<PAGE>
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K/A
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended June 30, 1998
Commission file number 0-17822
SYNETIC, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 22-2975182
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
669 RIVER DRIVE
ELMWOOD PARK, NEW JERSEY 07407-1361
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (201) 703-3400
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
TITLE OF EACH CLASS
-------------------
COMMON STOCK, $.01 PAR VALUE
5% CONVERTIBLE SUBORDINATED DEBENTURES DUE 2007
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months, and (2) has been subject to such filing
requirements for the past 90 days. YES [X] NO [_]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value of the registrant's voting stock (based on the
last sale price of registrant's voting stock on the NASDAQ National Market
System on September 21, 1998 and, for the purpose of this computation only, the
assumption that all of the registrant's directors and executive officers are
affiliates) held by non-affiliates of the registrant was approximately
$499,088,763.
The number of shares of registrant's Common Stock, $.01 par value,
outstanding at September 21, 1998 was 18,669,434.
DOCUMENTS INCORPORATED BY REFERENCE
None.
================================================================================
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Pursuant to General Instruction G(3) to the Annual Report on Form 10-K,
certain of the information regarding executive officers of the Company required
by Item 401 of Regulation S-K is included in Part I of this report.
The directors of the Company are as follows:
<TABLE>
<CAPTION>
Director Principal
Name Age Since Occupation
---- --- -------- ----------
<S> <C> <C> <C>
Thomas R. Ferguson 72 1989 Mr. Ferguson has been a member of the law firm of
Ferguson, Case, Orr, Paterson & Cunningham for more
than five years.
Mervyn L. Goldstein, M.D. 61 1989 Dr. Goldstein has been a physician in private practice,
Associate Clinical Professor of Medicine at the Albert
Einstein College of Medicine in New York City and
Attending Physician in Medicine and Oncology at
Montefiore Medical Center in New York City for more
than five years.
Ray E. Hannah 61 1989 Mr. Hannah has been Co-Chairman of Porex Technologies Corp.
("Porex") since January 1998 and was President of Porex from
September 1987 to December 1997 and its Chief Executive Officer
from November 1992 to December 1997 and an executive officer of the
Company from June 1989 to March 1998. Mr. Hannah was the Chief
Operating Officer of Porex from November 1984 to November 1992.
Roger H. Licht 44 1989 Mr. Licht has been a member of the law firm of Licht &
Licht for more than five years.
James V. Manning 51 1989 Mr. Manning has been Vice Chairman since March 1998 and was
Chief Executive Officer of the Company from January 1995 to
March 1998 and President of the Company from July 1996 to
March 1998. Mr. Manning was, until March 1998, an executive
officer of the Company for more than the last five years
and was, until December 1994, an executive officer of Medco
for more than five years. He is also Chairman of the Board of
Group One Software, Inc., a computer software company.
Bernard A. Marden 79 1997 Mr. Marden has been a private investor for more than five
years.
Charles A. Mele 42 1989 See "Part I. Executive Officers."
</TABLE>
2
<PAGE>
<TABLE>
<S> <C> <C> <C>
Herman Sarkowsky 73 1989 Mr. Sarkowsky has been Chairman of the Board and Chief
Executive Officer of Sarkowsky Investment Corporation,
a diversified investment company, for more than five
years. From May 1992 to May 1997, he served as a
director of Seafirst Bank. Mr. Sarkowsky is also a
director of Eagle Hardware & Garden Inc. and Hollywood
Park, Inc.
Paul C. Suthern 46 1993 See "Part I. Executive Officers."
Albert M. Weis 71 1989 Mr. Weis has been President of A.M. Weis & Co., Inc.,
a commodities trading corporation, for more than five
years. Since August 1997, Mr. Weis has been the
Chairman of the Board of the New York Cotton
Exchange. Mr. Weis is also a member of the Board of the
Commodities Clearing Corporation.
Martin J. Wygod 58 1989 Mr. Wygod has been Chairman of the Board of the
Company since May 1989. From May 1989 to February
1993, Mr. Wygod also served as the Company's President
and Chief Executive Officer and until May 1994 was an
executive officer of the Company. Until May 1994, Mr.
Wygod was Chairman of the Board of Medco for more
than five years, and until January 1993 he also served as
Chief Executive Officer of Medco. He is also engaged in
the business of racing, boarding and breeding
thoroughbred horses and is President of River Edge Farm,
Inc., which is engaged in the business of breeding and
boarding thoroughbred horses.
</TABLE>
No family relationship exists among any of the directors or executive
officers except that Martin J. Wygod, Chairman of the Board of the Company, and
Paul C. Suthern are brothers-in-law. No arrangement or understanding exists
between any director or executive officer and any other person pursuant to which
any director or executive officer was selected as a director or executive
officer of the Company. All executive officers are elected annually by the
Board of Directors and serve at the discretion of the Board.
--------------------
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Based solely upon a review of Forms 3 and 4 and amendments thereto
furnished to the Company during the year ended June 30, 1998 and Forms 5 and
amendments thereto furnished to the Company for such year, no person failed to
file on a timely basis, as disclosed in the above forms, reports required by
Section 16(a) of the Securities Exchange Act of 1934, as amended, during such
year.
3
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION.
The following table presents information concerning compensation paid for
services to the Company during the last three fiscal years with respect to the
Company's Chief Executive Officer, the Company's former Chief Executive Officer
and the other four most highly compensated executive officers of the Company
(the "Named Executive Officers"):
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
--------------------------
LONG TERM
ANNUAL COMPENSATION COMPENSATION
----------------------- -------------
SECURITIES
UNDERLYING ALL OTHER
OPTIONS/ COMPEN-
NAME AND PRINCIPAL POSITION YEAR SALARY ($) BONUS ($) SARS (#) SATION ($)
--------------------------- ---- ---------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C>
James V. Manning................... 1998 100,000 -- -- --
President (July 1996 to 1997 100,000 -- -- --
March 1998) and Chief 1996 100,000 -- -- --
Executive Officer (January
1995 to March 1998)(1)
Paul C. Suthern.................... 1998 97,692 -- 194,000 --
President (beginning March 1997 -- -- -- --
1998) & Chief Executive 1996 160,000 -- -- --
Officer (October 1993 to
January 1995 and beginning
March 1998)
David M. Margulies................. 1998 175,000 -- 272,728(3) --
Executive Vice President 1997 72,019(2) -- 272,728(3) --
-Chief Scientist 1996 -- -- -- --
Ray E. Hannah...................... 1998 175,000 -- -- 3,683(4)
Vice President 1997 163,461 100,000 40,000 5,901(4)
--Porex Technologies Group 1996 160,000 74,140 -- 3,239(4)
Charles A. Mele.................... 1998 159,692 -- 85,000 3,163(5)
Executive Vice President and 1997 150,000 -- 195,000 2,019(5)
General Counsel 1996 150,000 12,460 -- 1,540(5)
Anthony Vuolo...................... 1998 159,692 -- 50,000 3,163(5)
Executive Vice President and 1997 150,000 -- 81,000 2,019(5)
Chief Financial Officer (since 1996 150,000 -- -- 1,419(5)
May 1997)
</TABLE>
- ----------------------
(1) Mr. Manning has been Vice Chairman since March 1998.
(2) Dr. Margulies became an employee of the Company after the Company's
acquisition of CareAgents, Inc. on January 23, 1997. As such, only
compensation paid subsequent to January 23, 1997 is reflected above.
(3) These options were originally granted January 23, 1997 and were canceled
and replaced January 7, 1998.
4
<PAGE>
(4) Includes Company matching contributions to the Porex Technologies Corp.
401(k) Savings Plan ("Porex 401(k) Plan") and life insurance premiums paid
on behalf of Mr. Hannah of $1,878 and $1,361, respectively, in the fiscal
year ended June 30, 1996, $3,795 and $2,106, respectively, in the fiscal
year ended June 30, 1997 and $1,577 and $2,106, respectively, in the fiscal
year ended June 30, 1998.
(5) Comprised of Company matching contributions to the Porex 401(k) Plan.
The following table presents information concerning the options granted to
the Named Executive Officers during the last fiscal year.
<TABLE>
<CAPTION>
OPTION/SAR GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS
-----------------
NUMBER OF
SECURITIES % OF TOTAL
UNDERLYING OPTIONS/SARS EXERCISE
OPTIONS/ GRANTED TO OR BASE
SARS EMPLOYEES PRICE EXPIRATION GRANT DATE
NAME GRANTED (#) IN FISCAL YEAR ($/SH) DATE PRESENT VALUE ($)(4)
---- -------------- --------------- --------- ---------- --------------------
<S> <C> <C> <C> <C> <C>
Paul C. Suthern....... 10,000(1)(3) 0.40% 38.7500 7/1/12 145,856
184,000(1) 7.40% 36.8750 1/7/08 2,553,898
-------- ----- ---------
194,000 7.81% 2,699,754
David M. Margulies.... 272,728(2) 10.97% 36.8750 1/7/08 2,818,841
Charles A. Mele....... 85,000(1) 3.42% 36.8750 1/7/08 1,179,790
Anthony Vuolo......... 50,000(1) 2.01% 36.8750 1/7/08 693,994
</TABLE>
____________
(1) These options vest and become exercisable at the rate of 20% per year,
commencing on the first anniversary of the date of grant and were granted
on the following dates: Mr. Suthern, 10,000 on July 1, 1997 and 184,000
on January 7, 1998; Messrs. Vuolo and Mele, on January 7, 1998.
(2) These options vest and become exercisable at the rate of 40%, commencing
on the second anniversary of the date of grant and 20% on each subsequent
anniversary and were granted on January 7, 1998. This grant represents
the replacement of a grant of an option originally issued on January 23,
1997.
(3) These options were awarded to Mr. Suthern while serving as Vice Chairman
of the Board of Directors under the 1991 Director Stock Option Plan.
(4) The estimated grant date present value reflected in the above table is
determined using the Black-Scholes model. The material assumptions and
adjustments incorporated in the Black-Scholes model in estimating the
value of the options reflected in the above table include the following:
(i) the respective option exercise price, specified above, equal to the
fair market value of the underlying stock on the date of grant; (ii) the
exercise of options within two years of the date that they become
exercisable; (iii) a risk-free interest rate of 6.3% per annum; and (iv)
volatility of 0.2986 calculated using daily stock prices of the Company
during the period from the date of the purchase of shares of Common Stock
from Merck & Co., Inc. ("Merck") by the Company and SN Investors on
December 14, 1994 to June 30, 1998. The ultimate values of the options
will depend on the future market price of the Company's stock, which
cannot be forecasted with reasonable accuracy. The actual value, if any,
an optionee will realize upon exercise of an option will depend on the
excess of the market value of the Company's Common Stock over the
exercise price on the date the option is exercised. There is no
assurance that the value realized by an optionee will be at or near the
value estimated by the Black-Scholes model or any other model applied to
value the options.
5
<PAGE>
No options to purchase Common Stock were exercised by the Named Executive
Officers during the fiscal year ended June 30, 1998.
The following table presents information concerning the fiscal year-end
value of options to purchase Common Stock held by the Named Executive Officers.
<TABLE>
<CAPTION>
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION/SAR VALUES
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS/
OPTIONS/SARS AT FY-END(#) SARS AT FY-END ($)(1)
---------------------------- ----------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
James V. Manning.............. 255,000 60,000 11,633,750 2,640,000
Paul C. Suthern............... 234,000 266,000 8,944,500 6,471,500
David M. Margulies............ - 272,728 - 4,670,467
Ray E. Hannah................. 72,000 32,000 2,990,500 592,000
Charles A. Mele............... 109,000 241,000 3,983,250 4,848,625
Anthony Vuolo................. 135,200 164,800 5,521,100 4,360,650
</TABLE>
- ----------
(1) Based upon the fiscal year-end closing price of the Common Stock of $54.00.
PLANS AND ARRANGEMENTS OF THE COMPANY
PENSION PLAN
Employees of the Company and certain of its subsidiaries who satisfy
certain age and service requirements are eligible to participate in the Pension
Plan for Employees of Porex Technologies Corp. (the "Pension Plan"), a defined
benefit plan. The Company bears the entire cost of the Pension Plan. The
Company's contributions to the Pension Plan are computed on an actuarial basis
in order to fund the defined retirement benefits.
Normal retirement benefits are payable monthly for life to a participant
upon retirement at his or her retirement date (i.e., age 65), and are equal to
1/12 of the sum of (a) 0.6% of the participant's average annual compensation for
the five consecutive calendar years that the participant's compensation was the
highest during the ten consecutive years of service immediately preceding
retirement ("Final Average Compensation"), multiplied by the participant's
credited years of service up to a maximum of 35 years, and (b) 0.6% of the
participant's Final Average Compensation in excess of the average annual Social
Security taxable wage base for the 35-year period ending with the year the
participant would reach normal retirement age, multiplied by the participant's
credited years of service up to a maximum of 35 years. A participant becomes
100% vested in his or her accrued retirement benefit after completion of five
years of service or upon attainment of normal retirement at age 65. Retirement
benefits are not subject to any deduction for Social Security or other offset
amounts.
Under a defined benefit plan such as the Pension Plan, contributions
allocable to individual participants cannot be readily and accurately
calculated. The table below shows estimated annual retirement benefits for
executives at specified levels of remuneration and years of service. The
estimates assume that benefits commence at age 65 under a straight life annuity
form. The table discloses the benefits that an individual would receive at age
65 if he participated in the Pension Plan for 15, 20, 25, 30, 35 and 40 years.
6
<PAGE>
PENSION PLAN TABLE
<TABLE>
<CAPTION>
Years of Service
----------------------------------------------
Remuneration 15 20 25 30 35 40
- -------------- ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
100,000 15,198 20,265 25,331 30,397 35,463 35,463
115,000 17,898 23,865 29,831 35,797 41,763 41,763
125,000 19,698 26,265 32,831 39,397 45,963 45,963
150,000 24,198 32,265 40,331 48,397 56,463 56,463
154,000 24,918 33,225 41,531 49,837 58,143 58,143
or more
</TABLE>
Ray E. Hannah, the only Named Executive Officer participating in the
Pension Plan, had accrued 30 credited years of service under the Pension Plan
and had annual remuneration covered by the Pension Plan of $160,000 as of
January 1, 1998. Sections 401(a)(17) and 415 of the Internal Revenue Code limit
the amount of compensation that may be considered in computing benefits under a
qualified retirement plan. For 1998, the maximum amount of compensation allowed
for use in calculating an individual's pension benefits under the Retirement
Plan was $160,000.
On May 1, 1998, the Company ceased all benefit accruals under the plan.
The Company has not made a final decision regarding the status of the Pension
Plan. If the Company were to terminate the plan, the Company's obligation to
Mr. Hannah would be approximately $49,500 per annum.
COMPENSATION OF DIRECTORS
Those directors who are not officers or employees of the Company received
no cash compensation for serving as directors for the fiscal year ended June 30,
1998. The Company's 1991 Director Stock Option Plan (the "Director Plan")
provides that on the first business day of each fiscal year of the Company, each
director who is not an officer or employee of the Company then in office will
automatically be granted an option to purchase 10,000 shares of Common Stock.
In addition, each director who is not an officer or employee of the Company
automatically receives an option to purchase 10,000 shares of Common Stock at
the time such director is first elected to the Board. The Director Plan is
administered by the Board of Directors or any executive officer or officers
designated by the Board. Non-employee directors (other than those directors who
serve on the Stock Option Committee) have also received in the past, options to
purchase Common Stock under the Company's 1989 Class A Stock Option Plan (the
"Class A Plan"), and the Company from time to time has granted options to
purchase Common Stock to certain of such directors outside the Company's stock
option plans on terms similar to those contained in the Class A Plan.
EMPLOYMENT AGREEMENT
Dr. Margulies entered into an Employment Agreement with the Company dated
January 23, 1997 (the "Margulies Agreement") in connection with the Company's
acquisition of CareAgents, Inc. The Margulies Agreement provides for a term of
five years which shall automatically be renewed for successive one-month periods
unless notice to terminate is given by either party prior to the expiration of
the then effective term. Under the Margulies Agreement, Dr. Margulies receives
an annual base salary of $175,000. At any time, the Company may terminate the
Margulies Agreement and Dr. Margulies's employment with the Company with or
without Cause (as defined in the Margulies Agreement). Upon termination without
Cause, the Company's obligation to Dr. Margulies is limited to paying him earned
and unpaid compensation to the effective date of such termination and allowing
any outstanding options granted under the Stock Option Agreement between Dr.
Margulies and the Company dated January 23, 1997 to continue to vest after such
termination through the earlier of (i) the next anniversary of the date of grant
on which a portion of options are scheduled to vest, or (ii) the occurrence of
any circumstance or event that would constitute Cause.
7
<PAGE>
Dr. Margulies is also subject to certain restrictive covenants, including
restrictions on disclosure of confidential information, restrictions on
competing with the Company, restrictions on soliciting its customers and
employees, and obligations to assign developments to the Company.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information as of October 21, 1998
(except as otherwise indicated) concerning the beneficial ownership of the
Company's Common Stock by each person known by the Company to own more than 5%
of its Common Stock.
<TABLE>
<CAPTION>
AMOUNT
NAME AND ADDRESS OF AND NATURE OF PERCENT
BENEFICIAL OWNER BENEFICIAL OWNERSHIP OF CLASS (1)
------------------- ------------------------ ------------
<S> <C> <C>
Martin J. Wygod......................... 5,379,948(2)(3) 28.5%
P.O. Box 7188
Rancho Santa Fe, California 92067
SN Investors, L.P....................... 5,061,857(2) 27.1%
818 Washington Street
Wilmington, Delaware 19801
FMR Corp................................ 1,157,582(4) 6.2%
82 Devonshire Street
Boston, Massachusetts 02107
The Prudential Insurance Company........ 1,292,447(5) 6.9%
of America ("Prudential")
Prudential Plaza
Newark, New Jersey 07102
James R. Buell.......................... 1,010,916(6) 5.4%
Star Route Box 129
Orovada, Nevada 89425
</TABLE>
- -------------------------------------
(1) The number of shares of Common Stock deemed outstanding includes: (i)
18,694,102 shares of Common Stock outstanding as of October 21, 1998, (ii)
the number of shares, if any, of Common Stock that the respective persons
named in the above table have the right to acquire presently or within 60
days of October 21, 1998 upon exercise of stock options and (iii) the number
of shares, if any, of Common Stock, which the respective persons named in
the above table have the right to acquire upon conversion of the Company's
5% Convertible Subordinated Debentures due 2007 ("Convertible Debentures").
(2) SN Investors, the general partner of which is controlled by Mr. Wygod, is
the record and beneficial owner of 5,061,857 shares of Common Stock. Mr.
Wygod is an indirect beneficial owner of such shares and they are included
in the total of 5,379,948 shares listed as beneficially owned by Mr. Wygod.
See "Item 13. Certain Relationships and Related Transactions--Purchase and
Sale Agreement; Divestiture" and "--Investment Agreement" for additional
information regarding SN Investors.
8
<PAGE>
(3) Includes 212,000 shares of Common Stock that Mr. Wygod has the right to
acquire presently or within 60 days of October 21, 1998 upon exercise of
stock options or upon conversion of Convertible Debentures. Includes 2,000
shares of Common Stock beneficially owned by Mr. Wygod's spouse, as to which
shares Mr. Wygod disclaims beneficial ownership. Does not include 3,500
shares of Common Stock and shares of Common Stock issuable upon conversion
of $1,500,000 principal amount of Convertible Debentures owned by Synetic
Foundation, Inc. ("Synetic Foundation"), a charitable foundation of which
Messrs. Manning, Suthern and Wygod are trustees and share voting and
dispositive power, nor 186,961 shares of Common Stock and shares of Common
Stock issuable upon conversion of $500,000 principal amount of Convertible
Debentures owned by the Rose Foundation ("Rose Foundation"), a private
charitable foundation of which Messrs. Wygod and Mele are trustees and share
voting and dispositive power.
(4) The information shown is as of December 31, 1997 and is based upon
information disclosed by FMR Corp., Fidelity Management and Research
Company, Fidelity VIP Equity-Income Fund, Abigail P. Johnson and Edward C.
Johnson, 3d, the controlling stockholder of FMR Corp., in a Schedule 13G
filed with the Securities and Exchange Commission (the "Commission"). Such
persons reported that FMR Corp. is the parent holding company of Fidelity
Management and Research Company, and that Edward C. Johnson, 3d, FMR Corp.,
through its control of Fidelity Management and Research Company, and the
Fund each has sole power to dispose of such shares. Sole power to vote the
shares resides in the Fund's Board of Trustees.
(5) The information shown is as of December 31, 1997 and is based upon
information disclosed by Prudential in its Schedule 13G filed with the
Commission. Prudential reported in its Schedule 13G that it has shared
voting and dispositive power over such shares.
(6) Includes 131,667 shares of Common Stock that Mr. Buell has the right to
acquire presently or within 60 days of October 21, 1998 upon conversion of
Convertible Debentures. The information shown is as of May 28, 1997 and is
based upon information disclosed by Mr. Buell in his Schedule 13D filed with
the Commission. Mr. Buell reported in his Schedule 13D that he has sole
voting and dispositive power over such shares.
9
<PAGE>
SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth certain information, as of October 21, 1998,
concerning the ownership of Common Stock by each of the directors, each of the
Named Executive Officers, and by all directors and executive officers of the
Company as a group.
<TABLE>
<CAPTION>
AMOUNT AND
NATURE OF BENEFICIAL PERCENT OF
NAME OF BENEFICIAL OWNER OWNERSHIP (1)(2) CLASS (3)
- ------------------------ ------------------------ -----------
<S> <C> <C>
Thomas R. Ferguson 116,116 *
Mervyn L. Goldstein 118,716(4) *
Ray E. Hannah 145,655 *
Roger H. Licht 89,333 *
James V. Manning 329,740 1.74%
Bernard A. Marden 402,003 2.14%
David M. Margulies 28,917 *
Charles A. Mele 151,005 *
Herman Sarkowsky 224,018(7) 1.19%
Paul C. Suthern 277,700(10) 1.46%
Anthony Vuolo 169,125 *
Albert M. Weis 165,168(8) *
Martin J. Wygod 5,379,948(5)(6)(9) 28.46%
All directors and executive officers
as a group (15 persons) 7,756,787 37.54%
</TABLE>
- --------------------------------
* Less than one percent.
(1) The persons named in the table have sole voting and investment power with
respect to all shares of Common Stock shown as beneficially owned by
them, unless otherwise indicated in the following footnotes.
(2) Includes the following number of shares of Common Stock that the
following persons have the right to acquire presently or within 60 days
of October 21, 1998 upon exercise of stock options and the number of
shares of Common Stock that the following persons have the right to
acquire upon conversion of Convertible Debentures: Mr. Ferguson, 111,666;
Dr. Goldstein, 106,666; Mr. Hannah, 72,166; Mr. Licht, 87,333; Mr.
Manning, 293,333; Mr. Marden, 85,335; Mr. Mele, 148,833; Mr. Sarkowsky,
134,999; Mr. Suthern, 274,500; Mr. Vuolo, 167,233; Mr. Weis, 114,166; Mr.
Wygod, 212,000; and all directors and executive officers as a group,
1,967,063. Includes 1,489 shares of Common Stock allocated to the
account of Mr. Hannah, 172 shares of Common Stock allocated to the
account of Mr. Mele and 167 shares of Common Stock allocated to the
account of Mr. Vuolo under the Porex 401(k) Plan as of June 30, 1998.
(3) The number of shares of Common Stock deemed outstanding includes: (i)
18,694,102 shares of Common Stock outstanding as of October 21, 1998,
(ii) the number of shares of Common Stock that the respective persons
named in the above table have the right to acquire presently or within 60
days of October 21, 1998 upon exercise of stock options and (iii) the
number of shares of Common Stock that the respective persons named in the
above table have the right to acquire upon conversion of Convertible
Debentures.
(4) Includes 200 shares of Common Stock owned by Dr. Goldstein's spouse, as
to which Dr. Goldstein disclaims beneficial ownership.
(5) Does not include 3,500 shares of Common Stock and shares of Common Stock
issuable upon conversion of $1,500,000 principal amount of Convertible
Debentures owned by Synetic Foundation.
10
<PAGE>
(6) Does not include 186,961 shares of Common Stock and shares of Common
Stock issuable upon conversion of $500,000 principal amount of
Convertible Debentures owned by the Rose Foundation.
(7) Does not include 20,000 shares of Common Stock owned by a charitable
foundation of which Mr. Sarkowsky is a director.
(8) Includes 3,050 shares of Common Stock owned by a corporation of which Mr.
Weis is the sole stockholder, sole director and president and 3,200
shares of Common Stock held in trust for Mr. Weis's children.
(9) Includes 2,000 shares of Common Stock beneficially owned by Mr. Wygod's
spouse, as to which shares Mr. Wygod disclaims beneficial ownership. See
also "Footnote 2 to Principal Stockholders Table".
(10) Includes 1,200 shares of Common Stock held in custodial accounts for Mr.
Suthern's children.
11
<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
PURCHASE AND SALE AGREEMENT. On December 14, 1994, pursuant to the
Purchase and Sale Agreement dated as of May 24, 1994 between the Company and
Merck (the "Purchase and Sale Agreement"), the Company purchased 5,268,463
shares of the Company's Common Stock from Merck for an aggregate purchase price
of $37,764,019. At the time of the purchase by the Company, SN Investors
purchased 5,061,857 shares of the Company's Common Stock (the "Wygod Shares"
and, collectively with the shares purchased by the Company, the "Shares") from
Merck for an aggregate purchase price of $36,283,079. The purchase by SN
Investors was made pursuant to an assignment by the Company to Mr. Wygod of the
right to purchase the Wygod Shares pursuant to the Investment Agreement between
Mr. Wygod and the Company, dated as of September 13, 1994 (the "Investment
Agreement"). Mr. Wygod, as permitted under the Investment Agreement, further
assigned to SN Investors his right to purchase the Wygod Shares. The Investment
Agreement governs the terms and conditions under which the Wygod Shares will be
held by Mr. Wygod and his permitted assignees and transferees. See "--Investment
Agreement".
In the Purchase and Sale Agreement, the Company agreed, until May 24, 1999,
to be bound by the restrictions contained in the Consulting Agreement described
below under "--Consulting Agreement", provided that such restrictions shall be
of no further force and effect in the event of the death of Mr. Wygod, or if Mr.
Wygod ceases to be a director of the Company or any subsidiary of the Company,
ceases to have any ownership interest in the Company (provided that if the
Company is a public company he may have up to a 1% equity interest in the
Company), and is not a principal, agent or employee of or consultant to the
Company or any subsidiary of the Company, or is not otherwise rendering any
services to the Company or any subsidiary of the Company.
INVESTMENT AGREEMENT. In the Investment Agreement, the Company assigned
the rights and obligations to purchase the Wygod Shares to Mr. Wygod. The
Investment Agreement governs the terms and conditions under which the Wygod
Shares will be held by Mr. Wygod and his permitted assignees and transferees.
Mr. Wygod, as permitted under the Investment Agreement, assigned such rights and
obligations to SN Investors. Pursuant to the Investment Agreement, SN Investors
was (1) required to be a limited partnership in which Mr. Wygod or an entity
controlled by Mr. Wygod is the general partner and one or more of his family
trusts and/or partnerships (collectively, the "Wygod Entities") and/or
independent third parties are limited partners and (2) required to agree to be
bound by all of the restrictions and obligations applicable to Mr. Wygod under
the Investment Agreement. The Investment Agreement required the initial
investment of the Wygod Entities in SN Investors to be at least $20,000,000 (on
a cost basis) (the "Wygod Investment").
The Investment Agreement provides that, until the earliest to occur of (a)
December 14, 1998, (b) the death or adjudication of incompetency of Mr. Wygod or
(c) a Change of Control (as defined in the Investment Agreement) (the
"Restriction Period"), in respect of the Wygod Investment, except to the extent
of proceeds from sales of the Wygod Shares pursuant to a tender or exchange
offer for shares of Common Stock that is not opposed by the Board of Directors
of the Company, the Wygod Entities will at all times maintain (directly and/or
through SN Investors) at least $20,000,000 (on a cost basis) in the Wygod
Investment and will not cause or allow the amount of the Wygod Investment (on a
cost basis) to be less than $20,000,000 (net of any disposition, transfer,
pledge, distribution by SN Investors or any other arrangement involving the
transfer of ownership or interests in Wygod Shares (or proceeds therefrom), but
not taking into account any reduction in the Wygod Investment by virtue of a
decline in the value of Wygod Shares).
A "Change of Control" under the Investment Agreement means: (a) the
acquisition by any person, entity or group of at least 50% of the voting power
of the voting securities of the Company other than the Wygod Shares; (b)
individuals who, as of the date of the Investment Agreement, constitute the
Board of Directors of the Company (the "Incumbent Board") ceasing for any reason
to constitute at least a majority of the Board of Directors (provided that
directors whose nomination or election was approved by the Incumbent Board are
also generally deemed to be part of the Incumbent Board); (c) a reorganization,
merger or consolidation or sale or other disposition of all or substantially all
of the assets of the Company (a "Business Combination"), excluding, however,
such a Business Combination pursuant to which (i) all or substantially all of
the individuals and entities who were the beneficial owners of the Company's
voting securities immediately prior to such Business Combination beneficially
own more than 60% of, respectively, the then-outstanding shares of common stock
and the combined voting power of the then-outstanding securities entitled to
vote generally in the election of directors of the corporation resulting from
such Business Combination, in substantially the same proportions as their
ownership immediately prior to such Business Combination of the Company's voting
securities, and (ii) at least a majority of the board of directors
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of the resulting corporation were members of the Incumbent Board at the time of
the execution of the initial agreement or of the action of the Board of
Directors providing for such Business Combination; (d) a complete liquidation or
dissolution of the Company; or (e) the issuance by the Company following the
closing of the Purchase of shares of Common Stock constituting in the aggregate
more than 50% of the shares of Common Stock outstanding as of immediately
following the closing of the Purchase. As of October 21, 1998, the Company had
issued 6,184,393 shares of Common Stock since the closing of the Purchase.
Accordingly, the issuance of an aggregate of 70,462 additional shares of Common
Stock would be a "Change of Control" as defined in clause (e) above.
Pursuant to the Investment Agreement, during the Restriction Period: (a)
Mr. Wygod and SN Investors are required to vote (or cause to be voted) the Wygod
Shares (i) with respect to election of directors, for the nominees who would
have been elected based on the vote of all shares of Common Stock, other than
the Wygod Shares, in proportion to the votes that such nominees received, and
(ii) on all other matters to come before the stockholders of the Company, in the
same manner as a majority of the outstanding shares of Common Stock (other than
the Wygod Shares) are voted; and (b) except for sales pursuant to a tender or
exchange offer for the shares of Common Stock that is not opposed by the Board
of Directors of the Company, neither Mr. Wygod nor SN Investors may transfer
interests in the Wygod Shares (except that Mr. Wygod may transfer interests in
SN Investors to the extent otherwise permitted by the Investment Agreement).
Upon the expiration of the obligations of Mr. Wygod and SN Investors described
in this paragraph, Mr. Wygod and SN Investors may be in a position to influence
the election of the Company's Board of Directors as well as the direction and
future operations of the Company.
Under the Investment Agreement, following the earlier to occur of (a)
December 14, 1998 or (b) the death or adjudication of incompetency of Mr. Wygod:
(i) to the extent the Wygod Entities and/or SN Investors retain the power to
vote Wygod Shares that have, in the aggregate, in excess of 20% of the voting
power of the Company's voting securities outstanding at the time of any vote by
stockholders of the Company, Mr. Wygod and SN Investors will vote (or cause to
be voted) the portion of such Wygod Shares representing the excess above 20% of
such voting power, (A) with respect to the election of directors, for the
nominees who would have been elected based on the vote of all shares of Common
Stock, other than the Wygod Shares, in proportion to the votes that such
nominees received, and (B) on all other matters to come before the stockholders
of the Company, in the same manner as a majority of the outstanding shares of
Common Stock, other than the Wygod Shares, are voted; and (ii) to the extent
that Wygod Entities and/or SN Investors retain beneficial ownership of Wygod
Shares that have, in the aggregate, in excess of 20% of the voting power of the
outstanding voting securities of the Company, the portion of such Wygod Shares
representing the excess above 20% of such voting power at the time of any
proposed sale or transfer thereof shall not be sold or transferred except (A) to
transferees reasonably acceptable to the Company (provided that, without the
Company's consent, no such transfer or series of transfers to a single person,
entity or group will involve the transfer of more than 9.9% of the voting power
of the Company's outstanding voting securities and no such transfer or series of
transfers will be made to a single person, entity or group that will own,
following such transfers, more than 50% of the voting power of the Company's
outstanding voting securities), (B) to the partners of SN Investors in
proportion to their respective interests in SN Investors (provided that, without
the Company's consent, no such transfer or series of transfers to a single
person, entity or group (other than Mr. Wygod or the Wygod Entities) will
involve the transfer of more than 9.9% of the voting power of the Company's
outstanding voting securities), (C) in ordinary open market transactions, or (D)
pursuant to an underwritten public offering.
The Investment Agreement provides that the restrictions described in the
foregoing paragraph will not apply (a) in the event there has been, or from and
after the occurrence of, a Change of Control (as defined in the Investment
Agreement) of the Company, (b) at any time after December 14, 2004 or (c) to any
person or entity, other than Mr. Wygod, the Wygod Entities or SN Investors, to
whom Wygod Shares are transferred (including by means of distributions from SN
Investors) in accordance with the provisions of the foregoing paragraph.
The Investment Agreement also provides certain demand registration rights
to Mr. Wygod at Mr. Wygod's expense that are assignable to any permitted
transferee of the Wygod Shares; provided that, in no event is the Company
required to file in the aggregate more than two registration statements in
connection therewith. Mr. Wygod has not assigned such registration rights to SN
Investors. While Mr. Wygod currently intends to assign such registration rights
to SN Investors in the event the General Partner determines to sell or otherwise
transfer the Wygod Shares under circumstances in which registration would be
required, Mr. Wygod is under no obligation to do so.
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Certain provisions of the Investment Agreement may have the effect of
deterring a change of control of the Company that is not supported by the Board
of Directors of the Company or Mr. Wygod. During the Restriction Period, Mr.
Wygod and SN Investors are prohibited from transferring the Wygod Shares, except
pursuant to a tender or exchange offer that is not opposed by the Board of
Directors of the Company or to specified permitted transferees. In addition,
under the Investment Agreement, in the event that a Change of Control (as
defined in the Investment Agreement) were to occur during the Restriction
Period, Mr. Wygod and SN Investors would no longer be obligated under the
Investment Agreement to vote the Wygod Shares with respect to nominees for
election as directors based on the vote of shares other than the Wygod Shares
and with respect to other matters in the same manner as the majority of the
other outstanding shares of Common Stock (other than the Wygod Shares) are
voted, with the result that Mr. Wygod and SN Investors would have unrestricted
voting power with respect to the Wygod Shares. The effect of these provisions
of the Investment Agreement may be to discourage the commencement of a tender or
exchange offer opposed by the Board of Directors of the Company during the
Restriction Period and to discourage a proxy solicitation to change a majority
of the Board of Directors of the Company absent the support of Mr. Wygod.
CONSULTING AGREEMENT. In the Consulting Agreement, dated as of May 24,
1994 (the "Consulting Agreement"), by and among Mr. Wygod, Merck and Medco, Mr.
Wygod has agreed that, until May 24, 1999, absent Merck's prior written
approval, he will not (as principal, agent, employee, consultant or otherwise)
directly or indirectly engage in activities with, nor render services to, any
business engaged or about to become engaged in a Competitive Business (as
defined in the Consulting Agreement). A "Competitive Business" is defined in
the Consulting Agreement as: (a) the pharmaceutical business of Merck and its
affiliates (unless such business is subsequently disposed of and Mr. Wygod did
not have material involvement in such business during the two-year period
preceding May 24, 1994), (b) the business, as of either November 18, 1993 or May
24, 1994, of Medco and its subsidiaries (unless such business is subsequently
disposed of and Mr. Wygod did not have material involvement in such business
during the two-year period preceding May 24, 1994), other than the business of
Porex and the other plastic businesses of the Company as conducted as of May 24,
1994, or (c) any other then-current business of Merck and its affiliates as to
which Mr. Wygod became materially involved following November 18, 1993;
provided, however, that the Consulting Agreement permits Mr. Wygod to have a 1%
or less equity interest in a Competitive Business that is a public corporation.
In addition, the Consulting Agreement provides that, until May 24, 1999, Mr.
Wygod will not, directly or indirectly: (i) solicit or contact any customer or
prospective customer of Medco and/or any of its affiliates as to matters that
relate to a Competitive Business in which Medco or its affiliates is then
engaged or which is in any way inconsistent or interferes therewith; (ii)
induce, or attempt to induce, any employees or agents or consultants of Medco
and/or its affiliates to do anything from which Mr. Wygod is restricted by
reason of the Consulting Agreement; or (iii) offer or aid others to offer
employment to any employees of Medco or its affiliates.
OTHER. The Company was reimbursed approximately $137,109 by a corporation
controlled by Mr. Wygod for the partial use of the Company's office facilities
and for services rendered by Company employees during the fiscal year ended June
30, 1998.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
SYNETIC, INC.
Date: October 27, 1998 By: /s/ Charles A. Mele
----------------------------
Name: Charles A. Mele
Title: Executive Vice President and
General Counsel
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