-----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, KGHbj1lvxHOs7TtEy+sqUWPqXJmSZRNDatmachvtksuyf5lVc70HMS1Ow218bJTr mYFGTHb57McuXxzWE2ir3Q== 0001121887-02-000014.txt : 20020809 0001121887-02-000014.hdr.sgml : 20020809 20020808184857 ACCESSION NUMBER: 0001121887-02-000014 CONFORMED SUBMISSION TYPE: PREM14A PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 20020808 FILED AS OF DATE: 20020809 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SYNERGISTICS INC CENTRAL INDEX KEY: 0000095986 STANDARD INDUSTRIAL CLASSIFICATION: MISCELLANEOUS ELECTRICAL MACHINERY, EQUIPMENT & SUPPLIES [3690] IRS NUMBER: 042283157 STATE OF INCORPORATION: MA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: PREM14A SEC ACT: 1934 Act SEC FILE NUMBER: 000-06421 FILM NUMBER: 02723585 BUSINESS ADDRESS: STREET 1: 9 TECH CIRCLE CITY: NATICK STATE: MA ZIP: 01760 BUSINESS PHONE: 5086551340 MAIL ADDRESS: STREET 1: 9 TECH CIRCLE CITY: NAHCK STATE: MA ZIP: 01760 FORMER COMPANY: FORMER CONFORMED NAME: KILBANON CORP DATE OF NAME CHANGE: 19600201 PREM14A 1 sched14a.txt SCHEDULE 14A Schedule 14A Information Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934 Filed by the Registrant [X] Filed by a party other than the Registrant [ ] Check the appropriate box: [ X] Preliminary Proxy Statement [ ] Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) [ ] Definitive Proxy Statement [ ] Definitive Additional Materials [ ] Soliciting Material Under Rule 14a-12 SYNERGISTICS, INC. (Name of Registrant as Specified in its Charter) (Name of Person(s) Filing Proxy Statement, if other than the Registrant) Payment of Filing Fee (Check appropriate box:) [ ] No fee required [ ] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a- 6(i)(1), 14a-6(i)(2) or Item 22(a) of Schedule 14A [ X] Fee computed on table below per Exchange Act Rules 14a- 6(i)(1) and 0-11 (1) Title of each class of securities to which transaction applies: Common Stock, $.01 par value (2) Aggregate number of securities to which transaction applies: 10,285,806 (3) Per unit price or other underlying value to which transaction applies: $.025 per share (4) Proposed maximum aggregate value of transaction: $350,000.00 (5) Total fee paid: $65.00 [ ] Fee paid previously with preliminary materials [ ] Check box if any part of the fee is offset as provide by Exchange Act Rule 0-11(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the form or schedule and the date of its filing. (1) Amount previously paid: (2) Form, schedule or registration statement no.: (3) Filing party: (4) Date filed: EX-1 3 plantxt.txt PLAN OF MERGER AGREEMENT AND PLAN OF MERGER SYNERGISTICS ACQUISITION CORP. ("BUYER") SYNERGISTICS, INC. ("SELLER") DATED AS OF JULY 25, 2002 AGREEMENT AND PLAN OF MERGER BETWEEN SYNERGISTICS ACQUISITION CORP. AND SYNERGISTICS, INC. TABLE OF CONTENTS ARTICLE I THE MERGER 1.1 The Merger 1 1.2 Effective Time 1 1.3 Articles of Organization and By-Laws 2 1.4 Directors of Surviving Company 2 1.5 Officers of Surviving Company 2 1.6 Additional Actions 2 ARTICLE II CONVERSION OF SHARES 2.1 Conversion of Seller Common Stock 2 2.2 Exchange Procedures 3 2.3 Cash Consideration 4 2.4 Dissenters' Rights 4 ARTICLE III REPRESENTATIONS AND WARRANTIES OF SELLER 3.1 Corporate Organization 5 3.2 Capitalization 5 3.3 Legal Proceedings 5 3.4 Authorization and Effectiveness of Agreement 5 3.5 Tax Returns and Payment of Taxes 6 3.6 Financial Statements 6 3.7 Absence of Certain Changes 6 3.8 Absence of Undisclosed Liabilities 6 3.9 Ownership of Properties 7 3.10 Certain Line Items and Related Items 7 3.11 Broker's fees 8 3.12 Disclosure 8 ARTICLE IV REPRESENTATIONS AND WARRANTIES OF BUYER 4.1 Corporate Organization 8 4.2 Authorization and Effectiveness of Agreement 8 4.3 Legal Proceedings 8 4.4 Broker's fees 8 4.5 Disclosure 9 ARTICLE V COVENANTS OF SELLER 5.1 Conduct of Seller's Business Pending the Closing 9 5.2 Access to Information 10 5.3 Approval of Seller's Stockholders 10 5.4 All Reasonable Efforts 10 5.5 Inability to Fulfill Conditions 10 5.6 Payment of Attorney Fees 10 ARTICLE VI COVENANTS OF BUYER 6.1 Conduct of Business 11 6.2 Consents and Approvals of Third-Parties 11 6.3 All Reasonable Efforts 11 6.4 Inability to Fulfill Conditions 12 6.5 Directors and Officers Indemnification and Insurance 12 6.6 Payment of Attorney Fees 14 ARTICLE VII CLOSING CONDITIONS 7.1 Conditions to Each Party's Obligations Under this Agreement 14 7.2 Conditions to the Obligations of Buyer Under this Agreement 14 7.3 Conditions to the Obligations of Seller Under this Agreement 15 ARTICLE VIII THE CLOSING 8.1 Time and Place 15 8.2 Deliveries at the Closing 16 ARTICLE IX TERMINATION, AMENDMENT AND WAIVER 9.1 Termination 16 9.2 Effect of Termination 16 9.3 Equitable Remedies 16 9.4 Seller Termination Fee 17 9.5 Limitation on Personal Liability 17 9.6 Amendment, Extension and Waiver 17 ARTICLE X CERTAIN DEFINITIONS 10.1 Certain Definitions 18 ARTICLE XI MISCELLANEOUS 11.1 Confidentiality 19 11.2 Public Announcements 19 11.3 Survival 19 11.4 Notices 19 11.5 Parties in Interest 20 11.6 Rights of Employment 20 11.7 Complete Agreement 20 11.8 Counterparts 20 11.9 Severability 20 11.10 Governing Law 21 11.11 Headings 21 Ex.A Form of Seller Stockholder Agreement 23 THIS AGREEMENT AND PLAN OF MERGER dated as of July 25, 2002 (the "Agreement"), is by and between Synergistics Acquisition Corp. a Massachusetts corporation the "Buyer") and Synergistics, Inc., a Massachusetts corporation (the "Seller"). (Certain capitalized terms used herein shall have the meanings defined in Section 10.1 hereof). WHEREAS, the respective Boards of Directors of Buyer and Seller have approved the acquisition of Seller by Buyer pursuant to the merger of Buyer with Seller (the "Merger") (the resulting company of such Merger sometimes is referred to herein as the "Surviving Company"); WHEREAS, as a condition and inducement to Buyer's willingness to enter into this Agreement, certain stockholders of Seller are concurrently entering into a stockholder agreement with Buyer (the "Seller Stockholder Agreement"), in substantially the form attached hereto as Exhibit A, pursuant to which, among other things, such stockholders agree to vote their shares of Seller Common Stock in favor of this Agreement and the Transactions contemplated hereby; and NOW, THEREFORE, in consideration of the mutual covenants, representations, warranties and agreements herein contained, and of other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree hereto as follows: Article I The Merger 1.1 The Merger. At the Effective Time, Buyer shall be merged with Seller. Buyer shall be the Surviving Company. At the Effective Time, the separate existence of Seller shall cease and all of the rights, privileges, powers, franchises, properties, assets, liabilities and obligations of Seller shall be vested in and assumed by Surviving Company. 1.2 Effective Time. The Merger shall be effected by the filing of Articles of Merger with the Secretary of the Commonwealth of Massachusetts (the "Secretary of the Commonwealth") in accordance with Massachusetts law on the date of the closing (the "Closing Date") provided for in Article VIII hereof (the "Closing"). The term "Effective Time" shall mean the time on the Closing Date or not later than the commencement of business on the next succeeding business day when the Merger becomes effective, as set forth in the Articles of Merger. 1.3 Articles of Organization and By-Laws. The Articles of Organization and By-Laws of Surviving Company shall be the Articles of Organization and By-Laws of Buyer as in effect immediately prior to the Effective Time, until thereafter amended as provided therein and by applicable law. 1.4 Directors of Surviving Company. The directors of Buyer immediately prior to the Effective Time shall be the initial directors of Surviving Company, each to hold office in accordance with the Articles of Organization and By-Laws of Surviving Company. 1.5 Officers of Surviving Company. The officers of Buyer immediately prior to the Effective Time shall be the initial officers of Surviving Company, in each case until their respective successors are duly elected or appointed and qualified. 1.6 Additional Actions. If, at any time after the Effective Time, Surviving Company shall consider or be advised that any further assignments or assurances in law or any other acts are necessary or desirable (a) to vest, perfect or confirm, of record or otherwise, in Surviving Company, title to and possession of any property or right of Seller acquired or to be acquired by reason of, or as a result of, the Merger, or (b) otherwise to carry out the purposes of this Agreement, Buyer, Seller and their proper officers and directors shall be deemed to have granted to Surviving Company an irrevocable power of attorney to execute and deliver all such property deeds, assignments and assurances in law and to do all acts necessary or proper to vest, perfect or confirm title to and possession of such property or rights of Surviving Company and otherwise to carry out the purposes of this Agreement; and the proper officers and directors of Surviving Company are fully authorized in the name of Buyer and Seller or otherwise to take any and all such action. Article II Conversion of Shares 2.1 Conversion of Seller Common Stock. (a) Merger Consideration. At the Effective Time, each share of Seller's common stock, par value $.01 per share (the "Seller Common Stock") issued and outstanding immediately prior to the Effective Time (other than Dissenting Shares, as defined in Section 2.4 hereof) and other than Seller Common Stock then owned by Seller or Buyer shall, by virtue of the Merger and without any action on the part of the holder thereof, be converted into and exchangeable for the Per Share Cash Consideration, as defined below. The "Seller Outstanding Share Number" shall mean the number of shares of Seller Common Stock issued or subject to a binding obligation to issue as of the Effective Time. The "Per Share Cash Consideration" shall be determined by dividing the Net Cash Consideration (calculated in accordance with Section 2.3 hereof) by the Seller Outstanding Share Number. The consideration to be received for each share of Seller Common Stock, as the same may be adjusted as provided in this Agreement, is referred to herein as the "Merger Consideration." (b) Stock Owned by Seller. All Seller Common Stock owned by Seller, or Buyer shall, at the Effective Time, cease to exist, and the certificates for such shares shall, as promptly as practicable thereafter, be canceled and no payments shall be made in consideration therefor. All shares of Buyer Common Stock that are owned by Seller (in each case other than in a fiduciary capacity or as a result of debts previously contracted) shall become treasury stock of Buyer. 2.2 Exchange Procedures. (a) Rights of Holders Upon Exchange of Certificates. The holder of a Certificate that prior to the Merger represented issued and outstanding Seller Common Stock shall have no rights after the Effective Time, with respect to such Seller Common Stock except to surrender the Certificate in exchange for the Merger Consideration as provided in this Agreement or to perfect the rights of appraisal as a holder of Dissenting Shares that such holder may have pursuant to the applicable provisions of Massachusetts law. Upon surrender of a Certificate for exchange and cancellation at the Closing, the holder of such Certificates shall be entitled to receive in exchange therefor a check representing the amount of cash, if any, which such holder has the right to receive in respect to the Certificate surrendered pursuant to the provisions of Section 2.1 hereof and the Certificate so surrendered shall forthwith be canceled. No interest shall be paid or accrued on the cash and unpaid dividends and distributions, if any, payable to holders of Certificates. (b) Transfer Books. After the Effective Time, there shall be no transfers on Seller's stock transfer books of the shares of Seller Common Stock which were issued and outstanding immediately prior to the Effective Time. If, after the Effective Time, Certificates representing such shares are presented for transfer, they shall be canceled and exchanged for cash as provided in this Article II. (c) Lost Certificates. In the event any Certificate shall have been lost, stolen or destroyed, upon the making of an affidavit of that fact by the person claiming such Certificate to be lost, stolen or destroyed and, if required by Buyer, the posting by such person of a bond in such amount as Buyer may direct as indemnity against any claim that may be made against it with respect to such Certificate, Buyer will issue in exchange for such lost, stolen or destroyed Certificate cash deliverable in respect thereof pursuant to Section 2.1 hereof. (d) Surrender by Persons Other Than Record Holders. If the Person surrendering a Certificate and signing the accompanying letter of transmittal is not the record holder thereof, then it shall be a condition of the payment of the Merger Consideration that such Certificate is properly endorsed to such Person or is accompanied by appropriate stock powers, in either case signed exactly as the name of the record holder appears on such Certificate, and is otherwise in proper form for transfer, or is accompanied by appropriate evidence of the authority of the Person surrendering such Certificate and signing the letter of transmittal to do so on behalf of the record holder and that the person requesting such exchange shall pay to Buyer in advance any transfer or other taxes required by reason of the payment to a person other than the record holder of the Certificate surrendered, or required for any other reason, or shall establish to the satisfaction of the Buyer that such tax has been paid or is not payable. 2.3 Cash Consideration. The "Cash Consideration" shall equal $350,000.00 The "Net Cash Consideration" shall equal the Cash Consideration minus the lesser of (i) $50,000 or (ii) the amount necessary to pay in full to Craig and Macauley Professional Corporation the Total Legal Fees and Expenses, as defined in Section 5.6(a) hereof (which remain outstanding after payments are made under Sections 5.6(b) and 6.6(a) hereof). Such amount due to Craig and Macauley Professional Corporation shall be paid directly by Seller to Craig and Macauley Professional Corporation at the Closing. 2.4 Dissenters' Rights. Notwithstanding anything in this Agreement to the contrary and unless otherwise provided by applicable law, Seller Common Stock which is issued and outstanding immediately prior to the Effective Time and which is owned by stockholders who, pursuant to applicable law, (a) deliver to Seller in the manner provided by law, before the taking of the vote of Seller's stockholders on the Merger, a written objection to the Merger and a written demand for the appraisal of their shares if the Merger is effected, and (b) whose shares are not voted in favor of the Merger, nor consented thereto in writing (the "Dissenting Shares"), shall not be converted into the right to receive, or be exchangeable for, the Merger Consideration, but, instead, the holders thereof shall be entitled to payment of the appraised value of such Dissenting Shares in accordance with the provisions of Chapter 156B,sect. 85-98 of the Massachusetts Business Corporation Law, as from time to time amended. If any such holder shall have failed to perfect or shall have effectively withdrawn or lost such right of appraisal, the Seller Common Stock of such holder shall thereupon be deemed to have been irrevocably converted into and be exchangeable for, at the Effective Time, the right to receive the Merger Consideration. Buyer shall have the right to participate in any proceeding involving dissenters' rights. 2.5 Upon receipt of any written objections to the Merger submitted to Seller by Seller's Stockholders, Seller promptly shall notify Buyer in writing of the receipt of such objections, shall provide Buyer with copies of each such objections and shall identify the total number of shares of Seller's Common Stock held by the objecting stockholders. Article III Representations and Warranties of Seller Seller hereby represents and warrants to Buyer as follows, and Buyer has relied upon the truth and accuracy of such representations and warranties in making its decision to enter into the Transactions contemplated hereby: 3.1 Corporate Organization. The Seller is a corporation duly organized and existing in good standing under the laws of the Commonwealth of Massachusetts, and it has all corporate powers necessary to own its properties and carry on its business as it is now being conducted. Complete and correct copies of (a) Seller's Articles of Organization, together with any amendments thereto, (b) By-Laws of the Seller, (c) a list of Seller's stockholders, dated as of May 17, 2002 and prepared by the Seller's transfer agent, Registrar and Transfer Company (the "Seller Stockholder List"), (d) outstanding agreements between the Seller and its stockholders and (e) Seller's corporate minute books (collectively, the "Corporate Documents") are incorporated by reference and have been provided under a letter dated the date hereof. At the time of the Closing, the Seller's original Corporate Documents will be delivered to the Buyer. The Seller has no Subsidiaries. 3.2 Capitalization. The aggregate number of shares that the Seller is authorized to issue is 12,000,000 common shares, par value $.01 per share, of which 10,285,806 shares are issued and outstanding (including 16,445 shares held by Seller as treasury stock). All such issued shares of the Seller have been validly issued and are fully paid and nonassessable. There are no existing options, warranties, calls, preemptive rights or commitments of any kind relating to the authorized and unissued capital stock of the Seller, except for outstanding options to issue an aggregate of 43,723 shares of Seller Common Stock to Seller's officers and employees as evidenced by option agreements and the stock option plan Previously Disclosed to Buyer. 3.3 Legal Proceedings. To the best of Seller's knowledge, except as Previously Disclosed, after conducting a diligent review of its books and records, no suits, actions, claims, or demands are pending against the Seller, and Seller does not anticipate any such suits, actions, claims or demands. 3.4 Authorization and Effectiveness of Agreement. Once approved by Seller's stockholders by the required vote, Seller will have taken all corporate and other actions necessary to authorize it to execute, deliver and perform under this Agreement and all instruments and agreements delivered pursuant hereto and thereto and to consummate the Transactions contemplated hereby and thereby, and all instruments and agreements delivered in connection herewith or therewith by the Seller will constitute its legal, valid and binding obligation enforceable against it in accordance with its terms, subject to laws of general application relating to the rights of creditors generally and, as to enforcement, to general principles of equity, regardless of whether applied in a proceeding at law or in equity. 3.5 Tax Returns and Payment of Taxes. The Seller has duly filed or will file all tax returns and schedules due before the Closing Date with all local, state, and federal taxing authorities, and has paid all taxes due thereon, and is not delinquent or in default with respect to such taxes or the filing of any return. 3.6 Financial Statements. The balance sheets of the Seller as at December 31, 1999, December 31, 2000 and December 31, 2001 and the related statements of operations and accumulated deficit and cash flows for the years ended December 31, 1999, December 31, 2000 and December 31, 2001, in each case as audited by Livingston & Haynes, P.C., (the "Year-End Financial Statements") the most recent balance sheet of the Seller as at June 30, 2002 and the related statement of income for the six-month period ended June 30, 2002 (together with the Year-End Financial Statements, the "Corporate Financial Statements") which were previously delivered to the Buyer, fairly present the financial position of the Seller as of the dates set forth therein and the results of the operations and changes in accumulated deficit and cash flows of the Seller for the respective periods or as of the respective dates set forth therein, in each case in conformity with GAAP applied on a consistent basis throughout the periods involved. 3.7 Absence of Certain Changes. Since the date of the Corporate Financial Statements, there has not been, individually or collectively, any Material Adverse Effect resulting from the following (a) any actual or, to Seller's knowledge, any threatened, anticipated or contemplated damage, destruction, loss (whether or not covered by insurance), conversion, termination, cancellation, default or taking by eminent domain or other action by governmental authority which has materially adversely affected or may hereafter materially adversely affect the properties, assets business or prospects of Seller's business; (b) an increase, other than in the ordinary course, in the compensation payable or to become payable to any of the Seller's officers, employees, agents or consultants (including, without limitation, any increase pursuant to any bonus, pension, profit-sharing or other plan or commitment), or the entering into of any employment contract with any officer, or employee, or the making of any loan to, or engagement in any transaction with, any officers, directors or stockholders of the Seller in respect of Seller's business, or the establishment of any new, or the modification of any existing, employee benefit, compensation or stock plan in respect of Seller's business; or (c) capital expenditures or commitments therefor by the Seller in excess of $6,000 in the aggregate for additions, alterations, or modifications to property, plant or equipment of Seller's business. 3.8 Absence of Undisclosed Liabilities. To the best of Seller's knowledge, after conducting a diligent review of its books and records, there are no liabilities or other obligations of Seller (whether absolute or contingent) except for liabilities and obligations (i) reflected on the Corporate Financial Statements or adequately reserved for on the Corporate Financial Statements, (ii) incurred in the ordinary course of business of the Seller since the date of the Corporate Financial Statements consistent with past practices, and (iii) individually or in the aggregate, not material in amount, including, without limitation, pending suits or claims against Seller. 3.9 Ownership of Properties. To the best of Seller's knowledge based upon the records of the Uniform Commercial Code Division of the Secretary of the Commonwealth of Massachusetts, Seller has possession of all of Seller's assets, free and clear of all mortgages, pledges, security interests, conditional sales agreements, charges of any kind, restrictions, liens, encumbrances, rights, title and interests of others. The Seller has valid and subsisting leasehold interest or licenses in, and possession of all Seller's assets that are leased by the Seller. 3.10 Certain Line Items and Related Items. (a) Trade Accounts Receivable. To the best of Seller's knowledge, all accounts receivable reflected on the Corporate Financial Statements arose or will arise from the sale of products and services provided in the ordinary course of Seller's business. Except for accounts receivable as Previously Disclosed, all accounts receivable reflected on the June 30, 2002 Financial Statements are the legal and binding claims of the Seller, free and clear of all liens, have been recorded in accordance with GAAP, and subject to consistently recorded reserves for bad debts and returns, which reserves have been established in accordance with GAAP consistently applied (subject to normal recurring year-end adjustments), fairly reflect the past collection experience of Seller's business. (b) Properties. To the best of Seller's knowledge, after conducting a diligent review of its books and records, the Previously Disclosed list is a true and accurate disclosure of the matters set forth therein, including without limitation, a list of all leases or other material agreements under which the Seller is lessee of or holds or operates any items of machinery, equipment, motor vehicles, computer equipment, printers, office furniture or fixtures owned by any third- party. True, complete and correct copies (or, in the case of oral leases or agreements, descriptions) of which leases and agreements have been furnished to the Buyer. To the best of Seller's knowledge, after conducting a diligent review of its books and records, Seller is the owner and holder of all of the leasehold estates purported to be granted by such leases or agreements and all other leases or agreements under which Seller is lessee of or holds or operates any such items owned by a third-party, and each of such leases and agreements is in full force and effect and constitutes a legal, valid and binding obligation of Seller and the other parties hereto. To the best of Seller's knowledge, there is not under any of such leases any existing default or event, condition or occurrence which, with the giving of notice or lapse of time, or both, would constitute a default thereunder and which would have a Material Adverse Effect upon the Seller. (c) Contracts, Etc. To the best of Seller's knowledge, after conducting a diligent review of its books and records, the Previously Disclosed list of (i) all written contracts, agreements and other instruments not made in the ordinary course of Seller's business to which the Seller is a party and which involve an amount in excess of $25,000 and (ii) all written contracts, agreements and other instruments made in the ordinary course of Seller's business is true and complete. (d) Compliance; Governmental. To the best of Seller's knowledge, no proceeding is pending or threatened to revoke or limit Seller's business or impose any penalty, monetary or otherwise, with respect to Seller's business or its assets, for Seller's failure to comply with (i) in any material respect, any federal, state, local or foreign laws, ordinances, regulations or orders applicable to Seller's business or its assets, or (ii) any federal, state, local and foreign governmental licenses or permits necessary in the conduct of Seller's business as presently conducted. (e) Accounts Payable. All accounts payable reflected have been or will have been incurred on or prior to the Closing Date in the ordinary course of Seller's business. 3.11 Broker's Fees. Except for Seller's retention of Legg Mason Wood Walker, Inc. pursuant to an agreement dated October 29, 2001 which Seller Previously Disclosed to Buyer, neither Seller nor any of its officers or directors has employed any broker, finder or investment advisor or incurred any liability for any broker's fees, commissions, finder's fees or investment advisory fees in connections with any of the Transactions contemplated by this Agreement. Seller's agreement with Legg Mason Wood Walker Inc. provides that no fees will be charged in connection with any of the Transactions contemplated by this Agreement, however Seller shall be responsible for all expenses due and owing to Legg Mason Wood Walker, Inc., which expenses shall be payable at the Closing if not previously paid. 3.12 Disclosure. To the best of Seller's knowledge, after conducting a diligent review of its books and records, no representation or warranty contained in this Agreement, and no statement Previously Disclosed to Seller pursuant to the provisions hereof or thereof, contains any untrue statement of a material fact. Article IV Representations and Warranties of Buyer Buyer hereby represents and warrants to Seller as follows: 4.1 Corporate Organization. The Buyer is a Massachusetts corporation duly organized and existing in good standing under the laws of the Commonwealth of Massachusetts. Buyer is legally competent to enter into this Agreement and has furnished to Seller a copy of the certified resolutions of its Board of Directors authorizing it to enter into this Agreement and to consummate the Transactions contemplated hereby. Buyer has no Subsidiaries. 4.2 Authorization and Effectiveness of Agreement. Buyer has taken all corporate and other actions necessary to authorize it to execute, deliver and perform under this Agreement and all instruments and agreements delivered pursuant hereto and thereto and to consummate the Transactions contemplated hereby and thereby, and all instruments and agreements delivered in connection herewith or therewith by the Buyer constitute its legal, valid and binding obligation enforceable against it in accordance with its terms, subject to laws of general application relating to the rights of creditors generally and, as to enforcement, to general principles of equity, regardless of whether applied in a proceeding at law or in equity. 4.3 Legal Proceedings. No suits, actions, claims, or demands are pending against the Buyer, and Buyer has no actual knowledge of, or any reason to anticipate any suit, action, claim, or demand against the Buyer. 4.4 Broker's Fees. Neither Buyer nor any of its officers or directors has employed any broker, finder or investment advisor, or incurred any liability for any broker's fees, commissions, finder's fees or investment advisory fees in connections with any of the Transactions contemplated by this Agreement. 4.5 Disclosure. To Buyer's knowledge, no representation or warranty of Buyer contained in this Agreement, contains any untrue statement of a material fact. Article V Covenants of Seller 5.1 Conduct of Seller's Business Pending the Closing. The Seller covenants from the date hereof to and including the Closing Date, without receiving Buyer's prior written consent, which consent shall not unreasonably be withheld or delayed, to comply with the following: (a) Seller shall not enter into or modify any agreement (or agree to enter into or modify an agreement) that would have a Material Adverse Effect upon the ability of Seller to consummate the Transactions contemplated hereby or of the Buyer to conduct Seller's business from and after the Effective Time; (b) Without Buyer approval, Seller shall not do any of the following: (i) make any capital expenditures from the date hereof to and including the Closing Date, out of the ordinary course of Seller's business, in the aggregate in excess of $3,000; (ii) make any commitment to make any capital expenditures after the Closing Date relating to Seller's business or its assets in the aggregate in excess of $3,000; (iii) amend or waive any rights under any of its material contracts relating to Seller's business or its assets, except in the ordinary course of business; or (iv) enter into (1) any written employment or severance agreement with any existing full-time or part-time employee or (2) any new employee benefit plan, program or arrangement or amend any existing employee benefit plan, program or arrangement specifically relating to existing full-time or part- time employees or grant any increases in compensation to existing full-time or part-time employees in excess of increases in compensation consistent with Seller's past practices; (c) Seller shall maintain in full force and effect all insurance policies now in effect or renewals thereof covering Seller's business, its assets and its existing full-time and part-time employees; (d) Seller promptly shall notify Buyer of the following of which it may become aware: (i) any written notice received by Seller alleging any breach or violation of, default or event of default under, or actual or threatened termination or cancellation of any material contract relating to Seller's business; (ii) any material loss of, damage to, or disposition of any of Seller's assets (other than the sale or use of inventories in the ordinary course of business); and (iii) any material claim or litigation, threatened in writing or instituted against the Seller and relating to Seller's business; (e) Seller shall not sell, dispose of, lease, sublease, distribute, encumber or enter into any agreement, arrangement or commitment, whether oral or written, for the sale, disposition, leasing, subleasing, distribution or encumbrance of any portion of Seller's assets or its business (other than the sale and use of inventories in the ordinary course of Seller's business) or initiate or participate, through agents, representatives or otherwise, in any discussions or negotiations with, or otherwise solicit from any business or person any proposals or offers relating to the disposition of any such portion of Seller's assets or its business; (f) Seller shall not make any material change to any business policy, including, without limitation, promotional, advertising, marketing, pricing, purchasing, personnel, return or product acquisition policy; and (g) Seller shall use its best efforts to preserve for the benefit of Seller's business its relations with customers, contractors, subcontractors and suppliers. 5.2 Access to Information. Prior to the Closing Date and upon reasonable notice from the Buyer, Seller shall: (a) give the Buyer and its authorized representatives and representatives of its financing sources reasonable access to all offices, warehouses, plants, stores and other facilities relating to Seller's business or its assets and to all books and records of Seller's business, (b) permit the Buyer and all such other persons to make such inspections as they may reasonably request at reasonable times and (c) cause its officers to furnish the Buyer and all such other persons with such financial and operating data and other information with respect Seller's business as they may from time to time reasonably request. 5.3 Approval of Seller's Stockholders. Seller shall take all reasonable steps necessary to duly call, give notice to stockholders on the Seller Stockholder List of, solicit proxies for, convene and hold a special meeting of its stockholders, including the preparation and filing of proxy materials with the Securities and Exchange Commission (the "Commission"), for the purpose of approving this Agreement and the Transactions contemplated hereby (the "Special Meeting"). The Seller's Board of Directors will recommend to Seller's stockholders the approval of this Agreement and the Transactions contemplated hereby and will use all reasonable efforts to obtain, as promptly as practicable, the necessary approvals by Seller's stockholders of this Agreement and the Transactions contemplated hereby. Seller shall submit to Buyer for its approval the notice and proxy statement for the Special Meeting prior to filing with the Commission and prior to distributing to stockholders. Seller shall also provide Buyer with copies of all comments and other correspondence received by Seller from the Commission relating to the proxy statement, the Special Meeting or the Merger. 5.4 All Reasonable Efforts. Subject to the terms and conditions herein provided, Seller agrees to use all reasonable efforts to take, or cause to be taken, all actions and to do, or cause to be done, all things necessary, proper or advisable under applicable laws and regulations to consummate and make effective the Transactions contemplated by this Agreement. 5.5 Inability to Fulfill Conditions. In the event that Seller determines that a condition to its obligation to complete the Merger cannot be fulfilled and that it will not waive that condition, it will promptly notify Buyer. 5.6 Payment of Attorney Fees. (a) As of May 31, 2002, the amount of legal fees and expenses billed to Seller by Craig and Macauley Professional Corporation, and still outstanding as of such date, was $43,024.44 (the "Billed Legal Fees and Expenses"), and the amount of unbilled legal fees and expenses was $17,479.35. From June 1, 2002 until the Effective Time, Craig and Macauley Professional Corporation shall incur on behalf of Seller additional, reasonable legal fees and expenses in connection with the negotiation and execution of this Agreement and the subsequent actions necessary to consummate the Merger and the other Transactions contemplated hereby, which legal fees and expenses may pertain to work to be completed after the Effective Time (together with unbilled legal fees and expenses as of May 31, 2002, the "Unbilled Legal Fees and Expenses"). The Billed Legal Fees and Expenses plus the Unbilled Legal Fees and Expenses shall equal the "Total Legal Fees and Expenses." At the Closing, Craig and Macauley Professional Corporation shall provide to Seller a written invoice listing the Total Legal Fees and Expenses and describing any payments made to Craig and Macauley Professional Corporation by the Seller from June 1, 2002 to the Closing (the "Pre-Closing Payments"). (b) At the Closing, and prior to the distribution of any of the Merger Consideration to the Seller's stockholders, Seller shall pay to Craig and Macauley Professional Corporation an amount equal to (a) one-half (1/2) of (i) the Total Legal Fees and Expenses less (ii) the amount which Buyer shall pay under Section 6.6 hereof (but such amount shall not exceed $25,000), less (b) any Pre-Closing Payments made by Seller. 5.7 No Solicitation. Without the prior written approval of Buyer, which approval shall not be unreasonably withheld, from the date hereof until the earlier of Closing Date and the termination of this Agreement, neither Seller nor any of its officers, directors, employees, representatives, agents or affiliates (including, without limitation, any investment banker, attorney or accountant retained by Seller) shall (a) take any action to encourage the making of inquiries or proposals that constitute an Acquisition Proposal (as defined below), (b) enter into or maintain or continue negotiations with any person or entity in furtherance of such inquiries, (c) accept an Acquisition Proposal or agree to endorse an Acquisition Proposal, or (d) authorize or permit any such persons to take any such action. For purposes of this Agreement, "Acquisition Proposal" shall mean any of the following (other than the Transactions contemplated hereby): any merger, sale, consolidation, share, exchange, recapitalization, business combination or other similar transaction involving the Seller, its business and its assets. Notwithstanding the foregoing, Seller and its officers, directors, employees, representatives, agents or affiliates (including, without limitation, any investment banker, attorney or accountant retained by Seller) may (a) respond to inquiries regarding a possible transaction with the Seller, (b) provide general information about the progress of the consummation of the Transactions contemplated hereby and (c) provide public information about Seller. Article VI Covenants of Buyer 6.1 Conduct of Business. During the period from the date of this Agreement to the Effective Time, except with the prior written consent of Seller, Buyer shall take no action which would (i) materially adversely affect its ability to perform its covenants and agreements under this Agreement, or (ii) result in the representations and warranties of Buyer contained in this Agreement not being true and correct on the date of this Agreement or at any future date on or prior to the Closing Date. 6.2 Consents and Approvals of Third-Parties. Buyer shall use all reasonable efforts to obtain as soon as practicable all consents and approvals of any other Persons necessary or desirable for the consummation of the Transactions contemplated by this Agreement. 6.3 All Reasonable Efforts. Subject to the terms and conditions herein provided, Buyer agrees to use all reasonable efforts to take, or cause to be taken, all actions and to do, or cause to be done, all things necessary, proper or advisable under applicable laws and regulations to consummate and make effective the Transactions contemplated by this Agreement. 6.4 Inability to Fulfill Conditions. In the event that Buyer determines that a condition to its obligation to complete the Merger cannot be fulfilled and that it will not waive that condition, it will promptly notify Seller. 6.5 Directors and Officers Indemnification and Insurance. (a) Contractual Indemnification. In the event any threatened or actual claim, action, suit, proceeding or investigation, whether civil or administrative which arises within two (2) years after the Effective Time against a person who, as of the date hereof, is an officer, director or employee of Seller (each an "Indemnified Party" and collectively, the "Indemnified Parties") is brought by a person who is not an Indemnified Party, or, in the event any Indemnified Party is threatened to be, made a party to any such claim, action, suit, proceeding or investigation, which claim, action, suit, proceeding or investigation arises out of or pertains to (i) the fact that the Indemnified Party is or was an officer, director or employee of Seller, or (ii) this Agreement or any of the Transactions contemplated hereby, whether in any case asserted or arising from facts and circumstances occurring before the Effective Time, such Indemnified Parties and Buyer agree to cooperate and use their reasonable efforts to defend against and respond to such claim, action, suit, proceedings or investigation. It is understood and agreed that from and after the Effective Time, Buyer shall indemnify and hold harmless up to an amount, inclusive of all costs, expenses, legal fees and settlement amounts, not to exceed $50,000, each Indemnified Party against any and all losses, claims, damages, liabilities, fines, expenses (including without limitation reasonable attorney fees and disbursements) and amounts actually and reasonably paid in settlement, in connection with any such threatened or actual claim, action, suit, proceeding or investigation (whether asserted or arising before or after the Effective Time). Notwithstanding the foregoing, (1) Buyer shall not be liable for any settlement effected without its prior written consent (which consent shall not be unreasonably withheld), and (2) Buyer shall have no obligation hereunder to any Indemnified Party when and if a court of competent jurisdiction shall ultimately determine, and such determination shall have become final and non-appealable, that indemnification of such Indemnified Party in the manner contemplated hereby is prohibited by applicable law. Nothing contained in this Section 6.5(a) shall affect any rights to indemnification which are provided under Section 6.5(c) or under the documents referred to therein. (b) Procedural Limitations. Any Indemnified Party wishing to claim indemnification under Section 6.5(a) shall, upon learning of any such claim, action, suit, proceeding or investigation, notify Buyer thereof in writing and provide all material respective and indicative thereof, provided that the failure so to notify shall not affect the obligations of Buyer under Section 6.5(a) except to the extent that such failure materially prejudices Buyer's investigation, defense or settlement thereof. As a condition to receiving indemnification under Section 6.5(a), the party claiming indemnification shall assign, by separate writing, to Buyer all right, title and interest to and in proceeds of any insurance maintained or provided by Seller or Buyer, for the benefit of claimant, to the extent of indemnification actually received from Buyer hereunder. Any Person entitled to indemnification pursuant to Section 6.5(a) shall be required to cooperate fully in the defense and investigation of any claim as to which indemnification may be made and shall send such notices as Buyer may reasonably request under any applicable directors and officers liability to preserve claims of which the claiming party is aware. No Person shall be entitled to indemnification under Section 6.5(a) if such Person is seeking indemnification based on a claim (other than a claim arising as a supplier to or customer of Buyer of Seller) brought by such Person or by an entity of which such Person is a general partner, executive officer, director, trustee, beneficiary or controlling person unless such Person or entity has waived any right to participate in any damage or other award to such claiming party or other entity in any such action, suit or proceeding. (c) Articles of Organization and By-Laws. All rights to indemnification and all imitations of liability existing in favor of the Indemnified Parties as provided in Seller's Articles of Organization and By-Laws, or similar governing documents of Seller, as in effect as of the date hereof with respect to claims or liabilities arising from facts or events existing or occurring prior to the Effective Time shall survive the Merger and shall continue in full force and effect, without any amendment thereto, after the Effective Time. Buyer shall indemnify, defend and hold harmless the Indemnified Parties pursuant to the rights surviving pursuant to the preceding sentence to the fullest extent permitted under applicable law. Nothing contained in this Section 6.5(c) or in Seller's Articles or By-laws shall affect any rights to indemnification which are provided under Section 6.5(a) hereof. (d) Purchase of Insurance. From and after the Effective Time, Buyer shall have no obligation to cause the Indemnified Parties to be covered by a directors' and officers' liability insurance policy, nor shall Buyer have any obligation to continue any directors' and officers' liability insurance policy currently maintained by Seller. (e) Successors or Assigns. To the extent not otherwise provided by applicable law, contract or otherwise, and to the extent necessary under the circumstances for Buyer's successors or assigns to be bound, in the event Buyer or any of its successors or assigns (i) consolidates with or merges into any other Person and shall not be the continuing or surviving corporation or entity of such consolidation or merger, or (ii) transfers or conveys all or substantially all of its properties and assets to any Person, proper provision shall be made so that the successors and assigns of Buyer assume the obligations set forth in this Section 6.5. (f) Third-Party Beneficiary. The provisions of this Section 6.5 are expressly intended to be for the irrevocable benefit or, and shall be enforceable by, each director or officer covered hereby and his or her heirs and representatives, and nothing herein shall affect any indemnification rights that any Indemnified Party and his or her heirs and representatives may have under the Articles of Organization or By-Laws of the Seller, any contract or applicable law. 6.6 Payment of Attorney Fees. (a) At the Closing, Buyer agrees to pay to Craig and Macauley Professional Corporation $25,000 to cover a portion of the Total Legal Fees and Expenses owed by Seller. Such payment is in addition to the payment of the Cash Consideration. (b) At the Closing, Seller's stockholders shall pay to Craig and Macauley Professional Corporation an amount equal the lesser of (i) $50,000 or (ii) the amount necessary to pay in full to Craig and Macauley Professional Corporation the Total Legal Fees and Expenses, as defined in Section 5.6(a) hereof (which remain outstanding after payments are made under Sections 5.6(b) and 6.6(a) hereof). Article VII Closing Conditions 7.1 Conditions to Each Party's Obligations Under This Agreement. The respective obligations of each party under this Agreement shall be subject to the fulfillment at or prior to the Closing of the following conditions. (a) Stockholder Approval. This Agreement and the Transactions contemplated hereby shall have been approved in accordance with applicable law by the requisite vote of Seller's stockholders. (b) Injunctions. None of the parties hereto shall be subject to any order, decree or injunction of a court or agency of competent jurisdiction which enjoins or prohibits the consummation of the Merger. 7.2 Conditions to the Obligations of Buyer Under This Agreement. The obligations of Buyer under this Agreement shall be further subject to the satisfaction, at or prior to the Effective Time, of the following conditions. (a) Representations and Warranties. The representations and warranties of Seller set forth in this Agreement shall be true and correct in all material respects as of the date of this Agreement, except as otherwise contemplated by this Agreement or consented to in writing by the Buyer; provided, however, that the condition contained in this Section 7.2(a) shall be deemed to be satisfied unless the failure of such representations and warranties to be so true and correct constitute, individually or in the aggregate, a Material Adverse Effect on Seller, and Seller shall have delivered to Buyer a certificate of Seller to such effect signed by the President of Seller as of the Effective Time. (b) Agreements and Covenants. Seller shall have performed in all material respects all obligations and complied in all material respects with all agreements or covenants of Seller to be performed or complied with by it at or prior to the Effective Time under this Agreement, and Buyer shall have received a certificate signed on behalf of Seller by the President of Seller to such effect dated as of the Effective Time. (c) Termination of Exchange Act Registration. Buyer shall have received from Seller at the Closing a completed and signed Securities Exchange Commission Form 15 with respect to the termination of the registration of Seller's Common Stock under the Securities Exchange Act of 1934. Seller will furnish Buyer with such certificates of its officers or others and such other documents to evidence fulfillment of the conditions set forth in this Section 7.2 as Buyer may reasonably request. 7.3 Conditions to the Obligations of Seller Under This Agreement. The obligations of Seller under this Agreement shall be further subject to the satisfaction, at or prior to the Effective Time, of the following conditions. (a) Representations and Warranties. The representations and warranties of Buyer set forth in this Agreement shall be true and correct in all material respects as of the date of this Agreement, except as otherwise contemplated by this Agreement or consented to in writing by the Seller; provided, however, that the condition contained in this Section 7.3(a) shall be deemed to be satisfied unless the failure of such representations and warranties to be so true and correct constitute, individually or in the aggregate, a Material Adverse Effect on Buyer, and Buyer shall have delivered to Seller a certificate of Buyer to such effect signed by the President and Treasurer of Buyer as of the Effective Time. (b) Agreements and Covenants. Buyer shall have performed in all material respects all obligations and complied in all material respects with all agreements or covenants of Buyer to be performed or complied with by it at or prior to the Effective Time under this Agreement, and Seller shall have received a certificate signed on behalf of Buyer by the President of Buyer to such effect dated as of the Effective Time. Buyer will furnish Seller with such certificates of its officers or others and such other documents to evidence fulfillment of the conditions set forth in this Section 7.3 as Seller may reasonably request. Article VIII The Closing 8.1 Time and Place. Subject to the provisions of Articles VII and IX hereof, the Closing of the Transactions contemplated hereby shall take place at the offices of Craig and Macauley Professional Corporation, Federal Reserve Plaza, 600 Atlantic Avenue, Boston, Massachusetts 02210, at 10:00 a.m. on a date specified by Buyer at least three (3) business days prior to such date. The Closing Date shall be held on the date which is as soon as practicable after the last required approval for the Merger has been obtained from Seller's stockholders, or at such other place, date or time as Buyer and Seller may mutually agree upon in writing. 8.2 Deliveries at the Closing. At the Closing there shall be delivered to Buyer and Seller the certificates and other documents and instruments required to be delivered under Article VII hereof. Article IX Termination, Amendment and Waiver 9.1 Termination. This Agreement may be terminated at any time prior to the Effective Time: (a) At any time, by the mutual written agreement of Buyer and Seller; (b) By Buyer or Seller (provided that the terminating party is not then in material breach of any representation, warranty, covenant or other agreement contained herein), if there has been a material breach on the part of the other party of any representation, warranty, covenant or other agreement contained herein which cannot be or has not been cured within thirty (30) days after written notice by Buyer to Seller (or by Seller to Buyer) of such breach; (c) At the election of either Buyer or Seller, if the Closing shall not have occurred on or before the earlier of five (5) business days after the date of the Special Meeting and December 31, 2002 (the "Termination Date"), or such later date as Buyer and Seller shall have agreed to in writing; provided, that no party may terminate this Agreement pursuant to this Section 9.1(c) if the failure of the Closing to have occurred on or before said date was due to such party's breach of any of its obligations under this Agreement; and 9.2 Effect of Termination. In the event of termination of this Agreement pursuant to any provision of Section 9.1, this Agreement shall forthwith become void and have no further force, except that the provisions of Sections 9.3, 9.4, 9.5, 10.1, 11.1, 11.7, 11.10 and 11.11 (and of this Section 9.2) shall survive such termination of this Agreement and remain in full force and effect. 9.3 Equitable Remedies. The parties hereto acknowledge that irreparable damage would result if this Agreement is not specifically enforced and that, therefore, the rights and obligations of the parties under this Agreement may be enforced by a decree of specific performance issued by a court of competent jurisdiction, and appropriate injunctive relief may be applied for and granted in connection therewith. The inclusion of provisions relating to the Seller Termination Fee and the Buyer Termination Fee (each as defined in Section 9.4 hereof) in this Agreement shall not be construed as a limitation of any kind on the ability of either party to seek (or be entitled to receive) specific performance under this Section 9.3; provided, however, that no party shall be entitled to receive both specific performance and the payment of a Termination Fee. 9.4 Termination Fees. (a) Buyer shall pay to Seller a termination fee of Three Hundred Fifty Thousand Dollars ($350,000.00) (the "Seller Termination Fee"), as provided for in the form of Escrow Agreement among the Buyer, Seller, and Brown Rudnick Berlack Israels LLP, dated the date hereof, within five (5) business days of the occurrence of any of the following: Buyer terminates this Agreement or refuses to close the Transactions contemplated hereby in violation of the terms hereof, or the Closing does not take place as a consequence of Buyer's material breach of its representations and warranties made as of the date of this Agreement, or by reason of a material breach by Buyer of its covenants made herein, if such material breach involves action, the failure to take such action, or an occurrence which is within the control of Buyer. (b) Seller shall pay to Buyer a termination fee of Twenty Five Thousand Dollars ($25,000) (the "Buyer Termination Fee") within five (5) business days of the occurrence of any of the following (individually, a "Buyer Termination Event"): Seller terminates this Agreement or refuses to close the Transactions contemplated hereby in violation of the terms hereof, or the Closing does not take place as a consequence of Seller's material breach of its representations and warranties made as of the date of this Agreement, or by reason of a material breach by Seller of its covenants made herein, if such material breach involves action, the failure to take such action, or an occurrence which is within the control of Seller. In addition to the Buyer Termination Fee, if Seller consummates an Acquisition Proposal at any time within 12 months following the termination of this Agreement as a result of a Buyer Termination Event, then the third party or parties (together, the "Third Party") that engage in the Acquisition Proposal with Seller shall pay Buyer or its designee a fee of $25,000 (the "Buyer Reimbursement Fee"). Seller shall not consummate any such Acquisition Proposal without including as a binding obligation of the Third Party its agreement to pay the Buyer Reimbursement Fee. The Buyer Reimbursement Fee shall be paid within three (3) business days following consummation of the Acquisition Proposal by wire transfer of immediately available funds to an account specified by Buyer or its designee. (c) The Termination Fees shall constitute liquidated damages and shall be the sole monetary remedy of the Seller and Buyer. It is understood that the existence of this monetary remedy is not to be construed as a limitation of any kind on the ability of the Seller and the Buyer to seek (or be entitled to receive) specific performance under Section 9.3. 9.5 Limitation on Personal Liability. (a) In no event shall any stockholder, officer, agent or director of Seller be personally liable to Buyer, its directors, officers or stockholders for any reason in connection with the Agreement or the Transactions contemplated thereby, except for (i) actions caused by the fraudulent conduct of any such stockholder, officer, agent or director and (ii) actions arising out of breach of the Seller Stockholder Agreement by any stockholder of Seller. (b) In no event shall any stockholder, officer, agent or director of Buyer be personally liable to Seller, its directors, officers or stockholders for any reason in connection with the Agreement or the Transactions contemplated thereby, except for (i) actions caused by the fraudulent conduct of any such stockholder, officer, agent or director and (ii) actions arising out of breach of the Buyer Stockholder Agreement by any stockholder of Buyer. 9.6 Amendment, Extension and Waiver. Subject to applicable law, at any time prior to the Effective Time (whether before or after approval thereof by the stockholders of Seller), the parties hereto may (a) amend this agreement, (b) extend the time for the performance of any of the obligations or other acts of any party hereto, (c) waive any inaccuracies in the representations and warranties contained herein or in any document delivered pursuant hereto, or (d) waive compliance with any of the agreements or conditions contained herein; provided, however, that after any approval of this Agreement and the Transactions contemplated hereby by the stockholders of Seller, there may not be, without further approval of such stockholders, any amendment of this Agreement which reduces the amount or changes the form of consideration to be delivered to Seller's stockholders pursuant to this Agreement. This Agreement may not be amended except by an instrument in writing signed on behalf of each of the parties hereto. Any agreement on the part of a party hereto to any extension or waiver shall be valid only if set forth in an instrument in writing signed on behalf of such party, but such waiver or failure to insist on strict compliance with such obligation, covenant, agreement or condition shall not operate as a waiver of, or estoppel with respect to, any subsequent or other failure. Article X Certain Definitions 10.1 Certain Definitions. As used in this Agreement, the following terms have the following meanings (unless the context otherwise requires, both here and throughout this Agreement and, references to Articles and Sections refer to Articles and Sections of this Agreement. (a) "Material Adverse Effect", when used with respect to any Person, shall mean a material adverse effect on the financial condition, business or results of operations of such Person; provided, however, that the following matters shall not constitute or contribute to a Material Adverse Effect: (i) changes in the financial condition, business or results of operations of the Seller, (ii) changes in the financial condition, business or results of operations of a Person resulting directly or indirectly from changes in general economic conditions or the public announcement of the Transactions contemplated hereby; or (iii) matters related to changes in federal, state or local tax laws or changes in federal, state or local tax statues, characteristics or attributes, or the ability to use such attributes. (b) "Person" shall mean any individual, corporation, partnership, joint venture, association, trust, unincorporated organization or government or any agency or political subdivision thereof. (c) "Previously Disclosed" shall mean disclosed in a letter dated the date hereof delivered from the disclosing party to the other party specifically referring to the appropriate section of this Agreement and describing in reasonable detail the matters contained therein. Such disclosures sometimes are referred to herein as Schedules. (d) "Subsidiary" or "Subsidiaries" of any Person shall mean any Person who directly or indirectly through one or more intermediaries, is controlled by, such specified Person, including, without limitation, any partnership or joint venture in which a Person (either alone, or through or together with any subsidiary) has, directly or indirectly, an interest of five percent (5%) or more. (e) "Transactions contemplated by this Agreement" and "Transactions contemplated hereby" shall include the Merger. Article XI Miscellaneous 11.1 Confidentiality. Buyer and Seller mutually agree to be bound by all the terms of the Confidentiality Agreement previously executed by the parties hereto on May 28, 2002, which sections are hereby reinstated and incorporated herein by reference. 11.2 Public Announcements. Seller and Buyer shall cooperate with each other in the development and distribution of all news releases and other public information disclosures with respect to this Agreement or any of the Transactions contemplated hereby, except as may be otherwise required by law, and neither Seller nor Buyer shall issue any joint news releases with respect to this Agreement or any of the Transactions contemplated hereby, unless such news releases have been mutually agreement upon by the parties hereto. 11.3 Survival. Except for any agreement of the parties contained in this Agreement which by its terms is intended to be performed after the Effective Time, the respective representations, warranties and agreements of the parties contained in this Agreement or in any Exhibit, Schedule, certificate, list, letter or other instrument referred to in this Agreement, and which are delivered or made pursuant to this Agreement (or in connection with any of the Transactions contemplated hereby) shall not survive the Effective Time but shall terminate as of the Effective Time. 11.4 Notices. All notices or other communications hereunder shall be in writing and shall be deemed given if delivered by receipted hand delivery or mailed by prepaid registered or certified mail (return receipt requested) or by cable, telegram, telex or telecopy addressed as follows: If to Buyer, to: Synergistics Acquisition Corp. c/o Renaissance Industrial LLC Ten Post Office Square Suite 600 South Boston, MA 02109 Attention: Gregory I. Goldman with a copy to: Steven R. London, Esquire Brown Rudnick Berlack Israels LLC One Financial Center Boston, MA 02111 If to Seller, to: Synergistics, Inc. 9 Tech Circle Natick, MA 01760 (508) 655-1340 fax (508) 651-2902 Attention: President with a copy to: David F. Hannon, Esq. Craig and Macauley Professional Corporation Federal Reserve Plaza 600 Atlantic Avenue Boston, MA 02210 (617) 367-9500 fax (617) 742-1788. 11.5 Parties in Interest. This Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective successors and assigns; provided, however, that neither this Agreement nor any of the rights, interests or obligations hereunder shall be assigned by any party hereto without the prior written consent of the other party, and that (except as otherwise expressly provided in this Agreement) nothing in this Agreement is intended to confer upon any other Person any rights or remedies under or by reason of this Agreement. 11.6 Rights of Employment. Nothing in this Agreement shall be deemed to confer upon any person any rights of employment with or any rights to hold any particular office with Buyer or to limit the right of Buyer to terminate the employment or office of any person. 11.7 Complete Agreement. This Agreement, including the Exhibits hereto and the documents and other writings referred to herein or delivered pursuant hereto (including the Seller and Buyer Stockholder Agreements), contain the entire agreement and understanding of the parties with respect to its subject matter. There are no restrictions, agreements, promises, warranties, covenants or undertakings between the parties other than those expressly set forth herein. This Agreement supersedes all prior agreements and understandings (other than the Confidentiality Agreement referred to in Section 11.1 hereof) between the parties, both written and oral, with respect to its subject matter. 11.8 Counterparts. This Agreement may be executed in one or more counterparts all of which shall be considered one and the same agreement and each of which shall be deemed an original. 11.9 Severability. In the event that any one or more provisions of this Agreement shall for any reason be held invalid, illegal or unenforceable in any respect, by any court of competent jurisdiction, such invalidity, illegality or unenforceability shall not affect any other provisions of this Agreement, and the parties shall use their reasonable efforts to substitute a valid, legal and enforceable provision which, insofar as practical, implements the purposes and intents of this Agreement. 11.10 Governing Law. This Agreement shall be governed by the laws of the Commonwealth of Massachusetts. 11.11 Headings. The Article and Section headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. IN WITNESS WHEREOF, Buyer and Seller have caused this Agreement to be executed under seal by their duly authorized officers as of the day and year first written above. Witness: BUYER: SYNERGISTICS ACQUISITION CORP. By: Name: Gregory I. Goldman Title: President Witness: SELLER: SYNERGISTICS, INC. By: Name: Title: Exhibit A Form of Seller Stockholder Agreement July 25, 2002 Synergistics Acquisition Corp. c/o Renaissance Industrial LLC Ten Post Office Square Suite 600 South Boston, MA 02109 Gentlemen: Each of the undersigned (a "Stockholder") is entering into this letter agreement ("Agreement") with respect to shares of the common stock, par value $.01 per share ("Seller Common Stock"), of Synergistics, Inc., a Massachusetts corporation ("Seller"). As used in this Agreement the term "Shares" shall mean and refer to any and all shares of Seller Common Stock now owned or hereafter acquired by a Stockholder and any other shares of Seller Common Stock with respect to which a Stockholder or his nominee may from time to time possess voting power. Simultaneously with the execution of this Agreement, Synergistics Acquisition Corp., a Massachusetts corporation ("Buyer") and Seller are entering into an Agreement and Plan of Merger (the "Merger Agreement") providing, among other things, for the merger of Seller with Buyer (the "Merger"). We understand that Buyer has undertaken and will continue to undertake substantial expenses in connection with the negotiation and execution of the Merger Agreement and the subsequent actions necessary to consummate the Merger and the other transactions contemplated by the Merger Agreement. In consideration of, and as a condition to, Buyer's entering into the Merger Agreement, and in consideration of the expenses incurred and to be incurred by Buyer in connection therewith, each Stockholder and Buyer agree as follows: 1. Agreement to Vote in Favor of Merger. Each Stockholder specifically agrees that: he will be bound by the terms of the Merger Agreement; he will use all reasonable efforts to cause a special meeting of stockholders of Seller (the "Special Meeting") to be held as soon as is practicable to vote to approve the Merger, the Merger Agreement and the transactions contemplated thereby; and at the Special Meeting or any other meeting of stockholders of Seller, he will cause all of the Shares he may be entitled to vote to be voted (X) in favor of the Merger, the Merger Agreement and the transactions contemplated thereby and (Y) against the approval of any other agreement providing for a merger, consolidation, sale of assets or other business combination of Seller with any person or entity other than Buyer. 2. Restrictions on Sale or other Disposition of Shares. Each Stockholder hereby agrees that from and after the date hereof and until the Effective Time of the Merger (as defined in the Merger Agreement), each Stockholder will not, directly or indirectly, sell, assign, hypothecate, transfer, pledge, give, place in trust or in any other fashion dispose of (including, without limitation, by granting of proxies, or relinquishment of voting rights, with respect to) (collectively, a "Transfer") any of the Shares owned by each Stockholder, unless the party to which such Transfer is made enters into a written Agreement with Buyer in substantially the form of this Agreement. 3. Representations and Warranties. Each Stockholder represents and warrants to Buyer as follows: (a) This Agreement has been duly executed and delivered by each Stockholder and constitutes his legal and valid obligation enforceable against him in accordance with its terms. Neither the execution and delivery of this Agreement nor compliance by the Stockholder with any of the provisions hereof does or will violate, conflict with or result in a breach of any term, condition or provision of, any material agreement to which the Stockholder is a party. (b) He is the beneficial owner of, and if not the beneficial owner has voting authority over, the number of Shares indicated opposite such Stockholder's name on the signature page hereof; he has plenary voting and dispositive power with respect to such Shares; he owns and has the authority to vote no other shares of Seller Common Stock; there are no proxies, voting trusts or other agreements or understandings with respect to the voting of any of the Shares other than this Agreement or as Previously Disclosed; and no Stockholder has entered into (and no Stockholder will enter into) any agreement or arrangement in any way inconsistent with this Agreement. 4. Waiver and Release of Claims. Upon the Effective Time, with respect to the Shares of Seller Common Stock they beneficially own, each of the Stockholders, individually and severally, hereby release, remise, acquit, satisfy and forever discharge Buyer and Surviving Company (as defined in the Merger Agreement), their agents, employees, officers, directors, attorneys and all other persons acting or purporting to act on behalf of or at the direction of Buyer and Surviving Company, their representatives, successors and assigns, from and against any and all manner of actions, causes of action, suits, specialties, summons, doings, omissions, sums of money, debts, expenses, accounts, reckonings, bonds, representations, covenants, contracts, controversies, agreements, variances, damages, judgments, executions, claims, demands and liabilities whatsoever, in law or in equity, which any of such parties individually or in any combination thereof, now has or can, shall or may at any time hereafter have against Buyer and Surviving Company, their agents, employees, officers, directors, attorneys or all other persons acting or purporting to act on behalf or at the direction of Buyer and Surviving Company, their representatives, successors and assigns, for, upon or by reason of any matter, cause or thing and liabilities pertaining to the Merger, this Agreement and any breach thereof; provided, however, that the Stockholders do not waive any claims to the payment of the Per Share Cash Consideration provided by the Merger Agreement. 5. Equitable Remedies. The parties hereto acknowledge that irreparable damage would result if this Agreement is not specifically enforced and that, therefore, the rights and obligations of the parties under this Agreement may be enforced by a decree of specific performance issued by a court of competent jurisdiction, and appropriate injunctive relief may be applied for and granted in connection therewith. Without limiting the generality of the foregoing, it is the intention of the parties that an order be issued (if necessary) causing the covenants of the Stockholders set forth in this agreement to be specifically enforced. Such remedies shall, however, not be exclusive and shall be in addition to any other remedies which any party may have under this Agreement or otherwise; provided, however, that no Stockholder shall have personal liability hereunder so long as (i) the requisite number of stockholders of Seller approves the Merger, the Merger Agreement and the transactions contemplated thereby on or before December 31, 2002, and (ii) such approval remains in full force and effect and is not modified, amended, superseded or rescinded, and (iii) the stockholders of Seller do not vote to approve any other agreement providing for a merger, consolidation, sale of assets or other business combination of Seller or any of its subsidiaries with any person or entity other than Buyer or a subsidiary of Buyer. 6. Notices. Notices may be provided to Buyer and the Stockholders in the manner specified in Section 11.4 of the Merger Agreement, with all notices to the Stockholders being provided to their attention, in care of the President of Seller in the manner specified in such Section. 7. Miscellaneous. Notwithstanding anything herein to the contrary, this Agreement shall remain in full force and effect until the earlier of (i) the consummation of the Merger and (ii) the termination of the Merger Agreement in accordance with its terms. The agreements contained herein are intended to continue for such time as may reasonably be necessary to obtain all necessary approvals, including stockholder approval, of the Merger and any other transactions contemplated by the Merger Agreement. For the convenience of the parties hereto, this Agreement may be executed in any number of counterparts, each such counterpart being deemed to be an original instrument, and all such counterparts shall together constitute the same agreement. This Agreement shall be governed by and construed in accordance with the laws of Massachusetts, without giving effect to conflicts of law principles. If any provision hereof is deemed unenforceable, the enforceability of the other provisions hereof shall not be affected. 8. Survival. The representations, warranties and agreements of the Stockholders contained in this Agreement shall not survive the Effective Time (as defined in the Merger Agreement) but shall terminate as of the Effective Time. 9. Several Obligations. Each of the Stockholders has signed this letter agreement intending to be bound severally thereby and not to be bound as joint obligors. Please confirm your agreement with us by signing a copy of this letter. NUMBER OF SHARES- NUMBER OF SHARES - SELLER STOCKHOLDERS: BENEFICIALLY OWNED VOTING AUTHORITY ONLY GRAY, SEIFERT & CO., INC. shares shares By: Name: Title: 3,575 shares 0 shares David S. Longworth Agreed to and accepted as of the 25 day of July, 2002. SYNERGISTICS ACQUISITION CORP. By: Name: Title: President EX-2 4 mgla.txt MASSACHUSETTS GENERAL LAWS CH 156B, SECT 86-98 EXHIBIT 2 TO PROXY STATEMENT Sections 85-98 of Chapter 156B Massachusetts General Laws Annotated Section85.Dissenting stockholder; right to demand payment for stock; exception. A stockholder in any corporation organized under the laws of Massachusetts which shall have duly voted to consolidate or merge with another corporation or corporations under the provisions of sections seventy-eight or seventy-nine who objects to such consolidation or merger may demand payment for his stock from the resulting or surviving corporation and an appraisal in accordance with the provisions of sections eighty-six to ninety-eight, inclusive, and such stockholder and the resulting or surviving corporation shall have the rights and duties and follow the procedure set forth in those sections. This section shall not apply to the holders of any shares of stock of a constituent corporation surviving a merger if, as permitted by subsection (c) of section seventy-eight, the merger did not require for its approval a vote of the stockholders of the surviving corporation. Section86. Selections applicable to appraisal; prerequisites. If a corporation proposes to take a corporate action as to which any section of this chapter provides that a stockholder who objects to such action shall have the right to demand payment for his shares and an appraisal thereof, sections eighty-seven to ninety-eight, inclusive, shall apply except as otherwise specifically provided in any section of this chapter. Except as provided in sections eighty-two and eighty-three, no stockholder shall have such right unless (1) he files with the corporation before the taking of the vote of the shareholders on such corporate action, written objection to the proposed action stating that he intends to demand payment for his shares if the action is taken and (2) his shares are not voted in favor of the proposed action. Section87. Statement of rights of objecting stockholders in notice of meeting; form. The notice of the meeting of stockholders at which the approval of such proposed action is to be considered shall contain a statement of the rights of objecting stockholders. The giving of such notice shall not be deemed to create any rights in any stockholder receiving the same to demand payment for his stock, and the directors may authorize the inclusion in any such notice of a statement of opinion by the management as to the existence or non- existence of the right of the stockholders to demand payment for their stock on account of the proposed corporate action. The notice may be in such form as the directors or officers calling the meeting deem advisable, but the following form of notice shall be sufficient to comply with this section: "If the action proposed is approved by the stockholders at the meeting and effected by the corporation, any stockholder (1) who files with the corporation before the taking of the vote on the approval of such action, written objection to the proposed action stating that he intends to demand payment for his shares if the action is taken and (2) whose shares are not voted in favor of such action has or may have the right to demand in writing from the corporation (or, in the case of a consolidation or merger, the name of the resulting or surviving corporation shall be inserted), within twenty days after the date of mailing to him of notice in writing that the corporate action has become effective, payment for his shares and an appraisal of the value thereof. Such corporation and any such stockholder shall in such cases have the rights and duties and shall follow the procedure set forth in sections 88 to 98, inclusive, of chapter 156B of the General Laws of Massachusetts." Section88. Notice of effectiveness of action objected to. The corporation taking such action, or in the case of a merger or consolidation the surviving or resulting corporation, shall, within ten days after the date on which such corporate action became effective, notify each stockholder who filed a written objection meeting the requirements of section eighty-six and whose shares were not voted in favor of the approval of such action, that the action approved at the meeting of the corporation of which he is a stockholder has become effective. The giving of such notice shall not be deemed to create any rights in any stockholder receiving the same to demand payment for his stock. The notice shall be sent by registered or certified mail, addressed to the stockholder at his last known address as it appears in the records of the corporation. Section89. Demand for payment; time for payment. If within twenty days after the date of mailing of a notice under subsection (e) of section eighty-two, subsection (f) of section eighty-three, or section eighty-eight, any stockholder to whom the corporation was required to give such notice shall demand in writing from the corporation taking such action, or in the case of a consolidation or merger from the resulting or surviving corporation, payment for his stock, the corporation upon which such demand is made shall pay to him the fair value of his stock within thirty days after the expiration of the period during which such demand may be made. Section90. Demand for determination of value; bill in equity; venue. If during the period of thirty days provided for in section eighty-nine the corporation upon which such demand is made and any such objecting stockholder fail to agree as to the value of such stock, such corporation or any such stockholder may within four months after the expiration of such thirty-day period demand a determination of the value of the stock of all such objecting stockholders by a bill in equity filed in the superior court in the county where the corporation in which such objecting stockholder held stock had or has its principal office in the commonwealth. Section91. Parties to suit to determine value; service. If the bill is filed by the corporation, it shall name as parties respondent all stockholders who have demanded payment for their shares and with whom the corporation has not reached agreement as to the value thereof. If the bill is filed by a stockholder, he shall bring the bill in his own behalf and in behalf of all other stockholders who have demanded payment for their shares and with whom the corporation has not reached agreement as to the value thereof, and service of the bill shall be made upon the corporation by subpoena with a copy of the bill annexed. The corporation shall file with its answer a duly verified list of all such other stockholders, and such stockholders shall thereupon be deemed to have been added as parties to the bill. The corporation shall give notice in such form and returnable on such date as the court shall order to each stockholder party to the bill by registered or certified mail, addressed to the last known address of such stockholder as shown in the records of the corporation, and the court may order such additional notice by publication or otherwise as it deems advisable. Each stockholder who makes demand as provided in section eighty-nine shall be deemed to have consented to the provisions of this section relating to notice, and the giving of notice by the corporation to any such stockholder in compliance with the order of the court shall be a sufficient service of process on him. Failure to give notice to any stockholder making demand shall not invalidate the proceedings as to other stockholders to whom notice was properly given, and the court may at any time before the entry of a final decree make supplementary orders of notice. Section92. Decree determining value and ordering payment; valuation date. After hearing the court shall enter a decree determining the fair value of the stock of those stockholders who have become entitled to the valuation of and payment for their shares, and shall order the corporation to make payment of such value, together with interest, if any, as hereinafter provided, to the stockholders entitled thereto upon the transfer by them to the corporation of the certificates representing such stock if certificated or, if uncertificated, upon receipt of an instruction transferring such stock to the corporation. For this purpose, the value of the shares shall be determined as of the day preceding the date of the vote approving the proposed corporate action and shall be exclusive of any element of value arising from the expectation or accomplishment of the proposed corporate action. Section93. Reference to special master. The court in its discretion may refer the bill or any question arising thereunder to a special master to hear the parties, make findings and report the same to the court, all in accordance with the usual practice in suits in equity in the superior court. Section94. Notation on stock certificates of pendency of bill. On motion the court may order stockholder parties to the bill to submit their certificates of stock to the corporation for the notation thereon of the pendency of the bill and may order the corporation to note such pendency in its records with respect to any uncertificated shares held by such stockholder parties, and may on motion dismiss the bill as to any stockholder who fails to comply with such order. Section95. Costs; interest. The costs of the bill, including the reasonable compensation and expenses of any master appointed by the court, but exclusive of fees of counsel or of experts retained by any party, shall be determined by the court and taxed upon the parties to the bill, or any of them, in such manner as appears to be equitable, except that all costs of giving notice to stockholders as provided in this chapter shall be paid by the corporation. Interest shall be paid upon any award from the date of the vote approving the proposed corporate action, and the court may on application of any interested party determine the amount of interest to be paid in the case of any stockholder. Section96. Dividends and voting rights after demand for payment. Any stockholder who has demanded payment for his stock as provided in this chapter shall not thereafter be entitled to notice of any meeting of stockholders or to vote such stock for any purpose and shall not be entitled to the payment of dividends or other distribution on the stock (except dividends or other distributions payable to stockholders of record at a date which is prior to the date of the vote approving the proposed corporate action) unless: (1) A bill shall not be filed within the time provided in section ninety; (2) A bill, if filed, shall be dismissed as to such stockholder; or (3) Such stockholder shall with the written approval of the corporation, or in the case of a consolidation or merger, the resulting or surviving corporation, deliver to it a written withdrawal of his objections to and an acceptance of such corporate action. Notwithstanding the provisions of clauses (1) to (3), inclusive, said stockholder shall have only the rights of a stockholder who did not so demand payment for his stock as provided in this chapter. Section97. Status of shares paid for. The shares of the corporation paid for by the corporation pursuant to the provisions of this chapter shall have the status of treasury stock, or in the case of a consolidation or merger the shares or the securities of the resulting or surviving corporation into which the shares of such objecting stockholder would have been converted had he not objected to such consolidation or merger shall have the status of treasury stock or securities. Section98. Exclusive remedy; exception. The enforcement by a stockholder of his right to receive payment for his shares in the manner provided in this chapter shall be an exclusive remedy except that this chapter shall not exclude the right of such stockholder to bring or maintain an appropriate proceeding to obtain relief on the ground that such corporate action will be or is illegal or fraudulent as to him. EX-3 5 syn10ksb.txt ANNUAL REPORT DECEMBER 31, 2001 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 Form 10-KSB Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the fiscal year ended: December 31, 2001 Commission File No.: 0-6421 SYNERGISTICS, INC. Massachusetts 04-2283157 (State of Incorporation) (IRS Employer I.D. Number) 9 Tech Circle, Natick, MA 01760 (Address of Principal (Zip Code) Executive Office) Issuer's telephone number (508) 655-1340 Securities registered under Section 12(b) of the Exchange Act: Title of each class Name of each exchange on which registered None. None. Securities registered under Section 12(g) of the Exchange Act: Common Stock $0.01 Par Value (Title of class) Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. [ ] Yes [ X ] No Check if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-B is not contained in this form, and no disclosure will 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-KSB or any amendment to this Form 10-KSB. [ X ] State issuer's revenues for its most recent fiscal year.$2,543,277 State the aggregate market value of the voting and $ 0.00 non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was sold, or the average bid and asked price of such common equity, as of a specified date within the past 60 days. State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date. Common Stock, $0.01 Par Value 10,285,806 (Title of Class) (Shares Outstanding at March 1, 2002) Exhibit Index is located on pages 13 and 19 of this Form 10-K. DOCUMENTS INCORPORATED BY REFERENCE None. Transitional Small Business Disclosure Format (Check one): Yes [ ]; No [ X ] Forward Looking Statements Certain statements contained in this 10-KSB, including those contained in the Description of Business, Management's Discussion and Analysis of Financial Condition and Results of Operations and elsewhere, are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and are thus prospective. Such forward-looking statements are subject to risks, uncertainties and other factors which could cause actual results to differ materially from future results expressed or implied by such statements. Such factors include, but are not limited to increases in raw material costs, supply and distribution chain delays and declines in the national economy, all of which could adversely affect cash flow. PART I ITEM 1. DESCRIPTION OF BUSINESS (a) Business Development Synergistics, Inc. a Massachusetts corporation (the "Company") organized on May 13, 1960 is located at 9 Tech Circle, Natick, Massachusetts 01760, telephone (508) 655-1340, Web site www.synergisticsinc.com. The Company's principal activity consists of manufacturing and marketing access control systems which it sells to banks, corporate accounts and other commercial customers. The Company's principal activity has not changed substantially in the past three years. Over the past three years, the Company has been engaged in marketing and selling its access control systems to businesses and banks, mainly in the U.S. Large and medium sized PC based access control systems manufactured by the Company include Citadel, Building Watch for Windows and WaPac for Windows. These systems are designed to fill the needs of, and are marketed to medium to large sized commercial accounts, hospitals, banks, colleges and universities. The Company also markets its smaller access control products to banks where they are used mainly to control customer access to ATM vestibules. In 1994 and 1995, the majority of banks in Greater New York City installed the Company's ATM Access system to provide secured access to their ATM vestibules. In 1998 Citicorp, who used their own customized ATM access control security system, switched to a customized version of the Synergistics ATM Access product to convert their branches over to a Synergistics system. Currently Citibank has over 225 Synergistics systems installed. The Company is now in the process of upgrading the Citibank ATM Access systems installed in 1998 to tie in to the Citibank ATM network. Other banking products, such as the MSLR1 and ATM-3 are sold in the U.S. and abroad, and are still a good part of the Company's business. (b) Business of Issuer (1) Principal Products and Markets Bank ATM Access Control: The Company has been marketing bank ATM access control products since 1977. These products consisted of MSLR1, ATM III and ATM Access. In 1998, the Company added a customized networked product expressly customized for Citibank sites in Greater New York City. In 2000, it began talks with Citicorp to enhance that product by adding network communications to it's controllers. Bank ATM access control revenue represented approximately 18% of all Company revenue in 2001, 13% in 2000 and 13% in 1999. The Company estimates having sold ATM access control products to over 40,000 bank installations in the United States and abroad. Individual ATM access control products are discussed herein. MSLR1 - ATM Vestibule Access Control: The MSLR1 product line continues to be a substantial revenue producer for the Company. It is a minimal security access control system utilizing a single reader and controller to control access to a single door in an automatic teller machine (ATM) lobby installation. Over the years, the Company has sold to over 40,000 bank installations worldwide. ATM-III - ATM Vestibule Access Control: This product controls access to ATM vestibule installations similar to the MSLR1 product. It offers high security to the installations. ATM Access - ATM Vestibule Access Control: ATM Access is a distributed processing access control system developed in 1994 to meet the requirements for New York City's Local Law 70, a law passed to increase security in ATM installations. The ATM Access system meets the requirements of the law by using a database supplied to the banks by NYCE which provides reasonable assurance that only bank card gain entrance to ATM vestibule installations. Today, there are over 1,500 installations in and around New York City. Citicorp ATM Access - ATM Vestibule Access Control: This product, developed in 1998 uses the ATM Access product as a base controller for a customized, networked access control system for all Citibank ATM installations in New York City. The product is currently being modified to communicate over Citicorp's TCP/IP network. Currently this product has been released in 2002, and the new design is being installed in New York City as an upgrade to the existing Synergistics product installed in 1998. PO-VAC - Post Office Lobby Access Control: This product is currently being sold to the U.S. Post Offices of Connecticut to provide security to Post Office lobbies which are to be open to the public 24 hours per day. An initial order for $25,000 in PO-VAC systems was sold in 2001. Post Office lobbies are currently being renovated by the Postal Service to make provisions for PO-VAC installation. WA-PAC NT - A Windows NT based distributed processing building management system: WA-PAC is an access control system which supports a network of buildings or sites from a Personal Computer, over dial-up or direct, voice grade, telephone lines, fiber optics or TCP/IP network. WA-PAC operates as a distributed intelligent network of card access readers and controllers that provide access control and building security to buildings or groups of buildings. Each building supports 64 card access readers and over 4,000 alarm and output points. WaPac NT controllers will support databases of over 80,000 users when expanded. WaPac NT is marketed to Colleges, Universities and medium to large commercial buildings. The Company introduced WA-PAC in 1988 as a DOS based, distributed processing access control system which controls multiple building sites through the use of a single host computer. In 1998, the Company released WaPAC NT, a Windows NT version of the original DOS based WA-PAC product. WaPac NT is a networked product which will support WA-PAC Tracker, video image badging, floor plan mapping and many other features which were not possible with the DOS based WA-PAC system. The main market for this product is colleges and universities, medium to large corporate buildings and networks of commercial buildings and warehouses. WA-PAC has been the Companies premier computer system over the past years. WA-PAC supports a great number of features and its reliable operation and reasonable pricing are the main reasons for its success in controlling access and securing perimeters in these buildings. WA-PAC supports direct or dial-up telephone lines and TCP/IP network for communications and will support any number of building sites. Product shipments first began in 1988. WA-PAC revenue approximated 22% in 2001, 21% in 2000 and 17% of total revenue in 1999. WA-PAC 3 A 32 bit Windows based building management system using Microsoft's SQL database management. WA-PAC 3 has been designed to be released in Q2, 2002 as a replacement for WA-PAC NT. It's SQL database will give it much more capability in large database installations and it's many new options make it a stronger and more appealing product for the future. WA-PAC 3 is the Company's large and medium building management system for the future. WA-PAC TRACKER - An asset tracking enhancement to WA-PAC for Windows NT and WA-PAC 3. This system protects against portable asset theft from buildings secured with WA-PAC access control security. Portable assets are defined as any object or person that can be tagged for identification with Tracker's long range proximity security tags. Portable assets may be laptop computers or other equipment, babies, or even elderly persons who require monitoring. Tagged assets are identified by the system and associated with tagged escort personnel which are recorded as they pass through monitoring points. Tracker is also sold as a stand-alone system without WA-PAC. BUILDING WATCH for Windows - A Windows based, distributed processing, access control system: Building Watch is an access control product operating on Windows 98, NT and 2000. It is designed for securing commercial or industrial facilities at low cost. This system shares a personal computer with other programs, thereby making it a cost effective security system that is easy to implement and expand. Building Watch offers direct local access control and remote access management over dial-up phone lines. It also supports input point monitoring and reporting capabilities. Building Watch supports all popular card technologies. The Company developed and announced Building Watch for Windows in 1997. Building Watch for Windows is an economical access control product which controls access to 32 doors in many buildings from a single computer which may be shared with other computer programs. Building Watch for Windows revenues approximated 10% of all Company revenue in 2001, 16% in 2000 and 18% in 1999. CITADEL - 2 Door, Stand alone, Full Featured Access Control System: This product is sold mainly to small, industrial and commercial users who require only one or two doors of access control, but wish to control doors with time zones and keep a printed record of system activity. Door Watch supports all popular card reader technologies. The Company announced Door Watch in December of 1992. Door Watch revenues approximated 1% of total Company revenue in 2001, 2% in 2000 and 1% in 1999. Door Watch sales, although a small portion of total sales, provide an important gap filler in the Company's access control product line. Door Watch is also made to easily be upgraded to Building Watch for Windows or Citadel when expansion is desired. The Company designs and manufactures all of its products. The Company's computer based products use personal computers and standard peripherals to provide access control and building management to secured sites. These products are acquired from a variety of third party sources. Components are procured from electronics distributors. Board assembly houses manufacture and assemble circuit boards used for the Company's products. Final assembly, test and shipping functions are performed by Company personnel at our Natick location. The Company solicits bids for components, subassemblies and outside assembly. The Company has not experienced difficulty obtaining components for its products. The primary market for the ATM access control product line is banks with automatic teller machine (ATM) vestibules. The Company actively markets its access control and building management product lines to colleges and universities, and also believes that these product lines are applicable to a wide variety of commercial, government and institutional markets; i.e., military bases, hospitals, research and computer facilities, office buildings, and office or manufacturing complexes. Foreign and Domestic Operations and Export Revenue: The Company operates from a headquarters facility located in Natick, Massachusetts and a sales office in Tampa, Florida. In the United States and Canada, the Company sells it's products through independent Dealers and through Representative organizations in both domestic and foreign markets. Export revenue approximated 7% of total revenue in 2001, 10% in 2000, 14% in 1999. The Company sells to American brokers doing business abroad and directly to end users and foreign dealers. The currency used for all sales to foreign firms is the U.S. Dollar. (2) Distribution Methods The company sells its products through the efforts of regional sales managers who market the product through independent system integrators, security dealers and locksmiths, in the U.S. and abroad. The Company markets its products primarily through trade shows, advertising in selected industry journals and magazines, government supply contracts, selected direct mailings, the Internet and supporting dealer bids and proposals. The Company continues to expand its base of distribution by increasing the number of dealers authorized to sell the Company's products. The Company sells directly to certain large banks and government agencies. (3) Status of New Products In 2001, 4 new products were being developed at our Engineering facility in Natick: Citadel, a medium sized access control and building security product was developed to provide a significant 32 bit replacement for the 16 bit Building Watch for Windows product. Citadel was released for sale in January, 2002. WaPac 3 was developed to provide a more robust high end product by incorporating SQL as its database manager. This product will be released in Q2 of 2002. Presidio takes the SQL version of WaPac to a new level by adding Visual Basic for Applications, a Microsoft product, to allow users to easily and inexpensively customize their own security system using Visual Basic programming. This top of the line product is intended for release in Q4, 2002. Citicorp ATM expansion to a TCP/IP network began at the end of 2000. Although many delays were seen in this products introduction, a Company supplied interim product solution is currently being installed in Citibank ATMs. (4) Competition and Position Within the Industry The Company has been in a single business segment for the past year: The manufacturing and marketing of access control and facility management systems. The Company is noted for its contribution to ATM security in the Banking industry and searches for new product markets in this area. All of the Company's revenue, operating profit or loss and identifiable assets are attributable to one industry segment. Over 150 companies compete in the card based access control marketplace. The principle Company competitors include Hirsch, DSW, Cardkey Systems, Sensormatic, Westinghouse, CASI-RUSCO, and Northern Computers. The Company believes its sales volume is a small fraction of the combined sales of the Company's major competitors. A competitor that chooses to devote substantial economic resources toward acquiring a dominant position in the access control devices market might seriously injure the Company's market position and jeopardize its viability, but the product line has proven to be reliable and competitive over the years and should survive this type of competition. The Company believes that competition in our marketplace is based upon reliability, price, service, and product capability. The Company believes that it can compete on such terms. (5) Raw Materials and Principal Suppliers The Company purchases components for its products from electronics distributors. The Company designed printed circuit boards are purchased from board manufacturers and outside assembly houses manufacture the completed printed circuit boards. Final assembly, test and shipping as well as any customization is performed by the Company. The Company is not dependent upon any one firm for components or assembly work and dual sourcing is a company policy. The Company solicits bids for its work and awards business based upon quality of workmanship, price and lead time. The Company has not experienced difficulty obtaining parts or outside assemblers for its products. Manufacturing cycle time approximates 2 to 3 weeks following initial kitting of components. The Company feels that this is not unusual for a company that uses outside contractors for manufacturing and assembly. The Company provides a one-year warranty after a product is shipped. Normal payment terms are 30 days. The ending backlog was $81,534 in 2001, $42,282 in 2000 and $38,589 in 1999. (6) Customers The Company's business is not seasonal in any material respect. The Company has no dependence upon a single customer or a few customers. (7) Patents and Trademarks The Company holds no patents on any of its current products. (8) Government Approvals, Regulations and Contracts The Company's business is not governed significantly by federal or state regulations. The Company does not actively pursue government contracts, but does have a GSA contract and sells to the government whenever it is advantageous. Government revenue approximated 2% of total revenue in 2001, 1% in 2000 and 1% in 1999. None of the Company's sales under government contracts are subject to re-negotiations of profits or termination of contracts or subcontracts, to the best of the Company's knowledge. (9) Research and Development The Company expends monies on technical support, research and development of new products, and the enhancement of existing products. Such expenditures are consistent with the Company's overall product development, maintenance and enhancement strategies. The Company's product development expenses for the fiscal year 2001 totaled approximately 23% of the Company's revenues, and for the fiscal year 2000 totaled 22% of revenues. These expenditures have resulted in three (4) new products, discussed above. The Company's customers do not bear directly the expenses of product development. (10) Compliance with Environmental Laws The nature of the Company's manufacturing operation is such that no materials are discharged into the environment. Under the terms of the Company's lease for its operating facility, it is obligated for the normal maintenance and repair of building systems. No additional capital expenditures are anticipated by the Company. (11) Employees At December 31, 2001, the Company had twenty two (22) employees, all of whom work full time. ITEM 2. DESCRIPTION OF PROPERTIES The Company currently leases approximately 7,160 square feet of office and manufacturing space in a one-story brick and masonry building located at 9 Tech Circle, Natick, Massachusetts. The five-year lease expires June 1, 2004. The current monthly base rate is $5,072. Additionally the Company is required to pay utility charges and insurance costs as well as the Company's portion of taxes and common space charges. The property occupied by the Company is in good condition and is adequate at present and for the foreseeable future for the purpose for which it is being used. In the opinion of management, the property is adequately insured. ITEM 3. LEGAL PROCEEDINGS No material legal proceedings are pending to which the Company is a party or to which any of its property is subject. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matter was submitted to a vote of the security holders during the Fourth Quarter of 2001. PART II ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS As of December 31, 2001, to the Company's knowledge, only a limited public market for its Common Stock existed. The Common Stock is not presently registered on any stock exchange. The Company is not aware of any over-the-counter trading in its stock in the past two years. As of December 31, 2001, the number of holders of the Company's Common Stock was 687. On February 14, 2002, Legg Mason, Inc., a financial services holding company, filed a Schedule 13G with the Securities and Exchange Commission to report that it no longer beneficially owns any common stock of the Company and that it no longer is required to file reports under Section 13 of the Exchange Act. Previously, Legg Mason's subsidiary, Gray, Seifert & Co., Inc., a registered investment adviser, had the discretionary power to vote and dispose of over 8 million shares of the Company's Common Stock through arrangements with its investment advisory clients. On February 15, 2002, Gray, Seifert & Co., Inc. filed a Schedule 13D with the Securities and Exchange Commission to report the acquisition of 6,235,444 shares of the Company's Common Stock from three (3) investment advisory clients. As reported in the Schedule 13D, Gray, Seifert & Co. now is the beneficial owner of 7,378,315 shares of the Company's Common Stock. The Company pays no dividends in its Common Stock. On January 22, 2001 the Company sold 50,000 shares, and on February 7, 2001 the Company sold 100,000 shares, of the Company's Common Stock, $.01 Par Value, at a price of $1.00 per share in a private sale to certain existing shareholders.The shares are not convertible or exchangeable, and they were sold for cash. The Company did not use an underwriter to facilitate the sale. The Company claims the private sale exemptions set forth in section 4(2) of the Securities Act and Rule 506 of Regulation D because the sale was private, the sale was limited to fewer than thirty-five (35) existing shareholders of the Company who qualified as accredited investors, and the purchasers acquired the shares for their own investment purposes and with the knowledge that the resale of such shares is limited by the registration and other requirements of the Securities Act. ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION 2001 Compared to 2000 Revenues for 2001 were $2,543,277, a decrease of $27,357 compared with 2000. Cost of Sales as a percentage of revenue was 72.7% and selling expenses for 2001 decreased by $213,331 when compared to 2000. The national recession was still evident during the start of 2001. The Company started 2001 with an effortto reduce expenses by eliminating 2 regional sales managers and cutting advertising to a minimum. In April, after experiencing 4 months of continued drop in sales,the Company had a downsizing of personnel, the Company's president and vice president took a 20% pay reduction and 5 representative sales firms in the mid west and southern states were eliminated. The layoff, salary cuts, sales representative reduction and reduced expenses brought our expenses to a more manageable level. In May, a recovery in sales was noticed which remained steady through the remainder of the year. At December 31, 2001, current assets exceeded current liabilities by $319,727, including cash in commercial checking and money market accounts of $74,294. 2000 Compared to 1999 Revenues for 2000 were $2,570,634 a decrease of $266,600 compared with 1999. The significant decrease in sales, due to the national economic slow-down, coupled with increased Sales and Marketing expenses, is primarily responsible for the decrease in revenues. Cost of Sales as a percentage of revenue increased to 72.8% from 65.17% and selling expenses for 2000 increased by $122,030 when compared to 1999. The increase in Cost of Sales was due to increased engineering wages and higher material content on products sold. The increase in Sales and Marketing expenses relate to the Company's development of new promotional materials and an aggressive advertising campaign. The Company hired a number of regional sales representatives, as well as a national sales representative, as part of its sales strategy. At December 31, 2000, current assets exceeded current liabilities by $536,623 including cash in commercial checking and money market accounts of $64,881. LIQUIDITY AND CAPITAL RESOURCES In April, 2001 the Company borrowed $100,000 to pay off certain critical vendors of components that are sold by the Company with their access control product lines. Proceeds of the sale of 150,000 shares of the Company's Common Stock and the loan were used to fight off effects of the recession while continuing development of Citadel, WaPac 3 and Presidio. These products were planned to be introduced in late 2001 and 2002. A 4th new product, a TCP/IP networked ATM access control system was designed for Citibank to be installed in their ATM installations in New York City and possibly elsewhere in the United States. Should the improved sales trend that is currently being seen be temporary, and sales again begin to reverse for another lengthy time period, it could adversely effect the operation of the Company and more extreme measures will be required to control operating expenses. At the request of the Company's principal shareholder, the Board of Directors has implemented a process, which is ongoing, to explore possible transactions by which the Company may be acquired in a manner which best serve the interests of the Company's shareholders. Management believes that, to continue as a going concern, the Company either must obtain additional financing or must be acquired by another entity. ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Index to Financial Statements years ended Page Number December 31, 2001 and 2000. Independent Auditors' Report, March 14, 2002 1 Balance Sheets as of December 31, 2001 and 2 December 31, 2000 Statements of Operations for years ended 3 December 31, 2001 and 2000. Statements of Stockholders' Equity for years 4 ended December 31, 2001 and 2000. Statements of Cash Flows for years ended 5 December 31, 2001 and 2000. Notes to Financial Statements 6-11 SYNERGISTICS, INC. NATICK, MASSACHUSETTS FINANCIAL STATEMENTS AND INDEPENDENT AUDITORS' REPORT DECEMBER 31, 2001 AND 2000 INDEPENDENT AUDITORS' REPORT To the Board of Directors and Stockholders Synergistics, Inc. Natick, Massachusetts We have audited the accompanying balance sheets of Synergistics, Inc. as of December 31, 2001 and 2000, and the related statements of operations, stockholders' equity and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Synergistics, Inc. as of December 31, 2001 and 2000, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America. The accompanying financial statements have been prepared assuming the Company will continue as a going concern. As discussed in Note A, the Company's dependence on obtaining additional financing to fund operations raises substantial doubts about the Company's ability to continue as a going concern. Management's plans regarding those matters are also described in Note A. The financial statements do not include adjustments that might result form the inability to secure additional financing. /S/LIVINGSTON & HAYNES, P.C. Wellesley, Massachusetts March 14, 2002 - 1 - SYNERGISTICS, INC. BALANCE SHEETS DECEMBER 31, 2001 AND 2000 ASSETS 2001 2000 CURRENT ASSETS Cash and equivalents $ 74,294 $ 64,881 Trade accounts receivable, net of reserves of $20,000 in 2001 and 2000 347,219 448,843 Inventories 322,708 466,916 Prepaid expenses 19,127 11,013 Due from shareholder - 2,115 TOTAL CURRENT ASSETS 763,348 993,768 EQUIPMENT 120,323 118,118 Less depreciation and amortization 96,826 84,435 23,497 33,683 DEFERRED TAXES 355,500 759,674 $1,142,345 $1,787,125 ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Trade accounts payable $ 229,783 $ 317,010 Accrued expenses and other current liabilities 113,837 140,135 Note payable 100,000 - TOTAL CURRENT LIABILITIES 443,620 457,145 COMMITMENTS AND CONTINGENT LIABILITIES - - STOCKHOLDERS' EQUITY Common Stock (authorized 12,000,000 shares; issued 10,285,806 and 9,632,561 shares in 2001 and 2000, including 16,445 shares held in Treasury) 102,858 96,326 Additional paid-in capital 7,567,355 6,873,887 Stock subscriptions received - 500,000 Retained earnings (deficit) (6,964,353) (6,133,098) 705,860 1,337,115 Cost of Common Stock held in Treasury (7,135) (7,135) 698,725 1,329,980 $1,142,345 $1,787,125 ========== ========== See accompanying notes to the financial statements. - 2 - SYNERGISTICS, INC. STATEMENTS OF OPERATIONS YEARS ENDED DECEMBER 31, 2001 AND 2000 2001 2000 Revenues: Sales - net $2,543,277 $2,570,634 Interest income 678 669 2,543,955 2,571,303 Costs and expenses: Costs of sales 1,849,914 1,870,976 General and administrative expenses 561,827 500,536 Selling expenses 538,234 751,565 Bad debt expense 18,253 31,526 Interest expense 2,808 2,304 2,971,036 3,156,907 LOSS BEFORE INCOME TAXES (427,081) (585,604) Income tax expense - deferred 404,174 - NET LOSS $ (831,255) $ (585,604) ========== ========== LOSS PER COMMON SHARE $ (.081) $ (.061) ======= ======= See accompanying notes to the financial statements. - 3 - SYNERGISTICS, INC. STATEMENTS OF STOCKHOLDERS' EQUITY YEARS ENDED DECEMBER 31, 2001 AND 2000 COMMON STOCK SHARES AMOUNT Balances at January 1, 2000 9,632,561 $ 96,326 Proceeds from common stock subscription - - Net loss - - BALANCES AT DECEMBER 31, 2000 9,632,561 96,326 Issuance of common stock 653,245 6,532 Net loss - - BALANCE AT DECEMBER 31, 2001 10,285,806 $102,858 =========== ======== ADDITIONAL RETAINED STOCK PAID-IN EARNINGS SUBSCRIPTION TREASURY STOCK CAPITAL (DEFICIT) RECEIVED SHARES AMOUNT TOTAL $6,873,887 $(5,547,494) $ - 16,445 $7,135 $ 1,415,584 - - 500,000 - - 500,000 - (585,604) - - - (585,604) ---------- --------- -------- ------- ---- --------- 6,873,887 (6,133,098) 500,000 16,445 7,135 1,329,980 693,468 - (500,000) - - 200,000 - (831,255) - - - (831,255) ---------- --------- --------- ------ ----- --------- $7,567,355$(6,964,353) $ - 16,445 $7,135 $ 698,725 ========== =========== ======== ======= ====== =========
- 4 - See accompanying notes to the financial statements. SYNERGISTICS, INC. STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 2001 AND 2000 2001 2000 Cash flows from operating activities: Net loss $(831,255) $(585,604) Adjustments to reconcile net loss to net cash used by operating activities: Provision for allowance on deferred taxes 404,174 - Depreciation and amortization 12,391 18,399 (Increase) decrease in assets: Trade accounts receivable 101,624 31,172 Inventories 144,208 (89,572) Prepaid expenses and other current assets (8,114) 1,455 Increase (decrease) liabilities: Trade accounts payable (87,227) 98,930 Accrued expenses and other current liabilities (26,298) 48,900 ------- ------- TOTAL ADJUSTMENTS 540,758 109,284 ------- ------- NET CASH USED BY OPERATING ACTIVITIES (290,497) (476,320) Cash flows from investing activities: Capital expenditures (2,205) (9,009) Advance to shareholder 2,115 (2,115) ------ ----- NET CASH USED BY INVESTING ACTIVITIES (90) (11,124) Cash flows from financing activities: Loan from director 100,000 - Proceeds of stock subscription 200,000 500,000 ------- ------- NET CASH PROVIDED BY FINANCING ACTIVITIES 300,000 500,000 ------- ------- NET CHANGE IN CASH 9,413 12,556 ------- ------- Cash and equivalents at beginning of year 64,881 52,325 --------- --------- CASH AND EQUIVALENTS AT END OF YEAR $ 74,294 $ 64,881 ========= ========= Cash paid for: Interest $ 2,809 $ 2,304 Income taxes $ - $ - See accompanying notes to the financial statements. - 5 - SYNERGISTICS, INC. NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2001 AND 2000 NOTE A - SUMMARY OF ACCOUNTING POLICIES The financial statements have been prepared on a going-concern basis. The Company has expended cash in excess of cash generated from operations. Additionally, the Company has not achieved sufficient revenues to support future operations. Management believes that to continue as a going concern the Company will require additional financing or acquisition by another entity. The financial statements do not include any adjustments that might result from this uncertainty. A summary of the significant accounting policies applied by management of the Company in the preparation of the accompanying financial statements follows. Nature of Operations Synergistics, Inc. is engaged in the manufacturing and marketing of card access systems, which are sold to banks and other commercial customers. Use of Estimates The preparation of financial statements in conformity with accounting principals generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Cash and Equivalents Cash and equivalents consist of cash on hand, demand deposits with commercial banks, and money market securities with initial maturities of less than 90 days. Inventories Inventories are stated at the lower of first-in, first-out cost or aggregate market. Equipment Equipment is stated at cost. Normal maintenance and repair costs are expensed as incurred. Gains and losses on sales or retirements are included in operations. Depreciation and amortization are provided using straight- line and accelerated methods over the estimated useful lives of the assets (5-12 years). Common Stock Held in Treasury When Common Stock held in Treasury is issued, Common Stock held in Treasury is credited for the average cost of the issued securities. - 6 - SYNERGISTICS, INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 2001 AND 2000 NOTE A - SUMMARY OF ACCOUNTING POLICIES (Continued) Revenue The company recognizes revenue from sales at the time products are shipped to customers. Advertising Costs The Company expenses advertising costs as incurred. Sales Commissions The Company pays sales commissions to various agents only upon the collection of the accounts receivable generated by the sales. The Company accounts for these sales commissions at the time products are shipped to customers. Income Taxes The Company accounts for income taxes using Statement of Financial Accounting Standards (SFAS) 109, "Accounting for Income Taxes", which requires recognition of deferred tax liabilities and assets for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred tax liabilities and assets are determined based upon the difference between the financial statement and tax basis of assets. Tax benefits arising from the utilization of carryforward net operating losses, investment and research and development tax credits are valued based upon the expected future benefit to be recognized. (Refer to Note G) Income Per Share of Common Stock The weighted average number of shares of Common Stock outstanding used in computing income per share does not include the effect of the conversion of the stock options as the exercise price exceeds the current market value of the security. (Refer to Note D) Stock Options The Company accounts for its incentive stock option plans in accordance with APB No. 25 and does not recognize an expense when options are issued with an exercise price in excess of market. Currently there is no public market for this stock and estimates of future value as required by FASB 123 cannot reasonably be determined. - 7 - SYNERGISTICS, INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 2001 AND 2000 NOTE B - INVENTORIES Inventories consist of the following at December 31, 2001 and 2000: 2001 2000 Finished goods and work-in-process at aggregate market $274,302 $396,879 Raw materials 48,406 70,037 ------- ------- $322,708 $466,916 ======== ======== NOTE C - ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES Accrued expenses and other current liabilities consist of the following at December 31, 2001 and 2000: 2001 2000 Accrued compensation and benefits $ 72,303 $ 68,364 Accrued commissions 17,876 30,887 Accrued professional fees 22,000 22,000 Other 1,658 256 Customer deposits - 18,628 ------- ------- $113,837 $140,135 ======== ======== NOTE D - STOCKHOLDERS' EQUITY Common Stock At December 31, 2001, the Company is authorized to issue 12,000,000 shares of $.01 par value Common Stock. At December 31, 2001, 10,285,806 shares of such stock had been issued, including 16,445 shares held in the form of Treasury Stock and 850,000 shares were reserved for issuance in connection with the stock option plans discussed below. Stock Option Plans The Company has two qualified incentive stock option plans (the "1983 Plan" and the "1988 Plan"), which have been approved by the Company's stockholders. The 1983 Plan provides that options can be granted for the purchase of 275,000 shares of Common Stock through June 1993, with the options expiring ten years from the date they are granted, except for options issued to holders of more than ten percent of the Company's Common Stock, which expire five years from the date they are granted. The 1988 Plan provides that options can be granted for the purchase of 350,000 shares of Common Stock through 2000 under terms similar to the 1983 Plan. - 8 - SYNERGISTICS, INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 2001 AND 2000 NOTE D - STOCKHOLDERS' EQUITY (Continued) Stock Option Plans (Continued) All plans provide that options can be exercised for a value (per share), as stated by the Company's Board of Directors, as of the date the option was granted, except for options granted to holders of more than ten percent of the Company's Common Stock which are exercisable at 110 percent of such stated value. Transactions regarding the options during the years ended December 31, 2001 and 2000 are shown as follows; 1983 Plan 1988 Plan Outstanding at January 1, 2000 673 101,622 Grants expired during 2000 (673) (21,299) Grants forfeited during 2000 - (9,475) Outstanding at December 31, 2000 - 70,848 Grants expired during 2001 - (23,155) Grants forfeited during 2001 - - ------- ------- Outstanding at December 31, 2001 - 47,693 ======= ======= All outstanding options are exercisable at $2.50 per share. Income Per Share of Common Stock Income per share of Common Stock is computed based on the weighted average number of shares of Common Stock outstanding (10,269,361 and 9,616,116 shares for the years ended December 31, 2001 and 2000). NOTE E - CONCENTRATION OF RISK From time to time, the Company maintains deposits with major financial institutions in excess of insurable limits. NOTE F - RENT AND OPERATING LEASE COMMITMENT The Company's rent expense during the years ended December 31, 2001 and 2000 approximated $77,000 and $71,400, respectively, principally under the terms of a lease for its operating facility. - 9 - SYNERGISTICS, INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 2001 AND 2000 NOTE F - RENT AND OPERATING LEASE COMMITMENT (Continued) During March 1999, the Company extended the lease agreement for its current occupation of the premises for a period of five years. The lease provides that the Company is responsible for thirty-six percent of the real estate taxes and operating costs of the premises. Future rental payments required under the lease, exclusive of real estate taxes and operating costs, are as follows: Year Ending December 31, 2002 $62,652 2003 66,228 2004 34,008 NOTE G - INCOME TAXES At December 31, 2001, operating loss carryforwards aggregating approximately $5,900,000 are available to reduce future federal taxable income, if any. If not utilized, these carryforwards will expire at various dates between 2002 and 2021. The carryforwards are subject to examination by the Internal Revenue Service. Valuation allowances are provided based upon estimated future realization of benefits from these carryforwards. The net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes are reflected in deferred income taxes. As of December 31, 2001 and 2000, the Company's deferred tax asset consists of: 2001 2000 Net operating loss carryforwards $ 2,006,000 $1,861,618 Other 66,000 66,000 Valuation allowance (1,716,500) (1,167,944) ---------- ---------- $ 355,500 $ 759,674 =========== ========== - 10 - SYNERGISTICS, INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 2001 AND 2000 NOTE H - BUSINESS SEGMENT INFORMATION The Company's business, which consists principally of a single segment, is the designing, manufacturing and selling of single and multifunctional electronic systems which control access to secure areas. The Company sells to domestic and foreign customers from its domestic location. Sales by Major Customer Category 2001 2000 Government sales $ 38,696 $ 19,797 Other domestic sales 2,331,451 2,295,558 Export sales 173,130 255,279 ---------- --------- $2,543,277 $2,570,634 ========== ========== Export sales are made directly and through United States brokers to users in Canada, South and Central America to include Mexico, the Middle East including Turkey, and the South Pacific and Far East. No single foreign or domestic area accounts for more than ten percent of total sales in 2001. NOTE I - CONTINGENT SALE OF ASSETS The Company has negotiated a settlement of the contingent sale of assets related to its imaging product, calling for payments of $50,000 in 1998, which have been received; $14,000 per year in 1999, 2000 and 2001, which have been received. Income was recognized as received. NOTE J - ADVERTISING COSTS Advertising expense was $13,109 and $94,408, respectively, for the years ended December 31, 2001 and 2000. NOTE K - DEFERRED COMPENSATION PLAN The Company has a deferred compensation plan under Section 401(k) covering substantially all employees. The Company provided no match during 2001 and 2000. - 11 - ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL STATEMENTS No Form 8-KSB has been filed within 24 months prior to the date of the most recent financial statements reporting a change of accountants and/or reporting disagreement on any matter of accounting principle or financial statement disclosure. ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT NAME AGE POSITION WITH COMPANY DIRECTOR SINCE David S. Longworth 67 President, Chief Operating 1981 Officer and Chairman of the Board. Robert Pogorelc 67 Vice President and Sales Manager 1997 William M. Tetrick 86 Director and CEO 1967 J. Thomas Gehman 55 None 1981 James French 55 Treasurer and Clerk ------ David S. Longworth, Chairman of the Board of Directors, is President and Chief Operating Officer since August, 1994. Prior to that he has served as Executive Vice President and has provided various engineering, technical writing and consulting services to the company since 1973 until joining the Company on a full time basis in 1984. Mr. Longworth was manager of Compliance Engineering at Applicon, Inc. of Burlington, Massachusetts, a Computer Aided Design Systems manufacturer since January 1983. From 1973 to 1983, he was employed by Nixdorf Computer Corp. of Burlington, Massachusetts, a computer manufacturer, as an electrical engineer. William M. Tetrick, a Director, retired as President in August, 1994 but remains Chief Executive Officer of the Company since December 1967. Robert Pogorelc, a Director, was elected Vice President in 1994. He joined the Company as Sales Manager in 1986 and currently is manager of Sales and Marketing. Mr. Pogorelc was formerly New England District Manager for Bristol Laboratories, Division of Bristol Myers; National Sales and Marketing Manager of Irathane Systems, Director of Sales and Marketing for Trancoa Chemical Corporation; Regional Sales Manager of Incon, Division of Transitron, and Sales Manager of Apahouser. J. Thomas Gehman, a Director, is currently vice president of Wolf Technology of Framingham, MA. Mr. Gehman was Director of Engineering for Amnet, Inc. a Watertown, Massachusetts computer network control systems manufacturer. Prior to that, he was a design engineer with Applicon, Inc.from 1981 to 1983 and an engineering manager at Nixdorf Computer from 1976-1981. James French, Treasurer and Clerk. Mr. French has been employed at Synergistics, Inc. since 1996 when he replaced the former Treasurer. He has held positions as Treasurer and Clerk since 1997. Prior to that, he was employed as Financial Manager, Accounting Manager and Manager of Internal Auditing at various Massachusetts companies. Mr. French received his Masters degree in Business Administration from Framingham State College in 1986. During the past five years, none of the Company's Directors has been (1) involved in any petition under the Bankruptcy Act or Bankruptcy Code or state insolvency proceeding or any criminal proceeding, (2) the subject of any order, judgment or decree enjoining him from engaging in or limiting his involvement in any type of business practice, including securities related activities, or (3) found by any court or the Securities and Exchange Commission to have violated any securities law. There are no family relationships between and among the directors, executive officers and nominees for the position of director. There are no significant employees, who are not executive officers, who are expected to make a significant contribution to the business. Item 10. EXECUTIVE COMPENSATION SUMMARY COMPENSATION TABLE Annual Compensation Long-term compensation Name and Year Salary Bonus; other annual compensation Awards; All other Principal ($) ($) Payouts compensation Position (d)(e) ($) (a) (b) (c) (f)(g)(h) (i) David S. 2001 104,131 $0 $0 2,170 Longworth 2000 117,980 $0 $0 1,966 1999 105,000 $0 $0 1,966 OPTIONS/SAR GRANTS IN LAST FISCAL YEAR (Individual Grants) None. AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION/SAR VALUES None. LONG-TERM INCENTIVE PLANS None. As of December 31, 2001, unexercised options for the purchase of an aggregate of 47,693 shares were held by all employees of the Company (including those held by Officers and Directors). No incentive stock option granted by the Company has included any tandemrights, such as appreciation rights, nor has any incentive stock option granted by the Company been exercised during 2001. The Company has established a 401K plan for all employees. During the year ended December 31, 2001,the Company had contributed $0 to that plan. The Company has no other plan or arrangement whereby any person will receive remuneration upon the termination of his status as an employee, officer or director of the Company. The Company had paid, as of December 31, 2001, no forms of contingent compensation. The Company's directors receive no compensation. The Company has no employment contracts with any of its executive officers. The Company has no change of control agreements with any of its executive officers or employees. ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following table sets forth the holdings of Common Stock by each person who, as of February 28, 2002 held of record or was known by the Company to own beneficially more that 5% of the outstanding Common Stock, by each director and by all directors and officers as a group. NAME AND ADDRESS OF AMOUNT AND NATURE OF PERCENTAGE OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP (1)(8) CLASS William M. Tetrick 423,577 (2)(3)(4) 4.12% 69 Gloucester Road Westwood, MA 02090 (CEO and Chairman) David S. Longworth 38,302 (5) 0.37% 65 School Street Ext. Natick, MA 01760 (President, COO, Director) Robert L. Pogorelc 4,981 (6) 0.05% P.O Box 622 West Barnstable, MA 02668 (VP, Sales Manager, Director) J. Thomas Gehman 2,000 0% 141 Marked Tree Road Needham, MA 02192 (Director) Gray, Seifert & Co., 7,378,315 (7) 71.73% Inc. 380 Madison Ave. New York, NY 10017 (5% Beneficial Owner) All Directors and 468,860 4.56% Officers as a Group (5 persons) (1) Unless otherwise indicated in the following footnotes, ownership is both beneficial and of record. (2) Excludes 13,350 shares owned of record by Mr. Tetrick's wife and 4,840 shares owned by his son, Paul Tetrick, who resides with him, as to which he disclaims beneficial ownership. (3) Excludes 131,883 shares owned of record by Gary Cramer, Mr. Tetrick's son-in-law; 3,200 shares owned by Gary and/or Margaret Cramer, Mr. Tetrick's daughter, and 2,200 shares owned by the children of Mr. and Mrs. Cramer as to which Mr. Tetrick disclaims beneficial ownership. (4) Excludes 18,876 shares owned of record by other children and grand children of Mr. Tetrick not already disclosed in points (2) and (3) above as to which Mr. Tetrick disclaims beneficial ownership. (5) Includes 34,727 shares of Common Stock acquirable on exercise of stock options. (6) Includes 4,981 shares of Common Stock acquirable on exercise of stock options. (7) This number is based upon information contained in the Schedule 13D filed by Gray, Seifert & Co.,Inc. on February 15, 2002. (8) All options are considered non-dilutive since exercise price exceeds last known market price. There are no arrangements which may result in a change of control of the Company. Item. 12 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Other than the transactions described herein, there were no material transactions during 2001 or 2000 to which any of the following persons has a direct or indirect material interest:(1) any director or officer of the Company, (2) any nominee for election as a director,(3) any person who, to the Company's knowledge, owns 5% or more of the Company's stock, or (4) any relative or spouse (or relative of such spouse) of the foregoing persons. ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K (a)(1) The following financial statements of Synergistics, Inc. are included in Part II Item 7: Index to Financial Statements years ended Page Number December 31, 2001 and 2000. Independent Auditors' Report, March 14, 2002 1 Balance Sheets as of December 31, 2000 and 2 December 31, 2000 Statements of Operations for years ended 3 December 31, 2001 and 1999 Statements of Stockholders' Equity for years 4 ended December 31, 2001 and 2000 Statements of Cash Flows for years ended 5 December 31, 2001 and 2000 Notes to Financial Statements 6-11 (b) Exhibits 3.1 Articles of Organization and amendments thereto, as amended through December 31, 1985 are incorporated by reference from Form 10-K for the year ended December 31, 1982. 3.2 Amendment to Articles of Organization is incorporated by reference from Form 10-K for the year ended December 31, 1987. 3.3 By-Laws, as amended, are incorporated by reference from Form 10-K for the year ended December 31, 1982. 3.4 Amendment to Articles of Organization is incorporated by reference from Form 10-K for the year ended December 31, 1988. 3.5 Amendment to Articles of Organization is incorporated by reference from Form 10-K for the year ended December 31, 1990. 3.6 Amendment to Articles of Organization is incorporated by reference from Form 10-K for the year ended December 31, 1991. 10.1 Sale of Imaging Assets is incorporated by reference from Form 10-KSB for the year ended December 31, 1995. 10.2 Agreement with William M. Tetrick, dated December 30, 1981, is incorporated by reference from Form 10-K for the year ended December 31, 1983. 10.3 Forms of Incentive Stock Option Plan of 1982 and Incentive Stock Option Agreement are incorporated by reference from Form 10-Q for the period ended March 31, 1983. 10.4 Forms of Incentive Stock Option Plan of 1983 and Incentive Stock Option Agreement are incorporated by reference from Form 10-Q for the period ended March 31, 1984. 10.5 Forms of Directors Stock Option Plan of 1987 and Directors Stock Option Agreement are incorporated by reference from Form 10-K for the period ended March 31, 1987. 10.6 Lease between Lessor, KAR Realty Corporation, and Lessee, Synergistics, Inc., dated March 3, 1999 (expires June 1, 2004), with respect to property located at 9 Tech Circle, Natick, Massachusetts. Supplemental Information The Company plans to furnish proxy materials and an Annual Report to Stockholders to its stockholders subsequent to the date of this Form 10-KSB, at which time copies shall be furnished to the Commission. SYNERGISTICS, INC. By /S/DAVID S. LONGWORTH________ David S. Longworth President and Chief Operations Officer Date: March 31, 2002 Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, Synergistics, Inc. has caused this report to be signed on its behalf by the undersigned thereunto duly authorized. By/S/DAVID S. LONGWORTH ___________________ David S. Longworth President and Chief Operations Officer In accordance with the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the registrant and in the capacities indicated. By/S/DAVID S. LONGWORTH ___________________ David S. Longworth President, COO and Director Date: March 31, 2002 By/S/WILLIAM M. TETRICK ___________________ William M. Tetrick Director Date: March 31, 2002 By/S/J. THOMAS GEHMAN_____________________ J. Thomas Gehman Director Date: March 31, 2002 By/S/ROBERT L. POGORELC___________________ Robert L. Pogorelc Director Date: March 31, 2002 EX-4 6 syn1st02.txt QUARTERLY REPORT MARCH 31, 2002 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 Form 10-QSB [ X ] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 or [ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period from ____________ to ____________ For the quarterly period ended: 3/31/2002 Commission File No.: 0-6421 SYNERGISTICS, INC. Massachusetts 04-2283157 (State of Incorporation) (IRS Employer I.D. Number) 9 Tech Circle, Natick, MA 01760 (Address of Principal Executive Office) (Zip Code) Registrant's telephone number (508) 655-1340 Indicate by check mark whether the registrant (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months(or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. [ ] Yes [ X ] No Indicate the number of shares outstanding of each of the registrant's classes of common stock, as of the latest practicable date. Common Stock $0.01 Par Value 10,285,806 shares outstanding as of April 30, 2002 Transitional Small Business Disclosure Format (check one); [ X ] Yes [ ] No PART I - FINANCIAL INFORMATION Item 1. Financial Statements SYNERGISTICS, INC. BALANCE SHEET ASSETS (UNAUDITED) 31-Mar-02 31-Dec-01 CURRENT ASSETS Cash $ 49,872 $ 74,294 Accounts receivable 437,610 367,219 Allowance for doubtful accounts -23,000 -20,000 Inventories 323,376 322,708 Prepaid expenses 15,477 19,127 ------- ------- TOTAL CURRENT ASSETS 803,335 763,348 EQUIPMENT, less allowances of $98,932 and $96,826 for depreciation 23,071 23,497 DEFERRED TAXES 355,500 355,500 --------- --------- TOTAL ASSETS $1,181,906 $1,142,345 ========= ========== LIABILITIES, PREFERRED STOCK AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Trade accounts payable $ 280,677 $ 229,783 Accrued expenses and other current liabilities 102,495 113,837 Amount due stockholder 100,000 100,000 ------- ------- TOTAL CURRENT LIABILITIES 483,172 443,620 STOCKHOLDERS' EQUITY Common stock (10,285,806 shares issued including shares held in Treasury) 102,858 102,858 Additional paid-in capital 7,567,355 7,567,355 Retained earnings (deficit) -6,964,353 -6,964,353 ------- ------- 705,869 705,860 Cost of Common Stock held in Treasury -7,135 -7,135 ------- ------- 698,734 698,725 ------- ------- TOTAL LIABILITIES, PREFERRED STOCK AND SHAREHOLDERS' EQUITY $1,181,906 $1,142,345 ========= ========= SYNERGISTICS, INC. STATEMENT OF OPERATIONS Three Months Ended March 31 Unaudited 2002 2001 Sales, net $ 739,139 $ 503,009 Interest income b 97 226 ------- ------- 739,236 503,235 Costs and expenses: Cost of sales 504,922 421,586 Selling, general and administrative expenses 234,027 254,761 Interest expense 296 515 ------- ------- 739,245 676,862 ------- ------- Net gain (loss) -9 -173,627 Gain (loss) per share of Common Stock Assuming no dilution $0.00 ($0.02) Assuming full dilution $0.00 ($0.02) SYNERGISTICS, INC. STATEMENT OF CHANGES IN FINANCIAL POSITION Three Months Ended March 31 Unaudited 2002 2001 CASH FLOWS FROM OPERATING ACTIVITIES Net income (loss) $ 9 $ -173,627 Adjustments to reconcile net loss to net cash (used) provided by operating activities: Depreciation 2,106 4,500 (Increase) decrease in accounts receivable -67,391 125,039 (Increase) decrease in inventories -668 19,154 (Increase) decrease in prepaid expenses and other assets 3,650 -8,265 Increase (decrease) in accounts payable 50,894 -109,463 Increase (decrease) in accrued expenses and other current liabilities -11,342 -18,136 Increase (decrease) in amounts due shareholders 0 150,000 ------- ------- TOTAL ADJUSTMENTS -22,751 162,829 NET CASH USED BY OPERATING ACTIVITIES -22,742 -10,798 CASH FLOWS FROM INVESTING ACTIVITIES Capital expenditures -1,680 0 ------- ------- NET CASH (USED) BY INVESTING ACTIVITIES -1,680 0 ------- ------- NET CHANGE IN CASH -24,422 -10,798 CASH AT BEGINNING OF YEAR 74,294 64,880 ------- ------- CASH AT END OF PERIOD $ 49,872 $ 54,082 ======= ======= SYNERGISTICS, INC. SELECTED INFORMATION Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles condensed or omitted. It is suggested that these financial statements be read in conjunction with the financial statements and notes thereto included in the Company's Annual Report Form 10-KSB. The results of operations for the period ended September 30, 2001 are not necessarily indicative of the operating results for the full year. Basis of Presentation. It is the opinion of management that all significant adjustments which are routine recurring adjustments which are necessary to present fairly such interim financial statements are reflected in the accompanying September 30, 2001 financial statements. Accounting Policy for Revenues and Costs of Sales. Revenues are recognized at the time of product shipment. Cost of sales is computed using the "gross profit" method based upon historical results of operations. Other cost, included in costs of sales, are based upon such costs as actually incurred. Inventories are comprised of the following: 31-Mar-02 31-Dec-01 Raw Materials 50,102 48,406 Finished Goods & WIP 273,274 274,302 ------- ------- Total Inventories 323,376 322,708 *Allocation Based Upon Estimate (Loss) per Common Share The weighted average number of shares of common stock outstanding used in computing (loss) per share does not include the effect of the conversion of the stock options as the exercise price exceeds the current market value of the security. The following schedule sets forth the number of shares used in computing earnings per share: Unaudited Three Months Ended March 31 2002 2001 Assuming no dilution Common Stock Outstanding March 31, 2002 10,285,806 10,285,806 Shares held in Treasury 16,445 16,445 Total Shares Authorized 12,000,000 12,000,000 Item 2. Management's Discussion and Analysis or Plan of Operation. For the three months ended March 31, 2002, the Company recorded sales of $739,139 compared to $503,009 for the three months ended March 31, 2001. In the 1st Quarter of the year 2002 sales increased by 47% compared to the 1st Quarter of the year 2001. The Company believes that this increase in sales was due to an upturn in the National economy and an increase in foreign sales. At March 31, 2002 the Company had a backlog of $62,534 compared to $36,102 at March 31, 2001. Cost of sales as a percentage of sales decreased to 68% from 84% for the three months ended March 31, 2002 and 2001, respectively. This is mainly due to a significant increase in sales with labor and material costs remaining somewhat constant. For the period of three months ended March 31, 2002, selling and general and administrative expenses decreased by $20,734 over the period of three months ended March 31, 2001. This was mainly due to a decrease in payroll and related expenses in the 2nd Quarter of 2001. PART II - OTHER INFORMATION Item 1. Legal Proceedings No material legal proceedings are pending to which the Company is a party or to which any of its property is subject. Item 2. Changes in Securities and Use of Proceeds There have been no changes in the instruments defining the rights of holders of any class of securities of the Company during the first three months of calendar year 2002. Item 3. Defaults upon Senior Securities None. Item 4. Submission of Matters to a Vote of Security Holders No matter was submitted to a vote of the security holders during the 1st Quarter of 2002. Item 5. Other Information None. Item 6. Exhibits and Reports on Form 8-K None. SIGNATURES In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Date April 23, 2002 By: /S/ WILLIAM M. TETRICK___ William M. Tetrick Chairman of the Board Date April 23, 2002 By: /S/ DAVID S. LONGWORTH_ David S. Longworth President and Clerk EX-5 7 meeting.txt NOTICE OF SPECIAL MEETING OF SHAREHOLDERS SYNERGISTICS, INC. NOTICE OF SPECIAL MEETING OF SHAREHOLDERS August ___, 2002 NOTICE IS HEREBY GIVEN that a Special Meeting of Shareholders of Synergistics, Inc. (the "Company") will be held at the offices of the Company at 9 Tech Circle, Natick, Massachusetts 01760, on September __, 2002, at 10:00 A.M., local time, for the purpose of considering and voting upon the following matters: (1) To adopt the Agreement and Plan of Merger ("Merger Agreement") dated as of July 25, 2002, a copy of which is annexed as Exhibit 1 to the accompanying Proxy Statement, providing for the merger of the Company into Synergistics Acquisition Corp., a Massachusetts corporation, pursuant to which Merger Agreement the surviving company shall be Synergistics Acquisition Corp. (2) Such other matters as may properly be brought before the meeting or any adjournment thereof. The record date and hour for determining shareholders entitled to notice of and to vote at the meeting has been fixed at 5:00 P.M., local time, August __, 2002. By Order of the Board of Directors David S. Longworth President August ___, 2002 THE AFFIRMATIVE VOTE OF HOLDERS OF AT LEAST TWO-THIRDS OF THE OUTSTANDING SHARES OF THE COMPANY'S COMMON STOCK, $.01 PAR VALUE, IS REQUIRED FOR THE APPROVAL OF THE MERGER AGREEMENT. PLEASE SIGN THE ENCLOSED FORM OF PROXY AND RETURN IT PROMPTLY IN THE ENVELOPE ENCLOSED FOR THAT PURPOSE. YOU MAY NEVERTHELESS VOTE IN PERSON IF YOU DO ATTEND THE MEETING. EX-6 8 letter.txt LETTER TO SHAREHOLDERS [SYNERGISTICS, INC. LETTERHEAD] August ____, 2002 To Our Shareholders: Enclosed herewith is a Notice and a Proxy Statement for a Special Meeting of Shareholders of Synergistics, Inc. (the "Company") to be held at the offices of the Company at 9 Tech Circle, Natick, Massachusetts 01760, at 10:00 A.M., local time, on September ___, 2002. Also enclosed herewith is an Annual Report of the Company, consisting of the Company's audited financial statements for the fiscal year ended December 31, 2001. A copy of the Company's Form 10-KSB is available upon request. The purpose of the Special Meeting is to vote upon the proposed merger of the Company into Synergistics Acquisition Corp. ("Acquisition Corp."), a Massachusetts corporation (the "Merger"). The details of the Merger are set forth in an Agreement and Plan of Merger dated as of July 25, 2002, between the Company and Acquisition Corp. (the "Merger Agreement"). Pursuant to the Merger Agreement, upon the consummation of the Merger, the separate existence of the Company shall cease and all of the assets, liabilities and obligations of the Company shall be vested in assumed by Acquisition Corp. Upon the consummation of the Merger, holders of the Company's Common Stock, $.01 par value, shall have no rights with respect to their shares except to surrender the certificates representing such shares in exchange a pro rata portion of the total cash consideration to be paid by Acquisition Corp. The Company's Board of Directors approved Merger Agreement on July 24, 2002 and recommend that you approve the Merger by adopting the Merger Agreement. Approval of the Merger Agreement requires a favorable vote of holders of two-thirds of the Company's outstanding Common Stock. Please sign and date the enclosed proxy and return it in the enclosed envelope as promptly as possible. If you are able to attend the meeting you may vote your stock in person if you wish, even though you have previously sent your proxy. Sincerely yours, David S. Longworth President EX-7 9 vote.txt PROXY VOTE SYNERGISTICS, INC. PROXY FOR SPECIAL MEETING OF SHAREHOLDERS SEPTEMBER __, 2002 THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF SYNERGISTICS, INC. I, the undersigned holder of Common Stock, $.01 par value, of Synergistics, Inc. (the "Company"), hereby appoint James French with the power of substitution, proxy of the undersigned to vote the shares of the undersigned at the Special Meeting of Shareholders of the Company, to be held at the offices of the Company at 9 Tech Circle, Natick, Massachusetts, 01760 on September __, 2002 and at any adjournment thereof, with all the powers the undersigned would possess if personally present. Said proxy is specifically authorized to vote as indicated below. The undersigned stockholder hereby revokes any proxy or proxies heretofore given. THIS PROXY CONFERS AUTHORITY TO VOTE "FOR" EACH PROPOSITION LISTED BELOW UNLESS AUTHORITY IS WITHHELD OR OTHERWISE INDICATED. ALL PROXIES EXECUTED CORRECTLY WILL BE VOTED AS DIRECTED. IF ANY OTHER BUSINESS IS PRESENTED AT THE MEETING, THIS PROXY SHALL BE VOTED IN ACCORDANCE WITH THE RECOMMENDATIONS OF THE BOARD OF DIRECTORS. (1) Merger. To adopt the Agreement and Plan of Merger ("Merger Agreement") dated as of July 25, 2002, providing for the merger of the Company into Synergistics Acquisition Corp., a Massachusetts corporation. FOR ____ AGAINST _____ ABSTAIN _____ (2) Other Matters. In their discretion upon the transaction of such other business as may properly come before the meeting and any adjournments thereof. FOR ____ AGAINST _____ ABSTAIN _____ Dated: ---------- ------------------------------- (Signature of Shareholder) Shares Owned: : --------- ------------------------------- (Signature if Jointly Held) When signing as attorney, executor, administrator, trustee or guardian, please give full title. If there is more than one trustee, all should sign. All joint owners must sign. -----END PRIVACY-ENHANCED MESSAGE-----