<PAGE>
As filed with the Securities and Exchange Commission on November 6, 1996
Registration No. 333-12863
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
-----------------------
AMENDMENT NO. 1
to Form S-1 Registration Statement under
THE SECURITIES ACT OF 1933
-----------------------
SANCHEZ COMPUTER ASSOCIATES, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
Pennsylvania 7373-0200 23-2161560
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code No.) Identification No.)
</TABLE>
40 Valley Stream Parkway
Malvern, Pennsylvania 19355
(610) 296-8877
(Address, including zip code, and telephone number, including area code,
of registrant's principal executive offices)
-----------------------
Mr. Michael A. Sanchez
Chairman and Chief Executive Officer
Sanchez Computer Associates, Inc.
40 Valley Stream Parkway
Malvern, Pennsylvania 19355
(610) 296-8877
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
-----------------------
Copies of all communications to:
<TABLE>
<S> <C> <C>
James A. Ounsworth, Esq. N. Jeffrey Klauder, Esq. Robert H. Strouse, Esq.
Safeguard Scientifics, Inc. Morgan, Lewis & Bockius LLP Drinker Biddle & Reath
800 The Safeguard Building 2000 One Logan Square 1000 Westlakes Drive
435 Devon Park Drive Philadelphia, Pennsylvania 19103-6993 Suite 300
Wayne, Pennsylvania 19087 (215) 963-5694 Berwyn, Pennsylvania 19312-2409
(610) 293-0600 (610) 993-2213
</TABLE>
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [X] If this Form is filed to register additional
securities for an offering pursuant to Rule 462(b) under the Securities Act,
check the following box and list the Securities Act registration statement
number of earlier effective registration statement for the same offering.
[ ]___________
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]___________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [X]
-----------------------
The Registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
================================================================================
<PAGE>
Subject to Completion, Dated November 6, 1996
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
Prospectus
3,181,500 Shares
Sanchez Computer Associates, Inc.
[Logo]
Common Stock
(including Rights to acquire
up to 3,181,500 of such shares)
Sanchez Computer Associates, Inc. ("Sanchez" or the "Company") is granting to
holders of the outstanding common stock ("Safeguard Common Shares") of Safeguard
Scientifics, Inc. ("Safeguard") of record at the close of business on ________,
1996 (the "Record Date") transferable rights (the "Company Rights") to purchase
up to 3,030,000 common shares of Sanchez, no par value (the "Common Stock").
Safeguard and certain other selling stockholders (the "Selling Stockholders")
have agreed to sell an aggregate of 1,023,500 shares of Common Stock owned by
them upon the exercise of the Company Rights. A record holder of Safeguard
Common Shares will receive one Company Right for every ten Safeguard Common
Shares owned on the Record Date. Each Company Right will entitle the holder to
purchase one share of Common Stock at a purchase price anticipated to be between
$5.00 and $6.00 (the "Exercise Price") per share. This Prospectus also relates
to transferable rights (the "Direct Rights") to purchase 151,500 additional
shares of Common Stock that are being granted by the Company to certain persons
selected by the Company (the "Direct Purchasers"). Each Direct Right will
entitle the holder to purchase one share of Common Stock at the Exercise Price.
The Company Rights and the Direct Rights are sometimes collectively referred to
as the "Rights." The exercise period for the Rights will expire at 5:00 p.m.,
New York City time, on ________, 199_ (the "Expiration Date"). Persons may not
exercise Rights for fewer than 50 shares of Common Stock. This minimum exercise
requirement applies to each account in which Safeguard Common Shares are held.
Accordingly, persons holding fewer than 50 Rights will not have the opportunity
to exercise such Rights unless action is taken to comply with such minimum
exercise requirements. See "The Offering--Exercise Privilege."
(Continued on next page)
The Common Stock offered hereby involves a high degree of risk. See "Risk
Factors" commencing on page 8 for certain information that should be considered
by prospective investors.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Assumed Proceeds to Proceeds to Selling
Exercise Price Underwriting Discount (1) Company (1)(2)(3) Stockholders(1)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Min. $.165 Max. $5.335 Max. $5.335
Per Share $5.50 Max. $.385 Min. $5.115 Min. $5.115
- ------------------------------------------------------------------------------------------------------------------------------------
Min. $524,948 Max. $11,512,930 Max. $5,460,373
Total(3) $17,498,250 Max. $1,050,088 Min. $11,071,500 Min. $5,376,663
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) In connection with the Offering, the Underwriters will receive (a) a
financial advisory fee in an amount equal to 3% of the Exercise Price of each
share of Common Stock sold in the Offering (the "Financial Advisory Fee"), and
(b) an additional fee of 4% of the Exercise Price of each share of Common Stock
actually purchased by the Underwriters pursuant to the Standby Underwriting
Agreement or the Underwriters' exercise of Rights in certain instances (the
"Underwriting Discount" and, together with the Financial Advisory Fee, the
"Total Underwriting Discount"). If all of the Rights granted hereby are
exercised, no shares of Common Stock will be required to be purchased by the
Underwriters pursuant to the Standby Underwriting Agreement. The "Minimum" Total
Underwriting Discount assumes (i) an Exercise Price of $5.50 per share and (ii)
that no shares of Common Stock are purchased by the Underwriters. The "Maximum"
Total Underwriting Discount assumes (i) an Exercise Price of $5.50 per share,
(ii) that only the Chairman and Chief Executive Officer of Safeguard and/or his
assignees will elect to acquire shares upon the exercise of Company Rights (for
an aggregate of approximately 343,000 shares) and that such shares will be sold
by the Selling Stockholders, (iii) that 300,000 shares of Common Stock are sold
by the Selling Stockholders to the Other Purchasers (defined below), (iv) that
151,500 shares are sold by the Company upon the exercise of the Direct Rights,
and (v) that a total of 2,387,000 shares of Common Stock are purchased by the
Underwriters pursuant to the Standby Underwriting Agreement. In addition, the
Company has agreed under certain circumstances, to pay to the Underwriters
certain amounts as a non-accountable expense allowance. The Company and the
Selling Stockholders have agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as amended.
See "Underwriting."
(2) Before deduction of expenses estimated to be $600,000 and payment of a non-
accountable expense allowance to the Underwriters, both of which are payable by
the Company.
(3) The Company and Selling Stockholders have granted the Underwriters a 20-day
option commencing on the Expiration Date to purchase a maximum of 303,000
additional shares of Common Stock to cover over-allotments, if any, of which,
151,500 would be sold by the Company and an aggregate of 151,500 would be sold
by the Selling Stockholders. See "Underwriting." If such option is exercised in
full, the net incremental proceeds to the Company and Selling Stockholders from
the exercise of such option would be $774,923 and an aggregate of $774,923,
respectively, and the Total Underwriting Discount with respect to all such
shares issued pursuant to such option would be $116,655.
J. P. Morgan & Co. Wheat First Butcher Singer
<PAGE>
(Continued from previous page)
Shares of Common Stock that are not purchased upon exercise of Rights (the
"Unsubscribed Shares") will be sold, as to the first 300,000 Unsubscribed
Shares, at the Exercise Price to certain persons selected by the Company (the
"Other Purchasers") and will be sold, as to the number of Unsubscribed Shares
exceeding the 300,000 shares of Common Stock offered to the Other Purchasers
(the "Excess Unsubscribed Shares"), at the Exercise Price (less the Total
Underwriting Discount) to J.P. Morgan Securities Inc. and Wheat, First
Securities, Inc. (the "Underwriters") pursuant to a Standby Underwriting
Agreement (the "Standby Underwriting Agreement"). See "The Offering--Sales of
Unsubscribed Shares; Standby Commitment." The Underwriters' standby underwriting
obligations are subject to certain conditions, including the condition that the
Other Purchasers have purchased the first 300,000 Unsubscribed Shares, although
the Underwriters may elect to purchase all, but not less than all, Unsubscribed
Shares in the event such condition is not met. Accordingly, there is no
assurance that the Other Purchasers or the Underwriters will purchase any
Unsubscribed Shares and the Rights Offering will be canceled if all of the
Unsubscribed Shares are not purchased. See "Underwriting." and "The
Offering--Cancellation of Rights Offering." The Rights Offering and the offering
of Common Stock to the Other Purchasers are collectively referred to in this
Prospectus as the "Offering."
The number of Company Rights which will be granted to the holders of Safeguard
Common Shares is solely dependent upon the number of Safeguard Common Shares
which are outstanding on the Record Date. Accordingly, less than 3,030,000
Company Rights will be granted to holders of Safeguard Common Shares if there
are less than 30,300,000 Safeguard Common Shares outstanding on such date. The
shares of Common Stock subject to such undistributed Company Rights (the
"Undistributed Rights"), however, will be offered by the Company to the Other
Purchasers at the Exercise Price. Accordingly, a total of 3,030,000 Rights will
be granted in the Rights Offering.
Of the shares of Common Stock offered hereby, 2,158,000 shares of Common Stock
will be sold by the Company and an aggregate of 1,023,500 shares of Common Stock
will be sold by the Selling Stockholders. The Company will receive no proceeds
from the sale of any shares by the Selling Stockholders. Warren V. Musser, the
Chairman and Chief Executive Officer of Safeguard, and/or his assignees are
expected to exercise all Company Rights distributed to them and acquire
approximately 343,000 shares of Common Stock through the Rights Offering. See
"The Offering--Agreement Concerning the Exercise of Rights." After the
completion of the Offering, the Selling Stockholders, in the aggregate, will
beneficially own approximately 58.8% of the outstanding Common Stock. See
"Principal and Selling Stockholders."
The Rights being granted in the Rights Offering are subject to cancellation if
certain conditions are not satisfied. In that event, any payments received by
ChaseMellon Shareholder Services, L.L.C., as Rights Agent, in respect of the
Exercise Price of the Rights shall be promptly returned. See "The
Offering--Cancellation of Rights Offering."
Prior to the Rights Offering, there has been no public market for the Common
Stock or the Rights. See "The Offering--Background" for factors considered in
determining the Exercise Price of the Rights. As a consequence, there can be no
assurance that a public market will develop, although the Company has filed an
application to have the Rights and the Common Stock approved for quotation on
the Nasdaq National Market.
Prior to the Expiration Date, the Underwriters may offer shares of Common Stock
on a when-issued basis, including shares to be acquired through the purchase and
exercise of Rights, at prices set from time to time by the Underwriters. Each
such price when set will not exceed, if applicable, the highest price at which a
dealer not participating in the distribution is then offering the Common Stock
to other dealers, plus an amount equal to a dealer's concession, and an offering
price set on any calendar day will not be increased more than once during such
day. After the Expiration Date, the Underwriters may offer shares of Common
Stock, whether acquired pursuant to the Standby Underwriting Agreement, the
exercise of Rights or the purchase of Common Stock in the market, to the public
at a price or prices to be determined. The Underwriters may thus realize profits
or losses independent of the underwriting compensation specified herein. Shares
of Common Stock subject to the Standby Underwriting Agreement will be offered by
the Underwriters, subject to prior sale, when, as and if delivered to and
accepted by the Underwriters. It is expected that delivery of the shares of
Common Stock will be made against payment therefor on or about ______, 199_ at
the offices of J.P. Morgan Securities Inc., 60 Wall Street, New York, New York.
2
<PAGE>
No dealer, salesperson or other person has been authorized to give any
information or to make any representations other than those contained in this
Prospectus in connection with the Offering made hereby, and, if given or made,
such information or representations must not be relied upon as having been
authorized by the Company, the Selling Stockholders or any Underwriters. This
Prospectus does not constitute an offer to sell, or a solicitation of an offer
to buy, any security other than the securities covered by this Prospectus, nor
does it constitute an offer or solicitation by anyone in any jurisdiction in
which such offer or solicitation is not authorized, or in which the person
making such an offer or solicitation is not qualified to do so or to any person
to whom it is unlawful to make such an offer or solicitation. Neither the
delivery of this Prospectus nor any sale made hereunder shall, under any
circumstances, create any implication that there has been no change in the
affairs of the Company since the dates as of which information is furnished or
the date hereof.
<TABLE>
<CAPTION>
Table of Contents
Page
<S> <C>
Prospectus Summary......................................................... 4
Risk Factors............................................................... 9
The Offering............................................................... 16
Use of Proceeds............................................................ 22
Dividend Policy............................................................ 22
Capitalization............................................................. 23
Dilution................................................................... 24
Selected Consolidated Financial Data....................................... 25
Management's Discussion and Analysis
of Financial Condition and Results of
Operations.............................................................. 27
Page
Business................................................................... 35
Management................................................................. 48
Certain Transactions....................................................... 54
Principal and Selling Stockholders......................................... 55
Description of Capital Stock............................................... 57
Shares Eligible for Future Sale............................................ 58
Underwriting............................................................... 60
Legal Matters.............................................................. 62
Experts.................................................................... 62
Additional Information..................................................... 62
Glossary................................................................... 63
Index to Consolidated Financial Statements................................. F-1
</TABLE>
Until _______, 1997 (25 days after the expiration date of the offering), all
dealers effecting transactions in the Common Stock, whether or not participating
in this distribution, may be required to deliver a Prospectus. This delivery
requirement is in addition to the obligation of dealers to deliver a Prospectus
when acting as Underwriters and with respect to unsold allotments or
subscriptions.
The Company intends to furnish to its stockholders annual reports containing
financial statements audited by independent certified public accountants.
IN CONNECTION WITH THE OFFERING, THE UNDERWRITERS MAY OVERALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK OR
THE RIGHTS OR BOTH AT LEVELS ABOVE THOSE WHICH MIGHT OTHERWISE PREVAIL IN THE
OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED IN THE OVER-THE-COUNTER MARKET,
OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
3
<PAGE>
Prospectus Summary
The following summary is qualified in its entirety by the more detailed
information and financial statements and notes thereto appearing elsewhere in
this Prospectus. Except as otherwise indicated, all information in this
Prospectus (i) assumes no exercise of the Underwriters' over-allotment option;
(ii) assumes an Exercise Price of $5.50; and (iii) gives effect to a 6-for-5
split of the Common Stock effected prior to the Offering. Unless the context
otherwise indicates, Sanchez Computer Associates, Inc. and its subsidiaries are
referred to collectively herein as "Sanchez" or the "Company." Technical terms
related to the Company's business are defined in the Glossary beginning on page
63 herein.
The Company
Sanchez Computer Associates, Inc. ("Sanchez" or the "Company") designs,
develops, markets, implements and supports comprehensive banking software,
called PROFILE(R) ("PROFILE"), for financial services organizations worldwide.
Sanchez's highly flexible PROFILE family of products is comprised of three
integrated modules which operate on open, client-server platforms. The primary
module, called PROFILE/Anyware, is a multi-currency bank production system which
supports deposit, loan, customer, transaction processing and bank management
requirements through multiple distribution channels, including the Internet. The
other modules are PROFILE/FMS, a multi-company, multi-currency, financial
management and accounting system, and PROFILE/ITS, a system that processes
treasury transactions including foreign exchange, money market, securities
trading (capital markets), futures, options and trade finance. The PROFILE
system is currently licensed to 23 clients in nine countries serving more than
400 financial institutions. Historically, the Company has focused its marketing
efforts in Central Europe and North America. Currently, the Company is targeting
two market segments, the Emerging Banking Market in which the Company seeks to
expand on its existing successes and increase its market share, and the Direct
Banking Market in which the Company is seeking to establish itself as a
significant participant.
Financial services organizations in the Emerging Banking Market can generally be
characterized as being located in areas with growing consumer banking bases,
often with a large number of branches and little enterprise-wide automation.
Sanchez, through the implementation of its PROFILE products, provides these
organizations with a fully automated system which addresses all core areas of
their data processing requirements, including head office operations, domestic
and international payments, new product introduction, customer analysis,
budgeting and forecasting, branch automation, treasury, trade finance and
deposit and loan processing. The PROFILE products have the ability to adapt to
diverse accounting, operational and regulatory environments and have the
flexibility to support a broad spectrum of banking products and services.
Because the PROFILE products are scalable, they can be implemented within an
infrastructure that supports an organization's current operational requirements
and thereafter be incrementally expanded as the client's operational
requirements increase. Since 1991, the Company has principally targeted banks in
Central Europe and Canada; and, in 1996, the Company expanded its marketing
efforts to include financial services organizations located in the Asian-Pacific
Rim.
Since 1987, the Company has maintained a series of strategic alliance agreements
with Digital Equipment Corporation ("Digital") and has marketed its products
principally through leads generated by the Digital sales force. In 1995, the
Company entered into an agreement with Hewlett-Packard Company
("Hewlett-Packard") and ported its software to Hewlett-Packard's HP-UX platform.
Also in 1995, the Company entered into an agreement with Oracle Corporation
("Oracle") to port the PROFILE products to the Oracle database. These porting
activities are currently under way. In mid-1996, the Company entered into an
agreement with International Business Machines Corporation ("IBM") and ported
its software to IBM's AIX platform. The Company markets PROFILE products through
alliances with all four of these vendors as well as its own enhanced direct
sales force.
The Company intends to expand its business into the Direct Banking Market. The
Company defines the Direct Banking Market as the on-line retail banking business
conducted via alternate distribution channels by large financial services
institutions located throughout the world. The Company believes that these
organizations recognize that the emergence of electronic commerce,
4
<PAGE>
together with the availability and acceptance of computer technology, will
ultimately cause a dramatic change in the consumer banking practices of many of
their customers. The Company predicts that the growth of electronic commerce
will result in a large increase in the volume of financial transactions which
occur on-line as well as a greater demand for customized products and services.
Because of these factors, in early 1996, the Company determined that a
significant opportunity exists for it in the Direct Banking Market and it has
subsequently committed substantial human and financial resources to position
itself in that market. The Company believes that the capabilities already
contained in the PROFILE product line, along with specific enhancements that it
has identified, will provide financial services organizations with the
technology to strategically respond to this consumer banking evolution.
The Company has recently engaged the electronic banking division of Price
Waterhouse LLP ("Price Waterhouse") to assist the Company in jointly defining
future enhancements to PROFILE/Anyware for the Direct Banking Market. In
connection with this engagement, Price Waterhouse and the Company are conducting
joint marketing activities, including Price Waterhouse's introduction of the
Company to prospective clients. In addition, the Company anticipates forming
alliances with other complimentary service organizations in the areas of home
banking interface, network security and other consumer-based financial
applications. The Company anticipates that these alliances, along with the
alliances mentioned in the previous paragraphs, will facilitate its entrance
into the Direct Banking Market.
The Sanchez Strategy
The Company believes its most promising opportunities for growth lie in
increasing market share in the Emerging Banking Market, broadening its scope of
services in the Emerging Banking Market, and positioning itself as one of the
first production system entries in the Direct Banking Market. The Company plans
to pursue these objectives through the following strategic activities.
Increase Market Share in the Emerging Banking Market
The Company intends to expand its presence in the Emerging Banking Market,
principally by increasing its marketing activities in Central Europe and the
Asian-Pacific Rim. The Company expects to emphasize its strategic relationships
with its hardware and software company partners. In addition, the Company plans
to increase its own direct marketing efforts and has recently opened offices in
Prague, Warsaw and Jakarta in furtherance of this objective.
Broaden the Scope of Services Provided in the Emerging Banking Market
The Company believes that the reception its products and services have received
in the Emerging Banking Market, particularly in Central Europe, provides the
opportunity to expand the scope of services which the Company offers to
organizations in this market. Accordingly, the Company intends to market
additional services and products to these organizations, including more
expansive consulting services, credit bureau services, technology infrastructure
planning, and systems integration.
Become a Significant Participant in the Direct Banking Market
The Company intends to become a significant participant in the Direct Banking
Market by marketing its PROFILE family of products as a financial services
organization's most appropriate response to the evolution in consumer banking
spurred by the emergence of electronic commerce. The Company is positioning its
PROFILE/Anyware product as part of a separate infrastructure focused
specifically on the direct banking channels, as opposed to a replacement for the
existing production systems. The Company is establishing strategic relationships
with business partners in order to offer jointly with these partners a
comprehensive direct banking solution.
5
<PAGE>
The Company was incorporated in Pennsylvania in 1981. The Company's principal
executive offices are located at 40 Valley Stream Parkway, Malvern, Pennsylvania
19355, and its telephone number is (610) 296-8877. The Company maintains a site
on the World Wide Web. Information contained in the Company's web site shall not
be deemed to be part of this Prospectus.
6
<PAGE>
The Offering
Terms of Rights Offering....... Holders of record at the close of business on
___, 1996 of the outstanding Safeguard Common
Shares will receive one Company Right for every
ten Safeguard Common Shares. The Direct
Purchasers will be granted the Direct Rights.
Each Right will entitle the holder to purchase
one share of Common Stock at a purchase price
anticipated to be between $5.00 and $6.00 per
share. Persons may not exercise Rights for fewer
than 50 shares of Common Stock. Holders of
Rights will have the opportunity to acquire an
aggregate of approximately 3,181,500 shares of
Common Stock upon exercise of the Rights.
Exercise Price................. Anticipated to be between $5.00 and $6.00 per
share of Common Stock.
Expiration Date for Rights..... _______ __, 199_ at 5:00 p.m., New York City
time.
Rights......................... Rights will be evidenced by transferable
certificates that will be exercisable by the
holder until the Expiration Date, at which time
unexercised rights will be null and void. See
"The Offering."
Exercise by Safeguard CEO...... The Chairman and Chief Executive Officer of
Safeguard and/or his assignees are expected to
exercise all Company Rights distributed to them
and acquire approximately 343,000 shares of
Common Stock.
Sales to Other Persons......... The first 300,000 Unsubscribed Shares will be
sold by the Selling Stockholders to the Other
Purchasers, the Direct Rights will be granted by
the Company to the Direct Purchasers and the
shares of Common Stock subject to the
Undistributed Rights will be sold by the Company
to the Other Purchasers.
Standby Underwriting........... The number of Unsubscribed Shares exceeding the
300,000 shares of Common Stock to be sold by the
Selling Stockholders to the Other Purchasers
will be sold to the Underwriters and offered to
the public by the Underwriters. See "The
Offering--Sales of Unsubscribed Shares; Standby
Commitment" and "Underwriting."
Common Stock Offered:
by the Company.............. 2,158,000 shares
by the Selling Stockholders. 1,023,500 shares
Common Stock to be
Outstanding After the Rights
Offering..................... 10,707,755 shares (1)
Use of Proceeds................ For working capital, capital expenditures, and
general corporate purposes. A portion of the net
proceeds may be used for acquisitions, although
the Company has no commitments or understan-
dings with respect to future acquisitions. See
"Use of Proceeds."
Nasdaq National Market Symbols:
Rights.................... SCAIR
Common Stock.............. SCAIV (when-issued)
SCAI (thereafter)
- --------------------
(1) Excludes (i) 815,569 shares of Common Stock issuable upon the exercise of
options outstanding as of October 31, 1996 (of which 436,142 were exercisable as
of October 31, 1996) at a weighted average exercise price of $2.81 per share,
and (ii) warrants to purchase an aggregate of 360,000 shares of Common Stock at
an exercise price of $1.39 per share. See "Management--1995 Equity Compensation
Plan."
7
<PAGE>
Summary Consolidated Financial Information
<TABLE>
<CAPTION>
------------------------------------------------------------- ---------------------
Nine Months
Year Ended December 31, Ended
September 30,
1991 1992 1993 1994 1995 1995 1996
---- ---- ---- ---- ---- ---- ----
In thousands, except per share (Unaudited) (Unaudited)
data
Statement of Operations Data:
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues............................ $9,399 $11,881 $11,317 $15,516 $16,842 $11,602 $12,796
Income from operations.............. 680 359 546 2,074 2,616 755 854
Net income.......................... 542 332 463 3,038 1,587 479 684
Net income per common share......... $ .06 $ .04 $ .05 $ .33 $ .17 $ .05 $ .07
Weighted average number of
shares outstanding............... 8,988 8,928 9,068 9,284 9,588 9,589 9,224
Other Operating Data:
Backlog:
License and services................ $ 8,510 $ 3,901 $ 1,576 $ 9,438 $ 5,816 $ 8,853 $ 8,196
Maintenance......................... 1,508 3,843 5,484 10,284 11,809 12,354 11,200
Total backlog....................... 10,018 7,744 7,060 19,722 17,625 21,207 19,396
Revenue per full time equivalent
employee............................ 96 88 91 121 114 103 122
</TABLE>
<TABLE>
<CAPTION> -------------------------------
As of September 30, 1996
Actual As Adjusted(1)
In thousands (Unaudited)
Balance Sheet Data:
<S> <C> <C>
Cash and cash equivalents ............................................. $ 6,250 $16,597
Working capital........................................................ 5,385 15,732
Total assets........................................................... 13,531 23,878
Long-term debt, including current portion.............................. 407 407
Total stockholders' equity............................................. 6,631 16,978
</TABLE>
(1) Adjusted to give effect to the sale by the Company of 2,158,000 shares of
Common Stock and the receipt of approximately $10,346,500 in net proceeds from
the Offering, after deducting the maximum Total Underwriting Discount with
respect to such shares of approximately $797,500 and estimated offering expenses
of $725,000 (including $125,000 representing the maximum applicable non-
accountable expense allowance to the Underwriters).
8
<PAGE>
Risk Factors
In addition to the other information in this Prospectus, the following factors
should be considered carefully by prospective investors in evaluating the
Company and its business before transferring Rights or purchasing Common Stock
offered hereby.
Dependence on Financial Services Industry
The Company has in the past derived, and may in the future derive, all of its
revenues from the marketing of its PROFILE products to financial services
companies. In particular, the Company's revenues are highly dependent on
information technology expenditures by these organizations. The Company's
operations could be materially and adversely affected by certain economic
changes within the financial services industry or the reduction in information
technology expenditures in that industry. Merger and acquisition activity has
been widespread in the financial services industry in recent years and is
expected to continue in future years. As a result, the industry has experienced
consolidation on a large scale, and this consolidation has had and will continue
to have the effect of reducing the number of potential customers of the Company.
Any significant increase in the level of such consolidation could adversely
affect the Company's business, operating results and financial condition. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business."
Dependence on International Sales
The Company has in the past derived, and may in the future derive, a significant
portion of its revenues from financial services companies based in Central
Europe. Revenues derived by the Company from financial services companies based
in Central Europe accounted for approximately 23%, 29% and 51% of revenues
during 1993, 1994 and 1995, respectively. The Company in the future expects to
continue to expand its international operations, including in the Asian-Pacific
Rim. The Company's international business activities are subject to a variety of
potential risks, including political, regulatory and trade and economic policy
risks. Furthermore, the laws of a number of foreign countries do not protect the
Company's proprietary rights to as great an extent as those of the U.S. Given
the Company's relatively large concentration of international sales, the
realization by the Company of any of these risks may likely have a material
adverse effect on the Company's business, operating results and financial
condition. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
Intense Competition
The financial services institutions software market is intensely competitive,
rapidly evolving and subject to rapid technological change. Competitors vary in
size and in the scope and breadth of their products and services. The Company
encounters competition from a number of organizations which offer production
software to financial services companies. Some of the Company's current and
potential competitors have longer operating histories, better name recognition,
and significantly greater financial, sales, marketing, technical and other
competitive resources than the Company. As a result, they may be able to adapt
more quickly than the Company to new or emerging technologies and changes in
customer preferences or to devote greater resources than the Company to the
development, promotion and sale of products. In addition, many of the Company's
competitors have established, or may in the future establish, cooperative
relationships or strategic alliances among themselves or with third parties to
compete with the Company's products. Furthermore, it is possible that new
competitors or alliances among competitors may emerge and rapidly acquire market
share.
As many financial services companies continue to evaluate the replacement of
their existing legacy systems, the Company believes that the financial services
institutions software market will continue to attract new competitors and new
technologies, possibly involving technologies that are more sophisticated and
cost effective than the Company's technology. There can be no assurance that the
Company will be able to compete successfully against
9
<PAGE>
any of these competitive pressures, any of which could result in lost orders or
could compel the Company to make significant price reductions. The inability of
the Company to avert these pressures successfully could result in a material
adverse effect on the Company's business, operating results and financial
condition. See "Business--Competition."
Rapid Technological Change; Development of New Products; Risk of Product Errors
The client/server application software market is characterized by rapid
technological change, frequent new product introductions and evolving industry
standards. The introduction of products embodying new technologies and the
emergence of new industry standards can render existing products obsolete and
unmarketable in short periods of time. The Company expects new products and
services, and enhancements to existing products and services, to be developed
and introduced by others, which will compete with the products and services
offered by the Company. The life cycles of the Company's products are difficult
to estimate. The Company's future success will depend upon its ability to
enhance its current products and to develop and introduce new products that keep
pace with technological developments and emerging industry standards and address
the increasingly sophisticated needs of its customers. There can be no assurance
that the Company will be successful in developing and marketing new products or
produce enhancements that meet these changing demands, that the Company will not
experience difficulties that could delay or prevent the successful development,
introduction and marketing of these products or that its new products and
product enhancements will adequately meet the demands of the marketplace and
achieve market acceptance. If the Company is unable to develop and introduce new
products or product enhancements in a timely manner, or if a release of a new
product does not achieve market acceptance, the Company's business, operating
results and financial condition will be materially adversely affected. Software
products such as those offered by the Company may contain errors or otherwise
fail to function properly when first introduced or when new versions are
released. There can be no assurance that errors will not be found in new
products or releases after commencement of commercial shipments resulting in
loss or delay in market acceptance, which could have a material adverse effect
upon the Company's business, operating results and financial condition.
Continued Growth and Development of the Direct Banking Market
A portion of the Company's growth strategy is dependent upon the development and
expansion of the market for direct banking services (which include alternate
delivery channels such as the networks which comprise the Internet) as well as
market acceptance of the Company's products and services. The market for direct
banking services has only recently begun to develop, and market acceptance of
the Company's products and services is uncertain. The Company began marketing
its products to the Direct Banking Market in 1996 and, as of the date of this
Prospectus, the Company has not received any revenues from this market. Certain
critical issues concerning commercial use of alternate delivery channels,
including capacity, security, reliability, ease and cost of access, and quality
of service are evolving and may adversely impact the growth in the use of these
channels. Despite the implementation of security measures, the use of the
Internet remains subject to unknown security risks which may further deter
financial institutions from licensing the Company's PROFILE products and
individuals from conducting transactions via electronic commerce. Accordingly,
the Company cannot predict the size of the market for direct banking services or
the rate at which such market will grow. If the market for direct banking
services fails to grow, grows more slowly than anticipated, or becomes saturated
with competitors, the Company's prospects could be adversely affected.
Reliance on Intellectual Property and Proprietary Rights
The Company's success is heavily dependent upon the architecture and design of
its PROFILE products. The Company relies primarily on a combination of copyright
and trademark laws, trade secrets, confidentiality procedures and contractual
provisions to protect its proprietary rights. The Company seeks to protect its
software, documentation and other written materials under trade secret and
copyright laws, which afford only limited protection. The Company presently has
no patents or patent applications pending. Despite the Company's efforts to
protect its proprietary rights, unauthorized parties may attempt to copy aspects
of the Company's products or to obtain and use information that the Company
regards as proprietary. There can be no assurance that the Company's
10
<PAGE>
means of protecting its proprietary rights will be adequate or that the
Company's competitors will not develop similar technology independently.
The Company currently relies on software provided by certain third parties for
development languages, database environments and certain application modules for
PROFILE/ITS. The Company believes that if such software was no longer available
to the Company, it could obtain substitute software from other sources.
The Company is not aware that any of its products, or the software provided it
by third parties, infringe the proprietary rights of any person or entity. There
can be no assurance, however, that third parties will not claim infringement by
the Company with respect to current or future products. Any such claims, with or
without merit, could be time-consuming, result in costly litigation, cause
product shipment delays or require the Company to enter into royalty or license
agreements or cause the Company to discontinue the use of the challenged
tradename, service mark or technology at potentially significant expense to the
Company associated with the marketing of a new name or the development or
purchase of replacement technology, all of which could have a material adverse
effect on the Company. Such royalty or license agreements, if required, may not
be available on terms acceptable to the Company, or at all, which could have a
material adverse effect upon the Company's operating results and financial
condition.
Concentration and Mix of Revenues; Ability to Obtain New Client Engagements
Generally, in any given year a small number of customers historically have each
accounted for at least 10% of the Company's revenues. In 1995, four customers
accounted for approximately 71% of the Company's revenues. In 1994, four
customers accounted for approximately 60% of the Company's revenues. Since the
installation of a large software application can be a complex, time intensive
and costly process, customers generally only undertake these projects on an
irregular basis and the projects often take approximately ten to 15 months to
implement. As a result, the amount of revenues derived from any given customer
may vary significantly from year to year. Accordingly, the Company expects that
the identity of customers accounting for large portions of revenues will change
from year to year. The inability of the Company from year to year to obtain
large installation engagements could have a material adverse effect on the
Company's business, operating results and financial condition. See Footnote 4 to
the Consolidated Financial Statements appearing elsewhere in this Prospectus.
Fluctuations in Quarterly Operating Results; Fourth Quarter Operating Results
The Company has experienced and may in the future continue to experience
fluctuations in its quarterly operating results. Factors that may cause the
Company's quarterly operating results to vary include the timing of new contract
closings, the initiation of license and service fee revenue recognition,
one-time payments from clients for license expansion rights, and the completion
of large installation projects. Certain of these factors may also affect the
Company's personnel utilization rates which may cause further variation in
quarterly operating results. Due to all of the foregoing factors, it is likely
that in some future quarters the Company's operating results will be below the
expectations of stock market analysts and investors. Regardless of the general
outlook for the Company's business, the announcement of quarterly results of
operations below analyst and investor expectations is likely to result in a
decline in the trading price of the Common Stock. Management anticipates that
net income in the fourth quarter of 1996 will be less than the comparable
quarter in 1995 due to the following reasons: (i) anticipated increases in
expenses, especially in product development and sales and marketing, which the
Company believes will enhance its future growth potential; (ii) the timing of
the start of new contracts currently being pursued; and (iii) the fourth quarter
of 1995 included one-time contract settlement totaling approximately $625,000.
See " Management's Discussion and Analysis of Financial Condition and Results of
Operations."
Reliance on Strategic Relationships
The Company has established non-exclusive partnership arrangements with several
organizations, including Hewlett- Packard, IBM, Digital, and Oracle, that it
believes are important to its sales, marketing and support
11
<PAGE>
activities. In particular, the Company's relationship with Digital has been
instrumental in the Company's achievement of its historical revenue levels. The
failure of the Company to maintain these relationships could have a material
adverse effect on the Company's business, operating results and financial
condition. See "Business."
Dependence on Key Personnel
The Company believes that its continued success depends to a significant extent
upon the efforts and abilities of its senior management. In particular, the loss
of the services of Michael A. Sanchez, the Company's Chairman and Chief
Executive Officer, or Frank R. Sanchez, the Company's President and Chief
Operating Officer, or any of the Company's other executive officers or senior
managers could have a material adverse effect on the Company's business,
operating results and financial condition. The Company does not have employment
agreements with any of its executive officers other than Richard H. Jefferson.
See "Management--Employment Agreement."
Ability to Attract and Retain Key Technical Employees
The Company believes that its future success will also depend in large part upon
its ability to attract and retain highly skilled technical, management and sales
and marketing personnel. Moreover, because the development of the Company's
software requires knowledge of computer hardware, operating system software,
system management software and application software, key technical personnel
must be proficient in a number of disciplines. Competition for such technical
personnel is intense, and the failure of the Company to hire and retain talented
technical personnel or the loss of one or more key employees could have an
adverse effect on the Company's business, operating results and financial
condition.
Future growth, if any, of the Company will require additional engineering, sales
and marketing, financial and administrative personnel, to expand customer
services and support and to expand operational and financial systems. There can
be no assurance that the Company will be able to attract and retain the
necessary personnel to accomplish its growth strategies or that it will not
experience constraints that will adversely affect its ability to satisfy
customer demand in a timely fashion. If the Company's management is unable to
manage growth effectively, the Company's business, operating results and
financial condition could be adversely affected.
Control by Principal Stockholders
After the completion of the Offering, Michael A. Sanchez, Frank R. Sanchez,
Safeguard, and Radnor Venture Partners, L.P. ("Radnor"), the four largest
stockholders of the Company (collectively, the "Principal Stockholders") and the
Selling Stockholders in the Offering, will beneficially own in the aggregate
approximately 58.8% of the outstanding Common Stock. As a result, such
stockholders will collectively have the voting power to elect the Company's
entire Board of Directors and to approve all matters requiring stockholder
approval. See "Management--Executive Officers and Directors," "Principal and
Selling Stockholders," "Certain Transactions" and "Shares Eligible for Future
Sale."
Broad Discretion in Application of Proceeds; Acquisitions
The Company intends to use the net proceeds from the Offering for working
capital, capital expenditures and general corporate purposes. In addition, a
portion of the net proceeds may be used to make acquisitions. Accordingly, the
specific uses for the net proceeds will be at the complete discretion of the
Board of Directors of the Company and may be allocated based upon circumstances
arising from time to time in the future. In addition, no assurance can be given
that acquisitions will be available on terms and conditions acceptable to the
Company. Acquisitions involve numerous risks, including, among other things,
difficulties and expenses incurred in connection with the acquisitions and the
subsequent assimilation of the operations and services of the acquired
businesses, the diversion of management's attention from other business concerns
and the potential loss of key employees of the acquired business. Acquisitions
of foreign businesses may involve additional risks, including assimilating
differences in foreign business practices, overcoming language barriers and
transacting in foreign currencies. Furthermore, the failure of the operations of
an acquired business to achieve anticipated results could be
12
<PAGE>
expected to have a material adverse effect on the Company's business, results of
operations and financial condition. See "Use of Proceeds."
Dilution
As of September 30, 1996, the average price per share paid upon the original
issuance by the Company of Common Stock prior to the Offering was $.74.
Purchasers of the Common Stock of the Company offered hereby will suffer an
immediate dilution of $3.97 in the net tangible book value per share of the
Common Stock from the Exercise Price of the Rights. See "Dilution."
Requirements for Listing Securities on the Nasdaq National Market; Application
of the Penny Stock Rules
The Company has applied with the Nasdaq National Market to have the Common Stock
and Rights (the "Listed Securities") approved for listing (upon completion of
the Offering with respect to the Common Stock and from the date of this
Prospectus through the Expiration Date with respect to the Rights). If the
Company is unable to maintain the standards for continued listing, the Listed
Securities could be subject to delisting from the Nasdaq National Market.
Trading, if any, in the Listed Securities would thereafter be conducted on an
electronic bulletin board established for securities that do not meet the Nasdaq
listing requirements or in what is commonly referred to as the "pink sheets." As
a result, an investor may find it more difficult to dispose of, or to obtain
accurate quotations as to the price of, the Company's securities.
In addition, if the Company's securities were delisted, they would be subject to
the so-called penny stock rules that impose additional sales practice
requirements on broker-dealers who sell such securities to persons other than
established customers and accredited investors (generally defined as an investor
with a net worth in excess of $1 million or annual income exceeding $200,000, or
$300,000 together with a spouse). For transactions covered by this rule, the
broker-dealer must make a special suitability determination for the purchaser
and must have received the purchaser's written consent to the transaction prior
to sale. Consequently, delisting, if it occurs, may affect the ability of
broker-dealers to sell the Company's securities and the ability of purchasers in
the Offering to sell their securities in the secondary market.
The Securities and Exchange Commission (the "Commission") has adopted
regulations that define a "penny stock" to be any equity security that has a
market price (as defined in the regulations) of less than $5.00 per share or an
exercise price of less than $5.00 per share, subject to certain exceptions. For
any transaction involving a penny stock, unless exempt, the rules require the
delivery, prior to the transaction, of a disclosure schedule relating to the
penny stock market. The broker-dealer also must disclose the commissions payable
to both the broker-dealer and the registered representative, current quotations
for the securities and, if the broker-dealer is the sole market-maker, the
broker-dealer must disclose this fact and the broker-dealer's presumed control
over the market. Finally, monthly statements must be sent disclosing recent
price information for the penny stock held in the account and information on the
limited market in penny stocks. As a result, if the Common Stock is determined
to be "penny stock," an investor may find it more difficult to dispose of the
Company's Common Stock.
No Prior Market; Possible Volatility of Stock Price
Prior to the Offering, there has been no public market for the Common Stock or
the Rights, and there can be no assurance that an active public market will
develop or be sustained. The Exercise Price of the Rights and purchase price of
the Common Stock under the Standby Underwriting Agreement has been determined
solely by negotiations between the Company, the Selling Stockholders and the
Underwriters and does not necessarily reflect the price at which shares of
Common Stock may be sold in the public market during or after the Offering. See
"The Offering--Background" for a discussion of the factors considered in
determining the Exercise Price. The public markets, in general, have from time
to time experienced extreme price and volume fluctuations, which have in some
cases been unrelated to the operating performance of particular companies, and
the market for technology stocks,
13
<PAGE>
such as the Common Stock, can be subject to greater price volatility than the
stock market in general. In addition, factors such as announcements of
technological innovations, announcements of new products by the Company's
competitors or third parties, and market conditions in the information
technology industry may have a significant impact on the market price of the
Common Stock.
Shares Eligible for Future Sale
A substantial number of outstanding shares of Common Stock and shares of Common
Stock issuable upon exercise of outstanding stock options and warrants will
become eligible for future sale in the public market at various times. In
addition to the factors affecting the stock market in general and the market for
the Common Stock discussed above, sales of substantial amounts of Common Stock
in the public market, or the perception that such sales could occur, could
adversely affect the market price of the Common Stock. Upon completion of the
Offering, the Company will have 10,707,755 shares of Common Stock outstanding,
excluding 1,175,569 shares of Common Stock subject to stock options and warrants
outstanding as of October 31, 1996 and any stock options or warrants granted by
the Company after October 31, 1996. Of these shares, the Common Stock sold by
the Company in the Offering and the Selling Stockholders, except for certain
shares described below, will be freely tradeable without restriction or further
registration under the Securities Act of 1933, as amended (the "Act"). The
remaining 7,526,255 shares of Common Stock (the "Restricted Shares") were sold
by the Company in reliance on exemptions from the registration requirements of
the Act and are "restricted securities" as defined in Rule 144 under the Act
("Rule 144") and may not be sold in the absence of registration under the Act
unless an exemption is available, including an exemption afforded by Rule 144 or
Rule 701 ("Rule 701") under the Act. Without considering the contractual
restrictions described below, approximately (i) 539,696 Restricted Shares are
eligible for sale in the public market in accordance with Rule 144(k) under the
Act, (ii) 257,194 Restricted Shares will be eligible for sale 90 days after the
date of this Prospectus, subject to volume and other resale conditions imposed
by Rule 701, and (iii) 6,729,365 Restricted Shares will be eligible for future
sale subject to the holding period and other conditions imposed by Rule 144.
Certain restrictions on shares of Common Stock are applicable to (i) any shares
of Common Stock purchased in the Offering by affiliates of the Company, which
may generally only be sold in compliance with the limitations of Rule 144,
except for the holding period requirements thereunder, and (ii) the shares of
Common Stock beneficially owned by the Principal Stockholders that are not being
offered hereby, all of which, together with the shares of Common Stock
beneficially owned by the seven other executive officers of the Company, each
director of the Company and Warren V. Musser and his assignees, are subject to
lock-up agreements (the "Lock-Up Agreements") and pursuant to such agreements
will not be eligible for sale or other disposition until 180 days after the
Expiration Date (the "Lock-Up Expiry Date") without the prior written consent of
the Underwriters. In addition, the Company has granted Radnor and Safeguard
certain registration rights whereby they may cause the Company to register their
shares of Common Stock. See "Shares Eligible for Future Sale."
It is anticipated that a registration statement (the "Form S-8 Registration
Statement") covering the Common Stock that may be issued pursuant to the
exercise of options awarded by the Company will be filed and become effective
prior to the Lock-Up Expiry Date, and that shares of Common Stock that are so
acquired or offered thereafter pursuant to the Form S-8 Registration Statement
generally may be resold in the public market without restriction or limitation.
Subject to the provisions of any Lock-Up Agreement, shares of Common Stock may
be resold in the public market beginning 90 days after the date of this
Prospectus pursuant to Rule 701 (i) by persons who are not affiliates of the
Company, without compliance with the public information, holding period, volume
limitation or notice provisions of Rule 144 and (ii) by affiliates of the
Company, without compliance with the holding period requirements of Rule 144.
See "Management--1995 Equity Compensation Plan," "Shares Eligible for Future
Sale--Options and Warrants" and "Underwriting."
14
<PAGE>
Possible Issuances of Preferred Stock
Shares of preferred stock may be issued by the Company in the future without
stockholder approval and upon such terms as the Board of Directors may
determine. The rights of the holders of the Common Stock will be subject to, and
may be adversely affected by, the rights of the holders of any preferred stock
that may be issued in the future. The issuance of preferred stock, while
providing flexibility in connection with possible acquisitions and other
corporate purposes, could have the effect of making it more difficult for a
third party to acquire, or of discouraging a third party from acquiring, a
majority of the outstanding stock of the Company and potentially prevent the
payment of a premium to stockholders in an acquisition transaction. The Company
has no present plans to issue any shares of preferred stock. See "Description of
Capital Stock--Preferred Stock."
No Dividends
To date, the Company has not paid any cash dividends on its Common Stock and
does not expect to declare or pay any cash or other dividends in the foreseeable
future. The Company's financing arrangements currently do not prohibit the
Company from declaring or paying dividends or making other distributions on the
Common Stock. See "Dividend Policy."
Cancellation of Rights Offering
If the conditions precedent to the sale to the Underwriters of the Excess
Unsubscribed Shares on the sixth business day after the Expiration Date (the
"Closing Date") are not satisfied (assuming that there are Excess Unsubscribed
Shares), the Underwriters may elect, on or before the Closing Date, to cancel
the Rights Offering and the Company and the Selling Stockholders will not have
any obligations with respect to the Rights except to return, without interest,
any payment received in respect of the Exercise Price. See "The
Offering--Cancellation of Rights Offering" and "Underwriting." The Company has
been advised by the NASD that it is likely that trades in the Rights and the
when-issued shares of Common Stock in the market would be canceled if the Rights
Offering is not consummated.
15
<PAGE>
The Offering
The Company is granting, at no cost, to the holders of Safeguard Common Shares
of record at the close of business on the Record Date, the Company Rights, on
the basis of one Company Right for every ten Safeguard Common Shares. The
Selling Stockholders have agreed with the Company to sell 1,023,500 shares of
Common Stock upon the exercise of the Company Rights and the Company will sell
the remaining 2,006,500 shares of Common Stock upon the exercise of the Company
Rights. The Company is granting, at no cost, the 151,500 Direct Rights to the
Direct Purchasers. Each Right enables the holder to purchase one share of Common
Stock at an Exercise Price anticipated to be between $5.00 and $6.00 per share.
As of the close of business on the day before the date of this Prospectus, there
were __________ Safeguard Common Shares outstanding. Accordingly, subject to
changes in the number of outstanding Safeguard Common Shares through the Record
Date (principally as a result of the exercise of options and the conversion of
convertible securities to purchase Safeguard Common Shares), a total of
approximately _________ Company Rights are expected to be issued to holders of
Safeguard Common Shares outstanding on the Record Date. In the event that
Company Rights to purchase fewer than 3,030,000 shares of Common Stock are
issued to holders of Safeguard Common Shares, the shares of Common Stock subject
to such Undistributed Rights will be offered by the Company to the Other
Purchasers at the Exercise Price.
Background
The Company has agreed with the Selling Stockholders to make a Rights Offering
to holders of Safeguard Common Shares on the terms set forth in this Prospectus.
The Company believes that the Rights Offering offers several advantages over a
traditional initial public offering, including, the opportunity to offer its
Common Stock to investors who, as Safeguard shareholders, already have some
knowledge of the Company's business, the opportunity to achieve a broader
distribution to a more stable shareholder base and the minimization of
underwriting discounts and commissions. In addition, Safeguard has advised the
Company that it prefers the Rights Offering to a traditional initial public
offering because it allows its shareholders the opportunity to purchase shares
of Common Stock at the initial offering price before such shares are offered to
the general public by the Underwriters.
Prior to the Rights Offering, there has been no public market for the Common
Stock or the Rights. Consequently, the Exercise Price was determined by
negotiations among the Company, the Selling Stockholders and the Underwriters.
In determining the Exercise Price, the Underwriters, and the Boards of Directors
of the Company and Safeguard, Michael A. Sanchez, Frank R. Sanchez and Radnor
considered such factors as the future prospects and historical growth rate in
revenues and earnings of the Company; its industry in general and the Company's
position in its industry; revenues, earnings and certain other financial and
operating information of the Company in recent periods; market valuations of the
securities of companies engaged in activities similar to those of the Company;
and the management of the Company.
Exercise Privilege
Each Right will entitle the holder thereof to receive, upon payment of the
Exercise Price, one share of Common Stock, subject to the restrictions described
herein (the "Exercise Privilege"). Persons may not exercise Rights for fewer
than 50 shares of Common Stock. In the event that a holder of Rights meeting the
minimum exercise requirement elects to exercise in multiple transactions and one
such transaction involves less than the minimum exercise requirement, such
holder should provide to the Rights Agent a letter stating that such holder has
already exercised a sufficient number of Rights to satisfy the minimum exercise
requirement. For purposes of the Rights Offering, a person that holds Safeguard
Common Shares in multiple accounts must meet the 50 share minimum purchase
requirement in each account. Accordingly, persons holding fewer than 50 Rights
in an account should consider the advisability of consolidating the Rights in
one account, selling Rights, or purchasing additional Rights to comply with the
minimum exercise requirements of the Rights Offering. The Company has
established these minimum exercise requirements primarily to limit the costs
associated with a significant number of odd lots of the Common Stock.
16
<PAGE>
No Fractional Rights
No fractional Rights will be issued in the Rights Offering and a holder of a
number of Safeguard Common Shares not evenly divisible by ten will be entitled
to receive the next higher whole number of Rights. For purposes of this rounding
process, record holders of Safeguard Common Shares known to be acting as
nominees for beneficial holders of Safeguard Common Shares will be disregarded,
and the rounding process will take place with respect to the aggregate holdings
of Safeguard Common Shares by the beneficial holder.
Expiration Date
The Rights Offering will terminate, and the Rights will expire, at 5:00 p.m.,
New York City time, on _____, 199 , the Expiration Date. After the Expiration
Date, unexercised Rights will be null and void. Neither the Company nor any
Selling Stockholder will be obligated to honor any purported exercise of Rights
received by ChaseMellon Shareholder Services, L.L.C. (the "Rights Agent") after
the Expiration Date, regardless of when the documents relating to such exercise
were sent, except pursuant to the delayed delivery procedures described below
under "-- Method of Exercising Rights."
Method of Transferring Rights
Rights may be transferred, in whole or in part, by endorsing and delivering to
the Rights Agent, at the addresses set forth below under "-- Method of
Exercising Rights," a Rights certificate that has been properly endorsed for
transfer, with instructions to reissue the Rights, in whole or in part, in the
name of the transferee. The Rights Agent will reissue certificates for the
transferred Rights to the transferee, and will reissue a certificate for the
balance, if any, to the holder of the Rights, in each case to the extent it is
able to do so prior to the Expiration Date. Safeguard and the Company believe
that a market for the Rights may develop during the period preceding the
Expiration Date. The Company has applied with the Nasdaq National Market to have
the Rights approved for quotation and has reserved "SCAIR" as the Nasdaq symbol
under which the Rights will trade during such period. Any questions regarding
the transfer of Rights should be directed to the Rights Agent at P.O. Box 798,
Midtown Station, New York, NY 10018, Attention: Reorganization Department,
telephone number (800) 777-3674.
Because persons may not exercise Rights for fewer than 50 shares of Common
Stock, persons holding fewer than 491 Safeguard Common Shares in one account
will not be entitled to exercise Company Rights unless they consolidate Company
Rights received in multiple accounts or acquire enough additional Company Rights
in the market to satisfy the 50 share minimum exercise requirement. Such holders
should consult with their investment advisor and review various alternatives,
including acquiring additional Rights or selling or otherwise transferring their
Rights. All commissions, fees and other expenses (including brokerage
commissions and any transfer taxes) incurred in connection with the purchase or
sale of Rights are for the account of the transferor and transferee of Rights,
and none of such commissions, fees or expenses will be paid by the Company or
the Selling Stockholders.
Method of Exercising Rights
Rights may be exercised by completing and signing the election to purchase form
that appears on the back of each Rights certificate. The completed and signed
election to purchase form, accompanied by payment in full of the Exercise Price
for all shares for which the Exercise Privilege has been exercised, must be
received by the Rights Agent on or before the Expiration Date. Neither the
Company nor any Selling Stockholder will be obligated to honor any purported
exercise of Rights received by the Rights Agent after the Expiration Date,
regardless of when the documents relating to such exercise were sent, except
pursuant to the delayed delivery procedures described below. Therefore, the
Company and Safeguard suggest, for the holders' protection, that Rights be
delivered to the Rights Agent by overnight or express mail courier, or, if
mailed, by registered mail. Persons may not exercise Rights for fewer than 50
shares of Common Stock in each account.
17
<PAGE>
The Rights and Exercise Price, if any, should be mailed or delivered to the
Rights Agent as follows:
By Mail: By Hand or by Overnight/Express Mail
Courier:
ChaseMellon Shareholder
Services, L.L.C. ChaseMellon Shareholder
Reorganization Department Services, L.L.C.
P.O. Box 798 Reorganization Department
Midtown Station 120 Broadway, 13th Floor
New York, NY 10018 New York, NY 10271
Payment of the Exercise Price must be made in U.S. dollars by cash, check or
money order payable to "Safeguard Escrow Account." Mellon Bank N.A. will serve
as the escrow agent of the Safeguard Escrow Account.
An exercise also will be in acceptable form if, on or before the Expiration
Date, the Rights Agent has received payment in full of the Exercise Price for
shares to be purchased pursuant to the Exercise Privilege and a letter or
telegraphic notice from a bank, trust company or member firm of the New York or
American Stock Exchanges setting forth the subscriber's name, address and
taxpayer identification number, the number of shares subscribed for pursuant to
the Exercise Privilege, and guaranteeing that a properly completed and signed
election to purchase form will be delivered to the Rights Agent within three
business days after the Expiration Date. Acceptance of subscriptions in the
foregoing manner will be subject to receipt of the duly executed election to
purchase form with respect to the Exercise Privilege within such three business
day period. No formal arrangements for the deposit of election to purchase forms
have been made with any bank, trust company or member firm.
A holder of Rights who purchases less than all the shares of Common Stock
represented by his Rights certificate will receive from the Rights Agent a new
Rights certificate representing the balance of the unsubscribed Rights, to the
extent that the Rights Agent is able to reissue a Rights certificate prior to
the Expiration Date.
Certificates representing the Common Stock purchased by exercising the Exercise
Privilege will be issued as soon as practicable after the sale of the
Unsubscribed Shares and in no event later than six business days after the
Expiration Date. See "--Sales of Unsubscribed Shares; Standby Commitment." All
funds received by the Rights Agent in payment of the Exercise Price will be
retained in escrow by the Rights Agent and will not be delivered to the Company
or the Selling Stockholders until the certificates representing Common Stock
have been issued.
Record holders of Safeguard Common Shares who hold such shares for the account
of others (e.g., brokers or depositories for securities), and who thus receive
Rights certificates representing Rights for the account of more than one
beneficial owner, should provide such beneficial owners with copies of this
Prospectus and should ascertain and execute on their behalf the intentions of
such beneficial owners as to the exercise or transfer of such Rights.
All questions as to the validity, form, eligibility (including times of receipt,
beneficial ownership and compliance with minimum exercise provisions) and
acceptance of subscription forms and the Exercise Price will be determined by
Safeguard, whose determination will be final and binding. Once made,
subscriptions are irrevocable, and no alternative, conditional or contingent
subscriptions will be accepted. Safeguard reserves the absolute right to reject
any or all purchases not properly submitted or the acceptance of which would, in
the opinion of its counsel, be unlawful. Safeguard also reserves the right to
waive any irregularities (or conditions) and Safeguard's interpretations of the
terms (and conditions) of the Rights Offering shall be final and binding. Any
irregularities in connection with purchases must be cured within five business
days of the giving of notice of defect by the Rights Agent, but no later than
three business days after the Expiration Date, unless waived by Safeguard. The
Company, the Selling Stockholders, the Underwriters and the Rights
18
<PAGE>
Agent are not under any duty to give notification of defects in such
subscriptions and will not have any liability for failure to give such
notifications. Exercises will not be deemed to have been made until such
irregularities have been cured or waived and rejected exercises and the Exercise
Price paid therefor will be returned promptly by the Rights Agent to the
appropriate holders of the Rights.
Investor Information
Investors who desire additional copies of this Prospectus or additional
information should contact Frances M. Hurley at J.P. Morgan Securities Inc., 60
Wall Street, New York, New York 10260-0060, telephone number (212) 648- 1442 or
Franklin M. Stokes at Wheat, First Securities, Inc., Riverfront Plaza, 901 East
Byrd Street, Richmond, Virginia 23219, telephone number (804) 782-3446.
Expectations Concerning the Exercise of Rights
Warren V. Musser, the Chairman and Chief Executive Officer of Safeguard, and/or
his assignees are expected to exercise all Rights distributed to them and
acquire approximately 343,000 shares of Common Stock through the Rights
Offering.
Sales of Unsubscribed Shares; Standby Commitment
The Unsubscribed Shares will be sold, as to the first 300,000 Unsubscribed
Shares, at the Exercise Price to the Other Purchasers (who are comprised of
persons selected by the Company) and, as to the number of Unsubscribed Shares
exceeding the 300,000 shares of Common Stock offered to the Other Purchasers
(the "Excess Unsubscribed Shares"), to the Underwriters at the Exercise Price
less the Total Underwriting Discount pursuant to the Standby Underwriting
Agreement.
The Selling Stockholders are offering the first 300,000 Unsubscribed Shares at
the Exercise Price to the Other Purchasers and expect to enter into, prior to
the Expiration Date, agreements obligating them to sell up to an aggregate of
300,000 Unsubscribed Shares to the Other Purchasers and obligating the Other
Purchasers to purchase from them up to an aggregate of 300,000 Unsubscribed
Shares. In the event that less than 300,000 Unsubscribed Shares are available
for sale to the Other Purchasers as of the Expiration Date, the number of
remaining Unsubscribed Shares will be sold to each Other Purchaser, on a
discretionary basis, as derived by multiplying the maximum number of
Unsubscribed Shares each Other Purchaser has agreed to purchase by the fraction
obtained after dividing the aggregate number of remaining Unsubscribed Shares by
300,000. In the event that the Other Purchasers fail to purchase any of the
Unsubscribed Shares which they are obligated to purchase such circumstances
would result in the failure to satisfy a condition precedent to the
Underwriters' obligation to purchase Excess Unsubscribed Shares under the
Standby Underwriting Agreement which would result in the termination of the
Rights Offering and the return of payments received in respect of the Exercise
Price, without interest, unless the Underwriters elect to purchase all, but not
less than all, of the remaining Unsubscribed Shares. See "--Cancellation of
Rights Offering" and "Underwriting."
In accordance with the Standby Underwriting Agreement, the Underwriters (i) will
receive the Financial Advisory Fee equal to 3% of the Exercise Price of each
share of Common Stock subject to the Offering, and (ii) will purchase, within
six business days after the Expiration Date and subject to the terms and
conditions of the Standby Underwriting Agreement, the Excess Unsubscribed Shares
at a price per share equal to the Exercise Price less the Underwriting Discount
equal to 4% of the Exercise Price for each Unsubscribed Share in addition to the
Financial Advisory Fee for such share. Under certain circumstances, the
Underwriters may be entitled to receive the Underwriting Discount for shares of
Common Stock acquired by them pursuant to the exercise of Rights purchased by
them. See "Underwriting." The Excess Unsubscribed Shares acquired by the
Underwriters pursuant to the Standby Underwriting Agreement, the Common Stock
acquired by the Underwriters pursuant to the exercise of Rights and the Common
Stock acquired by the Underwriters in the market will be offered by the
Underwriters to the public at prices which may vary from the Exercise Price. If
all of the Rights are exercised, or if the number of Unsubscribed Shares is
300,000 or less, there will be no Excess Unsubscribed Shares and the
Underwriters will not
19
<PAGE>
be required to purchase any Common Stock pursuant to the Standby Underwriting
Agreement unless the Other Purchasers do not fulfill their obligations to
purchase the Unsubscribed Shares. The Underwriters may terminate their
obligations under the Standby Underwriting Agreement if certain events occur, or
if the Company or any Selling Stockholder fails to comply with any of their
respective obligations under the Standby Underwriting Agreement. See
"Underwriting." The Company and Selling Stockholders have granted to the
Underwriters a 20-day option commencing on the Expiration Date to purchase a
maximum of 303,000 additional shares of Common Stock to cover over-allotments,
if any, of which 151,500 shares of Common Stock would be sold by the Company and
an aggregate of 151,500 shares of Common Stock would be sold by the Selling
Stockholders. See "Underwriting." The Company intends to supplement the
Prospectus after the Expiration Date to set forth the results of the Rights
Offering, the transactions by the Underwriters during the Exercise Period, the
number of Unsubscribed Shares purchased by the Other Purchasers, if any, the
number of Unsubscribed Shares purchased by the Underwriters, if any, and the
subsequent reoffering thereof.
Cancellation of Rights Offering
If the conditions precedent to the sale to the Underwriters of the Excess
Unsubscribed Shares on the sixth business day after the Expiration Date (the
"Closing Date") are not satisfied (assuming that there are Excess Unsubscribed
Shares), the Underwriters may elect, on or before the Closing Date, to cancel
the Offering and the Company and the Selling Stockholders will not have any
obligations with respect to the Rights except to return, without interest, any
payment received in respect of the Exercise Price. See "Underwriting." The
Company has been advised by the NASD that it is likely that trades in the Rights
and the when-issued shares of Common Stock in the market would be canceled if
the Offering is not consummated.
Federal Income Tax Consequences
The following is a summary of the material federal income tax consequences
affecting holders of Safeguard Common Shares receiving Company Rights in the
Offering. In the opinion of Morgan, Lewis & Bockius LLP, the distribution of the
Company Rights by the Company may constitute taxable income to holders of
Safeguard Common Shares under the Internal Revenue Code of 1986, as amended (the
"Code"), and may also be subject to state or local income taxes. Because of the
complexity of the provisions of the Code referred to below and because tax
consequences may vary depending upon the particular facts relating to each
holder of Safeguard Common Shares, such holders should consult their own tax
advisors concerning their individual tax situations and the tax consequences of
the Offering under the Code and under any applicable state, local or foreign tax
laws.
Safeguard has been advised by Morgan, Lewis & Bockius LLP that, under current
interpretations of case law, the Code, and applicable regulations thereunder,
the federal income tax consequences applicable to holders of Safeguard Common
Shares receiving Company Rights in the Offering generally are as follows:
Distribution of Company Rights to Holders of Safeguard Shares
The Company Rights, representing the right to acquire shares of Common Stock
from the Company or the Selling Stockholders, can be considered as constituting
"property" within the meaning of Section 317(a) of the Code. The federal income
tax consequences of a distribution by the Company of the Company Rights which
are considered "property" to holders of Safeguard Common Shares, as determined
under the Code and the regulations thereunder, are as follows: (i) each
noncorporate holder of Safeguard Common Shares will be deemed to have received a
distribution from Safeguard, generally taxable as ordinary dividend income, in
an amount equal to the fair market value (if any) of the Company Rights, as of
the date of distribution, (ii) each corporate holder of Safeguard Common Shares
(other than foreign corporations and S corporations) will be deemed to have
received a distribution from Safeguard (generally taxable as a dividend subject
to the dividends received deduction for corporations (generally 70%, but 80%
under certain circumstances)) in an amount equal to the fair market value (if
any) of the Company Rights, as of the date of distribution; and (iii) the tax
basis of the Company Rights in the hands of each holder (whether corporate or
noncorporate) of Safeguard Common Shares will be equal to the fair market value
(if
20
<PAGE>
any) of the Company Rights as of the date of distribution. Because of the
predominantly factual nature of determining the fair market value, if any, of
the Company Rights, Morgan, Lewis & Bockius LLP has expressed no opinion with
respect to the fair market value of the Company Rights.
Since the fair market value of the Company Rights will determine the amount of
taxable income deemed received by the holders of Safeguard Common Shares, the
determination of the fair market value of each Right as of the date of
distribution is critical. The Exercise Price was determined through arms-length
negotiations among the Company, the Selling Stockholders and the Underwriters.
Based on these negotiations and because Safeguard views the Company Rights as
merely a mechanism that permits the purchase of the Common Stock, Safeguard's
Board of Directors believes that the per share value of Common Stock represented
by the Company Rights at the date of the commencement of the Offering
approximates the Exercise Price, and that the Company Rights should have no
value for federal income tax purposes. However, the Internal Revenue Service is
not bound by this determination. See "--Background."
Exercise of Rights
Holders of Company Rights, whether corporate or noncorporate, will recognize
neither gain nor loss upon the exercise of the Company Rights. A holder of
Company Rights who receives shares of Common Stock upon the exercise of the
Company Rights will acquire a tax basis in such shares equal to the sum of the
Exercise Price paid under the Offering and the tax basis (if any) of the holder
of Company Rights in the Company Rights.
Transfer of Rights
The transferable nature of the Company Rights will permit a holder of Company
Rights to sell Company Rights prior to exercise. Pursuant to Section 1234 of the
Code, a Company Rights holder who sells Company Rights prior to exercise will be
entitled to treat the difference between the amount received for the Company
Rights and the adjusted tax basis (if any) of the holder of Company Rights in
the Company Rights as a short-term capital gain or capital loss, provided that
Common Stock subject to the Company Rights would have been a capital asset in
the hands of the holder had it been acquired by him. The gain or loss so
recognized will be short-term since the Company Rights will have been held for
not longer than one year.
Non-Exercise of Rights
The income tax treatment applicable to holders of Company Rights who fail to
exercise or transfer their Company Rights prior to the Expiration Date also is
set forth in Section 1234 of the Code. Holders of Company Rights who allow their
Company Rights to lapse are deemed under the Code to have sold their Company
Rights on the date on which the Company Rights expire. Since upon such lapse no
consideration will be received by a holder of Company Rights, and since the
Company Rights will have been held for not longer than one year, a short-term
capital loss equal to the tax basis (if any) in the Company Rights will be
sustained by the holder on such lapse, provided that Common Stock subject to the
Company Rights would have been a capital asset in the hands of the holder had it
been acquired by him.
21
<PAGE>
Use of Proceeds
The minimum net proceeds to the Company from the sale of the 2,158,000 shares of
Common Stock offered by the Company hereby are estimated to be approximately
$10,346,500 after deducting estimated offering expenses allocable to and payable
by the Company (including the maximum applicable non-accountable expense
allowance to the Underwriters) and assuming the sale of all such shares pursuant
to the Standby Underwriting Agreement (other than the 151,500 shares upon the
exercise of Direct Rights), the payment to the Underwriters of the Total
Underwriting Discount with respect to the shares sold by the Company pursuant to
the Standby Underwriting Agreement and the payment of only the Financial
Advisory Fee with respect to the shares of Common Stock sold by the Company to
the Direct Purchasers upon the exercise of Direct Rights. In the event more of
the shares of Common Stock offered hereby are sold pursuant to the exercise of
Rights, the Company will not be obligated to pay the Underwriting Discount with
respect to such shares and will, therefore, realize an amount of net proceeds
greater than approximately $10,346,500. See "The Offering--Sales of Unsubscribed
Shares; Standby Commitment" and "Underwriting." The Company will not receive any
proceeds from the sale of Common Stock by the Selling Stockholders.
The principal reason for the Offering is to establish a stronger capital base
for the Company to support the continued expansion of its business. The Company
intends to use the net proceeds, together with cash flow from operations, for
working capital, capital expenditures and general corporate purposes. The
Company may expand its technical and marketing capabilities through the
acquisition of other companies or businesses that are complementary to the
Company's current business. A portion of the net proceeds from the Offering may
be used in the future for such acquisitions, although the Company has no
commitments or understandings with respect to future acquisitions. The Company
has not determined the amounts it intends to utilize on each of the listed uses,
or the timing of such uses. The amounts actually expended for each use may vary
significantly depending upon a number of factors, including future revenue
growth, if any, the amount of cash generated or used by the Company's operations
and the status of acquisition opportunities, if any, presented to the Company.
The Company believes that the net proceeds from the sale of the Common Stock
offered hereby, together with its current cash balances and cash flow from
future operations will be sufficient to fund its operating requirements for the
foreseeable future. Pending such uses, the net proceeds of the Offering will be
invested in short-term, investment-grade, interest-bearing securities. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operation--Liquidity and Capital Resources."
Dividend Policy
To date, the Company has not paid any cash dividends on its Common Stock. The
Company currently intends to retain future earnings for use in its business and,
therefore, does not anticipate paying any cash dividends in the foreseeable
future. The payment of future dividends, if any, will depend, among other
things, on the Company's results of operations and financial condition and on
such other factors as the Company's Board of Directors may, in its discretion,
consider relevant. The Company's financing arrangements currently do not
prohibit the Company from declaring or paying dividends or making other
distributions on the Common Stock.
22
<PAGE>
Capitalization
The following table sets forth the total capitalization of the Company as of
September 30, 1996, and as adjusted to reflect the sale of 2,158,000 shares of
Common Stock by the Company pursuant to the Offering and the application of the
estimated net proceeds of approximately $10,346,500 therefrom. This table should
be read in conjunction with the Consolidated Financial Statements and related
notes thereto and other financial information included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
As of September 30, 1996
Actual As Adjusted
------ -----------
Dollars in thousands (Unaudited)
<S> <C> <C>
Long-term debt, including current portion ............................ $ 407 $ 407
Stockholders' equity:
Preferred Stock, no par value; 10,000,000 shares
authorized and no shares issued................................. -- --
Common stock, no par value; 15,000,000 shares authorized, and
8,549,755 and 10,707,755 (as adjusted) shares issued ......... 85 107
Additional paid-in capital......................................... 6,354 16,679
Retained earnings.................................................. 844 844
Notes due on common stock purchases................................ (652) (652)
Total stockholders' equity......................................... 6,631 16,978
Total capitalization............................................... $7,038 $17,385
======= ========
</TABLE>
23
<PAGE>
Dilution
The net tangible book value of the Company as of September 30, 1996 was
approximately $5,985,000 or $.70 per share of Common Stock. Net tangible book
value per share of Common Stock represents the amount of the Company's tangible
assets less its total liabilities, divided by the total number of shares of
Common Stock outstanding. Without taking into account any changes in net
tangible book value after September 30, 1996, other than to give effect to the
items described in Note 1 appearing immediately below the following table, the
pro forma net tangible book value of the Company as of September 30, 1996 would
have been approximately $16,331,500 or $1.53 per share. This represents an
immediate increase in such pro forma net tangible book value of $.83 per share
to existing stockholders and an immediate dilution of $3.97 per share to
investors purchasing Common Stock at the Exercise Price in the Offering. New
stockholders that acquire Common Stock from the Underwriters at a price greater
than the Exercise Price will experience greater dilution. The following table
illustrates this per share dilution in net tangible book value:
<TABLE>
<CAPTION>
<S> <C>
Exercise Price ......................................................... $ 5.50
Net tangible book value per share as of September 30, 1996 ........... $ .70
Increase per share attributable to new stockholders(1) ............... .83
Pro forma net tangible book value per share as of September 30, 1996... 1.53
Dilution per share to new stockholders ................................. $ 3.97
</TABLE>
- --------------------
(1) Reflects the sale by the Company of 2,158,000 shares of Common Stock and the
receipt of approximately $10,346,500 in net proceeds from the Offering after
deducting the maximum Total Underwriting Discount with respect to such shares of
approximately $797,500 and estimated offering expenses of $725,000 (including
$125,000 representing the maximum applicable non-accountable expense allowance
to the Underwriters).
The following table sets forth, on an adjusted basis as of September 30, 1996,
the number of shares of Common Stock issued by the Company, the total
consideration paid and the average price per share paid upon original issuance
to stockholders prior to the Offering and by new investors before deducting the
Underwriters' compensation and estimated offering expenses:
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------
Shares Purchased(1) Total Consideration
------------------- -------------------
Average Price
Number Percentage Amount Percentage Per Share
------ ---------- ------ ---------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders....... 8,549,755 79.8% $ 6,286,000 34.6% $ .74
New stockholders............ 2,158,000 20.2 11,869,000 65.4 $5.50
----------- ------ ----------- -----
Total............... 10,707,755 100.0% $18,155,000 100.0%
========== ===== =========== =====
</TABLE>
- --------------------
(1) Sales by the Selling Stockholders in the Offering will cause the number of
shares held by existing stockholders to be reduced to approximately 7,526,255
shares or 70.3% of the total shares of Common Stock to be outstanding after the
Offering, and will increase the number of shares held by new investors to
approximately 3,181,500 shares, or 29.7% of the total shares of Common Stock to
be outstanding after the Offering. See "Principal and Selling Stockholders."
The foregoing tables assume no exercise of outstanding options or warrants. As
of September 30, 1996, there were outstanding (i) options to purchase an
aggregate of 816,889 shares of Common Stock (of which
24
<PAGE>
365,753 were exercisable at September 30, 1996) at a weighted average exercise
price of $2.81 per share and (ii) warrants to purchase an aggregate of 360,000
shares of Common Stock at an exercise price of $1.39 per share. As of September
30, 1996, the Company had an additional 1,251,364 shares of Common Stock
available for future grants and other issuances under its 1995 Equity
Compensation Plan. See "Management--1995 Equity Compensation Plan" and Note 8 to
the Consolidated Financial Statements appearing elsewhere in this
Prospectus.
Selected Consolidated Financial Data
The selected consolidated financial data presented below as of December 31,
1992, 1993, 1994 and 1995 and for the four-year period ended December 31, 1995
have been derived from the Company's audited consolidated financial statements.
In management's opinion, the Company's unaudited consolidated financial
statements as of December 31, 1991 and for the year then ended and as of
September 30, 1995 and 1996 and for the nine months then ended include all
adjustments (consisting only of normal recurring adjustments) necessary for a
fair presentation. Consolidated operating results for the nine months ended
September 30, 1996 are not necessarily indicative of the results that may be
expected for the entire year. The data presented below should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations," the Consolidated Financial Statements and the notes
thereto and other financial information appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
-------------------------------------------------------------
Year Ended December 31,
1991 1992 1993 1994 1995
---- ---- ---- ---- ----
In thousands, except per share data (Unaudited)
<S> <C> <C> <C> <C> <C>
Statement of Operations Data
Revenues:
Software license fees................. $ 4,365 $ 3,755 $ 2,184 $ 6,111 $ 6,532
Product enhancement fees.............. 620 2,131 2,045 1,564 1,797
Implementation and consulting
services.............................. 1,990 3,394 3,729 4,347 4,496
Software maintenance fees.............. 2,424 2,601 3,359 3,494 4,017
------ ------ ------ ------ ------
Total revenues 9,399 11,881 11,317 15,516 16,842
Operating expenses:
Product development................... 2,565 3,369 2,991 3,805 3,300
Product support....................... 1,597 1,923 2,509 2,315 2,515
Implementation and consulting......... 1,322 2,434 2,436 2,678 3,176
Sales and marketing................... 1,377 1,630 993 1,282 2,080
Royalties and sublicense fees......... 320 587 331 1,477 1,331
General and administrative............ 1,538 1,579 1,511 1,885 1,824
------ ------ ------ ------ ------
Total operating expenses ............... 8,719 11,522 10,771 13,442 14,226
------ ------ ------ ------ ------
Income from operations.................. 680 359 546 2,074 2,616
Interest income (expense), net.......... (111) (2) (28) 6 93
------ ------ ------ ------ ------
Income before income taxes.............. 569 357 518 2,080 2,709
Income tax provision (benefit).......... 27 25 55 (958) 1,122
------ ------ ------ ------ ------
Net income.............................. $ 542 $ 332 $ 463 $ 3,038 $ 1,587
====== ====== ====== ======= ======
Net income per common share $ .06 $ .04 $ .05 $ .33 $ .17
Weighted average number of shares
outstanding 8,988 8,928 9,068 9,284 9,588
- ----------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
1995 1996
------ ------
In thousands, except per share data (Unaudited)
Statement of Operations Data
Revenues:
<S> <C> <C>
Software license fees................. $3,985 $5,623
Product enhancement fees.............. 1,164 709
Implementation and consulting
services.............................. 3,372 3,294
Software maintenance fees 3,081 3,170
------ -------
Total revenues..................... 11,602 12,796
Operating expenses:
Product development................... 2,567 2,750
Product support....................... 2,001 2,142
Implementation and consulting......... 2,435 2,097
Sales and marketing................... 1,516 2,191
Royalties and sublicense fees......... 874 1,721
General and administrative............ 1,454 1,041
------ ------
Total operating expenses................ 10,847 11,942
------ ------
Income from operations.................. 755 854
Interest income (expense), net.......... 51 213
------ ------
Income before income taxes.............. 806 1,067
Income tax provision (benefit).......... 327 383
------ ------
Net income.............................. $ 479 $ 684
======== =======
Net income per common share............. $ .05 $ .07
Weighted average number of shares
outstanding........................... 9,589 9,224
</TABLE>
25
<PAGE>
<TABLE>
<CAPTION>
---------------------------------------------------------------------
As of December 31, As of September
30,
1991 1992 1993 1994 1995 1995 1996
------- ------- ------- ------- ------- ------- -------
In thousands (Unaudited) (Unaudited)
- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance Sheet Data:
Cash and cash equivalents ....... $ 1,007 $ 257 $ 365 $ 2,656 $ 5,546 $ 262 $ 6,250
Working capital ................. (1,282) (1,298) (320) 2,318 4,751 3,036 5,385
Total assets .................... 3,622 3,868 3,593 8,530 12,147 9,727 13,531
Long-term debt, including current
portion ......................... 234 179 174 242 341 385 407
Total stockholders' equity ...... (21) 284 747 3,785 5,605 4,497 6,631
</TABLE>
26
<PAGE>
Management's Discussion and Analysis of Financial Condition
and Results of Operations
The following information should be read in connection with the information
contained in the Consolidated Financial Statements and notes thereto appearing
elsewhere in this Prospectus.
This Prospectus contains forward-looking statements that involve risks and
uncertainties. The Company's actual results may differ materially from the
results discussed in the forward-looking statements. Factors that might cause
such a difference include, but are not limited to, those discussed in "Risk
Factors."
Overview
The Company designs, develops, markets, implements and supports comprehensive
banking software, called PROFILE, for financial services organizations
worldwide. Sanchez's highly flexible PROFILE family of products is comprised of
three integrated modules which operate on open, client-server platforms. The
primary module, called PROFILE/Anyware, is a multi-currency bank production
system which supports deposit, loan, customer, transaction processing and bank
management requirements through multiple distribution channels, including the
Internet. The other modules are PROFILE/FMS, a multi-company, multi-currency,
financial management and accounting system, and PROFILE/ITS, a system that
processes treasury transactions including foreign exchange, money market,
securities trading (capital markets), futures, options and trade finance. The
PROFILE system is currently licensed to 23 clients in nine countries serving
more than 400 financial institutions.
Founded in 1979, the Company initially generated all of its revenue from U.S.
based financial institutions. In the early 1990s, the Company identified two
niches: the Canadian Credit Union marketplace and the Emerging Banking Market in
Central Europe. For the three year period ended December 31, 1995, 54% of the
Company's revenues were generated from these two markets, although in 1995, when
62% of the Company's revenue was generated from these two markets, 51% was from
Central Europe and only 11% was from Canada. The Company anticipates that a
significant portion of its revenues in the future will be derived from the
Emerging Banking Market and the Direct Banking Market (see "Business--Industry
Overview" for descriptions of these markets). For more information about the
Company's revenues from foreign operations, see Note 4 to the Consolidated
Financial Statements.
The Company prices its software products in three primary components: (i)
license fees for PROFILE software products and from the licensing and delivery
of software of third party vendors; (ii) fees for a full range of services which
complement its software products, including product enhancement fees and
implementation, consulting, conversion, training and installation services; and
(iii) support and maintenance revenue. License, product enhancement,
implementation, consulting, conversion, training and installation fees are paid
in stages upon the completion by the Company of certain defined deliverables.
The client implementation projects generally take from ten to 15 months to
complete. The Company recognizes revenue from these fees using the
percentage-of-completion contract accounting method and recognizes revenue from
maintenance contracts ratably over the periods covered. For the three year
period ended December 31, 1995, license fees accounted for 34% of total
revenues. If the Company's strategies related to the Direct Banking Market are
successful, it is anticipated that the license fee component of total revenue
will increase.
The Company's backlog at September 30, 1996 amounted to $19.4 million. The
components of the backlog were $8.2 million for software license, product
enhancement and implementation and consulting revenues and $11.2 million for
maintenance and support. The Company anticipates recognizing approximately $3.7
million of this backlog in the fourth quarter of 1996 and $10.0 million in the
year 1997. At September 30, 1995, the Company's backlog amounted to $21.2
million, consisting of $8.9 million for software license, product enhancement
and implementation and consulting revenues and $12.3 million for maintenance and
support.
27
<PAGE>
Historically, the Company's revenues were dependent upon opportunities developed
by its first hardware manufacturing partner, Digital, and by the Company 's
direct marketing efforts. Since the beginning of 1995, the Company has
established marketing agreements with IBM, Hewlett-Packard, Oracle, and most
recently, Price Waterhouse . Although substantially all of the Company's revenue
to date has been generated in conjunction with systems running on Digital
platforms, the Company is currently in several bids with Hewlett-Packard and
anticipates identifying opportunities with all of its partners going forward. In
addition, the Company has been investing additional resources to enhance its own
direct marketing efforts.
The Company has historically experienced a certain degree of variability in its
quarterly revenue and earnings patterns. This variability is typically driven by
significant events which directly impact the recognition of project related
revenues. Examples of such events include the timing of new business contract
closings and the initiation of license and service fee revenue recognition (see
"Risk Factors--Concentration and Mix of Revenues"), "one-time" payments from
existing clients for license expansion rights (required to process a greater
number of customer accounts or expand the number of permitted users), and
completion of a significant implementation project roll out and the related
revenue recognition. Fluctuations in the timing and amounts of additional sales
and marketing and general and administrative expenses may also cause
profitability to fluctuate somewhat from one quarter to another.
The Company made a strategic decision in early 1996 to increase its investment
in technology and product development, in particular as it relates to
PROFILE/Anyware, as well as certain other projects such as the development of
its graphical user interface (GUI) client and the completion of the adaptation,
or "porting," of the Company's software to operate on different computer
systems. In addition, the Company decided to increase its investment in sales
and marketing activities, partially due to the implementation of the
PROFILE/Anyware strategy, but also as part of a focused effort to increase its
direct sales efforts in both the Emerging Banking Market and Direct Banking
Market. As indicated below, expenses in these categories increased in the nine
month period ended September 30, 1996 when compared to the similar period in
1995. Management anticipates that net income in the fourth quarter of 1996 will
be less than the comparable quarter in 1995 due to the following reasons: (i)
the increased expenses, described above, which the Company believes will enhance
its future growth potential; (ii) the timing of the start of new contracts
currently being pursued; and (iii) the fourth quarter of 1995 included one-time
contract settlement totaling approximately $625,000.
28
<PAGE>
Results of Operations
The following table sets forth for the periods indicated selected statements of
operations data:
<TABLE>
<CAPTION>
----------------------------------------------------------------------------
Nine months ended
Year Ended December 31, September 30,
Dollars in thousands 1993 1994 1995 1995 1996
------------- ------------- ------------ ------------ -----------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Revenues
Software license fees.............................. $ 2,184 $ 6,111 $ 6,532 $ 3,985 $ 5,623
Product enhancement fees........................... 2,045 1,564 1,797 1,164 709
Implementation and consulting services............. 3,729 4,347 4,496 3,372 3,294
Software maintenance fees.......................... 3,359 3,494 4,017 3,081 3,170
--------- --------- ------ ------- -------
Total revenues.................................. $11,317 $15,516 $16,842 $11,602 $12,796
======= ======= ======= ======== =======
Percentage Relationship to Total Revenues
Revenues
Software license fees.............................. 19.3% 39.4% 38.8% 34.3% 43.9%
Product enhancement fees........................... 18.1 10.1 10.7 10.0 5.6
Implementation and consulting services............. 32.9 28.0 26.7 29.1 25.7
Software maintenance fees ......................... 29.7 22.5 23.8 26.6 24.8
----- ----- ----- ----- -----
Total revenues.................................. 100.0 100.0 100.0 100.0 100.0
Operating expenses
Product development............................... 26.4 24.5 19.6 22.1 21.5
Product support................................... 22.2 14.9 14.9 17.3 16.7
Implementation and consulting..................... 21.5 17.3 18.9 21.0 16.4
Sales and marketing............................... 8.8 8.3 12.4 13.1 17.1
Royalties and sublicense fees..................... 2.9 9.5 7.9 7.5 13.5
General and administrative........................ 13.4 12.1 10.8 12.5 8.1
----- ----- ----- ----- -----
Total operating expenses........................ 95.2 86.6 84.5 93.5 93.3
----- ----- ----- ----- -----
Income from operations............................... 4.8 13.4 15.5 6.5 6.7
Interest income (expense), net....................... (.2) -- .6 .4 1.6
----- ----- ----- ----- -----
Income before income taxes........................... 4.6 13.4 16.1 6.9 8.3
Income tax provision (benefit)....................... .5 (6.2) 6.7 2.8 3.0
----- ----- ----- ----- -----
Net income........................................... 4.1% 19.6% 9.4% 4.1% 5.3%
====== ====== ===== ====== =====
</TABLE>
29
<PAGE>
Nine months ended September 30, 1996 compared to nine months ended September 30,
1995
Revenues. Revenues increased $1.2 million, or 10.3%, in the nine month period
ended September 30, 1996 primarily due to an increase in software license fees
of $1.6 million. The most significant contributors to this increase were two
major implementation projects underway in the Polish marketplace, along with a
license fee expansion earned from one of the Company's key European customers.
Partially offsetting this increase was a $455,000 decline in product enhancement
fees, due primarily to a higher level of funded technology development in 1995.
Implementation and consulting servuces fees and software maintenance fees were
relatively stable during the two nine month periods, despite the inclusion in
the 1995 period of a one-time settlement payment resulting from the termination
of a client software maintenance contract.
Product development. Product enhancement fee revenue represents client or
partner funding of a certain portion of software development costs. Most of the
Company's product development is internally funded. The Company, however,
periodically is able to obtain partial fuding for certain development from its
partners or clients. Such fees are included in revenues, entitled product
enhancement fees.
These expenses increased $183,000 or 7.1%, in the nine month period ended
September 30, 1996, due to the strategic decision to increase investment in
development for various technology projects, including , the porting of its
software to additional platforms and enhancements to PROFILE/Anyware.
Additionally, capitalized software development costs increased by $275,000 in
the 1996 nine month period, due primarily to capitalization of costs related to
the GUI client project. As a result of the higher 1996 year-to-date revenues,
the expense relationship to revenues declined slightly when compared to the
corresponding 1995 period.
Product Support. Product support expenses increased by $141,000 or 7.0%, in the
nine months ended September 30, 1996, primarily due to incremental costs related
to the Company's establishment of European support offices.
Implementation and consulting. Implementation and consulting expenses declined
$338,000 or 13.9%, in the nine months ended September 30, 1996, in conjunction
with a $78,000 decline in related revenues. The percent relationship to related
revenues declined in 1996 to 63.7% from 72.2% in 1995 due to a lower utilization
of more expensive third party consultants to deliver a portion of the services
in 1996. The percent relationship to total revenues declined to 16.4% from 21.0%
in the 1995 period due to the lower expenses and the increased software license
fees as discussed above.
Sales and marketing. Sales and marketing expenses increased $675,000, or 44.5%
in the 1996 period, due to the Company's continuing increased investment in this
area during 1996. The Company has historically relied primarily on Digital to
generate its client prospects. Although the Company will continue to rely on
Digital, as well as its new partners, the Company believes it is important for
it to increase its direct sales efforts. Additionally, sales and marketing
expenses increased substantially due to the promotional and advertising campaign
related to PROFILE/Anyware. As a result, sales and marketing expenses as a
percent of revenues increased to 17.1% from 13.1% in the 1995 period.
Royalties and sublicense fees. The Company is obligated to pay royalties to
Digital and to certain clients based on the collection of certain license fees.
These obligations have varying expiration terms. The Company also is obligated
to pay sublicense and maintenance fees to certain third party licensors,
primarily related to its PROFILE/ITS product and also for the M programming
language and data base. These amounts will vary depending on the applicable
revenue components subject to such fees. For the nine months ended September 30,
1996, this expense category increased $847,000, primarily due to an increase of
$468,000 in third party license fees due to higher third party license
revenue.
30
<PAGE>
General and administrative. These expenses declined $413,000, or 28.4%, due
primarily to the absence of costs associated with two executives, the former
Co-President and former Managing Director of Europe, both of whom resigned in
late 1995. The Company did not replace the Co-President, but did replace the
Managing Director of Europe in May, 1996. Additionally, one senior executive
was transferred into the Sales and Marketing area effective January, 1996.
Interest income (expense) net. Interest income, net, increased $162,000 due to
income earned on higher invested cash balances.
1995 Compared to 1994
Revenues. The Company's revenues increased 8.5% to $16.8 million in 1995, as
each revenue category improved over the prior year. Software license fees
increased 6.9% due primarily to a one-time payment of approximately $625,000
from a customer in conjunction with a contract termination settlement due to a
decision by this customer's management to restructure its business by
terminating its retail banking business. Product enhancement fees increased
14.9% due primarily to increased product enhancement work generated from the
Company's first client in Poland. Maintenance fees increased $523,000, or 15.0%,
due to the revenues generated from the increasing client base.
Product development. These costs in 1995 declined $505,000, or 13.3%, when
compared to 1994, primarily due to a reduced utilization of higher priced third
party consultants.
Product support. These costs increased $200,000, or 8.6%, in 1995, when compared
to 1994, as the Company increased its investment in this area to support a
larger customer base.
Implementation and consulting. Implementation and consulting costs increased
$498,000 or 18.6% in 1995, primarily due to a higher utilization of more
expensive third party consultants and additional staffing required to support
the higher level of revenue. The percentage relationship to the related revenues
increased in 1995 to 70.6% when compared to 61.6% in 1994 due primarily to the
utilization of higher price consultants.
Sales and marketing. Sales and marketing costs increased 62.2%, or $798,000, as
the Company increased its direct coverage in this area. This strategy is further
evidenced by the increase in sales and marketing expense from 8.3% of revenues
in 1994 to 12.4% in 1995.
Royalties and sublicense fees. During 1995, these fees declined $146,000, or
9.9%, due to lower third party sublicense fees. Royalty expense approximated
$760,000 for both 1994 and 1995. The decline in the percent relationships to
revenues from 9.5% in 1994 to 7.9% in 1995 was due to an increase in revenues in
1995 not subject to royalties.
General and administrative. These expenses declined 3.2% in 1995 when compared
to 1994, partially due to more direct involvement in sales and marketing
activities of personnel normally classified in this expense category and the
absence of year end bonuses in 1995. Similarly, general and administrative
expenses, as a percentage of sales, declined from 12.1% to 10.8% in 1995.
Interest income (expense), net. Interest income (expense), net increased $87,000
in 1995, due primarily to interest earned on higher average invested cash
balances resulting from increasing cash flows from operations over the past two
years.
Income tax provision (benefit). Taxes in 1995 were 41.4% of income before income
taxes, when compared to a net recovery recognized in 1994. At December 31, 1994,
it was determined that the Company's financial performance and contract backlog
had improved to such a degree that it was more likely than not that the
Company's previously recognized net operating losses and credits would be
available to offset future income. Therefore, the net recovery
31
<PAGE>
of $958,000 was recognized in 1994 as a result of the elimination of the net
operating loss valuation reserves previously established.
1994 Compared to 1993
Revenues. The Company's revenues increased 37.1% to $15.5 million in 1994 from
$11.3 million in 1993. This increase was due primarily to increased license
fees, as two large European banks chose PROFILE. Implementation and consulting
revenue increased $618,000, or 16.6%, due to services delivered in conjunction
with the previously mentioned new European clients. Partially offsetting these
increases was a $481,000, or 23.5%, decline in product enhancement revenue, due
to extensive 1993 enhancement fees for the Canadian marketplace coupled with
significant post-conversion development provided to the Company's first Central
European client throughout most of 1993.
Product development. Product development costs increased $814,000, or 27.2%, in
1994 when compared to 1993 due to increased staffing related to the
establishment of the Company's Product Management Group and also increased
consultant utilization related to the Company's new treasury product
(PROFILE/ITS) offering. Even though these expenses increased substantially on an
actual dollar basis, the expense relationship to revenues declined from 26.4% to
24.5% primarily due to the 37.1% increase in revenues in 1994.
Product support. Product support expenses declined $194,000, or 7.7%, in 1994
when compared to 1993 primarily due to the phasing out of two older product
lines which had been acquired in 1989.
Implementation and consulting. The percentage relationship to the related
revenues declined from 65.3% in 1993 to 61.6% in 1994, even though overall
expenses increased $242,000, or 9.9%. This improved percentage relationship was
primarily attributable to more profitable implementation projects in progress in
1994 versus 1993. These increased expenses were primarily attributed to a higher
utilization of more expensive third party contractors in 1994. The decline in
the percentage relationship to total revenues was primarily attributable to the
$3.9 million increase in the software license fee revenue.
Sales and marketing. Sales and marketing expenses increased $289,000, or 29.1%,
in 1994, as the Company began to implement its strategy of increasing its direct
marketing costs. In addition, commission expenses increased $60,000 due to the
higher revenue levels in 1994.
Royalty and sublicense fees. These fees increased $1.1 million in 1994, due
primarily to the significant increase in royalty fees incurred related to the
increase in related license fee revenue earned in 1994. Most of the license fee
revenue earned in 1993 was not subject to royalties.
General and administrative. These expenses increased $374,000, or 24.8%, in
1994, primarily due to the addition of two individuals in the executive area to
support the anticipated revenue growth in 1994 as well as the activities related
to this improvement. The percent relationship to revenue, however, declined
slightly due to the increase in revenues far exceeding the level of expense
increase.
Quarterly Financial Results
Set forth below are selected unaudited statements of operations data for the
last eleven fiscal quarters of the Company. In management's opinion, the results
below have been prepared on the same basis as the audited financial statements
contained herein and include all material adjustments, consisting only of normal
recurring adjustments necessary for a fair presentation of the information for
the periods when read in conjunction with the Consolidated Financial Statements
and notes thereto contained elsewhere in this Prospectus.
32
<PAGE>
<TABLE>
<CAPTION>
Unaudited Quarterly Statements of Operations
----------------------------------------------------------------------------------------------
1994 Quarter Ended 1995 Quarter Ended
In thousands, except per share Mar 31 June 30 Sept 30 Dec 31 Mar 31 June 30 Sept 30 Dec 31
data ------ ------- ------- ------ ------ ------- ------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues $ 3,051 $ 3,408 $ 4,311 $ 4,746 $ 3,829 $ 3,435 $ 4,338 $5,240
Income before income taxes 196 352 526 1,006 321 24 460 1,904
Net income 174 317 449 2,098 192 $ 15 272 1,108
Net income per share $ 0.02 $ 0.03 $ 0.05 $ 0.22 $ 0.02 -- $ 0.03 $ 0.12
Weighted average number of
shares outstanding 9,067 9,374 9,367 9,393 9,517 9,639 9,636 9,597
<CAPTION>
1996 Quarter Ended
In thousands, except per share Mar 31 June 30 Sept 30
data -------- -------- -------
<S> <C> <C> <C>
Revenues $ 3,477 $ 4,773 $ 4,546
Income before income taxes 31 608 428
Net income $ 19 358 307
Net income per share -- $ 0.04 $ 0.03
Weighted average number of
shares outstanding 9,273 9,178 9,198
</TABLE>
The Company believes that its business is generally not seasonal; however, the
Company has historically experienced a certain degree of variability in its
quarterly revenue and earnings patterns. This variability is typically driven by
significant events which directly impact the recognition of project related
revenues. Examples of such events include the timing of new business contract
closings and the initiation of license and service fee revenue recognition (see
"Risk Factors--Concentration and Mix of Revenues"), "one-time" payments from
existing clients relative to license expansion rights (required to process a
greater number of customer accounts or expand the number of permitted users),
and completion of a significant implementation project roll out and the related
revenue recognition. Certain of these same factors may also cause fluctuations
in terms of personnel utilization rates as well, thereby impacting the timing
and amount of certain service fee revenues. Fluctuations in the timing and
amounts of additional sales and marketing and general and administrative
expenses may also cause profitability to fluctuate somewhat from one quarter to
another. Results of operations for any previous fiscal quarter are not
necessarily indicative of results for any future periods, and future quarterly
results could be adversely impacted by these, and other, factors. In addition,
net income per share calculations for each of the Company's quarters are based
on the weighted average number of shares outstanding in each quarter.
Accordingly, the sum of the net income per share for each of the quarters in a
fiscal year may not equal the actual year-to-date net income per share.
Liquidity and Capital Resources
Cash and cash equivalents were $2.7 million at December 31, 1994, $5.5 million
at December 31, 1995 and $6.2 million at September 30, 1996. Cash flow from
operations was $2.9 million in 1994, $3.2 million in 1995, and $1.2 million in
the nine-month period ended September 30, 1996. The increase in 1994 and 1995
was attributable to profitable operations and the timing of cash collections.
The reduced rate of cash flow in the 1996 period was primarily caused by the
lower net income levels as well as variability in the timing of major contract
milestone payments.
The Company's business is not capital intensive and capital asset expenditures
in any given year normally are not significant. Capital expenditures amounted to
$376,000 in 1994, $458,000 in 1995 and $437,000 for the nine months ended
September 30, 1996. These expenditures consisted primarily of personal computers
and upgrades to the Company's network systems. The Company has financed these
additions through a combination of funds provided by a $500,000 fixed asset line
of credit ($130,000 available at September 30, 1996), a $148,000 lease purchase
and internally generated funds.
In March 1995, the Company offered its employees an opportunity to exercise
vested options granted prior to December 31, 1993 by remitting a minimum of 5%
of the exercise price in cash, with the remaining obligation due pursuant to a
ten-year note. Such notes require annual interest payments calculated at 7.75%
plus a 10% annual principal payment. In March 1996, the Company deferred the
first principal payment on the notes, but did collect interest due. The
remaining note obligations, totaling $652,000 at September 30, 1996, are
reflected as a reduction in equity. The Company has collected $234,000 in
principal payments through September 30, 1996
33
<PAGE>
pursuant to this program. The notes have a provision requiring a balloon payment
to cover any amounts outstanding two years after the consummation of the
Company's initial public offering.
The Company may expand its capabilities through the acquisition of other
businesses that are complementary to the Company's business. A portion of the
net proceeds from the Offering may be used in the future for such acquisitions,
although the Company is not currently engaged in active discussions with respect
to any acquisition. See "Use of Proceeds".
The Company currently anticipates that the net proceeds received by the Company
from the Offering, together with cash generated from operations and existing
cash balances will be sufficient to satisfy its operating cash needs for the
foreseeable future and at a minimum through 1997. Should the Company's business
expand more rapidly than expected, the Company believes that additional bank
credit would be available to fund such operating and capital requirements. In
addition, the Company could consider seeking additional public or private debt
or equity financing to fund future growth opportunities.
Recently Issued Accounting Standards
Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based
Compensation ("SFAS 123"), was issued in October 1995. SFAS 123 gives companies
the option to adopt the fair value method for expense recognition of employee
stock options and stock based awards or to continue to account for such items
using the intrinsic value method as outlined under Accounting Principles Board
Opinion No. 25, Accounting for Stock Issued to Employees ("APB 25"), with pro
forma disclosures of net income and net income per share as if the fair value
method had been applied. The Company has adopted SFAS 123 effective January 1,
1996 by electing to continue to apply APB 25 for future stock options and stock
based awards, and, accordingly, does not anticipate that SFAS 123 will have a
material impact on its results of operations or financial position. In
accordance with the disclosure provisions of SFAS 123, the Company will
initially present the disclosure required by SFAS 123 in its financial
statements as of and for the periods ending December 31, 1996.
34
<PAGE>
Business
Sanchez Computer Associates, Inc. ("Sanchez" or the "Company") designs,
develops, markets, implements and supports comprehensive banking software,
called PROFILE(R) ("PROFILE"), for financial services organizations worldwide.
Sanchez's highly flexible PROFILE family of products is comprised of three
integrated modules which operate on open, client-server platforms. The primary
module, called PROFILE/Anyware, is a multi-currency bank production system which
supports deposit, loan, customer, transaction processing and bank management
requirements through multiple distribution channels, including the Internet. The
other modules are PROFILE/FMS, a multi-company, multi-currency, financial
management and accounting system, and PROFILE/ITS, a system that processes
treasury transactions including foreign exchange, money market, securities
trading (capital markets), futures, options and trade finance. The PROFILE
system is currently licensed to 23 clients in nine countries serving more than
400 financial institutions. Historically, the Company has focused its marketing
efforts in Central Europe and North America. Currently, the Company is targeting
two market segments, the Emerging Banking Market in which the Company seeks to
expand on its existing successes and increase its market share, and the Direct
Banking Market in which the Company is seeking to establish itself as a
significant participant.
Financial services organizations in the Emerging Banking Market can generally be
characterized as being located in areas with growing consumer banking bases,
often with a large number of branches and little enterprise-wide automation.
Sanchez, through the implementation of its PROFILE products, provides these
organizations with a fully automated system which addresses all core areas of
their data processing requirements, including head office operations, domestic
and international payments, new product introduction, customer analysis,
budgeting and forecasting, branch automation, treasury, trade finance and
deposit and loan processing. The PROFILE products have the ability to adapt to
diverse accounting, operational and regulatory environments and have the
flexibility to support a broad spectrum of banking products and services.
Because the PROFILE products are scalable, they can be implemented within an
infrastructure that supports an organization's current operational requirements
and thereafter be incrementally expanded as the client's operational
requirements increase. Since 1991, the Company has principally targeted banks in
Central Europe and Canada; and, in 1996, the Company expanded its marketing
efforts to include financial services organizations located in the Asian-Pacific
Rim.
Since 1987, the Company has maintained a series of strategic alliance agreements
with Digital Equipment Corporation ("Digital") and has marketed its products
principally through leads generated by the Digital sales force. In 1995, the
Company entered into an agreement with Hewlett-Packard Company
("Hewlett-Packard") and ported its software to Hewlett-Packard's HP-UX platform.
Also in 1995, the Company entered into an agreement with Oracle Corporation
("Oracle") to port the PROFILE products to the Oracle database. These porting
activities are currently under way. In mid-1996, the Company entered into an
agreement with International Business Machines Corporation ("IBM") and ported
its software to IBM's AIX platform. The Company markets PROFILE products through
alliances with all four of these vendors as well as its own enhanced direct
sales force.
The Company intends to expand its business into the Direct Banking Market. The
Company defines the Direct Banking Market as the on-line retail banking business
conducted via alternate distribution channels by large financial services
institutions located throughout the world. The Company believes that these
organizations recognize that the emergence of electronic commerce, together with
the availability and acceptance of computer technology, will ultimately cause a
dramatic change in the consumer banking practices of many of their customers.
The Company predicts that the growth of electronic commerce will result in a
large increase in the volume of financial transactions which occur on-line as
well as a greater demand for customized products and services. Because of these
factors, in early 1996, the Company determined that a significant opportunity
exists for it in the Direct Banking Market and it has subsequently committed
substantial human and financial resources to position itself in that market. The
Company believes that the capabilities already contained in the PROFILE product
line, along with specific enhancements that it has identified, will provide
financial services organizations with the technology to strategically respond to
this consumer banking evolution.
35
<PAGE>
The Company has recently engaged the electronic banking division of Price
Waterhouse LLP ("Price Waterhouse") to assist the Company in jointly defining
future enhancements to PROFILE/Anyware for the Direct Banking Market. In
connection with this engagement, Price Waterhouse and the Company are conducting
joint marketing activities, including Price Waterhouse's introduction of the
Company to prospective clients. In addition, the Company anticipates forming
alliances with other complimentary service organizations in the areas of home
banking interface, network security and other consumer-based financial
applications. The Company believes that these alliances, along with the
alliances mentioned in the previous paragraphs, will facilitate its entrance
into the Direct Banking Market.
Revenues and income from operations have grown consistently since 1993 and in
the nine months ended September 30, 1996. In particular, revenues increased by
10.3% to $12.8 million for the nine months ended September 30, 1996 from the
same prior year period and by 8.5% to $16.8 million from 1994 to 1995. The
Company's income from operations increased by 13.1% to $854,000 for the nine
months ended September 30, 1996 from the same prior year period and by 26.1% to
$2.6 million from 1994 to 1995. To date, the Company has not recognized any
revenue as a result of its activities in the Direct Banking Market.
Industry Overview
Emerging Banking Markets
Banks which comprise the Emerging Banking Market are generally located within
countries or regions which have experienced dramatic political, social and/or
economic changes during the past decade such as Central Europe, Russia, the
Asian-Pacific Rim, Mexico and Latin America. Many of these nations have also
aggressively embraced the privatization of industry, resulting in greater wealth
held by private citizens. As a result of such developments, financial services
organizations within the Emerging Banking Market have experienced large
increases in the demand for retail banking products. Financial services
organizations in the Emerging Banking Market, however, face significant
infrastructure impediments to meeting this increased demand. While these
organizations have often established extensive branch networks, these branches
normally operate as autonomous business units. Typically, selected customer and
transaction data are exchanged with the main office infrequently. The lack of
enterprise level integration has constrained the development and deployment of
sophisticated financial products and services, disabled the efficient
utilization of resources, and prevented bank management from acquiring
management information on a timely basis.
For these reasons, financial services organizations in the Emerging Banking
Market are faced with the necessity of modernizing their entire information and
processing infrastructure. In response, they have demonstrated a willingness to
invest in a centralized enterprise-server based solution. One of the principal
advantages of the technology contained in the Company's PROFILE/Anyware product
is that it provides on-line access to up-to-date customer and balance sheet data
throughout the organization. The Company also believes that an on-line
enterprise-wide database is a requirement for electronic delivery channels such
as Automated Teller Machine (ATM) networks, Point of Sale (POS) networks, and
home banking, which are rapidly being introduced into these markets.
The global market for international retail production banking solutions, which
encompasses the Emerging Banking Market, is so diverse and fragmented that
reliable market figures are not available. However, The Tower Group, a leading
financial industry research organization, estimates that, at any time, 950 bank
production system selections are being contemplated within the international
retail banking systems market, and it believes that number will increase about
6% per year as more banks in developing countries seek to modernize.
Direct Banking Market
The Company believes that the competitive challenges presented by the emergence
of electronic commerce and the consumer demand for greater product and service
flexibility threaten to fundamentally alter traditional retail banking practices
in North America. The Company believes that this process will be further spurred
as the speed and commercial use of the Internet increases with the development
and deployment of higher bandwidth communication (the ability to transmit more
information in a shorter time). Furthermore, expanded Internet access through a
myriad of affordable devices (such as personal computers, Internet access
terminals, televisions
36
<PAGE>
personal digital assistants) will also contribute to greater use of the
Internet. As a result, consumers will be more easily and effectively able to
search for the most attractive financial products and services thereby reducing
the relationship value provided by banks and further increasing the commodity
nature of their products. The Company believes those consumers who are likely to
utilize electronic commerce in this fashion comprise a significant percentage of
a typical organization's highly profitable customers.
In response to these market challenges, financial services organizations within
the Direct Banking Market have begun to develop direct banking services by
offering a subset of their existing products and services through electronic
channels. Services currently provided include the ability to transfer funds, pay
bills, obtain account balances and track checks and deposits via personal
computer. The ability of these organizations to offer more innovative products
and services, however, is considerably constrained by their current information
technology systems. These systems, called production or transaction processing
systems, typically consist of large mainframe computers that are based on
software technology initially developed in the 1970s. Organizations in the
Direct Banking Market are dependent upon this technology and have made enormous
investments in it and the infrastructure required to support it. For these
reasons, they have historically resisted the wholesale replacements of these
legacy systems. Rather, they have chosen to surround these systems on the front
end with modern user interfaces and on the back end with data warehouse and
executive information applications.
The Company, however, believes that these efforts will not provide these
organizations with the necessary infrastructure to create the innovative
products and services required to preserve and expand market share. It also
believes that the current delivery cost structure of these organizations will
impair their ability to competitively price products. Due to the unique product
tailoring capability and delivery channel independence of the PROFILE/Anyware
products, the Company believes that it is positioned to supply the next
generation of infrastructure to these organizations.
Within the global Direct Banking Market, the Company has initially targeted
financial services institutions in the U.S. and Canada with assets of $4 billion
or more. This targeted group includes the top 100 banks in the U.S. and
approximately the top ten banks in Canada. After it achieves initial success
within the targeted groups, the Company intends to broaden its market scope both
internationally and to smaller institutions.
The Sanchez Strategy
The Company believes its most promising opportunities for growth lie in
increasing market share in the Emerging Banking Market, broadening its scope of
services in the Emerging Banking Market, and positioning itself as one of the
first production system entries in the new Direct Banking Market. The Company
plans to pursue these objectives through the following strategic activities.
Increase Market Share in the Emerging Banking Market
The Company intends to expand its presence in the Emerging Banking Market,
principally by increasing its marketing activities in Central Europe and the
Asian-Pacific Rim. The Company believes that the marketing efforts of the
Company's strategic partners, such as Hewlett-Packard, IBM and Digital, will
result in the generation of additional sales leads for the Company in this
market. In addition, the Company plans to increase its own direct marketing
efforts and has recently opened offices in Prague, Warsaw and Jakarta.
Broaden the Scope of Services provided in the Emerging Banking Market
The Company believes that the reception its products and services have received
in the Emerging Banking Market, particularly in Central Europe, provides the
opportunity to expand the scope of services which the Company provides to
organizations in this market. Accordingly, the Company intends to market
additional services and products to these organizations, including more
expansive consulting services, credit bureau services, technology infrastructure
planning, and systems integration.
Become a Significant Participant in the Direct Banking Market
37
<PAGE>
The Company intends to become a significant participant in the Direct Banking
Market by marketing its PROFILE family of products as a financial services
organization's most appropriate response to the evolution in consumer banking
spurred by the emergence of electronic commerce. The Company is positioning its
PROFILE/Anyware product as part of a separate infrastructure focused
specifically on direct banking channels, as opposed to as a replacement for the
existing production systems. The Company is establishing strategic relationships
with partners whom it believes will together comprise a comprehensive direct
bank solution. To this end, the Company has established a relationship with the
direct banking consulting unit of Price Waterhouse to jointly define a direct
banking product and to engage in joint marketing activities. In addition, the
Company anticipates forming alliances with other complimentary service
organizations in the areas of home banking interface, network security and other
consumer-based financial applications.
The Sanchez Solution
Sanchez's PROFILE product line simultaneously addresses the needs of financial
services organizations in both the Emerging Banking Market and the Direct
Banking Market. Sanchez believes that there is a trend toward globalization of
banking practices which will create a convergence of requirements between the
Emerging Banking Market and the Direct Banking Market. The broad range of U.S.
and western banking functionality contained in the system enables financial
services providers in the Emerging Banking Market to offer financial products
and services previously unavailable to their customers. The multiple channel
delivery architecture also provides these institutions with the infrastructure
to support the rapidly evolving service expectations of their customer base.
Using the same software application and technology, Sanchez will enable
organizations within the Direct Banking Market to effectively respond to changes
in consumer banking preferences brought on by the rapid increase in electronic
commerce. The underlying capability of the PROFILE product line to tailor
products and services for individual bank customers and to deliver them over a
wide variety of consumer interfaces can create the differentiation necessary for
banks to compete in a modern marketplace.
A summary of the principal benefits of the PROFILE solution include:
Functional Benefits
o Enables financial services organizations to dynamically create new
products and services and to tailor them for individual customers
("mass customization")
o Allows updates to the integrated on-line database to occur directly,
providing real-time reporting, processing, and analytic capabilities
o Supports a variety of national and international wholesale,
commercial and retail payment systems, offering multiple payment and
clearing options
o Features integrated customer, deposit, loan and general ledger
modules which share a common database and software components, thus
eliminating traditional functional boundaries
o Supports a combined set of North American and international product,
service, operational and transactional requirements providing a
"global" solution
o Contains integrated data management and decision support tools,
supporting analytic, regulatory and production analysis and reporting
requirements
Operational Benefits
o Runs on multiple operating systems and multiple platforms (32 and 64
bit)
o Offers a solution to both start-ups and multi-million account
institutions due to high degree of scalability
o Enables database archiving which provides permanent, low-cost,
transaction storage and on-line retrieval
o Runs over multiple protocols (TCP/IP, DecNet) on local area and wide
area networks
Technical Benefits
o Contains a messaging architecture which provides for the rapid
integration of existing and new delivery channels
38
<PAGE>
o Features standard industry application interfaces (APIs) which
support client/server model and cross application integration
o Features two-tier and three-tier client/server architecture which
optimizes performance and workload distribution
o Contains a data dictionary and other meta-data elements, including
forms, reports, documents and interface definitions which are managed
through a tool set that the Company has developed called DATA-QWIK,
which enables the Company and its customers to rapidly modify and
extend the base application
o Features the entity/relationship data model which can be projected
over relational, key indexed, and object database systems, insulating
the application from the underlying database management system
The Sanchez Products
The PROFILE line of products is a comprehensive software solution that addresses
the major operational requirements of commercial, retail, international and
wholesale banking institutions. The PROFILE product line consists of the
following three modules: (i) the PROFILE/Anyware universal banking system;
(ii) the PROFILE/FMS Financial Management System; and (iii) the PROFILE/ITS
Integrated Treasury System. While each of these applications can operate
independently, they can also be integrated into a cohesive and powerful
enterprise-wide banking solution.
PROFILE/Anyware
PROFILE/Anyware is a client/server application comprised of a wide-area
enterprise server, a local area, branch/department server, and a graphical
client. An integrated set of application codes provide a full range of customer,
deposit, lending, and branch functionality, which includes management reports,
decision support functions, and data analysis functions. PROFILE/Anyware
provides both on-line and batch interfaces to support a bank's transaction
processing and inter/intra clearing requirements. A detailed description of
certain other key features of PROFILE/Anyware follows:
Electronic Manufacturing. The architecture of PROFILE/Anyware was developed
utilizing a product manufacturing paradigm. This is in contrast to most banking
software in use today which was designed to automate accounting and transaction
processing activities. The Company believes that this is a fundamental
distinction. In a manufacturing environment, products are composed of
subassemblies and components. PROFILE/Anyware contains thousands of individual
software components that can be hierarchically assembled into subassemblies,
products, and product packages. The components are shared across traditional
business lines and product boundaries within an institution.
The electronic manufacturing paradigm is further enhanced by the unique ability
of PROFILE/Anyware to assemble unique products for market segments as small as
an individual customer, a concept referred to as "mass customization." Within
this "electronic factory," a financial services organization can provide the
services of a value added intermediary and package products and services that
support the specific requirements of the individual. In a future release of
PROFILE/Anyware, the Company plans to offer software that will allow consumers
themselves to access these capabilities through a self-directed origination
component that will be integrated into their home banking application.
Customer Oriented. PROFILE/Anyware contains all customer records, loan and
deposit account records and transactions in an integrated database. Different
customer types can be defined by the institution, and specific data can be
captured and maintained for each customer type. Customer demographics, interest
yields, profitability and transaction activity are available real-time for
inquiry or analysis. These data can be used to provide service-use incentives,
bundled product packages and integrated reporting. The system provides the
ability to "drill down" from summary data to individual account activity, to the
source document images that support customer transactions. Customers can be
linked to each other to create affinity groups or other meaningful market
segments.
The data dictionary, along with other meta-data definitions such as input and
display forms, document layouts and reports can be modified or extended through
a tool set provided by the Company called DATA-QWIK to support a
39
<PAGE>
bank's unique customer requirements. This feature supports the integration of
data from applications and databases operated outside of PROFILE/Anyware with
the customer database.
Open Architecture, Channel Independent, and Scalable. PROFILE/Anyware is a
client-server based application that supports a variety of industry standard
application interfaces (APIs) and message protocols. The supported APIs
currently include DLL, DDE, HTML and SQL (with ODBC compliance in development
and expected to be available in the first quarter of 1997). The system can
operate as either a database server (two-tier) or application server
(three-tier), or both, depending on the client application requirements. The
PROFILE graphical client utilizes both models to operate most efficiently and
reliably over a wide area network. The standard APIs allow PROFILE/Anyware to
function as a server for best-in-class client and desktop applications.
PROFILE/Anyware is a message based application which allows it to be interfaced
to a wide variety of interface devices including traditional branches, ATM
networks, POS networks, kiosk devices, home banking applications on dedicated
networks and the Internet, and mobile computing devices.
PROFILE/Anyware currently runs on IBM's AIX platform, Hewlett-Packard's HP-UX
platform and Digital's UNIX/RISC platform, as well as Digital Open VMS. The
Company believes that these platforms provide the best price/performance ratios
available for commercial applications and are more scalable than current Intel
based platforms. PROFILE/Anyware has been installed and operated in institutions
ranging in size from startup banks with no initial customers to universal
regional banks with hundreds of branches and over 1.5 million accounts. It has
also been installed in service bureaus operating centrally for many
institutions. The Company believes that the ability to process very large
databases (25 million accounts and ten million transactions per day), will
become a requirement for both of its target markets and is currently developing
technology that it believes can support these volume levels.
On-line, Real-time, Continuous Availability. PROFILE/Anyware accepts on-line and
batch transactions from a variety of transaction sources and processes them in
real-time, ensuring the most up-to-the minute database state. Inquiries from any
client device can access the system on-line and retrieve the current status of
the database. Currently, the system accepts financial transactions 24 hours a
day. The Company intends to enhance the software in a future release to accept
non-financial activity, such as account origination and maintenance, 24 hours a
day as well. The Company believes that this real-time capability will become a
requirement for direct banking applications.
International Functionality. PROFILE/Anyware is currently operating or being
installed in nine countries and in six languages. It is a full multi-currency
system that denominates products and accounts in their base currency. It
supports and balances multiple cash currencies and provides exchange and
revaluation functions. The system contains the product components that support
the combined requirements of North American and international financial
institutions. The system also supports both the U.S. style payment system (ACH
and checks) and the European style electronic payment system
(payment/collection/standing orders, GIRO and SWIFT). The Company believes that
the requirements of its target markets will ultimately converge and that the
qualities of North American retail products and European payment systems will be
integrated into the other market.
PROFILE/FMS
PROFILE/FMS is an on-line, real-time, multi-company, multi-currency, cost center
based accounting system. It contains a very flexible financial reporting tool
that allows banks to develop their own portfolio of sophisticated bank
management and executive reports. This application allows users to record,
consolidate, report and plan all financial activity within an institution.
PROFILE/FMS modules include general ledger, accounts payable, fixed assets,
prepaid accrued and deferred item processing, financial and statistical
reporting, budgeting and bank reconciliation. It is tightly integrated with
PROFILE/Anyware and shares a common database and application components.
PROFILE/ITS
40
<PAGE>
PROFILE/ITS provides the ability to process treasury transactions including
foreign exchange, money market, securities trading (capital markets), futures,
options and trade finance. PROFILE/ITS assists financial institutions with risk
measurement analysis and control. PROFILE/ITS is integrated with other PROFILE
modules and enables institutions to access various functions, including
sophisticated monitoring of liquidity and funding needs, exchange risk, interest
sensitivity exposure and on-line portfolio pricing capabilities. These
capabilities allow an institution to monitor counterparty and country risk
limits, exposure to industry groups and nostro cash flow on-line along with the
institution's liquidity, profitability, asset and liability durations, gaps and
interest rate risk, all on an institution-wide basis.
The Sanchez Services
While PROFILE software license fees represent a material portion of the
Company's revenues, the Company also derives significant revenues from services.
The Company's primary service offerings include the following:
Project Services
Project Services are services provided on a one-time basis either during the
initial implementation or as contracted for by clients after conversion to
PROFILE. Implementation service revenues can range from $500,000 to over $4
million for an individual project, and are typically delivered over a period of
ten to 15 months. Other project services typically delivered during the
implementation period include training, conversion, localization and software
customization. These project services are staffed by professionals trained in
the financial services industry who primarily work at the clients' locations and
follow a published methodology employing proven project management and
measurement techniques.
Project services delivered after a client converts to PROFILE typically include
software customization, training or version upgrade consulting. The Company has
a specific group of employees who are focused on delivering these types of
services, although others from within the Company may also render such services.
While some project services are contracted for on a time and materials basis,
most projects are contracted on a fixed price, fixed scope basis. This approach
is more accepted by the market. Utilizing a well defined scope presents
opportunities for additional revenues resulting from change orders.
Maintenance and Support Services
Currently, the major portion of the Company's delivery of worldwide customer
service and support is handled by a group in its headquarters in Malvern. This
group is responsible for help desk, research and product quality assurance. A
response team made up of research, quality assurance and programming personnel
are assigned when maintenance issues are identified. This team works together to
ensure that the customer issue is understood and dispatched accordingly. All
issues are tracked and measured and daily and weekly reports are generated for
management review and action.
The Company believes that service response considerations play a major role in
an institution's selection of banking software products. To respond to this
need, the Company is continuing to enhance its ability to deliver localized
customer support and installation capability worldwide. Currently, the Company
provides direct customer service and application support from its office in
Lisbon, and is in the process of staffing its new offices in Prague and Warsaw
to provide similar services. Senior application support personnel from the
Malvern office are being temporarily relocated to Prague to assist the
transition to local support. Currently, the Jakarta office is used for sales
support and will house an application support capability as soon as new business
dictates. Additionally, plans are being drafted, pending an anticipated new
client contract closure in the fourth quarter of 1996, to create a local
application support presence in Kuala Lumpur by mid-1997.
Clients and Representative Client Engagements
The Company's 23 clients are located in nine countries and are providing
financial services to more than 400 financial institutions. All PROFILE users
are in the financial sector and reflect a broad range of financial
41
<PAGE>
institutions including retail banks, commercial banks, private banks, co-
operatives, credit unions, wholesale banks, specialty financial institutions,
international banks and service bureaus. PROFILE's range of capabilities allows
a financial institution in any niche to compete in other niches as the product
lines formerly differentiating financial institutions become blurred.
The following brief descriptions summarize a few of the major projects in which
the Company has played a significant role.
Cue Data West - Vancouver, Canada
In 1991, Cue Data West ("CDW"), a Vancouver, Canada based service bureau
servicing approximately 50 clients, was searching for a system to replace its
obsolete hardware and inflexible software. These systems were of an older
generation design and could not be easily upgraded to allow the credit unions to
compete effectively. CDW selected PROFILE in order to provide its clients with
an integrated processing and financial management system that also allowed them
to design, produce and deliver new products and reports much more quickly than
their previous system permitted. The Company's installation personnel provided
project management, environmental definition, application consulting and
technical assistance throughout the implementation of the client's first three
credit unions. Additionally, the Company made certain technical modifications to
meet client and market specific needs. During the installation of the first
three credit unions, the Company successfully transferred its implementation
methodology to CDW so that it could continue its conversions of the remaining
credit unions without the Company's ongoing assistance. Today, CDW's clients are
using the system to effectively compete against the country wide banking
institutions and niche players in their markets.
Investicni Postovni Bank - Czech Republic
The Company installed PROFILE at Investicni Postovni Bank ("IPB"), the third
largest bank in the Czech Republic, during 1992 and 1993. As a result, PROFILE
became the first on-line centralized banking system to be implemented in Central
Europe. PROFILE has provided IPB with an integrated and flexible system and a
competitive advantage which has facilitated the bank's growth. IPB had fewer
than 300,000 accounts when it converted to PROFILE in 1993. Today, IPB has over
one million accounts processed by PROFILE. Additionally, the bank has recently
acquired a bank with another three million accounts which it expects to convert
to PROFILE by the end of 1997.
First Citizens Bank - Trinidad, Tobago
In 1992, Workers Bank in Trinidad, Tobago was looking for a system which would
provide this small bank with the ability to compete effectively with its much
larger competitors. In PROFILE, the bank identified a system that provided it
the opportunity to view a relationship banking model of each customer, the
ability to react quickly to market change and the flexibility to customize
products down to the individual customer level. In 1994, the National Bank
merged this bank with two larger institutions, creating First Citizens National
Bank. Because of the flexibility of PROFILE, the newly-merged bank migrated all
its accounts to the PROFILE system. The Company assisted First Citizens National
Bank in this consolidation.
Rural Informatica - Lisbon, Portugal
The Company has been involved in a project with Rural Informatica ("RI"), in
Lisbon, Portugal since 1993 to install PROFILE to support the over 200
independent member financial institutions of this bank co-operative. RI's
headquarter operations were converted to PROFILE in 1994. The first member bank
was converted in 1995. The roll out to the other member banks commenced in 1996
and will continue through 1997. As each of these institutions, regardless of
their size, begin processing through RI's systems, they will be able to quickly
deliver customized products and services to their clients which will enable them
to compete effectively with the large metropolitan based national banking
conglomerate. In selecting PROFILE, RI focused on the system's flexibility and
its ability to combine information from the independent institutions so that
better reports and audit trails could be generated for the Central Bank in
Portugal.
42
<PAGE>
Bank Przemyslowo-Handlowy and Powszechny Bank Kredytowz-Poland
The Company is currently implementing PROFILE at Bank Przemyslowo-Handlowy, S.A.
("BPH") in Krakow, Poland and at Powszechny Bank Kredytowz, S.A. Warzawie
("PBK") in Warsaw, Poland, two of the nine largest banks in Poland. The BPH
contract was awarded to Digital and the Company in the third quarter of 1995
through the World Bank bidding process. BPH is the Company's first client in
Poland. PBK awarded the Company a contract in June 1996. Together these banks
acquired license rights to process over three million accounts. Both banks
selected PROFILE due to its flexibility, scalability, technical features and
direction, and on-line integrated processing capability.
Sales and Marketing
Enhanced Direct Sales and Marketing Activities
The Company has a direct sales force of six persons, consisting of three persons
located at the Company's offices in Malvern, Pennsylvania, two persons located
in Europe and one person located in Jakarta. The Company is actively recruiting
additional resources to increase its existing direct sales capacity, both
domestically and internationally.
The Company launched a comprehensive marketing campaign early in 1996 to develop
recognition in the Direct Banking Market for PROFILE/Anyware. The program
includes a combination of print advertising, public relations, partnering
programs, white papers, and an informative home page on the World Wide Web. The
trade media has responded with a substantial amount of coverage of the Company
and its products, including a number of lead articles. The Company's executives
also speak periodically at industry trade shows and universities both in the
U.S. and abroad. The Company intends to continue to expand its marketing efforts
as its initial investment has resulted in an increase in prospective customers.
Third-Party Relationships
Since 1987, the Company has maintained a series of strategic alliance agreements
with Digital and has marketed its products principally through leads generated
by the Digital sales force. In 1995, the Company entered into an alliance with
Hewlett-Packard and ported its software to that platform. In mid-1996, the
Company entered into similar activities with IBM. The PROFILE product is
currently available on all three platforms.
The Company is currently engaged in joint marketing and engineering activities
with its hardware alliance partners and has recently submitted joint proposals
with both Hewlett-Packard and Digital in the Emerging Banking Market. The
Company believes that the strategic alliance that it entered into with IBM in
1996 will significantly enhance its competitiveness in the Direct Banking Market
where IBM is the current dominant hardware vendor. The Company also believes
that the recent strategic alliances with both IBM and Hewlett-Packard will
increase its competitiveness in all markets and will result in greater lead
generation.
In 1995, the Company entered into an agreement with Oracle, the leading
relational database vendor in the world, to port the PROFILE products to the
Oracle database. The porting activities are currently underway and the two
companies are involved in joint marketing activities. The Company currently
offers its graphical branch and treasury products on the Oracle database and
plans to offer all of its PROFILE products on the Oracle database in 1997. In
the future, the Company plans to offer its PROFILE products on other commercial
relational database products as well.
The Company has recently entered into a strategic alliance with the electronic
banking division of Price Waterhouse. Pursuant to this alliance, Price
Waterhouse and the Company will jointly define future enhancements for
PROFILE/Anyware and will jointly market their respective products and services
to the Direct Banking Market. In addition, the Company anticipates forming
alliances with other complimentary service organizations in the areas of home
banking interface, network security and other consumer-based financial
applications. The Company anticipates that these alliances, along with the
alliances mentioned in the previous paragraphs, will facilitate its entrance
into the Direct Banking Market.
43
<PAGE>
Pricing Strategy
The Company prices its software products in three primary components: (i)
one-time license fees for the software up to a usage limit (for example, number
of users or number of customer accounts), (ii) fees for a full range of services
which complement its software products, including product enhancement fees and
implementation, consulting, conversion, training and software customization
services and (iii) recurring support and software maintenance revenue. Customers
who exceed the usage limit through growth or acquisition pay additional license
fees. Software maintenance fees are paid in advance while all other fees and
services are paid in stages upon the completion by the Company of certain
defined deliverables.
In the Direct Banking Market, the Company intends to charge an ongoing monthly
fee which will cover licensing and support for PROFILE/Anyware based on use,
specifically the number of customer accounts processed, although the Company in
the future may employ other pricing models in response to market conditions.
Product Development
The Company believes that it must constantly evolve and enhance both the
functional scope and technical foundation of its products to remain competitive.
In order to accomplish this, the Company has historically incurred significant
expenses related to development activities and may increase this investment in
the future. Total development expenses for 1993, 1994 and 1995 were $3.0
million, $3.8 million and $3.3 million, respectively. In addition to its
internal investment, the Company has obtained funding from its customers and
partners for numerous projects, including the development of European payment
system and SWIFT enhancements, Treasury integration, UNIX ports, and product
internationalization. This revenue is reflected in product enhancement fees.
Normally, customer or partner funding is provided in exchange for a commitment
by the Company to provide product enhancements, to support and maintain the
software, or to design the software to the client's needs. In certain cases,
however, royalty agreements have been negotiated with its customers or partners
whereby the Company pays them royalties based on the revenues received by the
Company from the licensing of specific software products to end users. These
royalty agreements ordinarily expire after a period of years and the Company is
thereafter free to license the products to end users without having to pay any
additional royalties.
Product development follows a formal software development life cycle process.
The Company has developed and acquired products that assist it in defining,
planning, tracking, measuring and managing the development process. The Company
realizes that large software projects can incur substantial cost, schedule and
technical risk. However, to date the Company has not canceled any of its
development projects.
In order to efficiently focus on both functional and technical requirements, the
product development area is subdivided into two groups called the Product
Development Group and the Technology Development Group. The Product Development
Group is primarily responsible for defining plans for new product versions and
developing application software enhancements to the existing PROFILE/Anyware and
PROFILE/FMS modules. This group is also directly involved in sales and sales
support events such as customer demonstrations and request for proposal (RFP)
responses. The Company believes that interacting with customers and prospects
during the sales process transfers customer requirements and exposes product
strengths and weaknesses directly to the product management staff, resulting in
a more competitive offering.
The Technology Development Group is primarily responsible for defining
technology and platform layer enhancements to the existing PROFILE/Anyware and
PROFILE/FMS modules. This group evaluates and implements operating system ports,
programming languages, database systems, and development and productivity tools.
After this group successfully implements a new technology component under an
existing application component, it is responsible for propagating the technology
through the Company.
Employees
As of October 31, 1996, the Company had 135 full-time employees, 39 of whom were
engaged in product development (including 11 of whom were employed in technology
development), 11 of whom were engaged in
44
<PAGE>
sales and marketing, 16 of whom were engaged in finance and administration and
69 of whom were engaged in operations/client services. The Company's employees
are not represented by any collective bargaining agreements, and the Company has
never experienced a work stoppage.
In addition to full-time employees, the Company has historically utilized the
services of between eight and 12 independent contractors, primarily for European
implementation projects and sales support.
Competition
Financial institutions have two fundamental alternatives for obtaining data
processing capabilities: (i) in-house applications, either those that are
developed internally or those that are purchased from third party vendors; and
(ii) outsourcing, either as a part of a total outsourcing solution or where a
third party acts as a service bureau. Until the introduction of client/server
technology, the only in-house processing systems offered were systems running on
mainframe or minicomputer hardware. In the U.S. market, client/server
application software has only recently been made available to banks, but it is
gaining market acceptance and market share. In the international market, there
are a number of client/server alternatives available, as well as traditional
mainframe and mini-computer based systems.
To date, in the Emerging Banking Market, the Company's primary competitors in
this market have been FiServe, Inc., Baton Rouge International and ALLTEL
Information Services, Inc. In addition, there are several UNIX based vendors
which in the future could become primary competitors as well as a number of
local software organizations.
The Company believes that the principal competitive factors in the Emerging Bank
Market include the ability to (i) demonstrate robust retail and international
banking functionality, including multi-currency and multi-language processing,
support of local regulations, and support of local payment systems, (ii) operate
on UNIX platforms, (iii) service a high volume of accounts and branches, (iv)
demonstrate a proven track record of successful implementations; and (v) develop
local presence directly or through partnerships.
While the Company believes the Direct Banking Market is a totally new market, it
expects competition from the entrenched production system vendors. Hogan
Systems, Inc., Marshall & Ilsley Corp. and ALLTEL Information Services, Inc.
have the largest presence in the top 100 U.S. Banks. Kirchman Corporation,
FiServe, Inc. and Electronic Data Systems Corp. have a smaller presence,
primarily in the second 50 banks. Many of the top 100 U.S. banks are creating
strategies for direct banking and their decisions will direct the course of this
new market. As banks determine their requirements for direct banking, the six
major domestic competitors may develop alternative solutions by building or
buying web client interfaces that will fulfill the requirements.
The Company believes that the principal competitive factors in the Direct
Banking Market include the ability to (i) position direct banking as a market
segmentation strategy versus a delivery channel, (ii) reach decision makers of
financial institutions in the U.S. and Canada with assets in excess of $4
billion, (iii) connect PROFILE/Anyware to a wide variety of payment (e.g., Check
Free and Visa), middleware (e.g., Five Paces Software and Edify) and client
systems (e.g., Netscape and Intuit), and (iv) establish alliances and
partnerships with the above named vendors.
The Company believes that none of its current competitors offers application
software that provides the level of product manufacturing flexibility and
international scope of functionality that is featured in the Company's system.
The Company, however, expects additional competition from other established and
emerging companies as the client/server market continues to develop and expand.
In addition, competition could increase as a result of software industry
consolidations.
Backlog
The Company's backlog at September 30, 1996 amounted to $19.4 million. The
components of the backlog were $8.2 million for software license, product
enhancement and implementation and consulting revenues and $11.2 million for
maintenance and support. The Company anticipates recognizing approximately $3.7
million of this backlog in the fourth quarter of 1996 and $10.0 million in the
year 1997. At September 30, 1995, the Company's backlog amounted to $21.2
million, consisting of $8.9 million for
45
<PAGE>
software license, product enhancement and implementation and consulting revenues
and $12.3 million for maintenance and support.
46
<PAGE>
Facilities
The Company's headquarters and principal administrative, sales and marketing,
and application development operations are located in approximately 31,000
square feet of leased space in Malvern, Pennsylvania. This lease expires in
1998. The Company also leases office space in Warsaw, Poland, Prague, Czech
Republic, Lisbon, Portugal and Jakarta, Indonesia. The Company anticipates that
additional space will be required as business expands and believes that it will
be able to obtain suitable space as needed.
Legal Proceedings
In the opinion of management, there are no claims or actions against the Company
the ultimate disposition of which will have a material adverse effect on the
Company's results of operations or consolidated financial position.
47
<PAGE>
Management
Executive Officers and Directors
The executive officers and directors of the Company are as follows:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
Name Age Position
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
Michael A. Sanchez (1)............ 38 Chairman of the Board of Directors and
Chief Executive Officer
Frank R. Sanchez.................. 39 President, Chief Operating Officer and
Director
Joseph F. Waterman................ 45 Senior Vice President, Treasurer and Chief
Financial Officer
Deborah C. Kovacs................. 33 Senior Vice President - Product Management
Thomas F. McAllister.............. 48 Senior Vice President - Client Services
Dan S. Russell.................... 46 Senior Vice President - Technology
Development
Michael L. Turner................. 42 Senior Vice President - Business
Development
Stewart A. Jack................... 48 Managing Director of European Operations
Richard H. Jefferson.............. 40 Managing Director, Asian-Pacific Rim
Warren V. Musser (1).............. 69 Director
Ira M. Lubert..................... 46 Director
Lawrence Chimerine (1)(2)......... 56 Director
John D. Loewenberg (1)(2)......... 56 Director
Thomas C. Lynch(2)................ 54 Director
</TABLE>
- --------------------
(1) Member of Compensation Committee (Michael A. Sanchez is a non-voting member)
(2) Member of Audit Committee
Michael A. Sanchez founded the Company in 1979 and has been its Chairman and
Chief Executive Officer since its inception. In addition to providing strategic
direction for the Company, Mr. Sanchez is currently responsible for overseeing
Sanchez' direct banking marketing activities. Mr. Sanchez has over seventeen
years' experience in financial services organization data processing systems.
Mr. Sanchez is the brother of Frank R. Sanchez, the Company's President and
Chief Operating Officer.
Frank R. Sanchez has been the President and Chief Operating Officer of the
Company since 1994 and a Director of the Company since his employment with the
Company began in 1980. In his capacity as Chief Operating Officer, Mr. Sanchez
is responsible for the daily operations of the Company excluding the direct
banking marketing function. He is also responsible for developing the Company's
product and technical strategy. From 1980 until 1994, Mr. Sanchez was the
Executive Vice president in charge of Technology and Product Development and was
the principal architect of the PROFILE integrated banking system. Mr. Sanchez is
the brother of Michael A. Sanchez, the Company's Chairman and Chief Executive
Officer.
48
<PAGE>
Joseph F. Waterman has been a Vice President and the Chief Financial Officer of
the Company since he joined the Company in August 1992. Mr. Waterman is
generally responsible for the Company's financial, legal, human resources and
internal technical activities. Prior to joining the Company, Mr. Waterman was
employed by Safeguard and/or certain of its partnership companies for 13 years.
In particular, from 1990 to 1992, Mr. Waterman served as Vice President of
Finance of Computer Factory (an organization that had been acquired by CompuCom
Systems, Inc. ("CompuCom")) and from 1987 to 1988, Mr. Waterman served as the
Chief Financial Officer of CompuCom.
Deborah C. Kovacs has been employed by the Company since 1988 and has been the
Senior Vice President of Product Management since August 1994. Ms. Kovacs, who
has over ten years of experience in the design, development and implementation
of banking and trust systems, is responsible for functional enhancements to the
PROFILE product line. Upon her employment with the Company, Ms. Kovacs served as
a Product Analyst until 1992 when she was promoted to Product Manager for the
European Banking System. Prior to joining the Company, from 1985 to 1988, Ms.
Kovacs was employed by Premier Systems, Inc., a developer of trust and
investment software and a Safeguard partnership company, as Manager of the
Application Team and Technical Consultant where she was responsible for
implementing scheduled system enhancements.
Thomas F. McAllister has been the Senior Vice President-Client Services since
joining the Company in August 1994. In this position he is responsible for the
Company's client management activities, including support, implementation and
training services. Prior to joining the Company, from 1987 to 1994, Mr.
McAllister was the Principal of Thomas F. McAllister and Associates where he
provided expertise in the areas of general operations, information technology
management, TQM and strategic and tactical planning. Mr. McAllister has over 26
years of banking industry experience, which included service as Senior Vice
President of Operations and MIS for First New Hampshire Banks.
Dan S. Russell has been employed by Sanchez since 1985 and has been the Senior
Vice President of Technical Development since 1994. Mr. Russell, who has over 24
years of industry experience, is generally responsible for all technology-based
development and the underlying architecture of the PROFILE product line. When
Mr. Russell joined the Company in 1985, he served as the Manager of Development
and was promoted to Vice President of Development in 1987 where he was
responsible for both product and technology development. Mr. Russell remained in
the latter position until his promotion to Senior Vice President in 1994.
Michael L. Turner joined the Company in August 1991. He has served as Senior
Vice President of Business Development since 1994. He is responsible for
world-wide sales of the Company's products and services. From August 1991 to
1994, Mr. Turner served as Vice President Services. Prior to joining the
Company, Mr. Turner held various senior management positions in various
information technology services business, including Vice President for Finance
and Operations of GDK Systems, Vice President, Business Management at SEI, Inc.
and as a Senior Manager with Andersen Consulting.
Stewart A. Jack joined the Company as Managing Director, European Operations, in
May 1996. Mr. Jack's principal responsibility is developing opportunities in the
European marketplace. From 1992 through May 1996, Mr. Jack was the Managing
Partner of IDOM Poland. His principal activity in that capacity was to develop
information technology strategies and evaluate information technology options
for financial institutions. From 1989 to 1992, Mr. Jack was employed by
Hofflinghose, a Bermuda-based commodities trading group where he was the
Controller. Prior to his joining Hofflinghose, Mr. Jack had a 20-year career in
banking operations and information technology management at financial
institutions in Saudi Arabia, the United Arab Emirates and the United Kingdom.
Richard H. Jefferson has served as Managing Director, Asian-Pacific Rim, since
January 1996. His responsibilities include business direction and performance
for the Company in the Asian-Pacific Rim. Prior to joining the Company as an
employee, from 1989 to December 1995, Mr. Jefferson worked as an independent
consultant for the Company on various banking projects, including
internationalization of software. During this time, Mr. Jefferson was also
co-founder of two banking-related software companies. Mr. Jefferson has over 15
years of experience in system architecture and database design.
Warren V. Musser, a Director of the Company since 1987, has been Chairman of the
Board and Chief Executive Officer of Safeguard since 1953. Mr. Musser is also
the Chairman of the Board of Cambridge Technology Partners
49
<PAGE>
(Massachusetts), Inc., a director of Coherent Communications Systems Corporation
and CompuCom, and a trustee of Brandywine Realty Trust. Mr. Musser also serves
on a variety of civic, educational and charitable Boards of Directors including
the Board of Overseers of The Wharton School of the University of Pennsylvania
and serves as Vice President/Development, Cradle Liberty Council, Boy Scouts of
America, as Vice Chairman of The Eastern Technology Council, and as Chairman of
the Pennsylvania Council on Economic Education.
Ira M. Lubert, a Director of the Company since 1989, has served as a managing
director of Radnor Venture Management Company since 1988, a managing director
since 1991 and a general partner since 1995 of Technology Leaders Management
L.P. and a managing director and a general partner of Technology Leaders II
Management L.P. since 1994. Mr. Lubert is a director of CompuCom , National
Media Corporation and The Score Board, Inc.
Lawrence Chimerine has been a Director of the Company since 1987, the Managing
Director and Chief Economist of the Economic Strategy Institute since August
1993 and the President of Radnor Consulting Services since August 1991. From
June 1991 to March 1994, Dr. Chimerine was a Senior Economic Advisor of
DRI-McGraw/Hill. Dr. Chimerine is a director of Bank United Corp.
John D. Loewenberg became a Director of the Company in September 1996. He was an
Executive Vice President and Chief Administrative Officer of Connecticut Mutual,
a life insurance company, from May 1995 through March 1996. Prior to joining
Connecticut Mutual, Mr. Loewenberg served as Senior Vice President of Aetna Life
and Casualty, a multi-line insurer, and as Chief Executive Officer of Aetna
Information Technology, the information systems company of Aetna Life and
Casualty, from March 1989 to May 1995. Mr. Loewenberg was Chairman of Precision
Systems, Inc. until April 1996 and is a director of CompuCom.
Thomas C. Lynch became a Director of the Company in September 1996. He has been
a Senior Vice President of Safeguard since November 1995. Prior to that time,
Mr. Lynch retired from the U.S. Navy as an Admiral after 31 years, including
serving as Superintendent of the U.S. Naval Academy from 1991 through 1994 and
the Director, Navy Roles and Missions from 1994 through 1995. Mr. Lynch
currently serves as director of The Eastern Technology Council and is a member
of the Cradle Liberty Council, Boy Scouts of America and the U.S. Naval Academy
Foundation.
Compensation Committee Interlocks and Insider Participation
In 1995, decisions concerning compensation of executive officers were made by
the Compensation Committee of the Board of Directors which included Mr. Michael
A. Sanchez, the Chairman and Chief Executive Officer of the Company. Mr.
Sanchez, however, did not take part in decisions regarding his compensation. On
March 1, 1995 the Company made a loan to Michael A. Sanchez in the amount of
$114,000 to provide Mr. Sanchez with funding to exercise certain stock options
for the purchase of Common Stock. This loan was made as part of a Company-wide
program enabling all employees who had been granted options prior to December
31, 1993 to exercise similar options. As of the date hereof, the outstanding
principal balance of this loan was $114,000. Mr. Sanchez is expected to retire
his loan upon the consummation of the Offering. See "Certain Transactions" and
Note 8 to the Consolidated Financial Statements.
Employment Agreement
The Company entered into a two-year employment contract effective January 1,
1996 with Richard H. Jefferson, the Managing Director of the Company's
Asian-Pacific Rim activities. This agreement provides for the payment of a base
salary plus commissions, the reimbursement of relocation expenses to Jakarta and
the payment of certain living expenses. The Company has the option to terminate
this agreement at any time, subject to a severance payment equal to three months
base salary if such termination is for any reason other than non-performance.
Certain Relationships
Radnor Venture Management Company, a general partnership, is the sole general
partner of Radnor Venture Partners, L.P., a venture capital fund. SSI Management
Company, Inc., one of the general partners of Radnor Venture Management Company,
is a wholly-owned subsidiary of Safeguard. PMG Management Advisors, the other
general partner of Radnor Venture Management Company is not affiliated with
Safeguard or the Company. Radnor Venture
50
<PAGE>
Management Company is managed and controlled by its executive committee which
currently consists of seven persons including (i) Warren V. Musser and Ira M.
Lubert, each of whom may be deemed to be designees of SSI Management Company,
Inc., (ii) two designees of PMG Management Advisors, and (iii) two designees of
other investors in Radnor Venture Partners, L.P. SSI Management Company, Inc.
also has the right to designate one additional member of the executive
committee. Mr. Lubert is one of the two Managing Directors of Radnor Venture
Management Company, who manage the day-to-day operation of Radnor Venture
Partners, L.P., subject to the control and direction of the executive committee.
Executive Compensation
The following table sets forth certain information concerning compensation paid
or accrued for the calendar year ended December 31, 1995 with respect to the
Company's Chief Executive Officer, its four other most highly compensated
executive officers at December 31, 1995 and two individuals who were no longer
executive officers of the Company on January 1, 1996 (collectively, the "Named
Officers"):
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Long Term
Compensation
Awards
----------------
Name and Annual Compensation (1) Securities All
----------------------- Underlying Other
Principal Position Year Salary Bonus Options Compensation(2)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Michael A. Sanchez............... 1995 $160,200 24,000 $7,956
Chairman and Chief
Executive Officer
Frank R. Sanchez................. 1995 160,200 24,000
President and Chief
Operating Officer
Michael L. Turner................ 1995 122,152 $40,000 4,800 5,797
Senior Vice President -
Business Development
Thomas F. McAllister............. 1995 137,738 20,000
Senior Vice President -
Client Services
Joseph F. Waterman............... 1995 134,167 31,200 5,375
Senior Vice President and
Chief Financial Officer
Adnan Elassad(3)................. 1995 200,250 5,607
Former Co-President
E. Miguel Rangel(4).............. 1995 171,167 5,000
Former Managing
Director of Europe
</TABLE>
-------------------------
(1) The compensation described in this table does not include medical, group
life insurance or other benefits received by the Named Officers which are
available generally to all salaried employees of the Company and certain
perquisites and other personal benefits, securities or property received by the
Named Officers which do not exceed the lesser of $50,000 or 10% of the aggregate
of any such Named Officer's salary and bonus in 1995.
(2) Represents a contribution under the Company's 401(k) plan.
(3) Mr. Elassad resigned from the Company and its Board of Directors effective
January 1, 1996 to pursue other business opportunities.
(4) Mr. Rangel resigned from the Company effective November 30, 1995 to pursue
other business opportunities.
The following table provides information on stock options granted by the Company
in 1995 to the Named Officers. All Company option grants depicted below were
made pursuant to the 1995 Equity Compensation Plan.
51
<PAGE>
Option Grants in Last Fiscal Year
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------
Number of Percent of
Shares Total Options Realizable Potential Value at
Underlying Granted to Exercise Assumed Annual Rate of Stock
Options Employees in Price Per Expiration Price Appreciation for Option
Name Granted(1) Fiscal Year Share Date Term(2)
- ---- ---------- ------------- ---------- ---------- ------------------------------
<S> <C> <C> <C> <C> <C> <C>
5% 10%
-- ---
Michael A. Sanchez....... 24,000 7.8% $3.625 10/08/05 $54,714 $138,656
Frank R. Sanchez......... 24,000 7.8 3.625 10/08/05 54,714 138,656
Joseph F. Waterman....... 31,200 10.1 3.625 10/08/05 71,128 180,252
Thomas F. McAllister..... -- -- -- -- -- --
Michael L. Turner........ 4,800 1.6 3.625 10/08/05 10,943 27,731
</TABLE>
- --------------------
(1) These options vest in equal installments over a four-year period beginning
one year after the date of grant.
(2) The amounts shown are calculated assuming that the market value of the
Common Stock was equal to the exercise price per share as of the date of grant
of the options. This value is the approximate price per share at which shares of
the Common Stock would have been sold in private transactions on or about the
date on which the options were granted. The dollar amounts under these columns
assume a compounded annual market price increase for the underlying shares of
the Common Stock from the date of grant to the end of the option term of 5% and
10%. This format is prescribed by the Commission and is not intended to forecast
future appreciation of shares of the Common Stock. The actual value, if any, a
Named Officer may realize, will depend on the excess of the market price for
shares of the Common Stock on the date the option is exercised over the exercise
price. Accordingly, there is no assurance that the value realized by a Named
Officer will be at or near the value estimated above.
The following table sets forth information concerning options exercised during
1995 and the number and the hypothetical value of certain unexercised options of
the Company held by the Named Officers as of December 31, 1995. This table is
presented solely for purposes of complying with the Commission's rules and does
not necessarily reflect the amounts the optionees will actually receive upon any
sale of the shares acquired upon exercise of the options.
<TABLE>
<CAPTION>
Aggregated Option Exercises and
Last Fiscal Year-End Option Values
-------------------------------------------------------------------------------------------------------------
Number of Securities
Underlying Unexercised Value of Unexercised In-The-
Options at Money Options at
December 31, 1995 December 31, 1995 (2)
------------------------------------ -----------------------------------
<S> <C> <C> <C> <C> <C> <C>
Shares Acquired Value
Name on Exercise Realized(1) Exercisable Unexercisable Exercisable Unexercisable
---- --------------- ----------- ----------- ------------- ----------- -------------
Michael A. Sanchez.... 72,000 $4,800 3,600 25,800 $7,050 $3,525
Frank R. Sanchez...... 72,000 4,800 3,600 25,800 7,050 3,525
Joseph F. Waterman.... 93,600 6,240 3,600 33,000 7,050 3,525
Thomas F. McAllister.. -- -- 18,000 36,000 34,050 68,100
Michael L. Turner..... 14,400 960 90,000 6,600 176,250 3,525
</TABLE>
(1) Assumes, for presentation purposes only, a per share fair market value of
$1.73 (the exercise price of the most recently issued options at that date).
(2) Assumes, for presentation purposes only, a per share fair market value of
$3.625 (the exercise price of the most recently issued options at that date).
52
<PAGE>
1995 Equity Compensation Plan
The Company has adopted the 1995 Equity Compensation Plan (the "Plan") pursuant
to which it has awarded and may in the future award stock options and equity
compensation awards to its employees, officers, non-employee directors and
independent contractors.
The Plan provides for the issuance to employees, officers, non-employee
directors and independent contractors of up to 1,680,000 shares of Common Stock
pursuant to the grant of incentive stock options ("ISOs"), non-qualified stock
options ("NQSOs"), Stock Appreciation Rights ("SARs") and restricted stock
awards. The Plan is administered by the Compensation Committee of the Board of
Directors (the "Committee"). Subject to the provisions of the Plan, the
Committee has the authority to determine to whom stock options and equity
compensation awards will be granted and the terms of the awards granted,
including the number of shares subject to each award, vesting provisions and the
duration of an award.
As of October 31, 1996, options to purchase a total of 815,569 shares of Common
Stock, at a weighted average exercise price per share of $2.81, were
outstanding. Of these options, 436,142 options were fully vested and exercisable
as of October 31, 1996. As of October 31, 1996, the Company had an additional
1,251,964 shares of Common Stock available for future grants and other issuances
under the Plan.
The Board of Directors generally may amend or revise the terms of the Plan in
any respect whatsoever, provided, that certain amendments to the Plan are
subject to shareholder approval. Unless sooner terminated, the Plan will
terminate in 2005.
53
<PAGE>
Certain Transactions
Pursuant to an Administrative Services Agreement between the Company and
Safeguard, the Company paid Safeguard $100,000 in each of 1993, 1994 and 1995 in
consideration for certain general management, financial management, human
resources management and legal services provided by Safeguard. The Company
expects to pay Safeguard a similar amount in 1996 for such services.
In 1995, the Company paid Oaktree Systems, Inc, approximately $111,000 in
consideration for certain consulting services and the Company expects to pay
such entity in excess of $60,000 in 1996 in consideration of additional
consulting services from this entity. The owner of Oaktree Systems, Inc. is the
father of Michael A. Sanchez and Frank R. Sanchez.
On March 1, 1995 the Company made loans to each of Michael A. Sanchez, Frank R.
Sanchez and Joseph F. Waterman in the amounts of $114,000, $114,000 and
$148,200, respectively. The Company made these loans to provide these executive
officers with funding to exercise certain stock options for the purchase of
Common Stock as part of a Company-wide program enabling all employees who had
been granted options prior to December 31, 1993 to exercise similar options. As
of the date hereof, the outstanding principal balances of these loans were
$114,000, $114,000 and $0 for Michael A. Sanchez, Frank R. Sanchez and Joseph F.
Waterman, respectively. Michael A. Sanchez is expected to retire his loan upon
the consummation of the Offering. See Note 8 to the Consolidated Financial
Statements.
During 1994, 1995 and January 1996, Safeguard and the Company entered into
certain arrangements whereby the Company would lend to Safeguard its excess cash
and receive a negotiated interest rate which was higher than the rate the
Company might realize by independently investing the funds, but which was less
than Safeguard's cost of funds. The applicable interest rates charged by the
Company during the periods covered by these arrangements ranged between five and
seven percent. The highest principal balance of these borrowings during the
period covered by these arrangements was $3,500,000.
In 1993, Safeguard made several short-term advances to the Company (maximum
amount outstanding was $400,000) with an interest rate of seven percent. In
1995, Safeguard made a 29 day advance to the Company in the amount of $600,000 ,
with interest rates ranging from 9.5% to 9.75%.
54
<PAGE>
Principal and Selling Stockholders
The following table sets forth certain information regarding beneficial
ownership of the Common Stock as of the date of this Prospectus and as adjusted
to reflect the sale of the shares offered hereby (i) by each person who is known
by the Company to own beneficially more than 5% of the outstanding shares of
Common Stock, (ii) by each director of the Company, (iii) by each Named Officer,
(iv) by each Selling Stockholder, and (v) by all directors and executive
officers of the Company as a group. Unless otherwise indicated below, to the
knowledge of the Company, all persons listed below have sole voting and
investment power with respect to their shares of Common Stock, except to the
extent authority is shared by spouses under applicable law.
<TABLE>
<CAPTION>
Number of Shares to
Beneficial Ownership be Sold in the Beneficial Ownership
Prior to the Offering (1) Offering After the Offering (1)
------------------------- ------------------- --------------------------
Number of Number of
Name and Address Shares Percentage Shares Percentage
---------------- --------- ---------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Safeguard Scientifics, Inc. (2) 3,829,482 43.0 714,272 3,115,210 28.1
800 The Safeguard Building
435 Devon Park Drive
Wayne, PA 19087...................
Michael A. Sanchez (3) 1,976,848 23.1 87,106 1,889,742 17.6
40 Valley Stream Parkway
Malvern, PA 19355,
Radnor Venture Partners L.P.(4)....... 886,384 10.4 178,568 707,816 6.6
800 The Safeguard Building
435 Devon Park Drive
Wayne, PA 19087
Frank R. Sanchez (5)................. 849,600 9.9 43,554 806,046 7.5
40 Valley Stream Parkway
Malvern, PA 19355
Joseph F. Waterman (6)................ 105,000 1.2 105,000 1.0
Thomas F. McAllister (7)............. 36,000 * -- 36,000 *
Michael L. Turner (8)................. 105,600 1.2 -- 105,600 1.0
Warren V. Musser (9)................. 144,000 1.7 -- 144,000 1.3
Ira M. Lubert (10).................... 89,042 1.0 -- 89,042 *
Lawrence Chimerine.................... 72,000 * -- 72,000 *
John D. Loewenberg.................... -- * -- -- *
Thomas C. Lynch (11)................. -- * -- -- *
All executive officers and directors
as a group (14 persons) (12)......... 3,508,624 40.2 130,660 3,377,964 31.0
</TABLE>
- --------------------------
* Less than 1% of the outstanding Common Stock
(1) Solely for the purpose of the percentage ownership calculation for each
beneficial owner depicted herein, the number of shares of Common Stock deemed
outstanding prior to the Offering (i) assumes 8,549,755 shares of Common Stock
outstanding as of the date of this Prospectus; (ii) assumes 10,707,755 shares of
Common Stock will be outstanding upon the successful completion of the Offering;
and (iii) includes additional shares issuable pursuant to options or warrants
held by such owner which may be exercised within 60 days after the date of this
Prospectus ("presently exercisable options"), as set forth below. The beneficial
ownership after the Offering does not account for the exercise of Rights by such
stockholders in the Offering.
(2) Includes a warrant exercisable for 360,000 shares of Common Stock. The
shares and warrant are held of record by Safeguard Scientifics (Delaware), Inc.,
a wholly-owned subsidiary of Safeguard. Excludes shares beneficially
55
<PAGE>
owned by Radnor, in which Safeguard has a beneficial interest. See "Management--
Certain Relationships" for a description of the relationships between Safeguard
and Radnor.
(3) Includes 9,600 shares of Common Stock issuable pursuant to presently
exercisable options. Excludes 80 shares of Common Stock obtainable upon the
exercise of Company Rights.
(4) See "Management--Certain Relationships" for a description of the
relationships between Safeguard and Radnor.
(5) Includes 9,600 shares of Common Stock issuable pursuant to presently
exercisable options.
(6) Includes 11,400 shares of Common Stock issuable pursuant to presently
exercisable options. Excludes approximately 27,870 shares of Common Stock
obtainable upon the exercise of Company Rights.
(7) Consists of 36,000 shares of Common Stock issuable pursuant to presently
exercisable options.
(8) Includes 91,200 shares of Common Stock issuable pursuant to presently
exercisable options. Excludes approximately 300 shares of Common Stock
obtainable upon the exercise of Company Rights.
(9) Does not include 3,829,482 shares beneficially owned by Safeguard. Mr.
Musser serves as Chairman and Chief Executive Officer of Safeguard. See
"Management--Executive Officers and Directors." Mr. Musser disclaims beneficial
ownership of such shares. Excludes approximately 343,000 shares of Common Stock
obtainable upon the exercise of Company Rights.
(10) Does not include 886,384 shares beneficially owned by Radnor. See
"Management--Certain Relationships" for a description of the relationship
between Mr. Lubert and Radnor. Mr. Lubert disclaims beneficial ownership of such
shares. Excludes approximately 620 shares of Common Stock obtainable upon the
exercise of Company Rights .
(11) Does not include 3,829,482 shares beneficially owned by Safeguard. Mr.
Lynch serves as the Senior Vice President of Safeguard. See "Management--
Executive Officers and Directors." Mr. Lynch disclaims beneficial ownership of
such shares.
(12) Includes, in the aggregate, 183,625 shares of Common Stock issuable
pursuant to presently exercisable options. Excludes approximately 372,070 shares
of Common Stock obtainable upon the exercise of Company Rights.
56
<PAGE>
Description of Capital Stock
The authorized capital stock of the Company consists of 50,000,000 shares of
Common Stock, no par value, and 10,000,000 shares of Preferred Stock, no par
value. On November 7, 1996, the Company's shareholders approved (i) an increase
in the Company's authorized Common Stock from 15,000,000 shares to 50,000,000
shares and (ii) the creation of the Preferred Stock.
Common Stock
As of October 31, 1996, there were 8,549,755 shares of Common Stock outstanding
and held of record by approximately 45 stockholders. After giving effect to the
issuance of the 2,158,000 shares of Common Stock offered by the Company hereby,
there will be 10,707,755 shares of Common Stock outstanding.
Holders of Common Stock are entitled to one vote for each share held of record
on all matters submitted to a vote of stockholders and do not have cumulative
voting rights. The election of directors is determined by a plurality of the
votes cast and, except as otherwise required by law, all other matters are
determined by a majority of the votes cast. Accordingly, holders of a majority
of the shares of Common Stock entitled to vote in any election of directors may
elect all of the directors standing for election. See "Risk Factors--Control by
Principal Stockholders." Holders of Common Stock are entitled to receive ratably
such dividends, if any, as may be declared by the Board of Directors out of
funds legally available therefor, subject to any preferential dividend rights of
outstanding Preferred Stock. Upon the liquidation, dissolution or winding up of
the Company, the holders of Common Stock are entitled to receive ratably the net
assets of the Company available after the payment of all debts and other
liabilities. Holders of the Common Stock have no preemptive, subscription,
redemption or conversion rights. The outstanding shares of Common Stock are, and
the shares offered by the Company in the Offering will be, when issued and paid
for, fully paid and nonassessable. The rights, preferences and privileges of
holders of Common Stock are subject to, and may be adversely affected by, the
rights of the holders of shares of any series of Preferred Stock which the
Company may designate and issue in the future. See "--Preferred Stock."
Rights
The Company is granting on the date hereof the Company Rights to the holders of
Safeguard Common Shares and the Direct Rights to the Direct Purchasers. The
Rights, subject to minimum exercise requirements, are each exercisable for one
share of Common Stock at an exercise price of $____ per share. Persons may not
exercise Rights for fewer than 50 shares of Common Stock. For purposes of the
Offering, a person that holds Safeguard Common Shares in multiple accounts must
meet the 50 share minimum purchase requirement in each account. Accordingly,
persons holding fewer than 50 Rights in an account should consider the
advisability of consolidating the Rights in one account, selling Rights, or
purchasing additional Rights to comply with the minimum exercise requirements of
the Offering. Rights may be transferred, in whole or in part, by endorsing and
delivering to the Rights Agent a Rights certificate that has been properly
endorsed for transfer, with instructions to reissue the Rights, in whole or in
part, in the name of the transferee. The Rights Agent will reissue certificates
for the transferred Rights to the transferee, and will reissue a certificate for
the balance, if any, to the holder of the Rights, in each case to the extent it
is able to do so prior to the Expiration Date. The Offering will terminate and
the Rights will expire at 5:00 p.m., New York City time, on the Expiration Date,
which is ______, 199 . After the Expiration Date, unexercised Rights will be
null and void. For more information about the Rights and the Offering process,
reference should be made to "The Offering" and to "Risk Factors-- Cancellation
of the Offering."
Preferred Stock
The Company, by resolution of the Board of Directors and without any further
vote or action by the stockholders, has the authority, subject to certain
limitations prescribed by law, to issue from time to time up to an aggregate of
10,000,000 shares of Preferred Stock in one or more classes or series and to
determine the designation and the number of shares of any class or series as
well as the voting rights, preferences, limitations and special rights, if any,
of the shares of any such class or series, including the dividend rights,
dividend rates, conversion rights and terms, voting rights, redemption rights
and terms, and liquidation preferences. The issuance of Preferred Stock may have
the effect of delaying, deferring or preventing a change of control of the
Company. As of the date of this Prospectus, there are no shares of Preferred
Stock outstanding, and the Company has no plans to issue any shares of Preferred
Stock.
Transfer Agent and Registrar
57
<PAGE>
The transfer agent and registrar for the Common Stock is ChaseMellon Shareholder
Services, L.L.C., Reorganization Department, P.O. Box 798, Midtown Station, New
York, New York 10018.
Shares Eligible for Future Sale
Upon completion of the Offering, the Company will have 10,707,755 shares of
Common Stock outstanding, excluding 1,175,569 shares of Common Stock subject to
stock options and warrants outstanding as of October 31, 1996 and any stock
options or warrants granted by the Company after October 31, 1996. Of these
shares, the Common Stock sold in the Offering, except for certain shares
described below, will be freely tradeable without restriction or further
registration under the Act. The remaining 7,526,255 shares of Common Stock (the
"Restricted Shares") were sold by the Company in reliance on exemptions from the
registration requirements of the Act and are "restricted securities" as defined
in Rule 144 and may not be sold in the absence of registration under the Act
unless an exemption is available, including an exemption afforded by Rule 144 or
Rule 701. See "Risk Factors--Shares Eligible for Future Sale."
In general, under Rule 144 as currently in effect, if three years have elapsed
since the date of acquisition of restricted securities from the Company or any
affiliate and the acquiror or subsequent holder is not deemed to have been an
affiliate of the Company for at least 90 days prior to a proposed transaction,
such person would be entitled to sell such shares under Rule 144(k) without
regard to the limitations described below. If two years have elapsed since the
date of acquisition of restricted securities from the Company or any affiliate,
the acquiror or subsequent holder thereof (including persons who may be deemed
affiliates of the Company) is entitled to sell within any three-month period a
number of shares that does not exceed the greater of 1% of the then-outstanding
shares of Common Stock or the average weekly trading volume in the Common Stock
on the Nasdaq National Market during the four calendar weeks preceding such
sale. Sales under Rule 144 are also subject to certain provisions regarding the
manner of sale, notice requirements and the availability of current public
information about the Company. Without considering the contractual restrictions
described below, approximately (i) 539,696 Restricted Shares will be eligible
for sale in the public market in accordance with Rule 144(k) under the Act, (ii)
257,194 Restricted Shares will be eligible for sale 90 days after the date of
this Prospectus, subject to manner of sale and other resale conditions imposed
by Rule 701, and (iii) 6,729,365 Restricted Shares will be eligible for future
sale subject to the holding period and other conditions imposed by Rule 144.
Certain restrictions apply to any shares of Common Stock purchased in the
Offering by affiliates of the Company, which may generally only be sold in
compliance with the limitations of Rule 144, except for the holding period
requirements thereunder. See "Risk Factors--Shares Eligible for Future Sale."
Rule 144A under the Act provides a nonexclusive safe harbor exemption from the
registration requirements of the Act of specified resales of restricted
securities to certain institutional investors. In general, Rule 144A allows
unregistered resales of restricted securities to a "qualified institutional
buyer," which generally includes an entity, acting for its own account or for
the account of other qualified institutional buyers, that in the aggregate owns
or invests at least $100 million in securities that, when issued, were of the
same class as securities listed on a national securities exchange or quoted on
Nasdaq. The shares of Common Stock outstanding as of the date of this Prospectus
would be eligible for resale under Rule 144A because such shares, when issued,
were not of the same class as any listed or quoted securities.
Options and Warrants
As of October 31, 1996, there were outstanding (i) options to purchase an
aggregate of 815,569 shares of Common Stock (of which 436,142 were exercisable
at October 31, 1996) at a weighted average exercise price of $2.81 per share and
(ii) warrants to purchase an aggregate of 360,000 shares of Common Stock at an
exercise price of $1.39 per share. As of October 31, 1996, the Company had an
additional 1,251,964 shares of Common Stock available for future grants and
other issuances under the Plan. The holders of options and
58
<PAGE>
warrants to purchase a total of 735,303 shares are subject to Lock-Up
Agreements, which restrict, until after the Lock-Up Expiry Date (without the
Underwriters' prior written consent), the holders' ability to sell or otherwise
dispose of Common Stock acquired upon the exercise of such options and warrants.
See "Management--1995 Equity Compensation Plan."
The Company issued options and underlying shares of Common Stock to employees of
the Company who were not executive officers and directors of the Company
pursuant to Rule 701. Under Rule 701, such employees of the Company who prior to
the Offering purchased shares pursuant to the Plan are entitled to sell such
shares without having to comply with the public information, holding period,
volume limitation or notice provisions of Rule 144 commencing 90 days after the
date of this Prospectus. Rule 701 also permits the shares subject to unexercised
options under such Plan to be sold upon exercise without having to comply with
such provisions of Rule 144. As of October 31, 1996, (i) approximately 257,194
shares of Common Stock will be eligible for sale under Rule 701 by Company
employees, commencing 90 days after the date of this Prospectus, and (ii)
approximately 440,266 shares of Common Stock subject to unexercised options will
be eligible for sale under Rule 701 by Company employees (subject to applicable
vesting provisions).
It is anticipated that a Form S-8 Registration Statement covering the Common
Stock that may be issued pursuant to the exercise of options after the
effectiveness of the Form S-8 Registration Statement will be filed and declared
effective prior to the Lock-Up Expiry Date and that shares of Common Stock that
are so acquired and offered thereafter pursuant to the Form S-8 Registration
Statement generally may be resold in the public market without restriction or
limitation, except in the case of affiliates of the Company, which generally may
only resell such shares in compliance with Rule 144, except for the holding
period requirements thereunder.
Lock-Up Agreements
The Principal Stockholders, who will own 6,139,614 shares of Common Stock after
the completion of the Offering and will be deemed to beneficially own an
additional 379,200 shares of Common Stock, each other Named Officer, each
director of the Company and Warren V. Musser and his assignees have agreed with
the Underwriters that they will not sell or otherwise dispose of any shares of
Common Stock (other than shares of Common Stock sold in the Offering) until
after the Lock-Up Expiry Date without the prior written consent of the
Underwriters.
Registration Rights
The Company has granted certain registration rights to Radnor and Safeguard. In
particular, under certain circumstances and subject to certain limitations,
Radnor can require the Company to register under the Act (i) a minimum of 25% of
the aggregate number of the shares of Common Stock held by Radnor or its
transferees, provided that the Company is not obligated to effect more than one
such registration and (ii) on Form S-3 such number of shares of Common Stock
having a market value of at least $100,000, provided that the Company is not
required to effect more than one such registration during any twelve-month
period. Radnor and Safeguard were granted certain "piggy-back" registration
rights whereby under certain circumstances and subject to certain conditions,
they may include shares of Common Stock in any registration of shares of Common
Stock under the Act.
59
<PAGE>
Underwriting
The Company, the Selling Stockholders and the Underwriters have entered into the
Standby Underwriting Agreement on the date hereof, pursuant to which the
Underwriters are required, subject to certain terms and conditions (all of which
are summarized below), to purchase the Excess Unsubscribed Shares in accordance
with the percentages set forth below. If all of the Rights are exercised, or if
the number of Unsubscribed Shares is 300,000 or less, there will be no Excess
Unsubscribed Shares and the Underwriters will not be required to purchase any
shares of Common Stock.
---------------
Underwriters % of Shares
-----------
J.P. Morgan Securities Inc. .................................... 50%
Wheat, First Securities, Inc. .................................. 50%
The Underwriters have agreed, severally and not jointly, subject to the
condition that the Company and the Selling Stockholders comply with their
respective obligations under the Standby Underwriting Agreement and subject to
the Underwriters' right to terminate their obligations under the Standby
Underwriting Agreement (as specified below), to purchase all of the Excess
Unsubscribed Shares. The Company and the Selling Stockholders will pay the
Underwriters the Financial Advisory Fee equal to 3% per share for each share of
Common Stock included in the Offering. The Financial Advisory Fee is for
services and advice rendered in connection with the structuring of the Offering,
valuation of the business of the Company, and financial advice to the Company
and the Selling Stockholders before and during the Offering. An additional fee
of 4% per share will be paid to the Underwriters (i) for each share of Common
Stock purchased by the Underwriters pursuant to the Standby Underwriting
Agreement and (ii) for each share of Common Stock purchased upon the
Underwriters' exercise of Rights if such Rights were purchased by the
Underwriters at a time when the Common Stock was trading (on a "when issued"
basis) at a per share price of less than $______ or if the Underwriters purchase
such Rights with the Company's prior acknowledgment that it would be entitled to
receive the Underwriting Discount for Common Stock purchased pursuant to the
exercise of such Rights. In addition, the Company has agreed to pay the
Underwriters a non-accountable expense allowance in the aggregate amount of
$125,000, provided, however, such non-accountable expense allowance shall be
reduced to $50,000 or zero if, on the Expiration Date, the closing price for the
Common Stock traded on a "when issued" basis is at least $10.00 per share or
greater than $12.00 per share, respectively. The Company and the Selling
Stockholders have granted to the Underwriters a 20-day option commencing on the
Expiration Date to purchase a maximum of 303,000 additional shares of Common
Stock at a per share price equal to the Exercise Price less the Total
Underwriting Discount. The Underwriters may exercise such option in whole or in
part only to cover over-allotments made in connection with the sale of shares of
Common Stock by the Underwriters.
Prior to the Expiration Date, the Underwriters may offer shares of Common Stock
on a when-issued basis, including shares to be acquired through the purchase and
exercise of Rights, at prices set from time to time by the Underwriters. Each
such price when set will not exceed, if applicable, the highest price at which a
dealer not participating in the distribution is then offering the Common Stock
to other dealers, plus an amount equal to a dealer's concession, and an offering
price set on any calendar day will not be increased more than once during such
day. After the Expiration Date, the Underwriters may offer shares of Common
Stock, whether acquired pursuant to the Standby Underwriting Agreement, the
exercise of the Rights or the purchase of Common Stock in the market, to the
public at a price or prices to be determined. The Underwriters may thus realize
profits or losses independent of the Underwriting Discount and the Financial
Advisory Fee. Shares of Common Stock subject to the Standby
60
<PAGE>
Underwriting Agreement will be offered by the Underwriters when, as and if sold
to, and accepted by, the Underwriters and will be subject to their right to
reject orders in whole or in part.
In connection with the solicitation of Rights exercises, unless the Underwriters
are granted an exemption by the Commission from Rule 10b-6, the Underwriters
will be prohibited from engaging in any market making activities with respect to
the Company's when-issued Common Stock and Common Stock until the Underwriters
have completed their participation in the distribution of the shares offered
hereby. As a result, the Underwriters may be unable to provide a market for the
Company's when-issued Common Stock and Common Stock should it desire to do so,
during certain periods while the Rights are exercisable.
The Company and the Selling Stockholders have agreed to indemnify the
Underwriters against certain liabilities arising out of or based upon
misstatements or omissions in this Prospectus or the Registration Statement of
which this Prospectus is a part and certain other liabilities, including
liabilities under the Act, and to contribute to certain payments that the
Underwriters may be required to make.
The Underwriters may terminate their obligations under the Standby Underwriting
Agreement if (i) any calamitous domestic or international event or act or
occurrence has disrupted or, in the Underwriters' opinion, will in the immediate
future materially disrupt, the general securities market in the U.S.; (ii)
trading in the Common Stock (on a when-issued basis) shall have been suspended
by the Commission or Nasdaq; (iii) trading on the New York Stock Exchange, the
American Stock Exchange or the Nasdaq National Market or in the over-the-counter
market shall have been suspended, or minimum or maximum prices for trading shall
have been fixed, or maximum ranges for prices for securities shall have been
required on the over-the-counter market by the NASD or by order of the
Commission or any other government authority having jurisdiction; (iv) the U.S.
shall have become involved in a war or major hostilities which, in the
Underwriters' opinion, will affect the general securities market in the U.S.;
(v) a banking moratorium has been declared by a New York, Pennsylvania, Virginia
or federal authority; (vi) a moratorium in foreign exchange trading has been
declared; (vii) the Company shall have sustained a loss material to the Company
by fire, flood, accident, hurricane, earthquake, theft, sabotage or other
calamity or malicious act, whether or not such loss shall have been insured, or
from any labor dispute or any legal or governmental proceeding; (viii) there
shall be such material adverse market conditions (whether occurring suddenly or
gradually between the date of this Prospectus and the closing of the Offering)
affecting markets generally or technology issues particularly as in the
Underwriters' reasonable judgment would make it inadvisable to proceed with the
offering, sale or delivery of the shares of Common Stock offered hereby; (ix)
there shall have been such material adverse change, or any development involving
a prospective material adverse change (including a change in management or
control of the Company), in the condition (financial or otherwise), business
prospects, net worth or results of operations of the Company since December 31,
1995; or (x) the Other Purchasers fail to purchase their aggregate allotment of
Unsubscribed Shares. The Underwriters, however, may elect to purchase all, but
not less than all, Unsubscribed Shares in the event the Other Purchasers fail to
purchase any of the Unsubscribed Shares which they are obligated to purchase.
The Company has agreed that, without the prior written consent of the
Underwriters, it will not offer, sell, grant any option for the sale of, or
otherwise dispose of any shares of Common Stock (or securities convertible into
shares of Common Stock) (collectively, the "Securities") acquired in the
Offering or held by it as of the date hereof until after the Lock-Up Expiry
Date, other than (i) Common Stock to be sold in the Offering, (ii) Company
option issuances and sales of Common Stock pursuant to the Stock Option Plan and
(iii) Securities issued as consideration for an acquisition if the party being
issued the Securities agrees not to transfer, sell, offer for sale, contract or
otherwise dispose of such Securities until after the Lock-Up Expiry Date. The
Principal Stockholders, who will own 6,139,614 shares of Common Stock after the
completion of the Offering and will be deemed to beneficially own an additional
379,200 shares of Common Stock, each executive officer, each director of the
Company and Warren V. Musser and his assignees have agreed to certain
restrictions concerning the sale of Common Stock pursuant to Lock-Up Agreements.
See "Management--1995 Equity Compensation Plan" and "Shares Eligible for Future
Sale."
61
<PAGE>
Legal Matters
The validity of the shares of Common Stock and the Rights offered hereby will be
passed upon for the Company by Morgan, Lewis & Bockius LLP, Philadelphia,
Pennsylvania. Certain legal matters in connection with the Offering are being
passed upon for the Underwriters by Drinker Biddle & Reath, Philadelphia,
Pennsylvania.
Experts
The consolidated financial statements of Sanchez Computer Associates, Inc. as of
December 31, 1994 and 1995 and for each of the years in the three year period
ended December 31, 1995 included in this Prospectus and elsewhere in the
Registration Statement have been included herein in reliance on the report of
Coopers & Lybrand L.L.P., independent accountants, given upon the authority of
that firm as experts in accounting and auditing.
Additional Information
The Company has filed with the Commission a Registration Statement on Form S-1
(including all amendments thereto, the "Registration Statement") under the Act
with respect to the Common Stock and Rights offered hereby. As permitted by the
rules and regulations of the Commission, this Prospectus omits certain
information contained in the Registration Statement. For further information
with respect to the Company and the Common Stock and Rights offered hereby,
reference is hereby made to the Registration Statement and to the exhibits and
schedules filed therewith. Statements contained in this Prospectus regarding the
contents of any agreement or other document filed as an exhibit to the
Registration Statement are not necessarily complete, and in each instance
reference is made to the copy of such agreement filed as an exhibit to the
Registration Statement, each such statement being qualified in all respects by
such reference. The Registration Statement, including the exhibits and schedules
thereto, may be inspected at the public reference facilities maintained by the
Commission at 450 Fifth Street, N.W., Washington, DC 20549, and copies of all or
any part thereof may be obtained from such office upon payment of the prescribed
fees. In addition, registration statements and certain other filings made with
the Commission through its Electronic Data Gathering, Analysis and Retrieval
("EDGAR") systems are publicly available through the Commission's site on the
Internet's World Wide Web, located at http://www.sec.gov. The Registration
Statement, including all exhibits thereto and amendments thereof, has been filed
with the Commission through EDGAR.
62
<PAGE>
Glossary
ACH Automated Clearing House. A processing and delivery system
that provides for the distribution and settlement of
electronic credits and debits among a large number of
financial institutions.
AIX IBM's implementation of the UNIX operating environment.
API Application Programming Interface. A defined calling
standard for a software module that provides a consistent,
standard set of calls to access the functions provided by
the module.
Client/Server System architecture in which the server component acts as
Architecture the source of data and the client component uses the data
to perform various functions.
DCS Distributed Control System. A control system architecture
developed in the 1970s.
DDE Dynamic Data Exchange. A Microsoft(R) standard for
communicating data between two programs.
DLL Dynamic Link Library. A DLL contains a library of machine-
language procedures that can be linked to programs as
needed at run time. Programs do not need to include code to
perform common functions because that code is available in
the DLL. Changes can be made once to the DLL routine
instead of each individual program.
DecNet Digital Equipment Corporation software that provides a
network linkage between Digital computers to allow users to
access information and resources across systems.
Digital UNIX/RISC The UNIX operating system for Digital's Alpha processor.
The Alpha processor uses a Reduced Instruction Set Chip
(RISC) architecture.
Digital OpenVMS Digital Equipment Corporation's proprietary operating
system for its VAX and AXP machines.
GIRO A payment method, similar to a check, used in many European
countries.
GUI Graphical User Interface.
HP-UX Hewlett-Packard's implementation of the UNIX operating
environment.
LAN Local-Area Network. A high speed network connecting
personal computers, workstations and, in some cases,
mainframe computers.
M programming A high-level interactive computer programming language
developed for use in complex data handling operations. M is
an ANSI standard language.
Meta data The data which defines the data. For example, a relational
database table definition is data, but acts to define the
lower-level information contained within the table being
defined.
Multi-platform Processes or pieces of hardware that operate on various
hardware and software systems without modification.
ODBC Open Database Connectivity. The Microsoft(R) standard that
provides a database independent mechanism through which a
Windows or Windows NT(TM) application can query and update
data in a variety of relational database management
systems. The ODBC API (Application Programming
Instruction), for example, allows a single Windows
application to access Oracle, Sybase and other
databases.
63
<PAGE>
Open Systems System design that allows users to take advantage of
Architecture applications from multiple vendors by permitting open
access to all internal components and by supporting a
wide variety of standards, operating environments and
connectivity methodologies.
Port The process of moving a software application to a new
hardware platform, operating system, or language
environment.
RDBMS Relational Database Management System. A software system
that stores data as a related set of data tables, allows
the data to be queried and updated and enforces the
integrity of the data. RDBMSs typically act as servers
for multiple clients on a network.
Real-Time Characteristic of a process that recognizes changes in
dynamic data as the changes occur, communicates those
changes and manages the resultant effects of the changes.
Relational Database File structure that is logically connected by one or more
data structures in a separate file.
SQL Structured Query Language. A standardized language used
by RDBMSs to query, update and manage a database.
SWIFT Society of Worldwide Interbank Financial
Telecommunication. SWIFT provides institutions with an
automated communication link between financial
institutions.
Systems Integrator A Company that specializes in integrating products from
multiple vendors to provide an information systems
solution to a customer.
TCP/IP Transmission Control Protocol/Internet Protocol. TCP/IP
provides a low level transport mechanism, similar to
DECNet, for linking a variety of computers together in a
network. TCP/IP is the common network protocol for UNIX
systems and is used as the network for the Internet.
Turnkey Hardware and software applications that fulfill all of a
customer's predefined requirements at the time of
purchase.
UNIX UNIX is a highly modular operating system or family of
operating systems that provides multi-user, multi-tasking
capabilities on a wide variety of platforms.
WAN Wide-Area Network. A network that allows communications
between locations.
64
<PAGE>
Sanchez Computer Associates, Inc.
Index to Consolidated Financial Statements
<TABLE>
<CAPTION>
<S> <C>
Report of Independent Accountants ............................................................................ F-2
AUDITED CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Balance Sheets as of December 31, 1994 and 1995 ........................................... F-3
Consolidated Statements of Operations for the years ended December 31, 1993, 1994 and 1995.............. F-4
Consolidated Statements of Changes in Stockholders' Equity for the years ended
December 31, 1993, 1994 and 1995 ....................................................................... F-5
Consolidated Statements of Cash Flows for the years ended December 31, 1993, 1994 and 1995.............. F-6
Notes to Consolidated Financial Statements ............................................................. F-7
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Balance Sheet as of September 30, 1996 .................................................... F-16
Consolidated Statements of Operations for the nine months ended
September 30, 1995 and 1996 ............................................................................ F-17
Consolidated Statements of Cash Flows for the nine months ended
September 30, 1995 and 1996 ............................................................................ F-18
Notes to Consolidated Financial Statements ............................................................. F-19
</TABLE>
F-1
<PAGE>
Report of Independent Accountants
To the Stockholders and Board of Directors
Sanchez Computer Associates, Inc.
We have audited the accompanying consolidated balance sheets of Sanchez Computer
Associates, Inc. as of December 31, 1994 and 1995, and the related consolidated
statements of operations, changes in stockholders' equity and cash flows for
each of the years in the three-year period ended December 31, 1995. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Sanchez Computer
Associates, Inc. as of December 31, 1994 and 1995, and the consolidated results
of its operations and its cash flows for each of the years in the three-year
period ended December 31, 1995, in conformity with generally accepted accounting
principles.
COOPERS & LYBRAND L.L.P.
2400 Eleven Penn Center
Philadelphia, Pennsylvania
February 2, 1996, except as to information in Note 13,
for which the date is September 11, 1996
F-2
<PAGE>
Sanchez Computer Associates, Inc.
Consolidated Balance Sheets
December 31, 1994 and 1995
(in thousands, except share data)
<TABLE>
<CAPTION>
-----------------------
ASSETS 1994 1995
---- ----
<S> <C> <C>
Current assets
Cash and cash equivalents............ $ 2,656 $ 5,546
Accounts receivable, net of allowance
for doubtful accounts of $40....... 3,120 4,360
Deferred income taxes................ 742 587
Prepaid and other current assets..... 253 490
------ -------
Total current assets............... 6,771 10,983
Property and equipment
Equipment............................ 1,176 1,497
Furniture and fixtures............... 345 221
Leasehold improvements............... 61 61
------ -------
1,582 1,779
Accumulated depreciation and amortization... (830) (976)
------ -------
Net property and equipment........... 752 803
Deferred income taxes....................... 636 --
Capitalized software costs, net of
amortization of $844 in 1994 and
$1,071 in 1995........................... 371 361
------ -------
Total assets....................... $ 8,530 $12,147
====== =======
<CAPTION>
-----------------------
LIABILITIES 1994 1995
---- ----
<S> <C> <C>
Current liabilities
Current portion of long-term debt.... $ 82 $ 168
Accounts payable, trade.............. 340 345
Accrued expenses..................... 1,558 1,258
Income taxes payable ................ 339 401
Deferred revenue..................... 2,134 4,060
------ -------
Total current liabilities.......... 4,453 6,232
Long-term debt - net of current portion..... 160 173
Deferred rent............................... 132 137
------ -------
Total liabilities.................. 4,745 6,542
Commitments (Note 10)
<CAPTION>
STOCKHOLDERS' EQUITY
<S> <C> <C>
Common stock, $no par value
Authorized-15,000,000 shares
Issued-8,061,853 and 8,409,356 shares
in 1994 and 1995, respectively....... 81 84
Additional paid-in capital.................. 5,250 6,024
Retained earnings (deficit)................. (1,426) 161
Notes due on common stock purchases......... -- (664)
Treasury stock, at cost (216,000 shares).... (120) --
------ -------
Total stockholders' equity......... 3,785 5,605
------ -------
Total liabilities and stockholders' equity.. $ 8,530 $12,147
====== =======
</TABLE>
F-3
<PAGE>
See notes to consolidated financial statements.
F-4
<PAGE>
[PAGE INTENTIONALLY LEFT BLANK]
F-5
<PAGE>
Sanchez Computer Associates, Inc.
Consolidated Statements of Operations
for the years ended December 31, 1993, 1994, and 1995
(in thousands, except per share data)
<TABLE>
<CAPTION>
--------------------------------------------------------
1993 1994 1995
---- ---- ----
<S> <C> <C> <C>
Revenues
Software license fees ........................... $ 2,184 $ 6,111 $ 6,532
Product enhancement fees......................... 2,045 1,564 1,797
Implementation and consulting services........... 3,729 4,347 4,496
Software maintenance fees........................ 3,359 3,494 4,017
------- ------- -------
Total revenues............................. 11,317 15,516 16,842
Operating Expenses
Product development ............................. 2,991 3,805 3,300
Product support.................................. 2,509 2,315 2,515
Implementation and consulting.................... 2,436 2,678 3,176
Sales and marketing.............................. 993 1,282 2,080
Royalties and sublicense fees.................... 331 1,477 1,331
General and administrative....................... 1,511 1,885 1,824
------- ------- -------
Total operating expenses................... 10,771 13,442 14,226
------- ------- -------
Income from operations ................................ 546 2,074 2,616
Interest income (expense), net......................... (28) 6 93
------- ------- -------
Income before income taxes............................. 518 2,080 2,709
Income tax provision (benefit)......................... 55 (958) 1,122
------- ------- -------
Net income............................................. $ 463 $ 3,038 $ 1,587
======== ======= =======
Net income per common share............................ $.05 $.33 $.17
Weighted average number of shares outstanding.......... 9,068 9,284 9,588
------- ------- -------
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE>
Sanchez Computer Associates, Inc.
Consolidated Statements of Changes in Stockholders' Equity
for the years ended December 31, 1993, 1994, and 1995
(in thousands, except share amounts)
<TABLE>
<CAPTION>
----------------------------------------------------------------------------
Common Stock Notes due Treasury Stock
------------ Additional Retained on common --------------
paid-in earnings stock
Shares Amount capital (deficit) purchases Shares Amount
------ ------ ------- --------- --------- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances at January 1, 1993 8,061,853 $81 $5,250 $(4,927) -- 216,000 $ (120)
Net income -- -- -- 463 -- -- --
--------- --- ------ ------- ----- ------- ------
Balances at December 31, 1993 8,061,853 81 5,250 (4,464) -- 216,000 (120)
Net income -- -- -- 3,038 -- -- --
--------- --- ------ ------- ----- ------- ------
Balances at December 31, 1994 8,061,853 81 5,250 (1,426) -- 216,000 (120)
Net income -- -- -- 1,587 -- -- --
Exercise of stock options 347,503 3 774 -- $(892) (216,000) 120
Stock option loan repayments -- -- -- -- 228 -- --
--------- --- ------ ------- ----- ------- ------
Balances at December 31, 1995 8,409,356 $84 $6,024 $ 161 $(664) -- $ --
========== === ====== ======= ===== ====== ======
</TABLE>
See notes to consolidated financial statements.
F-7
<PAGE>
Sanchez Computer Associates, Inc.
Consolidated Statements of Cash Flows
for the years ended December 31, 1993, 1994, and 1995
(in thousands)
<TABLE>
<CAPTION>
-----------------------------------------
1993 1994 1995
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 463 $3,038 $1,587
Adjustments to reconcile net income to cash provided by (used in)
operating activities:
Deferred taxes -- (1,378) 791
Depreciation and amortization 691 557 605
Other 13 56 39
Cash provided (used) by changes in operating assets and liabilities:
Accounts receivable (29) (1,250) (1,240)
Prepaid and other current assets (26) (177) (237)
Accounts payable, accrued expenses and income taxes payable 290 1,211 (233)
Deferred revenues (955) 804 1,926
Other liabilities 78 -- --
------ ------ -------
Net cash provided by operating activities 525 2,861 3,238
Cash flows from investing activities:
Capitalized computer software costs (180) (113) (217)
Capital expenditures (41) (376) (458)
Other 5 -- --
------ ------ -------
Net cash used in investing activities (216) (489) (675)
Cash flows from financing activities:
Proceeds from issuance of long-term debt -- -- 244
Repayment of notes due on common stock purchases -- -- 228
Borrowings under line of credit agreement 200 -- --
Repayments under line of credit agreement (350) -- --
Principal payments under capital lease obligation (8) (38) (51)
Principal payment under long-term notes (43) (43) (94)
------ ------ -------
Net cash provided (used) by financing activities (201) (81) 327
------ ------ -------
Net increase in cash and cash equivalents 108 2,291 2,890
Cash and cash equivalents at beginning of year 257 365 2,656
------ ------ -------
Cash and cash equivalents at end of year $ 365 $2,656 $ 5,546
====== ====== =======
</TABLE>
See notes to consolidated financial statements
F-8
<PAGE>
Notes to Consolidated Financial Statements
(in thousands, except share related data)
(1.) Description of Business
Sanchez Computer Associates, Inc. ("Sanchez" or the "Company") designs,
develops, markets, implements and supports comprehensive banking software,
called PROFILE(R), for financial services organizations worldwide.
Sanchez's highly flexible PROFILE family of products is comprised of three
integrated modules which operate on open, client-server platforms. The
primary module, called PROFILE/Anyware, is a multi-currency bank
production system which supports deposit, loan, customer, transaction
processing and bank management requirements through multiple distribution
channels, including the Internet. The other modules are PROFILE/FMS, a
multi-company, multi-currency, financial management and accounting system
and PROFILE/ITS, a treasury system that includes a sophisticated set of
asset and liability tools.
(2.) Summary of Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries, Sanchez Software Ltd. and Sanchez
Computer Associates International, Inc. All significant intercompany
accounts and transactions have been eliminated in consolidation.
Use of Management Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to continuously make
estimates and assumptions that affect the reported amounts of certain
assets, liabilities, revenues and expenses at the date of the financial
statements and during the reporting period. Actual results could differ
from these estimates. The most significant estimates are the
percentage-of-completion method for revenue recognition.
Revenue Recognition
The Company recognizes revenue from client implementation projects,
customized software development, and software license fees using the
percentage-of-completion contract accounting method. Revenue is deferred
to the extent of cash received or fees billed prior to satisfying such
percentage completion criteria. Losses on contracts are recognized when
determinable.
Revenue from software maintenance contracts is recognized ratably over the
term of the maintenance contract.
Warranties
The Company's products are warranted by the Company against design defects
for a period generally not to exceed ninety days after customer
conversion. Provision for future claims has been recorded based on
historical experience, which to date has not been significant.
Cash and Cash Equivalents
The Company's policy is to maintain its uninvested cash at minimal levels.
Cash and cash equivalents include amounts on deposit with Safeguard
Scientifics, Inc. ("Safeguard"), the Company's major shareholder, in
conjunction with demand promissory notes dated July 1994 and December
1995. The July 1994 note provided
F-9
<PAGE>
Notes to Consolidated Financial Statements
(in thousands, except share related data)
(2.) Summary of Significant Accounting Policies, continued
for interest at prime minus 2% throughout 1995, and the December 1995
note bears interest at Safeguard's effective borrowing rate minus 1%. At
December 31, 1994 and 1995, advances to Safeguard under these demand
notes amounted to $2,250 and $3,500 respectively. Interest income from
these advances amounted to $49 in 1994 and $81 in 1995. The advances to
Safeguard were repaid fully in the first quarter of 1996.
Property and Equipment
Property and equipment is carried at cost, except for assets under
capital leases which are recorded at the lower of the present value of
future lease payments or the fair value of the equipment at the inception
of the lease. Expenditures for major renewals, improvements and
betterments are capitalized and minor repairs and maintenance are charged
to expense as incurred. When assets are sold, the related cost and
accumulated depreciation are removed from the accounts and any gain or
loss from such disposition is included in operations.
Capitalized Software Costs
Certain development costs of the Company's software products are
capitalized subsequent to the establishment of technological feasibility
and up to the time the product becomes available for general release.
Amortization is provided on a product-by-product basis at the greater of
the amount computed using (a) the ratio of current revenues for a product
to the total of current and anticipated future revenues or (b) the
straight-line method over the remaining estimated economic life of the
product. Generally, an original estimated economic life of four years is
assigned to capitalized software development costs. Costs of software
program maintenance are charged to expense as incurred.
All capitalized software costs are written down to net realizable value
when the carrying amount is in excess thereof.
Total costs capitalized for the years ended 1993, 1994 and 1995 were
approximately $180, $113 and $217, respectively. Amortization of
capitalized software costs amounted to $469, $306 and $227 in 1993, 1994
and 1995, respectively.
Taxes on Income
Income taxes are accounted for in accordance with Statement of Financial
Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes."
Deferred income taxes are recognized for all temporary differences
between the tax and financial reporting bases of the Company's assets and
liabilities based on currently enacted tax laws and statutory rates.
Additionally, the benefits of utilizing net operating loss carryforwards
and credit carryforwards are recognized to the extent management of the
Company believes that it is more likely than not that the benefits will
be realized in future periods.
Depreciation and Amortization
Depreciation and amortization are provided over the estimated useful life
of the related assets using a combination of accelerated and straight
line depreciation methods.
F-10
<PAGE>
Notes to Consolidated Financial Statements
(in thousands, except share related data)
(2.) Summary of Significant Accounting Policies, continued
Net Income Per Share
Net income per share is computed using the weighted average number of
shares of common and common equivalent shares (stock options and
warrants) outstanding. As required by a Staff Accounting Bulletin issued
by the Securities and Exchange Commission, common and common equivalent
shares issued by the Company during the twelve-month period preceding the
Offering have been included in the calculation as if they were
outstanding for all periods presented (using the treasury stock method
and assuming an initial public offering price of $5.50 per share).
Recently Issued Accounting Standards
Statement of Financial Accounting Standards No. 123, Accounting for
Stock-Based Compensation (SFAS 123), was issued in October 1995. SFAS 123
gives companies the option to adopt the fair value method for expense
recognition of employee stock options and stock based awards or to
continue to account for such items using the intrinsic value method as
outlined under Accounting Principles Board Opinion No. 25, Accounting for
Stock Issued to Employees (APB 25), with pro forma disclosures of net
income and net income per share as if the fair value method had been
applied. The Company has adopted SFAS 123 effective January 1, 1996 by
electing to continue to apply APB 25 for future stock options and stock
based awards, and, accordingly, does not anticipate that SFAS 123 will
have a material impact on its results of operations or financial
position. In accordance with the disclosure provisions of SFAS 123, the
Company will initially present the disclosure required by SFAS 123 in its
financial statements as of and for the periods ending December 31, 1996.
(3.) Additional Cash Flow Statement Information
The Company's non-cash investing and financing activities and cash
payments for interest and income taxes are as follows:
<TABLE>
<CAPTION>
-------------------------------
1993 1994 1995
---- ---- ----
<S> <C> <C> <C>
Equipment additions by capital lease $46 $148 --
Cash paid during the year for interest 30 29 $ 38
Cash paid during the year for income taxes 4 134 273
</TABLE>
(4.) Client Revenue Data
Revenue derived from certain software implementation projects comprises a
substantial portion of the Company's total annual revenues.
F-11
<PAGE>
Notes to Consolidated Financial Statements
(in thousands, except share related data)
(4.) Client Revenue Data, continued
The following table summarizes the percentage of revenues from the
Company's significant clients (listing those clients that exceed 10% in
the applicable year):
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------
Client 1993 1994 1995
------ ---- ---- ----
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
A 11% 11% *
B 14% * *
C 17% * 10%
D * 15% *
E * 16% 18%
F * 18% 22%
G * * 21%
- --------------------------------------------------------------------------------
</TABLE>
- --------------------
* Less than 10%
At December 31, 1994 and 1995, the same four customers in each year
accounted for $1,557 (or 50%) and $2,719 (or 62%) of total receivables,
respectively. The Company does not require its customers to provide
collateral relative to accounts receivable balances.
The Company classifies its operations into one industry segment,
licensing and servicing of software products to the financial services
industry. Revenue derived from customers in various geographic regions
for each of the three years ended December 31, 1995 is as follows:
<TABLE>
<CAPTION>
-------------------------------------------
1993 1994 1995
------- ------- -------
<S> <C> <C> <C>
Canada $ 3,144 $ 2,789 $ 1,802
Central Europe 2,652 4,463 8,569
Other European 963 3,355 4,048
U.S. and Caribbean 4,558 4,909 2,423
------- ------- -------
$11,317 $15,516 $16,842
======= ======= =======
</TABLE>
(5.) Accounts Receivable
Accounts receivable balances as reported include unbilled receivables
which amounted to approximately $515 and $2,150 at December 31, 1994 and
1995, respectively.
Unbilled receivables on fixed-price contracts arise as revenues are
recognized under the percentage of completion method. These amounts are
billable at specified dates, when deliveries are made or at contract
completion, which is expected to occur within one year. All amounts
included in unbilled receivables are related to long-term contracts and
are reduced by appropriate progress billings.
F-12
<PAGE>
Notes to Consolidated Financial Statements
(in thousands, except share related data)
(5.) Accounts Receivable, continued
The Company has not experienced any significant bad debts during the
three years ended December 31, 1995. A reserve for doubtful accounts,
totaling $40, was reflected on each of the year end balance sheets during
that same three year period.
(6.) Accrued Liabilities
Accrued liabilities consist of the following:
<TABLE>
<CAPTION>
---------------------
1994 1995
---- ----
<S> <C> <C>
Accrued compensation and related items................ $ 945 $ 390
Accrued royalties..................................... 257 264
Other................................................. 356 604
--- ---
$1,558 $1,258
====== ======
</TABLE>
(7.) Long-Term Debt
Long-term debt at December 31, 1994 and 1995 consists of the following:
<TABLE>
<CAPTION>
---------------------
1994 1995
---- ----
<S> <C> <C>
Bank term note at 11% payable through October 1996........ $ 86 $ 43
Bank Term Notes at prime + 1% payable through June 1998... -- 194
Capital leases at 12% to 12.4% payable through March 1999. 156 104
--- ---
242 341
Less current portion...................................... 82 168
--- ---
$160 $173
==== ====
</TABLE>
The 11% bank note relates to an acquisition in 1989 and is guaranteed by a
third party.
The bank notes at prime + 1% were issued in conjunction with a $500
revolving credit facility for capital equipment purchases established as of
March, 1995. The Company had available approximately $306 under this
facility as of December 31, 1995. All advances under the facility are
amortized over a 36 month term.
F-13
<PAGE>
Notes to Consolidated Financial Statements
(in thousands, except share related data)
(7.) Long-Term Debt, continued
Future maturities of long-term debt at December 31, 1995 are as follows:
<TABLE>
<CAPTION>
Year Ending Amount
----------- ------
<S> <C>
1996 $168
1997 127
1998 40
1999 6
---
$341
====
</TABLE>
(8.) Stock Options
The 1995 Equity Compensation Plan was approved by the Company's board of
directors in October 1995. The plan provides for the issuance of a
maximum of 1,680,000 shares of Common Stock upon the exercise of stock
options, stock appreciation rights, and/or restricted stock awards. There
will be no further options granted under the previously in-place 1988
Incentive Stock Option Plan for Key Employees.
A summary of stock options outstanding under the 1995 and 1988 Plans at
December 31, 1993, 1994 and 1995 is as follows:
<TABLE>
<CAPTION>
----------------------------------------
1993 1994 1995
------ ------ ------
<S> <C> <C> <C>
Shares under option, beginning of year 1,120,950 901,656 1,614,658
Options granted -- 786,600 308,436
Options exercised -- -- (563,503)
Options canceled (219,294) (73,598) (135,215)
--------- --------- ---------
Shares under option, end of year 901,656 1,614,658 1,224,376
========= ========= =========
Options exercisable 661,802 1,026,058 668,735
Shares available for future grants 448,344 365,342 1,388,364
</TABLE>
The options are exercisable at prices ranging from $1.00 to $3.63 per
share. Generally, outstanding options vest over a two to four year period
after the date of grant and expire ten years after the date of grant.
For options exercised in early 1995, 5% of the exercise price was paid
upon exercise, with the remaining obligation evidenced by a note with a
maximum term of ten years. Such optionees executed full recourse
interest-bearing notes, with such notes being reported as "Notes due on
common stock purchases" in the accompanying balance sheet. In 1995,
interest income earned on these notes amounted to $43. In conjunction
with the issuance of shares pursuant to these option exercises, the
Company utilized 216,000 shares previously held as treasury shares.
F-14
<PAGE>
Notes to Consolidated Financial Statements
(in thousands, except share related data)
(8.) Stock Options, continued
In addition to the stock options outstanding pursuant to the 1988 and
1995 plans, the Company has issued 144,000 non-qualified stock options to
two non-employee directors which are exercisable at $1.67 per share.
These options are fully vested and expire as of June 30, 1997.
(9.) Income Taxes
The Company utilized net operating loss carryforwards to offset current
and deferred tax liabilities for the years ended December 31, 1993, 1994
and 1995. The components of the income tax provision (benefit) for the
years ended December 31, 1993, 1994 and 1995 are as follows:
<TABLE>
<CAPTION>
-------------------------------------------
1993 1994 1995
---- ---- ----
<S> <C> <C> <C>
Current taxes:
Federal $10 $ 70 $ 60
State 45 200 113
Foreign -- 150 158
--- -------- ------
55 420 331
Deferred taxes -- (1,378) 791
--- -------- ------
Total provision (benefit) $55 $ (958) $1,122
=== ======= ======
</TABLE>
A reconciliation of the tax provision (benefit) based on the federal
statutory tax rate to the effective tax rate is as follows:
<TABLE>
<CAPTION>
-------------------------------------------
1993 1994 1995
---- ---- ----
<S> <C> <C> <C>
Statutory tax provision (34%) $176 $707 $921
Decrease in valuation allowance
for deferred tax assets, net (27) (1,927) --
State income taxes, net
of federal income tax benefit 30 132 75
Foreign income taxes, net
of federal income tax benefit -- 100 104
Change in tax credit carryforward,
net (91) (42) 69
Other, net (33) 72 (47)
---- ------ ------
$ 55 $ (958) $1,122
==== ====== ======
</TABLE>
F-15
<PAGE>
Notes to Consolidated Financial Statements
(in thousands, except share related data)
(9.) Income Taxes, continued
The tax effects of loss carryforwards, credit carryforwards, and
temporary differences that give rise to significant portions of the
deferred tax assets and deferred tax liabilities at December 31, 1994 and
1995 are presented below.
<TABLE>
<CAPTION>
---------------------------
1994 1995
------ ------
<S> <C> <C>
Deferred tax assets:
Tax loss carryforwards $ 742 --
Tax credit carryforwards 513 $ 444
Accrued liabilities 219 212
Other 30 49
------ -----
Total deferred tax assets 1,504 705
Deferred tax liabilities:
Capitalized software costs (126) (118)
------ -----
Net deferred tax assets $1,378 $ 587
====== =====
</TABLE>
The Company provided a valuation allowance equal to all of its net
deferred tax assets of $1,954 as of December 31, 1992 in conjunction with
its initial adoption of Statement of Financial Accounting Standards
(SFAS) No. 109 "Accounting for Income Taxes." The net change in the
valuation allowance during the year ended December 31, 1993 was a
decrease of $27, due primarily to the benefit of operating loss
carryforwards utilized during 1993 of $157, partially offset by increases
in the credit carryforward component of the Company's deferred tax
assets. In the year ended December 31, 1994, the valuation reserve for
deferred tax assets was entirely eliminated, with $588 of the decrease in
the allowance resulting from utilization of net operating loss
carryfowards in 1994, and the remaining decrease in the allowance of
$1,339 related to the full reversal of the remaining valuation allowance.
The $1,339 reversal of the remaining valuation allowance resulted from
management's determination that the Company's ongoing profitability and
contracted backlog made it more likely than not that the remaining
operating loss and credit carryforwards would be utilized.
Utilization of net operating loss carryforwards amounted to $741 in 1993,
$2,388 in 1994 and $2,146 in 1995. Also, at December 31, 1995, the
Company has approximately $444 in income tax credit carryforwards
available to offset regular federal income taxes payable, expiring
between the years 2002 and 2010.
F-16
<PAGE>
Notes to Consolidated Financial Statements
(in thousands, except share related data)
(10.) Commitments
The Company leases office facilities subject to operating leases. Future
minimum lease payments under non-cancelable operating leases with initial
or remaining terms of one year or more at December 31, 1995 are as
follows:
<TABLE>
<S> <C>
1996 $326
1997 381
1998 202
----
$909
====
</TABLE>
Rent expense for the years ended December 31, 1993, 1994 and 1995 was
approximately $417, $357 and $364, respectively.
The Company is also party to certain software customization agreements,
primarily with Digital, whereby funding has been provided to the Company
to facilitate product development targeted at specific geographic
markets. Under the terms of these agreements, the Company retains
ownership of the products developed, and has agreed to pay royalties to
Digital, contingent upon the subsequent achievement of certain
contractually defined product license fee sales.
When applicable, such royalty amounts typically equate to 15% to 20% of
the Company's software license fees, subject to various exceptions and
limitations. Royalty expense relative to these agreements amounted to
$167 in 1993, $761 in 1994 and $762 in 1995.
(11.) Other Related Party Transactions
Safeguard holds warrants to purchase 360,000 shares of the Company's
common stock at an exercise price of $1.39 per share, subject to certain
terms and restrictions. These warrants are currently exercisable and
expire April 30, 1998.
The Company has entered into an administrative services agreement with
Safeguard, which provides for payment, subject to achieving certain sales
levels, of a maximum fee of $25 per quarter. The Company expensed $100 in
each of the years ended December 31, 1993, 1994 and 1995.
The Company had a demand line of credit agreement with Safeguard which
expired effective December 31, 1994. The line provided for borrowings of
up to $750,000 through December 31, 1993 and up to $500,000 throughout
1994. Additionally, Safeguard made a 29 day advance to the Company in the
amount of $600,000 in 1995. Interest expense on borrowings from Safeguard
amounted to $12,000 in 1993 and $4,000 in 1995.
The Company has entered into a consulting contract with the principal of
Oaktree Systems, Inc., a stockholder of the Company. During the years
ended December 31, 1993, 1994 and 1995, the Company incurred expenses
under this agreement of $157, $225 and $111, respectively.
F-17
<PAGE>
Notes to Consolidated Financial Statements
(in thousands, except share related data)
(12.) Profit Sharing Trust Plan
The Company maintains a Profit Sharing Trust Plan (the Plan) which
permits eligible participating members to contribute up to fifteen
percent of their gross earnings. The Company will typically make a
contribution equal to 100% of the first 3% which an employee
contributes and may also make additional voluntary contributions. The
Company expensed $78, $103 and $148 related to the Plan during the
years ended December 31, 1993, 1994 and 1995, respectively.
(13.) Subsequent Events
On September 11, 1996, the Board of Directors declared a six-for-five
stock dividend which has been accounted for as a stock split. All
references to the number of shares and per share amounts have been
restated to reflect the effect of the split. Additionally, the Board
voted to increase the Company's authorized common shares from
15,000,000 to 50,000,000 and to authorize the creation of 10,000,000
shares of preferred stock, each contingent upon the approval by the
Company's stockholders (which approval was obtained on November 7,
1996).
Also on September 11, 1996, the Company's Board of Directors
authorized the filing of a Registration Statement on Form S-1
covering 3,181,500 shares of common stock to be sold in the initial
public offering transaction. The majority of shares (2,158,000) are
being offered by the Company and the remainder (1,023,500) by selling
stockholders. This offering will be conducted as a rights offering to
Safeguard's stockholders.
F-18
<PAGE>
Sanchez Computer Associates, Inc.
Consolidated Balance Sheets
September 30, 1996
(Unaudited)
(in thousands, except share data)
<TABLE>
<CAPTION>
ASSETS
Current assets
<S> <C>
Cash and cash equivalents $ 6,250
Accounts receivable, net of allowance for
doubtful accounts of $40.......................... 4,891
Deferred income taxes................................. 430
Prepaid and other current assets...................... 433
--------
Total current assets.......................... 12,004
Property and equipment
Equipment............................................ 1,917
Furniture and fixtures............................... 233
Leasehold improvements............................... 64
--------
2,214
Accumulated depreciation and amortization................. (1,333)
--------
Net property and equipment........................... 881
Capitalized software costs, net of accumulated
amortization of $1,226.............................. 646
--------
Total assets.................................. $13,531
========
LIABILITIES
Current liabilities
Current portion of long-term debt..................... $ 206
Accounts payable, trade............................... 518
Accrued expenses...................................... 1,987
Income taxes payable.................................. 63
Deferred revenue...................................... 3,845
---------
Total current liabilities...................... 6,619
---------
Long-term debt - net of current portion.................... 201
Deferred rent.............................................. 80
---------
Total liabilities.............................. 6,900
---------
Commitments (Note 4)
STOCKHOLDERS' EQUITY
Common stock, no par value
Authorized - 15,000,000 shares
Issued - 8,549,755 shares............................. 85
Additional paid-in capital............................. 6,354
Retained earnings...................................... 844
Notes due on common stock purchases.................... (652)
---------
Total stockholders' equity............................. 6,631
---------
Total liabilities and stockholders' equity................. $ 13,531
========
</TABLE>
F-19
<PAGE>
See notes to consolidated financial statements.
Sanchez Computer Associates, Inc.
Consolidated Statements of Operations
for the nine months ended September 30, 1995 and 1996
(Unaudited)
(in thousands, except per share data)
<TABLE>
<CAPTION>
-----------------
1995 1996
---- ----
<S> <C> <C>
Revenues
Software license fees.................................... $3,985 $5,623
Product enhancement fees................................. 1,164 709
Implementation and consulting services................... 3,372 3,294
Software maintenance fees................................ 3,081 3,170
-------- --------
Total revenues................................... 11,602 12,796
Operating Expenses
Product development...................................... 2,567 2,750
Product support.......................................... 2,001 2,142
Implementation and consulting............................ 2,435 2,097
Sales and marketing...................................... 1,516 2,191
Royalties and sublicense fees............................ 874 1,721
General and administrative............................... 1,454 1,041
-------- --------
Total operating expenses..................................... 10,847 11,942
Income from operations....................................... 755 854
Interest income (expense), net............................... 51 213
-------- --------
Income before income taxes................................... 806 1,067
Provision for income taxes................................... 327 383
-------- --------
Net income................................................... $ 479 $ 684
======== ========
Net income per common share.................................. $.05 $.07
Weighted average number of shares outstanding................ 9,589 9,224
</TABLE>
F-20
<PAGE>
See notes to consolidated financial statements
F-21
<PAGE>
Sanchez Computer Associates, Inc.
Consolidated Statements of Cash Flows
for the nine months ended September 30, 1995 and 1996
(Unaudited)
(in thousands)
<TABLE>
<CAPTION>
--------------
1995 1996
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income....................................................................... $479 $684
Adjustments to reconcile net income to cash provided by (used in)
operating activities:
Deferred taxes................................................................ -- 157
Depreciation and amortization................................................. 466 513
Other......................................................................... 12 (57)
------- ------
Cash provided (used) by changes in operating assets and liabilities:
Accounts receivable........................................................... (3,393) (531)
Prepaid and other current assets.............................................. (140) 57
Accounts payable, accrued expenses and income taxes payable................... 322 564
Deferred revenues............................................................. 20 (215)
------- ------
Net cash provided by (used in) operating activities.............................. (2,234) 1,172
Cash flows from investing activities:
Capitalized computer software costs............................................. (165) (440)
Capital expenditures............................................................ (366) (437)
------- ------
Net cash used in investing activities............................................. (531) (877)
Cash flows from financing activities:
Proceeds from issuance of long-term debt........................................ 244 261
Repayment of notes due on common stock purchases................................ 228 7
Proceeds from exercise of stock options......................................... -- 336
Principal payments under capital lease obligation............................... (38) (68)
Principal payments under long-term notes........................................ (63) (127)
------- ------
Net cash provided by financing activities......................................... 371 409
------- ------
Net decrease in cash and cash equivalents......................................... (2,394) 704
Cash and cash equivalents at beginning of period.................................. 2,656 5,546
------- ------
Cash and cash equivalents at end of period........................................ $ 262 $6,250
======= ======
</TABLE>
F-22
<PAGE>
See notes to consolidated financial statements
F-23
<PAGE>
Notes to Consolidated Financial Statements (Unaudited)
(in thousands, except share related data)
(1.) Basis of Presentation
The accompanying unaudited consolidated financial statements of Sanchez Computer
Associates, Inc. (the "Company") have been prepared in accordance with the rules
and regulations of the Securities and Exchange Commission. Certain information
and footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principals have been condensed or
omitted.
The financial statements as of September 30, 1996 and for the nine months ended
September 30, 1995 and 1996 are unaudited; however, in the opinion of
management, such statements include all adjustments, consisting solely of normal
recurring adjustments, necessary for a fair presentation of the results for the
periods presented.
The interim financial statements should be read in conjunction with the
financial statements for the fiscal year ended December 31, 1995 and notes
thereto included in the Company's audited consolidated financial statements
included elsewhere herein.
The results of operations for the interim periods are not necessarily indicative
of the results that might be expected for the future interim periods or for the
full year ended December 31, 1996.
(2.) Additional Cash Flow Statement Information
The Company's non-cash investing and financing activities and cash payments for
interest and income taxes were as follows:
<TABLE>
<CAPTION>
--------------
1995 1996
---- ----
<S> <C> <C>
Cash paid during the year for interest......... $ 29 $ 25
Cash paid during the year for income taxes..... 251 468
</TABLE>
(3.) Accrued Liabilities
Accrued liabilities consist of the following:
<TABLE>
<S> <C>
Accrued compensation and related items............ $ 733
Accrued royalties................................. 619
Other............................................. 635
------
$1,987
======
</TABLE>
F-24
<PAGE>
Notes to Consolidated Financial Statements (Unaudited)
(in thousands, except share related data)
(4.) Commitments
Commitments as of September 30, 1996 were substantially the same as those
disclosed in Note 10 of the Notes to Consolidated Financial Statements as of
December 31, 1995.
(5.) Net Income Per Share
Net income per common share was computed by dividing income by the weighted
average number of shares outstanding during each period, after giving
retroactive effect to the six-for-five stock split effective September 1996,
including common stock equivalents which would arise from the exercise of stock
options and warrants.
Stock options and warrants granted with exercise prices below the proposed
offering price during the twelve-month period preceding the initial filing date
of the offering have been included in the calculation of common stock
equivalents using the treasury stock method, assuming an offering price of $5.50
per share, as if they were outstanding for all periods presented.
(6.) Initial Public Offering
In late 1996, the Company proposes to commence an initial public stock offering
for the sale of 2,158,000 shares of its common stock, based upon an assumed
offering price of $5.50 per share. The estimated net proceeds to be raised by
the Company is $10.3 million.
F-25
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this Registration Statement on Form S-1 of our
report dated February 2, 1996, except as to information in Note 13, for which
the date is September 11, 1996, on our audits of the consolidated financial
statements of Sanchez Computer Associates, Inc. as of December 31, 1994 and 1995
and for each of the years in the three-year period ended December 31, 1995.
We also consent to the reference to our firm under the caption "Experts".
COOPERS & LYBRAND L.L.P.
2400 Eleven Penn Center
Philadelphia, Pennsylvania
November 6, 1996
F-26
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution
The expenses (other than underwriting discounts and commissions and
underwriters' non-accountable expense allowance) payable in connection with the
offering of the Rights and the sale of the Common Stock offered hereby are as
follows:
Securities and Exchange Commission registration fee....................$7,209.31
NASD filing fee........................................................$2,590.70
Nasdaq filing fee.....................................................$50,000.00
Printing and engraving expenses.......................................$75,000.00
Legal fees and expenses..............................................$200,000.00
Accounting fees and expenses.........................................$125,000.00
Blue Sky fees and expenses (including legal fees).....................$25,000.00
Transfer agent and rights agent and registrar fees and expenses.......$25,100.00
Miscellaneous.........................................................$90,200.00
Total................................................................$600,000.00
* To be filed by amendment.
The foregoing, except for the Securities and Exchange Commission
registration fee, the NASD filing fee, and the Nasdaq filing fee, are estimates.
All of the foregoing expenses will be borne by the Registrant.
Item 14. Indemnification of Directors and Officers
The Registrant's Articles and By-laws require the Registrant to
indemnify any person who was or is a party or is threatened to be made a party
to any threatened, pending or completed proceeding by reason of the fact that he
is or was a director or officer of the Registrant or any other person designated
by the Board of Directors (which may included any person serving at the request
of the Registrant as a director, officer, employee, agent, fiduciary or trustee
of another corporation, partnership, joint venture, trust, employee benefit plan
or other entity or enterprise), in each case, against certain liabilities
(including, damages, judgments, amounts paid in settlement, fines, penalties and
expenses (including attorneys' fees and disbursements)), except where such
indemnification is expressly prohibited by applicable law, where such person has
engaged in willful misconduct or recklessness or where such indemnification has
been determined to be unlawful. Such indemnification as to expenses is mandatory
to the extent the individual is successful on the merits of the matter.
Pennsylvania law permits the Registrant to provide similar indemnification to
employees and agents who are not directors or officers. The determination of
whether an individual meets the applicable standard of conduct may be made by
the disinterested directors, independent legal counsel or the stockholders.
Pennsylvania law also permits indemnification in connection with a proceeding
brought by or in the right of the Registrant to procure a judgment in its favor.
Insofar as indemnification for liabilities arising under the Securities Act of
1933, as amended (the "Act") may be permitted to directors, officers, or persons
controlling the Registrant pursuant to the foregoing provisions, the Registrant
has been informed that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in that Act and is
therefore unenforceable. The Registrant expects to obtain a directors and
officers liability insurance policy prior to the effective date of this
Registration Statement.
II-1
<PAGE>
The Standby Underwriting Agreement provides that the Underwriters are
obligated, under certain circumstances, to indemnify directors, officers and
controlling persons of the Registrant against certain liabilities, including
liabilities under the Act. Reference is made to Section 8 of the form of Standby
Underwriting Agreement. which will be filed by amendment as Exhibit 1.1 hereto.
Item 15. Recent Sales of Unregistered Securities
In the three years preceding the filing of this registration
statement, the Registrant has issued the following securities that were not
registered under the Act:
Since September 11, 1993 and pursuant to the Registrant's stock
option plans, the Registrant has issued an aggregate of 563,503 shares of Common
Stock and has granted options to purchase a total of 1,238,636 shares of Common
Stock to its employees and directors at exercise prices ranging from $1.67 to
$4.75 per share. See "Management--1995 Equity Compensation Plan" in this
Registration Statement. In addition, in August 1996 the Registrant issued 72,000
shares of Common Stock to a former director upon the exercise of a non-qualified
stock option at a purchase price equal to $1.67 per share and in September 1996
theRegistrant issued 72,000 shares of Common Stock to Lawrence Chimerine, a
director of the Registrant, upon the exercise of a non-qualified stock option at
a purchase price equal to $1.67 per share. In granting the options and selling
the underlying securities upon option exercise, Registrant has relied on
exemptions to registration set forth in Rule 701 under, and Section 4(2) of, the
Act.
Item 16. Exhibits and Financial Statement Schedules
(a) Exhibits:
<TABLE>
<CAPTION>
Exhibit
-------
Number Description
------ -----------
<C> <S>
1.1 Form of Standby Underwriting Agreement.#
3.1 Amended and Restated Articles of Incorporation of the Company.#
3.2 Amended and Restated By-laws of the Company.#
4.1 Specimen stock certificate representing the Common Stock.#
4.2 Specimen rights certificate representing the Rights.#
5.1 Opinion of Morgan, Lewis & Bockius LLP.#
8.1 Opinion of Morgan, Lewis & Bockius LLP regarding tax matters.#
10.1 1995 Equity Compensation Plan.#
10.2 Common Stock, Warrants and Rights Agreement dated February 26, 1987 among Sanchez
Computer Associates, Inc., Michael A. Sanchez, Frank R. Sanchez, Safeguard Scientifics
(Delaware), Inc., and Safeguard Scientifics, Inc.*
10.3 Common Stock Purchase Agreement dated September 30, 1989 among Sanchez Computer
Associates, Inc., Radnor Venture Partners, L.P., and Safeguard Scientifics (Delaware), Inc.*
10.4 Common Stock Purchase Agreement dated December 1, 1989 among Sanchez Computer
Associates, Inc., Radnor Venture Partners, L.P., and Safeguard Scientifics (Delaware), Inc.*
10.5 Form of Rights Agent Agreement dated November __, 1996 among ChaseMellon
Shareholder Services, L.L.C., Mellon Bank, N.A., Sanchez Computer Associates, Inc.,
Safeguard Scientifics, Inc., Radnor Venture Partners, L.P., Michael A. Sanchez and
Frank R. Sanchez.#
10.6 Administrative Services Agreement dated February 26, 1987 by and between Safeguard
Scientifics, Inc. and Sanchez Computer Associates, Inc.#
</TABLE>
II-2
<PAGE>
<TABLE>
<C> <S>
10.7 Employment Agreement effective January 1, 1996 between Richard H. Jefferson and
Sanchez Computer Associates, Inc.#
11.1 Statement Regarding Computation of Earnings Per Share.*
21.1 Subsidiaries of the Registrant.*
23.1 Consent of Coopers & Lybrand L.L.P.*
23.2 Consent of Morgan, Lewis & Bockius LLP (to be included in Exhibit 5.1).
23.3 Consent of Morgan, Lewis & Bockius LLP (to be included in Exhibit 8.1).
24.1 Power of Attorney*
27.1 Financial Data Schedule*
27.2 Financial Data Schedule#
</TABLE>
- ----------------------
* Previously filed..
# Filed herewith.
(b) Financial Statement Schedules
All information for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission is either included in the
financial statements or is not required under the related instructions or are
inapplicable, and therefore have been omitted.
Item 17. Undertakings.
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3)
of the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events
arising after the effective date of the registration statement (or
the most recent post-effective amendment thereof) which, individually
or in the aggregate, represent a fundamental change in the
information set forth in the registration statement. Notwithstanding
the foregoing, any increase or decrease in volume of securities
offered (if the total dollar value of securities offered would not
exceed that which was registered) and any deviation from the low or
high and of the estimated maximum offering range may be reflected in
the form of prospectus filed with the Commission pursuant to Rule
424(b) if, in the aggregate, the changes in volume and price
represent no more than 20 percent change in the maximum aggregate
offering price set forth in the "Calculation of Registration Fee"
table in the effective registration statement;
(iii) To include any material information with respect to
the plan of distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement; and
(iv) To reflect the results of the Offering.
II-3
<PAGE>
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.
Insofar as indemnification for liabilities arising under the Act may
be permitted to directors, officers and controlling persons of the registrant
pursuant to provisions described in Item 14 above, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
The undersigned registrant hereby undertakes (1) to provide to the
underwriters at the closing specified in the standby underwriting agreement
certificates in such denominations and registered in such names as required by
the underwriters to permit prompt delivery to each purchaser; (2) that for
purposes of determining any liability under the Act, the information omitted
from the form of prospectus filed as part of a registration statement in
reliance upon Rule 430A and contained in the form of prospectus filed by the
registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Act shall be
deemed to be part of this registration statement as of the time it was declared
effective; and (3) that for the purpose of determining any liability under the
Act, each post-effective amendment that contains a form of prospectus shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
The undersigned registrant hereby undertakes to supplement the
prospectus, after the expiration of the subscription period, to set forth the
results of the subscription offer, the transactions by the underwriters during
the subscription period, the amount of unsubscribed securities to be purchased
by the underwriters, and the terms of any subsequent reoffering thereof. If any
public offering by the underwriters is to be made on terms differing from those
set forth on the cover page of the prospectus, a post-effective amendment will
be filed to set forth the terms of such offering.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant has duly caused this amendment to the registration statement (No.
333-12863) to be signed on its behalf by the undersigned, thereunto duly
authorized, in Malvern, Pennsylvania, on November 6, 1996.
SANCHEZ COMPUTER ASSOCIATES, INC.
By: /s/ Michael A. Sanchez
--------------------------------------
Michael A. Sanchez
Chairman and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
amendment to the registration statement has been signed by the following persons
in the capacities and on the dates indicated.
<TABLE>
<S> <C> <C>
Signatures Title (s) Date
/s/ Michael A. Sanchez Chief Executive Officer (Principal Executive November 6, 1996
- --------------------------- Officer) and Chairman
Michael A. Sanchez
/s/ Frank R. Sanchez* President and Chief Operating Officer November 6, 1996
- ---------------------------
Frank R. Sanchez
/s/ Joseph F. Waterman Senior Vice President and Chief Financial
- --------------------------- Officer (Principal Financial and Accounting
Joseph F. Waterman Officer) November 6, 1996
/s/ Lawrence Chimerine* Director November 6, 1996
- ---------------------------
Lawrence Chimerine
/s/ John D. Loewenberg* Director November 6, 1996
- ---------------------------
John D. Loewenberg
/s/ Ira M. Lubert* Director November 6, 1996
- ---------------------------
Ira M. Lubert
/s/ Thomas C. Lynch* Director November 6, 1996
- ---------------------------
Thomas C. Lynch
/s/Warren V. Musser*
- ---------------------------
Warren V. Musser Director November 6, 1996
</TABLE>
II-5
<PAGE>
* By:/s/ Joseph F. Waterman
- ---------------------------
Attorney-in-fact
II-6
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Number Description Page No.
-------------- ----------- -------
<C> <S>
1.1 Form of Standby Underwriting Agreement.#
3.1 Amended and Restated Articles of Incorporation of the Company.#
3.2 Amended and Restated By-laws of the Company.#
4.1 Specimen stock certificate representing the Common Stock.#
4.2 Specimen rights certificate representing the Rights.#
5.1 Opinion of Morgan, Lewis & Bockius LLP.#
8.1 Opinion of Morgan, Lewis & Bockius LLP regarding tax matters.#
10.1 1995 Equity Compensation Plan.#
10.2 Common Stock, Warrants and Rights Agreement dated
February 26, 1987 among Sanchez Computer Associates, Inc.,
Michael A. Sanchez, Frank R. Sanchez, Safeguard Scientifics
(Delaware), Inc., and Safeguard Scientifics, Inc.*
10.3 Common Stock Purchase Agreement dated September 30, 1989
among Sanchez Computer Associates, Inc., Radnor Venture
Partners, L.P., and Safeguard Scientifics (Delaware), Inc.*
10.4 Common Stock Purchase Agreement dated December 1, 1989
among Sanchez Computer Associates, Inc., Radnor Venture
Partners, L.P., and Safeguard Scientifics (Delaware), Inc.*
10.5 Form of Rights Agent Agreement dated November __, 1996 among ChaseMellon
Shareholder Services, L.L.C., Mellon Bank, N.A., Sanchez Computer Associates, Inc.,
Safeguard Scientifics, Inc., Radnor Venture Partners, L.P., Michael A. Sanchez and
Frank R. Sanchez.#
10.6 Administrative Services Agreement dated February 26, 1987 by and between Safeguard
Scientifics, Inc. and Sanchez Computer Associates, Inc.#
10.7 Employment Agreement effective January 1, 1996 between Sanchez Computer
Associates, Inc. and Richard H. Jefferson.#
11.1 Statement Regarding Computation of Earnings Per Share.*
21.1 Subsidiaries of the Registrant.*
23.1 Consent of Coopers & Lybrand L.L.P.*
23.2 Consent of Morgan, Lewis & Bockius LLP (to be included in
Exhibit 5.1).
23.3 Consent of Morgan, Lewis & Bockius LLP (to be included in
Exhibit 8.1).
24.1 Power of Attorney*
27.1 Financial Data Schedule*
27.2 Financial Data Schedule#
</TABLE>
- -----------------------
* Previously filed.
# Filed herewith.
II-7
<PAGE>
Exhibit 1.1
Sanchez Computer Associates, Inc.
3,181,500 Shares of
Common Stock
(No Par Value Per Share)
Standby Underwriting Agreement
------------------------------
___________, 1996
J.P. Morgan Securities Inc.
60 Wall Street
New York, New York 10260
Wheat, First Securities, Inc.
Riverfront Plaza
901 East Byrd Street
Richmond, Virginia 23219
Ladies and Gentlemen:
Sanchez Computer Associates, Inc., a Pennsylvania corporation
(the "Company"), Michael A. Sanchez ("Michael Sanchez"), Frank R. Sanchez
("Frank Sanchez" and, together with Michael Sanchez, the "Sanchez Selling
Stockholders"), Radnor Venture Partners, L.P., a __________________ limited
partnership ("Radnor"), and Safeguard Scientifics, Inc., a Pennsylvania
corporation ("Safeguard") (Michael Sanchez, Frank Sanchez, Radnor and Safeguard
are collectively referred to herein as the "Selling Stockholders"), hereby
confirm their respective agreements with you with respect to:
(i) the proposed distribution by the Company to the Safeguard
Shareholders up to an aggregate of 3,030,000 rights (the "Company Rights")
(which represent the right to purchase 2,006,500 shares of the Company's common
stock, no par value per share (the "Common Stock") to be sold by the Company and
1,023,500 shares of Common Stock to be sold by the Selling Stockholders upon the
exercise of 1,023,500 such Company Rights), with (A) each Company Right
entitling the holder thereof to purchase at any time prior to the Expiration
Date at a subscription price of $____ per share, one share of Common Stock of
the Company, and (B) Company Rights being distributed on the basis of one
Company Right for each ten shares of Safeguard Stock held (with the holder of
shares of Safeguard Stock not evenly divisible by ten entitled to receive the
next higher whole number of Company Rights);
<PAGE>
(ii) the proposed sale of all Unsubscribed Shares by the
Company and the Selling Stockholders, acting severally and not jointly, with:
(A) Other Purchasers Standby Shares being deemed
to be Selling Stockholders Unsubscribed Shares to be sold
pursuant to the Other Purchasers Standby Purchase
Agreements; and
(B) all Excess Unsubscribed Shares to be sold to and
purchased by the Underwriters, severally and not jointly, in
accordance with the terms and conditions of this Agreement;
and
(iii) The grant by the Company to the Other Purchasers
of the Undistributed Rights; and
(iv) the grant by the Company to the Underwriters of the
option described in Section 3(b) hereof to purchase additional shares of Common
Stock for the purpose of covering over-allotments, if any.
The parties acknowledge that concurrently with the Offering of
the Company Rights that the Company is offering to the Direct Purchasers the
Direct Rights with each Direct Right entitling the holder thereof to purchase at
a subscription price of $_____ per share at any time prior to the Expiration
Date one share of Common Stock. The parties also acknowledge that, except as set
forth in Section 7, the shares issuable upon exercise of the Direct Rights shall
not be deemed to be Shares for purposes of this Agreement and are not otherwise
a part of this Agreement.
-2-
<PAGE>
1. Certain Definitions. The following terms shall, when
-------------------
used in this agreement, have the following meanings:
"Act" means the Securities Act of 1933, as amended.
"Adverse Claim" means the term as used in Section 8302 of the
Pennsylvania Uniform Commercial Code.
"Associated Person Lock-Ups" means the agreements, acceptable in form
and substance to the Underwriters, pursuant to which each of the Company's
officers, directors and principal shareholders listed in Schedule A attached
hereto has agreed not to, without the prior written consent of the Underwriters,
transfer, sell offer for sale, contract to sell or otherwise dispose of any
shares Common Stock or any securities exercisable or exchangeable for or
convertible into Common Stock owned by such person or with respect to which such
person has the power of disposition during a period commencing on the date the
Registration Statement is declared effective by the Commission and ending 180
days following the Expiration Date, except as otherwise permitted in the
Associated Person Lock-Ups.
"Bona fide Purchaser" means the term as defined in Section 8302 of the
Pennsylvania Uniform Commercial Code.
"Closing" means 10:00 a.m., New York City Time on the sixth business
day after the Expiration Date (or the first business day thereafter), or at such
other time on the same or such other date, not later than ________, 199_, as
shall be agreed to by the Selling Stockholders, the Company and the
Underwriters.
"Closing Date" means the time and date of payment for and delivery of
the Excess Unsubscribed Shares.
"Code" means the Internal Revenue Code of 1986, as amended.
"Commission" means the Securities and Exchange Commission.
"Company Unsubscribed Shares" mans the shares of Common Stock which had
been offered by the Company pursuant to the Company Rights but which were not
acquired through the exercise of Company Rights on or prior to the Expiration
Date (after taking into account the agreement of the Company and the Selling
Stockholders that the [343,000] shares of Common Stock to be sold to Warren V.
Musser upon exercise of the Musser Rights shall be deemed to be sold by the
Selling Stockholders).
"Coopers & Lybrand" means Coopers & Lybrand L.L.P.
"Direct Purchasers" means the certain persons selected by the Company
to whom the Direct Rights are being granted.
-3-
<PAGE>
"Direct Rights" means the offering to the Direct Purchasers of up to
151,500 rights, which represent the right to purchase 151,500 shares of the
Common Stock upon the exercise of such Direct Rights.
"Disagreement" means the term as used in Item 304 of Regulation S-K of
the Rules and Regulations.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended.
"Excess Unsubscribed Shares" means all of the Unsubscribed
Shares other than the Other Purchasers Standby Shares.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Expiration Date" means 5:00 p.m., New York City time, on ____________,
1996 or such later date as may be agreed upon by the Underwriters and the
Company.
"Intellectual Property" means all patents, trademarks, service marks,
trade names, copyrights, inventions, trade secrets, proprietary techniques,
including, without limitation, all software service codes, processes and
substances, technology and know-how necessary to conduct (or used to conduct)
the business now operated or proposed to be operated by the Company and each of
its subsidiaries as described in the Prospectus.
"Investment Company Act" means the Investment Company Act of
1940, as amended.
"Material Adverse Effect" means a material adverse effect on the
condition, financial or otherwise, or on the earnings, business affairs,
financial position, value, operations, properties, results of operation or
business of the Company and its subsidiaries, taken as a whole.
"Musser Agreement" means the agreement of the Musser Group pursuant to
which the Musser Group has agreed (A) to exercise all Musser Rights and thereby
purchase [343,000] shares of Common Stock and (B) to the terms and conditions of
the Musser Lock-Up.
"Musser Group" means Warren Musser and/or his assignees.
"Musser Lock-Up" means the agreement of the Musser Group not to,
without the prior written consent of the Underwriters, transfer, sell, offer for
sale, contract to sell or otherwise dispose of any shares of Common Stock or any
securities exercisable or exchangeable for or convertible into Common Stock
(including the Musser Rights) owned on the date hereof or acquired through the
rights offering or with respect to which the Musser Group has the
-4-
<PAGE>
power of disposition during a period commencing on the date the Registration
Statement is declared effective.
"Musser Rights" means the exercise of all Rights granted to the Musser
Group as a stockholder of Safeguard.
"NASD" means the National Association of Securities Dealers,
Inc.
"Offering" means the public offering of the Excess Unsubscribed Shares
as set forth in the Prospectus; provided that Offering shall also include the
Other Purchasers Standby Shares purchased by the Underwriters, if any, pursuant
to Section 8 hereof.
"Option Closing Date" means the time of delivery of any of the
Option Shares."
"Option Shares" means any and all shares of Common Stock to be
purchased by the Underwriters pursuant to the option described in Section 2(b)
of the Agreement.
"Other Purchasers" means certain persons selected by the
Company.
"Other Purchasers Standby Purchase Agreement" means the Other
Purchasers Standby Shares to be sold pursuant to agreements between the Selling
Stockholders and the "Other Purchasers" to be entered into after the date hereof
and obligating the Other Purchasers to purchase from the Selling Stockholders on
the Closing Date at a price of $________ per share the Other Purchasers Standby
Shares.
"Other Purchasers Standby Shares" means the first 300,000
Unsubscribed Shares.
"Preliminary Prospectus" means each prospectus subject to completion
filed with the Registration Statement or any amendment thereto (including the
prospectus subject to completion, if any, included in the Registration Statement
or any amendment thereto at the time of the Registration Statement was or is
declared effective).
"Prospectus" means the prospectus first filed with the Commission
pursuant to Rule 424(b) under the Act, or, if no prospectus is required to be
filed pursuant to said Rule 424(b), the prospectus included in the Registration
Statement. For purposes of Sections 2 and 8(d)(v) hereof, all references to the
"Prospectus" are deemed to include, in the alternative, the most recent
Preliminary Prospectus if the Prospectus is not in existence.
"Provided Information" means the statements made in the second
paragraph preceding the stabilization legend on the inside of the front cover
page, the stabilization legend on the inside of the front cover page and the
third paragraph under the heading
-5-
<PAGE>
"UNDERWRITING" in the Prospectus (and the same paragraphs and stabilization
legend in any Preliminary Prospectus).
"Registration Statement" means such registration statement, as amended,
at the time when it was or is declared effective, including all financial
schedules and exhibits thereto and including any information omitted therefrom
pursuant to Rule 430A under the Act and included in the Prospectus.
"Reportable Event" means the term as used in Item 304 of Regulation S-K
of the Rules and Regulations.
"Rights" means the Direct Rights, the Company Rights and the
Undistributed Rights.
"Rights Agent" means Chase Mellon Shareholder Services L.L.C.
"Rights Agent Agreement" means the agreement in the form previously
approved by the Underwriters, dated the date hereof, with the Selling
Stockholders and Chase Mellon Shareholder Services L.L.C., as Rights Agent.
"Rules and Regulations" means the rules and regulations adopted by the
Commission under either the Act or the Exchange Act.
"Safeguard Shareholders" means the holders of Safeguard Stock
as of __________, 1996.
"Safeguard Stock" means the common stock, $.10 par value per
share, of Safeguard.
"Selling Stockholders Unsubscribed Shares" means the shares of Common
Stock which had been offered pursuant to the Company Rights but which were not
acquired through exercise of the Company Rights on or prior to the Expiration
Date (after taking into account the agreement of the Company and the Selling
Stockholders that the [343,000] shares of Common Stock to be sold to Warren V.
Musser upon exercise of the Musser Rights shall be deemed to be sold by the
Selling Stockholders).
"Shares" means the Option Shares and the Excess Unsubscribed
Shares to be purchased by the Underwriters.
"Underwriters" means J.P. Morgan Securities Inc. and Wheat,
First Securities, Inc.
"Underwriters Counsel" means Drinker Biddle & Reath.
"Undistributed Rights" means the undistributed Company Rights in the
event that Company Rights to purchase fewer than 3,030,000 shares of Common
Stock are granted to holders of the Safeguard
-6-
<PAGE>
Stock of the shares of Common Stock subject to such undistributed rights.
"Unsubscribed Shares" means the Selling Stockholders
Unsubscribed Shares together with the Company Unsubscribed Shares.
2. Representations and Warranties of the Company, Michael
------------------------------------------------------
Sanchez, Frank Sanchez, Radnor and Safeguard.
- --------------------------------------------
(a) Each of the Company, Michael Sanchez and Frank
Sanchez, jointly and severally, represent and warrant to, and agree
with, the Underwriters as follows:
(i) The Company has filed with the Commission a
registration statement on Form S-1 (No. 333-12863), including a
prospectus subject to completion, for the registration of the Rights,
the shares of Common Stock subject to the Rights, and the Option Shares
under the Act, and have filed with the Commission one or more
amendments thereto. After the execution of this Agreement, the Company
will file with the Commission either (A) if such registration
statement, as it may have been amended, has been declared by the
Commission to be effective under the Act as of the time of
effectiveness of this Agreement, a prospectus in the form most recently
included in an amendment to such registration statement (or, if no such
amendment shall have been filed, in such registration statement), with
such changes or insertions as are required by Rule 430A under the Act
or permitted by Rule 424(b) under the Act and as have been provided to
and approved by the Underwriters prior to the execution of this
Agreement, or (B) if such registration statement, as it may have been
amended, has not been declared by the Commission to be effective under
the Act as of the time of effectiveness of this Agreement, an amendment
to such registration statement, including a form of prospectus, a copy
of which amendment has been furnished to and approved by the
Underwriters prior to the execution of this Agreement;
(ii) The Commission has not issued any order
preventing or suspending the use of any Preliminary Prospectus or any
part thereof and, to the best knowledge of the Company, no proceedings
for a stop order have been instituted or are pending or threatened.
When any Preliminary Prospectus was filed with the Commission, it
contained all statements required to be stated therein in accordance
with, and complied in all material respects with the requirements of,
the Act and the Rules and Regulations except to the extent that such
Preliminary Prospectus did not contain any such required statements, or
did not so comply, in a manner corrected in the Prospectus. When the
Registration Statement or any amendment thereto was (or is) declared
effective, it (A) contained (or will contain) all statements required
to be stated therein in
-7-
<PAGE>
accordance with, and complied in all material respects (or will comply
in all material respects) with the requirements of, the Act and the
Rules and Regulations and (B) did not or will not include any untrue
statement of a material fact or omit to state any material fact
necessary to make the statements therein not misleading. When the
Prospectus or any amendment or supplement thereto is filed pursuant to
Rule 424(b) (or, if the Prospectus or such amendment or supplement is
not required to be so filed, when the Registration Statement or the
amendment thereto containing such amendment or supplement to the
Prospectus was or is declared effective) and on the Closing Date and
any Option Closing Date, the Prospectus, as amended or supplemented at
any such time, (A) contained or will contain all statements required to
be stated therein in accordance with, and complied or will comply in
all material respects with the requirements of, the Act and the Rules
and Regulations and (B) did not or will not include any untrue
statement of a material fact or omit to state any material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading. The foregoing
provisions of this paragraph (ii) do not apply to the Provided
Information;
(iii) The Company and each of its subsidiaries (as
defined in Rule 405 of the Rules and Regulations) are corporations duly
organized, validly existing and in good standing under the laws of
their respective jurisdictions of incorporation, are duly qualified to
transact business and are in good standing as foreign corporations in
each jurisdiction in which their respective ownership or leasing of any
properties or the character or conduct of their respective operations
requires such qualification, except where failures to be so qualified,
individually or in the aggregate, would not result in a Material
Adverse Effect. The Company does not own any stock of or other equity
in, or otherwise control directly or indirectly, any corporation, firm,
partnership, trust, joint venture or other business entity, except as
disclosed in the Prospectus. None of the subsidiaries of the Company is
a Significant Subsidiary, other than Sanchez Software Ltd. and Sanchez
Computer Associates International, Inc.
(iv) The Company and each of its subsidiaries have
all requisite power and authority (corporate and other), and have
obtained and currently maintain in full force and effect and are
operating in compliance with any and all authorizations, approvals,
orders, licenses, certificates, franchises and permits of and from all
governmental or regulatory officials and bodies (including those having
jurisdiction over environmental or similar matters) necessary or
required to own or lease their respective properties and conduct their
respective business as described in the
-8-
<PAGE>
Registration Statement, the Prospectus and any amendment or supplement
thereto, except where the failure to so maintain or operate would not
result in a Material Adverse Effect. The Company and each of its
subsidiaries are and have been doing business in compliance with all
such authorizations, approvals, orders, licenses, certificates,
franchises and permits and all federal, state, local and foreign laws,
rules and regulations (including without limitation those relating to
employment matters and the payment of taxes) except as disclosed in the
Prospectus and except where failures to be in compliance, individually
or in the aggregate, would not result in a Material Adverse Effect.
Neither the Company nor any of its subsidiaries has received any notice
or notices of proceedings relating to the revocation or modification of
any such authorization, approval, order, license, certificate,
franchise or permit that if the subject of unfavorable decisions,
rulings or findings, would, individually or in the aggregate, result in
a Material Adverse Effect;
(v) The Company has duly executed and delivered the
Rights Agent Agreement. The shares of Common Stock to be sold by the
Company hereunder and upon the exercise of the Rights are subject to
the rights and interests of the Underwriters and the Rights Agent
hereunder and under the Rights Agent Agreement. Except to the extent
otherwise provided therein, the arrangements for custody or reservation
and delivery of the certificates for such shares, made by the Company
hereunder and under the Rights Agent Agreement, are irrevocable, and
are not subject to termination by any acts of the Company, or by
operation of law;
(vi) The Company has all requisite power and
authority (corporate and other) to enter into this Agreement and the
Rights Agent Agreement, and to consummate the transactions provided for
herein and therein; and this Agreement and the Rights Agent Agreement
have each been duly authorized, executed and delivered by the Company.
Each of this Agreement and the Rights Agent Agreement, assuming due
authorization, execution and delivery by the other parties to such
agreement, constitutes the legal, valid and binding obligation of the
Company enforceable against the Company in accordance with its terms,
subject to the effect of general principles of equity (including
standards of materiality, good faith, fair dealing and reasonableness)
whether applied by a court of law or equity, and except as rights to
indemnity and contribution hereunder may be limited by applicable law,
statutory duties or public policy. The Company's execution and delivery
of this Agreement and the Rights Agent Agreement, its performance of
its obligations hereunder and thereunder, the consummation of the
transactions contemplated hereby and thereby by it, and its conduct of
its business as described in the Registration Statement, the Prospectus
and any amendment or supplement
-9-
<PAGE>
thereto, will not conflict with or result in a breach or violation of
any of the terms or provisions of, or constitute a default under, or
result in the creation or imposition of any material liens, charges,
claims, encumbrances, pledges, security interests, defects or other
like restrictions or material equities of any kind whatsoever upon, any
right, property or assets (tangible or intangible) of the Company or
any of its subsidiaries pursuant to the terms of (A) the charter or
bylaws, each as amended to date, of the Company or any of its
subsidiaries, (B) any lease, license, permit, contract, indenture,
mortgage, deed of trust, voting trust agreement, stockholders
agreement, note, loan or credit agreement (including any related to
indebtedness) or any other agreement or instrument to which the Company
or any of its subsidiaries is a party or by which any of them is or may
be bound or to which any of their respective properties or assets
(tangible or intangible) is or may be subject, except to the extent
that any such conflict, breach, violation or default, individually or
in the aggregate, does not and would not result in a Material Adverse
Effect and does not and would not interfere with the Offering or (C)
any statute, judgment, decree, order, rule or regulation applicable to
the Company or any of its subsidiaries or any of their respective
activities or properties adopted or issued by an arbitrator, court,
regulatory body or administrative agency or other governmental agency
or body (including those having jurisdiction over environmental or
similar matters), domestic or foreign, having jurisdiction over the
Company or any of its subsidiaries or any of their respective
activities or properties (other than such as may be required under
state securities or "Blue Sky" laws and such as may be required by the
by-laws and rules of the NASD in connection with the purchase and
distribution of the Shares by the Underwriters);
(vii) No consent, approval, authorization or order
of, or filing with, any governmental agency or body or any court is
required in connection with the offer, issuance and sale of the shares
of Common Stock to be sold by the Company hereunder or upon exercise of
the Rights, the Company's performance of its obligations hereunder, or
the consummation by the Company of the other transactions contemplated
hereby, except (A) such as may be required under the state securities
or "Blue Sky" laws of any jurisdiction or as may be required by the
by-laws and rules of the NASD in connection with the purchase and
distribution of the Shares by the Underwriters, (B) any filing of the
Prospectus pursuant to Rule 424(b) or 430A of the Rules and Regulations
and, if the Registration Statement has not been declared effective, an
order of the Commission declaring the Registration Statement effective
under the Act, and (C) such other approvals as have been obtained and
remain in full force and effect;
-10-
<PAGE>
(viii) The authorized, issued and outstanding capital
stock of the Company is set forth and conforms to the description
thereof, contained in the Registration Statement, the Prospectus, and
any amendment or supplement thereto. All of the issued shares of
capital stock of the Company, including the shares to be sold by each
of the Selling Stockholders, have been duly authorized and validly
issued, and are fully paid and nonassessable; the holders thereof have
no rights of rescission against the Company with respect thereto and
are not subject to personal liabilities solely by reason of being such
holders (except to the extent that as a result of acquiring a
substantial number of shares of Common Stock a holder may be subject to
claims of personal liability as an affiliate or control person of the
Company, as to which no representation is made hereby); and none of
such shares have been issued in violation of the preemptive rights of
any security holders of the Company arising as a matter of law or under
or pursuant to the Company's Articles of Incorporation, as amended, the
Company's By-Laws, as amended, or any agreement or instrument to which
the Company is a party or by which it is bound. The shares of Common
Stock offered by the Company and to be sold upon the exercise of the
Rights or pursuant to this Agreement have been duly authorized and at
the Closing Date, after payment therefor in accordance herewith or in
accordance with the terms and conditions of the Rights (as the case may
be), will be validly issued, fully paid and nonassessable and not
subject to any Adverse Claim, with no personal liability attaching to
the holder solely as a result of the ownership thereof (except to the
extent that as a result of acquiring a substantial number of shares of
Common Stock a holder may be subject to claims of personal liability as
an affiliate or control person of the Company, as to which no
representation is made hereby). Upon the issuance and delivery pursuant
to this Agreement and the Rights Agent Agreement of the Shares to be
sold by the Company, assuming that each of the Underwriters is a Bona
Fide Purchaser, as defined in Section 8302 of the Pennsylvania Uniform
Commercial Code, the Underwriters will acquire good and marketable
title to the Shares free and clear of any liens, charges, claims,
preemptive rights, encumbrances, pledges, security interests, defects
or other like restrictions or like material equity of any kind
whatsoever. The shares of Common Stock offered by the Company and to be
sold upon the exercise of the Rights or pursuant to this Agreement will
conform to the description thereof contained in the Prospectus. There
are no preemptive or other rights to subscribe for or to purchase nor
any restriction upon the voting or transfer of, any Common Stock
pursuant to the Company's Articles of Incorporation or ByLaws, as each
amended to date, or pursuant to any agreement among shareholders to
which the Company is a party, by which it is bound or of which it has
knowledge, and the Shares to be sold by the Company are not otherwise
subject to any
-11-
<PAGE>
preemptive or other similar rights of any security holder. The Company
is not a party to or bound by any instrument, agreement or other
arrangement providing for it to issue any capital stock, rights,
warrants, options or other securities, except for this Agreement and as
described in the Prospectus. Except as described in the Prospectus with
respect to Common Stock that may be registered by the Company in a
registration statement on Form S-8, no holders of any securities of the
Company have the right to include any securities issued by the Company
in the Registration Statement or any registration statement to be filed
by the Company during a period commencing on the date the Registration
Statement is declared effective by the Commission and ending 180 days
following the Expiration Date or to require the Company to file a
registration statement under the Act during such period. All of the (i)
Rights and (ii) outstanding shares of Common Stock and all of the
shares of Common Stock to be issued by the Company as contemplated
herein have been approved for quotation upon notice of issuance on the
Nasdaq National Market of the Nasdaq Stock Market;
(ix) The consolidated financial statements and
schedules of the Company included in the Registration Statement, the
Prospectus and any amendment or supplement thereto fairly present the
consolidated financial position and results of operations of the
Company as of the dates and for the periods therein specified. Such
financial statements and schedules have been prepared in accordance
with generally accepted accounting principles, as in effect in the
United States and as consistently applied throughout the periods
involved and in accordance with the Rules and Regulations. The selected
consolidated financial data set forth under the caption "SELECTED
CONSOLIDATED FINANCIAL DATA" in the Prospectus fairly present, on the
basis stated therein, the information included therein. The Company
maintains a system of internal accounting controls sufficient to
provide reasonable assurance that (A) transactions are executed in
accordance with management's general or specific authorizations; (B)
transactions are recorded as necessary to permit preparation of
financial statements in conformity with generally accepted accounting
principles and to maintain asset accountability; (C) access to assets
is permitted only in accordance with management's general or specific
authorization; and (D) the recorded accountability for assets is
compared with the existing assets at reasonable intervals and
appropriate action is taken with respect to any differences. The
Company's internal accounting controls are designed to cause the
Company to comply in all material respects with the Foreign Corrupt
Practices Act of 1977, as amended. Coopers & Lybrand, whose reports are
filed with the Commission as a part of the Registration Statement, are
independent auditors as required by the Act and the Rules and
-12-
<PAGE>
Regulations. Since ______________, 19__, Coopers & Lybrand
has been the only public accountants engaged by the Company,
and the Company has not had any Disagreement with Coopers &
Lybrand and has not experienced any Reportable Event since
_____________;
(x) The Company and each of its subsidiaries have
filed all federal, state, local and foreign tax returns that are
required to be filed by them or have duly requested extensions thereof,
except in any case in which the failure so to file, individually or in
the aggregate, would not have a Material Adverse Effect. The Company
and each of its subsidiaries have paid all taxes required to be paid by
them and all other assessments, fines or penalties, if any, levied
against any of them, to the extent that any of the foregoing are due
and payable, except for (A) any such assessment, fine or penalty that
is currently being contested in good faith or (B) any case in which the
failure so to pay, individually or in the aggregate, would not have a
Material Adverse Effect;
(xi) No transfer tax, stamp duty or other similar tax
is payable by or on behalf of the Underwriters in connection with the
issuance by the Company, or the purchase by the Underwriters, of the
Shares to be sold by the Company or any resales of such Shares by the
Underwriters;
(xii) The Company has good and marketable title to,
or valid and enforceable leasehold estates in, all items of real and
personal property stated in the Prospectus to be owned or leased by it,
free and clear of all liens, charges, claims, encumbrances, pledges,
security interests, defects or other like restrictions or like equities
of any kind whatsoever, other than (A) liens for taxes not yet due and
payable, (B) liens as described or referred to in the Prospectus and
(C) liens that are not material in amount in relation to the business
of the Company and which do not interfere with the Offering;
(xiii) Except as disclosed in the Prospectus, the
Company and each of its subsidiaries own or possess adequate licenses
or other rights, in each case free of fees, charges or royalties
payable after the date hereof, to use the Intellectual Property, except
where the lack thereof would not result in a Material Adverse Effect.
Neither the Company nor any of its subsidiaries has received any notice
of infringement of or conflict with (and does not know of any such
infringement of or conflict with) rights or claims of others with
respect to the Intellectual Property, any of the activities engaged in,
or proposed to be engaged in, by the Company or any of its subsidiaries
or any challenge to the ownership or right of the Company or any of its
subsidiaries with respect to the Intellectual Property which could
result
-13-
<PAGE>
in a Material Adverse Effect or which could have a material adverse
effect on the development, marketing or sale of any of the Company's
existing or contemplated products, services or processes as described
in the Prospectus. None of the products, services or processes of the
Company or any of its subsidiaries referred to in such Prospectus and
relating to the business of the Company or any of its subsidiaries now
operated or proposed to be operated by any of them as described in such
Prospectus infringes or conflicts with any right or patent, or with any
discovery, invention, product or process which is the subject of any
patent application known to the Company, in a manner which would result
in a Material Adverse Effect;
(xiv) The Company and each of its subsidiaries are
insured by insurers of recognized financial responsibility against such
losses and risks and in such amounts as are prudent and customary in
the business in which they are engaged, and the Company has no reason
to believe that it or any of its subsidiaries will not be able to renew
its respective existing insurance coverage as and when such coverage
expires or to obtain similar coverage from similar insurers as may be
necessary to continue its respective business at a cost that would not
result in a Material Adverse Effect;
(xv) Neither the Company nor any of its subsidiaries
is in breach of, or in default under, any term, covenant or provision
of any license, permit, contract, indenture, mortgage, installment sale
agreement, lease, deed of trust, voting trust agreement, stockholders
agreement, note, loan or credit agreement, or any other agreement or
instrument evidencing an obligation for borrowed money, or any other
agreement or instrument to which it is a party or by which it may be
bound or to which any of its property or assets (tangible or
intangible) is subject or affected, except as disclosed in the
Registration Statement and Prospectus and except as to defaults that
(A) individually or in the aggregate would not have a Material Adverse
Effect and (B) would not interfere with the Offering. Neither the
Company nor any of its subsidiaries is in violation of any term or
provision of its charter or bylaws, each as amended to date;
(xvi) Other than as disclosed in the Prospectus,
there is not pending or, to the Company's knowledge, threatened against
the Company or any of its subsidiaries or involving the properties or
business of the Company or any of its subsidiaries, (or, to the
Company's knowledge, any circumstances that may give rise to the same),
any action, suit, proceeding, investigation, litigation or governmental
proceeding (including those having jurisdiction over environmental or
similar matters), domestic or foreign, that
-14-
<PAGE>
(A) is required to be disclosed in the Registration Statement and is
not so disclosed, (B) questions the validity of the capital stock of
the Company or the validity or enforceability of this Agreement,
(C) questions the validity of any action taken or to be taken by the
Company pursuant to or in connection with this Agreement, or (D) could
materially adversely affect the present or prospective ability of the
Company to perform its obligations under this Agreement or result in a
Material Adverse Effect. Any such proceedings summarized in the
Prospectus are accurately summarized in all material respects;
(xvii) Subsequent to the respective dates as of which
information is set forth in the Registration Statement and Prospectus,
and except as may otherwise be indicated or contemplated herein or
therein, neither the Company nor any of its subsidiaries has (A) issued
any securities other than the Rights, the shares of Common Stock to be
sold by the Company upon the exercise of the Rights, the Shares to be
sold by the Company pursuant to this Agreement and shares of Common
Stock issuable upon the exercise of stock options disclosed in the
Prospectus as outstanding as of the date hereof, (B) incurred any
liability or obligation, direct or contingent, for borrowed money,
(C) entered into any transaction other than in the ordinary course of
business, (D) declared or paid any dividend or made any other
distribution on or in respect of its capital stock, or (E) entered into
any transactions with any affiliate, including, without limitation, the
Selling Stockholders or their respective affiliates;
(xviii) The Company and each of its subsidiaries have
satisfactory employer-employee relationships with their respective
employees. No labor or other dispute with the employees of the Company
or any of its subsidiaries as a group exists, or, to the best knowledge
of the Company, is imminent;
(xix) Except as disclosed in the Registration
Statement or the Prospectus, each employee benefit plan, within the
meaning of Section 3(3) of ERISA that is maintained, administered or
contributed to by the Company or any of its affiliates for employees or
former employees of the Company and its affiliates has been maintained
in compliance with its terms and the requirements of any applicable
statutes, orders, rules and regulations, including but not limited to
ERISA and the Code; no prohibited transaction, within the meaning of
Section 406 of ERISA or Section 4975 of the Code has occurred with
respect to any such plan excluding transactions effected pursuant to a
statutory or administrative exemption; and for each such plan which is
subject to the funding rules of Section 412 of the Code or Section 302
of ERISA no "accumulated funding deficiency" as defined in Section 412
of the Code has been incurred, whether
-15-
<PAGE>
or not waived, and the fair market value of the assets of each such
plan (excluding for these purposes accrued but unpaid contributions)
exceeded the present value of all benefits accrued under such plan
determined using reasonable actuarial assumptions;
(xx) The minutes books of the Company and each of its
subsidiaries made available to Underwriters' Counsel, (A) contain
minutes and consents from all meetings and actions of the Company's and
each such subsidiary's stockholders, board of directors, and the
committees of such board since the respective dates of organization of
the Company and each of its subsidiaries and (B) reflect all
transactions referred to in such minutes accurately in all material
respects;
(xxi) All agreements filed as exhibits to the
Registration Statement to which the Company or any of its subsidiaries
is a party or by which the Company or any of its subsidiaries may be
bound or to which any of their respective assets, properties or
businesses may be subject have been duly and validly authorized,
executed and delivered by the Company or such subsidiary, as
appropriate, and constitute the legal, valid and binding agreements of
the Company, or such subsidiary, as appropriate, enforceable in
accordance with their respective terms, subject in each case to the
effect of general principles of equity (including standards of
materiality, good faith, fair dealing and reasonableness) whether
applied by a court of law or equity and except as rights to indemnity
and contribution under this Agreement may be limited by applicable law,
statutory duties or public policy. The descriptions in the Registration
Statement, the Prospectus and any amendment or supplement thereto, of
agreements, whether written or oral, and of other documents are
accurate and fairly present the information required to be shown with
respect thereto by Form S-1 under the Act. There are no agreements,
whether written or oral, or other documents that are required by the
Act or the Rules and Regulations to be described in the Registration
Statement or filed as exhibits to the Registration Statement that are
not described or filed as required;
(xxii) Neither the Company nor any of its officers,
directors, or affiliates (within the meaning of the Rules and
Regulations) has taken or will take, directly or indirectly, any action
designed to or that has constituted or that might reasonably be
expected to cause or result in stabilization or manipulation of the
price of the Common Stock or the Rights in violation of Rules 10b-6 or
10b-7 under the Exchange Act;
(xxiii) There are no claims, payments, issuances,
arrangements or understandings for services in the nature of a
finder's, advisory or origination fee or otherwise, either
-16-
<PAGE>
with respect to the sale of the shares of Common Stock to be sold by
the Company upon exercise of the Rights, the sale of the Shares
hereunder or with respect to the proceeds received by the Company from
such sales. Other than as reflected in this Agreement, there are no
other arrangements, agreements, understandings, payments or issuances
with respect to the Company or, to the Company's knowledge, any of its
officers, directors, or affiliates that may constitute "underwriter's
compensation," as determined by the NASD;
(xxiv) The Company has delivered or caused to be
delivered to the Underwriters the Associated Person Lock-Ups;
(xxv) All of the Rights have been duly authorized and
validly issued, and, when issued and distributed as set forth in the
Prospectus, will be legally issued and valid and binding obligations of
the Company having the rights summarized in the Prospectus; and none of
such Rights will have been issued in violation of the preemptive rights
of any security holders of the Company arising as a matter of law or
under or pursuant to the Company's Articles of Incorporation, as
amended, the Company's By-Laws, as amended, or any agreement or
instrument to which the Company is a party or by which it is bound;
(xxvi) Since the respective dates as of which
information is given in the Registration Statement and the Prospectus,
there has not been any material adverse change, or any development
involving a prospective material adverse change, in or affecting the
general affairs, business, prospects, management, financial position,
stockholders' equity or results of operations of the Company and its
subsidiaries, taken as a whole, otherwise than as set forth or
contemplated in the Prospectus;
(xxvii) No relationship, direct or indirect, exists
between or among the Company or any of its subsidiaries on the one
hand, and the directors, officers, stockholders, customers or suppliers
of the Company or any of its subsidiaries on the other hand, which is
required by the Act to be described in the Registration Statement and
the Prospectus which is not so described;
(xxviii) The Company is not and, after giving effect
to the Offering, will not be an "investment company" or entity
"controlled" by an "investment company," as such terms are defined in
the Investment Company Act;
(xxix) The Company has complied with all provisions
of Section 517.075, Florida Statutes (Chapter 92-198, Laws of Florida)
relating to doing business with the Government of Cuba or with any
person or affiliate located in Cuba;
-17-
<PAGE>
(b) Each of the Sanchez Selling Stockholders, severally
and not jointly, represents and warrants to, and agrees with the Underwriters
as follows:
(i) Such Sanchez Selling Stockholder has duly
executed and delivered the Rights Agent Agreement pursuant to which
certificates in negotiable form for the shares of Common Stock to be
sold by him upon the exercise of the Rights, pursuant to the Other
Purchasers Standby Purchase Agreements and pursuant to this Agreement
have been placed in custody, for delivery pursuant to the terms of the
Rights Agent Agreement, the Other Purchasers Standby Purchase
Agreements and this Agreement. The shares represented by the
certificates so held in custody for such Sanchez Selling Stockholder
are subject to the interests hereunder of the Underwriters and of the
Rights Agent under the Rights Agent Agreement. Except to the extent
provided therein, the arrangements for custody and delivery of such
certificates, made by such Sanchez Selling Stockholder hereunder and
under the Rights Agent Agreement and the Other Purchasers Standby
Purchase Agreements, are to that extent irrevocable, and are not
subject to termination by any acts of such Sanchez Selling Stockholder,
or by operation of law;
(ii) Such Sanchez Selling Stockholder has the legal
right and power to enter into the Rights Agent Agreement, the Other
Purchasers Standby Purchase Agreements and this Agreement and to sell,
transfer and deliver the Shares proposed to be sold by him hereunder,
the shares of Common Stock to be sold by him upon the exercise of the
Rights and the shares of Common Stock to be sold by him pursuant to the
Other Purchasers Standby Purchase Agreements. The Rights Agent
Agreement has been and the Other Purchasers Standby Purchase Agreements
will be prior to the Closing Date duly executed by such Sanchez Selling
Stockholder, and, assuming due execution and delivery by the other
respective parties thereto, constitute the legal, valid and binding
obligations of such Sanchez Selling Stockholder enforceable against him
in accordance with their respective terms, subject to the effect of
general principles of equity (including standards of materiality, good
faith, fair dealing and reasonableness) whether applied by a court of
law or equity. This Agreement has been duly executed and delivered by
such Sanchez Selling Stockholder and, assuming due authorization,
execution and delivery by the Underwriters, Radnor, the other Sanchez
Selling Stockholder and Safeguard, constitutes the legal, valid and
binding obligation of such Sanchez Selling Stockholder enforceable
against such Sanchez Selling Stockholder in accordance with the terms
hereof, subject to the effect of general principles of equity
(including standards of materiality, good faith, fair dealing and
reasonableness) whether applied by a court of law or equity,
-18-
<PAGE>
and except as rights of indemnity and contribution hereunder
may be limited by applicable law, statutory duties or public
policy;
(iii) The execution and delivery of this Agreement,
the Rights Agent Agreement and the Other Purchasers Standby Purchase
Agreements and the performance by each Sanchez Selling Stockholder of
his obligations hereunder and thereunder will not conflict with or
result in a breach or violation of any of the terms and provisions of,
or constitute a default under (A) any lease, permit, license, contract,
indenture, mortgage, deed of trust, voting trust agreement,
shareholders agreement, note, loan or credit agreement or any other
agreement or instrument to which such Sanchez Selling Stockholder is a
party or by which he is or may be bound or to which any of his
properties or assets (tangible or intangible) is or may be subject, or
any indebtedness, except to the extent that any such conflict, breach,
violation or default, individually or in the aggregate, does not and
would not result in a material adverse effect on the condition,
financial or otherwise, or on the earnings, business affairs, financial
position, prospects, value, operation, properties, results of operation
or business of the Company and does not and would not interfere with
the Offering, or (B) any statute, judgment, decree, order, rule or
regulation applicable to such Sanchez Selling Stockholder or any of his
activities or properties adopted or issued by any arbitrator, court,
regulatory body or administrative agency or other governmental agency
or body (including those having jurisdiction over environmental or
similar matters), domestic or foreign, having jurisdiction over such
Sanchez Selling Stockholder or any of his activities or properties. No
consent, approval, authorization or order of, or filing with, any
governmental agency or body or any court is required for the
consummation by each Sanchez Selling Stockholder of the transactions
contemplated herein, in the Rights Agent Agreement or in the Other
Purchasers Standby Purchase Agreements, except (A) such as may be
required under the state securities or "Blue Sky" laws of any
jurisdiction or as may be required by the by-laws of the NASD in
connection with the purchase and distribution of the Shares by the
Underwriters, (B) any filing of the Prospectus pursuant to Rule 424(b)
or 430A of the Rules and Regulations and, if the Registration Statement
has not been declared effective, an order of the Commission declaring
the Registration Statement effective under the Act, and (C) such other
approvals as have been obtained and remain in full force and effect;
and
(iv) Each Sanchez Selling Stockholder has, and on the
Closing Date will have, good and marketable title to the Shares
proposed to be sold by such Sanchez Selling Stockholder hereunder and
the shares of Common Stock to be sold upon the
-19-
<PAGE>
exercise of the Rights, and none of such shares will be subject to any
Adverse Claim. Upon delivery of and payment for the Shares to be sold
by such Sanchez Selling Stockholder hereunder, assuming that each of
the Underwriters is a Bona Fide Purchaser, the Underwriters will
acquire good and marketable title thereto free and clear of any liens,
charges, claims, preemptive rights, encumbrances, pledges, security
interests, voting trusts, defects or other like restrictions or other
like material equity of any kind whatsoever.
(c) Safeguard represents and warrants to, and agrees
with the Underwriters as follows:
(i) Safeguard has duly executed and delivered the
Rights Agent Agreement pursuant to which certificates in negotiable
form for the shares of Common Stock to be sold by it upon the exercise
of the Rights, pursuant to the Other Purchasers Standby Purchase
Agreements and pursuant to this Agreement have been placed in custody
for delivery pursuant to the terms of the Rights Agent Agreement, the
Other Purchasers Standby Purchase Agreements and this Agreement. The
shares represented by the certificates so held in custody for Safeguard
are subject to the interests hereunder of the Underwriters, the Company
and the Rights Agent under the Rights Agent Agreement. Except to the
extent provided therein, the arrangements for custody and delivery of
such certificates, made by Safeguard hereunder, under the Other
Purchasers Standby Purchase Agreements and under the Rights Agent
Agreement, are to that extent irrevocable, and are not subject to
termination by any acts of Safeguard, or by operation of law;
(ii) Safeguard has the legal right and power to enter
into the Other Purchasers Standby Purchase Agreements, the Rights Agent
Agreement and this Agreement and to sell, transfer and deliver the
Shares proposed to be sold by it hereunder, the shares of Common Stock
to be sold by it pursuant to the Other Purchasers Standby Purchase
Agreements and the shares of Common Stock to be sold by it upon the
exercise of the Rights. This Agreement, the Other Purchasers Standby
Purchase Agreements and the Rights Agent Agreement have been duly
authorized by Safeguard. The Rights Agent Agreement has been and the
Other Purchasers Standby Purchase Agreements will be prior to the
Closing Date duly executed by Safeguard, and, assuming due execution
and delivery by the other respective parties thereto, constitutes the
legal, valid and binding obligation of Safeguard enforceable against it
in accordance with its terms, subject to the effect of general
principles of equity (including standards of materiality, good faith,
fair dealing and reasonableness) whether applied by a court of law or
equity. This Agreement has been duly executed and delivered on behalf
of Safeguard and, assuming due
-20-
<PAGE>
authorization, execution and delivery by the Company, the Underwriters,
and the Sanchez Selling Stockholders, constitutes the legal, valid and
binding obligation of Safeguard enforceable against Safeguard in
accordance with the terms hereof, subject to the effect of general
principles of equity (including standards of materiality, good faith,
fair dealing and reasonableness) whether applied by a court of law or
equity, and except as rights of indemnity and contribution hereunder
may be limited by applicable law, statutory duties or public policy;
(iii) The execution and delivery of this Agreement,
the Other Purchasers Standby Purchase Agreements and the Rights Agent
Agreement and the performance by Safeguard of its obligations hereunder
and thereunder will not conflict with or result in a breach or
violation of any of the terms and provisions of, or constitute a
default under (A) the Articles of Incorporation or By-Laws of
Safeguard, as amended to date, (B) any lease, permit, license,
contract, indenture, mortgage, deed of trust, voting trust agreement,
shareholders agreement, note, loan or credit agreement or any other
agreement or instrument to which Safeguard is a party or by which it is
or may be bound or to which any of its properties or assets (tangible
or intangible) is or may be subject, or any indebtedness, except to the
extent that any such conflict, breach, violation or default,
individually or in the aggregate, does not and would not result in a
material adverse effect on the condition, financial or otherwise, or on
the earnings, business affairs, financial position, prospects, value,
operation, properties, results of operation or business of Safeguard
and does not and would not interfere with the Offering, or (C) any
statute, judgment, decree, order, rule or regulation applicable to
Safeguard or any of its activities or properties adopted or issued by
any arbitrator, court, regulatory body or administrative agency or
other governmental agency or body (including those having jurisdiction
over environmental or similar matters), domestic or foreign, having
jurisdiction over Safeguard or any of its activities or properties. No
consent, approval, authorization or order of, or filing with, any
governmental agency or body or any court is required for the
consummation by Safeguard of the transactions contemplated herein, in
the Other Purchasers Standby Purchase Agreements or in the Rights Agent
Agreement, except (A) such as may be required under the state
securities or "Blue Sky" laws of any jurisdiction or as may be required
by the by-laws of the NASD in connection with the purchase and
distribution of the Shares by the Underwriters, (B) any filing of the
Prospectus pursuant to Rule 424(b) or 430A of the Rules and Regulations
and, if the Registration Statement has not been declared effective, an
order of the Commission declaring the Registration Statement effective
under the Act, and (C)
-21-
<PAGE>
such other approvals as have been obtained and remain in full
force and effect;
(iv) Safeguard has, and on the Closing Date will
have, good and marketable title to the Shares proposed to be sold by
Safeguard hereunder and the shares of Common Stock to be sold upon the
exercise of the Rights, and none of such shares will be subject to any
Adverse Claim. Upon delivery of and payment for the Shares to be sold
by Safeguard hereunder, assuming that each of the Underwriters is a
Bona Fide Purchaser the Underwriters will acquire good and marketable
title thereto free and clear of any liens, charges, claims, preemptive
rights, encumbrances, pledges, security interests, voting trusts,
defects or other like restrictions or other like material equity of any
kind whatsoever;
(v) To the best knowledge of Safeguard, the
Commission has not issued any order preventing or suspending the use of
any Preliminary Prospectus or any part thereof and, to the best
knowledge of Safeguard, no proceedings for a stop order have been
instituted or are pending or threatened. When any Preliminary
Prospectus was filed with the Commission, it contained all statements
required to be stated therein in accordance with, and complied in all
material respects with the requirements of, the Act and the Rules and
Regulations except to the extent that such Preliminary Prospectus did
not contain any such required statements, or did not so comply, in a
manner corrected in the Prospectus. To the best knowledge of Safeguard,
when the Registration Statement (or any amendment thereto) was (or is)
declared effective, it (A) contained (or will contain) all statements
required to be stated therein in accordance with, and complied in all
material respects (or will comply in all material respects) with the
requirements of, the Act and the Rules and Regulations and (B) did not
or will not include any untrue statement of a material fact or omit to
state any material fact necessary to make the statements therein not
misleading. To the best knowledge of Safeguard, when the Prospectus or
any amendment or supplement thereto is filed pursuant to Rule 424(b)
(or, if the Prospectus or such amendment or supplement is not required
to be so filed, when the Registration Statement or the amendment
thereto containing such amendment or supplement to the Prospectus was
or is declared effective) and on the Closing Date and any Option
Closing Date, the Prospectus, as amended or supplemented at any such
time, (A) contained or will contain all statements required to be
stated therein in accordance with, and complied or will comply in all
material respects with the requirements of, the Act and the Rules and
Regulations and (B) did not or will not include any untrue statement of
a material fact or omit to state any material fact necessary in order
to make the statements therein, in the light of the circumstances under
which they
-22-
<PAGE>
were made, not misleading. The foregoing provisions of this
paragraph (v) do not apply to the Provided Information;
(vi) To the best knowledge of Safeguard, the
descriptions in the Registration Statement, the Prospectus and any
amendment or supplement thereto of agreements, whether written or oral,
and of other documents are accurate and fairly present the information
required to be shown with respect thereto by Form S-1 under the Act. To
the best knowledge of Safeguard, there are no agreements, whether
written or oral, or other documents that are required by the Act or the
Rules and Regulations to be described in the Registration Statement or
filed as exhibits to the Registration Statement that are not described
or filed as required;
(vii) Neither Safeguard nor any of its officers,
directors, or affiliates (within the meaning of the Rules and
Regulations) has (a) made or caused to be effected any transaction,
directly or indirectly, designed to or that has constituted or that
might reasonably be expected to cause or result in stabilization of the
price of the Common Stock or the Rights, (b) taken or will take,
directly or indirectly, any action designed to or that has constituted
or that might reasonably be expected to cause or result in manipulation
of the price of the Common Stock or the Rights in violation of Rules
10b-6 or 10b-7 under the Exchange Act, or (c) failed to comply with the
Act or the Rules and Regulations in order to effect the transactions
contemplated hereby; and
(viii) Safeguard has delivered or caused to be
delivered to the Underwriters a copy of the Musser Agreement pursuant
to which the Musser Group has agreed to (A) exercise the Musser Rights
and (B) the Musser Lock-Up.
(d) Radnor represents and warrants to, and agrees with
the Underwriters as follows:
(i) Radnor has duly executed and delivered the Rights
Agent Agreement pursuant to which certificates in negotiable form for
the shares of Common Stock to be sold by it upon the exercise of the
Rights, pursuant to the Other Purchasers Standby Purchase Agreements
and pursuant to this Agreement have been placed in custody for delivery
pursuant to the terms of the Rights Agent Agreement, the Other
Purchasers Standby Purchase Agreements and this Agreement. The shares
represented by the certificates so held in custody for Radnor are
subject to the interests hereunder of the Underwriters, the Company and
the Rights Agent under the Rights Agent Agreement. Except to the extent
provided therein, the arrangements for custody and delivery of such
certificates, made by Radnor hereunder, under the Other Purchasers
Standby
-23-
<PAGE>
Purchase Agreements and under the Rights Agent Agreement, are to that
extent irrevocable, and are not subject to termination by any acts of
Radnor, or by operation of law;
(ii) Radnor has the legal right and power to enter
into the Other Purchasers Standby Purchase Agreements, the Rights Agent
Agreement and this Agreement and to sell, transfer and deliver the
Shares proposed to be sold by it hereunder, the shares of Common Stock
to be sold by it pursuant to the Other Purchasers Standby Purchase
Agreements and the shares of Common Stock to be sold by it upon the
exercise of the Rights. This Agreement, the Other Purchasers Standby
Purchase Agreements and the Rights Agent Agreement have been duly
authorized by Radnor. The Rights Agent Agreement has been and the Other
Purchasers Standby Purchase Agreements will be prior to the Closing
Date duly executed by Radnor, and, assuming due execution and delivery
by the other respective parties thereto, constitutes the legal, valid
and binding obligation of Radnor enforceable against it in accordance
with its terms, subject to the effect of general principles of equity
(including standards of materiality, good faith, fair dealing and
reasonableness) whether applied by a court of law or equity. This
Agreement has been duly executed and delivered on behalf of Radnor and,
assuming due authorization, execution and delivery by the Company, the
Underwriters, the Sanchez Selling Stockholders and Safeguard,
constitutes the legal, valid and binding obligation of Radnor
enforceable against Radnor in accordance with the terms hereof, subject
to the effect of general principles of equity (including standards of
materiality, good faith, fair dealing and reasonableness) whether
applied by a court of law or equity, and except as rights of indemnity
and contribution hereunder may be limited by applicable law, statutory
duties or public policy;
(iii) The execution and delivery of this Agreement,
the Other Purchasers Standby Purchase Agreements and the Rights Agent
Agreement and the performance by Radnor of its obligations hereunder
and thereunder will not conflict with or result in a breach or
violation of any of the terms and provisions of, or constitute a
default under (A) the relevant organizational documents or Partnership
Agreement of Radnor, as amended to date, (B) any lease, permit,
license, contract, indenture, mortgage, deed of trust, voting trust
agreement, shareholders agreement, note, loan or credit agreement or
any other agreement or instrument to which Radnor is a party or by
which it is or may be bound or to which any of its properties or assets
(tangible or intangible) is or may be subject, or any indebtedness,
except to the extent that any such conflict, breach, violation or
default, individually or in the aggregate, does not and would not
result in a material adverse effect on the condition, financial or
otherwise, or on the
-24-
<PAGE>
earnings, business affairs, financial position, prospects, value,
operation, properties, results of operation or business of Radnor and
does not and would not interfere with the Offering, or (C) any statute,
judgment, decree, order, rule or regulation applicable to Radnor or any
of its activities or properties adopted or issued by any arbitrator,
court, regulatory body or administrative agency or other governmental
agency or body (including those having jurisdiction over environmental
or similar matters), domestic or foreign, having jurisdiction over
Radnor or any of its activities or properties. No consent, approval,
authorization or order of, or filing with, any governmental agency or
body or any court is required for the consummation by Radnor of the
transactions contemplated herein, in the Other Purchasers Standby
Purchase Agreements or in the Rights Agent Agreement, except (A) such
as may be required under the state securities or "Blue Sky" laws of any
jurisdiction or as may be required by the by-laws of the NASD in
connection with the purchase and distribution of the Shares by the
Underwriters, (B) any filing of the Prospectus pursuant to Rule 424(b)
or 430A of the Rules and Regulations and, if the Registration Statement
has not been declared effective, an order of the Commission declaring
the Registration Statement effective under the Act, and (C) such other
approvals as have been obtained and remain in full force and effect;
(iv) Radnor has, and on the Closing Date will have,
good and marketable title to the Shares proposed to be sold by Radnor
hereunder and the shares of Common Stock to be sold upon the exercise
of the Rights, and none of such shares will be subject to any Adverse
Claim. Upon delivery of and payment for the Shares to be sold by Radnor
hereunder, assuming that each of the Underwriters is a Bona Fide
Purchaser, the Underwriters will acquire good and marketable title
thereto free and clear of any liens, charges, claims, preemptive
rights, encumbrances, pledges, security interests, voting trusts,
defects or other like restrictions or other like material equity of any
kind whatsoever;
(v) To the best knowledge of Radnor, the Commission
has not issued any order preventing or suspending the use of any
Preliminary Prospectus or any part thereof and, to the best knowledge
of Radnor, no proceedings for a stop order have been instituted or are
pending or threatened. When any Preliminary Prospectus was filed with
the Commission, it contained all statements required to be stated
therein in accordance with, and complied in all material respects with
the requirements of, the Act and the Rules and Regulations except to
the extent that such Preliminary Prospectus did not contain any such
required statements, or did not so comply, in a manner corrected in the
Prospectus. To the best knowledge of Radnor, when the Registration
Statement (or any amendment
-25-
<PAGE>
thereto) was (or is) declared effective, it (A) contained (or will
contain) all statements required to be stated therein in accordance
with, and complied in all material respects (or will comply in all
material respects) with the requirements of, the Act and the Rules and
Regulations and (B) did not or will not include any untrue statement of
a material fact or omit to state any material fact necessary to make
the statements therein not misleading. To the best knowledge of Radnor,
when the Prospectus or any amendment or supplement thereto is filed
pursuant to Rule 424(b) (or, if the Prospectus or such amendment or
supplement is not required to be so filed, when the Registration
Statement or the amendment thereto containing such amendment or
supplement to the Prospectus was or is declared effective) and on the
Closing Date and any Option Closing Date, the Prospectus, as amended or
supplemented at any such time, (A) contained or will contain all
statements required to be stated therein in accordance with, and
complied or will comply in all material respects with the requirements
of, the Act and the Rules and Regulations and (B) did not or will not
include any untrue statement of a material fact or omit to state any
material fact necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading.
The foregoing provisions of this paragraph (v) do not apply to the
Provided Information;
(vi) To the best knowledge of Radnor, the
descriptions in the Registration Statement, the Prospectus and any
amendment or supplement thereto of agreements, whether written or oral,
and of other documents are accurate and fairly present the information
required to be shown with respect thereto by Form S-1 under the Act. To
the best knowledge of Radnor, there are no agreements, whether written
or oral, or other documents that are required by the Act or the Rules
and Regulations to be described in the Registration Statement or filed
as exhibits to the Registration Statement that are not described or
filed as required; and
(vii) Neither Radnor nor any of its general partners
or affiliates (within the meaning of the Rules and Regulations) has
(a) made or caused to be effected any transaction, directly or
indirectly, designed to or that has constituted or that might
reasonably be expected to cause or result in stabilization of the price
of the Common Stock or the Rights, (b) taken or will take, directly or
indirectly, any action designed to or that has constituted or that
might reasonably be expected to cause or result in manipulation of the
price of the Common Stock or the Rights in violation of Rules 10b-6 or
10b-7 under the Exchange Act, or (c) failed to comply with the Act or
the Rules and Regulations in order to effect the transactions
contemplated hereby.
-26-
<PAGE>
3. Purchase, Sale and Delivery of the Shares.
-----------------------------------------
(a) On the basis of the representations, warranties, covenants
and agreements herein contained, and subject to the terms and conditions herein
set forth, the Company agrees to issue and the Company and the Selling
Stockholders agree to sell to the Underwriters, and the Underwriters agree to
purchase, all of the Excess Unsubscribed Shares at a price of $____ per share.
(b) In addition, on the basis of the representations,
warranties, covenants and agreements herein contained and upon not less than two
business days' notice from the Underwriters, for a period of 20 days after the
Expiration Date, the Company and the Selling Stockholders agree to sell to the
Underwriters all or part of up to 303,000 Option Shares at a purchase price of
$____ per share for the sole purpose of covering over-allotments that may be
made in connection with the offering and distribution of the shares of Common
Stock and/or Excess Unsubscribed Shares. The Company and the Selling
Stockholders further agree that 151,500 of the Option Shares will be sold by the
Company and that the aggregate of 151,500 Option Shares will be sold by the
Selling Stockholders and that any such exercise will be deemed to be sold on a
pro rata basis by the Company and the Selling Stockholders on the same basis as
the portion of the 3,030,000 shares to be sold by the Company and each of the
Selling Stockholders. The Underwriters may exercise their option to purchase all
or any portion of the Option Shares from the Company and the Selling
Stockholders up to two times, provided that the aggregate number of Option
--------
Shares purchased by the Underwriters shall not exceed 303,000. Delivery of the
Option Shares shall be made concurrently with payment therefor. Option Shares
may be purchased by the Underwriters only for the purpose of covering
over-allotments that may be made in connection with the offering and
distribution of the shares of Common Stock and/or the Excess Unsubscribed
Shares. No Option Shares shall be delivered unless the Excess Unsubscribed
Shares (if any are purchased by the Underwriters) shall be simultaneously
delivered or shall theretofore have been delivered as herein provided.
(c) Payment of the respective aggregate purchase prices of the
Excess Unsubscribed Shares purchased from the Company and the Selling
Stockholders shall be made by the Underwriters on the Closing Date by certified
or official bank checks in next day funds, payable to or upon the order of the
Company and the Selling Stockholders at the offices of J.P. Morgan Securities
Inc., 60 Wall Street, New York, New York 10260, or at such other place as shall
be agreed upon by the Underwriters and the Company, upon delivery of
certificates (in form and substance satisfactory to the Underwriters)
representing the Excess Unsubscribed Shares to the Underwriters. Delivery and
payment for the Excess Unsubscribed Shares shall be made at the Closing. In
addition, in the event that any or all of the Option Shares are purchased by the
-27-
<PAGE>
Underwriters, payment of the purchase price for, and delivery of certificates
for, such Option Shares shall be made at the above mentioned office or at such
other place as shall be agreed upon by the Underwriters and the Company, on each
Option Closing Date as specified in the notice from the Underwriters to the
Company. Certificates for the Excess Unsubscribed Shares and the Option Shares,
if any, shall be in definitive, fully registered form, shall bear no restrictive
legends and shall be in such denominations and registered in such names as the
Underwriters may request in writing at least two business days prior to the
Closing Date or the relevant Option Closing Date, as the case may be. The
certificates for the Excess Unsubscribed Shares and the Option Shares, if any,
shall be made available to the Underwriters at such office or such other place
as the Underwriters may designate for inspection, checking and packaging not
later than 9:30 a.m., New York City time, on the last business day prior to the
Closing Date or the relevant Option Closing Date, as the case may be.
(d) Delivery of certificates representing the shares of Common
Stock to be sold pursuant to the exercise of the Rights, and the payment of the
subscription price therefor to the Company and the Selling Stockholders, shall
be made at the Closing on the Closing Date, irrespective of whether or not any
Excess Unsubscribed Shares are to be purchased by the Underwriters at such
Closing.
4. Public Offering of the Excess Unsubscribed Shares.
-------------------------------------------------
As soon after the Registration Statement becomes effective as
the Underwriters deem advisable, the Underwriters shall make the Offering.
5. Registration of Common Stock in Certain States.
----------------------------------------------
(a) On the basis of the representations, warranties and
covenants herein contained, but subject to the terms and conditions herein set
forth, the Underwriters will act (or at their expense, will cause another
broker-dealer registered in such state to act) as the agent of the Company and
the Selling Stockholders to effect the offering of the Rights and the sale of
the shares of Common Stock upon exercise thereof or pursuant to the Other
Purchasers Standby Purchase Agreements in the states of Connecticut, Florida,
Nebraska, Nevada, New Hampshire, New York, such states being those states in
which applicable state law requires that a registered broker-dealer effect the
offering of the Rights or the shares of Common Stock purchasable upon exercise
thereof or pursuant to the Other Purchasers Standby Purchase Agreements. The
Underwriters may delegate their obligations under the immediately preceding
sentence through another registered broker-dealer satisfactory to them in states
where the Underwriters are not registered as such. The Underwriters shall not be
liable under this Section 5(a), except
-28-
<PAGE>
for gross negligence, lack of good faith and for their obligations expressly
assumed hereunder.
(b) The Company will deliver to the Underwriters, on or before
the day the Registration Statement becomes effective, a "Blue Sky Memorandum"
(herein so called), prepared by Morgan, Lewis & Bockius LLP relating to the
securities or Blue Sky laws of any jurisdictions in which the transfer of the
Rights or the offer and sale of the Common Stock is required to be qualified or
registered, which will set forth the circumstances under which said transfer or
offers and sales may be made and advising that the appropriate action, if any,
will be taken in each of such jurisdictions so as to permit the transfer of the
Rights and the offer and sale of the Common Stock (whether upon or in connection
with the exercise of Rights, as part of the public offering of the Shares by the
Underwriters or pursuant to the Other Purchasers Standby Purchase Agreements) to
the persons resident in the jurisdictions indicated in such survey. Such Blue
Sky Memorandum may be based upon qualification of the Rights and the Common
Stock as necessary with appropriate persons in such jurisdictions and an
examination of the statutes and regulations, if any, of such jurisdictions as
reported in standard compilations and upon interpretive advice obtained from
representatives of certain securities commissions and such local counsel as may
be necessary. Such Blue Sky Memorandum will be furnished only for the
Underwriters' general information and guidance rather than as an opinion of
counsel with regard to the laws of the jurisdictions referred to therein.
6. Covenants of the Company and the Selling Stockholders.
-----------------------------------------------------
(a) The Company covenants and agrees with the
Underwriters as follows:
(i) The Company will use its best efforts to cause
the Registration Statement, if not effective at the time of execution
of this Agreement, and any amendments thereto, to become effective as
promptly as possible. Unless required by law, the Company will not file
with the Commission the prospectus or amendment referred to in the
second sentence of Section 1(a)(i) hereof, any amendment or supplement
to such prospectus, any amendment to the Registration Statement, or any
document under the Exchange Act before termination of the offering of
the Shares by the Underwriters of which the Underwriters shall not
previously have been advised and furnished with a copy, or to which the
Underwriters shall have reasonably objected by notice to the Company in
writing after having been provided a copy thereof, or which is not in
compliance with the Act, the Exchange Act or the Rules and Regulations.
During the time when a prospectus relating to the Shares is required to
be delivered under the Act, the Company will comply with all
requirements imposed upon it by
-29-
<PAGE>
the Act and the Rules and Regulations to the extent necessary to permit
the continuance of sales of or dealings in the Shares in accordance
with the provisions hereof and of the Prospectus, as amended or
supplemented. The Company will prepare and file with the Commission,
promptly upon the reasonable request by the Underwriters or
Underwriters' Counsel, any amendments to the Registration Statement or
amendments or supplements to the Prospectus that may be necessary or
advisable in connection with the distribution of the Shares by the
Underwriters, and will use its best efforts to cause the same to be
filed with the Commission as promptly as possible;
(ii) As soon as the Company is advised or obtains
knowledge thereof, the Company will advise the Underwriters, with a
confirmation in writing, of (A) the time when the Registration
Statement or any amendment thereto has been filed or declared effective
or the Prospectus or any amendment or supplement thereto has been
filed, (B) the issuance by the Commission of any stop order, or of the
initiation or threatening of any proceeding, suspending the
effectiveness of the Registration Statement or any amendment thereto or
any order preventing or suspending the use of any Preliminary
Prospectus or the Prospectus or any amendment or supplement thereto,
(C) the issuance by any state securities commission of any notice of
any proceedings for the suspension of the qualification of the Shares
for offering or sale in any jurisdiction or of the initiation, or the
threatening, of any proceeding for that purpose, (D) the receipt of any
comments from the Commission, and (E) any request by the Commission for
any amendment to the Registration Statement or any amendment or
supplement to the Prospectus or for additional information. The Company
will use its best efforts to prevent the issuance of any such order or
the imposition of any such suspension and, if any such order is issued
or suspension is imposed, to obtain the withdrawal thereof as promptly
as possible;
(iii) If required, the Company will file the
Prospectus and any amendment or supplement thereto with the Commission
in the manner and within the time period required by Rule 424(b) and
Rule 430A(a)(3) of the Rules and Regulations;
(iv) The Company will arrange for the qualification
of the shares of Common Stock for offering and sale under the
securities or "Blue Sky" laws of such jurisdictions in which recipients
of Rights and the Other Purchasers are resident and such jurisdictions
as the Underwriters may reasonably designate and will continue such
qualifications in effect for as long as may be necessary to complete
the distribution of the shares of Common Stock, provided, however, that
-------- -------
in connection therewith the Company shall not be required to
-30-
<PAGE>
qualify as a foreign corporation or to execute a general
consent to service of process in any jurisdiction;
(v) If, at any time when a prospectus relating to the
Shares is required to be delivered under the Act, any event occurs as a
result of which, in the opinion of the Company or counsel for the
Company, the Prospectus, as then amended or supplemented, includes an
untrue statement of a material fact or omits to state a material fact
required to be stated therein or necessary in order to make the
statements therein, in the light of the circumstances under which they
were made, not misleading, or if it is otherwise necessary at any time
to amend or supplement the Prospectus to comply with the Act or the
Rules and Regulations, the Company will promptly notify the
Underwriters thereof and, subject to Section 6(a)(i) hereof, prepare
and file with the Commission, at the Company's expense, an amendment to
the Registration Statement or an amendment or supplement to the
Prospectus that corrects such statement or omission or effects such
compliance. If, at any time when a prospectus relating to the Shares is
required to be delivered under the Act, any event occurs as a result of
which, in the opinion of the Underwriters or Underwriters' Counsel, the
Prospectus, as then amended or supplemented, includes an untrue
statement of a material fact or omits to state a material fact required
to be stated therein or necessary in order to make the statements
therein, in the light of the circumstances under which they were made,
not misleading, the Underwriters will promptly notify the Company
thereof and the Company will, subject to Section 6(a)(i) hereof,
prepare and file with the Commission, at the Company's expense, an
amendment to the Registration Statement or an amendment or supplement
to the Prospectus that corrects such statement or omission or effects
such compliance. The Company will furnish to the Underwriters and
dealers (whose names and addresses shall be furnished to the Company by
the Underwriters) to which Shares may have been sold on behalf of the
Underwriters and to any other dealers upon request, a reasonable number
of copies of any amendment or supplement prepared pursuant to this
paragraph (v);
(vi) The Company will furnish to each of the
Underwriters and to Underwriters' Counsel, without charge, a signed
copy of the registration statement originally filed with respect to the
Shares and each amendment thereto. So long as the Underwriters or any
dealer is required by the Act or the Rules and Regulations to deliver a
prospectus, the Company will also furnish as many copies of each
Preliminary Prospectus or the Prospectus or any amendment or supplement
thereto as the Underwriters may reasonably request. The Company will
provide to the Underwriters a copy of the report on Form SR filed by
the Company pursuant to Rule 463 of the Rules and Regulations;
-31-
<PAGE>
(vii) As soon as practicable after the effective date
of the Registration Statement, the Company will make generally
available to its security holders, in the manner specified in Rule
158(b) of the Rules and Regulations, and to the Underwriters an
earnings statement that will be in the detail required by, and will
otherwise comply with, the provisions of Section 11(a) of the Act and
Rule 158(a) of the Rules and Regulations;
(viii) For a period of five years following the date
hereof, the Company will furnish to its stockholders, as soon as
practicable, annual reports (including financial statements audited by
independent public accountants) and will deliver to the Underwriters
unaudited quarterly reports of earnings (through delivery of the
Company's quarterly reports filed with the Commission on Form 10-Q or
Form 10QSB) and the following:
(A) concurrently with furnishing quarterly
reports, if any, to the stockholders, statements of income of
the Company for each quarter in the form furnished to the
Company's stockholders;
(B) concurrently with furnishing such annual
reports to its stockholders, a balance sheet of the Company as
at the end of the preceding fiscal year, together with
statements of operations, stockholders equity, and cash flows
of the Company for such fiscal year, accompanied by a copy of
the certificate thereon of independent public accountants;
(C) as soon as they are available,
copies of all reports (financial or other) mailed to its
stockholders;
(D) as soon as they are available, copies of
all reports (other than preliminary proxy materials) and
financial statements furnished to or filed with the
Commission, the NASD or Nasdaq which are available to the
public;
(E) as soon as they are available every
press release and every material news item or article of
interest to the financial community in respect of the Company
or its affairs that is released or prepared by the Company;
and
(F) any additional information of a
public nature concerning the Company that the Underwriters may
reasonably request from time to time;
-32-
<PAGE>
(ix) The Company will maintain a Transfer Agent and
Registrar for the Common Stock. Effective as of the Closing Date, the
Company will cause the Transfer Agent for the Common Stock to make
appropriate "stop transfer" restrictions in its records relating to the
certificates representing all shares of Common Stock subject to
restrictions under the agreements described in Section 2(a)(xxiv)
hereof, Sections 2(b)(i), 2(c)(i), 2(d)(i) and Sections 6(b)(i),
6(c)(i) and 6(d)(i) hereof;
(x) During the period commencing on the date the
Registration Statement is declared effective by the Commission and
ending 180 days after the Expiration Date, the Company, will not,
without the prior written consent of the Underwriters, (A) directly or
indirectly, transfer, sell, offer for sale, contract for sale, grant
any option for the sale of, or otherwise dispose of (or announce any
transfer, sale, offer for sale, contract for sale, grant of any option
for sale of, or other disposition of) any shares of Common Stock, or
other securities convertible into, or exercisable or exchangeable for,
shares of Common Stock (except as contemplated by this Agreement) or
(B) file any registration statement relating to any such securities
with the Commission or any other authority except as contemplated
herein, provided, however, that (1) the Company may grant or issue
-------- -------
securities pursuant to any employee stock option plan or stock purchase
plan or outstanding stock options described in the Prospectus and,
commencing after the Closing Date, may file a registration statement on
Form S-8 with respect to such plans and (2) the Company may issue
Common Stock, or other securities convertible into, or exercisable or
exchangeable for shares of Common Stock, as consideration for any
acquisition by the Company so long as the party being issued such
securities signs an agreement, acceptable in form and substance to the
Underwriters, that such party will not transfer, sell, offer for sale,
contract to sell or otherwise dispose of any shares of Common Stock or
any securities convertible into or exercisable or exchangeable for
shares of Common Stock owned by such party or with respect to which
such party has the power of disposition during a period commencing on
the date of issuance of such securities and ending 180 days following
the Expiration Date;
(xi) The Company will apply the net proceeds from the
sale of the Common Stock sold by it in the manner set forth under "USE
OF PROCEEDS" in the Prospectus. Except as described in the Prospectus,
no portion of the net proceeds will be used directly or indirectly to
acquire any securities issued by the Company;
(xii) The Company will furnish to the Underwriters
as early as practicable prior to each of the date hereof, the
-33-
<PAGE>
Closing Date and each Option Closing Date, if any, but no later than
two full business days prior thereto, a copy of the latest available
unaudited interim financial statements of the Company (which in each
case shall not be earlier than the last day of the preceding month,
unless such month-end shall be less than three business days prior to
the date such statements are to be delivered) that have been read by
the Company's independent public accountants, as stated in their
letters to be furnished pursuant to Section 8(j) hereof;
(xiii) The Company will cause the Shares and the
Rights to be approved for quotation on the Nasdaq National Market and
will use its reasonable efforts to maintain such approvals;
(xiv) The Company will file and cause to become
effective prior to the Closing Date a registration statement with
respect to the Common Stock pursuant to Section 12(g) of the Exchange
Act and will use its best efforts to maintain such registration;
(xv) The Company will apply the net proceeds from the
sale of the shares of Common Stock sold by it and conduct its
operations in a manner that will not subject it to registration as an
investment company under the Investment Company Act of 1940, as
amended; and
(xvi) The Company will furnish, without charge, to
the Underwriters and Underwriters' counsel within four months of the
Closing Date such number of closing binders as the Underwriters and
Underwriters' counsel may reasonably request.
(b) Each of the Sanchez Selling Stockholders covenants
and agrees with the Underwriters as follows:
(i) During the period commencing on the date the
Registration Statement is declared effective by the Commission and
ending 180 days after the Expiration Date, each Sanchez Selling
Stockholder will not, without the prior written consent of the
Underwriters, directly or indirectly, transfer, sell, offer for sale,
contract for sale, grant any option for the sale of or otherwise
dispose of any shares of Common Stock or other securities convertible
into, or exercisable or exchangeable for, shares of Common Stock,
except as contemplated in this Agreement; and
(ii) Each Sanchez Selling Stockholder will pay all
applicable state transfer taxes, if any, involved in the transfer to
the Underwriters of the Shares to be purchased by the Underwriters from
such Sanchez Selling Stockholder.
-34-
<PAGE>
(c) Safeguard covenants and agrees with the Underwriters
as follows:
(i) During the period commencing on the date the
Registration Statement is declared effective by the Commission and
ending 180 days after the Expiration Date, Safeguard will not, without
the prior written consent of the Underwriters, directly or indirectly,
transfer, sell, offer for sale, contract for sale, grant any option for
the sale of or otherwise dispose of any shares of Common Stock or other
securities convertible into, or exercisable or exchangeable for, shares
of Common Stock except (A) as contemplated in this Agreement or (B)
pursuant to grants or sales of such shares to employees of Safeguard or
its subsidiaries, provided that such transferees agree to be bound by
the restrictions contained in this paragraph; and
(ii) Safeguard will pay all applicable state transfer
taxes, if any, involved in the transfer to the Underwriters of the
Shares to be purchased by the Underwriters from Safeguard.
(d) Radnor covenants and agrees with the Underwriters as
follows:
(i) During the period commencing on the date the
Registration Statement is declared effective by the Commission and
ending 180 days after the Expiration Date, Radnor will not, without the
prior written consent of the Underwriters, directly or indirectly,
transfer, sell, offer for sale, contract for sale, grant any option for
the sale of or otherwise dispose of any shares of Common Stock or other
securities convertible into, or exercisable or exchangeable for, shares
of Common Stock except (A) as contemplated in this Agreement or (B)
pursuant to grants or sales of such shares to employees of Radnor or
its subsidiaries, provided that such transferees agree to be bound by
the restrictions contained in this paragraph; and
(ii) Radnor will pay all applicable state transfer
taxes, if any, involved in the transfer to the Underwriters of the
Shares to be purchased by the Underwriters from Radnor.
(e) The Company and each of the Selling Stockholders covenant
and agree with each other and covenant and agree with the Underwriters that the
300,000 Other Purchasers Standby Shares to be sold and the [343,000] shares of
Common Stock to be sold to the Musser Group upon exercise of the Musser Rights
shall be deemed to be sold by the Selling Stockholders on an equal basis.
-35-
<PAGE>
7. Payment of Expenses; Fees.
-------------------------
(a) As compensation to the Underwriters for their services in
connection with the transactions contemplated by this Agreement and their
commitment hereunder, the Company and each of the Selling Stockholders hereby
agree, jointly and severally, to pay to the Underwriters, by wire transfer, on
the sixth business day following the Expiration Date, an amount equal to the sum
of (i) 3% of the Exercise Price of each share of Common Stock subject to Rights,
and (ii) an additional fee of 4% of the Exercise Price of each share (other than
the Option Shares) purchased by the Underwriters pursuant to Section 3(a) of
this Agreement or upon the exercise of Rights by the Underwriters if such Rights
were purchased by the Underwriters at a time when the Common Stock was trading
(on a "when-issued" basis) at a per share price of less than the Exercise Price
or with the prior acknowledgement of Safeguard that the Underwriters would be
entitled to receive such compensation pursuant to the exercise of such Rights.
As compensation to the Underwriters for their commitment hereunder, the Company
hereby agrees to pay the Underwriters, by wire transfer, on each Option Closing
Date an amount equal to 7% of the Exercise Price for each Option Share purchased
on such date by the Underwriters. As additional compensation to the Underwriters
for their commitment hereunder, the Company shall reimburse the Underwriters, by
wire transfer on the sixth business day following the Expiration Date, for a
non-accountable expense allowance of (i) $125,000 if, on the Expiration Date,
the closing price for the Common Stock was trading (on a "when-issued" basis) at
a per share price of less than $10.00, (ii) $50,000 if, on the Expiration Date,
the closing price for the Common Stock was trading (on a "when- issued basis) at
a per share price between $10.00 and $12.00 or (iii) no expense allowance if, on
the Expiration Date, the closing price for the Common Stock was trading (on a
"when-issued" basis) at a per share price greater than $12.00.
(b) The Company hereby agrees to pay all expenses and fees
incident to the performance of the obligations by the Company and the Selling
Stockholders under this Agreement, including all expenses and fees of the
Company and the Selling Stockholders incurred in connection with or by (i) the
engagement of accountants, counsel for the Company, counsel for Safeguard, the
Rights Agent and the Transfer Agent and Registrar for the Common Stock, (ii)
preparation, duplication, printing, filing and distribution of the registration
statement originally filed with respect to the Shares and any amendments
thereto, any Preliminary Prospectus and the Prospectus and any amendments and
supplements thereto and related documents used in connection with the Offering,
including in each case the cost of all copies supplied to the Underwriters in
quantities as hereinabove stated, (iii) the printing, engraving, issuance and
delivery of certificates representing the Rights and the Shares, (iv) the
qualification of the Shares under state securities or "Blue Sky" laws, including
-36-
<PAGE>
filing fees, costs of printing and mailing of a "Preliminary Blue Sky
Memorandum" and "Final Blue Sky Memorandum" and disbursements and fees of
Underwriters' Counsel in connection with the review of such materials (which
shall be paid at the Closing), (v) the approval of the Common Stock and Rights
for quotation on the Nasdaq National Market, (vi) the filing fees of the
Underwriters in connection with any filings required to be made with the NASD
and (vii) travel and out of pocket expenses of the Company and Safeguard in
connection with meetings with prospective investors in the Shares (other than
such expenses as shall have been specifically approved in writing by the
Underwriters to be paid for by the Underwriters), and (viii) any expenses
incurred by the Company in connection with a "road show" presentation to
potential investors.
(c) If this Agreement is terminated by the Underwriters in
accordance with the provisions of Section 8, Sections 12(a)(vii) or (a)(viii),
or Section 13, the Company hereby agrees to reimburse and indemnify the
Underwriters for all of their reasonable accountable out-of-pocket expenses,
including the reasonable fees and disbursements of Underwriters' Counsel and any
of the state securities, "Blue Sky" and NASD fees and expenses identified in
Sections 7(b)(iv) and 7(b)(vi) above, that shall have been incurred by them in
connection with the proposed purchase and sale of the Shares.
8. Conditions of the Underwriters' Obligations.
-------------------------------------------
The obligations of the Underwriters to purchase and pay for
the Shares shall be subject, in their sole discretion, to the accuracy of the
representations and warranties of the Company and each of the Selling
Stockholders herein as of the date hereof and as of the Closing Date, as if they
had been made on and as of the Closing Date, to the accuracy on and as of the
Closing Date of the statements of the officers of the Company, Safeguard and
Radnor and of each of the Sanchez Selling Stockholders made in certificates
delivered pursuant to the provisions hereof, to the performance by the Company,
Radnor, the Sanchez Selling Stockholders and Safeguard on and as of the Closing
Date of their respective covenants and obligations hereunder, and to the
following further conditions:
(a) If the Registration Statement or any amendment thereto
filed prior to the Closing Date has not been declared effective as of the time
of execution hereof, the Registration Statement or such amendment shall have
been declared effective not later than the first full business day next
following the date hereof or such later date and time as shall have been
consented to in writing by the Underwriters. If required, the Prospectus shall
have been timely filed with the Commission in accordance with Rule 424(b) of the
Rules and Regulations. If required, any amendment or supplement to the
Prospectus shall have been filed in accordance with Rule 424(c) under the Act.
No stop order suspending the
-37-
<PAGE>
effectiveness of the Registration Statement or any amendment thereto shall have
been issued and no proceedings for that purpose shall have been instituted or,
to the knowledge of the Company, any of the Selling Stockholders, or the
Underwriters, shall be contemplated by the Commission. The Company shall have
complied, to the reasonable satisfaction of the Underwriters and Underwriters'
Counsel, with any request of the Commission for additional information (to be
included in the Registration Statement, the Prospectus or otherwise).
(b) The Underwriters shall not have advised the Company or the
Selling Stockholders that, in the opinion of the Underwriters or Underwriters'
Counsel, (i) the Registration Statement, or any amendment thereto, includes an
untrue statement of a material fact or omits to state a material fact necessary
to make the statements therein, in light of the circumstances under which they
were made, not misleading or (ii) the Prospectus, or any amendment or supplement
thereto, includes an untrue statement of a material fact or omits to state a
material fact necessary in order to make the statements therein, in the light of
the circumstances under which they were made, not misleading.
(c) The Underwriters shall have received from Underwriters'
Counsel an opinion dated the Closing Date, with respect to the issuance and sale
of the Shares, the Registration Statement, the Prospectus and such other related
matters as the Underwriters reasonably may request. Underwriters' Counsel shall
have received from the Company, Radnor, the Sanchez Selling Stockholders and
Safeguard such papers and information as they may request to enable them to
review or pass upon such matters or in order to evidence the accuracy,
completeness or satisfaction of any of the representations, warranties, or
covenants of the Company, Radnor, the Sanchez Selling Stockholders or Safeguard
contained herein.
(d) The Underwriters shall have received from Morgan Lewis &
Bockius LLP, counsel to the Company and the Selling Stockholders an opinion, on
or prior to the date Rights certificates and Prospectuses are first mailed to
Safeguard Shareholders and on the Closing Date, dated the respective dates
thereof and in form and substance satisfactory to Underwriters' Counsel, to the
effect that:
(i) The Company and each of its subsidiaries are
corporations duly incorporated, validly existing and in good standing
under the laws of their respective jurisdictions of organization and
are duly qualified to transact business as foreign corporations and are
in good standing in each jurisdiction in which the Company has
represented to such counsel that they conduct business;
-38-
<PAGE>
(ii) The Company and each of its subsidiaries have
all requisite corporate power and authority necessary or required to
own or lease their respective properties and conduct their respective
businesses as described in the Registration Statement and the
Prospectus;
(iii) The Company has all requisite power and
authority (corporate and other) to enter into this Agreement and the
Rights Agent Agreement and to consummate the transactions provided for
herein and therein; and this Agreement and the Rights Agent Agreement
have each been duly authorized, executed and delivered by the Company.
Each of this Agreement, assuming due authorization, execution and
delivery by the Underwriters, and the Rights Agent Agreement, assuming
due authorization, execution and delivery by the parties thereto other
than the Company and the Selling Stockholders constitutes the legal,
valid and binding obligation of the Company, enforceable against the
Company in accordance with its terms, except as enforceability may be
limited by bankruptcy, insolvency, reorganization, moratorium,
arrangement or similar laws affecting creditors' rights generally or by
general principles of equity (including standards of materiality, good
faith, fair dealing and reasonableness) whether applied by a court of
law or equity, and except as rights to indemnity and contribution
hereunder may be limited by applicable law, statutory duties or public
policy. The Company's execution and delivery of this Agreement and the
Rights Agent Agreement, its performance of its obligations hereunder
and thereunder and the consummation of the transactions contemplated
hereby and thereby do not and will not conflict with or result in a
breach or violation of any of the terms or provisions of, or constitute
a default under, or result in the creation or imposition of any liens,
charges, claims, encumbrances, pledges, security interests, defects or
other like restrictions or equities of any kind whatsoever upon, any
right, property or asset (tangible or intangible) of the Company or any
of its subsidiaries pursuant to the terms of (A) the charter or bylaws,
each as amended through the date of the opinion, of the Company and
each of its subsidiaries, (B) any material lease, permit, license,
contract, indenture, mortgage, deed of trust, voting trust agreement,
stockholders agreement, note, loan or credit agreement or any other
agreement or instrument to which the Company or any of its subsidiaries
is a party or by which any of them is or may be bound or to which any
of their respective properties or assets (tangible or intangible) is or
may be subject, or any indebtedness, except that such counsel need not
express an opinion with respect to any violation based upon any
covenant of a financial or numerical nature or that requires arithmetic
computation and such counsel has not otherwise known of or had reason
to expect the occurrence of such default, or (C) any statute, rule or
regulation or, to
-39-
<PAGE>
the knowledge of Company counsel, any judgment, decree or order
applicable to the Company or any of its subsidiaries or any of their
respective activities or properties adopted or issued by an arbitrator,
court, regulatory body or administrative agency or other governmental
agency or body (including those having jurisdiction over environmental
or similar matters), domestic or foreign, having jurisdiction over the
Company or any of its subsidiaries or any of their respective
activities or properties (other than such as may be required under
state securities or "Blue Sky" laws and such as may be required by the
by-laws and rules of the NASD in connection with the purchase and
distribution of the Shares by the Underwriters);
(iv) No consent, approval, authorization or order of,
or filing with, any governmental agency or body or, to such counsel's
knowledge, any court is required in connection with the issuance of the
shares of Common Stock to be sold by the Company, the Company's
performance of its obligations hereunder, the Offering, or the
consummation by the Company of the other transactions contemplated
hereby, except such as may be required under the state securities or
"Blue Sky" laws of any jurisdiction or as may be required by the
by-laws and rules of the NASD in connection with the purchase and
distribution of the Shares by the Underwriters and except such other
approvals as have been obtained and remain in full force and effect.
Upon the effectiveness of the Registration Statement, the Common Stock
will be registered pursuant to Section 12(g) of the Exchange Act, and
will be included in the Nasdaq National Market;
(v) At the date or dates indicated in the Prospectus,
the authorized, issued and outstanding capital stock of the Company was
as set forth therein, and conformed as to legal matters, to the extent
that it constitutes matters of law or legal conclusions, to the
description thereof contained therein under the captions
"CAPITALIZATION" and "DESCRIPTION OF CAPITAL STOCK." All of the issued
shares of Common Stock of the Company (including the Shares sold by the
Selling Stockholders) have been duly authorized and validly issued, and
are fully paid and non-assessable; the holders thereof are not subject
to personal liabilities solely by reason of holding such shares; and
none of such shares have been issued in violation of the preemptive
rights of any security holders of the Company known to Company counsel.
The Shares to be sold by the Company have been duly authorized and,
when paid for in accordance herewith, will be validly issued, fully
paid and non-assessable, and with no personal liability resulting
solely from the ownership thereof. Upon the issuance and delivery
pursuant to this Agreement of the Shares to be sold by the Company,
assuming the Underwriters do not have knowledge of any Adverse Claim,
the Underwriters will
-40-
<PAGE>
acquire good and marketable title to such Shares free and clear of any
liens, charges, claims, encumbrances, pledges, security interests,
defects or other like restrictions or like equities of any kind
whatsoever. There are no preemptive or other rights to subscribe for or
to purchase, nor any restriction upon the voting or transfer of, any
shares of Common Stock pursuant to the Company's Articles of
Incorporation or By-Laws, each as amended to date, or pursuant to any
agreement among stockholders to which the Company is a party or of
which it has knowledge, and the Shares to be sold by the Company are
not subject to any preemptive or other similar rights of any security
holder. The Company is not a party to or bound by any instrument,
agreement or other arrangement providing for it to issue any capital
stock, rights, warrants, options or other securities, except for this
Agreement and as described in the Prospectus. Except as described in
the Prospectus with respect to stock options (and shares issuable upon
exercise thereof) that may be registered by the Company in a
registration statement on Form S-8, no holders of any securities of the
Company or of any options, warrants or other convertible or
exchangeable securities of the Company which are exercisable for or
convertible or exchangeable for securities of the Company have the
right (which has not been waived) to include any securities issued by
the Company in the Registration Statement or any registration statement
to be filed by the Company within the period commencing on the date the
Registration Statement is declared effective by the Commission and
ending 180 days after the Expiration Date or to require the Company to
file a registration statement under the Act during such period. Based
on the form of specimen certificate filed as an exhibit to the
Registration Statement, the certificates representing the Shares are in
due and proper form;
(vi) The Registration Statement has become effective
under the Act. Any required filing of the Prospectus pursuant to Rule
424(b) and 430A(a)(3) of the Rules and Regulations has been made in
accordance with the time period required thereby. To such counsel's
knowledge, no stop order suspending the effectiveness of the
Registration Statement has been issued, and no proceedings for that
purpose have been instituted or are pending or threatened, by the
Commission;
(vii) At the time the Registration Statement was
declared effective by the Commission, the Registration Statement and
the Prospectus and any amendment or supplement thereto (other than the
financial statements, and notes thereto, the financial schedules, and
the other financial and statistical data included in the Registration
Statement or the Prospectus or omitted therefrom, as to which such
counsel need express no opinion) complied as to form in all material
-41-
<PAGE>
respects with the requirements of the Act and the Rules and
Regulations;
(viii) Such counsel has reviewed all contracts and
other documents referred to in the Registration Statement and the
Prospectus, and the summaries of and other disclosures regarding such
contracts and other documents included in the Registration Statement
and the Prospectus fairly present the information required to be shown
with respect thereto. To such counsel's knowledge, there are no
contracts or other documents of a character required to be filed as
exhibits to the Registration Statement or required to be described in
the Registration Statement or the Prospectus that were not filed or
disclosed as required;
(ix) To such counsel's knowledge, there is not
pending or threatened or contemplated against the Company, or involving
the properties or business of the Company, any action, suit,
proceeding, inquiry, investigation, litigation or governmental
proceeding (including those having jurisdiction over environmental or
similar matters), domestic or foreign, that (A) is required to be
disclosed in the Registration Statement and is not so disclosed, (B)
questions the validity of the capital stock of the Company or the
validity or enforceability of this Agreement, (C) questions the
validity of any action taken or to be taken by the Company pursuant to
or in connection with this Agreement, or (D) could materially adversely
effect the present or prospective ability of the Company to perform its
obligations under this Agreement or result in a Material Adverse
Effect;
(x) The Company is not an "investment company" or a
company "controlled" by an "investment company" within the meaning of
the Investment Company Act, nor, by receipt of the proceeds from its
sale by it of the Shares pursuant to this Agreement, will the Company
become or be deemed to be an "investment company" under such Act;
(xi) This Agreement, the Other Purchasers Standby
Purchase Agreements and the Rights Agent Agreement have each been
executed and delivered by each of the Selling Stockholders. Each of
this Agreement, assuming due authorization, execution and delivery by
the Underwriters, the Other Purchasers Standby Purchase Agreements,
assuming due authorization, execution and delivery by the parties
thereto other than the Selling Stockholders, and the Rights Agent
Agreement, assuming due authorization, execution and delivery by the
parties thereto other than the Selling Stockholders and the Company,
constitutes the legal, valid and binding obligation of each of the
Sanchez Selling Stockholders, enforceable against each of the Sanchez
Selling Stockholders in accordance with its terms, except as
enforceability may be
-42-
<PAGE>
limited by bankruptcy, insolvency, reorganization, moratorium,
arrangement or similar laws affecting creditors' rights generally or by
general principles of equity (including standards of materiality, good
faith, fair dealing and reasonableness) whether applied by a court of
law or equity, and except as rights to indemnity and contribution
hereunder may be limited by applicable law, statutory duties or public
policy. Each of the Sanchez Selling Stockholders' execution and
delivery of this Agreement, the Other Purchasers Standby Purchase
Agreements and the Rights Agent Agreement, each of the Sanchez Selling
Stockholders' performance of his obligations hereunder and thereunder
and the consummation of the transactions contemplated hereby and
thereby do not and will not conflict with or result in a breach or
violation of any of the terms or provisions of, or constitute a default
under, or result in the creation or imposition of any liens, charges,
claims, encumbrances, pledges, security interests, defects or other
like restrictions or equities of any kind whatsoever upon, any right,
property or asset (tangible or intangible) of each of the Sanchez
Selling Stockholders pursuant to the terms of (A) any material lease,
permit, license, contract, indenture, mortgage, deed of trust, voting
trust agreement, stockholders agreement, note, loan or credit agreement
(including any related to indebtedness) or any other agreement or
instrument to which each of the Sanchez Selling Stockholders is a party
or by which he is or may be bound or to which any of his respective
properties or assets (tangible or intangible) is or may be subject, or
(B) any statute, judgment, decree, order, rule or regulation known to
such counsel of any arbitrator, court, regulatory body or
administrative agency or other governmental agency or body having
jurisdiction over each of the Sanchez Selling Stockholders (provided
that as of the first date of the opinion only, such opinion need not
express any opinion set forth above with respect to the Other
Purchasers Standby Purchase Agreements that have not theretofore been
executed and delivered);
(xii) No consent, approval, authorization or order
of, or filing with, any governmental agency or body or, to such
counsel's knowledge, any court is required in connection with the
issuance of the shares of Common Stock to be sold by each of the
Sanchez Selling Stockholders, each of the Sanchez Selling Stockholders'
performance of his obligations hereunder, the Offering, or the
consummation by each of the Sanchez Selling Stockholders of the other
transactions contemplated hereby, except such as may be required under
the state securities or "Blue Sky" laws of any jurisdiction or as may
be required by the by-laws and rules of the NASD in connection with the
purchase and distribution of the Shares by the Underwriters and except
such other approvals as have been obtained and remain in full force and
effect;
-43-
<PAGE>
(xiii) Each of the Sanchez Selling Stockholders has
full right, power and authority to enter into this Agreement, the Other
Purchasers Standby Purchase Agreements and the Rights Agent Agreement
and to sell, transfer and deliver the shares of Common Stock proposed
to be sold by him hereunder on such Closing Date, the shares of Common
Stock to be sold by him upon the exercise of the Rights and the shares
of Common Stock to be sold by him pursuant to the Other Purchasers
Standby Purchase Agreements; and upon delivery to the Underwriters of
the Common Stock to be sold to them by each of the Sanchez Selling
Stockholders against payment therefor in accordance with this
Agreement, the Underwriters, assuming that they have purchased such
Common Stock in good faith and without notice of any adverse claim,
will acquire good and marketable title to such Common Stock free and
clear of all liens;
(xiv) No transfer taxes are required to be paid in
connection with the sale and delivery of the Common Stock by the
Company and the Selling Stockholders to the Underwriters hereunder;
(xv) The certificates evidencing the Rights to be
distributed to the Safeguard Shareholders and the shares of Common
Stock to be delivered hereunder are in due and proper form under
Pennsylvania law; and
(xvi) All of the Rights have been duly authorized and
validly issued, and, when issued and distributed as set forth in the
Prospectus, will be legally issued and valid and binding obligations of
the Company having the rights summarized in the Prospectus; and none of
such Rights will have been issued in violation of the preemptive rights
of any security holders of the Company arising as a matter of law or
under or pursuant to the Company's Articles of Incorporation, as
amended, the Company's By-Laws, as amended, or any agreement or
instrument to which the Company is a party or by which it is bound.
(xvii) Safeguard has the legal right and power to
enter into this Agreement, the Other Purchasers Standby Purchase
Agreements and the Rights Agent Agreement and to sell, transfer and
deliver hereunder the Shares proposed to be sold by it hereunder. This
Agreement, the Other Purchasers Standby Purchase Agreements and the
Rights Agent Agreement have each been duly authorized by Safeguard,
have been duly executed and delivered by or on behalf of Safeguard and
constitute the legal, valid, and binding obligations of Safeguard
enforceable against Safeguard in accordance with their respective
terms, subject to the effect of general principles of equity (including
standards of materiality, good faith, fair dealing and reasonableness)
whether applied by a court of law or equity and except as rights to
indemnity and
-44-
<PAGE>
contribution hereunder or thereunder may be limited by applicable law,
statutory duties or public policy (provided that as of the first date
of the opinion only, such opinion need not express any opinion set
forth above with respect to the Other Purchaser Standby Purchase
Agreements that have not theretofore been executed and delivered);
(xviii) The execution and delivery of this Agreement,
the Other Purchasers Standby Purchase Agreements and the Rights Agent
Agreement, the performance by Safeguard of its obligations hereunder
and thereunder will not conflict with or result in a breach or
violation of any of the terms and provisions of, or constitute a
default under (A) the Articles of Incorporation or By-Laws of
Safeguard, as amended through the date of the opinion, (B) any lease,
permit, license, contract, indenture, mortgage, deed of trust, voting
trust agreement, shareholders agreement, note, loan or credit agreement
or any other agreement or instrument, known to such counsel, to which
Safeguard is a party or by which it is or may be bound or to which any
of its properties or assets (tangible or intangible) is or may be
subject, or any indebtedness, except to the extent that any such
conflict, breach, violation or default, individually or in the
aggregate, does not and would not result in a material adverse effect
on the condition, financial or otherwise, or on the earnings, business
affairs, financial position, prospects, value, operation, properties,
results of operation or business of Safeguard and does not and would
not interfere with the Offering, or (C) any statute, judgment, decree,
order, rule or regulation, known to such counsel, applicable to
Safeguard or any of its activities or properties adopted or issued by
any arbitrator, court, regulatory body or administrative agency or
other governmental agency or body (including those having jurisdiction
over environmental or similar matters), having jurisdiction over
Safeguard or any of its activities or properties, in each case except
where such breach, violation or default would not (i) affect the
enforceability of this Agreement, the Other Purchasers Standby Purchase
Agreements or the Rights Agent Agreement, (ii) affect the Offering or
the sale of the Common Stock contemplated hereby, or (iii) have a
material impact, financial or otherwise, on Safeguard or any of its
subsidiaries. To such counsel's knowledge, no consent, approval,
authorization or order of, or filing with, any governmental agency or
body or any court is required for the consummation by Safeguard of the
transactions contemplated herein, in the Other Purchasers Standby
Purchase Agreements or in the Rights Agent Agreement, except such as
may be required under the state securities or "Blue Sky" laws of any
jurisdiction or as may be required by the by-laws and rules of the NASD
in connection with the purchase and distribution of the Shares by the
Underwriters and except such other approvals as have been obtained and
remain in full force and effect;
-45-
<PAGE>
(xix) To such counsel's knowledge, Safeguard has
title to the Shares proposed to be sold by Safeguard hereunder free of
any adverse claims and upon delivery of and payment for such Shares
hereunder, assuming that each Underwriter is a Bona Fide Purchaser, the
Underwriters will acquire title thereto, free and clear of all liens,
encumbrances, equities, claims, restrictions, security interests,
preemptive rights, voting trusts, adverse claims or other defects of
title whatsoever;
(xx) The descriptions in the Registration Statement,
the Prospectus and any amendment or supplement thereto of agreements,
whether written or oral, and of other documents to which Safeguard or
any of its affiliates (other than the Company or any of its
subsidiaries) is a party, are accurate and fairly present the
information required to be shown with respect thereto by Form S-1 under
the Act. There are no agreements, whether written or oral, or other
documents to which Safeguard or any of its affiliates (other than the
Company or any of its subsidiaries) is a party, which, to the knowledge
of such counsel, exist that are required by the Act or the Rules and
Regulations to be described in the Registration Statement or filed as
exhibits to the Registration Statement that are not described or filed
as required; and
(xxi) The Musser Agreement has been duly executed by
the Musser Group and constitutes the valid, legal and binding
obligation of the Musser Group, enforceable against the Musser Group in
accordance with its terms.
(xxii) Radnor has the legal right and power to enter
into this Agreement, the Other Purchasers Standby Purchase Agreements
and the Rights Agent Agreement and to sell, transfer and deliver
hereunder the Shares proposed to be sold by it hereunder. This
Agreement, the Other Purchasers Standby Purchase Agreements and the
Rights Agent Agreement have each been duly authorized by Radnor, have
been duly executed and delivered by or on behalf of Radnor and
constitute the legal, valid, and binding obligations of Radnor
enforceable against Radnor in accordance with their respective terms,
subject to the effect of general principles of equity (including
standards of materiality, good faith, fair dealing and reasonableness)
whether applied by a court of law or equity and except as rights to
indemnity and contribution hereunder or thereunder may be limited by
applicable law, statutory duties or public policy (provided that as of
the first date of the opinion only, such opinion need not express any
opinion set forth above with respect to the Other Purchaser Standby
Purchase Agreements that have not theretofore been executed and
delivered);
-46-
<PAGE>
(xxiii) The execution and delivery of this Agreement,
the Other Purchasers Standby Purchase Agreements and the Rights Agent
Agreement, the performance by Radnor of its obligations hereunder and
thereunder will not conflict with or result in a breach or violation of
any of the terms and provisions of, or constitute a default under
(A) the relevant organizational documents or Partnership Agreement of
Radnor, as amended through the date of the opinion, (B) any lease,
permit, license, contract, indenture, mortgage, deed of trust, voting
trust agreement, shareholder agreement, note, loan or credit agreement
or any other agreement or instrument, known to such counsel, to which
Radnor is a party or by which it is or may be bound or to which any of
its properties or assets (tangible or intangible) is or may be subject,
or any indebtedness, except to the extent that any such conflict,
breach, violation or default, individually or in the aggregate, does
not and would not result in a material adverse effect on the condition,
financial or otherwise, or on the earnings, business affairs, financial
position, prospects, value, operation, properties, results of operation
or business of Radnor and does not and would not interfere with the
Offering, or (C) any statute, judgment, decree, order, rule or
regulation, known to such counsel, applicable to Radnor or any of its
activities or properties adopted or issued by any arbitrator, court,
regulatory body or administrative agency or other governmental agency
or body (including those having jurisdiction over environmental or
similar matters), having jurisdiction over Safeguard or any of its
activities or properties, in each case except where such breach,
violation or default would not (i) affect the enforceability of this
Agreement, the Other Purchasers Standby Purchase Agreements or the
Rights Agent Agreement, (ii) affect the Offering or the sale of the
Common Stock contemplated hereby, or (iii) have a material impact,
financial or otherwise, on Radnor or any entity owned or controlled by
it. To such counsel's knowledge, no consent, approval, authorization or
order of, or filing with, any governmental agency or body or any court
is required for the consummation by Radnor of the transactions
contemplated herein, in the Other Purchasers Standby Purchase
Agreements or in the Rights Agent Agreement, except such as may be
required under the state securities or "Blue Sky" laws of any
jurisdiction or as may be required by the by-laws and rules of the NASD
in connection with the purchase and distribution of the Shares by the
Underwriters and except such other approvals as have been obtained and
remain in full force and effect;
(xxiv) To such counsel's knowledge, Radnor has title
to the Shares proposed to be sold by Radnor hereunder free of any
adverse claims and upon delivery of and payment for such Shares
hereunder, assuming that each Underwriter is a Bona Fide Purchaser, the
Underwriters will acquire title
-47-
<PAGE>
thereto, free and clear of all liens, encumbrances, equities, claims,
restrictions, security interests, preemptive rights, voting trusts,
adverse claims or other defects of title whatsoever;
(xxv) The descriptions in the Registration Statement,
the Prospectus and any amendment or supplement thereto of agreements,
whether written or oral, and of other documents to which Radnor or any
of its affiliates (other than the Company or any of its subsidiaries)
is a party, are accurate and fairly present the information required to
be shown with respect thereto by Form S-1 under the Act. There are no
agreements, whether written or oral, or other documents to which Radnor
or any of its affiliates (other than the Company or any of its
subsidiaries) is a party, which, to the knowledge of such counsel,
exist that are required by the Act or the Rules and Regulations to be
described in the Registration Statement or filed as exhibits to the
Registration Statement that are not described or filed as required; and
In addition, such opinion shall contain statements
substantially to the following effect:
In the course of the preparation by the Company and
its counsel of the Registration Statement and the Prospectus, such
counsel attended conferences with certain of the officers of, and the
independent public accountants for, the Company, at which the
Registration Statement and the Prospectus were discussed. Between the
date of effectiveness of the Registration Statement and the Closing
Date, such counsel attended additional conferences with certain of
the officers of, and the independent public accountants for, the
Company, at which the contents of the Registration Statement and the
Prospectus were discussed. Given the limitations inherent in the
independent verification of factual matters and the character of
determinations involved in the registration process, such counsel is
not passing upon and does not assume any responsibility for the
accuracy, completeness or fairness of the statements contained in the
Registration Statement and the Prospectus. Subject to the foregoing
and on the basis of the information such counsel gained in the
performance of the services referred to above, including information
obtained from officers and other representatives of the Company,
Radnor and Safeguard, no facts have come to such counsel's attention
that cause such counsel to believe that (x) the Registration
Statement, at the time it was declared effective by the Commission,
contained an untrue statement of a material fact or omitted to state
a material fact relating to Safeguard or Radnor or any of
-48-
<PAGE>
their affiliates (other than the Company or Radnor) required to be
stated therein or necessary to make the statements therein not
misleading or (y) the Prospectus, as of its date or the Closing Date,
contained or contains an untrue statement of a material fact or
omitted or omits to state a material fact relating to Safeguard or
Radnor or any of its affiliates (other than the Company or Radnor)
required to be stated therein or necessary in order to make the
statements therein, in the light of the circumstances under which
they were made, not misleading.
The Underwriters are entitled to rely on the opinion of such
firm, filed as an exhibit to the Registration Statement, as to the matters
discussed in the Prospectus under the heading "THE OFFERING -- Federal Income
Tax Consequences" in the Prospectus.
In rendering such opinion, such counsel may rely as to matters
of fact, to the extent they deem proper, on certificates and written statements
of the Sanchez Selling Stockholders and of responsible officers of the Company,
Radnor and Safeguard, as appropriate, and certificates or other written
statements of officers of departments of various jurisdictions having custody of
documents respecting the corporate or partnership existence or good standing of
the Company, Radnor or Safeguard, provided that copies of any such statements or
--------
certificates shall be delivered to Underwriters' Counsel if requested.
(e) The Underwriters shall have received a certificate, dated
the Closing Date, of the Company signed by each of the President and Chief
Executive Officer and the Vice President and Chief Operating Officer of the
Company to the effect that each of such officers has carefully examined the
Registration Statement, the Prospectus and this Agreement and, to his best
knowledge, that:
(i) The representations and warranties of the Company
in this Agreement are true and correct, as if made on and as of the
Closing Date, and the Company has complied in all material respects
with all agreements and covenants and satisfied all conditions
contained in this Agreement on its part to be performed or satisfied at
or prior to the Closing Date;
(ii) No stop order suspending the effectiveness of
the Registration Statement has been issued, and no proceedings for that
purpose have been instituted or are pending or, to the best of such
officers' knowledge, are contemplated or threatened by the Commission;
and
(iii) Subsequent to the respective dates as of which
information is given in the Registration Statement and the Prospectus,
(A) there has been no material adverse change, or development involving
a prospective material adverse change
-49-
<PAGE>
(including a change in management or control of the Company), in the
condition (financial or otherwise), business prospects, net worth or
results of operations of the Company and its subsidiaries, on a
consolidated basis, except in each case as described in or contemplated
by the Prospectus; (B) neither the Company nor any of its subsidiaries
has entered into any transactions not in the ordinary course of
business; (C) neither the Company nor any of its subsidiaries has
incurred any material liabilities or obligations, direct or contingent,
other than as disclosed in the Registration Statement and the
Prospectus; (D) neither the Company nor any of its subsidiaries has
sustained a loss material to the Company and its subsidiaries on a
consolidated basis, by fire, flood, accident, hurricane, earthquake,
theft, sabotage or other calamity or malicious act, whether or not such
loss shall have been insured, or from any labor dispute or from any
legal or governmental proceeding; (E) no action, suit or proceeding, at
law or in equity, is pending or, to the knowledge of such officer,
threatened against the Company or any of its subsidiaries or affecting
any of their respective properties or businesses before or by any court
or federal, state or foreign commission, board or other administrative
agency that (1) alleges that the conduct of such business as currently
conducted or as proposed to be conducted infringes on any trademarks,
service marks, copyrights, service names, trade names, patents or
patent applications currently held by any third party and (2) if
decided unfavorably may have a Material Adverse Effect; and (F) there
has not occurred any other event required to be set forth in the
Prospectus that has not been so set forth.
Except as otherwise provided in clause (iii)(A) above,
references to the Prospectus and Registration Statement in this Section 8(e)
shall include any amendment or supplement thereto at the date of such
opinion.
(f) The Underwriters shall have received a certificate, dated
the Closing Date, of each of the Chairman and the Vice President and General
Counsel of Safeguard to the effect that such officers have carefully examined
the Registration Statement, the Prospectus and this Agreement and that the
representations and warranties of Safeguard in this Agreement are true and
correct on and as of the Closing Date, and that Safeguard has complied with all
agreements and satisfied all conditions on its part to be performed or satisfied
at or prior to the Closing Date.
(g) The Underwriters shall have received a certificate, dated
the Closing Date, of the General Partner of Radnor to the effect that such
General Partner has carefully examined the Registration Statement, the
Prospectus and this Agreement and that the representations and warranties of
Radnor in this Agreement are true and correct on and as of the Closing Date, and
that Radnor has
-50-
<PAGE>
complied with all agreements and satisfied all conditions on its part to be
performed or satisfied at or prior to the Closing Date.
(h) The Underwriters shall have received a certificate, dated
the Closing Date, from each of the Sanchez Selling Stockholders to the effect
that he has carefully examined the Registration Statement, Prospectus and this
Agreement and that his representations and warranties in this Agreement are true
and correct on and as of the Closing Date, and that he has complied with all
agreements and satisfied all conditions on his part to be performed or satisfied
at or prior to the Closing Date.
(i) The Underwriters shall have received from Coopers & Lybrand
letters dated, respectively, the date hereof and the Closing Date, in
form and substance satisfactory to the Underwriters and Underwriters' Counsel,
with respect to matters set forth below relating to each of the years ended
December 31, 1993, 1994 and 1995:
(i) confirming that they are and were independent
public accountants with respect to the Company within the meaning of
the Act and the Rules and Regulations;
(ii) stating that it is their opinion that the
audited financial statements and schedules examined by them and
included in the Registration Statement and the Prospectus comply as
to form in all material respects with the applicable accounting
requirements of the Act and the Rules and Regulations;
(iii) stating that, on the basis of certain procedures
which included a reading of the latest available unaudited interim
consolidated financial statements of the Company (with an indication
of the date of the latest available unaudited interim financial
statements), a reading of the latest available minutes of meetings
and actions of the shareholders and board of directors and the
various committees of the board of directors of the Company,
inquiries of officers and other employees of the Company responsible
for financial and accounting matters and other specified procedures
and inquiries, nothing came to their attention that caused them to
believe that (A) the unaudited consolidated financial statements, if
any, and schedules of the Company included in the Registration
Statement and the Prospectus do not comply as to form in all material
respects with the applicable accounting requirements of the Act and
the Rules and Regulations or are not fairly presented in conformity
with generally accepted accounting principles applied on a basis
substantially consistent with that of the consolidated audited
financial statements of the Company included in the
-51-
<PAGE>
Registration Statement and the Prospectus, (B) at a specified date
not more than five days prior to the date of such letter, there was
any change in the capital stock or consolidated long-term debt of the
Company, or any decrease in the consolidated stockholders' equity, or
net current assets of the Company, in each case, as compared with
amounts shown in the December 31, 1995 consolidated balance sheet
included in the Registration Statement and the Prospectus, except for
changes set forth in such letter, and (C) during the period from
December 31, 1995 to such specified date, there was any decrease in
consolidated revenues, income before income taxes, or net income, or
any decrease in net income per common share of the Company, in each
case as compared with the corresponding period beginning January 1,
1995, except for changes set forth in such letter;
(iv) stating that they have compared specific dollar
amounts, numbers of shares, percentages of revenues and earnings,
statements and other financial information pertaining to the Company
set forth in the Prospectus in each case to the extent that such
amounts, numbers, percentages, statements and information may be
derived from the general accounting records, including work sheets,
of the Company with the results obtained from the application of
specified readings, inquiries and other appropriate procedures (which
procedures do not constitute an examination in accordance with
generally accepted auditing standards) set forth in the letter and
found them to be in agreement; and
(v) statements as to such other matters incident to
the transaction contemplated hereby as the Underwriters may
reasonably request.
In the event that either of the letters referred to above set
forth any such changes, decreases or increases, it shall be a further condition
of the obligations of the Underwriters that (A) such letter shall be accompanied
by a written explanation of the Company as to the significance thereof, unless
the Underwriters deem such explanation unnecessary, and (B) such changes,
decreases or increases do not, in the sole judgment of the Underwriters, make it
impractical or inadvisable to proceed with the purchase and delivery of the
Shares as contemplated by the registration statement originally filed with
respect to the Shares, as amended as of the date hereof.
References to the Registration Statement and the Prospectus in
this Section 8(i) with respect to either letter referred to above shall include
any amendment or supplement thereto at the date of such letter.
-52-
<PAGE>
(j) The Associated Person Lock-Ups with respect to each person
listed on Schedule A annexed hereto and the Musser Lock-Up shall be in full
force and effect.
(k) The outstanding shares of Common Stock and the shares of
Common Stock to be issued by the Company as contemplated by this Agreement shall
have been approved for quotation on the Nasdaq National Market (upon notice of
issuance in the case of the latter shares).
(l) No order suspending the sale of the Shares in any
jurisdiction designated by the Underwriters pursuant to Section 6(a)(iv) hereof
shall be in effect on the Closing Date and no proceedings for that purpose shall
have been instituted or, to the knowledge of the Company or the Underwriters,
shall be contemplated.
(m) The Other Purchasers and the Selling Stockholders shall
have entered into the Other Purchasers Standby Purchase Agreements, copies of
the same shall have been delivered to the Underwriters at least ten days prior
to the Closing Date and the sale of the 300,000 shares of Common Stock to the
Other Purchasers pursuant to the Other Purchasers Standby Purchase Agreements
shall have been consummated at a per share purchase price of not less than
$____________.
(n) The Musser Group shall have exercised all of the Rights
distributed to it and purchased [343,000] shares of Common Stock in connection
therewith.
(o) On or prior to the date that Rights certificates are first
mailed to Safeguard Shareholders and on the Closing Date, dated the respective
dates thereof and in form and substance satisfactory to Underwriters' counsel,
the Company and the Selling Stockholders shall furnish to the Underwriters such
information, certificates and documents as either of the Underwriters may
reasonably request.
If any condition of the Underwriters' obligations hereunder to
be fulfilled prior to or at the Closing Date is not so fulfilled, the
Underwriters may terminate this Agreement or, if the Underwriters so elect, they
may waive any such conditions that have not been fulfilled or extend the time
for their fulfillment; provided, however, that if the Underwriters waive the
-------- -------
fulfillment of Section 8(m) and 8(n) hereof due to the failure of the Selling
Stockholders to sell all of the Other Purchasers Standby Shares, the
Underwriters agree to purchase, at a price of $______ per share, all of the
Other Purchasers Standby Shares that have not been sold pursuant to the Other
Purchasers Standby Purchase Agreements as well as all other Shares required to
be purchased by the Underwriters pursuant to this Agreement. In the event the
Underwriters so elect to terminate this Agreement, all Rights and
-53-
<PAGE>
the Other Purchasers Standby Purchase Agreements shall become immediately null
and void and any payments received by the Company or the Selling Stockholders in
respect of the exercise price relating thereto shall be promptly returned. All
opinions, certificates, letters and documents delivered pursuant to this
Agreement will comply with the provisions hereof only if they are reasonably
satisfactory in all material respects to the Underwriters and Underwriters'
Counsel. The Company shall furnish to the Underwriters such conformed copies of
such opinions, certificates, letters and documents in such quantities as the
Underwriters and Underwriters' Counsel shall reasonably request.
The obligations of the Underwriters to purchase and pay for
any Option Shares after having exercised an option set forth in Section 3(b)
hereof shall be subject, in its discretion, to each of the foregoing conditions
of this Section 8 to purchase the Excess Unsubscribed Shares, with all
references to the Excess Unsubscribed Shares and the Closing Date being deemed
to refer to such Option Shares and the related Option Closing Date,
respectively.
9. Indemnification.
---------------
(a) The Company and each of the Selling Stockholders, jointly
and severally, agree to indemnify and hold harmless each Underwriter and each
person, if any, who controls any Underwriter within the meaning of either
Section 15 of the Securities Act or Section 20 of the Exchange Act, from and
against any and all losses, claims, damages and liabilities (including, without
limitation, the legal fees and other expenses incurred in connection with any
suit, action or proceeding or any claim asserted) caused by any untrue statement
or alleged untrue statement of a material fact contained in the Registration
Statement or the Prospectus (as amended or supplemented if the Company shall
have furnished any amendments or supplements thereto) or any Preliminary
Prospectus, or caused by any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, except insofar as such losses, claims, damages or
liabilities are caused by any untrue statement or omission or alleged untrue
statement or omission made in reliance upon and in conformity with information
relating to any Underwriter furnished to the Company in writing by such
Underwriter expressly for use therein.
(b) Each Underwriter agrees, severally and not jointly, to
indemnify and hold harmless the Company, its directors, its officers who sign
the Registration Statement, the Selling Stockholders and each person who
controls the Company within the meaning of Section 15 of the Securities Act and
Section 20 of the Exchange Act to the same extent as the foregoing indemnity
from the Company to each Underwriter, but only with reference to the Provided
Information.
-54-
<PAGE>
(c) If any suit, action, proceeding (including any governmental
or regulatory investigation), claim or demand shall be brought or asserted
against any person in respect of which indemnity may be sought pursuant to
either of the two preceding paragraphs, such person (the "Indemnified Person")
shall promptly notify the person against whom such indemnity may be sought (the
"Indemnifying Person") in writing, and the Indemnifying Person, upon request of
the Indemnified Person, shall retain counsel reasonably satisfactory to the
Indemnified Person to represent the Indemnified Person and any others the
Indemnifying Person may designate in such proceeding and shall pay the fees and
expenses of such counsel related to such proceeding. In any such proceeding, any
Indemnified Person shall have the right to retain its own counsel, but the fees
and expenses of such counsel shall be at the expense of such Indemnified Person
unless (i) the Indemnifying Person and the Indemnified Person shall have
mutually agreed to the contrary, (ii) the Indemnifying Person has failed within
a reasonable time to retain counsel reasonably satisfactory to the Indemnified
Person or (iii) the named parties in any such proceeding (including any
impleaded parties) include both the Indemnifying Person and the Indemnified
Person and representation of both parties by the same counsel would be
inappropriate due to actual or potential differing interests between them. It is
understood that the Indemnifying Person shall not, in connection with any
proceeding or related proceeding in the same jurisdiction, be liable for the
fees and expenses of more than one separate firm (in addition to any local
counsel) for all Indemnified Persons, and that all such fees and expenses shall
be reimbursed as they are incurred. Any such separate firm for the Underwriters
and such control persons of Underwriters shall be designated in writing by J.P.
Morgan Securities Inc. and any such separate firm for the Company, its
directors, its officers who sign the Registration Statement and such control
persons of the Company or any Selling Stockholder and such control persons of
any Selling Stockholder, as applicable, shall be designated in writing by the
Company. The Indemnifying Person shall not be liable for any settlement of any
proceeding effected without its written consent, but if settled with such
consent or if there be a final judgment for the plaintiff, the Indemnifying
Person agrees to indemnify any Indemnified Person from and against any loss or
liability by reason of such settlement or judgment. Notwithstanding the
foregoing sentence, if at any time an Indemnified Person shall have requested an
Indemnifying Person to reimburse the Indemnified Person for fees and expenses of
counsel as contemplated by the second and third sentences of this paragraph, the
Indemnifying Person agrees that it shall be liable for any settlement of any
proceeding effected without its written consent if (i) such settlement is
entered into more than 30 days after receipt by such Indemnifying Person of the
aforesaid request and (ii) such Indemnifying Person shall not have reimbursed
the Indemnified Person in accordance with such request prior to the date of such
settlement. No Indemnifying Person shall, without the prior written consent of
the Indemnified Person,
-55-
<PAGE>
effect any settlement of any pending or threatened proceeding in respect of
which any Indemnified Person is or could have been a party and indemnity could
have been sought hereunder by such Indemnified Person, unless such settlement
includes an unconditional release of such Indemnified Person from all liability
on claims that are the subject matter of such proceeding.
(d) If the indemnification provided for in paragraphs (a) and
(b) of this Section 9 is unavailable to an Indemnified Person in respect of any
losses, claims, damages or liabilities referred to therein, then each
Indemnifying Person under such paragraph, in lieu of indemnifying such
Indemnified Person there- under, shall contribute to the amount paid or payable
by such Indemnified Person as a result of such losses, claims, damages or
liabilities (i) in such proportion as is appropriate to reflect the relative
benefits received by the Company and the Selling Stockholders on the one hand
and the Underwriters on the other hand from the offering of the Shares or (ii)
if the allocation provided by clause (i) above is not permitted by applicable
law, in such proportion as is appropriate to reflect not only the relative
benefits referred to in clause (i) above but also the relative fault of the
Company or the Selling Stockholders on the one hand and the Underwriters on the
other in connection with the statements or omissions that resulted in such
losses, claims, damages or liabilities, as well as any other relevant equitable
considerations. The relative benefits received by the Company or the Selling
Stockholders on the one hand and the Underwriters on the other shall be deemed
to be in the same respective proportions as the net proceeds from the offering
(before deducting expenses) received by the Company or the Selling Stockholders
and the total underwriting discounts and the commissions received by the
Underwriters, in each case as set forth in the table on the cover of the
Prospectus, bear to the aggregate public offering price of the Shares. The
relative fault of the Company or the Selling Stockholders on the one hand and
the Underwriters on the other shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by the Company or the Selling Stockholders or by the Underwriters and
the parties' relative intent, knowledge, access to information and opportunity
to correct or prevent such statement or omission.
(e) The Company, the Selling Stockholders and the Underwriters agree
that it would not be just and equitable if contribution pursuant to this Section
9 were determined by pro rata allocation (even if the Underwriters were treated
as one entity for such purposes) or by any other method of allocation that does
not take account of the equitable considerations referred to in the immediately
preceding paragraph. The amount paid or payable by an Indemnified Person as a
result of the losses, claims, damages and liabilities referred to in the
immediately preceding paragraph
-56-
<PAGE>
shall be deemed to include, subject to the limitations set forth above, any
legal or other expenses incurred by such Indemnified Person in connection with
investigating or defending any such action or claim. Notwithstanding the
provisions of this Section 9, in no event shall an Underwriter be required to
contribute any amount in excess of the amount by which the total price at which
the Shares underwritten by it and distributed to the public were offered to the
public exceeds the amount of any damages that such Underwriter has otherwise
been required to pay by reason of such untrue or alleged untrue statement or
omission or alleged omission. No person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. The Underwriters' obligations to contribute pursuant to this
Section 9 are several in proportion to the respective number of Shares set forth
opposite their names in Schedule B hereto, and not joint.
(f) The remedies provided for in this Section 9 are not
exclusive and shall not limit any rights or remedies which may otherwise be
available to any indemnified party at law or in equity.
(g) The indemnity and contribution agreements contained in
this Section 9 and the representations and warranties of the Company set forth
in this Agreement shall remain operative and in full force and effect regardless
of (i) any termination of this Agreement, (ii) any investigation made by or on
behalf of any Underwriter or any person controlling any Underwriter or by or on
behalf of the Company, its officers or directors, or any Selling Stockholder or
any other person controlling the Company or any Selling Stockholder and (iii)
acceptance of and payment for any of the Shares.
10. Representations and Agreements to Survive Delivery.
--------------------------------------------------
All representations, warranties, agreements and covenants contained in
this Agreement or contained in certificates of each of the Sanchez Selling
Stockholders, of officers of the Company or of Safeguard or of the General
Partner of Radnor submitted pursuant hereto, shall be deemed to be
representations, warranties, agreements and covenants at the Closing Date and
the Option Closing Date, as the case may be, and such representations,
warranties, agreements and covenants of the Underwriters, each of the Sanchez
Selling Stockholders, Radnor, the Company and Safeguard, and the indemnity
agreements contained in Section 9 hereof, shall remain operative and in full
force and effect regardless of any investigation made by or on behalf of the
Underwriters, each of the Sanchez Selling Stockholders, Radnor, the Company and
Safeguard, or any controlling person, and shall survive termination of this
Agreement or the issuance and delivery of the Shares to the Underwriters,
provided that to the extent any such representations,
- --------
-57-
<PAGE>
warranties, agreements or covenants are expressly waived in writing by the
Underwriters, the survival of the same shall be as set forth in such waiver, or,
if not so set forth, as provided in this Section 10.
11. Effective Date.
--------------
This Agreement shall become effective at 9:00 a.m., New York City
time, on the next full business day following the date hereof or upon the
commencement of the rights offering, whichever is earlier; provided, however,
--------- -------
that the provisions of Sections 6, 7, 9 and 10 of this Agreement shall at all
times be effective.
12. Termination.
-----------
(a) Subject to subsection (c) of this Section 12, the Underwriters
shall have the right to terminate this Agreement (i) if any calamitous domestic
or international event or act or occurrence has disrupted or, in the
Underwriters' opinion, will in the immediate future materially disrupt, the
general securities market in the United States; (ii) if trading in the Common
Stock (on a when-issued basis) shall have been suspended by the Commission or
the Nasdaq National Market; (iii) if trading on the New York Stock Exchange, the
American Stock Exchange or the Nasdaq National Market or in the over-the-counter
market shall have been suspended, or minimum or maximum prices for trading shall
have been fixed, or maximum ranges for prices for securities shall have been
required on the over-the-counter market by the NASD or by order of the
Commission or any other government authority having jurisdiction; (iv) if the
United States shall have become involved in a war or major hostilities which, in
the Underwriters' opinion, will affect the general securities market in the
United States; (v) if a banking moratorium has been declared by a New York,
Virginia, Pennsylvania or federal authority; (vi) if a moratorium in foreign
exchange trading has been declared; (vii) if the Company shall have sustained a
loss material to the Company by fire, flood, accident, hurricane, earthquake,
theft, sabotage or other calamity or malicious act, whether or not such loss
shall have been insured, or from any labor dispute or any legal or governmental
proceeding; (viii) if there shall have been such material adverse change, or any
development involving a prospective material adverse change (including a change
in management or control of the Company) in the condition (financial or
otherwise), business prospects, net worth or results of operations of the
Company since December 31, 1995; or (ix) on any date commencing on the date
hereof and ending on the Closing Date, if there shall be such material adverse
market conditions (whether occurring suddenly or gradually between the date
hereof and the Closing Date) affecting the markets generally or technology
issues particularly as in the Underwriters' reasonable judgment would make it
inadvisable to proceed with the offering, sale or delivery of the Shares.
-58-
<PAGE>
(b) If the Underwriters elect to prevent this Agreement from
becoming effective or to terminate this Agreement as provided in this Section
12, they shall so notify the Company on the same day as such election is made by
telephone or telegram, confirmed by letter.
(c) Notwithstanding any contrary provision contained in this
Agreement, any election hereunder or any termination of this Agreement
(including pursuant to Section 13 hereof), and whether or not this Agreement is
otherwise carried out, the provisions of Section 7 and Section 8 shall not be in
any way affected by such election or termination or failure to carry out the
terms of this Agreement or any part hereof.
13. Default by the Company or the Selling Stockholders.
--------------------------------------------------
If the Company or any of the Selling Stockholders shall fail to sell
and deliver to the Underwriters the Excess Unsubscribed Shares to be sold and
delivered by the Company or the Selling Stockholders at the Closing Date or the
Option Shares to be sold and delivered by the Company at any Option Closing Date
under the terms of this Agreement, then the Underwriters may at their option, by
written notice to the Company and the Selling Stockholders, either (a) terminate
this Agreement without any liability on the part of any non-defaulting party
other than pursuant to Section 12 or (b) purchase the Shares which the Company
and the Selling Stockholders have agreed to sell and deliver in accordance with
the terms hereof. In the event of a failure of the Selling Stockholders to sell
and deliver as referred to in this Section, either the Underwriters or the
Company shall have the right to postpone the Closing Date or the Option Closing
Date, as the case may be, for a period not exceeding seven business days in
order that the necessary changes in the Registration Statement, Prospectus and
any other documents, as well as any other arrangements, as may be effected. No
action taken pursuant to this Section shall relieve the Company or the Selling
Stockholders from liability in respect of such default.
14. Notices.
-------
All notices and communications hereunder may be mailed or transmitted
by any standard form of telecommunication and, except as herein otherwise
specifically provided, shall be in writing and shall be deemed to have been duly
given when delivered to a notice party hereto at the address specified herein or
at the address subsequently communicated in writing by the notice parties.
Notices to the Underwriters shall be directed to the Underwriters in care of
J.P. Morgan Securities Inc., 60 Wall Street, New York, New York 10260,
Attention: [Jean Robinson], Vice President and Wheat, First Securities, Inc.,
Riverfront Plaza, 901 East Byrd Street, Richmond, Virginia 23219, Attention:
[Matthew G. Thompson], Vice President, with a copy to Drinker Biddle & Reath,
1000
-59-
<PAGE>
Westlakes Drive, Suite 300, Five Westlakes, Berwyn, Pennsylvania,
19132, Attention: Robert H. Strouse, Esq. Notices to the Company
shall be directed to the address of the Company as set forth on the
facing page to the Registration Statement, with a copy to Morgan,
Lewis and Bockius LLP, 2000 One Logan Square, Philadelphia,
Pennsylvania 19103, Attention: N. Jeffrey Klauder, Esq. Notices to
Safeguard shall be directed to Safeguard Scientifics, Inc., 800
Safeguard Building, 435 Devon Park Drive, Wayne, Pennsylvania 1987,
Attention: James A. Ounsworth, Esq., with a copy to Morgan, Lewis
and Bockius LLP, 2000 One Logan Square, Philadelphia, Pennsylvania
19103, Attention: N. Jeffrey Klauder, Esq. In each case a party
may change its address for notice hereunder by a written
communication to the other parties.
15. Parties.
-------
This Agreement shall inure solely to the benefit of, and shall be
binding upon, the Underwriters, the Company, each of the Sanchez Selling
Stockholders, Radnor and Safeguard and the controlling persons, directors and
officers or general partners referred to in Section 9 hereof, and their
respective successors, legal representatives and assigns, and no other person
shall have or be construed to have any legal or equitable right, remedy or claim
under or in respect of or by virtue of this Agreement or any provisions herein
contained. No purchaser of Shares from the Underwriters shall be deemed to be a
successor by reason merely of such purchase.
16. Construction.
------------
This Agreement shall be governed by the laws of the State of New York
without giving effect to the choice of law or conflict of laws principles
thereof. The word "including" as used herein shall not be construed so as to
exclude any other thing not referred to or described.
17. Counterparts.
------------
This Agreement may be executed in any number of counterparts, each of
which shall be deemed to be an original and all of which taken together shall be
deemed to be one and the same instrument.
18. Entire Agreement.
----------------
This Agreement contains the entire agreement between parties hereto in
connection with the subject matter hereof.
-60-
<PAGE>
If the foregoing correctly sets forth the understanding among the
Underwriters, Michael Sanchez, Frank Sanchez, Radnor, the Company and Safeguard,
please so i ndicate in the space provided below for that purpose, thereupon this
letter shall constitute a binding agreement among us.
Very truly yours,
SANCHEZ COMPUTER ASSOCIATES,
INC.
By:
-----------------------------------
Name:
Title:
SAFEGUARD SCIENTIFICS, INC.
By:
-----------------------------------
Name:
Title:
RADNOR VENTURE PARTNERS, a
-------------------
partnership, by its general
partner,
-------------------
By:
-----------------------------------
Name:
Title:
--------------------------------------
Michael A. Sanchez
--------------------------------------
Frank R. Sanchez
[signatures continued on next page]
-61-
<PAGE>
[signatures continued from previous page]
Confirmed and accepted
as of the date first
above written:
J.P. MORGAN SECURITIES INC. WHEAT, FIRST SECURITIES, INC.
By: By:
------------------------- -----------------------------
Name: Name:
Title: Title:
-62-
<PAGE>
Schedule A
Name
Safeguard Scientifics, Inc.
Radnor Venture Partners, L.P.
Lawrence Chimerine
Stewart A. Jack
Richard H. Jefferson
Deborah C. Kovacs
John D. Loewenberg
Ira M. Lubert
Thomas C. Lynch
Thomas F. McAllister
Dan S. Russell
Michael A. Sanchez
Frank R. Sanchez
Michael L. Turner
Joseph F. Waterman
-63-
<PAGE>
Schedule B
Name of Underwriters % of Underwriter Shares
- -------------------- -----------------------
J.P. Morgan Securities Inc.
Wheat, First Securities, Inc.
-64-
<PAGE>
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
SANCHEZ COMPUTER ASSOCIATES, INC.
1. The name of the corporation is Sanchez Computer Associates, Inc.
2. The name of the Commercial Registered Office Provider is Corporation
Service Company.
3. The corporation is incorporated under the provisions of the Business
Corporation Law of 1988, as amended.
4. Capital Stock.
-------------
The aggregate number of shares which the corporation shall have authority
to issue is 50,000,000 Common Shares, no par value (the "Common Shares"), and
10,000,000 Preferred Shares, no par value (the "Preferred Shares"). The Board
of Directors may authorize the issuance from time to time of Preferred Shares in
one or more classes or series and with designations, voting rights, preferences,
and special rights, if any, as the Board may fix by resolution. Without
limiting the foregoing, the board of directors is authorized to fix with respect
to each series:
(a) the number of shares which shall constitute the series and the name
of the series;
(b) the rate and times at which, and the preferences and conditions
under which, dividends shall be payable on shares of the series, and
the status of such dividends as cumulative or non-cumulative and as
participating or non-participating;
(c) the prices, times and terms, if any, at or upon which shares of the
series shall be subject to redemption;
(d) the rights, if any, of holders of shares of the series to convert
such shares into, or to exchange such shares for, shares of any
other class of stock of the corporation;
(e) the rights and preferences, if any, of the holders of shares of the
series upon any liquidation, dissolution or winding up of the
affairs of, or upon any distribution of the assets of, the
corporation;
(f) the limitations, if any, applicable while such series is
outstanding, on the payment of dividends or making of distributions
on, or the acquisition of,
<PAGE>
the common stock of any other class of stock which does not rank
senior to the shares of the series;
(g) the voting rights, if any, to be provided for shares of the series.
5. Duties and Liabilities of Directors and Officers.
------------------------------------------------
(a) Directors and officers as fiduciaries. A director or officer of the
corporation shall stand in a fiduciary relation to the corporation and
shall perform his or her duties as a director or officer, including his or
her duties as a member of any committee of the board upon which he or she
may serve, in good faith, in a manner he or she reasonably believes to be
in the best interests of the corporation, and with such care, including
reasonable inquiry, skill and diligence, as a person of ordinary prudence
would use under similar circumstances. In performing his or her duties, a
director or officer shall be entitled to rely in good faith on information,
opinions, reports or statements, including financial statements and other
financial data, in each case prepared or presented by: (a) one or more
officers or employees of the corporation whom the director or officer
reasonably believes to be reliable and competent with respect to the
matters presented, (b) counsel, public accountants or other persons as to
matters that the director or officer reasonably believes to be within the
professional or expert competence of such person, or (c) a committee of the
Board of Directors upon which the director or officer does not serve, duly
designated in accordance with law, as to matters within its designated
authority, which committee the director or officer reasonably believes to
merit confidence. A director or officer shall not be considered to be
acting in good faith if he or she has knowledge concerning the matter in
question that would cause his or her reliance to be unwarranted. Absent
breach of fiduciary duty, lack of good faith or self-dealing, actions taken
as a director or officer of the corporation or any failure to take any
action shall be presumed to be in the best interests of the corporation.
(b) Personal liability of directors. A director of the corporation shall
not be personally liable for monetary damages as such (including, without
limitation, any judgment, amount paid in settlement, penalty, punitive
damages or expense of any nature (including, without limitation, attorneys'
fees and disbursements)) for any action taken, or any failure to take any
action, unless the director has breached or failed to perform the duties of
his or her office under these Articles of Incorporation, the By-laws of the
corporation or applicable provisions of law and the breach or failure to
perform constitutes self-dealing, willful misconduct or recklessness.
(c) Personal liability of officers. An officer of the corporation shall
not be personally liable, as such, to the corporation or its shareholders
for monetary damages (including, without limitation, any judgment, amount
paid in settlement, penalty, punitive damages or expense of any nature
(including, without limitation, attorneys' fees and
-2-
<PAGE>
disbursements)) for any action taken, or any failure to take any action,
unless the officer has breached or failed to perform the duties of his or
her office under these Articles of Incorporation, the By-laws of the
corporation or applicable provisions of law and the breach or failure to
perform constitutes self-dealing, willful misconduct or recklessness.
6. The shareholders of the corporation shall not have the right to cumulate
their votes for the election of directors of the corporation.
7. An action may be authorized by the shareholders without a meeting by less
than unanimous written consent.
8. The shareholders of the corporation shall not have the right to cumulate
their votes in the election of directors.
9. Subchapters E, F, G, H, I and J of Section 25 of the Business Corporation
Law of 1988, as amended, shall not be applicable to the corporation.
10. The corporation reserves the right, from time to time, to amend, alter or
repeal any provisions contained in these Articles of Incorporation in the
manner now or hereafter provided by statute for the amendment of Articles
of Incorporation.
-3-
<PAGE>
AMENDED AND RESTATED BYLAWS
OF
SANCHEZ COMPUTER ASSOCIATES, INC.
ARTICLE I
Name and Seal
Section 1.01. Name. The name of the corporation is Sanchez Computer
Associates, Inc.
Section 1.02. State of Incorporation. The corporation is incorporated
under the laws of the Commonwealth of Pennsylvania.
Section 1.03. Seal. The corporate seal of the corporation shall have
inscribed thereon the name of the corporation, the year of its organization, the
words "Corporate Seal," and the name of the State of Incorporation. The seal
may be used by any person authorized by the Board of Directors of the
corporation or by these Bylaws by causing the seal or a facsimile thereof to be
impressed or affixed, or in any manner reproduced.
ARTICLE II
Offices and Fiscal Year
Section 2.01. Registered Office. The registered office of the corporation
in the Commonwealth of Pennsylvania shall be at c/o Corporation Services
Corporation, __________________________, PA _____ until otherwise established by
an amendment of the articles of incorporation (the "articles") or by the Board
of Directors of the corporation (the "Board of Directors" or the "Board") and a
record of such change is filed with the Pennsylvania Department of State in the
manner provided by law.
Section 2.02. Other Offices. The corporation may also have offices at
such other places within or without the Commonwealth of Pennsylvania as the
Board of Directors may from time to time appoint or the business of the
corporation may require.
Section 2.03. Fiscal Year. The fiscal year of the corporation shall begin
on the first day of January in each year.
<PAGE>
ARTICLE III
Notice--Waivers--Meetings Generally
Section 3.01. Manner of Giving Notice.
(a) General Rule. Whenever written notice is required to be given to
any person under the provisions of the Business Corporation Law or by the
articles or these bylaws, it may be given to the person either personally or by
sending a copy thereof by first class or express mail, postage prepaid, or by
telegram (with messenger service specified), telex or TWX (with answerback
received) or courier service, charges prepaid, or by facsimile transmission, to
the address (or to the telex, TWX, facsimile or telephone number) of the person
appearing on the books of the corporation or, in the case of directors, supplied
by the director to the corporation for the purpose of notice. If the notice is
sent by mail, telegraph or courier service, it shall be deemed to have been
given to the person entitled thereto when deposited in the United States mail or
with a telegraph office or courier service for delivery to that person or, in
the case of telex or TWX, when dispatched or, in the case of facsimile
transmission, when received. A notice of meeting shall specify the place, day
and hour of the meeting and any other information required by any other
provision of the Business Corporation Law, the articles or these bylaws.
(b) Bulk Mail. If the corporation has more than 30 shareholders,
notice of any regular or special meeting of the shareholders, or any other
notice required by the Business Corporation Law or by the articles or these
bylaws to be given to all shareholders or to all holders of a class or series of
shares, may be given by any class of postpaid mail if the notice is deposited in
the United States mail at least 20 days prior to the day named for the meeting
or any corporate or shareholder action specified in the notice.
(c) Adjourned Shareholder Meetings. When a meeting of shareholders is
adjourned, it shall not be necessary to give any notice of the adjourned meeting
or of the business to be transacted at an adjourned meeting, other than by
announcement at the meeting at which the adjournment is taken, unless the Board
fixes a new record date for the adjourned meeting in which event notice shall be
given in accordance with Section 3.03.
Section 3.02. Notice of Meetings of Board of Directors. Notice of a
regular meeting of the Board of Directors need not be given. Notice of every
special meeting of the Board of Directors shall be given to each director by
telephone or in writing at least 24 hours (in the case of notice by telephone,
telex, TWX or facsimile transmission) or 48 hours (in the case of notice by
telegraph, courier service or express mail) or five days (in the case of notice
by first class mail) before the time at which the meeting is to be held. Every
such notice shall state the time and place of the meeting. Neither the business
to be transacted at, nor the purpose of, any regular or special meeting of the
Board need be specified in a notice of the meeting.
2
<PAGE>
Section 3.03. Notice of Meetings of Shareholders.
(a) General Rule. Except as otherwise provided in Section 3.01(b),
written notice of every meeting of the shareholders shall be given by, or at the
direction of, the secretary or other authorized person to each shareholder of
record entitled to vote at the meeting at least (1) ten days prior to the day
named for a meeting (and, in case of a meeting called to consider a merger,
consolidation, share exchange or division, to each shareholder of record not
entitled to vote at the meeting) called to consider a fundamental change under
15 Pa.C.S. Chapter 19 or (2) five days prior to the day named for the meeting in
any other case. If the secretary neglects or refuses to give notice of a
meeting, the person or persons calling the meeting may do so. In the case of a
special meeting of shareholders, the notice shall specify the general nature of
the business to be transacted.
(b) Notice of Action by Shareholders on Bylaws. In the case of a
meeting of shareholders that has as one of its purposes action on the bylaws,
written notice shall be given to each shareholder that the purpose, or one of
the purposes, of the meeting is to consider the adoption, amendment or repeal of
the bylaws. There shall be included in, or enclosed with, the notice a copy of
the proposed amendment or a summary of the changes to be effected thereby.
(c) Notice of Action by Shareholders on Fundamental Change. In the
case of a meeting of the shareholders that has as one of its purposes action
with respect to any fundamental change under 15 Pa.C.S. Chapter 19, each
shareholder shall be given, together with written notice of the meeting, a copy
or summary of the amendment or plan to be considered at the meeting in
compliance with the provisions of Chapter 19.
(d) Notice of Action by Shareholders Giving Rise to Dissenters Rights.
In the case of a meeting of the shareholders that has as one of its purposes
action that would give rise to dissenters rights under the provisions of 15
Pa.C.S. Subchapter 15D, each shareholder shall be given, together with written
notice of the meeting:
(1) statement that the shareholders have a right to dissent and
obtain payment of the fair value of their shares by complying with the
provisions of Subchapter 15D (relating to dissenters rights); and
(2) copy of Subchapter 15D.
3
<PAGE>
Section 3.04. Waiver of Notice.
(a) Written Waiver. Whenever any written notice is required to be
given under the provisions of the Business Corporation Law, the articles or
these bylaws, a waiver thereof in writing, signed by the person or persons
entitled to the notice, whether before or after the time stated therein, shall
be deemed equivalent to the giving of the notice. Neither the business to be
transacted at, nor the purpose of, a meeting need be specified in the waiver of
notice of the meeting.
(b) Waiver by Attendance. Attendance of a person at any meeting shall
constitute a waiver of notice of the meeting except where a person attends a
meeting for the express purpose of objecting, at the beginning of the meeting,
to the transaction of any business because the meeting was not lawfully called
or convened.
Section 3.05. Modification of Proposal Contained in Notice. Whenever
the language of a proposed resolution is included in a written notice of a
meeting required to be given under the provisions of the Business Corporation
Law or the articles or these bylaws, the meeting considering the resolution may
without further notice adopt it with such clarifying or other amendments as do
not enlarge its original purpose.
Section 3.06. Exception to Requirement of Notice.
(a) General Rule. Whenever any notice or communication is required to
be given to any person under the provisions of the Business Corporation Law or
by the articles or these bylaws or by the terms of any agreement or other
instrument or as a condition precedent to taking any corporate action and
communication with that person is then unlawful, the giving of the notice or
communication to that person shall not be required.
(b) Shareholders Without Forwarding Addresses. Notice or other
communications need not be sent to any shareholder with whom the corporation has
been unable to communicate for more than 24 consecutive months because
communications to the shareholder are returned unclaimed or the shareholder has
otherwise failed to provide the corporation with a current address. Whenever
the shareholder provides the corporation with a current address, the corporation
shall commence sending notices and other communications to the shareholder in
the same manner as to other shareholders.
Section 3.07. Use of Conference Telephone and Similar Equipment. Any
director may participate in any meeting of the Board of Directors, and the Board
of Directors may provide by resolution with respect to a specific meeting or
with respect to a class of meetings that one or more persons may participate in
a meeting of the shareholders of the corporation, by means of conference
telephone or similar communications equipment by means of which all persons
4
<PAGE>
participating in the meeting can hear each other. Participation in a meeting
pursuant to this section shall constitute presence in person at the meeting.
ARTICLE IV
Shareholders
Section 4.01. Place of Meeting. All meetings of the shareholders of
the corporation shall be held at such place, within or without the State of
Incorporation, as shall be determined by the Board of Directors from time to
time.
Section 4.02. Annual Meeting. The Board of Directors may fix and
designate the date and time of the annual meeting of the shareholders, but if no
such date and time is fixed and designated by the Board, the meeting for any
calendar year shall be held on the third Tuesday in May in such year, if not a
legal holiday under the laws of Pennsylvania, and, if a legal holiday, then on
the next succeeding business day, not a Saturday, at 10 o'clock A.M. and at said
meeting the shareholders then entitled to vote shall elect directors and shall
transact such other business as may properly be brought before the meeting. If
the annual meeting shall not have been called and held within six months after
the designated time, any shareholder may call the meeting at any time
thereafter.
Section 4.03. Special Meetings. Special meetings of the shareholders
may be called at any time by the President or by resolution of the Board of
Directors, which may fix the date, time and place of the meeting. If the Board
does not fix the date, time or place of the meeting, it shall be the duty of the
secretary to do so. A date fixed by the secretary shall not be more than 60
days after the date of the adoption of the resolution of the Board calling the
special meeting.
Section 4.04. Quorum and Adjournment.
(a) General Rule. A meeting of shareholders of the corporation duly
called shall not be organized for the transaction of business unless a quorum is
present. The presence of shareholders entitled to cast at least a majority of
the votes that all shareholders are entitled to cast on a particular matter to
be acted upon at the meeting shall constitute a quorum for the purposes of
consideration and action on the matter. Shares of the corporation owned,
directly or indirectly, by it and controlled, directly or indirectly, by the
Board of Directors of this corporation, as such, shall not be counted in
determining the total number of outstanding shares for quorum purposes at any
given time.
(b) Withdrawal of a Quorum. The shareholders present at a duly
organized meeting can continue to do business until adjournment notwithstanding
the withdrawal of enough shareholders to leave less than a quorum.
5
<PAGE>
(c) Adjournments Generally. Any regular or special meeting of the
shareholders, including one at which directors are to be elected and one which
cannot be organized because a quorum has not attended, may be adjourned for such
period and to such place as the shareholders present and entitled to vote shall
direct.
(d) Electing Directors at Adjourned Meeting. Those shareholders
entitled to vote who attend a meeting called for the election of directors that
has been previously adjourned for lack of a quorum, although less than a quorum
as fixed in this section, shall nevertheless constitute a quorum for the purpose
of electing directors.
(e) Other Action in Absence of Quorum. Those shareholders entitled to
vote who attend a meeting of shareholders that has been previously adjourned for
one or more periods aggregating at least 15 days because of an absence of a
quorum, although less than a quorum as fixed in this section, shall nevertheless
constitute a quorum for the purpose of acting upon any matter set forth in the
notice of the meeting if the notice states that those shareholders who attend
the adjourned meeting shall nevertheless constitute a quorum for the purpose of
acting upon the matter.
Section 4.05. Action by Shareholders. Except as otherwise provided
in the Business Corporation Law or the articles or these bylaws, whenever any
corporate action is to be taken by vote of the shareholders of the corporation,
it shall be authorized upon receiving the affirmative vote of a majority of the
votes cast by all shareholders entitled to vote thereon and, if any shareholders
are entitled to vote thereon as a class, upon receiving the affirmative vote of
a majority of the votes cast by the shareholders entitled to vote as a class.
Section 4.06. Organization. At every meeting of the shareholders,
the chairman of the Board, if there be one, or, in the case of vacancy in office
or absence of the chairman of the Board, one of the following persons present in
the order stated: the vice chairman of the Board, if there be one, the
president, the vice presidents in their order of rank and seniority, or a person
chosen by vote of the shareholders present, shall act as chairman of the
meeting. The secretary or, in the absence of the secretary, an assistant
secretary, or, in the absence of both the secretary and assistant secretaries, a
person appointed by the chairman of the meeting, shall act as secretary of the
meeting.
Section 4.07. Voting Rights of Shareholders. Unless otherwise
provided in the articles, every shareholder of the corporation shall be entitled
to one vote for each full share having voting power standing in the name of the
shareholder on the books of the corporation.
6
<PAGE>
Section 4.08. Voting and Other Action by Proxy.
(a) General Rule.
(1) every shareholder entitled to vote at a meeting of
shareholders may authorize another person to act for the shareholder
by proxy.
(2) The presence of, or vote or other action at a meeting of
shareholders by a proxy of a shareholder shall constitute the presence
of, or vote or action by the shareholder.
(3) Where two or more proxies of a shareholder are present, the
corporation shall, unless otherwise expressly provided in the proxy,
accept as the vote of all shares represented thereby the vote cast by
a majority of them and, if a majority of the proxies cannot agree
whether the shares represented shall be voted or upon the manner of
voting the shares, the voting of the shares shall be divided equally
among those persons.
(b) Execution and Filing. Every proxy shall be executed in writing by
the shareholder or by the duly authorized attorney-in-fact of the shareholder
and filed with the secretary of the corporation. A telegram, telex, cablegram,
datagram or similar transmission from a shareholder or attorney-in-fact, or a
photographic, facsimile or similar reproduction of a writing executed by a
shareholder or attorney-in-fact:
(1) may be treated as properly executed for purposes of this
subsection; and
(2) shall be so treated if it sets forth a confidential and
unique identification number or other mark furnished by the
corporation to the shareholder for the purposes of a particular
meeting or transaction.
(c) Revocation. A proxy, unless coupled with an interest, shall be
revocable at will, notwithstanding any other agreement or any provision in the
proxy to the contrary, but the revocation of a proxy shall not be effective
until written notice thereof has been given to the secretary of the corporation.
An unrevoked proxy shall not be valid after three years from the date of its
execution unless a longer time is expressly provided therein. A proxy shall not
be revoked by the death or incapacity of the maker unless, before the vote is
counted or the authority is exercised, written notice of the death or incapacity
is given to the secretary of the corporation.
(d) Expenses. The corporation shall pay the reasonable expenses of
solicitation of votes, proxies or consents of shareholders by or on behalf of
the Board of Directors
7
<PAGE>
or its nominees for election to the Board, including solicitation by
professional proxy solicitors and otherwise.
Section 4.09. Voting by Fiduciaries and Pledgees. Shares of the
corporation standing in the name of a trustee or other fiduciary and shares held
by an assignee for the benefit of creditors or by a receiver may be voted by the
trustee, fiduciary, assignee or receiver. A shareholder whose shares are pledged
shall be entitled to vote the shares until the shares have been transferred into
the name of the pledgee, or a nominee of the pledgee, but nothing in this
section shall affect the validity of a proxy given to a pledgee or nominee.
Section 4.10. Voting by Joint Holders of Shares.
(a) General Rule. Where shares of the corporation are held jointly or
as tenants in common by two or more persons, as fiduciaries or otherwise:
(1) if only one or more of such persons is present in person or by
proxy, all of the shares standing in the names of such persons shall
be deemed to be represented for the purpose of determining a quorum
and the corporation shall accept as the vote of all the shares the
vote cast by a joint owner or a majority of them; and
(2) if the persons are equally divided upon whether the shares
held by them shall be voted or upon the manner of voting the shares,
the voting of the shares shall be divided equally among the persons
without prejudice to the rights of the joint owners or the beneficial
owners thereof among themselves.
(b) Exception. If there has been filed with the secretary of the
corporation a copy, certified by an attorney at law to be correct, of the
relevant portions of the agreement under which the shares are held or the
instrument by which the trust or estate was created or the order of court
appointing them or of an order of court directing the voting of the shares, the
persons specified as having such voting power in the document latest in date of
operative effect so filed, and only those persons, shall be entitled to vote the
shares but only in accordance therewith.
Section 4.11. Voting by Corporations.
(a) Voting by Corporate Shareholders. Any corporation that is a
shareholder of this corporation may vote at meetings of shareholders of this
corporation by any of its officers or agents, or by proxy appointed by any
officer or agent, unless some other person, by resolution of the Board of
Directors of the other corporation or a provision of its articles or bylaws, a
copy of which resolution or provision certified to be correct by one of its
officers has been filed with the secretary of this corporation, is appointed its
general or special proxy in which case that person shall be entitled to vote the
shares.
8
<PAGE>
(b) Controlled Shares. Shares of this corporation owned, directly or
indirectly, by it and controlled, directly or indirectly, by the Board of
Directors of this corporation, as such, shall not be voted at any meeting and
shall not be counted in determining the total number of outstanding shares for
voting purposes at any given time.
Section 4.12. Determination of Shareholders of Record.
(a) Fixing Record Date. The Board of Directors may fix a time prior
to the date of any meeting of shareholders as a record date for the
determination of the shareholders entitled to notice of, or to vote at, the
meeting, which time, except in the case of an adjourned meeting, shall be not
more than 90 days prior to the date of the meeting of shareholders. Only
shareholders of record on the date fixed shall be so entitled notwithstanding
any transfer of shares on the books of the corporation after any record date
fixed as provided in this subsection. The Board of Directors may similarly fix
a record date for the determination of shareholders of record for any other
purpose. When a determination of shareholders of record has been made as
provided in this section for purposes of a meeting, the determination shall
apply to any adjournment thereof unless the Board fixes a new record date for
the adjourned meeting.
b) Determination When a Record Date is Not Fixed. If a record date is
not fixed:
(1) The record date for determining shareholders entitled to
notice of or to vote at a meeting of shareholders shall be at the
close of business on the day next preceding the day on which notice is
given.
(2) The record date for determining shareholders for any other
purpose shall be at the close of business on the day on which the
Board of Directors adopts the resolution relating thereto.
(c) Certification by Nominee. The Board of Directors may adopt a
procedure whereby a shareholder of the corporation may certify in writing to the
corporation that all or a portion of the shares registered in the name of the
shareholder are held for the account of a specified person or persons. Upon
receipt by the corporation of a certification complying with the procedure, the
persons specified in the certification shall be deemed, for the purposes set
forth in the certification, to be the holders of record of the number of shares
specified in place of the shareholder making the certification.
Section 4.13. Voting Lists.
(a) General Rule. The officer or agent having charge of the transfer
books for shares of the corporation shall make a complete list of the
shareholders entitled to vote at any meeting of shareholders, arranged in
alphabetical order, with the address of and the number of
9
<PAGE>
shares held by each. The list shall be produced and kept open at the time and
place of the meeting and shall be subject to the inspection of any shareholder
during the whole time of the meeting for the purposes thereof except that, if
the corporation has 5,000 or more shareholders, in lieu of the making of the
list the corporation may make the information therein available at the meeting
by any other means.
(b) Effect of List. Failure to comply with the requirements of this
section shall not affect the validity of any action taken at a meeting prior to
a demand at the meeting by any shareholder entitled to vote thereat to examine
the list. The original share register or transfer book, or a duplicate thereof
kept in the Commonwealth of Pennsylvania, shall be prima facie evidence as to
who are the shareholders entitled to examine the list or share register or
transfer book or to vote at any meeting of shareholders.
Section 4.14. Judges of Election.
(a) Appointment. In advance of any meeting of shareholders of the
corporation, the Board of Directors may appoint judges of election, who need not
be shareholders, to act at the meeting or any adjournment thereof. If judges of
election are not so appointed, the presiding officer of the meeting may, and on
the request of any shareholder shall, appoint judges of election at the meeting.
The number of judges shall be one or three. A person who is a candidate for an
office to be filled at the meeting shall not act as a judge.
(b) Vacancies. In case any person appointed as a judge fails to
appear or fails or refuses to act, the vacancy may be filled by appointment made
by the Board of Directors in advance of the convening of the meeting or at the
meeting by the presiding officer thereof.
(c) Duties. The judges of election shall determine the number of
shares outstanding and the voting power of each, the shares represented at the
meeting, the existence of a quorum, and the authenticity, validity and effect of
proxies, receive votes or ballots, hear and determine all challenges and
questions in any way arising in connection with nominations by shareholders or
the right to vote, count and tabulate all votes, determine the result and do
such acts as may be proper to conduct the election or vote with fairness to all
shareholders. The judges of election shall perform their duties impartially, in
good faith, to the best of their ability and as expeditiously as is practical.
If there are three judges of election, the decision, act or certificate of a
majority shall be effective in all respects as the decision, act or certificate
of all.
(d) Report. On request of the presiding officer of the meeting or of
any shareholder, the judges shall make a report in writing of any challenge or
question or matter determined by them, and execute a certificate of any fact
found by them. Any report or certificate made by them shall be prima facie
evidence of the facts stated therein.
10
<PAGE>
Section 4.15. Minors as Security Holders. The corporation may treat
a minor who holds shares or obligations of the corporation as having capacity to
receive and to empower others to receive dividends, interest, principal and
other payments or distributions, to vote or express consent or dissent and to
make elections and exercise rights relating to such shares or obligations
unless, in the case of payments or distributions on shares, the corporate
officer responsible for maintaining the list of shareholders or the transfer
agent of the corporation or, in the case of payments or distributions on
obligations, the treasurer or paying officer or agent has received written
notice that the holder is a minor.
ARTICLE V
Board of Directors
Section 5.01. Powers
(a) General Rule. Unless otherwise provided by statute, all powers
vested by law in the corporation shall be exercised by or under the authority
of, and the business and affairs of the corporation shall be managed under the
direction of, the Board of Directors.
(b) Notation of Dissent. A director of the corporation who is present
at a meeting of the Board of Directors, or of a committee of the Board, at which
action on any corporate matter is taken on which the director is generally
competent to act, shall be presumed to have assented to the action taken unless
his or her dissent is entered in the minutes of the meeting or unless the
director files his or her written dissent to the action with the secretary of
the meeting before the adjournment thereof or transmits the dissent in writing
to the secretary of the corporation immediately after the adjournment of the
meeting. The right to dissent shall not apply to a director who voted in favor
of the action. Nothing in this section shall bar a director from asserting that
minutes of the meeting incorrectly omitted his or her dissent if, promptly upon
Creceipt of a copy of such minutes, the director notifies the secretary, in
writing, of the asserted omission or inaccuracy.
Section 5.02. Qualifications and Election of Directors.
(a) Qualifications. Each director of the corporation shall be a
natural person of full age who need not be a resident of the Commonwealth of
Pennsylvania or a shareholder of the corporation.
(b) Election of Directors. In elections for directors, voting need
not be by ballot, unless required by vote of the shareholders before the voting
for the election of directors begins. The nominees receiving the highest number
of votes shall be elected to the Board of Directors.
11
<PAGE>
Section 5.03. Number and Term of Office.
(a) Number. The Board of Directors shall consist of such number of
directors as may be determined from time to time by resolution adopted by a
vote of a majority of the entire board of directors and shall initially consist
of seven Directors.
(b) Term of Office. Each director shall hold office until the next
annual meeting of the shareholders and until their successors shall have been
elected and qualified, except in the event of death, resignation or
(c) Resignation. Any director may resign at any time upon written
notice to the corporation. The resignation shall be effective upon receipt
thereof by the corporation or at such subsequent time as shall be specified in
the notice of resignation.
Section 5.04. Vacancies
(a) Vacancies and newly created directorships resulting from any
increase in the authorized number of directors may be filled by a
majority of the directors then in office, though less than a quorum,
or by a sole remaining director, and a director so chosen shall hold
office until the next annual election of directors and until a
successor is duly elected and qualified. If there are no directors in
office, then an election of directors may be held in the manner
provided by statute.
(b) Whenever the holders of any class or classes of stock or
series thereof are entitled to elect one or more directors by the
provisions of the certificate of incorporation, vacancies and newly
created directorships of such class or classes or series may be filled
by a majority of the directors elected by such class or classes or
series thereof then in office, or by a sole remaining director so
elected.
Section 5.05. Removal of Directors.
(a) Removal by the Shareholders. The entire Board of Directors or
any individual director may be removed from office only for cause by vote of a
majority of the shareholders entitled to vote thereon. In case the Board or any
one or more directors are so removed, new directors may be elected at the same
meeting. The repeal of a provision of the articles or bylaws prohibiting, or
the addition of a provision to the articles or bylaws permitting, the removal by
the shareholders of the Board or any individual director without assigning any
cause shall not apply to any incumbent director during the balance of the term
for which the director was selected.
12
<PAGE>
(b) Removal by the Board. The Board of Directors may declare vacant
the office of a director who has been judicially declared of unsound mind or who
has been convicted of an offense punishable by imprisonment for a term of more
than one year or if, within 60 days after notice of his or her selection, the
director does not accept the office either in writing or by attending a meeting
of the Board of Directors.
Section 5.06. Place of Meetings. Meetings of the Board of Directors
may be held at such place within or without the Commonwealth of Pennsylvania as
the Board of Directors may from time to time appoint or as may be designated in
the notice of the meeting.
Section 5.07. Organization of Meetings. At every meeting of the
Board of Directors, the chairman of the Board, if there be one, or, in the case
of a vacancy in the office or absence of the chairman of the Board, one of the
following officers present in the order stated: the vice chairman of the Board,
if there be one, the president, the vice presidents in their order of rank and
seniority, or a person chosen by a majority of the directors present, shall act
as chairman of the meeting. The secretary or, in the absence of the secretary,
an assistant secretary, or, in the absence of the secretary and the assistant
secretaries, any person appointed by the chairman of the meeting, shall act as
secretary of the meeting.
Section 5.08. Regular Meetings. Regular meetings of the Board of
Directors shall be held at such time and place as shall be designated from time
to time by resolution of the Board of Directors.
Section 5.09. Special Meetings. Special meetings of the Board of
Directors shall be held whenever called by the chairman or by two or more of the
directors.
Section 5.10. Quorum of and Action by Directors.
(a) General Rule. A majority of the directors in office of the
corporation shall be necessary to constitute a quorum for the transaction of
business and the acts of a majority of the directors present and voting at a
meeting at which a quorum is present shall be the acts of the Board of
Directors.
(b) Action by Written Consent. Any action required or permitted to
be taken at a meeting of the directors may be taken without a meeting if, prior
or subsequent to the action, a consent or consents thereto by all of the
directors in office is filed with the secretary of the corporation.
Section 5.11. Executive and Other Committees.
(a) Establishment and Powers. The Board of Directors may, by
resolution adopted by a majority of the directors in office, establish one or
more committees to consist of
13
<PAGE>
one or more directors of the corporation. Any committee, to the extent provided
in the resolution of the Board of Directors, shall have and may exercise all of
the powers and authority of the Board of Directors except that a committee shall
not have any power or authority as to the following:
(1) The submission to shareholders of any action requiring
approval of shareholders under the Business Corporation Law.
(2) The creation or filling of vacancies in the Board of
Directors.
(3) The adoption, amendment or repeal of these bylaws.
(4) The amendment or repeal of any resolution of the Board
that by its terms is amendable or repealable only by the Board.
(5) Action on matters committed by a resolution of the Board
of Directors to another committee of the Board.
(b) Alternate Committee Members. The Board may designate one or
more directors as alternate members of any committee who may replace any absent
or disqualified member at any meeting of the committee or for the purposes of
any written action by the commit tee. In the absence or disqualification of a
member and alternate member or members of a committee, the member or members
thereof present at any meeting and not disqualified from voting, whether or not
constituting a quorum, may unanimously appoint another director to act at the
meeting in the place of the absent or disqualified member.
(c) Term. Each committee of the Board shall serve at the pleasure
of the Board.
(d) Committee Procedures. The term "Board of Directors" or
"Board," when used in any provision of these bylaws relating to the organization
or procedures of or the manner of taking action by the Board of Directors, shall
be construed to include and refer to any executive or other committee of the
Board.
Section 5.12. Compensation. The Board of Directors shall have the
authority to fix the compensation of directors for their services as directors
and a director may be a salaried officer of the corporation.
14
<PAGE>
ARTICLE VI
Officers
Section 6.01. Officers Generally.
(a) Number, Qualifications and Designation. The officers of the
corporation shall be a chief executive officer, a president, one or more vice
presidents, a secretary, a treasurer, and such other officers as may be elected
in accordance with the provisions of Section 6.03. Officers may but need not be
directors or shareholders of the corporation. The president and secretary shall
be natural persons of full age. The treasurer may be a corporation, but if a
natural person shall be of full age. The Board of Directors may elect from
among the members of the Board a chairman of the Board and a vice chairman of
the Board who shall be officers of the corporation. Any number of offices may
be held by the same person.
(b) Bonding. The corporation may secure the fidelity of any or all of
its officers by bond or otherwise.
Section 6.02. Election, Term of Office and Resignations.
(a) Election and Term of Office. The officers of the corporation,
except those elected by delegated authority pursuant to Section 6.03, shall be
elected annually by the Board of Directors, and each such officer shall hold
office for a term of one year and until a successor has been selected and
qualified or until his or her earlier death, resignation or removal.
(b) Resignations. Any officer may resign at any time upon written
notice to the corporation. The resignation shall be effective upon receipt
thereof by the corporation or at such subsequent time as may be specified in the
notice of resignation.
Section 6.03. Subordinate Officers, Committees and Agents. The Board
of Directors may from time to time elect such other officers and appoint such
committees, employees or other agents as the business of the corporation may
require, including one or more assistant secretaries, and one or more assistant
treasurers, each of whom shall hold office for such period, have such authority,
and perform such duties as are provided in these bylaws, or as the Board of
Directors may from time to time determine. The Board of Directors may delegate
to any officer or committee the power to elect subordinate officers and to
retain or appoint employees or other agents, or committees thereof, and to
prescribe the authority and duties of such subordinate officers, committees,
employees or other agents.
Section 6.04. Removal of Officers and Agents. Any officer or agent
of the corporation may be removed by the Board of Directors with or without
cause. The removal shall
15
<PAGE>
be without prejudice to the contract rights, if any, of any person so removed.
Election or appointment of an officer or agent shall not of itself create
contract rights.
Section 6.05. Vacancies. A vacancy in any office because of death,
resignation, removal, disqualification, or any other cause, may be filled by the
Board of Directors or by the officer or committee to which the power to fill
such office has been delegated pursuant to Section 6.03, as the case may be, and
if the office is one for which these bylaws prescribe a term, shall be filled
for the unexpired portion of the term.
Section 6.06. Authority. All officers of the corporation, as between
themselves and the corporation, shall have such authority and perform such
duties in the management of the corporation as may be provided by or pursuant to
resolutions or orders of the Board of Directors or, in the absence of
controlling provisions in the resolutions or orders of the Board of Directors,
as may be determined by or pursuant to these bylaws.
Section 6.07. The Chairman and Vice Chairman of the Board. The
chairman of the Board or in the absence of the chairman, the vice chairman of
the Board, shall preside at all meetings of the shareholders and of the Board of
Directors, and shall perform such other duties as may from time to time be
requested by the Board of Directors.
Section 6.08. The Chief Executive Officer. The chief executive
officer shall be the chief executive officer of the corporation and shall have
general supervision over the business and operations of the corporation, subject
however, to the control of the Board of Directors. The chief executive officer
shall sign, execute, and acknowledge, in the name of the corporation, deeds,
mortgages, bonds, contracts or other instruments, authorized by the Board of
Directors, except in cases where the signing and execution thereof shall be
expressly delegated by the Board of Directors, or by these bylaws, to some other
officer or agent of the corporation; and, in general, shall perform all duties
incident to the office of president and such other duties as from time to time
may be assigned by the Board of Directors. The chief executive officer shall
from time to time make such reports of the affairs of the corporation as the
Board may require and shall annually present to the annual meeting of the
shareholders a report of the business of the corporation for the preceding
fiscal year.
Section 6.09. The President. The president shall perform the duties
of the chief executive officer in the absence of such officer and such other
duties as may from time to time be assigned to them by the Board of Directors or
the chief executive officer.
Section 6.10. The Vice Presidents. The vice presidents shall perform
the duties of the president in the absence of the president and such other
duties as may from time to time be assigned to them by the Board of Directors,
the chief executive officer or the president and if there is more than one vice
president, their seniority in performing such duties and exercising such
16
<PAGE>
powers shall be determined by the order in which they were first elected or
appointed, or as determined by the Board.
Section 6.11. The Secretary. The secretary or an assistant secretary
shall attend all meetings of the shareholders and of the Board of Directors and
all committees thereof and shall record all the votes of the shareholders and of
the directors and the minutes of the meetings of the shareholders and of the
Board of Directors and of committees of the Board in a book or books to be kept
for that purpose; shall see that notices are given and records and reports
properly kept and filed by the corporation as required by law; shall be the
custodian of the seal of the corporation and see that it is affixed to all
documents to be executed on behalf of the corporation under its seal; and, in
general, shall perform all duties incident to the office of secretary, and such
other duties as may from time to time be assigned by the Board of Directors, the
chief executive officer or the president.
Section 6.12. The Treasurer. The treasurer shall be the chief
financial officer and shall have or provide for the custody of the funds or
other property of the corporation; shall collect and receive or provide for the
collection and receipt of moneys earned by or in any manner due to or received
by the corporation; shall deposit all funds in his or her custody as treasurer
in such banks or other places of deposit as the Board of Directors may from time
to time designate; shall, whenever so required by the Board of Directors, render
an account showing all transactions as treasurer, and the financial condition of
the corporation; and, in general, shall discharge such other duties as may from
time to time be assigned by the Board of Directors, the chief executive officer
or the president.
Section 6.13. Salaries. The salaries of the officers elected by the
Board of Directors shall be fixed from time to time by the Board of Directors or
by such officer as may be designated by resolution of the Board. The salaries
or other compensation of any other officers, employees and other agents shall be
fixed from time to time by the Board, or by the officer or committee to which
the power to elect such officers or to retain or appoint such employees or other
agents has been delegated pursuant to Section 6.03. No officer shall be
prevented from receiving such salary or other compensation by reason of the fact
that the officer is also a director of the corporation.
ARTICLE VII
Certificates of Stock, Transfer, Etc.
Section 7.01. Share Certificates.
(a) Form of Certificates. Certificates for shares of the corporation
shall be in such form as approved by the Board of Directors, and shall state
that the corporation is incorporated under the laws of the Commonwealth of
Pennsylvania, the name of the person to
17
<PAGE>
whom issued, and the number and class of shares and the designation of the
series (if any) that the certificate represents. If the corporation is
authorized to issue shares of more than one class or series, certificates for
shares of the corporation shall set forth upon the face or back of the
certificate (or shall state on the face or back of the certificate that the
corporation will furnish to any shareholder upon request and without charge),
a full or summary statement of the designations, voting rights, preferences,
limitations and special rights, if any, of the shares of each class or series
authorized to be issued so far as they have been fixed and determined and the
authority of the Board of Directors to fix and determine the designations,
voting rights, preferences, limitations and special rights of the classes and
series of shares of the corporation.
(b) Share Register. The share register or transfer books and blank
share certificates shall be kept by the secretary or by any transfer agent or
registrar designated by the Board of Directors for that purpose.
Section 7.02. Issuance. The share certificates of the corporation
shall be numbered and registered in the share register or transfer books of the
corporation as they are issued. They shall be executed in such manner as the
Board of Directors shall determine. In case any officer, transfer agent or
registrar who has signed or authenticated, or whose facsimile signature or
authentication has been placed upon, any share certificate shall have ceased to
be such officer, transfer agent or registrar because of death, resignation or
otherwise, before the certificate is issued, the certificate may be issued with
the same effect as if the officer, transfer agent or registrar had not ceased to
be such at the date of its issue. The provisions of this Section 7.02 shall be
subject to any inconsistent or contrary agreement in effect at the time between
the corporation and any transfer agent or registrar.
Section 7.03. Transfer. Transfers of shares shall be made on the
share register or transfer books of the corporation upon surrender of the
certificate therefor, endorsed by the person named in the certificate or by an
attorney lawfully constituted in writing. No transfer shall be made
inconsistent with the provisions of the Uniform Commercial Code, 13 Pa.C.S.
(S)(S) 8101 et seq., and its amendments and supplements.
Section 7.04. Record Holder of Shares. The corporation shall be
entitled to treat the person in whose name any share or shares of the
corporation stand on the books of the corporation as the absolute owner thereof,
and shall not be bound to recognize any equitable or other claim to, or interest
in, such share or shares on the part of any other person.
Section 7.05. Lost, Destroyed or Mutilated Certificates. The holder
of any shares of the corporation shall immediately notify the corporation of any
loss, destruction or mutilation of the certificate therefor, and the Board of
Directors may, in its discretion, cause a new certificate or certificates to be
issued to such holder, in case of mutilation of the certificate, upon the
surrender of the mutilated certificate or, in case of loss or destruction of the
certificate, upon
18
<PAGE>
satisfactory proof of such loss or destruction and, if the Board of Directors
shall so determine, the deposit of a bond in such form and in such sum, and with
such surety or sureties, as it may direct.
Section 7.06. Agreements Restricting Transfer of Shares. The Board
of Directors may authorize the corporation to become party to agreements with
shareholders and others relating to transfer, repurchase and issuance of shares
of stock of the corporation; provided, however, that such agreement must be
filed with the corporation and all share certificates affected thereby shall
have clearly imprinted thereon a legend containing such agreement or referring
thereto.
ARTICLE VIII
Indemnification of Directors, Officers and
Other Authorized Representatives
Section 8.01. Scope of Indemnification.
(a) General Rule. The corporation shall indemnify an indemnified
representative against any liability incurred in connection with any proceeding
in which the indemnified representative may be involved as a party or otherwise
by reason of the fact that such person is or was serving in an indemnified
capacity, including, without limitation, liabilities resulting from any actual
or alleged breach or neglect of duty, error, misstatement or misleading
statement, negligence, gross negligence or act giving rise to strict or products
liability, except:
(1) where such indemnification is expressly prohibited by
applicable law;
(2) where the conduct of the indemnified representative has been
finally determined pursuant to Section 8.06 or otherwise:
(i) to constitute willful misconduct or recklessness within
the meaning of 15 Pa.C.S. (S) 1746(b) or any superseding provision
of law sufficient in the circumstances to bar indemnification
against liabilities arising from the conduct; or
(ii) to be based upon or attributable to the receipt by the
indemnified representative from the corporation of a personal
benefit to which the indemnified representative is not legally
entitled; or
(3) to the extent such indemnification has been finally determined
in a final adjudication pursuant to Section 8.06 to be otherwise
unlawful.
19
<PAGE>
(b) Partial Payment. If an indemnified representative is entitled to
indemnification in respect of a portion, but not all, of any liabilities to
which such person may be subject, the corporation shall indemnify such
indemnified representative to the maximum extent for such portion of the
liabilities.
(c) Presumption. The termination of a proceeding by judgment, order,
settlement or conviction or upon a plea of nolo contendere or its equivalent
shall not of itself create a presumption that the indemnified representative is
not entitled to indemnification.
(d) Definitions. For purposes of this Article:
(1) "indemnified capacity" means any and all past, present and
future service by an indemnified representative in one or more
capacities as a director, officer, employee or agent of the
corporation, or, at the request of the corporation, as a director,
officer, employee, agent, fiduciary or trustee of another corporation,
partnership, joint venture, trust, employee benefit plan or other
entity or enterprise;
(2) "indemnified representative" means any and all directors and
officers of the corporation and any other person designated as an
indemnified representative by the Board of Directors of the
corporation (which may, but need not, include any person serving at
the request of the corporation, as a director, officer, employee,
agent, fiduciary or trustee of another corporation, partnership, joint
venture, trust, employee benefit plan or other entity or enterprise);
(3) "liability" means any damage, judgment, amount paid in
settlement, fine, penalty, punitive damages, excise tax assessed with
respect to an employee benefit plan, or cost or expense of any nature
(including, without limitation, attorneys' fees and disbursements);
and
(4) "proceeding" means any threatened, pending or completed
action, suit, appeal or other proceeding of any nature, whether civil,
criminal, administrative or investigative, whether formal or informal,
and whether brought by or in the right of the corporation, a class of
its security holders or otherwise.
Section 8.02. Proceedings Initiated by Indemnified Representatives.
Notwithstanding any other provision of this Article, the corporation shall not
indemnify under this Article an indemnified representative for any liability
incurred in a proceeding initiated (which shall not be deemed to include counter
claims or affirmative defenses) or participated in as an intervenor or amicus
curiae by the person seeking indemnification unless such initiation of or
participation in the proceeding is authorized, either before or after its
commencement, by the affirmative vote of a majority of the directors in office.
This section does not apply to reimbursement of expenses incurred in
successfully prosecuting or defending an arbitration under
20
<PAGE>
Section 8.06 or otherwise successfully prosecuting or defending the rights of an
indemnified representative granted by or pursuant to this Article.
Section 8.03. Advancing Expenses. The corporation shall pay the
expenses (including attorneys' fees and disbursements) incurred in good faith by
an indemnified representative in advance of the final disposition of a
proceeding described in Section 8.01 or the initiation of or participation in
which is authorized pursuant to Section 8.02 upon receipt of an undertaking by
or on behalf of the indemnified representative to repay the amount if it is
ultimately determined pursuant to Section 8.06 that such person is not entitled
to be indemnified by the corporation pursuant to this Article. The financial
ability of an indemnified representative to repay an advance shall not be a
prerequisite to the making of such advance.
Section 8.04. Securing of Indemnification Obligations. To further
effect, satisfy or secure the indemnification obligations provided herein or
otherwise, the corporation may maintain insurance, obtain a letter of credit,
act as self-insurer, create a reserve, trust, escrow, cash collateral or other
fund or account, enter into indemnification agreements, pledge or grant a
security interest in any assets or properties of the corporation, or use any
other mechanism or arrangement whatsoever in such amounts, at such costs, and
upon such other terms and conditions as the Board of Directors shall deem
appropriate. Absent fraud, the determination of the Board of Directors with
respect to such amounts, costs, terms and conditions shall be conclusive against
all security holders, officers and directors and shall not be subject to
voidability.
Section 8.05. Payment of Indemnification. An indemnified
representative shall be entitled to indemnification within 30 days after a
written request for indemnification has been delivered to the secretary of the
corporation.
Section 8.06. Arbitration.
(a) General Rule. Any dispute related to the right to
indemnification, contribution or advancement of expenses as provided under this
Article, except with respect to indemnification for liabilities arising under
the Securities Act of 1933 that the corporation has undertaken to submit to a
court for adjudication, shall be decided only by arbitration in the metropolitan
area in which the principal executive offices of the corporation are located at
the time, in accordance with the commercial arbitration rules then in effect of
the American Arbitration Association, before a panel of three arbitrators, one
of whom shall be selected by the corporation, the second of whom shall be
selected by the indemnified representative and the third of whom shall be
selected by the other two arbitrators. In the absence of the American
Arbitration Association, or if for any reason arbitration under the arbitration
rules of the American Arbitration Association cannot be initiated, and if one of
the parties fails or refuses to select an arbitrator or the arbitrators selected
by the corporation and the indemnified representative cannot agree on the
selection of the third arbitrator within 30 days after such time as the
corporation and
21
<PAGE>
the indemnified representative have each been notified of the selection of the
other's arbitrator, the necessary arbitrator or arbitrators shall be selected by
the presiding judge of the court of general jurisdiction in such metropolitan
area.
(b) Qualifications of Arbitrators. Each arbitrator selected as
provided herein is required to be or have been a director or executive officer
of a corporation whose shares of common stock were listed during at least one
year of such service on the New York Stock Exchange or the American Stock
Exchange or quoted on the National Association of Securities Dealers Automated
Quotations System.
(c) Burden of Proof. The party or parties challenging the right of an
indemnified representative to the benefits of this Article shall have the burden
of proof.
(d) Expenses. The corporation shall reimburse an indemnified
representative for the expenses (including attorneys' fees and disbursements)
incurred in successfully prosecuting or defending such arbitration.
(e) Effect. Any award entered by the arbitrators shall be final,
binding and nonappealable and judgment may be entered thereon by any party in
accordance with applicable law in any court of competent jurisdiction, except
that the corporation shall be entitled to interpose as a defense in any such
judicial enforcement proceeding any prior final judicial determination adverse
to the indemnified representative under Section 8.01(a)(2) in a proceeding not
directly involving indemnification under this Article. This arbitration
provision shall be specifically enforceable.
Section 8.07. Contribution. If the indemnification provided for in
this Article or otherwise is unavailable for any reason in respect of any
liability or portion thereof, the corporation shall contribute to the
liabilities to which the indemnified representative may be subject in such
proportion as is appropriate to reflect the intent of this Article or otherwise.
Section 8.08. Mandatory Indemnification of Directors, Officers, etc.
To the extent that an authorized representative of the corporation has been
successful on the merits or otherwise in defense of any action, suit or
proceeding referred to in Sections 1741 or 1742 of the Business Corporation Law
or in defense of any claim, issue or matter therein, such person shall be
indemnified against expenses (including attorneys' fees and disbursements)
actually and reasonably incurred by such person in connection therewith.
Section 8.09. Contract Rights; Amendment or Repeal. All rights under
this Article shall be deemed a contract between the corporation and the
indemnified representative pursuant to which the corporation and each
indemnified representative intend to be legally bound. Any repeal, amendment or
modification hereof shall be prospective only and shall not affect any rights or
obligations then existing.
22
<PAGE>
Section 8.10. Scope of Article. The rights granted by this Article
shall not be deemed exclusive of any other rights to which those seeking
indemnification, contribution or advancement of expenses may be entitled under
any statute, agreement, vote of shareholders or disinterested directors or
otherwise, both as to action in an indemnified capacity and as to action in any
other capacity. The indemnification, contribution and advancement of expenses
provided by or granted pursuant to this Article shall continue as to a person
who has ceased to be an indemnified representative in respect of matters arising
prior to such time, and shall inure to the benefit of the heirs, executors,
administrators and personal representatives of such a person.
Section 8.11. Reliance on Provisions. Each person who shall act as
an indemnified representative of the corporation shall be deemed to be doing so
in reliance upon the rights of indemnification, contribution and advancement of
expenses provided by this Article.
Section 8.12. Interpretation. The provisions of this Article are
intended to constitute bylaws authorized by 15 Pa.C.S. (S)1746.
Section 8.13. Changes in Pennsylvania Law. References in this
Article VIII to Pennsylvania law or to any provision thereof shall be to such
law (including without limitation to the Directors' Liability Act) as it existed
on the date this Article VIII was adopted or as such law thereafter may be
changed; provided that (a) in the case of any change which expands the liability
of Directors or limits the indemnification rights or the rights to advancement
of expenses which the corporation may provide, the rights to limited liability,
to indemnification and to the advancement of expenses provided in this Article
shall continue as theretofore to the extent permitted by law; and (b) if such
change permits the corporation without the requirement of any further action by
shareholders or Directors to limit further the liability of Directors (or limit
the liability of Officers) or to provide broader indemnification rights or
rights to the advancement of expenses than the corporation was permitted to
provide prior to such change, then liability thereupon shall be so limited and
the rights to indemnification and the advancement of expenses shall be so
broadened to the extent permitted by law.
ARTICLE IX
Dividends and Other Distributions to Shareholders
Section 9.01. Dividends. Subject to applicable law of the State of
Incorporation, and in accordance with the provisions thereof at the pertinent
applicable time, the Board of Directors of the corporation may from time to time
declare, and the corporation may pay, dividends on its outstanding shares in
cash or property other than its own shares, except when the corporation is
insolvent, or when the payment thereof would render the corporation insolvent,
or when the declaration or payment thereof would be contrary to any restriction
contained in the articles, but:
23
<PAGE>
(1) Dividends may be declared and paid in cash or property only
out of unreserved and unrestricted earned surplus of the corporation,
except as otherwise provided by statute; and
(2) No dividends shall be paid which would reduce the remaining
net assets of the corporation below the aggregate preferential amount
payable in the event of voluntary liquidation to the holders of shares
having preferential rights to the assets of the corporation in the
event of liquidation. The Board of Directors may also, from time to
time, distribute to the holders of the corporation's outstanding
shares having a cumulative preferential right to receive dividends in
discharge of their cumulative dividend rights, dividends payable in
cash out of the unrestricted capital surplus of the corporation, if at
the time the corporation has no earned surplus and is not insolvent
and would not thereby be rendered insolvent. Each such distribution,
when made, shall be identified as a payment of cumulative dividends
out of capital surplus.
Section 9.02 Distributions of Shares of the Corporation. The Board
of Directors of the corporation may, from time to time, distribute pro rata to
holders of any class or classes of its issued shares, treasury shares and
authorized but unissued shares, but
(1) If distribution is made, in the corporation's authorized but
unissued shares having a par value, there shall be transferred to
stated capital at the time of such distribution an amount of surplus
at least equal to the aggregate par value of the shares so issued;
(2) If a distribution is made in the corporation's authorized but
unissued shares without par value, the Board of Directors may fix a
stated value for the shares so issued, and there shall be transferred
to stated capital, at the time of such distribution, an amount of
surplus equal to the aggregate stated value, if any, so fixed;
(3) The amount per share so transferred to stated capital, or the
fact that there was no such transfer, shall be disclosed to the
shareholders receiving such distribution concurrently with the
distribution thereof;
(4) No distribution of shares of any class shall be made to
holders of shares of any other class unless the articles so provide or
such distribution is authorized by the affirmative vote or written
consent of the holders of a majority of the outstanding shares of the
class in which the distribution is to be made.
24
<PAGE>
In lieu of issuing fractional shares in any such distribution, the
corporation may pay in cash the fair value thereof, as determined by the Board
of Directors, to shareholders entitled thereto.
Section 9.03. Reserves. There may be set aside out of any funds of
the corporation available for dividends such sum or sums as the Directors, from
time to time, in their absolute discretion determine as a reserve or reserves to
meet contingencies, or for equalizing dividends, or for repairing or maintaining
any property of the corporation, or for the purchase of additional property, or
for such other purpose as the Board of Directors shall think conducive to the
interests of the corporation. The Board of Directors may abolish or modify any
such reserve.
Section 9.04 Distributions in Partial Liquidation. The Board of
Directors of the corporation may, from time to time, distribute to the
shareholders in partial liquidation, out of unrestricted capital surplus of the
corporation, a portion of its assets in cash or property, subject to the
following conditions:
(1) No such distribution shall be made at a time when the
corporation is insolvent or when such distribution would render the
corporation insolvent;
(2) No such distribution shall be made unless such distribution
shall have been authorized by the prior affirmative vote, obtained
within one (1) year of such distribution, of the holders of at least a
majority of the outstanding shares of each class, whether or not
entitled to vote thereon by the provisions of the articles;
(3) No such distribution shall be made to the holders of any class
of shares unless all cumulative dividends accrued on all classes of
shares entitled to preferential dividends, prior to dividends on the
shares to the holders of which such distribution is to be made, shall
have been fully paid;
(4) No such distribution shall be made to the holders of any class
of shares which would reduce the remaining net assets of the
corporation below the aggregate preferential amount payable in the
event of voluntary liquidation to the holders of shares having
preferential rights to the assets of the corporation in the event of
liquidation;
(5) Each such distribution, when made, shall be identified as a
distribution in partial liquidation and the amount per share disclosed
to the shareholders receiving the same concurrently with the
distribution thereof.
ARTICLE X
Miscellaneous
25
<PAGE>
Section 10.01. Checks. All checks, notes, bills of exchange or other
similar orders in writing shall be signed by such one or more officers or
employees of the corporation as the Board of Directors may from time to time
designate.
Section 10.02. Contracts.
(a) General Rule. Except as otherwise provided in the Business
Corporation Law in the case of transactions that require action by the
shareholders, the Board of Directors may authorize any officer or agent to enter
into any contract or to execute or deliver any instrument on behalf of the
corporation, and such authority may be general or confined to specific
instances.
(b) Statutory Form of Execution of Instruments. Any note, mortgage,
evidence of indebtedness, contract or other document, or any assignment or
endorsement thereof, executed or entered into between the corporation and any
other person, when signed by one or more officers or agents having actual or
apparent authority to sign it, or by the president or vice president and
secretary or assistant secretary or treasurer or assistant treasurer of the
corporation, shall be held to have been properly executed for and in behalf of
the corporation, without prejudice to the rights of the corporation against any
person who shall have executed the instrument in excess of his or her actual
authority.
Section 10.03. Interested Directors or Officers; Quorum.
(a) General Rule. A contract or transaction between the corporation
and one or more of its directors or officers or between the corporation and
another corporation, partnership, joint venture, trust or other enterprise in
which one or more of its directors or officers are directors or officers or have
a financial or other interest, shall not be void or voidable solely for that
reason, or solely because the director or officer is present at or participates
in the meeting of the Board of Directors that authorizes the contract or
transaction, or solely because his, her or their votes are counted for that
purpose, if:
(1) the material facts as to the relationship or interest and as
to the contract or transaction are disclosed or are known to the Board
of Directors and the Board authorizes the contract or transaction by
the affirmative votes of a majority of the disinterested directors
even though the disinterested directors are less than a quorum;
(2) the material facts as to his or her relationship or interest
and as to the contract or transaction are disclosed or are known to
the shareholders entitled to vote thereon and the contract or
transaction is specifically approved in good faith by vote of those
shareholders; or
26
<PAGE>
(3) the contract or transaction is fair as to the corporation as
of the time it is authorized, approved or ratified by the Board of
Directors or the shareholders.
(b) Quorum. Common or interested directors may be counted in
determining the presence of a quorum at a meeting of the Board which authorizes
a contract or transaction specified in subsection (a).
Section 10.04. Deposits. All funds of the corporation shall be
deposited from time to time to the credit of the corporation in such banks,
trust companies or other depositaries as the Board of Directors may approve or
designate, and all such funds shall be withdrawn only upon checks signed by such
one or more officers or employees of the corporation as the Board of Directors
shall from time to time designate.
Section 10.05. Corporate Records.
(a) Required Records. The corporation shall keep complete and
accurate books and records of account, minutes of the proceedings of the
incorporators, shareholders and directors and a share register giving the names
and addresses of all shareholders and the number and class of shares held by
each. The share register shall be kept at either the registered office of the
corporation in the Commonwealth of Pennsylvania or at its principal place of
business wherever situated or at the office of its registrar or transfer agent.
Any books, minutes or other records may be in written form or any other form
capable of being converted into written form within a reasonable time.
(b) Right of Inspection. Every shareholder shall, upon written
verified demand stating the purpose thereof, have a right to examine, in person
or by agent or attorney, during the usual hours for business for any proper
purpose, the share register, books and records of account, and records of the
proceedings of the incorporators, shareholders and directors and to make copies
or extracts therefrom. A proper purpose shall mean a purpose reasonably related
to the interest of the person as a shareholder. In every instance where an
attorney or other agent is the person who seeks the right of inspection, the
demand shall be accompanied by a verified power of attorney or other writing
that authorizes the attorney or other agent to so act on behalf of the
shareholder. The demand shall be directed to the corporation at its registered
office in the Commonwealth of Pennsylvania or at its principal place of business
wherever situated.
Section 10.06. Amendment of Bylaws. These bylaws may be amended or
repealed, or new bylaws may be adopted, either (i) by vote of the shareholders
at any duly organized annual or special meeting of shareholders, or (ii) with
respect to those matters that are not by statute committed expressly to the
shareholders and regardless of whether the shareholders have previously adopted
or approved the bylaw being amended or repealed, by vote of a majority of the
Board of Directors of the corporation in office at any regular or special
meeting of
27
<PAGE>
directors. Any change in these bylaws shall take effect when adopted unless
otherwise provided in the resolution effecting the change. See Section 3.03(b)
(relating to notice of action by shareholders on bylaws).
ARTICLE XI
Amendments
Section 11.01. Amendment by Shareholders. These bylaws may be
altered, amended or repealed by a majority vote of all of the shares of stock of
the corporation issued and outstanding and entitled to vote at any annual or
special meetings of the shareholders duly convened after appropriate notice to
the shareholders of such proposed alteration, amendment or repeal.
Section 11.02. Amendment by the Board of Directors. These bylaws
may be altered, amended or repealed by the affirmative vote of a majority of the
Board of Directors at any regular or special meeting of the Board duly convened
after appropriate notice to the Directors of such proposed alteration, amendment
or repeal.
Section 11.03. Recording Amendments and Alterations. The text of
all amendments and alterations to these bylaws shall be attached to the bylaws
with a notation of the date of each such amendment or alteration and a notation
of whether such amendment or alteration was adopted by the shareholders or the
Board of Directors.
ARTICLE XII
Adoption of Bylaws - Record of Amendment
Section 12.1. Adoption. These Amended and Restated Bylaws have been
adopted and filed with the undersigned on the __ day of September, 1996, and
shall be effective as of this date.
28
<PAGE>
Section 12.2. Amendments to Bylaws.
Section Amended Date Amended Adopted by
- --------------- ------------ ----------
------------------------------
Secretary
September , 1996
29
<PAGE>
SANCHEZ
---------------------------
SANCHEZ COMPUTER ASSOCIATES
NUMBER SHARES
SCAI
COMMON STOCK COMMON STOCK
Sanchez Computer Associates, Inc
INCORPORATED UNDER THE LAWS OF THE COMMONWEALTH OF PENNSYLVANIA
CUSIP
This certifies that See reverse for certain definitions
Is the owner of
CERTIFICATE OF STOCK
FULLY PAID AND NON-ASSESSABLE SHARES OF THE COMMON STOCK,
NO PAR VALUE PER SHARE, OF
- ---------------------- SANCHEZ COMPUTER ASSOCIATES, INC. -----------------------
transferable on the body of the corporation by said owner in person or by
the duly authorized attorney upon the surrender of this certificate properly
endorsed. This certificate and the shares represented hereby are issued and
shall be held subject to the provisions of the Articles of Incorporation and the
Bylaws of the Corporation, as amended, copies of which are offered at the office
of the Transfer Agent of the Corporation, and to which reference is hereby
expressly made and is all of which the holder here or by acceptance of this
certificate hereby assents. This certificate is not valid until countersigned by
the Transfer Agent and registered by the Registrar.
Witness the facsimile of the Corporation's seal and the facsimile
signatures of its duly authorized officers.
Dated:
[SIGNATURE APPEARS HERE] [SIGNATURE APPEARS HERE]
SECRETARY CHAIRMAN AND CHIEF EXECUTIVE OFFICER
[SEAL OF SANCHEZ COMPUTER ASSOCIATES, INC. APPEARS HERE]
COUNTERSIGNED AND REGISTERED:
ChaseMellon Shareholder Services, L.L.C.
TRANSFER AGENT AND REGISTRAR
BY
AUTHORIZED SIGNATURE
<PAGE>
Sanchez Computer Associates, Inc. will furnish to any shareholder, upon
request and without charge, a full or summary statement of the
designations, voting rights, preferences, limitations and special rights
of the shares of each class or series authorized to be issued so far as
they have been fixed and determined and the authority of the board of
directors to fix and determine the designations, voting rights,
preferences, limitations and special rights of the classes and series of
shares of the Corporation. Any such request should be addressed to the
Secretary of the Corporation or to the Corporation or to the Transfer
Agent named on the face of this certificate.
The following abbreviations, when used in the inscription on the face of this
certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
<TABLE>
<S> <C>
TEN COM - as tenants in common UNIF GIFT MIN ACT - Custodian
TEN ENT - as tenants by the ---------- ----------
entireties (Cust) (Minor)
JT TEN - as joint tenants with under Uniform Gifts
right of survivorship and to Minors Act
not as tenants in common
--------------------
(State)
</TABLE>
Additional abbreviations may also be used though not in the above list.
For value received, hereby sell(s), assign(s)
----------------------------------
and transfer(s) unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- ----------------------------------------------
- ----------------------------------------------
- --------------------------------------------------------------------------------
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- ------------------------------------------------------------------------- shares
of the capital stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint
- ----------------------------------------------------------------------- Attorney
to transfer the said stock on the books of the within named Corporation with
full power of substitution in the premises.
Dated
-------------------------------
-----------------------------------------------
NOTICE: THE SIGNATURE(S) TO THIS ASSIGNMENT MUST
CORRESPOND WITH THE NAMES(S) AS WRITTEN UPON
THE FACE OF THE CERTIFICATE IN EVERY
PARTICULAR, WITHOUT ALTERATION OR ENLARGEMENT
OR ANY CHANGE WHATEVER.
SIGNATURE(S) GUARANTEED
By
-----------------------------------------
THE SIGNATURE(S) MUST BE GUARANTEED BY AN
ELIGIBLE GUARANTOR INSTITUTION (Banks,
Stockbrokers, Savings and Loan Associations
and Credit Unions) WITH MEMBERSHIP IN AN
APPROVED SIGNATURE GUARANTEE MEDALLION
PROGRAM PURSUANT TO SEC RULE 17AG-15.
<PAGE>
RIGHTS MAY NOT BE EXERCISED FOR FEWER THAN 50 SHARES OF THE
COMMON STOCK OF SANCHEZ COMPUTER ASSOCIATES, INC.
RIGHTS TO PURCHASE COMMON STOCK OF
No. R SANCHEZ COMPUTER ASSOCIATES, INC. --------------------
INCORPORATED UNDER THE LAWS OF THE Number of Rights
COMMONWEALTH OF PENNSYLVANIA
THIS RIGHT EXPIRES AT 5:00 P.M., NEW YORK CITY TIME ON DECEMBER , 1996
CUSIP
This Rights Certificate certifies that
, or registered assigns, is the owner of the number of Rights indicated above,
each of which Rights entitles the owner thereof to subscribe for one fully paid
and nonassessable share of the common stock, no par value ["Common Stock"), of
Sanchez Computer Associates, Inc. (the "Company") during the period beginning
November , 1996 and expiring at 5:00 p.m. New York City time on December , 1996
(the "Expiration Date"), upon payment of U.S. $5.00 per share of Common Stock
(the "Exercise Price"). The Exercise Price is payable upon the exercise of these
Rights either in cash or by check or money order to the order of "Safeguard
Escrow Account." This Rights Certificate is issued under, and the Rights
represented hereby are subject to, the terms and conditions contained in the
prospectus dated November , 1996 [the "Prospectus"]. Reference is hereby made to
such Prospectus, the terms and conditions of which are incorporated herein by
reference, for a more complete statement of the rights and the limitations of
rights of the registered holder hereof and for information concerning the
Company.
To exercise these Rights, the Election To Purchase and Substitute Form W-9 on
---
the reverse side hereof must be properly completed and executed and this Rights
Certificate, or Notice of Guaranteed Delivery, and the Exercise Price as
provided above must be received by ChaseMellon Shareholder Services, L.L.C. (the
"Rights Agent") on or before the Expiration Date. In the event these Rights are
exercised in respect of fewer than all of the shares purchasable hereunder, the
Rights Agent, to the extent it is able to do so prior to the Expiration Date,
will issue a new Rights Certificate for the remaining number of such shares if
it is requested to do so as provided on the reverse side hereof.
This Rights Certificate is transferable at the office of the Rights Agent by
the registered holder hereof, in person or by attorney duly authorized in
writing, upon surrender of the Rights Certificate, with the Assignment on the
reverse side hereof properly completed and executed, and the payment of any
transfer tax. Upon any such transfer, a new Rights Certificate or Certificates
of different denominations of like tenor and representing in the aggregate the
right to purchase a like number of shares of Common Stock, will be issued to the
transferee in exchange for this Rights Certificate. This Rights Certificate,
when surrendered at the office of the Rights Agent by the registered holder
hereof in person or by attorney duly authorized in writing, may be exchanged for
another Rights Certificate or Certificates of different denominations, of like
tenor and representing in the aggregate the right to purchase a like number of
shares of Common Stock. Rights holders should be aware that if they choose to
exercise or transfer less than all of the Rights evidenced hereby, a new Rights
Certificate may not be received in sufficient time to exercise the remaining
Rights evidenced thereby. The Company, Michael A. Sanchez, Frank R. Sanchez,
Safeguard Scientifics, Inc., Radnor Venture Partners, L.P. and the Rights Agent
shall have no liability to a transferee or transferor of Rights if Rights
Certificates are not received in time for exercise or sale prior to the
Expiration Date.
The holder of these Rights shall not be entitled to any of the rights of a
shareholder of the Company prior to the issuance of certificates representing
the Common Stock of the Company purchased upon exercise of these Rights. This
Rights Certificate shall not be valid unless countersigned by the Rights Agent.
IN WITNESS WHEREOF, Sanchez Computer Associates, Inc. has caused the
facsimile signature of its Chairman and Chief Executive Officer and its
Secretary to be printed hereon.
Dated:
Countersigned:
ChaseMellon Shareholder Services, L.L.C.
Rights Agent
By Authorized Signature
[SEAL APPEARS HERE]
[SIGNATURE APPEARS HERE] [SIGNATURE APPEARS HERE]
Chairman and Chief Executive Officer Secretary
<PAGE>
RIGHTS MAY NOT BE EXERCISED FOR FEWER THAN 50 SHARES OF THE
COMMON STOCK OF SANCHEZ COMPUTER ASSOCIATES, INC.
RIGHTS TO PURCHASE COMMON STOCK OF
No. R SANCHEZ COMPUTER ASSOCIATES, INC. --------------------
INCORPORATED UNDER THE LAWS OF THE Number of Rights
COMMONWEALTH OF PENNSYLVANIA
THIS RIGHT EXPIRES AT 5:00 P.M., NEW YORK CITY TIME ON DECEMBER , 1996
CUSIP
This Rights Certificate certifies that
, or registered assigns, is the owner of the number of Rights indicated above,
each of which Rights entitles the owner thereof to subscribe for one fully paid
and nonassessable share of the common stock, no par value ["Common Stock"), of
Sanchez Computer Associates, Inc. (the "Company") during the period beginning
November , 1996 and expiring at 5:00 p.m. New York City time on December , 1996
(the "Expiration Date"), upon payment of U.S. $5.00 per share of Common Stock
(the "Exercise Price"). The Exercise Price is payable upon the exercise of these
Rights either in cash or by check or money order to the order of "Safeguard
Escrow Account." This Rights Certificate is issued under, and the Rights
represented hereby are subject to, the terms and conditions contained in the
prospectus dated November , 1996 [the "Prospectus"]. Reference is hereby made to
such Prospectus, the terms and conditions of which are incorporated herein by
reference, for a more complete statement of the rights and the limitations of
rights of the registered holder hereof and for information concerning the
Company.
To exercise these Rights, the Election To Purchase and Substitute Form W-9 on
---
the reverse side hereof must be properly completed and executed and this Rights
Certificate, or Notice of Guaranteed Delivery, and the Exercise Price as
provided above must be received by ChaseMellon Shareholder Services, L.L.C. (the
"Rights Agent") on or before the Expiration Date. In the event these Rights are
exercised in respect of fewer than all of the shares purchasable hereunder, the
Rights Agent, to the extent it is able to do so prior to the Expiration Date,
will issue a new Rights Certificate for the remaining number of such shares and
if it is requested to do so provided on the reverse side hereof.
This Rights Certificate is transferable at the office of the Rights Agent by
the registered holder hereof, in person or by attorney duly authorized in
writing, upon surrender of the Rights Certificate, with the Assignment on the
reverse side hereof properly completed and executed, and the payment of any
transfer tax. Upon any such transfer, a new Rights Certificate or Certificates
of different denominations of like tenor and representing in the aggregate the
right to purchase a like number of shares of Common Stock, will be issued to the
transferee in exchange for this Rights Certificate. This Rights Certificate,
when surrendered at the office of the Rights Agent by the registered holder
hereof in person or by attorney duly authorized in writing, may be exchanged for
another Rights Certificate or Certificates of different denominations, of like
tenor and representing in the aggregate the right to purchase a like number of
shares of Common Stock. Rights holders should be aware that if they choose to
exercise or transfer less than all of the Rights evidenced hereby, a new Rights
Certificate may not be received in sufficient time to exercise the remaining
Rights evidenced thereby. The Company, Michael A. Sanchez, Frank R. Sanchez,
Safeguard Scientifics, Inc., Radnor Venture Partners, L.P. and the Rights Agent
shall have no liability to a transferee or transfer or of Rights if Rights
Certificates are not received in time for exercise or sale prior to the
Expiration Date.
The holder of these Rights shall not be entitled to any of the rights of a
shareholder of the Company prior to the issuance of certificates representing
the Common Stock of the Company purchased upon exercise of these Rights. This
Rights Certificate shall not be valid unless countersigned by the Rights
Agent.
IN WITNESS WHEREOF, Sanchez Computer Associates, Inc. has caused the
facsimile signature of its Chairman and Chief Executive Officer and its
Secretary to be printed hereon.
Dated:
Countersigned,
ChaseMellon Shareholder Services, L.L.C.
Rights Agent
By Authorized Signature
[SEAL APPEARS HERE]
[SIGNATURE APPEARS HERE] [SIGNATURE APPEARS HERE]
Chairman and Chief Executive Officer Secretary
<PAGE>
The Rights Certificate and Exercise Price, if any, should be mailed or delivered
to the Rights Agent as follows:
By Mail:
- --------
ChaseMellon Shareholders Services, L.L.C.
P.O. Box 798
Midtown Station
New York, NY 10018
By Hand or by Overnight/Express Mail Courier:
- ---------------------------------------------
ChaseMellon Shareholder Services, L.L.C.
Attn: Reorganization Dept.
120 Broadway, 13th Floor
New York, NY 10271
- --------------------------------------------------------------------------------
ELECTION TO PURCHASE
The undersigned hereby irrevocably exercises one or more Rights to subscribe for
shares of Common Stock of Sanchez Computer Associates, Inc. as indicated below,
on the terms and subject to the conditions specified in the Prospectus, receipt
of which is hereby acknowledged. The undersigned hereby certifies that Rights
are not being exercised on behalf of beneficial owners resident in jurisdictions
in which the distribution or exercise of Rights is prohibited.
Number of shares subscribed for/1/:
(NOTE: 50 share minimum required in each account)
- ------------------------------
Total exercise price:
Total shares subscribed for multiplied by the $5.00 Exercise Price/2/.
$
-----------------------------
/1/ Each Right entitles the holder thereof to subscribe for one share of Common
Stock.
/2/ If the amount enclosed or transmitted is not sufficient to pay the Exercise
Price for all shares that are stated to be subscribed for, or if the number
of shares being subscribed for is not specified, the number of shares
subscribed for will be assumed to be the maximum number that could be
subscribed for upon payment of such amount. Any amount remaining after such
division shall be returned to the subscriber.
CASH, CHECK OR MONEY ORDER IN THE AMOUNT OF $_________________ PAYABLE TO
"SAFEGUARD ESCROW ACCOUNT" IS ENCLOSED.
Certificates for such shares are to be issued in the name of and delivered to
- -----------------------------------------------------------------------------
Name
- -----------------------------------------------------------------------------
Street Address City State Zip Code
If such number of shares shall not be all the shares purchasable hereunder, a
new Rights Certificate for the balance remaining of the shares purchasable
hereunder are to be registered in the name of and delivered to the party named
above or in the Assignment below:
Daytime Tel. No. of Rights Holder:
----------------
(IF JOINTLY OWNED, BOTH MUST SIGN)
SIGNATURE(S):
------------------------------------------------
- -------------------------------------------------------------
NOTE: The above signature(s) must correspond with the name(s)
as written upon the face of this Rights Certificate or with the
name(s) of the assignee appearing in the assignment form below
in every particular without alteration.
Dated: , 1996
-------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SUBSTITUTE FORM W-9
Department of the Treasury, Internal Revenue Service--Payer's Request for
Taxpayer Identification Number (TIN)
Failure to complete this form may subject you to 31% federal income tax
withholding.
Part 1: PLEASE PROVIDE YOUR TAXPAYER IDENTIFICATION NUMBER IN THE SPACE
PROVIDED AT RIGHT AND CERTIFY BY SIGNING AND DATING BELOW
TIN
----------------------------------------------------
Social Security or Employer or Identification Number
Part 2: Check the box if you are NOT subject to backup withholding either
because (1) you have not been notififed by the Internal Revenue Service (IRS)
that you are subject to backup withholding as a result of a failure to report
all interest or dividends, or (2) the IRS has notified you that you are no
longer subject to backup withholding.
[Right Arrow Appears Here] [_]
Part 3: Check the box if you are awaiting a Taxpayer Identification Number.
[Right Arrow Appears Here] [_]
CERTIFICATION--UNDER PENALTIES OF PERJURY, I CERTIFY THAT THE INFORMATION
PROVIDED ON THIS FORM IS TRUE, CORRECT AND COMPLETE.
Dated: , 1996 SIGNATURE:
-------------------- -----------------------------
- --------------------------------------------------------------------------------
ASSIGNMENT
For value received, the undersigned hereby sells, assigns and transfers unto
- -------------------------------------------------
Name
- --------------------------------------------------------------------------------
Street Address City State Zip Code
Please insert Social Security Number or other identifying number
---------------
Rights to purchase shares of Common Stock of Sanchez
--------------------
Computer Associates, Inc.
Daytime Tel. No. of Rights Holder:
-------------
(IF JOINTLY OWNED, BOTH MUST SIGN)
SIGNATURE(S):
-----------------------------------------------
- --------------------------------------------------------------------------------
NOTE: The above signature(s) must correspond with the name(s) as written upon
the face of this Rights Certificate.
Dated: , 1996
--------------------------
SIGNATURE(S) GUARANTEED
- --------------------------------------------------------------
The signature(s) should be guaranteed by an eligible guarantor
institution (banks, stockholders, savings and loan associations
and credit unions) with membership in an approved signature
guarantee medallion program pursuant to SEC Rule 17Ad-15.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
AMERICAN BANKNOTE COMPANY
680 BLAIR MILL ROAD
Horsham, PA 19044
215-657-3480
- --------------------------------------------------------------------------------
SALES PERSON C. Sharkey - 215-830-2153
- --------------------------------------------------------------------------------
/home/jim/inprogress/home14/Sanchez47190
- --------------------------------------------------------------------------------
PRODUCTION COORDINATOR, PAT STATES 215-830-2196
PROOF OF OCTOBER 31, 1996
SANCHEZ
H 47190BK2
- --------------------------------------------------------------------------------
Opr. hj NEW
- --------------------------------------------------------------------------------
/net/henknote/home/14/U
<PAGE>
Exhibit 5.1
November 6, 1996
Sanchez Computer Associates, Inc.
40 Valley Stream Parkway
Malvern, Pennsylvania 19355
Re: Registration Statement on Form S-1
(File No. 333-12863)
--------------------
Ladies and Gentlemen:
We have acted as counsel to Sanchez Computer Associates, Inc., a
Pennsylvania corporation (the "Company"), in connection with the preparation of
the subject registration statement on Form S-1 (the "Registration Statement")
filed with the Securities and Exchange Commission (the "Commission") under the
Securities Act of 1933, as amended (the "Act"), to register the public offering
of up to 3,484,500 shares of Common Stock, no par value, of the Company (the
"Common Stock"), which includes (i) 303,000 shares purchasable by the
underwriter from the Company, solely for the purpose of covering overallotments,
(ii) 3,030,000 shares issuable upon the exercise of rights (the "Company
Rights") to purchase shares of Common Stock of the Company granted by the
Company to the shareholders of Safeguard Scientifics, Inc. and (iii) 151,500
shares issuable upon the exercise of rights (the "Direct Rights" and together
with the Company Rights, the "Rights") to purchase shares of Common Stock of the
Company granted by the Company to certain persons selected by the Company
(collectively, the "Offering"). In connection herewith, we have examined such
records, documents, statutes and decisions as we have deemed relevant.
In our opinion, the Common Stock, when issued, sold and delivered as
contemplated in the Registration Statement, will be legally issued, fully paid
and nonassessable shares of the Common Stock of the Company, and the Rights,
when issued and distributed as contemplated in the Registration Statement, will
be legally issued and valid and binding obligations of the Company having the
rights summarized in the Registration Statement.
<PAGE>
Sanchez Computer Associates, Inc.
November 6, 1996
Page 2
We hereby consent to the use of this opinion as Exhibit 5.1 to the
Registration Statement and to all references to our firm in the Registration
Statement. In giving such consent, we do not thereby admit that we are acting
within the category of persons whose consent is required under Section 7 of the
Act and the rules and regulations of the Securities and Exchange Commission
thereunder.
Very truly yours,
/s/ Morgan, Lewis & Bockius
<PAGE>
Exhibit 8.1
November 6, 1996
Safeguard Scientifics, Inc.
800 The Safeguard Building
435 Devon Park Drive
Wayne, Pennsylvania 19087
Re: Offering of Rights to Purchase Shares of Common Stock of
Sanchez Computer Associates, Inc.
---------------------------------
Ladies and Gentlemen:
You have requested our opinion regarding certain federal income tax aspects
of the grant by Sanchez Computer Associates, Inc. (the "Company") of rights (the
"Rights") to purchase shares of the Company's Common Stock (the "Offering"), all
as described in the Registration Statement on Form S-1 (File No. 333-12863), as
amended, filed with the Securities and Exchange Commission on the date hereof
(the "Registration Statement"). This opinion is based upon our review of the
Registration Statement and our assumption that the Offering will take place in
accordance with the description included in the Registration Statement.
Opinion
-------
Based on the foregoing and on the Internal Revenue Code of 1986, as amended
(the "Code"), the regulations promulgated thereunder, and judicial and
administrative interpretations thereof, all as in effect on the date of this
letter, it is our opinion that the statements of law and conclusions of law
included in the Registration Statement under the heading "The Offering--Federal
Income Tax Consequences" are, in all material respects, true, correct and
complete. No opinion is expressed regarding any statements, assumptions or
opinions regarding factual matters (including, without limitation, the value of
the Rights) contained in the Registration Statement.
Should any of the facts, assumptions or understandings referred to above
prove incorrect, please let us know so that we may consider the effect, if any,
on our opinion. No assurances can be given that any of the foregoing
authorities will not be modified, revoked,
<PAGE>
Safeguard Scientifics, Inc.
November 6, 1996
Page 2
supplemented, revised, reversed or overruled or that any such modification,
renovation, supplementation, revision, reversal or overruling will not adversely
affect the opinion set forth above.
We understand that this opinion is to be used in connection with the
registration of the Rights and the Company's Common Stock pursuant to the
Securities Act of 1933, as amended. We consent to the filing of this opinion in
connection with and as a part of the Registration Statement on Form S-1 and
amendments thereto. We also hereby consent to the reference to our firm under
the caption "Legal Matters" in the Registration Statement. In giving such
consents, however, we do not thereby admit that we are acting within the
category of persons whose consent is required under Section 7 of the Act and the
rules and regulations of the Securities and Exchange Commission thereunder.
Very truly yours,
/s/ Morgan, Lewis & Bockius
<PAGE>
SANCHEZ COMPUTER ASSOCIATES, INC.
AMENDED AND RESTATED 1995 EQUITY COMPENSATION PLAN
SECTION 1. Purpose; Definitions
The purpose of the Sanchez Computer Associates, Inc. 1995 Equity
Compensation Plan (the "Plan") is to provide employees (including employees who
are also officers or directors), non-employee directors, and Eligible
Independent Contractors (as hereinafter defined) of Sanchez Computer Associates,
Inc. (the "Company") with the opportunity to receive grants of incentive stock
options, nonqualified stock options, stock appreciation rights and restricted
stock awards. The Company believes that the Plan will enable the Company to
attract, retain and motivate its employees, non-employee directors and Eligible
Independent Contractors, will encourage Plan participants to contribute
materially to the growth of the Company for the benefit of the Company's
stockholders, and will align the economic interests of the Plan participants
with those of the stockholders.
For the purposes of the Plan, the following terms shall be defined as set
forth below:
a. "Board" means the Board of Directors of the Company.
-----
b. "Code" means the Internal Revenue Code of 1986, as amended from time to
----
time, and any successor thereto.
c. "Committee" means the Committee designated by the Board to administer
---------
the Plan.
d. "Company" means Sanchez Computer Associates, Inc., its subsidiaries or
-------
any successor organization.
e. "Disability" means permanent and total disability within the meaning
----------
of Section 22(e)(3) of the Code.
f. "Eligible Independent Contractor" means an independent consultant or
-------------------------------
advisor hired by the Company to provide bona fide services for the Company that
are not in connection with the offer or sale of securities in a capital-raising
transaction.
g. "Employed by the Company" shall mean employment as an employee or
-----------------------
Eligible Independent Contractor or member of the Board, so that for purposes of
exercising Stock Options and Stock Appreciation Rights and satisfying conditions
with respect to Restricted Stock Grants, a Participant shall not be considered
to have terminated employment until the Participant ceases to be an employee,
Eligible Independent Contractor or member of the Board, unless the Committee
determines otherwise.
h. "Exchange Act" means the Securities Exchange Act of 1934, as amended.
------------
i. "Fair Market Value" means the fair market value of the Stock as
-----------------
determined by the Committee in good faith based on the best available facts and
circumstances at the time; provided, however, that where there is a public
market for the Stock and the Stock is registered under the Exchange Act, Fair
Market Value shall mean the per share or aggregate value of the Stock as of any
given date, determined as follows: (i) if the principal trading market for the
Stock is a national securities exchange or the Nasdaq National Market, the last
reported sale price thereof on the relevant date or, if there were no trades on
that date, the latest preceding date upon which a sale was reported, or (ii) if
the Stock is not principally traded on such exchange or market, the mean between
<PAGE>
the last reported "bid" and "asked" prices of Stock on the relevant date, as
reported on Nasdaq or, if not so reported, as reported by the National Daily
Quotation Bureau, Inc. or as reported in a customary financial reporting
services, as applicable and as the Committee determines.
j. "Grant" means any Stock Option, Stock Appreciation Right or Restricted
-----
Stock award granted pursuant to the Plan.
k. "Incentive Stock Option" means any Stock Option intended to be and
----------------------
designated as an "Incentive Stock Option" within the meaning of Section 422 of
the Code.
l. "Insider" means a Participant who is subject to Section 16 of the
-------
Exchange Act.
m. "Non-Qualified Stock Option" means any Stock Option that is not an
--------------------------
Incentive Stock Option.
n. "Participant" means an employee, non-employee director or Eligible
-----------
Independent Contractor to whom an award is granted pursuant to the Plan.
o. "Plan" means the Sanchez Computer Associates, Inc. 1995 Equity
----
Compensation Plan, as hereinafter amended from time to time.
p. "Restricted Stock" means an award of shares of Stock that is subject
----------------
to restrictions pursuant to Section 7 below.
q. "Securities Act" shall mean the Securities Act of 1933, as amended.
--------------
r. "Securities Broker" means the registered securities broker acceptable
-----------------
to the Company who agrees to effect the cashless exercise of an Option pursuant
to Section 5(d) hereof.
s. "Stock" means the Common Stock of the Company, no par value.
-----
t. "Stock Appreciation Right" means the right, pursuant to an award
------------------------
granted under Section 6 below, to surrender to the Company all (or a portion) of
a Stock Option in exchange for an amount in cash and/or shares of Stock equal in
value to the excess of (i) the Fair Market Value, as of the date such right is
exercised and the related Stock Option (or such portion thereof) is surrendered,
of the shares of Stock covered by such Stock Option (or such portion thereof),
over (ii) the aggregate exercise price of such Stock Appreciation Right (or such
portion thereof).
u. "Stock Option" or "Option" means any option to purchase shares of
------------ ------
Stock (including Restricted Stock, if the Committee so determines) granted
pursuant to Section 5 below.
v. "Termination for Cause" shall mean, except to the extent specified
---------------------
otherwise by the Committee, a finding by the Committee that the Participant has
breached his or her employment or service contract with the Company, or has been
engaged in disloyalty to the Company, including, without limitation, fraud,
embezzlement, theft, commission of a felony or proven dishonesty in the course
of his or her employment or service, or has disclosed trade secrets or
confidential information of the Company to persons not entitled to receive such
information.
-2-
<PAGE>
SECTION 2. Administration
The Plan shall be administered by a Committee which shall consist of two or
more non-employee directors appointed by the Board. In the absence of the
designation of a Committee to administer the Plan, the Plan shall be
administered by the full Board.
The Committee shall have the authority to:
(a) select the Participants to whom Grants may from time to time be made
hereunder;
(b) determine the type, size and terms of the Grants to be made to each
such Participant;
(c) determine the time when the Grants will be made and the duration of any
applicable exercise or restriction period, including the criteria for
exercisability and the acceleration of exercisability;
(d) amend the terms of any outstanding award (with the consent of the
Participant) to reflect terms not otherwise inconsistent with the Plan,
including, but not limited to, amendments concerning vesting acceleration or
forfeiture waiver regarding any award or the extension of a Participant's right
with respect to Grants under the Plan as a result of termination of employment
or service or otherwise, based on such factors as the Committee shall determine,
in its sole discretion, or substitution of new Stock Options for previously
granted Stock Options, including previously granted Stock Options having high
option prices;
(e) establish from time to time any policy or program to encourage or
require Participants to achieve or maintain equity ownership in the Company
through the use of the Plan upon such terms and conditions as the Committee may
determine in its sole discretion, and thereafter to amend, modify or terminate
such policy or program as the Committee may from time to time deem appropriate;
and
(f) deal with any other matters arising under the Plan.
The Committee shall have full power and authority to administer and
interpret the Plan and any Grant made under the Plan, to make factual
determinations and to adopt, alter and repeal such administrative rules,
guidelines, practices, agreements and instruments for implementing the Plan and
for the conduct of its business as it deems necessary or advisable, in its sole
discretion. All decisions made by the Committee pursuant to the provisions of
the Plan shall be final and binding on all persons having any interest in the
Plan or in any Grants made hereunder. All power of the Committee shall be
executed in its sole discretion, in the best interest of the Company, not as a
fiduciary, and in keeping with the objectives of the Plan.
No member of the Board or the Committee shall be liable for any action or
determination made in good faith with respect to the Plan or any Grant made
under it. Nothing herein shall be deemed to expand the personal liability of a
member of the Board or Committee beyond that which may arise under any
applicable standards set forth in the Company's Articles of Incorporation, by-
laws and Pennsylvania law, nor shall anything herein limit any rights to
indemnification or advancement of expenses to which any member of the Board or
the Committee may be entitled under any applicable law, the Company's Articles
of Incorporation or by-laws, agreement, vote of the stockholders or directors,
or otherwise.
-3-
<PAGE>
SECTION 3. Stock Subject to the Plan
(a) The aggregate number of shares of Stock that may be issued or
transferred under the Plan is 1,680,000, subject to adjustment pursuant to
Section 3(b) below. Such shares may be authorized but unissued shares or
reacquired shares of Stock, including shares purchased by the Company on the
open market for purposes of the Plan. In the event the number of shares of
Stock issued under the Plan and the number of shares of Stock subject to
outstanding awards equals the maximum number of shares of Stock authorized under
the Plan, no further awards shall be made unless the Plan is amended to increase
the number of shares of Stock issuable and transferable hereunder or additional
shares of Stock become available for further awards under the Plan. If and to
the extent that Options or Stock Appreciation Rights granted under the Plan
terminate, expire or are canceled, forfeited, exchanged or surrendered without
having been exercised, or if any shares of Restricted Stock are forfeited, the
shares subject to such Grants shall again be available for subsequent awards
under the Plan.
(b) If there is any change in the number or kind of shares of Company
Stock outstanding (i) by reason of a stock dividend, spin off, recapitalization,
stock split, or combination or exchange of shares, (ii) by reason of a merger,
reorganization or consolidation in which the Company is the surviving
corporation, (iii) by reason of a reclassification or change in par value, or
(iv) by reason of any other extraordinary or unusual event affecting the
outstanding Company Stock as a class without the Company's receipt of
consideration, or if the value of outstanding shares of Company Stock is
substantially reduced as a result of a spin off or the Company's payment of an
extraordinary dividend or distribution, then unless such event or change results
in the termination of all outstanding awards under the Plan, the Committee shall
preserve the value of the outstanding awards by adjusting the maximum number and
class of shares issuable under the Plan to reflect the effect of such event or
change in the Company's capital structure, and by making appropriate adjustments
to the number and class of shares subject to an outstanding award and/or the
option price of each outstanding Option and Stock Appreciation Right, except
that any fractional shares resulting from such adjustments shall be eliminated
by rounding any portion of a share equal to .5 or greater up, and any portion of
a share equal to less than .5 down, in each case to the nearest whole number.
SECTION 4. Eligibility; Participant Limitations Concerning Issuances
All employees, non-employee directors and Eligible Independent Contractors
are eligible to participate in the Plan. The maximum aggregate number of shares
of Stock that shall be subject to Grants made under the Plan to any Participant
shall not exceed 550,000. The terms and provisions of Grants made under the
Plan may vary between Participants or as to the same Participant to whom more
than one Grant may be awarded.
SECTION 5. Stock Options
Stock Options may be granted alone, in addition to, or in tandem with other
awards granted under the Plan. Any Stock Option granted under the Plan shall be
in such form as the Committee may from time to time approve. Stock Options
granted under the Plan may be of two types: (i) Incentive Stock Options and (ii)
Non-Qualified Stock Options.
The Committee shall have the authority to grant Incentive Stock Options,
Non-Qualified Stock Options or both types of Stock Options (in each case with or
without Stock Appreciation Rights). To the extent that any Stock Option does
not qualify as an Incentive Stock Option, it shall constitute a Non-Qualified
Stock Option.
-4-
<PAGE>
Anything in the Plan to the contrary notwithstanding, no term of this Plan
relating to Incentive Stock Options shall be interpreted, amended or altered,
nor shall any discretion or authority granted under the Plan be so exercised, so
as to disqualify the Plan under Section 422 of the Code, or, without the consent
of the Participant affected, to disqualify any Incentive Stock Option under
Section 422.
Options granted under the Plan shall be subject to the following terms and
conditions and shall contain such additional terms and conditions, not
inconsistent with the terms of the Plan, as the Committee shall deem
appropriate:
(a) Option Price. The option price per share of Stock purchasable under a
------------
Stock Option shall be determined by the Committee at the time of grant,
provided, however, that the option price per share for any Incentive Stock
Option shall be not less than 100% of the Fair Market Value of the Stock at the
time of grant.
Any Incentive Stock Option granted to any Participant who, at the time
the Option is granted, owns more than 10% of the voting power of all classes of
stock of the Company or of a Parent or Subsidiary corporation (within the
meaning of Section 424 of the Code), shall have an exercise price no less than
110% of the Fair Market Value per share on the date of the grant.
(b) Option Term. The term of each Stock Option shall be fixed by the
-----------
Committee, but no Stock Option shall be exercisable more than ten years after
the date the Stock Option is granted. However, any Incentive Stock Option
granted to any Participant who, at the time the Option is granted, owns more
than 10% of the voting power of all classes of stock of the Company or of a
Parent or Subsidiary corporation may not have a term of more than five years.
No Stock Option may be exercised by any person after expiration of the term of
the Stock Option.
(c) Exercisability. Stock Options shall be exercisable at such time or
--------------
times and subject to such terms and conditions as shall be determined by the
Committee at or after grant. If the Committee provides, in its discretion, that
any Stock Option is exercisable only in installments, the Committee may waive
such installment exercise provisions at any time at or after grant in whole or
in part, based on such factors as the Committee shall determine, in its sole
discretion.
(d) Method of Exercise. Subject to whatever installment exercise
------------------
provisions apply under Section 5(c), Stock Options may be exercised, in whole or
in part at any time and from time to time during the Option period, by giving
written notice of exercise to the Company specifying the number of shares to be
purchased. Such notice shall be accompanied by payment in full of the purchase
price, either by cash, check, or such other instrument as the Committee may
accept. As determined by the Committee, in its sole discretion, at or after
grant, payment in full or in part may also be made in the form of unrestricted
Stock already owned by the Participant (including Company Stock acquired in
connection with the exercise of an Option, subject to such restrictions as the
Committee deems appropriate); provided, however, that (i) in the case of an
Incentive Stock Option, the right to make a payment in the form of unrestricted
Stock already owned by the Participant may be authorized only at the time the
Option is granted and (ii) the Company may require that the Stock has been owned
by the Participant for the requisite period of time necessary to avoid a charge
to the Company's earnings for financial reporting purposes and adverse
accounting consequences to the Company with respect to the Option.
If specified by the Committee in the agreement governing a Stock
Option at the time of grant, the Committee may, in its sole discretion, upon
receipt of such Participant's written notice to exercise, elect to
-5-
<PAGE>
cash out all or part of the portion of the Stock Option to be exercised by
paying the Participant an amount, in cash or Stock, equal to the excess of the
Fair Market Value of the Stock over the option price on the effective date of
such cash-out.
To the extent permitted under the applicable laws and regulations, at
the request of the Participant and if authorized by the Committee, in its sole
discretion, at or after grant, the Company agrees to cooperate in a "cashless
exercise" of a Stock Option. The cashless exercise shall be effected by the
Participant delivering to the Securities Broker instructions to sell a
sufficient number of shares of Stock to cover the cost and expenses associated
therewith.
No shares of Stock shall be issued until full payment therefor has
been made. A Participant shall not have any right to dividends or other rights
of a stockholder with respect to shares subject to the Option until such time as
Stock is issued in the name of the Participant following exercise of the Option
in accordance with the Plan.
(e) Stock Option Agreement. Each Option granted under this Plan shall be
----------------------
evidenced by an appropriate Stock Option agreement, which agreement shall
expressly specify whether such Option is an Incentive Stock Option or a Non-
Qualified Stock Option and shall be executed by the Company and the Participant.
The agreement shall contain such terms and provisions, not inconsistent with the
Plan, as shall be determined by the Committee.
(f) Replacement Options. The Committee may, in its sole discretion and at
-------------------
the time of the original option grant, authorize the Participant to
automatically receive replacement Options pursuant to this part of the Plan.
Any such replacement option shall be granted upon such terms and subject to such
conditions and limitations as the Committee may deem appropriate. Any
replacement option shall cover a number of shares determined by the Committee,
but in no event more than the number of shares equal to the number of shares of
the original option exercised. The per share exercise price of any replacement
option shall equal the then current Fair Market Value of a share of Stock, and
shall have a term as determined by the Committee at the time of grant of the
original Option.
The Committee shall have the right, and may reserve the right in any
Option grant, in its sole discretion and at any time, to discontinue the
automatic grant of replacement options if it determines the continuance of such
grants to no longer be in the best interest of the Company.
(g) Non-transferability of Options. Except as provided below, no Stock
------------------------------
Option shall be transferable by the Participant other than by will or by the
laws of descent and distribution, and all Stock Options shall be exercisable,
during the Participant's lifetime, only by the Participant. When a Participant
dies, the representative or other person entitled to succeed to the rights of
the Grantee may exercise such rights, subject to the Company receiving
satisfactory proof of his or her right to receive the Grant under the
Participant's will or under the applicable laws of descent and distribution.
Notwithstanding the foregoing, the Committee may provide, at or after Grant,
that a Participant may transfer Nonqualified Stock Options pursuant to a
domestic relations order or to family members or other persons or entities
according to such terms as the Committee may determine.
(h) Termination of Employment; Disability; Death
--------------------------------------------
-6-
<PAGE>
(i) Unless otherwise determined by the Committee at or after grant,
in the event of a Participant's termination of employment (voluntary or
involuntary) for any reason other than as provided below, any Stock Option
held by such Participant may thereafter be exercised by the Participant,
to the extent it was exercisable at the time of such termination or on
such accelerated basis as the Committee may determine at or after grant,
for a period of one month (or such shorter period as the Committee may
specify at grant) from the date of such termination of employment or until
the expiration of the stated term of such Stock Option, whichever period
is shorter.
(ii) Unless otherwise determined by the Committee at or after grant,
if any Participant ceases to be employed by the Company on account of a
Termination for Cause by the Company, any Stock Option held by such
Participant shall terminate as of the date the Participant ceases to be
employed by the Company, and the Participant shall automatically forfeit
all Stock underlying any exercised portion of an Option for which the
Company has not yet delivered the share certificates, upon refund by the
Company of the Exercise Price paid by the Participant for such Stock.
(iii) Unless otherwise determined by the Committee at or after grant,
if a Participant's employment by the Company terminates by reason of
Disability, any Stock Option held by such Participant may thereafter be
exercised by the Participant, to the extent it was exercisable at the time
of termination, or on such accelerated basis as the Committee may
determine at or after grant, for a period of one year (or such shorter
period as the Committee may specify at grant) from the date of such
termination of employment or until the expiration of the stated term of
such Stock Option, whichever period is shorter.
(iv) Unless otherwise determined by the Committee at or after grant,
if any Participant dies while employed by the Company or within one month
after the date on which the Participant ceases to be employed by the
Company on account of termination of employment specified in Section
5(h)(i) above (or within such other period of time as may be specified by
the Committee), any Stock Option held by such Participant may thereafter
be exercised, to the extent then exercisable or on such accelerated basis
as the Committee may determine at or after grant, by the legal
representative of the estate or by the legatee of the Participant under
the will of the Participant, for a period of one year (or such shorter
period as the Committee may specify at grant) from the date of such
termination of employment or until the expiration of the stated term of
such Stock Option, whichever period is shorter.
(i) Incentive Stock Option Limitation. The aggregate Fair Market Value
---------------------------------
(determined as of the time of grant) of the Stock with respect to which
Incentive Stock Options are exercisable for the first time by the Participant
during any calendar year under the Plan and/or any other stock option plan of
the Company shall not exceed $100,000. An Incentive Stock Option shall not be
granted to any person who is not an employee of the Company or a parent or
subsidiary (within the meaning of section 424(f) of the Code).
(j) Issuance of Shares. Within a reasonable time after exercise of an
------------------
Option, the Company shall cause to be delivered to the Participant a certificate
for the Stock purchased pursuant to the exercise of the Option.
-7-
<PAGE>
SECTION 6. Stock Appreciation Rights
(a) Grant and Exercise. Stock Appreciation Rights may be granted either
------------------
separately or in tandem with all or part of any Stock Option granted under the
Plan. The provisions of Stock Appreciation Rights awarded under the Plan need
not be the same with respect to each Participant. In the case of a Non-Qualified
Stock Option, such rights may be granted either at the grant of such Stock
Option or at any time thereafter while the Option remains outstanding. In the
case of an Incentive Stock Option, such rights may be granted only at the time
of the grant of such Stock Option. The Committee shall establish the base amount
of the Stock Appreciation Rights at the time the Stock Appreciation Right is
granted. Unless the Committee determines otherwise, the base amount of each
Stock Appreciation Right shall be equal to the per share option price of the
related Stock Option or, if there is no related Stock Option, the Fair Market
Value of a share of Stock as of the date of grant of such Stock Appreciation
Right.
A Stock Appreciation Right or applicable portion thereof granted
with respect to a given Stock Option shall terminate and no longer be
exercisable upon the termination or exercise of the related Stock Option, except
that, unless otherwise determined by the Committee, in its sole discretion, at
the time of grant, a Stock Appreciation Right granted with respect to less than
the full number of shares covered by a related Stock Option shall not be reduced
until the number of shares covered by an exercise or termination of the related
Stock Option exceeds the number of shares not covered by the Stock Appreciation
Right.
A Stock Appreciation Right may be exercised by a Participant, in
accordance with Section 6(b), by surrendering the applicable portion of the
related Stock Option. Upon such exercise and surrender, the Participant shall be
entitled to receive an amount determined in the manner prescribed in Section
6(b). Stock Options which have been so surrendered, in whole or in part, shall
no longer be exercisable to the extent the related Stock Appreciation Rights
have been exercised.
(b) Terms and Conditions. Stock Appreciation Rights shall be subject to
--------------------
such terms and conditions, not inconsistent with the provisions of the Plan, as
shall be determined from time to time by the Committee, including the following:
(i) Stock Appreciation Rights shall be exercisable only at such
time or times and to the extent that the Stock Options to which they
relate, if any, shall be exercisable in accordance with the provisions of
Section 5 and this Section 6 of the Plan.
(ii) Upon the exercise of a Stock Appreciation Right, a
Participant shall be entitled to receive up to, but not more than, an
amount in cash and/or shares of Stock equal in value to the excess of the
Fair Market Value of one share of Stock (as of the date the Stock
Appreciation Right is exercised and the related Stock Option is
surrendered) over the exercise price of the Stock Appreciation Right,
multiplied by the number of shares of Stock in respect of which the Stock
Appreciation Right shall have been exercised, with the Committee having the
right to determine the form of payment.
(iii) Stock Appreciation Rights shall be transferable only when and
to the extent that the underlying Stock Option would be transferable under
Section 5(g) of the Plan.
(iv) A Stock Appreciation Right granted in connection with an
Incentive Stock Option may
-8-
<PAGE>
be exercised only if and when the market price of the Stock subject to the
Incentive Stock Option exceeds the exercise price of such Stock Option.
SECTION 7. Restricted Stock
(a) Administration. Shares of Restricted Stock may be issued either
--------------
alone or in addition to other awards granted under the Plan. The Committee shall
determine the employees, non-employee directors or Eligible Independent
Contractors to whom, and the time or times at which, grants of Restricted Stock
will be made, the number of shares to be awarded, the price (if any) to be paid
by the recipient of Restricted Stock (subject to Section 7(b)), the time or
times within which such awards may be subject to forfeiture, and all other
conditions of the awards. The Committee may condition the grant of Restricted
Stock upon the attainment of specified performance goals or such other factors
as the Committee may determine, in its sole discretion. The provisions of
Restricted Stock awards need not be the same with respect to each Participant.
(b) Awards and Certificates. The prospective recipient of a Restricted
-----------------------
Stock award shall not have any rights with respect to such award unless and
until such recipient has executed an agreement evidencing the award and has
delivered a fully executed copy thereof to the Company, and has otherwise
complied with the applicable terms and conditions of such award.
(i) The purchase price for shares of Restricted Stock shall be
established by the Committee and may be zero.
(ii) Awards of Restricted Stock may be accepted within a period of
60 days (or such shorter period as the Committee may specify at grant)
after the grant date, by executing a Restricted Stock award agreement and
paying whatever price (if any) is required under Section 7(b)(i).
(iii) Each Participant receiving a Restricted Stock award shall be
issued a certificate in respect of such shares of Restricted Stock. Such
certificate shall be registered in the name of such Participant, and shall
bear an appropriate legend referring to the terms, conditions, and
restrictions applicable to such award, substantially in the following form:
"The transferability of this certificate and the shares of stock
represented hereby are subject to the terms and conditions
(including forfeiture) of the Sanchez Computer Associates, Inc. 1995
Equity Compensation Plan and an Agreement entered into between the
registered owner and Sanchez Computer Associates, Inc. Copies of
such Plan and Agreement are on file at the offices of Sanchez
Computer Associates, Inc."
(iv) The Committee shall require that the certificates evidencing
such Restricted Stock be held in custody by the Company until the
restrictions thereon shall have lapsed, and that, as a condition of any
Restricted Stock award, the Participant shall have delivered a stock power,
endorsed in blank, relating to the Stock covered by such award.
(c) Restrictions and Conditions. The shares of Restricted Stock awarded
---------------------------
pursuant to this Section 7 shall be subject to the following restrictions and
conditions:
-9-
<PAGE>
(i) Subject to the provisions of this Plan and the Restricted
Stock award agreement, during a period set by the Committee commencing with
the date of such award (the "Restriction Period"), the Participant shall
not be permitted to sell, transfer, pledge, assign or otherwise encumber
shares of Restricted Stock awarded under the Plan. Within these limits, the
Committee, at its sole discretion, may provide for the lapse of such
restrictions in installments and may accelerate or waive such restrictions
in whole or in part, based on service, performance and/or such other
factors or criteria as the Committee may determine, in its sole discretion.
(ii) Except as provided in this paragraph (ii) and Section 7(c)(i),
the Participant shall have, with respect to the shares of Restricted Stock,
all of the rights of a stockholder of the Company, including the right to
vote the shares and the right to receive any cash dividends. The Committee,
in its sole discretion, as determined at the time of award, may permit or
require the payment of cash dividends to be deferred and, if the Committee
so determines, reinvested in additional Restricted Stock to the extent
shares are available under Section 3.
(iii) Subject to the applicable provisions of the Restricted Stock
award agreement and this Section 7, upon termination of a Participant's
employment with the Company for any reason during the Restriction Period,
all shares still subject to restriction shall be forfeited by the
Participant, subject to any payments for such shares as may be provided in
the Restricted Stock award agreement.
(iv) The Committee may, in its sole discretion, waive in whole or
in part any or all remaining restrictions with respect to such
Participant's shares of Restricted Stock, based on such factors as the
Committee may deem appropriate.
(v) If and when the Restriction Period expires without a prior
forfeiture of the Restricted Stock subject to such Restriction Period, the
certificates for such shares shall be delivered to the Participant
promptly.
SECTION 8. Withholding and Use of Shares to Satisfy Tax Obligations
(a) Required Withholding. All Grants under the Plan shall be subject to
--------------------
applicable federal (including FICA), state and local withholding requirements.
The Company shall have the right to deduct from all Grants paid in cash, or from
other wages paid to the Participant, any federal, state or local taxes required
by law to be withheld with respect to such Grants. In the case of Grants paid
in Company Stock, the Company may require the Participant or other person
receiving such Stock to pay to the Company the amount of any such taxes that the
Company is required to withhold with respect to such Grants, or the Company may
deduct from other wages paid by the Company the amount of any withholding taxes
due with respect to such Grants.
(b) Election to Withhold Shares. If the Committee so permits, a
---------------------------
Participant may elect to satisfy the Company's income tax withholding obligation
with respect to a Grant paid in Company Stock by having shares withheld up to an
amount that does not exceed the Participant's maximum marginal tax rate for
federal (including FICA), state and local tax liabilities. The election must be
in a form and manner prescribed by the Committee and shall be subject to the
prior approval of the Committee.
-10
<PAGE>
SECTION 9. Amendments and Termination
The Board may amend or terminate the Plan at any time and from time to
time, but no amendment or termination shall be made which would impair the
rights of a Participant under a Grant theretofore awarded without the
Participant's consent; and provided, further, that the Board shall not amend the
Plan without stockholder approval if such approval is required pursuant to the
Code or the rules of any national securities exchange or over-the-counter market
on which the Company's Stock is then listed or included. Subject to the above
provisions, the Board shall have broad authority to amend the Plan to take into
account changes in applicable tax laws, securities laws and accounting rules, as
well as other developments.
SECTION 10. Unfunded Status of Plan
The Plan is intended to constitute an "unfunded" plan. The Company shall
not be required to establish any special or separate fund or to make any other
segregation of assets to assure the payment of any Grants under this Plan. In no
event shall interest be paid or accrued on any Grant, including unpaid
installments of Grants.
SECTION 11. General Provisions
(a) The Committee may require each person purchasing shares pursuant to
a Stock Option or receiving Stock upon the expiration of any Restriction Period
under the Plan to represent to and agree with the Company in writing that the
Participant is acquiring the shares for investment and not with a view to
distribution thereof and that such Participant will not dispose of such Stock in
any manner that would involve a violation of applicable securities laws. In such
event no Stock shall be issued to such Participant unless and until the Company
is satisfied with such representation. The certificates for such shares may
include any legend which the Committee deems appropriate to reflect any
restrictions on transfer under the Securities Act or any state securities law.
All certificates for shares of Stock or other securities delivered
under the Plan shall be subject to such stop-transfer orders and other
restrictions as the Committee may deem advisable under the rules, regulations
and other requirements of the Securities Act, the Exchange Act, any stock
exchange or over-the-counter market upon which the Stock is then listed or
included, and any applicable federal or state securities law, and the Committee
may cause a legend or legends to be put on any such certificates to make
appropriate reference to such restrictions.
(b) Nothing contained in this Plan shall prevent the Board from adopting
other or additional compensation arrangements, subject to stockholder approval
if such approval is required, and such arrangements may be either generally
applicable or applicable only in specific cases.
(c) The adoption of the Plan shall not confer upon any Participant any
right to continued employment with the Company nor shall it interfere in any way
with the right of the Company to terminate its relationship with any of its
employees, directors or independent contractors at any time.
(d) At the time of grant, the Committee may provide in connection with
any grant made under this Plan that (i) the shares of Stock received as a result
of such grant shall be subject to a right of first refusal, pursuant to which
the Participant shall be required to offer to the Company any shares that the
Participant wishes to sell, with the price being the then Fair Market Value of
the Stock, subject to such other terms and conditions
-11-
<PAGE>
as the Committee may specify at the time of grant; and (ii) the shares of Stock
received or to be received as a result of such grant shall be subject to
repurchase by the Company upon termination of employment, subject to a
repurchase price and such other terms and conditions as the Committee may
specify at the time of grant.
(e) The reinvestment of dividends in additional Restricted Stock at the
time of any dividend payment shall only be permissible if sufficient shares of
Stock are available under Section 3 for such reinvestment.
(f) The Committee shall establish such procedures as it deems appropriate
for a Participant to designate a beneficiary to whom any amounts payable in the
event of the Participant's death are to be paid.
(g) The Plan shall be governed by and subject to all applicable laws and to
the approvals by any governmental or regulatory agency as may be required.
SECTION 12. Effective Date and Term of Plan
The Plan shall be effective as of October 9, 1995, subject to the consent
or approval of the Company's stockholders. No Stock Option, Stock Appreciation
Right or Restricted Stock award shall be granted pursuant to the Plan on or
after October 9, 2005, but awards granted prior to such tenth anniversary may
extend beyond that date; provided, however, that if the Plan is not approved by
the unanimous consent of all stockholders or by a majority of the votes cast at
a duly held meeting at which a quorum representing a majority of all outstanding
voting stock of the Company is, either in person or by proxy, present and voting
on the Plan, within 12 months after said date, the Plan and all Grants awarded
hereunder shall be null and void and no additional Grants shall be awarded
hereunder.
SECTION 13. Interpretation
A determination of the Committee as to any question which may arise with
respect to the interpretation of the provisions of this Plan or any Grants
awarded thereunder shall be final and conclusive, and nothing in this Plan, or
in any regulation hereunder, shall be deemed to give any Participant, his legal
representatives, assigns or any other person any right to participate herein
except to such extent, if any, as the Committee may have determined or approved
pursuant to this Plan. The Committee may consult with legal counsel who may be
counsel to the Company and shall not incur any liability for any action taken in
good faith in reliance upon the advice of such counsel.
SECTION 14. Governing Law.
With respect to any Incentive Stock Options granted pursuant to the Plan
and the agreements thereunder, the Plan, such agreements and any Incentive Stock
Options granted pursuant thereto shall be governed by the applicable Code
provisions to the maximum extent possible. Otherwise, the laws of the
Commonwealth of Pennsylvania shall govern the operation of, and the rights of
Participants under, the Plan, the agreements and any Grants awarded thereunder.
SECTION 15. Compliance With Section 16b of the Exchange Act.
Unless an Insider could otherwise transfer shares of Stock issued hereunder
without incurring liability under Section 16b of the Exchange Act, at least six
months must elapse from the date of grant of an Option,
-12-
<PAGE>
Stock Appreciation Right or Restricted Stock award to the date of disposition of
the Stock issued upon exercise of such Option or Stock Appreciation Right or
grant of such Restricted Stock award.
-13-
<PAGE>
November ___, 1996
Mr. Martin Curran Mr. Bruce Karhu
ChaseMellon Mellon Bank, N.A.
Shareholder Services, L.L.C. Corporate Trust Group
85 Challenger Road Room 325
Overpeck Centre Two Mellon Bank Center
Ridgefield Park, NJ 07660 Pittsburgh, PA 15259
Dear Messrs. Curran and Karhu:
Safeguard Scientifics, Inc., a Pennsylvania corporation ("Safeguard"),
Sanchez Computer Associates, Inc., a Pennsylvania corporation ("SANCHEZ"),
Radnor Venture Partners, L.P. ("RVP"), Michael A. Sanchez ("MAS"), and Frank R.
Sanchez ("FRS") are offering to holders of Safeguard's outstanding common stock,
par value $.10 per share (the "Safeguard Common Shares"), of record at the close
of business on November ___, 1996 (the "Record Date"), rights to purchase
("Rights") approximately 3,030,000 shares of the common stock, no par value per
share, of SANCHEZ (the "Common Stock") for $5.00 per share (the "Exercise
Price"), on the basis of one Right for every ten Safeguard Common Shares owned
on the Record Date, upon the terms and subject to the conditions set forth in
the prospectus as hereinafter defined (the "Rights Offering"). Also being
offered to certain persons to be designated by SANCHEZ ("Direct Purchasers") are
151,500 additional Rights (the "Direct Rights"). A copy of the prospectus dated
November ___, 1996 ("Prospectus") is attached hereto as Exhibit A. Each Right
---------
distributed pursuant to the Rights Offering may be exercised for one share of
Common Stock, subject to the restrictions described in the Prospectus.
Of the shares of Common Stock to be offered pursuant to the Rights Offering
and the Direct Rights, 2,158,000 will be newly issued by SANCHEZ, 714,272 will
be sold by Safeguard, 178,568 will be sold by RVP, 87,106 will be sold by MAS
and 43,554 will be sold by FRS.
The Rights will be evidenced by certificates in the form attached hereto as
Exhibit B (the "Rights Certificates") and will be transferable and exercisable
- ---------
in accordance with the relevant provisions of the Prospectus and the Rights
Certificates. Following the expiration of the Rights Offering and the closing
under the standby underwriting agreement (as described in the Prospectus) among
SANCHEZ, Safeguard, RVP, MAS and FRS, and J.P. Morgan & Co. and Wheat First
Butcher Singer (the "Underwriters"), each individual who exercised a Right or
Rights ("Subscriber") shall receive a certificate of Common Stock of SANCHEZ
("Stock Certificate") representing the appropriate number of shares.
<PAGE>
Page 2
The terms and conditions contained in the Prospectus, including without
limitation the section entitled "THE OFFERING," are incorporated herein by
reference and made a part hereof and shall control in the event of any conflict
with any other terms of this Agreement.
In connection with the above, Safeguard, RVP, MAS, FRS and SANCHEZ hereby
agree with ChaseMellon Shareholder Services, L.L.C. ("ChaseMellon") and with
Mellon Bank, N.A. ("Mellon") as follows:
1. ChaseMellon is appointed to perform the services of "Rights Agent" in
accordance with the Prospectus and the further instructions of this letter.
Mellon is appointed to perform the services of "Escrow Agent" as described
herein.
2. ChaseMellon will mail within two business days following the Record
Date to each holder of Safeguard Common Shares on the Record Date (regardless of
whether such holder's account has been coded as undeliverable) and to the Direct
Purchasers an envelope, with a return address to ChaseMellon, containing (a) a
Rights Certificate representing the number of Rights to which such holder is
entitled under the Rights Offering, (b) a Prospectus, (c) a return envelope
addressed to ChaseMellon and (d) a Safeguard cover letter. Prior to such
mailing, we will provide ChaseMellon with blank Rights Certificates (on which
you will designate the name of the holder of Safeguard Common Shares and the
appropriate number of Rights), Prospectuses, cover letters in sufficient numbers
to complete the mailing, and the list of names, addresses and Social Security
numbers of the Direct Purchasers who have been designated by SANCHEZ to receive
Direct Rights.
To each broker, bank, trust company or other nominee holder of Safeguard
Common Shares, ChaseMellon will mail an envelope containing (a) a Safeguard
cover letter, (b) a Prospectus, and (c) a Rights Certificate or Certificates as
further instructed by Safeguard. Prior to such mailing, we will provide
ChaseMellon with Safeguard cover letters and Prospectuses in sufficient numbers
to complete the mailing.
With respect to the distribution of Rights Certificates to the following
nominees, please proceed as follows:
a. The Depository Trust Company (Cede & Co.) ("DTC") has been requested to
provide directly to ChaseMellon, the day after the Record Date, a listing of the
record positions of their participants on the Record Date. DTC also has been
requested to immediately telecopy the list to:
Safeguard Scientifics, Inc.
Attn: Deirdre Blackburn
Manager, Legal Systems
Telecopier: (610) 293-0601
The distribution of Rights to DTC will be made by ChaseMellon through
the Automated Subscription Offer Program. DTC will handle subscriptions,
transfers and guarantees on behalf of its participants. ChaseMellon will take
whatever action may be required by DTC to be certain that the shares of SANCHEZ
common stock are qualified for both certificated FAST issue and DTC
eligibibility so that shares may be delivered through DTC at closing by book
entry without issuance of physical stock certificates.
b. Philadelphia Depository Trust Company ("Philadep") has been requested
to provide directly to ChaseMellon and to Safeguard, the day after the Record
Date, a listing of the record positions of its
<PAGE>
Page 3
participants on the Record Date. Philadep will handle subscriptions, transfers
and guarantees on behalf of its participants and has been requested to provide
ChaseMellon with a breakdown of the Rights Certificates which they require or to
make the appropriate arrangements directly with ChaseMellon for a distribution
of rights in a manner similar to the DTC Automated Subscription Offer Program.
ChaseMellon also will make available a New York processing facility for
the following services during the exercise period: a) acceptance and forwarding
to Ridgefield Park, New Jersey of exercises and transfers of Rights, b)
acceptance and clearance of guarantees of exercise of Rights and c) reissuance
of Rights Certificates, if less than all Rights evidenced by a submitted
certificate are exercised or transferred, within two business days of receipt,
unless received within one business day of the Expiration Date.
3. Promptly after ChaseMellon distributes all Rights in accordance with
Section 2 above, and all brokers, depositories and other nominee holders advise
you of the amount of additional Rights they require for rounding purposes (which
you shall distribute to them), you shall notify Safeguard, SANCHEZ and the
Underwriters in writing of the number of Rights you have distributed (the
"Distributed Amount").
4. All questions as to the validity, form, eligibility (including time of
receipt, beneficial ownership and compliance with minimum exercise provisions)
and acceptance of any exercise of Rights except as set forth on Exhibit D will
---------
be communicated by ChaseMellon to Safeguard, which shall provide the final and
binding determination of such questions. Safeguard reserves the right to waive
any defect in exercise of the Rights, and Safeguard's interpretations of the
terms and conditions of the Rights Offering shall be final and binding.
5. If, pursuant to the Rights Offering, Safeguard does not accept a
defective exercise of Rights, or ChaseMellon receives a Rights Certificate which
is defective in some particular and not waived by Safeguard, you shall promptly
notify the person who tendered the same by (a) telephone, if the deficiency and
necessary correction can be thereby adequately explained and a new Rights
Certificate is not needed, or (b) a mailing as soon as practicable, in any other
event, to include the Rights Certificate, a letter explaining why the tendered
Rights Certificate is being returned and directions on how to correct the
deficiency, giving said subscriber five business days from the date of the
letter to correct the deficiency, but in no event later than three business days
after the Expiration Date (as defined below) of the Rights Offering. If any
defective exercise is not waived or timely cured, you shall promptly return to
the subscriber the Rights Certificate (if not previously returned) and the
payment submitted by the subscriber with such exercise.
6. The Rights Offering shall expire at the time and on the date specified
in the Prospectus (the "Expiration Date").
7. Except as set forth below, a Right shall be deemed exercised at the
time a completed and signed subscription form on the appropriate Rights
Certificate, accompanied by payment in full and in the form indicated in the
Prospectus for all shares for which Rights have been exercised, is received by
ChaseMellon on or before the Expiration Date, provided that any check received
in payment of the Exercise Price is cleared no later than three business days
after the Expiration Date. A defective exercise of Rights accompanied by payment
shall be deemed to have been properly made upon receipt if the irregularities
have been subsequently cured within five business days of notice of defect to
the satisfaction of, or waived by, Safeguard, but not later than three business
days after the Expiration Date, and provided that all checks received in payment
of the Exercise Price are cleared no later than three business days after the
Expiration Date. A guaranteed exercise of Rights shall be deemed made at the
time payment in full in the form indicated in the Prospectus for the shares
guaranteed and a Notice
<PAGE>
Page 4
of Guaranteed Delivery, letter or telegraphic notice is received by ChaseMellon
from a bank, trust company or member firm of the New York or American Stock
Exchange as permitted under the terms of the Rights Offering, within the
required period, all as specified in the Prospectus, subject to delivery within
three business days after the Expiration Date of a completed and signed
subscription form for the shares guaranteed.
8. All mailings that contain a Rights Certificate or a Stock Certificate
shall be insured to protect the addressee and ChaseMellon against any liability
arising out of the loss, destruction or non-delivery of such Certificate for any
cause. All Rights Certificates received by ChaseMellon, and in the case of
guaranteed exercises as permitted in the Rights Offering, all letters or
telegraphic notices when received, shall be marked to show the date and hour of
receipt and, if defective, the date and hour of any correction or waiver of the
deficiency. All mailings shall be made by first class mail, postage prepaid,
with your return address in accordance with your mail loss policy procedures and
limitations. All undeliverable mailings shall be so coded on your account
records.
9. With respect to all inquiries regarding loss or nonreceipt of Rights,
Safeguard will instruct individuals reporting a loss or nonreceipt of Rights to
telephone ChaseMellon and speak with the Reorganization Department at 1-800-973-
1028. Upon receipt of such a phone call, ChaseMellon shall immediately put a
stop on the Rights Certificate and within two business days forward to such
individual the affidavit of non-receipt or affidavit of theft, loss or
destruction required to replace the Rights Certificate.
Each of Safeguard and ChaseMellon, in their sole discretion, shall have
the right to require that an individual reporting a loss of Rights provide
ChaseMellon with an indemnity bond prior to a replacement of the Rights
Certificate. In the event that Safeguard determines that such an indemnity bond
is appropriate, Safeguard will provide you with timely notice of its decision.
Further, you will inform the shareholder during the initial phone call
that the offering expires at 5:00 p.m., New York City time, on December ___,
1996 and of the following policies as appropriate regarding transmittal of
replacement certificates:
Lost Certificates: A replacement Rights Certificate will be placed in
-----------------
first class mail within two business days of ChaseMellon's receipt of
his/her executed affidavit and indemnity bond. If the holder would like
his/her Rights Certificate returned via overnight mail, he/she should
enclose with the letter a check payable to ChaseMellon to pay the cost
of the return overnight mailing of the replacement Rights Certificate.
Nonreceipt of Certificates: ChaseMellon will mail, within two business
--------------------------
days of receipt of a shareholder affidavit of non-receipt, a
replacement Rights Certificate via first class mail. If the holder
would like his/her Rights Certificate returned via overnight mail,
he/she should enclose with the letter a check payable to ChaseMellon to
pay the cost of the return overnight mailing of the replacement Rights
Certificate. Commencing three business days before the expiration of
the Rights Offering, SANCHEZ will pay the expenses of overnight
delivery of replacement Rights Certificates in cases of nonreceipt.
Any shareholder who reports loss or nonreceipt of a Rights Certificate
and who wishes to exercise his/her Rights will be given the option of
--------
delivering to ChaseMellon, along
<PAGE>
Page 5
with the affidavit of non-receipt or loss, a letter indicating his/her
intent to exercise in his/her name and enclosing a check payable to
"Safeguard Escrow Account" for the appropriate subscription. In those
cases, ChaseMellon will not replace the Rights Certificate, but rather
will proceed to process the subscription.
10. ChaseMellon shall notify by FAX at or about the close of each business
day during the pendency of the Rights Offering and for the three business days
after the Expiration Date, (a) Joe Waterman of SANCHEZ at (610) 296-7371,
(b) Deirdre Blackburn of Safeguard at (610) 293-0601, (c) Jean K. Robinson of
J.P. Morgan at (212) 648-5951, and Franklin M. Stokes of Wheat First Butcher
Singer at (804) 782-3440, or their respective designates, of (i) the number of
shares for which Rights were exercised on such day, (ii) the number of shares
for which Rights were subject to guaranteed exercises on such day, (iii) the
number of shares for which Rights were subject to defective exercises received
on such day, (iv) the number of shares for which previously defective and
guaranteed exercises of Rights were cured and delivered on such day, (v) the
number of shares for which checks received with previously exercised Rights were
returned unpaid and which did not clear by the deadline for such clearance, (vi)
the number of shares for which previously defective and guaranteed exercises of
Rights lapsed or failed due to expiration of the deadline for cure or delivery,
and (vii) the cumulative number of shares for which Rights were properly
exercised to date, and furnish each of such persons with a daily written report
containing such information. ChaseMellon also shall maintain and update a
register which shall list holders who have fully or partially exercised their
Rights, holders who have transferred their Rights, their transferees, and
holders who have not exercised their Rights. Subject to Section 16(h) below,
ChaseMellon is also authorized and instructed to provide to each such person or
company such additional information relating to the transfer or exercise of
Rights as may from time to time be requested, provided however that such
information shall be consistent with the information contained in the
Prospectus.
11. ChaseMellon will deposit all checks and money orders received from
exercises of Rights in a segregated account designated as the Safeguard Escrow
Account until the earlier of clearance or two business days of receipt, at which
time the sums represented by such checks and money orders shall be wire
transferred to the Escrow Agent as follows:
Mellon Bank, N.A., Pittsburgh, PA
ABA #043000261
C/A #900-9010
Attn:Delores Kenst
Re: SANCHEZ Rights Offering
Cash payments accompanying exercises of Rights will be deposited promptly by you
and wire transferred to the Escrow Agent. The Escrow Agent shall establish an
escrow account entitled "Safeguard Escrow Account" (the "Escrow Account").
Safeguard, SANCHEZ, RVP, MAS, and FRS hereby direct the Escrow Agent to invest
such funds as soon as may be practicable and keep such funds invested during the
term hereof in accordance with written directions signed by each of them,
provided that such investment shall be limited to investment companies
registered under the Investment Company Act of 1940 which invest in obligations,
or repurchase agreements secured by such obligations, of the following types:
(a) certificates of deposit, maturing within 90 days from the date of
acquisition thereof, issued by national or state banks located in the United
States of America or in any state or agency thereof; or (b) short-term
obligations of or guaranteed by the United States of America or any state or
agency thereof. These investment companies may include any for which the Escrow
Agent or affiliate perform services for a fee, whether as custodian, transfer
agent, investment advisor or otherwise, and it is
<PAGE>
Page 6
acknowledged that such shares are not obligations of or endorsed by the Escrow
Agent and are not insured by the FDIC. Safeguard, SANCHEZ, RVP, MAS, and FRS
hereby direct Escrow Agent to invest in the Dreyfus Institutional U.S. Treasury
Money Market Fund until further written notice is given to Escrow Agent at the
address on page 1, and hereby acknowledge receipt of a prospectus for such
investment. Safeguard, SANCHEZ, RVP, MAS, and FRS agree that neither the Rights
Agent nor the Escrow Agent shall be liable for any loss with respect to
investments made in accordance with this Section 11. Escrow Agent shall wire
transfer to the Rights Agent all funds in the Escrow Account for distribution by
the Rights Agent in accordance with Section 13 hereof upon written notice from
the Rights Agent that the Closing (as defined in Section 13) will occur. If the
Escrow Agent receives notice from the Rights Agent that instead of the Closing,
distributions will be made pursuant to Section 14, Escrow Agent will wire
transfer funds to Rights Agent after deducting any unpaid fees of Escrow Agent.
12. Safeguard, SANCHEZ, RVP, MAS, and FRS will give you notice when the
Rights Offering has become effective (the "Effective Date"). Promptly following
the Effective Date, each of the selling stockholders will deposit with you stock
certificates endorsed in blank for transfer as follows:
(a) Safeguard shall cause its subsidiary, Safeguard Scientifics
(Delaware), Inc. ("Safeguard Delaware"), to deposit certificates representing an
aggregate of 714,272 shares of Common Stock;
(b) RVP will deposit certificates representing an aggregate of 178,568
shares of Common Stock;
(c) MAS will deposit certificates representing an aggregate of 87,106
shares of Common Stock; and
(d) FRS will deposite certificates representing an aggregate of 43,554
shares of Common Stock.
SANCHEZ shall direct you, in your capacity as its transfer agent, to
reserve for issuance an aggregate of 2,461,000 shares of authorized but unissued
Common Stock. The Common Stock to be reserved by you for issuance by SANCHEZ
represents 2,006,500 shares of Common Stock being offered pursuant to the Rights
Offering, 151,500 shares of Common Stock being offered pursuant to the Direct
Rights, and 303,000 shares of Common Stock subject to an option which has been
granted to the Underwriters for the purpose of covering overallotments. Such
stock certificates and reserved shares shall be held by you in escrow for
distribution as provided below.
13. The closing of the Rights Offering (the "Closing") will be held at the
time, and subject to the conditions, described in the Prospectus. Safeguard,
SANCHEZ, RVP, MAS, and FRS will notify you in writing when the Closing shall
occur. Promptly upon such notification, you shall issue new stock certificates
for delivery at Closing, and/or make book transfers at closing in the manner
requested by the Underwriters prior to Closing, representing shares of Common
Stock as follows:
(i) to the Subscribers for the amount of shares for which they have
exercised their Rights;
(ii) (A) If the number of shares delivered to Subscribers pursuant to
(i) above is less than the Distributed Amount, then to certain persons to be
designated by SANCHEZ ("Other Purchasers") for the
<PAGE>
Page 7
number of shares equal in the aggregate to the Distributed Amount minus the
number of shares delivered to Subscribers pursuant to (i) above (the
"Unexercised Amount"), but not more than 300,000 shares;
(B) If the Unexercised Amount is greater than 300,000 shares, then
the excess of such shares (the "Excess Amount") to the Underwriters or their
designees; and
(iv) if Rights to purchase fewer than 3,030,000 shares of Common Stock
were issued to holders of Safeguard Common Shares, then to the Other Purchasers
for the shares of Common Stock subject to such undistributed Rights.
At the Closing, upon the issuance of shares of Common Stock to
Subscribers and Other Purchasers, you shall deliver to SANCHEZ the sum of $5.00
for each of the first 2,158,000 shares issued to Subscribers, and to RVP, MAS,
FRS and Safeguard Delaware, pro rata, the sum of $5.00 for each of the next
1,023,500 shares issued to Subscribers, less such amounts that RVP, MAS, FRS,
Safeguard Delaware or SANCHEZ may advise you to pay to the Underwriters in
accordance with the terms of the standby underwriting agreement. All income
earned on the Money Market Account shall be distributed to SANCHEZ, RVP, MAS,
FRS and Safeguard Delaware pro rata in accordance with the distribution of
principal.
Within 20 days after the Expiration Date, SANCHEZ will notify you in
writing whether and for how many shares the Underwriters have exercised their
overallotment option, upon which ChaseMellon shall deliver stock certificates to
the Underwriters for such shares against payment by the Underwriters to SANCHEZ
of $4.65 per share.
No fees are payable by Safeguard, SANCHEZ, RVP, MAS, FRS or the
Underwriters to brokers, dealers or others who may have solicited an exercise or
transfer of Rights.
14. If Safeguard, SANCHEZ, RVP, MAS, and FRS notify ChaseMellon, in
writing, that the conditions to Closing have not been satisfied and that the
Rights Offering has been canceled, or if you do not receive written notice of
the Closing within 50 days after the Record Date for the Rights Offering, then
(a) you shall promptly return to each Subscriber, by check, the purchase price,
without interest, paid by such Subscriber for the shares of Common Stock
subscribed pursuant to the Rights Offering, (b) you shall promptly return to
Safeguard Delaware, RVP, MAS, FRS their respective stock certificates
representing the shares of Common Stock held by you in escrow pending
consummation of the Rights Offering, and (c) the reservation of shares for
issuance by SANCHEZ and all subscription forms and Rights Certificates will be
canceled and will confer no further rights on any person. In the event of the
cancellation of the Rights Offering, you shall apply all income earned on the
Escrow Account first to the fees and expenses of the Escrow Agent, then to your
fees and expenses, as Rights Agent, and thereafter to SANCHEZ.
15. For your services as Rights Agent hereunder you shall be entitled to
the fees set forth in Exhibit C attached hereto, together with reimbursement for
your reasonable out-of-pocket expenses, as described in Exhibit C. The Escrow
Agent shall be entitled to a fee of $1,250, together with out-of-pocket
expenses. Such fees shall be paid by SANCHEZ.
16. As Rights Agent and Escrow Agent you:
(a) shall take such additional reasonable actions not hereinabove set
forth as may be requested
<PAGE>
by Safeguard, SANCHEZ, RVP, MAS, and FRS to consummate the distribution of the
Rights;
(b) shall have no duties or obligations other than those specifically
set forth herein, or as may subsequently be agreed to by you, Safeguard,
SANCHEZ, RVP, MAS, and FRS;
(c) will be regarded as making no representations and having no
responsibilities except to act in good faith and in a careful and prudent
manner, as to the validity, sufficiency, value or genuineness of any
certificates or the shares represented thereby deposited with you hereunder and
will not be required to and will not make any representations as to the
validity, value or genuineness of the Rights Offering;
(d) shall not be obligated to take any legal action hereunder which
might in your judgment involve any expense or liability unless you have been
furnished with reasonable indemnity;
(e) may rely on, and shall be protected in acting upon, any
certificate, instrument, opinion, notice, letter, telegram or other document, or
any security, delivered to you and in good faith believed by you to be genuine
and to have been signed by the proper party or parties;
(f) may rely on and shall be protected in acting upon the oral
instructions, later confirmed in writing, of James Ounsworth, John Wright, or
Deirdre Blackburn of Safeguard, and such additional employees and
representatives of Safeguard as Safeguard may hereinafter designate in writing;
(g) may consult counsel satisfactory to you (including counsel for
SANCHEZ and Safeguard), and the opinion of such counsel shall be full and
complete authorization and protection in respect of any action taken, suffered
or omitted by you hereunder in good faith and in accordance with the opinion of
such counsel; and
(h) shall not be called upon at any time to, and shall not, advise any
person exercising Rights as to the wisdom of taking such action or as to the
market value or decline or appreciation in market value of the Rights or the
Common Stock.
17. SANCHEZ, Safeguard, RVP, MAS, and FRS covenant and agree to indemnify,
jointly and severally, the Rights Agent and the Escrow Agent and hold the Rights
Agent and the Escrow Agent harmless against any loss, liability or expense
incurred without negligence or bad faith on the part of the Rights Agent or
Escrow Agent arising out of or in connection with the administration of your
duties hereunder, including the cost and expenses of defending against any claim
or liability in the premises.
18. This agreement and your respective appointment as Rights Agent and
Escrow Agent shall be construed and enforced in accordance with the laws of the
Commonwealth of Pennsylvania. This agreement shall inure to the benefit of, and
the obligation and duties created hereby shall be binding upon, the successors
and assigns of the parties hereto, but this agreement may not be assigned. This
agreement shall also inure to the benefit of the Underwriters as third party
beneficiaries.
19. Notices permitted or required to be given hereunder shall be deemed
given when sent by telecopier, one business day after sent by guaranteed
overnight delivery service or overnight Express Mail, and three business days
after sent, postage prepaid, by certified or registered mail, to the following
addresses or such other address of which such party may give notice to the other
parties hereto:
<PAGE>
Page 9
If to the Rights Agent: To the address on the first page
If to the Escrow Agent: To the address on the first page
If to Safeguard and RVP: Safeguard Scientifics, Inc.
Attn: James A. Ounsworth
800 The Safeguard Building
435 Devon Park Drive
Wayne, PA 19087-1945
Telecopier: (610) 293-0601
If to SANCHEZ, MAS, Sanchez Computer Associates, Inc.
and FRS: Attention: Joseph F. Waterman
40 Valley Stream Parkway
Malvern, PA 19355
Telecopier: (610) 296-7371
<PAGE>
Page 2
If agreed to by you, please confirm acceptance of the arrangements
herein provided by signing and returning two copies of this letter agreement.
Very truly yours,
SANCHEZ COMPUTER ASSOCIATES,
INC.
By:
- ----- --------------------------------
Joseph F. Waterman
Senior Vice President and
Chief Financial Officer
SAFEGUARD SCIENTIFICS, INC.
By:
- ----- --------------------------------
Gerald M. Wilk
Sr. Vice President-Finance
RADNOR VENTURE PARTNERS, L.P.
By:
------------------------------------
Gerald M. Wilk, Vice President
SSI Management Company, Inc.
a general partner of Radnor
Venture Management Company,
the general partner
- ----- -----------------------------------
Michael A. Sanchez
- ----- -----------------------------------
Frank R. Sanchez
Accepted and agreed to as of
the date first above written.
CHASEMELLON SHAREHOLDER
SERVICES, L.L.C., as Rights Agent
By:
----------------------------------
MELLON BANK, N.A., as Escrow Agent
<PAGE>
ADMINISTRATIVE SERVICES AGREEMENT
---------------------------------
Agreement dated February 26, 1987 by and between SAFEGUARD SCIENTIFICS,
INC., a Pennsylvania corporation ("Safeguard") and SANCHEZ COMPUTER ASSOCIATES,
INC., a Pennsylvania corporation ("Sanchez").
Background
----------
A. Sanchez is engaged in the design, development, marketing and support
of computer products for use in the financial services industry.
B. Safeguard Scientifics (Delaware), Inc., a Safeguard subsidiary ("SSI
Delaware"), has agreed to purchase shares of the Common Stock, no par value, of
Sanchez and Sanchez has agreed to commence an offering to holders of Safeguard
common stock of rights to purchase additional shares of the Common Stock, no par
value, of Sanchez (the "Rights Offering") as set forth in and subject to the
applicable terms and conditions of the Common Stock, Warrants & Rights Agreement
(the "Purchase Agreement") among Sanchez, Safeguard and SSI Delaware.
C. Sanchez desires that Safeguard provide certain support services to
assist Sanchez in its development, subject to the terms and conditions
hereinafter set forth.
Agreements
----------
NOW, THEREFORE, the parties hereto, in consideration of the premises and
intending to be legally bound, agree as follows:
1. Services. Safeguard agrees to provide (either directly or
--------
indirectly through its subsidiaries) to Sanchez for the term specified herein
administrative support services and access to the broad management experience
of the corporate management staff of Safeguard. Such services include
consultation in regard to general management, investor relations, financial
management, human resource management, legal services, insurance programs
administration, and tax research and planning. Nothing herein will be construed
to require Safeguard to provide any services under this Agreement which
-1-
<PAGE>
cannot reasonably be provided by Safeguard's management and corporate staff in
light of its other commitments. The services of director designates of
Safeguard on the Sanchez Board of Directors will be furnished to Sanchez without
additional charge.
2. Outside Services. Safeguard may provide or make arrangements for
----------------
certain services and benefits outside the scope of Section 1 at the request of
Sanchez. The foregoing may involve, among other thing, various types of
insurance programs and various legal, accounting and other matters requiring
outside professional services. To the extent Safeguard will incur obligations
for Sanchez in connection with such services and benefits, Sanchez will pay to
Safeguard or to the provider of such services, in addition to the fee provided
in Section 3, the actual and identifiable costs of such services and benefits.
Safeguard will submit to Sanchez a monthly statement of all such sums due in
accordance with the provisions of this Paragraph and each such statement will be
paid by Sanchez within 30 days after the delivery of such statement to Sanchez.
3. Fee. In consideration of the services to be provided by Safeguard,
---
Sanchez will pay Safeguard, during the term of this Agreement, a fee (the
"Services Fee") as follows:
Each Quarter
------------
4/1/87 - 3/31/88: $12,500
4/1/88 - 3/31/89: $18,750
4/1/89 - 3/31/91: $25,000
The Services Fee for each year will be subject to reduction in the event that
1 1/2% of Sanchez's sales for that year, as determined in its audited fiscal
year financial statements, is less than the Services Fee. The amount of any
such reduction will be credited against future Services Fee payments; provided
that if no further payments are due, the amount of the reduction will be paid to
Sanchez. All fees are payable within 30 days of the commencement of each
quarter.
4. Term. This Agreement will be effective as of the date of execution,
----
will extend through and include March 31, 1991 and will continue to be effective
thereafter
-2-
<PAGE>
on a quarterly basis, subject to termination on March 31, 1991 or on the final
day of any quarter thereafter, by delivery of written notice to such effect by
either party to the other no later than the final day of the preceding quarter.
5. Miscellaneous. (a) Nothing herein will be construed to relieve the
-------------
directors or officers of Sanchez from the performance of their respective duties
or limit the exercise of their powers in accordance with the Articles of
Incorporation or By-Laws of Sanchez, any applicable provisions of the Business
Corporation Law of the Commonwealth of Pennsylvania, or otherwise. The
activities of Sanchez will at all times be subject to the control and direction
of its Board of Directors and officers.
(b) This Agreement constitutes the entire agreement between the parties
hereto with respect to the subject matter hereof and may not be amended or
modified except by the written agreement of the parties hereto.
(c) This Agreement will inure to the benefit of and be binding upon the
parties hereto and their respective successors. Nothing in this Agreement,
expressed or implied, is intended to confer on any other person other than the
parties hereto, or their respective successors, any rights, remedies,
obligations or liabilities under or by reason of this Agreement.
(d) This Agreement and any rights or obligations pursuant hereto will
not be assignable by either party hereto without written consent of the other
party.
(e) Nothing in this Agreement will be deemed to constitute the parties
hereto joint venturers, partners or participants in an unincorporated or other
separate entity.
(f) Sanchez acknowledges that the services to be provided by Safeguard
under Section 2.6 of the Purchase Agreement, for which compensation other than
the Services Fee is to be paid, are distinct and separate from those to be
provided by Safeguard under this Agreement.
-3-
<PAGE>
IN WITNESS WHEREOF, Safeguard Scientifics, Inc. and Sanchez Computer
Associates, Inc. have caused this Agreement to be executed in their respective
corporate names by an officer thereunto duly authorized, all as of the date
first above written.
SAFEGUARD SCIENTIFICS, INC.
By: [SIGNATURE APPEARS HERE]
----------------------------
Vice President
SANCHEZ COMPUTER ASSOCIATES, INC.
By: [SIGNATURE APPEARS HERE]
--------------------------------
President
<PAGE>
Exhibit 10.7
Sanchez Computer Associates
Offer of Employment
Sanchez Computer Associates offers Richard Jefferson (RHJ) employment effective
January 1, 1996. With employment, RHJ becomes eligible for the normal employee
benefits, policies and responsibilities unless specifically stated herein. This
letter details the specifics of RHJ's initial position, the Managing Director
Asia Pacific Rim (MD APR) and an officer of the company. This position requires
relocation to Jakarta, Indonesia. Expat terms and conditions as presented in the
Sanchez Expat Policy document will be followed except as modified with terms
presented below.
Term of Position
The terms detailed here are valid for a two year period beginning Jan 1, 1996
and ending Dec. 31, 1997, although nothing herein is to be considered a
guarantee of employment. If employment is terminated for reasons other than non
performance of duties, RHJ will be paid 3 months severance plus reasonable
relocation cost incurred in accordance with the Expat policy. The term may be
extended for an additional 2 year period if the APR region is successful. Expat
terms and conditions for this additional period will be re-negotiated
(Multimatra's contribution to expenses expires after the initial 2 year period)
at that time.
Role and Responsibilities
As managing Director of Asia Pacific Rim (MD APR) and an officer of the company,
Richard Jefferson will be responsible for all company activities within the
region. This region is defined as:
. Indonesia
. Thailand
. Malaysia
. South Korea
. Philippines
. India
. China
. Vietnam
. HongKong
. Singapore
. Japan
This position reports to the President of Sanchez, and requires coordination
with the management associated with sales, marketing, conversion and support,
product development, and accounting/finance.
Compensation
. Stock
Fifteen thousand shares of Options vested per option agreement.
. Salary
The first year salary will be 140,000 USD per annum. The second year
salary will be 140,000 USD less half of the first year,s paid
commissions.
. Commission
A five percent commission will be paid on revenue generated from this
region. This consists of distributor agreement fees and net license
fees. The distributor agreement fee is the payment as negotiated in the
appropriate International Distributor Agreement that allows the Sanchez
products to be distributed in a given geography (Multimatra for
Indonesia is 250,000USD). Net license fees are defined as the license
amounts as charged on the invoice minus distributor commissions, 118N
and cost for redistributed products (such as Mumps, BTS, Crisp, Oracle,
etc.). Commissions are paid based upon actual cash/billings received.
First year commissions earned may be accelerated forward at the request
of RHJ within mutually acceptable terms. Beginning year two, commissions
are paid
<PAGE>
only if region is profitable. Region profitability is calculated using
direct expenses only, which include, but are not limited to, cost of
Sanchez employees supplying services to the region.
Expat
. Initial Payment
An initial payment of 25,000 USD will be issued.
. Moving and Storage
RHJ and family will move to Jakarta on Dec. 7, 1995. Actual moving expenses
and storage expenses include local packing and secure storage ($3,251),
transpacific moving and Jakarta unloading services ($7,840), and local
storage ($1,800).
. Temporary Housing
RHJ and family will utilize temporary housing in order to locate a house in
Jakarta. This will be an apartment at the Borobudor International Jakarta at
a rate of $22.50 plus local taxes per two week period. The goal is to locate
a house within 6 weeks, but will not exceed 3 months.
. Housing
A two year house rental will be provided in Jakarta. The budget is 5,000USD
per month (RHJ will use every effort to find reasonable housing at or below
this cost), payable upfront for two years (120,000USD). This cost will be
split between Multimatra and Sanchez. When RHJ locates a house (target
January 96), Sanchez will pay RHJ one half of the total two year housing
allowance, up to 60,000USD, when the amount is to be remitted to the
landlord. RHJ will pay Sanchez, beginning in July 96, 1,000USD per month as
a housing contribution. RHJ will be solely responsible for all US based
housing activities, decisions, costs and revenue.
. Transportation and Service
A monthly allowance for cars and house services of 1,576USD.
. Flights to US
Two round trip tickets for RHJ and immediate family per year (business class
when policy changes).
. Hypothetical Tax Calculation
In the calculation of hypothetical taxes, a housing interest deduction will
be used based on actual interest incurred. If RHJ sells his home, Sanchez
will allow the 1,000USD per month paid to Sanchez as an interest deduction
in the hypothetical tax calculation.
Sincerely,
/s/ Michael A. Sanchez 12/01/95
- ---------------------- --------
Michael Sanchez
Chairman and CEO
Sanchez Computer Associates
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<CIK> 0001022926
<NAME> SANCHEZ COMPUTER ASSOCIATES, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 6,250
<SECURITIES> 0
<RECEIVABLES> 4,931
<ALLOWANCES> 40
<INVENTORY> 0
<CURRENT-ASSETS> 12,004
<PP&E> 2,214
<DEPRECIATION> 1,333
<TOTAL-ASSETS> 13,531
<CURRENT-LIABILITIES> 6,619
<BONDS> 0
0
0
<COMMON> 85
<OTHER-SE> 6,631
<TOTAL-LIABILITY-AND-EQUITY> 13,531
<SALES> 0
<TOTAL-REVENUES> 12,796
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 11,942
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (213)
<INCOME-PRETAX> 1,067
<INCOME-TAX> 383
<INCOME-CONTINUING> 684
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 684
<EPS-PRIMARY> .07
<EPS-DILUTED> .07
</TABLE>
