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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
ACT OF 1934 (NO FEE REQUIRED, EFFECTIVE OCTOBER 7, 1996).
For the fiscal year ended April 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED).
For the transition period from __________ to __________
Commission file number 1-12856
SYNERGISTIC HOLDINGS CORP.
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(Exact Name of Registrant as Specified in Its Charter)
Delaware 42-1358036
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(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
50 Laser Court, Hauppauge, New York 11788
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (516) 436-5000
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Securities registered under Section 12 (b) of the Exchange Act:
Title of Each Class Name of Each Exchange on Which Registered
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Common Stock, par value $.01 OTC Bulletin Board
Securities registered pursuant to Section 12 (g) of the Act:
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(Title of Class)
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(Title of Class)
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(Title of Class)
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(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filling requirements for the past 90 days. Yes No X
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Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
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The aggregate market value of the Common Stock held by non-affiliates as
of November 19, 1997, (based upon the average of the closing bid and asked
prices of the Common Stock as quoted on the OTC Bulletin Board) was
approximately $568,534. For purposes of this computation the shares of Common
Stock held by directors, executive shareholders owning more than 5% of the
Company's outstanding Common Stock were deemed to be stock held by affiliates.
As of November 19, 1997, there were 3,032,180 shares of Common Stock
outstanding held by non-affiliates.
As of November 19, 1997, 9,187,260 shares of the Registrants Common
Stock were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
NONE
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PART I
Item 1. Business
All statements contained herein that are not historical facts including,
but not limited to, statements regarding the future development plans of
Synergistic Holdings Corp. (the "Company") and the Company's ability to
generate cash from its operations, are based upon current expectations. These
statements are forward looking in nature and involve a number of risks and
uncertainties. Actual results may differ materially. Among the factors that
could cause actual results to differ materially from the anticipated results
or other expectations expressed in the Company's forward looking statements
are the following: competition in the automobile asset management business,
the inability of the Company to obtain additional financing and general
business and economic conditions.
Recent Development of Business
Synergistic Holdings Corp. was incorporated under the laws of the State
of Delaware on February 2, 1994. Prior to the Company's acquisition with Salex
Holding Corporation ("Salex"), the Company was primarily engaged in securities
trading, securities brokerage, investment banking, and related financial
activities. Salex, a Delaware corporation, founded in 1974, provides
automobile asset management services and manages on a nationwide basis, the
maintenance and repair of fleets of automobiles and trucks owned, leased and
operated by corporate customers. In August of 1995, the Company purchased from
Salex 1,580,000 shares of Salex common stock (the "Salex Common Stock") (which
represented a 20% common equity interest) for a purchase price of $1,500,000.
In January of 1996, the Company purchased an additional 363,400 shares of
Salex Common Stock (representing a 4.6% common equity) directly from one of
the principal shareholders of Salex, Salvatore Crimi, for a purchase price of
$500,000. Subsequently, on September 18, 1996 (the "Closing"), the Company's
wholly-owned subsidiary, Salex Industries, Inc., a Delaware corporation
("Subsidiary"), consummated a merger contemplated by a Merger Agreement, dated
June 27, 1996, as amended and restated on September 18, 1996 (the "Merger
Agreement"), by and among the Company, Subsidiary, Salex, Salex Fleet
Specialist Corp., a New York corporation, Salex Fleet Management Corp., a New
York corporation, Salex National Account Corp., a New York corporation, Salex
Salvage Disposal Corp., a New York corporation, Salex Financial Services
Corp., a New York corporation (collectively, the "Salex Subsidiaries"), the
Salvatore Crimi Family Limited Partnership, Pershing Sun, Michael Sun,
Jennifer Sun, Susan Tauss-Giovinco, Francis Fitzpatrick and Harrison
Fitzpatrick (collectively, the "Salex Shareholders") and T. Marshall Swartwood
and Thomas M. Swartwood. Pursuant to the Merger Agreement, the Subsidiary was
merged with and into Salex and (i) all shares of Salex Common Stock held by
the Company were cancelled and extinguished and (ii) all 4,503,000 issued and
outstanding shares of Salex Common Stock owned by the Salex Shareholders were
converted into (a) 4,003,165 shares of Common Stock, par value $.001, of the
Company (the "Common Stock") and (b) 1,000 shares of Series B Preferred Stock.
Upon the filing by the Company of a Certificate of Amendment to its
Certificate of Incorporation increasing the authorized capital stock of the
Company, each share of Series B Preferred Stock shall be converted into
2,059.106 shares of Common Stock. At the time of the Closing, the shares of
Common Stock delivered, together with the shares of Common Stock into which
the shares of Series B Preferred Stock are convertible, represented, in the
aggregate, 51% of the fully-diluted, issued and outstanding shares of the
Common Stock. This merger enabled the Salex Shareholders to acquire control of
the Company from T. Marshall Swartwood and Thomas M. Swartwood.
Immediately after the Closing, the Company divested itself of
substantially all its assets other than its investment in Salex. As a result,
the Company's primary business now is automobile asset management. The current
management of the Company and its board of directors have elected to
concentrate on expansion in the automobile asset management industry. Salex
had achieved significant goodwill in this sector and it is managements wish to
leverage the core competency of Salex and adopt it as the primary mission of
this company. It is the Company's intention, subject to Shareholders approval,
to change the name of "Synergistic Holdings Corp." to "Salex Holding
Corporation."
During May 1997, the Company authorized the issuance and sale of 25,000
shares of its convertible
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Preferred Stock, Series C to Meadow Management, LLP at a purchase price of
$25,000. Because the Company does not have sufficient authorized Common Stock to
issue upon conversion of the Preferred Stock, Series C the Company,
subject to shareholder approval intends to amend its Certificate of
Incorporation to increase its authorized Common Stock at the annual
shareholders meeting scheduled to occur on December 29, 1997. In the event the
shareholders do not approve to amendment to the Certificate of Incorporation by
December 31, 1997, the Company has agreed to pay the holders of the Preferred
Stock, Series C $1,000,000.
Description of the Company
Corporate Fleet Program
The Company is in the business of automobile asset management and
through such business manages, on a nationwide basis, the maintenance and
repair of fleets of automobiles and small trucks which are owned and operated
by corporate customers (the "Corporate Fleet Program"). If a vehicle of one of
the Company's corporate customers needs repair, the Company directs the
customers to the most conveniently located service center that is part of its
nationwide servicing network (the "Service Network"). All of the service
centers that are part of the Service Network are independently owned or
affiliated with a national chain of repair centers, have been pre-screened and
pre-approved by the Company and are reviewed by the Company from time to time.
Before any work is commenced by the service center on a vehicle referred to it
by the Company, the service center must contact the Company's certified
mechanics and other auto specialists, who are located at its Hauppauge
offices, to discuss all the proposed necessary repairs and the proposed cost
thereof. The Company's specialists negotiate with the service centers to
ensure that the customer is not overcharged or subjected to unnecessary
repairs. The Company monitors the repairs, if needed, to assure on time
completion of the work, expedites the delivery of needed parts when necessary
and, in certain locations, provides the customer with access to a discount
rental car until the repairs are completed. Participation in the Corporate
Fleet Program provides the corporate customers with quality and price control
over all work performed and provides the service centers with reliable levels
of volume. In exchange for its services, the Company receives a monthly
management fee, per-occurrence or monthly management fee based on the number
of vehicles in the fleet, from the corporate customer based on the number of
vehicles registered in the program and a fee from the Service Network ranging
from 7 1/2 % to 15% of the cost of repair and maintenance (including both
parts and labor) depending upon the type of service rendered.
The Service Network
The Company services all of its customers through its nationwide network
of pre-screened, pre-approved maintenance and repair centers. Over 30,000
independently owned service centers are affiliated with the Service Network.
The service centers are located in all 50 states, Canada and Puerto Rico. The
Service Network includes service centers associated with national chains of
auto repair centers, such as The Goodyear Tire and Rubber Company and Jiffy
Lube, as well as smaller local centers. The Company retains complete control
over which repair centers are affiliated with the Service Network. Generally,
the Company's written affiliation agreements with the service centers are
terminable at will with short notice requirements, and thus any service center
that fails to perform to the Company's standards will be terminated. The
Company has developed and maintains proprietary software and
telecommunications at its corporate headquarters in Hauppauge, New York. The
database allows the Company to (i) keep track of the labor rates, areas of
specialty and hours of operation of each service center which helps the
Company direct customers to appropriate service centers and (ii) communicate
with the service centers, enabling the Company to oversee and monitor the
maintenance and repair work performed by the centers. For the period ended
April 30, 1997, net revenues from the Company's operation of its Corporate
Fleet Program were $22,193,113.
Guaranties
Most of the repair and maintenance services provided to the corporate
fleets are guaranteed against defects in parts and workmanship for certain
periods of time and/or for a certain number of miles. As part of their
affiliation
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agreements with the Company, the individual service centers are required to
make such a guaranty to the Company. The Company, in turn, grants an identical
guaranty to its corporate customers. If a vehicle has been improperly
repaired, the customer contacts the Company and the Company arranges to have
the appropriate repairs done at no additional cost to the customer either
through the service center that originally performed the work, or through a
service center responsible for the costs of rectifying any improper or faulty
repairs. The Company coordinates the reimbursement of costs between service
centers. In rare cases, an improper repair is not covered by the Service
Network's guaranty and the Company must pay for the repairs to the vehicle
from its own funds. Historically, claims which are not covered by a Service
Network member have been insignificant. If the vehicle is under a
manufacturer's warranty, the Company arranges for the repairs to be done by an
authorized dealer. The Company receives no fee and incurs no costs for work
performed by the Service Network that is covered by a manufacturer's warranty.
Other Services Provided by the Company
In addition to the services provided under the Corporate Fleet Program,
the Company also provides its customers with other services relating to
automobile repair, repossession and disposal.
Computerized Auction System and the Collateral Disposal Services
The Company maintains a proprietary computer network of buyers
nationwide who submit bids on vehicles which according to the Company's
vehicle condition reports, are considered demolished or clients do not wish to
repair. The Company receives a fee from the corporate fleet or financial
institution customer who wishes to dispose of the demolished vehicle, in
addition to a fee from the buyer upon its purchase of the demolished vehicle.
The Company believes that these fees are generally lower than traditional
auction and disposal service fees. The Company has focused on selling its
customers' salvaged and demolished vehicles. In addition, the Company has
begun to use its disposal services to sell non-salvage vehicles to auto
wholesalers and retailers.
The Collateral Disposal Service is a vehicle disposal service that the
Company provides to loan servicing companies and lenders that assists these
entities in the repossession, storage and auctioning off of repossessed
automobiles. The Company provides the proper control, documentation and
conversion of vehicle collateral into cash. Under the program, loan servicing
companies and lenders receive significant discounts on storage, access to the
Computerized Auction System and access to the Company's nationwide vehicle
transport system. These services enable loan servicing companies and lenders
to convert repossessed vehicles more quickly into cash and receive a higher
price for each vehicle than they are presently able to receive in the
marketplace from traditional services and auction companies.
Insurance Subrogation
If one of the Company's customers has a vehicle that has been in an
accident, the Company offers to the customer its expertise and experience in
the area of insurance subrogation (i.e. making a determination of fault and
the payment of damages and claims based upon that determination). Insurance
subrogation is a process that has numerous regulations and reporting
requirements that vary from state to state. Corporate fleet operators and
financial institutions rarely have the expertise or desire to perform this
function. The Company has the ability to perform these services and it earns a
percentage of the amount collected from third parties or their insurance
companies. The Company generally retains a percentage of amounts collected,
plus expenses, as a fee for its subrogation services.
Retail Customer Autocare Plan
Through its retail customer autocare plan the Company extends its
current services to individual automobile owners. The services provided to the
customer and the economic benefits to the Company are essentially the same as
those that are provided to its corporate customers under the Corporate Fleet
Program. In addition to the fees
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that the Company receives from the service centers, the Company also charges
its retail customers an annual membership fee to enter the network, depending
upon the service option level that the customer chooses.
Unlike roadside service clubs which only arrange for towing service in
the event of a breakdown or collision, the Company actually monitors and
negotiates all repairs with the repair centers in the Service Network. The
Company believes that its retail customers are able to receive collision,
maintenance and repair services anywhere in the country for less than they
would pay if they were not members of the Company's Program.
Extended Service Contracts
In April 1996, the Company entered into an agreement with Virginia
Surety, an insurance company specializing in the issuance of extended
mechanical service contract agreements for automobiles and light trucks
nationwide. Under the Agreement, the Company offers to corporate customers,
financial institutions and retail customers service contracts covering
mechanical repairs for the covered vehicle for twelve to twenty-four months.
In addition to the up-front fees earned on the sale of the contracts, the
Company generates revenues from the management of related repairs coordinated
through the Service Network.
Mechanic's Lien Collection Services
The Company has recently begun to analyze the potential for providing
collection services for the 30,000 members of its Service Network. Under such
a program, the Company would be reimbursed for all fees and expenses and would
receive a percentage of proceeds collected from vehicle owners or lenders
relating to nonpayment of repair bills by non-member customers. The program
would assist repair shops, who oftentimes are not equipped to efficiently
collect such sums in collecting their bad debts. The Company believes that
these services may be provided in conjunction with strategic financial or
operational partners and is currently involved in negotiations with potential
partners.
Corporate Customer Base
The Company's customers include corporations that have automobile
fleets, insurance companies, financial institutions and individuals that want
to take advantage of fleet pricing for automotive repair and vehicle disposal.
The typical customer for our product is a company, which provides automobiles
and or trucks to employees in the ordinary course of business. For the fiscal
year ended April 30, 1997, no single customer accounted for more than 10% of
the Company's revenues.
Competition
The Company believes the principal competitive factors in its corporate
fleet business are prices and service. Key factors that have resulted in the
present competitive position in this industry are use of technology and
bundling of services. This is especially present for those companies that use
the funding of leases and whose primary function is to sell money to finance a
corporate fleet. Collision and mechanical maintenance is more a sideline for
these lenders and not the primary product. Companies such as PH&H Corp. and GE
Capital bundle the cost of these services into the lending rate.
Management Information Systems
The Salex Response System is software developed by the Company which
offers a full range of on-line interactive functions for the analysis of
trends; comparison to industry of fleet standards; and identification of
opportunities for future improvement. It presents various modifiable systems,
which can be tailored to meet the exact current and future requirements of the
individual fleet. Salex Response is available and operational on Windows 3.X,
95 and NT.
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Main Fleet Management Menu - The Main Fleet Management menu allows the
fleet administrator to design and print standard and customized reports and to
display interactive graphics.
Vehicle Operations Menu - The Vehicle Operations Menu tracks, in detail,
the vehicle from order status through delivery for new acquisition and
provides a comprehensive fleet cycling and disposal capability. In addition,
it monitors all of the operational aspects of fleet management, including
analysis of operating, fixed and maintenance costs.
Driver Administration Menu - The Driver Administration Menu provides the
Company control over vehicle assignment and usage by individual drivers. It
tracks historical assignment of drivers to vehicles by date and mileage, and
vehicle assignment by driver. Personal mileage and Fair Market Value can be
detailed for personal tax liabilities.
Safety Administration Menu - The Safety Administration Menu audits any
accidents that the vehicle or driver may have been involved in, and the
resulting salvage or subrogation that may be realized. It also monitors any
formal training programs that the driver is enrolled in or has completed; and
a history of parking violations and DMV reporting.
Accident Menu - The Accident Menu details every accident that involves a
company vehicle. It describes not only which vehicle was involved in the
accident, but also who was driving at the time. It details the third party
vehicle(s), who was at fault, what citations were issued, any injuries that
were sustained and their extent, and all witnesses. Finally, it monitors the
process of subrogation or salvage and the cost of recovery process. Through
exception reporting and live interactive graphics, the system will allow our
customers to bench mark and project trends, and to provide senior management
with unlimited specialized analysis.
Marketing and Advertising
Sales of the Company's vehicle management services are made by the
Company's sales staff, which consists of six full-time salespeople and
Salvatore Crimi, the Company's Chief Executive Officer and founder. Marketing
is presently conducted through direct solicitation, which enables the Company
to deal directly with, and be readily accessible to its major customers. New
marketing and advertising strategies and the addition of new personnel will be
necessary to accommodate the Company's anticipated expansion plans. The
Company also markets its services through labor organizations, credit card
companies, insurance companies, universities, credit unions and other
associations.
Federal Regulation
The Federal Trade Commission, under the Magnuson-Moss Warranty Act, and
various state and local laws regulate the requirements and mechanics of
consumer product warranties. Since the Company provides products and services
to consumers and guarantees work performed by the service centers, it is
subject to these regulations in addition to other laws regarding consumer
products. The Company believes that it is in compliance with all such laws and
regulations.
The promulgation of any additional laws or regulations regarding
warranties or consumer products could have an adverse effect on the Company's
business. There can be no assurance that the Company will have the ability to
comply with any such laws or regulations. The failure to comply with such
statutes and regulations could have a material adverse effect upon the
Company.
Employees
As of November 15, 1997, the Company employed 61 full and part-time
employees. Of the 61 employees,
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6 are classified as executives, 12 as sales and administrative personnel, 34
as customer service personnel and 9 as clerical personnel. None of the
Company's employees are represented by collective bargaining agreements. The
Company believes that its relations with its employees are good and has not
experienced any interruption of its operations due to labor disagreements.
Item 2. Properties
The Company's executive office comprised of approximately 12,000 square
feet is located at 50 Laser Court, Hauppauge, New York 11788 and is owned by
the Company.
Item 3. Legal Proceedings
There are no material legal proceedings now pending or threatened
against the Company.
Item 4. Submission of Matters to a Vote of Security Holders
There were no matters submitted to the shareholders of the Company
during the fourth quarter of the fiscal year ended April 30, 1997.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
There does not exist any established trading market for the Company's
common stock. The Company's Common Stock is presently being quoted on the OTC
Bulletin Board. On April 16, 1997, the Company's Common Stock, which was
trading on the NASDAQ Small-Cap Market, under the trading symbol "SYNH" was
delisted. On January 17, 1997, the Company's Common Stock, which was trading
on the Boston Stock Exchange under the trading symbol "SNH" was delisted. No
dividends were paid during fiscal year ended April 30, 1997.
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The following table sets forth the high and low closing sale price for the
Common Stock (based on transaction data as reported by the NASDAQ Small Cap
Market) for the fiscal year ended April 30, 1997:
Stock Price(s)
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High Low
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YEAR ENDED April 30, 1997:
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07/31/96 First Quarter:
Common Stock 3.625 2.50
10/31/96 Second Quarter:
Common Stock 4.125 2.75
01/31/97 Third Quarter:
Common Stock 1.875 1.00
04/30/97 Fourth Quarter:(1)
Common Stock 0.625 0.375
YEAR ENDED April 30, 1996:
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07/31/95 First Quarter:
Common Stock 2.375 .50
10/31/95 Second Quarter:
Common Stock 2.50 1.875
01/31/96 Third Quarter:
Common Stock 2.375 1.875
04/30/96 Fourth Quarter:
Common Stock 3.375 2.75
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(1) On April 16, 1997, the Company's Common Stock was delisted by the NASDAQ
Small Cap Market. From April 16, 1997, through April 30, 1997, the Company's
Common Stock was quoted on the OTC Bulletin Board. During such period the
average closing bid and ask prices were .241 and .463 respectively.
On June 2, 1997, the Company sold 25,000 shares of Preferred Stock,
Series C (the "Preferred Stock") to Meadows Management, LLC at a purchase
price of $25,000. Each share of the Preferred Stock is convertible at any time
into 100 shares of Common Stock at a conversion price of $0.10 per share. The
sale and issuance of the Preferred Stock was exempt from registration by
virtue of Section 4(2) of the Securities Act of 1933.
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Item 6. Selected Financial Data
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
YEAR ENDED APRIL 30,
1997 1996 1995 1994 1993
STATEMENT OF OPERATIONS DATA:
<S> <C> <C> <C> <C> <C>
Net Sales 22,959 25,482 33,884 29,235 24,189
Cost of sales 18,643 21,174 28,392 24,298 19,973
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Gross profit 4,316 4,308 5,492 4,937 4,216
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Selling, general & administrative expenses 5,022 6,188 5,123 4,454 3,718
Operating income (loss) (706) (1,880) 369 483 498
Interest expense - net 380 460 432 282 216
Net income (loss) (1,087) (2,399) (94) 120 155
Accretion of preferred stock (1,062) - - - -
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Net loss attributable to Common Stockholders (2,149) (2,399) (94) 120 155
=================================================================
Net income (loss) per common share (0.19) (0.21) (0.01) (0.01) (0.01)
=================================================================
April 30,
1997 1996 1995 1994 1993
BALANCE SHEET DATA:
Accounts receivable 3,452 3,219 3,288 4,881 3,343
Total assets 6,847 7,821 8,208 9,601 4,796
Long-term debt 781 1,054 1,278 1,329 4,972
Stockholders' equity (deficit) (1,528) 821 1,201 1,359 (176)
</TABLE>
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Item 7. Management's Discussion and Analysis or Plan of Operation
All statements contained herein (other than historical facts) including,
but not limited to, statements regarding the Company's future development
plans, the Company's ability to generate cash from its operations and any
losses related thereto, are based upon current expectations. These statements
are forward looking in nature and involve a number of risks and uncertainties.
Actual results may differ materially from the anticipated results or other
expectations expressed in the Company's forward looking statements. Generally,
the words "anticipate," "believe," "estimate," "expects," and similar
expressions as they relate to the Company and/or its management, are intended
to identify forward looking statements. Among the factors that could cause
actual results to differ materially are the following: the inability of the
Company to obtain additional financing to meet its capital needs; competition
in the automotive maintenance industry; and general business and economic
conditions.
Pursuant to the merger agreement dated September 19, 1996, the Company
was merged with and into Salex whereby all of the shares of common stock of
Salex held by the Company were cancelled and all of the 4,503,000 shares of
common stock owned by the Salex Stockholders were converted into (a) 4,003,165
shares of common stock, par value $.01 per share and (b) 1,000 shares of
Series B Convertible Preferred Stock.
Immediately after the closing, the Company pursuant to a Stock and Asset
Purchase Agreement with Dickinson Holding Corporation ("Dickinson"), a
Delaware corporation, sold (the "Divestiture") all of the outstanding shares
of its subsidiary, Dickinson & Co., Inc, ("DCI"), a registered broker/dealer
and its investment in Electronic Designs, Inc. ("EDI"). As consideration for
the stock and assets that were transferred in connection with the divestiture,
Dickinson transferred to the Company 750,000 shares of its Common Stock and a
$500,000 promissory note secured by 250,000 shares of its Common Stock
pursuant to a Pledge Agreement between Dickinson and the Company.
Because the Company's only asset after the Divestiture was its
investment in Salex, the company was considered to be an in substance "shell"
at the Closing of the Merger. The SEC believes that shells are not businesses
and therefore, cannot initiate business combinations. For accounting purposes
the SEC views the transaction as an equity transaction by the private
operating company ("Salex") rather than as an acquisition of Salex by the
Company. The SEC requires that the net assets of the public shell be recorded
at carryover basis in which no goodwill arises on the transaction.
Accordingly, the merger transaction has been accounted for as recapitalization
of Salex (stock split, distribution of preferred stock, and treasury stock
purchase) followed by an issuance of common stock by Salex in exchange for
treasury stock and Synergistic's note receivable from Dickinson. The note
receivable, which is collateralized by Common Stock, has been recorded as a
reduction of additional paid-in capital.
All financial information, as presented, reflects that of Salex and does
not reflect that of Synergistic prior to the merger.
Results of Operations -- Year Ended April 30, 1997 vs. Year Ended April
30, 1996
Net sales decreased by 2.52 million or 9.81% to 22.96 million for the
fiscal year ended April 30, 1997, as compared to $25.48 million for fiscal
year ended April 30, 1996. This decrease resulted from the loss of several
major corporate accounts.
The Company's gross margin of 18.8% was 1.9 percentage points higher
than the previous year level of 16.9%. The increase resulted from the loss of
one of its corporate fleet customers that yielded a significantly lower gross
margin than standard.
General and administrative expenses for the fiscal year ended April 30,
1997, of $5.022 million was $1.16 million less than the previous year. This
18.7% decrease was attributable to significant expenditures incurred for
implementing the Company's plan for the development of service and products to
be provided to insurance
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companies, financial institutions and retail consumers. In the future, the
Company intends to restructure its operations and management in order to
minimize its expenditures and increase productivity.
Interest expense of $379,656 for year ended April 30, 1997, was $80,444
lower than the previous year. This 17.4% decrease was partially attributable to
a decrease in the interest rate charged on the Company's revolving credit with a
finance company, in addition to the interest charged on the Company's loan to an
officer.
Net Loss, Liquidity and Capital Resources
Net cash flows used in operating activities were $57,194 for the year
ended April 30, 1997, as compared to $117,674 provided by operations for the
comparable prior period. This change of $174,868 resulted primarily from
changes in accounts receivable, refund on taxes, accrued expense and
compensation expense in the prior year relating to the sale of Common Stock.
Net cash flows used in investing activities were $105,347 for the Year
Ended April 30, 1997, as compared to $290,086 that was used in investing
activities for the comparable prior period. This difference of $184,739 was
attributable to the reduction in loans receivable due from an officer.
Net cash flows provided by financing activities were $213,955 as
compared to $21,630 that were provided by financing activities for the
comparable prior year. This was primarily the result of the acquisition and
constructive retirement of common stock and was partially offset by the
issuance of preferred stock.
The Company has suffered a loss for the fiscal year ended April 30,
1997, and has negative working capital. The Company has limited availability
under its existing credit facility and the Company will need additional
capital to have sufficient liquidity and to meet its working capital needs for
the foreseeable future. It is the Company's intention to refinance its mortgage
liability on a short term basis. The Company expects to enter into a sale and
leaseback arrangement with respect to the property in the near future.
Results of Operations -- Year Ended April 30, 1996 vs. Year Ended April
30, 1995
Net sales for 1996 of $25.48 million decreased by $8.4 million in the
comparable prior year. This decrease of 24.8% is the result of losing three of
its major corporate fleet customers.
The Company's gross margin of 16.9% was relatively the same as it was in
the prior year where it was 16.2%.
Selling, general and administrative expense of $6.19 million for Year
Ended 1996, was $1.06 million higher than the comparable prior period. This is
attributable to the Company's plan for the development of service and products
to be provided to insurance companies, financial institutions and retail
consumers.
Interest expense of $460,100 for the Year Ended 1996 was $28,256 higher
than the prior year. This 6% increase was attributable to interest paid for
the mortgage on the Company's building, more interest incurred on officers
loan, which was partially offset by reduced interest charged on our revolving
line of credit.
Liquidity and Capital Resources
Net cash flows provided by operations was $117,674 for the year ended
April 30, 1996, as compared to $720,999 provided by operations for the
comparable prior year. This decrease was attributable primarily to changes in
accounts receivable and accounts payable.
Net cash flows used in investing activities was $290,086 for year ended
April 30, 1996, as compared to $141,332 for the comparable prior year. This was
primarily the result of an increase due to a loan to an officer.
Net cash flows provided by financing activities was $21,630 for year
ended April 30,1996, as compared to
-10-
<PAGE>
$396,880 that was used in financing activities for the comparable prior year.
This was primarily attributable to the issuance of Common Stock offset by
decreases in the bank overdraft.
Impact of Inflation and Changing Prices
Although the Company cannot accurately predict the precise effect of
inflation on its operation, it does not believe inflation has had a material
effect on sales or results of operations.
Item 7A. Quantitative and Qualitative Disclosures about Market Research
Not Applicable.
Item 8. Financial Statements and Supplementary Data
Financial statements are included herein beginning with page F-1.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
Not Applicable.
-11-
<PAGE>
PART III
Item 10. Directors and Executive Officers of the Company
The following table sets forth certain information concerning each
nominee for the office of Director, each Director and each executive officers
of the Company:
<TABLE>
<CAPTION>
<S> <C> <C>
Name Age Position
- ---- --- --------
Salvatore Crimi 72 Chief Executive Officer and Chairman of the Board of
Directors
Angelo Crimi 45 Vice Chairman, Secretary, Vice President Sales and Vice
Chairman of the Board of Directors
Pershing Sun 54 Senior Vice President, Chief Information Officer and
Director
Franklin Pinter 47 Director
Francis Fitzpatrick 56 Director
Syd Mandelbaum 47 Nominee for Director
Andrew Lunetta 47 Nominee for Director
</TABLE>
Salvatore Crimi has served as the Chairman of the Board of Directors and
Chief Executive Officer of the Company since September 18, 1996. From 1974 to
1996 Mr. Crimi served as Chairman of the Board and Chief Executive Officer of
Salex Holding Corporation. He is the father of Angelo Crimi, the Vice Chairman
of the Board of Directors, Vice President of Sales and Secretary of the
Company.
Angelo Crimi has served as the Vice Chairman of the Board of Directors,
Vice President of Sales, and Secretary of the Company since September 18,
1996. From 1995 to 1996 Mr. Crimi served as President of Salex Holding
Corporation. He is the son of Salvatore Crimi, the Chief Executive Officer,
Chairman of the Board of Directors and President of the Company.
Pershing Sun has served as a Director of the Company and Senior Vice
President and Chief Information Officer of the Company since September 18,
1996. From 1991 to 1996 Mr. Sun served as Chief Information Officer of Salex
Holding Corporation.
Franklin T. Pinter has served as a Director since January 7, 1997. From
1984 to the present Mr. Pinter has served as an investment and estate planner
with the firm of Arnone, Lowth, Fanning.
Francis Fitzpatrick has served as a Director since September 18, 1996.
Mr. Fitzpatrick has served as a Vice President of Fitzpatrick Brothers
Corporation, an auto collision repair facility since 1982.
Syd Mandelbaum has served as an account executive for Toshiba American
Medical Systems since 1997. From 1993 to 1997 Mr. Mandelbaum served as a laser
flow cytometry specialist with the Coulter Corporation. From 1990 to 1993 Mr.
Mandelbaum was a Vice President of Cell Measurement Systems for Imager
Insrumentation.
-12-
<PAGE>
Andrew Lunetta was retained as a Consultant to the Company in July 1997.
From 1995 to 1997, Mr. Lunetta served as Chief Financial Officer of Tostel
Corp., a publicly traded construction company. From 1982 to 1995 Mr.
Lunetta was the Vice President-Controller of Coyne Electrical Contractors, Inc.
Guardian Angel Management, LTD, Meadows Management, LLC, Dr. Robert
Cohen, Dr. Alan Cohen and Jonathan Pratt were required to file Form 3 by June
12, 1997. Such forms were filed on June 26, 1997.
-13-
<PAGE>
Item 11. Executive Compensation
The following table sets forth the cash and non-cash compensation
awarded to or earned by the Chief Executive Officer who served in that
position during fiscal year ended April 30, 1997, and the most highly
compensated executive officer of the Company earning at least $100,000 per
year.
SUMMARY COMPENSATION TABLE
Annual Compensation Long-Term Compensation
------------------- ----------------------
Other Awards
Annual Securities
Compen- Underlying
Name and Principal Position Salary sation Options/SARs
- --------------------------- ------ ------ ------------
($) ($) (#)
Salvatore Crimi, $ 95,866 $12,214(2) 79,610
Chairman of the Board and
Chief Executive Officer(1)
Jeffrey Dickson, $103,365 $4,800(4) 300,000
President and Chief
Operating Officer(3)
- -----------------------------
(1) Includes the compensation earned by Mr. Crimi prior to the merger of the
Company with Salex on September 18, 1996.
(2) Includes $5,173 representing car and commuting allowance and $7,041
representing the value of certain health insurance benefits provided by the
Company.
(3) Mr. Dickson is no longer an employee of the Company.
-14-
<PAGE>
OPTION/SAR GRANTS IN LAST FISCAL YEAR
Set forth below is information on grants of stock options for the named
executive officers for the period May 1, 1996 to April 30, 1997.
<TABLE>
<CAPTION>
Number of Percent Total
Securities Options/SARs
Underlying Granted To
Options/SARs Employees In Exercise or Base Price
Name Granted (#) Fiscal Year ($/Sh) Expiration Date 5%(s) 10%(S)
- ---- ----------- ----------- ------ --------------- ----- ------
(a) (b) (c) (d) (e) (f) (g)
<S> <C> <C> <C> <C> <C> <C> <C>
Salvatore Crimi 79,610 7.0% $2.125 11/21/02 $2.85 $3.76
500,000 44.0% $1.50 4/30/97 -- --
Jeffrey Dickson 300,000 27.0% $1.00 8/31/00 $1.22 $1.46
</TABLE>
Aggregated Options Exercised in Last Fiscal Year
and Fiscal Year-End Option Values*
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money
Options at Fiscal Year-End Options at Fiscal Year-End
(#) ($)(1)
Name Exercisable/Unexercisable Exercisable/Unexercisable
---- ------------------------- -------------------------
<S> <C> <C> <C> <C>
Salvatore Crimi 31,844 47,766 - -
Jeffrey Dickson 300,000 - - -
</TABLE>
- -----------------------------
(1) Calculated based on the average closing bid and ask prices as quoted the
OTC Bulletin Board for the last business day of the fiscal year ($0.34 per
share) less the exercise price payable for such shares.
Directors' Compensation
Directors of the Company receive compensation for serving on the
Board of Directors or any of its committees. Upon adoption of the Stock Option
Plan each non-employee director will receive options, as a formula grant, to
purchase 5,000 shares of Common Stock at an exercise price equal to their
market value on the first trading day of each May.
Employment Contracts and Termination of Employment and Change-In-Control
Arrangements
In August 1995, the Salex Holding Corporation ("Salex") entered into
an employment agreement with Mr. Salvatore Crimi which provides for his
appointment as Chief Executive Officer for a term ending on August 4, 1998.
Mr. Crimi's agreement was assumed by the Company upon completion of the
acquisition of Salex. The term is automatically extended for additional
one-year periods unless either party gives written notice to the other of its
desire not to renew such term which notice must be given no later than ninety
(90) days prior to the end of each term on any such renewal. The agreement
provides that during each fiscal year of the Company until the expiration or
termination of the agreement, Mr. Crimi's annual base salary shall be greater
of (i) his base salary for the immediate prior year plus the product
obtainable by multiplying Mr. Crimi's base salary for the immediate prior year
by a percentage, if any, by which, the Consumer Price Index for all Urban
Consumers - New York - Northeast New Jersey Region (the "CPI") for the month of
December of the immediate prior year exceeds the CPI for the month of December
of the year prior to the immediate prior year, or (ii) an amount at the annual
rate as determined by the Board of Directors of the Company. To demonstrate
his commitment to the Company during
-15-
<PAGE>
the fiscal year ended April 30, 1997, Mr. Crimi reduced his base salary
approximately 31.52% from $140,000 to $95,866. For the fiscal year ending
April 30, 1998, Mr. Crimi's base salary is $140,000.
In the event that the Company terminates Mr. Crimi's employment,
other than for cause, or Mr. Crimi terminates his employment as a result of a
breach by the Company of the agreement, Mr. Crimi will be paid severance
compensation equal to his annual base salary (at the rate payable at the time
of such termination) and accrued benefits plus an amount equal to the lesser
of one year's full base salary (as in effect at the time of such termination)
and any other amounts owed to him under the agreement or the full base (as in
effect at the time of such termination) and any other amounts that would have
been payable to Mr. Crimi from the date of termination through the original
stated expiration date of the employment agreement. In the event that the
Company terminates Mr. Crimi's employment for cause or Mr. Crimi shall
terminate his employment for reasons other than a breach of the agreement by
the Company, the Company shall pay Mr. Crimi his full base salary and accrued
benefits through the date of termination at the rate in effect at the time
notice of termination is given. For a period of two years following
termination of Mr. Crimi's employment for any reason (other than a termination
by the Company without cause) Mr. Crimi cannot perform services for or have an
equity interest in (except for an interest of 2% of less in an entity which is
engaged in a competitive business and which is publicly traded) any
competitive business. In addition, the Agreement provides that for the two
year period following termination of Mr. Crimi's employment for any reason,
with or without cause, Mr. Crimi cannot, directly or indirectly (including
without limitation, as owner employee, agent consultant or independent
contractor) provide or solicit services of the type provided by the Company to
any of its existing customers or potential customers with which or with whom
the Company has negotiated within the twelve months preceding the date of
termination of Mr. Crimi's employment.
Item 12. Security Ownership of Management and Certain Beneficial Owners(1)
The following table sets forth certain information, as of August 26,
1997, regarding the beneficial ownership of the Company's Common Stock by: (i)
each shareholder known by the Company to be the beneficial owner of more than
five percent of the outstanding shares of the Company's Common Stock; (ii)
each Director of the Company and nominees for director; (iii) each Named
Executive Officer (as hereinafter defined) of the Company; and (iv) all
Directors, nominees and executive officers of the Company as a group.
-16-
<PAGE>
<TABLE>
<CAPTION>
Amount and Nature of
Name and Address of Beneficial Owner Beneficial Owner(2)(3) Percent of Class(2)(3)
- ------------------------------------ ---------------------- ----------------------
<S> <C> <C>
Salvatore Crimi Family Limited Partnership............ 1,631,696(4) 16.75
Meadows Management, LLC............................... 1,250,000(5)(6) 11.97
1500 Hempstead Turnpike
East Meadow, New York 11554
Dr. Robert Cohen...................................... 1,250,000(5)(6)(7) 11.97
1500 Hempstead Turnpike
East Meadow, New York 11554
Dr. Alan Cohen........................................ 1,250,000(5)(6)(8) 11.97
1500 Hempstead Turnpike
East Meadow, New York 11554
Guardian Angel Management, Ltd........................ 1,250,000(5)(6)(9) 11.97
147 Redpoll Circle
North Hills, New York 11577
Jonathan Pratt........................................ 1,250,000(5)(6)(10) 11.97
147 Redpoll Circle
North Hills, New York 11577
Pershing Sun.......................................... 1,299,449(11) 13.48
Salvatore Crimi....................................... 1,091,483(12) 11.39
Franklin Pinter....................................... 75,000(13) *
Francis Fitzpatrick................................... 54,516(14) *
Angelo Crimi.......................................... -- --
Andrew Lunetta ....................................... -- --
Syd Mandelbaum........................................ -- --
All directors and executive officers as a group (5
persons).............................................. 2,520,448 25.06
</TABLE>
- -----------------------------
* Less than one percent (1%)
(1) These tables are based upon information supplied by Schedules 13D and 13G,
if any, filed with the Securities and Exchange Commission (the "SEC").
Unless otherwise indicated in the footnotes to the table and subject to the
community property laws where applicable, each of the shareholders named in
this table has sole voting and investment power with respect to the shares
shown as beneficially owned by him. Applicable percentage of ownership is
based on 9,187,250 shares of Common Stock, which were outstanding on
November 19, 1997.
(2) Beneficial ownership is determined in accordance with the rules of the SEC.
In computing the number of shares beneficially owned by a person and the
percentage of ownership of that person, shares of Common Stock subject to
options or preferred stock held by that person that are currently
exercisable or convertible within 60 days of November 19, 1997 are deemed
outstanding. To the Company's knowledge, except as set forth in the
footnotes to this table and subject to applicable community property laws,
each person named in the table has sole voting and investment power with
respect to the shares set forth opposite such person's name.
-17-
<PAGE>
(3) In calculating the percent of the outstanding shares of Common Stock,
all shares issuable on exercise of stock options or conversion of
preferred stock held by the particular beneficial owner that are
included in the column to the left of this column are deemed to be
outstanding.
(4) Includes 553,900 shares which may be acquired upon the conversion of
269 shares of Series B Preferred Stock.
(5) Represents shares of Common Stock to be acquired upon the conversion
of 12,500 shares of Series C Preferred Stock.
(6) At the annual meeting of shareholders, Meadows Management, LLC
("Meadows"), of which Dr. Robert Cohen and Dr. Alan Cohen are managing
members, and Guardian Angel Management, LTD ("Guardian Angel"), of which
Jonathan Pratt is the sole shareholder, intend to vote together on all
matters presented as such meeting. In the aggregate this group
beneficially owns 2,500,000 shares.
(7) This amount includes all of the shares beneficially owned by Meadows.
Dr. Robert Cohen, a managing member of Meadows, has shared voting
power and shared investment power. Dr. Robert Cohen disclaims
beneficial ownership of such shares.
(8) This amount includes all of the shares beneficially owned by Meadows.
Dr. Alan Cohen, a managing member of Meadows, has shared voting power
and shared investment power. Dr. Alan Cohen disclaims beneficial
ownership of such shares.
(9) The Company intends to challenge the validity of the transfer of 12,500
shares of Series C Preferred Stock from Meadows to Guardian Angel of
which Jonathan Pratt is the sole shareholder.
(10) This amount includes all of the shares beneficially owned Guardian
Angel. Jonathan Pratt disclaims beneficial ownership of such shares.
(11) Includes 436,530 shares which may be acquired upon the conversion of
212 shares of Series B Preferred Stock and 15,190 shares which may be
acquired upon the exercise options which will be exercisable within 60
days. Does not include 22,186 shares underlying options with are not
exercisable within 60 days.
(12) Includes 360,314 shares which may be acquired upon the conversion of
175 shares of Series B Preferred Stock and 31,844 shares which may be
acquired upon exercise of options which will be exercisable within 60
days. Does not include 47,766 shares underlying option with are not
exercisable within 60 days.
(13) Includes warrants to purchase 25,000 shares of Common Stock.
(14) Includes 956 shares which may be acquired upon the exercise of options
which will be exercisable within 60 days. Does not include 1,435
shares underlying options which are not exercisable within 60 days.
Item 13. Certain Relationships and Related Transactions
On September 19, 1996, the Company constructively retired 1,453,600
shares of Common Stock purchased by the Company from Mr. Crimi for a purchase
price of $2,000,000. As payment for this obligation, the Company and Mr. Crimi
agreed to offset the amount owed Mr. Crimi against certain loans made by the
Company to Mr. Crimi totaling $1,004,212. In addition, the Company assumed a
note payable by Mr. Crimi to a former shareholder of the Company in the amount
of $995,788.
Andrew Lunetta, a nominee for election as a director, is currently
serving as a consultant to the Company.
-18-
<PAGE>
Mr.Lunetta is paid $8,650 per month and his employment may be terminated by
either party at any time.
Item 14. Exhibits and Reports on Form 8-K
Exhibits
Exhibit 3.1 Registrant's Certificate of Incorporation, as amended to date
- incorporated by reference to Exhibit 3 (a) to the
Registrant's Registration Statement on Form SB-2, File No.
33-75162.
Exhibit 3.2 Certificate and Agreement and Plan of Merger -
incorporated by reference to Exhibit 3 (b) to Registrant's
Registration Statement on Form SB-2, File No. 33-75162.
Exhibit 3.3* Registrant's Bylaws -
Exhibit 4.1* Specimen of Common Stock Certificate.
Exhibit 4.2* Certificate of Designation of the Registrant's Series A
Preferred Stock.
Exhibit 4.3* Certificate of Designation of the Registrant's Series B
Preferred Stock.
Exhibit 4.4 Certificate of Designation of the Registrant's Series C
Preferred Stock - incorporated by reference to Exhibit 4 to
the Registrant's 8-K filed on June 17, 1997.
Exhibit 10.1 Amended and Restated Merger Agreement, dated as of
September 19, 1996, by and among the Company, the Subsidiary,
Salex, the Salex Subsidiaries, the Salex Stockholders, Thomas
M. Swartwood and T. Marshall Swartwood. Incorporated by
reference to Exhibit 10.1 to the Registrant's report on Form
8-K filed on September 19, 1996.
Exhibit 10.2 List of Omitted Schedules/Exhibits to Merger Agreement.
Incorporated by reference to Exhibit 10.2 to the Registrant's
report on Form 8-K filed on September 19, 1996.
Exhibit 10.3 Promissory Note issued by the Company to Crimi for
$1,055,562.19 dated September 18, 1996. Incorporated by
reference to Exhibit 10.3 to the Registrant's report on Form
8-K filed on September 19, 1996.
Exhibit 10.4 Promissory Note issued by the Company to Crimi for
$944,437.81 dated September 18, 1996. Incorporated by
reference to Exhibit 10.4 to the Registrant's report on Form
8-K filed on September 19, 1996.
Exhibit 10.5 Amendment to Promissory Notes dated September 18, 1996.
Incorporated by reference to Exhibit 10.5 to the Registrant's
report on Form 8-K filed on September 19, 1996.
Exhibit 10.6 Stock and Asset Purchase Agreement between the Company and
Dickinson dated September 18, 1996. Incorporated by reference
to Exhibit 10.6 to the Registrant's report on Form 8-K filed
on September 19, 1996.
Exhibit 10.7 Indemnification Agreement between the Company and Dickinson
dated September 18, 1996. Incorporated by reference to
Exhibit 10.7 to the Registrant's report on Form 8-K filed on
September 19, 1996.
-19-
<PAGE>
Exhibit 10.8 Tax Indemnity Agreement among the Company, Dickinson,
and Dickinson & Co., Inc. dated September 18, 1996.
Incorporated by reference to Exhibit 10.8 to the Registrant's
report on Form 8-K filed on September 19, 1996.
Exhibit 10.9 The Divestiture Promissory Note issued by Dickinson to
the Company dated September 18, 1996. Incorporated by
reference to Exhibit 10.9 to the Registrant's report on Form
8-K filed on September 19, 1996.
Exhibit 10.10 Stock Pledge and Security Agreement between the Company
and Dickinson dated September 18, 1996. Incorporated by
reference to Exhibit 10.10 to the Registrant's report on Form
8-K filed on September 19, 1996.
Exhibit 10.11 Stock Option Agreement between Crimi and the Company
dated September 18, 1996. Incorporated by reference to
Exhibit 10.11 to the Registrant's report on Form 8-K filed on
September 19, 1996.
Exhibit 10.12 Stock Option Agreement among Salex Stockholders and the
Company dated September 18, 1996. Incorporated by reference
to Exhibit 10.12 to the Registrant's report on Form 8-K filed
on September 19, 1996.
Exhibit 10.13 Form of Registration Rights Agreements among each of
the Salex Stockholders and the Company dated September 18,
1996. Incorporated by reference to Exhibit 10.13 to the
Registrant's report on Form 8-K filed on September 19, 1996.
Exhibit 10.14 Assumption by the Company of Salex's Mortgage dated
September 18, 1996. Incorporated by reference to Exhibit
10.14 to the Registrant's report on Form 8-K filed on
September 19, 1996.
Exhibit 10.15 Assumption of the Company of Salex's Employment
Agreement with Crimi. Incorporated by reference to Exhibit
10.15 to the Registrant's report on Form 8-K filed on
September 19, 1996.
Exhibit 10.16 Assumption of the Company of Salex's Employment
Agreement with Pershing Sun. Incorporated by reference to
Exhibit 10.16 to the Registrant's report on Form 8-K filed on
September 19, 1996.
Exhibit 10.17* Form of Subscription Agreement dated as of June 2, 1997,
between Registrant and Meadows Management LLC.
Exhibit 10.18* Form of Registration Rights Agreement between
Registrant and Meadows Management LLC dated as of June 2,
1997.
Exhibit 11 Statement re computation of per share earnings.
Exhibit 21 Subsidiary of the Registrant.
Exhibit 27 Financial data schedule.
- -----------------------------
* Filed herewith.
(b) REPORTS ON FORM 8-K No reports on Form 8-K were filed during the fourth
quarter of fiscal year ended April 30, 1997.
-20-
<PAGE>
SYNERGISTIC HOLDINGS CORP.
AND SUBSIDIARIES
AND AFFILIATE
CONSOLIDATED FINANCIAL STATEMENTS
Years Ended April 30, 1995, 1996 and 1997
<PAGE>
SYNERGISTIC HOLDINGS CORP.
AND SUBSIDIARIES AND AFFILIATE
INDEX TO FINANCIAL STATEMENTS
Page #
Independent auditor's report F - 1
Consolidated balance sheets
April 30, 1997 and 1996 F - 2
Consolidated financial statements for the three years
ended April 30, 1997
Statements of operations F - 3
Statements of stockholders' equity and F - 4
capital deficit
Statement of cash flows F - 5
Notes to consolidated financial statements F - 6-18
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of Synergistic Holdings Corp.
We have audited the accompanying combined consolidated balance sheets of
Synergistic Holdings Corp. as of April 30, 1996 and 1997, and the related
combined consolidated statements of operations, stockholders' deficit and cash
flows for each of the three years in the period ended April 30, 1997. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the combined consolidated financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the combined consolidated financial statements referred to
above present fairly, in all material respects, the financial position of
Synergistic Holdings Corp. as of April 30, 1996 and 1997, and the results of
their operations and their cash flows for each of the three years in the
period ended April 30, 1997, in conformity with generally accepted accounting
principles.
/S/ Feldman Loudin & Co., P.C.
------------------------------
New York, New York Certified Public Accountants
June 19, 1997
<PAGE>
SYNERGISTIC HOLDINGS CORP.
AND SUBSIDIARIES AND AFFILIATE
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
ASSETS
April 30,
--------------------------
1997 1996
----------- -----------
<S> <C> <C>
CURRENT ASSETS:
Cash $ 125,769 $ 74,354
Accounts receivable, net of allowance for
doubtful accounts of $188,000 in 1997 and 1996 3,451,589 3,218,909
Prepaid expenses and other current assets 77,263 91,261
Refundable income taxes -- 58,239
Deferred income taxes -- --
----------- -----------
Total Current Assets 3,654,621 3,442,763
----------- -----------
PROPERTY AND EQUIPMENT, net 1,746,120 1,867,655
----------- -----------
OTHER NONCURRENT ASSETS:
Loan Receivable from officer, net of current portion -- 1,004,212
Goodwill, net 1,210,625 1,308,125
Noncompetition and consulting agreement, net 186,667 150,000
Other assets 48,635 48,635
----------- -----------
1,445,927 2,510,972
----------- -----------
$ 6,846,668 $ 7,821,390
=========== ===========
LIABILITIES AND STOCKHOLDERS' DEFICIT (CAPITAL DEFICIT)
CURRENT LIABILITIES:
Bank overdraft $ 471,236 $ 445,440
Note payable - finance company 1,283,699 1,456,443
Accounts payable 4,161,585 3,323,566
Accrued expenses and other 487,260 487,111
Current portion of long-term debt 1,179,906 223,339
----------- -----------
Total Current Liabilities 7,583,686 5,935,899
----------- -----------
LONG-TERM DEBT:
Long-term debt 71,000 47,730
Mortgage payable -- 912,203
Capital leases obligations 33,155 94,518
Note payable 676,948 --
----------- -----------
781,103 1,054,451
----------- -----------
DEFERRED INCOME TAXES 10,000 10,000
----------- -----------
STOCKHOLDERS' (DEFICIT) EQUITY:
Preferred stock-series A, $.01 par value - shares authorized 20,000,
issued and outstanding 10,625
(liquidation preference $100 per share) 737,387 --
Preferred stock-series B, $.01 par value -
shares authorized, issued and outstanding 1,000 10 --
Common stock, $.01 par value - shares authorized 10,000,000 91,873 79,000
Additional paid-in capital 3,501,163 3,951,546
Accumulated deficit and proprietor's capital deficiency (5,358,554) (3,209,506)
Distribution to stockholders -- --
Less: Note receivable (500,000) --
----------- -----------
Total stockholders' (deficit) equity (1,528,121) 821,040
----------- -----------
$ 6,846,668 $ 7,821,390
=========== ===========
</TABLE>
See notes to financial statements.
F-2
<PAGE>
SYNERGISTIC HOLDINGS CORP.
AND SUBSIDIARIES AND AFFILIATE
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
Year ended April 30,
--------------------------------------------
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Net sales $ 22,958,814 $ 25,481,629 $ 33,883,908
Cost of sales 18,642,887 21,174,290 28,392,318
------------ ------------ ------------
Gross profit 4,315,927 4,307,339 5,491,590
Selling, General & Administrative expenses 4,669,128 5,892,493 4,865,937
Depreciation and amortization 352,629 294,973 256,638
------------ ------------ ------------
Loss from operations (705,830) (1,880,127) 369,015
Interest expense, net 379,656 460,100 431,844
Loss on disposal of property and equipment -- -- 34,908
------------ ------------ ------------
Loss before taxes (1,085,486) (2,340,227) (97,737)
Taxes 1,062 58,686 (4,000)
------------ ------------ ------------
Net Loss (1,086,548) (2,398,913) (93,737)
Accretion of preferred stock dividends attributable
to increase to conversion value (1,062,500) -- --
------------ ------------ ------------
Net loss $ (2,149,048) $ (2,398,913) $ (93,737)
============ ============ ============
Net loss per share of common stock (0.19) (0.21) (0.01)
============ ============ ============
Weighted average common shares outstanding 11,246,366 11,246,366 11,246,366
============ ============ ============
</TABLE>
See notes to financial statements.
F-3
<PAGE>
SYNERGISTIC HOLDINGS CORP.
AND SUBSIDIARIES AND AFFILIATE
STATEMENT OF STOCKHOLDERS' DEFICIT (CAPITAL DEFICIT)
<TABLE>
<CAPTION>
Preferred Stock Preferred Stock Common Stock
Series A Series B ($.01 par) ($.01 par)
------------------------- ------------------------ ------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance, April 30, 1994 -- -- -- -- 5,356,200 $ 53,562
Capital contribution
Net loss
Distribution to stockholders
------ ---------- ----- ---------- --------- ----------
Balance, April 30, 1995 -- -- -- -- 5,356,200 53,562
Sale of common stock 2,543,800 25,438
Compensation related to sale of shares
Net loss
------ ---------- ----- ---------- --------- ----------
Balance, April 30, 1996 -- -- -- -- 7,900,000 79,000
Acquisition and constructive retirement of
treasury stock purchased from principal
shareholder (1,453,600) (14,536)
Reverse stock split and issuance of series B
preferred stock 1,000 $ 10 (715,550) (7,155)
Acquisition of Synergistic Holding
Corporation and constructive
retirement of treasury stock 3,456,410 34,564
Private placement of preferred stock and
warrants net of related expenses 10,625 $ 737,387
Accretion of preferred stock to
conversion value
Net loss
------ ---------- ----- ---------- --------- ----------
Balance, April 30, 1997 10,625 $ 737,387 1,000 $ 10 9,187,260 $ 91,873
====== ========== ===== ========== ========= ==========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Additional Deficit Less
Paid-In (Capital Note
Capital deficit) Receivable Total
------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance, April 30, 1994 $1,933,438 ($627,675) - $1,359,325
Capital contribution 25,000 25,000
Net loss (93,737) (93,737)
Distribution to stockholders (89,181) (89,181)
------------------------------------------------------------------
Balance, April 30, 1995 1,958,438 (810,593) - 1,201,407
Sale of common stock 1,206,562 1,232,000
Compensation related to sale of shares 786,546 786,546
Net loss (2,398,913) (2,398,913)
------------------------------------------------------------------
Balance, April 30, 1996 3,951,546 (3,209,506) - 821,040
Acquisition and constructive retirement of
treasury stock purchased from principal shareholder (1,985,464) (2,000,000)
Reserve stock split and issuance of series B preferred stock 7,145 -
Acquisition of Synergistic Holding Corporation
and constructive retirement of treasury stock 465,436 (500,000) -
Private placement of preferred stock and warrants
net of related expenses 737,387
Accretion of preferred stock to conversion value 1,062,500 (1,062,500) -
Net loss (1,086,548) (1,086,548)
------------------------------------------------------------------
Balance, April 30, 1997 $3,501,163 ($5,358,554) ($500,000) ($1,528,121)
==================================================================
</TABLE>
See notes to financial statements.
F-4
<PAGE>
SYNERGISTIC HOLDINGS CORP.
AND SUBSIDIARIES AND AFFILIATE
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Year ended April 30,
------------------------------------------
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $(1,086,548) $(2,398,913) $ (93,737)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization 352,629 294,973 256,638
Provision for doubtful accounts -- 31,000 74,000
Loss on disposal of property and equipment -- -- 34,908
Deferred income taxes -- (1,000) (12,000)
Compensation related to sale of shares -- 786,546 --
Increase (decrease) in cash flows from changes in
operating assets and liabilities:
Accounts receivable (232,680) 57,360 1,514,328
Prepaid expenses and other current assets 12,998 58,554 (704)
Refundable taxes 58,239 239,022 (297,261)
Accounts payable 838,019 921,908 (869,369)
Accrued expenses and other current liabilities 149 128,225 114,195
----------- ----------- -----------
Net cash provided by (used in) operating activities (57,194) 117,675 720,998
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures, net (50,260) (63,626) (146,867)
Increase in noncompetition and consulting agreements -- -- --
Increase in other assets -- (600) (1,814)
Loan to officer, net of repayments (55,086) (225,860) 7,349
----------- ----------- -----------
Net cash used in investing activities (105,346) (290,086) (141,332)
----------- ----------- -----------
(162,540) (172,411) 579,666
CASH FLOWS FROM FINANCING ACTIVITIES:
Change in bank overdraft 25,796 (757,514) (88,426)
Net proceeds from (repayments of) note payable-
finance company (172,744) (232,062) (221,820)
Principal payments on long-term debt (210,687) (54,753) (36,669)
Payments on capital leases obligations (61,363) (58,906) (11,081)
Payments on mortgage obligation (72,000) (72,000) (72,000)
Distribution to stockholders -- 89,181 110,819
Proceeds from promissory note - Bank (32,433) (35,135) 97,297
Net proceeds from issuance of preferred stock 737,386 -- --
Net proceeds from issuance of common stock -- 1,142,818 (174,999)
----------- ----------- -----------
Net cash provided by (used in) financing activities 213,955 21,629 (396,879)
----------- ----------- -----------
Net increase (decrease) in cash 51,415 (150,782) 182,787
Cash, at beginning of period 74,354 225,136 42,349
=========== =========== ===========
Cash, at end of period $ 125,769 $ 74,354 $ 225,136
=========== =========== ===========
SUPLEMENTARY CASHFLOW DISCLOSURE
Interest paid $ 379,656 $ 460,000 $ 419,000
=========== =========== ===========
Taxes paid -- $ 33,000 $ 164,000
=========== =========== ===========
</TABLE>
See notes to financial statements.
F-5
<PAGE>
SYNERGISTIC HOLDINGS CORP.
NOTES TO COMBINED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. Description of Business
Synergistic Holdings Corp. (the "Company") operates in the
automobile asset management industry. Through the Company's
"Corporate Fleet Program" it manages, on a nationwide basis,
the maintenance and repair of fleets of automobiles which
are owned and operated by corporate customers. The Company
maintains a nationwide "Service Network" of over 30,000
independently owned pre-screened and pre-approved
maintenance and repair centers. The Company receives a
monthly management fee from its corporate customers as well
as fees from its service network. Other services of the
Company include the Collision Management Program, the
Computerized Auction System and Collateral Service Shield
and the Insurance Subrogation Program.
b. Basis of Presentation and Principles of Combination and
Consolidation
Pursuant to the merger agreement dated September 19, 1996
Salex Industries, Inc. ("SII") a wholly - owned subsidiary
of Synergistic Holdings Corp. was merged with and into Salex
Holding Corporation (Salex) whereby all of the shares of
common stock of Salex held by the Company were canceled and
all of the 4,503,000 shares of common stock owned by the
Salex Stockholders were converted into (a) 4,003,165 shares
of common stock, par value $.01 per share and (b) 1,000
shares of Series B Convertible Preferred Stock.
Immediately after the closing, the Company pursuant to a
Stock and Asset Purchase Agreement with Dickinson Holding
Corporation ("Dickinson"), a Delaware corporation, sold (
the "Divestiture") all of the outstanding shares of its
subsidiary, Dickinson & Co., Inc. ("DCI"), a registered
broker/dealer and its investment in Electronic Designs, Inc.
("EDI"). As consideration for the stock and assets that were
transferred in connection with the divestiture, Dickinson
transferred to the Company 750,000 shares of its Synergistic
Common Stock and a $500,000 promissory note secured by
250,000 shares of its Synergistic Common Stock pursuant to a
Pledge Agreement between Dickinson and the Company.
Because the Company's only asset after the Divestiture was
its investment in Salex and its collateralized promissory
note from Dickinson., the Company was deemed to be in
substance a "shell" at the Closing of the merger. The SEC
believes that shells
F-6
<PAGE>
SYNERGISTIC HOLDINGS CORP.
NOTES TO COMBINED FINANCIAL STATEMENTS - (Continued)
are not businesses and therefore, cannot initiate business
combinations. For accounting purposes the SEC views the
transaction as an equity transaction by the private
operating company ("Salex") rather than as an acquisition of
Salex by the Company. The SEC requires that the net assets
of the public shell be recorded at carryover basis in which
no goodwill arises on the transaction. Accordingly the
merger transaction has been accounted for as a
recapitalization of Salex (stock split, distribution of
preferred stock, and treasury stock purchase) followed by an
issuance of common stock by Salex in exchange for treasury
stock and Synergistic's note receivable from Dickinson. The
note receivable, which is collateralized by Synergistic
stock, has been recorded as a reduction of additional paid-
in capital.
The Company has sustained operating losses which have
continued into fiscal 1997. Such losses have related
primarily to the loss of several major customers and
increases in operating expenses. The losses have been funded
by the proceeds from the sale of convertible preferred stock
under a private placement, bank overdrafts, additional
borrowings under the revolving credit agreement, and
increased trade payables. Management's plans to return the
Company to profitability include a cost cutting program
which was commenced in November 1996 and an aggressive sales
program to replace lost customers which has resulted in
increased sales.
c. Property, Equipment and Depreciation
Property and equipment are stated at cost. Depreciation and
amortization are provided on either the straight-line basis
or accelerated methods over the estimated useful lives of
the assets.
In March 1995, the Financial Accounting Standards Board
issued Statement No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed
Of," which is effective for fiscal years beginning after
December 31, 1995, with earlier application encouraged. The
Company has adopted Statement No. 121 for the year ended
April 30, 1996. The adoption of Statement No. 121 did not
have a material effect on the combined consolidated
financial statements.
d. Taxes on Income
Income taxes are accounted for under the asset and liability
method. Deferred tax assets and liabilities are recognized
for the future tax consequences attributable to differences
between the financial statement carrying amounts of existing
assets and liabilities and their respective tax bases
(temporary differences) and operating loss and tax credit
carry forwards. These temporary differences arise primarily
from the allowance for doubtful accounts provision and
differences in depreciation methods
F-7
<PAGE>
SYNERGISTIC HOLDINGS CORP.
NOTES TO COMBINED FINANCIAL STATEMENTS - (Continued)
between the financial statements and the depreciation
utilized on the Company tax returns. Deferred tax assets and
liabilities are measured using enacted tax rates expected to
apply to taxable income in the years in which those
temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities
of a change in tax rates is recognized in income in the
period that includes the enactment date. A valuation
allowance has been provided to reduce the deferred tax
assets to a level that will be realized.
e. Use of Estimates
In preparing financial statements in conformity with
generally accepted accounting principles, management is
required to make estimates and assumptions that affect the
reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities at the date
of the financial statements and revenues and expenses during
the reporting period. Actual results could differ from those
estimates.
f. Revenue Recognition
The Company's principal revenues are derived from billings
for repairs and maintenance for vehicles covered in its
fleet management program. Revenues are recorded when the
services have been rendered.
g. Goodwill
The excess of cost over fair value of net assets acquired is
being amortized on the straight-line method over a twenty
year period. Amortization of goodwill for each of the years
ended April 30, 1997, 1996 and 1995 amounted to $97,500.
The Company's operational policy for the assessment and
measurement of any impairment in the value of excess of cost
over fair value of net assets acquired which is other than
temporary is to evaluate the recoverability and remaining
life of its goodwill and determine whether the goodwill
should be completely or partially written-off or the
amortization period accelerated. The Company will recognize
an impairment of goodwill if undiscounted estimated future
operating cash flow of the Company is determined to be less
than the carrying amount of goodwill. If the Company
determines that goodwill has been impaired, the measurement
of the impairment will be equal to the excess of the
carrying amount of the goodwill over the amount of the
discounted estimated operating cash flow using the Company's
average cost of funds. If an impairment of goodwill were to
occur, the Company would reflect the impairment through a
reduction in the carrying value of goodwill. The assessment
of the recoverability of goodwill will be impacted if
estimated future operating cash flows are not achieved.
F-8
<PAGE>
SYNERGISTIC HOLDINGS CORP.
NOTES TO COMBINED FINANCIAL STATEMENTS - (Continued)
h. Noncompetition and Consulting Agreements
Amortization is provided over the three to five year
contractual lives of the agreements. Amortization of the
agreements was $83,333, $60,000 and $60,000 for the three
years ended April 30, 1997, 1996 and 1995.
I. Fair Value of Financial Instruments
The carrying amounts of certain financial instruments,
including cash, accounts receivable and payable, and
short-term debt, approximated fair value as of April 30,
1996 and 1997. The carrying value of long-term debt,
including the current portion, approximated fair value as of
April 30, 1996 and 1997, based on the borrowing rates
currently available to the Company for bank loans with
similar terms and maturities.
j. New Accounting Pronouncement
In October 1995, the Financial Accounting Standards Board
issued Statement No.123, "Accounting for Stock-Based
Compensation," which is effective for transactions entered
into after December 31, 1995. Statement No.123 establishes a
fair value method of accounting for stock-based
compensation, through either recognition or disclosure. The
Company intends to adopt the employee stock-based
compensation disclosure - only provisions of Statement No.
123 in fiscal 1997 by disclosing the pro forma net income
amounts assuming the fair value method was adopted May 1,
1996. The adoption of Statement No. 123 will not impact the
Company's results of operations, financial position or cash
flows.
k. Earnings Per Share
Earnings per share are based on the weighted average number
of common and common equivalent shares outstanding. The
calculation when applicable takes into account the shares
that may be issued upon exercise of stock options and
warrants, reduced by the shares repurchased with the funds
received from their exercise.
l. Concentration of Credit Risk
Financial instruments, which potentially subject the Company
to concentrations of credit risk consist principally of
trade accounts receivable. The Company's largest customer
accounts for approximately 7 % of accounts receivable at
April 30, 1997. The Company establishes an allowance for
doubtful accounts based upon factors surrounding the credit
risk of specific customers, historical trends and other
information.
F-9
<PAGE>
SYNERGISTIC HOLDINGS CORP.
NOTES TO COMBINED FINANCIAL STATEMENTS - (Continued)
2. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
April 30,
1997 1996
---------- ----------
Land $ 490,000 $ 490,000
Building 1,227,261 1,227,261
Furniture & Fixture 1,417,052 1,383,754
Vehicles 77,760 60,799
Leasehold improvements 21,920 21,920
---------- ----------
3,233,993 3,183,734
Less accumulated depreciation and
amortization 1,487,873 1,316,078
---------- ----------
$1,746,120 $1,867,656
========== ==========
3. NOTE PAYABLE - FINANCE COMPANY
The Company has a $2,250,000 revolving credit agreement with a
finance company, which expires January 1, 1998. Interest on
borrowings are at prime plus 4.5% or 12.75% at April 30, 1997 and
1996, respectively. The interest rate was reduced to prime plus 2% in
November 1996. Borrowings are collateralized by substantially all of
the Company's assets not otherwise encumbered and are personally
guaranteed by the Company's principal stockholder.
4. SUBSEQUENT EVENT
During May 1997 the Board of Directors of the Company adopted a
resolution providing for the authorization and issuance of 25,000
shares of its $.01 par value Series C Preferred Stock. The Preferred
Stock has an issue price of $1.00 per share and each share issued is
convertible into 100 shares of Common Stock. The Series C Preferred
Stock shall rank prior to all of the Company's $.01par value common
stock
F-10
<PAGE>
SYNERGISTIC HOLDINGS CORP.
NOTES TO COMBINED FINANCIAL STATEMENTS - (Continued)
5. LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS
Long-term debt and capital lease obligations consist of the following:
<TABLE>
<CAPTION>
1997 1996
-------------- -----------
<S> <C> <C>
Mortgage payable to bank, payable in monthly
installments of $6,000 through December 1997,
plus interest at 2% above the bank's "peg rate"
(10.75% at April 30, 1996). The balance of
$792,203 is due January 20, 1998. The mortgage
is collateralized by land and building with a
book value of $1,454,499 at April 30, 1997. $840,203 $912,203
Consulting and Noncompetition agreement payable
in monthly installments of $5,000 through June
1998. 90,000 150,000
Capital lease obligations with varying monthly
payments and interest rates ranging from 15% to 17%
per annum maturing 1998 through 2000;
secured by interests in computer equipment. 94,518 153,425
Promissory note payable to bank in monthly
installments of $2,703, plus interest, through April
1998; interest at prime plus 2% (10.25% at April
30, 1996); secured by an interest in computer
equipment. 29,729 62,162
Buy out agreement payable in monthly installments
of $4,000 through September. 1998 and then
$1,750 through September 1999. 89,000 -
Note payable in quarterly installments of $55,086
including interest at 11%. 817,559 -
-------------- -----------
1,961,009 1,277,790
Less: Current maturities of long-term debt and
capital lease obligations 1,179,906 223,339
-------------- -----------
$ 781,103 $ 1,054,451
============== ===========
</TABLE>
-11-
<PAGE>
SYNERGISTIC HOLDINGS CORP.
NOTES TO COMBINED FINANCIAL STATEMENTS - (Continued)
The following is a schedule by years of future minimum lease payments
under capital leases, together with the present value of the net
minimum lease payments as of April 30, 1997:
Year ending April 30,
1998 $ 70,813
1999 31,201
2000 5,200
----------
Total minimum lease payments 107,214
Less: amount representing interest 12,696
----------
Present value of net minimum lease payment $ 94,518
==========
The following is a schedule of long-term debt maturities (including
capital lease obligations) as of April 30, 1997:
Year ending April 30,
1998 $ 977,933
1999 62,250
2000 8,750
----------
$1,048,933
==========
5. MAJOR CUSTOMERS
For the year ended April 30, 1997, no single customer exceeded 10% of
net sales. For the year ended April 30, 1996 sales to one customer
accounted for approximately 13% of net sales and for the year ended
April 30, 1995 the Company had two customers each of whom had sales
of approximately 12% of net sales. No receivables from any one
customer represented more than 10% of the April 30, 1997, 1996 and
1995 accounts receivable balance. No single customer or group of
customers affiliated through common control accounted for more than
10% of the Company's sales or accounts receivable in fiscal 1997,
1996 or 1995.
F-12
<PAGE>
SYNERGISTIC HOLDINGS CORP.
NOTES TO COMBINED FINANCIAL STATEMENTS - (Continued)
6. EMPLOYMENT AGREEMENTS
The Company has employment agreements with seven officers covering a
three-year period ending in August 1998. These agreements originally
provided for minimum aggregate annual salaries of $678,000 for fiscal
1997 and 1998, and $170,000 for fiscal 1999. Certain of these
commitments have recently been reduced in connection with the
Company's cost cutting plans described in Note 1.
7. RETIREMENT PLANS
The Company has a 401(K) plan for eligible salaried employees. The
contribution for any participant may not exceed statutory limits.
During fiscal years ended April 30, 1996 and 1995 the Company matched
each employee participant's contributions up to the first 6% of
compensation. No matching contributions were recorded for the year
ended April 30, 1997. The total matching contributions charged
against operations approximated $60,000 and $70,000 for the years
ended April 30, 1996 and 1995.
8. TAXES ON INCOME
The provisions for (recoveries of) taxes on income in the
consolidated statements of operations consist of the following:
<TABLE>
<CAPTION>
Year Ended April 30,
------------------------------------------------
1997 1996 1995
----------- ------------ -------------
<S> <C> <C> <C>
Current:
Federal $ - $ 50,733 $ (21,250)
State 1,062 8,953 (3,750)
----------- ------------ -------------
Total current 1,062 59,686 (25,000)
Deferred:
Federal - (850) 17,850
State - (150) 3,150
----------- ------------ -------------
Total deferred - (1,000) 21,000
----------- ------------ -------------
Total taxes on income (recoveries) $ 1,062 $ 58,686 $ (4,000)
=========== ============ =============
</TABLE>
F-13
<PAGE>
SYNERGISTIC HOLDINGS CORP.
NOTES TO COMBINED FINANCIAL STATEMENTS - (Continued)
Significant components of the Company's deferred tax assets and liabilities
are as follows:
<TABLE>
<CAPTION>
April 30,
-------------------------------------------------------
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Deferred tax. Assets:
Receivable reserve $ 75,000 $ 75,000 $ 16,000
Net operating loss carryforwards 886,000 515,000 0
--------- --------- ---------
Total deferred tax asset 961,000 590,000 16,000
Valuation allowance for deferred tax assets (961,000) (590,000) 0
--------- --------- ---------
Net deferred tax asset $ -- $ -- $ 16,000
========= ========= =========
Deferred tax liability:
Depreciation $ 10,000 $ 10,000 $ 27,000
--------- --------- ---------
Noncurrent deferred income tax liability $ 10,000 $ 10,000 $ 27,000
========= ========= =========
</TABLE>
The provision for taxes on income (loss) before taxes differs from the amounts
computed applying Federal statutory rates due to the following:
<TABLE>
<CAPTION>
Year Ended April 30,
---------------------------------------------
1997 1996 1995
---------- ---------- --------
<S> <C> <C> <C>
Provision for Federal income taxes at the
statutory rate (34%) (34%) (34%)
Loss (income) earned by S Corporation
taxable to individual stockholders 0 0 4
Adjustment for under (over) accrual from
prior year 0 3 (16)
State taxes, net of Federal tax benefit (6) (6) (6)
Non-deductible expenses 9 16 48
Valuation allowance for deferred tax assets 31 24 0
---------- ---------- --------
Provision for taxes on income 0 3% (4%)
========== ========== ========
</TABLE>
F-14
<PAGE>
SYNERGISTIC HOLDINGS CORP.
NOTES TO COMBINED FINANCIAL STATEMENTS - (Continued)
As of April 30, 1997, the Company has net operating loss
carryforwards for federal income tax purposes of approximately
$2,100,000, expiring in the year 2012.
The Company has established valuation allowances equal to its
deferred tax assets because of the uncertainty as to their future
utilization.
9. CONVERTIBLE PREFERRED STOCK
The Company in an effort to raise additional capital issued its
series A convertible Preferred Stock pursuant to a private placement
offering dated July 9, 1996. The shares are redeemable solely at the
option of the Company based on a redemption value of $100 plus any
accrued but unpaid dividends. The Series A Preferred Stock sold in
250 share "units" which includes 25,000 Warrants per unit each
exercisable for 1 share of Common Stock at an exercise price of $4.75
per Warrant.
Each share of the series A Preferred Stock is convertible based on
the average price of the common stock for the (10) day trading period
immediately preceding the conversion but in no event less than $0.50
per share. Preferred shareholders are able to convert the series A
preferred stock at twice its liquidation preference. The substance of
this adjustment to the series A preferred stock is that of a 100%
stock dividend. Accordingly the Company has recorded accretion to
increase paid in capital and charge retained earnings for the amount
of the adjustment. As discussed more fully in (Note12) the Company
does not have sufficient authorized Common Stock available for
issuance should all of the series A Preferred Stockholders exercise
their option to convert.
As part of the merger agreement all of the issued and outstanding
shares of Salex Holding Corp. were converted into shares of
Synergistic Common Stock and as part of a reverse stock split, 1,000
shares of series B Convertible Preferred Stock. Each share of the
series B Preferred Stock automatically converts into 2,059.106 shares
of Synergistic Common Stock as soon as the Company amends its
certificate of incorporation increasing the authorized Common Stock
of the Company. Because the series B Preferred Stock automatically
converts into common stock it is treated as common stock for purposes
of computing loss per share data.
.
F-15
<PAGE>
SYNERGISTIC HOLDINGS CORP.
--------------------------
NOTES TO COMBINED FINANCIAL STATEMENTS - (Continued)
----------------------------------------------------
10. STOCK BASED COMPENSATION
------------------------
The following table summarizes the changes in options and warrants
outstanding and the related price range for shares of the Company's
common stock.
Stock Options and Warrants
--------------------------
<TABLE>
<CAPTION>
Options Warrants Price
<S> <C> <C> <C>
Outstanding at April 30, 1994 247,000 173,500
Granted - -
Exercised - -
Expired (67,000) (57,832)
Retired - -
------------- -----------
Outstanding at April 30, 1995 180,000 115,668
Granted 58,300 $ 2.00
Granted 625,000 $ 2.00
Exercised - -
Expired (66,000) 115,668
Retired - -
------------- -----------
Outstanding at April 30, 1996: 172,300 625,000
Granted 1,129,333 $ 1.00 - 2.12
Granted 1,062,500 $ 4.75
Exercised - -
Expired (500,000) -
Retired - -
------------ -----------
Outstanding at April 30, 1997 801,633 1,687,500
============ ===========
</TABLE>
F-16
<PAGE>
SYNERGISTIC HOLDINGS CORP.
--------------------------
NOTES TO COMBINED FINANCIAL STATEMENTS - (Continued)
----------------------------------------------------
The Company accounts for its stock option plans in accordance with the
provisions of Accounting Principles Board (APB) Opinion No. 25, "Accounting
for Stock Issued to Employees", and related interpretations. As such,
compensation would be recorded on the date of grant only if the current market
price of the underlying stock exceeded the exercise price. For the year ended
April 30, 1997 the Company has adopted the disclosure only provisions of SFAS
123 "Accounting for Stock Based Compensation". Accordingly, no compensation
cost has been recognized for the plan. Had compensation cost for the Company's
option plans been determined based on fair value at the grant date for the
awards in 1997 consistent with the provisions of SAS 123, the Company's net
loss and net loss per share would have been increased by $515,547 and $.05 for
the year ended April 30, 1997.
The fair value of each option grant is estimated based on the date of grant
using the Black-Scholes option pricing model with the following assumptions
used for grants: No dividend yield; expected volatility of .87%; risk free
interest rate of 6%; and expected lives of 3 years.
11. MORTGAGE PAYABLE
----------------
It is the Company's intention to refinance its mortgage liability on
a short term basis. The Company expects to enter into a sale and
leaseback arrangement with respect to the property in the near
future. Because the Company has not entered into a formal refinancing
agreement with respect to the mortgage the entire amount has been
included in current liabilities.
12. CONTINGENCIES
-------------
As of April 30, 1997 the Company does not have sufficient authorized
Common Stock available to permit the conversion in its entirety, of
both its Series A and Series B Preferred Stock. The Series B
Preferred Stock is automatically convertible into common stock as
soon as the Company amends its certificate of incorporation
increasing the authorized Common Stock of the Company.
During the quarter ended April 30, 1997 certain Series A Preferred
Shareholder's gave notice to the Company and exercised their right of
conversion by tendering their Preferred Stock as required under the
private placement agreement. Because the Company does not have enough
authorized Common Stock available the shareholders who have converted
their shares will not receive Common Stock until an increase in
authorized shares has been approved by the Company. In the event the
Company is unable to obtain the requisite stockholder approval, the
investors in the Private Placement will hold for an indefinite period
of time, shares of Preferred Stock and Warrants that are not
registered securities and are not publicly traded. Moreover with
regard to those shareholders that converted their Series A
F-17
<PAGE>
SYNERGISTIC HOLDINGS CORP.
--------------------------
NOTES TO COMBINED FINANCIAL STATEMENTS - (Continued)
----------------------------------------------------
Preferred stock the Company has not yet issued any common shares in connection
with such conversion. As of April 30, 1997, 812,740 shares were available to
converting shareholders meanwhile approximately 1,350,000 shares are necessary
for issuance to accommodate all of the converting shareholders.
As discussed in Note 8 the Series A Preferred are entitled to dividends of 8.5
% per year. As of April 30, 1997 no payment or accrual of these dividends has
been recorded because under Delaware Law the Company can not legally pay
dividends unless there is sufficient retained earnings or current profits from
which the dividends can be distributed. Said dividends although unpaid are
cumulative and will become payable to the preferred stockholders at such time
in which the Company has restored its capital deficiency. The amount of unpaid
dividends otherwise applicable to the period ended April 30,1997 was
approximately $45,000.
As discussed in Note 4 the Company during May of 1997 authorized the issuance
of 25,000 shares of its $.01 par value Series C Preferred Stock. Pursuant to a
subscription agreement dated June 2, 1997 the Company accepted payment for all
of the 25,000 Series C shares. Because the Company does not have sufficient
authorized Common Stock to issue upon conversion the Company as discussed
above intends to ammend its Certificate of Incorporation to increase its
authorized $.01 par value common stock at the next meeting of the Board of
Directors and Shareholders which is scheduled for December 29, 1997.
In the event the Board of Directors and Shareholders do not approve the
amendment to the Certificate of Incorporation by December 31, 1997 the Company
has agreed to pay the Series C preferred stockholders $1,000,000.
F-18
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15(d) of the Securities
and Exchange Act of 1934, the registrant has duly caused this report to be
signed on its behalf of the undersigned thereunto duly authorized.
SYNERGISTIC HOLDINGS CORP.
/s/ Salvatore Crimi
- ---------------------------------------------------
Salvatore Crimi, Chairman of the Board of Directors
and Chief Executive Officer
Pursuant to the requirements of the Securities and Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities on the date indicated.
<TABLE>
<CAPTION>
<S> <C> <C>
Signatures Title Date
- ---------- ----- ----
/s/ Angelo Crimi
- ---------------------------- Vice Chairman, Secretary, November 26, 1997
Angelo Crimi Vice President Sales and
Director
/s/ Pershing Sun
- ---------------------------- Senior Vice President, November 26, 1997
Pershing Sun Chief Information Officer
and Director
/s/ Franklin Pinter
- ---------------------------- Director November 26, 1997
Franklin Pinter
/s/ Francis Fitzpatrick
- ---------------------------- Director November 26, 1997
Francis Fitzpatrick
</TABLE>
<PAGE>
EXHIBIT INDEX
<PAGE>
EXHIBIT INDEX (Continued)
<PAGE>
SYNERGISTIC HOLDINGS CORP.
BY-LAWS
ARTICLE I
OFFICES
1. The location of the registered office of the Corporation in the State of
Delaware is 1013 Centre Road, in the City of Wilmington, County of New Castle,
and the name of its registered agent at such address is The Prentice-Hall
Corporation System, Inc.
2. The Corporation shall in addition to its registered office in the State
of Delaware establish and maintain an office or offices at such place or places
as the Board of Directors may from time to time find necessary or desirable.
ARTICLE II
CORPORATE SEAL
The corporate seal of the Corporation shall have inscribed thereon the name
of the Corporation and may be in such form as the Board of Directors may
determine. Such seal may be used by causing it or a facsimile thereof to be
impressed, affixed or otherwise reproduced.
ARTICLE III
MEETINGS OF STOCKHOLDERS
1. All meetings of the stockholders shall be held at the registered office
of the Corporation in the State of Delaware or at such other place as shall be
determined from time to time by the Board of Directors.
<PAGE>
2. The annual meeting of stockholders shall be held on such day and at such
time as may be determined from time to time by resolution of the Board of
Directors, when they shall elect by plurality vote, a Board of Directors to hold
office until the annual meeting of stockholders held next after their election
and their successors are respectively elected and qualified or until their
earlier resignation or removal. Any other proper business may be transacted at
the annual meeting.
3. The holders of a majority of the stock issued and outstanding and
entitled to vote thereat, present in person or represented by proxy, shall
constitute a quorum at all meetings of the stockholders for the transaction of
business, except as otherwise expressly provided by statute, by the Certificate
of Incorporation or by these By-laws. If, however, such majority shall not be
present or represented at any meeting of the stockholders, the stockholders
entitled to vote thereat, present in person or by proxy, shall have power to
adjourn the meeting from time to time, without notice other than announcement at
the meeting (except as otherwise provided by statute). At such adjourned meeting
at which the requisite amount of voting stock shall be represented any business
may be transacted which might have been transacted at the meeting as originally
notified.
4. At all meetings of the stockholders each stockholder having the right to
vote shall be entitled to vote in person, or by proxy appointed by an instrument
in writing subscribed by such stockholder and bearing a date not more than three
years prior to said meeting, unless such instrument provides for a longer
period.
<PAGE>
5. At each meeting of the stockholders each stockholder shall have one vote
for each share of capital stock having voting power, registered in his name on
the books of the Corporation at the record date fixed in accordance with these
By-law, or otherwise determined, with respect to such meeting. Except as
otherwise expressly provided by statute, by the Certificate of Incorporation or
by these By-laws, all matters coming before any meeting of the stockholders
shall be decided by the vote of a majority of the number of shares of stock
present in person or represented by proxy at such meeting and entitled to vote
thereat, a quorum being present.
6. Notice of each meeting of the stockholders shall be mailed to each
stockholder entitled to vote thereat not less than 10 nor more than 60 days
before the date of the meeting. Such notice shall state the place, date and hour
of the meeting and, in the case of a special meeting, the purposes for which the
meeting is called.
7. Special meetings of the stockholders, for any purpose or purposes,
unless otherwise prescribed by statute, may be called by the President or by the
Board of Directors, and shall be called by the Secretary at the request in
writing of stockholders owning a majority of the amount of the entire capital
stock of the Corporation issued and outstanding and entitled to vote. Such
request by stockholders shall state the purpose or purposes of the proposed
meeting.
8. Business transacted at each special meeting shall be confined to the
purpose or purposes stated in the notice of such
-3-
<PAGE>
meeting.
9. The order of business at each meeting of stockholders shall be
determined by the presiding officer.
ARTICLE IV
DIRECTORS
1. The business and affairs of the Corporation shall be managed under the
direction of a Board of Directors, which may exercise all such powers and
authority for and on behalf of the Corporation as shall be permitted by law, the
Certificate of Incorporation or these By-laws. Each of the directors shall hold
office until the next annual meeting of stockholders and until his successor has
been elected and qualified or until his earlier resignation or removal.
2. The Board of Directors may hold their meetings within or outside of the
State of Delaware, at such place or places as it may from time to time
determine.
3. The number of directors comprising the Board of Directors shall be such
number as may be from time to time fixed by resolution of the Board of
Directors. In case of any increase, the Board shall have power to elect each
additional director to hold office until the next annual meeting of stockholders
and until his successor is elected and qualified or his earlier resignation or
removal. Any decrease in the number of directors shall take effect at the time
of such action by the Board only to the extent that vacancies then exist; to the
extent that such decrease exceeds the number of such vacancies, the decrease
shall not become effective, except as further vacancies may thereafter occur,
until the time of
-4-
<PAGE>
and in connection with the election of directors at the next succeeding annual
meeting of the stockholders.
4. If the office of any director becomes vacant, by reason of death,
resignation, disqualification or otherwise, a majority of the directors then in
office, although less than a quorum, may fill the vacancy by electing a
successor who shall hold office until the next annual meeting of stockholders
and until his successor is elected and qualified or his earlier resignation or
removal.
5. Any director may resign at any time by giving written notice of his
resignation to the Board of Directors. Any such resignation shall take effect
upon receipt thereof by the Board, or at such later date as may be specified
therein. Any such notice to the Board shall be addressed to it in care of the
Secretary.
ARTICLE V
COMMITTEES OF DIRECTORS
1. By resolutions adopted by a majority of the whole Board of Directors,
the Board may designate an Executive Committee and one or more other committees,
each such committee to consist of one or more directors of the Corporation. The
Executive Committee shall have and may exercise all the powers and authority of
the Board in the management of the business and affairs of the Corporation
(except as otherwise expressly limited by statute), including the power and
authority to declare dividends and to authorize the issuance of stock, and may
authorize the seal of the corporation to be affixed to all papers which may
require it. Each
-5-
<PAGE>
such committee shall have such of the powers and authority of the Board as may
be provided from time to time in resolutions adopted by a majority of the whole
Board.
2. The requirements with respect to the manner in which the Executive
Committee and each such other committee shall hold meetings and take actions
shall be set forth in the resolutions of the Board of Directors designating the
Executive Committee or such other committee.
ARTICLE VI
COMPENSATION OF DIRECTORS
The directors shall receive such compensation for their services as may be
authorized by resolution of the Board of Directors, which compensation may
include an annual fee and a fixed sum for expense of attendance at regular or
special meetings of the Board or any committee thereof. Nothing herein contained
shall be construed to preclude any director from serving the Corporation in any
other capacity and receiving compensation therefor.
ARTICLE VII
MEETINGS OF DIRECTORS; ACTION WITHOUT A MEETING
1. Regular meetings of the Board of Directors may be held without notice at
such time and place, either within or without the State of Delaware, as may be
determined from time to time by resolution of the Board.
2. Special meetings of the Board of Directors shall be held whenever called
by the President of the Corporation or the Board of Directors on at least 24
hours' notice to each director. Except as may be otherwise specifically provided
by statute, by the
-6-
<PAGE>
Certificate of Incorporation or by these By-laws, the purpose or purposes of any
such special meeting need not be stated in such notice, although the time and
place of the meeting shall be stated.
3. At all meetings of the Board of Directors, the presence in person of a
majority of the members of the Board of Directors shall be necessary and
sufficient to constitute a quorum for the transaction of business, and, except
as otherwise provided by statute, by the Certificate of Incorporation or by
these Bylaws, if a quorum shall be present the act of a majority of the
directors present shall be the act of the Board.
4. Any action required or permitted to be taken at any meeting of the Board
of Directors or of any committee thereof may be taken without a meeting if all
the members of the Board or such committee, as the case may be, consent thereto
in writing and the writing or writings are filed with the minutes of proceedings
of the Board of committee. Any director may participate in a meeting of the
Board, or any committee designated by the Board, by means of a conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other, and participation in a meeting
pursuant to this sentence shall constitute presence in person at such meeting.
ARTICLE VIII
OFFICERS
1. The officers of the Corporation shall be chosen by the Board of
Directors and shall be a President, one or more Vice Presidents, a Secretary and
a Treasurer. The Board may also choose one or more Assistant Secretaries and
Assistant Treasurers, and
-7-
<PAGE>
such other officers as it shall deem necessary. Any number of offices may be
held by the same person.
2. The salaries of all officers of the Corporation shall be fixed by the
Board of Directors, or in such manner as the Board may prescribe.
3. The officers of the Corporation shall hold office until their successors
are elected and qualified, or until their earlier resignation or removal. Any
officer may be at any time removed from office by the Board of Directors, with
or without cause. If the office of any officer becomes vacant for any reason,
the vacancy may be filled by the Board of Directors.
4. Any officer may resign at any time by giving written notice of his
resignation to the Board of Directors. Any such resignation shall take effect
upon receipt thereof by the Board or at such later date as may be specified
therein. Any such notice to the Board shall be addressed to it in care of the
Secretary.
ARTICLE IX
PRESIDENT
The President shall be the chief executive officer of the Corporation.
Subject to the supervision and direction of the Board of Directors, he shall be
responsible for managing the affairs of the Corporation. He shall have
supervision and direction of all of the other officers of the Corporation and
shall have the powers and duties usually and customarily associated with the
office of the President. He shall preside at meetings of the stockholders and of
the Board of Directors.
-8-
<PAGE>
ARTICLE X
VICE PRESIDENTS
The Vice Presidents shall have such powers and duties as may be delegated
to them by the President.
ARTICLE XI
SECRETARY AND ASSISTANT SECRETARY
1. The Secretary shall attend all meetings of the Board of Directors and of
the stockholders, and shall record the minutes of all proceedings in a book to
be kept for that purpose. He shall perform like duties for the committees of the
Board when required.
2. The Secretary shall give, or cause to be given, notice of meetings of
the stockholders, of the Board of Directors and of the committees of the Board.
He shall keep in safe custody the seal of the Corporation, and when authorized
by the President, an Executive Vice President or a Vice President, shall affix
the same to any instrument requiring it, and when so affixed it shall be
attested by his signature or by the signature of an Assistant Secretary. He
shall have such other powers and duties as may be delegated to him by the
President.
3. The Assistant Secretary shall, in case of the absence of the Secretary,
perform the duties and exercise the powers of the Secretary, and shall have such
other powers and duties as may be delegated to them by the President.
ARTICLE XII
TREASURER AND ASSISTANT TREASURER
1. The Treasurer shall have the custody of the corporate funds and
securities, and shall deposit or cause to be
-9-
<PAGE>
deposited under his direction all moneys and other valuable effects in the name
and to the credit of the Corporation in such depositories as may be designated
by the Board of Directors or pursuant to authority granted by it. He shall
render to the President and the Board whenever they may require it an account of
all his transactions as Treasurer and of the financial condition of the
Corporation. He shall have such other powers and duties as may be delegated to
him by the President.
2. The Assistant Treasurer shall, in case of the absence of the Treasurer,
perform the duties and exercise the powers of the Treasurer, and shall have such
other powers and duties as may be delegated to them by the President.
ARTICLE XIII
CERTIFICATES OF STOCK
The certificates of stock of the Corporation shall be numbered and shall be
entered in the books of the Corporation as they are issued. They shall exhibit
the holder's name and number of shares and shall be signed by the President or
an Executive Vice President or Vice President, and by the Treasurer or an
Assistant Treasurer, or the Secretary or an Assistant Secretary.
ARTICLE XIV
CHECKS
All checks, drafts and other orders for the payment of money and all
promissory notes and other evidences of indebtedness of the Corporation shall be
signed by such officer or officers or such other person as may be designated by
the Board of Directors or pursuant to authority granted by it.
-10-
<PAGE>
ARTICLE XV
FISCAL YEAR
The fiscal year of the Corporation shall be as determined from time to time
by resolution duly adopted by the Board of Directors.
ARTICLE XVI
NOTICES AND WAIVERS
1. Whenever by statute, by the Certificate of Incorporation or by these
By-laws it is provided that notice shall be given to any director or
stockholder, such provision shall not be construed to require personal notice,
but such notice may be given in writing, by mail, by depositing the same in the
United States mail, postage prepaid, directed to such stockholder or director at
his address as it appears on the records of the Corporation, and such notice
shall be deemed to be given at the time when the same shall be thus deposited.
Notice of regular or special meetings of the Board of Directors may also be
given to any director by telephone or by telex, telegraph or cable, and in the
latter event the notice shall be deemed to be given at the time such notice,
addressed to such director at the address hereinabove provided, is transmitted
by telex (with confirmed answerback), or delivered to and accepted by an
authorized telegraph or cable office.
2. Whenever by statute, by the Certificate of Incorporation or by these
By-laws a notice is required to be given, a written waiver thereof, signed by
the person entitled to notice, whether before or after the time stated therein,
shall be deemed equivalent to notice. Attendance of any stockholder or director
at
- 11-
<PAGE>
any meeting thereof shall constitute a waiver of notice of such meeting by such
stockholder or director, as the case may be, except as otherwise provided by
statute.
ARTICLE XVII
INDEMNIFICATION
All persons who the Corporation is empowered to indemnify pursuant to the
provisions of Section 145 of the General Corporation Law of the State of
Delaware (or any similar provision or provisions of applicable law at the time
in effect) shall be indemnified by the Corporation to the full extent permitted
thereby. The foregoing right of indemnification shall not be deemed to be
exclusive of any other such rights to which those seeking indemnification from
the Corporation may be entitled, including, but not limited to, any rights of
indemnification to which they may be entitled pursuant to any agreement,
insurance policy, other by-law or charter provision, vote of stockholders or
directors, or otherwise. No repeal or amendment of this Article XVIII shall
adversely affect any rights of any person pursuant to this Article XVIII which
existed at the time of such repeal or amendment with respect to acts or
omissions occurring prior to such repeal or amendment.
ARTICLE XVIII
ALTERATION OF BY-LAWS
The By-laws of the Corporation may be altered, amended or repealed, and new
By-laws may be adopted, by the stockholders or by the Board of Directors.
-12-
<PAGE>
================================================================================
SPECIMEN
- ---------- ----------
SH 0129 SYNERGISTIC HOLDINGS CORP.
- ---------- ----------
INCORPORATED SEE REVERSE
UNDER THE LAWS FOR CERTAIN
OF THE STATE OF DEFINITIONS
DELAWARE CUSIP 87159N 10 5
- --------------------------------------------------------------------------------
THIS CERTIFIES THAT
SPECIMEN
IN THE ORDER OF
- --------------------------------------------------------------------------------
CERTIFICATE OF STOCK
This certificate is not valid until countersigned by the Transfer Agent.
Witness the facsimile seal of the Corporation and the facsimile signatures
of its duly authorized officers.
Dated:
/s/ xxxxxxxxxxxxxx [SEAL] /s/ xxxxxxxxxxxxxx
================================================================================
<PAGE>
SYNERGISTIC HOLDINGS CORP.
THE CORPORATION WILL FURNISH WITHOUT CHARGE TO EACH STOCKHOLDER WHO SO
REQUESTS A STATEMENT OF THE POWERS, DESIGNATIONS, PREFERENCES AND RELATIVE,
PARTICIPATING, OPTIONAL OR OTHER SPECIAL RIGHTS OF EACH CLASS OF STOCK OR SERIES
THEREOF OF THE CORPORATION. AND THE QUALIFICATIONS, LIMITATIONS OR RESTRICTIONS
OF SUCH PREFERENCES AND/OR RIGHTS.
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations
TEN COM - as tenants in common
TEN ENT - as tenants by the entireties
JT TEN - as joint tenants with right of
survivorship and not as tenants
in common
UNIF GIFT MIN ACT - Custodian
------------------------------
(Cust) (Minor)
under Uniform Gifts to Minors
Act
--------------------------
(State)
Additional abbreviations may also be used not in the above list.
For Value Received, __________________________ HEREBY SELL, ASSIGN AND
TRANSFER UNTO _________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
REPRESENTED BY THE WITHIN CERTIFICATE AND DO HEREBY IRREVOCABLY CONSTITUTE AND
OF THE SHARES APPPOINT ___________________________________________ ATTORNEY
TO TRANSFER THE SAID SHARES ON THE BOOKS OF THE WITHIN NAMED CORPORATION WITH
FULL POWER OF SUBSTITUTION IN THE PREMISES
DATED _______________________, 19__
SIGNED _____________________________ __________________________________
THE ABOVE SIGNATURE(S) GUARANTEED BY
_______________________________________
NOTICE THE SIGNATURE TO THIS ASSIGNMENT
MUST CORRESPOND WITH THE NAME AS WRITTEN
UPON THE FACE OF THE CERTIFICATE IN
EVERY PARTICULAR, WITHOUT ALTERATION OR
ENLARGEMENT, OR ANY CHANGE WHATEVER
<PAGE>
SYNERGISTIC HOLDINGS CORP.
------------------------
CERTIFICATE OF DESIGNATION
OF
8.5% SERIES A CONVERTIBLE PREFERRED ST0CK
SETTING FORTH THE POWERS,
PREFERENCES, RIGHTS, QUALIFICATIONS,
LIMITATIONS AND RESTRICTIONS OF
SUCH SERIES OF PREFERRED STOCK
------------------------
Pursuant to Section 151 of the General Corporation Law of the State of
Delaware, Synergistic Holdings Corporation (the "Corporation"), a corporation
organized and existing under the General Corporation Law of the State of
Delaware, in accordance with the provisions of Section 103 thereof, DOES HEREBY
CERTIFY:
That pursuant to the authority of Directors of the Board of Directors
of the Corporation by of Article IV of the Certificate of Incorporation of the
Corporation (the Certificate of Incorporation"), and in accordance with the
provisions of Section 151 of the General Corporation Law of the State of
Delaware, the Board of Directors of the corporation adopted the following
resolution creating a series of preferred stock designated as 8.5% Series A
Convertible Preferred Stock.
RESOLVED that, pursuant to the authority vested in the Board of
Directors of the Corporation in accordance with the General Corporation Law of
the State of Delaware and the provisions of the Certificate of Incorporation, a
series of the class of authorized Preferred Stock, liquidation preference $100
per share, of the Corporation is hereby created and that the designation and
number of shares thereof and the voting powers, preferences and relative,
participating, optional and other special rights of the shares of such series,
and the qualifications, limitations and restrictions thereof, are as follows:
Section 1. Designation, Number and Rank. (a) The shares of such series shall
be designated "8.5% Series A Convertible Preferred Stock" (the "Series A
Preferred Stock"). The number of shares initially constituting the Series A
Preferred Stock shall be 20,000, par value $.01 per share, which number may be
decreased (but not increased) by the Board of Directors without a vote of
stockholders; provided, however, that such number may not
<PAGE>
be decreased below the number of then outstanding shares of Series A Preferred
Stock.
(b) The Series A Preferred Stock shall, with respect to dividend
rights and rights on liquidation, dissolution or winding up, rank prior to the
common stock, par value $. 01 per share, of the Corporation (the "Common Stock")
and any other issue of preferred stock.
Section 2. Dividends and Distributions. (a) The holders of shares of Series
A Preferred Stock, in preference to the holders of shares of Common Stock and of
any shares of other capital stock of the Corporation shall be entitled to
receive, out of the assets of the Corporation legally available therefor,
cumulative cash dividends of $8.50 per annum per share, payable semi-annually
in payments of $4.25, subject to appropriate adjustment in the event of any
stock split, or reverse stock split. Dividends shall be payable semi-annually,
in arrears, on the last business day of October and April in each year,
commencing October 1996.
(b) Dividends payable pursuant to paragraph (a) of this Section 2 shall
begin to accrue and be cumulative from the data of issuance, whether or not
earned or declared. The amount of dividends so payable shall be determined on
the basis of twelve 30-day months and a 360-day year. Accrued but unpaid
dividends shall not bear interest. Dividends paid on the shares of Series A
Preferred Stock in an amount less than the total amount of such dividends at the
time accrued and payable on such shares shall be allocated pro rata on a
share-by-share basis among all such shares at the time outstanding. The Board of
Directors may fix a record date for the determination of holders of shares of
Series A Preferred Stock entitled to receive payment of a dividend declared
hereon, which record date shall be no more than sixty days prior to the date
fixed for the payment thereof.
(c) No dividends or other distributions shall be paid or set apart for
payment on, and no purchase, redemption or other acquisition shall be made by
the Corporation of any shares of Common Stock unless and until all accrued and
unpaid dividends on the Series A Preferred Stock, including the full dividend
for the then-current semi-annual dividend period, shall have been paid or
declared and set apart for payment.
(d) The holders of shares of Series A Preferred Stock shall not be
entitled to receive any dividends or other distributions except as provided
herein,
Section 3. Voting Rights. The holders of shares of Series A Preferred Stock
are not entitled to vote on any matters brought before the stockholders of the
Corporation.
-2-
<PAGE>
Section 4. Redemption at the Option of the Corporation.
(a) Provided the Corporation has not received a notice of conversion
pursuant to Section 7 hereof, the Corporation may at any time after the date of
issuance, at the option of the Board of Directors, redeem in whole or in part
the Series A Preferred Stock by paying in cash therefor a sum equal to $100
per share, together with any accrued and unpaid dividends thereon (the
"Redemption Price"). At least, fifteen (15) but no more than thirty (30) days
prior to the Redemption Date (as hereinafter defined) set forth. therein,
written notice shall be mailed, first class postage prepaid, to each holder of
record (at the close of business on the business day next preceding the day on
which notice is given) of the Series A Preferred Stock to be redeemed, at the
address last shown on the records of the Corporation for such holder, notifying
such holder of the redemption to be effected, specifying the number of shares to
be redeemed from such holder, the date of such redemption (the "Redemption
Date"), the Redemption Price, the place at which payment may be obtained and
calling upon such holder to surrender to the Corporation, in the manner and at
the place designated, his, her or its certificate or certificates representing
the shares to be redeemed (the "Redemption Notice"). Any redemption effected
pursuant to this Section 4 shall be made on a pro rata basis among the holders
of the Series A Preferred Stock in proportion to the number of shares of Series
A Preferred Stock then held by them. Each holder of Series A Preferred Stock to
be redeemed shall surrender to the Corporation the certificate or certificates
representing such shares, in the manner and at the place designated in the
Redemption Notice, and thereupon the Redemption Price of such shares shall be
payable to the order of the person whose name appears on such certificate or
certificates as the owner thereof and each surrendered certificate shall be
cancelled.
(b) From and after the applicable Redemption Date, unless there shall
have been a default in payment of the Redemption Price, all rights of the
holders of shares of Series A Preferred Stock designated for redemption in the
Redemption Notice as holders of Series A Preferred Stock (except the right to
receive the Redemption Price without interest upon surrender of their
certificate or certificates) or referred to in Section 4 (a) as the case may be,
shall cease with respect to such shares.
Section 5. Reacquired Shares. Any shares of Series A Preferred Stock
converted, redeemed, purchased or otherwise acquired by the Corporation in any
manner whatsoever shall be retired and canceled promptly after the acquisition
thereof. All such shares of Series A Preferred Stock shall upon their
cancellation, and upon the filing of an appropriate certificate with the
Secretary of State of the State of Delaware, become authorized but unissued
shares of Preferred Stock, liquidation
-3-
<PAGE>
preference $100 share, of the Corporation and may be reissued as part of another
series of Preferred Stock, liquidation preference $100 per share, of the
Corporation, subject to the conditions or restrictions on issuance set forth
herein.
Section 6. Liquidation, Dissolution or Winding Up.
(a) If the Corporation shall commence a voluntary case under the
Federal bankruptcy laws or any other applicable Federal or state bankruptcy,
insolvency or similar law, or consent to the entry of an order for relief in an
involuntary case under such law or to the appointment of a receiver, liquidator,
assignee, custodian, trustee, sequestrator (or other similar official) of the
Corporation or of any substantial part of its property, or make an assignment
for the benefit of its creditors, or admit in writing its inability to pay its
debts generally as they become due, or if a decree or order for relief in
respect of the Corporation shall be entered by a court having jurisdiction
in the premises in an involuntary case under the Federal bankruptcy laws or any
other applicable federal or state bankruptcy, insolvency or similar law, or
appointing a receiver, liquidator, assignee, custodian, trustee, sequestrator
(or other similar official) of the Corporation or of any substantial part of its
property, or ordering the winding up or liquidation of its affairs, and any
such decree or order shall be unstayed and in effect for a period of 150
consecutive days and on account of any such event the Corporation shall
liquidate, dissolve or wind up, or if the corporation shall otherwise liquidate,
dissolve or wind up, no distribution shall be made (i) to the holders of shares
of Common Stock unless, prior thereto, the holders of shares of Series A
Preferred Stock shall have received $100 with respect to each share (as adjusted
for any stock dividends, combinations or splits with respect to such shares)
plus all declared or accumulated but unpaid dividends on such shares.
(b) Neither the consolidation, merger or other business combination of
the Corporation with or into any other Person or Persons nor the sale of all or
substantially all the assets of the Corporation shall be deemed to be a
liquidation, dissolution or winding up of the Corporation for purposes of this
Section 6.
Section 7. Conversion. The holders of the Series A Preferred Stock shall
have conversion rights as follows (the "Conversion Rights"):
(a) Right to Convert. On the Conversion Date (as hereinafter defined)
each share of Series A Preferred Stock, if not redeemed by the Corporation, is
convertible into that number of shares of Common Stock which has an aggregate
"value" equal to twice the liquidation preference of the Series A Preferred
Stock being converted. For purposes of calculating the conversion rate, the
aggregate "value" of the common stock shall be deemed
-4-
<PAGE>
to be the average closing bid price of the Common Stock as reported on Nasdaq
(or such other exchange on which the Common stock is traded) for the ten (10)
day trading period immediately preceding the date on which the notice of
conversion is tendered to the Corporation; provided, however, in no event shall
the conversion rate of the Common Stock, for purposes of calculating the number
of shares of Common Stock into which the Series Preferred Stock is convertible,
be less than $.50 per share
(b) Conversion Date: For purposes of Section 7 hereof, "Conversion
Date" shall mean: any time after (a) July 31, 1998 if the Corporation's public
warrants (or successor securities issued by the Corporation) are registered
pursuant to a Registration Statement that is declared effective by the SEC on or
before December 31, 1996 or (b) December 31, 1996 if the Registration Statement
is not declared effective by the SEC by December 31, 1996.
(c) Mechanics of Conversion. Before any holder of Series A Preferred
Stock shall be entitled to convert the same into shares of Common Stock, he
shall surrender the certificate or certificates therefor, duly endorsed, at the
office of the Corporation or of any transfer agent for the Series A Preferred
Stock, and shall give written notice to the Corporation at its principal
corporate office, of the election to convert the same and shall state therein
the name or names in which the certificate or certificates for shares of Common
Stock are to be issued. The Corporation shall, as soon as practible thereafter,
issue and deliver at such office to such holder of Series A Preferred Stock, or
to the nominee or nominees of such holder, a certificate or certificates for the
number of shares of Common Stock to which such holder shall be entitled as
aforesaid. Such conversion shall be deemed to have been made immediately prior
to the close of business on the date of such surrender of the shares of Series A
Preferred Stock to be converted, and the person or persons entitled to receive
the shares of Common Stock issuable upon such conversion shall be treated for
all purposes as the record holder or holders of such shares of Common Stock as
of such date.
(d) In case any shares of Series A Preferred Stock are to be redeemed
pursuant to Section 4, such right of conversion shall cease and terminate as to
the shares of Series A Preferred Stock to be redeemed at the close of business
on the business day next preceding the date fixed for redemption unless the
Corporation shall default in the payment of the Redemption Price.
(e) Upon conversion, the holder of shares of Series A Preferred Stock
shall be entitled to receive, in cash, any accrued and unpaid dividends on the
shares of Series A Preferred Stock surrendered for conversion to the date of
such conversion.
-5-
<PAGE>
(f) Once the Corporation has received the written notice of the holder
of the election to convert, the right of the Corporation to redeem such shares
of Series A Preferred Stock shall terminate.
(g) The Corporation shall at all times reserve and keep available for
issuance upon the conversion of the Series A Preferred Stock, such number of
its authorized but unissued shares of Common Stock as will from time to time be
sufficient to permit the conversion of all outstanding shares of Series A
Preferred Stock, and shall take all action required to increase the authorized
number of shares of Common Stock if necessary to permit the conversion of all
outstanding shares of Series A Preferred Stock.
Section 8 Protective Provision. In addition to any other class vote that
may be required by law, the Corporation shall not, without obtaining approval
(by vote or written consent, as provided by law) of the holders of more than 50%
of the outstanding Series A Preferred Shares voting separately, create any new
class or series of shares having preferences over or being on parity with the
Series A Preferred Shares as to dividends or assets, or authorize or issue
shares of stock of any class or series or any bonds, debentures, notes or other
obligations convertible into or exchangeable for, or having option rights to
purchase any shares of stock of the Corporation having any preference or
priority as to dividends or assets superior to or on a parity with any such
preference or priority of the Series A Preferred Shares.
Section 9 Certain Covenants. Any registered holder of Series A Preferred
Stock may proceed to protect and enforce its rights and the rights of such
holders by any available remedy by proceeding at law or in equity to protect and
enforce any such rights, whether for the specific enforcement of any provision
in this Certificate of Designation or in aid of the exercise of any power
granted herein, or to enforce any other proper remedy.
-6-
<PAGE>
IN WITNESS WHEREOF, a duly authorized officer of the corporation has caused
this Certificate to be duly executed on this day __ of September, 1996.
SYNERGISTIC HOLDINGS CORP.
By: /s/ T. Marshall Swartwood
-------------------------
Name: T. Marshall Swartwood
Title: Chairman of the
Board of Directors
Attests
By:
--------------------------
Name: Thomas M. Swartwood
Title: Secretary
-7-
<PAGE>
EXHIBIT 4.3
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 09:05 AM 09/18/1996
950271125 - 2374971
SYNERGISTIC HOLDINGS CORP.
____________________________
CERTIFICATE OF DESIGNATION
OF
SERIES B CONVERTIBLE PREFERRED STOCK
SETTING FORTH THE POWERS,
PREFERENCES, RIGHTS, QUALIFICATIONS,
LIMITATIONS AND RESTRICTIONS OF
SUCH SERIES OF PREFERRED STOCK
_____________________________
Pursuant to Section 151 of the General Corporation Law of the State of
Delaware, Synergistic Holdings Corp. (the "Corporation"), a corporation
organized and existing under the General Corporation Law of the State of
Delaware, in accordance with the provisions of Section 103 thereof, DOES HEREBY
CERTIFY:
That pursuant to the authority of the Board of Directors of the Corporation
under Article IV of the Certificate of Incorporation of the Corporation (the
"Certificate of Incorporation"), and in accordance with the provisions of
Section 151 of the General Corporation Law of the State of Delaware, the Board
of Directors of the Corporation adopted the following resolution creating a
series of preferred stock designated as Series B Convertible Preferred Stock.
RESOLVED that, pursuant to the authority vested in the Board of Directors
of the Corporation in accordance with the General COrporation LAw of the State
of Delaware and the provisions of the Certificate of Incorporation, a series of
the class of authorized Preferred Stock, par value $.01 per share, of the
Corporation is hereby created and that the designation and number of shares
thereof and the voting powers, preferences and relative, participating, optional
and other special rights of the shares of such series, and the qualifications,
limitations and restrictions thereof, are as follows:
Section 1. Designation, Number and Rank.
(a) The shares of such series shall be designated "Series B Convertible
Preferred Stock" (the "Series B Preferred Stock"). The number of shares
initially constituting the Series B Preferred Stock shall be 1,000, par value
$.01 per share, which number may be decreased or increased by the Board of
Directors only with the prior written consent of a majority of the then
outstanding holders of the Series B Preferred Stock stockholders; provided,
however, that such number may not be decreased below the number of then
outstanding shares of Series B Preferred Stock.
<PAGE>
(b) The Series B Preferred Stock shall, with respect rights as
liquidation, dissolution or winding up, rank prior to the common stock, par
value $.01 per share, of the Corporation (the "Common Stock").
Section 2. Dividends and Distributions. The holders of shares of
Series B Preferred Stock shall be entitled to receive dividends in proportion
to the conversion ratio set forth in Section 6(a) below, to the extant any
dividends are declared or paid on the Common Stock.
Section 3. Voting Rights.
(a) In addition to any voting rights provided by law, the holders of
shares of Series B Preferred Stock shall be entitled to vote on all matters
voted on by holders of Common Stock. Voting together as a single class with
other shares entitled to vote at all meetings of the stckholders of the
Corporation. With respect to any such vote, such shares of Series B Preferred
Stock shall entitle the holder thereof to cast the number of votes equal to the
number of votes which could be cast in such vote by a holder of the shares of
capital stock of the Corporation into which such shares of Series B Preferred
Stock is convertible as the record date for such vote, pursuant to Section 6(a)
below.
(b) There shall be no change in the right or terms of the Series B
Preferred Stock without the written consent of a majority of the holders of the
Series B Preferred Stock.
Section 4. Required Shares. Any shares of Series B Preferred Stock
converted, purchased or otherwise acquired by the Corporation in any manner
whatsoever shall be retired and cancelled promptly after the acquisition
thereof. All such shares of Series B Preferred Stock shall upon their
cancellation, and upon the filing of an appropriate certificate with the
Secretary of State of the State of Delaware, become authorized but unissued
shares of Preferred Stock, par value $.01 per share, of the Corporation and may
be reissued as part of another series of Preferred Stock, par value $.01 per
share, of the Corporation, subject to the conditions or restrictions on
issuance set forth herein.
Section 5. Liquidation, Dissolution or Winding Up.
(a) If the Corporation shall commence a voluntary case under the
federal bankruptcy laws or any other applicable federal or state bankruptcy,
insolvency or similar law, or consent to the entry of an order for relief in an
involuntary case under such law or to the appointment of a receiver, liquidator,
2
<PAGE>
assignee, custodian, trustee, sequestrator (or other similar official) of the
Corporation or of any substantial part of its property, or make an assignment
for the benefit of its creditors, or admit in writing its inability to pay its
debts generally as they become due, or if a decree or order for relief in
respect of the Corporation shall be detered by a court having jurisdiction in
the premises in an involuntary case under the federal bankruptcy laws or any
other applicable federal or state bankruptcy, insolvency or similar law, or
supporting a receiver, liquidator, assignee, custodian, trustee, sequestrator
(or other similar official) of the Corporation or of any substantial part of its
property, or ordering the winding up or liquidation of its affairs, and any such
decree or order shall be unstayed and in effect for a period of 150 consecutive
days and on account of any such event the Corporation shall liquidate, dissolve
or wind up, or if the Corporation shall otherwise liquidate, dissolve or wind
up, no distribution shall be made (i) to the holders of shares of Series B
Preferred Stock unless, prior thereto, the holders of shares of Series A
Preferred Stock shall have received $100 with respect to each share (as adjusted
for any stock dividends, combinations or splits with respect to such shares)
plus all declared or accumulated but unpaid dividends or such shares, and (ii)
to the holders of shares of Common Stock unless prior thereto the holders of
shares of Series A Preferred Stock shall have received $100 with respect to each
share and the holders of shares of Series B Preferred Stock shall have received
$.01 with respect to each share (as adjusted for any stock
dividends,combinations or splits with respect to such share).
(b) Neither the consolidation, merger, or other business combination
of the Corporation with or into any other Person or Persons nor the sale of all
or substantially all the assets of the Corporation shall be deemed to be a
liquidation, dissolution or winding up of the Corporation for purposes of this
Section 6.
Section 6. Conversion. The holders of the Series B Preferred Stock shall
convert their shares of Series B Preferred Stock as follows:
(a) Mandatory Conversion. As the Conversion Date (as hereinafter
defined) each share of Series B Preferred Stock shall be converted into such
number of fully paid and nonassessable shares of Common Stock as is determined
by applying the Conversion Ratio. The number of shares of Common Stock to be
issued and delivered upon conversion of a share of Series B Preferred Stock is
referred to herein as the "Conversion Ratio." The Conversion Ratio shall be
2,059,105 shares of Common Stock for each share of Series B Preferred Stock.
(b) Conversion Date. For purposes of Section 6 hereof, "Conversion
Date" shall mean the date immediately after the Corporation has filed an
amendment to its Certificate of Incorporation with the Secretary of State of the
3
<PAGE>
State of Delaware increasing the Corporation's authorized shares of Common Stock
to a number sufficient to allow for the exercise of all outstanding Synergistic
warrants and the conversion of all shares of Synergistic Preferred Stock (Series
A Preferred and Series B Preferred).
(c) Mechanics of Conversion. Before any holder of Series B Preferred
Stock shall be entitled to convert the same into shares of Common Stock, he
shall surrender the certificate or certificates therefor, duly endorsed, at the
office of the Corporation or of any transfer agent for the Series B Preferred
Stock, and shall give written notice to the Corporation at its principal
corporate office of the election to convert the same and shall state therein the
name or names in which the certificate or certificates for shares of Common
Stock are to be issued. The Corporation shall, as soon as practicable
thereafter, issue and deliver at such office to such holder of Series B
Preferred Stock, or to the nominee or nominees of such holder, a certificate or
certificates for the number of shares of Common Stock to which such holder shall
be entitled as aforesaid. Such conversion shall be deemed to have been made
immiediately prior to the close of business on the date of such surrender of the
shares of Series B Preferred Stock to be converted, and the person or persons
entitled to receive the shares of Common Stock issuable upon such conversion
shall be treated for all purposes as the record holder or holders of such shares
of Common Stock as of such date.
(d) Permissive Conversion. Any holder of Series B Preferred Stock
shall be entitled to convert the same into shares of Common Stock, at any time,
and in an amount determined based on the Conversion Ratio, to the extent that
any treasury stock of the Corporation is otherwise available for such
conversion.
Section 7. Certain Covenants. Any registered holder of Series B
Preferred Stock may proceed to protect and enforce its rights and the rights of
such holders by any available remedy by proceeding at law or in equity to
protest and enforce any such rights, whether for the specific enforcement of any
provision in this Certificate of Designation or in aid of the exercise of any
power granted herein, or to enforce any other proper remedy.
4
<PAGE>
In WITNESS WHEREOF, a duly authorized officer of the Corporation has
caused this Certificate to be duly executed on this 18th day of September, 1996.
SYNERGISTIC HOLDINGS CORP.
By: /S/ T. Marshall Swartwood
----------------------------
Name: T. Marshall Swartwood
Title: Chairman of the
Board of Directors
Attest:
By: /s/ Thomas M. Swartwood
---------------------------
Name: Thomas M. Swartwood
Title: Secretary
<PAGE>
Exhibit 10.17
EXHIBIT "B"
SUBSCRIPTION AGREEMENT
June 2, 1997
Synergistic Holdings Corp.
50 Laser Court
Hauppauge, New York 11788
Gentlemen:
A. Subscription. The undersigned hereby subscribes for
25,000 shares of Series C Preferred Stock (the "Stock") of Synergistic
Holdings Corp., a Delaware corporation (the "Company").
B. Acceptance of Subscription. The undersigned is tendering
payment for the subscribed for Stock by check in the amount of $25,000 to the
order of Synergistic Holdings Corp. All funds received from the undersigned
for Stock will be held in a segregated account by the Company until June 15,
1997 (the "Closing") or earlier termination of the offering.
This Subscription Agreement, together with the check, should
be delivered to Synergistic Holdings Corp., 50 Laser Court, Hauppauge, New
York 11788, Attention: Salvatore Crimi. If this subscription is rejected by
the Company, the amount tendered by the investor shall be promptly returned in
full to the undersigned by the Company, without interest or deduction, and
this Subscription Agreement shall be null and void and of no further force or
effect. The Company shall have the right to reject this subscription, in whole
or in part.
C. Amendment of Certificate of Incorporation. By no later
than December 31, 1997, the Company hereby agrees to amend its Certificate of
Incorporation to increase the number of shares of the Company's common stock,
$0.01 par value per share (the "Common Stock") which it is authorized to issue
to have available a sufficient number of authorized Common Stock to issue upon
conversion of the Series C Preferred Stock. In the event that such amendment
has not been approved by the Company's Board of Directors and shareholders by
December 31, 1997, the Company agrees to pay the undersigned $1,000,000.00.
D. Representations and Warranties of the Undersigned. The
undersigned hereby represents and warrants to the Company that the undersigned
has received and had the opportunity to review the Company's 10-QSB for the
quarterly period ended January 31, 1997 and certain other financial
information relating to the Company. The undersigned has also had the
opportunity to ask questions of and to receive answers from the Company and
its representatives, with respect to the Company and the terms and conditions
of this offering. The undersigned and the undersigned's representatives, if
any, have been offered access to the books and records of the Company. All
materials and information requested by the undersigned and the undersigned's
representatives, if any, including any information requested to verify any
information furnished, have been made available to the undersigned.
E. Representations and Warranties of the Company.
1. The Company has been duly and validly incorporated
and is validly existing and in good standing as a corporation under the laws of
the State of Delaware. The Company has all requisite power and authority to
enter into this Subscription Agreement and to be bound by the provisions and
conditions hereof.
EXH. -1-
<PAGE>
2. All corporate action required to be taken by the
Company prior to the issuance and
sale of the Stock has been taken; and the Stock when issued shall be duly and
validly issued.
F. Further Documents. The parties agree to execute any and
all such further instruments and documents, and to take any and all such
further actions reasonably required to effectuate this Subscription Agreement
and the intent and purposes hereof.
G. Assignability. This Subscription Agreement is not
transferrable or assignable by the undersigned.
H. Applicable Law. This Subscription Agreement shall be
governed by and construed in accordance with the internal laws of the State of
New York, applicable to contracts made and to be performed wholly within that
state, without regard to the conflict of law rules thereof.
I. Modification. This Subscription Agreement may not be
amended, modified or terminated except by an instrument in writing signed by all
parties hereto.
J. Counterparts. This Subscription Agreement may be executed
through the use of separate signature pages or in any number of counterparts,
and each of such counterparts shall, for all purposes, constitute one
agreement binding on all parties, notwithstanding that all parties are not
signatories to the same counterpart.
IN WITNESS WHEREOF, the undersigned has executed this
Subscription Agreement this 2nd day of June 1997.
MEADOWS MANAGEMENT, LLC
By: /s/ Robert Cohen
-------------------------------
Name: Robert Cohen, O.D.
Title: Managing Member
Tax I.D. No. 11-3368291
ACCEPTED:
SYNERGISTIC HOLDINGS CORP.
By: /s/ Salvatore Crimi
-----------------------------
Name: Salvatore Crimi
Title: Chief Executive Officer
EXH. 2
<PAGE>
Exhibit 10.18
REGISTRATION RIGHTS AGREEMENT
-----------------------------
This REGISTRATION RIGHTS AGREEMENT (the "Agreement") is made
and entered into as of the 2nd day of June, 1997, by and between Synergistic
Holdings Corp., a Delaware corporation (the "Company"), and Meadows
Management, LLC (the "Shareholders").
R E C I T A L S
- - - - - - - -
WHEREAS, the Shareholders are acquiring 25,000 shares of
Series C Preferred Stock par value $.01 per share of the Company (the
"Convertible Stock") at a price of $1.00 per share, pursuant to the terms at a
subscription agreement by and between the Company and the shareholders, dated
as of June 2, 1997 (the "Agreement") which shares of Convertible Stock are
convertible into shares of common stock, par value $.01 per share of the
Company (the "Shares") at a conversion rate of one hundred Shares for each
share of Convertible Stock. The Shareholders of the Series C Preferred Stock
shall be entitled to convert whole shares of Series C Preferred Stock into
shares of the Company's common stock, $.01 par value per share, issuable upon
conversion of the Series C Preferred Stock, as follows: each outstanding share
of Series C Preferred Stock is convertible at any time into one hundred (100)
fully-paid and non-assessable Shares of the Company at a price of $.10 per
common share.
WHEREAS, the Company desires to grant to the Shareholders
certain registration rights relating to the Shares and the Shareholder desires
to obtain such registration rights, subject to the terms and conditions set
forth herein.
NOW, THEREFORE, in consideration of the mutual premises,
representations, warranties and conditions set forth in this Agreement, the
parties hereto, intending to be legally bound, hereby agree as follows:
1. Definitions and References. For purposes of this
Agreement, in addition to the definitions set forth above and elsewhere
herein, the following terms shall have the following meanings:
(a) The term "Commission" shall mean the Securities
and Exchange Commission and any successor agency.
(b) The terms "register", "registered" and "registration"
<PAGE>
shall refer to a registration effected by preparing and filing
a registration statement or similar document in compliance
with the 1933 Act (as herein defined) and the declaration or
ordering of effectiveness of such registration statement or
document.
(c) For purposes of this Agreement, the term
"Registrable Stock" shall mean (i) the Shares, (ii) any
shares of the common stock of the Company, par value $.01
per share (the "Common Stock") issued as (or issuable upon
the conversion or exercise of any warrant, right, option or
other convertible security which is issued as) a dividend or
other distribution with respect to, or in exchange for, or
in replacement of, the Shares, and (iii) any Common Stock
issued by way of a stock split of the Shares. For purposes
of this Agreement, any Registrable Stock shall cease to be
Registrable Stock when (w) a registration statement covering
such Registrable Stock has been declared effective and such
Registrable Stock has been disposed of pursuant to such
effective registration statement, (x) such Registrable Stock
is sold pursuant to Rule 144 (or any similar provision then
in force) under the 1933 Act, (y) such Registrable Stock has
been otherwise transferred, no stop transfer order affecting
such stock is in effect and the Company has delivered new
certificates or other evidences of ownership for such
Registrable Stock not bearing any legend indicating that
such shares have not been registered under the 1933 Act, or
(z) such Registrable Stock is sold by a person in a
transaction in which the rights under the provisions of this
Agreement are not assigned.
(d) The term "Holder" shall mean the Shareholders or
any transferee or assignee thereof to whom the rights under
this Agreement are assigned in accordance with Section 10
hereof, provided that the Shareholders or such transferee or
assignee shall then own the Registrable Stock.
(e) The term "1933 Act" shall mean the Securities Act
of 1933, as amended.
(f) An "affiliate of such Holder" shall mean a person
who controls, is controlled by or is under common control
with such Holder, or the spouse or children (or a trust
exclusively for the benefit of the spouse and/or children)
of such Holder, or, in the case of a Holder that is a
partnership, its partners.
(g) The term "Person" shall mean an individual,
corporation, partnership, trust, limited liability company,
unincorporated organization or association or other entity,
including any governmental entity.
(h) The term "Requesting Holders" shall mean a Holder
or Holders of in the aggregate of at least a majority of the
Registrable Stock.
EXH. 2
<PAGE>
(i) References in this Agreement to any rules,
regulations or forms promulgated by the Commission shall
include rules, regulations and forms succeeding to the
functions thereof, whether or not bearing the same
designation.
2. Demand Registration.
--------------------
(a) Commencing at any time six months after the date
hereof and expiring five (5) years from the date hereof the
Holders representing a majority of Registrable Stock shall
have the right, exercisable by written notice to the
Company, to have the Company prepare and file with the
Commission, a registration statement and such other
documents, including a prospectus, as may be necessary in
other opinion of both counsel for the Company and counsel
for the holders, in order to comply with the provisions of
the 1933 Act, so as to permit a public offering and sale by
such holders of the Registrable Stock. In such event, the
Company shall (x) within ten (10) days thereafter notify in
writing all other Holders of Registrable Stock of such
request, and (y) use its best efforts to cause to be
registered under the 1933 Act all Registrable Stock that the
Requesting Holders and such other Holders have, within
thirty (30) days after the Company has given such notice,
requested be registered. The Requesting Holders shall be
entitled to exercise their rights under this Section 2(a)
once and only once.
(b) If the Requesting Holders intend to distribute
the Registrable Stock covered by their request by means of
an underwritten offering, they shall so advise the Company
as a part of their request pursuant to Section 2(a) above,
and the Company shall include such information in the
written notice referred to in clause (x) of Section 2(a)
above. In such event, the Holder's right to include its
Registrable Stock in such registration shall be conditioned
upon such Holder's participation in such underwritten
offering and the inclusion of such Holder's Registrable
Stock in the underwritten offering to the extent provided in
this Section 2. All Holders proposing to distribute
Registrable Stock through such underwritten offering shall
enter into an underwriting agreement in customary form with
the underwriter or underwriters. Such underwriter or
underwriters shall be selected by a majority in interest of
the Requesting Holders and shall be approved by the Company,
which approval shall not be unreasonably withheld; provided,
that all of the representations and warranties by, and the
other agreements on the part of, the Company to and for the
benefit of such underwriters shall also be made to and for
the benefit of such Holders and that any or all of the
conditions precedent to the obligations of such underwriters
under such underwriting agreement shall be conditions
precedent to the obligations of such Holders; and provided
further, that no Holder shall be required to make any
representations or warranties to or agreements with the
EXH. 3
<PAGE>
Company or the underwriters other than representations,
warranties or agreements regarding such Holder, the
Registrable Stock of such Holder and such Holder's intended
method of distribution and any other representation required
by law or reasonably required by the underwriter.
(c) Notwithstanding any other provision of this
Section 2 to the contrary, if the managing underwriter of an
underwritten offering of the Registrable Stock requested to
be registered pursuant to this Section 2 advises the
Requesting Holders in writing that in its opinion marketing
factors require a limitation of the number of shares to be
underwritten, the Requesting Holders shall so advise all
Holders of Registrable Stock that would otherwise be
underwritten pursuant hereto, and the number of shares of
Registrable Stock that may be included in such underwritten
offering shall be allocated among all such Holders,
including the Requesting Holders, in proportion (as nearly
as practicable) to the amount of Registrable Stock requested
to be included in such registration by each Holder at the
time of filing the registration statement; provided, that in
the event of such limitation of the number of shares of
Registrable Stock to be underwritten, the Holders shall be
entitled to an additional demand registration pursuant to
this Section 2. If any Holder of Registrable Stock
disapproves of the terms of the underwriting, such Holder
may elect to withdraw by written notice to the Company, the
managing underwriter and the Requesting Holders. The
securities so withdrawn shall also be withdrawn from
registration.
(d) The Company shall be obligated to effect and pay
for a total of only one (1) registration pursuant to this
Section 2, unless increased pursuant to Section 2(c) hereof;
provided, that a registration requested pursuant to this
Section 2 shall not be deemed to have been effected for
purposes of this Section 2(d), unless (i) it has been
declared effective by the Commission, (ii) the offering of
Registrable Stock pursuant to such registration is not
subject to any stop order, injunction or other order or
requirement of the Commission (other than any such action
prompted by any act or omission of the Holders), and (iii)
no limitation of the number of shares of Registrable Stock
to be underwritten has been required pursuant to Section
2(c) hereof.
3. Obligations of the Company. Whenever required under
Section 2 to use its best efforts to effect the registration of any
Registrable Stock, the Company shall, as expeditiously as possible:
(a) prepare and file with the Commission, not later
than ninety (90) days after receipt of a request to file a
registration statement with respect to such Registrable
Stock, a registration statement on any form for which the
Company then qualifies or which counsel for the Company
shall deem appropriate and
EXH. 4
<PAGE>
which form shall be available for the sale of such issue of
Registrable Stock in accordance with the intended method of
distribution thereof, and use its best efforts to cause such
registration statement to become effective as promptly as
practicable thereafter; provided that before filing a
registration statement or prospectus or any amendments or
supplements thereto, the Company will (i) furnish to one
counsel selected by the Requesting Holders copies of all
such documents proposed to be filed, and (ii) notify each
such Holder of any stop order issued or threatened by the
Commission and take all reasonable actions required to
prevent the entry of such stop order or to remove it if
entered;
(b) prepare and file with the Commission such
amendments and supplements to such registration statement
and the prospectus used in connection therewith as may be
necessary to keep such registration statement effective for
a period of not less than one hundred twenty (120) days or
such shorter period which will terminate when all
Registrable Stock covered by such registration statement has
been sold (but not before the expiration of the forty (40)
or ninety (90) day period referred to in Section 4(3) of the
1933 Act and Rule 174 thereunder, if applicable), and comply
with the provisions of the 1933 Act with respect to the
disposition of all securities covered by such registration
statement during such period in accordance with the intended
methods of disposition by the sellers thereof set forth in
such registration statement;
(c) furnish to each Holder and any underwriter of
Registrable Stock to be included in a registration statement
copies of such registration statement as filed and each
amendment and supplement thereto (in each case including all
exhibits thereto), the prospectus included in such
registration statement (including each preliminary
prospectus) and such other documents as such Holder may
reasonably request in order to facilitate the disposition of
the Registrable Stock owned by such Holder;
(d) use its best efforts to register or qualify such
Registrable Stock under such other securities or blue sky
laws of such jurisdictions as any selling Holder or any
underwriter of Registrable Stock reasonably requests, and do
any and all other acts which may be reasonably necessary or
advisable to enable such Holder to consummate the
disposition in such jurisdictions of the Registrable Stock
owned by such Holder; provided that the Company will not be
required to (i) qualify generally to do business in any
jurisdiction where it would not otherwise be required to
qualify but for this Section 3(d) hereof, (ii) subject
itself to taxation in any such jurisdiction, or (iii)
consent to general service of process in any such
jurisdiction;
(e) use its best efforts to cause the Registrable Stock
EXH. 5
<PAGE>
covered by such registration statement to be registered with
or approved by such other governmental agencies or other
authorities as may be necessary by virtue of the business and
operations of the Company to enable the selling Holders
thereof to consummate the disposition of such Registrable
Stock;
(f) notify each selling Holder of such Registrable
Stock and any underwriter thereof, at any time when a
prospectus relating thereto is required to be delivered
under the 1933 Act (even if such time is after the period
referred to in Section 3(b)), of the happening of any event
as a result of which the prospectus included in such
registration statement contains an untrue statement of a
material fact or omits to state any material fact required
to be stated therein or necessary to make the statements
therein in light of the circumstances being made not
misleading, and prepare a supplement or amendment to such
prospectus so that, as thereafter delivered to the
purchasers of such Registrable Stock, such prospectus will
not contain an untrue statement of a material fact or omit
to state any material fact required to be stated therein or
necessary to make the statements therein in light of the
circumstances being made not misleading;
(g) make available for inspection by any selling
Holder, any underwriter participating in any disposition
pursuant to such registration statement, and any attorney,
accountant or other agent retained by any such seller or
underwriter (collectively, the "Inspectors"), all financial
and other records, pertinent corporate documents and
properties of the Company (collectively, the "Records"), and
cause the Company's officers, directors and employees to
supply all information reasonably requested by any such
Inspector, as shall be reasonably necessary to enable them
to exercise their due diligence responsibility, in
connection with such registration statement. Records or
other information which the Company determines, in good
faith, to be confidential and which it notifies the
Inspectors are confidential shall not be disclosed by the
Inspectors unless (i) the disclosure of such Records or
other information is necessary to avoid or correct a
misstatement or omission in the registration statement, or
(ii) the release of such Records or other information is
ordered pursuant to a subpoena or other order from a court
of competent jurisdiction. Each selling Holder shall, upon
learning that disclosure of such Records or other
information is sought in a court of competent jurisdiction,
give notice to the Company and allow the Company, at the
Company's expense, to undertake appropriate action to
prevent disclosure of the Records or other information
deemed confidential;
(h) furnish, at the request of any Requesting Holder,
on the date that such shares of Registrable Stock are
delivered to the underwriters for sale pursuant to such
registration or, if such Registrable Stock is not being sold
through underwriters, on the date that the registration
statement with respect to such
EXH. 6
<PAGE>
shares of Registrable Stock becomes effective, (1) a signed
opinion, dated such date, of the legal counsel representing
the Company for the purposes of such registration, addressed
to the underwriters, if any, and if such Registrable Stock
is not being sold through underwriters, then to the
Requesting Holders as to such matters as such underwriters
or the Requesting Holders, as the case may be, may
reasonably request and as would be customary in such a
transaction; and (2) a letter dated such date, from the
independent certified public accountants of the Company,
addressed to the underwriters, if any, and if such
Registrable Stock is not being sold through underwriters,
then to the Requesting Holders and, if such accountants
refuse to deliver such letter to such Holder, then to the
Company (i) stating that they are independent certified
public accountants within the meaning of the 1933 Act and
that, in the opinion of such accountants, the financial
statements and other financial data of the Company included
in the registration statement or the prospectus, or any
amendment or supplement thereto, comply as to form in all
material respects with the applicable accounting
requirements of the 1933 Act, and (ii) covering such other
financial matters (including information as to the period
ending not more than five (5) business days prior to the
date of such letter) with respect to the registration in
respect of which such letter is being given as the
Requesting Holders may reasonably request and as would be
customary in such a transaction;
(i) enter into customary agreements (including if the
method of distribution is by means of an underwriting, an
underwriting agreement in customary form) and take such
other actions as are reasonably required in order to
expedite or facilitate the disposition of the Registrable
Stock to be so included in the registration statement;
(j) otherwise use its best efforts to comply with all
applicable rules and regulations of the Commission, and make
available to its security holders, as soon as reasonably
practicable, but not later than eighteen (18) months after
the effective date of the registration statement, an
earnings statement covering the period of at least twelve
(12) months beginning with the first full month after the
effective date of such registration statement, which
earnings statements shall satisfy the provisions of Section
11(a) of the 1933 Act; and
(k) use its best efforts to cause all such
Registrable Stock to be listed on the New York Stock
Exchange and/or any other securities exchange on which
similar securities issued by the Company are then listed, or
traded on the National Association of Securities Dealers
Automated Quotations System, if such listing or trading is
then permitted under the rules of such exchange or system,
respectively.
EXH. 7
<PAGE>
The Company may require each selling Holder of Registrable
Stock as to which any registration is being effected to furnish to the Company
such information regarding the distribution of such Registrable Stock as the
Company may from time to time reasonably request in writing.
Each Holder agrees that, upon receipt of any notice from the
Company of the happening of any event of the kind described in Section 3(f)
hereof, such Holder will forthwith discontinue disposition of Registrable
Stock pursuant to the registration statement covering such Registrable Stock
until such Holder's receipt of the copies of the supplemented or amended
prospectus contemplated by Section 3(f) hereof, and, if so directed by the
Company, such Holder will deliver to the Company (at the Company's expense)
all copies, other than permanent file copies then in such Holder's possession,
of the prospectus covering such Registrable Stock current at the time of
receipt of such notice. In the event the Company shall give any such notice,
the Company shall extend the period during which such registration statement
shall be maintained effective pursuant to this Agreement (including the period
referred to in Section 3(b)) by the number of days during the period from and
including the date of the giving of such notice pursuant to Section 3(f)
hereof to and including the date when each selling Holder of Registrable Stock
covered by such registration statement shall have received the copies of the
supplemented or amended prospectus contemplated by Section 3(f) hereof.
4. Piggyback Registration. If, at any time on or before May
1, 2004 (the "Expiration Date"), the Company determines that it shall file a
registration statement under the 1933 Act (other than (i) a registration
statement on a Form S-4 or S-8 or filed in connection with an exchange offer,
or (ii) an offering of securities solely to the Company's existing
stockholders on any form that would also permit the registration of the
Registrable Stock, the Company shall promptly give each Holder written notice
of such determination setting forth the date on which the Company proposes to
file such registration statement, which date shall be no earlier than forty
(40) days from the date of such notice, and advising each Holder of its right
to have Registrable Stock included in such registration. Upon the written
request of any Holder received by the Company no later than twenty (20) days
after the date of the Company's notice, the Company shall use its best efforts
to cause to be registered under the 1933 Act all of the Registrable Stock that
each such Holder has so requested to be registered. If, in the written opinion
of the managing underwriter or underwriters (or, in the case of a
non-underwritten offering, in the written opinion of the placement agent, or
if there is none, the Company), the total amount of such securities to be so
registered, including such Registrable Stock, will exceed the maximum amount
of the Company's securities which can be marketed (i) at a price reasonably
related to the then current market value of such securities, or (ii) without
otherwise materially and adversely affecting the entire offering, then the
amount of Registrable Stock to be offered for the accounts of Holders shall be
reduced pro rata to the extent necessary to reduce the total amount of
securities to be included in such offering to the recommended amount;
provided, that if securities are being offered for the account of other
Persons as well as the Company, such reduction shall not represent a greater
fraction of the number of securities
EXH. 8
<PAGE>
intended to be offered by Holders than the fraction of similar reductions
imposed on such other Persons other than the Company over the amount of
securities they intended to offer.
5. Holdback Agreement - Restrictions on Public Sale by Holder.
-----------------------------------------------------------
(a) To the extent not inconsistent with applicable
law, each Holder whose Registrable Stock is included in a
registration statement agrees not to effect any public sale
or distribution of the issue being registered or a similar
security of the Company, or any securities convertible into
or exchangeable or exercisable for such securities,
including a sale pursuant to Rule 144 under the 1933 Act,
during the fourteen (14) days prior to, and during the
ninety (90) day period beginning on, the effective date of
such registration statement (except as part of the
registration), if and to the extent requested by the Company
in the case of a non-underwritten public offering or if and
to the extent requested by the managing underwriter or
underwriters in the case of an underwritten public offering.
(b) Restrictions on Public Sale by the Company and
Others. The Company agrees (i) not to effect any public sale
or distribution of any securities similar to those being
registered, or any securities convertible into or
exchangeable or exercisable for such securities, during the
fourteen (14) days prior to, and during the ninety (90) day
period beginning on, the effective date of any registration
statement in which Holders are participating (except as part
of such registration), if and to the extent requested by the
Holders in the case of a non-underwritten public offering or
if and to the extent requested by the managing underwriter
or underwriters in the case of an underwritten public
offering; and (ii) that any agreement entered into after the
date of this Agreement pursuant to which the Company issues
or agrees to issue any securities convertible into or
exchangeable or exercisable for such securities (other than
pursuant to an effective registration statement) shall
contain a provision under which holders of such securities
agree not to effect any public sale or distribution of any
such securities during the periods described in (i) above,
in each case including a sale pursuant to Rule 144 under the
1933 Act.
6. Expenses of Registration. All expenses incurred in
connection with each registration pursuant to Sections 2 and 4 of this
Agreement, excluding underwriters' discounts and commissions, but including,
without limitation, all registration, filing and qualification fees, word
processing, duplicating, printers' and accounting fees (including the expenses
of any special audits or "cold comfort" letters required by or incident to
such performance and compliance), exchange listing fees or National
Association of Securities Dealers fees, messenger and delivery expenses, all
fees and expenses of complying with securities or blue sky laws, fees and
disbursements of counsel for the Company, and the reasonable fees and
disbursements of one (1) counsel for the selling Holders shall be paid by the
Company. The selling Holders shall
EXH. 9
<PAGE>
bear and pay the underwriting commissions and discounts applicable to the
Registrable Stock offered for their account in connection with any
registrations, filings and qualifications made pursuant to this Agreement.
7. Indemnification and Contribution.
---------------------------------
(a) Indemnification by the Company. The Company
agrees to indemnify, to the full extent permitted by law,
each Holder, its officers, directors and agents and each
Person who controls such Holder (within the meaning of the
1933 Act) against all losses, claims, damages, liabilities
and expenses caused by any untrue or alleged untrue
statement of material fact contained in any registration
statement, prospectus or preliminary prospectus or any
omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make the
statement therein (in case of a prospectus or preliminary
prospectus, in the light of the circumstances under which
they were made) not misleading. The Company will also
indemnify any underwriters of the Registrable Stock, their
officers and directors and each Person who controls such
underwriters (within the meaning of the 1933 Act) to the
same extent as provided above with respect to the
indemnification of the selling Holders.
(b) Indemnification by Holders. In connection with
any registration statement in which a Holder is
participating, each such Holder will furnish to the Company
in writing such information with respect to such Holder as
the Company reasonably requests for use in connection with
any such registration statement or prospectus and agrees to
indemnify, to the extent permitted by law, the Company, its
directors and officers and each Person who controls the
Company (within the meaning of the 1933 Act) against any
losses, claims, damages, liabilities and expenses resulting
from any untrue or alleged untrue statement of material fact
or any omission or alleged omission of a material fact
required to be stated in the registration statement,
prospectus or preliminary prospectus or any amendment
thereof or supplement thereto or necessary to make the
statements therein (in the case of a prospectus or
preliminary prospectus, in the light of the circumstances
under which they were made) not misleading, to the extent,
but only to the extent, that such untrue statement or
omission is contained in any information with respect to
such Holder so furnished in writing by such Holder.
Notwithstanding the foregoing, the liability of each such
Holder under this Section 7(b) shall be limited to an amount
equal to the initial public offering price of the
Registrable Stock sold by such Holder, unless such liability
arises out of or is based on willful misconduct of such
Holder.
(c) Conduct of Indemnification Proceedings. Any Person
entitled to indemnification hereunder agrees to give prompt
written notice to the
EXH. 10
<PAGE>
indemnifying party after the receipt by such Person of any
written notice of the commencement of any action, suit,
proceeding or investigation or threat thereof made in
writing for which such Person will claim indemnification or
contribution pursuant to this Agreement and, unless in the
reasonable judgment of such indemnified party, a conflict of
interest may exist between such indemnified party and the
indemnifying party with respect to such claim, permit the
indemnifying party to assume the defense of such claims with
counsel reasonably satisfactory to such indemnified party.
Whether or not such defense is assumed by the indemnifying
party, the indemnifying party will not be subject to any
liability for any settlement made without its consent (but
such consent will not be unreasonably withheld). Failure by
such Person to provide said notice to the indemnifying party
shall itself not create liability except to the extent of
any injury caused thereby. No indemnifying party will
consent to entry of any judgment or enter into any
settlement which does not include as an unconditional term
thereof the giving by the claimant or plaintiff to such
indemnified party of a release from all liability in respect
of such claim or litigation. If the indemnifying party is
not entitled to, or elects not to, assume the defense of a
claim, it will not be obligated to pay the fees and expenses
of more than one (1) counsel with respect to such claim,
unless in the reasonable judgment of any indemnified party a
conflict of interest may exist between such indemnified
party and any other such indemnified parties with respect to
such claim, in which event the indemnifying party shall be
obligated to pay the fees and expenses of such additional
counsel or counsels.
(d) Contribution. If for any reason the indemnity
provided for in this Section 7 is unavailable to, or is
insufficient to hold harmless, an indemnified party, then
the indemnifying party shall contribute to the amount paid
or payable by the indemnified party as a result of such
losses, claims, damages, liabilities or expenses (i) in such
proportion as is appropriate to reflect the relative
benefits received by the indemnifying party on the one hand
and the indemnified party on the other, or (ii) if the
allocation provided by clause (i) above is not permitted by
applicable law, or provides a lesser sum to the indemnified
party than the amount hereinafter calculated, in such
proportion as is appropriate to reflect not only the
relative benefits received by the indemnifying party on the
one hand and the indemnified party on the other but also the
relative fault of the indemnifying party and the indemnified
party as well as any other relevant equitable
considerations. The relative fault of such indemnifying
party and indemnified parties shall be determined by
reference to, among other things, whether any action in
question, including any untrue or alleged untrue statement
of a material fact or omission or alleged omission to state
a material fact, has been made by, or relates to information
supplied by, such indemnifying party or indemnified parties;
and the parties' relative intent, knowledge, access to
information and opportunity to
EXH. 11
<PAGE>
correct or prevent such action. The amount paid or payable
by a party as a result of the losses, claims, damages,
liabilities and expenses referred to above shall be deemed
to include, subject to the limitations set forth in Section
7(c), any legal or other fees or expenses reasonably
incurred by such party in connection with any investigation
or proceeding.
The parties hereto agree that it would not be just
and equitable if contribution pursuant to this Section 7 (d)
were determined by pro rata allocation or by any other
method of allocation which does not take account of the
equitable considerations referred to in the immediately
preceding paragraph. No Person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of
the 1933 Act) shall be entitled to contribution from any
Person who was not guilty of such fraudulent
misrepresentation.
If indemnification is available under this Section 7,
the indemnifying parties shall indemnify each indemnified
party to the full extent provided in Sections 7(a) and (b)
without regard to the relative fault of said indemnifying
party or indemnified party or any other equitable
consideration provided for in this Section 7.
8. Participation in Underwritten Registrations. No Holder
may participate in any underwritten registration hereunder unless such Holder
(a) agrees to sell such Holder's securities on the basis provided in any
underwriting arrangements approved by the Holders entitled hereunder to
approve such arrangements, and (b) completes and executes all questionnaires,
powers of attorney, indemnities, underwriting agreements and other documents
reasonably required under the terms of such underwriting arrangements.
9. Rule 144. The Company covenants that it will file the
reports required to be filed by it under the 1933 Act and the Securities
Exchange Act of 1934, as amended, and the rules and regulations adopted by the
Commission thereunder; and it will take such further action as any Holder may
reasonably request, all to the extent required from time to time to enable
such Holder to sell Registrable Stock without registration under the 1933 Act
within the limitation of the exemptions provided by (a) Rule 144 under the
1933 Act, as such Rule may be amended from time to time, or (b) any similar
rule or regulation hereafter adopted by the Commission. Upon the request of
any Holder, the Company will deliver to such Holder a written statement as to
whether it has complied with such requirements.
10. Transfer of Registration Rights. The registration rights
of any Holder under this Agreement with respect to any Registerable Stock may
be transferred to any transferee of such Registrable Stock; provided that such
transfer may otherwise be effected in accordance with applicable securities
laws; provided further, that the transferring Holder shall give the Company
written notice at or prior to the time of such transfer stating the name and
address of the
EXH. 12
<PAGE>
transferee and identifying the securities with respect to which the rights
under this Agreement are being transferred; provided further, that such
transferee shall agree in writing, in form and substance satisfactory to the
Company, to be bound as a Holder by the provisions of this Agreement; and
provided further, that such assignment shall be effective only if immediately
following such transfer the further disposition of such securities by such
transferee is restricted under the 1933 Act. Except as set forth in this
Section 10, no transfer of Registrable Stock shall cause such Registrable
Stock to lose such status.
11. Miscellaneous.
--------------
(a) No Inconsistent Agreements. The Company will not
hereafter enter into any agreement with respect to its
securities which is inconsistent with the rights granted to
the Holders in this Agreement.
(b) Remedies. Each Holder, in addition to being
entitled to exercise all rights granted by law, including
recovery of damages, will be entitled to specific
performance of its rights under this Agreement. The Company
agrees that monetary damages would not be adequate
compensation for any loss incurred by reason of a breach by
it of the provisions of this Agreement and hereby agrees to
waive (to the extent permitted by law) the defense in any
action for specific performance that a remedy of law would
be adequate.
(c) Amendments and Waivers. The provisions of this
Agreement may not be amended, modified or supplemented, and
waivers or consents to departures from the provisions hereof
may not be given unless the Company has obtained the written
consent of the Holders of at least a majority of the
Registrable Stock then outstanding affected by such
amendment, modification, supplement, waiver or departure.
(d) Successors and Assigns. Except as otherwise
expressly provided herein, the terms and conditions of this
Agreement shall inure to the benefit of and be binding upon
the respective successors and assigns of the parties hereto.
Nothing in this Agreement, express or implied, is intended
to confer upon any Person other than the parties hereto or
their respective successors and assigns any rights,
remedies, obligations, or liabilities under or by reason of
this Agreement, except as expressly provided in this
Agreement.
(e) Governing Law. This Agreement shall be governed
by and construed in accordance with the internal laws of the
State of New York applicable to contracts made and to be
performed wholly within that state, without regard to the
conflict of law rules thereof.
EXH. 13
<PAGE>
(f) Counterparts. This Agreement may be executed in
two or more counterparts, each of which shall be deemed an
original, but all of which together shall constitute one and
the same instrument.
(g) Headings. The headings in this Agreement are used
for convenience of reference only and are not to be
considered in construing or interpreting this Agreement.
(h) Notices. Any notice required or permitted under
this Agreement shall be given in writing and shall be
delivered in person or by telecopy or by overnight courier
guaranteeing no later than second business day delivery,
directed to (i) the Company at the address set forth below
its signature hereof or (ii) to a Holder at the address
therefor as set forth in the Company's records. Any party
may change its address for notice by giving ten (10) days
advance written notice to the other parties. Every notice or
other communication hereunder shall be deemed to have been
duly given or served on the date on which personally
delivered, or on the date actually received, if sent by
telecopy or overnight courier service, with receipt
acknowledged.
(i) Severability. In the event that any one or more
of the provisions contained herein, or the application
thereof in any circumstances, is held invalid, illegal or
unenforceable in any respect for any reason, the validity,
legality and enforceability of any such provision in every
other respect and of the remaining provisions contained
herein shall not be in any way impaired thereby, it being
intended that all of the rights and privileges of the
Holders shall be enforceable to the fullest extent permitted
by law.
(j) Entire Agreement. This Agreement is intended by
the parties as a final expression of their agreement and
intended to be a complete and exclusive statement of the
agreement and understanding of the parties hereto in respect
of the subject matter contained herein. There are no
restrictions, promises, warranties or undertakings other
than those set forth or referred to herein. This Agreement
supersedes all prior agreements and understandings between
the parties with respect to such subject matter.
(k) Enforceability. This Agreement shall remain in
full force and effect notwithstanding any breach or
purported breach of, or relating to, the Purchase Agreement.
EXH. 14
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date first above written.
SYNERGISTIC HOLDINGS CORP.
By:_________________________________________
Name: Salvatore Crimi
Title: Chairman and Chief Executive Officer
MEADOWS MANAGEMENT, LLC
By:_________________________________________
Name: Robert Cohen, O.D.
Title: Managing Member
EXH. 15
<PAGE>
EXHIBIT 11 - COMPUTATION OF PER SHARE EARNINGS
SYNERGISTIC HOLDINGS CORP. AND SUBSIDIARIES
AND AFFILIATE
SUPPLEMENTAL NET INCOME PER COMMON SHARE
Year Ended April 30,
------------------------------------------
1997 1996 1995
---------- ---------- ----------
Weighted Average
Common Stock Outstanding $ 9,187,260 $ 9,187,260 $ 9,187,260
Series B Preferred
Automatically Converted 2,059,106 2,059,106 2,059,106
----------- ----------- -----------
Supplemental Weighted
Average Shares $11,246,366 $11,246,366 $11,246,366
=========== =========== ===========
Supplemental net loss $(2,149,048) $(2,398,913) $ (93,737)
=========== =========== ===========
Supplemental net loss
per common share $ (0.19) $ (0.21) $ (0.01)
=========== =========== ===========
<PAGE>
Exhibit 21
Subsidiary
Salex Holding Corp.
EXH. 1
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> APR-30-1997
<PERIOD-START> MAY-01-1996
<PERIOD-END> APR-30-1997
<CASH> 125,769
<SECURITIES> 0
<RECEIVABLES> 3,639,589
<ALLOWANCES> 188,000
<INVENTORY> 0
<CURRENT-ASSETS> 3,654,621
<PP&E> 3,233,993
<DEPRECIATION> 1,487,873
<TOTAL-ASSETS> 6,846,668
<CURRENT-LIABILITIES> 7,583,686
<BONDS> 0
0
737,397
<COMMON> 91,873
<OTHER-SE> (2,357,391)
<TOTAL-LIABILITY-AND-EQUITY> 6,846,688
<SALES> 22,958,814
<TOTAL-REVENUES> 22,958,814
<CGS> 18,642,887
<TOTAL-COSTS> 18,642,887
<OTHER-EXPENSES> 5,021,757
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 379,656
<INCOME-PRETAX> (1,085,486)
<INCOME-TAX> 1,062
<INCOME-CONTINUING> (1,086,548)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,086,548)
<EPS-PRIMARY> (0.19)
<EPS-DILUTED> 0
</TABLE>
