<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 13, 1997.
REGISTRATION NO. 333-21041
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------
AMENDMENT NO. 2
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) 839-5300
(212) 848-4000
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.. $172,500,000(2) 100% $172,500,000 $52,273(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 $22,500,000 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) $34,849 of such fee was 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 13, 1997
$150,000,000
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 12,
1997 the last sale price of the Common Stock as reported on the Nasdaq National
Market was $50 5/8 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
and certain other persons.
The Company has made 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 $367,500.
(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
$22,500,000 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,
although no assurances can be given, 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 certain 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.......... $150,000,000 aggregate principal amount ($172,500,000
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 has made 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 3,384 669(1) 635(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 $314,394
Net assets of
discontinued
operations............. 25,352 52,548 55,882 -- -- -- --
Total assets............ 163,011 189,494 194,009 188,174 199,592 210,713 362,213
Long term debt, less
current portion........ 81,714 81,058 80,716 -- -- -- 150,000
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 $150 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 (i) result in substantial
dilution of the percentage ownership of the stockholders of the Company at the
time of any such issuance, (ii) result in substantial dilution of the
Company's earnings per share and (iii) 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 has made 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 "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 12, 1997)....................... 52 3/4 45
</TABLE>
On February 12, 1997, the last sale price of the Common Stock as reported by
the Nasdaq National Market was $50 5/8. 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>
<CAPTION>
DECEMBER 31, 1996
---------------------
ACTUAL AS ADJUSTED
-------- -----------
(IN THOUSANDS)
<S> <C> <C>
Cash and marketable securities(1)....................... $171,551 $317,801
======== ===========
Long-term debt:
% Convertible Subordinated Debentures due 2007....... -- 150,000
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(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 $333,501
======== ===========
</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
<PAGE>
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, although no
assurances can be given, 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). On February 10,
1997, Porex acquired substantially all of the assets of Interflo Technologies,
Inc. ("Interflo"), a privately held corporation, for $11.0 million in cash.
Interflo manufactures porous plastic components and products used in various
applications.
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 plan
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 focused 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.
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 $150,000,000 aggregate principal amount
($172,500,000 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 has made 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 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 (for a period expiring within 60 days after the applicable record date)
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 (as defined in the Indenture) other
than Common Stock, debt securities of the Company or assets (excluding cash
dividends or cash 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, or invest in, 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).
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 events described in clauses (ii) and
(iii) above, 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.
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, then the Debentures would become
convertible only into the kind and amount of securities, cash
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<PAGE>
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.
29
<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 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 106,029 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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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 $22,500,000
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 or any such securities or rights issued or sold pursuant to
employee benefit plans; (iii) Common Stock issued upon exercise of currently
outstanding options or warrants; or (iv) Common Stock or any such securities
or rights 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 and certain other
persons. 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 and the Common Stock issuable upon conversion of the
Debentures 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 9.1%, 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
33% 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>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
$150,000,000
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............................................ $52,273
Printing and Engraving.......................................... 85,000
Legal Fees and Expenses......................................... 100,000
Accounting Fees and Expenses.................................... 75,000
Trustee's Fees.................................................. 2,500
NASD Fees and Expenses.......................................... 17,750
Miscellaneous................................................... 34,977
--------
Total......................................................... $367,500
========
</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 13th 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 13,
James V. Manning 1997
* Vice President--Technologies Group;
Director
- ------------------------- February 13,
Ray E. Hannah 1997
/s/ Victor L. Marrero Vice President--Finance and Chief
- ------------------------- Financial Officer (Principal February 13,
Victor L. Marrero Accounting and Financial Officer) 1997
* Director
- ------------------------- February 13,
Paul C. Suthern 1997
* Director
- ------------------------- February 13,
Thomas R. Ferguson 1997
* Director
- ------------------------- February 13,
Mervyn L. Goldstein 1997
* Director
- ------------------------- February 13,
Roger H. Licht 1997
II-3
<PAGE>
SIGNATURE TITLE DATE
* Director
- ------------------------- February 13,
Per G. H. Lofberg 1997
* Director
- ------------------------- February 13,
Herman Sarkowsky 1997
* Director
- ------------------------- February 13,
Charles A. Mele 1997
* Director
- ------------------------- February 13,
Albert M. Weis 1997
* Director
- ------------------------- February 13,
Martin J. Wygod 1997
*By /s/ Victor L. Marrero
- ------------------------- February 13,
Victor L. Marrero Attorney-in-fact 1997
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>
______________________________________________________________________________
______________________________________________________________________________
SYNETIC, INC.
(a Delaware corporation)
Convertible Subordinated Debentures due 2007
PURCHASE AGREEMENT
Dated: February [ ], 1997
______________________________________________________________________________
______________________________________________________________________________
<PAGE>
TABLE OF CONTENTS
PURCHASE AGREEMENT .......................................................
SECTION 1. Representations and Warranties ..........................
------------------------------
SECTION 2. Sale and Delivery to Underwriter; Closing ...............
-----------------------------------------
(a) Initial Securities ......................................
(b) Option Securities .......................................
(c) Payment .................................................
(d) Denominations; Registration .............................
SECTION 3. Covenants ...............................................
---------
SECTION 4. Payment of Expenses .....................................
-------------------
(a) Expenses ................................................
(b) Termination of Agreement ................................
SECTION 5. Conditions of Underwriter Obligations ...................
-------------------------------------
(a) Effectiveness of Registration Statement .................
(b) Opinion of Counsel for Company ..........................
(c) Opinion of Special Regulatory Counsel for Company .......
(d) Opinion of Counsel for Underwriter ......................
(e) Officers' Certificate ...................................
(f) Accountant's Comfort Letter .............................
(g) Bring-down Comfort Letter ...............................
(h) Maintenance of Rating ...................................
(i) No Objection ............................................
(j) Lock-up Agreements ......................................
(k) Conditions to Purchase of Option Securities .............
(l) Additional Documents ....................................
(m) Termination of Agreement ................................
SECTION 6. Indemnification .........................................
---------------
(a) Indemnification of Underwriter ..........................
(b) Indemnification of Company, Directors and Officers ......
(c) Actions against Parties; Notification ...................
(d) Settlement without Consent if Failure to Reimburse ......
SECTION 7. Contribution ............................................
------------
SECTION 8. Representations, Warranties and Agreements to Survive
------------------------------------------------------
Delivery ................................................
--------
<PAGE>
SECTION 9. Termination of Agreement
------------------------
(a) Termination; General
(b) Liabilities
SECTION 10. Default .................................................
-------
SECTION 11. Notices .................................................
-------
SECTION 12. Parties .................................................
-------
SECTION 13. Governing Law and Time ..................................
----------------------
SECTION 14. Effect of Headings ......................................
------------------
SCHEDULES
Schedule A - Pricing Information .............................. Sch A-1
Schedule B - List of Subsidiaries .............................. Sch B-1
Schedule C - List of Persons Subject to Lock-up ................ Sch C-1
EXHIBITS
Exhibit A - Form of Opinion of Counsel for Company
Pursuant to Section 5(b)....................... A-1
Exhibit B - Form of Opinion of Special Regulatory
Counsel for Company Pursuant to Section 5(c)... B-1
Exhibit C - Form of Lock-up Letter......................... C-1
ii
<PAGE>
SYNETIC, INC.
(a Delaware corporation)
$150,000,000
Convertible Subordinated Debentures due 2007
PURCHASE AGREEMENT
------------------
February [ ], 1997
MERRILL LYNCH & CO.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
North Tower
World Financial Center
New York, New York 10281-1209
Ladies and Gentlemen:
Synetic, Inc., a Delaware corporation (the "Company"), confirms its
agreement with Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith
Incorporated (the "Underwriter"), with respect to the issue and sale by the
Company and the purchase by the Underwriter of $150,000,000 aggregate principal
amount of the Company's Convertible Subordinated Debentures due 2007 (the
"Notes"), and with respect to the grant by the Company to the Underwriter of the
option described in Section 2(b) hereof to purchase all or any part of an
additional $22,500,000 principal amount of Notes to cover over-allotments, if
any. The aforesaid $150,000,000 principal amount of Notes (the "Initial
Securities") to be purchased by the Underwriter and all or any part of the
$22,500,000 principal amount of Notes subject to the option described in Section
2(b) hereof (the "Option Securities") are hereinafter called, collectively, the
"Securities". The Securities are to be issued pursuant to an indenture dated as
of February [ ], 1997 (the "Indenture") between the Company and United States
Trust Company of New York, as trustee (the "Trustee").
The Securities are convertible into shares of common stock, par value .01
per share, of the Company (the "Common Stock") in accordance with the terms of
the Securities and the Indenture, at the initial conversion price specified in
Schedule A hereto.
The Company understands that the Underwriter proposes to make a public
offering of the Securities as soon as the Underwriter deems advisable after this
Agreement has been executed
1
<PAGE>
and delivered and the Indenture has been qualified under the Trust Indenture Act
of 1939, as amended (the "1939 Act").
The Company has filed with the Securities and Exchange Commission (the
"Commission") a registration statement on Form S-3, as amended (No. 333-21041),
covering the registration of the Securities, and the indeterminate number of
shares of Common Stock to be issuable upon conversion of the Securities, under
the Securities Act of 1933, as amended (the "1933 Act"), including the related
preliminary prospectus or prospectuses. Promptly after execution and delivery of
this Agreement, the Company will prepare and file a prospectus in accordance
with the provisions of Rule 430A ("Rule 430A") of the rules and regulations of
the Commission under the 1933 Act (the "1933 Act Regulations") and paragraph (b)
of Rule 424 ("Rule 424(b)") of the 1933 Act Regulations. The information
included in such prospectus that was omitted from such registration statement at
the time it became effective but that is deemed to be part of such registration
statement at the time it became effective pursuant to paragraph (b) of Rule 430A
is referred to as "Rule 430A Information". Each prospectus used before such
registration statement became effective, and any prospectus that omitted, as
applicable, the Rule 430A Information that was used after such effectiveness and
prior to the execution and delivery of this Agreement, is herein called a
"preliminary prospectus." Such registration statement, including the exhibits
thereto, schedules thereto, if any, and the documents incorporated by reference
therein pursuant to Item 12 of Form S-3 under the 1933 Act, at the time it
became effective and including the Rule 430A Information is herein called the
"Registration Statement." The final prospectus, including the documents
incorporated by reference therein pursuant to Item 12 of Form S-3 under the 1933
Act, in the form first furnished to the Underwriter for use in connection with
the offering of the Securities is herein called the "Prospectus." For purposes
of this Agreement, all references to the Registration Statement, any preliminary
prospectus, the Prospectus or any amendment or supplement to any of the
foregoing shall be deemed to include the copy filed with the Commission pursuant
to its Electronic Data Gathering, Analysis and Retrieval system ("EDGAR").
All references in this Agreement to financial statements and schedules and
other information which is "contained," "included" or "stated" in the
Registration Statement, any preliminary prospectus or the Prospectus (or other
references of like import) shall be deemed to mean and include all such
financial statements and schedules and other information which is incorporated
by reference in the Registration Statement, any preliminary prospectus or the
Prospectus, as the case may be; and all references in this Agreement to
amendments or supplements to the Registration Statement, any preliminary
prospectus or the Prospectus shall be deemed to mean and include the filing of
any document under the Securities Exchange Act of 1934 (the "1934 Act") which is
incorporated by reference in the Registration Statement, such preliminary
prospectus or the Prospectus, as the case may be.
SECTION 1. Representations and Warranties.
------------------------------
(a) The Company represents and warrants to the Underwriter as of the date
hereof, as of the Closing Time referred to in Section 2(c) hereof, and as of
each Date of Delivery (if any) referred to in Section 2(b) hereof, and agrees
with the Underwriter as follows:
2
<PAGE>
(i) At the time the Registration Statement becomes effective, the
Registration Statement will comply in all material respects with the
requirements of the 1933 Act and the 1933 Act Regulations and the 1939 Act
and the rules and regulations of the Commission under the 1939 Act (the
"1939 Act Regulations") and will not contain an untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein not misleading. The
Prospectus, at the time the Prospectus or any amendment or supplement
thereto was issued and at Closing Time (and, if any Option Securities are
purchased, at the Date of Delivery), will not include an untrue statement
of a material fact or omit to state a material fact necessary in order to
make the statements therein, in the light of the circumstances under which
they were made, not misleading. The representations and warranties in this
subsection (i) shall not apply to statements or omissions from the
Registration Statement or Prospectus made in reliance upon and in
conformity with information furnished to the Company in writing by or on
behalf of the Underwriter expressly for use in the Registration Statement
or the Prospectus or to the Form T-1 Statement of Eligibility and
Qualification under the 1939 Act filed as Exhibit 25.1 to the Registration
Statement (the "Form T-1").
(ii) The accountants who are reporting upon the audited financial
statements and supporting schedules included in the Registration Statement
are independent public accountants as required by the 1933 Act and the 1933
Act Regulations.
(iii) The consolidated financial statements of the Company included in
the Registration Statement present fairly the consolidated financial
position of the Company and its subsidiaries as of the dates indicated and
the results of their operations for the periods specified; except as
otherwise stated in the Registration Statement, said financial statements
have been prepared in conformity with generally accepted accounting
principles applied on a consistent basis; and the financial statement
schedules included in the Registration Statement present fairly the
information required to be stated therein.
(iv) Since the respective dates as of which information is given in the
Registration Statement and the Prospectus, except as otherwise stated
therein, (A) there has been no material adverse change in the condition,
financial or otherwise, or in the earnings or business of the Company and
its subsidiaries, considered as one enterprise, whether or not arising in
the ordinary course of business, (B) there have been no transactions
entered into by the Company or any of its subsidiaries, other than those in
the ordinary course of business, which are material with respect to the
Company and its subsidiaries, considered as one enterprise, (C) there has
been no dividend or distribution of any kind declared, paid or made by the
Company on any class of its capital stock and (D) there has been no sale or
grant of options, warrants or other rights to acquire shares of capital
stock of the Company or other securities convertible into such shares,
other than employee stock options under stock option plans approved prior
to the date hereof on terms substantially similar to the stock option plans
described in the Company's Annual Report on Form 10-K for the year ended
June 30, 1996.
(v) The Company has been duly incorporated and is validly existing as a
corporation in good standing under the laws of the State of Delaware with
corporate power and authority under such laws to own, lease and operate its
properties and conduct
3
<PAGE>
its business as described in the Prospectus; and the Company is duly
qualified as a foreign corporation to transact business and is in good
standing in each jurisdiction in which such qualification is required,
whether by reason of the ownership or leasing of real property or the
conduct of business, except where the failure to so qualify or be in good
standing would not have a material adverse effect on the Company and its
subsidiaries, considered as one enterprise.
(vi) Each of the operating subsidiaries of the Company set forth in
Schedule B hereto (the "Operating Subsidiaries") has been duly incorporated
and is validly existing as a corporation in good standing under the laws of
the jurisdiction of its incorporation, has corporate power and authority
under such laws to own, lease and operate its properties and to conduct its
business as described in the Prospectus; and each of the Operating
Subsidiaries is duly qualified as a foreign corporation to transact
business and is in good standing in each jurisdiction in which such
qualification is required, whether by reason of the ownership or leasing of
real property or the conduct of business, except where the failure to so
qualify or be in good standing would not have a material adverse effect on
the Company and its subsidiaries, considered as one enterprise; all of the
issued and outstanding shares of capital stock of each of the Operating
Subsidiaries has been duly authorized and validly issued, is fully paid and
non-assessable; and the capital stock of each of the Operating Subsidiaries
is owned by the Company, directly or through subsidiaries, free and clear
of any security interest, mortgage, pledge, lien, encumbrance, claim or
equity of any kind.
(vii) The Company had at the date indicated a duly authorized and
outstanding capitalization as set forth in the Prospectus under the caption
"Capitalization"; the Common Stock conforms, in all material respects, to
the description thereof contained in the Prospectus and such description
conforms, in all material respects, to the rights set forth in the
instruments defining the same; and each outstanding warrant, option or
other right to acquire shares of capital stock of the Company, whether or
not currently exercisable, conforms, in all material respects, to the
description thereof in the Prospectus, to the extent described therein, and
such description conforms, in all material respects, to the rights set
forth in the instruments defining the same.
(viii) The Securities are in the form contemplated by the Indenture, have
been duly authorized and, when authenticated by the Trustee pursuant to the
provisions of the Indenture and issued and delivered against payment of the
consideration therefor set forth in this Agreement and the Indenture will
constitute valid and binding obligations of the Company enforceable against
the Company in accordance with their terms and entitled to the benefits of
the Indenture, except to the extent that such enforcement may be subject to
the effect of bankruptcy, insolvency, moratorium, fraudulent conveyance,
reorganization and similar laws now or hereinafter in effect relating to or
affecting creditors' rights generally and court decisions with respect
thereto and to the application of equitable principles in any proceeding,
whether at law or in equity; and the Securities and the Indenture conform,
in all material respects, to the description thereof contained in the
Registration Statement and the Prospectus; and all corporate action
required to be taken
4
<PAGE>
by the Company for the authorization, issuance and sale of such Securities
has been validly and sufficiently taken.
(ix) The shares of Common Stock issuable upon conversion of the
Securities at the initial conversion price set forth in the Indenture have
been duly and validly authorized and reserved for issuance, and such
shares, when issued and delivered in accordance with the provisions of the
Securities and the Indenture, will be validly issued and fully paid and
non-assessable and will not violate preemptive rights presently enjoyed by
any present stockholder of the Company.
(x) Neither the Company nor any of its Operating Subsidiaries is in
default in the performance or observance of any obligation, agreement,
covenant or condition contained in any contract, license, indenture,
mortgage, loan agreement, note, lease or other agreement or instrument to
which the Company or any of its Operating Subsidiaries is a party or by
which it or any of them may be bound, or to which any of the property of
the Company or any of its Operating Subsidiaries is subject, except for
such default or defaults that would not have a material adverse effect on
the condition, financial or otherwise, or earnings or business of the
Company and its subsidiaries, considered as one enterprise; and the
execution and delivery by the Company of this Agreement, the Indenture and
the Securities, the issuance and delivery of the Securities, the
consummation by the Company of the transactions contemplated herein and
therein and the compliance by the Company with the terms hereof and thereof
have been duly authorized by all necessary corporate action on the part of
the Company and will not result in any violation of the charter or by-laws
of the Company or the Operating Subsidiaries, and will not conflict with or
constitute a breach of, or default under, or result in the creation or
imposition of any lien, charge or encumbrance upon any property of the
Company or any of its Operating Subsidiaries pursuant to, (A) any contract,
indenture, mortgage, loan agreement, note, lease or other agreement or
instrument to which the Company or any of its Operating Subsidiaries is a
party or by which it or any of them may be bound, or to which any of the
property of the Company or any of its Operating Subsidiaries may be subject
(except for such conflicts, breaches or defaults or liens, charges or
encumbrances that would not have a material adverse effect on the
condition, financial or otherwise, earnings or business of the Company and
its subsidiaries, considered as one enterprise), or (B) any existing
applicable law, rule or regulation of any government or governmental
instrumentality, domestic or foreign, having jurisdiction over the Company
or any of the Operating Subsidiaries or any of their respective properties
(except for such existing applicable laws, rules or regulations of any
government or governmental instrumentality, domestic or foreign, that would
not have a material adverse effect on the condition, financial or
otherwise, earnings or business of the Company and its subsidiaries,
considered as one enterprise).
(xi) No authorization, approval, consent or license of any governmental
instrumentality or court, domestic or foreign, is required for the valid
authorization, issuance, sale and delivery of the Securities except such as
may be required under the 1933 Act, the 1933 Act Regulations or state
securities or blue sky laws for the offering and sale of the Securities and
the qualification of the Indenture under the 1939 Act.
5
<PAGE>
(xii) To the best knowledge of the Company, no labor problem exists with
the Company's employees or with employees of its Operating Subsidiaries or
is imminent that could materially adversely affect the Company and its
subsidiaries, considered as one enterprise, and the Company is not aware of
any existing or imminent labor disturbance by the employees of any of the
Company's or its Operating Subsidiaries' principal suppliers, contractors
or customers that could be expected to materially adversely affect the
condition, financial or otherwise, earnings or business of the Company and
its subsidiaries, considered as one enterprise.
(xiii) Except as disclosed in the Registration Statement, there is no
action, suit or proceeding before or by any government, governmental
instrumentality or court, domestic or foreign, now pending or, to the
knowledge of the Company, threatened against or affecting the Company or
any Operating Subsidiary that is required to be disclosed in the
Registration Statement or that might result in any material adverse change
in the condition, financial or otherwise, earnings or business of the
Company and its subsidiaries, considered as one enterprise, or that could
materially and adversely affect the properties of the Company and its
Subsidiaries considered as one enterprise or that could materially
adversely affect the consummation of this Agreement; all pending legal or
governmental proceedings to which the Company or any of the Operating
Subsidiaries is a party or which affect any of their respective properties,
that are not described in the Registration Statement, including ordinary
routine litigation incidental to their respective businesses, would not,
considered in the aggregate, have a material adverse effect on the
condition, financial or otherwise, earnings, or business of the Company and
its subsidiaries, considered as one enterprise.
(xiv) There are no contracts or documents of the Company or any of the
Operating Subsidiaries that are required to be described in the
Registration Statement or the Prospectus or to be filed as exhibits to the
Registration Statement by the 1933 Act or by the 1933 Act Regulations that
have not been so described and filed.
(xv) The Company and the Operating Subsidiaries have good and marketable
title to all properties and assets described in the Prospectus as owned by
them, free and clear of all liens, charges, encumbrances or restrictions,
except such as (A) are described in the Prospectus or (B) are neither
material in amount nor materially significant in relation to the business
of the Company and its subsidiaries, considered as one enterprise; all of
the leases and subleases material to the business of the Company and its
subsidiaries, considered as one enterprise, and under which the Company or
the Operating Subsidiaries holds properties described in the Prospectus,
are in full force and effect, and neither the Company nor any of its
subsidiaries has any notice of any material claim of any sort that has been
asserted by anyone adverse to the rights of the Company or any of its
subsidiaries under any of the leases or subleases mentioned above, or
affecting or questioning the rights of such corporation to the continued
possession of the leased or subleased premises under any such lease or
sublease.
(xvi) The Company and the Operating Subsidiaries own or possess, or can
acquire on reasonable terms, adequate patents, patent rights, licenses,
inventions, know-how
6
<PAGE>
(including trade secrets and other unpatented and/or unpatentable
proprietary or confidential information, systems or procedures),
trademarks, service marks and trade names necessary to carry on their
businesses as presently conducted by them, and neither the Company nor any
of its subsidiaries has received any notice of infringement of or conflict
with asserted rights of others with respect to any of the foregoing that in
the aggregate, if the subject of an unfavorable decision, ruling or
finding, would materially adversely affect the condition, financial or
otherwise, or in the earnings or business of the Company and its
subsidiaries, considered as one enterprise.
(xvii) The Company and the Operating Subsidiaries own, possess or have
obtained all governmental licenses or permits necessary to own or lease, as
the case may be, and to operate its properties and to carry on its business
as presently conducted, except to the extent that the failure to obtain
such governmental licenses and permits would not materially adversely
affect the condition, financial or otherwise, earnings or business of the
Company and its subsidiaries, considered as one enterprise, and neither the
Company nor any of its subsidiaries has received any notice of proceedings
relating to the revocation or modification of any license, permit,
certificate, consent, order, approval or authorization that in the
aggregate, if the subject of an unfavorable decision, ruling or finding,
would materially adversely affect the condition, financial or otherwise,
earnings or business of the Company and its subsidiaries, considered as one
enterprise.
(xiii) The Indenture has been duly authorized by the Company, and will
constitute a valid and binding agreement of the Company, enforceable
against the Company in accordance with its terms, except to the extent that
such enforcement may be subject to the effect of bankruptcy, insolvency,
moratorium, fraudulent conveyance, reorganization and similar laws now or
hereinafter in effect relating to or affecting creditors' rights generally
and court decisions with respect thereto and to the application of
equitable principles in any proceeding, whether at law or in equity.
(xix) Except as disclosed in the Registration Statement, no holder of
securities of the Company has rights to the registration of securities of
the Company because of the filing of the Registration Statement.
(b) Any certificate signed by any officer of the Company or any subsidiary
and delivered to the Underwriter or to counsel for the Underwriter pursuant to
this Agreement shall be deemed a representation and warranty by the Company to
the underwriter as to the matters covered thereby.
SECTION 2. Sale and Delivery to Underwriter; Closing.
-----------------------------------------
(a) Initial Securities . On the basis of the representations and warranties
herein contained and subject to the terms and conditions herein set forth, the
Company agrees to sell to the Underwriter and the Underwriter agrees to purchase
from the Company, at the price set forth in Schedule A, the Initial Securities.
7
<PAGE>
(b) Option Securities . In addition, on the basis of the representations
and warranties herein contained and subject to the terms and conditions herein
set forth, the Company hereby grants an option to the Underwriter to purchase up
to an additional $15,000,000 principal amount of Securities at the same price
per share set forth in Schedule A for the Initial Securities, plus accrued
interest, if any, from the Closing Date to the date of Delivery (as defined
below). The option hereby granted will expire 30 days after the date hereof and
may be exercised in whole or in part from time to time only for the purpose of
covering over-allotments which may be made in connection with the offering and
distribution of the Initial Securities upon notice by the Underwriter to the
Company setting forth the number of Option Securities as to which the
Underwriter is then exercising the option and the time and date of payment and
delivery for such Option Securities. Any such time and date of delivery (a
"Date of Delivery") shall be determined by the Underwriter, but shall not be
later than seven full business days after the exercise of said option, nor in
any event prior to the Closing Time, as hereinafter defined.
(c) Payment. Payment of the purchase price for, and delivery of
certificates for, the Initial Securities shall be made at the offices of Brown &
Wood llp, One World Trade Center, 58th Floor, New York, New York 10048, or at
such other place as shall be agreed upon by the Underwriter and the Company, at
9:00 A.M. (Eastern time) on the third [fourth, if the pricing occurs after 4:30
P.M. (Eastern time) on any given day] business day after the date hereof (unless
postponed in accordance with the provisions of Section 10), or such other time
not later than ten business days after such date as shall be agreed upon by the
Underwriter and the Company (such time and date of payment and delivery being
herein called "Closing Time").
In addition, in the event that any or all of the Option Securities are
purchased by the Underwriter, payment of the purchase price for, and delivery of
certificates for, such Option Securities shall be made at the above-mentioned
offices, or at such other place as shall be agreed upon by the Underwriter and
the Company, on each Date of Delivery as specified in the notice from the
Underwriter to the Company.
Payment shall be made to the Company by wire transfer of immediately
available funds to a bank account designated by the Company, against delivery to
the Underwriter of certificates for the Securities to be purchased by it.
(d) Denominations; Registration . Certificates for the Initial Securities
and the Option Securities, if any, shall be in such denominations ($1,000 or
integral multiples thereof) and registered in such names as the Underwriter may
request in writing at least one full business day before the Closing Time or the
relevant Date of Delivery, as the case may be. The certificates, which may be
in temporary form, for the Initial Securities and the Option Securities, if any,
will be made available for examination and packaging by the Underwriter in The
City of New York not later than 10:00 A.M. (Eastern time) on the business day
prior to the Closing Time or the relevant Date of Delivery, as the case may be.
SECTION 3. Covenants (a) The Company covenants with the Underwriter as
----------
follows:
(i) The Company will notify the Underwriter immediately (A) of the
effectiveness of the Registration Statement and any post-effective
amendment thereto, (B) of the receipt
8
<PAGE>
of any comments from the Commission, (C) of any request by the Commission
for any amendment to the Registration Statement or any amendment or
supplement to the Prospectus or for additional information, (D) of the
issuance by the Commission of any stop order suspending the effectiveness
of the Registration Statement or any order preventing or suspending the use
of any preliminary prospectus and (E) of the suspension of the
qualification of the Securities for offering or sale in any jurisdiction,
or the initiation or threatening of any proceedings for any such purpose.
The Company will use every reasonable effort to prevent the issuance of any
stop order or of any order preventing or suspending such use and, if any
such order is issued, to obtain the lifting thereof at the earliest
possible moment.
(ii) The Company will not at any time file or make any amendment to the
Registration Statement, or any amendment or supplement (A) if the Company
has not elected to rely upon Rule 430A, to the Prospectus or (B) if the
Company has elected to rely upon Rule 430A, to either the prospectus
included in the Registration Statement at the time it becomes effective or
to the Prospectus, of which the Underwriter shall not have previously been
advised and furnished a copy or to which the Underwriter or counsel for the
Underwriter shall object.
(iii) The Company has furnished or will furnish to the Underwriter two
signed copies of the Registration Statement as originally filed and of all
amendments thereto, whether filed before or after the Registration
Statement becomes effective, copies of all exhibits and documents filed
therewith and signed copies of all consents and certificates of experts, as
the Underwriter may reasonably request and has furnished or will furnish to
the Underwriter as many conformed copies of the Registration Statement as
originally filed and of each amendment thereto (without exhibits) as the
Underwriter may reasonably request.
(iv) The Company will deliver to the Underwriter, without charge, from
time to time until the effective date of the Registration Statement, as
many copies of each preliminary prospectus as the Underwriter may
reasonably request, and the Company hereby consents to the use of such
copies for purposes permitted by the 1933 Act and the state securities
laws. The Company will deliver to the Underwriter, without charge, as soon
as the Registration Statement shall have become effective and thereafter
from time to time as requested during the period when the Prospectus is
required to be delivered under the 1933 Act, such number of copies of the
Prospectus (as supplemented or amended) as the Underwriter may reasonably
request.
(v) The Company will comply to the best of its ability with the 1933 Act
and the 1933 Act Regulations, and the Securities Exchange Act of 1934, as
amended (the "1934 Act") and the rules and regulations of the Commission
thereunder (the "1934 Act Regulations") so as to permit the completion of
the distribution of the Securities as contemplated in this Agreement and in
the Prospectus. If at any time when a prospectus is required by the 1933
Act to be delivered in connection with sales of the Securities any event
shall occur or condition exist as a result of which it is necessary, in the
opinion of counsel for the Underwriter or counsel for the Company, to amend
the Registration
9
<PAGE>
Statement or amend or supplement the Prospectus in order that the
Prospectus will not include an untrue statement of a material fact or omit
to state a material fact necessary in order to make the statements therein
not misleading in the light of the circumstances existing at the time it is
delivered to a purchaser, or if it shall be necessary, in the opinion of
either such counsel, at any such time to amend the Registration Statement
or amend or supplement the Prospectus in order to comply with the
requirements of the 1933 Act or the 1933 Act Regulations, the Company will
promptly prepare and file with the Commission, subject to Section 3(b) of
the 1933 Act, such amendment or supplement as may be necessary to correct
such untrue statement or omission or to make the Registration Statement or
the Prospectus comply with such requirements.
(vi) The Company will endeavor, in cooperation with the Underwriter, to
qualify (or obtain an exemption from qualification of) the Securities, and
the shares of Common Stock of the Company into which the Securities are
convertible, for offering and sale under the applicable securities laws of
such states and other jurisdictions of the United States as the Underwriter
may designate and to maintain such qualifications in effect for a period of
not less than one year from the effective date of the Registration
Statement; provided, however, that the Company shall not be obligated to
-------- -------
qualify as a foreign corporation or a dealer in Securities in any
jurisdiction in which it is not so qualified or subject itself to general
taxation or to general service of process in any jurisdiction in which it
is not otherwise so subject. In each jurisdiction in which the Securities,
and the shares of Common Stock into which the Securities are convertible,
have been so qualified, the Company will file such statements and reports
as may be required by the laws of such jurisdiction to continue such
qualification in effect for a period of not less than one year from the
effective date of the Registration Statement.
(vii) The Company will make generally available to its security holders
as soon as practicable, but not later than 45 days after the close of the
period covered thereby, an earnings statement (in form complying with the
provisions of Rule 158 of the 1933 Act Regulations), covering a twelve
month period beginning not later than the first day of the Company's fiscal
quarter next following the "effective date" (as defined in said Rule 158)
of the Registration Statement.
(viii) The Company will use the net proceeds received by it from the sale
of the Securities in the manner specified in the Prospectus under "Use of
Proceeds".
(ix) The Company will use its best efforts to maintain the quotation of
the Common Stock through the National Association of Securities Dealers
Automated Quotation National Market System ("NASDAQ NMS"), or any national
securities exchange, during the period the Securities are outstanding.
(x) For a period of five years after the Closing Time, the Company will
furnish to the Underwriter copies of all annual reports, quarterly reports
and current reports filed with the Commission on Forms 10-K, 10-Q and 8-K,
or such other similar forms as may be designated by the Commission, and
such other documents, reports and information as shall be furnished by the
Company to its stockholders generally.
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(xi) If the Company has elected to rely upon Rule 430A, it will take such
steps as it deems necessary to ascertain promptly whether the form of
prospectus transmitted for filing under Rule 424(b) was received for filing
by the Commission and, in the event that it was not, it will promptly file
such prospectus.
(b) The Underwriter covenants and agrees with the Company that the
Underwriter will reserve a maximum of $10,000,000 aggregate principal amount of
the Initial Securities for offering and sale to certain directors, officers and
employees of, and consultants to, the Company and its subsidiaries, and certain
other persons, at the public offering price. Any such Initial Securities not
purchased by such persons by the end of the first business day after the date on
which the Registration Statement has become effective will be offered to the
public by the Underwriter as set forth in the Prospectus.
SECTION 4. Payment of Expenses. (a) Expenses. The Company will pay all
-------------------
expenses incident to the performance of its obligations under this Agreement,
including (i) the preparation, printing and filing of the Registration Statement
(including financial statements and exhibits) as originally filed and of each
amendment thereto, (ii) the preparation, printing and delivery to the
Underwriter of this Agreement, the Indenture and such other documents as may be
required in connection with the offering, purchase, sale, issuance or delivery
of the Securities or the issuance or delivery of the Common Stock issuable upon
conversion thereof, (iii) the preparation, issuance and delivery of the
certificates for the Securities to the Underwriter and the certificates for the
Common Stock issuable upon conversion thereof, (iv) the fees and disbursements
of the Company's counsel, accountants and other advisors, (v) the qualification
of the Securities and the Common Stock under securities laws in accordance with
the provisions of Section 3(a)(vi) hereof, including filing fees and the
reasonable fees and disbursements of counsel for the Underwriter in connection
therewith and in connection with the preparation of the Blue Sky Survey and any
supplement thereto, (vi) the printing and delivery to the Underwriter of copies
of each preliminary prospectus, any Term Sheets and of the Prospectus and any
amendments or supplements thereto, (vii) the preparation, printing and delivery
to the Underwriter of copies of the Blue Sky Survey and any supplement thereto,
(viii) the fees and expenses of the Trustee, including the fees and
disbursements of counsel for the Trustee in connection with the Indenture and
the Securities, (ix) the fees and expenses of any transfer agent or registrar
for the Common Stock, (x) any fees payable in connection with the rating of the
Securities, and (xi) the filing fees incident to, and the reasonable fees and
disbursements of counsel to the Underwriter in connection with the review by the
National Association of Securities Dealers, Inc. (the "NASD") of the terms of
the sale of the Securities.
(b) Termination of Agreement. If this Agreement is terminated by the
Underwriter in accordance with the provisions of Section 5 or Section 9(a)(i)
hereof, the Company shall reimburse the Underwriter for all of its reasonable
out-of-pocket expenses, including the reasonable fees and disbursements of
counsel for the Underwriter.
SECTION 5. Conditions of Underwriter's Obligations. The obligations of
---------------------------------------
the Underwriter hereunder are subject to the accuracy, in all material respects,
of the representations and warranties of the Company contained in Section 1
hereof or in certificates of any officer of the Company or any subsidiary of the
Company delivered pursuant to the provisions hereof, to
11
<PAGE>
the performance by the Company, in all material respects, of its covenants and
other obligations hereunder, and to the following further conditions:
(a) Effectiveness of Registration Statement. The Registration Statement
has become effective and at Closing Time no stop order suspending the
effectiveness of the Registration Statement shall have been issued under the
1933 Act or proceedings therefor initiated or, to the Underwriter's knowledge or
the knowledge of the Company, threatened by the Commission, and any request on
the part of the Commission for additional information shall have been complied
with to the reasonable satisfaction of counsel to the Underwriter. A prospectus
containing the Rule 430A Information shall have been filed with the Commission
in accordance with Rule 424(b) (or a post-effective amendment providing such
information shall have been filed and declared effective in accordance with the
requirements of Rule 430A).
(b) Opinion of Counsel for Company. At Closing Time, the Underwriter shall
have received the favorable opinion, dated as of Closing Time, of Shearman &
Sterling, counsel for the Company, in form and substance satisfactory to counsel
for the Underwriter, to the effect set forth in Exhibit A hereto.
(c) Opinion of Special Regulatory Counsel for Company. At Closing Time, the
Underwriter shall have received the favorable opinion, dated as of Closing Time,
of Emens, Kegler, Brown, Hill & Ritter Co., L.P.A., special regulatory counsel
for the Company, in form and substance satisfactory to counsel for the
Underwriter, to the effect set forth in Exhibit B hereto.
(d) Opinion of Counsel for Underwriter. At Closing Time, the Underwriter
shall have received the favorable opinion, dated as of Closing Time, of Brown &
Wood LLP, counsel for the Underwriter, with respect to the matters set forth in
paragraph (i), (vii), (viii), (ix) and (x) of the form of Disclosure Opinion
and the fifth and sixth paragraph of the form of 10b-5 Side Letter Opinion set
forth in Exhibit A hereto. In giving such opinion such counsel may rely, as to
all matters governed by the laws of jurisdictions other than the law of the
State of New York, the federal law of the United States and the General
Corporation Law of the State of Delaware, upon the opinions of counsel
satisfactory to the Underwriter. Such counsel may also state that, insofar as
such opinion involves factual matters, they have relied, to the extent they deem
proper, upon certificates of officers of the Company and its subsidiaries and
certificates of public officials.
(e) Officers' Certificate. At Closing Time, there shall not have been,
since the date hereof or since the respective dates as of which information is
given in the Prospectus, any material adverse change in the condition, financial
or otherwise, or in the earnings, business affairs or business prospects of the
Company and its subsidiaries considered as one enterprise, whether or not
arising in the ordinary course of business, and the Underwriter shall have
received a certificate of the President or a Vice President of the Company and
of the chief financial or chief accounting officer of the Company, dated as of
Closing Time, to the effect that, to such person's knowledge, (i) there has been
no such material adverse change, (ii) the representations and warranties in
12
<PAGE>
Section 1(a) hereof are true and correct, in all material respects, with the
same force and effect as though expressly made at and as of Closing Time, (iii)
the Company has complied, in all material respects, with all agreements and
satisfied all conditions on its part to be performed or satisfied at or prior to
Closing Time, and (iv) no stop order suspending the effectiveness of the
Registration Statement has been issued and no proceedings for that purpose have
been instituted or are pending or are contemplated by the Commission.
(f) Accountant's Comfort Letter. At the time of the execution of this
Agreement, the Underwriter shall have received from Arthur Andersen LLP a letter
dated such date, in form and substance reasonably satisfactory to the
Underwriter, containing statements and information of the type ordinarily
included in accountants' "Comfort Letters" to underwriters with respect to the
financial statements and certain financial information contained in the
Registration Statement and the Prospectus.
(g) Bring-down Comfort Letter. At Closing Time, the Underwriter shall have
received from Arthur Andersen LLP, dated as of Closing Time, to the effect that
they reaffirm the statements made in the letter furnished pursuant to subsection
(f) of this Section, except that the specified date referred to shall be a date
not more than three business days prior to Closing Time.
(h) No Objection. The NASD has confirmed that it has not raised any
objection with respect to the fairness and reasonableness of the underwriting
terms and arrangements.
(i) Lock-up Agreements. At the date of this Agreement, the Underwriter
shall have received an agreement substantially in the form of Exhibit C hereto
signed by the persons listed on Schedule C hereto.
(j) Conditions to Purchase of Option Securities. In the event that the
Underwriter exercises its option provided in Section 2(b) hereof to purchase all
or any portion of the Option Securities, the representations and warranties of
the Company contained herein and the statements in any certificates furnished by
the Company or any subsidiary of the Company hereunder shall be true and correct
as of each Date of Delivery and, at the relevant Date of Delivery, the
Underwriter shall have received:
(i) Officers' Certificate. A certificate, dated such Date of Delivery, of
---------------------
the President or a Vice President of the Company and of the chief financial or
chief accounting officer of the Company confirming that the certificate
delivered at the Closing Time pursuant to Section 5(e) hereof remains, to such
person's knowledge, true and correct as of such Date of Delivery.
(ii) Opinion of Counsel for Company. The favorable opinion of Shearman &
------------------------------
Sterling, counsel for the Company, together with the favorable opinion of Emens,
Kegler, Brown, Hill & Ritter Co., L.P.A., special regulatory counsel for the
Company, dated such Date of Delivery, relating to the Option Securities to be
13
<PAGE>
purchased on such Date of Delivery and otherwise to the same effect as the
opinions required by Sections 5(b) and 5(c) hereof, respectively.
(iii) Opinion of Counsel for Underwriter. The favorable opinion of Brown &
----------------------------------
Wood LLP, counsel for the Underwriter, dated such Date of Delivery,
relating to the Option Securities to be purchased on such Date of Delivery
and otherwise to the same effect as the opinion required by Section 5(d)
hereof.
(iv) Bring-down Comfort Letter. A letter from Arthur Andersen LLP, in form
-------------------------
and substance reasonably satisfactory to the Underwriter and dated such
Date of Delivery, substantially in the same form and substance as the
letter furnished to the Underwriter pursuant to Section 5(g) hereof, except
that the "specified date" in the letter furnished pursuant to this
paragraph shall be a date not more than five days prior to such Date of
Delivery.
(k) Additional Documents. At Closing Time and at each Date of Delivery, if
any, counsel for the Underwriter shall have been furnished with such documents
and opinions as they may reasonably request for the purpose of enabling them to
pass upon the issuance and sale of the Securities as herein contemplated, or in
order to evidence the accuracy, in all material respects, of any of the
representations or warranties, or the fulfillment, in all material respects, of
any of the conditions herein contained; and all proceedings taken by the Company
in connection with the issuance and sale of the Securities as herein
contemplated shall be reasonably satisfactory in form and substance to the
Underwriter and counsel for the Underwriter.
(l) Termination of Agreement. If any condition specified in this Section
shall not have been fulfilled when and as required to be fulfilled, this
Agreement, or, in the case of any condition to the purchase of Option
Securities, on a Date of Delivery which is after the Closing Time, the
obligations of the Underwriter to purchase the relevant Option Securities, may
be terminated by the Underwriter by notice to the Company at any time at or
prior to Closing Time or such Date of Delivery, as the case may be, and such
termination shall be without liability of any party to any other party except as
provided in Section 4 and except that Sections 6, 7 and 8 shall survive any such
termination and remain in full force and effect.
SECTION 6. Indemnification.
---------------
(a) Indemnification of Underwriter. The Company agrees to indemnify and
hold harmless the Underwriter and each person, if any, who controls the
Underwriter within the meaning of Section 15 of the 1933 Act or Section 20 of
the 1934 Act as follows:
(i) against any and all loss, liability, claim, damage and expense
whatsoever, as incurred, arising out of any untrue statement or alleged untrue
statement of a material fact contained in the Registration Statement (or any
amendment thereto), including the Rule 430A Information, or the omission or
alleged omission therefrom of a material fact required to be stated therein or
necessary to make the statements therein not misleading
14
<PAGE>
or arising out of any untrue statement or alleged untrue statement of a material
fact included in any preliminary prospectus or the Prospectus (or any amendment
or supplement thereto), or the omission or alleged omission therefrom of a
material fact necessary in order to make the statements therein, in the light of
the circumstances under which they were made, not misleading;
(ii) against any and all loss, liability, claim, damage and expense
whatsoever, as incurred, to the extent of the aggregate amount paid in
settlement of any litigation, or any investigation or proceeding by any
governmental agency or body, commenced or threatened, or of any claim whatsoever
based upon any such untrue statement or omission, or any such alleged untrue
statement or omission; provided that (subject to Section 6(d) below) any such
settlement is effected with the written consent of the Company; and
(iii) against any and all expense whatsoever, as incurred (including,
subject to Section 6(c) hereof, the fees and disbursements of counsel chosen by
the Underwriter), reasonably incurred in investigating, preparing or defending
against any litigation, or any investigation or proceeding by any governmental
agency or body, commenced or threatened, or any claim whatsoever based upon any
such untrue statement or omission, or any such alleged untrue statement or
omission, to the extent that any such expense is not paid under (i) or (ii)
above;
provided, however, that this indemnity agreement shall not apply to any loss,
- -------- -------
liability, claim, damage or expense to the extent arising out of any untrue
statement or omission or alleged untrue statement or omission made in reliance
upon and in conformity with written information furnished to the Company by the
Underwriter expressly for use in the Registration Statement (or any amendment
thereto), including the Rule 430A Information, or any preliminary prospectus or
the Prospectus (or any amendment or supplement thereto).
This indemnity agreement is subject to the condition that, insofar as it
relates to any untrue statement or omission, or any alleged untrue statement or
omission, made in a preliminary prospectus but eliminated or remedied in the
Prospectus, it shall not inure to the benefit of the Underwriter from whom the
person asserting the claim purchased the Securities (or to the benefit of any
person who controls the Underwriter) if a copy of the Prospectus was not sent or
given to such person at or prior to the time required under the 1933 Act and
receipt thereof would have constituted, in and of itself, a defense to the claim
asserted by such person.
(b) Indemnification of Company, Directors and Officers . The Underwriter
agrees to indemnify and hold harmless the Company, its directors, each of its
officers who signed the Registration Statement, and each person, if any, who
controls the Company within the meaning of Section 15 of the 1933 Act or Section
20 of the 1934 Act against any and all loss, liability, claim, damage and
expense described in the indemnity contained in subsection (a) of this Section,
as incurred, but only with respect to untrue statements or omissions, or alleged
untrue statements or omissions, made in the Registration Statement (or any
amendment thereto), including the Rule 430A Information and the Rule 434
Information, if applicable, or any preliminary prospectus or the Prospectus (or
any amendment or supplement thereto) in reliance upon and in conformity with
written information furnished to the Company by the Underwriter expressly for
use in the
15
<PAGE>
Registration Statement (or any amendment thereto), including the Rule 430A
Information, or such preliminary prospectus or the Prospectus (or any amendment
or supplement thereto).
(c) Actions against Parties; Notification. Each indemnified party shall
give notice as promptly as reasonably practicable to each indemnifying party of
any action commenced against it in respect of which indemnity may be sought
hereunder, but failure to so notify an indemnifying party shall not relieve such
indemnifying party from any liability hereunder to the extent it is not
materially prejudiced as a result thereof and in any event shall not relieve it
from any liability which it may have otherwise than on account of this indemnity
agreement. In the case of parties indemnified pursuant to Section 6(a) above,
counsel to the indemnified parties shall be selected by the Underwriter, and, in
the case of parties indemnified pursuant to Section 6(b) above, counsel to the
indemnified parties shall be selected by the Company. An indemnifying party may
participate at its own expense in the defense of any such action; provided,
however, that counsel to the indemnifying party shall not (except with the
consent of the indemnified party) also be counsel to the indemnified party. In
no event shall the indemnifying parties be liable for fees and expenses of more
than one counsel (in addition to any local counsel) separate from their own
counsel for all indemnified parties in connection with any one action or
separate but similar or related actions in the same jurisdiction arising out of
the same general allegations or circumstances. No indemnifying party shall,
without the prior written consent of the indemnified parties, settle or
compromise or consent to the entry of any judgment with respect to any
litigation, or any investigation or proceeding by any governmental agency or
body, commenced or threatened, or any claim whatsoever in respect of which
indemnification or contribution could be sought under this Section 6 or Section
7 hereof (whether or not the indemnified parties are actual or potential parties
thereto), unless such settlement, compromise or consent (i) includes an
unconditional release of each indemnified party from all liability arising out
of such litigation, investigation, proceeding or claim and (ii) does not include
a statement as to or an admission of fault, culpability or a failure to act by
or on behalf of any indemnified party.
(d) Settlement without Consent if Failure to Reimburse. If at any time an
indemnified party shall have requested an indemnifying party to reimburse the
indemnified party for fees and expenses of counsel, such indemnifying party
agrees that it shall be liable for any settlement of the nature contemplated by
Section 6(a)(ii) effected without its written consent if (i) such settlement is
entered into more than 45 days after receipt by such indemnifying party of the
aforesaid request, (ii) such indemnifying party shall have received notice of
the terms of such settlement at least 30 days prior to such settlement being
entered into and (iii) such indemnifying party shall not have reimbursed such
indemnified party in accordance with such request prior to the date of such
settlement.
SECTION 7. Contribution. If the indemnification provided for in Section 6
-------------
hereof is for any reason unavailable to or insufficient to hold harmless an
indemnified party in respect of any losses, liabilities, claims, damages or
expenses referred to therein, then each indemnifying party shall contribute to
the aggregate amount of such losses, liabilities, claims, damages and expenses
incurred by such indemnified party, as incurred, (i) in such proportion as is
appropriate to reflect the relative benefits received by the Company on the one
hand and the Underwriter on the other hand from the offering of the Securities
pursuant to this Agreement or (ii) if the allocation
16
<PAGE>
provided by clause (i) is not permitted by applicable law, in such proportion as
is appropriate to reflect not only the relative benefits referred to in clause
(i) above but also the relative fault of the Company on the one hand and of the
Underwriter on the other hand in connection with the statements or omissions
which resulted in such losses, liabilities, claims, damages or expenses, as well
as any other relevant equitable considerations.
The relative benefits received by the Company on the one hand and the
Underwriter on the other hand in connection with the offering of the Securities
pursuant to this Agreement shall be deemed to be in the same respective
proportions as the total net proceeds from the offering of the Securities
pursuant to this Agreement (before deducting expenses) received by the Company
and the total underwriting discount received by the Underwriter, in each case as
set forth on the cover of the Prospectus, bear to the aggregate initial public
offering price of the Securities as set forth on such cover.
The relative fault of the Company on the one hand and the Underwriter on
the other hand shall be determined by reference to, among other things, whether
any such untrue or alleged untrue statement of a material fact or omission or
alleged omission to state a material fact relates to information supplied by the
Company or by the Underwriter and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such statement or
omission.
The Company and the Underwriter agree that it would not be just and
equitable if contribution pursuant to this Section 7 were determined by pro rata
allocation or by any other method of allocation which does not take account of
the equitable considerations referred to above in this Section 7. The aggregate
amount of losses, liabilities, claims, damages and expenses incurred by an
indemnified party and referred to above in this Section 7 shall be deemed to
include any legal or other expenses reasonably incurred by such indemnified
party in investigating, preparing or defending against any litigation, or any
investigation or proceeding by any governmental agency or body, commenced or
threatened, or any claim whatsoever based upon any such untrue or alleged untrue
statement or omission or alleged omission.
Notwithstanding the provisions of this Section 7, the Underwriter shall not
be required to contribute any amount in excess of the amount by which the total
price at which the Securities underwritten by it and distributed to the public
were offered to the public exceeds the amount of any damages which the
Underwriter has otherwise been required to pay by reason of any such untrue or
alleged untrue statement or omission or alleged omission.
No person guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the 1933 Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation.
For purposes of this Section 7, each person, if any, who controls the
Underwriter within the meaning of Section 15 of the 1933 Act or Section 20 of
the 1934 Act shall have the same rights to contribution as the Underwriter, and
each director of the Company, each officer of the Company who signed the
Registration Statement, and each person, if any, who controls
17
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the Company within the meaning of Section 15 of the 1933 Act or Section 20 of
the 1934 Act shall have the same rights to contribution as the Company.
SECTION 8. Representations, Warranties and Agreements to Survive Delivery.
--------------------------------------------------------------
All representations, warranties and agreements contained in this Agreement or in
certificates of officers of the Company or any of its subsidiaries submitted
pursuant hereto, shall remain operative and in full force and effect, regardless
of any investigation made by or on behalf of the Underwriter or controlling
person, or by or on behalf of the Company, and shall survive delivery of the
Securities to the Underwriter.
SECTION 9. Termination of Agreement.
------------------------
(a) Termination; General. The Underwriter may terminate this Agreement, by
notice to the Company, at any time at or prior to Closing Time (i) if there has
been, since the time of execution of this Agreement or since the respective
dates as of which information is given in the Prospectus, any material adverse
change in the condition, financial or otherwise, or in the earnings, business
affairs or business prospects of the Company and its subsidiaries considered as
one enterprise, whether or not arising in the ordinary course of business, or
(ii) if there has occurred any material adverse change in the financial markets
in the United States, any outbreak of hostilities or escalation thereof or other
calamity or crisis or any change or development involving a prospective change
in national or international political, financial or economic conditions, in
each case the effect of which is such as to make it, in the judgment of the
Underwriter, impracticable to market the Securities or to enforce contracts for
the sale of the Securities, or (iii) if trading in any securities of the Company
has been suspended or materially limited by the Commission or the Nasdaq
National Market, or if trading generally on the American Stock Exchange or the
New York Stock Exchange or in the Nasdaq National Market has been suspended or
materially limited, or minimum or maximum prices for trading have been fixed, or
maximum ranges for prices have been required, by any of said exchanges or by
such system or by order of the Commission, the National Association of
Securities Dealers, Inc. or any other governmental authority, or (iv) if a
banking moratorium has been declared by either Federal or New York authorities.
(b) Liabilities. If this Agreement is terminated pursuant to this Section,
such termination shall be without liability of any party to any other party
except as provided in Section 4 hereof, and provided further that Sections 6, 7
and 8 shall survive such termination and remain in full force and effect.
SECTION 10. Default. If the Underwriter shall fail at Closing Time to
--------
purchase and pay for any of the Securities that it is obligated to purchase
under this Agreement, then this Agreement shall terminate without liability on
the part of the Company.
No action taken pursuant to this Section shall relieve the Underwriter from
liability, if any, in respect of such default.
In the event of any such default which does not result in a termination of
this Agreement, the Company shall have the right to postpone the Closing Time
for a period not exceeding seven
18
<PAGE>
days in order to effect any required changes in the Registration Statement or
Prospectus or in any other documents or arrangement.
If the Company shall fail at the Closing Time to sell and deliver the
number of Securities that it is obligated to sell, then this Agreement shall
terminate without any liability on the part of the Underwriter.
No action taken pursuant to this Section shall relieve the Company from
liability, if any, in respect of such default.
SECTION 11. Notices. All notices and other communications hereunder shall
--------
be in writing and shall be deemed to have been duly given if mailed or
transmitted by any standard form of telecommunication. Notices to the
Underwriter shall be directed to it at North Tower, World Financial Center, New
York, New York 10281-1201, attention of _; and notices to the Company shall be
directed to it at 669 River Drive, River Drive Center II, Elmwood Park, New
Jersey 07407, attention of Vice President -- Finance.
SECTION 12. Parties. This Agreement shall each inure to the benefit of and
--------
be binding upon the Underwriter and the Company and their respective successors.
Nothing expressed or mentioned in this Agreement is intended or shall be
construed to give any person, firm or corporation, other than the Underwriter
and the Company and their respective successors and the controlling persons and
officers and directors referred to in Sections 6 and 7 and their heirs and legal
representatives, any legal or equitable right, remedy or claim under or in
respect of this Agreement or any provision herein contained. This Agreement and
all conditions and provisions hereof are intended to be for the sole and
exclusive benefit of the Underwriter and the Company and their respective
successors, and said controlling persons and officers and directors and their
heirs and legal representatives, and for the benefit of no other person, firm or
corporation. No purchaser of Securities from the Underwriter shall be deemed to
be a successor by reason merely of such purchase.
SECTION 13. GOVERNING LAW AND TIME. THIS AGREEMENT SHALL BE GOVERNED BY
-----------------------
AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. SPECIFIED
TIMES OF DAY REFER TO NEW YORK CITY TIME.
SECTION 14. Effect of Headings. The Article and Section headings herein
-------------------
and the Table of Contents are for convenience only and shall not affect the
construction hereof.
19
<PAGE>
If the foregoing is in accordance with your understanding of our agreement,
please sign and return to the Company a counterpart hereof, whereupon this
instrument, along with all counterparts, will become a binding agreement between
the Underwriter and the Company in accordance with its terms.
Very truly yours,
SYNETIC, INC.
By ___________________________
Title:
CONFIRMED AND ACCEPTED,
as of the date first above written:
MERRILL LYNCH & CO.
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
By __________________________________
Authorized Signatory
20
<PAGE>
SCHEDULE A
SYNETIC, INC.
$150,000,000 Convertible Subordinated Debentures due 2007
1. The initial public offering price of the Securities shall be __% of
the principal amount thereof, plus accrued interest, if any, from the date of
issuance.
2. The purchase price to be paid by the Underwriter for the Initial
Securities shall be __% of the principal amount thereof.
3. The interest rate on the Securities shall be __% per annum.
4. The Securities shall be convertible into shares of common stock, par
value .01 per share, of the Company at an initial conversion price of $____ per
share (equivalent to a conversion rate of ____ shares per $1,000 principal
amount of Securities).
5. 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:
YEAR PERCENTAGE
- ----------------------- -----------
%
- ------.......................................... ____
%
- ------.......................................... ____
%
- ------.......................................... ____
%
- ------.......................................... ____
and thereafter........................... 100%
- ------
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.
Sch A-1
<PAGE>
SCHEDULE B
List of subsidiaries
Porex Technologies Corp.
Avicenna Systems Corp.
Sch B-1
<PAGE>
SCHEDULE C
List of persons and entities
subject to lock-up
Synetic, Inc.
SN Investors
Sch C-1
<PAGE>
Exhibit A
FORM OF OPINIONS OF COUNSEL FOR COMPANY
TO BE DELIVERED PURSUANT TO
SECTION 5(b)
---------------------------------------
February __, 1997
Merrill Lynch & Co.
Merrill Lynch, Pierce, Fenner & Smith Incorporated
North Tower
World Financial Center
New York, NY 10281-1201
Synetic, Inc.
% Convertible Subordinated Debentures due 2007
------------------------------------------------
Ladies and Gentlemen:
We are acting as counsel to Synetic, Inc., a Delaware corporation (the
"Company"), in connection with (i) the purchase by you of $150,000,000 aggregate
principal amount (the "Initial Securities") of the Company's __% Convertible
Subordinated Debentures due February 15, 2007 (the "Debentures") and an
additional $22,500,000 aggregate principal amount (the "Option Securities") of
Debentures which are subject to an over-allotment option granted to you,
pursuant to the Purchase Agreement dated February __, 1997 (the "Purchase
Agreement") by and between you and the Company and (ii) the registration of a
presently indeterminable number of shares of Common Stock, $.01 par value per
share, of the Company issuable upon conversion of such Debentures. The Initial
Securities and the Option Securities are hereinafter referred to together as the
"Securities." The Securities are being issued under an Indenture dated as of
February __, 1997 (the "Indenture") between the Company and United States Trust
Company of New York, as Trustee (the "Trustee").
This opinion is being delivered pursuant to Section 5(b) of the Purchase
Agreement. Capitalized terms used herein without definition shall have the
meanings assigned to them in the Purchase Agreement.
In such capacity, we examined signed copies of the registration statement
on Form S-3 (Registration No. 333-21041), filed by the Company under the
Securities Act of 1933, as amended (the "Securities Act"), with the Securities
and Exchange Commission (the
A-1
<PAGE>
"Commission") on February 4, 1997 and of the amendments thereto filed by the
Company with the Commission on February 7, 1997 and February __, 1997,
respectively, and copies of the related prospectuses (the registration statement
as amended at the time when it became effective, including the information
deemed to be part thereof at the time of effectiveness pursuant to Rule 430A of
the rules and regulations of the Commission under the Securities Act, and also
including the exhibits and schedules thereto and the documents incorporated by
reference therein, being hereinafter referred to as the "Registration
Statement", and the final prospectus, dated February __, 1997, in the form which
it was filed pursuant to Rule 424(b) of the Commission under the Securities Act,
including the documents incorporated by reference therein, being hereinafter
referred to as the "Prospectus").
A member of the Staff of the Commission advised us orally that the
Registration Statement became effective under the Securities Act at __:__ _.M.,
New York City time, on February __, 1997. On February __, 1997, a member of the
Staff of the Commission advised us orally that there was no stop order
suspending the effectiveness of the Registration Statement. To our knowledge
since that no stop order suspending the effectiveness of the Registration
Statement has been issued under the Securities Act or proceedings thereof
initiated or threatened by the Commission.
We have also examined executed copies of the Purchase Agreement, the
Indenture and the originals, or copies, identified to our satisfaction, of such
corporate records of the Company and its subsidiaries, certificates of public
officials, officers of the Company and its subsidiaries and other persons, and
such other documents, agreements and instruments, as we have deemed necessary as
a basis for the opinions hereinafter expressed. In our examinations, we have
assumed the genuineness of all signatures, the authenticity of all documents
submitted to us as originals and the conformity to originals of all documents
submitted to us as copies thereof. In rendering the opinions expressed below,
we have relied as to certain factual matters upon certificates of officers of
the Company and certificates of public officials.
For purposes of the opinions set forth in paragraphs (iii), (xii)(C) and
(xiii) below, we have relied as to factual matters, with your approval, solely
on our examination of the minute books of the Company and Porex Technologies
Corp. (together with its subsidiaries, "Porex") and inquiries of appropriate
officers of the Company and, in the case of the opinions set forth in paragraph
(iii), on a certificate of an officer of the Registrar and Transfer Company, the
registrar and transfer agent for the Common Stock. We have not conducted any
independent review of the stock transfer ledger of the Company. In addition,
for purposes of the opinion set forth in paragraph (iv), we have, with your
approval, not conducted searches of lien, judgment or litigation records
maintained by local, state or federal government agencies.
For purposes of this opinion, we have assumed that (i) the Purchase
Agreement is valid and binding on you and enforceable against you in accordance
with its terms and (ii) the Indenture is valid and binding on the Trustee and
enforceable against the Trustee in accordance with its terms.
A-2
<PAGE>
Our opinions set forth below are limited to the laws of the State of New
York, the federal laws of the United States of America and the General
Corporation Law of the State of Delaware, and we do not express any opinions
herein concerning any other laws. In addition, with your approval, we express
no opinion with respect to any laws, rules or regulations (whether at a federal,
state or local level) pertaining to (i) the sale and distribution of medical
devices, including, but not limited to, the Medical Device Amendments of 1976 to
the federal Food, Drug and Cosmetic Act and regulations promulgated by the Food
and Drug Administration or pertaining to the health care industry generally or
(ii) United States telecommunications laws. Accordingly, matters involving such
laws, rules or regulations are excluded form this opinion.
Based on the foregoing, we are of the opinion that:
(i) The Company has been duly incorporated and is validly existing as
a corporation in good standing under the laws of the State of Delaware,
with corporate power and authority under such laws to own, lease and
operate its properties and conduct is business as described in the
Prospectus.
(ii) Porex is a corporation duly incorporated and validly existing in
good standing under the laws of the State of Delaware.
(iii) The authorized, and, to our knowledge, the issued and
outstanding capital stock of the Company was, at December 31, 1996, as set
forth in the Prospectus in the column "Actual" under the heading
"Capitalization".
(iv) All of the outstanding shares of capital stock of Porex have been
duly authorized and validly issued and are fully paid and non-assessable;
all of such shares are, to our knowledge, owned by the Company directly,
free and clear of any pledge, lien, security interest, charge, claim,
equity or encumbrance of any kind.
(v) The shares of Common Stock issuable upon the conversion of the
Debentures have been duly and validly authorized and reserved for issuance
upon such conversion by all necessary corporate action and such shares,
when issued as provided in the Indenture, will be duly and validly issued
and fully paid and non-assessable, and shareholders of the Company will
have no preemptive rights with respect to the issuance thereof upon
conversion.
(vi) The Common Stock conforms in all material respects as to legal
matters to the description thereof in the Prospectus under the heading
"Description of Capital Stock".
(vii) The Purchase Agreement has been duly authorized, executed and
delivered by the Company.
A-3
<PAGE>
(viii) The Securities have been duly authorized by the Company and,
assuming that the Securities have been duly executed by the Company and
authenticated by the Trustee, the Securities have been duly issued and
delivered by the Company and constitute valid and binding obligations of
the Company entitled to the benefits of the Indenture and enforceable
against the Company in accordance with their terms, except as enforcement
thereof may be limited by bankruptcy, insolvency (including, without
limitation, all laws relating to fraudulent transfers), reorganization,
moratorium or similar laws affecting enforcement of creditors' rights
generally and except as enforcement thereof is subject to general
principles of equity (regardless of whether enforcement is considered in a
proceeding in equity or at law);
(ix) The Securities and the Indenture conform in all material respects
as to legal matters to the respective descriptions thereof in the
Prospectus under the heading "Description of Debentures."
(x) The Indenture has been duly authorized, executed and delivered by
the Company and, assuming due authorization, execution and delivery by the
Trustee, constitutes a valid and binding obligation of the Company,
enforceable against the Company in accordance with its terms, except as
enforcement thereof may be limited by bankruptcy, insolvency (including,
without limitation, all laws relating to fraudulent transfers),
reorganization, moratorium or similar laws affecting enforcement of
creditors' rights generally and except as enforcement thereof is subject to
general principles of equity (regardless of whether enforcement is
considered in a proceeding in equity or at law).
(xi) The Indenture has been duly qualified under the Trust Indenture
Act of 1939, as amended.
(xii) The execution and delivery by the Company of the Purchase
Agreement and the Indenture, the consummation by the Company of the
transactions contemplated in the Purchase Agreement and the Indenture,
including the execution and delivery of the Securities, and compliance by
the Company with the terms thereof will not result in any violation of the
Certificates of Incorporation or By-laws of the Company or Porex, and will
not conflict with, or constitute default under, or result in the creation
or imposition of any lien, charge or encumbrance upon any property or
assets of the Company or Porex pursuant to (A) any of the agreements set
forth on Schedule 1 to the Officer's Certificate attached hereto as Annex A
(except for such conflicts, defaults or liens, charges or encumbrances that
would not have a material adverse effect on the Company and its
subsidiaries, considered as one enterprise), (B) any existing applicable
law, rule or regulation (subject to the provisions of the seventh paragraph
beginning on page 3 of this opinion letter), other than the securities or
blue sky laws of the various states, as to which, in each case, we express
no opinion or
A-4
<PAGE>
(C) any judgment, order or decree known to us of any U.S. government or
governmental instrumentality or court having jurisdiction over the Company
or Porex or any of their respective properties (except for such conflicts,
defaults or liens, charges or encumbrances that would not have a material
adverse effect on the Company and its subsidiaries, considered as one
enterprise).
(xiii) To our knowledge, no authorization, approval, consent or
license of any government, governmental instrumentality or court is
necessary for the valid authorization, issuance, sale and delivery by the
Company of the Securities pursuant to the Purchase Agreement, except such
as may be required by the Securities Act, the 1939 Act and the Securities
or Blue Sky laws of the various states.
(xiv) The descriptions in the Prospectus of the contracts and other
documents described under "Business -- Healthcare Communications Business -
- Recent Acquisitions" pertaining to the Avicenna and CareAgents
acquisitions and "Business --Certain Corporate History" pertaining to the
Purchase and Divestiture (as such terms are described in the Prospectus)
are accurate and fairly summarize the information required to be shown.
(xv) The statements made in the Prospectus under "Risk Factors --
Certain Litigation", to the extent that they constitute matters of law or
legal conclusions, have been reviewed by us and fairly present the
information disclosed therein in all material respects.
(xvi) Each of the acquisitions described in the Registration
Statement under the caption "Business--Healthcare Communications Business--
Recent Acquisitions" and the Purchase and Divestiture (as such terms are
described in the Prospectus) were duly and validly authorized and approved
by all necessary corporate action of the Company, including, without
limitation, requisite approval by the stockholders of the Company.
A-5
<PAGE>
This opinion is furnished to you solely for your benefit, and is not
to be used, circulated, quoted or otherwise referred to for any other
purpose.
Very truly yours,
A-6
<PAGE>
February __, 1997
Merrill Lynch & Co.
Merrill Lynch, Pierce, Fenner & Smith Incorporated
North Tower
World Financial Center
New York, NY 10281-1201
Synetic, Inc.
__% Convertible Subordinated Debentures due 2007
------------------------------------------------
Ladies and Gentlemen:
We are acting as counsel to Synetic, Inc., a Delaware corporation (the
Company"), in connection with (i) the purchase by you of $150,000,000 aggregate
principal amount (the "Initial Securities") of the Company's __% Convertible
Subordinated Debentures due February 15, 2007 (the "Debentures") and an
additional $22,500,000 aggregate principal amount (the "Option Securities") of
Debentures which are subject to an over-allotment option granted to you,
pursuant to the Purchase Agreement dated February __, 1997 (the "Purchase
Agreement") by and between you and the Company and (ii) the registration of a
presently indeterminable number of shares of Common Stock, $.01 par value per
share, of the Company issuable upon conversion of such Debentures. The Initial
Securities and the Option Securities are hereinafter referred to together as the
"Securities." The Securities are being issued under an Indenture dated as of
February __, 1997 (the "Indenture") between the Company and United States Trust
Company of New York, as Trustee (the "Trustee").
In such capacity, we examined signed copies of the registration
statement on Form S-3 (Registration No. 333-21041) filed by the Company under
the Securities Act of 1933, as amended (the "Securities Act"), with the
Securities and Exchange Commission (the
A-7
<PAGE>
"Commission") on February 4, 1997, and of the amendments thereto filed by the
Company with the Commission on February 7, 1997 and February __, 1997,
respectively, and copies of the related prospectuses (the registration statement
as amended at the time it became effective, including the information deemed to
be part thereof at the time of effectiveness pursuant to Rule 430A of the rules
and regulations of the Commission under the Securities Act, and also including
the exhibits and schedules thereto and the documents incorporated by reference
therein, being hereinafter referred to as the "Registration Statement", and the
final prospectus dated February __, 1997, in the form which it was filed
pursuant to Rule 424(b) of the Commission under the Securities Act, including
the documents incorporated by reference therein, being hereinafter referred to
as the "Prospectus").
We also reviewed and participated in discussions concerning the
preparation of the Registration Statement and the Prospectus with certain
officers or employees of the Company, with its counsel and its auditors, and
with representatives of the Underwriters. The limitations inherent in the
independent verification of factual matters and in the role of outside counsel
are such, however, that we cannot and do not assume any responsibility for the
accuracy, completeness or fairness of any of the statements made in the
Registration Statement and the Prospectus, except as set forth in paragraphs
(vi), (ix), (xix) and (xv) and (ix) of our opinion addressed to you, dated the
date hereof. In addition, with your approval, we express no opinion with respect
to any laws, rules or regulations (whether at a federal, state or local level)
pertaining to (i) the sale and distribution of medical devices, including, but
not limited to, the Medical Device Amendments of 1976 to the federal Food, Drug
and Cosmetic Act and regulations promulgated by the Food and Drug Administration
or pertaining to the health care industry generally or (ii) United States
telecommunications laws. Accordingly, matters involving such laws, rules or
regulations are excluded from this letter.
Subject to the limitations set forth in the immediately preceding
paragraph, we advise you that, on the basis of the information we gained in the
course of performing the services referred to above, in our opinion, the
documents incorporated by reference in the Prospectus (other than the financial
statements and other financial data contained therein or omitted therefrom, to
which we express no view), at the time they were filed with the Commission,
appear on their face to have been appropriately responsive in all material
respects to the requirements of the Securities Exchange Act of 1934, as amended,
and the applicable rules and regulations of the Commission thereunder.
We further advise you that, subject to the limitations set forth in
the second preceding paragraph, on the basis of the information we gained in the
course of performing the services referred to above, (i) in our opinion, the
Registration Statement and the
A-8
<PAGE>
Prospectus (other than the financial statements and other financial data
contained therein or omitted therefrom and the Statement of Eligibility of the
Trustee on Form T-1, as to which we express no view) appear on their face to be
appropriately responsive in all material respects to the requirements of the
Securities Act and the applicable rules and regulations of the Commission
thereunder; (ii) no facts came to our attention which gave us reason to believe
that (a) the Registration Statement (other than the financial statements and
other financial data contained therein or omitted therefrom and the Statement of
Eligibility of the Trustee on Form T-1, as to which we have not been requested
to comment), at the time it became effective, contained an untrue statement of a
material fact or omitted to state a material fact required to be stated therein
or necessary to make the statements therein not misleading, or (b) the
Prospectus (other than the financial statements and other financial data
contained therein or omitted therefrom, as to which we have not been requested
to comment), as of its date or the date hereof, contained or contains an untrue
statement of a material fact or omitted or omits to state a material fact
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading; (iii) we do not know of any statutes
or regulations, or any pending or threatened legal or governmental proceedings
of a character required to be described in the Prospectus that are not so
described; and (iv) we do not know of any contract or other document of a
character required to be filed as an exhibit to the Registration Statement that
is not so filed.
This letter is being furnished to you solely for your benefit, and is
not to be used, circulated, quoted or otherwise referred to for any other
purpose.
Very truly yours,
A-9
<PAGE>
Exhibit B
FORM OF OPINION OF SPECIAL REGULATORY COUNSEL FOR COMPANY
TO BE DELIVERED PURSUANT TO
SECTION 5(c)
February [ ], 1997
Merrill Lynch & Co.
Merrill Lynch, Pierce, Fenner & Smith Incorporated
Merrill Lynch World Headquarters
North Tower
World Financial Center
New York, New York 10281-1201
Re: Registration Statement (Registration No. 333-21041) dated February 4,
1997, (as amended or supplemented to date) of Synetic, Inc.
Dear Sirs and Madams:
Please be advised that the undersigned attorneys at law are duly authorized to
practice in the State of Ohio and have represented Synetic, Inc., a Delaware
corporation (the "Company"), in connection with certain aspects of a
Registration Statement on Form S-3 (Registration No. 333-21041) filed by the
Company with the Securities and Exchange Commission (the "Commission") under the
Securities Act of 1933, as amended (the "1933 Act"). This opinion ("Opinion")
is being provided at the request of the Company pursuant to the requirements of
Section 5(c) of the Purchase Agreement dated February [ ], 1997 (the "Purchase
Agreement") by and between you and the Company, relating to the sale by the
Company to you of $150,000,000 aggregate principal amount (the "Initial
Securities") of the Company's _% Convertible Subordinated Debentures due
February 15, 2007 (the "Debentures") and up to an additional $22,500,000
aggregate principal amount (the "Option Securities") of Debentures which are
subject to an over-allotment option granted to you. The Initial Securities and
the Option Securities are hereinafter referred to together as the Securities.
The Securities are being issued under an Indenture dated as of February [ ],
1997 (the "Indenture") between the Company and United States Trust Company of
New York, as Trustee (the "Trustee"). Each capitalized term used but not
defined herein shall have the meaning ascribed thereto in the Purchase
Agreement.
For purposes of this Opinion we have examined the Purchase Agreement, the
Registration Statement, the Prospectus, the Indenture and such other federal and
state laws as we have deemed necessary or appropriate to render the opinions set
forth herein.
BASED ON THE FOREGOING, AND SUBJECT TO THE LIMITATIONS SET FORTH HEREIN AND
HAVING REGARD FOR SUCH LEGAL CONSIDERATIONS AS WE DEEM RELEVANT, WE ARE OF THE
FOLLOWING OPINION:
B-1
<PAGE>
Merrill Lynch & Co.
Merrill Lynch, Pierce, Fenner & Smith Incorporated
February [ ], 1997
(i) The statements and descriptions made in the Prospectus under the
captions "Risk Factors--Government Regulation of Healthcare," "Risk Factors--
Government Regulation of Porex" and _, to the extent that they constitute
matters of law or legal conclusions, have been reviewed by us and fairly present
the information required to be disclosed therein in all material respects.
(ii) The execution and delivery of the Agreement and the consummation of
the transactions contemplated in the Agreement do not and will not conflict
with, or result in a breach of any of the terms or provisions of, or constitute
default under, or result in the creation of a lien, charge or encumbrance upon
any property or assets of the Company or any of its subsidiaries under any
existing applicable federal or state law, rule or regulation governing the sale
or distribution of pharmaceutical products or the pharmaceutical industry
generally or the provision of medical services or the relationship between
pharmacists and customers.
(iii) We do not know of any federal or state law, rules or regulations
governing the sale or distribution of pharmaceutical products or the
pharmaceutical industry generally or the provision of medical services or the
relationship between pharmacists and customers, or any pending or threatened
legal or governmental proceedings in respect of such statutes, rules or
regulations, required to be described in the Prospectus that are not described
as required.
(iv) The descriptions in the Prospectus of the federal and state laws,
rules or regulations governing the sale or distribution of pharmaceutical
products or the pharmaceutical industry generally or the provision of medical
services or the relationship between pharmacists and customers, and the legal or
governmental proceedings in respect of such laws, rules or regulations, fairly
summarize the information required to be shown.
We are members of the bar of the State of Ohio and do not hold ourselves out
as experts on the law of any other state. Therefore, this Opinion does not
relate to the laws of any state other than the State of Ohio except insofar, and
only insofar, as the Opinion addresses aspects of pharmacy law that are
specifically relevant to the rendering of this Opinion. You should be aware
that we are only admitted to the practice of law in the State of Ohio and any
opinion herein as to the laws of other states is based solely on the latest
compilations of the pharmacy statutes and case law of other states available to
us.
This Opinion constitutes our professional legal opinion as to the certain
legal consequences of, and the applicability of, certain laws to the
Registration Statement and Prospectus. However, it is not a guarantee and
should not be considered as such.
This Opinion is limited to the matters stated herein, and no opinion is
implied or may be inferred beyond the matters expressly stated. This Opinion is
given solely for the benefit of the Company, Shearman & Sterling, and you and no
other party is entitled to rely on anything contained herein without
B-2
<PAGE>
Merrill Lynch & Co.
Merrill Lynch, Pierce, Fenner & Smith Incorporated
February [ ], 1997
our prior written consent. This Opinion is rendered as of the date hereof, and
we undertake no, and hereby disclaim any, obligation to advise you of any
changes in, or new developments that might affect, any matters or opinion set
forth herein.
Sincerely,
EMENS, KEGLER, BROWN, HILL & RITTER CO., L.P.A.
By:_____________________________________________
B-3
<PAGE>
FORM OF LOCK-UP PURSUANT TO SECTION 5(I)
Exhibit C
, 1997
_
MERRILL LYNCH & CO.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated,
North Tower
World Financial Center
New York, New York 10281-1209
Re: Proposed Public Offering by Synetic, Inc.
-----------------------------------------
Dear Sirs:
The undersigned, a stockholder of Synetic, Inc., a Delaware corporation (the
"Company"), understands that Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner
& Smith Incorporated ("Merrill Lynch") proposes to enter into a Purchase
Agreement (the "Purchase Agreement") with the Company providing for the public
offering of $150,000,000 aggregate principal amount of the Company's Convertible
Subordinated Debentures due 2007 (the "Securities"). In recognition of the
benefit that such an offering will confer upon the undersigned as a stockholder
of the Company, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the undersigned agrees with
Merrill Lynch that, during a period of 90 days from the date of the Purchase
Agreement (the "Lockup Period"), the undersigned will not, without the prior
written consent of Merrill Lynch, directly or indirectly, (i) offer, pledge,
sell, contract to sell, sell any option or contract to purchase, purchase any
option or contract to sell, grant any option, right or warrant for the sale of,
or otherwise dispose of or transfer any shares of the Company's Common Stock,
par value $.01 per share (the "Common Stock"), or any securities convertible
into or exchangeable or exercisable for Common Stock, whether now owned or
hereafter acquired by the undersigned or with respect to which the undersigned
has or hereafter acquires the power of disposition, or file any registration
statement under the Securities Act of 1933, as amended, with respect to any of
the foregoing or (ii) enter into any swap or any other agreement or any
transaction that transfers, in whole or in part, directly or indirectly, the
economic consequence of ownership of Common Stock or any securities convertible
into or exchangeable for Common Stock, whether any such swap or transaction is
to be settled by delivery of Common Stock or other securities, in cash or
otherwise (the transactions in clauses (i) and (ii) collectively the "Common
Stock Offerings"). Notwithstanding the foregoing, the undersigned may, during
the Lockup Period, (i) issue Common Stock upon the exchange of the Debentures,
(ii) engage in Common Stock Offerings pursuant to employee benefits plans, (iii)
issue Common Stock upon exercise of currently outstanding options or warrants,
or (iv) engage in Common Stock Offerings in connection with investments in,
acquisitions of, or mergers or other combinations with other companies.
Very truly yours,
Signature:
Print Name:
C-1
<PAGE>
EXHIBIT 4.2
SYNETIC, INC.
$150,000,000
% Convertible Subordinated Debentures
-
due 2007
__________________
INDENTURE
Dated as of , 1997
--
United States Trust Company of New York
Trustee
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TABLE OF CONTENTS
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Page
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ARTICLE 1
DEFINITIONS AND INCORPORATION BY REFERENCE
Section 1.01. Definitions.....................................
Section 1.02. Other Definitions...............................
Section 1.03. Incorporation by Reference of Trust Indenture
Act.............................................
Section 1.04. Rules of Construction...........................
ARTICLE 2
THE SECURITIES
Section 2.01. Designation Amount, Execution, Authentication
and Delivery of Securities......................
Section 2.02. Form and Date of Securities and Trustee's
Certificate.....................................
Section 2.03. Registrar, Paying Agent and Conversion Agent....
Section 2.04. Paying Agent to Hold Money in Trust.............
Section 2.05. Securityholder Lists............................
Section 2.06. Exchange and Transfer of Securities.............
Section 2.07. Replacement Securities..........................
Section 2.08. Outstanding Securities..........................
Section 2.09. Treasury Securities.............................
Section 2.10. Temporary Securities............................
Section 2.11. Cancellation....................................
Section 2.12. Defaulted Interest..............................
ARTICLE 3
REDEMPTION
Section 3.01. Notices to Trustee...............................
Section 3.02. Selection of Securities to be Redeemed...........
Section 3.03. Notice of Redemption.............................
Section 3.04. Effect of Notice of Redemption...................
Section 3.05. Deposit of Redemption Price......................
Section 3.06. Securities Redeemed in Part......................
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ARTICLE 4
COVENANTS
Section 4.01. Payment of Securities............................
Section 4.02. SEC Reports......................................
Section 4.03. Compliance Certificate...........................
Section 4.04. Stay, Extension and Usury Laws...................
Section 4.05. Liquidation......................................
Section 4.06. Reservation of Shares of Common Stock for
Issuance Upon Conversion.........................
ARTICLE 5
SUCCESSORS
Section 5.01. When Company May Merge, etc......................
Section 5.02. Successor Corporation Substituted................
ARTICLE 6
DEFAULTS AND REMEDIES
Section 6.01. Events of Default................................
Section 6.02. Acceleration.....................................
Section 6.03. Other Remedies...................................
Section 6.04. Waiver of Past Defaults..........................
Section 6.05. Control by Majority..............................
Section 6.06. Limitation on Suits..............................
Section 6.07. Rights of Holders to Receive Payment.............
Section 6.08. Collection Suit by Trustee.......................
Section 6.09. Trustee May File Proofs of Claim.................
Section 6.10. Priorities.......................................
Section 6.11. Undertaking for Costs............................
ARTICLE 7
TRUSTEE
Section 7.01. Duties of Trustee................................
Section 7.02. Rights of Trustee................................
Section 7.03. Individual Rights of Trustee.....................
Section 7.04. Trustee's Disclaimer.............................
Section 7.05. Notice of Defaults...............................
Section 7.06. Reports by Trustee to Holders....................
Section 7.07. Compensation and Indemnity.......................
Section 7.08. Replacement of Trustee...........................
Section 7.09. Successor Trustee by Merger, etc.................
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Section 7.10. Eligibility; Disqualification....................
Section 7.11. Preferential Collection of Claims Against
Company..........................................
ARTICLE 8
DISCHARGE OF INDENTURE
Section 8.01. Termination of Company's Obligations.............
Section 8.02. Application of Trust Money.......................
Section 8.03. Repayment to Company.............................
Section 8.04. Reinstatement....................................
ARTICLE 9
AMENDMENTS
Section 9.01. Without Consent of Holders.......................
Section 9.02. With Consent of Holders..........................
Section 9.03. Compliance with Trust Indenture Act...............
Section 9.04. Revocation and Effect of Consents................
Section 9.05. Notation on or Exchange of Securities............
Section 9.06. Trustee Protected................................
ARTICLE 10
CONVERSION
Section 10.01. Conversion Privilege.............................
Section 10.02. Conversion Procedure.............................
Section 10.03. Fractional Shares................................
Section 10.04. Taxes on Conversion..............................
Section 10.05. Company to Provide Stock..........................
Section 10.06. Adjustment for Change in Capital Stock...........
Section 10.07. Adjustment for Rights Issue......................
Section 10.08. Adjustment for Other Distributions...............
Section 10.09. Adjustment for Common Stock Issue................
Section 10.10. Adjustment for Convertible Securities Issue......
Section 10.11. Current Market Price.............................
Section 10.12. Consideration Received...........................
Section 10.13. When Adjustment May Be Deferred..................
Section 10.14. When No Adjustment Required......................
Section 10.15. Notice of Adjustment.............................
Section 10.16. Voluntary Reduction..............................
Section 10.17. Notice of Certain Transactions...................
Section 10.18. Reorganization of Company........................
Section 10.19. Company Determination Final......................
Section 10.20. Trustee's Disclaimer.............................
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ARTICLE 11
SUBORDINATION
Section 11.01. Securities Subordinated to Senior Debt...........
Section 11.02. Company Not to Make Payments with Respect to
Securities in Certain Circumstances..............
Section 11.03. Securities Subordinated to Prior Payment of
All Senior Debt on Dissolution, Liquidation
or Reorganization of Company.....................
Section 11.04. Securityholders to be Subrogated to Rights
of Holders of Senior Debt........................
Section 11.05. Obligation of Company Unconditional..............
Section 11.06. Knowledge of Trustee.............................
Section 11.07. Application by Trustee of Monies Deposited
With It..........................................
Section 11.08. Subordination Rights Not Impaired by Acts or
Omissions of Company or Holders of Senior
Debt.............................................
Section 11.09. Securityholders Authorize Trustee to Effectuate
Subordination of Securities......................
Section 11.10. Trustee Not Fiduciary for Holders of Senior
Debt.............................................
Section 11.11. Right of Trustee to Hold Senior Debt.............
Section 11.12. Article Eleven Not to Prevent Events of
Default..........................................
ARTICLE 12
RIGHT TO REQUIRE REPURCHASE
Section 12.01. Right to Require Repurchase......................
Section 12.02. Notice; Method of Exercising Repurchase
Right............................................
Section 12.03. Certain Definitions..............................
Section 12.04. Compliance with Law..............................
ARTICLE 13
MISCELLANEOUS
Section 13.01. Trust Indenture Act Controls.....................
Section 13.02. Notices..........................................
Section 13.03. Communication by Holders with Other Holders......
Section 13.04. Certificate and Opinion as to Conditions Precedent
.................................................
Section 13.05. Statements Required in Certificate or Opinion....
Section 13.06. Rules by Trustee and Agents......................
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Section 13.07. Legal Holidays...................................
Section 13.08. No Recourse Against Others.......................
Section 13.09. Counterparts.....................................
Section 13.10. Variable Provisions..............................
Section 13.11. Governing Law....................................
Section 13.12. No Adverse Interpretation of Other Agreements....
Section 13.13. Successors.......................................
Section 13.14. Severability.....................................
Section 13.15. Table of Contents, Headings, Etc.................
EXHIBIT A.....................................................A-1
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CROSS-REFERENCE TABLE[*]
Trust Indenture
Act Section Indenture Section
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* This Cross-Reference Table is not part of the Indenture.
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INDENTURE dated as of February 15, 1997, between Synetic, Inc., a Delaware
corporation ("Company"), and United States Trust Company of New York
("Trustee").
Each party agrees as follows for the benefit of the other party and for the
equal and ratable benefit of the Holders of the Company's _% Convertible
Subordinated Debentures due 2007 ("Securities"):
ARTICLE 1
DEFINITIONS AND INCORPORATION BY REFERENCE
Section 1.01. Definitions.
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"Affiliate" of any specified person means any other person directly or
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indirectly controlling or controlled by or under direct or indirect common
control with such specified person. For the purposes of this definition,
"control" (including, with correlative meanings, the terms "controlled by" and
"under common control with"), as used with respect to any person, shall mean the
possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of such person, whether through the
ownership of voting securities or by agreement or otherwise.
"Agent" means any Registrar, Paying Agent, Conversion Agent or co-
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Registrar.
"Board of Directors" means the Board of Directors of the Company or any
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authorized committee of the Board.
"Capital Stock" means any and all shares, interests, participations or
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other equivalents (however designated) of stock of any class which has no
preference in respect of dividends or of amounts payable in the event of any
voluntary or involuntary liquidation, dissolution or winding-up and which is not
subject to redemption.
"Company" means the party named as such above until a successor replaces it
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in accordance with Article 5 and thereafter means the successor.
"Default" means any event which is, or after notice or passage of time
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would be, an Event of Default.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
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"Holder" or "Securityholder" means a person in whose name a Security is
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registered on the Securities Register.
"Indenture" means this Indenture as amended from time to time.
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"NASDAQ" means the National Association of Securities Dealers Automated
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Quotation System.
"Officers' Certificate" means a certificate signed by two Officers, one of
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whom must be the Chairman of the Board, the President, the Treasurer or a Vice-
President of the Company. See Sections 13.04 and 13.05.
"Opinion of Counsel" means a written opinion from legal counsel who is
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acceptable to the Trustee. The counsel may be an employee of or counsel to the
Company or the Trustee. See Sections 13.04 and 13.05.
"person" means any individual, corporation, partnership, joint venture,
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association, joint stock company, trust, unincorporated organization or
government or any agency or political subdivision thereof.
"principal" of a debt security means the principal of the security plus the
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premium, if any, on the security.
"SEC" means the Securities and Exchange Commission.
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"Securities" means the Securities described above issued under this
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Indenture in the form of Exhibit A hereto.
"Securities Register" shall have the meaning provided in Section 2.03.
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"Significant Subsidiary" means a "significant subsidiary" as defined in
----------------------
Rule 1-02 of Regulation S-X under the Securities Act of 1933, as amended and the
Exchange Act (as such Regulation is in effect on the date hereof).
"subsidiary" of any specified person means (i) a corporation a majority of
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whose capital stock with voting power, under ordinary circumstances, to elect
directors is at the time, directly or indirectly, owned by such person or by
such person and a subsidiary or subsidiaries of such person or (ii) any other
person (other than a corporation) in which such person or such person and a
subsidiary or subsidiaries of such person or a subsidiary or subsidiaries of
such person, directly or indirectly, at the date of determination thereof has at
least majority voting interest.
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"TIA" means the Trust Indenture Act of 1939 (15 U.S. Code (S)(S) 77aaa-
---
77bbbb) as amended and in effect on the date of this Indenture.
"Trustee" means the party named as such above until a successor replaces it
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in accordance with the applicable provisions of this Indenture and thereafter
means the successor.
"Trust Officer" means the Chairman of the Board, the President or any other
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officer or assistant officer of the Trustee assigned by the Trustee to
administer its corporate trust matters.
Section 1.02 Other Definitions.
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Term Defined in Section
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"Bankruptcy Law"......................... 6.01
"Change in Control"...................... 12.03
"Common Stock"........................... 10.01
"Conversion Agent"....................... 2.03
"Custodian".............................. 6.01
"Debt"................................... 11.01
"Designated Event"....................... 12.03
"Event of Default"....................... 6.01
"Legal Holiday".......................... 13.07
"Officer"................................ 13.10
"Paving Agent"........................... 2.03
"Quoted Price"........................... 13.10
"Registrar".............................. 2.03
"Senior Debt"............................ 11.01
"U.S. Government Obligations"............ 8.01
Section 1.03 Incorporation by Reference of Trust Indenture Act.
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Whenever this Indenture refers to a provision of the TIA, the provision is
incorporated by reference in and made a part of this Indenture.
The following TIA terms used in this Indenture have the following meanings:
"indenture securities" means the Securities;
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"indenture security holder" means a Securityholder;
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"indenture to be qualified" means this Indenture;
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"indenture trustee" or "institutional trustee" means the Trustee;
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"obligor" on the Securities means the Company.
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All other terms used in this Indenture that are defined by the TIA, defined
by TIA reference to another statute or defined by SEC rule under the TIA have
the meanings so assigned to them.
Section 1.04. Rules of Construction.
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Unless the context otherwise requires:
(1) a term has the meaning assigned to it;
(2) an accounting term not otherwise defined has the meaning assigned to it
in accordance with generally accepted accounting principles;
(3) references to "generally accepted accounting principles" shall mean
generally accepted accounting principles in effect as of the time when and for
the period as to which such accounting principles are to be applied;
(4) or is not exclusive;
(5) words in the singular include the plural, and in the plural include the
singular; and
(6) provisions apply to successive events and transactions.
ARTICLE 2
THE SECURITIES
Section 2.01. Designation Amount, Execution, Authentication and
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Delivery of Securities.
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The Securities shall be designated as _% Convertible Subordinated
Debentures due 2007. Securities for the aggregate principal amount of one
hundred fifty million dollars ($150,000,000), upon the execution of this
Indenture, or from time to time thereafter, may be executed by the Company and
delivered to the Trustee for authentication, and the Trustee shall thereupon
authenticate upon original issuance, and deliver said Securities to or upon the
written order of the Company, signed by two Officers, without any further
corporate action by the Company; provided, however, that in the event that the
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Company sells any Securities pursuant to the over-allotment option (the "Over-
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allotment Option") granted pursuant to Section
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2 of the Purchase Agreement, dated
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February [ ], 1997 between the Company and Merrill Lynch & Co., Merrill Lynch,
Pierce, Fenner & Smith Incorporated, the Trustee shall authenticate and deliver
Securities for original issuance in an aggregate principal amount of up to
$150,000,000 plus up to $22,500,000 aggregate principal amount of Securities
sold pursuant to the Over-allotment Option upon the written order of the
Company, signed by two Officers, without any further corporate action by the
Company.
The aggregate principal amount of Securities authorized by this Indenture
is limited to one hundred seventy two million, five hundred thousand dollars
($172,500,000), including Securities sold pursuant to the Over-allotment Option,
and, except as provided in this Section and in Section 2.07, the Company shall
not execute and the Trustee shall not authenticate or deliver Securities in
excess of such aggregate principal amount.
Two Officers shall sign the Securities for the Company by manual or
facsimile signature. The Company's seal shall be reproduced on the Securities.
If an Officer whose signature is on a Security no longer holds that office
at the time the Security is authenticated, the Security shall nevertheless be
valid.
A Security shall not be valid until authenticated by the manual signature
of the Trustee. The signature shall be conclusive evidence that the Security
has been authenticated under this Indenture.
The Trustee may appoint an authenticating agent acceptable to the Company
to authenticate Securities. An authenticating agent may authenticate Securities
whenever the Trustee may do so. Each reference in this Indenture to
authentication by the Trustee includes authentication by such agent. An
authenticating agent has the same right as an Agent to deal with the Company or
an Affiliate.
Section 2.02 Form and Date of Securities and Trustee's
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Certificate.
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The Securities and the Trustee's certificate of authentication to be borne
by the Securities shall be substantially in the form set forth in Exhibit A to
this Indenture, which is a part of this Indenture. The Securities may have such
letters, numbers or other marks of identification or designation and such
legends or endorsements printed, lithographed or engraved thereon as the
officers executing the same may deem appropriate and as are not inconsistent
with the provisions of this Indenture, or as may be required to comply
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with any law or with any rule or regulation made pursuant thereto or with any
rule or regulation of any stock exchange on which the Securities may be listed,
or to conform to usage. Each Security shall be dated the date of its
authentication.
The terms and provisions contained in the Securities shall constitute, and
are hereby expressly made, a part of this Indenture and to the extent
applicable, the Company and the Trustee, by their execution and delivery of this
Indenture, expressly agree to such terms and provisions and to be bound thereby.
Section 2.03. Registrar, Paying Agent and Conversion Agent.
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The Company shall maintain in such locations as it shall determine (i) an
office or agency where Securities may be presented for registration of transfer
or for exchange ("Registrar"), (ii) an office or agency where Securities may be
presented for payment ("Paying Agent"), and (iii) an office or agency where
Securities may be presented for conversion ("Conversion Agent"). The Registrar
shall keep a register of the Securities and of their transfer and exchange (the
"Securities Register"). The Company may appoint one or more co-Registrars, one
or more additional paying agents and one or more additional conversion agents.
The term "Paying Agent" includes any additional paying agent; the term
"Conversion Agent" includes any additional conversion agent. The Company may
change any Paying Agent, Registrar, Conversion Agent or co-Registrar without
prior notice. The Company shall notify the Trustee of the name and address of
any Agent not a party to this Indenture. If the Company fails to appoint or
maintain another entity as Registrar, Paying Agent or Conversion Agent, the
Trustee shall act as such. The Company or any of its subsidiaries may act as
Conversion Agent, Paying Agent, Registrar or co-Registrar.
Section 2.04. Paying Agent to Hold Money in Trust.
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The Company shall require each Paying Agent other than the Trustee to agree
in writing that the Paying Agent will hold in trust for the benefit of
Securityholders or the Trustee all money held by the Paying Agent for the
payment of principal or interest on the Securities, and will notify the Trustee
of any default by the Company in making any such payment. While any such
default continues, the Trustee may require a Paying Agent to pay all money held
by it to the Trustee. The Company at any time may require a Paying Agent to pay
all money held by it to the Trustee. Upon payment over to the Trustee, the
Paying Agent (if other than the Company or a subsidiary) shall have no further
liability for the money. If the Company or a subsidiary acts as Paying Agent,
it shall segregate and hold in a separate trust
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fund for the benefit of the Securityholders all money held by it as Paying
Agent.
Section 2.05. Securityholder Lists.
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The Trustee shall preserve in as current a form as is reasonably
practicable the most recent list available to it of the names and addresses of
Securityholders. If the Trustee is not the Registrar, the Company shall furnish
to the Trustee at least five business days before each interest payment date and
at such other times as the Trustee may request in writing a list in such form
and as of such date as the Trustee may reasonably require of the names and
addresses of Securityholders.
Section 2.06. Exchange and Transfer of Securities.
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Securities may be exchanged for a like aggregate principal amount of
Securities of other authorized denominations. The Securities to be exchanged
shall be surrendered at the office or agency to be maintained by the Company in
accordance with the provisions of Section 2.03, and the Company shall execute
and the Trustee shall authenticate and deliver in exchange therefor the Security
or Securities which the Securityholder making the exchange shall be entitled to
receive.
Upon surrender for registration of transfer of any Security at the office
or agency to be maintained by the Company in accordance with the provisions of
Section 2.03, the Company shall execute and the Trustee shall authenticate and
deliver in the name of the transferee or transferees a new Security or
Securities for a like aggregate principal amount.
All Securities presented or surrendered for exchange, registration of
transfer, conversion, redemption, purchase or payment shall, if so required by
the Company or the Trustee or the Registrar or co-Registrar, be accompanied by a
written instrument or instruments of transfer or conversion, in form
satisfactory to the Company and the Trustee or the Registrar or co-Registrar,
duly executed by the registered holder or by his duly authorized attorney and,
in every case, each Security presented or surrendered for registration of
transfer or for conversion shall be accompanied by the assignment form and
conversion notice attached to the Securities, duly executed by the registered
holder or by his duly authorized attorney.
No service charge shall be made for any exchange or registration of
transfer of Securities, but the Company may require payment of a sum sufficient
to cover any tax or other governmental charge that may be imposed in relation
thereto.
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The Company and the Registrar or co-Registrar shall not be required to
issue, register the transfer of or exchange any Securities for a period of
fifteen days next preceding any date for the selection of Securities to be
redeemed. The Company and the Registrar or co-Registrar shall not be required
to register the transfer of or exchange any Security called or being called
for redemption except, in the case of any Security to be redeemed in part, the
portion thereof not to be so redeemed. The Company and the Registrar or co-
Registrar shall not be required to register the transfer of or exchange any
Security in respect of which a notice of a Designated Event has been given
except, in the case of any Security to be purchased in part, the portion thereof
not to be so purchased.
All Securities issued upon any registration of transfer or exchange of
Securities shall be the valid obligations of the Company, evidencing the same
debt, and entitled to the same benefits under this Indenture, as the Securities
surrendered upon such registration of transfer or exchange.
Section 2.07. Replacement Securities.
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If the Holder of a Security claims that the Security has been lost,
destroyed or wrongfully taken, the Company shall issue and the Trustee shall
authenticate a replacement Security if the Trustee's requirements are met. If
required by the Trustee or the Company, an indemnity bond must be sufficient in
the judgment of both to protect the Company, the Trustee, any Agent or any
authenticating agent from any loss which any of them may suffer if a Security is
replaced. The Company may charge for its expenses in replacing a Security.
Every replacement Security is an additional obligation of the Company.
Section 2.08. Outstanding Securities.
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The Securities outstanding at any time are all the Securities authenticated
by the Trustee except for those cancelled by it, those delivered to it for
cancellation, and those described in this Section as not outstanding.
If a Security is replaced pursuant to Section 2.07, it ceases to be
outstanding unless the Trustee receives proof satisfactory to it that the
replaced Security is held by a bona fide purchaser.
If Securities are considered paid under Section 4.01, they cease to be
outstanding and interest on them ceases to accrue.
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A Security does not cease to be outstanding because the Company or an
Affiliate of the Company holds the Security.
Section 2.09. Treasury Securities.
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In determining whether the Holders of the required principal amount of
Securities have concurred in any direction, waiver or consent, Securities owned
by the Company or an Affiliate of the Company shall be considered as though they
are not outstanding, except that for the purposes of determining whether the
Trustee shall be protected in relying on any such direction, waiver or consent,
only Securities which the Trustee knows are so owned shall be so disregarded.
Section 2.10. Temporary Securities.
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Until definitive Securities are ready for delivery, the Company may prepare
and the Trustee shall authenticate temporary Securities. Temporary Securities
shall be substantially in the form of definitive Securities but may have
variations that the Company considers appropriate for temporary Securities.
Without unreasonable delay, the Company shall prepare and the Trustee shall
authenticate definitive Securities in exchange for temporary Securities.
Section 2.11. Cancellation.
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The Company at any time may deliver Securities to the Trustee for
cancellation. The Registrar, Paying Agent and Conversion Agent shall forward to
the Trustee any Securities surrendered to them for registration of transfer,
exchange, payment or conversion. The Trustee shall cancel all Securities
surrendered for registration of transfer, exchange, payment, replacement,
conversion or cancellation and shall dispose of cancelled Securities as the
Company directs; provided that, notwithstanding any other provision of this
Indenture, if the Company so directs the Trustee by written notice, Securities
surrendered for redemption may be transferred in accordance with Section 2.06
to persons named by the Company. The Company may not issue new Securities to
replace Securities that it has paid or that have been delivered to the Trustee
for cancellation or that any Securityholder has converted pursuant to Article
10.
Section 2.12. Defaulted Interest.
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If the Company fails to make a payment of interest on the Securities, it
shall pay such defaulted interest plus any interest payable on the defaulted
interest in any lawful manner. It may pay such defaulted interest, plus any such
interest payable on it, to the persons who are Securityholders on a subsequent
special record date. The Company shall fix any such record date and payment
date, provided that no such special record date shall be less than 10 days prior
to the related payment date. At least 15 days before any such record date, the
Company shall mail to Securityholders a notice
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that states the record date, payment date, and amount of such interest to be
paid.
ARTICLE 3
REDEMPTION
Section 3.01. Notices to Trustee.
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If the Company elects to redeem Securities pursuant to the optional
redemption provisions of paragraph 5 of the Securities, it shall deliver to the
Trustee an Officer's Certificate setting forth the redemption date and the
principal amount of Securities to be redeemed.
The Company shall deliver each Officer's Certificate provided for in this
Section at least 30 days before the redemption date (unless a shorter notice
period shall be satisfactory to the Trustee).
Section 3.02. Selection of Securities to be Redeemed.
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If less than all the Securities are to be redeemed, the Trustee shall
select the Securities to be redeemed pro rata or by lot or by a method that
complies with the requirements of any exchange on which the Securities are
listed and that the Trustee considers fair and appropriate. The Trustee may
select for redemption portions of the principal of Securities that have
denominations larger than $1,000. Securities and portions of them it selects
shall be in amounts of $1,000 or integral multiples of $1,000. Provisions of
this Indenture that apply to Securities called for redemption also apply to
portions of Securities called for redemption. The Trustee shall notify the
Company promptly of the Securities or portions of Securities to be called for
redemption.
Section 3.03. Notice of Redemption.
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At least 15 days but not more than 60 days before a redemption date, the
Company shall mail a notice of redemption to each Holder whose Securities are to
be redeemed at the address of such Holder shown in the Security Register.
The notice shall identify the Securities to be redeemed and shall state:
(1) the redemption date;
(2) the redemption price;
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(3) if any Security is being redeemed in part, the portion of the principal
amount of such Security to be redeemed and that, after the redemption date, upon
surrender of such Security, a new Security or Securities in principal amount
equal to the unredeemed portion will be issued;
(4) the conversion price;
(5) the name and address of the Paying Agent and Conversion Agent;
(6) that Securities called for redemption may be converted at any time
before the close of business on the business day before the redemption date;
(7) that Holders who want to convert Securities must satisfy the
requirements in paragraph 8 of the Securities;
(8) that Securities called for redemption must be surrendered to the Paying
Agent to collect the redemption price; and
(9) that, unless the Company defaults on making such redemption payment,
interest on Securities called for redemption ceases to accrue on and after the
redemption date.
At the Company's request, the Trustee shall give notice of redemption in
the Company's name and at its expense.
Section 3.04. Effect of Notice of Redemption.
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Once notice of redemption is mailed, Securities called for redemption
become due and payable on the redemption date at the price set forth in the
Security.
Section 3.05. Deposit of Redemption Price.
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On or before the redemption date, the Company shall deposit with the
Trustee or with the Paying Agent money sufficient to pay the redemption price of
and accrued interest on all Securities to be redeemed on that date. The Trustee
or the Paying Agent shall return to the Company any money not required for that
purpose.
Section 3.06. Securities Redeemed in Part.
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Upon surrender of a definitive Security that is redeemed in part, the
Company shall issue and the Trustee shall authenticate for the Holder at the
expense of the Company a new definitive Security equal in principal amount to
the unredeemed portion of the definitive Security surrendered.
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ARTICLE 4
COVENANTS
Section 4.01. Payment of Securities.
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The Company shall pay the principal of and interest on the Securities on
the dates and in the manner provided in the Securities. Principal and interest
shall be considered paid on the date due if the Paying Agent (other than the
Company or a subsidiary) holds on that date money designated for and sufficient
to pay all principal and interest then due; provided, however, that money held
by the Paying Agent for the benefit of holders of Senior Debt pursuant to the
provisions of Article 11 hereof shall not be considered paid within the meaning
of this Section 4.01.
To the extent lawful, the Company shall pay interest semiannually
(including post-petition interest in any proceeding under any Bankruptcy Law) on
(i) overdue principal, at the rate borne by the Securities and (ii) overdue
installments of interest (including interest contemplated by clause (i) and
without regard to any applicable grace period) at the same rate.
Section 4.02. SEC Reports.
- ------------- -----------
(a) The Company shall deliver to the Trustee within 15 days after it files
them with the SEC copies of the annual reports and of the information,
documents, and other reports (or copies of such portions of any of the foregoing
as the SEC may by rules and regulations prescribe) which the Company is required
to file with the SEC pursuant to Section 13 or 15(d) of the Exchange Act. The
Company also shall comply with the other provisions of TIA (S) 314(a).
(b) If the Company is not required to file with the SEC such reports and
other information referred to in Section 4.02(a), the Company shall file with
the Trustee (i) within 135 days after the end of each fiscal year, annual
reports containing the information required to be contained in Items 1, 2, 3, 5,
6, 7, 8 and 9 of Form 10-K promulgated under the Exchange Act, or substantially
the same information required to be contained in comparable items of any
successor form, (ii) within 60 days after the end of each of the first three
fiscal quarters of each fiscal year, quarterly reports containing the
information required to be contained in Form 10-Q promulgated under the Exchange
Act, or substantially the same information required to be contained in any
successor form and (iii) promptly from the time after the occurrence of an event
required to be therein reported, such
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other reports containing information required to be contained in Form 8-K
promulgated under the Exchange Act, or substantially the same information
required to be contained in any successor form. The Company shall also make such
reports available to Holders of the Securities and to prospective purchasers of
the Securities, securities analysts and broker-dealers upon their request.
Section 4.03. Compliance Certificate.
- ------------- ----------------------
The Company shall deliver to the Trustee, within 120 days after the end of
each fiscal year of the Company, a certificate of the principal executive
officer, the principal financial officer or the principal accounting officer of
the Company stating that a review of the activities of the Company and its
subsidiaries during the preceding fiscal year has been made under the
supervision of the signing officer with a view to determining whether the
Company has kept, observed, performed and fulfilled its obligations under this
Indenture, and further stating that to the best knowledge of such signing
officer, the Company has kept, observed, performed and fulfilled each and every
covenant contained in this Indenture and is not in default in the performance or
observance of any of the terms, provisions and conditions hereof (or, if a
Default or Events of Default shall have occurred, describing all such Defaults
or Events of Default of which he may have knowledge) and that to the best of his
knowledge no event has occurred and remains in existence by reason of which
payments on account of the principal of or interest, if any, on the Securities
are prohibited or, if such an event has occurred, a description of such event of
which such signing officer may have knowledge and what action the Company is
taking or proposes to take with respect thereto. For purposes of this Section
4.03, such compliance shall be determined without regard to any grace period or
requirement of notice provided pursuant to the terms of this Indenture. See
Section 13.10.
The Company will, so long as any of the Securities are outstanding, deliver
to the Trustee, forthwith upon becoming aware of any Default or Event of
Default, an Officers' Certificate specifying such Default or Event of Default.
Section 4.04. Stay, Extension and Usury Laws.
- ------- ----- ------------------------------
The Company covenants (to the extent that it may lawfully do so) that it
will not at any time insist upon, plead, or in any manner whatsoever claim or
take the benefit or advantage of, any stay, extension or usury law wherever
enacted, now or at any time hereafter in force, which may affect the covenants
or the performance of this Indenture; and the Company (to the extent it may
lawfully do so) hereby expressly waives all benefit or advantage of any such
law, and covenants that it will not, by resort to any such law, hinder, delay or
impede the execution of any power herein granted to the Trustee, but will suffer
and permit the execution of every such power as though no such law has been
enacted.
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Section 4.05. Liquidation.
- ------------- -----------
The Company shall not adopt any plan of liquidation which provides for,
contemplates or the effectuation of which is preceded by (A) the sale, lease,
conveyance or other disposition of all or substantially all the assets of the
Company otherwise than substantially as an entirety in accordance with Article 5
and (B) the distribution of all or substantially all the proceeds of such sale,
lease, conveyance or other disposition and the remaining assets of the Company
to holders of Common Stock of the Company, unless the Company shall in
connection with the adoption of such plan make provision for, or agree that
prior to making any liquidating distributions it will make provision for, the
satisfaction of the Company's obligations hereunder and under the Securities as
to the payment of principal and interest.
Section 4.06. Reservation of Shares of Common Stock for
- ------------- -----------------------------------------
Issuance Upon Conversion.
------------------------
The Company will at all times cause there to be authorized and reserved for
issuance upon conversion of the Securities such number of shares of Common Stock
as would be issuable upon conversion of all the Securities then outstanding.
ARTICLE 5
SUCCESSORS
Section 5.01. When Company May Merge, etc.
- ------------- ---------------------------
The Company shall not consolidate or merge with or into, or sell, lease,
convey or otherwise dispose of all or substantially all of its assets to, any
person unless:
(1) the person formed by or surviving any such consolidation or merger (if
other than the Company), or to which such sale, lease, conveyance or other
disposition shall have been made, is (x) a corporation organized and existing
under the laws of the United States, any state thereof or the District of
Columbia or (y) a corporation or a comparable legal entity organized under the
laws of a foreign jurisdiction 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 an entity described in clause (y), if such
transaction would constitute a Designated Event as described in Section 12.03,
the Company shall not consummate such transaction without first making provision
for the
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<PAGE>
satisfaction of its obligations under Sections 12.01 and 12.02 hereof, if any;
(2) the corporation formed by or surviving any such consolidation or merger
(if other than the Company), or to which such sale, lease, conveyance or other
disposition shall have been made, assumes by supplemental indenture all the
obligations of the Company under the Securities and this Indenture, except that
it need not assume the obligations of the Company as to conversion of Securities
if, pursuant to Section 10.18, the Company or another person enters into a
supplemental indenture obligating it to deliver the Securities, cash or other
assets deliverable upon conversion of Securities; and
(1) immediately after the transaction no Default or Event of Default exists.
The Company shall deliver to the Trustee prior to the consummation of the
proposed transaction an Officers' Certificate to the foregoing effect and an
Opinion of Counsel stating that the proposed transaction and such supplemental
indenture comply with this Indenture.
Section 5.02. Successor Corporation Substituted.
- ------------- ---------------------------------
Upon any consolidation or merger, or any sale, lease, conveyance or other
disposition of all or substantially all of the assets of the Company in
accordance with Section 5.01, the successor corporation (if other than the
Company) formed by such consolidation or into or with which the Company is
merged or to which such sale, lease, conveyance or other disposition is made
shall succeed to, and be substituted for, and may exercise every right and power
of, the Company under this Indenture with the same effect as if such successor
person has been named as the Company herein; provided, however, that the
predecessor Company in the case of a sale, lease, conveyance or other
disposition shall not be released from the obligation to pay the principal of
and interest on the Securities.
ARTICLE 6
DEFAULTS AND REMEDIES
Section 6.01. Events of Default.
- ------------- -----------------
An "Event of Default" occurs if:
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<PAGE>
(1) the Company defaults in the payment of interest on any Security when the
same becomes due and payable and the Default continues for a period of 30 days;
(2) the Company defaults in the payment of the principal of any Security
when the same becomes due and payable at maturity, upon redemption or otherwise;
(3) the Company fails to comply with any of its other agreements or
covenants in, or provisions of, the Securities or this Indenture and the Default
continues for the period and after the notice specified below;
(4) an event of default occurs under any mortgage, indenture or instrument
under which there may be issued or by which there may be secured or evidenced
any indebtedness for money borrowed by the Company or any Significant Subsidiary
or for money borrowed the repayment of which is guaranteed by the Company or a
Significant Subsidiary, whether such indebtedness or guarantee now exists or
shall be created hereafter, if (a) either (i) such event of default results from
the failure to pay any such indebtedness at maturity or (ii) as a result of such
event of default the maturity of such indebtedness has been accelerated prior to
its expressed maturity and (b) the principal amount of such indebtedness,
together with the principal amount of any other such indebtedness in default for
failure to pay principal at maturity or the maturity of which has been so
accelerated, aggregates $10,000,000 or more;
(5) the Company or any Significant Subsidiary pursuant to or within the
meaning of any Bankruptcy Law:
(A) commences a voluntary case,
(B) consents to the entry of an order for relief against it in an
involuntary case,
(C) consents to the appointment of a Custodian of it or for all or
substantially all of its property,
(D) makes a general assignment for the benefit of its creditors, or
(E) admits in writing that it is generally unable to pay its debts as the
same become due;
(6) a court of competent jurisdiction enters an order or decree under any
Bankruptcy Law that:
16
<PAGE>
(A) is for relief against the Company or any Significant Subsidiary in an
involuntary case,
(B) appoints a Custodian of the Company or any Significant Subsidiary or
for all or substantially all of its property, or
(C) orders the liquidation of the Company or any Significant Subsidiary,
and the order or decree remains unstayed and in effect for 90 days.
The term "Bankruptcy Law" means title 11, U.S. Code or any similar Federal
or State Law for the relief of debtors. The term "Custodian" means any
receiver, trustee, assignee, liquidator or similar official under any Bankruptcy
Law.
A Default under clause (3) (other than Defaults under Section 4.05, 5.01 or
10.01 which Defaults shall be Events of Default with the notice but without the
passage of time specified in this paragraph) or (4) is not an Event of Default
until the Trustee or the Holders of at least 25% in principal amount of the then
outstanding Securities notify the Company of the Default and the Company does
not cure the Default within 30 days after receipt of the notice. The notice
must specify the Default, demand that it be remedied and state that the notice
is a "Notice of Default."
In the case of any Event of Default pursuant to the provisions of this
Section 6.01 occurring by reason of any willful action (or inaction) taken (or
not taken) by or on behalf of the Company with the intention of avoiding payment
of the premium which the Company would have had to pay if the Company then had
elected to redeem the Securities pursuant to paragraph 5 of the Securities, an
equivalent premium shall also become and be immediately due and payable to the
extent permitted by law, anything in this Indenture or in the Securities
contained to the contrary notwithstanding.
Section 6.02. Acceleration.
- ------------- ------------
If an Event of Default (other than an Event of Default specified in clauses
(5) and (6) of Section 6.01) occurs and is continuing, the Trustee by notice to
the Company, or the Holders of at least 25% in principal amount of the then
outstanding Securities by notice to the Company and the Trustee, may declare the
unpaid principal of and accrued interest on all the Securities to be due and
payable. Upon such declaration the principal and interest shall be due and
payable immediately. If
17
<PAGE>
an Event of Default specified in clause (5) or (6) of Section 6.01 occurs, such
an amount shall ipso facto become and be immediately due and payable without any
declaration or other act on the part of the Trustee or any Holder. The Holders
of a majority in principal amount of the then outstanding Securities by notice
to the Trustee may rescind an acceleration and its consequences if the
rescission would not conflict with any judgment or decree and if all existing
Events of Default have been cured or waived except nonpayment of principal or
interest that has become due solely because of the acceleration.
Section 6.03. Other Remedies.
- ------------- --------------
If an Event of Default occurs and is continuing, the Trustee may pursue any
available remedy to collect the payment of principal or interest on the
Securities or to enforce the performance of any provision of the Securities or
this Indenture.
The Trustee may maintain a proceeding even if it does not possess any of
the Securities or does not produce any of them in the proceeding. A delay or
omission by the Trustee or any Securityholder in exercising any right or remedy
accruing upon an Event of Default shall not impair the right or remedy or
constitute a waiver of or acquiescence in the Event of Default. All remedies
are cumulative to the extent permitted by law.
Section 6.04. Waiver of Past Defaults.
- ------------- -----------------------
Subject to Section 9.02, the Holders of a majority in principal amount of
the then outstanding Securities by notice to the Trustee may waive an existing
Default or Event of Default and its consequences except a continuing Default or
Event of Default in the payment of the principal (other than principal due by
reason of acceleration) of or interest on any Security or a Default which
materially and adversely affects the rights of any Holders under Article 10.
Section 6.05. Control by Majority.
- ------------- -------------------
The Holders of a majority in principal amount of the then outstanding
Securities may direct the time, method and place of conducting any proceeding
for any remedy available to the Trustee or exercising any trust or power
conferred on it. However, the Trustee may refuse to follow any direction that
conflicts with law or this Indenture, is unduly prejudicial to the rights of
other Securityholders, or would involve the Trustee in personal liability.
Section 6.06. Limitation on Suits.
- ------------- -------------------
18
<PAGE>
A Securityholder may pursue a remedy with respect to this Indenture or the
Securities only if:
(1) the Holder gives to the Trustee notice of a continuing Event of Default;
(2) the Holders of at least 25% in principal amount of the then outstanding
Securities make a request to the Trustee to pursue the remedy;
(3) such Holder or Holders offer to the Trustee indemnity satisfactory to
the Trustee against any loss, liability or expense;
(4) the Trustee does not comply with the request within 60 days after
receipt of the request and the offer of indemnity; and
(5) during such 60-day period the Holders of a majority in principal amount
of the then outstanding Securities do not give the Trustee a direction
inconsistent with the request.
A Securityholder may not use this Indenture to prejudice the rights of another
Securityholder or to obtain a preference or priority over another
Securityholder.
Section 6.07. Rights of Holders to Receive Payment.
- ------------- ------------------------------------
Notwithstanding any other provision of this Indenture, the right of any
Holder of a Security to receive payment of principal and interest on the
Security, on or after the respective due dates expressed in the Security, or to
bring suit for the enforcement of any such payment on or after such respective
dates, shall not be impaired or affected without the consent of the Holder.
Notwithstanding any other provision of this Indenture, the right of any
Holder of a Security to bring suit for the enforcement of the right to convert
the Security shall not be impaired or affected without the consent of the
Holder.
Section 6.08. Collection Suit by Trustee.
- ------------- --------------------------
If an Event of Default specified in Section 6.01(1) or (2) occurs and is
continuing, the Trustee may recover judgment in its own name and as trustee of
an express trust against the Company for the whole amount of principal and
interest remaining unpaid on the Securities and interest on overdue principal
and interest
19
<PAGE>
and such further amount as shall be sufficient to cover the costs and, to the
extent lawful, expenses of collection, including the reasonable compensation,
expenses, disbursements and advances of the Trustee, its agents and counsel.
Section 6.09. Trustee May File Proofs of Claim.
- ------------- --------------------------------
The Trustee may file such proofs of claim and other papers or documents as
may be necessary or advisable in order to have the claims of the Trustee and the
Securityholders allowed in any judicial proceedings relative to the Company, its
creditors or its property and shall be entitled and empowered to collect,
receive and distribute any money or other property payable or deliverable on any
such claims, and any custodian in any such judicial proceeding is hereby
authorized by each Securityholder to make such payments to the Trustee, and in
the event that the Trustee shall consent to the making of such payments directly
to the Securityholders, to pay to the Trustee any amount due to it for the
reasonable compensation and expenses of the Trustee, its agents and counsel, and
any other amounts due the Trustee under Section 7.07. To the extent that the
payment of any such compensation and expenses of the Trustee, its agents and
counsel, and any other amounts due the Trustee under Section 7.07 out of the
estate in any such proceeding, shall be denied for any reason, payment of the
same shall be secured by a lien on, and shall be paid out of, any and all
distributions, dividends, money, securities and other properties that the
Securityholders may be entitled to receive in such proceeding, whether in
liquidation or under any plan of reorganization or arrangement or otherwise.
Nothing contained herein shall be deemed to authorize the Trustee to authorize
or consent to or accept or adopt on behalf of any Securityholder any plan of
reorganization, arrangement, adjustment or composition affecting the Securities
or the rights of any Holder thereof, or to authorize the Trustee to vote in
respect of the claim of any Securityholder in any such proceeding.
Section 6.10. Priorities.
- ------------- ----------
If the Trustee collects any money pursuant to this Article, it shall pay
out the money in the following order:
First: to the Trustee for amounts due under Section 6.09 or Section 7.07;
Second: to holders of Senior Debt to the extent required by Article 11;
Third: to Securityholders for amounts due and unpaid on the Securities for
principal and interest, ratably, without preference or priority of
any kind, according to the amounts due and payable on the
Securities for principal and interest, respectively; and
Fourth: to the Company.
The Trustee may fix a record date and payment date for any payment to
Securityholders.
Section 6.11. Undertaking for Costs.
- ------------- ---------------------
In any suit for the enforcement of any right or remedy under this
Indenture or in any suit against the Trustee for any action taken or omitted by
it as a Trustee, a court in its discretion may require the filing by any party
litigant in the suit of an undertaking to pay the costs of the suit, and the
court in its discretion may assess reasonable costs, including reasonable
attorneys' fees, against any party litigant in the suit, having
20
<PAGE>
due regard to the merits and good faith of the claims or defenses made by the
party litigant. This Section does not apply to a suit by the Trustee, a suit by
a Holder pursuant to Section 6.07, or a suit by Holders of more than 10% in
principal amount of the then outstanding Securities.
ARTICLE 7
TRUSTEE
Section 7.01. Duties of Trustee.
- ------------- -----------------
(a) If an Event of Default has occurred and is continuing, the Trustee
shall exercise such of the rights and powers vested in it by this Indenture, and
use the same degree of care and skill in their exercise, as a prudent man would
exercise or use under the circumstances in the conduct of his own affairs.
(b) Except during the continuation of an Event of Default:
(1) The Trustee need perform only those duties that are
specifically set forth in this Indenture and no others.
(2) In the absence of bad faith on its part, the Trustee may
conclusively rely, as to the truth of the statements and the
correctness of the opinions expressed therein, upon certificates or
opinions furnished to the Trustee and conforming to the requirements of
this Indenture. However, in the case of any such certificates or
opinions which, by any provision hereof, are required to be furnished
to the Trustee, the Trustee shall examine such certificates and
opinions to determine whether or not they conform to the requirements
of this Indenture.
(c) No provision of this Indenture shall be construed to relieve the
Trustee from liability for its own negligent action, its own negligent failure
to act or its own willful misconduct, except that:
(1) This paragraph does not limit the effect of paragraph (b) of
this Section.
(2) The Trustee shall not be liable for any error of judgment made
in good faith by a Trust Officer, unless it is proved that the Trustee was
negligent in ascertaining the pertinent facts.
(3) The Trustee shall not be liable with respect to any action it
takes or omits to take in good faith in accordance with a direction received by
it pursuant to Section 6.05.
21
<PAGE>
(d) Every provision of this Indenture that in any way relates to
the Trustee is subject to paragraphs (a), (b) and (c) of this Section.
(e) The Trustee may refuse to perform any duty or exercise any
right or power unless it receives indemnity satisfactory to it against any loss,
liability or expense.
(f) The Trustee shall not be liable for interest on any money
received by it except as the Trustee may agree in writing with the Company.
Money held in trust by the Trustee need not be segregated from other funds
except to the extent required by law.
Section 7.02. Rights of Trustee.
- ------------- -----------------
(a) The Trustee may rely on any document believed by it to be genuine
and to have been signed or presented by the proper person. The Trustee need not
investigate any fact or matter stated in the document.
(b) Before the Trustee acts or refrains from acting, it may require an
Officers' Certificate or an Opinion of Counsel, or both. The Trustee shall not
be liable for any action it takes or omits to take in good faith in reliance on
such Officers' Certificate or Opinion of Counsel. The Trustee may consult with
its counsel and the written advice of such counsel shall be full and complete
authorization and protection from liability in respect of any action taken,
suffered or omitted by it hereunder in good faith and in reliance thereon.
(c) The Trustee may act through agents and shall not be responsible for
the misconduct or negligence of any agent appointed with due care.
(d) The Trustee shall not be liable for any action it takes or omits to
take in good faith which it believes to be authorized or within its rights or
powers.
Section 7.03. Individual Rights of Trustee.
- ------------- ----------------------------
The Trustee in its individual or any other capacity may become the
owner or pledgee of Securities and may otherwise deal with the Company or an
Affiliate with the same rights it would have if it were not Trustee. Any Agent
may do the same with like rights. However, the Trustee is subject to Sections
7.10 and 7.11.
Section 7.04. Trustee's Disclaimer.
- ------------- --------------------
The Trustee makes no representation as to the validity or adequacy of
this Indenture or the Securities, it shall not be accountable for the Company's
use of the proceeds from the Securities, and it shall not be responsible for any
statement of
22
<PAGE>
the Company in the Indenture or any Statement in the Securities other than its
certificate of authentication.
Section 7.05. Notice of Defaults.
- ------------- ------------------
If a Default or Event of Default occurs and is continuing and if it is
known to a Trust Officer, the Trustee shall mail to Securityholders, at the name
and address which appears in the Securities Register, a notice of the Default or
Event of Default within 90 days after it occurs. Except in the case of a Default
or Event of Default in payment on any Security, the Trustee may withhold the
notice if and so long as a committee of its Trust Officers in good faith
determines that withholding the notice is in the interests of Securityholders.
Section 7.06. Reports by Trustee to Holders.
- ------------- -----------------------------
Within 60 days after the reporting date stated in Section 13.10, the
Trustee shall mail to each Securityholder, at the name and address which appears
in the Securities Register, a brief report dated as of such reporting date that
complies with TIA (S) 313(a) (but if no event described in TIA (S) 313(a) has
occurred within twelve months preceding the reporting date, no report need be
transmitted). The Trustee also shall comply with TIA (S) 313(b)(2). The Trustee
shall also transmit by mail all reports as required by TIA (S) 313(c).
A copy of each report at the time of its mailing to Securityholders
shall be filed with the SEC and each stock exchange on which the Securities are
listed. The Company shall notify the Trustee when the Securities are listed on
any stock exchange or any delisting thereof.
Section 7.07. Compensation and Indemnity.
- ------------- --------------------------
The Company shall pay to the Trustee from time to time reasonable
compensation for its services hereunder. The Trustee's compensation shall not
be limited by any law on compensation of a trustee of an express trust. The
Company shall reimburse the Trustee upon request for all reasonable out-of-
pocket expenses incurred by it. Such expenses may include the reasonable
compensation and out-of-pocket expenses of the Trustee's agents and counsel.
The Company shall indemnify the Trustee against any and all losses,
damages, claims, liabilities and expenses incurred by it arising out of or in
connection with the acceptance or administration of its duties under this
Indenture, including the costs and expenses of enforcing this Indenture
(including this Section 7.07) against the Company and defending itself against
any claim (whether asserted by any Securityholder or any other person) or
liability in connection with the exercise or performance of any of its powers or
duties hereunder, except to the extent any such loss, damage, claim, liability
or expense may be attributable to its negligence or bad faith. The Trustee shall
notify the Company promptly of any claim for which it may seek indemnity, but
failure by the Trustee so to notify the Company shall not relieve the Company of
its obligations hereunder unless such failure prejudices the Company. The
Company shall defend the claim and the Trustee shall cooperate in the defense.
The Trustee may have separate counsel and the Company shall pay the
23
<PAGE>
reasonable fees and expenses of such counsel. The Company need not pay for any
settlement made without its consent.
The Company need not reimburse any expense or indemnify against any
loss or liability incurred by the Trustee through negligence or bad faith.
To secure the Company's payment obligations in this Section, the
Trustee shall have a lien prior to the Securities on all money or property held
or collected by the Trustee, except that held in trust to pay principal and
interest on particular Securities.
When the Trustee incurs expenses or renders services after an Event of
Default specified in Section 6.01(6) or (7) occurs, the expenses and the
compensation for the services are intended to constitute expenses of
administration under any Bankruptcy Law.
Section 7.08. Replacement of Trustee.
- ------------- ----------------------
A resignation or removal of the Trustee and appointment of a successor
Trustee shall become effective only upon the successor Trustee's acceptance of
appointment as provided in this Section.
The Trustee may resign by so notifying the Company. The Holders of a
majority in principal amount of the then outstanding Securities may remove the
Trustee by so notifying the Trustee and the Company in writing. The Company may
remove the Trustee if:
(1) the Trustee fails to comply with Section 7.10;
(2) the Trustee is adjudged a bankrupt or an insolvent or an order
for relief is entered with respect to the Trustee under any Bankruptcy Law;
(3) a Custodian or public officer takes charge of the Trustee or
its property; or
(4) the Trustee becomes incapable of acting.
If the Trustee resigns or is removed or if a vacancy exists in the
office of Trustee for any reason, the Company shall promptly appoint a successor
Trustee. Within one year after the successor Trustee takes office, the Holders
of a majority in principal amount of the then outstanding Securities may appoint
a successor Trustee to replace the successor Trustee appointed by the Company.
24
<PAGE>
If a successor Trustee does not take office within 60 days after the
retiring Trustee resigns or is removed, the retiring Trustee, the Company or the
Holders of at least 10% in principal amount of the then outstanding Securities
may petition any court of competent jurisdiction for the appointment of a
successor Trustee.
If the Trustee fails to comply with Section 7.10, any Securityholder
or Beneficial Holder may petition any court of competent jurisdiction for the
removal of the Trustee and the appointment of a successor Trustee.
A successor Trustee shall deliver a written acceptance of its
appointment to the retiring Trustee and to the Company. Thereupon the
resignation or removal of the retiring Trustee shall become effective, and the
successor Trustee shall have all the rights, powers and duties of the Trustee
under this Indenture. The successor Trustee shall mail a notice of its
succession to Securityholders. The retiring Trustee shall promptly transfer all
property held by it as Trustee to the successor Trustee, subject to the lien
provided for in Section 7.07. Notwithstanding the replacement of the Trustee
pursuant to this Section 7.08, the Company's obligations under Section 7.07
hereof shall continue for the benefit of the retiring Trustee with respect to
expenses and liabilities arising from or relating to matters prior to such
replacement.
Section 7.09 Successor Trustee by Merger, etc.
- ------------- ----------------------------------
If the Trustee consolidates, merges or converts into, or transfers all
or substantially all of its corporate trust business to, another corporation,
the successor corporation without any further act shall be the successor
Trustee, provided that such successor is eligible and qualified under Section
7.10.
Section 7.10 Eligibility; Disqualification .
- ------------ ------------------------------
This Indenture shall always have a Trustee who satisfies the
requirements of TIA (S) 310(a)(1). The Trustee shall always have a combined
capital and surplus as stated in Section 13.10. The Trustee will at all times
comply with, and will be subject to, TIA (S) 310(b), including the optional
provision permitted by the second sentence of TIA (S) 310(b)(9). Section 13.10
lists any excluded indenture or trust agreement.
Section 7.11 Preferential Collection of Claims Against Company .
- ------------ --------------------------------------------------
The Trustee is subject to TIA (S) 311(a), excluding any creditor
relationship listed in TIA (S) 311(b). A Trustee who has resigned or been
removed shall be subject to TIA (S) 311(a) to the extent indicated therein.
25
<PAGE>
ARTICLE 8
DISCHARGE OF INDENTURE
Section 8.01. Termination of Company's Obligations.
- ------------- ------------------------------------
This Indenture shall cease to be of further effect (except that the
Company's obligations under Section 7.07 and the Trustee's obligations under
Sections 8.02 and 8.03 shall survive) when all outstanding Securities
theretofore authenticated and issued have been delivered to the Trustee for
cancellation and the Company has paid all sums payable hereunder. In addition,
the Company may terminate all of its obligations under this Indenture (except
the Company's obligations under Sections 7.07) if:
(1) the Securities mature within one year or all of them are to be
called for redemption within one year under arrangements satisfactory to the
Trustee for giving the notice of redemption; and
(2) the Company irrevocably deposits in trust with the Trustee money or
U.S. Government Obligations sufficient to pay principal and interest on the
Securities to maturity or redemption, as the case may be, and to pay all other
sums payable by it hereunder. The Company may make the deposit only during the
one-year period and only if Article 11 permits it.
However, the Company's obligations in Sections 2.03, 2.04, 2.05, 2.06, 2.07,
4.01, 7.07, 8.03, 8.04 and in Article 10, shall survive until the Securities are
no longer outstanding. Thereafter, only the Company's obligations under Section
7.07 shall survive.
After a deposit made pursuant to this Section 8.01, the Trustee upon
request shall acknowledge in writing the discharge of the Company's obligations
under this Indenture except for those surviving obligations specified above.
"U.S. Government Obligations" means direct obligations of the United
---------------------------
States of America for the payment of which the full faith and credit of the
United States of America is pledged. In order to have money available on a
payment date to pay principal or interest on the Securities, the U.S. Government
Obligations shall be payable as to principal or interest on or before such
payment date in such amounts as will provide the necessary money. U.S.
Government Obligations shall not be callable at the issuer's option.
26
<PAGE>
Section 8.02. Application of Trust Money.
- ------------- --------------------------
The Trustee shall hold in trust money or U.S. Government Obligations
deposited with it pursuant to Section 8.01. It shall apply the deposited money
and the money from U.S. Government Obligations through the Paying Agent and in
accordance with this Indenture to the payment of principal and interest on the
Securities. Money and securities so held in trust are not subject to Article
11.
Section 8.03. Repayment to Company.
- ------------- --------------------
The Trustee and the Paying Agent shall promptly pay to the Company
upon request any excess money or securities held by them at any time.
Subject to any applicable law, the Trustee and the Paying Agent shall
pay to the Company upon request any money held by them for the payment of
principal or interest that remains unclaimed for two years after the date upon
which such payment shall have become due; provided, however, that the Company
shall have first caused notice of such payment to the Company to be mailed to
each Securityholder entitled thereto no less than 30 days prior to such payment.
After the payment to the Company, Securityholders entitled to the money must
look to the Company for payment as general creditors unless an applicable
abandoned property law designates another person.
Section 8.04. Reinstatement.
- ------------- -------------
If (i) the Trustee or Paying Agent is unable to apply any money in
accordance with Section 8.02 by reason of any order or judgment of any court or
governmental authority enjoining, restraining or otherwise prohibiting such
application and (ii) the Holders of at least a majority in principal amount of
the then outstanding Securities so request by written notice to the Trustee, the
Company's obligations under this Indenture and the Securities shall be revived
and reinstated as though no deposit had occurred pursuant to Section 8.01 until
such time as the Trustee or Paying Agent is permitted to apply all such money in
accordance with Section 8.02; provided, however, that if the Company makes any
payment of interest on or principal of any Security following the reinstatement
of its obligations, the Company shall be subrogated to the rights of the Holders
of such Securities to receive such payment from the money held by the Trustee or
Paying Agent.
27
<PAGE>
ARTICLE 9
AMENDMENTS
Section 9.01. Without Consent of Holders.
- ------------- --------------------------
The Company and the Trustee may amend this Indenture or the
Securities without the consent of any Securityholder:
(1) to cure any ambiguity, defect or inconsistency; or
(2) to comply with Sections 5.01 and 10.18; or
(3) to provide for uncertificated Securities in addition to
certificated Securities; or
(4) to make any change that, in the opinion of the Board of
Directors, does not materially adversely affect the legal rights hereunder of
any Securityholder; or
(5) to comply with the TIA;
provided that, in the case of clauses (1) through (3) above, inclusive, the
- --------
Company has delivered to the Trustee an opinion of counsel stating that such
change does not adversely affect the rights of any Securityholder.
Section 9.02. With Consent of Holders.
- ------------- -----------------------
Subject to Section 6.07, the Company and the Trustee may amend this
Indenture or the Securities with the written consent of the Holders of at least
a majority in the principal amount of the then outstanding Securities. Subject
to Sections 6.04 and 6.07, the Holders of a majority in principal amount of the
Securities then outstanding may also waive compliance in a particular instance
by the Company with any provision of this Indenture or the Securities. However,
without the consent of each Securityholder affected, an amendment or waiver
under this Section may not:
(1) reduce the amount of Securities whose Holders must consent to
an amendment or waiver;
(2) reduce the rate of or change the time for payment of interest
on any Security;
(3) reduce the principal of or change the fixed maturity of any
Security or alter the redemption provisions with respect thereto;
28
<PAGE>
(4) make any Security payable in money other than that stated in
the Security;
(5) make any change in Section 6.04, 6.07 or 9.02 which adversely
affects the rights of the Holders;
(6) make any change that adversely affects the right to convert
any Security;
(7) make any change in Article 11 that adversely affects the
rights of any Securityholders; or
(8) waive a default in the payment of the principal (except
principal due by reason of acceleration) of, or interest on, any Security or any
Default which materially and adversely affects the rights of any Securityholders
under Article 10.
After an amendment or waiver under this Section becomes effective, the
Company shall mail to Securityholders a notice briefly describing the amendment
or waiver.
Section 9.03. Compliance with Trust Indenture Act.
- ------------- -----------------------------------
Every amendment to this Indenture or the Securities shall be set forth
in a supplemental indenture that complies with the TIA as then in effect.
Section 9.04. Revocation and Effect of Consents.
- ------------- ---------------------------------
Until an amendment or waiver becomes effective, a consent to it by a
Holder of a Security is a continuing consent by the Holder and every subsequent
Holder of a Security or portion of a Security that evidences the same debt as
the consenting Holder's Security, even if notation of the consent is not made on
any Security. However, any such Holder or subsequent Holder may revoke the
consent as to his Security or portion of a Security if the Trustee receives the
notice of revocation before the date on which the Trustee receives an Officers'
Certificate certifying that the Holders of the requisite principal amount of
Securities have consented to the amendment or waiver.
The Company may, but shall not be obligated to, fix a record date for
the purpose of determining the Holders entitled to consent to any amendment or
waiver. If a record date is fixed, then notwithstanding the provisions of the
immediately preceding paragraph, those persons who were Holders at such record
date (or their duly designated proxies), and only those persons, shall be
entitled to consent to such amendment or waiver or to revoke any consent
previously given, whether or not such persons continue to
29
<PAGE>
be Holders after such record date. No consent shall be valid or effective for
more than 90 days after such record date unless consents from Holders of the
principal amount of Securities required hereunder for such amendment or waiver
to be effective shall have also been given and not revoked within 90-day period.
After an amendment or waiver becomes effective it shall bind every
Securityholder, unless it is of the type described in any of clauses (1) through
(8) of Section 9.02. In such case, the amendment or waiver shall bind each
Holder of a Security who has consented to it and every subsequent Holder of a
Security that evidences the same debt as the consenting Holder's Security.
Section 9.05. Notation on or Exchange of Securities.
- ------------- -------------------------------------
The Trustee may place an appropriate notation about an amendment or
waiver on any Security thereafter authenticated. The Company in exchange for
all Securities may issue and the Trustee shall authenticate new Securities that
reflect the amendment or waiver.
Section 9.06. Trustee Protected.
- ------------- -----------------
The Trustee shall sign all supplemental indentures, except that the
Trustee need not sign any supplemental indenture that adversely affects its
rights. In executing any supplemental indenture, the Trustee shall be entitled
to receive and (subject to Section 7.01) shall be fully protected in relying
upon, an Officers' Certificate and an Opinion of Counsel stating that the
execution of such supplemental indenture is authorized or permitted by this
Indenture and that it will be valid and binding upon the Company in accordance
with its terms.
ARTICLE 10
CONVERSION
Section 10.01. Conversion Privilege.
- -------------- --------------------
A Holder of a Security may convert it into Common Stock at any time
during the period stated in paragraph 8 of the Securities. The number of shares
issuable upon conversion of a Security is determined as follows: Divide the
principal amount to be converted by the conversion price in effect on the
conversion date. Round the result to the nearest 1/1OOth of a share.
The initial conversion price is stated in paragraph 8 of the
Securities. The conversion price is subject to adjustment.
A Holder may convert a portion of a Security if the portion is $1,000
or an integral multiple of $1,000. Provisions of this Indenture that apply to
conversion of all of a Security also apply to conversion of a portion of it.
30
<PAGE>
"Common Stock" means Common Stock of the Company as it exists on the
------------
date of this Indenture or as it may be constituted from time to time.
Section 10.02. Conversion Procedure.
- -------------- --------------------
To convert a Security, a Holder must satisfy the requirements in
paragraph 8 of the Securities. The date on which the Holder satisfies all those
requirements is the conversion date. As soon as practical, the Company shall
deliver through the Conversion Agent a certificate for the number of full shares
of Common Stock issuable upon the conversion and a check for any fractional
share. The person in whose name the certificate is registered shall be treated
as a stockholder of record on and after the conversion date.
No payment or adjustment will be made for accrued interest on a
converted Security or dividends on any Common Stock issued. Interest will be
paid on any interest payment date with respect to Securities surrendered for
conversion after a record date for the payment of interest to the registered
Holder on such record date. However, Securities 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 payment date.
If a Holder converts more than one Security at the same time, the
number of full shares issuable upon the conversion shall be based on the total
principal amount of the Securities converted.
Upon a surrender of a definitive Security that is converted in part,
the Company shall issue and the Trustee shall authenticate for the Holder a new
definitive Security equal in principal amount to the unconverted portion of the
Security surrendered.
If the last day on which a Security may be converted is a Legal
Holiday in a place where a Conversion Agent is located, the Security may be
surrendered to that Conversion Agent on the next succeeding day that is not a
Legal Holiday.
Section 10.03. Fractional Shares.
- -------------- -----------------
The Company will not issue a fractional share of Common Stock upon
conversion of a Security. Instead the Company will deliver its check for the
current market value of the fractional share. The current market value of a
fraction of a share is determined as follows: Multiply the current market price
of a full share by the fraction. Round the result to the nearest cent.
31
<PAGE>
The current market price of a share of Common Stock is the Quoted
Price of the Common Stock on the last trading day prior to the conversion date.
In the absence of such a quotation, the Company shall determine the current
market price on the basis of such quotations as it considers appropriate.
Section 10.04. Taxes on Conversion.
- -------------- -------------------
If a Holder of a Security converts it, the Company shall pay any
documentary, stamp or similar issue or transfer tax due on the issue of shares
of Common Stock upon the conversion. However, the Holder shall pay any such tax
which is due because the shares are issued in a name other than the Holder's
name.
Section 10.05. Company to Provide Stock.
- -------------- ------------------------
The Company has reserved and shall continue to reserve out of its
authorized but unissued Common Stock or its Common Stock held in treasury enough
shares of Common Stock to permit the conversion of the Securities in full.
All shares of Common Stock which may be issued upon conversion of the
Securities shall be fully paid and non-assessable.
The Company will endeavor to comply with all securities laws
regulating the offer and delivery of shares of Common Stock upon conversion of
Securities and will endeavor to list such shares on each national securities
exchange on which the Common Stock is listed.
Section 10.06. Adjustment for Change in Capital Stock.
- -------------- --------------------------------------
If the Company:
(1) pays a dividend or makes a distribution on its Common Stock in
shares of its Common Stock;
(2) subdivides its outstanding shares of Common Stock into a
greater number of shares;
(3) combines its outstanding shares of Common Stock into a smaller
number of shares; or
(4) issues by reclassification of its Common Stock any shares of
its capital stock;
then the conversion privilege and the conversion price in effect immediately
prior to such action shall be adjusted so that the Holder of a Security
thereafter converted may receive the number
32
<PAGE>
of shares of capital stock of the Company which he would have owned immediately
following such action if he had converted the Security immediately prior to such
action.
The adjustment shall become effective immediately after the record
date in the case of a dividend or distribution and immediately after the
effective date in the case of a subdivision, combination or reclassification.
If after an adjustment a Holder of a Security upon conversion of it
may receive shares of two or more classes of capital stock of the Company, the
Company shall determine the allocation of the adjusted conversion price between
the classes of capital stock. After such allocation, the conversion privilege
and the conversion price of each class of capital stock shall thereafter be
subject to adjustment on terms comparable to those applicable to Common Stock in
this Article.
Section 10.07. Adjustment for Rights Issue.
- -------------- ---------------------------
If the Company distributes any rights or warrants to all holders of
its Common Stock entitling them for a period expiring within 60 days after the
record date mentioned below to subscribe for or purchase shares of Common Stock
(or securities convertible into or exchangeable for shares of Common Stock (the
"Exchangeable Securities")) at a price per share (or having a conversion price
or exercise price per share) less than the current market price per share on
that record date, the conversion price shall be adjusted in accordance with the
formula:
N x P
-----
O + M
-------
C' = C x O + N
where:
C' = the adjusted conversion price.
C = the current conversion price.
O = the number of shares of Common Stock outstanding on
the record date.
N = the maximum number of shares of Common Stock
deliverable upon conversion of, in exchange for, or
upon exercise of, such rights or warrants (and, if
applicable, the Exchangeable Securities) at the initial
conversion, exchange or exercise rate.
33
<PAGE>
P = the per share consideration received by the Company
upon the conversion of, exchange for, or exercise of,
such rights or warrants (and, if applicable, the
Exchangeable Securities).
M = the current market price per share of Common Stock on
the record date.
The adjustment shall be made successively whenever any such rights or
warrants are issued and shall become effective immediately after the record date
for the determination of stockholders entitled to receive the rights or
warrants. If at the end of the period during which such warrants or rights are
exercisable, not all warrants or rights shall have been exercised, the
conversion price shall be immediately readjusted to what it would have been if
"N" in the above formula had been the number of shares actually issued.
Section 10.08. Adjustment for Other Distributions.
- -------------- ----------------------------------
If the Company distributes to all holders of its Common Stock shares
of Capital Stock other than Common Stock, debt securities of the Company or any
of its assets or any rights or warrants to purchase assets, debt securities or
other securities of the Company, the conversion price shall be adjusted in
accordance with the formula:
M - F
-----
C' = C x M
where:
C' = the adjusted conversion price.
C = the current conversion price.
M = the current market price per share of Common Stock on
the record date mentioned below.
F = the fair market value on the record date of the assets,
securities, rights or warrants applicable to one share
of Common Stock. The Board of Directors shall determine
the fair market value.
The adjustment shall be made successively whenever any such
distribution is made and shall become effective immediately after the record
date for the determination of stockholders entitled to receive the distribution.
34
<PAGE>
This Section does not apply to regular cash dividends or cash
distributions paid out of consolidated current earnings as shown on the books of
the Company. Also, this Section does not apply to rights or warrants referred
to in Section 10.07.
Section 10.09. Adjustment for Common Stock Issue.
- -------------- ---------------------------------
If the Company issues shares of Common Stock for a consideration per
share which is less than the current market price per share on the date the
Company fixes the offering price of such additional shares the conversion price
shall be adjusted in accordance with the formula:
O + P
-
M
-------
C' = C x A
where:
C' = the adjusted conversion price.
C = the then current conversion price.
O = the number of shares outstanding immediately prior to
the issuance of such additional shares.
P = the aggregate consideration received for the issuance
of such additional shares.
M = the current market price per share on the date of
issuance of such additional shares.
A = the number of shares outstanding immediately after the
issuance of such additional shares.
The adjustment shall be made successively whenever any such issuance
is made, and shall become effective immediately after such issuance.
This Section does not apply to (i) any of the transactions described
in Sections 10.06, 10.07, 10.08 and 10.10, (ii) the conversion of Securities, or
the conversion, exchange or exercise of options or other securities convertible
into or exchangeable for Common Stock, (iii) Common Stock issued pursuant to any
bona fide director, management, employee and consultant stock option and benefit
plans and agreements adopted by the Board of Directors either now existing or
hereinafter in effect, (but only to the extent that either (x) the eligibility
for persons entitled to participate in any such plan is broad based or (y)
35
<PAGE>
the aggregate number of shares excluded under this clause (y) and issued after
the date of this Indenture shall not exceed 10% of the Common Stock outstanding
at the time of the adoption of each such plan and agreement, exclusive of
antidilution adjustments thereunder), (iv) Common Stock issued to acquire, or in
the acquisition of, all or any portion of, or to invest in, a business, in an
arm's-length transaction between the Company and a third party which is not an
Affiliate of the Company, whether such acquisition or investment shall be
effected by purchase of assets, exchange of securities, merger, consolidation or
otherwise, or (v) Common Stock issued in a bona fide public offering or 144A
offering pursuant to a firm commitment underwriting or sales at the market
pursuant to a continuous offering stock program.
Section 10.10. Adjustment for Convertible Securities Issue.
- -------------- -------------------------------------------
If the Company issues any securities convertible into or exchangeable
or exercisable for Common Stock (other than the Securities or securities issued
in transactions described in Sections 10.06, 10.07 and 10.08) for a
consideration per share of Common Stock initially deliverable upon conversion,
exchange or exercise of such securities which is less than the current market
price per share on the date of issuance of such securities the conversion price
shall be adjusted in accordance with this formula:
O + P
-
M
-------
C' = C x (O + D)
where:
C' = the adjusted conversion price.
C = the then current conversion price.
O = the number of shares outstanding immediately prior to
the issuance of such securities.
P = the aggregate consideration received for the issuance
of such securities.
M = the current market price per share on the date of
issuance of such securities.
D = the maximum number of shares deliverable upon
conversion or in exchange for or upon exercise of
36
<PAGE>
such securities at the initial conversion, exchange or
exercise rate.
The adjustment shall be made successively whenever any such issuance
is made, and shall become effective immediately after such issuance. If all of
the Common Stock deliverable upon conversion, exchange or exercise of such
securities have not been issued when such securities are no longer outstanding,
then the conversion price shall promptly be readjusted to the conversion price
which would then be in effect had the adjustment upon the issuance of such
securities been made on the basis of the actual number of shares of Common Stock
issued upon conversion, exchange or exercise of such securities.
This Section does not apply to (i) convertible securities issued to
acquire, or in the acquisition of, all or any portion of, or to invest in, a
business, in an arm's-length transaction between the Company and a third party
which is not an Affiliate of the Company, whether such acquisition or investment
shall be effected by purchase of assets, exchange of securities, merger,
consolidation or otherwise, (ii) options issued pursuant to any bona fide
director, management, employee and consultant benefit plans and agreements
adopted by the Board of Directors, or (iii) convertible securities issued in a
bona fide public offering or a 144A offering pursuant to a firm commitment
underwriting or sales at the market pursuant to a continuous offering program.
Section 10.11. Current Market Price.
- -------------- --------------------
In Sections 10.07, 10.08, 10.09 and 10.10, the current market price
per share of Common Stock on any date is (i) for purposes of Sections 10.09 and
10.10, the lower of (x) the average of the Quoted Prices of the Common Stock for
15 consecutive trading days commencing 25 trading days before the date in
question or (y) the Quoted Price at the most recent close of trading prior to
the time of determination of the consideration per share of Common Stock issued,
or initially deliverable upon conversion, exchange or exercise, and (ii) for
purposes of Sections 10.07 and 10.08, the price determined in accordance with
the preceding clause (i)(x). In the absence of one or more such quotations, the
Company shall determine the current market price on the basis of such quotations
as it considers appropriate.
Section 10.12. Consideration Received.
- -------------- ----------------------
For purposes of any computation respecting consideration received
pursuant to Sections 10.09 and 10.10, the following shall apply:
37
<PAGE>
(1) in the case of the issuance of shares of Common Stock for cash,
the consideration shall be the amount of such cash, provided that in no case
shall any deduction be made for any commissions, discounts or other expenses
incurred by the Company for any underwriting of the issue or otherwise in
connection therewith;
(2) in the case of the issuance of shares of Common Stock for a
consideration in whole or in part other than cash, the consideration other than
cash shall be deemed to be the fair market value thereof as determined in good
faith by the Board of Directors or a duly authorized committee thereof
(irrespective of the accounting treatment thereof), whose determination shall be
conclusive, and described in a resolution which shall be filed with the Trustee;
and
(3) in the case of the issuance of securities convertible into or
exchangeable or exercisable for shares, the aggregate consideration received
therefor shall be deemed to be the consideration received by the Company for the
issuance of such securities plus the additional minimum consideration, if any,
to be received by the Company upon the conversion or exchange thereof (the
consideration in each case to be determined in the same manner as provided in
clauses (1) and (2) of this Section).
Section 10.13. When Adjustment May Be Deferred.
- -------------- -------------------------------
No adjustment in the conversion price need be made unless the
adjustment would require an increase or decrease of at least 1% in the
conversion price. Any adjustments that are not made shall be carried forward
and taken into account in any subsequent adjustment.
All calculations under this Article shall be made to the nearest cent
or to the nearest 1/1OOth of a share, as the case may be.
Section 10.14. When No Adjustment Required.
- -------------- ---------------------------
No adjustment need be made for a transaction referred to in Section
10.06, 10.07, 10.08, 10.09 or 10.10 if all Securityholders are entitled to
participate in the transaction, or will participate in the transaction upon
conversion of their Securities, on a basis and with notice that the Board of
Directors deems to be fair and appropriate in light of the basis on which
holders of Common Stock participate in the transaction.
38
<PAGE>
No adjustment need be made for rights to purchase Common Stock or
issuance of Common Stock pursuant to a Company plan for reinvestment of
dividends or interest.
No adjustment need be made for a change in the par value or no par
value of the Common Stock.
To the extent the Securities become convertible into cash, no
adjustment need be made thereafter as to the cash. Interest will not accrue on
the cash.
Section 10.15. Notice of Adjustment.
- -------------- --------------------
Whenever the conversion price is adjusted, the Company shall promptly
mail to Securityholders a notice of the adjustment. The Company shall file with
the Trustee a certificate from the Company's independent public accountants
briefly stating the facts requiring the adjustment and the manner of computing
it. The certificate shall be conclusive evidence that the adjustment is
correct.
Section 10.16. Voluntary Reduction.
- -------------- -------------------
The Company from time to time may reduce the conversion price by any
amount for any period of time if the period is at least 20 days or such longer
period as may be required by law and if the reduction is irrevocable during the
period, provided, that in no event may the conversion price be less than the par
value of a share of Common Stock.
Whenever the conversion price is reduced, the Company shall mail to
Securityholders a notice of the reduction. The notice shall state the reduced
conversion price and the period it will be in effect. The form, content and
manner of dissemination of such notice shall comply with any applicable rules
and regulations of the SEC.
A reduction of the conversion price does not change or adjust the
conversion price otherwise in effect for purposes of Sections 10.06, 10.07,
10.08, 10.09 and 10.10.
Section 10.17. Notice of Certain Transactions.
- -------------- ------------------------------
If:
(1) the Company takes any action that would require an adjustment in
the conversion price pursuant to Section 10.06, 10.07, 10.08, 10.09 or 10.10
and if the Company does not let Securityholders participate pursuant to Section
10.14;
39
<PAGE>
(2) the Company takes any action that would require a supplemental
indenture pursuant to Section 10.18; or
(3) there is a liquidation or dissolution of the Company,
the Company shall mail to Securityholders a notice stating the proposed record
date for a dividend or distribution or the proposed effective date of a
subdivision, combination, reclassification, consolidation, merger, transfer,
lease, liquidation or dissolution. The Company shall mail the notice at least
15 days before such date. Failure to mail the notice or any defect in it shall
not affect the validity of the transaction.
Section 10.18. Reorganization of Company.
- -------------- -------------------------
If the Company is a party to a transaction subject to Section 5.01, or
a merger which reclassifies or changes its outstanding Common Stock, 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, then upon consummation of such transaction the
Securities shall automatically become convertible only into the kind and amount
of securities, cash or other assets which the Holder of a Security would have
owned immediately after the consolidation, merger, transfer or lease if the
Holder had converted the Security at the conversion price in effect immediately
before the effective date of the transaction, assuming that the Holder failed to
exercise the rights of election, if any, as to the kind or amount of securities,
cash and other property receivable upon such transaction (provided that if the
kind or amount of securities, cash or other assets receivable upon such
transaction is not the same for each share of Common Stock held immediately
prior to such transaction in respect of which such rights of election shall not
have been exercised (each such share a "nonelecting share"), then for the
purpose of this Section the kind and amount of securities, cash or other assets
receivable upon such transaction by each nonelecting share shall be deemed to be
the kind and amount so receivable per share by a plurality of the nonelecting
shares). Concurrently with the consummation of such transaction, the person
obligated to issue securities or deliver cash or other assets upon conversion of
the Securities shall enter into a supplemental indenture so providing and
further providing for adjustments which shall be as nearly equivalent as may be
practical to the adjustments provided for in this Article. The successor
Company shall mail to Securityholders a notice describing the supplemental
indenture.
40
<PAGE>
If securities deliverable upon conversion of Securities, as provided
above, are themselves convertible into the securities of an affiliate of the
formed, surviving, transferee or lessee corporation, that issuer shall join in
the supplemental indenture which shall so provide.
If this Section applies, Section 10.06 does not apply.
Section 10.19. Company Determination Final.
- -------------- ---------------------------
Any determination that the Company or the Board of Directors must make
pursuant to Section 10.03, 10.06, 10.08, 10.09, 10.10, 10.11, 10.12 or 10.14 is
conclusive.
Section 10.20. Trustee's Disclaimer.
- -------------- --------------------
The Trustee has no duty to determine when an adjustment under this
Article should be made, how it should be made or what it should be. The Trustee
has no duty to determine whether any provisions of a supplemental indenture
under Section 10.18 are correct. The Trustee makes no representation as to the
validity or value of any securities or assets issued upon conversion of
Securities. The Trustee shall not be responsible for the Company's failure to
comply with this Article. Each Conversion Agent other than the Company shall
have the same protection under this Section as the Trustee.
ARTICLE 11
SUBORDINATION
Section 11.01. Securities Subordinated to Senior Debt.
- -------------- --------------------------------------
The Company agrees, and each Holder of the Securities by his
acceptance thereof likewise agrees, that the payment of the principal of and
interest on the Securities is subordinated, to the extent and in the manner
provided in this Article Eleven, to the prior payment in full of all Senior
Debt.
"Senior Debt" means (a) the principal of, premium, if any, and
interest on all Debt (other than the Securities), whether outstanding on the
date of this 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 Securities; and (b) any amendment,
modification, deferral, renewal, refunding or extension of any such Senior Debt,
or debentures, notes or other
41
<PAGE>
evidences of indebtedness issued in exchange of any such Senior Debt.
"Debt" means:
(1)(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), (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);
(2) any indebtedness of others described in the preceding clause (1)
which the Company has guaranteed or for which it is otherwise liable; and
(3) any amendment, renewal, extension or refunding of any such
indebtedness.
Notwithstanding the foregoing, "Senior Debt" shall not include (A)
indebtedness evidenced by the Securities, (B) indebtedness of the Company that
is expressly subordinated in right of payment to the Securities, and (C)
indebtedness of the Company to an affiliate or a subsidiary of the Company.
This Article Eleven shall constitute a continuing offer to all persons
who, in reliance upon such provisions, become holders of, or continue to hold,
Senior Debt, and such provisions are made for the benefit of the holders of
Senior Debt, and such holders are made obligees hereunder and they and/or each
of them may enforce such provisions.
Section 11.02. Company Not to Make Payments with Respect to
- -------------- --------------------------------------------
Securities in Certain Circumstances.
-----------------------------------
(a) Upon the maturity of any Senior Debt by lapse of time,
acceleration or otherwise, all principal thereof and interest thereon shall
first be paid in full, or such payment duly provided for in cash or in a manner
satisfactory to the holders of such Senior Debt, before any payment is made on
account of the principal of or interest on the Securities or to acquire any of
the Securities.
(b) Upon the happening of any default in payment of the principal of,
premium, if any, or interest on any Senior Debt, then, unless and until such
default shall have been cured or
42
<PAGE>
waived or shall have ceased to exist, no payment shall be made by the Company
with respect to the principal of or interest on the Securities nor shall any
payment be made by the Company to acquire any of the Securities; nothing in this
Article Eleven, however, shall relieve the holders of such Senior Debt or their
representative from any notice requirements set forth in the instrument
evidencing such Senior Debt.
(c) In the event that notwithstanding the provisions of this Section
11.02 the Company shall make any payment to the Trustee on account of the
principal of or interest on the Securities, after the happening of a default in
payment of the principal of or interest on Senior Debt, then, unless and until
such default shall have been cured or waived or shall have ceased to exist, such
payment (subject to the provisions of Section 11.06 and 11.07) shall be held by
the Trustee, in trust for the benefit of, and shall be paid over and delivered
to, the holders of Senior Debt (pro rata as to each of such holders on the basis
of the respective amounts of Senior Debt held by them) or their representative
or the trustee under any indenture or other agreement (if any) pursuant to which
Senior Debt may have been issued, as their respective interests may appear, for
application to the payment of all Senior Debt remaining unpaid to the extent
necessary to pay all Senior Debt in full in accordance with its terms, after
giving effect to any concurrent payment or distribution to or for the holders of
Senior Debt.
The Company shall give prompt written notice to the Trustee of any
default in the payment of principal of or interest on any Senior Debt.
Section 11.03. Securities Subordinated to Prior Payment of
- -------------- -------------------------------------------
All Senior Debt on Dissolution, Liquidation or
----------------------------------------------
Reorganization of Company.
-------------------------
Upon any distribution of assets of the Company in any dissolution,
winding up, liquidation or reorganization of the Company (whether in bankruptcy,
insolvency or receivership proceedings or upon an assignment for the benefit of
creditors or otherwise):
(a) the holders of all Senior Debt shall first be entitled to receive
payments in full of the principal thereof, premium, if any, and interest due
thereon before the Holders of the Securities are entitled to receive any payment
on account of the principal of or interest on the Securities;
(b) any payment or distribution of assets of the Company of any kind
or character, whether in cash, property
43
<PAGE>
or securities, to which the Holders of the Securities or the Trustee on behalf
of the Holders of the Securities would be entitled except for the provisions of
this Article Eleven, including any such payment or distribution which may be
payable or deliverable by reason of the payment of the Securities, shall be paid
by the liquidating trustee or agent or other person making such payment or
distribution directly to the holders of the Senior Debt or their representatives
or to the trustee under any indenture under which Senior Debt may have been
issued (pro rata as to each such holder, representative or trustee on the basis
of respective amounts of unpaid Senior Debt held or represented by each), to the
extent necessary to make payment in full of all Senior Debt remaining unpaid,
after giving effect to any concurrent payment or distribution or provision
therefor to the holders of such Senior Debt, except that Holders of the
Securities would be entitled to receive/securities that are subordinated to
Senior Debt to at least the same extent as the Securities; and
(c) in the event that notwithstanding the foregoing provisions of
this Section 11.03, any payment or distribution or provision of assets of the
Company of any kind or character, whether in cash, property or securities,
including any such payment or distribution which may be payable or deliverable
by reason of the payment of any other Indebtedness of the Company being
subordinated to the payment of the Securities, shall be received by the Trustee
or the Holders of the Securities on account of principal of or interest on the
Securities before all Senior Debt is paid in full, or effective provision made
for its payment, such payment or distribution (subject to the provision of
Sections 11.06 and 11.07) shall be received and held in trust for and shall be
paid over to the holders of the Senior Debt remaining unpaid or unprovided for
or their representative, or to the trustee under any indenture under which such
Senior Debt may have been issued (pro rata as provided in subsection (b) above),
for application to the payment of such Senior Debt until all such Senior Debt
shall have been paid in full, after giving effect to any concurrent payment or
distribution or provision therefor to the holders of such senior Debt, except
that Holders of the Securities would be entitled to receive securities that are
subordinated to Senior Debt to at least the same extent as the Securities.
The Company shall give prompt written notice to the Trustee of any
dissolution, winding up, liquidation or reorganization of the Company.
44
<PAGE>
Section 11.04. Securityholders to be Subrogated to Rights of
- -------------- ---------------------------------------------
Holders of Senior Debt.
----------------------
Subject to the payment in full of all Senior Debt, the Holders of the
Securities shall be subrogated equally and ratably to the rights of the holders
of the Senior Debt to receive payments or distributions of assets of the Company
applicable to the Senior Debt until all amounts owing on the Securities shall be
paid in full, and for the purpose of such subrogation no payments or
distributions to the holders of the Senior Debt by or on behalf of the Company
or by or on behalf of Holders of the Securities by virtue of this Article Eleven
which otherwise would have been made to the Holders of the Securities shall, as
between the Company, its creditors other than holders of the Senior Debt and the
Holders of the Securities, be deemed to be payment by the Company to or on
account of the Senior Debt, it being understood that the provisions of this
Article Eleven are intended solely for the purpose of defining the relative
rights of the Holders of the Securities, on the one hand and the holders of the
Senior Debt, on the other hand.
Section 11.05. Obligation of Company Unconditional.
- -------------- -----------------------------------
Nothing contained in this Article Eleven or elsewhere in this
Indenture or in any Security is intended to or shall impair, as between the
Company, its creditors other than holders of Senior Debt and the Holders of the
Securities, the obligation of the Company, which is absolute and unconditional,
to pay to the Holders of the Securities the principal of and interest on the
Securities as and when the same shall become due and payable in accordance with
their terms, or is intended to or shall affect the relative rights of the
Holders of the Securities and creditors of the Company other than the holders of
the Senior Debt, nor shall anything herein or therein prevent the Trustee or the
Holder of any Security from exercising all remedies otherwise permitted by
applicable law upon default under this Indenture, subject to the rights, if any,
under this Article Eleven of the holders of Senior Debt in respect of cash,
property or securities of the Company received upon the exercise of any such
remedy. Upon any distribution of assets of the Company referred to in this
Article Eleven, the Trustee, subject to the provisions of Sections 7.01 and
7.02, and the Holders of the Securities shall be entitled to rely upon any order
or decree by any court of competent jurisdiction in which such dissolution,
winding up, liquidation or reorganization proceedings are pending, or a
certificate of the liquidating trustee or agent or other person making any
distribution to the Trustee or the Holders of the Securities, for the purpose of
ascertaining the persons entitled to participate in such distribution, the
holders of the Senior Debt, the amount or amounts paid or
distributed
45
<PAGE>
thereon and all other facts pertinent thereto or to this Article Eleven. Nothing
contained in this Article Eleven or elsewhere in this Indenture or in any
Security is intended to or shall affect the obligation of the Company to make,
or prevent the Company from making, at any time except during the pendency of
any dissolution, winding up, liquidation or reorganization proceeding, and
except during the continuance of any default specified in Section 11.02 (not
cured or waived), payments at any time of the principal of or interest on the
Securities.
Section 11.06. Knowledge of Trustee.
- -------------- --------------------
Notwithstanding any provision of this Indenture, the Trustee shall not
be charged with knowledge of the existence of any facts which would prohibit the
making of any payment of monies to or by the Trustee, or the taking of any other
action by the Trustee, until two business days after the Trustee shall have
received written notice thereof from the Company, any Security holder, any
Paying or Conversion Agent or the holder or representative of any class of
Senior Debt.
Section 11.07. Application by Trustee of Monies Deposited
- -------------- ------------------------------------------
With It.
-------
If prior to the date on which by the terms of this Indenture any
monies deposited with the Trustee or any Paying Agent may become payable for any
purpose (including, without limitation, the payment of either the principal of
or the interest on any Security) the Trustee shall not have received with
respect to such monies the notice provided for in Section 11.06, then the
Trustee shall have full power and authority to receive such monies and to apply
the same to the purpose for which they were received and shall not be affected
by any notice to the contrary which may be received by it on or after such date.
This section shall be construed solely for the benefit of the Trustee and Paying
Agent and shall not otherwise affect the rights of holders of such Debt.
Section 11.08. Subordination Rights Not Impaired by Acts
- -------------- -----------------------------------------
or Omissions of Company or Holders of
-------------------------------------
Senior Debt.
-----------
No right of any present or future holders of any Senior Debt to
enforce subordination as provided herein shall at any time in any way be
prejudiced or impaired by any act or failure to act on the part of the Company
or by any act or failure to act, in good faith, by any such holder, or by any
noncompliance by the Company with the terms of this Indenture, regardless of any
knowledge thereof which any such holder may have or be otherwise charged with.
46
<PAGE>
Section 11.09. Securityholders Authorize Trustee to
- -------------- ------------------------------------
Effectuate Subordination of Securities.
--------------------------------------
Each Holder of the Securities by his acceptance thereof authorizes and
expressly directs the Trustee on his behalf to take such action as may be
necessary or appropriate to effectuate the subordination provided in this
Article Eleven and appoints the Trustee his attorney-in-fact for such purpose,
including, in the event of any dissolution, winding up, liquidation or
reorganization of the Company (whether in bankruptcy, insolvency or receivership
proceedings or upon an assignment for the benefit of creditors or otherwise)
tending towards liquidation of the business and assets of the Company, the
immediate filing of a claim for the unpaid balance of its or his Securities in
the form required in said proceedings and cause said claim to be approved. If
the Trustee does not file a proper claim or proof of debt in the form required
in such proceeding prior to 30 days before the expiration of the time to file
such claim or claims, then the holders of Senior Debt are hereby authorized to
have the right to file and are hereby authorized to file an appropriate claim
for and on behalf of the Holders of said Securities.
Section 11.10. Trustee Not Fiduciary for Holders of Senior Debt.
- -------------- ------------------------------------------------
The Trustee shall not be deemed to owe any fiduciary duty to the
holders of Senior Debt and shall not be liable to any such holder if it shall
mistakenly pay over or distribute to Securityholders or the Company or any other
person monies or assets to which any holders of Senior Debt shall be entitled by
virtue of this Article Eleven or otherwise.
Section 11.11. Right of Trustee to Hold Senior Debt.
- -------------- ------------------------------------
The Trustee, in its individual capacity, shall be entitled to all of
the rights set forth in this Article Eleven in respect of any Senior Debt at any
time held by it to the same extent as any other holder of Senior Debt, and
nothing in this Indenture shall be construed to deprive the Trustee of any of
its rights as such holder.
Section 11.12. Article Eleven Not to Prevent Events of Default.
- -------------- -----------------------------------------------
The failure to make a payment on account of principal or interest by
reason of any provision in this Article Eleven shall not be construed as
preventing the occurrence of an Event of Default under Section 6.01.
This Article Eleven shall constitute a continuing offer to all persons
who, in reliance upon such provisions, become holders of, or continue to hold,
Senior Debt, and such provisions are
47
<PAGE>
made for the benefit of the holders of Senior Debt and such holders are made
obligees hereunder and they and/or each of them may enforce such provisions.
ARTICLE 12
RIGHT TO REQUIRE REPURCHASE
Section 12.0.1 Right to Require Repurchase.
- -------------- ---------------------------
In the event that there shall occur a Designated Event with respect to
the Company, then each Securityholder will have the right, at such
Securityholder's option, but subject to the provisions of Article Eleven, to
require the Company to purchase, and upon exercise of such right the Company
shall purchase, all or any part of such Securityholder's Securities which is
$1,000 or an integral multiple thereof promptly following the date (the
"Repurchase Date") that is 30 days after the date of the Company Notice, at 100%
of the principal amount, together with accrued and unpaid interest to the date
fixed for repurchase.
Section 12.02. Notice; Method of Exercising Repurchase Right.
- -------------- ---------------------------------------------
(a) On or before the 15th day after the occurrence of a Designated
Event, the Company, or at the request of the Company, the Trustee, will give
notice of the occurrence of the Designated Event and of the repurchase right set
forth herein arising as a result thereof (the "Company Notice") by first-class
mail, postage pre-paid, to each Holder of the Securities at such Holder's
address appearing in the Securities Register. The Company will also deliver a
copy of such Company Notice to the Trustee and cause a copy of such Company
Notice to be published in a newspaper of general circulation in the Borough of
Manhattan, The City of New York.
Each Company Notice shall state:
(1) the Repurchase Date,
(2) the date by which the repurchase right must be exercised,
(3) the price at which the repurchase is to be made, if the
repurchase right is exercised, and
(4) a description of the procedure which a Securityholder must follow
to exercise a repurchase right.
48
<PAGE>
No failure of the Company to give the foregoing notice shall limit any
Securityholder's right to exercise a repurchase right.
(b) To exercise a repurchase right, a Securityholder shall deliver to
the Company (or an agent designated by the Company for such purpose in the
Company Notice), on or before the 30th day after the date of the Company Notice,
(i) written notice of the Securityholder's exercise of such right, which notice
shall set forth the name of the Securityholder, the principal amount of the
Security or Securities (or portion of a Security) to be repurchased, and a
statement that an election to exercise the repurchase right is being made
thereby, and (ii) the Security or Securities with respect to which the
repurchase right is being exercised, duly endorsed for transfer to the Company.
If the Repurchase Date falls between any record date for the payment of interest
on the Securities and the next succeeding interest payment date, Securities to
be repurchased must be accompanied by payment of an amount equal to the interest
thereon which the registered holder thereof is to receive on such interest
payment date.
(c) In the event a repurchase right shall be exercised and not
withdrawn in accordance with the terms hereof, the Company shall pay or cause to
be paid the price payable with respect to the Security or Securities as to which
the repurchase right has been exercised (and not withdrawn) in cash to the
Securityholder promptly after the Repurchase Date. In the event that a
repurchase right is exercised (and not withdrawn) with respect to less than the
entire principal amount of a surrendered Security, the Company shall execute and
deliver to the Trustee and the Trustee shall authenticate for issuance in the
name of the Securityholder a replacement Security or Securities in the aggregate
principal amount of the unrepurchased portion of such surrendered Security.
(d) Any Securityholder that has delivered to the Trustee its written
notice exercising its right to require the Company to repurchase its Securities
upon the occurrence of a Designated Event shall have the right to withdraw such
notice at any time prior to the close of business on the Repurchase Date by
delivery of a written notice of withdrawal to the Trustee prior to the close of
business on such date. A Security in respect of which a Securityholder is
exercising its option to require repurchase upon the occurrence of a Designated
Event may be converted into Common Stock in accordance with Article 10 hereof
only if such Securityholder withdraws its notice in accordance with the
preceding sentence.
Section 12.03. Certain Definitions.
- -------------- -------------------
49
<PAGE>
For purposes of Sections 12.01 and 12.02:
(a) A "Designated Event" will be deemed to have occurred, subject to
paragraph (c) of this Section, upon the consummation of a purchase, merger,
acquisition, transfer or other transaction involving a Change in Control. As
used in the preceding sentence, the term "transfer" shall include, without
limitation, a transfer of the type referred to in clause (iii)(y) of paragraph
(c) of this Section but shall exclude a transfer referred to in such clause
(iii)(y) as to any transferee who agrees to be bound by the agreements of the
Acquiring Person described in clause (iii) of paragraph (c) for the remainder of
the two-year period referred to therein.
(b) 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" (such terms having the meanings assigned to them in
Rule 12b-2 under the Exchange Act, as in effect on the date of this 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 this 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.
(c) Notwithstanding the provisions of paragraphs (a) and (b) of this
Section, a Designated Event will be deemed not to have occurred (i) if the
Quoted Price (as defined in Section 13.10) 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; (ii) if at least 80% of the consideration
(excluding cash payments for fractional shares) in the transaction or the
transactions constituting the Change in Control consists of shares of Common
Stock or securities convertible into shares of 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 Securities) immediately after such transaction
or transactions, as measured according to U.S. 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)
50
<PAGE>
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, (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.
Section 12.04. Compliance with Law.
- -------------- -------------------
In connection with any repurchase of Securities pursuant to this
Article Twelve, the Company will comply with any applicable rules and
regulations of the SEC.
ARTICLE 13
MISCELLANEOUS
Section 13.01. Trust Indenture Act Controls.
- -------------- ----------------------------
If any provision of this Indenture limits, qualifies, or conflicts
with the duties imposed by operation of Section 318(c) of the TIA, the imposed
duties, upon qualification of this Indenture under the TIA, shall control.
Section 13.02. Notices.
- -------------- -------
Any notice or communication by the Company or the Trustee to the other
is duly given if in writing and delivered in person or mailed by first-class
mail to the other's address stated in Section 13.10. The Company or the Trustee
by notice to the other
51
<PAGE>
may designate additional or different address for subsequent notices or
communications.
Any notice or communication to a Securityholder shall be mailed by
first-class mail to his address shown on the register kept by the Registrar.
Failure to mail a notice or communication to a Securityholder or any defect in
it shall not affect its sufficiency with respect to other Securityholders.
If a notice or communication is mailed in the manner provided above
within the time prescribed, it is duly given, whether or not the addressee
receives it.
If the Company mails a notice or communication to Securityholders, it
shall mail a copy to the Trustee and each Agent at the same time.
All other notice or communications shall be in writing.
Section 13.03. Communication by Holders with Other Holders.
- -------------- -------------------------------------------
Securityholders may communicate pursuant to TIA (S)312(b) with other
Securityholders with respect to their rights under this Indenture or the
Securities. The Company, the Trustee, the Registrar and anyone else shall have
the protection of TIA (S)312(c).
Section 13.04. Certificate and Opinion as to Conditions
- -------------- ----------------------------------------
Precedent.
---------
Upon any request or application by the Company to the Trustee to take
any action under this Indenture, the Company shall furnish to the Trustees:
(a) an Officers' Certificate stating that, in the opinion of the
signers, all conditions precedent, if any, provided for in this Indenture
relating to the proposed action have been complied with; and
(b) an Opinion of Counsel stating that in the opinion of such
counsel, all such conditions precedent have been complied with.
Section 13.05. Statements Required in Certificate or Opinion.
- -------------- ---------------------------------------------
Each certificate or opinion with respect to compliance with a
condition or covenant provided for in this Indenture shall include:
52
<PAGE>
(1) a statement that the person making such certificate or opinion
has read such covenant or condition;
(2) a brief statement as to the nature and scope of the examination
or investigation upon which the statements or opinions contained in such
certificate or opinion are based;
(3) a statement that, in the opinion of such person, he has made such
examination or investigation as is necessary to enable him to express an
informed opinion as to whether or not such covenant or condition has been
complied with; and
(4) a statement as to whether or not, in the opinion of such person,
such condition or covenant has been complied with.
Section 13.06. Rules by Trustee and Agents.
- -------------- ---------------------------
The Trustee may make reasonable rules for action by or a meeting of
Securityholders. The Registrar, Paying Agent or Conversion Agent may make
reasonable rules and set reasonable requirements for its functions.
Section 13.07. Legal Holidays.
- -------------- --------------
A "Legal Holiday" is a Saturday, a Sunday or a day on which banking
institutions are not required to be open. If a payment date is a Legal Holiday
at a place of payment, payment may be made at that place on the next succeeding
day that is not a Legal Holiday, and no interest shall accrue for the
intervening period.
Section 13.08. No Recourse Against Others.
- -------------- --------------------------
A director, officer, employee or stockholder, as such, of the Company
shall not have any liability for any obligations of the Company under the
Securities or the Indenture or for any claim based on, in respect of or by
reason of such obligations or their creation. Each Securityholder by accepting
a Security waives and releases all such liability. The waiver and release are
part of the consideration for the issue of the Securities.
Section 13.09. Counterparts.
- -------------- ------------
This Indenture may be executed in any number of counterparts and by
the parties hereto in separate counterparts, each of which when so executed
shall be deemed to be an original and all of which taken together shall
constitute one and the same agreement.
53
<PAGE>
Section 13.10. Variable Provisions.
- -------------- -------------------
"Officer" means Chairman of the Board, the President, any Vice
-------
President, the Treasurer, the Secretary, any Assistant Treasurer or any
Assistant Secretary of the Company.
The Company initially appoints the Trustee as Conversion Agent, Paying
Agent, Registrar and authenticating agent.
The first certificate pursuant to Section 4.03 shall be for the fiscal
year ending on June 30, 1997.
The reporting date for Section 7.06 is August 1 of each year. The
first reporting date is August 1, 1997.
The Trustee shall always have a combined capital and surplus of at
least $100,000,000 as set forth in its most recent published annual report of
condition.
In Sections 10.03, 10.11 and 12.03, the "Quoted Price" of the Common
Stock is the last reported sales price of the Common Stock as reported by the
Nasdaq National Market, or if the Common Stock is listed on a securities
exchange, the last reported sales price of the Common Stock on such exchange
which shall be for consolidated trading if applicable to such exchange or if
neither so reported or listed, the last reported bid price of the Common Stock.
The Company's address is:
Synetic, Inc.
669 River Drive,
River Drive Center II
Elmwood Park, NJ 07407
Attention: Vice President-Finance
The Trustee's address is:
United States Trust Company of New York
114 West 47th Street
New York, New York 10036
Attention: Corporate Trust Department
Section 13.11. Governing Law.
- -------------- -------------
The internal laws of the State of New York shall govern this Indenture
and the Securities, without regard to the conflict of law provisions thereof.
Section 13.12. No Adverse Interpretation of Other Agreements.
- -------------- ---------------------------------------------
54
<PAGE>
This Indenture may not be used to interpret another indenture, loan or
debt agreement of the Company or a subsidiary. Any such indenture, loan or debt
agreement may not be used to interpret this Indenture.
Section 13.13. Successors.
- -------------- ----------
All agreements of the Company in this Indenture and the Securities
shall bind its successor. All agreements of the Trustee in this Indenture shall
bind its successor.
Section 13.14. Severability.
- -------------- ------------
In case any provision in this Indenture or in the Securities shall be
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby.
Section 13.15. Table of Contents, Headings, Etc.
- -------------- ----------------------------------
The Table of Contents, Cross-Reference Table, and headings of the
Articles and Sections of this Indenture have been inserted for convenience of
reference only, are not to be considered a part hereof, and shall in no way
modify or restrict any of the terms or provisions hereof.
55
<PAGE>
SIGNATURES
Dated: as of ________________ SYNETIC, INC.
By ___________________________
Attest:
______________________________ (SEAL)
Dated: as of ________________
United States Trust Company
of New York
By ___________________________
Attest:
______________________________ (SEAL)
56
<PAGE>
Exhibit A
[FORM OF DEFINITIVE SECURITY]
(Face of Security)
No. $
SYNETIC, INC.
% CONVERTIBLE SUBORDINATED DEBENTURE
- DUE 2007
promises to pay to
or registered assigns,
the principal sum of Dollars on February 15, 2007
Interest Payment Dates: August 15 and February 15
Record Dates: August 1 and February 1
Authenticated:
Dated:
United States Trust Company SYNETIC, INC.
of New York
as Trustee
By ___________________________
By ___________________________ President
Authorized Signature
By ______________________________
Secretary
(SEAL)
A-1
<PAGE>
(Back of Security)
------------
Synetic, Inc.
% Convertible Subordinated Debenture
- due 2007
1. Interest. Synetic, Inc., a Delaware corporation (the "Company"),
--------
promises to pay interest on the principal amount of this Security at the rate
per annum shown above. The Company shall pay interest semi-annually on August
15 and February 15 of each year. Interest on the Securities will accrue from
February __, 1997. Interest will be computed on the basis of a 360-day year of
twelve 30-day months.
2. Method of Payment. The Company will pay interest on the
-----------------
Securities (except defaulted interest) to the persons who are registered holders
of securities at the close of business on the record date for the next interest
payment date even though Securities are cancelled after the record date on or
before the interest payment date. Holders must surrender Securities to a Paying
Agent to collect principal payments. The Company will pay principal and
interest in money for the United States that at the time of payment is legal
tender for payment of public and private debts. However, the Company may pay
principal and interest by check payable in such money. It may mail an interest
check to a holder's registered address.
3. Paying Agent, Registrar and Conversion Agent. The Trustee will
--------------------------------------------
act as Conversion Agent, Paying Agent and Registrar. The Company may change any
Paying Agent, Registrar, Conversion Agent or co-Registrar without prior notice.
The Company or any of its subsidiaries may act in any such capacity.
4. Indenture. The Company issued the Securities under an Indenture
---------
dated as of February 15, 1997 ("Indenture") between the Company and the Trustee.
The terms of the Securities include those stated in the indenture and those made
part of the Indenture by reference to the Trust Indenture Act of 1939 (15 U.S.
Code (S)(S) 77aaa-77bbbb) as in effect on the date of the Indenture. The
Securities are subject to, and qualified by, all such terms, certain of which
are summarized hereon, and Securityholders are referred to the Indenture and
such Act for a statement of such terms. The Securities are unsecured general
obligations of the Company limited to $150,000,000 in aggregate principal
amount, plus securities not exceeding $22,500,000 aggregate principal amount
sold pursuant to the Over-allotment
A-2
<PAGE>
Option. Capitalized terms used herein and not elsewhere defined shall have the
meaning set forth in the Indenture.
5. Optional Redemption. The Securities may be redeemed in whole or
-------------------
from time to time in part, at the option of the Company, at any time on or after
February 15, 2000, at redemption prices equal to the percentages of the
principal amount thereof set forth below in each case together with accrued and
unpaid interest to the redemption date.
If the redemption date occurs during the 12-month period beginning
February 15:
Year
----
2000 ............................ _%
2001 ............................ _%
2002 ............................ _%
2003 ............................ _%
2004 and thereafter ............. _%
6. Notice of Redemption. Notice of redemption will be mailed at
--------------------
least 15 days but not more than 60 days before the redemption date for each
holder of Securities to be redeemed at his registered address. Securities in
denominations larger than $1,000 may be redeemed in part but only in whole
multiples of $1,000. In the event of a redemption of less than all of the
Securities, the Securities will be chosen for redemption by the Trustee,
generally pro rata or by lot. On and after the redemption date interest ceases
to accrue on Securities or portions of them called for redemption.
If this Security is redeemed subsequent to a record date with respect
to any interest payment date specified above and on or prior to such interest
payment date, then any accrued interest will be paid to the person in whose name
this Security is registered at the close of business on such record date.
7. Right to Require Repurchase. In the event that there shall occur
---------------------------
a Designated Event with respect to the Company, then each Securityholder shall
have the right, at such Securityholder's option, but subject to the provisions
of Article 11 of the Indenture, to require the Company to purchase, and upon the
exercise of such right the Company shall purchase, all or any part of such
Securityholder's Securities which is $1,000 or an integral multiple thereof
promptly following the date (the "Repurchase Date") that is 30 days after the
date of the Company Notice, at 100% of the principal amount, together with
accrued and unpaid interest to the date fixed for repurchase.
A-3
<PAGE>
To exercise a repurchase right, a Securityholder shall deliver to the
Company (or an agent designated by the Company for such purpose in the Company
Notice), on or before the 30th day after the date of the Company Notice, (i)
written notice of the Securityholder's exercise of such right, which notice
shall set forth the name of the Securityholder, the principal amount of the
Security or Securities (or portion of a Security) to be repurchased, and a
statement that an election to exercise the repurchase right is being made
thereby, and (ii) the Security or Securities with respect to which the
repurchase right is being exercised, duly endorsed for transfer to the Company.
If the Repurchase Date falls between any record date for the payment of interest
on the Securities and the next succeeding interest payment date, Securities to
be repurchased must be accompanied by payment of an amount equal to the
interest thereon which the registered holder thereof is to receive on such
interest payment date.
Any Securityholder that has delivered to the Trustee its written
notice exercising its right to require the Company to repurchase its Securities
upon the occurrence of a Designated Event shall have the right to withdraw such
notice of withdrawal to the Trustee prior to the close of business on such date.
A Security in respect of which a Securityholder is exercising its option to
require repurchase upon the occurrence of a Designated Event may be converted
into Common Stock in accordance with Article 10 of the Indenture only if such
Securityholder withdraws its notice in accordance with the preceding sentence.
8. Conversion. A holder of a Security may convert it into Common
----------
Stock of the Company at any time before the close of business on February 15,
2007. If the Security is called for redemption, the holder may convert it at
any time before the close of business on the business day prior to the
redemption date (unless the Company shall default in payment due upon redemption
thereof). The initial conversion price of $ per share is subject to
--
adjustment in certain events. To determine the number of shares issuable upon
conversion of a Security, divide the principal amount to be converted by the
conversion price in effect on the conversion date. On conversion, no payment or
adjustment for interest will be made. However, interest will be paid on any
interest payment date with respect to Securities surrendered for conversion
after a record date for the payment of interest to the registered holder on such
record date. The Company will deliver a check for any fractional share.
To convert a Security, a holder must (1) complete and sign the
conversion notice on the back of the Security, (2) surrender the Security to a
Conversion Agent, (3) furnish appropriate endorsements and transfer documents if
required by the Registrar
A-4
<PAGE>
or Conversion Agent, and (4) pay any transfer or similar tax if required. A
holder may convert a portion of a Security if the portion is $1,000 or an
integral multiple of $1,000.
The conversion price is subject to adjustment as set forth in the
Indenture in certain events. 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 from time to time may voluntarily reduce the conversion
price for a period of time if the period is at least 20 days or such longer
period as may be required by law and if the reduction is irrevocable during the
period, provided that the conversion price is not less than the par value of a
share of Common Stock.
If the Company is a party to a consolidation or a transfer or lease of
all or substantially all of its assets, or a merger which reclassifies or
changes its outstanding Common Stock, 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,
then upon consummation of such transaction the Securities shall automatically
become convertible only into the kind and amount of securities, cash or other
assets which the Holder of a Security would have owned immediately after the
consolidation, merger, transfer or lease if the Holder had converted the
Security at the conversion price in effect immediately before the effective date
of the transaction.
9. Subordination. The indebtedness evidenced by the Securities is
-------------
subordinate to the prior payment when due of the principal of, premium, if any,
and interest on all Senior Debt. Upon maturity of any Senior Debt, payment in
full must be made on such Senior Debt before any payment is made on or in
respect of the Securities. During the continuance of any default in payment of
principal of, premium, if any, or interest on Senior Debt, no payment may be
made by the Company on or in respect of the Securities. 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
Securities 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. "Senior
Debt" means (a) the principal of, premium, if any, and interest on all Debt
(other than the Securities), whether outstanding on the date of the Indenture as
A-5
<PAGE>
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 Securities, 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 (1)(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), (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); (2)
any indebtedness of others described in the preceding clause (1) which the
Company has guaranteed or for which it is otherwise liable; and (3) any
amendment, renewal, extension or refunding of any such indebtedness.
Notwithstanding the foregoing, "Senior Debt" shall not include (A)
indebtedness evidenced by the Securities, (B) indebtedness of the Company that
is expressly subordinated in right of payment to the Securities, and (C)
indebtedness of the Company to an affiliate or a subsidiary of the Company.
10. Denominations, Transfer, Exchange. The Securities are in
---------------------------------
registered form without coupons in denominations of $1,000 and integral
multiples of $1,000. The transfer of Securities may be registered and
Securities may be exchanged as provided in the Indenture. The Registrar may
require a holder, Among other things, to furnish appropriate endorsements and
transfer documents and to pay any taxes and fees required by law or permitted by
the Indenture. The Registrar need not exchange or register the transfer of any
Security or portion of a Security selected for redemption. Also, it need not
exchange or register the transfer of any Securities for a period of 15 days
before a selection of Securities to be redeemed.
11. Persons Deemed Owners. The registered holder of a Security may
---------------------
be treated as its owner for all purposes, subject to provisions for record
dates with respect to the payment of interest.
12. Amendments and Waivers. Subject to certain exceptions, the
----------------------
Indenture or the Securities may be amended with the consent of the holders of at
least a majority in principal amount of the then outstanding Securities, and any
existing default may be waived with the consent of the holders of a majority in
principal amount of the then outstanding Securities. Without the consent of any
Securityholder, the Indenture or the Securities may be
A-6
<PAGE>
amended to cure any ambiguity, defect or inconsistency, to provide for
assumption of the Company's obligations to Securityholders under certain
circumstances or to make any change that does not adversely affect the rights of
any Securityholder.
13. Defaults and Remedies. An Event of Default is: default for 30
---------------------
days in payment of interest on the Securities; default in payment of principal
on them; failure by the Company for 30 days after notice to it to comply with
any of its other agreements in the Indenture or the Securities 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 its assets or
the provisions regarding conversion of Securities, with such notice but without
such passage of time; certain defaults under and accelerations prior to maturity
of other indebtedness; certain events of bankruptcy or insolvency. If an Event
of Default occurs and is continuing, the Trustee or the holders of at least 25%
in principal amount of the then outstanding Securities may declare all the
Securities 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 Securities become due and payable without further action or notice.
Securityholders may not enforce the Indenture or the Securities except as
provided in the Indenture. The Trustee may require indemnity satisfactory to it
before it enforces the Indenture or the Securities. Subject to certain
limitations, holders of a majority in principal amount of the then outstanding
Securities may direct the Trustee in its exercise of any trust or power. The
Trustee may withhold from Securityholders notice of any continuing default
(except a default in payment of principal or interest) if it determines that
withholding notice is in their interests. The Company must furnish an annual
compliance certificate to the Trustee.
14. Trustee Dealings with the Company. United States Trust Company
---------------------------------
of New York, the Trustee under the Indenture, in its individual or any other
capacity, may make loans to, accept deposits from, and perform services for the
Company or its Affiliates, and may otherwise deal with the Company or its
Affiliates, as if it were not Trustee.
15. No Recourse Against Others. A director, officer, employee or
--------------------------
stockholder, as such, of the Company shall not have any liability for any
obligations of the Company under the Securities or the Indenture or for any
claim based on, in respect of or by reason or such obligations or their
creation. Each Securityholder by accepting a Security waives and releases all
such liability. The waiver and release are part of the consideration for the
issue of the Securities.
A-7
<PAGE>
16. Authentication. This Security shall not be valid until
--------------
authenticated by the manual signature of the Trustee or an authenticating agent.
17. Abbreviations. Customary abbreviations may be used in the name
-------------
of a Securityholder or an assignee, such as: TEN COM (= tenants in common), TEN
ENT (= tenants by the entireties), JT TEN (= joint tenants with right of
survivorship and not as tenants in common), CUST (= Custodian), and U/G/M/A (=
Uniform Gifts to Minors Act).
The Company will furnish to any Securityholder upon written request
and without charge a copy of the Indenture, which has in it the text of this
Security in larger type. Requests may be made to: Synetic, Inc., 669 River
Drive, River Drive Center II, Elmwood Park, New Jersey 07407, Attention: Vice
President--Finance
A-8
<PAGE>
ASSIGNMENT FORM CONVERSION NOTICE
To convert this Security into
To Assign this Security, fill Common Stock of the Company,
in the form below: check the box:
I or we assign and transfer [______]
this Security to
To convert only part of this
Security, state the amount:
[____________________]
(Insert assignee's oc.
sec. or tax I.D. no.) [$____________________]
_____________________________ If you want the stock
certificate made out in another
_____________________________ person's name, fill in the form
below:
_____________________________
_____________________________ [______________________]
(insert other person's soc.
(Print or type assignee's sec. or tax I.D. no.)
name, address and zip code)
_____________________________
and irrevocably appoint
_____________________________
_______________________________
agent to transfer this Security _____________________________
on the books of the Company.
The Agent may substitute _____________________________
another to act for him. (Print or type other person's
name, address and zip code)
Date: _________________ Your Signature: ______________________
______________________
(Sign exactly as your name appears
on the other side of this Security)
A-9
<PAGE>
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Security purchased by the Company
pursuant to Article 12 of the Indenture, check the box:
If you want to elect to have only part of this Security purchased by
the Company pursuant to Article 12 of the Indenture, state the amount:
$________________
Date: _____________ Your Signature: ________________________
(Sign exactly as your name appears
on the other side of this Security)
Signature Guarantee
A-10
<PAGE>
EXHIBIT 5.1
(S&S Letterhead)
February 13, 1997
Synetic, Inc.
669 River Drive
River Drive Center II
Elmwood Park, New Jersey 07407
Ladies and Gentlemen:
We have acted as counsel to Synetic, Inc., a Delaware corporation (the
"Company"), in connection with the preparation and filing by the Company with
the Securities and Exchange Commission (the "Commission") under the Securities
Act of 1933, as amended (the "Securities Act"), of a Registration Statement on
Form S-3 (Registration No. 333-21041), as it may be amended (the "Registration
Statement") including the prospectus included therein at the time the
Registration Statement is declared effective (the "Prospectus"), relating to (i)
the proposed public offering (the "Offering") of $150,000,000 aggregate
principal amount (the "Initial Securities") of the Company's Convertible
Subordinated Debentures due February 15, 2007 (the "Debentures") and an
additional $22,500,000 aggregate principal amount (the "Option Securities") of
Debentures which are subject to an over-allotment option granted to Merrill
Lynch, Pierce, Fenner & Smith Incorporated (the "Underwriter"), pursuant to a
Purchase Agreement (the "Purchase Agreement") between the Underwriter and the
Company (a form of which has been filed as an exhibit to the Registration
Statement) and (ii) the registration of a presently indeterminable number of
shares (the "Conversion Shares") of Common Stock, $.01 par value per share, of
the Company issuable upon conversion of such Debentures. The Initial Securities
and the Option Securities are hereinafter referred to together as the
"Securities." The Securities will be issued pursuant to the terms of an
Indenture (the "Indenture") between the Company and the United States Trust
Company of New York, as trustee (the "Trustee"). The form of the Indenture is
filed as an exhibit to the Registration Statement.
<PAGE>
2
In this capacity, we have examined the Registration Statement, the form
of the Purchase Agreement, the form of the Indenture and the originals, or
copies, identified to our satisfaction, of such corporate records of the Company
and its subsidiaries, certificates of public officials, officers of the Company
and its subsidiaries and other persons, and such other documents, agreements and
instruments, as we have deemed necessary as a basis for the opinions hereinafter
expressed. In our examinations, we have assumed the genuineness of all
signatures, the authenticity of all documents submitted to us as originals and
the conformity to originals of all documents submitted to us as copies thereof.
In rendering the opinions expressed below, we have relied as to certain factual
matters upon certificates of officers of the Company and certificates of public
officials.
For purposes of this opinion, we have assumed that the Indenture will be
valid and binding on the Trustee and enforceable against the Trustee in
accordance with its terms.
Our opinions set forth below are limited to the laws of the State of New
York, the federal laws of the United States of America and the General
Corporation Law of the State of Delaware, and we do not express any opinions
herein concerning any other laws.
Based upon and subject to the foregoing, we are of the opinion that:
1. When the issuance of the Securities has been duly authorized by the
Company and, when the Purchase Agreement and the Indenture have been
duly authorized, executed and delivered by the parties thereto and when
the Securities have been duly executed by the Company and authenticated
by the Trustee, and issued and sold to the Underwriter by the Company
pursuant to the Purchase Agreement, the Securities will be duly issued
and delivered by the Company and will constitute valid and binding
obligations of the Company entitled to the benefits of the Indenture and
will be enforceable against the Company in accordance with their terms,
except as enforcement thereof may be limited by bankruptcy, insolvency
(including, without limitation, all laws relating to fraudulent
transfers), reorganization, moratorium or similar laws affecting
enforcement of creditors' rights generally and except as enforcement
thereof is subject to general principles of equity (regardless of
whether enforcement is considered in a proceeding in equity or at law).
2. When the issuance of the Conversion Shares has been duly authorized by
the Company and when the Conversion Shares have been duly reserved for
issuance by the Company and when the Conversion Shares have been issued
upon conversion of the Securities in accordance with the terms of the
<PAGE>
3
Securities and the Indenture, the Conversion Shares will be validly
issued, fully paid and non-assessable.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement.
Very truly yours,
/s/ Shearman & Sterling
<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. 2 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. 2 to Registration Statement.
/s/ Arthur Andersen LLP
ARTHUR ANDERSEN LLP
New York, New York
February 12, 1997
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
--------------
FORM T-1
STATEMENT OF ELIGIBILITY
UNDER THE TRUST INDENTURE ACT OF 1939 OF
A CORPORATION DESIGNATED TO ACT AS TRUSTEE
--------------
CHECK IF AN APPLICATION TO DETERMINE
ELIGIBILITY OF A TRUSTEE PURSUANT TO
SECTION 3O5(b)(2)
--------------
UNITED STATES TRUST COMPANY OF NEW YORK
(Exact name of trustee as specified in its charter)
New York 13-3818954
(Jurisdiction of incorporation (I.R.S. Employer
if not a U.S. national bank) Identification No.)
114 WEST 47th STREET 10036-1532
New YORK, New York (Zip Code)
(Address of principal
executive offices)
--------------
Synetic, Inc.
(Exact name of obligor as specified in its charter)
Delaware 22-2975182
(State or other jurisdiction of I.R.S. Employer
incorporation or organization Identification No.)
669 River Drive
River Drive Center II
Elmwood Park, NJ 07407
(201) 703-8400
(Address of principal executive offices)
--------------
% Convertible Subordinated Debentures due 2007
================================================================================
<PAGE>
-2-
GENERAL
1. General Information
-------------------
Furnish the following information as to the trustee:
(a) Name and address of each examining or supervising authority to
which it is subject.
Federal Reserve Bank of New York (2nd District), New York, New York
(Board of Governors of the Federal Reserve System).
Federal Deposit Insurance Corporation, Washington, D.C. New York
State Banking Department, Albany, New York
(b) Whether it is authorized to exercise corporate trust powers. the
trustee is authorized to exorcise corporate trust powers.
2. Affiliations with the Obligator
-------------------------------
If the obligor is an affiliate of the trustee, describe each such
affiliation.
None.
3. Voting Securities of the Trustee
--------------------------------
2,999,020 shares of Common Stock - par value $5 per share
Trusteeships under Other Indentures
-----------------------------------
Not applicable.
4. Interlocking Directories and Similar Relationships with the Obligor or
----------------------------------------------------------------------
Underwriters
------------
Not applicable.
<PAGE>
- 3-
6. Voting Securities of the Trustee Owned by the Obligor or its Officials
----------------------------------------------------------------------
Not applicable.
7. Voting Securities of the Trustee Owned by Underwriters or their
---------------------------------------------------------------
Officials
---------
Not applicable.
8. Securities of the Obligor Owned or Held by the Trustee
------------------------------------------------------
Not applicable.
9. Securities of Underwriters Owned or Held by the Trustee
-------------------------------------------------------
Not applicable.
10. Ownership or Holdings by the Trustee of Voting Securities of Certain
--------------------------------------------------------------------
Affiliates or Securities Holders of the Obligor.
-----------------------------------------------
Not applicable..
11. Ownership or Holdings by the Trustee of any Securities of a Person
------------------------------------------------------------------
Owning 50 Percent or More of the Voting Securities of the Obligor.
-----------------------------------------------------------------
Not applicable.
12. Indebtedness of the Obligor to the Trustee
------------------------------------------
13. Defaults by the Obligor
-----------------------
Not applicable.
14. Affiliations with the Underwriters
----------------------------------
Not applicable.
<PAGE>
- 4-
15. Foreign Trustee
--------------
Not applicable.
16. List of Exhibits
----------------
T-1.1 -- Organization Certificate, as amended, issued by the State of New
York Banking Department to transact business as a Trust Company,
is incorporated by reference to Exhibit T-1.1 to Form T-1
filed on October 6, 1995 with the Commission pursuant to the
Trust Indenture Act of 1939, as amended by the Trust Indenture
Reform Act of 1990 in an amended filing to an original
Registration Statement filed on August 28, 1995 (Registration
No. 33-96262).
T-1.2 -- Included in Exhibit T-1.1.
T-1.3 -- Included in Exhibit T-1.1.
T-1.4 -- The By-Laws of United States Trust Company of New York, as
amended, is incorporated by reference to Exhibit T-1.4 to Form
T-1 filed on October 6, 1995 with the Commission pursuant to the
Trust Indenture Act of 1939, as amended by the Trust Indenture
Reform Act of 1990 in an amended filing to an original
Registration Statement filed on August 28, 1995 (Registration
No. 33-96262).
T-1.6 -- The consent of the trustee required by Section 321(b) of the
Trust Indenture Act of 1939, as amended by the Trust Indenture
Reform Act of 1990.
T-1.7 -- A copy of the latest report of condition of the trustee pursuant
to law or the requirements of its supervising or examining
authority.
NOTE
As of February 6, 1997 the trustee had 2,999,020 shares of Common Stock
outstanding, all of which are owned by its parent company, U.S. Trust
Corporation. The term "trustee" in Item 2, refers to each of United States
Trust Company of New York and its parent company, U.S. Trust Corporation.
In answering Item 2 in this statement of eligibility, as to matters
peculiarly within the knowledge of the obligor or its directors, the trustee
has relied upon information furnished to it by the obligor and will rely on
information to be furnished by the obligor and the trustee disclaims
responsibility for the accuracy or completeness of such information.
<PAGE>
- 5 -
Pursuant to the requirements of the Trust Indenture Act of 1939, the trustee,
United States Trust Company of New York, a corporation organized and existing
under the laws of the State of New York, has duly caused this statement of
eligibility to be signed on its behalf by the undersigned, thereunto duly
authorized, all in the City of New York, and State of New York, on the 6th day
of February, 1997.
UNITED STATES TRUST COMPANY OF
NEW YORK, Trustee
By: /s/ John Guliano
----------------------------
John Guliano
Vice President
JG/pg
(rev:080996)
<PAGE>
Exhibit T-1.6
-------------
The consent of the trustee required by Section 321(b) of the Act.
United States Trust Company of New York
114 West 47th Street
New York, NY 10036
September 1, 1995
Securities and Exchange Commission
450 5th Street, N.W.
Washington, DC 20549
Gentlemen:
Pursuant to the provisions of Section 321(b) of the Trust Indenture Act of 1939,
as amended by the Trust Indenture Reform Act of 1990, and subject to the
limitations set forth therein, United States Trust Company of New York ("U.S.
Trust") hereby consents that reports of examinations of U.S. Trust by Federal,
State, Territorial or District authorities may be furnished by such authorities
to the Securities and Exchange Commission upon request therefor.
Very truly yours,
UNITED STATES TRUST COMPANY
OF NEW YORK
/s/ Gerard F. Ganey
-------------------------
By: Gerard F. Ganey
Senior Vice President
<PAGE>
EXH1BIT T-1.7
UNITED STATES TRUST COMPANY OF NEW YORK
CONSOLIDATED STATEMENT OF CONDITION
SEPTEMBER 30, 1996
------------------
(IN THOUSANDS)
ASSETS
- ------
Cash and Due from Banks $ 38,257
Short-Term Investments 82,377
Securities, Available for Sale 861,975
Loans 1,404,930
Less: Allowance for Credit Losses 13,048
---------
Net Loans 1,391,882
Premises and Equipment 60,012
Other Assets 133,673
---------
Total Assets $2,568,176
==========
LIABILITIES
- -----------
Deposits:
Non-Interest Bearing $ 466,849
Interest Bearing 1,433,894
---------
Total Deposits 1,900,743
Short-Term Credit Facilities 369,045
Accounts Payable and Accrued Liabilities 143,604
---------
Total Liabilities $2,413,392
==========
STOCKHOLDER'S EQUITY
- --------------------
Common Stock 14,995
Capital Surplus 42,394
Retained Earnings 98,402
Unrealized Gains (Losses) on Securities
Available for Sale, Net of Taxes (1,007)
--------
Total Stockholder's Equity 154,784
--------
Total Liabilities and
Stockholder's Equity $2,568,176
==========
I, Richard E. Brinkmann, Senior Vice President & Comptroller of the
named bank do hereby declare that this Statement of Condition has been
prepared in conformance with the instructions issued by the
appropriate regulartory authority and is true to the best of my
knowledge and belief.
Richard E. Brinkman, SVP & Controller
October 24, 1996
