SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities and Exchange Act of 1934
Date of Report (Date of earliest event reported): August 17, 1996
ETHIKA CORPORATION
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Mississippi 0-3296 64-0440887
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(State or other (Commission (IRS employer
jurisdiction of file number) identification no.)
incorporation)
107 The Executive Center
Hilton Head Island, South Carolina, 29928
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(Address of principal executive offices)
Registrant's telephone number, including area code:
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(803) 785-7850
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ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
As previously reported in its Form 10-Q Quarterly Report for the quarter ended
June 30, 1996, Ethika Corporation ("Corporation") completed on August 17,
1996, the acquisition of 100% of the outstanding stock of Compass Data
Systems, Inc. ("CDS") a privately-held corporation. The Corporation is filing
this Form 8-K at this time to provide additional information regarding this
acquisition. This acquisition does not meet the criteria contained in Rule
1-02(w) of Regulation S-X of a significant subsidiary.
CDS is located in Salt Lake City, Utah and publishes electronic information
providing turnkey reference services to a wide variety of industries and
organizations. Among its principal product offerings are state tax law
reference libraries which keep subscribers current on tax law changes.
CDS began operations in May 1991 and currently employs 8 full-time employees.
At April 30, 1996, the most current audited fiscal year end, CDS had assets of
$157,246 with no significant liabilities. Revenues for the year were $450,477
generating pre-tax income of $9,690.
The transaction was completed through an exchange of stock. The Corporation
issued 363,306 shares of its common stock to Eric R. Fredrickson and 363,306
shares of its common stock to Sherry Fredrickson, the sole shareholders of
CDS. Immediately following the closing, the combined shares owned by the
Fredrickson's constituted 5.4% of the total outstanding shares of common stock
of the Corporation. In addition, Mr. Fredrickson entered into a two-year
employment contract at an annual salary of $62,500 plus bonus based upon
performance. He also entered into a two-year non-compete contract for which he
received $50,000 at closing and will receive another $50,000 on January 1,
1997.
ITEM 5. OTHER EVENTS
On September 16, 1996, a lawsuit was filed in United States District Court for
the Southern District of Mississippi, Jackson Division, by EurAm B.V.; Richard
Jones; Alfred Peeper; Amarante Financial S.A.; Argere Holding S.A.; LaRoche
Holding S.A.; and LaSalle Investment, Ltd. against the Corporation; its
Chairman and Chief Executive Officer, S. L. Reed; and E. R. Ellenbecker, an
individual not affiliated with the Corporation.
As reported in the Corporation's previous SEC filings, the Plaintiffs were
among a group of foreign investors who acquired a portion of the Corporation's
common stock in two Regulation S transactions arranged by Universal Management
Services, a Corporation of which Mr. Ellenbecker was an officer, in late 1994
and early 1995. The 1994 transaction involved an exchange of 2,000,000 shares
of the Corporation's common stock for shares of Alanco Environmental Resources
common stock valued at $2,000,000. The 1995 transaction included an exchange
of certain shares of the Corporation's common stock for 16% of the outstanding
stock and an option to acquire the balance of Phoenix Medical Management
(APMM@), a company in which certain of the Plaintiffs were involved.
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The suit includes allegations of breach of fiduciary duty, breach of contract,
negligent misrepresentation, fraud, and conversion. The suit was amended on
October 11, 1996 to add certain claims relating to the Corporation's annual
shareholders meeting held on September 26, 1996. The suit seeks undefined
compensatory and punitive damages in excess of $50,000 on each of the seven
counts.
The Company and Mr. Reed intend to vigorously defend the action and to
aggressively pursue any and all rights against the Plaintiffs and possibly
others who have acted in concert with the Plaintiffs.
Prior to the filing of the suit by the Plaintiffs, the Corporation had made
the decision to institute a suit against certain parties, including the
Plaintiffs, which suit was in the final stages of preparation for filing when
the Plaintiffs' suit was filed. The Corporation intended to seek, in addition
to other relief, a rescission of the 1995 exchange of the Corporation's shares
for shares of PMM. Additionally, the Corporation believes that the Plaintiffs,
as a group, hold approximately 16% of the Corporation's current outstanding
common stock and have attempted to act in concert and vote such shares on a
combined basis to influence Corporate Management.
The Plaintiffs have not, however, reported their common stock ownership to
the Corporation or the SEC on a combined basis, which the Corporation believes
may constitute a violation of federal securities laws. The Corporation intends
to pursue such compliance and other relief and monetary damages in a
counter-claim filed on October 30, 1996 in the Plaintiffs' suit.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
ETHIKA CORPORATION
(Registrant)
Date: October 31, 1996 /s/ G. Thomas Reed
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President and
Chief Operating Officer
Date: October 31, 1996 /s/ David E. Williams
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Senior Vice President and
Chief Financial Officer
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