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): December 12, 1997
ETHIKA CORPORATION
MISSISSIPPI 0-3296 64-0440887
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(State of other jurisdiction of COMMISSION (IRS Employer
incorporation or organization) File No. Identification No.)
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: (803) 785-7850
<PAGE>
Item 1. Change in Control of Registrant
Ethika Corporation (the "Corporation") in conjunction with settlement of a
lawsuit (See Item 5) filed in the United States District Court for the Southern
District of Mississippi, Jackson Division, styled EURAM, B.V., Peeper, et al.
vs. Ethika by certain plaintiffs against Ethika and its Chairman, S.L. Reed,
Jr., entered into a Subscription Agreement for the sale of 7,000,000 shares of
its unregistered common stock to LaSalle Investment, Ltd., a party to the
lawsuit for $.09 per share. Based upon a Draft Schedule 13-D provided to the
Corporation indicating that beneficial ownership of the "Reporting Persons" will
increase to 46.9% as a result of this transaction, the transaction may
constitute a change in control of Ethika Corporation. As indicated in Item 5
below, the Reporting Persons will immediately appoint three (3) Directors to
Ethika's Board replacing three (3) resigning members. Those Interim Directors
will be Dennis Brovarone, Russell Burk, and Dennis Nielsen and will be replacing
resigning members S.L. Reed, Jr., Robert B. Neal, and Joseph D. Pegram. The
following table indicates the beneficial ownership subsequent to this
transaction:
Name and Address Shares Beneficially
Of Beneficial Owner Owned Percent of Class
- ------------------- ----- ----------------
Alfred Peeper 0 (1) 0
Calle Hamburg 22
Benidorm, Spain ALC
03500
Argere Holdings, S.A. 420,000 (1) 1.9
18 Boulevard Royal
L-2449 Luxembourg
Eur-Am B.V. 461,100 (1) 2.1
Calle Hamburg 22
Benidorm, Spain ALC
03500
La Roche Holdings, S.A. 902,500 (1) 4.1.
18 Boulevard Royal
L-2449 Luxembourg
La Salle Investment, Ltd. 7,997,929 (1) 36.1
35 Rue De Bains
Geneva, Switzerland
1205
Rial Equity Group, S.A. 600,000 (1) 2.7.
C/o SAGEM
35 Rue De Bains
Geneva, Switzerland
1205
<PAGE>
Name and Address Shares Beneficially
Of Beneficial Owner Owned Percent of Class
- ------------------- ----- ----------------
Constance Gamble 2,064,770 (2) 9.3
Grewell
3919 Duval Drive
Jacksonville Beach,
FL 32250
Directors and
Officers 350,119 *
as a Group
- -------------------
* Less than 1%.
(1) The proposed Schedule 13-D states the members of the "group" are to be
considered collectively as the "Reporting Persons" and individually as the
"Group Members." Alfred Peeper is an investment manager headquartered and
operating in Benidorm, Spain. Mr. Peeper holds a power of attorney for each
Reporting Person which gives him authority to purchase, sell, and exercise all
voting rights relating to each "Group Member." This Reporting Person represents
46.9% of the total outstanding shares of Ethika common stock.
(2) Constance Gamble Grewell acquired her shares in this acquisition of Text
Retrieval Systems, Inc. ("TRS") by the Corporation. She was owner of 616 shares
of TRS outstanding common stock. The stock issued pursuant to this transaction
are contingently returnable to the Corporation if certain 1997 earnings targets
are not achieved. In addition, they may not be sold or transferred on the market
until two years after the issue date.
Item 5. Other Events
On December 12, 1997 Ethika entered into a Settlement by mutual agreement of a
lawsuit filed in September 1996 in the United States District Court for the
Southern District of Mississippi, Jackson Division, styled EURAM B.V., Peeper,
et al. vs. Ethika by certain plaintiffs against Ethika and its Chairman, S.L.
Reed, Jr., (Case No. 3:96 CV688LN). Details of the lawsuit and the Corporation's
counterclaim have been previously disclosed in various filings with the SEC
including but not limited to the Corporation's Form 10-K for the year ended
December 31, 1996. Terms of the settlement includes (1) withdrawal and dismissal
of any present or future lawsuits among the parties; (2) sale of 7,000,000
shares of Ethika unregistered common stock to La Salle Investments, Ltd., a
party to the lawsuit for $.09 per share; (3) Ethika calling a Special Meeting of
Shareholders for the purposes of electing Directors and voting on such other
matters as necessary. Such meeting to take place at the earliest date permitted
subject to Security and Exchange Commission regulations. (4) Resignation of
three (3) members of the current Board of Directors to be replaced by three (3)
members appointed by La Salle Investments, Ltd. to serve as directors until the
Special Meeting of Shareholders (#3) above is held. Item 7. Financial
Statements, Proforma Information, and Exhibits
<PAGE>
B) Proforma Financial Information
The following represents the as reported September 30, 1997 Balance Sheet, the
Proforma adjustments giving effect to this transaction, and the as adjusted
September 30, 1997 Proforma Balance Sheet.
<TABLE>
<CAPTION>
Ethika Corporation and Subsidiaries
Pro Forma Balance Sheet September 30, 1997
September Pro Forma Results
Ethika September
September Pro Forma Pro Forma
Actuals Adjustments Results
----------- ----------- -----------
<S> <C> <C> <C>
Assets
Current Assets
Cash ................................. $ 852,221 $ 25,000 $ 877,221
Investments - marketable securities . 605,000 605,000
Accounts receivable - net ............ 193,709 193,709
Fry Guy lease receivable - current ... 112,764 112,764
Note receivable from InfoDynamics .... 256,755 256,755
Inventory ............................ 10,917 0 10,917
----------- ----------- -----------
Total current assets ................. 1,426,366 630,000 2,056,366
Fixed assets:
Furniture and Fixtures ............... 469,667 469,667
Accumulated depreciation ............. (250,425) 0 (250,425)
----------- ----------- -----------
Total fixed assets ................... 219,242 0 219,242
Other assets:
Fry Guy lease receivable - long term . 192,356 192,356
Goodwill ............................. 1,579,273 1,579,273
Accumulated amortization ............. (952,594) 0 (952,594)
----------- ----------- -----------
819,035 0 819,035
----------- ----------- -----------
Total Assets ......................... $ 2,464,643 $ 630,000 $3,094,643
=========== ============ ==========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Ethika Corporation and Subsidiaries
Pro Forma Balance Sheet September 30, 1997
(continued)
September Pro Forma Results
Ethika September
September Pro Forma Pro Forma
Actuals Adjustments Results
----------- ----------- -----------
<S> <C> <C> <C>
Liabilities and Stockholders Equity
Current Liabilities:
Accounts Payable / Accrued liabilities $ 391,971 $ 0 $ 391,971
Deferred revenue ..................... 368,245 0 368,245
----------- ----------- -----------
Total current liabilities ............ 760,216 0 760,216
Long-term liabilities:
Deferred income taxes ............. 45,500 0 45,500
----------- ----------- -----------
Total long term liabilities .......... 45,500 0 45,500
----------- ----------- -----------
Total liabilities .................... 805,716 0 805,716
----------- ----------- -----------
Capital:
Capital stock ........................ 12,628,818 7,000,000 19,628,818
Subsidiary equity .................... 0
Discount on common stock ............. (1,202,459) (6,370,00) (7,572,450)
Treasury stock - Ethika .............. (1,112) (1,112)
Retained earnings .................... (9,766,320) 0 (9,766,320)
----------- ----------- -----------
Total capital ........................ 1,658,927 630,000 2,288,927
----------- ----------- -----------
Total liabilities and capital ........ $ 2,464,643 $ 630,000 $ 3,094,643
=========== =========== ===========
</TABLE>
C) Exhibits - 10.0 "Memorandum of Understanding" and "Agreement and Release"
MEMORANDUM OF UNDERSTANDING
The various litigants in the Complain styled Eur. Am. Et al. vs. Ethika et al.,
Cause No. 3:96CV688LN have agreed that it is in the best interests of all
parties to settle all litigation, present and future, and to work harmoniously
together to ensure the future of Ethika and any company with which it merges,
purchases, or otherwise creates an association. Therefore, the litigant agrees
as follows:
1. To withdraw and dismiss any present or future lawsuits among the parties,
and to execute the Agreement and Release which follows.
2. In recognition of the agreement to work together in the best interest of
Ethika, as witnessed by the dismissal of the subject suit and covenants to
refrain from future litigation, the Plaintiffs or any one of them, or such
entity chosen by them, shall within three business days purchase not less
than seven million shares of Ethika stock, at 9 cents per share for cash or
marketable securities acceptable to Nasdaq.
3. To work together to maintain the Nasdaq listing of Ethika, or of any
company formed with Ethika.
4. All parties realize that time is of the essence, with a meeting with Nasdaq
already scheduled for December 15, 1997, relative to maintaining the Nasdaq
listing of Ethika.
5. This agreement shall be signed by all parties, including a majority of the
present Board Members of Ethika, and entities, such as Rial Equity Group or
Arjon Enterprises controlled by any of the Plaintiffs, either by a Power of
Attorney or other similar authority, and holding Ethika stock.
<PAGE>
AGREEMENT AND RELEASE
THIS AGREEMENT AND RELEASE ("Agreement") made and entered into as of this the
12th day of December , 1997, by and among three groups of individuals and
corporations, the first of which is hereinafter referred to collectively as "The
Peeper Group" and is composed of (I) EUR AM B.V., (ii) RICHARD JONES, (iii)
ALFRED PEEPER, (iv) AMARANTE FINANCIAL, S.A., (v) ARGERE HOLDINGS, S.A., (vi)
LAROCHE HOLDINGS, S.A., and (vii) LASALLE INVESTMENT LTD.; the second of which
groups of corporation and individuals is hereinafter collectively referred to as
"The PMM Group" and is composed of (I) PHOENIX MEDICAL MANAGEMENT, INC., (ii)
LARRY NELSON, and (iii) AUGUST J. RANTZ, III; and the third of which groups is
composed of ETHIKA CORPORATION ("Ethika") and S. LEROY REED, JR. ("Reed").
RECITALS
1. The Peeper Group has heretofore filed its Complaint and First Amended
Complaint in Civil Action No. 3:96CV688LN (now known as Civil Action No.
3:96CV688WN) on the docket of the United States District Court for the Southern
District of Mississippi, Jackson Division ("The Litigation"), in which certain
claims were set forth against Ethika and Reed.
2. Ethika filed its Counterclaim and First Amended Counterclaim against the
Peeper Group, the PMM Group, and Alanco Environmental Resources Corporation
("Alanco"), wherein certain claims were set forth.
3. Ethika has heretofore reached a settlement with Alanco, and Alanco has
been dismissed as a party to the Litigation.
4. The Peeper Group, Ethika, and Reed have resolved the litigation and wish
to reduce said Agreement to writing.
5. The PMM Group joins the Peeper Group, Ethika, and Reed in desiring to
see the Litigation resolved short of trial.
COVENANTS
NOW, THEREFORE, FOR AND IN CONSIDERATION of the mutual promises, undertaking and
covenants herein contained, and other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, the parties agree,
covenant, and stipulate as follows:
1. Ethika will call a special meeting of its shareholders for the purpose
of electing directors of the corporation and voting on any other proposals to be
brought before the meeting. The referenced special shareholders meeting will be
held at the earliest date permitted after execution of the Agreement and Release
and Memorandum of Understanding, subject to Sec regulations, but no later than
February 20, 1998. This meeting shall fill the purpose of the letters received
by Ethika, requesting a special shareholders meeting.
<PAGE>
2. The Complaint, First Amended Complaint, Counterclaim, and First Amended
Counterclaim shall be dismissed with prejudiced, and the Peeper Group, Ethika,
Reed, and the PMM Group hereby authorize their attorneys of record to take any
and all actions reasonably necessary to accomplish such dismissal pursuant to an
in accordance with the terms of this Agreement. Each group shall bear its own
costs and attorney's fees. Each group, together with the officers, shareholders,
directors, and employees of the corporations in each group, and the heirs, and
representatives of the individuals in each group, hereby releases, acquits and
discharges the other groups (and the officers, directors, shareholders,
employees, agents and attorneys of the corporations in each group, and the
employees, agents and attorneys of the individuals in each group) from any and
all present or future claims, demands, actions or causes of action for all
wrongful acts alleged or which could have been alleged in The Litigation and for
any conduct, statement, or writing related to or connected directly or
indirectly with the filing of any Complaint, Amended Complaint, Answer,
Counterclaim, Amended Counterclaim, or other pleading in the initiation,
prosecution or defenses of The Litigation.
The foregoing notwithstanding the parties acknowledge and agree that no
action shall be taken relative to any legal proceedings against Universal
Management Services, a revoked Nevada Corporation.
3. In the event a board of directors is elected at the referenced special
shareholders meeting friendly to The Peeper Group, then, and in such event, this
Agreement shall be ratified by the said board.
4. Each party represents and warrants that it/he is acting voluntarily and
of he/its free will, and that in executing this Agreement and Memorandum of
Understanding attached hereto and incorporated by reference hereby, he/it was
not induced by any representation whatsoever other than these stated herein, and
that he/it is in no manner relying upon any promise, warranty, representation or
agreement of any kind whatsoever.
5. This Agreement is to be construed according to the laws of the State of
Mississippi effective this date.
6. This Agreement contains a full and complete understanding of the parties
and may not be modified except in writing and signed by both parties.
7. It is expressly understood, agreed, covenanted and stipulated that this
Agreement constitutes a compromise between the parties of disputed claims and no
covenant imposed hereby or activity pursuant hereto shall be construed as an
admission of liability in the premises, liability being expressly denied by all
parties.
8. There are presently 1,050,000 shares of Ethika stock, being either held
by Ethika, or having been placed in the registry of the Court, which, after
execution of this Agreement, will be returned to the Plaintiffs, after first
being reissued according to Schedule A, attached.
<PAGE>
9. There are presently certain other shares of Ethika in the possession of
Alfred Peeper, which need to be reissued in other names. Ethika will assist
Alfred Peeper is having these shares reissued in the proper form and correctly
registered.
10. After execution of the Memorandum of Understanding and the Agreement
and Release, not less than three members of the present Board will resign within
3 days, or at a date thereafter that is agreeable to the Plaintiff. Upon such
resignation, the Ethika Board shall appoint Dennis Brovarone, Russell Burk, and
Dennis Nielsen to serve the unexpired terms in accordance with the corporation's
bylaws.
11. The terms of this Agreement are contractual and not mere recitals.
12. This Agreement may not be modified except in writing signed by all
parties.
13. This Agreement may be executed in counterparts.
<PAGE>
WITNESS THE SIGNATURE OF the corporation of Eur Am B.V., by its duly authorized
officer, this the ___ day of December, 1997.
EUR AM B.V.
/s/
Its:
WITNESS THE SIGNATURE OF Richard Jones, this the ___ day of December, 1997.
RICHARD JONES
/s/ Richard Jones
WITNESS THE SIGNATURE OF Alfred Peeper, this the ___ day of December, 1997.
ALFRED PEEPER
/s/ Alfred Peeper
WITNESS THE SIGNATURE OF the corporation of Amarante Financial, S.A.., by its
duly authorized officer, this the ___ day of December, 1997.
AMARANTE FINANCIAL, SA.
/s/
Its:
WITNESS THE SIGNATURE OF the corporation of Argere Holding, S.A., by its duly
authorized officer, this the ___ day of December, 1997.
ARGERE HOLDING, S.A.
/s/
Its:
WITNESS THE SIGNATURE OF the corporation of LaRoche Holding, S.A.., by its duly
authorized officer, this the ___ day of December, 1997.
LAROCHE HOLDING, S.A.
/s/
Its:
WITNESS THE SIGNATURE OF the corporation of LaSalle Investment Ltd.., by its
duly authorized officer, this the ___ day of December, 1997.
LASALLE INVESTMENT LTD.
/s/ s
Its:
WITNESS THE SIGNATURE OF the corporation of Phoenix Medical Management, Inc., by
its duly authorized officer, this the ___ day of December, 1997.
PHOENIX MEDICAL MANAGEMENT, INC.
/s/
Its:
WITNESS THE SIGNATURE OF Larry Nelson, this the ___ day of December, 1997.
LARRY NELSON
- ------------
/s/ Larry Nelson
<PAGE>
WITNESS THE SIGNATURE OF August J. Rantz, III, this the ___
day of December, 1997.
AUGUST J. RANTZ, III
- --------------------
/s/ August J. Rantz, III
WITNESS THE SIGNATURE OF the corporation of Ethika Corporation, by its duly
authorized officer, this the ___ day of December, 1997.
ETHIKA CORPORATION
/s/ G. Thomas Reed
Its: President
WITNESS THE SIGNATURE OF S. Leroy Reed, Jr., this the ___ day
of December, 1997.
S. LEROY REED, Jr.
- ------------------
/s/ S. Leroy Reed, Jr.
WITNESS THE SIGNATURE OF the corporation of Rial., by its duly authorized
officer, this the ___ day of December, 1997.
RIAL
/s/
Its:
WITNESS THE SIGNATURE OF the corporation of Arjon, by its duly authorized
officer, this the ___ day of December, 1997.
ARJON
/s/
Its:
Witness the signatures of the Board of Directors of Ethika Corporation to the
Memorandum of Understanding and the Agreement and Release between Ethika and the
"Peeper Group."
/s/ Marcia C. Cohen /s/ S. Leroy Reed, Jr.
- ------------------- ----------------------
Marcia C. Cohen, Director S. Leroy Reed,
Jr. Chairman
/s/ Robert B. Neal /s/ Anthony J. Spuria
- ------------------ ---------------------
Robert B. Neal, Director Anthony J. Spuria,
Director
/s/ Joseph D. Pegram, Esq. /s/William D.Stubblefield
- --------------------------- --------------------------
Joseph D. Pegram, Esq., Director William D. Stubblefield, Director
/s/ Herbert G. Rogers, III
- --------------------------
Herbert G. Rogers, III, Director
<PAGE>
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: December 29, 1997 /s/ G. Thomas Reed
------------------
G. Thomas Reed
President and Chief Operating Officer
Date: December 29, 1997 /s/ David E. Williams
---------------------
David E. Williams
Senior Vice President and Chief
Financial Officer