-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, c75hlOpGGFvpHrfNtL/24GX7OFnD2bCzCl1XPMoeA62njOxKWFzKb3DFtJZ40+U9 RrpBHGELyftZlzDb250gjA== 0000950130-95-000148.txt : 19950608 0000950130-95-000148.hdr.sgml : 19950608 ACCESSION NUMBER: 0000950130-95-000148 CONFORMED SUBMISSION TYPE: 424B3 PUBLIC DOCUMENT COUNT: 1 FILED AS OF DATE: 19950131 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: SYNETIC INC CENTRAL INDEX KEY: 0000850436 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-DRUG STORES AND PROPRIETARY STORES [5912] IRS NUMBER: 222975182 STATE OF INCORPORATION: DE FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 424B3 SEC ACT: 1933 Act SEC FILE NUMBER: 033-88814 FILM NUMBER: 95504347 BUSINESS ADDRESS: STREET 1: 100 SUMMIT AVE CITY: MONTVALE STATE: NJ ZIP: 07645 BUSINESS PHONE: 2013585300 MAIL ADDRESS: STREET 1: 100 SUMMIT AVENUE CITY: MONTVALE STATE: NJ ZIP: 07645 424B3 1 PROSPECTUS DATED 1/27/95 Rule 424(b)(3) Registration No. 33-88814 PROSPECTUS 1,000,000 SHARES LOGO SYNETIC, INC. COMMON STOCK ----------- On January 27, 1995, Synetic, Inc. ("Synetic" or the "Company") called for redemption on February 13, 1995 (the "Redemption Date") all of its 7% Convertible Subordinated Debentures Due 2001 (the "Debentures") at a redemption price of $1,040 for each $1,000 principal amount of Debentures, plus accrued interest of $14 per $1,000 principal amount of Debentures from December 1, 1994 to the Redemption Date, for a total amount payable of $1,054 for each $1,000 principal amount of Debentures (the "Redemption Price"). The Debentures are convertible into shares of the Company's common stock, par value $0.01 per share (the "Common Stock"), at a conversion price of $20.40 per share, or 49.02 shares for each $1,000 principal amount of Debentures. Cash will be paid for fractional shares of Common Stock, and no payment or adjustment will be made on conversion of any Debenture for interest accrued thereon or for dividends on any Common Stock issued. The conversion right expires at 5:00 p.m., New York City time, on February 10, 1995 (the "Conversion Expiration Date"), which is the last business day prior to the Redemption Date. On and after the Redemption Date, registered holders of the Debentures ("Holders") shall be entitled only to the Redemption Price and interest shall cease to accrue. The Common Stock is listed on the Nasdaq National Market. On January 26, 1995, the closing price of the Company's Common Stock on the Nasdaq National Market was $23 1/16 per share. The Company has entered into a standby purchase agreement (the "Standby Agreement") with Smith Barney Inc. and PaineWebber Incorporated (together, the "Purchasers") pursuant to which the Purchasers have agreed, subject to certain conditions, to purchase from the Company all of the shares of Common Stock (the "Shares") that otherwise would have been issuable upon conversion of up to $18,250,000 aggregate principal amount of the Debentures that are either (i) duly surrendered for redemption or (ii) not duly surrendered for conversion by the Conversion Expiration Date or for redemption by the Redemption Date by persons other than the Purchasers (the Debentures referred to above in clauses (i) and (ii) are hereinafter referred to as the "Redeemed Debentures"). In addition, an institutional investor has agreed with the Company to surrender for conversion into Common Stock the $22,050,000 aggregate principal amount of Debentures it holds as of the date of this Prospectus. The aggregate purchase price paid by the Purchasers for the Shares will be an amount equal to the aggregate Redemption Price of the Redeemed Debentures. The proceeds from the sale will be used by the Company to pay the aggregate Redemption Price of the Redeemed Debentures. In addition, the Purchasers may purchase Debentures in the open market or otherwise on or prior to the Conversion Expiration Date and have agreed to convert into Common Stock all the Debentures which they own on the Conversion Expiration Date, but will not be compensated by the Company upon any subsequent sale of such shares of Common Stock. This Prospectus covers 894,607 shares of Common Stock issuable upon conversion of $18,250,000 aggregate principal amount of Redeemed Debentures and 105,393 shares of Common Stock issuable upon conversion of Debentures purchased in the open market or otherwise by the Purchasers for which such Purchasers may be required to deliver a prospectus upon resale of such shares. See "Standby Arrangements" for a description of the Purchasers' compensation arrangements with the Company. The Purchasers have not been retained with respect to the redemption of the Debentures or the issuance of Common Stock to Holders who elect to surrender their Debentures for conversion or to solicit conversions of the Debentures and will receive no remuneration in connection therewith. Prior to and after the Redemption Date, the Purchasers may offer to the public shares of Common Stock, including shares acquired through conversion of Debentures purchased by the Purchasers as described above, at prices set by them from time to time and to dealers at such prices less a selling concession to be determined by the Purchasers. Prior to the Redemption Date, it is intended that such prices will not be increased more frequently than once in any day and will not exceed the greater of the last sale or current asked price of the Common Stock on the Nasdaq National Market, plus applicable dealers' commissions. Sales of Common Stock by the Purchasers may be made on the Nasdaq National Market, in block trades, in the over-the-counter market, in privately negotiated transactions or otherwise, from time to time. In effecting such sales, the Purchasers may realize profits or incur losses independent of the compensation referred to under "Standby Arrangements." Any Common Stock so offered by the Purchasers will be subject to prior sale, to receipt and acceptance by them and to approval of certain legal matters by legal counsel. The Purchasers reserve the right to reject any order in whole or in part and withdraw, cancel or modify the offer without notice. The Company has agreed to indemnify the Purchasers against, and to provide contribution with respect to, certain liabilities, including liabilities arising under the Securities Act of 1933, as amended. See "Standby Arrangements." The Purchasers have agreed to remit to the Company 50% of the net profits realized by the Purchasers on sales of Shares purchased from the Company pursuant to the Standby Agreement described under "Standby Arrangements" to the extent such Shares were purchased to fund redemptions of Redeemed Debentures that were not timely surrendered for conversion or redemption. THIS OFFERING INVOLVES A HIGH DEGREE OF RISK. SEE "RISK FACTORS" FOR A DISCUSSION OF CERTAIN FACTORS WHICH SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK OFFERED HEREBY. ----------- THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. ----------- SMITH BARNEY INC. PAINEWEBBER INCORPORATED The date of this Prospectus is January 27, 1995. IN CONNECTION WITH THIS OFFERING, THE PURCHASERS MAY EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE DEBENTURES OR THE COMMON STOCK AT LEVELS ABOVE THOSE WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. IN CONNECTION WITH THIS OFFERING, THE PURCHASERS MAY ENGAGE IN PASSIVE MARKET MAKING TRANSACTIONS IN THE COMMON STOCK ON THE NASDAQ NATIONAL MARKET IN ACCORDANCE WITH RULE 10B-6A UNDER THE SECURITIES EXCHANGE ACT OF 1934. SEE "STANDBY ARRANGEMENTS." AVAILABLE INFORMATION The Company is subject to the informational requirements of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance therewith, files reports, proxy and information statements and other information with the Commission. Such reports, proxy and information statements and other information can be inspected and copied at the Public Reference Section of the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the regional offices of the Commission located at Seven World Trade Center, 13th Floor, New York, New York 10048 and Citicorp Center, Suite 1400, 500 West Madison Street, Chicago, Illinois 60661. Copies may also be obtained from the Public Reference Section of the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. Such reports, proxy and information statements and other information can also be inspected at the offices of the National Association of Securities Dealers, Inc., 1735 K Street, N.W., Washington, D.C. 20006. The Company has filed with the Securities and Exchange Commission (the "Commission") in Washington, D.C., a Registration Statement on Form S-3 (together with all amendments and exhibits and schedules thereto, hereinafter referred to as the "Registration Statement") under the Securities Act of 1933, as amended (the "Securities Act"), with respect to the Common Stock offered by this Prospectus. This Prospectus, which constitutes a part of the Registration Statement, does not contain all of the information set forth in the Registration Statement, certain parts of which are omitted in accordance with the Rules and Regulations of the Commission. For further information with respect to the Company and the Common Stock, reference is made to the Registration Statement. Statements made in the Prospectus as to the contents of any contract, agreement or other document referred to are not necessarily complete; with respect to each such contract, agreement or other document filed as an exhibit to the Registration Statement, reference is made to the exhibit for a complete description of the matter involved, and each such statement shall be deemed qualified in its entirety by such reference. INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE The following documents filed by the Company with the Commission (File No. 0- 17822) pursuant to the Exchange Act are hereby incorporated by reference: (i) the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 1994, as amended by Form 10-K/A dated October 28, 1994 (as so amended, the "1994 10-K"); (ii) the Company's Quarterly Reports on Form 10-Q for the fiscal quarter ended September 30, 1994 and for the fiscal quarter ended December 31, 1994 (the "Second Quarter Form 10-Q"); and (iii) the Company's Current Reports on Form 8-K filed with the Commission on August 16, 1994, September 16, 1994, December 29, 1994 and January 27, 1995. The Form 8-K filed with the Commission on January 27, 1995 is hereafter referred to as the "1995 Form 8-K." All documents filed by the Company pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date hereof and prior to the termination of the offering of Common Stock made hereby shall be deemed to be incorporated by reference herein and to be a part hereof from the date of filing of such documents. Any statement contained herein or in a document incorporated or deemed to be incorporated by reference herein shall be deemed to be modified or superseded for purposes of this Prospectus to the extent that a statement contained herein or in any other subsequently filed document which also is or is deemed to be incorporated or incorporated by reference herein modifies or supersedes such statement. Any such statement so modified or superseded shall not be deemed, except as so modified or superseded, to constitute a part of this Prospectus. The Company will provide, without charge, upon written or oral request, to each person to whom a copy of this Prospectus is delivered, a copy of any and all the documents incorporated by reference in the Registration Statement (not including exhibits to such documents, unless such exhibits are specifically incorporated by reference into such documents). Requests for such information should be directed to Victor L. Marrero, Vice President--Finance, Synetic, Inc., 669 River Drive, Elmwood Park, New Jersey 07407, telephone (201) 703- 3400. 2 PROSPECTUS SUMMARY The following summary information is qualified in its entirety by, and should be read in conjunction with, the more detailed information and financial statements, including the notes thereto, appearing in the documents incorporated herein by reference or elsewhere in this Prospectus. Unless otherwise indicated by the context, all references in this Prospectus to the "Company" include, collectively, the Company and its subsidiaries. For purposes of this Prospectus, references to 100% Converted mean that $80,500,000 aggregate principal amount of Debentures is converted into shares of Common Stock and references to 50% Converted mean that $40,300,000 aggregate principal amount of Debentures is converted into shares of Common Stock. THE COMPANY The Company intends to pursue an acquisition program pursuant to which it will seek to effect one or more acquisitions of or business combinations with businesses that the Company believes have significant growth potential. The Company expects that the growth potential from such transactions may come from, among other factors, its ability to (i) improve the financial and operating performance of an acquired business, (ii) redefine the business strategy of an acquired business to enhance its market position or gain entry to new markets for its products or services or (iii) enhance the value of an acquired business by the acquisition of similar or complementary businesses. The Company intends initially to concentrate its acquisition efforts in the health care industry but such emphasis would not limit in any manner its ability to pursue acquisition opportunities in other industries. The Company's acquisition program could result in a substantial change in the business, operations and financial condition of the Company. As of the date of this Prospectus, the Company has not yet entered into any agreement or understanding with a prospective acquisition candidate. The success of the Company's acquisition program will depend on, among other things, the availability of acquisition candidates, the availability of funds to finance acquisitions, and the availability of management resources to oversee the operation of acquired businesses. As of the date of this Prospectus, the Company had approximately $135,000,000 of cash and marketable securities available for acquisitions and other corporate purposes. This amount will be reduced by any payments made by the Company to fund the redemption of the Debentures to the extent such payments exceed the amounts provided by the Purchasers under the Standby Agreement. No assurance can be given that the Company will succeed in consummating any acquisitions or that the Company will be able to successfully manage or integrate any business that it acquires. The future growth of the Company will depend primarily on its ability to consummate one or more such acquisitions and to operate such businesses successfully. Martin J. Wygod, Chairman of the Board of the Company, has indicated that he intends to assist the Company in pursuing its acquisition program by bringing opportunities for potential acquisitions to the Company. In addition, Mr. Wygod has indicated that he is willing to assist the Company in negotiating such acquisitions and in seeking financing in the event any such acquisition were to be financed externally by the Company. Porex Technologies Corp. (together with its subsidiaries, "Porex"), a wholly owned subsidiary of the Company, designs, manufactures and distributes porous and solid plastic components and products used in health care, industrial and consumer applications. Porex's principal products, which incorporate porous plastics, are used to filter, drain, vent or control the flow of fluids or gases. A large percentage of Porex's products are sold to other manufacturers for incorporation into their products. The Company believes Porex's principal strengths to be its manufacturing processes, quality control and relationships with distributors of its proprietary health care products. For the fiscal year ended June 30, 1994 and the six months ended December 31, 1994, Porex had net sales of approximately $33,100,000 and $18,400,000, respectively. For the fiscal year ended June 30, 1994 and the six months ended December 31, 1994, Porex's foreign and export sales, which are made principally to Europe, were $7,900,000, or 23.9% of sales, and $4,500,000, or 24.4% of sales, respectively. 3 RECENT TRANSACTIONS Prior to June 28, 1989, the date of the initial public offering of the Company, the Company was an indirect wholly owned subsidiary of Medco Containment Services, Inc. ("Medco"). Thereafter, the Company became a publicly held, partially owned subsidiary of Medco. Medco provides health care cost containment services, principally managed prescription drug programs, to benefit plan sponsors, and through a wholly owned subsidiary, managed mental health care and substance abuse services and employee assistance programs to benefit plan sponsors. On November 18, 1993, Medco was acquired by Merck & Co., Inc. ("Merck"), and as a result, the Company became an indirect, partially owned subsidiary of Merck. Merck is a worldwide organization engaged primarily in the business of discovering, developing, producing and marketing products and services for the treatment of disease and the maintenance or restoration of health. Until December 14, 1994, the Company's operations consisted of Porex and a group of subsidiaries that provided institutional pharmacy services (the "Institutional Pharmacies Business"). The Institutional Pharmacies Business accounted for approximately $78,705,000, or 70.4%, of the Company's net sales and approximately $1,823,000, or 73.2%, of its net income during the fiscal year ended June 30, 1994. On December 14, 1994, the Company consummated certain transactions pursuant to which: (1) the Company sold the Institutional Pharmacies Business to Pharmacy Corporation of America ("PCA"), an indirect wholly owned subsidiary of Beverly Enterprises, Inc. ("Beverly Enterprises") (such sale is referred to herein as the "Divestiture"), for approximately $107,300,000 in cash, subject to certain post-closing adjustments; (2) the Company purchased 5,268,463 shares of Common Stock from Merck for an aggregate purchase price of $35,778,088, subject to certain post-closing adjustments; and (3) SN Investors, L.P. ("SN Investors"), a limited partnership of which the general partner is SYNC, Inc. (the "General Partner"), whose sole stockholder is Mr. Martin J. Wygod, purchased 5,061,857 shares of Common Stock from Merck for an aggregate purchase price of $34,375,029, subject to certain post-closing adjustments, pursuant to an assignment by the Company of the right to purchase such shares from Merck. See "Certain Transactions." The purchases of shares of Common Stock from Merck by the Company and SN Investors are hereinafter referred to as the "Purchase." The shares of Common Stock purchased by the Company are being held as treasury shares and are no longer outstanding or entitled to vote. Immediately prior to the consummation of the Purchase, Merck owned approximately 58.0% of the issued and outstanding Common Stock. As a result of the consummation of the Purchase, Mr. Wygod and SN Investors own as of the date of this Prospectus an aggregate of approximately 41.2% of the outstanding Common Stock and Merck no longer owns an equity interest in the Company. The Company's purpose in entering into the Purchase was to acquire a significant portion of its Common Stock on terms it believed to be in the interests of its public stockholders and to structure the Company as an independent public company with the benefit of Mr. Wygod's association as a significant investor. Merck required the consummation of the Divestiture as a condition to the Purchase. Both the Purchase and the Divestiture were approved by a special committee of independent directors of the Company and by the requisite votes, at a Special Meeting of Stockholders held on December 7, 1994 (the "Special Meeting"), of the stockholders of the Company. 4 SUMMARY FINANCIAL INFORMATION (IN THOUSANDS, EXCEPT PER SHARE DATA) The summary financial data set forth below for the five years in the period ended June 30, 1994 has been derived from the Consolidated Financial Statements of the Company, which have been audited by Arthur Andersen LLP, independent accountants. The summary financial data as of and for the six-month periods ended December 31, 1993 and 1994 are derived from unaudited consolidated financial statements of the Company, which, in the opinion of management, include all normal and recurring adjustments necessary to present fairly the financial position and the results of operations of the Company for those periods. Such information should be read in conjunction with the Consolidated Financial Statements of the Company and the related notes thereto included in the 1995 Form 8-K and Second Quarter Form 10-Q that are incorporated by reference into this Prospectus. The summary financial data for the three years in the period ended June 30, 1994 has been restated to reflect the Divestiture. See "Certain Transactions."
SIX MONTHS ENDED YEAR ENDED JUNE 30, DECEMBER 31, ------------------------------------------------ ------------------ 1990 1991 1992 1993 1994 1993 1994 -------- --------- --------- ------- ------- ------- ------- (UNAUDITED) INCOME STATEMENT DATA(1): Net sales............... $ 23,985 $ 24,704 $ 28,486 $30,645 $33,093 $15,360 $18,423 Costs and expenses: Cost of sales.......... 13,468 14,642 16,788 18,239 21,494 9,790 11,047 Selling, general and administrative........ 6,004 5,755 7,030 8,096 9,052 4,652 5,411 Interest and other income................ (1,583) (706) (4,901) (7,147) (5,071) (2,552) (2,982) Interest expense....... 328 259 3,538 6,027 5,975 3,013 2,968 Purchase and Sale Agreement related expenses and other.... -- -- -- -- 563(2) 563(2) 5,580(3) -------- -------- -------- ------- ------- ------- ------- 18,217 19,950 22,455 25,215 32,013 15,466 22,024 Income from continuing operations before provision for income taxes.................. 5,768 4,754 6,031 5,430 1,080 (106) (3,601) Provision for income taxes.................. 1,879 1,630 2,151 2,046 411 (39) (1,356) -------- -------- -------- ------- ------- ------- ------- Income from continuing operations............. 3,889 3,124 3,880 3,384 669 (67) (2,245) Income from discontinued operations............. -- -- 1,376 2,734 1,823 1,087 12,748(4) -------- -------- -------- ------- ------- ------- ------- Net income........... 3,889 3,124 5,256 6,118 2,492 1,020 10,503 -------- -------- -------- ------- ------- ------- ------- Primary net income per share: Continuing operations.. $ 0.27 $ 0.21 $ 0.24 $ 0.19 $ 0.04 $ 0.00 $ (0.12) Discontinued operations............ -- -- 0.09 0.16 0.10 0.06 0.71 -------- -------- -------- ------- ------- ------- ------- Net income per share. $ 0.27 $ 0.21 $ 0.33 $ 0.35 $ 0.14 $ 0.06 $ 0.59 ======== ======== ======== ======= ======= ======= ======= Weighted average shares outstanding(5)......... 14,318 14,562 16,028 17,485 17,968 17,992 17,939 ======== ======== ======== ======= ======= ======= ======= Fully diluted net income per share: Continuing operations.. -- -- -- -- -- -- $ (0.02) Discontinued operations............ -- -- -- -- -- -- 0.58 -------- -------- -------- ------- ------- ------- ------- Net income per share. -- -- -- -- -- -- $ 0.56 ======== ======== ======== ======= ======= ======= ======= Fully diluted weighted average shares outstanding............ -- -- -- -- -- -- 22,144 ======== ======== ======== ======= ======= ======= ======= AT DECEMBER 31, 1994 ------------------------------ AS ADJUSTED -------------------- 100% 50% ACTUAL CONVERTED CONVERTED -------- --------- --------- BALANCE SHEET DATA: Working capital......... $102,904 $100,821 $ 56,677 Total assets............ 207,154 203,001 158,857 Long-term debt, less current portion........ 80,500 -- -- Stockholders' equity.... 82,438 159,254 115,841
- -------- (1) This continuing operations data excludes the results of operations of the Institutional Pharmacies Business, which was sold on December 14, 1994. (2) This amount includes a nonrecurring pretax charge of $563 ($372 or $0.02 per share on an after tax basis). This charge is related to one-time payments made to certain executive officers in conjunction with the acquisition of the Company's parent company, Medco, by Merck. (3) This amount includes a nonrecurring pretax charge of $5,580 ($3,683 after tax) or $0.21 per share on a primary net income per share basis and $0.17 per share on a fully diluted net income per share basis. This charge is primarily related to the grant of stock options below fair market value to certain officers for services provided in connection with the Purchase and the Divestiture. (4) This amount includes a nonrecurring after tax gain of $11,785 or $0.66 per share on a primary net income basis and $0.53 per share on a fully diluted net income basis. This amount related to the sale of the Institutional Pharmacies Business. (5) This data has been restated to reflect a 2-for-1 stock split of the Common Stock effective on February 26, 1993. 5 RISK FACTORS Prior to making an investment decision with respect to the Common Stock offered hereby, prospective investors should carefully consider the specific factors set forth below, together with all of the other information appearing herein, in light of their particular investment objectives and financial circumstances. ACQUISITION PROGRAM The Company intends to pursue an acquisition program pursuant to which it will seek to effect one or more acquisitions of or business combinations with businesses that the Company believes have significant growth potential. The future growth of the Company will depend primarily on its ability to consummate one or more such acquisitions and to operate such businesses successfully. The Company's acquisition program could result in a substantial change in the business, operations and financial condition of the Company. As the Company has not yet entered into any agreement or understanding with a prospective acquisition candidate, there is no basis for investors in this Offering to evaluate the possible merits or risks of the operations of such business. Although management of the Company will endeavor to evaluate the risks inherent in any particular acquisition candidate, there can be no assurance that the Company will properly ascertain all such risks. Any acquisitions will be limited, as required by agreements to which the Company is a party, to areas of business that would not be competitive with certain businesses of Merck and its subsidiaries or with the Institutional Pharmacies Business. See "Certain Transactions--The Divestiture, The Purchase and Certain Additional Agreements." No assurances, however, can be given that the Company will succeed in consummating any acquisitions or that the Company will be able to successfully manage or integrate any business that it acquires. The success of the Company's acquisition program will depend on, among other things, the availability of acquisition candidates, the availability of funds to finance acquisitions, and the availability of management resources to oversee the operation of acquired businesses. Financing for acquisitions may come from several sources, including, without limitation, (a) cash and cash equivalents on hand and marketable securities and (b) proceeds from the incurrence of indebtedness or the issuance of additional Common Stock, preferred stock, convertible debt or other securities, which could result in substantial dilution of the percentage ownership of the stockholders of the Company at the time of any such issuance. The proceeds from any financing may be used for costs associated with identifying and evaluating prospective acquisition candidates, and for structuring, negotiating, financing and consummating any such acquisition transactions and for other general corporate purposes. The Company does not intend to seek stockholder approval for any such acquisition or security issuance unless required by applicable law or regulation. Although Mr. Wygod has indicated his intention to assist the Company in its acquisition program by bringing opportunities for potential acquisitions to the Company and to assist the Company in negotiating such acquisitions and in seeking financing in the event any such acquisition were to be financed by the Company, he is not an officer or an employee of the Company nor is he required pursuant to any contractual obligation to provide such support or assistance. See "Business--Acquisition Program." REGULATION OF POREX Porex manufactures and distributes certain medical/surgical devices, such as plastic and reconstructive surgical implants and tissue expanders, which are subject to government regulations, including approval procedures instituted by the Food and Drug Administration (the "FDA"). Certain other health care products may also be subject to such regulations and approval processes. Compliance with such regulations and the process of obtaining approvals can be costly, complicated and time-consuming and there can be no assurance that such approvals will be granted on a timely basis, if ever. See "Business-- Regulation." POTENTIAL LIABILITY RISK AND AVAILABILITY OF INSURANCE The products sold by the Company expose it to potential risk for product liability claims, particularly with respect to Porex's medical/surgical products. The Company believes that it carries adequate insurance 6 coverage against product liability claims and other risks. There can be no assurance, however, that claims in excess of the Company's insurance coverage will not arise. In addition, the Company's insurance policies must be renewed annually. In 1994, Porex was notified that its insurance carrier would not renew its then-existing insurance coverage after December 31, 1994 with respect to actions and claims arising out of Porex's distribution of silicone mammary implants. However, Porex has exercised its right to purchase extended reporting period coverage with respect to such actions and claims. Such coverage provides insurance, subject to existing policy limits but for an unlimited time period, with respect to actions and claims made after December 31, 1994 that are based on events that occurred during the policy period. Porex has renewed its insurance coverage with the same carrier for other liability claims. Although the Company has been able to obtain adequate insurance coverage at an acceptable cost in the past and believes that it is adequately indemnified for products manufactured by others and distributed by it, there can be no assurance that in the future it will be able to obtain such insurance at an acceptable cost or be adequately protected by such indemnification. See "Business--Health Care Products" and "Business--Legal Proceedings--Mammary Implant Litigation." CERTAIN LITIGATION During the year ended June 30, 1988, Porex began distributing silicone mammary implants ("implants") in the United States pursuant to a distribution arrangement (the "Distribution Agreement") with a Japanese manufacturer (the "Manufacturer"). On July 9, 1991, the FDA mandated a recall of all implants manufactured by companies that elected not to comply with certain FDA regulations regarding data collection. Accordingly, Porex notified all of its customers not to use any implants sold by Porex and to return such implants to Porex for a full refund. Porex had ceased offering implants for sale prior to the recall date. Since March 1991, Porex has been named as one of many co-defendants in a number of actions, including putative class actions, brought by recipients of implants who allege that their mammary implants caused one or more of a wide range of ailments. These implant cases and claims generally raise difficult and complex factual and legal issues and are subject to many uncertainties and complexities, including, but not limited to, the facts and circumstances of each particular case or claim, the jurisdiction in which each suit is brought, and differences in applicable law. The Company does not have sufficient information to evaluate each case and claim. Certain of the actions against Porex have been dismissed where it was determined that the implant in question was not distributed by Porex, and certain other claims have been settled by the Manufacturer or by the insurance carriers of Porex without material cost to Porex. The Company believes that Porex has a valid claim for indemnification under the Distribution Agreement with respect to any liabilities that could result from pending actions or claims by recipients of implants or any similar actions or claims that may be commenced in the future. Porex's right to indemnification, however, is subject to a disagreement with the Manufacturer. Pending the resolution of such disagreement, the Manufacturer has been paying a portion of the costs of the settled claims. There can be no assurance, however, that the Manufacturer will continue to pay any portion of such costs. In 1994, Porex was notified that its insurance carrier would not renew its then-existing insurance coverage after December 31, 1994 with respect to actions and claims arising out of Porex's distribution of implants. However, Porex has exercised its right, under such policy, to purchase extended reporting period coverage with respect to such actions and claims. Such coverage provides insurance, subject to existing policy limits but for an unlimited time period, with respect to actions and claims made after December 31, 1994 that are based on events that occurred during the policy period. The Company believes that such coverage, together with Porex's insurance policies in effect on or before December 31, 1994, should provide adequate coverage against liabilities that could result from actions or claims arising out of Porex's distribution of implants. To the extent that certain of such actions and claims seek punitive and compensatory damages arising out of alleged intentional torts, if awarded such damages may or may not be covered, in whole or in part, by Porex's insurance policies. In addition, Porex's recovery from its insurance carriers is subject to policy limits and certain other conditions. Porex has been expensing the retention amount under its policies as incurred. See "--Potential Liability Risk and Availability of Insurance" above and "Business--Legal Proceedings--Mammary Implant Litigation." 7 SHARES AVAILABLE FOR FUTURE SALE Of the currently outstanding shares of Common Stock, 5,061,857 shares (the Wygod Shares, as previously defined) are owned by SN Investors and are "restricted securities," within the meaning of Rule 144 promulgated pursuant to the Securities Act ("Rule 144"). In addition, as more fully set forth in "Certain Transactions--The Purchase--Investment Agreement," the Wygod Shares are subject to certain restrictions on transfer. Upon expiration of such restrictions, SN Investors may be able to sell without registration under the Securities Act the number of such shares permitted under Rule 144. The Company has granted certain demand registration rights to Mr. Wygod with respect to the Wygod Shares that are assignable to SN Investors. Any sales by SN Investors pursuant to Rule 144 or such registration rights could have a material adverse effect on the prevailing market price for the Common Stock. The Company has reserved an aggregate of 4,308,170 shares of Common Stock for issuance pursuant to stock option agreements and stock option plans. The sale of a substantial amount of such additional shares of Common Stock following their issuance could have a material adverse effect on the market price of the Common Stock. INVESTMENT COMPANY ACT A significant portion of the Company's assets are invested in short-term, interest-bearing investment grade securities pending use in operations and for acquisitions. The nature of these securities could under certain circumstances result in the Company being deemed an investment company under the Investment Company Act of 1940 (the "Investment Company Act"). The Investment Company Act requires registration of, and imposes substantial restrictions on, companies that engage, or propose to engage, primarily in the business of investing, reinvesting, or trading in securities, or that engage, or propose to engage, in the business of investing, reinvesting, owning, holding or trading in securities and that fail certain statistical tests concerning a company's ownership of securities. The Company intends to structure its investments and acquisition program so as to avoid application of the Investment Company Act and, if necessary, will apply to the Commission for an exemption from the Investment Company Act. There can be no assurance, however, that such an exemption will be available to the Company. If the Company were required to register as an investment company under the Investment Company Act, it would become subject to regulations that could have a material adverse impact on its business. USE OF PROCEEDS The proceeds, if any, received by the Company from the sale of Common Stock to the Purchasers pursuant to the standby arrangements described herein under "Standby Arrangements" will be used to pay the Redemption Price of Debentures not duly tendered for conversion. Any other amounts received by the Company from the Purchasers pursuant to the standby arrangements described herein will be used for general corporate purposes. The amount of the proceeds, if any, to be received by the Company from the Purchasers is not determinable at this time, as neither the number of shares, if any, that will be sold to the Purchasers nor the amount of profit, if any, that the Purchasers will realize upon resale of such shares and will be required to share with the Company can be determined at this time. The Company will not receive any proceeds from the issuance of Common Stock upon conversion of Debentures. 8 PRICE RANGE OF COMMON STOCK The Common Stock is traded on the Nasdaq National Market under the symbol SNTC. The following table sets forth for the periods indicated the high and low sale prices for the Company's Common Stock as reported by the Nasdaq National Market, as adjusted to reflect a 2-for-1 stock split of the Common Stock effective February 26, 1993.
Fiscal Year 1993 HIGH LOW ---------------- ---- ---- First Quarter.......................................... $19 1/4 $17 1/2 Second Quarter......................................... 22 1/4 18 Third Quarter.......................................... 22 1/2 15 Fourth Quarter......................................... 16 11 Fiscal Year 1994 ---------------- First Quarter.......................................... 15 3/4 10 3/4 Second Quarter......................................... 12 8 3/4 Third Quarter.......................................... 12 1/2 10 Fourth Quarter......................................... 16 1/2 8 1/4 Fiscal Year 1995 ---------------- First Quarter.......................................... 16 1/4 11 1/2 Second Quarter......................................... 20 1/4 14 3/4 Third Quarter (through January 26, 1995)............... 24 1/2 19
On January 26, 1995, the last sale price of the Common Stock as reported by the Nasdaq National Market was $23 1/16. As of January 25, 1995, the Company's Common Stock was held by 199 stockholders of record. The Company believes that its Common Stock is beneficially held by at least 400 stockholders. DIVIDEND POLICY For each of the fiscal years ended June 30, 1994 and 1993 and the six months ended December 31, 1994, the Company did not pay any dividends to the holders of its Common Stock. The Company intends to continue to retain earnings to finance its business and, accordingly, does not currently anticipate paying cash dividends to holders of its Common Stock. 9 CAPITALIZATION The following table sets forth the capitalization of the Company at December 31, 1994 and as adjusted to give effect to the assumed conversion of 100% and 50%, respectively, of the outstanding Debentures into shares of Common Stock on December 31, 1994.
DECEMBER 31, 1994 ------------------------------ ACTUAL AS ADJUSTED(1) -------- -------------------- 100% 50% CONVERTED CONVERTED --------- --------- (IN THOUSANDS) Cash and marketable securities(2)................ $173,048 $170,496 $126,351 ======== ======== ======== Current portion of long-term debt(3)............. $ 444 $ 444 $ 444 ======== ======== ======== Long-term debt, less current portion(4) 7% Convertible Subordinated Debentures Due 2001.......................................... 80,500 -- -- Stockholders' equity: Preferred stock, $.01 par value, 10,000,000 shares authorized; none issued................ -- -- -- Common stock, $.01 par value, 50,000,000 shares authorized; 17,820,732 shares issued, 12,552,269 shares outstanding(5).............. 178 217 198 Additional paid-in capital..................... 72,997 150,774 110,413 Treasury stock at cost; 5,268,463 shares....... (35,778) (35,778) (35,778) Retained earnings.............................. 45,041 44,041 41,008 -------- -------- -------- Total stockholders' equity................... 82,438 159,254 115,841 -------- -------- -------- Total capitalization....................... $162,938 $159,254 $115,841 ======== ======== ========
- -------- (1) The as adjusted amounts include expenses related to the conversion of Debentures into shares of Common Stock. (2) Includes the Company's current cash balance as of December 31, 1994 and short- and long-term marketable securities. This amount will be reduced by approximately $38,000,000 when the Company pays certain current liabilities, including taxes, that arose in connection with the Divestiture. (3) As of December 31, 1994, the Company had no short-term indebtedness. (4) See Note 4 to the Consolidated Financial Statements of the Company for the year ended June 30, 1994 included in the 1995 Form 8-K that is incorporated by reference into this Prospectus. (5) These amounts do not include at December 31, 1994 (i) 220,000 shares reserved for issuance under certain stock option agreements and (ii) 4,205,860 shares reserved for issuance under the Company's stock option plans. Assuming 100% and 50% conversion of the Debentures, there would have been 21,766,842 and 19,796,238 shares issued and 16,498,379 and 14,527,775 shares outstanding, respectively, at December 31, 1994. 10 SELECTED FINANCIAL DATA (IN THOUSANDS, EXCEPT PER SHARE DATA) The selected financial data set forth below as of and for the five years in the period ended June 30, 1994 has been derived from the Consolidated Financial Statements of the Company, which have been audited by Arthur Andersen LLP, independent accountants. The selected financial data as of and for the six-month periods ended December 31, 1993 and 1994 are derived from unaudited consolidated financial statements of the Company, which, in the opinion of management, include all normal and recurring adjustments necessary to present fairly the financial position and the results of operations of the Company for those periods. Such information should be read in conjunction with the Consolidated Financial Statements of the Company and the related notes thereto included in the 1995 Form 8-K and Second Quarter Form 10-Q that are incorporated by reference into this Prospectus. The selected financial data for the three years in the period ended June 30, 1994 has been restated to reflect the Divestiture. See "Certain Transactions."
SIX MONTHS ENDED YEAR ENDED JUNE 30, DECEMBER 31, ------------------------------------------- ------------------ 1990 1991 1992 1993 1994 1993 1994 ------- ------- ------- ------- ------- -------- -------- INCOME STATEMENT DATA(1): Net sales............... $23,985 $24,704 $28,486 $30,645 $33,093 $ 15,360 $ 18,423 Costs and expenses: Cost of sales.......... 13,468 14,642 16,788 18,239 21,494 9,790 11,047 Selling, general and administrative........ 6,004 5,755 7,030 8,096 9,052 4,652 5,411 Interest and other in- come.................. (1,583) (706) (4,901) (7,147) (5,071) (2,552) (2,982) Interest expense....... 328 259 3,538 6,027 5,975 3,013 2,968 Purchase and Sale Agreement related expenses and other.... -- -- -- -- 563(2) 563(2) 5,580(3) ------- ------- ------- ------- ------- -------- -------- 18,217 19,950 22,455 25,215 32,013 15,466 22,024 Income from continuing operations before provision for income taxes.................. 5,768 4,754 6,031 5,430 1,080 (106) (3,601) Provision for income taxes.................. 1,879 1,630 2,151 2,046 411 (39) (1,356) ------- ------- ------- ------- ------- -------- -------- Income from continuing operations............. 3,889 3,124 3,880 3,384 669 (67) (2,245) Income from discontinued operations............. -- -- 1,376 2,734 1,823 1,087 12,748(4) ------- ------- ------- ------- ------- -------- -------- Net income........... 3,889 3,124 5,256 6,118 2,492 1,020 10,503 ------- ------- ------- ------- ------- -------- -------- Primary net income per share: Continuing operations.. $ 0.27 $ 0.21 $ 0.24 $ 0.19 $ 0.04 $ 0.00 ($ 0.12) Discontinued opera- tions................. -- -- 0.09 0.16 0.10 0.06 0.71 ------- ------- ------- ------- ------- -------- -------- Net income per share. $ 0.27 $ 0.21 $ 0.33 $ 0.35 $ 0.14 $ 0.06 $ 0.59 ======= ======= ======= ======= ======= ======== ======== Weighted average shares outstanding(5)......... 14,318 14,562 16,028 17,485 17,968 17,992 17,939 ======= ======= ======= ======= ======= ======== ======== Fully diluted net income per share: Continuing operations.. -- -- -- -- -- -- ($ 0.02) Discontinued opera- tions................. -- -- -- -- -- -- 0.58 ======= ======= ======= ======= ======= ======== ======== Net income per share. -- -- -- -- -- -- $0.56 ======= ======= ======= ======= ======= ======== ======== Fully diluted weighted average shares out- standing............... -- -- -- -- -- -- 22,144 ======= ======= ======= ======= ======= ======== ========
AT JUNE 30, AT DECEMBER 31, 1994 --------------------------------------- ---------------------------- AS ADJUSTED ------------------- 100% 50% 1990 1991 1992 1993 1994 ACTUAL CONVERTED CONVERTED ------- ------- ------- ------- ------- -------- --------- --------- BALANCE SHEET DATA: Working capital......... $28,572 $30,430 $44,350 $65,171 $66,020 $102,904 $100,821 $56,677 Net assets of discontin- ued operations......... -- -- 25,352 52,548 55,882 -- -- -- Total assets............ 43,262 46,233 163,011 189,494 194,009 207,154 203,001 158,857 Long-term debt, less current portion........ 2,541 1,875 81,714 81,058 80,716 80,500 -- -- Stockholders' equity.... 36,379 39,566 74,056 102,378 105,130 82,438 159,254 115,841
- -------- (1) This continuing operations data excludes the results of operations of the Institutional Pharmacies Business, which was sold on December 14, 1994. (2) This amount includes a nonrecurring pretax charge of $563 ($372 after tax or $0.02 per share on an after tax basis). This charge is related to one- time payments made to certain executive officers in conjunction with Merck's acquisition of the Company's then parent company, Medco. (3) This amount includes a nonrecurring pretax charge of $5,580 ($3,683 after tax) or $0.21 per share on a primary net income per share basis and $0.17 per share on a fully diluted net income per share basis. This charge is primarily related to the grant of stock options below fair market value to certain officers for services provided in connection with the Purchase and the Divestiture. (4) This amount includes a nonrecurring after tax gain of $11,785 or $0.66 per share on a primary net income basis and $0.53 per share on a fully diluted net income basis. This amount related to the sale of the Institutional Pharmacies Business. (5) This data has been restated to reflect a 2-for-1 stock split of the Common Stock effective on February 26, 1993. 11 MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION On December 14, 1994, the Company sold its Institutional Pharmacies Business, which accounted for approximately $78,705,000, or 70.4%, of the Company's net sales and approximately $1,823,000, or 73.2%, of its net income during fiscal year ended June 30, 1994. The current operations of the Company consist of Porex. See "Prospectus Summary--Recent Transactions" and "Certain Transactions." The Company's financial statements have been restated to exclude the Institutional Pharmacies Business, and the discussion set forth below is based on such financial statements. SIX MONTHS ENDED DECEMBER 31, 1994 AND 1993 Net sales for the six months ended December 31, 1994 increased by $3,063,000, or 19.9%, over the prior year period as a result of sales improvements across many product lines, principally increased sales of writing instrument components in the consumer sector and medical products in the health care sector. Cost of sales for the six months ended December 31, 1994 increased by $1,257,000, or 12.8%, over the prior year period due to the increased sales volume noted above and costs associated with the establishment of additional manufacturing capabilities. As a percent of net sales, cost of sales for the six months ended December 31, 1994 decreased to 60.0% from 63.7% in the prior year period principally due to increased sales of higher margin products and manufacturing efficiencies resulting from the automation of certain production processes. Selling, general and administrative expenses for the six months ended December 31, 1994 increased by $759,000, or 16.3%, over the prior year period due primarily to the addition of sales personnel and additional costs relating to the expansion of European operations. As a percent of net sales, selling, general and administrative expenses for the six months ended December 31, 1994 was 29.4%, which did not vary materially from the prior year period. Interest and other income for the six months ended December 31, 1994 increased by $430,000, or 16.8%, over the prior year period as a result of a combination of higher interest rates on the Company's investment portfolio and the receipt of the proceeds from the consummation of the Divestiture on December 14, 1994 offset by the cost to the Company of the Purchase. Interest expense for the six months ended December 31, 1994 did not vary materially from the prior year period. Purchase and Sale Agreement related expenses and other expenses for the six months ended December 31, 1994 increased by $5,017,000 over the prior year period primarily as a result of the one time charge related to the issuance of stock options issued to certain officers as compensation for services in conjunction with the consummation of the Purchase and Sale Agreement. The effective tax rate for the six months ended December 31, 1994 did not vary materially from the comparable prior year period. FISCAL YEARS ENDED JUNE 30, 1994 AND 1993 Net sales for the year ended June 30, 1994 increased by $2,448,000, or 8.0%, over the prior year period. The sales increase was due principally to increased unit sales of science specialty products, plastic vials and surgical products in the health care market segment and, to a lesser extent, to increased unit sales across the 12 industrial segment product line. These increases were partially offset by a decrease in sales of blood serum filters. The effect of inflation was not significant for the year ended June 30, 1994. Cost of sales for the year ended June 30, 1994 increased by $3,255,000, or 17.8%, over the prior year period primarily as a result of the increased sales volume. As a percent of net sales, cost of sales increased to 65.0% from 59.5% in the prior year primarily as a result of a change in the composition of sales to lower margin products and to the addition of manufacturing overhead to support new product lines. Selling, general and administrative expenses for the year ended June 30, 1994 increased by $956,000, or 11.8%, as compared to the prior year period primarily due to increased staffing levels and marketing expenditures in Porex's surgical product group and slightly higher corporate overhead expenses. As a percent of net sales, selling, general and administrative expenses increased to 27.4% from 26.4% in the prior year period due to the increases in the costs noted above. Interest and other income for the year ended June 30, 1994 decreased by $2,076,000, or 29.0%, from the prior year period due to lower interest and dividend rates available during the year. Interest expense for the year ended June 30, 1994 did not vary materially from the prior year period. Purchase and Sale Agreement related expenses and other expenses for the year ended June 30, 1994 consists of one-time payments made to certain executive officers in conjunction with Merck's acquisition of Medco, the Company's then parent company. The effective tax rate for the year ended June 30, 1994 did not vary materially from the prior year period. FISCAL YEARS ENDED JUNE 30, 1993 AND 1992 Net sales for the year ended June 30, 1993 of $30,645,000 increased by $2,159,000, or 7.6%, over the prior year period. The sales increase was due principally to increased unit sales of medical OEM products and surgical products in the health care market segment and, to a lesser extent, increased unit sales across the industrial segment product line. These increases were partially offset by a decrease in unit sales of writing instrument components in the consumer segment. The effect of inflation was not significant for the year ended June 30, 1993. Cost of sales for the year ended June 30, 1993 increased by $1,451,000, or 8.6%, over the prior year period primarily as a result of the increased sales volume. As a percent of net sales, cost of sales increased to 59.5% from 58.9% in the prior year primarily as a result of a change in the composition of sales to lower margin products. Selling, general and administrative expenses for the year ended June 30, 1993 increased by $1,066,000, or 15.2%, as compared to the prior year period primarily due to increased staffing levels required by the establishment of a new product development group at Porex. As a percent of net sales, selling, general and administrative expenses increased to 26.4% from 24.7% in the prior year period due to the increases in the costs noted above. Interest and other income for the year ended June 30, 1993 increased $2,246,000, or 45.8%, as compared to the prior year period due to an increase in the funds available for investment as a result of the net proceeds resulting from the issuance of the Company's common stock and the issuance of the Company's 7% Convertible Subordinated Debentures Due 2001, which were completed in the second quarter of fiscal 1992. 13 Interest expense for the year ended June 30, 1993 increased $2,489,000, or 70.4%, as compared to the prior year period as a result of the Company's 7% Convertible Subordinated Debentures being outstanding for the full period. The effective tax rate for the year ended June 30, 1993 was 37.7%, which increased from 35.7% in the prior year period primarily due to a combination of an increase in state income taxes and a decrease in the amount of dividend income, which is non-taxable. CAPITAL RESOURCES AND LIQUIDITY Cash, cash equivalents and marketable securities increased by $70,497,000 to $173,048,000 during the six months ended December 31, 1994 principally due to the proceeds received from the consummation of the Divestiture offset by the cost to the Company of the Purchase. Excluding the effects of these transactions, cash provided by operations, net of capital expenditures increased by $1,962,000. In accordance with the Purchase and Sale Agreement, the Company and Merck entered into a six-month agreement for the provision of certain transition services by Merck or its subsidiaries to the Company, in order to facilitate the Company's orderly transition to being an independent entity. Such services include, among other things, administrative, legal and other transition services at a cost determined on the same basis as historically determined. As a result of the consummation of the Purchase and Sale Agreement noted above, the Company operates independently from Merck and Medco, and will no longer be charged corporate overhead costs based on the cost-sharing methodology previously utilized by Medco. The Company is now directly incurring certain corporate overhead costs, which were allocated pursuant to its services agreement with Medco prior to the consummation of the Purchase and Sale Agreement. The Company estimates such additional costs, which consist primarily of salaries and benefits, rent and insurance, will increase corporate overhead by approximately $2,000,000 over the next twelve months. The Company believes that its cash flow from operations and the income earned on its investments are sufficient to meet the anticipated working capital requirements of its business, including these increased corporate overhead expenses, during this period. The Company continues to pursue an acquisition program pursuant to which it seeks to effect one or more acquisitions or other similar business combinations with businesses it believes have significant growth potential. Financing for such acquisitions may come from several sources, including, without limitation, (a) cash, cash equivalents and marketable securities and (b) proceeds from the incurrence of additional indebtedness or the issuance of common stock, preferred stock, convertible debt or other securities. There can be no assurance that the Company's acquisition program will be successful. See "Business--Acquisition Program." The Company has called for redemption of all of its Debentures. The Debentures are convertible into shares of the Company's Common Stock. The Company has entered into (i) a Standby Agreement with the Purchasers pursuant to which the Purchasers have agreed, subject to certain conditions, to purchase from the Company a number of shares of Common Stock that otherwise would have been issuable upon conversion of up to $18,250,000 aggregate principal amount of the Debentures that are not surrendered for conversion and (ii) an agreement with an institutional investor to surrender for conversion $22,050,000 aggregate principal amount of Debentures held by such investor. If Debentures in excess of the amounts discussed above are not surrendered for conversion, the Company may be required to redeem up to $40,200,000 of its Debentures for cash. 14 BUSINESS On December 14, 1994, the Company consummated the Divestiture and the Purchase. In the Purchase, the Company and SN Investors purchased approximately 58.0% of the Common Stock from Merck. As a result of the Purchase, SN Investors and Mr. Wygod own as of the date of this Prospectus an aggregate of approximately 41.2% of the outstanding Common Stock, and Merck no longer owns an equity interest in the Company. In the Divestiture, the Company sold its Institutional Pharmacies Business, which accounted for approximately $78,705,000, or 70.4%, of the Company's net sales and approximately $1,823,000, or 73.2%, of its net income during the fiscal year ended June 30, 1994. The current operations of the Company consist of Porex. See "Prospectus Summary-- Recent Transactions" and "Certain Transactions." The Company is a Delaware corporation and was incorporated in May 1989. The Company's principal offices are located at 669 River Drive, Elmwood Park, New Jersey 07407, and its telephone number is (201) 703-3400. ACQUISITION PROGRAM The Company intends to pursue an acquisition program pursuant to which it will seek to effect one or more acquisitions of or business combinations with businesses that the Company believes have significant growth potential. The Company expects that the growth potential from such transactions may come from, among other factors, its ability to (i) improve the financial and operating performance of an acquired business, (ii) redefine the business strategy of an acquired business to enhance its market position or gain entry to new markets for its products or services or (iii) enhance the value of an acquired business by the acquisition of similar or complementary businesses. The Company intends initially to concentrate its acquisition efforts in the health care industry but such emphasis would not limit in any manner its ability to pursue acquisition opportunities in other industries. Any acquisitions will be limited, as required by agreements to which the Company is a party, to areas of business that would not be competitive with certain businesses of Merck and its subsidiaries, including the Institutional Pharmacies Business. See "Certain Transactions--The Divestiture, The Purchase and Certain Additional Agreements." The Company's acquisition program could result in a substantial change in the business, operations and financial condition of the Company. As of the date of this Prospectus, the Company has not yet entered into any agreement or understanding with a prospective acquisition candidate. The success of the Company's acquisition program will depend on, among other things, the availability of acquisition candidates, the availability of funds to finance acquisitions, and the availability of management resources to oversee the operation of acquired businesses. As of the date of this Prospectus, the Company had approximately $135,000,000 in cash and marketable securities available for acquisitions and other corporate purposes. This amount will be reduced by any payments made by the Company to fund the redemption of the Debentures to the extent such payments exceed the amounts provided by the Purchasers under the Standby Agreement. Financing for acquisitions may also come from other sources, including, without limitation, proceeds from the incurrence of indebtedness or the issuance of additional Common Stock, preferred stock, convertible debt or other securities, which could result in substantial dilution of the percentage ownership of the stockholders of the Company at the time of any such issuance. The proceeds from any financing may be used for costs associated with identifying and evaluating prospective acquisition candidates, and for structuring, negotiating, financing and consummating any such acquisition transactions and for other general corporate purposes. The Company does not intend to seek stockholder approval for any such acquisition or security issuance unless required by applicable law or regulation. No assurance can be given that the Company will succeed in consummating any acquisitions or that the Company will be able to successfully manage or integrate any business that it acquires. The future growth of the Company will depend primarily on its ability to consummate one or more such acquisitions and to operate such businesses successfully. 15 Mr. Wygod has indicated that he intends to assist the Company in pursuing its acquisition program by bringing opportunities for potential acquisitions to the Company. In addition, Mr. Wygod has indicated that he is willing to assist the Company in negotiating such acquisitions and in seeking financing in the event any such acquisition were to be financed externally by the Company. POREX GENERAL Porex Technologies Corp., a wholly owned subsidiary of the Company, designs, manufactures and distributes porous and solid plastic components and products used in health care, industrial and consumer applications. Porex's principal products, which incorporate porous plastics, are used to filter, drain, diffuse, vent or control the flow of fluids or gases. A large percentage of Porex's products are sold to other manufacturers for incorporation into their products. Porex's health care products include proprietary products manufactured and sold under Porex's trade names. These products are sold for clinical and medical/surgical use in hospitals, clinics, physicians' offices and laboratories. Porex also manufactures and sells a line of plastic vials and produces components made to the specifications of original equipment manufacturers ("OEMs") for incorporation into their health care products. Porex's industrial and consumer products consist primarily of custom- manufactured components made for manufacturers of industrial and consumer products. The Company believes Porex's principal strengths to be its manufacturing processes, quality control and relationships with distributors of its proprietary health care products. Porous plastics are permeable plastic structures having omni-directional (i.e., porous in all directions to the flow of fluids or gases) interconnecting pores. Porous plastics are manufactured by Porex with pore sizes between approximately 10 and 500 micrometers (one micrometer is equal to one-millionth of a meter; an object of 40 micrometers in size is about as small as can be discerned by the naked eye). Porous plastic materials can be molded from several thermoplastic raw materials and are produced by Porex at its own manufacturing facilities as fabricated devices, custom-molded shapes, sheets, tubes or rods depending on proprietary application or manufacturer specifications. Porex also purchases for resale through its distribution channels certain products which are complementary to its manufactured product lines. Porex has an injection molding facility which produces solid plastic products for health care, consumer and industrial applications. HEALTH CARE PRODUCTS Porex's proprietary products for clinical and surgical applications include blood serum filters, blood tube closure devices and a line of medical/surgical products designed primarily for use in plastic and reconstructive surgery and maxillofacial surgery. Porex also manufactures and sells a line of plastic vials and produces components for incorporation into health care products made by OEMs. Blood Serum Filters and Related Products. Porex's blood serum filters are used to separate microscopic particles and fibrous matter (fibrin) from centrifuged blood serum to prevent clogging of automated laboratory chemical analysis equipment. The filters allow the serum to pass through while blocking passage of particulate materials. Analysis of the serum provides specific information as to a patient's health. Porex also manufactures a line of closure devices that are used with blood serum filters and tubes. In response to health concerns regarding the handling of human blood, new blood testing equipment is being developed which may not require filtered blood serum for analysis, or which may eliminate the need for handling of blood serum by medical personnel. Increased use of such new equipment may have an adverse impact on sales of Porex's current line of blood serum filters. 16 Surgical Products. Porex's surgical products are marketed primarily to surgeons who specialize in plastic and reconstructive surgery and maxillofacial surgery. The product line includes MEDPOR (R) Surgical Implant material, which is polymeric biomaterial used for craniofacial reconstruction and augmentation, tissue expanders and TLS (R) Surgical Drainage Systems for small wound sites. Porex also markets TLS (TM) Surgical Marker pens to mark the areas of proposed surgical incision. Porex manufactures MEDPOR (R) Surgical Implant material and distributes, and in some cases assembles, the other items in its surgical product line. OEM Medical Products. Porex manufactures various porous plastic components which it sells to other health care product manufacturers for incorporation into their finished products. These porous plastics are used to vent or diffuse gases or fluids and are used as membrane supports in other manufacturers' products. The components include (i) disks used to support membranes, modules and other filtration devices used in diagnostic kits and therapeutic devices utilizing monoclonal antibody technology, (ii) a venting system for catheters which allows air to vent from a catheter as it is inserted into a vein, while at the same time preventing blood spillage and possible contamination of hospital personnel, (iii) a porous disk used in pipette tips to prevent the fluid to be pipetted from passing into the pipette instrument, and (iv) an oxygen diffuser, which is typically used in oxygen therapy equipment to humidify oxygen. Vial and Solid Plastic Components. Porex manufactures and sells a full line of plastic vials for pharmaceuticals. Porex also produces close tolerance solid plastic components which use most thermoplastic resins, but primarily polystyrene, polypropylene, nylon and thermoplastic rubber for medical and industrial applications. These products are custom designed and produced to satisfy individual customer specifications. During the year ended June 30, 1994, Medco purchased certain plastic vials and caps manufactured by Porex for use in its operations at an aggregate price of $2,312,000, representing substantially all of Porex's sales of such products. These sales were based on prices and terms generally available to non-affiliates. Pursuant to a Purchase Agreement dated as of May 24, 1994 between Medco and Porex (the "Medco/Porex Purchase Agreement"), entered into in connection with the Divestiture and the Purchase, Porex will supply to Medco all of Medco's needs as described therein (the "Requirements") for certain plastic vials and/or caps of different styles, dimensions and designs as described therein (the "Products"), for Medco's use in its prescription dispensing operations, and Medco will purchase such Requirements for a period beginning on December 14, 1994 and ending on December 14, 1996. The cost to Medco of the Products is the price in effect on the date of the Medco/Porex Purchase Agreement, and Medco will be entitled to that price until December 14, 1995. Such price will increase by 3% on such date subject to certain adjustments set forth in the Medco/Porex Purchase Agreement. INDUSTRIAL PRODUCTS Porex manufactures a variety of custom porous plastic components for industrial applications. These components are produced as molded shapes, and in sheets, tubes and rods, individually designed to customer specifications as to size, rigidity, porosity and other needs. Automotive Products. Porex believes that it is currently the largest producer of porous plastic vents used in domestic automobile batteries. A battery vent is used as a flame arrester to prevent damage to an automotive storage battery and possible personal injury. The typical lead-acid storage battery, when being charged, generates significant quantities of hydrogen gas. The accumulated hydrogen must be vented into the atmosphere to prevent internal pressure build- up in the battery. The porous plastic material incorporated into the battery vent allows the generated hydrogen to pass into the atmosphere and reduces the possibility that accidental sparks or flames will enter the battery. Wastewater Treatment Products. Porex manufactures a porous plastic material used for filter support media for wastewater treatment facilities. Such facilities are generally large construction projects built under contracts awarded to third parties through competitive bidding with state or local government authorities for communities. Porex expects continued sales in this area. However, due to the scale and frequency of such construction projects, as well as the dependence of Porex's customers on government contracts, sales of wastewater treatment components are expected to be irregular. 17 Other OEM Industrial Components. Porex produces (i) industrial filters to remove particulate matter, oil and water residues from compressed air lines, (ii) silencers and mufflers to reduce sound levels produced by compressed air exhaust, (iii) miscellaneous water filters for industrial use, including use in vending machines, and (iv) products for facilitating the movement of powdered materials. Porex also manufactures a large variety of highly specialized plastic components to meet specific applications for manufacturers. CONSUMER PRODUCTS Porex manufactures a line of porous plastic components used in a variety of home and office products and appliances. Porex's consumer products include a variety of writing pen tips or "nibs" which Porex supplies principally to manufacturers of marking and highlighting pens. The porous nib conducts the ink stored in the pen barrel to the writing surface by capillary action. Porex produces a variety of porous plastic filters used in home water filters and conditioners. The filters are used for particle and sediment removal through devices attached to a sink or faucet. Porex's porous plastic components are used in health and beauty aid products (such as deodorant and fragrance applicators). MARKETING AND DISTRIBUTION As of December 31, 1994, Porex had over 300 customers for its porous and solid plastic products. Porex distributes its proprietary blood serum filters and related products through independent distributors. Porex's MEDPOR(R) products are sold primarily by Porex's marketing staff while the remaining surgical products are sold primarily through independent dealers and agents. In the United States, sales of OEM health care products, industrial products and consumer products are made directly by Porex's marketing staff. Internationally, such products are sold through independent distributors and agents who work in conjunction with Porex's marketing staff. Export sales, which are made principally to Europe, consist primarily of Porex's OEM medical product, industrial product and consumer product lines. For the fiscal year ended June 30, 1994 and six months ended December 31, 1994, Porex's foreign sales and export sales were $7,900,000, or 23.9% of sales, and $4,500,000, or 24.4% of sales. Porex has a marketing staff of 17 professional employees, nine of whom work with manufacturers on matters which include development of component products to help solve such manufacturers' problems. SEASONALITY AND BACKLOG Porex's plastic products business is not seasonal to any significant extent. At December 31, 1994, Porex's backlog was approximately $8,160,000, as compared to approximately $8,152,000 at June 30, 1994. The backlog consists primarily of blanket orders with release dates of up to 12 months, the full amounts of which are expected to be filled over a 12-month period. PRODUCT AND PROCESS DEVELOPMENT Porex maintains a continuing development program devoted primarily to porous materials and their applications and proprietary products for the clinical laboratory. Development activities include designing new and improved products, either proprietary or for customers' specific requirements, and new manufacturing processes. Porex's development expenditures were $1,328,000, $1,547,000 and $1,554,000 for the fiscal years ended June 30, 1994, 1993 and 1992, respectively and $785,000 for the six months ended December 31, 1994. Recently, new product development activities have focused on porous components for use in health care and other applications and proprietary products for the clinical laboratory. RAW MATERIALS The principal raw materials used by Porex in its plastic products business are a variety of plastic resins which are generally available from a number of suppliers in the United States in adequate quantities to meet Porex's needs. Porex has been able to obtain adequate supplies of raw materials and believes that sufficient supplies will be available in the foreseeable future. Porex has no long-term supply contracts for the purchase of raw materials. Because the primary resource used in plastic resins is petroleum, the cost and availability of plastic resins for use in Porex's products varies to a great extent with the price of petroleum. Porex's inability to acquire sufficient plastic resins at a reasonable price would affect Porex's ability to maintain its margins in the short term. 18 Porex requires high-grade plastic resins with specific properties as raw materials for certain of its porous plastic products. Accordingly, shipments of raw materials from suppliers are closely monitored for compliance with Porex's standards. Porex has routinely rejected pre-shipment samples of product from raw material suppliers. Although there are various suppliers of high-grade plastic resins with specific properties and Porex has not experienced any material difficulty in obtaining adequate supplies of high-grade materials, the inability to obtain such high-grade plastic resins, or any raw materials, could have a material adverse effect on Porex. To ensure the availability of high- grade plastic resins with specific properties, Porex occasionally purchases more than it would otherwise currently require. Porex maintains an inventory of raw materials sufficient to satisfy its production needs for an extended period of time. For its solid plastic products, Porex utilizes commercial grade thermoplastic resins, including polyethylene, polypropylene and polystyrene. Such materials are readily available from a number of sources and Porex is not dependent on any single source of supply. Because of the ready availability of such materials, Porex does not maintain a significant inventory of such raw materials. PATENTS AND TRADEMARKS Porex owns a number of patents and trademarks in the United States and foreign countries. The majority of Porex's patents and patent applications relates to porous plastics and medical devices. Porex is the exclusive licensee of a patented valve device used in one model of its blood serum filters, and of a patent on a surgical drain device. Porex does not consider either license material to its business operations. Porex owns one patent on blood serum filters. Although Porex deems its patents to be important to its business and intends to continue to seek patent protection when deemed appropriate, no significant portion of the business of Porex is deemed by management to be materially dependent on any particular patent. Porex believes that its non- patented manufacturing processes are protected under contractual and other legal principles which, however, do not afford the statutory exclusivity possible for patented processes. REGULATION The developing, testing, marketing and manufacturing of medical devices such as plastic and reconstructive surgical implants and tissue expanders are regulated under the Medical Device Amendments of 1976 to the Federal Food, Drug and Cosmetic Act (the "1976 Amendments") and additional regulations promulgated by the FDA. In general, these statutes and regulations require that manufacturers adhere to certain standards designed to ensure the safety and effectiveness of medical devices. Under the 1976 Amendments, each medical device manufacturer must be a "registered device manufacturer" and must comply with regulations applicable generally to manufacturing practices and clinical investigations involving humans. The FDA is authorized to obtain and inspect devices, their labeling and advertising, and to inspect the facilities in which they are manufactured in order to ensure that a device is not improperly manufactured or labeled. Porex is registered with the FDA and Porex's Japanese supplier of tissue expanders has submitted its facilities to voluntary FDA inspection. In addition, the sale and marketing of specific medical devices are regulated by the FDA under the 1976 Amendments, which classify medical devices based upon the degree of regulation deemed appropriate and necessary by the FDA. A device may be classified as a Class I, II or III device based on recommendations of advisory panels appointed by the FDA. Class I devices are subject only to general controls. Class II devices, in addition to general controls, are subject to "performance standards." Class III devices, including most devices used or implanted in the body, require FDA pre-market approval before they may be distributed other than in clinical trials. Porex's MEDPOR (R) Surgical Implants and tissue expanders are regulated as Class II medical devices. Products which Porex may introduce in the future, if any, may also be classified as Class I, Class II or Class 19 III medical devices. The procedure for obtaining classification of a new device as a Class I or Class II device involves the submission of a petition to the FDA. If the FDA determines that the device is substantially equivalent to a pre-enactment device or a device subsequently classified in Class I or Class II, then within 210 days of the filing of the petition it may grant approval to market the device commercially. If the FDA determines the device is not substantially equivalent to a pre-enactment device or a device subsequently classified in Class I or Class II, it is automatically placed into Class III and will either require reclassification or the submission of valid scientific evidence to prove the device is safe and effective for human use. Devices to be implanted will be categorized as Class III unless such classification is not necessary to ensure their safety and effectiveness. For new Class III devices, Porex may submit to the FDA an application for an Investigational Device Exemption ("IDE"). An approved IDE exempts Porex from certain otherwise applicable FDA regulations and grants approval for a clinical investigation, or human study, to generate data to prove safety and effectiveness. In addition, the possibility exists that certain pre-enactment, or substantially equivalent, devices may be placed into Class III by the FDA. When a manufacturer believes that sufficient clinical data has been generated to prove the safety and effectiveness of the device, it may submit a pre-market approval application ("PMA") to the FDA. The FDA reviews the PMA and determines whether it is in submittable form and all key elements have been included. Following acceptance of the PMA, the FDA continues its review process which includes submission of the PMA to a panel of experts appointed by the FDA to review the PMA and to recommend appropriate action. The panel then recommends that the PMA be approved, not approved or approved subject to conditions. The FDA may act according to the panel's recommendations, or it may overrule the panel. In approving a PMA, the FDA may require some form of post-market surveillance or other restriction. Certain environmental regulations also apply to Porex's business, and the Company believes that Porex is in substantial compliance with all of such regulations. However, Porex is subject to random and scheduled checks by environmental authorities. The Company does not anticipate that any material capital expenditures will be required to comply with environmental regulations. COMPETITION Competition in Porex's plastic products business is characterized by technological change, product obsolescence and the introduction of competitive products at lower prices. Porex attempts to compete principally through product performance, quality and service, rather than price. In the porous plastics area, Porex's competitors include other producers of porous plastic materials as well as companies that manufacture and sell products made from materials other than porous plastics which can be used for the same purposes as Porex's products. In this field, Porex has two significant direct competitors in the United States and two significant direct competitors in Europe. Porex competes with several manufacturers of blood serum filters whose products perform the same function as Porex's original blood serum filter and its other blood serum filters and which utilize technologies both similar to and different from Porex's products. See "Business--Health Care Products-- Blood Serum Filters and Related Products." Porex's porous plastic pen nibs compete with felt and fiber tips manufactured by a variety of suppliers in the United States and other countries. Other of Porex's industrial products made of porous plastic compete, depending on the industrial application, with porous metals, metal screens, fiberglass tubes, pleated paper, resin-impregnated felt, ceramics and other substances and devices. The market for injection molded solid plastic components and products is highly competitive and highly fragmented. Many manufacturers compete both domestically and abroad and no company controls a significant percentage of the market. 20 EMPLOYEES As of December 31, 1994, the Company had approximately 455 employees. PROPERTIES The Company leases approximately 7,000 square feet of corporate office space at 669 River Drive, Elmwood Park, New Jersey 07407. Porex owns a total of 47 acres of land at three locations in Georgia with four buildings with an approximate area of 242,000 square feet, used for manufacturing, research, office space and warehouse purposes. The land and buildings at one such location are subject to a first mortgage securing certain industrial revenue bonds. See Note 4 to the Consolidated Financial Statements of the Company included in the 1995 Form 8-K that is incorporated by reference into this Prospectus. Porex also owns a manufacturing, office and warehouse facility in Bautzen, Germany with 2.1 acres of land and approximately 20,900 square feet in two buildings. The Company is contemplating either building or renting approximately 50,000 square feet of additional manufacturing and warehouse space for Porex within the next two years. LEGAL PROCEEDINGS Mammary Implant Litigation. During the year ended June 30, 1988, Synetic's subsidiary Porex began distributing silicone mammary implants in the United States pursuant to the Distribution Agreement with a Japanese manufacturer. Because of increased government regulation and examination, Porex's supplier determined to withdraw its implants from the United States market. On July 9, 1991, the FDA mandated a recall of all implants manufactured by companies that elected not to comply with certain FDA regulations regarding data collection. Accordingly, Porex notified all of its customers not to use any implants sold by Porex and to return such implants to Porex for a full refund. Porex had ceased offering implants for sale prior to the recall date. The cost of this recall was included in the Company's expenses for the fiscal year ended June 30, 1992. Porex believes that after accounting for implants returned to it, the aggregate number of recipients of implants distributed by Porex under the Distribution Agreement in the United States totals approximately 2,500. Since March 1991, Porex has been named as one of many co-defendants in a number of actions brought by recipients of implants. As of January 26, 1995, certain of the actions against Porex have been dismissed where it was determined that the implant in question was not distributed by Porex. In addition, 38 claims have been settled by the Manufacturer or by the insurance carriers of Porex without material cost to Porex. As of January 26, 1995, 220 actions and 36 out-of-court claims were pending against Porex. Of the 220 actions, 68 involve implants identified as distributed by Porex and 112 cases involve implants identified as not having been distributed by Porex. In the remaining 40 actions, the implants have not been identified. The typical case or claim alleges that the individual's mammary implants caused one or more of a wide range of ailments. These implant cases and claims generally raise difficult and complex factual and legal issues and are subject to many uncertainties and complexities, including, but not limited to, the facts and circumstances of each particular case or claim, the jurisdiction in which each suit is brought, and differences in applicable law. The Company does not have sufficient information to evaluate each case and claim. In 1994, Porex was notified that its insurance carrier would not renew its then-existing insurance coverage after December 31, 1994 with respect to actions and claims arising out of Porex's distribution of implants. However, Porex has exercised its right, under such policy, to purchase extended reporting period coverage with respect to such actions and claims. Such coverage provides insurance, subject to existing policy limits but for an unlimited time period, with respect to actions and claims made after December 31, 1994 that are based on events that occurred during the policy period. The Company believes that such coverage, 21 together with Porex's insurance policies in effect on or before December 31, 1994, should provide adequate coverage against liabilities that could result from actions or claims arising out of Porex's distribution of implants. To the extent that certain of such actions and claims seek punitive and compensatory damages arising out of alleged intentional torts, if awarded such damages may or may not be covered, in whole or in part, by Porex's insurance policies. In addition, Porex's recovery from its insurance carriers is subject to policy limits and certain other conditions. Porex has been expensing the retention amount under its policies as incurred. The Company believes that Porex has a valid claim for indemnification under the Distribution Agreement with respect to any liabilities that could result from pending actions or claims by recipients of implants or any similar actions or claims that may be commenced in the future. However, Porex's right to indemnification is subject to a disagreement with the Manufacturer. Pending the resolution of such disagreement, the Manufacturer has been paying a portion of the costs of the settled claims. Based on the foregoing, the Company believes that the possibility is remote that pending actions and claims by recipients of mammary implant devices or any similar actions and claims that may be commenced or made in the future could pose a material risk to the financial position of the Company or its results of operations. Stockholder Litigation. On August 18, 1994, an action entitled Fuss v. Wygod, et al. was filed against the Company, its directors, and Merck in the Court of Chancery of the State of Delaware in and for New Castle County (the Delaware Court ). The action purportedly arises out of the events leading to the Divestiture and the Purchase and is purportedly brought both derivatively on behalf of the Company and as a class action on behalf of the Company's stockholders other than the defendants. By her derivative claim, plaintiff alleges, among other things, that such transactions were designed to entrench the individual defendants in office and does not serve the corporate purposes of the Company. By the class action claim, plaintiff alleges, among other things, that the defendants breached fiduciary duties owed to members of the alleged class by approving the proposed transaction without conducting an auction or otherwise adequately considering alternative transactions. The lawsuit seeks, among other things, a preliminary and permanent injunction enjoining the proposed transaction, damages, and costs and attorneys' fees. On October 14, 1994, the parties entered into a Memorandum of Understanding (the "Memorandum") in connection with a contemplated settlement of the lawsuit. The basis for the contemplated settlement includes (a) changes to the terms of the Purchase partially in response to the filing of the lawsuit and (b) resolution of certain disclosure issues raised by plaintiff's comments on a draft of the proxy statement sent to stockholders of the Company in connection with the Divestiture and the Purchase. In the Memorandum, the parties agree in principle to use their best efforts to enter into and execute a stipulation of settlement to release any and all claims that have been or could have been asserted by or on behalf of the plaintiff or any members of the proposed class (the "Class") against any of the defendants in the lawsuit which arise out of or relate to the Divestiture or the Purchase or to any of the transactions or events described in the lawsuit. The contemplated settlement is subject to, among other things, (i) completion of discovery to confirm that the settlement is fair and reasonable and is in the best interest of the stockholders of the Company who are members of the Class and (ii) dismissal of the lawsuit with prejudice and without awarding costs to any party, except for certain fees and expenses that plaintiff's counsel intends to seek. The defendants have denied, and continue to deny, that they have committed or have threatened to commit any violation of law or breaches of duty to the plaintiff or members of the Class and the defendants have entered into the Memorandum because, among other reasons, the proposed settlement would eliminate the burden and expense of further litigation and would facilitate the consummation of transactions that they believe are in the best interests of the Company and its stockholders. In connection with the contemplated settlement, plaintiff's counsel will apply to the Delaware Court for an aggregate award of attorneys' fees and expenses in an amount not to exceed $275,000. Subject to the terms 22 and conditions of the Memorandum, the Company will pay such fees and expenses as may be awarded by the Delaware Court. The Purchase and Sale Agreement provides that Merck, in the event that the Company, its officers, directors or advisors become involved in any action or proceeding in connection with or arising out of any of the matters referred to in or contemplated by the Purchase and Sale Agreement, will reimburse the Company for 58.7% of its legal and other expenses (including fees and expenses of any attorneys, payments pursuant to any reimbursement, indemnification or similar arrangement with its officers, directors or advisors and amounts, including attorneys' fees, paid in settlement of any such action or proceeding) incurred in connection therewith. In no event, however, will Merck be required to reimburse the Company in an amount greater than the amount of the consideration received (and not otherwise returned to the Company pursuant to the Purchase and Sale Agreement) by Merck pursuant to the Purchase and Sale Agreement in excess of $45,453,750. Enforcement Division Investigation. In late June, the Division of Enforcement of the Securities and Exchange Commission (the "Enforcement Division") began an investigation regarding the trading in the securities of the Company. The Company is cooperating fully with the Enforcement Division's requests for information and, although it cannot predict the ultimate result of the inquiry, the Company believes that such inquiry will not have a material adverse effect on its financial position or results of operations. The Company is not a party to any other legal proceedings which, in its belief, could have a material adverse effect on the Company. 23 MANAGEMENT DIRECTORS AND OFFICERS OF THE COMPANY The directors and executive officers of the Company are as follows:
NAME AGE POSITION ---- --- -------- James V. Manning.......... 47 Chief Executive Officer and a director of the Company Paul C. Suthern........... 43 President and Chief Operating Officer and a director of the Company Ray E. Hannah............. 59 Vice President--Technologies Group and a director of the Company; President and Chief Executive Officer of Porex Victor L. Marrero......... 38 Vice President--Finance and Chief Financial Officer Thomas R. Ferguson........ 67 Director(1) Mervyn L. Goldstein, M.D.. 57 Director Roger H. Licht............ 40 Director Per G. H. Lofberg......... 47 Director Charles A. Mele........... 37 Director Herman Sarkowsky.......... 69 Director(1) Albert W. Weis............ 66 Director(1) Martin J. Wygod........... 54 Chairman of the Board and a director of the Company The officers of the Company who are not executive officers of the Company are as follows: NAME AGE POSITION ---- --- -------- David J. Schlanger........ 35 Vice President--Corporate Development Pamela B. Spira........... 35 Vice President--Corporate Development Anthony Vuolo............. 37 Vice President--Financial Analysis The senior officers of Porex who are not also executive officers of the Company are as follows: NAME AGE POSITION ---- --- -------- Richard S. Kingman........ 47 Executive Vice President and Chief Operating Officer Donald K. Jackson......... 46 Vice President--Finance Philip C. White........... 48 Vice President--Human Resources
- -------- (1) Member of the Audit Committee and the Stock Option Committee. Pursuant to the terms of the Company's Certificate of Incorporation, the Board of Directors is divided into three classes with staggered three-year terms. Not more than one class of directors is elected at any annual meeting of stockholders. Messrs. Hannah, Licht, Lofberg and Sarkowsky have been elected for a term expiring at the 1994 Annual Meeting. Messrs. Manning, Mele and Weis have been elected for a term expiring at the 1995 Annual Meeting. Messrs. Ferguson, Suthern and Wygod and Dr. Goldstein have been elected for a term expiring at the 1996 Annual Meeting. See "Description of Capital Stock--Voting Rights." 24 Mr. Manning has been Chief Executive Officer of the Company since January 1995 and has been an executive officer of the Company for more than the last five years and was, until December 1994, an executive officer of Medco for more than five years. He has also been Chairman of the Board of COMNET Corporation ("Comnet") since 1993. Mr. Suthern has been President and Chief Operating Officer of the Company since February 1993 and was also the Chief Executive Officer from October 1993 until January 1995. Mr. Suthern was also President and Chief Operating Officer of Medco from November 1992 through December 1994. Mr. Suthern was Assistant to Medco's Chairman from December 1991 to November 1992. Prior thereto he was Executive Vice President--Operations of Medco for more than five years. Mr. Hannah has been President of Porex since September 1987 and its Chief Executive Officer since November 1992. Mr. Hannah was the Chief Operating Officer of Porex from November 1984 to November 1992. Mr. Marrero has been Vice President--Finance and Chief Financial Officer of the Company since December 1994 and has been an officer of the Company for more than the last five years and was, until December 1994, the Senior Vice President--Treasurer of Medco for more than five years. Mr. Ferguson has been a director of the Company for more than five years. He has been a member of the law firm of Ferguson, Case, Orr, Paterson & Cunningham since March 1990; for more than five years prior thereto he was a member of the law firm of Ferguson, Regnier & Paterson, a professional corporation. Dr. Goldstein has been a director of the Company for more than five years. He has been a physician in private practice, Associate Clinical Professor of Medicine at the Albert Einstein College of Medicine in New York City and Attending Physician in Medicine and Oncology at Montefiore Medical Center in New York City for more than five years. Since December 1988 he has been Physician Director of Quality Assurance at Montefiore Medical Center. Mr. Licht has been a director of the Company for more than five years. He has been a member of the law firm of Licht & Licht for more than five years. Mr. Lofberg has been a director of the Company since January 1995. He has been President of the Merck-Medco Managed Care Division of Merck since November 1993. Prior to that, Mr. Lofberg was Senior Executive Vice President--Strategic Planning and Sales and Marketing of Medco for more than five years. Mr. Mele has been a director of the Company since May 1989. He has been an executive officer of Medco for more than five years and was an executive officer of the Company from May 1989 until December 1994. Mr. Mele is also a director of Comnet and of Group 1 Software, Inc., computer software companies. Mr. Sarkowsky has been a director of the Company for more than five years. He has been Chairman of the Board and Chief Executive Officer of Sarkowsky Investment Corporation, a diversified investment company, for more than five years. Mr. Sarkowsky is also a director of Eagle Hardware & Garden Inc. and Hollywood Park, Inc. Mr. Weis has been a director of the Company for more than five years. He has been President of A.M. Weis & Co., Inc., a commodities trading corporation, for more than five years. Mr. Weis is a member of the Board of the Commodities Clearing Corporation. Mr. Wygod has been Chairman of the Board of the Company since May 1989. From May 1989 to February 1993, Mr. Wygod also served as the Company's President and Chief Executive Officer and until May 1994 was an executive officer of the Company. Until May 1994, Mr. Wygod was Chairman of the Board of Medco for more than five years, and until January 1993 he also served as Chief Executive Officer of Medco. In addition, from November 1993 until May 1994, Mr. Wygod served as a director of Merck. He is also 25 engaged in the business of racing, boarding and breeding thoroughbred horses and is President of River Edge Farm, Inc., which is engaged in the business of breeding and boarding thoroughbred horses. Mr. Schlanger has been Vice President--Corporate Development of the Company since December 1994. Mr. Schlanger was Executive Director--Corporate Development of Merck from February 1994 until December 1994, and from June 1990 through December 1994, he was Vice President--Legal of Medco. Prior thereto he was an associate at the law firm of Latham & Watkins in New York. Ms. Spira has been Vice President--Corporate Development of the Company since December 1994. Ms. Spira was an employee of Medco from July 1994 until December 1994 and a consultant to Medco from April 1993 until July 1994. From 1990 through March 1993, she was a Vice President in the investment banking division of Goldman, Sachs & Co. Mr. Vuolo has been Vice President--Financial Analysis of the Company since December 1994. Mr. Vuolo was Executive Vice President--Finance and Chief Financial Officer of Medco Behavioral Care Corp., a subsidiary of Merck from November 1993 until December 1994. Until December 1994, he had also been Senior Vice President--Acquisitions of Medco for more than five years. Mr. Hannah is the only executive officer of the Company who devotes his full time to the operation of Porex. Porex has additional senior officers who also manage the day-to-day operations of Porex. No family relationship exists among any of the directors and executive officers of the Company except that Martin J. Wygod, Chairman of the Board of the Company, and Paul C. Suthern are brothers-in-law. No arrangement or understanding exists between any director or executive officer and any other person pursuant to which any director or executive officer was selected as a director or executive officer of the Company. All executive officers are elected annually by the Board of Directors and serve at the discretion of the Board of Directors. EXECUTIVE COMPENSATION, AGREEMENTS AND OTHER ARRANGEMENTS Except as otherwise described in the 1994 10-K that is incorporated by reference into this Prospectus and an accelerated payment of $112,640 to Mr. Manning in connection with the acquisition of Medco by Merck, the executive officers of the Company at June 30, 1994, other than Mr. Hannah, did not receive any cash compensation for services to the Company or its subsidiaries or participate in the employee benefit plans and arrangements of the Company or its subsidiaries for the year ended June 30, 1994. Following the consummation of the Purchase, the executive officers of the Company became salaried employees of the Company. It is expected that the Company's executive officers will participate in the Company's employee benefit plans and arrangements. As of December 7, 1994, the Company granted options to purchase 150,000, 180,000 and 125,000 shares of Common Stock to Messrs. Manning, Suthern and Marrero, respectively, and options to purchase an aggregate of 375,000 shares of Common Stock to certain other officers of the Company. All of the options have an exercise price of $10.00 per share and were granted for services provided in connection with the Purchase and the Divestiture. Such options vest at the rate of 20% per year. CERTAIN TRANSACTIONS BACKGROUND On December 14, 1994 (the "Closing Date"), the Company consummated the Divestiture and the Purchase pursuant to which: (1) the Company sold its Institutional Pharmacies Business to PCA, an indirect wholly owned subsidiary of Beverly Enterprises, for approximately $107,300,000 in cash (the "Purchase Price"), subject to certain post-closing adjustments; (2) the Company purchased 5,268,463 shares of Common Stock from Merck, pursuant to the Purchase and Sale Agreement, dated as of May 24, 1994, by and between 26 the Company and Merck (the "Purchase and Sale Agreement") for an aggregate purchase price of $35,778,088, subject to certain post-closing adjustments; and (3) SN Investors purchased 5,061,857 shares of Common Stock from Merck for an aggregate purchase price of $34,375,029, subject to certain post-closing adjustments, pursuant to an assignment by the Company of the right to purchase such shares from Merck under the Purchase and Sale Agreement. SN Investors is a limited partnership in which SYNC, Inc., an entity whose sole stockholder is Mr. Martin J. Wygod, is the general partner and Mr. Wygod and certain trusts for the benefit of Mr. Wygod and members of his family (collectively, with Mr. Wygod, the "Wygod Entities") and independent third parties are limited partners. Immediately prior to the consummation of the Purchase, Merck owned approximately 58% of the issued and outstanding Common Stock. As a result of the consummation of the Purchase, Mr. Wygod and SN Investors as of the date of this Prospectus own an aggregate of approximately 41.2% of the outstanding Common Stock and Merck no longer owns an equity interest in the Company. THE DIVESTITURE On December 14, 1994, the Company completed the sale to PCA of the subsidiaries through which the Company had been providing institutional pharmacies services (the "Institutional Pharmacy Companies") pursuant to the Stock Purchase Agreement. The purchase price was approximately $107,300,000 in cash, subject to certain post-closing adjustments. The Stock Purchase Agreement. The Stock Purchase Agreement provides that the Purchase Price will be adjusted for changes, between the date of the Stock Purchase Agreement and the Closing Date, in the combined net worth of the Institutional Pharmacy Companies, based on an audited combined balance sheet for the Institutional Pharmacy Companies as of the Closing Date, to be prepared no later than 60 days following the Closing Date. A portion of the Purchase Price equal to $5,000,000 was deposited at the Divestiture closing into an escrow account to be distributed to PCA to offset amounts, if any, payable by the Company pursuant to its obligation, under the Stock Purchase Agreement, to indemnify PCA for losses to PCA arising out of the breach of or any inaccuracy in any representation or agreement of the Company contained in the Stock Purchase Agreement. The amount of the escrowed funds remaining 120 days after the Closing Date (the "Distribution Date") will be released to the Company; except that any escrowed funds as to which a claim has been made by PCA prior to the Distribution Date will remain in escrow pending resolution of such claim. In the Stock Purchase Agreement, the Company agreed that until December 14, 1999 (the "Non-Competition Period"), the Company will not, without PCA's prior written consent, directly or indirectly, engage in the ownership, management, operation or control of any profit or non-profit business or organization in any part of Connecticut, Indiana, Massachusetts and Rhode Island which, directly or indirectly, engages in the business engaged in by any of the Institutional Pharmacy Companies as of the Closing Date, including but not limited to providing infusion therapy, distributing urological, enteral and other health care products and supplies, providing medical record keeping services, or providing prescription vending services and consultant pharmacist services, in each case to nursing homes and other similar long-term care facilities. In addition, during the Non-Competition Period, the Company agreed not to solicit or induce any employee of any of the Institutional Pharmacy Companies to become employed by any person (other than PCA). The Company is not prohibited, however, from acquiring any business that competes with PCA (the "Acquired Competing Business"), through merger, stock purchase, acquisition of assets or otherwise, provided that (A) such Acquired Competing Business constitutes a subsidiary or division (other than a "significant Subsidiary" as such term is defined in Rule 1-02 of Regulation S-X promulgated by the Securities and Exchange Commission) of a larger business acquired at the same time as the Acquired Competing Business, which larger business does not compete with PCA, and (B) such Acquired Competing Business is sold to a person who is not an affiliate of the Company within one year from the date of acquisition thereof. 27 THE PURCHASE Immediately following the Divestiture, the Company purchased 5,268,463 of the shares of Common Stock from Merck, pursuant to the Purchase and Sale Agreement for an aggregate purchase price of $35,778,088 (or approximately $6.79 per share), subject to adjustment as described below. At the time of the purchase by the Company, SN Investors purchased 5,061,857 shares of Common Stock (the "Wygod Shares") from Merck for an aggregate purchase price of $34,375,029 (or approximately $6.79 per share), subject to adjustment as described below. The purchase by SN Investors was made pursuant to an assignment by the Company to Mr. Wygod of the right to purchase the Wygod Shares pursuant to an Amended and Restated Investment Agreement, dated as of September 13, 1994 (the "Investment Agreement"), between the Company and Mr. Wygod. Mr. Wygod, as permitted under the Investment Agreement, further assigned to SN Investors his right to purchase the Wygod Shares. The Investment Agreement governs the terms and conditions under which the Wygod Shares will be held by Mr. Wygod and his permitted assignees and transferees. Purchase and Sale Agreement. In the Purchase and Sale Agreement, the Company agreed, until May 24, 1999, to be bound by the restrictions contained in the Consulting Agreement described below under "--Certain Additional Agreements-- The Consulting Agreement," provided that such restrictions shall be of no further force and effect in the event of the death of Mr. Wygod, or if Mr. Wygod ceases to be a director of the Company or any subsidiary of the Company, ceases to have any ownership interest in the Company (provided that if the Company is a public company he may have up to a 1% equity interest in the Company), and is not a principal, agent or employee of or consultant to the Company or any subsidiary of the Company, or is not otherwise rendering any services to the Company or any subsidiary of the Company. The aggregate amount of the purchase price paid at the Purchase closing was determined pursuant to the provisions of the Purchase and Sale Agreement according to the following formula: (a) $45,453,750 plus (b) 33.3% of the net proceeds of the Divestiture (after deducting estimated amounts of taxes and direct costs relating thereto) to the extent the net proceeds exceeded $27,500,000 up to $32,500,000 plus (c) 58.65% of the net proceeds of the Divestiture to the extent such amount exceeded $32,500,000. For purposes of calculating the net proceeds of the Divestiture under the Purchase and Sale Agreement, no part of the $5,000,000 held by the escrow agent will be included until released from the escrow for the benefit of the Company. From time to time, as (i) amounts held in escrow are released, (ii) the amount of the cash proceeds received by the Company in the Divestiture is adjusted pursuant to the provisions of the Stock Purchase Agreement or (iii) a determination of the actual amount of direct costs and taxes paid relating to the Divestiture requires a recalculation of net proceeds, then, pursuant to the Purchase and Sale Agreement, the price for the purchase of the Shares will also be adjusted in accordance with the formula described above. The amount of the adjustment to the purchase price of the Shares, as so calculated, will be either refunded to the Company and SN Investors by Merck or paid to Merck by the Company and SN Investors, as the case may be. Investment Agreement. The Investment Agreement, in which the Company assigned the rights and obligations to purchase the Wygod Shares to Mr. Wygod, governs the terms and conditions under which the Wygod Shares will be held by Mr. Wygod and his permitted assignees and transferees. Mr. Wygod, as permitted under the Investment Agreement, assigned such rights and obligations to SN Investors. Pursuant to the Investment Agreement, SN Investors was required to be a limited partnership in which Mr. Wygod or an entity controlled by Mr. Wygod is the general partner and one or more of the Wygod Entities and/or independent third parties are limited partners and was required to agree to be bound by all of the restrictions and obligations applicable to Mr. Wygod under the Investment Agreement. Additionally, the Investment Agreement required the initial investment of the Wygod Entities in SN Investors to be at least $20,000,000 (on a cost basis) (the "Wygod Investment") and that, until the earliest to occur of (a) December 14, 1998, (b) the death or adjudication of incompetency of Mr. Wygod or (c) a Change of Control (as defined in the Investment Agreement) (the "Restriction Period"), in respect of the Wygod Investment, except to the extent of proceeds from sales of the Wygod Shares pursuant to a tender or exchange offer for shares of Common 28 Stock that is not opposed by the Board of Directors of the Company, the Wygod Entities will at all times maintain (directly and/or through SN Investors) at least $20,000,000 (on a cost basis) in the Wygod Investment and will not cause or allow the amount of the Wygod Investment (on a cost basis) to be less than $20,000,000 (net of any disposition, transfer, pledge or distribution by SN Investors or any other arrangement involving the transfer of ownership or interests in Wygod Shares (or proceeds therefrom), but not taking into account any reduction in the Wygod Investment by virtue of a decline in the value of Wygod Shares). A "Change of Control" under the Investment Agreement means: (a) the acquisition by any person, entity or group of at least 50% of the voting power of the voting securities of the Company other than the Wygod Shares; (b) individuals who, as of the date of the Investment Agreement, constitute the Board of Directors of the Company (the "Incumbent Board") cease for any reason to constitute at least a majority of the Board of Directors (provided that directors whose nomination or election was approved by the Incumbent Board are also generally deemed to be part of the Incumbent Board); (c) a reorganization, merger or consolidation or sale or other disposition of all or substantially all of the assets of the Company (a "Business Combination"), excluding, however, such a Business Combination pursuant to which (i) all or substantially all of the individuals and entities who were the beneficial owners of the Company's voting securities immediately prior to such Business Combination beneficially own more than 60% of, respectively, the then-outstanding shares of common stock and the combined voting power of the then-outstanding securities entitled to vote generally in the election of directors of the corporation resulting from such Business Combination, in substantially the same proportions as their ownership immediately prior to such Business Combination of the Company's voting securities, and (ii) at least a majority of the board of directors of the resulting corporation were members of the Incumbent Board at the time of the execution of the initial agreement or of the action of the Board of Directors providing for such Business Combination; (d) a complete liquidation or dissolution of the Company; or (e) the issuance by the Company following the Closing Date of shares of Common Stock constituting in the aggregate more than 50% of the shares of Common Stock outstanding as of immediately following the Closing Date. Pursuant to the Investment Agreement, during the Restriction Period: (a) Mr. Wygod and SN Investors are required to vote the Wygod Shares, with respect to the election of directors, for the nominees who would have been elected based on the vote of all other stockholders in proportion to the votes that such nominees received from all other stockholders, and on all other matters to come before the stockholders of the Company, in the same manner as a majority of the outstanding shares of Common Stock (other than the Wygod Shares) are voted; and (b) except for sales pursuant to a tender or exchange offer for the shares of Common Stock that is not opposed by the Board of Directors of the Company, neither Mr. Wygod nor SN Investors may transfer interests in the Wygod Shares (except that Mr. Wygod may transfer interests in SN Investors to the extent otherwise permitted by the Investment Agreement). Under the Investment Agreement, following the earlier to occur of (a) December 14, 1998 or (b) the death or adjudication of incompetency of Mr. Wygod: (i) to the extent the Wygod Entities and/or SN Investors retain the power to vote Wygod Shares that have, in the aggregate, in excess of 20% of the voting power of the Company's voting securities outstanding at the time of any vote by stockholders of the Company, Mr. Wygod and SN Investors will vote (or cause to be voted) the portion of such Wygod Shares representing the excess above 20% of such voting power, with respect to the election of directors, for the nominees who would have been elected based on the vote of all other stockholders in proportion to the votes that such nominees received from all other stockholders, and on all matters to come before the stockholders of the Company, in the same manner as a majority of the outstanding shares of Common Stock, other than the Wygod Shares, are voted; and (ii) to the extent that Wygod Entities and/or SN Investors retain beneficial ownership of Wygod Shares that have, in the aggregate, in excess of 20% of the voting power of the outstanding voting securities of the Company, the portion of such Wygod Shares representing the excess above 20% of such voting power at the time of any proposed sale or transfer thereof shall not be sold or transferred except (A) to transferees reasonably acceptable to the Company (provided that, without the Company's consent, no such transfer or series of transfers to a single person, entity or group will involve the 29 transfer of more than 9.9% of the voting power of the Company's outstanding voting securities and no such transfer or series of transfers will be made to a single person, entity or group that will own, following such transfers, more than 50% of the voting power of the Company's outstanding voting securities), (B) to the partners of SN Investors in proportion to their respective interests in SN Investors (provided that, without the Company's consent, no such transfer or series of transfers to a single person, entity or group (other than Mr. Wygod or the Wygod Entities) will involve the transfer of more than 9.9% of the voting power of the Company's outstanding voting securities), (C) in ordinary open market transactions, or (D) pursuant to an underwritten public offering. The restrictions described in the foregoing paragraph will not apply (a) in the event there has been, or from and after the occurrence of, a Change of Control of the Company, (b) at any time after December 14, 2004 or (c) to any person or entity, other than Mr. Wygod, the Wygod Entities or SN Investors, to whom Wygod Shares are transferred (including by means of distributions from SN Investors) in accordance with the provisions of the foregoing paragraph. The Investment Agreement also provides certain demand registration rights to Mr. Wygod at Mr. Wygod's expense which are assignable to any permitted transferee of the Wygod Shares; provided that, in no event is the Company required to file in the aggregate more than two registration statements in connection therewith. Mr. Wygod has not assigned such registration rights to SN Investors. While Mr. Wygod currently intends to assign such registration rights to SN Investors in the event the General Partner determines to sell or otherwise transfer the Wygod Shares under circumstances in which registration would be required, Mr. Wygod is under no obligation to do so. Certain provisions of the Investment Agreement may have the effect of deterring a change of control of the Company that is not supported by the Board of Directors of the Company or Mr. Wygod. During the Restriction Period, Mr. Wygod and SN Investors are prohibited from transferring the Wygod Shares, except pursuant to a tender or exchange offer that is not opposed by the Board of Directors of the Company or to specified permitted transferees. In addition, under the Investment Agreement, in the event that a Change of Control (as defined in the Investment Agreement) were to occur during the Restriction Period, Mr. Wygod and SN Investors would no longer be obligated under the Investment Agreement to vote in the same manner as the majority of the other outstanding shares of Common Stock (other than the Wygod Shares) are voted, with the result that Mr. Wygod and SN Investors would have unrestricted voting power with respect to the Wygod Shares. The effect of these provisions of the Investment Agreement may be to discourage the commencement of a tender or exchange offer opposed by the Board of Directors of the Company during the Restriction Period and to discourage a proxy solicitation to change a majority of the Board of Directors of the Company absent the support of Mr. Wygod. CERTAIN ADDITIONAL AGREEMENTS Consulting Agreement. In the Consulting Agreement, dated as of May 24, 1994 (the "Consulting Agreement"), by and among Mr. Wygod, Merck and Medco, Mr. Wygod has agreed that, until May 24, 1999, absent Merck's prior written approval, he will not (as principal, agent, employee, consultant or otherwise) directly or indirectly engage in activities with, nor render services to, any business engaged or about to become engaged in a Competitive Business (as defined in the Consulting Agreement). A "Competitive Business" is defined in the Consulting Agreement as: (a) the pharmaceutical business of Merck and its affiliates (unless such business is subsequently disposed of and Mr. Wygod did not have material involvement in such business during the two-year period preceding May 24, 1994), (b) the business, as of either November 18, 1993 or May 24, 1994, of Medco and its subsidiaries (unless such business is subsequently disposed of and Mr. Wygod did not have material involvement in such business during the two-year period preceding May 24, 1994), other than the business of Porex and the other plastic businesses of the Company as conducted as of May 24, 1994, or (c) any other then-current business of Merck and its affiliates as to which Mr. Wygod became materially involved following November 18, 1993; provided, however, that the Consulting Agreement permits Mr. Wygod to have a 1% or less equity interest in a Competitive Business 30 that is a public corporation. In addition, the Consulting Agreement provides that, until May 24, 1999, Mr. Wygod will not, directly or indirectly: (i) solicit or contact any customer or prospective customer of Medco and/or any of its affiliates as to matters that relate to a Competitive Business in which Medco or its affiliates is then engaged or which is in any way inconsistent or interferes therewith; (ii) induce, or attempt to induce, any employees or agents or consultants of Medco and/or its affiliates to do anything from which Mr. Wygod is restricted by reason of the Consulting Agreement; or (iii) offer or aid others to offer employment to any employees of Medco or its affiliates. Medco/Porex Purchase Agreement. Pursuant to the Medco/Porex Purchase Agreement between Medco and Porex entered into pursuant to the Purchase and Sale Agreement, Porex will supply to Medco all of its requirements for certain Products for Medco's use in its prescription dispensing operations (the "Requirements"), and Medco will purchase such Requirements for a period beginning on December 14, 1994 and ending on December 14, 1996. The cost to Medco of the Products is the price in effect on the date of the Medco/Porex Purchase Agreement and Medco will be entitled to that price until December 14, 1995. Such price will increase by 3% on December 14, 1995, subject to certain adjustments set forth in the Medco/Porex Purchase Agreement. During the fiscal year ended June 30, 1994, the aggregate price for Medco's purchases of such plastic vials and caps was $2,312,000, representing substantially all of the Company's sales of such products. These sales were based on prices and terms generally available to non-affiliates. Transition Agreement. Pursuant to the Transition Agreement, dated as of November 4, 1994 between Merck and the Company, Merck has agreed to cause Medco to provide to the Company, for a period of 180 days following December 14, 1994, certain administrative, legal, tax, accounting and other transition services. The Company has agreed to pay the actual costs for such services or, where such costs are not separately identifiable, a portion of the total cost based on the ratio of the Company's sales to the sales of all entities for which these services are provided by Medco. DESCRIPTION OF CAPITAL STOCK The following description of the capital stock of the Company is subject to the Delaware General Corporation Law (the "DGCL") and to provisions contained in the Company's Certificate of Incorporation and By-Laws, copies of which are exhibits to the 1994 10-K that is incorporated by reference into this Prospectus. Reference is made to such exhibits for a detailed description of the provisions thereof summarized below. The authorized capital stock of the Company consists of 10,000,000 shares of Preferred Stock, $.01 par value (the "Preferred Stock"), and 50,000,000 shares of Common Stock, $.01 par value. None of the Preferred Stock is issued and outstanding. At January 25, 1995, there were 12,690,098 shares of Common Stock outstanding. As of December 31, 1994, on a pro forma basis assuming all of the Debentures are converted into Common Stock, there would have been 16,498,379 shares of Common Stock outstanding. Holders of capital stock of the Company have no preemptive or other subscription rights. PREFERRED STOCK The Preferred Stock may be issued from time to time in one or more series, without stockholder approval. The Board of Directors is authorized to determine (subject to limitations prescribed by law) the other rights including voting rights, if any, preferences, terms and limitations to be granted to and imposed upon any wholly unissued series of Preferred Stock and to fix the number of shares of any series of Preferred Stock and the designation of any such series. The Company has no present plans to issue any shares of Preferred Stock. Because of its broad discretion with respect to the creation and issuance of any series of Preferred Stock without stockholder approval, the Board of Directors could adversely affect the voting power of Common Stock. The issuance of Preferred Stock may have the effect of delaying, deferring or preventing a change in control of the Company. 31 COMMON STOCK Subject to prior rights of any Preferred Stock then outstanding, the holders of outstanding shares of Common Stock are entitled to receive dividends out of assets legally available therefor declared and paid by the Company. The Company does not currently anticipate paying cash dividends to holders of its Common Stock. See "Dividend Policy." Upon liquidation, dissolution or winding up of the Company, the assets legally available for distribution to stockholders are distributable ratably among the holders of the Common Stock at the time outstanding, subject to the rights, if any, of the holders of any Preferred Stock then outstanding. Since the Company's Board of Directors has the authority to fix the rights and preferences of, and to issue, the Company's authorized but unissued Preferred Stock without approval of the holders of its Common Stock, the rights of such holders may be materially limited or qualified by the issuance of the Preferred Stock. VOTING RIGHTS Stockholders are entitled to one vote for each share of Common Stock held of record, except that for the election of directors, stockholders have cumulative voting rights. Cumulative voting for directors means that, at each election of directors, the number of shares eligible to be voted by a stockholder is multiplied by the number of directors to be elected. A stockholder may cast all such stockholder's votes for a single candidate, or may allocate them among two or more candidates in any manner such stockholder chooses. For example, if three directors are to be elected, holders of one-third of the shares would be able, by cumulating their votes, to elect one director, regardless of how the other shares are voted. Currently, the Company has 11 directors. The maximum number of directors permitted under the Company's Certificate of Incorporation is 12. The affirmative vote of the holders of at least two-thirds of the Company's shares entitled to vote in an election of directors is required to amend (i) the provisions of the Company's Certificate of Incorporation relating to cumulative voting, classification of the Company's directors into three classes, election of only one-third of the Board at each annual meeting of stockholders and the power to remove directors or fill vacancies, and (ii) the By-Laws to increase the number of directors above 12. The Company's Certificate of Incorporation also provides that any or all directors may be removed with or without cause prior to completion of their term only upon the vote of holders of two-thirds of the outstanding shares of Common Stock entitled to vote generally in the election of directors; provided that, in accordance with the DGCL, if less than the entire Board is to be removed, no director may be removed without cause if the votes cast against his removal would be sufficient to elect him if then cumulatively voted at an election of the class of directors of which he is a part. The provisions in the Certificate of Incorporation of the Company relating to a staggered Board of Directors, super-majority requirements and delegation of rights to issue Preferred Stock may have the effect not only of discouraging tender offers or other stock acquisitions but also of deterring existing stockholders from making management changes. A staggered Board, while promoting stability in Board membership and management, also moderates the pace of any change in control of the Board of Directors by extending the time required to elect a majority, effectively requiring action in at least two annual meetings. Moreover, a staggered Board makes it more difficult for minority stockholders, even with cumulative voting, to elect a director. For example, to elect one director of a non-staggered 12-member Board, stockholders with cumulative voting would need only one-twelfth of the votes cast. To elect one member of a staggered Board with three classes and 12 members, stockholders with cumulative voting would need one-fourth of the votes cast. The provisions with respect to removal of directors, while intended to prevent circumvention of benefits derived from classification of directors and to prevent a transfer of control of the Board of Directors through the removal process, also have the effect of preventing removal of a director for just cause by a majority of outstanding voting shares. The ability of the Board of Directors to issue Preferred Stock, while providing flexibility in connection with possible acquisitions and other corporate purposes, could make it more difficult for a third party to secure a majority of outstanding voting stock. See "Certain Transactions--The Purchase" for a description of voting restrictions on shares held by SN Investors. 32 TRANSFER AGENT AND REGISTRAR The transfer agent and registrar for the Common Stock is Registrar & Transfer Company. SHARES ELIGIBLE FOR FUTURE SALE As of January 25, 1995, the Company had 12,690,098 shares of Common Stock outstanding, and on a pro forma basis assuming conversion of all of the Debentures, would have had 16,636,208 shares of Common Stock outstanding. Of the currently outstanding shares, the 7,628,241 shares not owned by SN Investors are freely tradable without restrictions or further registration under the Securities Act; however, any shares owned by an "affiliate" of the Company (as that term is defined in the rules and regulations under the Securities Act) may not be resold in a public distribution except in compliance with the registration requirements of the Securities Act or pursuant to Rule 144 thereunder. All of the remaining 5,061,857 shares held by SN Investors are "restricted securities" within the meaning of Rule 144. In general, Rule 144 under the Securities Act provides that an affiliate of the Company, subject to any applicable holding period, may sell within any three-month period a number of shares that does not exceed the greater of 1% of the then outstanding shares of the Common Stock or the average weekly trading volume in composite trading on all exchanges during the four calendar weeks preceding such sale. In addition, sales under Rule 144 may be made only through unsolicited "broker's transactions" and are subject to various other conditions. The Company's affiliates are eligible to sell shares of Common Stock in the public market pursuant to Rule 144 if the conditions of Rule 144 have been met. In addition, SN Investors is able to sell shares of Common Stock in a transaction complying with the registration requirements of the Securities Act or in a private transaction not subject to such requirements. The Investment Agreement provides certain demand registration rights to Mr. Wygod at Mr. Wygod's expense, which are assignable to any permitted transferee of the Wygod Shares; provided that in no event is the Company required to file in the aggregate more than two registration statements in connection therewith. Mr. Wygod has not assigned such registration rights to the Partnership. While Mr. Wygod currently intends to assign such registration rights to the Partnership in the event the General Partner determines to sell or otherwise transfer the Wygod Shares under circumstances in which registration would be required, Mr. Wygod is under no obligation to do so. For information concerning shares which may be issued under the Company's stock option plans, see "Risk Factors--Shares Available for Future Sale." INDEMNIFICATION OF DIRECTORS AND OFFICERS Article Thirteen of the Company's Certificate of Incorporation provides that no director shall have any personal liability to the Company or its stockholders for any monetary damages for breach of fiduciary duty as a director, provided that such provision does not limit or eliminate the liability of any director (i) for breach of such director's duty of loyalty to the Company or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under Section 174 of the Delaware General Corporation (involving certain unlawful dividends or stock repurchases) or (iv) for any transaction from which such director derived an improper personal benefit. Amendment to such article does not affect the liability of any director for any act or omission occurring prior to the effective time of such amendment. Pursuant to separate Indemnification Agreements between the Company and its directors and officers, the Company has agreed to indemnify such directors and officers to the fullest extent permitted by Delaware law, as the same may be amended from time to time. 33 STANDBY ARRANGEMENTS The Company and the Purchasers have entered into a standby purchase agreement (the "Standby Agreement") pursuant to which each of the Purchasers have agreed, severally and not jointly, subject to certain conditions, to purchase from the Company 50% of the Shares of Common Stock that would otherwise be issuable upon conversion of up to $18,250,000 aggregate principal amount of Redeemed Debentures. The aggregate purchase price paid by the Purchasers for the Shares will be an amount equal to the aggregate Redemption Price of the Redeemed Debentures. Up to 894,607 shares of Common Stock are subject to purchase under the Standby Agreement. The obligations of the Purchasers to purchase shares under the Standby Agreement will apply first to the shares issued upon conversion of the Redeemed Debentures that are duly surrendered for Redemption. The Purchasers also may acquire Debentures for their own account in the open market or otherwise on or prior to the Conversion Expiration Date in such amounts and at such prices as the Purchasers deem advisable. For the purpose of stabilizing the price of the Common Stock, engaging in certain hedging transactions or otherwise, the Purchasers may make purchases and sales of Common Stock or Debentures, in the open market or otherwise, for long or short account, on such terms as the Purchasers deem advisable, and may over-allot in arranging sales, all subject to applicable provisions of the 1934 Act. Such transactions involving Debentures may occur prior to or on the Conversion Expiration Date, and such transactions involving Common Stock may occur prior to, on or after the Conversion Expiration Date. The Purchasers have agreed to surrender for conversion into Common Stock any Debentures beneficially owned by them on the Conversion Expiration Date, but will not be compensated by the Company upon any subsequent sale of such shares of Common Stock. The Purchasers have not been retained with respect to the redemption of the Debentures or the issuance of Common Stock to Holders who elect to surrender their Debentures for conversion or to solicit conversions of the Debentures and will receive no remuneration in connection therewith. Prior to and after the Redemption Date, the Purchasers may offer to the public shares of Common Stock, including shares acquired through conversion of Debentures purchased by the Purchasers as described above, at prices set by it from time to time and to dealers at such prices less a selling concession to be determined by the Purchasers. Prior to the Redemption Date, it is intended that such prices will not be increased more frequently than once in any day and will not exceed the greater of the last sale or current asked price of the Common Stock on the Nasdaq National Market, plus applicable dealers' commissions. Sales of Common Stock by the Purchasers may be made on the Nasdaq National Market, in block trades, in the over-the-counter market, in privately negotiated transactions or otherwise, from to time. In effecting such sales, the Purchasers may realize profits or incur losses independent of the compensation described below. Any Common Stock offered by the Purchasers will be subject to prior sale, to receipt and acceptance by them and to the approval of certain legal matters by legal counsel. The Purchasers reserve the right to reject any order in whole or in part and to withdraw, cancel or modify the offer without notice. Pursuant to the terms of the Standby Agreement and in consideration of the Purchasers' obligations thereunder, the Company has agreed to pay to the Purchasers the sum of $600,000 plus an additional $2.00 per Share for each Share purchased by the Purchasers pursuant to the Standby Agreement. Pursuant to the foregoing arrangements, the Purchasers would receive minimum compensation aggregating $600,000 and maximum compensation aggregating $2,389,214. The Purchasers have agreed to remit to the Company 50% of the excess of the aggregate proceeds received upon the resale by the Purchasers of the Shares (net of selling concessions, commissions, transfer taxes and other direct, out-of-pocket selling expenses) over the aggregate purchase price paid by the Purchasers for such Shares to the extent such purchases are made to fund redemption of Debentures that are not duly surrendered for conversion by the Conversion Expiration Date or for redemption by the Redemption Date. The Company has agreed to reimburse the Purchasers for their out-of-pocket expenses not in excess of $85,000 in connection with the transaction contemplated by the Standby Agreement and to indemnify the Purchasers against, and to provide contribution with respect to, certain liabilities, including liabilities under the Securities Act of 1933, as amended. 34 An institutional investor has agreed with the Company to surrender for conversion into Common Stock the $22,050,000 aggregate principal amount of Debentures it holds. Additionally, in consideration of a payment of $1,000,000 such institutional investor has agreed that, from the date hereof through February 21, 1995, it will not offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, or otherwise transfer or dispose of, directly or indirectly, any shares of Common Stock or any securities convertible into or exercisable or exchangeable for Common Stock, or enter into any swap or similar agreement that transfers, in whole or in part, the economic risk of ownership of the Common Stock. Pursuant to the Standby Agreement, the Company, each executive officer of the Company and each director of the Company have agreed, with certain exceptions, that, for a period of 90 days from the date hereof, without the prior written consent of the Purchasers, it will not issue or sell, or enter into any agreement, arrangement or understanding of any kind, or take any action, for the issuance or sale of, or otherwise dispose of any capital stock of the Company (or securities convertible into, exercisable or exchangeable for capital stock). The rules of the Securities and Exchange Commission (the "Commission") generally prohibit the Purchasers from making a market in the Common Stock during the two business day period prior to commencement of sales in this offering (the "Cooling Off Period"). The Commission has, however, adopted Rule 10b-6A under the Securities Exchange Act of 1934 ("Rule 10b-6A") which provides an exemption from such prohibition for certain passive market making transactions. Such passive market making transactions must comply with applicable price and volume limits and must be identified as passive market making transactions. In general, pursuant to Rule 10b-6A, a passive market maker may display its bid for a security at a price not in excess of the highest independent bid for the security. If all independent bids are lowered below the passive market maker's bid, however, such bid must then be lowered when certain purchase limits are exceeded. Further, net purchases by a passive market maker on each day are generally limited to a specified percentage of the passive market maker's average daily trading volume in a security during a specified prior period and must be discontinued when such limit is reached. Pursuant to the exemption provided by Rule 10b-6A, the Purchasers may engage in passive market making in the Common Stock during the Cooling Off Period. Passive market making may stabilize the market price of the Common Stock at a level above that which might otherwise prevail, and if commenced, may be discontinued at any time. LEGAL MATTERS Certain legal matters with respect to the legality of the issuance of the Common Stock offered hereby will be passed upon for the Company by Shearman & Sterling, New York, New York. Certain legal matters will be passed upon for the Purchasers by Brown & Wood, New York, New York. Shearman & Sterling is a limited partner in SN Investors. The statements of law under the captions "Risk Factors--Regulation of Porex" and "Business--Regulation" in this Prospectus are based upon the opinion of Emens, Kegler, Brown, Hill & Ritter Co., L.P.A., Columbus, Ohio, special regulatory counsel to the Company. Robert D. Marotta, Esq., of counsel to such firm, holds 50,000 options to purchase Common Stock. EXPERTS The audited Consolidated Financial Statements and schedules of the Company that are incorporated by reference into this Prospectus have been audited by Arthur Andersen LLP, independent public accountants, as indicated in their reports with respect thereto, and are included herein in reliance upon the authority of said firm as experts in giving said reports. 35 - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN CONNECTION WITH THE OFFERING COVERED BY THIS PROSPECTUS. IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR THE PURCHASER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, THE COMMON STOCK IN ANY JURISDICTION WHERE, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS NOT BEEN ANY CHANGE IN THE FACTS SET FORTH IN THIS PROSPECTUS OR IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF. ------------ TABLE OF CONTENTS
PAGE ---- Available Information..................................................... 2 Incorporation of Certain Documents by Reference........................... 2 Prospectus Summary........................................................ 3 Risk Factors.............................................................. 6 Use of Proceeds........................................................... 8 Price Range of Common Stock............................................... 9 Dividend Policy........................................................... 9 Capitalization............................................................ 10 Selected Financial Data................................................... 11 Management's Discussion and Analysis of Results of Operations and Financial Condition...................................................... 12 Business.................................................................. 15 Management................................................................ 24 Certain Transactions...................................................... 26 Description of Capital Stock.............................................. 31 Standby Arrangements...................................................... 34 Legal Matters............................................................. 35 Experts................................................................... 35
- ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- 1,000,000 SHARES SYNETIC, INC. COMMON STOCK [LOGO OF SYNETIC, INC.] -------- PROSPECTUS JANUARY 27, 1995 -------- SMITH BARNEY INC. PAINEWEBBER INCORPORATED - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- -----END PRIVACY-ENHANCED MESSAGE-----