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Registration No. 333-
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------
FORM S-4
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
----------------------
SYNETIC, INC.
(Exact Name of Registrant as Specified in its Charter)
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<S> <C> <C>
DELAWARE 3089 22-2975182
(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Code Number) Identification No.)
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SYNETIC, INC.
669 RIVER DRIVE, RIVER DRIVE CENTER 2
ELMWOOD PARK, NEW JERSEY 07407
(Address and telephone number of Registrant's principal executive offices)
CHARLES A. MELE, ESQ.
SYNETIC, INC.
VICE PRESIDENT - GENERAL COUNSEL
669 RIVER DRIVE, RIVER DRIVE CENTER 2
ELMWOOD PARK, NEW JERSEY 07407
(201) 703-3400
(Name, address and telephone number
of Agent for Service)
----------------------
Copy to:
CREIGHTON O'M. CONDON, ESQ.
SHEARMAN & STERLING
599 LEXINGTON AVENUE
NEW YORK, NEW YORK 10022
(212) 848-4000
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As promptly
as practicable after this Registration Statement becomes effective and upon the
effective time of the proposed Merger described herein.
If the securities being registered on this form are being offered in
connection with the formation of a holding Company and there is compliance with
General Instruction G, check the following box. [ ]
----------------------
CALCULATION OF REGISTRATION FEE
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Title of Each Class Proposed Maximum Proposed Maximum
of Securities to Be Amount to Be Offering Price Aggregate Amount of
Registered Registered (1) Per Share Offering Price Registration Fee (2)
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Common Stock, $.01 par
value.................. 1,109,470 Not applicable Not applicable $3,157.55
- -----------------------------------------------------------------------------------------------------
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(1) Based upon the maximum number of shares of Common Stock that the Registrant
may be required to issue in the Merger, calculated as the product of (i)
870,172 the aggregate number of shares of Common Stock, per share, of
Point Plastics outstanding on April 20, 1998 or issuable pursuant to
outstanding stock options that will be converted into shares of the
Registrant's Common Stock and (ii) 1.275 shares of the Registrant's Common
Stock for each share of Point Plastics Common Stock.
(2) Estimated solely for the purpose of calculating the registration fee
required by Section 6(b) of the Securities Act of 1933, as amended, and
computed pursuant to Rule 457(f)(2) thereunder on the basis of the book
value of the Point Plastics Common Stock to be exchanged in the Merger.
----------------------
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 COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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POINT PLASTICS, INC.
1260 HOLM ROAD
PETALUMA, CALIFORNIA 94954
April [__], 1998
Dear Fellow Shareholder:
You are cordially invited to attend the special meeting of shareholders of
Point Plastics, Inc. ("Point Plastics"), to be held on May [__], 1998, at 10:00
a.m. (local time) at 1260 Holm Road, Petaluma, California 94954.
On March 6, 1998, Point Plastics agreed to be acquired by Synetic, Inc.
("Synetic") by way of a merger with a wholly owned subsidiary of Synetic,
Plastics Acquisition Corp. (the "Merger"). In the Merger, you will be entitled
to receive, in exchange for each share of common stock of Point Plastics ("Point
Plastics Common Stock") that you own:
. $59.299 in cash (which we refer to as the "Cash Consideration");
. 1.275 shares of common stock of Synetic, par value $.01 per share
("Synetic Common Stock"), (determined by dividing $59.298 by $46.51
(the average last sale price of one share of Synetic Common Stock
during the 30 trading days prior to the date of the Merger Agreement))
(which we refer to as the "Stock Consideration"); or
. a combination of Synetic Common Stock and cash.
Pursuant to the Agreement and Plan of Merger dated March 6, 1998 (the "Merger
Agreement") among Synetic, Point Plastics, Plastics Acquisition Corp., the
trustees of the ESOP and certain individual holders of capital stock of Point
Plastics, 60% of the aggregate consideration to be received by holders of Point
Plastics Common Stock in the Merger will be Stock Consideration and 40% will be
Cash Consideration.
You may submit an election form indicating, for any or all of your shares
of Point Plastic Common Stock, a preference for the Cash Consideration or the
Stock Consideration, or indicating no preference. Such elections will be given
effect to the extent the form of consideration elected is available and, to the
extent the Cash Consideration or the Stock Consideration is chosen by holders of
too many shares of Point Plastic Common Stock, the available Cash Consideration
or Stock Consideration will be allocated on a pro rata basis. In each case,
what you will receive will be subject to the adjustment based on Point Plastics'
financial performance for 1997 as set forth in audited financial statements.
The Merger Agreement contains detailed representations and warranties made
by each of Point Plastics and Synetic. Point Plastics' representations and
warranties are primarily concerned with various aspects of its business,
including its corporate power, assets, liabilities, intellectual property and
other properties, compliance with law, litigation, operations and financial
condition. Synetic will be entitled to indemnification for breach of such
representations and warranties concerning Point Plastics and its business. 25%
of the consideration to be paid to the ESOP in the Merger (the "Escrow Fund")
will be held in escrow for one year following the Merger to satisfy certain
claims for indemnification made by Synetic under the Merger Agreement during
such one-year period. Part of the Escrow Fund may be retained in escrow beyond
this one-year period to satisfy certain claims made by Synetic but not fully
resolved during such one-year period. Thomas Taggart and I are also
indemnifying Synetic under the Merger Agreement for up to 25% of the
consideration we receive in the Merger in connection with any breach of such
representations in the Merger Agreement related to Point Plastics and its
business.
At the special meeting, you will be asked to consider and vote on the
Merger Agreement. Under California law, approval of the Merger Agreement
requires the affirmative vote of a majority of the outstanding shares of Point
Plastics Common Stock entitled to vote at the special meeting. Thomas Taggart
and I have agreed with Synetic that we will vote our shares of Point Plastics
Common Stock in favor of the Merger. Together our shares constitute
approximately 54% of the outstanding shares of Point Plastics Common Stock
entitled to vote on the Merger; therefore, approval of the Merger Agreement
under California law is assured. In addition, it is a condition to Synetic's
obligation to effect the Merger that at least 90% of such shares be voted
for approval of the Merger Agreement. If all of the conditions described in the
Merger Agreement have been met or waived, in the
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discretion of the party for whose benefit such conditions exist, the Merger is
expected to occur as soon as possible after the special meeting.
AFTER CAREFUL CONSIDERATION, YOUR BOARD OF DIRECTORS HAS UNANIMOUSLY
DETERMINED THAT THE MERGER IS FAIR TO AND IN THE BEST INTERESTS OF POINT
PLASTICS AND ITS SHAREHOLDERS AND UNANIMOUSLY RECOMMENDS THAT YOU VOTE TO
APPROVE THE MERGER AGREEMENT.
Under California law, you are entitled to dissenters' rights in connection
with the Merger.
The accompanying Proxy Statement/Prospectus provides a detailed description
of the proposed Merger and its effect on you as a shareholder and on Point
Plastics. I urge you to read the enclosed materials carefully. Whether or not
you plan to attend the special meeting, and regardless of the number of shares
you own, please complete, sign and date your proxy card and promptly return it
in the envelope provided.
Sincerely,
Philip E. Stolp
Chairman of the Board,
Chief Executive Officer and Secretary
ESOP PARTICIPANTS WILL RECEIVE A LETTER, ENCLOSED HEREWITH, FROM THE ESOP
COMMITTEE OF POINT PLASTICS (THE "ESOP LETTER") WHICH PROVIDES A DESCRIPTION OF
THE VOTING AND ELECTION PROCEDURES FOR ESOP PARTICIPANTS AND CERTAIN OTHER
MATTERS RELEVANT TO THE ESOP PARTICIPANTS. ESOP PARTICIPANTS SHOULD READ THE
ESOP LETTER CAREFULLY.
2
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POINT PLASTICS, INC.
1260 HOLM ROAD
PETALUMA, CALIFORNIA 94954
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON MAY [__], 1998
TO THE SHAREHOLDERS OF POINT PLASTICS, INC.:
A special meeting of shareholders (the "Special Meeting") of Point
Plastics, Inc., a California corporation ("Point Plastics"), will be held on May
[__],1998 at 1260 Holm Road, Petaluma, California 94954, commencing at 10:00
a.m. (local time), for the following purposes:
(1) To consider and vote on a proposal to approve the Agreement and
Plan of Merger, dated March 6, 1998 (the "Merger Agreement"), among Point
Plastics, Synetic, Inc., a Delaware corporation ("Synetic"), Plastics
Acquisition Corp., a Delaware corporation and a wholly owned subsidiary of
Synetic ("Merger Sub"), the trustees of the Point Plastics, Inc. Employee
Stock Ownership Plan and Trust (the "ESOP") and certain individual holders
of capital stock of Point Plastics. A copy of the Merger Agreement is
attached as Annex I to the Proxy Statement/Prospectus accompanying this
notice. The Merger Agreement provides for the Merger of Point Plastics
into Merger Sub (the "Merger"), resulting in Point Plastics becoming a
wholly owned subsidiary of Synetic.
(2) To consider and transact such other business as may properly be
brought before the Special Meeting or any adjournment thereof.
Under California law and Point Plastics' articles of incorporation and by-
laws, the affirmative vote of the holders of a majority of the outstanding
shares of Point Plastics Common Stock entitled to vote at the Special Meeting is
required to approve the Merger Agreement. In addition, it is a condition to
Synetic's obligation to effect the Merger (which can be waived by Synetic) that
the Merger Agreement be approved by holders of at least 90% of such shares of
Point Plastics Common Stock.
AFTER CAREFUL CONSIDERATION, YOUR BOARD OF DIRECTORS HAS UNANIMOUSLY
DETERMINED THAT THE CONSIDERATION TO BE PAID PURSUANT TO THE MERGER IS FAIR TO
AND IN THE BEST INTERESTS OF POINT PLASTICS AND ITS SHAREHOLDERS. THE BOARD OF
DIRECTORS OF POINT PLASTICS HAS UNANIMOUSLY APPROVED THE MERGER AGREEMENT AND
UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR APPROVAL OF THE MERGER AGREEMENT AT THE
SPECIAL MEETING. YOU ARE URGED TO READ THE ACCOMPANYING PROXY
STATEMENT/PROSPECTUS CAREFULLY FOR A DESCRIPTION OF THE MERGER AGREEMENT.
Under California law, holders of Point Plastics Common Stock are entitled
to dissenters' rights in connection with the Merger.
Only holders of Point Plastics Common Stock of record at the close of
business on [_____ __], 1998 will be entitled to notice of, and to vote at, the
Special Meeting.
By Order of the Board of Directors,
Philip E. Stolp
Secretary
Petaluma, California
April __, 1998
<PAGE>
Whether or not you plan to attend the Special Meeting, please complete,
sign, date and deliver the enclosed proxy card promptly. Shareholders who
attend the Special Meeting may revoke their proxies and vote in person if they
desire.
HOLDERS OF POINT PLASTICS COMMON STOCK SHOULD DELIVER CERTIFICATES FOR
POINT PLASTICS COMMON STOCK TO POINT PLASTICS, INC., 1260 HOLM ROAD, PETALUMA,
CALIFORNIA 94954, ATTENTION: LISA VILLALOVOS, BY MAY [__], 1998, IN ACCORDANCE
WITH THE INSTRUCTIONS SET FORTH IN THE ACCOMPANYING FORM OF ELECTION/LETTER OF
TRANSMITTAL.
ii
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POINT PLASTICS, INC. PROXY STATEMENT
----------------------
SYNETIC, INC. PROSPECTUS
This Proxy Statement/Prospectus is being furnished to holders of common
stock ("Point Plastics Common Stock") of Point Plastics, Inc., a California
corporation ("Point Plastics"), in connection with the solicitation of proxies
by the Board of Directors of Point Plastics for use at the special meeting of
shareholders of Point Plastics (the "Special Meeting") to be held on May [__],
1998, at 1260 Holm Road, Petaluma, California 94954, commencing at 10:00 a.m.,
local time, and at any adjournment or postponement thereof.
Synetic, Inc., a Delaware corporation ("Synetic"), has filed a Registration
Statement on Form S-4 (including the exhibits and amendments thereto, the
"Registration Statement") with the Securities and Exchange Commission (the
"Commission") pursuant to the Securities Act of 1933, as amended (the
"Securities Act"), covering up to 1,109,438 shares of Synetic Common Stock, par
value $.01 per share ("Synetic Common Stock"), which may be issued pursuant to
the Agreement and Plan of Merger, dated as of March 6, 1998 (the "Merger
Agreement"), among Synetic, Plastics Acquisition Corp., a Delaware corporation
and a wholly owned subsidiary of Synetic ("Merger Sub"), Point Plastics, the
trustees of the Point Plastics, Inc. Employee Stock Option Plan and Trust and
certain individual holders of capital stock of Point Plastics in exchange for
outstanding shares of Point Plastics Common Stock. This Proxy
Statement/Prospectus constitutes the Prospectus of Synetic comprising a part of
the Registration Statement. The Merger Agreement is attached as Annex I to this
Proxy Statement/Prospectus and is incorporated herein by reference. Pursuant to
the Merger Agreement, Merger Sub will be merged with and into Point Plastics
(the "Merger"). Merger Sub will be the surviving corporation in the Merger and
each outstanding share of Point Plastics Common Stock will be converted into the
right to receive:
. $59.299 in cash (which we refer to as the "Cash Consideration");
. 1.275 shares of common stock of Synetic, par value $.01 per share
("Synetic Common Stock"), (determined by dividing $59.298 by $46.51
(the average last sale price of one share of Synetic Common Stock
during the 30 trading days prior to the date of the Merger Agreement))
(which we refer to as the "Stock Consideration"); or
. a combination of Synetic Common Stock and cash.
Pursuant to the Merger Agreement, 60% of the aggregate consideration to be
received by holders of Point Plastics Common Stock in the Merger will be Stock
Consideration and 40% will be Cash Consideration.
Shareholders of Point Plastics may submit an election form indicating, for
any or all of their shares of Point Plastic Common Stock, a preference for the
Cash Consideration or the Stock Consideration, or indicating no preference.
Such elections will be given effect to the extent the form of consideration
elected is available and, to the extent the Cash Consideration or the Stock
Consideration is chosen by holders of too many shares of Point Plastic Common
Stock, the available Cash Consideration or Stock Consideration will be allocated
on a pro rata basis. In each case, what holders of Point Plastics Common Stock
will receive will be subject to adjustment based on Point Plastics' financial
performance for 1997 as set forth in audited financial statements.
All information contained in this Proxy Statement/Prospectus relating to
Synetic has been supplied by Synetic, and all information relating to Point
Plastics has been supplied by Point Plastics.
SEE "RISK FACTORS" BEGINNING ON PAGE [__] FOR CERTAIN INFORMATION THAT
SHOULD BE CONSIDERED BY POINT PLASTICS SHAREHOLDERS.
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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 PROXY STATEMENT/PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
----------------------------
This Proxy Statement/Prospectus and the accompanying forms of proxy are
first being mailed or delivered to shareholders of Point Plastics on or about
April [__], 1998.
The date of this Proxy Statement/Prospectus is April [__], 1998.
ii
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TABLE OF CONTENTS
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SUMMARY............................................................................... 1
The Companies.................................................................... 1
Point Plastics, Inc. 1
Synetic, Inc 1
Plastics Acquisition Corp................................................... 1
What You Will Receive in the Merger.............................................. 2
Indemnity Claims 3
The Special Meeting.............................................................. 3
Vote Required.................................................................... 3
Reasons for the Merger........................................................... 3
Recommendation of the Point Plastics Board....................................... 4
Interests of Certain Persons in the Merger....................................... 4
Regulatory Approvals............................................................. 5
Conditions to the Merger......................................................... 5
Termination of the Merger Agreement.............................................. 5
No Solicitation of Competing Transactions........................................ 5
Dissenters' Rights............................................................... 6
Material Federal Income Tax Consequences......................................... 6
Forward-Looking Statements May Prove Inaccurate.................................. 6
Risk Factors..................................................................... 6
SUMMARY SELECTED FINANCIAL DATA....................................................... 7
Selected Financial Data of Synetic............................................... 8
Selected Financial Data of Point Plastics........................................ 9
UNAUDITED PRO FORMA COMBINED CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS..................................................... 10
Comparative Per Share Data....................................................... 14
Market Price Data 14
THE COMPANIES......................................................................... 15
Point Plastics, Inc.............................................................. 15
Synetic, Inc..................................................................... 18
THE SPECIAL MEETING................................................................... 19
General 19
Matters to Be Considered at the Special Meeting.................................. 19
Voting and Proxies............................................................... 19
Revocation of Proxies............................................................ 20
Solicitation of Proxies.......................................................... 20
THE MERGER............................................................................ 20
Background of the Merger......................................................... 20
Reasons for the Merger; Recommendation of the Point Plastics Board of Directors.. 21
Interests of Certain Persons in the Merger; Conflicts of Interest................ 22
Form of the Merger............................................................... 25
Effective Time 25
Merger Consideration............................................................. 25
Restrictions on Transfer of Synetic Common Stock................................. 26
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Description of Election Procedures................................................ 26
Surrender of Shares; Stock Transfer Books......................................... 28
Anticipated Accounting Treatment.................................................. 29
Plans for Point Plastics After the Merger......................................... 29
Certain Other Effects of the Merger............................................... 29
Source and Amount of Funds and Other Consideration................................ 29
Forward-Looking Statements May Prove Inaccurate................................... 30
Material Federal Income Tax Consequences.......................................... 30
Tax Treatment of ESOP Participants................................................ 32
[Blue Sky Laws.................................................................... 32
Certain Litigation................................................................ 32
THE MERGER AGREEMENT................................................................... 33
Certain Representations and Warranties............................................ 34
Conduct of Business Pending the Merger............................................ 34
No Solicitation or Negotiation.................................................... 35
Indemnification................................................................... 35
NASDAQ National Market Listing.................................................... 37
Conditions to Consummation of the Merger.......................................... 37
Termination; Effects of Termination............................................... 38
Expenses.......................................................................... 39
Amendment; Waiver................................................................. 39
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT......................... 39
RISK FACTORS........................................................................... 40
New Business Area -- Healthcare Communications.................................... 40
Government Regulation of Healthcare............................................... 41
Reliance on Rapidly Changing Technology........................................... 41
Competition in Healthcare Communications.......................................... 42
Risks of Product Development; Proprietary Rights.................................. 42
Government Regulation of Porex.................................................... 42
Potential Liability Risk and Availability of Insurance............................ 42
Acquisition Program............................................................... 43
REGULATORY MATTERS..................................................................... 43
COMPARISON OF RIGHTS OF POINT PLASTICS SHAREHOLDERS
AND SYNETIC'S STOCKHOLDERS............................................................. 44
Authorized Capital Stock.......................................................... 44
Dividends......................................................................... 44
Dissenters' Rights................................................................ 45
Special Meetings of Shareholders; Quorum; Shareholder Action by Written Consent... 45
Certain Voting Rights............................................................. 46
Size of the Board of Directors.................................................... 47
Election of Directors............................................................. 47
Removal of Directors; Filling Vacancies on the Board of Directors................. 48
Amendment of Charter and Bylaws................................................... 49
Business Combinations and Reorganizations......................................... 49
Indemnification of Officers and Directors; Insurance.............................. 49
DISSENTERS' RIGHTS OF POINT PLASTICS SHAREHOLDERS...................................... 50
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DESCRIPTION OF SYNETIC'S CAPITAL STOCK................................................ 52
Preferred Stock.................................................................. 52
Common Stock..................................................................... 52
Voting Rights.................................................................... 52
Transfer Agent and Registrar..................................................... 52
Business Combinations with Interested Stockholders............................... 52
LEGAL MATTERS......................................................................... 53
EXPERTS............................................................................... 53
WHERE YOU CAN FIND MORE INFORMATION................................................... 53
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ANNEX I
Agreement and Plan of Merger
ANNEX II
Chapter 13 of the CGCL
ANNEX III
Form of Escrow Agreement
iii
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SUMMARY
This Summary highlights selected information from this document and may not
contain all of the information that is important to you. To understand the
Merger fully and for a more complete description of the legal terms of the
Merger, you should read carefully this entire document, including exhibits
attached hereto, and the documents to which we have referred you. See "Where
You Can Find More Information" (page 53). For the location of definitions of
capitalized terms used in this Proxy Statement/Prospectus, please see "List of
Defined Terms" (page 56).
In the Merger, Point Plastics, Inc. ("Point Plastics") will merge into
Plastics Acquisition Corporation. Plastics Acquisition Corporation will be the
surviving corporation and will continue as a wholly owned subsidiary of Synetic,
Inc. ("Synetic").
The Merger Agreement is attached as Annex I to this document. We encourage
you to read the Merger Agreement, as it is the legal document that governs the
Merger.
THE COMPANIES (PAGE 15)
POINT PLASTICS, INC. (PAGE 15)
Point Plastics designs, manufactures and distributes injection-molded,
disposable laboratory plastics for liquid handling for the life sciences
marketplace such as pipette tips, micro centrifuge tubes and PCR tubes. Point
Plastics had net sales of approximately $24.8 million for calendar year 1997.
Point Plastics was incorporated in California in 1977. The address of Point
Plastics' principal executive offices is 1260 Holm Road, Petaluma, California
94954, and its telephone number is (707) 762-6689.
SYNETIC, INC. (PAGE 18)
Synetic is engaged in two principal business activities, plastics technologies
and healthcare communications:
. Porex Technologies Corp. (together with its subsidiaries, "Porex"), a
wholly owned subsidiary of Synetic, 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 wholly owned subsidiary, Avicenna Systems Corporation
("Avicenna"), Synetic 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.
Synetic had net sales of approximately $52.9 million for its fiscal year 1997,
which ended on June 30, 1997.
Synetic maintains an acquisition program and intends to concentrate its
acquisition efforts on businesses which are complementary to Synetic's
healthcare communications strategy and its plastic filtration and technology
business, but such emphasis is not intended to limit in any manner Synetic's
ability to pursue acquisition opportunities in other healthcare-related
businesses or in other industries. Synetic 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
its business. Any transactions will be limited, as required by an agreement to
which Synetic is a party (which agreement expires on May 24, 1999), to areas of
business that would not be competitive with certain businesses of Merck & Co.,
Inc.
The address of Synetic's principal executive offices is 669 River Drive,
Elmwood Park, New Jersey 07407, and its telephone number is (201) 703-3400.
PLASTICS ACQUISITION CORP.
Merger Sub's principal executive office is located at 669 River Drive, Elmwood
Park, New Jersey 07407, and its telephone number is (201) 703-3400.
<PAGE>
WHAT YOU WILL RECEIVE IN THE MERGER
In the Merger, you will be entitled to receive, in exchange for each share of
common stock of Point Plastics ("Point Plastics Common Stock") that you own:
. $59.299 in cash (which we refer to as the "Cash Consideration");
. 1.275 shares of common stock of Synetic, par value $.01 per share
("Synetic Common Stock"), (determined by dividing $59.298 by $46.51 (the
average last sale price of one share of Synetic Common Stock during the 30
trading days prior to the date of the Merger Agreement)) (which we refer to
as the "Stock Consideration"); or
. a combination of Synetic Common Stock and cash.
Pursuant to the Merger Agreement, 60% of the aggregate consideration to be
received by holders of Point Plastics Common Stock in the Merger will be Stock
Consideration and 40% will be Cash Consideration. You will also receive cash
instead of fractional shares of Synetic Common Stock.
Under the Merger Agreement, each of Mr. Stolp, Mr. Taggart and the trustees of
the Point Plastics, Inc. Employee Stock Ownership Plan and Trust (the "ESOP")
have agreed not to sell, assign or otherwise transfer, directly or indirectly,
any of the Synetic Common Stock received as Stock Consideration in the Merger
for a period of one year following the effective time of the Merger (the
"Effective Time") except as provided in the Merger Agreement.
Election Procedures for Individual Shareholders
You may submit an election form indicating, for any or all of your shares of
Point Plastic Common Stock, a preference for the Cash Consideration or the Stock
Consideration, or indicating no preference. Such elections will be given effect
to the extent the form of consideration elected is available and, to the extent
the Cash Consideration or the Stock Consideration is chosen by holders of too
many shares of Point Plastic Common Stock, the available Cash Consideration or
Stock Consideration will be allocated on a pro rata basis. In each case, what
you will receive will be subject to the adjustment based on Point Plastics'
financial performance for 1997 as set forth in audited financial statements. See
"Merger Consideration" (page 25).
YOU SHOULD CONSIDER THAT SHAREHOLDERS RECEIVING SYNETIC COMMON STOCK IN THE
MERGER WILL RECEIVE A NUMBER OF SHARES OF SYNETIC COMMON STOCK BASED ON THE
EXCHANGE RATIO FOR EACH SHARE OF POINT PLASTICS COMMON STOCK. BECAUSE THE
EXCHANGE RATIO WAS FIXED BASED ON A MARKET PRICE PER SHARE OF SYNETIC COMMON
STOCK OF $46.51 AND BECAUSE THE MARKET PRICE OF SHARES OF SYNETIC COMMON STOCK
IS SUBJECT TO FLUCTUATION, THE MARKET VALUE PER SHARE OF SHARES OF SYNETIC
COMMON STOCK THAT HOLDERS OF SHARES OF POINT PLASTICS COMMON STOCK MAY RECEIVE
IN THE MERGER FOR EACH SHARE OF POINT PLASTICS COMMON STOCK MAY BE LESS THAN,
GREATER THAN OR EQUAL TO $46.51. IN ADDITION, BECAUSE OF SUCH FLUCTUATIONS IN
THE VALUE OF SHARES OF SYNETIC COMMON STOCK, THE MARKET VALUE OF THE SHARES OF
SYNETIC COMMON STOCK THAT HOLDERS OF SHARES OF POINT PLASTICS COMMON STOCK MAY
RECEIVE IN THE MERGER MAY INCREASE OR DECREASE FOLLOWING THE MERGER.
Mr. Stolp has agreed to make an election to receive the cash consideration for
not less than 23.6% nor more than 36.6% of the shares of Point Plastics Common
Stock he owns, excluding shares held through the ESOP.
Along with this Proxy Statement/Prospectus, we have sent you a form of
election/letter of transmittal (the "Form of Election/Letter of Transmittal").
Please properly complete, sign and return the Form of Election/Letter of
Transmittal to Ms. Lisa Villalovos along with your Point Plastics stock
certificates no later than ______, 1998 (the close of business on the fifth
business day before the date on which the Merger is expected to occur).
HOLDERS OF POINT PLASTICS COMMON STOCK SHOULD SEND CERTIFICATES FOR POINT
PLASTICS COMMON STOCK TO POINT PLASTICS, INC., 1260 HOLM ROAD, PETALUMA,
CALIFORNIA 94954, ATTENTION: LISA VILLALOVOS, BY MAY [__], 1998, IN ACCORDANCE
WITH THE INSTRUCTIONS SET FORTH IN THE ACCOMPANYING FORM OF ELECTION/LETTER OF
TRANSMITTAL.
Election Procedure for the ESOP and Participants in the ESOP
The ESOP will remain in place for approximately one year following the Merger.
The ESOP has agreed to elect to receive Synetic Common Stock for at least 51% of
the shares of Point Plastics Common Stock held in the ESOP and cash for between
40% and 49%
2
<PAGE>
of such shares of Point Plastics Common Stock. Employees of Point Plastics who
are participants in the ESOP will be able to elect to receive between 60% and
51% of their merger consideration in shares of Synetic Common Stock and 40% and
49% of their merger consideration in cash for their shares of Point Plastics
Common Stock held in the ESOP accounts.
INDEMNITY CLAIMS (PAGE 35)
Pursuant to an escrow agreement to be entered into at the Closing (the "Escrow
Agreement"), 25% of the consideration to be paid to the ESOP in the Merger (the
"Escrow Fund") will be held in an escrow account to be managed by United States
Trust Company of New York, as escrow agent for one year after the Merger to
satisfy certain claims made by Synetic in the Merger Agreement during such one-
year period. Part of the Escrow Fund may be retained in escrow beyond this one-
year period to satisfy any such claims made by Synetic but not fully resolved
during such one-year period. The form of the Escrow Agreement is attached
hereto as Annex III.
Philip E. Stolp and Thomas Taggart, the Chief Executive Officer and Executive
Vice President of Point Plastics, respectively, have also agreed to indemnify
Synetic under the Merger Agreement for up to 25% of the consideration they
receive in the Merger.
Claims for indemnification made by Synetic and/or its affiliates pursuant to
the provisions set forth in the Merger Agreement and Escrow Agreement shall be
Synetic's and/or its affiliates' sole and exclusive remedy following the Merger
for breach of representations and warranties in the Merger Agreement.
THE SPECIAL MEETING (PAGE 19)
At the special meeting, the holders of Point Plastics Common Stock will be
asked to consider and vote on the Merger Agreement. Each share is entitled to
one vote at the special meeting. At the special meeting, the trustees of the
ESOP will vote the shares of Point Plastics Common Stock held by the ESOP in
accordance with instructions delivered to them by participants in the ESOP
("ESOP Participants"). Any shares held in the ESOP for which no instructions are
timely received by the trustees will be voted in favor, against and/or abstain
with respect to the Merger in the same proportions as shares in the ESOP are
voted pursuant to instructions received by the trustees. Instructions with
respect to voting of shares held in the ESOP are included in the letter form the
ESOP Committee attached hereto as Exhibit 4.1.
The close of business on [___], 1998 is the record date for determining if you
are entitled to vote at the special meeting. At the record date, there were
1,450,287 shares of Point Plastics Common Stock outstanding.
VOTE REQUIRED
Approval of the Merger under California law requires the consent of holders of
a majority of the outstanding shares of Point Plastics Common Stock entitled to
vote. As a condition to the obligation of Synetic to consummate the Merger
(which condition may be waived by Synetic), the Merger Agreement and Merger must
be adopted and approved by at least 90% of the outstanding shares of Point
Plastics Common Stock entitled to vote. Of the total number of shares of
outstanding Point Plastics Common Stock entitled to vote on the Merger,
approximately 54.5% of such shares are held by directors, executive officers and
their affiliates (including shares beneficially owned through the ESOP).
Under the Merger Agreement, Mr. Stolp and Mr. Taggart have agreed to vote
their shares of Point Plastics Common Stock in favor of the Merger. Together
they own approximately 54.4% (including shares beneficially owned through the
ESOP) of the outstanding shares entitled to vote at the Special Meeting. The
ESOP holds 44.2% of the outstanding shares entitled to vote at the Special
Meeting, excluding executive shares held by Mr. Stolp and Mr. Taggart the two
executive officers of Point Plastics.
REASONS FOR THE MERGER (PAGE 21)
The Point Plastics Board of Directors (the "Point Plastics Board") believes
that the Merger is in the best interests of Point Plastics and its shareholders.
In reaching its decision, the Point Plastics Board considered a number of
factors, including the following:
1. The terms and conditions of the Merger Agreement, including the
amount and the form of the consideration, the parties'
representations, warranties, covenants and agreements, and the
conditions to their respective obligations set forth in the
Merger Agreement.
3
<PAGE>
2. Point Plastics' business would complement operations of Synetic.
3. The possible strategic growth opportunities resulting from the combination
of the businesses of Point Plastics and Synetic.
4. Point Plastics' and Synetic's respective businesses, financial condition,
results of operations and prospects, including but not limited to past
growth, developing products and profitability, and the business risks
associated therewith.
5. The fact that the Merger would provide holders of Point Plastics Common
Stock with equity interest in the combined entity which has publicly traded
securities.
6. The likelihood of consummation of the Merger, including the limited
conditions to its consummation and limited circumstances under which the
Merger Agreement can be terminated.
The Point Plastics Board also considered the negative factors relating to the
Merger, including (i) the risks that the benefits sought in the Merger would not
be fully achieved; (ii) the risk that the Merger would not be consummated; (iii)
the possible loss of revenue from customers; and (iv) risks associated with the
business of Synetic, described under "RISK FACTORS."
RECOMMENDATION OF THE POINT PLASTICS BOARD (PAGE 21)
The Point Plastics Board unanimously approved the Merger Agreement and the
Merger. The Point Plastics Board also unanimously authorized the transaction
for the purposes of Section 1200 of the California General Corporation Law
("CGCL"), and approved related agreements.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
(PAGE 22)
In considering the recommendation of the Point Plastics Board regarding the
Merger, you should be aware of the interests which certain officers and
directors of Point Plastics have in the Merger that are different from your and
their interests as shareholders as specified in the Merger Agreement.
Mr. Stolp and Mr. Taggart, the Chief Executive Officer and Chief Operating
Officer of Point Plastics, respectively, have entered into five-year employment
agreements with a subsidiary of Synetic which become effective upon the
effectiveness of the Merger. Under these employment agreements, Messrs. Stolp
and Taggart will be co-chief executive officers of the surviving corporation
after the Merger. The principal terms of these employment agreements are
described in "Interests of Certain Persons in the Merger" (page 22).
At [__], 1998, 48,999 shares of Point Plastics Common Stock were subject to
options granted to Mr. Taggart under Point Plastics' stock option plan. The
exercise price for each share subject to options is $10.00. Under the Merger
Agreement and Mr. Taggart's option agreement, these options will become fully
vested and will be exercised immediately prior to the Effective Time and Mr.
Taggart will receive the Merger Consideration for each share of Point Plastics
Common Stock subject to such options. Point Plastics has agreed to pay Mr.
Taggart a bonus of approximately $5,000,000 provided the Merger is consummated.
Additionally, Messrs. Stolp and Taggart also participate in the ESOP. Any
cash consideration received by the ESOP in connection with the transaction will
first be used to repay the full amount of the ESOP Loan and any excess proceeds
will be allocated to the accounts of participants and beneficiaries in
accordance with the terms of the ESOP. No further contributions will be made to
the ESOP following the Effective Time; provided, however, that to the extent
permitted by law, Synetic will maintain the ESOP (but make no contributions
thereto) for a period of one year following the Merger.
The Point Plastics Board recognized all the interests described above and
concluded that these interests did not detract from the fairness of the Merger
to Point Plastics shareholders who are not officers or directors of Point
Plastics.
REGULATORY APPROVALS (PAGE 43)
The Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the "HSR Act")
prohibits Synetic and Point Plastics from completing the Merger until Synetic
and Point Plastics have furnished certain information and materials to the
Antitrust Division of the Department of Justice and the Federal Trade Commission
and the required waiting period has ended. Synetic and Point Plastics each filed
the
4
<PAGE>
required notification and report forms with the FTC and the Antitrust Division
on March 27, 1998.
CONDITIONS TO THE MERGER (PAGE 37)
Synetic will not be required to complete the Merger unless the following
conditions are satisfied or waived by Synetic:
. the holders of at least 90% of the shares of Point Plastics Common
Stock must approve the Merger;
. Point Plastics' audited financial statements for the year ended December
31, 1997 must have been delivered and any objections thereto under the
Merger Agreement must have been resolved; and
. each individual shareholder of Point Plastics who was not a party to the
Merger Agreement must agree to be bound by the indemnification obligations
set forth in the Merger Agreement.
In addition, each of Synetic and Point Plastics will not be required to complete
the Merger unless a number of other conditions are satisfied or waived by them.
These include the following:
. the waiting period applicable to the Merger under the HSR Act must come to
an end or be terminated;
. there must be no injunction or order that prohibits the Merger;
. the shares of Synetic Common Stock to be issued in the Merger must be
registered with the Securities and Exchange Commission and authorized for
listing on the National Association of Securities Dealers, Inc. National
Market System (the "NASDAQ National Market System");
. Synetic and Point Plastics must each certify to the other that its
representations and warranties contained in the Merger Agreement are true
and correct in all material respects and that it has performed all of its
obligations under the Merger Agreement in all material respects;
. Synetic and Point Plastics must receive opinions from their respective tax
counsel that the Merger will qualify as a tax-free reorganization; and
. Synetic must receive agreements from each of Mr. Stolp and Mr. Taggart,
stating that he will comply with Rules 144 and 145 under the Securities Act
of 1933, as amended.
The party entitled to the benefit of these conditions may waive such conditions
or any one of them.
TERMINATION OF THE MERGER AGREEMENT
(PAGE 38)
Synetic and Point Plastics can agree in writing at any time to terminate the
Merger Agreement without completing the Merger, and the Merger Agreement may be
terminated by either of them if any of the following occurs:
. a court or other governmental authority permanently prohibits the Merger;
. the Merger is not completed by September 30, 1998 (or October 31, 1998 if
there is a delay in issuing Point Plastics' audited financial statements
for the year ended December 31, 1997); or
. the other party materially breaches any of its representations, warranties
or obligations under the Merger Agreement and cannot cure such breach by
September 30, 1998 (or October 31, 1998 if there is a delay in issuing
Point Plastics' audited financial statements for the year ended December
31, 1997).
NO SOLICITATION OF COMPETING TRANSACTIONS
(PAGE 35)
The Merger Agreement restricts Point Plastics' ability to entertain or
encourage any alternative acquisition transactions with, or provide information
regarding such transactions to, third parties. Point Plastics must promptly
notify Synetic if it receives offers or proposals for any such alternative
transactions.
DISSENTERS' RIGHTS (PAGE 50)
Under California law, Point Plastics shareholders who have not approved of the
Merger have the right to an appraisal of the value of their shares in connection
with the Merger. The failure of a dissenting Point Plastics shareholder to
follow the appropriate
5
<PAGE>
procedures to perfect his or her dissenters' rights will result in the
termination or waiver of such rights. In the event that a Point Plastics
shareholder fails to make a proper demand for payment or loses his or her status
as a dissenting shareholder, such shareholder will be entitled to receive the
applicable Merger Consideration under the Merger Agreement.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES (PAGE 30)
It is a condition to the completion of the Merger that Synetic and Point
Plastics each receive an opinion from their outside counsel that the transaction
will be one in which shareholders of Point Plastics Common Stock will generally
be taxed on gain from the exchange of shares of Point Plastics Common Stock only
to the extent of the cash such shareholders receive. Participants in the ESOP
will be subject to federal tax liability as provided in "Tax Treatment of the
ESOP Participants" (page 32).
TAX MATTERS ARE VERY COMPLICATED AND THE TAX CONSEQUENCES OF THE MERGER TO ANY
POINT PLASTICS SHAREHOLDER OR ESOP PARTICIPANTS WILL DEPEND ON THE FACTS OF YOUR
OWN SITUATION. YOU SHOULD CONSULT YOUR TAX ADVISORS TO UNDERSTAND FULLY THE TAX
CONSEQUENCES OF THE MERGER TO YOU.
FORWARD-LOOKING STATEMENTS MAY PROVE INACCURATE
Synetic and Point Plastics have made forward-looking statements in this
document and in documents to which we have referred you. These statements are
subject to risks and uncertainties including those risks described in "Risk
Factors" below and "RISK FACTORS" on page 40, and there can be no assurance that
such statements will prove to be correct. Forward-looking statements include
assumptions as to how Synetic and Point Plastics may perform in the future.
Also, when we use words like "believes," "expects," "anticipates" or similar
expressions, we are making forward-looking statements. You will find many of
these statements in "THE MERGER -- Reasons for the Merger; Recommendation of the
Point Plastics Board of Directors" as well as in the documents relating to
Synetic which are incorporated by reference herein. See "WHERE YOU CAN FIND MORE
INFORMATION" (page 53).
RISK FACTORS (PAGE 40)
Shareholders of Point Plastics should carefully evaluate certain risk factors
relating to ownership of Synetic Common Stock. See "RISK FACTORS" (page 40).
You should understand that the following important factors, in addition to those
discussed elsewhere in this document and in the documents which we have referred
you, could affect the future results of Synetic and Point Plastics and could
cause those results to differ materially from those expressed in our forward-
looking statements.
. With respect to Synetic, these factors include: the feasibility of
developing a commercially profitable healthcare communications business in
light of the uncertainty of market acceptance, continuing development
costs, the impact of competitive products and services and pricing,
commercialization and technological difficulties and other risks;
government regulation of healthcare and related products; and, actual and
potential products liability claims and the availability and adequacy of
insurance with respect to products manufactured or distributed by Porex.
These and other risks are detailed in Synetic's Securities and Exchange
Commission filings.
. With respect to Point Plastics these factors include: materially adverse
changes in economic conditions and in the markets served by Point Plastics
and the failure of certain of Point Plastics' customers to renew their
contracts with Point Plastics.
6
<PAGE>
SUMMARY SELECTED FINANCIAL DATA
Synetic and Point Plastics are providing the following financial information
to aid you in your analysis of the financial aspects of the Merger. The
financial information is an unaudited summary of each Company's respective
financial statements. As this information is only a summary, you should read it
in conjunction with the historical financial statements (and related notes) of
Synetic contained in the annual reports and other information that Synetic has
filed with the Securities and Exchange Commission (the "Commission") (see "WHERE
YOU CAN FIND MORE INFORMATION" on page [__]) and in conjunction with the
historical financial statements of Point Plastics contained in "__________"
herein (page __).
Synetic and Point Plastics report quarterly and annual earnings results using
methods required by generally accepted accounting principles ("GAAP"). Synetic
prepares its financial statements on the basis of a fiscal year beginning on
July 1 and ending on June 30 and Point Plastics does so on the basis of a
calender year.
7
<PAGE>
SELECTED FINANCIAL DATA OF SYNETIC
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
SIX
MONTHS ENDED
FISCAL YEARS ENDED JUNE 30, DECEMBER 31,
------------------------------------------------- --------------------
1993 1994 1995 1996 1997 1996 1997
-------- -------- -------- -------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales............................... $ 30,645 $ 33,093 $ 39,179 $ 45,128 $ 52,885 $ 23,084 $ 30,273
Income (loss) from continuing
operations before provisions for
income taxes.............................. 5,430 1,080 1,078 13,202 (24,626) (21,018) 6,376
Provision for income taxes.............. 2,046 411 443 4,617 2,834 2,527 2,591
Income from continuing -------- -------- -------- -------- -------- -------- --------
operations................................ 3,384 669 635 8,585 (27,460) (23,545) 3,785
Income (loss) from discontinued
operations................................ 2,734 1,823 15,459 --- --- --- ---
-------- -------- -------- -------- -------- -------- --------
Net income................................... 6,118 $ 2,492 $ 16,094 $ 8,585 $(27,460) $(23,545) $ 3,785
======== ======== ======== ======== ======== ======== ========
Net income (loss) per share - basic:
Continuing operations................ $ 0.20 $ 0.04 $ 0.04 $ 0.52 $ (1.60) $ 0.21 $ (1.40)
Discontinued operations.............. 0.16 0.10 0.94 0.00 0.00 0.00 0.00
-------- -------- -------- -------- -------- -------- --------
Net income (loss) per share - basic: $ 0.36 $ 0.14 $ 0.98 $ 0.52 $ (1.60) $ 0.21 $ (1.40)
======== ======== ======== ======== ======== ======== ========
Net income (loss) per share - diluted: $ 0.19 $ 0.04 $ 0.04 $ 0.48 $ (1.60) $ 0.20 ($1.40)
Continuing operations..................... 0.16 0.10 0.89 --- --- --- ---
-------- -------- -------- -------- -------- -------- --------
Discontinued operations................... 0.35 $ 0.14 $ 0.93 $ 0.48 $ (1.60) $ 0.20 ($1.40)
======== ======== ======== ======== ======== ======== ========
Net income (loss) per share - diluted:
<CAPTION>
AT
AT JUNE 30, DECEMBER 31,
------------------------------------------------ -------------------
1993 1994 1995 1996 1997 1996 1997
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital.............................. $ 65,673 $ 64,625 $105,279 $166,328 $ 93,309 $169,644 $ 89,101
Net assets of discontinued
operations................................ 52,548 55,882 --- --- --- --- ---
Total assets................................. 189,494 194,009 188,174 199,592 382,103 210,713 384,179
Long term debt, less
current portion............................. 81,058 80,716 --- --- 165,000 --- 159,500
Stockholders' equity......................... 102,378 105,130 166,832 181,089 188,736 183,501 195,125
</TABLE>
8
<PAGE>
SELECTED FINANCIAL DATA OF POINT PLASTICS
(Dollars in millions, except per share data)
<TABLE>
<CAPTION>
FISCAL YEARS ENDED DECEMBER 31,
-------------------------------------------
1993 1994 1995 1996 1997
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales.............. $17,773 $19,203 $20,014 $21,473 $24,828
Income before provision
for income taxes........ 5,473 5,962 6,088 6,750 8,375
Provision for income
taxes................. 2,225 2,377 2,280 2,661 3,204
------- ------- ------- ------- -------
Net income.................. $ 3,248 $ 3,585 $ 3,808 $ 4,089 $ 5,171
======= ======= ======= ======= =======
Net income per share........ $2.24 $2.49 $2.65 $2.86 $3.65
======= ======= ======= ======= =======
<CAPTION>
AT DECEMBER 31,
-------------------------------------------
1993 1994 1995 1996 1997
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital........ $ 6,866 $ 8,001 $ 9,370 $12,151 $13,598
Total assets............ 17,258 20,622 24,290 27,417 29,573
Long term debt, less
current portion........ 8,528 7,797 7,143 7,112 6,704
Stockholders' equity.... 6,368 10,160 14,009 17,959 19,945
</TABLE>
9
<PAGE>
UNAUDITED PRO FORMA COMBINED CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
In the table below, we attempt to illustrate the financial results that
might have occurred if the Merger had been completed previously. Presented is
the Unaudited Pro Forma Combined Condensed Consolidated Statements of Income for
the fiscal year ended June 30, 1997 and the six months ended December 31, 1997
as if the Merger had been consummated at the beginning of each period presented.
Also presented is the Unaudited Pro Forma Combined Condensed Consolidated
Balance Sheet as of December 31, 1997 as if the Merger had been completed on
December 31, 1997. These unaudited pro forma combined condensed consolidated
financial statements should be read in conjunction with the historical
consolidated financial statements of Synetic and Point Plastics and related
notes and "Management's Discussion and Analysis of Results of Operations and
Financial Condition" contained, with respect to Synetic, in Synetic's Annual
Report on Form 10-K for the year ended June 30, 1997 and the Quarterly Report on
Form 10-Q for the quarter ended December 31, 1997 and, with respect to Point
Plastics, in the accompanying audited financial statements and Management's
Discussion and Analysis of Financial Condition and Results of Operations
contained elsewhere in this Proxy Statement/Prospectus for a more detailed
explanation.
It is important to remember that this information is hypothetical, and does
not necessarily reflect the financial performance that would have actually
resulted if the Merger had been completed on that date. It is also important to
remember that this information does not necessarily reflect future financial
performance if the Merger actually occurs.
PRO FORMA COMBINED CONDENSED CONSOLIDATED STATEMENT OF INCOME
FOR THE YEAR ENDED JUNE 30, 1997
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION> POINT
SYNETIC PLASTICS PRO FORMA PRO FORMA
HISTORICAL HISTORICAL ADJUSTMENTS COMBINED
---------- ---------- ----------- --------
<S> <C> <C> <C> <C> <C>
Net Sales.......................................... $ 52,885 $23,654 (463) (1) $ 76,076
-------- ------- --------
Cost of Sales...................................... 29,035 12,529 (463) (1) 41,101
Selling, General and Administrative Expenses....... 20,841 2,902 2,085 (2) 25,828
Other (Income) Expense, Net........................ 27,635 442 2,306 (3) 30,383
-------- ------- ------ --------
77,511 15,872 3,928 97,312
-------- ------- ------ --------
Income (Loss) Before Taxes......................... (24,626) 7,782 (4,391) (21,235)
Provision for Income Taxes......................... 2,834 3,080 (922) (4) 4,992
-------- ------- ------ --------
Net Income (Loss).................................. $(27,460) $ 4,702 (3,469) $(26,227)
-------- ------- ------ --------
Net Income (Loss) per Share -- Basic/Diluted....... $(1.60) $(1.44)
======== ========
Weighted Average Number of Common 17,133 1,109 (5) 18,242
Shares Outstanding................................ ======== ====== ========
</TABLE>
- ------------------------
NOTE: THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE PRO FORMA COMBINED
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
10
<PAGE>
PRO FORMA COMBINED CONDENSED CONSOLIDATED STATEMENT OF INCOME
FOR THE SIX MONTHS ENDED DECEMBER 31, 1997
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SYNETIC POINT PLASTICS PRO FORMA PRO FORMA
HISTORICAL HISTORICAL ADJUSTMENTS COMBINED
---------- ---------- ----------- --------
<S> <C> <C> <C> <C> <C>
Net Sales......................................... $30,273 $12,572 (342) (1) $42,503
------- ------- -------
Cost of Sales..................................... 16,371 6,487 (342) (1) 22,516
Selling, General and Administrative Expenses...... 13,752 1,683 1,042 (2) 16,477
Other (Income) Expense, Net....................... (6,226) 150 1,153 (3) (4,923)
------- ------- ------ -------
23,897 8,320 1,853 34,070
------- ------- ------ -------
Income (Loss) Before Taxes........................ 6,376 4,252 (2,195) 8,433
Provision (Benefit) for Income Taxes.............. 2,591 $ 1,578 (461) (4) 3,708
------- ------- ------ -------
Net Income (Loss)................................. $ 3,785 $ 2,674 (1,734) $ 4,725
------- ======= ====== =======
Net Income (Loss) per Share --
Basic............................................ $ .21 $ .25
======= =======
Diluted.......................................... $ .20 $ .23
======= =======
Weighted Average Number of Common
Shares Outstanding --
Basic............................................ 17,638 1,109 (5) 18,747
======= ====== =======
Diluted.......................................... 19,391 1,109 (5) 20,500
======= ====== =======
</TABLE>
- ------------------------
NOTE: THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE PRO FORMA COMBINED
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
11
<PAGE>
PRO FORMA COMBINED CONDENSED CONSOLIDATED BALANCE SHEET
AS OF DECEMBER 31, 1997
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
SYNETIC POINT PLASTICS PRO FORMA PRO FORMA
HISTORICAL HISTORICAL ADJUSTMENTS COMBINED
---------- ---------- ------------ ---------
ASSETS
Current Assets:
<S> <C> <C> <C> <C> <C>
Cash and Cash Equivalents................. $ 76,641 $ 2,988 (34,400) (6) $ 45,229
Marketable Securities..................... 9,900 4,990 14,890
Accounts Receivable, Net.................. 9,249 3,078 12,328
Inventories............................... 5,906 3,304 9,209
Other Current Assets...................... 11,267 869 12,136
-------- ------- --------
Total Current Assets...................... 112,963 15,229 93,792
Property and Equipment, Net................. 24,755 10,916 35,671
Other Assets, Net........................... 246,461 3,428 68,555 (7) 318,443
-------- ------- ------- --------
Total Assets............................. $384,179 $29,573 34,155 $447,907
======== ======= ======= ========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current Liabilities......................... $ 23,862 $ 1,632 2,500 (8) $ 27,994
Long-Term Debt.............................. 159,500 6,704 166,204
Deferred Taxes and Other Liabilities........ 5,692 1,292 6,982
-------- ------- --------
Total Long-Term Liabilities.............. 165,192 7,996 173,186
-------- ------- --------
Stockholders' Equity........................ 195,125 19,945 51,600 (9) 246,725
-------- ------- --------
(19,945) (10)
-------
Total Liabilities and Stockholders' Equity.. $384,179 $29,573 34,155 $447,907
======== ======= ======= ========
</TABLE>
- ---------------------------
NOTE: THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE PRO FORMA COMBINED
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
12
<PAGE>
NOTES TO PRO FORMA COMBINED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(UNAUDITED)
The Unaudited Pro Forma Combined Condensed Consolidated Statements of
Income have been prepared to reflect the Merger as if the Merger occurred at the
beginning of the period presented. The Merger has been accounted for under the
purchase method of accounting. The excess of the purchase price over the fair
value of the net assets acquired is being amortized over periods of up to 40
years.
The following is a summary of the adjustments reflected in the Unaudited
Pro Forma Combined Condensed Consolidated Statements of Income:
1. Represents the eliminations of product sales from Synetic to Point
Plastics.
2. Represents the amortization of the excess of the purchase price over
the net assets of Point Plastics acquired.
3. Represents the decrease in interest income to reflect (a) the payment
of the cash portion of the purchase price and (b) the expenses
associated with the Merger.
4. Represents the tax effect of the adjustments to the Unaudited Pro Forma
Combined Condensed Consolidated Statements of Income, excluding the
amortization of goodwill, based on the combined federal and state
effective tax rate for the periods presented.
5. Represents the increase in the number of outstanding shares of Synetic
Common Stock to reflect the payment of the stock portion of the
purchase price.
The Unaudited Pro Forma Combined Condensed Consolidated Balance Sheet was
prepared to reflect the Merger as of December 31, 1997.
The following is a summary of the adjustments reflected in the Unaudited
Pro Forma Combined Condensed Consolidated Balance Sheet:
6. Represents the decrease in Cash and Cash Equivalents to reflect the
payment of the cash portion of the purchase price.
7. Represents the preliminary estimate of the excess purchase price over
the net assets acquired. The purchase price has been adjusted to
include acquisition-related expenses (See Note 8).
8. Represents the amount of estimated costs for legal and accounting
services and other expenses associated with the Merger.
9. Represents the issuance of Synetic common stock to reflect the payment
of the stock portion of the purchase price.
10. Represents the elimination of Point Plastics historical equity
13
<PAGE>
COMPARATIVE PER SHARE DATA
YEAR ENDED
DECEMBER 31, 1997 JUNE 30, 1997
--------------------------------
POINT PLASTICS SYNETIC
COMMON STOCK COMMON STOCK
------------ -------------
Net income (loss) per share.. $ 3.65 $(1.60)
Dividends per share.......... -- --
Book value per share -.......
Basic:............... $14.23 $11.02
Diluted:............. -- $10.01
MARKET PRICE DATA
The following table presents certain historical trading and dividend
declaration information for Synetic Common Stock. The Point Plastics Common
Stock is not publicly traded.
SYNETIC
COMMON STOCK
--------------
(IN $)
HIGH LOW
------ ------
1998
- ----
Second Quarter 42 1/4 35 1/4
First Quarter 45 7/8 36 1/2
1997
- ----
Fourth Quarter 47 3/4 34 1/2
Third Quarter 52 3/4 45
Second Quarter 55 7/8 31 1/2
First Quarter 37 1/4 30 3/4
1996
- ----
Fourth Quarter 38 3/4 32 1/2
Third Quarter 39 1/2 27 1/2
Second Quarter 29 5/8 22 1/2
First Quarter 26 1/4 22 1/4
Synetic Common Stock is principally traded in the United States on the
NASDAQ under the symbol "SNTC." Point Plastics Common Stock are not currently
traded on any national market exchange.
On March 6, 1998, the last trading day before the public announcement of
the proposed Merger, the closing sale price of Synetic Common Stock, as reported
by the NASDAQ, was 49 3/4. On April 20, 1998, the most recent practicable date
prior to the filing of this Proxy Statement/Prospectus the closing sale price of
Synetic Common stock, as reported by the NASDAQ was 58. Holders of Point
Plastics Common Stock are urged to get a current market quotation of Synetic
Common Stock.
Neither Synetic nor Point Plastics has declared dividends during the past
five years.
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THE COMPANIES
POINT PLASTICS, INC.
Business
Point Plastics, Inc. ("Point Plastics"), a Company incorporated in
California in 1977, designs, manufactures and distributes injection-molded
disposable laboratory plastics for liquid handling done in clinical and
diagnostic research. Products include pipette tips, micro centrifuge tubes and
PCR tubes which are sold to the research and clinical life sciences market
worldwide. Point Plastics had net sales in 1997 of approximately $24.8 million.
Point Plastics' products are sold worldwide to distributors, and directly
to end users in the biotechnology industry. The biotechnology industry includes
molecular biology, immunology, cell culture and protein chemistry. End users of
Point Plastics' products include research institutes, biotech firms, forensic
and hospital laboratories, university research laboratories, blood banks and
pharmaceutical companies.
Point Plastics' business strategy has been to offer quality products and
services in the market using its proprietary injection molding technology. This
process provides Point Plastics with flexibility in producing quality pipette
tips in a highly efficient production facility.
Point Plastics' headquarters and manufacturing operations are located at an
approximately 126,000 square foot site in Petaluma, California. The site is
composed of nine buildings: four such buildings are owned by Point Plastics; two
are owned but subject to a mortgage; and the remaining three are occupied under
long term leases.
Point Plastics, Inc. has approximately 160 employees, all of which are
located at its Petaluma facility. Of these 160 employees, 141 are employed in
manufacturing, eight are employed in sales and marketing, and 11 are employed in
administration.
Common Stock
There is no established public trading market for any class of capital
stock of Point Plastics. As of the record date for the Special Meeting (defined
herein) there were five holders of record of shares of common stock of Point
Plastics ("Point Plastics Common Stock"), one of which is the Point Plastics
Employee Stock Ownership Plan and Trust (the "ESOP").
Financial Statements
For Point Plastics' financial results refer to the 1997 Financial
Statements of Point Plastics attached hereto at pages F-1 to F-19.
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Management's Discussion and Analysis of Financial Condition and Results of
Operations
The following table sets forth for the period indicated the percentage
which certain items in the financial statements of Point Plastics bear to net
sales.
PERCENTAGE OF NET SALES
FISCAL YEARS ENDED DECEMBER 31,
----------------------------------
1997 1996 1995
----------- ---------- ---------
Net Sales................................... 100% 100% 100%
Cost and expenses
Cost of sales........................ 52.2 53.3 54.4
Selling, general and administrative.. 12.7 12.6 11.7
Interest income...................... (2.7) (2.3) (2.1)
Interest expense..................... 1.9 2.2 2.6
ESOP contribution.................... 2.2 2.6 2.9
Other (income) expense............... --- .2 .1
---- ---- ----
66.3 68.6 69.6
Income before provision for income taxes.... 33.7 31.4 30.4
Provision for income taxes.................. 12.9 12.4 11.4
---- ---- ----
Income from continuing operations........... 20.8% 19.0% 19.0%
==== ==== ====
The historical operations of Point Plastics are primarily related to its
manufacture of disposable plastics for the biotechnology industry. All revenues
and operating expenses were derived from these operations.
Years ended December 31, 1997 and 1996
Consolidated Results of Operations
Net sales for 1997 increased by 15.6% to $24,828,484 from $21,472,829 in
1996. The sales increase was due primarily to the increased sales of products
used in the Polymerase Chain Reaction ("PCR") process, and to a lesser extent,
increased demand for products used in high throughput screening and micro assay
automation.
Cost of sales for 1997 increased by 13.1% to $12,948,179 from $11,446,396
in 1996 due to the increased sales volume. As a percent of net sales, cost of
sales decreased to 52.2% from 53.3% due primarily to decreases in raw material
prices and to fixed costs which did not increase proportionately with sales.
Selling, general and administrative expenses for 1997 increased 17.5% to
$3,161,856 from $2,691,388 in 1996. The increase was due primarily to increases
in executive bonuses that are based on financial performance of Point Plastics.
As a percent of net sales, selling, general and administrative expenses remained
relatively constant.
Interest income for 1997 increased by 38.0% to $678,338 from $491,617 in
1996 due to an increase in funds available for investments generated by
operations in 1997.
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Interest expense for 1997 decreased by 2.3% to $459,800 from $470,681 in
1996 due to principal payments made during 1997 resulting in a reduction of the
Point Plastics' long term debt.
The Employee Stock Ownership Plan contribution for 1997 decreased by .7% to
$558,681 from $562,773 in 1996 due to a decrease in the number of eligible
participants at year end.
Other expense for 1997 decreased by 98.6% to $555 from $40,395 in 1996 due
primarily to the write-down of a limited partnership investment in 1996.
The effective tax rate for 1997 decreased to 38.3% from 39.4% in 1996 due
primarily to a reduction in the state tax rate.
Years ended December 31, 1996 and 1995
Consolidated Results of Operations
Net sales for 1996 increased by 7.3% to $21,472,829 from $20,013,624 in
1995. The sales increase was due primarily to increased sales for products used
in PCR process, and to a lesser extent, increased demand for the environmentally
friendly packaging enhancements made to the existing product line.
Cost of sales for 1996 increased by 5.1% to $11,446,396 from $10,887,707 in
1995 due to increased sales volume noted above. As a percent of net sales, cost
of sales decreased to 53.3% from 54.4% due primarily to a transfer of certain
labor intensive production processes to a lower cost outside service and to
fixed costs which did not increase proportionately with sales.
Selling, general and administrative expenses for 1996 increased by 14.9% to
$2,691,338 from $2,343,430 in 1995. The increase was due primarily to increases
in administrative personnel, royalty expense, and the introduction of new sales
catalogs. As a percent of net sales, selling, general and administrative
expenses increased to 12.6% from 11.7% for the reasons stated above.
Interest income for 1996 increased by 14.5% to $491,617 from $429,375 in
1995 due to increase in funds available for investments generated by operations
in 1996.
Interest expense for 1996 decreased by 10.8% to $470,681 from $527,600 in
1995 due to a $625,000 principal payment made during 1996 resulting in a
reduction in Point Plastics' long term debt.
The Employee Stock Ownership Plan contribution for 1996 decreased by 1.6%
to $562,773 from $571,895 in 1995 due to a limitation on allowable contributions
after the payoff of an ESOP note.
Other expense for 1996 increased 93.6% to $40,395 from $20,868 in 1995 due
primarily to a write down of a limited partnership investment in 1996.
The effective tax rate for 1996 increased to 39.4% from 37.5% in 1995 due
primarily to a California manufacturer's tax credit in 1995 which allowed a two
year credit in comparison to a single year credit in 1996.
Capital Resources and Liquidity
As of December 31, 1997, Point Plastics, Inc. had $2,987,664 of cash and
cash equivalents, $13,597,625 in working capital, and $8,153,759 of marketable
securities.
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<PAGE>
Net cash used for investing activities was $6,020,388 in 1997. This
included capital expenditures of $2,420,422 and the issuance of a note
receivable to the ESOP for $2,657,272 to fund the buyout of separated
participants.
Net cash used for financing activities was $641,131 primarily due to
repurchase and retirement of Company stock held by separated participants of the
ESOP.
Point Plastics' policy has been to finance its growth from internally
generated funds rather than seek outside financing. Current plans include the
construction of an administrative and shipping facility on a company-owned
parcel. The cost of construction is expected to be $2 million.
Although Point Plastics sells its products worldwide, its net sales and
receivable collections are in U.S. currency. Therefore, currency fluctuations
have historically not had a significant impact on the Point Plastics' net sales,
costs or profits.
SYNETIC, INC.
Synetic is engaged in two principal business activities, plastics
technologies and healthcare communications:
. Porex Technologies Corp. (together with its subsidiaries, "Porex"), a
wholly owned subsidiary of Synetic, 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 wholly owned subsidiary, Avicenna Systems Corporation
("Avicenna"), Synetic 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.
Synetic had net sales of approximately $52.9 million for its fiscal year
1997, which ended on June 30, 1997.
Synetic maintains an acquisition program and intends to concentrate its
acquisition efforts on businesses which are complementary to Synetic's
healthcare communications strategy and its plastic filtration and technology
business, but such emphasis is not intended to limit in any manner Synetic's
ability to pursue acquisition opportunities in other healthcare-related
businesses or in other industries. Synetic 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 Synetic is a party, to areas of business that would not be competitive
with certain businesses of Merck & Co., Inc. which expire on May 24, 1999.
The address of Synetic's principal executive offices is 669 River Drive,
Elmwood Park, New Jersey 07407, and its telephone number is (201) 703-3400.
Plastics Acquisition Corp., a Delaware corporation and a wholly owned
subsidiary of Synetic ("Merger Sub"), was incorporated for the purpose of
consummating the Merger and has not conducted any unrelated business activities
since its organization.
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<PAGE>
Merger Sub's principal executive office is located at 669 River Drive,
Elmwood Park, New Jersey 07407, and its telephone number is (201) 703-3400.
THE SPECIAL MEETING
GENERAL
This Proxy Statement/Prospectus is being furnished in connection with the
solicitation of proxies by the Board of Directors of Point Plastics (the "Point
Plastics Board") for use at the special meeting of Point Plastics shareholders
(the "Special Meeting").
MATTERS TO BE CONSIDERED AT THE SPECIAL MEETING
At the Special Meeting, holders of Point Plastics Common Stock will be
asked to consider and vote on a proposal to approve the Agreement and Plan of
Merger, dated March 6, 1998, among Synetic, Point Plastics, Merger Sub, the
trustees of the Point Plastics, Inc. Employee Stock Ownership Plan and Trust
(the "ESOP") and certain individual holders of capital stock of Point Plastics
(the "Merger Agreement"). Pursuant to the terms of the Merger Agreement, Point
Plastics will be merged into Merger Sub and Merger Sub will be the surviving
corporation (the "Merger").
AFTER CAREFUL CONSIDERATION, THE POINT PLASTICS BOARD HAS UNANIMOUSLY
DETERMINED THAT THE MERGER IS FAIR TO AND IN THE BEST INTERESTS OF POINT
PLASTICS AND ITS SHAREHOLDERS. THE POINT PLASTICS BOARD HAS UNANIMOUSLY
APPROVED THE MERGER AGREEMENT AND UNANIMOUSLY RECOMMENDS THAT HOLDERS OF POINT
PLASTICS COMMON STOCK VOTE TO APPROVE IT AT THE SPECIAL MEETING.
VOTING AND PROXIES
The Point Plastics Board has fixed the close of business on [______], 1998
as the record date for the determination of the shareholders entitled to notice
of, and to vote at, the Special Meeting. At that date, there were outstanding
1,450,287 shares of Point Plastics Common Stock, the holders of which will be
entitled to one vote per share on each matter submitted to the Special Meeting.
The Point Plastics Common Stock is the only class of capital stock of Point
Plastics issued and outstanding.
The presence at the Special Meeting, in person or by proxy, of the holders
of a majority of the shares entitled to vote constitutes a quorum for the
transaction of business at the Special Meeting. If a quorum is not present, the
Special Meeting may be adjourned from time to time until a quorum is obtained.
Assuming a quorum is present, the affirmative vote of the holders of a majority
of the outstanding shares of Point Plastics Common Stock entitled to vote at the
Special Meeting is required to approve the Merger Agreement under California law
and Point Plastics' Articles of Incorporation and bylaws. In addition, it is a
condition to the obligations of Synetic and Merger Sub to effect the Merger that
the Merger Agreement be approved by the holders of at least 90% of such shares.
Mr. Stolp and Mr. Taggart have agreed under the Merger Agreement to vote
their shares of Point Plastics Common Stock in favor of the Merger. Together
their shares constitute approximately 54% of the shares entitled to vote on the
Merger (including shares beneficially owned through the ESOP). The shares of
Point Plastics Common Stock held in the ESOP will be voted in accordance with
instructions received by the ESOP Trustees (as defined herein) from employees of
Point Plastics who are participants in the ESOP prior to the Special Meeting.
Any shares held in the ESOP for which no instructions are timely received by the
ESOP Trustees will be voted in favor, against and/or abstain with respect to the
Merger in the same proportions as shares in the ESOP are voted pursuant to
instructions received by the ESOP Trustees.
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<PAGE>
Shares of Point Plastics Common Stock represented by properly executed
proxies will, unless such proxies have been revoked, be voted in accordance with
the instructions indicated on such proxies or, if no instructions are indicated,
will be voted for adoption of the Merger Agreement and in the best judgment of
the individuals named in the accompanying proxy on any other matters which may
properly come before the Special Meeting.
REVOCATION OF PROXIES
Any proxy may be revoked by the shareholder giving it, at any time prior to
its being voted, by filing a notice of revocation or a duly executed proxy
bearing a later date with the Secretary of Point Plastics at the address given
on the Notice of Shareholders' Meeting accompanying this Proxy
Statement/Prospectus. Any proxy may also be revoked by the shareholder's
attendance at the Special Meeting and voting in person. A notice of revocation
need not be on any specific form. Abstentions may be specified with respect to
the adoption of the Merger Agreement by properly marking the "ABSTAIN" box on
the proxy for such proposal, and will be counted as present for the purpose of
determining the existence of a quorum. Abstentions will have the same effect as
a vote against the adoption of the Merger Agreement at the Special Meeting.
SOLICITATION OF PROXIES
Proxies are being solicited by and on behalf of the Point Plastics Board.
Point Plastics will pay all expenses related to copying and mailing the Proxy
Statement/Prospectus and Synetic will pay all the Securities and Exchange
Commission (the "Commission") and other regulatory filing fees incurred in
connection with the Proxy Statement/Prospectus. In addition to soliciting
proxies by mail, officers, directors and employees of Point Plastics, without
receiving additional compensation therefor, may solicit proxies by telephone,
telegraph, in person or by other means. Arrangements also will be made with
custodians, nominees and fiduciaries to forward proxy solicitation material to
the beneficial owners of Point Plastics Common Stock held of record by such
persons, and Point Plastics will reimburse such custodians, nominees and
fiduciaries for reasonable out-of-pocket expenses incurred by them in connection
therewith.
THE MERGER
BACKGROUND OF THE MERGER
On December 2, 1997, Victor L. Marrero, a Vice President of Synetic and
other representatives of Synetic contacted Mr. Stolp, the Chief Executive
Officer of Point Plastics to inquire whether Point Plastics had any interest in
being acquired by another Company. Mr. Stolp indicated that, although Point
Plastics had not been considering a sale or combination of its business, he
would consider any attractive offer made to acquire Point Plastics. Synetic's
representatives were given a tour of Point Plastics' plant and facilities and
were provided with financial statements for Point Plastics for the calendar
years of 1996, 1995 and 1994.
On December 10, 1997, Martin J. Wygod, Chairman of the Board of Directors
of Synetic (the "Synetic Board") and Anthony Vuolo, Vice President and Chief
Financial Officer of Synetic, met with Mr. Stolp to discuss the possibility of
Synetic acquiring Point Plastics.
During the period from December 10 1997 to January 6, 1998, Messrs. Marrero
and Stolp had a number of conversations in which they discussed a possible
transaction between Synetic and Point Plastics.
On January 6, 1998, Mr. Marrero and other representatives of Synetic met
with Mr. Stolp and Mr. Taggart, Executive Vice President of Point Plastics, to
discuss Point Plastics' business and the parameters from which to proceed
regarding a possible business transaction. Synetic agreed to provide Mr. Stolp
a formal proposal for the acquisition of Point Plastics.
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<PAGE>
On January 8, 1998, a letter proposal for the acquisition of Point Plastics
was faxed to Mr. Stolp. The letter proposal indicated that Synetic would,
subject to due diligence, pay $86 million, subject to adjustment under certain
circumstances, payable 60% in shares of common stock of Synetic, par value $.01
per share ("Synetic Common Stock"), and 40% in cash, for all of the outstanding
capital stock of Point Plastics.
On January 14, 1998, the Point Plastics Board of Directors held a special
meeting at which the offer of the Merger was discussed.
On January 26, 1998, the Point Plastics Board held a special meeting to
discuss the effect of the Merger on the participants of the ESOP (the "ESOP
Participants"), and acceleration of Mr. Taggart's Stock Option and payment of
the price for exercising such options by Point Plastics in connection with the
Merger.
From January 26, 1998 to January 28, 1998, Synetic commenced its due
diligence review of Point Plastics and presented a preliminary term sheet
outlining the Merger Agreement to Mr. Stolp and Mr. Taggart for their review and
comment.
On February 18, 1998 Mr. Wygod and Mr. Taggart met to discuss Point
Plastics' business.
From February 25, 1998 through March 6, 1998, Synetic and its counsel
continued its due diligence efforts.
On March 5, 1998, the Point Plastics Board held a meeting and, after due
deliberation, unanimously approved the terms of the Merger pursuant to the
Merger Agreement. On March 5, 1998, the Synetic Board held a meeting and, after
due deliberation, unanimously approved the terms of the Merger pursuant to the
Merger Agreement. In addition, Synetic incorporated Merger Sub for the purpose
of consummating the Merger. On March 6, 1998, Synetic and Point Plastics agreed
on the final terms of and executed the Merger Agreement.
On March 9, 1998, Synetic issued a press release announcing that it had
entered into the Merger Agreement with Point Plastics.
REASONS FOR THE MERGER; RECOMMENDATION OF THE POINT PLASTICS BOARD OF DIRECTORS
At a special meeting of the Board of Directors of Point Plastics held on
March 5, 1998, the Point Plastics Board reviewed the terms of the Merger
Agreement with members of Point Plastics management and discussed the business
prospects of Point Plastics and the potential combination with Synetic. At the
meeting, the Point Plastics Board unanimously determined that the Merger, upon
the terms and conditions set forth in the Merger Agreement, is fair to, and in
the best interests of, the shareholders of Point Plastics. Accordingly, the
Point Plastics Board has unanimously adopted the Merger Agreement and
unanimously recommends that the holders of outstanding shares of Point Plastics
Common Stock vote for approval of the Merger Agreement at the Special Meeting.
In considering the Merger, the Point Plastics Board consulted with its
management and considered a number of factors, including the following principal
factors:
1. The terms and conditions of the Merger Agreement, including the amount
and the form of the consideration, the parties' representations,
warranties, covenants and agreements, and the conditions to their
respective obligations set forth in the Merger Agreement.
2. The way Point Plastics, business would complement operations of Synetic.
3. The possible strategic growth opportunities resulting from the
combination of the businesses of Point Plastics and Synetic.
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<PAGE>
4. Point Plastics' and Synetic's respective businesses, financial
condition, results of operations and prospects, including but not
limited to past growth, developing products and profitability, and the
business risks associated therewith.
5. The fact that the Merger would provide holders of Point Plastics Common
Stock with equity interest in the combined entity which has publicly
traded securities.
6. The likelihood of consummation of the Merger, including the limited
conditions to its consummation and limited circumstances under which the
Merger Agreement can be terminated.
The Point Plastics Board also considered the negative factors relating to
the Merger, including: (i) the risks that the benefits sought in the Merger
would not be fully achieved; (ii) the risk that the Merger would not be
consummated; (iii) the possible loss of revenue from customers; and (iv) risks
associated with the business of Synetic, described under "RISK FACTORS."
The foregoing discussion of information and factors considered and given
weight by the Point Plastics Board is not intended to be exhaustive. In view of
the wide variety of factors considered in connection with its evaluation of the
terms of the Merger, the Point Plastics Board did not find it practicable to,
and did not, quantify or otherwise attempt to assign relative weights to the
specific factors considered in reaching their determinations.
THE POINT PLASTICS BOARD UNANIMOUSLY RECOMMENDS THAT THE HOLDERS OF POINT
PLASTICS COMMON STOCK VOTE FOR APPROVAL OF THE MERGER AGREEMENT.
INTERESTS OF CERTAIN PERSONS IN THE MERGER; CONFLICTS OF INTEREST
In considering the Merger, you should be aware of the interests certain
officers and directors of Point Plastics have in the Merger that are different
from your and their interests as shareholders. In this regard, you should
consider, among other things, employment agreements of Mr. Stolp and Mr. Taggart
dated as of March 6, 1998.
Employment Agreements
Porex entered into employment agreements (the "Employment Agreements") with
Mr. Stolp and Mr. Taggart (the "Executives") as of March 6, 1998. The
Employment Agreements have a term of five years beginning on the Effective Time
(as defined below) with automatic one-month renewals (the "Employment Period").
In the event that the Merger is not effectuated and the Merger Agreement is
terminated, the Employment Agreements will become null and void.
Pursuant to the Employment Agreements, each Executive will receive an
annual base salary, subject to increases (but not decreases) at the discretion
of the Board of Directors of Porex or the Compensation Committee of the Board of
Directors of Porex. The current 1998 annual salary of each of the Executives is
$190,000. In addition, each Executive will be granted an option (the "New
Option") to purchase 80,000 shares of Synetic Common Stock at an exercise price
equal to the fair market value of the Synetic Common Stock at the Effective
Time. The New Option will vest at a rate of 20% per year. Each Executive will
also receive, during the Employment Period, an annual advance (the "Advance
Draw") against the appreciation represented by the difference between the
exercise price of the Executive's stock options (which include the New Option
and any other options or right to purchase Synetic Common Stock, collectively,
the "Options") and the fair market value of the underlying shares of Synetic
Common Stock on the date of exercise. The Executives will also be eligible to
participate in Porex's EVA Incentive Plan (the "Incentive Plan"). In addition,
the Executives will participate in all pension and welfare benefit plans and
programs which are applicable to officers of Porex.
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Under the Employment Agreements, in the event an Executive's employment is
terminated by Porex without "Cause" or by the Executive (prior to the second
anniversary of the Effective Time in the case of Mr. Stolp) for "Good Reason"
(as each such term is defined below), the Executive is to receive (a) a
continuation of his base salary for a period (the "Severance Period") of, in the
case of Mr. Taggart, the remainder of the Employment Period, and in the case of
Mr. Stolp, two years following the date of termination, or, if less, through the
remainder of the Employment Period, (b) continued medical, dental and other
welfare plan coverage during the Severance Period until the Executive is offered
comparable coverage with a subsequent employer, (c) certain amounts held under
the Incentive Plan, if any, and (d) the pro rata portion of the bonus Executive
would have earned, if any, for the year of termination under the Incentive Plan.
In addition, upon any such termination, Mr. Taggart will continue to vest in the
New Options as if he remained in the employ of Porex for the remainder of the
Employment Period.
For the purposes of the Employment Agreements, "Cause" means (i) a willful
failure of Executive to perform his duties under the Employment Agreement, which
failure has not been cured (to the extent susceptible to cure) within 30 days
following written notice from Porex detailing such failure; (ii) any willful and
material misconduct by Executive relating, directly or indirectly, to Porex or
any of its affiliates, or any breach by Executive of any material policy of
Porex or any of its affiliates, which material policy has been disseminated to
employees of Porex and enforced on a consistent basis and which breach has not
been cured (to the extent susceptible to cure) within 30 days following written
notice from Porex detailing such breach; (iii) any material breach by Executive
of the Employment Agreement, including, without limitation, the restrictive
covenants referred to below, which breach has not been cured (to the extent
susceptible to cure) within 30 days following written notice from Porex
detailing such breach; or (iv) Executive's commission of a common law fraud
against Porex or any of its affiliates or conviction of a felony crime involving
moral turpitude. "Good Reason" means any of the following conditions or events
which condition(s) or event(s) remain in effect 30 days after written notice is
provided by Executive to Porex detailing such condition or event: (i) a material
reduction in Executive's title, responsibilities or duties, as measured against
his title, responsibilities or duties, immediately prior to such reduction; (ii)
the relocation of Executive's work outside of a 30 mile area surrounding
Petaluma, California; (iii) any reduction in Executive's base salary or Advance
Draw or any material breach by Porex of the Employment Agreement; or (iv) any
termination by Porex of the Employment Period in a manner which is inconsistent
with the terms of the Employment Agreement.
In the case of Mr. Taggart, if the Employment Period expires without
renewal or terminates at any time after the fifth anniversary of the Effective
Time for any reason other than death, Disability or Cause, the Executive will
continue to receive his base salary for a period of one year following the date
of termination, and, in consideration of the salary continuation, the Executive
will act as a consultant to Porex at mutually agreeable times of up to 15 hours
per month. In the case of Mr. Stolp, if the Employment Period is terminated by
the Executive after the second anniversary of the Effective Time, such
termination will be treated as a termination by Porex for Cause. At the
election of Porex, Mr. Stolp will act as a consultant to Porex for a period of
one year following the date of such termination at mutually agreeable times of
up to 15 hours per month. In consideration for such consulting services, Mr.
Stolp will continue to receive his base salary (at a rate equal to 50% of the
rate in effect at the time of such termination) during such one-year period.
The Employment Agreements contain confidentiality, non-competition and non-
solicitation covenants on the part of the Executives.
Stock Options
Pursuant to the Merger Agreement, Mr. Taggart has agreed to exercise the
option issued to him pursuant to Point Plastics' Stock Option Plan (the "Point
Plastics Stock Plan") to purchase all 48,999 shares of Point Plastics Common
Stock, which constitute the only options of Point Plastics issued and
outstanding (the "Point Plastics Options"). Such exercise will be effective
immediately prior to, and conditioned on, the Effective Time. Mr. Taggart will
receive in full consideration for the exercise of the Point Plastics Options the
aggregate Per Share Consideration that he would have otherwise received if he
had exercised such Point Plastics Options prior to the Effective Time
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(which amount will equal such aggregate Per Share Consideration, less the
$10.00 per share exercise price of such Point Plastics Options and any amounts
required to be withheld under applicable tax laws). Point Plastics has agreed to
grant Mr. Taggart a bonus to pay the $10.00 per share exercise price. For
purposes of the Merger Agreement, including, without limitation, the shareholder
indemnification obligations contained therein, Mr. Taggart will be considered a
Point Plastics Shareholder and the shares of Point Plastics Common Stock subject
to Point Plastics Options will be considered outstanding Point Plastics Common
Stock.
The ESOP
The Cash Consideration received by the ESOP will first be applied by Mr.
Stolp, Jason Stolp and Patricia Parsons, acting solely in their capacity as
trustees under the ESOP (collectively, in such capacity, the "ESOP Trustees")
and at the direction of Mr. Stolp, Jason Stolp, Patricia Parsons and Donald J.
Lewis, in their capacity as members of the ESOP Committee to the repayment in
full of the $2,657,272 loan (the "ESOP Loan") evidenced by the ESOP Loan
Agreement and Addendums dated December 18, 1997 by and between Point Plastics
and the ESOP Trustees, and any excess proceeds will be allocated to the accounts
of the participants and beneficiaries in accordance with the terms of the ESOP.
The ESOP will remain in place for approximately one year following the
Merger. The ESOP has agreed to elect to receive Synetic Common Stock for at
least 51% of the shares of Point Plastics Common Stock held in the ESOP and cash
for between 40% and 49% of such shares of Point Plastics Common Stock.
Employees of Point Plastics who are participants in the ESOP will be able to
elect to receive between 60% and 51% of their merger consideration in shares of
Synetic Common Stock and between 40% and 49% of their merger consideration in
cash for their shares of Point Plastics Common Stock held in their ESOP
accounts. 25% of the consideration to be paid to the ESOP in the Merger (the
"Escrow Fund") will be held in escrow for one year after the Merger to satisfy
certain claims made by Synetic for indemnification under the Merger Agreement
during such one-year period. Part of the Escrow Fund may be retained in escrow
beyond this one-year period to satisfy such claims made by Synetic but not fully
resolved during such one-year period.
No further contributions will be made to the ESOP following the Effective
Time; provided, however, that to the extent permitted by applicable law, Synetic
will maintain the ESOP (but make no contributions thereto) for a period of one
year following the Effective Time. Prior to the Effective Time the ESOP will be
amended to provide that: (i) the ESOP Trustees will vote unallocated shares of
Point Plastics Common Stock and allocated shares of Point Plastics Common Stock
for which no voting instructions are received, in proportion to the voting
instructions received from ESOP Participants on allocated shares of Point
Plastics Common Stock; (ii) ESOP Participants may make elections for the Cash
Consideration or the Stock Consideration, and the demand for dissenters' rights,
by so instructing the ESOP Trustees with respect to their allocated shares of
Point Plastics Common Stock; (iii) all ESOP Participants will become 100% vested
in their ESOP accounts at the Effective Time; (iv) promptly following the one-
year anniversary of the Effective Time, or sooner at the election of Synetic,
all shares of Synetic Common Stock then remaining in the ESOP (other than shares
to be distributed to certain ESOP Participants) will be transferred to the Porex
Technologies Corp. 401(k) Savings Plan (the "Porex 401(k) Plan"); and (v) the
ESOP will be terminated after termination of the Escrow Agreement (as defined
herein) and such Synetic Common Stock transfer (but no earlier than December 31,
1998) and ESOP Participants will be offered lump sum distributions of the
remaining cash balances in their ESOP accounts. Contributions made to the ESOP
by Point Plastics prior to March 6, 1998 will be allocated as of December 31,
1998, under the existing provisions of the ESOP.
Continuation of Benefits; Service Recognition.
For a period of two years following the Effective Time and other than with
respect to the ESOP, Synetic will maintain, or cause to be maintained, employee
benefit plans and arrangements which in the aggregate will provide a
substantially comparable level of benefits to employees of Point Plastics to
those provided under the Point Plastics' employee benefit plans and arrangements
as in effect immediately prior to the Effective Time; provided, however, that
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changes may be made to such employee benefit plans and arrangements to the
extent necessary to comply with applicable law. To the extent eligible,
employees of the Surviving Corporation (as defined below) will be entitled to
participate in the Porex 401(k) Plan as soon as practicable after the Effective
Time. To the extent that service is relevant for purposes of eligibility,
participation or vesting under any employee benefit plan, program or arrangement
established or maintained by Synetic or the Surviving Corporation for the
benefit of employees of the Surviving Corporation, the employees of the
Surviving Corporation will be credited for service with Point Plastics accrued
prior to the Effective Time.
FORM OF THE MERGER
If the holders of Point Plastics Common Stock approve the Merger Agreement
and all other conditions to the Merger are satisfied or waived (where
permissible), Point Plastics will be merged with and into Merger Sub, with
Merger Sub being the surviving corporation after the Merger (the "Surviving
Corporation") and a wholly owned subsidiary of Synetic. The date on which the
closing of the Merger (the "Closing") will occur is referred to herein as the
"Closing Date." Synetic and Point Plastics anticipate that the Closing Date
will occur as promptly as practicable after the Special Meeting, and after the
satisfaction or, if permissible, waiver of each of the conditions to the Merger.
At the Effective Time, by virtue of the Merger and without any action on the
part of Synetic, Point Plastics or other holders of outstanding shares of the
Point Plastics' capital stock immediately prior to the Effective Time (the
"Point Plastics Shareholders"):
(i) each outstanding share of Point Plastics Common Stock (other than
Dissenting Shares (as defined in the Merger Agreement) and treasury
shares) will be canceled and converted automatically into the right to
receive the Per Share Consideration (as hereinafter defined);
(ii) each share of Point Plastics Common Stock held in the Point Plastics'
treasury as of the Effective Time will be canceled and retired and all
rights in respect thereof will cease to exist, without any conversion
thereof or payment of any consideration therefor.
EFFECTIVE TIME
The Merger will become effective (the "Effective Time") upon the filing of
the Certificate of Merger with the Secretary of State of the State of Delaware
and the Secretary of State of the State of California (or such later time as may
be agreed by the parties hereto and specified in the Certificates of Merger).
MERGER CONSIDERATION
Aggregate Purchase Price
After the 1997 Financial Statements of Point Plastics (the "1997 Financial
Statements") and the calculation of Adjusted 1997 EBIT (as defined in the Merger
Agreement) have become final, the "Aggregate Purchase Price" will be $86,000,000
subject to adjustment as follows:
. If Adjusted 1997 EBIT is greater than $10,600,000, the Aggregate
Purchase Price will be equal to the sum of (A) $86,000,000 and (B) the
product of (1) the amount by which Adjusted 1997 EBIT (less stock
option compensation expense up to $81,500) exceeds $10,600,000, and
(2) eight.
. If Adjusted 1997 EBIT is less than $9,639,000, the Aggregate Purchase
Price will be equal to $86,000,000 reduced by the product of (A) the
amount by which $9,639,000 exceeds Adjusted 1997 EBIT, and (B) eight.
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Per Share Consideration
At the Effective Time, Point Plastics shareholders will be entitled to
receive, in exchange for each share of Point Plastics Common Stock, an amount
equal to the Aggregate Purchase Price divided by the number of shares of Point
Plastics Common Stock outstanding immediately prior to the Effective Time (the
"Per Share Consideration"). Point Plastics shareholders may elect to:
(i) receive the Per Share Consideration in cash (the "Cash Consideration"
this election being a "Cash Election");
(ii) receive the Per Share Consideration in the number of shares of
Synetic Common Stock as is determined by dividing the Per Share
Consideration by $46.51 rounded to the nearest one one-thousandth of
a share (the "Stock Consideration" this election being a "Stock
Election"); or
(iii) indicate that they have no preference as to Cash Consideration or
Stock Consideration (a "Non-Election").
Synetic will not issue any fractional shares of Synetic Common Stock. Each
holder of a fractional share interest will be paid an amount in cash equal to
the product of (a) such fractional share interest to which such holder (after
taking into account all fractional share interests then held by such holder)
would otherwise be entitled and (b) $46.51.
RESTRICTIONS ON TRANSFER OF SYNETIC COMMON STOCK
Under the Merger Agreement, each of Mr. Stolp, Mr. Taggart and the ESOP
Trustees on behalf of the ESOP agrees that he, she or it will not sell, assign
or otherwise transfer, directly or indirectly, any of the shares of Synetic
Common Stock received in consideration for his, her or its shares of Point
Plastics Common Stock prior to the first anniversary of the Effective Time
except, in the case of the ESOP, for any distributions from the ESOP in
connection with the termination of employment of any ESOP participant in
accordance with the terms thereof. Thereafter, each such shareholder that
desires to sell more than 5,000 shares of Synetic Common Stock in any five
business day period has agreed to cooperate with Synetic in determining the
method of sale of any such shares of Synetic Common Stock by such shareholder
and will use one of three nationally recognized brokerage firms selected by
Synetic; provided, however, that if Mr. Stolp, Mr. Taggart or the ESOP Trustees
determine in his or their reasonable judgment that it would be advisable to use
another nationally recognized brokerage firm, such shareholder may so notify
Synetic and Synetic will cooperate with such shareholder in the sale of such
shares of Synetic Common Stock.
DESCRIPTION OF ELECTION PROCEDURES
Limitation on Election
Under the Merger Agreement the aggregate number of shares of Point Plastics
Common Stock entitled to receive Cash Consideration and Stock Consideration are
fixed. Of the number of shares of Point Plastics Common Stock outstanding
immediately prior to the effective time (including, for purposes of Cash
Elections, the aggregate number of shares of Point Plastics Common Stock which
have the right to file a notice of dissent pursuant to Chapter 13 of the CGCL as
of the Closing), 40% of the aggregate number of shares of Point Plastics Common
Stock will receive the Cash Consideration (the "Cash Election Number") and 60%
of the aggregate number of shares of Point Plastics Common Stock will receive
the Stock Consideration (the "Stock Election Number").
Election Adjustments
If the aggregate number of shares of Point Plastics Common Stock covered by
either the Cash Election (the "Cash Election Shares") or the Stock Election (the
"Stock Election Shares") exceed (as the case may be) either the
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Cash Election Number or the Stock Election Number, respectively, all shares of
Point Plastics Common Stock covered by Non-Elections (the "Non-Election Shares")
are converted into the right to receive the Stock Consideration or Cash
Consideration (as the case may be), and either the Cash Election Shares or Stock
Election Shares, as the case may be, will be converted into the right to receive
Synetic Common Stock and cash in the following manner:
. If the Cash Election Shares exceed the Cash Election Number, each Cash
Election Share will be converted into the right to receive (i) an
amount in cash, without interest, equal to the product of (x) the Per
Share Cash Consideration (as defined in the Merger Agreement) and (y)
a fraction (the "Cash Fraction"), the numerator of which will be the
Cash Election Number and the denominator of which will be the total
number of Cash Election Shares, and (ii) a number of shares of Synetic
Common Stock equal to the product of (x) the Per Share Stock
Consideration and (y) a fraction equal to one minus the Cash Fraction
(and each Stock Election Share will receive the Stock Consideration as
elected).
. If the Stock Election Share exceed the Stock Election Number, each
Stock Election Share will be converted into the right to receive (i) a
number of shares of Synetic Common Stock equal to the product of (x)
the Per Share Stock Consideration (as defined in the Merger Agreement)
and (y) a fraction (the "Stock Fraction"), the numerator of which will
be the Stock Election Number and the denominator of which will be the
total number of Stock Election Shares, and (ii) an amount in cash,
without interest, equal to the product of (x) the Per Share Cash
Consideration and (y) a fraction equal to one minus the Stock Fraction
(and each Cash Election Share will receive the Cash Consideration as
elected).
Because shareholders' elections to receive cash or Synetic Common Stock are
subject to these adjustments, there can be no guarantee that any individual
shareholder will receive the allocation of cash and Synetic Common Stock
specified in his or her election.
YOU SHOULD CONSIDER THAT SHAREHOLDERS RECEIVING SYNETIC COMMON STOCK IN THE
MERGER WILL RECEIVE A NUMBER OF SHARES OF SYNETIC COMMON STOCK BASED ON THE
EXCHANGE RATIO FOR EACH SHARE OF POINT PLASTICS COMMON STOCK. BECAUSE THE
EXCHANGE RATIO WAS FIXED BASED ON A MARKET PRICE PER SHARE OF SYNETIC COMMON
STOCK OF $46.51 AND BECAUSE THE MARKET PRICE OF SHARES OF SYNETIC COMMON STOCK
IS SUBJECT TO FLUCTUATION, THE MARKET VALUE PER SHARE OF SHARES OF SYNETIC
COMMON STOCK THAT HOLDERS OF SHARES OF POINT PLASTICS COMMON STOCK MAY RECEIVE
IN THE MERGER FOR EACH SHARE OF POINT PLASTICS COMMON STOCK MAY BE LESS THAN,
GREATER THAN OR EQUAL TO $46.51. IN ADDITION, BECAUSE OF SUCH FLUCTUATIONS IN
THE VALUE OF SHARES OF SYNETIC COMMON STOCK, THE MARKET VALUE OF THE SHARES OF
SYNETIC COMMON STOCK THAT HOLDERS OF SHARES OF POINT PLASTICS COMMON STOCK MAY
RECEIVE IN THE MERGER MAY INCREASE OR DECREASE FOLLOWING THE MERGER.
Exercise of Election
All Cash Elections, Stock Elections and Non-Elections will be made on a
form provided to shareholders of Point Plastics Common Stock with this Proxy
Statement/Prospectus (a "Form of Election/Letter of Transmittal"). Elections
are made by submitting to Point Plastics a Form of Election/Letter of
Transmittal. To be effective, a Form of Election/Letter of Transmittal must be
properly completed, signed and submitted to Point Plastics and accompanied by
the Certificates evidencing shares of Point Plastics Common Stock (the
"Certificates") as to which the election is being made. Synetic, in
consultation with Point Plastics, will have the discretion to reasonably
determine whether each Form of Election/Letter of Transmittal has been properly
completed, signed and submitted or revoked. Synetic will disregard immaterial
defects in Forms of Election/Letters of Transmittal. Synetic, in consultation
with Point Plastics, will also make all computations.
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Election Deadline
A Form of Election/Letter of Transmittal must be received by Point Plastics
by the close of business on _________, 1998, the fifth business day prior to the
date on which the Effective Time is expected to occur (such time hereinafter
referred to as the "Election Deadline") in order to be effective. Any holder of
Point Plastics Common Stock who has made an election by submitting a Form of
Election/Letter of Transmittal to Point Plastics may at any time prior to the
Election Deadline change such holder's election by submitting a revised Form of
Election/Letter of Transmittal, properly completed and signed that is received
by Point Plastics prior to the Election Deadline. Any holder of Point Plastics
Common Stock may at any time prior to the Election Deadline revoke his election
and withdraw his Certificates deposited with Point Plastics by written notice to
Point Plastics received prior to the Election Deadline. As soon as practicable
after the Election Deadline, but in any event within three business days
thereof, Synetic, in consultation with Point Plastics, will determine the
allocation of the cash portion of the consideration to be paid in the Merger
(the "Merger Consideration") and the stock portion of the Merger Consideration
and will notify Point Plastics in writing of its determination.
Deemed Non-Election
For the purposes hereof, a holder of Point Plastics Common Stock who does
not submit a Form of Election/Letter of Transmittal which is received by Point
Plastics by the Election Deadline will be deemed to have made a Non-Election (a
"Non-Election Share"). If Synetic, in consultation with Point Plastics, will
determine that any purported Cash Election or Stock Election was not properly
made, such purported Cash Election or Stock Election will be deemed to be of no
force and effect and the shareholder making such purported Cash Election or
Stock Election will, for purposes hereof, be deemed to have made a Non-Election.
Special Election Requirements
Under the Merger Agreement, the ESOP has agreed to elect to receive Synetic
Common Stock for at least 51% of the shares of Point Plastics Common Stock held
in the ESOP and cash for between 40% and 49% of such shares of Point Plastics
Common Stock. Employees of Point Plastics who are participants in the ESOP will
be able to elect to receive between 60% and 51% of their merger consideration in
shares of Synetic Common Stock and between 40% and 49% of their merger
consideration in cash for their shares of Point Plastics Common Stock held in
their ESOP accounts. Mr. Stolp has agreed to elect to receive cash for not less
than 23.6% nor more than 36.6% of the shares of Point Plastics Common Stock he
owns, other than any shares he owns through the ESOP.
AS A RESULT OF THE ELECTION PROCEDURES, HOLDERS OF SHARES OF POINT PLASTICS
COMMON STOCK MAY RECEIVE A COMBINATION OF SHARES OF SYNETIC COMMON STOCK AND
CASH THAT DIFFERS FROM THE ELECTION MADE BY SUCH HOLDERS. SUCH HOLDERS WILL NOT
BE ABLE TO CHANGE THE AMOUNTS OF SYNETIC COMMON STOCK OR THE CASH CONSIDERATION
ALLOCATED TO THEM.
SURRENDER OF SHARES; STOCK TRANSFER BOOKS
At the Closing, Point Plastics will surrender to Synetic all Certificates
delivered to it with Notices of Election/Forms of Election (with any stock
transfer tax stamps required by reason of the payment of the applicable Per
Share Consideration to a person other than the registered holder of the
certificate surrendered), together with such other customary documents as may
reasonably be required by Synetic, in exchange for (i) Certificates evidencing
that number of whole shares of Synetic Common Stock which such holder has the
right to receive in respect of the shares of Point Plastics Common Stock
formerly evidenced by such Certificate, (ii) cash to which such holder is
entitled to receive and (iii) cash in lieu of fractional shares of Synetic
Common Stock to which such holder is entitled. Immediately following the
Effective Time all Certificates surrendered to Synetic will be canceled. Any
Point Plastics Shareholder whose Certificates are not delivered at the Closing
will receive the applicable Per Share Consideration
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with respect to such Certificates upon delivery after the Closing of such
Certificates. No interest will accrue or be paid on the applicable Per Share
Consideration payable upon the surrender of any Certificate for the benefit of
the holder of such Certificate.
At the Effective Time, the stock transfer books of Point Plastics will be
closed and thereafter there will be no further registration of transfers of
shares of Point Plastics Common Stock on the records of Point Plastics. From
and after the Effective Time, the holders of shares of Point Plastics Common
Stock outstanding immediately prior to the Effective Time will cease to have any
rights with respect to such shares of Point Plastics Common Stock except as
otherwise provided in the Merger Agreement or by applicable law.
Each of the Surviving Corporation and Synetic will be entitled to deduct
and withhold from the consideration otherwise payable pursuant to the Merger
Agreement to any holder of shares of Point Plastics Common Stock such amounts,
if any, as it is required to deduct and withhold with respect to the making of
such payment under the Internal Revenue Code of 1986, as amended (together with
the rules and regulations promulgated thereunder, the "Code"), or any provision
of state, local or foreign tax law. To the extent that amounts are so withheld
by the Surviving Corporation or Synetic, as the case may be, such withheld
amounts will be treated for all purposes of the Merger Agreement as having been
paid to the holder of the shares of Point Plastics Common Stock in respect of
which such deduction and withholding was made by the Surviving Corporation or
Synetic, as the case may be.
ANTICIPATED ACCOUNTING TREATMENT
The Merger will be accounted for by Synetic under the "purchase" method of
accounting in accordance with generally accepted accounting principles.
Therefore, the aggregate amount of consideration paid by Synetic in connection
with the Merger will be allocated to Point Plastics' assets and liabilities
based on their fair market values with any excess being treated as goodwill.
The assets and liabilities and results of operations of Point Plastics will be
consolidated into the assets and liabilities and results of operations of
Synetic subsequent to the Effective Time.
PLANS FOR POINT PLASTICS AFTER THE MERGER
After the Merger, Point Plastics will be a wholly owned subsidiary of
Synetic. Except as indicated in this Proxy Statement/Prospectus, Synetic does
not have any present plans or proposals which relate to or would result in an
extraordinary corporate transaction, such as a Merger, reorganization or
liquidation, involving Point Plastics, a sale or transfer of a material amount
of assets of Point Plastics or any of its subsidiaries or any material change in
Point Plastics' equity capitalization or any other material changes in Point
Plastics' business.
CERTAIN OTHER EFFECTS OF THE MERGER
After the Merger, shareholders of Point Plastics will become stockholders
of Synetic, to the extent such shareholders receive the Stock Consideration.
Upon consummation of the Merger, the rights of all such former shareholders of
Point Plastics will be governed by applicable Delaware law (rather than the
California General Corporation Law), including the Delaware General Corporation
Law (the "DGCL"), and by the certificate of incorporation and bylaws of Synetic.
For a description of the differences between the rights of shareholders of Point
Plastics and rights of stockholders of Synetic, see "COMPARISON OF RIGHTS OF
POINT PLASTICS SHAREHOLDERS AND SYNETIC STOCKHOLDERS."
SOURCE AND AMOUNT OF FUNDS AND OTHER CONSIDERATION
Approximately $34.4 million (subject to adjustment) will be required to pay
the cash portion of the Merger Consideration to the holders of Point Plastics
Common Stock, and it is expected that approximately $[__] will be required to
pay the expenses of Synetic in connection with the Merger, all of which will be
furnished from available general funds of Synetic. It is currently expected that
approximately $300,000 will be required to pay the expenses
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of Point Plastics related to the Merger, which amount will be furnished from
available general funds of Point Plastics. See "THE MERGER AGREEMENT --
Expenses."
FORWARD-LOOKING STATEMENTS MAY PROVE INACCURATE
Synetic and Point Plastics have made forward-looking statements in this
document and in documents to which we have referred you. These statements are
subject to risks and uncertainties including those risks described in "RISK
FACTORS" on page [__], and there can be no assurance that such statements will
prove to be correct. Forward-looking statements include assumptions as to how
Synetic and Point Plastics may perform in the future. Also, when we use words
like "believes," "expects," "anticipates" or similar expressions, we are making
forward-looking statements. You will find many of these statements in "THE
MERGER -- Reasons for the Merger; Recommendation of the Point Plastics Board of
Directors" as well as in the documents relating to Synetic which are
incorporated by reference herein. See "WHERE YOU CAN FIND MORE INFORMATION"
(page [__]).
MATERIAL FEDERAL INCOME TAX CONSEQUENCES
THE FOLLOWING IS A SUMMARY OF THE MATERIAL FEDERAL INCOME TAX CONSEQUENCES
OF THE MERGER. THIS SUMMARY DOES NOT DISCUSS TAX CONSEQUENCES TO CATEGORIES OF
HOLDERS ENTITLED TO SPECIAL TREATMENT UNDER THE INTERNAL REVENUE CODE INCLUDING,
WITHOUT LIMITATION, FOREIGN PERSONS, TAX-EXEMPT ORGANIZATIONS, INSURANCE
COMPANIES, FINANCIAL INSTITUTIONS AND DEALERS IN STOCKS AND SECURITIES. NO
RULINGS WILL BE SOUGHT FROM THE INTERNAL REVENUE SERVICE WITH RESPECT TO THE
FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER. THIS SUMMARY IS BASED UPON
FEDERAL INCOME TAX LAWS, REGULATIONS, RULINGS AND DECISIONS IN EFFECT AS OF THE
DATE HEREOF, ALL OF WHICH ARE SUBJECT TO CHANGE, RETROACTIVELY OR PROSPECTIVELY,
AND TO DIFFERING INTERPRETATION. POINT PLASTICS SHAREHOLDERS AND ESOP
PARTICIPANTS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS AS TO SPECIFIC TAX
CONSEQUENCES TO THEM OF THE MERGER AND THE OTHER TRANSACTIONS CONTEMPLATED
HEREIN.
Consummation of the Merger is conditioned upon the receipt by Synetic and
Point Plastics of the opinions of their respective counsel, each dated on the
date on which the Effective Time occurs, to the effect that, on the basis of the
facts, representations and assumptions set forth in such opinions, the Merger
will be treated for federal income tax purposes as a reorganization within the
meaning of Section 368(a) of the Code and that each of Synetic, Merger Sub and
Point Plastics will be a party to that reorganization within the meaning of
Section 368(b) of the Code.
If, in accordance with the opinions referred to above, the Merger will be
treated as a reorganization within the meaning of Section 368(a) of the Code,
and Synetic, Merger Sub and Point Plastics will each be a party to that
reorganization under Section 368(b) of the Code, then (i) no gain or loss will
be recognized by Synetic or Point Plastics as a result of the Merger; (ii) no
gain or loss will be recognized by the shareholders of Point Plastics upon the
exchange of Point Plastics Common Stock solely for Stock Consideration except in
respect of cash received in lieu of a fractional share of Synetic Common Stock
(as discussed below); (iii) the adjusted tax basis of the Synetic Common Stock
to be received by the shareholders of Point Plastics (including any fractional
share of Synetic Common Stock deemed to be received and subsequently redeemed)
will be the same as such holders' adjusted tax basis in the Point Plastics
Common Stock surrendered in exchange therefor; (iv) the holding period of the
Synetic Common Stock to be received by the shareholders of Point Plastics in
connection with the Merger will include the holding period of the Point Plastics
Common Stock surrendered in exchange therefor, provided that such shares of
Point Plastics Common Stock are held as capital assets at the Effective Time of
the Merger; (v) shareholders of Point Plastics will recognize gain or loss upon
the exchange of Point Plastics Common Stock solely for Cash Consideration; and
(vi) a shareholder of Point Plastics who receives a combination of Cash
Consideration and Stock Consideration in exchange for his Point Plastics Common
Stock will not recognize loss but will recognize gain, if any, to the extent of
the lesser
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of (a) the Cash Consideration and (b) the excess of the sum of the Cash
Consideration and Stock Consideration received over such shareholder's adjusted
tax basis in exchanged Point Plastics Common Stock. For a discussion of tax
consequences for ESOP Participants, see "Tax Treatment of ESOP Participants"
below. As discussed above, the federal income tax consequences of the Merger to
a shareholder will depend on whether he exchanges his Point Plastics Common
Stock for cash, Synetic Common Stock, or a combination thereof, and may further
depend on whether (i) he is deemed to constructively own shares of Point
Plastics Common Stock under Section 318 of the Code (which generally deems a
person to own stock that is owned by certain family members or related entities
or that is the subject of any option or options owned or deemed owned by such
person), and (ii) he actually or constructively owns any Synetic Common Stock.
In addition, if a shareholder has differing bases and/or holding periods in
respect of his shares of Point Plastics Common Stock, he should consult his own
tax advisors prior to the exchange with regard to identifying the bases and/or
holding periods of the particular shares of Synetic Common Stock received in the
exchange.
In general, any gain or loss recognized by a holder of Point Plastics
Common Stock under clause (v) above will be capital gain or loss and certain
non-corporate shareholders may be eligible for reduced rates of taxation (which
may vary depending on such shareholder's holding period for the Point Plastics
Common Stock) if, as of the date of the exchange, such shareholder has held such
Point Plastics Common Stock for more than one year. For a discussion of tax
consequences for ESOP Participants see "Tax Treatment of ESOP Participants"
below. The deductibility of a capital loss realized is subject to limitations.
If, however, any such shareholder constructively owns shares of Point Plastics
Common Stock that are exchanged for shares of Synetic Common Stock in the
Merger, or, possibly, actually or constructively owns shares of Synetic Common
Stock, in unusual circumstances the consequences to him may be similar to the
consequences described below where Cash Consideration is received under clause
(vi), except that the amount of consideration, if any, treated as a dividend
would not be limited to the amount of his gain. Shareholders of Point Plastics
who constructively own shares of Point Plastics Common Stock that are exchanged
for shares of Synetic Common Stock in the Merger, or actually or constructively
own shares of Synetic Common Stock, are accordingly advised to consult their own
tax advisors concerning the U.S. federal income tax consequences of exchanging
their Point Plastics Common Stock in the Merger.
In general, any gain recognized by a holder of Point Plastics Common Stock
under clause (vi) above will be capital gain and certain non-corporate
shareholders may be eligible for reduced rates of taxation (which may very
depending on such shareholder's holding period for the Point Plastics Common
Stock) as of the date of the exchange, such shareholder held such Point Plastics
Common Stock for more than one year. The deductibility of a capital loss
realized is subject to limitations. In certain instances, however, the receipt
of the Cash Consideration under clause (vi) may have the effect of the
distribution of a dividend for U.S. federal income tax purposes, in which case
any recognized gain will be treated as ordinary dividend income to the extent of
such shareholder's ratable share of Point Plastics' accumulated earnings and
profits. Shareholders of Point Plastics who exchange their Point Plastics
Common Stock for a combination of Cash Consideration and Stock Consideration are
accordingly advised to consult their own tax advisors concerning the U.S.
federal income tax consequences of exchanging their Point Plastics Common Stock
for such a combination of consideration.
Cash received in lieu of a fractional share of Synetic Common Stock will be
treated as received in redemption of such fractional share and gain or loss will
be recognized, measured by the difference between the amount of cash received
and the portion of the basis of the share of Point Plastics Common Stock
allocable to such fractional interest. Such gain or loss will constitute
capital gain or loss, and certain non-corporate shareholders may be eligible for
reduced rates of taxation (which may vary depending on such shareholder's
holding period for the Point Plastics Common Stock) if the holding period for
such shares of Point Plastics Common Stock was greater than one year as of the
date of the exchange. The deductibility of a capital loss realized is subject
to limitations.
Backup Withholding. Under the backup withholding rules, a shareholder may
be subject to backup withholding at the rate of 31% with respect to dividends
and disposition proceeds, unless such shareholder (a) is a
corporation or comes within certain other exempt categories and, when required,
demonstrates this fact or (b) provides
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a correct taxpayer identification number, certifies as to no loss of exemption
from backup withholding and otherwise complies with the applicable requirements
of the backup withholding rules. Any amount withheld under these rules will be
credited against the shareholder's federal income tax liability. Synetic may
require shareholders to establish an exemption from backup withholding or to
make arrangements satisfactory to Synetic with respect to the payment of backup
withholding. A shareholder who does not provide Synetic with his or her correct
taxpayer identification number or who otherwise does not establish an exemption
may, in addition to being subject to backup withholding at the rate of 31% with
respect to dividends and redemption proceeds, be subject to penalties imposed by
the Internal Revenue Service.
TAX TREATMENT OF ESOP PARTICIPANTS
Distributions of cash received by ESOP Participants from the ESOP will
generally be taxed at ordinary income tax rates. In addition, certain ESOP
Participants may be subject to an additional 10% tax under Section 72(t) of the
Code. An ESOP Participant may be able to avoid income tax (and the additional
10% tax) by electing to roll over the distribution received to an individual
retirement account or another tax-qualified retirement plan.
[BLUE SKY LAWS
As of the date of this Proxy Statement/Prospectus, Synetic intends to
register or qualify the shares of the Synetic Common Stock offered by this Proxy
Statement/Prospectus under the securities laws of all states where it is not
exempt. Certain states require notice filings or other filings. Synetic either
has complied with these filing requirements or intends to comply with them in a
timely fashion.]
CERTAIN LITIGATION
Point Plastics
The Internal Revenue Service (the "IRS") issued a statutory notice of
deficiency on August 31,1997 to Point Plastics asserting U.S. federal income tax
deficiencies aggregating approximately $4.8 million for the fiscal years ended
December 31, 1993, 1994 and 1995. Point Plastics filed a petition in the U.S.
Tax Court on October 30, 1997 contesting the IRS' determination with respect to
this entire amount (the "Pending Tax Case").
Point Plastics is subject to various claims and proceedings in the ordinary
course of business. Based on information currently available, Point Plastics
believes that none of such current claims or proceedings, individually or in the
aggregate, will have a material adverse effect on Point Plastics' financial
condition or results of operations.
Synetic and Its Subsidiaries
From 1988 through 1990, Porex distributed 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 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 totaled 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. 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 November 5, 1997, 61
claims have been settled on a favorable basis by the Manufacturer, or by the
insurance carriers of Porex, without material cost to Porex. As
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<PAGE>
of November 5, 1997, 228 actions and 32 out-of-court claims were pending against
Porex. One of the pending federal actions, Donna L. Turner v. Porex Technologies
Corporation, et al., is styled as a class action. Of the 228 actions, 111
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 Fiscal 1997 was similar to the number of claims made during
Fiscal 1996, both of which were significantly lower than the number of claims
made during Fiscal 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. Synetic does not have
sufficient information to evaluate each case and claim.
Synetic believes that it 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.
In 1994, Porex was notified that its lead primary and excess 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. In response, Porex exercised its right under the policies with its
lead carrier to purchase extended reporting period coverage with respect to such
actions and claims. This extended reporting period 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 under which it has similarly purchased extended reporting period
coverage. This coverage also extends indefinitely, replacing coverage which
would by its terms have otherwise expired by December 31, 1997. Porex will
continue to evaluate the need to purchase further extended reporting period
coverage from excess insurers to the extent such coverage is reasonably
available. Synetic believes that its present coverage, together with its
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.
Although no assurances can be given, Synetic believes that the claims
relating to the above-mentioned proceedings will not, individually or in the
aggregate, have a material adverse effect on the financial condition or results
of operations of Synetic.
Synetic is subject to various claims and proceedings in the ordinary course
of business. Based on information currently available, Synetic believes that
none of such current claims or proceedings, individually or in the aggregate,
will have a material adverse effect on Synetic's financial condition or results
of operations.
THE MERGER AGREEMENT
The following is a summary of the material provisions of the Merger
Agreement not summarized elsewhere in this Proxy Statement/Prospectus. The
summary is qualified in all respects by reference to the complete text of the
Merger Agreement, which is incorporated by reference in its entirety and
attached to this Proxy Statement/Prospectus as Annex I.
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CERTAIN REPRESENTATIONS AND WARRANTIES
Point Plastics
The Merger Agreement contains certain representations and warranties of
Point Plastics with respect to Point Plastics and its subsidiaries as to, among
other things: (i) due organization, valid existence and good standing; (ii) the
completeness and correctness of organizational documents; (iii) Point Plastics'
capital structure; (iv) the due authorization, execution, delivery and
enforceability of the Merger Agreement and the transactions contemplated
thereby; (v) the absence, other than as disclosed, of any conflict between the
execution and performance of the Merger Agreement and Point Plastics'
organizational documents, applicable law and certain contracts; (vi) the absence
of any required consent or permit of, or filing with any governmental or
regulatory authority, except as provided in the Merger Agreement; (vii) Point
Plastics' compliance with the law; (viii) the accuracy of the unaudited
financial information of Point Plastics; (ix) the absence of undisclosed
liabilities and material adverse changes; (x) the absence of material pending or
threatened litigation against Point Plastics; (xi) the absence of changes to,
and the qualification, operation and liability under, certain employee benefit
plans; (xii) Point Plastics' labor relations; (xiii) title to and sufficiency of
Point Plastics' real property; (xiv) title to and sufficiency of Point Plastics'
assets; (xv) the right to use intellectual property; (xvi) certain tax matters
and the payment of taxes; (xvii) certain environmental matters; (xviii) the
existence, legality and effect of material contracts; (xix) relationships with
Point Plastics' customers; (xx) the existence and sufficiency of Point Plastics'
insurance coverage; (xxi) the absence of certain conflicting interests; (xxii)
the absence of any brokerage, finder's or similar fees in connection with the
Merger; (xxiii) the nature of receivables of Point Plastics; and (xxiv) the
accuracy of information supplied to Synetic by Point Plastics.
The Merger Agreement also contains certain representations and warranties
of the individual shareholders of Point Plastics who are parties to the Merger
Agreement as to: (i) holdings of Point Plastics Common Stock; (ii) legal
capacity; (iii) the absence of litigation; (iv) investigation in connection with
the evaluation of the Merger; and (v) the absence of any brokerage, finder's or
similar fees in connection with the Merger.
In addition, the Merger Agreement contains certain representations and
warranties of the ESOP Trustees with respect to the ESOP as to, among other
things: (i) the absence of certain conflicting interests; (ii) ERISA matters;
(iii) ownership of the ESOP shares; (iv) due authorization and enforceability of
the Merger Agreement; (v) the absence of litigation; and (vi) the absence of any
brokerage, finder's or similar fees in connection with the Merger.
Synetic
The Merger Agreement also contains certain representations and warranties
of Synetic with respect to Synetic and Merger Sub as to, among other things: (i)
due organization, valid existence and good standing; (ii) the completeness and
correctness of organizational documents; (iii) the authority and validity of the
Synetic Common Stock to be issued in the Merger; (iv) the due authorization,
execution, delivery and enforceability of the Merger Agreement and the
transactions contemplated thereby; (v) the absence of any conflict with
Synetic's organizational documents, applicable law and certain contracts; (vi)
the absence of any required consent or permit of, or filing with any
governmental authority, except as provided in the Merger Agreement; (vii) the
accuracy of Synetic's reports filed with the Commission and the financial
statements contained therein; (viii) the adequacy of funds to pay the Cash
Consideration; and (ix) the absence of any brokerage, finder's or similar fee in
connection with the Merger.
CONDUCT OF BUSINESS PENDING THE MERGER
During the period from the date of the Merger Agreement and continuing
until the Effective Time, Point Plastics has agreed as to itself and its
subsidiary that (except as expressly contemplated or permitted by the Merger
Agreement or to the extent that Synetic otherwise consents in writing) Point
Plastics and its subsidiary will carry on their respective businesses in the
ordinary course of business and in a manner consistent with past practice. By
way of amplification and without limiting the foregoing, the Merger Agreement
places restrictions on the ability of Point
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Plastics to (i) amend its charter or bylaws except as to indemnification of
agents as provided in the Merger Agreement; (ii) issue or sell capital stock,
any related options or warrants or any assets; (iii) pay a dividend or make any
distribution with respect to its stock, except as required by applicable law by
the ESOP in connection with termination of employment of an ESOP Participant;
(iv) effect a stock split, combination or reclassification, except as provided
in the Merger Agreement; (v) make material acquisitions of other entities or
enter into or amend material contracts; (vi) incur indebtedness or authorize
material capital expenditures; (vii) increase compensation to officers or
employees or adopt or amend any collective bargaining agreements or employee
benefit plans except as provided in the Merger Agreement; (viii) make any
material changes in its accounting policies; (xiv) make any tax election; or
(xv) make any material payments not in the ordinary course of business.
NO SOLICITATION OR NEGOTIATION
Pursuant to the Merger Agreement, Point Plastics has agreed that between
the date of the Merger Agreement and the earlier of (i) the Closing and (ii) the
termination of the Merger Agreement neither Point Plastics, the ESOP, the
individual shareholders who are parties to the Merger Agreement nor any of their
respective affiliates, officers, directors, representatives or agents will
solicit, initiate, consider, encourage or accept any other proposals or offers
from any person (i) relating to any acquisition or purchase of all or any
portion of the capital stock or assets of Point Plastics, (ii) to enter into any
business combination with Point Plastics or (iii) to enter into any other
extraordinary business transaction involving or otherwise relating to Point
Plastics.
INDEMNIFICATION
Indemnification by the ESOP and Individual Shareholders
Each of Mr. Stolp, Mr. Taggart and the ESOP have agreed under the Merger
Agreement to indemnify Synetic and its affiliates, officers, directors,
employees, agents, successors and assigns against any Losses (as defined in the
Merger Agreement) arising out of or resulting from a breach of any
representation or warranty made by Point Plastics or such shareholder under the
Merger Agreement or the Pending Tax Case. In the case of representations and
warranties with respect to Point Plastics and its business, each shareholder is
only responsible for up to 25% of the amount of consideration he or it receives
in the Merger in respect of his or its shares of Point Plastics Common Stock and
only for his or its pro rata share (based on the number of shares of Point
Plastics Common Stock owned by such shareholder) of such Losses.
There are two individual shareholders of Point Plastics who are not parties
to the Merger Agreement who own an aggregate of 19,900 shares of Point Plastics
Common Stock. It is a condition to Synetic's and Merger Sub's obligations to
effect the Merger that these individuals agree to be bound by the
indemnification obligations described in the preceding paragraph and as set
forth in the Merger Agreement.
Synetic, the Merger Sub, the ESOP and United States Trust Company of New
York, as escrow agent (the "Escrow Agent"), will enter into an escrow agreement
(the "Escrow Agreement") at the Effective Time to secure the indemnification
obligations of the ESOP under the Merger Agreement. Under the terms of the
Escrow Agreement, between $4,306,585 and $5,275,567 in cash and between
118,058 and 138,892 shares of Synetic Common Stock, representing the Escrow
Fund, will be held in escrow by the Escrow Agent for one year following the
Merger to satisfy certain claims for indemnification made by Synetic under the
Merger Agreement during such one-year period. Pursuant to the Escrow Agreement,
part of the Escrow Fund may be retained in escrow beyond the one-year period to
satisfy such claims made by Synetic but not fully resolved during such one-year
period. Synetic and its affiliates may not make a claim against the ESOP for
indemnification unless they also make such claim against Mr. Stolp and Mr.
Taggart. The form of the Escrow Agreement is attached hereto as Annex III.
Under the Escrow Agreement, the ESOP may object to any claim for
indemnification or the amount of any such claim. Any objection may be adjudged
by a court having jurisdiction or settled between the parties. If Synetic
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<PAGE>
is entitled to indemnification under the Merger Agreement, it will receive all
payments out of the Escrow Fund in the same ratio of cash and shares of Synetic
Common Stock (the shares of which are valued at the Average Company Share Price)
as is deposited into the Escrow Fund.
Certain Limitations on Indemnification
Claims for indemnification against Point Plastics shareholders, including
the ESOP, as provided in the Merger Agreement are the sole and exclusive post-
closing remedy available to Synetic and its affiliates with respect to any
inaccuracy or breach of a representation and warranty by Point Plastics or any
of its shareholders, except for claims based on fraud or breach of covenants
made in the Merger Agreement. Synetic has agreed that it and its affiliates
shall not be entitled to indemnification for losses under the Merger Agreement
until such losses in the aggregate are at least $100,000. Further, the amount
of any recovery by an indemnified party under the Merger Agreement is net of any
insurance proceeds inuring to the benefit of the Indemnified Party.
Indemnification of Officers and Directors of Point Plastics
Pursuant to the Merger Agreement Synetic and the Surviving Corporation
agree that the indemnification obligations set forth in Point Plastics' Articles
of Incorporation and Bylaws, in each case as of the date of the Merger
Agreement, will survive the Merger (and, prior to the Effective Time, Synetic
shall cause the Certificate of Incorporation and Bylaws of Synetic to reflect
such provisions) and will not be amended, repealed or otherwise modified for a
period of six years after the Effective Time in any manner that would adversely
affect the rights thereunder of the individuals who on or prior to the Effective
Time were directors, officers, employees or agents of Point Plastics and its
subsidiary).
Point Plastics (and if a material portion of the assets of Point Plastics
is transferred out of the surviving corporation, Synetic) will, to the fullest
extent permitted under applicable Law and regardless of whether the Merger
becomes effective, indemnify and hold harmless, and, after the Effective Time,
the Surviving Corporation will, to the fullest extent permitted under applicable
Law, indemnify and hold harmless, each present and former director, officer,
trustee, fiduciary, employee or agent of Point Plastics and the Subsidiary and
each such person who served at the request of Point Plastics or the Subsidiary
as a director, officer, trustee, partner, fiduciary, employee or agent of
another corporation, partnership, joint venture, trust, pension or other
employee benefit plan or enterprise (collectively, the "Indemnified Parties")
against all costs and expenses (including reasonable attorneys' fees),
judgments, fines, losses, claims, damages, liabilities and settlement amounts
paid in connection with any claim, action, suit, proceeding or investigation
(whether arising before or after the Effective Time), whether civil,
administrative or investigative, arising out of or pertaining to any action or
omission in their capacity as an officer or director, in each case occurring
before the Effective Time (including the transactions contemplated by this
Agreement). Without limiting the foregoing, in the event of any such claim,
action, suit, proceeding or investigation, Point Plastics or Synetic and the
Surviving Corporation, as the case may be, shall pay the fees and expenses of
counsel selected by any Indemnified Party, which counsel shall be reasonably
satisfactory to Point Plastics or to Synetic and the Surviving Corporation, as
the case may be, promptly after statements therefor are received (unless the
Surviving Corporation shall elect to defend such action) and Point Plastics and
Synetic and the Surviving Corporation shall cooperate in the defense of any such
matter.
In the event Point Plastics or the Surviving Corporation or any of their
respective successors or assigns (i) consolidates with or merges into any other
person or shall not be the continuing or surviving corporation or entity in such
consolidation or Merger or (ii) transfers all or substantially all its
properties and assets to any person, then, and in each case, proper provision
shall be made so that the successors and assigns of Point Plastics or the
Surviving Corporation, as the case may be, honor the indemnification
obligations. The obligations of Point Plastics, the Surviving Corporation, and
Synetic may not be terminated or modified in such a manner as to adversely
affect any director, officer, employee, agent or other persons to whom these
obligations apply without the consent of such affected director, officer,
employees, agents or other persons.
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NASDAQ NATIONAL MARKET LISTING
The shares of the Synetic Common Stock to be issued in the Merger will be
listed on the National Association of Securities Dealers, Inc. National Market
System (the "NASDAQ National Market System") under the symbol "SNTC."
CONDITIONS TO CONSUMMATION OF THE MERGER
Conditions to Each Party's Obligations to Consummate the Merger. The
obligations of Synetic, Point Plastics, the shareholders who are parties to the
Merger Agreement, the ESOP Trustees and Merger Sub (each a "Party" and
collectively the "Parties") to effect the Merger are subject to the satisfaction
or waiver of the following conditions on or prior to the Closing Date of the
Merger:
. Representations and Warranties; Agreements and Covenants. (i) The
representations and warranties of the Parties contained in the Merger
Agreement will be true and correct in all material respects on and as
of the Effective Time, with the same force and effect as if made as of
the Effective Time, (ii) all the agreements contained in the Merger
Agreement to be performed or complied with by the Parties at or before
the Effective Time will have been performed or complied with in all
material respects and (iii) each Party will have received certificates
from the other Parties as to the fulfillment of these conditions.
. Litigation. There will have been no order or preliminary or permanent
injunction entered in any action or proceeding before any federal,
state or foreign court or governmental, administrative or regulatory
authority or agency or by any federal, state or foreign legislative
body, court, government or governmental, administrative or regulatory
authority or agency which will have remained in effect and which will
have had the effect of making illegal the consummation of any of the
transactions hereunder.
. Shareholder Approval. The Merger will have been approved by the vote
of the shareholders of Point Plastics as of the record date of the
Special Meeting.
. Opinions. Synetic will have received opinions from Gray Cary Ware &
Freidenrich, reasonably acceptable to Synetic, and an opinion from
Synetic's tax counsel and Point Plastics will receive an opinion from
Shearman & Sterling and an opinion from their tax counsel. The tax
opinions to be received by Synetic and Point Plastics from their
respective tax counsels will be to the effect that the Merger will be
treated for federal income tax purposes as a reorganization qualifying
under the provisions of Section 368(a) of the Code and that each of
Synetic, Synetic and Point Plastics will be a party to the
reorganization within the meaning of Section 368(b) of the Code, dated
on the date on which the Effective Time occurs. Ludwig Goldberg &
Krenzel, counsel to the ESOP Committee, will have provided opinions to
Synetic with respect to certain legal matters relating to the ESOP.
. HSR Act. The applicable waiting period, together with any extensions
thereof, under the Hart-Scott-Rodino Antitrust Improvements Act of
1976 (the "HSR Act") will have expired or been terminated.
. Financial Statements. The 1997 Financial Statements and Point Plastics
Audited Financial Statements will have been delivered and any
objections will have been resolved.
. Point Plastics Options. Mr. Taggart will have exercised Point Plastics
Options.
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. Effectiveness of the Registration Statement. The Registration
Statement will have been declared effective by the SEC under the
Securities Act of 1933, as amended. No stop order suspending the
effectiveness of the Registration Statement will have been issued by
the SEC and no proceedings for that purpose will have been initiated
or, to the knowledge of Synetic or Point Plastics, threatened by the
SEC.
. National Market System. The shares of Synetic Common Stock issuable to
Point Plastics' shareholders in the Merger will have been approved for
listing on the NASDAQ National Market System, subject to official
notice of issuance.
Additional Conditions to Obligations of Synetic. The obligations of
Synetic to effect the Closing will also be subject to the prior fulfillment of
each of the following conditions:
. Employment Agreements. The employment agreements entered into by Porex
with each of Messrs. Stolp and Taggart will be in full force and
effect.
. Shareholder Indemnity Obligations. Each of the individual Point
Plastics shareholders who is not a party to the Merger Agreement will
have signed a letter agreement reasonably satisfactory to Synetic
confirming that such shareholder will be bound by the indemnification
obligations set forth in Article VII of the Merger Agreement.
. Shareholder Approval. The Merger will have been approved by the vote
of shareholders of Point Plastics holding at least 90% of the
outstanding Point Plastics Common Stock as of the record date of the
Special Meeting.
Additional Conditions to Obligations of Point Plastics. The obligations of
Point Plastics to effect the Closing will also be subject to the prior
fulfillment of each of the following conditions:
. Employment Agreements. Synetic or a Subsidiary thereof will have
executed and delivered to Messrs. Stolp and Taggart employment
agreements.
. Financial Statements. If Synetic will have exercised its right
pursuant to the Merger Agreement to have Synetic's accountants prepare
audited financial statements for Point Plastics for the year ended
December 31, 1997, any objections raised by Point Plastics will have
been resolved.
TERMINATION; EFFECTS OF TERMINATION
The Merger Agreement may be terminated at any time prior to the Effective
Time, whether before or after approval of the matters presented in connection
with the Merger by the shareholders of Point Plastics:
. by mutual written consent of Synetic and Point Plastics;
. by either Point Plastics or Synetic if there has been a material
breach of any representation, warranty, covenant or agreement on the
part of the other parties which would cause the conditions to closing
to fail to be satisfied and which is incapable of being cured prior to
September 30, 1998 or (in the event that Point Plastics' accountants
do not provide assurances by April 20, 1998 that the 1997 Financial
Statements can be delivered by May 5, 1998 or if at any time Point
Plastics is notified that the Point Plastics accountants cannot
deliver the 1997 Financial Statements by May 5, 1998) prior to October
31, 1998, or
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. by Point Plastics or Synetic, if the closing shall not have occurred
by September 30, 1998, or (in the event that Point Plastics'
accountants do not provide assurances by April 20, 1998 that the 1997
Financial Statements can be delivered by May 5, 1998 or if at any time
Point Plastics is notified that the Point Plastics' accountants cannot
deliver the 1997 Financial Statements by May 5, 1998) by October 31,
provided, however, that the right to terminate the Merger Agreement
will not be available to any party whose wilful failure to fulfill any
material obligation under the Merger Agreement has been the cause of,
or resulted in, the failure of the closing to occur on or before such
date.
Effect of Termination. In the event of the termination of the Merger
Agreement, the Merger Agreement will forthwith become void and have no effect
and there will be no liability on the part of any party hereto or its
affiliates, directors, officers or shareholders; provided, however, that nothing
will relieve any party from liability for any willful breach hereof prior to
such termination. All costs and expenses, including, without limitation, fees
and disbursements of counsel, financial advisors and accountants, incurred by
Point Plastics, the shareholders who are parties to the Merger Agreement or
Synetic in connection with the Merger Agreement and the transactions
contemplated thereby will be paid by the person incurring such expense whether
or not the Closing has occurred; provided, however, that Point Plastics shall
pay any fees required for the filings by the Point Plastics and/or such
shareholders under the HSR Act.
EXPENSES
Each party is responsible for the expenses that it incurs. Point Plastics
will pay all expenses related to copying, mailing or delivering the Proxy
Statement/Prospectus to shareholders of Point Plastics and ESOP Participants and
Synetic will pay all Commission and other regulatory filing fees incurred in
connection with the Proxy Statement/Prospectus.
AMENDMENT; WAIVER
Amendment. The Merger Agreement may be amended by the Parties (in the case
of Synetic, Merger Sub and Point Plastics by action taken by or on behalf of
their respective Boards of Directors) at any time prior to the Effective Time;
provided that, after the approval of the Merger Agreement by the holders of
shares of Point Plastics Common Stock, no amendment may be made which would
reduce the amount or change the type of consideration to be received by the
holders of Point Plastics Common Stock pursuant to the Merger. The Merger
Agreement may not be amended except by an instrument in writing signed by the
parties hereto.
Waiver. At any time prior to the Effective Time, Synetic and Merger Sub,
being deemed one party, and Point Plastics and the Shareholders, being deemed
one party, may (a) extend the time for the performance of any obligation or
other act of any other party hereto, (b) waive any inaccuracy in the other
party's representations and warranties contained herein or in any document
delivered pursuant hereto and (c) waive compliance by the other party with any
agreement or condition contained herein. Any such extension or waiver shall be
valid if set forth in an instrument in writing signed by the party or parties to
be bound thereby. No such waiver referred to in (b) above shall effect any
party's right to seek indemnification for a breach of such representation or
warranty under the Merger Agreement.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth for each person who beneficially owns 5% or
more of the outstanding shares of Point Plastics Common Stock as of the record
date and for each executive officer and director of Point Plastics and all of
such executive officers and directors as a group, the number of shares of Point
Plastics Common Stock
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beneficially owned as of the record date and the maximum number of shares of
Synetic Common Stock that such shareholder may receive in the Merger under the
Merger Agreement.
<TABLE>
<CAPTION>
POINT PLASTICS COMMON STOCK SYNETIC COMMON STOCK
-------------------------------- --------------------------------
NAME NUMBER OF SHARES PERCENTAGE NUMBER OF SHARES PERCENTAGE
---- ------------------- ----------- ------------------- -----------
<S> <C> <C> <C> <C>
Philip E. Stolp, 726,097 (1) 50.07% 683,998 (2) 3.6%
Director and Chief Executive Officer,
President and Secretary
Thomas Taggart, 62,894 (3) 4.34% 9,864 (4) **
Director and Treasurer
William McDevitt 1,000 ** 1,275 **
Director
Donald J. Lewis --- ** --- **
Director
The Point Plastics, Inc. 641,396 (6) 44.22% 490,654 (5) 2.6%
Employee Stock Ownership Plan and
Trust
All directors and executive officers as a 789,991 54.57% 695,137 3.7%
group (four persons)
</TABLE>
- -------------------
(1) Includes 71,964 shares held through the ESOP, as of December 31, 1996.
(2) Assumes Mr. Stolp elects to receive Stock Consideration for 76.4% of the
shares of Point Plastics Common Stock he owns, excluding shares held
through the ESOP. Assumes Mr. Stolp elects to receive Stock Consideration
for 51% of the shares he holds through the ESOP.
(3) Includes 48,999 shares subject to options under Point Plastics' Stock
Option Plan, which will be exercised by Mr. Taggart prior to the Effective
Time. Also includes 12,894 shares held through the ESOP as of December
31, 1996.
(4) Assumes Mr. Taggart will not elect to receive the Stock Consideration for
any of the shares of Point Plastics Common Stock held outside the ESOP and
that he will elect to receive Stock Consideration for 60% for the shares
he holds through the ESOP.
(5) Assumes that the ESOP elects to receive Synetic Common Stock for 60% of
the shares of Point Plastics Common Stock held by it immediately prior to
the consummation of the Merger.
(6) Excludes 71,964 and 12,894 shares allocated to Mr. Stolp and Mr. Taggart,
respectively, through the ESOP at December 31, 1996.
** Less than 1%.
RISK FACTORS
Prior to making a decision with respect to the Merger, you should carefully
consider the specific factors set forth below with respect to ownership of
Synetic Common Stock, together with all of the other information appearing
herein. The discussion in this Prospectus/Proxy Statement contains certain
forward-looking statements that involve risks and uncertainties. Synetic's
actual results could differ materially from those discussed herein. Factors
that could cause or contribute to such differences include, but are not limited
to, those discussed in this section, as well as in other sections of this
Prospectus/Proxy Statement and exhibits thereto and documents incorporated
herein by reference.
NEW BUSINESS AREA -- HEALTHCARE COMMUNICATIONS
Initial Development Phase. Synetic 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 Synetic's first
commercial introduction of its products and services, and Synetic anticipates
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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 Synetic. Avicenna, Synetic'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, Inc. ("CareAgents"), Synetic's second
acquisition in this area, founded in 1996, is a start-up Company with a very
limited operating history. Synetic is pursuing the development of its
healthcare communications business through the use of its internal resources as
well as pursuing the acquisitions of complementary businesses. Synetic
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
Synetic will succeed in consummating such transactions or that such transactions
will ultimately provide Synetic 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
Synetic'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 Synetic's effort in
establishing such products and services will be successful, that Synetic 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 Synetic will be
economically viable or acceptable to the market.
Expected Losses. Synetic expects to continue to incur significant research
and development expenses in connection with its healthcare communications
business until the products and services developed by Synetic are successfully
marketed. There can be no assurance (i) that the products or services will be
successfully marketed or (ii) as to when, and to what extent, if any, the
healthcare communications business of Synetic 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 Synetic. Synetic believes, however, that
these laws and regulations will nonetheless be applied to Synetic's healthcare
communications business. Accordingly, Synetic'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.
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. Synetic 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 Synetic
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, Synetic 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 Synetic will not
experience difficulties that could
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delay or prevent the successful development and introduction of its healthcare
communications products and services. Synetic's inability to respond to
technological changes in a timely and cost-effective manner could have a
material adverse effect on Synetic'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 Synetic's operating
results.
COMPETITION IN HEALTHCARE COMMUNICATIONS
One or more service companies, some of which may have greater resources than
Synetic, have announced that they are developing a combination of one or more of
healthcare communications products and services currently being developed by
Synetic. There can be no assurance that such companies will not develop and
successfully market the healthcare communications products and services
currently being developed by Synetic in a manner which would have a material
adverse effect on Synetic.
RISKS OF PRODUCT DEVELOPMENT; PROPRIETARY RIGHTS
Synetic'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. Synetic 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 Synetic
or such providers would be adequate to prevent misappropriation of their
respective proprietary rights or that Synetic'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 Synetic's
products or services would be available on commercially reasonably terms or at
all. Although Synetic 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 Synetic or one
of its content or technology providers or that such claims will not be
successful. Synetic could incur substantial costs and diversion of management
resources with respect to the defense of any such claims. Furthermore, parties
making such claims against Synetic 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 Synetic's ability to provide
products or services in certain of its markets. Such a judgment could have a
material adverse effect on Synetic's business, financial condition and results
of operations.
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.
POTENTIAL LIABILITY RISK AND AVAILABILITY OF INSURANCE
The products sold by Synetic expose it to potential risk for product
liability claims particularly with respect to Porex's life sciences, clinical
and surgical products. Synetic 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
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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.
ACQUISITION PROGRAM
Synetic maintains an acquisition program and intends to concentrate its
acquisition efforts on businesses which are complementary to Synetic's
healthcare communications strategy and plastic filtration and technology
business, but such emphasis is not intended to limit in any manner Synetic's
ability to pursue acquisition opportunities in other healthcare-related
businesses or in other industries. Synetic 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 an agreement to
which Synetic is a party (which agreement expires on May 24, 1999), to areas of
business that would not be competitive with certain businesses of Merck & Co.
See "Business -- Certain Relationships and Related Transactions" in the 1996 10-
K. Although management of Synetic will endeavor to evaluate the risks inherent
in any particular transaction, including the acquisition of Point Plastics,
there can be no assurance that Synetic will properly ascertain all such risks.
In addition, no assurances can be given that Synetic will succeed in
consummating any such transactions, that such transactions, including the
acquisition of Point Plastics, will ultimately provide Synetic with the ability
to offer the products and services described or that Synetic will be able to
successfully manage or integrate any resulting business.
The success of Synetic'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 Synetic at the time of any such
issuance, (ii) result in substantial dilution of Synetic'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. Synetic does not intend to seek stockholder approval for any such
transaction or security issuance unless required by applicable law or
regulation. Although Mr. Martin J. Wygod, Chairman of the Synetic Board, has
indicated his intention to assist Synetic in its acquisition program by bringing
opportunities for potential transactions to Synetic and to assist Synetic in
negotiating such transactions and in seeking financing in the event any such
transaction were to be financed by Synetic, he is not an officer or an employee
of Synetic nor is he required pursuant to any contractual obligation to provide
such support or assistance.
REGULATORY MATTERS
Under the HSR Act and the rules promulgated thereunder by the Federal Trade
Commission (the "FTC"), the Merger may not be consummated until notifications
have been given and certain information has been furnished to the FTC and the
Antitrust Division of the U.S. Department of Justice (the "Antitrust Division")
and specified waiting periods have been terminated or have expired. Point
Plastics, Synetic and Mr. Stolp each filed notification and report forms under
the HSR Act with the FTC and the Antitrust Division on March 27, 1998. The
Antitrust Division has the authority to challenge the Merger on antitrust
grounds before or after the Merger is completed.
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Synetic and Point Plastics are not aware of any material governmental or
regulatory approvals required to be obtained in order to consummate the Merger,
other than compliance with the HSR Act and applicable federal and state
securities and corporate laws.
COMPARISON OF RIGHTS OF POINT PLASTICS SHAREHOLDERS
AND SYNETIC'S STOCKHOLDERS
Upon consummation of the Merger, shareholders of Point Plastics will become
stockholders of Synetic (to the extent that shareholders of Point Plastics elect
to receive Stock Consideration or do not elect to receive the Cash
Consideration), and the rights of all stockholders of Synetic will be governed
by applicable laws of the State of Delaware (rather than the CGCL), including
the DGCL, and by Synetic's Certificate of Incorporation, as amended (the
"Synetic Charter"), and the Synetic Bylaws.
While there are substantial similarities between the DGCL and the CGCL as
well as between the charters and bylaws of Synetic and Point Plastics, a number
of differences do exist. The following is a summary of certain material
differences between the current rights of Synetic stockholders and Point
Plastics shareholders under the DGCL and the CGCL, respectively, and under the
respective charters and bylaws of Synetic and Point Plastics.
The following summary does not purport to be a complete description of the
rights of stockholders of Synetic and Point Plastics under, and is qualified in
its entirety by reference to, the DGCL, the CGCL, the Synetic Charter, the
Synetic Bylaws, the Point Plastics Articles of Incorporation (the "Point
Plastics Charter") and the Point Plastics Bylaws, as appropriate.
AUTHORIZED CAPITAL STOCK
Point Plastics
The authorized capital stock of Point Plastics currently consists of
10,000,000 shares of capital stock, all of which are shares of Point Plastics
Common Stock.
Synetic
The authorized capital stock of Synetic currently consists of 110,000,000
shares of capital stock, consisting of (i) 100,000,000 shares of Synetic Common
Stock, and (ii) 10,000,000 shares of Company preferred stock, par value $0.01
per share (the "Company Preferred Stock").
DIVIDENDS
Point Plastics
Generally, a California corporation may pay dividends out of retained
earnings. Dividends may also be paid if, immediately after giving effect
thereto, the sum of (i) the assets (excluding goodwill and certain charges) of
the corporation is at least equal to 1.25 times its liabilities (excluding
certain deferred credits) and (ii) the current assets of such corporation (as
determined under the CGCL) is at least equal to its current liabilities or, if
the average of the earnings of such corporation before taxes and interest
expense for the two preceding fiscal years was less than the average of the
interest expense of such corporation for such fiscal years, at least equal to
1.25 times its current liabilities.
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Synetic
Under the DGCL, a corporation may pay dividends out of surplus or, if there
is no surplus, out of net profits for the fiscal year in which the dividend is
declared or the preceding fiscal year.
DISSENTERS' RIGHTS
Point Plastics
Holders of Point Plastics Common Stock who do not vote in favor of the
Merger, by complying with the provisions of Chapter 13 of the CGCL, have certain
rights to dissent and to require Point Plastics to purchase their Point Plastics
Common Stock for cash at fair market value. See "DISSENTERS' RIGHTS OF POINT
PLASTICS SHAREHOLDERS," below.
Synetic
Under the DGCL, stockholders who follow prescribed statutory procedures are
entitled, in the event of certain Mergers or consolidations, to surrender their
shares to the corporation in exchange for the judicially determined "fair value"
of such shares. Such stockholders are entitled to such appraisal rights unless
the shares held by the stockholder are either (i) listed on a national
securities exchange or designated as a national market system security of an
interdealer quotation system by the National Association of Securities Dealers,
Inc. or (ii) held of record by more than 2,000 holders. No appraisal rights are
available for any shares of stock of the constituent corporation surviving a
Merger if the Merger did not require for its approval the vote of the
stockholders of the surviving corporation as provided in the DGCL. Regardless of
the foregoing, appraisal rights are available for the shares of any class or
series of stock of a constituent corporation if the holders thereof are required
by the terms of an agreement of Merger or consolidation to accept for such stock
anything except (i) shares of stock of the corporation surviving or resulting
from such Merger or consolidation, or depositary receipts in respect thereof;
(ii) shares of stock of any other corporation or depositary receipts in respect
thereof, which shares of stock or depositary receipts at the effective date of
the Merger or consolidation shall be either listed on a national securities
exchange or designated as a market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc. or held of record
by more than 2,000 holders; (iii) cash in lieu of fractional shares or
fractional depositary receipts described in the foregoing clauses (i) and (ii);
or (iv) any combination of the shares of stock, depositary receipts and cash in
lieu of fractional shares, or fractional depositary receipts described in the
foregoing clauses (i), (ii) and (iii).
SPECIAL MEETINGS OF SHAREHOLDERS; QUORUM; SHAREHOLDER ACTION BY WRITTEN CONSENT
Point Plastics
Under the CGCL, a special meeting of shareholders may be called by the board
of directors, the chairman of the board, the president or the holders of shares
entitled to cast not less than 10% of the votes at the meeting or such
additional persons as may be provided in the charter or bylaws. Neither the
Point Plastics Charter nor Point Plastics Bylaws permit any other person to call
a special meeting.
A quorum for a meeting of shareholders of Point Plastics is a majority of the
outstanding shares of Point Plastics entitled to vote at such a meeting. An
action by shareholders of Point Plastics requires a majority of votes cast at a
meeting of shareholders. The CGCL provides that these quorum requirements may
be increased or decreased by amendment of the charter, except that in no event
will a quorum consist of less than one-third of the shares entitled to vote.
Under the CGCL, provided that sufficient notice or solicitations are sent or
delivered to shareholders entitled to vote, any action which may be taken at a
meeting of shareholders may also be taken by the written consent of the
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holders of at least the same proportion of outstanding shares as would be
necessary to take such action at a meeting at which all shares entitled to vote
were present and voted, except that the election of directors by written consent
requires the unanimous consent of all shares entitled to vote unless otherwise
provided in the articles of incorporation. The Point Plastics Charter contains
no such provision.
The Point Plastics Bylaws allow for shareholder approval by written consent
but provide that notice of any proposed shareholder approval of transactions
with interested directors, indemnification of an agent or corporate
reorganization be provided to those shareholders who have not consented to such
actions.
Synetic
Under the DGCL, a special meeting of stockholders may be called by the board
of directors or by any person authorized to do so in the certificate of
incorporation or bylaws. Synetic Charter and the Synetic Bylaws provide that
special meetings of the stockholders of Synetic may be called by the Synetic
Board or a committee so empowered, or by the holders of shares entitled to cast
not less than 10% of the votes at the meeting.
A quorum for a meeting of shareholders of Synetic is a majority of the
outstanding shares of Synetic entitled to vote at such a meeting. An action by
shareholders of Synetic requires a majority of votes cast at a meeting of
shareholders.
Under the DGCL, any action required or permitted to be taken by stockholders
at any annual or special meeting of stockholders may be taken without a meeting,
without prior notice and without a vote, if a consent, in writing, setting forth
the action so taken, is signed by the holders of outstanding stock of not less
than the minimum number of votes necessary to authorize such action at a meeting
at which all shares entitled to vote thereon were present and voting.
The Synetic Bylaws provide that whenever stockholders are required or
permitted to take any action by vote, such action may be taken without a meeting
in a written consent, setting forth the action so taken signed by the holders of
a majority of the outstanding shares of Synetic having not less than the minimum
number of votes that would be necessary to authorize or take such action at a
meeting at which all shares entitled to vote thereon are present and voted.
CERTAIN VOTING RIGHTS
Point Plastics
Under the Point Plastics Charter shareholders are entitled to one vote for
each share of Point Plastics Common Stock held of record.
The CGCL generally requires approval of any reorganization (which includes a
merger, certain exchange reorganizations and certain sale-of-asset
reorganizations) or sale of all or substantially all of the assets of a
corporation, by the affirmative vote of the holders of a majority (unless the
charter requires a higher percentage) of the outstanding shares of each class of
capital stock of the corporation entitled to vote thereon. The Point Plastics
Charter does not require a higher percentage.
In general, under the CGCL, no approval of a reorganization is required by
the holders of the outstanding shares in the case of any corporation if such
corporation, or its shareholders immediately before such reorganization, or
both, own, immediately after such reorganization, equity securities (other than
warrants or rights) of the surviving or acquiring corporation or a parent party,
possessing more than five-sixths of the voting power of such surviving or
acquiring corporation or such parent.
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Under the CGCL, a parent corporation may, without shareholder approval, merge
a subsidiary into itself if the parent corporation owns at least 90% of the
outstanding shares of each class of stock of such subsidiary.
Synetic
Under The Synetic Charter stockholders are entitled to one vote for each
share of Synetic Common Stock held of record.
The DGCL requires the affirmative vote of a majority of the outstanding
shares entitled to vote to authorize a merger, consolidation, dissolution or
disposition of substantially all of a corporation's assets, except that, unless
required by the certificate of incorporation, no authorizing stockholder vote is
required of a corporation surviving a merger if (i) such corporation's
certificate of incorporation is not amended by the merger, (ii) each share of
stock of such corporation will be an identical share of the surviving
corporation after the merger and (iii) either no shares of common stock are to
be issued or delivered in the merger or the number of shares of the surviving
corporation to be issued or delivered under the merger, plus those initially
issuable upon conversion of any other shares, securities or obligations to be
issued or delivered under such plan, does not exceed 20% of such corporation's
outstanding common stock immediately prior to the effective date of the merger.
SIZE OF THE BOARD OF DIRECTORS
Point Plastics
Under the Point Plastics Charter and Point Plastics Bylaws, all directors are
elected annually for a term of one year or until a successor is elected. The
Point Plastics Bylaws provide for a variable number of directors between three
and six, with the exact number determined from time to time by the Point
Plastics Board or a vote of a majority of shareholders. The number of directors
is currently fixed at four.
Synetic
The DGCL permits the board of directors to change the authorized number, or
the range, of directors by amendment to the bylaws, unless the directors are not
authorized in the certificate of incorporation to amend the bylaws or the number
of directors is fixed in the certificate of incorporation, in which case a
change in the number of directors may be made only upon approval of such change
by the stockholders. The DGCL provides that a corporation's Board of Directors
may be divided into various classes with staggered terms of office with no
requirement as to minimum number of directors in each class.
Currently, Synetic has 11 directors. The number of directors which
constitutes the entire Company Board may be determined in the Synetic Bylaws.
According to the Synetic Charter, each director of Synetic is elected by the
stockholders at each annual meeting of stockholders and holds office until the
next annual meeting of stockholders until his respective successor has been
elected and qualified, subject, however, to prior death, resignation,
retirement, disqualification or removal from office.
ELECTION OF DIRECTORS
Point Plastics
Under the CGCL (unless the corporate charter provides otherwise), any
shareholder is entitled to cumulate his votes for the election of directors
provided that at least one shareholder has given notice at the meeting prior to
the voting of such shareholder's intention to cumulate his votes. The Point
Plastics Bylaws provide for cumulative voting in accordance with the CGCL.
Cumulative voting for directors means that, at each election of directors, the
number of shares eligible to be voted by a shareholder is multiplied by the
number of directors to be elected. A stockholder
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may cast all such shareholder's votes for a single candidate, or may allocate
them among two or more candidates in any manner such shareholder chooses.
Synetic
Under the DGCL, except as otherwise provided in the certificate of
incorporation or bylaws, directors are elected by a plurality of the votes of
the shares present in person or represented by proxy at a meeting of
stockholders and entitled to vote on the election of directors.
The Synetic Bylaws provide that, except as otherwise required by statute, the
directors of Synetic will be elected at the annual meeting of stockholders of
Synetic. At each meeting of the stockholders of Synetic for the election of
directors at which a quorum is present, the persons receiving the greatest
number of the votes cast at such election will be elected as directors of
Synetic.
REMOVAL OF DIRECTORS; FILLING VACANCIES ON THE BOARD OF DIRECTORS
Point Plastics
Under the CGCL, the holders of at least 10% of the number of outstanding
shares of any class of stock may initiate a court action to remove any director
for cause. In addition, any or all of the directors of a California corporation
may be removed without cause by the affirmative vote of a majority of the
outstanding shares entitled to vote. However, no director may be removed
(unless the entire board is removed) when the votes cast against removal would
be sufficient to elect the director if voted cumulatively at an election at
which the same total number of votes were cast and the entire number of the
directors authorized at the time of the director's most recent election were
then being elected. Neither the Point Plastics Charter nor the Point Plastics
Bylaws contain any provisions inconsistent with such provisions of the CGCL.
Under the CGCL (unless otherwise provided in the charter or bylaws and except
for a vacancy created by the removal of a director), vacancies on the board of
directors may be filled by a majority of the remaining directors, though less
than quorum, of the board. The Point Plastics Bylaws provide that any vacancy
not filled by the directors and any vacancies on the board resulting from the
removal of directors may be filled by the vote of the majority of shares
entitled to vote.
Synetic
Under the DGCL, a director of a corporation may be removed, with or without
cause, by the holders of a majority of the shares then entitled to vote at a
meeting for the election of directors. If a corporation has a classified board,
the DGCL provides that directors may be removed only for cause, unless the
certificate of incorporation otherwise provides. The Synetic Charter provides
that any or all directors may be removed with or without cause prior to
completion of their term only upon the vote of a majority of holders of the
outstanding shares of Synetic Common Stock entitled to vote generally in the
election of directors.
The Synetic Bylaws provide that a vacancy in the Synetic Board, whether
arising from resignation, removal (with or without cause), an increase in the
number of directors or any other cause, may be filled by the vote of the
majority of the directors then in office, though less than a quorum. However,
if all directorships are vacant or in the case of the removal of a director by
the affirmative vote of the stockholders of Synetic, then vacancies may be
filled by the vote of the stockholders of Synetic at the next annual meeting or
special meeting called for that purpose.
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AMENDMENT OF CHARTER AND BYLAWS
Point Plastics
Under the CGCL, amendments to the charter of a corporation generally require
approval by vote of directors and the holders of a majority of outstanding
shares entitled to vote thereon and, where their rights are affected, by the
holders of a majority of the outstanding shares of a class, whether or not such
class is entitled to vote thereon by the provision of the charter.
Under the CGCL, bylaws may be adopted, amended or repealed either by the vote
of a majority of the outstanding shares or by the approval of the board of
directors, except (i) if the number of directors is set forth in the charter, in
which case such number may only be changed by an amendment to the charter, or
(ii) if the charter requires a larger percentage of shareholder or director vote
to approve a given action. The Point Plastics Charter does not require approval
by a supermajority of the shareholders or directors to approve a given action.
Synetic
Under the DGCL and the Synetic Charter, in general, the Synetic Charter may
be amended by the affirmative vote of a majority of the Synetic Board or the
holders of a majority of Synetic's shares. In general, the Bylaws may be
amended by the affirmative vote of a majority of the Synetic Board or the
holders of a majority of Synetic's shares.
BUSINESS COMBINATIONS AND REORGANIZATIONS
Point Plastics
The CGCL generally requires that, unless all shareholders of a class or
series consent, each share of such class or series must be treated equally with
respect to any distribution of cash, property, rights or securities.
Synetic
The DGCL states that a corporation shall not engage in any business
combination with any interested stockholder for a period of three years
following the date such stockholder became an interested stockholder. Under the
DGCL, an "interested stockholder" means any person who is the owner of 15% or
more of the outstanding voting stock of the corporation. Business combinations
are permitted within the three-year period if, prior to the date such
stockholder became an interested stockholder, the board of directors approved
either the business combination or the transaction which resulted in the
stockholder becoming an interested stockholder. The DGCL also allows business
combinations if (i) upon consummation of the transaction which resulted in the
stockholder becoming an interested stockholder, the interested stockholder owned
at least 85% of the outstanding voting stock of the corporation at the time the
transaction commenced (excluding shares owned by directors, officers and
employee stock plans) or (ii) on or subsequent to the date on which such person
became an interested stockholder, the business combination is approved by the
board of directors and authorized at a stockholders' meeting by two-thirds of
the disinterested stockholders.
INDEMNIFICATION OF OFFICERS AND DIRECTORS; INSURANCE
Point Plastics
Under the CGCL, (i) a corporation has the power to indemnify, with certain
exceptions, any agent who is a party to any action (other than an action by or
in the right of the corporation to procure a judgment in its favor) against
expenses, judgments, fines and settlements if that person acted in good faith
and in a manner that person reasonably believed to be in the best interests of
the corporation and, in the case of a criminal proceeding, had no
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reasonable cause to believe his or her conduct was unlawful, and (ii) a
corporation has the power to indemnify, with certain exceptions, any agent who
is a party to any action by or in the right of the corporation, against expenses
actually and reasonably incurred by that person in connection with the defense
or settlement of the action if that person acted in good faith and in a manner
that person believed to be in the best interests of the corporation and its
shareholders. An agent for purposes of the CGCL includes directors, officer and
employees.
The Point Plastics Bylaws provide for such indemnification: (i) where an
agent has been successful on the merits in the defense of any proceeding
referred to above; (ii) where authorized by the vote of either a majority of
directors or a majority of shares in favor of such indemnification or (iii) (if
such vote is not obtainable) the authorization of independent legal counsel.
The Point Plastics Charter has been amended to eliminate director liability for
monetary damages to the fullest extent permissible under California law and to
permit indemnification of agents in excess of the indemnification otherwise
permitted under California Statutory law.
Synetic
The DGCL allows for the advance payment of expenses to a director or officer
by the corporation prior to the final disposition of an action. Prior to any
such advance, a determination must be made by a quorum of disinterested
directors, an independent legal counsel or by Synetic's stockholders that such
executive has met the applicable statutory standard of conduct. Furthermore,
the advance payment of expenses prior to the final disposition of an action are
allowed under the DGCL upon receipt of an undertaking by or on behalf of such
director or officer to repay such amount if it shall ultimately be determined
that such executive is not entitled to be indemnified by the Company. The DGCL
refers expressly to administrative and investigative proceedings and expressly
provides for indemnification of expenses "including attorneys' fees."
The Synetic Charter and the Synetic Bylaws provide that Synetic shall, to the
fullest extent permitted by the DGCL, indemnify any and all persons whom it
shall have the power to indemnify under the DGCL from and against all expenses,
liabilities or other matters referred to and covered by the DGCL.
DISSENTERS' RIGHTS OF POINT PLASTICS SHAREHOLDERS
THE FOLLOWING SUMMARY OF APPRAISAL RIGHTS UNDER CALIFORNIA LAW IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO CHAPTER 13 OF THE CALIFORNIA GENERAL CORPORATION
LAW, THE COMPLETE TEXT OF WHICH IS ATTACHED HERETO AS ANNEX II--CHAPTER 13 OF
THE GENERAL CORPORATION LAW OF THE STATE OF CALIFORNIA.
FAILURE TO FOLLOW STRICTLY THE PROCEDURES SET FORTH IN CHAPTER 13 OF THE
CALIFORNIA GENERAL CORPORATION LAW MAY RESULT IN THE LOSS, TERMINATION OR WAIVER
OF APPRAISAL RIGHTS. A POINT PLASTICS SHAREHOLDER WHO VOTES IN FAVOR OF OR
SIGNS A CONSENT APPROVING AND AUTHORIZING THE MERGER AGREEMENT WILL NOT HAVE A
RIGHT TO DISSENT FROM THE MERGER AGREEMENT.
Under the CGCL each Point Plastics shareholder as of the Record Date is
entitled to demand and receive payment of the fair value of all or any portion
of such holder's shares of Point Plastics Stock pursuant to Chapter 13 of the
CGCL owned by such holder if the Merger is consummated. The fair value of such
shares is determined as of the day before the first announcement of the terms of
the Merger. Any Point Plastics shareholder who elects to perfect such holder's
dissenters' rights and demands payment of the fair value of such holder's shares
of Point Plastics stock must strictly comply with Chapter 13 of the CGCL. The
following summary does not purport to be complete and is qualified in its
entirety by reference to Chapter 13 of the CGCL, the text of which is attached
as Annex II and is incorporated herein by reference. Any holder of shares of
Point Plastics stock considering demanding dissenters' rights is advised to
consult legal counsel. Dissenters' rights will not be available unless and
until the Merger (or a
50
<PAGE>
similar business combination) is consummated. To perfect the right to dissent
and receive the fair value of such holder's shares, the shareholder must not
vote in favor of the Merger.
Each participant in the ESOP may [have an appraisal of the value of such
participant's shares] by voting against the merger and instructing the ESOP
Trustees to make such demands upon Point Plastics with respect to the shares
held by the ESOP allocated to the participant.
Within 10 days after the date of shareholder approval of the Merger, Point
Plastics will mail or deliver to each Point Plastics shareholder who did not
vote in favor of the Merger a notice of the approval of the Merger ("Notice"),
accompanied by a copy of Sections 1300-1304 of the CGCL. The Notice shall also
state the price determined by Point Plastics to be the fair market value of the
Dissenting Shares and a brief description of the procedure to be followed by a
shareholder who elects to dissent.
Any dissenting Point Plastics shareholder who desires that Point Plastics
purchase his or her shares of Point Plastics Stock must make written demand upon
Point Plastics for the purchase of such shares. The demand must be made no
later than 30 days after the Notice was mailed to the shareholder. The Point
Plastics shareholder's demand must state the number and class of shares held of
record by the Point Plastics shareholder which the shareholder demands that
Point Plastics purchase, as well as a statement by the Point Plastics
shareholder as to what such holder thinks the fair market value of such share
was as of the day prior to the announcement of the Merger. The statement of
fair market value constitutes an offer by the Point Plastics shareholder to sell
the shares at such price.
Within the same 30-day period following the mailing of the Notice, the
dissenting shareholder must submit to Point Plastics for endorsement
certificates for any shares which the Point Plastics shareholder demands Point
Plastics purchase. If Point Plastics and the Point Plastics shareholder agree
upon the price of the Dissenting Shares, the dissenting Point Plastics
shareholder is entitled to the agreed price with interest at the legal rate on
judgments from the date of such agreement. Payment must be made within 30 days
of the later of the date of the agreement between the Point Plastics shareholder
and Point Plastics or the date the contractual conditions to the Merger are
satisfied.
If Point Plastics and the shareholder cannot agree as to the fair market
value or as to the fact that such shares are Dissenting Shares, such Point
Plastics shareholder may file within six months of the date of mailing of the
Notice a complaint with the California Superior Court for the County of Sonoma
demanding judicial determination of such matters. Point Plastics will then be
required to make any payments in accordance with such judicial determination.
If the complaint is not filed within the specified six-month period, the Point
Plastics shareholder's rights as a dissenter are lost.
Dissenting shares lose their status as such if (i) Point Plastics abandons
the Merger; (ii) the shares are transferred or are surrendered for conversion
into shares of another class; (iii) the Point Plastics shareholder and Point
Plastics do not agree as to the fair market value of such shares and a complaint
is not filed within six months of the date the Notice was mailed; or (iv) the
dissenting Point Plastics shareholder withdraws, with the consent of Point
Plastics, his or her demand for purchase of Dissenting Shares.
The shares of Point Plastics held by a Point Plastics shareholder properly
exercising and perfecting his or her dissenters' rights will not convert into
the right to receive the applicable Per Share Consideration. Such shareholder
will be entitled to receive payment of the fair value of such holder's shares of
Point Plastics Common Stock pursuant to Chapter 13 of the CGCL. However, if a
Point Plastics shareholder fails to perfect or withdraws or loses such holder's
rights as a dissenter with respect to such holder's shares of Point Plastics
Stock, such holder's shares of Point Plastics Stock will be exchanged for
Synetic Common Stock and cash, without interest thereon, as provided in the
Merger Agreement.
51
<PAGE>
DESCRIPTION OF SYNETIC'S CAPITAL STOCK
The following description of the capital stock of Synetic is subject to the
Delaware General Corporation Law and to provisions contained in Synetic's
Charter and Bylaws, copies of which are exhibits to the 1997 10-K that is
incorporated by reference into this Proxy Statement/Prospectus. Reference is
made to such exhibits for a detailed description of the provisions thereof
summarized below.
The authorized capital stock of Synetic consists of 10,000,000 shares of
Preferred Stock, $.01 par value (the "Preferred Stock"), and 100,000,000 shares
of Common Stock, $.01 par value. None of the Preferred Stock is issued and
outstanding. At February 19, 1998, there were 17,685,964 shares of Common Stock
outstanding. Holders of capital stock of Synetic 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 Synetic Board 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.
Synetic 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 Synetic Board 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
Synetic.
COMMON STOCK
Subject to the prior rights of any Preferred Stock then outstanding, the
holders of outstanding shares of Synetic Common Stock are entitled to receive
dividends out of assets legally available therefor declared and paid by Synetic.
Synetic does not currently anticipate paying cash dividends to holders of its
Synetic Common Stock.
Upon liquidation, dissolution or winding up of Synetic, the assets legally
available for distribution to stockholders are distributable ratably among the
holders of the Synetic Common Stock at the time outstanding, subject to the
rights, if any, of the holders of any Preferred Stock then outstanding. Since
the Synetic Board has the authority to fix the rights and preferences of, and to
issue, Synetic's authorized but unissued Preferred Stock without approval of the
holders of Synetic 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 Synetic Common Stock
held of record.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for Synetic Common Stock is Registrar &
Transfer Company.
BUSINESS COMBINATIONS WITH INTERESTED STOCKHOLDERS
Synetic is subject to the provisions of Section 203 of the Delaware General
Corporation Law. In general, the statute prohibits a publicly held Delaware
corporation from engaging in a "business combination" with an "interested
stockholder" for a period of three years after the date of the transaction in
which the person became an interested stockholder, unless (i) prior to such
date, the board of directors approved either the business combination or the
transaction that resulted in the stockholder becoming an interested stockholder,
(ii) upon consummation of the
52
<PAGE>
transaction that resulted in such person becoming an interested stockholder, the
interested stockholder owned at least 85% of the voting stock of the corporation
outstanding at the time the transaction commenced (excluding, for purposes of
determining the number of shares outstanding, shares owned by certain directors
or certain employee stock plans) or (iii) on or after the date the stockholder
became an interested stockholder, the business combination is approved by the
board of directors and authorized by the affirmative vote (and not by written
consent) of at least two-thirds of the outstanding voting stock excluding that
stock owned by the interested stockholder. A "business combination" includes a
Merger, asset sale or other transaction resulting in a financial benefit to the
interested stockholder. An "interested stockholder" is a person who (other than
the corporation and any direct or indirect majority owned subsidiary of the
corporation), together with affiliates and associates, owns (or, as an affiliate
or associate, within three years prior, did own) 15% or more of the
corporation's outstanding voting stock. The application of Section 203 could
have the effect of delaying or preventing a change of control of Synetic.
LEGAL MATTERS
The validity of the shares of Synetic Common Stock offered hereby will be
passed upon by Shearman & Sterling, New York, New York. Shearman & Sterling is
a limited partner in a limited partnership SYNETIC Investors, which owns Synetic
Common Stock.
The statements of law under the caption "RISK FACTORS--Government Regulation
of Porex" in this Prospectus and under the caption "Business--Plastics
Technology Business--Regulation" in Synetic's 1997 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 consolidated financial statements of Point Plastics in this Proxy
Statement/Prospectus have been audited by Linkenheimer, LLP, independent public
accountants, as indicated in their report which is incorporated herein by
reference, and has been so incorporated in reliance upon the report of such firm
given upon their authority as experts in accounting and auditing.
The audited Consolidated Financial Statements and schedules of Synetic 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.
WHERE YOU CAN FIND MORE INFORMATION
Synetic files annual, quarterly and special reports, proxy statements and
other information with the Commission. You may read and copy any reports,
statements or other information filed by Synetic at the Commission's public
reference rooms in Washington, D.C. at 450 5th Street, Mail Stop 1-2, N.W.,
Washington, D.C. 20549, in New York at 7 World Trade Center, Suite 1300, New
York, New York 10048 and in Chicago, Illinois at Citicorp Center, 500 W. Madison
Street, Suite 1400, Chicago, Illinois 60661. Please call the Commission at 1-
800-SEC-0330 for further information on the public reference rooms. Commission
filings of Synetic are also available to the public from commercial document
retrieval services. The website maintained by the Commission is
"http://www.sec.gov".
53
<PAGE>
Synetic has filed with the Commission a Registration Statement on Form S-4 to
register the Synetic Common Stock to be issued pursuant to the Merger Agreement.
This Proxy Statement/Prospectus is a part of that Registration Statement and
constitutes a prospectus of Synetic in addition to being a proxy statement of
Point Plastics for the Special Meeting. As allowed by Commission rules, this
Proxy Statement/Prospectus does not contain all the information you can find in
the Registration Statement and the exhibits to the Registration Statement.
The Commission allows Synetic to "incorporate by reference" information into
this Proxy Statement/Prospectus, which means that Synetic can disclose important
information to you by referring you to another document filed separately with
the Commission. The information incorporated by reference is deemed to be part
of this Proxy Statement/Prospectus, except for any information superseded by
information in this Proxy Statement/Prospectus. This Proxy Statement/Prospectus
incorporates by reference the documents set forth below that Synetic has
previously filed with the Commission. These documents contain important
information about Synetic and its finances.
SYNETIC COMMISSION FILINGS PERIOD
- -------------------------- ------
(FILE NO. 0-17822)
- ------------------
Annual Report on Form 10-K Year ended June 30, 1997
Quarterly Report on Form 10-Q Quarter ended September 30, 1997
Quarterly Report on Form 10-Q Quarter ended December 31, 1997
Proxy Statement Dated February 25, 1998
Current Reports on Form 8-K Dated March 11, 1998 and November 18, 1997.
Upon completion of the Merger, Synetic will continue to be subject to the
informational requirements of the Exchange Act and, in accordance therewith,
will file reports, proxy and information statements and other information with
the Commission. Such reports, proxy and information statements and other
information can be inspected and copied at the addresses set forth above.
Synetic intends to furnish its stockholders with annual reports containing
financial statements audited by its independent accountants and quarterly
reports for the first three quarters of each fiscal year containing unaudited
summary financial information.
Synetic also hereby incorporates by reference all additional documents that
Synetic files with the Commission between the date of this Proxy
Statement/Prospectus and the date of the Special Meeting. Documents
incorporated by reference are available from Synetic without charge, excluding
all exhibits unless such exhibits have been specifically incorporated by
reference in this Proxy Statement/Prospectus. Shareholders may obtain documents
incorporated by reference in this Proxy Statement/Prospectus by requesting them
in writing or by telephone from Synetic, Inc., 669 River Drive, Elmwood Park,
New Jersey 07407, Attention: Secretary.
If you would like to request documents from Synetic, please do so by
________, 1998 to receive them before the Special Meeting.
The Point Plastics Board does not intend to bring any other matters, and does
not know of any other matters to be brought, before the Special Meeting.
THIS PROXY STATEMENT/PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A
SOLICITATION OF AN OFFER TO BUY, ANY SECURITIES, OR THE SOLICITATION OF A PROXY,
IN ANY JURISDICTION TO OR FROM ANY PERSON TO WHOM IT IS NOT LAWFUL TO MAKE ANY
SUCH OFFER OR SOLICITATION IN SUCH JURISDICTION. NEITHER THE DELIVERY OF THIS
PROXY
54
<PAGE>
STATEMENT/PROSPECTUS NOR ANY DISTRIBUTION OF SECURITIES MADE HEREUNDER SHALL,
UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN
THE AFFAIRS OF POINT PLASTICS OR SYNETIC SINCE THE DATE HEREOF OR THAT THE
INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
YOU SHOULD RELY ON THE INFORMATION CONTAINED OR INCORPORATED BY REFERENCE IN
THIS PROXY DOCUMENT. NEITHER SYNETIC NOR POINT PLASTICS HAS AUTHORIZED ANYONE
TO PROVIDE YOU WITH INFORMATION THAT IS DIFFERENT FROM WHAT IS CONTAINED IN THIS
PROXY STATEMENT/PROSPECTUS. ALL INFORMATION CONTAINED IN THIS PROXY
STATEMENT/PROSPECTUS WITH RESPECT TO POINT PLASTICS AND ITS SUBSIDIARIES HAS
BEEN PROVIDED BY POINT PLASTICS, AND ALL INFORMATION CONTAINED (OR INCORPORATED
BY REFERENCE) IN THIS PROXY STATEMENT/PROSPECTUS WITH RESPECT TO SYNETIC AND ITS
SUBSIDIARIES HAS BEEN PROVIDED BY SYNETIC.
NEITHER SYNETIC NOR POINT PLASTICS WARRANTS THE ACCURACY OF INFORMATION RELATING
TO THE OTHER PARTY. THIS PROXY STATEMENT/PROSPECTUS IS DATED APRIL [__], 1998.
YOU SHOULD NOT ASSUME THAT THE INFORMATION CONTAINED IN THIS PROXY
STATEMENT/PROSPECTUS IS ACCURATE AS OF ANY DATE OTHER THAN SUCH DATE, AND
NEITHER THE MAILING OF THIS PROXY STATEMENT/PROSPECTUS NOR THE ISSUANCE OF THE
SYNETIC COMMON STOCK IN THE MERGER SHALL CREATE ANY IMPLICATION TO THE CONTRARY.
55
<PAGE>
LIST OF DEFINED TERMS
LOCATION OF
DEFINED TERM DEFINED TERM
- ------------ ------------
Escrow Fund.............................. 1
"Point Plastics"......................... 15
"Point Plastics Common Stock"............ 15
PCR...................................... 16
"Porex".................................. 18
Avicenna................................. 18
Point Plastics Board..................... 19
Special Meeting.......................... 19
Merger Agreement......................... 19
Merger................................... 19
Commission............................... 20
Synetic Board............................ 20
ESOP Participants........................ 21
Employment Agreements.................... 22
Executives............................... 22
Employment Period........................ 22
New Option............................... 22
Advance Draw............................. 22
Options.................................. 22
Incentive Plan........................... 22
Cause.................................... 22
Good Reason.............................. 23
Severance Period......................... 23
"Point Plastics Stock Plan".............. 23
Point Plastics Options................... 23
"ESOP Trustees".......................... 24
ESOP Loan................................ 24
"Porex 401(k) Plan"...................... 24
Surviving Corporation.................... 25
Closing.................................. 25
Closing Date............................. 25
"Point Plastics Shareholders"............ 25
Effective Time........................... 25
1997 Financial Statements................ 25
Aggregate Purchase Price................. 25
Per Share Consideration.................. 26
Cash Consideration....................... 26
Cash Election............................ 26
Stock Consideration...................... 26
Stock Election........................... 26
Non-Election............................. 26
Cash Election Number..................... 26
Stock Election Number.................... 26
Cash Election Shares..................... 26
Stock Election Shares.................... 26
Non-Election Shares...................... 27
56
<PAGE>
Stock Fraction........................... 27
Form of Election......................... 27
Election Deadline........................ 28
"Merger Consideration"................... 28
Non-Election Share....................... 28
Code..................................... 29
DGCL..................................... 29
IRS...................................... 32
Distribution Agreement................... 32
Manufacturer............................. 32
Escrow Agent............................. 35
Escrow Agreement......................... 35
Indemnified Parties...................... 36
NASDAQ National Market System............ 37
SNTC..................................... 37
Party.................................... 37
Parties.................................. 37
HSR Act.................................. 37
CareAgents............................... 41
FTC...................................... 43
Antitrust Division....................... 43
Synetic Charter.......................... 44
Point Plastics Charter................... 44
Preferred Stock.......................... 44
Notice................................... 51
business combination..................... 52
Securities Act...........................II-1
"Registration Statement".................II-5
57
<PAGE>
POINT PLASTICS, INC. AND SUBSIDIARY
CONSOLIDATED FINANCIAL REPORT
DECEMBER 31, 1997 AND 1996
C O N T E N T S
Page
----
INDEPENDENT AUDITORS' REPORT ON THE CONSOLIDATED
FINANCIAL STATEMENTS F-2
FINANCIAL STATEMENTS
Consolidated balance sheets F-3
Consolidated statements of income F-5
Consolidated statements of stockholders' equity F-6
Consolidated statements of cash flows F-7
Notes to the consolidated financial statements F-9
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
Point Plastics, Inc.
Petaluma, California
We have audited the accompanying balance sheets of Point Plastics, Inc. as of
December 31, 1997 and 1996, and the related statements of income, stockholders'
equity, and cash flows for the years then ended. These financial statements are
the responsibility of the Company's management. Our responsibility is to
express an opinion on those financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Point Plastics, Inc. as of
December 31, 1997 and 1996, and the results of its operations and its cash flows
for the years then ended in conformity with generally accepted accounting
principles.
/s/ Linkenheimer LLP
---------------------
Santa Rosa, California
April 2, 1998
F-2
<PAGE>
POINT PLASTICS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
December 31, 1997 and 1996
ASSETS
1997 1996
----------- -----------
CURRENT ASSETS
Cash and cash equivalents (Note 15) $ 2,987,664 $ 3,231,202
Accounts receivable, net of allowance
for doubtful accounts of $40,000
in each year (Notes 9 and 15) 3,078,567 2,988,231
Other receivables 99,964 194,119
Inventories (Notes 2 and 9) 3,303,511 3,335,135
Prepaid expenses and deposits 41,349 42,497
Prepaid income taxes 268,408 141,411
Prepaid retirement plan expense - 11,997
Short-term annuity investment (Note 4) 7,397 6,984
Short-term investment in securities (Note 3) 4,982,938 2,975,488
Deferred tax benefit (Note 14) 459,705 338,416
----------- -----------
Total current assets 15,229,503 13,265,480
----------- -----------
LONG-TERM INVESTMENTS AND RECEIVABLES
Investment in securities (Notes 3 and 9) 3,170,821 4,197,311
Annuity investment (Note 4) 44,092 51,489
Investment in partnership (Note 5) 128,874 128,874
----------- -----------
3,343,787 4,377,674
----------- -----------
LAND, BUILDINGS AND EQUIPMENT, net (Notes 6 and 9) 10,915,968 9,663,740
----------- -----------
INTANGIBLES, net (Note 7) 53,354 95,802
----------- -----------
OTHER ASSETS
Deposits 30,620 14,224
----------- -----------
$29,573,232 $27,416,920
=========== ===========
See Notes to Financial Statements.
F-3
<PAGE>
POINT PLASTICS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
December 31, 1997 and 1996
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
1997 1996
------------ -----------
<S> <C> <C>
CURRENT LIABILITIES
Accounts payable $ 428,462 $ 481,679
Accrued salaries and vacation 651,952 465,051
Other accrued expenses 32,574 24,950
Interest payable (Note 9) 104,056 104,202
Short-term pension benefit obligation (Note 4) 7,397 6,984
Current portion of long-term debt (Note 9) 407,437 31,311
----------- -----------
Total current liabilities 1,631,878 1,114,177
----------- -----------
LONG-TERM LIABILITIES
Long-term debt, net of current portion (Note 9) 6,704,114 7,111,550
Long-term pension benefit obligation (Note 4) 44,092 51,489
Deferred taxes (Note 14) 1,115,552 1,050,745
----------- -----------
7,863,758 8,213,784
----------- -----------
COMMITMENTS AND CONTINGENCIES (Notes 8, 10 and 11)
MINORITY INTEREST 132,324 129,479
----------- -----------
STOCKHOLDERS' EQUITY
Common stock, no par value, 10,000,000 shares
authorized; 1,401,288 and 1,424,475 shares issued
and outstanding at December 31, 1997 and
1996, respectively (Note 11) 56,694 57,632
Paid in capital (Note 12) 195,489 113,989
Retained earnings 22,350,361 17,787,859
----------- -----------
22,602,544 17,959,480
Less: ESOP note receivable (Note 13) (2,657,272) -
----------- -----------
19,945,272 17,959,480
----------- -----------
$29,573,232 $27,416,920
=========== ===========
</TABLE>
F-4
<PAGE>
POINT PLASTICS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
Years Ended December 31, 1997 and 1996
1997 1996
------------ ------------
NET SALES (Note 15) $24,828,484 $21,472,829
Cost of sales 12,948,179 11,446,396
----------- -----------
GROSS PROFIT 11,880,305 10,026,433
Operating expenses 3,161,856 2,691,388
----------- -----------
OPERATING INCOME 8,718,449 7,335,045
----------- -----------
Other income (expense):
ESOP contribution (Note 13) (558,681) (562,773)
Interest income 678,338 491,617
Interest expense (459,800) (470,681)
Write-down of investment and other (555) (40,395)
----------- -----------
(340,698) (582,232)
----------- -----------
INCOME BEFORE MINORITY INTEREST
AND INCOME TAXES 8,377,751 6,752,813
Less minority interest 2,845 2,476
----------- -----------
INCOME BEFORE INCOME TAXES 8,374,906 6,750,337
Federal and state income taxes (Note 14) 3,203,521 2,661,228
----------- -----------
NET INCOME $ 5,171,385 $ 4,089,109
=========== ===========
See Notes to Financial Statements.
F-5
<PAGE>
POINT PLASTICS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years Ended December 31, 1997 and 1996
Common Paid in Retained
Stock Capital Earnings
-------- -------- ------------
BALANCE, DECEMBER 31, 1995 $57,983 $ 43,989 $13,906,533
Stock redemptions (Note 11) (351) - (207,783)
Stock options (Note 12) - 70,000 -
Net income - - 4,089,109
------- -------- -----------
BALANCE, DECEMBER 31, 1996 57,632 113,989 17,787,859
Stock redemptions (Note 11) (938) - (608,883)
Stock options (Note 12) - 81,500 -
Net income - - 5,171,385
------- -------- -----------
BALANCE, DECEMBER 31, 1997 $56,694 $195,489 $22,350,361
======= ======== ===========
See Notes to Financial Statements.
F-6
<PAGE>
POINT PLASTICS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, 1997 and 1996
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 5,171,385 $ 4,089,109
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation 1,164,110 1,086,120
Amortization 56,821 56,665
Bond (premium) discount amortization (49,139) 15,030
Compensation expense on stock options granted 81,500 70,000
Write off of intangible asset - 9,395
Minority interest expense 2,845 2,476
Increase (decrease) in deferred taxes (56,482) 79,927
(Gain) loss on sale of assets 584 4,269
Annuity interest income (3,016) (3,546)
Unrealized loss on investment - 36,216
Net change in operating assets and liabilities (Note 17) 49,373 (270,216)
----------- -----------
Net cash provided by operating activities 6,417,981 5,175,445
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of land, building and equipment (2,420,422) (2,425,086)
Purchase of intangible asset (14,373) (3,791)
Purchase of marketable securities (3,931,821) (2,957,704)
Redemptions of marketable securities 3,000,000 1,500,000
Disbursements on notes receivable (2,657,272) -
Purchase of partnership interest - (9,000)
Payments received on notes receivable - 7,995
Proceeds from equipment sale 3,500 5,000
----------- -----------
Net cash used in investing activities (6,020,388) (3,882,586)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Principal payments on long-term debt (31,310) (657,500)
Purchase of Company stock for retirement (609,821) (208,134)
----------- -----------
Net cash used in financing activities (641,131) (865,634)
----------- -----------
Net increase (decrease) in cash and cash equivalents (243,538) 427,225
CASH AND CASH EQUIVALENTS AT BEGINNING
OF YEAR 3,231,202 2,803,977
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 2,987,664 $ 3,231,202
=========== ===========
</TABLE>
See Notes to Financial Statements.
F-7
<PAGE>
POINT PLASTICS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
Years Ended December 31, 1997 and 1996
1997 1996
---------- ----------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the years for:
Interest $ 459,946 $ 473,421
========== ==========
Income taxes $3,387,000 $2,457,000
========== ==========
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING
AND FINANCING ACTIVITIES
Distribution to former employee and current
board member from annuity investment (Note 4) $ 10,000 $ 20,000
========== ==========
See Notes to Financial Statements.
F-8
<PAGE>
POINT PLASTICS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997 and 1996
NOTE 1. DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS:
------------------------
Point Plastics, Inc. (the "Company") manufactures high usage disposable
plastic items used by testing laboratories, medical laboratories and
hospitals. These items consist of pipette tips, tubes, vials, caps and
associated items which are used in testing of fluids.
The Company sells its product to direct users and to distributors
throughout the U.S. and several foreign countries. Marketing is
conducted through a division, Quality Scientific Plastics, and a
subsidiary, Out Patient Services, Inc.
A summary of the Company's significant accounting policies follows:
PRINCIPLES OF CONSOLIDATION:
----------------------------
The consolidated financial statements include the accounts of the
parent and 93.4% owned subsidiary, Out Patient Services, Inc. All
significant inter-company transactions and accounts are eliminated in
consolidation.
CASH AND CASH EQUIVALENTS:
--------------------------
For purposes of reporting the statements of cash flow, the Company
considers all cash accounts, which are not subject to withdrawal
restrictions or penalties, and all highly liquid debt instruments
purchased with a maturity of three months or less to be cash
equivalents. At December 31, 1997, $1,747,177 of corporate debt
securities are considered cash equivalents.
INVENTORIES:
------------
Inventories are stated at the lower of cost or market. Cost is
determined on the first-in, first-out basis. Cost includes raw
materials, direct labor and manufacturing overhead.
INVESTMENTS:
------------
Investments consist of debt securities and an annuity contract which
are reported at amortized cost and a partnership interest which is
stated at the lower of cost or market. Realized gains and losses on
dispositions are based upon net proceeds and the adjusted book value of
the securities sold using the specific identification method.
DEPRECIATION METHODS:
---------------------
Buildings and equipment are shown at cost and are depreciated using
straight-line and declining balance methods over their estimated useful
lives ranging from 8 to 10 years for equipment and 30 years for
buildings. Leasehold improvements are depreciated over the life of the
lease with renewal options.
REVENUE RECOGNITION:
--------------------
Revenue is recognized upon product shipment, net of sales returns and
allowances.
INCOME TAXES:
-------------
The Company accounts for income taxes pursuant to Statement of
Financial Accounting Standard No. 109, " Accounting for Income Taxes"
("SFAS No. 109"), which uses the liability method to calculate deferred
income taxes. The realization of deferred tax assets is based on
historical tax positions and expectations about future taxable income.
F-9
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONT'D)
ACCOUNTING FOR STOCK BASED COMPENSATION:
----------------------------------------
Effective January 1, 1996, the Company adopted Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation"
("SFAS No. 123"). As permitted by the standard, the Company has elected
to continue following the guidance of Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB No.
25"), for measurement and recognition of stock-based transactions with
employees. The Company discloses on a pro-forma basis both net income
and earnings per share as if the fair value based accounting method were
used and the difference between compensation cost recognized by APB No.
25 and the fair value method of SFAS No. 123. (See Note 12)
INVESTMENTS IN DEBT AND EQUITY SECURITIES:
------------------------------------------
Effective January 1, 1994, the Company adopted Statement of Financial
Accounting Standards No. 115, "Accounting for Certain Investments in
Debt and Equity Securities" ("SFAS No. 115"). This Statement addresses
the accounting and reporting for investments in equity securities that
have readily determinable fair values and for all investments in debt
securities. At December 31, 1997, the Company's investments consisted
principally of federal and California government obligations.
USE OF ESTIMATES:
-----------------
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
NOTE 2. INVENTORIES
At December 31, 1997 and 1996, the following items made up the
inventories on hand:
1997 1996
---------- ----------
Raw materials $ 643,752 $ 695,831
Finished goods 2,659,759 2,639,304
---------- ----------
$3,303,511 $3,335,135
========== ==========
NOTE 3. INVESTMENTS IN SECURITIES
Investments consist of federal and California government obligations
adjusted for amortization of premiums and accretions of discounts. The
Company plans to hold these investments to maturity. The estimated fair
value amounts have been determined by the Company using available market
prices or dealer quotes.
F-10
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3. INVESTMENTS IN SECURITIES (CONTINUED)
The amortized cost, unrealized gains and losses, and fair values of
investment securities held to maturity at December 31, 1997 were:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Due in one year or less $4,982,938 $ 3,092 $ - $4,986,030
Due after one year but
less than five years 2,164,408 97,172 - 2,261,580
Due after five years but
less than ten years 1,006,413 41,447 - 1,047,860
---------- -------- ---------- ----------
$8,153,759 $141,711 $ - $8,295,470
========== ======== ========== ==========
</TABLE>
The amortized cost, unrealized gains and losses, and fair values of
investment securities held to maturity at December 31, 1996 were:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Due in one year or less $2,975,488 $ 5,397 $ - $2,980,885
Due after one year but
less than five years 998,630 - 9,570 989,060
Due after five years but
less than ten years 3,198,681 99,379 - 3,298,060
---------- -------- ------ ----------
$7,172,799 $104,776 $9,570 $7,268,005
========== ======== ====== ==========
</TABLE>
NOTE 4. ANNUITY INVESTMENT
In 1994, the Company purchased two annuities with an insurance company
to provide a retired company officer who is also a current member of
the Board of Directors with a supplemental pension. The annuities will
distribute directly to the former officer $20,000 per year for two
years beginning April 1995 and then $10,000 per year for 7 years. A
summary of the activity is as follows:
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Annuity balance beginning of year $ 58,473 $ 74,927
Annuity interest 3,016 3,546
Distribution (10,000) (20,000)
-------- --------
Annuity balance at end of year 51,489 58,473
Current portion 7,397 6,984
-------- --------
Long-term portion $ 44,092 $ 51,489
======== ========
</TABLE>
A corresponding liability has been set up to reflect the Company's
obligation.
F-11
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5. INVESTMENT IN PARTNERSHIP
The Company is a limited partner in a partnership. The investment is
stated at lower of cost or market. The cost of the partnership
investment is $165,000. A summary of the investment activity is as
follows:
1997 1996
----------- -----------
Partnership balance at beginning
of year $ 128,874 $ 165,000
Unrealized loss - (36,126)
----------- -----------
Partnership balance at end of year $ 128,874 $ 128,874
=========== ===========
NOTE 6. LAND, BUILDINGS AND EQUIPMENT
A summary of the Company's land, buildings and equipment at December
31, 1997 and 1996 is as follows:
1997 1996
----------- -----------
Land $ 1,264,705 $ 1,264,705
Buildings 5,113,218 4,516,942
Machinery and equipment 6,817,995 5,882,479
Tooling-molds 4,459,484 3,889,933
Furniture and fixtures 204,169 182,693
Leasehold improvements 336,971 277,526
Vehicles 39,977 30,212
Equipment and construction 554,602 353,720
----------- -----------
in progress 18,791,121 16,398,210
Accumulated depreciation (7,875,153) (6,734,470)
----------- -----------
$10,915,968 $ 9,663,740
=========== ===========
Depreciation expense for the years ended December 31, 1997 and 1996 was
$1,164,110 and $1,086,120, respectively.
NOTE 7. INTANGIBLES
Intangibles are stated at cost. In 1997 and 1996, intangibles consist
of a patent, two licensing agreements to manufacture a plastic tip and
a tube pack, and patent pending costs. The perfected intangibles are
being amortized on a straight-line basis over their estimated useful
lives of 5 years.
NOTE 8. LEASES
The Company is leasing two buildings at its current location under a 10
year operating lease. The lease expires June 1999 and has a five year
renewal option. The lease agreement requires the Company to pay the
property taxes and insurance on the building.
The Company leased another building during 1993 under a six year
operating lease. The lease expires March 1999 and has a five year
renewal option. The lease agreement requires the Company to pay the
property taxes and insurance on the building in excess of the base year
rates.
In 1994, the Company began leasing an access way under a five-year
lease. The access way lease expires May 1999 and has a five year
renewal option.
F-12
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8. LEASES (CONTINUED)
Rent expense, including taxes and insurance, for the years ended
December 31, 1997 and 1996 was $286,824 and $293,620, respectively.
Future minimum rental payments are as follows:
1998 $281,760
1999 104,920
--------
$386,680
========
The Company also leases certain equipment under two and three year
operating leases. The rental expense for the years ended December 31,
1997 and 1996 was $21,750 and $20,971, respectively. Following are the
future minimum rental payments for these equipment leases:
1998 $23,724
1999 14,194
----------
$ 37,918
==========
NOTE 9. NOTES PAYABLE AND LONG-TERM DEBT
Balances included in long-term debt at December 31, 1997 and 1996 are
as follows:
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Note payable to the U.S. Small Business
Administration at 12.94%, secured by a deed
of trust on land and building. Principal,
interest and fee payable at $2,628 per month.
Matures July 2009. $ 180,282 $ 186,634
Note payable to individuals, secured by deed
of trust on land and building. Principal and
interest payments of $4,494 per month, with
interest at 7%. Matures July 1998. 400,212 425,170
Note payable to former stockholder for redemption
of Company stock. Secured by inventory, accounts
receivable, and U.S. treasury note. Quarterly interest
only payments bear interest at 6.23% per annum.
Matures March 2003 or is callable by the seller upon
the sale of substantially all of the stock or assets
of the Company. $6,531,057 $6,531,057
---------- ----------
7,111,551 7,142,861
Less: Current portion 407,437 31,311
---------- ----------
$6,704,114 $7,111,550
========== ==========
</TABLE>
F-13
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9. NOTES PAYABLE AND LONG-TERM DEBT (CONTINUED)
Aggregate maturities required on long-term debt at December 31, 1997
are as follows:
1998 $ 407,437
1999 8,218
2000 9,347
2001 10,631
2002 12,092
Subsequent 6,663,826
----------
$7,111,551
==========
Interest in the amount of $406,885 was paid to a former stockholder in
1997 and 1996, respectively. In addition, $101,721 in interest is due
to the former stockholder and is included in interest payable at
December 31, 1997 and December 31, 1996, respectively.
NOTE 10. CONTINGENCIES
In 1997, the Internal Revenue Service issued a notice of tax deficiency
against the Company for income taxes totaling $4,791,422 for the tax
years 1993, 1994 and 1995. The Company has filed a petition to the
U.S. Tax Court challenging the basis of any deficiency claimed. The
Company and outside counsel believes its position on this tax matter is
strong and that any likely settlement on the entire case will be less
than $100,000. No provision has been made in the accompanying
financial statement for the proposed tax deficiencies.
NOTE 11. STOCKHOLDERS' EQUITY
During 1996, the Company redeemed 8,672 shares at $24 per share for an
amount totaling $208,134. The shares redeemed were ESOP shares that had
been distributed to two current members of the Board of Directors.
During 1997, the Company redeemed 23,187 shares at $26.30 per share for
an amount totaling $609,821. The shares redeemed were ESOP shares of
which 4,431 were redeemed from a former stockholder and 3,873 were
redeemed from a current member of the Board of Directors.
In the event of death or disability of the stockholder with the largest
ownership percentage, the Company agrees to purchase his Company common
stock at the appraised price per share as of the last corporate year
end prior to the event. At December 31, 1997, this stockholder holds
654,133 shares of common stock. The appraised market value of the
Company stock at January 1, 1997 and 1996 was $26.30 and $24 per share,
respectively.
The balance in common stock at December 31, 1997 and 1996 is the amount
after elimination of intercompany ownership.
Common stock of the subsidiary, prior to elimination, is as follows:
Out Patient Services, Inc. - 25,000 shares at $1 par authorized, 8,004
shares issued and outstanding, at December 31, 1997 and 1996.
NOTE 12. STOCK OPTION PLAN
The Company approved a stock option plan effective January 1, 1995. The
plan was put into place to enable selected officers and key employees
to acquire Company stock. The Company granted stock options, beginning
on or after January 1, 1995, to an employee who is also a Board member.
The stock options granted allows this individual to purchase Company
stock, up to 5,000 shares per year for the next ten years, at $10 per
share. The stock options expire December 31, 2004.
F-14
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 12. STOCK OPTION PLAN (CONTINUED)
The company applies APB Opinion 25, Accounting for Stock Issues to
Employees, in accounting for its stock option plan which records
compensation expense for the difference between the exercise price and
the estimated fair value of its stock. Compensation cost charged to
operations was $81,500 and $70,000 in 1997 and 1996, respectively (See
Note 17). Had compensation cost been determined on the basis of fair
value pursuant to FASB Statement No. 123, Accounting for Stock Based
Compensation, net income would have been as follows:
Net Income: 1997 1996
---------- ----------
As reported under APB 25 $5,171,385 $4,089,109
========== ==========
Under FASB 123 $5,128,598 $4,075,271
========== ==========
FASB 123 computations are based upon the current value of the stock
reduced by expected dividends and the present value of the exercise
price over the life of the option. A risk free interest rate of 5.25%
was assumed.
The following is a summary of the stock option plan:
Number of Shares
-------------------------
1997 1996
------ -------
Options outstanding at beginning of year 8,999 3,999
Options granted 5,000 5,000
Options exercised - -
------- ------
Options outstanding at end of year 13,999 8,999
======= ======
Options exercisable at the end of the year 13,999 8,999
======= ======
Fair value of options granted, per share: 1997 1996
------- ------
Under APB 25 $ 16 $ 14
======= ======
Under FASB 123 $ 17 $ 18
======= ======
NOTE 13. EMPLOYEE STOCK OWNERSHIP PLAN
On January 1, 1986, the Company established an Employee Stock Ownership
Plan (Plan) to provide additional retirement benefits for all full-time
employees with one or more years of service who have attained the age
of 21 and who are not part of a retirement program covered by a
collective bargaining agreement. The Company's contributions to the
Plan are determined by its Board of Directors. Contributions under the
Plan amounted to $558,681 and $562,773 in 1997 and 1996, respectively.
At December 31, 1997, 726,254 of the Company's common shares are held
by the Employee Stock Ownership Trust (Trust), which was established to
fund the Plan. At December 31, 1997, the Trust's common shares consist
of 101,067 of unallocated shares and 625,187 allocated shares. During
1997 and 1996, the Plan distributed 23,187 and 8,672 shares,
respectively, of the Company's common stock to retired plan
participants, some of whom are also members of the Board of Directors.
(See Note 11).
The Trust purchased 101,037 shares in 1997 from separated participants
of the Plan. The purchase was made with the proceeds of a $2,657,272
loan from the Company, which is payable in annual installments over a
ten year period. The balance on the note at December 31, 1997 was
$2,657,272. For financial statement purposes, stockholders' equity has
been reduced by the balance of the note receivable from the Plan.
F-15
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 13. EMPLOYEE STOCK OWNERSHIP PLAN (CONTINUED)
As the Plan makes each payment of principal, an appropriate percentage
of stock will be allocated to eligible employees' accounts in the
proportion that each such participant's covered compensation bears to
the total covered compensation of all such participants for that year
in accordance with applicable regulations under the Internal Revenue
Code. Forfeitures and stock re-purchases from separated participants
are allocated in the same manner as employer contributions. All the
purchased stock is held in the Trust established under the Plan. Shares
vest according to the following vesting schedule upon allocation:
Years of Service Percentage vested
---------------- -----------------
Less than 2 0%
2 years 20%
3 years 30%
4 years 40%
5 years 60%
6 years 80%
7 years 100%
Any participant's Plan benefit which is retained in the Trust after the
anniversary date coinciding with or immediately following the date on
which he terminates employment will be credited to a separate account
in the name of the participant, and such account shall be credited with
interest on the unpaid principal balance at the rate paid on one-year
certificates of deposit (as of the beginning of each Plan year) as
quoted in the Wall Street Journal. Such separate account shall not
require segregation of the Trust assets.
Participants that terminate due to retirement, death or disability will
begin receiving their distributions in the year following the Plan year
in which the termination occurred. Distributions are generally made in
equal installments over a period of five years. Distributions may be
made in cash or, if a participant elects, in the form of Company common
shares.
Each participant is entitled to exercise voting rights attributable to
the shares allocated to his or her account that were acquired with a
Securities Acquisition Loan completed after June 6, 1989 to which
Section 133 of the Internal Revenue Code applied. Each participant is
to be notified by the Plan Trustees prior to the time that such rights
are to be exercised. The Trustees are not permitted to vote any of
these shares for which instructions have not been given by a
participant. Allocated shares acquired prior to June 6, 1989 and
shares acquired through a loan where Section 133 did not apply, shall
be voted by the Trustees in accordance with instructions from the
Plan's Committee, except with respect to any vote required for the
approval or disapproval of any corporate merger or consolidation,
recapitalization, reclassification, liquidation, dissolution, sale of
substantially all assets of a trade or business, or other similar
transaction prescribed by regulations, in which case the participant
will vote the shares (See Note 17). Any unallocated shares held by the
Trust shall be voted by the Trustees in accordance with instructions
from the Committee.
Subsequent to December 31, 1997, the Company signed a merger agreement
with Synetic, Inc. The merger agreement stipulates that prior to the
merger's effective date, the ESOP shall be amended to provide that:
(I) the Trustees shall vote allocated and unallocated shares of the
Company common stock for which no voting instructions are received, in
proportion to the voting instructions received on allocated shares;
(ii) ESOP participants may make the elections described in Section 1.09
and 1.11 of the Plan by instructing the Trustees with respect to their
allocated shares; (iii) all ESOP Participants shall become 100% vested
in their ESOP accounts at the effective date of the merger; and (iv)
the ESOP will be terminated (no earlier than December 31, 1998).
The Company's contributions to the Plan are determined by its Board of
Directors. Vested participants in the Plan hold shares with an
approximate total market value of $17,857,319 at December 31, 1996,
using the latest appraised market value of $26.30 per share.
F-16
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 14. INCOME TAXES
Deferred tax assets as of December 31 consisted of the following:
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Current:
Federal $ 413,930 $ 307,598
State 45,775 30,818
---------- ----------
Total $ 459,705 $ 338,416
========== ==========
Deferred tax liabilities as of December 31 consisted
of the following:
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Noncurrent:
Federal $ 977,905 $ 919,596
State 137,647 131,149
---------- ----------
Total $1,115,552 $1,050,745
========== ==========
Deferred tax liabilities (assets) at December 31, are
comprised of the following:
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Tax over book depreciation and amortization $1,193,826 $1,094,371
Intangible assets amortization (21,631) (10,815)
Accrued expenses (209,204) (119,085)
Inventory (76,944) (58,833)
State taxes (239,157) (190,809)
Other, net 8,957 (2,500)
---------- ----------
$ 655,847 $ 712,329
========== ==========
Income tax expense for the years ended December 31
consisted of the following:
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Current:
Federal $2,595,687 $2,020,804
State 664,316 561,202
---------- ----------
Total Current 3,260,003 2,582,006
---------- ----------
Deferred:
Federal (48,023) 65,277
State (8,459) 13,945
---------- ----------
Total Noncurrent (56,482) 79,222
---------- ----------
Total $3,203,521 $2,661,228
========== ==========
Temporary differences resulted in the following
deferred tax expense (benefit):
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Difference between tax and book
depreciation and amortization $ 88,064 $ 90,035
Accrued expenses (89,162) (18,665)
Franchise tax (48,348) (11,868)
Other, net (7,036) 19,720
---------- ----------
$ (56,482) $ 79,222
========== ==========
</TABLE>
F-17
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 14. INCOME TAXES (CONTINUED)
A reconciliation of the income tax provision, computed by applying the
federal statutory rate to income before taxes, and the actual provision
for income taxes is as follows:
1997 1996
----- -----
Federal statutory rate 34.0% 34.0%
State tax, net of federal benefit 6.0 6.5
Other, net (1.7) (1.1)
---- ----
38.3% 39.4%
==== ====
NOTE 15. CONCENTRATION OF CREDIT RISK/MAJOR CUSTOMER/EXPORT SALES
For the year ended December 31, 1997, one customer comprised 28% of
total sales and 30% of accounts receivable. For the year ended
December 31, 1996, one customer comprised 22% of total sales and 23% of
accounts receivable.
The Company grants credit generally on an unsecured basis. The risk of
loss on any accounts receivable is the balance due at the time of
default. Their customers are located in various geographical areas of
the U.S. and overseas.
The Company has $1,329,043 of cash on deposit with a single financial
institution, excluding outstanding checks at December 31, 1997. One of
the cash accounts is a sweep account which is not federally insured.
This account routinely sweeps the cash from all the other accounts
except for $50,000. Therefore, only $50,000 is insured at any given
time.
Export product sales, which are made principally to Europe and Asia,
were $8,786,112 and $7,669,794 for the years ended December 31, 1997
and 1996, respectively.
NOTE 16. SUBSEQUENT EVENTS
Sale of Company
---------------
On March 6, 1998, the Company agreed to be acquired by Synetic, Inc. in
a merger for $86,000,000. In order to ensure that the merger qualifies
as a tax-free reorganization for federal income taxes, the aggregate
purchase price shall be payable 40% in cash and 60% in shares of
Synetic common stock. The merger agreement stipulates that one year
following the merger's effective date, the ESOP will be terminated.
In the event the merger transaction is consummated, acceleration of the
options granted under the Company's Stock Option Plan to a current
member of the Board of Directors shall occur. The Company will grant
the Board member a bonus for the exercise price of $10 per share for
the 48,999 shares that remain unexercised at December 31, 1997. In
addition, compensation expense of approximately $1,800,000 will be
recognized for the 36,001 shares of stock options which had not been
granted as of December 31, 1997. (See Note 12).
As a result of the merger, the note payable to a former stockholder
becomes callable (See Note 9).
Building Construction
---------------------
The Company is planning on constructing a building on land already
owned. A cost estimate of construction was prepared by architects and
is expected to exceed $2,000,000. Completion of the building is
anticipated in late 1998.
F-18
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 17. NET CHANGE IN OPERATING ASSETS AND LIABILITIES
1997 1996
---------- ----------
(Increase) decrease in operating assets:
Accounts receivable $ (90,336) $ 104,272
Other receivables - current 94,155 (41,991)
Inventory 31,624 (248,610)
Prepaid expenses 1,148 89
Prepaid ESOP 11,997 (11,997)
Prepaid income taxes (126,997) 124,211
Deposits (16,396) 12,411
Increase (decrease) in operating liabilities:
Accounts payable (53,217) 157,415
Accrued salaries and vacation 186,901 (343,335)
Accrued expenses 7,624 (23,487)
Interest payable (146) (2,740)
Pension obligation 3,016 3,546
--------- ---------
$49,373 $(270,216)
========= =========
NOTE 18. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair
value of each class of financial instruments for which it is practicable
to estimate fair value;
Cash and cash equivalents
-------------------------
The carrying amount approximates fair value due to the short maturity of
these instruments.
Annuity investment
------------------
The carrying amount of the annuity investment, based upon rates currently
available, approximates fair value.
Investment in securities
------------------------
The fair value of investment in securities is based upon current market
rates. These quotes are obtained from an independent source and are
approximations.
Investment in partnership
-------------------------
The investment in the partnership is carried at lower of cost or fair
market value. The partnership's fair market value has been determined
using current negotiated sales prices of properties held by the
partnership, less liabilities and selling costs. (See Note 5)
Long term debt
--------------
The fair value of some of the Company's long term debt is based upon
estimated borrowing rates currently available to the Company.
The estimated fair values of the Company's financial instruments are as
follows:
<TABLE>
<CAPTION>
1997 1996
-------------------------- --------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Cash and cash equivalents $ 2,987,664 $ 2,987,664 $ 3,231,202 $ 3,231,202
Annuity investment $ 51,489 $ 51,489 $ 58,473 $ 58,473
Investment in securities $ 8,153,759 $ 8,295,470 $ 7,172,799 $ 7,268,005
Investment in partnership $ 128,874 $ 128,874 $ 128,874 $ 128,874
Long term debt $(7,111,551) $(6,351,500) $(7,142,861) $(6,361,715)
</TABLE>
F-19
<PAGE>
ANNEX I AGREEMENT AND PLAN OF MERGER
<PAGE>
================================================================================
__________________________________
AGREEMENT AND PLAN OF MERGER
__________________________________
among
SYNETIC, INC.,
PLASTICS ACQUISITION CORP.,
POINT PLASTICS, INC.
and
THE SHAREHOLDERS PARTY HERETO
Dated as of March 6, 1998
================================================================================
<PAGE>
TABLE OF CONTENTS
-----------------
Page
----
ARTICLE I
THE MERGER
SECTION 1.01. The Merger............................................. 2
SECTION 1.02. Effective Time of the Merger........................... 2
SECTION 1.03. Certificate of Incorporation........................... 3
SECTION 1.04. By-laws................................................ 3
SECTION 1.05. Directors and Officers................................. 3
SECTION 1.06. Effect of the Merger................................... 3
SECTION 1.07. Aggregate Purchase Price............................... 3
SECTION 1.08. Conversion of Securities............................... 5
SECTION 1.09. Elections.............................................. 6
SECTION 1.10. Fractional Shares...................................... 9
SECTION 1.11. Dissenting Shares...................................... 9
SECTION 1.12. Surrender of Shares; Stock Transfer Books.............. 10
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND
OF THE SHAREHOLDERS CONCERNING THE COMPANY
SECTION 2.01. Organization, Authority and Qualification of the
Company; Subsidiaries; Certificate and By-laws....... 11
SECTION 2.02. Capitalization......................................... 12
SECTION 2.03. No Conflict; Required Filings and Consents............. 13
SECTION 2.04. Compliance with Laws................................... 13
SECTION 2.05. Financial Information; Books and Records............... 14
SECTION 2.06. No Undisclosed Liabilities............................. 14
SECTION 2.07. Absence of Certain Changes, Events and Conditions...... 15
SECTION 2.08. Employee Benefit Plans; Labor Matters; Consultants..... 15
SECTION 2.09. Litigation............................................. 16
SECTION 2.10. Material Contracts..................................... 17
SECTION 2.11. Intellectual Property.................................. 18
SECTION 2.12. Real Property.......................................... 19
SECTION 2.13. Assets................................................. 22
SECTION 2.14. Taxes.................................................. 22
SECTION 2.15. Certain Interests...................................... 23
SECTION 2.16. Environmental and Other Permits and Licenses; Related
Matters.............................................. 23
SECTION 2.17. Customers.............................................. 25
SECTION 2.18. Brokers................................................ 25
SECTION 2.19. Insurance Policies..................................... 25
SECTION 2.20. Receivables............................................ 26
SECTION 2.21. Full Disclosure........................................ 26
<PAGE>
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF
THE INDIVIDUAL SHAREHOLDERS AND THE TRUSTEES
SECTION 3.01. Representations of the Trustees........................ 26
SECTION 3.02. Representations, Warranties and Covenants of the
Individual Shareholders.............................. 28
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
OF THE PARENT AND THE PURCHASER
SECTION 4.01. Corporate Organization and Authority................... 30
SECTION 4.02. No Conflict; Required Filings and Consents............. 30
SECTION 4.03. SEC Filings; Financial Statements...................... 31
SECTION 4.04. Common Stock........................................... 31
SECTION 4.05. Full Disclosure........................................ 32
SECTION 4.06. Funds.................................................. 32
SECTION 4.07. Corporate Structure.................................... 32
SECTION 4.08. Brokers................................................ 32
ARTICLE V
ADDITIONAL AGREEMENTS
SECTION 5.01. Conduct of Business by the Company Pending the Closing. 32
SECTION 5.02. Further Action; Access; Public Announcements........... 34
SECTION 5.03. Registration Statement; Proxy Statement................ 35
SECTION 5.04. Voting; Elections; Exercise of Options................. 37
SECTION 5.05. No Solicitation or Negotiation......................... 38
SECTION 5.06. Cancellation of Agreements............................. 39
SECTION 5.07. Plan of Reorganization................................. 39
SECTION 5.08. Treatment of the ESOP Post-Closing..................... 39
SECTION 5.09. Continuation of Benefits; Service Recognition.......... 40
SECTION 5.10. Affiliate Letters...................................... 40
SECTION 5.11. Financial Statements................................... 40
SECTION 5.12. Disposition of Certain Securities...................... 41
SECTION 5.13. Indemnification of Directors and Officers.............. 41
SECTION 5.14. Tax Representation Letters............................. 43
SECTION 5.15. Tax Opinions........................................... 43
ARTICLE VI
CONDITIONS TO THE CLOSING
SECTION 6.01. Conditions to Obligations of the Parent and the
Purchaser............................................ 43
SECTION 6.02. Conditions to Obligations of the Company and the
Shareholders......................................... 44
ARTICLE VII
ii
<PAGE>
INDEMNIFICATION
SECTION 7.01. Survival of Representations and Warranties............. 46
SECTION 7.02. Indemnification by the Company Shareholders
and the Company....................................... 46
SECTION 7.03. Limitation of Remedies................................. 49
SECTION 7.04. Limits on Indemnification.............................. 49
SECTION 7.05. Shareholder Responsibility............................. 50
ARTICLE VIII
DEFINED TERMS
SECTION 8.01. Certain Defined Terms.................................. 51
ARTICLE IX
TERMINATION, AMENDMENT AND WAIVER; MISCELLANEOUS
SECTION 9.01. Termination............................................ 53
SECTION 9.02. Effect of Termination; Expenses........................ 53
SECTION 9.03. Amendment.............................................. 54
SECTION 9.04. Waiver................................................. 54
SECTION 9.05. Miscellaneous.......................................... 54
iii
<PAGE>
EXHIBITS
EXHIBIT A Ownership of Company Common Stock
EXHIBIT C Form of Undertaking
EXHIBIT 1.07(d) Form of Certificate of the Company's Accountants
EXHIBIT 1.13 Form of Escrow Agreement
EXHIBIT 5.11 Form of Affiliate Letter
EXHIBIT 6.01(d)
(i), (ii) and (iii) Forms of Opinions of Counsel to the Company and the ESOP
EXHIBIT 6.01(h) Form of Employment Agreement
EXHIBIT 6.02(d)
(i) and (ii) Forms of Opinions of Counsel to the Parent and the
Purchaser
SCHEDULES
SCHEDULE 1.07(c) Components of Adjusted 1997 EBIT
iv
<PAGE>
AGREEMENT AND PLAN OF MERGER, dated as of March 6, 1998 (this
"AGREEMENT"), among SYNETIC, INC., a Delaware corporation (the "PARENT"),
PLASTICS ACQUISITION CORP., a Delaware corporation and a direct wholly owned
subsidiary of the Parent (the "PURCHASER"), POINT PLASTICS, INC. a California
corporation (the "COMPANY"), the POINT PLASTICS, INC. EMPLOYEE STOCK OWNERSHIP
PLAN AND TRUST (the "ESOP"), PHILIP E. STOLP, JASON STOLP and PATRICIA PARSONS,
acting solely in their capacity as Trustees under the ESOP (collectively, in
such capacity, the "TRUSTEES") and PHILIP E. STOLP and THOMAS TAGGART (the
"INDIVIDUAL SHAREHOLDERS", and collectively, with the ESOP, the "SHAREHOLDERS";
as used herein such terms shall not include any shareholder of the Company who
is not a party hereto).
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, the Company is engaged in the business of designing,
manufacturing and distributing throughout the United States, Canada, Europe and
Asia disposable plastic products used in the life sciences industry (the
"BUSINESS");
WHEREAS, each Shareholder owns such number of shares of common stock,
without par value, of the Company ("COMPANY COMMON STOCK") as is set forth on
Exhibit A hereto and each participant in the ESOP (collectively, the "ESOP
PARTICIPANTS") has allocated to him or her shares of Company Common Stock;
WHEREAS, as an inducement to the Parent and the Purchaser to enter
into this Agreement, the Individual Shareholders has executed an undertaking in
the form of Exhibit C hereto;
WHEREAS, as an inducement to the Parent and the Purchaser to enter
into this Agreement, each of the Individual Shareholders have executed
employment agreements in the forms of Exhibits D and E hereto, respectively;
WHEREAS, the Company, upon the terms and subject to the conditions of
this Agreement and in accordance with the General Corporation Law of the State
of Delaware (the "DGCL") and the California General Corporation Law (the
"CGCL"), will merge with and into the Purchaser (the "MERGER");
WHEREAS, the Board of Directors of the Company (i) has determined that
the Merger is in the best interests of the Company and its shareholders and
approved and adopted this Agreement and the transactions contemplated hereby and
(ii) has recommended approval and adoption of this Agreement and approval of the
Merger by the shareholders of the Company;
WHEREAS, the Board of Directors of the Parent has determined that the
Merger is in the best interests of the Parent and its stockholders and has
approved and adopted this Agreement and the transactions contemplated hereby;
and
WHEREAS, the parties hereto intend that the transactions contemplated
hereby qualify as a tax-free reorganization under Section 368(a) of the Code (as
defined below);
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements hereinafter set forth, the parties hereto agree as
follows:
<PAGE>
ARTICLE I
THE MERGER
SECTION 1.01. The Merger. Upon the terms and subject to the
conditions set forth in this Agreement, at the Effective Time (as defined
below), the Company shall be merged with and into the Purchaser, and the
Purchaser shall be the surviving corporation in the Merger (in such capacity,
the "SURVIVING CORPORATION") and shall continue its corporate existence under
the laws of Delaware. At the Effective Time, the separate corporate existence
of the Company shall cease.
SECTION 1.02. Effective Time of the Merger. As promptly as
practicable and in no event later than the first Business Day following the
satisfaction or, if permissible, waiver of the conditions set forth in Article
VI (or such other date as may be agreed in writing by each of the parties
hereto), the parties hereto shall cause the Merger to be consummated by filing
Certificates of Merger (the "CERTIFICATES OF MERGER") with the Secretary of
State of the State of Delaware and with the Secretary of State of the State of
California, in such form as is required by, and executed in accordance with, the
relevant respective provisions of the DGCL and the CGCL. The term "EFFECTIVE
TIME" means the later of the date and time of the filing of a Certificate of
Merger with the Secretary of State of the State of Delaware or with the
Secretary of State of the State of California (or such later time as may be
agreed in writing by each of the parties hereto and specified in the
Certificates of Merger). Simultaneously with the filing of the Certificates of
Merger, a closing (the "CLOSING") will be held at the offices of Shearman &
Sterling, 555 California Street, San Francisco, CA (or such other place as the
parties may agree) to confirm the satisfaction or waiver of the conditions set
forth in Article VI and the Purchaser will pay the Applicable Per Share Merger
Consideration (as hereafter defined) in respect of all Certificates (as
hereafter defined) delivered at the Closing in accordance with Section 1.12.
SECTION 1.03. Certificate of Incorporation. At the Effective Time,
the Certificate of Incorporation of the Surviving Corporation shall be the
Certificate of Incorporation of the Purchaser, as in effect immediately prior to
the Effective Time, except that the name of the Surviving Corporation shall be
changed to "Point Plastics, Inc.".
SECTION 1.04. By-laws. At the Effective Time, the By-laws of the
Surviving Corporation shall be the By-Laws of the Purchaser, as in effect
immediately prior to the Effective Time.
SECTION 1.05. Directors and Officers. The directors of the Purchaser
immediately prior to the Effective Time shall be the initial directors of the
Surviving Corporation, each to hold office in accordance with the Certificate of
Incorporation and By-laws of the Surviving Corporation, and the officers of the
Company immediately prior to the Effective Time shall be the initial officers of
the Surviving Corporation, in each case until their respective successors are
duly elected or appointed and qualified.
SECTION 1.06. Effect of the Merger. At and after the Effective Time,
the effect of the Merger shall, in all respects, be as provided by the DGCL and
the CGCL. Without limiting the generality of the foregoing, and subject
thereto, at the Effective Time all the property, rights, privileges and powers
of the Purchaser and the Company shall vest in the Surviving Corporation and all
debts, liabilities and duties of the Purchaser and the Company shall become
debts, liabilities and duties of the Surviving Corporation.
SECTION 1.07. Aggregate Purchase Price. (a) After the 1997
Financial Statements (as hereinafter defined) and the calculation of Adjusted
1997 EBIT (as hereinafter defined) have become final in accordance with Section
1.07(f), the "AGGREGATE PURCHASE PRICE" shall be $86,000,000 subject to
adjustment as follows:
(i) If Adjusted 1997 EBIT is greater than $10,600,000, the Aggregate
Purchase Price shall be equal to the sum of (A) $86,000,000 and (B) the
product of (1) the amount by which Adjusted 1997
2
<PAGE>
EBIT (less stock option compensation expense up to $81,500) exceeds
$10,600,000, multiplied by (2) eight.
(ii) If Adjusted 1997 EBIT is less than $9,639,000, the Aggregate
Purchase Price shall be equal to $86,000,000 reduced by the product of (A)
the amount by which $9,639,000 exceeds Adjusted 1997 EBIT, multiplied by
(B) eight.
(b) "1997 EBIT" means net income of the Company excluding (i) interest
expense, (ii) interest income, (iii) income tax expense, (iv) extraordinary
items, if any, (v) ESOP expense, and (vi) stock option compensation expense up
to $81,500, in each case as set forth in the 1997 Financial Statements.
(c) "ADJUSTED 1997 EBIT" means (i) the sum of (A) 1997 EBIT plus (B)
$788,491, subject to adjustment as provided in Schedule 1.07(c).
(d) In order to determine Adjusted 1997 EBIT, the Company shall use
its best efforts to, as promptly as practicable, but in any event by May 5,
1998, prepare and deliver to the Parent a consolidated balance sheet and related
statements of income, changes in shareholders' equity and cash flows of the
Company and the Subsidiary (as hereinafter defined) as of and for the year ended
December 31, 1997, together with (i) an unqualified audit opinion thereon of
Linkenheimer, LLP (the "COMPANY'S ACCOUNTANTS") stating that the 1997 Financial
Statements fairly present the consolidated financial position of the Company at
December 31, 1997 and the results of its operations and cash flows for the year
then ended in conformity with U.S. generally accepted accounting principles
applied on a basis consistent with the preparation of the 1996 Financial
Statements (as hereinafter defined) ("1997 FINANCIAL STATEMENTS") and (ii) a
certificate, substantially in the form of Exhibit 1.07(d), setting forth the
calculation of Adjusted 1997 EBIT.
(e) In the event that by April 20, 1998, the Company has not received
assurances from the Company's Accountants that the items required pursuant to
Section 1.07(d) can be delivered in the time period provided herein or if at
anytime the Company is notified by the Company's Accountants that such items
cannot be delivered in such time period, the Parent shall be entitled to (and if
it so elects, the Parent shall use its best efforts to) have the Parent's
Accountants (as hereinafter defined) prepare such items as soon as practicable.
(f) The 1997 Financial Statements and the calculation of Adjusted 1997
EBIT shall be deemed final for the purposes of this Section 1.07 upon the
earliest of (i) the failure of the Parent to notify the Company of a dispute
within twenty Business Days of the Company's delivery of the 1997 Financial
Statements to the Parent, (ii) the resolution of all disputes pursuant to
Section 1.07(g) by the Parent's Accountants (as hereinafter defined) and the
Company's Accountants and (iii) the resolution of all disputes pursuant to
Section 1.07(g) by the Independent Accounting Firm (as hereinafter defined).
(g) The Parent may dispute any amount reflected on the 1997 Financial
Statements to the extent such disputed amount affects the calculation of
Adjusted 1997 EBIT; provided, however, that the Parent shall have notified the
Company and the Company's Accountants in writing of each disputed item,
specifying the amount thereof in dispute and setting forth, in reasonable
detail, the basis for such dispute, within twenty Business Days of the Company's
delivery of the 1997 Financial Statements to the Parent. In the event of such a
dispute, the Company's Accountants and Arthur Andersen LLP (the "PARENT'S
ACCOUNTANTS") shall attempt to reconcile their differences, and any resolution
by them as to any disputed amounts shall be final, binding and conclusive on the
parties hereto. If the Company's Accountants and the Parent's Accountants are
unable to reach a resolution with such effect within twenty Business Days after
receipt by the Company and the Company's Accountants of the Parent's written
notice of dispute, the Company's Accountants and the Parent's Accountants shall
submit the items remaining in dispute for resolution to Coopers & Lybrand (or,
if such firm shall decline to act or is not, at the time of such submission,
independent of the Company and the Parent, to another independent accounting
firm of national reputation mutually acceptable to the Parent and the Company)
(either Coopers & Lybrand or such other accounting firm being referred to herein
as the "INDEPENDENT ACCOUNTING FIRM"), which shall, within twenty days after
such submission, determine and report to the Parent and the Company upon such
3
<PAGE>
remaining disputed items, and such report shall be final, binding and conclusive
on the Company and the Parent. The fees and disbursements of the Independent
Accounting Firm shall be allocated between the Company and the Parent in the
same proportion that the aggregate amount of such remaining disputed items so
submitted to the Independent Accounting Firm that is unsuccessfully disputed by
each such party (as finally determined by the Independent Accounting Firm) bears
to the total amount of such remaining disputed items so submitted.
Notwithstanding anything herein to the contrary, in the event that the Parent
elects pursuant to Section 1.07(e) to have the Parent's Accountant's prepare the
items required pursuant to Section 1.07(d), the parties having the rights of
dispute set forth in this Section 1.07(g) shall be reversed.
(h) In acting under this Section 1.07, the Parent's Accountants, the
Company's Accountants and the Independent Accounting Firm shall be entitled to
the privileges and immunities of arbitrators.
SECTION 1.08. Conversion of Securities. (a) At the Effective Time,
by virtue of the Merger and without any action on the part of the Parent, the
Purchaser, the Company, the Shareholders or other holders of outstanding shares
of the Company's capital stock immediately prior to the Effective Time (the
"COMPANY SHAREHOLDERS"):
(i) each outstanding share of Company Common Stock (other than
Dissenting Shares (as hereinafter defined) and treasury shares) shall be
cancelled and converted automatically into the right to receive the
Applicable Per Share Merger Consideration (as hereinafter defined);
(ii) each share of Company Common Stock held in the Company's treasury
as of the Effective Time shall be cancelled and retired and all rights in
respect thereof shall cease to exist, without any conversion thereof or
payment of any consideration therefor.
(b) From and after the Effective Time, each share of Company Common
Stock to be converted into the right to receive the Applicable Per Share Merger
Consideration pursuant to this Section 1.08 shall cease to be outstanding, shall
be cancelled and retired and shall cease to exist, and the holders of
certificates representing such shares shall cease to have any rights with
respect to such shares, except the right to receive the Applicable Per Share
Merger Consideration (such Applicable Per Share Merger Consideration to be
payable (except as provided in Section 1.13 hereof) to the holder of each such
share of Company Common Stock, upon surrender, in the manner provided in Section
1.12, of the certificate that formerly evidenced such share of Company Common
Stock).
(c) As used in this Agreement, the following terms have the following
meanings:
(i) "APPLICABLE PER SHARE MERGER CONSIDERATION" shall mean the Per
Share Cash Consideration or the Per Share Stock Consideration, or, in the
case of any Non-Election Share, if applicable, the amounts set forth in
Section 1.09(e).
(ii) "AVERAGE PARENT SHARE PRICE" means $46.51, as adjusted for any
stock splits, recapitalizations and the like.
(iii) "OUTSTANDING SHARE AMOUNT" means the number of shares of
Company Common Stock outstanding immediately prior to the Effective Time
(including Dissenting Shares but excluding shares of the Company Common
Stock to be cancelled pursuant to Section 1.08(a)(ii)).
(iv) "PER SHARE CASH CONSIDERATION" means an amount in cash equal to
the Per Share Purchase Price.
(v) "PER SHARE PURCHASE PRICE" means the Aggregate Purchase Price (as
defined in Section 1.07(a)) divided by the Outstanding Share Amount.
4
<PAGE>
(vi) "PER SHARE STOCK CONSIDERATION" means a number of shares of
common stock, par value $0.01 per share, of the Parent ("PARENT COMMON
STOCK") equal to the Per Share Purchase Price divided by the Average Parent
Share Price, rounded to the nearest one one-thousandth of a share.
SECTION 1.09. Elections. (a) Subject to the election and allocation
procedures set forth in this Section 1.09 each holder of Company Common Stock
will be entitled, with respect to the Applicable Per Share Merger Consideration
to be received for each share of Company Common Stock held by such holder, to
(i) elect to receive the Per Share Stock Consideration (a "STOCK ELECTION"), or
(ii) elect to receive the Per Share Cash Consideration (a "CASH ELECTION"), or
(iii) indicate that such holder has no preference as to the receipt of the Per
Share Stock Consideration or the Per Share Cash Consideration (a "NON-
ELECTION").
(b) Limitations on Elections. The number of shares of Company Common
Stock to be converted into the right to receive the Per Share Cash Consideration
in the Merger shall be equal to 40% of the number of shares of Company Common
Stock outstanding immediately prior to the Effective Time, including the
aggregate number of shares of Company Common Stock which have the right to file
a notice of dissent pursuant to Chapter 13 of the CGCL as of the Closing (the
"CASH ELECTION NUMBER"). The number of shares of Company Common Stock to be
converted into the right to receive the Per Share Stock Consideration in the
Merger (the "STOCK ELECTION NUMBER") shall be equal to 60% of the number of
shares of Company Common Stock outstanding immediately prior to the Effective
Time.
(c) Cash Election Adjustments. If the aggregate number of shares of
Company Common Stock covered by Cash Election (the "CASH ELECTION SHARES")
exceeds the Cash Election Number, all shares of Company Common Stock covered by
Stock Elections (the "STOCK ELECTION SHARES") and all shares of Company Common
Stock covered by Non-Elections (the "NON-ELECTION SHARES") shall be converted
into the right to receive the Per Share Stock Consideration, and the Cash
Election Shares shall be converted into the right to receive Parent Common Stock
and cash in the following manner:
each Cash Election Share shall be converted into the right to receive (i)
an amount in cash, without interest, equal to the product of (x) the Per
Share Cash Consideration and (y) a fraction (the "CASH FRACTION"), the
numerator of which shall be the Cash Election Number and the denominator of
which shall be the total number of Cash Election Shares, and (ii) a number
of shares of Parent Common Stock equal to the product of (x) the Per Share
Stock Consideration and (y) a fraction equal to one minus the Cash
Fraction.
(d) Stock Election Adjustments. If the aggregate number of Stock
Election Shares exceeds the Stock Election Number, all Cash Election Shares and
all Non-Election Shares shall be converted into the right to receive the Per
Share Cash Consideration, and the Stock Election Shares shall be converted into
the right to receive Parent Common Stock and cash in the following manner:
each Stock Election Share shall be converted into the right to receive (i)
a number of shares of Parent Common Stock equal to the product of (x) the
Per Share Stock Consideration and (y) a fraction (the "STOCK FRACTION"),
the numerator of which shall be the Stock Election Number and the
denominator of which shall be the total number of Stock Election Shares,
and (ii) an amount in cash, without interest, equal to the product of (x)
the Per Share Cash Consideration and (y) a fraction equal to one minus the
Stock Fraction.
(e) Non-Election Adjustments. In the event that neither Section
1.09(c) nor 1.09(d) above is applicable, all Cash Election Shares shall be
converted into the right to receive the Per Share Cash Consideration, all Stock
Election Shares shall be converted into the right to receive the Per Share Stock
Consideration, and the Non-Election Shares, if any, shall be converted into the
right to receive shares of Parent Common Stock and cash in the following manner:
5
<PAGE>
each Non-Election Share shall be converted into the right to receive an
amount in cash, without interest, equal to 40% of the Per Share Cash
Consideration and 60% of the Per Share Stock Consideration.
(f) Exercise of Election. All Cash Elections, Stock Elections and
Non-Elections shall be made on a form designed for that purpose and reasonably
acceptable to the Company and the Parent (a "FORM OF ELECTION") and mailed to
holders of record of shares of Company Common Stock as of the record date for
the Shareholders' Meeting or such other date as the Parent and the Company shall
mutually agree (the "ELECTION FORM RECORD DATE"). The Parent and the Company
shall make available one or more Election Forms as may be reasonably requested
by all persons who become holders (or beneficial owners) of Company Common Stock
between the Election Form Record Date and the close of business on the day prior
to the Election Deadline (as hereinafter defined). Elections shall be made by
submitting to the Company a Form of Election. To be effective, a Form of
Election must be properly completed, signed and submitted to the Company in
accordance with Section 1.09(g) and accompanied by the Certificates evidencing
shares of Company Common Stock (the "CERTIFICATES") as to which the election is
being made. The Parent, in consultation with the Company, will have the
discretion to reasonably determine whether Forms of Election have been properly
completed, signed and submitted or revoked. The Parent will disregard immaterial
defects in Forms of Election. The Parent, in consultation with the Company,
shall also make all computations contemplated by this Section 1.09.
(g) Election Deadline. A Form of Election must be received by the
Company by the close of business on the fifth business day prior to the date on
which the Effective Time shall occur (such time hereinafter referred to as the
"ELECTION DEADLINE") in order to be effective. Any holder of Company Common
Stock who has made an election by submitting a Form of Election to the Company
may at any time prior to the Election Deadline change such holder's election by
submitting a revised Form of Election, properly completed and signed that is
received by the Company prior to the Election Deadline. Any holder of Company
Common Stock may at any time prior to the Election Deadline revoke his election
and withdraw his Certificates deposited with the Company by written notice to
the Company received prior to the Election Deadline. As soon as practicable
after the Election Deadline, but in any event within three business days
thereof, the Parent, in consultation with the Company, shall determine the
allocation of the cash portion of the Merger Consideration and the stock portion
of the Merger Consideration and shall notify the Company in writing of its
determination.
(h) Deemed Non-Election. For the purposes hereof, a holder of Company
Common Stock who does not submit a Form of Election which is received by the
Company by the Election Deadline shall be deemed to have made a Non-Election.
If the Parent, in consultation with the Company, shall determine that any
purported Cash Election or Stock Election was not properly made, such purported
Cash Election or Stock Election shall be deemed to be of no force and effect and
the shareholder making such purported Cash Election or Stock Election shall, for
purposes hereof, be deemed to have made a Non-Election.
SECTION 1.10. Fractional Shares. The Parent will not issue any
fractional shares of Parent Common Stock pursuant to Section 1.08 hereof. Each
holder of a fractional share interest shall be paid an amount in cash equal to
the product of (a) such fractional share interest to which such holder (after
taking into account all fractional share interests then held by such holder)
would otherwise be entitled and (b) the Average Parent Share Price.
SECTION 1.11. Dissenting Shares. (a) Notwithstanding any provision
of this Agreement to the contrary, shares of Company Common Stock that are
outstanding immediately prior to the Effective Time and which are held by
Company Shareholders who shall have not voted in favor of the Merger and who
shall have demanded properly in writing payment of the fair market value of such
shares of Company Common Stock in accordance with Chapter 13 of the CGCL
(collectively, the "DISSENTING SHARES") shall not be converted into or represent
the right to receive the Applicable Per Share Merger Consideration. Such
Shareholders shall be entitled to receive payment of the fair market value of
such shares of Company Common Stock held by them in accordance with the
provisions of such Chapter 13, except that all Dissenting Shares held by
Shareholders who shall have failed to perfect or who effectively shall have
withdrawn or lost their rights to appraisal of such shares under such Chapter 13
shall thereupon be deemed to have been converted into and to have become
exchangeable
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for the right to receive the Applicable Per Share Merger Consideration, without
any interest thereon, upon surrender, in the manner provided in Section 1.12, of
the certificate or certificates that formerly evidenced such shares of Company
Common Stock.
(b) The Company shall give the Parent (i) prompt notice of any demands
for appraisal received by the Company, withdrawals of such demands, and any
other instruments served pursuant to the CGCL and received by the Company and
(ii) the opportunity to direct all negotiations and proceedings with respect to
demands for payment of fair market value under the CGCL. The Company shall not,
except with the prior written consent of the Parent, make any payment with
respect to any such demands or offer to settle or settle any such demands.
SECTION 1.12. Surrender of Shares; Stock Transfer Books. (a) At the
Closing, the Company shall surrender to the Purchaser all Certificates delivered
to it with Forms of Election (with any stock transfer tax stamps required by
reason of the payment of the Applicable Per Share Merger Consideration to a
person other than the registered holder of the certificate surrendered),
together with such other customary documents as may reasonably be required by
the Purchaser, in exchange for (A) certificates evidencing that number of whole
shares of Parent Common Stock which such holder has the right to receive in
respect of the shares of Company Common Stock formerly evidenced by such
Certificate in accordance with Section 1.08(a), (B) cash to which such holder is
entitled to receive in accordance with Section 1.08(a) and (C) cash in lieu of
fractional shares of Parent Common Stock to which such holder is entitled
pursuant to Section 1.10. Immediately following the Effective Time all
Certificates surrendered to the Purchaser shall be cancelled. Any Company
Shareholder whose Certificates are not delivered at the Closing shall receive
the Applicable Per Share Merger Consideration with respect to such Certificates
upon delivery after the Closing of such Certificates and the other items
required pursuant to the first sentence of this Section 1.12(a). No interest
shall accrue or be paid on the Applicable Per Share Merger Consideration payable
upon the surrender of any Certificate for the benefit of the holder of such
Certificate.
(b) At the Effective Time, the stock transfer books of the Company
shall be closed and thereafter there shall be no further registration of
transfers of shares of Company Common Stock on the records of the Company. From
and after the Effective Time, the holders of shares of Company Common Stock
outstanding immediately prior to the Effective Time shall cease to have any
rights with respect to such shares of Company Common Stock except as otherwise
provided herein or by applicable law.
(c) Each of the Surviving Corporation and the Parent shall be entitled
to deduct and withhold from the consideration otherwise payable pursuant to this
Agreement to any holder of shares of Company Common Stock such amounts, if any,
as it is required to deduct and withhold with respect to the making of such
payment under the Code, or any provision of state, local or foreign tax law. To
the extent that amounts are so withheld by the Surviving Corporation or the
Parent, as the case may be, such withheld amounts shall be treated for all
purposes of this Agreement as having been paid to the holder of the shares of
Company Common Stock in respect of which such deduction and withholding was made
by the Surviving Corporation or the Parent, as the case may be.
SECTION 1.13. Escrow Agreement. Prior to or simultaneously with the
Closing, the ESOP and the Parent shall enter into an escrow agreement (the
"ESCROW AGREEMENT") with an escrow agent selected by the Parent and reasonably
acceptable to the ESOP (the "ESCROW AGENT") substantially in the form of Exhibit
1.13 hereto, but with any changes to Section 9 thereof reasonably requested by
the Escrow Agent. Pursuant to the terms of the Escrow Agreement at the Closing,
the Parent shall deposit cash and shares of Parent Common Stock (in the same
ratio as the ESOP receives cash and Parent Common Stock pursuant to Section 1.09
hereof or, if counsel to the Parent and the Company shall have determined that
any such change in such ratio does not adversely affect the status of the Merger
as a tax free reorganization under Section 368(a) of the Code, in a ratio of 40%
cash and 60% Parent Common Stock) equal to, in the aggregate 25% of the
consideration otherwise payable to the ESOP pursuant to Section 1.08 hereof
("ESCROW AMOUNT") into an escrow account, which account is to be managed by the
Escrow Agent (the "ESCROW ACCOUNT"). Distributions of any funds from the Escrow
Account shall be governed by the terms and conditions of the Escrow Agreement.
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ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND
OF THE SHAREHOLDERS CONCERNING THE COMPANY
Each of the Individual Shareholders, severally, and not jointly, and
the Company represent and warrant to the Parent and the Purchaser that, except
as set forth in the disclosure schedule dated as of the date hereof delivered to
the Parent and the Purchaser by the Company and the Individual Shareholders (the
"DISCLOSURE SCHEDULE"):
SECTION 2.01. Organization, Authority and Qualification of the
Company; Subsidiaries; Certificate and By-laws. (a) Each of the Company and
Out Patient Services, Inc., a California corporation (the "SUBSIDIARY") is a
corporation duly organized, validly existing and in good standing under the laws
of California, and has all requisite corporate power and authority to own, lease
and operate its properties and to carry on the Business as presently conducted.
The Company has all necessary corporate power and authority to execute and
deliver this Agreement and to perform its obligations and to consummate the
transactions contemplated hereunder. The execution and delivery of this
Agreement by the Company, the performance by the Company of its obligations
hereunder and the consummation by the Company of the transactions contemplated
hereby have been duly and validly authorized by all necessary corporate action
on the part of the Company, and no other corporate proceedings on the part of
the Company are necessary to authorize this Agreement or the consummation of the
transactions contemplated hereby. This Agreement has been duly and validly
executed and delivered by the Company, and (assuming due authorization,
execution and delivery by the Parent and the Purchaser) this Agreement
constitutes a legal, valid and binding obligation of the Company, enforceable
against the Company in accordance with its terms (except in each such case as
enforceability may be limited by bankruptcy, insolvency, reorganization and
other similar laws now or hereafter in effect relating to or affecting
creditors' rights generally). Each of the Company and the Subsidiary is duly
qualified or licensed as a foreign corporation to do business, and is in good
standing, in each jurisdiction where the character of the properties owned,
leased or operated by it or the nature of its activities makes such
qualification or licensing necessary, except those jurisdictions, if any, in
which the failure to be so duly qualified or licensed and in good standing would
not, individually or in the aggregate, have a Material Adverse Effect. The
Company and the Shareholders have delivered to the Parent true, complete and
correct copies of each of the Articles of Incorporation, the By-laws and the
minutes of each meeting of the board of directors and shareholders of the
Company and the Subsidiary.
(b) The Company owns 7,475 shares of capital stock, par value $ 1.00
per share of the Subsidiary, constituting 93.4% of the issued and outstanding
shares of capital stock of the Subsidiary. The other 529 shares of such capital
stock of the Subsidiary are owned of record by Jacqueline Maxwell. Other than
the Subsidiary and San Joaquin Valley Associates ("SJVA"), there are no
corporations, partnerships, joint ventures, associations or other entities in
which the Company or the Subsidiary owns, of record or beneficially, any direct
or indirect equity or other interest or any right (contingent or otherwise) to
acquire the same. Other than SJVA, neither the Company nor the Subsidiary is a
member of (nor is any part of the Business conducted through) any partnership.
Neither the Company nor the Subsidiary is a participant in any joint venture or
similar arrangement.
(c) The Company is a limited partner in SJVA and holds two (2) limited
partnership units. The Company has not guaranteed and is not otherwise
responsible for any liabilities of SJVA or its general or limited partners.
SECTION 2.02. Capitalization. (a) The authorized capital stock of
the Company consists of 10,000,000 shares of Company Common Stock, of which (i)
1,401,288 shares are issued and outstanding, (ii) 48,999 shares are reserved for
issuance pursuant to outstanding options held by Mr. Thomas Taggart ("COMPANY
OPTIONS") issued pursuant to the Company's Stock Option Plan (the "COMPANY STOCK
PLAN"), and (iii) 50,000 shares are reserved for issuance upon the granting of
options pursuant to the Company Stock Plan of which only the Company Options are
issued and outstanding. All outstanding shares of Company Common Stock are
fully paid and nonassessable.
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(b) Except for the Company Options, there are no options, warrants or
other rights, agreements, arrangements or commitments of any character to which
the Company or the Subsidiary is a party or obligating the Company or the
Subsidiary to issue or sell any shares of capital stock of, or other equity
interests in, the Company or the Subsidiary. Except for the Company Options, no
other awards have been made pursuant to the Company Stock Plan. There are no
outstanding contractual obligations of the Company or the Subsidiary to
repurchase, redeem or otherwise acquire any of the capital stock of the Company
or the Subsidiary or to provide funds to or make any investment (in the form of
a loan, capital contribution or otherwise) in any other entity, including SJVA.
Neither the Company nor the Subsidiary is a party to any agreement granting
registration rights to any person with respect to any securities of the Company
or the Subsidiary.
SECTION 2.03. No Conflict; Required Filings and Consents. (a) The
execution and delivery of this Agreement by the Company and the Shareholders do
not, and the performance of this Agreement by the Company and the Shareholders
will not, (i) conflict with or violate the Articles of Incorporation or by-laws
of the Company or the Subsidiary or the organizational documents of any
Shareholder, as applicable, (ii) conflict with or violate any law, rule,
regulation, order, judgment or decree applicable to the Company, the Subsidiary
or the Shareholders or by which their respective assets or properties are bound
or affected, or (iii) result in any breach of or constitute a default (or an
event which with notice or lapse of time or both would become a default) under,
or give to others any rights of termination, amendment, acceleration or
cancellation of, or result in the creation of a lien or encumbrance on any of
the properties or assets of the Company, the Subsidiary or the Shareholders,
respectively, pursuant to, or result in a change in any of the terms of any
note, bond, mortgage, indenture, contract, agreement, lease, license, permit,
insurance policy or other instrument or obligation to which the Company, the
Subsidiary or any Shareholder is a party, or by which the Company, the
Subsidiary or any Shareholder or any of their respective properties are bound or
affected, except in the case of clause (iii) above for such conflicts which
would not, individually or in the aggregate, have a Material Adverse Effect or
prevent or delay the consummation of the transactions contemplated by this
Agreement.
(b) The execution and delivery of this Agreement by the Company and
the Shareholders do not, and the performance of this Agreement by the Company
and the Shareholders will not, require any consent, approval, authorization or
permit of, or filing with or notification to, any governmental or regulatory
authority, domestic or foreign, on the part of the Company, the Subsidiary or
any Shareholder, except for pre-merger notification requirements of the Hart-
Scott-Rodino Antitrust Improvements Act of 1976, as amended and the rules and
regulations thereunder (the "HSR ACT") and the filing of a certificate of merger
with the Secretary of State of the State of California and the filing of a
certificate of merger with the Secretary of State of the State of Delaware.
SECTION 2.04. Compliance with Laws. Neither the Company nor the
Subsidiary is in conflict with, or violation of, any federal, state, local or
foreign statute, law, rule, regulation, order, ordinance, judgment or decree
("LAW") applicable to the Company or the Subsidiary or by which the Company, the
Subsidiary or any of their respective properties are bound or affected, except
for any such conflicts or violations which would not, individually or in the
aggregate, have a Material Adverse Effect.
SECTION 2.05. Financial Information; Books and Records. (a) True
and complete copies of (i) the unaudited consolidated balance sheet of the
Company and the Subsidiary as of December 31, 1996, and the related unaudited
statements of income, changes in shareholders' equity and cash flows for the
year ended December 31, 1996, together with all related notes and schedules
thereto (collectively referred to herein as the "1996 FINANCIAL STATEMENTS"),
and (ii) the unaudited consolidated balance sheet of the Company and the
Subsidiary as of September 30, 1997, and the related statements of income and
cash flows for the nine months ended September 30, 1997 of the Company and the
Subsidiary, (collectively referred to herein as the "INTERIM FINANCIAL
STATEMENTS") are attached as Section 2.05 of the Disclosure Schedule. The 1996
Financial Statements and the Interim Financial Statements (i) were prepared in
accordance with the books of account and other financial records of the Company,
(ii) present fairly the consolidated financial condition and results of
operations of the Company as of the dates thereof or for the periods covered
thereby, (iii) except in the case of the Interim Financial Statements, have been
prepared in accordance with U.S. generally accepted accounting principles
applied on a basis consistent with the past practices of the Company and (iv)
include all adjustments (consisting
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only of normal recurring accruals) that are necessary for a fair presentation of
the financial condition of the Company and the results of the operations of the
Company as of the dates thereof or for the periods covered thereby; provided,
however, that the Interim Financial Statements do not include all footnotes
required by U.S. generally accepted accounting principles and were or are
subject to normal and recurring year-end adjustments which were not and are not
anticipated to be material in amount.
(b) The books of account and other financial records of the Company:
(i) reflect all items of income and expense and all assets and liabilities
required to be reflected therein in accordance with U.S. generally accepted
accounting principles applied on a basis consistent with the past practices of
the Company, (ii) are in all material respects complete and correct, and do not
contain or reflect any material inaccuracies or discrepancies and (iii) have
been maintained in accordance with good business and accounting practices.
SECTION 2.06. No Undisclosed Liabilities. There are no debts,
liabilities or obligations, whether accrued or fixed, absolute or contingent,
matured or unmatured or determined or determinable ("LIABILITIES") of the
Company and the Subsidiary, other than Liabilities (a) reflected or reserved
against on the Interim Financial Statement, and (b) in an aggregate amount not
exceeding $100,000 incurred since September 30, 1997 in the ordinary course of
the business, consistent with the past practice, of the Company. Reserves are
reflected on the Interim Financial Statement and on the books of account and
other financial records of the Company against all Liabilities of the Company
and the Subsidiary in amounts that have been established on a basis consistent
with the past practices of the Company and in accordance with GAAP. Except as
set forth in Section 2.06 of the Disclosure Schedule, there are no outstanding
warranty claims against the Company or the Subsidiary.
SECTION 2.07. Absence of Certain Changes, Events and Conditions.
Since December 31, 1996, there have not been any changes, occurrences, or
circumstances with respect to the Company or the Subsidiary which individually
or in aggregate had or have a Material Adverse Effect. Since December 31, 1996,
the Company and the Subsidiary have operated their business only in the ordinary
course, consistent with past practice, except for the transactions contemplated
by this Agreement. Since September 30, 1997, the Company has not taken any
action referred to in Section 5.01(b).
SECTION 2.08. Employee Benefit Plans; Labor Matters; Consultants.
(a) Section 2.08 of the Disclosure Schedule lists each benefit plan, program,
arrangement and contract (including, without limitation, any "EMPLOYEE BENEFIT
PLAN", as defined in Section 3(3) of the Employee Retirement Income Security Act
of 1974, as amended ("ERISA")), maintained or contributed to by the Company or
the Subsidiary for or with respect to any of its current or former employees,
officers, directors or independent contractors, or with respect to which the
Company could incur liability under Section 4069, 4201 or 4212(c) of ERISA (the
"COMPANY BENEFIT PLANS").
(b) The ESOP has been duly authorized and established; and the Trust
Agreement between the Company and the Trustees originally effective as of
January 1, 1986, and amended and restated to be effective as of January 1, 1989
as amended from time to time (the "TRUST AGREEMENT") has been duly authorized,
by all necessary corporate action on the part of the Company; the ESOP
constitutes in all material respects an employee stock ownership plan within the
meaning of Section 4975(e)(7) of the Internal Revenue Code of 1986, as amended
(together with the rules and regulations promulgated thereunder the "CODE"),
Treasury Regulation Section 54.4975-11; and Section 407(d)(6) of ERISA; and the
execution, delivery and performance of this Agreement and the consummation of
the transactions contemplated by the parties hereto (including, without
limitation, the conversion of securities contemplated by Section 1.08 of this
Agreement) will not constitute a violation of, or give rise to any liability
under, Title I of ERISA or Section 4975 of the Code.
(c) None of the Company Benefit Plans promises or provides retiree
medical or retiree life insurance benefits to any person. Each Company Benefit
Plan intended to be qualified under Section 401(a) of the Code has received a
favorable determination letter from the Internal Revenue Service to the effect
that it is so qualified and nothing has occurred since the date of such letter
to affect the qualified status of such plan. None of the Company Benefit Plans
in effect on the date hereof would result, separately or in the aggregate
(including,
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without limitation, as a result of this Agreement or the transactions
contemplated hereby), in the payment of any "EXCESS PARACHUTE PAYMENT" within
the meaning of Section 280G of the Code. Except as set forth in Section 2.08(c)
of the Disclosure Schedule, each Company Benefit Plan has been operated in all
material respects in accordance with its terms and the requirements of
applicable law. None of the Company Benefit Plans is subject to Title IV of
ERISA, and the Company has not incurred, and does not reasonably expect to
incur, any direct or indirect liability under or by operation of Title IV or
ERISA.
(d) Except as set forth in Section 2.08(c) of the Disclosure Schedule,
with respect to the Company Benefit Plans, no event has occurred and, to the
knowledge of the Company, there exists no condition or set of circumstances, in
connection with which the Company could be subject to any material liability,
individually or in the aggregate, under the terms of such Company Benefit Plans,
ERISA, the Code or any other applicable law other than the payment of benefits
under the terms of the Company Benefit Plans in the ordinary course.
(e) Neither the Company nor the Subsidiary is a party to any
collective bargaining or other labor union contracts. There is no pending or,
to the knowledge of the Company, threatened labor dispute, strike or work
stoppage against the Company or the Subsidiary which may interfere with the
business activities of the Company or the Subsidiary. Neither the Company, the
Subsidiary nor, to the knowledge of the Company, any of their representatives or
employees, has committed any unfair labor practices in connection with the
operation of the businesses of the Company or the Subsidiary, and there is no
pending or, to the knowledge of the Company or the Subsidiary, threatened charge
or complaint against the Company or the Subsidiary by the National Labor
Relations Board or any comparable state agency. The Company's and the
Subsidiary's relations with its employees are good.
(f) Set forth in Section 2.08(e) of the Disclosure Schedule is a list
of all employment agreements between the Company or the Subsidiary and any of
its employees, copies of which have been delivered by the Company to the Parent.
(g) Set forth in Section 2.08(f) of the Disclosure Schedule is a list
of all consultants engaged by the Company or the Subsidiary, and the Company has
delivered to the Parent a copy of each agreement between the Company or the
Subsidiary and any such consultant.
SECTION 2.09. Litigation. There is no pending or, to the knowledge
of the Company or the Shareholders, threatened litigation, arbitration or
governmental investigation or legal, administrative or regulatory proceeding
against the Company or the Subsidiary or to which any of their respective
properties is or would be subject. As of the date hereof, neither the Company
nor the Subsidiary nor any property or asset of the Company or the Subsidiary is
subject to any order, writ, judgment, injunction, decree, determination or award
having, individually or in the aggregate, a Material Adverse Effect.
SECTION 2.10. Material Contracts. (a) Section 2.10(a) of the
Disclosure Schedule lists each of the following written contracts and agreements
of the Company or the Subsidiary (such contracts and agreements being "MATERIAL
CONTRACTS"):
(i) each contract and agreement for the purchase or lease of personal
property having a value or consideration of $25,000 or more with any
supplier or for the furnishing of services to the Company or the Subsidiary
or otherwise related to the Business;
(ii) each customer contract and agreement and other contract and
agreement for the sale or lease of personal property or for the furnishing
of services by the Company or the Subsidiary, and any outstanding proposals
to customers or prospective customers of the Company or the Subsidiary;
(iii) all broker, exclusive dealing or exclusivity, distributor,
dealer, manufacturer's representative, franchise, agency, sales promotion,
market research, marketing consulting and advertising
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contracts and agreements to which the Company or the Subsidiary is a party
or any other contract that compensates any person based on any sales by the
Company;
(iv) all leases and subleases of real property;
(v) all contracts and agreements relating to indebtedness other than
trade indebtedness of the Company or the Subsidiary;
(vi) all contracts and agreements with any governmental authority to
which the Company or the Subsidiary is a party;
(vii) all contracts and agreements that limit or purport to limit the
ability of the Company or the Subsidiary to compete in any line of business
or with any person or in any geographic area or during any period of time;
(viii) all contracts and agreements between or among the Company or
the Subsidiary and any Shareholder or any affiliate of any Shareholder;
(ix) any other material agreement of the Company or the Subsidiary
which is terminable upon or prohibits a change of ownership or control of
the Company; and
(x) all other contracts and agreements whether or not made in the
ordinary course of business, which are material to the Company or the
conduct of the Business or the absence of which would have a Material
Adverse Effect.
(b) Each Material Contract: (i) is valid and binding on the Company
and, to the knowledge of the Company and the Shareholders, on the other parties
thereto, and is in full force and effect and (ii) upon consummation of the
transactions contemplated by this Agreement, shall continue in full force and
effect without penalty or other adverse consequence. Neither the Company nor
the Subsidiary is in material breach of, or material default under, any Material
Contract and, to the knowledge of the Company, no other party to any Material
Contract is in material breach thereof or material default thereunder.
(c) Neither the Company nor the Subsidiary is a party to any material
oral contract or, to the knowledge of the Company and the Shareholders, any
other oral contract.
SECTION 2.11. Intellectual Property. (a) The Company or the
Subsidiary is the exclusive owner of all right, title and interest or has the
legal right to use all Intellectual Property (as hereinafter defined) as is used
or held for use in the Business.
(b) Section 2.11(b) of the Disclosure Schedule sets forth a true and
complete list and a brief description of (i) all of the Company's and the
Subsidiary registered and applied for copyrights, trademarks and patents and all
material licenses pertaining thereto and indicates where and when such
Intellectual Property has been registered or filed with the United States Patent
and Trademark Office or the United States Copyright Office, or the corresponding
office of any other jurisdictions, (ii) all of the Intellectual Property (other
than commercially available shrink-wrap software) licensed or sublicensed to the
Company or the Subsidiary from any third party, and (iii) all other Intellectual
Property material to the Company or the Subsidiary that are not apparent from an
inspection of the Company's manufacturing facilities or contained in files,
manuals and databases located at the Company's facilities. The conduct of the
Business does not conflict with or infringe upon, and, to the knowledge of the
Company or the Shareholders, no one has asserted to the Company or the
Shareholders that the conduct of the Business conflicts with or infringes upon,
any Intellectual Property owned, possessed, used or claimed by any third party.
Except as set forth in Section 2.11(b) of the Disclosure Schedule, neither the
Company nor the Subsidiary has granted any outstanding licenses or other rights,
or obligated itself to grant licenses or other rights in or to any of the
Intellectual Property owned, used or licensed to it. The consummation of the
transactions
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contemplated by this Agreement will not result in the termination or impairment
of any of the Intellectual Property set forth in Schedule 2.11(b) of the
Disclosure Schedule.
(c) The Intellectual Property described in Section 2.11(b) of the
Disclosure Schedule and the Intellectual Property apparent from an inspection of
the Company's manufacturing facilities or contained in files, manuals and
databases located at the Company's facilities, collectively constitute all the
Intellectual Property necessary to conduct the Business in all material respects
as currently conducted and there are no other items of Intellectual Property
that are material to the Company or the Business.
(d) Neither the Company nor the Subsidiary are in material breach of
any of the agreements relating to Intellectual Property licensed or sublicensed
to the Company or the Subsidiary, and the transactions contemplated by this
Agreement will not constitute such a breach or otherwise impair, in any material
respect, the rights of the Company or the Subsidiary under such license
agreements. For purposes of this clause (d), joint ownership of Intellectual
Property between the Company and the Subsidiary, on the one hand, and any other
person, on the other hand, shall be deemed to be a license from such person to
the Company and the Subsidiary.
(e) To the knowledge of the Shareholders and the Company, the
Intellectual Property set forth in Section 2.11(b) of the Disclosure Schedule is
valid and enforceable, and has not been adjudged invalid or unenforceable in
whole or part. No claims are pending against the Company, the Subsidiary or the
Shareholders or, to the knowledge of the Shareholders and the Company,
threatened by any person with respect to the ownership, validity or
enforceability of any Intellectual Property described in Section 2.11(b) of the
Disclosure Schedule. No person is engaging in any activity that infringes upon
the Intellectual Property set forth in Section 2.11(b) of the Disclosure
Schedule.
SECTION 2.12. Real Property. (a) Section 2.12(a) of the Disclosure
Schedule lists: (i) the street address of each parcel of real property owned by
the Company or the Subsidiary ("OWNED REAL PROPERTY"), (ii) the date on which
each parcel of Owned Real Property was acquired, (iii) the current owner of each
such parcel of Owned Real Property, (iv) the place and date of recordation of
the deed pursuant to which each such parcel of Owned Real Property was acquired
(and any recordation or index number) and (v) the current use of each such
parcel of Owned Real Property.
(b) Section 2.12(b) of the Disclosure Schedule lists: (i) the street
address of each parcel of real property leased by the Company or the Subsidiary
("LEASED REAL PROPERTY" and, together with or Owned Real Property, the "REAL
PROPERTY"), (ii) the identity of the lessor, lessee and current occupant (if
different from lessee) of each such parcel of Leased Real Property, (iii) the
term (referencing applicable renewal periods) and rental payment terms of the
leases (and any subleases) pertaining to each such parcel of Leased Real
Property and (iv) the current use of each such parcel of Leased Real Property.
(c) Except as described in Section 2.12(c) of the Disclosure Schedule,
there is no violation by the Company or the Subsidiary of any Law (including,
without limitation, any building, planning or zoning law) relating to any of the
Real Property except violations which would not have a Material Adverse Effect.
The Company has made available to the Purchaser true and complete copies of each
deed for each parcel of Owned Real Property and, to the extent available, for
each parcel of Leased Real Property and all the title insurance policies, title
reports, surveys, certificates of occupancy, environmental reports and audits,
appraisals, Permits, other title documents and other documents relating to or
otherwise affecting the Real Property, the operations of the Company thereon or
any other uses thereof. Except as described in Section 2.12(c) of the
Disclosure Schedule, the Company is in peaceful and undisturbed possession of
each parcel of Real Property and there are no contractual restrictions in any
agreement to which the Company or the Subsidiary is a party that preclude or
restrict the ability to use the premises for the purposes for which they are
currently being used. To the knowledge of the Company and the Shareholders, all
existing water, sewer, steam, gas, electricity, telephone and other utilities
used by the Company or the Subsidiary at the Real Property are adequate for the
conduct of the business of the Company as it currently is conducted. To the
knowledge of the Company and the Shareholders, there are no material latent
defects or material adverse physical conditions affecting the Real Property or
any of the
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facilities, buildings, structures, erections, improvements, fixtures, fixed
assets and personalty of a permanent nature annexed, affixed or attached to,
located on or forming part of the Real Property. Except as set forth in Section
2.12(c) of the Disclosure Schedule, neither the Company nor the Subsidiary has
leased or subleased any parcel or any portion of any parcel of Real Property to
any other person, nor has the Company or the Subsidiary assigned its interest
under any lease or sublease listed in Section 2.12(b) of the Disclosure Schedule
to any third party.
(d) The Company and the Shareholders have, or have caused to be,
delivered to the Purchaser true and complete copies of all leases and subleases
listed in Section 2.12(b) of the Disclosure Schedule and any and all ancillary
documents pertaining thereto (including, but not limited to, all amendments,
consents for alterations and documents and evidence of commencement dates and
expiration dates). Except as set forth in Section 2.12(d) of the Disclosure
Schedule, with respect to each of such leases and subleases:
(i) such lease or sublease, together with all ancillary documents
delivered pursuant to the first sentence of this Section 2.12(d), is legal,
valid, binding, enforceable on the Company and the Subsidiary and, to the
knowledge of the Company and the Shareholders, on the other parties thereto
and in full force and effect and represents the entire agreement between
the respective landlord and tenant with respect to such property;
(ii) except as otherwise set forth in Section 2.12(b) of the
Disclosure Schedule, such lease or sublease will not cease to be legal,
valid, binding, enforceable and in full force and effect on terms identical
to those currently in effect as a result of the consummation of the
transactions contemplated by this Agreement, nor will the consummation of
the transactions contemplated by this Agreement constitute a breach or
default under such lease or sublease or otherwise give the landlord a right
to terminate such lease or sublease;
(iii) except as otherwise disclosed in Section 2.12(b) of the
Disclosure Schedule, with respect to each such lease or sublease: (A)
neither the Company nor the Subsidiary has received any written notice of
cancellation or termination under such lease or sublease and no lessor has
any right of termination or cancellation under such lease or sublease
except upon a breach or default by the Company or the Subsidiary
thereunder, and (B) neither the Company nor the Subsidiary has received any
written notice of a breach or default under such lease or sublease, which
breach or default has not been cured;
(iv) neither the Company, the Subsidiary nor (to the best knowledge of
the Shareholders and the Company) any other party to such lease or
sublease, is in breach or default except for any breaches or defaults which
individually or in the aggregate would not have a Material Adverse Effect.
(e) There are no condemnation proceedings or eminent domain
proceedings of any kind pending of which the Company has received written notice
or, to the knowledge of the Shareholders and the Company, threatened against the
Real Property.
(f) Except as set forth in Section 2.12(f) of the Disclosure Schedule,
all the Real Property is occupied under a valid and current certificate of
occupancy or similar permit, the transactions contemplated by this Agreement
will not require the issuance of any new or amended certificate of occupancy
and, to the best knowledge of the Shareholders and the Company, there are no
facts that would prevent the Real Property from being occupied by the Company or
the Subsidiary after the Closing in the same manner as occupied by the Company
or the Subsidiary immediately prior to the Closing.
(g) No improvements on the Real Property and none of the current uses
and conditions thereof violate any applicable recorded deed restrictions or
other applicable recorded covenants, or restrictions, except for any violations
which individually or in the aggregate would not have a Material Adverse Effect.
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(h) To the knowledge of the Company and the Shareholders, all
improvements on any Real Property are wholly within the lot limits of such Real
Property and do not encroach on any adjoining premises, and there are no
encroachments on any Real Property by any improvements located on any adjoining
premises.
(i) Except as otherwise set forth in Section 2.12(i) of the Disclosure
Schedule, there have been no improvements by the Company or the Subsidiary of a
value in excess of $20,000 in the aggregate made to or construction on any Real
Property within the applicable period for the filing of mechanics' liens.
(j) To the knowledge of the Company and the Shareholders, the Company
or the Subsidiary has the full right to exercise any renewal options contained
in the leases and subleases pertaining to the Leased Real Property on the terms
and conditions contained therein and upon due exercise would be entitled to
enjoy the use of each Leased Real Property for the full term of such renewal as
set forth in said leases and/or subleases.
SECTION 2.13. Assets. The Company owns, leases or has the legal
right to use all the properties and assets, including, without limitation, real
property and personal property (other than Intellectual Property, which is
covered by Section 2.11), used or intended to be used in the conduct of the
Business or otherwise owned, leased or used by the Company and the Subsidiary
and, with respect to contract rights, is a party to and enjoys the right to the
benefits of all contracts, agreements and other arrangements used or intended to
be used by the Company and the Subsidiary in or relating to the conduct of the
Business (all such properties, assets and contract rights being the "ASSETS").
The Company has good and marketable title to, or, in the case of leased or
subleased Assets, valid and subsisting leasehold interests in, all the Assets,
free and clear of all encumbrances.
SECTION 2.14. Taxes. The Company and the Subsidiary have timely
filed all returns and reports required to be filed with respect to taxes
relating to the Business on or prior to the date on which the Effective Time
occurs. All taxes required to be collected or paid by the Company and the
Subsidiary on or prior to the date on which the Effective Time occurs have been
timely collected and paid. The Company Audited Financial Statements and 1996
Financial Statements reflect or will reflect all Taxes accrued on or prior to
December 31, 1997. Neither the Company nor the Subsidiary has received from any
governmental authority any written notice of proposed adjustment, deficiency or
underpayment of any taxes, which notice has not been satisfied by payment or
been withdrawn, and there are no material claims that have been asserted or
threatened relating to such taxes against the Company or the Subsidiary. There
are no agreements for the extension of time for the assessment of any taxes of
the Company or the Subsidiary other than routine audit extensions granted in the
ordinary course of business. No consent under Section 341(f) of the Code has
been filed with respect to the Company or the Subsidiary. Neither the Company
nor the Subsidiary is doing business in or engaged in a trade or business in any
jurisdiction in which it has not filed any applicable income or franchise tax
return. There are no proposed reassessments of any property owned by the Company
or the Subsidiary or other proposals that could increase the amount of any tax
to which the Company or the Subsidiary would be subject. The Company has not
been a member of any affiliated group with any company other than the Subsidiary
and has not filed a Tax return on a consolidated, combined or unitary basis with
any company other than the Subsidiary. For purposes of this Agreement, "TAX" or
"TAXES" means any and all taxes, fees, levies, duties, tariffs, imposts and
other charges of any kind (together with any and all interest, penalties,
additions to tax and additional amounts imposed with respect thereto) imposed by
any government or taxing authority, including, without limitation: taxes or
other charges on or with respect to income, franchises, windfall or other
profits, gross receipts, property, sales, use, capital stock, payroll,
employment, social security, workers' compensation, unemployment compensation,
or net worth; taxes or other charges in the nature of excise, withholding, ad
valorem, stamp, transfer, value added or gains taxes; license, registration and
documentation fees; and customs' duties, tariffs and similar charges.
SECTION 2.15. Certain Interests. (a) None of the Shareholders or
their affiliates or any officer or director of the Company (it being understood
that ESOP Participants are not included herein, other than Messrs. Stolp and
Taggart) and, to the knowledge of the Shareholders and the Company, no immediate
relative or spouse (or immediate relative of such spouse) who resides with, or
is a dependent of, any such officer or director:
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(i) has any direct or indirect financial interest in any competitor,
supplier or customer of the Company or the Subsidiary, provided, however,
that the ownership of securities representing no more than one percent of
the outstanding voting power of any competitor, supplier or customer, and
which are listed on any national securities exchange or traded actively in
the national over-the-counter market, shall not be deemed to be a
"FINANCIAL INTEREST" so long as the person owning such securities has no
other connection or relationship with such competitor, supplier or
customer;
(ii) owns, directly or indirectly, in whole or in part, or has any
other interest in any tangible or intangible property which the Company or
the Subsidiary uses or has used in the conduct of the Business or otherwise
(except for any such ownership or interest resulting from the ownership of
securities in a public company); or
(iii) has outstanding any indebtedness to the Company or the
Subsidiary.
(b) Except for the Notes and the Company Options and payment of
employee compensation in the ordinary course of business, neither the Company
nor the Subsidiary has any liability or any other obligation of any nature
whatsoever to any Shareholder or any affiliate thereof or to any officer or
director of the Company or, to the knowledge of the Shareholders and the
Company, to any immediate relative or spouse (or immediate relative of such
spouse) who resides with, or is a dependent of, any such officer or director.
SECTION 2.16. Environmental and Other Permits and Licenses; Related
Matters. (a) Except as disclosed in Section 2.16(a)(i) of the Disclosure
Schedule, the Company currently holds all the health and safety and other
permits, licenses, authorizations, certificates, exemptions and approvals of
Governmental Authorities (collectively, "PERMITS"), including, without
limitation, Environmental Permits, required of the Company under applicable Law
for the current use, occupancy and operation of each Asset of the Company and
the conduct of the Business, and all such Permits are in full force and effect,
except such Permits the absence of which would not be reasonably likely to
result in material liability. Except as disclosed in Section 2.16(a)(ii) of the
Disclosure Schedule, neither the Company nor the Subsidiary has received any
written notice from any Governmental Authority revoking, canceling, rescinding,
materially modifying or refusing to renew any Permit or providing written notice
of violations under any Law, except for violations that would not be reasonably
likely to result in material liability. Except as disclosed in Section
2.16(a)(iii) of the Disclosure Schedule, the Company and the Subsidiary are in
all respects in compliance with the Permits and the requirements of the Permits
except noncompliance that would not be reasonably likely to result in material
liability. Section 2.16(a)(iv) of the Disclosure Schedule identifies all
Permits, that are nontransferable or which will require the consent of any
Governmental Authority in the event of the consummation of the transactions
contemplated by this Agreement.
(b) Except as disclosed in Section 2.16(b) of the Disclosure Schedule,
(i) except as would not be reasonably likely to result in material liability,
during the time period that the Company has owned or operated the Real Property,
Hazardous Materials have not been generated, used, treated, handled or stored
on, or transported to or from, or Released on any Real Property or, to the best
knowledge of the Company, any property adjoining any Real Property; (ii) the
Company and the Subsidiary have disposed of all wastes, including those wastes
containing Hazardous Materials, in compliance with all applicable Environmental
Laws and Environmental Permits, except noncompliance that would not be
reasonably likely to result in material liability; (iii) there are no past,
pending or threatened Environmental Claims against the Company, the Subsidiary
or any Real Property of which the Company has received written notice; (iv) no
Real Property or, to the best knowledge of the Company, any property adjoining
any Real Property, is listed or, to the best knowledge of the Company, proposed
for listing on the National Priorities List under CERCLA or on the CERCLIS or
any analogous state list of sites requiring investigation or cleanup; and (v)
except as would not be reasonably likely to result in material liability,
neither the Company nor the Subsidiary has transported or arranged for the
transportation of any Hazardous Materials to any location that is listed or, to
the best knowledge of the Company, proposed for listing on the National
Priorities List under CERCLA or on the CERCLIS or any analogous state list or
which is the subject of any Environmental Claim.
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(c) Except as disclosed in Section 2.16(c) of the Disclosure Schedule,
there are no circumstances with respect to any Real Property or other Asset or
the operation of the Business which could reasonably be anticipated (i) to form
the basis of an Environmental Claim against the Company, the Subsidiary or any
Real Property or Asset that would be reasonably likely to result in material
liability, or (ii) to cause such Real Property or Asset to be subject to any
restrictions on ownership, occupancy, use or transferability under any
applicable Environmental Law in a manner that would be reasonably likely to
result in material liability.
(d) Except as disclosed in Section 2.16(d) of the Disclosure Schedule,
there are not now and never have been any USTs located on any Real Property
during a time period when the Company owned or operated the Real Property or, to
the best knowledge of the Company, on any property adjoining any Real Property.
SECTION 2.17. Customers. (a) Section 2.17(a) of the Disclosure
Schedule sets forth a correct and complete list of the ten customers from which
the Company and the Subsidiary recognized the largest amount of revenue during
the 12 months ended December 31, 1997 and the respective amounts of such
revenue. Company has provided copies to the Purchaser of all written
agreements, arrangements and understandings (including, without limitation, all
amendments, consents, modifications, supplements and side letters) between the
Company or the Subsidiary and such customers.
(b) Section 2.17(b) of the Disclosure Schedule contains a summary of
all open purchaser orders, by customer, as of the date of this Agreement.
(c) No customer of the Company has requested that deliveries under any
sales order or services to be performed by it under any Material Contract be
delayed and the Company has not been notified of any (i) plans of any customer
to order less from the Company during calendar year 1998 than such customer
ordered during calendar year 1997 or (ii) facts which would result in such a
decrease in orders.
(d) The Company has no knowledge of any facts or conditions which (i)
upon the giving of notice or the passage of time would constitute a default
under any purchase or sales commitment or order, or (ii) would result in or have
a material adverse effect on the future sales, profits or business or the
Company. There has been no adverse change in the business relationship of the
Company with any customer or supplier. The Company has not received any notice
from any existing customer that upon consummation of the transactions
contemplated by this Agreement, the relationship with such customer will be
adversely affected, and the Company has not received any notice from any
existing customer that said customer intends to file a petition for relief under
any provisions of the Bankruptcy Code or make an assignment for the benefit of
its creditors.
SECTION 2.18. Brokers. Except as disclosed in writing to the Parent,
no broker, finder or investment banker is entitled to any brokerage, finder's or
other fee or commission in connection with the transactions contemplated by this
Agreement, based upon arrangements made by or on behalf of the Company or the
Shareholders. The Shareholders shall be solely responsible for any such fees
and expenses.
SECTION 2.19. Insurance Policies. The Disclosure Schedule sets forth
a true and complete list and description (including face amount of policy, name
of insured, carrier, premium, expiration date and whether it is a "claims made"
or an "occurrence" policy) of all insurance policies held by the Company or the
Subsidiary. True and complete copies of all such policies have been provided by
the Company to the Parent. All premiums due to the date hereof on such policies
have been paid. All pending claims, if any, made against the Company or the
Subsidiary which are covered by insurance are being defended by the appropriate
insurance companies and are described on the Disclosure Schedule. To the
knowledge of the Shareholders and the Company, neither the Company nor the
Subsidiary has failed to give any notice or present any claim under any such
policy in a timely fashion, except where such failure would not prejudice the
Company's ability to make a claim or result in a Material Adverse Effect. Such
insurance to the date hereof has (a) been maintained in full force and effect
and (b) not been canceled or changed except to extend the maturity dates
thereof.
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SECTION 2.20. Receivables. All accounts receivable, notes and other
amounts receivable by the Company or the Subsidiary from third parties,
including, without limitation, customers, arising from the conduct of the
Business or otherwise before the Effective Time, whether or not in the ordinary
course, together with all unpaid financing charges accrued thereon
(collectively, the "RECEIVABLES") reflected on the Interim Financial Statements
arose from, and the Receivables existing on the Effective Time will have arisen
from, the rendering of services to persons that are not affiliates of the
Shareholders or the Company and in the ordinary course of the business of the
Company and the Subsidiary consistent with past practice and, except as reserved
against on the Interim Financial Statements, constitute or will constitute, as
the case may be, only valid, undisputed claims of the Company and the Subsidiary
not subject to valid claims of set-off or other defenses or counterclaims and
have been collected or are or will be collectible, without resort to litigation
or extraordinary collection activity, within its terms.
SECTION 2.21. Full Disclosure. No representation or warranty of the
Company or the Shareholders in this Agreement, nor any statement or certificate
furnished or to be furnished to the Parent pursuant to this Agreement contains
or will contain any untrue statement of a material fact, or omits or will omit
to state a material fact necessary to make the statements contained herein or
therein not misleading.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF
THE INDIVIDUAL SHAREHOLDERS AND THE TRUSTEES
SECTION 3.01. Representations of the Trustees. The Trustees on
behalf of the ESOP hereby represent and warrant that, except as set forth in the
Disclosure Schedule:
(a) No Conflict. The execution and delivery by of this Agreement by
the Trustees does not, and the consummation by the ESOP and the Trustees of
the transactions contemplated herein on their respective parts will not
violate, cause a default under, breach the terms of or require the consent,
authorization or approval of any other person under any law, rule or
regulation or any governing instrument or any loan agreement, mortgage,
indenture, or other contract or agreement to which the ESOP or the Trustees
are bound, or to which the properties of the ESOP or the Trust established
pursuant to the Trust Agreement (the "TRUST") are subject or under any
franchise, license or permit applicable to the Trustees, the ESOP or the
Trust, except for the consent of the participants and beneficiaries of the
ESOP in accordance with Section 9 of the ESOP and Section D(i) of the Trust
Agreement.
(b) ERISA Matters. The execution, delivery and performance of this
Agreement and the consummation of the transactions contemplated by the
parties hereto (including, without limitation, the conversion of securities
contemplated by Section 1.08 of this Agreement) will not constitute a
violation of, or give rise to any liability under, Title I of ERISA or
Section 4975 of the Code.
(c) ESOP Shares. The shares of Company Common Stock held by the ESOP
are owned of record and beneficially by the ESOP free and clear of all
encumbrances other than the pledge made in favor of the Company in
connection with the loan (the "ESOP LOAN") evidenced by the ESOP Loan
Agreement and Addendums dated December 18, 1997 by and between the Company
and the Trustees. There are no provisions in any such addendums requiring
a penalty on prepayment. There are no Liabilities of the ESOP other than
the ESOP Loan and the obligation to pay benefits to ESOP Participants under
the ESOP in the ordinary course of business. Except as contemplated by
this Agreement, neither the ESOP nor the Trustees are a party to any voting
trust, stockholder agreement, proxy or other agreement or understanding in
effect with respect to the voting or transfer of any shares of Company
Common Stock.
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(d) Due Authorization and Enforceability. This Agreement has been
duly executed and delivered by the Trustees and constitutes the legal,
valid and binding obligation of the Trustees enforceable against the
Trustees in accordance with its terms, except as the enforceability thereof
may be limited by the effect of any applicable bankruptcy, insolvency,
reorganization, moratorium as similar laws affecting creditors' rights
generally and by general principles of equity.
(e) Litigation. There is no private or governmental action, suit,
proceeding, claim, arbitration or investigation pending before any agency,
court or tribunal, foreign or domestic, or, to the knowledge of the
Trustees, threatened against the ESOP or the Trustees or any properties of
the ESOP or the Trust that, individually or in the aggregate, could
reasonably be expected to have a material adverse effect on the ability of
the Trustees or the ESOP to consummate the transactions contemplated by
this Agreement. There is no judgment, decree or order against the
Trustees, the ESOP or any properties of the ESOP or the Trust that could
prevent, enjoin, alter or materially delay any of the transactions
contemplated by this Agreement, or that could reasonably be expected to
have a material adverse effect on the ability of the Trustees or the ESOP
to consummate the transactions contemplated by this Agreement.
(f) Broker's and Finders' Fees. Neither the Trustees nor the ESOP
have incurred, directly or indirectly, any liability for brokerage or
finders' fees or agents' commissions or investment bankers' fees or any
similar charges in connection with this Agreement or any transaction
contemplated hereby.
SECTION 3.02. Representations, Warranties and Covenants of the
Individual Shareholders. Each of the Individual Shareholders (referred to in
this Section 3.02 as "he") hereby represents and warrants to the Parent and the
Purchaser solely with respect to himself that, except as set forth in the
Disclosure Schedule:
(a) Holdings. He is the lawful record and beneficial owner of the
number of shares of Company Common Stock set forth on Exhibit A of this
Agreement, free and clear of all encumbrances. Except as contemplated by
this Agreement, he is not a party to any voting trust, stockholder
agreement, proxy or other agreement or understanding in effect with respect
to the voting or transfer of any of shares of Company Common Stock.
(b) Capacity; No Conflict. He has the legal capacity to enter into
this Agreement and to consummate the transactions contemplated hereby.
This Agreement has been duly executed and delivered by such Shareholder,
and, assuming the due authorization, execution and delivery by the other
parties hereto, this Agreement constitutes the legal, valid and binding
obligation of such Shareholder. The execution and delivery of this
Agreement does not, and the consummation of the transactions contemplated
hereby will not, conflict with, or result in any violation of, or default
under (with or without notice or lapse of time, or both), or give rise to a
right of termination, cancellation or acceleration of any obligation or
loss of a benefit under any material mortgage, indenture, lease, contract
or other agreement or instrument, permit, concession, franchise, license,
judgment, order, decree, statute, law, ordinance, rule or regulation
applicable to such Shareholder or such Shareholder's properties or assets.
No consent, approval, order or authorization of, or registration,
declaration or filing with, any governmental entity, is required by or with
respect to such Shareholder in connection with the execution and delivery
of this Agreement by such Shareholder or the consummation by such
Shareholder of the transactions contemplated hereby, except for (i) any
filings as may be required under applicable U.S. or state securities laws
and the securities laws of any foreign country, (ii) such filings as may be
required under the HSR Act, and (iii) such other consents, authorizations,
filings, approvals and registrations which, if not obtained or made, would
not prevent or materially alter or delay any of the transactions
contemplated by this Agreement.
(c) Litigation. There is no private or governmental action, suit,
proceeding, claim, arbitration or investigation pending before any agency,
court or tribunal, foreign or domestic, or, to the knowledge of such
Shareholder or any of his affiliates, threatened against such Shareholder
or any of his
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affiliates or any of their respective properties or any of their respective
officers or directors, in the case of a corporate entity (in their
capacities as such), that, individually or in the aggregate, could
reasonably be expected to have a material adverse effect on his ability to
consummate the transactions contemplated by this Agreement. There is no
judgment, decree or order against such Shareholder or any of his affiliates
or, to the knowledge of such Shareholder or any of his affiliates, any of
their respective directors or officers, in the case of a corporate entity,
(in their capacities as such) that could prevent, enjoin, alter or
materially delay any of the transactions contemplated by this Agreement, or
that could reasonably be expected to have a material adverse effect on such
Shareholder's ability to consummate the transactions contemplated by this
Agreement.
(d) Investigation. He has been furnished with the Parent SEC Reports
(as hereinafter defined) and has been given the opportunity to ask
questions of, and receive answers from, officers of the Parent concerning
the Parent and Parent Common Stock and to obtain any additional information
which he or his representatives deem necessary or desirable in his
evaluation of the Parent Common Stock to be received by him in the Merger.
He has independently determined to enter into this Agreement, based upon
his own judgment and upon advice from such advisers as he has deemed
necessary. He is not relying on any representation or other communication
(written or oral) of the Parent or the Purchaser as an assurance or
guarantee as to the expected results of an investment in shares of Parent
Common Stock to be issued in the Merger.
(e) Broker's and Finders' Fees. He has not incurred, nor will he
incur, directly or indirectly, any liability for brokerage or finders' fees
or agents' commissions or investment bankers' fees or any similar charges
in connection with this Agreement or any transaction contemplated hereby.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
OF THE PARENT AND THE PURCHASER
The Parent and the Purchaser jointly and severally represent and
warrant to the Company and the Shareholders that:
SECTION 4.01. Corporate Organization and Authority. Each of the
Parent and the Purchaser is a corporation duly organized, validly existing and
in good standing under the laws of the State of Delaware and has all requisite
corporate power and authority to own, lease and operate its properties and to
carry on its business as it is presently conducted. Each of the Parent and the
Purchaser has all necessary corporate power and authority to execute and deliver
this Agreement and to perform its obligations and to consummate the transactions
contemplated hereunder. The execution and delivery of this Agreement by each of
the Parent and the Purchaser and the consummation by the Parent and the
Purchaser of the transactions contemplated hereby have been duly authorized by
all necessary corporate action of the Parent and the Purchaser, respectively,
and no other corporate proceedings on the part of the Parent or the Purchaser
are necessary to authorize this Agreement or the consummation of the
transactions contemplated hereby. This Agreement has been duly executed and
delivered by the Parent and the Purchaser and (assuming the due authorization,
execution and delivery by the Company and the Shareholders) constitutes the
legal, valid and binding obligation of each of the Parent and the Purchaser
enforceable against each of the Parent and the Purchaser in accordance with its
terms (except in each such case as enforceability may be limited by bankruptcy,
insolvency, reorganization and other similar laws now or hereafter in effect
relating to or affecting creditors' rights generally).
SECTION 4.02. No Conflict; Required Filings and Consents. (a) The
execution and delivery of this Agreement by each of the Parent and the Purchaser
do not, and the performance of this Agreement by each of the Parent and the
Purchaser will not, (i) conflict with or violate the certificate of
incorporation or by-laws of
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the Parent or the Purchaser, respectively, (ii) conflict with or violate any
law, rule, regulation, order, judgment or decree applicable to the Parent or the
Purchaser, respectively, or by which either of them or their properties are
bound or affected, or (iii) result in any breach of or constitute a default (or
an event which with notice or lapse of time or both would become a default)
under, or give to others any rights of termination, amendment, acceleration or
cancellation of, or result in the creation of a lien or encumbrance on any of
the property or assets of the Parent or the Purchaser, respectively, pursuant
to, or result in a change in any of the terms of any note, bond, mortgage,
indenture, contract, agreement, lease, license, permit, franchise or other
instrument or obligation to which the Parent or the Purchaser is a party or by
which the Parent or the Purchaser or any of their respective properties is bound
or affected, except, in the case of this clause (iii), for any such breaches,
defaults or other occurrences which would not, individually or in the aggregate,
have a material adverse effect on the business, operations, properties
(including intangible properties), condition (financial or otherwise), assets,
liabilities, results of operations or prospects of the Parent or prevent or
delay the consummation of the transactions contemplated by this Agreement.
(b) The execution and delivery of this Agreement by each of the Parent
and the Purchaser do not, and the performance of this Agreement by each of the
Parent and the Purchaser (including, without limitation, the consummation of
the transactions hereunder) will not, require any consent, approval,
authorization or permit of, or filing with or notification to, any governmental
or regulatory authority, domestic or foreign, except for the registration of
shares of Parent Common Stock under the Securities Act, state securities or
"Blue Sky" laws, the pre-merger notification requirements of the HSR Act, the
filing of a certificate of merger with the Secretary of State of the State of
California and the filing of a certificate of merger with the Secretary of State
of the State of Delaware.
SECTION 4.03. SEC Filings; Financial Statements. The Parent has
filed all forms, reports, statements and documents required to be filed with
U.S. Securities and Exchange Commission (the "SEC") since June 30, 1996 (the
"PARENT SEC REPORTS"). The Parent SEC Reports (i) were each prepared in
accordance with, and at the time of filing complied in all material respects
with, the requirements of the Securities Act of 1933, as amended (the
"SECURITIES ACT") or the Securities Exchange Act of 1934, as amended (the
"EXCHANGE ACT"), as the case may be, and (ii) did not at the time they were
filed contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading. The Parent SEC Reports constitute all the documents
required to be filed by Parent under Section 13 of the Exchange Act with the SEC
since June 30, 1996. None of the Parent's subsidiaries (including the
Purchaser) is required to file any forms, reports or other documents with the
SEC. The financial statements included in the Parent SEC Reports (i) were
prepared in accordance with the books of account and other financial records of
the Parent, (ii) present fairly the consolidated financial condition and results
of operations of the Parent as of the dates thereof or for the periods covered
thereby, (iii) have been prepared in accordance with U.S. generally accepted
accounting principles applied on a basis consistent with the past practices of
the Parent and (iv) include all adjustments (consisting only of normal recurring
accruals) that are necessary for a fair presentation of the financial condition
of the Parent and the results of the operations of the Parent as of the dates
thereof or for the periods covered thereby.
SECTION 4.04. Common Stock. Assuming all conditions set forth in
Article VI are satisfied, all shares of Parent Common Stock subject to issuance
pursuant to this Agreement, shall (i) be duly authorized, validly issued, fully
paid and nonassessable and (ii) not be subject to any encumbrances created by or
on behalf of the Parent or the Purchaser.
SECTION 4.05. Full Disclosure. No representation or warranty of the
Parent in this Agreement, nor any statement or certificate furnished or to be
furnished to the Shareholders pursuant to this Agreement contains or will
contain any untrue statement of a material fact, or omits or will omit to state
a material fact necessary to make the statements contained herein or therein not
misleading.
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SECTION 4.06. Funds. The Parent has adequate funds to pay all Per
Share Cash Consideration.
SECTION 4.07. Corporate Structure. The Purchaser is a direct wholly
owned subsidiary of the Parent.
SECTION 4.08. Brokers. No broker, finder or investment banker is
entitled to any brokerage, finder's or other fee or commission in connection
with the transactions hereunder based upon arrangements made by or on behalf of
the Parent or the Purchaser.
ARTICLE V
ADDITIONAL AGREEMENTS
SECTION 5.01. Conduct of Business by the Company Pending the Closing.
(a) Except as contemplated by this Agreement, the Company and the Shareholders
covenant and agree that, during the period between the date of this Agreement
and through and including the date on which the Effective Time occurs, unless
the Parent shall otherwise agree in writing, the Business shall be conducted
only in, and the Company and the Subsidiary shall not take any action except in,
the ordinary course of business and in a manner consistent with past practice.
The Company and the Shareholders will not take, and the Shareholders will not
permit the Company to take, any action that would cause any representation or
warranty made by the Company or the Shareholders in this Agreement to become
untrue in any material respect.
(b) By way of amplification and not limitation, except as contemplated
by this Agreement, neither the Company nor the Subsidiary shall, between the
date of this Agreement and the date on which the Effective Time occurs, directly
or indirectly do, or propose to do, any of the following without the prior
written consent of the Parent:
(i) amend or otherwise change its Articles of Incorporation or By-
laws, other than to permit indemnification and limitation of liability in
accordance with Section 317 of the CGCL;
(ii) issue, sell, pledge, dispose of, grant, encumber, or authorize
the issuance, sale, pledge, disposition, grant or encumbrance of, (i) any
shares of capital stock of any class of the Company or the Subsidiary, or
any options, warrants, convertible securities or other rights of any kind
to acquire any shares of such capital stock, or any other ownership
interest (including, without limitation, any phantom interest), of the
Company or the Subsidiary (except for the issuance of a maximum of 48,999
shares of Company Common Stock issuable pursuant to employee stock options
outstanding on the date hereof) or (ii) any assets of the Company or the
Subsidiary, except for sales in the ordinary course of business and in a
manner consistent with past practice;
(iii) declare, set aside, make or pay any dividend or other
distribution, payable in cash, stock, property or otherwise, with respect
to any of its capital stock, except as required by applicable law by the
ESOP in connection with termination of employment of an ESOP Participant;
(iv) reclassify, combine, split, subdivide or redeem, purchase or
otherwise acquire, directly or indirectly, any of its capital stock other
than repurchases of stock as required by the ESOP in connection with the
termination of employment of an ESOP Participant;
(v) (i) acquire (including, without limitation, by merger,
consolidation, or acquisition of stock or assets) any corporation,
partnership, other business organization or any division thereof or any
material amount of assets; (ii) incur any indebtedness for borrowed money
or issue any debt securities or
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assume, guarantee or endorse, or otherwise as an accommodation become
responsible for, the obligations of any person, or make any loans or
advances, except in the ordinary course of business and consistent with
past practice; (iii) enter into any contract or agreement other than in the
ordinary course of business, consistent with past practice; (iv) except as
provided in Section 2.07 and items 1(1) and 1(5) of Section 2.10(a) of the
Disclosure Schedule, authorize any single capital expenditure which is in
excess of $50,000 or capital expenditures which are, in the aggregate, in
excess of $100,000 for the Company and the Subsidiary taken as a whole; or
(v) enter into or amend any contract, agreement, commitment or arrangement
with respect to any matter set forth in this Section 5.01(b)(v);
(vi) increase the compensation payable or to become payable to its
officers or employees, except the grant of the bonus to Mr. Taggart
referred to in Section 2.07 of the Disclosure Schedule, for increases in
accordance with past practices in salaries or wages of employees of the
Company or the Subsidiary who are not officers of the Company, or grant any
severance or termination pay to, or enter into any employment or severance
agreement with any director, officer or other employee of the Company or
the Subsidiary, or establish, adopt, enter into or amend the ESOP, any
collective bargaining, bonus, profit sharing, thrift, compensation, stock
option, restricted stock, pension, retirement, deferred compensation,
employment, termination, severance or other plan, agreement, trust, fund,
policy or arrangement for the benefit of any director, officer or employee
other than amendments to the ESOP that are necessary to effect the terms
and conditions of this Agreement;
(vii) take any action, other than reasonable and usual actions in the
ordinary course of business and consistent with past practice, with respect
to accounting policies or procedures (including, without limitation,
procedures with respect to the payment of accounts payable and collection
of accounts receivable);
(viii) make any tax election or settle or compromise any material
federal, state, local or foreign income tax liability; or
(ix) pay, discharge or satisfy any claim, liability or obligation
(absolute, accrued, asserted or unasserted, contingent or otherwise), other
than the payment, discharge or satisfaction, in the ordinary course of
business and consistent with past practice, of liabilities reflected or
reserved against in the Interim Financial Statements or subsequently
incurred in the ordinary course of business and consistent with past
practice (as well as the matter identified in Section 2.09 of the
Disclosure Schedule).
SECTION 5.02. Further Action; Access; Public Announcements. Upon the
terms and subject to the conditions hereof, each of the parties hereto shall use
all reasonable efforts to take, or cause to be taken, all appropriate action,
and to do or cause to be done all things necessary, proper or advisable under
applicable laws and regulations to consummate and make effective the
transactions contemplated hereunder. From the date hereof until the Effective
Time, upon reasonable notice, the Company and the Subsidiary shall, and each of
the Shareholders shall cause the Company to, cause its officers, directors,
employees, agents, representatives, accountants and counsel to (i) afford the
officers, employees and authorized agents, accountants, counsel and
representatives of the Parent full access, during normal business hours, to the
offices, properties, plants, other facilities, books and records of the Company
and the Subsidiary and to those officers, directors, employees, agents,
accountants and counsel of the Company and the Subsidiary who have any knowledge
relating to the Company, the Subsidiary or the Business and (ii) furnish to the
officers, employees and authorized agents, accountants, counsel and
representatives of the Parent such additional financial and operating data and
other information regarding the assets, properties and goodwill of the Company,
the Subsidiary and the Business (or legible copies thereof) as the Parent may
from time to time request. In addition, the Shareholders and the Parent will
provide each other with such cooperation and information as either of them
reasonably may request of the other and shall retain any and all Returns and
documents in connection with or relating to Tax matters of the Company and the
Subsidiary for each taxable period first ending after the Effective Time and for
all prior taxable periods until the later of (i) the expiration of the statute
of limitations of the taxable periods to which such Returns
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and other documents relate, without regard to extensions except to the extent
notified by the other party in writing of such extensions for the respective Tax
periods, or (ii) 6 years following the due date (without extension) for such
Returns. Any information relating to Taxes obtained under this Section 5.02
shall be kept confidential except as may be otherwise necessary in connection
with a Tax matter of the Company or the Subsidiary. The Parent shall consult
with the Company prior to issuing any press release or otherwise making any
public statements with respect to the Merger; except with respect to any such
press release or public statements, the Confidentiality Agreement dated November
4, 1997 between the Parent and the Company shall remain in effect until the
Effective Time and shall terminate at the Effective Time. Neither the Company
nor any of the Shareholders shall issue any press release with respect to the
transactions contemplated hereunder without the prior written consent of the
Parent, which shall not be unreasonably withheld. Neither the Company nor any of
the Shareholders shall otherwise make any public statement prior to the
Effective Time with respect to the transactions contemplated hereunder without
the prior written consent of the Parent, which shall not be unreasonably
withheld. Each party hereto required to make an HSR filing agrees to make an
appropriate filing, pursuant to the HSR Act with respect to the transactions
contemplated by this Agreement within 15 Business Days of the date hereof and to
supply as promptly as practicable to the appropriate Governmental Authorities
any additional information and documentary material that may be requested
pursuant to the HSR Act.
SECTION 5.03. Registration Statement; Proxy Statement. (a) As
promptly as practicable after the execution of this Agreement, (i) the Company
shall prepare a proxy or information statement relating to the meeting of the
Company's shareholders to be held in connection with the Merger (together with
any amendments thereof or supplements thereto, the "PROXY STATEMENT") and (ii)
the Parent shall prepare and file with the SEC a registration statement on Form
S-4 (together with all amendments thereto, the "REGISTRATION STATEMENT") in
which the Proxy Statement shall be included as a prospectus, in connection with
the registration under the Securities Act of the shares of Parent Common Stock
to be issued to the shareholders of the Company pursuant to the Merger. The
Parent will use all reasonable efforts to cause the Registration Statement to
become effective as promptly as practicable, and, prior to the effective date of
the Registration Statement, the Parent shall take all or any action required
under any applicable federal or state securities laws in connection with the
issuance of shares of Parent Common Stock in the Merger, including, without
limitation, all action required to include such shares of Parent Common Stock
for trading on the National Association of Securities Dealers, Inc. National
Market System (the "NASDAQ NATIONAL MARKET SYSTEM"). Each of the Parent and the
Company shall furnish all information concerning it and the holders of its
capital stock as the other may reasonably request in connection with such
actions and the preparation of the Registration Statement and Proxy Statement,
including without limitation any interim financial statements. Any fairness
opinion received by the ESOP with respect to the transactions contemplated by
this Agreement shall be included in the Proxy Statement. As promptly as
practicable after the Registration Statement shall have become effective, the
Company shall mail or deliver the Proxy Statement to its shareholders. The Proxy
Statement shall include the recommendation of the Board of Directors of the
Company in favor of the Merger.
No amendment or supplement to the Proxy Statement or the Registration
Statement will be made by the Parent or the Company without the approval of the
other party (which approval shall not be unreasonably withheld or delayed). The
Parent will advise the Company, promptly after it receives notice thereof, of
the time when the Registration Statement has become effective or any supplement
or amendment has been filed, the issuance of any stop order, the suspension of
the qualification of the shares of Parent Common Stock issuable in connection
with the Merger for offering or sale in any jurisdiction, or any request by the
SEC for amendment of the Proxy Statement or the Registration Statement or
comments thereon and responses thereto or requests by the SEC for additional
information.
(b) The information supplied by the Parent for inclusion in the
Registration Statement and the Proxy Statement shall not, at (i) the time the
Registration Statement is declared effective, (ii) the time the Proxy Statement
(or any amendment thereof or supplement thereto) is first mailed or delivered to
the shareholders of the Company, (iii) the time of the Shareholders' Meeting (as
defined below), and (iv) the Effective Time, contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or
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necessary in order to make the statements therein not misleading. If at any
time prior to the Effective Time any event or circumstance relating to the
Parent or any of its subsidiaries, or their respective officers or directors,
should be discovered by the Parent which should be set forth in an amendment or
a supplement to the Registration Statement or Proxy Statement, the Parent shall
promptly inform the Company. All documents that the Parent is responsible for
filing with the SEC in connection with the transactions contemplated herein will
comply as to form and substance in all material respects with the applicable
requirements of the Securities Act and the rules and regulations thereunder and
the Exchange Act and the rules and regulations thereunder.
(c) The information supplied by the Company for inclusion in the
Registration Statement and the Proxy Statement shall not, at (i) the time the
Registration Statement is declared effective, (ii) the time the Proxy Statement
(or any amendment thereof or supplement thereto) is first mailed or delivered to
the shareholders of the Company and the Parent, (iii) the time of the
Shareholders' Meeting, and (iv) the Effective Time, contain any untrue statement
of a material fact or omit to state any material fact required to be stated
therein or necessary in order to make the statements therein not misleading. If
at any time prior to the Effective Time any event or circumstance relating to
the Company, or its officers or directors, should be discovered by the Company
which should be set forth in an amendment or a supplement to the Registration
Statement or Proxy Statement, the Company shall promptly inform the Parent.
(d) The Company shall call and hold a meeting of its shareholders (the
"SHAREHOLDERS' MEETING") as promptly as practicable for the purpose of voting
upon the approval of the Merger, and the Company shall hold the Shareholders'
Meeting as soon as practicable after the date on which the Registration
Statement becomes effective. At the Shareholders' Meeting, the Trustees shall
vote all of the shares of Company Common Stock held by the ESOP in accordance
with the instructions received by the Trustees from the ESOP participants and
otherwise in accordance with the terms of the ESOP.
SECTION 5.04. Voting; Elections; Exercise of Options. (a) Each
Individual Shareholder agrees that, during the time this Agreement is in effect,
at any meeting of the shareholders of the Company, however called, and in any
action by consent of the holders of Company Common Stock, such Individual
Shareholder shall vote his shares of Company Common Stock: (i) in favor of the
Merger and this Agreement (as amended from time to time) and (ii) against any
proposal for any recapitalization, merger (other than the Merger), sale of
assets or other business combination between the Company and any person or
entity (other than the Parent or a wholly owned subsidiary of the Parent) or any
other action or agreement that would result in a breach of any covenant,
representation or warranty or any other obligation or agreement of the Company
under this Agreement or which could result in any of the conditions to this
Agreement not being fulfilled.
(b) Each Individual Shareholder hereby covenants and agrees that, from
the date hereof to the earlier to occur of the termination of this Agreement or
the Effective Time, he shall not, and shall not offer or agree to, sell,
transfer, tender, assign, hypothecate or otherwise dispose of, or create or
permit to exist any encumbrance on, or grant any proxy with respect to, shares
of Company Common Stock now owned or that may hereafter be acquired by such
Individual Shareholder at any time prior to the Effective Time and any attempt
by an Individual Shareholder to transfer shares of Company Common Stock shall be
void ab initio.
-- ------
(c) Mr. Philip E. Stolp hereby agrees to make an Election pursuant to
Section 1.09 to receive the Per Share Cash Consideration for not less than 23.6%
nor more than 36.6% of the shares of Company Common Stock he owns directly
(excluding any Company Common Stock he owns through the ESOP).
(d) Mr. Thomas Taggart hereby agrees to exercise all of the Company
Options prior to the Effective Time; provided that such exercise shall be
effective immediately prior to, and conditioned on the Effective Time by an
instrument signed by Mr. Taggart to receive in full consideration for the
exercise of the Company Options the aggregate Applicable Per Share Merger
Consideration that he would have otherwise received if he had exercised such
Company Options prior to the Effective Time (which amount shall equal the
aggregate Applicable Per Share Merger Consideration, less the exercise price of
such Company Options and any
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amounts required to be withheld under applicable tax laws). For purposes of this
Agreement, including, without limitation, Article VII hereof, Mr. Taggart shall
be considered a Company Shareholder and the shares of Company Common Stock
subject to the Company Options shall be considered outstanding Company Common
Stock.
(e) Subject to the approval of the Merger by the requisite holders of
Common Stock of the Company, the ESOP hereby agrees to make an Election pursuant
to Section 1.09 to receive the Per Share Stock Consideration for not less than
51% of the shares of Company Common Stock it owns and to receive the Per Share
Cash Consideration for not less than 40% and not more than 49% of the shares of
Company Common Stock it owns.
SECTION 5.05. No Solicitation or Negotiation. The Company and the
Shareholders agree that between the date of this Agreement and the earlier of
(i) the Closing and (ii) the termination of this Agreement, none of the
Shareholders, the Company nor any of their respective Affiliates, officers,
directors, representatives or agents will (a) solicit, initiate, consider,
encourage or accept any other proposals or offers from any person (i) relating
to any acquisition or purchase of all or any portion of the capital stock or
assets of the Company, (ii) to enter into any business combination with the
Company or (iii) to enter into any other extraordinary business transaction
involving or otherwise relating to the Company or (b) participate in any
discussions, conversations, negotiations or other communications regarding, or
furnish to any other person any information with respect to, or otherwise
cooperate in any way, assist or participate in, facilitate or encourage, any
effort or attempt by any other person to seek to do any of the foregoing. The
Company and the Shareholders immediately shall cease and cause to be terminated
all existing discussions, conversations, negotiations and other communications
with any persons conducted heretofore with respect to any of the foregoing. The
Company and the Shareholders shall notify the Parent promptly if any such
proposal or offer, or any inquiry or other contact with any person with respect
thereto, is made and shall, in any such notice to the Parent, indicate in
reasonable detail the identity of the person making such proposal, offer,
inquiry or contact and the terms and conditions of such proposal, offer, inquiry
or other contact. The Company and the Shareholders agree not to, without the
prior written consent of the Parent, release any person from, or waive any
provision of, any confidentiality or standstill agreement to which the
Shareholders or the Company is a party. Pursuant to the terms of any existing
confidentiality agreement to which any Shareholder or the Company is a party,
the Company and the Shareholders shall cause the return or destruction of any
confidential or proprietary information in the possession of any third party.
SECTION 5.06. Cancellation of Agreements. The Shareholders and the
Company agree that, effective as of the Closing, all shareholders' agreements
(including, without limitation, the Shareholder Agreement dated June 12, 1990
among Messrs. Laurence L. Moore, Philip E. Stolp, Hugh J. Prior and Richard E.
MacDonald and the Company) to which any of the Shareholders is a party relating
to the Company or the shares of Company Common Stock shall terminate, and
neither the Parent nor the Company shall have any liability under any such
shareholders' agreement on and after the Closing Date. No payment or other
consideration shall be paid by the Company in connection with any such
termination.
SECTION 5.07. Plan of Reorganization. This Agreement is intended to
constitute a "plan of reorganization" within the meaning of section 1.368-2(g)
of the income tax regulations promulgated under the Code. From and after the
date hereof and until the Effective Time, each party hereto shall use its
reasonable best efforts to cause the Merger to qualify, and will not knowingly
take any actions or cause any actions to be taken which could prevent the Merger
from qualifying, as a reorganization under the provisions of section 368(a) of
the Code. Following the Effective Time, neither the Surviving Corporation, the
Parent nor any of their affiliates shall knowingly take any action or knowingly
cause any action to be taken which would cause the Merger to fail to qualify as
a reorganization under section 368(a) of the Code.
SECTION 5.08. Treatment of the ESOP Post-Closing. (a) The Cash
Consideration received by the ESOP shall first be applied by the Trustees to the
repayment in full of the ESOP Loan and any excess
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proceeds shall be allocated to the accounts of the participants and
beneficiaries in accordance with the terms of the ESOP.
(b) No further contributions shall be made to the ESOP following the
Effective Time; provided, however, that to the extent permitted by applicable
law, the Parent shall maintain the ESOP (but make no contributions thereto) for
a period of one year following the Effective Time. Prior to the Effective Time,
the ESOP shall be amended to provide that: (i) the Trustees shall vote
unallocated shares of Company Common Stock and allocated shares of Company
Common Stock for which no voting instructions are received, in proportion to the
voting instructions received from ESOP Participants on allocated shares of
Company Common Stock; (ii) ESOP Participants may make the elections described
in Section 1.09, and the demand for dissenters' rights described in Section
1.11, by so instructing the Trustees with respect to their allocated shares of
Company Common Stock; (iii) all ESOP Participants shall become 100% vested in
their ESOP accounts at the Effective Time; (iv) promptly following the one-year
anniversary of the Effective Time, or sooner at the election of the Parent, all
shares of Parent Common Stock then remaining in the ESOP (other than shares to
be distributed to certain ESOP Participants pursuant to Section 5.12) shall be
transferred to the Porex Technologies Corp. 401(k) Savings Plan (the "Porex
401(k) Plan"); and (v) the ESOP shall be terminated after termination of the
Escrow Agreement and such Parent Common Stock transfer (but no earlier than
December 31, 1998) and ESOP Participants shall be offered lump sum distributions
of the remaining cash balances in their ESOP accounts. Contributions made to
the ESOP by the Company prior to the date of this Agreement shall be allocated
as of December 31, 1998, under the existing provisions of the ESOP.
SECTION 5.09. Continuation of Benefits; Service Recognition. (a) For
a period of two years following the Effective Time and other than with respect
to the ESOP as provided in Section 5.08, the Parent shall maintain, or cause to
be maintained, employee benefit plans and arrangements which in the aggregate
will provide a substantially comparable level of benefits to employees of the
Company to those provided under the Company's employee benefit plans and
arrangements as in effect immediately prior to the Effective Time; provided,
however, that changes may be made to such employee benefit plans and
arrangements to the extent necessary to comply with applicable law. To the
extent eligible, employees of the Surviving Corporation will be entitled to
participate in the Porex 401(k) Plan as soon as practicable after the Effective
Time.
(b) To the extent that service is relevant for purposes of
eligibility, participation or vesting under any employee benefit plan, program
or arrangement established or maintained by the Parent or the Surviving
Corporation for the benefit of employees of the Surviving Corporation, the
employees of the Surviving Corporation shall be credited for service accrued
prior to the Effective Time with the Company or the Subsidiary.
(c) Parent shall file a Registration Statement on Form S-8 as soon as
practicable and in any event within sixty (60) days after the Closing covering
Parent stock options issued to employees of the Company.
SECTION 5.10. Affiliate Letters. Each of the Individual Shareholders
shall execute and deliver to the Parent, prior to the Effective Time, a letter
substantially in the form attached hereto as Exhibit 5.10.
SECTION 5.11. Financial Statements. As soon as practicable but in
any event not later than 60 days after the date of this Agreement, the Company
shall use its best efforts to deliver to the Parent true and complete copies of
the audited consolidated balance sheets of the Company and its subsidiaries as
of December 31, 1997 and 1996 and the related audited consolidated statements of
earnings and retained earnings and cash flows for each of the three fiscal years
ended December 31, 1997, 1996 and 1995, together with all related notes thereto,
accompanied by the unqualified opinions thereon (collectively, the "COMPANY
AUDITED FINANCIAL STATEMENTS"). From the date hereof until the Closing, the
Company and the Subsidiary shall use their best efforts to cause the Company's
Accountants to make available to the Parent, and the Parent's Accountants,
copies of the Company's Accountants' work papers with respect to the Company
Audited Financial Statements. The Company Audited Financial Statements (i)
shall be prepared from the books of account and other financial records of the
Company and its subsidiaries, (ii) shall be prepared in accordance with GAAP
applied on a consistent basis
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throughout the periods indicated (except as may be indicated in the notes
thereto) and (iii) shall present fairly, in all material respects, the
consolidated financial position of the Company and its subsidiaries as at the
respective dates thereof and the results of their operations and their cash
flows for the respective periods indicated therein except as otherwise noted
therein. Any interim financial statements of the Company delivered to the Parent
or the Purchaser prior to the Effective Time will reflect all Taxes accrued
during the period covered by such statements and on the date on which the
Effective Time occurs, the Company's books and records will reflect all Taxes
accrued on or prior to the date on which the Effective Time occurs. The Company
will have prepared and filed or otherwise furnished to the appropriate party (or
cause to be prepared and filed or so furnished) in a timely manner all returns,
reports and forms ("Returns") relating to the Company that are due on or before
the date on which the Effective Time occurs.
SECTION 5.12. Disposition of Certain Securities. As a material
inducement for the Parent and the Purchaser to enter into this Agreement, each
Shareholder and the Trustees on behalf of the ESOP agrees that he, she or it, as
the case may be, will not sell, assign or otherwise transfer, directly or
indirectly, any of the shares of Parent Common Stock received in consideration
for his, her or its shares of Company Common Stock prior to the first
anniversary of the Effective Time except, in the case of the ESOP, for any
distributions from the ESOP in connection with the termination of employment of
any ESOP Participant in accordance with the terms thereof. Thereafter, each
Shareholder that desires to sell more than 5,000 shares of Parent Common Stock
in any five (5) Business Day period will cooperate with the Parent in
determining the method of sale of any such shares of Parent Common Stock by such
Shareholder and will use one of three nationally recognized brokerage firms
selected by the Parent; provided, however, that if a Shareholder or the Trustees
determine in his or their reasonable judgment that it would be advisable to use
another nationally recognized brokerage firm, such Shareholder may so notify the
Parent and the Parent will cooperate with such Shareholder in the sale of such
shares of the Parent Common Stock.
SECTION 5.13. Indemnification of Directors and Officers. (a) The
Parent and the Surviving Corporation agree that the indemnification obligations
set forth in the Company's Articles of Incorporation and the Company's By-laws,
in each case as of the date of this Agreement, shall survive the Merger (and,
prior to the Effective Time, the Parent shall cause the Certificate of
Incorporation and By-laws of the Purchaser to reflect such provisions) and shall
not be amended, repealed or otherwise modified for a period of six years after
the Effective Time in any manner that would adversely affect the rights
thereunder of the individuals who on or prior to the Effective Time were
directors, officers, employees or agents of the Company or the Subsidiary.
(b) The Company (and if a material portion of the assets of the
Company is transferred out of the Company, the Parent) shall, to the fullest
extent permitted under applicable Law and regardless of whether the Merger
becomes effective, indemnify and hold harmless, and, after the Effective Time,
the Surviving Corporation shall, to the fullest extent permitted under
applicable Law, indemnify and hold harmless, each present and former director,
officer, trustee, fiduciary, employee or agent of the Company and the Subsidiary
and each such person who served at the request of the Company or the Subsidiary
as a director, officer, trustee, partner, fiduciary, employee or agent of
another corporation, partnership, joint venture, trust, pension or other
employee benefit plan or enterprise (collectively, the "INDEMNIFIED PARTIES")
against all costs and expenses (including reasonable attorneys' fees),
judgments, fines, losses, claims, damages, liabilities and settlement amounts
paid in connection with any claim, action, suit, proceeding or investigation
(whether arising before or after the Effective Time), whether civil,
administrative or investigative, arising out of or pertaining to any action or
omission in their capacity as an officer or director, in each case occurring
before the Effective Time (including the transactions contemplated by this
Agreement). Without limiting the foregoing, in the event of any such claim,
action, suit, proceeding or investigation, (i) the Company or the Parent and the
Surviving Corporation, as the case may be, shall pay the fees and expenses of
counsel selected by any Indemnified Party, which counsel shall be reasonably
satisfactory to the Company or to the Parent and the Surviving Corporation, as
the case may be, promptly after statements therefor are received (unless the
Surviving Corporation shall elect to defend such action) and (ii) the Company
and the Parent and the Surviving Corporation shall cooperate in the defense of
any such matter.
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(c) In the event the Company or the Surviving Corporation or any of
their respective successors or assigns (i) consolidates with or merges into any
other person or shall not be the continuing or surviving corporation or entity
in such consolidation or merger or (ii) transfers all or substantially all its
properties and assets to any person, then, and in each case, proper provision
shall be made so that the successors and assigns of the Company or the Surviving
Corporation, as the case may be, honor the indemnification obligations set forth
in this Section 5.13.
(d) The obligations of the Company, the Surviving Corporation, and the
Parent under this Section 5.13 shall not be terminated or modified in such a
manner as to adversely affect any director, officer, employee, agent or other
person to whom this Section 5.13 applies without the consent of such affected
director, officer, employees, agents or other persons (it being expressly agreed
that each such director, officer, employee, agent or other person to whom this
Section 5.13 applies shall be third-party beneficiaries of this Section 5.13).
SECTION 5.14. Tax Representation Letters. Each party hereto shall
deliver tax representations letters substantially in the forms of Exhibits 5.14
(a) and (b).
SECTION 5.15. Tax Opinions. Each party hereto shall take all
reasonable and good faith efforts to ensure that the tax opinions, substantially
in the forms of Exhibits 6.01(d)(iii) and 6.02(d)(ii), are delivered.
ARTICLE VI
CONDITIONS TO THE CLOSING
SECTION 6.01. Conditions to Obligations of the Parent and the
Purchaser. The obligations of the Parent and the Purchaser to effect the
Closing shall be subject to the prior fulfillment of each of the following
conditions:
(a) Representations and Warranties; Agreements and Covenants. (i)
The representations and warranties of the Company, the Shareholders and the
Trustees contained in this Agreement shall be true and correct in all
material respects on and as of the Effective Time, with the same force and
effect as if made as of the Effective Time, (ii) all the agreements
contained in this Agreement to be performed or complied with by the
Company, the Shareholders and the Trustees at or before the Effective Time
shall have been performed or complied with in all material respects and
(iii) the Parent shall have received certificates from the Company, the
Shareholders and the Trustees as to the fulfillment of the conditions set
forth in the foregoing clauses (i) and (ii).
(b) Litigation. There shall have been no order or preliminary or
permanent injunction entered in any action or proceeding before any
federal, state or foreign court or governmental, administrative or
regulatory authority or agency by any federal, state or foreign legislative
body, court, government or governmental, administrative or regulatory
authority or agency which shall have remained in effect and which shall
have had the effect of making illegal the consummation of any of the
transactions hereunder.
(c) Shareholder Approval. This Agreement and the Merger shall have
been approved and adopted by the vote of the shareholders of the Company
holding at least 90% of the outstanding Company Stock as of the record date
of the Shareholders Meeting.
(d) Opinions. The Parent shall have received (i) an opinion from Gray
Cary Ware & Freidenrich substantially in the form attached hereto as
Exhibit 6.01(d)(i), and (ii) an opinion from Ludwig Goldberg & Krenzel,
reasonably acceptable to the Parent, substantially in the form of Exhibit
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6.01(d)(ii) and (iii) an opinion from the Parent's tax counsel,
substantially in the form of Exhibit 6.01(d)(iii) and based upon
representation letters substantially in the forms of Exhibits 5.16(a) and
(b), to the effect that the Merger will be treated for federal income tax
purposes as a reorganization qualifying under the provisions of Section
368(a) of the Code and that each of the Parent, the Purchaser and the
Company will be a party to the reorganization within the meaning of Section
368(b) of the Code, dated on the date on which the Effective Time occurs.
(e) HSR Act. The applicable waiting period, together with any
extensions thereof, under the HSR Act shall have expired or been
terminated.
(f) Financial Statements. The 1997 Financial Statements referred to
in Section 1.07 and the Company Audited Financial Statements referred to in
Section 5.11 shall have been delivered to the Parent and any objections by
the Parent pursuant to such Section 1.07 shall have been resolved.
(g) Company Options. Mr. Taggart shall have exercised the Company
Options in accordance with Section 5.04(d) hereof.
(h) Employment Agreements. The employment agreements entered into by
the Parent or a Subsidiary thereof of even date herewith shall be in full
force and effect.
(i) Effectiveness of the Registration Statement. The Registration
Statement shall have been declared effective by the SEC under the
Securities Act. No stop order suspending the effectiveness of the
Registration Statement shall have been issued by the SEC and no proceedings
for that purpose shall have been initiated or, to the knowledge of the
Parent or the Company, threatened by the SEC.
(j) National Market System. The shares of Parent Common Stock
issuable to the Company's shareholders in the Merger shall have been
approved for listing on the NASDAQ National Market System, subject to
official notice of issuance.
(k) Shareholder Indemnity Obligations. Each of the individual Company
Shareholders who is not a party to this Agreement shall have signed a
letter agreement reasonably satisfactory to the Parent confirming that such
Company Shareholder shall be bound by the indemnification obligations set
forth in Article VII hereof.
SECTION 6.02. Conditions to Obligations of the Company and the
Shareholders. The obligations of the Company and the Shareholders to effect the
Closing shall be subject to the prior fulfillment of each of the following
conditions:
(a) Representations and Warranties; Agreements and Covenants. (i)
The representations and warranties of the Parent and the Purchaser
contained in this Agreement shall be true and correct in all material
respects on and as of the Effective Time, with the same force and effect as
if made as of the Effective Time, (ii) all the agreements contained in this
Agreement and in any certificates or agreements of the Parent or the
Purchaser delivered pursuant hereto to be performed or complied with by the
Parent or the Purchaser, at or before the Effective Time, shall have been
performed or complied with in all material respects and (iii) the Company
and the Shareholders shall have received a certificate of each of the
Parent and the Purchaser, signed by a duly authorized officer thereof, as
to the fulfillment of the conditions set forth in the foregoing clauses (i)
and (ii).
(b) Litigation. There shall have been no order or preliminary or
permanent injunction entered in any action or proceeding before any
federal, state or foreign court or governmental, administrative or
regulatory authority or agency by any federal, state or foreign legislative
body, court, government or governmental, administrative or regulatory
authority or agency which shall have remained
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in effect and which shall have had the effect of making illegal the
consummation of any of the transactions hereunder.
(c) Shareholder Approval. This Agreement and the Merger shall have
been approved and adopted by the requisite vote of the shareholders of the
Company.
(d) Opinion. The Company shall have received (i) an opinion from
Shearman & Sterling substantially in the form attached hereto as Exhibit
6.02(d)(i) and (ii) an opinion from the Company's tax counsel,
substantially in the form of Exhibit 6.02(d)(ii) and based upon
representation letters substantially in the forms of Exhibits 5.14(a) and
(b), to the effect that the Merger will be treated for federal income tax
purposes as a reorganization qualifying under the provisions of Section
368(a) of the Code and that each of the Parent, the Purchaser and the
Company will be a party to the reorganization within the meaning of Section
368(b) of the Code, dated on the date on which the Effective Time occurs.
(e) HSR Act. The applicable waiting period, together with any
extensions thereof, under the HSR Act shall have expired or been
terminated.
(f) Effectiveness of the Registration Statement. The Registration
Statement shall have been declared effective by the SEC under the
Securities Act. No stop order suspending the effectiveness of the
Registration Statement shall have been issued by the SEC and no proceedings
for that purpose shall have been initiated or, to the knowledge of the
Parent or the Company, threatened by the SEC.
(g) National Market System. The shares of Parent Common Stock
issuable to the Company's shareholders in the Merger shall have been
approved for listing on the NASDAQ National Market System, subject to
official notice of issuance.
(h) Employment Agreements. The Parent or a Subsidiary thereof shall
have executed and delivered to Messrs. Stolp and Taggart the employment
agreements in the form of Exhibits D and E hereto, respectively.
(i) Financial Statements. If the Parent shall have exercised its
right pursuant to Section 1.07(d) to have the Parent's Accountants deliver
the items required by Section 1.07(e), any objections raised by the Company
pursuant to such Section 1.07 shall have been resolved.
ARTICLE VII
INDEMNIFICATION
SECTION 7.01. Survival of Representations and Warranties. The
representations and warranties contained in this Agreement shall survive the
Effective Time until the date that is 90 days after the issuance of the audited
consolidated financial statements of the Parent for the fiscal year ending June
30, 1999, but in no event later than December 31, 1999; provided, however, that
(i) the representations and warranties contained in Section 2.18, 3.01(c),
3.01(d), 3.01(f), 3.02(a), and 3.02(e), shall survive indefinitely, (ii) the
representations and warranties contained in Section 2.02 shall survive until the
fifth anniversary of the Effective Time, (iii) the representations and
warranties contained in Section 2.08 shall survive until expiration of the
applicable statute of limitations and (iv) the representations and warranties
contained in Section 2.14 shall survive until the close of business on the 120th
day following the expiration of the applicable statute of limitations (giving
effect to any waiver, mitigation or extension thereof). Neither the period of
survival nor the liability of the Company or the Shareholders with respect to
their respective representations and warranties shall be reduced by any
investigation made at any time by or on behalf of the Parent or the Purchaser,
and neither the period of survival nor the liability of the Parent with respect
to the representations and warranties of the Parent and the Purchaser shall be
reduced by any investigation made at any time by or on behalf of the Company,
the
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Shareholders or the Trustees. If written notice of a claim has been given prior
to the expiration of the applicable representations and warranties, then the
relevant representations and warranties shall survive as to such claim, until
such claim has been finally resolved.
SECTION 7.02. Indemnification by the Company Shareholders and the
Company.
(a) After the Effective Time, the Parent and its affiliates
(including, after the Effective Time, the Surviving Corporation), officers,
directors, employees, agents, successors and assigns (collectively, the
"PARENT INDEMNIFIED PARTIES") shall be indemnified and held harmless by
each Company Shareholder, subject to Section 7.05 and the other provisions
of this Article VII, for such Company Shareholder's Equity Percentage (as
hereinafter defined) of any and all liabilities, losses, damages, claims,
costs and expenses, interest, awards, judgments and penalties (including,
without limitation, reasonable attorneys' fees and expenses) actually
suffered or incurred by them (including, without limitation, in connection
with any action brought or otherwise initiated by any of them) (hereinafter
a "LOSS"), arising out of or resulting from (i) the breach of any
representation or warranty made by the Company, the Shareholders or the
Trustees, as the case may be, in this Agreement or (ii) subject to the
limitations set forth in Section 7.04(c), the matter identified in Section
2.14 of the Disclosure Schedule (the "Pending Tax Case"). To the extent
that the undertakings set forth in this Section 7.02(a) may be
unenforceable, each Company Shareholder shall, subject to Section 7.06 and
the other provisions of this Article VII, contribute the maximum amount
that they are permitted to contribute under applicable law to the payment
and satisfaction of such Company Shareholder's Equity Percentage of all
Losses incurred by the parties entitled to indemnification hereunder.
(b) After the Effective Time, the Shareholders, including the ESOP,
and the Trustees and their respective affiliates, officers, directors,
employees, agents, successors and assigns shall be indemnified and held
harmless by the Parent for any and all Losses arising out of or resulting
from the breach of any representation or warranty made by the Parent or the
Purchaser in this Agreement. To the extent that the Parent's undertakings
set forth in this Section 7.02(b) may be unenforceable, the Parent shall
contribute the maximum amount that it is permitted to contribute under
applicable law to the payment and satisfaction of all Losses incurred by
the parties entitled to indemnification hereunder.
(c) Any party seeking indemnification under this Article VII (an
"INDEMNIFIED PARTY") shall give each person from whom indemnification is
being sought (each, an "INDEMNIFYING PARTY") notice of any matter which
such Indemnified Party has determined has given or could give rise to a
right of indemnification under this Agreement, within 60 days of such
determination and, in any event, prior to the expiration of the applicable
representations and warranties as set forth in Section 7.01 hereof, stating
the amount of the Loss, if known, and method of computation thereof, and
containing a reference to the provisions of this Agreement in respect of
which such right of indemnification is claimed or arises. The obligations
and liabilities of an Indemnifying Party under this Article VII with
respect to Losses arising from claims of any third party which are subject
to the indemnification provided for in this Article VII ("THIRD PARTY
CLAIMS") shall be governed by and contingent upon the following additional
terms and conditions: if an Indemnified Party shall receive notice of any
Third Party Claim, the Indemnified Party shall give each Indemnifying Party
notice of such Third Party Claim within 30 days of the receipt by the
Indemnified Party of such notice; provided, however, that the failure to
provide such notice shall not release any Indemnifying Party from any of
its obligations under this Article VII except to the extent such
Indemnifying Party is materially prejudiced by such failure. If the
Indemnifying Party or Parties acknowledge in writing its or their
obligation to indemnify the Indemnified Party hereunder against any Losses
that may result from such Third Party Claim (subject to the limitations set
forth in Sections 7.03, 7.04 and 7.06 hereof), then the Indemnifying Party
or Parties shall be entitled to assume and control the defense of such
Third Party Claim at its or their expense and through counsel of its or
their choice if it or they give notice of its or their intention to do so
to the Indemnified Party within ten days of the receipt of such notice from
the Indemnified Party; provided, however, that if there exists or is
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reasonably likely to exist a conflict of interest that would make it
inappropriate in the judgment of the Indemnified Party for the same counsel
to represent both the Indemnified Party and the Indemnifying Party or
Parties, then the Indemnified Party shall be entitled to retain its own
counsel, at the expense of the Indemnifying Party or Parties. In the event
the Indemnifying Party or Parties exercise the right to undertake any such
defense against any such Third Party Claim as provided above, the
Indemnified Party shall cooperate with the Indemnifying Party or Parties in
such defense and make available to the Indemnifying Party or Parties, at
the Indemnifying Party or Parties' expense, all witnesses, pertinent
records, materials and information in the Indemnified Party's possession or
under the Indemnified Party's control relating thereto as is reasonably
required by the Indemnifying Parties. Similarly, in the event the
Indemnified Party is, directly or indirectly, conducting the defense
against any such Third Party Claim, the Indemnifying Party or Parties shall
cooperate with the Indemnified Party in such defense and make available to
the Indemnified Party, at the Indemnifying Party or Parties' expense, all
such witnesses, records, materials and information in the Indemnifying
Party or Parties' possession or under the Indemnifying Party or Parties'
control relating thereto as is reasonably required by the Indemnified
Party. No such Third Party Claim may be settled by the Indemnifying Party
or Parties without the prior written consent of the Indemnified Party,
which consent shall not be unreasonably withheld. The Parent shall use its
best efforts to defend in a commercially reasonable manner any Third Party
Claim alleging that the conduct of the Company's business infringes any
Intellectual Property of such third party.
(d) The Shareholders and the Parent agree to treat all payments made
by either to or for the benefit of the other (including any payments to the
Company or the Subsidiary) under the indemnity provisions of this Agreement
and for any misrepresentations or breach of warranties or covenants as
adjustments to the purchase price or as capital contributions for Tax
purposes and that such treatment shall govern for purposes hereof except to
the extent that the laws of a particular jurisdiction provide otherwise, in
which case such payments shall be made in an amount sufficient to indemnify
the relevant party on an after-Tax basis.
SECTION 7.03. Limitation of Remedies.
(a) The indemnification provided by this Article VII, subject to the
limitations set forth herein, shall be the sole and exclusive post-Closing
remedy available to the parties hereto for any breach of any representation
or warranty contained in and, except as set forth in Section 7.03(d), for
any other claim under this Agreement. The parties hereto acknowledge that
no party hereto has made any representation or warranty to any other party
hereto other than as set forth in this Agreement.
(b) In no event shall any party hereto be entitled to rescission of
this Agreement as a result of any breach of any representation, warranty,
covenant or agreement contained herein.
(c) The amount of any recovery to which any Indemnified Party shall be
entitled pursuant to Section 7.02 or Section 7.03 shall be net (i.e. after
deducting) any insurance proceeds inuring to such Indemnified Party as a
result of the facts which entitle such Indemnified Party to indemnification
pursuant to Section 7.02 or 7.03.
(d) The parties shall have all remedies available at law or in equity
with respect to any claims based on fraud or for breach of any covenant
contained in this Agreement, regardless of any limitations set forth
elsewhere herein.
SECTION 7.04. Limits on Indemnification.
(a) Notwithstanding anything to the contrary contained in this
Agreement except as set forth in Section 7.04(b),7.04(c) or 7.05, (i) the
Parent Indemnified Parties shall not be entitled to indemnification for any
Losses pursuant to Section 7.02 until such Losses aggregate $100,000 and
(ii) the
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maximum amount of indemnifiable Losses which may be recovered from any
Company Shareholder arising out of or resulting from the causes enumerated
in Section 7.02 shall be an amount equal to 25% of such Company
Shareholder's Equity Percentage of the Aggregate Purchase Price. "EQUITY
PERCENTAGE" means, for each Company Shareholder, the percentage which the
number of shares of Company Common Stock owned by such Company Shareholder
(after giving effect to the exercise of all Company Options) represents of
the number of shares of Company Common Stock owned by all the Company
Shareholders (after giving effect to the exercise of the Company Options
and ignoring the shares held beneficially through the ESOP for all Company
Stockholders other than the ESOP). It is expressly understood and agreed
that no Shareholder's Equity Percentage shall be increased for any reason,
including, without limitation, the termination of the Escrow Agreement.
Until the first anniversary of the Effective Time, each Company Shareholder
may satisfy any indemnity obligation hereunder by returning to the Parent a
number of shares of Parent Common Stock equal to the amount of such Company
Shareholder's indemnity obligation divided by the Average Parent Share
Price, provided, however, that counsel to the Parent shall have determined
that any such return of shares of Parent Common Stock does not adversely
affect the status of the Merger as a tax free reorganization under Section
368(a) of the Code.
(b) With respect to recovery of Losses from the ESOP, the Parent
Indemnified Parties (i) shall not make any claim against the ESOP with
respect to any representation or warranty contained in Article II of this
Agreement unless the Parent Indemnified Parties also make such claim
against all of the Shareholders and (ii) shall not seek to recover any
amount from the ESOP other than pursuant to the Escrow Agreement.
(c) No limit on indemnification contained in Section 7.04(a) shall be
imposed with respect to the taxes, interest and penalties with respect to
the Pending Tax Case (nor shall such amounts be included for purposes of
the threshold or limit set forth in Section 7.04(a)) and (ii) the Parent
Indemnified Parties shall not be entitled to indemnification for any other
Losses with respect to such tax case. The Parent and the Purchaser shall
use their best efforts, at their own expense to defend or settle such tax
case in a commercially reasonable manner and shall provide the
Shareholders, upon request, any information reasonably requested with
respect thereto. Unless it would have a material adverse effect on the
Business, the Parent and the Purchaser will not consent to the settlement
or final determination of the Pending Tax Case without the consent of the
Shareholders, which consent shall not be unreasonably withheld.
SECTION 7.05. Shareholder Responsibility. (a) Subject to the
limitations set forth in Section 7.04, each Shareholder that made a
representation in Article III is solely and individually responsible, as to
itself, and for the representations and warranties made by it with respect to
itself in Article III of this Agreement and each Shareholder is solely and
individually responsible, shall provide 100% indemnity and shall be 100%
responsible for any breach of any such representation and warranty up to the
aggregate amount (when added to any other amounts paid in satisfaction of
indemnification obligations under this Article VII by such Shareholder) equal to
the consideration paid to such Shareholder pursuant to Section 1.08 hereof.
ARTICLE VIII
DEFINED TERMS
SECTION 8.01. Certain Defined Terms. As used in this Agreement, the
following terms shall have the following meanings:
"BUSINESS DAY" means any day that is not a Saturday, a Sunday or other
day on which banks are required or authorized by law to be closed in the City of
New York.
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"CERCLA" means the Comprehensive Environmental Response, Compensation
and Liability Act of 1980, as amended through the date hereof.
"CERCLIS" means the Comprehensive Environmental Response, Compensation
and Liability Information System, as updated through the date hereof.
"ENVIRONMENT" means surface waters, groundwaters, soil, subsurface
strata and ambient air.
"ENVIRONMENTAL CLAIMS" means any and all administrative, regulatory or
judicial actions, suits, demands, demand letters, claims, liens, notices of non-
compliance or violation, investigations, proceedings, consent orders or consent
agreements relating in any way to any Environmental Law or any Environmental
Permit (hereafter "CLAIMS"), including, without limitation, (a) any and all
Claims by Governmental Authorities for enforcement, cleanup, removal, response,
remedial or other actions or damages pursuant to any applicable Environmental
Law and (b) any and all Claims by any person seeking damages, contribution,
indemnification, cost recovery, compensation or injunctive relief resulting from
Hazardous Materials or arising from alleged injury or threat of injury to
health, safety or the Environment.
"ENVIRONMENTAL CONDITION" means a condition relating to or arising or
resulting from a failure to comply with any applicable Environmental Law or
Environmental Permit or a Release of Hazardous Materials into the Environment.
"ENVIRONMENTAL LAWS" means any Law, now or hereafter in effect and as
amended, and any judicial or administrative interpretation thereof, including
any judicial or administrative order, consent decree or judgment, relating to
the environment, health, safety or Hazardous Materials, including, without
limitation, the CERCLA; the Resource Conservation and Recovery Act, 42 U.S.C.
(S)(S) 6901 et seq.; the Hazardous Materials Transportation Act, 49 U.S.C.
(S)(S) 6901 et seq.; the Clean Water Act, 33 U.S.C. (S)(S) 1251 et seq.; the
Toxic Substances Control Act, 15 U.S.C. (S)(S) 2601 et seq.; the Clean Air Act,
42 U.S.C. (S)(S) 7401 et seq.; the Safe Drinking Water Act, 42 U.S.C. (S)(S)
300f et seq.; the Atomic Energy Act, 42 U.S.C. (S)(S) 2011 et seq.; the Federal
Insecticide, Fungicide and Rodenticide Act, 7 U.S.C. (S)(S) 136 et seq.; and the
Federal Food, Drug and Cosmetic Act, 21 U.S.C. (S)(S) 301 et seq.
"ENVIRONMENTAL PERMITS" means all permits, approvals, identification
numbers, licenses and other authorizations required under any applicable
Environmental Law.
"GOVERNMENTAL AUTHORITY" means (i) any United States federal, state or
local or any foreign government, governmental, regulatory or administrative
authority, agency or commission or any court, tribunal or judicial body or (ii)
any arbitral or other non-governmental dispute resolution body.
"HAZARDOUS MATERIALS" means (a) petroleum and petroleum products,
radioactive materials, asbestos in any form that is or could become friable,
urea formaldehyde foam insulation, transformers or other equipment that contain
polychlorinated biphenyls, and radon gas, (b) any other chemicals, materials or
substances defined as or included in the definition of "hazardous substances",
"hazardous wastes", "hazardous materials", "extremely hazardous wastes",
"restricted hazardous wastes", "toxic substances", "toxic pollutants",
"contaminants" or "pollutants", or words of similar import, under any applicable
Environmental Law, and (c) any other chemical, material or substance exposure to
which is regulated by any Governmental Authority.
"INTELLECTUAL PROPERTY" means (i) trademarks, service marks, trade
dress, logos, trade names and corporate names, whether or not registered,
including all common law rights, and registrations and applications for
registration thereof, including, but not limited to, all marks registered in the
United States Patent and Trademark Office, the Trademark Offices of the States
and Territories of the United States of America, and the Trademark Offices of
other nations throughout the world, and all rights therein provided by
multinational treaties or conventions, (ii) copyrights (registered or otherwise)
and registrations and applications for registration thereof,
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and all rights therein provided by multinational treaties or conventions, (iii)
computer software, including, without limitation, source code, operating systems
and specifications, data, data bases, files, documentation and other materials
related thereto, data and documentation, (iv) trade secrets and confidential,
technical or business information (including the Company's manufacturing
processes, and all ideas, formulas, compositions, inventions and conceptions of
inventions whether patentable or unpatentable and whether or not reduced to
practice), (v) technology (including know-how and show-how), manufacturing and
production processes and techniques, research and development information,
drawings, specifications, designs, plans, proposals, technical data,
copyrightable works, financial, marketing and business data, pricing and cost
information, business and marketing plans and customer and supplier lists and
information, (vi) copies and tangible embodiments of all the foregoing, in
whatever form or medium, (vii) issued patents and patent applications, (viii)
all rights to obtain and rights to apply for patents, and to register trademarks
and copyrights, (ix) licenses or sublicensed to the Company or the Subsidiary,
or by the Company or the Subsidiary to any third party, in connection with any
of the foregoing, and (x) all rights to sue and recover and retain damages and
costs and attorneys' fees for past, present and future infringement or breach of
any of the Intellectual Property rights hereinabove set forth.
"MATERIAL ADVERSE EFFECT" means any circumstance, change, event,
transaction, loss, failure, effect or other occurrence that is or will be
materially adverse to the business, operations, properties (including intangible
properties), condition (financial or otherwise), assets, liabilities or results
of operations of the Company and the Subsidiary taken as a whole.
"POREX" means Porex Technologies, Inc., a subsidiary of the Parent.
ARTICLE IX
TERMINATION, AMENDMENT AND WAIVER; MISCELLANEOUS
SECTION 9.01. Termination. This Agreement may be terminated and the
transactions contemplated hereby may be abandoned at any time prior to the
Effective Time (i) by mutual written consent of the Company and the Parent; (ii)
by either the Company or the Parent if there has been a material breach of any
representation, warranty, covenant or agreement on the part of the other parties
which would cause the conditions to closing to fail to be satisfied and which is
incapable of being cured prior to September 30, 1998, or in the event that
Section 1.07(e) is applicable (whether or not the Parent exercises its right to
use the Parent's Accountants), October 31, 1998, or (iii) by the Company or the
Parent, if the closing shall not have occurred by September 30, 1998, or in the
event that Section 1.07(e) is applicable (whether or not the Parent exercises
its right to use the Parent's Accountants),October 31, 1998, provided, however,
that the right to terminate this Agreement under this Section 9.01(a)(iii) shall
not be available to any party whose wilful failure to fulfill any material
obligation under this Agreement has been the cause of, or resulted in, the
failure of the closing to occur on or before such date.
SECTION 9.02. Effect of Termination; Expenses. In the event of the
termination of this Agreement pursuant to Section 9.01, this Agreement shall
forthwith become void and have no effect and there shall be no liability on the
part of any party hereto or its affiliates, directors, officers or shareholders;
provided, however, that nothing herein shall relieve any party from liability
for any willful breach hereof prior to such termination. All costs and
expenses, including, without limitation, fees and disbursements of counsel,
financial advisors and accountants, incurred by the Company, the Shareholders or
the Parent in connection with this Agreement and the transactions contemplated
hereby shall be paid by the person incurring such expense whether or not the
Closing shall have occurred; provided, however, that the Company shall pay any
fees required for the filings by the Company and/or the Shareholders under the
HSR Act.
SECTION 9.03. Amendment. This Agreement may be amended by the
parties hereto (in the case of the Parent, the Purchaser and the Company by
action taken by or on behalf of their respective Boards of Directors) at any
time prior to the Effective Time; provided that, after the approval of this
Agreement by the holders of shares of Company Common Stock, no amendment may be
made which would reduce the amount or
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change the type of consideration to be received by the holders of Company Common
Stock pursuant to the Merger. This Agreement may not be amended except by an
instrument in writing signed by the parties hereto.
SECTION 9.04. Waiver. At any time prior to the Effective Time, the
Parent and the Purchaser, being deemed one party, and the Company and the
Shareholders, being deemed one party, may (a) extend the time for the
performance of any obligation or other act of any other party hereto, (b) waive
any inaccuracy in the others party's representations and warranties contained
herein or in any document delivered pursuant hereto and (c) waive compliance by
the other party with any agreement or condition contained herein. Any such
extension or waiver shall be valid if set forth in an instrument in writing
signed by the party or parties to be bound thereby. No such waiver referred to
in clause (b) above shall effect any party's right to seek indemnification for a
breach of such representation or warranty pursuant to Article VII hereof.
SECTION 9.05. Miscellaneous. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any law or
public policy, all other terms and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic or legal
substance of the transactions contemplated hereby is not affected in any manner
materially adverse to any party. Upon such determination that any term or other
provision is invalid, illegal or incapable of being enforced, the parties hereto
shall negotiate in good faith to modify this Agreement so as to effect the
original intent of the parties as closely as possible in an acceptable manner in
order that the transactions contemplated hereby are consummated as originally
contemplated to the greatest extent possible. This Agreement and the exhibits
hereto constitute the entire agreement among the parties with respect to the
subject matter hereof and supersedes all prior agreements and undertakings, both
written and oral, among the parties with respect to the subject matter hereof.
This Agreement may not be assigned by operation of law or otherwise without the
express written consent of the Parent and the Shareholders; provided, however,
that the Parent may assign this Agreement to an affiliate of the Parent without
the consent of the Shareholders, but no such assignment shall (i) relieve the
Parent of its obligations hereunder if such assignee does not perform such
obligations, (ii) change the consideration to be received by any Shareholder in
the Merger or (iii) cause the transactions contemplated hereby not to qualify as
a tax-free reorganization under Section 368(a) of the Code and provided further,
however that the ESOP may assign its rights hereunder if and to the extent
required under applicable law. This Agreement shall be binding upon and inure
solely to the benefit of each party hereto, and nothing in this Agreement,
express or implied, is intended to or shall confer upon any other person any
rights, benefits or remedies of any nature whatsoever under or by reason of this
Agreement. This Agreement shall be governed by, and construed in accordance
with, the laws of the State of Delaware. This Agreement may be executed in one
or more counterparts, and by the different parties hereto in separate
counterparts, each of which when executed shall be deemed to be an original but
all of which taken together shall constitute one and the same agreement. The
parties hereto agree that irreparable damage would occur in the event any of the
provisions of this Agreement were not to be performed in accordance with the
terms hereof and that the parties shall be entitled to specific performance of
the terms hereof, in addition (subject to the limitations of Article VII hereof)
to any other remedy at law or equity. Any notices under this Agreement shall be
addressed, if to the Parent, to its principal executive office, attention:
Chief Executive Officer; if to Point Plastics Incorporated, to its principal
executive office, attention Chief Executive Officer, and if to any Shareholder,
addressed to such Shareholder c/o Point Plastics.
37
<PAGE>
IN WITNESS WHEREOF, the Parent, the Purchaser, the Company, the
Trustees and the Shareholders have each caused this Agreement to be executed as
of the date first written above by their respective officers thereunto duly
authorized.
SYNETIC, INC.
By:_____________________________________
Name:
Title:
PLASTICS ACQUISITION CORP.
By:_____________________________________
Name:
Title:
POINT PLASTICS, INC.
By:_____________________________________
Name:
Title:
THE POINT PLASTICS INC. EMPLOYEE
STOCK OWNERSHIP PLAN AND TRUST
By:_____________________________________
Philip E. Stolp, solely in his capacity as a
Trustee under the Point Plastics, Inc. Employee
Stock Ownership Plan
By:_____________________________________
Jason Stolp, solely in his capacity as a
Trustee under the Point Plastics, Inc. Employee
Stock Ownership Plan
By:_____________________________________
Patricia Parsons, solely in her capacity as a
Trustee under the Point Plastics, Inc. Employee
Stock Ownership Plan
38
<PAGE>
________________________________________
Philip E. Stolp
________________________________________
Thomas Taggart
Each of the undersigned spouses of an
Individual Shareholder hereby executes this
Agreement in order to give her consent to
the execution by her spouse of this
Agreement and the consummation of the
transactions contemplated herein, including
the Merger.
________________________________________
Debra L. Stolp
________________________________________
[Mrs. Taggart]
39
<PAGE>
ANNEX II CHAPTER 13 OF THE CGCL
<PAGE>
CGCL CHAPTER 13
DISSENTERS' RIGHT
Right to require purchase--"Dissenting shares" and "dissenting shareholder"
defined. (S)1300. Demand for purchase. (S)1301.
Endorsement of shares. (S)1302.
Agreed price--Time for payment. (S)1303.
Dissenter's action to enforce payment. (S)1304.
Appraisers' report--Payment--Costs. (S)1305.
Dissenting shareholder's status as creditor. (S)1306.
Dividends paid as credit against payment. (S)1307.
Continuing rights and privileges of dissenting shareholders. (S)1308.
Termination of dissenting shareholder status. (S)1309.
Suspension of proceedings for payment pending litigation. (S)1310.
Exempt shares. (S)1311.
Attacking validity of reorganization or merger. (S)1312.
(S)1300. RIGHT TO REQUIRE PURCHASE--"DISSENTING SHARES" AND
DISSENTING SHAREHOLDER" DEFINED.
(a) If the approval of the outstanding shares (Section 152) of a
corporation is required for a reorganization under subdivisions (a) and (b) or
subdivision (e) or (f) of Section 1201, each shareholder of the corporation
entitled to vote on the transaction and each shareholder of a subsidiary
corporation in a short-form merger may, by complying with this chapter, require
the corporation in which the shareholder holds shares to purchase for cash at
their fair market value the shares owned by the shareholder which are dissenting
shares as defined in subdivision (b). The fair market value shall be determined
as of the day before the first announcement of the terms of the proposed
reorganization or short-form merger, excluding any appreciation or depreciation
in consequence of the proposed action, but adjusted for any stock split, reverse
stock split or share dividend which becomes effective thereafter.
(b) As used in this chapter, "dissenting shares" means shares which
come within all of the following descriptions:
(1) Which were not immediately prior to the reorganization or short-form
merger either (A) listed on any national securities exchange certified by the
Commissioner of Corporations under subdivision (o) of Section 25100 or (B)
listed on the list of OTC margin stocks issued by the Board of Governors of
the Federal Reserve System, and the notice of meeting of shareholders to act
upon the reorganization summarizes this section and Sections 1301, 1302, 1303
and 1304; provided, however, that this provision does not apply to any shares
with respect to which there exists any restriction on transfer imposed by the
corporation or by any law or regulation; and provided further, that this
provision does not apply to any class of shares described in subparagraph (A)
or (B) if demands for payment are filed with respect to 5 percent or more of
the outstanding shares of that class.
(2) Which were outstanding on the date for the determination of
shareholders entitled to vote on the reorganization and (A) were not voted in
favor of the reorganization or (B), if described in subparagraph (A) or (B) of
paragraph (1) (without regard to the provisos in that paragraph), were voted
against the reorganization, or which were held of record on the effective date
of a short-form merger; provided, however, that subparagraph (A) rather than
subparagraph (B) of this paragraph applies in any case where the approval
required by Section 1201 is sought by written consent rather than at a
meeting.
(3) Which the dissenting shareholder has demanded that the corporation
purchase at their fair market value, in accordance with Section 1301.
<PAGE>
(4) Which the dissenting shareholder has submitted for endorsement, in
accordance with Section 1302.
(c) As used in this chapter, "dissenting shareholder" means the
recordholder of dissenting shares and includes a transferee of record. LEG.H.
1975 ch. 682, 1967 ch. 641, effective January 1, 1977, 1982 ch. 36, effective
February 17, 1982, 1990 ch. 1018, 1993 ch. 543.
1993 NOTES: Nothing in this act shall be construed to modify or alter
the prohibition contained in Sections 15503 and 15616 of the Corporations Code
or Section 1648 of the Insurance Code, or modify or alter any similar
prohibition relating to the operation of a business in limited partnership form.
Stats. 1993 ch. 543 (S)24.
Nothing in this act shall be construed to modify or impair any right
of limited partners under the Thompson-Killea Limited Partners Protection Act of
1992 (Chapter 1183 of the Statutes of 1992). Stats. 1993 ch. 543 (S)25.
(S)1301. DEMAND FOR PURCHASE.
(a) If, in the case of a reorganization, any shareholders of a
corporation have a right under Section 1300, subject to compliance with
paragraphs (3) and (4) of subdivision (b) thereof, to require the corporation to
purchase their shares for cash, such corporation shall mail to each such
shareholder a notice of the approval of the reorganization by its outstanding
shares (Section 152) within 10 days after the date of such approval, accompanied
by a copy of Sections 1300, 1302, 1303, 1304 and this section, a statement of
the price determined by the corporation to represent the fair market value of
the dissenting shares, and a brief description of the procedure to be followed
if the shareholder desires to exercise the shareholder's right under such
sections. The statement of price constitutes an offer by the corporation to
purchase at the price stated any dissenting shares as defined in subdivision (b)
of Section 1300, unless they lose their status as dissenting shares under
Section 1309.
(b) Any shareholder who has a right to require the corporation to
purchase the shareholder's shares for cash under Section 1300, subject to
compliance with paragraphs (3) and (4) of subdivision (b) thereof, and who
desires the corporation to purchase such shares shall make written demand upon
the corporation for the purchase of such shares and payment to the shareholder
in cash of their fair market value. The demand is not effective for any purpose
unless it is received by the corporation or any transfer agent thereof (1) in
the case of shares described in clause (i) or (ii) of paragraph (1) of
subdivision (b) of Section 1300 (without regard to the provisos in that
paragraph), not later than the date of the shareholders' meeting to vote upon
the reorganization, or (2) in any other case within 30 days after the date on
which the notice of the approval by the outstanding shares pursuant to
subdivision (a) or the notice pursuant to subdivision (a) or the notice pursuant
to subdivision (i) of Section 1110 was mailed to the shareholder.
(c) The demand shall state the number and class of the shares held of
record by the shareholder which the shareholder demands that the corporation
purchase and shall contain a statement of what such shareholder claims to be the
fair market value of those shares as of the day before the announcement of the
proposed reorganization or short-form merger. The statement of fair market
value constitutes an offer by the shareholder to sell the shares at such price,
LEG.H.1975 ch. 682, 1976 ch. 641, effective January 1, 1977, 1980 chs. 501,
1155.
(S)1302. ENDORSEMENT OF SHARES.
Within 30 days after the date on which notice of the approval by the
outstanding shares or the notice pursuant to subdivision (i) of Section 1110 was
mailed to the shareholder, the shareholder shall submit to the corporation at
its principal office or at the office of any transfer agent thereof, (a) if the
shares are certificated securities, the shareholder's certificates representing
any shares which the shareholder demands that the corporation purchase, to be
stamped or endorsed with a statement that the shares are dissenting shares or to
be exchanged for certificates of appropriate denomination so stamped or endorsed
or (b) if the shares are
2
<PAGE>
uncertificated securities, written notice of the number of shares which the
shareholder demands that the corporation purchase. Upon subsequent transfer of
the dissenting shares on the books of the corporation, the new certificates
initial transaction statement, and other written statements issued therefor
shall bear a like statement, together with the name of the original dissenting
holder of the shares. LEGH. 1975 ch. 683, effective January 1, 1977, 1986 ch.
766.
(S)1303. AGREED PRICE--TIME FOR PAYMENT.
(a) If the corporation and the shareholder agree that the shares are
dissenting shares and agree upon the price of the shares, the dissenting
shareholder is entitled to the agreed price with interest thereon at the legal
rate on judgments from the date of the agreement. Any agreements fixing the
fair market value of any dissenting shares as between the corporation and the
holders thereof shall be filed with the secretary of the corporation.
(b) Subject to the provisions of Section 1306, payment of the fair
market value of dissenting shares shall be made within 30 days after the amount
thereof has been agreed or within 30 days after any statutory or contractual
conditions to the reorganization are satisfied, whichever is later, and in the
case of certificated securities, subject to surrender of the certificates
therefor, unless provided otherwise by agreement. LEG.H. 1975 ch. 682,
effective January 1, 1977, 1980 ch. 501, 1986 ch. 766.
(S)1304. DISSENTER'S ACTION TO ENFORCE PAYMENT.
(a) If the corporation denies that the shares are dissenting shares,
or the corporation and the shareholder fail to agree upon the fair market value
of the shares, then the shareholder demanding purchase of such shares are
dissenting shares or any interested corporation, within six months after the
date on which notice of the approval by the outstanding shares (Section 152) or
notice pursuant to subdivision (i) of Section 1110 was mailed to the
shareholder, but not thereafter, may file a complaint in the superior court of
the proper county praying the court to determine whether the shares are
dissenting shares or the fair market value of the dissenting shares or both or
may intervene in any action pending on such a complaint.
(b) Two or more dissenting shareholders may join as plaintiffs or be
joined as defendants in any such action and two or more such actions may be
consolidated.
(c) On the trial of the action, the court shall determine the issues.
If the status of the shares as dissenting shares is in issue, the court shall
first determine that issue. If the fair market value of the dissenting shares
is in issue, the court shall determine, or shall appoint one or more impartial
appraisers to determine, the fair market value of the shares. LEG.H. 1975 ch.
682, effective January 1, 1977.
(S)1305. APPRAISERS' REPORT--PAYMENT--COSTS.
(a) If the court appoints an appraiser or appraisers, they shall
proceed forthwith to determine the fair market value per share. Within the time
fixed by the court, the appraisers, or a majority of them, shall make and file a
report in the office of the clerk of the court. Thereupon, on the motion of any
party, the report shall be submitted to the court and considered on such
evidence as the court considers relevant. If the court finds the report
reasonable, the court may confirm it.
(b) If a majority of the appraisers appointed fail to make and file a
report within 10 days from the date of their appointment or within such further
time as may be allowed by the court or the report is not confirmed by the court,
the court shall determine the fair market value of the dissenting shares.
(c) Subject to the provisions of Section 1306, judgment shall be
rendered against the corporation for payment of an amount equal to the fair
market value of each dissenting share multiplied by the number of dissenting
shares which any dissenting shareholder who is a party, or who has intervened,
is entitled to
3
<PAGE>
require the corporation to purchase, with interest thereon at the legal rate
from the date on which judgment was entered.
(d) Any such judgment shall be payable forthwith with respect to
uncertificated securities and, with respect to certificated securities, only
upon the endorsement and delivery to the corporation of the certificates for the
shares described in the judgment. Any party may, appeal from the judgment.
(e) The costs of the action, including reasonable compensation to the
appraisers to be fixed by the court, shall be assessed or apportioned as the
court considers equitable, but, if the appraisal exceeds the price offered by
the corporation, the corporation shall pay the costs (including in the
discretion of the court attorneys' fees, fees of expert witnesses and interest
at the legal rate on judgments from the date of compliance with Section 1300,
1301 and 1302 if the value awarded by the court for the shares is more than 125
percent of the price offered by the corporation under subdivision (a) of Section
1301). LEG.H. 1975 ch. 682, 1976 ch. 641, effective January 1, 1977, 1977 ch.
235, 1986 ch. 766.
(S)1306. DISSENTING SHAREHOLDER'S STATUS AS CREDITOR.
To the extent that the provisions of Chapter 5 prevent the payment to
any holders of dissenting shares of their fair market value, they shall become
creditors of the corporation for the amount thereof together with interest at
the legal rate on judgments until the date of payment, but subordinate to all
other creditors in any liquidation proceeding, such debt to be payable when
permissible under the provisions of Chapter 5. LEG.H. 1975 ch. 682, effective
January 1, 1977.
(S)1307. DIVIDENDS PAID AS CREDIT AGAINST PAYMENT.
Cash dividends declared and paid by the corporation upon the
dissenting shares after the date of approval of the reorganization by the
outstanding shares (Section 152) and prior to payment for the shares by the
corporation shall be credited against the total amount to be paid by the
corporation therefor. LEG.H. 1975 ch. 682, effective January 1, 1977.
(S)1308. CONTINUING RIGHTS AND PRIVILEGES OF DISSENTING SHAREHOLDERS
Except as expressly limited in this chapter, holders of dissenting
shares continue to have all the rights and privileges incident to their shares,
until the fair market value of their shares is agreed upon or determined. A
dissenting shareholder may not withdraw a demand for payment unless the
corporation consents thereto. LEG.H. 1975 ch. 682, effective January 1, 1977.
(S)1309. TERMINATION OF DISSENTING SHAREHOLDER STATUS.
Dissenting shares lose their status as dissenting shares and the
holders thereof cease to be dissenting shareholders and cease to be entitled to
require the corporation to purchase their shares upon the happening of any of
the following:
(a) The corporation abandons the reorganization. Upon abandonment of
the reorganization, the corporation shall pay on demand to any dissenting
shareholder who has initiated proceedings in good faith under this chapter all
necessary expenses incurred in such proceedings and reasonable attorneys' fees.
(b) The shares are transferred prior to their submission for
endorsement in accordance with Section 1302 or are surrendered for conversion
into shares of another class in accordance with the articles.
(c) The dissenting shareholder and the corporation do not agree upon
the status of the shares as dissenting shares or upon the purchase price of the
shares, and neither files a complaint or intervenes in a
4
<PAGE>
pending action as provided in Section 1304, within six months after the date on
which notice of the approval by the outstanding shares or notice pursuant to
subdivision (i) of Section 1110 was mailed to the shareholder.
(d) The dissenting shareholder, with the consent of the corporation,
withdraws the shareholder's demand for purchase of the dissenting shares.
LEG.H. 1975 ch. 682, effective January 1, 1977.
(S)1310. SUSPENSION OF PROCEEDINGS FOR PAYMENT PENDING LITIGATION.
If litigation is instituted to test the sufficiency or regularity of
the votes of the shareholders in authorizing a reorganization, any proceedings
under Section 1304 and 1305 shall be suspended until final determination of such
litigation. LEG.H. 1975 ch. 682, effective January 1, 1977.
(S)1311. EXEMPT SHARES.
This chapter, except Section 1312, does not apply to classes of shares
whose terms and provisions specifically set forth the amount to be paid in
respect to such shares in the event of a reorganization or merger. LEG.H. 1975
ch. 682, effective January 1, 1977, 1988 ch. 919.
(S)1312. ATTACKING VALIDITY OF REORGANIZATION OR MERGER.
(a) No shareholder of a corporation who has a right under this chapter
to demand payment of cash for the shares held by the shareholder shall have any
right at law or in equity to attack the validity of the reorganization or short-
form merger, or to have the reorganization or short-form merger set aside or
rescinded, except in an action to test whether the number of shares required to
authorize or approve the reorganization have been legally voted in favor
thereof; but any holder of shares of a class whose terms and provisions
specifically set forth the amount to be paid in respect to them in the event of
a reorganization or short-form merger is entitled to payment in accordance with
those terms and provisions or, if the principal terms of the reorganization are
approved pursuant to subdivision (b) of Section 1202, is entitled to payment in
accordance with the terms and provisions of the approved reorganization.
(b) If one of the parties to a reorganization or short-form merger is
directly or indirectly controlled by, or under common control with, another
party to the reorganization or short-form merger, subdivision (a) shall not
apply to any shareholder of such party who has not demanded payment of cash for
such shareholder's shares pursuant to this chapter, but if the shareholder
institutes any action to attack the validity of the reorganization or short-form
merger or to have the reorganization or short-form merger set aside or
rescinded, the shareholder shall not thereafter have any right to demand payment
of cash for the shareholder's shares pursuant to this chapter. The court in any
action attacking the validity of the reorganization or short-form merger or to
have the reorganization or short-form merger set aside or rescinded shall not
restrain or enjoin the consummation of the transaction except upon 10 days'
prior notice to the corporation and upon a determination by the court that
clearly no other remedy will adequately protect the complaining shareholder or
the class of shareholders of which such shareholder is a member.
(c) If one of the parties to a reorganization or short-form merger is
directly or indirectly controlled by, or under common control with, another
party to the reorganization or short-form meager, in any action to attack the
validity of the reorganization or short-form merger or to have the
reorganization or short-form merger set aside or rescinded, (1) a party to a
reorganization or short-form merger which controls another party to the
reorganization or short-form merger shall have the burden of proving that the
transaction is just and reasonable as to the shareholders of the controlled
party, and (2) a person who controls two or more parties to a reorganization
shall have the burden of proving that the transaction is just and reasonable as
to the shareholders of any party as controlled. LEG.H. 1975 ch. 682, 1976 ch.
641, effective January 1, 1977, 1988 ch. 919.
5
<PAGE>
ANNEX III ESCROW AGREEMENT
<PAGE>
FORM OF ESCROW AGREEMENT
------------------------
This ESCROW AGREEMENT, dated as of _______, 1998, among Synetic, Inc.,
a Delaware corporation (the "Parent"), Plastics Acquisition Corp., a wholly
owned subsidiary of the Parent ("Purchaser"), the Point Plastics, Inc. Employee
Stock Ownership Plan (the "ESOP") and United States Trust Company of New York
("US Trust" and in its capacity as escrow agent hereunder the "Escrow Agent").
W I T N E S S E T H :
WHEREAS, the Parent, Purchaser, the ESOP and certain individuals named
therein have entered into an Agreement and Plan of Merger dated as of March 6,
1998 (the "Merger Agreement"; unless otherwise defined herein, capitalized terms
shall be used herein as defined in the Merger Agreement), pursuant to which
Point Plastics, Inc. is being merged with and into Purchaser;
WHEREAS, it is contemplated under the Merger Agreement that the Parent
will pay or cause to be paid into escrow the amount of $_______ in cash (the
"Cash Escrow Amount") and ________ shares of Parent Common Stock (the "Stock
Escrow Amount") at the Closing, which will be held and disbursed by the Escrow
Agent in accordance with Section 4 of this Agreement;
WHEREAS, a copy of the Merger Agreement has been delivered to the
Escrow Agent, and the Escrow Agent is willing to act as the Escrow Agent
hereunder; and
WHEREAS, the Escrow Agent will hold the Cash Escrow Amount at ABA No.
__________, in Account No. _________, Credit U.S. Trust Company New York,
further credit to Account No. _______, account name Synetic Escrow Fund (the
"Escrow Account");
NOW, THEREFORE, in consideration of the foregoing and the mutual
agreements contained herein and intending to be legally bound hereby, the
parties hereby agree as follows:
SECTION 1. Appointment and Agreement of Escrow Agent. The Parent,
-----------------------------------------
Purchaser and the ESOP, individually and collectively, hereby appoint the Escrow
Agent to serve as, and the Escrow Agent hereby agrees to act as, escrow agent
upon the terms and conditions of this Agreement.
SECTION 2. Establishment of the Escrow Fund. Pursuant to Section
--------------------------------
1.13 of the Merger Agreement, the Parent has paid the Cash Escrow Amount and
delivered the Stock Escrow Amount to the Escrow Agent on the date hereof. The
Escrow Agent hereby acknowledges receipt of the Cash Escrow Amount and the Stock
Escrow Amount and will hold the Cash Escrow Amount, the Stock Escrow Amount, all
interest and other amounts earned on the Cash Escrow Amount and any cash,
securities or other property received in respect of the Stock Escrow Amount
(collectively, the "Escrow Fund") in escrow pursuant to the terms and conditions
of this Agreement.
SECTION 3. Purpose of the Escrow Fund. The Cash Escrow Amount has
--------------------------
been paid and the Stock Escrow Amount has been delivered to the Escrow Agent,
and the Escrow Fund is being held and will be held to secure the indemnification
obligations of the ESOP set forth in Article VII of the Merger Agreement.
Notwithstanding the foregoing, it is expressly understood and agreed that the
Escrow Agent shall have no obligation to determine whether any such
indemnification obligations exist and shall be entitled to rely on the
certificates, written instructions or court order, as applicable, referred to in
Section 4 hereof.
<PAGE>
SECTION 4. Payments from the Escrow Fund for the ESOP's
--------------------------------------------
Indemnification Obligations. (a) If, at any time after the Effective Time and
- ---------------------------
prior to the first anniversary thereof (the "Distribution Date") or, in the case
of any claim by the Parent in respect of the Pending Tax Case, prior to the
31st day after resolution of the Pending Tax Case, the Parent shall deliver to
the Escrow Agent a certificate, manually signed by an authorized officer of the
Parent (a "Company Certificate"), which Company Certificate shall:
(i) state that the Parent is entitled to indemnification under Article
VII of the Merger Agreement from the ESOP;
(ii) specify in reasonable detail the nature and amount (or if not yet
determined, a good faith estimate of the amount) of each individual item
for which indemnification is sought (an "Indemnification Item"); and
(iii) state the aggregate amount (or if not yet determined, a good
faith estimate of the amount) of all such Indemnification Items;
the Escrow Agent shall, promptly upon receipt of a Company Certificate, deliver
a copy of such Company Certificate to the ESOP.
(b) If the ESOP shall object to any claim for indemnification for any
Indemnification Item specified in any Company Certificate or the amount of any
such claim, the ESOP shall, within 10 Business Days after delivery by the Escrow
Agent to the ESOP of such Company Certificate, deliver to the Escrow Agent a
manually signed certificate executed by the Trustees (an "ESOP Certificate"),
(i) specifying each such amount to which the ESOP objects and (ii) specifying in
reasonable detail the nature and basis for each such objection. Promptly upon
receipt of an ESOP Certificate, the Escrow Agent shall deliver a copy of such
ESOP Certificate to the Parent. If the Escrow Agent shall not have received an
ESOP Certificate objecting to any Indemnification Item or the amount thereof
within 10 Business Days after delivery of such Company Certificate to the ESOP,
the ESOP shall be deemed to have acknowledged the correctness of the
Indemnification Item and the amount claimed on the Parent Certificate with
respect thereto and the Escrow Agent shall promptly thereafter transfer to
Company out of the Escrow Account the amount in cash and deliver shares of
Parent Common Stock held pursuant to this Escrow Agreement equal to _________%
[insert percentage equal to ESOP's percentage ownership of Point's common stock
immediately prior to the Closing] of the aggregate amount claimed in the Parent
Certificate with respect to such Indemnification Item in accordance with the
procedures set forth in Section 5 hereof. The Escrow Agent shall make all
payments and distributions out of the Escrow Account and from the shares of
Parent Common Stock held pursuant to this Escrow Agreement in a ratio of ___%
cash and ___% shares of Parent Common Stock (together with the applicable cash,
securities or other property (other than any cash dividends) received in respect
of such percentage of shares of Parent Common Stock, if any) [fill in ratio
equal to ratio of cash and stock received by the ESOP in the Merger]. The
shares of Parent Common Stock (and any cash, securities or other property
distributed therewith) shall for all purposes of this Agreement be valued at
$46.51.
(c) If the Escrow Agent receives, within 10 Business Days after
delivery to the ESOP of a Company Certificate, an ESOP Certificate objecting to
any Indemnification Item specified in such Company Certificate the amount
claimed with respect to such Indemnification Item, the amount of such
Indemnification Item shall be held by the Escrow Agent and shall not be released
from the Escrow Account except in accordance with either (i) written
instructions manually signed by an authorized officer of the Parent and by the
Trustees or (ii) the final nonappealable judgment of the court having
jurisdiction over the matters relating to the claim by the Parent for
indemnification from the ESOP, at which date the portion of such amount or any
other amount determined pursuant to either (i) or (ii) above shall promptly be
paid to the Parent in cash out of the Escrow Account in accordance with the
procedures set forth in Section 5 hereof and in shares of Parent Common Stock
valued at the Average Parent Share Price.
2
<PAGE>
(d) On Distribution Date, the Escrow Agent shall pay to the ESOP cash
in the amount equal to the balance of the Escrow Fund, all of the shares of
Parent Common Stock and any other securities or property then held pursuant to
this Escrow Agreement less (i) the aggregate of the Indemnification Items which
shall have been specified in one or more Company Certificates delivered to the
ESOP and the Escrow Agent pursuant to the terms hereof and which shall not have
been resolved on or prior to the Distribution Date and (ii) __% [insert
percentage equal to ESOP's percentage ownership of Point's common stock
immediately prior to the Closing] of the Parent's good faith estimate of the
amount for which the Parent is entitled to indemnification pursuant to Article
VII of the Merger Agreement in the Pending Tax Case (collectively, the "Reserved
--------
Amount"). If the Pending Tax Case shall not have been finally resolved prior to
- ------
the Distribution Date, the Parent shall give the Escrow Agent and the ESOP
written notice of the Parent's good faith estimate of the amount for which the
Parent is so entitled to indemnification, provided however that failure by the
-------- -------
Parent to timely deliver such written notice shall not adversely affect its
rights hereunder.
(e) Upon the termination of the Escrow Account in accordance with
Section 10 hereof and upon receipt of written notice from the ESOP with a copy
to the Parent (which notice is not objected to by the Parent by written notice
to the Escrow Agent received within 10 Business Days after its receipt of such
notice by the Escrow Agent and the ESOP), the Escrow Agent shall promptly
liquify all investments of the Escrow Fund (other than the Parent Common Stock)
and shall promptly transfer any and all amounts and shares of Parent Common
Stock then remaining in the Escrow Fund and any and all amounts received upon
liquidation of such investments to the ESOP.
(f) Notwithstanding anything in this Agreement to the contrary, no
interest or other amount earned on the Cash Escrow Amount or cash received as a
dividend on the Stock Escrow Amount (collectively, the "Cash Earnings") shall be
used by the Escrow Agent to make any payments pursuant to Section 4 hereof and
all Cash Earnings shall be distributed quarterly to the ESOP.
(g) With respect to recovery of losses from the ESOP, the Parent
Indemnified Parties (i) shall not make any claim against the ESOP with respect
to any representation or warranty contained in Article II of the Merger
Agreement unless the Parent Indemnified Parties also make such claim against all
of the Shareholders and (ii) shall not seek to recover any amount from the ESOP
other than pursuant to this Escrow Agreement.
SECTION 5. Method of Payments. Whenever the Escrow Agent shall be
------------------
required to make cash payment from the Escrow Fund, the Escrow Agent shall pay
such amounts by immediately liquidating the investments of the Escrow Fund
(other than the Parent Common Stock) to the extent necessary to pay in full any
cash amounts owed and payable to the Parent under the terms of this Agreement
and the Merger Agreement. Any such cash payments required to be made by the
Escrow Agent pursuant to this Escrow Agreement shall be made by bank wire
transfer in immediately available funds to an account designated in writing to
the Escrow Agent by the Parent.
SECTION 6. Maintenance of the Escrow Fund; Termination of the Escrow
---------------------------------------------------------
Fund. (a) The Escrow Agent shall continue to maintain the Escrow Fund until the
- ----
earlier of (i) the time at which there shall be no assets in the Escrow Account
and (ii) the termination of this Agreement pursuant to Section 10 of this
Agreement.
(b) Notwithstanding any other provision in this Agreement to the
contrary, at any time prior to the termination of the Escrow Account, the Escrow
Agent shall, if so instructed in a writing signed by the Parent and the ESOP,
pay from the Escrow Fund to the ESOP to such bank accounts or otherwise, as
directed in such writing, the amount of cash, the number of shares of Parent
Common Stock and the amount and type of any other securities or property then
held pursuant to the Escrow Agreement specified in such writing.
SECTION 7. Investment of Funds Deposited in the Escrow Account.
---------------------------------------------------
The Escrow Agent shall invest and reinvest moneys on deposit in the Escrow Fund
at any time, unless written notice for the contrary
3
<PAGE>
is received from the ESOP and the Parent, in Permitted Investments as instructed
in writing from time to time by the Parent. "Permitted Investments" means: (a)
---------------------
readily marketable direct obligations of the Government of the United States or
any agency or instrumentality thereof or readily marketable obligations
unconditionally guaranteed by the full faith and credit of the Government of the
United States, (b) insured certificates of deposit of, or time deposits with,
any commercial bank that is a member of the Federal Reserve system and which
issues (or the parent of which issues) commercial paper rated as described in
clause (c), is organized under the laws of the United States or any State
thereof and has combined capital and surplus of at least $1 billion, (c)
commercial paper in an aggregate amount of no more than $1,000,000 per issuer
outstanding at any time, issued by any corporation organized under the laws of
any State of the United States, rated at least "Prime-1" (or the then equivalent
grade) by Moody's Investors Service, Inc. or "A-1" (or the then equivalent
grade) by Standard & Poors, Inc. or (d) shares in the Money Fund, Government
Money Fund and Treasury Money Fund issued by Excelsior Funds, Inc.
Notwithstanding the foregoing, the Escrow Agent may act upon any contrary
written investment instructions signed by all of the Stockholders and the
Parent.
SECTION 8. Assignment of Rights to the Escrow Fund; Assignment of
------------------------------------------------------
Obligations; Successors; Voting of Parent Common Stock. This Agreement may not
- ------------------------------------------------------
be assigned by operation of law or otherwise without the express written consent
of the other parties hereto (which consent may be granted or withheld in the
sole discretion of such other parties); provided, however, that the Parent may
-------- -------
assign this Agreement to a wholly owned subsidiary of the Parent without the
consent of the other parties. This Agreement shall be binding upon and inure to
the benefit of the parties hereto and their respective successors and assigns.
The ESOP shall have the right to vote all of the shares of Parent Common Stock
held pursuant to the Escrow Agreement.
SECTION 9. The Escrow Agent. (a) Except as expressly contemplated by
----------------
this Agreement or by joint written instructions from the Parent and the ESOP,
the Escrow Agent shall not sell, transfer or otherwise dispose of in any manner
all or any portion of the Escrow Fund, except pursuant to an order of a court of
competent jurisdiction. The Escrow Agent shall not be under any duty to give
the Escrow Fund held by it hereunder any greater degree of care than it gives
its own similar property and shall not be required to invest any funds held
hereunder except as directed in this Escrow Agreement.
(b) The duties and obligations of the Escrow Agent shall be determined
solely by this Agreement, and the Escrow Agent shall not be liable except for
the performance of such duties and obligations as are specifically set forth in
this Agreement. No implied duties or obligations shall be read into this
Agreement against the Escrow Agent. The Escrow Agent shall not be bound by the
provisions of any agreement among the other parties hereto except this Escrow
Agreement.
(c) In the performance of its duties hereunder, the Escrow Agent shall
be entitled to rely upon any document, instrument or signature believed by it in
good faith to be genuine and signed by any party hereto or an authorized officer
or agent thereof, and shall not be required to investigate the truth or accuracy
of any statement contained in any such document or instrument. The Escrow Agent
may assume that any person or entity purporting to give any notice in accordance
with the provisions of this Agreement has been duly authorized to do so.
(d) The Escrow Agent shall not be liable for any error of judgment, or
any action taken, suffered or omitted to be taken, hereunder except in the case
of its gross negligence, bad faith or willful misconduct. The Escrow Agent may
consult with counsel of its own choice and shall have full and complete
authorization and protection for any action taken or suffered by it hereunder in
good faith and in accordance with the opinion of such counsel.
(e) The Escrow Agent shall have no duty as to the collection or
protection of the Escrow Account or income thereon, nor as to the preservation
of any rights pertaining thereto, beyond the safe custody of
4
<PAGE>
any such funds actually in its possession. The Escrow Agent makes no
representation as to the validity, value, genuineness or the collectability of
any security or other document or instrument held by or delivered to it.
(f) As compensation for its services to be rendered under this
Agreement, for each year or any portion thereof, the Escrow Agent shall receive
a fee in the amount specified in Schedule A to this Agreement and shall be
reimbursed upon request for all expenses, disbursements and advances, including
reasonable fees of outside counsel, if any, incurred or made by it in connection
with the preparation of this Agreement and the carrying out of its duties under
this Agreement. All such fees and expenses shall be the responsibility of the
Parent.
(g) The Parent shall reimburse and indemnify the Escrow Agent for, and
hold it harmless against, any loss, liability or expense, including, without
limitation, reasonable attorneys' fees and expenses, incurred without gross
negligence, bad faith or wilful misconduct on the part of the Escrow Agent
arising out of, or in connection with the acceptance of, or the performance of,
its duties and obligations under this Agreement. Without limiting the
foregoing, the Escrow Agent shall in no event be liable in connection with its
investment or reinvestment of any cash held by it hereunder in good faith, in
accordance with the terms hereof, including without limitation any liability for
any delays (not resulting from its gross negligence or willful misconduct) in
the investment or reinvestment of the Escrow Fund or any loss of interest
incident to any such delays.
(h) The Escrow Agent may at any time resign by giving 20 business
days' prior written notice of resignation to the ESOP and the Parent. The
Parent and the ESOP may at any time jointly remove the Escrow Agent by giving 10
business days' written notice signed by each of them to the Escrow Agent. If
the Escrow Agent shall resign or be removed, a successor Escrow Agent, which
shall be a bank or trust company having its principal executive offices in New
York, New York and which shall be reasonably acceptable to the Parent and the
ESOP, shall be appointed by the Parent by written instrument executed by the
Parent and the ESOP, and delivered to the Escrow Agent and to such successor
Escrow Agent and, thereupon, the resignation or removal of the predecessor
Escrow Agent shall become effective and such successor Escrow Agent, without any
further act, deed or conveyance, shall become vested with all right, title and
interest to all cash and property held hereunder of such predecessor Escrow
Agent, and such predecessor Escrow Agent shall, on the written request of the
ESOP or of the Parent or of the successor Escrow Agent, execute and deliver to
such successor Escrow Agent all the right, title and interest hereunder in and
to the Escrow Account of such predecessor Escrow Agent and all other rights
hereunder of such predecessor Escrow Agent. If no successor Escrow Agent shall
have been appointed within 20 business days of a notice of resignation by the
Escrow Agent, the Escrow Agent's sole responsibility shall thereafter be to hold
and invest in accordance with Section 7 hereof the Escrow Funds until the
earlier of its receipt of designation of a successor Escrow Agent, a joint
written instruction by the Parent and the ESOP and termination of this Agreement
in accordance with its terms.
(i) The Escrow Agent does not have any interest in the Escrow Fund
deposited hereunder but is serving as escrow holder only and having only
possession thereof. The ESOP shall pay or reimburse the Escrow Agent upon
request for any transfer taxes or other taxes relating to the Escrow Fund
incurred in connection herewith and shall indemnify and hold harmless the Escrow
Agent from any amounts that it is obligated to pay in the way of such taxes.
Any payments of income from this Escrow Account shall be subject to withholding
regulations then in force with respect to United States taxes. The parties
hereto will provide the Escrow Agent with appropriate W-9 forms for tax I.D.
number certifications, or W-8 forms for non-resident alien certifications. It
is understood that the Escrow Agent shall be responsible for income reporting
only with respect to income earned on investment of funds which are a part of
the Escrow Fund and is not responsible for any other reporting. This paragraph
and paragraph (g) shall survive notwithstanding any termination of this Escrow
Agreement or the resignation of the Escrow Agent.
(j) In the event that the Escrow Agent in good faith is in doubt as to
what action it should take hereunder, the Escrow Agent shall be entitled to
retain the Escrow Fund until the Escrow Agent shall have received (i) a final
non-appealable order of a court of competent jurisdiction directing delivery of
the Escrow Fund
5
<PAGE>
or (ii) a written agreement executed by the Parent and the ESOP directing
delivery of the Escrow Fund, in which event the Escrow Agent shall disburse the
Escrow Fund in accordance with such order or agreement. Any court order shall be
accompanied by a legal opinion by counsel for the presenting party satisfactory
to the Escrow Agent to the effect that said opinion is final and non-appealable.
The Escrow Agent shall act on such court order and legal opinions without
further question.
SECTION 10. Termination. This Escrow Agreement shall terminate on
-----------
the earlier of: (a) the date on which there are no assets remaining in the
Escrow Account and (b) 10 business days following the later of (i) first date
after the Distribution Date on which all claims made in Company Certificates
delivered to the Escrow Agent prior to the Distribution Date and all Losses
specified in one or more notices delivered to the ESOP and the Escrow Agent by
the Parent pursuant thereto that could give rise to a right of indemnification
under Article VII of the Merger Agreement against the ESOP shall have been
resolved and paid out to the Parent and (ii) the first date after the
Distribution Date on which the Pending Tax Case shall have been resolved and all
claims made in Company Certificates delivered to the Escrow Agent prior to the
Distribution Date with respect thereto shall have been resolved and paid out to
the Parent.
SECTION 11. Bankruptcy of the Undersigned. Except as required by
-----------------------------
law, the bankruptcy, insolvency, or absence of either of the Parent or the ESOP
shall not affect or prevent performance by the Escrow Agent of its obligations
and instructions received hereunder.
SECTION 12. Amendment. This Agreement may be modified only by a
---------
writing signed by all of the parties hereto.
SECTION 13. Counterparts. This Agreement may be executed in
------------
counterparts, each of which shall be deemed an original, and such counterparts
shall constitute and be one and the same instrument.
SECTION 14. Headings. The paragraph headings contained herein are
--------
for convenience of reference only and are not intended to define, limit, or
describe the scope or intent of any provision of this Agreement.
SECTION 15. Notices. All notices, requests, consents, waivers, and
-------
other communications required or permitted to be given hereunder shall be in
writing and shall be deemed to have been given (a) if transmitted by facsimile,
upon acknowledgment of receipt thereof in writing by facsimile or otherwise; (b)
if personally delivered, upon delivery or refusal of delivery; (c) if mailed by
registered or certified United States mail, return receipt requested postage
prepaid, upon delivery or refusal of delivery; or (d) if sent by a nationally
recognized overnight delivery service, upon delivery or refusal of delivery;
provided, that the Escrow Agent shall not be deemed to have received any such
- --------
notice, request, consents, waivers or other communications until actual receipt
thereof by the Escrow Agent. All notices, consents, waivers, or other
communications required or permitted to be given hereunder shall be addressed to
the respective party to whom such notice, consent, waiver, or other
communication relates at the following addresses:
6
<PAGE>
if to Parent, addressed to it at:
River Drive Center 2
669 River Drive
Elmwood Park, New Jersey 07407-1361
Attention: Chief Executive Officer
Telephone: (201) 703-3400
Fax: (201) 703-3401
if to the ESOP, addressed to it at:
[to be provided]
Attention: Corporate Trust Department
Telephone: (212) 852-1661
Fax: (212) 852-1626
or at such other address as any party shall have previously specified by notice
in writing to the other parties.
SECTION 16. Severability. The invalidity, illegality or
------------
unenforceability of any provision of this Agreement shall in no way affect the
validity, legality or enforceability of any other provision and if any provision
is held to be unenforceable as a matter of law, the other provisions shall not
be affected thereby and shall remain in full force and effect.
SECTION 17. No Third Party Beneficiaries; Assignment. This Agreement
----------------------------------------
is for the sole benefit of the parties hereto and their permitted assigns and
nothing herein, express or implied, is intended to or shall confer upon any
other person or entity any legal or equitable right, benefit or remedy of any
nature whatsoever under or by reason of this Agreement.
SECTION 18. Waivers. Any waiver by any party hereto of any breach of
-------
or failure to comply with any provision of this Agreement by any other party
hereto shall be in writing and shall not be construed as, or constitute, a
continuing waiver of such provision, or a waiver of any other breach of, or
failure to comply with, any other provision of this Agreement.
SECTION 19. Assignment; Third Parties. Neither this Agreement nor
-------------------------
any of the rights, interests or obligations under this Agreement shall be
assigned (other than as provided in Section 9(i)) by any of the parties hereto
without the prior written consent of the other parties. Subject to the
foregoing, this Agreement shall be binding upon and inure solely to the benefit
of the parties hereto and their respective permitted successors and assigns,
heirs, administrators and representatives and shall not be enforceable by or
inure to the benefit of any other third party, except as provided in Section
9(i) with respect to a resignation by the Escrow Agent.
SECTION 20. Governing Law. This Agreement shall be construed in
-------------
accordance with and governed by the internal law of the State of New York
(without reference to its rules as to conflicts of law).
SECTION 21. Waiver of Offset Rights. The Escrow Agent hereby waives
-----------------------
any and all rights to offset that it may have against the Escrow Fund and
Interest, including, without limitation, claims arising as a
7
<PAGE>
result of any claims, amounts, liabilities, costs, expenses or other losses
("Claims") that the Escrow Agent may be otherwise entitled to collect from any
------
party to this Agreement, other than Escrow Agent Claims arising under this
Agreement.
8
<PAGE>
IN WITNESS WHEREOF, the parties have duly executed this Agreement to
be effective as of the date first written above.
SYNETIC, INC.
By:_________________________________
Name:
Title:
PLASTICS ACQUISITION CORP.
By:_________________________________
Name:
Title:
THE POINT PLASTICS INC. EMPLOYEE STOCK
OWNERSHIP PLAN AND TRUST
By:_________________________________
Philip E. Stolp, solely in his capacity as a
Trustee under the Point Plastics, Inc. Employee
Stock Ownership Plan
By:_________________________________
Jason Stolp, solely in his capacity as a Trustee
under the Point Plastics, Inc. Employee Stock
Ownership Plan
By:_________________________________
Patricia Parsons, solely in her capacity as a
Trustee under the Point Plastics, Inc. Employee
Stock Ownership Plan
UNITED STATES TRUST COMPANY OF NEW YORK,
as Escrow Agent
By:_________________________________
Name:
Title:
9
<PAGE>
SCHEDULE A
Fees for services as Escrow Agent: $5,000 base fee, plus $25.00 for
each wire transfer from the Escrow Account.
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) The following is a list of Exhibits included as part of this Registration
Statement. The Registrant agrees to furnish supplementally a copy of any
omitted exhibit or schedule to the Commission upon request.
2.1 Agreement and Plan of Merger dated March 6, 1998 among Synetic Inc.,
Point Plastics Inc., Plastics Acquisition Corp., the trustees of the
Point Plastics, Inc. Employee Stock Ownership Plan and Trust and
certain individual holders of capital stock of Point Plastics
(included as Annex I to the Proxy Statement/Prospectus).
*5.1 Opinion of Shearman & Sterling as to the legality of the securities
being registered.
5.2 Opinion of Emens, Kegler, Brown, Hill & Ritter Co., L.P.A, as to the
statements of law under the caption "Business--Plastics Technology
Business--Regulation". (To be filed by amendment)
*8.1 Form of opinion of Shearman & Sterling as to the United States
federal income tax consequences of the Merger.
*8.2 Form of opinion of Gray Cary Ware & Freidenrich as to the United
States federal income tax consequences of the Merger.
*23.1 Consent of Linkenheimer, LLP.
*23.2 Consent of Arthur Andersen LLP.
*23.3 Form of consent of Shearman & Sterling (included in Exhibits 5.1 and
8.1 to this Registration Statement).
*23.4 Form of consent of Gray Cary Ware & Freidenrich (included in Exhibit
8.2 to this Registration Statement).
*24.1 Form of powers of Attorney.
*99.1 Letter from the ESOP Committee of Point Plastics which provides a
description of the voting and election procedures for ESOP
Participants.
_______________
*Items marked with an asterisk are filed herewith.
ITEM 22. UNDERTAKINGS
(a) The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933, as amended (the "Securities Act");
(ii) To reflect in the Proxy Statement/Prospectus any facts or
events arising after the effective date of the Registration Statement
(or the most recent post-effective amendment thereof) which,
individually or in the aggregate, represent a fundamental change in
the information set forth in the
II-1
<PAGE>
Registration Statement. Notwithstanding the foregoing, any increase
or decrease in volume of securities offered (if the total dollar
amount of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the
estimated offering range may be reflected in the form of prospectus
filed with the Commission pursuant to Rule 424(b) ((S)230.424(b) of
this chapter) if, in the aggregate, the changes in volume and price
represent no more than a 20% change in the maximum aggregate offering
price set forth in the "Calculation of Registration Fee" table in the
effective Registration Statement;
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in the Registration
Statement or any material change to such information in the
Registration Statement.
(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment 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.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(b) The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
Registrant's annual report pursuant to section 13(a) or section 15(d) of the
Exchange Act (and, where applicable, each filing of an employee benefit plan's
annual report pursuant to section 15(d) of the Exchange Act) that is
incorporated by reference in the Registration Statement 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.
(c) (1) The undersigned Registrant hereby undertakes that:
(i) Prior to any public reoffering of the securities registered
hereunder through use of a prospectus which is a part of this Registration
Statement, by any person or party who is deemed to be an underwriter within
the meaning of Rule 145(c), the issuer undertakes that such reoffering
prospectus will contain the information called for by the applicable
registration form with respect to reofferings by persons who may be deemed
underwriters, in addition to the information called for by the other items
of the applicable form.
(2) The Registrant undertakes that every prospectus (i) that is filed
pursuant to the paragraph immediately preceding or (ii) that purports to
meet the requirements of section 10(a)(3) of the Securities Act and is used
in connection with an offering of securities subject to Rule 415 ((S)
230.415 of this chapter) will be filed as a part of an amendment to the
Registration Statement and will not be used until such amendment is
effective, and that, for purposes of determining any liability under the
Securities Act, each such post-effective amendment 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.
(d) Insofar as indemnification for liabilities arising under the Securities
Act 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 Commission such indemnification is
against public policy as expressed in the Securities 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, 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 Securities Act and will be governed by the final
adjudication of such issue.
II-2
<PAGE>
(e) The undersigned Registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the Proxy
Statement/Prospectus pursuant to Item 4, 10(b), 11, or 13 of this Form S-4,
within one business day of receipt of such requests, and to send the
incorporated documents by first class mail or other equally prompt means. This
includes information contained in documents filed subsequent to the effective
date of the Registration Statement through the date of responding to the
requests.
(f) The undersigned Registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
Company being acquired involved therein, that was not the subject of and
included in the Registration Statement when it became effective.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, on ________, 1998.
SYNETIC, INC.
By:_______________________________
Paul C. Suthern
Chief Executive Officer
POWER OF ATTORNEY
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed below by the following persons in
the capacities indicated on ________, 1998.
(1) Principal Executive Officer: (3) The Board of Directors:
By: ___________________________ James V. Manning
Paul C. Suthern Thomas R. Ferguson
Chief Executive Officer Mervyn I. Goldstein
Ray E. Hannah
Roger H. Licht
Bernard A. Marden
Charles A. Mele
Herman Sarkowsky
Paul C. Suthern
Albert M. Weis
Martin J. Wygod
(2) Principal Financial and By:____________________________
Accounting Officer: Charles A. Mele
Individually and as Attorney in Fact
II-3
<PAGE>
By:______________________________
Anthony Vuolo
Vice President and
Chief Financial Officer
II-4
<PAGE>
EXHIBIT INDEX
EXHIBIT
- -------
2.1 Agreement and Plan of Merger dated March 6, 1998 among Synetic
Inc., Point Plastics Inc., Plastics Acquisition Corp., the trustees
of the Point Plastics, Inc. Employee Stock Ownership Plan and Trust
and certain individual holders of capital stock of Point Plastics
(included as Annex I to the Proxy Statement/Prospectus).
*5.1 Opinion of Shearman & Sterling as to the legality of the securities
being registered.
5.2 Opinion of Emens, Kegler, Brown, Hill & Ritter Co., L.P.A, as to
the statements of law under the caption "Business--Plastics
Technology Business--Regulation". (To be filed by amendment)
*8.1 Form of opinion of Shearman & Sterling as to the United States
federal income tax consequences of the Merger.
*8.2 Form of opinion of Gray Cary Ware & Freidenrich as to the United
States federal income tax consequences of the Merger.
*23.1 Consent of Linkenheimer, LLP.
*23.2 Consent of Arthur Andersen LLP.
*23.3 Form of consent of Shearman & Sterling (included in Exhibits 5.1
and 8.1 to this Registration Statement).
*23.4 Form of consent Gray Cary Ware & Freidenrich (included in Exhibit
8.2 to this Registration Statement).
*24.1 Form of powers of Attorney.
*99.1 Letter from the ESOP Committee of Point Plastics which provides a
description of the voting and election procedures for ESOP
Participants.
_______________
*Items marked with an asterisk are filed herewith.
<PAGE>
EXHIBIT 5.1
[ Letterhead of Shearman & Sterling ]
April 22, 1998
Synetic, Inc.
669 River Drive 2
Elmwood Park, NJ 07407-1361
Ladies and Gentlemen:
We have acted as counsel to Synetic, Inc., a Delaware corporation
("Synetic"), in connection with the Registration Statement on Form S-4 (the
"Registration Statement") being filed by Synetic on the date hereof with the
Securities and Exchange Commission under the Securities Act of 1933, as amended
(the "Act"), with respect to 1,109,438 shares of Common Stock, par value $.01
per share (the "Common Stock"), of Synetic. The Common Stock is being
registered in connection with the merger of Plastics Acquisition Corp., a
Delaware corporation and a wholly owned subsidiary of Synetic, with and into
Point Plastics, Inc., a California corporation. The Common Stock is described
in the Proxy Statement/Prospectus (the "Prospectus") included in the
Registration Statement, to which this option is an exhibit.
In that connection, we have reviewed the Registration Statement and have
originals or copies certified or otherwise identified to our satisfaction of
such other documents, corporate records, certificates and other instruments as
we have deemed necessary or appropriate for purposes of this opinion. In such
examination, we have assumed the genuineness of all signatures, the authenticity
of all documents, certificates, and instruments submitted to us as originals and
the conformity with the originals of all documents submitted to us as copies.
Based upon the foregoing, we are of the opinion that the shares of the
Common Stock of Synetic to be issued in connection with the Merger have been
duly authorized and, when issued in connection with the Merger as contemplated
by the Agreement, will be validly issued, fully paid and non-assessable, no
holder thereof is or will be subject to personal liability by reason of being
such a holder, and such shares are not subject to the preemptive rights of any
stockholder of Synetic.
Our opinions expressed above are limited to General Corporation Law of the
State of Delaware and we do not express any opinion herein concerning any other
law.
<PAGE>
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to us under the caption "LEGAL
MATTERS" contained in the Prospectus.
Very truly yours,
/s/ SHEARMAN & STERLING
COMC/PCH/DAH
<PAGE>
EXHIBIT 8.1
_______________, 1998
Synetic, Inc.
River Drive Center 2
669 River Drive
Elmwood Park, NJ 07407-1361
Merger of Point Plastics, Inc.
with and into
Acquisition Corp.
------------------------------
Ladies and Gentlemen:
You have requested our opinion as to certain United States federal income
tax consequences of the merger (the "Merger") of Point Plastics, Inc., a
California corporation (the "Company"), with and into Acquisition Corp., a
[Delaware] corporation (the "Purchaser") which is a wholly-owned, directly held
subsidiary of Synetic, Inc., a Delaware corporation (the "Parent"). The Merger
will be effected pursuant to an Agreement and Plan of Merger, dated as of March
6, 1998 (the "Merger Agreement"), among the Parent, the Company and the
Purchaser. Unless otherwise defined, capitalized terms used herein have the
meaning assigned to them in the Merger Agreement.
In delivering our opinion, we have reviewed the Merger Agreement and the
documents attached as Exhibits thereto and have assumed that the representations
and warranties therein are true and correct and that the parties have complied
with and, if applicable, will comply with the covenants contained therein. In
addition, we have relied on the representations made by the Parent and the
Company in letters to us dated ___________, 1998 and have assumed that such
representations will be true and accurate as of the Effective Time.
Based upon the foregoing, in reliance thereon and subject thereto, and
based upon the Internal Revenue Code of 1986, as amended (the"Code"), the
Treasury Regulations promulgated thereunder, judicial decisions, revenue rulings
and revenue procedures of the Internal Revenue Service, and other administrative
pronouncements, all as in effect on the date hereof, and assuming that the
Merger and related transactions will take place in accordance with the terms of
the Merger Agreement, it is our opinion that:
<PAGE>
1. The Merger will be treated for United States federal income tax
purposes as a reorganization qualifying under the provisions of Section 368(a)
of the Code; and
2. Each of the Parent, the Purchaser and the Company shall be a party to
the reorganization within the meaning of Section 368(b).
No opinion is expressed as to any matter not specifically addressed above,
including the accuracy of the representations or reasonableness of the
assumptions relied upon by us in rendering the opinion set forth above. The
opinion is furnished to you solely for your exclusive use, and it may not be
distributed, published, or relied upon by any other person without our prior
written consent. Our opinion is based on current United States federal income
tax law and administrative practice, and we do not undertake to advise you as to
any future changes in United States federal income tax law or administrative
practice that may affect our opinion unless we are specifically retained to do
so.
We hereby consent to the filing of this opinion with the Commission as an
exhibit to the Registration Statement and to the reference to us under the
caption "THE MERGER - - Material Federal Income Tax Consequences" and elsewhere
in the Registration Statement. In giving such consent, we do not hereby admit
that we are in the category of persons whose consent is required under Section 7
of the Securities Act of 1933, as amended, and the rules and regulations of the
Commission promulgated thereunder.
Very truly yours,
<PAGE>
EXHIBIT 8.2
[Letterhead of Gray Cary Ware & Freidenrich]
[Date]
Point Plastics Inc.
1320 Scott Street
Petaluma, CA 94954
Ladies and Gentlemen:
This opinion is being delivered to you in connection with the filing of a
registration statement on Form S-4 of a Joint Proxy Statement/Prospectus
pursuant to the Agreement and Plan of Merger dated March 6, 1998 (the "Merger
Agreement") by and among Synetic, Inc., a Delaware corporation ("Parent"),
Plastics Acquisition Corporation, a Delaware corporation and a wholly-owned
subsidiary of Parent ("Purchaser") and Point Plastics, Inc., a California
corporation (the "Company"). Pursuant to the Merger Agreement, the Company will
merge with and into the Purchaser (the "Merger"). Unless otherwise defined,
capitalized terms referred to herein have the meanings set forth in the Merger
Agreement. All section references, unless otherwise indicated, are to the
Internal Revenue Code of 1986, as amended (the "Code").
We have acted as legal counsel to the Company in connection with the
preparation and execution of the Merger Agreement. As such, and for the purpose
of rendering this opinion, we have examined and are relying upon (without any
independent investigation or review thereof) the truth and accuracy, at all
relevant times, of the statements, covenants, representations and warranties
contained in the following documents (including all schedules and exhibits
thereto): (1) the Merger Agreement, (2) representations and warranties made to
us by Company, Parent and Purchaser (the "Officers' Certificates"); (3) the
registration statement on Form S-4 of a Joint Proxy Statement/Prospectus of
Parent and the Company (the "Registration Statement"); and (4) such other
instruments and documents related to the formation, organization and operation
of the Company and Parent or to the consummation of the Merger and the
transactions contemplated thereby as we have deemed necessary or appropriate.
In connection with rendering this opinion, we have assumed or obtained
representations (and are relying thereon, without any independent investigation
or review thereof) that:
1. Original documents (including signatures) are authentic, documents
submitted to us as copies conform to the original documents, and there has been
(or will be by the Effective Time of the Merger) due execution and delivery of
all documents where due execution and delivery are prerequisites to
effectiveness thereof;
2. Any representation or statement made "to the best of knowledge" or
similarly qualified is correct without such qualification. As to all matters in
which a person or entity making a representation referred to above has
represented that such person or entity either is not a party to, does not have,
or is not aware of, any plan or intention, understanding or agreement, there is
in fact no such plan, intention, understanding or agreement;
3. All statements, descriptions and representations contained in any of
the documents referred to herein or otherwise made to us (including, but not
limited to the Officers' Certificates) are true and correct as of the date
hereof, at the effective date of the Registration Statement and at the Effective
Time, and no actions have been (or will be) taken which are inconsistent with
such statements, descriptions and representations; and
<PAGE>
GRAY CARY WARE & FREIDENRICHLLP
Point Plastics, Inc.
, 1998
- ------------
Page 2
4. The Merger will be consummated in accordance with the Merger Agreement
(and without any waiver, breach or amendment of any of the material provisions
thereof, including no waiver of the requirement that an opinion of Shearman &
Sterling, counsel to Parent and Purchaser, substantially identical in substance
to this opinion, be delivered and not be withdrawn), will be effective under the
applicable state law, and will be reported by Parent and the Purchaser on their
respective federal income tax returns in a manner consistent with the opinion
set forth below.
Based on our examination of the foregoing items and subject to the
assumptions, exceptions, limitations and qualifications set forth herein, we are
of the opinion that (1) the Merger will be treated for United States federal
income tax purposes as a reorganization qualifying under the provisions of
Section 368(a) of the Code; and (2) each of the Parent, the Purchaser and the
Company shall be a party to the reorganization within the meaning of Section
368(b) of the Code. In addition to the assumptions set forth above, this
opinion is subject to the exceptions, limitations and qualifications set forth
below.
This opinion represents and is based upon our best judgment regarding the
application of federal income tax laws arising under the Code, existing judicial
decisions, administrative regulations and published rulings and procedures. Our
opinion is not binding upon the Internal Revenue Service or the courts, and the
Internal Revenue Service is not precluded from successfully asserting a contrary
position. Furthermore, no assurance can be given that future legislative,
judicial or administrative changes, on either a prospective or retroactive
basis, would not adversely affect the accuracy of the conclusions stated herein.
Nevertheless, we undertake no responsibility to advise you of any new
developments in the application or interpretation of the federal income tax
laws.
This opinion addresses only the classification of the Merger as a
reorganization under Section 368(a) of the Code and the treatment of the Parent,
the Purchaser and the Company as parties to the reorganization under Section
368(b) of the Code. No opinion is expressed as to any other matter, including
any other tax consequences of the Merger or any other transaction (including any
transaction undertaken in connection with the Merger) under any foreign,
federal, state or local tax law.
No opinion is expressed as to any transaction other than the Merger as
described in the Merger Agreement or to any transaction whatsoever, including
the Merger, if all the transactions described in the Merger Agreement are not
consummated in accordance with the terms of such Merger Agreement and without
waiver or breach of any material provision thereof or if all of the
representations, warranties, statements and assumptions upon which we relied are
not true and accurate at all relevant times. In the event any one of the
statements, representations, warranties or assumptions upon which we have relied
to issue this opinion is incorrect, our opinion might be adversely affected and
may not be relied upon.
This opinion has been delivered to you only for the purposes stated. It
may not be relied upon for any other purpose or by any other person or entity,
and may not be made available to any other person or entity without our prior
written consent. We hereby consent, however, to the use of this opinion as an
exhibit to the Registration Statement and further consent to the use of our name
wherever appearing in the Registration Statement, including the Joint Proxy
Statement/Prospectus constituting a part thereof, and any amendments thereto.
Very truly yours,
GRAY CARY WARE & FREIDENRICH LLP
<PAGE>
EXHIBIT 23.1
[LINKENHEIMER LLP LETTERHEAD]
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-4 of
our report dated April 2, 1998 on our audit of the consolidated financial
statements of POINT PLASTICS, INC. AND SUBSIDIARY. We also consent to the
reference to our firm under the caption "Experts."
/s/ Linkenheimer LLP
----------------------------
Santa Rosa, California
April 17, 1998
<PAGE>
EXHIBIT 23.2
[ARTHUR ANDERSEN LLP LETTERHEAD]
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our report
incorporated by reference in this registration statement, included in Synetic,
Inc's Form 10-K for the year ended June 30, 1997 and to all references to our
Firm included in this registration statement.
/s/ Arthur Andersen LLP
ARTHUR ANDERSEN LLP
April 22, 1998
New York, New York
<PAGE>
EXHIBIT 24.1
SYNETIC, INC.
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned does hereby constitute
and appoint Charles A. Mele, Anthony Vuolo and James V. Manning and each of
them, each with full power to act without the other, his true and lawful
attorneys-in-fact and agents, each with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign the Registration Statement on Form S-4 of Synetic, Inc.
relating to the Merger of Point Plastics, Inc. with a subsidiary of Synetic,
Inc. (the LIST OF DEFINED TERMS "Registration Statement") and to sign any and
all amendments to the Registration Statement, and to file the same, with all
exhibits thereto and all other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents full power and authority to do and perform each and every act and thing
requisite and necessary to be done as fully to all intents and purposes as he
might or could do in person, hereby ratifying and confirming all that each of
said attorneys-in-fact and agents or any of them may lawfully do or cause to be
done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney as
of this _____ day of ________, 1998.
_______________________
_______________________
_______________________
<PAGE>
EXHIBIT 99.1
POINT PLASTICS, INC.
EMPLOYEE STOCK OWNERSHIP PLAN
May __, 1998
Dear ESOP Participant:
Enclosed is the Proxy Statement/Prospectus which is being sent to all
shareholders of Point Plastics, Inc. ("Company") and which provides detailed
information regarding the proposed merger (the "Merger") of the Company with a
subsidiary of Synetic, Inc ("Synetic"). The Merger will be voted on at a
Special Meeting of Shareholders on May___, 1998. The following information is
qualified in its entirety by reference to the Proxy Statement/Prospectus and the
Merger Agreement. WE STRONGLY URGE YOU TO READ THE PROXY STATEMENT/PROSPECTUS
CAREFULLY.
METHOD OF VOTING THE SHARES HELD IN THE ESOP
Under the terms of the Point Plastics, Inc. Employee Stock Ownership
Plan and Trust (the "ESOP"), participants are entitled to provide confidential
voting instructions with respect to shares of Company stock allocated to their
ESOP accounts. Shares owned by the ESOP which were not allocated to
participants' accounts as of December 31, 1997, and allocated shares for which
no voting instructions are provided by participants will be voted by the ESOP
Trustees in favor, against and/or abstain with respect to the Merger in the same
proportions as shares in the ESOP are voted pursuant to instructions received by
the ESOP Trustees.
MERGER CONSIDERATION.
Under the terms of the Merger, the ESOP will receive at least 51%, but
not more than 60%, of the consideration to be received in the Merger in the form
of shares of Common Stock, par value $.01 per share, of Synetic ("Synetic
Stock") and at least 40%, but not more than 49%, in cash. Within this range,
you have the right to elect the percentages of Synetic Stock and cash that you
would like to be credited to your account in the ESOP (in increments of one
percent). Such election is, however, subject to adjustment on a pro rata basis
to the extent necessary to ensure that (i) the total consideration received in
the Merger by all Company shareholders is allocated as follows: 60% in the form
of Synetic Stock and 40% in cash and (ii) the ESOP has sufficient cash to repay
its outstanding loan. Accordingly, the combination of cash and Synetic Stock
that is ultimately credited to your
<PAGE>
account may differ from your election. You will not be able to change the
amount of Synetic Stock or the cash consideration allocated to your account.
FAIRNESS OPINION
The ESOP Committee has received an opinion from the corporate
valuation firm of Pilot Financial regarding the proposed Merger to the effect
that (i) the consideration to be received by the ESOP in the Merger is not less
than the fair market value of the shares of Company stock owned by the ESOP and
(ii) the terms, conditions and payments in the Merger are fair, from a financial
point of view, to the ESOP participants. A copy of the written fairness opinion
is attached as a Exhibit A hereto for your information.
TREATMENT OF THE ESOP AFTER THE MERGER
Upon consummation of the Merger, the ESOP will use a portion of the
cash proceeds it receives for its unallocated shares of Company stock to repay
in full the ESOP's outstanding loan. All ESOP participants will become
automatically 100% vested in their ESOP accounts. For 1998, all of the ESOP's
then remaining unallocated shares, together with the Company's regular 1998
contribution, will be allocated among the accounts of active ESOP participants
as of December 31, 1998. No further contributions will be made to the ESOP.
After the 1998 allocations are completed and the Escrow (described
below) has been released, two actions will be taken with respect to ESOP
accounts: First, the Synetic Stock in your ESOP account will be transferred to a
new account established in your name in the existing 401(k) Plan maintained by a
subsidiary of Synetic (the "401(k) Plan"); Second, the ESOP will be terminated
and all other assets in your ESOP accounts will be offered to you in a lump sum
distribution. It is Synetic's intention that you will be permitted to transfer
the investments in your account in the 401(k) Plan to one or more of the
available funds under the 401(k) Plan.
Distributions of cash received by you from the ESOP will generally be
taxed at ordinary income tax rates. In addition, you may be subject to an
additional 10% tax under Section 72(t) of the Internal Revenue Code. You may be
able to avoid the income tax and the additional 10% tax by electing to roll over
the distribution received to an individual retirement account or another tax-
qualified retirement plan, including the 401(k) Plan. AS TAX MATTERS ARE VERY
COMPLICATED, YOU SHOULD CONSULT YOUR TAX ADVISORS TO UNDERSTAND FULLY THE TAX
CONSEQUENCES OF THE MERGER TO YOU.
ESCROW
<PAGE>
As more fully described in the Proxy Statement/Prospectus, pursuant to
an escrow agreement to be entered into at the closing, 25% of the consideration
to be paid to the ESOP in the Merger will be held in an escrow account to be
managed by United States Trust Company of New York, as escrow agent for one year
after the Merger to satisfy certain claims made by Synetic in connection with
the breach of a representation in the Merger Agreement relating to Point
Plastics and its business during such one-year period. Part of the escrow fund
may be retained in escrow beyond this one-year period to satisfy certain claims
for indemnification made by Synetic but not fully resolved during the expiration
of the one-year period. Synetic may not make a claim against the ESOP for
indemnification unless they also make such claim against Mr. Stolp and Mr.
Taggart.
DISSENTERS' RIGHTS
As more fully described in the Proxy Statement/Prospectus, the ESOP
Trustees will allow each ESOP participant to decide whether the ESOP should
exercise its right under California law to have an appraisal of the value of the
shares in the ESOP allocated to such ESOP participant's account in connection
with the Merger. If you want this appraisal right exercised with respect to the
shares of Company stock allocated to your ESOP account, you must vote against
the Merger and instruct the ESOP Trustees to make the requisite demand upon the
Company with respect to the shares allocated to your ESOP account. The failure
to follow the appropriate procedures to perfect your dissenter's rights will
result in the termination or waiver of such rights.
<PAGE>
VOTING INSTRUCTIONS AND STOCK/CASH ELECTION
Your voting instructions (on the enclosed form) and your Synetic Stock/cash
election (on the enclosed form) should both be forwarded to Menke & Associates
("Menke") in the enclosed return envelope for receipt not later than ________,
1998. PLEASE DO NOT FORWARD THE FORM TO THE COMPANY AND PLEASE DISREGARD ANY
PROXY CARDS ATTACHED TO THE PROXY STATEMENT/PROSPECTUS. Menke will provide
directions to the ESOP Trustees regarding the voting of ESOP participants'
shares at the Special Meeting. Please note that your individual voting
instructions will be kept confidential and will not be disclosed to the ESOP
Trustees, the ESOP Committee, or to any officer, director or employee of Synetic
or the Company.
Sincerely,
ESOP COMMITTEE OF THE POINT PLASTICS, INC.
EMPLOYEE STOCK OWNERSHIP PLAN
By
-------------------------------
Committee Member
<PAGE>
EXHIBIT A
April __, 1998
ESOP Committee
Point Plastics, Inc.
Employee Stock Ownership Trust
Gentlemen:
You have requested that Pilot Financial Services (PFS) provide an
opinion as to the fairness to the participants in the Point Plastics, Inc. (PPI)
Employee Stock Ownership Plan and Trust (the ESOP and the ESOT), from a
financial point of view, of a transaction whereby the ESOT disposes of all of
its PPI common stock, 726,254 shares, in a merger (the Merger) of PPI with Point
Plastics Acquisition Corp., a subsidiary of Synetic, Inc. (Synetic). Subject to
the following sentence, the price to the paid for each share, as detailed in the
Merger Agreement, is $59.298 in cash, 1.2749 shares of common stock of Synetic,
par value $.01 per share (Synetic Common Stock), or a combination of Synetic
Common Stock and cash. The participant may elect to have as little as 40%, but
not more than 49% of his PPI stock converted to cash, with the balance to be
paid in Synetic stock. The transaction is expected to take place on or before
May [_], 1998. Our opinion has been based upon, among other things, the
following sources of information:
1. We have reviewed PPI's audited statements for the fiscal years 1983
through 1997 and interim internal statements for the quarter ended
March 31, 1998, the most recently available. We have discussed these
statements with PPI management as well as important operating
activities of PPI and plans for its future which could affect the
common stock value on the transaction date.
2. We have reviewed documents related to the transaction including the
Agreement and Plan of Merger dated March 6, 1998 ("Merger Agreement")
and a draft of the Escrow Agreement.
3. We have reviewed a draft of the Form S-4 to be filed with the
Securities and Exchange Commission in connection with the issuance of
Synetic Common Stock in the Merger.
4. We have valued PPI common stock using guidelines published by the
Internal Revenue Service, the Department of Labor and the Uniform
Standards of Professional Appraisal Practice, considering all relevant
factors. A report detailing the methods and considerations in this
valuation was completed as of December 31, 1997 with the concluded
value of $35.80 per share, which remains valid at the time of this
transaction. This evaluation was based on PPI's continuation as an
independent corporation under current ownership.
5. We have discussed with PPI management and its counsel their perception
of the objectives and implications of the Merger.
We have examined available information about Synetic, its financial
position and strength, and recent data on the trading activity in Synetic Common
Stock, and consider that company fully capable of completing the Merger.
The consideration to be received by the ESOP participants is not less
than the value of the shares which will be exchanged for it. This is evident
from the value of $35.80 per share determined as of December 31, 1997 for PPI
ESOP stock which was estimated independent of this transaction. We understand
that the cash payment for unallocated shares will be used by the ESOP to repay
its current loan obligation to PPI.
<PAGE>
PFS has conducted all investigations supporting this opinion. PFS is
experienced and knowledgeable regarding the approaches and techniques used by
investors, actual and prospective acquirers, investment bankers, commercial
bankers, taxing authorities and others who evaluate private companies and/or
securities.
In carrying out our analysis, we have relied upon PPI with respect to
the accuracy and completeness of financial and other information provided by
them relating to PPI, Synetic and the subject transaction. We have not
independently verified all such information and our opinion is based upon the
facts and information provided to us, as well as our experience in valuing
private companies.
On the basis of our review and analysis, it is our opinion that: (1)
the consideration to be received by the ESOP in the Merger is no less than the
fair market value of the shares of Company stock owned by the ESOP and (2) the
terms, conditions and payments in the Merger are fair, from a financial point of
view, to the participants in the ESOP.
PILOT FINANCIAL SERVICES
Donald J. Tubb
