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RULE NO. 424(b)(3)
REGISTRATION NO. 333-71307
PROSPECTUS SUPPLEMENT
(To prospectus dated February 5, 1999)
1,150,028 Shares
[LOGO] 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 8, 1999, the last sale price of the common stock as
reported on the NASDAQ National Market System was $46 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.................................. $45.00 $51,751,260
Underwriting Discount.................................. $1.35 $1,552,538
Proceeds, before expenses, to Selling Stockholders..... $43.65 $50,198,722
</TABLE>
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.
The shares of common stock will be ready for delivery in New York, New York
on or about February 12, 1999.
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Merrill Lynch & Co.
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The date of this prospectus supplement is February 8, 1999.
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TABLE OF CONTENTS
Prospectus Supplement
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Page
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Forward-Looking Statements................................................. S-2
The Company................................................................ S-4
Selected Financial Data.................................................... S-11
Pro Forma Combined Financial Data.......................................... S-13
Underwriting............................................................... S-18
Legal Matters.............................................................. S-19
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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 underwriter
has 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 underwriter is
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, manufacture 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
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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)
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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-11
<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-12
<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-13
<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-14
<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-15
<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-16
<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-17
<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 $.68 per share of common stock. Merrill Lynch may allow, and such
dealers may reallow, a discount not in excess of $.10 per share of common stock
on sales to certain other dealers. After the initial public offering, 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-18
<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-19
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
1,150,028 Shares
[LOGO]
SYNETIC, INC.
Common Stock
----------------------------------
PROSPECTUS SUPPLEMENT
----------------------------------
Merrill Lynch & Co.
February 8, 1999
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
