-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, UhR7iK2tZF3VaNhMNsOQvwPQWkQLCr8AKTzzOzhOHKvKLc3sOuIe1p4JCW00qhzO MG9zL4ly9pOle+6diIW9FA== 0000950130-98-005126.txt : 19981028 0000950130-98-005126.hdr.sgml : 19981028 ACCESSION NUMBER: 0000950130-98-005126 CONFORMED SUBMISSION TYPE: 10-K/A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19980630 FILED AS OF DATE: 19981027 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: SYNETIC INC CENTRAL INDEX KEY: 0000850436 STANDARD INDUSTRIAL CLASSIFICATION: PLASTICS PRODUCTS, NEC [3089] IRS NUMBER: 222975182 STATE OF INCORPORATION: DE FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-K/A SEC ACT: SEC FILE NUMBER: 000-17822 FILM NUMBER: 98731269 BUSINESS ADDRESS: STREET 1: 669 RIVER DRIVE STREET 2: RIVER DRIVE CENTER II CITY: ELMWOOD PARK STATE: NJ ZIP: 07407-1361 BUSINESS PHONE: 2017033400 MAIL ADDRESS: STREET 1: 669 RIVER DRIVE STREET 2: RIVER DRIVE CENTER II CITY: ELMWOOD PARK STATE: NJ ZIP: 07407-1361 10-K/A 1 FORM 10-K/A ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K/A ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended June 30, 1998 Commission file number 0-17822 SYNETIC, INC. (Exact name of registrant as specified in its charter) DELAWARE 22-2975182 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 669 RIVER DRIVE ELMWOOD PARK, NEW JERSEY 07407-1361 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (201) 703-3400 Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: TITLE OF EACH CLASS ------------------- COMMON STOCK, $.01 PAR VALUE 5% CONVERTIBLE SUBORDINATED DEBENTURES DUE 2007 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days. YES [X] NO [_] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] The aggregate market value of the registrant's voting stock (based on the last sale price of registrant's voting stock on the NASDAQ National Market System on September 21, 1998 and, for the purpose of this computation only, the assumption that all of the registrant's directors and executive officers are affiliates) held by non-affiliates of the registrant was approximately $499,088,763. The number of shares of registrant's Common Stock, $.01 par value, outstanding at September 21, 1998 was 18,669,434. DOCUMENTS INCORPORATED BY REFERENCE None. ================================================================================ PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. Pursuant to General Instruction G(3) to the Annual Report on Form 10-K, certain of the information regarding executive officers of the Company required by Item 401 of Regulation S-K is included in Part I of this report. The directors of the Company are as follows:
Director Principal Name Age Since Occupation ---- --- -------- ---------- Thomas R. Ferguson 72 1989 Mr. Ferguson has been a member of the law firm of Ferguson, Case, Orr, Paterson & Cunningham for more than five years. Mervyn L. Goldstein, M.D. 61 1989 Dr. Goldstein 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. Ray E. Hannah 61 1989 Mr. Hannah has been Co-Chairman of Porex Technologies Corp. ("Porex") since January 1998 and was President of Porex from September 1987 to December 1997 and its Chief Executive Officer from November 1992 to December 1997 and an executive officer of the Company from June 1989 to March 1998. Mr. Hannah was the Chief Operating Officer of Porex from November 1984 to November 1992. Roger H. Licht 44 1989 Mr. Licht has been a member of the law firm of Licht & Licht for more than five years. James V. Manning 51 1989 Mr. Manning has been Vice Chairman since March 1998 and was Chief Executive Officer of the Company from January 1995 to March 1998 and President of the Company from July 1996 to March 1998. Mr. Manning was, until March 1998, 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 is also Chairman of the Board of Group One Software, Inc., a computer software company. Bernard A. Marden 79 1997 Mr. Marden has been a private investor for more than five years. Charles A. Mele 42 1989 See "Part I. Executive Officers."
2 Herman Sarkowsky 73 1989 Mr. Sarkowsky has been Chairman of the Board and Chief Executive Officer of Sarkowsky Investment Corporation, a diversified investment company, for more than five years. From May 1992 to May 1997, he served as a director of Seafirst Bank. Mr. Sarkowsky is also a director of Eagle Hardware & Garden Inc. and Hollywood Park, Inc. Paul C. Suthern 46 1993 See "Part I. Executive Officers." Albert M. Weis 71 1989 Mr. Weis has been President of A.M. Weis & Co., Inc., a commodities trading corporation, for more than five years. Since August 1997, Mr. Weis has been the Chairman of the Board of the New York Cotton Exchange. Mr. Weis is also a member of the Board of the Commodities Clearing Corporation. Martin J. Wygod 58 1989 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. He is also 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.
No family relationship exists among any of the directors or executive officers 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. -------------------- SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE Based solely upon a review of Forms 3 and 4 and amendments thereto furnished to the Company during the year ended June 30, 1998 and Forms 5 and amendments thereto furnished to the Company for such year, no person failed to file on a timely basis, as disclosed in the above forms, reports required by Section 16(a) of the Securities Exchange Act of 1934, as amended, during such year. 3 ITEM 11. EXECUTIVE COMPENSATION. The following table presents information concerning compensation paid for services to the Company during the last three fiscal years with respect to the Company's Chief Executive Officer, the Company's former Chief Executive Officer and the other four most highly compensated executive officers of the Company (the "Named Executive Officers"):
SUMMARY COMPENSATION TABLE -------------------------- LONG TERM ANNUAL COMPENSATION COMPENSATION ----------------------- ------------- SECURITIES UNDERLYING ALL OTHER OPTIONS/ COMPEN- NAME AND PRINCIPAL POSITION YEAR SALARY ($) BONUS ($) SARS (#) SATION ($) --------------------------- ---- ---------- --------- ---------- ---------- James V. Manning................... 1998 100,000 -- -- -- President (July 1996 to 1997 100,000 -- -- -- March 1998) and Chief 1996 100,000 -- -- -- Executive Officer (January 1995 to March 1998)(1) Paul C. Suthern.................... 1998 97,692 -- 194,000 -- President (beginning March 1997 -- -- -- -- 1998) & Chief Executive 1996 160,000 -- -- -- Officer (October 1993 to January 1995 and beginning March 1998) David M. Margulies................. 1998 175,000 -- 272,728(3) -- Executive Vice President 1997 72,019(2) -- 272,728(3) -- -Chief Scientist 1996 -- -- -- -- Ray E. Hannah...................... 1998 175,000 -- -- 3,683(4) Vice President 1997 163,461 100,000 40,000 5,901(4) --Porex Technologies Group 1996 160,000 74,140 -- 3,239(4) Charles A. Mele.................... 1998 159,692 -- 85,000 3,163(5) Executive Vice President and 1997 150,000 -- 195,000 2,019(5) General Counsel 1996 150,000 12,460 -- 1,540(5) Anthony Vuolo...................... 1998 159,692 -- 50,000 3,163(5) Executive Vice President and 1997 150,000 -- 81,000 2,019(5) Chief Financial Officer (since 1996 150,000 -- -- 1,419(5) May 1997)
- ---------------------- (1) Mr. Manning has been Vice Chairman since March 1998. (2) Dr. Margulies became an employee of the Company after the Company's acquisition of CareAgents, Inc. on January 23, 1997. As such, only compensation paid subsequent to January 23, 1997 is reflected above. (3) These options were originally granted January 23, 1997 and were canceled and replaced January 7, 1998. 4 (4) Includes Company matching contributions to the Porex Technologies Corp. 401(k) Savings Plan ("Porex 401(k) Plan") and life insurance premiums paid on behalf of Mr. Hannah of $1,878 and $1,361, respectively, in the fiscal year ended June 30, 1996, $3,795 and $2,106, respectively, in the fiscal year ended June 30, 1997 and $1,577 and $2,106, respectively, in the fiscal year ended June 30, 1998. (5) Comprised of Company matching contributions to the Porex 401(k) Plan. The following table presents information concerning the options granted to the Named Executive Officers during the last fiscal year.
OPTION/SAR GRANTS IN LAST FISCAL YEAR INDIVIDUAL GRANTS ----------------- NUMBER OF SECURITIES % OF TOTAL UNDERLYING OPTIONS/SARS EXERCISE OPTIONS/ GRANTED TO OR BASE SARS EMPLOYEES PRICE EXPIRATION GRANT DATE NAME GRANTED (#) IN FISCAL YEAR ($/SH) DATE PRESENT VALUE ($)(4) ---- -------------- --------------- --------- ---------- -------------------- Paul C. Suthern....... 10,000(1)(3) 0.40% 38.7500 7/1/12 145,856 184,000(1) 7.40% 36.8750 1/7/08 2,553,898 -------- ----- --------- 194,000 7.81% 2,699,754 David M. Margulies.... 272,728(2) 10.97% 36.8750 1/7/08 2,818,841 Charles A. Mele....... 85,000(1) 3.42% 36.8750 1/7/08 1,179,790 Anthony Vuolo......... 50,000(1) 2.01% 36.8750 1/7/08 693,994
____________ (1) These options vest and become exercisable at the rate of 20% per year, commencing on the first anniversary of the date of grant and were granted on the following dates: Mr. Suthern, 10,000 on July 1, 1997 and 184,000 on January 7, 1998; Messrs. Vuolo and Mele, on January 7, 1998. (2) These options vest and become exercisable at the rate of 40%, commencing on the second anniversary of the date of grant and 20% on each subsequent anniversary and were granted on January 7, 1998. This grant represents the replacement of a grant of an option originally issued on January 23, 1997. (3) These options were awarded to Mr. Suthern while serving as Vice Chairman of the Board of Directors under the 1991 Director Stock Option Plan. (4) The estimated grant date present value reflected in the above table is determined using the Black-Scholes model. The material assumptions and adjustments incorporated in the Black-Scholes model in estimating the value of the options reflected in the above table include the following: (i) the respective option exercise price, specified above, equal to the fair market value of the underlying stock on the date of grant; (ii) the exercise of options within two years of the date that they become exercisable; (iii) a risk-free interest rate of 6.3% per annum; and (iv) volatility of 0.2986 calculated using daily stock prices of the Company during the period from the date of the purchase of shares of Common Stock from Merck & Co., Inc. ("Merck") by the Company and SN Investors on December 14, 1994 to June 30, 1998. The ultimate values of the options will depend on the future market price of the Company's stock, which cannot be forecasted with reasonable accuracy. The actual value, if any, an optionee will realize upon exercise of an option will depend on the excess of the market value of the Company's Common Stock over the exercise price on the date the option is exercised. There is no assurance that the value realized by an optionee will be at or near the value estimated by the Black-Scholes model or any other model applied to value the options. 5 No options to purchase Common Stock were exercised by the Named Executive Officers during the fiscal year ended June 30, 1998. The following table presents information concerning the fiscal year-end value of options to purchase Common Stock held by the Named Executive Officers.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION/SAR VALUES NUMBER OF SECURITIES VALUE OF UNEXERCISED UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS/ OPTIONS/SARS AT FY-END(#) SARS AT FY-END ($)(1) ---------------------------- ---------------------------- NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE ---------- ----------- ------------- ----------- ------------- James V. Manning.............. 255,000 60,000 11,633,750 2,640,000 Paul C. Suthern............... 234,000 266,000 8,944,500 6,471,500 David M. Margulies............ - 272,728 - 4,670,467 Ray E. Hannah................. 72,000 32,000 2,990,500 592,000 Charles A. Mele............... 109,000 241,000 3,983,250 4,848,625 Anthony Vuolo................. 135,200 164,800 5,521,100 4,360,650
- ---------- (1) Based upon the fiscal year-end closing price of the Common Stock of $54.00. PLANS AND ARRANGEMENTS OF THE COMPANY PENSION PLAN Employees of the Company and certain of its subsidiaries who satisfy certain age and service requirements are eligible to participate in the Pension Plan for Employees of Porex Technologies Corp. (the "Pension Plan"), a defined benefit plan. The Company bears the entire cost of the Pension Plan. The Company's contributions to the Pension Plan are computed on an actuarial basis in order to fund the defined retirement benefits. Normal retirement benefits are payable monthly for life to a participant upon retirement at his or her retirement date (i.e., age 65), and are equal to 1/12 of the sum of (a) 0.6% of the participant's average annual compensation for the five consecutive calendar years that the participant's compensation was the highest during the ten consecutive years of service immediately preceding retirement ("Final Average Compensation"), multiplied by the participant's credited years of service up to a maximum of 35 years, and (b) 0.6% of the participant's Final Average Compensation in excess of the average annual Social Security taxable wage base for the 35-year period ending with the year the participant would reach normal retirement age, multiplied by the participant's credited years of service up to a maximum of 35 years. A participant becomes 100% vested in his or her accrued retirement benefit after completion of five years of service or upon attainment of normal retirement at age 65. Retirement benefits are not subject to any deduction for Social Security or other offset amounts. Under a defined benefit plan such as the Pension Plan, contributions allocable to individual participants cannot be readily and accurately calculated. The table below shows estimated annual retirement benefits for executives at specified levels of remuneration and years of service. The estimates assume that benefits commence at age 65 under a straight life annuity form. The table discloses the benefits that an individual would receive at age 65 if he participated in the Pension Plan for 15, 20, 25, 30, 35 and 40 years. 6 PENSION PLAN TABLE
Years of Service ---------------------------------------------- Remuneration 15 20 25 30 35 40 - -------------- ------ ------ ------ ------ ------ ------ 100,000 15,198 20,265 25,331 30,397 35,463 35,463 115,000 17,898 23,865 29,831 35,797 41,763 41,763 125,000 19,698 26,265 32,831 39,397 45,963 45,963 150,000 24,198 32,265 40,331 48,397 56,463 56,463 154,000 24,918 33,225 41,531 49,837 58,143 58,143 or more
Ray E. Hannah, the only Named Executive Officer participating in the Pension Plan, had accrued 30 credited years of service under the Pension Plan and had annual remuneration covered by the Pension Plan of $160,000 as of January 1, 1998. Sections 401(a)(17) and 415 of the Internal Revenue Code limit the amount of compensation that may be considered in computing benefits under a qualified retirement plan. For 1998, the maximum amount of compensation allowed for use in calculating an individual's pension benefits under the Retirement Plan was $160,000. On May 1, 1998, the Company ceased all benefit accruals under the plan. The Company has not made a final decision regarding the status of the Pension Plan. If the Company were to terminate the plan, the Company's obligation to Mr. Hannah would be approximately $49,500 per annum. COMPENSATION OF DIRECTORS Those directors who are not officers or employees of the Company received no cash compensation for serving as directors for the fiscal year ended June 30, 1998. The Company's 1991 Director Stock Option Plan (the "Director Plan") provides that on the first business day of each fiscal year of the Company, each director who is not an officer or employee of the Company then in office will automatically be granted an option to purchase 10,000 shares of Common Stock. In addition, each director who is not an officer or employee of the Company automatically receives an option to purchase 10,000 shares of Common Stock at the time such director is first elected to the Board. The Director Plan is administered by the Board of Directors or any executive officer or officers designated by the Board. Non-employee directors (other than those directors who serve on the Stock Option Committee) have also received in the past, options to purchase Common Stock under the Company's 1989 Class A Stock Option Plan (the "Class A Plan"), and the Company from time to time has granted options to purchase Common Stock to certain of such directors outside the Company's stock option plans on terms similar to those contained in the Class A Plan. EMPLOYMENT AGREEMENT Dr. Margulies entered into an Employment Agreement with the Company dated January 23, 1997 (the "Margulies Agreement") in connection with the Company's acquisition of CareAgents, Inc. The Margulies Agreement provides for a term of five years which shall automatically be renewed for successive one-month periods unless notice to terminate is given by either party prior to the expiration of the then effective term. Under the Margulies Agreement, Dr. Margulies receives an annual base salary of $175,000. At any time, the Company may terminate the Margulies Agreement and Dr. Margulies's employment with the Company with or without Cause (as defined in the Margulies Agreement). Upon termination without Cause, the Company's obligation to Dr. Margulies is limited to paying him earned and unpaid compensation to the effective date of such termination and allowing any outstanding options granted under the Stock Option Agreement between Dr. Margulies and the Company dated January 23, 1997 to continue to vest after such termination through the earlier of (i) the next anniversary of the date of grant on which a portion of options are scheduled to vest, or (ii) the occurrence of any circumstance or event that would constitute Cause. 7 Dr. Margulies is also subject to certain restrictive covenants, including restrictions on disclosure of confidential information, restrictions on competing with the Company, restrictions on soliciting its customers and employees, and obligations to assign developments to the Company. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. PRINCIPAL STOCKHOLDERS The following table sets forth certain information as of October 21, 1998 (except as otherwise indicated) concerning the beneficial ownership of the Company's Common Stock by each person known by the Company to own more than 5% of its Common Stock.
AMOUNT NAME AND ADDRESS OF AND NATURE OF PERCENT BENEFICIAL OWNER BENEFICIAL OWNERSHIP OF CLASS (1) ------------------- ------------------------ ------------ Martin J. Wygod......................... 5,379,948(2)(3) 28.5% P.O. Box 7188 Rancho Santa Fe, California 92067 SN Investors, L.P....................... 5,061,857(2) 27.1% 818 Washington Street Wilmington, Delaware 19801 FMR Corp................................ 1,157,582(4) 6.2% 82 Devonshire Street Boston, Massachusetts 02107 The Prudential Insurance Company........ 1,292,447(5) 6.9% of America ("Prudential") Prudential Plaza Newark, New Jersey 07102 James R. Buell.......................... 1,010,916(6) 5.4% Star Route Box 129 Orovada, Nevada 89425
- ------------------------------------- (1) The number of shares of Common Stock deemed outstanding includes: (i) 18,694,102 shares of Common Stock outstanding as of October 21, 1998, (ii) the number of shares, if any, of Common Stock that the respective persons named in the above table have the right to acquire presently or within 60 days of October 21, 1998 upon exercise of stock options and (iii) the number of shares, if any, of Common Stock, which the respective persons named in the above table have the right to acquire upon conversion of the Company's 5% Convertible Subordinated Debentures due 2007 ("Convertible Debentures"). (2) SN Investors, the general partner of which is controlled by Mr. Wygod, is the record and beneficial owner of 5,061,857 shares of Common Stock. Mr. Wygod is an indirect beneficial owner of such shares and they are included in the total of 5,379,948 shares listed as beneficially owned by Mr. Wygod. See "Item 13. Certain Relationships and Related Transactions--Purchase and Sale Agreement; Divestiture" and "--Investment Agreement" for additional information regarding SN Investors. 8 (3) Includes 212,000 shares of Common Stock that Mr. Wygod has the right to acquire presently or within 60 days of October 21, 1998 upon exercise of stock options or upon conversion of Convertible Debentures. Includes 2,000 shares of Common Stock beneficially owned by Mr. Wygod's spouse, as to which shares Mr. Wygod disclaims beneficial ownership. Does not include 3,500 shares of Common Stock and shares of Common Stock issuable upon conversion of $1,500,000 principal amount of Convertible Debentures owned by Synetic Foundation, Inc. ("Synetic Foundation"), a charitable foundation of which Messrs. Manning, Suthern and Wygod are trustees and share voting and dispositive power, nor 186,961 shares of Common Stock and shares of Common Stock issuable upon conversion of $500,000 principal amount of Convertible Debentures owned by the Rose Foundation ("Rose Foundation"), a private charitable foundation of which Messrs. Wygod and Mele are trustees and share voting and dispositive power. (4) The information shown is as of December 31, 1997 and is based upon information disclosed by FMR Corp., Fidelity Management and Research Company, Fidelity VIP Equity-Income Fund, Abigail P. Johnson and Edward C. Johnson, 3d, the controlling stockholder of FMR Corp., in a Schedule 13G filed with the Securities and Exchange Commission (the "Commission"). Such persons reported that FMR Corp. is the parent holding company of Fidelity Management and Research Company, and that Edward C. Johnson, 3d, FMR Corp., through its control of Fidelity Management and Research Company, and the Fund each has sole power to dispose of such shares. Sole power to vote the shares resides in the Fund's Board of Trustees. (5) The information shown is as of December 31, 1997 and is based upon information disclosed by Prudential in its Schedule 13G filed with the Commission. Prudential reported in its Schedule 13G that it has shared voting and dispositive power over such shares. (6) Includes 131,667 shares of Common Stock that Mr. Buell has the right to acquire presently or within 60 days of October 21, 1998 upon conversion of Convertible Debentures. The information shown is as of May 28, 1997 and is based upon information disclosed by Mr. Buell in his Schedule 13D filed with the Commission. Mr. Buell reported in his Schedule 13D that he has sole voting and dispositive power over such shares. 9 SECURITY OWNERSHIP OF MANAGEMENT The following table sets forth certain information, as of October 21, 1998, concerning the ownership of Common Stock by each of the directors, each of the Named Executive Officers, and by all directors and executive officers of the Company as a group.
AMOUNT AND NATURE OF BENEFICIAL PERCENT OF NAME OF BENEFICIAL OWNER OWNERSHIP (1)(2) CLASS (3) - ------------------------ ------------------------ ----------- Thomas R. Ferguson 116,116 * Mervyn L. Goldstein 118,716(4) * Ray E. Hannah 145,655 * Roger H. Licht 89,333 * James V. Manning 329,740 1.74% Bernard A. Marden 402,003 2.14% David M. Margulies 28,917 * Charles A. Mele 151,005 * Herman Sarkowsky 224,018(7) 1.19% Paul C. Suthern 277,700(10) 1.46% Anthony Vuolo 169,125 * Albert M. Weis 165,168(8) * Martin J. Wygod 5,379,948(5)(6)(9) 28.46% All directors and executive officers as a group (15 persons) 7,756,787 37.54%
- -------------------------------- * Less than one percent. (1) The persons named in the table have sole voting and investment power with respect to all shares of Common Stock shown as beneficially owned by them, unless otherwise indicated in the following footnotes. (2) Includes the following number of shares of Common Stock that the following persons have the right to acquire presently or within 60 days of October 21, 1998 upon exercise of stock options and the number of shares of Common Stock that the following persons have the right to acquire upon conversion of Convertible Debentures: Mr. Ferguson, 111,666; Dr. Goldstein, 106,666; Mr. Hannah, 72,166; Mr. Licht, 87,333; Mr. Manning, 293,333; Mr. Marden, 85,335; Mr. Mele, 148,833; Mr. Sarkowsky, 134,999; Mr. Suthern, 274,500; Mr. Vuolo, 167,233; Mr. Weis, 114,166; Mr. Wygod, 212,000; and all directors and executive officers as a group, 1,967,063. Includes 1,489 shares of Common Stock allocated to the account of Mr. Hannah, 172 shares of Common Stock allocated to the account of Mr. Mele and 167 shares of Common Stock allocated to the account of Mr. Vuolo under the Porex 401(k) Plan as of June 30, 1998. (3) The number of shares of Common Stock deemed outstanding includes: (i) 18,694,102 shares of Common Stock outstanding as of October 21, 1998, (ii) the number of shares of Common Stock that the respective persons named in the above table have the right to acquire presently or within 60 days of October 21, 1998 upon exercise of stock options and (iii) the number of shares of Common Stock that the respective persons named in the above table have the right to acquire upon conversion of Convertible Debentures. (4) Includes 200 shares of Common Stock owned by Dr. Goldstein's spouse, as to which Dr. Goldstein disclaims beneficial ownership. (5) Does not include 3,500 shares of Common Stock and shares of Common Stock issuable upon conversion of $1,500,000 principal amount of Convertible Debentures owned by Synetic Foundation. 10 (6) Does not include 186,961 shares of Common Stock and shares of Common Stock issuable upon conversion of $500,000 principal amount of Convertible Debentures owned by the Rose Foundation. (7) Does not include 20,000 shares of Common Stock owned by a charitable foundation of which Mr. Sarkowsky is a director. (8) Includes 3,050 shares of Common Stock owned by a corporation of which Mr. Weis is the sole stockholder, sole director and president and 3,200 shares of Common Stock held in trust for Mr. Weis's children. (9) Includes 2,000 shares of Common Stock beneficially owned by Mr. Wygod's spouse, as to which shares Mr. Wygod disclaims beneficial ownership. See also "Footnote 2 to Principal Stockholders Table". (10) Includes 1,200 shares of Common Stock held in custodial accounts for Mr. Suthern's children. 11 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. PURCHASE AND SALE AGREEMENT. On December 14, 1994, pursuant to the Purchase and Sale Agreement dated as of May 24, 1994 between the Company and Merck (the "Purchase and Sale Agreement"), the Company purchased 5,268,463 shares of the Company's Common Stock from Merck for an aggregate purchase price of $37,764,019. At the time of the purchase by the Company, SN Investors purchased 5,061,857 shares of the Company's Common Stock (the "Wygod Shares" and, collectively with the shares purchased by the Company, the "Shares") from Merck for an aggregate purchase price of $36,283,079. 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 the Investment Agreement between Mr. Wygod and the Company, dated as of September 13, 1994 (the "Investment Agreement"). 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. See "--Investment 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 "--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. INVESTMENT AGREEMENT. In the Investment Agreement, the Company assigned the rights and obligations to purchase the Wygod Shares to Mr. Wygod. 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. Mr. Wygod, as permitted under the Investment Agreement, assigned such rights and obligations to SN Investors. Pursuant to the Investment Agreement, SN Investors was (1) 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 his family trusts and/or partnerships (collectively, the "Wygod Entities") and/or independent third parties are limited partners and (2) required to agree to be bound by all of the restrictions and obligations applicable to Mr. Wygod under the Investment Agreement. 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"). The Investment Agreement provides 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 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, 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") ceasing 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 12 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 of the Purchase 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 of the Purchase. As of October 21, 1998, the Company had issued 6,184,393 shares of Common Stock since the closing of the Purchase. Accordingly, the issuance of an aggregate of 70,462 additional shares of Common Stock would be a "Change of Control" as defined in clause (e) above. Pursuant to the Investment Agreement, during the Restriction Period: (a) Mr. Wygod and SN Investors are required to vote (or cause to be voted) the Wygod Shares (i) with respect to election of directors, for the nominees who would have been elected based on the vote of all shares of Common Stock, other than the Wygod Shares, in proportion to the votes that such nominees received, and (ii) 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). Upon the expiration of the obligations of Mr. Wygod and SN Investors described in this paragraph, Mr. Wygod and SN Investors may be in a position to influence the election of the Company's Board of Directors as well as the direction and future operations of the Company. 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, (A) with respect to the election of directors, for the nominees who would have been elected based on the vote of all shares of Common Stock, other than the Wygod Shares, in proportion to the votes that such nominees received, and (B) 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 (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 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 Investment Agreement provides that 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 (as defined in the Investment Agreement) 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 that 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. 13 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 the Wygod Shares with respect to nominees for election as directors based on the vote of shares other than the Wygod Shares and with respect to other matters 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. 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 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. OTHER. The Company was reimbursed approximately $137,109 by a corporation controlled by Mr. Wygod for the partial use of the Company's office facilities and for services rendered by Company employees during the fiscal year ended June 30, 1998. 14 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. SYNETIC, INC. Date: October 27, 1998 By: /s/ Charles A. Mele ---------------------------- Name: Charles A. Mele Title: Executive Vice President and General Counsel 15 -----END PRIVACY-ENHANCED MESSAGE-----