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 April [ ], 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: $5,702.18
2) Form, Schedule or Registration Statement No.: Schedule 14A
3) Filing Party: Ecometry Corporation
4) Date Filed: November 15, 2001, December 31, 2001 and February
20, 2002
ii
ECOMETRY CORPORATION
1615 SOUTH CONGRESS AVENUE
DELRAY BEACH, FLORIDA 33445-6368
April [ ] , 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 May [ ], 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 alternative 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.
Syngistix and Citrus are not affiliated with Ecometry.
The Syngistix Merger is subject to a number of conditions (including
the condition that Syngistix complete a $10 million financing before the
Syngistix Merger is completed), and therefore may not close. We are therefore
also soliciting shareholder approval for a second transaction that we have
negotiated. This second transaction is a merger of SG Merger Corp. ("SG") with
and into us (the "SG Merger"). The SG Merger will only occur if the Syngistix
Merger does not close. 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 are being asked to approve both transactions
because our board of directors think both transactions are fair to and in the
best interests of our shareholders and if we are unable to close the Syngistix
Merger for any reason, we want to be able to close the SG Merger promptly.
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 ARE SATISFIED OR WAIVED, THE SYNGISTIX MERGER WILL OCCUR AND
THE SG MERGER WILL NOT OCCUR. IF 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 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. Pursuant to the merger agreement
with SG, if the Syngistix Merger is completed, the company will be required to
pay SG (whose sole shareholders are the Principal Shareholders) a termination
fee of $1,679,100.
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, 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 both the Syngistix Merger and the SG Merger.
iii
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 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.
On October 25, 2001, the trading day immediately prior to the
announcement of the SG Merger, the last reported sales prices per share of our
common stock on the Nasdaq National Market was $1.50. On January 25, 2002, the
trading day immediately prior to the announcement of the Syngistix Merger, the
last reported sales prices per share of our common stock on the Nasdaq National
Market was $2.66. On April ____, 2002, the last reported sales price per share
of our common stock on the Nasdaq National Market was $_______.
The $2.90 per share price offered by Syngistix represents a discount
of approximately 4% from the $3.02 book value per share of our common stock as
of December 31, 2001 and a premium of approximately .7% from the $2.88 per
share liquid asset value (cash and cash equivalents) of our common stock on
December 31, 2001.
The $2.70 per share price offered by SG represents a discount of
approximately 10.5% from the $3.02 book value per share of our common stock as
of December 31, 2001 and a discount of approximately 6.25% from the $2.88 per
share liquid asset value (cash and cash equivalents) of our common stock on
December 31, 2001.
THE SPECIAL COMMITTEE AND OUR BOARD OF DIRECTORS BELIEVE THAT THE
SYNGISTIX MERGER AND THE RELATED 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 RELATED 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 RELATED
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 RELATED 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 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
ECOMETRY CORPORATION
1615 SOUTH CONGRESS AVENUE
DELRAY BEACH, FLORIDA 33445-6368
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON MAY [ ], 2002
To the Shareholders of ECOMETRY CORPORATION:
NOTICE IS HEREBY GIVEN that a special meeting of shareholders of
ECOMETRY CORPORATION will be held on May [ ] , 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 (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 (the "Principal
Shareholders"), as amended by the Amendment and Waiver to Agreement and Plan of
Merger dated January 25, 2002 (the "SG Amendment" and, together with the SG
Amendment, 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 ARE SATISFIED OR WAIVED, THE SYNGISTIX MERGER WILL OCCUR AND
THE SG MERGER WILL NOT OCCUR. IF 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 April [ ],
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
v
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
April [ ], 2002
PLEASE COMPLETE, DATE AND SIGN THE ENCLOSED PROXY AND RETURN IT
PROMPTLY IN THE ENVELOPE PROVIDED FOR THAT PURPOSE.
vi
ECOMETRY CORPORATION
1615 SOUTH CONGRESS AVENUE
DELRAY BEACH, FLORIDA 33445-6368
PROXY STATEMENT
FOR
SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON MAY [ ], 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 May [ ], 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 (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. 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 and a
premium of approximately .7% from the $2.88 per share liquid
asset value (cash and cash equivalent) of our common stock on
December 31, 2001. Pursuant to the terms of the SG Merger
Agreement, if the Syngistix Merger is completed, the company
will be required to pay SG (whose sole shareholders are the
Principal Shareholders) a termination fee of $1,679,100.
(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 (the "Principal Shareholders"), 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. 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 and a
discount of approximately 6.25% from the $2.88 per share
liquid asset value (cash and cash equivalent) of our common
stock on 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 ARE SATISFIED OR WAIVED, THE SYNGISTIX MERGER WILL OCCUR AND
THE SG MERGER WILL NOT OCCUR. IF THE SYNGISTIX MERGER DOES NOT OCCUR, AND THE
CLOSING CONDITIONS TO THE SG MERGER ARE SATISFIED OR WAIVED, THE SG MERGER WILL
OCCUR.
vii
Only shareholders of record on April [ ], 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 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 you will be deemed to have granted 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 April
[ ], 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.
viii
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
ECOMETRY'S REASONS FOR THE SG MERGER AND FAIRNESS OF THE SG MERGER..........................................27
SG MERGER'S AND THE PRINCIPAL SHAREHOLDERS' REASONS FOR THE SG MERGER AND FAIRNESS OF THE SG MERGER.........31
MERGER FINANCING -- THE SG MERGER..........................................................................34
PURPOSES OF THE SG MERGER AND PLANS OR PROPOSALS............................................................52
INTERESTS OF CERTAIN PERSONS IN THE SG MERGER...............................................................53
MATERIAL FEDERAL INCOME TAX CONSEQUENCES OF THE SG MERGER...................................................54
OPINION OF ADAMS, HARKNESS & HILL, INC......................................................................55
RAYMOND JAMES PRESENTATION..................................................................................65
OUR MANAGEMENT'S FORECASTS..................................................................................68
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS...................................................71
THE SG MERGER AGREEMENT AND THE SG AMENDMENT................................................................73
The SG Merger..............................................................................................73
Stock Options..............................................................................................73
Conversion of Common Stock.................................................................................73
Representations and Warranties.............................................................................74
Covenants..................................................................................................75
Litigation.................................................................................................76
Publicity; Communications..................................................................................76
Conditions to the SG Merger................................................................................76
Termination................................................................................................77
Effect of Termination......................................................................................78
Expenses; Termination Fee..................................................................................78
Indemnification; Directors' and Officers' Insurance........................................................79
Amendment..................................................................................................79
The SG Amendment...........................................................................................79
THE SYNGISTIX MERGER.............................................................................................86
BACKGROUND AND RECOMMENDATIONS OF THE SPECIAL COMMITTEE AND BOARD OF DIRECTORS..............................86
ECOMETRY'S REASONS FOR THE SYNGISTIX MERGER.................................................................86
MERGER FINANCING - THE SYNGISTIX MERGER.....................................................................88
SELECTED FINANCIAL INFORMATION OF SYNGISTIX.................................................................90
INTERESTS OF CERTAIN PERSONS IN THE SYNGISTIX MERGER........................................................91
MATERIAL FEDERAL INCOME TAX CONSEQUENCES OF THE SYNGISTIX MERGER............................................92
FINANCIAL ADVISORS - THE SYNGISTIX MERGER...................................................................93
THE SYNGISTIX MERGER AGREEMENT..............................................................................94
The Syngistix Merger.......................................................................................94
Stock Options..............................................................................................94
Conversion of Common Stock.................................................................................94
Representations and Warranties.............................................................................95
Covenants..................................................................................................96
Litigation.................................................................................................97
Publicity; Communications..................................................................................97
Conditions to the Syngistix Merger.........................................................................97
Termination................................................................................................99
Effect of Termination.....................................................................................100
Expenses; Termination Fee.................................................................................100
Indemnification; Directors' and Officers' Insurance.......................................................101
Amendment.................................................................................................101
THE SPECIAL MEETING.............................................................................................102
MATTERS TO BE CONSIDERED...................................................................................102
REQUIRED VOTES.............................................................................................102
VOTING AND REVOCATION OF PROXIES...........................................................................103
RECORD DATE; STOCK ENTITLED TO VOTE; QUORUM; VOTING AT THE SPECIAL MEETING.................................103
ADJOURNMENTS...............................................................................................104
APPRAISAL RIGHTS...........................................................................................104
SOLICITATION OF PROXIES....................................................................................104
CERTAIN INFORMATION CONCERNING OUR COMPANY......................................................................105
SELECTED HISTORICAL FINANCIAL DATA.........................................................................105
PRICE RANGE OF SHARES; DIVIDENDS; AND STOCK REPURCHASES....................................................106
OPTIONS HELD BY EXECUTIVE OFFICERS, DIRECTORS AND AFFILIATES................................................109
CERTAIN BENEFICIAL OWNERSHIP OF SHARES..........................................................................110
CERTAIN LEGAL MATTERS AND REGULATORY APPROVALS..................................................................112
GENERAL....................................................................................................112
HART-SCOTT-RODINO..........................................................................................112
LITIGATION.................................................................................................112
ACCOUNTING TREATMENT............................................................................................113
ESTIMATED FEES AND EXPENSES.....................................................................................114
INDEPENDENT AUDITORS............................................................................................115
SHAREHOLDER PROPOSALS...........................................................................................115
WHERE YOU CAN FIND MORE INFORMATION.............................................................................115
AVAILABLE INFORMATION...........................................................................................116
OTHER BUSINESS..................................................................................................117
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, 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 102)
A: You are being asked to vote to approve two separate transactions: the
Syngistix Merger and the SG Merger. If the conditions to close the
Syngistix Merger are satisfied or waived, the Syngistix Merger will
occur and your shares will be cancelled in exchange for $2.90 per
share in cash. If the Syngistix Merger does not occur and the
conditions to close the SG Merger are satisfied or waived, the SG
Merger will occur and your shares will be cancelled in exchange for
$2.70 per share in cash. If the SG Merger is approved, it will be
completed only if the Syngistix Merger is not completed.
Q: CAN I VOTE FOR EITHER THE SYNGISTIX MERGER OR THE SG MERGER, NEITHER
OR BOTH? (SEE PAGE 102)
A: Yes. Please note that if the SG Merger transaction is approved by our
shareholders (and the other conditions to closing the SG Merger are
satisfied or waived,) the merger with SG will occur only if the
Syngistix Merger does not occur. Also, even if the Syngistix Merger is
approved, it may not close (because the other conditions to closing the
Syngistix Merger are not satisfied or waived). 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: 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 16-26)
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. The special committee continues to believe
that the $2.70 per share price in the SG Merger Agreement is fair to
our stockholders from a financial point of view even though Syngistix
has agreed, on the terms and conditions set forth in the Syngistix
merger agreement, to pay a higher price of $2.90 per share in the SG
Merger. The special committee's evaluation of the factors that led it
to approve the SG Merger has not changed materially since the date the
special committee approved the SG Merger. The special committee also
believes that the factual information and assumptions relied upon by
Adams, Harkness & Hill for purposes of its fairness opinion have not
changed to any material extent since the date of its opinion and that
reliance on its fairness opinion continues to be reasonable and
appropriate. The special committee does not believe that the fact that
our stock price has traded at prices over $2.70 per share since the
announcement of the Syngistix Merger suggests that the $2.70 price per
share offered in the SG Merger transaction is unfair because it
believes that the only reason our stock has traded at over $2.70 per
share is because of Syngistix's offer of $2.90 per share.
QUESTIONS AND ANSWERS ABOUT THE SYNGISTIX MERGER
Q: WHY DID WE RECEIVE AN INDICATION OF INTEREST FROM SYNGISTIX ONLY AFTER
WE ANNOUNCED THE TRANSACTION WITH SG? (SEE PAGES 22-23)
A: Until November 2001, when we publicly announced the transaction with
SG, Syngistix was not aware that we were for sale. Until Syngistix
contacted us, we were not aware that Syngistix would have an interest
in acquiring us, or would have the ability to acquire us. Our
financial advisor did not identify Syngistix as a
2
potential buyer of us because Syngistix is a small company with
limited financial resources that has only recently become an
independent company.
Q: WHAT WILL I RECEIVE IN THE SYNGISTIX MERGER? (SEE PAGES 94-95)
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. Citrus is not affiliated with
the company.
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. Syngistix is not affiliated with the
company.
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 26-27 AND 86)
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 88-90)
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
97-99)
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 or(a
commitment for which has been obtained), or alternate financing and
other customary conditions.
3
Q: WHEN DO YOU EXPECT TO KNOW IF THE SYNGISTIX MERGER WILL BE COMPLETED
OR TERMINATED? (SEE PAGE 94)
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 92-93)
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
PAGES 102-103)
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.
Q: WHAT WILL THE PRINCIPAL SHAREHOLDERS RECEIVE IF THE SYNGISTIX MERGER
IS CONSUMMATED? (SEE PAGES 79 AND 91)
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 upon the closing of the Syngistix
Merger. 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 SG MERGER
Q: WHEN WOULD THE SG MERGER OCCUR? (SEE PAGES 79 AND 102)
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 73-74)
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.
4
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: WHY WAS THE SPECIAL COMMITTEE FORMED? (SEE PAGE 9)
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 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.
Q: WHY IS THE BOARD OF DIRECTORS RECOMMENDING THAT I VOTE FOR THE SG
MERGER? (SEE PAGES 26-27)
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
5
SHAREHOLDERS? (SEE PAGES 31-34)
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 73)
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 PAGE 34)
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 54-55)
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 102-103)
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 April [__], 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 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 103)
6
A: Shareholders of record as of the close of business on April [ ],
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 PAGE 103 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 103)
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 104)
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 74 AND 95)
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 102)
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 115-116)
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 May [ ], 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 and
the SG Amendment are attached to this proxy as Annex B.
On October 25, 2001 we entered into the SG Merger Agreement with SG,
which is owned by the Principal Shareholders. On November 8, 2001, after public
announcement of the execution of the SG Merger Agreement, we received an
indication of interest from Syngistix. From November 8, 2001 to January 25,
2002, we negotiated the terms of the Syngistix Merger Agreement ultimately
agreeing to a per share merger consideration of $2.90. We are not affiliated
with Syngistix. The board of directors and the special committee believe that
the Syngistix Merger represents a financially superior offer for our
shareholders as compared with the SG Merger. However, the Syngistix Merger is
subject to number of conditions (including the condition that Syngistix
complete a $10 million financing before the Syngistix Merger is completed), and
therefore may not close. We are therefore also soliciting shareholder approval
for the SG Merger. You are being asked to approve both transactions because our
board of directors think both transactions are fair to and in the best
interests of our shareholders and if we are unable to close the Syngistix
Merger for any reason, we want to be able to close the SG Merger promptly.
Therefore, the special committee and the board of directors recommend that you
vote for the approval of both mergers.
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.
8
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. Although
the Syngistix Merger Agreement was negotiated with Syngistix, a party unrelated
to the company and the Principal Shareholders, the Principal Shareholders have a
direct conflict of interest with respect to the Syngistix Merger because if the
Syngistix Merger is completed, the company will pay SG a termination fee of
$1,679,100. The Principal Shareholders are the sole shareholders of SG. In
addition, 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 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,
9
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.
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 94)
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.
COMPANY STOCK OPTIONS (SEE PAGE 94)
At the effective time of the Syngistix Merger, all options to purchase
our shares will automatically become
10
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 91 AND 102)
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 April [ ], 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 April [ ], 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 97-99)
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. As of December 31, 2001, the company had $35.75
million in cash, cash equivalents and marketable securities. For the quarters
ended September 30, 2001 and December 31, 2001, the company lost $1,646,081 and
$2,740,253, respectively, and cash and cash equivalents decreased $490,000 and
$1,524,402, respectively. 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 99-101)
11
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 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 PAGES 88-90)
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 93)
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 73)
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 73)
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 53-54 AND 102-103)
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 April [ ], 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 April [ ], 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 76-77)
The SG Merger will only occur if we do not complete the Syngistix
Merger. In addition, the SG Merger will not be completed 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 77-79)
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 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. 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 PAGE 34)
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 55-65)
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
14
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.
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 PAGES 106-108)
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 April [ ], 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. Although Ms. Gardner had no formal experience identifying potential
buyers and negotiating strategic business transactions, in her capacity as vice
president-marketing of the company, she was responsible for business development
and business alliances. From March through June 2001, Ms. Gardner contacted
approximately 50 technology companies that she believed would benefit from our
technology. Specifically, Ms. Gardner contacted companies in the retail
management, e-commerce and/or supply chain management segments of the software
industry and traditional enterprise resource planning companies. Syngistix was
not among the companies contacted by Ms. Gardner. During the period Ms. Gardner
was identifying potential purchasers, the company considered engaging a
business broker to participate in the identification of potential purchasers.
After preliminary discussion with two business brokers, terms of an engagement
could not be reached and neither broker was engaged by the 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
16
$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:
- 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. 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 because by that time, the report was based on projections and
assumptions that were outdated and because the special committee
17
chose to rely on the valuation analysis prepared by Adams, Harkness & Hill, the
independent investment banker retained by the special committee, which was based
on more recent information. 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.
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
18
from SG. The special committee discussed the need to retain an independent
financial advisor and agreed to contact Adams, Harkness & Hill regarding
possible representation. The special committee chose not to retain Raymond James
as its independent financial advisor principally because it believed Raymond
James' prior work for Ecometry and the entire board compromised Raymond James'
independence and thus its ability to provide the services needed by the special
committee in a going-private transaction.
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. Between August 11 and August
27, 2001, representatives of the special committee and Adams, Harkness & Hill
discussed the terms of Adams, Harkness & Hill's engagement. The special
committee and Adams, Harkness & Hill signed an engagement letter on August 27,
2001.
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 was in the process of
retaining an independent financial 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 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 Forecasts" on
pages 68-70.
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 17 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.
19
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 attempt to contact
the identified companies, but based (i) on the responses from those companies
contacted and (ii) on the overall decline in the value of companies in the
technology sector, 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. In determining that $2.20 was
appropriate, the Principal Shareholders did not perform any financial analysis,
such as net book value or liquidation analysis. The Principal Shareholders
believed that given the immediate uncertainty surrounding the impact of the
events of September 11, they were not willing to purchase the company for more
than $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 it had concluded most of its discussions with potential purchasers
and 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 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.
20
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 regarding merger consideration, the right of first refusal to
match competing offers requested by SG and certain closing conditions including
the net book value test requested by SG and the condition requested by the
special committee that a majority of the company's shareholders not affiliated
with SG or the Principal Shareholders vote in favor of the merger. During this
period, the parties 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 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 addition to 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
21
Shareholders and their affiliates and 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 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
22
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. The
investment firm had limited discussions with the financial advisor and legal
counsel to the special committee regarding the background of the company and the
investment firm. This party never commenced due diligence and the indication of
interest was withdrawn on December 20, 2001 for reasons that had nothing to do
with Ecometry.
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.
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
23
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.
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.
24
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.
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
25
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.
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.
As noted below under "The Syngistix Merger -- Background and
Recommendations of the Special Committee and Board of Directors", (i) on January
24, 2002, the special committee unanimously determined that the
26
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,
and (ii) on January 25, 2002, (x) our board of directors, with the Principal
Shareholders abstaining, and (y) 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 recommend the Syngistix 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% and, due to the overall decline in the
economy in general and the technology sector in particular,
the likelihood of improved results was uncertain;
- 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
27
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;
- 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;
28
- 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 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
29
- 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 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 $3.22 book value per share of our
common stock as of September 30, 2001 exceeded the $2.70 per share merger
consideration in the SG Merger as requiring a conclusion that the $2.70 per
share merger consideration in the SG Merger was unfair to our stockholders. The
special committee based its view on 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 addition, 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), or the prices paid for shares repurchased
by the company in the past (which ranged from $3.9375 to $4.625) were indicative
of the value of our common stock at the time it approved the SG Merger.
Further, 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.
The special committee continues to believe that the $2.70 per share
price in the SG Merger is fair to our stockholders from a financial point of
view even though Syngistix has agreed, on the terms and conditions set forth in
the Syngistix merger agreement, to pay a higher price of $2.90 per share in the
SG Merger. The special committee's evaluation of the factors that led it to
approve the SG Merger has not changed materially since the date the special
committee approved the SG Merger. The special committee also believes that that
the factual information and assumptions relied upon by Adams, Harkness & Hill
for purposes of its fairness opinion have not changed to any material extent
since the date of its opinion and that reliance on its fairness opinion
continues to be reasonable and appropriate. The special committee does not
believe that the fact that our stock price has traded at prices over $2.70 per
share since the announcement of the Syngistix Merger suggests that the $2.70
price per share offered in the SG Merger transaction is unfair because it
believes that the only reason our stock has traded at over $2.70 per share is
because of Syngistix's offer of $2.90 per share.
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
30
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 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 beginning on pages 68-70 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;
31
- 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;
- 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
32
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.
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
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 31-32, 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 continue to believe that the $2.70
per share price in the SG Merger is fair to our shareholders from a financial
point of view even though Syngistix has agreed, on the terms and conditions set
forth in the Syngistix Merger Agreement, to pay a higher price of $2.90 per
share in the SG Merger since the Syngistix Merger is subject to a financing
condition and the SG Merger is not. SG and the Principal Shareholders do not
believe that the fact that our stock price has traded at prices over $2.70 per
share since the announcement of the Syngistix Merger suggests that the $2.70
price per share offered in the SG Merger transaction is unfair because it
believes that the only reason our stock has traded at over $2.70 per share is
because of Syngistix's offer of $2.90 per share.
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
33
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 in the event the Syngistix Merger does not close. 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 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 minus the portion of the termination fee that
has been paid to SG as reimbursement 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.
34
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
- material changes in the surviving corporation's
capitalization.
52
In addition, the Principal Shareholders have stated that they have no
present intentions, plans or proposals to use Ecometry's cash and cash
equivalents on hand, other than to pay approximately $23 million for the payment
of the SG Merger consideration and merger expenses. 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 $2.70 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 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.
According to a Schedule 13D filed by Syngistix on February 5, 2002,
Gary M. Jacobs, a member of the board of directors of Syngistix, beneficially
owns 205,300 shares of our common stock or approximately 1.6% of such shares.
Except as described herein, based on our records and on information
provided to us by our directors,
53
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 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
54
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 SG Merger. Certain tax attributes
of the company, such as net operating losses, may be limited as a result of the
SG Merger.
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
55
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
- 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. On July 25, 2001, representatives of Raymond James & Associates,
Inc. ("Raymond James") presented a preliminary analysis of the valuation of the
company to the company's board of directors. The Raymond James presentation
included a valuation of the company based upon a discounted cash flow analysis.
The Raymond James presentation is described on pages 65-67 of this Schedule 14A.
56
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.
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;
57
- 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");
MC / LTM Revenue ("MC / LTM Revenue"); and
MC / CY01E Revenue ("MC / CY01E Revenue").
For the purposes of these calculations, market value for the company
used by Adams, Harkness & Hill was $33.4 million which represents the product of
the $2.70 per share offered in the SG Merger and the approximately 12.4 million
outstanding shares of the company's stock. 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:
58
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 Peer Group 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.
In order of descending MC / LTM Revenue, the Peer Group, 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
59
Blue Martini Software, Inc. 0.87x
EXE Technologies, Inc. 0.77x
Exchange Applications, Inc. 0.17x
Mean 1.06x
Median 0.94x
Ecometry Corporation 0.91x
Adams, Harkness & Hill noted the company's MC / LTM Revenue multiple
was below both the mean and the median of the Peer Group.
In order of descending MC / CY01E Revenue, the Peer Group 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 1.22x
Adams, Harkness & Hill noted that based on the company's CY01E Revenue
of $27.5 million, the company's MC/CY01E was 1.22x, which exceeded both the mean
and the median of the Peer Group.
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:
- 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 COBOL orientation;
60
- 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.
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
62
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. Such
analysis was based on the present value of projected cash flows over a 5 year
period, a discount rate of 20% and an assumed tax rate of 35%. 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.
63
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.
Adjusting the annuity value of the revenue stream derived from customer service
and support contracts up by 50% to approximately $5.1 million would increase the
upper end of the range from $2.90 per share to approximately 3.04 per share.
Adjusting such value down by 50% would result in a decrease of the lower end of
the range from $2.30 to approximately $2.16 per share. 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 mini-
64
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 June 12, 2001, the company engaged the investment banking firm
Raymond James & Associates, Inc. ("Raymond James") 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, was retained by the company because of (i) its
expertise and experience in our industry; (ii) its reputation in the financial
community; and (iii) the structure and amount of consideration to be paid for
its services. Raymond James 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. During the two years
prior to the company's retention of Raymond James for this valuation report,
neither the company nor any of its affiliates had a business relationship with
Raymond James or any of its affiliates.
We agreed to pay Raymond James $60,000 plus customary indemnification
for services rendered over a term of two months, including a report on the value
of the company. When the special committee decided to retain an independent
financial advisor, the special committee chose not to retain Raymond James as
its independent financial advisor principally because it believed Raymond James'
prior work for the company and the entire board compromised Raymond James'
independence and created a conflict for Raymond James' representation of the
special committee, and thus rendered Raymond James unable to provide the
services needed by the special committee in a going-private transaction.
Raymond James has filed a demand for arbitration against the company
with the American Arbitration Association claiming breach of contract as a
result of the special committee's failure to retain it as the special
committee's independent financial advisor. Raymond James claims that it is owed
$750,000 in connection with this breach. The company believes that Raymond
James' claims are without merit and intends to defend the proceeding vigorously.
65
On July 25, 2001 representatives from 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. Raymond James was not asked
to and has not opined as to the fairness of the consideration offered to the
stockholders of the company in the Syngistix Merger or the SG Merger. 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
involved 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.
The company did not place any limitation upon Raymond James with
respect to the procedures followed or factors considered in rendering its
valuation report. In connection with the preparation of its valuation analysis,
the company believes that Raymond James:
- reviewed publicly-available business and financial
information, including but not limited to our recent filings
with the Securities and Exchange Commission;
- reviewed 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;
- reviewed internal financial information prepared by our
management concerning our projected performance;
- discussed with members of our senior management, including the
Principal Shareholders, our historical and current financial
condition and operating results, as well as our future
prospects, as reflected by the management projections included
herein; and
- called selected customers to determine their level of
satisfaction with the company's products and performance.
The following is a summary of the various valuation analyses applied by
Raymond James in preparing its valuation report.
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 $4.2 million. Raymond James did not include reserves for
potential employee severance costs
66
or for obligations under existing support agreements in its estimate of
liquidation costs.
COMPARISON WITH RECENT MERGER & ACQUISITION ACTIVITY
Raymond James analyzed (i) recent merger and acquisition transactions
involving software companies, (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.
Major assumptions included: new implementations would grow at 10% per year,
upgrade revenue would be equal to $10 million in 2002 and would grow at 5% per
year, 20-35% discount rates, and a terminal value of between 0.7 and 1.2 2005
revenues. Using preliminary projections supplied by the company and the
assumptions summarized in the preceding sentence, among others, Raymond James
concluded that the company's cash flow would be negative until 2005, with
accumulated negative cash flow through the end of 2005 of negative $4.9 million.
In its presentation, Raymond James noted that it thought the assumptions used in
this discounted cash flow analysis were "fairly optimistic". 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. Raymond
James' analysis focused on Total Enterprise Value/Revenue ("TTM/Revenue") and
Market Value of Equity/Tangible Book Value ("MVE/TBV"). Raymond James's report
noted that it was difficult to compare the company to other public competitors,
because most of the company's competitors are profitable or are expected to
reach profitability in the near term, most of the company's competitors have
greater historical or expected growth rates, most of the company's competitors
are larger and serve multiple markets, most of the company's competitors have
research coverage. Raymond James's report also noted that "small" software
companies have lower valuations than the company's public competitors and that
"software companies losing up to $10 million in EBIT . . . trade at a fraction
of their book value." 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 FORECASTS
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.
67
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
- 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
68
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." 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 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" on pages 71-72.
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. 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, 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.
69
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)
70
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
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 Syngistix Merger or 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 Syngistix Merger or
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;
- our ability to collect receivables;
71
- 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-K for the year ended December 31, 2001, which has been incorporated herein by
reference and attached as Annex D to this proxy statement.
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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;
- each share of our common stock owned by us, the Principal
Shareholders or SG will be cancelled
73
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;
- our compliance with our contractual obligations;
- our intellectual property rights; and
- certain other technical and factual items relevant to the SG
Merger.
74
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 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:
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- 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.
- 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
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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;
-- 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,
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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:
- 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.
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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. 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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THE SYNGISTIX MERGER
BACKGROUND AND RECOMMENDATIONS OF THE SPECIAL COMMITTEE AND BOARD OF DIRECTORS
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 recommend that our shareholders approve the Syngistix Merger
Agreement and 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
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by 69% and, due to the overall decline in the economy in
general and the technology sector in particular, the
likelihood of improved results in the future was uncertain;
- 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 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,
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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;
- 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 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
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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.
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 Syngistix 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 Syngistix 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
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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.
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 Syngistix 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
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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 April [ ], 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," "The Syngistix Merger - Background and
Recommendation of the Special Committee and Board of Directors" and "The
Syngistix Merger - Ecometry's Reasons for the Syngistix Merger."
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. 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.
According to a Schedule 13D filed by Syngistix on February 5, 2002,
Gary M. Jacobs, a member of the board of directors of Syngistix, beneficially
owns 205,300 shares of our common stock or approximately 1.6% of such shares.
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
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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 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.
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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.
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 "Special Factors -- Opinion of Adams, Harkness
& Hill" on pages 55-65.
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 under "Special Factors--Our Management's
Forecasts" on pages 68-70.
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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;
- our real properties;
- our material contracts and our compliance with our
contractual obligations;
- our intellectual property rights;
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- 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.
CONDITIONS TO THE SYNGISTIX MERGER
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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;
- 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
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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;
- 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
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- 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);
- 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.
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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.
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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 May [ ], 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
102
waive this condition.
As of April [ ], 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 April [ ], 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 you will be
deemed to have granted 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.
103
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.
104
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, 2001, attached as Annex D and, 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. 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 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 .......... 14,964 25,301 22,544 17,780 11,889
Gross Profit ........................ 11,301 20,315 24,054 15,922 6,763
Operating expenses .................. 21,571 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 (1,698) (2,071)
-------- -------- -------- -------- --------
(Loss) Income before provision
for income taxes ................. (9,163) (1,209) 8,571 3,002 (3,368)
--------
Income Tax benefit (expense) ........ 1,651 (375) (3,048) -- --
-------- -------- -------- -------- --------
Net (loss) income ................... $ (7,512) $ (1,584) $ 5,523 $ 3,002 $ (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 ............................ 12,395 12,372 11,622 5,263 5,263
Diluted .......................... 12,395 12,372 12,426 8,131 5,263
105
YEAR ENDED DECEMBER 31
-----------------------------------------------------------------------
2001 2000 1999 1998 1997
------- ------- ------- ------- -------
(IN THOUSAND, 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.
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
106
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 April [ ], as reported by the Nasdaq National
Market. The quotes represent "Inter-dealer" prices without retail markups,
markdowns or commissions and may not necessarily represent actual transactions.
107
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 ........................ $ 3.100 $ 2.620
Second Quarter (through April 2,
2002) .............................. $ 2.810 $ 2.800
On April [ ], 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 National Market was $1.50. On January 25, 2002, the
trading day immediately prior to the announcement of the Syngistix Merger, the
last reported sales prices per share of our common stock on the Nasdaq National
Market was $2.66. On April ____, 2002, the last reported sales price per share
of our common stock on the Nasdaq National Market was $_______.
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.
108
OPTIONS HELD BY EXECUTIVE OFFICERS, DIRECTORS AND AFFILIATES
CASH PAYMENT CASH
ASSUMING PAYMENT
COMPLETION OF ASSUMING
SHARES EXERCISE 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.
109
CERTAIN BENEFICIAL OWNERSHIP OF SHARES
The following table sets forth certain information as of April [ ],
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 April [ ], 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 *
Bear, Stearns(8) ..................................................... 762,450 6.1%
Syngistix, Inc.(9) ................................................... 4,367,500 35.0%
All directors and executive officers as a group (8 persons)(10) ...... 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.
(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., each such reporting entity may be deemed to beneficially own the
same 762,450 shares of Common Stock. According to the Schedule 13D,
the principal place of business of Bear, Stearns
110
& Co. Inc. is 245 Park Avenue, New York, NY 10167.
(9) According to a Schedule 13D filed by Syngistix, Inc. The Schedule 13D
indicates that Syngistix may be deemed to beneficially own the same
4,367,500 shares of Common Stock as held by the Principal Shareholders
pursuant to the terms of the Syngistix Merger Agreement and SG
Amendment. According to the Schedule 13D, the principal place of
business of Syngistix is 5340 Quebec Street, Suite 300, Englewood, CO
80111.
(10) Includes 316,168 shares of common stock subject to options which are
or become exercisable within 60 days.
111
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 97-99 and 76-77, respectively). 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 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 Syngistix 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
112
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 and 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.
113
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
114
INDEPENDENT AUDITORS
The consolidated financial statements and the related financial
statement schedules as of December 31, 2001 and 2000 and for each of the three
years ended December 2001 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 deemed to be a part
hereof.
-- Annual Report on Form 10-K for the fiscal year ended December 31,
2001;
-- Report on Form 8-K filed on February 1, 2002; and
-- Report on Form 8-K filed on February 13, 2002.
Our Annual Report on Form 10-K for the fiscal year ended December 31, 2001 is
enclosed with this proxy statement. See Annex D 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.
115
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 April [ ], 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.
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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
April [ ], 2002
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ECOMETRY CORPORATION
SPECIAL MEETING OF SHAREHOLDERS OF ECOMETRY CORPORATION
TO BE HELD ON MAY [ ], 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 May [ ], 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 April [ ], 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)
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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
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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
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