================================================================================
SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE
SECURITIES EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant [ X ]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement [ ] Confidential, For use
of the Commission Only (as
permitted by Rule 14a-6(e)(2)
[ X ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
SANCHEZ COMPUTER ASSOCIATES, INC.
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
Payment of Filing Fee (check the appropriate box):
[ X ] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and
0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which
the filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the form or schedule and the date of its filing.
(1) Amount previously paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
================================================================================
<PAGE>
[Sanchez Computer Associates, Inc. Logo]
40 Valley Stream Parkway
Malvern, PA 19355
Phone: (610) 296-8877
Fax: (610) 296-7371
Internet: www.sanchez.com
---------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
Dear Stockholder:
You are invited to attend the Sanchez Computer Associates, Inc. 1999 Annual
Meeting of Stockholders.
DATE: Wednesday, May 19, 1999
TIME: 2:00 p.m. Eastern time
PLACE: The Desmond Great Valley Hotel and Conference Center
One Liberty Boulevard
Malvern, Pennsylvania 19355
(610) 296-9800 or (800) 575-1776
DIRECTIONS: Included on the last page
No admission tickets are required. If you cannot attend the meeting in person,
you may listen to the meeting over the Internet through Vcall, Inc. at
http://www.vcall.com. Please go to this web site approximately fifteen minutes
- ---------------------
early to register and download any necessary audio software.
Only stockholders who owned stock at the close of business on April 7, 1999, can
vote at this meeting or any adjournments that may take place.
At the meeting, we will elect nine directors, request approval of the amendments
to the 1995 Equity Compensation Plan, and attend to any other business properly
presented at the meeting. We also will report on our 1998 business results and
other matters of interest to our stockholders. You will have an opportunity at
the meeting to ask questions, make comments, and meet our management team.
<PAGE>
Our board of directors is a vital resource. We consider your vote important, no
matter how many shares you hold, and we encourage you to vote as soon as
possible.
We have rewritten and reformatted our proxy statement to make it easier to read.
We encourage you to read this document, and we welcome your comments on the new
format.
The proxy statement, accompanying proxy card, and 1998 annual report are being
mailed to stockholders beginning April 23, 1999, in connection with the
solicitation of proxies by the board of directors.
Sincerely,
/s/ Michael A. Sanchez /s/ Carl Sottosanti
- ---------------------- -------------------
Michael A. Sanchez Carl Sottosanti
Chairman of the Board Secretary
April 23, 1999
<PAGE>
QUESTIONS AND ANSWERS
Q: Who is entitled to vote?
A: Stockholders of record as of the close of business on April 7, 1999, may
vote at the annual meeting.
Q: How many shares can vote?
A: On April 7, 1999, there were 11,768,125 shares issued and outstanding. Every
stockholder may cast one vote for each share owned.
Q: What may I vote on?
A: You may vote on the election of nine directors who have been nominated to
serve on our board of directors and on the adoption of amendments to our
1995 Equity Compensation Plan.
Q: How does the board recommend I vote on the proposal?
A: The board recommends a vote FOR each board nominee and FOR the amendments to
the 1995 Equity Compensation Plan.
Q: How do I vote?
A: Sign and date each proxy card you receive, mark the boxes indicating how you
wish to vote, and return the proxy card in the prepaid envelope provided.
If you sign your proxy card but do not mark any boxes showing how you wish
to vote, Michael A. Sanchez, Frank R. Sanchez, and Joseph F. Waterman will
vote your shares as recommended by the board of directors.
Q: What if I hold my shares in a brokerage account?
A: If you hold your shares through a broker, bank or other nominee, you will
receive a voting instruction form directly from them describing how to vote
your shares. This form will, in most cases, offer you three ways to vote:
1. by telephone,
2. via the Internet, or
3. by returning the form to your broker.
Q: What if I want to change my vote?
A: You may change your vote at any time before the meeting in any of the
following three ways:
1. notify our corporate secretary, Carl Sottosanti, in writing,
2. vote in person at the meeting, or
3. submit a proxy card with a later date.
If you hold your shares through a broker, bank or other nominee and wish to
vote at the meeting, you must obtain a legal proxy from that nominee
authorizing you to vote at the meeting. We will be unable to accept a vote
from you at the meeting without that form. If you hold your shares directly
and wish to vote at the meeting, no additional forms will be required.
Q: How will directors be elected?
A: The nine nominees who receive the highest number of affirmative votes at a
meeting at which a quorum is present will be elected as directors.
Q: What vote is required to adopt the amendments to the 1995 Equity
Compensation Plan?
A: To approve the amendments to the plan, a quorum must be present and voting
on the plan, and a majority of the votes cast must be in favor of the
amendments.
Q: Who will count the votes?
A: A representative of Sanchez will count the votes and act as the judge of
election.
1
[Sanchez Logo]
<PAGE>
QUESTIONS AND ANSWERS
Q: What does it mean if I get more than one proxy card?
A: Your shares may be registered differently or may be in more than one
account. We encourage you to have all accounts registered in the exact same
name and address (whenever possible). You may obtain information about how
to do this by contacting our transfer agent:
ChaseMellon Shareholder Services
85 Challenger Road
Ridgefield Park, NJ 07660
Toll-free telephone 800-526-0801.
If you provide ChaseMellon with photocopies of the proxy cards that you
receive or with the account numbers that appear on each proxy card, it will
be easier to accomplish this.
You also can find information on transferring shares and other useful
stockholder information on their web site at www.chasemellon.com.
--------------------
Q: What is a quorum?
A: A quorum is a majority of the outstanding shares. The shares may be
represented at the meeting either in person or by proxy. To hold the
meeting, there must be a quorum present.
Q: What is the effect if I abstain or fail to give instructions to my broker?
A: If you submit a properly executed proxy, your shares will be counted as part
of the quorum even if you abstain from voting or withhold your vote for a
particular director.
Broker non-votes also are counted as part of the quorum. A broker non-vote
occurs when banks, brokers or other nominees holding shares on behalf of a
stockholder do not receive voting instructions from the stockholder by a
specified date before the meeting. In this event, banks, brokers and other
nominees may vote those shares on routine matters, such as the election of
directors. Approval of the amendments to the 1995 Equity Compensation Plan
is considered a non-routine matter. Therefore, brokers, banks or other
nominees will not be able to vote on that proposal without instructions from
the stockholder. This will result in a "broker non-vote" on that matter
equal to the number of shares for which they do not receive specific voting
instructions.
Broker non-votes and abstentions are not counted in the tally of votes FOR
or AGAINST a proposal. A WITHHELD vote is treated the same as an abstention.
Q: Who can attend the meeting?
A: All stockholders are encouraged to attend the meeting. Admission tickets are
not required.
Q: What if I can't attend the meeting?
A: If you cannot attend the meeting in person, you may listen to the
proceedings over the Internet through Vcall, Inc. at http://www.vcall.com.
---------------------
Please go to this web site approximately fifteen minutes early to register
and download any necessary audio software. If you cannot listen to the live
broadcast, Vcall will have a replay of the meeting available on its web site
beginning immediately after the meeting and a transcript of the meeting
available by approximately May 24.
Q: Are there any expenses associated with collecting the stockholder votes?
A: We will reimburse brokerage firms and other custodians, nominees and
fiduciaries for their reasonable out-of-pocket expenses for forwarding proxy
and other materials to our stockholders. We do not anticipate hiring an
agency to solicit votes at this time.
2
[Sanchez Logo]
<PAGE>
QUESTIONS AND ANSWERS
Q: What is a stockholder proposal?
A: A stockholder proposal is your recommendation or requirement that Sanchez or
our board of directors take action on a matter that you intend to present at
a meeting of stockholders. However, under applicable rules we have the
ability to exclude certain matters proposed, including those that deal with
matters relating to our ordinary business operations.
Q: Can anyone submit a stockholder proposal?
A: To be eligible to submit a proposal, you must have continuously held at
least $2,000 in market value, or 1% of our common stock, for at least one
year by the date you submit your proposal. You also must continue to hold
those securities through the date of the meeting.
Q: If I wish to submit a stockholder proposal for the annual meeting in 2000,
what action must I take?
A: If you wish us to consider including a stockholder proposal in the proxy
statement for the annual meeting in 2000, you must submit the proposal, in
writing, so that our corporate secretary receives it no later than December
25, 1999. The proposal must meet the requirements established by the SEC.
Send your proposal to:
Carl Sottosanti, General Counsel and
Secretary
Sanchez Computer Associates, Inc.
40 Valley Stream Parkway
Malvern, PA 19355
If you wish to present a proposal at the annual meeting in 2000 that has not
been included in the proxy statement, the management proxies will be allowed
to use their discretionary voting authority unless notice of your proposal
has been received by our corporate secretary no later than March 9, 2000.
Q: Can a stockholder nominate someone to be a director?
A: We will consider qualified candidates recommended by our stockholders. You
should submit your recommendation, including a detailed statement of the
individual's qualifications, to our corporate secretary at the address shown
in the preceding question.
Q: Who are the largest stockholders of Sanchez?
A: Safeguard Scientifics, our largest stockholder, beneficially owns 26.7% of
our shares. Michael Sanchez, our chairman, beneficially owns 16.2%, and
Frank Sanchez, our president and COO, beneficially owns 7.0%. Other
directors and executive officers beneficially own a total of an additional
10.5% of our common stock. At December 31, 1998, no other stockholder owned
more than 5% of our stock.
3
[Sanchez Logo]
<PAGE>
ELECTION OF DIRECTORS
Item 1 on Proxy Card
Directors are elected annually and serve a one-year term. There are nine
nominees for election this year. Each nominee is currently serving as a director
and has consented to serve until the next annual meeting if elected. You will
find detailed information on each nominee below. If any director is unable to
stand for re-election after distribution of this proxy statement, the board may
reduce its size or designate a substitute. If the board designates a substitute,
proxies voting on the original director candidate will be cast for the
substituted candidate.
The board recommends a vote FOR each nominee. The nine nominees who receive the
highest number of affirmative votes will be elected as directors.
- --------------------------------------------------------------------------------
MICHAEL A. SANCHEZ Director since 1979
Age 41
Mr. Michael Sanchez founded the company in 1979 and has been its chairman since
its inception. He also served as chief executive officer from inception until
April 1997. In addition to providing strategic direction for our company, Mr.
Sanchez is currently responsible for overseeing our marketing activities.
Michael Sanchez and Frank Sanchez are brothers.
- --------------------------------------------------------------------------------
FRANK R. SANCHEZ Director since 1980
Age 42
Mr. Frank Sanchez has been the president and chief operating officer of the
company since 1994. In his capacity as chief operating officer, Mr. Sanchez is
responsible for our sales and technology development functions. He was the
principal architect of the PROFILE integrated banking system and continues to be
responsible for developing our product and technical strategy. From 1980 until
1994, Mr. Sanchez was executive vice president in charge of technology and
product development.
- --------------------------------------------------------------------------------
RONALD J. ZLATOPER Director since 1997
Age 57
Mr. Zlatoper has been the chief executive officer of the company since April
1997. Mr. Zlatoper has served as a consultant to several corporations. He left
the U.S. Navy as an Admiral in 1997 after 33 years of service, including service
as Commander in Chief of the U.S. Pacific Fleet from 1994 through 1996 and as
Chief of Naval Personnel and Deputy Chief of Naval Operations for Manpower and
Personnel from 1991 to 1994. Mr. Zlatoper also serves on the Executive Board of
the Cradle of Liberty Council, Boy Scouts of America and the Pearl Harbor
Aviation Museum and on the Advisory Board of Penn State Great Valley and the
George Washington University Business School. He is a trustee of Rensselaer
Polytechnic Institute.
4
[Sanchez Logo]
<PAGE>
- --------------------------------------------------------------------------------
WARREN V. MUSSER Director since 1987
Age 72
Mr. Musser has served, since 1953, as chairman of the board and chief executive
officer of Safeguard Scientifics, Inc., a company that develops and operates
emerging growth information technology companies. Mr. Musser is chairman of the
board of Cambridge Technology Partners (Massachusetts), Inc. and CompuCom
Systems, Inc. He is also a director of DocuCorp International, Inc. and a
trustee of Brandywine Realty Trust. Mr. Musser serves on a variety of civic,
educational and charitable boards of directors, and serves as vice
president/development, Cradle of Liberty Council, Boy Scouts of America, vice
chairman of The Eastern Technology Council, and chairman of the Pennsylvania
Partnership on Economic Education.
- --------------------------------------------------------------------------------
LAWRENCE CHIMERINE Director since 1987
Age 58
Dr. Chimerine has served as managing director and chief economist of the
Economic Strategy Institute since August 1993 and as president of Radnor
Consulting Services, an economic advisory firm, since August 1991. Dr. Chimerine
became an advisor to the WEFA Group in 1997. 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. and Outsource International, Inc.
- --------------------------------------------------------------------------------
ALEX W. HART Director since 1998
Age 58
Since 1998, Mr. Hart has served as an independent consultant. Before 1998, Mr.
Hart served as chief executive officer of Advanta Corp., a consumer and small
business service company that he joined in March 1994. Before joining Advanta
Corp, Mr. Hart had been president and chief executive officer of MasterCard
International, Inc., a worldwide association of over 29,000 member financial
institutions. Mr. Hart is a director of HNC Software, Inc.
- --------------------------------------------------------------------------------
KAILASH C. KHANNA Director since 1997
Age 60
Dr. Khanna joined the Society for Worldwide Interbank Financial
Telecommunication s.c., a cooperatively owned provider of interbank financial
transfer services, in September 1993, initially as head of information
technology. In 1994, he was appointed the head of technology, operations and
support. Previously, Dr. Khanna served from 1988 until 1993 as senior vice
president of systems and technology for the CIT Group of Manufacturers Hanover
Bank, an asset-based lending institution. Dr. Khanna also serves on the
International Advisory Committee of Global One (a telecommunications joint
venture of Sprint, Deutsche Telekom and France Telecom) and the Information
Systems & Technology Council of the American Management Association.
5
<PAGE>
- --------------------------------------------------------------------------------
JOHN D. LOEWENBERG Director since 1996
Age 58
Mr. Loewenberg is currently managing partner of JDL Enterprises, a consulting
firm. Previously, Mr. Loewenberg was an executive vice president and chief
operating officer of Connecticut Mutual, a life insurance company, from May 1995
through March 1996. Before joining Connecticut Mutual, Mr. Loewenberg held
several senior management positions with Aetna Life and Casualty and its
affiliates. Mr. Loewenberg is a director of CompuCom Systems, Inc., Diamond
Technology Partners Incorporated, DocuCorp International, Inc., and Wung
Healthcare.
- --------------------------------------------------------------------------------
THOMAS C. LYNCH Director since 1996
Age 57
Mr. Lynch has been executive vice president, chief operating officer and a
member of the board of directors of CompuCom Systems, Inc., a subsidiary of
Safeguard Scientifics, Inc. and a leading provider of information technology
products and technology management to large- and medium-sized businesses
throughout the United States, since October 1998. Previously, Mr. Lynch served
as senior vice president of Safeguard Scientifics since November 1995. Before
that time, Mr. Lynch retired from the U.S. Navy as an Admiral after 31 years of
service, including serving as Superintendent of the U.S. Naval Academy from 1991
through 1994 and Director of the Navy Staff from 1994 through 1995. Mr. Lynch
currently serves as a director of The Eastern Technology Council and a trustee
of the U.S. Naval Academy Foundation. Mr. Lynch is a director of OAO Technology
Solutions, Inc. and Mikros Systems Corp.
6
[Sanchez Logo]
<PAGE>
BOARD OF DIRECTORS -- ADDITIONAL INFORMATION
Board Meetings: The board of directors held four meetings in 1998. Each director
attended at least 75% of the total number of meetings of the board and
committees of which he was a member.
Board Compensation: Directors receive reimbursement of out-of-pocket expenses
incurred in connection with attendance at meetings or other company business.
Each director who is not an executive officer of Sanchez or Safeguard is
eligible to receive stock option grants, in the discretion of the compensation
committee. The term and vesting of options awarded to directors are determined
by the committee at the time of grant. The exercise price of each option is
equal to the closing price of a share of our common stock on the grant date.
In July 1998, Mr. Hart received an option to purchase 15,000 shares at an
exercise price of $20.00 per share. The option vests 100% in July 2002 and has a
term of eight years. Vesting of the option is subject to acceleration upon the
satisfaction of certain performance criteria. In August 1998, Mr. Hart received
an option to purchase 8,400 shares at an exercise price of $26.625 per share.
The option vests one-third each year starting August 1999 and has a term of five
years from the date it first becomes exercisable.
BOARD COMMITTEE MEMBERSHIP ROSTER
- --------------------------------------------------------------------------------
Audit Compensation Executive
- --------------------------------------------------------------------------------
Meetings held in 1998 3 2 0
- --------------------------------------------------------------------------------
Michael A. Sanchez * x x
- --------------------------------------------------------------------------------
Frank R. Sanchez x
- --------------------------------------------------------------------------------
Ronald J. Zlatoper x
- --------------------------------------------------------------------------------
Warren V. Musser x x
- --------------------------------------------------------------------------------
Lawrence Chimerine x x
- --------------------------------------------------------------------------------
Kailash C. Khanna x
- --------------------------------------------------------------------------------
John D. Loewenberg x x
- --------------------------------------------------------------------------------
Thomas C. Lynch x
- --------------------------------------------------------------------------------
* Mr. Sanchez is a non-voting member of the Compensation Committee
Audit Committee
o discusses the scope and results of our audit with the independent certified
public accountants
o reviews with management and the independent certified public accountants the
interim and year-end operating results
o considers the adequacy of our internal accounting controls and audit
procedures
Compensation Committee
o determines compensation levels for our officers and other principal
employees, including incentive compensation
o administers our equity compensation plans
Executive Committee
o acts upon all matters with respect to the routine management of our business
7
[Sanchez Logo]
<PAGE>
ADOPTION OF AMENDMENTS TO THE
1995 EQUITY COMPENSATION PLAN
Item 2 on Proxy Card
Background
Our 1995 Equity Compensation Plan was initially adopted in 1995. Since no shares
remained available for issuance under that plan, in February 1999, our board
adopted, subject to stockholder approval, an amendment to the plan authorizing
the issuance of an additional 1,000,000 shares under the plan. The board also
approved other amendments to the plan, including, among other things, a change
in the definition of fair market value and the addition of individuals to whom
an offer of employment has been extended as eligible participants under the
plan.
The board recommends a vote FOR approval of the amendments to the 1995 Plan.
Approval of these amendments requires a majority of the votes cast at a meeting
at which a quorum representing a majority of all outstanding voting stock is
present, either in person or by proxy, and voting on the amendments. If the
stockholders do not approve the amendments, then the number of shares that may
be issued under the 1995 Plan will not exceed 1,680,000 shares, and any options
granted under the 1995 Plan that were subject to stockholder approval will
terminate.
Purpose of the 1995 Plan
The 1995 Plan provides participants with an opportunity to receive grants of
stock options, stock appreciation rights, and restricted stock. We have
historically granted incentive stock options and non-qualified stock options
with an exercise price that generally has been equal to the fair market value on
the grant date. We most likely will continue to do so in the future. However, to
remain competitive and to be able to continue attracting outstanding employees,
our 1995 Plan provides the flexibility for other types of grants.
We believe the 1995 Plan will encourage the participants to contribute to our
growth, thus benefiting our stockholders, and will align the economic interests
of the participants with those of our stockholders.
The 1995 Plan is not qualified under section 401(a) of the Internal Revenue Code
and is not subject to the provisions of the Employee Retirement Income Security
Act.
Shares Subject to the 1995 Plan
The 1995 Plan, as amended, authorizes the issuance of up to 2,680,000 shares of
common stock, subject to adjustment in certain circumstances as discussed below.
The maximum number of shares that may be subject to grants made to any
individual under the plan is 550,000. If options or stock appreciation rights
granted under the plan terminate, expire or are canceled, forfeited, exchanged
or surrendered without being exercised, or if a restricted stock award is
forfeited, the shares subject to the grant will again be available for purposes
of the 1995 Plan.
Of the additional shares authorized for issuance, options for 86,061 of such
shares already have been awarded to certain executives and other employees. The
balance of the newly authorized shares will be available for grants to existing
and future plan participants from time to time. At March 31, 1999, of the
2,680,000 shares authorized for issuance, 154,365 shares have been issued upon
exercise of options, 1,611,495 shares are subject to options outstanding under
the plan, and 914,140 shares remain available for future issuance. The closing
price of a share of our common stock on March 31, 1999, was $23.25 per share.
8
[Sanchez Logo]
<PAGE>
Administration of the 1995 Plan
The 1995 Plan is administered by the compensation committee, which is currently
composed of Messrs. Chimerine, Loewenberg, Musser and Michael Sanchez. Mr.
Sanchez is a non-voting member of the committee.
The committee has the authority to administer and interpret the 1995 Plan.
Specifically, the committee is authorized to
o determine the individuals to whom grants will be made,
o determine the type, size and terms of the grants,
o 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,
o amend the terms of any outstanding awards, including accelerating vesting,
waiving forfeiture provisions, or extending a participant's right with
respect to grants as a result of termination of employment or service or
otherwise,
o establish from time to time any policy or program to encourage or require
participants to achieve or maintain equity ownership,
o make factual determinations and adopt or amend appropriate rules,
regulations, agreements and instruments for implementing the 1995 Plan, and
o deal with any other matters arising under the plan.
Eligibility for Participation and Grants
Those eligible to receive grants are employees (including officers or members of
the board), individuals to whom we have offered employment, non-employee
directors, and certain advisors of Sanchez or any subsidiary. There are
approximately 325 employees, 5 non-employee directors, and 20 advisors currently
eligible to receive grants.
Grants may consist of incentive stock options, non-qualified stock options,
restricted stock awards, or stock appreciation rights. All grants are subject to
the terms and conditions of the 1995 Plan.
Grants will continue to vest and remain exercisable as long as a participant
remains in our service and for a period of time after termination. In
determining whether a participant will be considered to have terminated service
for purposes of exercising options and stock appreciation rights and satisfying
conditions with respect to restricted stock awarded, a participant will not be
considered to have terminated service until the participant ceases to serve as
an employee, advisor and member of the board. The committee may waive or modify
these termination provisions.
Stock Options
Grant of Stock Options. The committee may grant options qualifying as incentive
stock options to employees. The committee may grant non-qualified stock options
to any participant. Grants to employees may be made in any combination of
incentive stock options and non-qualified stock options.
Option Price. The option exercise price is determined by the committee at the
time of grant. To qualify as an incentive stock option, the exercise price may
not be less than the fair market value of the common stock at the time of grant,
which is equal to the average of the high and low traded prices on the grant
date. Also, the value, determined as of the grant date, of any incentive stock
options held by a participant that become exercisable for the first time during
any calendar year cannot exceed $100,000. If a participant owns stock having
more than 10% of the voting power of Sanchez, the exercise price of an incentive
stock option may not be less than 110% of the fair market value of the common
stock on the date of grant.
9
[Sanchez Logo]
<PAGE>
Term and Exercisability of Stock Options. The committee determines the term of
stock options granted under the 1995 Plan, although the term may not exceed ten
years. If a participant owns stock having more than 10% of the voting power of
Sanchez, the term of an incentive stock option may not exceed five years. The
committee determines how stock options will become exercisable and may
accelerate vesting at any time for any reason.
Manner of Exercise of Stock Options. To exercise a stock option, a participant
must deliver a written exercise notice specifying the number of shares to be
purchased together with payment of the option exercise price. The exercise price
may be paid in any of the following ways:
o in cash,
o by delivering shares of our common stock already owned by the participant
having a fair market value equal to the exercise price,
o in a combination of cash and shares, or
o any other method of payment the committee may approve, including a "cashless
exercise" of a stock option effected by delivering a notice of exercise to
Sanchez and a securities broker, with instructions to the broker to deliver
to Sanchez out of the sale proceeds the amount necessary to pay the exercise
price.
Shares of common stock tendered in payment of the exercise price must have been
held by the participant long enough to avoid adverse accounting consequences to
Sanchez.
Upon receipt of a participant's exercise notice, the committee may elect to cash
out all or part of an option by paying the participant an amount, in cash or
common stock, equal to the excess of the fair market value over the exercise
price.
For a non-qualified stock option, we are also required to withhold applicable
taxes. If approved by the committee, the income tax withholding obligation may
be satisfied by withholding shares of an equivalent market value.
Termination of Stock Options as a Result of Termination of Employment,
Disability or Death. Generally, vested stock options will remain exercisable for
a period of time following termination of service as follows:
o for one year following termination of service if an individual dies or is
disabled or
o for one month following termination of service for any other reason.
The committee, either at or after grant, may provide for different termination
provisions. Options which are not exercisable at termination of service are
terminated as of that date.
If service is terminated for cause, the committee may terminate all stock
options held by a participant at the date of termination. The committee also
may, upon refund of the exercise price, require the participant to forfeit all
shares underlying any exercised portion of an option for which Sanchez has not
yet delivered share certificates.
Transferability of Stock Options. Generally, only a participant may exercise
rights under a stock option during his or her lifetime, and those rights may not
be transferred except by will or by the laws of descent and distribution. When a
participant dies, the personal representative or other person entitled to
succeed to his or her rights may exercise those rights upon furnishing
satisfactory proof of that person's right to receive the stock option. The
committee may nevertheless choose to provide with respect to non-qualified stock
options that a participant may transfer those stock options to family members or
other persons or entities.
Restricted Stock Grants
The committee may provide a participant with an opportunity to acquire shares of
our common stock contingent upon his or her continued service or the
10
[Sanchez Logo]
<PAGE>
satisfaction of other criteria. Restricted stock differs from a stock option in
that a participant must make an immediate decision whether to make an investment
in the stock. The committee determines the amount to be paid for the stock or
may decide to grant the stock for no consideration. The committee may specify
that the restrictions will lapse over a period of time or according to any other
factors or criteria. If a participant's service terminates during the period of
any restrictions, the restricted stock grant will terminate with respect to all
shares as to which the restrictions on transfer have not lapsed unless the
committee provides for an exception to this requirement. Until the restrictions
on transfer have lapsed, a participant may not in any way dispose of the shares
of common stock to which the restriction applies. All restrictions lapse upon
the expiration of the applicable restriction period. Unless the committee
determines otherwise, however, during the restriction period the participant has
the right to vote restricted shares and receive any dividends or other
distributions paid on them, subject to any restrictions specified by the
committee.
Stock Appreciation Rights
The committee may provide a participant with the right to receive a benefit
measured by the appreciation in a specified number of shares of our common stock
over a period of time. The amount of this benefit is equal to the difference
between the fair market value of the stock on the exercise date and the base
amount of the stock appreciation right (SAR). Generally, the base amount of a
SAR is equal to the per share exercise price of the related stock option or, if
there is no related option, the fair market value of a share of common stock on
the date the SAR is granted. The committee may pay this benefit in cash, in
stock, or any combination of the two.
The committee may grant a SAR either separately or in tandem with all or a
portion of a stock option. SARs may be granted when the stock option is granted
or later while it remains outstanding, although in the case of an incentive
stock option, SARs may be granted only at the time the option is granted. Tandem
SARs may not exceed the number of shares of common stock that the participant
may purchase upon the exercise of the related stock option during the period.
Upon the exercise of a stock option, the SARs relating to the common stock
covered by the stock option terminate. Upon the exercise of SARs, the related
stock option terminates to the extent of an equal number of shares of common
stock.
SARs are subject to the same termination provisions on death, disability or
termination of service as stock options. The committee may accelerate the
exercisability of any or all outstanding SARs.
Termination of the 1995 Plan
The board may amend or terminate the 1995 Plan at any time. The 1995 Plan will
terminate, in any event, on October 9, 2005.
Adjustment Provisions
The committee will adjust the number and exercise price of outstanding grants,
as well as the number and kind of shares available for grants and individual
limits for any single participant under the 1995 Plan, to appropriately reflect
any of the following events:
o a stock dividend, spinoff, recapitalization, stock split, or combination or
exchange of shares;
o a merger, reorganization or consolidation in which Sanchez is the surviving
corporation;
o a reclassification or change in par value;
o any other extraordinary or unusual event affecting the outstanding common
stock as a class without receipt of consideration by Sanchez; or
11
[Sanchez Logo]
<PAGE>
o a substantial reduction in the value of outstanding shares of common stock as
a result of a spinoff or payment of an extraordinary dividend or
distribution.
Reorganization; Change in Control
Upon a reorganization where Sanchez is not the surviving corporation, or
survives only as a subsidiary of another corporation, all outstanding stock
options and SARs that are not exercised will be assumed by the surviving
corporation or replaced with comparable options or rights.
Unless the committee determines otherwise, a change of control will not result
in the acceleration of vesting of outstanding stock options or SARs or the
removal of restrictions and conditions on outstanding restricted stock awards.
However, the committee may elect to take the following actions:
o require that participants surrender their outstanding options and SARs in
exchange for a payment, in cash or common stock, in an amount equal to the
amount by which the then fair market value subject to the grants exceeds the
exercise price of the options or the base amount of the SARs or
o terminate any or all unexercised options or SARs after giving participants an
opportunity to exercise the options or SARs.
The committee does not have the right to take any actions that would make the
reorganization or change of control ineligible for pooling of interests
accounting treatment or desired tax treatment if the reorganization or change of
control would otherwise qualify for this treatment and we intend to use this
treatment with respect to the transaction.
Federal Income Tax Consequences
The current federal income tax treatment of grants under the 1995 Plan is
described below. Local and state tax authorities also may tax incentive
compensation awarded under the 1995 Plan. Because of the complexities involved
in the application of tax laws to specific circumstances and the uncertainties
as to possible future changes in those laws, we urge participants to consult
their own tax advisors concerning the application of the general principles
discussed below to their own situations and the application of state and local
tax laws.
Incentive Stock Options. A participant will not recognize taxable income for the
purpose of the regular income tax upon either the grant or exercise of an
incentive stock option. However, for purposes of the alternative minimum tax
imposed under the Code, in the year in which an incentive stock option is
exercised, the amount by which the fair market value of the shares acquired upon
exercise exceeds the exercise price will be treated as an item of adjustment.
If a participant disposes of the shares acquired under an incentive stock option
after at least two years following the date of grant and at least one year
following the date of exercise, the participant will recognize a long-term
capital gain or loss equal to the difference between the amount realized upon
the disposition and the exercise price. We will not be entitled to any tax
deduction by reason of the grant or exercise of the incentive stock option.
If a participant disposes of shares acquired upon exercise of an incentive stock
option before satisfying both holding period requirements (known as a
disqualifying disposition), the gain recognized on disposition will be taxed as
ordinary income to the extent of the difference between the lesser of the sale
price or the fair market value of the shares on the date of exercise and the
exercise price. We will be entitled to a federal income tax deduction in the
same amount. The gain, if any, in excess of the amount recognized as ordinary
income on a disqualifying disposition will be long-term or short-term capital
gain, depending upon the length of time the participant held the shares before
the disposition.
If a participant tenders shares of common stock received upon the exercise of an
incentive stock option to pay the exercise price within either the two-year or
12
[Sanchez Logo]
<PAGE>
one-year holding periods described above, the disqualifying disposition of the
shares used to pay the exercise cost will result in income (or loss) to the
participant and, to the extent of a recognized gain, a tax deduction to Sanchez.
If, however, the holding period requirements are met and the number of shares
received on the exercise does not exceed the number of shares surrendered, the
participant will recognize no gain or loss with respect to the surrendered
shares and will have the same basis and holding period with respect to the newly
acquired shares as with respect to the surrendered shares. To the extent that
the number of shares received exceeds the number surrendered, the participant's
basis in the excess shares will equal the amount of cash paid by the participant
upon the original exercise of the stock option, and the participant's holding
period with respect to the excess shares will begin on the date the shares are
transferred to the participant. The tax treatment described above for shares
newly received upon exercise is not affected by using shares to pay the exercise
price.
Non-qualified Stock Options. There are no federal income tax consequences to a
participant or Sanchez upon the grant of a non-qualified stock option. Upon the
exercise of a non-qualified stock option, a participant will generally recognize
ordinary income in an amount equal to the excess of the fair market value of the
shares at the time of exercise over the exercise price, and we will be entitled
to a corresponding federal income tax deduction.
If a participant surrenders shares to pay the exercise price, and the number of
shares received on the exercise does not exceed the number of shares
surrendered, the participant will recognize no gain or loss with respect to the
surrendered shares, and will have the same basis and holding period with respect
to the newly acquired shares as with respect to the surrendered shares. To the
extent that the number of shares received exceeds the number surrendered, the
fair market value of the excess shares on the date of exercise, reduced by any
cash paid by the participant upon the exercise, will be includible in the gross
income of the participant. The participant's basis in the excess shares will
equal the sum of the cash paid by the participant upon the exercise of the stock
option plus any amount included in the participant's gross income as a result of
the exercise of the stock option.
The committee may permit a participant to elect to surrender or deliver shares
otherwise issuable upon exercise, or previously acquired shares, to satisfy the
federal income tax withholding, subject to certain restrictions described in the
1995 Plan. Such an election will result in a disposition of the shares which are
surrendered or delivered, and an amount will be included in the participant's
income equal to the excess of the fair market value of the shares over the
participant's basis in the shares.
Upon the sale of the shares acquired by the exercise of a non-qualified stock
option, a participant will have a capital gain or loss (long-term or short-term
depending upon the length of time the shares were held) in an amount equal to
the difference between the amount realized upon the sale and the participant's
adjusted tax basis in the shares (the exercise price plus the amount of ordinary
income recognized by the participant at the time of exercise of the
non-qualified stock options).
Restricted Stock. A participant normally will not recognize taxable income upon
the award of a restricted stock grant, and we will not be entitled to a
deduction, until the stock is transferable by the participant or no longer
subject to a substantial risk of forfeiture for federal tax purposes, whichever
occurs earlier. When the common stock is either transferable or is no longer
subject to a substantial risk of forfeiture, the participant will recognize
ordinary compensation income in an amount equal to the fair market value of the
common stock at that time, less any consideration paid by the participant for
the shares, and we will be entitled to a federal income tax deduction in the
same amount. A participant may, however, elect to recognize ordinary
compensation income in the year the restricted stock grant is awarded in an
13
[Sanchez Logo]
<PAGE>
amount equal to the fair market value of the common stock at that time less any
consideration paid by the participant for the shares, determined without regard
to the restrictions. In such event, we generally will be entitled to a
corresponding federal income tax deduction in the same year. Any gain or loss
recognized by the participant upon a subsequent disposition of the shares will
be capital gain or loss. If, after making the election, any shares subject to a
restricted stock grant are forfeited, or if the market value declines during the
restriction period, the participant is not entitled to any tax deduction or tax
refund if the participant does not recover any consideration paid by the
participant for the restricted stock.
Stock Appreciation Rights. There are no federal income tax consequences to a
participant or to Sanchez upon the grant of a SAR. Upon the exercise of a SAR, a
participant will recognize ordinary compensation income in an amount equal to
the cash and the fair market value of the shares of common stock received upon
exercise. We generally will be entitled to a corresponding federal income tax
deduction at the time of exercise. Upon the sale of any shares acquired by the
exercise of a SAR, a participant will have a capital gain or loss (long-term or
short-term depending upon the length of time the shares were held) in an amount
equal to the difference between the amount realized upon the sale and the
participant's adjusted tax basis in the shares (the amount of ordinary income
recognized by the participant at the time of exercise of the SAR).
Tax Withholding. All grants under the 1995 Plan are subject to applicable tax
withholding requirements. We have the right to deduct from all grants paid in
cash, or from other wages paid to a participant, any taxes required by law to be
withheld with respect to the grant. If grants are paid in shares of common
stock, we may require a participant to pay the amount of the taxes that we are
required to withhold or may deduct the amount of the withholding taxes from
other wages paid to the participant. If approved by the committee, the income
tax withholding obligation with respect to grants paid in common stock may be
satisfied 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. Our obligations under the 1995 Plan are conditional upon
the payment or arrangement for payment of any required withholding.
Section 162(m). Under section 162(m) of the Code, we may be precluded from
claiming a federal income tax deduction for total compensation in excess of
$1,000,000 paid to the chief executive officer or to any of the other four most
highly compensated employees in any one year. Total compensation may include
amounts received upon the exercise of stock options and SARs granted under the
1995 Plan, the value of shares subject to restricted stock grants when the
shares are no longer subject to forfeiture (or such other time when income is
recognized) and the amounts received pursuant to other grants under the 1995
Plan. An exception does exist, however, for "performance-based compensation."
Grants of stock options and SARs generally will meet the requirements of
"performance-based compensation." Restricted stock grants generally will not
qualify as "performance-based compensation."
14
[Sanchez Logo]
<PAGE>
NEW PLAN BENEFITS
The following table shows the number of options that were granted under the 1995
Equity Compensation Plan subject to stockholder approval at the annual meeting
of the proposal contained in Item 2 above.
- --------------------------------------------------------------------------------
1995 EQUITY COMPENSATION PLAN
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
Name and Position Dollar Value ($)(1) Number of Units
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Ronald J. Zlatoper, CEO $ 0 0
- ----------------------------------------------------------------------------------------------------------
Michael A. Sanchez, Chairman $ 0 10,000
- ----------------------------------------------------------------------------------------------------------
Frank R. Sanchez, President and COO $ 0 10,000
- ----------------------------------------------------------------------------------------------------------
Stewart A. Jack, Managing Director, Europe $ 0 0
- ----------------------------------------------------------------------------------------------------------
Joseph F. Waterman, Senior Vice President and CFO $ 0 10,000
- ----------------------------------------------------------------------------------------------------------
Executive Group $ 0 70,000
- ----------------------------------------------------------------------------------------------------------
Non-executive Director Group $ 0 0
- ----------------------------------------------------------------------------------------------------------
Non-executive Officer Employee Group $ 0 16,061
- ----------------------------------------------------------------------------------------------------------
</TABLE>
(1) All options have an exercise price at least equal to the fair market value
of our shares of common stock as of the grant date. As optionees must pay
the exercise price to us to acquire the shares upon exercise of the option,
the dollar value of benefits received by or allocated to the optionees on
the grant date was zero.
15
[Sanchez Logo]
<PAGE>
STOCK OWNERSHIP OF DIRECTORS, OFFICERS AND
BENEFICIAL OWNERS OF MORE THAN 5%
AS OF MARCH 31, 1999
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
Shares
Beneficially
Outstanding Options Owned
Shares Exercisable Assuming
Benefically Within 60 Exercise of Percent of
Name Owned Days Options Shares
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Safeguard Scientifics, Inc. 3,144,092 0 3,144,092 26.7%
800 The Safeguard Building
435 Devon Park Drive
Wayne, PA 19087-1945
- ---------------------------------------------------------------------------------------------------------------------------
Michael A. Sanchez 1,867,871 39,763 1,907,634 16.2%
40 Valley Stream Parkway
Malvern, PA 19355
- ---------------------------------------------------------------------------------------------------------------------------
Frank R. Sanchez 790,271 40,067 830,338 7.0%
40 Valley Stream Parkway
Malvern, PA 19355
- ---------------------------------------------------------------------------------------------------------------------------
Ronald J. Zlatoper 25,200 125,000 150,200 1.3%
- ---------------------------------------------------------------------------------------------------------------------------
Warren V. Musser 563,834 0 563,834 4.8%
- ---------------------------------------------------------------------------------------------------------------------------
Lawrence Chimerine 73,000 0 73,000 *
- ---------------------------------------------------------------------------------------------------------------------------
Alex W. Hart 1,000 0 1,000 *
- ---------------------------------------------------------------------------------------------------------------------------
Kailash C. Khanna 2,650 4,000 6,650 *
- ---------------------------------------------------------------------------------------------------------------------------
John D. Loewenberg 1,710 19,200 20,910 *
- ---------------------------------------------------------------------------------------------------------------------------
Thomas C. Lynch 1,449 0 1,449 *
- ---------------------------------------------------------------------------------------------------------------------------
Stewart A. Jack 100 15,033 15,133 *
- ---------------------------------------------------------------------------------------------------------------------------
Joseph F. Waterman 227,281 8,115 235,396 2.0%
- ---------------------------------------------------------------------------------------------------------------------------
Executive officers and directors as a
group (16 persons) 3,714,455 375,449 4,089,904 33.7%
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Less than 1% of our outstanding shares of common stock
Each individual has the sole power to vote and to dispose of the shares (other
than shares held jointly with spouse) except as follows:
Safeguard Scientifics Shares are held of record by wholly owned subsidiaries
of Safeguard as follows: Safeguard Scientifics
(Delaware), Inc.--2,735,292 shares; Safeguard
Delaware, Inc.--408,800 shares
Michael A. Sanchez Includes 99,000 shares held in custodial accounts for
three minor children and 50,000 shares held by his
spouse
Warren V. Musser Includes 64,400 shares held by a charitable foundation
established by Mr. Musser and 12,000 shares held by
two trusts of which he serves as a co-trustee.
Stewart A. Jack Includes 100 shares held by his spouse
Joseph F. Waterman Includes 900 shares held in custodial accounts for
three minor children, 1,998 shares held by his spouse,
and 527 shares held in a spousal trust
16
[Sanchez Logo]
<PAGE>
Section 16(a) Beneficial Ownership Reporting Compliance: The rules of the
Securities and Exchange Commission require that we disclose late filings of
reports of stock ownership by our directors and executive officers. To the best
of our knowledge, the only late filings during 1998 were as follows: a Form 5
filed late by Kailash C. Khanna, Stewart A. Jack and Deborah Kovacs, an
executive officer, each reporting one delinquent transaction, and a Form 4 filed
late by Kailash C. Khanna and Michael Turner, an executive officer.
STOCK PERFORMANCE GRAPH
The following graph compares the cumulative total return on our common stock for
the period November 13, 1996, through December 31, 1998, with the cumulative
total return on the Nasdaq Index and the peer group index for the same period.
The peer group consists of SIC Code 737--Computer Programming and Data
Processing Services. The comparison assumes that $100 was invested on November
13, 1996, in our common stock and in each of the comparison indices, and assumes
reinvestment of dividends. We have historically reinvested earnings in the
growth of our business and have not paid cash dividends on our common stock.
13-Nov-96 Dec-96 Dec-97 Dec-98
---------------------------------------------------------
Sanchez 100 143 530 532
Nasdaq 100 100 123 172
Peer Group 100 103 127 214
17
[Sanchez Logo]
<PAGE>
REPORT OF THE COMPENSATION COMMITTEE
ON EXECUTIVE COMPENSATION
COMPENSATION PHILOSOPHY
We are in a highly competitive industry. To succeed, we must be able to
o attract and retain qualified employees,
o promote among them the economic benefits of stock ownership in our
company, and
o motivate and reward employees who, by their hard work, loyalty, and
exceptional service, make contributions of special importance to the success
of our business.
COMPENSATION STRUCTURE
The compensation of our executives consists of
o base pay,
o cash incentives, and
o stock options.
Base Pay
Base pay is established initially for new executives on the basis of subjective
factors, including experience, individual achievements, and the level of
responsibility to be assumed. Salary increases also are awarded based on
subjective factors, including
o an executive's increased levels of individual responsibility,
o maintaining an appropriate scale among our executives based on relative
positions and responsibilities,
o the competitiveness of the labor market in the technology sector, and
o general levels of inflation.
Mr. Zlatoper's 1998 base pay. Mr. Zlatoper's base salary was fixed by the
committee when he was appointed chief executive officer in April 1997. There was
no increase in 1998.
Other highly compensated executives' 1998 base pay. Base pay for 1998 was
determined by considering the subjective factors discussed previously.
Cash Incentives
Cash incentives may be awarded at the discretion of the committee. Cash
incentives are intended to motivate executives to achieve and exceed not only
the targeted tasks and objectives determined for each executive according to his
or her functional responsibilities within the organization but also our annual
performance targets and strategic objectives as defined in our annual strategic
plan.
Mr. Zlatoper's 1998 cash incentive. Mr. Zlatoper was awarded a cash incentive of
$17,500 in 1998 based on corporate performance and other subjective factors.
Other highly compensated executives' 1998 cash incentive. Cash incentives for
1998 were determined by considering corporate performance and other subjective
factors.
Stock Options
Our equity compensation plan is designed to attract, retain and reward employees
who make significant contributions toward achievement of our financial and
operational objectives. Grants under the plan align the interests of our
executives and employees with the long-term interests of our stockholders and
motivate executives and employees to remain in our employ. Generally, grants are
not made every year, but are awarded subjectively, based on a number of factors,
including the achievement of our financial and strategic objectives, the
individual's contributions toward the achievement of our financial and
18
[Sanchez Logo]
<PAGE>
operational objectives, and the amount and term of options already held by each
individual.
1998 Stock Option Awards. The committee granted stock options during 1998 to
certain of its new executives and employees and also granted options to certain
executives and employees for performance during 1998. The relative number of
options granted to new executives and employees was based on each person's
responsibilities.
IRS Limits on Deductibility of Compensation.
The committee is aware that Internal Revenue Code section 162(m) provides that
publicly held companies may not deduct in any taxable year compensation in
excess of one million dollars paid to any of the individuals named in the
compensation tables that is not "performance based" as defined in section
162(m). The committee believes that annual levels of executive compensation that
are not performance based are not likely to exceed one million dollars in the
foreseeable future.
By the Compensation Committee:
Lawrence Chimerine
John D. Loewenberg
Warren V. Musser
Michael A. Sanchez
Compensation Committee Interlocks and Insider Participation
Directors Chimerine, Loewenberg and Musser are the voting members of the
committee. Mr. Michael Sanchez, chairman of the board and one of our executive
officers, serves as a non-voting member of the committee. Mr. Sanchez did not
participate in discussions regarding his compensation.
19
[Sanchez Logo]
<PAGE>
EXECUTIVE COMPENSATION & OTHER ARRANGEMENTS
1998 Annual Compensation for Top Five Officers
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
Long-Term
Annual Compensation(1) Compensation
- -----------------------------------------------------------------------------------------------------------------------------
Awards
- -----------------------------------------------------------------------------------------------------------------------------
Securities
Other Annual Underlying All Other
Compensation Options/SARS Compensation
Name and Principal Position Year Salary ($) Bonus ($)(2) ($) (#) ($)(3)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Ronald J. Zlatoper, 1998 $ 225,000 $ 17,500 -- -- $ 3,900
CEO(4)
1997 152,586 -- -- 200,000 --
- -----------------------------------------------------------------------------------------------------------------------------
Michael A. Sanchez, 1998 $ 217,675 $ 150,000 -- 40,000 $ 8,030
Chairman
1997 194,275 -- -- -- 4,800
1996 190,000 20,000 -- -- 5,700
- -----------------------------------------------------------------------------------------------------------------------------
Frank R. Sanchez, 1998 $ 224,000 $ 150,000 -- 40,000 $ 8,970
President and COO
1997 204,500 -- -- -- 4,800
1996 200,000 30,000 -- -- 4,800
- -----------------------------------------------------------------------------------------------------------------------------
Stewart A. Jack, 1998 $ 203,140 $ 20,000 -- 10,000 --
Managing Director,
Europe 1997 175,690 -- -- 6,000 --
1996 93,163 -- -- 14,600 --
- -----------------------------------------------------------------------------------------------------------------------------
Joseph F. Waterman, 1998 163,550 $ 77,500 -- 20,000 $ 6,031
Senior Vice President
and CFO 1997 143,149 -- -- 0 5,194
1996 140,000 30,000 -- 0 4,200
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
Notes to Annual Compensation Table:
(1) Includes compensation that has been deferred by the top five officers under
defined contribution plans.
(2) Includes amounts paid or accrued related to 1998.
(3) Represents a contribution under our 401(k) plan.
(4) Mr. Zlatoper's employment commenced in April 1997.
20
[Sanchez Logo]
<PAGE>
1998 Stock Option Grants
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
Potential Realizable
Value
at Assumed Annual
Rates of Stock Price
Appreciation
Individual Grants(1) for Option Term(2)
- ---------------------------------------------------------------------------------------------------------------------
% of Total
Number of Options/
Securities SARs
Underlying Granted to
Options/ Employees Exercise or
SARS in Fiscal Base Price Expiration 5% 10%
Name Granted (#) Year ($/Sh) Date ($) ($)
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Ronald J. Zlatoper 0 -- -- -- -- --
- ---------------------------------------------------------------------------------------------------------------------
Michael A. Sanchez 18,180(3) 2.3% $ 22.00 2/26/03 $ 64,096 $ 185,621
21,820(4) 2.7% $ 20.00 2/26/06 $ 178,147 $ 416,601
- ---------------------------------------------------------------------------------------------------------------------
Frank R. Sanchez 40,000(5) 5.0% $ 20.00 2/26/06 $ 319,760 $ 745,388
- ---------------------------------------------------------------------------------------------------------------------
Stewart A. Jack 10,000(4) 1.2% $ 20.00 2/26/06 $ 81,645 $ 190,928
- ---------------------------------------------------------------------------------------------------------------------
Joseph F. Waterman 20,000(6) 2.5% $ 20.00 2/26/06 $ 160,326 $ 373,893
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) All options have an exercise price equal to or greater than the fair market
value of the shares subject to each option on the grant date. The option
exercise price may be paid in cash, by delivery of previously acquired
shares, subject to certain conditions, or same-day sales (that is, a
cashless exercise through a broker). The compensation committee, upon
exercise of an option, may elect to pay an individual, in cash or in common
stock, the difference between the exercise price and the fair market value
on the exercise date. The committee may modify the terms of outstanding
options, including acceleration of the exercise date.
(2) These values assume that the shares appreciate at the compounded annual rate
shown from the grant date until the end of the option term. These values are
not estimates of our future stock price growth. Executives will not benefit
unless the common stock price increases above the stock option exercise
price. The expiration date shown is the last date when the final vested
portion of each option may be exercised.
(3) This option vests 25% commencing on December 31, 1998, 25% on February 26,
1999, and an additional 25% on each February 26 thereafter. The option has
a five-year term.
(4) These options vest 33-1/3% each year commencing on the first anniversary of
the grant. Each vested segment of these options has a five-year term from
the date it first becomes exercisable.
(5) This option vests as to 5,000 shares on December 31, 1998, as to 11,667
shares on each of February 26, 1999, and February 26, 2000, and as to the
remaining 11,666 shares on February 26, 2001. Each vested segment of the
option has a five-year term from the date it first becomes exercisable.
(6) This option vests as follows: 3,586 shares on December 31, 1998, 4,529
shares on February 26, 1999, 5,943 shares on February 26, 2000, and 5,942
shares on February 26, 2001. Each vested segment of the option has a
five-year term from the date it first becomes exercisable.
21
[Sanchez Logo]
<PAGE>
1998 Stock Option Exercises and Year-End Stock Option Values
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
Number of Securities Value of Unexercised
Underlying Unexercised In-The-Money
Shares Options/SARs Options/SARs
Acquired at Fiscal Year-End(#) at Fiscal Year-End ($)(1)
on Value
Name Exercise (#) Realized Exercisable Unexercisable Exercisable Unexercised
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Ronald J. Zlatoper 0 -- 75,000 100,000 $ 1,859,250 $ 2,479,000
- ------------------------------------------------------------------------------------------------------------------------
Michael A. Sanchez 0 -- 27,945 41,455 $ 643,133 $ 454,439
- ------------------------------------------------------------------------------------------------------------------------
Frank R. Sanchez 0 -- 28,400 41,000 $ 656,432 $ 477,500
- ------------------------------------------------------------------------------------------------------------------------
Stewart A. Jack 0 -- 9,300 21,300 $ 206,750 $ 321,750
- ------------------------------------------------------------------------------------------------------------------------
Joseph F. Waterman 15,600 $ 221,816 3,586 24,214 $ 33,171 $ 351,705
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Value is calculated using the difference between the option exercise price
and the year-end stock price of $29.25, multiplied by the number of shares
subject to an option.
22
[Sanchez Logo]
<PAGE>
Relationships and Related Transactions with Management and Others
We have an administrative services agreement with Safeguard for administrative
support services. The services that Safeguard provides include consultation
regarding our general management, investor relations, certain legal services,
insurance programs administration, and tax research and planning. The annual
administrative services fee does not cover extraordinary services provided by
Safeguard or services that are contracted out. The agreement provides for
automatic quarterly renewals unless terminated by either Safeguard or Sanchez
upon notice at least ninety days before the end of any given quarter. We
expensed $100,000 during 1998 for these services.
In March 1995, we loaned Frank Sanchez $114,000. We made this loan to provide
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 before December 31, 1993, to exercise similar options. In consideration
of this loan, Mr. Sanchez executed a full recourse note. The note has a 10-year
term and bears interest at the rate of 7.75% per annum. The highest outstanding
balance during 1998 was $109,905, and as of March 31, 1999, the outstanding
balance of the note was $98,915.
In June 1997, we agreed to loan Safeguard up to $12.0 million on a revolving
basis at Safeguard's effective borrowing rate minus 0.75%. Interest is paid
monthly. This rate is higher than we are earning on our money market
investments. The highest outstanding balance during 1998, and as of March 31,
1999, was $12.0 million.
In September 1997, we loaned Ronald Zlatoper $176,593. This loan provided
funding for the exercise of a portion of his stock options and the related
taxes. The full recourse note bears interest at the rate of 5.81%. Interest is
payable in arrears on March 31 of each year. The principal balance is due upon
demand, but in any event becomes automatically payable in full within 15
business days after he sells the stock. The highest outstanding balance during
1998 was $186,853, and as of March 31, 1999, the outstanding balance of the note
was $176,593.
Independent Public Accountants
In November 1998, we retained Arthur Andersen, LLP as our independent public
accountants for 1998, replacing PricewaterhouseCoopers LLP, the former
independent public accountants. The reports of PricewaterhouseCoopers on audits
of our consolidated financial statements as of and for the years ended December
31, 1997 and 1996 contained no adverse opinion, no disclaimer of opinion, and
were not qualified or modified as to uncertainty, audit scope, or accounting
principles. We are not aware of any disagreements with our former accountants
during our last two most recent fiscal years and through August 7, 1998, of any
matters of accounting principles or practices, financial statement disclosures,
or auditing scope and procedures which, if not resolved to their satisfaction,
would have caused them to make reference to the matters in their reports. The
decision to change auditors was a result of the merger of Coopers & Lybrand
L.L.P., our then auditors, and Price Waterhouse LLP, and the existence of a
business consulting relationship with Price Waterhouse which was expected to
impair its auditor independence. The selection of Arthur Andersen was
recommended to and approved by our audit committee. We intend to retain Arthur
Andersen for 1999. A representative of Arthur Andersen is expected to be present
at the annual meeting, will have an opportunity to make a statement at the
meeting, if desired, and will be available to respond to appropriate questions.
23
[Sanchez Logo]
<PAGE>
[Sanchez logo]
40 Valley Stream Parkway
Malvern, PA 19355
Phone: (610) 296-8877
Fax: (610) 296-7371
Internet: www.sanchez.com
---------------
- --------------------------------------------------------------------------------
DIRECTIONS TO THE DESMOND GREAT VALLEY HOTEL
One Liberty Boulevard
Malvern, PA 19355
(610) 296-9800
- --------------------------------------------------------------------------------
From Philadelphia
Take the Schuylkill Expressway (I-76)) West. Follow I-76 West to Route 202
South. Take Route 202 South to the Great Valley/Route 29 North Exit. At the
end of the ramp, proceed straight through the traffic light onto Liberty
Boulevard. The hotel is on the right.
- --------------------------------------------------------------------------------
From South New Jersey
Take I-95 South to Route 322 West. Take 322 West to US Route 1 South to
Route 202 North. Take Route 202 North to Great Valley/Route 29 North Exit.
Turn right onto Route 29 North. Turn right at second light onto Liberty
Boulevard. The hotel is on the left.
- --------------------------------------------------------------------------------
From Philadelphia Airport
Take I-95 South to 476 North. Follow 476 North to the Schuylkill Expressway
(I-76) West to Route 202 South. Take Route 202 South to the Great Valley/
Route 29 North Exit. At the end of the ramp, proceed straight through the
traffic light onto Liberty Boulevard. The hotel is on the right.
- --------------------------------------------------------------------------------
From Wilmington and Points South
(Delaware and Maryland)
Take I-95 to Route 202 North. Follow Route 202 North to the Great Valley/
Route 29 North Exit. Turn right onto Route 29 North. Turn right at the second
light onto Liberty Boulevard. The hotel is on the left.
- --------------------------------------------------------------------------------
From Harrisburg and Points West
Take PA Turnpike East to Exit 24, Valley Forge. Take Route 202 South to Great
Valley/Route 29 North Exit. At the end of the ramp, proceed straight through
traffic light onto Liberty Boulevard. The hotel is on the right.
- --------------------------------------------------------------------------------
From New York and Points North
Take the New Jersey Turnpike South to Exit 6, the Pennsylvania Turnpike
extension. Follow the Turnpike West to Exit 24, Valley Forge. Take Route 202
South to the Great Valley/Route 29 North Exit. At the end of the ramp, proceed
through the light onto Liberty Boulevard. The hotel is on the right.
- --------------------------------------------------------------------------------
<PAGE>
PROXY
SANCHEZ COMPUTER ASSOCIATES, INC.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
Please sign and date this proxy, and indicate how you wish to vote, on the back
of this card. Please return this card promptly in the enclosed envelope. Your
vote is important.
When you sign and return this proxy card, you
o appoint Michael A. Sanchez, Frank R. Sanchez and Joseph F. Waterman, and each
of them (or any substitutes they may appoint), as proxies to vote your
shares, as you have instructed, at the annual meeting on May 19, 1999, and at
any adjournments of that meeting,
o authorize the proxies to vote, in their discretion, upon any other business
properly presented at the meeting, and
o revoke any previous proxies you may have signed.
IF YOU DO NOT INDICATE HOW YOU WISH TO VOTE, THE PROXIES WILL VOTE FOR ALL
NOMINEES TO THE BOARD OF DIRECTORS, FOR ADOPTION OF THE AMENDMENTS TO THE 1995
EQUITY COMPENSATION PLAN, AND AS THEY MAY DETERMINE, IN THEIR DISCRETION, WITH
REGARD TO ANY OTHER MATTER PROPERLY PRESENTED AT THE MEETING.
FOLD AND DETACH HERE
<PAGE>
Please mark
your votes as |X|
indicated in
this example
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSALS 1 AND 2.
WITHHELD
1. ELECTION OF DIRECTORS FOR FOR ALL
Nominees: |_| |_|
Michael A. Sanchez
Frank R. Sanchez
Ronald J. Zlatoper
Warren V. Musser
Lawrence Chimerine
Alex W. Hart
Kailish C. Khanna
John D. Loewenberg
Thomas C. Lynch
TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE WHILE VOTING FOR THE
REMAINDER, STRIKE A LINE THROUGH THE NOMINEE'S NAME IN THE LIST.
2. ADOPTION OF THE AMENDMENTS TO THE FOR AGAINST ABSTAIN
1995 EQUITY COMPENSATION PLAN |_| |_| |_|
Signature(s)___________________________________________________________________
Date: ____________________, 1999
YOU MUST SIGN EXACTLY AS YOUR NAME APPEARS ON THIS CARD. If shares are jointly
owned, you must both sign.
Include your full title if you are signing as an attorney, executor,
administrator, trustee or guardian, or on behalf of a corporation or
partnership.
FOLD AND DETACH HERE
[LOGO]
40 Valley Stream Parkway
Malvern, PA 19355
Phone: (610) 296-8877
Fax: (610) 296-7371
For more information about Sanchez, please visit our website at
www.sanchez.com
If you cannot attend the meeting in person,
you may listen to the meeting over the internet through
Vcall, Inc. at
http://www.vcall.com.
Please go to this web site approximately fifteen minutes early
to register and download any necessary audio software.
EXHIBIT 99.1
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), individuals to whom an offer of employment has
been extended ("New Hires"), 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, any successor organization, or any business venture in which
the Company has a significant interest.
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. The
Committee's determination as to a participant's employment or other
provision of services, termination of employment or cessation of the
<PAGE>
provision of services, leave of absence, or reemployment shall be
conclusive on all persons unless determined to be incorrect.
h. "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
i. "Fair Market Value" shall have the meaning set forth below, except
as otherwise determined by the Committee, if the Company Stock is publicly
traded:
(i) if the principal trading market for the Company Stock is a
national securities exchange or the Nasdaq National Market, the mean
between the highest and lowest quoted selling prices 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 Company Stock is not principally traded on such
exchange or market, the mean between the last reported "bid" and
"asked" prices of Company 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 service, as applicable and as the Committee determines. If
the Company Stock is not publicly traded or, if publicly traded, is
not subject to reported transactions or "bid" or "asked" quotations as
set forth above, the Fair Market Value per share shall be as
determined by the Committee.
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, new hire, 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.
-2-
<PAGE>
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 the determination of the
Committee that any one or more of the following events has occurred:
(a) the Participant's conviction of any act which constitutes a
felony under applicable federal or state law, either in connection
with the performance of the Participant's obligations on behalf of the
Company or which affects the Participant's ability to perform his or
her obligations as an employee, board member or advisor of the Company
or under any employment agreement, non-competition agreement,
confidentiality agreement or like agreement or covenant between the
Participant and the Company (any such agreement or covenant being
herein referred to as an "Employment Agreement");
(b) the Participant's willful misconduct in connection with the
performance of his or her duties and responsibilities as an employee,
board member or advisor of the Company or under any Employment
Agreement, which willful misconduct is not cured by the Participant
within 10 days of his or her receipt of written notice thereof from
the Committee;
(c) the Participant's commission of an act of embezzlement, fraud
or dishonesty which results in a loss, damage or injury to the
Company;
(d) the Participant's substantial and continuing neglect, gross
negligence or inattention in the performance of his or her duties as
an employee, board member or advisor of the Company or under any
Employment Agreement which is not cured by the Participant within 10
days of his or her receipt of written notice thereof from the
Committee;
-3-
<PAGE>
(e) the Participant's unauthorized use or disclosure or any trade
secret or confidential information of the Company which adversely
affects the business of the Company, provided that any disclosure of
any trade secret or confidential information of the Company to a third
party in the ordinary course of business who signs a confidentiality
agreement shall not be deemed a breach of this subparagraph;
(f) the Participant's material breach of any of the provisions of
any Employment Agreement, which material breach is not cured by the
Participant within 10 days of his or her receipt of a written notice
from the Company specifying such material breach; or
(g) the Participant has voluntarily terminated his or her
employment or service with the Company and breaches his or her
non-competition agreement with the Company.
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. Except to the extent
prohibited by applicable law or the applicable rules of a stock exchange, the
Committee may allocate all or any portion of its responsibilities and powers to
any one or more of its members or may delegate all or any part of its
responsibilities and powers to any person or persons selected by it. Any such
allocation or delegation may be revoked by the Committee at any time. If the
Committee does not exist, or for any other reason determined by the Board, the
Board may take any action under the Plan that would otherwise be the
responsibility of the Committee.
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;
-4-
<PAGE>
(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.
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 2,680,000, 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,
-5-
<PAGE>
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, New Hires, 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.
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:
-6-
<PAGE>
(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 cash out all or part of
the portion of the Stock Option to be exercised by paying the Participant an
-7-
<PAGE>
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 Participant 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
-8-
<PAGE>
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
(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
-9-
<PAGE>
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.
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
-10-
<PAGE>
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 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).
-11-
<PAGE>
(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:
(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
-12-
<PAGE>
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.
SECTION 9. Reorganization of the Company.
(a) Reorganization. As used herein, a "Reorganization" shall be deemed to
have occurred if the shareholders of the Company approve (or, if shareholder
approval is not required, the Board approves) an agreement providing for (i) the
merger or consolidation of the Company with another corporation where the
shareholders of the Company, immediately prior to the merger or consolidation,
will not beneficially own, immediately after the merger or consolidation, shares
entitling such shareholders to more than 50% of all votes to which all
shareholders of the surviving corporation would be entitled in the election of
directors (without consideration of the rights of any class of stock to elect
directors by a separate class vote), (ii) the sale or other disposition of all
or substantially all of the assets of the Company, or (iii) a liquidation or
dissolution of the Company.
(b) Assumption of Grants. Upon a Reorganization where the Company is not
the surviving corporation (or survives only as a subsidiary of another
-13-
<PAGE>
corporation), unless the Committee determines otherwise, all outstanding Options
and SARs that are not exercised shall be assumed by, or replaced with comparable
options or rights by, the surviving corporation.
(c) Other Alternatives. Notwithstanding the foregoing, in the event of a
Reorganization, the Committee may take one or both of the following actions: the
Committee may (i) require that Participants surrender their outstanding Options
and SARs in exchange for a payment by the Company, in cash or Company Stock as
determined by the Committee, in an amount equal to the amount by which the then
Fair Market Value of the shares of Company Stock subject to the Participant's
unexercised Options and SARs exceeds the Exercise Price of the Options or the
base amount of the SARs, as applicable, or (ii) after giving Participants an
opportunity to exercise their outstanding Options and SARs, terminate any or all
unexercised Options and SARs at such time as the Committee deems appropriate.
Such surrender or termination shall take place as of the date of the
Reorganization or such other date as the Committee may specify.
(d) Limitations. Notwithstanding anything in the Plan to the contrary,
in the event of a Reorganization, the Committee shall not have the right to take
any actions described in the Plan (including without limitation actions
described in Subsection (b) above) that would make the Reorganization ineligible
for pooling of interests accounting treatment or that would make the
Reorganization ineligible for desired tax treatment if, in the absence of such
right, the Reorganization would qualify for such treatment and the Company
intends to use such treatment with respect to the Reorganization.
SECTION 10. Change of Control of the Company.
(a) As used herein, a "Change of Control" shall be deemed to have occurred
if:
(i) Any "person" (as such term is used in Sections 13(d) and 14(d) of
the Exchange Act) becomes a "beneficial owner" (as defined in Rule 13d-3
under the Exchange Act), directly or indirectly, of securities of the
Company representing a majority of the voting power of the then outstanding
securities of the Company except where the acquisition is approved by the
Board; or
(ii) Any person has commenced a tender offer or exchange offer for a
majority of the voting power of the then outstanding shares of the Company.
(b) Notice and Acceleration. Unless the Committee determines otherwise, a
Change of Control shall not result in the acceleration of vesting of outstanding
Options and SARs or the removal of restrictions and conditions on outstanding
Restricted Stock grant.
(c) Other Alternatives. Notwithstanding the foregoing, in the event of a
Change of Control, the Committee may take one or both of the following actions:
the Committee may (i) require that Participants surrender their outstanding
-14-
<PAGE>
Options and SARs in exchange for a payment by the Company, in cash or Company
Stock as determined by the Committee, in an amount equal to the amount by which
the then Fair Market Value of the shares of Company Stock subject to the
Participant's unexercised Options and SARs exceeds the Exercise Price of the
Options or the base amount of the SARs, as applicable, or (ii) after giving
Participants an opportunity to exercise their outstanding Options and SARs,
terminate any or all unexercised Options and SARs at such time as the Committee
deems appropriate. Such surrender or termination shall take place as of the date
of the Change of Control or such other date as the Committee may specify.
(d) Limitations. Notwithstanding anything in the Plan to the contrary, in
the event of a Change of Control, the Committee shall not have the right to take
any actions described in the Plan (including without limitation actions
described in Subsection (c) above) that would make the Change of Control
ineligible for pooling of interests accounting treatment or that would make the
Change of Control ineligible for desired tax treatment if, in the absence of
such right, the Change of Control would qualify for such treatment and the
Company intends to use such treatment with respect to the Change of Control.
SECTION 11. Amendments and Termination
The Board may amend or terminate the Plan at any time.
SECTION 12. 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 13. 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
-15-
<PAGE>
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 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.
(d) 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.
(e) 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 14. 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.
-16-
<PAGE>
SECTION 15. 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 16. 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 17. 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, 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.
-17-
