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RULE NO. 424(b)(3)
REGISTRATION NO. 333-71307
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+This prospectus supplement relates to an effective registration statement +
+under the Securities Act of 1933, and is subject to completion or amendment. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Subject to Completion
Preliminary Prospectus Supplement dated February 8, 1999
PROSPECTUS SUPPLEMENT
(To prospectus dated February 5, 1999)
1,150,028 Shares
SYNETIC, INC.
Common Stock
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All of the shares of our common stock being offered hereby are being sold by
certain of our stockholders. The selling stockholders obtained their shares of
our common stock on January 22, 1999 in connection with our acquisition of The
KippGroup. We are not selling any shares of our common stock in this offering
and do not expect to receive any of the proceeds from the sale of the shares.
We may receive up to $3,000,000 of the proceeds of the sale of these shares in
limited circumstances as noted in "Use of Proceeds" in the accompanying
prospectus.
Our common stock is quoted on the NASDAQ National Market System under the
symbol "SNTC." On February 5, 1999, the last sale price of the common stock as
reported on the NASDAQ National Market System was $44 7/8 per share.
Investing in the shares of our common stock involves risks which are
described in the "Risk Factors" section beginning on page 1 of the accompanying
prospectus.
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<CAPTION>
Per
Share Total
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Public Offering Price.................................. $ $
Underwriting Discount.................................. $ $
Proceeds, before expenses, to Selling Stockholders..... $ $
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Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these shares of common stock or
determined if this prospectus supplement and the accompanying prospectus is
truthful or complete. Any representation to the contrary is a criminal offense.
We expect that the shares of common stock will be ready for delivery in New
York, New York on or about , 1999.
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Merrill Lynch & Co.
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The date of this prospectus supplement is , 1999
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TABLE OF CONTENTS
Prospectus Supplement
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Page
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Forward-Looking Statements................................................. S-1
The Company................................................................ S-3
Selected Financial Data.................................................... S-10
Pro Forma Combined Financial Data.......................................... S-12
Underwriting............................................................... S-17
Legal Matters.............................................................. S-18
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Prospectus
<TABLE>
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Forward-Looking Statements.................................................. i
Risk Factors................................................................ 1
The Company................................................................. 8
Use of Proceeds............................................................. 8
Selling Stockholders........................................................ 9
Plan of Distribution........................................................ 10
Description of Capital Stock................................................ 11
Legal Matters............................................................... 13
Experts..................................................................... 13
Where You Can Find More Information......................................... 13
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FORWARD-LOOKING STATEMENTS
This prospectus supplement and the accompanying prospectus and reports,
proxy statements and other information that we have filed with the SEC, which
are incorporated by reference in this prospectus supplement and the
accompanying prospectus, include forward-looking statements, including
statements regarding, among other items:
. the product demand and market and user acceptance of our products,
. the feasibility of developing commercially profitable healthcare
communication services,
. the effect of economic conditions on our business,
. the impact of competitive products, services and pricing on our business,
. commercialization and technological difficulties associated with our
products,
. our objective to grow through strategic acquisitions,
. our internal growth strategy,
. our ability to manage and integrate acquired businesses,
. anticipated trends and conditions in our industries, including regulatory
matters,
. our Year 2000 compliance, and
. trends in our future operating performance.
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We have based these forward-looking statements largely on our expectations
as well as assumptions we have made and information currently available to our
management. When used in this prospectus supplement and the prospectus, the
words "anticipate," "believe," "estimate," "expect" and similar expressions,
as they relate to our company or management, are intended to identify forward-
looking statements. Forward-looking statements are subject to a number of
risks and uncertainties, certain of which are beyond our control. Actual
results could differ materially from those anticipated, as a result of the
factors described in "Risk Factors" in the accompanying prospectus and other
factors. Furthermore, in light of these risks and uncertainties, the forward-
looking events and circumstances discussed in this prospectus supplement and
the accompanying prospectus might not transpire.
We undertake no obligation to publicly update or revise any forward-looking
statements, whether as a result of new information, future events or
otherwise.
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You should read this prospectus supplement along with the prospectus that
follows. Both documents contain information you should consider when making
your investment decision. The information in this prospectus supplement
replaces any inconsistent information included in the accompanying prospectus.
You should rely only on the information contained in this prospectus
supplement and the accompanying prospectus. We have not, and the underwriters
have not, authorized any other person to provide you with different
information. If anyone provides you with different or inconsistent
information, you should not rely on it. We are not, and the underwriters are
not, making an offer to sell these securities in any jurisdiction where the
offer or sale is not permitted. You should assume that the information
appearing in this prospectus supplement and the accompanying prospectus is
accurate as of the date on the front cover of this prospectus supplement only.
Our business, financial condition, results of operations and prospects may
have changed since that date.
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This prospectus supplement and the accompanying prospectus contain
summaries of certain agreements entered into by Synetic which have been filed
as exhibits to the registration statement or incorporated by reference in this
prospectus supplement and the accompanying prospectus. Such summaries do not
purport to be complete and are subject to, and are qualified in their entirety
by reference to such exhibits. You should refer to each such exhibit for a
complete description of the matter involved.
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In this prospectus supplement, the "Company," "Synetic," "we," "us" and
"our" refer to Synetic, Inc.
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THE COMPANY
General
We are engaged in two principal business activities, plastics and filtration
technologies and healthcare communications. Through our wholly owned subsidiary
Porex Technologies Corp., we design, manufacturer and distribute porous and
solid plastic components and products. These products are used in life
sciences, healthcare, industrial, and consumer applications. Porex Technologies
Corp., together with its subsidiaries, is referred to hereinafter in this
prospectus supplement collectively as "Porex", except where the context
otherwise requires. Through our subsidiary, Synetic Healthcare Communications,
Inc., a corporation in which we hold an 80.1% ownership interest, we are
engaged in an area of business relating to the use of Internet technology to
expand the channels of communication in the healthcare industry. The creation
of these new channels is intended to benefit providers and payors of healthcare
services by improving the quality of patient care, securing appropriate
utilization of healthcare services, reducing administrative costs and enforcing
benefit plan guidelines. Synetic Heathcare Communications, Inc. is referred to
hereinafter in this prospectus supplement as "SHC." See "Risk Factors--New
Business Area--Healthcare Communications" in the accompanying prospectus and
"--Recent Developments--Healthcare Communications" below.
Our company had net sales of approximately $43.7 and $30.3 million for the
six months ended December 31, 1998 and 1997, respectively, and net sales of
$64.9, $52.9 and $45.1 million for the fiscal years ended June 30, 1998, 1997
and 1996, respectively.
Plastics and Filtration Technologies Business
Our 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 and are described below. In January 1999,
we acquired The KippGroup. The KippGroup will constitute our fourth product
group, which will be called the Medical Products Group. See "--Recent
Developments--Plastics and Filtration Technologies."
Porous Media Group
Porex is a leading developer, manufacturer and distributor of porous plastic
products, with a 35-year history of innovation and market leadership in the
field of porous plastics. Porous plastics are permeable plastic strictures
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 manufacture specifications.
Porex designs porous plastic components to the specification 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.
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Health Care Products. For the health care market, Porex manufacturers 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:
. 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;
. self-sealing valves in surgical vacuum canisters to minimize exposure to
blood and other bodily fluids;
. burn bed diffusers, which enable recovering burn victims to "float"
above their beds, thereby increasing their comfort and facilitating
their recovery; and
. 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 "The Company--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" that 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
manufacturers 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:
. industrial filters to remove particulate matter, oil and water residues
from compressed air lines,
. silencers to reduce sound levels produced by compressed air exhaust,
. miscellaneous water filters for industrial use, including use in vending
machines, and
. material handling products, including fluidizing tables to fluidize
powered 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 manufacturers 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 our 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
S-4
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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. In July 1998, we
acquired all of the capital stock of Point Plastics, Inc. ("Point Plastics").
Point Plastics designs, manufacturers 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. Sales of Point Plastics
for the fiscal year ended June 30, 1998 were approximately $23.7 million.
Clinical Products. Porex manufacturers 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 manufacturers 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 our company for the fiscal years ended June 30, 1998, 1997 and
1996, respectively.
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 Draining Systems for small surgical
incisions. Porex also markets Squeeze-Mark(TM) and TLS(TM) Surgical Marker pens
to mark the areas of proposed surgical incisions. Porex manufacturers MEDPOR(R)
Surgical Implant material and distributes, and in some cases assembles, the
other items in its surgical product lines.
The Surgical Products Group contributed 6.7%, 6.9% and 6.4% of the total
revenue of our company for the fiscal years ended June 30, 1998, 1997 and 1996,
respectively.
Marketing and Distribution
Porex has a diverse customer base of over 600 customers, including numerous
Fortune 500 companies. We believe Porex has established a leading reputation in
the porous plastics industry for developing innovative manufacturing technology
and providing solutions to complex customer requirements. Porex has also
developed significant expertise in combining porous plastic components with
injection-molded solid plastic products, which has broadened its range of
product offerings. We believe Porex's competitive strengths included:
. technological leadership in the design and manufacture of porous plastic
products;
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. efficient manufacturing operations based on proprietary, technologically
advanced equipment; and
. an ability to collaborate with customers to solve complex design and
performance requirements.
In addition, Porex has a technically skilled sales and marketing force and
experienced management.
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Our objective is to increase Porex's sales and net income by leveraging its
competitive strengths and broadening its product offerings. To achieve this, we
intend to:
. continue internal development of new products and technologies;
. continue to acquire businesses with products and technologies that
complement Porex's current product offerings; and
. pursue growth opportunities in international markets.
See "--Recent Developments--Plastics and Filtration Technologies."
Healthcare Communications Business
Business Strategy
Our 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. We expect to provide a content-neutral, application
rich utility thereby creating a channel which serves as a conduit for the
private content that any healthcare organizations wishes to communicate to
physicians and other healthcare providers. We anticipate that we 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 our 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 applicability 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 submissions 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. Our 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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We are 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 we do, 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 healthcare communications products and services in a manner which would
have a material adverse effect on our company.
Recent Developments
Healthcare Communications
In January 1999, we formed SHC and contributed to SHC substantially all of
the assets and liabilities of the Company's healthcare communications business
and $10 million in cash, and SHC entered into definitive agreements and
consummated transactions with The Health Information Network Connection LLC
("THINC") and Cerner Corporation ("Cerner"). Those transactions are described
below.
THINC. In January 1999, SHC, THINC, and its founding members, Greater New
York Hospital Association, Empire Blue Cross and Blue Shield ("Empire"), Group
Health Incorporated ("GHI") and HIP Health Plans ("HIP"), entered into
definitive agreements and consummated a transaction for a broad strategic
alliance. Under this arrangement, SHC (i) acquired a 20% ownership interest in
THINC in exchange for $1.5 million in cash and a warrant to purchase shares of
common stock of SHC (the "Warrant"), (ii) extended up to $3.5 million in senior
loans to THINC, (iii) entered into a Management Services Agreement with THINC
pursuant to which SHC will manage all operations of THINC and (iv) entered into
exclusive Clinical Transaction Agreements with each of Empire, GHI and HIP (the
"THINC Payers") to provide online prescription and laboratory transaction
services. As part of this arrangement, THINC entered into Managed Care
Transaction Contracts with each of the THINC Payers whereby the THINC Payers
agreed to use the THINC network for their online medical claims submission,
eligibility, benefit plan detail, roster distribution, remittance advice
distribution, claims inquiry, referral/pre-certification and authorization, and
encounter submission transactions.
SHC issued the Warrant to THINC, an entity in which SHC holds a 20%
ownership interest. The Warrant is exercisable 180 days following the
occurrence of an initial public offering of SHC's common stock ("IPO") or, if
an IPO has not occurred, at the end of term of the Warrant, into approximately
6% of the current outstanding equity of SHC (assuming exercise of the Warrant).
The exercise price of the Warrant is the lesser of (i) the price based on the
IPO price of SHC's common stock, if an IPO has occurred, and (ii) the price
based on a $200 million enterprise value of SHC. The Warrant expires on January
1, 2006, subject to certain exceptions. The Warrant and the common stock of SHC
issuable upon the exercise of the Warrant are subject to certain restrictions
on transfer.
Cerner. In January 1999, SHC also entered into definitive agreements and
consummated a transaction with Cerner for a broad strategic alliance. Cerner, a
publicly traded corporation, is a supplier of clinical and management
information systems for healthcare organizations. Under this arrangement, SHC
obtained a perpetual software license to the functionality embedded in Cerner's
Health Network Architecture ("HNA") Millenium Architecture and Cerner received
a 19.9% equity interest in SHC (such equity interest is subject to certain
restrictions on transfer and other adjustments). SHC and Cerner have entered
into a non-competition agreement and, as a result, agreed that SHC will be
their exclusive vehicle for providing a full suite of prescription, laboratory
and managed care transaction and messaging services that connect physician's
offices with managed care organizations, prescription benefit managers,
clinical laboratories, pharmacies and other providers. The companies entered
into a Marketing Agreement that allows for the marketing and distribution of
SHC's services to the physicians and providers associated with more than 1,000
healthcare organizations who
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currently utilize Cerner's clinical and management information system. SHC and
Cerner also agreed to promote each other's services to their respective
customers. In addition, Cerner committed to make available to SHC engineering
and systems architecture personnel and expertise to accelerate the deployment
of SHC's services, as well as ongoing technical support and future enhancements
to HNA.
Other Events. On February 5, 1999, Synetic announced in a press release that
Synetic has recently been informed of Merck & Co., Inc.'s position that
Synetic's healthcare communications business and Martin J. Wygod, Synetic's
Chairman, are in violation of certain non-competition agreements with Merck and
Merck-Medco Managed Care L.L.C. These agreements expire by their terms on May
24, 1999. Synetic has also been informed of Merck's position that the non-
competition agreements of certain officers of Synetic are binding upon Synetic
and would therefore have the effect of extending the expiration of the non-
competition agreement between Synetic and Merck and Merck-Medco until as late
as September 2002.
Synetic believes that Merck and Merck-Medco's positions are without merit.
In the event litigation occurs, Synetic intends to vigorously assert
appropriate claims for any damages caused by Merck and Merck-Medco, including
damages caused by any improper attempts to restrain future competition. No
assurance can be given, however, that litigation concerning these matters would
not have a material adverse effect on Synetic.
Plastics and Filtration Technologies
Pursuant to a Stock Purchase Agreement (the "Purchase Agreement") with David
R. Kipp and James P. Kipp (the "Sellers"), on January 22, 1999, we acquired
from the Sellers all of the capital stock of The KippGroup ("KippGroup"), in
exchange for $52,085,000, comprised of $75,000 in cash and 1,150,028 newly
issued shares (the "Shares") of our common stock. KippGroup, located in
Ontario, California, has three distinct business units:
. KippMed designs, develops and manufactures proprietary injection-molded
medical components and finished devices and distributes them to large
multinational companies;
. KippMolding provides clean room injection-molding services to medical
device manufacturers; and
. KippMold designs and fabricates plastic-injection molds for third party
customers and for internal use.
KippGroup will constitute the fourth plastics technologies division of
Porex, which will be called the Porex Medical Products Group.
As required by the Purchase Agreement, we filed the registration statement
of which this prospectus supplement and the accompanying prospectus are a part
with the Securities and Exchange Commission pursuant to which the Shares are
being offered hereby to the public by the Sellers. Of the Shares, Shares valued
at $3,333,333 (the "Escrowed Shares") will be held in escrow under the terms of
the Purchase Agreement and included in the registration statement. An aggregate
of $3,000,000 of the proceeds from the sales of the Escrowed Shares will be
held in escrow and any proceeds in excess thereof will be paid to the Sellers.
If the KippGroup's earnings before interest and taxes as calculated pursuant to
the Purchase Agreement ("EBIT") for the 12 months ending June 30, 2000 are
greater than $5,500,000, then Sellers will receive the escrowed cash and the
interest earned thereon. If the KippGroup's EBIT for such period is less than
or equal to $5,500,000, we will retain the escrowed cash and the interest
earned thereon, which will be treated as a reduction in our purchase price.
Pursuant to the Purchase Agreement, if the Sellers do not realize at least
$43,809,000 in proceeds from sale of the Shares (excluding the Escrowed
Shares), we have agreed to pay the Sellers an amount equal to such shortfall in
exchange for those Shares which remain unsold, if any. However, Sellers have
the right to retain their unsold Shares and forego receipt of such shortfall
payment. Similarly, if the proceeds from the sale of the Escrowed Shares do not
amount to $3,000,000 then we have agreed to pay the shortfall into the escrow
account in exchange for the unsold Escrowed Shares. In connection with the
acquisition of KippGroup, we have granted options to purchase an aggregate of
770,000 shares of our common stock to the Sellers and various other key
employees of KippGroup.
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At closing, we loaned the Sellers $15,000,000 to be repaid from the proceeds
from sale of the Shares. We have agreed to loan the Sellers up to an additional
$28,809,000 on March 31, 1999 if the Shares have not been sold and the Sellers
have not elected to retain them by such date, which loan also would be repaid
from the proceeds of the sales of Shares (other than the Escrowed Shares).
If the KippGroup's EBIT for the 12 month period ending June 30, 2000 (the
"Determination Period EBIT") is greater than $5,500,000, then Sellers will be
entitled to receive additional purchase price of up to $11,700,000, plus an
amount equal to the difference, if any, between $52,010,000 and the proceeds,
together with any shortfall payment, received by the Sellers from the sale of
Shares, including the Escrowed Shares (the "Earnout Amount"). To the extent
KippGroup's Determination Period EBIT is greater than $5,500,000 and less than
or equal to $7,500,000, the Sellers will receive a pro rata portion of the
Earnout Amount.
Acquisition Program
We maintain an acquisition program and intend to concentrate our acquisition
efforts in businesses which are complementary to our plastics and filtration
technologies business and our healthcare communications strategy. This
emphasis, however, is not intended to limit in any manner our ability to pursue
acquisition opportunities in other healthcare-related businesses or in other
industries. Our acquisition program could result in a substantial change in the
business, operations and financial condition of our company. We cannot assure
you that we will succeed in consummating any acquisitions or that we will be
able to successfully manage or integrate any business that we acquire. Our
future growth will depend primarily on our ability to consummate one or more
such acquisitions and to operate such businesses successfully. See "Risk
Factors--Acquisition Program" in the accompanying prospectus.
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SELECTED FINANCIAL DATA
(In Thousands, except Per Share Data)
The selected financial data set forth below for the five years in the period
ended June 30, 1998 have been derived from the Consolidated Financial
Statements of the Company, which have been audited by Arthur Andersen LLP,
independent public accountants. The selected financial data as of and for the
six-month periods ended December 31, 1997 and 1998 are derived from the
unaudited consolidated financial statements of the Company which, in the
opinion of management, include all normal and recurring adjustments necessary
to present fairly the financial position and the results of operations of the
Company for those periods. The operating results for the six months ended
December 31, 1998 are not necessarily indicative of the operating results to be
expected for the full year. Such information should be read in conjunction with
the Consolidated Financial Statements of the Company and the related notes
thereto included in the 1998 10-K (as defined in the prospectus) that are
incorporated by reference into this prospectus supplement and the accompanying
prospectus and the Company's Form 10-Q for the six months ended December 31,
1998 (the "Second Quarter 10-Q") incorporated by reference into this prospectus
supplement and the accompanying prospectus. The selected financial data for the
five years in the period ended June 30, 1998 have been restated to reflect the
sale by the Company of its institutional pharmacies business. See "Certain
Relationships and Related Transactions" in the 1998 10-K.
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Six Months
ended
Year ended June 30, December 31,
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1994 1995 1996 1997 1998 1997 1998
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(In thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Income Statement Data
Net sales............... $33,093 $39,179 $45,128 $ 52,885 $64,945 $30,273 $43,661(5)
Income (loss) from
continuing operations
before provision for
income taxes........... 1,080 1,078 13,202 (24,626) 14,832 6,376 4,360(6)
Provision for income
taxes.................. 411 443 4,617 2,834 5,788 2,591 2,337
------- ------- ------- -------- ------- ------- -------
Income (loss) from
continuing
operations............ 669(1) 635(2) 8,585 (27,460)(3) 9,044 3,785(4) 2,023
Income from discontinued
operations............ 1,823 15,459 -- -- -- -- --
------- ------- ------- -------- ------- ------- -------
Net income (loss)....... $ 2,492 $16,094 $ 8,585 $(27,460) $ 9,044 $ 3,785 $ 2,023
======= ======= ======= ======== ======= ======= =======
Income (loss) per share-
basic(7):
Income (loss) from
continuing
operations............ $ 0.04 $ 0.04 $ 0.52 $ (1.60) $ 0.51 $ 0.21 $ 0 .11
Income from
discontinued
operations............ $ 0.10 $ 0.94 $ -- $ -- $ -- $ -- $ --
------- ------- ------- -------- ------- ------- -------
Net (loss) income per
share................. $ 0.14 $ 0.98 $ 0.52 $ (1.60) $ 0.51 $ 0.21 $ 0.11
======= ======= ======= ======== ======= ======= =======
Income per share-
diluted(7):
Income (loss) from
continuing
operations............ $ 0.04 $ 0.04 $ 0.48 $ (1.60) $ 0.46 $ 0.20 $ 0.10
Income from
discontinued
operations............ $ 0.10 $ 0.89 $ -- $ -- $ -- $ -- $ --
------- ------- ------- -------- ------- ------- -------
Net (loss) income per
share................. $ 0.14 $ 0.93 $ 0.48 $ (1.60) $ 0.46 $ 0.20 $ 0.10
======= ======= ======= ======== ======= ======= =======
</TABLE>
(Continued on following page)
S-10
<PAGE>
<TABLE>
<CAPTION>
As of
At June 30, December 31,
------------------------------------------ ------------
1994 1995 1996 1997 1998 1998
------- -------- -------- ------- -------- ------------
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Balance Sheet Data
Working capital......... $64,625 $105,279 $166,328 $91,073 $108,069 $89,356
Net assets of
discontinued
operations............. 55,882 -- -- -- -- --
Total assets............ 194,009 188,174 199,592 384,339 396,926 458,472
Long term debt, less
current portion........ 80,716 -- -- 165,000 159,500 166,197
Stockholders' equity.... 105,130 166,832 181,089 188,736 206,226 254,577
</TABLE>
- --------
(1) The fiscal year ended June 30, 1994 includes a non-recurring after tax
charge of $(372) related to one-time payments made to certain executive
officers in conjunction with the acquisition of the Company's former
parent.
(2) The fiscal year ended June 30, 1995 includes (i) a non-recurring after tax
charge of $(3,683) primarily related to the award of stock options to
certain officers in connection with the completion of the sale of the
institutional pharmacy business and the purchase of the shares of Company
stock owned by Merck & Co. and (ii) a non-recurring after tax charge of
$(1,049), related to the conversion and redemption of the Company's
debentures in February 1995.
(3) The year ended June 30, 1997 includes a non-recurring after tax charge of
$(35,583) related to (i) the write-off of purchased research and
development costs in conjunction with the purchase of Avicenna Systems
Corp., and CareAgents, Inc. and (ii) the write-off of research and
development costs associated with the acquisitions of rights to certain
intellectual property and software technologies to be utilized in the
development of the Company's healthcare communications business.
(4) During the six months ended December 31, 1997, the Company repurchased
$5,500,000 face amount of Convertible Debentures which resulted in the
Company recording an after tax gain from the repurchase of $356.
(5) The six months ended December 31, 1998 include the operations of Point
Plastic from the date of acquisition, July 21, 1998. Sales of Point
Plastics included in the six months ended December 31, 1998 were $9,499.
(6) As a result of the Company's healthcare communications subsidiary, SHC,
entering into a license agreement with Cerner under which SHC obtained a
perpetual license to Cerner's HNA millenium Architecture, certain elements
of previously capitalized software costs were made duplicative.
Consequently, approximately $2,381 ($1,524 after tax) of capitalized
software was written off and included in selling, general and
administrative expenses.
(7) No cash dividends were declared by the Company during the periods presented
above. The Company adopted SFAS No. 128, "Earnings Per Share" during the
1998 fiscal year, beginning with December 31, 1997 interim financial
statements. In accordance with SFAS No. 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.
S-11
<PAGE>
PRO FORMA COMBINED FINANCIAL DATA
The pro forma financial information that follows has been derived from the
financial statements of Synetic, Inc. and The KippGroup. Such information
should be read in conjunction with the Consolidated Financial Statements of the
Company and the related notes thereto included in the 1998 10-K that are
incorporated by reference into this prospectus and the Second Quarter 10-Q
incorporated by reference into this prospectus supplement and the accompanying
prospectus and the Consolidated Financial Statements of The KippGroup included
in the Second Quarter 10-Q incorporated by reference in this prospectus
supplement and the accompanying prospectus. The pro forma financial information
also includes information derived from the financial statements of Point
Plastics, Inc., previously acquired by the Company and previously reported on
the Company's Current Report on Form 8-K dated July 24, 1998. Presented is the
Unaudited Pro Forma Combined Condensed Consolidated Statements of Income for
the fiscal year ended June 30, 1998 and the six months ended December 31, 1998
as if the acquisitions had been consummated at the beginning of the earliest
period presented. Also presented is the Unaudited Pro Forma Combined Condensed
Consolidated Balance Sheet as of December 31, 1998 as if the acquisition of The
KippGroup had been completed on December 31, 1998.
The pro forma financial information is not necessarily indicative of either
the results of operations that would have occurred had the Company, The
KippGroup and Point Plastics, Inc. actually been combined during the periods
presented or the future results of the combined companies.
The pro forma financial information reflects the acquisitions of The
KippGroup and Point Plastics, Inc. using the purchase method of accounting.
Pro Forma Combined Condensed Consolidated Statement of Income
For the Year Ended June 30, 1998
(unaudited)
(in thousands, except per share data)
<TABLE>
<CAPTION>
Point The Pro Forma Pro Forma
Synetic Plastics KippGroup Adjustments Combined
------- -------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Net Sales............... $64,945 $23,689 $25,186 (717) (1) $113,103
------- ------- ------- ------- --------
Cost of Sales........... 34,508 12,484 15,532 (717) (1) 61,807
Selling, General and
Administrative
Expenses............... 27,558 3,524 4,110 2,862 (2) 38,054
Other (Income) Expense,
Net.................... (11,953) 59 180 2,468 (3) (9,246)
------- ------- ------- ------- --------
50,113 16,067 19,822 4,613 90,615
------- ------- ------- ------- --------
Income (Loss) Before
Taxes.................. 14,832 7,622 5,364 (5,330) 22,488
Provision for Income
Taxes.................. 5,788 2,905 2,146 (1,489) (4) 9,350
------- ------- ------- ------- --------
Net Income (Loss)....... $ 9,044 $ 4,717 $ 3,218 $(3,841) $ 13,138
======= ======= ======= ======= ========
Net Income (Loss) per
Share--
Basic................. $ .51 $ .67
======= ========
Diluted............... $ .46 $ .60
======= ========
Weighted Average Number
of Common Shares
Outstanding--
Basic................. 17,671 1,982 (5) 19,653
======= ======= ========
Diluted............... 19,834 1,982 (5) 21,816
======= ======= ========
</TABLE>
See accompanying notes to Pro Forma Combined Statement of Income for the Year
Ended June 30, 1998.
S-12
<PAGE>
Pro Forma Combined Condensed Consolidated Statement of Income
For the Six Months Ended December 31, 1998
(unaudited)
(in thousands, except per share data)
<TABLE>
<CAPTION>
The Pro Forma Pro Forma
Synetic KippGroup Adjustments Combined
------- --------- ----------- ---------
<S> <C> <C> <C> <C>
Net Sales........................... $43,661 $11,624 $55,285
------- ------- -------
Cost of Sales....................... 22,819 7,339 30,158
Selling, General and Administrative
Expenses........................... 21,319 2,127 627 (2) 24,073
Other (Income) Expense, Net......... (4,837) (60) 65 (3) (4,832)
------- ------- ----- -------
39,301 9,406 692 49,399
------- ------- ----- -------
Income (Loss) Before Taxes.......... 4,360 2,218 (692) 5,886
Provision (Benefit) for Income
Taxes.............................. 2,337 887 (277)(4) 2,947
------- ------- ----- -------
Net Income (Loss)................... $ 2,023 $ 1,331 $(415) $ 2,939
======= ======= ===== =======
Net Income (Loss) per Share--
Basic............................. $ .11 $ .15
======= =======
Diluted........................... $ .10 $ .13
======= =======
Weighted Average Number of Common
Shares
Outstanding--
Basic............................. 18,553 1,150 (5) 19,703
======= ===== =======
Diluted........................... 20,642 1,150 (5) 21,792
======= ===== =======
</TABLE>
See accompanying notes to Pro Forma Combined Statement of Income for the Six
Months Ended December 31, 1998.
S-13
<PAGE>
Pro Forma Combined Condensed Consolidated Balance Sheet
as of December 31, 1998
(unaudited)
(in thousands)
<TABLE>
<CAPTION>
The Pro Forma Pro Forma
Synetic KippGroup Adjustments Combined
-------- --------- ----------- ---------
<S> <C> <C> <C> <C>
ASSETS:
Current Assets:
Cash and Cash Equivalents...... $ 57,514 $ 1,677 $(15,075)(6) $ 44,116
Marketable Securities.......... 14,128 931 15,059
Accounts Receivable, Net....... 13,813 2,757 16,570
Inventories.................... 10,473 2,448 12,921
Other Current Assets........... 11,176 150 15,000 (6) 26,326
-------- ------- -------- --------
Total Current Assets......... 107,104 7,963 (75) 114,992
Property and Equipment, Net...... 48,892 8,097 56,989
Other Assets, Net................ 302,476 28 43,897 (7) 346,401
-------- ------- -------- --------
Total Assets................... $458,472 $16,088 $ 43,822 $518,382
======== ======= ======== ========
LIABILITIES AND STOCKHOLDERS'
EQUITY:
Current Liabilities.............. $ 17,748 2,895 $ 2,000 (8) $ 22,643
Long-Term Debt................... 166,197 3,005 169,202
Deferred Taxes and Other
Liabilities..................... 19,950 -- 19,950
-------- ------- -------- --------
Total Long-Term Liabilities...... 186,147 3,005 189,152
-------- ------- -------- --------
Redeemable Common Stock.......... -- -- 52,010 (9) 52,010
Stockholders' Equity............. 254,577 10,188 (10,188)(10) 254,577
-------- ------- -------- --------
Total Liabilities and
Stockholders' Equity............ $458,472 $16,088 $ 43,822 $518,382
======== ======= ======== ========
</TABLE>
See accompanying notes to Pro Forma Combined Balance Sheet as of December 31,
1998.
S-14
<PAGE>
Notes to Pro Forma Combined Condensed Consolidated
Financial Statements
(unaudited)
The Unaudited Pro Forma Combined Condensed Financial Statements have been
prepared to reflect the acquisitions of The KippGroup and Point Plastic, Inc.
(the "Acquisitions") using the purchase method of accounting. The excess of the
purchase price over the fair value of the net assets acquired is being
amortized over periods of up to 40 years.
The following is a summary of the adjustments reflected in the Unaudited Pro
Forma Combined Condensed Consolidated Statements of Income. Included in the
Statements of Income of Synetic, Inc. for the six months ended December 31,
1998, are the results of operations of Point Plastics, Inc. from July 21, 1998,
the date of acquisition:
(1) Represents the eliminations of product sales from Synetic to Point
Plastics. The elimination amounts represent the sales value charged by
Synetic for products sold to Point Plastics. The profits in ending
inventory attributable to inter-company sales have not been eliminated as
such amounts are immaterial.
(2) Represents the amortization of the excess of the purchase price over the
net assets acquired of Point Plastics and The KippGroup.
(3) Represents the decrease in interest income to reflect (a) the payment of
the cash portion of the purchase price and (b) expenses associated with
the Acquisitions.
(4) Represents the tax effect of the adjustments to the Unaudited Pro Forma
Combined Condensed Consolidated Statements of Income based on the combined
federal and state statutory tax rate for the periods presented.
(5) Represents the increase in the number of outstanding shares of Synetic
common stock to reflect the issuance of stock in connection with the
Acquisitions.
The Unaudited Pro Forma Combined Condensed Consolidated Balance Sheet was
prepared to reflect the Acquisitions as of December 31, 1998. The following is
a summary of the adjustments reflected in the Unaudited Pro Forma Combined
Condensed Consolidated Balance Sheet. The Consolidated Balance Sheet of
Synetic, Inc. includes the accounts of Point Plastics, Inc., which was acquired
on July 21, 1998. Consequently, the following adjustments relate only to the
acquisition of The KippGroup.
(6) Represents the decrease in Cash and Cash Equivalents to reflect (a) the
payment of the cash portion of the purchase price and (b) the funding of a
loan to the sellers of The KippGroup.
(7) Represents the preliminary estimate of the excess purchase price over the
net assets acquired as follows:
<TABLE>
<CAPTION>
The
KippGroup
---------
<S> <C>
Purchase price (including transaction expenses)................ $54,085
Fair market value of acquired assets........................... 10,188
-------
Excess of purchase price over net assets acquired.............. $43,897
=======
Allocated to:
Intangible assets (including un-patented technology)........... $15,500
Goodwill....................................................... 28,397
-------
$43,897
=======
</TABLE>
S-15
<PAGE>
The final determination of the allocation of The KippGroup's purchase
price is dependent on the receipt of a third party appraisal. The Company
believes that the final allocation will not vary materially from the
preliminary estimate.
The identifiable assets are being amortized over their estimated useful
lives. Goodwill is being amortized over periods of up to 40 years. The
amortization period for goodwill is based upon the underlying
manufacturing process utilized by The KippGroup, their long history of
profitability and the stability of the industry in which they operate.
Subsequent to the Acquisitions, the Company will review the carrying
values assigned to goodwill to determine whether later events or
circumstances have occurred that indicate that the balance of goodwill may
be impaired. The Company's principal consideration in determining the
impairment of goodwill include the strategic benefit to the Company of the
particular business as measured by undiscounted current and expected
future operating income and expected undiscounted future cash flows.
(8) Represents the amount of estimated costs for legal and accounting services
and other expenses associated with the acquisition of The KippGroup.
(9) Represents the issuance of Synetic common stock in connection with the
acquisition of The KippGroup.
(10) Represents the elimination of The KippGroup's historical equity.
S-16
<PAGE>
UNDERWRITING
Subject to the terms and conditions set forth in a purchase agreement (the
"Purchase Agreement") among Synetic, the selling stockholders and Merrill
Lynch, Pierce, Fenner & Smith Incorporated ("Merrill Lynch"), as underwriter,
the selling stockholders have agreed to sell to Merrill Lynch, and Merrill
Lynch has agreed to purchase from the selling stockholders, the number of
shares of common stock offered hereby. The Purchase Agreement provides that the
obligations of Merrill Lynch are subject to certain conditions and that when
such conditions are satisfied Merrill Lynch will be obligated to purchase all
of the shares of common stock offered in this offering.
Merrill Lynch has advised Synetic and the selling stockholders that it
proposes initially to offer the shares of common stock to the public at the
initial public offering price set forth on the cover page of this prospectus
supplement, and to certain dealers at such price less a concession not in
excess of $ per share of common stock. Merrill Lynch may allow, and such
dealers may reallow, a discount not in excess of $ per share of common stock
on sales to certain other dealers. After the offering contemplated hereby, the
public offering price, concession and discount may be changed.
Synetic and the selling stockholders have agreed, severally and not jointly,
to indemnify Merrill Lynch against, or to contribute to payments Merrill Lynch
may be required to make in respect of certain liabilities, including certain
liabilities under the Securities Act.
Until the distribution of the common stock is completed, rules of the
Securities and Exchange Commission may limit the ability of Merrill Lynch to
bid for and purchase the common stock. As an exception to these rules, Merrill
Lynch is permitted to engage in certain transactions that stabilize the price
of the common stock. These transactions may include bids or purchases for the
purpose of pegging, fixing or maintaining the price of the common stock.
If Merrill Lynch creates a short position in the common stock in connection
with the offering, i.e., if they sell a larger number of shares of common stock
than are set forth on the cover page of this prospectus supplement, it may
reduce that short position by purchasing common stock in the open market.
Merrill Lynch may also impose a penalty bid on certain selling group
members. This means that if Merrill Lynch purchases shares of common stock in
the open market to reduce its short position or to stabilize the price of
common stock, Merrill Lynch may reclaim the amount of the selling concession
from the selling group members who sold those shares as part of the offering.
If Merrill Lynch purchases the common stock to stabilize the price or to
reduce its short position, the price of the common stock could be higher than
it might be in the absence of such purchases. The imposition of a penalty bid
might also have an effect on the price of the common stock to the extent that
it discourages resales of the common stock.
Neither the Company nor Merrill Lynch makes any representation or prediction
as to the direction or magnitude of any effect that any of the transactions
described above may have on the price of the common stock. In addition, neither
the Company nor Merrill Lynch makes any representation that Merrill Lynch will
engage in such transactions or that such transactions, once commenced, will not
be discontinued without notice.
In connection with the offering, Merrill Lynch may engage in passive market
making transactions in the common stock on the Nasdaq/NMS in accordance with
Regulation M under the Exchange Act during a period before the commencement of
offers or sales of common stock hereunder.
Merrill Lynch, from time to time, performs investment banking and other
financial services for the Company and its subsidiaries.
Synetic will pay all of the expenses of the offering, excluding underwriting
discounts and commissions, and it estimates that these expenses will be
approximately $150,000.
S-17
<PAGE>
LEGAL MATTERS
Certain legal matters with respect to the legality of the issuance of the
common stock offered hereby will be passed upon for the Company by Shearman &
Sterling, New York, New York. Certain legal matters will be passed upon for
Merrill Lynch by Brown & Wood LLP, New York, New York. Shearman & Sterling is a
limited partner in SN Investors, L.P.
S-18
<PAGE>
PROSPECTUS
1,150,028 Shares
SYNETIC, INC.
COMMON STOCK
Certain of our stockholders may offer and sell from time to time an
aggregate of up to 1,150,028 shares of our common stock.
The selling stockholders may offer their shares through public or private
transactions, on or off the Nasdaq National Market, at prevailing market prices
or at privately negotiated prices.
The selling stockholders obtained their shares of common stock on January
22, 1999 in connection with our acquisition of The KippGroup.
Our common stock is listed on the Nasdaq National Market under the symbol
"SNTC." On January 29, 1999, the closing price of the common stock on the
Nasdaq National Market was $51 13/16 per share.
If necessary, certain information relating to the selling stockholders, the
terms of the sale of common stock by the selling stockholders, including the
public offering price, the names of any underwriters or agents, the
compensation, if any, of such underwriters or agents and the other terms in
connection with the sale of the common stock, in respect of which this
prospectus is delivered will be set forth in an accompanying prospectus
supplement.
Investing in the shares of our common stock involves risks which are
described in the "Risk Factors" section beginning on page 1 of this prospectus.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these shares of common stock or
determined if this prospectus is truthful or complete. Any representation to
the contrary is a criminal offense.
----------------
The date of this prospectus is February 5, 1999.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Forward-Looking Statements................................................. i
Risk Factors............................................................... 1
The Company................................................................ 8
Use of Proceeds............................................................ 8
Selling Stockholders....................................................... 9
Plan of Distribution....................................................... 10
Description of Capital Stock............................................... 11
Legal Matters.............................................................. 13
Experts.................................................................... 13
Where You Can Find More Information........................................ 13
</TABLE>
FORWARD-LOOKING STATEMENTS
This prospectus and reports, proxy statements and other information that we
have filed with the SEC, which are incorporated by reference in this
prospectus, include forward-looking statements, including statements regarding,
among other items:
. the product demand and market and user acceptance of our products,
. the feasibility of developing commercially profitable healthcare
communication services,
. the effect of economic conditions on our business,
. the impact of competitive products, services and pricing on our
business,
. commercialization and technological difficulties associated with our
products,
. our objective to grow through strategic acquisitions,
. our internal growth strategy,
. our ability to manage and integrate acquired businesses,
. anticipated trends and conditions in our industries, including
regulatory matters,
. our Year 2000 compliance, and
. trends in our future operating performance.
We have based these forward-looking statements largely on our expectations
as well as assumptions we have made and information currently available to our
management. When used in this prospectus, the words "anticipate," "believe,"
"estimate," "expect" and similar expressions, as they relate to our company or
management, are intended to identify forward-looking statements. Forward-
looking statements are subject to a number of risks and uncertainties, certain
of which are beyond our control. Actual results could differ materially from
those anticipated, as a result of the factors described in "Risk Factors" and
other factors. Furthermore, in light of these risks and uncertainties, the
forward-looking events and circumstances discussed in this prospectus might not
transpire.
We undertake no obligation to publicly update or revise any forward-looking
statements, whether as a result of new information, future events or otherwise.
i
<PAGE>
RISK FACTORS
Investing in the common stock will provide you with an equity ownership in
Synetic. The value of your investment may be subject to risks inherent in our
business. Such risks may materially and adversely affect our business,
financial condition or results of operations. In such case, the trading price
of the common stock could decline, and you could lose all or part of your
investment. You should carefully consider the following factors as well as
other information contained in this prospectus or any prospectus supplement
before deciding to invest in the common stock. In this prospectus, the
"Company," "Synetic," "we," "us" and "our" refer to Synetic, Inc.
Risks of New Business Area--Healthcare Communications
Development Phase. Our company is in the development phase of offering
products and services to provide inter-enterprise connectivity to payors,
providers, suppliers and consumers in the healthcare industry. The provision of
products and services using Internet technology in the healthcare
communications industry is a developing business. As a developing business, it
is inherently riskier than our other operations in areas where we have an
operating history. We anticipate that we will incur significant expenses in
connection with the development of these products and services. Further, we
cannot assure you that we will be able to successfully develop these products
and services at all.
We are pursuing the development of our healthcare communications business
through the use of our internal resources, as well as through strategic
alliances with development partners. In January 1999, we entered into a
collaborative arrangement with Cerner Corporation, a publicly traded
corporation and a supplier of clinical and management information systems for
healthcare organizations, to develop and commercialize certain of our products
and services in this area. This alliance is in the initial phase. Consequently,
we cannot assure you that this alliance, or any other alliances with
development partners, will provide us with the ability to successfully develop
or offer products and services in this area.
Uncertainty of Market Acceptance. As is typical in a developing business,
demand and market acceptance for new and unproven products and services are
subject to a high level of uncertainty. Achieving market acceptance for our
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:
. our effort in establishing such products and services will be successful,
. there will be significant market acceptance for our products and
services,
. we will be able to succeed in positioning our services as a preferred
method for healthcare communications or
. any pricing strategy that we develop will be economically viable or
acceptable to the market.
If we are unable to successfully market our products, this could have a
material adverse affect on our business.
Research and Development Expenses; Profitability. We expect to continue to
incur significant research and development expense in connection with our
healthcare communications business until the products and services we develop
are successfully marketed. We cannot assure you:
. that our products or services will be successfully marketed or
. as to when, and to what extent, if any, our healthcare communications
business will become profitable.
1
<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
communication we are developing. We believe, however, that these laws and
regulations will nonetheless be applied to our healthcare communications
business. Accordingly, our 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:
. the regulation of confidential patient medical record information,
. laws relating to the electronic transmission of prescriptions from
physicians' offices to pharmacies,
. regulations governing the use of software applications in the diagnosis,
cure, treatment, mitigation or prevention of disease, and
. laws or regulations relating to the relationships among healthcare
providers.
We expect to conduct our healthcare communications business in substantial
compliance with all material federal, state and local laws and regulations
governing our operations. However, the impact of regulatory developments in the
healthcare industry is complex and difficult to predict, and there can be no
assurance that we will not be materially adversely affected by existing or new
regulatory requirements or interpretations. For example, complying with
existing or new regulatory requirements could be expensive and time-consuming.
It is also possible that such requirements or interpretations could limit the
effectiveness of the use of the Internet for the methods of healthcare
communication we are developing or even prohibit the sale of a subject product
or service.
Risks of Reliance on Rapidly Changing Technology
All businesses which rely on Internet technology, including the healthcare
communications business that we are developing, are subject to, among other
things:
. 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, we must be able to quickly
and successfully adapt our products and services so that they adapt to such
changes. We cannot assure you that we will not experience difficulties that
could delay or prevent the successful development and introduction of our
healthcare communications products and services. Our inability to respond to
technological changes in a timely and cost-effective manner could have a
material adverse effect on our 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 our operating
results.
Competition in Healthcare Communications
One or more service companies, some of which may have greater resources than
we do, have announced that they are developing a combination of one or more
healthcare communications products and services that we are currently also
developing. There can be no assurance that such companies will not develop and
successfully market healthcare communications products and services in a manner
which would have a material adverse effect on our business, financial condition
and results of operations.
2
<PAGE>
Risks of Product Development; Proprietary Rights
Our future success and ability to compete in the healthcare communications
business may be dependent in part upon our proprietary rights to products and
services which we develop. We may rely on a combination of copyrights,
trademarks and trade secrets and contractual restrictions to protect the
content and technology and on similar proprietary rights of any of our content
and technology providers. There can be no assurance that the steps we take or
the steps such providers take would be adequate to prevent misappropriation of
our respective proprietary rights. Our competitors may also independently
develop content or technology that is substantially equivalent or superior to
that which is available to us. In addition, there can be no assurance that
licenses for any intellectual property of third parties that might be required
for our products or services would be available on commercially reasonably
terms or at all.
Although we intend to take steps to ensure that we are 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 us or one of its
content or technology providers or that such claims will not be successful. We
could incur substantial costs and diversion of management resources with
respect to the defense of any such claims. Furthermore, parties making such
claims against us 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 our ability to provide products or services in
certain of our markets. Such a judgment could have a material adverse effect on
our business, financial condition and results of operations.
Government Regulation of Porex
Porex Technologies Corp., one of our wholly owned subsidiaries, manufactures
and distributes certain medical/surgical devices, such as plastic and
reconstructive surgical implants and tissue expanders, which are subject to
government regulations, under the Medical Device Amendments of 1976 to the
Federal Food, Drug and Cosmetic Act and additional regulations promulgated by
the Food and Drug Administration. Future healthcare products may also be
subject to such regulations and approval processes. Compliance with such
regulations and the process of obtaining approvals can be costly, complicated
and time-consuming, and there can be no assurance that such approvals will be
granted on a timely basis, if ever.
Potential Liability Risk and Availability of Insurance
The products sold by us expose us to potential risk for product liability
claims, particularly with respect to Porex's life sciences, clinical, surgical
and medical products. We believe 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 believes that it is adequately indemnified for products
manufactured by others and distributed by it, there can be no assurance that in
the future it will be able to obtain such insurance at an acceptable cost or be
adequately protected by such indemnification. For example, in 1994, as
described further in "Risk Factors-- Mammary Implant Litigation" below, Porex
was notified that its insurance carrier would not renew its then-existing
insurance coverage after December 31, 1994 with respect to actions and claims
arising out of Porex's distribution of silicone mammary implants. However,
Porex has exercised its right to purchase extended reporting period coverage
with respect to such actions and claims. See also "Legal Proceedings" in our
Form 10-K for the fiscal year ended June 30, 1998, which is incorporated by
reference in this prospectus.
Mammary Implant Litigation
During the year ended June 30, 1988, our subsidiary, Porex Technologies
Corp., began distributing silicone mammary implants ("implants") in the United
States pursuant to a distribution arrangement (the "Distribution Arrangement")
with a Japanese manufacturer (the "Manufacturer"). Because of costs associated
with increased government regulation and examination, Porex's supplier
determined to withdraw its
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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 January 18, 1999, 213 actions and 37
out-of-court claims were pending against Porex. Of the 213 actions, 95 involve
implants identified as distributed by Porex and 84 cases involve implants
identified as not having been distributed by Porex. In the remaining 34
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. We do 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 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 purchased extended reporting period coverage with respect
to other excess insurance. This coverage also extends indefinitely, replacing
coverage which would by its terms have otherwise expired by December 31, 1997.
We will continue to evaluate the need to purchase further extended reporting
period coverage from excess insurers to the extent such coverage is reasonably
available. We believe that our 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.
We believe 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, we believe that the possibility is remote that
pending actions and claims that may be commenced or made in the future could,
individually or in the aggregate, pose a material risk to the financial
position of our company or our results of operations, although we cannot assure
you of this.
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Risks of Our Acquisition Program
We maintain an acquisition program and intend to concentrate our acquisition
efforts on businesses which are complementary to our healthcare communications
strategy and plastic filtration and technology business. Such emphasis is not,
however, intended to limit in any manner our ability to pursue acquisition
opportunities in other healthcare-related businesses or in other industries. We
anticipate that we may enter into further acquisitions, joint ventures,
strategic alliances or other business combinations. These transactions may
materially change the nature and scope of our business. Any transactions will
be limited, as required by an agreement to which we are a party (which
agreement expires on May 24, 1999), to areas of business that would not be
competitive with certain businesses of Merck & Co. See also "Business--Certain
Relationships and Related Transactions" in our Form 10-K for the fiscal year
ended June 30, 1998, which is incorporated here by reference.
Although our management will endeavor to evaluate the risks inherent in any
particular transaction, including The KippGroup acquisition, there can be no
assurance that we will properly ascertain all such risks. In addition, no
assurances can be given that we will succeed in consummating any such
transactions, that such transactions, including The KippGroup acquisition, will
ultimately provide us with the ability to offer the products and services
described or that we will be able to successfully manage or integrate any
resulting business.
The success of our 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:
. cash and cash equivalents on hand,
. marketable securities,
. proceeds from new indebtedness or
. proceeds from the issuance of additional common stock, preferred stock,
convertible debt or other securities.
The issuance of additional securities, including common stock, could result in:
. substantial dilution of the percentage ownership of our stockholders at
the time of any such issuance and
. substantial dilution of our company's earnings per share.
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. We do 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, our Chairman of the Board of
Directors, has indicated his intention to assist us in our acquisition program
by bringing opportunities for potential transactions to us and to assist us in
negotiating such transactions and in seeking financing in the event we were to
finance any such transaction, he is not an officer or an employee of our
company nor is he required pursuant to any contractual obligation to provide
such support or assistance.
Year 2000 Technology Risks
The Year 2000 issue is the result of computer programs using two digits
rather that four digits to define the applicable year. Certain 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 our suppliers, vendors and
customers also face this issue.
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We have completed an assessment of our Year 2000 readiness and are
undergoing a conversion of our internal systems which are not currently Year
2000 compliant. We have completed the conversion of all significant non-
manufacturing related systems. We expect conversion of manufacturing related,
information technology ("IT") systems to be completed and fully tested by June
30, 1999. For manufacturing related, non-IT systems, all significant
microprocessor-embedded production equipment has been upgraded and we believe
it is Year 2000 compliant.
We are in the process of communicating with our business partners,
suppliers, vendors and customers concerning the state of their readiness for
the Year 2000. The information gathered to date does not permit us to complete
our assessment of risk related to the Year 2000 that these third parties may
present us. If third parties upon which we rely are unable to address this
issue in a timely manner, such occurrence could result in a material risk to
our company.
We expect that the cost of Year 2000 compliance will not be material. If we
do not complete the conversion of our manufacturing related, IT systems by June
30, 1999, we have Year 2000 compliant upgrades we believe can be readily
installed for our existing systems. We believe that, should it be necessary,
the cost of installing such upgrades would not be material.
We intend to have in inventory a reserve of raw materials, which we believe
will be sufficient to avoid a disruption in our manufacturing process, to
minimize the risk associated with third-party suppliers experiencing Year 2000
problems.
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
our operations could differ materially from our expectations.
Potential for Adverse Effect on Stock Price from Shares Available for Future
Sale
SN Investors, L.P., a limited partnership the general partner of which is
SYNC, Inc., whose sole stockholder is Martin J. Wygod, our Chairman of the
Board of Directors, currently holds 5,061,857 shares of our common stock. These
shares represent 25.4% of the outstanding shares of our common stock as of
January 25, 1999. These shares are "restricted securities," within the meaning
of Rule 144 promulgated pursuant to the Securities Act ("Rule 144"), subject to
the volume restrictions of Rule 144 but for which the holding period has
expired. In addition, as more fully set forth in "Certain Relationships and
Related Transactions" in our Form 10-K for the fiscal year ended June 30, 1998,
which is incorporated here by reference, these shares are subject to certain
restrictions on transfer. Subject to such restrictions, SN Investors may be
able to sell without registration under the Securities Act the number of such
shares permitted under Rule 144. The Company has granted certain demand
registration rights to Mr. Wygod with respect to the shares of our common stock
held by SN Investors. These rights are assignable to SN Investors. Any sales by
SN Investors pursuant to Rule 144 or such registration rights could have a
material adverse effect on the prevailing market price for our common stock.
As of December 31, 1998, we had issued and outstanding options to purchase
8,970,167 shares of common stock pursuant to stock option agreements and stock
option plans and warrants which are exercisable into 250,000 additional shares
of our common stock. In addition, in connection with our acquisition of Point
Plastics, Inc., we have issued 832,259 shares of our common stock to the former
shareholders of Point Plastics, which may not be sold by such shareholders
until July 21, 1999. The sale of a substantial amount of such additional shares
of our common stock following their issuance or the expiration of related lock-
up periods could have a material adverse effect on the market price of the
common stock.
In February 1997, we sold in the aggregate $165 million principal amount of
convertible subordinated debentures due 2007 (referred to herein as the
"Debentures") in a public offering, of which $159.5 million principal amount
was outstanding on January 25, 1999. The Debentures are convertible, at the
option of the
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holder, at any time prior to maturity, unless previously redeemed or
repurchased, into shares of our common stock at a conversion price of $60 per
share of common stock (equivalent to a conversion rate of 16.667 shares per
$1,000 principal amount of Debentures), subject to adjustment in certain
events. We may be required to issue 2,658,333 additional shares upon the
conversion of the outstanding Debentures at their stated conversion price. We
are unable to predict the effect, if any, that the conversion of the Debentures
into shares of our common stock will have on the market price for the common
stock prevailing from time to time.
Certain Antitakeover Effects Could Affect the Market Price of Our Common Stock
Provisions in our certificate of incorporation relating to the delegation of
rights to issue preferred stock may have the effect not only of discouraging
tender offers or other stock acquisitions but also of deterring existing
stockholders from making management changes. In addition, the requirement that
we repurchase the Debentures, at the option of the holder, upon the occurrence
of a designated event may, in certain circumstances, make more difficult or
discourage a takeover of our company. Further, as of January 25, 1999, Mr.
Wygod, our Chairman of the Board of Directors, beneficially owns 27.0% of the
outstanding shares of our common stock. Due to his ownership of these shares,
Mr. Wygod may be in a position to influence the election of our Board of
Directors, as well as the direction and future operations of our company. His
ownership could also make more difficult or discourage a takeover of our
company. Each of these factors could affect the market price of our common
stock.
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THE COMPANY
Our company is a Delaware corporation and was incorporated in 1989. Our
principal offices are located at 669 River Drive, River Drive Center II,
Elmwood Park, New Jersey 07407, and our telephone number is (201) 703-3400.
We are engaged in two principal business activities, plastics and filtration
technologies and healthcare communications. Through our wholly owned subsidiary
Porex Technologies Corp., we design, manufacturer and distribute porous and
solid plastic components and products used in life sciences, healthcare,
industrial, and consumer applications. Porex Technologies Corp., together with
its subsidiaries, is referred to hereinafter in this prospectus collectively as
"Porex", except where the context otherwise requires. Through our subsidiary,
Synetic Healthcare Communications, Inc., a corporation in which we hold an
80.1% ownership interest, we are engaged in an 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 "Risk Factors--
New Business Area--Healthcare Communications."
Acquisition Program
We maintain an acquisition program and intend to concentrate our acquisition
efforts in businesses which are complementary to our plastics and filtration
technologies business and our healthcare communications strategy. This
emphasis, however, is not intended to limit in any manner our ability to pursue
acquisition opportunities in other healthcare-related businesses or in other
industries. Our acquisition program could result in a substantial change in the
business, operations and financial condition of our company. We cannot assure
you that we will succeed in consummating any acquisitions or that we will be
able to successfully manage or integrate any business that we acquire. Our
future growth will depend primarily on our ability to consummate one or more
such acquisitions and to operate such business successfully. See also
"Business--Acquisition Program" in our Form 10-K for the fiscal year ended June
30, 1998, which is incorporated here by reference, and "Risk Factors--
Acquisition Program."
USE OF PROCEEDS
We expect to receive no proceeds from the sale of the common stock covered
by this prospectus. All of the proceeds from the sale of the common stock of
Synetic will go to the stockholders who offer and sell their shares except as
described below.
Under the terms of the Stock Purchase Agreement dated January 13, 1999
between the Company and David R. Kipp and James P. Kipp (the "Stock Purchase
Agreement"), 73,706 shares out of the 1,150,028 shares that we have registered
will be placed in an escrow account (the "Escrow Account"). If the proceeds
from the sale of such shares exceeds $3,000,000, the excess will be delivered
to the selling stockholders and $3,000,000 will remain in the Escrow Account.
If the earnings before interest and taxes of The KippGroup for the twelve
months ended June 30, 2000 are greater than or equal to five million five
hundred thousand dollars ($5,500,000), then the proceeds in the Escrow Account,
including the interest thereon, will be disbursed to the selling stockholders.
If such earnings are less than such amount, then the proceeds in the Escrow
Account, including the interest thereon, will be disbursed to Synetic, which
would use such proceeds as a reduction in the purchase price of The KippGroup.
See "Other Information--Plastics and Filtration Technologies" in our Form 10-Q
for the fiscal quarter ended December 31, 1998, which is incorporated here by
reference.
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SELLING STOCKHOLDERS
The selling stockholders are David R. Kipp and James P. Kipp. On January 22,
1999, pursuant to the Stock Purchase Agreement, the Company acquired from the
selling stockholders all of the issued and outstanding capital stock of The
KippGroup. The KippGroup, based in Ontario, California, is engaged in the
business of custom manufacturing injection molds, providing injection molding
services and designing, manufacturing and distributing a proprietary line of
plastic medical devices. See "Other Information-- Plastics and Filtration
Technologies" in our Form 10-Q for the quarter ended December 31, 1998, which
is incorporated here by reference. As part of the consideration for the stock
of The KippGroup, the Company paid to the selling stockholders the shares of
common stock being offered hereby. Each selling stockholder has informed the
Company that prior to receipt of the shares of common stock offered hereby he
did not own any shares of common stock of the Company.
Immediately prior to the offering, each selling stockholder will own 575,014
shares of common stock, including 36,853 shares each that have been deposited
into the Escrow Account, all of which are being offered hereby. Upon completion
of this offering, if all offered shares are sold, the selling stockholders will
not own any shares of common stock of the Company, but each selling stockholder
will hold options to purchase 150,000 shares of common stock of the Company and
in the year 2000 each selling stockholder may, pursuant to the terms of the
Stock Purchase Agreement, receive additional shares of common stock, with an
aggregate market value of up to $8.45 million at the time of issuance, if
certain operational targets set forth in the Stock Purchase Agreement for The
KippGroup for the 12 months ended June 30, 2000 are met. Pursuant to the terms
of the Stock Purchase Agreement, the Company would be required to file a
registration statement with the SEC to register such additional shares of
common stock for sale by the selling stockholders.
The Company, on the one hand, and the selling stockholders, on the other
hand, have agreed to indemnify each other against certain liabilities arising
under the Securities Act.
Each of the Selling Stockholders listed below acquired the shares of common
stock offered hereby in connection with the acquisition of The KippGroup by the
Company. This prospectus and any prospectus supplement covers the offer and
sale by each selling stockholder of their common stock. Our registration of the
common stock held by the selling stockholders does not necessarily mean that
the selling stockholders will sell all or any of the shares. To the knowledge
of the Company, none of the selling stockholders had any material relationships
with the Company prior to the closing of the acquisition of The KippGroup. Set
forth below are (i) the names of each selling stockholder, (ii) the nature of
any position, office or other material relationship that they have had within
the past three years with Synetic or any of its predecessors or affiliates,
(iii) the number of shares of common stock they beneficially owned as of
January 25, 1999, (iv) the number of shares that may be offered and sold by or
on their behalf and (v) the amount of common stock to be owned by them upon the
completion of the offering if all shares offered are sold.
<TABLE>
<CAPTION>
Shares
Beneficially Shares Beneficially
Owned Prior to Owned After
Offering(1) Shares Offering(1)
--------------- Being ----------------------
Selling Stockholders Number Percent Offered Number Percent
-------------------- ------- ------- ------- --------- ----------
<S> <C> <C> <C> <C> <C>
David R. Kipp(2)............... 575,014 2.89% 575,014 0 0
James P. Kipp(3)............... 575,014 2.89% 575,014 0 0
</TABLE>
- --------
(1) Includes outstanding shares and stock options exercisable within 60 days
after January 22, 1999 held by officers and directors. The number of shares
of each selling stockholder includes 36,853 shares of common stock of the
Company placed in the Escrow Account, and the selling stockholders have no
right to receive such shares or the proceeds of sale of such shares except
as described as above.
(2) David R. Kipp, the current Executive Vice President of The KippGroup, held
the position of President of The KippGroup and owned 50% of the
outstanding shares of The KippGroup common stock immediately prior to the
acquisition of The KippGroup by Synetic.
(3) James P. Kipp, the current Executive Vice President of The KippGroup, held
the position of Executive Vice President, Secretary and Chief Financial
Officer of The KippGroup and owned 50% of the outstanding shares of The
KippGroup common stock immediately prior to the acquisition of The
KippGroup by Synetic.
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PLAN OF DISTRIBUTION
We are registering shares of our common stock on behalf of the selling
stockholders. As used in this prospectus, "selling stockholders" includes
donees and pledgees selling shares received from a named selling stockholder.
Under the terms of the Stock Purchase Agreement, for the first 20 trading days
after the effectiveness of the registration statement of which this prospectus
is a part (the "Registration Statement"), the Company has the right to control,
on behalf of the selling stockholders, the timing, method and pricing with
respect to the sale of the shares of common stock offered hereby. The selling
stockholders have the right to extend this 20 trading days period to 40 trading
days. This trading period, whether 20 or 40 days, is referred to as the
"Company Marketing Period." At the end of the Company Marketing Period, if the
selling stockholders have not realized at least $43,809,000 in proceeds from
the sale of their shares, the Company has agreed to pay them an amount equal to
such shortfall in exchange for any unsold shares. However, the selling
stockholders have the right to retain their unsold shares and forego receipt of
the shortfall payment.
In the event that the selling stockholders elect to retain any unsold shares
at the end of the Company Marketing Period, the Company has agreed to use its
reasonable best efforts to continue the effectiveness of the Registration
Statement for a period of 60 additional trading days from the time the selling
stockholders elect to retain the unsold shares.
Subject to the foregoing, the Company (as described above) or the selling
stockholders may sell all or a portion of the shares offered by the selling
stockholders hereby from time to time in one or more of the following types of
transactions or through a combination of any such methods of sale (including
block transactions or ordinary broker's transactions):
. through the Nasdaq National Market or any national securities exchange on
which the common stock is approved for listing in the future,
. in the over-the-counter market,
. in privately negotiated transactions,
. through short sales, short sales versus the box, puts and calls and other
transactions in securities of the Company, or derivatives thereof, and
may sell and deliver the shares in connection therewith,
. through an underwritten public offering, or
. a combination of such methods of sale.
The Company (as described above) or the selling stockholders may sell the
shares offered by the selling stockholders at the market prices prevailing at
the time of sale, at prices related to such prevailing market prices or at
negotiated prices.
If the shares are sold in an underwritten offering or one of the other
methods of sale described above, the Company (as described above) or the
selling stockholders may from time to time offer the shares through
underwriters, brokers, dealers or agents, who may receive compensation in the
form of underwriting discounts, commissions or concessions from the Company,
the selling stockholders and/or the purchasers of the shares for whom they act
as agent. The selling stockholders and any brokers, dealers, agents or
underwriters that participate with the selling stockholders in the distribution
of shares may be deemed to be "underwriters" within the meaning of the
Securities Act, in which event any discounts, concessions and commissions
received by such brokers, dealers, agents or underwriters and any profit on the
resale of the shares purchased by them may be deemed to be underwriting
discounts and commissions under the Securities Act.
The aggregate net proceeds to the selling stockholders from the sale of the
shares offered by or on the behalf of the selling stockholders hereby will be
the purchase price of such shares, less commissions, if any, not borne by the
Company. The Company and the selling stockholders have agreed that, depending
upon the amount of the total proceeds of the sale of the shares either the
Company, the selling stockholders or a combination of both will pay any
discounts, commissions or fees of underwriters, selling brokers, dealer
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managers or similar industry professionals relating to the distribution of the
shares. The Company has agreed to bear all expenses (other than, except as
noted above, any commissions or discounts of underwriters, dealers or agents or
brokers' fees and the fees and expenses of their counsel) in connection with
the registration of the shares being offered by the selling stockholders
hereby.
To the extent required, the number of shares to be sold, the purchase price
and aggregate offering price, the name of any such agent, broker, dealer or
underwriters and any applicable commissions with respect to a particular offer
will be set forth in an accompanying prospectus supplement.
If the shares are sold in an underwritten offering, during and after the
offering, the underwriters may purchase and sell the common stock in the open
market. These transactions may include over-allotment and stabilizing
transactions and purchases to cover syndicate short positions created in
connection with the offering. The underwriters also may impose a penalty bid,
whereby selling concessions allowed to syndicate members or other broker-
dealers in respect of the common stock sold in the offering for their account
may be reclaimed by the syndicate if such securities are repurchased by the
syndicate in stabilizing or covering transactions. These activities may
stabilize, maintain or otherwise affect the market of the common stock which
may be higher than the price that might otherwise prevail in the open market.
These transactions may be effected on The Nasdaq National Market, in the over-
the-counter market or otherwise, and these activities, if commenced, may be
discontinued at any time.
If the shares are sold in an underwritten offering, certain of the
underwriters and selling group members, if any, may engage in passive market
making transactions in the Company's common stock on the Nasdaq National Market
immediately prior to the commencement of the sale of shares in such offering,
in accordance with Rule 103 of Regulation M. Passive market making consists of
displaying bids on the Nasdaq National Market limited by the bid prices of
market makers not connected with such offering and purchases limited by such
prices and effected in response to order flow. Net purchases by a passive
market maker on each day are limited in amount to 30% of the passive market
maker's average daily trading volume in the common stock during the period of
the two full consecutive calendar months prior to the filing with the
Commission of the Registration Statement of which this prospectus is a part and
must be discontinued when such limit is reached. Passive market making may
stabilize the market price of the common stock at a level above that which
might otherwise prevail and, if commenced, may be discontinued at any time.
Any shares covered by this prospectus which qualify for sale pursuant to
Rule 144 under the Securities Act may be sold under Rule 144 rather than
pursuant to this prospectus. There is no assurance that the selling
stockholders will sell any or all of the shares. In the event that any shares
are not sold at the completion of this offering, the selling stockholders may
transfer, devise or gift such shares by other means not described herein.
In order to comply with certain states' securities laws, if applicable, the
common stock will be sold in such jurisdictions only through registered or
licensed brokers or dealers. In addition, in certain states the common stock
may not be sold unless the common stock has been registered or qualified for
sale in such state or an exemption from registration or qualification is
available and is complied with.
DESCRIPTION OF CAPITAL STOCK
The following description of the capital stock of the Company is subject to
the Delaware General Corporation Law and to provisions contained in the
Company's Certificate of Incorporation and By-Laws, copies of which are
exhibits to our Form 10-K for the fiscal year ended June 30, 1998, which is
incorporated by reference into this prospectus. Reference is made to such
exhibits for a detailed description of the provisions thereof summarized below.
We have authorized the issuance of 100,000,000 shares of common stock, $0.01
par value, and 10,000,000 shares of preferred stock, $0.01 par value. Holders
of common stock have no preemptive or other subscription rights.
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Common Stock
On January 25, 1999, there were 19,903,751 outstanding shares of common
stock. The Company believes that its common stock is beneficially held by at
least 400 stockholders.
The holders of common stock are entitled to one vote per share on all
matters submitted to a vote of the stockholders. Holders of common stock do not
have cumulative voting rights. Therefore, holders of more than 50% of the
shares of common stock are able to elect all our directors eligible for
election each year. The holders of common stock are entitled to dividends and
other distributions out of assets legally available if and when declared by the
board of directors. Upon our liquidation, dissolution or winding up, the
holders of common stock are entitled to share pro rata in the distribution of
all of our assets remaining available for distribution after satisfaction of
all liabilities, including any prior rights of any preferred stock which may be
outstanding. There are no redemption or sinking fund provisions applicable to
the common stock.
The transfer agent and registrar for the common stock is Registrar &
Transfer Company.
Preferred Stock
There are no shares of preferred stock outstanding. Series of the preferred
stock may be created and issued from time to time by our board of directors,
with such rights and preferences as they may determine. Because of its broad
discretion with respect to the creation and issuance of any series of preferred
stock without stockholder approval, the Board of Directors could adversely
affect the voting power of common stock. The issuance of preferred stock may
also have the effect of delaying, deferring or preventing a change in control
of the Company. See "Risk Factors--Certain Antitakeover Effects."
Section 203 of the Delaware General Corporation Law
Generally, Section 203 of the Delaware General Corporation Law (the "DGCL")
prohibits a publically held Delaware corporation from engaging in any "business
combination" with an "interested stockholder" for a period of three years
following the time that such stockholder became an interested stockholder,
unless, (i) prior to such time either the business combination or the
transaction which resulted in the stockholder becoming an interested
stockholder is approved by the board of directors of the corporation, (ii) upon
consummation of the transaction which resulted in the stockholder becoming an
interested stockholder, the interested stockholder owned at least 85% of the
voting stock of the corporation outstanding at the time the transaction
commenced, excluding, for purposes of determining the number of shares
outstanding, those shares owned (A) by persons who are both directors and
officers and (B) certain employee stock plans, or (iii) at or after such time
the business combination is approved by the board and authorized at an annual
or special meeting of stockholders, and not by written consent, by the
affirmative vote of at least 66 2/3% of the outstanding voting stock which is
not owned by the interested stockholder. A "business combination" includes
certain mergers, consolidations, asset sales, transfers and other transactions
resulting in a financial benefit to the interested stockholder. An "interested
stockholder" is a person who, together with affiliates and associates, owns (or
within the preceding three years, did own) 15% or more of the corporation's
voting stock.
Indemnification
Our by-laws require us to indemnify each of our directors and officers to
the fullest extent permitted by law and limits the liability of our directors
and stockholders for monetary damages in certain circumstances.
Article Thirteen of our certificate of incorporation provides that no
director shall have any personal liability to the Company or its stockholders
for any monetary damages for breach of fiduciary duty as a director, provided
that such provision does not limit or eliminate the liability of any director
(i) for breach of such director's duty of loyalty to the Company or its
stockholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) under Section 174
of the Delaware
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General Corporation Law (involving certain unlawful dividends or stock
repurchase) or (iv) for any transaction from which such director derived an
improper personal benefit. Amendment to such article does not affect the
liability of any director for any act or omission occurring prior to the
effective time of such amendment.
Reference is made to the Form of Indemnification Agreement between Synetic
and its directors and officers filed as Exhibit 10.1 to this Registration
Statement pursuant to which we have agreed to indemnify such directors and
officers to the fullest extent permitted by Delaware law, as the same may be
amended from time to time.
LEGAL MATTERS
Certain legal matters with respect to the legality of the issuance of the
common stock offered hereby will be passed upon for the Company by Shearman &
Sterling. Shearman & Sterling is a limited partner in SN Investors, L.P.
The statements of law under the caption "Risk Factors--Government Regulation
of Porex" in this prospectus and under the caption "Business--Plastics and
Filtration Technologies Business--Regulation" in the Company's 1998 10-K (as
defined below), incorporated by reference herein, are based upon the opinion of
Kegler, Brown, Hill & Ritter Co., L.P.A., Columbus, Ohio, special regulatory
counsel to the Company. Robert D. Marotta, Esq., of counsel to such firm, holds
options to purchase 75,000 shares of the Company's Common Stock.
EXPERTS
The audited Consolidated Financial Statements and schedules of the Company
and The KippGroup that are incorporated by reference into this prospectus have
been audited by Arthur Andersen LLP, independent public accountants, as
indicated in their reports with respect thereto, and are incorporated by
reference herein in reliance upon the authority of said firm as experts in
giving said reports.
The audited Consolidated Financial Statements of Point Plastics, Inc. and
Subsidiary that are incorporated by reference into this prospectus have been
audited by Linkenheimer LLP, independent public accountants, as indicated in
their report with respect thereto, and are incorporated by reference herein in
reliance upon the authority of said firm as experts in giving said report.
WHERE YOU CAN FIND MORE INFORMATION
We file reports, proxy statements and other information with the Securities
and Exchange Commission (the "SEC"). You may read and copy any document we file
at the SEC's public reference rooms in Washington, D.C., New York, New York and
Chicago, Illinois. Please call the SEC at 1-800-SEC-0330 for further
information on the public reference rooms. Our SEC filings are also available
to the public from the SEC's Website at http://www.sec.gov. In addition, our
common stock is quoted on the Nasdaq National Market System. As a result, you
can also read documents we file at the offices of the Nasdaq Operations, 1735 K
Street, N.W., Washington, D.C. 20006.
The SEC allows us to incorporate by reference the information we file with
them, which means that we can disclose important information to you by
referring you to those documents. The information incorporated by reference is
considered to be part of this prospectus, and information that we file later
with the SEC will automatically update and supersede this information. We
incorporate by reference the documents listed below and any future filings we
will make with the SEC under Sections 13(a), 13(c), 14 or 15(d) of the
Securities Exchange Act of 1934 on or (i) after the date of the filing of this
registration statement and prior to its effectiveness or (ii) after the date of
this prospectus and prior to the termination of the offering made hereby:
. our annual report on Form 10-K for the fiscal year ended June 30, 1998,
as amended (the "1998 10-K"),
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. our quarterly reports on Form 10-Q for the fiscal quarters ended
September 30, 1998, and December 31, 1998, and
. our current reports on Form 8-K dated July 29, 1998 and February 5, 1999.
You may request a copy of these filings, at no cost, by writing or
telephoning Anthony Vuolo, our Executive Vice President--Finance and
Administration at the following address:
Synetic, Inc.
669 River Drive
River Drive Center II
Elmwood Park, New Jersey 07407
Attention: Executive Vice President--Finance and Administration
(201) 703-3400
This prospectus is part of a registration statement we filed with the SEC.
You should rely only on the information provided in this prospectus and any
prospectus supplement and in our filings with the SEC that are incorporated in
this prospectus. We have authorized no one to provide you with different
information. We are not making an offer of these securities in any state where
the offer is not permitted. You should not assume that the information in this
prospectus is accurate as of any date other than the date on the front of the
document.
This prospectus contains summaries of certain agreements entered into by
Synetic which have been filed as exhibits to the Registration Statement or
incorporated by reference in this prospectus. Such summaries do not purport to
be complete and are subject to, and are qualified in their entirety by
reference to, such exhibits. You should refer to each such exhibit for a
complete description of the matter involved.
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1,150,028 Shares
SYNETIC, INC.
Common Stock
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PROSPECTUS SUPPLEMENT
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Merrill Lynch & Co.
, 1999
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