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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
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
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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
Certain information in the registrant's definitive proxy statement to be
filed with the Securities and Exchange Commission relating to the registrant's
1998 Annual Meeting of Stockholder is incorporated by reference into Part III.
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PART I
ITEM 1. BUSINESS.
INTRODUCTION
Synetic, Inc. ("Synetic") is a Delaware corporation and was incorporated in
1989. Its principal offices are located at 669 River Drive, Elmwood Park, New
Jersey 07407-1361, and its telephone number is (201) 703-3400. As used herein,
the "Company" means Synetic and its subsidiaries, except where the context
otherwise requires.
Synetic is engaged in two principal business activities, plastics and
filtration technologies and healthcare communications. The Company, through its
wholly owned subsidiary Porex Technologies Corp., designs, manufactures and
distributes porous and solid plastic components and products used in life
sciences, healthcare, industrial, and consumer applications. Porex
Technologies Corp., together with its subsidiaries, will be referred to in this
report collectively as "Porex", except where the context otherwise requires.
Through its wholly owned subsidiary, Avicenna Systems Corporation ("Avicenna"),
the Company has directed its efforts in a new area of business relating to the
use of Internet technology to expand the channels of communication in the
healthcare industry. The creation of these new channels is intended to benefit
providers and payors of healthcare services by improving the quality of patient
care, securing appropriate utilization of healthcare services, reducing
administrative costs and enforcing benefit plan guidelines. See "Business--
Healthcare Communications Business--Certain Considerations".
The Company maintains an acquisition program and intends to concentrate its
acquisition efforts in businesses which are complementary to the Company's
plastics and filtration technologies business and its healthcare communications
strategy. This emphasis, however, is not intended to limit in any manner the
Company's ability to pursue acquisition opportunities in other healthcare-
related businesses or in other industries. The Company's acquisition program
could result in a substantial change in the businesses, operations and financial
condition of the Company. No assurance can be given that the Company will
succeed in consummating any acquisitions or that the Company will be able to
successfully manage or integrate any business that it acquires. The future
growth of the Company will depend primarily on its ability to consummate one or
more such acquisitions and to operate such businesses successfully. See
"Business--Acquisition Program".
FORWARD-LOOKING INFORMATION
This report contains certain forward-looking statements and information
relating to the Company that are based on the beliefs of the Company's
management as well as assumptions made by and information currently available to
the Company's management. When used in this report, the words "anticipate",
"believe", "estimate", "expect" and similar expressions, as they relate to the
Company or the Company's management, are intended to identify forward-looking
statements. Such statements reflect the current view of the Company with
respect to future events and are subject to certain risks, uncertainties and
assumptions. These risks may include product demand and market acceptance
risks, the feasibility of developing commercially profitable Internet healthcare
services, the effect of economic conditions, user acceptance, the impact of
competitive products, services and pricing and product development,
commercialization and technological difficulties and other risks described
elsewhere herein including those set forth in "Business--Plastics and Filtration
Technologies Business--Regulation", "--Competition", "--Potential Liability Risk
and Availability of Insurance", "--Healthcare Communications Business--Certain
Considerations", "--Acquisition Program" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations". Should one or more
of these risks or uncertainties materialize, or should underlying assumptions
prove incorrect, actual results may vary materially from those described herein
as anticipated, believed, estimated or expected. The Company does not intend to
update these forward-looking statements.
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PLASTICS AND FILTRATION TECHNOLOGIES BUSINESS
GENERAL
The Company's plastics and filtration technologies business, conducted
through Porex, consists of three primary product groups: Porous Media Group,
Scientific Products Group and Surgical Products Group. The products of these
groups are used in life sciences, health care, industrial and consumer
applications.
POROUS MEDIA GROUP
Porex is a leading developer, manufacturer and distributor of porous
plastic products, with a 35-year operating history. Porous plastics are
permeable plastic structures having omni-directional (i.e., porous in all
directions to the flow of fluids and gases) interconnecting pores. These pores
allow the plastic to control the flow of liquids and gases by filtering,
wicking, venting, diffusing or dispensing them. Porous plastics are
manufactured by Porex with pore sizes between approximately 5 and 500
micrometers (one micrometer is equal to one-millionth of a meter; an object of
40 micrometers in size is about as small as can be discerned by the naked eye).
Porous plastic materials can be molded from several thermoplastic raw materials
and are produced by Porex at its own manufacturing facilities as fabricated
devices, custom-molded shapes, sheets, tubes or rods depending on application or
manufacturer specifications.
Porex designs porous plastic components to the specifications of
original equipment manufacturers ("OEMs") for incorporation into their products
in order to control the flow of fluids or gases. Porex also produces finished
products in several market areas including life sciences, pneumatics, and
clinical laboratory markets. These products are used for health care, consumer
and industrial applications.
Health Care Products. For the health care market, Porex manufactures
a variety of components that it sells to various health care OEMs for
incorporation into their finished products. These porous plastics are used to
vent or diffuse gases or fluids and are used as membrane supports. The
components include: (i) catheter vents which allow air to vent from a catheter
as it is inserted into a vein while preventing blood spillage and possible
contamination of hospital personnel; (ii) self-sealing valves in surgical vacuum
canisters to minimize exposure to blood and other bodily fluids; (iii) burn-bed
diffusers, which enable recovering burn victims to "float" above their beds,
thereby increasing their comfort and facilitating their recovery; and (iv)
oxygen diffusers, which are typically used in oxygen therapy equipment to
humidify oxygen. Porex's ability to mold unique configurations and the fact that
porous plastic is inert, stronger and more easily handled in automated
manufacturing operations have allowed Porex to compete successfully with
alternative media. In addition to the components it makes for biomedical
products, Porex makes components for diagnostic devices that are used in
hospitals and are sold over the counter for home use. Porex also makes porous
plastic components that are used as barrier materials for several laboratory
products, including pipette tip filters, and filters for polymerase chain
reaction ("PCR") and chromatography procedures. Porex's own line of scientific
products is discussed below in "Business--Plastics and Filtration Technologies
Business--Scientific Products Group".
Consumer Products. Porous plastic components manufactured by Porex
are used in a variety of home and office products and appliances. These
products include writing instrument tips or "nibs" which Porex supplies to
manufacturers of highlighting pens and children's coloring markers. The
porous nib conducts the ink stored in the pen barrel to the writing surface by
capillary action. In the home, Porex's components can be found in products
such as air fresheners, power tool dust canisters, and deodorant and fragrance
applicators. Porex also produces a variety of porous plastic water filters used
to improve the taste and safety of drinking water.
Industrial Products. Porex manufactures a variety of custom porous
plastic components for industrial applications. These components are produced
as molded shapes, and in sheets, tubes and rods, individually designed to
customer specifications as to size, rigidity, porosity and other needs. Porex
manufactures a porous plastic material used for large filter support media for
wastewater treatment facilities which permits recycling and re-use of
wastewater. Porex also produces other custom porous plastic industrial
components including (i) industrial filters to remove particulate matter, oil
and water residues from compressed air lines, (ii) silencers to reduce sound
levels produced by compressed air exhaust, (iii) miscellaneous water
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filters for industrial use, including use in vending machines, and (iv)
material handling products, including fluidizing tables to fluidize powdered
paint and vacuum hold-down tables used in the garment industry to facilitate the
garment cutting process. Porex believes that it is currently the largest
producer of porous plastic vents used in domestic automobile batteries. Porex
also manufactures a large variety of highly specialized plastic components to
meet specific applications for manufacturers.
The Porous Media Group contributed 80.2%, 76.6% and 76.1% of the total
revenue of the Company for the fiscal years ended June 30, 1998, 1997 and 1996,
respectively.
SCIENTIFIC PRODUCTS GROUP
Laboratory Products. Porex's scientific plastics products include a
full line of filtered and unfiltered disposable pipette tips and pipette tip
racks used by life sciences research and clinical laboratories worldwide. A
pipette is a device for transferring precise amounts of liquid. Because of the
time and expensive materials involved in many experiments conducted in life
sciences research and clinical laboratories, most use pipette tips with filters
to prevent contamination of the pipette which could lead to contamination of
subsequent test samples. In order to serve this market, Porex produces pipette
tips with patented filters, which are developed and produced by its Porous Media
Group.
Recent Development-Acquisition of Point Plastics, Inc. In July 1998,
after the close of its fiscal year, the Company acquired all of the capital
stock of Point Plastics, Inc.("Point Plastics"). Point Plastics designs,
manufactures and distributes a full line of plastic disposable laboratory
products for liquid handling in clinical and diagnostic research. Its products
include pipette tips, microcentrifuge tubes and PCR tubes. 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 laboratories, blood banks and pharmaceutical companies.
Point Plastics is based in Petaluma, California, where it owns and leases
approximately 126,000 square feet of manufacturing and warehousing space. It
has approximately 120 employees.
Clinical Products. Porex manufactures blood serum filters that are
used to separate microscopic particles and fibrous matter (fibrin) from
centrifuged blood serum to prevent clogging of automated laboratory chemical
analysis equipment. Porex also manufactures a line of closure devices that are
used with blood serum filters and tubes. In response to health concerns
regarding the handling of human blood, new blood testing equipment has been
developed which does not require filtered blood serum for analysis, or which
eliminates the need for handling of blood serum by medical personnel. The use
of such new equipment has reduced the demand for Porex's current line of blood
serum filters.
Vials and Solid Plastic Components. Porex manufactures and sells a
full line of plastic vials for pharmaceuticals. Porex also produces close
tolerance solid plastic components comprised of thermoplastic resins, including
polystyrene, polypropylene and thermoplastic rubber, for medical and industrial
applications. These products are custom designed and produced to satisfy
individual customer specifications.
The Scientific Products Group contributed 13.1%, 16.5% and 17.5% of the
total revenue of the Company for the fiscal years ended June 30, 1998, 1997 and
1996, respectively.
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SURGICAL PRODUCTS GROUP
Porex's surgical products are marketed primarily to surgeons who
specialize in plastic and reconstructive surgery, oculoplastic surgery and oral
maxillofacial surgery. The product line includes MEDPOR(R) Surgical Implant
material, which is polymeric biomaterial used for craniofacial reconstruction
and augmentation, and TLS(R) Surgical Drainage Systems for small surgical
incisions. Porex also markets Squeeze-Mark (TM) and TLS (TM) Surgical Marker
pens to mark the areas of proposed surgical incision. Porex manufactures
MEDPOR(R) Surgical Implant material and distributes, and in some cases
assembles, the other items in its surgical product line.
The Surgical Products Group contributed 6.7%, 6.9% and 6.4% of the
total revenue of the Company for the fiscal years ended June 30, 1998, 1997 and
1996, respectively.
MARKETING AND DISTRIBUTION
As of June 30, 1998, Porex had over 600 customers. In the United States,
sales of OEM health care products, industrial products and consumer products are
made directly by Porex's marketing staff. Internationally, such products are
sold by Porex's marketing staff in certain countries and through independent
distributors and agents in other countries who work in conjunction with Porex's
marketing staff. Porex distributes its scientific products and clinical products
principally through independent distributors. Porex's surgical products are
sold by its sales personnel, as well as through independent dealers and agents.
Export sales, which are made principally to Europe and Asia, consist primarily
of Porex's porous plastic OEM biomedical products, industrial products and
consumer products. For the fiscal year ended June 30, 1998, Porex's foreign and
export product sales were approximately $18,948,000, or 29% of sales, as
compared to approximately $14,067,000, or 27% of sales, for the fiscal year
ended June 30, 1997 and approximately $12,270,000, or 27% of sales, for the
fiscal year ended June 30, 1996. See Note 6 to the Consolidated Financial
Statements. No customer accounted for more than 10% of Porex's total net sales
for the fiscal years ended June 30, 1998 and 1997, respectively.
SEASONALITY AND BACKLOG
Sales of certain Porex product lines are somewhat seasonal, but Porex's
overall businesses are not seasonal to any significant extent. At June 30,
1998, Porex's backlog was approximately $11,852,000, as compared to
approximately $9,715,000 at June 30, 1997. The backlog consists primarily of
blanket orders with release dates of up to 12 months, the full amounts of which
are expected to be filled over a 12-month period.
PRODUCT AND PROCESS DEVELOPMENT
Porex maintains a continuing development program devoted primarily to
the development of porous components for the life sciences market and consumer
applications. Development activities also include work done to address the
specific needs of OEM customers as well as enhancements to Porex's proprietary
manufacturing processes.
Porex's development expenditures were approximately $1,966,000, $1,791,000
and $2,014,000 for the fiscal years ended June 30, 1998, 1997 and 1996,
respectively.
RAW MATERIALS
The principal raw materials used by Porex in its plastic products business
are a variety of plastic resins which are generally available from a number of
suppliers in adequate quantities to meet Porex's needs. Porex has been able to
obtain adequate supplies of raw materials and believes that sufficient supplies
will be available in the foreseeable future. Porex has no long-term supply
contracts for the purchase of raw materials. Porex's inability to acquire
sufficient plastic resins at a reasonable price would affect Porex's ability to
maintain its margins in the short term.
Porex requires high-grade plastic resins with specific properties as raw
materials for certain of its porous plastic products. Accordingly, shipments of
raw materials from suppliers are closely monitored for compliance with Porex's
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standards. Although there are various suppliers of high-grade plastic resins
with specific properties and Porex has not experienced any material difficulty
in obtaining adequate supplies of high-grade materials, the inability to obtain
such high-grade plastic resins, or any raw materials, could have a material
adverse effect on Porex. To ensure the availability of high-grade plastic
resins with specific properties, Porex occasionally purchases more than it would
otherwise currently require. Porex maintains an inventory of raw materials it
believes is sufficient to satisfy its production needs for an extended period of
time.
For its solid plastic products, Porex utilizes commercial grade
thermoplastic resins, including polyethylene, polypropylene and polystyrene.
Such materials are readily available from a number of sources and Porex is not
dependent on any single source of supply. Because of the ready availability of
such materials, Porex does not maintain a significant inventory of such raw
materials.
INTELLECTUAL PROPERTY
Porex uses proprietary technology for manufacturing its porous plastic
materials and injection molding technology for manufacturing its solid plastic
products. Porex believes that its non-patented proprietary manufacturing
processes are protected under trade secret, contractual and other intellectual
property rights. However, such protections do not afford the statutory
exclusivity possible for patented processes. To protect its proprietary
technology and maintain high manufacturing quality and efficiency, Porex designs
and manufactures its porous molding equipment and most of its molds in-house.
In certain instances, however, Porex has sought and intends to continue to seek
patents for specific products and manufacturing processes.
Porex owns a number of patents and trademarks in the United States and
foreign countries which it deems to be important to its business. The majority
of Porex's patents and patent applications relate to porous plastics and medical
devices.
REGULATION
The developing, testing, marketing and manufacturing of medical devices
such as plastic and reconstructive surgical implants and tissue expanders are
regulated under the Medical Device Amendments of 1976 to the Federal Food, Drug
and Cosmetic Act (the "1976 Amendments") and additional regulations promulgated
by the Food and Drug Administration (the "FDA"). In general, these statutes and
regulations require that manufacturers adhere to certain standards designed to
ensure the safety and effectiveness of medical devices. Compliance with such
requirements 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. When Porex merely distributes devices manufactured
by others, the actual manufacturer must bear the cost of achieving compliance
with these requirements.
Under the 1976 Amendments, each medical device manufacturing site must be
registered and must comply with regulations applicable generally to
manufacturing practices and clinical investigations involving humans. The FDA
is authorized to obtain and inspect devices, their labeling and advertising, and
to inspect the facilities in which they are manufactured in order to ensure that
a device is not improperly manufactured or labeled. Porex has two manufacturing
sites registered with the FDA.
In addition, the sale and marketing of specific medical devices are
regulated by the FDA under the 1976 Amendments, which classify medical devices
based upon the degree of regulation deemed appropriate and necessary. A
device is classified as a Class I, II or III device based on recommendations of
advisory panels appointed by the FDA. Class I devices are subject only to
general controls. Class II devices, in addition to general controls, are
subject to performance standards. Class III devices, including most devices
used or implanted in the body, require FDA pre-market approval before they may
be distributed other than in clinical trials.
Porex's MEDPOR(R) Surgical Implants are regulated as Class II medical
devices. Products which Porex may introduce in the future, if any, may also be
classified as Class I, Class II or Class III medical devices. The procedure for
obtaining classification of a new device as a Class I or Class II device
involves the submission of a petition to the FDA. If the FDA
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determines that the device is substantially equivalent to a pre-enactment device
or a device subsequently classified in Class I or Class II, then within 210 days
of the filing of the petition it will grant approval to market the device
commercially. If the FDA determines the device is not substantially equivalent
to a pre-enactment device or a device subsequently classified in Class I or
Class II, it is automatically placed into Class III and will either require
reclassification or the submission of valid scientific evidence to prove the
device is safe and effective for human use. Devices to be implanted will be
categorized as Class III unless such classification is not necessary to ensure
their safety and effectiveness. For new Class III devices, Porex may submit to
the FDA an application for an Investigational Device Exemption ("IDE"). An
approved IDE exempts Porex from certain otherwise applicable FDA regulations and
grants approval for a clinical investigation, or human study, to generate data
to prove safety and effectiveness. In addition, the possibility exists that
certain pre-enactment, or substantially equivalent, devices may be placed into
Class III by the FDA.
When a manufacturer believes that sufficient clinical data have been
generated to prove the safety and effectiveness of the device, it may submit a
pre-market approval application ("PMA") to the FDA. The FDA reviews the PMA and
determines whether it is in submittable form and all key elements have been
included. Following acceptance of the PMA, the FDA continues its review process
which includes submission of the PMA to a panel of experts appointed by the FDA
to review the PMA and to recommend appropriate action. The panel then
recommends that the PMA be approved, not approved or approved subject to
conditions. The FDA may act according to the panel's recommendations, or it may
overrule the panel. In approving a PMA, the FDA may require some form of post-
market surveillance or other restrictions.
Vials that are used to contain and transport pharmaceuticals are not
directly regulated by the Food and Drug Administration. The US Pharmacopeia
specifies tests and properties that are necessary to maintain the potency and
pharmacological properties of the medicine the vial is to be used for. The U.S.
Consumer Product Safety Commission specifies in 16 CFR Part 1700 the tests that
a vial must pass to be considered child resistant and senior adult user
friendly. Porex's vials have been designed to meet such standards.
Certain environmental regulations also apply to Porex's business, and the
Company believes that Porex is in substantial compliance with all of such
regulations. However, Porex is subject to random and scheduled checks by
environmental authorities. The Company does not anticipate that any material
capital expenditures will be required to comply with environmental regulations.
COMPETITION
Competition in Porex's plastic products business is characterized by the
introduction of competitive products at lower prices. The Company believes that
Porex's principal competitive strengths are its manufacturing processes, quality
control, relationship with its customers and distribution of its proprietary
healthcare products.
In the porous plastics area, Porex's competitors include other producers of
porous plastic materials as well as companies that manufacture and sell products
made from materials other than porous plastics which can be used for the same
purposes as Porex's products. In this field, Porex has several direct
competitors in the United States, Europe and Asia. Porex's porous plastic pen
nibs compete with felt and fiber tips manufactured by a variety of suppliers
worldwide. Other Porex industrial products made of porous plastic compete,
depending on the industrial application, with porous metals, metal screens,
fiberglass tubes, pleated paper, resin-impregnated felt, ceramics and other
substances and devices.
The market for Porex's injection molded solid plastic components and
products is highly competitive and highly fragmented. The MEDPOR(R) Biomaterial
products compete for surgical use against autogeneous and allograph materials
and alloplastic biomaterials. Autogenous grafts are bone, tissue or cartilage
taken from the patient and allographs are donor bone, tissue or cartilage.
Competitive alloplastic materials include: solid silicone implant shapes, porous
hydroxyapitite shapes and granules, and PTFE sheet material. Porex's surgical
drains and markers compete against a variety of products from several
manufacturers. Porex's pipette tips and racks also compete with similar
products manufactured by domestic and foreign manufacturers.
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POTENTIAL LIABILITY RISK AND AVAILABILITY OF INSURANCE
The products sold by Porex expose it to potential risk for product
liability claims, particularly with respect to Porex's Life Sciences, Clinical
and Surgical products. The Company believes that Porex carries adequate
insurance coverage against product liability claims and other risks. There can
be no assurance, however, that claims in excess of Porex's insurance coverage
will not arise. In addition, Porex's insurance policies must be renewed
annually. Although Porex has been able to obtain adequate insurance coverage at
an acceptable cost in the past and seeks indemnification for products
manufactured by others and distributed by it, there can be no assurance that in
the future it will be able to obtain such insurance at an acceptable cost or be
adequately protected by such indemnification. See "Business--Plastics and
Filtration Technologies Business--Porous Media Group" and "Legal Proceedings--
Mammary Implant Litigation".
HEALTHCARE COMMUNICATIONS BUSINESS
BUSINESS STRATEGY
The Company's objective is to use Internet technology to create an
influential interactive health services channel linking physicians with the
payors, suppliers and consumers of healthcare in order to control healthcare
costs and improve patient outcomes. The Company expects to provide a content-
neutral, application rich utility thereby creating a channel which serves as a
conduit for the private content that any healthcare organization wishes to
communicate to physicians and other healthcare providers. There can be no
assurances given as to a specific time frame for the Company's first commercial
introduction of its products and services. The Company anticipates that it will
incur significant expenses in connection with the development of these products
and services. The provision of products and services using Internet technology
in the healthcare communications industry is a developing business.
Key elements of the Company's strategy are to:
. Develop and deploy a low-cost service that provides physicians access
to a suite of communication, information and transaction functions. This
secure, online network will offer physicians one solution to their needs
for (i) messaging services such as electronic mail, discussion groups and
forums; (ii) information or content relevant to their practices such as
reference materials, medical databases and payor-specific policies and
procedures; and (iii) transaction applications covering high volume,
routine administrative, financial and clinical transactions. This
service is intended to enable physicians to seek information and conduct
transactions in a uniform manner for all patients, the results of which
should be to help physicians practice medicine more efficiently in
today's managed care environment.
. Differentiate this suite of client server applications by its ability
to allow physicians and their staffs to conduct not only administrative
and financial but also clinical transactions. These transactions would
include but not be limited to prescription writing, drug utilization and
formulary review, eligibility verification, referrals, treatment
authorizations, claims and encounter submissions, as well as laboratory
test submission and reporting, and pharmacy routing. The ability to
integrate payor-specific content such as benefit rules and care
guidelines with patient-specific information at the time of treatment
will significantly enhance the delivery of high quality, cost-effective
care.
. Contract with managed care organizations, integrated health delivery
systems, pharmacy benefit managers and clinical laboratories so that they
might provide physicians with access to their proprietary benefit plan
information and treatment guidelines as well as their administrative and
managed care processes. The Company's management believes that this new
channel of communications will allow each of the parties to (i) leverage
their existing healthcare information systems infrastructure, (ii)
integrate their proprietary rules and guidelines with transactions, and
(iii) realize administrative and medical resource savings while improving
provider relationships and streamlining managed care processes. The
Company anticipates it will be compensated by such parties as a result of
the value created.
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The Company is not aware of any business which provides commercially
available products or services with the scope and breadth of the services
described above. However, various companies including, but not limited to,
certain physician office management information systems companies, EDI/data
networking companies, online medical information service companies, and systems
integration companies, some of which may have greater resources than the
Company, have announced that they are developing a combination of one or more of
these products and services. There can be no assurance that such companies will
not develop and successfully market the healthcare communications products and
services described herein in a manner which would have a material adverse effect
on the Company.
The Company has completed two acquisitions, which form the foundation of
its healthcare communications business. In December 1996, the Company acquired
Avicenna, a privately held development stage company located in Cambridge,
Massachusetts, and in January 1997, the Company acquired privately held
CareAgents, Inc. ("CareAgents"). See Note 2 to the Company's Consolidated
Financial Statements contained in Part IV.
The Company expects to incur significant ongoing research and development
expenditures in connection with its healthcare communications business. For the
year ended June 30, 1998, such expenditures were approximately $13,565,000. The
Company is pursuing the development of its healthcare communications business
through the use of its internal resources as well as pursuing the acquisition of
complementary businesses. The Company anticipates that it may enter into
acquisitions, joint ventures, strategic alliances or other business
combinations. These transactions may materially change the nature and scope of
this business. There can be no assurance that the Company will succeed in
consummating such transactions or that such transactions will ultimately provide
the Company with the ability to offer the products and services described.
CERTAIN CONSIDERATIONS
NEW BUSINESS AREA--HEALTHCARE COMMUNICATIONS
INITIAL DEVELOPMENT PHASE. The Company is in the initial development phase
of offering products and services to provide inter-enterprise connectivity to
payors and providers in the healthcare industry. The provision of products and
services using Internet technology in the healthcare communications industry is
a developing business. There can be no assurances given as to a specific time
frame for the Company's first commercial introduction of its products and
services. The Company anticipates that it will incur significant expenses in
connection with the development of these products and services. There can be no
assurance that these products and services will be successfully developed by
the Company. Avicenna and CareAgents are start up companies with limited
operating histories and have operated at a loss since inception. The Company is
pursuing the development of its healthcare communications business through the
use of its internal resources as well as pursuing the acquisition of
complementary businesses. The Company anticipates that it may enter into
acquisitions, joint ventures, strategic alliances or other business
combinations. These transactions may materially change the nature and scope of
this business. There can be no assurance that the Company will succeed in
consummating such transactions or that such transactions will ultimately
provide the Company with the ability to offer the products and services
described.
MARKET ACCEPTANCE. As is typical in a developing business, demand and
market acceptance for new and innovative products and services are subject to a
high level of uncertainty. Achieving market acceptance for the Company's
products and services will require substantial marketing efforts and expenditure
of significant funds to create awareness and demand by participants in the
healthcare industry. No assurances can be given that the Company's effort in
establishing such products and services will be successful, that the Company
will be able to succeed in positioning its services as a preferred method for
healthcare communications, that there will be significant market acceptance for
its products and services or that any pricing strategy developed by the Company
will be economically viable or acceptable to the market.
RESEARCH AND DEVELOPMENT EXPENSES; PROFITABILITY. 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 the Company 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 the
Company will become profitable.
9
<PAGE>
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
communications under development by the Company. The Company believes, however,
that those laws and regulations will nonetheless be applied to the Company's
healthcare communications business. Accordingly, the Company's healthcare
communications business may be affected by current regulations as well as future
regulations specifically targeted to this new segment of the healthcare
industry.
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, (iv) laws or regulations relating to the relationships
between or among healthcare providers and (v) laws or regulations governing the
electronic exchange of healthcare information among payors and providers. In
addition, physicians, insurance companies, pharmacies and other participants in
the healthcare industry are subject to their own laws and regulations which may
affect the Company's healthcare communications business. The Company expects to
conduct its healthcare communications business in substantial compliance with
all material federal, state and local laws and regulations governing its
operations. However, the impact of regulatory developments in the healthcare
industry is complex and difficult to predict, and there can be no assurance that
the Company will not be materially adversely affected by existing or new
regulatory requirements or interpretations.
RELIANCE ON RAPIDLY CHANGING TECHNOLOGY
All businesses which rely on Internet technology, including the healthcare
communications business described herein, are subject to rapid technological
change, changing customer needs, frequent new product introductions and evolving
industry standards. In addition, as the communications, computer and software
industries continue to experience rapid technological change, the Company must
be able to quickly and successfully adapt its products and services so that they
adapt to such changes. There can be no assurance that the Company will not
experience difficulties that could delay or prevent the successful development
and introduction of its healthcare communications products and services. The
Company's inability to respond to technological changes in a timely and cost-
effective manner could have a material adverse effect on the Company's business,
financial condition and results of operations. Moreover, there can be no
assurance that technologically superior products and services will not be
developed by competitors, or that any such products and services will not have
an adverse effect upon the Company's operating results.
COMPETITION IN HEALTHCARE COMMUNICATIONS
The Company is not aware of any business which provides commercially
available products or services with the scope and breadth of the healthcare
communications products and services currently being developed by the Company.
However, various companies including, but not limited to, certain physician
office management information systems companies, EDI/data networking companies,
online medical information service companies and system integration companies,
some of which may have greater resources than the Company, have announced that
they are developing a combination of one or more of these products and services.
There can be no assurance that such companies will not develop and successfully
market the healthcare communications products and services described herein in a
manner which would have a material adverse effect on the Company.
RISKS OF PRODUCT DEVELOPMENT; PROPRIETARY RIGHTS
The Company's future success and ability to compete in the healthcare
communications business may be dependent in part upon its proprietary rights to
products and services which it develops. The Company may rely on a combination
of copyrights, trademarks and trade secrets and contractual restrictions to
protect its content and technology and on similar proprietary rights of its
content and technology providers. There can be no assurance that the steps
taken by the Company or such providers would be adequate to prevent
misappropriation of their respective proprietary rights or that the Company's
10
<PAGE>
competitors will not independently develop content or technology that are
substantially equivalent or superior. In addition, there can be no assurance
that licenses for any intellectual property of third parties that might be
required for the Company's products or services would be available on
commercially reasonable terms or at all. Although the Company intends to take
steps to ensure that it is not infringing the proprietary rights of any third
parties, there can be no assurance that patent infringement or other claims will
not be asserted against the Company or one of its content or technology
providers or that such claims will not be successful. The Company could incur
substantial costs and diversion of management resources with respect to the
defense of any such claims. Furthermore, parties making such claims against the
Company or a content or technology provider could secure a judgment awarding
substantial damages, as well as injunctive or other equitable relief which could
effectively block the Company's ability to provide products or services in
certain of its markets. Such a judgment could have a material adverse effect on
the Company's business, financial condition and results of operations.
ACQUISITION PROGRAM
The Company maintains an acquisition program and intends to concentrate its
acquisition efforts on businesses which are complementary to the Company's
plastics and filtration technologies business and its healthcare communications
strategy, but such emphasis is not intended to limit in any manner the Company's
ability to pursue acquisition opportunities in other healthcare-related
businesses or in other industries. The Company anticipates that it may enter
into acquisitions, joint ventures, strategic alliances or other business
combinations. These transactions may materially change the nature and scope of
the business. Any transactions will be limited, as required by agreements to
which the Company is a party (which expire in May 1999), to areas of business
which would not be competitive with certain businesses of Merck & Co., Inc.
Although management of the Company will endeavor to evaluate the risks inherent
in any particular transaction, there can be no assurance that the Company will
properly ascertain all such risks. In addition, no assurances can be given that
the Company will succeed in consummating any such transactions, that such
transactions will ultimately provide the Company with the ability to offer the
products and services described or that the Company will be able to successfully
manage or integrate any resulting business.
The success of the Company's acquisition program will depend on, among
other things, the availability of suitable candidates, the availability of funds
to finance transactions, and the availability of management resources to oversee
the operation of resulting businesses. Financing for such transactions may come
from several sources, including, without limitation, (a) cash and cash
equivalents on hand and marketable securities and (b) proceeds from the
incurrence of indebtedness or the issuance of additional Common Stock, preferred
stock, convertible debt or other securities. The issuance of additional
securities, including Common Stock, could (i) result in substantial dilution of
the percentage ownership of the stockholders of the Company at the time of any
such issuance, (ii) result in substantial dilution of the Company's earnings per
share and (iii) adversely affect the prevailing market price for the Common
Stock. The proceeds from any financing may be used for costs associated with
identifying and evaluating prospective candidates, and for structuring,
negotiating, financing and consummating any such transactions and for other
general corporate purposes. The Company does not intend to seek stockholder
approval for any such transaction or security issuance unless required by
applicable law or regulation. Although Mr. Martin J. Wygod, Chairman of the
Board of the Company, has indicated his intention to assist the Company in its
acquisition program by bringing opportunities for potential transactions to the
Company and to assist the Company in negotiating such transactions and in
seeking financing in the event any such transaction were to be financed by the
Company, he is not an officer or an employee of the Company nor is he required
pursuant to any contractual obligation to provide such support or assistance.
EMPLOYEES
As of June 30, 1998, the Company had approximately 745 employees.
11
<PAGE>
ITEM 2. PROPERTIES.
The Company leases approximately 10,000 square feet of corporate office
space in Elmwood Park, New Jersey. Porex owns a total of 71 acres of land at
three locations in Georgia with four buildings with an approximate area of
242,000 square feet, used for manufacturing, research, office space and
warehouse purposes. Porex also owns a manufacturing and warehouse facility in
Bautzen, Germany with approximately 54,000 square feet in three buildings and
leases a 55,000 square feet manufacturing and warehouse facility in College
Point, New York and a 4,600 square feet manufacturing and warehouse facility in
Kings Lynn, England. Avicenna leases 46,000 square feet of space in Cambridge,
Massachusetts used for the operation of the Company's healthcare communications
business.
The Company believes its facilities and equipment are well maintained, in
good operating condition and, in general, suitable for the Company's purposes
and adequate for its present operation.
ITEM 3. LEGAL PROCEEDINGS.
The description below of the mammary implant litigation and certain other
litigation contains forward-looking statements with respect to possible events,
outcomes or results that are, and are expected to continue to be, subject to
risks, uncertainties and contingencies, including but not limited to the
respective risks, uncertainties and contingencies identified in such
descriptions. See "Business-Introduction--Forward-Looking Information".
MAMMARY IMPLANT LITIGATION. During the year ended June 30, 1988, Synetic's
subsidiary, Porex began distributing silicone mammary implants ("implants") in
the United States pursuant to a distribution arrangement (the "Distribution
Agreement") with a Japanese manufacturer (the "Manufacturer"). Because of costs
associated with increased government regulation and examination, Porex's
supplier determined to withdraw its implants from the United States market. On
July 9, 1991, the FDA mandated a recall of all implants manufactured by
companies that elected not to comply with certain FDA regulations regarding data
collection. Accordingly, Porex notified all of its customers not to use any
implants sold by Porex and to return such implants to Porex for a full refund.
Porex had ceased offering implants for sale prior to the recall date. Porex
believes that after accounting for implants returned to it, the aggregate number
of recipients of implants distributed by Porex under the Distribution Agreement
in the United States totals approximately 2,500.
Since March 1991, Porex has been named as one of many co-defendants in a
number of actions brought by recipients of implants. One of the pending
actions, Donna L. Turner v. Porex Technologies Corporation, et al., is styled as
a purported class action. Certain of the actions against Porex have been
dismissed where it was determined that the implant in question was not
distributed by Porex. In addition, as of August 14, 1998, 67 claims have been
settled on a favorable basis by the Manufacturer, or by the insurance carriers
of Porex, without material cost to Porex. As of August, 1998, 215 actions and
36 out-of-court claims were pending against Porex. Of the 215 actions, 98
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. During the fiscal year ended
June 30, 1998, there were 16 implant-related claims made against Porex by
individuals as compared with 24 claims made during the fiscal year ended June
30, 1997 and 28 claims made during the fiscal year ended June 30, 1996.
The typical case or claim alleges that the individual's mammary implants
caused one or more of a wide range of ailments. These implant cases and claims
generally raise difficult and complex factual and legal issues and are subject
to many uncertainties and complexities, including, but not limited to, the facts
and circumstances of each particular case or claim, the jurisdiction in which
each suit is brought, and differences in applicable law. The Company does not
have sufficient information to evaluate each case and claim.
In 1994, Porex was notified that its insurance carrier would not renew its
then-existing insurance coverage after December 31, 1994 with respect to actions
and claims arising out of Porex's distribution of implants. However, Porex has
12
<PAGE>
exercised its right, under such policy, to purchase extended reporting period
coverage with respect to such actions and claims. Such coverage provides
insurance, subject to existing policy limits but for an unlimited time period,
with respect to actions and claims made after December 31, 1994 that are based
on events that occurred during the policy period. In addition, Porex has other
excess insurance where it has similarly purchased extended reporting period
coverage. The Company believes that its present coverage, together with
Porex's insurance policies in effect on or before December 31, 1994, should
provide adequate coverage against liabilities that could result from actions or
claims arising out of Porex's distribution of implants. To the extent that
certain of such actions and claims seek punitive and compensatory damages
arising out of alleged intentional torts, if awarded such damages may or may not
be covered, in whole or in part, by Porex's insurance policies. In addition,
Porex's recovery from its insurance carriers is subject to policy limits and
certain other conditions. Porex has been expensing the retention amount under
its policies as incurred.
The Company believes that Porex has a valid claim for indemnification under
the Distribution Agreement with respect to any liabilities that could result
from pending actions or claims by recipients of implants or any similar actions
or claims that may be commenced in the future. However, Porex's right to
indemnification is subject to a disagreement with the Manufacturer. Pending the
resolution of such disagreement, the Manufacturer has been paying a portion of
the costs of the settled claims.
Based on the foregoing, the Company believes that the possibility is remote
that pending actions and claims by recipients of mammary implant devices or any
similar actions and claims that may be commenced or made in the future could
pose a material risk to the financial position of the Company or its results of
operations.
ENFORCEMENT DIVISION PROCEEDING. In July 1994, the Division of Enforcement
of the Securities and Exchange Commission (the "SEC") began an investigation
regarding certain trading in securities of the Company. On March 11, 1998, the
SEC filed a civil action against Roger Licht, an outside director of the
Company. The complaint alleges that Mr. Licht provided non-public information
to friends in connection with transactions involving the Company and its former
parent, Medco Containment Services, Inc. ("Medco"), and traded on the basis of
non-public information in connection with an unrelated company. The SEC's
complaint relates to the acquisition of Medco by Merck & Co. Inc. in July 1993
and Medco's subsequent sale of its majority interest in the Company in May 1994.
The SEC's action seeks disgorgement of the alleged trading profits and an
injunction against Mr. Licht. The SEC's action does not involve or seek any
recovery from the Company or allege any wrongdoing by the Company. Accordingly,
the Company does not believe that such action will have a material adverse
effect on its financial position or results of operations.
The Company is not a party to any other legal proceedings which, in its
belief, could have a material adverse effect on the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
13
<PAGE>
EXECUTIVE OFFICERS
Pursuant to General Instruction G(3) to the Annual Report on Form 10-K, the
information regarding executive officers of the Company required by Item 401 of
Regulation S-K is hereby included in Part I of this Report. The executive
officers of the Company are as follows:
<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
Paul C. Suthern 46 President and Chief Executive Officer
Roger C. Holstein 45 Executive Vice President--Sales and Marketing
David M. Margulies, M.D. 47 Executive Vice President--Chief Scientist
Anthony Vuolo 40 Executive Vice President--Finance and Administration
and Chief Financial Officer
Charles A. Mele 42 Executive Vice President--General Counsel
Kim A. Davis 47 Senior Vice President--Chief Executive Officer &
President of Porex Technologies
</TABLE>
- --------------
Mr. Suthern has been President and Chief Executive Officer of the Company
since March 1998 and was an executive officer of the Company from February 1993
to July 1996, Vice Chairman from July 1996 to March 1998 and also Chief
Executive Officer from October 1993 to January 1995, and was, until December
1994, an executive officer of Medco for more than five years.
Mr. Holstein has been Executive Vice President--Sales and Marketing of the
Company since November 1997 and, prior to such date, performed various services
for the Company from October 1996. Mr. Holstein was a part-time employee of
Medco from November 1997 to February 1998 and, prior to such time, was an
executive officer of Medco since 1991.
Dr. Margulies has been Executive Vice President--Chief Scientist of the
Company since January 1997. He was founder and president of CareAgents. From
1990 to mid 1996, Dr. Margulies was Executive Vice President and Chief Scientist
of Cerner Corporation, a leading supplier of enterprise-level clinical
applications. Prior to such time, he was Vice President and Chief Information
Officer at Boston Children's Hospital and on the medical faculties of the
Harvard Medical School and Columbia College of Physicians and Surgeons.
Mr. Vuolo has been Executive Vice President--Finance and Administration and
Chief Financial Officer of the Company since March 1998, an executive officer of
the Company since May 1997 and an officer for more than five years and was,
until December 1994, an officer of Medco for more than five years.
Mr. Mele has been Executive Vice President--General Counsel of the Company
since March 1998 and was Vice President--General Counsel from July 1995 to March
1998. Mr. Mele was an executive officer of the Company from May 1989 until
December 1994 and was an executive officer of Medco for more than five years,
until March 1995. Mr. Mele is also a director of Comnet Corporation and Group 1
Software, Inc., computer software companies.
Mr. Davis has been Senior Vice President of the Company and, Chief
Executive Officer and President of Porex Technologies Corp. since January 1998.
Mr. Davis was Chief Operating Officer and President of Gelman Sciences, Inc.
("Gelman"), a provider of products and services for high technology filtration
and separation systems and components, from May 1993 until January 1998. In
February 1997, Gelman was acquired by Pall Corporation ("Pall") and Mr. Davis
also became a Senior Vice President of Pall.
14
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The Company's Common Stock is traded in the NASDAQ National Market System
under the symbol "SNTC." The following table sets forth, for the periods
indicated, the high and low sale prices for the Company's Common Stock as
reported by NASDAQ.
High Low
---- ---
Fiscal Year 1997
- ----------------
First Quarter.................................... $37 1/4 $30 3/4
Second Quarter................................... $55 7/8 $31 1/2
Third Quarter.................................... $52 3/4 $45
Fourth Quarter................................... $47 3/4 $34 1/2
Fiscal Year 1998
- ----------------
First Quarter.................................... $45 7/8 $36 1/2
Second Quarter................................... $42 1/4 $35 1/4
Third Quarter.................................... $55 $36
Fourth Quarter................................... $65 1/4 $51
The Company's Common Stock was held by 159 stockholders of record as of
September 21, 1998. The Company believes that its Common Stock is beneficially
held by at least 400 stockholders.
The Company did not pay any dividends to the holders of its Common Stock
during the two fiscal years ended June 30, 1998. The Company intends to
continue to retain earnings to finance its business and its acquisition program
and, accordingly, does not currently anticipate paying cash dividends to holders
of its Common Stock.
15
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA.
The following table sets forth selected consolidated financial data for
each of the five years in the period ended June 30, 1998. The selected
financial data for the two years in the period ended June 30, 1995 have been
restated to reflect the divestiture of the Company's institutional pharmacies
business in December 1994.
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-----------------------------------------------------
1994 1995 1996 1997 1998
---- ---- ---- ---- ----
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA
Net sales................................ $ 33,093 $ 39,179 $ 45,128 $ 52,885 $ 64,945
Income (loss) from continuing
operations before
provision for income
taxes.................................. 1,080 1,078 13,202 (24,626) 14,832
Provision for income taxes............... 411 443 4,617 2,834 5,788
-------- -------- -------- --------- --------
Income (loss) from continuing
operations............................. 669 635 8,585 (27,460) 9,044
Income from discontinued
operations............................. 1,823 15,459 - - -
-------- -------- -------- --------- --------
Net income (loss)........................ $ 2,492 $ 16,094 $ 8,585 (27,460) $ 9,044
======== ======== ======== ========= ========
Net income (loss) per share -- basic:
Continuing operations.................. $ 0.04 $ 0.04 $ 0.52 $ (1.60) $ .51
Discontinued operations................ 0.10 0.94 - - -
-------- -------- -------- --------- --------
Net income (loss) per share -- basic..... $ 0.14 $ 0.98 $ 0.52 $ (1.60) $ .51
======== ======== ======== ========= ========
Net income (loss) per share -- diluted:
Continuing operations.................. $ 0.04 $ 0.04 $ 0.48 $ (1.60) $ 0.46
Discontinued operations................ 0.10 .89 - - -
-------- -------- -------- --------- --------
Net income (loss) per share -- diluted... $ 0.14 $ 0.93 $ 0.48 $ (1.60) $ 0.46
======== ======== ======== ========= ========
<CAPTION>
AT JUNE 30,
----------------------------------------------------
1994 1995 1996 1997 1998
---- ---- ---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA
Working capital.......................... $ 64,625 $105,279 $166,328 $ 91,073 $108,069
Net assets of discontinued
operations............................. 55,882 - - - -
Total assets............................. 194,009 188,174 199,592 384,339 396,926
Long term debt, less
current portion........................ 80,716 - - 165,000 159,500
Stockholders' equity..................... 105,130 166,832 181,089 188,736 206,226
</TABLE>
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<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
The following table sets forth for the periods indicated the percentage
which certain items in the financial statements of the Company relate to net
sales.
<TABLE>
<CAPTION>
PERCENTAGE OF NET SALES
FISCAL YEARS ENDED JUNE 30,
---------------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Net sales 100% 100% 100%
Costs and expenses
Cost of sales................................. 53.1 54.9 55.6
Selling, general and administrative........... 42.4 39.4 33.1
Investment income............................. (31.6) (24.3) (18.0)
Interest expense.............................. 13.3 5.9 --
Purchased research and development and other.. -- 70.7 --
----- ------ -----
77.2 146.6 70.7
----- ------ -----
Income (loss) before provision for income taxes.. 22.8 (46.6) 29.3
Provision for income taxes....................... 8.9 5.3 10.2
----- ------ -----
Income (loss) from continuing operations......... 13.9% (51.9)% 19.1%
===== ====== =====
</TABLE>
The historical operations of the Company are primarily related to its
plastics and filtration technologies business. All revenues and a majority of
operating expenses were derived from these operations.
Fiscal Years Ended June 30, 1998 and 1997
Consolidated Results of Operations
Net sales for the year ended June 30, 1998 increased $12,060,000 or 22.8%
over the comparable prior year period. The Company's net sales for the year
ended June 30, 1998 include a full year of sales by Interflo Technologies, Inc.
("Interflo"), acquired in February 1997. Inclusion of a full year of Interflo's
net sales accounted for 7.4% of the Company's overall increase in net sales.
The remaining 15.4% of the Company's increase in net sales was due principally
to increased unit sales of writing components in the consumer segment, increased
unit sales of diagnostic products and various filtration devices, and increased
unit sales of laboratory disposable products such as pipette tips and test tubes
in the healthcare segment.
Cost of sales for the year ended June 30, 1998 increased $5,473,000 or
18.8% over the comparable prior year period. This increase was attributable to
the operations of Interflo which was included for the full year and the
increased sales volume noted above. As a percent of net sales, cost of sales
for the year ended June 30, 1998, decreased to 53.1% from 54.9% in the
comparable prior year period principally due to increased leverage of certain
fixed costs which do not increase proportionately with sales, labor efficiencies
and increased sales of higher margin products.
Selling, general and administrative expenses for the year ended June 30,
1998 increased by $6,717,000 or 32.2% over the comparable prior year period
primarily due to the inclusion of a full year of expenses associated with the
Company's healthcare communications business which primarily relate to research
and development activities. Excluding these costs, as a percentage of net
sales, selling, general and administrative expenses for the year ended June 30,
1998 decreased to 27.7% from 30.7% due principally to increased sales which were
not proportionately offset by such expenses since these costs do not vary
directly with sales.
17
<PAGE>
Investment income, which is comprised of interest and other income and
dividend income, for the year ended June 30, 1998 increased by $7,673,000 or
59.5% over the comparable prior year period primarily as a result of a full year
of income earned on the proceeds of the Company's $165,000,000 principal amount
of its 5% Convertible Subordinated Debentures due 2007 (the "Convertible
Debentures") issued in February 1997.
Interest expense for the year ended June 30, 1998 increased by $5,498,000
from the prior year period as a result of a full year's interest expense
associated with the Convertible Debentures.
The effective tax rate for the year ended June 30, 1998 increased to 39.0%
from 37.5%, excluding, in the prior year, the portion of the research and
development charge relating to the acquisitions of Avicenna and CareAgents for
which no tax benefits were recognized. The increase was primarily a result of
the change in composition of the Company's marketable securities resulting in
the decrease in investment income subject to the dividend received deduction.
Fiscal Years Ended June 30, 1997 and 1996
Consolidated Results of Operations
Net sales for the year ended June 30, 1997 increased by $7,757,000, or
17.2%, over the comparable prior year period. The sales increase was due
primarily to increased unit sales of writing components in the consumer segment
and increased unit sales of pipette filters, pipette tips and surgical products
in the healthcare segment.
Cost of sales for the year ended June 30, 1997 increased by $3,927,000, or
15.6%, over the comparable prior year period due to the increased sales volume
noted above and product development costs. As a percent of net sales, cost of
sales for the year ended June 30, 1997 decreased to 54.9% from 55.6% in the
comparable prior year period principally due to increased leverage of certain
fixed costs which do not increase proportionally with sales and improvements in
material and labor usage.
Selling, general and administrative expenses for the year ended June 30,
1997 increased by $5,911,000, or 39.6%, over the comparable prior year period
due primarily to the inclusion of expenses of $4,628,000 associated with the
Company's healthcare communications business which primarily related to research
and development activities. Excluding these costs, as a percent of net sales,
selling, general and administrative expenses for the year ended June 30, 1997
decreased to 30.7 % from 33.1% due principally to increased sales which were not
proportionately offset by such expenses, since a portion of these costs is fixed
in nature and does not vary directly with sales.
Investment income, which is comprised of interest and other income and
dividend income, for the year ended June 30, 1997 increased by $4,782,000, or
58.9%, over the comparable prior year period primarily as a result of the income
earned on the proceeds of the Convertible Debentures.
Interest expense for the year ended June 30, 1997 increased by $3,116,000
from the prior year period as a result of the interest expense associated with
the Convertible Debentures.
During the year ended June 30, 1997, the Company recorded non-recurring
charges to income of $37,413,000 related to purchased research and development
costs from the acquisitions of Avicenna and CareAgents and the acquisition of
rights to certain intellectual property and software technologies to be utilized
in the development of the Company's healthcare communications business.
Excluding the portion of the research and development charge relating to
the acquisitions of Avicenna and CareAgents for which no tax benefits were
recognized, the effective tax rate for the year ended June 30, 1997 increased to
37.5% from 35.0% in the prior year period primarily as a result of the change in
composition of the Company's marketable securities resulting in the decrease in
investment income subject to the dividend received deduction.
18
<PAGE>
Capital Resources and Liquidity
As of June 30, 1998, the Company had $90,645,000 of cash and cash
equivalents and $227,062,000 of marketable securities. At June 30, 1998, the
Company's marketable securities consisted primarily of U.S. Treasury Notes and
Federal Agency Notes.
For the fiscal year ended June 30, 1998, cash and cash equivalents
increased $13,342,000 primarily as a result of operating activities. Net cash
provided by operations was $14,370,000, an increase of $5,353,000 from the
fiscal year ended June 30, 1997. This increase was primarily related to
increased cash flow from operations and a full year of investment income
partially offset by higher expenditures related to the development of the
healthcare communications business. The significant funds generated from
operating activities are reinvested in existing businesses and are used to fund
capital expenditures.
Net cash used for financing activities was $1,791,000 for the fiscal year
ended June 30, 1998, primarily resulting from the Company's repurchase of
$5,500,000 face amount of Convertible Debentures partially offset by proceeds
from the issuance of stock options and 401(k) purchases.
Net cash provided by investing activities was $763,000 for the fiscal year
ended June 30, 1998, reflecting maturities and redemptions of marketable
securities, net of purchases of marketable securities.
As a result of the continuing efforts in developing its healthcare
communications business, the Company expects to incur significant research and
development expenditures in connection with this new area of business until the
products and services are successfully developed and marketed. During the year
ended June 30, 1998, the Company incurred expenditures of approximately
$13,565,000 related to the development of its healthcare communications
business. The Company expects to increase the rate of such expenditures during
fiscal 1999. The Company believes that its cash flow from operations and the
income earned on its investments are sufficient to meet the anticipated working
capital requirements of its business, including the research and development
expenditures noted above.
In July 1998, the Company completed the acquisition of Point Plastics,
Inc., a manufacturing company located in Petaluma, California. Point Plastics
designs, manufactures and distributes injection-molded, disposable laboratory
plastics used for liquid handling in the life sciences marketplace. Point
Plastics had net sales of approximately $25,000,000 for the twelve months ended
December 31, 1997. The purchase price for the outstanding capital stock of
Point Plastics was $86,000,000, paid 60% in shares of Synetic Common Stock and
40% in cash. The tax free merger will be accounted for using the purchase
method of accounting.
The Company continues to pursue an acquisition program pursuant to which it
seeks to effect one or more acquisitions or other similar business combinations
with businesses it believes have significant growth potential. Financing for
such acquisitions may come from several sources, including, without limitation,
(a) the Company's cash, cash equivalents and marketable securities and (b)
proceeds from the incurrence of additional indebtedness or the issuance of
common stock, preferred stock, convertible debt or other securities. There can
be no assurance that the Company's acquisition program will be successful. See
"Business--Acquisition Program".
19
<PAGE>
Disclosures About Market Risk
The Company's exposure to market risk for changes in interest rates relates
primarily to the Company's investment in marketable securities. The Company
does not use derivative financial instruments in its investments. The Company's
investments consist primarily of U.S. Treasury Notes and Federal Agency Notes.
The table below presents principal amounts and related weighted average interest
rates by expected maturity date for the Company's investment portfolio and debt
obligations.
<TABLE>
<CAPTION>
Fiscal Years
(in thousands)
1999 2000 2001 2002 2003 Thereafter
---- ---- ---- ---- ---- ----------
<S> <C> <C> <C> <C> <C> <C>
Assets
- ------
Cash equivalents:
Fixed rate.................. 74,744 - - - - -
Average interest rate....... 5.52% - - - - -
Short term investments:
Fixed rate.................. 10,000 - - - - -
Average interest rate....... 6.31% - - - - -
Long term investments:
Fixed rate.................. - - - 144,800 73,635 -
Average interest rate....... - - - 6.46% 6.12% -
Total investment securities.. 84,744 - - 144,800 73,635 -
Average interest rate....... 5.61% - - 6.46% 6.12% -
Long term debt:
Fixed rate.................. - - - - - 159,500
Average interest rate....... - - - - - 5.00%
</TABLE>
Year 2000
The Year 2000 issue is the result of computer programs using two digits
rather than four digits to define the applicable year. Any of the Company's
computer programs that have time-sensitive software may recognize a date using
"00" as the year 1900 rather than the year 2000. This could result in a
disruption of normal business activities. Many of the Company's suppliers,
vendors and customers also face this issue.
The Company has completed an assessment of its Year 2000 readiness and is
undergoing a conversion of its internal systems which are not currently Year
2000 compliant. As of September 15, 1998, the Company completed the conversion
of all significant non-manufacturing systems. The Company expects conversion of
the remaining information technology ("IT") related systems to be completed and
fully tested by June 30, 1999. For non-IT systems, all significant
microprocessor-embedded production equipment has been upgraded and the Company
believes it is Year 2000 compliant.
The Company is in the process of communicating with its suppliers, vendors
and customers concerning the state of their readiness for the Year 2000. The
information gathered to date does not permit the Company to complete its
assessment of risk related to the Year 2000 that these third parties may present
to the Company. If third parties upon which the Company relies are unable to
address this issue in a timely manner, such occurrence could result in a
material financial risk to the Company.
The Company expects that the cost of Year 2000 compliance will not be
material. If the Company does not complete the conversion of its manufacturing
systems by the end of 1999, the Company has Year 2000 compliant upgrades it
believes can readily be installed for its existing systems. The Company
believes that, should it be necessary, the cost of installing such upgrades
would not be material.
20
<PAGE>
The Company intends to have in inventory a reserve of raw materials, which
it believes is sufficient to avoid a disruption in its manufacturing process, to
minimize the risk associated with third-party suppliers experiencing Year 2000
problems on January 1, 2000.
The Company's statements regarding its Year 2000 project constitute forward
looking statements. As the Year 2000 issue has many elements and potential
consequences, some of which are not reasonably foreseeable, the ultimate impact
of the Year 2000 on the operations of the Company could differ materially from
the Company's expectations.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Financial statements and supplementary financial information are contained
on pages F-l through F-19 and S-1 of this Report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
21
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information required by this item will be incorporated by reference
from the Company's definitive Proxy Statement for its 1998 Annual Meeting of
Stockholders to be filed pursuant to Regulation 14A, except that the information
regarding the Company's executive officers required by Item 401 of Regulation
S-K has been included in Part I of this Report.
ITEM 11. EXECUTIVE COMPENSATION.
The information required by this item will be incorporated by reference
from the Company's definitive Proxy Statement for its 1998 Annual Meeting of
Stockholders to be filed pursuant to Regulation 14A.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.
The information required by this item will be incorporated by reference
from the Company's definitive Proxy Statement for its 1998 Annual Meeting of
Stockholders to be filed pursuant to Regulation 14A.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required by this item will be incorporated by reference
from the Company's definitive Proxy Statement for its 1998 Annual Meeting of
Stockholders to be filed pursuant to Regulation 14A.
22
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS
ON FORM 8-K.
(a)(1)-(2) Financial Statements and Schedules:
The financial statements and schedules listed in the accompanying
Index to Consolidated Financial Statements and Supplemental Data at
page F-l are filed as part of this Report.
(a)(3) Index to Exhibits:
See Index to Exhibits on page E-1.
(b) Reports on Form 8-K:
On April 9, 1998, the Company filed a report on Form 8-K disclosing
that it had filed an Amended and Restated Certificate of
Incorporation and had adopted Amended and Restated By-Laws of the
Company.
23
<PAGE>
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: September 25, 1998 By: /s/ Paul C. Suthern
----------------------------
Paul C. Suthern, President and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities indicated on September 25, 1998.
(1) Principal Executive Officer: (3) A Majority of the Board of Directors:
By: /s/ Paul C. Suthern
----------------------------- Thomas R. Ferguson
Paul C. Suthern Mervyn L. Goldstein
President and Chief Ray E. Hannah
Executive Officer Roger H. Licht
Bernard A. Marden
James V. Manning
Charles A. Mele
Herman Sarkowsky
Paul C. Suthern
Albert M. Weis
Martin J. Wygod
(2) Principal Financial and
Accounting Officer: By: /s/ Paul C. Suthern
-------------------------
Paul C. Suthern
Individually and as Attorney-in-Fact
By: /s/ Anthony Vuolo
---------------------------
Anthony Vuolo
Executive Vice President -
Finance and Administration
and Chief Financial Officer
24
<PAGE>
SYNETIC, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
AND SUPPLEMENTAL DATA
The following financial statements of the Company and its subsidiaries
required to be included in Item 14.(a) (1) of Form 10-K are listed below:
PAGE
----
Report of Independent Public Accountants................ F-2
Consolidated Balance Sheets at June 30, 1998 and 1997... F-3
Consolidated Statements of Operations for the
Years Ended June 30, 1998, 1997 and 1996.............. F-5
Consolidated Statements of Changes in
Stockholders' Equity for the Years Ended
June 30, 1998, 1997 and 1996.......................... F-6
Consolidated Statements of Cash Flows for the
Years Ended June 30, 1998, 1997 and 1996.............. F-7
Notes to Consolidated Financial Statements.............. F-8
The following financial statement supplementary data of the Registrant and
its subsidiaries required to be included in Item 14.(a) (2) of Form 10-K are
listed below:
PAGE
----
Schedule II - Valuation and Qualifying
Accounts.............................................. S-1
All other schedules not listed above have been omitted as not applicable or
because the required information is included in the Consolidated Financial
Statements or in the notes thereto. Columns omitted from schedules filed have
been omitted because the information is not applicable.
These financial statements have been prepared from the Company's books and
records after making all necessary adjustments thereto, and they represent the
final statements for the period under audit.
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
TO SYNETIC, INC.:
We have audited the accompanying consolidated balance sheets of Synetic,
Inc. (a Delaware corporation) and subsidiaries as of June 30, 1998 and 1997, and
the related consolidated statements of operations, changes in stockholders'
equity and cash flows for each of the three years in the period ended June 30,
1998. These consolidated financial statements and the schedule referred to
below are the responsibility of the Company's management. Our responsibility is
to express an opinion on these consolidated financial statements and schedule
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 Synetic, Inc. and
subsidiaries as of June 30, 1998 and 1997, and the results of their operations
and their cash flows for each of the three years in the period ended June 30,
1998 in conformity with generally accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in the index to
consolidated financial statements and supplemental data is presented for
purposes of complying with the Securities and Exchange Commission's rules and is
not part of the basic financial statements. This schedule has been subjected to
the auditing procedures applied in our audits of the basic financial statements
and, in our opinion, fairly states in all material respects the financial data
required to be set forth therein in relation to the basic financial statements
taken as a whole.
ARTHUR ANDERSEN LLP
New York, New York
August 14, 1998
F-2
<PAGE>
SYNETIC, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
JUNE 30,
--------------------
1998 1997
--------- ---------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents.......................... $ 90,645 $ 77,303
Marketable securities.............................. 9,995 11,765
Accounts receivable, net of allowances for
doubtful accounts and sales returns of $786 and
$739 at June 30, 1998 and 1997, respectively..... 11,071 9,094
Inventories........................................ 5,813 5,505
Other current assets............................... 11,572 9,233
-------- --------
Total current assets............................. 129,096 112,900
-------- --------
PROPERTY, PLANT AND EQUIPMENT:
Land and improvements.............................. 1,605 1,613
Buildings and improvements......................... 11,261 9,911
Machinery and equipment............................ 28,428 23,444
Furniture and fixtures............................. 3,924 3,283
Construction in progress........................... 6,249 2,516
-------- --------
51,467 40,767
Less: Accumulated depreciation.................... (22,086) (18,681)
-------- --------
Property, plant and equipment, net............... 29,381 22,086
-------- --------
OTHER ASSETS:
Marketable securities.............................. 217,067 226,760
Other.............................................. 21,382 22,593
-------- --------
Total other assets............................... 238,449 249,353
-------- --------
$396,926 $384,339
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
F-3
<PAGE>
SYNETIC, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
JUNE 30,
--------------------
1998 1997
--------- ---------
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable........................................... $ 2,644 $ 2,344
Accrued liabilities........................................ 13,002 14,203
Income taxes payable....................................... 5,381 5,280
-------- --------
Total current liabilities................................ 21,027 21,827
-------- --------
LONG-TERM DEBT.................................................. 159,500 165,000
OTHER LIABILITIES............................................... 10,173 8,776
COMMITMENTS AND CONTINGENCIES (NOTE 9)
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value; 10,000,000 shares
authorized; none issued............................... - -
Common stock, $.01 par value; 50,000,000 shares
authorized; 23,017,594 and 22,865,149 shares issued;
17,749,131 and 17,564,980 shares issued and outstanding
at June 30, 1998 and 1997, respectively.................. 230 229
Paid-in capital............................................ 203,482 196,212
Treasury stock, at cost; 5,268,463 and 5,300,169 shares
at June 30, 1998 and 1997, respectively.................. (38,287) (39,462)
Retained earnings.......................................... 40,801 31,757
-------- --------
Total stockholders' equity............................... 206,226 188,736
-------- --------
$396,926 $384,339
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
F-4
<PAGE>
SYNETIC, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
------------------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Net sales........................................ $ 64,945 $ 52,885 $45,128
-------- -------- -------
Costs and expenses:
Cost of sales.................................. 34,508 29,035 25,108
Selling, general and administrative............ 27,558 20,841 14,930
Interest and other income...................... (20,567) (11,065) (3,952)
Dividend income................................ - (1,829) (4,160)
Interest expense............................... 8,614 3,116 -
Purchased research and development and other... - 37,413 -
-------- -------- -------
50,113 77,511 31,926
-------- -------- -------
Income (loss) before provision for income taxes.. 14,832 (24,626) 13,202
Provision for income taxes....................... 5,788 2,834 4,617
-------- -------- -------
Net income (loss)................................ $ 9,044 $(27,460) $ 8,585
======== ======== =======
Income per share - basic:
Net income (loss) per share.................... $.51 $(1.60) $ .52
======== ======== =======
Weighed average shares outstanding............. 17,671 17,133 16,667
======== ======== =======
Income per share - diluted:
Net income (loss) per share.................... $.46 $(1.60) $ .48
======== ======== =======
Weighted average shares outstanding............ 19,834 17,133 18,026
======== ======== =======
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-5
<PAGE>
SYNETIC, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK
------------------
NUMBER TOTAL
OF PAID-IN RETAINED TREASURY STOCKHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS STOCK EQUITY
------ ------ ------- -------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
Balance, June 30, 1995....................... 21,866 $219 $152,556 $ 50,632 $(36,575) $166,832
------ ---- -------- -------- -------- --------
Net income................................. - - - 8,585 - 8,585
Issuance of common stock for exercise of
stock options and 401(k) plan............ 141 1 5,671 - - 5,672
------ ---- -------- -------- -------- --------
Balance, June 30, 1996....................... 22,007 $220 $158,227 $ 59,217 $(36,575) $181,089
------ ---- -------- -------- -------- --------
Net (loss)................................. - - - (27,460) - (27,460)
Issuance of common stock for exercise of
stock options and 401(k) plan............ 323 3 13,503 - - 13,506
Issuance of common stock and warrants for
acquisitions of Avicenna and CareAgents.. 535 6 24,482 - - 24,488
Adjustment to purchase price of Treasury
stock.................................... - - - - (1,712) (1,712)
Purchase of 50 shares of common stock
for Treasury, net of 18 shares reissued.. - - - - (1,175) (1,175)
------ ---- -------- -------- -------- --------
Balance, June 30, 1997....................... 22,865 $229 $196,212 $ 31,757 $(39,462) $188,736
------ ---- -------- -------- -------- --------
Net income................................... - - - 9,044 - 9,044
Issuance of common stock for exercise of
stock options and 401(k) Plan.............. 153 1 7,270 - 1,391 8,662
Purchase of 6 shares of common stock
for Treasury............................... - - - - (216) (216)
Balance, June 30, 1998 23,018 $230 $203,482 $40,801 $(38,287) $206,226
====== ==== ======== ======= ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-6
<PAGE>
SYNETIC, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
---------------------------------
1998 1997 1996
--------- ---------- ----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)......................................... $ 9,044 $ (27,460) $ 8,585
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Write-off of purchased research and development costs.. - 37,413 -
Depreciation and amortization and other................ 3,999 3,294 2,619
Deferred income taxes.................................. 2,312 (4,336) (254)
Changes in operating assets and liabilities,
net of the effects of acquisitions:
Accounts receivable, net............................. (1,977) (795) (634)
Inventories.......................................... (308) 147 193
Other assets......................................... (4,790) (7,184) (173)
Accounts payable..................................... 300 776 655
Accrued liabilities.................................. (661) 1,690 (2,323)
Other liabilities.................................... 926 48 -
Income taxes payable................................. 5,525 5,424 2,625
-------- --------- ---------
Net cash provided by
operating activities............................ 14,370 9,017 11,293
-------- --------- ---------
Cash flows from investing activities:
Maturities and redemptions of marketable securities.... 102,756 396,638 708,685
Purchases of marketable securities..................... (91,293) (494,895) (704,099)
Capital expenditures................................... (10,700) (6,063) (2,790)
Net cash paid for acquired businesses.................. - (10,612) -
-------- --------- ---------
Net cash provided by (used for)
investing activities............................ 763 (114,932) 1,796
-------- --------- ---------
Cash flows from financing activities:
Purchases of Treasury stock............................ (216) (3,570) -
Proceeds from issuance of stock options and
401(k) purchases..................................... 3,267 3,688 1,838
Proceeds from issuance of Convertible Debentures,
net of underwriting discount......................... 160,890 -
Repurchase of Convertible Debentures................... (4,842) - -
Payments on long-term debt............................. - - (216)
-------- --------- ---------
Net cash provided by (used for)
financing activities............................ (1,791) 161,008 1,622
-------- --------- ---------
Net increase in cash and cash equivalents................. 13,342 55,093 14,711
Cash and cash equivalents, beginning of
period................................................. 77,303 22,210 7,499
-------- --------- ---------
Cash and cash equivalents, end of period.................. $ 90,645 $ 77,303 $ 22,210
======== ========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-7
<PAGE>
SYNETIC, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
The Company is engaged in two principal business activities, plastics and
filtration technologies and healthcare communications. The Company's plastics
and filtration technologies business is conducted through Porex Technologies
Corp. and its affiliated companies ("Porex"). Over the past 35 years Porex has
established a leading reputation in the porous plastics industry as a developer,
manufacturer and distributor of porous plastic products. Porex's porous and
solid plastic components and products are used by other manufacturers in a wide
range of healthcare, consumer, life sciences and industrial applications
primarily to filter, wick, diffuse, drain, vent or control the flow of fluids or
gases. Porex has a diverse customer base of over 600 customers, including major
Fortune 500 companies.
The objective of the Company's healthcare communications business is to use
Internet technology to create an influential interactive health services channel
linking physicians with the payers, suppliers and consumers of healthcare in
order to control healthcare costs and improve patient outcomes. There are
significant risks and uncertainties associated with this business such as
development risks, uncertainty of market acceptance and competition. There can
be no assurances given as to the specific time frame for the Company's first
commercial introduction of its healthcare communications products and services.
The Company anticipates that it will incur significant expenses in connection
with the development of such products and services. The provision of products
and services using Internet technology in the healthcare communications industry
is a developing business.
Principles of Consolidation--
The accompanying consolidated financial statements include the accounts of
the Company and its wholly owned operating subsidiaries, including Porex and
Avicenna, after elimination of all material intercompany accounts and
transactions.
For the years ended June 30, 1998 and 1997, the operations of the Company
were primarily related to its plastics and filtration technologies business.
All revenues and a majority of operating expenses were derived from these
operations.
Cash and Cash Equivalents--
The Company considers all investment instruments with an original maturity
of three months or less to be the equivalent of cash for purposes of balance
sheet presentation and for the consolidated statements of cash flows. These
short-term investments are stated at cost, which approximates market.
Marketable Securities--
At June 30, 1998, the Company's investments consisted principally of U.S.
Treasury Notes and Federal Agency Notes and are classified as held-to-maturity
and are carried at cost, net of unamortized premium or discount. These
investments had an aggregate market value of $229,683,000 and $238,151,000 at
June 30, 1998 and 1997, respectively. At June 30, 1998, gross unrealized gains
pertaining to marketable securities and other investments were $2,621,000.
Gains and losses on the sale of marketable securities and other investments are
calculated using the specific identification method.
Inventories--
Inventories are stated at the lower of (first-in, first-out) cost or
market. Cost includes raw materials, direct labor, and manufacturing overhead.
Market is based on current replacement cost for raw materials and supplies and
on net realizable value for work-in-process and finished goods. Inventories
consisted of the following (in thousands):
F-8
<PAGE>
SYNETIC, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
(CONTINUED)
JUNE 30,
--------------
1998 1997
------ ------
Raw materials and supplies.. $3,219 $2,672
Work-in-process............. 677 347
Finished goods.............. 1,917 2,486
------ ------
$5,813 $5,505
====== ======
Property, Plant and Equipment--
Property, plant and equipment are stated at cost. For financial reporting
purposes, depreciation is provided principally on the straight-line method over
the estimated useful lives of the assets. Annual depreciation rates range from
2% to 5% for buildings and improvements and from 9% to 33% for machinery and
equipment and furniture and fixtures. For income tax purposes, certain assets
are depreciated using accelerated methods. Expenditures for maintenance, repair
and renewals of minor items are charged to operations as incurred. Major
betterments are capitalized.
Development Costs--
The Company capitalizes costs incurred for the production of computer
software for use in the sale of its services. Costs capitalized include direct
labor and related overhead for software produced by the Company and the costs of
software purchased from third parties. All costs in the software development
process which are classified as research and development are expensed as
incurred until technological feasibility has been established. Once
technological feasibility has been established, such costs are capitalized until
the software is commercially available. Such costs are recorded at the lower of
unamortized cost or net realizable value. As of June 30, 1998 and 1997,
capitalized costs were $4,368,000 and $348,000, respectively. No costs were
capitalized in the year ended June 30, 1996. Total development expenses were
$11,511,000, $6,419,000, and $2,014,000 for the years ended June 30, 1998, 1997
and 1996, respectively, of which $9,545,000 and $4,628,000 were related to the
healthcare communications business for the years ended June 30, 1998 and June
30, 1997, respectively.
Accrued Liabilities--
Accrued liabilities consisted of the following (in thousands):
JUNE 30,
----------------
1998 1997
------- -------
Accrued payroll and benefit costs.. $ 5,585 $ 4,633
Accrued acquisition costs.......... 539 3,236
Accrued interest................... 2,961 2,957
Accrued legal costs................ 1,230 1,575
Other.............................. 2,687 1,802
------- -------
Total.......................... $13,002 $14,203
======= =======
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. (See Note 5)
F-9
<PAGE>
SYNETIC, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
(CONTINUED)
Foreign Currency Translation--
The financial statements and transactions of Porex's foreign manufacturing
facilities are maintained in their functional currency (Deutsche mark and Pound
sterling) and translated into U.S. dollars. The adjustments which result from
the process of translating these financial statements are not material.
Revenue Recognition--
Revenue is recognized upon product shipment, net of sales returns and
allowances.
Net Income (Loss) Per Share--
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128, "Earnings per Share" ("SFAS No.
128"). The new standard simplifies the computation of net income per share and
increases comparability to international standards. Under SFAS No. 128, basic
net income per share is computed by dividing net income by the weighted-average
number of common shares outstanding for the period. Diluted net income per
share reflects the potential dilution that could occur if securities or other
contracts to issue common stock were exercised or converted into common stock.
The Convertible Debentures (See Note 4), if converted, would not have had a
dilutive effect on net income per share for the periods presented.
The Company has adopted the new standard during fiscal 1998, beginning with
the December 31, 1997 interim consolidated financial statements. In accordance
with SFAS 128, all prior periods presented have been restated. The Company has
historically reported its EPS on a fully diluted basis, which reflects the
dilution resulting from employee stock options, warrants and convertible
securities, if dilutive, and is comparable to the new diluted EPS reported.
A reconciliation of weighted average shares outstanding (basic) to weighted
average shares outstanding assuming dilution (diluted) follows:
Years Ended June 30,
-----------------------
1998 1997(2) 1996
------ ------- ------
Weighted average shares outstanding (basic).. 17,671 17,133 16,667
Common stock equivalents(1).................. 2,163 - 1,359
------ ------ ------
Weighted average shares outstanding
assuming dilution (diluted)................. 19,834 17,133 18,026
====== ====== ======
(1) Issuable primarily under stock option plans.
(2) Common stock equivalents not reflected above as they were not dilutive.
Reclassifications--
Certain reclassifications have been made to prior year amounts to conform
to the current year presentation.
Accounting for Stock-Based Compensation--
Effective July 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
F-10
<PAGE>
SYNETIC, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
(CONTINUED)
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 and non-
employee directors. 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 8)
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 amount 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.
Recently Issued Accounting Standards--
In June 1998, SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities" , was issued and is effective for periods beginning after
June 15, 1999. Management believes that the adoption of SFAS No. 133 will not
have a material adverse effect on the Company's consolidated financial
statements.
(2) ACQUISITIONS:
Avicenna--
On December 24, 1996, the Company acquired the outstanding equity and
indebtedness (including employee stock options) of Avicenna, a privately-held,
developmental-stage company located in Cambridge, Massachusetts, for 428,643
shares of the Company's common stock and 161,015 shares of the Company's common
stock to be issued in connection with the exercise of employee stock options.
The shares issued are subject to certain limitations restricting the liquidity
and transferability of such shares. The fair value of the shares, as determined
by management, was approximately $47.37 per share. As additional consideration,
the Company agreed to issue to certain sellers, nontransferable warrants
covering 250,000 shares of the Company's common stock, exercisable after
December 23, 1998 at a price of $54.50 per share. Avicenna's business plan has
been to market and build Intranets for managed care organizations, hospitals and
physician groups. The acquisition was accounted for using the purchase method
with the purchase price being allocated to assets acquired and liabilities
assumed based on their fair values. Avicenna's results of operations have been
included in the Company's financial statements since December 24, 1996.
A summary of the purchase price allocation is as follows (in thousands):
Cash $ 42
Short-term investments 240
Other assets 216
Property, plant and equipment 759
Purchased research and development 28,600
Intangible assets 1,502
Goodwill 116
-------
$31,475
=======
The amount allocated to purchased research and development of $28,600,000
was determined using established valuation techniques. Remaining amounts have
been allocated to intangible assets and goodwill.
F-11
<PAGE>
SYNETIC, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(2) ACQUISITIONS: (CONTINUED)
CareAgents--
On January 23, 1997, the Company acquired CareAgents for 106,029 shares of
the Company's common stock. The shares issued are subject to certain
limitations restricting the liquidity and transferability of such shares. The
fair value of the shares, as determined by management, was approximately $30.65
per share. CareAgents was an early development stage company focused on
Internet-based clinical commerce applications. The acquisition was accounted
for using the purchase method with the purchase price being allocated entirely
to purchased research and development. CareAgents' results of operations have
been included in the Company's financial statements since January 23, 1997. The
amount allocated to purchased research and development of $3,585,000 was
determined using established valuation techniques.
The following summary, prepared on a pro forma basis, combines the results
of operations of the Company, Avicenna and CareAgents assuming the acquisitions
were consummated at the beginning of the period presented (in thousands, except
per share amount):
Year ended
June 30, 1997
-------------
(unaudited)
Sales $ 52,885
Net loss $(29,381)
Net loss per share $ (1.69)
The pro forma results are not necessarily indicative of what actually would
have occurred if the acquisitions had been in effect for the entire period
presented. In addition, they are not intended to be a projection of future
results. The pro forma impact of the Avicenna and CareAgents acquisitions for
the year ended June 30, 1996 was not material.
Purchased Research and Development and Other--
The amounts allocated to purchased research and development of
approximately $28,600,000 and $3,585,000 related to Avicenna and CareAgents,
respectively, were expensed in the periods of acquisition, with no corresponding
tax benefits, as such research and development was in process at the time of the
acquisitions and had no alternative commercial use. In addition, in June 1997,
the Company charged to expense research and development costs of $5,228,000
associated with the acquisition of rights to certain intellectual property and
software technologies to be utilized in the development of the Company's
healthcare communications business.
(3) STOCKHOLDERS' EQUITY:
In April 1997, the Company announced that its Board of Directors authorized
a repurchase program involving the purchase of the Company's common stock and
outstanding convertible debentures not to exceed $15,000,000 in the aggregate.
For the years ended June 30, 1998 and June 30, 1997, the Company repurchased
6,000 and 49,506 shares at a cost of approximately $216,000 and $1,858,000,
respectively. The Company has reissued all of these shares for employee stock
option exercises.
In January 1997, the Company issued 106,029 shares for the acquisition of
CareAgents and, in December 1996, the Company issued 428,643 shares for the
acquisition of Avicenna.
F-12
<PAGE>
SYNETIC, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(4) LONG-TERM DEBT:
In February 1997, the Company issued to the public $165,000,000 aggregate
principal amount of its 5% Convertible Subordinated Debentures due 2007 (the
"Convertible Debentures"). The Convertible Debentures are convertible at any
time prior to maturity, unless previously redeemed into shares of the Company's
common stock, at a conversion price of $60.00 per share, subject to adjustment
under certain circumstances. In connection with the issuance of the Convertible
Debentures, the Company recorded debt issuance costs of approximately $5,100,000
which are included in other assets in the consolidated financial statements.
Such costs are being amortized to interest expense using the effective interest
method over the life of the Convertible Debentures. In conjunction with the
repurchase program discussed in Note 3, the Company repurchased $5,500,000 face
amount of Convertible Debentures during the fiscal year ended June 30, 1998.
(5) INCOME TAXES:
The income tax provisions are summarized as follows (in thousands):
YEARS ENDED JUNE 30,
----------------------
1998 1997 1996
---- ---- ----
Current:
Federal............................ $2,851 $ 6,663 $4,060
State.............................. 625 507 811
------ ------- ------
Total current................. 3,476 7,170 4,871
------ ------- ------
Deferred:
Federal............................ 2,285 (4,293) (194)
State.............................. 27 (43) (60)
------ ------- ------
Total deferred................ 2,312 (4,336) (254)
------ ------- ------
Total income tax provision.. $5,788 $ 2,834 $4,617
====== ======= ======
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:
YEARS ENDED JUNE 30,
------------------------
1998 1997 1996
---- ---- ----
Federal statutory rate............................... 35.0% (35.0)% 35.0%
State tax, net of federal benefit.................... 2.9 2.1 3.7
Dividend exclusion................................... - (2.0) (7.7)
Non-deductible research and development.............. - 45.1 -
Other, net........................................... 1.1 1.4 4.0
------ ------ -----
39.0% 11.6% 35.0%
====== ====== =====
Temporary differences resulted in the following deferred tax expense
(benefit) (in thousands):
YEARS ENDED JUNE 30,
---------------------
1998 1997 1996
---- ---- ----
Book/tax differences in accounting method
for assets acquired............................... $ 1,607 $ (10) $ (69)
Accrued expenses................................... 609 (716) (140)
Deferred compensation - stock options.............. 101 - -
Difference between tax and book depreciation and
amortization...................................... 1,224 (1,414) (45)
Net operating loss carryforwards................... (1,401) (2,236) -
Other, net......................................... 172 40 -
------- ------- ------
$ 2,312 $(4,336) $ (254)
======= ======= ======
F-13
<PAGE>
SYNETIC, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(5) INCOME TAXES: (CONTINUED)
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components
of the Company's deferred tax assets and liabilities as of June 30, 1998 and
1997 are as follows (in thousands):
<TABLE>
<CAPTION>
JUNE 30,
--------------------------------------
1998 1997
------------------ ------------------
Deferred Tax Assets: CURRENT LONG-TERM CURRENT LONG-TERM
------- --------- ------- ---------
<S> <C> <C> <C> <C>
Accrued expenses............................. $1,664 $ - $2,431 $ -
Net operating loss carryforwards............. - 3,637 - 2,236
Bad debts.................................... 173 - 98 -
Inventory.................................... 340 - 347 -
Prepaid and other............................ 307 - 12 167
Deferred compensation (stock options)........ - 1,739 - 1,693
Depreciation and amortization................ - - - 474
------ ------ ------ ------
Total current deferred tax assets.......... $2,484 $5,376 $2,888 $4,570
====== ====== ====== ======
Deferred Tax Liabilities:
Depreciation and amortization................ $ - $1,063 $ - $ -
Capitalized research and development costs... - 1,143 - -
Accrued expenses............................. - 122 - -
Other........................................ - 386 - -
------ ------ ------ ------
Total noncurrent deferred tax liabilities.. $ - $2,714 $ - $ -
====== ====== ======= =========
Net deferred tax asset (liability)........... $2,484 $2,662 $2,888 $4,570
====== ====== ====== ======
</TABLE>
As of June 30, 1998, the Company has available net operating loss
carryforwards totaling $10,393,000 which expire in years 2012 and 2013. The
Company has assessed its past earnings history and trends and expiration dates
of net operating loss carryforwards and has determined that it is more likely
than not that the net operating loss carryforwards will be realized.
(6) MAJOR CUSTOMERS AND FOREIGN AND EXPORT PRODUCT SALES:
For the years ended June 30, 1998, 1997 and 1996, no customer accounted for
more than 10% of the Company's net sales.
Foreign product sales and net income of Porex's foreign manufacturing
facilities, which are made principally in Europe, amounted to $8,930,000 and
$1,352,000; $7,854,000 and $1,247,000; and $6,665,000 and $975,000 for the
fiscal years ended June 30, 1998, 1997 and 1996, respectively. Identifiable
assets of these facilities were not material for the years presented. Export
product sales of Porex, which are made principally to Europe and Asia, were
$10,018,000, $6,213,000 and $5,605,000 for the fiscal years ended June 30, 1998,
1997 and 1996, respectively.
(7) PENSION AND PROFIT SHARING PLANS:
The Company has defined benefit pension plans covering a majority of its
employees. Net pension cost for the years ended June 30, 1998, 1997 and 1996
included the following components (in thousands):
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- ------
<S> <C> <C> <C>
Service cost.................. $ 248 $ 277 $ 269
Interest cost................. 360 338 310
Actual return on plan assets.. (2,132) (1,377) (789)
Net amortization.............. 1,469 923 447
------- ------- -----
Net pension cost............ $ (55) $ 161 $ 237
------- ======= =====
</TABLE>
F-14
<PAGE>
SYNETIC, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(7) PENSION AND PROFIT SHARING PLANS: (CONTINUED)
The following table sets forth the funded status of the plans and amounts
recognized in the Company's consolidated balance sheets (in thousands):
<TABLE>
<CAPTION>
JUNE 30,
------------------
1998 1997
-------- --------
<S> <C> <C>
Actuarial present value of benefit obligation:
Vested benefit obligation..................... $(5,302) $(3,311)
Nonvested benefit obligation.................. (125) (67)
------- -------
Accumulated benefit obligation................ (5,427) (3,378)
Effect of future salary increases............. - (1,600)
------- -------
Projected benefit obligation.................... (5,427) (4,978)
Plan assets at fair value....................... 8,900 6,703
------- -------
Funded status................................... 3,473 1,725
Unrecognized net gain........................... (3,207) (1,848)
Unrecognized net asset.......................... (173) (194)
Unrecognized prior service cost................. - 56
------- -------
Consolidated balance sheets $ 93 $ (261)
======= =======
</TABLE>
The Company funds the plans through annual contributions representing no
less than the minimum amounts required as computed by actuaries to be consistent
with the plans' objectives and government regulations. The net pension
liability is included in accrued liabilities.
Assumptions used in the accounting for the Company's defined benefit plans
as of June 30, 1998 and 1997 were:
<TABLE>
<CAPTION>
1998 1997
----- -----
<S> <C> <C>
Discount rate................................ 7.5% 7.5%
Rate of increase in compensation levels...... 0%-5% 0%-5%
Expected long-term rate of return on assets.. 8.0% 8.0%
</TABLE>
Plan assets consist primarily of debt and equity investments.
On May 1, 1998 the Company ceased all benefit accruals under the plan.
This event resulted in an immaterial curtailment gain.
In addition to the defined benefit pension plans discussed above, the
Company maintains a defined contribution profit sharing plan covering
substantially all of its employees. Participants must be at least 21 years of
age and have completed one year of service and may contribute up to $9,500 of
their earnings annually. Effective February 1, 1997 the Company matches 50% of
the first 2% and 25% of the second 4% of participants earnings which are
contributed to the plan. From July 1, 1996 through January 31, 1997 and for the
fiscal year ending June 30, 1996 the Company matched 25% of the first 4% of
participants earnings which were contributed to the plan. For the years ended
June 30, 1998, 1997 and 1996, the Company issued 4,102, 3,341 and 2,897 shares
of common stock to the plan and recorded expense of $187,200, $132,500 and
$81,000, respectively.
(8) STOCK OPTIONS:
The Company has various stock option plans ("Plans") for directors,
officers and key employees which provide for non-qualified and incentive stock
options. Generally, options granted become exercisable at a rate of 20% on each
annual anniversary of the grant. No options may be granted under any of the
Plans after March 25, 2008, and all options expire within ten to fifteen years
from the date of the grant. Generally,
F-15
<PAGE>
SYNETIC, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(8) STOCK OPTIONS: (CONTINUED)
options granted under the Plans have an exercise price equal to 100% of the fair
market value of the Company's common stock on the date of grant. There are
11,674,468 shares reserved for issuance under the Company's Plans.
In addition to the Company's stock option plans, the Company has granted
options to certain directors, consultants and key employees. At June 30, 1998,
there were 703,000 options granted to these individuals. The terms of these
grants are similar to the Company's non-qualified stock option plans.
The Company has elected to follow APB No. 25 in accounting for its employee
stock options. Accordingly, no compensation cost has been recognized for the
Company's option plans. Had the determination of compensation costs for these
plans been based on the fair value at the grant dates for awards under these
plans, consistent with the method of SFAS No. 123, the Company's net income
(loss) would have been $(2,230), $(30,746) and $8,190 and diluted earnings per
share would have been $(.13), $(1.79) and $0.45 for the years ended June 30,
1998, 1997 and 1996, respectively.
The pro forma results indicated above are not intended to be indicative of
or a projection of future results.
The fair value of each option grant is estimated on the date of grant by
using the Black-Scholes option-pricing model. The following weighted average
assumptions were used:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Expected dividend yield 0% 0% 0%
Expected volatility .2986 .2722 .2722
Risk-free interest rates 6.3% 6.5% 6.5%
Expected option lives (years) .50-2.00 .083-1.74 .083-1.74
Weighted average fair
value of options granted
during the year $ 13.10 $ 10.11 $ 5.08
</TABLE>
A summary of the status of the Company's stock option plans for the three-
year period ended June 30, 1998 is presented below:
<TABLE>
Years Ended June 30,
---------------------------------------------------------------------------
1998 1997 1996
--------------------------- --------------------- ---------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
-------------- ----------- ---------- ----------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
Beginning of year.. 7,136,579 $26.58 3,746,750 $12.52 3,591,900 $11.50
Granted............ 2,485,450 $38.35 4,047,264 $39.22 366,000 $24.54
Exercised.......... (195,577) $16.11 (343,990) $ 9.94 (137,350) $12.81
Canceled........... (728,188) $39.83 (313,445) $39.90 (73,800) $16.13
--------- --------- ---------
End of year........ 8,698,264 $29.07 7,136,579 $26.58 3,746,750 $12.63
========= ========= =========
Exercisable at
end of year...... 2,949,509 2,379,281 2,160,050
========= ========= =========
</TABLE>
F-16
<PAGE>
SYNETIC, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(8) STOCK OPTIONS: (CONTINUED)
The following table summarizes information with respect to options
outstanding and options exercisable at June 30, 1998:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------------------------------------- ----------------------------
Weighted Average Weighted Weighted
Range of Exercise Options Remaining Average Options Average
Prices (in dollars) Outstanding Contractual Life Exercise Price Exercisable Exercise Price
- ------------------- ----------- ---------------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
$1.25-$5.25 613,030 1.64 $ 4.87 562,889 $ 5.19
$6.63-$10.00 937,000 5.90 $ 9.62 602,600 $ 9.41
$11.50-$32.25 2,595,720 8.91 $21.55 1,590,820 $17.28
$32.75-$46.69 3,963,696 10.66 $37.84 163,200 $35.27
$46.88-$63.63 588,818 10.94 $49.55 30,000 $46.88
</TABLE>
(9) COMMITMENTS AND CONTINGENCIES:
Leases--
The Company leases office and warehouse space, equipment and automobiles
under various noncancellable operating leases. Rental expense was $2,142,000,
$803,000 and $318,000 for the fiscal years ended June 30, 1998, 1997 and 1996,
respectively. The minimum aggregate rental commitments under noncancellable
leases, excluding renewal options, are as follows (in thousands):
YEARS ENDING JUNE 30,
---------------------
1999................................. $2,067
2000................................. 1,937
2001................................. 1,800
2002................................. 1,366
2003................................. 447
Thereafter........................... 2,840
Legal proceedings--
In the normal course of business, the Company is involved in various claims
and legal proceedings. While the ultimate resolution of these matters has yet
to be determined, the Company does not believe that their outcome will have a
material adverse effect on its financial position.
Porex has been named as one of many co-defendants in a number of actions
brought by recipients of silicone mammary implants. One of the pending claims
is styled as a purported class action. Certain of the actions against Porex
have been dismissed or settled by the manufacturer or insurance carriers of
Porex without material cost to Porex. The Company believes its insurance
coverage provides adequate coverage against liabilities that could arise from
actions or claims arising out of Porex's distribution of implants.
F-17
<PAGE>
SYNETIC, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(10) QUARTERLY FINANCIAL DATA (UNAUDITED):
The following table summarizes the quarterly financial data for the fiscal
years ended June 30, 1998 and 1997 (in thousands, except per share data). Net
income (loss) per share calculations for each of the quarters are based on the
weighted average number of shares outstanding for each period; therefore, the
sum of the quarters may not necessarily be equal to the full fiscal year per
share amount.
<TABLE>
<CAPTION> NET INCOME (LOSS)
INCOME (LOSS) PER SHARE
BEFORE PROVISION -----------------
QUARTER ENDED NET SALES FOR TAXES NET INCOME (LOSS) BASIC DILUTED
- ------------- --------- --------- ----------------- ------- -------
<S> <C> <C> <C> <C> <C>
1997
- ----
September 30, 1996......... $11,185 $ 3,527 $ 2,389 $ .14 $ .13
December 31, 1996.......... 11,899 (24,545) (25,934) (1.54) (1.54)
March 31, 1997............. 14,243 (1,516) (2,420) (.14) (.14)
June 30, 1997.............. 15,558 (2,092) (1,495) (.09) (.09)
Year Ended June 30, 1997... $52,885 $(24,626) $(27,460) $(1.60) $(1.60)
<CAPTION>
NET INCOME
INCOME PER SHARE
BEFORE PROVISION ------------------
QUARTER ENDED NET SALES FOR TAXES NET INCOME BASIC DILUTED
- ------------- --------- --------- ----------- ------ ---------
<S> <C> <C> <C> <C> <C>
1998
- ----
September 30, 1997......... $14,833 $ 2,650 $ 1,492 $ .08 $ .08
December 31, 1997.......... 15,440 3,726 2,293 .13 .12
March 31, 1998............. 16,437 3,849 2,376 .13 .12
June 30, 1998.............. 18,235 4,607 2,883 .16 .14
Year Ending June 30, 1998.. $64,945 $ 14,832 $ 9,044 $ .51 $ .46
</TABLE>
(11) FAIR VALUE OF FINANCIAL INSTRUMENTS:
The following disclosure of the estimated fair value of financial
instruments is made in accordance with the requirements of Statement of
Financial Accounting Standards No. 107, "Disclosures about Fair Value of
Financial Instruments." The estimated fair value amounts have been determined
by the Company using available market information. However, considerable
judgment is required in interpreting market data to develop the estimates of
fair value. Accordingly, the estimates presented herein are not necessarily
indicative of the amounts that the Company could realize in a current market
exchange. The use of different market assumptions and/or estimation
methodologies may have a material effect on the estimated fair value amounts.
AT JUNE 30, 1998
--------------------
CARRYING ESTIMATED
AMOUNT FAIR VALUE
-------- ----------
(in thousands)
Assets:
Cash and cash equivalents.. $ 90,645 $ 90,645
Marketable securities...... 227,062 229,683
Liabilities:
Long-term debt............. 159,500 167,874
F-18
<PAGE>
SYNETIC, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(11) FAIR VALUE OF FINANCIAL INSTRUMENTS: (CONTINUED)
Cash and cash equivalents--
The carrying amounts of these items are a reasonable estimate of their fair
value.
Marketable securities--
Marketable securities, consisting of publicly-traded U.S. Treasury Notes
and Federal Agency Notes, are valued based on quoted market prices or dealer
quotes.
Long term debt--
The Convertible Debentures are publicly traded and are valued based on
quoted market prices.
The fair value estimates presented herein are based on information
available to the Company as of June 30, 1998. Although the Company is not aware
of any factors that would significantly affect the estimated fair value amounts,
such amounts have not been revalued since that date, and current estimates of
fair value may differ significantly from the amounts presented herein.
(12) SUPPLEMENTAL CASH FLOW INFORMATION (IN THOUSANDS):
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
----------------------------
1998 1997 1996
---- ------ ------
<S> <C> <C> <C>
Interest Paid...... $8,233 $ - $ 6
Income Taxes Paid.. 1,603 1,788 3,212
</TABLE>
The following non-cash transactions were excluded from the consolidated
statements of cash flows for the years ended June 30, 1998, 1997 and 1996:
In fiscal years 1998, 1997 and 1996, the Company recognized tax benefits
related to the exercise of stock options as increases to additional paid-in
capital and decreases to income taxes payable of $5,424,000, $7,450,000 and
$3,833,000, respectively.
Additional information with respect to the acquisitions referred to in Note
2 above is as follows (in thousands):
YEAR ENDED
JUNE 30, 1997
-------------
Fair value of assets acquired $47,537
Net cash paid (10,612)
Value of stock issued (24,488)
-------
Liabilities assumed $12,437
=======
(13) SUBSEQUENT EVENTS:
In July 1998, the Company completed the acquisition of Point Plastics,
Inc., a manufacturing company located in Petaluma, California. Point Plastics
designs, manufactures and distributes injection-molded, disposable laboratory
plastics used for liquid handling in the life sciences marketplace. Point
Plastics had net sales of approximately $25,000,000 for the twelve months ended
December 31, 1997 . The purchase price for the outstanding capital stock of
Point Plastics was $86,000,000, paid 60% in shares of Synetic Common Stock and
40% in cash. The tax free merger will be accounted for using the purchase
method of accounting.
F-19
<PAGE>
SYNETIC, INC. AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
Years Ended June 30, 1998, 1997 and 1996
<TABLE>
<CAPTION>
Col. A Col. B Col. C Col. D Col. E
- ------------------------- ---------- ----------------------- ------------- ------------
Additions
-----------------------
Balance at Charges to Charges to Balance at
Beginning Costs and Other End of
Description of Period Expenses Accounts (Deductions) Period
----------- ---------- --------- ---------- -------------- -----------
<S> <C> <C> <C> <C> <C>
Deducted in the Balance Sheet
from the asset to which it applies:
Allowance for doubtful accounts
and sales returns
June 30, 1998 $739,000 127,000 4,000 (84,000)(1) $786,000
June 30, 1997 $671,000 205,000 14,000 (151,000)(1) $739,000
June 30, 1996 $636,000 126,000 (7,000) (84,000)(1) $671,000
</TABLE>
- ---------------
(1) Write-off of uncollectible accounts and other reductions, net of
recoveries.
S-1
<PAGE>
INDEX TO EXHIBITS
Number Title
- ------ -----
3.1 Amended & Restated Certificate of Incorporation of the Company.
Incorporated by reference to Exhibit 3.1 to the Company's Current Report
on Form 8-K dated April 9, 1998 ("April 9, 1998 Form 8-K").
3.2 By-Laws of the Company, as amended. Incorporated by reference to Exhibit
3.2 to the April 9, 1998 Form 8-K.
4.1 Specimen Common Stock Certificate of the Company, Incorporated by
reference to Exhibit 4.1 to the Company's Registration Statement on Form
S-1 (No. 33-28654) (the "Registration Statement").
4.2 Form of Indenture between the Company and United States Trust Company of
New York, including form of Convertible Subordinated Debenture due 2007.
Incorporated by reference to Exhibit 4.2 to the Company's Registration
Statement on Form S-3 (No. 333-21041).
10.1 1989 Class A Non-Qualified Stock Option Plan of the Company.
Incorporated by reference to Exhibit 4.1 to the Company's Registration
Statement on Form S-8 (No. 333-21555).*
10.2 1989 Class B Non-Qualified Stock Option Plan of the Company.
Incorporated by reference to Exhibit 4.2 to the Company's Registration
Statement on Form S-8 (No. 333-21555).*
10.3 1991 Director Stock Option Plan of the Company. Incorporated by
reference to Exhibit 4.3 to the Company's Registration Statement on Form
S-8 (No. 333-21555).*
10.4 Form of Stock Option Agreement dated as of May 17, 1989 between the
Company and the members of the Stock Option Committee of the Board of
Directors. Incorporated by reference to Exhibit 4.1 to the Company's
Registration Statement on Form S-8 (No. 33-38446).*
10.5 Retirement Plan for Salaried Employees of Porex Technologies Corp. of
Georgia. Incorporated by reference to Exhibit 10.4 to the Registration
Statement.*
10.6 Form of Indemnification Agreement between the Company and the directors
and officers of the Company. Incorporated by reference to Exhibit 10.6
to the Registration Statement.
10.7 Purchase and Sale Agreement, dated as of May 24, 1994, between Merck &
Co., Inc. and the Company (the "Purchase and Sale Agreement").
Incorporated by reference to Exhibit 99.1 to the Company's Current
Report on Form 8-K dated June 6, 1994 .
E-1
<PAGE>
Number Title
- ------ -----
10.8 Stock Option Agreement, dated as of July 24, 1991, between the
Company and Roger C. Holstein. Incorporated by reference to Exhibit 4.3
to the Company's Registration Statement on Form S-8 (No. 33-46640).*
10.9 Agreement and Plan of Merger, dated as of March 6, 1998, among the
Company, Plastics Acquisition Corp., a wholly owned subsidiary of the
Company, Point Plastics, Inc., the Point Plastics, Inc. Employee Stock
Ownership Plan and Trust and certain other individuals. Incorporated by
reference to Annex IA to Amendment No.3 to the Joint Proxy
Statement/Prospectus included as part of the Company's Registration
Statement on Form S-4 (File No. 333-50801) filed on July 8, 1998.
10.10 Amendment No. 1 to Agreement and Plan of Merger, dated as of March 6,
1998, among the Company, Plastics Acquisition Corp., a wholly owned
subsidiary of the Company, Point Plastics, Inc., the Point Plastics,
Inc. Employee Stock Ownership Plan and Trust and certain other
individuals. Incorporated by reference to Annex IB to Amendment No.3 to
the Joint Proxy Statement/Propectus included as part of the Company's
Registration Statement on Form S-4 (File No. 333-50801) filed on July 8,
1998.
10.11** Employment Agreement dated as of January 23, 1997, between the Company
and David M. Margulies, M.D.*
10.12** Stock Option Agreement, dated as of January 7, 1998, between the Company
and David M. Margulies, M.D.*
10.13** Employment Agreement, dated as of November 6, 1997, between the Company
and Roger C. Holstein ("Holstein") together with Stock Option Agreement
made as of June 23, 1997 between the Company and Holstein attached as
Exhibit A-1 thereto and Stock Option Agreement made as of October 2,
1996 between the Company and Holstein attached as Exhibit A-2 thereof.*
10.14** Employment Agreement, dated as of December 12, 1997, between the Company
and Kim A. Davis ("Davis"), together with Stock Option Agreement made as
of November 18, 1997 between the Company and Davis attached as Exhibit
A thereto and Stock Option Agreement made as of November 18, 1997
between the Company and Davis attached as Exhibit B thereto.*
10.15** Employment Agreement, dated as of December 12, 1997, between Porex
Corporation and Kim A. Davis.*
10.16 Amended and Restated Investment Agreement, dated as of September 13,
1994, between Martin J. Wygod and the Company. Incorporated by reference
to Exhibit 10.1 to the Company's Current Report on Form 8-K dated
September 16, 1994.
10.17 Form of Stock Option Agreement, made as of December 7, 1994, between the
Company and each of James V. Manning (for 150,000 shares), Paul C.
Suthern (for 180,000 shares) and Anthony Vuolo (for 125,000 shares).
Incorporated by reference to Exhibit 4.5 to the Company's Registration
Statement on Form S-8 (No. 333-21555).*
10.18 Merger Agreement, dated December 23, 1996, among the Company, Synternet
Acquisition Corp., a wholly owned subsidiary of the Company, Avicenna
and the certain other individuals and entities. Incorporated by
reference to Exhibit 10.2 to the Company's Registration Statement on
Form S-3 (No. 333-18771).
10.19 1997 Class D Stock Option Plan of the Company. Incorporated by reference
to Exhibit 4.2 to the Company's Registration Statement on Form S-8 (No.
333-36041).*
10.20 1991 Special Non-Qualified Stock Option Plan of the Company.
Incorporated by reference to Exhibit 4.3 to the Company's Registration
Statement on Form S-8 (No. 333-36041).*
21.1** Subsidiaries of the Company.
23.1** Consent of Arthur Andersen LLP.
23.2** Consent of Kegler, Brown, Hill & Ritter Co., L.P.A.
E-2
<PAGE>
Number Title
- ------ -----
24.1** Powers of Attorney of the Company.
27** Financial Data Schedule.
99.1 Excerpt from the Consulting Agreement between Merck & Co., Inc. and
Martin J. Wygod relating to provisions incorporated in the Purchase and
Sale Agreement. Incorporated by reference to Exhibit 99.1 to the
Company's Current Report on Form 8-K dated June 6, 1994.
___________________________
* Management contract or compensation plan or arrangement.
** Filed herewith.
E-3
<PAGE>
EXHIBIT 10.11
Employment Agreement (the "Agreement") dated as of January 23, 1997,
---------
by and between SYNETIC, INC., a Delaware corporation (the "Company"), and David
-------
M. Margulies, M.D. ("Executive").
---------
WHEREAS, the Company, Synternet Acquisition Corp., a Delaware
corporation and a wholly owned subsidiary of the Company, CareAgents, Inc., a
Massachusetts corporation ("CareAgents"), and certain shareholders of CareAgents
----------
have entered into an Agreement and Plan of Merger, dated as of the date hereof
(the "Merger Agreement"), pursuant to which the Company will purchase (the
----------------
"Purchase") all of the issued and outstanding capital stock of CareAgents; and
- ---------
WHEREAS, in connection with the Purchase, the parties desire to enter
into this Agreement, to be effective upon the Closing (as defined in the Merger
Agreement);
NOW, THEREFORE, in consideration of the mutual covenants in this
Agreement, the parties agree as follows:
1. Effectiveness of Agreement and Employment of Executive.
------------------------------------------------------
1.1. Effectiveness of Agreement. This Agreement shall become
--------------------------
effective as of the Closing Date (as defined in the Merger Agreement). In the
event that the Closing is not consummated, this Agreement shall be null and
void.
1.2. Employment by the Company. The Company hereby employs Executive
-------------------------
and Executive hereby accepts such employment with the Company. The Executive
shall report to, and perform such duties and services for the Company,
CareAgents and their respective subsidiaries and affiliates (CareAgents and such
subsidiaries and affiliates collectively, "Affiliates"), and at such locations
----------
as may be designated from time to time by, the Chief Executive Officer or the
Board of Directors of the Company (the "Board"), or the designee of either
-----
thereof (it being understood that any change in location following the Closing
Date shall be requested by the Chief Executive Officer of the Company or the
Board, or the designee of either thereof, in good faith and for a valid business
purpose). Without limiting the generality of the foregoing, Executive hereby
acknowledges that the Company may from time to time pursue acquisitions of other
companies which may result in changes in the duties and responsibilities
assigned to the Executive. Executive shall use his best and most diligent
efforts to promote the interests of the Company and the Affiliates, and shall
conform to established business policies of the Company. The Executive shall
devote all of his business time and attention to his employment under this
Agreement.
1.3. Confidentiality. (a) Executive understands and acknowledges that
---------------
in the course of his employment, he will have access to and will learn
information proprietary to the Company and its Affiliates that concerns the
operation and methodology of the Company and
<PAGE>
2
its Affiliates, including, without limitation, business plans, financial
information, protocols, proposals, manuals, clinical procedures and guidelines,
scientific data, computer source codes, programs, software, knowhow and
specifications, copyrights, trade secrets, market information, Developments (as
hereinafter defined), data and customer information (collectively, "Proprietary
-----------
Information"). Executive agrees that, at all times (including following
- -----------
termination of the Employment Period (as hereinafter defined)), he will keep
confidential and will not disclose directly or indirectly any such Proprietary
Information to any third party, except as required to fulfill his duties
hereunder, and will not misuse, misappropriate or exploit such Proprietary
Information in any way. The restrictions contained herein shall not apply to any
information which Executive can demonstrate by written record (a) was already
available to the public at the time of disclosure, or subsequently become
available to the public, otherwise than by breach of this Agreement, or (b) was
the subject of a court order to disclose. Upon any termination of the Employment
Period, Executive shall immediately return to the Company all copies of any
Proprietary Information in his possession.
(b) Executive agrees that at any time during the Employment Period or
thereafter, the Executive shall not make, or cause or assist any other person to
make, any statement or other communication to any third party which impugns or
attacks, or is otherwise critical of, the reputation, business or character of
the Company, its Affiliates or any of their respective officers, employees,
products or services.
1.4. Restrictions on Solicitation. During the period beginning on the
----------------------------
Closing Date and ending on the second anniversary of the date of cessation of
the employment of the Executive for any reason whatsoever, Executive shall not,
directly or indirectly, without the prior written approval of the Company,
solicit or contact any customer, or any prospective customer with whom the
Executive has had contact during the Employment Period, of the Company or any of
the Affiliates for any commercial pursuit that could be reasonably construed to
be in competition with the Company or any of the Affiliates, or that is
contemplated from time to time by the Company's or CareAgents's business plan,
or take away or interfere or attempt to interfere with any custom, trade,
business or patronage of the Company or any of the Affiliates, or induce, or
attempt to induce, any employees, agents or consultants of or to the Company or
any of the Affiliates to do anything from which Executive is restricted by
reason of this Agreement nor shall Executive, directly or indirectly, offer or
aid others to offer employment to or interfere or attempt to interfere with any
employees, agents or consultants of the Company or any of the Affiliates.
1.5. Restrictions on Competitive Employment. During the period
--------------------------------------
beginning on the Closing Date and ending on the second anniversary (first
anniversary in the case of a termination by the Company without Cause or a
termination by the Company pursuant to Section 4.1 below) of the date of
cessation of the employment of Executive for any reason whatsoever, Executive
shall not (as principal, agent, employee, consultant or otherwise), anywhere in
the United States, Canada or Europe, directly or indirectly, without the prior
written approval of the Company, engage in activities for, or render services to
(including,
<PAGE>
3
without limitation, computer programming, data entry, sales or product
development), any firm or business (i) engaged in direct or indirect competition
with CareAgents, (ii) conducting a business of the type and character engaged in
by CareAgents (or contemplated by the Company's or CareAgents's business plan),
(iii) developing products or services competitive with those of CareAgents or
(iv) conducting any other business in which the Company or any of its Affiliates
is then engaged if Executive has engaged in activities for such business of the
Company or such Affiliates or obtained Proprietary Information with respect
thereto (all of the businesses in clauses (i), (ii), (iii) and (iv)
collectively, "Competitive Business"). Notwithstanding the foregoing, Executive
--------------------
may have an interest consisting of publicly traded securities constituting less
than 1 percent of any class of publicly traded securities in any public company
engaged in a Competitive Business so long as he is not employed by and does not
consult with, or become a director of or otherwise engage in any activities for,
such company. Notwithstanding anything contained in this Section 1, Executive
agrees that Executive shall not, at any time during the period beginning on the
Closing Date and ending on the second anniversary of the date of cessation of
the Employment Period for any reason whatsoever, deliberately take any action
which (a) would interfere with any contractual or customer relationships of the
Company or its Affiliates, or any relationship with the employees of, or vendors
or contractors to, the Company or its Affiliates, (b) would result in a
diminution of business to the Company or its Affiliates or (c) is otherwise
detrimental to the best interests of the Company or its Affiliates.
1.6. Extension of Restricted Period. The period during which the
------------------------------
Executive is subject to the restrictions contained in Section 1.4 and 1.5 shall
be extended by the length of any period during which Executive is in breach of
such restrictions.
1.7. Assignment of Developments. All Developments that are at any
--------------------------
time made, conceived or suggested by Executive, whether acting alone or in
conjunction with others, during or as a result of Executive's employment under
this Agreement or any prior employment with the Company or the Affiliates, shall
be the sole and absolute property of the Company and the Affiliates, free of any
reserved or other rights of any kind on Executive's part. During Executive's
employment and, if such Developments were made, conceived or suggested by
Executive during or as a result of Executive's employment under this Agreement
or any prior employment with the Company or the Affiliates, thereafter,
Executive shall promptly make full disclosure of any such Developments to the
Company and, at the Company's cost and expense, do all acts and things
(including, among others, the execution and delivery under oath of patent and
copyright applications and instruments of assignment) deemed by the Company to
be necessary or desirable at any time in order to effect the full assignment to
the Company and the Affiliates of Executive's right and title, if any, to such
Developments. For purposes of this Agreement, the term "Developments" shall
------------
mean all data, discoveries, findings, reports, designs, inventions,
improvements, methods, practices, techniques, developments, programs, concepts,
and ideas, whether or not patentable, relating to the present or planned
activities, or future activities of which Executive is aware, or the products
and services of the Company or any of the Affiliates.
<PAGE>
4
1.8. Disclosure of Information. During the Employment Period,
-------------------------
Executive shall use his best efforts to disclose to the Chairman of the Board or
the Chief Executive Officer of the Company any bona fide information known by
him that would have any material negative impact on the Company or an Affiliate.
1.9. Remedies. Executive acknowledges and agrees that damages for a
--------
breach or threatened breach of any of the covenants set forth in this Section 1
will be difficult to determine and will not afford a full and adequate remedy,
and therefore agrees that the Company, in addition to seeking actual damages in
connection therewith and the remedies described in the Escrow Agreement (as
defined below), may seek specific enforcement of any such covenant in any court
of competent jurisdiction, including, without limitation, by the issuance of a
temporary or permanent injunction.
2. Compensation and Benefits.
-------------------------
2.1. Salary. The Company shall pay Executive for services during the
------
Employment Period a base salary at the annual rate of $175,000. Any and all
increases to Executive's base salary shall be determined by the Board in its
sole discretion. Such base salary shall be payable in equal installments, no
less frequently than monthly, pursuant to the Company's customary payroll
policies in force at the time of payment, less any required or authorized
payroll deductions.
2.2. Benefits. During the Employment Period, Executive shall be
--------
entitled to participate, on the same basis and at the same level as other
similarly situated employees of the Company, in any group insurance,
hospitalization, medical, health and accident, disability, fringe benefit and
tax-qualified retirement plans or programs of the Company now existing or
hereafter established to the extent that he is eligible under the general
provisions thereof.
2.3. Expenses. Pursuant to the Company's customary policies in force
--------
at the time of payment, Executive shall be promptly reimbursed, against
presentation of vouchers or receipts therefor, for all authorized expenses
properly and reasonably incurred by him on behalf of the Company or its
Affiliates in the performance of his duties hereunder.
3. Employment Period.
-----------------
Executive's employment under this Agreement shall commence as of the
Closing Date, and shall terminate on the fifth anniversary thereof (the
"Employment Period"), unless terminated earlier pursuant to Section 4. Unless
- ------------------
written notice of either party's desire to terminate the Employment Period has
been given to the other party prior to the expiration of the Employment Period
(or any one-month renewal thereof contemplated by this sentence), the Employment
Period shall be automatically renewed for successive one-month periods.
<PAGE>
5
4. Termination.
-----------
4.1. Termination by the Company During First Six Months. The
--------------------------------------------------
Employment Period may be terminated by the Company at any time during the six-
month period commencing on the Closing Date, if the Company determines in its
reasonable discretion that the performance, action or behavior of Executive is
incompatible with or disruptive to the ongoing or future operations and business
needs of the Company or any of its Affiliates. Upon such a termination, the
Company shall have no obligation to Executive other than the payment of
Executive's earned and unpaid compensation to the effective date of such
termination. Executive hereby acknowledges that such a termination would result
in a "Termination Event" for purposes of the Escrow Agreement dated as of
January 23, 1997, among the Executive, David H. Carney, Habib Khoury, Karen J.
Destefano, Mark A. Pearl, the Company and United States Trust Company of New
York, as escrow agent (the "Escrow Agreement"), which would have the
----------------
consequences set forth therein. Executive hereby further acknowledges that such
a termination will not be deemed to be a termination without "cause" for
purposes of the Option Agreement (as defined below) or any other employee
benefit plan or program of the Company or any of its Affiliates.
4.2. Termination by the Company for Cause. (a) The Employment Period
------------------------------------
may be terminated at any time by the Company for Cause. Upon such a
termination, the Company shall have no obligation to Executive other than the
payment of Executive's earned and unpaid compensation to the effective date of
such termination. Executive hereby acknowledges that such a termination would
result in a "Termination Event" for purposes of the Escrow Agreement, which
would have the consequences set forth therein.
(b) For purposes of this Agreement, the term "Cause" shall mean any
-----
of the following:
1. A willful failure of Executive to perform his duties in any
material respect which failure is not cured by Executive within 10 days
following written notice from the Company detailing such failure (other
than any such failure resulting from a Permanent Disability (as hereinafter
defined) of Executive);
2. Any willful misconduct by Executive relating, directly or
indirectly, to the Company or any of its Affiliates, or any breach by
Executive of any material policy of the Company or any of its Affiliates,
as reasonably determined by the Board, which breach, if susceptible to
cure, is not cured by Executive within 10 days following written notice
from the Company detailing such breach;
3. Any breach by Executive of any material provision contained
in Sections 1.2, 1.3, 1.4, 1.5, 1.7 and 1.8 of this Agreement, as
reasonably determined by the Board; or
<PAGE>
6
4. Any willful violation by Executive of any federal or state
law or regulation applicable to the business of the Company or any of its
Affiliates, or Executive's commission of a common law fraud or conviction
of a felony or crime involving moral turpitude.
4.3. Permanent Disability. If during the Employment Period, (i)
--------------------
Executive shall become ill, mentally or physically disabled, or otherwise
incapacitated so as to be unable regularly to perform the duties of his position
for a period in excess of 90 consecutive days or more than 120 days in any
consecutive 12 month period, or (ii) a duly licensed physician selected by the
Company with the reasonable approval of Executive determines that Executive is
mentally or physically disabled so as to be unable to perform regularly the
duties of his position and such condition is expected to be of a permanent
duration (a "Permanent Disability"), then the Company shall have the right to
--------------------
terminate the Employment Period upon written notice to Executive. Upon a
request by the Company, Executive will submit to a medical examination to
determine whether Executive is Permanently Disabled. Upon such a termination,
the Company shall have no obligation to Executive other than (i) the payment of
Executive's earned and unpaid compensation to the effective date of such
termination and (ii) as provided in the Option Agreement.
4.4. Death. The Employment Period shall be deemed terminated by the
-----
Company upon the death of Executive and the Company shall have no obligation to
Executive or Executive's estate other than (i) the payment of Executive's earned
and unpaid compensation to the effective date of such termination and (ii) as
provided in the Option Agreement.
4.5. Resignation by the Executive. If the Executive terminates his
----------------------------
employment during the Employment Period for any reason, the Company shall have
no obligation to Executive other than the payment of Executive's earned and
unpaid compensation to the effective date of such termination. Executive hereby
acknowledges that such a termination would result in a "Termination Event" for
purposes of the Escrow Agreement, which would have the consequences set forth
therein.
4.6. Termination by the Company Without Cause. The Employment Period
----------------------------------------
may be terminated at any time by the Company without Cause. If the Company
terminates the Employment Period without Cause, the Company shall have no
obligation to Executive other than other than (i) the payment of Executive's
earned and unpaid compensation to the effective date of such termination and
(ii) as provided in the Option Agreement.
4.7. Liquidated Damages. Executive acknowledges that any payments or
------------------
benefits under Section 4.6 resulting from a termination of the Employment
Period by the Company without Cause are in lieu of any and all claims that the
Executive may have against the Company other than benefits under the Company's
employee benefit plans that by their terms survive termination of employment and
benefits under the Consolidated Omnibus Budget Reconciliation Act of 1985, as
amended, and represent liquidated damages (and not a penalty).
<PAGE>
7
The Company may request that the Executive confirm such acknowledgement in
writing prior to the receipt of such benefits.
4.8 Board Representation. If the Employment Period is terminated for
--------------------
any reason prior to the appointment of Executive to the Board pursuant to
Section 4.04 of the Merger Agreement, the Company's obligations under such
Section 4.04 shall become null and void.
5. Options.
-------
5.1. New Option Grant. Executive has been granted an option (the
----------------
"New Option") under the Parent Option Plan (as defined in the Merger Agreement)
----------
to purchase shares of the Company's common stock, par value $.01 per share, on
the terms and conditions specified in the Stock Option Agreement (the "Option
------
Agreement") attached hereto as Exhibit A ("Exhibit A").
- --------- ---------
6. Notices. Any notice or communication given by either party
-------
hereto to the other shall be in writing and personally delivered or mailed by
registered or certified mail, return receipt requested, postage prepaid, to the
following addresses:
(a) if to the Company:
Synetic, Inc.
River Drive Center 2
669 River Drive
Elmwood Park, New Jersey 07407-1361
Telecopier No.: (201) 703-3401
Attention.: General Counsel
(b) if to the Executive:
David M. Margulies, M.D.
59 Pine Ridge Road
Newton, MA 02168
Any notice shall be deemed given when actually delivered to such address, or two
days after such notice has been mailed or sent by Federal Express, whichever
comes earliest. Any person entitled to receive notice may designate in writing,
by notice to the other, such other address to which notices to such person shall
thereafter be sent.
<PAGE>
8
7. Miscellaneous.
-------------
7.1. Entire Agreement. This Agreement, Exhibit A and the Escrow
----------------
Agreement contain the entire understanding of the parties in respect of their
subject matter and supersede upon their effectiveness all other prior agreements
and understandings between the parties with respect to such subject matter.
7.2. Amendment; Waiver. This Agreement may not be amended,
-----------------
supplemented, cancelled or discharged, except by written instrument executed by
the party affected thereby. No failure to exercise, and no delay in exercising,
any right, power or privilege hereunder shall operate as a waiver thereof. No
waiver of any breach of any provision of this Agreement shall be deemed to be a
waiver of any preceding or succeeding breach of the same or any other provision.
7.3. Binding Effect; Assignment. The rights and obligations of this
--------------------------
Agreement shall bind and inure to the benefit of any successor of the Company by
reorganization, merger or consolidation, or any assignee of all or substantially
all of the Company's business and properties. The Company may assign its rights
and obligations under this Agreement to any of its Affiliates without the
consent of the Executive. Executive's rights or obligations under this
Agreement may not be assigned by Executive, except that the rights specified in
Section 4.3 shall pass upon the Executive's death to Executive's executor or
administrator.
7.4. Headings. The headings contained in this Agreement are for
--------
reference purposes only and shall not affect the meaning or interpretation of
this Agreement.
7.5. Governing Law; Interpretation. This Agreement shall be construed
----------------------------
in accordance with and governed for all purposes by the laws and public policy
(other than conflict of laws principles) of the State of New York applicable to
contracts executed and to be wholly performed within such State. Each party
hereto (i) agrees that any legal suit, action or proceeding arising out of or
relating to this Agreement shall be instituted and heard exclusively in any New
York federal or state court in New York City, (ii) waives any objection that
such party may now or hereafter have to the laying of venue of any such legal
suit, action or proceeding and (iii) irrevocably submits to the exclusive
jurisdiction of any such court in any such legal suit, action or proceeding.
7.6. Further Assurances. Each of the parties agrees to execute,
------------------
acknowledge, deliver and perform, and cause to be executed, acknowledged,
delivered and performed, at any time and from time to time, as the case may be,
all such further acts, deeds, assignments, transfers, conveyances, powers of
attorney and assurances as may be reasonably necessary to carry out the
provisions or intent of this Agreement.
<PAGE>
9
7.7. Severability. The parties have carefully reviewed the provisions
------------
of this Agreement and agree that they are fair and equitable. However, in light
of the possibility of differing interpretations of law and changes in
circumstances, the parties agree that if any one or more of the provisions of
this Agreement shall be determined by a court of competent jurisdiction to be
invalid, void or unenforceable, the remainder of the provisions of this
Agreement shall, to the extent permitted by law, remain in full force and effect
and shall in no way be affected, impaired or invalidated. Moreover, if any of
the provisions contained in this Agreement is determined by a court of competent
jurisdiction to be excessively broad as to duration, activity, geographic
application or subject, it shall be construed, by limiting or reducing it to the
extent legally permitted, so as to be enforceable to the extent compatible with
then applicable law.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
SYNETIC, INC.
By: /s/ David J. Schlanger
----------------------------------------------
Name: David J. Schlanger
Title: Vice President - Corporate Development
EXECUTIVE
/s/ David M. Margulies
--------------------------------------------------
David M. Margulies
<PAGE>
EXHIBIT 10.12
STOCK OPTION AGREEMENT (the "Agreement") dated as of January 7, 1998
---------
between SYNETIC, INC., a Delaware corporation (the "Company"), and the other
-------
party signatory hereto (the "Participant").
-----------
WHEREAS, the Participant was previously granted options (the "Original
--------
Options") to purchase the Company's common stock, par value $.01 per share (the
- -------
"Common Shares"), pursuant to an option agreement dated as of January 23, 1997
-------------
(the "Original Option Agreement") under the Company's 1997 Class D Stock Option
-------------------------
Plan (the "Plan").
----
WHEREAS, the Company desires to cancel the Original Options and to grant
the Participant, upon the terms and subject to the conditions hereinafter set
forth, the number of nonqualified stock options (the "Options") specified at
-------
the foot of the signature page hereof;
NOW, THEREFORE, in consideration of the covenants and agreements herein
contained, the parties hereto agree as follows:
1. Definitions; Incorporation of Plan Terms. Capitalized terms
----------------------------------------
used herein without definition shall have the meanings assigned to them in the
Plan, a copy of which is attached hereto. This Agreement, the Options and the
Common Shares issued pursuant to the exercise of Options shall be subject to the
Plan, the terms of which are hereby incorporated herein by reference, and in the
event of any conflict or inconsistency between the Plan and this Agreement, the
Plan shall govern. The Date of Grant with respect to the Options shall be the
date specified at the foot of the signature page hereof.
2. Certain Restrictions. None of the Options may be sold,
--------------------
transferred, assigned, pledged, or otherwise encumbered or disposed of, except
by will or the laws of descent and distribution. During the Participant's
lifetime, an Option shall be exercisable only by the Participant or by the
Participant's guardian of legal representative. Each Transferee of an Option by
will or the laws of descent and distribution shall, as a condition to the
transfer thereof, execute an agreement pursuant to which it shall become a
party to this Agreement.
3. Grant of Options; Effectiveness. Subject to the terms and
-------------------------------
conditions contained herein and in the Plan, the Company hereby grants to the
Participant, effective as of the Date of Grant, the number of Options specified
at the foot of the signature page hereof. Each such Option shall entitle the
Participant to purchase, upon payment of the Option Price specified at the foot
of the signature page hereof, one Common Share. The Options shall be exercisable
as hereinafter provided.
4. Terms and conditions of Options. The Options evidenced hereby
-------------------------------
are subject to the following terms and conditions:
<PAGE>
2
(a) Vesting. The Participant's Options shall vest and become exercisable
-------
in accordance with the following schedule:
Anniversary of
Date of Grant (a % of Option
"Scheduled Vesting Exercisable (on a
Date") Cumulative Basis)
------------------ -----------------
1st 0%
2nd 40%
3rd 60%
4th 80%
5th 100%
(b) Option Period. The Options shall not be exercisable following the
-------------
tenth anniversary of the Date of Grant, and shall be subject to earlier
termination as provided herein and in the plan.
(c) Notice of Exercise. Subject to Sections 4(d), 4(f) and 6(b) hereof,
------------------
the Participant may exercise any or all of the Vested Options by giving written
notice to the Vice President of Finance of the Company at its principal business
office. The date of exercise of an Option shall be the later of (i) the date on
which the Committee receives such written notice or (ii) the date on which the
conditions provided in Sections 4(d), 4(f) and 6(b) hereof are satisfied.
(d) Payment. Prior to the issuance of certificate pursuant to Section
-------
4(g) hereof evidencing Common Shares, (i) the Participant shall have paid to the
Company the Option Price of all Option Shares purchased pursuant to exercise of
such Options, in cash or by certified or official bank check and (ii) the
Participant shall have satisfied all outstanding indebtedness and liabilities of
the Participant to the Company, CareAgents, Inc. ("CareAgents") or any of their
----------
respective Affiliates, unless otherwise determined by the Committee in its sole
discretion.
(e) Shareholder Rights. The Participant shall have no rights as a
------------------
shareholder with respect to any common Shares issuable upon the exercise of an
Option until a certificate or certificates evidencing such shares shall have
been issued to the Participant, and no adjustment shall be made for dividends or
distributions or other rights in respect of any share for which the record date
is prior to the date upon which the Participant shall become the holder of
record thereof.
<PAGE>
3
(f) Limitation on Exercise. An Option shall be not exercisable
----------------------
unless and until (i) a registration statement under the Securities Act has been
duly filed and declared effective pertaining to the Common Shares subject to
such Option and such Common Shares shall have been qualified under applicable
state "blue sky" laws, or (ii) the Committee in its sole discretion determines
that such registration and qualification is not required as a result of the
availability of an exemption from such registration and qualification under such
laws. The Company shall use all reasonable efforts to file a registration
statement with the Securities and Exchange Commission on Form S-8 with respect
to the Common Shares subject to an Option on or prior to the date on which such
Option becomes exercisable. The Company shall have no obligation to issue any
Common Shares pursuant to the exercise of an Option if the Company reasonably
determines at the time of such exercise that the issuance of Common Shares at
such time would violate applicable law with respect to insider trading or
otherwise, or then existing policies of the Company applicable to employees of
the Company or its Affiliates holding options to purchase Common Shares.
(g) Issuance of Certificate. As soon as practicable following the
-----------------------
exercise of any Options, a certificate evidencing the number of Common Shares
issued in connection with such exercise shall be issued in the name of the
Participant.
(h) Termination of Employment. Upon termination of the Participant's
-------------------------
employment with the Company and its Affiliates, the Participant (or the
Participant's estate) may exercise any Vested Option in accordance with, and
subject to the terms and conditions of, Section 8 of the Plan. In the event
that a Participant's employment with the Company or any of its Affiliates
terminates for any reason, any Options which have not become Vested Options as
of the date of termination shall terminate and be cancelled without any
consideration being paid therefor.
5. Representations and Warranties. The Participant is aware of and
------------------------------
familiar with the restrictions imposed on the transfer of any Options. The
Participant represents that this Agreement has been duly executed and delivered
by the Participant and constitutes a legal, valid and binding agreement of the
Participant, enforceable against the Participant in accordance with its terms,
except as limited by any applicable bankruptcy, insolvency, reorganization,
moratorium or similar law affecting creditors' rights generally and by general
principles of equity. It shall be a further condition to the Company's
obligation to issue and deliver to the Participant certificates for Common
Shares upon exercise of an Option that the Participant deliver to the Company in
writing a representation that the Participant is exercising such Option for his
own account and, unless the Common Shares are then registered under the
Securities Act, for investment only and not with a view to distribution and that
the Participant will not make any sale, transfer or other disposition of any
Common Shares purchased except (i) pursuant to the registration thereof under
the Securities Act, (ii) pursuant to an opinion of counsel satisfactory in form
and substance to the Company that the sale,
<PAGE>
4
transfer or other disposition may be made without registration, or (iii)
pursuant to a "no-action" letter from the Securities and Exchange Commission.
The Participant has been advised and understands that the Common Shares must be
held indefinitely unless they are registered for resale under the Securities Act
or an exemption from registration is available.
6. Miscellaneous.
-------------
(a) No Rights to Grants or Continued Employment. The Participant
-------------------------------------------
shall not have any claim or right to receive grants of Options under the Plan.
Neither the Plan nor this Agreement nor any action taken or omitted to be taken
hereunder or thereunder shall be deemed to create or confer on the Participant
any right to be retained in the employ of the Company, CareAgents or any of
their respective Affiliates, or to interfere with or to limit in any way the
right of the Company, CareAgents or any of their respective Affiliates to
terminate the employment of the Participant at any time. The Participant shall
have no rights in the benefits conferred by the Option or in any Common Shares
except to the extent the Option is exercised while vested and exercisable and
otherwise in accordance with the terms of this Agreement. Termination of the
Option by reason of cessation of employment shall not give rise to any claim for
damages by the Participant under this Agreement and shall be without prejudice
to any rights or remedies which the Company, CareAgents or any of their
respective Affiliates may have against the Participant.
(b) Tax Withholding. The Company, CareAgents and their respective
---------------
Affiliates shall have the right to require the Participant to remit to the
Company, prior to the delivery of any certificates evidencing Common Shares
pursuant to the exercise of an Option, any amount sufficient to satisfy any
federal, state or local tax withholding requirements. With the consent of the
Committee in its sole discretion, prior to the Company's determination of such
withholding liability, the Participant may make an irrevocable election to
satisfy, in whole or in part, such obligation to remit taxes by directing the
Company to withhold Common Shares that would otherwise be received by the
Participant. Such election may be denied by the Committee in its sole
discretion, or may be made subject to certain conditions specified by the
Committee, including, without limitation, conditions intended to avoid the
imposition of liability against the Participant under Section 16(b) of the
Exchange Act.
(c) No Restriction on Right of Company to Effect Corporate Changes.
--------------------------------------------------------------
Neither the Plan nor this Agreement shall affect in any way the right or power
of the Company or its stockholders to make or authorize any or all adjustments,
recapitalizations, reorganizations or other changes in the capital structure or
business of the Company, or any merger or consolidation of the Company, or any
issue of stock or of options, warrants or rights to purchase stock or of bonds,
debentures, preferred or prior preference stocks whose rights are superior to or
affect the Common Shares or the rights thereof or which are convertible into or
exchangeable for Common Shares, or the dissolution or liquidation of the
Company, or any
<PAGE>
5
sale or transfer of all or any part of the assets or business of the Company,
or any other corporate act or proceeding, whether of a similar character or
otherwise.
(d) Notice of Exercise. Notwithstanding any other provision of this
------------------
Agreement, the Company may, from time to time, require reasonable notice of the
Participant's intent to exercise all or a portion of the Option in order for the
Company to comply with any applicable securities laws, including, without
limitation, Regulation M under the Exchange Act. The Company shall not be liable
for any adverse change in the market value of the Common Shares during any such
notice period.
7. Survival.
--------
All agreements, representations and warranties made herein and in any
certificates delivered pursuant hereto shall survive the issuance to the
Participant of the Options and the Common Shares and, notwithstanding any
investigation heretofore or hereafter made by the Participant or the Company or
on the Participant's or the Company's behalf, shall continue in full force and
effect. Without the prior written consent of the Company, the Participant may
not assign any of his rights hereunder except by will or the laws of descent and
distribution. Whenever in this Agreement any of the parties hereto is referred
to, such reference shall be deemed to include the heirs and permitted successors
and assigns of such party; and all agreements herein by or on behalf of the
Company, or by or on behalf of the Participant, shall bind and inure to the
benefit of the heirs and permitted successors and assigns of such parties
hereto.
8. Notices. All notices and other communications provided for
-------
herein shall be in writing and shall be delivered by hand or sent by certified
or registered mail, return receipt requested, postage prepaid, addressed, if to
the Participant, to his attention at the most recent mailing address that the
Company has on record and, if to the Company, to it at River Drive Center 2, 669
River Drive, Elmwood Park, New Jersey 07407-1361, Telecopier No.: (201)
703-3401, Attention: Vice President of Finance. All such notices shall be
conclusively deemed to be received and shall be effective, if sent by hand
delivery, upon receipt, or if sent by registered or certified mail, on the fifth
day after the day on which such notice is mailed.
9. Waiver. The waiver by either party of compliance with any
------
provision of this Agreement by the other party shall not operate or be construed
as a waiver of any other provision of this Agreement, or of any subsequent
breach by such party of a provision of this Agreement.
10. Acknowledgment of Cancellation. The Participant hereby
------------------------------
acknowledges that (i) the Original Options are hereby cancelled without any
payment made therefor, (ii) this Agreement supersedes the Original Option
Agreement in its entirety, and (iii) this Agreement
<PAGE>
6
shall be the "Option Agreement" referred to in the Employment Agreement dated as
of January 23, 1997 between the Company and the Participant (the "Employment
----------
Agreement"). Without limiting the generality of the foregoing, the Participant
- ---------
hereby acknowledges that the proviso in Section 4(h) of the Original Option
Agreement relating to the consequence of certain terminations of the
Participant's employment is deleted and of no further force and effect.
11. Entire Agreement: Governing Law. This Agreement and the other
-------------------------------
related agreements expressly referred to herein set forth the entire agreement
and understanding between the parties hereto and supersede all prior agreements
and understandings relating to the subject matter hereof (including, without
limitation, the Original Option Agreement and Section 5.1 of the Employment
Agreement). This Agreement may be executed in one or more counterparts, each of
which shall be deemed to be an original, but all such counterparts shall
together constitute one and the same agreement. The headings of sections and
subsections herein are included solely for convenience of reference and shall
not affect the meaning of any of the provisions of this Agreement. This
Agreement shall be governed by, and construed in accordance with, the laws of
the State of New Jersey without reference to the choice of law provisions of New
Jersey law.
<PAGE>
7
IN WITNESS WHEREOF, the Company has caused this Agreement to be executed
by its duly authorized officer and the Participant has executed this Agreement,
both as of the day and year first above written.
SYNETIC, INC.
By: /s/ Anthony Vuolo
------------------
Name:
Title:
PARTICIPANT
/s/ David M. Margulies
----------------------------
Name: Dr. David M. Margulies
Number of Options: 272,728
Option Price: $36.875
Date of Grant: January 7, 1998
<PAGE>
EXHIBIT 10.13
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT (the "Agreement") dated as of November 6, 1997,
---------
by and between SYNETIC, INC., a Delaware corporation (the "Company"), and ROGER
-------
C. HOLSTEIN ("Executive").
---------
WHEREAS, the Company desires to employ the Executive on a full-time
basis, subject to the exception set forth below, and the Executive desires to be
so employed by the Company;
NOW, THEREFORE, in consideration of the mutual covenants in this
Agreement, the parties agree as follows:
1. Effectiveness of Agreement and Employment of Executive.
------------------------------------------------------
1.1. Effectiveness of Agreement. This Agreement shall become
--------------------------
effective as the date hereof (the "Effective Date").
--------------
1.2. Employment by the Company. The Company hereby employs Executive
-------------------------
as an Executive Vice President of the Company and Executive hereby accepts such
employment with the Company. Executive shall report to the Chairman of the
Board or Chief Executive Officer of the Company, and perform such duties and
services for the Company and its subsidiaries and affiliates (such subsidiaries
and affiliates collectively, "Affiliates"), as may be designated from time to
----------
time, by the Chairman of the Board of Directors or the Chief Executive Officer
of the Company. Executive shall use his best and most diligent efforts to
promote the interests of the Company and the Affiliates, and shall devote all of
his business time and attention to his employment under this Agreement, subject
to his obligation to perform certain services to Merck-Medco Managed Care
("Medco") under his agreement with Medco, a copy of which has been furnished to
Synetic and subject to such other business activities which will not interfere
with the performance of the Executive's duties hereunder and which Executive has
received prior written permission from the Company, which permission shall not
be unreasonably withheld.
1.3. Confidentiality. Executive understands and acknowledges that in
---------------
the course of his employment, he will have access to and will learn information
that is proprietary to, or confidential to the Company and its Affiliates that
concerns the operation and methodology of the Company and its Affiliates,
including, without limitation, business strategy and plans, financial
information, protocols, proposals, manuals, clinical procedures and guidelines,
technical data, computer source codes, programs, software, knowhow and
specifications, copyrights, trade secrets, market information, Developments (as
hereinafter defined), and customer information (collectively, "Proprietary
-----------
Information"). Executive
- -----------
<PAGE>
agrees that, at all times (including following termination of this Agreement),
he will keep confidential and will not disclose directly or indirectly any such
Proprietary Information to any third party, except as required to fulfill his
duties hereunder, and will not misuse, misappropriate or exploit such
Proprietary Information in any way. The restrictions contained herein shall not
apply to any information which Executive can demonstrate by written record (a)
was already available to the public at the time of disclosure, or subsequently
become available to the public, otherwise than by breach of this Agreement, (b)
was the subject of a court order for Executive to disclose, (c) information
which was in the possession of the Executive prior to his employment with the
Company or (d) information which is independently developed by the Executive and
which is outside of the scope of his employment or the business of the Company.
Upon any termination of this Agreement, Executive shall immediately return to
the Company all copies of any Proprietary Information in his possession.
1.4. Restrictions on Solicitation. During the period beginning on the
----------------------------
Effective Date and ending on the second anniversary of the date of cessation of
the employment of the Executive for any reason whatsoever (the "Restricted
----------
Period"), Executive shall not, directly or indirectly, without the prior written
- ------
approval of the Company, solicit or contact any customer, or any prospective
customer (with whom the Executive has had contact during the last 12 months of
the term of this Agreement), of the Company or any of the Affiliates for any
commercial pursuit which Executive knows, or should know, is in competition with
the Company or any of the Affiliates, or that is contemplated from time to time
by the Business Plan (as defined below) or take away or interfere or attempt to
interfere with any custom, trade, business or patronage of the Company or any of
the Affiliates, or induce, or attempt to induce, any employees, agents or
consultants of or to the Company or any of the Affiliates to do anything from
which Executive is restricted by reason of this Agreement nor shall Executive,
directly or indirectly, offer or aid others to offer employment to or interfere
or attempt to interfere with any employees, agents or consultants of the Company
or any of the Affiliates. For purposes of this Agreement, "Business Plan" shall
mean, at any point in time, the then current business plan of the Company and
any business plans of the Company in effect during the prior 18 months.
1.5. Restrictions on Competitive Employment. During the Restricted
--------------------------------------
Period, Executive shall not (as principal, agent, employee, consultant or
otherwise), anywhere in the United States, directly or indirectly, without the
prior written approval of the Company, (i) engage in direct or indirect
competition with the Company, (ii) conduct a business of the type and character
engaged in by the Company (or contemplated by the Business Plan), or (iii)
develop products or services competitive with those of the Company
(collectively, "Competitive Business"). Notwithstanding the foregoing,
--------------------
Executive may have an interest consisting of publicly traded securities
constituting less than 5 percent of any class of publicly traded securities in
any public company engaged in a Competitive Business so long as he is not
2
<PAGE>
employed by and does not consult with, or become a director of or otherwise
engage in any activities for, such company.
1.6. Extension of Restricted Period. The Restricted Period shall be
------------------------------
extended by the length of any period during which Executive is in breach of the
terms of this Section 1.
1.7. Assignment of Developments. All Developments that are at any
--------------------------
time made, conceived or suggested by Executive, whether acting alone or in
conjunction with others, arising out of or as a result of Executive's employment
with the Company shall be the sole and absolute property of the Company and the
Affiliates, free of any reserved or other rights of any kind on Executive's
part. During Executive's employment and, if such Developments were made,
conceived or suggested by Executive during or as a result of Executive's
employment under this Agreement or any prior employment with the Company or the
Affiliates, thereafter, Executive shall promptly make full disclosure of any
such Developments to the Company and, at the Company's cost and expense, do all
acts and things (including, among others, the execution and delivery under oath
of patent and copyright applications and instruments of assignment) deemed by
the Company to be necessary or desirable at any time in order to effect the full
assignment to the Company and the Affiliates of Executive's right and title, if
any, to such Developments. For purposes of this Agreement, the term
"Developments" shall mean all data, discoveries, findings, reports, designs,
- -------------
inventions, improvements, methods, practices, techniques, developments,
programs, concepts, and ideas, whether or not patentable, relating to the
present or planned activities, or future activities of which Executive is aware,
or the products and services of the Company or any of the Affiliates.
1.8 Conflicts of Interest. The Executive, during the term of this
---------------------
Agreement, is also being employed as a part-time employee of, or consultant to,
Medco. The Executive and the Company endeavor to eliminate certain conflicts of
interest which may arise in the performance of the Executive's services
hereunder. In furtherance of such objective, the Executive and the Company have
established the following:
a) The Executive and Company will work together to avoid any conflicts
relating to his employment with Medco.
b) The Company will not solicit, nor will the Executive provide to the
Company, any information confidential or proprietary to Medco and its
affiliates in the course of the Executive's employment hereunder.
c) The Company will allow the Executive sufficient business time to satisfy
his employment obligations to Medco.
3
<PAGE>
1.9. Remedies. Executive acknowledges and agrees that damages for a
--------
breach or threatened breach of any of the covenants set forth in Sections 1.1
through 1.8 will be difficult to determine and will not afford a full and
adequate remedy, and therefore agrees that the Company, in addition to seeking
actual damages in connection therewith, may seek specific enforcement of any
such covenant in any court of competent jurisdiction, including, without
limitation, by the issuance of a temporary or permanent injunction.
2. Compensation and Benefits.
-------------------------
2.1. Salary. The Company shall pay Executive for services during the
------
term of this Agreement a base salary at the annual rate of $175,000.00 ("Base
Salary"). Any and all increases to Executive's Base Salary shall be determined
by the Board of Directors in its sole discretion, provided however, that when
revenues from healthcare communications business exceeds $30,000,000, then the
Board of Directors will increase Executive's compensation to a level
commensurate with his contribution as determined in their reasonable judgment.
Such Base Salary shall be payable in equal installments, no less frequently than
monthly, pursuant to the Company's customary payroll policies in force at the
time of payment, less any required or authorized payroll deductions.
2.2. Upon the signing of this Agreement, the Executive shall receive a
one time payment equal to $225,000.
2.3. Benefits. During the term of this Agreement, Executive shall be
--------
entitled to participate, on the same basis and at the same level as other
similarly situated senior executives of the Company, in any group insurance,
hospitalization, medical, health and accident, disability, fringe benefit and
tax-qualified retirement plans or programs or vacation leave of the Company now
existing or hereafter established to the extent that he is eligible under the
general provisions thereof.
2.4. Expenses. Pursuant to the Company's customary policies in force
--------
at the time of payment, Executive shall be promptly reimbursed, against
presentation of vouchers or receipts therefor, for all authorized expenses
properly and reasonably incurred by him on behalf of the Company or its
Affiliates in the performance of his duties hereunder.
3. Employment Period.
-----------------
Executive's employment under this Agreement shall commence as of the
Effective Date, and shall terminate on the fifth anniversary thereof (the
"Initial Employment Period"), unless terminated earlier pursuant to Section 4.
- --------------------------
Unless written notice of either party's desire to terminate this Agreement has
been given to the other party prior to the expiration of the
4
<PAGE>
Initial Employment Period (or any one-month renewal thereof contemplated by this
sentence), the term of this Agreement shall be automatically renewed for
successive one-month periods.
4. Termination.
-----------
4.1. Termination by the Company for Cause. (a) This Agreement and
------------------------------------
Executive's employment with the Company may be terminated at any time by the
Company for Cause. Upon such a termination, the Company shall have no
obligation to Executive other than the payment of Executive's earned and unpaid
compensation to the effective date of such termination.
(b) For purposes of this section of the Agreement, the term "Cause"
-----
shall mean any of the following:
1. A willful failure of Executive to perform his duties in any
material respect which failure is not cured by Executive within 30 days
following written notice from the Company detailing such failure;
2. Any willful misconduct by Executive relating, directly or
indirectly, to the Company or any of its Affiliates, which breach, if
susceptible to cure, is not cured by Executive within 30 days following
written notice from the Company detailing such breach;
3. Any breach by Executive of any material provision contained
in this Agreement, which breach, if susceptible to cure, is not cured by
Executive within 30 days following written notice from the Company
detailing such breach; or
4. Executive's conviction of a felony or crime involving moral
turpitude.
4.2. Permanent Disability. If during the term of this Agreement,
--------------------
Executive shall become ill, mentally or physically disabled, or otherwise
incapacitated so as to be unable regularly to perform the duties of his position
for a period in excess of 90 consecutive days or more than 120 days in any
consecutive 12 month period, then the Company shall have the right to terminate
this Agreement and Executive's employment with the Company upon written notice
to Executive. Upon such a termination, the Company shall have no obligation to
Executive other than (i) the payment of Executive's earned and unpaid
compensation to the effective date of such termination and (ii) as provided in
Section 5 below.
5
<PAGE>
4.3. Death. This Agreement shall be deemed terminated by the Company
-----
upon the death of Executive and the Company shall have no obligation to
Executive or Executive's estate other than (i) the payment of Executive's earned
and unpaid compensation to the effective date of such termination and (ii) as
provided in Section 5 below.
4.4. Resignation by the Executive. If the Executive terminates his
----------------------------
employment with the Company for any reason, the Company shall have no obligation
to Executive other than the payment of Executive's earned and unpaid
compensation to the effective date of such termination.
4.5. Termination by the Company Without Cause. This Agreement and
----------------------------------------
Executive's employment with the Company may be terminated at any time by the
Company without Cause. If the Company terminates this Agreement and Executive's
employment without Cause (including upon notice of the Company pursuant to
Section 3 of its desire to not renew this Agreement), the Company shall have no
obligation to Executive other than (i) the payment of Executive's earned and
unpaid compensation to the effective date of such termination, (ii) the payment
of a monthly severance payment equal to one twelfth (1/12th) of his then
applicable Base Salary, less all required payroll deductions for a period ending
two (2) years from the date of such termination, or until the occurrence of any
circumstances or event that would constitute Cause under Section 4.1 of this
Agreement, if sooner, and (iii) as provided in Section 5 below.
4.6. Change of Control. In the event of a Change of Control, the
------------------
Executive may terminate his employment and this Agreement upon 30 days' written
notice to the Company at any time after a 12 month period following the
occurrence of the Change of Control (or such shorter period to the extent the
acquiring company does not request the services of the Executive for such 12
month period). In the event of such a termination by Executive, all Existing
Stock Options held by the Executive shall continue to vest and be exercisable as
provided in Section 5 below. For the purposes of this Agreement, a "Change of
Control" shall be deemed to have occurred if:
(a) both (i) any person, entity or group shall have acquired at least 50%
of the voting power of the outstanding voting securities of the
company, excluding Martin J. Wygod and his affiliates, and (ii)
following such acquisition of 50% Voting Power, Martin J. Wygod shall
cease to hold one or more of the following positions: Chairman of the
Board or Chief Executive Officer of the Company or a senior executive
office of the acquirer of 50% Voting Power, in each case with duties
and responsibilities greater than or substantially equivalent to those
prior to such acquisition of 50% Voting Power; or
(b) both (i) a reorganization, merger or consolidation or sale of other
disposition of all or substantially all of the assets of the Company
("Business Combination") shall
6
<PAGE>
have occurred and (ii) following such Business Combination, Martin J.
Wygod shall cease to be Chairman of the Board or Chief Executive
Officer of, or to hold a senior executive position in, the corporation
resulting from such Business Combination, with duties and
responsibilities greater than or substantially equivalent to those
prior to such Business Combination; or
(c) a complete liquidation or dissolution of the Company shall have
occurred.
4.7 Termination by the Executive For Cause. This Agreement and
---------------------------------------
Executive's employment with the Company may be terminated by the Executive for
Cause on 30 days written notice to the Company, which notice shall detail the
specific basis for such termination. The Company shall be given the opportunity
to cure the basis for such termination within such 30 days period. For the
purpose of this Section of this Agreement, the term "Cause" means any of the
following: (1) a material breach by the Company of its obligations to the
Executive under this Employment Agreement, which, if susceptible to cure,
remains uncured, (2) a material demotion of his position with the Company, and
(3) if Executive is required by the Company to relocate from his present
residence or is required to commute, on a regular basis, to the Company's
headquarters and such headquarters is outside of the New York City metropolitan
area. If the Executive terminates this Agreement and his employment under this
Section, the Executive shall receive (i) the payment of the Executive's earned
and unpaid compensation to the effective date of such termination, (ii) payments
of a monthly severance payment equal to one twelfth (1/12th) of his then
applicable Base Salary, less all required payroll deductions, for a period two
(2) years from the date of such termination, or until the occurrence of any
circumstance or events that would constitute Cause under Section 4.1 of this
Agreement, if sooner, and (iii) as provided in Section 5 below.
4.8 Termination by the Executive if Second Option Grant not
-------------------------------------------------------
Approved. In the event (1) that the option grant described in paragraph B. of
- --------
Schedule A (the "Second Option Grant") is not approved by the Company's
shareholders at their next annual meeting (2) any alternative option grant made
by the Company to Executive in lieu of the Second Option Grant is not reasonably
satisfactory to Executive, this Agreement and Executive's employment with the
Company may be terminated by the Executive within the 30 day period following
the date of such alternative option grant on 30 days written notice to the
Company. If the Executive terminates this Agreement and his employment under
this Section, (i) Executive shall receive the payment of Executive's earned and
unpaid compensation to the effective date of such termination and (ii) the two-
year Restricted Period shall be reduced to equal six months for purposes of
Sections 1.4 and 1.5, provided that Section 1.6 shall remain in full force and
effect.
4.9 Liquidated Damages. Executive acknowledges that any payments
------------------
and benefits under Sections 4 and 5 resulting from a termination of this
Agreement and Executive's
7
<PAGE>
employment with the Company by the Company without Cause are in lieu of any and
all claims that the Executive may have against the Company (other than benefits
under the Company's employee benefit plans that by their terms survive
termination of employment and benefits under the Consolidated Omnibus Budget
Reconciliation Act of 1985, as amended and rights to indemnification under
certain indemnification arrangements for officers of the Company), and represent
liquidated damages (and not a penalty). The Company may request that the
Executive confirm such acknowledgment in writing prior to the receipt of such
benefits.
5. Options.
-------
Executive has previously been granted options (together with any options
to purchase the Company's common stock which the Company grants to Executive
during the term of this Agreement, the "Existing Company Options") to purchase
------------------------
shares of the Company's common stock, par value $.01 per share, set forth on
Schedule A. Notwithstanding anything to the contrary contained in the Company
Option Plan or any applicable stock option agreement, (A) in the event that this
Agreement and Executive's employment with the Company is terminated (i) by the
Company without Cause (including upon notice of the Company pursuant to Section
3 of its desire to not renew this Agreement) or (ii) by the Executive for Cause
pursuant to Section 4.7, any Existing Company Options shall remain outstanding
and continue to vest, and shall otherwise be treated for purposes of the terms
and conditions thereof, as if Executive remained in the employ of the Company
through the earlier of (i) the second anniversary of the date of termination and
(ii) the occurrence of any circumstance or event that would constitute Cause
under Section 4.1 of this Agreement and (B) in the event that this Agreement and
Executive's employment with the Company is terminated (i) by the Executive after
a Change of Control as provided in Section 4.7, (ii) due to his permanent
disability pursuant to Section 4.2 or (iii) due to his death pursuant to Section
4.3, any Existing Company Options shall remain outstanding and continue to vest,
and shall otherwise be treated for the purposes of the terms and conditions
thereof, as if the Executive remained in the employment of the Company through
the earlier of (x) the later of November 6, 2002 and the last actual vesting
date with respect to any such options and (y) the occurrence of any
circumstances or events that would constitute Cause under such Section 4.1. For
purposes of clarification, the "last actual vesting date" shall be, with respect
any grant of Existing Company Options, the last date on which such options
actually vest, not the last date on which all Existing Company Options have
actually vested.
6. Notices. Any notice or communication given by either party hereto to
-------
the other shall be in writing and personally delivered or mailed by registered
or certified mail, return receipt requested, postage prepaid, to the following
addresses:
8
<PAGE>
(a) if to the Company:
Synetic, Inc.
River Drive Center 2
669 River Drive
Elmwood Park, New Jersey 07407-1361
Telecopier No.: (201) 703-3401
Attention: General Counsel
(b) if to the Executive at the address set forth below.
Any notice shall be deemed given when actually delivered to such address, or two
days after such notice has been mailed or sent by Federal Express, whichever
comes earliest. Any person entitled to receive notice may designate in writing,
by notice to the other, such other address to which notices to such person shall
thereafter be sent.
7. Miscellaneous.
-------------
7.1. Entire Agreement. This Agreement and the agreements relating to
----------------
the Existing Company Options contain the entire understanding of the parties in
respect of their subject matter and supersede upon their effectiveness all other
prior agreements and understandings between the parties with respect to such
subject matter.
7.2. Amendment; Waiver. This Agreement may not be amended,
-----------------
supplemented, canceled or discharged, except by written instrument executed by
the party against whom enforcement is sought. No failure to exercise, and no
delay in exercising, any right, power or privilege hereunder shall operate as a
waiver thereof. No waiver of any breach of any provision of this Agreement
shall be deemed to be a waiver of any preceding or succeeding breach of the same
or any other provision.
7.3. Binding Effect; Assignment. The rights and obligations of this
--------------------------
Agreement shall bind and inure to the benefit of any successor of the Company by
reorganization, merger or consolidation, or any assignee of all or substantially
all of the Company's business and properties. The Company may assign its rights
and obligations under this Agreement to any of its Affiliates without the
consent of the Executive. Executive's rights or obligations under this
Agreement may not be assigned by Executive, except that the rights specified in
Section 4.3 shall pass upon the Executive's death to Executive's executor or
administrator.
9
<PAGE>
7.4. Headings. The headings contained in this Agreement are for
--------
reference purposes only and shall not affect the meaning or interpretation of
this Agreement.
7.5. Governing Law; Interpretation. This Agreement shall be construed
----------------------------
in accordance with and governed for all purposes by the laws and public policy
(other than conflict of laws principles) of the State of New Jersey applicable
to contracts executed and to be wholly performed within such State.
7.6. Further Assurances. Each of the parties agrees to execute,
------------------
acknowledge, deliver and perform, and cause to be executed, acknowledged,
delivered and performed, at any time and from time to time, as the case may be,
all such further acts, deeds, assignments, transfers, conveyances, powers of
attorney and assurances as may be reasonably necessary to carry out the
provisions or intent of this Agreement.
7.7. Severability. The parties have carefully reviewed the provisions
------------
of this Agreement and agree that they are fair and equitable. However, in light
of the possibility of differing interpretations of law and changes in
circumstances, the parties agree that if any one or more of the provisions of
this Agreement shall be determined by a court of competent jurisdiction to be
invalid, void or unenforceable, the remainder of the provisions of this
Agreement shall, to the extent permitted by law, remain in full force and effect
and shall in no way be affected, impaired or invalidated. Moreover, if any of
the provisions contained in this Agreement is determined by a court of competent
jurisdiction to be excessively broad as to duration, activity, geographic
application or subject, it shall be construed, by limiting or reducing it to the
extent legally permitted, so as to be enforceable to the extent compatible with
then applicable law.
10
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the day and year first above written.
SYNETIC, INC.
By: /s/ Charles A. Mele
-----------------------------------
Name: Charles A. Mele
Title: Vice President--General Counsel
EXECUTIVE
/s/ Roger C. Holstein
----------------------------------------
Roger C. Holstein
---------------------------------------
Street
------------------------------
City, State, Zip Code
11
<PAGE>
SCHEDULE A
TO EMPLOYMENT AGREEMENT
BETWEEN SYNETIC, INC. AND ROGER C.HOLSTEIN
EXISTING OPTIONS
A. 250,000 shares of the Company's Common Stock @ $32.25 per share, which vest
in five equal installments of 50,000 on each anniversary of October 2, 1996,
subject to the terms of a Stock Option Agreement set forth as Exhibit A-1.
B. 250,000 shares of the Company's Common Stock @ $34.875 per share, which vest
-------
in five equal installments of 50,000 on each anniversary of June 23, 1997,
subject to the terms of a Stock Option Agreement set forth as Exhibit A-2.
This grant is also subject to approval by the shareholders of the Company at
their next annual meeting. If such approval is not obtained, the June 23,
1997 Stock Option Agreement shall become null and void. The Board of
Directors shall recommend that the Company's shareholders approve such
option. If such option is not approved by the shareholders, the Company
will issue to the Executive a comparable number of options under one or more
of the Company's existing stock option plans if the Company is so permitted.
12
<PAGE>
EXHIBIT A-1
TO EMPLOYMENT AGREEMENT BETWEEN
SYNETIC, INC. AND ROGER C. HOLSTEIN
STOCK OPTION AGREEMENT
STOCK OPTION AGREEMENT (this "Agreement") made as of June 23, 1997, between
---------
SYNETIC, INC., a Delaware corporation (the "Company"), and ROGER C. HOLSTEIN
-------
("Optionee").
- ----------
RECITAL
-------
The Company desires to provide Optionee with an opportunity to acquire
shares of Common Stock (as defined below) of the Company, subject to stockholder
approval. As a result, the Company has elected to issue to Optionee an option
to acquire 250,000 shares of its Common Stock and intends that such option
comply with the requirements of Rule 16b-3 under the Securities Exchange Act of
1934, as amended (the "Exchange Act") and Section 162(m) of the Internal Revenue
------------
Code of 1986, as amended.
AGREEMENTS
----------
In consideration of the Recital (which is incorporated by reference) and the
mutual covenants of this Agreement, the Company and Optionee agree as follows:
1. Confirmation of Grant of Option. Pursuant to a determination by the Stock
-------------------------------
Option Committee of the Board of Directors of the Company (the "Board"),
-----
effective as of the date first set forth above (the "Date of Grant"), the
-------------
Company hereby confirms that Optionee has been granted, subject to the terms of
this Agreement and approval by the Company's stockholders at the next annual
meeting of stockholders, the right (the "Option") to purchase 250,000 shares of
------
Common Stock of the Company ("Common Stock"). All of the shares hereunder are
------------
hereinafter referred to as "Shares". Said number of Shares subject to the
------
Option may be adjusted as provided in Section 9.
1
<PAGE>
As used herein, "Committee" shall mean the Stock Option Committee of the
Board (and any successor committee appointed by the Board).
2. Exercisability of Option.
------------------------
2.1. Subject to the terms and conditions of this Agreement (including
Sections 2.3, 2.4 and 2.5), the Option shall become exercisable:
2.1.1. with respect to 20% of the Shares, on and after the first
anniversary of the Date of Grant;
2.1.2. with respect to an additional 20% of the Shares, on and after
the second anniversary of the Date of Grant;
2.1.3. with respect to an additional 20% of the Shares, on and after
the third anniversary of the Date of Grant;
2.1.4. with respect to an additional 20% of the Shares, on and after
the fourth anniversary of the Date of Grant; and
2.1.5. with respect to the remainder of the Shares, on and after the
fifth anniversary of the Date of Grant.
2.2. The unexercised portion of the Option shall automatically and
without notice terminate and become null and void at the time of the earliest to
occur of the following:
2.2.1. The fifteenth anniversary of the Date of Grant; or
2.2.2. Subject to the provisions of Sections 2.3, 2.4, 2.5, 2.6 and 2.7
below, 30 days following the date of termination of Optionee's status as an
employee of the Company for any reason in the case of the vested portion of the
Option (or the date on which a portion of the Option vests pursuant to Sections
2.5 and 2.6) and immediately following such date of termination in the case of
the unvested portion of the Option.
2.3. If Optionee's employment is terminated by the Company for Cause
(as defined in this Section 2.3), the Option (both vested and non-vested) shall
expire on the date of termination. For purposes of this section of this
Agreement, the term "Cause" shall mean any of the following:
-----
2
<PAGE>
(a) A willful failure of Optionee to perform his duties in any
material respect which failure is not cured by Optionee within 30 days
following written notice from the Company detailing such failure;
(b) Any willful misconduct by Optionee relating, directly or
indirectly, to the Company or any of its affiliates, which breach, if
susceptible to cure, is not cured by Optionee within 30 days following
written notice from the Company detailing such breach;
(c) Any breach by Optionee of any material provision contained in
this Agreement or any employment or consulting agreement between the Company
and Optionee, which breach, if susceptible to cure, is not cured by Optionee
within 30 days following written notice from the Company detailing such
breach; or
(d) Optionee's conviction of a felony or crime involving moral
turpitude.
2.4. If Optionee terminates his employment for any reason other than for
Cause (as defined in this Section 2.4), the Option (both vested and non-vested)
shall expire on the date of termination. For purposes of this section of this
Agreement, the term "Cause" shall mean any of the following:
-----
(a) Any material breach by the Company of its obligations to Optionee
under this Agreement or any employment or consulting agreement between the
Company and Optionee, which, if susceptible to cure, remains uncured;
(b) A material demotion of Optionee's position with the Company; or
(c) If Optionee is required by the Company to relocate from his
present residence or is required to commute, on a regular basis, to the
Company's headquarters and such headquarters is outside of the New York City
metropolitan area.
2.5. In the event that Optionee's employment with the Company is terminated
(I) by the Company without Cause (as defined in Section 2.3) or (II) by Optionee
for Cause (as defined in Section 2.4), the Option shall remain outstanding and
continue to vest, and shall otherwise be treated for purposes of this Agreement,
as if Optionee remained in the employ of the Company through the earlier of (a)
the second anniversary of the date of termination or (b) the occurrence of any
circumstance or event that would constitute Cause under Section 2.3 of this
Agreement.
2.6. In the event that Optionee's employment with the Company is terminated
(I) by Optionee upon 30 days' written notice to the Company at any time after a
12 month period following the occurrence of the Change of Control (as defined
below) (or such shorter period to the extent the acquiring company does not
request the services of the Optionee for such 12 month
3
<PAGE>
period), (II) by the Company because Optionee shall become ill, mentally or
physically disabled, or otherwise incapacitated so as to be unable regularly to
perform the duties of his position for a period in excess of 90 consecutive days
or more than 120 days in any consecutive 12 month period, or (III) due to his
death, the Option shall remain outstanding and continue to vest, and shall
otherwise be treated for the purposes of the terms and conditions thereof, as if
Optionee remained in the employment of the Company through the earlier of (a)
November 6, 2002 and (b) the occurrence of any circumstances or events that
would constitute Cause under such Section 2.3. For purposes of this Section 2.6,
a "Change of Control" shall be deemed to have occurred if:
-----------------
(a) both (i) any person, entity or group shall have acquired at least 50% of
the voting power of the outstanding voting securities of the company
("Voting Power"), excluding Martin J. Wygod and his affiliates, and (ii)
--------------
following such acquisition of 50% Voting Power, Martin J. Wygod shall cease
to hold one or more of the following positions: Chairman of the Board or
Chief Executive Officer of the Company or a senior executive office of the
acquirer of 50% Voting Power, in each case with duties and responsibilities
greater than or substantially equivalent to those prior to such acquisition
of 50% Voting Power; or
(b) both (i) a reorganization, merger or consolidation or sale of other
disposition of all or substantially all of the assets of the Company
("Business Combination") shall have occurred and (ii) following such
----------------------
Business Combination, Martin J. Wygod shall cease to be Chairman of the
Board or Chief Executive Officer of, or to hold a senior executive position
in, the corporation resulting from such Business Combination, with duties
and responsibilities greater than or substantially equivalent to those prior
to such Business Combination; or
(c) a complete liquidation or dissolution of the Company shall have
occurred.
2.7. Notwithstanding any other provision of this Agreement, the Committee
may determine that the Option shall become exercisable in full or in part,
whether or not it is then exercisable, upon such circumstances or events as the
Committee determines, in its sole discretion, merits special consideration.
2.8 Notwithstanding anything to the contrary contained herein, in no event
shall the Option be exercisable after the expiration of fifteen years from the
date of this Agreement.
3. Method of Exercise of Option. The Option may be exercised by Optionee
----------------------------
(or by Optionee's personal representatives or heirs at law, as provided in
Section 2, but by no other person) as to all or (at Optionee's election) part of
the Shares as to which the Option is then exercisable (that is, vested) under
Section 2 by giving written notice of exercise to the Company at its principal
business office, specifying the number of Shares for which the Option is
exercised,
4
<PAGE>
accompanied by payment in full for such Shares (as determined pursuant to
Section 4) together with any amount required for payroll withholding tax under
all applicable federal, state or local laws or regulations. The failure to
exercise the Option, in whole or in part, as to any vested exercise rights shall
not constitute a waiver of these rights. The Company shall cause certificates
for the Shares so purchased to be delivered to Optionee or Optionee's personal
representatives or heirs at law, at its principal business office, against
payment in full of the Option price for such Shares (as determined pursuant to
Section 4), as soon as practicable following receipt of the notice of exercise
and the applicable purchase price. The Option price shall be paid in United
States dollars in the form of cash, certified check or bank draft, or (if the
Shares of Common Stock of the Company are then publicly traded) in fully paid
Shares of Common Stock of the Company, that have been held by the Optionee for a
period of at least six months (valued for this purpose at their then fair market
value determined by the Committee), consistent with practices permitted by the
Committee or a combination of the two.
4. Option Price. Subject to adjustment as provided in Section 9, the
------------
purchase price of the Shares covered by this Agreement shall be $34.875 per
Share.
5. Non-Transferability of Option. The Option is not assignable or
-----------------------------
transferable except by will or by the laws of descent and distribution and the
Option may not be exercised other than by the Optionee or, after the death of
the Optionee, by the Optionee's personal representative, heirs or legatees;
provided, however, that the Committee may, subject to such terms and conditions
as the Committee shall specify, permit the transfer of the Option to the
Optionee's family members or to one or more trusts established in whole or in
part for the benefit of one or more of such family members. Without limiting
the generality of the foregoing, the Option may not be assigned, transferred
(except as permitted in the preceding sentence), pledged or hypothecated in any
way (whether by operation of law or otherwise), and shall not be subject to
levy, attachment or similar process. Any attempt to assign, transfer, pledge or
hypothecate the Option contrary to the provisions of this Agreement, and any
levy, attachment or similar process upon the Option shall be null and void and
without effect, and the Board or the Committee may, in its discretion, upon the
happening of any such event, terminate the Option as of the date of such event.
6. No Rights Prior to Issuance of Shares. The holder of the Option shall
-------------------------------------
not have any rights to dividends nor any other rights of a shareholder with
respect to the Shares covered by the Option until the Shares have been issued
(as evidenced by the appropriate entry on the books of the transfer agent of the
Company) following exercise of the Option prior to its termination.
7. Restrictions on Exercise and on Common Stock.
--------------------------------------------
7.1. The Shares issued upon exercise of the Option shall be issued only to
Optionee or a person permitted to exercise the Option pursuant to Section 2.3.
5
<PAGE>
7.2. The Company may require the Optionee to represent to the Company, in
writing, when the Option is exercised, that the Optionee is exercising the
Option for the Optionee's own account for investment only and not with a view to
distribution and that the Optionee will not make any sale, transfer or other
disposition of any Shares purchased except (i) pursuant to a registration
statement filed under the Securities Act of 1933 as amended, which the
Securities and Exchange Commission has declared effective, (ii) pursuant to an
opinion of counsel satisfactory in form and substance to the Company that the
sale, transfer or other disposition may be made without registration, or (iii)
pursuant to a "no action" letter issued to the Optionee by the Securities and
Exchange Commission. The Company may require each share certificate
representing Shares to bear a legend stating that the Shares evidenced thereby
may not be sold or transferred except in compliance with the Securities Act of
1933, as amended, and the provisions of this Agreement. Notwithstanding anything
contained herein to the contrary, the Option shall not be exercisable at a time
when the exercise thereof may result in the violation of any law or governmental
order or regulation.
8. Right to Terminate Employment. This Agreement does not constitute a
-----------------------------
contract of, or an implied promise to continue, Optionee's employment or status
with the Company or any subsidiary of the Company; and nothing contained in this
Agreement shall confer upon Optionee the right to continue such employment or
status; nor does this Agreement affect the right of the Company to terminate
Optionee's employment at any time. Optionee shall have no rights in the
benefits conferred by the Option or in any Shares except to the extent the
Option is exercised while vested and prior to termination. Termination of the
Option by reason of rightful termination of employment shall give no rise for
any claim for damages by Optionee under this Agreement and shall be without
prejudice to any rights or remedies which the Company or any subsidiary of the
Company may have against Optionee.
9. Adjustment.
----------
9.1. In the event of any subdivision (stock split) or consolidation
(reverse split) of the issued Common Stock of the Company, or any other
recapitalization of the Company, or any business combination or other
transaction involving the Company, which shall substantially affect the rights
of holders of Common Stock, the Board or the Committee shall make such
appropriate adjustments to the number of Shares and price per Share covered by
the Option, and any other rights under the Option, as deemed appropriate by the
Board or the Committee, as the case may be (whose good faith determination shall
be absolute and binding upon Optionee), to provide Optionee with a benefit
equivalent to that to which Optionee would have been entitled if such event had
not occurred; provided, however, that if, as a result of such event, the Common
Stock is no longer publicly traded, the Board or the Committee shall make such
appropriate adjustments to the unvested portion of the Option, as deemed
appropriate by the Board or the Committee, as the case may be (whose good faith
determination shall be absolute and binding upon Optionee), to provide Optionee
with a benefit equivalent to that to which Optionee would have been entitled if
6
<PAGE>
Optionee would have had the right to exercise any unvested portion of the Option
immediately prior to such event. The Committee or the Board, as the case may
be, shall provide for appropriate adjustment of the Option in the event of stock
dividends or distributions of assets or securities of other companies owned by
the Company to stockholders relating to Common Stock for which the record date
is prior to the date the Shares purchased by exercise of the Option are issued
or transferred, except that no such adjustment shall be made for cash dividends
or stock dividends of 10% or less (cumulatively, in the aggregate).
9.2. In case the Company is merged or consolidated with another
corporation, or in case of a reorganization of the Company, the Board or the
board of directors of any corporation assuming the obligations of the Company
hereunder shall either (i) make appropriate provisions for the protection of any
outstanding portion of the Option by the substitution on an equitable basis of
appropriate securities of the Company, or appropriate securities of the merged,
consolidated, or otherwise reorganized corporation, or the appropriate
adjustment in the option price, or both, or (ii) give written notice to the
Optionee that his Option must be exercised, to the extent then exercisable,
within 60 days of the date of such notice or the Option will terminate, and to
the extent that the Option is not exercised within such 60-day period it shall
terminate and be of no further effect.
10. Taxes. If the Company shall be required to withhold any amounts by
-----
reason of any federal, state or local tax rules or regulations in respect of the
payment of cash or the issuance of Shares pursuant to the exercise of an Option,
the Company shall be entitled to deduct and withhold such amounts from any cash
payments to be made to the Optionee. In any event, the Optionee shall either
(i) make available to the Company, promptly when requested by the Company,
sufficient funds to meet the requirements of such withholding, or (ii) to the
extent permitted by the Committee, irrevocably authorize the Company to withhold
from the Shares otherwise issuable to the Optionee as a result of such exercise
a number of Shares having a fair market value, as of the date the withholding
tax obligation arises (the "Tax Date") which alone, or when added to funds paid
--------
to the Company by the Optionee, equal the amount of the minimum withholding tax
obligation (the "Withholding Election") and the Company shall be entitled to
--------------------
take and authorize such steps as it may deem advisable in order to have such
funds made available to the Company out of any funds or property due or to
become due to the Optionee. An Optionee's Withholding Election may only be made
prior to the Tax Date and may be disapproved by the Committee. The Committee
may establish such rules and procedures as it may deem necessary or advisable in
connection with the withholding of taxes relating to the exercise of the Option.
11. Notices. Each notice relating to this Agreement shall be in writing
-------
and delivered in person or by certified mail to the proper address. Each notice
to the Company shall be addressed to it at its principal office, attention of
the Chief Financial Officer, with a copy to the Company's General Counsel. Each
notice to Optionee (or other person or persons then entitled to exercise the
Option) shall be addressed to Optionee (or such other person or persons) at
7
<PAGE>
Optionee's most recent address on the books of the Company. Anyone to whom a
notice may be given under this Agreement may designate a new address by notice
to that effect. Each notice shall be deemed to have been given on the day it is
received.
12. Benefits of Agreement. This Agreement shall inure to the benefit of
---------------------
and be binding upon each successor of the Company. Rights granted to the
Company under this Agreement shall be binding upon Optionee's personal
representatives and heirs at law.
13. Source of Rights. This Agreement shall be the sole and exclusive
----------------
source of any and all rights which Optionee, and Optionee's personal
representatives or heirs at law, may have in respect of the Option as granted
hereunder.
14. Captions. The captions contained in this Agreement are for reference
--------
purposes only and shall not affect the meaning or interpretation of this
Agreement.
15. Interpretation and Construction. The Option shall be administered by
-------------------------------
the Committee. The Committee shall have authority to interpret and construe the
terms of the Option, to make all determinations necessary or advisable for the
administration of the Option (including determinations relating to the delivery
of Shares of Common Stock in payment of the purchase price of the Shares covered
by the Option and any tax withholding obligations, subject to compliance with
any applicable rules promulgated under Section 16 of the Exchange Act). The
good faith interpretation and construction by the Board or by the Committee of
any provision of this Agreement shall be final and conclusive and binding on the
parties hereto.
16. Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall constitute an original, but all of which taken
together shall constitute one and the same Agreement.
17. Governing Law. This Agreement shall be construed in accordance with
-------------
and governed by the laws of the State of New Jersey without regard to any
principles of conflict of laws.
8
<PAGE>
EXECUTION
---------
The parties signed this Agreement as of the day and year first above
written, whereupon it became binding in accordance with its terms.
SYNETIC, INC.
By: /s/ Anthony Vuolo
---------------------------------
Name: Anthony Vuolo
Title: Vice President and Chief
Financial Officer
/s/ Roger C. Holstein
----------------------------
Roger C. Holstein
9
<PAGE>
EXHIBIT A-2
TO EMPLOYMENT AGREEMENT BETWEEN
SYNETIC, INC. AND ROGER C. HOLSTEIN
STOCK OPTION AGREEMENT
STOCK OPTION AGREEMENT (this "Agreement") made as of October 2, 1996,
---------
between SYNETIC, INC., a Delaware corporation (the "Company"), and ROGER C.
-------
HOLSTEIN ("Optionee").
--------
RECITAL
-------
The Company desires to provide Optionee with an opportunity to acquire
shares of Common Stock (as defined below) of the Company. As a result, the
Company has elected to issue to Optionee an option to acquire 250,000 shares of
its Common Stock and intends that such option comply with the requirements of
Rule 16b-3 under the Securities Exchange Act of 1934, as amended (the "Exchange
--------
Act"). Any capitalized term that are used but not defined herein shall have the
- ---
meaning set forth in the 1991 Non-Qualified Stock Option Plan (the "Plan").
----
AGREEMENTS
----------
In consideration of the Recital (which is incorporated by reference) and
the mutual covenants of this Agreement, the Company and Optionee agree as
follows:
1. Confirmation of Grant of Option. Pursuant to a determination by the
-------------------------------
Stock Option Committee of the Board of Directors of the Company (the "Board"),
-----
effective as of October 2, 1996 (the "Date of Grant"), the Company hereby
-------------
confirms that Optionee has been granted, subject to the terms of this Agreement
and the terms of the Plan, the right (the "Option") to purchase 250,000 shares
------
of Common Stock of the Company ("Common Stock"). All of the shares hereunder
------------
are hereinafter referred to as "Shares". Said number of Shares subject to the
------
Option may be adjusted as provided in Section 7.6 and 9 of the Plan.
2. Exercisability of Option.
------------------------
2.1. Subject to the terms and conditions of this Agreement, the Option
shall become exercisable:
2.1.1. with respect to 20% of the Shares, on and after the first
anniversary of the Date of Grant;
2.1.2. with respect to an additional 20% of the Shares, on and after the
second anniversary of the Date of Grant;
1
<PAGE>
2.1.3. with respect to an additional 20% of the Shares, on and after the
third anniversary of the Date of Grant;
2.1.4. with respect to an additional 20% of the Shares, on and after the
fourth anniversary of the Date of Grant; and
2.1.5. with respect to the remainder of the Shares, on and after the fifth
anniversary of the Date of Grant.
2.2. The unexercised portion of the Option shall automatically and
without notice terminate and become null and void at the time of the earliest to
occur of the following:
2.2.1. The fifteenth anniversary of the Date of Grant; or
2.2.2. Subject to the provisions of Sections 2.3, 2.4, 2.5, 2.6 and 2.7
below, 30 days following the date of termination of Optionee's status as an
employee of the Company for any reason in the case of the vested portion of the
Option (or the date on which a portion of the Option vests pursuant to Sections
2.5 and 2.6) and immediately following such date of termination in the case of
the unvested portion of the Option.
2.3. If Optionee's employment is terminated by the Company for Cause (as
defined in this Section 2.3), the Option (both vested and non-vested) shall
expire on the date of termination. For purposes of this section of this
Agreement, the term "Cause" shall mean any of the following:
-----
(a) A willful failure of Optionee to perform his duties in any
material respect which failure is not cured by Optionee within 30 days
following written notice from the Company detailing such failure;
(b) Any willful misconduct by Optionee relating, directly or
indirectly, to the Company or any of its affiliates, which breach, if
susceptible to cure, is not cured by Optionee within 30 days following
written notice from the Company detailing such breach;
(c) Any breach by Optionee of any material provision contained in
this Agreement or any employment or consulting agreement between the
Company and Optionee, which breach, if susceptible to cure, is not cured by
Optionee within 30 days following written notice from the Company detailing
such breach; or
(d) Optionee's conviction of a felony or crime involving moral
turpitude.
2.4. If Optionee terminates his employment for any reason other than for
Cause (as defined in this Section 2.4), the Option (both vested and non-vested)
shall expire on the date of
2
<PAGE>
termination. For purposes of this section of this
Agreement, the term "Cause" shall mean any of the following:
-----
(a) Any material breach by the Company of its obligations to Optionee
under this Agreement or any employment or consulting agreement between the
Company and Optionee, which, if susceptible to cure, remains uncured;
(b) A material demotion of Optionee's position with the Company; or
(c) If Optionee is required by the Company to relocate from his
present residence or is required to commute, on a regular basis, to the
Company's headquarters and such headquarters is outside of the New York
City metropolitan area.
2.5. In the event that Optionee's employment with the Company is terminated
(I) by the Company without Cause (as defined in Section 2.3) or (II) by Optionee
for Cause (as defined in Section 2.4), the Option shall remain outstanding and
continue to vest, and shall otherwise be treated for purposes of this Agreement,
as if Optionee remained in the employ of the Company through the earlier of (a)
the second anniversary of the date of termination or (b) the occurrence of any
circumstance or event that would constitute Cause under Section 2.3 of this
Agreement.
2.6. In the event that Optionee's employment with the Company is terminated
(I) by Optionee upon 30 days' written notice to the Company at any time after a
12 month period following the occurrence of the Change of Control (as defined
below) (or such shorter period to the extent the acquiring company does not
request the services of the Optionee for such 12 month period), (II) by the
Company because Optionee shall become ill, mentally or physically disabled, or
otherwise incapacitated so as to be unable regularly to perform the duties of
his position for a period in excess of 90 consecutive days or more than 120 days
in any consecutive 12 month period, or (III) due to his death, the Option shall
remain outstanding and continue to vest, and shall otherwise be treated for the
purposes of the terms and conditions thereof, as if Optionee remained in the
employment of the Company through the earlier of (a) November 6, 2002 and (b)
the occurrence of any circumstances or events that would constitute Cause under
such Section 2.3. For purposes of this Section 2.6, a "Change of Control" shall
-----------------
be deemed to have occurred if:
(a) both (i) any person, entity or group shall have acquired at least
50% of the voting power of the outstanding voting securities of the company
("Voting Power"), excluding Martin J. Wygod and his affiliates, and (ii)
------------
following such acquisition of 50% Voting Power, Martin J. Wygod shall cease
to hold one or more of the following positions: Chairman of the Board or
Chief Executive Officer of the Company or a senior executive office of the
acquirer of 50% Voting Power, in each case with duties and responsibilities
greater than or substantially equivalent to those prior to such acquisition
of 50% Voting Power; or
3
<PAGE>
(b) both (i) a reorganization, merger or consolidation or sale of
other disposition of all or substantially all of the assets of the Company
("Business Combination") shall have occurred and (ii) following such
--------------------
Business Combination, Martin J. Wygod shall cease to be Chairman of the
Board or Chief Executive Officer of, or to hold a senior executive position
in, the corporation resulting from such Business Combination, with duties
and responsibilities greater than or substantially equivalent to those
prior to such Business Combination; or
(c) a complete liquidation or dissolution of the Company shall have
occurred.
2.7. Notwithstanding any other provision of this Agreement, the Committee,
the Board or the Designated Officer may determine that the Option shall become
exercisable in full or in part, whether or not it is then exercisable, upon
such circumstances or events as the Committee, the Board or the Designated
Officer determines, in its sole discretion, merits special consideration.
2.8 Notwithstanding anything to the contrary contained herein, in no event
shall the Option be exercisable after the expiration of fifteen years from the
date of this Agreement.
3. Method of Exercise of Option. The Option may be exercised by Optionee
----------------------------
(or by Optionee's personal representatives or heirs at law, as provided in
Section 2, but by no other person) as to all or (at Optionee's election) part of
the Shares as to which the Option is then exercisable (that is, vested) under
Section 2 by giving written notice of exercise to the Company at its principal
business office, specifying the number of Shares for which the Option is
exercised, accompanied by payment in full for such Shares (as determined
pursuant to Section 4) together with any amount required for payroll withholding
tax under all applicable federal, state or local laws or regulations. The
failure to exercise the Option, in whole or in part, as to any vested exercise
rights shall not constitute a waiver of these rights. The Company shall cause
certificates for the Shares so purchased to be delivered to Optionee or
Optionee's personal representatives or heirs at law, at its principal business
office, against payment in full of the Option price for such Shares (as
determined pursuant to Section 4), as soon as practicable following receipt of
the notice of exercise and the applicable purchase price. The Option price
shall be paid in United States dollars in the form of cash, certified check or
bank draft, or (if the Shares of Common Stock of the Company are then publicly
traded) in fully paid Shares of Common Stock of the Company that have been held
by the Optionee for a period of at least six months (valued for this purpose at
their then fair market value determined by the Committee, the Board or the
Designated Officer), consistent with practices permitted by the Committee, the
Board or the Designated Officer, or a combination of the two.
4. Option Price. Subject to adjustment as provided in Sections 7.6 and 9
------------
of the Plan, the purchase price of the Shares covered by this Agreement shall be
$32.25 per Share.
4
<PAGE>
5. Non-Transferability of Option. The Option is not assignable or
-----------------------------
transferable except by will or by the laws of descent and distribution and the
Option may not be exercised other than by the Optionee or, after the death of
the Optionee, by the Optionee's personal representative, heirs or legatees.
Without limiting the generality of the foregoing, the Option may not be
assigned, transferred (except as permitted in the preceding sentence), pledged
or hypothecated in any way (whether by operation of law or otherwise), and shall
not be subject to levy, attachment or similar process. Any attempt to assign,
transfer, pledge or hypothecate the Option contrary to the provisions of this
Agreement, and any levy, attachment or similar process upon the Option shall be
null and void and without effect, and the Board, the Committee or the Designated
Officer may, in its discretion, upon the happening of any such event, terminate
the Option as of the date of such event.
6. No Rights Prior to Issuance of Shares. The holder of the Option shall
-------------------------------------
not have any rights to dividends nor any other rights of a shareholder with
respect to the Shares covered by the Option until the Shares have been issued
(as evidenced by the appropriate entry on the books of the transfer agent of the
Company) following exercise of the Option prior to its termination.
7. Restrictions on Exercise and on Common Stock.
--------------------------------------------
7.1. The Shares issued upon exercise of the Option shall be issued only to
Optionee or a person permitted to exercise the Option pursuant to Section 2.3.
7.2. The Company may require the Optionee to represent to the Company, in
writing, when the Option is exercised, that the Optionee is exercising the
Option for the Optionee's own account for investment only and not with a view to
distribution and that the Optionee will not make any sale, transfer or other
disposition of any Shares purchased except (i) pursuant to a registration
statement filed under the Securities Act of 1933 as amended, which the
Securities and Exchange Commission has declared effective, (ii) pursuant to an
opinion of counsel satisfactory in form and substance to the Company that the
sale, transfer or other disposition may be made without registration, or (iii)
pursuant to a "no action" letter issued to the Optionee by the Securities and
Exchange Commission. The Company may require each share certificate
representing Shares to bear a legend stating that the Shares evidenced thereby
may not be sold or transferred except in compliance with the Securities Act of
1933, as amended, and the provisions of this Agreement. Notwithstanding anything
contained herein to the contrary, the Option shall not be exercisable at a time
when the exercise thereof may result in the violation of any law or governmental
order or regulation.
8. Right to Terminate Employment. This Agreement does not constitute a
-----------------------------
contract of, or an implied promise to continue, Optionee's employment or status
with the Company or any subsidiary of the Company; and nothing contained in this
Agreement shall confer upon Optionee the right to continue such employment or
status; nor does this Agreement affect the right of the
5
<PAGE>
Company to terminate Optionee's employment at any time. Optionee shall have no
rights in the benefits conferred by the Option or in any Shares except to the
extent the Option is exercised while vested and prior to termination.
Termination of the Option by reason of rightful termination of employment shall
give no rise for any claim for damages by Optionee under this Agreement and
shall be without prejudice to any rights or remedies which the Company or any
subsidiary of the Company may have against Optionee.
9. Taxes. If the Company shall be required to withhold any amounts by
-----
reason of any federal, state or local tax rules or regulations in respect of the
payment of cash or the issuance of Shares pursuant to the exercise of an Option,
the Company shall be entitled to deduct and withhold such amounts from any cash
payments to be made to the Optionee. In any event, the Optionee shall either
(i) make available to the Company, promptly when requested by the Company,
sufficient funds to meet the requirements of such withholding, or (ii) to the
extent permitted by the Committee, the Board or the Designated Officer,
irrevocably authorize the Company to withhold from the Shares otherwise issuable
to the Optionee as a result of such exercise a number of Shares having a fair
market value, as of the date the withholding tax obligation arises (the "Tax
---
Date") which alone, or when added to funds paid to the Company by the Optionee,
- ----
equal the amount of the minimum withholding tax obligation (the "Withholding
-----------
Election") and the Company shall be entitled to take and authorize such steps as
- --------
it may deem advisable in order to have such funds made available to the Company
out of any funds or property due or to become due to the Optionee. An
Optionee's Withholding Election may only be made prior to the Tax Date and may
be disapproved by the Committee, the Board or the Designated Officer. The
Committee, the Board or the Designated Officer may establish such rules and
procedures as it may deem necessary or advisable in connection with the
withholding of taxes relating to the exercise of the Option.
10. Notices. Each notice relating to this Agreement shall be in writing
-------
and delivered in person or by certified mail to the proper address. Each notice
to the Company shall be addressed to it at its principal office, attention of
the Chief Financial Officer, with a copy to the Company's General Counsel. Each
notice to Optionee (or other person or persons then entitled to exercise the
Option) shall be addressed to Optionee (or such other person or persons) at
Optionee's most recent address on the books of the Company. Anyone to whom a
notice may be given under this Agreement may designate a new address by notice
to that effect. Each notice shall be deemed to have been given on the day it is
received.
11. Benefits of Agreement. This Agreement shall inure to the benefit of
---------------------
and be binding upon each successor of the Company. Rights granted to the
Company under this Agreement shall be binding upon Optionee's personal
representatives and heirs at law.
12. Source of Rights. This Agreement and the Plan shall be the sole and
----------------
exclusive sources of any and all rights which Optionee, and Optionee's personal
representatives or heirs at
6
<PAGE>
law, may have in respect of the Option as granted hereunder. In the event of any
conflict between the provisions of the Plan and this Agreement, the provisions
of the Plan shall prevail.
13. Captions. The captions contained in this Agreement are for reference
--------
purposes only and shall not affect the meaning or interpretation of this
Agreement.
14. Interpretation and Construction. The Option shall be administered by
-------------------------------
the Committee, the Board or the Designated Officer. The Committee, the Board or
the Designated Officer shall have authority to interpret and construe the terms
of the Option, to make all determinations necessary or advisable for the
administration of the Option (including determinations relating to the delivery
of Shares of Common Stock in payment of the purchase price of the Shares covered
by the Option and any tax withholding obligations, subject to compliance with
any applicable rules promulgated under Section 16 of the Exchange Act). The
good faith interpretation and construction by the Board or by the Committee or
by the Designated Officer of any provision of this Agreement shall be final and
conclusive and binding on the parties hereto.
15. Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall constitute an original, but all of which taken
together shall constitute one and the same Agreement.
16. Governing Law. This Agreement shall be construed in accordance with
-------------
and governed by the laws of the State of New Jersey without regard to any
principles of conflict of laws.
7
<PAGE>
EXECUTION
---------
The parties signed this Agreement as of the day and year first above
written, whereupon it became binding in accordance with its terms.
SYNETIC, INC.
By: /s/ Anthony Vuolo
---------------------------------
Name: Anthony Vuolo
Title: Vice President and Chief
Financial Officer
By: /s/ Roger C. Holstein
--------------------------------
Roger C. Holstein
8
<PAGE>
EXHIBIT 10.14
EMPLOYMENT AGREEMENT
Employment Agreement (the "Agreement") dated as of December 12, 1997,
by and between Synetic, Inc., a Delaware corporation (the "Company"), and Kim A.
Davis ("Executive").
R E C I T A L S
---------------
In consideration of the mutual covenants in this Agreement, the
parties agree as follows:
1. Effectiveness of Agreement and Employment
-----------------------------------------
1.1 Effectiveness of Agreement. This Agreement shall become
--------------------------
effective as of the date hereof.
1.2 Employment by the Company. The Company hereby employs Executive
-------------------------
as Senior Vice President of the Company as of the Employment Commencement Date
(as defined in Section 3 below) and Executive hereby accepts such employment
with the Company. Executive shall report to, and perform such duties and
services for the Company and its subsidiaries and affiliates (collectively,
"Affiliates") as may be designated from time to time by, the President and Chief
Executive Officer of the Company. Executive shall use his best and most
diligent efforts to promote the interests of the Company and the Affiliates, and
shall devote all of his business time and attention to his employment under this
Agreement and under the Employment Agreement between the Executive and Porex
Corporation ("Porex") dated as of the date hereof (the "Porex Employment
Agreement").
1.3 Restrictive Covenants. Section 6 of the Porex Employment
---------------------
Agreement is incorporated by reference in its entirety as if it were set forth
herein.
2. Compensation and Benefits.
-------------------------
2.1 Salary. Company shall pay Executive for services during the
------
Employment Period a base salary at the annual rate of $100,000. Such base
salary shall be reviewed no less frequently than annually and may be increased
in the sole discretion of the Board of Directors of the Company (the "Board") or
the Compensation Committee of the Board. Such base salary shall be payable in
equal installments, no less frequently than monthly, pursuant to the Company's
customary payroll policies in force at the time of payment, less any required or
authorized payroll deductions.
<PAGE>
2
2.2 Other Benefits. Except as specified by Section 2.1 and Section
--------------
5, the Executive shall not be entitled to receive any additional compensation or
benefits pursuant to this Agreement.
3. Employment Period.
-----------------
Executive's employment under this Agreement shall commence on January
1, 1998 (the "Employment Commencement Date"), and shall terminate on the fifth
anniversary thereof (the "Employment Period"), unless terminated earlier
pursuant to Section 4. Unless written notice of either party's desire to
terminate the Employment Period has been given to the other party prior to the
expiration of the Employment Period (or any one-month renewal thereof
contemplated by this sentence), the Employment Period shall be automatically
renewed for successive one-month periods.
4. Termination.
-----------
4.1 Termination of the Porex Employment Agreement. The Employment
---------------------------------------------
Period shall terminate immediately upon the termination of the Porex Employment
Agreement. The reason specified for the termination of the Porex Employment
Agreement shall apply equally to the termination of this Agreement and will have
the consequences set forth below.
4.2 Termination by the Company for Cause. Upon a termination of the
------------------------------------
Employment Period for Cause (as defined in the Porex Employment Agreement), the
Company shall have no obligation to the Executive other than the payment of
Executive's earned and unpaid salary to the effective date of such termination.
4.3 Death and Disability. In the event of the termination of the
--------------------
Employment Period as a result of the (i) the death of the Executive or (ii) the
Executive becoming ill, mentally or physically disabled, or otherwise
incapacitated so as to be unable to regularly perform the duties of his position
for a period in excess of 90 consecutive days or more than 120 days in any
consecutive twelve-month period, the Company shall have no obligation to the
Executive or the Executive's estate other than a continuation of his base salary
(at a rate equal to 100% of the rate in effect at the time of such termination)
for a period of two years following the date of termination, payable in
accordance with the third sentence of Section 2.1; provided, however, that such
salary continuation and payments shall end on the occurrence of any circumstance
or event that would constitute Cause, including, without limitation, a breach of
the covenants contained in Section 6 of the Porex Employment Agreement and
incorporated by reference herein.
<PAGE>
3
4.4 Resignation by the Executive.
----------------------------
(a) If the Executive terminates his employment during the Employment
Period for any reason (except as set forth below in Section 4.4(b)), the Company
shall have no obligation to the Executive other than the payment of the
Executive's earned and unpaid salary to the effective date of such termination.
(b) If the Executive terminates his employment with Porex in
accordance with Section 4.3(b) of the Porex Employment Agreement, the Executive
shall be entitled to receive amounts under Section 4.5 hereof as if the Company
had terminated the Executive's employment without Cause.
4.5 Termination by the Company Without Cause. If the Employment
----------------------------------------
Period is terminated by the Company without Cause, the Company shall have no
obligation to the Executive other than a continuation of his base salary (at a
rate equal to 100% of the rate in effect at the time of such termination) for a
period of two years following the date of termination, payable in accordance
with the third sentence of Section 2.1; provided, however, that such salary
continuation shall end on the occurrence of any circumstance or event that would
constitute Cause, including, without limitation, a breach of the covenants
contained in Section 6 of the Porex Employment Agreement and incorporated by
reference herein. The expiration of the Employment Period, pursuant to Section
3, shall not be considered a termination without Cause.
4.6 Termination Following an IPO of Porex Corporation. At the
--------------------------------------------------
election of the Company, the Employment Period shall terminate at any time
following the occurrence of an initial public offering of common equity
securities of Porex. In the event of such a termination, the Company shall have
no obligation to the Executive other than the payment of the Executive's earned
and unpaid salary to the effective date of such termination.
4.7 Liquidated Damages. Executive acknowledges that any payments
------------------
under Section 4.5 resulting from a termination of the Employment Period by the
Company without Cause are in lieu of any and all claims that the Executive may
have against the Company or any of its Affiliates other than under the Porex
Employment Agreement or benefits under the Company's employee benefit plans that
by their terms survive termination of employment (including, the Option
Agreements (as defined below)) and benefits under the Consolidated Omnibus
Budget Reconciliation Act of 1985, as amended, and represent liquidated damages
(and not a penalty).
5. Options. Executive has been granted options ("Options") to
-------
purchase shares of the Company's common stock, par value $.01 per share,
subject to the approval of the Company's stockholders of the amendment and
restatement of the Company's 1989 Class B Stock Option Plan (the "Amended and
Restated Class B Plan") pursuant to stock option agreements substantially in the
form attached hereto as Exhibits A and B (the "Option Agreements"). The terms
and conditions of such Options shall be governed by the Option Agreements and
the Amended and Restated Class B Plan.
<PAGE>
4
6. Notices. Any notice or communication given by either party
-------
hereto to the other shall be in writing and personally delivered or mailed by
registered or certified mail, return receipt requested, postage prepaid, to the
following addresses:
(a) if to the Company:
Synetic, Inc.
669 River Drive
Elmwood Park, New Jersey 07407-1361
Telecopier No.: (212) 703-3401
Attn: President and Chief Executive Officer
(b) if to the Executive, to the address set forth on the signature
page hereof.
Any notice shall be deemed given when actually delivered to such address, or two
days after such notice has been mailed or sent by overnight courier, whichever
comes earliest. Any person entitled to receive notice may designate in writing,
by notice to the other, such other address which notices to such person shall
thereafter be sent.
7. Miscellaneous.
-------------
7.1 Entire Agreement. This Agreement together with the Porex
----------------
Employment Agreement and the Option Agreements contain the entire understanding
of the parties in respect of its subject matter and supersede upon its
effectiveness all other prior agreements and understandings between the parties
with respect to such subject matter.
7.2 Amendment; Waiver. This Agreement may not be amended,
-----------------
supplemented, canceled or discharged, except by written instrument executed by
the party affected thereby. No failure to exercise, and no delay in exercising,
any right, power or privilege hereunder shall operate as a waiver thereof. No
waiver of any breach of any provision of this Agreement shall be deemed to be a
waiver of any preceding or succeeding breach of the same or any other provision.
7.3 Binding Effect; Assignment. The rights and obligations of this
--------------------------
Agreement shall bind and inure to the benefit of any successor of the Company by
reorganization, merger or consolidation, or any assignee of all or substantially
all of the Company's business and properties. Executive's rights or obligations
under this Agreement may not be assigned by the Executive, except that the right
specified in Section 4.3 shall pass upon the Executive's death to Executive's
executor or administrator.
<PAGE>
5
7.4 Headings. The headings contained in this Agreement are for
--------
reference purposes only and shall not affect the meaning or interpretation of
this Agreement.
7.5 Governing Law; Interpretation. This Agreement shall be construed
-----------------------------
in accordance with and governed for all purposes by the laws and public policy
(other than conflict of laws principles) of the State of New Jersey, applicable
to contracts executed and to be wholly performed within such State.
7.6 Further Assurances. Each of the parties agrees to execute,
------------------
acknowledge, deliver and perform, and cause to be executed, acknowledged,
delivered and performed, at any time and from time to time, as the case may be,
all such further acts, deeds, assignments, transfers, conveyances, powers of
attorney and assurances as may be reasonably necessary to carry out the
provisions or intent of this Agreement.
7.7 Severability. The parties have carefully reviewed the provisions
------------
of this Agreement and agree that they are fair and equitable. However, in light
of the possibility of differing interpretations of law and changes in
circumstances, the parties agree that if any one or more of the provisions of
this Agreement shall be determined by a court of competent jurisdiction to be
invalid, void or unenforceable, the remainder of the provisions of this
Agreement shall, to the extent permitted by law, remain in full force and effect
and shall in no way be affected, impaired or invalidated. Moreover, if any of
the provisions contained in this Agreement is determined by a court of competent
jurisdiction to be excessively broad as to duration, activity, geographic
application or subject, it shall be construed, by limiting or reducing it to the
extent legally permitted, so as to be enforceable to the extent compatible with
then applicable law.
7.8 Withholding Taxes. All payments hereunder shall be subject to
-----------------
any and all applicable federal, state, local and foreign withholding taxes.
<PAGE>
6
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
SYNETIC, INC.
By: /s/ Charles A. Mele
-----------------------------
Name: Charles A. Mele
Title: Vice President
EXECUTIVE
/s/ Kim A. Davis
------------------------------
Address:
<PAGE>
EXHIBIT A
<PAGE>
STOCK OPTION AGREEMENT
STOCK OPTION AGREEMENT (this "Agreement") made as of November 18,
1997, between SYNETIC, INC., a Delaware corporation (the "Company"), and KIM A.
DAVIS ("Optionee").
RECITAL
-------
WHEREAS, pursuant to the Company's Amended and Restated 1989 Class B
Stock Option Plan (the "Amended Class B Plan"; capitalized terms used herein
without definition have the meanings specified in the Amended Class B Plan) and
upon the terms and subject to the conditions hereinafter set forth, the Company
desires to provide Optionee with an incentive to become an Employee of the
Company and of Porex Corporation, a Subsidiary of the Company ("Porex"), to
remain in the employ thereof, and to increase his interest in the success of,
the Company, Porex and their respective Affiliates by granting to Optionee a
nonqualified stock option (the "Option") to purchase shares of common stock,
$.01 par value, of the Company (the "Common Stock");
WHEREAS, the grant of the Option is subject to the approval of the
Amended Class B Plan by the Company's stockholders; and
WHEREAS, the Option is intended to comply with the requirements of
Rule 16b-3 under the Securities Exchange Act of 1934, as amended (the "Exchange
Act") and Section 162(m) of the Internal Revenue Code of 1986, as amended.
AGREEMENTS
----------
In consideration of the Recitals (which are incorporated by reference)
and the mutual covenants of this Agreement, the Company and Optionee agree as
follows:
1. Grant of Option. Pursuant to a determination by the Stock Option
---------------
Committee of the Board of Directors of the Company (the "Board"), effective as
of the date first set forth above (the "Date of Grant"), the Company hereby
grants to Optionee, subject to the terms of this Agreement and the approval of
the Amended Class B Plan by the Company's stockholders, the right (the "Option")
to purchase 125,000 shares (the "Shares") of Common Stock under the Amended
Class B Plan. In the event that such approval is not obtained, the Option shall
be null and void and of no further force and effect.
<PAGE>
2
2. Exercisability of Option.
------------------------
2.1. Subject to the terms and conditions of this Agreement (including,
without limitation, Sections Section 2.2, 2.3, 2.4 and 2.5), the Option to
purchase the Shares shall become exercisable in accordance with the following
schedule:
% of Option
Exercisable (on a
Vesting Date Cumulative Basis)
------------ -----------------
January 1, 1999 20%
January 1, 2000 40%
January 1, 2001 60%
January 1, 2002 80%
January 1, 2003 100%
2.2. The unexercised portion of the Option shall automatically and
without notice terminate and become null and void at the time of the earliest to
occur of the following:
2.2.1. The tenth anniversary of the Date of Grant; or
2.2.2. Subject to the provisions of Sections 2.3, 2.4, 2.5 and
2.6 below, 30 days (90 days in the case of death of Optionee or his
retirement with the consent of the Company) following the date of
termination of Optionee's status as an employee of the Company and its
Subsidiaries for any reason in the case of the vested portion of the Option
(or the date on which a portion of the Option vests pursuant to Section
2.4) and immediately following such date of termination in the case of the
unvested portion of the Option; provided that if, prior to the expiration
of such 30-day period, Optionee is retained as a consultant by the Company
or any Subsidiary, Optionee shall be deemed to continue to be an employee
of the Company or such Subsidiary for purposes of this Section 2.2 and
Section 2.3, 2.4, 2.5 and 2.6 until 30 days following the date Optionee
shall cease to be so retained, unless the Board or the Committee shall
determine, in its sole discretion, that retention of Optionee as a
consultant shall not be deemed to result in continuation as an employee for
purposes of this Section 2.2 and Section 2.3, 2.4, 2.5 and 2.6 with respect
to either (a) all Shares covered by the Option or (b) the Shares for which
the Option has not yet become exercisable, pursuant to Section 2.1, as of
the date of termination of employment. Any such continuation shall not be
deemed the grant of a new Option. Without limiting the generality of the
foregoing, termination of Optionee's employment with the Company shall not
terminate the Option provided that the Optionee remains an employee of a
Subsidiary.
<PAGE>
3
2.3. If Optionee's employment is terminated by the Company and its
Subsidiaries for Cause (as defined in the Employment Agreement dated as of
December 12, 1997 by and between Porex and Optionee (the "Porex Employment
Agreement")), the Option (both vested and non-vested) shall expire on the date
of termination.
2.4. In the event that Optionee's employment with the Company is
terminated (I) by the Company and its Subsidiaries without Cause or as a result
of his disability (as provided in Section 4.2 of the Porex Employment
Agreement), (II) by Optionee due to a material reduction in his duties or
responsibilities under the Porex Employment Agreement which has not been in
cured by Porex within 20 days following written notice by the Executive
detailing such reduction or (III) by Optionee upon 30 days' written notice to
the Company at any time after a 12-month period (or such shorter period to the
extent the acquiring company does not request the services of Optionee for such
12-month period) following the occurrence of the Change in Control of Porex (as
defined in the Porex Employment Agreement), any Option that has not vested as of
the date of termination shall remain outstanding and continue to vest, and shall
otherwise be treated for purposes of this Agreement, as if Optionee remained in
the employ of the Company through the earlier of (a) the second anniversary of
the date of termination or (b) the occurrence of any circumstance or event that
would constitute Cause.
2.5. Notwithstanding any other provision of this Agreement, the
Committee may determine that the Option shall become exercisable in full or in
part, whether or not it is then exercisable, upon such circumstances or events
as the Committee determines, in its sole discretion, merits special
consideration.
2.6 Notwithstanding anything to the contrary contained herein, in no
event shall the Option be exercisable after the expiration of ten years from the
date of this Agreement.
3. Method of Exercise of Option. Subject to Section 5 below, the
----------------------------
Option may be exercised by Optionee (or by Optionee's personal representatives
or heirs at law but by no other person) as to all or (at Optionee's election)
part of the Shares as to which the Option is then exercisable (that is, vested)
under Section 2 by giving written notice of exercise to the Company at its
principal business office, specifying the number of Shares for which the Option
is exercised, accompanied by payment in full for such Shares (as determined
pursuant to Section 4) together with any amount required for payroll withholding
tax under all applicable federal, state or local laws or regulations. The
failure to exercise the Option, in whole or in part, as to any vested exercise
rights shall not constitute a waiver of these rights. The Company shall cause
certificates for the Shares so purchased to be delivered to Optionee or
Optionee's personal representatives or heirs at law, at its principal business
office, against payment in full of the Option Price for such Shares (as defined
below in Section 4), as soon as practicable following receipt of the notice of
exercise and the applicable purchase price. The Option Price shall be paid in
United States dollars in the form of cash, certified check or bank draft, or (if
the Shares of Common Stock of the Company are then publicly traded) in fully
paid Shares of Common Stock of the Company held for a period of at least six
months (valued for this purpose at their then fair market value determined by
the Committee), consistent with practices permitted by the Committee or a
combination of the two.
<PAGE>
4
4. Option Price. The purchase price of the Shares covered by this
------------
Agreement shall be $36.50 per Share.
5. Non-Transferability of Option. The Option is not assignable or
-----------------------------
transferable except by will or by the laws of descent and distribution and the
Option may not be exercised other than by Optionee or, after the death of
Optionee, by Optionee's personal representative, heirs or legatees; provided,
however, that the Committee may, subject to such terms and conditions as the
Committee shall specify, permit the transfer of the Option to Optionee's family
members or to one or more trusts established in whole or in part for the benefit
of one or more of such family members. Without limiting the generality of the
foregoing, the Option may not be assigned, transferred (except as permitted in
the preceding sentence), pledged or hypothecated in any way (whether by
operation of law or otherwise), and shall not be subject to levy, attachment or
similar process. Any attempt to assign, transfer, pledge or hypothecate the
Option contrary to the provisions of this Agreement, and any levy, attachment or
similar process upon the Option shall be null and void and without effect, and
the Board or the Committee may, in its discretion, upon the happening of any
such event, terminate the Option as of the date of such event.
6. No Rights Prior to Issuance of Shares. Optionee shall have no
-------------------------------------
rights as a stockholder with respect to the Shares covered by the Option until
the date the Company has issued and delivered such Shares to Optionee, and
Optionee's name shall have been entered as the stockholder of record on the
books of the Company and then only as to such Shares as are actually issued and
delivered to Optionee.
7. Restrictions on Exercise and on Common Stock.
--------------------------------------------
7.1. The Shares issued upon exercise of the Option shall be issued
only to Optionee or a person permitted to exercise the Option pursuant to
Section 3.
7.2 The Option shall not be exercisable unless and until (i) a
registration statement under the Securities Act has been duly filed and declared
effective pertaining to the Shares and such Shares shall have been qualified
under applicable state "blue sky" laws, or (ii) the Committee in its sole
discretion determines that such registration and qualification is not required
as a result of the availability of an exemption from such registration and
qualification under such laws. The Company shall use all reasonable efforts to
file a registration statement with the Securities and Exchange Commission on
Form S-8 with respect to the Shares subject to the Option on or prior to the
date on which such Option becomes exercisable. The Company shall have no
obligation to issue any Common Stock pursuant to the exercise of the Option if
the Company reasonably determines at the time of such exercise that the issuance
of Common Stock at such time would violate applicable law with respect to
insider trading or otherwise, or then existing policies of the Company
applicable to employees of the Company or its Affiliates holding options to
purchase Common Stock.
<PAGE>
5
7.3. The Company may require Optionee to represent to the Company, in
writing, when the Option is exercised, that the Optionee is exercising the
Option for Optionee's own account for investment only and not with a view to
distribution and that Optionee will not make any sale, transfer or other
disposition of any Shares purchased except (i) pursuant to a registration
statement filed under the Securities Act of 1933, as amended (the "Securities
Act"), which the Securities and Exchange Commission has declared effective, (ii)
pursuant to an opinion of counsel satisfactory in form and substance to the
Company that the sale, transfer or other disposition may be made without
registration, or (iii) pursuant to a "no action" letter issued to Optionee by
the Securities and Exchange Commission. The Company may require each share
certificate representing Shares to bear a legend stating that the Shares
evidenced thereby may not be sold or transferred except in compliance with the
Securities Act and the provisions of the Amended Class B Plan and this
Agreement. Notwithstanding anything contained herein to the contrary, the
Option shall not be exercisable at a time when the exercise thereof may result
in the violation of any law or governmental order or regulation.
8. Right to Terminate Employment. This Agreement does not
-----------------------------
constitute a contract of, or an implied promise to continue, Optionee's
employment or status with the Company or any Subsidiary of the Company; and
nothing contained in this Agreement shall confer upon Optionee the right to
continue such employment or status; nor does this Agreement affect the right of
the Company or any such Subsidiary to terminate Optionee's employment at any
time. Optionee shall have no rights in the benefits conferred by the Option or
in any Shares except to the extent the Option is exercised while vested and
prior to termination. Termination of the Option by reason of rightful
termination of employment shall give no rise for any claim for damages by
Optionee under this Agreement and shall be without prejudice to any rights or
remedies which the Company or any Subsidiary of the Company may have against
Optionee.
9. Taxes. If the Company shall be required to withhold any amounts
-----
by reason of any federal, state or local tax rules or regulations in respect of
the payment of cash or the issuance of Shares pursuant to the exercise of an
Option, the Company shall be entitled to deduct and withhold such amounts from
any cash payments to be made to Optionee. In any event, Optionee shall either
(i) make available to the Company, promptly when requested by the Company,
sufficient funds to meet the requirements of such withholding, or (ii) to the
extent permitted by the Committee, irrevocably authorize the Company to withhold
from the Shares otherwise issuable to Optionee as a result of such exercise a
number of Shares having a fair market value, as of the date the withholding tax
obligation arises (the "Tax Date") which alone, or when added to funds paid to
the Company by Optionee, equal the amount of the minimum withholding tax
obligation (the "Withholding Elections") and the Company shall be entitled to
take and authorize such steps as it may deem advisable in order to have such
funds made available to the Company out of any funds or property due or to
become due to Optionee. Optionee's Withholding Election may only be made prior
to the Tax Date and may be disapproved by the Committee. The Committee may
establish such rules and procedures as it may deem necessary or advisable in
connection with the withholding of taxes relating to the exercise of the Option.
<PAGE>
6
10. Notices. Each notice relating to this Agreement shall be in
-------
writing and delivered in person or by certified mail to the proper address.
Each notice to the Company shall be addressed to it at its principal office,
attention of the Chief Financial Officer, with a copy to the Company's
Secretary. Each notice to Optionee (or other person or persons then entitled to
exercise the Option) shall be addressed to Optionee (or such other person or
persons) at Optionee's most recent address on the books of the Company. Anyone
to whom a notice may be given under this Agreement may designate a new address
by notice to that effect. Each notice shall be deemed to have been given on the
day it is received.
11. Benefits of Agreement. This Agreement shall inure to the benefit
---------------------
of and be binding upon each successor of the Company. Subject to Section 5,
rights granted to the Company under this Agreement shall be binding upon
Optionee's personal representatives and heirs at law.
12. Set-off. If at any time Optionee is indebted to the Company,
-------
Porex or any of their respective Affiliates for any reason, the Company may in
the discretion of the Board or the Committee (a) withhold from Optionee (i)
following the exercise by Optionee of an Option, Shares issuable to Optionee
having a Fair Market Value on the date of exercise up to the amount of
indebtedness to the Company or (ii) following the sale by Optionee of Shares
received pursuant to the exercise of the Option, amounts due to Optionee in
connection with the sale of such Shares up to the amount of indebtedness to the
Company, or (b) take any substantially similar action. The Board or the
Committee may establish such rules and procedures as it may deem necessary or
advisable in connection with the taking of any action contemplated by this
Section 12.
13. Captions. The captions contained in this Agreement are for
--------
reference purposes only and shall not affect the meaning or interpretation of
this Agreement.
<PAGE>
7
14. Interpretation and Construction. The Option shall be
-------------------------------
administered by the Committee. The Committee shall have authority to interpret
and construe the terms of the Option, to make all determinations necessary or
advisable for the administration of the Option (including determinations
relating to the delivery of Shares of Common Stock in payment of the purchase
price of the Shares covered by the Option and any tax withholding obligations,
subject to compliance with any applicable rules promulgated under Section 16 of
the Exchange Act). The good faith interpretation and construction by the Board
or by the Committee of any provision of this Agreement shall be final and
conclusive and binding on the parties hereto.
15. Governing Law. This Agreement shall be construed in accordance
-------------
with and governed by the laws of the State of New Jersey without regard to any
principles of conflict of laws.
16. Amended Class B Plan. This Agreement, the Option and the
--------------------
Common Stock issued pursuant to the exercise of the Option shall be subject to
the Amended Class B Plan, the terms of which are incorporated by reference
herein. In the event of any inconsistency between this Agreement and the Plan,
the Plan shall govern.
EXECUTION
---------
The parties signed this Agreement as of the day and year first above
written, whereupon it became binding in accordance with its terms.
SYNETIC, INC.
By: /s/ Anthony Vuolo
------------------
Name: Anthony Vuolo
Title: Vice President and Chief
Financial Officer
/s/ Kim A. Davis
------------------
Kim A. Davis
<PAGE>
EXHIBIT B
<PAGE>
STOCK OPTION AGREEMENT
STOCK OPTION AGREEMENT (this "Agreement") made as of November 18,
1997, between SYNETIC, INC., a Delaware corporation (the "Company"), and KIM A.
DAVIS ("Optionee").
RECITAL
-------
WHEREAS, pursuant to the Company's Amended and Restated 1989 Class B
Stock Option Plan (the "Amended Class B Plan"; capitalized terms used herein
without definition have the meanings specified in the Amended Class B Plan) and
upon the terms and subject to the conditions hereinafter set forth, the Company
desires to provide Optionee with an incentive to become an Employee of the
Company and of Porex Corporation, a Subsidiary of the Company ("Porex"), to
remain in the employ thereof, and to increase his interest in the success of,
the Company, Porex and their respective Affiliates by granting to Optionee a
nonqualified stock option (the "Option") to purchase shares of common stock,
$.01 par value, of the Company (the "Common Stock");
WHEREAS, the grant of the Option is subject to the approval of the
Amended Class B Plan by the Company's stockholders; and
WHEREAS, the Option is intended to comply with the requirements of
Rule 16b-3 under the Securities Exchange Act of 1934, as amended (the "Exchange
Act") and Section 162(m) of the Internal Revenue Code of 1986, as amended.
AGREEMENTS
----------
In consideration of the Recitals (which are incorporated by reference)
and the mutual covenants of this Agreement, the Company and Optionee agree as
follows:
1. Grant of Option. Pursuant to a determination by the Stock Option
---------------
Committee of the Board of Directors of the Company (the "Board"), effective as
of the date first set forth above (the "Date of Grant"), the Company hereby
grants to Optionee, subject to the terms of this Agreement and the approval of
the Amended Class B Plan by the Company's stockholders, the right (the "Option")
to purchase 125,000 shares (the "Shares") of Common Stock under the Amended
Class B Plan. In the event that such approval is not obtained, the Option shall
be null and void and of no further force and effect.
<PAGE>
2
2. Exercisability of Option.
------------------------
2.1. Subject to the terms and conditions of this Agreement (including,
without limitation, Sections 2.2, 2.3, 2.4 and 2.5), the Option to purchase the
Shares shall become exercisable on November 1, 2007; provided, however, that in
the event that (i) an initial public offering under the Securities Act of 1933,
as amended (the "Securities Act") of the common stock of Porex shall not have
occurred on or prior to the dates specified in the table below and (ii) the
Executive has not been granted the options to purchase common stock of Porex as
contemplated in Section 5 of the Employment Agreement dated as of December 12,
1997 by and between Porex and Optionee (the "Porex Employment Agreement"), the
specified portion of the Option set forth opposite such date shall become
exercisable:
% of Option
Exercisable (on a
Vesting Date Cumulative Basis)
------------ -----------------
January 1, 1999 20%
January 1, 2000 40%
January 1, 2001 60%
January 1, 2002 80%
January 1, 2003 100%
2.2. The unexercised portion of the Option shall automatically and
without notice terminate and become null and void at the time of the earliest to
occur of the following:
2.2.1. The tenth anniversary of the Date of Grant; or
2.2.2. Subject to the provisions of Sections 2.3, 2.4, 2.5 and
2.6 below, 30 days (90 days in the case of death of Optionee or his
retirement with the consent of the Company) following the date of
termination of the Employment Agreement dated as of December 12, 1997 by
and between the Company and the Optionee (notwithstanding that the Optionee
may remain an employee of Synetic or Porex) for any reason in the case of
the vested portion of the Option (or the date on which a portion of the
Option vests pursuant to Section 2.4) and immediately following such date
of termination in the case of the unvested portion of the Option; provided
that if, prior to the expiration of such 30-day period, Optionee is
retained as a consultant by the Company, Optionee shall be deemed to
continue to be an employee of the Company for purposes of this Section 2.2
and Section 2.3, 2.4, 2.5 and 2.6 until 30 days following the date Optionee
shall cease to be so retained, unless the Board or the Committee shall
determine, in its sole discretion, that retention of Optionee as a
consultant shall not be deemed to result in continuation as an employee for
purposes of this Section 2.2 and Section 2.3, 2.4, 2.5 and 2.6 with respect
to either (a) all Shares covered by the Option or (b) the Shares for which
the Option has not yet become exercisable, pursuant to Section 2.1, as of
the date of termination of employment. Any such continuation shall not be
deemed the grant of a new Option.
<PAGE>
3
2.3. If Optionee's employment is terminated by the Company and its
Subsidiaries for Cause (as defined in the Porex Employment Agreement, the Option
(both vested and non-vested) shall expire on the date of termination.
2.4. In the event that Optionee's employment with the Company is
terminated (I) by the Company and its Subsidiaries without Cause or as a result
of his disability (as provided in Section 4.2 of the Porex Employment
Agreement), (II) by Optionee due to a material reduction in his duties or
responsibilities under the Porex Employment Agreement which has not been in
cured by Porex within 20 days following written notice by the Executive
detailing such reduction or (III) by Optionee upon 30 days' written notice to
the Company at any time after a 12-month period (or such shorter period to the
extent the acquiring company does not request the services of Optionee for such
12-month period) following the occurrence of the Change in Control of Porex (as
defined in the Porex Employment Agreement), any Option that has not vested as of
the date of termination shall remain outstanding and continue to vest, and shall
otherwise be treated for purposes of this Agreement, as if Optionee remained in
the employ of the Company through the earlier of (a) the second anniversary of
the date of termination or (b) the occurrence of any circumstance or event that
would constitute Cause.
2.5. Notwithstanding any other provision of this Agreement, the
Committee may determine that the Option shall become exercisable in full or in
part, whether or not it is then exercisable, upon such circumstances or events
as the Committee determines, in its sole discretion, merits special
consideration.
2.6 Notwithstanding anything to the contrary contained herein, in no
event shall the Option be exercisable after the expiration of ten years from the
date of this Agreement.
3. Method of Exercise of Option. Subject to Section 5 below, the
----------------------------
Option may be exercised by Optionee (or by Optionee's personal representatives
or heirs at law but by no other person) as to all or (at Optionee's election)
part of the Shares as to which the Option is then exercisable (that is, vested)
under Section 2 by giving written notice of exercise to the Company at its
principal business office, specifying the number of Shares for which the Option
is exercised, accompanied by payment in full for such Shares (as determined
pursuant to Section 4) together with any amount required for payroll withholding
tax under all applicable federal, state or local laws or regulations. The
failure to exercise the Option, in whole or in part, as to any vested exercise
rights shall not constitute a waiver of these rights. The Company shall cause
certificates for the Shares so purchased to be delivered to Optionee or
Optionee's personal representatives or heirs at law, at its principal business
office, against payment in full of the Option Price for such Shares (as defined
below in Section 4), as soon as practicable following receipt of the notice of
exercise and the applicable purchase price. The Option Price shall be paid in
United States dollars in the form of cash, certified check or bank draft, or (if
the Shares of Common Stock of the Company are then publicly traded) in fully
paid Shares of Common Stock of the Company held for a period of at least six
months (valued for this purpose at their then fair market value determined by
the Committee), consistent with practices permitted by the Committee or a
combination of the two.
<PAGE>
4
4. Option Price. The purchase price of the Shares covered by this
------------
Agreement shall be $36.50 per Share.
5. Non-Transferability of Option. The Option is not assignable or
-----------------------------
transferable except by will or by the laws of descent and distribution and the
Option may not be exercised other than by Optionee or, after the death of
Optionee, by Optionee's personal representative, heirs or legatees; provided,
however, that the Committee may, subject to such terms and conditions as the
Committee shall specify, permit the transfer of the Option to Optionee's family
members or to one or more trusts established in whole or in part for the benefit
of one or more of such family members. Without limiting the generality of the
foregoing, the Option may not be assigned, transferred (except as permitted in
the preceding sentence), pledged or hypothecated in any way (whether by
operation of law or otherwise), and shall not be subject to levy, attachment or
similar process. Any attempt to assign, transfer, pledge or hypothecate the
Option contrary to the provisions of this Agreement, and any levy, attachment or
similar process upon the Option shall be null and void and without effect, and
the Board or the Committee may, in its discretion, upon the happening of any
such event, terminate the Option as of the date of such event.
6. No Rights Prior to Issuance of Shares. Optionee shall have no
-------------------------------------
rights as a stockholder with respect to the Shares covered by the Option until
the date the Company has issued and delivered such Shares to Optionee, and
Optionee's name shall have been entered as the stockholder of record on the
books of the Company and then only as to such Shares as are actually issued and
delivered to Optionee.
7. Restrictions on Exercise and on Common Stock.
--------------------------------------------
7.1. The Shares issued upon exercise of the Option shall be issued
only to Optionee or a person permitted to exercise the Option pursuant to
Section 3.
7.2 The Option shall not be exercisable unless and until (i) a
registration statement under the Securities Act has been duly filed and declared
effective pertaining to the Shares and such Shares shall have been qualified
under applicable state "blue sky" laws, or (ii) the Committee in its sole
discretion determines that such registration and qualification is not required
as a result of the availability of an exemption from such registration and
qualification under such laws. The Company shall use all reasonable efforts to
file a registration statement with the Securities and Exchange Commission on
Form S-8 with respect to the Shares subject to the Option on or prior to the
date on which such Option becomes exercisable. The Company shall have no
obligation to issue any Common Stock pursuant to the exercise of the Option if
the Company reasonably determines at the time of such exercise that the issuance
of Common Stock at such time would violate applicable law with respect to
insider trading or otherwise, or then existing policies of the Company
applicable to employees of the Company or its Affiliates holding options to
purchase Common Stock.
<PAGE>
5
7.3. The Company may require Optionee to represent to the Company, in
writing, when the Option is exercised, that the Optionee is exercising the
Option for Optionee's own account for investment only and not with a view to
distribution and that Optionee will not make any sale, transfer or other
disposition of any Shares purchased except (i) pursuant to a registration
statement filed under the Securities Act, which the Securities and Exchange
Commission has declared effective, (ii) pursuant to an opinion of counsel
satisfactory in form and substance to the Company that the sale, transfer or
other disposition may be made without registration, or (iii) pursuant to a "no
action" letter issued to Optionee by the Securities and Exchange Commission.
The Company may require each share certificate representing Shares to bear a
legend stating that the Shares evidenced thereby may not be sold or transferred
except in compliance with the Securities Act and the provisions of the Amended
Class B Plan and this Agreement. Notwithstanding anything contained herein to
the contrary, the Option shall not be exercisable at a time when the exercise
thereof may result in the violation of any law or governmental order or
regulation.
8. Right to Terminate Employment. This Agreement does not
-----------------------------
constitute a contract of, or an implied promise to continue, Optionee's
employment or status with the Company or any Subsidiary of the Company; and
nothing contained in this Agreement shall confer upon Optionee the right to
continue such employment or status; nor does this Agreement affect the right of
the Company or any such Subsidiary to terminate Optionee's employment at any
time. Optionee shall have no rights in the benefits conferred by the Option or
in any Shares except to the extent the Option is exercised while vested and
prior to termination. Termination of the Option by reason of rightful
termination of employment shall give no rise for any claim for damages by
Optionee under this Agreement and shall be without prejudice to any rights or
remedies which the Company or any Subsidiary of the Company may have against
Optionee.
9. Taxes. If the Company shall be required to withhold any amounts
-----
by reason of any federal, state or local tax rules or regulations in respect of
the payment of cash or the issuance of Shares pursuant to the exercise of an
Option, the Company shall be entitled to deduct and withhold such amounts from
any cash payments to be made to Optionee. In any event, Optionee shall either
(i) make available to the Company, promptly when requested by the Company,
sufficient funds to meet the requirements of such withholding, or (ii) to the
extent permitted by the Committee, irrevocably authorize the Company to withhold
from the Shares otherwise issuable to Optionee as a result of such exercise a
number of Shares having a fair market value, as of the date the withholding tax
obligation arises (the "Tax Date") which alone, or when added to funds paid to
the Company by Optionee, equal the amount of the minimum withholding tax
obligation (the "Withholding Elections") and the Company shall be entitled to
take and authorize such steps as it may deem advisable in order to have such
funds made available to the Company out of any funds or property due or to
become due to Optionee. Optionee's Withholding Election may only be made prior
to the Tax Date and may be disapproved by the Committee. The Committee may
establish such rules and procedures as it may deem necessary or advisable in
connection with the withholding of taxes relating to the exercise of the Option.
<PAGE>
6
10. Notices. Each notice relating to this Agreement shall be in
-------
writing and delivered in person or by certified mail to the proper address.
Each notice to the Company shall be addressed to it at its principal office,
attention of the Chief Financial Officer, with a copy to the Company's
Secretary. Each notice to Optionee (or other person or persons then entitled to
exercise the Option) shall be addressed to Optionee (or such other person or
persons) at Optionee's most recent address on the books of the Company. Anyone
to whom a notice may be given under this Agreement may designate a new address
by notice to that effect. Each notice shall be deemed to have been given on the
day it is received.
11. Benefits of Agreement. This Agreement shall inure to the benefit
---------------------
of and be binding upon each successor of the Company. Subject to Section 5,
rights granted to the Company under this Agreement shall be binding upon
Optionee's personal representatives and heirs at law.
12. Set-off. If at any time Optionee is indebted to the Company,
-------
Porex or any of their respective Affiliates, the Company may in the discretion
of the Board or the Committee (a) withhold from Optionee (i) following the
exercise by Optionee of an Option, Shares issuable to Optionee having a Fair
Market Value on the date of exercise up to the amount of indebtedness to the
Company or (ii) following the sale by Optionee of Shares received pursuant to
the exercise of the Option, amounts due to Optionee in connection with the sale
of such Shares up to the amount of indebtedness to the Company, or (b) take any
substantially similar action. The Board or the Committee may establish such
rules and procedures as it may deem necessary or advisable in connection with
the taking of any action contemplated by this Section 12.
13. Captions. The captions contained in this Agreement are for
--------
reference purposes only and shall not affect the meaning or interpretation of
this Agreement.
14. Interpretation and Construction. The Option shall be
-------------------------------
administered by the Committee. The Committee shall have authority to interpret
and construe the terms of the Option, to make all determinations necessary or
advisable for the administration of the Option (including determinations
relating to the delivery of Shares of Common Stock in payment of the purchase
price of the Shares covered by the Option and any tax withholding obligations,
subject to compliance with any applicable rules promulgated under Section 16 of
the Exchange Act). The good faith interpretation and construction by the Board
or by the Committee of any provision of this Agreement shall be final and
conclusive and binding on the parties hereto.
<PAGE>
7
15. Governing Law. This Agreement shall be construed in accordance
-------------
with and governed by the laws of the State of New Jersey without regard to any
principles of conflict of laws.
16. Amended Class B Plan. This Agreement, the Option and the
--------------------
Common Stock issued pursuant to the exercise of the Option shall be subject to
the Amended Class B Plan, the terms of which are incorporated by reference
herein. In the event of any inconsistency between this Agreement and the Plan,
the Plan shall govern.
EXECUTION
---------
The parties signed this Agreement as of the day and year first above
written, whereupon it became binding in accordance with its terms.
SYNETIC, INC.
By: /s/ Anthony Vuolo
--------------------
Name: Anthony Vuolo
Title: Vice President and Chief
Financial Officer
/s/ Kim A. Davis
--------------------
Kim A. Davis
<PAGE>
EXHIBIT 10.15
EMPLOYMENT AGREEMENT
Employment Agreement (the "Agreement") dated as of December 12, 1997,
by and between POREX CORPORATION, a Delaware corporation (the "Company"), and
Kim A. Davis ("Executive").
R E C I T A L S
---------------
In consideration of the mutual covenants in this Agreement, the
parties agree as follows:
1. Effectiveness of Agreement and Employment of Executive.
------------------------------------------------------
1.1 Effectiveness of Agreement. This Agreement shall become
--------------------------
effective as of the date hereof.
1.2 Employment by the Company. The Company hereby employs Executive
-------------------------
as President and Chief Executive Officer of the Company as of the Employment
Commencement Date (as defined in Section 3 below) and Executive hereby accepts
such employment with the Company. Executive shall report to, and perform such
duties and services for the Company and its subsidiaries and affiliates (such
subsidiaries and affiliates, including, without limitation, Synetic, Inc., the
parent of the Company ("Synetic"), collectively, "Affiliates") as may be
designated from time to time by, the Chairman of the Board. Executive shall use
his best and most diligent efforts to promote the interests of the Company and
the Affiliates, and shall devote all of his business time and attention to his
employment under this Agreement and under the Employment Agreement between the
Executive and Synetic dated as of the date hereof (the "Synetic Employment
Agreement").
2. Compensation and Benefits.
-------------------------
2.1 Salary. The Company shall pay Executive for services during the
------
Employment Period a base salary at the annual rate of $225,000. Such base
salary shall be reviewed no less frequently than annually and may be increased
in the sole discretion of the Board of Directors of the Company (the "Board") or
the Compensation Committee of the Board (the "Compensation Committee"). Such
base salary shall be payable in equal installments, no less frequently than
monthly, pursuant to the Company's customary payroll policies in force at the
time of payment, less any required or authorized payroll deductions. In the
event that the Synetic Employment Agreement is terminated by Synetic following
the occurrence of an initial public offering of common equity securities of the
Company, the Executive's annual base salary shall automatically increase by an
amount equal to the base salary in effect at such time under the Synetic
Employment Agreement (initially, $100,000).
<PAGE>
2
2.2 Benefits. During the Employment Period, Executive shall be
--------
entitled to participate, on the same basis and at the same level as other
employees of the Company, in any group insurance, hospitalization, medical,
health and accident, disability, fringe benefit and tax-qualified retirement
plans or programs of the Company now existing or hereafter established to the
extent that he is eligible under the general provisions thereof.
2.3 Expenses. Pursuant to the Company's customary policies in force
--------
at the time of payment, the Executive shall be promptly reimbursed, against
presentation of vouchers or receipts therefor, for all authorized expenses
properly and reasonably incurred by him on behalf of the Company or its
Affiliates in the performance of his duties hereunder. The Executive shall be
entitled to first class airline travel.
2.4 Perquisites. During the Employment Period, the Company shall
-----------
reimburse the Executive for the lease payments on his current vehicle and for
the costs and expenses incurred by the Executive in connection with the use of
such vehicle, including reimbursement for insurance costs and gasoline. At the
expiration of the current lease term occurring during the Employment Period, the
Company shall provide the Executive with the use of a domestic luxury
automobile, such as a Cadillac or Lincoln sedan, and shall reimburse him for the
costs and expenses thereof.
2.5 Life Insurance. During the Employment Period, the Company shall
--------------
reimburse the Executive for the annual premiums associated with a term life
insurance policy with a face value of $1 million to the extent that the
Executive is considered a "standard risk" for purposes of such policy (excess
amounts shall be borne by the Executive). The beneficiary of such policy is to
be designated by the Executive.
2.6 Vacation. Executive shall be entitled to vacation time of no
--------
less than five weeks during each twelve-month fiscal year of the Company during
the Employment Period, consistent with the Company's vacation policies. The
date or dates of such vacations shall be selected by the Executive having
reasonable regard to the business needs of the Company.
2.7 Country Club Fees. During the Employment Period, the Company
-----------------
shall pay the initiation fee and annual dues (including, assessments applied for
such year) for the Executive's membership in a country club of his choice
(subject to the approval of the Company which shall not unreasonably be
withheld) and the business expenses incurred with such membership shall be
reimbursed pursuant to Section 2.3.
2.8 Incentive Plan. During the Employment Period, the Executive
--------------
shall be eligible to participate in the Company's EVA Incentive Plan (the
"Incentive Plan").
<PAGE>
3
2.9 Transaction-Based Compensation.
------------------------------
(a) In the event that the Company has consummated an acquisition of a
business unit (the "Acquired Entity") as a result of the efforts of the
Executive, by merger, purchase of assets or securities, consolidation, tender or
exchange offer (such transaction being hereinafter referred to as an
"Acquisition Transaction"), during the Employment Period or pursuant to a
written agreement executed during the Employment Period, the Executive shall,
subject to the conditions set forth in Section 2.9(b), be entitled to receive an
amount ("Transaction-Based Compensation") equal to 1% of the sum of the
aggregate consideration payable by the Company (whether in cash, property and/or
securities) in connection therewith, payable in the manner described below in
Section 2.9(b). Notwithstanding the foregoing, in no event shall the aggregate
amount of Transaction-Based Compensation in respect of all Acquisition
Transactions that is payable in any fiscal year of the Company (in accordance
with 2.9(b) below) exceed $200,000 (the "$200,000 Limit") and no amounts of
Transaction-Based Compensation shall be carried over for future fiscal years to
the extent that a given fiscal year's Transaction-Based Compensation is less
than the $200,000 Limit. The value of any consideration in accordance in with
this Section 2.9(a) (other than cash or marketable securities) shall be the fair
market value thereof determined, in good faith, by the Board.
(b) The amount of any Transaction-Based Compensation payable pursuant
to Section 2.9(a) above with respect to any Acquisition Transaction shall be
payable (each, an "Installment Payment") on the following terms and conditions:
33% of the Transaction-Based Compensation shall be paid to the Executive as
promptly as practicable following the determination of operating profits for the
Acquired Entity for the first full fiscal year of the Company following the
closing date of such Acquisition Transaction, 50% of the Transaction-Based
Compensation shall be paid to the Executive as promptly as practicable following
the determination of operating profits for the Acquired Entity for the second
full fiscal year of the Company following the closing date of the Acquisition
Transaction, and 17% of the Transaction-Based Compensation shall be paid to the
Executive as promptly as practicable following the determination of operating
profits for the Acquired Entity for the third full fiscal year of the Company
following the closing date of such Acquisition Transaction; provided, however,
that no Installment Payment shall be paid to the Executive if the Acquired
Company's operating profits for the applicable fiscal year did not equal or
exceed the amount of operating profits of such Acquired Entity as shown in the
final projections prepared by the Company's management, approved by the
Executive and reviewed by the Board in connection with the approval of the
Acquisition Transaction (the "Projections"); provided further, however, that in
no event shall the aggregate amount of all Installment Payments in any one year
exceed the $200,000 Limit. If the aggregate consideration in an Acquisition
Transaction may be increased by contingent payments related to future earnings
or operations or otherwise, and such contingent payments are paid to the
Company, the portion of the Transaction-Based Compensation related thereto shall
be calculated as if the contingent payment had been made on the closing date of
the Acquisition Transaction and shall be paid (i) if such contingent payment is
made prior to the completion of the three-year period described above, at such
time as the Installment Payment for the fiscal year in which the contingent
payment is made, subject to the achievement of the Projections and the $200,000
Limit applicable to the fiscal year or years occurring after the closing date of
such Acquisition Transaction and (ii) if such contingent payment is made after
the completion of such three-year period, as promptly as practicable following
the payment date, subject to the achievement of the Projections and the $200,000
Limit during the three-year period applicable to such Acquisition Transaction.
<PAGE>
4
(c) The Company shall provide the Executive with a statement,
certified by the Compensation Committee as true and correct, of the amount of
actual operating profits attributable to each Acquired Entity during each fiscal
year in which an Installment Payment may be payable. The Company shall provide
the Executive with a statement, certified by the Compensation Committee as true
and correct, providing the calculation of any Installment Payment. Operating
profits shall be determined in accordance with generally accepted accounting
principles by the Company. The determinations of the Compensation Committee
shall be binding upon the parties hereto absent manifest error.
2.10 For the period following the effectiveness of this Agreement
through the date specified in the last sentence of this Section 2.10, the
Executive shall commute to the headquarters of the Company located in Fairburn,
Georgia. During such period, the Company shall reimburse the Executive for
reasonable commutation (including first class airline travel) and temporary
lodging expenses incurred by the Executive until such time as he has found
permanent housing in the Fairburn, Georgia area and upon the presentation of
receipts and supporting information. On or about May 1, 1998, the Executive
agrees to move himself and his family to a home in the vicinity of the Company's
headquarters. The Company shall reimburse the Executive for all reasonable and
customary moving expenses (e.g., the cost of packing, loading, transfer and
unloading of the Executive's furniture and other personal items from his current
personal residence to the Fairburn, Georgia vicinity) incurred by the Executive,
subject to the presentation of receipts and supporting information. The Company
shall also reimburse the Executive for commissions paid to a real estate broker
upon the sale of his present home located in Michigan.
3. Employment Period.
-----------------
Executive's employment under this Agreement shall commence on January
1, 1998 (the "Employment Commencement Date") and shall terminate on the fifth
anniversary thereof (the "Employment Period"), unless terminated earlier
pursuant to Section 4. Unless written notice of either party's desire to
terminate the Employment Period has been given to the other party prior to the
expiration of the Employment Period (or any one-month renewal thereof
contemplated by this sentence), the Employment Period shall be automatically
renewed for successive one-month periods.
<PAGE>
5
4. Termination.
-----------
4.1 Termination by the Company for Cause. The Employment Period may
------------------------------------
be terminated at any time by the Company for Cause (as defined below). Upon
such a termination, the Company shall have no obligation to the Executive
(including, without limitation, any payment under the Incentive Plan or any
Installment Payment) other than the payment of Executive's earned and unpaid
compensation to the effective date of such termination. For purposes of this
Agreement, the term "Cause" shall mean any of the following:
1. A willful failure of the Executive to perform his duties under
this Agreement or the Synetic Employment Agreement, which failure has not been
cured (to the extent susceptible to cure) within 20 days following written
notice from the Chairman of the Board of the Company or Synetic, as appropriate,
detailing such failure;
2. Any willful misconduct by the Executive relating, directly or
indirectly, to the Company or any of its Affiliates, or any breach by the
Executive of any material policy of the Company or any of its Affiliates, which
breach has not been cured (to the extent susceptible to cure) within 20 days
following written notice from the Chairman of the Board of the Company detailing
such breach;
3. Any breach by the Executive of any material provision contained
in this Agreement or the Synetic Employment Agreement, including without
limitation, Section 6 hereof, which breach has not been cured (to the extent
susceptible to cure) within 20 days following written notice from the Chairman
of the Board of the Company or Synetic, as appropriate, detailing such breach;
or
4. The Executive's commission of a common law fraud against the
Company or any of its Affiliates or conviction of a felony crime involving moral
turpitude;
4.2 Death and Disability. The Employment Period may be deemed
--------------------
terminated by the Company upon (i) the death of the Executive or (ii) the
Executive becoming ill, mentally or physically disabled, or otherwise
incapacitated so as to be unable to regularly perform the duties of his position
for a period in excess of 90 consecutive days or more than 120 days in any
consecutive twelve-month period and the Company shall have no obligation to the
Executive or the Executive's estate other than (i) a continuation of his base
salary (at a rate equal to 100% of the rate in effect at the time of such
termination) for a period of two years following the date of termination,
payable in accordance with the third sentence of Section 2.1, (ii) any unpaid
Installment Payments, if any, that the Executive would have been entitled to
receive pursuant to Section 2.9 above had he remained employed by the Company
for the remainder of the three year period applicable to each Acquisition
Transaction, and (iii) the amounts held in the "bank" on account of the
Executive under the Incentive Plan, if any, shall be paid as soon as practicable
following the date of termination and the pro rata portion of the bonus the
Executive would have earned for the year of termination under the Incentive Plan
shall be paid at such time as payments are made under the Incentive Plan
generally, if any; provided, however, that such salary continuation and
obligations to make the Installment Payments and the payments under the
Incentive Plan shall end on the occurrence of any circumstance or event that
would constitute Cause, including, without limitation, a breach of the covenants
contained in Section 6 below.
<PAGE>
6
4.3 Resignation by the Executive.
----------------------------
(a) If the Executive terminates his employment during the Employment
Period for any reason (other than as set forth in Section 4.3(b) below), the
Company shall have no obligation to the Executive (including, without
limitation, any payment under the Incentive Plan or any Installment Payment)
other than the payment of the Executive's earned and unpaid compensation to the
effective date of such termination.
(b) If the Executive terminates his employment during the Employment
Period (i) upon 30 days' written notice at any time after a 12-month period
(or such shorter period to the extent the acquiring company does not request the
services of the Executive for such 12-month period) following the occurrence of
a Change in Control (as defined below) or (ii) due to a material reduction in
his duties or responsibilities under this Agreement which has not been in cured
by the Company within 20 days following written notice by the Executive
detailing such reduction, the Executive shall be entitled to receive the
benefits described under Section 4.4 below as if his employment had been
terminated by the Company without Cause.
(c) For purposes of this Agreement, a "Change in Control" shall be
deemed to have occurred if:
(i) both (x) any person, entity or group shall have acquired at least
50% of the voting power of the outstanding voting securities of the Company
("Voting Power") (excluding the Company, any employee benefit plan thereof,
Synetic and Martin J. Wygod and their respective affiliates), and (ii)
following such acquisition of 50% Voting Power, the Chairman of the Board
of the Company immediately prior to the acquisition of 50% Voting Power
shall cease to hold one or more of the following positions: Chairman of
the Board or Chief Executive Officer of the Company or a senior executive
office of the acquirer of 50% Voting Power, in each case with duties and
responsibilities greater than or substantially equivalent to those prior to
such acquisition of 50% Voting Power; or
(ii) both (x) a reorganization, merger or consolidation or sale or
other disposition of all or substantially all of the assets of the Company
("Business Combination") shall have occurred and (ii) following such
Business Combination, the Chairman of the Board of the Company immediately
prior to such Business Combination shall cease to be Chairman of the Board
or Chief Executive Officer of, or to hold a senior executive position in,
the corporation resulting from such Business Combination, with duties and
responsibilities greater than or substantially equivalent to those prior to
such Business Combination; or
<PAGE>
7
(iii) a complete liquidation or dissolution of the Company shall have
occurred;
provided, however, that a Change in Control shall not include (x) a spinoff or
similar transaction where shares of Porex common stock, $.01 par value per share
("Common Stock") are dividended or otherwise distributed to the stockholders of
Synetic or (y) a public offering of Common Stock under the Securities Act of
1933, as amended.
4.4 Termination by the Company Without Cause.
----------------------------------------
(a) The Employment Period may be terminated at any time by the
Company without Cause. If the Company terminates the Employment Period without
Cause, the Company shall have no obligation to the Executive other than (i) a
continuation of his base salary (at a rate equal to 100% of the rate in effect
at the time of such termination) for a period of two years following the date of
termination, payable in accordance with the third sentence of Section 2.1, (ii)
any unpaid Installment Payments, if any, that the Executive would have been
entitled to receive pursuant to Section 2.9 above had he remained employed by
the Company for two years following the date of termination of employment,
(iii) the amounts held in the "bank" under the Incentive Plan, if any, shall be
paid as soon as practicable following the date of termination and the pro rata
portion of the bonus the Executive would have earned for the year of termination
under the Incentive Plan shall be paid at such time as payments are made under
the Incentive Plan generally, if any, and (iv) the Executive shall be eligible
to continue to participate for a period of one year following the date of
termination on the same terms and conditions as in effect prior to such
termination in all health, medical, dental and other welfare plans ("Welfare
Plans") provided to the Executive pursuant to Section 2.2 at the time of such
termination and which are provided by the Company to its employees following the
date of termination; provided, however, that such salary and benefit
continuation and obligations to make the Installment Payments and the payments
under the Incentive Plan shall end on the occurrence of any circumstance or
event that would constitute Cause, including, without limitation, a breach of
the covenants contained in Section 6 below; provided further, however, that the
Executive's eligibility to participate in the Welfare Plans shall cease at such
time as the Executive is offered comparable coverage with a subsequent employer.
If the Executive is precluded from participating in any Welfare Plan by its
terms or applicable law, the Company shall provide the Executive with benefits
that are reasonably equivalent in the aggregate to those which the Executive
would have received under such plan had he been eligible to participate therein.
Anything to the contrary herein notwithstanding, the Company shall have no
obligation to continue to maintain any Welfare Plan solely as a result of the
provisions of this Agreement.
<PAGE>
8
(b) The expiration of the Employment Period, pursuant to Section 3,
shall not be considered a termination without Cause. In the event the parties
mutually agree to terminate this Agreement at the expiration of the Employment
Period, the Executive shall be entitled to receive (i) amounts held in the
"bank" under the Incentive Plan, if any, as soon as practicable following the
date of expiration of the Employment Period and (ii) any unpaid Installment
Payments, if any, that the Executive would have been entitled to receive
pursuant to Section 2.9 above had he remained employed by the Company for the
remainder of the three year period applicable to each Acquisition Transaction.
4.5 Liquidated Damages. Executive acknowledges that any payments
------------------
under Section 4.4 resulting from a termination of the Employment Period by the
Company without Cause are in lieu of any and all claims that the Executive may
have against the Company or any of its Affiliates other than as provided in the
Synetic Employment Agreement and benefits under the Company's employee benefit
plans that by their terms survive termination of employment (including, without
limitation, the Option Agreement (as defined below in Section 5), if any) and
benefits under the Consolidated Omnibus Budget Reconciliation Act of 1985, as
amended, and represent liquidated damages (and not a penalty).
5. Options. The Company has filed a Form S-1 Registration Statement
-------
with the Securities and Exchange Commission. Upon the consummation of the
initial public offering of the Common Stock (the "Offering Date"), the Company
shall grant to the Executive an option ("Option") under the Company's Class A
Stock Option Plan to purchase 240,000 shares of the Common Stock. The grant of
the Option shall be evidenced by a written agreement (the "Option Agreement")
containing substantially the same terms and conditions as the stock option
agreements under Synetic's 1989 Class B Stock Option Plan, as amended from time
to time. In the event that the Company fails to consummate an initial public
offering, the Company shall have no obligation to the Executive under this
Section 5.
6. Covenants of the Executive.
--------------------------
6.1 Confidentiality.
---------------
(a) Executive understands and acknowledges that in the course of his
employment, he will have access to and will learn information proprietary to the
Company and its Affiliates that concerns the operation and methodology of the
Company and its Affiliates, including, without limitation, business,
manufacturing and research plans, financial information, information concerning
identity and source of supply of raw materials and equipment and machinery,
manufacturing methods, processes and techniques (including, without limitation,
mold manufacturing processes), specifications and tolerances of products,
research and development, quality control, test instructions, field testing
data, performance and reliability data, product design, protocols, proposals,
manuals, scientific data, computer source codes, programs, software, prices and
pricing formulae, knowhow and specifications, copyrights, trade secrets, market
information, Development (as defined below), data and customer information
(collectively, "Proprietary Information"). Executive agrees that, at all times
on and after the date hereof (including following termination of the Employment
Period), he will keep confidential and will not disclose directly or indirectly
any such Proprietary Information to any third party, except as required to
fulfill his duties hereunder, and will not misuse, misappropriate or exploit
such Proprietary Information in any way. The restrictions contained herein shall
not apply to any information which Executive can demonstrate by written record
(i) was already available to the public at the time of disclosure, or
subsequently become available to the public, otherwise than by breach of this
Agreement, or (ii) was the subject of a court order to disclose. Upon any
termination of the Employment Period, Executive shall immediately return to the
Company all copies of any Proprietary Information in his possession.
<PAGE>
9
(b) Executive agrees that at any time during the Employment Period or
thereafter, Executive shall not make, or cause or assist any other person to
make, any statements or other communications to any third party that impugns or
attacks, or is otherwise critical of, the reputation, business or character of
the Company, its Affiliates or any of their respective officers, employees,
products or services.
6.2 Restrictions on Solicitation. During the period beginning on the
----------------------------
date hereof and (subject to Section 6.4) ending on the second anniversary of the
date of cessation of the employment of the Executive for any reason whatsoever
(the "Restricted Period"), Executive shall not, directly or indirectly, without
the prior written approval of the Company, solicit or contact any customer or
any prospective customer of the Company or any of the Affiliates for any
commercial pursuit that could be reasonably construed to be in competition with
the Company or any of the Affiliates, or take away or interfere or attempt to
interfere with any custom, trade, business or patronage of the Company or any of
the Affiliates, or induce, or attempt to induce, any employees, agents or
consultants of or to the Company or any of the Affiliates to do anything from
which Executive is restricted by reason of this Agreement nor shall Executive,
directly or indirectly, offer or aid others to offer employment to, or interfere
or attempt to interfere with any employment, consulting or agency relationship
with, any employees, agents or consultants of the Company or any of the
Affiliates.
6.3 Restrictions on Competitive Employment. During the Restricted
--------------------------------------
Period, Executive shall not (as principal, agent, employee, consultant or
otherwise), directly or indirectly, without the prior written approval of the
Company, engage in activities for, or render services to, any firm or business
(i) engaged in direct or indirect competition with the Company or any of its
Affiliates, (ii) conducting a business of the type and character engaged in or
about to be engaged in by the Company or any of its Affiliates at the time of
termination, or (iii) developing products or services competitive with those of
the Company or any of the Affiliates (all of the businesses in clauses (i), (ii)
and (iii) collectively, a "Competitive Business"). Notwithstanding the
foregoing, Executive may have an interest consisting of publicly traded
securities constituting less than 1 percent of any class of public traded
securities in any public company engaged in a Competitive Business so long as he
is not employed by and does not consult with, or become a director of or
otherwise engage in any activities for, such company.
<PAGE>
10
6.4 Extension of Restricted Period. The Restricted Period shall be
------------------------------
extended by the length of any period during which Executive is in breach of the
terms of this Section 6.
6.5 Assignment of Development. All Developments that are at any time
-------------------------
made, conceived or suggested by Executive, whether acting alone or in
conjunction with others, during or as a result of Executive's employment with
the Company or the Affiliates, shall be the sole and absolute property of the
Company and the Affiliates, free of any reserved or other rights of any kind on
Executive's part. During the Executives's employment and, if such Developments
were made, conceived or suggested by Executive during or as a result of
Executive's employment with the Company, or the Affiliates, thereafter,
Executive shall promptly make full disclosure of any such Developments to the
Company and, at the Company's cost and expense, do all acts and things
(including, among others, the execution and delivery under oath of patent and
copyright applications and instruments of assignment) deemed by the Company to
be necessary or desirable at any time in order to effect the full assignment to
the Company and the Affiliates of Executive's right and title, if any, to such
Developments. For purposes of this Agreement, the term "Developments" shall
mean all data, discoveries, findings, reports, designs, plans, inventions,
improvements, methods, practices, techniques, developments, programs, concepts,
and ideas, whether or not patentable, relating to the present or planned
activities, or future activities of which Executive is aware, or the products
and services of the Company or any of the Affiliates.
6.6 Disclosure of Information. During the Employment Period,
-------------------------
Executive shall use his best efforts to disclose to the Chairman of the Board of
the Company any bona fide information known by him that would have any material
negative impact on the Company or an Affiliate.
6.7 Remedies. Executive acknowledges and agrees that damages for a
--------
breach or threatened breach of any of the covenants set forth in this Section 6
will be difficult to determine and will not afford a full and adequate remedy,
and therefore agrees that the Company, in addition to seeking actual damages in
connection therewith, may seek specific enforcement of any such covenant in any
court of competent jurisdiction, including, without limitation, by the issuance
of a temporary or permanent injunction.
<PAGE>
11
7. Notices. Any notice or communication given by either party
-------
hereto to the other shall be in writing and personally delivered or mailed by
registered or certified mail, return receipt requested, postage prepaid, to the
following addresses:
(a) if to the Company:
Porex Corporation
500 Bohannon Road
Fairburn, Georgia 30213-2828
Telecopier No.: (770) 969-0954
Attn: Chairman of the Board
with a copy to:
Synetic, Inc.
669 River Drive
Elmwood Park, New Jersey 07407-1361
Telecopier No.: (212) 703-3401
Attn: President and Chief Executive Officer
(b) if to the Executive, to the address set forth on the signature
page hereof.
Any notice shall be deemed given when actually delivered to such address, or two
days after such notice has been mailed or sent by overnight courier, whichever
comes earliest. Any person entitled to receive notice may designate in writing,
by notice to the other, such other address which notices to such person shall
thereafter be sent.
8. Miscellaneous.
-------------
8.1 Entire Agreement. This Agreement together with the Synetic
----------------
Employment Agreement, the Incentive Plan, and the Option Agreement, if any,
contain the entire understanding of the parties in respect of its subject matter
and supersede upon its effectiveness all other prior agreements and
understandings between the parties with respect to such subject matter.
8.2 Amendment; Waiver. This Agreement may not be amended,
-----------------
supplemented, canceled or discharged, except by written instrument executed by
the party affected thereby. No failure to exercise, and no delay in exercising,
any right, power or privilege hereunder shall operate as a waiver thereof. No
waiver of any breach of any provision of this Agreement shall be deemed to be a
waiver of any preceding or succeeding breach of the same or any other provision.
<PAGE>
12
8.3. Binding Effect; Assignment. The rights and obligations of this
--------------------------
Agreement shall bind and inure to the benefit of any successor of the Company by
reorganization, merger or consolidation, or any assignee of all or substantially
all of the Company's business and properties. Executive's rights or obligations
under this Agreement may not be assigned by the Executive, except that the right
specified in Section 4.2 shall pass upon the Executive's death to Executive's
executor or administrator.
8.4 Headings. The headings contained in this Agreement are for
--------
reference purposes only and shall not affect the meaning or interpretation of
this Agreement.
8.5 Governing Law; Interpretation. This Agreement shall be construed
-----------------------------
in accordance with and governed for all purposes by the laws and public policy
(other than conflict of laws principles) of the State of New Jersey, applicable
to contracts executed and to be wholly performed within such State.
8.6 Further Assurances. Each of the parties agrees to execute,
------------------
acknowledge, deliver and perform, and cause to be executed, acknowledged,
delivered and performed, at any time and from time to time, as the case may be,
all such further acts, deeds, assignments, transfers, conveyances, powers of
attorney and assurances as may be reasonably necessary to carry out the
provisions or intent of this Agreement.
8.7 Severability. The parties have carefully reviewed the provisions
------------
of this Agreement and agree that they are fair and equitable. However, in light
of the possibility of differing interpretations of law and changes in
circumstances, the parties agree that if any one or more of the provisions of
this Agreement shall be determined by a court of competent jurisdiction to be
invalid, void or unenforceable, the remainder of the provisions of this
Agreement shall, to the extent permitted by law, remain in full force and effect
and shall in no way be affected, impaired or invalidated. Moreover, if any of
the provisions contained in this Agreement is determined by a court of competent
jurisdiction to be excessively broad as to duration, activity, geographic
application or subject, it shall be construed, by limiting or reducing it to the
extent legally permitted, so as to be enforceable to the extent compatible with
then applicable law.
<PAGE>
13
8.8 Withholding Taxes. All payments hereunder shall be subject to
-----------------
any and all applicable federal, state, local and foreign withholding taxes.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
POREX CORPORATION
By: /s/ Charles A. Mele
--------------------------------
Name: Charles A. Mele
Title: Vice President
EXECUTIVE
/s/ Kim A. Davis
-------------------------------
Address:
<PAGE>
EXHIBIT 21.1
SUBSIDIARIES OF THE COMPANY
The following are the subsidiaries of Synetic, Inc., excluding subsidiaries the
omission of which is permitted under Item 601(b)(21) of Regulation S-K.
Name of Subsidiary Jurisdiction of Incorporation
- ------------------ -----------------------------
Porex Technologies Corp. Delaware
Porex Scientific, Inc./1/ Delaware
SYNC Corp. New Jersey
Avicenna Systems Corporation Massachusetts
Point Plastics, Inc./2/ Delaware
- -------------------
/1/ A wholly owned subsidiary of Porex Technologies Corp.
/2/ Point Plastics, Inc., formerly named Plastics Acquisition Corp., acquired
the assets of Point Plastics, Inc., a California corporation, on July 21,
1998. See Plastics Technologies Business -- Scientific Plastics Group --
Recent Developments.
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of our
report included in this Form 10-K, dated August 14, 1998, into the previously
filed Registration Statements of Synetic, Inc. and Subsidiaries on Form S-8
(including File Nos. 33-34925, 33-34926, 33-38446, 33-46639, 33-46640, 333-
19043, 333-21555 and 333-36041).
ARTHUR ANDERSEN LLP
/s/ Arthur Andersen LLP
New York, New York
September 23, 1998
<PAGE>
EXHIBIT 23.2
Synetic, Inc.
669 River Drive
Elmwood Park, NJ 07047-1361
Dear Ladies and Gentlemen:
We hereby consent to the incorporation by reference into the Synetic, Inc.
Registration Statements on Form S-8 (File Nos. 33-34925, 33-34926, 33-38446, 33-
46639, 33-46640, 333-19043, 333-21555 and 333-36041), filed with the Securities
and Exchange Commission, of the Company's Annual Report on Form 10-K for the
fiscal year ended June 30, 1998. We also consent to all references to our firm
included in such Registration Statements.
Columbus, Ohio
September 15, 1998 Very truly yours,
KEGLER, BROWN, HILL
& RITTER CO., L.P.A.
By: /s/ Jack A. Bjerke
-------------------------------
Jack A. Bjerke, Vice President
<PAGE>
EXHIBIT 24.1
<PAGE>
SYNETIC, INC.
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned does hereby constitute
and appoint Charles A. Mele, Paul C. Suthern and Anthony Vuolo 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
Annual Report on Form 10-K of Synetic, Inc. for the fiscal year ended June 30,
1998 (the "Annual Report") and to sign any and all amendments to the Annual
Report, 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 23/rd/ day of September, 1998.
/s/ Thomas R. Ferguson
------------------------------------
THOMAS R. FERGUSON
<PAGE>
SYNETIC, INC.
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned does hereby constitute
and appoint Charles A. Mele, Paul C. Suthern and Anthony Vuolo 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
Annual Report on Form 10-K of Synetic, Inc. for the fiscal year ended June 30,
1998 (the "Annual Report") and to sign any and all amendments to the Annual
Report, 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 22/nd/ day of September, 1998.
/s/ Mervyn L. Goldstein, M.D.
---------------------------------
MERVYN L. GOLDSTEIN, M.D.
<PAGE>
SYNETIC, INC.
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned does hereby constitute
and appoint Charles A. Mele, Paul C. Suthern and Anthony Vuolo 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
Annual Report on Form 10-K of Synetic, Inc. for the fiscal year ended June 30,
1998 (the "Annual Report") and to sign any and all amendments to the Annual
Report, 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 23/rd/ day of September, 1998.
/s/ Ray E. Hannah
----------------------------------------
RAY E. HANNAH
<PAGE>
SYNETIC, INC.
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned does hereby constitute
and appoint Charles A. Mele, Paul C. Suthern and Anthony Vuolo 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
Annual Report on Form 10-K of Synetic, Inc. for the fiscal year ended June 30,
1998 (the "Annual Report") and to sign any and all amendments to the Annual
Report, 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 22/nd/ day of September, 1998.
/s/ Roger H. Licht
----------------------------------------
ROGER H. LICHT
<PAGE>
SYNETIC, INC.
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned does hereby constitute
and appoint Paul C. Suthern and Anthony Vuolo and each of them,each with full
power to act as 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 Annual Report on Form 10-K of
Synetic, Inc. for the fiscal year ended June 30, 1998 (the "Annual Report") and
to sign any and all amendments to the Annual Report, 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 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 22/nd/ day of September, 1998.
/s/ Charles A. Mele
---------------------------------------
CHARLES A. MELE
<PAGE>
SYNETIC, INC.
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned does hereby constitute
and appoint Charles A. Mele, Paul C. Suthern and Anthony Vuolo 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
Annual Report on Form 10-K of Synetic, Inc. for the fiscal year ended June 30,
1998 (the "Annual Report") and to sign any and all amendments to the Annual
Report, 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 22/nd/ day of September, 1998.
/s/ Herman Sarkowsky
-----------------------------------
HERMAN SARKOWSKY
<PAGE>
SYNETIC, INC.
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned does hereby constitute
and appoint Charles A. Mele, Paul C. Suthern and Anthony Vuolo 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
Annual Report on Form 10-K of Synetic, Inc. for the fiscal year ended June 30,
1998 (the "Annual Report") and to sign any and all amendments to the Annual
Report, 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 22/nd/ day of September, 1998.
/s/ Martin J. Wygod
--------------------------------------
MARTIN J. WYGOD
<PAGE>
SYNETIC, INC.
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned does hereby constitute
and appoint Charles A. Mele, Paul C. Suthern and Anthony Vuolo 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
Annual Report on Form 10-K of Synetic, Inc. for the fiscal year ended June 30,
1998 (the "Annual Report") and to sign any and all amendments to the Annual
Report, 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 23/rd/ day of September, 1998.
/s/ Albert M. Weis
----------------------------------------
ALBERT M. WEIS
<PAGE>
SYNETIC, INC.
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned does hereby constitute
and appoint Charles A. Mele and Anthony Vuolo and each of them, each with full
power to act as 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 Annual Report on Form 10-K of
Synetic, Inc. for the fiscal year ended June 30, 1998 (the "Annual Report") and
to sign any and all amendments to the Annual Report, 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 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 22/nd/ day of September, 1998.
/s/ Paul C. Suthern
----------------------------------------
PAUL C. SUTHERN
<PAGE>
SYNETIC, INC.
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned does hereby constitute
and appoint Charles A. Mele, Paul C. Suthern and Anthony Vuolo 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
Annual Report on Form 10-K of Synetic, Inc. for the fiscal year ended June 30,
1998 (the "Annual Report") and to sign any and all amendments to the Annual
Report, 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 23/rd/ day of September, 1998.
/s/ James V. Manning
-------------------------------------
JAMES V. MANNING
<PAGE>
SYNETIC, INC.
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned does hereby constitute
and appoint Charles A. Mele, Paul C. Suthern and Anthony Vuolo 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
Annual Report on Form 10-K of Synetic, Inc. for the fiscal year ended June 30,
1998 (the "Annual Report") and to sign any and all amendments to the Annual
Report, 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 22/nd/ day of September, 1998.
/s/ Bernard A. Marden
-------------------------------------
BERNARD A. MARDEN
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM SYNETIC,
INC.'S 6/30/98 10-K AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-01-1997
<PERIOD-END> JUN-30-1998
<CASH> 90,645
<SECURITIES> 9,995
<RECEIVABLES> 11,857
<ALLOWANCES> 786
<INVENTORY> 5,813
<CURRENT-ASSETS> 129,096
<PP&E> 51,467
<DEPRECIATION> 22,086
<TOTAL-ASSETS> 396,926
<CURRENT-LIABILITIES> 21,027
<BONDS> 159,500
0
0
<COMMON> 230
<OTHER-SE> 205,996
<TOTAL-LIABILITY-AND-EQUITY> 396,926
<SALES> 64,945
<TOTAL-REVENUES> 64,945
<CGS> 34,508
<TOTAL-COSTS> 34,508
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,614
<INCOME-PRETAX> 14,832
<INCOME-TAX> 5,788
<INCOME-CONTINUING> 9,044
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9,044
<EPS-PRIMARY> .51
<EPS-DILUTED> .46
</TABLE>
