-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, VMNBilIlhYXwecd+mSR7zVG9UOQSsUR+hF/WiFx0xb3m5eGXWZ6DP/zy5R15lsRV RCVg5IvBMxs79/fFAYeGWg== 0000950133-96-000369.txt : 19960416 0000950133-96-000369.hdr.sgml : 19960416 ACCESSION NUMBER: 0000950133-96-000369 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19951231 FILED AS OF DATE: 19960415 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: DIXIE NATIONAL CORP CENTRAL INDEX KEY: 0000029322 STANDARD INDUSTRIAL CLASSIFICATION: LIFE INSURANCE [6311] IRS NUMBER: 640440887 STATE OF INCORPORATION: MS FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-03296 FILM NUMBER: 96546962 BUSINESS ADDRESS: STREET 1: 3760 I 55 N STREET 2: P O BOX 22587 CITY: JACKSON STATE: MS ZIP: 39211-6323 BUSINESS PHONE: 6019828210 MAIL ADDRESS: STREET 1: P O BOX 22587 CITY: JACKSON STATE: MS ZIP: 39225-2587 FORMER COMPANY: FORMER CONFORMED NAME: MODERN DIXIE CORP DATE OF NAME CHANGE: 19700410 10-K 1 DIXIE NATIONAL CORPORATION 1995 FORM 10-K. 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended Commission file number DECEMBER 31, 1995 0-3296 DIXIE NATIONAL CORPORATION (Exact Name Of Registrant As Specified In Its Charter) MISSISSIPPI 64-0440887 (State or other jurisdiction (I.R.S. employer of incorporation or organization) identification no.) 107 The Executive Center Hilton Head Island, South Carolina 29928 (Address of Principal Executive Office) Registrant's telephone number, including area code: 803-785-7850 Former name, former address and former fiscal year, if changed from last report: 3760 I-55 North P.O. Box 22587, Jackson, Mississippi, 39225 (Former Address) Securities registered pursuant to section 12(g) of the Act: Common Capital Stock par value $1 per share (Title Of Class) INDICATE BY CHECK MARK WHETHER THE REGISTRANT: (1) HAS FILED ALL REPORTS REQUIRED TO BE FILED BY SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH FILING REQUIREMENTS FOR THE PAST 90 DAYS. YES X NO ---- ---- INDICATE BY CHECK MARK IF DISCLOSURE OF DELINQUENT FILERS PURSUANT TO ITEM 405 OF REGULATION S-K IS NOT CONTAINED HEREIN, AND WILL NOT BE CONTAINED, TO THE BEST OF REGISTRANT'S KNOWLEDGE, IN DEFINITIVE PROXY OR INFORMATION STATEMENTS INCORPORATED BY REFERENCE IN PART III OF THIS FORM 10-K OR ANY AMENDMENT TO THIS FORM 10-K. / / AS OF APRIL 3, 1996, 13,097,661 COMMON SHARES WERE OUTSTANDING, AND THE AGGREGATE MARKET VALUE OF THE COMMON SHARES (BASED UPON THE CLOSING AVERAGE OF THE BID AND ASKED PRICES ON THE OVER-THE-COUNTER MARKET) OF DIXIE NATIONAL CORPORATION HELD BY NONAFFILIATES WAS APPROXIMATELY $8,186,038. DOCUMENTS INCORPORATED BY REFERENCE NONE 2 PART I ITEM 1 - BUSINESS (a) GENERAL DEVELOPMENT OF BUSINESS Dixie National Corporation ("Corporation") was organized in 1966 as a Mississippi corporation. Until the sale on October 2, 1995 of its 99.3% owned subsidiary, Dixie National Life Insurance Company ("Dixie Life"), a Mississippi corporation organized in 1965, the Corporation was an insurance holding company primarily engaged in the life insurance business. Prior to the sale of Dixie Life, virtually all of the Corporation's consolidated revenues were represented by premium income and net investment income generated in Dixie Life's insurance operations. For the year ended December 31, 1995, the Corporation on a consolidated basis had total revenues of $5,032,537 and a net loss of $6,849,572. Through its wholly-owned subsidiary, Text Retrieval Systems, Inc. ("TRS"), a Florida corporation acquired on April 2, 1996, the Corporation is now primarily engaged in publishing electronic reference libraries that link related data sources for convenient access by personal computers. The Corporation's other assets include cash, lease receivables, real estate, and a 16% ownership interest in Phoenix Medical Management, Inc. ("PMM"), an Arizona corporation engaged in the ownership and operation of a pain care facility. The Corporation's future business plan contemplates the acquisition, ownership, and operation of companies primarily engaged in applied technology. The Corporation proposes to finance its acquisitions with its own funds, issuances of its Common Stock, and, to the extent feasible and appropriate, borrowings and public or private financings. For further information, see "Recent Developments," below and "(c) Narrative Description of Business." The term "Corporation" as used herein includes the Corporation and its subsidiaries as the context indicates. During December 1995, the Corporation relocated its executive offices from Jackson, Mississippi to Hilton Head Island, South Carolina. Its new address is 107 The Executive Center, Hilton Head Island, South Carolina, 29928 (telephone: 803-785-7850). RECENT DEVELOPMENTS SALE OF DIXIE LIFE AND SATISFACTION OF INDEBTEDNESS On October 2, 1995, the Corporation completed the sale of Dixie Life to Standard Life Insurance Company of Indiana ("Standard"). Dixie Life represented virtually all of the Corporation's principal assets and operations. The selling price of the Corporation's interest in Dixie Life to Standard was $7,389,086, of which $3,646,468 was in cash. The Corporation used $1,720,000 of the cash proceeds to repay its Subordinated Convertible Notes and to purchase from Dixie Life lease receivables of $503,258. Standard canceled a $3,688,746 note payable of the Corporation held by a subsidiary of Standard. The Corporation also received accounts receivable of $53,872, all of which have been written off as uncollectible at December 31, 1995. Standard is obligated to pay $15,000 per month rent to Vanguard, Inc. ("Vanguard"), a wholly-owned subsidiary of the Corporation through December 31, 1996, the expiration date of an existing lease on the office building previously occupied by the Corporation and Dixie Life. The obligation will terminate upon the earlier sale of the building. 2 3 The sale of Dixie Life resulted in a loss of $4,174,535 ($.394 per share). The loss on the sale is reported in a manner substantially the same as discontinued operations. The Corporation continues to report insurance operations in the same manner as prior to the measurement date of March 6, 1995. Accounting Principles Board Opinion No. 30 (APB 30) calls for reporting the operations of discontinued operations as a single net amount in the statement of operations, but in Management's opinion, reducing virtually all of the Corporation's operations to a single amount in the statement of operations would not be meaningful to readers of the Corporation's financial statements. The Corporation has entered into another line of business and does not expect to reenter the insurance business. Beginning on January 1, 1996, the Corporation will report its insurance operations as discontinued operations in accordance with APB 30. (See Note 11 of Notes to Consolidated Financial Statements). The sale of Dixie Life was approved by the Corporation's Shareholders at an annual meeting held on September 19, 1995 and is described in detail in the Corporation's Proxy Statement dated September 5, 1995 for that meeting. ACQUISITION OF TRS On April 2, 1996 the Corporation completed the acquisition of 100% of the outstanding stock of TRS, a privately-held corporation based in Ponte Vedra Beach, Florida. 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 publishes electronic reference libraries that link related data sources for convenient access by personal computers. The electronic libraries, often containing thousands of pages, are connected by hypertext cross-reference links. This permits users to access massive documents while avoiding time-consuming manual research. One of the latest TRS products is an employer's compliance library which links all federal employment laws and related regulations to a compendium of state statutes and regulations. Other TRS libraries include comprehensive compliance data for the retail industry and public housing markets. 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 products. TRS currently has 20 employees including 3 software writers and 12 marketers. As of June 30, 1995, the end of its fiscal year, TRS had total assets of $515,295, and for the year then ended revenues of $45,043, and a net loss of $69,342. The Corporation is reporting its acquisition of TRS in this Form 10-K Annual Report in lieu of filing a separate Form 8-K report for the acquisition. Consistent with the provisions of Form 8-K, the Corporation will file a Form 8-K as soon as practicable, but not later than June 16, 1996, to provide financial statements of TRS as required for an acquired business. ACQUISITION AND WRITE-DOWN OF PMM As previously reported in the Corporation's Form 10-K Annual Report for the year ended December 31, 1994 and its Form 10-Q quarterly reports ended March 31 and June 30, 1995, and as further discussed in the Corporation's Proxy Statement dated September 5, 1995 (see above), the Corporation entered into an 3 4 agreement with Universal Management Services ("UMS"), a Nevada corporation, as of October 27, 1994 ("UMS Agreement"). On April 20, 1995, the Corporation and UMS entered into an amended and restated agreement effective as of March 24, 1995 ("Second Amended and Restated UMS Agreement") which provided that UMS had certain rights, since expired, to assist the Corporation in placing shares of the Corporation's Common Stock. In connection with the Second Amended and Restated UMS Agreement, on June 29, 1995, the Corporation issued 2,000,000 shares of its Common Stock in exchange for 16% of the outstanding common shares of PMM, a privately-owned company, and 100,000 shares of its Common Stock for an option to acquire the remaining 84% of the common shares of PMM for 10,400,000 additional shares of the Corporation's Common Stock. The 84% option was relinquished by the Corporation in July 1995. At the time that the Corporation acquired its 16% interest in PMM, it had intended to enter into the health care industry, and PMM represented its initial investment in a health care company. The Corporation understood that several pain care facilities were to be opened by PMM in Louisiana and the southwest, however, those developments have not transpired. Currently, PMM operates one pain care facility in Phoenix, Arizona. Due to the negative equity recorded on the PMM December 31, 1995 unaudited financial statements, and in accordance with Financial Accounting Standard 115 (FAS 115), the Corporation has written its investment in PMM down to zero. This results in a charge to current earnings of $1,051,217. See "Investment in PMM under (c) Narrative Description of Business." SALE OF INVESTMENT IN ALANCO STOCK The UMS Agreement provided, among other things, that UMS would assist the Corporation in locating potential investors for its Common Stock. On November 29, 1994, the Corporation received common stock of Alanco Environmental Resources, Inc. ("Alanco") having a market value of $2,000,000 in consideration for the sale, with UMS' assistance, of 2,000,000 shares of the Corporation's Common Stock ("November Transaction"). This transaction has been previously reported and is more fully discussed in the annual and quarterly reports and the Corporation's Proxy Statement dated September 5, 1995. Alanco is a publicly-traded company that files periodic reports under the Securities Exchange Act of 1934. Its Form 10-K for the fiscal year ended June 30, 1995 states that Alanco's business segments include marketing, designing and manufacturing of air pollution control technology; restaurant equipment marketing; insurance claims adjusting; and mineral properties ownership. Alanco's Form 10-Q for the quarter ended September 30, 1995 indicates that on that date it had 30,597,932 shares of common stock outstanding. In December 1995 the Corporation sold 75,000 of its shares of Alanco stock in the open market and realized a $10,020 profit. See Note 16 of Notes to Consolidated Financial Statements. During the first quarter of 1996, the remaining Alanco shares owned by the Corporation were sold in open market transactions resulting in a $1,019,020 profit to the Corporation. FUTURE BUSINESS PLANS The acquisition of TRS marks the entry of the Corporation into the applied technology area which offers strong growth potential in the Board's view. The Corporation is also considering other lines of business, but does not expect to reenter the life insurance business. 4 5 (b) FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS The Corporation's prior insurance operations represent the only material industry segment in which the Corporation was engaged during the periods included in the Consolidated Financial Statements contained herein. (c) NARRATIVE DESCRIPTION OF BUSINESS PRIOR INSURANCE OPERATIONS Dixie Life traditionally offered various forms of life, health and annuity insurance products, primarily designed for specialized insurance markets. A significant part of Dixie Life's business involved the sale of accident and health policies. Dixie Life sold virtually all of its accident and health business in late 1995 and mid-1994. Life insurance policies sold in the final expense, or burial market, included fixed premium interest sensitive policies that provided for increasing death benefits as well as traditional whole life policies. These policies were designed to cover expenses such as funeral, last illness, monument and cemetery lot. Dixie Life's policies sold in other markets included interest sensitive and traditional whole life policies and forms of term policies. The interest sensitive and whole life policies included cash values which could have been borrowed by the policyholder. Dixie Life issued policies on both a participating and non-participating basis. See Note 8 of Notes to Consolidated Financial Statements. The life insurance industry is highly competitive with over 2,000 life insurance companies nationwide. Dixie Life was a relatively small, essentially regional life insurance company that competed with larger, more widely known insurance companies. Dixie Life's policies were offered through non-exclusive sales agents compensated on a commission basis. A relatively small number of Dixie Life's marketing directors generated a significant amount of Dixie Life's premium income. STATUTORY SURPLUS AND ACCOUNTING As an insurance company, Dixie Life is subject to regulations and supervisions by the insurance department of each of the jurisdictions in which it is licensed to do an insurance business. Among other things, it must maintain minimum levels of capital and surplus (Statutory Surplus), as required by the insurance laws and regulations of the insurance company's state of domicile and the various other states in which it operates. Statutory accounting practices, as prescribed by the Mississippi Department of Insurance, differ from generally accepted accounting principles ("GAAP") in several respects. The most significant difference is that statutory accounting practices require that costs incurred in writing new insurance business be expensed as paid, while generally accepted accounting principles require the capitalization of such costs, which are then amortized over the expected life of the insurance products sold. The principal such first year cost expensed in its entirety is commissions, which are significantly greater in the first year compared to renewal commissions. The excess of first year commissions over renewal commissions is deferred under generally accepted accounting principles, as are other costs associated with the issuance of a policy. Because the high first year costs associated with issuance of a policy are expensed under statutory accounting practices, high levels of new business create drains on statutory net income and therefore Statutory Surplus. Dixie Life experienced increased levels of new business for several years through 1992, creating a strain on Statutory Surplus. However, primarily as a result of the sale of Dixie Life's accident and health business and a 1993 agreement by Dixie Life to cease writing new business in a particular state, the trend did not continue in 1994 and 1993. In order to write an increasing amount of new business while continuing to meet the statutory requirements of the states in which it conducted its insurance operations, it was necessary 5 6 for Dixie Life to utilize various forms of surplus relief. The principal source of surplus relief since 1989 had been financial reinsurance agreements, which for GAAP purposes are treated as financing arrangements, but for statutory accounting purposes provide reserve credits that, in equal amount, increase Statutory Surplus. INVESTMENTS Dixie Life is required to invest its assets in accordance with applicable provisions of the Mississippi insurance law. The composition of Dixie Life's invested assets at December 31, 1994 is shown in Note 3 of Notes to Consolidated Financial Statements. INVESTMENT IN PMM PMM was formed in November 1993 to engage in the ownership and operation of health care facilities specializing in pain care. The Corporation understands that PMM intends to develop a proprietary network of medical facilities that specialize in the comprehensive treatment of patients seeking relief of chronic pain. Each facility is to be designed and equipped to accommodate a multi-modality pain management, psychological and physical rehabilitation program, as well as to accommodate other non-affiliated surgeons who will perform their own "non-pain related" surgical procedures at these facilities. PMM currently has one medical facility open and operating in Phoenix, Arizona. PMM had informed the Corporation that plans for the Lafayette and New Orleans clinics had been postponed indefinitely in favor of development of additional clinics in Arizona and that the Phoenix clinic, due in part to a delay in obtaining Medicare approval of the facility, was not yet meeting anticipated revenue projections. Although the Corporation relinquished the 84% Option in July 1995, PMM shareholders retain the 100,000 shares of the Corporation's Common Stock they received in exchange for the 84% Option. In view of the write-down of its investment in PMM, the uncertain prospects for PMM's business, and the Corporation's future business plan, it is unlikely that the Corporation will seek to increase its investment in PMM. At this time, the Corporation is reexamining its PMM investment but has made no decision as to its retention. The Corporation also is informed that Alanco and two unaffiliated individuals hold a minority interest in PMM. John E. Haggar, who is a Director of the Corporation, was Chief Financial Officer and a director of UMS until June 1995. On June 1, 1995 Mr. Haggar became an employee of Alanco, and in July 1995 became Alanco's Treasurer. Alanco owned 10% of PMM prior to the Corporation's acquisitions of its 16% interest. In that acquisition, the Corporation issued 200,000 shares of its Common Stock to Alanco in exchange for shares of PMM owned by Alanco. James G. Ricketts, who is also a Director of the Corporation, was Chairman of the Board of Directors of Alanco. TRS The acquisition of TRS and a description of its business and operations including summary financial information is set forth under "(a) General Development of Business - Recent Developments," above. OTHER As of March 31, 1996, the Corporation had $3,605,773 of cash and marketable securities. It also has $485,299 of lease receivable . FUTURE BUSINESS PLANS 6 7 The Corporation is exploring several potential business opportunities, principally in applied technology and is engaged in discussions concerning companies that the Corporation may have an interest in acquiring. However, these discussions are essentially in their preliminary stages and no agreements have been reached as to any further acquisitions. The Corporation's business plan contemplates the operation as well as the ownership of businesses it may acquire in the future. EMPLOYEES At December 31, 1995, the Corporation had four employees including officers. See "Recent Developments" above for sale of insurance business. ITEM 2 - PROPERTIES Vanguard continues to own the previous home office of the Corporation, a two-story building located in Jackson, Mississippi. Under the terms of the sale of Dixie Life, Standard is obligated to pay $15,000 per month to Vanguard on an existing lease expiring December 31, 1996 or until sale of the building. The Corporation is currently seeking to sell the building. ITEM 3 - LEGAL PROCEEDINGS There are no material pending legal proceedings to which the Corporation or any of its subsidiaries are a party or to which any of the Corporation's property is subject. ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Not applicable. 7 8 PART II ITEM 5 - MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The Corporation's Common Stock is traded in the over-the-counter market and is quoted on the NASDAQ Small Cap market system under the symbol DNLC. The tables below set forth the reported high and low sales price as reported by the National Quotation Bureau, Inc. for the quarters indicated. This information does not include retail markups, markdowns, or commissions.
1995 --------------------------------------------- High Low -------------------- -------------------- Quarter Bid Asked Bid Asked ------- ----- ----- ----- ----- First 1 1 1/32 13/16 15/16 Second 1 1 1/32 13/16 15/16 Third 7/8 1 1/2 5/8 Fourth 1 1 5/16 3/8 5/8
1995 --------------------------------------------- High Low -------------------- -------------------- Quarter Bid Asked Bid Asked ------- ----- ----- ----- ----- < First 1 1 1/4 1 1 3/16 Second 15/16 1 1/16 13/16 15/16 Third 9/16 3/4 1/2 11/16 Fourth 3/4 7/8 1/2 5/8
No dividends were paid on the Corporation's Common Stock during the last two years. The number of holders of record of Common Stock of the Corporation on March 8, 1996 was 2,438. ITEM 6 - SELECTED FINANCIAL DATA Selected consolidated financial data for the Corporation and its subsidiaries is set forth in the following table:
1995 1994 1993 1992 1991 ------------ ---------- ----------- ----------- ----------- FOR THE YEAR ENDED DECEMBER 31: REVENUES Premiums $ 2,485,974 $ 9,516,157 $19,499,289 $17,178,510 $15,146,819 Net Investment Income 1,950,874 2,133,635 2,005,075 2,157,848 2,410,940 Realized & unrealized investment gains (losses) 503,600 1,551 25,580 (24,494) 2,029 other 92,084 - - - - --------- ---------- ---------- ---------- ---------- Total $ 5,032,537 $11,651,343 $21,529,944 $19,311,864 $17,559,788 ========= ========== ========== ========== ========== NET INCOME (LOSS) $(6,849,572) $(2,554,779) $ (957,138) $ 848,984 $ 1,566,934 ========== ========== =========== ========== ==========
8 9 PER COMMON SHARE AMOUNTS Primary and fully diluted Net income (loss) $ (.65) $ (.39) $ (.15) $ .13 $ .24 ========= ========== ========== =========== ========== AT YEAR-END: TOTAL ASSETS $5,103,923 $44,577,452 $56,255,734 $55,540,644 $54,240,107 ========= ========== ========== ========== ========== NOTES PAYABLE AND OTHER DEBT $ 448,456 $ 6,103,839 $ 6,253,670 $ 7,003,517 $ 7,520,447 ========= ========== ========== ========== ==========
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following should be read in conjunction with the Selected Financial Data and the Consolidated Financial Statements and notes thereto appearing elsewhere in this report. LIQUIDITY AND CAPITAL RESOURCES The sale of Dixie Life to Standard was completed on October 2, 1995 and solved significant liquidity problems which the Corporation had faced for several years. These problems were discussed in previous Form 10-K Annual Reports and Form 10-Q Quarterly Reports of the Corporation and in its Proxy Statement for the 1995 Annual Meeting of Shareholders held on September 19, 1995, at which the sale of Dixie Life was approved by its Shareholders. Immediately following the sale, the Corporation had consolidated assets of $5,749,388 including cash of $1,626,128 and marketable equity securities of $1,998,470. Other assets included an investment in PMM ($1,051,217) lease receivables ($503,258) and property and equipment ($390,243). The Corporation's only significant liability was a mortgage note payable of $499,511 on an office building As of December 31, 1995, the Corporation had consolidated assets of $5,103,923 including cash of $1,377,869 and marketable equity securities of $2,227,904 represented by Alanco common stock. Other assets included the investment in PMM which has been written down to a zero value; lease receivables of $471,272; investment in TRS of $137,946; goodwill and an option in TRS of $161,970; and net property and equipment of $410,935. The Corporation continues to have only the one significant liability in the form of a mortgage note payable by Vanguard of $428,835 on an office building. During the first quarter of 1996, the Corporation sold all remaining shares of Alanco common stock resulting in a $1,019,020 profit to the Corporation. At December 31, 1995, Vanguard owed a bank approximately $428,835 under a mortgage loan secured by the former home office building of the Corporation and Dixie Life. Under a lease agreement, Standard is obligated to pay Vanguard rent sufficient to cover the debt service under the mortgage until December 31, 1996. At December 31, 1995 and 1994, the Company's investments are reported in accordance with the provisions of Statement of Financial Accounting Standards No. 115 (FAS 115) which was issued by the Financial Accounting Standards Board in 1993 and effective for 1994 financial statements. 9 10 RESULTS OF OPERATIONS On October 2, 1995, the Corporation completed the sale of Dixie Life, which was 99.3% owned by the Corporation, to Standard. Prior to its sales, Dixie Life represented virtually all of the Corporation's assets and operations. The selling price of the Corporation's interest in Dixie Life to Standard was $7,389,086, of which $3,646,468 was in cash. The Corporation used $1,720,000 of the cash proceeds to repay Subordinated Convertible Notes and to purchase from Dixie Life lease receivables of $503,258. Standard canceled a $3,688,746 note payable of the Corporation held by a subsidiary of Standard. The Corporation also received accounts receivable of $53,872, all of which have been written off as uncollectible at December 31, 1995. The sale resulted in a loss of $4,174,535 ($.394 per share). The sale of Dixie Life constitutes discontinuance of the life insurance business by the Corporation. The loss on the sale is reported in a manner substantially the same as discontinued operations. The Corporation continues to report insurance operations in the same manner as prior to the measurement date of March 6, 1995. Accounting Principles Board Opinion No. 30 (APB 30) calls for reporting the operations of discontinued operations as a single net amount in the statement of operations, but in Management's opinion, reducing virtually all of the Corporation's operations to a single amount in the statement of operations would not be meaningful to readers of the Corporation's financial statements. The Corporation has entered into another line of business. Beginning January 1, 1996, the Corporation will report its insurance operations as discontinued operations in accordance with APB 30. The Company incurred a net loss of $ 6,849,572 in 1995 compared to a net loss of $2,554,779 in 1994 and a net loss of $957,138 in 1993. On a per-share basis the net loss for 1995 was $.65 compared to a net loss of $.39 in 1994 and a net loss of $.15 in 1993. Total revenues for 1995 were $5,032,537 compared to $11,651,000 in 1994 and $21,530,000 in 1993. Premium income in 1995 was $2,485,974 compared to 1994 premiums of $9,516,000 and $19,499,000 premiums in 1993. The decrease in premiums in 1995 was due primarily to the sale of Dixie Life. The composition of premium income in each of the three years ended December 31, 1995 was as follows:
Life and Accident Annuity and Health Total --------- ---------- ------------ 1995 2,485,974 - 2,485,974 1994 4,214,000 5,302,000 9,516,000 1993 5,314,000 14,185,000 19,499,000
Net investment income was $1,950,874 in 1995 compared to $2,133,635 in 1994 and $2,005,000 in 1993. Total benefits and expenses were $12,056,626 in 1995, $14,236,000 in 1994 and $22,700,000 in 1993. In 1995, every expense category experienced a significant decrease. The decreases in benefits and claims to policyholders, amortization of deferred policy acquisition costs and commissions resulted from the sale of Dixie Life Insurance Company. ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The financial statements and supplementary data called for by this Item are set forth immediately following the Index to Financial Statements and Financial Statement Schedules at page 19. 10 11 ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE There have been no disagreements with the Corporation's accountants, Horne CPA Group. PART III ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The directors of the Corporation are:
Director Name Age Since ------------------ --- ----- Marcia C. Cohen 47 1995 T. H. Etheridge 62 1966 John E. Haggar 53 1995 Robert B. Neal 58 1970 Dennis Nielsen 55 1995 Joe D. Pegram 55 1991 S. L. Reed, Jr. 59 1980 James G. Ricketts 57 1995 Herbert G. Rogers, III 53 1992
Each director holds office until the next annual meeting of shareholders or until a successor shall be duly elected and qualified. The executive officers of the Corporation are:
Executive Officer Name Age Since ---- --- ----- S. L. Reed, Jr. 59 1995 Chairman Chief Executive Officer G. Thomas Reed 46 1995 President Chief Operating Officer David E. Williams 46 1996 Vice President Finance Chief Financial Officer Jerry M. Greer 52 1970 Secretary
The Corporation's officers serve at the pleasure of the Board of Directors. 11 12 BUSINESS EXPERIENCE The principal occupations and business experience for the last five years or more of the directors and executive officers of the Corporation are as follows: Marcia C. Cohen - Senior Vice President, Corporate Development of Montgomery General Hospital, Olney, Maryland. Formerly co-owner and Executive Vice President of Imaging and Surgery Centers of America, Boston, Massachusetts which was sold in 1992. Ms. Cohen was retired thereafter until 1994 when she joined Montgomery General Hospital. Ms. Cohen serves as a member of the Board of Trustees of Baltimore Medical Systems, Inc. She serves as a member of the Finance and Business Strategy Committee and the Personnel and Compensation Committee. T. H. Etheridge - President and Chief Executive Officer of Choctaw Maid Farms, Inc., (a food processing and marketing company), of Carthage, Mississippi; Chairman of the Board of Central Industries and Director of Southern Hens, Inc. He serves as a member of the Executive Committee. Jerry M. Greer - Secretary of the Corporation; Formerly Senior Vice President. John E. Haggar - From December 1994 until June 1995 Chief Financial Officer and Director of UMS On June 1, 1995 Mr. Haggar became an employee of Alanco, and in July 1995 became Alanco's Treasurer. Previously, Mr. Haggar was a sole practitioner engaged in providing accounting services to the general public. He is a member of the American Institute of Certified Public Accountants and the Washington Society of Certified Public Accountants. Mr. Haggar serves as Chairman of the Audit and Compliance Committee and as a member of the Personnel and Compensation Committee. Robert B. Neal - Chief Executive Officer of the Corporation until February 1995, President until October 1995. Mr. Neal was Chairman of the Board and President of Dixie Life until October 1995, and since then has served as Vice Chairman of Dixie Life. Dennis Nielsen - Self-employed as a business consultant offering assistance to businesses on restructuring, financing, or assisting with possible mergers or acquisitions. Previously he was owner of P&N, Inc. and Hufburn Sales, Inc., both automobile dealerships. Mr. Nielsen serves as Chairman of the Finance and Business Strategy Committee and as a member of the Nominating and Stockholder Relations Committee. Joseph D. Pegram - Attorney. He serves as Chairman of the Nominating and Stockholder Relations Committee and as a member of the Audit and Compliance Committee. G. Thomas Reed - President and Chief Operating Officer of the Corporation since October 1995. Previously had a management consultant practice, was a Private Banking Manager for First Union National Bank, and Administrative Vice President and Chief Operating Officer of Compudata Services, Inc., a software development and service company. No relation to the Chairman of the Corporation. S.L. Reed, Jr. - From January 1995, Chairman of the Board of Directors and Chief Executive Officer of the Corporation. President of Reed Enterprises, Inc. (an aquaculture and investment company) of Belzoni, Mississippi; Director of Delta Industries, Inc., Producers Feed Co. and Venture SystemSource, Inc. He serves as Chairman of the Executive Committee. James G. Ricketts - President and Chief Executive Officer of Technology Systems International of Scottsdale, Arizona, a corporation founded to develop and sell high-technology security systems to the corrections industry. He also serves as an independent consultant to correctional agencies throughout the United States and also serves as an expert witness in corrections litigation. Previously he served as Director 12 13 of Arizona Department of Corrections, Executive Director of the Colorado Department of Corrections and deputy Secretary to the Florida Department of Corrections. In addition, he was the past Chairman of the Board of Directors of Alanco. Dr. Ricketts serves as a member of the Executive Committee. Herbert G. Rogers, III - President of Rogers Agency, Inc., Rogers LP-Gas Company, Rogers Investments, Inc., Mississippi Realty, Inc. and Roell Realty Corp. of New Albany, Mississippi; Director of the Nashoba Bank and Chairman of the Board of the Gentry Furniture Corporation. He serves as Chairman of the Personnel and Compensation Committee and as a member of the Finance and Business Strategy Committee. David E. Williams - Vice President Finance and Chief Financial Officer of the Corporation since April 1, 1996. Previously engaged as a sole practitioner of a Certified Public Accounting practice. He is a Certified Public Accountant as well as a Certified Management Accountant. He is a member of the American Institute of Certified Public Accountants, the New Jersey State Society of Certified Public Accounts, the Florida State Society of Certified Public Accountants, and the Institute of Management Accountants. 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 Exchange Act of 1934 and certain rules thereunder. COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934 As discussed under "Item 11. Executive Compensation, " 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 have not filed Forms 4 or 5 as to the grant of those options on a timely basis. The Corporation is advised that the required Forms, which may include other purchases during 1995, are in the process of being 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. The Corporation is instituting procedures designed to avoid the recurrence of any such filing failures in the future. ITEM 11 - EXECUTIVE COMPENSATION The following Summary Compensation Table sets forth, for each of the last three years, information concerning the total compensation paid or awarded to the Corporation's Chief Executive Officer and all other executive officers whose total compensation exceed $100,000, for services rendered in all capacities to the Corporation and its subsidiaries. SUMMARY COMPENSATION TABLE
Name and Principal Annual Compensation All Other Position Year Salary Bonus Compensation -------- ---- ------ ----- ------------ S. Leroy Reed, Jr. 1995(1) $ 25,346 None Chairman and 1994 $ None Chief Executive Officer 1993 $ None Robert B. Neal 1995 (2) $ 92,071 None Former President 1994 $125,269 None $2,505(3) 1993 $125,269 None $2,575(3)
(1) Commenced employment January 1995. (2) Terminated employment as Chief Executive Officer in October 1995. (3) Includes the Corporation's contributions under its qualified profit sharing plans for employees, including officers. 13 14 At a meeting held on March 24, 1995, the Corporation's Board of Directors approved granting to each non-employee director an option to purchase 5,000 shares of the Corporation's Common Stock at the average of the bid and asked price as quoted by NASDAQ on April 3, 1995. Options to purchase 25,000 shares were also granted to G. Thomas Reed, President, on April 17, 1995. The options may be exercised 20% per year beginning March 31, 1996 and expire March 31, 2000. If a person ceases being a director of the Corporation, his option will be canceled 30 days thereafter. COMPENSATION OF DIRECTORS Directors who are also officers of the Corporation receive no additional compensation for serving on the Corporation's Board or committees thereof. All other Directors are paid $250 per day for each day they attend a Board meeting. They are also paid $400 base monthly fee. As a group, Directors who were not officers were paid $54,036 during 1995. ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT (a) 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 April 2, 1996, of persons known by the Company to be holders of 5% or more of such common stock. Information as to the number of shares beneficially owned has been furnished by the persons named in the table.
Name and Address Shares of Beneficial Beneficially Percent Owner Owned of Class ---------------- ------------ -------- Constance Gamble Grewell 2,064,770(1) 15.5% 100 Executive Way Ponte Vedra Beach, FL 32080 S. L. Reed, Jr. 722,286(2)(3) 5.4% 107 The Executive Center Hilton Head Island, SC 29928
(1) Constance Gamble Grewell acquired her shares in the acquisition of TRS by the Corporation. She was the owner of 616 shares of TRS outstanding common stock. (2) Includes shares issuable upon exercise of stock options. (3) Includes shares held in name of spouse, minor child, or other relatives or persons as to some of which shares the owner has shared voting or investment power, but to which beneficial ownership is disclaimed. 14 15 (b) SECURITY OWNERSHIP OF MANAGEMENT The following table sets information as to the beneficial ownership of the Corporation's Common Stock as of April 2, 1996 by each director, each executive officer named in the Summary Compensation Table, and by all directors and executive officers as a group.
Shares Name of Beneficially Percent Beneficial Owner Owned of Class ---------------- ------------ -------- Marcia C. Cohen 5,000(2) Less than 1% T. H. Etheridge 216,827(1)(2) 1.6 % Robert B. Neal 410,198(1)(2) 3.0 % Joe D. Pegram 28,043(2) Less than 1% S. L. Reed, Jr. 722,286(1)(2) 5.4 % Herbert G. Rogers, III 107,128(1)(2) Less than 1% John E. Haggar 7,000(2) Less than 1% Dennis Nielsen 12,200(2) Less than 1% James G. Ricketts 20,000(2) Less than 1% Directors and executive officers as a group (12 persons) 1,685,360(2) 12.7%
(1) 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. (2) Includes shares issuable upon exercise of stock options: All Non-Employee Directors have been issued options to purchase 5,000 shares of Dixie stock. G. Thomas Reed, President, has been granted options to purchase 25,000 shares of Dixie stock. S. Leroy Reed, Chairman of the Board and Chief Executive Officer was granted options to purchase 50,000 shares of Dixie stock on February 22, 1996. 15 16 ITEM 13 - 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. American Capital Insurance Company, a former beneficial owner of more than 5% of the Corporation's Common Stock, held $1,000,000 of the Notes, and Robert B. Neal, a director and former 5% owner of the Corporation, held $100,000 of the Notes. The relationships of John E. Haggar and James G. Ricketts, both directors of the Corporation, with Alanco, one of the stockholders of PMM, is described under "(c) Narrative Description of Business - Investment in PMM." PART IV ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) 1 and 2. Financial Statements and Financial Statement Schedules of Dixie National Corporation and Subsidiaries. See separate Index to Financial Statements and Financial Statement Schedules on page 19. 3. Exhibits
Exhibit Number Description Incorporation by Reference to ------ -------------------------------------- ---------------------------------------- (2)(a) Restated Agreement dated as of October Registrant's Quarterly Report on 27, 1994 between Dixie National Form 10-Q for the nine months Corporation and Universal Management ended September 30, 1994. Services (2)(a)(1) Seconded Amended and Restated Registrant's Quarterly Report on Agreement dated as of March 24, 1995 Form 10-Q for the three months between Dixie National Corporation and ended March 31, 1995 Universal Management Services (2)(b) Second restated stock purchase Proxy Statement relating to the Annual agreement restated as of August 30, meeting of Shareholders held on 1995, effective as of April 18, 1995, September 19, 1995. among Standard Life Insurance Co. of Indiana, Dixie Life Insurance Co., and Dixie National Corporation.
16 17 (2)(c) Accounts receivable financing agreement dated as of February 26, 1996 between Dixie National Corporation and Text Retrieval Systems, Inc. including amended restated option agreement. (3)(a)(1) Articles of Incorporation as Registrant's Annual Report on amended and restated Form 10-K for the year ended December 31, 1985. Exhibit (3a) (3)(a)(2) Articles of Amendment to the Registrant's Annual Report of Articles of Incorporation of Form 10-K for the year ended Dixie National Corporation dated December 31, 1994. Exhibit May 23, 1986 (3)(a)(2). (3)(a)(3) Articles of Amendment to the Registrant's Annual Report on Articles of Incorporation of Form 10-K for the year ended Dixie National Corporation dated December 31, 1994. Exhibit January 24, 1995 (3)(a)(2). (3)(b) By-Laws, as amended Registrant's Annual Report on Form 10-K for the year ended December, 31, 1990. Exhibit (3(b). (3)(b)(1) Amendment to Article III of Bylaws effective January 24, 1996 (3)(b)(2) Amendment to Article IV of Bylaws effective March 24, 1996 (4)(a)(1) Form of Dixie National Corporation Registrant's Current Report on Subordinated Convertible Callable Form 8-K dated April 30, 1993. Fixed Interest Rate Note Due May 1, 1995 (10)(a)* Incentive Stock Option Plan Registrant's Annual Report on of 1982 Form 10-K for the year ended December 31, 1990. Exhibit (10)(b)* Incentive Stock Option Plan Proxy Statement relating to of 1988 the Annual Meeting of Stockholders held on April 1, 1988. (10)(c)* 1995 Stock Option Plan Proxy Statement relating to the Annual Meeting of Stockholders held on September 19, 1995. (21) Subsidiaries of the Registrant (27) Financial Data Schedule
*Management contract or compensatory plan. 17 18 Registrant agrees to file with the Securities and Exchange Commission, upon request, copies of any instrument defining the rights of the holders of its consolidated long-term debt. Schedules other than those referred to above are omitted for the reason that they are not required, are not applicable, or the required information is shown in the financial statements or notes thereto, or is incorporated by reference. (b) Reports on Form 8-K The Corporation filed the following reports on Form 8-K during the last quarter of the year ended December 31, 1995:
Date of Current Report (or Amendment) Items Reported --------------------- ----------------------------------------------- October 2, 1995 Item 2. Acquisition or Disposition of Assets. Sale of Dixie National Life Insurance Company Item 4. Financial Statements, Proforma Financial Information and Exhibits. Second Restated Stock Purchase Agreement regarding sale of Dixie National Life Insurance Company. December 1, 1995 Item 5. Other Events. Relocation of Dixie National Corporation's principle office to Hilton Head Island, South Carolina.
(c) Exhibits required by Item 601 of Regulation S-K The exhibits listed in Item 14(a)3 of this report, and not incorporated by reference, follow "SIGNATURES." See "Exhibit Index." (d) Financial statement schedules required by Regulation S-X The financial statement schedules required by Regulation S-X, filed herewith, are identified in the Index to Financial Statements and Financial Statement Schedules on page 19. 18 19 DIXIE NATIONAL CORPORATION AND SUBSIDIARIES INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
PAGE ---- Report of independent certified public accountant .........................................................20 Consolidated balance sheets as of December 31, 1995 and 1994 ..............................................21 Consolidated statements of operations for the three years ended December 31, 1995 .......................................................................................22 Consolidated statements of stockholders' equity for the three years ended December 31, 1995 ...........................................................................23 Consolidated statements of cash flows for the three years ended December 31, 1995..........................................................................................24-25 Notes to Consolidated Financial Statements ................................................................26-37 Report of the independent certified public accountant on financial statement schedules ...........................................................................38 Schedule III - Condensed Financial Information of Registrant ..............................................39-42 Schedule VI - Reinsurance .................................................................................43 Schedule VIII - Valuation and Qualifying Accounts .........................................................44
19 20 INDEPENDENT AUDITOR'S REPORT To The Shareholders Dixie National Corporation Jackson, Mississippi We have audited the accompanying consolidated balance sheets of Dixie National Corporation and subsidiaries as of December 31, 1995 and 1994, and the related consolidated statements of operations, stockholders' equity and cash flows for each of the three years in the period ended December 31, 1995. These financial statements are the responsibility of the Company's management. Our responsibility is to report on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Dixie National Corporation and subsidiaries as of December 31, 1995 and 1994 and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1995, in conformity with generally accepted accounting principles. HORNE CPA GROUP Jackson, Mississippi March 7, 1996 20 21 CONSOLIDATED BALANCE SHEETS DIXIE NATIONAL CORPORATION
December 31, 1995 1994 ---- ---- ASSETS Investments Fixed maturities at amortized cost at December 31, 1994 (market approximately $13,631,000) $ - $17,332,660 Policy Loans - 3,060,185 Marketable equity securities 2,227,904 2,000,000 Government guaranteed student loans, less allowance for uncollectible loans of $464,603 at December 31, 1994 - 5,978,288 Short-term investments - 4,860,347 Cash and cash equivalents 1,377,869 459,109 ---------- ---------- TOTAL INVESTMENTS 3,605,773 33,690,589 Accounts and lease receivable, less allowance for doubtful accounts of -0- at December 31, 1995 and $195,885 at December 31, 1994 485,299 787,419 Accrued investment income - 412,705 Deferred policy acquisition costs, net - 6,626,230 Value of life insurance purchased, net - 1,589,356 Property and equipment less accumulated depreciation of $814,510 at December 31, 1995 and $1,482,500 at December 31, 1994 410,935 584,694 Other assets 601,916 886,459 ---------- ---------- TOTAL ASSETS $ 5,103,923 $44,577,452 ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY LIABILITIES Policy liabilities Future policy benefits - $27,538,803 Other policy claims and benefits payable - 240,766 Other policyholders' funds - 829,530 ---------- ---------- TOTAL POLICY LIABILITIES - 28,609,099 Notes payable and other debt 470,502 6,103,839 Income taxes - 3,599 Accrued liabilities and expenses 170,061 679,460 ---------- ---------- TOTAL LIABILITIES 640,563 35,345,997 STOCKHOLDERS' EQUITY Common Stock, $1 par value authorized 50,000,000 shares; issued 10,624,973 shares and 8,424,973 at December 31, 1995 and 1994, respectively; outstanding 10,597,661 shares and 8,394,973 shares at December 31, 1995 and 1994, respectively 10,597,661 8,394,973 Discount on Common Stock (996,222) - Retained earnings (deficit) (5,138,079) 1,711,493 Unrealized holding losses on investments available for sale - (925,011) ---------- ---------- TOTAL STOCKHOLDERS' EQUITY 4,463,360 9,181,455 ---------- ---------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 5,103,923 $44,577,452 ========== ==========
See accompanying notes to consolidated financial statements. 21 22 CONSOLIDATED STATEMENTS OF OPERATIONS DIXIE NATIONAL CORPORATION
Year Ended December 31 1995 1994 1993 ---- ---- ---- REVENUES Premiums $ 2,485,974 $ 9,516,157 $19,499,289 Net investment income 1,950,874 2,133,635 2,005,075 Realized investment gains (losses) 155,741 1,551 25,580 Unrealized investment gains 347,859 - - Other 92,089 0 0 ----------- ----------- ----------- TOTAL REVENUES 5,032,537 11,651,343 21,529,944 BENEFITS AND EXPENSES Benefits and claims to policyholders 1,495,591 6,573,216 12,573,809 Amortization of deferred policy acquisition costs and value of insurance purchased 699,285 1,420,943 2,506,419 Commissions, net 385,354 1,893,838 3,509,301 General expenses, net 2,491,339 2,187,114 2,510,047 Interest expense 436,204 449,550 571,026 Insurance taxes, licenses and fees 315,830 514,579 705,170 Loss on sale of accident and health business - 1,196,811 324,511 Provision for litigation settlement 1,007,271 - - Loss on sale of life insurance subsidiary 4,174,535 - - Loss on write-down of non-marketable security 1,051,217 - - ----------- ---------- ---------- TOTAL BENEFITS AND EXPENSES 12,056,626 14,236,051 22,700,283 ----------- ---------- ---------- LOSS BEFORE INCOME TAXES (7,024,089) (2,584,708) (1,170,339) Income tax benefit (expense) 174,517 29,929 213,201 ----------- ---------- ---------- NET INCOME (LOSS) $ (6,849,572) $(2,554,779) $ (957,138) ============ ========== =========== Primary and fully diluted net income (loss) per share $ (.65) $ (.39) $ (.15) ============ ========== ===========
See accompanying notes to consolidated financial statements. 22 23 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY DIXIE NATIONAL CORPORATION YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
Discount Unrealized Common on stock Retained Holding Stock Issued Earnings Losses Total ----- ------ -------- --------- ----- BALANCE DECEMBER 31, 1992 $6,394,973 $ 5,223,410 $ 11,618,383 Net loss for 1993 (957,138) (957,138) --------- ----------- ------------ BALANCE DECEMBER 31, 1993 6,394,973 4,266,272 10,661,245 Net loss for 1994 (2,554,779) (2,554,779) Unrealized holding losses on investments available for sale $(925,011) (925,011) Common Stock issued 2,000,000 2,000,000 --------- ----------- --------- ------------ BALANCE DECEMBER 31, 1994 $ 8,394,973 $1,711,493 $(925,011) $ 9,181,455 Net loss for 1995 (6,849,572) (6,849,572) Common stock issued 2,200,000 (996,222) 1,203,778 Recovery of holding losses on investments available for sale 925,011 925,011 Transaction in treasury stock 2,688 2,688 ---------- --------- ---------- --------- ----------- BALANCE DECEMBER 31, 1995 $10,597,661 $(996,222) $(5,138,079) $ 0 $ 4,463,360 ========== ========= ========== ========= ===========
See accompanying notes to consolidated financial statements. 23 24 CONSOLIDATED STATEMENTS OF CASH FLOWS DIXIE NATIONAL CORPORATION
Year ended December 31, 1995 1994 1993 ---- ---- ---- Cash flows from operating activities: Net income (loss) $(6,849,572) $(2,554,779) $ (957,138) Adjustments to reconcile net income to net cash provided (used) by operating activities: Unrealized gains on investments (347,859) - - Loss on write-off of non-marketable securities 1,103,778 - - Loss on sale of life insurance subsidiary 4,174,535 - - Loss on sale of accident and health business - 1,196,811 324,511 Increase (decrease) in policy liabilities (235,605) 2,155,070 2,952,775 Amortization of policy acquisition costs - 1,420,943 2,506,419 Increase (decrease) in deferred income taxes 123,884 (748,597) (278,991) Decrease in accrued liabilities (636,883) (149,625) (251,709) Policy acquisition costs deferred (307,364) (1,285,902) (3,642,818) (Increase) decrease in accounts receivable (137,826) 1,623,993 163,070 Depreciation 55,782 119,564 117,910 Other, net - (37,996) (199,712) Decrease in accrued investment income 412,705 - - Value of insurance purchased, net 699,285 - - ----------- NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES (1,945,140) 1,739,482 734,317 Cash flows from investing activities: Proceeds from investments sold or matured: Fixed maturities: Maturities 3,508,400 2,326,044 14,500 Calls - 890,845 2,472,358 Sales - 224,500 Repayment of policy and student mortgage loans 1,350,353 2,099,864 1,976,751 Cost of investments acquired: Investment in unconsolidated subsidiary (111,970) Fixed maturities (1,615,581) (8,458,904) (9,038,606) Policy and student loans (587,132) (952,404) (1,099,649) Temporary investments, net 4,192,867 (1,819,899) 8,472,377 Additions to property and equipment - (96,046) (20,557) Proceeds from sale of property and equipment 117,977 - 3,538 Proceeds from sale of life insurance subsidiary 1,350,640 - - Other assets 292,794 - - ----------- NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES 8,498,348 (5,786,000) 2,780,712 Cash flows from financing activities: Treasury stock (1,112) - - Proceeds from borrowing 428,835 1,515,000 Payments on debt (6,062,171) (149,831) (2,264,847) ----------- ---------- ----------- NET CASH USED BY FINANCING ACTIVITIES (5,634,448) (149,831) (749,847) ----------- ---------- ----------- NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS 918,760 (4,196,349) 2,765,182 Cash and cash equivalents at beginning of year 459,109 4,655,458 1,890,276 ----------- ---------- ----------- CASH AND CASH EQUIVALENTS AT END OF YEAR $ 1,377,869 $ 459,109 $ 4,655,458 ========== ========== ==========
24 25 CONSOLIDATED STATEMENTS OF CASH FLOWS DIXIE NATIONAL CORPORATION (CONTINUED) SUPPLEMENTAL CASH FLOW INFORMATION: Cash payments for income taxes $ 129,429 $ 718,668 $ 5,824 =========== =========== ========== Cash payments for interest $ 492,797 $ 505,318 $ 552,459 =========== =========== ========== SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES: Lease obligation incurred for new data processing equipment $ 8,061 =========== Notes issued in exchange for debentures $ 485,000 =========== Common Stock issued for equity securities of nonaffiliated company $ 2,000,000 ============ Sale of Dixie National Life Insurance Company: Cash sales price $ 1,350,640 Payment of convertible notes 1,792,570 Payment of note secured by stock 3,688,746 Repurchase of leases from subsidiary 503,258 Guaranty of receivables sold 53,872 ----------- $ 7,389,086 Less basis in subsidiary 11,583,621 ---------- Loss on sale (4,174,535) ========== Acquisition of non-marketable securities and options by issuance of capital stock: Acquired 16% of Phoenix Medical Management, Inc. for 2,000,000 shares of common stock and an option to acquire the remaining 84% for 100,000 shares of common stock Par value of stock issued 2,100,000 Discounted to book value 996,222 ---------- Recorded value of investment 1,103,776 ========== Acquired 35% of Text Retrieval Systems, Inc. for cash and an option to acquire the remaining 65% for 100,000 shares of common stock Par value of stock issued $ 100,000 ==========
See accompanying notes to consolidated financial statements. 25 26 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DIXIE NATIONAL CORPORATION DECEMBER 31, 1995 NOTE 1--SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation: The accompanying financial statements have been prepared in conformity with generally accepted accounting principles ("GAAP"). See note 11 as to the reporting of the life insurance operation, discontinued as of October 2, 1995, with the sale of the life insurance subsidiary. Principles of Consolidation: The consolidated financial statements include the financial statements of Dixie National Corporation (Corporation), its wholly-owned subsidiaries and Dixie National Life Insurance Company (Dixie Life), which was sold on October 2, 1995 (See Note11 - Sale of Insurance Business) and was approximately 99% owned by the Corporation. The interests of Dixie Life minority stockholders are not material. All significant intercompany accounts and transactions have been eliminated in consolidation. Investments: At December 31, 1995, the Company's investments are reported in accordance with the provisions of Statement of Financial Accounting Standards No. 115 (FAS 115) which was issued by the Financial Accounting Standards Board in 1993 and effective for 1994 financial statements. At December 31, 1995, marketable securities are classified as trading, which, under the provisions of FAS 115, are reported at market with unrealized market gains or losses being reflected in operations. Because of the provisions of an agreement with Universal Management Services (UMS) discussed in Notes 3 and 16, marketable securities are reported at cost at December 31, 1994. Policy loans are stated at the amounts loaned to policyholders and are collateralized by assignment of the cash value of underlying policies. Student loans are carried at cost less an allowance for uncollectible amounts. Short-term investments will be held to maturity and are due in one year or less and are carried at cost which approximate market. Cash and Cash Equivalents: Cash and cash equivalents include cash in banks and money-market investments which carry no withdrawal restrictions. Recognition of Premium Revenue and Related Expenses: Premiums for traditional life insurance contracts are reported as revenue over the premium-paying period of the policy. Premiums for fixed premium interest sensitive products are added to the policy account value and revenues for such products are recognized as charges to the account value for mortality, administration and surrenders (retrospective deposit method). Profits are also earned to the extent that investment income exceeds policy requirements. The related benefits and expenses are matched with revenues through the provision for future policy benefits and the amortization of deferred acquisition costs in a manner which recognizes profits as they are earned. Future Policy Benefits: The liability for future policy benefits interest sensitive products is represented by the policy account value. The liability for future policy benefits for all other life and health products is provided on the net level premium method based on estimated investment yields, mortality, morbidity, persistency and other assumptions. Assumptions are based upon Dixie Life's experience and industry experience, where appropriate, with provision for possible adverse deviation. 26 27 Deferred Acquisition Costs: The costs of acquiring new insurance business are deferred. Such deferred costs consist principally of excess first year sales commissions, as well as underwriting expenses and certain other expenses. Deferred acquisition costs for other than interest sensitive products are amortized with interest over an estimate of the premium-paying period of the policies in a manner which charges each year's operations in proportion to the receipt of premium income. For interest sensitive products, acquisition costs are amortized with interest in proportion to estimated gross profits. The assumptions used as to interest, withdrawals and mortality are consistent with those used in computing the liability for future policy benefits and expenses. Value of Life Insurance Purchased: Value of life insurance purchased is being amortized over 12 years, the expected life of the income stream. Property and Equipment: Property and equipment are stated at cost less accumulated depreciation. Depreciation is computed by the straight-line method over the estimated useful lives of these assets. Income Taxes: Deferred taxes are provided on a liability method whereby deferred tax assets are recognized for deductible temporary differences and operating loss and tax credit carryforwards and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax bases. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for changes in tax laws and rates on the date of enactment. Earnings Per Share: Earnings per share are based on the weighted average number of common stock and common stock equivalents outstanding during the year. Reinsurance: Dixie Life cedes and assumes insurance risks with other companies. Liabilities for future policy benefits, premiums and expenses are reported after deduction of amounts relating to policy specific reinsurance ceded and addition of amounts relating to policy specific reinsurance assumed. Fair Value of Financial Instruments: The following methods and assumptions were used to estimate the fair value of financial instruments, all of which were determined to approximate carrying value at December 31, 1995: Cash and cash equivalents: The carrying value approximates fair value because of the short maturity of those instruments. Investments: Investments are classified as trading investments and are carried at fair value on the financial statements. Long-term debt: All debt bears interest at variable rates based on current market conditions. Therefore it is estimated that carrying value approximately equals fair value. NOTE 2--STATUTORY ACCOUNTING Dixie Life was required to file statutory financial statements with state insurance regulatory authorities. Accounting principles used to prepare these statutory financial statements differ from GAAP. The excess, if any, of Dixie Life's stockholders' equity on a GAAP basis over that determined on a statutory basis is not available for distribution to Dixie Life's stockholders. Mississippi law governing insurance companies further restricts payment of dividends to the lessor of (1) the prior year statutory net income plus the excess of statutory net income for the second and third preceding years over distributions in the first and second preceding years or (2) 10% of statutory stockholders' equity. Since Dixie Life was sold in September 1995, the statutory accounting financial statements information is not available with regard to the year ended December 31, 1995. 27 28 A reconciliation of Dixie Life's statutory net income to the Company's consolidated GAAP net income is as follows for the preceding two years:
Year Ended December 31 1994 1993 ---- ---- Statutory net income $ 260,165 $ 3,348 Loss on sale of subsidiary - - Deferral of acquisition costs 1,285,902 3,642,818 Amortization of acquisition costs (1,420,943) (2,506,419) Differences in insurance policy liabilities, excluding effect of sale of block of business 1,775,875 55,079 Deferred income taxes 404,929 369,025 Premium income (1,077,138) (615,131) Investment income 21,240 66,421 Commissions (246,584) Interest expense (449,550) (571,026) General insurance expenses 663,558 420,741 Write off of agent advances 366,661 766,584 Supplementary contracts (131,073) (83,079) Other 265,182 190,596 STAT Bond write off of Vanguard Debenture 2,000,000 Loss on write-down of non-marketable security - - GAAP Loss on sale of accident and health business (1,196,811) (324,511) STAT gain on sale of accident and health business (5,322,776) (2,125,000) ---------- ---------- GAAP Net Income (Loss) $(2,554,779) $ (957,138) ========== ==========
A reconciliation of Dixie Life's statutory stockholders' equity to the Company's consolidated GAAP stockholders' equity is as follows at December 31, 1994: Statutory Stockholders' Equity $ 6,280,400 Loss on sale of subsidiary - Differences in insurance policy liabilities (984,870) Deferred acquisition costs 6,626,230 Deferred income taxes 61,459 Debt of parent company (5,933,050) Asset Valuation Reserve 129,809 Value of life insurance purchased 1,589,356 Non-admitted assets 252,049 Common stock issued 2,000,000 Other (839,938) ----------- GAAP Stockholders' Equity $ 9,181,455 ===========
At December 31, 1994 Dixie Life was a party to an indemnification reinsurance agreement under which 90% of its retained life insurance in force at September 30, 1992 is reinsured. This transaction is accounted for as a financing transaction in the accompanying financial statements. Dixie Life's statutory financial statements include a reserve credit at December 31, 1994 of $1,985,000 related to this agreement which has the effect of increasing statutory stockholders' equity by that amount. 28 29 NOTE 3--INVESTMENTS The Company's investments in fixed maturity securities available for sale at December 31, 1994 summarized as follows relate to the Dixie Life Insurance Company. There were none of these investments at December 31, 1995:
Amortized Unrealized Unrealized Market Cost Gains Losses Value ---- ----- ------ ----- December 31, 1994 U.S. Government agencies and authorities $ 8,966,030 $ $ 504,706 $ 8,461,324 States, municipalities and political subdivisions 511,461 6,115 505,346 Special revenue 10,278 878 9,400 Public utilities 2,041,142 23,637 121,159 1,943,620 All other corporate 6,960,013 33,432 580,475 6,412,970 ----------- --------- ---------- ----------- $18,488,924 $ 57,069 $1,213,333 $17,332,660 ========== ======== ========= ==========
Fixed maturity and short-term investments with an approximate carrying amount of $2,400,000 were pledged to various state insurance departments for policyowner protection at December 31, 1994. At December 31, 1994, additional securities with an approximate carrying amount of $13,435,000 were pledged under the financing transaction reinsurance treaty (see Note 2). Net investment income consists of the following:
1995 1994 1993 ---- ---- ---- Investment income Fixed maturities $1,038,589 $1,189,693 $ 745,534 Policy loans 137,150 170,142 159,666 Student loans 295,301 398,719 538,027 Interest on Accounts Receivable 44,051 151,759 254,538 Short-term investment 33,099 145,919 260,591 Other 402,684 77,403 46,719 --------- ---------- ---------- Net investment income $1,950,874 $2,133,635 $2,005,075 ========= ========= =========
Net realized investment gains (losses) for the year ended December 31 are summarized as follows:
1995 1994 1993 ---- ---- ---- Realized gains $155,741 $12,002 $29,448 Realized losses - 10,451 3,868 -------- ------- ----- Net realized gains (losses) $155,741 $ 1,551 $25,580 ======= ======= ======
In November 1994, the Corporation issued 2,000,000 shares of its Common Stock and received as consideration shares of Alanco Environmental Resources, Inc. (Alanco) common stock with a market value at the date of the transaction of $2,000,000. Under the terms of the UMS Agreement discussed in Note 16, any market appreciation until June 30, 1995 could not be realized because the purchasers of the Corporation's Common Stock had the right to buy the Alanco shares for cash equal to the value on the day of the November Transaction. The purchasers had the obligation to cover any market depreciation, as defined, which might have occurred as of June 30, 1995. Therefore, the Alanco shares were carried at cost until June 30, 1995. At December 31, 1995, market value of the Alanco shares based on the average of the closing bid and asked price, was $2,227,904. 29 30 NOTE 4--DEFERRED POLICY ACQUISITION COSTS An analysis of deferred policy acquisition costs for the years ended December 31 follows:
1995 1994 1993 ---- ---- ---- Balance at beginning of year $ 6,626,230 $19,759,110 $18,787,222 Deferred during the year: Commissions 242,616 975,002 2,818,953 Other Expenses 64,748 310,900 823,865 ----------- ----------- ----------- Total Deferred 307,364 1,285,902 3,642,818 Deferred policy acquisition costs on policies sold - (13,157,839) (324,511) Amortized during the year (579,285) (1,260,943) (2,346,419) Transfer to purchasers of Dixie Life (6,354,309) - - ------------ ----------- ----------- Balance at end of year $ - $ 6,626,230 $19,759,110 =========== =========== ===========
NOTE 5--VALUE OF LIFE INSURANCE PURCHASED An analysis of the value of life insurance purchased for the years ended December 31 follows:
1995 1994 1993 ---- ---- ---- Balance at beginning of year $1,589,356 $ 1,749,356 $1,909,356 Amortized during the year (120,000) (160,000) (160,000) Transferred to purchase of Dixie Life (1,469,356) - - Balance at end of year $ - $1,589,356 $1,749,356 ========= ========== ==========
NOTE 6--PROPERTY AND EQUIPMENT A summary of property and equipment at December 31 follows:
1995 1994 ---- ---- Home office property $ 795,038 $ 795,038 Data Processing Equipment - 818,149 Furniture, Equipment and Autos 430,407 454,007 ---------- ----------- 1,225,445 2,067,194 Less accumulated depreciation 814,510 1,482,500 ---------- ------------ $ 410,935 $ 584,694 ========= ============
NOTE 7 - FUTURE POLICY BENEFIT RESERVES A summary of the assumptions used in determining the liability for future policy benefits at December 31, 1994 is as follows:
Life Insurance -------------- Interest Assumptions: Year of Issue Interest Rates ------------- -------------- 1965-1982 8.5% graded to 4.5% 1983-1984 12.5% graded to 8.0% 1985-1991 9.0% graded to 6.0% 1992-1994 6.0% graded to 5.0% Mortality assumptions: 1965-1983 1955-60 Select and Ultimate Table 1983-1994 1965-70 Select and Ultimate Table
30 31 Withdrawal assumptions: Linton B or Linton C Lapse Tables Termination assumptions: Termination assumptions are based on Dixie Life's experience. NOTE 8 - PARTICIPATING BUSINESS Life Insurance policies were issued on both a participating and non-participating basis. The following summary presents the approximate percentages of participating life business to total life business for the years indicated:
1994 1993 ---- ---- Life insurance in force 5% 5% Life premium income 9% 5% Total number of life policies 12% 11%
The amount of dividends to be apportioned to participating policies was determined annually by the Board of Directors of Dixie Life. In the past, Dixie Life sold participating life insurance through a policy known as the Charter Contract as well as other participating policies. The Charter Contract policies contain a participation endorsement whereby Dixie Life agreed to apportion dividends to Charter Contract holders, as a group and on a pro rata basis, in an amount which equals at least 35% of Dixie Life's statutory net profits computed by a formula set forth in the policy. As of December 31, 1994, Dixie had participating policies in force with a total face amount of approximately $20,486,000 of which approximately $11,721,000 were Charter Contract policies. NOTE 9--NOTES PAYABLE AND OTHER DEBT The Company has the following notes payable at December 31:
1995 1994 ---- ---- Note payable to an insurance company bearing interest at 1% above prime (9.5% at December 31, 1994) payable interest only monthly through February 1995, with original maturity March 31, 1995, collateralized by common stock of Dixie Life (Term Loan) - $3,688,746 Note payable to a bank bearing interest at prime plus 3/4% (at December 31, 1995 and 1994, the rate was 9.25%), payable in monthly installments of $11,846 through January 5, 2001; secured by home office property 428,835 524,304 Convertible 10% notes due May 1, 1995 (Notes) with interest payable semi-annually until maturity, convertible to common stock on the basis of one share for each $1 of Note principal, collateralized by second security interest in common stock of Dixie Life - 1,720,000 Obligation under capital lease - 170,789 Note payable to a bank bearing interest at prime plus 1% (at December 31, 1995. The rate was 9.5%), payable in monthly installments of $689.81 16,667 -
31 32 Note payable to a bank bearing interest at the CD rate plus 1.5% (at December 31, 1995. The rate was 7.35%), payable in monthly installments of $694.44 25,000 - -------- ---------- $470,502 $ 6,103,839 ======= =========
Aggregate maturities of notes payable at December 31, 1995 are as follows: 1996 $122,393 1997 130,388 1998 139,298 1999 78,423 ------- $470,502 =======
NOTE 10--INCOME TAXES The Company and its subsidiaries file a life-nonlife consolidated federal income tax return. The Internal Revenue Code contains several provisions which affect the consolidated tax provision, including a special deduction for small life insurance companies amounting to 60% of taxable income and limitations on the amount of nonlife taxable losses which can be used to reduce life insurance taxable income. Because the life insurance subsidiary was sold during 1995, future tax returns will not include a life insurance operation. In addition, the deferred taxes at December 31, 1995 do not include any temporary differences related to life insurance operations. The accompanying balance sheet includes a liability (asset) for income taxes payable (receivable) consisting of the following at December 31:
1995 1994 ---- ---- Income taxes payable: (Receivable) Current $ (302,000) $ 32,000 Net deferred - (28,401) --------- -------- $ (302,000) $ 3,599 ======= =========
Net deferred tax liabilities (assets) consists of the following components as of December 31:
1995 1994 ---- ---- Deferred tax liabilities: Deferred acquisition costs $ - $597,100 FAS 115 adjustments 118,300 - Other Items 9,183 69,500 ---------- -------- 127,483 666,600 Deferred tax assets: Policy liabilities - 48,700 Financing reinsurance - 337,500 FAS 115 adjustment - 196,500 Unrealized loss on investment 357,410 - Provisions for uncollectible receivables - 112,301 Non-life net operating loss carryforward 100,715 - Equity in loss of 35% owned subsidiary 16,556 - ---------- -------- 474,681 695,001 Valuation allowance (474,681) - ----------- -------- 0 695,001 ---------- -------- NET LIABILITY (ASSET) $ 127,483 $ (28,401) ========== =========
32 33 The Corporation recorded a valuation allowance of $474,681 during the year 1995 because of the uncertainty in the Corporation's ability to realize future benefits of the carryforward deductions. Income tax (expense) benefit for the years ended December 31 is summarized as follows:
1995 1994 1993 ---- ---- ---- Current $302,000 $(381,900) $(155,000) Deferred (127,483) 411,849 368,201) --------- --------- --------- $174,517 $ 29,929 $ 213,201 ======= ======== ========
The Company's effective income tax (expense) benefit differs from the expense determined by applying the 34% statutory federal income tax rate to income before income taxes as follows:
1995 1994 1993 ---- ---- ---- Expected tax benefit (expense) at statutory federal income tax rate $2,388,200 $ 878,800 $ 398,000 Special deductions (485,400) (583,085) (199,000) Alternative Minimum Tax 78,000 97,000 47,000 Change in deferred taxes on policy liabilities - (362,786) Loss on sale of life insurance subsidiary $(1,419,300) Valuation allowance (474, 681) Other 67,698 (32,799) ----------- --------- -------- Total income tax benefit (expense) $ 174,517 $ 29,929 $ 213,201 =========== ========= ========
In 1994, a change in deferred taxes on policy liabilities, resulting from an incorrect estimate of the tax basis policy benefits at December 31, 1993, caused a $362,786 reduction of the 1994 tax benefit credited to operations. In 1995 the sale of the life insurance subsidiary resulted in a loss that will not benefit future operations and that can not be carried back to previous years. This loss is, therefore, reflected as a reconciling item between expected and actual tax benefits. NOTE 11-SALE OF INSURANCE BUSINESS Dixie Life sold virtually all of its in force accident and health insurance business to unaffiliated insurance companies in two transactions. Both transactions were closed in 1994 although the first was effective December 31, 1993. In the first transaction, Dixie Life sold all of its in force cancer insurance in South Carolina for $2,125,000 resulting in a statutory gain equal to the selling price in 1993. Under generally accepted accounting principles, the transaction was not recorded until closing in February 1994, but the Corporation did record the loss incurred ($324,000) under GAAP in 1993. In 1994, Dixie Life sold virtually all of its remaining accident and health for $5,322,000 in a transaction effective July 1, 1994, again resulting in a statutory gain equal to the selling price. The Corporation incurred a GAAP loss of approximately $1,197,000 on this sale. 33 34 Together, these sales resulted in a reduction of deferred policy acquisition costs and policy liabilities of $12,980,000 and $11,084,000, respectively in 1994. On October 2, 1995, the Corporation completed the sale of Dixie Life, which was 99.3% owned by the Corporation, to Standard Life Insurance Company of Indiana ("Standard"). Dixie Life represented virtually all of the Corporation's assets and operations. The selling price of the Corporation's interest in Dixie Life to Standard was $7,389,086, of which $3,646,468 was in cash. The Corporation used $1,720,000 of the cash proceeds to repay Subordinated Convertible Notes and to purchase from Dixie Life lease receivables of $503,258. Standard canceled a $3,688,746 Term Loan held by a subsidiary of Standard. The Corporation also received accounts receivable of $53,872, all of which have been written off as uncollectible at December 31, 1995. In addition, Standard is obligated to pay $15,000 per month rent to Vanguard, Inc., a wholly-owned subsidiary of the Corporation through December 31, 1996, the expiration date of an existing lease on the office building previously occupied by the Corporation and Dixie Life. The obligation terminates upon earlier sale of the building. The sale resulted in a loss of $4,174,536 ($.39 per share). The sale of Dixie Life constitutes discontinuance of the life insurance business by the Corporation. The loss on the sale is reported in a manner substantially the same as discontinued operations. The Corporation continues to report insurance operations in the same manner as prior to the measurement date of March 6, 1995. Accounting Principles Board Opinion No. 30 (APB 30) calls for reporting the operations of discontinued operations as a single net amount in the statement of operations, but in Management's opinion, reducing virtually all of the Corporation's operations to a single amount in the statement of operations would not be meaningful to readers of the Corporation's financial statements. The Corporation anticipates entry into another line of business. Beginning on January 1, 1996, the Corporation will report its insurance operations as discontinued operations in accordance with APB 30. NOTE 12--INCENTIVE STOCK OPTION PLANS Options for the purchase of 5,000 shares of Common Stock were granted under the 1995 Stock Option Plan ("1995 Plan") upon its adoption on May 26, 1995 to each of the Corporation's seven non-employee Directors, and an option for 25,000 shares also was granted to G. Thomas Reed, then Senior Vice President of the Corporation. The options are exerciseable at $.781, the closing bid price on the last trade date (May 25, 1995), prior to the grant. NOTE 13 - CONCENTRATION OF CREDIT RISK At December 31, 1995 and 1994, the Corporation had funds on deposit with a federally-insured bank in excess of the $100,000 Federal Deposit Insurance coverage limits. NOTE 14--PROFIT SHARING PLAN The Corporation had a profit sharing plan which covered substantially all employees who met length of service provisions contained in the Plan. Prior to 1992, the plan provided for Company defined contributions based on earnings before income taxes and realized investment gains. In 1992, the Plan was amended to allow employee contributions as provided under Section 401(k) of the Internal Revenue Code. 34 35 The Company matched 50% of employee contributions up to 4% of compensation and, at the discretion of the Board of Directors, could have made additional contributions. Contributions to the Plan charged to expense were approximately zero, $13,000, and $18,000 in 1995, 1994, and 1993 respectively. In conjunction with the sale of Dixie Life (See Note 11 above), the profit sharing plan was terminated and all assets liquidated to the participants. NOTE 15--BUSINESS SEGMENT INFORMATION The Corporation, through Dixie Life, had engaged in the following lines of insurance business: life insurance, individual annuities, and accident and health insurance (A&H). The Corporation sold its A&H business in July 1994 and its life and annuity business in September 1995, and is no longer in the insurance business. In March 1995 the Corporation acquired a 16% interest in PMM (See Note 17) and in October 1995 acquired a 35% interest in TRS (See Note 18). Investment income and certain general expenses have been allocated through the utilization of assumptions, estimates and formulas. Such allocations have been made on a basis considered reasonable under the circumstances; however, it should be understood that other acceptable methods of allocation might produce different results. Financial information by product grouping is as follows:
Life Annuity Other A&H Total ---- ------- ----- --- ----- 1995 - ---- Revenues $4,302,490 $135,869 $ 594,179 - $ 5,032,537 Benefits and expenses 6,489,330 204,936 136,618 - 6,830,874 ---------- ------- ------- ---------- Operating Profit (Loss) $(2,186,840) $(69,067) $ 457,561 - (1,798,337) ========= ======= ======== Loss on sale of life insurance subsidiary (4,174,535) Loss on write-down of non-marketable securities (1,051,217) ---------- Loss before income taxes $(7,024,089) ========== 1994 - ---- Revenues $5,360,344 $ 839,747 $ - $ 5,451,252 $11,651,343 Benefits and expenses 5,719,795 487,326 - 6,779,282 12,986,403 ---------- --------- -------- ---------- ----------- Operating profit (Loss) $ (359,451) $ 352,421 $ $(1,328,030) $(1,335,060) ========= ======== ======== ========== Unallocated general corporate expenses 1,249,648 ----------- Loss before income taxes $(2,584,708) ========== 1993 - ---- Revenues $6,201,285 $ 861,206 $ - $14,467,453 $21,529,944 Benefits and expenses 5,983,893 664,191 - 14,701,116 21,349,200 ---------- ---------- -------- ----------- ----------- Operating profit $ 217,392 $ 197,015 $ - $ (233,663) $ 180,744 ========= ========= ======== ========= Unallocated general corporate expenses 1,351,083 ----------- Loss before income taxes $(1,170,339) ==========
NOTE 16--SALE OF COMMON STOCK The Corporation entered into an agreement with Universal Management Services, a Nevada corporation (UMS), as of October 27, 1994 (UMS Agreement). The UMS Agreement provided that UMS would use its best efforts to assist the Corporation in locating potential investors for its Common Stock. On November 29, 1994, with such assistance, the Corporation sold 2,000,000 shares of its Common Stock for which it received 35 36 shares of Alanco Environmental Resources, Inc. ("Alanco") common stock (November transaction), with an aggregate market value of $2,000,000 on November 29, 1994 (see Note 3 of Notes to Consolidated Financial Statements). In December 1995, the Corporation sold 75,000 shares of Alanco stock on the open market generating a $10,020 profit. During the first quarter of 1996, the remaining Alanco shares were sold resulting in a $1,019,020 profit to the Corporation. The UMS Agreement also gave UMS the right to assist the Corporation in placing additional 4,425,000 shares of its Common Stock. In light of the sale of Dixie Life to Standard among other factors, the Corporation and UMS agreed to amend and restate the UMS Agreement on the basis described below. Under the amended and restated UMS Agreement, UMS had the right to use its best efforts to assist the Corporation in placing up to 12,500,000 additional shares of the Corporation's Common Stock. The Corporation: 1. On June 29, 1995 issued 2,000,000 shares of its Common Stock in exchange for 16% of the outstanding common shares of Phoenix Medical Management, Inc. (PMM), an Arizona corporation. (See Note 17). 2. On June 29, 1995 issued 100,000 shares of its Common Stock for an option to acquire the remaining 84% of the common shares of PMM. The Corporation has since relinquished its rights to exercise its option. (See Note 17). NOTE 17--INVESTMENT IN PHOENIX MEDICAL MANAGEMENT, INC. ("PMM") PMM was formed in November 1993 to engage in the ownership and operation of health care facilities specializing in pain care. Its primary business activity is the development of a proprietary network of medical facilities that specialize in the comprehensive treatment of patients seeking relief of chronic pain. Each facility is to be designed and equipped to accommodate a multi-modality pain management, psychological and physical rehabilitation program, as well as to accommodate other non-affiliated surgeons who will perform their own "non-pain related" surgical procedures at these facilities. PMM currently has one medical facility open and operating in Phoenix, Arizona. After review of the prospects for PMM and the efforts of its management in developing PMM to the stage of opening its first clinic in March 1995, the Corporation's Board approved the acquisition of a 16% interest in PMM in exchange for 2,000,000 shares of the Corporation's Common Stock, and in exchange for 100,000 additional shares, an option to acquire the remaining 84% for 10,400,000 shares ("84% Option"). The Board's action was based on its understanding that PMM would open additional clinics in Lafayette and New Orleans, Louisiana in June and September 1995, respectively. The acquisition was recorded at the book value of Dixie National Corporation resulting in a discount on common stock of $996,222. In subsequent discussions, PMM informed the Corporation that plans for the Lafayette and New Orleans clinics had been postponed indefinitely in favor of development of additional clinics in Arizona and that the Phoenix clinic, due in part to a delay in obtaining Medicare approval of the facility, was not yet meeting anticipated revenue projections. Although the Corporation relinquished the 84% Option, PMM Shareholders retain the 100,000 shares of the Corporation's Common Stock they received in exchange for the 84% Option. 36 37 Due to the negative equity recorded on the PMM December 31, 1995 unaudited financial statements and in accordance with the Statement of Financial Accounting Standards, No. 115 (FAS 115), the Corporation has written its investment in PMM down to zero. This resulted in a charge to current earnings of $1,051,217. NOTE 18--ACQUISITION OF TEXT RETRIEVAL SYSTEMS, INC. ("TRS") On April 2, 1996 the Corporation exercised its option and completed the 100% acquisition of TRS, a privately-held corporation based in Ponte Vedra Beach, Florida. In October 1995 the Corporation acquired the option with a 35% initial ownership interest in TRS. Under the terms of that Agreement, the Corporation issued 100,000 shares of its 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 and converted the outstanding balance on the line of credit to equity. TRS publishes electronic reference libraries that link related data sources for convenient access by personal computers. The electronic libraries, often containing thousands of pages, are connected by hypertext cross-reference links. This permits users to access massive documents while avoiding time-consuming manual research. One of the latest TRS products is an employer's compliance library which links all federal employment laws and related regulations to a compendium of state statutes and regulations. Other TRS libraries include comprehensive compliance data for the retail and public housing markets. 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 products. TRS has 20 employees including 3 software writers, and 12 marketers. As of June 30, 1995, the end of its fiscal year, TRS had total assets of $515,295, and for the year ended revenues of $45,043, and a net loss of $69,342. The Corporation is accounting for its initial investment in TRS by the equity method of accounting under which the Corporation's share of the net income (loss) of the affiliate is recognized as income (loss) in the Corporation's operations and is added to (subtract from) the investment account. The loss recorded by the Corporation for the year ended December 31, 1995 was $48,687. At the date of acquisition, the Corporation's investment exceeded its share of the underlying equity in the assets of TRS by $61,970. This amount is not being amortized because of the subsequent acquisition of the remainder of TRS' outstanding stock subsequent to the year end. Unaudited financial statements of TRS at December 31, 1995 reflect the following for the six months ended December 31, 1995: Assets $ 728,424 Liabilities 85,700 ------- Equity 642,724 ======= Revenues 168,403 Expenses 248,793 Net loss (80,390) =======
NOTE 19--LEASING ACTIVITIES During the current year, the Company entered into leasing activities which consist of the leasing of fry cook units to be placed in various locations and operated by the lessee. All of the Company's leases are classified as direct financing leases. Under the direct financing method of accounting for leases, the total net rentals receivable under the lease contracts are recorded as a net investment in direct financing leases, and the unearned income on each lease is recognized each month at a constant periodic rate of return on the unrecovered investment. The composition of the net investment in direct financing leases at December 31, 1995, is as follows: Total minimum lease payments to be received 603,168 Unearned lease income 123,898 Net investment in direct financing leases 479,270
The minimum future lease payments due under the direct financing leases are as follows: 1996 148,239 1997 148,239 1998 148,239 1999 137,514 2000 20,937 Total minimum future lease payments 603,168
37 38 INDEPENDENT AUDITOR'S REPORT ON FINANCIAL STATEMENT SCHEDULES To The Shareholders Dixie National Corporation Jackson, Mississippi Our audit was made for the purpose of forming an opinion on the basic consolidated financial statements taken as a whole. The financial statement schedules are presented for purposes of additional analysis and are not a required part of the basic consolidated financial statements. The financial statement schedules have been subjected to the auditing procedures applied in the audit of the basic consolidated financial statements and, in our opinion, the financial statement schedules are fairly stated in all material respects in relation to the basic consolidated financial statements taken as a whole. HORNE CPA GROUP Jackson, Mississippi March 7, 1996 38 39 SCHEDULE III DIXIE NATIONAL CORPORATION (PARENT ONLY) BALANCE SHEET
December 31, 1995 1994 ---- ---- ASSETS Cash $1,314,053 $ 196,883 Marketable equity securities 2,227,904 2,000,000 Leases receivable 471,272 - Receivable from affiliates 14,529 22,093 Investment in stock of TRS 249,916 - Equity in net assets of subsidiaries 1,969,542 13,985,455 Excess of cost over net assets of subsidiary, net 693,637 Furniture and equipment, net 31,526 Income taxes recovery receivable 302,000 ---------- ---------- TOTAL ASSETS $6,580,742 $16,898,068 ========= ========== LIABILITIES AND STOCKHOLDERS' EQUITY LIABILITIES Notes payable $ 41,667 $ 5,408,748 Note payable - subsidiaries 1,800,000 1,800,000 Income taxes payable - 21,134 Accounts payable as accrued expenses 12,077 60,950 Amount due subsidiaries 136,155 425,783 Deferred income tax payable 127,483 - ---------- ---------- TOTAL LIABILITIES 2,117,382 7,716,613 ---------- ---------- STOCKHOLDERS' EQUITY 4,463,360 9,181,455 --------- ---------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $6,580,742 $16,898,068 ========= ==========
See accompany notes to consolidated financial statements. 39 40 SCHEDULE III (CONTINUED) DIXIE NATIONAL CORPORATION (PARENT ONLY) STATEMENTS OF OPERATIONS
Years Ended December 31, 1995 1994 1993 ---- ---- ---- REVENUES Administrative fees $1,386,000 $ 1,848,000 $ 1,848,000 Investment income 356,758 3,317 5,979 Other 54,621 - - ---------- ----------- ----------- TOTAL REVENUES 1,797,379 1,851,317 1,853,979 ========== ========== ========== EXPENSES General and administrative 1,223,217 1,337,243 1,592,615 Interest 392,996 404,254 741,229 Loss on write-down of non-marketable securities 1,051,217 1,051,217 - Loss on sale of life insurance subsidiary 4,174,535 - - --------- --------- --------- TOTAL EXPENSES 6,841,965 1,741,497 2,333,844 --------- --------- --------- INCOME BEFORE EQUITY IN INCOME OF CONSOLIDATED SUBSIDIARIES (5,044,586) 109,820 (479,865) Equity in income (loss) of consolidated subsidiaries (1,804,986) (2,664,599) (477,273) --------- ---------- --------- NET INCOME (LOSS) $(6,849,572) $(2,554,779) $ (957,138) ========== ========== ========== Earnings Per Share (.65) (.39) (.15) ========== ========== ==========
40 41 SCHEDULE III (CONTINUED) DIXIE NATIONAL CORPORATION (PARENT ONLY) STATEMENTS OF CASH FLOWS
Year Ended December 31 1995 1994 1993 ---- ---- ---- Cash flows from operating activities Net (loss) $ (6,849,572) $(2,554,779) $ (957,138) Adjustments to reconcile net loss to net cash provided by operating activities Equity in loss of subsidiaries 799,188 2,664,599 1,005,946 Basis in sale of life insurance subsidiary 11,563,621 Unrealized gain on investments (227,904) Loss on write-down of non-marketable securities 1,103,778 (Increase) decrease in accounts receivable from affiliates 7,564 2,210 (2,148) Decrease in accrued liabilities (25,073) (56) (1,074) Decrease in amounts due from subsidiaries (289,628) (Increase) in income taxes recoverable (302,000) (Increase) in deferred income taxes 106,349 Other, net 0 73,116 (4,361) ---------- ---------- ---------- Net cash provided by operating activities 5,888,323 185,090 41,225 ========== ========== ========== Cash flows from investing activities (Increase) leases receivable (471,272) Investment in non-marketable securities (249,916) Acquisition of furniture and equipment (31,526) Proceeds from sale of life insurance subsidiary 1,350,640 ---------- ---------- ---------- Net cash provided by investing activities 597,926 0 0 ---------- ---------- ---------- Cash flows from financing activities Retirement of notes payable (5,442,079) (2,110,886) Proceeds from borrowing 75,000 1,515,000 ---------- --------- Net cash used by financing activities (5,367,079) 0 (595,886) ---------- ---------- --------- Net increase (decrease) in cash and cash equivalents 1,117,170 185,090 (554,661) Cash and cash equivalents at beginning of year 196,883 11,793 556,454 ---------- ---------- --------- Cash and cash equivalents at end of year $ 1,314,053 $ 196,883 $ 11,793 ========== ========== ========= Supplemental cash flow information: Cash paid for income taxes $ 0 $ 750 $ 12,896 ========== ========== ========= Cash paid for interest $ 436,204 $ 460,485 $ 506,309 ========== ========== =========
See accompanying notes to consolidated financial statements. 41 42 SCHEDULE III (CONTINUED) DIXIE NATIONAL CORPORATION (PARENT ONLY) NOTES TO CONDENSED FINANCIAL STATEMENTS DECEMBER 31, 1995 1. The accompanying condensed financial information should be read in conjunction with consolidated financial statements and notes thereto of Dixie National Corporation which are included in this Form 10K. 2. At December 31 the notes payable presented in Dixie National Corporation's Parent Only Statements included the following:
1995 1994 ---- ---- Notes payable to bank $ 41,667 - Note payable to an insurance company - $3,688,746 Convertible Notes - 1,720,000 Note payable to subsidiary 1,800,000 1,800,000 ---------- ---------- 1,841,667 7,208,746 Less current maturities 41,667 5,408,746 ---------- --------- $1,800,000 $1,800,000 ========= =========
42 43 SCHEDULE VI DIXIE NATIONAL CORPORATION AND SUBSIDIARIES REINSURANCE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E COLUMN F -------- -------- -------- -------- -------- --------- Percentage of Gross Ceded to Other Assumed From Amount Assumed Amount Companies Other Companies Net Amount To Net ------ --------- --------------- ---------- ------ 1995 - ---- Life Insurance in force - - - - - 1994 - ---- Life Insurance in force $310,922,000 $228,076,000 $141,936,000 $224,782,000 63% =========== =========== =========== =========== == Premiums Life insurance $ 4,252,963 $ 374,631 $ $ 3,878,332 Annuities 335,786 335,786 Accident and health insurance 5,302,039 5,302,039 ----------- ----------- ------------ ----------- Total premiums $ 9,890,788 $ 374,631 $ $ 9,516,157 =========== =========== ============ =========== 1993 - ---- Life insurance in force $331,301,000 $255,455,000 $ 112,491,000 $188,337,000 60% =========== =========== ============ =========== == Premiums Life insurance $ 5,400,953 $ 465,903 $ $ 4,935,050 Annuities 378,903 378,903 Accident and health insurance 14,185,336 14,185,336 ----------- ----------- ------------ ----------- Total premiums $ 19,965,192 $ 465,903 $ $19,.499,289 =========== =========== ============ ===========
43 44 SCHEDULE VIII DIXIE NATIONAL CORPORATION VALUATION AND QUALIFYING ACCOUNTS YEAR ENDED DECEMBER 31, 1995, 1994 AND 1993
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E - -------- -------- -------- -------- -------- Balance at Charged to Beginning Costs and Deductions- Balance at End Description of Period Expenses Describe of Period - ----------- --------- -------- -------- --------- Allowance for Doubtful Accounts -------- 1995 - - - - 1994 $ 480,000 $ 82,556 $(366,661) (1) $ 195,895 ========== ======== ========= =========== 1993 $1,000,000 $246,584 $(766,584) (1) $ 480,000 ========== ======== ========= ===========
(1) Accounts written off 44 45 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. DIXIE NATIONAL CORPORATION -------------------------- (Registrant) Date: April 11, 1996 By: /s/Samuel Leroy Reed ---------------------------------- Samuel Leroy Reed Chairman of the Board Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. /s/Samuel Leroy Reed, Jr. April 11, 1996 ------------------------------------------------------------------------------------------------ Samuel Leroy Reed, Jr. Chairman of the Board Chief Executive Officer (Principal Executive Officer) April 11, 1996 ------------------------------------------------------------------------------------------------- Tammy H. Etheridge Director /s/John E. Haggar April 11, 1996 ------------------------------------------------------------------------------------------------ John E. Haggar Director /s/Robert B. Neal April 11, 1996 ------------------------------------------------------------------------------------------------- Robert B. Neal Director /s/Dennis Nielsen April 11, 1996 ------------------------------------------------------------------------------------------------ Dennis Nielsen Director /s/Joseph D. Pegram April 11, 1996 ----------------------------------------------------------------------------------------------- Joseph D. Pegram Director /s/James G. Ricketts April 11, 1996 ------------------------------------------------------------------------------------------------ James G. Ricketts Director
45 46 /s/Herbert G. Rogers, III April 11, 1996 ------------------------------------------------------------------------------------------------ Herbert G. Rogers, III Director /s/Marcia C. Cohen April 11, 1996 ------------------------------------------------------------------------------------------------ Marcia C. Cohen Director /s/David E Williams April 11, 1996 ------------------------------------------------------------------------------------------------ David E. Williams Vice President Finance (Principal Financial and Accounting Officer)
46 47 EXHIBIT INDEX The following exhibits are filed herewith:
Exhibit Number Description - ------------------------------------------------------------------------------------------- (2)(c) Accounts receivable financing agreement dated as of February 26, 1996 between Dixie National Corporation and Text Retrieval Systems, Inc. including amended restated option agreement. (3)(b)(1) Amendment to Article III of Bylaws effective January 24, 1996 (3)(b)(2) Amendment to Article IV of Bylaws effective March 24, 1996 (21) Subsidiaries of the Registrant (27) Financial Data Schedule
47 EX-2.C 2 ACCOUNTS RECEIVABLE FINANCING AGREEMENT 1 EXHIBIT 2(c) ACCOUNTS RECEIVABLE FINANCING AGREEMENT DATED AS OF FEBRUARY 26, 1996 BETWEEN TEXT RETRIEVAL SYSTEMS, INC. AND DIXIE NATIONAL CORPORATION 48 2 TABLE OF CONTENTS
Page ---- ARTICLE 1. TERMS OF THE ACCOUNTS RECEIVABLE FINANCING . . . . . . . . . . . . . 2 Section 1.1. Incorporation of Recitals; Definitions . . . . . . . . . . . . . . . . . . . . . . . . . 2 -------------------------------------- Section 1.2. The Loan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 -------- Section 1.3. Maximum Amount; Term . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 -------------------- Section 1.4. Stock Conveyance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 ---------------- Section 1.5. Redemption of Additional TRS Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 ---------------------------------- Section 1.6. Lock Box Arrangement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 -------------------- Section 1.7. Disbursements From AR Account . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 ----------------------------- Section 1.8. Credit Approval . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 --------------- Section 1.9. Loan Costs and Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 ----------------------- Section 1.10. Execution of Amended and Restated Option Agreement . . . . . . . . . . . . . . . . . . . 4 -------------------------------------------------- ARTICLE 2. REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . . . 5 Section 2.1. Corporate Existence and Power . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 ----------------------------- Section 2.2. Corporate and Governmental Authorization; Contravention . . . . . . . . . . . . . . . . . 5 ------------------------------------------------------- Section 2.3. Binding Effect . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 -------------- Section 2.4. Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 ---------- Section 2.5. Filings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 ------- ARTICLE 3. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . 6 Section 3.1. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 ------- Section 3.2. No Waivers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 ---------- Section 3.3. Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 -------- Section 3.4. Independence of Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 ------------------------- Section 3.5. Amendments and Waivers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 ---------------------- Section 3.6. Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 ---------------------- Section 3.7. Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 ------------- Section 3.8. Counterparts; Effectiveness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 --------------------------- Section 3.9. Waiver of Jury Trial; Submission to Jurisdiction . . . . . . . . . . . . . . . . . . . . 7 ------------------------------------------------ Section 3.10. Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 ----------------
i 49 3 ACCOUNTS RECEIVABLE FINANCING AGREEMENT THIS ACCOUNTS RECEIVABLE FINANCING AGREEMENT (as amended, supplemented or modified from time to time, this "AR Financing Agreement") is dated as of February 26, 1996 and is between TEXT RETRIEVAL SYSTEMS, INC., a Florida corporation ("TRS"), and DIXIE NATIONAL CORPORATION, a Mississippi corporation ("DNC"). RECITALS A. Effective October 16, 1995, TRS and DNC entered into a Credit Agreement (the "Credit Agreement") pursuant to which DNC has extended a working capital loan (the "Working Capital Loan") to TRS pursuant to terms set forth in the Credit Agreement. B. As a condition of entering into the Credit Agreement and obtaining the Working Capital Loan, (i) TRS executed a Note dated October 16, 1995 evidencing the Working Capital Loan and entered into a Security Agreement dated as of October 16, 1995 (the "Security Agreement") and an Option Agreement dated as of October 16, 1995 (the "Option Agreement"), and (ii) certain TRS officers and employees entered into covenants not to compete dated as of October 16, 1995 running in favor of DNC (collectively, the "Covenants" and together with the Credit Agreement, the Note, the Security Agreement and the Option Agreement, the "Credit Documents"). C. In addition to funds advanced as part of the Working Capital Loan, TRS has requested DNC to provide TRS with accounts receivable financing (the "AR Financing"), and DNC is willing to provide the AR Financing pursuant to the terms and conditions set forth in this AR Financing Agreement. D. The AR Financing shall constitute borrowings by TRS which are in addition to and separate from the Working Capital Loan and shall not alter TRS's obligations under the Credit Documents; provided, however, that as a condition to receiving proceeds of the AR Financing, DNC and TRS shall enter into an Amendment to the Security Agreement in the form attached hereto as Exhibit A. E. The AR Financing provided by DNC pursuant to the terms of this AR Financing Agreement shall be evidenced by an AR Financing Note in the form attached hereto as Exhibit B (the "AR Financing Note"). F. In connection with the AR Financing provided by DNC pursuant to the terms of this AR Financing Agreement, TRS and all of the stockholders of TRS, except DNC, shall enter into an Amended and Restated Option Agreement in the form attached hereto as Exhibit C (the "Amended and Restated Option Agreement Amendment"). 50 4 NOW, THEREFORE, for valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties agree as follows: ARTICLE 1. TERMS OF THE ACCOUNTS RECEIVABLE FINANCING SECTION 1.1. INCORPORATION OF RECITALS; DEFINITIONS. (a) RECITALS. The Recitals set forth above are incorporated as part of this AR Financing Agreement. (b) DEFINITIONS. In addition to the terms defined in the Recitals above, the following terms shall have the following meanings: "AR Account" shall mean account no. 0223560002238 maintained exclusively by and at the Bank, over which DNC shall have the exclusive right of withdrawal. "Bank" shall mean Sun Trust Bank, North Florida, N.A. and its branch located at 100 North Third Street, Jacksonville Beach, Florida 32250. "DNC Option" shall have the meaning set forth in the Amended and Restated Option Agreement. "TRS Accounts Receivable" shall mean gross accounts receivable generated by TRS for services provided and/or products delivered to TRS's customers during the period beginning February 1, 1996 and ending February 21, 1997, without adjustment or offset for any bad debts, non-collectability or non-payment. SECTION 1.2. THE LOAN. DNC has agreed to finance fifty-six percent (56%) of the TRS Accounts Receivable. In order to obtain accounts receivable financing hereunder, TRS shall submit to DNC on Friday of each week during the term hereof a complete list of TRS Accounts Receivable generated during the prior week, certified as accurate by TRS's President, and DNC shall make accounts receivable financing advances in reliance on such list on the Monday immediately following its receipt of the aforementioned list in an amount equal to fifty-six percent (56%) of the aggregate value of the TRS Accounts Receivable set forth on the list. In calculating TRS Accounts Receivable, there shall be no adjustment for any bad debts, non-collectable amounts or non-payments by TRS customers. SECTION 1.3. MAXIMUM AMOUNT; TERM. The AR Financing will be made available by DNC in a maximum principal amount of $500,000.00, which shall be disbursed during the period from February 26, 1996 through February 24, 1997. The AR Financing shall bear interest at the per annum rate of "Prime" plus two percent (2%). Prime will be as 2 51 5 quoted in the Wall Street Journal and will be a floating rate. Interest will be treated on a cash basis, not an accrual basis. SECTION 1.4. STOCK CONVEYANCE. In consideration for DNC making the AR Financing available, DNC shall receive shares of TRS stock constituting five percent (5%) of the outstanding common stock of TRS as of February 26, 1996 by way of certificates duly endorsed as directed by DNC, free and clear of all encumbrances, and with evidence of payment of all necessary transfer taxes and fees. If, however, on April 29, 1996, the net collection rate of the listed receivables for the period from February 1, 1996 through February 29, 1996 (the "Initial Benchmark Period") is not equal to or greater than fifty-six percent (56%), TRS shall promptly convey to DNC additional shares of TRS stock constituting five percent (5%) of the then outstanding common stock of TRS by way of certificates duly endorsed as directed by DNC, free and clear of all encumbrances, and with evidence of payment of all necessary transfer taxes and fees. Upon the conclusion of such conveyance, a new benchmark collection rate (the "New Rate") will be established which shall be equal to the actual rate of collection occurring during the Initial Benchmark Period. If, however, on March 31, 1996, the net collection rate of the listed receivables for the period from March 1, 1996 through May 31, 1996 (the "Second Benchmark Period") is not equal to or greater than the New Rate, TRS shall promptly convey to DNC additional shares of TRS stock constituting ten percent (10%) of the then outstanding common stock of TRS by way of certificates duly endorsed as directed by DNC, free and clear of all encumbrances, and with evidence of payment of all necessary transfer taxes and fees. Any shares of TRS stock conveyed to DNC pursuant to the provisions of this Section 1.4 shall be hereinafter referred to as the "Additional TRS Stock"). SECTION 1.5. REDEMPTION OF ADDITIONAL TRS STOCK. In the event DNC shall exercise its Put Option, pursuant to Article 3 of that certain Amended and Restated Option Agreement dated as of even date herewith, by and among TRS, DNC and all of the stockholders of TRS (except DNC), a copy of which is attached hereto as Exhibit C, all funds advanced as part of the AR Financing and evidenced by the AR Financing Note shall be due and payable thirty (30) days from the date of the written notice exercising DNC's Put Option. In the event DNC exercises its Put Option and TRS fails to repay all amounts due under the AR Financing Note within thirty (30) days, TRS shall be required to redeem all of the Additional TRS Stock on terms more fully set forth in Article 4 of the Amended and Restated Option Agreement. SECTION 1.6. LOCK BOX ARRANGEMENT. TRS will establish the AR Account as a "lockbox" account with the Bank. The AR Account will be used exclusively for the collection of all TRS Accounts Receivable. All TRS Accounts Receivable shall be deposited directly into the AR Account over which DNC shall have the exclusive right to withdraw, from time to time, amounts therein. DNC shall have, and TRS hereby grants to DNC, a lien on and security interest in the AR Account and the contents thereof. TRS agrees to address all invoices with instructions for payments to be directed to the AR Account. Any payments 3 52 6 received directly by TRS at their offices or any other location shall be immediately deposited into the AR Account. SECTION 1.7. DISBURSEMENTS FROM AR ACCOUNT. (a) Each week during the term of this AR Financing Agreement and/or at such other times as DNC may determine in its discretion, DNC shall have the right, but not the obligation, to disburse from the AR Account such amounts as may be required to reduce the principal amount of the indebtedness evidenced by the AR Financing Note. (b) Each week during the term of this AR Financing Agreement and/or at such other times as DNC may determine in its discretion, DNC shall have the right, but not the obligation, to disburse from the AR Account such amounts as may be required to pay the interest accrued on the principal amount of the indebtedness evidenced by the AR Financing Note; provided, however, that TRS may not require DNC to use TRS Accounts Receivable to pay interest due on the AR Financing Note. Instead, TRS shall make all interest payments due under the AR Financing Note by check directly to DNC, pursuant to the terms of the AR Financing Note (c) During the term of this AR Financing Agreement and/or at such other times as DNC may determine in its discretion, DNC shall have the right, but not the obligation, to disburse from the AR Account such amounts as may be necessary or advisable to protect DNC's rights under the AR Financing Note or in connection with any other obligation which TRS owes to DNC. SECTION 1.8. CREDIT APPROVAL. Until such time as all amounts due under the AR Financing Note have been paid in full, DNC shall have the right to approve the amount of credit extended to any TRS customer or account which exceeds, in the aggregate, Ten Thousand Dollars ($10,000). With respect to each such customer or account, TRS agrees to provide DNC with prior written notice of all applications or requests for credit which exceed, alone or in the aggregate, Ten Thousand Dollars ($10,000.00) and, upon receipt of such notice, DNC shall have two business days to review the credit approval notice and inform TRS of DNC's decision to either grant or to withhold approval. SECTION 1.9. LOAN COSTS AND EXPENSES. TRS agrees to bear all of the costs and expenses incurred by DNC in connection with providing the AR Financing, including but not limited to, all legal and banking costs and expenses. SECTION 1.10. EXECUTION OF AMENDED AND RESTATED OPTION AGREEMENT. TRS covenants and agrees that on or prior to Friday, March 29, 1996 it will execute the Amended and Restated Option Agreement and will obtain the signature of each stockholder of TRS, except DNC, on the Amended and Restated Option Agreement. The failure of TRS to comply with the requirement set forth in the preceding sentence shall constitute an Event of Default 4 53 7 under this AR Financing Agreement and under the AR Financing Note, providing DNC with the right to terminate the AR Financing and immediately collect all amounts due under the AR Financing Note. ARTICLE 2. REPRESENTATIONS AND WARRANTIES TRS represents and warrants that: SECTION 2.1. CORPORATE EXISTENCE AND POWER. TRS is a corporation duly incorporated, validly existing and in good standing under the laws of the Florida, and has all corporate powers and all material governmental licenses, authorizations, consents and approvals required to carry on its business as now conducted. TRS is duly qualified as a foreign corporation, licensed and in good standing in each jurisdiction where qualification or licensing is required by the nature of its business or the character and location of its property, business or customers and in which the failure to so qualify or be licensed, as the case may be, in the aggregate, could have a material adverse effect on the business, financial position, results of operations or properties of TRS. SECTION 2.2. CORPORATE AND GOVERNMENTAL AUTHORIZATION; CONTRAVENTION. The execution, delivery and performance by TRS of this AR Financing Agreement and AR Financing Note are within its corporate power, have been duly authorized by all necessary corporate action, require no action by or in respect of, or filing with, any governmental body, agency or official and do not contravene, or constitute (with or without the giving of notice or lapse of time or both) a default under, any provision of applicable law or of the articles of incorporation or bylaws of TRS or of any agreement, judgment, injunction, order, decree or other instrument binding upon or affecting TRS or result in the creation or imposition of any lien (other than the lien of the Security Agreement, as amended by the Amendment to the Security Agreement in the form attached hereto as Exhibit A ) on any of its assets. SECTION 2.3. BINDING EFFECT. Each of this AR Financing Agreement, and the Amendment to the Security Agreement, and the AR Financing Note, when executed and delivered in accordance with this AR Financing Agreement, will constitute a valid and binding obligation of TRS, in each case enforceable against TRS in accordance with its terms, except as (i) the enforceability hereof and thereof may be limited by bankruptcy, insolvency or similar laws affecting creditors' rights generally and (ii) rights of acceleration and the availability of equitable remedies may be limited by equitable principles of general applicability. SECTION 2.4. LITIGATION. There is no action, suit or proceeding pending against, or to the knowledge of TRS threatened against or affecting, TRS before any federal, state or local government, authority, agency, court or other body, officer or entity, or before any arbitrator with authority to bind a party at law, in which there is a reasonable possibility of a decision which could materially adversely affect the business, financial position, results of 5 54 8 operations or properties of TRS or which in any manner draws into question the validity of this AR Financing Agreement, the AR Financing Note or the Amendment to the Security Agreement and there is no basis known to TRS for any such action, suit or proceeding. SECTION 2.5. FILINGS. All actions by or in respect of, and all filings with, any governmental body, agency or official required in connection with the execution, delivery and performance of this AR Financing Agreement, the AR Financing Note or the Amendment to the Security Agreement, or necessary for the validity or enforceability hereof and thereof or for the protection or perfection of the rights and interests of DNC hereunder and thereunder, will, prior to the date of delivery hereof or thereof, have been duly taken or made, as the case may be, and will at all times thereafter remain in full force and effect. ARTICLE 3. MISCELLANEOUS SECTION 3.1. NOTICES. All notices, requests and other communications to a party hereunder shall be in writing and shall be given to such party at its address set forth on the signature page of the Amended and Restated Option Agreement or such other address as such party may hereafter specify for that purpose by notice to the other. Each such notice, request or other communication shall be effective (i) if given by mail, 72 hours after such communication is deposited in the mails with first class postage prepaid, addressed as aforesaid or (ii) if given by any other means, when delivered at the address specified in this Section 3.1. SECTION 3.2. NO WAIVERS. No failure or delay by DNC in exercising any right, power or privilege hereunder or under the Note shall operate as a waiver thereof, nor shall any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any other right, power or privilege. The rights and remedies herein provided shall be cumulative and not exclusive of any rights or remedies provided by law. SECTION 3.3. EXPENSES. TRS shall pay (i) all out-of-pocket expenses of DNC, including the reasonable fees and disbursements of its counsel, in connection with the preparation and administration of this AR Financing Agreement, any waiver or consent hereunder, any amendment hereof or any Default or alleged Default hereunder and (ii) if an Event of Default occurs, all out-of-pocket expenses incurred by DNC, including the reasonable fees and disbursements of its counsel, in connection with such Event of Default and any collection or other enforcement proceedings resulting therefrom. TRS shall indemnify DNC against any transfer taxes, documentary taxes, assessments or charges made by any governmental authority by reason of the execution and delivery of this AR Financing Agreement or the AR Financing Note. SECTION 3.4. INDEPENDENCE OF COVENANTS. All covenants contained in this AR Financing Agreement shall be given independent effect. If a particular action or condition 6 55 9 is not permitted by any of such covenants, the fact that such action or condition would be permitted by an exception to, or otherwise be within the limitations of, another covenant shall not avoid the occurrence of a Default if such action is taken or such condition exists. SECTION 3.5. AMENDMENTS AND WAIVERS. Any provision of this AR Financing Agreement or the AR Financing Note may be amended or waived if, but only if, such amendment or waiver is in writing and is signed by TRS and DNC. SECTION 3.6. SUCCESSORS AND ASSIGNS. The provisions of this AR Financing Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns, except that TRS may not assign or otherwise transfer any of its rights under this AR Financing Agreement without the prior written consent of DNC. SECTION 3.7. GOVERNING LAW. This AR Financing Agreement and the AR Financing Note shall be deemed to be contracts made under seal and shall be governed by and construed in accordance with the laws of the Mississippi, except as otherwise provided herein. SECTION 3.8. COUNTERPARTS; EFFECTIVENESS. This AR Financing Agreement may be signed in counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. This AR Financing Agreement shall become effective when DNC shall have received counterparts hereof signed by all parties. SECTION 3.9. WAIVER OF JURY TRIAL; SUBMISSION TO JURISDICTION. TRS hereby irrevocably and unconditionally waives all right to trial by jury in any action, proceeding or counterclaim arising out of or related to this AR Financing Agreement or the AR Financing Note or any of the transactions contemplated hereby or thereby. Any legal action or proceeding with respect to this AR Financing Agreement or the AR Financing Note, or any document related hereto or thereto, shall be brought in any court having jurisdiction in one or more proceedings, and by execution and delivery of this AR Financing Agreement, TRS hereby accepts for itself and in respect of its property, generally and unconditionally, the jurisdiction of such courts. TRS hereby irrevocably and unconditionally waives any objection, including, without limitation, any objection to the laying of venue or based on the grounds of forum non conveniens, which it now has or hereafter may have to the bringing of any action or proceeding in such jurisdictions. SECTION 3.10. ENTIRE AGREEMENT. This AR Financing Agreement sets forth the entire agreement of the parties with respect to the subject matter hereof and thereof and supersedes all previous understandings, written or oral, in respect thereof. 7 56 10 IN WITNESS WHEREOF, the parties hereto have caused this AR Financing Agreement to be duly executed by their respective authorized officers as of the day and year first above written. DIXIE NATIONAL CORPORATION By: G. THOMAS REED [SEAL] ------------------------------ G. Thomas Reed, President 107 Executive Office Center Hilton Head Island, S.C. 29928 TEXT RETRIEVAL SYSTEMS, INC. By: BRUCE GREWELL [SEAL] ------------------------------ Bruce Grewell, President 200 Executive Way Ponte Vedra Beach, Florida 32082 8 57 11 EXHIBIT A AMENDMENT TO SECURITY AGREEMENT DATED AS OF FEBRUARY 26, 1996 BETWEEN TEXT RETRIEVAL SYSTEMS, INC. AND DIXIE NATIONAL CORPORATION 58 12 AMENDMENT TO SECURITY AGREEMENT THIS AMENDMENT TO SECURITY AGREEMENT (this "Amendment") is dated as of February 26, 1996 and is between TEXT RETRIEVAL SYSTEMS, INC., a Florida corporation ("TRS"), and DIXIE NATIONAL CORPORATION, a Mississippi corporation ("DNC"). RECITALS A. DNC proposes to enter into an Accounts Receivable Financing Agreement dated as of February 26, 1996 (as the same may be amended, supplemented or modified from time to time and including any agreement extending the maturity of, refinancing or otherwise restructuring all or any portion of the obligations under such agreement or any successor agreement, the "AR Financing Agreement") whereby DNC may provide TRS with accounts receivable financing in an amount not to exceed $500,000.00 (the "Financing Loan"); and B. The Financing Loan is evidenced by a certain Accounts Receivable Financing Note (the "AR Financing Note") dated February 26, 1996; and C. The parties hereto desire to amend that certain Security Agreement dated as of October 16, 1995 by and between TRS and DNC (the "Security Agreement") to provide that it secures the AR Financing Note; NOW, THEREFORE, in consideration of the premises, the respective representations, agreements, covenants and conditions contained herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and in order to induce DNC to extend the Financing Loan, the parties hereto agree as follows: 1. The Recitals set forth above, and the definitions contained therein, are hereby incorporated into this Amendment. 2. The Security Agreement is hereby amended as follows: (a) In each instance in which the term "Credit Agreement" appears in the text of the Security Agreement, it shall be deemed to mean and refer to the Credit Agreement and the AR Financing Agreement. (b) In each instance in which the term "Loan" appears in the text of the Security Agreement, it shall be deemed to mean and refer to the Working Capital Loan (hereinafter defined) and the Financing Loan. (c) The Recitals set forth on page 1 of the Security Agreement are hereby deleted and replaced with the following: 59 13 A. DNC has entered into a Credit Agreement dated as of October 16, 1995 (as the same may be amended, supplemented, or modified from time to time and including any agreement extending the maturity of, refinancing or otherwise restructuring all or any portion of the obligations under such agreement or any successor agreement, the "Credit Agreement") whereby DNC has provided TRS with a $750,000.00 Working Capital Loan (the "Working Capital Loan"); B. DNC has entered into an accounts Receivable Financing Agreement dated as of February 26, 1996 (as the same may be amended, supplemented, or modified from time to time and including any agreement extending the maturity of, refinancing or otherwise restructuring all or any portion of the obligations under such agreement or any successor agreement, the "AR Financing Agreement") whereby DNC has agreed to provide TRS with a accounts receivable financing in a maximum amount of $500,000.00 (the "AR Financing"); C. In order to induce DNC to enter into the Credit Agreement and the AR Financing Agreement and to secure TRS's obligations hereunder and thereunder, TRS has given DNC a security interest in certain property of TRS; (d) The definition of "Obligations" set forth on page 2 of the Security Agreement is hereby deleted and replaced with the following: "Obligations" means (i) all amounts now or hereafter payable by TRS to DNC on the Note, (ii) all amounts now or hereafter payable by TRS to DNC on the AR Financing Note, (iii) all amounts now or hereafter payable by TRS to DNC in connection with the Amended and Restated Option Agreement, (iv) all obligations or liabilities now or hereafter payable by TRS pursuant to the Credit Agreement and/or the AR Financing Agreement, (v) all amounts hereafter payable by TRS on any note(s) entered into pursuant to the terms of Section 3.3 and/or Section 4.2 of the Amended and Restated Option Agreement, and (vi) all obligations and liabilities now or hereafter payable by TRS under, arising out of or in connection with this Security Agreement. (e) By inserting " ,including, but not limited to, the AR Account as defined in that certain Accounts Receivable Financing Agreement dated as of February 26, 1996 between DNC and TRS" after the word "bank" on the fourth line of Clause (v) of Section 2.1. 3. TRS hereby ratifies and affirms all of the terms and provisions of, and all of its obligations under, the Security Agreement, as modified hereby. IN WITNESS WHEREOF, the parties hereto have caused this Amendment to Security Agreement to be duly executed by their respective authorized officers as of the day and year first above written. 2 60 14 DIXIE NATIONAL CORPORATION By: G. THOMAS REED [SEAL] ---------------------------- G. Thomas Reed, President 107 Executive Center Hilton Head Island, SC 29928 TEXT RETRIEVAL SYSTEMS, INC. By: BRUCE GREWELL [SEAL] ---------------------------- Bruce Grewell, President 200 Executive Way Ponte Vedra Beach, FL 32082 3 61 15 EXHIBIT B ACCOUNTS RECEIVABLE FINANCING NOTE Hilton Head Island, South Carolina February 26, 1996 For value received, TEXT RETRIEVAL SYSTEMS, INC., a Florida corporation (the "Maker"), promises to pay to the order of DIXIE NATIONAL CORPORATION, a Mississippi corporation, and any subsequent holder of this Note ("Holder" or "Holders"), in the manner hereinafter provided, the principal sum of $500,000.00, or such lesser amount as shall have been advanced from time to time (the "Loan"), pursuant to the terms of that certain Accounts Receivable Financing Agreement dated as of February 26, 1996 between the Maker and the Holder (as amended, supplemented or modified from time to time, the "AR Financing Agreement"), together with interest at the rate and on the terms hereinafter provided for in this note (including all modifications, substitutions, renewals or extensions hereof, this "Note"). Interest shall accrue on the unpaid principal balance of the Loan from the date hereof at a rate (the "Note Rate") equal to two percent (2%) above the Prime Rate (hereinafter defined). The Note Rate shall adjust monthly on the first day of March, 1996 and on the first day of each month thereafter based on the Prime Rate in effect on the Monthly Adjustment Date (hereinafter defined) occurring immediately prior thereto. As used herein, the term "Monthly Adjustment Date" means (i) for the period from February 26, 1996 through February 29, 1996, the date of February 26, 1996, and (ii) for each calendar month thereafter during the term of the Loan evidenced by this Note, the last day of the preceding calendar month on which The Wall Street Journal is published. As used herein, the term "Prime Rate" means the floating and fluctuating per annum rate of interest identified as the prime rate of interest and published in The Wall Street Journal on the Monthly Adjustment Date. Interest accrued on the unpaid principal balance of the Loan shall be paid by the Maker to the Holder monthly on the first day of each month, commencing on April 1, 1996 until the maturity of this Note (whether by acceleration, extension or otherwise) at which time the Maker shall pay to the Holder all accrued and unpaid interest due hereunder. If not sooner paid, the entire principal balance of the Loan and all interest accrued thereon shall be paid by the Maker to the Holder on February 26, 1997. Any overdue principal and, to the extent permitted by law, overdue interest accrued on the unpaid principal balance of this Loan shall bear interest for each day until paid at a rate per annum of two percent (2%) above the Note Rate in effect on the date such principal or interest became due. In addition, in the event that any payment of principal of or interest is not made within fifteen (15) days after the date such payment was due, the Maker promises to pay to the Holder a late charge equal to 5.00% of the amount of such payment. Interest on the aggregate unpaid principal balance of the Loan shall be computed on the basis of a year of 360 days and paid for the actual number of days for which due. All payments of 62 16 principal and interest shall be made in lawful money of the United States in immediately available funds at the office of the Holder located at 107 the Executive Office Center, Hilton Head Island, S.C. 29928. The Holder shall record on its books, and prior to any transfer hereof shall make on the Schedule A attached hereto appropriate notations to evidence, the date and amount of each advance made pursuant to the AR Financing Agreement and the date and amount of each payment of principal made by the Maker with respect thereto; provided, however, that any failure of the Holder to make such a notation or any error therein shall not in any manner affect the obligation of the Maker to repay the amounts advanced by the Holder under the AR Financing Agreement in accordance with the terms hereof. The Maker hereby appoints any attorney admitted to practice before any court of record in the United States as its true and lawful attorney-in-fact, for and in the place and stead of the Maker, upon the occurrence of an Event of Default, to appear for the Maker and to confess judgment against the Maker, in any court having jurisdiction in one or more proceedings, upon this Note and all amounts owed hereunder, including all costs of collection, court costs and attorneys' fees, the Maker hereby ratifying and confirming the acts of such attorney-in-fact as if done by the Maker. The Maker hereby waives and releases, to the extent permitted by law, all errors and all right of exemption, appeal, stay of execution, inquisition and extension upon any levy on real estate or personal property to which the Maker may otherwise be entitled under any federal or state law now in force or which may hereafter be passed. The authority and power to appear for and enter judgment against the Maker shall not be exhausted by one or more exercises thereof, or by any imperfect exercise thereof, and shall not be extinguished by any judgment entered pursuant thereto. The authority and power to appear for and enter judgment against the Maker may be exercised on one or more occasions in the same or different jurisdictions as often as the Holder may deem necessary or desirable. If one or more of the following events ("Events of Default") shall have occurred and be continuing: (a) The Maker shall fail to pay when due any principal of or interest due under this Note. (b) The Maker shall default in its obligations under (i) that certain $750,000 Note dated October 16, 1995 from Maker for the benefit of Holder, (ii) that certain Credit Agreement dated as of October 16, 1995 between the Maker and the Holder, (iii) that certain Security Agreement dated as of October 16, 1995 between the Maker and the Holder, as amended by that certain Amendment to Security Agreement dated as of February 26, 1996 (the "Security Agreement"), or (iv) that certain Amended and Restated Option Agreement dated as of February 26, 1996 between the Maker, the Holder and individuals holding shares of the Maker's common stock (the "Stockholders"); 2 63 17 (c) The Maker and/or the Stockholders shall fail to observe or perform any other covenant or agreement contained in the AR Financing Agreement or the Amended and Restated Option Agreement; (d) The Maker shall fail to make any payment in respect of any debt or obligation (other than this Note) when due or within any applicable grace period; (e) Any event or condition shall occur which results in the acceleration of the maturity of any debt or obligation of the Maker or enables (or, with the giving of notice or lapse of time or both, would enable) the holder of such debt or obligation or any person acting on such holder's behalf to accelerate the maturity thereof; (f) The Maker shall commence a voluntary case or other proceeding seeking liquidation, reorganization or other relief with respect to itself or its debts under any bankruptcy, insolvency or other similar law now or hereafter in effect or seeking the appointment of a trustee, receiver, liquidator, custodian or other similar official of it or any substantial part of its property, or shall consent to any such relief or to the appointment of or taking possession by any such official in an involuntary case or other proceeding commenced against it, or shall make a general assignment for the benefit of creditors, or shall fail generally to pay its debts as they become due, or shall take any corporate action to authorize any of the foregoing; (g) An involuntary case or other proceeding shall be commenced against the Maker seeking liquidation, reorganization or other relief with respect to it or its debts under any bankruptcy, insolvency or other similar law now or hereafter in effect or seeking the appointment of a trustee, receiver, liquidator, custodian or other similar official of it or any substantial part of its property, and such involuntary case or other proceeding shall remain undismissed and unstayed for a period of 60 days, or an order for relief shall be entered against the Maker under the federal bankruptcy laws as now or hereafter in effect; (h) One or more judgments or orders for the payment of money in excess of $10,000 shall be rendered against the Maker and such judgment or order shall continue unsatisfied for a period of 60 days during which execution thereof shall not be effectively stayed; (i) (A) the Security Agreement shall cease for any reason to be in full force and effect or shall cease to be effective to grant a first priority perfected security interest in the collateral therein described or such security interest shall cease to be in full force and effect or shall be declared null and void, or the validity or enforceability of such security interest or the Security Agreement shall be contested by the Maker or the Maker shall deny that it has any further liability or obligation under, 3 64 18 or shall fail to perform its obligations under, the Security Agreement or (B) any creditor of the Maker shall obtain possession of any of the collateral described in the Security Agreement by any means (including, without limitation, levy, distraint, replevin or self-help) or any such creditor shall establish or obtain rights in such collateral that are equal to or senior to the security interests of the Holder in such collateral; (j) (A) the expiration of five days after the Holder has given the Maker notice of the Holder's good faith determination that the Holder deems itself insecure, that a material adverse change in the financial condition of the Maker has occurred since the date of this Note or that the Holder's prospect of payment hereunder has been impaired, or (B) the reasonable suspicion by the Holder that one or more Events of Default have occurred and the failure of the Maker, upon five days notice thereof from the Holder, to provide reasonably satisfactory evidence to the Maker that such Events of Default have not occurred; then, and in every such event, the Holder may, at its option, by notice to the Maker, terminate the AR Financing Agreement and declare this Note (together with accrued but unpaid interest thereon) to be immediately due and payable (and this Note shall thereupon become immediately due and payable without presentment, demand, protest or other notice of any kind, all of which are hereby waived by the Maker); provided, however, that upon the occurrence of any of the Events of Default specified in clause (f) or (g) above with respect to the Maker, without any notice to the Maker or any other act by the Holder, the AR Financing Agreement shall terminate and this Note (together with accrued but unpaid interest thereon) shall immediately become due and payable without presentment, demand, protest or other notice of any kind, all of which are hereby waived by the Maker. This Note is the AR Financing Note referred to in the AR Financing Agreement. TEXT RETRIEVAL SYSTEMS, INC. By: BRUCE GREWELL [SEAL] --------------------------- Bruce Grewell, President 4 65 19 SCHEDULE A ADVANCES AND PAYMENTS
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66 20 EXHIBIT C AMENDED AND RESTATED OPTION AGREEMENT DATED AS OF FEBRUARY 26, 1996 AMONG DIXIE NATIONAL CORPORATION AND TEXT RETRIEVAL SYSTEMS, INC. AND HOLDERS OF THE COMMON STOCK OF TEXT RETRIEVAL SYSTEMS, INC. 67 21 TABLE OF CONTENTS
PAGE ---- ARTICLE 1. RECITALS; DEFINITIONS . . . . . . . 2 Section 1.1. Incorporation of Recitals . . . . . . . . . 2 ------------------------- Section 1.2. Definitions . . . . . . . . . . . . . . . . 3 ----------- ARTICLE 2. THE DNC OPTION . . . . . . . . 8 Section 2.1. Grant of Option . . . . . . . . . . . . . . 8 --------------- Section 2.2. Term . . . . . . . . . . . . . . . . . . . 8 ---- Section 2.3. Exercise . . . . . . . . . . . . . . . . . 8 -------- Section 2.4. Consideration for Grant of DNC Option . . . 8 ------------------------------------- Section 2.5. Exercise Consideration . . . . . . . . . . 9 ---------------------- Section 2.6. Early Exercise . . . . . . . . . . . . . . 9 -------------- Section 2.7. Transfer in Escrow . . . . . . . . . . . . 10 ------------------ Section 2.8. Investment Representation . . . . . . . . . 10 ------------------------- Section 2.9. Discretion to Choose Form of Payment . . . 11 ------------------------------------ ARTICLE 3. THE DNC PUT OPTION . . . . . . . 11 Section 3.1. Grant of Option. . . . . . . . . . . . . . 11 --------------- Section 3.2. Exercise . . . . . . . . . . . . . . . . . 11 -------- Section 3.3. Payment . . . . . . . . . . . . . . . . . . 11 ------- Section 3.4. Escrow. . . . . . . . . . . . . . . . . . . 12 ------ Section 3.5. Expiration Upon Early Exercise of --------------------------------- DNC Option. . . . . . . . . . . . . . . . 12 ---------- ARTICLE 4. THE CONTINGENT REDEMPTION OF AR FINANCING STOCK . . . . . . . 12 Section 4.1. Grant of Option. . . . . . . . . . . . . . 12 --------------- Section 4.2. Payment . . . . . . . . . . . . . . . . . . 12 ------- Section 4.3. Escrow. . . . . . . . . . . . . . . . . . . 13 ------
i 68 22 ARTICLE 5. REPRESENTATIONS AND WARRANTIES . . . . 13 Section 5.1. Corporate Existence and Power; TRS Shares ----------------------------------------- Outstanding . . . . . . . . . . . . . . . 13 ----------- Section 5.2. Due Authorization; Contravention . . . . . 14 -------------------------------- Section 5.3. Binding Effect . . . . . . . . . . . . . . 14 -------------- Section 5.4. Litigation . . . . . . . . . . . . . . . . 14 ---------- Section 5.5. Filings . . . . . . . . . . . . . . . . . . 14 ------- ARTICLE 6. MISCELLANEOUS . . . . . . . . . 14 Section 6.1. Notices . . . . . . . . . . . . . . . . . . 14 ------- Section 6.2. No Waivers . . . . . . . . . . . . . . . . 15 ---------- Section 6.3. Amendments and Waivers . . . . . . . . . . 15 ---------------------- Section 6.4. Successors and Assigns . . . . . . . . . . 15 ---------------------- Section 6.5. Governing Law . . . . . . . . . . . . . . . 15 ------------- Section 6.6. Counterparts; Facsimile Signatures; ---------------------------------- Effectiveness . . . . . . . . . . . . . . 15 ------------- Section 6.7. Entire Agreement . . . . . . . . . . . . . 15 ---------------- Section 6.8. Covenant Regarding Transfers of TRS Stock . 15 ----------------------------------------- Section 6.9. Ratification . . . . . . . . . . . . . . . 16 ------------
ii 69 23 AMENDED AND RESTATED OPTION AGREEMENT THIS AMENDED AND RESTATED OPTION AGREEMENT (as further amended, supplemented or modified from time to time, this "Agreement") is dated as of February 26, 1996 and is by and among Dixie National Corporation, a Mississippi corporation ("DNC"), Text Retrieval Systems, Inc., a Florida corporation ("TRS"), and all of the holders of the common stock of TRS as of February 26, 1996, except DNC (collectively, the "TRS Stockholders"). RECITALS A. DNC entered into a Credit Agreement dated as of October 16, 1995 (the "Credit Agreement"), pursuant to which DNC agreed to provide TRS with a $750,000.00 working capital loan (the "Working Capital Loan"). B. Pursuant to the Credit Agreement, DNC received four hundred fifty-five (455) shares of TRS common stock, constituting thirty-five percent (35%) of the issued and outstanding capital stock in TRS (the "Working Capital Loan Inducement Stock"). C. As a condition to DNC entering into the Credit Agreement and committing to make the Working Capital Loan, TRS and each of the TRS Stockholders agreed to enter into a written Option Agreement dated as of October 16, 1995 (the "Option Agreement"), granting DNC an option (the "DNC Option") to acquire the Remaining TRS Stock (hereinafter defined) and an option (the "DNC Put Option") to require TRS to redeem the Working Capital Loan Inducement Stock in the event DNC elects not to exercise the DNC Option. D. Subsequent to providing the Working Capital Loan, DNC agreed to provide TRS with accounts receivable financing in an amount not to exceed $500,000.00 (the "Financing Loan"), pursuant to terms and conditions set forth in an Accounts Receivable Financing Agreement dated as of even date herewith (the "AR Financing Agreement"). E. The Financing Loan is evidenced by a certain Accounts Receivable Financing Note (the "AR Financing Note") dated February 26, 1996. 70 24 F. Pursuant to the AR Financing Agreement, DNC shall receive shares of TRS common stock constituting five percent (5%) of the issued and outstanding shares of TRS capital stock (the "Financing Loan Inducement Stock") and, if DNC does not first exercise the DNC Option: (i) in the event the February Receivable Collections (hereinafter defined) do not equal or exceed an amount which is equal to fifty-six percent (56%) of the TRS Accounts Receivable generated during the period from February 1, 1996 through February 29, 1996, DNC shall receive shares of TRS common stock constituting an additional five percent (5%) of the issued and outstanding shares of TRS capital stock (the "February Stock"), and (ii) in the event the March Receivable Collections (hereinafter defined) do not equal or exceed an amount equal to the product of the New Benchmark Rate (hereinafter defined) and TRS Accounts Receivable generated during the period from March 1, 1996 through March 31, 1996, DNC shall receive shares of TRS common stock constituting an additional ten percent (10%) of the issued and outstanding shares of TRS capital stock (the "March Stock"). G. As a condition to DNC entering into the AR Financing Agreement and committing to make the Financing Loan, TRS and each of the TRS Stockholders agreed that TRS shall redeem (the "Contingent Redemption") the AR Financing Stock (hereinafter defined) in the event DNC exercises the DNC Put Option and TRS fails to timely pay all amounts due under the AR Financing Note. H. In connection with TRS and DNC entering into the AR Financing Agreement, DNC, TRS and the TRS Stockholders desire to amend and restate the Option Agreement to clarify the terms governing the Contingent Redemption and the exercise of the DNC Put Option and to evidence the consent of the TRS Stockholders to (i) the transfer of the AR Financing Stock to DNC and (ii) any future transfers of TRS capital stock to DNC pursuant to the terms of agreements between TRS and DNC subsequent to the date hereof. NOW, THEREFORE, in consideration of the foregoing and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree that the Option Agreement is hereby amended and restated to read as follows: ARTICLE 1. RECITALS; DEFINITIONS 2 71 25 SECTION 1.1. INCORPORATION OF RECITALS. The foregoing recitals and statements are made a part of this Agreement. SECTION 1.2. DEFINITIONS. Whenever used in this Agreement, the following terms shall be read as herein provided: SECTION 1.2.1. "Applicable Multiplier" shall mean either a multiplier of ten (10) or, instead, a multiplier of eight (8), depending upon the amount of TRS Pre-Tax Income; such that if TRS Pre-Tax Income equals or exceeds Projected TRS Pre-Tax Income, the Applicable Multiplier shall be ten (10), but if TRS Pre-Tax Income does not equal or exceed Projected TRS Pre-Tax Income, the Applicable Multiplier shall instead be eight (8). SECTION 1.2.2. "AR Financing Agreement" shall mean that certain Accounts Receivable Financing Agreement dated as of February 26, 1996, setting forth the terms and conditions of the Financing Loan. SECTION 1.2.3. "AR Financing Note" shall mean that certain Accounts Receivable Financing Note dated February 26, 1996, made by TRS for the benefit of DNC, evidencing amounts advanced by DNC to TRS pursuant to the Financing Loan. SECTION 1.2.4. "AR Financing Stock" shall mean the collective reference to the Financing Loan Inducement Stock and, if transferred to DNC pursuant to the terms of this Agreement, the February Stock and the March Stock. SECTION 1.2.5. "Contingent Redemption" shall mean the redemption by TRS of the AR Financing Stock, which shall occur in the event DNC exercises the DNC Put Option and TRS fails to timely pay all amounts due under the AR Financing Note. SECTION 1.2.6. "DNC Exercise Shares" shall mean a certain, but currently undetermined, number of shares of DNC common stock which may, at the election of DNC, be conveyed to TRS Stockholders in exchange for the Remaining TRS Stock in the event DNC exercises the DNC Option. SECTION 1.2.7. "DNC Grant Shares" shall mean 100,000 shares of DNC common stock conveyed to TRS Stockholders in connection with the Working Capital Loan. 3 72 26 SECTION 1.2.8. "DNC Option" shall mean that certain option granted to DNC by the TRS Stockholders, providing DNC with the option to acquire all of the TRS Remaining Stock. SECTION 1.2.9. "DNC Option Exercise Date" shall mean the date, if any, on which DNC elects, by written notice to TRS, to exercise the DNC Option. SECTION 1.2.10. "DNC Option Exercise Period" shall mean the period between October 16, 1995 and the DNC Option Expiration Date. SECTION 1.2.11. "DNC Option Expiration Date" shall mean that date which is thirty (30) days after DNC's receipt of audited financial statements satisfactory to DNC, as required by Section 5.1 of the Credit Agreement, for TRS's fiscal year ending June 30, 1997. SECTION 1.2.12. "DNC Put Option" shall mean that certain option granted to DNC by TRS, providing DNC with the option to require TRS to redeem all of the Working Capital Loan Inducement Stock in the event the DNC Option is not exercised, for a redemption price and upon terms set forth below in Article 3. SECTION 1.2.13. "DNC Put Option Exercise Date" shall mean the date, if any, on which DNC elects, by written notice to TRS, to exercise the DNC Put Option. SECTION 1.2.14. "Early Exercise Shares Per TRS Stockholder" shall differ for each of the TRS Stockholders and, for each TRS Stockholder, shall mean the number of DNC Early Exercise Shares received by an individual TRS Stockholder, which number shall mean the product obtained by multiplying 2,500,000 by a fraction the numerator of which is the number of shares of TRS capital stock held by such stockholder on the DNC Option Exercise Date and the denominator of which is the total number of shares of TRS capital stock outstanding on the DNC Option Exercise Date. SECTION 1.2.15. "Early Exercise Shares" shall mean 2,500,000 shares of DNC common stock which shall be conveyed to TRS Stockholders promptly upon DNC's exercise of the DNC Option, provided the DNC Option Exercise Date is a date occurring prior to January 1, 1997. 4 73 27 SECTION 1.2.16. "Earnings Period" shall mean the twelve month period beginning July 1, 1996 and concluding June 30, 1997. SECTION 1.2.17. "Enterprise Value" shall mean the product obtained by multiplying TRS Earnings by the Applicable Multiplier. SECTION 1.2.18. "Exercise Consideration Per TRS Stockholder" shall differ for each of the TRS Stockholders and, for each individual TRS Stockholder, shall mean the product obtained by multiplying Enterprise Value by a fraction the numerator of which is the number of shares of TRS capital stock held by such stockholder on the DNC Option Exercise Date and the denominator of which is the total number of shares of TRS capital stock outstanding on the DNC Option Exercise Date. SECTION 1.2.19. "Fair Market Value of DNC Stock" shall mean that value equal to the average NASDAQ closing bid price of DNC stock for a six-month period, beginning January 1, 1997 and ending June 30, 1997, adjusted to give effect to any stock dividend, stock split or reverse stock split. SECTION 1.2.20. "February Receivable Collections" shall mean the amount of TRS Accounts Receivable generated during the period from February 1, 1996 through February 29, 1996, which have been submitted to DNC as provided in Section 1.2 of the AR Financing Agreement and collected by TRS as of the close of business on April 29, 1996. SECTION 1.2.21. "February Stock" shall mean the number of shares of TRS capital stock equal to five percent (5%) of the total number of shares of TRS capital stock issued and outstanding as of the close of business on April 29, 1996, which shares shall be transferred to DNC as additional consideration for DNC making the Financing Loan only in the event February Receivable Collections do not meet or exceed an amount equal to fifty-six percent (56%) of the TRS Accounts Receivable generated during the period from February 1, 1996 through February 29, 1996. SECTION 1.2.22. "Financing Loan" shall mean that certain accounts receivable financing loan in the maximum principal amount of $500,000 provided by DNC to TRS pursuant to the terms of the AR Financing Agreement, and evidenced by the AR Financing Note. 5 74 28 SECTION 1.2.23. "Financing Loan Inducement Stock" shall mean the number of shares of TRS capital stock equal to five percent (5%) of the total number of shares of TRS capital stock issued and outstanding on February 26, 1996, which shares are to be transferred to DNC in consideration of DNC making the Financing Loan. SECTION 1.2.24. "Forfeiture Legend" shall mean a legend set forth on each stock certificate representing DNC Early Exercise Shares, which shall read as follows: "THE SHARES REPRESENTED BY THIS CERTIFICATE, AND THE TRANSFER HEREOF, ARE SUBJECT TO FORFEITURE PROVISIONS SET FORTH IN AN AMENDED AND RESTATED OPTION AGREEMENT DATED AS OF FEBRUARY 26, 1996, A COPY OF WHICH IS ON FILE AND MAY BE EXAMINED AT THE PRINCIPAL OFFICE OF THE CORPORATION." SECTION 1.2.25. "Forfeiture Shares", if any, shall differ for each TRS Stockholder and, for each TRS Stockholder shall mean the number of shares of DNC common stock held by such stockholder equal to the difference between such stockholder's Early Exercise Shares Per TRS Stockholder and the quotient obtained by such stockholder's Exercise Consideration Per TRS Stockholder by the Fair Market Value of DNC Stock. SECTION 1.2.26. "March Receivable Collections" shall mean the amount of TRS Accounts Receivable generated during the period from March 1, 1996 through March 31, 1996, which have been submitted to DNC as provided in Section 1.2 of the AR Financing Agreement and collected by TRS as of the close of business on June 3, 1996. SECTION 1.2.27. "March Stock" shall mean the number of shares of TRS capital stock equal to ten percent (10%) of the total number of shares of TRS capital stock issued and outstanding as of the close of business on June 3, 1996, which shares are to be transferred to DNC as additional consideration for the Financing Loan only in the event March Collections do not meet or exceed an amount equal to the product of the New Benchmark Rate and the TRS Accounts Receivable generated during the period from March 1, 1996 through March 31, 1996. 6 75 29 SECTION 1.2.28. "New Benchmark Rate" shall be established only in the event the February Receivable Collections do not meet or exceed an amount equal to fifty-six percent (56%) of the TRS Accounts Receivable generated during the period from February 1, 1996 through February 29, 1996 and, if established, shall mean a percentage rate of collection equal to the actual percentage rate of collection, as of April 29, 1996, for TRS Accounts Receivable generated during the period from February 1, 1996 through February 29, 1996. SECTION 1.2.29. "Projected TRS Pre-Tax Income" shall mean the sum of One Million Four Hundred Eighteen Thousand Dollars ($1,418,000). SECTION 1.2.30. "Redemption Price - AR Financing Stock" shall mean an amount equal to twice the amount of the outstanding principal balance, plus accrued interest, if any, due and owing on the AR Financing Note on that date which is thirty (30) days after the DNC Put Option Exercise Date. SECTION 1.2.31. "Redemption Price - Working Capital Loan Inducement Stock" shall mean an amount equal to the outstanding principal balance, plus accrued interest, if any, of the Working Capital Loan on the date of renunciation or expiration of the DNC Option. SECTION 1.2.32. "Remaining TRS Stock" shall mean all of the capital stock of TRS which is not owned by DNC on the DNC Option Exercise Date. SECTION 1.2.33. "TRS Accounts Receivable" shall mean gross accounts receivable generated by TRS for services provided and/or products delivered to TRS customers during a period beginning February 1, 1996 and ending February 21, 1997, without any adjustment for bad debts, non-collectable amounts or non-payment by TRS customers. SECTION 1.2.34. "TRS Earnings" shall mean TRS Pre-Tax Income reduced by an agreed-upon amount equal to forty percent (40%) of TRS Pre-Tax Income, pursuant to the agreement among the parties that the foregoing forty percent (40%) reduction shall constitute an assumed combined federal and state tax rate. SECTION 1.2.35. "TRS Pre-Tax Income" shall mean gross income received by TRS during the Earnings Period, as determined by generally accepted accounting principles consistently applied, less deductions for depreciation and 7 76 30 amortization accrued during the Earnings Period and calculated on a straight-line basis pursuant to conventions and asset useful lives provided by applicable Treasury Regulations, and less deductions for interest paid during the Earnings Period; provided, however, that net operating losses incurred by TRS shall be excluded from the calculation of TRS Pre-Tax Income. SECTION 1.2.36. "Working Capital Loan" shall mean that certain working capital loan in the maximum principal amount of $750,000 provided by DNC to TRS pursuant to the terms of the Credit Agreement. SECTION 1.2.37. "Working Capital Loan Inducement Stock" shall mean 455 shares of TRS capital stock transferred to DNC as consideration for DNC making the Working Capital Loan. SECTION 1.2.38. "Working Capital Loan Note" shall mean that certain Note dated October 16, 1995 made by TRS for the benefit of DNC evidencing the Working Capital Loan. ARTICLE 2. THE DNC OPTION SECTION 2.1. GRANT OF OPTION. Each of the undersigned TRS Stockholders jointly and severally grant to DNC, subject to the terms and conditions set forth in this Article 2, the option to purchase all of the Remaining TRS Stock immediately upon exercise of the DNC Option. SECTION 2.2. TERM. The DNC Option may be exercised by DNC for all, but not less than all, of the Remaining TRS Stock at any time prior to the DNC Option Expiration Date. SECTION 2.3. EXERCISE. DNC may exercise the DNC Option during the DNC Option Exercise Period by providing the TRS Stockholders with written notice, at the notice addresses set forth on the signature pages of this Agreement or otherwise specified pursuant to Section 6.1, dated not later than the DNC Option Expiration Date. Within ten (10) days of the date of the written notice of exercise, the TRS Stockholders or TRS, as the case may be, shall (i) tender to DNC certificates evidencing all shares of TRS Remaining Stock, and (ii) each TRS Stockholder who is a director of TRS shall tender to DNC a written letter of resignation resigning from his or her position as 8 77 31 director of TRS. In the event DNC exercises the DNC Option, it may, at its sole and exclusive option, terminate any agreements then in effect between TRS and Electronic Reference Systems, Inc. SECTION 2.4. CONSIDERATION FOR GRANT OF DNC OPTION. In connection with the Working Capital Loan, prior to the date hereof, DNC conveyed the DNC Grant Shares to the TRS Stockholders. All of the DNC Grant Shares were evidenced by certificates duly executed by officers of DNC. Each TRS Stockholder received a portion of the DNC Grant Shares equal to such stockholder's proportionate interest in TRS as of October 16, 1995. SECTION 2.5. EXERCISE CONSIDERATION. The consideration which DNC shall provide in order to acquire the Remaining TRS Stock upon exercise of the DNC Option shall be the DNC Exercise Shares, with each TRS Stockholder receiving a portion of the DNC Exercise Shares equal to such stockholder's proportionate interest in TRS on the DNC Option Exercise Date. Each TRS Stockholder shall receive a number of the DNC Exercise Shares equal to the Exercise Consideration Per TRS Stockholder calculated with respect to each such stockholder divided by the Fair Market Value of DNC Stock. By way of example, the following calculation illustrates the number of DNC Exercise Shares that would be received by a TRS Stockholder holding ten percent (10%) of TRS capital stock on the DNC Option Exercise Date, assuming Five Dollars ($5.00) is the per share Fair Market Value of DNC Stock and further assuming TRS Earnings of One Million Five Hundred Thousand Dollars ($1,500,000): 1,500,000 x 10 = 10,500,000 [Enterprise Value] 10,500,000 x 10% = 1,500,000 [Exercise Consideration Per (10%) TRS Stockholder] 1,500,000 / 5 = 300,000 [Number of DNC Exercise Shares] All DNC Exercise Shares shall be evidenced by certificates duly executed by officers of DNC. The DNC Exercise Shares shall be conveyed by DNC to the TRS Stockholders within forty-five (45) days following receipt by DNC of the completed audited financial statement of TRS for the Earnings Period. SECTION 2.6. EARLY EXERCISE. In the event DNC exercises the DNC Option prior to January 1, 1997, DNC shall tender the Early Exercise Shares, with each individual TRS Stockholder entitled to receive a number of the Early Exercise Shares equal to such stockholder's Early Exercise Shares Per TRS Stockholder. All 9 78 32 Early Exercise Shares shall bear the Forfeiture Legend. The Early Exercise Shares shall, depending upon subsequent calculation of the formula set forth in Section 2.5, constitute all or a portion of the DNC Exercise Shares due in connection with the exercise of the DNC Option; provided, however, that the Early Exercise Shares received by each individual TRS Stockholder are subject to forfeiture to the extent the number of such stockholder's Early Exercise Shares Per TRS Stockholder exceed the quotient obtained by dividing such stockholder's Exercise Consideration Per TRS Stockholder by the Fair Market Value of DNC Stock. Upon calculation of the aforementioned quotient, either (i) any Forfeiture Shares shall promptly be tendered to DNC, or (ii) if, however, the quotient obtained by dividing each individual TRS Stockholder's Exercise Consideration Per TRS Stockholder by the Fair Market Value of DNC Stock exceeds such stockholder's Early Exercise Shares Per TRS Stockholder, then DNC shall promptly tender to each TRS Stockholder shares of DNC common stock equal to the difference. Upon conclusion of the transaction referred to in the preceding sentence, full and complete tender of all Exercise Shares shall be deemed to have occurred. SECTION 2.7. TRANSFER IN ESCROW. Upon exercise of the DNC Option, the Remaining TRS Stock shall be transferred to an Escrow Agent designated by DNC and approved by TRS and held in escrow pursuant to an escrow agreement containing such terms and conditions as are mutually agreeable to DNC and TRS until such time as all of the DNC Exercise Shares have been distributed to the TRS Stockholders pursuant to this Article 2. While held in escrow, the TRS Stockholders shall retain a security interest in the Remaining TRS Stock until such time as all of the DNC Grant Shares have been distributed. The escrow agreement shall provide, among other things, that DNC shall have the full right, power and authority to vote the Remaining TRS Stock on any matters requiring approval of the stockholders of TRS. SECTION 2.8. INVESTMENT REPRESENTATION. Each TRS Stockholder acknowledges and agrees that neither the DNC Grant Shares nor the DNC Exercise Shares, which include but are not limited to the Early Exercise Shares, have not been registered under the Securities Act of 1933 (the "1933 Act"), but that the transfer thereof to the TRS Stockholders pursuant to this Agreement is intended to be exempt from registration thereunder pursuant to Section 4(2) thereof and Regulation D thereunder. In agreeing to accept such shares of DNC stock, each TRS Stockholder hereby represents and warrants to DNC that such stockholder is acquiring the all such shares of DNC stock solely for his or her own account and not for resale or distribution. Each TRS Stockholder also acknowledges and agrees that a restrictive legend shall be placed on any certificates or other document evidencing the DNC Grant 10 79 33 Shares and the DNC Exercise Shares, which include but are not limited to the Early Exercise Shares, received by such stockholder. The legend shall appear on all such certificates or other documents as follows: "THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR ANY SIMILAR PROVISIONS OF THE LAWS OF ANY STATE AND HAVE NOT BEEN ACQUIRED WITH A VIEW TO, OR IN CONNECTION WITH, ANY SALE OR OTHER DISTRIBUTION THEREOF. NO SUCH SALE, DISTRIBUTION OR OTHER TRANSFER MAY BE EFFECTED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT RELATING TO SUCH SHARES OR AN OPINION OF COUNSEL SATISFACTORY TO THE BOARD OF DIRECTORS OF THE CORPORATION THAT SUCH REGISTRATION IS NOT REQUIRED. THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN RECOMMENDED BY ANY FEDERAL OR STATE SECURITIES COMMISSION OR REGULATORY AUTHORITY." SECTION 2.9. DISCRETION TO CHOOSE FORM OF PAYMENT. The foregoing provisions notwithstanding, the parties hereto acknowledge and agree that at its option DNC may substitute cash or cash equivalents for all or any portion of the DNC Exercise Shares. ARTICLE 3. THE DNC PUT OPTION SECTION 3.1. GRANT OF OPTION. TRS hereby grants to DNC, subject to the terms and conditions set forth in this Article 3, the option to require TRS to redeem the Working Capital Loan Inducement Stock for an amount equal to the Redemption Price - Working Capital Loan Inducement Stock. DNC's exercise of the DNC Put Option shall have no effect upon TRS's obligation to repay the Working Capital Loan pursuant to the terms of the Credit Agreement and the Working Capital Loan Note. SECTION 3.2. EXERCISE. DNC may exercise the DNC Put Option by providing TRS with written notice dated on or after the date of renunciation or termination of the DNC Option. Exercise of the DNC Put Option provided for in this 11 80 34 Article 3 shall cause all amounts evidenced by the AR Financing Note to become due and payable as provided in Section 4.1 of this Agreement. SECTION 3.3. PAYMENT. Payment in full of the Redemption Price - Working Capital Loan shall be due by the later of (i) January 2, 1997, or (ii) that date which is thirty (30) days after the date of the written notice provided for under Section 3.2 hereof; provided, however, that upon receipt of a written request from TRS, DNC and TRS shall prepare and execute a written note which evidences TRS's obligation to pay the Redemption Price - Working Capital Loan Inducement Stock to DNC, provides for extension of such payment obligation over a period of seven (7) years in equal monthly installments bearing interest at the rate of ten percent (10%) per annum, with the initial monthly installment payment due exactly one month after the date of renunciation or termination of the DNC Option and the remaining payments due on the first day of each month thereafter until the note is fully paid, and cross collateral and cross default provisions with respect to the Working Capital Loan Note and the note evidencing TRS's obligation to pay the Redemption Price - - AR Financing Stock pursuant to Section 4.2 hereof. SECTION 3.4. ESCROW. During the extended seven year payment period provided for in Section 3.3 hereof, the Working Capital Loan Inducement Stock shall be transferred to an Escrow Agent designated by DNC and approved by TRS and held in escrow pursuant to an escrow agreement containing such terms and conditions as are mutually agreeable to DNC and TRS until such time as the note evidencing TRS's obligation to pay the Redemption Price - Working Capital Loan Inducement Stock has been paid in full, including all accrued interest. While held in escrow, DNC shall retain a security interest in the Working Capital Loan Inducement Stock until such time as the note evidencing TRS's obligation to pay the Redemption Price - Working Capital Loan Inducement Stock has been paid in full. The escrow agreement shall provide, among other things, that DNC shall have the full right, power and authority to vote the Working Capital Loan Inducement Stock on any matters requiring approval of the stockholders of TRS. SECTION 3.5. EXPIRATION UPON EARLY EXERCISE OF DNC OPTION. In the event DNC exercises the DNC Option prior to January 1, 1997, the DNC Put Option shall be deemed to have expired without exercise. 12 81 35 ARTICLE 4. THE CONTINGENT REDEMPTION OF AR FINANCING STOCK SECTION 4.1. GRANT OF OPTION. In the event the DNC Put Option is exercised, all amounts advanced pursuant to the Financing Loan and evidenced by the AR Financing Note shall be due and payable, with interest, thirty (30) days after the DNC Put Option Exercise Date. In the event the DNC Put Option is exercised and TRS fails to repay all amounts advanced pursuant to the Financing Loan and evidenced by the AR Financing Note, prior to the end of the thirty (30) day period provided for in the preceding sentence, TRS shall be required to redeem the AR Financing Stock for an amount equal to the Redemption Price - AR Financing Stock. SECTION 4.2. PAYMENT. Payment in full of the Redemption Price - AR Financing Stock shall be due by the later of (i) January 2, 1997, or (ii) that date which is sixty (60) days after the DNC Put Option Exercise Date; provided, however, that upon receipt of a written request from TRS, DNC and TRS shall prepare and execute a written note which evidences TRS's obligation to pay the Redemption Price - AR Financing Stock to DNC, provides for extension of such payment obligation over a period of seven (7) years in equal monthly installments bearing interest at the rate of ten percent (10%) per annum, with the initial monthly installment payment due on that date which is sixty (60) days after the DNC Put Option Exercise Date and the remaining payments due on the first day of each month thereafter until the note is fully paid, and cross collateral and cross default provisions with respect to the Working Capital Loan Note and the note evidencing TRS's obligation to pay the Redemption Price - - Working Capital Loan Inducement Stock. SECTION 4.3. ESCROW. During the extended seven year payment period provided for in Section 4.2 hereof, the AR Financing Stock shall be transferred to an Escrow Agent designated by DNC and approved by TRS and held in escrow pursuant to an escrow agreement containing such terms and conditions as are mutually agreeable to DNC and TRS until such time as the note evidencing TRS's obligation to pay the Redemption Price - AR Financing Stock has been paid in full, including all accrued interest. While held in escrow, DNC shall retain a security interest in the AR Financing Stock until such time as the note evidencing TRS's obligation to pay the Redemption Price - AR Financing Stock has been paid in full. The escrow agreement shall provide, among other things, that DNC shall have the full right, power and authority to vote the AR Financing Stock on any matters requiring approval of the stockholders of TRS. 13 82 36 ARTICLE 5. REPRESENTATIONS AND WARRANTIES TRS and each of the TRS Stockholders, jointly and severally represent and warrant that: SECTION 5.1. CORPORATE EXISTENCE AND POWER; TRS SHARES OUTSTANDING. TRS is a corporation duly incorporated, validly existing and in good standing under the laws of the Florida, and has all corporate powers and all material governmental licenses, authorizations, consents and approvals required to carry on its business as now conducted. TRS is duly qualified as a foreign corporation, licensed and in good standing in each jurisdiction where qualification or licensing is required by the nature of its business or the character and location of its property, business or customers and in which the failure to so qualify or be licensed, as the case may be, in the aggregate, could have a material adverse effect on the business, financial position, results of operations or properties of TRS. As of the date hereof, TRS has issued and outstanding 1,300 shares of common stock of a single class. All of the shares of issued and outstanding stock in TRS are duly authorized, validly issued, fully paid and nonassessable. SECTION 5.2. DUE AUTHORIZATION; CONTRAVENTION. The execution, delivery and performance by TRS of this Agreement is within its corporate power, has been duly authorized by all necessary corporate action, requires no action by or in respect of, or filing with, any governmental body, agency or official and does not contravene, or constitute (with or without the giving of notice or lapse of time or both) a default under, any provision of applicable law or of the articles of incorporation or bylaws of TRS or of any agreement, judgment, injunction, order, decree or other instrument binding upon or affecting TRS and will not result in the creation or imposition of any lien (other than the lien of the Security Agreement, as amended) on any of its assets. SECTION 5.3. BINDING EFFECT. This Agreement constitutes a valid and binding agreement of TRS and of each of the TRS Stockholders and when executed and delivered, will constitute a valid and binding obligation of TRS and of each of the TRS Stockholders, enforceable against TRS and of each of the TRS Stockholders in accordance with its terms. SECTION 5.4. LITIGATION. There is no action, suit or proceeding pending against, or to the knowledge of TRS threatened against or affecting, TRS before any 14 83 37 federal, state or local government, authority, agency, court or other body, officer or entity, or before any arbitrator with authority to bind a party at law, in which there is a reasonable possibility of a decision which could materially adversely affect the business, financial position, results of operations or properties of TRS or which in any manner draws into question the validity of this Agreement, and there is no basis known to TRS for any such action, suit or proceeding. SECTION 5.5. FILINGS. All actions by or in respect of, and all filings with, any governmental body, agency or official required in connection with the execution, delivery and performance of this Agreement, or necessary for the validity or enforceability hereof or for the protection or perfection of the rights and interests of DNC hereunder, will, prior to the date of delivery hereof, have been duly taken or made, as the case may be, and will at all times thereafter remain in full force and effect. ARTICLE 6. MISCELLANEOUS SECTION 6.1. NOTICES. All notices, requests and other communications to a party hereunder shall be in writing and shall be given to such party at its address set forth on the signature pages hereof or such other address as such party may hereafter specify for that purpose by notice to the other. Each such notice, request or other communication shall be effective (i) if given by U.S. Mail, 72 hours after such communication is deposited in the U.S. Mail with first class postage prepaid, addressed as aforesaid or (ii) if given by any other means, when delivered at the address specified in this Section 6.1. SECTION 6.2. NO WAIVERS. No failure or delay by DNC in exercising any right, power or privilege hereunder shall operate as a waiver thereof, nor shall any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any other right, power or privilege. The rights and remedies herein provided shall be cumulative and not exclusive of any rights or remedies provided by law. SECTION 6.3. AMENDMENTS AND WAIVERS. Any provision of this Agreement may be amended or waived if, but only if, such amendment or waiver is in writing and is signed by TRS, each of the TRS Stockholders and DNC. 15 84 38 SECTION 6.4. SUCCESSORS AND ASSIGNS. The provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns, except that neither TRS nor any of the TRS Stockholders may assign or otherwise transfer any of its or their rights under this Agreement without the prior written consent of DNC. SECTION 6.5. GOVERNING LAW. This Agreement and the Note shall be deemed to be contracts made under seal and shall be governed by and construed in accordance with the laws of the Mississippi, except as otherwise provided herein. SECTION 6.6. COUNTERPARTS; FACSIMILE SIGNATURES; EFFECTIVENESS. This Agreement may be signed in counterparts by facsimile or original signature, each of which shall be effective as an original, with the same effect as if the signatures thereto and hereto were upon a single, original copy of this Agreement. This Agreement shall become effective when DNC shall have received original or facsimile counterparts hereof signed by all parties. SECTION 6.7. ENTIRE AGREEMENT. This Agreement, the Credit Agreement, the Note, the AR Financing Agreement, and the AR Financing Note set forth the entire agreement of the parties with respect to the subject matter hereof and thereof and supersede all previous understandings, written or oral, in respect thereof. SECTION 6.8. COVENANT REGARDING TRANSFERS OF TRS STOCK. TRS and/or each of the TRS Stockholders, as the case may be, promise to promptly transfer to DNC (i) the AR Financing Stock in accordance with the terms of the AR Financing Agreement and (ii) any additional shares of TRS capital stock the transfer of which may be required pursuant to the terms of any agreements between TRS and DNC subsequent to the date hereof. SECTION 6.9. RATIFICATION. TRS and each TRS Stockholder ratifies and affirms all of the terms and provisions of, and all of his or her obligations under, the Option Agreement, as hereby amended and restated. [REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK] 16 85 39 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their respective authorized officers as of the day and year first above written. ATTEST/WITNESS: DIXIE NATIONAL CORPORATION THERESA D. HARTER By: G. THOMAS REED [SEAL] - ------------------------- ------------------------- Name: Theresa D. Harter G. Thomas Reed, President Title: Assistant Secretary 107 Executive Center Hilton Head Island, South Carolina 29928 TEXT RETRIEVAL SYSTEMS, INC. KATHY L. HOWE By: BRUCE GREWELL [SEAL] - ---------------------------- -------------------- Name: Kathy L. Howe Bruce Grewell, President Title: Comptroller 200 Executive Way Ponte Vedra Beach, Florida 32082 WITNESS: STOCKHOLDERS KATHY L. HOWE CONNIE GAMBLE GREWELL [SEAL] - ---------------------------- ----------------------- Name: Kathy L. Howe Connie Gamble Grewell c/o Text Retrieval Systems, Inc. 200 Executive Way Ponte Vedra Beach, Florida 32082 17 86 40 WITNESS: CRAIG ADAS DAVID A. SPURIA [SEAL] - ----------------------------- --------------------------------- Name: Craig Adas David A. Spuria Weil, Gotshal & Manges 100 Crescent Court, Suite 1300 Dallas, TX 75201-6950 ANTHONY SPURIA [SEAL] - ---------------------- ------------------------------- Name: Anthony Spuria Marcon 200 Executive Way Ponte Vedra Beach, FL 32082 FRANCES M. McDONALD ROBERT P. ROWE [SEAL] - ----------------------- -------------------------------- Name: Frances M. McDonald Robert Rowe Plastics Manufacturing, Inc. 4685 Highway 49, Box 579 Harrisburg, NC 28075 LAURA W. FREEMAN WADE MOYER [SEAL] - -------------------------- -------------------------------- Name: Laura W. Freeman Wade Moyer A La Carte 4400 Stuart Andrew Blvd., Suite K Charlotte, NC 28217 18 87 41 WITNESS: SUZANNE A. SLIGH WILLIAM ZACHARY, JR. [SEAL] - ---------------------------- ---------------------------- Name: Suzanne A. Sligh William Zachary, Jr. Zachary & Seagraves 1000 Commerce Drive Decatur, GA 30030 ANDREW HOMAN GEORGE KANNAN [SEAL] - --------------------------- ------------------------------ Name: Andrew Homan George Kannan c/o Makshoff Services (Europe) Limited Kensington Centre 66 Hammersmith Road London England W14 8YT MARTHA DICKINSON WILLIAM SALLADIN [SEAL] - --------------------- ------------------------------ Name: Martha Dickinson William Salladin All Risk, LTD. 1020 Cromwell Bridge Road Towson, MD 21286 MARTHA DICKINSON NICK CORTEZI [SEAL] - ---------------------- ---------------------------------- Name: Martha Dickinson Nick Cortezi All Risk, LTD. 1020 Cromwell Bridge Road Towson, MD 21286 19 88 42 WITNESS: WUTYI TUN J.D. GREWELL [SEAL] - ----------------------------- ---------------------------------- Name: Wutyi Tun J.D. Grewell 9001 16th Street Silver Spring, MD 20910 WUTYI TUN CHRISTINE GREWELL [SEAL] - ----------------------------- ----------------------------- Name: Christine Grewell 9001 16th Street Silver Spring, MD 20910 20 89 EX-3.B.1 3 AMENDMENT TO BYLAWS 1 EXHIBIT (3)(b)(1) AMENDMENT TO BYLAWS DATED JANUARY 24, 1995 "Resolved, that Article III of the Bylaws of this corporation shall be, and is hereby amended so that the hereafter specified sections shall read as follows: Section 2. Chairman. There shall be a chairman of the Board of Directors elected annually by the directors. Section 3. Executive Committee. There is hereby established an Executive Committee of the Board of Directors which shall consist of the chairman of the Board of Directors, who shall serve as chairman of the Executive Committee, along with two other members of the Board of Directors, nominated by the Chairman, who shall be subject to ratification by the Board of Directors. The Executive Committee shall have and may exercise all the authority of the Board of Directors, save and except such authority as is expressly reserved to the full Board of Directors by the Mississippi Business Corporation Law." 90 EX-3.B.2 4 AMENDMENT TO BYLAWS 1 EXHIBIT (3)(b)(2) AMENDMENT TO BYLAWS DATED MARCH 24, 1995 "Resolved, that the By-Laws of this corporation shall be and are hereby, amended as follows: Article IV, Section 1, is amended to read as follows: ARTICLE IV OFFICERS Section 1. Number and Qualifications. The officers of the corporation shall be a chief executive officer, a president, one or more vice-presidents (the number thereof to be determined by the Board of Directors), a secretary and a treasurer, each of whom shall be elected by the Board of Directors. Such other officers and assistant officers as may be deemed necessary may be elected or appointed by the Board of Directors. Any two or more offices may be held by the same person, except the offices of president and secretary, and except the offices as chairman of the Board of Directors and president of the corporation. No person shall be eligible to serve as an officer of the corporation unless when his term commences he is at least 21 years of age and not more than 65 years of age. Any officer attaining the age of 65 during his term of office shall serve the unexpired portion thereof. Article IV shall further be amended by adding a new Section 4 which shall read as follows: Section 4. Chief Executive Officer. The chief executive officer, subject to the control of the Board of Directors, shall supervise and control the affairs of the corporation. The existing Section 4 shall be renumbered as Section 5 and shall be amended to read as follows: Section 5. President. The president shall perform and discharge such duties and responsibilities as may be assigned to that office by the chief executive officer and the board of directors of the Corporation. The president may sign, with the secretary or any other proper officer of the corporation thereunto authorized by the Board of Directors, certificates for shares of the corporation, and deeds,. Mortgages, bonds, contracts or other instruments which the Board of Directors has authorized to be executed, except in cases where the signing and execution thereof shall be expressly delegated by the Board of Directors or by these bylaws to some other officer of the corporation, or shall be required by law to be otherwise signed or executed. Existing Section 5 through 9 inclusive shall be amended by renumbering each so that such sections shall be numbered as sections 6 through 10 respectively." 91 EX-21 5 SUBSIDIARIES OF THE REGISTRANT 1 EXHIBIT (21) DIXIE NATIONAL CORPORATION SUBSIDIARIES OF THE REGISTRANT AS OF DECEMBER 31, 1995
PERCENTAGE OF OUTSTANDING PLACE OF STOCK HELD NAME OF SUBSIDIARY INCORPORATION BY REGISTRANT - ------------------ ------------- ------------- Executive Capital Corporation Mississippi 100% Vanguard, Inc. Mississippi 100%
92 EX-27 6 FINANCIAL DATA SCHEDULE.
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONSOLIDATED BALANCE SHEET, CONSOLIDATED STATEMENT OF OPERATIONS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH ENCLOSED AUDITED FINANCIAL STATEMENTS 10-K. YEAR DEC-31-1995 JAN-01-1995 DEC-31-1995 1,377,869 2,227,904 485,299 0 0 4,091,072 1,225,445 814,510 5,103,923 640,563 0 0 0 9,601,439 (5,138,079) 5,103,923 2,485,974 5,032,537 0 0 11,620,422 0 436,204 7,024,089 (174,517) 0 0 0 0 (6,849,572) (.65) (.65)
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