<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K/A
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended June 30, 1995
Commission file number 0-17822
SYNETIC, INC.
(Exact name of registrant as specified in its charter)
Delaware 22-2975182
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
669 River Drive
Elmwood Park, New Jersey 07407-1361
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (201) 703-3400
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each Class on which registered
------------------- ---------------------
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months, and (2) has been subject to such filing
requirements for the past 90 days. YES [X] NO [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value of the registrant's voting stock (based on the
last sale price of registrant's voting stock on the NASDAQ National Market
System on September 15, 1995, and for the purpose of this computation only, the
assumption that all of the registrant's directors and executive officers are
affiliates) held by non-affiliates of the registrant was approximately
$279,097,290.
The number of shares of registrant's Common Stock, $.01 par value,
outstanding at September 15, 1995 was 16,648,096.
DOCUMENTS INCORPORATED BY REFERENCE
None.
<PAGE>
2
PART III
Item 10. Directors and Executive Officers of the Registrant.
Pursuant to General Instruction G(3) to the Annual Report on Form 10-K, the
information regarding executive officers of the Company required by Item 401 of
Regulation S-K is included in Part I of this report.
The directors of the Company are as follows:
Director Principal
Name Age Since Occupation
---- --- -------- ----------
Thomas R. Ferguson 69 1989 Mr. Ferguson has been a member of
the law firm of Ferguson, Case,
Orr, Paterson & Cunningham for
more than five years.
Mervyn L. Goldstein, M.D. 58 1989 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.
Ray E. Hannah 59 1989 See "Part I. Executive Officers."
Roger H. Licht 41 1989 Roger H. Licht has been a member
of the law firm of Licht & Licht
for more than five years.
James V. Manning 48 1989 See "Part I. Executive Officers."
Per G.H. Lofberg 48 1995 Mr. Lofberg has been President of
the Merck-Medco Managed Care
Division of Merck since November
1993. Prior to that, he was Senior
Executive Vice President-Strategic
Planning and Sales and Marketing
of Medco for more than five years.
Charles A. Mele 39 1989 See "Part I. Executive Officers."
Herman Sarkowsky 70 1989 Herman 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.
<PAGE>
3
Paul C. Suthern 43 1993 See "Part I. Executive Officers."
Albert M. Weis 68 1989 Albert M. 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.
Martin J. Wygod 55 1989 Martin J. 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.
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 Forms 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.
<PAGE>
4
Item 11. Executive Compensation.
In accordance with the Services Agreement described below under "Item 13.
Certain Relationships and Related 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
$100,000 for the fiscal year ended June 30, 1995 (the "Named Executive
Officers"):
<PAGE>
5
Summary Compensation Table
<TABLE>
<CAPTION>
Long Term
Annual Compensation Compensation
---------------------------------- ------------
Other Securities
Annual Underlying All Other
Compen- Options/ Compen-
Name and Principal Postion Year Salary ($) Bonus ($) sation ($) SARs (#) sation ($)
- -------------------------- ---- ---------- --------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
James V. Manning............ 1995 50,000(1) -- -- 150,000 --
Chief Executive 1994 0(1) -- -- -- 112,640(2)
Officer (since 1993 0(1) -- -- -- --
January 1995);
Senior Executive
Vice President
-- Finance and
Administration
(through January
1995)
Paul C. Suthern............. 1995 80,000(3) -- -- 180,000 --
President and 1994 0(3) -- -- -- --
Chief Operating 1993 0(3) -- -- 120,000 --
Officer (Chief
Executive
Officer from
October 1993
to January
1995)
Ray E. Hannah............... 1995 160,000 -- -- -- 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.
<PAGE>
6
(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, 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 $2,103,
respectively, in the fiscal year ended June 30, 1995.
The following table presents information concerning the options granted to
the Named Executive Officers during the last fiscal year.
Option/SAR Grants in Last Fiscal Year
Individual Grants
<TABLE>
<CAPTION>
Potential Realizable
Number of Value at Assumed
Securities % of Total Rates of Stock Price
Underlying Options/SARs Exercise Appreciation for
Options/ Granted to or Base Option Term ($)(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 to 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.
<PAGE>
7
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.
Aggregated Option/SAR Exercises in Last Fiscal Year
and FY-End Option/SAR Values
<TABLE>
<CAPTION>
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.
<PAGE>
8
PLANS AND ARRANGEMENTS OF THE COMPANY
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.
PENSION PLAN TABLE
Years of Service
----------------
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
or more 24,667 32,890 41,112 49,334 57,557
Ray E. Hannah, the only Named Executive Officer 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.
<PAGE>
9
Compensation of Directors
Thomas R. Ferguson, Mervyn L. Goldstein, M.D., Roger Licht and Herman
Sarkowsky, the members of the special committee of the Board of Directors of the
Company established in connection with the proposals leading to the Purchase
(the "Special Committee") were each paid $10,000 for reviewing proposals in
connection with the divestiture of the Company's Institutional Pharmacy
Business. 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 Merck/Medco Merger.
<PAGE>
10
Item 12. Security Ownership of Certain Beneficial Owners and
Management.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table sets forth certain information as of October 1, 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.
Amount
Name and Address of and Nature of Percent
Beneficial Owner Beneficial Ownwership of Class(1)
-------------------- -------------------- -----------
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
- -----------
(1) The number of shares of Common Stock deemed outstanding include: (i)
16,650,796 shares of Common Stock outstanding as of October 1, 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 1, 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 "Item 13. Certain Relationships and Related 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.
<PAGE>
11
(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.
<PAGE>
12
SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth certain information, as of October 1, 1995,
concerning the ownership of Common Stock by each of the directors, each of the
Named Executive Officers, and by all directors and executive officers of the
Company as a group.
Amount and
Nature of Beneficial Percent of
Name of Beneficial Owner Ownership(1)(2) Class(3)
- ------------------------ -------------------- ----------
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 ............ 201,407(5) 1.20%
Charles A. Mele ............. 72,470 *
Herman Sarkowsky ............ 195,724(6) 1.17%
Paul C. Suthern ............. 128,000 *
Albert M. Weis .............. 143,002(7) *
Martin J. Wygod ............. 5,430,818(5)(8) 32.27%
All directors and executive
officers as a group
(12 persons) ............. 6,691,788 37.70%
- ----------
* 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 1,
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)
16,650,796 shares of Common Stock outstanding as of October 1, 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 1, 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.
<PAGE>
13
(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 "Item 13. Certain
Relationships and Related Transactions--Purchase and Sale Agreement" and
"--Investment Agreement" for additional information regarding SN Investors.
<PAGE>
14
Item 13. Certain Relationships And Related Transactions.
Purchase and Sale Agreement. Pursuant to 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 an Amended and Restated Investment Agreement, dated as of September 13, 1994
(the "Investment Agreement"), between the Company and Mr. Wygod. 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."
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
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15
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).
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%
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16
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 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
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17
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 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
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18
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
Debentures, 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.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
SYNETIC, INC.
Date: October 27, 1995 By: /s/ Victor L. Marrero
---------------------------
Victor L. Marrero
Vice President--Finance and
Chief Financial Officer
