the Board; provided, however, that any
individual becoming a director subsequent to the effective date of the Plan
whose election, or nomination for election by the Company's shareholders, was
approved by at least a majority of the directors then serving and comprising the
Incumbent Board shall be considered as though such individual were a member of
the Incumbent Board, but excluding, for this purpose, any such individual whose
initial assumption of office occurs as a result of either an actual or
threatened election contest (as such terms are used in Rule 14a-11 of Regulation
14A promulgated under the Exchange Act) or other actual or threatened
solicitation of proxies or consents; or
(c) Approval by the shareholders of the Company of a
reorganization, merger or consolidation, other than a reorganization, merger or
consolidation with respect to which all or substantially all of the individuals
and entities who were the beneficial owners, immediately prior to such
reorganization, merger or consolidation, of the Common Stock and Voting
Securities beneficially own, directly or indirectly, immediately after such
reorganization, merger or consolidation more than 80% of the then outstanding
common stock and voting securities (entitled to vote generally in the election
of directors) of the corporation resulting from such reorganization, merger or
consolidation in substantially the same proportions as their respective
ownership, immediately prior to such reorganization, merger or consolidation, of
the Common Stock and the Voting Securities; or
(d) Approval by the shareholders of the Company of (i) a
complete liquidation or substantial dissolution of the Company, or (ii) the sale
or other disposition of all or substantially all of the assets of the Company,
other than to a Subsidiary, wholly-owned, directly or indirectly, by the
Company.
SECTION 17
MISCELLANEOUS
17.1 Shareholder Rights. No Employee or Consultant shall have any rights
as a shareholder of the Company as a result of the grant of an Award to him or
to her under this Plan or his or her exercise or surrender of such Award pending
the actual delivery of Shares subject to such Award to such Employee or
Consultant.
17.2 No Contract of Employment. The grant of an Award to an Employee or
Consultant under this Plan shall not constitute a contract of employment or
other association with the Company, and shall not confer on an Employee or
Consultant any rights upon his or her termination of employment or other
association with the Company, in addition to those rights, if any, expressly set
forth in the applicable Award Agreement.
17.3 Withholding. The Company shall have the right to deduct from any
payment or settlement under the Plan, including, without limitation, the
exercise of any Option or Stock Appreciation Right, or the delivery, transfer or
vesting of any Common Stock or Restricted Stock, any federal, state, local or
other taxes of any kind which the Committee, in its sole discretion, deems
necessary to be withheld to comply with the Code and/or any other applicable
law, rule or regulation. If the Committee, in its sole discretion, permits
shares of Common Stock to be used to satisfy any such tax withholding, such
Common Stock shall be valued based on the Fair Market Value of such stock as of
the date the tax withholding is required to be made, such date to be determined
by the Committee. The Committee may establish rules limiting the use of Common
Stock to meet withholding requirements by Participants who are subject to
Section 16 of the Exchange Act. The exercise or surrender of any Option granted
under this Plan shall constitute an Employee's or Consultant's full and complete
consent to whatever action the Committee directs to satisfy the federal and
state tax withholding requirements, if any, which the Committee in its
discretion deems applicable to such exercise or surrender.
17.4 Transfer. The transfer of an Employee between or among the Company,
a Subsidiary or a Parent shall not be treated as a termination of his or her
employment under this Plan.
17.5 Construction. This Plan shall be construed under the laws of the
State of South Carolina.
