<PAGE>
SCHEDULE 14A INFORMATION
------------------------
Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to (S)240.14a-11(c) or (S)240.14a-12
SYNETIC, INC.
-------------
(Name of Registrant as Specified in its Charter)
SYNETIC, INC.
-------------
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
[X] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(j)(2) or
Item 22(a)(2) of Schedule 14A.
[_] $500 per each party of the controversy pursuant to Exchange Act Rule 14a-
6(i)(3).
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
------------------------------------------------------------------
2) Aggregate number of securities to which transaction applies:
------------------------------------------------------------------
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:
------------------------------------------------
4) Proposed maximum aggregate value of transaction:
------------------------------------------------------------------
[_] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
------------------------------------------------------------
2) Form, Schedule or Registration Statement No.:
-------------------------------------------------------------
3) Filing Party:
-------------------------------------------------------------
4) Date Filed:
--------------------------------------------------------------
<PAGE>
[LOGO]
[SYNETIC]
SYNETIC, INC.
669 RIVER DRIVE
ELMWOOD PARK, NEW JERSEY 07407-1361
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD DECEMBER 12, 1995
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders (the
"Meeting") of Synetic, Inc. (the "Company") will be held at 9:30 A.M., local
time, on Tuesday, December 12, 1995, at the St. Regis Hotel, Two East 55th
Street, Versailles Room, New York, New York 10022, for the following purposes:
1. To elect three members to the Company's Board of Directors.
2. To ratify the appointment of Arthur Andersen LLP as independent
auditors of the Company for the fiscal year ending June 30, 1996.
3. To consider and transact such other business as may properly be
brought before the Meeting or any adjournment thereof.
Only stockholders of record at the close of business on November 3, 1995
will be entitled to vote at the Meeting. The stock transfer books will not be
closed.
By Order of the Board of Directors
David J. Schlanger
Secretary
Elmwood Park, New Jersey
November 13, 1995
____________________________
A proxy card and the Annual Report of the Company for the fiscal year ended June
30, 1995 are enclosed.
<PAGE>
YOUR VOTE IS IMPORTANT
To ensure that your interests will be represented at the Meeting, whether
or not you plan to attend the Meeting, please complete, date, sign, and mail
your proxy promptly in the enclosed postage-paid envelope. Stockholders who
attend the Meeting in person may revoke their proxies and vote in person if they
desire.
<PAGE>
SYNETIC, INC.
669 RIVER DRIVE
ELMWOOD PARK, NEW JERSEY 07407-1361
---------------
PROXY STATEMENT
---------------
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON DECEMBER 12, 1995
-------------------
This Proxy Statement and the enclosed form of proxy are furnished to
stockholders of Synetic, Inc., a Delaware corporation (the "Company"), in
connection with the solicitation of proxies by the Board of Directors of the
Company from holders of outstanding shares of its common stock, par value $.01
per share ("Common Stock") for use at the Annual Meeting of Stockholders (the
"Meeting"), to be held on Tuesday, December 12, 1995 and at any adjournment or
postponement thereof. The approximate date on which this Proxy Statement and the
related form of proxy are first being sent to stockholders is November 13, 1995.
If the enclosed proxy is properly signed and returned, and if the
stockholder specifies a choice on the proxy, the shares of Common Stock
represented by the proxy will be voted (or withheld from voting) in accordance
with the stockholder's choice. If the proxy is signed and returned but no
specification is made, the proxy will be voted FOR the election of each of the
nominees for director listed below (allocating that stockholder's votes evenly
among these three nominees) and FOR the proposal to ratify the appointment of
independent auditors.
The Board of Directors of the Company knows of no business that will be
presented for consideration at the Meeting other than the matters described in
this Proxy Statement. If any other matters are presented at the Meeting, the
proxy holders will vote the proxies in accordance with their judgment.
Any proxy may be revoked by the stockholder giving it, at any time prior to
its being voted, by filing with the Secretary of the Company at its address set
forth above, a notice of revocation or a duly executed proxy bearing a later
date. Any proxy may also be revoked by the stockholder's attendance at the
Meeting and voting in person. A notice of revocation need not be on any specific
form.
This solicitation is being made on behalf of the Board of Directors of the
Company and its cost (including preparing and mailing of the notice, this Proxy
Statement and the form of proxy) will be paid by the Company. The Company will
also make arrangements with brokerage houses and other custodians, nominees and
fiduciaries to send the proxy material to their principals and will reimburse
them for their reasonable expenses in so doing. To the extent necessary in order
to ensure sufficient representation at the Meeting, officers and regular
employees of the Company may solicit the return of proxies by mail, telephone,
telegram, telex and personal interview. No compensation in addition to regular
salary and benefits will be paid to any officer or regular employee for such
solicitation. In addition, the Company has retained Georgeson & Company to
assist in the solicitation of proxies from beneficial owners of shares held of
record by brokerage houses, banks and other custodians, nominees or fiduciaries,
at a cost not to exceed $6,000 plus reasonable out-of-pocket expenses.
All information in this Proxy Statement with respect to the Common Stock
reflects a two-share-for-one-share split of the Common Stock in February 1993.
<PAGE>
RECORD DATE AND VOTING AT THE MEETING
The Board of Directors has fixed the close of business on November 3,
1995 as the record date for the determination of the stockholders of the Company
entitled to notice of, and to vote at, the Meeting. At that date, there were
outstanding 16,653,129 shares of Common Stock, the holders of which will be
entitled to one vote per share on each matter submitted to the Meeting, except
for the election of the three nominees to serve three-year terms as directors
expiring at the 1998 Annual Meeting of Stockholders, with respect to which the
Company's Certificate of Incorporation provides for cumulative voting. See
"Proposal One: Election of Directors." No other voting securities of the
Company are outstanding.
The presence at the Meeting, in person or by proxy, of the holders of
a majority of the shares entitled to vote constitutes a quorum for the
transaction of business at the Meeting. If a quorum should not be present, the
Meeting may be adjourned from time to time until a quorum is obtained. Shares
of common stock present in person or represented by proxy (including shares
which abstain or do not vote with respect to one or more matters presented for
stockholder approval) will be counted for purposes of determining whether a
quorum exists at the meeting.
Under the Company's By-laws, the three nominees receiving the greatest
number of votes cast shall be elected directors of the Company. Only votes cast
FOR a nominee will be counted, except that if a stockholder who signs and
returns a proxy fails to designate an allocation of votes or to withhold
authority to vote, the persons acting under the proxy will allocate that
stockholder's votes evenly among Messrs. Manning, Mele and Weis. Abstentions,
broker non-votes, and instructions on the accompanying proxy card to withhold
authority to vote for one or more of the nominees will result in the respective
nominees receiving fewer votes. The affirmative vote of a majority of the votes
cast at the meeting is required to ratify the appointment of Arthur Andersen LLP
as independent auditors. Abstentions and broker non-votes are not considered as
votes cast with respect to such ratification and, accordingly, will have no
effect on the outcome of such vote.
As more fully described below under "Certain Transactions--The
Investment Agreement," pursuant to an Investment Agreement between Mr. Martin J.
Wygod, Chairman of the Board of the Company, and the Company, dated as of
September 13, 1994 (the "Investment Agreement"), until the earlier of December
14, 1998, the death or adjudication of incompetency of Mr. Wygod or a change of
control of the Company, Mr. Wygod and SN Investors, L.P. ("SN Investors"), a
limited partnership the general partner of which is SYNC, Inc. (the "General
Partner"), whose sole stockholder is Mr. Wygod, are required to vote the
5,061,857 shares purchased from Merck & Co., Inc. ("Merck") by SN Investors (the
"Wygod Shares"), or cause the Wygod Shares to be voted (a) with respect to
election of directors, for the nominees who would have been elected based on the
vote of all shares of Common Stock other than the Wygod Shares in proportion to
the votes that such nominees received, and (b) on all other matters to come
before the stockholders of the Company, in the same manner as a majority of the
shares of Common Stock (other than the Wygod Shares) are voted.
2
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information as of October 27,
1995 (except as otherwise indicated) concerning the beneficial ownership of the
Company's Common Stock by each person known by the Company to own more than 5%
of its Common Stock.
<TABLE>
<CAPTION>
AMOUNT
NAME AND ADDRESS OF AND NATURE OF PERCENT
BENEFICIAL OWNER BENEFICIAL OWNERSHIP OF CLASS(1)
- -------------------- -------------------- -----------
<S> <C> <C>
Martin J. Wygod................... 5,430,818(2)(3) 32.3%
River Edge Farm
P.O. Box 1949
Buellton, California 93427
SN Investors, L.P................. 5,061,857(2) 30.1%
P.O. Box 616
Fairlawn, New Jersey 07410
The Prudential Insurance Company.. 1,322,819(4) 7.9%
of America
Prudential Plaza
Newark, New Jersey 07102
FMR Corp.......................... 1,080,891(5) 6.4%
82 Devonshire Street
Boston, Massachusetts 02107
</TABLE>
- -------------------------
(1) The number of shares of Common Stock deemed outstanding include: (i)
16,652,861 shares of Common Stock outstanding as of October 27, 1995 and
(ii) the number of shares, if any, of Common Stock which the respective
persons named in the above table have the right to acquire presently or
within 60 days of October 27, 1995 upon exercise of stock options.
(2) SN Investors, the general partner of which is controlled by Mr. Wygod, is
the record and beneficial owner of 5,061,857 shares of Common Stock. Mr.
Wygod is an indirect beneficial owner of such shares and they are included
in the total of 5,430,818 shares listed as beneficially owned by Mr. Wygod.
See "Certain Transactions--Purchase and Sale Agreement" and "--Investment
Agreement" for additional information regarding SN Investors.
(3) Includes 2,000 shares of Common Stock beneficially owned by Mr. Wygod's
spouse, as to which shares Mr. Wygod disclaims beneficial ownership. Does
not include 3,500 shares of Common Stock owned by Medco Containment Services
Foundation, Inc., a charitable foundation of which Messrs. Manning and Wygod
are trustees and share voting and dispositive power.
(4) The information shown is as of March 31, 1995 and is based upon information
disclosed by The Prudential in its Schedule 13G filed with the Securities
and Exchange Commission (the "Commission"). The Prudential reported in its
Schedule 13G that it has shared voting and dispositive power over such
shares.
(5) The information shown is as of December 31, 1994 and is based upon
information disclosed by FMR Corp., Fidelity Management and Research
Company, Fidelity Convertible Securities Fund and Edward C. Johnson, 3d, the
controlling stockholder of FMR Corp., in a Schedule 13G filed with the
Commission and includes shares obtained as a result of the conversion of the
Company's 7% Convertible Subordinated Debentures due 2001 on February 10,
1995. Such persons reported that FMR is the parent holding company of
Fidelity Management and Research Company, which has sole dispositive power
with respect to such shares, which are owned by Fidelity Convertible
Securities Fund. Sole power to vote the shares resides in the Fund's Board
of Trustees.
3
<PAGE>
SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth certain information, as of October 27, 1995,
concerning the ownership of Common Stock by each of the directors, each of the
executive officers named in the Summary Compensation Table below, and by all
directors and executive officers of the Company as a group.
<TABLE>
<CAPTION>
AMOUNT AND
NATURE OF BENEFICIAL PERCENT OF
NAME OF BENEFICIAL OWNER OWNERSHIP(1)(2) CLASS(3)
- -------------------------------------- ------------------------ -------------
<S> <C> <C>
Thomas R. Ferguson.................... 96,450 *
Mervyn L. Goldstein................... 99,050(4) *
Ray E. Hannah......................... 137,323 *
Roger H. Licht........................ 71,000 *
Per G.H. Lofberg...................... 104,705 *
James V. Manning...................... 231,407(5) 1.4%
Charles A. Mele....................... 72,470 *
Herman Sarkowsky...................... 195,724(6) 1.2%
Paul C. Suthern....................... 162,000 *
Albert M. Weis........................ 143,002(7) *
Martin J. Wygod....................... 5,430,818(5)(8) 32.3%
All directors and executive officers
as a group (12 persons)............. 6,782,788 38.0%
</TABLE>
- --------------------------------
* Less than one percent.
(1) The persons named in the table have sole voting and investment power with
respect to all shares of Common Stock shown as beneficially owned by them,
unless otherwise indicated in the following footnotes.
(2) Includes the following number of shares of Common Stock which the following
persons have the right to acquire presently or within 60 days of October
27, 1995 upon exercise of stock options: Mr. Ferguson, 92,000; Dr.
Goldstein, 87,000; Mr. Hannah, 64,000; Mr. Licht, 69,000; Mr. Lofberg,
50,000; Mr. Manning, 165,000; Mr. Mele, 70,000; Mr. Sarkowsky, 92,000; Mr.
Suthern, 126,000; Mr. Weis, 92,000; Mr. Wygod, 180,000; and all directors
and executive officers as a group, 1,097,000. Includes 1,323 shares of
Common Stock allocated to the account of Mr. Hannah and 20 shares of Common
Stock allocated to the account of Mr. Mele under the Porex Technologies
Corp. 401(k) Savings Plan as of September 30, 1995.
(3) The number of shares of Common Stock deemed outstanding include: (i)
16,652,861 shares of Common Stock outstanding as of October 27, 1995 and
(ii) the number of shares of Common Stock which the respective persons
named in the above table have the right to acquire presently or within 60
days of October 27, 1995 upon exercise of stock options.
(4) Includes 200 shares of Common Stock owned by Dr. Goldstein's spouse, as to
which Dr. Goldstein disclaims beneficial ownership.
4
<PAGE>
(5) Does not include 3,500 shares of Common Stock owned by Medco Containment
Services Foundation, Inc., a charitable foundation of which Messrs. Manning
and Wygod are trustees and share voting and dispositive power.
(6) Includes 14,705 shares of Common Stock owned by a charitable foundation of
which Mr. Sarkowsky is a director.
(7) Includes 10,450 shares of Common Stock owned by a corporation of which Mr.
Weis is the sole stockholder, sole director and president.
(8) Includes 2,000 shares of Common Stock beneficially owned by Mr. Wygod's
spouse, as to which shares Mr. Wygod disclaims beneficial ownership. Also
includes 5,061,857 shares of Common Stock owned indirectly through control
of SYNC, Inc., the general partner of SN Investors. See "Certain
Transactions--Purchase and Sale Agreement" and "--Investment Agreement" for
additional information regarding SN Investors.
5
<PAGE>
PROPOSAL ONE:
ELECTION OF DIRECTORS
The holders of Common Stock are being asked to elect three members to the
Company's Board of Directors. The three members who are so elected and the
remaining eight directors whose terms continue after the Meeting will be
directors of the Company.
During fiscal year ended June 30, 1995, the Board of Directors of the
Company had four standing committees: an Audit Committee, a Stock Option
Committee, a Compensation Committee and an Executive Committee. The Audit
Committee is responsible for reviewing the internal accounting controls and
procedures of the Company with management and the independent auditors,
accounting principles, related party transactions and the scope of the annual
audit of the Company. The Stock Option Committee administers the Company's stock
option plans. On December 15, 1994, the Board of Directors established an
Executive Committee. The Board of Directors has delegated to the Executive
Committee the power to exercise, to the fullest extent permitted by law, the
powers of the entire Board of Directors. On April 5, 1995, the Board of
Directors established a Compensation Committee. The Compensation Committee is
responsible for reviewing and approving compensation levels for the Company's
executive officers and reviewing and making recommendations to the Board of
Directors with respect to other matters relating to the compensation practices
of the Company. The Board has no nominating committee. The entire Board of
Directors performs those functions often performed by a nominating committee.
During the fiscal year ended June 30, 1995, the Board of Directors of the
Company held eight meetings and also took certain actions by written consent.
The Stock Option Committee held no formal meetings during such period, but took
certain actions by written consent. The Audit Committee held one meeting and
also took certain actions by written consent. The Executive Committee held no
formal meetings during such period, but took certain actions by written consent.
Pursuant to the terms of the Company's Certificate of Incorporation, the
Board of Directors is divided into three classes with staggered three-year
terms, and not more than one class of directors is elected at any annual meeting
of stockholders. Under the Company's By-laws, the nominees receiving the
greatest number of votes cast shall be elected directors of the Company.
Messrs. Manning, Mele and Weis are the nominees, selected by the Board, for
election to serve three-year terms expiring at the 1998 Annual Meeting of
Stockholders. Pursuant to the Company's Certificate of Incorporation, cumulative
voting is available for the election of these nominees. Cumulative voting means
that each stockholder entitled to vote may cast votes equal to the number of
shares of Common Stock eligible to be voted by that stockholder multiplied by
the number of directors to be elected. A stockholder may cast all of his, her or
its votes for a single nominee or may allocate them among nominees. For example,
a holder of 100 shares may cast 300 votes for a single nominee, allocate 100
votes to each of the three nominees or allocate 300 votes in any other manner.
If a stockholder who signs and returns a proxy fails to designate an allocation
of votes or to withhold authority to vote, the persons acting under the proxy
will allocate that stockholder's votes evenly among these three nominees.
If for any reason any nominee for director should become unavailable for
election, the proxies may be voted for the election of a substitute designated
by management, unless a contrary instruction is given on the proxy. Management
has no reason to believe that any of the nominees will be unable or unwilling to
serve if elected, and all nominees have expressed an intention to serve the
entire term for which election is sought.
Certain information as of October 27, 1995 concerning the directors and
nominees and concerning the officers of the Company is set forth below:
6
<PAGE>
NOMINEES FOR ELECTION TO THE BOARD OF DIRECTORS
FOR A THREE-YEAR TERM EXPIRING AT THE 1998 ANNUAL MEETING:
<TABLE>
<CAPTION>
Name Age Director Since
---- --- --------------
<S> <C> <C>
James V. Manning(D) 48 1989
Charles A. Mele 39 1989
Albert M. Weis(A)(B)(C)(D) 68 1989
</TABLE>
DIRECTORS WHOSE TERM EXPIRES AT THE 1997 ANNUAL MEETING:
<TABLE>
<CAPTION>
Name Age Director Since
---- --- --------------
<S> <C> <C>
Ray E. Hannah 59 1989
Roger H. Licht 41 1989
Per G.H. Lofberg 48 1995
Herman Sarkowsky(A)(B)(C) 70 1989
</TABLE>
DIRECTORS WHOSE TERM EXPIRES AT THE 1996 ANNUAL MEETING:
<TABLE>
<CAPTION>
Name Age Director Since
---- --- --------------
<S> <C> <C>
Thomas R. Ferguson(A)(B)(C)(D) 69 1989
Mervyn L. Goldstein, M.D. 58 1989
Paul C. Suthern 43 1993
Martin J. Wygod 55 1989
</TABLE>
- ----------------------------
(A) Member of the Audit Committee.
(B) Member of the Stock Option Committee.
(C) Member of the Compensation Committee.
(D) Member of the Executive Committee.
--------------------
Mr. Ferguson has been a member of the law firm of Ferguson, Case, Orr,
Paterson & Cunningham for more than five years.
7
<PAGE>
Dr. Goldstein has been a physician in private practice, Associate Clinical
Professor of Medicine at the Albert Einstein College of Medicine in New York
City and Attending Physician in Medicine and Oncology at Montefiore Medical
Center in New York City for more than five years. Since 1991, he has been
Physician Director of Quality Assurance at Montefiore Medical Center.
Mr. Hannah has been President of Porex Technologies Corp., a wholly owned
subsidiary of the Company ("Porex"), since September 1987 and its Chief
Executive Officer since November 1992. Mr Hannah was the Chief Operating
Officer of Porex from November 1984 to November 1992.
Mr. Licht has been a member of the law firm of Licht & Licht for more than
five years.
Mr. Lofberg has been President of the Merck-Medco Managed Care Division of
Merck since November 1993. Prior to that, Mr. Lofberg was Senior Executive Vice
President--Strategic Planning and Sales and Marketing of Medco Containment
Services, Inc. ("Medco") for more than five years.
Mr. Manning has been Chief Executive Officer of the Company since January
1995 and has been an executive officer of the Company for more than the last
five years and was, until December 1994, an executive officer of Medco for more
than five years. He has also been Chairman of the Board of COMNET Corporation
("Comnet"), a computer software company, since 1993.
Mr. Mele has been Vice President--General Counsel of the Company since July
1995 and was an executive officer of the Company from May 1989 until December
1994 and was an executive officer of Medco for more than five years until March
1995. Mr. Mele is also a director of Comnet and Group 1 Software, Inc.,
computer software companies.
Mr. Sarkowsky has been Chairman of the Board and Chief Executive Officer of
Sarkowsky Investment Corporation, a diversified investment company, for more
than five years. Since May 1992, he has been a director of Seafirst Bank. Mr.
Sarkowsky is also a director of Eagle Hardware & Garden, Inc. and Hollywood
Park, Inc.
Mr. Suthern has been the President and Chief Operating Officer of the
Company since February 1993 and was also the Chief Executive Officer from
October 1993 until January 1995. Mr. Suthern was also President and Chief
Operating Officer of Medco from November 1992 through December 1994 and
Assistant to Medco's Chairman from December 1991 to November 1992. Prior
thereto he was Executive Vice President--Operations of Medco for more than five
years.
Mr. Weis has been President of A.M. Weis & Co., Inc., a commodities trading
corporation, for more than five years. Mr. Weis is a member of the Board of the
Commodities Clearing Corporation.
Mr. Wygod has been Chairman of the Board of the Company since May 1989.
From May 1989 to February 1993, Mr. Wygod also served as the Company's President
and Chief Executive Officer and until May 1994 was an executive officer of the
Company. Until May 1994, Mr. Wygod was Chairman of the Board of Medco for more
than five years, and until January 1993, he also served as Chief Executive
Officer of Medco. He is also engaged in the business of racing, boarding and
breeding thoroughbred horses and is President of River Edge Farm, Inc., which is
engaged in the business of breeding and boarding thoroughbred horses.
No family relationship exists among any of the directors or executive
officers except that Martin J. Wygod, Chairman of the Board of the Company, and
Paul C. Suthern are brothers-in-law. No arrangement or understanding exists
between any director or executive officer and any other person pursuant to which
any director or executive officer was selected as a director or executive
officer of the Company. All executive officers are elected annually by the
Board of Directors and serve at the discretion of the Board.
Based solely upon a review of Forms 3 and 4 and amendments thereto
furnished to the Company during the year ended June 30, 1995 and Form 5 and
amendments thereto furnished to the Company for such year, no person failed to
disclose on a timely basis, as disclosed in the above forms, reports required by
Section 16(a) of the Securities Exchange Act of 1934, as amended, during such
year or prior years.
8
<PAGE>
DIRECTOR COMPENSATION
Thomas R. Ferguson, Mervyn L. Goldstein, M.D., Roger Licht and Herman
Sarkowsky, the members of the special committee (the "Special Committee") of the
Board of Directors of the Company, established in connection with the proposals
leading to the purchase of shares of Common Stock from Merck by the Company and
SN Investors (the "Purchase"), were each paid $10,000 for reviewing proposals in
connection with the divestiture (the "Divestiture") of a group of subsidiaries
of the Company that provided institutional pharmacy services (the "Institutional
Pharmacies Business") (see "Certain Transactions--Purchase and Sale Agreement"
and "--Investment Agreement" for additional information regarding the Purchase
and the Divestiture). This compensation was authorized by the Board of
Directors of the Company in order to compensate the members thereof for the
significant additional time commitment that would be required of them in
connection with fulfilling their duties and responsibilities as members of the
Special Committee and was not dependent on whether the Special Committee
approved the Divestiture or whether the Divestiture was consummated. Other than
the compensation of the Special Committee described above, those directors who
are not officers or employees of the Company received no cash compensation for
serving as directors for the fiscal year ended June 30, 1995. The Company's
1991 Director Stock Option Plan (the "1991 Director Plan") provides that on the
first business day of each fiscal year of the Company, each director who is not
an officer or employee of the Company then in office will automatically be
granted an option to purchase 10,000 shares of Common Stock. In addition, each
director who is not an officer or employee of the Company whose initial term
commences after the effective date of the Director Plan automatically receives
an option to purchase 10,000 shares of Common Stock at the time such director is
first elected to the Board. The 1991 Director Plan is administered by the Board
of Directors or any executive officer or officers designated by the Board. Non-
employee directors have also in the past received options to purchase Common
Stock under the Company's 1989 Class A Non-Qualified Stock Option Plan (the
"1989 Class A Plan"), and the Company from time to time has granted options to
purchase Common Stock to certain of such directors outside the Company's stock
option plans on terms similar to those contained in the 1989 Class A Plan. Such
options and options granted pursuant to the 1989 Class A Plan and 1991 Director
Plan that were outstanding on November 18, 1993 accelerated automatically upon
the consummation of the acquisition by Merck of Medco in a merger transaction
(the "Merck/Medco Merger").
EXECUTIVE COMPENSATION
In accordance with the Services Agreement described below under
"Certain Transactions--Transition Agreement and Services Agreement" the Company
bore, prior to the consummation of the Purchase on December 14, 1994, a
proportionate share of the cost or expense in respect of Medco compensation,
benefits and travel and entertainment expenses of certain officers of the
Company who were also employees of Medco or its subsidiaries other than the
Company. During the period from July 1, 1994 through December 14, 1994, the
executive officers of the Company, other than Ray E. Hannah, Vice President--
Technologies Group of the Company, did not receive any cash compensation for
services to the Company or its subsidiaries. In the case of Mr. Hannah, all
amounts shown below were paid by the Company. Following the consummation of the
Purchase, the other executive officers of the Company became salaried employees
of the Company and began to participate in the employee benefit plans and
arrangements of the Company.
Mr. Suthern was the Chief Executive Officer of the Company from
October 1993 until January 1995. Mr. Manning has been the Chief Executive
Officer of the Company since January 1995. The following table presents
information concerning compensation paid for services to the Company during the
last three fiscal years to Mr. Manning and Mr. Suthern, and to Mr. Hannah, the
only executive officer of the Company whose cash compensation for services to
the Company exceeded $100,000 for the fiscal year ended June 30, 1995 (the
"Named Executive Officers"):
9
<PAGE>
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
LONG TERM
ANNUAL COMPENSATION COMPENSATION
----------------------------------- ------------
OTHER SECURITIES
ANNUAL UNDERLYING ALL OTHER
COMPEN- OPTIONS/ COMPEN-
NAME AND PRINCIPAL POSITION YEAR SALARY ($) BONUS ($) SATION ($) SARS (#) SATION ($)
- --------------------------------- ---- ------------ --------- ---------- ----------- ---------------
<S> <C> <C> <C> <C> <C> <C>
James V. Manning................. 1995 50,000(1) -- -- 150,000 --
Chief Executive Officer 1994 0(1) -- -- -- 112,640(2)
(since January 1995); Senior 1993 0(1) -- -- -- --
Executive Vice President
--Finance and Administration
(through January 1995)
Paul C. Suthern.................. 1995 80,000(3) -- -- 180,000 --
President and Chief 1994 0(3) -- -- -- --
Operating Officer (Chief 1993 0(3) -- -- 120,000 --
Executive Officer from
October 1993 to January
1995)
Ray E. Hannah.................... 1995 160,000 74,140 -- -- 4,146(4)
Vice President 1994 160,000 60,000 -- -- 2,438(4)
--Technologies Group 1993 162,413 61,246 -- -- 2,757(4)
</TABLE>
____________
(1) For the fiscal year ended June 30, 1993, Mr. Manning was paid a salary of
$367,618 by Medco, none of which was attributed to services rendered to the
Company and, in connection with his employment by Medco he received options
to purchase 182,102 shares of common stock, without par value, of Merck
("Merck Common Stock") (each reference to Merck Common Stock in this table
gives effect to the conversion of options to purchase Medco common stock
upon consummation of the Merck/Medco Merger in November 1993), which
options were not granted in connection with services rendered to the
Company. For the fiscal year ended June 30, 1994, Mr. Manning was paid a
salary of $405,000 by Medco, none of which was attributed to services
rendered to the Company. During the period beginning on July 1, 1994 and
ending on December 14, 1994, the date of consummation of the Purchase, Mr.
Manning was paid a salary of $186,923 by Medco, none of which was
attributed to services rendered to the Company. During the period
beginning on December 15, 1994 and ending on June 30, 1995, Mr. Manning was
paid a salary of $50,000 by the Company.
(2) Reflects fees paid to Mr. Manning pursuant to an agreement with the Company
that is no longer in effect. Under such Agreement, Mr. Manning agreed to
seek to identify possible acquisitions or business combinations for the
Company and to provide related services. Mr. Manning was entitled to
receive a fee for any such transaction presented to the Company during the
period ending May 19, 1994 and entered into by the Company, based on the
pretax income attributable to any such transaction during the two fiscal
years immediately following the consummation of any such transaction. The
entire fee became payable in full upon consummation of the Merck/Medco
Merger.
(3) For the fiscal year ended June 30, 1993, Mr. Suthern was paid a salary of
$407,091 by Medco, none of which was attributed to services rendered to the
Company and, in connection with his employment by Medco he received options
to purchase 182,102 shares of Merck Common Stock, which options were not
granted in connection with services rendered to the Company. For the
fiscal year ended June 30, 1994,
10
<PAGE>
Mr. Suthern was paid a salary of $400,000 by Medco, none of which was
attributed to services rendered to the Company. During the period
beginning on July 1, 1994 and ending on December 14, 1994, the date of
consummation of the Purchase, Mr. Suthern was paid a salary of $184,615 by
Medco, none of which was attributed to services rendered to the Company.
During the period beginning on December 15, 1994 and ending on June 30,
1995, Mr. Suthern was paid a salary of $80,000 by the Company.
(4) Includes Company matching contributions to the Porex 401(k) plan and life
insurance premiums paid on behalf of Mr. Hannah of $1,205 and $1,552,
respectively, in the fiscal year ended June 30, 1993, $1,088 and $1,350,
respectively, in the fiscal year ended June 30, 1994 and $2,043 and $2,103,
respectively, in the fiscal year ended June 30, 1995.
The following table presents information concerning the options granted to
the Named Executive Officers during the last fiscal year.
<TABLE>
<CAPTION>
OPTION/SAR GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS
----------------- POTENTIAL REALIZABLE
NUMBER OF VALUE AT ASSUMED
SECURITIES % OF TOTAL RATES OF STOCK PRICE
UNDERLYING OPTIONS/SARS EXERCISE APPRECIATION FOR
OPTIONS/ GRANTED TO OR BASE OPTION TERM ($)(2)
SARS EMPLOYEES PRICE EXPIRATION ---------------------
NAME GRANTED (#) IN FISCAL YEAR ($/SH) DATE 5% 10%
- ------------------ ---------- -------------- -------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
James V. Manning.. 150,000(1) 12.7% 10.00 12/07/04 2,531,514 4,919,513
Paul C. Suthern... 180,000(1) 15.3% 10.00 12/07/04 3,037,817 5,903,415
Ray E. Hannah..... -- -- -- -- -- --
- ------------
</TABLE>
(1) These options (the "December 1994 Options") were granted in order to reward
Messrs. Manning and Suthern for services provided in connection with the
Purchase and the Divestiture. The grants of the December 1994 Options to
Messrs. Manning and Suthern and certain other officers of the Company were
approved by the stockholders of the Company on May 17, 1995. The December
1994 Options vest and become exercisable at the rate of 20% per year,
commencing on the first anniversary of the date of grant.
(2) These columns reflect the potential realizable value for each of the grants
shown assuming that the market value of the Company's Common Stock
appreciates at 5% and 10% annually from the date of grant over the ten-year
term of the option. These potential values are listed in order to comply
with Securities and Exchange Commission regulations, and the Company cannot
predict whether these values will be achieved. The actual value, if any,
an optionee will realize will depend on the actual performance of the stock
and will be equal to the excess of the market value of the Common Stock
over the exercise price of the option on the date the option is exercised.
11
<PAGE>
During the fiscal year ended June 30, 1995, no stock options were exercised
by the Named Executive Officers. The following table presents information
concerning the fiscal year-end value of stock options held by the Named
Executive Officers.
<TABLE>
<CAPTION>
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION/SAR VALUES
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS/
OPTIONS/SARS AT FY-END (#) SARS AT FY-END ($)(1)
-------------------------------- ----------------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------ -------------------------------- ----------------------------------
<S> <C> <C> <C> <C>
James V. Manning.. 165,000 150,000 2,806,250 2,175,000
Paul C. Suthern... 126,000 180,000 475,500 2,610,000
Ray E. Hannah..... 64,000 0 954,500 0
- -------------------
</TABLE>
(1) Based upon the fiscal year-end closing price of the Common Stock of $24.50.
PENSION PLAN
Employees of the Company and certain of its subsidiaries who satisfy certain
age and service requirements are eligible to participate in the Pension Plan for
Employees of Porex Technologies Corp. (the "Pension Plan"), a defined benefit
plan. The Company bears the entire cost of the Pension Plan. The Company's
contributions to the Pension Plan are computed on an actuarial basis in order to
fund the defined retirement benefits.
Normal retirement benefits are payable monthly for life to a participant
upon retirement at his or her retirement date (i.e., age 65), and are equal to
1/12 of the sum of (a) 0.6% of the participant's average annual compensation for
the five consecutive calendar years that the participant's compensation was the
highest during the ten consecutive years of service immediately preceding
retirement ("Final Average Compensation"), multiplied by the participant's
credited years of service up to a maximum of 35 years, and (b) 0.6% of the
participant's Final Average Compensation in excess of the average annual Social
Security taxable wage base for the 35-year period ending with the year the
participant would reach normal retirement age, multiplied by the participant's
credited years of service up to a maximum of 35 years. A participant becomes
100% vested in his or her accrued retirement benefit after completion of five
years of service or upon attainment of normal retirement at age 65. Retirement
benefits are not subject to any deduction for Social Security or other offset
amounts.
Under a defined benefit plan such as the Pension Plan, contributions
allocable to individual participants cannot be readily and accurately
calculated. The table below shows estimated annual retirement benefits for
executives at specified levels of remuneration and years of service. The
estimates assume that benefits commence at age 65 under a straight life annuity
form. The table discloses the benefits that an individual would receive at age
65 if he participated in the Pension Plan for 15, 20, 25, 30 and 35 years.
12
<PAGE>
<TABLE>
<CAPTION>
PENSION PLAN TABLE
Years of Service
--------------------------------------
<S> <C> <C> <C> <C> <C>
Remuneration 15 20 25 30 35
- ------------ -- -- -- -- --
100,000 15,667 20,890 26,112 31,334 36,557
115,000 18,367 24,490 30,612 36,734 42,857
125,000 20,167 26,890 33,612 40,334 47,057
150,000 24,667 32,890 41,112 49,334 57,557
or more
</TABLE>
Ray E. Hannah, the only Named Executive Officer of the Company participating
in the Pension Plan, had accrued 27 credited years of service under the Pension
Plan and had annual remuneration covered by the Pension Plan of $160,000 as of
January 1, 1995. Sections 401(a)(17) and 415 of the Internal Revenue Code limit
the amount of compensation that may be considered in computing benefits under a
qualified retirement plan. For 1994 and 1995, the maximum amount of
compensation allowed for use in calculating an individual's pension benefits
under the Retirement Plan was $150,000.
13
<PAGE>
COMPARISON OF CUMULATIVE TOTAL SHAREHOLDER RETURN
AMONG SYNETIC, INC., NASDAQ US COMPOSITE INDEX
AND COMPOSITE INDEXES
The following graphs compare the cumulative total shareholder return on the
Company's Common Stock for the period beginning June 30, 1990 and ending June
30, 1995 with: (a) in the case of Graph A, the cumulative total shareholder
return of the NASDAQ US Composite stock index and the Dow Jones Containers &
Packaging index and (b) in the case of Graph B, the cumulative total shareholder
return of the NASDAQ US Composite stock index and a composite index consisting
of the Dow Jones Containers & Packaging index and the Dow Jones Retailers and
Wholesalers Drug-Based index, weighted according to the distribution of the
Company's revenues in each time period between its plastics business and its
institutional pharmacy business. The comparison assumes the investment of $100
on June 30, 1990 in Company Common Stock and in each index and that dividends
were reinvested when paid. The Company is not included in the composite
indexes.
<TABLE>
<CAPTION>
[GRAPH A APPEARS HERE]
CUMULATIVE TOTAL RETURN
Based on reinvestment of $100 beginning June 30, 1990
Measurement period Dow Jones Container
(Fiscal year Covered) Synetic Inc. NASDAQ US Composite & Packaging Index
- ----------------------- ------------ ------------------- -------------------
<S> <C> <C> <C>
Measurement PT -
06/30/90 $ 100 $ 100 $ 100
FYE 06/30/91 $ 158 $ 106 $ 126
FYE 06/30/92 $ 215 $ 127 $ 146
FYE 06/30/93 $ 152 $ 160 $ 140
FYE 06/30/94 $ 164 $ 162 $ 143
FYE 06/30/95 $ 293 $ 215 $ 179
</TABLE>
<TABLE>
<CAPTION>
[GRAPH B APPEARS HERE]
CUMULATIVE TOTAL RETURN
Based on reinvestment of $100 beginning June 30, 1990
Measurement period
(Fiscal year Covered) Synetic Inc. NASDAQ US Composite Composite Index
- ----------------------- ------------ ------------------- ---------------
<S> <C> <C> <C>
Measurement PT -
06/30/90 $ 100 $ 100 $ 100
FYE 06/30/91 $ 158 $ 106 $ 126
FYE 06/30/92 $ 215 $ 127 $ 149
FYE 06/30/93 $ 152 $ 160 $ 163
FYE 06/30/94 $ 164 $ 162 $ 189
FYE 06/30/95 $ 293 $ 215 $ 241
</TABLE>
14
<PAGE>
REPORT ON EXECUTIVE COMPENSATION
Ray Hannah, Vice President--Technologies Group, was the only executive
officer of the Company who received compensation from the Company or
participated in the employee benefit plans and arrangements of the Company from
July 1, 1994 until the consummation of the Purchase on December 14, 1994.
During such period, each other executive officer of the Company received
compensation pursuant to arrangements with Medco and participated in Medco's
employee benefit plans and arrangements. Following the consummation of the
Purchase, the other executive officers of the Company became salaried employees
of the Company and began to participate in the employee benefit plans and
arrangements of the Company.
On April 5, 1995, the Board of Directors established the Compensation
Committee, composed of three outside directors. The current members of the
Compensation Committee are Messrs. Ferguson, Sarkowsky and Weis. The
Compensation Committee is responsible for reviewing and approving compensation
levels for the Company's executive officers and reviewing and making
recommendations to the Board of Directors with respect to other matters relating
to the compensation practices of the Company.
The Company's compensation policies are intended to provide compensation
opportunities that will help attract, motivate and retain highly qualified
managers and executives and link their total compensation to increases in
shareholder value. Mr. Hannah's compensation consists of base salary, annual
incentive compensation and stock option grants. Mr. Hannah's incentive
compensation is based primarily upon the operating results of Porex and the
achievement of certain financial criteria established and communicated at the
beginning of the fiscal year. The compensation of the other executive officers
of the Company currently consists of base salary and stock option grants. Stock
options are generally exercisable in annual installments over 5 years,
reflecting the objective of the Board to retain executives and to insure the
linkage of executive compensation to increases in shareholder value through
stock appreciation. The Compensation Committee intends to continue to use stock
options as the key component of executive compensation in order to provide long-
term incentives that are aligned to the interests of the stockholders of the
Company. No specific formula is used to determine stock option grants to any
particular person (including executive officers), but grants are generally based
upon factors such as the optionee's contribution toward Company performance and
expected contribution toward meeting long-term strategic goals of the Company.
The options granted to certain officers of the Company, including James V.
Manning, Chief Executive Officer of the Company, and Paul C. Suthern, President
and Chief Operating Officer of the Company, in December 1994 were granted in
order to reward certain officers of the Company for services provided in
connection with the Purchase and the Divestiture.
For tax years beginning on or after January 1, 1994, Section 162(m) of the
Internal Revenue Code (the "Code") limits the ability of a publicly held
corporation to deduct compensation in excess of $1 million paid to certain
executive officers. The Company has not yet established a policy with regard to
Section 162(m) of the Code. The Board of Directors does not anticipate that the
compensation of any executive officer during fiscal year 1996 will exceed the
limits on deductibility for such period. The Compensation Committee will review
the need to adopt a policy regarding Section 162(m) with respect to later
periods.
Thomas R. Ferguson Charles A. Mele
Mervyn L. Goldstein, M.D. Herman Sarkowsky
Ray E. Hannah Paul C. Suthern
Roger H. Licht Albert M. Weis
Per G.H. Lofberg Martin J. Wygod
James V. Manning
15
<PAGE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Prior to April 5, 1995, there was no Compensation Committee of the Board of
Directors. Messrs. Ferguson, Sarkowsky and Weis served as the members of the
Stock Option Committee. Messrs. Manning, Suthern and Mele, officers of the
Company during the fiscal year ended June 30, 1995 (and of Medco for a portion
of such period), participated in deliberations of the Board of Directors
relating to executive compensation during the year. There were no compensation
committee interlocks involving executive officers of the Company. On April 5,
1995, the Board of Directors established the Compensation Committee. See
"Report on Executive Compensation."
CERTAIN TRANSACTIONS
INTRODUCTION. Prior to June 28, 1989, the date of the initial public
offering of the Company, the Company was an indirect wholly owned subsidiary of
Medco. Thereafter, the Company became a publicly held, partially owned
subsidiary of Medco. Medco provides health care cost containment services,
principally managed prescription drug programs, to benefit plan sponsors. On
November 18, 1993, Medco was acquired by Merck, and as a result, the Company
became an indirect, partially owned subsidiary of Merck. Merck is a worldwide
organization engaged primarily in the business of discovering, developing,
producing and marketing products and services for the treatment of disease and
the maintenance or restoration of health. Until December 14, 1994, the
Company's operations consisted of Porex and the "Institutional Pharmacies
Business".
On December 14, 1994, the Company consummated the Purchase and the
Divestiture, pursuant to which: (1) the Company and SN Investors each purchased
shares of the Company's Common Stock from Merck, as described below under "--
Purchase and Sale Agreement"; and (2) the Company sold the Institutional
Pharmacies Business to Pharmacy Corporation of America ("PCA"), an indirect
wholly owned subsidiary of Beverly Enterprises, Inc. ("Beverly"), for
approximately $107,300,000 in cash, subject to certain post-closing adjustments.
The shares of Common Stock purchased by the Company are being held as treasury
shares and are no longer outstanding or entitled to vote. The Company's purpose
in entering into the Purchase was to acquire a significant portion of its Common
Stock on terms it believed to be in the interests of its public stockholders and
to structure the Company as an independent public company with the benefit of
Mr. Wygod's association as a significant investor. Merck required the
consummation of the Divestiture as a condition to the Purchase.
Immediately prior to the consummation of the Purchase, Merck owned
approximately 58% of the issued and outstanding Common Stock. As a result of
the consummation of the Purchase, Mr. Wygod and SN Investors own, as of October
27, 1995, an aggregate of approximately 32.3% of the outstanding Common Stock
and Merck no longer owns an equity interest in the Company.
PURCHASE AND SALE AGREEMENT. Pursuant to the Purchase and Sale Agreement,
dated as of May 24, 1994, between the Company and Merck (the "Purchase and Sale
Agreement"), the Company purchased 5,268,463 shares of the Company's Common
Stock from Merck for an aggregate purchase price of $35,778,088 (or
approximately $6.79 per share), subject to adjustment as described below. At
the time of the purchase by the Company, SN Investors purchased 5,061,857 shares
of the Company's Common Stock (the "Wygod Shares" and, collectively with the
shares purchased by the Company, the "Shares") from Merck for an aggregate
purchase price of $34,375,029 (or approximately $6.79 per share), subject to
adjustment as described below. The purchase by SN Investors was made pursuant
to an assignment by the Company to Mr. Wygod of the right to purchase the Wygod
Shares pursuant to the Investment Agreement. Mr. Wygod, as permitted under the
Investment Agreement, further assigned to SN Investors his right to purchase the
Wygod Shares. The Investment Agreement governs the terms and conditions under
which the Wygod Shares will be held by Mr. Wygod and his permitted assignees and
transferees. See "--Investment Agreement."
16
<PAGE>
In the Purchase and Sale Agreement, the Company agreed, until May 24, 1999,
to be bound by the restrictions contained in the Consulting Agreement described
below under "--Consulting Agreement," provided that such restrictions shall be
of no further force and effect in the event of the death of Mr. Wygod, or if Mr.
Wygod ceases to be a director of the Company or any subsidiary of the Company,
ceases to have any ownership interest in the Company (provided that if the
Company is a public company he may have up to a 1% equity interest in the
Company), and is not a principal, agent or employee of or consultant to the
Company or any subsidiary of the Company, or is not otherwise rendering any
services to the Company or any subsidiary of the Company.
The aggregate amount of the purchase price paid at the Purchase closing was
determined pursuant to the provisions of the Purchase and Sale Agreement
according to the following formula: (a) $45,453,750 plus (b) 33.3% of the net
proceeds of the Divestiture (after deducting estimated amounts of taxes and
direct costs relating thereto) to the extent the net proceeds exceeded
$27,500,000 up to $32,500,000 plus (c) 58.65% of the net proceeds of the
Divestiture to the extent such amount exceeded $32,500,000. For purposes of
calculating the net proceeds of the Divestiture under the Purchase and Sale
Agreement, no part of the $5,000,000 held by the escrow agent was included until
released from escrow on April 13, 1995. From time to time, as (i) the amount of
the cash proceeds received by the Company in the Divestiture is adjusted
pursuant to the provisions of the Stock Purchase Agreement between the Company
and PCA or (ii) a determination of the actual amount of direct costs and taxes
paid relating to the Divestiture requires a recalculation of net proceeds, then,
pursuant to the Purchase and Sale Agreement, the price for the purchase of the
Shares is also adjusted in accordance with the formula described above. The
amount of the adjustment to the purchase price of the Shares, as so calculated,
is either refunded to the Company and SN Investors by Merck or paid to Merck by
the Company and SN Investors, as the case may be. After the $5,000,000 was
released from escrow, the Company and SN Investors paid to Merck, on April 17,
1995, an aggregate amount of $1,562,725 (with the Company paying 51% of such
amount and SN Investors paying 49% of such amount, pursuant to the terms of the
Investment Agreement, in proportion to the respective numbers of shares acquired
from Merck in the Purchase).
Pursuant to the terms of the Purchase and Sale Agreement, options to
purchase common stock of Merck and its subsidiaries (other than the Company and
its subsidiaries) previously granted to certain employees and consultants were
modified so that employment by or consulting services to the Company or its
subsidiaries (in the case of employees and consultants continuing with the
Company after the closing of the Purchase) or Beverly or its subsidiaries (in
the case of employees and consultants continuing with the Institutional
Pharmacies Business after the closing of the Divestiture) will be considered
employment by or consulting services to Merck and its subsidiaries for purposes
of vesting and continued exercisability of such options; provided that no
further vesting of such options shall occur after June 1, 1996.
INVESTMENT AGREEMENT. In the Investment Agreement, the Company assigned the
rights and obligations to purchase the Wygod Shares to Mr. Wygod. The
Investment Agreement governs the terms and conditions under which the Wygod
Shares will be held by Mr. Wygod and his permitted assignees and transferees.
Mr. Wygod, as permitted under the Investment Agreement, assigned such rights and
obligations to SN Investors. Pursuant to the Investment Agreement, SN Investors
was (1) required to be a limited partnership in which Mr. Wygod or an entity
controlled by Mr. Wygod is the general partner and one or more of his family
trusts and/or partnerships (collectively, the "Wygod Entities") and/or
independent third parties are limited partners and (2) required to agree to be
bound by all of the restrictions and obligations applicable to Mr. Wygod under
the Investment Agreement. The Investment Agreement required the initial
investment of the Wygod Entities in SN Investors to be at least $20,000,000 (on
a cost basis) (the "Wygod Investment"). The Investment Agreement provides that,
until the earliest to occur of (a) December 14, 1998, (b) the death or
adjudication of incompetency of Mr. Wygod or (c) a Change of Control (as defined
in the Investment Agreement) (the "Restriction Period"), in respect of the Wygod
Investment, except to the extent of proceeds from sales of the Wygod Shares
pursuant to a tender or exchange offer for shares of Common Stock that is not
opposed by the Board of Directors of the Company, the Wygod Entities will at all
times maintain (directly and/or through SN Investors) at least $20,000,000 (on a
cost basis) in the Wygod Investment and will not cause or allow the amount of
the Wygod Investment (on a cost basis) to be less than $20,000,000 (net of any
disposition, transfer, pledge, distribution by SN Investors or any other
arrangement involving the transfer of ownership or interests in Wygod Shares (or
proceeds therefrom), but not taking into account any reduction in the Wygod
Investment by virtue of a decline in the value of Wygod Shares).
17
<PAGE>
A "Change of Control" under the Investment Agreement means: (a) the
acquisition by any person, entity or group of at least 50% of the voting power
of the voting securities of the Company other than the Wygod Shares; (b)
individuals who, as of the date of the Investment Agreement, constitute the
Board of Directors of the Company (the "Incumbent Board") cease for any reason
to constitute at least a majority of the Board of Directors (provided that
directors whose nomination or election was approved by the Incumbent Board are
also generally deemed to be part of the Incumbent Board); (c) a reorganization,
merger or consolidation or sale or other disposition of all or substantially all
of the assets of the Company (a "Business Combination"), excluding, however,
such a Business Combination pursuant to which (i) all or substantially all of
the individuals and entities who were the beneficial owners of the Company's
voting securities immediately prior to such Business Combination beneficially
own more than 60% of, respectively, the then-outstanding shares of common stock
and the combined voting power of the then-outstanding securities entitled to
vote generally in the election of directors of the corporation resulting from
such Business Combination, in substantially the same proportions as their
ownership immediately prior to such Business Combination of the Company's voting
securities, and (ii) at least a majority of the board of directors of the
resulting corporation were members of the Incumbent Board at the time of the
execution of the initial agreement or of the action of the Board of Directors
providing for such Business Combination; (d) a complete liquidation or
dissolution of the Company; or (e) the issuance by the Company following the
closing of the Purchase of shares of Common Stock constituting in the aggregate
more than 50% of the shares of Common Stock outstanding as of immediately
following the closing of the Purchase.
Pursuant to the Investment Agreement, during the Restriction Period: (a)
Mr. Wygod and SN Investors are required to vote (or cause to be voted) the Wygod
Shares (i) with respect to election of directors, for the nominees who would
have been elected based on the vote of all shares of Common Stock, other than
the Wygod Shares, in proportion to the votes that such nominees received, and
(ii) on all other matters to come before the stockholders of the Company, in the
same manner as a majority of the outstanding shares of Common Stock (other than
the Wygod Shares) are voted; and (b) except for sales pursuant to a tender or
exchange offer for the shares of Common Stock that is not opposed by the Board
of Directors of the Company, neither Mr. Wygod nor SN Investors may transfer
interests in the Wygod Shares (except that Mr. Wygod may transfer interests in
SN Investors to the extent otherwise permitted by the Investment Agreement).
Under the Investment Agreement, following the earlier to occur of (a)
December 14, 1998 or (b) the death or adjudication of incompetency of Mr. Wygod:
(i) to the extent the Wygod Entities and/or SN Investors retain the power to
vote Wygod Shares that have, in the aggregate, in excess of 20% of the voting
power of the Company's voting securities outstanding at the time of any vote by
stockholders of the Company, Mr. Wygod and SN Investors will vote (or cause to
be voted) the portion of such Wygod Shares representing the excess above 20% of
such voting power, (A) with respect to the election of directors, for the
nominees who would have been elected based on the vote of all shares of Common
Stock, other than the Wygod Shares, in proportion to the votes that such
nominees received, and (B) on all other matters to come before the stockholders
of the Company, in the same manner as a majority of the outstanding shares of
Common Stock, other than the Wygod Shares, are voted; and (ii) to the extent
that Wygod Entities and/or SN Investors retain beneficial ownership of Wygod
Shares that have, in the aggregate, in excess of 20% of the voting power of the
outstanding voting securities of the Company, the portion of such Wygod Shares
representing the excess above 20% of such voting power at the time of any
proposed sale or transfer thereof shall not be sold or transferred except (A) to
transferees reasonably acceptable to the Company (provided that, without the
Company's consent, no such transfer or series of transfers to a single person,
entity or group will involve the transfer of more than 9.9% of the voting power
of the Company's outstanding voting securities and no such transfer or series of
transfers will be made to a single person, entity or group that will own,
following such transfers, more than 50% of the voting power of the Company's
outstanding voting securities), (B) to the partners of SN Investors in
proportion to their respective interests in SN Investors (provided that, without
the Company's consent, no such transfer or series of transfers to a single
person, entity or group (other than Mr. Wygod or the Wygod Entities) will
involve the transfer of more than 9.9% of the voting power of the Company's
outstanding voting securities), (C) in ordinary open market transactions, or (D)
pursuant to an underwritten public offering.
The Investment Agreement provides that the restrictions described in the
foregoing paragraph will not apply (a) in the event there has been, or from and
after the occurrence of, a Change of Control (as defined in the
18
<PAGE>
Investment Agreement) of the Company, (b) at any time after December 14, 2004 or
(c) to any person or entity, other than Mr. Wygod, the Wygod Entities or SN
Investors, to whom Wygod Shares are transferred (including by means of
distributions from SN Investors) in accordance with the provisions of the
foregoing paragraph.
The Investment Agreement also provides certain demand registration rights to
Mr. Wygod at Mr. Wygod's expense which are assignable to any permitted
transferee of the Wygod Shares; provided that, in no event is the Company
required to file in the aggregate more than two registration statements in
connection therewith. Mr. Wygod has not assigned such registration rights to SN
Investors. While Mr. Wygod currently intends to assign such registration rights
to SN Investors in the event the General Partner determines to sell or otherwise
transfer the Wygod Shares under circumstances in which registration would be
required, Mr. Wygod is under no obligation to do so.
Certain provisions of the Investment Agreement may have the effect of
deterring a change of control of the Company that is not supported by the Board
of Directors of the Company or Mr. Wygod. During the Restriction Period, Mr.
Wygod and SN Investors are prohibited from transferring the Wygod Shares, except
pursuant to a tender or exchange offer that is not opposed by the Board of
Directors of the Company or to specified permitted transferees. In addition,
under the Investment Agreement, in the event that a Change of Control (as
defined in the Investment Agreement) were to occur during the Restriction
Period, Mr. Wygod and SN Investors would no longer be obligated under the
Investment Agreement to vote the Wygod Shares with respect to nominees for
election as directors based on the vote of shares other than the Wygod Shares
and with respect to other matters in the same manner as the majority of the
other outstanding shares of Common Stock (other than the Wygod Shares) are
voted, with the result that Mr. Wygod and SN Investors would have unrestricted
voting power with respect to the Wygod Shares. The effect of these provisions
of the Investment Agreement may be to discourage the commencement of a tender or
exchange offer opposed by the Board of Directors of the Company during the
Restriction Period and to discourage a proxy solicitation to change a majority
of the Board of Directors of the Company absent the support of Mr. Wygod.
CONSULTING AGREEMENT. In the Consulting Agreement, dated as of May 24, 1994
(the "Consulting Agreement"), by and among Mr. Wygod, Merck and Medco, Mr. Wygod
has agreed that, until May 24, 1999, absent Merck's prior written approval, he
will not (as principal, agent, employee, consultant or otherwise) directly or
indirectly engage in activities with, nor render services to, any business
engaged or about to become engaged in a Competitive Business (as defined in the
Consulting Agreement). A "Competitive Business" is defined in the Consulting
Agreement as: (a) the pharmaceutical business of Merck and its affiliates
(unless such business is subsequently disposed of and Mr. Wygod did not have
material involvement in such business during the two-year period preceding May
24, 1994), (b) the business, as of either November 18, 1993 or May 24, 1994, of
Medco and its subsidiaries (unless such business is subsequently disposed of and
Mr. Wygod did not have material involvement in such business during the two-year
period preceding May 24, 1994), other than the business of Porex and the other
plastic businesses of the Company as conducted as of May 24, 1994, or (c) any
other then-current business of Merck and its affiliates as to which Mr. Wygod
became materially involved following November 18, 1993; provided, however, that
the Consulting Agreement permits Mr. Wygod to have a 1% or less equity interest
in a Competitive Business that is a public corporation. In addition, the
Consulting Agreement provides that, until May 24, 1999, Mr. Wygod will not,
directly or indirectly: (i) solicit or contact any customer or prospective
customer of Medco and/or any of its affiliates as to matters that relate to a
Competitive Business in which Medco or its affiliates is then engaged or which
is in any way inconsistent or interferes therewith; (ii) induce, or attempt to
induce, any employees or agents or consultants of Medco and/or its affiliates to
do anything from which Mr. Wygod is restricted by reason of the Consulting
Agreement; or (iii) offer or aid others to offer employment to any employees of
Medco or its affiliates.
MEDCO/POREX PURCHASE AGREEMENT. During the year ended June 30, 1995, Medco
purchased certain products manufactured by Porex for use in its operations at an
aggregate purchase price of $2,569,000. Prior to consummation of the Purchase,
these sales were based on prices and terms generally available to non-
affiliates. Pursuant to a Purchase Agreement dated as of May 24, 1994 between
Medco and Porex (the "Medco/Porex Purchase Agreement"), entered into in
connection with the Purchase and effective as of the closing of the Purchase,
Porex has been supplying to Medco all of Medco's needs as described therein (the
"Requirements") for certain
19
<PAGE>
plastic vials and/or caps of different styles, dimensions and designs as
described therein (the "Products"), for Medco's use in its prescription
dispensing operations, and Medco will continue to purchase such Requirements
until December 14, 1996. The cost to Medco of the Products is the price in
effect on the date of the Medco/Porex Purchase Agreement and Medco will be
entitled to that price until December 14, 1995. Such price will increase by 3%
on December 14, 1995, subject to certain adjustments set forth in the
Medco/Porex Purchase Agreement.
TRANSITION AGREEMENT AND SERVICES AGREEMENT. Pursuant to a Transition
Agreement, dated as of November 4, 1994, between Merck and the Company, Merck
agreed to cause Medco to provide to the Company, for a period of 180 days
following the closing of the Purchase, certain administrative, legal, tax,
accounting and other transition services. The Company agreed to pay the actual
costs for such services or, where such costs were not separately identifiable, a
portion of the total cost based on the ratio of the Company's sales to the sales
of all entities for which these services are provided by Medco. In addition,
the Company agreed to reimburse Medco for all third-party charges incurred by
Medco in connection with the rendering of such services. The Transition
Agreement also provides for the Company to have continuing access to certain
books and records shared by Medco and the Company. Prior to the consummation of
the Purchase, the Company and Medco were parties to a services agreement (the
"Services Agreement"), pursuant to which similar services were provided and the
costs paid by the Company pursuant to similar arrangements. For the year ended
June 30, 1995, charges to the Company pursuant to the Services Agreement were
approximately $337,000. Charges to the Company pursuant to the Transition
Agreement for the period from the closing of the Purchase to June 30, 1995 have
not yet been determined by Merck.
TAX SHARING AGREEMENT. The Company and Medco are parties to a tax sharing
agreement providing for (i) the payment of federal income taxes for periods
during which the Company and Medco were included in the same consolidated group
for federal income tax purposes, (ii) the allocation of responsibility for the
filing of such tax returns, (iii) the conduct of tax audits and the handling of
tax controversies and (iv) various related matters. For periods during which
the Company and its subsidiaries were included in Medco's consolidated federal
income tax returns, the Company and each of its subsidiaries are required to pay
Medco their federal income tax liability determined as if the Company and each
of its subsidiaries had filed separate federal income tax returns. The tax
sharing agreement remains in force and effect following consummation of the
Purchase with respect to taxable periods prior to the consummation of the
Purchase.
OTHER. Medco has guaranteed the obligations of the Company under its
Industrial Revenue Bonds due 1997 (the "IRB"). The Company has indemnified
Medco with respect to Medco's obligations under such guarantee. The guaranty in
respect of the IRB remains in place following the consummation of the Purchase
and the Company will continue to indemnify Medco with respect thereto.
In connection with the call for redemption on February 13, 1995 of the
Company's 7% Convertible Subordinated Debentures due 2001, an institutional
investor that was the beneficial owner of more than 5% of the outstanding Common
Stock agreed with the Company to surrender for conversion into Common Stock the
$22,050,000 aggregate principal amount of Debentures it held. Additionally, in
consideration of a payment of $1,000,000 by the Company to such institutional
investor, such institutional investor agreed that, from January 27, 1995 until
February 21, 1995, it would not offer, pledge, sell, contract to sell, sell any
option or contract to purchase, purchase any option or contract to sell, grant
any option, right or warrant to purchase, or otherwise transfer or dispose of,
directly or indirectly, any shares of Common Stock or any securities convertible
into or exercisable or exchangeable for Common Stock, or enter into any swap or
similar agreement that transfers, in whole or in part, the economic risk of
ownership of the Common Stock.
In connection with the Purchase and Sale Agreement, the Company purchased an
automobile from Merck for $69,375. Subsequently, the Company sold such
automobile to Mr. Wygod for the same amount.
20
<PAGE>
PROPOSAL TWO:
RATIFICATION OF INDEPENDENT AUDITORS
Upon recommendation of the Audit Committee, the Board of Directors has
appointed Arthur Andersen LLP as its independent auditors for the fiscal year
ending June 30, 1996. A resolution will be submitted to stockholders at the
Meeting to ratify their appointment. The affirmative vote of a majority of the
votes cast at the Meeting will be required to approve this resolution. The
Board of Directors recommends a vote FOR this resolution. Although stockholder
approval of the Board of Directors' appointment of Arthur Andersen LLP is not
required by law, the Board of Directors believes that it is advisable to give
stockholders an opportunity to ratify this selection. If this proposal is not
approved at the Annual Meeting, the Board of Directors will reconsider its
selection of Arthur Andersen LLP.
A representative of Arthur Andersen LLP is expected to be present at the
Meeting. The representative will be afforded an opportunity to make a statement
and will be available to respond to questions by stockholders. If the
resolution ratifying the appointment of Arthur Andersen & Co. as independent
auditors is approved by the stockholders, the Board of Directors nevertheless
retains the discretion to select different auditors in the future, should the
Board then deem such selection to be in the Company's best interest. Any such
selection need not be submitted to a vote of stockholders.
STOCKHOLDER PROPOSALS FOR 1996 ANNUAL MEETING
Stockholders are entitled to submit proposals on matters appropriate for
stockholder action consistent with regulations of the Securities and Exchange
Commission. Should a stockholder intend to present a proposal at the Company's
1996 Annual Meeting, it must be received by the Secretary of the Company, 669
River Drive, Elmwood Park, New Jersey 07407-1361, not later than July 31, 1996,
in order to be included in the Company's proxy statement and form of proxy
relating to that meeting.
MISCELLANEOUS
A copy of the Company's Annual Report to Stockholders for the fiscal year
ended June 30, 1995 accompanies this Proxy Statement. The Annual Report to
Stockholders is not part of the proxy solicitation materials.
Where information contained in this Proxy Statement rests particularly
within the knowledge of a person other than the Company, the Company has relied
upon information furnished by such person or contained in filings made by such
person with the Securities and Exchange Commission.
By Order of the Board of Directors
David J. Schlanger
Secretary
21
<PAGE>
<TABLE>
<CAPTION>
[X] PLEASE MARK VOTES REVOCABLE PROXY
AS IN THIS EXAMPLE SYNETIC, INC.
<S> <C>
ANNUAL MEETING OF 1. The election as directors of all WITH- FOR ALL
STOCKHOLDERS nominees listed (except as FOR HOLD EXCEPT
DECEMBER 12, 1995 marked to the contrary below): [_] [_] [_]
The undersigned hereby appoints Ray E. Hannah, JAMES V. MANNING, CHARLES A. MELE AND ALBERT M. WEIS
Paul C. Suthern and David J. Schlanger, and each of them,
as the true and lawful agents and proxies of the undersigned, with INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR
full power of substitution, to represent the undersigned and to ANY INDIVIDUAL NOMINEE, MARK "FOR ALL EXCEPT" AND
vote all shares of stock which the undersigned is entitled in any WRITE THAT NOMINEE'S NAME IN THE SPACE PROVIDED
capacity to vote at the Annual Meeting of Stockholders of BELOW. TO ALLOCATE VOTES AMONG NOMINEES UNDER THE
SYNETIC, INC. (the "Company") to be held at the St. Regis Hotel, PROVISIONS FOR CUMULATIVE VOTING DESCRIBED IN THE
Two East 55th Street, New York, New York 10022 at 9:30 A.M., local ACCOMPANYING PROXY STATEMENT, SPECIFY VOTING
time, on December 12, 1995 and at any and all adjournments and INSTRUCTIONS IN THE SPACE PROVIDED BELOW.
postponements thereof, on the matters set forth below, and, in their
discretion, upon all matters incident to the conduct of the Annual __________________________________________________
Meeting and upon such other matters as may properly be brought before
the meeting. This proxy revokes all prior proxies given by the 2. Ratification of the appointment FOR AGAINST ABSTAIN
undersigned. THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE of Arthur Andersen LLP as the [_] [_] [_]
MANNER DIRECTED HEREIN BY THE UNDERSIGNED STOCKHOLDER. IF NO independent public auditors of
DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR THE ELECTION the Company for the fiscal
OF EACH OF THE NOMINEES FOR DIRECTOR LISTED BELOW (ALLOCATING year ending June 30, 1996.
VOTES EVENLY AMONG THE THREE NOMINEES) AND FOR PROPOSAL 2.
RECEIPT OF NOTICE OF SAID MEETING AND OF THE PROXY
STATEMENT AND ANNUAL REPORT OF SYNETIC, INC. IS
HEREBY ACKNOWLEDGED.
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS
OF THE COMPANY. THE DIRECTORS RECOMMEND A VOTE
FOR ELECTION OF ALL NOMINEES AND FOR PROPOSAL 2.
Please sign this proxy exactly as your name
appears hereon. Joint owners should each sign.
Trustees, executors, administrators and others
signing in a representative capacity should
indicate this capacity. An authorized officer may
sign on behalf of a corporation and should
indicate the name of the corporation and his
capacity.
Please be sure to sign and date this Date
Proxy in the box below.
Stockholder sign above------ Co-holder (if any) sign above
</TABLE>
<PAGE>
DETACH ABOVE CARD, SIGN, DATE AND MAIL IN POSTAGE PAID ENVELOPE PROVIDED.
SYNETIC, INC.
PLEASE ACT PROMPTLY
SIGN, DATE & MAIL YOUR PROXY CARD TODAY
