<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 7, 1997.
REGISTRATION NO. 333-21041
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------
AMENDMENT NO. 1
TO
FORM S-3
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
-----------
SYNETIC, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 22-2975182
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
669 RIVER DRIVE, RIVER DRIVE CENTER II
ELMWOOD PARK, NEW JERSEY 07407
(201) 703-3400
(Address, including Zip Code, and telephone number, including area code, of
Registrant's principal executive offices)
-----------
CHARLES A. MELE, ESQ.
VICE PRESIDENT--GENERAL COUNSEL
SYNETIC, INC.
669 RIVER DRIVE, RIVER DRIVE CENTER II
ELMWOOD PARK, NEW JERSEY 07407
(201) 703-3400
(Name, address, including Zip Code, and telephone number, including area code,
of agent for service)
-----------
Copies to:
CREIGHTON O'M. CONDON, ESQ. ALAN L. JAKIMO, ESQ.
DAVID J. BEVERIDGE, ESQ. BROWN & WOOD LLP
SHEARMAN & STERLING ONE WORLD TRADE CENTER
599 LEXINGTON AVENUE NEW YORK, NEW YORK 10048
NEW YORK, NEW YORK 10022 (212) 848-4000
(212) 839-5300
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC: As soon as practicable after this Registration Statement becomes
effective.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the
following box. [_]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE AGGREGATE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED PER DEBENTURE (1) PRICE (1) REGISTRATION FEE
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
% Convertible
Subordinated
Debentures due 2007.. $115,000,000(2) 100% $115,000,000 $34,849(4)
Common Stock, $.01 par
value,
issuable upon
conversion of the
% Convertible
Subordinated
Debentures due 2007.. (3) -- -- None
</TABLE>
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(1) Estimated solely for the purpose of calculating the registration fee.
(2) Including up to $15,000,000 aggregate principal amount of Debentures that
may be issued upon exercise of the Underwriter's over-allotment option.
(3) Such currently indeterminable number as may be issuable upon conversion of
the Debentures.
(4) Fee previously paid on February 3, 1997.
-----------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION,
ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
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<PAGE>
SUBJECT TO COMPLETION
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
PROSPECTUS PRELIMINARY PROSPECTUS DATED FEBRUARY 7, 1997
$100,000,000
SYNETIC, INC.
% CONVERTIBLE SUBORDINATED DEBENTURES DUE 2007
----------
The % Convertible Subordinated Debentures ("Debentures") to be issued by
Synetic, Inc. ("Synetic" or the "Company") will be convertible, at the option
of the holder, at any time prior to maturity, unless previously redeemed or
repurchased, into shares of Common Stock, $.01 par value ("Common Stock"), of
the Company at a conversion price of $ per share of Common Stock (equivalent
to a conversion rate of shares per $1,000 principal amount of
Debentures), subject to adjustment in certain events. The Common Stock is
traded on the Nasdaq National Market under the symbol "SNTC". On February 5,
1997 the last sale price of the Common Stock as reported on the Nasdaq National
Market was $46 7/8 per share.
Interest on the Debentures will be payable on August 15 and February 15 of
each year commencing August 15, 1997. The Debentures will be redeemable at any
time on or after February 15, 2000 at the option of the Company, in whole or in
part, at the redemption prices set forth herein, plus accrued and unpaid
interest. The Debentures are subordinated to present and future Senior Debt (as
defined herein) of the Company. As of the date of this Prospectus, the Company
had no Senior Debt outstanding. The Company is a holding company and,
accordingly, the Debentures will be effectively subordinated to all
indebtedness and other liabilities of subsidiaries of the Company. As of the
date of this Prospectus, the Company's subsidiaries had no indebtedness for
borrowed money. The Indenture contains no limitation on the amount of
indebtedness that may be incurred by the Company and its subsidiaries. The
Debentures are required to be repurchased at the option of the holder if a
Designated Event (as defined herein) occurs at 100% of the principal amount
thereof plus accrued and unpaid interest. See "Description of Debentures."
Up to $10,000,000 aggregate principal amount of the Debentures offered hereby
will be reserved for sale at the initial offering price to certain directors,
officers and employees of, and consultants to, the Company and its
subsidiaries.
The Company intends to make application to list the Debentures on the Nasdaq
SmallCap Market.
----------
THIS OFFERING INVOLVES A HIGH DEGREE OF RISK. SEE "RISK FACTORS" BEGINNING
ON PAGE 9 FOR A DISCUSSION OF CERTAIN FACTORS WHICH SHOULD BE CONSIDERED
BY PROSPECTIVE PURCHASERS OF THE DEBENTURES OFFERED HEREBY.
----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
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<TABLE>
<CAPTION>
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC (1) DISCOUNT (2) COMPANY (1)(3)
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<S> <C> <C> <C>
Per Debenture............... % % %
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Total(4).................... $ $ $
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</TABLE>
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(1) Plus accrued interest, if any, from the date of initial issuance.
(2) The Company has agreed to indemnify the Underwriter against certain
liabilities, including certain liabilities under the Securities Act of
1933, as amended. See "Underwriting."
(3) Before deducting expenses payable by the Company estimated at $ .
(4) The Company has granted the Underwriter an option, exercisable at any time
within 30 days after the date hereof, to purchase up to an additional
$15,000,000 aggregate principal amount of Debentures on the terms set forth
above to cover over-allotments, if any. If the Underwriter exercises such
option in full, the total Price to Public, Underwriting Discount and
Proceeds to Company will be $ , $ , and $ ,
respectively. See "Underwriting."
----------
The Debentures are offered by the Underwriter, subject to prior sale, when,
as and if issued to and accepted by it, subject to approval of certain legal
matters by counsel for the Underwriter and certain other conditions. The
Underwriter reserves the right to withdraw, cancel or modify such offer and to
reject orders in whole or in part. It is expected that delivery of the
Debentures will be made in New York, New York on or about , 1997.
----------
MERRILL LYNCH & CO.
----------
The date of this Prospectus is , 1997.
<PAGE>
THIS PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE WHICH ARE NOT PRESENTED
HEREIN OR DELIVERED HEREWITH. THE COMPANY WILL PROVIDE WITHOUT CHARGE TO EACH
PERSON, INCLUDING EACH BENEFICIAL OWNER, TO WHOM THIS PROSPECTUS IS DELIVERED,
UPON THE WRITTEN OR ORAL REQUEST OF SUCH PERSON, A COPY OF ANY OR ALL
DOCUMENTS THAT ARE INCORPORATED HEREIN BY REFERENCE (OTHER THAN EXHIBITS,
UNLESS SUCH EXHIBITS ARE SPECIFICALLY INCORPORATED BY REFERENCE IN SUCH
DOCUMENTS). REQUESTS SHOULD BE DIRECTED TO VICTOR L. MARRERO, VICE PRESIDENT--
FINANCE, SYNETIC, INC., 669 RIVER DRIVE, RIVER DRIVE CENTER II, ELMWOOD PARK,
NEW JERSEY 07407, TELEPHONE (201) 703-3400.
----------------
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE DEBENTURES
OFFERED HEREBY, THE COMMON STOCK OF THE COMPANY, OR EITHER OF THEM AT LEVELS
ABOVE THOSE WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ SMALLCAP MARKET, THE NASDAQ
NATIONAL MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.
----------------
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith, files reports, proxy and information statements and other
information with the Securities and Exchange Commission (the "Commission").
Such reports, proxy and information statements and other information filed by
the Company can be inspected and copied, at prescribed rates, at the public
reference facilities of the Commission at Judiciary Plaza, 450 Fifth Street,
N.W., Room 1024, Washington, D.C. 20549, and at the regional offices of the
Commission located at Seven World Trade Center, Suite 1300, New York, New York
10048 and 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies
of such material may also be obtained, at prescribed rates, by writing to the
Public Reference Section of the Commission at Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549. In addition, the Company is required to
file electronic versions of these documents with the Commission through the
Commission's Electronic Data Gathering, Analysis and Retrieval (EDGAR) system.
The Commission maintains a World Wide Web site at http://www.sec.gov that
contains reports, proxy and information statements and other information
regarding registrants that file electronically with the Commission. In
addition, the Company's Common Stock is quoted on the Nasdaq National Market
System. Reports, proxy and information statements and other information
concerning the Company can be inspected at the offices of the National
Association of Securities Dealers, Inc., 1735 K Street, N.W., Washington, D.C.
20006.
The Company has filed with the Commission a registration statement on Form
S-3 (together with all amendments, exhibits and schedules thereto, the
"Registration Statement") under the Securities Act of 1933, as amended (the
"Securities Act"), with respect to the Debentures offered hereby. This
Prospectus, which constitutes a part of the Registration Statement, does not
contain all of the information set forth in the Registration Statement,
certain parts of which are omitted in accordance with the rules and
regulations of the Commission. For further information with respect to the
Company and the Debentures, reference is made to the Registration Statement.
Statements contained in the Prospectus as to the contents of any contract,
agreement or other document referred to are not necessarily complete. With
respect to each such contract, agreement or other document filed as an exhibit
to the Registration Statement, reference is made to the exhibit for a complete
description of the matter involved, and each such statement shall be deemed
qualified in its entirety by such reference to such contract, agreement or
other document. The Registration Statement may be inspected without charge at
the principal office of the Commission in Washington, D.C. and copies of all
or any part thereof may be obtained from the Commission at prescribed rates.
2
<PAGE>
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents have been filed with the Commission by the Company
(Commission file number 0-17822) pursuant to the Exchange Act and are hereby
incorporated by reference in this Prospectus:
(i) The Company's Annual Report on Form 10-K for the fiscal year ended
June 30, 1996 (the "1996 10-K");
(ii) The Company's Quarterly Reports on Form 10-Q for the fiscal quarters
ended September 30, 1996 and December 31, 1996 (the "Second Quarter
10-Q"); and
(iii) The Company's Current Reports on Form 8-K filed with the Commission
on December 31, 1996 and January 24, 1997.
All documents filed by the Company pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date of this Prospectus and prior
to the termination of the offering of the Debentures shall be deemed to be
incorporated by reference in this Prospectus and to be made a part hereof from
their respective dates of filing. Any statement contained in any document
incorporated or deemed to be incorporated by reference herein shall be deemed
to be modified or superseded for purposes of this Prospectus to the extent
that a statement contained herein or in any other subsequently filed document
that is also deemed to be incorporated by reference herein modifies or
supersedes such statement. Any such statement so modified or superseded shall
not be deemed, except as so modified or superseded, to constitute a part of
this Prospectus.
3
<PAGE>
PROSPECTUS SUMMARY
The following summary information is qualified in its entirety by, and should
be read in conjunction with, the more detailed information and financial
statements, including the notes thereto, appearing in the documents
incorporated herein by reference or elsewhere in this Prospectus. Except where
otherwise indicated, all information in this Prospectus assumes that the
Underwriter's over-allotment option will not be exercised. Unless otherwise
indicated by the context, all references in this Prospectus to the "Company"
include, collectively, the Company and its subsidiaries. This Prospectus
contains, under the captions "Business--Plastics Technologies Business--
General," "Business-- Healthcare Communications Business," "Risk Factors--New
Business Area--Healthcare Communications," "--Government Regulation of
Healthcare," "--Reliance on Rapidly Changing Technology" and elsewhere and
incorporates by reference certain forward-looking statements and information
relating to the Company that are based on the beliefs of the Company's
management as well as assumptions made by and information currently available
to the Company's management. When used in this Prospectus or the documents
incorporated by reference, the words "anticipate," "believe," "estimate,"
"expect" and similar expressions, as they relate to the Company or the
Company's management, are intended to identify forward-looking statements. Such
statements reflect the current view of the Company with respect to future
events and are subject to certain risks, uncertainties and assumptions. These
risks may include product demand and market acceptance risks, the feasibility
of developing commercially profitable Internet healthcare products and
services, the effect of economic conditions, user acceptance, the impact of
competitive products, services and pricing and product development,
commercialization and technological difficulties. See "Risk Factors." Should
one or more of these risks or uncertainties materialize, or should underlying
assumptions prove incorrect, actual results may vary materially from those
described herein as anticipated, believed, estimated or expected. The Company
does not intend to update these forward-looking statements.
THE COMPANY
Synetic, Inc. operates in two principal lines of business, plastics
technologies and healthcare communications. Porex Technologies Corp. (together
with its subsidiaries, "Porex"), a wholly owned subsidiary of the Company,
designs, manufactures and distributes porous and solid plastic components and
products used in healthcare, industrial and consumer applications. Through
internal development efforts and its recent acquisitions, the Company is
building a new area of business relating to the use of Internet/Intranet
technology ("Internet technology") to expand and enhance the channels of
communication in the healthcare industry.
Plastics Technologies Business. Porex's principal products, which incorporate
porous plastics, are used to filter, wick, drain, vent or control the flow of
fluids or gases. A large percentage of Porex's products are sold to other
manufacturers for incorporation into their products. The Company believes
Porex's principal strengths to be its manufacturing processes, quality control
and relationships with distributors of its proprietary health care products.
Porex's health care products include proprietary products manufactured and sold
under Porex's trade names. These products are sold for clinical and
medical/surgical use in hospitals, clinics, physicians' offices and
laboratories. Porex also manufactures and sells a line of plastic vials and
produces components made to the specifications of original equipment
manufacturers for incorporation into their healthcare products. Porex's
industrial and consumer products consist primarily of custom-manufactured
components made for manufacturers of industrial and consumer products. As a
result of the Company's development activities, the Company anticipates future
opportunities in several areas of Porex's business, which may include drug-
delivery systems, personal care products and micro-electronics.
Healthcare Communications Business. The Company's objective in its healthcare
communications business is to use Internet technology to create an influential
interactive health services channel linking physicians with the payors,
suppliers and consumers of healthcare in order to control healthcare costs and
improve patient outcomes. A key element of the Company's strategy will be to
deploy via the public Internet and private
4
<PAGE>
Intranets, a suite of communications and transaction software that would enable
physicians and their staffs to perform high volume, routine transactions in a
uniform manner for all patients. The Company seeks to integrate payor-specific
content, such as benefit rules and treatment guidelines, with patient-specific
information at the point of care, thereby creating significant value for all
participants. There is no specific time frame for the Company's first
commercial introduction of its products and services, and the Company
anticipates that it will incur significant expenses in connection with the
development of these products and services. The provision of products and
services using Internet technology in the healthcare communications industry is
a developing business. For a discussion of the risks inherent in this
developing business, see "Risk Factors."
The Company recently completed the acquisition of two development stage
businesses in the healthcare communications area--Avicenna Systems Corp.
("Avicenna") and CareAgents, Inc. ("CareAgents"). See "Business--Healthcare
Communications Business--Recent Acquisitions."
Acquisition Program. The Company maintains an acquisition program and intends
to concentrate its acquisition efforts in businesses which are complementary to
the Company's healthcare communications strategy. This emphasis, however, is
not intended to limit in any manner the Company's ability to pursue acquisition
opportunities in other healthcare-related businesses or in other industries.
See "Risk Factors--Acquisition Program" and "Business--Acquisition Program."
The Company is a Delaware corporation and was incorporated in 1989. Its
principal offices are located at 669 River Drive, River Drive Center II,
Elmwood Park, New Jersey 07407, and its telephone number is (201) 703-3400.
5
<PAGE>
THE OFFERING
<TABLE>
<C> <S>
The Debentures.......... $100,000,000 aggregate principal amount ($115,000,000
aggregate principal amount if the Underwriter's over-
allotment option is exercised in full) of %
Convertible Subordinated Debentures due 2007 (the
"Debentures").
Maturity................ The Debentures will mature on February 15, 2007,
unless earlier redeemed or converted.
Payment of Interest..... Interest on the Debentures at the rate of % per
annum will be payable semiannually on August 15 and
February 15 of each year, commencing on August 15,
1997. Interest will be computed on the basis of a
360-day year comprised of twelve 30-day months.
Conversion Rights....... The Debentures will be convertible into Common Stock
at the option of the holder at any time prior to
maturity, unless previously redeemed, at a conversion
price of $ per share (equivalent to a conversion
rate of shares per $1,000 principal amount of
Debentures), subject to adjustment in certain events.
Optional Redemption..... On or after February 15, 2000, the Company may, upon
at least 30 days' notice, redeem the Debentures, in
whole or in part, at the redemption prices set forth
herein, declining to par on or after , , together
with accrued and unpaid interest.
Change in Control....... The Debentures are required to be repurchased at 100%
of the principal amount thereof plus accrued and
unpaid interest at the option of the holder if a
Designated Event (as defined) occurs. See
"Description of Debentures--Repurchase at Option of
Holder Upon Occurrence of a Designated Event."
Subordination........... The Debentures are subordinated to present and future
Senior Debt (as defined herein) of the Company and
will be effectively subordinated to all indebtedness
and other liabilities of subsidiaries of the Company.
As of the date of this Prospectus, the Company had no
Senior Debt outstanding and the Company's
subsidiaries had no indebtedness for borrowed money.
The Indenture contains no limitation on the amount of
indebtedness that may be incurred by the Company and
its subsidiaries.
Use of Proceeds......... For general corporate purposes, which may include
acquisitions. As of the date of this Prospectus, the
Company has no agreement or understanding with a
prospective acquisition candidate in respect of a
specific transaction.
Listing................. The Company intends to make application to list the
Debentures on the Nasdaq SmallCap Market. The
Company's Common Stock is traded on the Nasdaq
National Market under the symbol "SNTC."
</TABLE>
6
<PAGE>
SUMMARY FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA AND RATIOS)
The selected financial data set forth below for the five years in the period
ended June 30, 1996 has been derived from the Consolidated Financial Statements
of the Company, which have been audited by Arthur Andersen LLP, independent
public accountants. The selected financial data as of and for the six-month
periods ended December 31, 1995 and 1996 are derived from the unaudited
consolidated financial statements of the Company which, in the opinion of
management, include all normal and recurring adjustments necessary to present
fairly the financial position and the results of operations of the Company for
those periods. The operating results for the six months ended December 31, 1996
are not necessarily indicative of the operating results to be expected for the
full year. Such information should be read in conjunction with the Consolidated
Financial Statements of the Company and the related notes thereto included in
the 1996 10-K that are incorporated by reference into this Prospectus, the
Second Quarter 10-Q incorporated by reference into this Prospectus and the
unaudited consolidated financial statements of the Company contained elsewhere
in this Prospectus. The selected financial data for the five years in the
period ended June 30, 1996 has been restated to reflect the Divestiture as
described in "Business--Certain Corporate History". See "Certain Relationships
and Related Transactions" in the 1996 10-K.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
YEAR ENDED JUNE 30, DECEMBER 31,
--------------------------------------------- ----------------
1992 1993 1994 1995 1996 1995 1996
------- ------- ------- ------- ------- ------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA
Net sales............... $28,486 $30,645 $33,093 $39,179 $45,128 $21,319 $ 23,084
Income from continuing
operations before
provisions for income
taxes.................. 6,031 5,430 1,080 1,078 13,202 6,251 (21,018)
Provision for income
taxes.................. 2,151 2,046 411 443 4,617 2,254 2,527
------- ------- ------- ------- ------- ------- --------
Income from continuing
operations............. 3,880 3,384 669A(1) 635A(2) 8,585 3,997 (23,545)(3)
Income from discontinued
operations............. 1,376 2,734 1,823 15,459 -- -- --
------- ------- ------- ------- ------- ------- --------
Net income.............. $ 5,256 $ 6,118 $ 2,492 $16,094 $ 8,585 $ 3,997 $(23,545)
======= ======= ======= ======= ======= ======= ========
Net income per share
(4):
Continuing operations. $0.24 $0.19 $0.04 $0.04 $0.48 $0.22 $(1.28)
Discontinued
operations........... 0.09 0.16 0.10 0.89 -- -- --
------- ------- ------- ------- ------- ------- --------
Net income per share(5). $0.33 $0.35 $0.14 $0.93 $0.48 $0.22 $(1.28)
======= ======= ======= ======= ======= ======= ========
Ratio of earnings to
fixed charges(6)....... 2.7x 1.9x 1.3x 3.1x 125.5x 191.4x 144.1x
</TABLE>
<TABLE>
<CAPTION>
AS OF
AT JUNE 30, DECEMBER 31, 1996
----------------------------------------- -----------------------
1992 1993 1994 1995 1996 ACTUAL AS ADJUSTED(7)
------- ------- ------- -------- -------- -------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA
Working capital......... $44,350 $65,673 $64,625 $105,279 $166,328 $169,644 $265,644
Net assets of
discontinued
operations............. 25,352 52,548 55,882 -- -- -- --
Total assets............ 163,011 189,494 194,009 188,174 199,592 210,713 312,213
Long term debt, less
current portion........ 81,714 81,058 80,716 -- -- -- 100,000
Stockholders' equity.... 74,056 102,378 105,130 166,832 181,089 183,501 183,501
</TABLE>
- --------
(1) The fiscal year ended June 30, 1994 includes a non-recurring charge of
$(372) or $(.02) per share related to one-time payments made to certain
executive officers in conjunction with the acquisition of the Company's
former parent.
7
<PAGE>
(2) The fiscal year ended June 30, 1995 includes (i) a non-recurring charge of
$(3,683) or $(.21) per share primarily related to the award of stock
options to certain officers in connection with the completion of the sale
of the institutional pharmacy business and the purchase of the shares of
Company stock owned by Merck & Co. and (ii) a non-recurring charge of
$(1,049) or $(.06) per share, related to the conversion and redemption of
the Company's debentures in February 1995. See "Business--Certain Corporate
History."
(3) The six months ended December 31, 1996 includes a non-recurring charge of
$(28,600) or $(1.55) per share allocated to purchased research and
development costs in conjunction with the purchase of Avicenna Systems
Corp., which, in accordance with generally accepted accounting principles,
has been charged to expense. See "Business--Healthcare Communications
Business--Recent Acquisitions".
(4) Restated to reflect a two-for-one stock split effected on February 26,
1993.
(5) No cash dividends were declared by the Company during the periods presented
above.
(6) Earnings used in computing the ratio of earnings to fixed charges consist
of earnings from continuing operations before taxes, non-recurring items
and fixed charges. Fixed charges consist of interest expense, amortization
of debt issuance costs and the estimated interest element of rental
payments. Because the Debentures will have an annual interest requirement
of $ , in the future the ratio of earnings to fixed charges may decline.
(7) As adjusted to reflect the issuance of $100 million aggregate principal
amount of the Debentures offered hereby.
8
<PAGE>
RISK FACTORS
Prior to making an investment decision with respect to the Debentures
offered hereby, prospective investors should carefully consider the specific
factors set forth below, together with all of the other information appearing
herein, in light of their particular investment objectives and financial
circumstances.
NEW BUSINESS AREA--HEALTHCARE COMMUNICATIONS
Initial Development Phase. The Company is in the initial development phase
of offering products and services to provide inter-enterprise connectivity to
payors and providers in the healthcare industry. The provision of products and
services using Internet technology in the healthcare communications industry
is a developing business. There is no specific time frame for the Company's
first commercial introduction of its products and services, and the Company
anticipates that it will incur significant expenses in connection with the
development of these products and services. There can be no assurance that
these products and services will be successfully developed by the Company.
Avicenna, the Company's first acquisition in this area, has operated at a loss
since its inception two years ago, and as of November 30, 1996 had an
unaudited accumulated deficit of approximately $3,100,000. CareAgents, the
Company's second acquisition in this area, founded in 1996, is a start-up
company with a very limited operating history. The Company is pursuing the
development of its healthcare communications business through the use of its
internal resources as well as pursuing the acquisition of complementary
businesses. The Company anticipates that it may enter into acquisitions, joint
ventures, strategic alliances or other business combinations. These
transactions may materially change the nature and scope of this business.
There can be no assurance that the Company will succeed in consummating such
transactions or that such transactions will ultimately provide the Company
with the ability to offer the products and services described.
Uncertainty of Market Acceptance. As is typical in a developing business,
demand and market acceptance for new and unproven products and services are
subject to a high level of uncertainty. Achieving market acceptance for the
Company's products and services will require substantial marketing efforts and
expenditure of significant funds to create awareness and demand by
participants in the healthcare industry. No assurances can be given that the
Company's effort in establishing such products and services will be
successful, that the Company will be able to succeed in positioning its
services as a preferred method for healthcare communications, that there will
be significant market acceptance for its products and services or that any
pricing strategy developed by the Company will be economically viable or
acceptable to the market.
Expected Losses. Synetic expects to continue to incur significant research
and development expenses and incur additional operating losses in connection
with its healthcare communications business until the products and services
are successfully developed and marketed. The rate of aggregate expenditures at
Avicenna and CareAgents immediately prior to their acquisition was
approximately $1,600,000 per quarter. Research and development expenses
relating to Avicenna may be materially greater in the future than current
amounts until the Company successfully develops and markets these products and
services. Synetic anticipates, however, that such research and development
expenses will not exceed $2,500,000 per fiscal quarter for the third and
fourth quarters of the current fiscal year ending June 30, 1997 and will not
result in net losses for Synetic on a consolidated basis for the current
fiscal year (excluding the non- recurring charges for purchased research and
development costs relating to the acquisition of Avicenna and CareAgents; see
"Business--Healthcare Communications Business"), or for either of the fiscal
quarters ending March 31, 1997 or June 30, 1997. There can be no assurance as
to when, and to what extent, if any, the healthcare communications business of
the Company will become profitable.
GOVERNMENT REGULATION OF HEALTHCARE
Participants in the healthcare industry are subject to extensive and
frequently changing regulation under numerous laws administered by
governmental entities at the federal, state and local levels. Many current
laws and regulations, when enacted, did not anticipate the methods of
healthcare communication under development by the Company. The Company
believes, however, that these laws and regulations will nonetheless be applied
to the Company's healthcare communications business. Accordingly, the
Company's healthcare communications business may be affected by current
regulations as well as future regulations specifically targeted to this new
segment of the healthcare industry.
9
<PAGE>
Current laws and regulations which may affect the healthcare communications
business include (i) the regulation of confidential patient medical record
information, (ii) laws relating to the electronic transmission of
prescriptions from physicians' offices to pharmacies, (iii) regulations
governing the use of software applications in the diagnosis, cure, treatment,
mitigation or prevention of disease and (iv) laws or regulations relating to
the relationships between or among healthcare providers. The Company expects
to conduct its healthcare communications business in substantial compliance
with all material federal, state and local laws and regulations governing its
operations. However, the impact of regulatory developments in the healthcare
industry is complex and difficult to predict, and there can be no assurance
that the Company will not be materially adversely affected by existing or new
regulatory requirements or interpretations.
RELIANCE ON RAPIDLY CHANGING TECHNOLOGY
All businesses which rely on Internet technology, including the healthcare
communications business described herein, are subject to rapid technological
change, changing customer needs, frequent new product introductions and
evolving industry standards. In addition, as the communications, computer and
software industries continue to experience rapid technological change, the
Company must be able to quickly and successfully adapt its products and
services so that they adapt to such changes. There can be no assurance that
the Company will not experience difficulties that could delay or prevent the
successful development and introduction of its healthcare communications
products and services. The Company's inability to respond to technological
changes in a timely and cost- effective manner could have a material adverse
effect on the Company's business, financial condition and results of
operations. Moreover, there can be no assurance that technologically superior
products and services will not be developed by competitors, or that any such
products and services will not have an adverse effect upon the Company's
operating results.
COMPETITION IN HEALTHCARE COMMUNICATIONS
The Company is not aware of any business which currently provides the scope
and breadth of the healthcare communications products and services currently
being developed by the Company. However, various companies including, but not
limited to, certain physician office management information systems companies,
EDI/data networking companies, online medical information service companies,
and systems integration companies, some of which may have greater resources
than the Company, have announced that they are developing a combination of one
or more of these products and services. There can be no assurance that such
companies will not develop and successfully market the healthcare
communications products and services described herein in a manner which would
have a material adverse effect on the Company. See "Business--Healthcare
Communications Business--Business Strategy."
RISKS OF PRODUCT DEVELOPMENT; PROPRIETARY RIGHTS
The Company's future success and ability to compete in the healthcare
communications business may be dependent in part upon its proprietary rights
to products and services which it develops. The Company may rely on a
combination of copyrights, trademarks and trade secrets and contractual
restrictions to protect its content and technology and on similar proprietary
rights of its content and technology providers. There can be no assurance that
the steps taken by the Company or such providers would be adequate to prevent
misappropriation of their respective proprietary rights or that the Company's
competitors will not independently develop content or technology that are
substantially equivalent or superior. In addition, there can be no assurance
that licenses for any intellectual property of third parties that might be
required for the Company's products or services would be available on
commercially reasonable terms or at all. Although the Company intends to take
steps to insure that it is not infringing the proprietary rights of any third
parties, there can be no assurance that patent infringement or other claims
will not be asserted against the Company or one of its content or technology
providers or that such claims will not be successful. The Company could incur
substantial costs and diversion of management resources with respect to the
defense of any such claims. Furthermore, parties making such claims against
the Company or a content or technology provider could secure a judgment
awarding substantial damages, as well as injunctive or other equitable relief
which could effectively block the Company's ability to provide products or
services in certain of its markets. Such a judgment could have a material
adverse effect on the Company's business, financial condition and results of
operations.
10
<PAGE>
GOVERNMENT REGULATION OF POREX
Porex manufactures and distributes certain medical/surgical devices, such as
plastic and reconstructive surgical implants and tissue expanders, which are
subject to government regulations, including approval procedures instituted by
the Food and Drug Administration. Future healthcare products may also be
subject to such regulations and approval processes. Compliance with such
regulations and the process of obtaining approvals can be costly, complicated
and time-consuming, and there can be no assurance that such approvals will be
granted on a timely basis, if ever. See "Business--Porex--Regulation" in the
1996 10-K.
POTENTIAL LIABILITY RISK AND AVAILABILITY OF INSURANCE
The products sold by the Company expose it to potential risk for product
liability claims particularly with respect to Porex's life sciences, clinical
and surgical products. The Company believes that Porex carries adequate
insurance coverage against product liability claims and other risks. There can
be no assurance, however, that claims in excess of Porex's insurance coverage
will not arise. In addition, Porex's insurance policies must be renewed
annually. In 1994, Porex was notified that its insurance carrier would not
renew its then-existing insurance coverage after December 31, 1994 with
respect to actions and claims arising out of Porex's distribution of silicone
mammary implants. However, Porex has exercised its right to purchase extended
reporting period coverage with respect to such actions and claims. Such
coverage provides insurance, subject to existing policy limits but for an
unlimited time period, with respect to actions and claims made after December
31, 1994 that are based on events that occurred during the policy period. See
"--Certain Litigation." Porex has renewed its insurance coverage with the same
carrier for other liability claims. Although Porex has been able to obtain
adequate insurance coverage at an acceptable cost in the past and believes
that it is adequately indemnified for products manufactured by others and
distributed by it, there can be no assurance that in the future it will be
able to obtain such insurance at an acceptable cost or be adequately protected
by such indemnification. See "Business--Porex--Health Care Products" and
"Legal Proceedings--Mammary Implant Litigation" in the 1996 10-K.
CERTAIN LITIGATION
During the year ended June 30, 1988, Porex began distributing silicone
mammary implants ("implants") in the United States pursuant to a distribution
arrangement (the "Distribution Agreement") with a Japanese manufacturer (the
"Manufacturer"). Because of costs associated with increased government
regulation and examination, Porex's supplier determined to withdraw its
implants from the United States market. On July 9, 1991, the FDA mandated a
recall of all implants manufactured by companies that elected not to comply
with certain FDA regulations regarding data collection. Accordingly, Porex
notified all of its customers not to use any implants sold by Porex and to
return such implants to Porex for a full refund. Porex had ceased offering
implants for sale prior to the recall date. Porex believes that after
accounting for implants returned to it, the aggregate number of recipients of
implants distributed by Porex under the Distribution Agreement in the United
States totals approximately 2,500.
Since March 1991, Porex has been named as one of many co-defendants in a
number of actions brought by recipients of implants. One of the pending
actions, Donna L. Turner v. Porex Technologies Corporation, et al., is styled
as a class action. Certain of the actions against Porex have been dismissed
where it was determined that the implant in question was not distributed by
Porex. In addition, as of January 31, 1997, 57 claims have been settled on a
favorable basis by the Manufacturer, or by the insurance carriers of Porex,
without material cost to Porex. As of January 31, 1997, 217 actions and 34
out-of-court claims were pending against Porex. Of the 217 actions, 100
involve implants identified as distributed by Porex and 84 cases involve
implants identified as not having been distributed by Porex. In the remaining
33 actions, the implants have not been identified. The number of claims made
by individuals during the fiscal year ended June 30, 1996 was significantly
lower than the number of claims made during the fiscal year ended June 30,
1995.
The typical case or claim alleges that the individual's mammary implants
caused one or more of a wide range of ailments. These implant cases and claims
generally raise difficult and complex factual and legal issues and are subject
to many uncertainties and complexities, including, but not limited to, the
facts and circumstances of each particular case or claim, the jurisdiction in
which each suit is brought, and differences in applicable law. The Company
does not have sufficient information to evaluate each case and claim.
11
<PAGE>
In 1994, Porex was notified that its insurance carrier would not renew its
then-existing insurance coverage after December 31, 1994 with respect to
actions and claims arising out of Porex's distribution of implants. However,
Porex has exercised its right, under such policy, to purchase extended
reporting period coverage with respect to such actions and claims. Such
coverage provides insurance, subject to existing policy limits but for an
unlimited time period, with respect to actions and claims made after December
31, 1994 that are based on events that occurred during the policy period. In
addition, Porex has other excess insurance where it has similarly purchased
extended reporting period coverage which by its terms would expire December
31, 1997. However, Porex expects to purchase further extended reporting period
coverage from the excess insurers to the extent such coverage is reasonably
available. The Company believes that its present coverage, together with
Porex's insurance policies in effect on or before December 31, 1994, should
provide adequate coverage against liabilities that could result from actions
or claims arising out of Porex's distribution of implants. To the extent that
certain of such actions and claims seek punitive and compensatory damages
arising out of alleged intentional torts, such damages, if awarded, may or may
not be covered, in whole or in part, by Porex's insurance policies. In
addition, Porex's recovery from its insurance carriers is subject to policy
limits and certain other conditions. Porex has been expensing the retention
amount under its policies as incurred.
The Company believes that Porex has a valid claim for indemnification under
the Distribution Agreement with respect to any liabilities that could result
from pending actions or claims by recipients of implants or any similar
actions or claims that may be commenced in the future. However, Porex's right
to indemnification is subject to a disagreement with the Manufacturer. Pending
the resolution of such disagreement, the Manufacturer has been paying a
portion of the costs of the settled claims.
ACQUISITION PROGRAM
The Company maintains an acquisition program and intends to concentrate its
acquisition efforts on businesses which are complementary to the Company's
healthcare communications strategy, but such emphasis is not intended to limit
in any manner the Company's ability to pursue acquisition opportunities in
other healthcare-related businesses or in other industries. The Company
anticipates that it may enter into acquisitions, joint ventures, strategic
alliances or other business combinations. These transactions may materially
change the nature and scope of the business. Any transactions will be limited,
as required by agreements to which the Company is a party, to areas of
business that would not be competitive with certain businesses of Merck & Co.,
Inc. and its subsidiaries or with the Institutional Pharmacies Business (as
defined in "Business--Certain Corporate History"). See "Business--Certain
Corporate History" below and "Certain Relationships and Related Transactions"
in the 1996 10-K. Although management of the Company will endeavor to evaluate
the risks inherent in any particular transaction, there can be no assurance
that the Company will properly ascertain all such risks. In addition, no
assurances can be given that the Company will succeed in consummating any such
transactions, that such transactions will ultimately provide the Company with
the ability to offer the products and services described or that the Company
will be able to successfully manage or integrate any resulting business.
The success of the Company's acquisition program will depend on, among other
things, the availability of suitable candidates, the availability of funds to
finance transactions, and the availability of management resources to oversee
the operation of resulting businesses. Financing for such transactions may
come from several sources, including, without limitation, (a) cash and cash
equivalents on hand and marketable securities and (b) proceeds from the
incurrence of indebtedness or the issuance of additional Common Stock,
preferred stock, convertible debt or other securities. The issuance of
additional securities, including Common Stock, could result in substantial
dilution of the percentage ownership of the stockholders of the Company at the
time of any such issuance, could result in substantial dilution of the
Company's earnings per share and could adversely affect the prevailing market
price for the Debentures. The proceeds from any financing may be used for
costs associated with identifying and evaluating prospective candidates, and
for structuring, negotiating, financing and consummating any such transactions
and for other general corporate purposes. The Company does not intend to seek
stockholder approval for any such transaction or security issuance unless
required by applicable law or
12
<PAGE>
regulation. Although Mr. Martin J. Wygod, Chairman of the Board of the
Company, has indicated his intention to assist the Company in its acquisition
program by bringing opportunities for potential transactions to the Company
and to assist the Company in negotiating such transactions and in seeking
financing in the event any such transaction were to be financed by the
Company, he is not an officer or an employee of the Company nor is he required
pursuant to any contractual obligation to provide such support or assistance.
See "Business--Acquisition Program."
DISCRETIONARY USE OF PROCEEDS
The Company currently intends to use the net proceeds from the sale of the
Debentures for general corporate purposes, which may include acquisitions. The
Company's management has broad discretion with respect to the specific
application of the net proceeds of this Offering.
HOLDING COMPANY STRUCTURE
The Company is a holding company that has no significant operations other
than those incidental to its ownership of its Porex and Avicenna subsidiaries.
It is anticipated that future acquisitions will be operated through
subsidiaries. As a holding company, to the extent that the Company would
require funds to meet its debt service and other obligations and such funds
are not available at the holding company level, the Company would be dependent
on dividends or other intercompany transfers of funds from Porex and Avicenna
or such other subsidiaries. Claims of creditors of the Company's subsidiaries,
including trade creditors, generally will have priority as to the assets of
such subsidiaries over the claims of the Company and the holders of the
Company's indebtedness, including the Debentures. The indenture pursuant to
which the Debentures will be issued will not restrict borrowing at either the
Company or the subsidiary level, including borrowings in connection with the
Company's acquisition program. See "Description of Debentures."
SUBORDINATION OF DEBENTURES
The Debentures will be subordinated to existing and future Senior Debt of
the Company. As of the date of this Prospectus, the Company had no Senior Debt
outstanding. The company is a holding company and, accordingly, the Debentures
will be effectively subordinated to all existing and future liabilities of the
Company's subsidiaries. As of the date of this Prospectus, the Company's
subsidiaries had no indebtedness for borrowed money. Upon any distribution of
assets of the Company upon any dissolution, winding up, liquidation or
reorganization, the payment of the principal of, premium, if any and interest
on the Debentures will be subordinated to the extent provided in the Indenture
in right of payment to the prior payment in full of all Senior Debt. By reason
of this provision, in the event of the Company's dissolution or insolvency,
holders of Senior Debt may receive more, ratably, and holders of the
Debentures may receive less, ratably, than the other creditors of the Company.
See "Description of Debentures--Subordination."
ABSENCE OF AN ESTABLISHED MARKET FOR THE DEBENTURES
Prior to the offering of the Debentures, there has been no public trading
market for the Debentures. Although the Company intends to make application to
list the Debentures on the Nasdaq SmallCap Market, there can be no assurance
that an active public market for the Debentures will develop or, if a public
market develops, that the market price will exceed the public offering price
set forth on the covering page of this Prospectus. If an active public trading
market for the Debentures does not develop, the market prices and liquidity of
the Debentures may be adversely affected. Because the Debentures are
convertible into Common Stock, the prices at which the Debentures trade in the
market will likely be affected by the price of the Company's Common Stock.
13
<PAGE>
SHARES AVAILABLE FOR FUTURE SALE
The 5,061,857 Wygod Shares (as defined in "Business--Certain Corporate
History") are "restricted securities," within the meaning of Rule 144
promulgated pursuant to the Securities Act ("Rule 144"), subject to the volume
restrictions of Rule 144 but for which the two-year holding period has
expired. In addition, as more fully set forth in "Certain Relationships and
Related Transactions" in the 1996 10-K, the Wygod Shares are subject to
certain restrictions on transfer. Upon expiration of such restrictions, SN
Investors, L.P. ("SN Investors") may be able to sell without registration
under the Securities Act the number of such shares permitted under Rule 144.
The Company has granted certain demand registration rights to Mr. Wygod with
respect to the Wygod Shares that are assignable to SN Investors. Any sales by
SN Investors pursuant to Rule 144 or such registration rights could have a
material adverse effect on the prevailing market price for the Common Stock.
See "Business--Certain Corporate History" and "Description of Capital Stock--
Shares Eligible for Future Sale."
As of January 31, 1997, the Company has reserved an aggregate of 7,001,156
shares of Common Stock for issuance pursuant to stock option agreements and
stock option plans and an additional 250,000 shares for issuance upon the
exercise of warrants exercisable after December 23, 1998. The sale of a
substantial amount of such additional shares of Common Stock following their
issuance could have a material adverse effect on the market price of the
Common Stock.
CERTAIN ANTITAKEOVER EFFECTS
Provisions in the Certificate of Incorporation of the Company relating to a
staggered Board of Directors, super-majority requirements and delegation of
rights to issue Preferred Stock may have the effect not only of discouraging
tender offers or other stock acquisitions but also of deterring existing
stockholders from making management changes. See "Description of Capital
Stock--Common Stock." In addition, the requirement that the Company repurchase
the Debentures, at the option of the holder, upon the occurrence of a
Designated Event may, in certain circumstances, make more difficult or
discourage a takeover of the Company. See "Description of Debentures--
Repurchase at Option of Holder upon Occurrence of a Designated Event."
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<PAGE>
USE OF PROCEEDS
The net proceeds from the sale of the Debentures are estimated to be
approximately $ ($ if the Underwriter's over-allotment option is
exercised in full). The Company currently intends to use the net proceeds for
general corporate purposes, which may include acquisitions. As of the date of
this Prospectus, the Company has no agreement or understanding with a
prospective acquisition candidate in respect of a specific transaction.
Pending the use of the net proceeds as described above, the Company intends to
maintain the net proceeds in short-term or demand interest-bearing instruments
or accounts. See "Prospectus Summary--The Company" and "Risk Factors--The
Acquisition Program."
PRICE RANGE OF COMMON STOCK
The Common Stock is traded on the Nasdaq National Market under the symbol
SNTC. The following table sets forth for the periods indicated the high and
low sale prices for the Company's Common Stock as reported by the Nasdaq
National Market.
<TABLE>
<CAPTION>
HIGH LOW
------- -------
<S> <C> <C>
FISCAL YEAR 1995
First Quarter................................................... $16 1/4 $11 1/2
Second Quarter.................................................. 20 1/4 14 3/4
Third Quarter................................................... 25 1/2 19
Fourth Quarter.................................................. 26 1/4 23 1/4
FISCAL YEAR 1996
First Quarter................................................... 26 1/4 22 1/4
Second Quarter.................................................. 29 5/8 22 1/2
Third Quarter................................................... 39 1/2 27 1/2
Fourth Quarter.................................................. 38 3/4 32 1/2
FISCAL YEAR 1997
First Quarter................................................... 37 1/4 30 3/4
Second Quarter.................................................. 55 7/8 31 1/2
Third Quarter (through February 5, 1997)........................ 49 3/4 45
</TABLE>
On February 5, 1997, the last sale price of the Common Stock as reported by
the Nasdaq National Market was $46 7/8. As of January 31, 1997, the Company's
Common Stock was held by 167 stockholders of record. The Company believes that
its Common Stock is beneficially held by at least 400 stockholders.
DIVIDEND POLICY
The Company has never paid a cash dividend to the holders of its Common
Stock. The Company intends to continue to retain earnings to finance its
business and, accordingly, does not currently anticipate paying cash dividends
to holders of its Common Stock.
15
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company at December
31, 1996 and as adjusted to give effect to the receipt by the Company of the
anticipated net proceeds from the sale of the Debentures.
<TABLE>
<S> <C> <C>
DECEMBER 31, 1996
---------------------
ACTUAL AS ADJUSTED
-------- -----------
(IN THOUSANDS)
Cash and marketable securities(1)....................... $171,551 $269,051
======== ===========
Long-term debt:
% Convertible Subordinated Debentures due 2007....... -- 100,000
Stockholders' equity:
Preferred stock, $.01 par value, 10,000,000 shares
authorized; none issued................................ -- --
Common stock, $.01 par value, 50,000,000 shares
authorized; 17,323,958 shares issued and
outstanding; shares as adjusted(2)................. 226 226
Additional paid-in capital............................. 185,890 185,890
Treasury Stock, at cost; 5,268,463 shares.............. (38,287) (38,287)
Retained earnings...................................... 35,672 35,672
-------- -----------
Total stockholders' equity............................ 183,501 183,501
-------- -----------
Total capitalization................................. $183,501 $283,501
======== ===========
</TABLE>
- --------
(1)Includes current cash balance as of December 31, 1996 and short-term
marketable securities.
(2) Does not include at December 31, 1996 (i) an aggregate of 6,279,513 shares
reserved for issuance pursuant to certain stock option agreements and
stock option plans, (ii) 250,000 shares reserved for issuance upon
exercise of warrants issued in connection with the acquisition of Avicenna
and (iii) shares reserved for issuance upon conversion of the Debentures.
See "Description of Debentures."
16
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BUSINESS
GENERAL
Synetic, Inc. operates in two principal lines of business, plastics
technologies and healthcare communications. Porex Technologies Corp. (together
with its subsidiaries, "Porex"), a wholly owned subsidiary of the Company,
designs, manufactures and distributes porous and solid plastic components and
products used in healthcare, industrial and consumer applications. Porex's
principal products, which incorporate porous plastics, are used to filter,
wick, drain, vent or control the flow of fluids or gases. Through its recently
acquired wholly owned subsidiary, Avicenna Systems Corporation, the Company
has directed its efforts in a new area of business relating to the use of
Internet technology to expand the channels of communication in the healthcare
industry. The creation of these new channels is intended to benefit providers
and payors of healthcare services by improving the quality of patient care,
securing appropriate utilization of healthcare services, reducing
administrative costs and enforcing benefit plan guidelines.
PLASTICS TECHNOLOGIES BUSINESS
General
Porex designs, manufactures and distributes porous and solid plastic
components and products used in healthcare, industrial and consumer
applications. Porous plastics are permeable plastic structures having omni-
directional (i.e., porous in all directions to the flow of fluids or gases)
interconnecting pores. Porous plastics are manufactured by Porex with pore
sizes between approximately 5 and 500 micrometers (one micrometer is equal to
one-millionth of a meter; an object of 40 micrometers in size is about as
small as can be discerned by the naked eye). Porous plastic materials can be
molded from several thermoplastic raw materials and are produced by Porex at
its own manufacturing facilities as fabricated devices, custom-molded shapes,
sheets, tubes or rods depending on application or manufacturer specifications.
Porex also purchases for resale through its distribution channels certain
products which are complementary to its manufactured product lines. As a
result of the Company's development activities, the Company anticipates future
opportunities in several areas of Porex's business, which may include drug-
delivery systems, personal care products and micro-electronics.
Healthcare Products
Porex's proprietary products for life sciences, clinical and surgical
applications include blood serum filters, blood tube closure devices, pipette
tips and a line of medical/surgical products designed primarily for use in
plastic and reconstructive surgery and maxillofacial surgery. Porex also
manufactures and sells a line of plastic vials and produces components made to
the specifications of original equipment manufacturers for incorporation into
their healthcare products.
Porex's blood serum filters are used to separate microscopic particles and
fibrous matter (fibrin) from centrifuged blood serum to prevent clogging of
automated laboratory chemical analysis equipment. The filters allow the serum
to pass through while blocking passage of particulate materials. Analysis of
the serum provides specific information as to a patient's health. Porex also
manufactures a line of closure devices that are used with blood serum filters
and tubes. In response to health concerns regarding the handling of human
blood, new blood testing equipment has been developed by other companies which
does not require filtered blood serum for analysis, or which eliminates the
need for handling of blood serum by medical personnel. The use of such new
equipment has reduced the demand for Porex's current line of blood serum
filters.
Porex produces a line of filtered and non-filtered pipette tips which are
used for dispensing fluids, primarily in industrial research laboratories.
Porex's surgical products are marketed primarily to surgeons who specialize
in plastic and reconstructive surgery and maxillofacial surgery. The product
line includes MEDPOR(R) Surgical Implant material, which is
17
<PAGE>
polymeric biomaterial used for craniofacial reconstruction and augmentation,
and TLS(R) Surgical Drainage Systems for small wound sites. Porex also markets
TLS(R) Surgical Marker pens to mark the areas of proposed surgical incision.
Porex manufactures MEDPOR(R) Surgical Implant material and distributes, and in
some cases assembles, the other items in its surgical product line.
Porex manufactures various porous plastic components that it sells to other
healthcare product manufacturers for incorporation into their finished
products. These porous plastics are used to vent or diffuse gases or fluids
and are used as membrane supports in other manufacturers' products. The
components include (i) disks used to support membranes, modules and other
filtration devices, (ii) a venting system for catheters which allows air to
vent from a catheter as it is inserted into a vein, while at the same time
preventing blood spillage and possible contamination of hospital personnel,
(iii) a porous disk used in pipette tips to prevent the fluid to be pipetted
from passing into the pipette instrument, and (iv) an oxygen diffuser, which
is typically used in oxygen therapy equipment to humidify oxygen.
Porex manufactures and sells a full line of plastic vials for
pharmaceuticals. Porex also produces close tolerance solid plastic components
which use most thermoplastic resins, but primarily polystyrene, polypropylene
and thermoplastic rubber for medical and industrial applications. These
products are custom designed and produced to satisfy individual customer
specifications.
Industrial Products
Porex manufactures a variety of custom porous plastic components for
industrial applications. These components are produced as molded shapes, and
in sheets, tubes and rods, individually designed to customer specifications as
to size, rigidity, porosity and other needs.
Porex's industrial applications include (i) automotive products, primarily
porous plastic vents used in automobile batteries as a flame arrester, (ii)
wastewater treatment filter support media, (iii) filters to remove particulate
matter, oil and water residues from compressed air lines, (iv) silencers and
mufflers to reduce sound levels produced by compressed air exhaust, and (v)
products for facilitating the movement of powdered materials. Porex also
manufactures a large variety of highly specialized plastic components to meet
specific applications for manufacturers.
Consumer Products
Porex manufactures a line of porous plastic components used in a variety of
home and office products and appliances. Porex's consumer products include a
variety of writing pen tips or "nibs" which Porex supplies to manufacturers of
marking and highlighting pens. The porous nib conducts the ink stored in the
pen barrel to the writing surface by capillary action. Porex produces a
variety of porous plastic filters used in home water filters and conditioners.
The filters are used for particle and sediment removal through devices
attached to a sink or faucet. The Company also manufactures filters
incorporating activated carbon used to reduce chlorine levels in drinking
water thereby improving its taste and odor. Porex's porous plastic components
are used in health and beauty aid products (such as deodorant and fragrance
applicators).
HEALTHCARE COMMUNICATIONS BUSINESS
Industry Background
The U.S. healthcare industry continues to undergo rapid and dramatic change.
According to industry sources, current healthcare expenditures now exceed $1
trillion and represent approximately 14% of gross domestic product. The aging
of the U.S. population should continue to fuel growth in aggregate costs since
older Americans consume more healthcare services. Increasing concern over the
rising cost of healthcare in the United States has caused a shift away from
fee-for-service indemnity plans into health maintenance organizations (HMOs)
and other managed healthcare benefit plans. This trend has been accompanied by
the emergence of
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various managed care techniques that such organizations use to control costs.
These techniques include, but are not limited to, negotiated price discounts
with healthcare providers, restrictions on physician access, increased
emphasis on preventative healthcare services, utilization review/case
management functions, and shifting the economic risk for the delivery of care
to providers through alternative reimbursement models, such as capitation and
fixed fees. Management believes that while these techniques have initially
been helpful in containing healthcare costs, managed care organizations need
an effective means of communicating with physicians and other healthcare
providers at the time of care delivery in order to further reduce
administrative and medical costs. The fragmented healthcare information
infrastructure in place today makes it difficult for managed care
organizations to effectively communicate and implement benefit rules and care
guidelines.
Healthcare providers are also facing new pressures in this changing practice
environment. Physicians in general have experienced declining incomes and
increased levels of financial risk due to the rise of managed care. It is
management's belief that a physician's ability to absorb price decreases,
comply with plan guidelines and manage risk is frustrated by a lack of
automation and efficient communication in managed care processes and by payor
fragmentation. With approximately 80% of healthcare expenditures under
physician control and a significant portion of their time being spent on
administrative tasks, an effective channel of communication at the point of
care should provide measurable benefits to both payors and providers.
Management believes that giving providers access to detailed clinical and
administrative information in a way that is easy to use, consistent among
payors, and compatible with existing information systems is critical to
achieving further cost containment and improved patient care.
The growth of Internet technology has established the opportunity for a low-
cost solution to inter-enterprise connectivity while preserving investment in
legacy systems. Internet technology permits the integration of systems across
various healthcare constituencies regardless of differences in architectures,
platforms or operating systems. Technological improvements have converged with
changes in the healthcare industry in a way which enables new products and
services, that were previously not possible, to be offered. See "Risk
Factors--Reliance on Rapidly Changing Technology."
Business Strategy
The Company's objective is to use Internet technology to create an
influential interactive health services channel linking physicians with the
payors, suppliers and consumers of healthcare in order to control healthcare
costs and improve patient outcomes. The Company expects to provide a content-
neutral, application rich utility thereby creating a channel which serves as a
conduit for the private content that any healthcare organization wishes to
communicate to physicians and other healthcare providers. Key elements of the
Company's strategy are to:
. Accelerate the development of a low-cost service to provide a suite of
communication, information and transaction functions by integrating the
Avicenna and CareAgents acquisitions (see "Recent Transactions"). Avicenna's
business plan has been to develop and market Intranets to managed care
plans, hospitals and physician groups. These Intranets will provide
organizations the ability to quickly link physicians, providers and
suppliers to a vast array of public reference material, proprietary plans
rules, treatment guidelines and managed care transactions. In addition,
CareAgents had been developing complementary software focused on providing
physicians, health plans and patients tools to conduct clinical commerce via
the public Internet and private Intranets. Since these services are intended
to enable physicians to perform high volume, routine transactions in a
uniform manner for all patients, the Company believes that these services
will help physicians practice medicine more efficiently in today's managed
care environment.
. Differentiate this suite of client server applications by its ability to
allow physicians and their staffs to conduct not only administrative but
also clinical transactions. These transactions would include but not be
limited to eligibility verification, referrals, treatment authorizations,
claims and encounter submissions, as well as laboratory test submission and
reporting, prescription writing, drug utilization and formulary review, and
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pharmacy routing. The ability to integrate payor-specific content such as
benefit rules and care guidelines with patient-specific information at the
time of treatment will significantly enhance the delivery of high quality,
cost effective care.
. Contract with managed care organizations, integrated health delivery
systems, pharmacy benefit managers and clinical laboratories so that they
might provide physicians with access to their proprietary benefit plan
information and treatment guidelines as well as their administrative and
managed care processes. Management believes that this new channel of
communications will allow each of the parties to (i) leverage their existing
healthcare information systems infrastructure, (ii) to integrate their
proprietary rules and guidelines with transactions, and (iii) to realize
administrative and medical resource savings while improving provider
relationships and streamlining managed care processes. The Company
anticipates it will be compensated by such parties as a result of the value
created.
The Company is not aware of any business which currently provides the scope
and breadth of the services described above. However, various companies
including, but not limited to, certain physician office management information
systems companies, EDI/data networking companies, online medical information
service companies, and systems integration companies, some of which may have
greater resources than the Company, have announced that they are developing a
combination of one or more of these products and services. There can be no
assurance that such companies will not develop and successfully market the
healthcare communications products and services described herein in a manner
which would have a material adverse effect on the Company. The Company's
management believes that its advantage lies in its prior experiences and
backgrounds in the healthcare industry which have resulted in a unique
understanding of the economics underlying the transaction capabilities it
seeks to provide. Through direct experience, the Company's management also
understands the difficulties faced by healthcare payors and providers in
adopting and promoting a standard communication utility. This knowledge base
combined with the technology resources described below in "Recent
Acquisitions" gives the Company a strong platform for executing its business
strategy.
Recent Acquisitions
The Company recently completed two acquisitions in the healthcare
communications area. On December 24, 1996, the Company acquired Avicenna, a
privately held development stage company located in Cambridge, Massachusetts.
Avicenna's business plan has been to market and build Intranets for managed
care organizations, hospitals and physician groups. Avicenna's controlled
access Intranet systems are designed to allow payors and providers to exchange
transactional, procedural, patient outcomes and educational information. On
January 23, 1997, the Company acquired privately held CareAgents to add
management resources with expertise in large-scale commercial clinical
applications, medicine and information technology. CareAgents was an early
development stage company focussed on developing Internet clinical commerce
applications. The Company is presently integrating these acquisitions and
expects them to be the foundation on which its business strategy will be
developed. Avicenna and CareAgents have, collectively, approximately 50
employees.
The Company acquired all of Avicenna's outstanding equity and indebtedness
(including stock options) for shares of Synetic Common Stock with a market
value of $30.5 million. As additional consideration, the Company issued to
certain of the sellers nontransferable warrants covering 250,000 shares of
Synetic Common Stock, exercisable after December 23, 1998 at a price of $54.50
per share. Synetic acquired CareAgents for shares of Synetic Common Stock with
a market value of $5 million.
During the quarter ended December 31, 1996, the Company recorded a non-
recurring charge of $28,600,000 relating to purchased research and development
costs in conjunction with its acquisition of Avicenna. Under generally
accepted accounting principles, the amount of purchase price allocable to
purchased research and development costs is required to be expensed
immediately after the acquisition. The Company expects to record a non-
recurring charge in the quarter ended March 31, l997 relating to purchased
research and development costs in conjunction with its acquisition of
CareAgents in January l997. While the exact amount of the charge is not yet
determinable, the Company does not expect this charge to exceed $3 million.
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As a result of the acquisition of Avicenna and CareAgents, the Company
expects to incur significant research and development expenses and incur
additional operating losses in connection with this new area of business until
the products and services are successfully developed or marketed. There can be
no assurances that the products or services will be successfully developed or
marketed. The rate of aggregate expenditures at Avicenna and CareAgents
immediately prior to their acquisition was approximately $1,600,000 per
quarter. Research and development expenses may be materially greater in the
future than current amounts until the Company successfully develops its
products and services. The Company, however, anticipates that such research
and development expenses will not exceed $2,500,000 per fiscal quarter for the
third and fourth quarters for the fiscal year ending June 30, 1997 and will
not result in net losses for the current fiscal year (excluding the non-
recurring charges for purchased research and development costs relating to the
acquisition of Avicenna and CareAgents) or for either of the fiscal quarters
ending March 31, l997 or June 30, l997.
The Company is pursuing the development of its healthcare communications
business through the use of its internal resources as well as pursuing the
acquisition of complementary businesses. The Company anticipates that it may
enter into acquisitions, joint ventures, strategic alliances or other business
combinations. These transactions may materially change the nature and scope of
this business. There can be no assurance that the Company will succeed in
consummating such transactions or that such transactions will ultimately
provide the Company with the ability to offer the products and services
described.
ACQUISITION PROGRAM
The Company maintains an acquisition program and intends to concentrate its
acquisition efforts in businesses which are complementary to the Company's
healthcare communications strategy. This emphasis, however, is not intended to
limit in any manner the Company's ability to pursue acquisition opportunities
in other healthcare-related business or in other industries. See "Risk
Factors--Acquisition Program" and "Business--Healthcare Communications
Business--Recent Acquisitions."
CERTAIN CORPORATE HISTORY
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
Containment Services, Inc. ("Medco"). Thereafter, the Company became a
publicly held, partially owned subsidiary of Medco. Medco provided healthcare
cost containment services, principally managed prescription drug programs, to
benefit plan sponsors. On November 18, 1993, Medco was acquired by Merck &
Co., Inc. ("Merck") in a merger transaction, and as a result, the Company
became an indirect, partially owned subsidiary of Merck. Merck is a
pharmaceutical manufacturer. Until December 14, 1994, the Company's operations
consisted of Porex and a group of subsidiaries that provided institutional
pharmacy services (the "Institutional Pharmacies Business").
On December 14, 1994, the Company consummated certain transactions pursuant
to which: (1) the Company sold the Institutional Pharmacies Business to
Pharmacy Corporation of America, an indirect wholly owned subsidiary of
Beverly Enterprises, Inc. (such sale is referred to herein as the
"Divestiture"), for approximately $107,300,000; (2) the Company purchased
5,268,463 shares of its Common Stock from Merck for an aggregate purchase
price of $37,764,019, pursuant to the Purchase and Sale Agreement, dated as of
May 24, 1994, between the Company and Merck; and (3) SN Investors, a limited
partnership the general partner of which is SYNC, Inc. (the "General
Partner"), whose sole stockholder is Mr. Wygod, purchased 5,061,857 shares of
Common Stock (the "Wygod Shares") from Merck for an aggregate purchase price
of $36,283,079, pursuant to an assignment by the Company of the right to
purchase such shares from Merck contained in an Investment Agreement between
Mr. Wygod and the Company, dated as of September 13, 1994 (the "Investment
Agreement"). The Investment Agreement also governs the terms and conditions
under which the Wygod Shares will be held by Mr. Wygod and his permitted
assignees and transferees. SN Investors has agreed to be bound by all of the
restrictions and obligations applicable to Mr. Wygod under the Investment
Agreement. The purchases of shares of Common Stock from Merck by the Company
and SN Investors are hereinafter referred to as the "Purchase." As a result of
the consummation of the Purchase, Mr. Wygod and SN Investors own an aggregate
of approximately 29.8% of the outstanding Common Stock as of January 31, 1997
and Merck no longer owns an equity interest in the Company. The shares of
Common Stock purchased by the Company are being held as treasury shares and
are no longer outstanding or entitled to vote.
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As more fully described in the 1996 10-K, the Investment Agreement provides
that, until the earliest to occur of December 14, 1998, the death or
adjudication of incompetency of Mr. Wygod or a Change of Control (as defined
in the Investment Agreement) (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). A
"Change of Control" under the Investment Agreement includes (A) various types
of business combinations or other extraordinary transactions, (B) certain
changes in the composition of a majority of the Board of Directors of the
Company and (C) 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. As of January 31, 1997, the Company had issued
5,014,748 shares of Common Stock since the closing of the Purchase.
Accordingly, the issuance of an aggregate of 1,241,002 additional shares of
Common Stock would be a "Change of Control" as described in clause (C) above.
Upon the expiration of the obligations of Mr. Wygod and SN Investors as
described in this paragraph, Mr. Wygod and SN Investors may be in a position
to influence the election of the Company's Board of Directors as well as the
direction and future operations of the Company.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
The directors and executive officers of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
James V. Manning........ 50 President and Chief Executive Officer; Director (4)
Inder-Jeet Gujral....... 38 Executive Vice President--President of Avicenna
David Margulies......... 46 Executive Vice President--Chief Scientist
Ray E. Hannah........... 60 Vice President--PlasticTechnologies Group;
Director[;President and Chief Executive Officer of Porex]
Victor L. Marrero....... 40 Vice President--Finance and Chief Financial Officer
Charles A. Mele......... 40 Vice President--General Counsel; Director
Thomas R. Ferguson...... 69 Director(1)(2)(3)(4)
Mervyn L. Goldstein,
M.D.................... 59 Director
Roger H. Licht.......... 42 Director
Per G.H. Lofberg........ 49 Director
Herman Sarkowsky........ 71 Director(1)(2)(3)
Paul C. Suthern......... 44 Director
Albert W. Weis.......... 69 Director(1)(2)(3)(4)
Martin J. Wygod......... 56 Chairman of the Board; Director
</TABLE>
- --------
(1) Member of the Audit Committee
(2) Member of the Stock Option Committee
(3) Member of the Compensation Committee
(4) Member of the Executive Committee
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. Not more than one class of directors is elected at any annual meeting
of stockholders.
Messrs. Hannah, Licht, Lofberg and Sarkowsky have been elected for a term
expiring at the 1997 Annual Meeting. Messrs. Manning, Mele and Weis have been
elected for a term expiring at the 1998 Annual Meeting. Messrs. Ferguson,
Suthern, Wygod and Dr. Goldstein have been elected for a term expiring at the
1999 Annual Meeting. See "Description of Capital Stock--Voting Rights."
James V. Manning has been a director of the Company for more than five
years. Mr. Manning has been Chief Executive Officer of the Company since
January 1995 and President of the Company since August 1996 and has been an
executive officer of the Company for more than five years. Prior to December
1994, Mr. Manning was 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.
Inder-Jeet Gujral has been Executive Vice President--President of Avicenna
of the Company since January 1997. Mr. Gujral was a founder of Avicenna. He
was a founder and principal of Lancet Technologies, Inc., a worldwide provider
of data management systems for hospital and healthcare-related agencies since
1988. He
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earned a master's degree in business administration from Stanford University;
a master's degree in computer science from Rensselear Polytechnic Institute;
and a master's degree in physics from the Indian Institute of Technology, New
Delhi, India.
Dr. David Margulies has been Executive Vice President--Chief Scientist of
the Company since January 1997. He was founder and president of CareAgents and
from 1990 to early 1996. Dr. Margulies was Executive Vice President and Chief
Scientist of the Cerner Corporation, a leading supplier of enterprise-level
clinical applications. Prior to such time, he was Vice President and Chief
Information Officer at Boston Children's Hospital and on the medical faculties
of the Harvard Medical College and Columbia College of Physicians and
Surgeons. He received his medical degree from Harvard Medical School.
Ray E. Hannah has been a director of the Company for more than five years.
Mr. Hannah has been President of 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.
Victor L. Marrero has been Vice President--Finance and Chief Financial
Officer of the Company since December 1994 and has been an officer of the
Company for more than the last five years and was, until December 1994, an
officer of Medco for more than five years.
Charles A. Mele has been a director of the Company for more than five years.
Mr. Mele has been Vice President--General Counsel of the Company since July
1995, was an executive officer of Medco for more than five years until March
1995 and was an executive officer of the Company from May 1989 until December
1994. Mr. Mele is also a director of Comnet and of Group 1 Software, Inc.,
computer software companies.
Thomas R. Ferguson has been a director of the Company for more than five
years. He has been a member of the law firm of Ferguson, Case, Orr, Paterson &
Cunningham for more than five years.
Mervyn L. Goldstein, M.D. has been a director of the Company for more than
five years. He 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 December 1988 he has
been Physician Director of Quality Assurance at Montefiore Medical Center.
Roger H. Licht has been a director of the Company for more than five years.
He has been a member of the law firm of Licht & Licht for more than five
years.
Per G.H. Lofberg has been a director of the Company since January 1995. 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 for more than
five years.
Herman Sarkowsky has been a director of the Company for more than five
years. He has been Chairman of the Board and Chief Executive Officer of
Sarkowsky Investment Corporation, a diversified investment company, for more
than five years. Mr. Sarkowsky is a director of Seafirst Bank, Eagle Hardware
& Garden Inc. and Hollywood Park, Inc.
Paul C. Suthern has been a director of the Company since 1993. Mr. Suthern
has been Vice Chairman of the Company since July 1996 and was the President
and Chief Operating Officer of the Company from February 1993 until July 1996
and was also the Chief Executive Officer from October 1993 until January 1995.
Mr. Suthern was also the 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.
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Albert M. Weis has been a director of the Company for more than five years.
He has also 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 has been a director of the Company for more than five years.
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.
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<PAGE>
DESCRIPTION OF DEBENTURES
The Debentures will be issued pursuant to an Indenture dated as of February
, 1997 (the "Indenture"), a copy of which is filed as an exhibit to the
Registration Statement, between the Company and United States Trust Company of
New York, as trustee (the "Trustee").
The terms of the Debentures include those stated in the Indenture and those
made part of the Indenture by reference to the Trust Indenture Act of 1939
(the "Trust Indenture Act") as in effect on the date of the Indenture. The
Debentures are subject to all such terms, and holders of the Debentures are
referred to the Indenture and the Trust Indenture Act for a statement thereof.
A copy of the Form of Indenture is filed an exhibit to the Registration
Statement of which this Prospectus is a part. The following summary of certain
provisions of the Indenture does not purport to be complete and is qualified
in its entirety by reference to the Indenture, including the definition
therein of certain terms used below. As used in the "Description of
Debentures" references to "the Company" refer to Synetic, Inc. and not to any
of its subsidiaries.
GENERAL
The Debentures will be general unsecured obligations of the Company,
subordinate in right of payment to certain other obligations of the Company,
and convertible at any time prior to maturity, unless previously redeemed or
repurchased, into Common Stock of the Company as described below. The
Debentures will be limited to $100,000,000 aggregate principal amount
($115,000,000 aggregate principal amount if the Underwriter's over-allotment
option is exercised in full). The Debentures will bear interest from the date
of initial issuance, , 1997, at the rate per annum shown on the cover
page of this Prospectus, payable semiannually on August 15 and February 15 in
each year to holders of record of Debentures at the close of business on the
August 1 or February 1 next preceding the interest payment date. The first
interest payment date will be August 15, 1997. Interest will be computed on
the basis of a 360-day year of twelve 30-day months. The Debentures will
mature on February 15, 2007, and will be issued in denominations of $1,000 and
integral multiples thereof and will be issued only in fully registered form.
Prior to the offering of the Debentures, there has been no public trading
market for the Debentures. Although the Company intends to make application to
list the Debentures on the Nasdaq SmallCap Market, there can be no assurance
that an active public market for the Debentures will develop or, if a public
market develops, that the market price will exceed the public offering price
set forth on the covering page of this Prospectus. If an active public trading
market for the Debentures does not develop, the market prices and liquidity of
the Debentures may be adversely affected. Because the Debentures are
convertible into Common Stock, the prices at which the Debentures trade in the
market will likely be affected by the price of the Company's Common Stock.
Principal and interest on the Debentures will be payable at the offices of
the Company or its agent maintained for such purposes; provided that the
payment of interest may, at the option of the Company, be made by check mailed
to a holder at his registered address. The Debentures will be convertible at
the aforesaid offices of the Company or its agent.
CONVERSION OF DEBENTURES
The holder of any Debenture will be entitled at any time prior to the close
of business on February 15, 2007, subject to prior redemption or repurchase,
to convert such Debenture (or portions thereof which are in denominations of
$1,000 or integral multiples thereof) at the principal amount thereof, into
shares of Common Stock, at the conversion price set forth on the cover page of
this Prospectus, subject to adjustment as described below. Interest will be
paid on any semiannual interest payment date with respect to Debentures
surrendered for conversion after the record date for the payment of interest
to the registered holder on such record date. However, Debentures surrendered
for conversion after a record date but prior to the next succeeding interest
payment date must be accompanied by payment of an amount equal to the interest
thereon which is to be paid on such interest
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<PAGE>
payment date. No payment or adjustment will be made on conversion of any
Debenture for interest accrued thereon or dividends on any Common Stock
issued. The Company is not required to issue fractional shares of Common Stock
upon conversion of Debentures, and, in lieu thereof, will pay a cash
adjustment based upon the market price of the Common Stock on the last Trading
Day (as defined in the Indenture) prior to the date of conversion. In the case
of Debentures called for redemption, conversion rights will expire at the
close of business on the business day prior to the redemption date unless the
Company defaults in payment of the redemption price. A Debenture in respect of
which a holder is exercising its option to require repurchase upon the
occurrence of a Designated Event may be converted only if such holder
withdraws its election to exercise its repurchase option in accordance with
the terms of the Indenture.
The initial conversion price is subject to adjustment as set forth in the
Indenture in certain events, including: (i) the issuance of Common Stock by
the Company as a dividend or distribution on the Common Stock; (ii) certain
subdivisions, combinations, and reclassifications of the Common Stock; (iii)
the issuance of rights or warrants to all holders of Common Stock entitling
them to subscribe for or purchase shares of Common Stock (or securities
convertible into or exchangeable for shares of Common Stock) at a price per
share (or having a conversion or exercise price per share) less than the
current market price (as defined); (iv) the distribution by the Company to all
holders of Common Stock of shares of capital stock of the Company other than
Common Stock, debt securities of the Company or assets (excluding cash
dividends or distributions paid out of consolidated current or retained
earnings) or rights or warrants (other than as referred to in clause (iii)) to
purchase assets, debt securities or other securities of the Company; and (v)
the issuance, in certain circumstances, of shares of Common Stock or of
securities convertible into, or exchangeable for, shares of Common Stock
(other than pursuant to transactions described above) for a consideration per
share (or having a conversion or exchange price per share) that is less than
the then current market price of the Common Stock on the date of issuance of
such security (but excluding, among other things, issuances (a) pursuant to
any bona fide employee benefit plan of the Company now or hereafter in effect,
(b) to acquire all or any portion of a business in an arm's-length transaction
between the Company and an unaffiliated third party, (c) in a bona fide public
offering pursuant to a firm commitment underwriting or sales at the market
pursuant to a continuous offering stock program, (d) pursuant to the exercise
of warrants, rights or options, or upon the conversion of convertible
securities, which are issued and outstanding on the date hereof, or which may
be issued in the future for fair value and with an exercise price or
conversion price at least equal to the current market price of the Common
Stock at the time of issuance of such warrant, right, option or convertible
security, and (e) pursuant to a dividend reinvestment plan or other plan
hereafter adopted for the reinvestment of dividends or interest provided that
such Common Stock is issued at a price at least equal to 95% of the market
price of the Common Stock at the time of such issuance). As used above, the
"current market price" per share of Common Stock is the lower of (x) the
average of the last reported sales prices of the Common Stock (as reported by
the Nasdaq National Market) for 15 consecutive trading days commencing 25
trading days before the date in question or (y) the last reported sales price
at the most recent close of trading prior to the time in question (except
that, in the case of an issuance of rights or warrants or a distribution of
assets or securities to holders of Common Stock, clause (y) will not apply).
No adjustment in the conversion price will be required unless such adjustment
would require a change of at least 1% in the price then in effect; but any
adjustment that would otherwise be required to be made shall be carried
forward and taken into account in any subsequent adjustment. The Company may
at any time reduce the conversion price by any amount for any period of time,
provided that the conversion price is not less than the par value of a share
of Common Stock, the period during which the reduced price is in effect is at
least 20 days or such longer period as may be required by law and the reduced
price is irrevocable during such period. No adjustment to the conversion price
need be made if the holders of the Debentures participate in a transaction
which would otherwise give rise to an adjustment in the conversion price, or
will participate in such a transaction upon conversion of their Debentures, on
a basis and with notice that the Company's Board of Directors deems to be fair
and appropriate in light of the basis on which holders of the Common Stock
participate in the transaction.
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If the Company consolidates or merges into or sells, leases, conveys or
otherwise disposes of all or substantially all of its assets to any person, as
a result of which holders of Common Stock shall be entitled to receive stock,
other securities, other property or assets (including cash) with respect to or
in exchange for such Common Stock, the Debentures would become convertible
only into the kind and amount of securities, cash or other assets which the
holders of the Debentures would have owned immediately after the transaction
if the holders had converted the Debentures immediately before the effective
date of the transaction at the conversion price in effect immediately prior to
such effective date (assuming such holders failed to exercise any rights of
election and received the kind and amount of securities, cash or other assets
received per share by a plurality of the non-electing shares).
If at any time the Company makes a distribution of property to its
stockholders which would be taxable to such stockholders as a dividend for
federal income tax purposes (e.g., distributions of evidences of indebtedness
or assets of the Company, but generally not stock dividends) and, pursuant to
the anti-dilution provisions of the Indenture, the conversion price of the
Debentures is reduced, such reduction may be deemed to be the receipt of
taxable income by the holders of Debentures.
For a description of the Common Stock, see "Description of Capital Stock--
Common Stock."
OPTIONAL REDEMPTION OF DEBENTURES
The Debentures will be redeemable, at the option of the Company, in whole at
any time or in part from time to time, on or after February 15, 2000, at the
redemption prices (expressed as percentages of the principal amount) set forth
below plus accrued and unpaid interest to the redemption date, if redeemed
during the 12-month period beginning February 15 of the years indicated below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
---- ----------
<S> <C>
............................................................ %
............................................................ %
............................................................ %
............................................................ %
and thereafter............................................. 100%
</TABLE>
In the event of redemption of less than all of the Debentures, the
Debentures will be chosen for redemption by the Trustee as provided in the
Indenture, but generally pro rata or by lot. Notice of redemption will be
mailed at least 15 days but not more than 60 days before the redemption date
to each holder of Debentures to be redeemed at its registered address. On and
after the redemption date interest ceases to accrue on Debentures or portions
thereof called for redemption.
REPURCHASE AT OPTION OF HOLDER UPON OCCURRENCE OF A DESIGNATED EVENT
If at any time there occurs any Designated Event (as defined below) with
respect to the Company, each holder of Debentures will have the right, at the
holder's option, to require the Company to repurchase all such holder's
Debentures, or a portion thereof which is $1,000 or any integral multiple
thereof, promptly following the 30th day after the date of the Company Notice
(as defined below), at 100% of their principal amount, together with accrued
and unpaid interest to the date fixed for repurchase. If a Designated Event
were to occur, there can be no assurance that the Company would have
sufficient funds to pay the repurchase price for all Debentures tendered by
the holders thereof.
Within 15 days after the occurrence of a Designated Event, the Company is
obligated to mail to holders of record of the Debentures a notice (the
"Company Notice") of the occurrence of such Designated Event and of the
repurchase right arising as a result thereof. The Company will deliver a copy
of the Company Notice to the Trustee and will cause a copy of such notice to
be published in a newspaper of general circulation in the Borough of
Manhattan, The City of New York. To exercise the repurchase right, holders of
Debentures must deliver on or before the 30th day after the date of the
Company Notice written notice to the Company (or an agent designated by the
Company for such purpose) of the holder's exercise of such right, together
with the Debentures with respect to which the right is being exercised, duly
authorized for transfer.
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<PAGE>
A Designated Event will be deemed to have occurred, subject to the
provisions below, upon the consummation of a purchase, merger, acquisition,
transfer or other transaction involving a "Change in Control". As used herein,
a "Change in Control" of the Company shall be deemed to have occurred at such
time as any person, together with such person's "affiliates" or "associates"
(as such terms are defined in Rule 12b-2 under the Exchange Act, as in effect
on the date of the Indenture), other than a Permitted Holder (collectively, an
"Acquiring Person"), first is or becomes the "beneficial owner" (as such term
is defined in Rule 13d-3 under the Exchange Act, as in effect on the date of
the Indenture), directly or indirectly, through such purchase, merger,
acquisition, transfer or other transaction, of shares of capital stock of the
Company entitling the Acquiring Person to exercise more than 50% of the total
voting power of all shares of capital stock of the Company entitled to vote in
elections of directors. A "Permitted Holder" will be defined to mean Martin J.
Wygod, his family members, any of their spouses and any Person controlled,
directly or indirectly, or beneficially owned by Martin J. Wygod or such
family members or spouses and, upon the death of Martin J. Wygod, shall also
include any executors, administrators, testamentary trustees, heirs, legatees
or beneficiaries of Martin J. Wygod and any Person controlled, directly or
indirectly, or beneficially owned by any such executors, administrators,
testamentary trustees, heirs, legatees or beneficiaries.
Notwithstanding the foregoing, a Designated Event will be deemed not to have
occurred (i) if the last sale price of the Common Stock for any five trading
days during the ten trading days immediately preceding the Change in Control
is at least equal to 105% of the conversion price in effect immediately
preceding the Change in Control or (ii) if at least 80% of the consideration
(excluding cash payments for fractional shares or cash payments for appraisal
rights) in the transaction or transactions constituting the Change in Control
consists of shares of common stock or securities convertible into common stock
that are, or upon issuance will be, traded on a national securities exchange
or through the NASDAQ National Market and the consolidated net worth of the
surviving entity (or the entity issuing common stock or securities convertible
into shares of common stock in such transaction or transactions, if such
entity guarantees the Company's obligations under the Debentures) immediately
after such transaction or transactions, as measured according to generally
accepted accounting principles as in effect on the date hereof, is equal to or
greater than the consolidated net worth of the Company immediately preceding
the Change in Control or (iii) if, in the case of an acquisition by the
Company or a subsidiary of the Company of a business for consideration
consisting of or including shares of Common Stock and/or securities
convertible into Common Stock, the terms of such acquisition provide that, (I)
from and after the consummation of such acquisition and until at least the
earlier of (x) two years from the date of such acquisition or (y) the date on
which the Acquiring Person transfers substantially all of such shares of
Common Stock and/or convertible securities, the Acquiring Person will cause
the shares of capital stock of the Company owned by it at the time of any
stockholder vote or action by consent for the election of directors of the
Company to be voted in favor of the election, as a majority of the members of
the Board of Directors of the Company, of persons who were directors or
executive officers of the Company immediately prior to entry into the
agreement or agreements pursuant to which the transaction or transactions were
consummated ("Pre-Acquisition Managers"), provided that at least a majority of
the Pre-Acquisition Managers so elected were directors or executive officers
of the Company for at least twelve months immediately prior to entry into such
agreement or agreements, and (II) the Acquiring Person will not, for a period
of two years from the consummation of the acquisition, permit persons
designated by it to become a majority of the members of the Board of Directors
of the Company. As used in the first sentence of the preceding paragraph, the
term "transfer" shall include, without limitation, a transfer of the type
referred to in clause (iii)(I)(y) of the preceding sentence but shall exclude
a transfer referred to in such clause (iii)(I)(y) as to any transferee who
agrees to be bound by the agreements of the Acquiring Person described in
clause (iii) of the preceding sentence for the remainder of the two-year
period referred to therein.
The requirement that the Company repurchase the Debentures, at the option of
the holder, upon the occurrence of a Designated Event may, in certain
circumstances, make more difficult or discourage a takeover of the Company.
This feature is not part of a plan by management to adopt a series of
antitakeover provisions but is, instead, a standard term contained in other
debenture offerings. The terms of such feature result from negotiations
between the Company and the Underwriter.
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<PAGE>
SUBORDINATION
The indebtedness evidenced by the Debentures will be subordinated to the
prior payment when due of the principal of, premium, if any, and interest on
all present and future Senior Debt (as defined below). Upon maturity of any
Senior Debt, payment in full must be made on such Senior Debt before any
payment of the principal of, or interest on, the Debentures is made. During
the continuance of any default in payment of principal or premium, if any, or
interest on Senior Debt (a "Payment Default"), no payment of the principal of,
or interest on, the Debentures may be made by the Company unless and until
such default is cured or waived. Upon any distribution of assets of the
Company in any dissolution, winding-up, liquidation or reorganization of the
Company, payment of the principal of, and interest on, the Debentures will be
subordinated, to the extent and in the manner set forth in the Indenture, to
the prior payment in full of all Senior Debt. Such subordination will not
prevent the occurrence of any Event of Default (as defined in the Indenture).
By reason of such subordination, upon any distribution of assets of the
Company upon any dissolution, winding up, liquidation or reorganization, the
payment of the principal of, premium, if any and interest on the Debentures
will be subordinated to the extent provided in the Indenture in right of
payment to the prior payment in full of all Senior Debt. By reason of this
provision, in the event of the Company's dissolution or insolvency, holders of
Senior Debt may receive more, ratably, and holders of the Debentures may
receive less, ratably, than the other creditors of the Company.
"Senior Debt" means (a) the principal of, premium, if any, and interest on
all Debt (other than the Debentures), whether outstanding on the date of the
Indenture as originally executed or thereafter created or incurred, unless, in
the agreement or instrument creating or evidencing the same or pursuant to
which the same is outstanding, it is provided that such Debt is not superior
in right of payment to the Debentures, and (b) any amendment, modification,
deferral, renewal, refunding or extension of any such Senior Debt, or
debentures, notes or other evidences of indebtedness issued in exchange for
any such Senior Debt. "Debt" means (a) all indebtedness of the Company for
borrowed money, (b) all indebtedness of the Company which is evidenced by a
note, debenture, bond or other similar instrument (including capitalized lease
and purchase money obligations) and (c) all indebtedness of the Company
(including capitalized lease obligations) incurred, assumed or given in the
acquisition (whether by way of purchase, merger or otherwise) of any business,
real property or other assets, except assets acquired in the ordinary course
of the acquiror's business; any indebtedness of others described in the
preceding clauses (a), (b) and (c) which the Company has guaranteed or for
which it is otherwise liable; and any amendment, renewal, extension or
refunding of any such indebtedness. Notwithstanding the foregoing, Senior Debt
shall not include (A) indebtedness evidenced by the Debentures, (B)
indebtedness of the Company that is expressly subordinated in right of payment
to the Debentures and (C) indebtedness of the Company to an affiliate or a
subsidiary of the Company.
The Debentures are obligations exclusively of the Company. Since the
operations of the Company are currently conducted through subsidiaries, the
cash flow of the Company and the consequent ability to service debt of the
Company, including the Debentures, are dependent, in part, upon the earnings
of its subsidiaries (and the distribution of those earnings to the Company or
upon loans or other payments of funds by those subsidiaries to the Company).
The subsidiaries are separate and distinct legal entities and have no
obligation, contingent or otherwise, to pay any amounts due pursuant to the
Debentures or to make any funds available therefor, whether in dividends,
loans or other payments. In addition, the payment of dividends and the making
of loans and advances to the Company by its subsidiaries may be subject to
statutory or contractual restrictions, are contingent upon the earnings of
those subsidiaries and are subject to various business considerations. The
Debentures will be effectively subordinated to all indebtedness and other
liabilities, including current liabilities and commitments under leases, if
any, of the Company's subsidiaries. Any right of the Company to receive assets
of its subsidiaries upon liquidation or reorganization of the subsidiaries
(and the consequent right of the holders of the Debentures to participate in
those assets) will be effectively subordinated to the claims of the
subsidiaries' creditors (including the subsidiaries' trade creditors), except
to the extent that the Company is itself recognized as a creditor of the
subsidiaries, in which case the claims of the Company would still be
subordinated to any security interests in the assets of such subsidiaries and
any indebtedness of such subsidiaries senior to that held by the Company. See
"Risk Factors--Holding Company Structure."
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<PAGE>
As of the date of this Prospectus, the Company had no Senior Debt
outstanding and the Company's subsidiaries had no indebtedness for borrowed
money. The Indenture will not restrict the incurrence of Senior Debt or other
indebtedness, secured or unsecured, by the Company or any subsidiary.
MERGER, CONSOLIDATION OR SALE OF ASSETS
The Company may not consolidate or merge with or into, or sell, lease,
convey or otherwise dispose of all or substantially all of its assets to,
another corporation, person or entity unless (i) the Company is the surviving
person or the successor or transferee is a corporation organized under the
laws of the United States, any state thereof or the District of Columbia, or a
corporation or comparable legal entity organized under the laws of a foreign
jurisdiction and whose equity securities are listed on a national securities
exchange in the United States or authorized for quotation on the Nasdaq
National Market (provided, however, that in the case of a transaction where
the surviving entity is organized under the laws of a foreign jurisdiction,
the Company may not consummate the transaction without first making provision
for the satisfaction of its obligations to repurchase Debentures following a
Designated Event, if any), (ii) the successor assumes all the obligations of
the Company under the Debentures and the Indenture and (iii) after such
transaction no Event of Default exists.
COVENANTS
The Company shall not adopt any plan of liquidation (other than a plan of
liquidation incident to a permitted merger, consolidation, sale of assets or
other transaction described in the preceding paragraph) which provides for,
contemplates or the effectuation of which is preceded by, (i) the sale, lease,
conveyance or other disposition of all or substantially all of the assets of
the Company otherwise than substantially as an entirety and (ii) the
distribution of all the proceeds of such sale, lease, conveyance or other
disposition unless the Company makes provisions for satisfaction of the
Company's obligation to pay principal and interest on the Debentures.
EVENTS OF DEFAULT AND REMEDIES
An Event of Default is: default for 30 days in payment of interest on the
Debentures; default in payment when due of principal and premium, if any;
failure by the Company for 30 days after notice to comply with any of its
other agreements in the Indenture or the Debentures, or in the case of failure
by the Company to comply with the restrictions on liquidation and on
consolidation, merger or transfer or lease of substantially all of its assets
or the provisions regarding the conversion of Debentures, with such notice but
without such passage of time; default by the Company or a Significant
Subsidiary (as defined below) under and acceleration prior to maturity of, or
the failure to pay at maturity, certain other indebtedness of the Company or a
Significant Subsidiary for money borrowed aggregating in excess of $10,000,000
and continuance of such default for 30 days after notice; and certain events
of bankruptcy or insolvency. "Significant Subsidiary" means a "significant
subsidiary" as defined in Rule 1-02 of Regulation S-X under the Securities Act
and the Exchange Act (as such Regulation is in effect on the date of issuance
of the Debentures).
If any Event of Default occurs and is continuing, the Trustee or the holders
of at least 25% in principal amount of the then outstanding Debentures may
declare all the Debentures to be due and payable immediately; except that in
the case of an Event of Default arising from certain events of bankruptcy or
insolvency, all outstanding Debentures become due and payable without any
action or notice by the Trustee or any holder. Holders of the Debentures may
not enforce the Indenture or the Debentures except as provided in the
Indenture. Subject to certain limitations, holders of a majority in principal
amount of the then outstanding Debentures may direct the Trustee in its
exercise of any trust or power. The Trustee may withhold from holders of the
Debentures notice of any continuing Default or Event of Default (except a
Default or Event of Default in payment of principal or interest) if it
determines that withholding notice is in their interest.
The holders of a majority in aggregate principal amount of the Debentures
then outstanding may on behalf of the holders of all of the Debentures waive
any past Default or Event of Default under the Indenture and its consequences
except a Default in the payment of interest on, or the principal of, the
Debentures or a Default or an Event of Default arising with respect to the
conversion rights of holders.
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<PAGE>
The Company is required to deliver to the Trustee annually a statement
regarding compliance with the Indenture, and upon becoming aware of any
Default or Event of Default, a statement specifying such Default or Event of
Default.
A director, officer, employee or stockholder, as such, of the Company shall
not have any liability for any obligations of the Company under the Debentures
or the Indenture or for any claim based on, in respect of, or by reason of,
such obligations or their creation. Each holder of the Debentures by accepting
a Debenture waives and releases all such liability. The waiver and release are
part of the consideration for issuance of the Debentures.
SATISFACTION AND DISCHARGE OF THE INDENTURE
The Company may terminate its obligations under the Indenture at any time by
delivering all outstanding Debentures to the Trustee for cancellation. After
all the Debentures have been called for redemption, the Company may terminate
all of its obligations under the Indenture, other than its obligations to pay
the principal of and interest on the Debentures and certain other obligations,
at any time, by depositing with the Trustee money or non-callable U.S.
Government obligations sufficient to pay all remaining indebtedness on the
Debentures.
AMENDMENT, SUPPLEMENT AND WAIVER
Subject to certain exceptions, the Indenture or the Debentures may be
amended or supplemented with the consent of the holders of at least a majority
in principal amount of such then outstanding Debentures, and any existing
default or compliance with any provision may be waived with the consent of the
holders of a majority in principal amount of the then outstanding Debentures.
Without the consent of any holder of the Debentures, the Company and the
Trustee may amend or supplement the Indenture or the Debentures to cure any
ambiguity, defect or inconsistency, to provide for uncertificated Debentures
in addition to or in place of certificated Debentures, to provide for the
assumption of the Company's obligations to holders of the Debentures in the
case of a merger or acquisition, or to make any change that, in the opinion of
the Company's Board of Directors, does not materially adversely affect the
legal rights of any holder of the Debentures. Without the consent of each
holder affected, the Company may not reduce the principal amount of Debentures
the holders of which must consent to an amendment of the Indenture; reduce the
rate or change the interest payment time of any Debenture; reduce the
principal of or change the fixed maturity of any Debenture or alter the
redemption provision with respect thereto; make any Debenture payable in money
other than that stated in the Debenture; make any change in the provisions
concerning waiver of Defaults or Events of Default by holders of the
Debentures or rights of holders to receive payment of principal or interest;
make any change that adversely affects the right to convert any Debenture; or
make any change in the subordination provisions that adversely affects the
rights of any holder.
CONCERNING THE TRUSTEE
United States Trust Company of New York will be Trustee under the Indenture.
The Trustee has certain banking relationships with the Company.
The Indenture contains certain limitations on the rights of the Trustee,
should it become a creditor of the Company, to obtain payment of claims in
certain cases, or to realize on certain property received in respect of any
such claim as security or otherwise. The Trustee will be permitted to engage
in other transactions; however, if it acquires any conflicting interest (as
defined), it must eliminate such conflict or resign.
The holders of a majority in principal amount of the then outstanding
Debentures will have the right to direct the time, method and place of
conducting any proceeding for exercising any remedy available to the Trustee.
The Indenture provides that in case an Event of Default shall occur (which
shall not be cured), the Trustee will be required, in the exercise of its
power, to use the degree of care of a prudent man in the conduct of his own
affairs. Subject to such provisions, the Trustee will be under no obligation
to exercise any of its rights or powers under the Indenture at the request of
any of the holders of the Debentures, unless they shall have offered to the
Trustee security and indemnity satisfactory to it.
REPORTS TO DEBENTUREHOLDERS
The Company intends to furnish to holders of the Debentures all quarterly
and annual reports which it furnishes to holders of its Common Stock.
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DESCRIPTION OF CAPITAL STOCK
The following description of the capital stock of the Company is subject to
the Delaware General Corporation Law and to provisions contained in the
Company's Certificate of Incorporation and By-Laws, copies of which are
exhibits to the 1996 10-K that is incorporated by reference into this
Prospectus. Reference is made to such exhibits for a detailed description of
the provisions thereof summarized below.
The authorized capital stock of the Company consists of 10,000,000 shares of
Preferred Stock, $.01 par value (the "Preferred Stock"), and 50,000,000 shares
of Common Stock, $.01 par value. None of the Preferred Stock is issued and
outstanding. At January 31, 1997, there were 17,526,247 shares of Common Stock
outstanding. Holders of capital stock of the Company have no preemptive or
other subscription rights.
PREFERRED STOCK
The Preferred Stock may be issued from time to time in one or more series,
without stockholder approval. The Board of Directors is authorized to
determine (subject to limitations prescribed by law) the other rights
including voting rights, if any, preferences, terms and limitations to be
granted to and imposed upon any wholly unissued series of Preferred Stock and
to fix the number of shares of any series of Preferred Stock and the
designation of any such series. The Company has no present plans to issue any
shares of Preferred Stock. Because of its broad discretion with respect to the
creation and issuance of any series of Preferred Stock without stockholder
approval, the Board of Directors could adversely affect the voting power of
Common Stock. The issuance of Preferred Stock may have the effect of delaying,
deferring or preventing a change in control of the Company.
COMMON STOCK
Subject to prior rights of any Preferred Stock then outstanding, the holders
of outstanding shares of Common Stock are entitled to receive dividends out of
assets legally available therefor declared and paid by the Company. The
Company does not currently anticipate paying cash dividends to holders of its
Common Stock.
Upon liquidation, dissolution or winding up of the Company, the assets
legally available for distribution to stockholders are distributable ratably
among the holders of the Common Stock at the time outstanding, subject to the
rights, if any, of the holders of any Preferred Stock then outstanding. Since
the Company's Board of Directors has the authority to fix the rights and
preferences of, and to issue, the Company's authorized but unissued Preferred
Stock without approval of the holders of its Common Stock, the rights of such
holders may be materially limited or qualified by the issuance of the
Preferred Stock.
VOTING RIGHTS
Stockholders are entitled to one vote for each share of Common Stock held of
record, except that for the election of directors, stockholders have
cumulative voting rights. Cumulative voting for directors means that, at each
election of directors, the number of shares eligible to be voted by a
stockholder is multiplied by the number of directors to be elected. A
stockholder may cast all such stockholder's votes for a single candidate, or
may allocate them among two or more candidates in any manner such stockholder
chooses. For example, if three directors are to be elected, holders of one-
third of the shares would be able, by cumulating their votes, to elect one
director, regardless of how the other shares are voted. Currently, the Company
has 11 directors. The maximum number of directors permitted under the
Company's Certificate of Incorporation is 12. The Company expects to propose
to its stockholders to expand the number of permitted directors at its next
annual meeting of stockholders.
The affirmative vote of the holders of at least two-thirds of the Company's
shares entitled to vote in an election of directors is required to amend (i)
the provisions of the Company's Certificate of Incorporation relating to
cumulative voting, classification of the Company's directors into three
classes, election of only one-third of
33
<PAGE>
the Board at each annual meeting of stockholders and the power to remove
directors or fill vacancies, and (ii) the By-Laws to increase the number of
directors above 12. The Company's Certificate of Incorporation also provides
that any or all directors may be removed with or without cause prior to
completion of their term only upon the vote of holders of two-thirds of the
outstanding shares of Common Stock entitled to vote generally in the election
of directors.
The provisions in the Certificate of Incorporation of the Company relating
to a staggered Board of Directors, super-majority requirements and delegation
of rights to issue Preferred Stock may have the effect not only of
discouraging tender offers or other stock acquisitions but also of deterring
existing stockholders from making management changes. A staggered Board, while
promoting stability in Board membership and management, also moderates the
pace of any change in control of the Board of Directors by extending the time
required to elect a majority, effectively requiring action in at least two
annual meetings. Moreover, a staggered Board makes it more difficult for
minority stockholders, even with cumulative voting, to elect a director. For
example, to elect one director of a non-staggered 12-member Board,
stockholders with cumulative voting would need only one-twelfth of the votes
cast. To elect one member of a staggered Board with three classes and 12
members, stockholders with cumulative voting would need one-fourth of the
votes cast. The provisions with respect to removal of directors, while
intended to prevent circumvention of benefits derived from classification of
directors and to prevent a transfer of control of the Board of Directors
through the removal process, also have the effect of preventing removal of a
director for just cause by a majority of outstanding voting shares. The
ability of the Board of Directors to issue Preferred Stock, while providing
flexibility in connection with possible acquisitions and other corporate
purposes, could make it more difficult for a third party to secure a majority
of outstanding voting stock. See "Risk Factors--Certain Antitakeover Effects."
In addition, for a description of voting restrictions on shares held by SN
Investors, see "Business--Certain Corporate History" contained elsewhere in
this Prospectus and "Certain Relationships and Related Transactions" in the
1996 10-K.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is Registrar &
Transfer Company.
SHARES ELIGIBLE FOR FUTURE SALE
As of January 31, 1997, the Company had 17,526,247 shares of Common Stock
outstanding. The 5,061,857 Wygod Shares (as defined in "Business--Certain
Corporate History") are "restricted securities" within the meaning of Rule
144, subject to the volume restrictions of Rule 144 but for which the two-year
holding period has expired. Additionally, 45,390 shares issued in connection
with the Avicenna Acquisition and all 106,209 shares issued in connection with
the acquisition of CareAgents are subject to a two year lock-up. In the
Avicenna Acquisition, certain employees of Avicenna received options to
purchase 161,015 shares of Common Stock, 80,522 of which vested on December
24, 1996 and 80,493 of which will vest on December 24, 1998. As additional
consideration in the Avicenna Acquisition, certain selling stockholders also
received, in the aggregate, nontransferable warrants covering 250,000 shares
of Common Stock, which are exercisable after December 23, 1998.
Of the outstanding shares as of January 31, 1997, 12,312,791 shares not
owned by SN Investors are freely tradable without restrictions or further
registration under the Securities Act; provided, however, that any shares
owned by an "affiliate" of the Company (as that term is defined in the rules
and regulations under the Securities Act) may not be resold in a public
distribution except in compliance with the registration requirements of the
Securities Act or pursuant to Rule 144 thereunder. In general, Rule 144 under
the Securities Act provides that an affiliate of the Company or any holder of
restricted securities, subject to any applicable holding period, may sell
within any three-month period a number of shares that does not exceed the
greater of 1% of the then outstanding shares of the Common Stock or the
average weekly trading volume in composite trading on all exchanges during the
four calendar weeks preceding such sale. In addition, sales under Rule 144 may
be made only through unsolicited "broker's transactions" and are subject to
various other conditions.
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<PAGE>
As more fully set forth in "Certain Relationships and Related Transactions"
in the 1996 10-K, the Wygod Shares are subject to certain contractual
restrictions on transfer. Upon expiration of such restrictions, SN Investors
may be able to sell without registration under the Securities Act the number
of such shares permitted under Rule 144, in a transaction complying with the
registration requirements of the Securities Act or in a private transaction
not subject to such requirements. The Investment Agreement (as more fully
described in "Certain Relationships and Related Transactions" in the 1996 10-
K), 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.
For information concerning shares which may be issued under the Company's
stock option plans, see "Risk Factors--Shares Available for Future Sale."
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<PAGE>
UNDERWRITING
Subject to the terms and conditions set forth in a purchase agreement (the
"Purchase Agreement") between the Company and Merrill Lynch, Pierce, Fenner &
Smith Incorporated (the "Underwriter"), the Company has agreed to sell to the
Underwriter, and the Underwriter has agreed to purchase from the Company, the
entire principal amount of the Debentures. The Purchase Agreement provides
that the obligations of the Underwriter are subject to certain conditions
precedent set forth in the Purchase Agreement and that the Underwriter will be
obligated to purchase all of the principal amount of Debentures offered hereby
if any of such Debentures are purchased.
The Underwriter has advised the Company that it proposes initially to offer
the Debentures to the public at the public offering price set forth on the
cover page of this Prospectus, and to certain dealers at such price less a
concession not in excess of % of the principal amount thereof. The
Underwriter may allow, and such dealers may reallow, a discount not in excess
of % of the principal amount thereof to certain other dealers. After the
offering contemplated hereby, the offering price, concession and discount may
be changed.
The Company has granted the Underwriter an option, exercisable for 30 days
after the date of this Prospectus, to purchase up to an additional $15,000,000
principal amount of Debentures to cover over-allotments, if any, at the public
offering price set forth on the cover page hereof, less the underwriting
discount.
The Company has been advised by the Underwriter that the Underwriter
presently intends to make a market in the Debentures offered hereby; however,
it is not obligated to do so. Any market making may be discontinued at any
time without notice, and there can be no assurance that an active public
market for the Debentures will develop.
The Company and SN Investors have agreed not to sell, contract to sell,
transfer or otherwise dispose of, directly or indirectly, any Common Stock,
any securities convertible into or exchangeable for Common Stock or any rights
to purchase or acquire Common Stock for a period of 90 days after the date of
this Prospectus without the prior written consent of the Underwriter, other
than (i) Common Stock issuable upon the exchange of the Debentures; (ii)
Common Stock issued or sold pursuant to employee benefit plans; (iii) Common
Stock issued upon exercise of currently outstanding options or warrants; or
(iv) Common Stock issued in connection with investments in, acquisitions of,
or mergers or other combinations with other companies.
The Company has agreed to indemnify the Underwriter against certain
liabilities, including certain liabilities under the Securities Act, or to
contribute to payments the Underwriter may be required to make in respect
thereof.
As set forth on the cover page of this Prospectus, at the request of the
Company, the Underwriter has reserved a portion of the Debentures for sale at
the initial offering price to certain directors, officers and employees of,
and consultants to, the Company and its subsidiaries. The aggregate principal
amount of Debentures available for sale to the general public will be reduced
to the extent such persons purchase such Debentures. Any reserved Debentures
not so purchased will be offered by the Underwriter to the general public on
the same basis as the other Debentures offered by this Prospectus.
36
<PAGE>
LEGAL MATTERS
Certain legal matters with respect to the legality of the issuance of the
Debentures offered hereby will be passed upon for the Company by Shearman &
Sterling, New York, New York. Certain legal matters will be passed upon for
the Underwriter by Brown & Wood LLP, New York, New York. Shearman & Sterling
is a limited partner in SN Investors.
The statements of law under the caption "Risk Factors--Government Regulation
of Porex" in this Prospectus and under the caption "Business--Porex--
Regulation" in the Company's 1996 10-K, incorporated by reference herein, are
based upon the opinion of Emens, Kegler, Brown, Hill & Ritter Co., L.P.A.,
Columbus, Ohio, special regulatory counsel to the Company. Robert D. Marotta,
Esq., of counsel to such firm, holds 75,000 options to purchase Common Stock.
EXPERTS
The audited Consolidated Financial Statements and schedules of the Company
that are incorporated by reference into this Prospectus have been audited by
Arthur Andersen LLP, independent public accountants, as indicated in their
report with respect thereto, and are included herein in reliance upon the
authority of said firm as experts in accounting and auditing in giving said
report.
37
<PAGE>
INDEX TO UNAUDITED CONSOLIDATED
FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
FINANCIAL INFORMATION:
Financial Statements
Consolidated Balance Sheets--December 31, 1996 and June 30, 1996........ F-2
Consolidated Statements of Income--Quarters and Six Months Ended
December 31, 1996 and 1995............................................. F-4
Consolidated Statements of Cash Flows--Six Months Ended December 31,
1996 and 1995.......................................................... F-5
Notes to Consolidated Financial Statements.............................. F-6
Management's Discussion and Analysis of Results of Operations and
Financial Condition.................................................... F-9
</TABLE>
F-1
<PAGE>
SYNETIC INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1996 1996
------------ --------
(UNAUDITED)
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents.............................. $ 20,538 $ 22,210
Marketable securities.................................. 151,013 140,268
Accounts receivable, net of allowances for doubtful
accounts and sales returns of $643 and $671 at
December 31, 1996 and June 30, 1996, respectively..... 6,889 7,299
Inventories............................................ 5,871 5,253
Other current assets................................... 3,817 4,821
-------- --------
Total current assets.................................. 188,128 179,851
-------- --------
PROPERTY, PLANT AND EQUIPMENT:
Land and improvements.................................. 823 823
Building and improvements.............................. 9,292 8,992
Machinery and equipment................................ 20,965 19,295
Furniture and fixtures................................. 2,966 2,856
Construction in progress............................... 2,029 1,306
-------- --------
36,075 33,272
Less: Accumulated depreciation......................... (17,255) (16,014)
-------- --------
Property, plant and equipment, net.................... 18,820 17,258
-------- --------
OTHER ASSETS:
Other.................................................. 3,765 2,483
-------- --------
Total other assets.................................... 3,765 2,483
-------- --------
$210,713 $199,592
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
F-2
<PAGE>
SYNETIC INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1996 1996
------------ --------
(UNAUDITED)
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable......................................... $ 1,538 $ 1,303
Accrued liabilities...................................... 12,932 7,014
Income taxes payable..................................... 4,014 5,206
-------- --------
Total current liabilities................................ 18,484 13,523
-------- --------
DEFERRED TAXES AND OTHER LIABILITIES...................... 8,728 4,980
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value; 10,000,000 shares
authorized; none issued................................. -- --
Common stock,$.01 par value; 50,000,000 shares
authorized; 17,323,958 and 16,738,827 shares issued at
December 31, 1996 and June 30, 1996, respectively....... 226 220
Paid-in capital.......................................... 185,890 158,227
Treasury stock, at cost; 5,268,463 shares at December 31,
1996.................................................... (38,287) (36,575)
Retained earnings........................................ 35,672 59,217
-------- --------
Total stockholders' equity.............................. 183,501 181,089
-------- --------
$210,713 $199,592
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
F-3
<PAGE>
SYNETIC, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
QUARTERS AND SIX MONTHS ENDED DECEMBER 31, 1996 AND 1995
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
QUARTERS ENDED SIX MONTHS ENDED
DECEMBER 31, DECEMBER 31,
----------------- -----------------
1996 1995 1996 1995
-------- ------- -------- -------
<S> <C> <C> <C> <C>
Net Sales................ $ 11,899 $10,283 $ 23,084 $21,319
Cost of sales........... 6,348 5,820 12,474 12,160
Selling, general and
administrative......... 3,839 3,337 7,590 6,949
Interest and other
income................. (2,343) (1,998) (4,562) (4,041)
Other expenses.......... 28,600 -- 28,600 --
-------- ------- -------- -------
Income before provision
for income taxes........ (24,545) 3,124 (21,018) 6,251
Provision for income
taxes................... 1,389 1,051 2,527 2,254
-------- ------- -------- -------
Net income (loss)........ $(25,934) $ 2,073 $(23,545) $ 3,997
======== ======= ======== =======
Net income (loss) per
share................... $ (1.39) $ .12 $ (1.28) $ .22
======== ======= ======== =======
Weighted average shares
outstanding............. 18,653 17,885 18,455 17,858
======== ======= ======== =======
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-4
<PAGE>
SYNETIC, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED DECEMBER 31, 1996 AND 1995
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss).......................................... $(23,545) $ 3,997
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Write-off of purchased research and development costs..... 28,600 --
Depreciation and amortization............................. 1,163 1,294
Changes in operating assets and liabilities:
Accounts receivable, net.................................. 410 341
Inventories............................................... (618) 522
Other assets.............................................. 1,277 182
Accounts payable.......................................... 235 108
Accrued liabilities....................................... 96 (4,110)
Income taxes payable...................................... 3,351 (378)
-------- --------
Net cash provided by (used for) operating activities...... $ 10,969 $ 1,956
-------- --------
Cash flows from investing activities:
Sales of marketable securities............................ 218,457 338,443
Purchase of marketable securities......................... (229,202) (334,800)
Capital expenditures...................................... (2,668) (1,234)
Acquisition of businesses, net of cash acquired........... 596 --
-------- --------
Net cash provided by (used for) investing activities..... (12,817) 2,409
-------- --------
Cash flows from financing activities:
Payments for treasury stock............................... (1,712) --
Proceeds from exercise of stock options and 401(k)
purchases................................................ 1,888 808
Payments of long-term debt................................ -- (216)
-------- --------
Net cash provided by (used for) financing activities..... 176 592
-------- --------
Net increase (decrease) in cash and cash equivalents....... (1,672) 4,957
Cash and cash equivalents, beginning of period............. 22,210 7,499
-------- --------
Cash and cash equivalents, end of period................... $ 20,538 $ 12,456
-------- --------
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-5
<PAGE>
SYNETIC, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) FINANCIAL STATEMENT PRESENTATION:
In the opinion of management, the accompanying consolidated financial
statements contain all normal and recurring adjustments necessary to present
fairly the financial position of Synetic, Inc. and subsidiaries (the
"Company") as of December 31, 1996 (unaudited) and June 30, 1996 (audited),
and the results of their operations and their cash flows for the six months
ended December 31, 1996 and 1995 (unaudited).
Principles of Consolidation--
The accompanying consolidated financial statements include the accounts of
the Company and its wholly owned operating subsidiaries, Porex Technologies
Corp. ("Porex") and Avicenna Systems Corp., after elimination of all material
intercompany accounts and transactions.
The accounting policies followed by the Company are set forth in the Notes
to Consolidated Financial Statements included in the Company's Annual Report
on Form 10-K for the fiscal year ended June 30, 1996 (the "1996 10-K"), which
notes are incorporated herein by reference.
The results of operations for the interim periods presented are not
necessarily indicative of the results to be expected for the full fiscal year.
Certain reclassifications have been made to prior year amounts to conform to
the current year presentation.
(2) INVENTORIES:
Inventories consisted of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1996 1996
------------ --------
(UNAUDITED)
<S> <C> <C>
Raw materials and supplies................................ $2,621 $2,468
Work-in-process........................................... 517 548
Finished goods............................................ 2,733 2,237
------ ------
$5,871 $5,253
====== ======
</TABLE>
(3) MARKETABLE SECURITIES:
At December 31, 1996, marketable securities consisted primarily of U.S.
Treasury Notes, U.S. Agency Notes and Money Market Preferred Stock.
(4) COMPUTATION OF NET INCOME PER SHARE:
Net income per share is determined by dividing net income by the weighted
average number of shares of common stock and common stock equivalents
outstanding during the applicable period. Common stock equivalents consist of
common stock which may be issuable upon exercise of outstanding stock options
as calculated using the treasury stock method.
F-6
<PAGE>
SYNETIC, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(5) SUPPLEMENTAL CASH FLOW INFORMATION (IN THOUSANDS):
For the six months ended December 31, 1996 and 1995, the Company recognized
tax benefits related to the exercise of stock options as increases to
additional paid-in capital and decreases to income taxes payable of $4,542,000
and $248,000, respectively.
<TABLE>
<CAPTION>
DECEMBER 31,
-------------
1996 1995
------ ------
<S> <C> <C>
Cash paid during the periods for:
Interest......................................................... $ -- $ 6
Income taxes..................................................... 1,239 2,414
</TABLE>
(6) ACQUISITIONS:
Avicenna--
On December 24, 1996, the Company acquired the outstanding equity and
indebtedness (including employee stock options) of Avicenna Systems Corp.
("Avicenna"), a privately held, development stage company located in
Cambridge, Massachusetts, for shares of the Company's common stock with a
market value of $30.5 million. As additional consideration, the Company agreed
to issue to certain sellers, nontransferable warrants covering 250,000 shares
of Synetic, Inc., exercisable after December 23, 1998 at a price of $54.50 per
share. Avicenna's business plan has been to market and build Intranets for
managed care organizations, hospitals and physician groups. The acquisition
was accounted for using the purchase method with the purchase price being
allocated to assets acquired and liabilities assumed based on their appraised
fair values. Avicenna's results of operations have been included in the
Company's financial statements as of December 24, 1996.
A summary of the purchase price allocation is as follows (in thousands):
<TABLE>
<S> <C>
Cash................................................................... $ 42
Short-term investments................................................. 240
Other assets........................................................... 216
Property, plant and equipment.......................................... 759
Purchased research and development..................................... 28,600
Intangible assets...................................................... 1,502
Goodwill............................................................... 116
-------
$31,475
=======
</TABLE>
The amount allocated to purchased research and development of $28.6 million
was determined based on an appraisal using known valuation techniques and was
immediately expensed, with no corresponding tax benefit, in the period of
acquisition because such research and development was in process and had no
alternative commercial use. Remaining amounts have been allocated to
intangible assets and goodwill.
The following summary, prepared on a pro forma basis, combines the results
of operations of the Company and Avicenna assuming the acquisition was
consummated at the beginning of the period presented (in thousands, except per
share amount):
<TABLE>
<CAPTION>
SIX MONTHS ENDED
DECEMBER 31, 1996
-----------------
(UNAUDITED)
<S> <C>
Sales......................................................... $ 23,084
Net Loss...................................................... (25,466)
Net Loss per share............................................ $ (1.35)
</TABLE>
F-7
<PAGE>
SYNETIC, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The pro forma results are not necessarily indicative of what actually would
have occurred if the acquisition had been in effect for the entire period
presented. In addition, they are not intended to be a projection of future
results. The pro forma impact of the acquisition for the six months ended
December 31, 1995 was not material.
CareAgents, Inc.--
On January 23, 1996, the Company acquired privately held CareAgents, Inc.
("CareAgents") to add management resources with expertise in large-scale
commercial clinical applications, medicine and information technology.
CareAgents was an early development stage company focussed on developing
Internet-based clinical commerce applications. The Company acquired CareAgents
for shares of the Company's common stock with a market value of $5.0 million.
Such acquisition will be recorded in the quarter ended March 31,1997. The
Company expects to record a non-recurring charge to expense in the quarter
ended March 31, 1997 relating to purchased research and development costs in
conjunction with its acquisition of CareAgents in January 1997. While the
exact amount of the charge is not yet determinable, the Company does not
expect this charge to exceed $3 million.
F-8
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
QUARTER AND SIX MONTHS ENDED DECEMBER 31, 1996 COMPARED WITH QUARTER AND SIX
MONTHS ENDED DECEMBER 31, 1995.
Consolidated Results of Operations:
Net sales for the quarter and six months ended December 31, 1996 increased
by $1,616,000, or 15.7%, and $1,765,000, or 8.3%, respectively, over the
comparable prior year periods as a result of sales improvements across several
product lines. The increase in sales was due principally to an increase in
sales of medical OEM porous and surgical products in the Healthcare sector and
writing instrument components in the Consumer sector.
Cost of sales for the quarter and six months ended December 31, 1996
increased by $528,000, or 19.1%, and $314,000, or 2.6%, respectively, over the
comparable prior year periods due to the increase in sales volume noted above.
As a percent of net sales, cost of sales for the quarter and six months ended
December 31, 1996 decreased to 53.3% and 54.0% from 56.6% and 57.0%,
respectively, in the comparable prior year periods due principally to an
improvement in labor utilization and the leverage of fixed manufacturing
costs.
Selling, general and administrative expenses for the quarter and six months
ended December 31, 1996 increased by $502,000, or 15%, and $641,000, or 9.2%,
respectively, over the comparable prior year periods due primarily to an
increase in expenses associated with the increase in sales volume noted above
and an increase in corporate overhead expenses. As a percent of net sales,
selling, general and administrative expenses for the quarter and six months
ended December 31, 1996 did not vary materially from the comparable prior year
periods.
Interest and other income for the quarter and six months ended December 31,
1996 increased by $345,000, or 17.3%, and $521,000, or 12.9%, respectively,
over the comparable prior year periods principally as a result of an increase
in funds available for investment generated by cash flow from operations.
During the quarter ended December 31, 1996, the Company recorded a charge to
income of $28,600,000 for purchased research and development ("R&D") costs
relating to the acquisition of Avicenna.
Excluding the R&D charge discussed above, for which no tax benefit is
recognized, the effective tax rate for the quarter ended December 31, 1996
remained relatively constant at 34% as compared to the prior year period. For
the six months ended December 31, 1996, the effective tax rate decreased to
34% from 36% primarily due to an increase in income in the current year
eligible for dividends received deductions.
Capital Resources and Liquidity:
Cash, cash equivalents and marketable securities increased by $9,073,000 to
$171,551,000 during the six months ended December 31, 1996 principally due to
the income earned from operations. Of the $171,551,000 in cash and marketable
securities, $157,238,000 is attributable to Synetic and not its subsidiaries
and $14,313,000 is attributable to Porex.
The Company believes that its cash flow from operations, cash and marketable
securities and the income earned on its investments are sufficient to meet the
anticipated working capital requirements of its business.
As a result of the acquisition of Avicenna and CareAgents, the Company
expects to incur significant research and development expenses and incur
additional operating losses in connection with this new area of business until
the products and services are successfully developed or marketed. There can be
no assurances that the products or services will be successfully developed or
marketed. The rate of aggregate expenditures at Avicenna and CareAgents
immediately prior to their acquisition was approximately $1,600,000 per
quarter. Research and development expenses may be materially greater in the
future than current amounts until the Company successfully develops its
products and services. The Company, however, anticipates that such research
F-9
<PAGE>
and development expenses will not exceed $2,500,000 per fiscal quarter for the
third and fourth quarters of the fiscal year ending June 30, 1997 and will not
result in net losses for the current fiscal year (excluding the non-recurring
charges for purchased research and development costs relating to the
acquisition of Avicenna and CareAgents) or for either of the fiscal quarters
ending March 31, 1997 or June 30, 1997.
The Company continues to pursue an acquisition program pursuant to which it
seeks to effect one or more acquisitions or other similar business
combinations with businesses it believes have significant growth potential.
Financing for such acquisitions may come from several other sources,
including, without limitation, (a) its cash, cash equivalents and marketable
securities and (b) proceeds from the incurrence of additional indebtedness or
the issuance of common stock, preferred stock, convertible debt or other
securities. The Company currently intends to use the net proceeds from the
sale of the Debentures for general corporate purposes, which may include
acquisitions. For a further description of the Company's Acquisition Program,
see "Risk Factors--Acquisition Program" and "Business--Acquisition Program".
F-10
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY IN-
FORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED OR INCORPO-
RATED BY REFERENCE IN THIS PROSPECTUS IN CONNECTION WITH THE OFFER MADE BY THIS
PROSPECTUS. IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR THE UNDERWRITER. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER
TO BUY THE DEBENTURES OFFERED HEREBY IN ANY JURISDICTION IN WHICH, OR TO ANY
PERSON TO WHOM, IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY SALES MADE HEREUNDER SHALL, UNDER ANY CIR-
CUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS
OF THE COMPANY SINCE THE DATE HEREOF.
-----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information...................................................... 2
Incorporation of Certain Documents by Reference............................ 3
Prospectus Summary......................................................... 4
Risk Factors............................................................... 9
Use of Proceeds............................................................ 15
Price Range of Common Stock................................................ 15
Dividend Policy............................................................ 15
Capitalization............................................................. 16
Business................................................................... 17
Management................................................................. 23
Description of Debentures.................................................. 26
Description of Capital Stock............................................... 33
Shares Eligible for Future Sale............................................ 34
Underwriting............................................................... 36
Legal Matters.............................................................. 37
Experts.................................................................... 37
Index to Unaudited Consolidated Financial Statements....................... F-1
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
$100,000,000
SYNETIC, INC.
% CONVERTIBLE SUBORDINATED DEBENTURES DUE 2007
-----------------
PROSPECTUS
-----------------
MERRILL LYNCH & CO.
, 1997
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following expenses, other than the Securities and Exchange Commission
registration fee, are estimated. All expenses of the offering will be paid by
the Company.
<TABLE>
<S> <C>
SEC Registration Fee............................................. $34,849
Printing and Engraving...........................................
Legal Fees and Expenses..........................................
Accounting Fees and Expenses.....................................
Trustee's Fees...................................................
Blue Sky Fees and Expenses.......................................
Miscellaneous....................................................
-------
Total.......................................................... $
=======
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the General Corporation Law of the State of Delaware (the
"DGCL") provides, in summary, that directors and officers of Delaware
corporations such as the Registrant are entitled, under certain circumstances,
to be indemnified against all expenses and liabilities (including attorneys'
fees) incurred by them as a result of suits brought against them in their
capacity as a director or officer if they acted in good faith and in a manner
they reasonably believed to be in or not opposed to the best interests of the
Registrant and, with respect to any criminal action or proceeding, if they had
no reasonable cause to believe their conduct was unlawful; provided that no
indemnification may be made against expenses in respect of any claim, issue or
matter as to which they shall have been adjudged to be liable to the
Registrant, unless and only to the extent that the court in which such action
or suit was brought shall determine upon application that, despite the
adjudication of liability but in view of all the circumstances of the case,
they are fairly and reasonably entitled to indemnity for such expenses which
such court shall deem proper. Any such indemnification may be made by the
company only as authorized in each specific case upon a determination by the
stockholders or disinterested directors that indemnification is proper because
the indemnitee has met the applicable standard of conduct. Article Eleven of
the Registrant's Certificate of Incorporation and Section 6.5 of the
Registrant's By-Laws entitles officers, directors and controlling persons of
the Registrant to indemnification to the full extent permitted by Section 145
of the DGCL, as the same may be supplemented or amended from time to time.
Article Thirteen of the Registrant's Certificate of Incorporation provides
that no director shall have any personal liability to the Registrant or its
stockholders for any monetary damages for breach of fiduciary duty as a
director, provided that such provision does not limit or eliminate the
liability of any director (i) for breach of such director's duty of loyalty to
the Registrant or its stockholders, (ii) for acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of law,
(iii) under Section 174 of the DGCL (involving certain unlawful dividends or
stock repurchase) or (iv) for any transaction from which such director derived
an improper personal benefit. Amendment to such article does not affect the
liability of any director for any act or omission occurring prior to the
effective time of such amendment.
Reference is made to the Form of Indemnification Agreement between the
Registrant and its directors and officers filed as Exhibit 10.1 to this
Registration Statement pursuant to which the Registrant has agreed to
indemnify such directors and officers to the fullest extent permitted by
Delaware law, as the same may be amended from time to time.
II-1
<PAGE>
ITEM 16. EXHIBITS
EXHIBITS:
1.1 Form of Purchase Agreement between the Registrant and the
Underwriter.
4.1 Specimen Common Stock Certificate of the Registrant. Incorporated
by reference to Exhibit 4.1 to the Registrant's Registration
Statement on Form S-1 (No. 33-28654) (the "S-1 Registration
Statement").
4.2 Form of Indenture between the Registrant and United States Trust
Company of New York, including form of % Convertible Subordinated
Debenture due 2007.
4.3 Certificate of Incorporation of the Company, as amended.
Incorporated by reference to Exhibit 3.1 to the S-1 Registration
Statement.
4.4 By-Laws of the Company, as amended. Incorporated by reference to
Exhibit 3.2 to the Company's Annual Report on Form 10-K for the
fiscal year ended June 30, 1994.
5.1 Opinion of Shearman & Sterling.
10.1 Form of Indemnification Agreement between the Company and the
directors and officers of the Company. Incorporated by reference
to Exhibit 10.6 to the S-1 Registration Statement.
12.1 Calculation of ratios of earnings to fixed charges.
23.1 Consent of Arthur Andersen LLP.
23.2 Consent of Emens, Kegler, Brown, Hill & Ritter Co., L.P.A.
23.3 Consent of Shearman & Sterling (included in Exhibit 5.1).
24.1 Powers of Attorney of the Registrant.
25.1 Form T-1 Statement of Eligibility and Qualification of United
States Trust Company of New York.
ITEM 17. UNDERTAKINGS
(a) The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
(b) The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to Section 13(a) or 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in this
Registration Statement shall be deemed to be a new Registration Statement
relating to the securities offered herein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(c) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered hereby, the Registrant will,
unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
II-2
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant,
Synetic, Inc., a corporation organized and existing under the laws of the
State of Delaware, certifies that it has reasonable grounds to believe that it
meets all of the requirements for filing on Form S-3 and has duly caused this
amendment to the Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the Borough of Elmwood Park, State
of New Jersey, on the 6th day of February, 1997.
SYNETIC, INC.
/s/ Victor L. Marrero
By _________________________________
Victor L. Marrero
Vice President--Finance and
Chief Financial Officer
Pursuant to the requirements of the Securities Act of 1933, this amendment
to the Registration Statement has been signed below by the following persons
in the capacities and on the date indicated.
SIGNATURE TITLE DATE
* President and Chief Executive Officer; Director
- ------------------------- February 6,
James V. Manning 1997
* Vice President--Technologies Group; Director
- ------------------------- February 6,
Ray E. Hannah 1997
/s/ Victor L. Marrero Vice President--Finance and Chief Financial
Officer (Principal Accounting and Financial
Officer)
- ------------------------- February 6,
Victor L. Marrero 1997
* Director
- ------------------------- February 6,
Paul C. Suthern 1997
* Director
- ------------------------- February 6,
Thomas R. Ferguson 1997
* Director
- ------------------------- February 6,
Mervyn L. Goldstein 1997
* Director
- ------------------------- February 6,
Roger H. Licht 1997
II-3
<PAGE>
SIGNATURE TITLE DATE
* Director
- ------------------------- February 6,
Per G. H. Lofberg 1997
* Director
- ------------------------- February 6,
Herman Sarkowsky 1997
* Director
- ------------------------- February 6,
Charles A. Mele 1997
* Director
- ------------------------- February 6,
Albert M. Weis 1997
* Director
- ------------------------- February 6,
Martin J. Wygod 1997
*By /s/ Victor L. Marrero February 6,
- ------------------------- 1997
Victor L. Marrero Attorney-in-fact
II-4
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION OF DOCUMENT
- ------- -----------------------
<S> <C>
1.1 Form of Purchase Agreement between the Registrant and the Underwriter
4.1 Specimen Common Stock Certificate of the Registrant. Incorporated by reference
to Exhibit 4.1 to the Registrant's Registration Statement on Form S-1 (No. 33-28654)
(the "S-1 Registration Statement")
4.2 Form of Indenture between the Registrant and United States Trust Company of New York,
including form of % Convertible Subordinated Debenture due 2007.
4.3 Certificate of Incorporation of the Company, as amended. Incorporated by reference to
Exhibit 3.1 to the S-1 Registration Statement
4.4 By-Laws of the Company, as amended. Incorporated by reference to Exhibit 3.2 to the
Company's Annual Report on Form 10-K for the fiscal year ended June 30, 1994
5.1 Opinion of Shearman & Sterling
10.1 Form of Indemnification Agreement between the Company and the directors and officers of the
Company. Incorporated by reference to Exhibit 10.6 to the S-1 Registration Statement
12.1** Calculation of ratios of earnings to fixed charges.
23.1* Consent of Arthur Andersen LLP
23.2** Consent of Emens, Kegler, Brown, Hill & Ritter Co., L.P.A.
23.3 Consent of Shearman & Sterling (included in Exhibit 5.1)
24.1** Powers of Attorney of the Registrant
25.1 Form T-1 Statement of Eligibility and Qualification of United States Trust
Company of New York.
</TABLE>
- --------
* Filed herewith
** Previously filed
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference in this Amendment No. 1 to Registration Statement on Form S-3 of our
report dated September 27, 1996 included in Synetic, Inc.'s Annual Report on
Form 10-K for the fiscal year ended June 30, 1996, and to all references to our
Firm in this Amendment No. 1 to Registration Statement.
/s/ Arthur Andersen LLP
ARTHUR ANDERSEN LLP
New York, New York
February 6, 1997
