SCHEDULE 14A
(RULE 14(A)-101)
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
[ ] Definitive Proxy Statement
[ ] CONFIDENTIAL, FOR USE OF THE COMMISSION ONLY (AS PERMITTED BY RULE
14A-6(E)(2))
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to ss.240.14a-12
ECOMETRY CORPORATION
(Name of Registrant as Specified In Its Charter)
NOT APPLICABLE
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[ ] No fee required.
[X] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11
1) Title of each class of securities to which transaction
applies: Ecometry Corporation common stock, par value $0.01
per share.
2) Aggregate number of securities to which transaction applies:
(i) 12,422,474 shares of common stock, which represents the
number of shares outstanding as of February [ ], 2002, and
(ii) outstanding options to purchase an aggregate of 464,103
shares of common stock with a per share exercise price less
than $2.90, and a per share weighted average exercise price of
$2.505, which will be cashed out in connection with the
merger.
3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (set forth the
amount on which the filing fee is calculated and state how it
was determined): Pursuant to the Agreement and Plan of Merger,
dated as of January 25, 2002, by and among Ecometry
Corporation, Citrus Merger Corp., Syngistix, Inc. and, with
respect to Section 7.6(b)(i) only, Core Technology Fund IV,
LLC, Citrus Merger Corp. will merge with and into Ecometry
Corporation, and each outstanding share of common stock of
Ecometry Corporation will be converted into the right to
receive $2.90 in cash, without interest. In addition, pursuant
to the terms of the merger
agreement outstanding options to purchase common stock with a
per share exercise price less than $2.90 will be converted
into the right to receive a cash payment equal to the product
of (1) the number of shares underlying such options and (2)
the difference between $2.90 and the per share exercise price
of such options.
4) Proposed maximum aggregate value of transaction:
$36,208,495.29
5) Total fee paid: $5,702.18
[ ] Fee paid previously with preliminary materials.
[X] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(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: $4,390.74
2) Form, Schedule or Registration Statement No.: Schedule 14A
3) Filing Party: Ecometry Corporation
4) Date Filed: November 15, 2001
ii
ECOMETRY CORPORATION
1615 SOUTH CONGRESS AVENUE
DELRAY BEACH, FLORIDA 33445-6368
[ ] [ ] , 2002
Dear Shareholder:
You are cordially invited to attend a special meeting of shareholders
of Ecometry Corporation to be held at 10:00 a.m. local time, on [ ] [__], 2002,
at the Embassy Suites, 661 Northwest 53rd Street, Boca Raton, Florida 33487.
As described in the enclosed proxy statement, at the special meeting,
you will be asked to approve two transactions involving the company. The first
transaction that you will be asked to approve is a merger of Citrus Merger Corp.
("Citrus") with and into us (the "Syngistix Merger"). Citrus is a corporation
newly-formed by Syngistix, Inc. ("Syngistix"), a privately-held corporation, for
the sole purpose of effecting the merger. You will also be asked to approve a
merger agreement among us, Citrus, Syngistix and, with respect to Section
7.6(b)(i) thereof only, Core Technology Fund IV, LLC, dated January 25, 2002, as
it may be amended from time to time (the "Syngistix Merger Agreement").
Since the Syngistix Merger is subject to a financing condition, in the
interest of time, we are also soliciting shareholder approval for a second
transaction that will only occur if the conditions to the Syngistix Merger are
not met. The second transaction you will be asked to approve at the special
meeting is a merger of SG Merger Corp. ("SG") with and into us (the "SG
Merger"). SG is a corporation newly-formed by Wilburn W. Smith, chairman of our
board of directors and executive vice president - sales, and Allan J. Gardner, a
member of our board of directors and our chief technology officer (together, the
"Principal Shareholders"), for the sole purpose of effecting the SG Merger. You
will also be asked to approve a merger agreement by and among us, SG and, with
respect to Section 5.2(c) only, the Principal Shareholders, dated October 25,
2001 (the "Original SG Agreement") as amended by the Amendment and Waiver to
Agreement and Plan of Merger dated January 25, 2002 (the "SG Amendment") and as
it may be further amended from time to time (collectively, the "SG Merger
Agreement").
YOU MAY VOTE TO APPROVE BOTH THE SYNGISTIX MERGER AND THE SG MERGER,
ONLY ONE OF THEM, OR NEITHER OF THEM. IF THE CLOSING CONDITIONS TO THE SYNGISTIX
MERGER (INCLUDING SYNGISTIX OBTAINING FINANCING AND THE APPROVAL OF OUR
SHAREHOLDERS) ARE SATISFIED OR WAIVED, THE SYNGISTIX MERGER WILL OCCUR AND THE
SG MERGER WILL NOT OCCUR. IF THE CLOSING CONDITIONS TO THE SYNGISTIX MERGER ARE
NOT SATISFIED OR WAIVED AND THE SYNGISTIX MERGER DOES NOT OCCUR, AND THE CLOSING
CONDITIONS TO THE SG MERGER ARE SATISFIED OR WAIVED, THE SG MERGER WILL OCCUR.
If the Syngistix Merger is completed, shares of our common stock issued
and outstanding immediately prior to the merger, excluding shares beneficially
owned by us, Citrus or Syngistix, will be converted into the right to receive
$2.90 per share, in cash, without interest. Following the Syngistix Merger,
Citrus will cease to exist and we will become a privately-held corporation owned
by Syngistix.
If the Syngistix Merger is not completed but the SG Merger is
completed, shares of our common stock issued and outstanding immediately prior
to the merger, excluding shares beneficially owned by us, the Principal
Shareholders and SG Merger, will be converted into the right to receive $2.70
per share, in cash, without interest. Following the SG Merger, SG will cease to
exist and we will become a privately-held corporation owned by the Principal
Shareholders.
The Principal Shareholders beneficially own approximately 35% of the
outstanding shares of our Common Stock. The Principal Shareholders have agreed
to vote these shares in favor of the Syngistix Merger and the SG Merger.
Our board of directors formed a special committee of three independent
directors to mitigate any conflict of interest in evaluating the SG merger
proposal, and any other acquisition proposals or indications of interest in us
(including the Syngistix merger proposal). The Syngistix Merger and the SG
Merger have been approved by our board of directors, based upon the unanimous
recommendation of the special committee. In its evaluation of the mergers, the
special committee considered, among other things, the opinion of Adams, Harkness
& Hill, Inc., its independent financial advisor, to the effect that, as of the
date of the opinion, the $2.70 per share cash merger consideration to be
received in the SG Merger by our shareholders other than SG and the Principal
Shareholders is fair to such shareholders from a financial point of view.
Because the special committee had an opinion from Adams, Harkness & Hill
regarding the fairness of the $2.70 per share merger consideration to be
received in the SG Merger it did not request a fairness opinion regarding the
$2.90 per share merger consideration to be received in the Syngistix Merger.
iii
THE SPECIAL COMMITTEE AND OUR BOARD OF DIRECTORS BELIEVE THAT THE
SYNGISTIX MERGER AND THE SYNGISTIX MERGER AGREEMENT ARE FAIR TO AND IN THE BEST
INTERESTS OF OUR SHAREHOLDERS AND, THEREFORE, THE BOARD RECOMMENDS THAT YOU VOTE
"FOR" THE APPROVAL OF THE SYNGISTIX MERGER AND THE SYNGISTIX MERGER AGREEMENT.
THE SPECIAL COMMITTEE AND OUR BOARD OF DIRECTORS BELIEVE THAT, IF THE
SYNGISTIX MERGER IS NOT COMPLETED FOR ANY REASON, THE SG MERGER AND THE SG
MERGER AGREEMENT ARE FAIR TO AND IN THE BEST INTERESTS OF OUR SHAREHOLDERS AND,
THEREFORE, THE BOARD RECOMMENDS THAT YOU VOTE "FOR" THE APPROVAL OF THE SG
MERGER AND THE SG MERGER AGREEMENT.
Details of the Syngistix Merger and the SG Merger, the respective
merger agreements and other important information are described in the
accompanying notice of special meeting and proxy statement. You are urged to
read these important documents carefully before casting your vote.
Whether or not you plan to attend the special meeting, we urge you to
complete, sign, date and promptly return the enclosed proxy card. Neither the
Syngistix Merger nor the SG Merger can be completed unless a majority of the
outstanding shares of common stock approve the applicable merger agreement and
merger. It is a further condition to the SG Merger that the SG Merger and the SG
Merger Agreement be approved by a majority of our shareholders other than SG and
the Principal Shareholders and their affiliates. We may waive this further
condition.
We thank you for your prompt attention to this matter and appreciate
your support.
Very truly yours,
Wilburn W. Smith
Chairman of the Board of Directors
iv
YOUR VOTE IS IMPORTANT. PLEASE MARK, SIGN, DATE AND RETURN THE ENCLOSED
PROXY CARD PROMPTLY, WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING.
PLEASE DO NOT SEND IN ANY CERTIFICATES FOR YOUR COMMON STOCK AT THIS TIME. IF
THE SYNGISTIX MERGER OR THE SG MERGER IS COMPLETED, SHAREHOLDERS WILL RECEIVE A
LETTER OF TRANSMITTAL AND RELATED INSTRUCTIONS.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THE TRANSACTIONS DESCRIBED IN THIS
PROXY STATEMENT, OR PASSED UPON THE FAIRNESS OR MERITS OF THE PROPOSED
TRANSACTIONS OR THE ADEQUACY OR ACCURACY OF THE ENCLOSED PROXY STATEMENT. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
v
ECOMETRY CORPORATION
1615 SOUTH CONGRESS AVENUE
DELRAY BEACH, FLORIDA 33445-6368
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON [__________] [__], 2002
To the Shareholders of ECOMETRY CORPORATION:
NOTICE IS HEREBY GIVEN that a special meeting of shareholders of
ECOMETRY CORPORATION will be held on [ ] [ ] , 2002 beginning at 10:00 a.m.
local time, at the Embassy Suites, 661 Northwest 53rd Street, Boca Raton,
Florida 33487, to consider and vote upon:
1. A proposal to approve the merger agreement, dated as of
January 25, 2002, between us and Citrus Merger Corp. ("Citrus"), Syngistix, Inc.
("Syngistix") and, with respect to Section 7.6(b)(i) thereof only, Core
Technology Fund IV, LLC, as it may be amended from time to time (the "Syngistix
Merger Agreement"), and the transactions contemplated thereby, including the
merger of Citrus with and into us, with Ecometry Corporation as the surviving
company (the "Syngistix Merger"), and pursuant to which our shareholders will be
entitled to receive $2.90 in cash, without interest, for each share of our
common stock held immediately prior to the merger. A copy of the Syngistix
Merger Agreement is included in the attached proxy statement as Annex A and is
incorporated in the attached proxy statement by reference.
2. A proposal to approve the merger agreement, dated as of
October 25, 2001, between us and SG Merger Corp. ("SG") and, with respect to
Section 5.2(c) thereof only, Wilburn W. Smith and Allan J. Gardner, as amended
by the Amendment and Waiver to Agreement and Plan of Merger dated January 25,
2002 (the "SG Amendment") and as may be further amended from time to time
(together, the "SG Merger Agreement"), and the transactions contemplated
thereby, including the merger of SG with and into us (the "SG Merger"), with
Ecometry Corporation as the surviving company, and pursuant to which our
shareholders (other than SG, Wilburn W. Smith and Allan J. Gardner) will be
entitled to receive $2.70 in cash, without interest, for each share of our
common stock held immediately prior to the merger. IF APPROVED BY OUR
SHAREHOLDERS, THE SG MERGER WOULD ONLY OCCUR IF THE SYNGISTIX MERGER DOES NOT
OCCUR. A copy of the SG Merger Agreement is included in the attached proxy
statement as Annex B and is incorporated in the attached proxy statement by
reference.
3. Any proposal to adjourn or postpone the special meeting.
4. Any other business as may properly come before the special
meeting or any adjournment or adjournments of the special meeting.
YOU MAY VOTE TO APPROVE BOTH THE SYNGISTIX MERGER AND THE SG MERGER,
ONLY ONE OF THEM, OR NEITHER OF THEM. IF THE CLOSING CONDITIONS TO THE SYNGISTIX
MERGER (INCLUDING THE APPROVAL OF OUR SHAREHOLDERS) ARE SATISFIED OR WAIVED, THE
SYNGISTIX MERGER WILL OCCUR AND THE SG MERGER WILL NOT OCCUR. IF THE CLOSING
CONDITIONS TO THE SYNGISTIX MERGER ARE NOT SATISFIED OR WAIVED AND THE SYNGISTIX
MERGER DOES NOT OCCUR, AND THE CLOSING CONDITIONS TO THE SG MERGER ARE SATISFIED
OR WAIVED, THE SG MERGER WILL OCCUR.
Only shareholders of record as of the close of business on [ ] [ ],
2002 will be entitled to notice of the special meeting and to vote at the
special meeting and any adjournment of the meeting. Any shareholder will be able
to examine a list of shareholders of record for any purpose related to the
special meeting, during regular business hours, for a period of ten days prior
to the special meeting through the meeting and any adjournment of the meeting.
The list will be available at our corporate headquarters located at 1615 South
Congress Avenue, Delray Beach, Florida 33445-6368. Under Florida law, approval
of the Syngistix Merger and the Syngistix Merger Agreement and the SG Merger and
the SG Merger Agreement requires the affirmative vote of the holders of at least
a majority of the outstanding shares entitled to vote at the special meeting. In
addition to this requirement of Florida law, the SG Merger Agreement provides
that it is a condition to our obligation to consummate the SG Merger that the
holders of a majority of our outstanding shares of common stock not held by
Wilburn W. Smith, Allan J. Gardner and SG and their affiliates vote to approve
the SG Merger. We may waive this condition.
All shareholders are cordially invited to attend the special meeting in
person. HOWEVER, WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING IN
PERSON, EACH SHAREHOLDER IS
vi
URGED TO COMPLETE, SIGN, DATE AND RETURN THE ENCLOSED PROXY CARD IN THE ENVELOPE
PROVIDED AS SOON AS POSSIBLE. THE PROXY CARD REQUIRES NO POSTAGE IF MAILED IN
THE UNITED STATES. SHAREHOLDERS WHO ATTEND THE SPECIAL MEETING MAY REVOKE THEIR
PROXY AND VOTE THEIR SHARES IN PERSON.
By Order of the Special Committee and
the Board of Directors,
Martin K. Weinbaum
Secretary
Delray Beach, Florida
[_____________] [___] , 2002
PLEASE COMPLETE, DATE AND SIGN THE ENCLOSED PROXY AND RETURN IT
PROMPTLY IN THE ENVELOPE PROVIDED FOR THAT PURPOSE.
vii
ECOMETRY CORPORATION
1615 SOUTH CONGRESS AVENUE
DELRAY BEACH, FLORIDA 33445-6368
PROXY STATEMENT
FOR
SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON [ ] [ ] , 2002
This proxy statement is being furnished to holders of our common stock
in connection with the solicitation of proxies by our board of directors for use
at the special meeting of shareholders, and at any adjournment of the meeting,
to be held at the Embassy Suites, 661 Northwest 53rd Street, Boca Raton, Florida
33487, on [ ] [ ], 2002 beginning at 10:00 a.m. local time. The special meeting
has been called to consider and vote upon the following:
(i) A proposal to approve the merger agreement, dated as of
January 25, 2002, between us and Citrus Merger Corp.
("Citrus"), Syngistix, Inc. ("Syngistix") and, with respect to
Section 7.6(b)(i) thereof only, Core Technology Fund IV, LLC,
as it may be amended from time to time (the "Syngistix Merger
Agreement"), and the transactions contemplated thereby,
including the merger of Citrus with and into us, with Ecometry
Corporation as the surviving company (the "Syngistix Merger"),
and pursuant to which our shareholders will be entitled to
receive $2.90 in cash, without interest, for each share of our
common stock held immediately prior to the merger. A copy of
the Syngistix Merger Agreement is included in the attached
proxy statement as Annex A and is incorporated in the attached
proxy statement by reference. Please note that the $2.90 per
share represents a discount of approximately 4% from the $3.02
book value per share of our common stock as of December 31,
2001.
(ii) A proposal to approve the merger agreement, dated as of
October 25, 2001, between us and SG Merger Corp. ("SG") and,
with respect to Section 5.2(c) thereof only, Wilburn W. Smith
and Allan J. Gardner, as amended by the Amendment and Waiver
to Agreement and Plan of Merger dated January 25, 2002 (the
"SG Amendment"), and as may be further amended from time to
time (collectively, the "SG Merger Agreement"), and the
transactions contemplated thereby, including the merger of SG
with and into us (the "SG Merger"), with Ecometry Corporation
as the surviving company, and pursuant to which our
shareholders (other than SG, Wilburn W. Smith and Allan J.
Gardner) will be entitled to receive $2.70 in cash, without
interest, for each share of our common stock held immediately
prior to the merger. IF APPROVED BY OUR SHAREHOLDERS, THE SG
MERGER WILL ONLY OCCUR IF THE SYNGISTIX MERGER DOES NOT OCCUR.
A copy of the SG Merger Agreement is included in the attached
proxy statement as Annex B and is incorporated in the attached
proxy statement by reference. Please note that the $2.70 per
share price represents a discount of approximately 10.5% from
the $3.02 book value per share of our common stock as of
December 31, 2001.
(iii) Any proposal to adjourn or postpone the special meeting.
(iv) Any other business as may properly come before the special
meeting or any adjournment or adjournments of the special
meeting.
YOU MAY VOTE TO APPROVE BOTH THE SYNGISTIX MERGER AND THE SG MERGER,
ONLY ONE OF THEM, OR NEITHER OF THEM. IF THE CLOSING CONDITIONS TO THE SYNGISTIX
MERGER (INCLUDING THE APPROVAL OF OUR SHAREHOLDERS) ARE SATISFIED OR WAIVED, THE
SYNGISTIX MERGER WILL OCCUR AND THE SG MERGER WILL NOT OCCUR. IF THE CLOSING
CONDITIONS TO THE SYNGISTIX MERGER ARE NOT SATISFIED OR WAIVED AND THE SYNGISTIX
MERGER DOES NOT OCCUR, AND THE CLOSING CONDITIONS TO THE SG MERGER ARE SATISFIED
OR WAIVED, THE SG MERGER WILL OCCUR.
Only shareholders of record on [__________] [__], 2002 are entitled to
receive notice of and vote at the meeting. On that record date, there were [ ]
shares of our common stock outstanding held by approximately [ ] record holders.
Each share of our common stock will be entitled to one vote. Under
Florida law in order to complete either merger, the applicable merger agreement
and merger must be approved by a vote of a majority of the outstanding
viii
shares of common stock. Of those shares, approximately 35% are beneficially
owned by Mr. Smith, chairman of our board of directors and our executive vice
president - sales, and Mr. Gardner, a member of our board of directors and our
chief technology officer, who we refer to herein collectively as the "Principal
Shareholders." The Principal Shareholders have agreed to vote these shares in
favor of the Syngistix Merger and the SG Merger. In addition to the foregoing
vote required by Florida law, the SG Merger Agreement provides that it is a
condition to our obligation to consummate the SG Merger that the holders of a
majority of our outstanding common stock not held by the Principal Shareholders
and SG and their affiliates approve the SG Merger Agreement and the SG Merger.
We may waive this condition. A quorum for the meeting requires that holders of a
majority of the outstanding shares of common stock must be present in person or
by proxy.
Proxies will be voted in the manner you specify in the proxy card. If
you wish to vote by proxy, you must sign your proxy. Each proxy will confer
discretionary authority on the named proxyholders to vote on any matter
presented at the meeting which we did not know of a reasonable time before the
mailing of this proxy statement. If any matter not specifically listed in the
notice of special meeting is presented at the special meeting, the proxies will
be voted in the discretion of the persons named therein in accordance with their
best judgment. If you return your proxy but do not specify how it should be
voted, your shares will be voted for the approval of the Syngistix Merger
Agreement and the Syngistix Merger and the SG Merger Agreement and the SG Merger
and for the proposal to grant discretionary authority to vote in favor of
adjournment or postponement of the special meeting. If your stock is held by a
broker or other custodian in "street name," your shares will not be voted unless
you provide specific instructions to the custodian. Proxies submitted by
custodians who have not received voting instructions will be counted for the
purposes of determining a quorum, but will not be voted for or against either
merger. Because both mergers must be approved by the holders of a majority of
the outstanding shares, the failure to vote your shares, including the failure
to provide instructions to a custodian, or a decision to abstain from voting,
will have the same effect as a vote against both mergers. You are urged to
complete and return your proxy and, if your shares are held in street name, to
provide voting instructions in accordance with the materials you receive from
your broker or other custodian.
This proxy statement, the notice of special meeting and the
accompanying form of proxy were first mailed to shareholders on or about [ ]
[ ], 2002.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROXY STATEMENT, AND, IF
GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED. THIS PROXY STATEMENT DOES NOT CONSTITUTE A SOLICITATION
OF A PROXY IN ANY JURISDICTION FROM ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE A
PROXY SOLICITATION IN SUCH JURISDICTION. THE INFORMATION IN THIS PROXY STATEMENT
IS ONLY ACCURATE ON THE DATE OF THIS PROXY STATEMENT.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THE TRANSACTIONS DESCRIBED IN THIS
PROXY STATEMENT, OR PASSED UPON THE FAIRNESS OR MERITS OF THE TRANSACTIONS OR
THE ADEQUACY OR ACCURACY OF THE ENCLOSED PROXY STATEMENT. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
ix
TABLE OF CONTENTS
QUESTIONS AND ANSWERS.............................................................................................1
QUESTIONS AND ANSWERS ABOUT THE SYNGISTIX MERGER..................................................................2
QUESTIONS AND ANSWERS ABOUT THE SG MERGER.........................................................................4
PROCEDURAL QUESTIONS & ANSWERS....................................................................................6
SUMMARY/OVERVIEW..................................................................................................8
OVERVIEW.....................................................................................................8
THE COMPANIES................................................................................................9
THE SYNGISTIX MERGER........................................................................................10
THE SG MERGER...............................................................................................12
MARKET PRICE AND DIVIDEND INFORMATION.......................................................................15
SPECIAL FACTORS..................................................................................................16
BACKGROUND..................................................................................................16
RECOMMENDATIONS OF THE SPECIAL COMMITTEE AND BOARD OF DIRECTORS.............................................26
THE SYNGISTIX MERGER.............................................................................................27
ECOMETRY'S REASONS FOR THE SYNGISTIX MERGER.................................................................27
MERGER FINANCING - THE SYNGISTIX MERGER.....................................................................29
SELECTED FINANCIAL INFORMATION OF SYNGISTIX.................................................................31
INTERESTS OF CERTAIN PERSONS IN THE SYNGISTIX MERGER........................................................31
MATERIAL FEDERAL INCOME TAX CONSEQUENCES OF THE SYNGISTIX MERGER............................................32
THE SYNGISTIX MERGER AGREEMENT..............................................................................34
THE SYNGISTIX MERGER....................................................................................34
STOCK OPTIONS...........................................................................................34
CONVERSION OF COMMON STOCK..............................................................................34
REPRESENTATIONS AND WARRANTIES..........................................................................35
COVENANTS...............................................................................................36
LITIGATION..............................................................................................37
PUBLICITY; COMMUNICATIONS...............................................................................37
CONDITIONS TO THE SYNGISTIX MERGER......................................................................38
TERMINATION.............................................................................................39
EFFECT OF TERMINATION...................................................................................40
EXPENSES; TERMINATION FEE...............................................................................40
INDEMNIFICATION; DIRECTORS' AND OFFICERS' INSURANCE.....................................................41
AMENDMENT...............................................................................................41
FINANCIAL ADVISORS - THE SYNGISTIX MERGER...................................................................41
OUR MANAGEMENT'S FORECAST - THE SYNGISTIX MERGER............................................................41
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS -- THE SYNGISTIX MERGER...........................45
THE SG MERGER....................................................................................................47
ECOMETRY'S REASONS FOR THE SG MERGER AND FAIRNESS OF THE SG MERGER..........................................47
SG MERGER'S AND THE PRINCIPAL SHAREHOLDERS' REASONS FOR THE SG MERGER AND FAIRNESS OF THE SG MERGER.........50
MERGER FINANCING -- THE SG MERGER..........................................................................53
PURPOSES OF THE SG MERGER AND PLANS OR PROPOSALS............................................................55
INTERESTS OF CERTAIN PERSONS IN THE SG MERGER...............................................................56
MATERIAL FEDERAL INCOME TAX CONSEQUENCES OF THE SG MERGER...................................................57
THE SG MERGER AGREEMENT AND THE SG AMENDMENT................................................................59
THE SG MERGER...........................................................................................59
STOCK OPTIONS...........................................................................................59
CONVERSION OF COMMON STOCK..............................................................................59
REPRESENTATIONS AND WARRANTIES..........................................................................60
COVENANTS...............................................................................................61
LITIGATION..............................................................................................62
PUBLICITY; COMMUNICATIONS...............................................................................62
CONDITIONS TO THE SG MERGER.............................................................................62
TERMINATION.............................................................................................63
EFFECT OF TERMINATION...................................................................................64
EXPENSES; TERMINATION FEE...............................................................................64
INDEMNIFICATION; DIRECTORS' AND OFFICERS' INSURANCE.....................................................65
AMENDMENT...............................................................................................65
THE SG AMENDMENT........................................................................................65
OPINION OF ADAMS, HARKNESS & HILL, INC......................................................................66
OUR MANAGEMENT'S FORECAST - THE SG MERGER...................................................................77
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS - THE SG MERGER...................................81
THE SPECIAL MEETING..............................................................................................83
MATTERS TO BE CONSIDERED....................................................................................83
REQUIRED VOTES..............................................................................................83
VOTING AND REVOCATION OF PROXIES............................................................................84
RECORD DATE; STOCK ENTITLED TO VOTE; QUORUM; VOTING AT THE SPECIAL MEETING..................................84
ADJOURNMENTS................................................................................................85
APPRAISAL RIGHTS............................................................................................85
SOLICITATION OF PROXIES.....................................................................................85
CERTAIN INFORMATION CONCERNING OUR COMPANY.......................................................................86
SELECTED HISTORICAL FINANCIAL DATA..........................................................................86
RECENT DEVELOPMENTS.........................................................................................87
PRICE RANGE OF SHARES; DIVIDENDS; AND STOCK REPURCHASES.....................................................88
OPTIONS HELD BY EXECUTIVE OFFICERS, DIRECTORS AND AFFILIATES................................................89
CERTAIN BENEFICIAL OWNERSHIP OF SHARES...........................................................................91
CERTAIN LEGAL MATTERS AND REGULATORY APPROVALS...................................................................92
GENERAL.....................................................................................................92
HART-SCOTT-RODINO...........................................................................................92
LITIGATION..................................................................................................92
ACCOUNTING TREATMENT.............................................................................................92
ESTIMATED FEES AND EXPENSES......................................................................................93
INDEPENDENT AUDITORS.............................................................................................94
SHAREHOLDER PROPOSALS............................................................................................94
WHERE YOU CAN FIND MORE INFORMATION..............................................................................94
AVAILABLE INFORMATION............................................................................................95
OTHER BUSINESS...................................................................................................96
Annex A Syngistix Merger Agreement
Annex B SG Merger Agreement and SG Amendment
Annex C Opinion of Adams, Harkness & Hill, Inc.
[ANNEX D ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED
DECEMBER 31, 2000]
[ANNEX E QUARTERLY REPORT ON FORM 10-Q FOR THE PERIOD ENDED SEPTEMBER
30, 2001]
QUESTIONS AND ANSWERS
The following questions and answers are intended to address briefly
some commonly asked questions regarding the Syngistix Merger and the Syngistix
Merger Agreement and the SG Merger and the SG Merger Agreement. These questions
and answers may not address all questions that may be important to you as a
shareholder. You should read the more detailed information contained elsewhere
in this proxy statement, the annexes to this proxy statement and the documents
referred to or incorporated by reference in this proxy statement before voting
on the Syngistix Merger and the SG Merger.
Q: WHAT AM I BEING ASKED TO VOTE ON? (SEE PAGE 83)
A: You are being asked to vote to approve two separate transactions: the
Syngistix Merger and the SG Merger. If the proposed Syngistix Merger is
completed, we will become a privately-held corporation wholly-owned by
Syngistix. If the SG Merger is completed, we will become a
privately-held corporation wholly owned by the Principal Shareholders.
If the SG Merger is approved, it will be completed only if the
Syngistix Merger is not completed.
Q: WHY AM I BEING ASKED TO VOTE ON TWO MERGERS?
A: We have entered into two merger agreements, one with Syngistix and one
with SG. If the conditions to close the Syngistix Merger are satisfied
or waived, the Syngistix Merger will occur and the SG Merger will not
occur. If the conditions to close the Syngistix Merger are not
satisfied or waived, the Syngistix Merger will not occur. If the
Syngistix Merger does not occur and the conditions to close the SG
Merger are satisfied or waived, the SG Merger will occur.
Q: CAN I VOTE FOR BOTH THE SYNGISTIX MERGER AND THE SG MERGER?
A: Yes. If approved, the SG Merger will only occur if the closing
conditions to the Syngistix Merger are not satisfied or waived and the
Syngistix Merger does not occur.
Q: CAN I VOTE FOR ONE MERGER, BUT NOT THE OTHER?
A: Yes. You can vote for the Syngistix Merger and not the SG Merger; you
can vote for the SG Merger and not the Syngistix Merger. Please note,
however, that even if the Syngistix Merger is approved, it may not
close. If the Syngistix Merger does not close and the SG Merger is not
approved, neither transaction will close and you will remain a
shareholder of Ecometry.
Q: WHY WAS THE SPECIAL COMMITTEE FORMED? (SEE PAGE 17)
A: The Principal Shareholders, who are members of our board of directors
and officers of our company, have a direct conflict of interest in
recommending approval of the SG Merger Agreement and the SG Merger
because they are also the sole shareholders, directors and officers of
SG. If the SG Merger occurs, the Principal Shareholders will
beneficially own all of our outstanding common stock. As a result, the
Principal Shareholders would receive all of the benefit of our future
earnings and any increase in our value and bear the full loss of any
decrease in our value, while you will no longer receive any such
benefit or bear any such risk. Specifically, the Principal Shareholders
have a direct pecuniary interest in having the merger consideration in
connection with the SG Merger, both on a per-share basis and in the
aggregate, be as low as possible. Because of this conflict, the board
of directors initially formed a special committee of three independent
directors to evaluate the SG merger proposal and any other proposals or
indications of interest in acquiring us submitted by third parties, and
to negotiate the SG Merger Agreement. The members of the special
committee are not affiliated in any way with Syngistix, Citrus or SG
and will not be affiliated with Syngistix, Citrus or SG at the time of
the Syngistix Merger or the SG Merger.
Q: WHAT STEPS DID THE BOARD OF DIRECTORS AND SPECIAL COMMITTEE TAKE TO
DETERMINE THAT THE PRICE PER SHARE I WILL RECEIVE IN THE PROPOSED
SYNGISTIX MERGER OR SG MERGER IS FAIR TO ME FROM A FINANCIAL POINT OF
VIEW? (SEE PAGES 17-26)
A: The board of directors formed a special committee consisting of
directors who had no conflicts of interest with respect to the
Syngistix Merger or the SG Merger (other than the fact that 3,750 each
of their options will vest upon completion of the Syngistix Merger or
the SG Merger (in the same manner as options held by all option holders
generally) which, when combined with previously vested options, will
result in the receipt by each member of the special committee of $5,750
upon completion of the Syngistix Merger or $4,750 upon the completion
of the SG Merger) to evaluate and negotiate any proposals or
indications of interest in us. The special committee selected and
retained its own legal and financial advisors to assist it in the
evaluation and negotiation of any merger agreement and any merger, and
ultimately received a written fairness opinion from its financial
advisor in connection with the SG Merger Agreement. In its evaluation
of the Syngistix Merger and the SG Merger, the special committee
considered, among other things, the opinion of Adams, Harkness & Hill,
its independent financial advisor, that as of the date of the opinion
and based on and subject to the assumptions, limitations and
qualifications contained in that opinion, the $2.70 cash merger
consideration that each shareholder will have the right to receive
pursuant to the SG Merger is fair, from a financial point of view, to
that shareholder. Since Adams, Harkness & Hill had delivered a fairness
opinion with regard to the $2.70 per share consideration to be paid to
our shareholders under the SG Merger Agreement, the special committee
did not request an additional fairness opinion regarding the $2.90 per
share consideration to be paid to our shareholders pursuant to the
Syngistix Merger Agreement.
Q: WHAT DO THE PRINCIPAL SHAREHOLDERS RECEIVE IF THE SYNGISTIX MERGER IS
CONSUMMATED? (SEE PAGE 65)
A: The SG Amendment provides that the SG Merger Agreement will terminate
immediately prior to the consummation of the Syngistix Merger and SG,
whose sole shareholders are the Principal Shareholders, will receive a
termination fee of $1,679,100, minus the portion of the termination fee
previously paid to SG upon the signing of the Syngistix Merger
Agreement for its reasonably documented fees and expenses incurred in
connection with the SG Merger Agreement. In addition, the Principal
Shareholders will receive, like all other shareholders of Ecometry,
$2.90 per share in cash for their shares.
QUESTIONS AND ANSWERS ABOUT THE SYNGISTIX MERGER
Q: WHAT WILL I RECEIVE IN THE SYNGISTIX MERGER? (SEE PAGES 34-35)
A: Upon completion of the Syngistix Merger, each outstanding share of our
common stock immediately prior to the effective time of the merger will
be converted into the right to receive $2.90 in cash, without interest,
except for shares held by us, Syngistix and Citrus. We note that $2.90
per share represents a discount of approximately 4% from the $3.02 book
value per share of our common stock as of December 31, 2001. However,
we do not believe that book value per share, even though it is largely
comprised of cash, cash equivalents and other current assets is
indicative of what shareholders would receive for their shares upon
liquidation of the company due to the costs and uncertainties
associated with liquidating a company.
Q: WHO IS CITRUS? (SEE PAGE 10)
A: Citrus is a corporation newly-formed by Syngistix for the sole purpose
of acquiring us in the Syngistix Merger.
2
Q: WHO IS SYNGISTIX? (SEE PAGE 10)
A: Syngistix, a Delaware corporation, is the parent company of Citrus.
Syngistix is the successor to a business founded in 1976 and
headquartered in Englewood, Colorado. Syngistix provides supply chain
management software solutions for distribution enterprises and
specializes in providing low-risk migration paths from legacy software
systems to newer technologies.
Q: WHAT EFFECT WILL THE SYNGISTIX MERGER HAVE ON THE SHAREHOLDERS? (SEE
PAGE 10)
A: Upon consummation of the Syngistix Merger and conversion of your shares
into the right to receive $2.90 per share, your shares of the company's
common stock will cease to exist, our common stock will no longer be
eligible for trading on the Nasdaq National Market, our common stock
will no longer be registered under the Securities Exchange Act of 1934,
as amended, we will no longer file reports with the Securities and
Exchange Commission, and our shareholders will no longer be able to
participate in the future earnings and growth of the company.
Q: WHY IS THE BOARD OF DIRECTORS RECOMMENDING THAT I VOTE FOR THE
SYNGISTIX MERGER? (SEE PAGES 27-29)
A: In the opinion of the board of directors, based upon the unanimous
recommendation of a special committee of three independent directors,
the terms and provisions of the Syngistix Merger and the Syngistix
Merger Agreement are fair to and in the best interests of our
shareholders. The board, with the Principal Shareholders abstaining,
and then the full board unanimously, has approved the Syngistix Merger
Agreement and the Syngistix Merger and declared it fair to and in the
best interests of our shareholders.
Q: HOW WILL SYNGISTIX FINANCE THE SYNGISTIX MERGER? (SEE PAGES 29-31)
A: Syngistix will use the cash that our company currently has and funds
received pursuant to a financing to purchase all the shares owned by
persons other than us, Syngistix and Citrus.
Q: WHAT ARE THE CONDITIONS TO CLOSING THE SYNGISTIX MERGER? (SEE PAGES
38-39)
A: The Syngistix Merger is subject to a number of conditions, including
approval by the holders of a majority of our shares of our common stock
and the consummation of Syngistix's financing arrangement (a commitment
for which has been obtained), or alternate financing and other
customary conditions.
Q: WHEN DO YOU EXPECT TO KNOW IF THE SYNGISTIX MERGER WILL BE COMPLETED OR
TERMINATED? (SEE PAGE 34)
A: We are working toward completing the Syngistix Merger as quickly as
possible. If the Syngistix Merger Agreement and the Syngistix Merger
are approved by the shareholders and the other conditions to the
Syngistix Merger are satisfied, we hope to complete the merger on the
day of or the day following the special meeting, but there can be no
assurance that we will be able to do so. If the conditions to the
Syngistix Merger are not satisfied or waived at the special MEETING (as
such meeting may be adjourned) we expect to terminate the Syngistix
Merger Agreement. If the Syngistix Merger Agreement is terminated but
the SG Merger is approved and the other conditions to the SG Merger
Agreement are satisfied, we hope to complete the SG Merger as soon as
possible following the special meeting, but there can be no assurance
that we will be able to do so.
Q: WHAT ARE THE TAX CONSEQUENCES OF THE SYNGISTIX MERGER TO ME? (SEE PAGES
32-33)
3
A: The receipt of the cash merger consideration by you will be a taxable
transaction for federal income tax purposes. To review the possible tax
consequences in greater detail, see "Material Federal Income Tax
Consequences of the Syngistix Merger." You should also consult your tax
advisor as to your particular circumstances and the specific tax
effects of the Syngistix Merger to you.
Q: WHAT VOTE IS REQUIRED TO APPROVE THE SYNGISTIX MERGER AGREEMENT? (SEE
PAGE 83-84)
A: Pursuant to the Syngistix Merger Agreement, our articles of
incorporation and applicable Florida law, in order to complete the
Syngistix Merger the holders of a majority of all outstanding shares of
our common stock must vote to approve the Syngistix Merger Agreement
and the Syngistix Merger.
QUESTIONS AND ANSWERS ABOUT THE SG MERGER
Q: WHEN WOULD THE SG MERGER OCCUR? (SEE PAGE 65)
A: The SG Merger will only occur if the Syngistix Merger is not completed,
the Syngistix Merger Agreement is terminated and the conditions to
closing the SG Merger are satisfied or waived.
Q: WHAT WILL I RECEIVE IN THE SG MERGER? (SEE PAGES 59-60)
A: If the SG Merger is completed, each outstanding share of our common
stock immediately prior to the effective time of the SG Merger will be
converted into the right to receive $2.70 in cash, without interest,
except for shares held by us, the Principal Shareholders and SG. We
note that $2.70 per share represents a discount of approximately 10.5%
from the $3.02 book value per share of our common stock as of December
31, 2001. However, we do not believe that book value per share, even
though it is largely comprised of cash, cash equivalents and other
current assets is indicative of what shareholders would receive for
their shares upon liquidation of the company due to the costs and
uncertainties associated with liquidating a company.
Q: WHO IS SG? (SEE PAGE 10)
A: SG is a corporation newly-formed by the Principal Shareholders for the
sole purpose of acquiring us in the SG Merger.
Q: WHO ARE THE PRINCIPAL SHAREHOLDERS? (SEE PAGE 8)
A: Wilburn W. Smith is the chairman of our board of directors, executive
vice president - sales and the beneficial owner of approximately 17.4%
of the outstanding shares of our common stock. Allan J. Gardner is our
chief technology officer, a member of our board of directors and the
beneficial owner of approximately 17.6% of the outstanding shares of
our common stock. The Principal Shareholders are the only directors,
officers and shareholders of SG. The Principal Shareholders together
beneficially own approximately 35% of the outstanding shares of our
common stock. The Principal Shareholders have agreed to vote these
shares in favor of the SG Merger.
Q: WHAT EFFECT WILL THE SG MERGER HAVE ON THE UNAFFILIATED SHAREHOLDERS?
(SEE PAGE 12)
A: If the SG Merger is completed, each share of common stock you own will
convert into the right to receive $2.70 per share, your shares of the
company's common stock will cease to exist, our common stock will no
longer be eligible for trading on the Nasdaq National Market, our
common stock will no longer be registered under the Securities Exchange
Act of 1934, as amended, we will no longer file reports with the
Securities and Exchange Commission, and our unaffiliated shareholders
will no longer be able to participate in the future earnings and growth
of the company.
4
Q: WHY IS THE BOARD OF DIRECTORS RECOMMENDING THAT I VOTE FOR THE SG
MERGER? (SEE PAGES 47-50)
A: In the opinion of the board of directors, based upon the unanimous
recommendation of a special committee of three independent directors,
the terms and provisions of the SG Merger and the SG Merger Agreement
are fair to and in the best interests of our shareholders other than
the Principal Shareholders and SG. The board, with the Principal
Shareholders abstaining, and then the full board unanimously, has
approved the SG Merger Agreement and the SG Merger and declared it fair
to and in the best interests of our shareholders other than SG and the
Principal Shareholders.
Q: DO THE PRINCIPAL SHAREHOLDERS AND SG BELIEVE THE SG MERGER IS FAIR TO
THE SHAREHOLDERS? (SEE PAGES 50-53)
A: The Principal Shareholders and SG each believe that the SG Merger and
the consideration to be paid in the SG Merger to the holders of our
common stock other than the Principal Shareholders and SG are fair to
such holders from a financial point of view.
Q: IF THE SYNGISTIX MERGER IS NOT COMPLETED, WHEN DO YOU EXPECT THE SG
MERGER TO BE COMPLETED? (SEE PAGE 59)
A: If the Syngistix Merger Agreement is terminated and the conditions to
the SG Merger Agreement are satisfied, we hope to complete the SG
Merger as soon as possible following the special meeting, but there can
be no assurance that we will be able to do so.
Q: HOW WILL SG FINANCE THE SG MERGER? (SEE PAGES 53-54)
A: SG will use the cash that our company currently has to purchase all the
shares owned by persons other than us, the Principal Shareholders and
SG.
Q: WHAT ARE THE TAX CONSEQUENCES OF THE SG MERGER TO ME? (SEE PAGES 57-58)
A: The receipt of the cash merger consideration by you will be a taxable
transaction for federal income tax purposes. To review the possible tax
consequences in greater detail, see "Material Federal Income Tax
Consequences of the SG Merger." You should also consult your tax
advisor as to your particular circumstances and the specific tax
effects of the SG Merger to you.
Q: WHAT VOTE IS REQUIRED TO APPROVE THE SG MERGER AGREEMENT? (SEE PAGES
83-84)
A: Pursuant to our articles of incorporation and applicable Florida law,
the holders of a majority of all outstanding shares of our common stock
must vote to approve the SG Merger Agreement and the SG Merger. As of
[__________] [__], 2002, the Principal Shareholders beneficially owned
approximately 35% of the common stock eligible to vote at the special
meeting. The Principal Shareholders have indicated that they intend to
transfer their shares to SG prior to the SG Merger. The Principal
Shareholders and SG have agreed to vote all shares owned by them in
favor of approving the SG Merger Agreement and the SG Merger.
In addition to the vote required by Florida law, the SG Merger
Agreement provides that it is a condition to our obligation to effect
the SG Merger that the holders of a majority of our outstanding shares
of common stock not held by the Principal Shareholders and SG and their
affiliates vote to approve the SG Merger Agreement and the SG Merger.
We may waive this condition if the members of the special committee
believe, based on the circumstances surrounding the shareholder vote at
the time of the special meeting, that it is in the best
5
interests of the shareholders of the company to consummate the SG
Merger. There are no preconceived circumstances in which this condition
would be waived. One potential scenario in which this condition might
be waived is one in which an overwhelming majority of the unaffiliated
shareholders who vote at the shareholders meeting vote in favor of the
SG Merger, however, due to a substantial number of shareholders not
voting, the condition is not met. A majority vote of the members of the
board of directors, including a majority of the members of the special
committee would be required to waive this condition. We cannot waive
the requirement under Florida law that holders of a majority of all
outstanding shares of our common stock must vote to approve the SG
Merger Agreement and the SG Merger. We will not re-solicit proxies if
any of the conditions are waived.
PROCEDURAL QUESTIONS & ANSWERS
Q: WHO CAN VOTE ON THE SYNGISTIX MERGER AND SG MERGER? (SEE PAGE 84)
A: Shareholders of record as of the close of business on [ ], 2002, are
entitled to notice of, and to vote at, the special meeting to approve
the Syngistix Merger Agreement and the Syngistix Merger and the SG
Merger Agreement and the SG Merger.
Q: WHAT DO I NEED TO DO NOW? (SEE PAGES 83-85 AND THE ENCLOSED PROXY CARD)
A: Please mark your vote on, sign, date and mail your proxy card in the
enclosed return envelope as soon as possible, so that your shares may
be represented at the special meeting. You can also vote your shares in
person at the special meeting.
If your shares are held in "street name," which means that your shares
are held in the name of a broker or other financial institution instead
of in your own name, your broker will vote your shares only if you
instruct your broker on how to vote. You should follow the directions
provided by your broker regarding how to vote your shares.
Abstaining from voting has the same effect as a vote against the
transactions. Accordingly, if you are in favor of the Syngistix
Merger and/or the SG Merger it is essential that you sign and complete
the enclosed proxy so that your shares can be voted.
Q: MAY I CHANGE MY VOTE? (SEE PAGE 84)
A: Yes, your vote can be changed at any time before the proxy is voted at
the special meeting. This can be done by (i) sending in a written
revocation of your proxy to our secretary at our principal address,
(ii) sending in a signed proxy card with a later date to the address on
the proxy card before the special meeting, or (iii) attending the
special meeting and voting your shares in person.
If you are not the record holder of your shares (for example if you own
your shares in "street name"), you must follow the procedures required
by the holder of record, usually a brokerage firm or bank, to revoke a
proxy. You should contact the holder of record for more information on
these procedures.
Q: AM I ENTITLED TO APPRAISAL RIGHTS? (SEE PAGE 85)
A: No. Because our shares of common stock were listed on the Nasdaq
National Market on the record date, you do not have appraisal rights
under Florida law.
Q: SHOULD I SEND MY STOCK CERTIFICATES NOW? (SEE PAGES 35 and 60)
A: No. After either the Syngistix Merger or the SG Merger is completed, we
will send you a transmittal form and written instructions for
exchanging your share certificates.
Q: WHAT OTHER MATTERS WILL BE VOTED ON AT THE SPECIAL MEETING? (SEE
PAGE 83)
6
A: We are also soliciting proxies to grant discretionary authority to vote
in favor of adjournment or postponement of the special meeting. We do
not expect a vote to be taken on any other matters at the special
meeting. However, if any other matters are properly presented at the
special meeting for consideration, the holders of the proxies will have
discretion to vote on these matters in accordance with their best
judgment.
Q: WHO CAN HELP ANSWER MY QUESTIONS? (SEE PAGES 94-95)
A: If you have more questions or would like additional copies of this
proxy statement, you should contact our corporate secretary, Martin K.
Weinbaum, at (561) 265-2700 or, our proxy solicitor, D.F. King & Co.,
Inc., Attention: Tom Long, 77 Water Street, 20th Floor, New York, New
York 10005, telephone (212) 269-5550.
7
SUMMARY/OVERVIEW
The following summary, together with the previous question and answer
section, provides an overview of the material information discussed in this
proxy and presented in the attached annexes and documents. This summary
describes the material details and provisions of the Syngistix Merger and the SG
Merger and is qualified by the more detailed information contained elsewhere in
this proxy statement, the attached annexes and the documents we refer to in this
proxy statement. You are urged to review this entire proxy statement carefully,
including its annexes and all documents referenced in this proxy statement. No
provisions have been made to grant unaffiliated shareholders access to the
corporate files of the company, Syngistix, Citrus or SG and no counsel or
appraisal services were engaged to represent the unaffiliated shareholders. We
believe that our filings with the Securities and Exchange Commission, including
the disclosures provided within this proxy statement, provide you with
appropriate information to make an informed decision as to whether or not you
wish to vote in favor of the Syngistix Merger and the SG Merger. See "Where You
Can Find More Information" for more details.
OVERVIEW
We are furnishing this proxy statement in connection with a special
meeting of our shareholders to be held on [ ] [ ], 2002 at 10:00 a.m. local time
at the Embassy Suites, 661 Northwest 53rd Street, Boca Raton, Florida 33487, to
allow our shareholders to consider and vote on a proposal to approve the
Syngistix Merger and the Syngistix Merger Agreement and the SG Merger and the SG
Merger Agreement. A copy of the Syngistix Merger Agreement is attached to this
proxy statement as Annex A and a copy of the SG Merger Agreement is attached to
this proxy as Annex B.
The Syngistix Merger Agreement provides that Citrus will be merged with
and into us with us as the surviving corporation. Pursuant to the Syngistix
Merger, our shareholders will receive $2.90 per share in cash, without interest,
for each share of our common stock that they own at the effective time of the
Syngistix Merger. If the Syngistix Merger occurs, Citrus will cease to exist and
we will become a privately-held corporation owned by Syngistix. The Syngistix
Merger is subject to a number of conditions, including approval by holders of a
majority of our outstanding common stock and the consummation by Syngistix of
financing arrangements with Core Technology Fund IV, LLC and The Roser
Partnership III, SBIC LP including the sale of indebtedness for an aggregated
$10 million (a commitment for which has been obtained) or alternate financing
acceptable to the company, and other customary conditions.
The company has also entered into the SG Merger Agreement. The SG
Merger would occur only if the Syngistix Merger does not occur and the Syngistix
Merger Agreement is terminated. If the SG Merger does occur, SG will be merged
with and into us with us as the surviving corporation. Pursuant to the SG Merger
Agreement, our shareholders other than the Principal Shareholders and SG will
receive $2.70 per share in cash, without interest, for each share of our common
stock that they own at the effective time of the SG Merger. Following the SG
Merger, SG will cease to exist and we will be a privately-held corporation owned
by the Principal Shareholders.
During the time the Syngistix Merger Agreement and the SG Merger
Agreement were negotiated and at the time they were executed, Wilburn W. Smith
was the chairman of our board of directors and our executive vice president -
sales, and Allan J. Gardner was a member of our board of directors and our chief
technology officer. The Principal Shareholders are also the sole shareholders,
officers and directors of SG. The Principal Shareholders, therefore, have a
direct conflict of interest with respect to the proposed transactions. As of the
date of this proxy statement, the Principal Shareholders own approximately 35%
of our outstanding common stock. The Principal Shareholders have agreed to vote
these shares in favor of the Syngistix Merger and the SG Merger.
In light of this conflict of interest, our board of directors formed a
special committee to evaluate the SG Merger proposal and any other proposals or
indications of interest in us submitted to us by third parties, including the
Syngistix Merger proposal. The special committee is comprised of three of our
directors who are not employees and are
8
not affiliated in any way with SG, Syngistix or Citrus and otherwise have no
special interest in the Syngistix Merger or the SG Merger (other than the fact
that 3,750 of their options will vest upon completion of either merger (in the
same manner as options held by all option holders generally) which, when
combined with previously vested options, will result in the receipt by each
member of the special committee of $5,750 upon completion of the Syngistix
Merger or $4,750 upon completion of the SG Merger). The special committee
retained its own financial advisor and legal counsel, and negotiated the terms
of each merger agreement on behalf of the board and us.
In connection with the execution of the Syngistix Merger Agreement, the
special committee determined that the Syngistix Merger and the Syngistix Merger
Agreement are fair to and in the best interests of our shareholders. The special
committee unanimously recommended that the entire board vote to adopt the
Syngistix Merger Agreement and approve the Syngistix Merger and to recommend
that our shareholders approve the Syngistix Merger Agreement and the Syngistix
Merger. The board, with Messrs. Smith and Gardner abstaining, and then the
entire board, acted in accordance with the special committee's recommendation,
and approved the Syngistix Merger Agreement and the Syngistix Merger and
recommended that our shareholders do the same.
In connection with the execution of the SG Merger Agreement, the
special committee determined that the SG Merger and the SG Merger Agreement are
fair to and in the best interests of our shareholders other than the Principal
Shareholders and SG. The special committee unanimously recommended that the
entire board vote to adopt the SG Merger Agreement and approve the SG Merger and
to recommend that our shareholders approve the SG Merger Agreement and the SG
Merger. The board, with Messrs. Smith and Gardner abstaining, and then the
entire board, acted in accordance with the special committee's recommendation,
and approved the SG Merger Agreement and the SG Merger and recommended that our
shareholders do the same.
THE COMPANIES
ECOMETRY CORPORATION
1615 South Congress Avenue
Delray Beach, Florida 33445-6368
(561) 265-2700
We are a publicly-held Florida corporation incorporated in 1988 under
the name Smith-Gardner & Associates, Inc. On December 4, 2000, we changed our
name to Ecometry Corporation. We are a provider of enterprise software solutions
and services to the multi-channel commerce industry. Our clients include direct
marketing and catalog companies, retailers and manufacturers with significant
direct sales channels, Internet-only companies and fulfillment houses. Our
Ecometry family of software products is designed to automate multi-channel
commerce activities, including marketing, advertising analysis, sales,
telemarketing, ordering, customer services, merchandising, procurement,
electronic and Internet commerce, supply chain management, warehousing,
shipping, accounting and systems operation. Ecometry Retail Enterprise also
provides managers and sales personnel with real-time operations, inventory and
customer data to improve both management decision-making and customer service.
9
Syngistix, Inc.
5340 Quebec Street, Suite 300
Englewood, CO 80111
(303) 889-4500
Syngistix, headquartered in Englewood, CO, is the successor to a
business founded in 1976. Syngistix provides supply chain management software
solutions for distribution enterprises. Syngistix specializes in providing
low-risk migration paths from legacy software systems to newer technologies. Its
products include X!TE, an enterprise application suite focused on traditional
distribution models and XPDT which focuses on the sell, source, ship
distribution model. Customers include Georgia Pacific - UNISOURCE, Corporate
Express and TruServ Canada.
SG MERGER CORP.
1615 South Congress Avenue
Delray Beach, Florida 33445-6368
(561) 265-2700
SG is a privately-held Florida corporation incorporated on August 9,
2001 specifically for the SG Merger and has not carried on any activities to
date other than those incident to its formation, the negotiation and execution
of the SG Merger Agreement and the transactions contemplated by the SG Merger
Agreement. Wilburn W. Smith, our executive vice president - sales, and Allan J.
Gardner, our chief technology officer, both of whom are on our board of
directors, are the sole shareholders, officers and directors of SG.
CITRUS MERGER CORP
c/o Syngistix, Inc.
5340 Quebec Street, Suite 300
Englewood, CO 80111
(303) 889-4500
Citrus was incorporated in Florida on January 24, 2002 as a
wholly-owned subsidiary of Syngistix in connection with the proposed Syngistix
Merger. Citrus has not been engaged in any business activities other than those
in connection with the Syngistix Merger.
THE SYNGISTIX MERGER
EFFECT OF THE SYNGISTIX MERGER (SEE PAGE 34)
Pursuant to the Syngistix Merger Agreement, Citrus will be merged
directly into us and we will be the surviving corporation. At the effective time
of the Syngistix Merger, Citrus will cease to exist and we will become a
privately-held corporation wholly-owned by Syngistix. The Syngistix Merger will
become effective when the articles of merger are duly filed with the Department
of State of the State of Florida. Upon consummation of the Syngistix Merger and
conversion of your shares into the right to receive $2.90 per share, your shares
of the company's common stock will cease to exist, our common stock will no
longer be eligible for trading on the Nasdaq National Market, our common stock
will no longer be registered under the Securities Exchange Act of 1934, as
amended, we will no longer file reports with the Securities and Exchange
Commission, and our unaffiliated shareholders will no longer be able to
participate in the future earnings and growth of the company.
10
COMPANY STOCK OPTIONS (SEE PAGE 34)
At the effective time of the Syngistix Merger, all options to purchase
our shares will automatically become vested. Each option with an exercise price
per share less than $2.90 will be converted into the right to receive an amount
equal to $2.90 in cash, less the applicable exercise price, for each share of
common stock subject to such stock option. All other options will be terminated.
SHAREHOLDER VOTE; OWNERSHIP OF MANAGEMENT, DIRECTORS AND OTHER
AFFILIATES (SEE PAGES 83-84)
Under the Syngistix Merger Agreement, our articles of incorporation and
Florida law, the holders of a majority of all outstanding shares of our common
stock must vote to approve the Syngistix Merger Agreement.
As of [ ], 2002, the record date for the special meeting, the Principal
Shareholders held approximately 35% of the common stock eligible to vote at the
special meeting. Pursuant to the SG Amendment, the Principal Shareholders have
agreed that at any meeting of stockholders of the company, or any solicitation
of written consents, called for the purpose of approving the Syngistix Merger
through May 31, 2002, they will vote in favor of, or consent to, the approval of
the Syngistix Merger Agreement and the approval of the Syngistix Merger.
As of [ ], 2002, our directors and executive officers (other than the
Principal Shareholders) beneficially owned approximately 1% of our outstanding
common stock, excluding options to purchase common stock. All of our directors
and executive officers who own common stock have indicated that they intend to
vote to approve the Syngistix Merger Agreement and the Syngistix Merger.
CONDITIONS TO THE SYNGISTIX MERGER (SEE PAGES 38-39)
We, Syngistix and Citrus will not complete the Syngistix Merger unless
a number of conditions are satisfied by us, Syngistix and/or Citrus. It is a
condition to Syngistix's, Citrus's and our obligation to consummate the
Syngistix Merger that shareholders holding a majority of the shares of our
outstanding common stock vote to approve the Syngistix Merger Agreement and the
Syngistix Merger. It is a condition to our obligation to consummate the
Syngistix Merger that Syngistix have completed its proposed financing involving
the sale of indebtedness for an aggregate of $10 million prior to or
simultaneously with the effective time of the Syngistix Merger. In addition, it
is a condition to our obligation to consummate the Syngistix Merger that there
shall not have occurred an event or events that have had or are reasonably
likely to have a material adverse effect on Syngistix's or Citrus's ability to
perform under the Syngistix Merger Agreement. It is a condition to Syngistix's
and Citrus's obligations to consummate the Syngistix Merger that we have at
least an aggregate of $32 million in cash, cash equivalents and marketable
securities immediately prior to the effective time of the Syngistix Merger,
minus any transaction fees and expenses incurred by us in connection with the
Syngistix Merger or SG Merger and any amounts to be paid as termination fees
under the SG Merger Agreement. It is a condition to Syngistix's and Citrus's
obligation to consummate the Syngistix Merger that we have obtained all consents
and approvals required pursuant to certain of our customer and vendor contracts.
Further, it is a condition to Syngistix's and Citrus's obligation to consummate
the Syngistix Merger that we shall not have experienced an event or events that
have had or are reasonably likely to have a material adverse effect on our
business or operations between the date of the Syngistix Merger Agreement and
the effective time of the Syngistix Merger. The Syngistix Merger Agreement also
contains various other conditions which are customary in transactions of this
type. Many of these conditions may be waived by the party benefiting from the
condition. The requirement under Florida law that holders of a majority of all
outstanding shares of our common stock must vote to approve the Syngistix Merger
and the Syngistix Merger Agreement cannot be waived.
TERMINATION OF THE SYNGISTIX MERGER AGREEMENT (SEE PAGES 39-41)
The Syngistix Merger Agreement may be terminated and the Syngistix
Merger abandoned at any time before it is completed under certain circumstances,
including Syngistix's and our mutual consent. We or Syngistix may
11
terminate the Syngistix Merger Agreement, among other reasons, if the Syngistix
Merger Agreement and the Syngistix Merger are not approved by the holders of a
majority of our common stock or if the Syngistix Merger has not been consummated
by May 31, 2002. We can terminate the Syngistix Merger Agreement if, among other
reasons, Syngistix has not completed a financing involving the sale of equity
and/or indebtedness for an aggregate of $10 million prior to or simultaneously
with the effective time or fulfilled its obligations pursuant to the Syngistix
Merger Agreement or our board of directors, acting upon the recommendation of
the special committee, approves an acquisition proposal that is superior to
Syngistix's proposal or otherwise withdraws, modifies or amends its approval or
recommendation of the Syngistix Merger Agreement and related transactions.
Syngistix can terminate the Syngistix Merger Agreement if, among other reasons,
our board of directors withdraws, modifies or amends in any respect adverse to
Syngistix or Citrus its recommendation of the Syngistix Merger and related
transactions, or if our board approves, recommends or enters into an agreement
with respect to or consummates a superior acquisition proposal (or resolves to
do so). Syngistix may also terminate the Syngistix Merger Agreement if a third
party commences a tender or exchange offer for 15% or more of our common stock
and our board of directors does not recommend that you reject such offer. We
have agreed to pay Syngistix a termination fee of $1,800,000 in the event that
the Syngistix Merger Agreement is terminated as a result of our board's
withdrawal or adverse modification of its recommendation of the Syngistix
Merger, the failure of our board to recommend rejection of a third-party tender
or exchange offer for 15% or more of our common stock, or the approval of a
superior third-party acquisition proposal. We have agreed to pay Syngistix a
termination fee of $400,000 if the Syngistix Merger Agreement is not approved by
holders of a majority of shares of our common stock. Syngistix has agreed to pay
us a termination fee of $400,000 if the Syngistix Merger Agreement is terminated
because Syngistix has failed to complete a financing involving the sale of
equity and/or indebtedness for an aggregate of $10 million prior to or
simultaneously with the effective time of the Syngistix Merger and all
conditions to Syngistix's obligation to close have been satisfied.
MERGER FINANCING (SEE PAGE 29-31)
The total amount of cash required to consummate the transactions
contemplated by the Syngistix Merger Agreement, including payment of related
fees and expenses and payment of the termination fee to SG pursuant to the SG
Merger Agreement, is estimated to be approximately $39 million, which will be
paid from funds received by Syngistix in their proposed financing and from cash
that we currently have on hand.
FINANCIAL ADVISOR (SEE PAGE 41)
Since the special committee had already received an opinion from Adams,
Harkness & Hill regarding the fairness of the $2.70 per share merger
consideration to be received in the SG Merger, the special committee did not
request a fairness opinion regarding the $2.90 per share merger consideration to
be received in the Syngistix Merger.
THE SG MERGER
EFFECT OF THE SG MERGER (SEE PAGE 59)
Pursuant to the SG Merger Agreement, SG will be merged directly into us
and we will be the surviving corporation. At the effective time of the merger,
SG will cease to exist and we will become a privately-held corporation owned by
the Principal Shareholders. The SG Merger will become effective when the
articles of merger are duly filed with the Department of State of the State of
Florida. Upon consummation of the SG Merger and conversion of your shares into
the right to receive $2.70 per share, your shares of the company's common stock
will cease to exist, our common stock will no longer be eligible for trading on
the Nasdaq National Market, our common stock will no longer be registered under
the Securities Exchange Act of 1934, as amended, we will no longer file reports
with the Securities and Exchange Commission, and our unaffiliated shareholders
will no longer be able to participate in the future earnings and growth of the
company.
12
COMPANY STOCK OPTIONS (SEE PAGE 51)
At the effective time of the SG Merger, all options to purchase our
shares will automatically become vested. Each option (other than those held by
the Principal Shareholders) with an exercise price per share less than $2.70
will be converted into the right to receive an amount equal to $2.70 in cash,
less the applicable exercise price, for each share of common stock subject to
such stock option. All other options (including those held by the Principal
Shareholders) will be terminated.
SHAREHOLDER VOTE; OWNERSHIP OF MANAGEMENT, DIRECTORS AND OTHER
AFFILIATES (SEE PAGES 83-84)
Under our articles of incorporation and Florida law, the holders of a
majority of all outstanding shares of our common stock must vote to approve the
SG Merger Agreement. In addition, the SG Merger Agreement provides that it is a
condition to our obligation to effect the SG Merger that the holders of a
majority of our outstanding shares of common stock not held by the Principal
Shareholders and SG and their affiliates vote to approve the SG Merger
Agreement. We may waive this condition.
As of [ ], 2002, the record date for the special meeting, the Principal
Shareholders held approximately 35% of the common stock eligible to vote at the
special meeting. The Principal Shareholders have indicated that they intend to
transfer their shares to SG prior to the SG Merger. In any case, the Principal
Shareholders and SG have agreed to vote their common stock in favor of approving
the SG Merger Agreement and the SG Merger.
As of [ ], 2002, our directors and executive officers (other than the
Principal Shareholders) beneficially owned less than 1% of our outstanding
common stock, excluding options to purchase common stock. All of our directors
and executive officers who own common stock have indicated that they intend to
vote to approve the SG Merger Agreement and the SG Merger.
CONDITIONS TO THE SG MERGER (SEE PAGES 62-63)
We and SG will not complete the SG Merger unless a number of conditions
are satisfied by us and/or SG. It is a condition to both SG's and our obligation
to consummate the SG Merger that shareholders (including the Principal
Shareholders and SG) holding a majority of shares of our outstanding common
stock vote to approve the SG Merger Agreement and the SG Merger. It is a
condition to our obligation to consummate the SG Merger that holders of a
majority of our shares of outstanding common stock not held by the Principal
Shareholders and SG and their affiliates vote to approve the SG Merger Agreement
and the SG Merger. Further, it is a condition to SG's obligation to consummate
the SG Merger that we shall not have experienced an event or events that have
had or are reasonably likely to have a material adverse effect on our business
or operations between the date of the SG Merger Agreement and the effective time
of the SG Merger. The SG Merger Agreement also contains various other conditions
which are customary in transactions of this type. Many of these conditions
(including the condition that holders of a majority of our outstanding common
stock not held by the Principal Shareholders and SG and their affiliates vote to
approve the SG Merger Agreement and the SG Merger) may be waived by the party
benefiting from the condition. The requirement under Florida law that holders of
a majority of all outstanding shares of our common stock must vote to approve
the SG Merger and the SG Merger Agreement cannot be waived.
13
TERMINATION OF THE SG MERGER AGREEMENT (SEE PAGES 63-65)
The SG Merger Agreement may be terminated and the SG Merger abandoned
at any time before it is completed under certain circumstances, including the
parties' mutual consent. Either party may terminate the SG Merger Agreement,
among other reasons, if the SG Merger Agreement and the SG Merger are not
approved by the holders (including SG and the Principal Shareholders) of a
majority of our common stock or if the SG Merger has not been consummated by
July 31, 2002. Prior to the approval of the SG Merger Agreement by holders of a
majority of our outstanding common stock not held by SG and the Principal
Shareholders and their affiliates, we can terminate the SG Merger Agreement if,
among other reasons, our board of directors, acting upon the recommendation of
the special committee, approves an acquisition proposal that is superior to SG's
proposal or otherwise withdraws, modifies or amends its approval or
recommendation of the SG Merger Agreement and related transactions. Subject to
the provisions of the SG Amendment described below, SG can terminate the SG
Merger Agreement if, among other reasons, our board of directors withdraws,
modifies or amends in any respect adverse to SG its recommendation of the SG
Merger and related transactions, or if our board approves, recommends or enters
into an agreement with respect to or consummates a superior acquisition proposal
(or resolves to do so). SG may also terminate the SG Merger Agreement if a third
party commences a tender or exchange offer for 15% or more of our common stock
and our board of directors does not recommend that you reject such offer. We
have agreed to pay SG a termination fee of $1,679,100 (minus $______ that has
already been paid as described in the next paragraph) in the event that the SG
Merger Agreement is terminated as a result of the our board's withdrawal or
adverse modification of its recommendation of the SG Merger, the failure of our
board to recommend rejection of a third-party tender or exchange offer for 15%
or more of our common stock, or the approval of a superior third-party
acquisition proposal.
Notwithstanding the foregoing paragraph, the SG Amendment provides,
among other items, that the company's entering into the Syngistix Merger
Agreement does not constitute a breach of the SG Merger Agreement and does not
give SG the right to terminate the SG Merger Agreement or to collect the
termination fee provided for in the SG Merger Agreement. In connection with the
SG Amendment, we agreed to pay to SG its reasonably documented fees and expenses
incurred to date in connection with the SG Merger Agreement. We have paid SG
$________ pursuant to this agreement. This amount will be deducted from any
termination fee payable to SG upon consummation of the Syngistix Merger.
The SG Amendment further provides that the SG Merger Agreement will
terminate immediately prior to the consummation of the Syngistix Merger and any
portion of the termination fee not previously paid to SG as described above
shall immediately become due and payable. If, however, the Syngistix Merger
Agreement is terminated for any reason, the SG Merger Agreement will remain in
effect and SG will not be entitled to the remaining portion of the termination
fee if the merger with SG is consummated.
MERGER FINANCING (SEE PAGES 53-54)
The total amount of cash required to consummate the transactions
contemplated by the SG Merger Agreement, including payment of related fees and
expenses, is estimated to be approximately $23 million, which will be paid by
our company after the SG Merger from cash that we currently have on hand.
OPINION OF FINANCIAL ADVISOR (SEE PAGES 66-76)
The special committee retained Adams, Harkness & Hill as its
independent financial advisor to render an opinion as to the fairness, from a
financial point of view, of the cash merger consideration that each holder of
our shares other than SG and the Principal Shareholders will receive in the SG
Merger. On October 24, 2001, Adams, Harkness & Hill delivered its written
opinion to the special committee that, as of the date of the opinion, and based
on and subject to the assumptions, limitations and qualifications contained in
that opinion, the $2.70 per share cash merger consideration that each of our
shareholders other than SG and the Principal Shareholders will have the right to
receive in the SG Merger is fair, from a financial point of view, to that
shareholder.
14
A copy of Adams, Harkness & Hill's October 24, 2001 written opinion is
attached to this proxy statement as Annex C. We urge you to read Adams, Harkness
& Hill's opinion in its entirety.
MARKET PRICE AND DIVIDEND INFORMATION (SEE PAGE 88)
On October 25, 2001, the trading day immediately preceding the
announcement of the execution and delivery of the SG Merger Agreement, the
closing price per share of our common stock on the Nasdaq National Market was
$1.50. On January 25, 2002, the trading immediately preceding the announcement
of the execution and delivery of the Syngistix Merger Agreement and the SG
Amendment, the closing price per share of our common stock on the Nasdaq
National Market was $2.66. On [ ] [ ], 2002, the latest practicable trading day
before the printing of this document, the closing price per share of our common
stock on the Nasdaq National Market was $_______.
We have not declared or paid cash dividends on our common stock since
our initial public offering.
15
SPECIAL FACTORS
BACKGROUND
We were incorporated in Florida in 1988. In February 1999, we completed
an initial public offering of 4,410,000 shares of our common stock at $12 per
share. After our initial public offering, the Principal Shareholders each owned
approximately 19% of our issued and outstanding common stock.
Since our initial public offering, our common stock has been relatively
thinly traded, providing little liquidity for our shareholders. In the opinion
of our board of directors and management, our public market valuation has been
constrained due to our small market capitalization, limited public float,
relatively low trading volume and the lack of research coverage from securities
analysts. Because we have been unable to realize the principal benefits of
public ownership, we have from time to time considered strategic alternatives to
maximize shareholder value.
On June 22, 2000, our board of directors approved a share repurchase
program. The board hoped that a repurchase program would be viewed by the
investment community as an expression of the board's confidence in our company
and would thus increase the interest of the investment community in our company
and its stock. The board was also motivated by the improvement in our financial
ratios that would result from share repurchases. Pursuant to the repurchase
program, from August 1, 2000 through August 24, 2001, we purchased an aggregate
of 65,000 shares of our common stock in the open market at prices ranging from
$3.9375 to $4.6250.
In March 2001, our management requested that Sharon Gardner, our former
vice president-marketing and Mr. Gardner's daughter, assist us in pursuing
strategic alternatives for the company, including the possible sale or merger of
our company. From March through June 2001, Ms. Gardner contacted approximately
50 potential buyers for our company. As a result of Ms. Gardner's efforts, three
potential buyers attended meetings with management of the company. After these
meetings, one party submitted an indication of interest to purchase our company.
The potential acquirer made a preliminary proposal, subject to further due
diligence, to purchase all of the shares of our company's stock in exchange for
the acquirer's stock, valuing each share of our common stock at $4.50. After
subsequent due diligence and further conversations with our management, the
potential acquirer withdrew its offer to purchase the company before the offer
was considered by our board. During the next few weeks, the parties discussed
several alternate transactions, which involved the purchase by us of certain
assets from such party and the purchase from the Principal Shareholders of
shares of our common stock by such party. On May 15, 2001, we received a written
proposal outlining a proposed transaction in which the company would purchase
certain assets for $57 million, payable in the form of $30 million in cash and a
promissory note for $27 million. In addition, such other party would purchase
from the Principal Shareholders approximately 3.75 million shares of our common
stock for $10 million in cash and equity of the other party. After review and
discussion by our board of directors, our board of directors decided not to
proceed with the proposed transaction because our board of directors believed
that the transaction was not in the best interests of our shareholders. Our
board reached this conclusion largely because the terms of the proposed
transaction which would have required the company to purchase substantial assets
from the third party and because the proposed transaction would have created
significant operational challenges to management relating to the integration of
new assets into the company. No additional discussions took place between the
parties.
At a special meeting of our board of directors on June 7, 2001, the
Principal Shareholders advised the board that given the inability to agree on a
transaction with the party discussed above and the apparent lack of interest in
acquiring us on the part of other parties that had been contacted to date, the
Principal Shareholders might be interested in offering to take the company
private if the board would be receptive to such a proposal. After some
discussion, the board concluded that it would be open to such a proposal, as
well as other transactions involving the sale of our company. The board of
directors' determination to evaluate the sale of our company was based on:
16
- our small public float and limited institutional following;
- our low trading volume;
- limited research coverage of the company from securities
analysts;
- the board of director's belief that there was little
likelihood that the liquidity of our common stock would
improve in the future; and
- the poor performance of our stock price since the second
quarter of 2000.
On June 12, 2001, the company engaged the investment banking firm
Raymond James & Associates, Inc. to perform a valuation of our company. For
purposes of this valuation, representatives from Raymond James met with members
of our management and performed a limited due diligence investigation of our
company.
On July 25, 2001, representatives of Raymond James presented their
preliminary views of the value of the company to our board of directors using
several valuation methodologies, including comparisons with comparable public
companies, liquidation value, comparisons to valuations obtained in precedent
transactions and discounted cash flow analysis. The preliminary valuations
presented ranged from $2.63 to $28.38 per share. The board of directors did not
give this valuation much weight at the time it was delivered because it was
clear that Raymond James had not done extensive due diligence of the company for
purposes of its report, because Raymond James's report was clearly preliminary
and incomplete and because Raymond James's report contained such a broad range
of values and Raymond James did not offer much guidance regarding where in this
broad range of value Raymond James believed our company's value actually fell.
At the time the special committee considered the transactions with SG in October
2001 and Syngistix in January 2002, the special committee did not rely on the
Raymond James presentation for the same reasons and because by that time, the
report was based on projections and assumptions that were outdated and not
reasonable in light of current conditions affecting the company and the economy
as a whole. Although the projections included in the Raymond James report were
provided by members of company management, due to the passage of time since the
preparation of those projections, the special committee believes that the
assumptions regarding growth and revenues used in the Raymond James report are
no longer reasonable in light of the company's increased difficulty selling its
higher priced products and systems as a result of recent economic conditions,
the recent drastic decline of the technology sector, the outmoded software used
by the company in comparison to new products offered in the market in which the
company competes, the overall decline in the economy and the extreme impact the
events of September 11, 2001 have had on the economy. In addition, the special
committee does not believe that the discounted cash flow analysis used by
Raymond James was a reliable measure of the company's valuation because the
company is expected to have negative cash flows through 2004 making a discounted
cash flow analysis heavily reliant on projections for periods after 2004, which
are inherently uncertain, and on the discount rate applied, which is subjective.
Raymond James' presentation materials are included as an exhibit to the Schedule
13E-3 filed concurrently with this proxy statement.
At a meeting of our board of directors held on July 25, 2001, our board
resolved to form a special committee consisting of our independent directors,
Robert C. "Bud" Kneip, James J. Felcyn, Jr. and Francis H. Zenie, to review and
evaluate options for a sale of our company, including a going private
transaction led by the Principal Shareholders, and to make recommendations to
the full board. The board authorized the special committee to engage such third
party advisors as it deemed appropriate and resolved that each member of the
special committee would receive $20,000, plus expenses for serving on the
special committee. This compensation arrangement was established to compensate
the members of the special committee for the additional time that would be
required to serve on the special committee. The board authorized the formation
of a special committee consisting of our independent directors and excluding the
Principal Shareholders because the board concluded that if the Principal
Shareholders made an offer to take the company private, their interests would be
different from the company's other shareholders. Each of the members of the
special committee is a non-employee director and has no affiliation with the
Principal Shareholders, SG, Syngistix or Citrus.
17
On August 1, 2001, the special committee retained Testa, Hurwitz &
Thibeault, LLP and Edwards & Angell, LLP as its legal counsel. Neither law firm
has previously represented our company.
On August 9, 2001, SG was organized by the Principal Shareholders for
the purpose of pursuing a merger between SG and us.
On August 10, 2001, SG submitted a letter to the special committee
asking whether the special committee would be receptive to receiving a formal
acquisition proposal from SG. The letter from SG outlined the following terms of
a potential transaction. The transaction would be structured as a merger under
the laws of the State of Florida. SG, a newly-formed corporation owned by the
Principal Shareholders, would be merged with and into us. Upon the consummation
of a merger, each outstanding share of common stock of the company not held by
the Principal Shareholders or by SG would be converted into the right to receive
$2.75 in cash, without interest. The $2.75 price was determined based on current
market conditions and the Principal Shareholders' knowledge of the company and
the industry in which the company competes. Each outstanding option to receive
capital stock of our company not held by SG or the Principal Shareholders would
be converted into the right to receive an amount in cash equal to the difference
between the option price and $2.75. All shares of common stock and all options
held by SG or the Principal Shareholders would be cancelled for no
consideration. Immediately following the merger, all of the outstanding capital
stock of the surviving company would be owned by the Principal Shareholders. The
letter indicated that SG would expect that the merger agreement relating to the
potential transaction would permit the company to solicit other offers to buy
the company, would contain a "fiduciary out" allowing the special committee to
terminate the merger agreement with SG if it received a superior third party
offer that the special committee wished to accept and would not provide for the
payment of a "topping" or "break-up" fee upon the termination of the merger
agreement as a result of the special committee accepting a superior third party
offer. However, the letter indicated that SG would require that the merger
agreement give SG a right of first refusal to match any competing offer to
acquire us made by a third party before we would be allowed to terminate the
merger agreement with SG and that, if we accepted a competing offer and
terminated the merger agreement with SG, we reimburse SG for its fees and
expenses. The letter also indicated that the closing of the merger would be
subject to customary closing conditions, including the approval of a majority of
our shareholders and the receipt of a "fairness opinion" from our financial
advisors, as well as the condition that our net book value not be less than $40
million at the closing.
On August 14, 2001, the special committee met by telephone with its
counsel to discuss the letter received from SG. The special committee discussed
the need to retain an independent financial advisor and agreed to retain Adams,
Harkness & Hill.
On August 14, 2001 the special committee responded to SG indicating
that it had insufficient information to make a decision whether or not to invite
SG to make a formal offer and informed SG that it had retained Adams, Harkness &
Hill to act as its independent financial advisor.
The factors used for selection of Adams, Harkness & Hill as the special
committee's independent financial advisor included (i) the advisor's expertise
and experience in our industry; (ii) the reputation of the advisor in the
financial community; (iii) the ability of the advisor to meet the special
committee's requirements and timeliness; (iv) the lack of any previous business
relationship with SG or the Principal Shareholders; and (v) the structure and
amount of consideration to be paid to the advisor.
On August 21 and August 22, 2001, Adams, Harkness & Hill conducted a
due diligence investigation of the company, which included discussions with our
management and analysis of our financial situation and projections.
On August 23, 2001, the special committee met with its legal and
financial advisors at our office in Delray Beach, Florida. Adams, Harkness &
Hill reported on its due diligence investigation of the company and reviewed
with the special committee its preliminary conclusions regarding the value of
the company. Adams, Harkness & Hill did not provide any written materials to the
members of the special committee during this presentation. The presentation
included (i) an introduction to Adams, Harkness & Hill and the individuals that
would be working with the special
18
committee, (ii) a description of a fairness opinion, (iii) a review of the
current and projected performance of the company, (iv) a preliminary valuation
of the company based on comparable companies and (v) a brief overview of a
potential structure for a transaction between the company and SG. The
projections for fiscal year 2001 included in the presentation were subsequently
revised by the company. The initial projections and the revised projections are
included in "Our Management's Forecast - The SG Merger" on pages 77-80.
In addition, at the August 23, 2001 meeting, Adams, Harkness & Hill
advised the special committee that given its limited due diligence to date, its
analysis was necessarily preliminary but that it was of the opinion that a
number of unique factors made it difficult for Adams, Harkness & Hill to assess
the value of the company without soliciting potential purchasers of the company.
The most important of these factors was the fact that the core of the company's
primary product was written in COBOL, an outmoded computer programming language
that is difficult to maintain. The special committee authorized Adams, Harkness
& Hill to contact potential purchasers of the Company while continuing its
financial analysis of the company. The special committee did not impose any
restrictions on the parties that could be contacted by Adams, Harkness & Hill.
Adams, Harkness & Hill discussed with the special committee third parties that
might have an interest in acquiring us and the resources to complete a
transaction.
Between August 24, 2001 and September 5, 2001, Adams, Harkness & Hill
attempted to contact a number of potential strategic acquirers. When contacted,
these parties were informed that Adams, Harkness & Hill was acting on behalf of
the special committee of a publicly-traded company that was contacting a limited
list of potential buyers, and that if they were interested in pursuing a
transaction, a non-disclosure agreement would be sent naming and describing the
company.
On September 5, 2001, the special committee had a telephonic meeting
with its legal and financial advisors. Representatives of Adams, Harkness & Hill
reported that because of the Labor Day holiday they had not been able to contact
many of the potential purchasers, but that those they had contacted had not
expressed strong interest, in large part due to the COBOL issues noted above.
Representatives of Adams, Harkness & Hill informed the special committee that
they would continue to solicit potential purchasers, but that they were not
confident that a third party willing to consummate a transaction with the
company in a timely manner would emerge. After discussing the company's
alternatives if no third party willing to make an offer emerged such as
liquidating the company, the special committee asked Adams, Harkness & Hill to
provide, in addition to the other methodologies Adams, Harkness & Hill was using
to analyze the value of the company, an analysis of the liquidation value of the
company.
On September 13, 2001, counsel to SG submitted a draft merger agreement
based on the terms of its August 10, 2001 request for an indication of interest
to the special committee for the special committee's consideration in the event
that it responded favorably to SG's request for an indication of interest in
receiving an acquisition proposal from SG.
On September 24, 2001, counsel to SG contacted counsel to the special
committee and informed them that in light of the events of September 11, 2001
and subsequent economic developments including a perceived reluctance of the
company's customers to invest in new software and products, general economic
uncertainty and the decline in the stock market, SG was reducing its indication
of interest from $2.75 to $2.20 per share.
On September 28, 2001, the special committee had a telephonic meeting
with its financial and legal advisors. Representatives of Adams, Harkness & Hill
presented an updated analysis of the value of the company and reported on the
companies that Adams, Harkness & Hill had contacted and the results of its
discussions with each company. Representatives of Adams, Harkness & Hill
reported that there was little interest in a transaction with the company and
those companies that expressed limited interest were not likely to be able to
complete a transaction in a timely manner due to, among other things, the
current state of the financial markets. Next, representatives from Adams,
Harkness & Hill presented their liquidation analysis of the company. This
analysis assumed that the company's support and services business could be
separated from the rest of the business and that a buyer for the support and
services business could be found. With this assumption, the analysis concluded
that the liquidation value of the company was approximately $2.30 to $2.90 per
share. The financial advisor outlined several risks to a liquidation strategy
including (i) the risk that upon
19
an announced liquidation of the company the company's customer base would
aggressively look to replace the company's technology and, therefore, terminate
support contracts, (ii) potential purchasers of our assets and business segments
may lack resources to complete a transaction and (iii) management retention upon
the adoption of a liquidation strategy might be uncertain. The special committee
then asked the financial advisor to comment on SG's indication of interest of
$2.20 per share. Representatives of Adams, Harkness & Hill indicated that based
on their work to date, they did not believe that they would be able to reach the
conclusion that $2.20 per share was fair to the company's public shareholders
from a financial point of view.
Soon after the meeting of the special committee on September 28, 2001,
Mr. Felcyn contacted Wilburn W. Smith, one of the Principal Shareholders, on
behalf of the special committee and informed him that $2.20 per share was not
acceptable to the special committee. Mr. Felcyn and Mr. Smith had discussions
regarding the expected impact that the events of September 11 and the general
slowdown of the economy would have on the long-term prospects of the company.
Mr. Felcyn and Mr. Smith debated whether a lower price per share for the company
would be more appropriate due to these and other events affecting the company.
Mr. Felcyn indicated that, whatever the impact of these events on the company,
the special committee could not accept an offer that the special committee and
its advisors did not believe to be in the best interests of the company's
shareholders. After these discussions, Mr. Smith proposed increasing SG's
indication of interest to $2.40 per share. Mr. Felcyn responded that, based on
the analysis prepared by Adams, Harkness & Hill, $2.40 per share was also not
acceptable.
On October 1, 2001, Mr. Smith called Mr. Felcyn and offered to increase
SG's indication of interest to $2.70 per share if the company accepted all of
the other terms of the proposed merger agreement delivered by counsel to SG.
After the call, the special committee met by telephone with its legal
and financial advisors. Mr. Felcyn reported on his discussions with Mr. Smith.
At the special committee's request, counsel to the special committee then
summarized the terms of the proposed merger agreement provided by counsel to SG,
including SG's request for a right of first refusal to match any competing
offer, SG's request for reimbursement of its expenses if the merger agreement
with SG were terminated as a result of the special committee's acceptance of a
higher offer from a third party, the scope of the company's ability to solicit
competing offers after entering into a merger agreement with SG, and the
conditions to closing that a majority of the company's shareholders vote in
favor of the merger and that the company's net book value be at least $40
million at the time of the closing. After discussion, the special committee
concluded that the right of first refusal requested by SG would be likely to
discourage potential third party purchasers from making an offer to acquire the
company and was therefore not acceptable. The special committee was also not
inclined to agree to the net book value test. In addition, the special committee
agreed that it would be advisable to seek a new condition to the company's
obligation to close that a majority of the company's shareholders not affiliated
with SG or the Principal Shareholders vote in favor of the merger with SG.
On October 2, 2001; Mr. Felcyn contacted Mr. Smith to invite him to
submit the $2.70 per share proposal to the special committee but could not
anticipate whether it would be acceptable to the special committee, and to
inform him that certain terms and conditions proposed by SG were not acceptable
and that the special committee wished to add a new condition to the company's
obligation to close that a majority of the company's shareholders not affiliated
with SG or the Principal Shareholders vote in favor of the merger. Mr. Smith
rejected Mr. Felcyn's requests.
From October 2, 2001 to October 11, 2001, the parties had several
conversations but were not able to reach agreement on the terms of the proposed
merger.
On October 11, 2001, SG sent a letter to the special committee
withdrawing its request for an indication of interest.
On October 15, 2001, at the special committee's request,
representatives from Adams, Harkness & Hill contacted representatives of SG to
discuss the differences between the two parties' positions and to determine if
an agreement could be reached. Following such conversations, SG indicated that
it would be willing to reconsider whether it would offer $2.70 per share to
acquire the company and indicated that it might withdraw its request for a right
of first
20
refusal if the company would provide comprehensive information regarding any
third party offer to purchase the company. Ultimately, the special committee
concluded that if it intended to accept a superior third party offer to purchase
the company, the special committee would disclose that fact, including solely
the identity of the third party making such offer, to SG at least one day before
accepting the offer. In exchange for dropping its request for a right of first
refusal, SG requested that the company pay a break-up fee of $1,679,100 if the
merger agreement were terminated under certain circumstances.
On October 16, 2001, counsel to the special committee consulted with
the members of the special committee by telephone and reported on the status of
the negotiations. The members of the special committee concluded that the
proposals made by SG outlined above were acceptable and instructed its counsel
to engage in negotiations on the other terms and conditions of the merger
agreement.
From October 16 through October 24, 2001, SG and its advisors and the
members of the special committee and their advisors negotiated the terms of the
definitive merger agreement and related documents. During these negotiations, SG
accepted the addition of the condition to the company's obligation to close that
the merger be approved by the holders of a majority of the company's shares of
common stock not owned by SG and the Principal Shareholders and their affiliates
if the company agreed to pay a break-up fee of $1,679,100 if a third party offer
was accepted. The special committee agreed to such a fee based on the totality
of the circumstances, including, but not limited to SG's willingness to drop its
request for a right of first refusal, SG's willingness to drop its request that
the company pay its expenses in the event the company accepted a third party
offer, the company's ability to actively solicit a superior third party offer
and the relatively high costs associated with a transaction such as this one. SG
also agreed to withdraw its request for a condition to its obligation to close
the merger that the company's net book value be not less than a specified amount
at the time of the closing. The company may waive the condition that the holders
of a majority of the company's shares not owned by SG and the Principal
Shareholders and their affiliates approve the merger if the members of the
special committee believe, based on the circumstances surrounding the
shareholder vote at the time of the special meeting, that it is in the best
interests of the shareholders of the company to have the merger with SG
consummated. There are no preconceived circumstances in which the special
committee has decided it would waive this condition. One potential scenario in
which this condition might be waived is one in which an overwhelming majority of
the unaffiliated shareholders who vote at the shareholders meeting vote in favor
of the merger, however, due to a substantial number of shareholders not voting,
the condition has not been met. A majority vote of the members of the board of
directors, including a majority vote of the members of the special committee
would be required to waive this condition.
On October 24, 2001, the special committee met by telephone with its
financial and legal advisors to review the status of the negotiation of the
merger agreement with SG. Counsel to the special committee reported that all of
material issues regarding the merger agreement had been resolved. Next,
representatives from Adams, Harkness & Hill gave a presentation regarding the
financial aspects of the proposed merger agreement and delivered its opinion to
the special committee that the consideration to be received by the shareholders
of the company other than SG and the Principal Shareholders was fair from a
financial point of view. The special committee approved the SG Merger and the SG
Merger Agreement, subject to the completion of the disclosure statement and
other final details and recommended that the full board of directors of the
company approve the SG Merger and the SG Merger Agreement.
Following the special committee meeting on October 24, 2001, the board
of directors of the company met by telephone. The legal and financial advisors
to the special committee and the legal advisor to SG were also present. Counsel
to the special committee reported the conclusions of the special committee,
including the special committee's recommendation that the board of directors
approve the merger and the merger agreement. Representatives of Adams, Harkness
& Hill summarized their opinion to the special committee with respect to the
fairness, from a financial point of view, of the consideration to be received by
the company's shareholders other than SG and the Principal Shareholders. Counsel
to the special committee summarized the terms and conditions of the SG Merger
Agreement. Discussion followed each presentation and the financial and legal
advisors to the special committee answered questions raised by the board of
directors. Following these discussions, the board of directors, with Messrs.
Smith and Gardner abstaining, approved the SG Merger and the SG Merger Agreement
subject to the completion of the disclosure
21
statement and other final details in substantially the form submitted to the
board of directors and authorized the appropriate officers of the company to
execute and deliver final documents on behalf of the company. Subsequently, the
full board, with Messrs. Smith and Gardner voting so that the full board would
cast a unanimous vote, voted again to approve the SG Merger and the SG Merger
Agreement subject to the completion of the disclosure statement and other final
details.
On October 24 and 25, 2001, the company completed the disclosure
statement to the SG Merger Agreement. On October 25, 2001, the parties executed
the SG Merger Agreement, and the company issued a press release announcing the
signing of the SG Merger Agreement.
On November 8, 2001, the special committee received an indication of
interest from Syngistix, a privately-held company based in Englewood, Colorado.
Syngistix indicated that, subject to due diligence and other conditions
(including the waiver by SG of certain rights under the SG Merger Agreement,
including the right to receive a break-up fee of $1,679,100 if the Company
terminates the SG Merger Agreement), it might be prepared to make a definitive
offer to purchase the company for $3.00 per share in cash.
In response to this indication of interest, counsel to the special
committee contacted counsel to Syngistix and asked that Syngistix provide
information to the special committee regarding Syngistix, including Syngistix's
ability to finance the merger and the operations of the combined company
following the merger. Counsel to the special committee also indicated that the
condition to Syngistix's offer that SG waive certain rights it had under the SG
Merger Agreement rendered Syngistix's offer unacceptable as we had no control
over SG and no means to induce SG to waive its contractual rights.
On November 10, 2001, the special committee received from Syngistix
information regarding Syngistix's business, management and principal
stockholders, an analysis of the sources and uses of funds needed to acquire us
and run the combined company after the acquisition, and letters from Syngistix's
stockholders expressing their confidence in its ability to raise the financing
necessary to acquire us and run the combined company after the acquisition.
On November 12, 2001, the special committee had a telephonic meeting
with its legal and financial advisors to discuss the information provided by
Syngistix. The special committee discussed the ability of Syngistix to complete
a transaction with the company from a financial perspective. The special
committee discussed the terms of the letter from Syngistix, including the
condition requiring SG to waive certain rights under the SG Merger Agreement.
After the meeting, counsel to the special committee advised Syngistix's
counsel that Syngistix's indication of interest could not be given serious
consideration unless the condition regarding the waiver of SG's rights was
eliminated.
On November 13, 2001, the financial advisor to the special committee
received another indication of interest from a California investment firm. This
party never commenced due diligence and the indication of interest was withdrawn
on December 20, 2001.
On November 21, 2001, the special committee received a revised
indication of interest from Syngistix that was substantially similar to the
proposal submitted on November 8, except that the revised proposal provided that
the price per share would be reduced from $3.00 to $2.90 if SG did not agree to
waive the break-up fee provided for in the SG Merger Agreement.
On November 26, 2001, the special committee held a telephonic meeting
to review the revised indication of interest. At that meeting, the special
committee agreed to allow Syngistix to begin due diligence of Ecometry. In
connection with the initial due diligence review, the company and Syngistix
executed a mutual non-disclosure agreement.
22
From November 26, 2001 through November 29, 2001, representatives of
Syngistix conducted an initial due diligence review of the company, including
holding meetings with senior management of the company and members of the
special committee, and examining corporate records, forms of customer contracts
and licensing agreements. Concurrently, the special committee conducted due
diligence of Syngistix.
On December 7, 2001, Syngistix delivered a memorandum to the special
committee updating the special committee on the status of its due diligence and
expressing continued interest in acquiring the company. In the memorandum,
Syngistix outlined its remaining due diligence items and requested meetings with
additional members of company management.
On December 9, 2001, the special committee held a telephonic meeting
with its legal and financial advisors to discuss Syngistix's request. The
special committee expressed concern regarding the ability of Syngistix to
complete a transaction with the company from a financial perspective. The
special committee agreed to provide Syngistix additional due diligence items and
access to additional members of company management only after Syngistix produced
an executed term sheet with reputable financing sources providing for adequate
finances to complete a transaction with the company and operate the combined
company after the acquisition. Counsel to the special committee informed counsel
to Syngistix of this determination.
On December 10, 2001, Syngistix delivered an executed financing term
sheet to the special committee. The term sheet included proposed terms for a
$15,000,000 financing, consisting of $7,500,000 of equity and $7,500,000 of
subordinated debt to be invested by Core Technology Fund IV, LLC and Roser
Ventures, LLC, existing investors of Syngistix. After the financing term sheet
was provided to the special committee, Syngistix continued its due diligence
investigation of the company which included meetings with additional members of
company management.
On December 14, 2001, the special committee received a draft merger
agreement from Syngistix, the form of which was based on the SG Merger
Agreement. The draft merger agreement included numerous changes from the terms
of the SG Merger Agreement including additional company representations and
warranties and a right on Syngistix's part to terminate the agreement upon the
occurrence of certain events which were not included in the SG Merger Agreement.
In addition, the draft merger agreement did not provide adequate representations
or other assurances that Syngistix would have sufficient resources to complete
an acquisition of the company and operate the combined company after the
acquisition.
On December 16, 2001, the special committee had a telephonic meeting
with its legal and financial advisors to discuss the draft merger agreement
submitted by Syngistix. The special committee agreed that the terms of the draft
merger agreement represented a significant risk to the company that a
transaction with Syngistix would not close. The special committee concluded that
the price differential between the Syngistix proposal and the SG proposal was
not significant enough to justify the additional risks associated with a
transaction with Syngistix based on the terms of the merger agreement submitted
by Syngistix. The special committee concluded that, at the price offered by
Syngistix, it was not in the best interest of the company's shareholders to
terminate the SG Merger Agreement and enter into a merger agreement with
Syngistix if the merger agreement represented significant risk that the merger
with Syngistix would not close. After the meeting of the special committee, Mr.
Felcyn called Gary Jacobs, a director of Syngistix, and Mr. Kneip and Mr. Zenie
called Scotte Hudsmith, the President and Chief Executive Officer of Syngistix,
to discuss the special committee's concerns with the proposed merger agreement
and its unwillingness to terminate the SG Merger Agreement if there were
significant risks that a merger with Syngistix would not close.
On December 19, 2001, the special committee received a revised merger
agreement from Syngistix. From December 19, 2001 through December 28, 2001, the
members of the special committee reviewed and commented on the revised merger
agreement and consulted with their legal and financial advisors.
23
On December 28, 2001 the special committee had a telephonic meeting
with its legal and financial advisors to discuss the revised merger agreement.
The special committee remained concerned that the revised merger agreement still
presented substantially more risk to the company then the SG Merger Agreement.
In addition, the special committee expressed continued concern regarding the
ability of Syngistix to obtain financing needed to complete an acquisition of
our company and operate the combined company after the acquisition.
Notwithstanding these concerns, the special committee instructed its counsel to
submit comments to the draft Syngistix merger agreement to counsel to Syngistix.
Between December 28, 2001 and January 11, 2001, representatives from
Syngistix and representatives from the special committee had several
conversations regarding the ability of Syngistix to raise the financing
necessary to acquire us and operate the combined company after the acquisition.
On January 11, 2001, the special committee received a revised merger agreement
from Syngistix.
On January 11, 2002, Mr. Hudsmith informed counsel to the special
committee that he had had discussions with Wilburn Smith about the possibility
of amending the SG Merger Agreement in a manner that would permit the company to
enter into a merger agreement with Syngistix and not terminate the SG Merger
Agreement so that if the acquisition of our company by Syngistix did not close
for any reason, the company could proceed under its merger agreement with SG.
Mr. Hudsmith reported that Mr. Smith had been receptive to the proposal and had
agreed to consider it further once a draft of the proposed amendment to the SG
Merger Agreement was prepared.
On January 12, 2002, counsel to the special committee received a draft
amendment to the SG Merger Agreement prepared by counsel to Syngistix. The draft
amendment provided, among other things, that the company's entering into a
merger agreement with Syngistix would not constitute a breach of the SG Merger
Agreement and would not give SG the right to terminate the SG Merger Agreement
or to collect the termination fee provided for in the SG Merger Agreement. The
proposed amendment also provided that if the proposed merger agreement with
Syngistix was terminated for any reason, SG's obligations under the SG Merger
Agreement would continue and it extended the termination date of the SG Merger
Agreement.
On January 13, 2002, the special committee received draft financing
documents from Syngistix. The draft documents contemplated a $10 million
financing composed of $5 million of equity and $5 million of debt. The draft
documents did not include a price per share of the equity security or an
agreement on the valuation of Syngistix. Such terms were proposed to be
determined after the execution of a merger agreement with the company.
On January 14, 2002, the proposed amendment to the SG Merger Agreement
was delivered to SG.
On the evening of January 14, 2002, the special committee met by
telephone with its legal and financial advisors to discuss the revised merger
agreement, the proposed amendment to the SG Merger Agreement and the draft
financing documents. The special committee concluded that if SG would agree to
the proposed amendment to the SG Merger Agreement, entering into a merger
agreement with Syngistix presented significantly less risk to the company's
shareholders notwithstanding the possibility that a merger with Syngistix might
not close. The special committee authorized Mr. Felcyn and the Company's legal
and financial advisors to meet with representatives of Syngistix and its counsel
in Colorado to continue to negotiate the proposed merger agreement with
Syngistix and the amendment to the SG Merger Agreement.
On January 16, 2002, Mr. Felcyn, and the company's legal and financial
advisors met with representatives of Syngistix and its counsel for this purpose.
From January 17, 2001 through January 22, 2001, representatives of
Syngistix, SG and the special committee had several conversations regarding the
proposed terms of the amendment to the SG Merger Agreement.
24
During these conversations the parties agreed on the following
additional provisions to the amendment to the SG Merger Agreement:
- the Principal Shareholders agreed that at any meeting of
stockholders of the company held before May 31, 2002, they
would vote in favor of the Syngistix Merger and the Syngistix
Merger Agreement.
- Upon signing the merger agreement with Syngistix, the company
would reimburse SG for its reasonable, documented fees and
expenses incurred in connection with the SG Merger Agreement.
On January 23, 2001 and January 24, 2001, counsel to the Company and
Syngistix, met to finalize the terms of the merger agreement with Syngistix and
the amendment to the SG Merger Agreement. During these meetings, the parties
agreed on the final terms of the Syngistix Merger, including the condition that
at the time of the closing the company have not less than an aggregate of $32
million in cash, cash equivalents and marketable securities less the amount of
any transaction expenses and any termination fees payable under the SG Merger
Agreement.
On January 24, 2002, the special committee met by telephone with its
financial and legal advisors to review the status of the negotiation of the
merger agreement with Syngistix and the amendment to the SG Merger Agreement.
Counsel to the special committee reported that all of the material issues
regarding the merger agreement with Syngistix and the amendment to the SG Merger
Agreement had been resolved. Counsel to the special committee summarized the
terms and conditions of the merger agreement with Syngistix and the amendment to
the SG Merger Agreement. Discussion followed and the legal advisors to the
special committee answered questions raised by members of the special committee.
The special committee approved the Syngistix Merger, the Syngistix Merger
Agreement and the SG Amendment, subject to the completion of final details and
recommended that the full board of directors of the company approve the
Syngistix Merger, Syngistix Merger Agreement and the SG Amendment.
On January 24, 2002, the special committee received revised draft
financing documents from Syngistix. The revised documents contemplated a $10
million financing composed entirely of debt.
On January 25, 2002, the board of directors of the company met by
telephone with counsel to the special committee and SG also present. Mr. Kneip
was not present at this meeting. Counsel to the special committee reported the
conclusions of the special committee, including the special committee's
recommendation that the board of directors approve the Syngistix Merger, the
Syngistix Merger Agreement and the SG Amendment. Counsel to the special
committee summarized the terms and conditions of the Syngistix Merger Agreement.
Discussion followed and counsel to the special committee and SG answered
questions raised by the board of directors. Following these discussions, the
board of directors, with Messrs. Smith and Gardner abstaining, approved the
Syngistix Merger, the Syngistix Merger Agreement and the SG Amendment, subject
to the completion of final details in substantially the form submitted to the
board of directors, and authorized the appropriate officers of the company to
execute and deliver final documents on behalf of the company. Subsequently, the
full board, with Messrs. Smith and Gardner voting, voted again to approve the
Syngistix Merger, the Syngistix Merger Agreement and the SG Amendment subject to
the completion of final details. Finally, the full board (including Mr. Kneip)
approved the Syngistix Merger, the Syngistix Merger Agreement and the SG
Amendment by written consent dated January 25, 2002.
On January 25, 2002, the company completed the disclosure statement to
the Syngistix Merger Agreement. On the evening of January 25, 2002, the parties
executed the Syngistix Merger Agreement and the SG Amendment.
On January 28, 2002, the company and Syngistix issued a joint press
release announcing the signing of the Syngistix Merger Agreement and the SG
Amendment.
25
RECOMMENDATIONS OF THE SPECIAL COMMITTEE AND BOARD OF DIRECTORS
On October 24, 2001, the special committee unanimously determined that
the SG Merger and the SG Merger Agreement are fair to and in the best interests
of our shareholders other than the Principal Shareholders and SG and recommended
that our board of directors approve the SG Merger and the SG Merger Agreement
and that our shareholders approve the SG Merger and the SG Merger Agreement.
On October 24, 2001, (i) our board of directors, with the Principal
Shareholders abstaining, and (ii) our full board of directors, including the
Principal Shareholders, unanimously determined that the SG Merger and the SG
Merger Agreement are fair to and in the best interests of our shareholders other
than the Principal Shareholders and SG and recommended that our shareholders
approve the SG Merger Agreement and the SG Merger.
On January 24, 2002, the special committee unanimously determined that
the Syngistix Merger and the Syngistix Merger Agreement are fair to and in the
best interests of our shareholders and recommended that our board of directors
approve the Syngistix Merger and the Syngistix Merger Agreement and that our
shareholders approve the Syngistix Merger and the Syngistix Merger Agreement.
On January 25, 2002, (i) our board of directors, with the Principal
Shareholders abstaining, and (ii) our full board of directors, including the
Principal Shareholders, unanimously determined that the Syngistix Merger and the
Syngistix Merger agreement are fair to and in the best interests of our
shareholders and that our shareholders approve the Syngistix Merger Agreement
and the Syngistix Merger.
26
THE SYNGISTIX MERGER
ECOMETRY'S REASONS FOR THE SYNGISTIX MERGER
In reaching its determination to approve the Syngistix Merger and the
Syngistix Merger Agreement, the special committee relied on its knowledge of our
business, information provided by our officers, as well as the advice of its
financial and legal advisors. In reaching its decision, the special committee
considered a number of factors, including the following, each of which in the
view of the special committee supported such determination and the special
committee's and the board's adoption of the conclusion and analysis of Adams,
Harkness & Hill contained in its fairness opinion delivered in connection with
the SG Merger;
- that the merger consideration offered in the Syngistix Merger
of $2.90 per share of our common stock is approximately 7.4%
greater than merger consideration in the SG Merger;
- that we have entered into the SG Amendment, which provides
that our entering into the Syngistix Merger Agreement does not
constitute a breach of the SG Merger Agreement and does not
give SG the right to terminate the SG Merger Agreement or to
collect the termination fee provided for in the SG Merger
Agreement (except in the event that the Syngistix Merger is
completed) (other than SG's reasonable and documented
expenses), and allows us to complete the SG Merger if the
Syngistix Merger is not completed;
- the financial presentation of Adams, Harkness & Hill,
including its opinion, delivered on October 24, 2001 and
attached as Annex C, that the merger consideration of $2.70
per share of our common stock under the SG Merger Agreement to
be received by our shareholders pursuant to the SG Merger
Agreement is fair, from a financial point of view, to holders
of common stock;
- that Syngistix has received a commitment letter from Core
Technology Fund IV, LLC and The Roser Partnership III, SBIC LP
for a $10 million financing;
- the economic and market conditions affecting us and our
industry as a whole, including but not limited to, the drastic
decline of the technology sector during the last year, the
outmoded software used by the company in comparison to new
products offered in the technology sector, the overall decline
in the economy and the extreme impact the events of September
11, 2001 have had on the economy, all of which has lead to a
decrease in sales to our customers, including, but not limited
to, those customers dependent on e-commerce sales;
- for the quarter ended December 31, 2001, new customer sales
decreased by 28% and existing customer sales decreased by 62%.
For the twelve months ended December 31, 2001 new customer
sales decreased by 55% and existing customer sales decreased
by 69%;
- the lack of equity research coverage for our common stock
resulting from the discontinuance of research coverage in June
2000 by the two investment firms who served as underwriters of
our initial public offering: Deutsche Banc Alex. Brown and
WitSoundView and by a third firm, Red Chip Review, in May
2001, which makes it difficult to attract new investment
interest in us;
- that the last trading day before public announcement of the SG
Merger, the per share closing price of our common stock was
$1.50 per share, and that at that time our common stock
trading price had not closed at or above $2.90 since February
9, 2001 and taking into account the current market
27
conditions since the events of September 11, 2001, it did not
appear likely that our common stock would approach a higher
level of trading prices in the foreseeable future;
- based on the per share closing price of $1.50 on October 25,
2001, the last trading day before the public announcement of
the signing of the SG Merger Agreement, the consideration to
be paid to the holders of common stock in the Syngistix Merger
represents an approximate premium of 93% over the trading
price of the shares;
- the significant costs of remaining a public company, including
the legal, accounting and transfer agent fees and expenses and
printing costs necessary to satisfy the reporting obligations
of the Securities Exchange Act of 1934 (which were
approximately $350,000 in 2000), were becoming increasingly
burdensome given the deterioration of our financial
performance;
- that Sharon Gardner, the company's former vice-president
marketing and the daughter of one of the Principal
Shareholders, contacted approximately 50 companies between
March and June 2001 and Adams, Harkness & Hill contacted 17
software companies to solicit interest in a transaction with
the company, but that as of the time we entered into the
Original SG Merger Agreement, no third party had approached
the company with an acceptable alternative transaction
proposal;
- the fact that since the announcement of the SG Merger proposal
on October 25, 2001, besides Syngistix, only one other third
party had expressed an interest in acquiring the company and
that expression of interest had been withdrawn;
- becoming a private company would allow us to focus on
long-term strategic initiatives rather than the
quarter-to-quarter results that Wall Street demands;
- the sale of the entire company was preferable to the piecemeal
sale of the company followed by a liquidating dividend because
a single sale involved less transactional expenses and
operating performance risk;
- the immediate availability of liquidity for shareholders,
particularly in light of the relatively low volume of trading
in our common stock;
- that cash and not stock or other noncash consideration will be
paid to our shareholders in the Syngistix Merger, eliminating
any uncertainties in valuing the Syngistix Merger
consideration to be received by the company's shareholders;
- the terms of the Syngistix Merger Agreement were reasonable in
that they would not likely deter a third party from making
competing offer to acquire the company;
- that the Syngistix Merger Agreement permits us to provide
information and participate in negotiations with respect to
unsolicited acquisition proposals if the board of directors
determines, in consultation with its outside counsel and the
special committee, that such action is necessary to act in a
manner consistent with the fiduciary duties of the board of
directors;
The special committee and the board also considered a variety of risks
and potentially negative factors concerning the Syngistix Merger, including:
- that some of the holders of our common stock may realize a
loss on their investment in the shares of the company;
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- that, following the Syngistix Merger, our shareholders will
cease to participate in any of our future earnings growth or
benefit from any increase in the value of the company;
- the fact that, while the merger consideration represents a
premium to the recent trading prices of our stock, the stock
market has not performed well, which may have contributed to
the decline in the trading price of our common stock;
- the risk that the Syngistix Merger will not be completed,
including because of Syngistix's inability to complete the $10
million financing it has obtained a commitment for, the
exercise of termination rights under the Syngistix Merger
Agreement or either party's failure to satisfy certain closing
conditions; and
- that if the Syngistix Merger is not completed under
circumstances further discussed in "The Syngistix Merger
Agreement --Termination of the Syngistix Merger Agreement,"
the company may be required to pay Syngistix a break up fee
equal to $1,800,000 or $400,000, depending upon the reasons
why the Syngistix Merger was not completed.
The foregoing discussion addresses the material information and factors
considered by the special committee and the board of directors in their
evaluation of the Syngistix Merger and the Syngistix Merger Agreement, including
factors that support the Syngistix Merger as well as those that may weigh
against it. In view of the variety of factors considered in reaching its
determination, the special committee and the board of directors did not find it
practicable to, and did not quantify or otherwise assign relative weights to,
the specific factors considered in reaching its recommendations. In addition,
the individual members of the special committee and the board may have given
different weight to different factors. The special committee did not view the
fact that the $2.90 per share merger consideration in the Syngistix Merger is
less than the $3.02 book value per share of our common stock as of December 31,
2001 to be of significance due to its belief that the book value is not
indicative of what our shareholders would obtain in a liquidation because of the
risks involved and the costs and uncertainties associated with liquidating,
including severance payments, lease termination payments, litigation costs
associated with the termination of accounts, the inability to collect accounts
receivable and the time involved in a liquidation. In light of the current
economic environment, the general problems that companies in our industry group
are having in the marketplace, along with the continuing decline in the trading
price of our common stock, the special committee did not believe that historical
market prices of our common stock (which ranged from a high of $22.63 to a low
of $1.26 per share), prices paid for shares repurchased by the company (which
ranged from $3.9375 to $4.625) or liquidation value were indicative of the value
of our common stock. Accordingly, the special committee did not consider
relevant or material the historical market prices, prices paid by the company
for shares repurchased by the company, our book value or our liquidation value
in evaluating (i) the fairness of the Syngistix Merger to our shareholders or
(ii) the fairness of the Syngistix Merger to our shareholders. Additionally, the
special committee did not believe that a discounted cash flow analysis would be
a reliable measure of the company's valuation because the company is expected to
have negative cash flows through 2004, making a discounted cash flow analysis
heavily reliant on projections for periods after 2004, which are inherently
uncertain, and on the discount rate applied, which is subjective.
MERGER FINANCING - THE SYNGISTIX MERGER
The total amount of cash required to consummate the Syngistix
Merger is estimated to be approximately $39 million. This includes
approximately $36 million to be paid to our shareholders and option holders,
$1,679,100 to be paid to SG as a termination fee pursuant to the SG Merger
Agreement and approximately $1,000,000 for fees and expenses, including fees of
Adams, Harkness & Hill, legal and accounting fees, printing and mailing costs,
proxy solicitation fees and other expenses. Syngistix anticipates that it will
obtain the proceeds required to pay the aggregate merger consideration and any
fees and expenses associated with the Syngistix Merger from Ecometry's cash
balances at the effective time of the Syngistix Merger and from the issuance of
debt and/or equity securities.
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On January 25, 2002, Syngistix entered into a note financing commitment
letter with two of its stockholders, Core Technology Fund IV, LLC and The Roser
Partnership III, SBIC LP (the "Investors"). The Investors are both affiliates of
members of Syngistix's Board of Directors. Pursuant to such commitment letter,
the Investors have agreed, subject to certain terms and conditions set forth
therein, to provide to Syngistix a loan or loans in the aggregate principal
amount of $10 million (the "Debt Financing"). It is anticipated that Syngistix
will seek other lenders and/or investors to purchase at least $10 million of
debt and/or equity securities that would be issued by Syngistix in lieu of the
Debt Financing ("Alternative Financing"). In the event that Syngistix is able to
secure such Alternative Financing, Syngistix anticipates that it will not borrow
funds from the Investors pursuant to the Debt Financing.
The obligation of the Investors to loan funds to Syngistix as described
above is subject to the execution of definitive documentation on or prior to the
sale and issuance of such debt, as well as certain customary conditions,
including the following:
- Syngistix shall have obtained all required approvals from its
Board of Directors and stockholders to issue such debt and
enter into the documents related thereto;
- Subject to certain exceptions, Syngistix shall have obtained
all consents and approvals necessary or appropriate to
consummate the sale and issuance of such debt and the
transactions related thereto;
- The representations and warranties made by Syngisitix in
connection with the issuance of the debt shall be true and
correct in all material respects;
- No event of default shall have occurred under any note to be
issued to the Investors or under the security agreement to be
entered into by Syngistix in connection with the Debt
Financing;
- Syngistix shall have granted the Investors a perfected first
priority security interest in all of Syngistix's assets;
- Subject to certain exceptions, Syngistix shall have received a
waiver of any applicable preemptive rights, rights of first
refusal and similar rights in connection with the issuance of
notes to the Investors;
- The Syngistix Merger shall have closed and all conditions to
the obligation of Syngisitix to consummate the Syngistix
Merger set forth in the Syngistix Merger Agreement shall have
been fulfilled at or prior to such closing;
- Syngistix shall have delivered to The Roser Partnership III,
SBIC LP a letter relating to Syngistix's compliance with
certain matters related to investments in Syngistix by a small
business investment company;
- Syngistix shall have delivered to the Investors customary
certificates relating to its good standing and qualification
to do business; and
- Syngistix shall have delivered to the Investors customary
closing certificates from its officers.
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The proceeds of the Debt Financing or the Alternative Financing will be
used primarily to finance a portion of the Syngistix Merger and the related
expenses, to finance working capital needs, and for general corporate purposes.
In connection with the Debt Financing, Syngistix will issue a secured promissory
note to each of the Investors and grant the Investors a perfected security
interest in substantially all of its assets. The notes issuable pursuant to the
terms of the Debt Financing shall become due and payable on May 31, 2005. As
long as no event of default shall have occurred, the interest on such notes
shall originally be 8% per annum and shall increase during the term of such
notes up to a maximum rate of 18% per annum. Additionally, the Investors shall
be entitled to a 3% origination fee.
There is no assurance as to the cash balances that Ecometry will have
on hand at the effective time of the Syngistix Merger. There also is no
assurance that the definitive documentation with respect to the Debt Financing
will be executed or, if executed, that Syngistix will be able to comply with all
the conditions contained within the definitive documentation. If one or more of
the Investors do not provide financing in the amounts described above, and no
suitable replacement can be timely found, the financing condition contained in
the Syngistix Merger Agreement will not be satisfied. Although Syngistix is in
the process of attempting to secure alternative financing, no alternative
financing arrangements or plans exist in the event the arrangements discussed
above with respect to the Debt Financing are not implemented.
The Investors' commitment to provide funding pursuant to the commitment
letter described above will terminate upon the earliest of (i) the termination
of the Merger Agreement, (ii) the closing of a transaction pursuant to which
Syngistix shall have secured Alternative Financing, and (iii) May 31, 2002. If
the Syngistix Merger is not consummated, all fees and expenses will be paid by
the party incurring such fees and expenses. If the Syngistix Merger Agreement is
terminated as a result of the withdrawal or adverse modification of the
recommendation of the merger by our board of directors, the failure of our board
of directors to recommend rejection of a third-party tender or exchange offer of
15% or more of our common stock, or the approval of a superior third-party
acquisition proposal, we will pay Syngistix a termination fee of $1,800,000. If
the Syngistix Merger Agreement is terminated because it is not approved by the
holders of a majority of shares of our common stock, we will pay Syngistix a
termination fee of $400,000. If the Syngistix Merger Agreement is terminated
because Syngistix has failed to complete a financing prior to or simultaneously
with the effective time and all conditions to Syngistix's obligation to close
have been satisfied, Syngistix will pay us a termination fee of $400,000.
SELECTED FINANCIAL INFORMATION OF SYNGISTIX
For the 10 months ended December 31, 2001 (the period that Syngistix
has existed in its current form), Syngistix had revenue of approximately $5.5
million and a net loss of approximately $5.2 million. As of December 31, 2001,
Syngistix had assets of approximately $2.4 million including approximately
$317,000 of cash, liabilities of approximately $4.5 million, including deferred
revenue and excluding negative goodwill, and a cumulative stockholders deficit
of approximately $3.3 million. Since Syngistix intends to use our cash on hand
and the proceeds from its financing to fund the consideration payable under the
Syngistix Merger Agreement, Syngistix and the company believe that additional
financial information regarding Syngistix is not material to stockholders in
evaluating the Syngistix Merger. Syngistix's financial statements have not been
audited. In addition, no financial information is provided for Citrus since
Citrus is a corporation newly formed for the purpose of the Syngistix Merger and
has no operations to date other than those in connection with the Syngistix
Merger.
INTERESTS OF CERTAIN PERSONS IN THE SYNGISTIX MERGER
In considering the Syngistix Merger and the fairness of the
consideration to be received in the Syngistix Merger, you should be aware that
certain of our officers and directors have interests in the Syngistix Merger,
which are described below and which may present them with certain actual or
potential conflicts of interest.
As of [ ] [ ], 2002, the directors and executive officers as a group
beneficially owned 4,642,668 shares of our common stock on a fully diluted
basis, or 36.4% of such shares, which includes 316,168 shares issuable upon the
exercise of outstanding stock options that are or become exercisable within 60
days. Our board was aware of these actual and potential conflicts of interest
and considered them along with the other matters described under "Certain
Beneficial Ownership of Shares," "Special Factors - Recommendation of the
Special Committee and Board of Directors" and "Special Factors - Ecometry's
Reasons for the Syngistix Merger and Fairness of the Syngistix Merger."
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The members of the special committee were each paid $20,000 for serving
on the special committee. Pursuant to the Syngistix Merger Agreement, if the
Syngistix Merger is completed, our directors will receive the merger
consideration less the exercise price for each share of common stock subject to
directors' stock options having an exercise price of less than $2.90 per share.
Each director who serves on the special committee has 5,000 such options,
exercisable at $1.75 per share. The only executive officers of our company
owning options having an exercise price of less than $2.90 per share are Martin
Weinbaum, who has options to purchase 7,876 shares of our common stock at $2.53
per share and Joy Crenshaw, who has options to purchase 2,222 shares of our
common stock at $2.53 per share.
We entered into retention agreements with John Marrah, our president
and chief operating officer, and Martin Weinbaum, our vice president - finance
and chief financial officer, each dated as of November 8, 2001. The purpose of
the retention agreements was to ensure that we would benefit from Mr. Marrah's
and Mr. Weinbaum's knowledge and experience prior to and during the process of a
potential strategic transaction involving our company (including the Syngistix
Merger). The retention agreements award Mr. Marrah and Mr. Weinbaum a one-time
bonus equal to $250,000 and $75,000, respectively, if they are employed by us
(or the surviving corporation) on the date on which we complete a strategic
transaction or if they are involuntarily terminated, other than for cause, prior
to the consummation of a strategic transaction.
If the Syngistix Merger is completed, SG will receive a termination fee
of $1,679,100 pursuant to the SG Merger Agreement, minus $_________ previously
paid to SG upon the signing of the Syngistix Merger Agreement for its reasonably
documented fees and expenses incurred in connection with the SG Merger
Agreement. The Principal Shareholders are the only shareholders of SG.
Pursuant to the SG Amendment, the Principal Shareholders have agreed
with us to vote, or cause to be voted, all of their shares of common stock in
favor of the Syngistix Merger Agreement and the Syngistix Merger.
Except as described herein, based on our records and on information
provided to us by our directors, executive officers and subsidiaries, neither we
nor any of our associates or subsidiaries nor, to the best of our knowledge, any
of our directors or executive officers or any of our subsidiaries, nor any
associates or affiliates of any of the foregoing, have effected any transactions
involving shares of our common stock during the 60 days prior to the date
hereof. Except as otherwise described herein, neither we nor, to the best of our
knowledge, any of our affiliates, directors or executive officers are a party to
any contract, arrangement, understanding or relationship with any other person
relating, directly or indirectly, to the Syngistix Merger with respect to any of
our securities, including, but not limited to, any contract, arrangement,
understanding or relationship concerning the transfer or the voting of any such
securities, joint ventures, loan or option arrangements, puts or calls,
guarantees of loans, guarantees against loss or the giving or withholding of
proxies, consents or authorizations.
If the Syngistix Merger is completed, at the effective time of the
Syngistix Merger, all options to purchase our shares will automatically become
vested. Each option with an exercise price per share less than $2.90 will be
converted into the right to receive an amount equal to $2.90 in cash, less the
applicable exercise price, for each share of common stock subject to such stock
options. All other options will be terminated.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES OF THE SYNGISTIX MERGER
The following discussion summarizes the material U.S. federal income
tax consequences of the Syngistix Merger. This discussion is based upon the
provisions of the Internal Revenue Code of 1986, as amended, which we refer to
as the Code, the regulations promulgated under the Code, Internal Revenue
Service rulings and judicial and administrative rulings in effect as of the date
of this proxy statement, all of which are subject to change, possibly with
retroactive effect. Any such changes could affect the accuracy of the statements
and conclusions set forth herein. This discussion does not address all aspects
of federal income taxation that may be relevant to a holder of common stock in
32
light of the shareholder's particular circumstances, nor does it discuss the
special considerations applicable to those holders of common stock subject to
special rules, such as shareholders who are not citizens or residents of the
United States, shareholders whose functional currency is not the U.S. dollar,
shareholders who are financial institutions or broker-dealers, tax-exempt
organizations, insurance companies, dealers in securities, foreign corporations
or trusts, shareholders who acquired their common stock through the exercise of
options or similar derivative securities or shareholders who hold their common
stock as part of a straddle or conversion transaction. This discussion also does
not address the federal income tax consequences to holders of options to acquire
our common stock. This discussion assumes that holders of our common stock hold
their shares as capital assets within the meaning of the Code. No party to the
Syngistix Merger will seek a ruling from the Internal Revenue Service with
respect to the federal income tax consequences discussed herein and accordingly
there can be no assurance that the Internal Revenue Service will agree with the
positions described in this proxy statement.
We intend this discussion to provide only a general summary of the
material federal income tax consequences of the Syngistix Merger. We do not
intend it to be a complete analysis or description of all potential federal
income tax consequences of the Syngistix Merger. We also do not address foreign,
state or local tax consequences of the Syngistix Merger. Accordingly, we
strongly urge you to consult your own tax advisor to determine the U.S. federal,
state, local or foreign income or other tax consequences resulting from the
Syngistix Merger in light of your individual circumstances.
The receipt of cash for shares of common stock pursuant to the
Syngistix Merger will be a taxable transaction for United States federal income
tax purposes. A shareholder who receives cash in exchange for shares pursuant to
the Syngistix Merger will generally recognize gain or loss for federal income
tax purposes equal to the difference, if any, between the amount of cash
received and the shareholder's adjusted tax basis for the shares surrendered for
cash pursuant to the Syngistix Merger. Generally, such gain or loss will be
capital gain or loss. Gain or loss will be determined separately for each block
of shares (i.e., shares acquired at the same cost in a single transaction) that
are surrendered for cash pursuant to the Syngistix Merger.
Capital gains recognized by non-corporate taxpayers from the sale of
common stock held for more than one year will generally be subject to U.S.
federal income tax at a rate not to exceed 20%. Capital gains recognized by
non-corporate taxpayers from the sale of common stock held for one year or less
will be subject to tax at ordinary income tax rates. Capital gains recognized by
a corporate taxpayer will be subject to tax at the tax rates applicable to
corporations. In general, capital losses are deductible only against capital
gains and are not available to offset ordinary income. However, individual
taxpayers are allowed to offset a limited amount of net capital losses against
ordinary income, and unused losses may be carried forward to subsequent tax
years.
Certain non-corporate holders of shares of common stock will be subject
to backup withholding at a rate of 30% on cash payments received pursuant to the
merger unless the holder provides certain certifications required by the
Internal Revenue Service. Backup withholding will not apply to a holder of
shares of common stock who furnishes a taxpayer identification number, or TIN,
and certifies that he or she is not subject to backup withholding on the
substitute Form W-9 included in the transmittal letter or who provides a
certificate of foreign status on Form W-8, or who is otherwise exempt from
backup withholding.
For U.S. federal tax income tax purposes, the company should not
recognize any gain or loss as a result of the Syngistix Merger. Certain tax
attributes of the company, such as net operating losses, may be limited as a
result of the Syngistix Merger.
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THE SYNGISTIX MERGER AGREEMENT
This section of the proxy statement describes material aspects of the
Syngistix Merger, including material provisions of the Syngistix Merger
Agreement. This description of the Syngistix Merger Agreement is not complete
and is qualified by reference to the Syngistix Merger Agreement, a copy of which
is attached to this proxy statement as Annex A and which is incorporated by
reference. You are urged to read the entire Syngistix Merger Agreement
carefully.
THE SYNGISTIX MERGER
The Syngistix Merger Agreement provides that, upon the terms and
subject to the conditions in the Syngistix Merger Agreement, and in accordance
with Florida law, Citrus will be merged with and into us. At that time, Citrus's
corporate existence will cease and Ecometry Corporation, as the surviving
corporation in accordance with Florida law, will continue as a privately-held
corporation wholly-owned by Syngistix. The Syngistix Merger will become
effective at the time the articles of merger are duly filed with the Department
of State of the State of Florida. The Syngistix Merger is expected to occur as
soon as practicable after all conditions to the Syngistix Merger have been
satisfied or waived.
Except as noted below, upon consummation of the Syngistix Merger, each
issued and outstanding share of our common stock (other than shares owned by us,
Syngistix or Citrus) will be converted automatically into the right to receive
$2.90 per share. Each share of our common stock owned by us, Syngistix or Citrus
will be cancelled and retired and cease to exist with no consideration
deliverable in exchange for these shares. Upon consummation of the Syngistix
Merger and conversion of your shares into the right to receive $2.90 per share,
your shares of the company's common stock will cease to exist, our common stock
will no longer be eligible for trading on the Nasdaq National Market, our common
stock will no longer be registered under the Securities Exchange Act of 1934, as
amended, we will no longer file reports with the Securities and Exchange
Commission, and our shareholders will no longer be able to participate in the
future earnings and growth of the company.
The directors and officers of Citrus immediately prior to the effective
time of the Syngistix Merger will be the initial directors and officers of the
surviving corporation. The company's articles of incorporation and by-laws will
be amended and restated in their entirety so that they will be the same as
Citrus's articles of incorporation and by-laws (except that the name of the
surviving corporation shall remain Ecometry Corporation). After the Syngistix
Merger, any vacancy in the surviving corporation's board of directors or in any
of the surviving corporation's offices may be filled in the manner provided by
Florida law and the surviving corporation's articles of incorporation and
by-laws.
STOCK OPTIONS
At the effective time, all options to purchase our common stock will
immediately become vested. Each option with an exercise price less than $2.90
will be converted into cash in the amount of the merger consideration per share
minus the exercise price per share. All other options with an exercise price
that is higher than $2.90 per share will terminate at the effective time.
CONVERSION OF COMMON STOCK
Once the Syngistix Merger is complete, the following will occur:
- each share of our common stock (other than those owned by us,
Syngistix or Citrus), that was issued and outstanding
immediately prior to the effective time, will automatically be
converted into the right to receive $2.90 in cash, without
interest;
- each share of our common stock held by our shareholders, upon
conversion into the right to receive the cash merger
consideration, will no longer be outstanding and will
automatically be cancelled and retired;
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- each share of our common stock owned by us, Syngistix or
Citrus will be cancelled and retired and will cease to exist
and no consideration will be paid for it;
- each holder of a certificate formally representing shares of
our pre-merger company will cease to have any rights, except
the right to receive the merger consideration;
- you will not be entitled to dissenters' rights under Florida
law;
- we will appoint a paying agent who will pay the merger
consideration to you; and
- we will send you a transmittal form and written instructions
for exchanging your share certificates for the merger
consideration. Do not send share certificates now.
REPRESENTATIONS AND WARRANTIES
The Syngistix Merger Agreement contains certain representations and
warranties that we made to Syngistix and Citrus. Generally, these
representations and warranties are typical for transactions such as the
Syngistix Merger and include representations and warranties relating to:
- our corporate existence, good standing and authority;
- our capitalization;
- certain information about our subsidiary;
- copies of our corporate documents;
- our belief that entering into the Syngistix Merger Agreement
and the Syngistix Merger will not violate our organizational
documents, the law or certain agreements to which we are a
party, or give any other person rights against us that such
person would not otherwise have;
- our having filed all required documents with the Securities
and Exchange Commission and our representation that such
documents comply with the law;
- the accuracy of our financial statements;
- the nature of litigation with which we are involved;
- payment of our taxes;
- the accuracy of our public filings with the Securities and
Exchange Commission;
- certain matters involving our compliance with ERISA, OSHA and
environmental laws;
- the manner in which we have conducted our business since
December 31, 2000;
- the absence of any brokers retained by us other than Adams,
Harkness & Hill;
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- our real properties;
- our material contracts and our compliance with our contractual
obligations;
- our intellectual property rights;
- employee and labor matters;
- our insurance;
- our receivables;
- the existence of any warranty claims; and
- certain other technical and factual items relevant to the
Syngistix Merger.
Many of the representations and warranties that we make in the
Syngistix Merger Agreement are qualified by a materiality standard. This
standard requires the representations and warranties to which it applies to be
true except in the cases where their failure to be true would not have a
"material adverse effect" on us and our subsidiary as a whole. The Syngistix
Merger Agreement defines a material adverse effect generally as any change or
effect that itself or with a combination of changes or effects would be
materially adverse to our business, operations, assets, liabilities, financial
condition or results of operations or a material impairment on our ability to
perform any of our obligations under the Syngistix Merger Agreement or to effect
the Syngistix Merger.
The Syngistix Merger Agreement also contains representations and
warranties that Syngistix made to us. These relate to:
- Syngistix's and Citrus's corporate existence, good standing
and authority;
- Syngistix's and Citrus's capitalization;
- Syngistix's and Citrus's authority to execute the Syngistix
Merger Agreement;
- Syngistix's and Citrus's belief that entering into the
Syngistix Merger Agreement and the Syngistix Merger will not
violate its organizational documents, the law or certain
agreements to which it is a party, or give any other person
rights against it that such person would not otherwise have;
- the accuracy of the information Syngistix or Citrus provided
to us, including its financial statements;
- the absence of any brokers retained by Syngistix or Citrus;
- the absence of any litigation pending or threatened against
Syngistix or Citrus; and
- Syngistix's financing commitments and the sufficiency of such,
together with our capital assets and resources, to operate the
surviving corporation following the Syngistix Merger in the
ordinary course of business.
COVENANTS
We have made certain agreements with Syngistix and Citrus in the
Syngistix Merger Agreement relating to actions that we will or will not take
between the date on which we signed the Syngistix Merger Agreement and the
effective time of the Syngistix Merger (subject to certain limited exceptions
set forth in the Syngistix Merger Agreement). These agreements are customary in
transactions such as the Syngistix Merger. The agreements that we have made
include but are not limited to:
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- we will not take certain extraordinary actions relating to our
company or our business or which are inconsistent with actions
that we take in the ordinary course of business without
Syngistix's consent;
- we are required to take certain actions with respect to the
preparation of this proxy statement in connection with the
Syngistix Merger and in preparation for the special meeting;
- we are not permitted to solicit or facilitate other
acquisition proposals, however we are permitted to negotiate
with other parties presenting unsolicited offers to acquire us
if our board of directors believes such action complies with
its Fiduciary duties.
- we have agreed to notify Syngistix if our board of directors
receives a third party acquisition proposal for which we have
furnished confidential information or otherwise commenced
negotiations;
- in the event that we intend to enter into an agreement with
respect to a third party acquisition proposal that is superior
to Citrus's proposal, we have agreed to notify Syngistix of
such intention and the identity of the third party and, if
such proposal would provide for a per share consideration for
our common stock of less than $3.20, the material terms
thereof, at least 24 hours prior to entering into any such
agreement;
- allowing representatives of Syngistix to inspect our corporate
records; and
- committing us to use our reasonable best efforts to consummate
the Syngistix Merger.
Syngistix and Citrus have made certain agreements with us in the
Syngistix Merger Agreement relating to actions that they will or will not take
between the date on which we signed the Syngistix Merger Agreement and the
effective time of the Syngistix Merger. The agreements that they have made
include:
- Syngistix and Citrus are required to take certain actions with
respect to the preparation of this proxy statement;
- Syngistix is required to vote the shares of our common stock
held by them in favor of the adoption and approval of the
Syngistix Merger Agreement and the Syngistix Merger;
- committing Syngistix and Citrus to use their reasonable best
efforts to consummate the Syngistix Merger.
LITIGATION
We and Syngistix have agreed to participate jointly in the defense of
any shareholder litigation against us, Syngistix or Citrus, as applicable,
relating to the transactions contemplated by the Syngistix Merger Agreement.
PUBLICITY; COMMUNICATIONS
We, Syngistix and Citrus have agreed not to issue, without the approval
of the other parties, any press release or other public announcement with
respect to the Syngistix Merger Agreement or the Syngistix Merger, except as and
to the extent that it is required by applicable law. We, Syngistix and Citrus
have also agreed to consult with each other before issuing any press release or
making any public announcement with respect to the Syngistix Merger Agreement
and the Syngistix Merger.
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CONDITIONS TO THE SYNGISTIX MERGER
The consummation of the Syngistix Merger is subject to certain
conditions contained in the Syngistix Merger Agreement which if not waived must
have occurred or be true. If those conditions have not occurred or are not true
either Syngistix, Citrus and we or either Syngistix, Citrus or we are not
obligated to effect the Syngistix Merger. If we waive any of the conditions to
the Syngistix Merger, we will not re-solicit proxies.
- Conditions to Our, Syngistix's and Citrus's Obligation to
Consummate the Syngistix Merger:
- no injunction or other order, decree, statute, rule
or regulation of any governmental authority can be in
effect which prevents the consummation of the
Syngistix Merger or materially changes the terms of
the Syngistix Merger Agreement;
- the parties must have obtained all material consents,
authorizations, orders or approvals of, and made all
material filings or registrations with, governmental
regulatory authorities necessary for the execution,
delivery and performance of the Syngistix Merger
Agreement (except for the filing of the articles of
merger or documents that must be filed after the
effective time); and
- the consummation of the Syngistix Merger cannot
violate any applicable law.
- Conditions to Our Obligation to Consummate the Syngistix
Merger:
- shareholders who hold a majority of shares of our
common stock must have voted to approve the Syngistix
Merger Agreement and the Syngistix Merger;
- Syngistix's representations and warranties must be
true and correct with only such exceptions as would
not have a material adverse effect on Syngistix's
ability to perform its obligations under the
Syngistix Merger Agreement and Syngistix and Citrus
must have performed all of their obligations that
must be performed before the effective time;
- from the date of the Syngistix Merger Agreement
through the effective time, Syngistix and Citrus must
not have experienced any event that has had, or is
reasonably likely to have, a material adverse effect
on Syngistix's or Citrus's ability to perform their
obligations under the Syngistix Merger Agreement;
- Syngistix must have completed its financing prior to
or simultaneously with the effective time; and
- Syngistix and Citrus must deliver certain other
documents and certificates.
- Conditions to Syngistix's and Citrus's Obligation to
Consummate the Syngistix Merger:
- shareholders who hold a majority of shares of our
common stock must have voted to approve the Syngistix
Merger Agreement and the Syngistix Merger;
- there must not be any pending or threatened by any
governmental entity any suit, action or proceeding
that would restrain or prohibit the Syngistix Merger
and related transactions or place certain limitations
on us, Syngistix or Citrus;
38
- there must not be any pending or threatened suit,
action or proceeding by a non-governmental person
that is reasonably likely to impose injunctive relief
or monetary damages that would have a material
adverse effect on us;
- our representations and warranties must be true and
correct with only such exceptions as would not have a
material adverse effect and we must have performed
all our obligations that must be performed before the
effective time;
- we must have obtained all consents and approvals
required pursuant to certain of our customer and
vendor contracts in connection with the Syngistix
Merger Agreement and the Syngistix Merger;
- from the date of the Syngistix Merger Agreement
through the effective time, we must not have
experienced any event or series of events that has
had, or is reasonably likely to have, a material
adverse effect on us;
- all of our directors must have resigned as of the
effective time and certain of our officers shall have
resigned as an officer (but not as an employee) as of
the effective time;
- we must have at least an aggregate of $32 million in
cash, cash equivalents and marketable securities
immediately prior to the effective time, minus any
transaction fees and expenses incurred by the company
in connection with the Syngistix Merger or SG Merger
and any amounts to be paid as termination fees under
the SG Merger Agreement; and
- we must deliver certain other documents and
certificates.
TERMINATION
The Syngistix Merger Agreement may be terminated at any time prior to
the effective time of the Syngistix Merger, whether before or after you approve
the Syngistix Merger Agreement and the Syngistix Merger, in any of the following
ways:
- by our and Syngistix's mutual consent;
- by either Syngistix or us (upon the recommendation of the
special committee) if:
-- the Syngistix Merger has not been consummated by May
31, 2002, and the delay is not a result of a breach
of the Syngistix Merger Agreement by the party
seeking such termination;
-- the Syngistix Merger Agreement and the Syngistix
Merger is not approved by the holders of a majority
of our common stock;
-- a court or a governmental authority has issued an
order, decree or ruling either permanently
restraining, enjoining or otherwise prohibiting the
Syngistix Merger or any related transaction or
altering the terms of the Syngistix Merger in any
significant respect.
- by us, prior to approval of our shareholders, if:
-- Syngistix breaches any of its representations,
warranties, covenants or agreements and such breach
is not or cannot be cured within 20 days and has or
is likely to have a material adverse effect on
Syngistix's or Citrus's ability to perform its
obligations under the Syngistix Merger Agreement;
39
-- our board of directors, acting upon the
recommendation of the special committee, withdraws,
modifies or amends its approval or recommendation of
the Syngistix Merger Agreement and related
transactions (or publicly announces that it will do
so); or
-- our board of directors, acting upon the
recommendation of the special committee, approves an
acquisition proposal from a third party that is
superior to Citrus's proposal described in this proxy
statement, but only if we have first notified
Syngistix.
- by us, prior to the effective time if:
-- Syngistix has not completed a financing prior to or
simultaneously with the effective time or fulfilled
its obligations pursuant to the Syngistix Merger
Agreement.
- by Syngistix if:
-- we breach any of our representations, warranties,
covenants or agreements and such breach is not or
cannot be cured within 20 days and such breach has or
is reasonably likely to have a material adverse
effect on us or our ability to perform our
obligations under the Syngistix Merger Agreement;
-- our board of directors withdraws, modifies or amends
in any respect adverse to Syngistix or Citrus its
recommendation of the Syngistix Merger Agreement and
related transactions (or resolves to do so);
-- our board of directors approves, recommends or enters
into an agreement with respect to or consummates a
superior acquisition proposal (or resolves to do so);
or
-- a third party commences a tender or exchange offer
for 15% or more of our common stock and our board of
directors has not recommended that you reject such
tender or exchange offer.
EFFECT OF TERMINATION
If the Syngistix Merger Agreement terminates, each party's obligations
to the other terminate, except for Syngistix's confidentiality obligations, our
agreement that Syngistix and we will participate jointly in the defense of any
shareholder litigation against Syngistix, Citrus or us relating to the Syngistix
Merger Agreement and related transactions, our obligation to pay Syngistix a
termination fee in the event the Syngistix Merger Agreement is terminated
because of certain actions taken by our board in connection with a third party
acquisition proposal or because the Syngistix Merger outlined in this proxy was
not approved by the holders of a majority of shares of our common stock and
Syngistix's obligation to pay us a termination fee in the event the Syngistix
Merger Agreement is terminated because Syngistix has not completed its
financing.
EXPENSES; TERMINATION FEE
Each of Syngistix and we will pay our own fees and expenses in
connection with the Syngistix Merger and related transactions. We have, however,
agreed to pay Syngistix a termination fee of $1,800,000 if the Syngistix Merger
Agreement is terminated as a result of any of the following:
- our board of directors withdraws, modifies or amends in any
respect adverse to Syngistix or Citrus its recommendation of
the Syngistix Merger Agreement and related transactions (or
resolves or publicly announces its intent to do so);
40
- our board of directors approves, recommends or enters into an
agreement with respect to or consummates a superior
acquisition proposal (or resolves to do so); or
- a third party commences a tender or exchange offer for 15% or
more of our common stock and our board of directors has not
recommended that you reject such tender or exchange offer.
We have agreed to pay Syngistix a termination fee of $400,000 if the
Syngistix Merger Agreement is not approved by the holders of a majority of
shares our common stock.
Syngistix has agreed to pay us a termination fee of $400,000 if we
terminate the Syngistix Merger Agreement because Syngistix has failed to
complete a financing involving the sale of equity and/or indebtedness for an
aggregate of $10 million prior to or simultaneously with the effective time and
all conditions to Syngistix's obligations to close have been satisfied.
INDEMNIFICATION; DIRECTORS' AND OFFICERS' INSURANCE
Syngistix shall, to the fullest extent permitted by law, cause the
surviving corporation to honor all of our obligations to indemnify individuals
who were directors and officers of our corporation prior to the Syngistix
Merger, with respect to acts and omissions occurring prior to the closing,
following the closing of the Syngistix Merger until the expiration of the
applicable statute of limitations with respect to any claims against such
directors or officers arising out of such acts or omissions. For a period of six
years following the closing of the Syngistix Merger and subject to the terms and
conditions described in the Syngistix Merger Agreement, the surviving
corporation will maintain in effect a policy of directors' and officers'
liability insurance on the same terms as our existing policy for the benefit of
our directors and officers for acts and omissions occurring prior to the
closing.
AMENDMENT
The Syngistix Merger may be amended by Syngistix, Citrus and us, in
writing, at any time before or after you have approved the Syngistix Merger
Agreement and the Syngistix Merger, except that after you approve the Syngistix
Merger Agreement and the Syngistix Merger, we cannot amend the Syngistix Merger
Agreement if the proposed amendment would require your further approval under
Florida law.
FINANCIAL ADVISORS - THE SYNGISTIX MERGER
Pursuant to the terms of the Adams, Harkness & Hill engagement letter,
Adams, Harkness & Hill was retained by the special committee to advise the
special committee and render an opinion as to the fairness, from a financial
point of view, to the stockholders of the company, of the consideration to be
received by such stockholders in connection with the SG Merger. Because Adams,
Harkness & Hill deemed the merger consideration of $2.70 to be paid pursuant to
the SG Merger Agreement as fair to our shareholders from a financial point of
view, based upon and subject to the various consideration set forth in its
fairness opinion, the special committee did not request an additional fairness
opinion regarding the $2.90 per share consideration to be paid pursuant to the
Syngistix Merger Agreement. See "The SG Merger -- Opinion of Adams, Harkness &
Hill" on pages 66-76.
OUR MANAGEMENT'S FORECAST - THE SYNGISTIX MERGER
We do not, as a matter of course, make public projections as to future
sales, earnings or other results. However, in connection with our possible sale
to Syngistix, during January 2002 our management prepared and provided to
Syngistix the projections set forth below.
41
The primary assumptions underlying our management's forecasts are as
follows:
For 2002
- New customer sales are estimated to be approximately
$11,800,000
- Existing client software sales are estimated to be $4,211,065
- Existing client third party hardware and software sales are
estimated to be approximately $3,200,000
- Support revenues were estimated by annualizing fourth quarter
2001 estimated support fees and factoring new client sales as
well as software license upgrades, offset by client attrition
- Services revenues are estimated to be $3,300,000
- Costs of sale for hardware and third party software are based
on estimated margins. Cost of sales salaries are based on
actual fourth quarter 2001 levels plus 4% average annual
salary increases
- General and administrative expenses are based on budgeted
expenses for 2002. Salaries are based on actual fourth quarter
2001 levels plus 4% average annual salary increases
- Sales and marketing expenses are based on budgeted expenses
for 2002. Salaries are based on actual fourth quarter 2001
levels plus 4% average annual salary increases.
- Research and development expenses are based budgeted expenses
for 2002. Salaris are based on actual fourth quarter 2001
levels plus 4% average annual salary increases.
- Merger expenses of $350,000 were included in operating
expenses.
- Interest income was based on projected cash balances earning
2% interest.
- No income tax benefits are assumed for 2002 losses due to the
uncertainty of realizing such benefits.
The projections below were not prepared with a view to public
disclosure or compliance with published guidelines of the Securities and
Exchange Commission, or the guidelines established by the American Institute of
Certified Public Accountants regarding projections. Neither our independent
public accountants, nor any other independent accountants, have compiled,
examined or performed any procedures with respect to these projections, nor have
they expressed any opinion or other form of assurance with respect to these
projections or their achievability, and assume no responsibility for, and
disclaim any association with them. The inclusion of these projections in this
document should not be regarded as a representation by us, any members of our
management team, our board of directors, the special committee, Syngistix,
Citrus, or any of their advisors, agents or representatives that these
projections are or will prove to be correct. Projections of this type are based
on a number of significant uncertainties and contingencies, all of which are
difficult to predict and most of which are beyond our control. As a result,
there can be no assurance that any of these projections will be realized.
The projections below are or involve forward-looking statements and, as
discussed below, are based upon a variety of assumptions. These assumptions
involve judgments with respect to future economic, competitive, industry and
regulatory conditions, financial market conditions and future business
decisions, all of which are difficult or impossible to predict accurately and
many of which are beyond our control. Many important factors could cause our
results to differ materially from those expressed or implied by the
forward-looking statements. These factors are described under "Cautionary
Statement Regarding Forward-Looking Statements -- The Syngistix Merger." In
addition, with respect to the Syngistix Merger, the following factors, among
others, could cause actual events to differ materially from those described
herein: inability to satisfy various conditions to the closing of the Syngistix
Merger, including failure of our stockholders to approve the Syngistix Merger;
the costs related to the Syngistix Merger; and the effect of the Syngistix
Merger on vendor, supplier, customer or other business relationships. All of the
above matters are difficult to predict and many are beyond our control.
Accordingly, there can be no assurance that any of the projections are
indicative of our future performance or that actual results will not differ
materially from those in the projections set forth below. See "Cautionary
Statement Regarding Forward-Looking Statements -- The Syngistix Merger" on pages
45-46.
The inclusion of the projections herein should not be interpreted as an
indication that any of the company, Syngistix, Citrus or their respective
affiliates or representatives considered or consider the projections to be a
reliable prediction of future events, and the predictions should not be relied
upon as such. None of the company, Syngistix,
42
Citrus or their respective affiliates or representatives has made or makes any
representation to any person regarding the ultimate performance of the company
compared to information contained in the projections, and none of them intends
to update or otherwise revise the projections to reflect circumstances existing
after the date when made or to reflect the occurrence of future events even in
the event that any or all of the assumptions underlying the projections are
shown to be in error. For comparative purposes only, the projections provided by
the company to Raymond James in June 2001, and to Adams, Harkness & Hill in
August 2001 and in October 2001, are also provided. The projections provided to
Raymond James, Adams, Harkness & Hill and Syngistix changed because, due to the
passage of time, management had greater visibility as to the results of 2001 and
the potential results of 2002.
43
PROJECTIONS FOR FISCAL YEAR PROVIDED TO
SYNGISTIX (JANUARY 2002):
2002E
------------
Total Revenue ............................................. $ 32,870,352
Gross Margin .............................................. $ 17,423,173
Operating Income .......................................... $ (1,225,152)
Net Income (Loss) ......................................... $ (544,695)
PROJECTIONS FOR FISCAL YEAR PROVIDED TO
ADAMS, HARKNESS & HILL (OCTOBER 2001):
---------------------------------------
2001E 2002E
------------ ------------
Total Revenue ................ $ 27,484,929 $ 30,324,186
Gross Margin ................. $ 11,980,928 $ 14,570,432
Operating Income ............. $(10,766,480) $ (3,995,532)
Net Income (Loss) ............ $ (7,207,802) $ (2,765,018)
PROJECTIONS FOR FISCAL YEAR PROVIDED TO
ADAMS, HARKNESS & HILL (AUGUST 2001):
---------------------------------------
2001E 2002E
------------ ------------
Total Revenue ................ $ 29,905,908 $ 30,324,186
Gross Margin ................. $ 11,180,616 $ 14,570,432
Operating Income ............. $ (8,577,815) $ (3,995,532)
Net Income (Loss) ............ $ (5,445,123) $ (2,765,018)
PROJECTIONS FOR FISCAL YEAR PROVIDED TO
RAYMOND JAMES (JUNE 2001):
---------------------------------------
2001E 2002E
------------ ------------
Total Revenue ................ $ 32,269,537 $ 40,062,824
Gross Margin ................. $ 13,613,303 $ 18,896,992
Operating Income ............. $ (6,019,576) $ 1,735,887
Net Income (Loss) ............ $ (2,501,554) $ (197,751)
44
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS --
THE SYNGISTIX MERGER
This proxy statement contains or incorporates by reference certain
forward-looking statements and information relating to us that are based on the
beliefs of management as well as assumptions made by and information currently
available to us. Forward-looking statements include statements concerning
projected financial data, plans, objectives, goals, strategies, future events or
performance and underlying assumptions and other statements which are other than
statements of historical facts, including statements regarding the completion of
the Syngistix Merger. When used in this document, the words "anticipate,"
"believe," "estimate," "expect," "plan," "intend," "project," "predict," "may,"
and "should" and similar expressions, are intended to identify forward-looking
statements. Such statements reflect our current view with respect to future
events, including the completion of the Syngistix Merger, and are subject to
numerous risks, uncertainties and assumptions. Many factors could cause our
actual results, performance or achievements to be materially different from any
future results, performance or achievements that may be expressed or implied by
the forward-looking statements, including, among others:
- the failure of shareholders to approve the Syngistix Merger
Agreement and the Syngistix Merger;
- the inability of Syngistix to obtain the financing necessary
to complete the Syngistix Merger;
- the unpredictability of revenues due to the large dollar
amounts of our individual license transactions and the lengthy
and unpredictable sales cycles for these transactions;
- our dependence on the development, introduction and client
acceptance of new and enhanced versions of our software
products;
- our ability to control costs, including costs associated with
our infrastructure and increased research and development
expenses;
- our dependence on new product development;
- uncertainties regarding the outcome of the pending class
action litigation against us;
- our reliance on a combination of trade secrets, copyright and
trademark law, nondisclosure agreements and technical measures
to protect our proprietary technology;
- our ability to sell our products in new markets within the
direct commerce industry;
- our dependence on proprietary technology licensed from third
parties;
- our ability to continue to resell a variety of hardware and
software developed and manufactured by third parties;
- our ability to maintain margins on the sale of hardware and
software developed and manufactured by third parties;
- significant competition in the software and direct commerce
industry and competitive pricing for our products;
- customer concentration;
45
- fluctuations in demand for our products which are dependent
upon the condition of the software and direct commerce
industries;
- our ability to collect receivables;
- economic effects of the September 11, 2001 terrorist attacks
in New York, near Washington, D.C. and in Pennsylvania, the
possibility of future attacks and the uncertain effect of the
country's military involvement resulting from such attacks;
and
- other risks and uncertainties described in this proxy
statement and other documents filed with the Securities and
Exchange Commission.
Should one or more of these risks or uncertainties materialize, or
should underlying assumptions prove incorrect, actual results may vary
materially from those described in this proxy. Further information about the
risks of forward-looking statements applicable to us can be found in [OUR FORM
10-Q FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2001 AND OUR FORM 10-K FOR THE YEAR
ENDED DECEMBER 31, 2000], both of which have been incorporated herein by
reference and attached as Annex D and Annex E, respectively, to this proxy
statement.
46
THE SG MERGER
ECOMETRY'S REASONS FOR THE SG MERGER AND FAIRNESS OF THE SG MERGER
In reaching its determination to approve the SG Merger and the SG
Merger Agreement on October 24, 2001, the special committee relied on its
knowledge of our business, information provided by our officers, as well as
advice of its financial and legal advisors. In reaching its decision, the
special committee considered a number of factors, including the following, each
of which in the view of the special committee supported such determination and
the special committee's and the board's adoption of the conclusion and analysis
of Adams, Harkness & Hill contained in its fairness opinion;
- the financial presentation of Adams, Harkness & Hill,
including its opinion, delivered on October 24, 2001 and
attached as Annex C, that $2.70 per share consideration to be
received by our shareholders pursuant to the SG Merger
Agreement is fair, from a financial point of view, to holders
of common stock other than SG and the Principal Shareholders;
- the economic and market conditions affecting us and our
industry as a whole, including but not limited to, the drastic
decline of the technology sector during the last year, the
outmoded software used by the company in comparison to new
products offered in the technology sector, the overall decline
in the economy and the extreme impact the events of September
11, 2001 have had on the economy, all of which has lead to a
decrease in sales to our customers, including, but not limited
to, those customers dependent on e-commerce sales;
- for the quarter ended September 30, 2001, new customer sales
decreased by 74.6% and existing customer sales decreased by
75.6%. For the nine months ended September 30, 2001 new
customer sales decreased by 58.2% and existing customer sales
decreased by 70.3%;
- the lack of equity research coverage for our common stock
resulting from the discontinuance of research coverage in June
2000 by the two investment firms who served as underwriters of
our initial public offering: Deutsche Banc Alex. Brown and
WitSoundView and by a third firm, Red Chip Review, in May
2001, which makes it difficult to attract new investment
interest in us;
- that the last trading day before public announcement of the SG
Merger, the per share closing price of our common stock was
$1.50 per share, and that at that time our common stock
trading price had not closed at or above $2.70 since February
16, 2001 and taking into account the current market conditions
since the events of September 11, 2001, it did not appear
likely that our common stock would approach a higher level of
trading prices in the foreseeable future;
- the significant costs of remaining a public company, including
the legal, accounting and transfer agent fees and expenses and
printing costs necessary to satisfy the reporting obligations
of the Securities Exchange Act of 1934 (which were
approximately $350,000 in 2000), were becoming increasingly
burdensome given the deterioration of our financial
performance;
- that Sharon Gardner, the company's former vice-president
marketing and the daughter of one of the Principal
Shareholders, contacted approximately 50 companies between
March and June 2001 and Adams, Harkness & Hill contacted 17
software companies to solicit interest in a transaction with
the company, but as of the time we entered into the Original
SG Merger Agreement, no third party had approached the company
with an acceptable alternative transaction proposal;
47
- becoming a private company would allow us to focus on
long-term strategic initiatives rather than the
quarter-to-quarter results that Wall Street demands;
- the sale of the entire company was preferable to the piecemeal
sale of the company followed by a liquidating dividend because
a single sale involved less transactional expenses and
operating performance risk;
- based on the per share closing price of $1.50 on October 25,
2001, the last trading day before the public announcement of
the SG Merger Agreement, the consideration to be paid to the
holders of common stock in the SG Merger represented an
approximate premium of 80% over the trading price of the
shares;
- the negotiations with respect to the merger consideration and
the SG Merger Agreement that, among other things, led to an
increase in SG's revised proposal from $2.20 per share to
$2.70 per share of common stock, and the belief of the members
of the special committee that $2.70 per share was the highest
price that SG would agree to pay;
- the immediate availability of liquidity for shareholders,
other than the Principal Shareholders or SG, particularly in
light of the relatively low volume of trading in our common
stock;
- that cash and not stock or other noncash consideration will be
paid to our shareholders (other than SG and the Principal
Shareholders) in the SG Merger, eliminating any uncertainties
in valuing the SG Merger consideration to be received by the
company's shareholders (other than SG and the Principal
Shareholders);
- the terms of the SG Merger Agreement were reasonable in that
they would not likely deter a third party from making
competing offer to acquire the company;
- the SG Merger Agreement permits us to provide information and
participate in negotiations with respect to third party
acquisition proposals if the board of directors determines, in
consultation with its outside counsel and the special
committee, that such action is necessary to act in a manner
consistent with the fiduciary duties of the board of
directors;
- the SG Merger Agreement permits us to terminate the SG Merger
Agreement to accept a superior acquisition proposal;
- the SG Merger requires the approval of holders of at least a
majority of our common stock not held by SG or the Principal
Shareholders or their affiliates (this requirement is waivable
by the company if the special committee believes it is in the
best interests of our shareholders to do so);
The special committee also determined that the SG Merger is
procedurally fair because among other things:
- our board of directors established a special committee to
consider and negotiate the SG Merger Agreement;
- the special committee was comprised of independent directors
who are not officers or employees of the company and have no
financial interest in the SG Merger different from our
shareholders generally (other than the fact that 3,750 of
their options will vest upon completion of the SG Merger (in
the same manner as options held by all option holders
generally) which, when combined with
48
previously vested options, will result in the receipt by each
member of the special committee of $4,750 upon the completion
of the SG Merger);
- the special committee was given exclusive and unlimited
authority to, among other things, evaluate, negotiate and
recommend the terms of any proposed transactions;
- the special committee retained and received advice from its
own independent legal counsel and financial advisor in
evaluating, negotiating and recommending the terms of the SG
Merger Agreement;
- Adams, Harkness & Hill conducted an extensive search for
strategic alternatives to the SG Merger after the receipt of
the proposal from SG and such search was not limited in any
way by the special committee;
- Adams, Harkness & Hill rendered an opinion concerning the
fairness, from a financial point of view, of the consideration
to be received by our shareholders (other than SG and the
Principal Shareholders); and
- the price of $2.70 per share and the other terms and
conditions of the SG Merger Agreement resulted from active and
lengthy negotiations between the special committee and its
representatives, on the one hand, and SG and its
representatives, on the other hand.
The special committee and the board also considered a variety of risks
and potentially negative factors concerning the SG Merger, including:
- that some of the holders of our common stock may realize a
loss on their investment in the shares of the company;
- that, following the SG Merger, our shareholders will cease to
participate in any of our future earnings growth or benefit
from any increase in the value of the company;
- the fact that, while the merger consideration represents a
premium to the recent trading prices of our stock, the stock
market has not performed well, which may have contributed to
the decline in the trading price of our common stock;
- the risk that the SG Merger will not be completed, including
because of the exercise of termination rights of SG under the
SG Merger Agreement or our failure to satisfy certain closing
conditions; and
- that if the SG Merger is not completed under circumstances
further discussed in "The SG Merger Agreement--Termination of
the SG Merger Agreement," the company may be required to pay
SG a break up fee equal to $1,679,100.
The special committee and the board were also aware of and considered
the fact that the interests of SG conflicted with the interests of our public
shareholders because the two groups are on opposite sides of the proposed merger
transaction, and that the interests of the Principal Shareholders were different
from the interests of our other shareholders because the Principal Shareholders
would continue to have an interest in our business through their ownership of
all of the stock of SG. The special committee and the board of directors did not
regard these facts as weighing in favor of or against the SG Merger.
The foregoing discussion addresses the material information and factors
considered by the special committee and the board of directors in their
evaluation of the SG Merger, including factors that support the SG Merger as
well as
49
those that may weigh against it. In view of the variety of factors considered in
reaching its determination, the special committee and the board of directors did
not find it practicable to, and did not quantify or otherwise assign relative
weights to, the specific factors considered in reaching its recommendations. In
addition, the individual members of the special committee and the board may have
given different weight to different factors. The special committee did not view
the fact that the $2.70 per share merger consideration in the SG Merger is less
than the $3.22 book value per share of our common stock as of September 30, 2001
to be of significance due to its belief that the book value is not indicative of
what our shareholders would obtain in a liquidation because of the risks
involved and the costs and uncertainties associated with liquidating, including
severance payments, lease termination payments, litigation costs associated with
the termination of accounts, the inability to collect accounts receivable and
the time involved in a liquidation. In light of the current economic
environment, the general problems that companies in our industry group are
having in the marketplace, along with the continuing decline in the trading
price of our common stock, the special committee did not believe that historical
market prices of our common stock (which ranged from a high of $22.63 to a low
of $1.26 per share), prices paid for shares repurchased by the company (which
ranged from $3.9375 to $4.625) or liquidation value were indicative of the value
of our common stock. Accordingly, the special committee did not consider
material the historical market prices, prices paid by the company for shares
repurchased by the company, our book value or our liquidation value in
evaluating the fairness of the SG Merger to our shareholders other than SG and
the Principal Shareholders. Additionally, the special committee did not believe
that a discounted cash flow analysis would be a reliable measure of the
company's valuation because the company is expected to have negative cash flows
through 2004, making a discounted cash flow analysis heavily reliant on
projections for periods after 2004, which are inherently uncertain, and on the
discount rate applied, which is subjective.
Because the special committee is comprised of the members of the board
of directors not affiliated with SG or the Principal Shareholders, and because
the special committee retained independent legal counsel and an independent
financial advisor to assist it in assessing the fairness of the SG Merger to
shareholders not affiliated with SG, the special committee and the board of
directors did not consider it necessary to retain an outside party to negotiate
on behalf of the unaffiliated shareholders or to engage counsel or an appraiser
to represent unaffiliated shareholders.
SG MERGER'S AND THE PRINCIPAL SHAREHOLDERS' REASONS FOR THE SG MERGER AND
FAIRNESS OF THE SG MERGER
The Principal Shareholders hold in the aggregate 4,325,000 shares of
our common stock, representing approximately 35% of our issued and outstanding
shares. Before the SG Merger, they expect to contribute all their shares to SG
and have agreed that all of their shares will be voted in favor of the SG Merger
Agreement and the SG Merger. The Principal Shareholders have informed us that
their purpose for the SG Merger is to acquire all shares of our common stock
that they do not already own and to continue the business and operations of our
company as a private company. The SG Merger will allow them to share in any of
our future earnings and growth once the common stock ceases to be
publicly-traded. Public company status imposes a number of limitations on us and
our management in conducting operations. Accordingly, one of the purposes of the
SG Merger for SG and the Principal Shareholders is to afford greater operating
flexibility, allowing management to concentrate on long-term growth and to
reduce its focus on quarter-to-quarter performance often emphasized by the
public markets. The SG Merger is also intended to enable us to use in our
operations those funds that would otherwise be expended in complying with
requirements applicable to public companies, which approximated $350,000 in
2000. Given the continued deteriorating market and prospects facing our company,
the Principal Shareholders determined to offer to acquire Ecometry at this time
because they believe that they could more effectively address our ongoing
operating losses as a private company. In determining, in October 2001, that SG
should enter into the SG Merger Agreement, the Principal Shareholders considered
the following factors:
- our results of operations, financial condition, business and
prospects. We sustained an operating loss of approximately
$3,508,000 for the fiscal year ended December 31, 2000. We
incurred an operating loss of 2,334,000 for the quarter ended
September 30, 2001 and our total revenues decreased 56.1% as
compared to the previous year's comparable quarter. New client
sales decreased by 74.6% and
50
sales to existing customers decreased by 75.6% in the quarter
ended September 30, 2001 as compared to the previous year's
comparable quarter;
- management's forecasts for revenues and earnings described in
"Our Management's Forecast - The SG Merger" beginning on pages
77-80 projected continued operating losses;
- the uncertain economic and market conditions affecting us, our
customers and our industry as a whole;
- the lack of equity research coverage for our common stock and
the difficulty of attracting new investment interest in us,
and the resulting difficulty for shareholders, including the
Principal Shareholders, to receive a fair price when selling
their shares in the market;
- the significant and steady decline in trading prices for our
common stock since the second quarter of 2000 and in trading
prices for providers of business and information technology
consulting services in general resulting in decreased
liquidity for our shareholders, which reduces the prospects of
obtaining value for the Principal Shareholders' equity
investment in us through a sale of stock on the open market or
otherwise;
- the lack of viable third-party interest in acquiring or
exploring other strategic transactions with Ecometry despite
previous efforts to identify such a third party and the lack
of strategic alternatives to the SG Merger Agreement, which
reduced the prospects of obtaining value for our shareholders,
including the Principal Shareholders;
- the potential long-term value of Ecometry as an established
and recognized provider of enterprise software solutions and
services and the uncertainties that Ecometry would be able to
realize that value as a public company; and
- the potential benefits to Ecometry of operating as a
privately-held company, including the ability of Ecometry to
react rapidly to opportunities or changing conditions.
SG and the Principal Shareholders each believe that the SG Merger and
the consideration to be paid in the SG Merger to the holders of our common stock
other than the Principal Shareholders and SG is substantively fair to such
holders. However, none of SG or the Principal Shareholders have hired a
financial advisor in connection with the SG Merger, or undertaken any formal
evaluation of the fairness of the SG Merger to such shareholders. Moreover, SG
and the Principal Shareholders did not participate in the deliberations of the
special committee or receive advice from the special committee's financial
advisor. Consequently, none of SG or the Principal Shareholders is in a position
to adopt the conclusions of the special committee with respect to the fairness
of the SG Merger to the shareholders. SG and the Principal Shareholders based
their belief on the following:
- after a thorough review with independent financial and legal
advisors, the special committee, which consisted entirely of
directors of who are not affiliated with the Principal
Shareholders, concluded that the SG Merger is fair to, and in
the best interests of, the holders of our common stock other
than SG and the Principal Shareholders and recommended that
our shareholders approve the SG Merger Agreement and the SG
Merger;
- that the special committee had obtained a written opinion of
Adams, Harkness & Hill on October 24, 2001, that the merger
consideration in the SG Merger is fair, from a financial point
of view, to holders of common stock not affiliated with SG;
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- the special committee acted independently during the
negotiation of the SG Merger Agreement, with the assistance of
financial and legal advisors and on behalf of the holders of
our common stock;
- the SG Merger is conditioned upon approval by a majority of
the votes cast at the special meeting by holders of our common
stock other than the Principal Shareholders and SG and their
affiliates (which condition may be waived by the special
committee);
- that the last trading day before public announcement of the SG
Merger, the per share closing price of our common stock was
$1.50 per share; and that our common stock trading price had
not closed at or above $2.70 since February 16, 2001 and
taking into account the current market conditions since the
events of September 11, 2001, it did not appear likely that
our common stock would approach a higher level of trading
prices in the foreseeable future;
- the consideration to be paid to the holders of common stock in
the SG Merger represents an approximate premium of 80% over
the per share closing price as of October 25, 2001, the day
before the public announcement that the company and SG had
signed the SG Merger Agreement;
- the company's trend of declining revenues and increased
operating losses;
- the lack of prospects for finding an alternative to the SG
Merger with SG that would result in greater value to the
holders of common stock other than the Principal Shareholders;
and
- the ability of the company to return to substantial
profitability and substantial revenue growth is uncertain and,
in any event, is expected to take a long time.
SG and the Principal Shareholders believe that each of the above
factors supports their conclusion that the SG Merger is fair to the holders of
our common stock unaffiliated with SG from a financial point of view. In view of
the variety of factors considered in reaching their respective determinations,
the Principal Shareholders did not quantify or otherwise assign relative weights
to the specific factors considered in reaching their belief as to fairness. The
Principal Shareholders are not making any recommendation as to how the holders
of our common stock should vote on the SG Merger Agreement and the SG Merger.
SG and the Principal Shareholders did not rely on any report, opinion
or appraisal in determining the fairness of the SG Merger to our shareholders,
although they were aware that the special committee had obtained a fairness
opinion from Adams, Harkness & Hill. Based on the above factors, SG and the
Principal Shareholders each believe that the SG Merger and the consideration to
be paid in the SG Merger to the holders of our common stock other than the
Principal Shareholders and SG is fair to such holders notwithstanding that SG
and the Principal Shareholders did not retain financial advisors. The Principal
Shareholders reviewed the description of the analyses of Adams, Harkness & Hill
included in this proxy statement and did not find it to be objectionable.
However, SG and the Principal Shareholders did not undertake to conduct an
independent evaluation of the Adams, Harkness & Hill analyses, and did not
retain any independent financial advisors to conduct a review of the results or
an independent analysis of the company, and did not rely on the Adams, Harkness
& Hill analyses. While Raymond James prepared a presentation for the board, SG
and the Principal Shareholders did not rely on such presentation in their
fairness determination since such presentation was preliminary in nature and the
assumptions used to prepare the report were no longer valid and Raymond James
did not make any recommendations or draw any conclusions as to the fairness of
the consideration to be received by our shareholders in the SG Merger.
SG and the Principal Shareholders did not view the fact that the $2.70
per share merger consideration included in the SG Merger Agreement is less than
the book value of $3.22 per share as of September 30, 2001 to be of significance
due to their belief that the book value is not indicative of what our
shareholders would obtain in a liquidation due to costs and uncertainties
associated with liquidating, including severance payments, lease termination
52
payments, litigation costs associated with the termination of accounts, the
inability to collect accounts receivable and the time and expenses involved in a
liquidation. For these reasons, along with the factors described previously on
pages 50-52, SG and the Principal Shareholders each believe that the SG Merger
and the consideration to be paid in the SG Merger to the holders of our common
stock other than the Principal Shareholders and SG is fair to such holders
notwithstanding that the price per share being offered in the SG Merger is less
than the book value per share as of September 30, 2001.
Neither SG nor the Principal Shareholders performed any financial
analysis valuing our common stock, including liquidation or going concern
values. In light of the current economic environment, the general problems that
companies in our industry group are having in the marketplace, our financial
problems, along with the continuing decline in the trading price of our common
stock, SG and the Principal Shareholders did not believe that historical market
prices (which ranged from a high of $22.63 to a low of $1.26 per share), prices
paid for shares repurchased by the company (which ranged from $3.9375 to
$4.625), liquidation value or going concern values were indicative of the value
of our common stock. Accordingly, SG and the Principal Shareholders did not
consider material the historical market prices, prices paid by the company for
shares repurchased by the company, book value, liquidation value or going
concern value of the company in evaluating the fairness of the merger to our
shareholders other than SG and the Principal Shareholders.
SG and the Principal Shareholders believe that the SG Merger is
procedurally fair to our shareholders other than SG and the Principal
Shareholders because the special committee, consisting solely of directors who
are not our officers or employees and who have no financial interest in the
proposed SG Merger different from our shareholders generally (other than the
fact that 3,750 of their options will vest upon completion of the SG Merger (in
the same manner as options held by all option holders generally) which, when
combined with previously vested options, will result in the receipt by each
member of the special committee of $4,750 upon completion of the SG Merger) was
given exclusive authority to, among other things, consider, negotiate and
evaluate the terms of any proposed transaction, including the SG Merger. In
addition, it is a condition to the SG Merger that the SG Merger must be approved
by a majority of the votes cast at the special meeting by holders of common
stock other than the Principal Shareholders and SG and their affiliates,
although we may waive this condition. Further, shareholders have the opportunity
to vote on both the Syngistix Merger and the SG Merger. Given these procedural
protections, SG and the Principal Shareholders believe that the SG Merger is
procedurally fair to our shareholders other than SG and the Principal
Shareholders even though no independent representative (including an appraiser
or counsel for the unaffiliated shareholders), other than the special committee
and its advisors, was retained to act solely on behalf of the disinterested
shareholders.
SG and the Principal Shareholders considered other alternatives to the
SG Merger, including continuing to operate our business as a public company,
exploring business combinations with other companies and liquidating our
business. However, for the reasons discussed above, SG and the Principal
Shareholders believe that the SG Merger provides the highest value to our
shareholders. The Principal Shareholders considered structuring the
going-private transaction as an issuer tender offer followed by a merger between
the company and SG. However, the Principal Shareholders determined that a
one-step merger would be a more efficient and less costly means of acquiring the
shares of Ecometry common stock that they do not own.
Shareholders unaffiliated with SG should be aware that the Principal
Shareholders, the sole officers, directors and shareholders of SG, are also
executive officers, directors and significant shareholders of our company and
have interests that are in addition to, or different from, the interests of the
holders of our common stock. See "Interests of Certain Persons in the SG
Merger."
MERGER FINANCING -- THE SG MERGER
The total amount of cash required to consummate the SG Merger is
estimated to be approximately $23 million, all of which will be paid by the
surviving corporation from the cash that we currently have on hand. This
includes approximately $22 million to be paid to our shareholders and
optionholders (other than the Principal
53
Shareholders and SG) and approximately $1,000,000 for fees and expenses,
including fees of Adams, Harkness & Hill, legal and accounting, printing and
mailing costs, proxy solicitation fees and other expenses. If the SG Merger is
not consummated, all fees and expenses shall be paid by the party incurring such
fees and expenses. In the event that the SG Merger Agreement is terminated as a
result of the withdrawal or adverse modification of the recommendation of the SG
Merger by our board of directors, the failure of our board of directors to
recommend rejection of a third-party tender or exchange offer of 15% or more of
our common stock, or the approval of a superior third-party acquisition
proposal, we have agreed to pay SG a termination fee of $1,679,100 less
$_________ for SG's transaction fees and expenses incurred in connection with
the SG Merger Agreement as of the date of the signing of the Syngistix Merger
Agreement and the SG Amendment.
54
PURPOSES OF THE SG MERGER AND PLANS OR PROPOSALS
The purpose of the SG Merger for the Principal Shareholders is to
acquire the entire equity interest in us.
If the SG Merger Agreement is approved by the holders of a majority of
outstanding shares of our common stock and, unless we waive this condition, the
holders of a majority of shares not held by the Principal Shareholders and SG
and their affiliates, and the other conditions to the closing of the SG Merger
are satisfied or waived, we and SG will close the SG Merger. At or soon after
the closing of the SG Merger:
- our shareholders (other than the Principal Shareholders) will
cease to have any ownership interest in us or rights as
holders of our common stock;
- our shareholders (other than the Principal Shareholders) will
no longer benefit from any increases in our value or the
payment of dividends on shares of our common stock;
- our shareholders (other than the Principal Shareholders) will
no longer bear the risk of any decreases in our value;
- the Principal Shareholders' aggregate interests in our net
book value and net earnings will increase from approximately
35% to 100%;
- the Principal Shareholders will be the sole beneficiaries of
our future earnings and profits and will have the ability to
benefit from any divestitures, strategic acquisitions or other
corporate opportunities that may be pursued by us in the
future;
- we will be privately-held and, as a result, there will be no
public market for our common stock;
- there will not be another meeting of our public shareholders;
- the surviving corporation will seek to have the registration
of our shares under the Exchange Act terminated as soon as the
SG Merger is complete;
- the surviving corporation will seek to have the listing of our
shares on The Nasdaq National Market terminated as soon as the
SG Merger is complete; and
- we will no longer be required to file periodic reports with
the Securities and Exchange Commission once the registration
of the shares has been terminated.
After the SG Merger, the Principal Shareholders have stated to us that
they have no present intentions, plans or proposals to cause the surviving
corporation to engage in any of the following:
- extraordinary transactions, such as a merger, reorganization
or liquidation involving the surviving corporation;
- purchases, sales or transfers of a material amount of the
surviving corporation's assets;
- material changes in the surviving corporation's corporate
structure or business;
- acquisitions by any person of our securities or the
disposition of the surviving corporation's securities; or
55
- material changes in the surviving corporation's
capitalization.
Nevertheless, following completion of the SG Merger, the Principal
Shareholders may initiate a review of the surviving corporation and its assets,
corporate structure, capitalization, operations, properties and personnel to
determine what changes, if any, would be desirable following the merger to
enhance the operations of the surviving corporation.
INTERESTS OF CERTAIN PERSONS IN THE SG MERGER
In considering the SG Merger and the fairness of the consideration to
be received in the SG Merger, you should be aware that certain of our officers
and directors have interests in the SG Merger, which are described below and
which may present them with certain actual or potential conflicts of interest.
As of November 9, 2001, the directors and executive officers as a group
beneficially owned 4,637,375 shares of our common stock on a fully diluted
basis, or 36.4% of such shares, which includes 310,875 shares issuable upon the
exercise of outstanding stock options that are or become exercisable within 60
days. The Principal Shareholders beneficially own approximately 35% of the
outstanding shares of our common stock. Our board was aware of these actual and
potential conflicts of interest and considered them along with the other matters
described under "Certain Beneficial Ownership of Shares," "Special Factors -
Recommendation of the Special Committee and Board of Directors," "Special
Factors - Ecometry's Reasons for the SG Merger and Fairness of the SG Merger,"
and "Special Factors - SG's and the Principal Shareholders' Reasons for the SG
Merger and Fairness of the SG Merger."
If the SG Merger is consummated, the Principal Shareholders will
beneficially own 100% of the outstanding shares of the common stock of the
surviving corporation.
The members of the special committee were each paid $20,000 for serving
on the special committee. Pursuant to the SG Merger Agreement, if the SG Merger
is completed, our directors will receive the merger consideration less the
exercise price for each share of common stock subject to directors' stock
options having an exercise price of less than $2.70 per share. Each director who
serves on the special committee has 5,000 such options, exercisable at $1.75 per
share. The only executive officers of our company owning options having an
exercise price of less than $2.70per share are Martin Weinbaum, who has options
to purchase 7,876 shares of our common stock at $2.53 per share and Joy
Crenshaw, who has options to purchase 2,222 shares of our common stock at $2.53
per share.
We entered into retention agreements with John Marrah, our president
and chief operating officer, and Martin Weinbaum, our vice president - finance
and chief financial officer, each dated as of November 8, 2001. The purpose of
the retention agreements was to ensure that we would benefit from Mr. Marrah's
and Mr. Weinbaum's knowledge and experience prior to and during the process of a
potential strategic transaction involving our company (including the SG Merger).
The retention agreements award Mr. Marrah and Mr. Weinbaum a one-time bonus
equal to $250,000 and $75,000, respectively, if they are employed by us (or the
surviving corporation) on the date on which we complete a strategic transaction
or if they are involuntarily terminated, other than for cause, prior to the
consummation of a strategic transaction.
If the Syngistix Merger is not consummated, the Principal Shareholders
have indicated that they intend to transfer the shares of our common stock that
they own to SG prior to the time the SG Merger is completed. They are the only
shareholders, as well as the only officers and directors, of SG. They have
agreed with us to vote, or cause to be voted, all of their shares of common
stock in favor of the SG Merger Agreement and the SG Merger.
Except as described herein, based on our records and on information
provided to us by our directors, executive officers and subsidiaries, neither we
nor any of our associates or subsidiaries nor, to the best of our knowledge, any
of our directors or executive officers or any of our subsidiaries, nor any
associates or affiliates of any of the foregoing, have effected any transactions
involving shares of our common stock during the 60 days prior to the date
hereof. Except
56
as otherwise described herein, neither we nor, to the best of our knowledge, any
of our affiliates, directors or executive officers are a party to any contract,
arrangement, understanding or relationship with any other person relating,
directly or indirectly, to the SG Merger with respect to any of our securities,
including, but not limited to, any contract, arrangement, understanding or
relationship concerning the transfer or the voting of any such securities, joint
ventures, loan or option arrangements, puts or calls, guarantees of loans,
guarantees against loss or the giving or withholding of proxies, consents or
authorizations.
If the SG Merger is completed, at the effective time of the SG Merger,
all options to purchase our shares will automatically become vested. Each option
(other than those held by the Principal Shareholders) with an exercise price per
share less than the merger consideration will be converted into the right to
receive an amount equal to merger consideration in cash, less the applicable
exercise price, for each share of common stock subject to such stock options.
All other options (including those held by the Principal Shareholders) will be
terminated.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES OF THE SG MERGER
The following discussion summarizes the material U.S. federal income
tax consequences of the SG Merger. This discussion is based upon the provisions
of the Internal Revenue Code of 1986, as amended, which we refer to as the Code,
the regulations promulgated under the Code, Internal Revenue Service rulings and
judicial and administrative rulings in effect as of the date of this proxy
statement, all of which are subject to change, possibly with retroactive effect.
Any such changes could affect the accuracy of the statements and conclusions set
forth herein. This discussion does not address all aspects of federal income
taxation that may be relevant to a holder of common stock in light of the
shareholder's particular circumstances, nor does it discuss the special
considerations applicable to those holders of common stock subject to special
rules, such as shareholders who are not citizens or residents of the United
States, shareholders whose functional currency is not the U.S. dollar,
shareholders who are financial institutions or broker-dealers, tax-exempt
organizations, insurance companies, dealers in securities, foreign corporations
or trusts, shareholders who acquired their common stock through the exercise of
options or similar derivative securities or shareholders who hold their common
stock as part of a straddle or conversion transaction. This discussion also does
not address the federal income tax consequences to holders of options to acquire
our common stock. This discussion assumes that holders of our common stock hold
their shares as capital assets within the meaning of the Code. No party to the
SG Merger will seek a ruling from the Internal Revenue Service with respect to
the federal income tax consequences discussed herein and accordingly there can
be no assurance that the Internal Revenue Service will agree with the positions
described in this proxy statement.
We intend this discussion to provide only a general summary of the
material federal income tax consequences of the SG Merger. We do not intend it
to be a complete analysis or description of all potential federal income tax
consequences of the SG Merger. We also do not address foreign, state or local
tax consequences of the SG Merger. Accordingly, we strongly urge you to consult
your own tax advisor to determine the U.S. federal, state, local or foreign
income or other tax consequences resulting from the SG Merger in light of your
individual circumstances.
The receipt of cash for shares of common stock pursuant to the SG
Merger will be a taxable transaction for United States federal income tax
purposes. A shareholder who receives cash in exchange for shares pursuant to the
SG Merger will generally recognize gain or loss for federal income tax purposes
equal to the difference, if any, between the amount of cash received and the
shareholder's adjusted tax basis for the shares surrendered for cash pursuant to
the SG Merger. Generally, such gain or loss will be capital gain or loss. Gain
or loss will be determined separately for each block of shares (i.e., shares
acquired at the same cost in a single transaction) that are surrendered for cash
pursuant to the SG Merger.
Capital gains recognized by non-corporate taxpayers from the sale of
common stock held for more than one year will generally be subject to U.S.
federal income tax at a rate not to exceed 20%. Capital gains recognized by
non-corporate taxpayers from the sale of common stock held for one year or less
will be subject to tax at ordinary income tax rates. Capital gains recognized by
a corporate taxpayer will be subject to tax at the tax rates applicable to
57
corporations. In general, capital losses are deductible only against capital
gains and are not available to offset ordinary income. However, individual
taxpayers are allowed to offset a limited amount of net capital losses against
ordinary income, and unused losses may be carried forward to subsequent tax
years.
Certain non-corporate holders of shares of common stock will be subject
to backup withholding at a rate of 30% on cash payments received pursuant to the
merger unless the holder provides certain certifications required by the
Internal Revenue Service. Backup withholding will not apply to a holder of
shares of common stock who furnishes a taxpayer identification number, or TIN,
and certifies that he or she is not subject to backup withholding on the
substitute Form W-9 included in the transmittal letter or who provides a
certificate of foreign status on Form W-8, or who is otherwise exempt from
backup withholding.
For U.S. federal tax income tax purposes, the company should not
recognize any gain or loss as a result of the SG Merger. Certain tax attributes
of the company, such as net operating losses, may be limited as a result of the
SG Merger.
58
THE SG MERGER AGREEMENT AND THE SG AMENDMENT
This section of the proxy statement describes material aspects of the
SG Merger, including material provisions of the SG Merger Agreement and the SG
Amendment. The descriptions of the SG Merger Agreement and SG Amendment are not
complete and are qualified by reference to the SG Merger Agreement and SG
Amendment, copies of which are attached to this proxy statement as Annex B which
are incorporated by reference. You are urged to read the entire SG Merger
Agreement and SG Amendment carefully.
THE SG MERGER
The SG Merger Agreement provides that, upon the terms and subject to
the conditions in the SG Merger Agreement, and in accordance with Florida law,
SG will be merged with and into us. At that time, SG's corporate existence will
cease and Ecometry Corporation, as the surviving corporation in accordance with
Florida law, will continue as a privately-held corporation owned by the
Principal Shareholders. The SG Merger will become effective at the time the
articles of merger are duly filed with the Department of State of the State of
Florida. The SG Merger is expected to occur as soon as practicable after all
conditions to the SG Merger have been satisfied or waived.
Except as noted below, upon consummation of the SG Merger, each issued
and outstanding share of our common stock (other than shares owned by us, the
Principal Shareholders or SG) will be converted automatically into the right to
receive $2.70 per share. Each share of our common stock owned by us, the
Principal Shareholders or SG will be cancelled and retired and cease to exist
with no consideration deliverable in exchange for these shares. Upon
consummation of the SG Merger and conversion of your shares into the right to
receive $2.70 per share, your shares of the company's common stock will cease to
exist, our common stock will no longer be eligible for trading on the Nasdaq
National Market, our common stock will no longer be registered under the
Securities Exchange Act of 1934, as amended, we will no longer file reports with
the Securities and Exchange Commission, and our unaffiliated shareholders will
no longer be able to participate in the future earnings and growth of the
company.
The directors of SG immediately prior to the effective time of the SG
Merger will be the initial directors of the surviving corporation, and our
officers immediately prior to the effective time of the SG Merger will be the
initial officers of the surviving corporation. SG's articles of incorporation
and by-laws will become the surviving corporation's articles of incorporation
and by-laws. After the SG Merger, any vacancy in the surviving corporation's
board of directors or in any of the surviving corporation's offices may be
filled in the manner provided by Florida law and the surviving corporation's
articles of incorporation and by-laws.
STOCK OPTIONS
At the effective time, all options to purchase our common stock will
immediately become vested. Each option (other than those held by the Principal
Shareholders) with an exercise price less than $2.70 will be converted into cash
in the amount of the merger consideration per share minus the exercise price per
share. All other options (including those held by the Principal Shareholders)
will terminate at the effective time.
CONVERSION OF COMMON STOCK
Once the SG Merger is complete, the following will occur:
- each share of our common stock (other than those owned by us,
the Principal Shareholders or SG), that was issued and
outstanding immediately prior to the effective time, will
automatically be converted into the right to receive $2.70 in
cash, without interest;
- each share of our common stock held by our shareholders
unaffiliated with SG, upon conversion into the right to
receive the cash merger consideration, will no longer be
outstanding and will automatically be cancelled and retired;
59
- each share of our common stock owned by us, the Principal
Shareholders or SG will be cancelled and retired and will
cease to exist and no consideration will be paid for it;
- each holder of a certificate formally representing shares of
our pre-merger company will cease to have any rights, except
the right to receive the merger consideration;
- you will not be entitled to dissenters' rights under Florida
law;
- we will appoint a paying agent who will pay the merger
consideration to you; and
- we will send you a transmittal form and written instructions
for exchanging your share certificates for the merger
consideration. Do not send share certificates now.
REPRESENTATIONS AND WARRANTIES
The SG Merger Agreement contains certain representations and warranties
that we made to SG. Generally, these representations and warranties are typical
for transactions such as this SG Merger and include representations and
warranties relating to:
- our corporate existence, good standing and authority;
- our capitalization;
- certain information about our subsidiary;
- copies of our corporate documents;
- our belief that entering into the SG Merger Agreement and the
SG Merger will not violate our organizational documents, the
law or certain agreements to which we are a party, or give any
other person rights against us that such person would not
otherwise have;
- our having filed all required documents with the Securities
and Exchange Commission and our representation that such
documents comply with the law;
- the nature of litigation with which we are involved;
- payment of our taxes;
- the accuracy of our financial statements and other public
filings with the Securities and Exchange Commission;
- certain matters involving our compliance with ERISA, OSHA and
environmental laws;
- the manner in which we have conducted our business since the
end of our last fiscal year;
- the absence of any brokers retained by us other than Adams,
Harkness & Hill;
- our real properties;
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- our compliance with our contractual obligations;
- our intellectual property rights; and
- certain other technical and factual items relevant to the SG
Merger.
Many of the representations and warranties that we make in the SG
Merger Agreement are qualified by a materiality standard. This standard requires
the representations and warranties to which it applies to be true except in the
cases where their failure to be true would not have a "material adverse effect"
on us and our subsidiary as a whole. The SG Merger Agreement defines a material
adverse effect generally as any change or effect that itself or with a
combination of changes or effects would be materially adverse to our business,
operations, assets, liabilities, financial condition or results of operations or
a material impairment on our ability to perform any of our obligations under the
SG Merger Agreement or to effect the SG Merger.
The SG Merger Agreement also contains representations and warranties
that SG made to us. These relate to:
- SG's corporate existence, standing and authority;
- SG's capitalization;
- SG's authority to execute the SG Merger Agreement;
- SG's belief that entering into the SG Merger Agreement and the
SG Merger will not violate its organizational documents, the
law or certain agreements to which it is a party, or give any
other person rights against it that such person would not
otherwise have;
- the accuracy of the information SG provides to us or otherwise
discloses to the Securities and Exchange Commission; and
- the absence of any brokers retained by SG.
COVENANTS
We have made certain agreements with SG in the SG Merger Agreement
relating to actions that we will or will not take between the date on which we
signed the SG Merger Agreement and the effective time of the SG Merger (subject
to certain limited exceptions set forth in the SG Merger Agreement). These
agreements are customary in transactions such as the SG Merger. The agreements
that we have made include but are not limited to:
- we will not take certain extraordinary actions relating to our
company or our business or which are inconsistent with actions
that we take in the ordinary course of business without SG's
consent;
- we are required to take certain actions with respect to the
preparation of this proxy statement and the Schedule 13E-3
filed with the Securities and Exchange Commission in
connection with the SG Merger and in preparation for the
special meeting;
- we have agreed to notify SG if our board of directors receives
a third party acquisition proposal for which we have furnished
confidential information or otherwise commenced negotiations;
- in the event that we intend to enter into an agreement with
respect to a third party acquisition proposal that is superior
to SG's proposal, we have agreed to notify SG of such
intention and the
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identity of the third party at least 24 hours prior to
entering into any such agreement;
- allowing representatives of SG to inspect our corporate
records; and
- committing us to use our reasonable best efforts to consummate
the SG Merger.
SG and the Principal Shareholders have made certain agreements with us
in the SG Merger Agreement relating to actions that they will or will not take
between the date on which we signed the SG Merger Agreement and the effective
time of the SG Merger. The agreements that they have made include:
- SG is required to take certain actions with respect to the
preparation of this proxy statement and the Schedule 13E-3
filed with the Securities and Exchange Commission in
connection with the SG Merger;
- SG and the Principal Shareholders are required to vote the
shares of our common stock held by them in favor of the
adoption and approval of the SG Merger Agreement and the SG
Merger;
- committing SG to use its reasonable best efforts to consummate
the SG Merger.
LITIGATION
We and SG have agreed to participate jointly in the defense of any
shareholder litigation against us or SG, as applicable, relating to the
transactions contemplated by the SG Merger Agreement.
PUBLICITY; COMMUNICATIONS
We and SG have agreed not to issue, without the approval of the
other party, any press release or other public announcement with respect to the
SG Merger Agreement or the SG Merger, except as and to the extent that it is
required by applicable law. We and SG have also agreed to consult with each
other before issuing any press release or making any public announcement with
respect to the SG Merger Agreement and the SG Merger.
CONDITIONS TO THE SG MERGER
The consummation of the SG Merger is subject to certain conditions
contained in the SG Merger Agreement which if not waived must have occurred or
be true. If those conditions have not occurred or are not true either SG and we
or either SG or we are not obligated to effect the SG Merger. If we waive any of
the conditions to the SG Merger, we will not re-solicit proxies.
- Conditions to Both Our and SG's Obligation to Consummate the
SG Merger:
- no injunction or other order, decree, statute, rule
or regulation of any governmental authority can be in
effect which prevents the consummation of the SG
Merger or materially changes the terms of the SG
Merger Agreement;
- the parties must have obtained all material consents,
authorizations, orders or approvals of, and made all
material filings or registrations with, governmental
regulatory authorities necessary for the execution,
delivery and performance of the SG Merger Agreement
(except for the filing of the articles of SG Merger
or documents that must be filed after the effective
time); and
- the consummation of the SG Merger cannot violate any
applicable law.
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- Conditions to Our Obligation to Consummate the SG Merger:
- shareholders who hold a majority of the shares of our
common stock not held by the Principal Shareholders
and SG and their affiliates must have voted to
approve the SG Merger Agreement and the SG Merger;
- SG's representations and warranties must be true and
correct with only such exceptions as would not have a
material adverse effect and it must have performed
all its obligations that must be performed before the
effective time;
- from the date of the SG Merger Agreement through the
effective time, SG must not have experienced any
event that has had, or is reasonably likely to have,
a material adverse effect on SG; and
- SG must deliver certain other documents and
certificates.
- Conditions to SG's Obligation to Consummate the SG Merger:
- shareholders (including the Principal Shareholders
and SG) who hold a majority of shares of our common
stock must have voted to approve the SG Merger
Agreement and the SG Merger;
- there must not be any governmental suit or other
proceeding that would restrain or prohibit the SG
Merger and related transactions or place certain
limitations on us or SG;
- our representations and warranties must be true and
correct with only such exceptions as would not have a
material adverse effect and we must have performed
all our obligations that must be performed before the
effective time;
- from the date of the SG Merger Agreement through the
effective time, we must not have experienced any
event or series of events that has had, or is
reasonably likely to have, a material adverse effect
on us;
- all of our directors (other than the Principal
Shareholders) must have resigned as of the effective
time; and
- we must deliver certain other documents and
certificates.
TERMINATION
The SG Merger Agreement may be terminated at any time prior to the
effective time of the SG Merger, whether before or after you approve the SG
Merger Agreement and the SG Merger, in any of the following ways:
- by our and SG's mutual consent;
- by either SG or us (upon the recommendation of the special
committee) if:
-- the SG Merger has not been consummated by July 31,
2002, and the delay is not a result of a breach of
the SG Merger Agreement by the party seeking such
termination;
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-- the SG Merger Agreement and the SG Merger is not
approved by the holders (including SG and the
Principal Shareholders) of a majority of our common
stock;
-- a court or a governmental authority has issued an
order, decree or ruling either permanently
restraining, enjoining or otherwise prohibiting the
merger or any related transaction or altering the
terms of the SG Merger in any significant respect.
- by us, prior to approval of our shareholders, if:
-- SG breaches any of its representations, warranties,
covenants or agreements and such breach is not or
cannot be cured within 20 days and has or is likely
to have a material adverse effect on SG or its
ability to perform its obligations under the SG
Merger Agreement;
-- our board of directors, acting upon the
recommendation of the special committee, withdraws,
modifies or amends its approval or recommendation of
the SG Merger Agreement and related transactions (or
publicly announces that it will do so); or
-- our board of directors, acting upon the
recommendation of the special committee, approves an
acquisition proposal from a third party that is
superior to SG's proposal described in this proxy
statement, but only if we have first notified SG.
- by SG if:
-- we breach any of our representations, warranties,
covenants or agreements and such breach is not or
cannot be cured within 20 days and such breach has or
is reasonably likely to have a material adverse
effect on us or our ability to perform our
obligations under the SG Merger Agreement;
-- our board of directors withdraws, modifies or amends
in any respect adverse to SG its recommendation of
the SG Merger Agreement and related transactions (or
resolves to do so);
-- our board of directors approves, recommends or enters
into an agreement with respect to or consummates a
superior acquisition proposal (or resolves to do so);
or
-- a third party commences a tender or exchange offer
for 15% or more of our common stock and our board of
directors has not recommended that you reject such
tender or exchange offer.
EFFECT OF TERMINATION
If the SG Merger Agreement terminates, each party's obligations to the
other terminate, except for SG's confidentiality obligations, our agreement that
SG and we will participate jointly in the defense of any shareholder litigation
against SG or us relating to the SG Merger Agreement and related transactions,
and our obligation to pay SG a termination fee in the event the SG Merger
Agreement is terminated because of certain actions taken by our board in
connection with a third party acquisition proposal.
EXPENSES; TERMINATION FEE
Each of SG and we will pay our own fees and expenses in connection with
the SG Merger and related transactions. We have, however, agreed to pay SG a
termination fee of $1,679,100 if the SG Merger Agreement is terminated as a
result of any of the following:
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- our board of directors withdraws, modifies or amends in any
respect adverse to SG its recommendation of the SG Merger
Agreement and related transactions (or resolves or publicly
announces its intent to do so);
- our board of directors approves, recommends or enters into an
agreement with respect to or consummates a superior
acquisition proposal (or resolves to do so); or
- a third party commences a tender or exchange offer for 15% or
more of our common stock and our board of directors has not
recommended that you reject such tender or exchange offer.
INDEMNIFICATION; DIRECTORS' AND OFFICERS' INSURANCE
SG shall, to the fullest extent permitted by law, cause the surviving
corporation to honor all of our obligations to indemnify individuals who were
directors and officers of our corporation prior to the SG Merger, with respect
to acts and omissions occurring prior to the closing, following the closing of
the SG Merger until the expiration of the applicable statute of limitations with
respect to any claims against such directors or officers arising out of such
acts or omissions. For a period of six years following the closing of the SG
Merger and subject to the terms and conditions described in the SG Merger
Agreement, the surviving corporation will maintain in effect a policy of
directors' and officers' liability insurance on the same terms as our existing
policy for the benefit of our directors and officers for acts and omissions
occurring prior to the closing.
AMENDMENT
The SG Merger may be amended by SG and us, in writing, at any time
before or after you have approved the SG Merger Agreement and the SG Merger,
except that after you approve the SG Merger Agreement and the SG Merger, we
cannot amend the SG Merger Agreement if the proposed amendment would require
your further approval under Florida law.
THE SG AMENDMENT
The SG Amendment amends the SG Merger Agreement and provides, among
other items, that the company's entering into the Syngistix Merger Agreement
does not constitute a breach of the SG Merger Agreement and does not give SG the
right to terminate the SG Merger Agreement or to collect the termination fee
provided for in the SG Merger Agreement. In the SG Amendment we agreed to pay to
SG its reasonably documented fees and expenses incurred in connection with the
SG Merger Agreement. We have paid SG $_______ pursuant to this provision. This
amount will be deducted from any termination fee payable to SG upon consummation
of the Syngistix Merger.
The SG Amendment further provides that the SG Merger Agreement will
terminate immediately prior to the consummation by the company of the Syngistix
Merger and the termination fee (less the amount previously paid to SG for the
reimbursement of expenses as described above) shall immediately become due and
payable. If, however, the Syngistix Merger Agreement is terminated for any
reason, the SG Merger Agreement will remain in effect and SG will not be
entitled to the remaining portion of the termination fee if the merger with SG
is consummated. In addition, the SG Amendment amends the SG Merger Agreement by
extending the date by which the SG Merger must be consummated from February 28,
2002 to July 31, 2002.
Pursuant to the SG Amendment, the Principal Shareholders have agreed
that at any meeting of stockholders of the company held before May 31, 2002,
they will vote in favor of the Syngistix Merger and the Syngistix Merger
Agreement.
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OPINION OF ADAMS, HARKNESS & HILL, INC.
The special committee retained Adams, Harkness & Hill to assist it in
its evaluation of the proposed SG Merger and to render an opinion as to the
fairness, from a financial point of view, of the consideration to be received by
our shareholders other than the Principal Shareholders and SG. Adams, Harkness &
Hill was retained by the special committee because of (i) its expertise and
experience in our industry; (ii) its reputation in the financial community;
(iii) its ability to meet the special committee's requirements of timeliness;
(iv) its lack of any previous business relationship with SG and the Principal
Shareholders; and (v) the structure and amount of consideration to be paid for
its services. Adams, Harkness & Hill is a nationally recognized investment
banking firm and is regularly engaged in the valuation of businesses in
connection with mergers and acquisitions, negotiated underwriting and private
placements of securities and for general corporate and other purposes.
At the meeting of the special committee on October 24, 2001, Adams,
Harkness & Hill rendered its fairness opinion that, as of that date, based upon
and subject to the various considerations set forth in the fairness opinion, the
cash consideration of $2.70 per share to be paid pursuant to the merger
agreement to the holders of our common stock other than the Principal
Shareholders and SG is fair, from a financial point of view, to such holders.
The fairness opinion does not constitute a recommendation as to how any
shareholder should vote with respect to the SG Merger and does not address any
other aspect of the SG Merger. The description of the fairness opinion set forth
in this proxy statement is a summary and you should refer to the full text of
the fairness opinion a copy of which is attached hereto as Annex C. You are
urged to read the fairness opinion in its entirety, as it sets forth the
assumptions made, matters considered and limitations on the review undertaken by
Adams, Harkness & Hill in developing its opinion. The original letter setting
forth the fairness opinion will be available for inspection and copying at our
principal executive offices during regular business hours by any interested
shareholder or a representative of that shareholder, designated in writing.
Pursuant to the terms of Adams, Harkness & Hill's engagement letter, we
agreed to pay Adams, Harkness & Hill a retainer fee of $75,000 and a fee of
$250,000 upon the delivery of the fairness opinion, regardless of the
conclusions expressed therein. We also agreed to reimburse Adams, Harkness &
Hill for all reasonable travel and other out-of-pocket expenses arising in
connection with its engagement. Additionally, we agreed to indemnify Adams,
Harkness & Hill and its affiliates to the fullest extent permitted by law
against liabilities relating to or arising out of its engagement, except for
liabilities found to have resulted from their willful or reckless misconduct or
gross negligence. We also agreed that if we engaged in a transaction in which
the consideration per share paid to shareholders exceeded $3.08, we would pay
Adams, Harkness & Hill an additional fee equal to 3% of such excess amount. We
further agreed to pay Adams, Harkness & Hill $100,000 if we entered into a
merger agreement with Syngistix, such amount to be creditable against any amount
payable pursuant to the preceding sentence.
The special committee did not place any limitation upon Adams, Harkness
& Hill with respect to the procedures followed or factors considered in
rendering the fairness opinion. The following is a summary of the various
sources of information and valuation methodologies used by Adams, Harkness &
Hill in developing its fairness opinion. To assess the fairness of the
transaction, Adams, Harkness & Hill employed analyses based on the following:
- relative company valuations and historical and, when
available, projected financial performance of publicly-owned
companies deemed, on the basis of similar operating and
financial characteristics, to be peers of the company
(collectively, the "Peer Group");
- absolute and relative per share stock price performance of the
company;
- relative company valuations and the premiums, either absolute
or implied, to the market price these valuations represented,
associated with selected precedent change of control
transactions involving companies engaged in businesses similar
to our company's business; and
66
- a liquidation analysis assuming an arms-length liquidation of
our company's business and net assets.
Adams, Harkness & Hill did not utilize a discounted cash flow analysis
in developing its fairness opinion because, after review of the company's
projections of continued operating losses and estimates of future cash
requirements, combined with its assessment of the company's and the Peer Group's
cost of capital, it concluded that cash flow would be negative for the periods
analyzed and, therefore, the results of such an analysis would not be
meaningful.
The material actions undertaken by Adams, Harkness & Hill included:
- review of publicly-available business and financial
information, including but not limited to our recent filings
with the Securities and Exchange Commission;
- review of internal financial information prepared by our
management concerning the current status of our business and
its historical financial performance, including interim
financial performance data not yet disclosed to the public;
- review of internal financial information prepared by our
management concerning our projected performance assuming the
SG Merger is not completed;
- discussions with members of our senior management, including
the Principal Shareholders, concerning our historical and
current financial condition and operating results, as well as
our future prospects, as reflected by the management
projections included herein;
- discussions with the special committee concerning the
evaluation by the board of directors of various prior and
prospective means of enhancing shareholder value, including
prior unsuccessful attempts to identify potential acquirers of
our company;
- discussions with the Principal Shareholders concerning the SG
Merger and their intentions and objectives regarding the
company's future;
- comparison of the historical market per share prices and
trading activity of our common stock with those of the Peer
Group;
- comparison of our financial position, operating results and
capital resources with those of the Peer Group;
- comparison of the proposed financial terms of the SG Merger
with the terms of certain other change of control transactions
and transactions involving management shareholders;
- review of the SG Merger Agreement;
- review of relevant industry market research studies,
investment research reports of our competitors and key
economic and market indicators, including interest rates and
general stock market performance; and
- contacting 17 software companies to solicit and qualify their
interest in a negotiated business combination involving the
company.
67
Other than as set forth above, Adams, Harkness & Hill did not review
any additional information in preparing its fairness opinion that was material
to its analysis. In rendering its fairness opinion, Adams, Harkness & Hill
assumed and relied upon the accuracy and completeness of all of the financial
and other information that was publicly-available or provided to it by, or on
behalf of, the company, and did not independently verify such information.
Adams, Harkness & Hill assumed, with the special committee's consent,
that:
- all of our material assets and liabilities, contingent or
otherwise, known or unknown, are as set forth in our financial
statements;
- obtaining any regulatory and other approvals and third party
consents required for consummation of the SG Merger would not
have a material effect on the SG Merger; and
- the SG Merger would be consummated in accordance with the
terms set forth in the SG Merger Agreement.
Adams, Harkness & Hill, with the special committee's consent, also
assumed the management projections were reasonably prepared and based upon the
best available estimates and good faith judgments of our management as to our
future performance.
In conducting its review, Adams, Harkness & Hill did not obtain an
independent evaluation or appraisal of any of our assets or liabilities,
contingent or otherwise. The fairness opinion did not predict or take into
account any possible economic, monetary or other changes that may occur, or
information which may come available, after the date of the fairness opinion.
PUBLIC COMPANY PEER DESCRIPTION
Our company is a provider of enterprise software solutions and
services, primarily related to customer relationship management and supply chain
and fulfillment management, to the multi-channel commerce industry. Adams,
Harkness & Hill identified a group of publicly-traded companies in the software
industry that it deemed comparable to our company based on comparable products
and services. Adams, Harkness & Hill identified and evaluated 20 public
companies in the software industry, but acknowledging the company's relatively
small public market capitalization and the relative valuation discount generally
associated with companies possessing small public market capitalization, focused
its analysis on those nine companies possessing market capitalization less than
$200 million.
In analyses of established companies in more mature industries, Adams,
Harkness & Hill would customarily evaluate the relative valuation of a
particular company on the basis of its gross profit margin, operating profit
margin, and the growth of absolute profits. However, due to the general
performance of companies in the segments of the software industry in which the
company competes and, specifically, the recent financial results of the company
and the Peer Group, Adams, Harkness & Hill limited its comparison to certain
financial measures and metrics of the company with those of the Peer Group,
including:
Calendar Year 2001 Revenues (estimate) ("CY01E Revenue")
Market Capitalization ("MC");
Enterprise Value ("EV");
Last Twelve Months Revenue ("LTM Revenue");
68
MC / LTM Revenue ("MC / LTM Revenue"); and
MC / CY01E Revenue ("MC / CY01E Revenue").
All financial measures and metrics involving the Peer Group's common
stock prices per share are as of the close of trading of October 22, 2001 and
consist of:
MARKET
CAPITALIZATION(2) ENTERPRISE VALUE(3) LTM REVENUE(4) CY01E REVENUE(4)
Blue Martini Software, Inc. $ 73.66 $ 19.28 $ 84.69 $ 64.76
Exchange Applications, Inc. $ 8.87 $ 32.04 $ 53.34 $ 50.00
EXE Technologies, Inc. $ 90.24 $ 53.08 $ 116.71 $ 100.23
Fundtech Ltd. $ 69.74 $ 14.26 $ 50.23 $ 46.70
Kana Software Inc. $ 166.42 $ 105.24 $ 90.70 $ 114.68
Pegasystems Inc. $ 81.69 $ 57.10 $ 87.19 $ 87.00
Radiant Systems, Inc. $ 164.02 $ 128.70 $ 135.82 $ 131.90
SS&C Technologies, Inc. $ 80.97 $ 20.69 $ 56.60 $ 59.50
SVI Solutions, Inc. $ 27.68 $ 47.40 $ 29.52 NA(5)
Mean $ 84.81 $ 53.09 $ 78.31 $ 81.80
Median $ 80.97 $ 47.40 $ 84.69 $ 75.88
Ecometry Corporation $ 33.43 ($4.34) $ 36.77 $ 27.50
- -----------
1 All dollar amounts in millions.
2 Market Capitalization is the product of a company's common stock price per
share multiplied by the number of shares issued and outstanding.
3 Enterprise Value is the sum of a company's market capitalization and that
portion of debt representing permanent capital, less excess cash.
4 Historical LTM Revenue and estimates of CY01E Revenue for the Peer Group
were obtained from Bloomberg L.P. and The Thomson Corporation (Thomson
Financial Research & Analytics Group).
5 CY01E Revenue was not available for SVI Solutions, Inc.
Based on its expertise in valuation of publicly-traded companies and,
in particular, its research into the performance variables considered by
investors when assessing relative value among the Peer Group, Adams, Harkness &
Hill concluded that publicly-traded companies in the customer relationship
management and supply chain management segments of the software industry are
valued primarily on the bases of historical and projected revenue growth and
overall size, both of which are reflected in the individual company's ratio of
EV to LTM Revenue and EV to CY01E Revenue. Profit-based valuation methodologies
are generally not applicable to companies in this segment, as most companies
have not yet achieved consistent profitability.
Since the company's EV was negative (due to its large cash balance),
and therefore meaningless for analytical purposes, Adams, Harkness & Hill could
not employ an EV-based valuation in this analysis. Accordingly, Adams, Harkness
& Hill substituted MC/LTM Revenue and MC / CY01E Revenue to compare relative
values. To calculate market capitalization for each company, Adams, Harkness &
Hill used the closing price per share for each company on October 22, 2001,
multiplied by the most recently disclosed number of diluted shares outstanding
for each company.
69
In order of descending MC / LTM Revenue, the Peer Group, excluding the
company, ranked as follows:
MC/LTM
REVENUE
-------
Kana Software Inc. 1.83x
SS&C Technologies, Inc. 1.43x
Fundtech Ltd. 1.39x
Radiant Systems, Inc. 1.21x
SVI Solutions, Inc. 0.94x
Pegasystems Inc. 0.94x
Blue Martini Software, Inc. 0.87x
EXE Technologies, Inc. 0.77x
Exchange Applications, Inc. 0.17x
Mean 1.06x
Median 0.94x
Ecometry Corporation 0.51x
Adams, Harkness & Hill noted the company's MC / LTM Revenue multiple
was below both the mean and the median of the Peer Group. Adams, Harkness & Hill
also noted, when the calculation was made using $33.4 million, representing the
product of the $2.70 per share offered in the SG Merger and the company's 12.4
million shares outstanding, as the numerator, the multiple was 0.91x, which,
also was below both the mean and the median of the Peer Group.
In order of descending MC / CY01E Revenue, the Peer Group, excluding
the company, ranked as follows:
MC/LTM
REVENUE
-------
Kana Software Inc. 1.45x
SS&C Technologies, Inc. 1.36x
Radiant Systems, Inc. 1.24x
Blue Martini Software, Inc. 1.14x
Pegasystems Inc. 0.94x
EXE Technologies, Inc. 0.90x
Exchange Applications, Inc. 0.18x
SVI Solutions, Inc. NA
Mean 1.09x
Median 1.19x
Ecometry Corporation 0.68x
Adams, Harkness & Hill noted the company's MC / CY01E Revenue multiple
was below both the mean and the median of the Peer Group. Adams, Harkness & Hill
also noted, when the calculation was made using $33.4 million, representing the
product of the $2.70 per share offered in the SG Merger and the company's 12.4
million shares outstanding, as the numerator, and $27.5 million, representing
the company's CYO1E Revenue, as the denominator, the multiple was 1.22x, which
exceeded both the mean and the median of the Peer Group.
70
Adams, Harkness & Hill discussed with the special committee its
conclusions that the per share trading value for the company, relative to the
Peer Group, implied by the MC / LTM Revenue and MC / CY01E Revenue multiples,
was negatively influenced by the following factors, among others:
71
- fundamental financial factors, including historically slower
growth of revenue and profits;
- the relatively small size of the company, both in terms of
revenues and market capitalization;
- factors related to investors' expectations, particularly
expected revenue growth, and understanding of our company's
strategy and competitive position, especially in light of our
company's Internet focus and COBOL orientation;
- the limited amount of investment research coverage on the
company, especially in light of the decision by the
underwriters of the company's initial public offering (the
predecessor firms to Deutsche Banc Alex. Brown Inc. and
Soundview Technology Group) to discontinue such coverage;
- the limited amount of broker/dealer market making for the
company's common stock; and
- the relatively high level of ownership and, therefore, implied
control, of the Principal Shareholders.
STOCK PRICE PERFORMANCE ANALYSIS
Adams, Harkness & Hill examined the following closing price data for
our company's common stock:
- Price performance from our company's initial public offering
through October 22, 2001;
- Price performance from October 25, 2000, through October 22,
2001, compared to the performance of the NASDAQ Composite, S&P
500 and Russell 2000 stock indices for the same period; and
- Price performance from October 25, 2000, through October 22,
2001, compared to an index of the Peer Group.
Based on the above analyses, Adams, Harkness & Hill observed that, from
the closing market price on the date of the company's initial public offering on
January 29, 1999, through the closing market price of October 22, 2001, the
company's per share price decreased approximately 91%. During the same time
period, the NASDAQ composite index decreased approximately 32%, the Russell 2000
index increased approximately 1%, and the S&P 500 composite index decreased
approximately 15%. Adams, Harkness & Hill also observed that the company's
closing share price had decreased approximately 55% for the period from October
25, 2000, through October 22, 2001, compared to a decrease of approximately 92%
in an index made up of companies in the Peer Group for the same time period.
During the same time period the NASDAQ composite index decreased approximately
47%, the Russell 2000 index decreased approximately 9%, and the S&P 500
composite index decreased approximately 20%.
PRECEDENT TRANSACTION ANALYSIS
Adams, Harkness & Hill assessed the relative valuation, associated with
selected publicly-disclosed change of control transactions it deemed relevant as
of the date of announcement of such transactions. Adams, Harkness & Hill
reviewed eight transactions announced between March 2000 and July 2001 that
involved the acquisition of the equity shares of publicly-traded companies for
which share price data was available. The following table sets forth a summary
of the ratio of transaction value to LTM Revenue associated with such
transactions compared to the ratio implied by the SG Merger:
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TARGET PREMIUM
ANNOUNCED LTM TRANSACTION TO CLOSING
DATE TRANSACTION REVENUE VALUE/ LTM PRICE 20
TARGET NAME ACQUIRER NAME ANNOUNCED VALUE(1) ($MM) ($MM) REVENUE DAYS PRIOR
----------- ------------- --------- -------------- ------- ----------- ----------
EShare Communications, Inc. Divine, Inc. 07/09/01 $ 57 $74 0.8x 95%
Broadbase Software, Inc. Kana Software, Inc. 04/09/01 NM(2) $55 NM (66)%
Brightware, Inc. Fire Pond, Inc. 01/30/01 NM(3) $11 NM Private
PrimeResponse Inc. Chordiant Software, Inc. 01/08/01 $ 65 $31 2.1x 11%
NetCreations, Inc. SEAT Pagine Gialle S.p.a. 12/21/00(4) $ 79 $55 1.4x 11%
NetCreations, Inc. DoubleClick Inc. 10/03/00(4) $161 $55 2.9x (50)%
Pilot Software, Inc. Accrue Software, Inc. 08/10/00 $ 21(5) $15 1.4x Private
Inference Corp. Egain Communications Corp. 03/15/00 $ 66 $23 2.9x 73%
MEAN: $107 $40 1.9x 12%
VALUES IMPLIED BY THE MERGER: NM(6) $29(7) NM 108%
- ------------------
1 Transaction value is similar to EV (i.e., is the sum of a company's
market capitalization and that portion of debt representing permanent
capital, less excess cash), but market capitalization is replaced in
the calculation of transaction value by the total value of the
consideration paid for the target company's equity capital. Values
shown were calculated by Adams, Harkness & Hill, based on published
reports and available information.
2 At the time of announcement, Kana Software proposed issuing shares
valued at roughly $75.5 million. However, Broadbase Software had cash
of approximately $130 million at the time of the announcement.
3 At the time of the announcement, Chordiant Software proposed issuing
shares and options valued at roughly $37.0 million. However,
PrimeResponse had cash of approximately $40 million at the time of the
announcement.
4 The transaction value shown reflects approximately $30 million of cash
held by NetCreations at the time of the announcement. On December 21,
2000, NetCreations announced its intention to terminate its agreement
with DoubleClick and to accept an all-cash acquisition proposal from
SEAT Pagine Gialle, which valued NetCreations' equity at approximately
$109 million. At the time of the termination, the value of the
all-stock transaction with DoubleClick had declined to approximately
$59 million.
5 The transaction value shown is as of the date of the announcement of
the transaction, which was concurrent with the closing, as Pilot
Software was privately-held.
6 The transaction value implied by the merger is negative and, therefore,
meaningless for purposes of this analysis.
7 Our company's LTM Revenues were calculated for the quarter ended
September 30, 2001.
Adams, Harkness & Hill noted that the terms of the SG Merger implied a
negative transaction value and that, as such, the ability to compare relative
values with and among the precedent transactions was problematic. Adams,
Harkness & Hill noted that two of the precedent transactions had negative
transaction values as a result of the respective target company's cash balance
exceeding the equity value of the respective transaction. Adams, Harkness & Hill
discussed with the special committee the implications of such a negative
transaction value, including the implication in such instances that the
acquiring company, in valuing the company to be acquired, was assuming that the
acquired company would continue to consume cash for some meaningful period after
the transaction was completed.
73
Adams, Harkness & Hill discussed with the special committee its concern
that, even though the majority of the precedent transactions were announced
after the second calendar quarter of 2000, a point representing the beginning of
a significant and prolonged decline in per share value among publicly-held
software vendors, many of the transactions were announced at relatively high
valuations that did not reflect at the time of their announcement this decline
in value across the software industry. Adams, Harkness & Hill noted the majority
of transactions over the last two years in the software industry segments in
which the company competes involved the acquisition of companies with a
significant portion of their business directed toward the Internet and, as such,
the valuations at which these transactions were announced reflected this
direction and the enthusiasm investors had at the time for Internet-oriented
businesses. Adams, Harkness & Hill further noted many Internet-oriented
companies that had been acquirers during this period (e.g., DoubleClick Inc. and
Kana Software, Inc.) had themselves seen their valuations decline significantly.
Adams, Harkness & Hill advised the special committee that, even though
the precedent transaction data did not support a specific comparison of the SG
Merger to the precedent transactions, it had concluded that from its analysis of
the precedent transactions and its familiarity with the current merger and
acquisition environment that the terms of the SG Merger, specifically the
valuation of $2.70 per share, compared favorably with the terms and valuations
associated with the precedent transactions.
Adams, Harkness & Hill utilized in developing its fairness opinion a
comparison of the premiums implied by the $2.70 per share offered in the SG
Merger to historical share prices of the company's common stock to premiums from
historical share prices associated with the precedent transactions. Adams,
Harkness & Hill discussed with the special committee the absolute magnitude of
the premiums implied by the $2.70 per share offered in the SG Merger, noting the
$2.70 per share represented a premium of 78.8% to the closing share price of the
company's common stock on October 22, 2001. Similarly, the $2.70 per share
offered in the SG Merger represented a premium of 107.7% to the closing share
price of September 25, 2001, representing four trading weeks prior to October
22, 2001. Adams, Harkness & Hill noted, while the $2.70 offered in the SG Merger
represented a discount of 16.9% to the closing share price of October 20, 2000
(representing the last trading day one calendar year prior to October 22, 2001),
the $2.70 offered in the SG Merger represented a premium of 24.4% to the volume
weighted average price for that same one year period.
LIQUIDATION ANALYSIS
Adams, Harkness & Hill assessed the historical book value of the
assets, both tangible and intangible, on our balance sheet as of September 30,
2001 and assumed that cash, net of payables and expenses, would be distributed
to our shareholders. Adams, Harkness & Hill valued individual asset classes
under the assumption that, net of associated liabilities, these assets could be
sold on an arms-length basis and in a reasonable period of time. This approach
focuses on the net liquidation value of certain balance sheet items and the
possible sale proceeds from the disposal of certain distinct operations. Based
on its discussions with service firms engaged in the liquidation of businesses
and its familiarity with the stand alone value of intellectual property such as
software code, Adams, Harkness & Hill assigned discounts to book value based on
asset categories. Property and equipment was valued at 30% of book value and
accounts receivable and certain intellectual property were valued at 50% of book
value.
After assessment of our operations and the likelihood of sale of any
particular asset, Adams, Harkness & Hill concluded that, other than cash and
cash equivalents totaling approximately $37 million, the annuity value of the
revenue stream derived from customer service and support contracts with existing
customers was the asset with the highest potential value in a liquidation. Based
on its analysis of this revenue stream and its discussions with certain
value-added resellers and systems integrators familiar with the customer
relationship management software segment, Adams, Harkness & Hill concluded the
annuity value of this revenue stream was approximately $3.4 million. Adams,
Harkness & Hill then estimated the potential expenses that would be incurred in
a liquidation. Such expenses include, without limitation, lease termination
payments, employee severance and litigation costs associated with the
termination of accounts and contracts and the collection of accounts
receivables. While quantifying such potential payments in inherently
speculative, Adams, Harkness & Hill considered the fact that approximately $6
million of rent payments remain payable under the company's lease for its
offices in Delray Beach, Florida and estimated severance costs associated with a
liquidation to be approximately $3 million. The costs of legal fees in
connection with a liquidation were estimated to be approximately $1 million.
74
Adams, Harkness & Hill then totaled the asset categories, and deducted
liabilities and assumed expenses and cash charges associated with such a
liquidation and concluded that the range of pre-tax value to be realized on a
per share basis ranged from approximately $2.30 to approximately $2.90. Adams,
Harkness & Hill advised the special committee of the difficulty of a liquidation
and the unpredictability of the costs of liquidation due to, among other things,
severance payments, lease termination payments, litigation costs associated with
the termination of accounts and the inability to collect accounts receivable.
Although cash and cash equivalents would be realized in the event of a
liquidation, Adams, Harkness & Hill emphasized the low probability of realizing
an attractive valuation for the company's customer support business because a
majority of the company's support contracts relate to the company's primary
product which is written in COBOL, an outmoded computer programming language
that is difficult to maintain. Therefore, a buyer of this asset would face the
risk that customers fail to renew service contracts and instead upgrade their
software.
SOLICITATION OF POTENTIAL ACQUIRERS AND MERGER PARTNERS
Adams, Harkness & Hill identified a large group of potential acquirers
of our company based on its familiarity with the customer relationship
management, enterprise resource management and supply chain management segments
of the software industry, as well as extensive discussions with company
management and Sharon Gardner who had contacted approximately 50 potential
buyers of our company between March 2001 to June 2001. With the permission of
the special committee, Adams, Harkness & Hill contacted the 17 parties that it
deemed most likely to have an interest in a negotiated business combination with
the company. Of the 17 parties contacted by Adams, Harkness & Hill, seven had
not been contacted previously by Sharon Gardner. Such a limited solicitation of
potential acquirers was not a methodology Adams, Harkness & Hill used in
developing its fairness opinion, per se, but the responses to such solicitation
did contribute to substantiating the assumptions it made and conclusions at
which it arrived.
Initial contact with potential acquirers or merger partners was made
without specifically revealing the identity of the company, although the
company's public company status, operating background and markets served were
disclosed to each potential acquirer or merger partner. Based on a satisfactory
expression of interest by a contacted party, Adams, Harkness & Hill arranged for
a non-disclosure agreement to be executed and, upon such execution, distributed
a package of publicly-available materials describing the company to that
contacted party. Adams, Harkness & Hill subsequently discussed with each
interested party their interest and qualified their ability to proceed in a
timely fashion with due diligence, their own evaluation of the opportunity and,
if appropriate, negotiation of a transaction with the company.
Of the 17 parties contacted by Adams, Harkness & Hill, three expressed
sufficient interest to execute a non-disclosure agreement. Of these three, only
one party engaged in any degree of substantive due diligence, ultimately
determining it was not interested in proceeding with evaluation of the
opportunity.
Adams, Harkness & Hill advised the special committee of the responses
from those parties declining initial interest and those parties to whom the
company had been identified and to whom information had been distributed. In
summary, the reasons for declining to pursue a transaction with the company
were:
- the depressed state of the software industry in general and,
specifically, the marked decline in performance of companies
in the customer relationship management segment of the
software industry made managers of these companies reluctant
to consider any near-term acquisition or merger activity;
- the unfavorable view held by many of the parties contacted,
whose software has been written in contemporary open
programming languages (e.g., C++ and Java), that the company's
key applications, written in the COBOL programming language
for the Hewlett Packard 3000
75
mini-computer product line, would require a prohibitively high
commitment of development time and expense to make the
applications compliant and interoperable with those vendors'
existing applications;
- the unfavorable view held by many vendors of customer
relationship management, enterprise resource management and
supply chain management software of the market segments served
by the company, specifically the Internet retailing segment
and related segments (e.g., fulfillment houses), as
unattractive due to the number of recent business failures;
and
- the company's recent financial losses and cash consumption and
the assumed prospect for continued losses and cash
consumption.
SUMMARY OF ADAMS, HARKNESS & HILL VALUATION ANALYSES
The foregoing summary does not purport to be a complete description of
the analyses performed by Adams, Harkness & Hill. The preparation of a fairness
opinion is a complex process. Adams, Harkness & Hill believes that its analyses
must be considered as a whole, and that selecting portions of such analysis
without considering all analyses and factors would create an incomplete view of
the processes underlying its opinion. Adams, Harkness & Hill did not attempt to
assign specific weights to particular analyses. Any estimates contained in
Adams, Harkness & Hill's analyses are not necessarily indicative of actual
values, which may be significantly more or less favorable than as set forth
therein. Estimates of values of companies do not purport to be appraisals or
necessarily to reflect the prices at which companies may actually be sold.
Because such estimates are inherently subject to uncertainty, Adams, Harkness &
Hill does not assume responsibility for their accuracy. Taken together, the
information and analyses employed by Adams, Harkness & Hill lead to its overall
opinion that the consideration to be received in the SG Merger is fair, from a
financial point of view, to the company's shareholders, other than the Principal
Shareholders and SG.
RAYMOND JAMES PRESENTATION
On July 25, 2001 representatives from Raymond James & Associates, Inc.
("Raymond James") presented a preliminary analysis of the valuation of the
company to the company's board of directors. Raymond James' preliminary analysis
included a valuation of the company using the following methodologies: (i)
liquidation analysis, (ii) comparison to precedent merger and acquisition
transactions, (iii) discounted cash flow analysis, and (iv) comparison to public
companies in the same or similar segments of the market as the company. This
analysis produced a broad range of values depending on the methodology used. The
Raymond James presentation was based on the company's June 30, 2001 financial
statements and certain projections provided by company management. The following
description of the conclusions reached by Raymond James and certain of the
assumptions in which such conclusions were based was prepared by the company
based on the materials distributed by Raymond James to the company's board of
directors on July 25, 2001 (the "Raymond James Presentation"). The summary was
not prepared by or approved by Raymond James. The Raymond James
Presentation is included as an exhibit to the company's Schedule 13E-3 filed
concurrently with this proxy. This summary does not purport to be a complete
description of the Raymond James Presentation. Raymond James has indicated that
the statements included in this proxy statement contain numerous inaccuracies
and mischaracterizations as to the scope and intent of the July 25, 2001
presentation but has not responded to a request to correct the disclosure.
Raymond James filed a demand for arbitration against the company with
the American Arbitration Association claiming breach of contract. Raymond James
claims that it is owed $750,000 in connection with services it believes it
should have been retained to perform in connection with company's proposed
merger transaction with SG. The company believes that Raymond James' claims are
without merit and intends to defend the proceeding vigorously.
76
LIQUIDATION ANALYSIS
Raymond James concluded that the value of each share of the company's
common stock if the company were to liquidate was $2.63. Raymond James valued
accounts receivable at 50% of book value, inventory at 50% of book value,
pre-paid expenses and other current assets at 10% of book value and property and
equipment at 50% of book value. Raymond James did not assign any value to the
revenue stream derived from the company's customer service and support contracts
with its existing customers. Raymond James estimated the costs of a liquidation
to be approximately $5.5 million. Raymond James did not include potential
employee severance costs in such estimation.
COMPARISON WITH RECENT MERGER & ACQUISITION ACTIVITY
Raymond James analyzed recent merger and acquisition activity with
regard to (i) software companies and (ii) recent "going private" transactions
across all industries. Raymond James' analysis focused on Total Enterprise
Value/Revenue ("TTM/Revenue") and Purchase Price of Equity/Tangible Book Value
("PPE/TBV"). As a result of this analysis, Raymond James concluded that when
comparing the company with precedent merger and acquisition transactions of
software companies, the value of the company's common stock was $17.39 per share
using a TTM/Revenue calculation and $28.38 per share using a PPE/TBV
calculation. Raymond James concluded that the value of the company's common
stock was $4.90 per share using a TTM/Revenue calculation and $7.35 per share
using a PPE/TBV calculation when comparing the company with precedent "going
private" transactions.
DISCOUNTED CASH FLOW ANALYSIS
Raymond James valued the company using a discounted cash flow analysis.
Using preliminary projections supplied by the company, Raymond James concluded
that the company's cash flow would be negative through 2004. Using this
methodology, Raymond James concluded that the value of the company's common
stock was between $3.59 and $5.14 per share depending on the discount rate
applied to the analysis and the estimated terminal value of the company.
PEER GROUP COMPARISON
Raymond James' final analysis was a comparison of the company to other
companies in the same or similar sectors of the market as the company. Using
this analysis, Raymond James concluded that the value of the company's common
stock was between $8.35 and $11.02 per share.
OUR MANAGEMENT'S FORECAST - THE SG MERGER
We do not, as a matter of course, make public projections as to future
sales, earnings or other results. However, in connection with our possible sale
to SG, during August 2001 our management prepared and provided to Adams,
Harkness & Hill the projections set forth below in order to assist in its
preparation of a fairness opinion to the special committee in connection with
the SG Merger. The projections have been included herein solely because Adams,
Harkness & Hill considered them in rendering its fairness opinion. The special
committee has reviewed the projections and determined that Adams, Harkness &
Hill's reliance on them was reasonable.
The primary assumptions underlying our management's forecasts are as
follows:
For 2001
- Actual results through June 30, 2001
- Q3 New Customer Systems Sales forecast - $1,189,314
- Q3 Existing Client Systems Sales forecast - $1,502,214
- Q4 New Customer System Sales forecast - $1,134,954
- Q4 Existing Client System Sales forecast - $1,709,023
77
- Support and Services revenues estimated based on existing commitments
and estimated demand
- Costs of sale for hardware and third party software based on estimated
margins. Cost of sales salaries are based on established budgets
- General and Administrative expenses are based on established budgets
- General and Administrative expenses include estimated merger expenses
of $1,000,000
- Sales and Marketing expenses are based on established budgets
- Research and development expenses are based on established budgets
- Income tax benefit is based on an estimated benefit of 20% of net
consolidated losses
For 2002
- New Customer System Sales are based on 30 implementations at an
average sale price of $250,000 for a total of $7,500,000
- Existing Client software sales are estimated to be $4,000,000
- Existing Client 3rd party hardware and software sales are estimated to
increase by 5% over 2001 for a total of $4,638,616
- Support revenues were estimated by annualizing fourth quarter 2001
estimated support fees and factoring new client sales as well as
software license upgrades, offset by client attrition
- Services revenues are estimated to increase by 5% over 2001 levels
- Costs of sale for hardware and third party software are based on
estimated margins. Cost of sales salaries are based on a 10% reduction
from fourth quarter 2001 levels
- General and Administrative expenses are based on a 10% reduction from
2001 levels
- Sales and Marketing expenses are based on a 10% reduction from 2001
levels
- Research and development expenses are based on a 10% reduction from
2001 levels
- International subsidiary revenues were separately budgeted and assume
a 20% decrease from 2001
- International subsidiary expenses were separately budgeted and are
based on 110% of subsidiary revenues
- No income tax benefits are assumed for 2002 losses due to the
uncertainty of realizing such benefits
The projections below were not prepared with a view to public
disclosure or compliance with published guidelines of the Securities and
Exchange Commission, or the guidelines established by the American Institute of
Certified Public Accountants regarding projections. Neither our independent
public accountants, nor any other independent accountants, have compiled,
examined or performed any procedures with respect to these projections, nor have
they expressed any opinion or other form of assurance with respect to these
projections or their achievability, and assume no responsibility for, and
disclaim any association with them. The inclusion of these projections in this
document should not be regarded as a representation by us, any members of our
management team, our board of directors, the special committee, SG, the
Principal Shareholders, Adams, Harkness & Hill or any of their advisors, agents
or representatives that these projections are or will prove to be correct.
Projections of this type are based on a number of significant uncertainties and
contingencies, all of which are difficult to predict and most of which are
beyond our control. As a result, there can be no assurance that any of these
projections will be realized.
The projections below are or involve forward-looking statements and, as
discussed below, are based upon a variety of assumptions. These assumptions
involve judgments with respect to future economic, competitive, industry and
regulatory conditions, financial market conditions and future business
decisions, all of which are difficult or impossible to predict accurately and
many of which are beyond our control. Many important factors could cause our
results to differ materially from those expressed or implied by the
forward-looking statements. These factors are described under "Cautionary
Statement Regarding Forward-Looking Statements -- The SG Merger." In addition,
with respect to the SG Merger, the following factors, among others, could cause
actual events to differ materially from those described herein: inability to
satisfy various conditions to the closing of the SG Merger, including failure of
our stockholders to approve the SG Merger; the costs related to the SG Merger;
and the effect of the SG Merger on vendor, supplier, customer or other business
relationships. All of the above matters are difficult to predict and many are
beyond
78
our control. Accordingly, there can be no assurance that any of the projections
are indicative of our future performance or that actual results will not differ
materially from those in the projections set forth below. See "Cautionary
Statement Regarding Forward-Looking Statements -- The SG Merger" on page ___.
The inclusion of the projections herein should not be interpreted as an
indication that any of the company, SG, the Principal Shareholders or Adams,
Harkness & Hill or their respective affiliates or representatives considered or
consider the projections to be a reliable prediction of future events, and the
predictions should not be relied upon as such. None of the company, SG, the
Principal Shareholders or Adams, Harkness & Hill or their respective affiliates
or representatives has made or makes any representation to any person regarding
the ultimate performance of the company compared to information contained in the
projections, and none of them intends to update or otherwise revise the
projections to reflect circumstances existing after the date when made or to
reflect the occurrence of future events even in the event that any or all of the
assumptions underlying the projections are shown to be in error. For comparative
purposes only, the projections provided by the company to Raymond James in June
2001, to Adams, Harkness & Hill in August 2001 and October 2001 and to Syngistix
in January 2002 are also provided. The projections provided to Raymond James and
to Adams, Harkness & Hill changed because, due to the passage of time,
management had greater visibility as to the results of 2001 and the potential
results of 2002.
79
PROJECTIONS FOR FISCAL YEAR PROVIDED TO
SYNGISTIX (JANUARY 2002):
---------------------------------------
2002E
------------
Total Revenue ................................................... $ 32,870,352
Gross Margin..................................................... $ 17,423,173
Operating Income................................................. $ (1,225,152)
Net Income (Loss)................................................ $ (544,695)
PROJECTIONS FOR FISCAL YEAR PROVIDED TO
ADAMS, HARKNESS & HILL (OCTOBER 2001):
---------------------------------------
2001E 2002E
------------- ------------
Total Revenue ................................................... $ 27,484,929 $ 30,324,186
Gross Margin..................................................... $ 11,980,928 $ 14,570,432
Operating Income................................................. $ (10,766,480) $ (3,995,532)
Net Income (Loss)................................................ $ (7,207,802) $ (2,765,018)
PROJECTIONS FOR FISCAL YEAR PROVIDED TO
ADAMS, HARKNESS & HILL (AUGUST 2001):
---------------------------------------
2001E 2002E
------------- ------------
Total Revenue ................................................... $ 29,905,908 $ 30,324,186
Gross Margin..................................................... $ 11,180,616 $ 14,570,432
Operating Income................................................. $ (8,577,815) $ (3,995,532)
Net Income (Loss)................................................ $ (5,445,123) $ (2,765,018)
PROJECTIONS FOR FISCAL YEAR PROVIDED TO
RAYMOND JAMES (JUNE 2001):
---------------------------------------
2001E 2002E
------------- ------------
Total Revenue ................................................... $ 32,269,537 $ 40,062,824
Gross Margin..................................................... $ 13,613,303 $ 18,896,992
Operating Income................................................. $ (6,019,576) $ 1,735,887
Net Income (Loss)................................................ $ (2,501,554) $ (197,751)
80
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS --
THE SG MERGER
This proxy statement contains or incorporates by reference certain
forward-looking statements and information relating to us that are based on the
beliefs of management as well as assumptions made by and information currently
available to us. Forward-looking statements include statements concerning
projected financial data, plans, objectives, goals, strategies, future events or
performance and underlying assumptions and other statements which are other than
statements of historical facts, including statements regarding the completion of
the SG Merger. When used in this document, the words "anticipate," "believe,"
"estimate," "expect," "plan," "intend," "project," "predict," "may," and
"should" and similar expressions, are intended to identify forward-looking
statements. Such statements reflect our current view with respect to future
events, including the completion of the SG Merger, and are subject to numerous
risks, uncertainties and assumptions. Many factors could cause our actual
results, performance or achievements to be materially different from any future
results, performance or achievements that may be expressed or implied by the
forward-looking statements, including, among others:
- the failure of shareholders to approve the SG Merger Agreement
and the SG Merger;
- the unpredictability of revenues due to the large dollar
amounts of our individual license transactions and the lengthy
and unpredictable sales cycles for these transactions;
- our dependence on the development, introduction and client
acceptance of new and enhanced versions of our software
products;
- our ability to control costs, including costs associated with
our infrastructure and increased research and development
expenses;
- our dependence on new product development;
- uncertainties regarding the outcome of the pending class
action litigation against us;
- our reliance on a combination of trade secrets, copyright and
trademark law, nondisclosure agreements and technical measures
to protect our proprietary technology;
- our ability to sell our products in new markets within the
direct commerce industry;
- our dependence on proprietary technology licensed from third
parties;
- our ability to continue to resell a variety of hardware and
software developed and manufactured by third parties;
- our ability to maintain margins on the sale of hardware and
software developed and manufactured by third parties;
- significant competition in the software and direct commerce
industry and competitive pricing for our products;
- customer concentration;
- fluctuations in demand for our products which are dependent
upon the condition of the software and direct commerce
industries;
81
- our ability to collect receivables;
- economic effects of the September 11, 2001 terrorist attacks
in New York, near Washington, D.C. and in Pennsylvania, the
possibility of future attacks and the uncertain effect of the
country's military involvement resulting from such attacks;
and
- other risks and uncertainties described in this proxy
statement and other documents filed with the Securities and
Exchange Commission.
Should one or more of these risks or uncertainties materialize, or
should underlying assumptions prove incorrect, actual results may vary
materially from those described in this proxy. Further information about the
risks of forward-looking statements applicable to us can be found in [OUR FORM
10-Q FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2001 AND OUR FORM 10-K FOR THE YEAR
ENDED DECEMBER 31, 2000], both of which have been incorporated herein by
reference and attached as Annex D and Annex E, respectively, to this proxy
statement.
82
THE SPECIAL MEETING
MATTERS TO BE CONSIDERED
We are furnishing this proxy statement in connection with a special
meeting of our shareholders to be held on [__________________] [__], 2002 at
10:00 a.m. local time at the Embassy Suites, 661 Northwest 53rd Street, Boca
Raton, Florida 33487, to allow our shareholders to consider and vote on a
proposal to approve the Syngistix Merger and Syngistix Merger Agreement and the
SG Merger and the SG Merger Agreement. A copy of the Syngistix Merger Agreement
is attached to this proxy statement as Annex A and a copy of the SG Merger
Agreement and SG Amendment are attached to this proxy statement as Annex B. If
the Syngistix Merger Agreement is approved by our shareholders and the other
conditions to the Syngistix Merger are satisfied or waived, Citrus will be
merged with and into us and all shares currently held by our shareholders will
be converted into the right to receive $2.90 in cash, without interest. If the
conditions to the Syngistix Merger Agreement are not satisfied or waived and the
SG Merger and SG Merger Agreement is approved by our shareholders and the other
conditions to the SG Merger are satisfied or waived, SG will merge with and into
us and all shares currently held by our shareholders (other than the Principal
Shareholders and SG) will be converted into the right to receive $2.70 in cash,
without interest. The SG Merger will only occur if the conditions to close the
Syngistix Merger do not occur and the Syngistix Merger Agreement is terminated.
OUR SHAREHOLDERS MAY VOTE TO APPROVE BOTH THE SYNGISTIX MERGER AND THE
SG MERGER, ONLY ONE OF THEM, OR NEITHER OF THEM. IF THE CLOSING CONDITIONS TO
THE SYNGISTIX MERGER (INCLUDING THE APPROVAL OF OUR SHAREHOLDERS) ARE SATISFIED
OR WAIVED, THE SYNGISTIX MERGER WILL OCCUR AND THE SG MERGER WILL NOT OCCUR. IF
THE CLOSING CONDITIONS TO THE SYNGISTIX MERGER ARE NOT SATISFIED OR WAIVED AND
THE SYNGISTIX MERGER DOES NOT OCCUR AND THE CLOSING CONDITIONS TO THE SG MERGER
ARE SATISFIED OR WAIVED, THE SG MERGER WILL OCCUR.
We are also soliciting proxies to grant discretionary authority to vote
in favor of adjournment or postponement of the special meeting and such other
matters as may properly come before the special meeting or any adjournment of
the special meeting. We do not expect a vote to be taken on any other matters at
the special meeting. However, if any other matters are properly presented at the
special meeting for consideration, the holders of the proxies will have
discretion to vote on these matters in accordance with their best judgment. If
the special committee believes that it is in the best interest of the
shareholders to waive certain conditions to either the Syngistix Merger
Agreement or the SG Merger Agreement, such conditions will be waived. We will
not re-solicit proxies if any of the conditions are waived.
Representatives of our independent auditors are not expected to be
present at the special meeting.
THE SPECIAL COMMITTEE, THE BOARD, WITH MESSRS. SMITH AND GARDNER
ABSTAINING, AND THE FULL BOARD UNANIMOUSLY, HAVE ADOPTED AND APPROVED THE
SYNGISTIX MERGER AGREEMENT AND THE SYNGISTIX MERGER AND RECOMMEND A VOTE FOR
APPROVAL OF THE SYNGISTIX MERGER AGREEMENT AND THE SYNGISTIX MERGER.
THE SPECIAL COMMITTEE, THE BOARD, WITH MESSRS. SMITH AND GARDNER
ABSTAINING, AND THE FULL BOARD UNANIMOUSLY, HAVE ADOPTED AND APPROVED THE SG
MERGER AGREEMENT AND THE SG MERGER AND RECOMMEND A VOTE FOR APPROVAL OF THE SG
MERGER AGREEMENT AND THE SG MERGER.
REQUIRED VOTES
The affirmative vote of at least a majority of the outstanding shares
entitled to vote thereon (including shares held by SG (if any) and the Principal
Shareholders) is required to approve the Syngistix Merger Agreement and the
Syngistix Merger and the SG Merger Agreement and SG Merger. In addition, it is a
condition to our obligation to consummate the SG Merger that the holders of a
majority of our outstanding shares of common stock other than the Principal
Shareholders and SG and their affiliates vote to approve the SG Merger
Agreement. We may waive this condition.
83
As of [________________], 2002, the Principal Shareholders were the
beneficial owners of approximately 35% of the outstanding shares of our common
stock, of which all shares are eligible to vote at the special meeting. The
Principal Shareholders have agreed to vote these shares favor of the approval of
the Syngistix Merger and the Syngistix Merger Agreement and the SG Merger and
the SG Merger Agreement.
As of [_________________], 2002, our directors and executive officers
other than the Principal Shareholders beneficially owned less than 1% of our
outstanding common stock, excluding options to purchase common stock. All of our
directors and executive officers who own common stock have indicated that they
intend to vote to approve the Syngistix Merger Agreement and the Syngistix
Merger and the SG Merger Agreement and the SG Merger.
VOTING AND REVOCATION OF PROXIES
Shares that are entitled to vote and are represented by a proxy
properly signed and received at or prior to the special meeting, unless
subsequently properly revoked, will be voted in accordance with the instructions
indicated thereon. If a proxy is signed and returned without indicating any
voting instructions, shares represented by the proxy will be voted for the
proposals to approve the Syngistix Merger Agreement and the Syngistix Merger and
the SG Merger Agreement and the SG Merger and for the proposal to grant
discretionary authority to vote in favor of adjournment or postponement of the
special meeting. The board is not currently aware of any business to be acted
upon at the special meeting other than as described in this proxy statement.
Any proxy given pursuant to this solicitation may be revoked by the
person giving it at any time before the shares represented by the proxy are
voted at the special meeting by:
- attending and voting in person at the special meeting,
- giving notice of revocation of the proxy at the special
meeting, or
- delivering to our secretary a written notice of revocation or
a duly executed proxy relating to the same shares and matters
to be considered at the special meeting bearing a date later
than the proxy previously executed.
RECORD DATE; STOCK ENTITLED TO VOTE; QUORUM; VOTING AT THE SPECIAL MEETING
Only holders of shares on the record date will be entitled to receive
notice of and to vote at the special meeting. At the close of business on the
record date, there were outstanding and entitled to vote [_________] shares.
Each holder of record of common stock on the record date will be entitled to one
vote for each share held on all matters to be voted upon at the special meeting.
The presence, in person or by proxy, at the special meeting of the holders of at
least a majority of the shares entitled to vote is necessary to constitute a
quorum for the transaction of business.
Abstentions will be counted as present for the purpose of determining
whether a quorum is present but will not be counted as votes cast in favor of
either merger. Abstentions, therefore, will have the same effect as a vote
against both mergers.
Brokerage firms who hold shares in "street name" for customers will not
have the authority to vote those shares with respect to the mergers if such
firms have not received voting instructions from a beneficial owner. The failure
of a broker to vote shares in the absence of instructions (a "broker non-vote")
will be counted as present for the purpose of determining whether a quorum is
present but will not be counted as votes cast in favor of either merger. Broker
non-votes, therefore, will have the same effect as a vote against both mergers.
84
ADJOURNMENTS
Although it is not expected, the special meeting may be adjourned for
the purpose of soliciting additional proxies. Any adjournment of the special
meeting may be made without notice (other than by the announcement made at the
special meeting) by approval of the holders of a majority of the outstanding
shares of our common stock present in person or represented by proxy at the
special meeting, whether or not a quorum exists. We are soliciting proxies to
grant discretionary authority to vote in favor of adjournment of the special
meeting. In particular, discretionary authority is expected to be exercised if
the purpose of the adjournment is to provide additional time to solicit votes to
approve and adopt the Syngistix Merger Agreement and the Syngistix Merger and
the SG Merger Agreement and the SG Merger. The board of directors unanimously
recommends that you vote in favor of the proposal to grant discretionary
authority to adjourn the meeting.
APPRAISAL RIGHTS
Pursuant to the Florida Business Corporation Act, because our shares
are listed on the Nasdaq National Market, shareholders do not have appraisal
rights whether they vote for or against the mergers.
SOLICITATION OF PROXIES
We will bear the cost of soliciting proxies from shareholders. In
addition to soliciting proxies by mail, our officers and directors and
employees, without receiving additional compensation, may solicit proxies by
telephone, facsimile or in person. Arrangements may also be made with brokerage
firms and other custodians, nominees and fiduciaries to forward solicitation
materials to the beneficial owners of shares held of record by such persons, and
we will reimburse such brokerage firms, custodians, nominees and fiduciaries for
reasonable out-of-pocket expenses incurred by them. We have retained D.F. King &
Co., Inc., at an estimated cost of approximately $10,000, plus reimbursement of
expenses, to assist us in the solicitation of proxies.
85
CERTAIN INFORMATION CONCERNING OUR COMPANY
SELECTED HISTORICAL FINANCIAL DATA
We are providing the following historical financial information to aid
you in your analysis of the financial aspects of either merger.
The following selected financial data is only summary and should be
read with our financial statements and the notes to those statements and our
"management's discussion and analysis of financial condition and results of
operations" contained in our Form 10-K filed with the Securities and Exchange
Commission for the year ended December 31, 2000 and our Form 10-Q filed with the
Securities and Exchange Commission for the quarter ended September 30, 2001
attached as Annex D and Annex E, respectively, to this proxy statement and
incorporated by reference herein. The statement of operations data for the years
ended December 31, 2001, 2000, 1999, 1998 and 1997 and the balance sheet data at
December 31, 2001, 2000, 1999, 1998 and 1997, are derived from our financial
statements which have been audited by our independent auditors, KPMG, LLP
(except for the December 31, 2001 financial statements which have not yet been
audited). KPMG has not opined or consented to the pro forma data. Please note
that historical results are not necessarily indicative of the results to be
expected in the future. See Annex D and Annex E hereto.
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------------
2001 2000 1999 1998 1997
--------- --------- --------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
STATEMENT OF
OPERATIONS DATA:
Revenue ................................ 26,265 45,616 46,598 33,702 18,652
Cost of sales and services ............. 14,965 25,301 22,544 17,780 11,889
--------- --------- --------- --------- ---------
Gross Profit ........................... 11,300 20,315 24,054 15,922 6,763
Operating expenses ..................... 21,570 23,823 17,067 11,222 8,060
--------- --------- --------- --------- ---------
(Loss) income from operations .......... (10,270) (3,508) 6,987 4,700 (1,297)
Other (expense) income, net ............ 1,107 2,299 1,584 (1,697) (2,071)
--------- --------- --------- --------- ---------
(Loss) Income before provision
for income taxes .................... (9,163) (1,209) 8,571 3,003 (3,368)
Income Tax benefit (expense) ........... 1,651 (375) (3,048) -- --
--------- --------- --------- --------- ---------
Net (loss) income ...................... $ (7,512) $ (1,584) $ 5,523 $ 3,003 $ (3,368)
========= ========= ========= ========= =========
Net (loss) income per share:
Basic ............................... $ (0.61) $ (0.13) $ 0.48 $ 0.57 $ (0.64)
========= ========= ========= ========= =========
Diluted ............................. $ (0.61) $ (0.13) $ 0.44 $ 0.50 $ (0.64)
========= ========= ========= ========= =========
Weighted average shares used in
calculating net income per share:
Basic ............................... 12,394 12,372 11,622 5,263 5,263
========= ========= ========= ========= =========
Diluted ............................. 12,394 12,372 12,426 8,131 5,263
========= ========= ========= ========= =========
86
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------------
2001 2000 1999 1998 1997
--------- --------- --------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
PRO FORMA DATA
(UNAUDITED):
Income (loss before income tax
expense benefit ................. $ 8,571 3,003 (3,368)
Pro forma income tax (expense)
benefit (2) ........................ (3,378) (1,215) 948
--------- -------- --------
Pro forma net income (loss) (2) ........ $ 5,193 $ 1,788 $ (2,420)
BALANCE SHEET DATA:
Cash and cash equivalents .......... $ 35,755 $ 36,827 $ 39,246 $ 1,577 $ 169
- ------------------
(1) The fair value of the conversion features of the Convertible Debentures
was determined to be $3.5 million based on the difference between the
stated interest rates and the estimated market rate of such Convertible
Debentures on the date of issuance. The amount is included in
additional paid-in capital in the accompanying consolidated balance
sheet, with the resulting original issue discount on the convertible
debt being amortized from the date of issuance (December 19, 1994) to
the date the security first became convertible (June 30, 1997). This
interest expense is a non-cash item.
(2) Prior to completing our initial public offering of common stock and as
a result of our election to be treated as an S Corporation before that
time for income tax purposes, we were not subject to federal or certain
state income taxes. Upon our voluntary revocation of our S Corporation
status effective January 1, 1999, we became subject to federal and
certain state income taxes at applicable rates for a C Corporation. The
unaudited pro forma income tax (expense) benefit presented in the
consolidated statements of operations represents the estimated taxes
that would have been recorded had we been a C Corporation for income
tax purposes for each of the periods presented.
RECENT DEVELOPMENTS [TO BE UPDATED TO INCLUDE UPDATES SINCE 12/31/01]
On November 9, 2001, we sold the assets of our domestic subsidiary,
NewHaven Software Corporation, in exchange for a promissory note in the amount
of $200,000, plus interest, to be paid quarterly over four years, commencing
July 1, 2002.
On November 9, 2001, we sold the shares of our United Kingdom
subsidiary, Smith-Gardner & Associates Limited, for (pound)1 to Anthony C.
Glover, its former managing director. On that date, we executed a distribution
agreement with Smith-Gardner pursuant to which we will receive royalties for
sales of our products. We have retained the intellectual property rights to all
products to be sold.
During the second quarter of 2001, we ceased operations in Australia.
We have no future plans to market or sell our products in Australia or the
Pacific Rim and our Australian subsidiary was dissolved December 21, 2001 to
take advantage of income tax losses resulting from the forgiveness of
intercompany debt.
87
PRICE RANGE OF SHARES; DIVIDENDS; AND STOCK REPURCHASES
In February 1999, we completed an initial public offering of 4,410,000
shares of common stock at $12.00 per share. Our aggregate net proceeds from the
initial public offering, after deducting underwriting discounts and commissions
and other expenses, were approximately $44 million.
Our common stock began trading on the NASDAQ National Market under the
symbol "SGAI" on January 29, 1999. On December 4, 2000, we changed our name from
Smith-Gardner & Associates, Inc. to Ecometry Corporation and continued trading
on the NASDAQ National Market under the new symbol of "ECOM". Market price
information is not available prior to January 1999. The following table sets
forth the range of high and low bid prices for our common stock for the period
from January 2000 through February 19, 2002, as reported by NASDAQ. The quotes
represent "Inter-dealer" prices without retail markups, markdowns or commissions
and may not necessarily represent actual transactions.
HIGH LOW
---- ---
Year Ended December 31, 2000
First Quarter........................................................... $ 23.375 $ 15.875
Second Quarter.......................................................... $ 18.000 $ 3.688
Third Quarter........................................................... $ 5.938 $ 2.750
Fourth Quarter.......................................................... $ 4.047 $ 1.375
Year Ended December 31, 2001
First Quarter........................................................... $ 3.750 $ 1.531
Second Quarter.......................................................... $ 2.040 $ 1.188
Third Quarter........................................................... $ 1.790 $ 1.200
Fourth Quarter.......................................................... $ 2.640 $ 1.300
Year Ended December 31, 2002
First Quarter (through February 19, 2002)............................... $ 3.100 $ 2.610
On ______, 2002, we had issued and outstanding 12,422,474 shares of
common stock. On such date, there were [ ] holders of record of our common
stock. Such number includes shareholders of record who hold stock for the
benefit of others. On October 25, 2001, the trading day immediately prior to the
announcement of the SG Merger Agreement, the last reported sales price per share
as reported on Nasdaq was $1.50.
The payment of dividends is within the discretion of the board of
directors. We have not declared or paid cash dividends on our common stock since
our initial public offering. It is the present intention of the board of
directors to retain all future earnings for use in our business operations and,
accordingly, the board does not anticipate declaring any dividends in the
foreseeable future.
On August 19, 2000, Allan J. Gardner, one of the Principal
Shareholders, purchased 25,000 shares of our common stock in the open market at
a price of $4.639 per share.
88
OPTIONS HELD BY EXECUTIVE OFFICERS, DIRECTORS AND AFFILIATES
CASH PAYMENT CASH
ASSUMING PAYMENT
COMPLETION ASSUMING
SHARES EXERCISE OF SYNGISTIX COMPLETION
NAME COVERED PRICE MERGER OF SG MERGER
---- ------- -------- ------------ ------------
Wilburn W. Smith(1)................................... 42,500 $ 17.35 $ 0 $ 0
Allan J. Gardner(1)................................... 42,500 $ 17.35 $ 0 $ 0
James J. Felcyn, Jr.(2)............................... 5,000 $ 15.78 $ 0 $ 0
5,000(3) $ 1.75 $ 5,750 $ 4,750
15,000 $ 13.13 $ 0 $ 0
Robert Kneip(2)....................................... 15,000 $ 9.31 $ 0 $ 0
5,000(3) $ 1.75 $ 5,750 $ 4,750
Francis H. Zenie(2)................................... 15,000 $ 12.00 $ 0 $ 0
5,000 $ 15.78 $ 0 $ 0
5,000(3) $ 1.75 $ 5,750 $ 4,750
Joy Crenshaw.......................................... 2,222(4) $ 2.53 $ 822 $ 378
6,205 $ 12.00 $ 0 $ 0
50,000 $ 4.53 $ 0 $ 0
John Marrah........................................... 200,000 $ 8.69 $ 0 $ 0
50,000 $ 5.38 $ 0 $ 0
Martin Weinbaum....................................... 7,876(5) $ 2.53 $ 2,914 $ 1,339
72,453 $ 12.00 $ 0 $ 0
70,000 $ 15.78 $ 0 $ 0
40,000 $ 4.38 $ 0 $ 0
- ------------------
(1) Principal Shareholder
(2) Special committee member
(3) 3,750 of these options will vest upon completion of either merger,
resulting in the receipt of $4,312.50 if the Syngistix Merger is
completed or $3,562.50 if the SG Merger is completed.
(4) Three of these options will vest upon completion of either merger,
resulting in the receipt of $1.11 if the Syngistix Merger is completed
or $.51 if the SG Merger is completed.
(5) Six of these options will vest upon completion of either merger,
resulting in the receipt of $2.22 if the Syngistix Merger is completed
or $1.02 if the SG Merger is completed.
All of the above listed outstanding options will be fully vested
immediately prior to the effective time of the Syngistix Merger or the SG
Merger.
89
CERTAIN BENEFICIAL OWNERSHIP OF SHARES
The following table sets forth certain information as of [_______] 2002
regarding the beneficial ownership of common stock by (i) each shareholder known
to us to beneficially own more than five percent (5%) of the outstanding shares
of common stock; (ii) each of our directors; (iii) each of our executive
officers named in the Summary Compensation Table of our annual proxy statement;
and (iv) all directors and executive officers as a group. The percentage of
beneficial ownership for each person or entity in the table is based on
12,422,474 shares of common stock outstanding as of _________, 2002, including
for each person or entity any shares of common stock which may be acquired by
such person or entity within 60 days upon exercise of outstanding options,
warrants or other rights to acquire shares of common stock. Unless otherwise
indicated, the address of each of the individuals listed below is 1615 South
Congress Avenue, Delray Beach, Florida 33445-6368.
SHARES BENEFICIALLY OWNED
-----------------------------
NAME AND ADDRESS OF BENEFICIAL OWNER NUMBER PERCENT
- ------------------------------------ --------- -------
Allan J. Gardner (1)........................................................ 2,196,250(2) 17.6%
Wilburn W. Smith (1)........................................................ 2,171,250(2) 17.4%
John Marrah (3)............................................................. 114,000 *
Martin Weinbaum (4)......................................................... 107,263 *
James J. Felcyn, Jr. (5).................................................... 11,250 *
Francis H. Zenie (6)........................................................ 15,000 *
Robert C. Kneip (7)......................................................... 5,000 *
The Bear Stearns Companies Inc. (8)......................................... 624,750 5.0%
Bear, Stearns & Co. Inc. (8)................................................ 624,750 5.0%
All directors and executive officers as a group (8 persons) (9) ............ 4,642,668 36.4%
- ------------------
* Less than 1% of outstanding shares.
(1) Includes 21,250 shares of common stock subject to options exercisable
within 60 days.
(2) Expected to be contributed to SG prior to the SG Merger if applicable.
(3) Includes 112,500 shares of common stock subject to options which are or
become exercisable within 60 days.
(4) Includes 107,263 shares of common stock subject to options which are or
become exercisable within 60 days.
(5) Includes 11,250 shares of common stock subject to options which are or
become exercisable within 60 days.
(6) Includes 15,000 shares of common stock subject to options which are or
become exercisable within 60 days.
(7) Includes 5,000 shares of common stock subject to options which are or
become exercisable within 60 days.
90
(8) According to a Schedule 13D filed by Bear, Stearns & Co. Inc. and The
Bear Stearns Companies Inc., the parent company of Bear, Stearns & Co.
Inc. The Schedule 13D indicates that each reporting entity may be
deemed to beneficially own the same 624,750 shares of Common Stock.
According to the Schedule 13D, the principal place of business of Bear,
Stearns & Co. Inc. is 245 Park Avenue, New York, NY 10167.
(9) Includes 316,168 shares of common stock subject to options which are or
become exercisable within 60 days.
91
CERTAIN LEGAL MATTERS AND REGULATORY APPROVALS
GENERAL
We are not aware of any license or other regulatory permit that appears
to be material to our business that might be adversely affected by either the
Syngistix Merger or the SG Merger, or of any approval or other action by any
domestic (federal or state) or foreign governmental, administrative or
regulatory authority or agency that would be required prior to the Syngistix
Merger or the SG Merger. It is a condition to Syngistix's obligation to close
the Syngistix Merger that we have obtained all consents and approvals required
pursuant to certain of our contracts. Should any such approval or other action
be required, it is our present intention to seek such approval or action. We do
not currently intend, however, to delay the Syngistix Merger or the SG Merger
pending the outcome of any such action or the receipt of any such approval
(subject to the applicable party's right to decline to close the Syngistix
Merger or the SG Merger if certain conditions to closing are not satisfied or
waived. See "The Syngistix Merger Agreement -- Conditions to the Syngistix
Merger" and "The SG Merger Agreement -- Conditions to the SG Merger" on pages
38-39 and 62-63.). There can be no assurance that any such approval or other
action, if needed, would be obtained without substantial effort or that adverse
consequences might not result to our business, or that certain parts of our
businesses might not have to be disposed of or held separate or other
substantial conditions complied with in order to obtain such approval or other
action or in the event that such approval was not obtained or such other action
was not taken.
HART-SCOTT-RODINO
Neither the Syngistix Merger nor the SG Merger will require a filing or
approval under the Hart-Scott-Rodino Act.
LITIGATION
On November 13, 2001, a shareholder class action lawsuit was filed
against Ecometry and certain Ecometry officers and directors alleging that
the proposed transaction between SG and Ecometry is unfair to Ecometry's common
shareholders. The lawsuit was filed in the Circuit Court for Palm Beach County,
FL and is docketed as Wilson v. Ecometry Corp. et al., Case No. CA 01-11707 AF.
Among other things, the complaint alleged that the defendants breached duties
owed to the common shareholders to maximize the value received by the
shareholders. The complaint sought a court order stopping the SG Merger from
going forward and requiring the company to follow other procedures allegedly
designed to elicit other potential bidders and obtain the highest possible price
for the company. Because, among other things, the SG Merger had been negotiated
by the special committee, and because the special committee had bargained for
and obtained from SG a variety of shareholder protections that, among other
things, enabled the special committee to negotiate and consummate a transaction
superior to the SG Merger if one or more other parties expressed interest in
acquiring the company after public announcement of the SG Merger, Ecometry
regarded the complaint to be without merit and intended to defend it vigorously.
Following Ecometry's public announcement of the proposed SG Merger on
October 26, 2001, Ecometry received a merger proposal from Syngistix. Over a
period of several weeks the special committee and the company negotiated with
Syngistix and ultimately agreed to the Syngisitx Merger announced publicly on
January 28, 2002. During those negotiations, the company and the special
committee were at all times mindful of the pending class action litigation and
its allegations questioning the vigorousness and reasonableness of the company's
efforts in negotiating the SG Merger. The special committee's negotiating
efforts resulted in an offer from Syngistix of $2.90 per share of Ecometry's
common stock (an increase of $0.20 per share as compared to the price offered
pursuant to the SG Merger Agreement).
After the announcement that the company had agreed to the Syngistix
Merger, the company and the plaintiff in the litigation reached an agreement in
principle on February 11, 2002, to settle the litigation. That agreement in
principle is conditioned on the execution, filing, and final court approval of a
definitive settlement agreement, among other conditions. Under the agreement in
principle, among other terms, the plaintiff and the class will dismiss with
prejudice any and all claims that were brought or could have been brought in the
class action litigation and will unconditionally release such claims as against
the defendants. In addition, plaintiff's counsel will receive a payment from the
company in the amount of $100,000 in respect of counsel's fees and expenses
incurred in connection with prosecuting the class action suit, which will be
paid upon a court order finally approving the settlement becoming non-appealable
and otherwise final. Although the company continues to believe that the
litigation was without merit, it also believes that resolving the litigation
now, and thereby avoiding the uncertainties and additional expenses of the
litigation process (including any appeals), is in the company's best interests.
On December 11, 2001, the investment banking firm of Raymond James &
Associates ("Raymond James"), Inc. filed a demand for arbitration against the
company with the American Arbitration Association claiming breach of contract.
Raymond James claims that is owed $750,000 in connection with services it
believes it should have been retained to perform in connection with the
company's proposed merger transaction with SG. The company believes that Raymond
James' claims are without merit an intends to defend the proceeding vigorously.
Among other things, the company believes that it had no obligation under its
agreement with Raymond James to retain Raymond James for the transaction with
SG, that the agreement between Ecometry and Raymond James was terminated and
that the agreement is otherwise void and unenforceable as a matter of law.
ACCOUNTING TREATMENT
The Syngistix Merger or the SG Merger will be accounted for under the
purchase method of accounting in accordance with generally accepted accounting
principles, whereby the value of the consideration paid will be allocated based
upon the estimated fair values of the assets acquired and liabilities assumed at
the effective date of the applicable merger.
92
ESTIMATED FEES AND EXPENSES
The following is an estimate of expenses incurred or to be incurred in
connection with the transactions described in this proxy statement.
Legal and accounting................................ $ 450,000
Filing fees......................................... $ 6,000
Printing and mailing fees........................... $ 15,000
Financial advisors fees............................. $ 425,000
Proxy solicitation fees............................. $ 15,000
Miscellaneous....................................... $ 89,000
-----------
TOTAL:.............................................. $ 1,000,000
93
INDEPENDENT AUDITORS
The consolidated financial statements and the related financial
statement schedules as of [December 31, 2000 and 1999 and for each of the three
fiscal years in the period ended December 2000] incorporated by reference into
this proxy statement have been audited by KPMG LLP, independent auditors, as
stated in their reports, which are included and incorporated by reference in
this proxy statement. It is not expected that representatives of KPMG LLP will
be present at the special meeting.
SHAREHOLDER PROPOSALS
If either of the Syngistix Merger or the SG Merger is consummated, we
will be a privately-held corporation and you will no longer be able to
participate in any future meetings of our shareholders. However, if both the
Syngistix Merger and the SG Merger are not consummated, our public shareholders
will continue to be entitled to attend and participate in our shareholders'
meetings. Pursuant to Rule 14a-8 under the Exchange Act promulgated by the
Securities and Exchange Commission, any shareholder who wishes to present a
proposal at the next Annual Meeting of Shareholders, in the event both the
Syngistix Merger and the SG Merger are not consummated, and who wishes to have
the proposal included in our proxy statement for that meeting, must have
delivered a copy of the proposal to us no later than November 26, 2001. In order
for proposals by the shareholders not submitted in accordance with Rule 14a-8 to
have been timely delivered within the meaning of Rule 14a-4(c) under the
Exchange Act, the proposal must have been submitted so that it was received no
later than February 11, 2002.
WHERE YOU CAN FIND MORE INFORMATION
The Securities and Exchange Commission allows us to "incorporate by
reference" information into this proxy statement, which means that we can
disclose important information by referring you to another document filed
separately with the Securities and Exchange Commission. The following documents
previously filed by us with the Securities and Exchange Commission are
incorporated by reference in this proxy statement and are deemed to be a part
hereof:
[- Ecometry Annual Report on Form 10-K for the fiscal year ended
December 31, 2000; and
- Ecometry Quarterly Reports on Form 10-Q for the periods ended
March 31, 2001, June 30, 2001 and September 30, 2001.]
[OUR ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED DECEMBER 31,
2000 AND OUR QUARTERLY REPORT ON FORM 10-Q FOR THE PERIOD ENDED SEPTEMBER 30,
2001 ARE ENCLOSED WITH THIS PROXY STATEMENT. SEE ANNEX D AND ANNEX E HERETO.]
Any statement contained in a document incorporated by reference in this proxy
statement shall be deemed to be modified or superseded for all purposes to the
extent that a statement contained in this proxy statement modifies or replaces
the statement. Any statement so modified or superseded shall not be deemed,
except as so modified or superseded, to constitute part of this proxy statement.
We undertake to provide by first class mail, without charge and within
one business day of receipt of any written or oral request, to any person to
whom a copy of this proxy statement has been delivered, a copy of any or all of
the documents referred to above which have been incorporated by reference in
this proxy statement, other than exhibits to the documents, unless the exhibits
are specifically incorporated by reference therein. Requests for copies should
be directed to Martin K. Weinbaum, Ecometry Corporation, 1615 South Congress
Avenue, Delray Beach, Florida 33445-6368; telephone number: (561) 265-2700.
94
AVAILABLE INFORMATION
We are subject to the informational filing requirements of the Exchange
Act and, in accordance therewith, are required to file periodic reports, proxy
statements and other information with the Securities and Exchange Commission
relating to our business, financial condition and other matters. Information as
of particular dates concerning our directors and officers, their remuneration,
stock options granted to them, the principal holders of our securities and any
material interest of such persons in transactions with us is required to be
disclosed in proxy statements distributed to our shareholders and filed with the
Commission. Such reports, proxy statements and other information should be
available for inspection at the public reference facilities maintained by the
Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549. Please
call the Commission at 1-800-SEC-0330 for further information on the public
reference rooms. Copies of such materials may also be obtained by mail, upon
payment of the Commission's customary fees, by writing to its principal office
at 450 Fifth Street, N.W., Washington, D.C. 20549. These materials filed by us
with the Commission are also available at the website of the Commission at
www.sec.gov.
Because the SG Merger is a "going private" transaction, our company,
SG, Wilburn W. Smith and Allan J. Gardner have filed with the SEC a Rule 13e-3
Transaction Statement on Schedule 13E-3 under the Exchange Act with respect to
the SG Merger. This proxy statement does not contain all of the information set
forth in the Schedule 13E-3 and the exhibits thereto. Copies of the Schedule
13E-3 and the exhibits thereto are available for inspection and copying at our
principal executive offices during regular business hours by any of our
shareholders, or a representative who has been so designated in writing, and may
be inspected and copied, or obtained by mail, by written request directed to
Martin K. Weinbaum, Ecometry Corporation, 1615 South Congress Avenue, Delray
Beach, Florida, 33445-6368, or from the Commission as described above.
Our common stock is listed on the Nasdaq National Market (ticker
symbol: ECOM), and materials may also be inspected at:
The National Association of Securities Dealers, Inc.
1735 K Street, N.W.
Washington, D.C. 20006
Upon consummation of either the Syngistix Merger or the SG Merger, the
surviving corporation will seek to cause the shares to be delisted from trading
on the Nasdaq National Market and to terminate the registration of our common
stock under the Exchange Act, which will relieve us of any obligation to file
reports and forms, such as an Annual Report on Form 10-K, with the Commission
under the Exchange Act.
A copy of the written opinion of Adams, Harkness & Hill, the financial
advisor to the special committee and the board, is attached as Annex C to this
proxy statement. The opinion is also available for inspection and copying during
regular business hours at our principal executive offices by any interested
shareholder of ours or the representative of any shareholder who has been so
designated in writing.
You should rely only on the information contained in this proxy
statement to vote on the Syngistix Merger Agreement and the Syngistix Merger and
the SG Merger Agreement and the SG Merger. We have not authorized anyone to
provide you with information that is different from what is contained in this
document. This proxy statement is dated [___________ ], 2002. You should not
assume that the information in it is accurate as of any date other than that
date, and its mailing to shareholders shall not create any implication to the
contrary.
95
OTHER BUSINESS
We know of no other business to be acted upon at the special meeting.
However, if any other business properly comes before the special meeting, it is
the intention of the persons named in the enclosed proxy to vote on such matters
in accordance with their best judgment. The prompt return of your proxy will be
appreciated and helpful in obtaining the necessary vote. Therefore, whether or
not you expect to attend the special meeting, please sign the proxy and return
it in the enclosed envelope.
By order of the Board of Directors,
Martin K. Weinbaum
Secretary
[______________] [__], 2002
96
ECOMETRY CORPORATION
SPECIAL MEETING OF SHAREHOLDERS OF ECOMETRY CORPORATION
TO BE HELD ON [ ] [ ], 2002
THIS PROXY IS SOLICITED ON BEHALF OF THE SPECIAL COMMITTEE OF THE BOARD OF
DIRECTORS AND THE BOARD OF DIRECTORS
The undersigned, revoking all prior proxies, hereby appoints Martin K.
Weinbaum and James J. Felcyn, Jr., and each of them, as the true and lawful
attorneys, agents and proxies of the undersigned, with full power of
substitution, to represent and vote as designated herein, all shares of common
stock of Ecometry Corporation which the undersigned would be entitled to vote if
personally present at the special meeting of shareholders of Ecometry
Corporation to be held at 10:00 a.m. local time, on [ ] [ ], 2002, at the
Embassy Suites, 661 Northwest 53rd Street, Boca Raton, Florida 33487, and at all
adjournments thereof, upon matters set forth in the Notice of Special Meeting of
Shareholders and Proxy Statement dated [ ] [ ], 2002, a copy of which has been
received by the undersigned. Any and all proxies heretofore given are hereby
revoked.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED HEREIN
BY THE UNDERSIGNED SHAREHOLDER(S). IF NO DIRECTION IS GIVEN, THIS PROXY WILL BE
VOTED FOR THE APPROVAL OF THE SYNGISTIX MERGER AGREEMENT AND THE TRANSACTIONS
CONTEMPLATED THEREBY AND FOR THE APPROVAL OF THE SG MERGER AGREEMENT AND THE
TRANSACTION CONTEMPLATED THEREBY. THE PROXIES ARE AUTHORIZED, IN THEIR
DISCRETION, TO VOTE UPON SUCH OTHER BUSINESS AS MAY PROPERLY COME BEFORE THE
MEETING OR ANY ADJOURNMENTS THEREOF.
PLEASE VOTE, DATE AND SIGN ON THE REVERSE SIDE AND RETURN PROMPTLY IN THE
ENCLOSED ENVELOPE.
(Continued and to be signed on the reverse side)
(See Reverse Side) (See Reverse Side)
ECOMETRY CORPORATION
1615 SOUTH CONGRESS AVENUE
DELRAY BEACH, FLORIDA 33445-6368
PLEASE MARK VOTES AS IN THIS EXAMPLE
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED HEREIN
BY THE UNDERSIGNED SHAREHOLDER(S). IF NO DIRECTION IS GIVEN, THIS PROXY WILL BE
VOTED FOR THE APPROVAL OF THE SYNGISTIX MERGER AGREEMENT AND THE TRANSACTIONS
CONTEMPLATED THEREBY, FOR THE APPROVAL OF THE SG MERGER AGREEMENT AND THE
TRANSACTIONS CONTEMPLATED THEREBY AND FOR THE GRANT OF DISCRETIONARY AUTHORITY
TO VOTE IN FAVOR OF ANY POSTPONEMENT OR ADJOURNMENTS OF THE MEETING. THE PROXIES
ARE AUTHORIZED, IN THEIR DISCRETION, TO VOTE UPON SUCH OTHER BUSINESS AS MAY
PROPERLY COME BEFORE THE MEETING OR ANY ADJOURNMENTS THEREOF.
1) To consider and vote on a proposal to approve the merger
agreement, dated as of January 25, 2002, between us and Citrus
Merger Corp., Syngistix, Inc. and, with respect to Section
7.6(b)(i) thereof only, Core Technology Fund IV, LLC, as
amended from time to time, and the transactions contemplated
thereby, including the merger of Citrus Merger Corp. with and
into us (the "Syngistix Merger"), with Ecometry Corporation as
the surviving company and with each outstanding share of our
common stock being converted into the right to receive $2.90
in cash.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
2) To consider and vote on a proposal, which would take effect
only if the Syngistix Merger does not occur, to approve the
merger agreement, dated as of October 25, 2001, between us and
SG Merger Corp. and, with respect to Section 5.2(c) thereof
only, Wilburn W. Smith and Allan J. Gardner, as amended on
January 25, 2002 and as may be further amended from time to
time, and the transactions contemplated thereby, including the
merger of SG Merger Corp. with and into us, with Ecometry
Corporation as the surviving company and with each outstanding
share of our common stock, other than shares held by SG Merger
Corp., Wilburn W. Smith and Allan J. Gardner, being converted
into the right to receive $2.70 in cash.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
3) Grant of discretionary authority to vote in favor of any
postponements or adjournments of the meeting, if necessary.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
Mark box at right if you plan to attend the Special Meeting.
[ ]
THE SPECIAL COMMITTEE OF THE BOARD OF DIRECTORS AND THE BOARD OF DIRECTORS
RECOMMENDS A VOTE FOR THE FOREGOING PROPOSALS.
Please sign exactly as your name(s) appear(s) on the books of Ecometry
Corporation. Joint owners should each sign personally. Trustees and other
fiduciaries should indicate the capacity in which they sign, and where more than
one name appears, a majority must sign. If a corporation, the signature should
be that of an authorized officer who should state his or her title. If a
partnership, the signature should be by an authorized partner or other person.
PLEASE BE SURE TO SIGN AND DATE THIS PROXY. Date:
-----------------------
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Shareholder sign here Co-owner sign here