SAFEGUARD SCIENTIFICS, INC.
800 The Safeguard Building
435 Devon Park Drive
Wayne, PA 19087
March 30, 1995
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, DC 20549
Re: Safeguard Scientifics, Inc.
File No. 1-5620
Gentlemen:
Pursuant to the requirements of the Securities Exchange Act of
1934, enclosed for electronic filing is the Annual Report on Form 10-K
with exhibits for Safeguard Scientifics, Inc. for the year ended
December 31, 1994. The filing fee of $250.00 has been previously
submitted.
In 1994, the Company changed its method of accounting for
investments to adopt the provisions of Statement of Financial Accounting
Standards No. 115, "Accounting for Certain Investments in Debt and
Equity Securities."
Very truly yours,
Steven Rosard
Senior Corporate Counsel
Enclosures
Securities and Exchange Commission
Washington, DC 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1994 Commission File Number 1-5620
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SAFEGUARD SCIENTIFICS, INC.
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(Exact name of Registrant as specified in its charter)
PENNSYLVANIA 23-1609753
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
800 THE SAFEGUARD BUILDING
435 DEVON PARK DRIVE, WAYNE, PA 19087
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (610) 293-0600
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Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of Each Class on which registered
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COMMON STOCK ($.10 PAR VALUE) NEW YORK STOCK EXCHANGE
Securities registered pursuant to Section 12(g) of the Act: NONE
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such report(s)), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
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Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
Indicate the number of shares outstanding of each of the Registrant's
classes of Common Stock, as of March 23, 1995:
COMMON STOCK: 9,582,338 SHARES
Aggregate market value of voting stock held by non-affiliates (based on the
closing price on the New York Stock Exchange) on March 23, 1995 was
approximately $ 200.8 million. For purposes of determining this amount
only, Registrant has defined affiliates as including (a) the executive
officers named in Part III of this 10-K report, (b) all directors of
Registrant, and (c) each shareholder that has informed Registrant by March
23, 1995 that it is the beneficial owner of 10% or more of the outstanding
common stock of Registrant.
DOCUMENTS INCORPORATED BY REFERENCE
The following documents are incorporated by reference in this Form 10-K:
PART I
Item 1(b) Page 26 of the Annual Report to Shareholders for year
ended December 31, 1994, which page is filed as part of Exhibit 13 hereto.
PART II
Items 5, 6,
7 and 8 Pages 21 to 39 of the Annual Report to Shareholders for
year ended December 31, 1994, which pages are filed as Exhibit 13 hereto.
PART III
Items 10, 11,
12 and 13 Definitive Proxy Statement relative to the May 11, 1995
annual meeting of shareholders of registrant, to be filed within 120 days
after the end of the year covered by this Form 10-K Report.
PART IV
Item 14(a) Pages 26 to 39 of the Annual Report to Shareholders for
Consolidated year ended December 31, 1994, which pages are filed as
Financial Exhibit 13 hereto.
Statements
PART I
ITEM 1(a). GENERAL DEVELOPMENT OF THE BUSINESS
INTRODUCTION
Safeguard Scientifics, Inc. ("Safeguard") is a strategic information
systems company that has operations in three industry segments: Information
Technology, Metal Finishing, and Commercial Real Estate. Except where the
context otherwise requires, the term "Company" as used herein includes
Safeguard and its majority owned subsidiaries which are consolidated in its
financial statements.
Over 95% of the Company's sales are in the Information Technology
segment, which consists of: the delivery of personal computer services,
including procurement and configuration of personal computers, application
software and related products, network integration, and technical support;
and the design, development and sale of strategic business applications
systems software solutions. The Company operates in this industry segment
primarily through its majority-owned subsidiaries, including CompuCom
Systems, Inc., Premier Solutions Ltd., and Tangram Enterprise Solutions,
Inc. CompuCom and Tangram are both also publicly-held companies, while
Premier is privately held. The Company also actively participates in
numerous additional private and public information technology companies in
which it holds significant minority ownership interests as described under
"OTHER ACTIVITIES."
Safeguard builds value in its entrepreneurially driven "partnership
companies" by providing them with active strategic management, operating
guidance and innovative financing. Safeguard's corporate staff provides
hands-on assistance to the managers of the partnership companies in the
areas of management, financial, marketing, human resources, legal and
technical services. Safeguard's goal is to take its partnership companies
public at the appropriate time through a rights offering. A rights offering
involves the grant to Safeguard's shareholders of rights to buy shares of
the partnership company's stock in the company's initial public offering at
a price established by Safeguard, the company and the underwriter. Through
this process, Safeguard's shareholders are able to participate in IPOs of
high-growth, technology companies which are usually reserved for large
institutional investors. Safeguard's previous rights offerings include
Novell, Inc., Machine Vision International Corporation (now CompuCom
Systems, Inc.), Cambridge Technology Partners(Massachusetts), Inc.,
Coherent Communications Systems Corporation, Rabbit Software Corporation
(now Tangram Enterprise Solutions, Inc.), and CenterCore, Inc. After
taking a partnership company public, Safeguard retains an ownership interest,
and continues to provide strategic, managerial, operational and financial
support. Growth in the value of the public partnership companies benefits
Safeguard and also directly benefits shareholders who continue to hold the
shares purchased in the rights offering. Not all partnership companies are
taken public. Some companies are combined with other operating units, some
are sold, and some are retained as private companies.
The Company's Metal Finishing segment provides specialty metal
finishing services to a variety of industries. The Commercial Real Estate
segment owns and leases income-producing commercial real estate properties.
Safeguard also has an investment in The Nichols Company, a real estate firm
that owns, manages and leases commercial office and industrial properties.
The Company also provides venture capital management services as described
under "OTHER ACTIVITIES." Information about each of the Company's industry
segments appears below under "Item 1(c) - Narrative Description of
Business."
RECENT DEVELOPMENTS
Consolidated net sales for 1994 were $1.41 billion, a 21% increase over
1993, and more than triple net sales for 1990. The increases are primarily
due to the growth of CompuCom Systems, Inc., the Company's largest business
unit, through internal growth and acquisitions. CompuCom's share of the
Company's consolidated net sales has risen steadily from 76% in 1990 to 89%
in 1994. CompuCom is a leading personal computer ("PC") services
integration company. The Company took CompuCom public through a rights
offering in 1985, and currently has majority ownership of CompuCom.
The Company invested an additional $20 million in CompuCom during 1994
through a purchase of convertible preferred stock to support the growth of
CompuCom's core business and an expansion into network services to meet its
customers' needs for network support. In March 1994 CompuCom also
increased its corporate credit facility with its bank group from $125
million to $150 million and extended the maturity to March 1997, while
effectively lowering its interest cost by fixing $60 million of the facility
at a rate of 7.18%.
The Company successfully completed a rights offering in August 1994 for
Coherent Communications Systems Corporation, which develops and markets
voice enhancement products for wireless (including digital cellular),
satellite-based, and wireline telecommunications systems throughout the
world. The Company had previously owned 99% of Coherent prior to the rights
offering. After the rights offering, the Company retained a significant
minority interest in Coherent, and now accounts for Coherent on the equity
method.
In April 1994, Micro Decisionware, Inc., a multi-platform database
access software tool company, merged into Sybase, Inc., a leader in
client/server architecture. The Company received approximately $14 million
of Sybase common stock in exchange for its majority-ownership interest in
Micro Decisionware. In addition, the Company entered into a consulting and
non-competition agreement with Sybase under which the Company may receive up
to $11.9 million based on the performance of Micro Decisionware's business.
The Company increased its bank credit facility from $30 million to $50
million in early 1994 primarily to support its investment in CompuCom, and
increased the facility again in February 1995 to $75 million.
In September 1994, the Company effected a 2-for-1 split of its common
stock. The split was effected in order to increase the market liquidity of
the stock by making the stock available to a broader potential shareholder
base.
Premier Solutions Ltd., a majority-owned subsidiary which develops and
markets sophisticated asset management solutions and professional services
to the financial industry, commenced a project to transform its
GLOBAL(bullet)PLUS product to operate on a UNIX-based client/server
architecture in order to make its products available to a broader segment of
the market. In September 1994, Premier acquired the MAXIMIS product line
from Texas Instruments. This product is used by leading insurance companies
and pension funds for a wide range of asset management and investment
accounting applications on multiple computer platforms.
In 1993, CenterCore, Inc., a majority-owned subsidiary of the Company,
purchased the business and assets of Maris Equipment Company. Maris is a
provider of integrated electronic security systems including detention
hardware primarily to prisons and airports. The Company supported this
acquisition with a loan, an investment in preferred stock of CenterCore, and
the provision of bank debt guarantees. However, many of Maris' major
detention and other contracts in process at the time of acquisition have
incurred unanticipated losses or lower than anticipated gross margins.
These losses, combined with the continuing weakening of CenterCore's
furniture business, resulted in substantial losses for CenterCore in 1994,
including a write-off of $2.1 million of goodwill primarily related to the
Maris acquisition. As a result, CenterCore management is now pursuing a
strategy of significantly downsizing the business, including a sale of its
furniture business and the turnover of certain Maris projects to its bonding
companies. The Company has adopted a plan to reduce its involvement in
CenterCore whereby it will contribute a portion of its stock to CenterCore,
sell a significant portion of its stock to CenterCore management, and
provide certain advances to address current funding requirements of
CenterCore. Consequently, since the Company's ownership in CenterCore will
be reduced to significantly less than 50%, it will not be considered as a
consolidated subsidiary for 1995 or after.
In November 1994, the Company acquired a minority ownership interest in
USDATA Corporation, a leading developer of software tools which customers
use to configure, without programming, a wide range of real-time information
capture and management functions. The Company assisted USDATA in recruiting
and hiring a new CEO, and the Company has announced its intention to take
USDATA public in a rights offering by the summer of 1995. The Company
intends to offer to Safeguard shareholders the right to purchase one share
of USDATA stock for each four shares of Safeguard stock held.
Also in 1994, the Company acquired minority ownership interests in the
following businesses: Diamond Technology Partners, Inc., a company which
provides consulting services to help clients extend their strategic plans
into redesigned business processes, and then translates that strategy into a
working organization with supporting information systems; and National Media
Corporation, a NYSE-listed company which is a worldwide leader in the home
shopping infomercial industry. The investment in National Media included
debt as well as equity. In February 1995, the Company acquired a minority
ownership interest in MultiGen, Inc., a leading developer of real-time 3D
modeling software used to create visual computer simulations. Each of these
investments was made in tandem with Safeguard's associated venture capital
funds.
The Company formed a new subsidiary, Safeguard International Group,
Inc., in 1994 to provide international consulting services and to pursue
international investment opportunities for Safeguard's partnership companies
and others. In 1995, the Company formed Interactive Marketing Group, Inc.,
with a charter to identify and develop direct marketing opportunities for
new and existing products using computer technology and broad customer
databases.
The Company attempted to package its real estate portfolio together
with real estate owned by its affiliate, The Nichols Company, and certain
other developers, into a Real Estate Investment Trust ("REIT") with the
intention of making an underwritten public offering of shares in the REIT.
This offering was targeted to close during 1994, but the market window for
newly-offered REITs closed before the offering could be consummated. The
Company is now pursuing other alternatives for its real estate.
The Company's associated venture capital fund, Technology Leaders L.P.,
which raised $60 million from private investors, has invested in 21
companies, including Cambridge Technology Partners, Diamond Technology
Partners, Inc., XL Vision, Inc., and USDATA, and is now fully invested. In
1994, the Company sponsored the organization of a new venture capital fund,
Technology Leaders II L.P., which has raised over $80 million to date. The
Company manages these venture funds for a fee through a subsidiary, and has
also invested as a limited partner in each of the funds.
ITEM 1 (b). FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
Information on net sales, operating profit, depreciation and
amortization, capital expenditures and assets employed for each segment of
the Company's business for the three-year period ended December 31, 1994 is
contained under the caption "Financial Information--Industry Segments" on
page 26 of the Company's Annual Report to Shareholders for 1994, which page
is filed as part of Exhibit 13 hereto and is incorporated herein by
reference.
ITEM 1 (c). NARRATIVE DESCRIPTION OF BUSINESS
GENERAL
As noted under Item 1(a) above, the Company has operations in three
industry segments: Information Technology, Metal Finishing and Commercial
Real Estate.
In the Information Technology segment, the Company's business is
conducted primarily through majority-owned subsidiaries: CompuCom Systems,
Inc., Tangram Enterprise Solutions, Inc., and Premier Solutions Ltd. Micro
Decisionware, Inc. was a majority-owned subsidiary of the Company through
April 1994 when it was sold to Sybase, Inc. Coherent Communications Systems
Corporation was a majority-owned subsidiary of the Company through July 1994
when it made a rights offering. CenterCore, Inc. was a majority-owned
subsidiary of the Company through the end of 1994, when the Company wrote
off its investment in CenterCore and determined to dispose of a substantial
portion of its investment in CenterCore. The Information Technology segment
currently consists of the following classes of products and services:
Microcomputer Systems, which involves the delivery of personal computer (PC)
services, including procurement and configuration of PCs, application
software and related products, network integration, and technical support;
and Information Solutions, which involves the design, development and sale
of strategic business applications systems software solutions. The
activities of the Company's Information Technology segment are described
below under "INFORMATION TECHNOLOGY SEGMENT."
Operations under the Metal Finishing segment consist of specialty metal
finishing services which are performed by a division and by a wholly-owned
subsidiary of Safeguard. Operations under the Commercial Real Estate
segment involve the ownership and leasing of income-producing commercial
real estate properties. The activities of the Company under each of these
segments are described below under "METAL FINISHING SEGMENT" and "COMMERCIAL
REAL ESTATE SEGMENT," respectively.
The Company also holds equity positions in a number of other companies,
most of which operate in the Information Technology field, and provides
venture capital fund management services. The Company provides active
strategic management, operating guidance and innovative financing to its
minority-owned partnership companies. These investments and activities are
described under "OTHER ACTIVITIES."
INFORMATION TECHNOLOGY SEGMENT
MICROCOMPUTER SYSTEMS
CompuCom Systems, Inc., together with its subsidiaries ("CompuCom"), is
a leading PC services integration company that provides services primarily
to Fortune 1000 companies throughout the United States, ranging from product
procurement and configuration to network integration and support. CompuCom
is an authorized dealer for major PC lines including Apple Computer
Corporation ("Apple"), Compaq Computer Corporation ("Compaq"), Hewlett-
Packard Company ("HP") and International Business Machines Corporation
("IBM"). CompuCom also sells a broad selection of applications software
products, computer-related peripheral equipment and a range of computer
equipment, principally DOS based, from AST, 3Com, Epson, Lotus, Microsoft,
NEC, Novell, Toshiba and WordPerfect. CompuCom stocks approximately 1,400
products, thereby providing "one-stop-shopping" to its customers. To
further meet customer needs, CompuCom offers its corporate customers a
variety of services, such as custom configuration of PC systems, network
design and integration, installation, and on-site services.
CompuCom focuses its efforts on serving the needs of large businesses
throughout the United States, working with those customers to apply PC
technology to meet their business objectives. CompuCom markets its product
procurement, configuration, network integration and technology support
services through its direct sales force and service employees, operating
through 40 sales and service centers. No one customer accounted for more
than 5% of CompuCom's sales in 1994.
During 1994, CompuCom completed the transition to centralize its
customer service representatives, previously located at various locations,
to its customer center in a newly leased facility in Dallas, Texas. The
primary goal of the customer center is to provide greater support to
CompuCom's customers and to allow its direct sales force to focus on
soliciting new business and to provide the necessary support for the
customer's more complex networking solutions. The reorganization of the
sales process helped enable CompuCom to handle a 24% increase in sales for
1994 while reducing its direct sales force.
CompuCom is actively focusing on increasing sales of services to meet
customer needs and improve profitability. During 1994, CompuCom acquired
three small service companies in order to enhance CompuCom's ability to meet
the service needs of its customers, to expand its service business and build
a nationwide service infrastructure. CompuCom will continue to make
acquisitions which meet its strategic goals.
CompuCom is dependent upon the continued supply of products from its
principal suppliers, Compaq, IBM and HP. Historically, certain suppliers
have occasionally experienced shortages of selected products which render
components unavailable or necessitate product allocations among resellers.
Certain product shortages did exist throughout 1994, which affected the
industry as a whole. There can be no assurance that product allocations or
product unavailability, or both, will not increase in 1995. However, the
impact of such an interruption is not expected to be unduly troublesome
because of the breadth of alternative product lines available to CompuCom
and CompuCom's established programs to accelerate configuration and delivery
times when such events occur.
CompuCom has dealer agreements with Compaq, IBM and HP which are
renewable annually or bi-annually and are subject to termination by the
respective vendors without cause upon prior written notice, which ranges
from 30 to 90 days depending upon the vendor. The termination or non-
renewal of CompuCom's Compaq dealer agreement or IBM dealer agreement, or
both, would materially adversely affect its business. The loss of HP as a
supplier would adversely affect CompuCom's ability to continue its
expansion. However, CompuCom is not aware of any basis for the termination
or non-renewal of any of those dealer agreements and believes that its
relationships with Compaq, HP and IBM are satisfactory. During 1994, sales
of IBM and Compaq products accounted for, in the aggregate, approximately
43% of Information Technology segment sales, with sales of each of those
supplier's products accounting for at least 18% of such sales; and sales of
HP products accounted for approximately 10% of the Information Technology
segment sales. Sales of IBM and Compaq products accounted for, in the
aggregate, approximately 42% of the Information Technology segment sales in
1993 and 39% in 1992, with sales of each of those supplier's products
accounting for at least 21% and 16% of such sales in 1993 and 1992,
respectively. Sales of HP products accounted for approximately 9% of 1993
Information Technology segment sales.
All of CompuCom's principal suppliers require that CompuCom purchase
certain minimum volumes of products in a specified period in order to
maintain favorable pricing levels. CompuCom believes that it purchases
products from Compaq, HP and IBM at pricing levels which are the lowest
prices available to those vendors' respective dealers with the exception of
certain consumer-oriented products from HP. CompuCom also has certain
selling and promotional and related expenses reimbursed by vendors under
dealer programs offered by its vendors. There can be no assurance that
CompuCom will continue to meet the volume requirements to qualify for such
favorable pricing, that any of these programs will continue in 1995, or that
the regular renewals of CompuCom's dealer agreements with its principal
suppliers will continue. Due to rapid delivery requirements of customers and
to assure itself of continuous allotment of products from suppliers,
CompuCom maintains adequate levels of inventory funded through its line of
credit and vendor credit. CompuCom is entitled to credits from certain
vendors on items in inventory when the vendor reduces its product prices,
subject to certain limitations. Purchases may also be returned to vendors
for restocking fees of up to 5%. CompuCom did not incur any material
restocking fees in 1994.
Competition in the PC reseller business is intense, primarily in the
areas of price, product availability, breadth of product line, and customer
technical service and support. CompuCom faces substantial competition from
other large resellers that focus on the corporate market. In addition,
CompuCom will experience additional direct competition if Compaq, HP or IBM
authorize alternative channels of distribution for products on substantially
similar terms to those available to CompuCom, elect to sell direct to
customers, or authorize other distributors to sell direct to corporate
customers.
The industry-wide decline in product margins continued through the
first half of 1994, which resulted in CompuCom seeking alternate ways to
offset lower margin through control of operating expenses and major account
profitability reviews. Product margins increased somewhat in the fourth
quarter, reversing the negative trend, as a result of price reductions by
certain major manufacturers, and competitors' realization of the need to
increase margins. CompuCom believes that gross margins will continue to be
reactive to industry-wide changes in 1995. Future improved profitability
will depend on vendor product pricing, product availability and competition,
as well as CompuCom's operating efficiencies, cost containment measures and
effective utilization of vendor programs.
Customer support, prompt delivery, product availability, product line
choices, price and the knowledge of the sales and service staffs are the
important elements in retaining current customers and obtaining new
customers. During 1995, CompuCom expects to continue its strategy of
expanding sales of technical service and support, improving the efficiency
of its support and sales forces, and increasing overall sales volume.
At March 23, 1995, Safeguard owned approximately 62% of CompuCom's
outstanding common stock.
INFORMATION SOLUTIONS
Safeguard currently has two continuing majority-owned subsidiaries in
the Information Solutions field: Tangram Enterprise Solutions, Inc. and
Premier Solutions Ltd.
TANGRAM ENTERPRISE SOLUTIONS, INC. Tangram Enterprise Solutions, Inc.
("Tangram"), is focused on being a full service provider of enterprise-wide
distributed resource management solutions for large commercial and
governmental organizations, encompassing mainframe, UNIX-based mini, and LAN
server platforms. Tangram services include software, systems integration,
and custom applications development.
Tangram's AM:PM(Registered Trademark) products and companion products,
which address the electronic software distribution market, provide automated
data and software distribution, data collection, and remote data management
with a variety of connectivity options to multiple platforms; automatically
perform software and hardware inventories and provide information on
software usage; and allow end-users to backup workstation data by
distributing it to a remote location for protection in the case of disaster.
In August 1994, Tangram acquired the business of Knozall Systems, Inc.,
an Arizona-based developer of network management tools that allow
organizations to optimize their Novell NetWare(registered trademark)
computing resources. As a result of the acquisition of Knozall's LAN
expertise, Tangram recently completed development of a LAN version of its
AM:PM software, giving Tangram the ability to provide enterprise resource
management solutions in a broad spectrum of computing environments, whether
in local area networks, wide area networks, mainframes, or distributed UNIX-
based client/server computing environments.
The Arbiter(registered trademark) products provide file transfer
capability and PC-to-mainframe connectivity with an IBM mainframe used as a
local area network file server, and allow host data to be automatically
converted to popular workstation application formats. Tangram's Open
Advantage product line provides high-speed connectivity between mainframes
and LANs. Tangram's mainframe connectivity products have experienced
declining markets.
Tangram markets its products to Fortune 1000 companies, government
agencies and other customers worldwide that have a need to move mission-
critical business information across a heterogeneous computing configuration
of workstations, mainframes, servers, local area networks and wide area
networks. Tangram's AM:PM and Arbiter products have been sold in the United
States through a direct sales force operating from its Raleigh, NC office
using a combination of telesales and in-person contacts at the customer
location. The Open Advantage products and the Knozall products are
presently sold through distributors, although an effort is underway to use
more direct sales for the Knozall products. Foreign sales are made through
distributors in Europe, the Pacific Rim and Africa.
Product development resources are allocated between the enhancement of
existing products and the development of new products. Existing products
are enhanced to keep them current with market requirements and to allow them
to support new standards and environments. New products are developed that
are complementary to existing products and exploit new markets for Tangram.
The majority of Tangram's products and associated documentation are
developed internally, although Tangram has in the past and intends to
continue to acquire certain software technology from others and integrate
those technologies into its product lines.
The market for Tangram's products is highly competitive and is
characterized by rapid changes in technology and user needs. Many of
Tangram's actual and potential competitors have substantially greater
financial, marketing and technological resources than Tangram. Tangram
believes that the principal competitive factors in the industry are the
compatibility of products with the customer's computer hardware and
software, ease of use, price, and the substantial base of technology that is
required to join together the various platforms in today's heterogeneous
enterprises.
At March 23, 1995, the Company owned approximately 73% of Tangram's
common stock.
PREMIER SOLUTIONS LTD. Premier Solutions Ltd. ("Premier") markets
sophisticated asset management systems solutions to the financial services
industry worldwide. Premier's GLOBAL(bullet)PLUS(registered trademark)
software provides complete multi-currency accounting and global custody
processing capabilities, two of the demanding functions required by
international asset management organizations. Premier's MAXIMIS(trademark)
software provides a wide range of asset management and investment accounting
solutions on multiple platforms, and is targeted at investment advisors,
insurance companies and pension funds.
Premier markets its products through a direct sales force based at
its headquarters in Pennsylvania and regional offices in Dallas, New York,
Chicago and Toronto. A significant portion of Premier's sales for 1994 were
in Canada. Target industries are major financial institutions, including
traditional trust organizations, investment advisory firms, domestic and
global custodians, international asset management organizations, insurance
companies and large pension funds. In 1994 Premier had two customers which
each accounted for over 10% of sales. An in-house design and development
team is responsible for product development.
Premier is proceeding with its strategic plan to re-engineer its
GLOBAL(bullet)PLUS product line to operate in a client/server environment.
This process will occur in staged deliverables to allow both existing
clients and future clients to take advantage of new technology in an orderly
fashion and without disruption to their existing operations. The MAXIMIS
product line is utilizing state of the art technology through the use of
case tools and data modeling.
In 1994, Premier entered into an agreement with Digital Equipment
Corporation whereby Premier outsourced its data center operations to
Digital, allowing Premier to focus its manpower on product development and
support.
Although certain of Premier's competitors offer multi-currency
capabilities, Premier believes that its GLOBAL(bullet)PLUS product is
currently the only full-featured, installed and proven global asset
management system. Certain of Premier's domestic competitors have a
significantly larger installed domestic customer base; however, these
competitors have only limited multi-currency functionality. In those
markets where global investment management is required, Premier has been
successful. Premier's ability to remain competitive will be partially
dependent on the success of its conversion to a client/server environment.
In the fourth quarter of 1994, the Company converted all of the Premier
debt held by it into Premier common stock. At March 23, 1995, Safeguard
owned approximately 99% of Premier's outstanding common stock and
approximately 96% of Premier's voting stock.
Product Development Expenses
For the Information Solutions continuing product lines in the
aggregate, the Company spent $11.7 million, or 22% of Information
Solutions net sales, for product development in 1994, compared to $6.8
million or 10% of net sales in 1993 and $7.2 million or 12.6% of net sales
in 1992. The increased development expenditures for 1994 reflect significant
development projects commenced by Tangram and Premier. Only an immaterial
amount of product development expenditures were customer-sponsored.
Other Segment Information
Export sales in the Information Technology segment for the three-year
period ended December 31, 1994 were less than 5% of the segment's total
sales in each of these years. However, export and foreign sales made up
approximately one-third of Information Solutions net sales, with Coherent
Communications Systems Corporation accounting for over half of that amount
during the six months it was consolidated in the Company's results. Backlog
for this segment, most of which was accounted for at year-end by CompuCom,
is not considered to be a meaningful indication of future business prospects
due to CompuCom's relatively quick order fulfillment cycle.
METAL FINISHING SEGMENT
This segment is engaged in the finishing of aluminum and other metal
parts. Operations are conducted in Minneapolis, Minnesota; Green Bay,
Wisconsin; and Phoenix, Arizona under the name "Pioneer Metal Finishing."
Major technical processes include sulfuric, hardcoat and R-5 bright dip
anodizing, chromate conversion, electroless nickel and the application of
other specialty coatings. Pioneer Metal Finishing provides insulation, heat
dispersal, decoration and protection to a wide range of metal parts,
including highly sophisticated equipment and small parts with precision
tolerance requirements for the computer, ordnance, automotive, cookware and
recreational industries, electronic components and other applications.
Pioneer refurbished and upgraded its Minneapolis production line during the
first quarter of 1995 at a cost of approximately $1 million.
Safeguard believes that all facilities comply with existing
environmental pollution control regulations, compliance with which in recent
years has been an important competitive factor in the industry.
Metal Finishing services are sold to a wide range of customers and
industries by a direct sales force and independent representatives.
Finishing is usually performed on customer-owned material. Because of
transportation costs, most customers are located within a 200-300 mile
radius of the finishing facilities.
Backlog is not considered material to this business as work is
generally processed in a one-to-two-week period.
Pioneer Metal Finishing competes with many other metal finishers
serving its geographical areas, several of which are similar in size to it,
but Pioneer Metal Finishing has established itself as a reputable industry
leader and quality metal finisher. Prompt service, quality of work
performed and geographic location are the most important competitive
factors.
COMMERCIAL REAL ESTATE SEGMENT
As of March 23, 1995, Safeguard owns and leases approximately 254,000
square feet of commercial office and industrial space in 8 commercial real
estate properties in suburban Philadelphia. The properties are carried at a
book value, after depreciation, in excess of $18 million subject to related
mortgage debt, primarily non-recourse, of approximately $21 million.
Safeguard also holds a 40% interest in The Nichols Company, a real
estate company that owns, manages and leases commercial office and
industrial space.
Competition in the commercial real estate market in the suburban
Philadelphia area is intense, due in part to the level of available
commercial space. Financing is difficult to obtain due to the restrictive
lending environment. Competitors in the suburban Philadelphia area have
been offering reduced rental rates to attract tenants in this difficult
market environment. Safeguard's occupancy rate was 94% at December 31, 1994
after excluding three properties which the Company is in the process of
turning over to its mortgage lenders in satisfaction of the related non-
recourse debt. The Company will not incur any loss on these properties, as
the depreciated book value of the properties is less than the outstanding
mortgage balances. Location, building design and rental rates are the most
important competitive factors for attracting tenants.
Safeguard believes that its real estate holdings are quality commercial
properties in well-positioned suburban locations. The Company sold one of
its properties at a gain in 1994. The Company's real estate operations
typically generate pretax losses because of depreciation, but are
approximately break-even on a cash basis.
OTHER COMPANY INFORMATION
Safeguard and its consolidated subsidiaries have approximately 2,900
employees, of which approximately two-thirds are employed by CompuCom. The
Company believes relations with employees are good.
OTHER ACTIVITIES
Safeguard has equity interests in, and provides management and support
services to, the following businesses.
CAMBRIDGE TECHNOLOGY PARTNERS (MASSACHUSETTS), INC. In the second
quarter of 1993, Safeguard participated in a rights offering to its
shareholders of shares of Cambridge Technology Partners, a Massachusetts-
based company which provides information technology consulting and software
design and development services to organizations with large scale
information processing and distribution needs that are utilizing or
migrating to open systems computing environments. In performing these
services, Cambridge Technology Partners employs a rapid development
methodology utilizing client/server architectures. It provides these
services on a fixed-price, fixed-timetable basis with client involvement at
all stages of the process. Software design and development services have
accounted for most of the revenues to date. However, consulting services
are expected to provide important leads to software development projects.
Software applications are designed to enable clients to achieve a
competitive advantage, enhance the efficiency and functionality of specific
business processes, and support their financial goals.
Cambridge Technology Partners markets its services to a wide variety of
industries, and its clients include a diverse group of business and
governmental organizations with large scale information access and
processing needs, both in North America and in Europe. Cambridge Technology
Partners' revenues grew over 80% in 1994 to $59.7 million, with earnings
nearly doubling to $6.6 million.
At March 23, 1995, Safeguard had approximately a 24% equity position in
Cambridge Technology Partners and held warrants which, if exercised, would
increase its ownership to approximately 26%.
COHERENT COMMUNICATIONS SYSTEMS CORPORATION. In the third quarter of
1994, Safeguard participated in a rights offering to its shareholders of
shares of Coherent. Coherent develops, manufactures, and markets voice
enhancement products for wireless (including digital cellular), satellite-
based and wireline telecommunications systems throughout the world.
Coherent's principal products include echo canceller and teleconference
products which utilize a proprietary high speed reduced instruction set
computer (RISC) microchip and Coherent's proprietary echo cancellation
software to enhance the quality of voice communication during a telephone
call. Coherent's echo canceller products enhance voice quality in several
ways, including eliminating voice echoes inherent in modern
telecommunications systems. Coherent's teleconference products include
equipment and related software used in teleconferencing and in
videoconferencing applications.
Coherent sells its echo canceller products to network operators and
other end-users through its direct sales force and third party distributors,
and to telecommunications equipment manufacturers through its direct sales
force. Users of Coherent's echo canceller products include
telecommunications network operators throughout the world, such as British
Telecommunications PLC, Deutsche Bundespost, McCaw Cellular Communications,
Inc., Telefonos de Mexico, SA, and Teleglobe Canada. Coherent has directed
its sales efforts for its echo canceller products primarily in international
markets in which competition is based principally on technological
characteristics, rather than price. Over 70% of Coherent's sales in 1994
were international. Echo canceller products accounted for approximately 78%
of Coherent's revenues in 1994. Coherent's sales for 1994 increased by 33%,
and earnings grew by over 150% excluding the impact of $1.1 million non-
recurring write-off of goodwill in 1993.
Coherent's product development expenditures in 1994 accounted for
approximately 13% of revenues. Coherent's product markets are intensely
competitive and are characterized by short product life cycles. Coherent's
ability to continuously improve its product technology has enabled it to
successfully compete with much larger competitors.
At March 23, 1995, Safeguard owned approximately 40% of Coherent's
outstanding stock.
CENTERCORE, INC. CenterCore designs, manufactures and distributes
space-efficient, modular workstation systems, a line of complementary office
products, including cable and wiring systems and ergonomically designed
seating products, air management systems for temperature blending and
breathing zone filtration, and portable and room-size cleanroom and air
filtration components and systems, and provides integration, installation
and servicing of advanced electronic systems for security access control,
fire alarm, sound, communications and other applications. CenterCore's
management is pursuing a strategy to significantly downsize its business and
the Company is substantially reducing its ownership of CenterCore.
DIAMOND TECHNOLOGY PARTNERS. Diamond Technology Partners is a
consulting company which helps clients redesign their business processes
based on their overall strategic plan, and implements the redesigned
business process through organizational changes, systems integration
services, custom software applications development, and outsourcing of
information systems management.
At March 23, 1995, Safeguard owned approximately 23% of Diamond
Technology Partners outstanding stock.
MICRO DYNAMICS, LTD. Micro Dynamics, Ltd. develops and markets
document imaging systems on a Macintosh platform which combine traditional
database and full-text searching capabilities and streamline the process of
retrieving information. Micro Dynamics' MARSTM (Multi-User Archival and
Retrieval System) can be used for many traditionally paper intensive
applications from signature verification in banking to land title searches
in real estate and can also play a role in mission critical applications
such as litigation support and new drug applications for pharmaceutical
companies. During 1994, Micro Dynamics continued its development of a
cross-platform product that includes both Macintosh and PC workstation
clients.
At March 23, 1995, Safeguard had approximately a 54% equity position in
Micro Dynamics.
MULTIGEN, INC. MultiGen is a leading supplier of interactive,
graphical modeling tools for 3D real-time computer simulations. Its primary
product line, called MultiGen(registered trademark), is used to create
scenes used in real-time applications for visual simulation, location-based
entertainment, virtual reality, game development, CAD visualization and
architectural walk-through. MultiGen markets its products worldwide through
partnerships with leading computer and real-time simulation companies and a
network of distributors. MultiGen's products currently operate primarily on
Silicon Graphics workstations. MultiGen has developed software tools under
an agreement with Nintendo to be used by developers of video games for
Nintendo's next-generation 64-bit operating system.
At March 23, 1995, Safeguard owned approximately 31% of MultiGen's
outstanding stock.
NATIONAL MEDIA CORPORATION. National Media is the leading worldwide
marketer of consumer products through infomercials. National Media's
programming reaches over 80 million households in 40 countries. At March
23, 1995, Safeguard held $4 million of National Media debt, preferred stock
convertible into 3% of National Media's outstanding common stock and
warrants which could increase its position to 14%.
NEW PARADIGM VENTURES, INC. New Paradigm Ventures provides consulting
and project implementation assistance to nationally recognized, branded
product companies. New Paradigm Ventures seeks to develop joint venture
arrangements with its clients, assisting them in accessing new markets for
their products and new methods of delivering their products to target
markets.
At March 23, 1995, Safeguard owned approximately 33% of New Paradigm
Ventures outstanding stock.
SANCHEZ COMPUTER ASSOCIATES, INC. Sanchez Computer Associates
("Sanchez") develops and installs a comprehensive set of integrated banking
and accounting software for the financial services industry worldwide under
the trademark PROFILE(registered trademark). The PROFILE product line runs
on an open platform and includes a multi-currency cost center-based
accounting system with integrated functions that support the front- and
back-office processing requirements of financial institutions, and a full
treasury support system that includes a sophisticated set of asset and
liability tools.
A substantial majority of Sanchez' sales are international,
particularly in Central Europe, Canada, the Carribean and Portugal.
At March 23, 1995, Safeguard owned 41% of the common stock of Sanchez
and held warrants which, if exercised, would increase its ownership
percentage to 44%.
SKY ALLAND MARKETING, INC. Sky Alland Marketing, Inc. ("Sky
Alland") provides research services that assist Fortune 500 companies in
acquiring and retaining customers. Sky Alland performs its customer
monitoring services and customer relationship enhancement services for
automotive, banking and health care industries. Its clients include
Mitsubishi, BMW, Cadillac, Chemical Bank, First Interstate Bank and Columbia
Health Care. At March 23, 1995, Safeguard held approximately 49% of Sky
Alland's voting stock, which would increase to approximately 55% if Safeguard
were to convert the shares of convertible preferred stock it holds.
USDATA CORPORATION. USDATA has been for 20 years a leading provider of
real-time software-enabling tools for manufacturing and process industries.
USDATA also provides integrated automatic data collection systems. USDATA's
FactoryLink(registered trademark) product line enables customers to rapidly
develop real-time applications which provide interactive graphical linkages
between an organization's management information systems and its
manufacturing processes. USDATA's Systems Integration Division delivers to
customers turnkey implementation of integrated data collection systems
featuring bar code labelling and remote, real-time data collection using
automatic identification techniques.
At March 23, 1995, Safeguard owned approximately 30% of USDATA's
outstanding stock.
XL VISION, INC. In 1993, Safeguard acquired a minority voting equity
interest in XL Vision, Inc., a Florida-based company which develops and
manufactures applications-specific electronic imaging products for sale to
original equipment manufacturers and systems integrators. XL Vision is
targeting its products to specific market segments, including orthophoto
scanning, to support geographic information systems; an automated
microscope, to perform cancer screening and other procedures for clinical
labs; photodocumentation scanning, to support national identification and
border control security systems; and a night-vision system for commercial
applications.
At March 23, 1995, Safeguard held voting control over approximately
16% of the common stock of XL Vision and had ownership of non-voting
preferred stock convertible into a majority of the common stock.
RADNOR VENTURE PARTNERS, L.P. Safeguard, through its wholly-owned
subsidiary, SSI Management Company, Inc., serves as the managing general
partner of the general partner of Radnor Venture Partners, L.P. ("RVP"), a
$33 million venture capital fund organized as a limited partnership. RVP
invests in high technology companies with high growth and profit potential
and is fully invested. Safeguard owns 13.7% of the limited partnership
interests in RVP, and has a 6% carried interest in the net gains after the
return of the investors' capital.
TECHNOLOGY LEADERS. Safeguard, through its wholly-owned subsidiary,
Technology Leaders Management, Inc., serves as the manager of Technology
Leaders, a $60 million high technology venture capital fund organized in two
components: a domestic limited partnership and an offshore limited
partnership. Technology Leaders invests in early-stage opportunities in the
areas of biotechnology, information services, health care and certain other
technologies, and is fully invested. Safeguard owns 3.3% of the aggregate
limited partner interests of Technology Leaders and has a 6% carried
interest in the net gains after the return of the investors' capital.
TECHNOLOGY LEADERS II. Safeguard, through Technology Leaders
Management, Inc., serves as the manager of this high technology venture
capital fund, also organized in parallel domestic and offshore limited
partnerships. Technology Leaders II has raised over $80 million of
committed capital, and invests in the areas of information services, health
care, biotechnology and certain other technologies.
ITEM 1(d). FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS
AND EXPORT SALES
The Company does not believe that foreign or geographic area revenues
are material or significant to an understanding of its business and
operations during the three-year period ended December 31, 1994. Where
appropriate, information concerning the Company's export sales is discussed
in Item 1(c) "Narrative Description of Business."
ITEM 1(e). EXECUTIVE OFFICERS
Information about the Company's executive officers can be found in Part
III of this report under "Item 10. Directors and Executive Officers of
Registrant."
ITEM 2. PROPERTIES
The Company owns its corporate headquarters and administrative offices
located in Wayne, Pennsylvania. In addition to sales offices, leased
warehouses, and certain properties not used by the Company in its
operations, the principal properties consisted of the following as of March
23, 1995:
INDUSTRY SEGMENT/LOCATION TYPE OF FACILITY LEASE EXPIRES
------------------------- ---------------- -------------
INFORMATION TECHNOLOGY
----------------------
MICROCOMPUTER SYSTEMS
Dallas, TX Office/Sales Center *
Woolwich, NJ Distribution Center 1998(1)
Stockton, CA Distribution Center 1999(2)
Dallas, TX Customer Center 2000
Fort Worth, TX Distribution Center 2000(3)
INFORMATION SOLUTIONS
Raleigh, NC Office/Data Center 1997
Malvern, PA Office/Distribution 1998(4)
Dallas, TX Office/Distribution 2000
Malvern, PA Office/Distribution 2001
METAL FINISHING
---------------
Minneapolis, MN Manufacturing/Office *
Green Bay, WI Manufacturing/Office *
Phoenix, AZ Manufacturing/Office *
OTHER ACTIVITIES
----------------
Sebastian, Florida Office Space/Assembly
Facility *
COMMERCIAL REAL ESTATE
----------------------
Horsham Business
Center Commercial Office Space *
Horsham, PA
Iron Run Warehouse/Commercial *
Allentown, PA Office Space
Meetinghouse Business
Center Commercial Office Space *
Plymouth Meeting, PA
(5 buildings)
Whiteland Business
Center Warehouse/ *
Commercial Office Space
_________
(*) Owned facility.
(1) The Company has a cancellation option exercisable at any time after
February 1996.
(2) The Company has a cancellation option exercisable beginning May 1995
and each year thereafter.
(3) The Company has a cancellation option exercisable after April 1998.
(4) The Company has a cancellation option exercisable beginning April
1996.
In the opinion of management, the properties and plants are in good
condition and repair and are adequate for the particular operations for
which they are used. The extent of utilization of manufacturing facilities
varies from plant to plant. The existing facilities generally are capable
of supporting increased activity without any significant capital
expenditures.
ITEM 3. LEGAL PROCEEDINGS
The Company and its subsidiaries are involved in various claims and
legal actions arising in the ordinary course of business. In the opinion of
management, the ultimate disposition of these matters will not have a
material adverse effect on the Company's consolidated financial position.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of security holders, through the
solicitation of proxies or otherwise, during the fourth quarter of 1994.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The Company incorporates by reference the information contained under
the caption "Common Stock Data" on page 39 of its Annual Report to
Shareholders for 1994 which page is filed as part of Exhibit 13 hereto.
ITEM 6. SELECTED FINANCIAL DATA
The Company incorporates by reference the information contained under
this caption on page 21 of its Annual Report to Shareholders for 1994 which
page is filed as part of Exhibit 13 hereto.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The Company incorporates by reference the information contained under
this caption on pages 21 through 25 of its Annual Report to Shareholders for
1994 which pages are filed as part of Exhibit 13 hereto.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Company incorporates by reference the information on pages 27
through 39 in its Annual Report to Shareholders for 1994 which pages are
filed as part of Exhibit 13 hereto.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT
EXECUTIVE OFFICERS:
The following persons were executive officers of the Registrant at
March 23, 1995:
HAS BEEN AN
OFFICER
NAME AGE SINCE POSITION
---- --- ----- --------
Warren V. Musser 68 1953 Chairman of the Board, Chief
Executive Officer, and
President
Donald R. Caldwell(1) 48 1993 Executive Vice President
Charles A. Root 62 1984 Executive Vice President
Gerald M. Wilk 58 1973 Vice President - Finance
James W. Dixon(2) 48 1990 Chairman of the Board,
CompuCom Systems, Inc.
Edward R. Anderson(3) 48 1994 President and Chief Executive
Officer, CompuCom Systems,
Inc.
(1) Prior to joining the Company, from 1991 through 1993 Mr. Caldwell
was President of Valley Forge Capital Group, Ltd., a business mergers and
acquisition advisory firm which he founded. From 1990 through 1991, Mr.
Caldwell was Chief Administrative Officer of Cambridge Technology Partners
(Massachusetts), Inc., an information technology consulting and software
development company.
(2) Mr. Dixon has held the position of Chairman of the Board of CompuCom
Systems, Inc. from January 1989 to the present. Mr. Dixon also held the
positions of President from June 1988 to January 1989 and Co-Chief Executive
Officer from January 1989 to March 1991. From 1987 to June 1988, he served
as President of CompuShop Incorporated, a subsidiary of Bell Atlantic
Investment Development Corporation, the assets of which were acquired by
CompuCom Systems, Inc. in June 1988.
(3) Mr. Anderson has served as President and Chief Executive Officer of
CompuCom Systems, Inc. since January 1994 and served as Chief Operating
Officer from August 1993 through December 1993. Prior to joining CompuCom,
Mr. Anderson served from May 1988 to July 1993 as President and Chief
Operating Officer of Computerland Corporation, a computer reseller.
DIRECTORS:
The Company incorporates by reference the information contained under
the caption "ELECTION OF DIRECTORS" in its definitive Proxy Statement
relative to its May 11, 1995 annual meeting of shareholders, to be filed
within 120 days after the end of the year covered by this Form 10-K Report
pursuant to Regulation 14A under the Securities Exchange Act of l934, as
amended.
DISCLOSURE OF DELINQUENT FILERS PURSUANT TO ITEM 405 OF REGULATION S-K:
The Company incorporates by reference the information contained under
the caption "COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF
1934" in its definitive Proxy Statement relative to its May 11, 1995 annual
meeting of shareholders, to be filed within 120 days after the end of the
year covered by this Form 10-K Report pursuant to Regulation 14A under the
Securities Exchange Act of l934, as amended.
ITEM 11. EXECUTIVE COMPENSATION
The Company incorporates by reference the information contained under
the captions "Directors' Compensation," "Compensation Committee Interlocks
and Insider Participation" and "EXECUTIVE COMPENSATION" in its definitive
Proxy Statement relative to its May 11, 1995 annual meeting of shareholders,
to be filed within 120 days after the end of the year covered by this Form
10-K Report pursuant to Regulation 14A under the Securities Exchange Act of
l934, as amended.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The Company incorporates by reference the information contained under
the caption "SECURITIES OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT" in its definitive Proxy Statement relative to its May 11, 1995
annual meeting of shareholders, to be filed within 120 days after the end of
the year covered by this Form 10-K Report pursuant to Regulation 14A under
the Securities Exchange Act of l934, as amended.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company incorporates by reference the information contained under
the captions "Compensation Committee Interlocks and Insider Participation"
and "CERTAIN TRANSACTIONS" in its definitive Proxy Statement relative to its
May 11, 1995 annual meeting of shareholders, to be filed within 120 days
after the end of the year covered by this Form 10-K Report pursuant to
Regulation 14A under the Securities Exchange Act of l934, as amended.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM
8-K
(a) Financial Statements and Schedules
CONSOLIDATED FINANCIAL STATEMENTS *
INDEPENDENT AUDITORS' REPORT
INDUSTRY SEGMENTS
OPERATIONS - years ended December 31, 1994, 1993, and 1992
BALANCE SHEETS - December 31, 1994 and 1993
CASH FLOWS - years ended December 31, 1994, 1993, and 1992
SHAREHOLDERS' EQUITY - years ended December 31, 1994, 1993,
and 1992
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
QUARTERLY FINANCIAL DATA
FINANCIAL STATEMENT SCHEDULES**
INDEPENDENT AUDITORS' REPORT
Schedule I - Condensed Financial Information of
Registrant
Schedule II - Valuation and Qualifying Accounts
Schedule III - Real Estate and Accumulated Depreciation
Schedule IV - Mortgage Loans on Real Estate
--------
* Incorporated by reference from pages 26 through 39 of the Company's
Annual Report to Shareholders for 1994, which pages are filed as part of
Exhibit 13 hereto.
** Filed herewith.
(b) Reports on Form 8-K
On October 17, 1994, the Company filed a Form 8-K disclosing under Item
2 the acquisition by its subsidiary, Premier Solutions Ltd., of the MAXIMIS
software business unit from Texas Instruments Incorporated.
On December 16, 1994, the Company filed a Form 8-K/A for such
acquisition, containing the following financial statements under Item 7: (1)
financial statements for the MAXIMIS business unit, and (2) pro forma
consolidated financial statements for Safeguard Scientifics, Inc.
(c) Exhibits
The following is a list of exhibits required by Item 601 of Regulation
S-K filed as part of this Report. Where so indicated by footnote, exhibits
which were previously filed are incorporated by reference. For exhibits
incorporated by reference, the location of the exhibit in the previous
filing is indicated in parentheses.
EXHIBIT NO. EXHIBIT
---------- -------
2.1 Asset Purchase Agreement among MEC Acquisition, Inc.,
CenterCore, Inc. and Maris Equipment Company
dated September 15, 1993 (excluding schedules and
exhibits) (9)(Exhibit 2.1)
2.2 Promissory Note dated September 22, 1993 from MEC
Acquisition, Inc. to Maris Equipment Company
(9)(Exhibit 2.2)
2.3 Asset Purchase Agreement between Texas Instruments
Incorporated and Premier Solutions Ltd. dated as
of September 30, 1994 (excluding schedules and
exhibits) (13) (Exhibit 2.1)
2.4 Services Agreement between Texas Instruments
Incorporated and Premier Solutions Ltd. dated as
of September 30, 1994 (13) (Exhibit 2.2)
3.1 Articles of Incorporation of the Company, as amended
(6)(Exhibit 3.1)
3.2 By-laws of the Company, as amended
(6)(Exhibit 3.2)
4.2 Rights Agreement dated March 31, 1988 between
Safeguard Scientifics, Inc. and Mellon Bank
(East) N.A., as Rights Agent (3)(Exhibit 1)
4.3 Form of letter sent to shareholders regarding
adoption of Shareholder Rights Plan
(3)(Exhibit 2)
4.4 Form of certificate of Safeguard Scientifics, Inc.
Common Stock, par value $.10 per share
(5)(Exhibit 4.3)
4.5** 1979 Stock Option Plan (1)(Exhibit 10)
4.6** 1980 Stock Option Plan (1)(Exhibit 10)(5)(Exhibit 10.5)
4.7** 1990 Stock Option Plan (11) (Exhibit 4.7)
4.8** Stock Option Plan for Non-Employee Directors (11)
(Exhibit 4.8)
4.9** Safeguard Scientifics, Inc. Amended and Restated
Stock Savings Plan*
4.10** Safeguard Scientifics, Inc. Stock Savings Plan
Trust Agreement (5)(Exhibit 4.2)
10.1** Safeguard Scientifics Money Purchase Pension Plan
(6)(Exhibit 10.3)
10.2** First Amendment to Safeguard Scientifics
Money Purchase Pension Plan (11) (Exhibit 10.2)
10.3** Second Amendment to Safeguard Scientifics
Money Purchase Pension Plan*
10.4** Safeguard Scientifics Money Purchase Pension Plan
Trust Agreement (6)(Exhibit 10.4)
10.5** Safeguard Management Incentive Compensation Plan
(7)(Exhibit 10.3)
10.6** Safeguard Scientifics, Inc. Long Term Incentive Plan,
as amended and restated effective June 15, 1994 *
10.7** Form of Promissory Notes dated December 22, 1994
given by certain executives in payment for
restricted stock grants*
10.8** Form of Promissory Notes dated January 3, 1995
given by certain executives in payment for
restricted stock grants*
10.9** Safeguard Scientifics, Inc. Deferred Compensation
Plan (2)(Exhibit 10.12)
10.10** Amended and Restated Credit Agreement dated
June 30, 1994 by and among Safeguard Scientifics,
Inc., Safeguard Scientifics (Delaware), Inc.,
and Midlantic Bank (excluding schedules
and exhibits) (12) (Exhibit 10)
10.11** Amended and Restated Revolving Note dated
June 30, 1994 made by Safeguard Scientifics,
Inc., Safeguard Scientifics (Delaware), Inc.
(12) (Exhibit 10)
10.12 Term Note dated June 30, 1994 from Safeguard
Scientifics, Inc. and Safeguard Scientifics
(Delaware), Inc. (12) (Exhibit 10)
10.13 Second Amended and Restated Credit Agreement
dated February 1, 1995 by and among Safeguard
Scientifics, Inc., Safeguard Scientifics
(Delaware), Inc. and Midlantic Bank
(excluding schedules and exhibits)*
10.14 Second Amended and Restated Revolving Loan Note
dated February 1, 1995 made by Safeguard Scientifics,
Inc., and Safeguard Scientifics (Delaware), Inc.*
10.15 Revolving Credit Financing and Security Agreement dated
as of August 4, 1993 between CompuCom Systems, Inc.
and NationsBank of Texas, N.A.(excluding schedules
and exhibits) (11) (Exhibit 10.12)
10.16 $125,000,000 Master Revolving Promissory Note from
CompuCom Systems, Inc. to NationsBank of Texas, N.A.
dated as of August 4, 1993 (11) (Exhibit 10.13)
10.17 First Amendment to Financing and Security Agreement
dated as of March 31, 1994 between CompuCom Systems, Inc.
and NationsBank of Texas, N.A.*
10.18 Master Revolving Promissory Note dated March 31, 1994 made
by CompuCom Systems, Inc.*
10.19** Letter agreement between Safeguard Scientifics, Inc.
and Jean C. Tempel dated November 5, 1993 (11)
(Exhibit 10.20)
10.20** Letter agreements among Continental Capital Partners,
Charterhouse North America Securities, Inc.,
Valley Forge Capital Group Ltd., MIG Securities, Inc.
and Safeguard Scientifics, Inc. dated September 6,
1991 (11) (Exhibit 10.21)
10.21** Memo of Understanding between Valley Forge Capital
Group, Ltd. and Safeguard Scientifics, Inc. dated
as of October 15, 1992 (11) (Exhibit 10.22)
10.22** Letter agreement dated August 13, 1991 between Valley
Forge Capital Group, Ltd. and CenterCore, Inc. (11)
(Exhibit 10.23)
10.23 Stock Purchase Agreement between CompuCom Systems, Inc.
and Rosetta Stone Corporation dated January 5, 1994,
regarding sale of common stock of PC Parts Express,
Inc. (exhibits omitted) with attached $3,500,000
Promissory Note, Pledge and Security Agreement, and
PC Parts Express, Inc. Common Stock Purchase Warrant
(11) (Exhibit 10.24)
10.24 Asset Purchase Agreement among Rosetta Stone Corporation,
Teknowlogy Corp. and CompuCom Acquisition Corporation,
d/a/a Micro Solutions, dated January 5, 1994, regarding
sale of MicroSolutions' Network Training Group division
(exhibits omitted), with attached $1,000,000
Installment Promissory Note and Pledge and Security
Agreement (11) (Exhibit 10.25)
10.25** Resignation Agreement, effective January 1, 1994,
between Avery More and CompuCom Systems, Inc.
(11) (Exhibit 10.26)
10.26** Promissory Note dated August 31, 1994 from
Edward Anderson to CompuCom Systems, Inc.*
10.27** Pledge Agreement dated August 31, 1994 between
Edward Anderson and CompuCom Systems, Inc.*
10.28** Promissory Note dated January 5, 1995 from
James Dixon to CompuCom Systems, Inc.*
11 Computation of Per Share Earnings*
13 Pages 21 to 39 of Annual Report to Shareholders
for year ended December 31, 1994*
21 List of Subsidiaries*
23 Consent of KPMG Peat Marwick LLP, independent
auditors*
27 Financial Data Schedule*
________________________________
* Filed herewith.
** These exhibits relate to compensatory plans, contracts or
arrangements in which directors and/or executive officers of the registrant
may participate.
(1) Filed on March 30, 1981 as an exhibit to the Annual Report on Form
10-K (No. 1-5620) and incorporated herein by reference.
(2) Filed on March 30, 1987 as an exhibit to Annual Report on Form 10-K
(No. 1-5620) and incorporated herein by reference.
(3) Filed on April 8, 1988 as an exhibit to Form 8-K (No. 1-5620) and
incorporated herein by reference.
(4) Filed on March 29, 1991 as an exhibit to Form 10-K (No. 1-5620) and
incorporated herein by reference.
(5) Filed on December 13, 1991 as an exhibit to Form 8-K (No. 1-5620)
and incorporated herein by reference.
(6) Filed on March 30, 1992 as an exhibit to Form 10-K (No. 1-5620) and
incorporated herein by reference.
(7) Filed on March 31, 1993 as an exhibit to Form 10-K (No. 1-5620) and
incorporated herein by reference.
(8) Filed on April 9, 1993 as an exhibit to Form 8 Amendment to Form 10-
K (No. 1-5620) and incorporated herein by reference.
(9) Filed on October 22, 1993 as an exhibit to Form 8-K (No. 1-5620) and
incorporated herein by reference.
(10) Filed on November 15, 1993 as an exhibit to Form 10-Q (No. 1-5620)
and incorporated herein by reference.
(11) Filed on March 30, 1994 as an exhibit to Form 10-K (No. 1-5620) and
incorporated herein by reference.
(12) Filed on August 15, 1994 as an exhibit to Form 10-Q (No. 1-5620)
and incorporated herein by reference.
(13) Filed on October 17, 1994 as an exhibit to Form 8-K (No. 1-5620)
and incorporated herein by reference.
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
Safeguard Scientifics, Inc.:
Under date of February 16, 1995, we reported on the consolidated balance
sheets of Safeguard Scientifics, Inc. and subsidiaries as of December
31, 1994 and 1993, and the related consolidated statements of
operations, cash flows and shareholders' equity for each of the years in
the three-year period ended December 31, 1994, as contained in the 1994
annual report to shareholders. These consolidated financial statements
and our report thereon are incorporated by reference in the annual
report on Form 10-K for the year 1994. In connection with our audits of
the aforementioned consolidated financial statements, we also audited
the related consolidated financial statement schedules as listed in the
accompanying index. These financial statement schedules are the
responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statement schedules based on our
audits.
In our opinion, such financial statement schedules, when considered in
relation to the basic consolidated financial statements taken as a
whole, present fairly, in all material respects, the information set
forth therein.
As discussed in note 1 to the consolidated financial statements, the
Company changed its method of accounting for investments by adopting the
provisions of Statement of Financial Accounting Standards No. 115,
"Accounting for Certain Investments in Debt and Equity Securities" as of
January 1, 1994.
/s/ KPMG Peat Marwick LLP
Philadelphia, Pennsylvania
February 16, 1995
<TABLE>
<CAPTION>
Safeguard Scientifics, Inc.
Schedule I
Condensed Consolidated Balance Sheets
December 31, 1994 and 1993
(In thousands)
ASSETS
1994 1993
----------- ----------
<S> <C> <C>
Current Assets
Cash $ 2,264 $ 3,128
Receivables less allowances
($103 - 1994; $149 - 1993) 3,733 3,753
Notes and other receivables 11,127 1,667
Inventories 1,291 1,188
Other current assets 2,240 1,879
----------- ----------
Total current assets 20,655 11,615
Property, Plant & Equipment, net 20,940 21,296
Commercial Real Estate, net 18,433 36,423
Other Assets
Investments in unconsolidated
subsidiaries and affiliates 147,380 65,899
Notes and other receivables 4,527 18,958
Deferred taxes on income 297
Other 2,587 3,545
----------- ----------
154,494 88,699
----------- ----------
$ 214,522 $ 158,033
=========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
1994 1993
----------- ----------
Current Liabilities
Current commercial real estate debt $ 3,120 $ 11,038
Current debt obligations 2,154 3,360
Accounts payable 3,040 1,358
Accrued expenses 13,612 6,009
----------- ----------
Total current liabilities 21,926 21,765
----------- ----------
Long-Term Debt 57,882 16,692
Commercial Real Estate Debt 17,594 29,630
Deferred taxes on income 5,404
Other Liabilities 1,169 1,179
Shareholders' Equity
Common stock 1,093 547
Additional paid-in capital 25,669 26,177
Retained earnings 91,780 76,040
Treasury stock (13,228) (13,997)
Net unrealized appreciation on investments 5,233
----------- ----------
110,547 88,767
----------- ----------
$ 214,522 $ 158,033
=========== ==========
</TABLE>
<TABLE>
<CAPTION>
Safeguard Scientifics, Inc.
Schedule I
Condensed Consolidated Statements of Operations
December 31, 1994, 1993 and 1992
(In thousands except per share amounts)
1994 1993 1992
------------ ------------ ------------
<S> <C> <C> <C>
Revenues
Net sales $ 35,024 $ 32,380 $ 29,411
Gains on sales of securities, net 21,789 9,574 10,214
Other income 7,323 6,088 5,641
------------ ------------ ------------
Total revenues 64,136 48,042 45,266
Costs and Expenses
Cost of sales 22,054 20,289 17,182
Selling 1,307 1,338 1,248
General and administrative 14,334 12,562 10,357
Depreciation and amortization 4,383 4,287 4,074
Interest 5,141 4,404 4,992
Equity in income of unconsolidated
subsidiaries and affiliates,
net of taxes (2,378) (2,060) (4,574)
------------ ------------ ------------
Total costs and expenses 44,841 40,820 33,279
------------ ------------ ------------
Earnings Before Taxes on Income 19,295 7,222 11,987
Provision for Taxes on Income 3,555 3,369 3,123
------------ ------------ ------------
Net Earnings $ 15,740 $ 3,853 $ 8,864
============ ============ ============
Earnings Per Share
Primary $1.54 $.31 $.88
Fully Diluted $1.41 $.21 $.82
Average Common Shares Outstanding
Primary 9,813 10,046 10,100
Fully Diluted 9,893 10,136 10,202
</TABLE>
<TABLE>
<CAPTION>
Safeguard Scientifics, Inc.
Schedule I
Condensed Consolidated Statements of Cash Flows
Years ended December 31, 1994, 1993 and 1992
(In thousands)
1994 1993 1992
------- ------ ------
<S> <C> <C> <C>
Operating Activities
Net earnings $15,740 $3,853 $8,864
Adjustments to reconcile net earnings to
cash from operating activities
Depreciation and amortization 4,383 4,287 4,074
Deferred income taxes 3,006 2,690 4,155
Equity in income of unconsolidated
subsidiaries and affiliates, net (2,378) (2,060) (4,574)
Gains on sales of securities, net (21,789) (9,574) (10,214)
------- ------ ------
(1,038) (804) 2,305
Cash provided (used) by changes in working
capital items
Receivables (5,239) 1,741 (3,004)
Inventories (103) (504) (63)
Other current assets (361) (785) (508)
Accounts payable and accrued expenses 1,493 718 1,448
Taxes on income 0 0 (1,134)
------- ------ ------
(4,210) 1,170 (3,261)
------- ------ ------
Cash provided (used) by operating activities (5,248) 366 (956)
Proceeds from sales of securities, net 16,953 20,129 18,689
------- ------ ------
Cash provided by operating activities
and sales of securities, net 11,705 20,495 17,733
Other Investing Activities
Investments and notes acquired (49,343) (7,775) (12,376)
Expenditures for property, plant & equipment (2,375) (5,357) (4,080)
Commercial real estate costs 0 (130) (468)
Other, net (1,302) 80 (971)
------- ------ ------
Cash (used) by other investing activities (53,020) (13,182) (17,895)
Financing Activities
Net borrowings on revolving credit facilities 17,927 6,200
Net borrowings (repayments) on term debt 21,717 (7,735) 1,801
Repurchase of common stock (551) (8,000) (1,506)
Stock options exercised 1,358 1,229
------- ------ ------
Cash provided (used) by financing activities 40,451 (8,306) 295
------- ------ ------
Increase (Decrease) in Cash (864) (993) 133
Cash - beginning of year 3,128 4,121 3,988
------- ------ ------
Cash - End of Year $2,264 $3,128 $4,121
======= ====== ======
</TABLE>
Notes to Condensed Consolidated Financial Statements
NOTE 1 - DEBT
1994 1993
------ -----
($000 omitted)
Revolving credit facility and term note payable,
interest at prime and/or LIBOR plus 2.25% $44,100 $10,200
Notes payable, interest ranging from 1% to 2%
below prime 6,975
9.75% mortgage note; payable
monthly through 2002 3,543 3,568
Industrial Development Revenue Bonds,
due in installments through 2002 2,550 2,890
Variable rate Industrial Development
Revenue Bond mortgage due monthly
through 2000 757 1,013
Term loan, interest at 1% above prime
rate; payable monthly through 1998 729 867
Other 1,382 1,514
-------- --------
60,036 20,052
Current debt obligations (2,154) (3,360)
-------- --------
Long-term debt $57,882 $16,692
======== ========
Aggregate maturities of long-term debt during future years are as
follows: $2.2 million-1995; $.8 million--1996; $.8 million--1997;
$51.6 million--1998; $.4 million--1999 and $4.2 million thereafter.
Interest paid in 1994, 1993 and 1992 was $4.9 million, $4.8 million, and
$5.0 million, respectively, of which $2.7 million, $3.5
million and $4.1 million in 1994, 1993 and 1992, respectively, related
to commercial real estate debt.
In connection with investments in certain unconsolidated subsidiaries
and investee companies, the Company is contingently obligated for
approximately $13.8 million in bank loan and other guarantees and $7.5
million for possible future investments.
<TABLE>
<CAPTION>
SAFEGUARD SCIENTIFICS, INC. AND SUBSIDIARIES
--------------------------------------------
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
-----------------------------------------------
(In thousands)
Balance Additions
Beginning Charged to Balance
DECSCRIPTION of Year Operations Deductions Other End of Year
------------ ----------- ------------ ------------ -------- ------------
<S> <C> <C> <C> <C> <C>
(1)
Allowance for doubtful accounts
Year ended December 31, 1992 $2,243 $2,113 $1,336 $3,020
Year ended December 31, 1993 $3,020 $1,276 $676 $1,860 (2) $5,480
Year ended December 31, 1994 $5,480 $3,378 $1,669 $(723) (3) $6,466
(1) Net write-offs.
(2) Maris Equipment Co. valuation
reserve at acquisition date.
(3) Sale and deconsolidation of Micro
Decisionware and Coherent, respectively.
</TABLE>
<TABLE>
<CAPTION>
SAFEGUARD SCIENTIFICS, INC.
SCHEDULE III REAL ESTATE AND
ACCUMULATED DEPRECIATION
DECEMBER 31, 1994
(In thousands)
Initial Cost Costs Capitalized Cost
to Company subsequent to at close
(Acquisition) acquisition of period
------------------- --------------------- -------------------
Building & Carrying Building & Accumulated Date of
Description (1) Encumbrances Land Improvements Improvements Costs Land Improvements Depreciation Construction
----------------- ------------ ---- ------------ ------------ ----- ---- ------------ ------------ ---------
(2)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Meeting House All Mortgages $1,527 $10,877 $3,106 $921 $1,527 $14,904 $4,614 1983
Business Center Are Secured
Plymouth Meeting, PA by Related
(5 Properties) Property
Horsham Business All Mortgages 412 2,722 121 412 2,843 928 1984
Center Are Secured
Horsham, PA by Related
(1 Property) Property
Whiteland Business All Mortgages 343 1,928 794 47 343 2,769 807 1985
Center Are Secured
Exton, PA by Related
(1 Property) Property
Iron Run All Mortgages 213 2,148 358 21 213 2,527 756 1984
Allentown, PA Are Secured
(1 Property) by Related
Property
------ ------- ------ ---- ------ ------- ------
$2,495 $17,675 $4,379 $989 $2,495 $23,043 $7,105
====== ======= ====== ==== ====== ======= ======
(1) Acquired June 27, 1986.
(2) All properties and improvements are depreciated over a 10 or 30-year estimated useful life.
</TABLE>
<TABLE>
<CAPTION>
Schedule III, cont.
SAFEGUARD SCIENTIFICS, INC.
REAL ESTATE AND ACCUMULATED DEPRECIATION
NOTES TO COLUMNS E AND F
(In thousands)
Note to Column E Year ended December 31
----------------
1994 1993 1992
------------------------------------------------------------
<S> <C> <C> <C>
Balance at beginning of period $ 47,460 $ 47,504 $ 47,094
Additions - Tenant required improvements 130 468
Real estate sold (5,015) (12) (58)
Transferred to mortgage holders (16,907)
Other (162)
---------- ---------- ----------
Balance at close of period $ 25,538 $ 47,460 $ 47,504
========== ========== ==========
Aggregate cost for federal income tax $ 22,500 $ 41,042 $ 40,912
========== ========== ==========
Note to Column F
----------------
Balance at beginning of period $ 11,037 $ 9,456 $ 7,898
Additions - Depreciation 1,447 1,581 1,558
Real estate sold (1,111)
Transferred to mortgage holders (4,268)
---------- ---------- ----------
Balance at close of period $ 7,105 $ 11,037 $ 9,456
========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
SAFEGUARD SCIENTIFICS, INC.
SCHEDULE IV MORTGAGE LOANS ON REAL ESTATE
DECEMBER 31, 1994
(In thousands)
Final Periodic
Description Interest rate maturity date payment terms
------------------------------- --------------- --------------- ---------------
<S> <C> <C> <C>
Permanent mortgage financing - Ranging from Ranging from Subject to
commercial office buildings and 9% 1995 - 2000 various amortization
land - suburban metropolitan to 10.5% schedules including
Philadelphia area - property balloon payments at
carrying value of $6,609 maturity
(3 mortgages)
1995 - 2,968
1996 - 70
1997 - 1,510
1998 - (19)
1999 - 26
2000 - 2,456
Cash flow permanent mortgage 7.125% 1999 Subject to
financing - commercial office amortization schedules
buildings and land - suburban including balloon
metropolitan Philadelphia area - payments at maturity
property carrying value of $11,824
(1 mortgage) 1995 - 152
1996 - 164
1997 - 176
1998 - 189
1999 - 13,022
Deferred Financing costs
The prime rate at December 31, 1994 was 8.5%.
</TABLE>
(Continued)
<TABLE>
<CAPTION>
SAFEGUARD SCIENTIFICS, INC.
SCHEDULE IV MORTGAGE LOANS ON REAL ESTATE
DECEMBER 31, 1994
(In thousands)
Principal amount
of loans subject to
Face amounts Carrying amounts delinquent principal
Prior liens of mortgages of mortgages or interest
------------- -------------- ----------------- ---------------------
<S> <C> <C> <C> <C>
Permanent mortgage financing - - $ 7,500 $ 7,184 -
commercial office buildings and
land - suburban metropolitan
Philadelphia area - property
carrying value of $6,609
(3 mortgages)
Cash flow permanent mortgage 15,000 13,703 -
financing - commercial office
buildings and land - suburban
metropolitan Philadelphia area -
property carrying value of $11,824
(1 mortgage)
Deferred Financing costs (173)
------- -------
$22,500 $20,714
======= =======
The prime rate at December 31, 1994 was 8.5%.
</TABLE>
<TABLE>
<CAPTION>
Schedule IV, cont.
SAFEGUARD SCIENTIFICS, INC.
MORTGAGE LOANS ON REAL ESTATE, CONTINUED
NOTE TO COLUMN G
(In thousands)
Year ended December 31
1994 1993 1992
--------------------------------------------------
<S> <C> <C> <C>
Balance at beginning of period $40,668 $41,159 $41,812
Net decrease (increase) in deferred financing costs 99 178 (183)
---------- ---------- ----------
40,767 41,337 41,629
Dispositions (4,544) 0 0
Transferred to mortgage holders (15,190) 0 0
Payments on permanent financings (319) (669) (470)
---------- ---------- ----------
Balance at close of period $20,714 $40,668 $41,159
========== ========== ==========
</TABLE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
Dated: March 27, 1995 SAFEGUARD SCIENTIFICS, INC.
By: Warren V. Musser
---------------------------
Warren V. Musser
Chairman, President and Chief
Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Dated: March 27, 1995 Warren V. Musser
--------------------------------------
Warren V. Musser
Chairman, President and Chief
Executive Officer (Principal
Executive Officer)
Dated: March 27, 1995 Gerald M. Wilk
--------------------------------------
Gerald M. Wilk, Vice President-Finance
(Principal Financial and Accounting
Officer)
Dated: March 27, 1995 Vincent G. Bell
--------------------------------------
Vincent G. Bell, Jr., Director
Dated: March 27, 1995 Robert A. Fox
--------------------------------------
Robert A. Fox, Director
Dated: March 27, 1995 Delbert W. Johnson
--------------------------------------
Delbert W. Johnson, Director
Dated: March 27, 1995 Peter Likins
--------------------------------------
Peter Likins, Director
Dated: March 27, 1995 Russell E. Palmer
--------------------------------------
Russell E. Palmer, Director
Dated: March 27, 1995 John W. Poduska Sr.
--------------------------------------
John W. Poduska Sr., Director
Dated: March 27, 1995 Hubert J. P. Schoemaker
--------------------------------------
Hubert J. P. Schoemaker, Director
Dated: March 27, 1995 Heinz Schimmelbusch
--------------------------------------
Heinz Schimmelbusch, Director
Dated: March 27, 1995 Jean C. Tempel
--------------------------------------
Jean C. Tempel, Director
EXHIBIT INDEX
The following is a list of exhibits required by Item 601 of Regulation
S-K filed as part of this Report. Where so indicated by footnote, exhibits
which were previously filed are incorporated by reference. For exhibits
incorporated by reference, the location of the exhibit in the previous
filing is indicated in parentheses.
EXHIBIT NO. EXHIBIT
----------- -------
2.1 Asset Purchase Agreement among MEC Acquisition, Inc.,
CenterCore, Inc. and Maris Equipment Company
dated September 15, 1993 (excluding schedules and
exhibits) (9)(Exhibit 2.1)
2.2 Promissory Note dated September 22, 1993 from MEC
Acquisition, Inc. to Maris Equipment Company
(9)(Exhibit 2.2)
2.3 Asset Purchase Agreement between Texas Instruments
Incorporated and Premier Solutions Ltd. dated as
of September 30, 1994 (excluding schedules and
exhibits) (13) (Exhibit 2.1)
2.4 Services Agreement between Texas Instruments
Incorporated and Premier Solutions Ltd. dated as
of September 30, 1994 (13) (Exhibit 2.2)
3.1 Articles of Incorporation of the Company, as amended
(6)(Exhibit 3.1)
3.2 By-laws of the Company, as amended
(6)(Exhibit 3.2)
4.2 Rights Agreement dated March 31, 1988 between
Safeguard Scientifics, Inc. and Mellon Bank
(East) N.A., as Rights Agent (3)(Exhibit 1)
4.3 Form of letter sent to shareholders regarding
adoption of Shareholder Rights Plan
(3)(Exhibit 2)
4.4 Form of certificate of Safeguard Scientifics, Inc.
Common Stock, par value $.10 per share
(5)(Exhibit 4.3)
4.5** 1979 Stock Option Plan (1)(Exhibit 10)
4.6** 1980 Stock Option Plan (1)(Exhibit 10)(5)(Exhibit 10.5)
4.7** 1990 Stock Option Plan (11) (Exhibit 4.7)
4.8** Stock Option Plan for Non-Employee Directors (11)
(Exhibit 4.8)
4.9** Safeguard Scientifics, Inc. Amended and Restated
Stock Savings Plan*
4.10** Safeguard Scientifics, Inc. Stock Savings Plan
Trust Agreement (5)(Exhibit 4.2)
10.1** Safeguard Scientifics Money Purchase Pension Plan
(6)(Exhibit 10.3)
10.2** First Amendment to Safeguard Scientifics
Money Purchase Pension Plan (11) (Exhibit 10.2)
10.3** Second Amendment to Safeguard Scientifics
Money Purchase Pension Plan*
10.4** Safeguard Scientifics Money Purchase Pension Plan
Trust Agreement (6)(Exhibit 10.4)
10.5** Safeguard Management Incentive Compensation Plan
(7)(Exhibit 10.3)
10.6** Safeguard Scientifics, Inc. Long Term Incentive Plan,
as amended and restated effective June 15, 1994 *
10.7** Form of Promissory Notes dated December 22, 1994
given by certain executives in payment for
restricted stock grants*
10.8** Form of Promissory Notes dated January 3, 1995
given by certain executives in payment for
restricted stock grants*
10.9** Safeguard Scientifics, Inc. Deferred Compensation
Plan (2)(Exhibit 10.12)
10.10** Amended and Restated Credit Agreement dated
June 30, 1994 by and among Safeguard Scientifics,
Inc., Safeguard Scientifics (Delaware), Inc.,
and Midlantic Bank (excluding schedules
and exhibits) (12) (Exhibit 10)
10.11** Amended and Restated Revolving Note dated
June 30, 1994 made by Safeguard Scientifics,
Inc., Safeguard Scientifics (Delaware), Inc.
(12) (Exhibit 10)
10.12 Term Note dated June 30, 1994 from Safeguard
Scientifics, Inc. and Safeguard Scientifics
(Delaware), Inc. (12) (Exhibit 10)
10.13 Second Amended and Restated Credit Agreement
dated February 1, 1995 by and among Safeguard
Scientifics, Inc., Safeguard Scientifics
(Delaware), Inc. and Midlantic Bank
(excluding schedules and exhibits)*
10.14 Second Amended and Restated Revolving Loan Note
dated February 1, 1995 made by Safeguard Scientifics,
Inc., and Safeguard Scientifics (Delaware), Inc.*
10.15 Revolving Credit Financing and Security Agreement dated
as of August 4, 1993 between CompuCom Systems, Inc.
and NationsBank of Texas, N.A.(excluding schedules
and exhibits) (11) (Exhibit 10.12)
10.16 $125,000,000 Master Revolving Promissory Note from
CompuCom Systems, Inc. to NationsBank of Texas, N.A.
dated as of August 4, 1993 (11) (Exhibit 10.13)
10.17 First Amendment to Financing and Security Agreement
dated as of March 31, 1994 between CompuCom Systems, Inc.
and NationsBank of Texas, N.A.*
10.18 Master Revolving Promissory Note dated March 31, 1994 made
by CompuCom Systems, Inc.*
10.19** Letter agreement between Safeguard Scientifics, Inc.
and Jean C. Tempel dated November 5, 1993 (11)
(Exhibit 10.20)
10.20** Letter agreements among Continental Capital Partners,
Charterhouse North America Securities, Inc.,
Valley Forge Capital Group Ltd., MIG Securities, Inc.
and Safeguard Scientifics, Inc. dated September 6,
1991 (11) (Exhibit 10.21)
10.21** Memo of Understanding between Valley Forge Capital
Group, Ltd. and Safeguard Scientifics, Inc. dated
as of October 15, 1992 (11) (Exhibit 10.22)
10.22** Letter agreement dated August 13, 1991 between Valley
Forge Capital Group, Ltd. and CenterCore, Inc. (11)
(Exhibit 10.23)
10.23 Stock Purchase Agreement between CompuCom Systems, Inc.
and Rosetta Stone Corporation dated January 5, 1994,
regarding sale of common stock of PC Parts Express,
Inc. (exhibits omitted) with attached $3,500,000
Promissory Note, Pledge and Security Agreement, and
PC Parts Express, Inc. Common Stock Purchase Warrant
(11) (Exhibit 10.24)
10.24 Asset Purchase Agreement among Rosetta Stone Corporation,
Teknowlogy Corp. and CompuCom Acquisition Corporation,
d/a/a Micro Solutions, dated January 5, 1994, regarding
sale of MicroSolutions' Network Training Group division
(exhibits omitted), with attached $1,000,000
Installment Promissory Note and Pledge and Security
Agreement (11) (Exhibit 10.25)
10.25** Resignation Agreement, effective January 1, 1994,
between Avery More and CompuCom Systems, Inc.
(11) (Exhibit 10.26)
10.26** Promissory Note dated August 31, 1994 from
Edward Anderson to CompuCom Systems, Inc.*
10.27** Pledge Agreement dated August 31, 1994 between
Edward Anderson and CompuCom Systems, Inc.*
10.28** Promissory Note dated January 5, 1995 from
James Dixon to CompuCom System, Inc.*
11 Computation of Per Share Earnings*
13 Pages to of Annual Report to Shareholders
for year ended December 31, 1994*
21 List of Subsidiaries*
23 Consent of KPMG Peat Marwick, independent
auditors*
27 Financial Data Schedule*
-------------------------------
* Filed herewith.
** These exhibits relate to compensatory plans, contracts or
arrangements in which directors and/or executive officers of the registrant
may participate.
(1) Filed on March 30, 1981 as an exhibit to the Annual Report on Form
10-K (No. 1-5620) and incorporated herein by reference.
(2) Filed on March 30, 1987 as an exhibit to Annual Report on Form 10-K
(No. 1-5620) and incorporated herein by reference.
(3) Filed on April 8, 1988 as an exhibit to Form 8-K (No. 1-5620) and
incorporated herein by reference.
(4) Filed on March 29, 1991 as an exhibit to Form 10-K (No. 1-5620) and
incorporated herein by reference.
(5) Filed on December 13, 1991 as an exhibit to Form 8-K (No. 1-5620)
and incorporated herein by reference.
(6) Filed on March 30, 1992 as an exhibit to Form 10-K (No. 1-5620) and
incorporated herein by reference.
(7) Filed on March 31, 1993 as an exhibit to Form 10-K (No. 1-5620) and
incorporated herein by reference.
(8) Filed on April 9, 1993 as an exhibit to Form 8 Amendment to Form 10-
K (No. 1-5620) and incorporated herein by reference.
(9) Filed on October 22, 1993 as an exhibit to Form 8-K (No. 1-5620) and
incorporated herein by reference.
(10) Filed on November 15, 1993 as an exhibit to Form 10-Q (No. 1-5620)
and incorporated herein by reference.
(11) Filed on March 30, 1994 as an exhibit to Form 10-K (No. 1-5620) and
incorporated herein by reference.
(12) Filed on August 15, 1994 as an exhibit to Form 10-Q (No. 1-5620)
and incorporated herein by reference.
(13) Filed on October 17, 1994 as an exhibit to Form 8-K (No. 1-5620)
and incorporated herein by reference.
SAFEGUARD SCIENTIFICS, INC.
STOCK SAVINGS PLAN
(As Amended and Restated Effective January 1, 1989)
SAFEGUARD SCIENTIFICS, INC.
STOCK SAVINGS PLAN
TABLE OF CONTENTS
Page
PREAMBLE 1
ARTICLE I - DEFINITIONS 1
1.1 Account 1
1.2 Accrual Computation Period 1
1.3 Adjustment Factor 1
1.4 Affiliate 2
1.5 Anniversary Date 2
1.6 Beneficiary 2
1.7 Board of Directors 2
1.8 Break in Service 2
1.9 Code 3
1.10 Company 3
1.11 Compensation 3
1.12 Deferral Agreement 4
1.13 Deferral Amount 4
1.14 Deferred Retirement Date 4
1.15 Disregarded Prior Service 4
1.16 Effective Date 6
1.17 Eligibility Computation Period 6
1.18 Eligible Employee 6
1.19 Employee 7
1.20 Employer 7
1.21 Employment Commencement Date 7
1.22 Entry Date 7
1.23 ERISA 7
1.24 Excused Absence 7
1.25 Family Member 9
1.26 Fund 9
1.27 Highly Compensated Employee 9
1.28 Hour of Service 11
1.29 Investment Manager 13
1.30 Limitation Compensation 13
1.31 Limitation Year 15
1.32 Named Fiduciary 15
1.33 Non-Highly Compensated Employee 15
1.34 Normal Retirement Age 15
1.35 Normal Retirement Date 15
1.36 Novell 15
1.37 Parenthood Leave 15
1.38 Participant 16
1.39 Period of Service 16
1.40 Period of Severance 16
1.41 Plan 16
1.42 Plan Administrator 16
1.43 Plan Year 17
1.44 Predecessor Company 17
1.45 Quadro 17
1.46 Reemployment Commencement Date 17
1.47 Required Beginning Date 17
1.48 Severance from Service Date 17
1.49 Sponsoring Affiliate 17
1.50 Spouse 17
1.51 Stock 18
1.52 Total Disability 18
1.53 Trust Agreement 18
1.54 Trustee 18
1.55 Trust Fund 18
1.56 Valuation Date 18
1.57 Vesting Computation Period 18
1.58 Year of Eligibility Service 18
1.59 Year of Service 19
1.60 Year of Vesting Service 20
ARTICLE II - PARTICIPATION 20
2.1 Eligibility to Participate 20
2.2 Readmission after Period of Severance and
Employment Termination 21
2.3 Changes in Status 22
ARTICLE III - EMPLOYER CONTRIBUTIONS 23
3.1 Employer Contributions 23
3.2 Timing of Contributions 23
3.3 Contingent Nature of Contributions 24
3.4 Exclusive Benefit; Refund of Contributions 24
3.5 Investment of Employer Contributions 25
3.6 In Service Withdrawals 25
ARTICLE IV - PARTICIPANT CONTRIBUTIONS 26
4.1 Mandatory Contributions 26
4.2 Voluntary Contributions 26
4.3 Rollover Contributions 26
4.4 Restoration Contributions 27
4.5 Eligibility for Arrangement 27
4.6 Effective Date of Deferral Agreements 27
4.7 Deferral Amounts 28
4.8 Establishment of Separate Account 29
4.9 Distributions from Participant's Deferral
Contribution Subaccount 29
4.10 Hardship Withdrawals: Participant's Deferral
Contribution Subaccount 30
4.11 In-Service Withdrawals from After-Tax Voluntary
Contribution Subaccounts 31
4.12 Loans 31
4.13 Excused Absence from Service 34
ARTICLE V - LIMITATIONS ON CONTRIBUTIONS 34
5.1 Maximum Amount of Deferral Contributions 34
5.2 Limitations on Deferral Contributions of Highly
Compensated Participants 36
5.3 Limitations on Employer Matching Contributions and
Voluntary Contributions of Highly Compensated
Participants. 39
5.4 Code Section 415 Limitations 41
5.5 Order of Reductions 44
ARTICLE VI - ALLOCATION OF CONTRIBUTIONS 44
6.1 Allocation of Deferral Amounts 44
6.2 Allocations to Matching Contribution Subaccounts 44
6.3 Multiple Employers 45
6.4 Allocations to After-Tax Voluntary Contribution
Subaccounts 45
6.5 Allocations to Restoration Contribution Subaccounts 45
6.6 Allocations to Rollover Contribution Subaccounts 45
6.7 Determination of Active Participant Status for an
Accrual Computation Period 45
6.8 Non-vested Amounts 46
6.9 Special Rules for Top-Heavy Plans 47
ARTICLE VII - INVESTMENTS 48
7.1 Investment of Assets 48
7.2 Crediting of Contributions 48
7.3 Crediting of Investment Results 49
7.4 Investment Direction By Participants 50
ARTICLE VIII - RETIREMENT AND DISABILITY BENEFITS 53
8.1 Normal Retirement Benefit 53
8.2 Deferred Retirement Benefit 54
8.3 Disability Benefit 54
8.4 Effect of Quadro 54
ARTICLE IX - DEATH BENEFITS AND SURVIVING SPOUSE'S BENEFITS 54
9.1 Pre-Distribution Death Benefit 54
9.2 Death After Benefit Commencement Date 55
9.3 Spousal Consent to Designation of Alternative
Beneficiary 56
9.4 Beneficiary Designation 56
9.5 Effect of Quadro 56
ARTICLE X - NONFORFEITURE PROVISIONS (VESTING) 57
10.1 Full and Immediate Vested Interests 57
10.2 Employer Matching Contribution Subaccounts 57
10.3 Disregarded Service for Vesting Purposes 57
10.4 Amendments to the Vesting Schedule 58
ARTICLE XI - METHODS AND TIMING OF BENEFIT DISTRIBUTIONS 58
11.1 Forms of Benefit Payments 58
11.2 Benefit Commencement Dates 60
11.3 Post-Distribution Credits 62
11.4 Direct Rollovers. 62
11.5 Participant's Consent to Distribution of Benefits 63
ARTICLE XII - TOP-HEAVY PROVISIONS 64
12.1 Top-Heavy Definitions 64
12.2 Top-Heavy Rules 67
ARTICLE XIII - PLAN ADMINISTRATOR 69
13.1 Appointment and Tenure 69
13.2 Meetings; Majority Rule 69
13.3 Delegation 69
13.4 Authority and Responsibility of the Plan
Administrator 69
13.5 Reporting and Disclosure 70
13.6 Construction of the Plan 71
13.7 Engagement of Assistants and Advisers 71
13.8 Bonding 72
13.9 Compensation of the Plan Administrator 72
13.10 Indemnification of the Plan Administrator 72
ARTICLE XIV - ALLOCATION AND DELEGATION OF AUTHORITY 72
14.1 Authority and Responsibilities of Employer 72
14.2 Authority and Responsibilities of the Plan
Administrator 73
14.3 Authority and Responsibilities of the Trustee 73
14.4 Limitations on Obligations of Named Fiduciaries 73
ARTICLE XV - CLAIMS PROCEDURES 73
15.1 Application for Benefits 73
15.2 Appeals of Denied Claims for Benefits 74
15.3 Appointment of the Named Appeals Fiduciary 75
ARTICLE XVI - AMENDMENT AND TERMINATION 75
16.1 Amendment 75
16.2 Plan Termination 76
16.3 Complete Discontinuance of Employer Contributions 77
16.4 Suspension of Employer Contributions 77
16.5 Mergers and Consolidations of Plans 78
16.6 Adoption by Affiliates 78
ARTICLE XVII - NONALIENATION OF BENEFITS 79
17.1 Nonalienation of Benefits 79
ARTICLE XVIII - MISCELLANEOUS PROVISIONS 79
18.1 No Contract of Employment 79
18.2 Severability of Provisions 79
18.3 Heirs, Assigns and Personal Representatives 80
18.4 Headings and Captions 80
18.5 Gender and Number 80
18.6 Controlling Law 80
18.7 Funding Policy 80
18.8 Title to Assets 80
18.9 Payments to Minors, Etc 80
18.10 Reliance on Data and Consents 81
18.11 Lost Payees 81
18.12 Counterparts 81
APPENDIX A 83
APPENDIX B 84
SAFEGUARD SCIENTIFICS, INC. STOCK SAVINGS PLAN
WHEREAS, Safeguard Scientifics, Inc. (the "Company") established
the Safeguard Scientifics, Inc. Stock Savings Plan (the "Plan") for the
benefit of certain of its employees effective January 1, 1981; and
WHEREAS, the Company reserved to itself the right to amend the Plan
in Section 16.1 thereof; and
WHEREAS, the Company desires to amend and restate the Plan to
comply with the Omnibus Budget Reconciliation Act of 1986, the Tax
Reform Act of 1986, the Omnibus Budget Reconciliation Act of 1987, the
Miscellaneous Revenue Act of 1988, the Omnibus Budget Reconciliation Act
of 1993 and the final regulations under the Retirement Equity Act of
1984 and other changes in the law, to change the method of crediting
service for purposes of eligibility to participate and vesting,
effective January 1, 1995, and to make certain other changes;
NOW, THEREFORE, effective January 1, 1989 (except where other
effective dates are specifically provided herein), subject to approval
by the District Director of Internal Revenue, Safeguard Scientifics,
Inc. hereby sets forth the terms of the Safeguard Scientifics Stock
Savings Plan as follows:
ARTICLE I
DEFINITIONS
1.1 Account shall mean the entire interest of a Participant
in the Plan, including the Participant's Deferral Contribution
Subaccount, After-Tax Voluntary Contribution Subaccount, Matching
Contribution Subaccount, and Rollover Contribution Subaccount. Unless
otherwise specified, the value of a Participant's Account shall be
determined as of the Valuation Date coincident with or next following
the occurrence of the event to which reference is made.
1.2 Accrual Computation Period shall mean each calendar
month.
1.3 Adjustment Factor shall mean the cost of living
adjustment factor prescribed by the Secretary of the Treasury under
Code section 415(d) for years beginning after December 31, 1987, as
applied to such items and in such manner as the Secretary shall
provide.
1.4 Affiliate shall mean (a) any corporation that is a member
of a "controlled group of corporations" within the meaning of Code
section 414(b) of which the Employer is then a member; (b) any trade or
business, whether or not incorporated, that under the regulations
prescribed by the Secretary of the Treasury pursuant to Code section
414(c) is then under common control with the Employer; (c) an
organization which is part of an affiliated service group with the
Employer and the regulations thereunder; and (d) any other entity
required to be aggregated with the Employer pursuant to regulations
under Code section 414(o). An entity shall be considered an Affiliated
Company only with respect to such period as the relationship described
in the preceding sentence exists. For the purposes of applying Code
sections 414(b) and (c) to the limitations on benefits set forth in
Section 5.4, the phrase "more than 50 percent" shall be substituted for
the phrase "at least 80 percent" each place it appears in Code section
1563(a)(1).
1.5 Anniversary Date shall mean the first day of the Plan
Year.
1.6 Beneficiary shall mean: as to any Participant who is
married at the time of his death, the Participant's Spouse, except as
provided in paragraphs (b) and (c) hereof;
(a) as to any Participant who (A) is not married at
the time of his death, or (B) is married, but whose spouse has consented
to the designation of a Beneficiary other than such Spouse (to the
extent of such consent), the persons or entities designated by the
Participant in writing to be his Beneficiaries hereunder; and
(b) as to any Participant who has not designated a
Beneficiary (or who is not survived by such designated Beneficiary), as
provided in paragraph (b) above, and who has no surviving spouse, (1)
the Participant's issue (including stepchildren and adopted persons),
equally, with the issue of deceased issue to be by representation; (2)
if there be no such issue or children of issue, then the surviving
parents of the Participant (equally if there be more than one); and (3)
if there be neither children nor issue of children, and if there be no
surviving parents, then the Participant's estate.
1.7 Board of Directors shall mean the Board of Directors of
the Company.
1.8 Break in Service,effective January 1, 1995, shall mean
an Eligibility or Vesting Computation Period in which an Employee does
not have more than 500Hours of Service. However, no Break in Service
shall be deemed to have occurred until there occurs a termination of the
employer-employee relationship between the Employer and the Employee or
Participant involved. Any Break in Service shall be deemed to have
commenced on the first day of the Computation Period in which it occurs.
No Break in Service shall be deemed to occur during an Employee's
initial Eligibility Computation Period solely because of his failure to
complete more than 500 Hours of Service during any one Plan Year
occurring in part during such Period if the Employee completes one Year
of Service during such initial Eligibility Computation Period. A Break
in Service shall not be deemed to have occurred during any period of
Excused Absence if the Employee returns to the service of the Employer
within the time permitted pursuant to the provisions of the Plan setting
forth circumstances of Excused Absence.
1.9 Code shall mean the Internal Revenue Code of 1986, as
amended from time to time.
1.10 Company shall mean Safeguard Scientifics, Inc., a
Pennsylvania corporation, and any successor thereto which adopts the
Plan.
1.11 Compensation shall mean the base salary or wages paid to
or on behalf of a Participant by the Employer for services rendered as
an Eligible Employee during the Plan Year to which reference is made,
exclusive of compensation paid with respect to service performed prior
to the date on which the Employee became a Participant under the Plan,
but including without limitation, shift differentials and (in the case
of a Participant paid partly on a commission basis) the commissions paid
currently. Compensation shall include any contributions made pursuant
to a salary reduction agreement entered into by the Participant pursuant
to a plan described in Code sections 125 or 401(k). Compensation shall
not include overtime payments, bonuses, foreign service premiums,
differentials or allowances (other than shift differentials), relocation
payments, tuition payments, patent awards, or any other non-basic form
of current compensation, nor shall Compensation include Employer
contributions to this or any other plan of deferred compensation,
Employer contributions to Social Security, the value of any fringe
benefits provided by the Employer, amounts paid in reimbursement of, or
in lieu of, expenses incurred by the Participant in the performance of
his duties, nor the value of non- money awards or gifts made by the
Employer. Compensation shall, however, include compensation paid by the
Employer during a period of short term disability.
A Participant's Compensation shall in no event exceed $200,000
as adjusted in accordance with Code section 415(d), for the Plan Year.
In determining a Participant's Compensation for purposes of this
limitation, the rules of Code section 414(q)(6) shall apply, except in
applying such rules, the term "family" shall include only the spouse of
the Participant and any lineal descendants of the Participant who have
not attained age 19 before the close of the Plan Year.
Effective January 1, 1994, a Participant's Compensation for
any Plan Year shall in no event exceed $150,000 as adjusted by the
Commissioner of Internal Revenue for increases in the cost of living in
accordance with Code section 401(a)(17)(B). The cost-of-living
adjustment in effect for a calendar year shall apply to any period, not
exceeding twelve months, beginning in such calendar year over which
Compensation is determined (the "determination period"). If a
determination period consists of fewer than twelve months, the
applicable limit (as adjusted) shall be multiplied by a fraction, the
numerator of which is the number of months in the determination period,
and the denominator of which is twelve.
In determining the Compensation of a Participant for purposes
of the limit set forth in the preceding paragraph, the rules of Code
section 414(q)(6) shall apply, except that in applying such rules, the
term "family" shall include only the spouse of the Participant and any
lineal descendants of the Participant who have not attained age 19
before the close of the Plan Year. If, as a result of the application
of such rules, the adjusted $150,000 limit is exceeded, then the limit
shall be prorated among the affected individuals in proportion to each
such individual's Compensation as determined under this Section 1.11
prior to the application of the limit.
1.12 Deferral Agreement shall mean the written agreement
between the Participant and the Employer pursuant to which the
Participant agrees to accept a reduction in salary, wages or other
current remuneration, or declines an increase in the same, and pursuant
to which the Employer agrees to contribute the amount of such reduction
or declined increase as an Employer contribution to the Participant's
Deferral Contribution Subaccount under the Plan.
1.13 Deferral Amount shall mean the amount of remuneration
which is yielded or declined by the Participant pursuant to a Deferral
Agreement and which the Employer has agreed to contribute to this Plan
to the Participant's Deferral Contribution Subaccount.
1.14 Deferred Retirement Date shall mean the date of a
Participant's retirement from the service of the Employer subsequent to
his Normal Retirement Date.
1.15 Disregarded Prior Service shall mean Years of Service
completed prior to any Period of Severance where:
(a) the Participant had either
(1) no vested interest in that portion of his
Account under the Plan attributable to Employer contributions prior to
such Period of Severance, or
(2) a vested interest in that portion of his
Account under the Plan attributable to Employer contributions prior to
such Period of Severance, received a distribution of the full amount of
such vested interest, and failed to repay the amount of such vested
interest prior to experiencing a Period of Severance of at least five
year's duration; and
(b) the number of consecutive years of duration of
such Period of Severance experienced by the Participant (including in
such series of consecutive years the Period of Severance with regard to
which a determination is being made as to whether prior Years of Service
are Disregarded Prior Service hereunder) equals or exceeds both:
(1) five (5), and
(2) the number of Years of Service, other than
Disregarded Prior Service, completed by the Employee (whether or not
such Years of Service were completed as an employer), prior to the
commencement of such period.
Effective January 1, 1995, Disregarded Prior Service
shall mean Years of Service completed prior to any Break in Service,
where the Participant had either:
(a) no vested interest in that portion of his Account
under the Plan attributable to Employer contributions prior to such
Break in Service and the number of consecutive one-year Breaks in
Service experienced by the Participant (including in such series of
consecutive one-year Breaks in Service, the Break in Service with regard
to which a determination is being made as to whether prior Years of
Service are Disregarded Prior Service hereunder) equals or exceeds the
greater of (A) five, and (B) the number of Years of Service, other than
Disregarded Prior Service, completed by the Employee prior to such Break
in Service; or
(b) a vested interest in that portion of his Account
under the Plan attributable to Employer contributions prior to such
Break in Service, received a distribution of the full amount of such
vested interest, and failed to repay the amount of such vested interest
prior to experiencing five consecutive one-year Breaks in Service.
Notwithstanding the foregoing, in the case of a series of
consecutive Breaks in Service beginning before January 1, 1995, and
ending after January 1, 1995, Years of Service prior to such Breaks
shall not be Disregarded Prior Service if such Years of Service would
not have been Disregarded Prior Service had the provisions of the Plan
in effect on such date remained in effect.
1.16 Effective Date shall mean January 1, 1981. The
effective date of the amended and restated Plan as set forth herein is
January 1, 1989, except as otherwise provided herein.
1.17 Eligibility Computation Period, effective January 1,
1995, shall mean a 12-consecutive-month period. An Employee's first
Eligibility Computation Period shall begin on his Employment
Commencement Date (or Reemployment Commencement Date, as applicable),
and his succeeding Eligibility Computation Periods shall be the Plan
Year which includes the first anniversary of his Employment Commencement
Date (or Reemployment Commencement Date), and each Plan Year thereafter.
1.18 Eligible Employee shall mean each person in the employ
of the Employer who is not a leased employee, who is not a person whose
terms and conditions of employment are determined through collective
bargaining with a third party if the issue of retirement benefits has
been a bona fide subject of collective bargaining, unless the collective
bargaining agreement provides for the inclusion of such person as a
Participant in the Plan, and who performs services in an eligible
classification of Employees (as hereinafter defined). For purposes of
the Plan, the eligible classifications of Employees shall be as follows:
(a) salaried Employees and, effective January 1,
1994, hourly and salaried Employees of Safeguard Scientifics, Inc.
except Employees in the Phoenix division of Safeguard Scientifics, Inc.;
(b) hourly and salaried Employees of Norelkote, Inc.
a subsidiary of Safeguard Scientifics, Inc. until its merger into
Safeguard Scientifics, Inc. on November 30, 1990;
(c) effective January 1, 1992, hourly and salaried
Employees of Technology Leaders Management, Inc., a subsidiary of
Safeguard Scientifics, Inc.;
(d) effective March 17, 1994, hourly and salaried
Employees of Safeguard International Group, Inc., a subsidiary of
Safeguard Scientifics, Inc.;
(e) any additional one or more categories or
classifications of Employees which the Board of Directors determines at
any time shall be an eligible classification of Employees for one or
more Plan Years designated by the Board of Directors. Notwithstanding
the foregoing, Employees of any division or at any location of Safeguard
Scientifics, Inc. or either of the above designated subsidiaries that
was not in existence on December 31, 1994, shall not be Eligible
Employees unless and until the Board of Directors determines that such
Employees shall be an eligible classification of Employees. The Board
of Directors shall cause to be appended hereto, as Appendix A, a
description of each eligible classification of Employees that shall be
covered by the Plan pursuant to this subsection (e) and the period of
such coverage.
1.19 Employee shall mean each person who is employed by the
Employer or an Affiliate and, effective on or after January 1, 1987, any
leased employee within the meaning of Code section 414(n)(2).
Notwithstanding the foregoing, if such leased employees constitute less
than 20% of the non-highly compensated work force of the Employer and
the Affiliates within the meaning of Code section 414(n)(5)(C)(ii), the
term Employee shall not include those leased employees covered by a plan
described in Code section 414(n)(5). To the extent permitted under Code
section 414(r) and elected by the Company, Employee shall not include
any employees of an Affiliate which operates one or more separate lines
of business from the Employer.
1.20 Employer shall mean the Company and each Sponsoring
Affiliate.
1.21 Employment Commencement Date shall mean, with respect
to any individual, the first date on which that individual performs an
"Hour of Service" in the employ of the Employer, whether or not such
service was performed as an Employee.
1.22 Entry Date shall mean (a) the Effective Date, and (b)
with respect to each Employee, the first day of such Employee's first
payroll period coinciding with or next following the first day of any
calendar month.
1.23 ERISA shall mean the Employee Retirement Income Security
Act of 1974, as amended from time to time.
1.24 Excused Absence means any of the following:
(a) Absence on leave granted by the Employer for any
cause for the period stated in such leave or, if no period is stated,
then for six (6) months and any extensions that the Employer may grant
in writing. For the purposes of this provision, the Employer will give
similar treatment to all Employees in similar circumstances.
(b) Absence in any circumstance so long as the
Employee continues to receive his regular compensation from the
Employer.
(c) Absence in the armed forces of the United States
or government service in time of war or national emergency.
(d) Absence by reason of illness or disability until
such time as the employment relationship between Employer and Employee
is severed.
An "Excused Absence" shall cease to be an "Excused Absence"
and shall be deemed a Period of Severance commencing as of the
Employee's Severance from Service Date if the Employee fails to return
to the service of the Employer (A) within five (5) days of the
expiration of any leave of absence referred to in subsection (a) of this
Section; (B) at such time as the payment of regular compensation
referred to in subsection (b) of this Section is discontinued; (C)
within six (6) months after his discharge or release from active duty,
or, if the Employee does not return to the service of the Employer
within the said six (6) month period by reason of a disability incurred
while in the armed forces, if he returns to service with the Employer
upon the termination of such disability as evidenced by release from
confinement in a military or veterans health care facility; or (D) upon
recovery from illness or disability. The Employer shall be the sole
judge of whether or not recovery from illness or disability has occurred
for this purpose.
Effective January 1, 1995, an Excused Absence shall cease to
be an Excused Absence and shall be deemed a Break in Service as of the
later of (1) and (2), where
(1) is the first day of such absence if the
Employee fails to return to the service of the Employer (A) within five
(5) days of the expiration of any leave of absence referred to in
subsection (a) of this Section; (B) at such time as the payment of
regular compensation referred to in subsection (b) of this Section is
discontinued; (C) within six (6) months after his discharge or release
from active duty, or, if the Employee does not return to the service of
the Employer within the said six (6) month period by reason of a
disability incurred while in the armed forces, if he returns to service
with the Employer upon the termination of such disability as evidenced
by release from confinement in a military or veterans health care
facility; or (D) upon recovery from illness or disability; or
(2) is the first day of the first Plan Year in
which the Employee fails to complete more than five hundred (500) Hours
of Service.
The Employer shall be the sole judge of whether or not
recovery from illness or disability has occurred for this purpose.
1.25 Family Member shall mean, with respect to any Employee
or former Employee, the spouse and lineal ascendants and descendants
(and the spouses of such ascendants and descendants) of such Employee or
former Employee.
1.26 Fund shall mean all of the assets of the Plan held by
the Trustee (or any nominee thereof) at any time under the Trust
Agreement.
1.27 Highly Compensated shall mean a highly compensated
active Employee or a highly compensated former Employee. The
determination of who is a Highly Compensated Employee shall be made in
accordance with Code section 414(q) and Treasury regulations thereunder.
(a) Active Employees. A highly compensated active
Employee is any Employee who performs services for the Employers and
Affiliates during the Plan Year (calendar year) for which the
determination of who is highly compensated is being made and who:
(1) receives compensation from the Employers and
Affiliates in excess of $75,000 (as adjusted by the Adjustment Factor)
during the Plan Year;
(2) receives compensation from the Employers and
Affiliates in excess of $50,000 (as adjusted by the Adjustment Factor)
during the Plan Year and is a member of the top-paid group for the Plan
Year;
(3) is an officer (within the meaning of Code
section 416(i)) of an Employer or an Affiliate during the Plan Year and
receives compensation during the Plan Year that is greater than 50% of
the dollar limitation in effect under Code section 415(b)(1)(A)); or
(4) is a five-percent owner (within the meaning
of Code section 416(i)) of an Employer or an Affiliate at any time
during the Plan Year.
(b) Former Employees. A highly compensated former
Employee with respect to any Plan Year is any Employee who separated
from service (or was deemed to have separated from service) prior to
such Plan Year, performs no services for the Employers and Affiliates
during such Plan Year, and was a highly compensated active Employee for
either the year in which the separation from service occurred (the
"separation year") or any Plan Year ending on or after the Employee's
55th birthday.
Notwithstanding the foregoing, an Employee who separated
from service with an Employer or an Affiliate prior to January 1, 1987,
shall be a highly compensated former Employee in accordance with Q&A-
4(d) of section 1.414(q)-1T of Treasury regulations only if during the
separation year (or the Plan Year immediately preceding the separation
year) or any Plan Year ending on or after the Employee's 55th birthday
(or the Plan Year immediately preceding the Employee's 55th birthday):
(1) he or she was a five-percent owner of an
Employer or an Affiliate, as determined in accordance with Code section
414(q), at any time during such Plan Year; or
(2) he or she received compensation in excess of
$50,000 during such year.
(c) Top-Paid Group. An Employee is in the "top-paid
group" of Employees for any Plan Year if such Employee is in the group
consisting of the top 20% of the Employees when ranked on the basis of
compensation paid during such Plan Year. For purposes of determining
the number of Employees in the "top-paid group," Employees described in
Code section 414(q)(8) and Q&A-9(b) of section 1.414(q)-1T of Treasury
regulations shall be excluded.
(d) Officers. No more than 50 Employees (or, if
less, the greater of three Employees or 10% of the Employees) shall be
treated as officers.
(e) Compensation Defined. For purposes of this
Section 1.27, "compensation" shall mean Limitation Compensation plus
elective or salary deferral contributions to a plan described in Code
section 125 or section 401(k).
(f) Calendar Year Election. The determination of the
class of Highly Compensated Employees under the Plan for a Plan Year
shall be made pursuant to the "calendar year calculation election" set
forth in Q&A-14(b) of section 1.414(q)-1T of Treasury Regulations.
Accordingly, for purposes of this Section 1.27, both the "determination
year" and the "look-back year" (as defined in section 1.414(q)-1T of
Treasury Regulations) are the Plan Year for which the determination of
who is a Highly Compensated Employee is being made.
1.28 Hour of Service shall be defined in a manner consistent
with regulations published by the Secretary of Labor at Title 29, Code
of Federal Regulations, section 2530.200b-2, and shall mean (a) each
hour for which an employee is paid or entitled to payment for the
performance of duties for the Employer or an Affiliated Company during
the applicable Computation Period, (b) each hour for which an employee
is paid or entitled to payment by the Employer or an Affiliated Company
on account of a period of time during which no duties are performed
(irrespective of whether or not the employment relationship has
terminated) due to vacation, holiday, illness, incapacity (including
disability), layoff, jury or military duty, or leave of absence, and (c)
each hour for which back pay, irrespective of mitigation of damages, is
either awarded or agreed to by the Employer or an Affiliate. Hours of
Service shall be credited to the computation period in which earned,
regardless of when determined or awarded.
Effective January 1, 1995, an Hour of Service shall be
determined as follows:
(a) Hours Credited. An Employee shall be credited
with an Hour of Service for the following hours:
(1) Each hour for which the Employee is directly
or indirectly paid or entitled to payment by the Employer or an
Affiliate for the performance of duties.
(2) Each hour for which back pay, irrespective
of mitigation of damages, has been either awarded or agreed to by the
Employer or an Affiliate.
(3) Each hour for which an Employee is directly
or indirectly paid or is entitled to payment by the Employer or an
Affiliate on account of a period of time during which no duties are
performed (irrespective of whether the employment relationship has
terminated) due to vacation, holiday, illness, incapacity (including
disability), layoff, jury duty, military duty or leave of absence;
provided that no Hours of Service shall be credited to an Employee for
retirement (including disability retirement) payments made pursuant to
this Plan or any other qualified retirement plan; and provided further,
that, except as provided in paragraph (4) below, the number of Hours of
Service to be credited for any single continuous period during which the
Employee performs no duties shall not exceed 501.
(4) Each week of absence for military service in
the armed forces of the United States from which service the Employee
returns to the Employer or an Affiliate within the period during which
he has legally protected reemployment rights shall count as a number of
Hours of Service equal to the number of Hours of Service that would have
been credited to the Employee with respect to the Employee's customary
week of employment during the month immediately preceding the date on
which absence for military service commenced. Service rendered at
overtime or other premium rates shall be credited at the rate of one
Hour of Service for each hour for which pay is earned, regardless of the
rate of compensation in effect with respect to such hour.
(5) Solely for the purpose of determining
whether an Employee has incurred a Break in Service, an Employee who is
absent from work on a Parenthood Leave shall receive credit for the
Hours of Service which would otherwise have been credited to such
Employee but for such absence, or, in any case in which such Hours of
Service cannot be determined, eight Hours of Service per day of such
absence. The total number of hours treated as Hours of Service under
this paragraph (5) for any Parenthood Leave, when aggregated with any
hours credited under any other provision of this Section 1.28 which
relate to the same absence, shall not exceed 501.
The Hours of Service credited under this paragraph
(5) shall be credited (A) in the Eligibility Computation Period in which
the absence begins if the crediting is necessary to prevent a Break in
Service in that Computation Period, or (B) in all other cases, in the
following Computation Period.
(b) Non-Credited Payments. Hours of Service shall
not be credited for payments made or due under a plan maintained solely
to comply with any worker's compensation, unemployment compensation or
disability insurance laws, nor for payments which solely reimburse an
Employee for medical or medically-related expenses.
(c) Non-Duplication of Credit. No Hours of Service
credited under any paragraph of subsection (a) shall be credited under
another such paragraph.
(d) Counting Hours for Non-Duty Periods. In the case
of a payment which is made or due on account of a period during which an
Employee performs no duties, and which results in the crediting of Hours
of Service under paragraph (a)(3), or in the case of an award or
agreement for back pay, to the extent that such award or agreement is
made with respect to a period described in paragraph (a)(3), the number
of Hours of Service to be credited shall be determined in accordance
with the applicable regulations prescribed by the Secretary of Labor set
forth in 29 CFR (section)2530.200b-2(b).
(e) Crediting Hours of Service to Eligibility
Computation Periods. Hours of Service described in paragraphs (a)(1),
(2) and (3) shall be credited to Eligibility Computation Periods in
accordance with the applicable regulations prescribed by the Secretary
of Labor set forth in 29 CFR (section)2530.200b-2(c).
(f) Crediting of Hours of Service. If an Employee's
payroll records are normally kept on other than an hourly basis, as
described below, the following equivalencies may be utilized in
determining the number of Hours of Service to which the Employee is
entitled to be credited:
Basis Upon Which the Credit Granted if Participant
Participant's Payroll Earns At Least One Hour
Records are Maintained of Service During Period
Shift Actual hours for full shift
Daily 10 Hours of Service
Weekly 45 Hours of Service
Biweekly 90 Hours of Service
Semimonthly 95 Hours of Service
Monthly 190 Hours of Service
Hours of Service may also be credited solely on the basis of
hours worked or regular time hours, in accordance with regulations
issued by the Secretary of Labor. For all purposes under this Plan, if
Hours of Service are credited solely on the basis of hours worked, 870
hours worked shall be treated as the equivalent of 1,000 Hours of
Service. If Hours of Service are credited solely on the basis of
regular time hours, 750 regular time hours shall be treated as the
equivalent of 1,000 Hours of Service.
1.29 Investment Manager shall mean any fiduciary (other than
a Trustee or Named Fiduciary) who has the power to manage, acquire, "or
dispose of any asset of the Plan and who has qualified as an "investment
manager" within the meaning of section 3(38) of ERISA.
1.30 Limitation Compensation shall mean the sum of the
amount included under (a) below, but excluding the amounts set forth
under (b) below:
(a) Inclusions. Limitation Compensation shall
include the following:
(1) wages, salaries, fees for professional
services and other amounts received (without regard to whether or not an
amount is paid in cash) for personal services actually rendered in the
course of employment with an Employer or an Affiliate to the extent that
the amounts are includable in gross income;
(2) earned income (with respect to Employees of
an Employer or an Affiliate within the meaning of Code section
401(c)(1));
(3) for purposes of paragraphs (1) and (2),
earned income from sources outside the United States (as defined in Code
section 911(b);
(4) amounts described in Code sections
104(a)(3), 105(a) and 105(h), but only to the extent they are includible
in the Employee's gross income from an Employer or an Affiliate;
(5) amounts paid or reimbursed by an Employer or
an Affiliate for moving expenses incurred by the Employee to the extent
that such amounts are not deductible under Code section 217;
(6) the value of a nonqualified stock option
granted to the Employee by an Employer or an Affiliate to the extent the
value is includible in the Employee's gross income; and
(7) the amount includible in the Employee's
gross income from an Employer or an Affiliate upon making the election
in Code section 83(b).
(b) Exclusions. Limitation Compensation shall not
include the following:
(1) contributions made by an Employer or an
Affiliate to a deferred compensation plan which, without regard to Code
section 415, are not includible in the Employee's gross income for the
taxable year in which contributed;
(2) Employer contributions made on behalf of the
Employee to a simplified employee pension to the extent they are
deductible by the Employee under Code section 219(b)(7);
(3) distributions from a deferred compensation
plan (except from an unfunded nonqualified plan when includible in gross
income);
(4) amounts realized from the exercise of a
nonqualified stock option, or when restricted stock (or property) held
by the Employee either becomes freely transferable or is no longer
subject to a substantial risk of forfeiture;
(5) amounts realized from the sale, exchange or
other disposition of stock acquired under a qualified stock option; and
(6) other amounts which receive special tax
benefits, such as premiums for group term life insurance (to the extent
excludable from gross income) or contributions by an Employer or an
Affiliate toward the purchase of an annuity contract described in Code
section 403(b).
For purposes of this Section 1.30, Limitation Compensation
shall only include compensation actually paid or made available during
the applicable Limitation Year.
1.31 Limitation Year shall mean the Plan Year.
1.32 Named Fiduciary shall mean the Employer, the Trustee,
the Plan Administrator (if other than the Employer) and the Named
Appeals Fiduciary. Each Named Fiduciary shall have only those
particular powers, duties, responsibilities and obligations as are
specifically delegated to him under this Plan and/or the Trust
Agreement. Any fiduciary, if so appointed, may serve in more than one
fiduciary capacity.
1.33 Non-Highly Compensated shall mean an Employee of an
Employer who is neither a Highly Compensated Employee nor a Family
Member.
1.34 Normal Retirement Age shall mean age 65.
1.35 Normal Retirement Date shall mean the first day of the
month immediately following the month in which the Participant attains
Normal Retirement Age.
1.36 Novell means Novell, Inc., a Delaware corporation.
1.37 Parenthood Leave shall mean an absence from work (a) due
to the pregnancy of the individual, (b) due to the birth of a child to
the individual, (c) due to the placement of a child in connection with
the adoption of that child by the individual, or (d) for the purposes of
caring for a child during the period immediately following the birth or
placement for adoption of such child.
1.38 Participant shall mean any person who has been or who is
an Employee and who has been admitted to participation in the Plan
pursuant to the provisions of Article III hereof. The term
"Participant" shall include Active Participants (those who are currently
eligible to share in Employer contributions to the Plan), Retired
Participants (those former Employees presently receiving benefits under
the Plan or entitled to receive such benefits), and Vested Participants
(employees who are no longer Active Participants, former Employees who
are undergoing a Period of Severance, and, if the Plan is terminated,
former Active Participants who remain employees of Employer, any of whom
are or may become entitled at some future date to the distribution of
benefits from the Plan by reason of their having been Active
Participants herein).
1.39 Period of Service shall mean the period from the
individual's Employment Commencement Date, or, if later, his
Reemployment Commencement Date following his Severance from Service with
respect to his most recent period of Disregarded Prior Service, to the
earlier of (a) the date of reference if the individual remains in the
employ of the Employer or an Affiliated Company, or (b) the individual's
most recent Severance from Service Date. For the purpose of computing
Years of Eligibility Service and Years of Vesting Service, a Period of
Severance of less than twelve (12) months shall be considered a Period
of Service if the reason for the severance was a quit, discharge or
retirement, and if the individual again performs service for the
Employer or an Affiliated Company entitling him to credit for at least
one (1) Hour of Service before the Period of Severance has extended for
twelve (12) months. Effective January 1, 1995, this Section 1.39 is
hereby deleted.
1.40 Period of Severance shall mean the period commencing on
the individual's Severance from Service Date and ending on the first
date after such Severance from Service Date on which the individual is
entitled to credit for one (1) or more Hours of Service for service
performed for the Employer or an Affiliated Company. Effective January
1, 1995, this Section 1.40 is hereby deleted.
1.41 Plan shall mean the Safeguard Scientifics, Inc. Stock
Savings Plan as set forth herein, and as the same may from time to time
hereafter be amended. The term "Plan" shall also include the Plan as it
existed at each date of reference between the Effective Date and the
date on which the restatement thereof, as set forth herein, became
effective.
1.42 Plan Administrator shall mean the person or committee
named as such pursuant to the provisions of Article XIII hereof, or, in
the absence of any such appointment, the Company.
1.43 Plan Year shall mean the calendar year.
1.44 Predecessor Company means any organization which, after
its acquisition by an Employer, has become an Affiliate.
1.45 Quadro shall mean a "qualified domestic relations order"
within the meaning of section 206(d)(3)(B) of ERISA.
1.46 Reemployment Commencement Date shall mean the first
date on which the individual performs service for the Employer or an
Affiliate entitling such individual to credit for at least one (1) Hour
of Service after such individual's Severance from Service Date.
1.47 Required Beginning shall mean the Plan Year ending in
the calendar year in which a Participant attains age 70-1/2, or the
April 1 of the calendar year next following the calendar year in which
he attains age 70-1/2 even if the Participant is still in the active
employ of the Employer.
1.48 Severance from Service Date shall mean the earlier of:
(a) the date on which the individual dies, retires,
quits or is discharged from employment; or
(b) the first anniversary of the first date of a
period in which an individual remains absent from service (with or
without pay) from the Employer and all Affiliated Companies for any
reason other than death, retirement, quit or discharge from employment,
such as vacation, holiday, sickness, disability, leave of absence, or
layoff; or
(c) the second anniversary of the first date in a
period in which an individual remains absent from service (with or
without pay) from the Employer and all Affiliated Companies where such
absence is due to Parenthood Leave.
Effective January 1, 1995, this Section 1.48 is hereby deleted.
1.49 Sponsoring Affiliate shall mean any Affiliate which
adopts the Plan pursuant to Section 16.6 hereof.
1.50 Spouse shall mean (a) the person to whom the Participant
was married on his Benefit Commencement Date, or (b) if the
Participant's Benefit Commencement Date had not occurred at the time of
his death, the person to whom the Participant was married at the time of
his death. When the word "spouse" is used without an initial capital
letter in the Plan, the term means the person to whom the Participant
was married or is married as of the date of reference.
1.51 Stock shall mean any class of capital stock of Safeguard
Scientifics, Inc.
1.52 Total Disability shall mean a physical or mental
condition of such severity and probable prolonged duration as to entitle
the Participant to disability retirement benefits (i) under the long-
term disability program of his Employer, or (ii) if his Employer does
not sponsor a long-term disability program covering the Employee or if
the Employee is not eligible for such program due to insufficient age or
years of service, then under the Federal Social Security Act. In the
event that Total Disability is determined under clause (i) of the
preceding sentence, then (a) the Plan Administrator shall rely, in
making any such determination, upon the judgment of one or more medical
practitioners selected by the Plan Administrator and upon such evidence
as is presented by the Participant, and (b) no determination of Total
Disability shall be made if the Participant fails to provide such
evidence as is required by the Plan Administrator and/or fails to submit
to examination by the medical practitioner(s) selected by the Plan
Administrator.
1.53 Trust Agreement shall mean the Safeguard Scientifics,
Inc. Stock Savings Plan Trust Agreement as the same is presently
constituted, as it may hereafter be amended, and such additional and
successor trust agreements as may be executed for the purpose of
providing for the management of the assets of the Plan.
1.54 Trustee shall mean the party or parties so designated
pursuant to the Trust Agreement and each of their respective successors.
1.55 Trust Fund shall mean all of the assets of the Plan held
by the Trustee (or any nominee thereof) at any time under the Trust
Agreement.
1.56 Valuation Date shall mean the last day of each calendar
quarter ("Quarterly Valuation Date") and any other date which shall be
so designated by the Plan Administrator. With respect to the valuation
of any Stock held by the Trustee under the Plan, in the event that a
Valuation Date occurs on a date on which the New York Stock Exchange is
not open for business, the Stock shall be valued as of the last day on
which such exchange was open immediately preceding such Valuation Date.
1.57 Vesting Computation , effective January 1, 1995, shall
mean the Plan Year.
1.58 Year of Eligibility Service shall have the meaning set
forth at subsection (a) under the definition of "Year of Service."
1.59 Year of Service shall have the following meanings when
used in the Plan:
(a) Eligibility.
(1) When applied to eligibility provisions, a
"Year of Service" shall be referred to as a "Year of Eligibility
Service" and shall mean each Period of Service with the Employer or any
Affiliated Company (singly or in combination) of twelve months between
(i) the individual's Employment Commencement Date, or, if later, his
Reemployment Commencement Date at which started his most recent Period
of Service which is not Disregarded Prior Service, and (ii) the date of
reference.
(2) Effective January 1, 1995, when applied to
eligibility provisions, a "Year of Service" shall be referred to as a
"Year of Eligibility Service" and shall mean:
(i) any full Year of Eligibility Service
credited as of December 31, 1994, under the provisions of the Plan in
effect on such date; plus
(ii) any Eligibility Computation Period ending
after December 31, 1994, in which an Employee completes at least 1,000
Hours of Service. For purposes of this paragraph, Eligibility
Computation Period shall include the twelve-month period measured from
an Employee's Employment Commencement Date or anniversary thereof which
includes January 1, 1995. In determining the Employee's Hours of
Service in an Eligibility Computation Period which begins prior to and
includes January 1, 1995, Hours of Service for the portion of such
Computation Period prior to January 1, 1995, shall be determined by
applying the applicable equivalency set forth in Section 1.28(f).
(b) Vesting.
(1) When applied to vesting or benefit accrual
provisions, a "Year of Service" (or "Year of Vesting Service") shall be
credited for each twelve-month Period of Service with the Employer or
any Affiliated Company (singly or in combination) between (i) the
individual's Employment Commencement Date, or, if later, his
Reemployment Commencement Date at which started his most recent Period
of Service which is not Disregarded Prior Service, and (ii) the date of
reference.
(2) Effective January 1, 1995, when applied to
vesting provisions, a "Year of Service" shall be referred to as a "Year
of Vesting Service" and shall mean:
(i) any full Year of Vesting Service
credited as of December 31, 1994, under the provisions of the Plan in
effect on such date; plus
(ii) any Vesting Computation Period ending
after December 31, 1994, in which an Employee completes at least 1,000
Hours of Service. For purposes of this paragraph, Vesting Computation
Period shall include the twelve-month period measured from an Employee's
Employment Commencement Date or anniversary thereof which includes
January 1, 1995. In determining the Employee's Hours of Service in a
Vesting Computation Period which begins prior to and includes January 1,
1995, Hours of Service for the portion of such Computation Period prior
to January 1, 1995, shall be determined by applying the applicable
equivalency set forth in Section 1.28(f).
(c) For the purposes of subsections (a)(1) and (b)(1)
hereof, an individual shall be credited with a month of service for any
calendar month with respect to which he is entitled to credit for at
least one (1) Hour of Service.
(d) All Years of Service which become Disregarded
Prior Service shall cease to be Years of Service for all purposes under
the Plan.
1.60 Year of Vesting Service shall have the meaning set
forth at subsection (b) under the definition of "Year of Service."
ARTICLE II
PARTICIPATION
2.1 Eligibility to Participate. Except as hereinafter
provided, each Eligible Employee of an Employer shall become a
Participant in the Plan on the Entry Date coincident with or next
following the date on which he completes one (1) Year of Eligibility
Service. Effective October 1, 1993, except as hereinafter provided,
each Eligible Employee of an Employer shall become a Participant in the
Plan for the sole purpose of making Deferral Amount Contributions on the
first Entry Date following his date of hire. For all other purposes
under the Plan (including the right to have Employer Matching
Contributions allocated to his Matching Contribution Subaccount) an
Eligible Employee shall be treated as a Participant only after the Entry
Date coincident with or next following the date on which he completes
one (1) Year of Eligibility Service. Notwithstanding the foregoing, no
person shall be admitted as a Participant prior to the date he becomes
an Eligible Employee, as provided in Section 2.3 below.
2.2 Readmission after Period of Severance and Employment
Termination.
(a) A person described in paragraph (1) or (2) below
shall be eligible to resume active participation under the Plan
upon the first date on which he accrues an Hour of Service as an
Employee after such Period of Severance or termination of employment.
(1) A person who has been an Active Participant
in the Plan and who either undergoes a Period of Severance or remains
absent from service for the Employer for a period of time for any
reason.
(2) Any person who satisfied the minimum service
requirements for Active Participant status, who experienced a
termination of employment prior to the payroll period containing the
Entry Date on which he would have assumed Active Participant status and
was not in the employ of the Employer on that Entry Date, and who
subsequently again becomes an Employee without experiencing a Severance
from Service Date.
(b) With respect to a person who has previously been
employed by the Employer or an Affiliate, who has never been an Active
Participant, and who has terminated such employment or has undergone a
Period of Severance, eligibility for participation in the Plan shall be
determined as follows.
(1) For the purposes of determining eligibility
to be an Active Participant, service prior to the occurrence of a Period
of Severance shall be combined with service subsequent to such Period of
Severance except where the service prior to the Period of Severance is
Disregarded Prior Service.
(2) Any individual who experiences a Period of
Severance, whose prior service is not protected under the provisions of
paragraph (a) of this Section, and who thereafter retains or resumes a
status as an Employee, shall be considered a new Employee upon
performance of one (1) Hour of Service subsequent to such Period of
Severance, and shall be required to satisfy the minimum service
requirements of Section 2.1(b) without regard to service prior to his
Reemployment Commencement Date.
2.3 Changes in Status.
(a) Changes to Covered Employment. In the event that
a person who has been in the employ of the Employer in a category
of employment not eligible for participation in the Plan (or who has
been employed by an Affiliated Company) becomes an Employee by reason of
a change in status (without experiencing a sufficiently long Period of
Severance to cause all prior service to become Disregarded Prior
Service) to a category of employment eligible for participation, and
subject to the provisions set forth in the remainder of this Section, he
or she shall become eligible to participate as of the date on which
occurs such change to Employee status. However, if on the date of such
change, he has not satisfied all of the requirements of Section 2.1(b)
hereof, he will not become an Active Participant until the date
specified in Section 2.1(b), and will then become a Participant only if
he is still then an Employee.
(b) Changes to Noncovered Employment. If an Active
Participant ceases to be an Employee because he is transferred to a non-
eligible category of employment with the Employer or is transferred to
employment with an Affiliate that is not an entity constituting Employer
under the Plan, such employee will thereupon cease to accrue benefits
under the Plan, and any Deferral Agreement, and any agreement concerning
withholding from pay any after-tax supplemental Participant
contributions, then in effect with respect to such Participant shall be
deemed to be terminated. With the consent of the Plan Administrator,
such an employee, on and after the date he ceases to be an Employee, may
elect to receive a distribution of any or all of the balance of his
After-Tax Voluntary Contribution Subaccount and the vested amount (if
any) of his Matching Contribution Subaccount. A person who ceases to be
an Employee by virtue of a transfer to a non-eligible category of
employment with the Employer or a transfer to employment with an
Affiliate shall not be eligible to elect to withdraw any funds from his
Deferral Contribution Subaccount except to the extent that such person
qualifies for such a withdrawal under Section 4.10.
ARTICLE III
EMPLOYER CONTRIBUTIONS
3.1 Employer Contributions.
(a) Deferral Amount Contributions. Subject to the
limitations set forth in Article V, the Participant may elect to have
his salary reduced, and to have the Employer make Deferral Contributions
to the plan on his behalf, in an amount equal to any whole percentage
which is not less than two percent (2%) nor greater than four percent
(4%) (or, effective October 1, 1991, 15%), (or effective January 1,
1994, 14%) of his Compensation; provided, however, that the Plan
Administrator may limit and may from time to time adjust the amount of
Deferral Contributions which may be made by any Highly Compensated
Employee in order to comply with the requirements of Article V.
(b) Matching Contributions. The Employer may elect
to contribute to the Trust an amount equal to fifty percent (50%) or, at
certain locations of the Employer as set forth in Appendix B, seventy-
five percent (75%), and, effective January 1, 1992, the Employer shall
contribute seventy-five percent (75%), of the aggregate of all Deferral
Amounts contributed for the Accrual Computation Period under subsection
(a) hereof which do not exceed four percent (4%) of a Participant's
Compensation. Amounts contributed by the Employer pursuant to this
subsection (b) shall be made without regard to profits. All amounts
contributed by the Employer to the Trust pursuant to this subsection (b)
shall be allocated to the Matching Contribution Subaccounts of
Participants pursuant to Section 6.2.
If Employer consists of more than one entity, this Section
shall apply separately as to each such entity.
3.2 Timing of Contributions.
(a) Contributions made pursuant to Section 3.1(a)
shall be made (effective January 1, 1989 through December 31, 1994, in
cash) no later than the date established for the filing of the
Employer's federal income tax return (including all extension of that
date) for the fiscal year with respect to which such contribution is
made, and may be made at any earlier date, provided, however that no
Amount shall be held by the Employer without contributing the same to
the Plan for a period longer than (i) sixty (60) days, or, (ii) if
shorter, the earliest date on which such amounts can reasonably be
segregated from the Employer's general assets. Amounts contributed
pursuant to Section 3.1(a) with respect to any Plan Year shall be
credited to the Deferral Contribution Subaccount of the Participant as
promptly as practicable after receipt thereof but in no event later than
the last day of the Plan Year.
(b) Contributions made pursuant to Section 3.1(b)
shall be made as soon as practicable after the end of the Accrual
Computation Period for which they are made, but in no event later than
the date established for the filing of the Employer's federal income tax
return (including any extensions of that date) for the fiscal year of
the Employer ending with or within the Plan Year with respect to which
such contribution is made.
(c) Effective January 1, 1995, contributions shall be
made in cash, except that contributions by the Company may be made in
cash, in common stock of the Company, or in any combination thereof, as
determined by the Company.
3.3 Contingent Nature of Contributions. To the extent that
the deductibility thereof is subsequently denied, each contribution made
by Employer pursuant to the provisions of Section 3.1 hereof is hereby
made expressly contingent on the deductibility thereof for federal
income tax purposes for the year with respect to which such contribution
is made.
3.4 Exclusive Benefit; Refund of Contributions. All
contributions made by the Employer are made for the exclusive benefit of
the Participants and their Beneficiaries, and such contributions shall
not be used for nor diverted to purposes other than for the exclusive
benefit of the Participants and their Beneficiaries (including the costs
of maintaining and administering the Plan and Trust). Notwithstanding
the foregoing, to the extent that such refunds do not, in themselves,
deprive the Plan of its qualified status, refunds of contributions shall
be made to the Employer under the following circumstances and subject to
the following limitations:
(a) Disallowance of Deduction. To the extent that a
federal income tax deduction is disallowed for any contribution made by
Employer, the Trustee shall refund to the Employer the amount so
disallowed within one (1) year of the date of such disallowance.
(b) Mistake of Fact. In the case of a contribution
which is made in whole or in part by reason of a mistake of fact (for
example, incorrect information as to the eligibility or compensation of
an Employee, or a mathematical error), so much of the Employer
contribution as is attributable to the mistake of fact shall be
returnable to the Employer upon demand, upon presentation of evidence of
the mistake of fact to the Trustee and of calculations as to the impact
of such mistake. Demand and repayment must be effectuated within one
(1) year after the payment of the contribution to which the mistake
applies.
In the event that any refund of amounts contributed pursuant
to Section 3.1(b) hereof is paid to the Employer hereunder, such refund
shall be made without interest and shall be deducted from among the
Accounts of the Participants only to the extent that the amount of the
refund can be identified to one or more specific Participants.
Notwithstanding any other provision of this Section, no refund
shall be made to the Employer which is specifically chargeable to the
Account(s) of any Participant(s) in excess of one hundred percent (100%)
of the amount in such Account(s) nor shall a refund be made by the
Trustee of any funds, otherwise subject to refund hereunder, which have
been distributed to Participants, to Beneficiaries or to Alternate
Payees. In the case that such distributions become refundable, Employer
shall have a claim directly against the distributees to the extent of
the refund to which it is entitled.
All refunds pursuant to this Section shall be limited in
amount, circumstance and timing to the provisions of section 403(c) of
ERISA, and no such refund shall be made if, solely on account of such
refund, the Plan would cease to be a qualified plan pursuant to section
401(a) of the Code.
3.5 Investment of Employer Contributions. All Employer
contributions pursuant to Section 3.1(b) hereof which are allocated to
Matching Contribution Subaccounts of Participants shall be invested in
Stock of Safeguard Scientifics, Inc. except, effective June 1, 1993, as
otherwise provided in Section 7.4. In the case of any such Employer
contributions pursuant to Section 3.1(b) which are paid to the Trustee
in cash, and with respect to any cash held by the Trustee in the
Safeguard Scientifics, Inc. Stock Sub-Fund (as a consequence of one or
more cash dividends on Stock, or otherwise), the Trustee shall be
empowered under the Trust Agreement to purchase additional Stock either
on the open market, by private purchase, or from the issuer, provided,
however, that no such private purchase or purchase from the issuer shall
be made at a price greater than the then-current market price.
3.6 In Service Withdrawals. No withdrawals shall be
permitted from the Participant's Matching Contribution Subaccount.
ARTICLE IV
PARTICIPANT CONTRIBUTIONS
4.1 Mandatory Contributions. No contributions shall be
required of any Participant.
4.2 Voluntary Contributions.
(a) Supplementary Contributions. Prior to October 1,
1991, a Participant may elect to designate 1%, 2%, 3%, 4%, 5% or 6% of
his Compensation as a supplementary contribution to be credited to his
After-Tax Voluntary Contribution Subaccount. Contributions hereunder
shall be aggregated with contributions made by the Participant to all
other plans sponsored or maintained by the Employer for the purposes of
applying the limitations hereunder. No contributions may be made to a
Participant's After-Tax Voluntary Contribution Subaccount with respect
to Compensation received on or after October 1, 1991.
(b) Date and Manner of Payment. All contributions
made by a Participant during any Plan Year pursuant to subsection (a) of
this Section shall be made by payroll deduction authorized in writing by
such Participant. The amount of all voluntary contributions which a
Participant elects during any Plan Year to contribute by means of
Compensation withholding pursuant to subsection (a) of this Section
shall be paid by the Employer to the Trustee not later than the last day
of such Plan Year and shall be credited to such Participant's After-Tax
Voluntary Contribution Subaccount as of the first day of the first Plan
Year next following the Plan Year in which such contribution is received
by the Trustee.
4.3 Rollover Contributions.
(a) Eligible Rollover Distributions. A Participant
may contribute or transfer, or cause any party to transfer, and the Plan
Administrator shall cause the Trustee to receive any assets from a
qualified employee benefit plan or IRA which constitute a "rollover
amount" within the meaning of Code section 402(a)(5). Effective January
1, 1993, a Participant may contribute or transfer, or cause any party to
transfer, and the Plan Administrator shall cause the Trustee to receive
any assets from a qualified employee benefit plan which constitute an
"eligible rollover distribution" within the meaning of Code Section
402(c)(4) or from an individual retirement arrangement which constitutes
a "rollover contribution" within the meaning of Code section
408(d)(3)(A)(ii). Amounts rolled over will be allocated to the
Participant's Rollover Subaccount.
(b) Direct Rollover. Effective January 1, 1993, if a
Participant entitled to receive an eligible rollover distribution (as
described in subsection (a) above) from another plan (1) elects to have
the amount paid directly to this Plan, and (2) specifies this Plan as
the plan to which the amount is to be paid (in such form and at such
time as the Plan Administrator may prescribe), the eligible rollover
distribution shall be paid directly to this Plan in the form of a direct
rollover.
4.4 Restoration Contributions. Any former Participant who
once again qualifies as an Active Participant and who has received a
"cash-out" of his vested interest attributable to his prior
participation in the Plan, may, after reinstatement to employment
covered by the Plan, "buy back" (or restore) his Account balance by
paying to the Trustee in cash the full amount of the "cash-out" he
previously received. The Account balance so restored shall be the sum
of (i) the restoration contribution made by the Participant, plus (ii)
the amount, if any, held by the Plan in the Participant's Account
attributable to that portion of the Participant's Account that was not
distributed to him as part of the "cash out." In the case of a
distribution upon separation from service, any such restoration
contribution must be made prior to the earlier of (i) the date on which
the Participant has five (5) consecutive one-year Breaks in Service or
(ii) the fifth anniversary of re-employment. In the case of any other
distribution, any such restoration contribution must be made prior to
five (5) years after the date of distribution. All such restoration
contributions shall be credited to the respective subaccounts of the
Participant from which originally distributed. Restoration contributions
shall be credited to the Account of the Participant as of the Valuation
Date coincident with or next following the date of which the restoration
contribution is made, or at such earlier date as determined
administratively feasible by the Plan Administrator. Any Participant
who fails to make a restoration contribution within the time limitations
herein established shall be deemed to have waived his right to make any
such contribution.
4.5 Eligibility for Arrangement. Any Employee who is an
Active Participant or who anticipates becoming a Participant as of an
Entry Date may enter into a written Deferral Agreement with the Employer
pursuant to which such Participant's Compensation shall be reduced by
his Deferral Amount.
4.6 Effective Date of Deferral Agreements.
(a) Initial Effective Date. Any Deferral Agreement
(and any change in any existing Deferral Agreement) shall become
effective as of the latest of:
(1) the date on which the Employee first
satisfies all other requirements for admission as a Participant in the
Plan;
(2) the first payroll period commencing after
the first day of the calendar month next following the date on which the
Deferral Agreement is executed by the parties, but not earlier than
thirty (30) days after the date on which the Deferral Agreement is
executed by the parties; or
(3) the date specified in such Deferral
Agreement.
(b) Cancellation and Reinstatement. A Deferral
Agreement may be cancelled or suspended by a Participant or by the
Employer as of the end of any pay period by delivery, not later than
thirty (30) days prior to the last day of such pay period, by either
party to the other, of written notice. In the event of such a
cancellation or suspension by or at the request of the Participant, no
Deferral Agreement may be reinstated or become effective with respect to
such Participant for at least six (6) months. A Participant may
thereafter reinstate a Deferral Agreement by completing any documents
required by the Plan Administrator for such purpose and delivering such
documents not less than thirty (30) days prior to the intended date of
reinstatement. A Participant may not make up contributions for any
prior periods, including, without limitation, any prior period during
which a Deferral Agreement was not in force or was suspended.
4.7 Deferral Amounts.
(a) As Stated in the Deferral Agreement. The
tentative Deferral Amount set forth in any Deferral Agreement shall
be as specified therein. Tentative Deferral Amounts shall become
Deferral Amounts only after the Employer or the Plan Administrator has
made such adjustments thereto as they (or either of them) deem necessary
to maintain the qualified status of this Plan and to satisfy all
requirements of Code section 401(k) .
(b) Minimum and Maximum Deferral Amounts. The
Deferral Amount stated in the Participant's Deferral Agreement shall be
not less than (2%) two percent of Compensation nor more than four
percent (4%) (or effective January 1, 1994, not more than 14%) of
Compensation, and all such Deferral Amounts shall be in full multiples
of one percent (1%).
(c) Changes of Deferral Amount. Not more than once
in any calendar quarter, a Participant may increase his Deferral Amount
(but not above the maximum Deferral Amount permissible under the Plan)
or may decrease his Deferral Amount (but not below the minimum Deferral
Amount permissible under the Plan) as of the first day of any pay
period, on at least thirty (30) days notice in writing to the Plan
Administrator. All increases and decreases of Deferral Amount shall be
prospective in effect only. Effective January 1, 1995, the preceding
sentence is hereby deleted. Any notice of increase or decrease in the
Participant's Deferral Amount shall be considered an amendment of the
Deferral Amount stipulated in the Deferral Agreement.
(d) Deductibility Limitation. The aggregate of all
Deferral Amounts with respect to any Plan Year shall not exceed amounts
determined by the Employer to be deductible to the Employer under Code
section 404(a) when contributed to the Plan for such Plan Year. If the
Employer deems it necessary to reduce the Deferral Amount called for in
any Deferral Agreement to satisfy the aforesaid limitation, the Deferral
Amounts of all Participants shall be reduced proportionately until the
aggregate of all Deferral Amounts are within the limitations of said
section 404(a) (after taking into account all other contributions made
by the Employer).
4.8 Establishment of Separate . The Trustee shall establish
on behalf of each Participant who enters into a Deferral Agreement a
Deferral Contribution Subaccount to which amounts shall be allocated
pursuant to the provisions of Section 6.1 hereof. Crediting of any
Deferral Amount shall not be contingent upon continued participation in
the Plan as of any date subsequent to the date on which such Deferral
Amount was earned by the Participant to whom it is to be credited.
4.9 Distributions from Participant's Deferral Contribution
Subaccount. No portion of a Participant's Deferral Contribution
Subaccount shall be distributable or withdrawn earlier than upon one of
the following events:
(a) the Participant's retirement, as provided in
Article VIII;
(b) the Participant's death, as provided in Article
IX;
(c) the Participant's Total Disability, as defined in
the Plan;
(d) the Participant's separation from service for the
Employer;
(e) the Participant's attainment of age 59-1/2;
(f) the Participant's hardship, as provided in
Section 4.10; or
(g) upon Plan termination or Employer disposition of
assets or subsidiary as described in Code section 401(k)(10).
4.10 Hardship Withdrawals: Participant's Deferral
Contribution Subaccount. Upon submission of a Participant's withdrawal
application establishing a hardship (as that term is hereinafter
defined), a withdrawal distribution may be made to the Participant of
the Deferral Contributions credited to his Deferral Contribution
Subaccount. Earnings credited to his Deferral Contribution Subaccount
may not be withdrawn. In his application, the Participant shall specify
the dollar amount to be withdrawn. The application shall be approved if
the conditions of subsections (a) and (b) below are met.
(a) The distribution must be made to alleviate one of
the following immediate and heavy financial needs:
(1) expenses for medical care described in Code
section 213(d) previously incurred by the Employee, the Employee's
spouse or any dependent of the Employee (as defined in Code section 152)
or necessary for such persons to obtain medical care described in Code
section 213(d);
(2) costs directly related to the purchase of a
principal residence for the Employee (excluding mortgage payments) ;
(3) payment of tuition and related educational
fees for the next twelve (12) months of post-secondary education for the
Employee, his spouse, children or dependents;
(4) prevention of the eviction of the Employee
from his principal residence of foreclosure on the mortgage of the
Employee's principal residence; or
(5) other events as specified by the
Commissioner of Internal Revenue in regulations, rulings, notices and
other documents of general applicability.
(b) The following conditions must be satisfied:
(1) the distribution is not in excess of the
amount of the immediate and heavy financial need of the Employee
(including any amounts necessary to pay any federal, state, or local
income taxes or penalties reasonably anticipated to result from the
distribution); and
(2) the Employee has obtained all distributions,
other than hardship distributions, and all nontaxable loans currently
available under all plans maintained by the Employer and any Affiliate.
(c) Any Participant who receives a hardship
distribution under this Plan shall have his right to make Deferral
Contributions under this Plan and any elective deferral contributions or
employee contributions under any other qualified or nonqualified
deferred compensation plans maintained by the Employer and any Affiliate
suspended for twelve (12) months after the date of receipt of the
hardship distribution. In addition, the applicable limit under Code
section 402(g) for the Participant's taxable year immediately following
the taxable year of the hardship distribution shall be reduced by the
amount of the Participant's Deferral Contributions and other elective
deferral contributions (under other plans maintained by the Employer and
any Affiliate) made during the taxable year of the hardship
distribution.
4.11 In-Service Withdrawals from After-Tax Voluntary
Contribution Subaccounts. A Participant may, by filing a written
request to the Plan Administrator, withdraw from the Trust, as of any
Valuation Date which follows by not less than thirty (30) days the
receipt of such request by the Plan Administrator, an amount not to
exceed the balance then standing to his credit in his After-Tax
Voluntary Contribution Subaccount, subject, however, to the provisions
of any Quadro then in effect as to the Participant; provided, however,
that (A) a Participant may make only one withdrawal from his After-Tax
Voluntary Contribution Subaccount in any twelve (12) month period, and
(B) the minimum withdrawal shall be $100.
4.12 Loans.
(a) General Rule. Upon receipt of a completed loan
application, the Plan Administrator shall direct the Trustee to make a
loan to a Participant who is an active employee and receiving
Compensation as of the loan date, provided such loan meets the
requirements of this Section and the requirements of such procedures and
guidelines as may be adopted by the Plan Administrator which are
consistent with this Section. Loans shall first become available to
Participants on or after January 1, 1992. Loans may be made as of any
Quarterly Valuation Date, provided the loan application is received at
least seven days before the Quarterly Valuation Date.
(b) Terms of Loan. Each loan granted or renewed
shall bear a rate of interest equal to the prime rate at Continental
Bank, Philadelphia, Pennsylvania, plus two percent (2%). The interest
rate and other conditions for the repayment of the loan shall be fixed
at the time the loan is made. All loans shall be repayable by their
terms within five years, except for a loan used to purchase a dwelling
unit which shall be repayable within fifteen (15) years.
(c) Limitations. The aggregate amount of all loans
outstanding to any Participant at any date shall not exceed the lesser
of:
(1) one-half of the amount of the Participant's
vested Accrued Benefit as of such date; or
(2) $50,000, reduced by the excess, if any, of -
(A) the highest outstanding balance of the
Participant's loans from the Plan during the one-year period ending on
the day before such loan is made, over
(B) the outstanding balance of the
Participant's loans from the Plan on the date on which such loan is
made.
The maximum amount of any loan under this Section shall
not exceed the amount credited to the Participant's Deferral
Contributions Subaccount, After-Tax Voluntary Subaccount and Rollover
Subaccount. The minimum amount of any loan under this Section shall be
$1,000.
A Participant may take out no more than one loan in any
Plan Year and may not have more than one loan outstanding at any time.
(d) Repayment Terms. Except as may be provided in
regulations issued by the Secretary of the Treasury, each loan shall
require substantially level amortization of the loan, with payments not
less frequently than quarterly over the term of the loan. A Participant
shall be required to repay any loans through payroll deduction, except
that he or she may elect to pre-pay the entire outstanding balance of
the loan in a single lump sum.
Each loan shall be evidenced by a promissory note and
shall be secured by the vested balance of the Participant's Accounts;
provided that, immediately after the origination of such loan, not more
than fifty percent (50%) of the vested balance of the Participant's
Accounts shall be used as security for the outstanding balance of all
loans to such Participant. Each loan shall also be secured by such
other collateral, if any, as may be required by the Plan Administrator.
If the Participant ceases to be actively employed and receiving
Compensation before the loan is repaid, as, for example, in the event of
a leave of absence or disability leave, the Plan Administrator may
permit the Employee to continue to make loan repayments or may, in his
discretion, accelerate the loan. If the Participant separates from
service, the loan shall be accelerated, and the unpaid amount of the
loan, and accrued interest thereon, shall be deducted from the amount of
any benefits which become payable to or on behalf of the Participant
under the Plan.
(e) General Requirements. All loans shall (i) be
available to all Participants and beneficiaries who are Employees on a
reasonably equivalent basis, (ii) not be made available to Highly
Compensated Employees in an amount greater than the amount made
available to other Participants and Beneficiaries, (iii) be made in
accordance with this Section, and (iv) be adequately secured in
accordance with applicable law and regulations.
(f) Accounts Available for Loans.
(1) Order of Accounts. Any loan made to a
Participant under this Section shall be considered an earmarked
investment of such Participant's Accounts. Each loan shall be made from
the Participant's Accounts in the order listed below; and shall be
repaid in the reverse order:
(A) first, from the Participant's pre-1987
Voluntary Contributions;
(B) second, from the Participant's post-
1986 Voluntary Contributions and earnings thereon;
(C) third, from the earnings on the
Participant's pre-1987 Voluntary Contributions;
(D) fourth, from the Participant's Rollover
Subaccount; and
(E) fifth, from the Participant's Deferral
Contribution Subaccount.
(2) Investment of Participant's Account. Until
a loan to a Participant is repaid, the outstanding balance of the loan
shall be treated as an investment by such Participant for his Account(s)
only, and the interest paid by such Participant shall be credited to his
Account(s) only. The Account(s) shall not share in any other earnings
of the Plan with respect to the amount of the loan.
(3) Loan Date. Each loan shall be made as of
the Quarterly Valuation Date next following approval of the
Participant's loan application by the Plan Administrator. To the extent
that any loan is made from a particular Account of a Participant which
is invested partially in different Funds, such loan shall be made pro-
rata from the investments of such Account in each Fund, valued as of the
Valuation Date immediately preceding the loan date.
(4) Investment of Loan Repayments. Loan
repayments which are credited to a Member's Account(s) shall be re-
invested in accordance with the most recent investment direction under
Sections 3.5 and 7.4.
4.13 Excused Absence from Service. Notwithstanding any other
provisions of this Article IV, during any period in which a Participant
is on leave of absence with the consent of the Employer or in military
service in conformity with the Employer's policies, such Participant may
continue making voluntary contributions under Sections 4.2(a), to the
extent such contributions are otherwise permitted, and accumulating
Deferral Amounts under Section 4.7, for any payroll period in which such
Participant is credited with Compensation by the Employer. During any
such period of excused absence, the Participant may maintain, reduce,
suspend or resume, but may not increase, the percentage of Compensation
by which such contributions and Deferral Amounts shall be determined.
ARTICLE V
LIMITATIONS ON CONTRIBUTIONS
5.1 Maximum Amount of Deferral Contributions.
(a) Limitation on Amount. Effective January 1, 1987,
the aggregate amount of a Participant's Deferral Contributions during
any calendar year under this Plan and all other plans, contracts, and
arrangements of an Employer or an Affiliate shall not exceed $7,000
multiplied by the Adjustment Factor as provided by the Secretary of the
Treasury.
(b) Distribution of Excess Deferrals. Notwithstanding
any other provision of the Plan, the amount of any Deferral
Contributions for a calendar year which a Participant claims to be
excess deferrals pursuant to the procedure set forth in subsection (c)
(hereinafter "Excess Deferral Amounts"), plus any income and minus any
loss allocable thereto, shall be distributed no later than each April
15, to Participants to whose accounts Excess Deferral Amounts were
allocated for the preceding calendar year and who claim Excess Deferral
Amounts for such calendar year. Effective January 1, 1993,
notwithstanding any other provision of the Plan, the amount of any
Deferral Contributions for a calendar year which are made to this Plan
on behalf of a Participant and which exceed the limit under Section
5.1(a) above or which a Participant claims to be excess deferrals
pursuant to the procedure set forth in subsection (c) (hereinafter
"Excess Deferral Amounts"), plus any income and minus any loss allocable
thereto, shall be distributed no later than each April 15, to such
Participants. Excess Deferral Amounts shall be treated as Annual
Additions under the Plan, except as otherwise provided in Section
5.4(a).
(c) Claim for Distribution of Excess Deferral. The
Participant's claim shall be in writing; shall be submitted to the Plan
Administrator not later than February 28; shall specify the amount of
the Participant's Excess Deferral Amounts, when added to amounts
deferred under other plans or arrangements described in Code sections
401(k), or 408(k), or 403(b), will exceed the limit imposed on the
Participant by Code section 402(g) for the year in which the deferral
occurred.
(d) Adjustment of Amount of Excess Deferral. Excess
Deferral Amounts shall be adjusted for income or loss. Effective
January 1, 1989, the income or loss allocable to Excess Deferral Amounts
shall be determined by multiplying the income or loss allocable to the
Participant's Deferral Contribution Account for the Plan Year by a
fraction, the numerator of which is the Excess Deferral Amount on behalf
of the Participant for the preceding Plan Year and the denominator of
which is the closing balance of the Participant's Deferral Contribution
Account on the last day of such Plan Year, reduced by any gains and
increased by any losses allocable to the Deferral Contribution Account
during such Plan Year.
(e) Forfeiture of Matching Contributions. Effective
January 1, 1993, any Matching Contributions related to Excess Deferral
Amounts shall be forfeited.
(f) Deferral Contributions. Effective January 1,
1987, Deferral Contributions shall mean, with respect to any taxable
year of a Participant, the sum of all employer contributions made on
behalf of such Participant pursuant to an election to defer under any
qualified cash or deferred arrangement (as described in Code section
401(k)), any simplified employee pension cash or deferred arrangement
(as described in Code section 402(h)(1)(B)), any eligible deferred
compensation plan (as described in Code section 457), or any plan
described in Code section 501(c)(18), or any employer contributions made
on behalf of the Participant for the purchase of an annuity contract
under Code section 403(b) pursuant to a salary reduction agreement.
The income or loss allocable to Excess Deferral Amounts for
the period between the end of the Plan Year and the date of distribution
shall be determined in one of the following two methods as the Plan
Administrator shall elect: (1) by multiplying the income or loss
allocable to the participant's Deferral Contribution Account for such
period by a fraction, the numerator of which is the Excess Deferral
Amounts on behalf of the Participant for the preceding Plan Year and the
denominator of which is the Participant's Deferral Contribution Account
during such period, or (2) by multiplying 10 percent of the income or
loss allocable to Excess Reduction Amounts for the Plan Year by the
number of calendar months that have elapsed since the end of the Plan
Year (a distribution occurring on or before the fifteenth day of the
month will be deemed to have been made on the last day of the preceding
month and a distribution occurring after such fifteenth day will be
deemed to have been made on the first day of the next month).
5.2 Limitations on Deferral Contributions of Highly
Compensated Participants.
(a) Limitations. Effective January 1, 1987, the
Average Actual Deferral Percentage for Eligible Employees who are
Highly Compensated Employees for the Plan Year shall bear a relationship
to the Average Actual Deferral Percentage for all other Eligible
Employees for such Plan Year which meets one of the following tests:
(i) the Average Actual Deferral Percentage for
Eligible Employees who are Highly Compensated Employees for the Plan
Year shall not exceed the Average Actual Deferral Percentage for
Eligible Employees who are Non-Highly Compensated Employees for the Plan
Year multiplied by 1.25; or
(ii) the Average Actual Deferral Percentage for
Eligible Employees who are Highly Compensated Employees for the Plan
Year shall not exceed the Average Actual Deferral Percentage for
Eligible Employees who are Non-Highly Compensated Employees for the Plan
Year multiplied by 2, provided that the Average Actual Deferral
Percentage for Eligible Employees who are Highly Compensated Employees
does not exceed the Average Actual Deferral Percentage for Eligible
Employees who are Non-Highly Compensated Employees by more than two
percentage points or, effective January l, 1989, in conjunction with the
Average Contribution Percentage test under Section 5.3, the aggregate
limit prescribed under section 1.401(m)-2 of Treasury Regulations to
prevent the multiple use of this alternative test.
(b) Definitions. For purposes of this Section the
following definitions shall apply:
(i) "Actual Deferral Percentage" shall mean the
ratio (expressed as a percentage) of the Deferral Contributions on
behalf of the Eligible Employee for the Plan Year to the Eligible
Employee's Statutory Compensation for the Plan Year.
(ii) "Average Actual Deferral Percentages" shall
mean the average (expressed as a percentage) of the Actual Deferral
Percentages of the Eligible Employees in a group.
(iii) "Eligible Employee" shall mean any
Covered Employee who has met the eligibility requirements of Article II
and is eligible to elect to have Deferral Contributions made to the Plan
on his behalf for the Plan Year.
(iv) "Statutory Compensation" shall mean all
compensation paid to or on behalf of an Eligible Employee during the
applicable period as reported on Treasury form W-2 plus any Compensation
deferred pursuant to the election of the Eligible Employee under this
Plan. With respect to the 1987 and 1988 Plan Years, the applicable
period shall mean the portion of the Plan Year during which the Eligible
Employee was eligible to participate in the Plan. Effective January 1,
1989, the applicable period shall be the Plan Year.
A Participant's Statutory Compensation for any Plan
Year beginning on or after January 1, 1989, but prior to January 1,
1994, shall in no event exceed $200,000 multiplied by the Adjustment
Factor as provided by the Secretary of the Treasury. A Participant's
Statutory Compensation for any Plan Year beginning on or after January
1, 1994, shall in no event exceed $150,000, as adjusted by the
Commissioner of Internal Revenue for increases in the cost of living in
accordance with Code section 401(a)(17)(B). The cost-of-living
adjustment in effect for a calendar year shall apply to any period, not
exceeding twelve months, beginning in such calendar year over which
Statutory Compensation is determined (the "determination period"). If a
determination period consists of fewer than twelve months, the
applicable limit (as adjusted) shall be multiplied by a fraction, the
numerator of which is the number of months in the determination period,
and the denominator of which is twelve.
In determining the Statutory Compensation of a
Participant for purposes of these limitations, the rules of Code section
414(q)(6) shall apply, except that in applying such rules, the term
"family" shall include only the spouse of the Participant and any lineal
descendants of the Participant who have not attained age 19 before the
close of the Plan Year. If, as a result of the application of such
rules, the adjusted limit is exceeded, then the limit shall be prorated
among the affected individuals in proportion to each such individual's
Statutory Compensation as determined under this paragraph (iv) prior to
the application of the limit.
(c) Aggregation of Certain Plans. For purposes of
this Section, the Actual Deferral Percentage for any Eligible
Participant who is a Highly Compensated Employee for the Plan Year and
who is eligible to have elective deferrals or qualified nonelective
contributions allocated to his account under two or more plans or
arrangements described in Code section 401(k) that are maintained by the
Employer or an Affiliate shall be determined as if all such elective
deferrals and qualified nonelective contributions were made under a
single arrangement.
(d) Rule for Family Members of Highly Compensated
Employees. For purposes of determining the Actual Deferral Percentage of
an Eligible Employee who is a Highly Compensated Employee, the Deferral
Contributions and Compensation of such Eligible Employee shall include
the Deferral Contributions and Compensation of Family Members, and such
Family Members shall be disregarded in determining the Average Actual
Deferral Percentage for Eligible Employees who are Non-Highly
Compensated Employees.
(e) Compliance with Regulations. The determination
and treatment of the Deferral Contributions and Actual Deferral
Percentage of any Eligible Employee shall satisfy such other
requirements as may be prescribed by the Secretary of the Treasury.
(f) Distribution of Excess Contributions. The
following rules shall govern the distribution of any Excess
Contributions:
(i) Notwithstanding any other provision of the
Plan, Excess Contributions, plus any income and minus any loss allocable
thereto, shall be distributed no later than the last day of each Plan
Year beginning after December 31, 1988, to Participants on whose behalf
such Excess Contributions were made for the preceding Plan Year.
(ii) For purposes of the Plan, "Excess
Contributions" shall mean the amount described in Code section
401(k)(8)(B).
(iii) Excess Contributions shall be adjusted
for income or loss. The income or loss allocable to Excess
Contributions shall be determined in the same manner as set forth in
Section 5.1(d) with regard to Excess Deferrals.
(g) Ordering Rules. The determination of Excess
Contributions shall be made after first determining the Excess Deferral
Amounts.
(h) Forfeiture of Matching Contributions. Effective
January 1, 1993, any Matching Contributions related to Excess
Contributions shall be forfeited.
5.3 Limitations on Employer Matching Contributions and
Voluntary Contributions of Highly Compensated Participants.
(a) Limitations. Effective January 1, 1987, the
Average Contribution Percentage for Eligible Employees who are Highly
Compensated Employees for the Plan Year shall bear a relationship to the
Average Contribution Percentage for all other Eligible Employees for
such Plan Year which meets one of the following tests:
(i) the Average Contribution Percentage for
Eligible Employees who are Highly Compensated Employees for the Plan
Year shall not exceed the Average Contribution Percentage for Eligible
Employees who are Non-Highly Compensated Employees for the Plan Year
multiplied by 1.25; or
(ii) the Average Contribution Percentage for
Eligible Employees who are Highly Compensated Employees for the Plan
Year shall not exceed the Average Contribution Percentage for Eligible
Employees who are Non-Highly Compensated Employees for the Plan Year
multiplied by 2, provided the Average Contribution Percentage for
Eligible Employees who are Highly Compensated Employees does not exceed
the Average Contribution Percentage for Eligible Employees who are Non-
Highly Compensated Employees by more than two percentage points or,
effective January 1, 1989, in conjunction with the Average Actual
Deferral Percentage test under Section 5.2, the aggregate limit
prescribed under section 1.401(m)-2 of Treasury Regulations to prevent
multiple use of this alternative test.
(b) Definitions. For purposes of this Section 5.3
the following definitions shall apply:
(i) "Contribution Percentage" shall mean the
ratio (expressed as a percentage) of the Employer Matching Contributions
and Voluntary Contributions on behalf of the Eligible Employee for the
Plan Year to the Eligible Employee's Statutory Compensation for the Plan
Year.
(ii) "Average Contribution Percentage" shall
mean the average (expressed as a percentage) of the Contribution
Percentages of the Eligible Employees in a group.
(iii) "Eligible Employee" shall mean any Covered
Employee who has met the eligibility requirements of Article II, who is
eligible to elect to have Deferral Contributions made to the Plan on his
behalf, and who, if he made such election, would have Employer Matching
Contributions allocated to his Employer Matching Contribution Account
for the Plan Year.
(iv) "Statutory Compensation" shall have the
same meaning as set forth in Section 5.2(b)(iv).
(c) Aggregation of Certain Plans. (i) For purposes
of this Section 5.3, the Contribution Percentage for any Eligible
Employee who is a Highly Compensated Employee for the Plan Year and who
is eligible to make employee contributions, or to have matching
contributions, qualified non-elective contributions or elective
deferrals allocated to his account under two or more plans described in
Code section 401(a) or arrangements described in Code section 401(k)
that are maintained by the Employer or an Affiliate shall be determined
as if all such contributions and elective deferrals were made under a
single plan.
(ii) In the event that this Plan satisfies the
requirements of Code section 410(b) only if aggregated with one or more
other plans, or if one or more other plans satisfy the requirements of
Code section 410(b) only if aggregated with this Plan, then this Section
5.3 shall be applied by determining the Contribution Percentages of
Eligible Employees as if all such plans were a single plan.
(d) Rule for Family Members of Highly Compensated
Employees. For purposes of determining the Contribution Percentage of
an Eligible Employee who is a Highly Compensated Employee, the Employer
Matching Contributions and Compensation of such Eligible Employee shall
include the Employer Matching Contributions and Compensation of Family
Members, and such Family Members shall be disregarded in determining the
Average Contribution Percentage for Eligible Employees who are Non-
Highly Compensated Employees.
(e) Compliance with Regulations. The determination
and treatment of the Contribution Percentage of any Eligible Employee
shall satisfy such other requirements as may be prescribed by the
Secretary of the Treasury.
(f) Distribution of Excess Aggregate Contributions.
The following rules shall govern the distribution of any Excess
Aggregate Contributions:
(i) Excess Aggregate Contributions, plus any
income and minus any loss allocable thereto, shall be distributed no
later than the last day of each Plan Year beginning after December 31,
1988, to Participants to whose Employer Matching Contribution Accounts
or Voluntary Contribution Accounts such Excess Aggregate Contributions
were made for the preceding Plan Year.
(ii) For purposes of the Plan, "Excess Aggregate
Contributions" shall mean the amount described in Code section
401(m)(6)(B).
(iii) Excess Aggregate Contributions shall be
adjusted for income or loss. The income or loss allocable to Excess
Aggregate Contributions shall be determined in the same manner as set
forth in Section 5.1(d) with regard to Excess Deferrals.
5.4 Code Section 415 Limitations.
(a) Maximum Annual Addition. Notwithstanding any
other provision in the Plan, effective January 1, 1987, the Annual
Addition to a Participant's Accounts for any Limitation Year shall in no
event exceed the lesser of:
(i) $30,000 (or such other limit as may be the
maximum permissible pursuant to the provisions of Code section
415(c)(l)(A) and the rulings, announcements and regulations issued
thereunder); or
(ii) twenty-five percent (25%) of such
Participant's Limitation Compensation for the Limitation Year.
However, the compensation limitation referred to in (ii) above
shall not apply to:
(1) any contribution for medical benefits
(within the meaning of Code section 419A(f)(2)) after separation from
service which to otherwise treated as an Annual Addition; or
(2) any amount otherwise treated as an Annual
addition under Code section 415(l)(1).
The "Annual Addition" shall be for such Year, the sum of:
(1) Employer contributions (other than excess
deferrals distributed in accordance with Treasury Regulations
(section)1.402(g)-1(e)(2) or (3));
(2) Employee contributions (determined without regard
to any rollover contributions to a simplified employee pension which are
excludable from gross income under Code section 408(d)(3));
(3) forfeitures; and
(4) amounts described in Code section 415(l)(1) and
section 419A(d)(2).
For the purposes of this Section, contributions to, and forfeitures
reallocable under any other qualified defined contribution plan
sponsored by the Employer or by an Affiliate shall be considered as
contributions to, or forfeitures under the Plan, as the case may be.
(b) Secondary Limitation. In no event shall the
amount allocated to the Account of any Participant for any Limitation
Year cause the sum of the Defined Contribution Fraction and the Defined
Benefit Fraction, described in paragraphs (1) and (2) below, to exceed
1.0, or such other limitation as may be applicable under Code section
415 with respect to any combination of qualified plans without
disqualification of any such plan.
(1) "Defined Benefit Fraction" shall be a
fraction,
(A) the numerator of which is the sum of the
projected annual benefits of the Participant under all tax-qualified
defined benefit pension plans sponsored by the Employer and all
Affiliated Companies (as of the close of the Limitation Year), and
(B) the denominator of which is the lesser of (1)
1.25 multiplied by the dollar limitation in effect under Code section
415(b)(1)(A) for such Participant Limitation Year, or (2) the product of
(i) 1.4, multiplied by (ii) the amount which may be taken into account
under Code section 415(b)(1)(B) with respect to such individual for such
Limitation Year.
TEFRA Transition Rule. In the case of a Participant who
participated prior to January 1, 1983, in any defined benefit plan of
the Employer or an Affiliate which was in existence on July 1, 1982, the
transition rule set forth in section 235(g)(4) of TEFRA may be applied
in determining the Defined Benefit Plan Fraction.
(2) "Defined Contribution Fraction" shall be a
fraction,
(A) the numerator of which is the sum of the Annual
Additions to the Participant's Account as of the close of the Limitation
Period of reference, treating as an Annual Addition under the Plan all
amounts which satisfy the definition of Annual Addition hereunder but
which were accumulated under any other qualified defined contribution
plan sponsored by the Employer or any Affiliated Company; and
(B) the denominator of which is the sum of the
denominator increments (as of the close of the Limitation Year) for all
of the Participant's years of service with the Employer or any
Affiliated Company, where the denominator increment for each such year
of service is the lesser of (1) the product determined by multiplying
1.25 by the dollar limitation in effect under Code section 415(c)(l)(A)
for such year of service (determined without regard to Code section
415(c)(6)), or (2) the product determined by multiplying 1.4 by the
amount which may be taken into account under Code section 415(c)(1)(B)
(or Code sections 415(c)(7) or 415(c)(8), if applicable) with respect to
such individual for such year.
(C) Aggregation Rules. For purposes of applying the
limitations of this Section applicable to a Participant for a particular
Limitation Year:
(1) all tax-qualified defined benefit plans ever
maintained by the Employer will be treated as one defined benefit plan;
and all tax-qualified defined contribution plans ever maintained by the
Employer will be treated as one defined contribution plan; and
(2) any tax-qualified defined benefit plan or
defined contribution plan maintained by the Employer.
5.5 Order of Reductions. In the event that the amount
tentatively available for allocation to the Account of any Participant
in any Limitation Year exceeds the maximum permissible hereunder, there
shall first be returned to the Participant such portion of the
supplemental contributions he made pursuant to Section 4.2(a) during
such Limitation Year (if any such contributions were made) as is
necessary to reduce the Annual Addition to his Account to the maximum
allowable hereunder. If further reduction in the amount allocable to
the Participant's Account is required, the Participant's share of
Employer contributions and reallocable forfeitures shall be reduced to
the extent necessary to result in conformity to the limitations
expressed herein. Amounts released under this Plan pursuant to the
preceding sentence shall be placed in a suspense account, the earnings
and accretions of which shall be applied against the administrative
costs of the Plan and otherwise treated as investment yield of the Trust
Fund.
ARTICLE VI
ALLOCATION OF CONTRIBUTIONS
6.1 Allocation of Deferral Amounts. There shall be directly
and
promptly allocated to the Deferral Contribution Subaccount of each
Participant the Deferral Amounts contributed by the Employer to the Plan
by reason of any Deferral Agreement in force between the Employer and
that Participant.
6.2 Allocations to Matching Contribution Subaccounts. The
Employer contribution (if any) for an Accrual Computation Period shall
be allocated among the Matching Contribution Subaccounts of persons who
are Active Participants for such Accrual Computation Period for the
purposes of this Section (as determined pursuant to Section 6.7),
crediting each such Matching Contribution Subaccount with an amount
determined by multiplying the amount available for allocation hereunder
by a fraction, the numerator of which is the amount allocated to the
Participant's Deferral Contribution Subaccount pursuant to Section 6.1
hereof for such Accrual Computation Period, but not more than four
percent (4%) of his Compensation for such Accrual Computation Period,
and the denominator of which is the aggregate amount allocated to all
such Participants' Deferral Contribution Subaccounts pursuant to Section
6.1 hereof for such Accrual Computation Period to the extent such
amounts do not exceed four percent (4%) of the Compensation of the
Participant to whose Deferral Contribution Subaccount they are allocated
for such Accrual Computation Period.
6.3 Multiple Employers. If Employer consists of more than one
entity, the provisions of Section 6.2 shall apply separately to each
such entity, and, except as hereinafter provided, a contribution made by
any such entity shall be allocated as though the only Active
Participants in the Plan for the Accrual Computation Period with respect
to which such contribution was made were those Active Participants
employed by such entity, taking into account only the Compensation paid
to such Active Participants by such entity.
6.4 Allocations to After-Tax Voluntary Contribution
Subaccounts. All amounts received as supplemental Participant
contributions pursuant to Sections 4.2(a) hereof shall be allocated
directly to the After-Tax Voluntary Contribution Subaccount of the
Participant on whose behalf such amount was received. In addition,
amounts attributable to all contributions made by the Participant that
were designated as "Basic Contributions" under the Plan as it existed
prior to January 1, 1984, all contributions made by the Participant that
were designated as "Supplemental Contributions" under the Plan as it
existed prior to January 1, 1984, and all earnings and accretions
attributable to such contributions shall be maintained in the After-Tax
Voluntary Contribution Subaccount.
6.5 Allocations to Restoration Contribution Subaccounts. Any
amount received from a Participant as a restoration contribution shall
be allocated to the subaccounts of such Participant from which such
amount was originally distributed, provided, however, that the
aggregation of the amounts so allocated may, for bookkeeping purposes,
be tracked as a "restoration contribution subaccount."
6.6 Allocations to Rollover Contribution Subaccounts. Any
amounts received as Rollover Contributions under Section 4.3 shall be
allocated directly to the Rollover Contribution Subaccount of the
Participant on whose behalf such amount was received.
6.7 Determination of Active Participant Status for an Accrual
Computation Period.
(a) Entitlement to Share in Allocation. A
Participant shall be an Active Participant for the purposes of
Section 6.2 hereof, and shall be entitled to share in the allocation of
the Employer contribution for a specific Accrual Computation Period,
only if he did at least one of the following during the Accrual
Computation Period:
(1) remained in the employ of the Employer or of
an Affiliate through the end of the Accrual Computation Period;
(2) retired (at or after Normal Retirement
Date), experienced Total Disability, or died during the Accrual
Computation Period; or
(3) was on Excused Absence at the end of the
Accrual Computation Period, having received Compensation during the
Accrual Computation Period.
Except as otherwise provided above in this subsection (a)
and in subsection (b) of this Section, Participants not in the employ of
the Employer on the last day of the Accrual Computation Period (for
reasons such as resignation, discharge with or without cause, or
expiration of a period of Excused Absence followed by a failure to
return timely to the employ of the Employer) shall not share in the
allocation of the Employer contribution for such Accrual Computation
Period.
(b) Effect of Status Change. Any Participant who
remained in the employ of the Employer through the end of the Accrual
Computation Period, but who changed from an eligible to an ineligible
classification (or vice-versa) during the Computation Period, shall be
considered an Active Participant only with respect to his Compensation
paid for Hours of Service completed in an eligible status during such
Computation Period.
6.8 Non-vested Amounts. Amounts not vested in a Participant
who has experienced a Period of Severance of at least one (1) year and
who has not again achieved Active Participant status shall be applied as
promptly as practicable to reduce Employer contributions required
pursuant to Section 3.1(b) hereof, subject, however, to such rules for
amortization of experience gains as may apply where the Plan has
experienced unamortized funding deficiencies arising from waivers of
minimum funding requirements. If a Participant whose Account has been
reduced by such application of non- vested amounts returns to Active
Participant status prior to his having experienced a Period of Severance
of five (5) years, his Account shall be restored to the extent of the
reduction described herein by an additional contribution by the Employer
when and if he makes a restoration contribution as provided in Section
4.4. A Participant who had no vested interest at the time of his
Severance from Service Date and thereafter was deemed to have forfeited
his entire Matching Contribution Subaccount balance shall be deemed to
have made a restoration contribution pursuant to Section 4.4 on the date
of his return to service covered under the Plan if such return occurs
prior to the fifth anniversary of his Severance from Service Date.
6.9 Special Rules for Top-Heavy Plans.
(a) General Rule as to Participation in Allocations.
The allocation made under Section 6.2 hereof to the Matching
Contribution Subaccount of each Active Participant who is a Non-key
Employee for any Plan Year including a Plan Year in which the Plan is a
Top-Heavy Plan or a Super Top-Heavy Plan shall be not less than the
lesser of:
(1) three percent (3%) of his Limitation
Compensation, limited to the extent required under Code section 416(d),
of each such Participant for such Plan Year; or
(2) the percentage of Compensation so allocated
under said Section 6.2 to the Account of the Key Employee for whom such
percentage is the highest for such Plan Year.
(b) Special Rules. Subsection (a) hereof shall apply
as modified in this subsection (b) in the circumstances hereinafter set
forth:
(1) As to each Active Participant who is also a
Participant under a qualified defined benefit pension plan sponsored by
the Employer or by an Affiliated Company, if the accrued benefit under
such defined benefit plan for such Active Participant satisfies the
benefit accrual minimum under Code section 416(c)(1), subsection (a)
shall not apply.
(2) If the Plan is a Top-Heavy Plan but not a
Super Top-Heavy Plan, and if one or more Participants in the Plan are
also Participants in a qualified defined benefit pension plan sponsored
by the Employer or by an Affiliated Company, "seven and one-half percent
(7-l/2%)" shall be substituted for "three percent (3%)" in paragraph (1)
of subsection (a) hereof and paragraph (2) of subsection (a) hereof
shall not apply.
(3) If the Plan is a Super Top-Heavy Plan, and
if one or more Participants in the Plan are also Participants in a
qualified defined benefit pension plan sponsored by the Employer or by
an Affiliated Company, "five percent (5%)" shall be substituted for
"three percent (3%)" in paragraph (1) of subsection (a) hereof and
paragraph (2) of subsection (a) hereof shall not apply.
For the purposes of determining whether or not the provisions of this
Section have been satisfied, (i) contributions or benefits under chapter
2 of the Code (relating to tax on self-employment income), chapter 21 of
the Code (relating to Federal Insurance Contributions Act), title II of
the Social Security Act, or any other federal or state law shall be
disregarded; (ii) employer contributions made to the Plan under any
salary reduction or similar arrangement for Plan Years beginning prior
to January 1, 1985, shall be disregarded; and (iii) all defined
contribution plans in the Aggregation Group shall be treated as a single
plan. For the purposes of determining whether or not the requirements
of this Section have been satisfied, contributions allocable to the
account of the Participant under any other qualified defined
contribution plan that is part of the Aggregation Group shall be deemed
to be contributions made under the Plan, and, to the extent thereof, no
duplication of such contributions shall be required hereunder solely by
reason of this Section.
ARTICLE VII
INVESTMENTS
7.1 Investment of Assets. All contributions shall be paid
over to the Trustee and shall be invested by the Trustee in accordance
with the Plan and Trust Agreement. The Trustee shall invest all assets
held in all Matching Contribution Subaccounts in Employer Stock as
provided in Section 3.5 hereof. Effective June 1, 1993, the Trustee
shall invest all Employer contributions allocated to Matching
Contribution Subaccounts in Employer Stock as provided in Section 3.5
hereof. Notwithstanding the foregoing, effective June 1, 1993, a
Participant who is fully vested in his Matching Contribution Subaccount
may direct the Trustee to liquidate all or a portion of the value of the
assets held on his behalf in the Safeguard Scientifics, Inc. Stock Sub-
Fund and reinvest such amounts as provided in Section 7.4(f), other than
amounts attributable to Employer Matching Contributions made with
respect to the current or previous Plan Year. Amounts credited to the
Deferral Contribution Subaccounts, After- Tax Voluntary Contribution
Subaccounts and Rollover Subaccounts of Participants shall be invested
in the respective Fund or Funds elected by Participants in the manner
provided in Section 7.4.
7.2 Crediting of Contributions.
(a) Employer Contributions other than Deferral
Amounts. Any contribution made in respect of any Plan Year (or
fiscal year ending during a Plan Year) by the Employer for allocation
pursuant to Section 6.2 hereof shall be deemed to have been made
immediately after the valuation occurring at the end of the Plan Year
with respect to which such contribution was made or during which such
fiscal year ended.
(b) Contributions to Deferral Contribution
Subaccounts, After-Tax Voluntary Contribution Subaccounts and Rollover
Contribution Subaccounts. Contributions made during any Plan Year to a
Deferral Contribution Subaccount, an After-Tax Voluntary Contribution
Subaccount or a Rollover Contribution Subaccount shall be credited as
promptly as possible after receipt thereof, and, in the case of Deferral
Contribution Subaccount deposits, shall in no event be deemed to have
been made later than the last day of the Plan Year with respect to which
made. Notwithstanding the foregoing, if the Participant becomes
entitled to receive the entire vested amount standing to his credit
during any Plan Year and such amount is distributed to him (or to his
Beneficiary), the distribution shall include all amounts contributed for
his Account during the Plan Year in which the distribution occurs, as
though the same were credited to his Account as of the date of
distribution.
7.3 Crediting of Investment Results.
(a) General. As of any Valuation Date, the earnings
and accretions of the Fund attributable to investment of Fund
assets, reduced by losses experienced (whether or not realized) and
expenses incurred since the preceding Valuation Date shall be allocated
among the Accounts of the Participants and Beneficiaries in proportion
to the balances in such Accounts as of the prior Valuation Date, after
reducing such prior Valuation Date balance by any amounts withdrawn,
distributed, or transferred from that Account since such prior Valuation
Date and increasing such prior Valuation Date balance by the amount of
any contributions made since such prior Valuation Date multiplied by a
weighing factor based on the length of time from the date of the
contribution to the current Valuation Date. Each subaccount maintained
for a Participant's Account shall be considered a separate account for
the purpose of crediting investment results pursuant to this Section.
Each Fund of investments offered by the Plan shall be accounted for as a
separate Fund for the purposes of computing and crediting investment
results.
(b) Segregated Accounts. To the extent that the
Trustee maintains segregated accounts on behalf of any Participant or
Beneficiary, there shall be credited to the Account of such Participant
or Beneficiary all earnings and accretions, if any, generated by that
segregated account since the immediately preceding Valuation Date, and
there shall be deducted from such account all identifiable separate
expenses incurred in the operation and maintenance of such account.
(c) Amounts to be Distributed. Where a distribution
is to be made as of a particular Valuation Date, there shall be no
adjustment in the amount to be distributed by reason of the passage of
time or investment experience of the Fund between the Valuation Date as
of which the amount of such distribution is determined and the date of
payment; provided, however, that this subsection (c) shall not apply to
the Safeguard Scientifics, Inc. Stock Sub-Fund, the Novell Stock Sub-
Fund, or any other Stock Sub-Fund established pursuant to Section
7.4(e), all of which shall be valued as of the actual date of
distribution.
7.4 Investment Direction By Participants.
(a) Rights of Participants. Every Participant shall
have the right to designate the investment category or categories
in which the Trustee is to invest all or a portion of the aggregate
balance credited to such Participant's
(1) Deferral Contribution Subaccount,
(2) After-Tax Voluntary Contribution Subaccount,
and
(3) Rollover Contribution Subaccount.
A Participant may exercise investment discretion solely with
respect to the aggregate of the assets credited to the aforesaid
subaccounts. Amounts contributed by the Employer pursuant to Section
3.1 shall not be subject to investment direction by the Participant.
Effective June 1, 1993, a Participant may not exercise
investment discretion with respect to amounts credited to his Matching
Contribution Subaccount except that, subject to Section 7.4(f), any
Participant who is fully vested in his Matching Contribution Subaccount
may direct the Trustee to liquidate and reinvest in a designated
investment category or categories amounts credited to his Matching
Contribution Subaccount other than amounts attributable to Employer
Matching Contributions made with respect to the current or previous Plan
Year.
(b) Separate Investment Elections. The Plan
Administrator may, but need not, direct the Trustee to segregate the
assets allocated to the Deferral Contribution Subaccount, Rollover
Contribution Subaccount, and After-Tax Voluntary Contribution Subaccount
of each Participant. During any period in which the Trustee is
segregating such subaccounts, each Participant who has a balance to his
credit in each such subaccounts may exercise a separate investment Fund
election with respect to each such subaccount. In the absence of such
segregation of subaccounts by the Trustee, any investment election by a
Participant shall apply to the aggregate of the balances of such
subaccounts.
(c) Initial Investment Election. Not later than
thirty days after the Entry Date on which an Employee commences
participation in the Plan, such Participant shall complete, sign and
deliver to the Plan Administrator on a form provided by the Plan
Administrator for this purpose, an investment election form which shall
provide for the investment of such Participant's Deferral Contributions,
After-Tax Voluntary Contributions, and Rollover Contributions in one or
more of the investment funds then available to Participants under the
Plan. A Participant may exercise his investment election in 5%
increments of the contributions made on his behalf.
(d) Changes in Investment Directions. A Participant,
by filing a written election form, may change his investment election
effective as of any Quarterly Valuation Date with respect to
contributions paid by the Employer to the Trustee. Any such change in
investment election by a Participant shall be made in writing on forms
provided by the Plan Administrator and must be received by the Plan
Administrator not less than seven (7) days prior to the Quarterly
Valuation Date as of which it is to be effective. Designations and
changes in designations shall apply only to amounts paid to the Trustee
and allocated to the Participant's Account after such effective date.
(e) Available Investment Funds. There shall be
offered the following investment funds as investment options:
(1) Safeguard Scientifics, Inc. Stock Sub-Fund.
This fund is an unsegregated fund together with earnings thereon
invested in Stock of Safeguard Scientifics, Inc. (not including
Affiliate stock). Such Stock shall be purchased either on the open
market, by private purchase, or from the issuer, or effective January 1,
1995, shall be acquired by the receipt of treasury shares or the
issuance of new shares by the Company, provided, however, that no such
acquisition, private purchase or purchase from the issuer shall be made
at a price greater than the then-current market price.
(2) Money Market Sub-Fund This fund is designed
to seek high current income that is consistent with preservation of
capital and liquidity. The fund is invested in money market instruments
such as certificates of deposit and bankers acceptances, commercial
paper, and U.S. Government Agency securities.
(3) Bond Sub-Fund The fund seeks high current
income consistent with prudent investment risk and preservation of
capital. The fund invests primarily in securities guaranteed by the
U.S. Government. Typical holdings include obligations of various
maturities issued by the U.S. Treasury and obligations issued or
guaranteed by certain agencies and instrumentalities of the U.S.
Government such as GNMA certificates and FHA debentures.
(4) Balanced Sub-Fund The fund primarily seeks
to emphasize current income while secondarily striving for capital
growth. The fund has the flexibility to invest in stocks, bonds and
other fixed income securities. The mix of security types will fluctuate
between fixed-income and equity securities on the basis of existing and
anticipated economic conditions.
(5) Equity Growth Sub-Fund The fund seeks long
term growth of capital and income. When selecting securities for
investment, the possibilities of appreciation and potential dividends
are given more weight than future yield. The fund invests principally
in large company common stocks but can hold other investments when
deemed advisable.
In addition to the above investment funds, the Novell
Stock Sub-Fund shall continue to be maintained for Novell stock issued
pursuant to a rights offering to Participants investing in the Safeguard
Scientifics, Inc. Stock Sub-Fund. The Novell Stock Sub-Fund is not
available for new investments or reinvestments. The Plan Administrator
may establish similar Stock Sub-Funds in the future to hold stock of
other entities acquired through rights offerings.
The Plan Administrator, in its sole discretion, may offer
to all Participants additional investment Funds and may at any time or
times cease to offer such investment Funds as the Plan Administrator
deems appropriate.
(f) Liquidation and Reinvestment. Effective as of
each Quarterly Valuation Date, a Participant may instruct the Trustee,
in writing on forms provided by the Plan Administrator, to liquidate all
or a portion of the value of the assets held on his behalf in any
investment Fund or Funds and to reinvest such proceeds in one or more
other Funds; provided that such liquidation and reapportionment is done
in 5% increments of the Participant's aggregate balance of his Deferral
Contribution Subaccount, After-Tax Voluntary Contribution Subaccount and
Rollover Contribution Subaccount, and effective June 1, 1993, that
portion of his Matching Contribution Subaccount which is subject to his
investment direction as set forth in Section 7.4(a). Such instruction
for liquidation and reinvestment of funds already invested on behalf of
any Participant must be received by the Plan Administrator not less than
seven (7) days prior to the Quarterly Valuation Date of the Plan as of
which it is to become effective, and shall grant the Trustee a
reasonable period after such Quarterly Valuation Date to complete the
process of liquidation and reinvestment. The expenses of liquidation
and reinvestment of any assets on behalf of any Participant shall be
chargeable to the Account of that Participant and shall not be general
expenses of the Trust Fund.
Effective January 1, 1992, any stock offered through a
rights offering as set forth in Section 7.4(e) above and any exercises
of warrants are not subject to (i) the 5% increment requirement or (ii)
the requirement that liquidation and reinvestment occur only as of a
Quarterly Valuation Date, as set forth in this Section 7.4(f).
(g) Rights of the Trustee. Notwithstanding any
instruction from any Participant, the Trustee shall have the right to
hold invested in short-term fixed income investments any funds intended
for investment or reinvestment, or any funds the distribution of which
is contemplated in the reasonably foreseeable future.
ARTICLE VIII
RETIREMENT AND DISABILITY BENEFITS
8.1 Normal Retirement Benefit. The Normal Retirement Benefit
payable with respect to any Participant retiring at his Normal
Retirement Date shall be equal to one hundred percent (100%) of his
Account as of the Valuation Date coincident with or next following the
Participant's Normal Retirement Date.
8.2 Deferred Retirement Benefit. The Deferred Retirement
Benefit
shall be payable with respect to any Participant who retires after his
Normal Retirement Date, and shall be equal to one hundred percent (100%)
of his Account as of the Valuation Date coincident with or next
following the Participant's actual retirement, or, if earlier, the
Valuation Date preceding the Participant's Required Beginning Date.
There shall be added to the Participant's deferred retirement benefit
all amounts allocated to his Account after the Valuation Date as of
which the amount thereof is initially determined.
8.3 Disability Benefit. The Disability Benefit shall be
payable with respect to any Participant who has suffered Total
Disability and who is separated from service of the Employer by reason
of such Total Disability. The Disability Benefit shall be equal to one
hundred percent (100%) of the Participant's Account as of the Valuation
Date coincident with or next following the Participant's disability
separation date, subject, however, to increase to date of distribution
in the case of any Participant with respect to whom the distribution of
the disability benefit described herein is deferred for a period in
excess of one year after the date of his disability termination of
employment.
8.4 Effect of Quadro. All benefits provided under this
Article VIII are subject to the provisions of any Quadro in effect with
respect to the Participant at the Participant's Benefit Commencement
Date, and are subject to diminution thereby.
ARTICLE IX
DEATH BENEFITS AND SURVIVING SPOUSE'S BENEFITS
9.1 Pre-Distribution Death Benefit. If the death of the
Participant occurs prior to his Benefit Commencement Date, there shall
be paid a benefit having a value equal to his vested Account balance,
determined as of the Valuation Date of the Plan coincident with or, if
there be no such Valuation Date, the Valuation Date next following, the
date of his death. The benefit shall be payable as follows:
(a) Surviving Spouse's Benefit. If the Participant
is survived by his Spouse, the benefit hereunder shall be paid to such
surviving Spouse except (1) to the extent that the Spouse has consented,
in a written instrument complying with all of the provisions of Section
9.3 hereof, to the payment of such benefit to another Beneficiary (or
Beneficiaries) designated by the Participant, and (2) to the extent that
there is a Quadro applicable to such benefit.
(b) Benefit Payable to Others. If the Participant
(1) is not survived by a Spouse, (2) is survived by a Spouse who has
consented, in accordance with the provisions of Section 9.3 hereof, to
the designation of a Beneficiary or Beneficiaries other than such Spouse
(but only to the extent of the portion of the Participant's Account
subject to such consent), or (3) is subject to a Quadro at the time of
his death (but only to the extent of the Quadro), the benefit hereunder
shall be paid to the Participant's Beneficiary determined in accordance
with the provisions of Section 9.4 hereof, subject, however, to the
provisions of any Quadro then in force.
(c) Death of Surviving Spouse Prior to Benefit
Commencement. If the Spouse of a Participant dies subsequent to the
death of the Participant but prior to the Benefit Commencement Date,
there shall be paid to the estate of such deceased Spouse only the
amount, if any, that such Spouse would have received under the Plan to
the date of his or her death had there been placed in force at the
earliest date on which the Participant could have retired under the Plan
and commenced the receipt of benefits (the "earliest potential benefit
date"), or, if later, the date of the Participant's death, a single life
annuity for the benefit of such Spouse, applying to the purchase thereof
one hundred percent (100%) of the balance standing to the credit of the
Participant under the Plan at such earliest potential benefit date or
date of death, after such balance was reduced to reflect the applicable
provisions of any Quadro in force as to the Participant at the time of
his death. Any balance remaining in the Account of the Participant
after the payment (if any be due) to the estate of the deceased Spouse
of the benefit described above in this subsection (c), after the payment
of premiums for any annuity purchased before the death of such Spouse,
and after giving effect to any applicable Quadro, shall be payable to
the Beneficiary determined in accordance with the provisions of Section
9.4 hereof.
9.2 Death After Benefit Commencement Date. In the event of
the death of a Participant whose benefits are in a "pay status" (i.e.,
after his Benefit Commencement Date), the death benefit shall be
determined by the provisions of any installment payout provisions in
force at the time of his death. If there be no such provisions in
force, the death benefit shall be one hundred percent (100%) of the
undistributed balance of his Account, which undistributed balance shall
be treated in the same manner as a Pre-Distribution Death Benefit under
Section 9.1 hereof.
9.3 Spousal Consent to Designation of Alternative
Beneficiary. A spouse may consent to the designation by the Participant
of one or more Beneficiaries other than such spouse to receive benefits
in the event of the death of the Participant. Any such consent shall be
in writing, and shall:
(a) acknowledge the effect of such consent;
(b) be witnessed by a representative of the Plan or
by a notary public;
(c) be subject to any Quadro applicable to the
Participant at the time of his death or at the Benefit Commencement
Date;
(d) be subject to limitations expressed therein by
the Spouse as to the portion of the Participant's Account (expressed as
a percentage or in dollar terms) to which it applies;
(e) acknowledge the specific non-spouse Beneficiary,
including any class of Beneficiaries or any contingent Beneficiaries to
which it applies;
(f) be irrevocable; and
(g) become null and void upon the termination of the
marriage between the Participant and such spouse.
9.4 Beneficiary Designation. Participants may designate a
Beneficiary under the Plan by filing with the Plan Administrator a
written designation of such beneficiary (subject to such limitations as
to the classes and number of beneficiaries and contingent beneficiaries
as the Plan Administrator from time to time may prescribe) to receive
any benefit becoming payable pursuant to this Article IX. Subject to
the requirements regarding spousal consent in Section 9.3, a Participant
may from time to time revoke or change any such designation of
beneficiary.
9.5 Effect of Quadro. Notwithstanding any other provision of
this Article IX, the Plan Administrator and the Trustee shall give full
effect to any Quadro applicable at the time of the death of the
Participant, even to the extent that giving effect to such Quadro
defeats or diminishes the interest of any Spouse or other Beneficiary
hereunder.
ARTICLE X
NONFORFEITURE PROVISIONS (VESTING)
10.1 Full and Immediate Vested Interests. Each Participant
shall at all times be fully vested in such of the following subaccounts
as may exist for him: (a) Deferral Contribution Subaccount; (b) After-
Tax Voluntary Contribution Subaccount; and (c) Rollover Contribution
Subaccount. A Participant shall also be fully vested in any restoration
contributions made pursuant to Section 4.4.
10.2 Employer Matching Contribution Subaccounts.
(a) Vesting. A Participant shall be 100% vested in
his Matching Contribution Subaccount upon the earliest to occur of the
following:
(1) completion of twelve months (or, in the case
of any Employee who first became an Active Participant on or after
January 1, 1985, twenty-four months) of participation (whether or not
successive months) in the Plan, where in each of such months Deferral
Amounts were contributed for the Participant's Account;
(2) completion of three Years of Vesting
Service;
(3) the Participant's Normal Retirement Age
while actively employed by the Employer or any Affiliated Company;
(4) Total Disability while actively employed by
the Employer or any Affiliated Company; or
(5) death while actively employed by the
Employer or any Affiliated Company.
(b) Minimum Vesting. In no event shall the vested
interest of a Participant in his Matching Contribution Subaccount be
less than so much of such subaccount as is represented by the Employer
matching portion of his Restoration Contribution Subaccount, if any.
10.3 Disregarded Service for Vesting Purposes. Service after
a period of Disregarded Prior Service shall not increase the
Participant's vested interest in so much of his Account as was accrued
with respect to the period of Disregarded Prior Service. Otherwise,
service subsequent to one or more Severance from Service Dates shall be
aggregated with service prior to such Severance from Service Dates in
determining the Participant's vested interest in accruals to his Account
attributable to service both before and after such Severance from
Service Dates.
10.4 Amendments to the Vesting Schedule.
(a) If the vesting schedule under the Plan is
amended, each Participant who has completed at least three (3) Years of
Service with the Employer may elect, during the election period
specified in this Section, to have the vested percentage of his Account
derived from Employer contributions determined without regard to such
amendment.
(b) For the purposes of this Section, the election
period shall begin as of the date on which the amendment changing the
vesting schedule is adopted, and shall end on the latest of the
following dates:
(1) the date occurring sixty (60) days after the
Plan amendment is adopted; or
(2) the date which is sixty (60) days after the
day on which the Plan amendment becomes effective; or
(3) the date which is sixty (60) days after the
day the Participant is issued written notice of the Plan amendment by
the Plan Administrator or by the Employer; or
(4) such later date as may be specified by the
Plan Administrator.
The election provided for in this Section shall be made in
writing and shall be irrevocable when made.
ARTICLE XI
METHODS AND TIMING OF BENEFIT DISTRIBUTIONS
11.1 Forms of Benefit Payments. Benefits shall normally be
paid
as a single-sum distribution. However, Participants becoming eligible
for distributions of their respective vested interests may, not less
than thirty (30) days before the benefit first becomes distributable,
elect that, in lieu of single-sum distributions, their interests be paid
in installments over a fixed period if such payments do not constitute
an "annuity" within the meaning of section 205 of Title I of ERISA or
Code section 401(a).
The Participant (or, in the event of his death or incapacity,
his legal representative or Beneficiary(ies)) may request, subject to
the consent of the Plan Administrator, to receive any portion of the
Participant's Account which is, at the time of the distribution, held in
Employer Stock, to be distributed in Stock in lieu of cash.
If an installment distribution, as provided in the first
paragraph of this Section, is elected, the following rules shall apply:
(a) The payment period shall not exceed the life
expectancy of the Participant at his Benefit Commencement Date; or, if
the benefit is to be distributed to a married Participant, over the
joint life and survivorship expectancy of the Participant and his
Spouse.
(b) Payments shall be made in installments which are
as nearly equal as possible, and shall be made not less frequently than
annually nor more frequently than monthly, as determined by the Plan
Administrator.
(c) The total amount subject to installment payment
shall be segregated as a single account and shall not thereafter share
in the investment activity of the Fund. Such segregated account shall
be an interest bearing account, and all interest thereon shall inure to
the benefit of the Participant on whose behalf such account was
established.
(d) At any time during the installment period, the
Plan Administrator may accelerate the remaining installments by paying
the balance of such account to the distributee.
(e) Should the Participant die during the benefit
payment period prior to the completion of benefit distributions, the
remaining portion of his interest will be distributed to his designated
Beneficiary at least as rapidly as under the method of distributions
being used as of the date of his death.
(f) If the Account of the Participant is subject to a
Quadro, the provisions of such Quadro shall take precedence over any
installment or single-sum distribution arrangement otherwise in effect
hereunder, and such installment or single-sum distribution arrangement
shall be modified to accommodate such Quadro.
11.2 Benefit Commencement Dates.
(a) Retirement and Disability Benefits. Benefits
payable by reason of a Participant's retirement or Total Disability
shall normally be paid as promptly as practicable following the
Valuation Date of the Plan coincident with (or if there be none, the
Valuation Date next following) the event entitling the Participant to
such distribution.
In the event of Total Disability, however, benefit
payments shall not commence prior to the Participant's Normal Retirement
Age without the Participant's consent. A Participant who is Totally
Disabled may elect commencement as of any Valuation Date prior to his
Normal Retirement Age, provided such election is made within the 90 day
period ending on such Valuation Date. Notwithstanding the foregoing, if
the Participant's entire vested Account balance does not exceed $3,500,
distribution in a single-sum shall be made as promptly as practicable
after the Valuation Date next following such Participant's Total
Disability.
Unless the Participant elects to defer his Benefit
Commencement Date, retirement and disability benefits shall commence not
later than the sixtieth (60th) day after the latest of the close of the
Plan Year in which (1) occurs the date on which the Participant attains
age 65, (2) occurs the tenth anniversary of the year in which the
Participant commenced participation in the Plan, or (3) the Participant
terminates service with the Employer. Notwithstanding the foregoing,
the Participant's Benefit Commencement Date shall in no event be later
than his Required Beginning Date.
(b) Death Benefits. Benefits payable by reason of
the death of the Participant shall commence and be paid as follows:
(1) if to any Beneficiary after the commencement
of installment benefit payments to the Participant for a fixed period
during his lifetime, commencing upon the death of the Participant and
continuing in installments for the balance of the original installment
period, subject to acceleration at the election of the Beneficiary;
(2) if to the Participant's Spouse other than
under paragraph (1), if the Participant had so directed, in installments
commencing within one (1) year of the Participant's death and continuing
for over a period not to exceed the spouse's life expectancy; and
(3) if to any Beneficiary other than as set
forth in paragraphs (1) or (2) hereof, commencing within one (1) year of
the date of the Participant's death, in a single sum, or in installments
over a period not longer than four (4) years and eleven (11) months from
the date of the Participant's death.
If any portion of the Account of a Participant is payable after the
death of the Participant's Spouse, if the Participant's Spouse was the
sole primary Beneficiary with respect to such portion, and if the
Participant did not designate a contingent Beneficiary who survives the
Participant's Spouse to receive such portion, the Participant's Spouse
shall have the right to act on behalf of the deceased Participant to
designate one or more beneficiaries to receive such portion upon the
death of such Spouse. Failure on the part of the Spouse to exercise
this power of beneficiary designation and failure of the Participant's
designated contingent Beneficiaries to survive the Spouse shall result
in payment to the estate of the deceased Spouse of the amount subject to
the Spouse's power of beneficiary designation. All amounts payable
after the death of the Spouse shall be paid as promptly as practicable
after the death of the Spouse, with all such payments commencing within
one (1) year of such death and being completed within four (4) years and
eleven (11) months of such death.
(c) Deferred Vested Benefits.
(1) Termination of Employment. On and after the
Severance of Service Date of a Participant whose severance from service
is for any reason other than retirement, Total Disability, or
death, such Participant shall have the right to elect to receive a
distribution of the vested portion of his Account balance as of any
Valuation Date coincident with or following such severance from service.
Such election must be in writing and must be made within the 90 day
period ending on the elected Valuation Date. In the event that a
Participant elects to receive such a distribution, the Plan
Administrator shall cause such distribution to be made as promptly as
practicable following such Valuation Date.
(2) Election Not to Accept Distribution. In any
case in which a Participant does not elect to receive a distribution of
the full amount of his vested Account balance, Benefits payable to a
living Participant by reason of such severance from service (other than
due to retirement, death or Total Disability) and consequent
ineligibility to continue benefit accrual under the Plan shall normally
be payable as of the date that would have been the Participant's Normal
Retirement Date, and shall not, in any event, be deferred beyond the
Participant's Required Beginning Date.
Notwithstanding the foregoing, if the value of the
Participant's entire vested Account balance does not exceed $3,500,
distribution in a single-sum shall be made as promptly as practicable
after the Valuation Date next following his severance from service.
All benefit distributions under this Plan
shall be made in accordance with regulations under Section 401(a)(9),
including the minimum distribution incidental benefit rules of proposed
Treasury Regulation section 1.401(a)(9)-2, or any successor thereto.
(3) Notwithstanding any otherwise applicable
Required Beginning Date, if a five-percent owner, prior to January 1,
1984, made the election permitted by section 242(b)(2) of the Tax Equity
and Fiscal Responsibility Act of 1982, and such election remains in
force, his Required Beginning Date shall not be earlier than the Benefit
Commencement Date provided for pursuant to that election.
11.3 Post-Distribution Credits. In the event that, after
the payment of a single-sum distribution under this Plan, there shall
remain in the Participant's Account any funds, or any funds shall be
subsequently credited to such Account, such additional funds, to the
extent vested, shall be paid to the Participant or applied for the
Participant's Account as promptly as practicable. In the event that
after an installment payout has commenced there shall be additional
funds credited to the Account of a Participant, the Plan Administrator
shall direct adjustment of the remaining installment payments so as to
include all such credited amounts, as nearly evenly as possible, in the
remaining installment payments.
11.4 Direct Rollovers.
(a) This Section applies to distributions made on or
after January 1, 1993. Notwithstanding any provision of the Plan to the
contrary that would otherwise limit a distributee's election under this
Section, a distributee may elect, at the time and in the manner
prescribed by the Plan Administrator, to have any portion of an eligible
rollover distribution paid directly to an eligible retirement plan
specified by the distributee in a direct rollover.
(b) Definitions.
(i) Eligible rollover distribution: An eligible
rollover distribution is any distribution of all or any portion of the
balance to the credit of the distributee, except that an eligible
rollover distribution does not include: any distribution that is one of
a series of substantially equal periodic payments (not less frequently
than annually) made for the life (or life expectancy) of the distributee
or the joint lives (or joint life expectancies) of the distributee and
the distributee's designated beneficiary, or for a specified period of
ten years of more; any distribution to the extent such distribution is
required under Code section 401(a)(9); and the portion of any
distribution that is not includible in gross income (determined without
regard to the exclusion for net unrealized appreciation with respect to
employer securities).
(ii) Eligible retirement plan: An eligible
retirement plan is an individual retirement account described in Code
section 408(a), an individual retirement annuity described in Code
section 408(b), an annuity plan described in Code section 403(a), that
accepts the distributee's eligible rollover distribution. However, in
the case of an eligible rollover distribution to the surviving spouse,
an eligible retirement plan is an individual retirement account or
individual retirement annuity.
(iii) Distributee: A distributee includes an
Employee or former Employee. In addition, the Employee's or former
Employee's surviving spouse and the Employee's or former Employee's
spouse or former spouse who is the alternate payee under a qualified
domestic relations order, as defined in section 414(p) of the Code, are
distributees with regard to the interest of the spouse or former spouse.
(iv) Direct rollover: A direct rollover is a
payment by the Plan to the eligible retirement plan specified by the
distributee.
11.5 Participant's Consent to Distribution of Benefits.
Effective January 1, 1994:
(a) Except as provided in subsection (b) below, the
Plan Administrator shall provide each Participant, not more than 90 days
and (except as provided in subsection (c) below) not less than 30 days
prior to the date his interest in his Account shall be paid to him,
written notice of his right to defer receipt of the payment until on or
after his Normal Retirement Date. Payment shall not be made prior to
the Participant's Normal Retirement Date unless the Participant
affirmatively elects a distribution in writing, on a form filed with the
Plan Administrator.
(b) The written notice described in subsection (a)
above shall not apply to the payment if (1) the Participant's Account is
not greater than $3,500, or (2) the payment is made on or after the
Participant's Normal Retirement Date.
(c) A payment may be made less than 30 days after the
notice described in subsection (a) above is given to the Participant,
provided that:
(1) the Plan Administrator clearly informs the
Participant that he has a right to a period of at least 30 days after
receiving such notice to consider the decision of whether or not to
elect a distribution; and
(2) the Participant, after receiving the notice,
affirmatively elects a distribution.
ARTICLE XII
TOP-HEAVY PROVISIONS
12.1 Top-Heavy Definitions. The following definitions apply
to the provisions of this Article:
(a) "Determination date" shall mean, with respect to
any Plan Year, the last day of the preceding Plan Year.
(b) "Determination period" shall mean, with respect
to any Plan Year, the Plan Year containing the determination date and
the four preceding Plan Years.
(c) "Key Employee" shall mean any Employee or former
Employee (and the beneficiaries of such Employee) who at any time during
a Plan Year included in the determination period was --
(1) an officer of the Employer or any Affiliate
having annual Top-Heavy Compensation from the Employer and the
Affiliates greater than 50% of the amount in effect under Code section
415(b)(1)(A) for such Plan Year;
(2) one of the ten Employees having annual Top-
Heavy Compensation from the Employer and the Affiliates greater than the
amount in effect under Code section 415(c)(1)(A) for such Plan Year and
owning (or considered as owning within the meaning of Code section 318)
both more than a 1/2% interest and the largest interests in the Employer
or any Affiliate;
(3) a five-percent owner of the Employer or any
Affiliate (within the meaning of Code section 416(i)(1)(B)(i)); or
(4) a one-percent owner of the Employer or any
Affiliate (within the meaning of Code section 416(i)(1)(B)(ii)) who has
an annual Top-Heavy Compensation from the Employer and the Affiliate of
more than $150,000.
For purposes of paragraph (1), no more than 50 employees (or if
less, the greater of three or 10% of the employees) shall be treated as
officers. The determination of who is a key Employee shall be made in
accordance with Code section 416(i) and regulations thereunder.
(d) "Non-key Employee" shall mean any Employee who is
not a key Employee.
(e) "Required aggregation group" shall mean, with
respect to any Plan Year:
(1) each defined contribution plan and each
defined benefit plan of the Employer or any Affiliate in which a key
Employee is a participant or was a participant at any time during the
determination period (regardless of whether the plan has been
terminated); and
(2) each other defined contribution plan and
each other defined benefit plan of the Employer or any Affiliate which,
during the determination period, enables any defined benefit plan or
defined contribution plan described in paragraph (i) to meet the
requirements of Code section 401(a)(4) or section 410(b).
(f) "Permissive aggregation group" shall mean, with
respect to any Plan Year, the required aggregation group plus any other
defined contribution plan or defined benefit plan which the Employer
elects to include, provided such permissive aggregation group meets the
requirements of Code section 401(a)(4) and section 410(b) with such
defined contribution plan or defined benefit plan being taken into
account.
(g) "Top-heavy Plan" shall mean, for any Plan Year
beginning on or after January l, 1984, this Plan if:
(1) this Plan is not part of a required or
permissive aggregation group, and the top-heavy ratio for the Plan
exceeds 60%;
(2) this Plan is part of a required aggregation
group and not part of a permissive aggregation group, and the top-heavy
ratio for the required aggregation group exceeds 60%; or
(3) this Plan is part of a required aggregation
group and part of a permissive aggregation group, and the top-heavy
ratio for the permissive aggregation group exceeds 60%.
(h) "Top-heavy ratio" shall mean a fraction. The
numerator of the fraction is the sum of the account balances of all key
Employees under the Plan, or, if the Plan is a member of a required or
permissive aggregation group, under all defined contribution plans in
such required or permissive aggregation group (hereinafter the
"aggregation group"), plus the sum of the present values of accrued
benefits of all key Employees under all defined benefit plans in the
aggregation group, as of the determination date or, in the case of a
plan other than this Plan, the determination date under such other plan
which falls within the same calendar year as the determination date
under this Plan. The denominator of the fraction is a similar sum
determined for all Employees. For purposes of determining the fraction,
the numerator and denominator shall include any part of any account
balance or accrued benefit distributed in the determination period. With
respect to Plan Years beginning after December 31, 1984, if any
individual has not been credited with at least one Hour of Service with
the Employer or any Affiliate at any time during the determination
period, any account balance or accrued benefit of, or distribution to,
such individual shall not be taken into account.
For purposes of the preceding paragraph, the sum of account
balances and the present values of accrued benefits shall be determined
as of the most recent valuation date that falls within the twelve month
period ending on the determination date. The present values of accrued
benefits shall be calculated using the interest rate which would be used
(for the month preceding the month in which the calculation is made) by
the Pension Benefit Guaranty Corporation to value immediate annuities
upon a plan termination, and using the mortality assumptions set forth
in the plan. The same actuarial assumptions shall be used in the case
of all defined benefit plans which are being tested to determine the
top-heavy ratio of the aggregation group. The calculation of the top-
heavy ratio shall be made in accordance with Code section 416 and the
regulations thereunder.
Effective January l, 1987, solely for the purpose of
determining if the Plan, or any other plan included in a required
aggregation group of which this Plan is a part, is top-heavy, the
accrued benefit of an Employee other than a key Employee shall be
determined under (i) the method, if any, that uniformly applies for
accrual purposes under all plans maintained by the Employers and
Affiliates or (ii) if there is no such method, as if such benefit
accrued not more rapidly than the slowest accrual rate permitted under
the fractional accrual rate of Code section 411(b)(l)(c).
(i) "Valuation date" shall mean, with respect to this
Plan, the last day of the Plan Year.
(j) "Top-Heavy Compensation" shall mean Limitation
Compensation plus elective or salary deferral contributions to a plan
described in Code section 125 or 401(k).
12.2 Top-Heavy Rules. Notwithstanding any other provision of
the Plan, the following rules shall apply for any Plan Year in which the
Plan is determined to be a top-heavy plan:
(a) Minimum Benefit. Each Employee who is or who is
eligible to be an Active Participant in this Plan and who is a non-key
Employee and who also participates in any defined benefit plan in the
aggregation group shall accrue a minimum benefit under such defined
benefit plan. The amount of such minimum benefit, expressed in the form
of a single life annuity (with no ancillary benefits), payable at normal
retirement age, shall be equal to the product of (i) 2% of the
Participant's average monthly Limitation Compensation during his five
highest-paid consecutive calendar years of employment (not including any
year beginning after the last plan year in which such plan is a top-
heavy plan), multiplied by (ii) each of his first ten years of service
in which such plan is a top-heavy plan for any plan year ending during
such year of service.
If any Employee who is or who is eligible to be an Active
Participant in this Plan and who is a non-key Employee does not also
participate in any defined benefit plan in the aggregation group, he
shall receive a minimum benefit under this Plan. The amount of the
minimum benefit shall not be less than the lesser of (i) 3% of such
Participant's Limitation Compensation for the Plan Year, or (ii) the
largest percentage of Employer contributions, as a percentage of the
first $200,000, or effective January 1, 1994, $150,000 (as adjusted by
the Commissioner of Internal Revenue for increases in the cost of living
in accordance with Code section 401(a)(17)(B)) of the key Employee's
compensation, allocated on behalf of any key Employee under the Plan for
such Plan Year. An Employee who is or who is eligible to be an Active
Participant in this Plan and who is a non-key Employee shall not be
entitled to a minimum benefit for a Plan Year if he has separated from
service by the end of such Plan Year. However, a non-key Employee who
is or is eligible to be an Active Participant shall not fail to receive
a minimum benefit because (i) he has failed to complete Year of Service
in the Plan Year, (ii) his compensation is less than a stated amount, or
(iii) he has failed to make contributions under the Plan.
(b) Vesting. Each Participant shall become vested in
the assets in his account attributable to Employer contributions in
accordance with the following schedule:
When the Participant Has
Completed the Following The Vested Amount
Years of Vesting Service: Will Be:
Less than 2 years 0%
2 years but less than 3 years 20%
3 years but less than 4 years 40%
4 years but less than 5 years 60%
5 years but less than 6 years 80%
6 years or more 100%
If the Plan ceases to be top-heavy, the above schedule shall
continue to apply in determining the vested percentage of any
Participant who had at least five years of vesting service, or effective
for a Participant with an Hour of Service on or after January 1, 1989,
three years of vesting service, as of December 31 of the last Plan Year
of top-heaviness. For other Participants, the schedule shall apply only
to their benefits as of such December 31.
(c) Impact on Maximum Benefits. For any Plan Year in
which the Plan is a top-heavy plan, Section 5.4 shall be read by
substituting the number "1.00" for the number "1.25" wherever such
number appears therein.
ARTICLE XIII
PLAN ADMINISTRATOR
13.1 Appointment and Tenure. The Plan Administrator shall
consist of a committee of one (1) or more persons who shall serve at the
pleasure of the Board of Directors. Any committee member may resign by
delivering his written resignation to the Employer. Vacancies arising
by the death, resignation or removal of a committee member shall be
filled by the Board of Directors. If the Board fails to act, and in any
event, until the Board so acts, the remaining members of the committee
may appoint an interim committee member to fill any vacancy occurring on
the committee. If no person has been appointed to the committee, or if
no person remains on the committee, the Employer shall be deemed to be
the Plan Administrator.
13.2 Meetings; Majority Rule. Any and all acts of the Plan
Administrator taken at a meeting shall be by a majority of all members
of the committee. The Plan Administrator may act by vote taken in a
meeting (at which a majority of members shall constitute a quorum) if
all members of the committee have been given at least ten (10) days'
written notice of such meeting or have waived notice. The Plan
Administrator may also act by unanimous consent in writing without the
formality of convening a meeting.
13.3 Delegation. The Plan Administrator may, by written
majority decision, delegate to each or any one of its number, or to the
Secretary of it, authority to sign any documents on its behalf, or to
perform ministerial acts, but no person to whom such authority is
delegated shall perform any act involving the exercise of any discretion
without first obtaining the concurrence of a majority of the members of
the committee, even though he alone may sign any document required by
third parties.
The Plan Administrator shall elect one of its number to serve
as Chairperson. The Chairperson shall preside at all meetings of the
committee or shall delegate such responsibility to another committee
member. The committee shall elect one person to serve as Secretary to
the committee. All third parties may rely on any communication signed
by the Secretary, acting as such, as an official communication from the
Plan Administrator.
13.4 Authority and Responsibility of the Plan Administrator.
The Plan Administrator shall have the following duties and
responsibilities:
(a) to maintain and preserve records relating to Plan
Participants, former Participants, and their Beneficiaries;
(b) to prepare and furnish to Participants all
information and notices required under federal law or the provisions of
this Plan;
(c) to prepare and furnish to the Trustee sufficient
employee data and the amount of contributions received from all sources
so that the Trustee may maintain separate Accounts for Participants and
make required payments of benefits;
(d) to prepare and file or publish with the Secretary
of Labor, the Secretary of the Treasury, their delegates and all other
appropriate government officials all reports and other information
required under law to be so filed or published;
(e) to provide directions to the Trustee with respect
to the purchase of life insurance, methods of benefit payment,
valuations at dates other than Annual Valuation Dates and on all other
matters where called for in the Plan or requested by the Trustee;
(f) to construe and interpret the provisions of the
Plan, to correct defects therein and to supply omissions thereto;
(g) to decide all questions of eligibility, and
determine the amount, manner and time of payment of any benefits
hereunder;
(h) to engage assistants and professional advisers;
(i) to arrange for bonding, if required by law;
(j) to provide procedures for determination of claims
for benefits;
(k) to determine whether any domestic relations order
constitutes a Quadro and to take such action as the Plan Administrator
deems appropriate in light of such domestic relations order; and
(l) to retain records on elections and waivers by
Participants, their spouses and their Beneficiaries, all as further set
forth herein.
13.5 Reporting and Disclosure. The Plan Administrator shall
keep all individual and group records relating to Plan Participants, and
Beneficiaries, and all other records necessary for the proper operation
of the Plan. Such records shall be made available to the Employer and
to each Participant and Beneficiary for examination during business
hours except that a Participant or Beneficiary shall examine only such
records as pertain exclusively to the examining Participant or
Beneficiary and those records and documents relating to all Participants
generally. The Plan Administrator shall prepare and shall file as
required by law or regulation all reports, forms, documents and other
items required by the Employee Retirement Income Security Act of 1974,
the Code, and every other relevant statute, each as amended, and all
regulations thereunder. This provision shall not be construed as
imposing upon the Plan Administrator the responsibility or authority for
the preparation, preservation, publication or filing of any document
required to be prepared, preserved or filed by the Trustee or by any
other Named Fiduciary to whom such responsibilities are delegated by law
or by the Plan.
13.6 Construction of the Plan. The Plan Administrator shall
take such steps as are considered necessary and appropriate to remedy
any inequity that results from incorrect information received or
communicated in good faith or as the consequence of an administrative
error. The Plan Administrator shall interpret the Plan and shall
determine the questions arising in the administration, interpretation
and application of the Plan. It shall endeavor to act, whether by
general rules or by particular decisions, so as not to discriminate in
favor of, or against, any person and so as to treat all persons in
similar circumstances uniformly. The Plan Administrator shall correct
any defect, reconcile any inconsistency, or supply any omission with
respect to the Plan. All such corrections, reconciliations,
interpretations and completions of Plan provisions shall be final and
binding upon the parties.
13.7 Engagement of Assistants and Advisers. The Plan
Administrator shall have the right to hire such professional assistants
and consultants as it, in its sole discretion, deems necessary or
advisable, including, but not limited to: (a) investment managers and/or
advisers; (b) accountants; (c) actuaries; (d) attorneys; (e)
consultants; (f) clerical and office personnel; and (g) medical
practitioners.
The expenses incurred by the Plan Administrator in connection
with the operation of the Plan, including, but not limited to, the
expenses incurred by reason of the engagement of professional assistants
and consultants, shall be expenses of the Plan and shall be payable from
the Fund at the direction of the Plan Administrator. The Employer shall
have the option, but not the obligation, to pay any such expenses, in
whole or in part, and by so doing, to relieve the Fund from the
obligation of bearing such expenses. Payment of any such expenses by
the Employer on any occasion shall not bind the Employer to thereafter
pay any similar expenses.
13.8 Bonding. The Plan Administrator shall arrange for such
bonding as is required by law, but no bonding in excess of the amount
required by law shall be considered required by the Plan.
13.9 Compensation of the Plan Administrator. The Plan
Administrator shall serve without compensation for its services as such,
but all expenses of the Plan Administrator shall be paid or reimbursed
by the Employer, and if not so paid or reimbursed, shall be proper
charges to the Fund and shall be paid therefrom.
13.10 Indemnification of the Plan Administrator. Each member
of the committee constituting the Plan Administrator shall be
indemnified by the Employer against costs, expenses and liabilities
(other than amounts paid in settlement to which the Employer does not
consent) reasonably incurred by him in connection with any action to
which he may be a party by reason of his service as Plan Administrator
except in relation to matters as to which he shall be adjudged in such
action to be personally guilty of gross negligence or willful misconduct
in the performance of his duties. The foregoing right to
indemnification shall be in addition to such other rights as the
committee member may enjoy as a matter of law or by reason of insurance
coverage of any kind, but shall not extend to costs, expenses and/or
liabilities otherwise covered by insurance or that would be so covered
by any insurance then in force if such insurance contained a waiver of
subrogation. Rights granted hereunder shall be in addition to and not
in lieu of any rights to indemnification to which the committee member
may be entitled pursuant to the by-laws of the Employer. Service on the
committee as a Plan Administrator shall be deemed in partial fulfillment
of the committee member's function as an employee, officer and/or
director of the Employer, if he serves in that capacity as well as in
the role of committee member.
ARTICLE XIV
ALLOCATION AND DELEGATION OF AUTHORITY
14.1 Authority and Responsibilities of Employer. The
Employer, as Plan sponsor, shall serve as a "Named Fiduciary" having the
following (and only the following) authority and responsibility:
(a) to establish and communicate to the Trustee a
funding policy for the Plan;
(b) to appoint the Trustee and the Plan Administrator
and to monitor each of their performances;
(c) to appoint an Investment Manager (or to refrain
from such appointment), to monitor the performance of the Investment
Manager so appointed, and to terminate such appointment (more than one
Investment Manager may be appointed and in office at any time pursuant
hereto);
(d) to communicate such information to the Plan
Administrator and to the Trustee as each needs for proper performance of
its duties; and
(e) to provide channels and mechanisms through which
the Plan Administrator and/or the Trustee can communicate with
Participants and their Beneficiaries.
In addition, the Employer shall perform such duties as are
imposed by law or by regulation and shall serve as Plan Administrator in
the absence of an appointed Plan Administrator.
14.2 Authority and Responsibilities of the Plan
Administrator. The Plan Administrator shall have the authority and
responsibilities imposed by Article XIII hereof. With respect to the
said authority and responsibility, the Plan Administrator shall be a
"Named Fiduciary," and as such, shall have no authority and
responsibility other than as granted in the Plan, or as imposed by law.
14.3 Authority and Responsibilities of the Trustee. The
Trustee shall be the "Named Fiduciary" with respect to investment of the
Fund assets and shall have the powers and duties set forth in the Trust
Agreement.
14.4 Limitations on Obligations of Named Fiduciaries. No
Named Fiduciary shall have authority or responsibility to deal with
matters other than as delegated to it under this Plan, under the Trust
Agreement, or by operation of law. A Named Fiduciary shall not in any
event be liable for breach of fiduciary responsibility or obligation by
another fiduciary (including Named Fiduciaries) if the responsibility or
authority of the act or omission deemed to be a breach was not within
the scope of the said Named Fiduciary's authority or delegated
responsibility.
ARTICLE XV
CLAIMS PROCEDURES
15.1 Application for Benefits. Each Participant and/or
Beneficiary believing himself or herself eligible for benefits under the
Plan shall apply for such benefits by completing and filing with the
Plan Administrator an application for benefits on a form supplied by the
Plan Administrator. Before the date on which benefit payments commence,
each such application must be supported by such information and data as
the Plan Administrator deems relevant and appropriate. Evidence of age,
marital status (and, in the appropriate instances, health, death or
disability), and location of residence shall be required of all
applicants for benefits.
15.2 Appeals of Denied Claims for Benefits. In the event
that any claim for benefits is denied in whole or in part, the
Participant or Beneficiary whose claim has been so denied shall be
notified of such denial in writing by the Plan Administrator. The
notice advising of the denial shall specify the reason or reasons for
denial, make specific reference to pertinent Plan provisions, describe
any additional material or information necessary for the claimant to
perfect the claim (explaining why such material or information is
needed), and shall advise the Participant or Beneficiary, as the case
may be, of the procedure for the appeal of such denial. All appeals
shall be made by the following procedure:
(a) The Participant or Beneficiary whose claim has
been denied shall file with the Plan Administrator a notice of desire to
appeal the denial. Such notice shall be filed within sixty (60) days of
notification by the Plan Administrator of claim denial, shall be made in
writing, and shall set forth all of the facts upon which the appeal is
based. Appeals not timely filed shall be barred.
(b) The Plan Administrator shall, within thirty (30)
days of receipt of the Participant's or Beneficiary's notice of appeal,
establish a hearing date on which the Participant or Beneficiary may
make an oral presentation to the Named Appeals Fiduciary in support of
his appeal. The Participant or Beneficiary shall be given not less than
ten (10) days' notice of the date set for the hearing.
(c) The Named Appeals Fiduciary shall consider the
merits of the claimant's written and oral presentations, the merits of
any facts or evidence in support of the denial of benefits, and such
other facts and circumstances as the Named Appeals Fiduciary shall deem
relevant. If the claimant elects not to make an oral presentation, such
election shall not be deemed adverse to his interest, and the Named
Appeals Fiduciary shall proceed as set forth below as though an oral
presentation of the contents of the claimant's written presentation had
been made.
(d) The Named Appeals Fiduciary shall render a
determination upon the appealed claim which determination shall be
accompanied by a written statement as to the reasons therefor. The
determination so rendered shall be binding upon all parties.
15.3 Appointment of the Named Appeals Fiduciary. The Named
Appeals Fiduciary shall be the person or persons named as such by the
Board of Directors, or, if no such person or persons be named, then the
person or persons named by the Plan Administrator as the Named Appeals
Fiduciary. Named Appeals Fiduciaries may at any time be removed by the
Board of Directors, and any Named Appeals Fiduciary named by the Plan
Administrator may be removed by the Plan Committee. All such removals
may be with or without cause and shall be effective on the date stated
in the notice of removal. The Named Appeals Fiduciary shall be a "Named
Fiduciary" within the meaning of ERISA, and, unless appointed to other
fiduciary responsibilities, shall have no authority, responsibility, or
liability with respect to any matter other than the proper discharge of
the functions of the Named Appeals Fiduciary as set forth herein.
ARTICLE XVI
AMENDMENT AND TERMINATION
16.1 Amendment. The provisions of the Plan may be amended at
any time and from time to time by the Board of Directors. Each entity
constituting Employer hereby delegates to the Board of Directors the
full authority to act in its stead and on its behalf with respect to
amendment of the Plan and the Trust Agreement, provided, however, that:
(a) No amendment shall increase the duties or
liabilities of the Plan Administrator or of the Trustee without the
consent of that party.
(b) No amendment shall cause any reduction in the
amount of any Participant's Accrued Benefit. For purposes of this
paragraph (b), an amendment which has effect of (i) eliminating or
reducing an early retirement benefit on a retirement-type subsidy, or
(ii) eliminating an optional form of benefit, with respect to benefits
attributable before the amendment, shall be treated as reducing Accrued
Benefits except as otherwise provided in Code section 411(d)(6) and the
regulations thereunder.
(c) No amendment shall provide for the use of funds
or assets held to provide benefits under the Plan other than for the
benefit of Participants and their Beneficiaries or to meet the
administrative expenses of the Plan, except as may be specifically
authorized by statute or regulation.
(d) No such amendment shall change any vesting
schedule unless, in the case of an Employee who is a Participant on -
(1) the date the amendment is adopted; or
(2) the date the amendment is effective, if later;
the nonforfeitable percentage of such Participant's right to his
Accrued Benefit is not less than his percentage computed under the Plan
without regard to such amendment. Furthermore, no such amendment shall
otherwise change any vesting schedule unless each Participant having
three or more Years of Service is permitted to elect, in accordance with
Internal Revenue Code regulations, to have the nonforfeitable percentage
of his Accrued Benefit determined under the Plan without regard to such
amendment; provided, that no election shall be given to any Participant
whose nonforfeitable percentage under the Plan as amended cannot at any
time be less than such percentage determined without regard to such
amendment.
(e) The formula set forth in Section 6.2 for
allocating the Employer contribution described in Section 3.1(b), and
the formulae for determining the amounts of Deferral Contributions under
Section 3.1(a) and Employer Matching Contributions under Section 3.1(b),
may not be amended more than once in any six-month period, except to
comport with changes in the Code or ERISA and the regulations
thereunder.
Each amendment shall be approved by the Board of Directors by
resolution. Notwithstanding the foregoing, any amendment necessary to
initially qualify the Plan under Code section 401(a) may be made without
the further approval of the Board of Directors if signed by the proper
officers of the Employer.
16.2 Plan Termination.
(a) Right Reserved. While it is the Employer's
intention to continue the Plan indefinitely in operation, the right
is, nevertheless, reserved to terminate the Plan in whole or in part.
Whole or partial termination of the Plan shall result in full and
immediate vesting in each affected Participant of the entire amount
standing to his credit in his Account, and there shall not thereafter be
any forfeitures with respect to any such affected Participant for any
reason. Plan termination shall be effective as of the date specified by
resolution of the Board of Directors, subject, however, to the
provisions of Section 16.4 hereof. (b) Effect on
Retired Persons, Etc. Termination of the Plan shall have no effect upon
payment of installments and benefits to former Participants, their
Beneficiaries and their estates, whose benefit payments commenced prior
to Plan termination. The Trustee shall retain sufficient assets to
complete any such payments, and shall have the right, upon direction by
the Employer, to purchase annuity contracts to assure the completion of
such payments or to pay the value of the remaining payments in a lump-
sum distribution.
(c) Effect on Remaining Participants. The Employer
shall instruct the Trustee either (1) to continue to manage and
administer the assets of the Trust for the benefit of the Participants
and their Beneficiaries pursuant to the terms and provisions of the
Trust Agreement, or (2) to pay over to each Participant (and former
Participant) the value of his vested interest, and to thereupon dissolve
the Trust.
16.3 Complete Discontinuance of Employer Contributions.
While it is the Employer's intention to make substantial and recurrent
contributions to the Fund required pursuant to the provisions of the
Plan, the right is, nevertheless, reserved to at any time completely
discontinue Employer contributions. Such complete discontinuance shall
be established by resolution of the Board of Directors and shall have
the effect of a termination of the Plan, as set forth in Section 16.2,
except that the Trustee shall not have the authority to dissolve the
Fund except upon adoption of a further resolution by the Board of
Directors to the effect that the Plan is terminated and upon receipt
from the Employer of instructions to dissolve the Fund pursuant to
Section 16.2(c) hereof.
16.4 Suspension of Employer Contributions. The Employer
shall have the right at any time, and from time to time, to suspend
Employer contributions to the Fund pursuant to the Plan. Such
suspension shall have no effect on the operation of the Plan except as
set forth below:
(a) If the Board of Directors determines by
resolution that such suspension shall be permanent, a permanent
discontinuance of contributions will be deemed to have occurred as of
the date of such resolution or such earlier date as is therein
specified.
(b) If such suspension becomes a plan termination, a
complete discontinuance of contributions will be imputed.
In such case, the permanent discontinuance, with resultant full
vesting for all affected Participants, shall be deemed to have occurred
on the earlier of:
(1) the date specified by resolution of the
Board of Directors or established as a matter of equity by the Plan
Administrator, or
(2) the last day of the first Plan Year which
meets both of the following criteria: (A) no Employer contributions were
made for that, or for any subsequent Plan Year, and (B) there existed
for such Plan Year Net Income out of which Employer contributions could
have been made, and the existence of such Net Income was known to the
Board of Directors in time to make deductible contributions for such
Plan Year.
16.5 Mergers and Consolidations of Plans. In the event of
any merger or consolidation with, or transfer of assets or liabilities
to, any other plan, each Participant shall have a benefit in the
surviving or transferee plan (determined as if such plan were then
terminated immediately after such merger, consolidation or transfer)
that is equal to or greater than the benefit he would have been entitled
to receive immediately before such merger, consolidation or transfer in
the Plan in which he was then a Participant (had such Plan been
terminated at that time). For the purposes hereof, former Participants
and Beneficiaries shall be considered Participants.
16.6 Adoption by Affiliates.
(a) Adoption with Approval. Any corporation
affiliated in ownership or management with the Company (herein
called the "principal sponsor") may adopt this Plan with the consent of
the principal sponsor and subject to such conditions as the principal
sponsor amy impose.
(b) Procedure for Adoption. Any such adopting
corporation shall initiate its adoption of this Plan by delivery of a
certified copy of the resolutions of its board of directors adopting
this Plan to the Board of Directors of the principal sponsor. Upon the
consent by said principal sponsor of the adoption by the adopting
corporation, and the delivery to the Trustee of written evidence of the
principal sponsor's consent, the adoption of this Plan by the adopting
corporation shall be effective as of the date specified by the principal
sponsor.
(c) Effect of Adoption. Upon the adoption of this
Plan by any adopting corporation as heretofore provided, the adopting
corporation shall be an Employer hereunder in all respects. Each such
adopting corporation shall have the power to discontinue its
contributions to this Plan, to terminate this Plan as applied to it or
to amend the Plan as applied to it by establishing a successor plan.
Each adopting corporation, as a condition of continued
participation in this Plan, delegates to the principal sponsor the sole
power and authority to: (1) appoint or terminate an Investment Manager
as provided in Section 14.1(c), (2) appoint and remove the Plan
Administrator and determine the scope and limitation of the
Administrator's duties, (3) consent to the adoption of this Plan by
affiliated corporations and establish conditions and limitations with
regard to such adoption, (4) amend and terminate this Plan as provided
in Article XI, and (5) to appoint or remove a Trustee or Trustees.
Forfeitures shall be used as provided in Article III only by
the corporation by whom the Participant was employed at the time of the
occurrence of the event giving rise to the forfeiture.
ARTICLE XVII
NONALIENATION OF BENEFITS
17.1 Nonalienation of Benefits. No right or interest of any
Participant under the Plan or in his Account shall be assignable or
transferable, in whole or in part, either directly or by operation of
law or otherwise, including without limitation by execution, levy,
garnishment, attachment, pledge or in any other manner except in accord
with a qualified domestic relations order within the meaning of section
206(d)(3)(B) of ERISA and Code section 414(p).
ARTICLE XVIII
MISCELLANEOUS PROVISIONS
18.1 No Contract of Employment. Neither the establishment of
the Plan, nor any modification thereof, nor the creation of any fund,
trust or account, nor the payment of any benefits shall be construed as
giving any Participant or Employee, or any person whomsoever, the right
to be retained in the service of the Employer, and all Participants and
other Employees shall remain subject to discharge to the same extent as
if the Plan had never been adopted.
18.2 Severability of Provisions. If any provision of the
Plan
shall be held invalid or unenforceable, such invalidity or
unenforceability shall not affect any other provisions hereof, and the
Plan shall be construed and enforced as if such provisions had not been
included.
18.3 Heirs, Assigns and Personal Representatives. The Plan
shall be binding upon the heirs, executors, administrators, successors
and assigns of the parties, including each Participant and Beneficiary,
present and future and all persons for whose benefit there exists any
Quadro with respect to any Participant (except that no successor to the
Employer shall be considered a Plan sponsor unless that successor adopts
the Plan).
18.4 Headings and Captions. The headings and captions herein
are provided for reference and convenience only, shall not be considered
part of the Plan, and shall not be employed in the construction of the
Plan.
18.5 Gender and Number. Except where otherwise clearly
indicated by context, the masculine and the neuter shall include the
feminine and the neuter, the singular shall include the plural, and
vice-versa.
18.6 Controlling Law. The Plan shall be construed and
enforced according to the laws of the Commonwealth of Pennsylvania to
the extent not preempted by federal law, which shall otherwise control.
18.7 Funding Policy. The Plan Administrator, in consultation
with the Employer, shall establish and communicate to the Trustee a
funding policy consistent with the objectives of the Plan and of the
corresponding Trust. Such policy will be in writing and shall have due
regard for the emerging liquidity needs of the Fund. Such funding
policy shall also state the general investment objectives of the Fund
and the philosophy upon which maintenance of the Plan is based.
18.8 Title to Assets. No Participant, Beneficiary or
Alternate Payee shall have any right to, or interest in, any assets of
the Fund upon termination of his employment or otherwise, except as
provided from time to time under the Plan, and then only to the extent
of the benefits payable under the Plan to such Participant, Beneficiary
or Alternate Payee out of the assets of the Fund. All payments of
benefits as provided for in the Plan shall be made from the assets of
the Fund, and neither the Employer nor any other person shall be liable
therefor in any manner.
18.9 Payments to Minors, Etc. Any benefit payable to or for
the benefit of a minor, an incompetent person or other person incapable
of receipting therefor shall be deemed paid when paid to such person's
guardian or to the party providing or reasonably appearing to provide
for the care of such person, and such payment shall fully discharge the
Trustee, the Plan Administrator, the Employer and all other parties with
respect thereto.
18.10 Reliance on Data and Consents. The Employer, the
Trustee,
the Plan Administrator, all fiduciaries with respect to the Plan, and
all other persons or entities associated with the operation of the Plan,
the management of its assets, and the provision of benefits thereunder,
may reasonably rely on the truth, accuracy and completeness of all data
provided by the Participant, his Beneficiaries, and his Alternate
Payees, including, without limitation, data with respect to age, health
and marital status. Furthermore, the Employer, the Trustee, the Plan
Administrator and all fiduciaries with respect to the Plan may
reasonably rely on all consents, elections and designations filed with
the Plan or those associated with the operation of the Plan and its
corresponding Trust by any Participant, the spouse of any Participant,
any Beneficiary of any Participant, any Alternate Payee, or the
representatives of any such persons without duty to inquire into the
genuineness of any such consent, election or designation. None of the
aforementioned persons or entities associated with the operation of the
Plan, its assets and the benefits provided under the Plan shall have any
duty to inquire into any such data, and all may rely on such data being
current to the date of reference, it being the duty of the Participants,
spouses of Participants, Beneficiaries and Alternate Payees to advise
the appropriate parties of any change in such data.
18.11 Lost Payees. A benefit shall be deemed forfeited if
the Plan Administrator is unable to locate a Participant, a spouse, a
Beneficiary or an Alternate Payee to whom payment is due, provided,
however, that such benefit shall be reinstated if a claim is made by the
proper payee for the forfeited benefit.
18.12 Counterparts. The Plan instrument and amendments
thereto may be executed in several counterparts, each of which shall be
deemed an original. As to the Plan instrument and as to the instruments
of amendment thereto, the counterparts of the respective instruments
shall be considered a single instrument, which may be sufficiently
evidenced by one counterpart. Further, each amendment to the Plan shall
be deemed to have all counterpart Plan instruments, and, if applicable,
all counterparts of prior amendments.
IN WITNESS WHEREOF, and as evidence of the adoption of this
amendment and restatement of the Plan, the Employer has caused the same
to be executed by its duly authorized officers, effective as of January
1, 1989, and its corporate seal to be affixed this day of
December, 1994.
SAFEGUARD SCIENTIFICS, INC
Attest:
____________________________ By:________________________
Secretary President
(CORPORATE SEAL)
APPENDIX A
(See Section 1.18)
None
APPENDIX B
(See Section 3.1(b))
Locations at which
matching percentage is 75%
1. Effective January 1, 1989:
a. Norelkote, Inc. (until its merger into
Safeguard Scientifics, Inc. on November 30, 1990)
(all locations)
b. Pioneer Metal Finishing, a division of
Safeguard Scientifics, Inc.
(all locations)
2. Effective January 1, 1992: All locations
SECOND AMENDMENT TO
SAFEGUARD SCIENTIFICS
MONEY PURCHASE PENSION PLAN
WHEREAS, Safeguard Scientifics, Inc. (the "Company")
established the Safeguard Scientifics Money Purchase Pension Plan (the
"Plan") for the benefit of certain of its employees effective January 1,
1986; and
WHEREAS, the Company most recently amended and restated the
Plan generally effective January 1, 1989, and has amended the Plan on
one occasion thereafter; and
WHEREAS, the Company reserved to itself the right to amend the
Plan in Section 11.1 thereof, subject to certain inapplicable
limitations; and
WHEREAS, the Company desires to amend the Plan (i) to reflect
the maximum amount of compensation that may be taken into account under
section 401(a)(17) of the Internal Revenue Code of 1986, as amended by
the Omnibus Budget Reconciliation Act of 1993 (the "Code"); and (ii) to
make certain other changes;
NOW, THEREFORE, subject to approval by the District Director
of Internal Revenue, the Plan is hereby amended as follows:
1. Effective January 1, 1994, the last paragraph of
Section 1.10 of the Plan is hereby deleted in its entirety and replaced
by the following:
A Participant's Compensation for any Plan Year shall in
no event exceed $150,000, as adjusted by the Commissioner of Internal
Revenue for increases in the cost of living in accordance with section
401(a)(17)(B) of the Code. The cost-of-living adjustment in effect for
a calendar year shall apply to any period, not exceeding 12 months,
beginning in such calendar year over which Compensation is determined
(the "determination period"). If a determination period consists of
fewer than 12 months, the applicable limit (as adjusted) shall be
multiplied by a fraction, the numerator of which is the number of months
in the determination period, and the denominator of which is 12.
In determining the Compensation of a Participant for
purposes of the limit set forth above, the rules of Code section
414(q)(6) shall apply, except that in applying such rules, the term
"family" shall include only the spouse of the Participant and any lineal
descendants of the Participant who have not attained age 19 before the
close of the Plan Year. If, as a result of the application of such
rules, the adjusted $150,000 limit is exceeded, then the limit shall be
prorated among the affected individuals in proportion to each such
individual's Compensation as determined under this Section 1.10 prior to
the application of the limit.
* * * *
2. Effective January 1, 1994, Section 1.13 is hereby
amended to read as follows:
1.13 Eligible Employee shall mean each person in the
employ of the Employer who is not a leased employee, who is not a person
whose terms and conditions of employment are determined through
collective bargaining with a third party if the issue of retirement
benefits has been a bona fide subject of collective bargaining, unless
the collective bargaining agreement provides for the inclusion of such
person as a Participant in the Plan, and who performs services in an
eligible classification of Employees (as hereinafter defined). For
purposes of the Plan, the eligible classifications of Employees shall be
as follows:
(a) hourly and salaried Employees of Safeguard
Scientifics, Inc., except Employees in the Phoenix division of Safeguard
Scientifics, Inc.;
(b) hourly and salaried Employees of Technology
Leaders Management, Inc., a subsidiary of Safeguard Scientifics, Inc.;
(c) effective March 17, 1994, hourly and
salaried Employees of Safeguard International, Inc., a subsidiary of
Safeguard Scientifics, Inc.; and
(d) effective January 1, 1995, hourly and
salaried Employees of the Phoenix division of Safeguard Scientifics,
Inc.;
(e) notwithstanding the foregoing, Employees of
any division or at any location of Safeguard Scientifics, Inc. or either
of the above designated subsidiaries that was not in existence on
December 31, 1994 shall not be Eligible Employees unless and until the
Board of Directors determines that such Employees shall be an eligible
classification of Employees. The Board of Directors shall cause to be
appended hereto, as Appendix A, a description of each eligible
classification of Employees that shall be covered by the Plan pursuant
to this Subsection (e) and the period of such coverage.
3. Effective January 1, 1994, the first paragraph of
subsection (b) of Section 3.1 is amended to read as follows:
(b) Entitlement to Employer Contribution. A
Participant shall be an Active Participant for the purposes of Section
3.1, and shall be entitled to share in the allocation of the Employer
contribution for a specific Accrual Computation Period, only if he did
at least one of the following during that Accrual Computation Period:
(1) Commenced participation in the Plan during the
Accrual Computation Period, whether or not he completed a Year of
Participation in such Accrual Computation Period;
(2) Remained in the employ of the Employer or an
Affiliate through the end of the Accrual Computation Period, and
completed a Year of Participation in such Accrual Computation Period;
(3) Retired (at or after his Normal Retirement
Date), experienced Total Disability, or died during the Accrual
Computation Period, having completed a Year of Participation during any
of the preceding three Accrual Computation Periods; or
(4) Was on an Excused Absence at the end of the
Accrual Computation Period, having completed a Year of Participation
during the Accrual Computation Period, or having completed a Year of
Participation during any of the preceding three Accrual Computation
Periods.
* * * *
4. Effective January 1, 1989, subparagraph (1) of the
definition of "Annual Addition" under subsection (b) of Section 4.1 of
the Plan is amended to read as follows:
(1) employer contributions (other than
excess deferrals distributed in accordance with Treas. Reg.
(section)1.402(g)-1(e)(2) or (3));
* * * *
5. Effective January 1, 1994, the second sentence of the
second paragraph of subsection (a) of Section 16.2 of the Plan is
amended to read as follows:
(a) Minimum Benefit ----
.... The amount of the minimum benefit shall not be less than the
lesser of (i) 3% of such Participant's Limitation Compensation for the
Plan Year, or (ii) the largest percentage of Employer contributions, as
a percentage of the first $150,000 (as adjusted by the Commissioner of
Internal Revenue for increases in the cost of living in accordance with
Code section 401(a)(17)(B)) of the key Employee's compensation allocated
on behalf of any key Employee under the Plan for such Plan Year.
6. Effective January 1, 1989, subsection (c) of Section
16.2 is deleted in its entirety, and subsection (d) of Section 16.2 is
redesignated subsection (c).
* * * *
IN WITNESS WHEREOF, and as evidence of the adoption of this
Second Amendment, the Company has caused the same to be executed by its
duly authorized officers, and its corporate seal to be affixed this
day of , 1994.
Attest: SAFEGUARD SCIENTIFICS, INC.
____________________________ _______________________________
Secretary President
(Corporate Seal)
SAFEGUARD SCIENTIFICS, INC.
LONG TERM INCENTIVE PLAN
TABLE OF CONTENTS
Page
ARTICLE I STATEMENT OF PURPOSE 1
Section 1.01 Purpose 1
Section 1.02 Nature of Plan 1
ARTICLE II DEFINITIONS 2
ARTICLE III ELIGIBILITY 5
Section 3.01 Eligibility as Key Employee/Associate Generally 5
Section 3.02 Eligibility as Senior Key Employee 5
ARTICLE IV AWARDS 6
Section 4.01 Awards Generally 6
Section 4.02 Determination of Eligible Companies and
Related Awards 6
Section 4.03 Composition of Awards 6
Section 4.04 Conversion of Combination Units 6
Section 4.05 Awards of Restricted Stock 7
Section 4.06 Restricted Stock Award Loans 7
Section 4.07 Notification and Annual Statements 7
ARTICLE V ACCOUNTS 9
Section 5.01 Share Accounts 9
Section 5.02 Effect of Cash Dividends on Stock Appreciation
Right Units 9
Section 5.03 Effect of Stock Dividends on Stock Appreciation
Right Units 9
Section 5.04 Effect of Stock Splits on Stock Appreciation
Right Units 10
Section 5.05 Effect of Merger, Consolidation or Reorganization
on Stock Appreciation Right Units 10
Section 5.06 Effect of Changes in Common Stock on Restricted
Stock 10
ARTICLE VI VESTING 11
Section 6.01 Vesting Generally 11
Section 6.02 Vesting Upon Death, Retirement or Disability 11
Section 6.03 Conditions 12
Section 6.04 Divestiture 12
ARTICLE VII BENEFIT PAYMENTS 14
Section 7.01 Payment or Release Commencement Date; Payment
or Release Obligation 14
Section 7.02 Conversion of Book Value Share Units 14
Section 7.03 Conversion of Market Value Share Units 15
Section 7.04 Conversion of Combination Units 15
Section 7.05 Method of Payment 15
Section 7.06 Release of Restricted Stock 16
Section 7.07 Designation of Beneficiaries 16
Section 7.08 Restrictions on Transfer 16
ARTICLE VIII COMMITTEE 17
Section 8.01 Composition 17
Section 8.02 Award Determination 17
Section 8.03 Administration 17
Section 8.04 Accounts 17
Section 8.05 Expenses 17
Section 8.06 Self Interest 17
Section 8.07 Indemnity 17
ARTICLE IX MISCELLANEOUS 19
Section 9.01 Right of Company to Terminate Employment 19
Section 9.02 Governing Law 19
Section 9.03 Binding Effect 19
Section 9.04 Participant's Rights Unsecured 19
Section 9.05 Severability of Provisions 19
Section 9.06 Headings and Captions 19
Section 9.07 Gender and Number 19
Section 9.08 Payments to Minors, Etc. 19
Section 9.09 Effective Date 20
ARTICLE X AMENDMENT AND TERMINATION 21
Section 10.01 Amendment and Termination 21
ARTICLE I
STATEMENT OF PURPOSE
Section 1.01 Purpose
The purpose of the Plan is to provide a long term incentive which
correlates employee rewards with the achievement of strategic long
term corporate goals for those executive officers, key management
employees and other associates of Safeguard Scientifics, Inc. and its
Affiliates who, by their industry, loyalty or exceptional service, make
contributions of special importance to the success of the business of the
Company. It is the intention of the Company to award Share Units under the
Plan, and, by so doing, to encourage persons of outstanding competence to
remain in its employ, to place the Company in a position to recruit persons
of outstanding accomplishment and ability to fill future vacancies, and to
promote among the executive officers, key management employees and other
persons to whom Awards are made under the Plan the economic benefits of
share ownership.
Section 1.02 Nature of Plan
The Plan is a combination phantom stock appreciation rights
and restricted stock plan, which generates benefits either in cash based
upon the increase in the book value of the Common Stock of Eligible
Companies, the increase in the fair market value of Eligible Companies,
or both, or through the value of Common Stock of Eligible Companies
granted directly under the Plan.
The Plan is intended to be consistent with the Company's
compensation objectives and to complement its long term corporate
strategy of rewarding shareholders through spin offs or other
dispositions of selected companies. The Plan is intended to channel
management's energies into efforts that create shareholder value over
the long term by enabling recipients of awards to share in the results
of their contributions by direct participation in the increased values
created in selected investee companies.
ARTICLE II
DEFINITIONS
Section 2.01 "Account" shall mean one of the Participant
Accounts provided for in Section 5.01 hereof.
Section 2.02 "Affiliate" shall mean any Subsidiary or Eligible
Company (which is not a Subsidiary).
Section 2.03 "Award" shall mean an award of Share Units under
the Plan.
Section 2.04 "Board of Directors" shall mean the Board of
Directors of the Company.
Section 2.05 "Book Value Share Unit" shall mean a credit to the
Account of a Participant under the Plan which has the same value, at any
date to which reference is made, as the Book Value (as defined in
Section 2.06 hereof) of a share of the Common Stock of an Eligible
Company, subject to the adjustments indicated in Section 2.06 hereof.
Section 2.06 "Book Value" shall mean the Common Stockholders
Equity in an Eligible Company divided by the sum of the outstanding
common shares and the equivalent common shares of any other class or
series of capital stock outstanding of the Eligible Company (based upon
the conversion rate used in the computation of primary earnings per
share) as of the end of a designated fiscal period, but adjusted to such
extent as determined by the Committee if, in the Committee's opinion,
either (a) changes in the Eligible Company's accounting policies,
acquisitions or other unusual or extraordinary items have
disproportionately and materially affected the number of the Eligible
Company's common shares and equivalent common shares outstanding or
Common Stockholders' Equity, or (b) adjustment is desirable to take into
account the award of Book Value Share Units in an Eligible Company (and
Combination Units subsequently converted into such Book Value Share
Units) under the Plan in determining the appropriate Book Value for such
Eligible Company.
Section 2.07 "Combination Unit" shall mean a credit to the
Account of a Participant under the Plan which will be treated, when and
as the Committee in its sole discretion shall determine in accordance
with Section 4.04, as either a Book Value Share Unit or a Market Value
Share Unit.
Section 2.08 "Committee" shall mean the Committee provided for
in Section 8.01 hereof.
Section 2.09 "Common Stock" shall mean the common stock of an
Eligible Company.
Section 2.10 "Common Stockholders Equity" shall mean the total
stockholders' equity as reflected in the balance sheet of an Eligible
Company as of the end of a designated fiscal period less the liquidating
value of the outstanding shares of preferred stock which are not common
share equivalents for the purpose of computing primary earnings per
share.
Section 2.11 "Company" shall mean Safeguard Scientifics, Inc.,
a corporation organized and duly existing under the laws of the
Commonwealth of Pennsylvania.
Section 2.12 "Eligible Company" shall mean any Subsidiary or
other corporation, organization, partnership, joint venture or other
business entity which is not a Subsidiary but in which the Company has
an investment and with respect to which Share Units may be awarded
pursuant to Section 4.02.
Section 2.13 "Fiscal Year" shall mean the annual accounting
period of the Company, whether it be the calendar year or some other
fiscal year.
Section 2.14 "Key Employee/Associate" shall mean any executive
officer or senior management employee of the Company or of an Affiliate,
or any other person associated with the Company or an Affiliate, who has
been designated as such by the Committee, and includes any Senior Key
Employee.
Section 2.15 "Market Value Share Unit" shall mean a credit to
the Account of a Participant under the Plan which has the same value, at
any date to which reference is made, as the fair market value per share
of the Common Stock as of the same date. Fair market value, for the
purposes hereof, shall be (1) if the Common Stock is traded on an
organized stock exchange or in a reported over-the-counter market, the
average of the last trade price (closing price) of the stock on the last
ten (10) trading days on which shares of the stock were traded preceding
the date of reference, or, if last trade prices are not reported, the
average over such ten-trading-day period of the mean of the bid and
asked prices reported with respect to the Common Stock, and (2) if the
stock is not so traded, then the fair market value determined pursuant
to such formulae or methods as are adopted by the Committee for this
purpose.
Section 2.16 "Participant" shall mean a Key Employee/Associate
to whom an Award of Share Units has been made under the Plan.
Section 2.17 "Plan" shall mean the Safeguard Scientifics, Inc.
Long Term Incentive Plan, as set forth herein, and as the same may
hereafter be amended.
Section 2.18 "Restricted Stock" shall mean Common Stock that is
distributed by the Company to a Participant under an Award of Restricted
Stock.
Section 2.19 "Senior Key Employee" shall mean any executive
officer or senior management employee of the Company or of an Affiliate
who has been designated a Senior Key Employee by the Committee.
Section 2.20 "Share Unit" shall mean a credit to the Account of
a Participant which is either a Book Value Share Unit, a Market Value
Share Unit, a Combination Unit or a share of Restricted Stock.
Section 2.21 "Subsidiary" shall mean any corporation now
existing or hereafter organized or acquired in which the Company and/or
any of its majority owned subsidiaries own stock possessing more than
fifty percent (50%) of the combined voting power of all classes of stock
in such corporation.
Section 2.22 "Stock Appreciation Right Unit" shall mean a Share
Unit that is a Book Value Share Unit, a Market Value Share Unit or a
Combination Unit.
ARTICLE III
ELIGIBILITY
Section 3.01 Eligibility as Key Employee/Associate Generally
An executive officer or senior management employee of the
Company or of an Affiliate, or other person associated with the Company
or an Affiliate, shall become a Key Employee/Associate eligible to
receive Awards under the Plan when he or she is designated as such by
the Committee. Such designation as a Key Employee/Associate may be
revoked by the Committee, but any such revocation shall be prospective
only and shall have no effect on any Awards of Share Units previously
made to such person.
Section 3.02 Eligibility as Senior Key Employee. An executive
officer or senior management employee of the Company or of an Affiliate
shall become a Senior Key Employee eligible to receive Awards of
Restricted Stock under the Plan when he or she is designated as such by
the Committee. Such designation as a Senior Key Employee may be revoked
by the Committee (whether or not the designation as a Key
Employee/Associate is also revoked), but any such revocation shall be
prospective only and shall have no effect on any Awards of Restricted
Stock previously made to such employee. Only Senior Key Employees shall
be eligible to receive awards of Restricted Stock.
ARTICLE IV
AWARDS
Section 4.01 Awards Generally. The number
and nature of Share Units to be awarded to any
Key Employee/Associate (who, by reason of such Award, becomes a
"Participant") shall be determined by the Committee. Each Award
determined for a Participant with respect to an Eligible Company may be
in any combination of Share Units, will provide such vesting and payment
terms as the Committee determines in accordance with Articles VI and
VII, respectively, and need not be similar in the number or kinds of
Share Units awarded to any other Participant with respect to that
Eligible Company; provided, that Restricted Stock may be awarded only to
Senior Key Employees. Awards may be made in whole or in fractional
Share Units, or in a combination thereof, except that Awards made in
Restricted Stock shall be made only in whole Share Units.
Section 4.02 Determination of Eligible Companies and Related
Awards. Each Fiscal Year, the Committee shall propose to
the Board of Directors those Eligible Companies with respect to which it
recommends Awards should be made for that year and the maximum number of
Share Units it proposes to award for that Year. Upon approval of its
recommendation and subject to the form in which approved, the Committee,
in its sole discretion, shall determine the Key Employee/Associates who
are to share in each such Eligible Company's Awards and the number and
kinds of Share Units to be awarded to such Key Employee/Associates with
respect to each such Eligible Company for that Year.
Section 4.03 Composition of Awards. In allocating the Award with
respect to an Eligible Company among the Key Employee/Associates who are to
share in it, the Committee, in its sole discretion, shall determine the number
and kinds of Share Units to be allocated to each Key Employee/Associate,
and the number of Share Units awarded need not be uniform among each Key
Employee/Associate. The Committee may, in its sole discretion, award
to a Key Employee/Associate both Stock Appreciation Right Units and, if
such Key Employee/Associate is a Senior Key Employee, Restricted Stock
with respect to an Eligible Company. If, in a later Fiscal Year,
another Award is made with respect to an Eligible Company, the
Committee's discretion to determine which Key Employee/Associates are to
share in the Award and the number and kinds of Share Units to be
allocated to each shall not be affected or limited by its earlier
determinations.
Section 4.04 Conversion of Combination Units. The Committee, in
its sole discretion, shall determine when, and in what proportions,
Combination Units awarded earlier with respect to an Eligible Company are
to be converted into either Book Value Share Units or Market Value Share
Units. The proportion of the conversion and the time chosen for the
conversion of the Combination Units awarded with respect to an Eligible
Company for a particular Fiscal Year shall not limit the Committee's
discretion to determine a different proportion or time for Combination
Units awarded in that same Eligible Company for any other Fiscal Year.
Section 4.05 Awards of Restricted Stock. The prospective recipient
of Restricted Stock 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. The Committee shall fix all applicable terms and conditions of
the Award, subject to the terms and conditions of the Plan. The
Committee may fix a purchase price for shares of Restricted Stock, which
may be zero. Awards of Restricted Stock may be accepted within a period
of 30 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 purchase price (if any) is required. Each
Participant receiving a Restricted Stock Award shall be issued a
certificate in respect of the shares of Restricted Stock covered by such
Award. 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. 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 Restricted Stock covered by such Award. All
voting rights with respect to any Restricted Stock shall be exercised by
the Company until such Restricted Stock is released to the Participant
pursuant to Article VII.
Section 4.06 Restricted Stock Award Loans. The Committee may, in
its discretion, provide a full recourse loan ("Loan") to any Senior Key
Employee receiving a Restricted Stock Award in an amount sufficient to
pay the related taxes on the compensation resulting from the Award.
Each Loan shall bear interest at not less than a rate sufficient to
avoid the imputation of interest for federal income tax purposes, and
shall mature in not more than two years. Each Loan shall be secured by
a pledge of the Restricted Stock covered by the Award. Each Loan shall
be immediately due upon termination of employment. The Committee may
establish the terms and conditions of each Loan subject to the
limitations expressed in this Plan and shall have the authority, in its
discretion, to amend, modify or waive any term of any outstanding Loan.
Section 4.07 Notification and Annual Statements. Each
Participant shall be notified in writing of each award made to him or to
her, of the vesting requirements and payment commencement date
applicable to each such Award, of any special considerations determined
by the Committee which might bear on the valuation of the Share Units
awarded, of the terms of any Loan offered, and of any other terms and
conditions imposed by the Committee on any such Award.
After the close of each Fiscal Year, the Committee shall furnish
each Participant a statement showing the status of such Participant's
various Awards. This annual statement shall be in such form as the
Committee shall prescribe and shall include such information as the
Committee shall determine, including, but not by way of limitation, the
extent to which such Participant is vested in each such Award, the
payment commencement date in effect for each such Award, the number and
kinds of Share Units comprising each such Award, the Book Value or
Market Value, as the case may be, as of the close of the Fiscal Year for
the Share Units awarded such Participant and the status of any Loans
made to the Participant.
Each Participant is expected to be aware of the terms and
conditions of the Plan applicable to Awards hereunder.
A Participant may request from the Committee an explanation of any
provision of the Plan or of any terms and conditions imposed by the
Committee, generally upon all Awards or upon a particular Award.
Requested explanations will be furnished by the Committee, or such
person or agent as it may designate for this purpose, as soon as
reasonably practicable after the Committee has received, and had an
opportunity to consider, the request.
ARTICLE V
ACCOUNTS
Section 5.01 Share Accounts. The Company shall record in a Book
Value Share Unit Account with respect to each Participant, the number of
Book Value Share Units awarded to the Participant. The Company shall
record in a Market Value Share Unit Account with respect to each Participant,
the number of Market Value Share Units awarded to the Participant. The
Company shall record in a Combination Unit Account with respect to each
Participant,the number of Combination Unit awarded to the Participant. The
Company shall record in a Restricted Stock Account with respect to each
Participant, the number of shares of Restricted Stock awarded to the
Participant. Participants may be awarded Book Value Share Units, Market
Value Share Units, Combination Units or, if the Participants are Senior
Key Employees, Restricted Stock.
Section 5.02 Effect of Cash Dividends on Stock Appreciation
Right Units. Whenever an Eligible Company shall pay cash
dividends on its Common Stock, the amount payable on each share of
Common Stock shall be creditable, if at all, on the dividend record date
as follows: Amounts creditable with respect to Book Value Share Units
shall be held as an account entry until the last day of the Fiscal Year
in which such amount became creditable, and shall be divided by the Book
Value per share of the Common Stock as of the last day of such Fiscal
Year. The quotient so determined shall be considered additional Book
Value Share Units and shall be credited (as full and fractional Book
Value Share Units) to the Participant's Book Value Share Unit Account.
Cash Dividends shall not be creditable with respect to Market Value
Share Units. Amounts creditable with respect to Combination Units shall
be held as an account entry until the Committee shall determine whether,
and to what extent, such Combination Units are to be converted into Book
Value Share Units, whereupon such amounts shall be included in the
adjustment of such Combination Units to Book Value Share Units so that
the effect will be the same as if the Committee's determination had been
known at the time such amounts were creditable. No dividend credits
shall be made to the Account of any Participant whose Stock Appreciation
Right Units are converted to cash or to a payment obligation prior to
the dividend record date.
Section 5.03 Effect of Stock Dividends on Stock Appreciation
Right Units. Any stock dividend paid on Common Stock will
result in an adjustment of a Participant's Stock Appreciation
Right Units so that the number of such Participant's Book Value Share
Units, Market Value Share Units and Combination Units will be increased
by the same percentage as the percentage increase in the holding of
Common Stock of each shareholder resulting from the payment of such
dividends. All such adjustments shall be effective as of the stock
dividend record date, and no adjustment will be made with respect to
Accounts that are converted to cash or to a payout obligation prior to
the dividend record date.
Section 5.04 Effect of Stock Splits on Stock Appreciation Right
Units. In case the number of outstanding shares of Common Stock
of any Eligible Company shall be increased or decreased by
way of a stock split, reverse stock split, recapitalization, or other
similar means, the number of Stock Appreciation Right Units held in the
Accounts of the Participants and the cost basis ascribable to each will,
in such manner as the Committee shall determine, be adjusted to correct
and compensate for such occurrence.
Section 5.05 Effect of Merger, Consolidation or
Reorganization on Stock Appreciation Right Units.
In case the Company shall effect a merger, consolidation or
other reorganization pursuant to which the outstanding shares of Common
Stock of an Eligible Company shall be exchanged for other shares or
securities of that Eligible Company or of another corporation resulting
from such merger, consolidation or other reorganization, the rights of
Participants in the Plan which are measured by reference to Common Stock
of that Eligible Company in connection with Stock Appreciation Right
Units shall be measured by reference to the kind and number of shares or
other securities of that Eligible Company or of such other corporation
which would have been issuable to such Participant in respect of the
Stock Appreciation Right Units which were standing to such Participant's
credit under the Plan as of the date of the transaction, treating each
such Stock Appreciation Right Unit as a share of Common Stock for this
purpose. Any adjustments under this Section 5.05 shall be determined by
the Committee in its sole discretion, and its determination shall be
conclusive and binding upon all parties.
Section 5.06 Effect of Changes in Common Stock on Restricted
Stock. If any change is made to the Common Stock of an
Eligible Company with respect to which Participants have received
Restricted Stock (whether such change occurs by reason of merger,
consolidation, reorganization, recapitalization, stock dividend, stock
split, combination of shares, or exchange of shares or any other change
in capital structure made without receipt of consideration), then,
unless such event or change results in the termination of all
outstanding Awards under the Plan, any new, substituted or additional
securities distributed with respect to the Restricted Stock shall be
immediately subject to the restrictions imposed upon such Restricted
Stock to the same extent that the Restricted Stock immediately prior
thereto shall have been covered by such provisions.
ARTICLE VI
VESTING
Section 6.01 Vesting Generally. Subject
to all the provisions of this Article VI, Share Units
in an Eligible Company credited to the Account of a
Participant in any Fiscal Year shall become vested in accordance with
such vesting schedule as the Committee, in its sole discretion, shall
determine for the Share Units awarded in that Eligible Company for that
fiscal Year. In general, it is intended that Share Units normally will
vest in not less than three (3) nor more than six (6) years. The
Committee will establish the vesting schedule for Share Units awarded
with respect to each Eligible Company for a Fiscal year. Each such
schedule can vary from Fiscal Year to Fiscal Year, can differ among
eligible Companies, and can be either "cliff vesting" (ie., one hundred
percent (100%) vesting only after completion of the designated vesting
period) or "cumulative vesting" (i.e., a certain percentage, vesting
ratably each year over the designated vesting period). Restricted Stock
shall in any event vest fully in not more than ten (10) years. The
Committee will advise each Participant of the vesting schedule chosen
for each Award of Share Units in an Eligible Company made to the
Participant.
Notwithstanding the vesting schedule(s) previously chosen for
Awards made with respect to a particular Eligible Company, if the
Eligible Company is sold, spun off completely or otherwise disposed of
in its entirety before the established date(s) for one hundred percent
(100%) vesting under such schedule(s) and the minimum threshold level
specified for the applicable Award has been achieved, all such schedules
will be accelerated for Participants then currently employed by the
Company or any Affiliate. If the disposition of an Eligible Company is
not a complete disposition, the Committee, in its sole discretion, shall
determine whether and to what extent, if at all, the vesting schedule(s)
previously chosen for Awards made with respect to that Eligible Company
are to be accelerated.
Subject to the provisions of the following Section, vesting shall
cease upon a Participant's separation from the service of the Company
and all Affiliates, and any unvested portion of the Participant's
Account or Restricted Stock shall be forfeited.
With respect to Restricted Stock awarded pursuant to the Plan,
"vesting" shall mean, for purposes of the Plan, the termination of the
restrictions imposed under the Plan, subject only to the Company's right
to require forfeiture under the terms of the Plan prior to release of
such Restricted Stock to the Participant pursuant to Article VII.
Section 6.02 Vesting Upon Death, Retirement or Disability.
In the event of the death of a Participant, the Participant's Account or
Restricted Stock will be deemed fully vested as of the date of the
Participant's death. If a Participant's employment terminates at or
after the Participant's sixty-fifth birthday, or after such earlier date
as may be determined by the Committee (in its sole discretion) to be
warranted given the particular circumstances surrounding the earlier
termination of employment of that Participant, the Participant's Account
or Restricted Stock will be deemed fully vested as of the date of such
termination of employment. In the event of the termination of the
Participant's employment by reason of disability, the Participant will
continue to vest in accordance with the Participant's various applicable
schedules, as though the Participant's employment had not terminated,
for the period of the continued disability and, if the Participant
recovers from the disability and returns to employment with the Company
or an Affiliate upon such recovery, for the period of the Participant's
reemployment, treating both such periods as a period of continuous
employment. If the Participant recovers from the disability and does
not then return to employment with the Company or an Affiliate, such
vesting will terminate and the unvested portion (determined as of the
date of such recovery) shall be forfeited. Notwithstanding the
foregoing, upon such a disabled Participant's attainment of age 65 or
upon the Participant's death, whichever is the earlier to occur, he or
she shall be deemed to be fully vested.
For the purposes hereof, disability shall be any physical or mental
condition of such severity and probable prolonged duration as to render
it unlikely, in the judgment of the Committee, that the Participant
either will be able to resume the duties he or she was performing for
his or her employer prior to the onset of the condition with respect to
which the disability is alleged, or will be able to maintain substantial
gainful employment in any capacity to which he or she is suited by
reason of training, education or employment experience in the
foreseeable future. The Committee may rely, in making any such
determination, upon the judgment of one or more medical practitioners
selected by it and upon such evidence as is presented by the
Participant. No determination of disability shall be made if the
Participant fails to provide such evidence as is required by the
Committee and/or fails to submit to examination by the medical
practitioner(s), if any, selected by the Committee. Recovery from
disability shall be deemed to have occurred upon the earliest of (a) the
date on which the Participant resumes substantial gainful employment of
the kind described above, (b) the date on which a medical practitioner
appointed by the Committee determines that the Participant is no longer
so disabled and is capable of maintaining gainful employment of the kind
described above, or (c) the date on which the Participant refuses to
submit to a medical examination or refuses to provide such medical data
as the Committee determines necessary for the purpose of certifying the
Participant's continuing condition of disability.
Section 6.03 Conditions. The vesting provided for in Sections
6.01 and 6.02 shall be subject to all the provisions of this Article VI
and shall occur only if the Participant has been employed continuously by
the Company or by an Affiliate since the date of the Award. A leave of
absence with the consent of the Company, unless otherwise determined by the
Committee, shall not be deemed to constitute a cessation of employment for
the purpose of this Article VI, but further vesting shall be suspended
during any such leave of absence, and shall resume only upon return to
employment immediately upon the expiration of such leave of absence,
treating service prior to and subsequent to such leave of absence for
purposes of determining the Participant's vested percentage.
Section 6.04 Divestiture. In the event
that the Committee determines that a former Key Employee/
Associate has entered into the employ of, has otherwise
agreed to perform services (directly or indirectly) for, or, in the case
of a company the shares of which are not widely held and publicly
traded, has made a substantial investment in, any enterprise (whether it
be a corporation, a proprietorship, a partnership, a joint venture, or
any other commercial arrangement) which is in competition with the
Company or any Affiliate, such Key Employee/Associate's entire interest
under the Plan, regardless of the extent to which then vested or
otherwise converted to a payment obligation, shall be forfeited. The
Committee, in its sole discretion, shall determine whether an enterprise
shall be considered to be in competition with the Company or an
Affiliate of the Company.
If a Participant's employment with the Company or an Affiliate is
terminated for cause, the Participant's entire interest under the Plan,
regardless of the extent to which then vested or otherwise converted to
a payment obligation, shall be forfeited. For the purposes of the Plan,
"cause" shall mean the failure or refusal of a Participant to perform
(other than by reasons of illness, injury or incapacity) such
Participant's duties as a Key Employee/Associate, dishonesty, misconduct
or action on the part of a Participant that is damaging or detrimental
to the Company or an Affiliate, or for any other reason deemed
sufficient by the Committee, in its sole discretion, for the discharge
of a Participant for "cause." A termination for "cause" will include
any resignation in anticipation of discharge for "cause" or accepted by
the Company or Affiliate then employing the Participant in lieu of a
formal discharge for "cause." The determination by the Committee of
"cause" shall be conclusive and binding upon all parties. Such a
determination that a Participant's termination of employment is for
"cause" may be made by the Committee after such termination if the facts
and circumstances were not sufficiently known to the Committee at the
time of such termination for it to have made a determination of "cause"
at the time of such termination. The decision to make any such after-
the-fact determination of "cause" will be solely in the Committee's
discretion and, if such an after-the-fact determination of "cause" is
made, to the extent then possible it will be given effect for all
purposes of the Plan as if it had been made at the time of the
Participant's termination of employment.
The Committee may, in its sole discretion, establish other
circumstances in which Share Units will be forfeited.
ARTICLE VII
BENEFIT PAYMENTS
Section 7.01 Payment or Release Commencement Date;
Payment or Release Obligation. The Committee shall
establish the payment or release commencement date for Share Units
awarded with respect to each Eligible Company. This date can be either
at the time the Share Units become one hundred percent (100%) vested or
at such later date as may be selected by the Committee. Notwithstanding
the payment or release date originally selected, the Committee can
decide, in its sole discretion but upon a uniform basis applicable to
all Participants:
(a) to accelerate or postpone the payment or release
commencement date previously chosen for the Share Units awarded in a
particular Eligible Company if the Committee determines that changed
circumstances warrant such decision; and
(b) to begin payments of amounts due to a Participant or
release a Participant's Restricted Stock upon the Participant's death,
retirement, disability or other termination of employment; provided that
the Committee may at any time except from the operation of any such
decision, Share Units awarded with respect to a particular Eligible
Company when, in its sole discretion, such an exception is warranted,
and further provided that the Committee may revoke any such early
commencement decision for all Participants then employed by the Company
or any Affiliate.
Notwithstanding any other provision of the Plan, in no event shall
the release date for any Award of Restricted Stock occur more than ten
(10) years after the date of grant.
Upon the payment or release commencement date for the Share Units
awarded with respect to an Eligible Company, each Participant, former
Participant or beneficiary, as the case may be, credited with any such
Share Units shall have such Participant's vested Stock Appreciation
Right Units in that Eligible Company converted to a payment obligation
of the Company, as set forth in Sections 7.02, 7.03 and 7.04 hereof and
receive certificates for such Participant's shares of Restricted Stock
as set forth in Section 7.06 hereof.
Section 7.02 Conversion of Book Value Share Units. The
payment obligation into which the Participant's vested Book Value Share
Units in an Eligible Company are converted shall be equal to the sum of:
(a) The product determined by multiplying the Book Value
per share of Common Stock, determined as of the last day of the Fiscal
Year preceding the year in which the payment commencement date occurs,
by the number of full and fractional Book Value Share Units held in the
Participant's Account which were credited to such Account as provided in
Section 5.02 by reason of dividends paid on the Common Stock of that
Eligible Company; and
(b) The net aggregate Book Value Share Unit appreciation,
if any, generated by the Participant's Account with respect to Book
Value Share Units of that eligible company credited to such Account by
direct Award. For the purposes hereof, the net aggregate Book Value
Share Unit appreciation shall be the amount by which (i) exceeds (ii);
where (i) is the product determined by multiplying the Book Value per
share of Common Stock of that Eligible Company, determined as of the
last day of the Fiscal Year preceding the year in which the payment
commencement date occurs, by the number of such Book Value Share Units
held in the Participant's Account which were credited to such Account by
reason of Awards, and (ii) is the sum of the cost basis ascribed to such
Book Value Share Units. The cost basis ascribed to each such Book Value
Share Unit shall be either the Book Value of a share of such Common
Stock as of the last day of the Fiscal Year in which the Book Value
Share Unit being valued was credited to the Participant's Book Value
Share Unit Account or such higher amount as the Committee shall have
determined (which may be a definite amount or an amount to be determined
pursuant to such special considerations and factors as the Committee
determines should bear on such valuation) at the time such Book Value
Share Units were awarded.
7.03 Conversion of Market Value Share Units. The payment
obligation into which the Participant's vested Market Value Share Units
in an Eligible Company are converted shall be equal to the net aggregate
Market Value Share Unit appreciation, if any, generated by the
Participant's Account with respect to Market Value Share Units of that
Eligible Company credited to such Account. For the purposes hereof, the
net aggregate Market Value Share Unit appreciation shall be the amount
by which (i) exceeds (ii); where (i) is the product determined by
multiplying the fair market value per share of Common Stock of that
Eligible Company, determined as of the payment commencement date, by the
number of such Market Value Share Units held in the Participant's
Account, and (ii) is the sum of the cost basis ascribed to such Market
Value Share Units. The cost basis ascribed to each such Market Value
Share Unit shall be either the fair market value of a share of such
Common Stock as of the date of the Award, determined pursuant to the
provisions of Section 2.15 hereof, or such higher amount as the
Committee shall have determined (which may be a definite amount or an
amount to be determined pursuant to such special considerations and
factors as the Committee determines should bear on such valuation) at
the time such Market Value Share Units were awarded.
Section 7.04 Conversion of Combination Units. The payment
obligation into which the Participant's vested Combination Units in an
Eligible Company are converted shall be determined by converting such
Combination Units into Book Value Share Units or Market Value Share Units
in such proportions and in such manner as the Committee in its sole
discretion pursuant to Section 4.04 determines, and then applying
Sections 7.02 and 7.03, as applicable.
Section 7.05 Method of Payment The Company shall pay to the
Participant, or, if the Participant is deceased, the Participant's
designated beneficiary(or if there be no surviving designated beneficiary,
the Participant's estate) the aggregate amount of the payment obligations
calculated pursuant to the provisions of Section 7.02, 7.03 and 7.04 hereof.
Payments shall be made, in the sole discretion of the Committee, either
(a) as a single-sum distribution, or (b) in installments of principal,
as nearly equal as possible, over such period, not in excess of four (4)
years, as the Committee shall determine.
If payment is being made in installments, the first installment
shall be paid as of the same date as would a single sum distribution.
Each subsequent installment paid shall include interest at a rate two
percent (2%) less than the Company's borrowing rate from time to time in
effect while the installment is unpaid, computed on a simple basis,
without compounding, from the date the first installment was paid to the
date the installment is paid.
The Committee shall determine whether payment is to be made in
cash, in stock, or in a combination of cash and stock of the Eligible
Company with respect to which the payment obligation was determined. If
payment is to be made in a combination of cash and stock, the Committee,
in its sole discretion, may give the Participant or beneficiary entitled
to receive payment an election to choose the proportion of cash or stock
he or she wishes to receive.
Section 7.06 Release of Restricted Stock. The certificates
for Common Stock covered by an award of Restricted Stock shall be
promptly delivered to the Participant upon the release date selected
by the Committee as provided in Section 7.01.
Section 7.07 Designation of Beneficiaries. With respect to Stock
Appreciation Right Units, Participants shall have the right to designate
any beneficiary in writing, and to change such designations from time to
time. All beneficiary designations shall be on forms prescribed by the
Committee, and no such designation shall be effective until delivered to
the Committee. However, after delivery has been made to the Committee
of any beneficiary designation properly executed, such designation shall
be deemed effective as of the date of its making, and shall be binding
upon the Company, the Affiliates, the Committee and the Plan except to
the extent that any of such parties have taken action inconsistent
therewith made any payments inconsistent therewith or prior to the
delivery of the same to the Committee.
Section 7.08 Restrictions on Transfer. No Participant may
anticipate, alienate, pledge, transfer or otherwise dispose of any of
such `Participant's Share Units, Restricted Stock or any related payment
or release obligations under any circumstance, except that rights of any
Participant with respect to Restricted Stock may be assigned or
transferred solely by will or the laws of descent or distribution. This
Section shall not apply to Restricted Stock after the release pursuant
to Section 7.06.
ARTICLE VIII
COMMITTEE
Section 8.01 Composition. The Committee shall be the
Compensation Committee of the Board of Directors or such other
Committee of the Board of Directors as may be designated by the
Board, as such Committee may, from time to time, be constituted.
Section 8.02 Award Determination. The Committee shall have the
authority to (a) select the employees and other persons associated with
the Company to receive awards of Share Units, (b) determine the nature of
the Share Units to be awarded, (c) impose any restrictions or conditions
it deems appropriate on the grant of any Award of Share Units, and (d)
make Awards. In determining what Awards to make, the Committee shall
consider those employees and other persons associated with the Company
who by their industry, loyalty, or exceptional service have made and are
making contributions of special importance to the management, operation
and development of the business of the Company.
Section 8.03 Administration. The Plan shall be administered by
the Committee which shall have full power and authority to construe and
administer the Plan and to adopt such rules and regulations for the
administration of the Plan as it may deem advisable. Any action taken
under the provisions of the Plan by the Committee arising out of or in
connection with the administration of the Plan or any rules adopted
thereunder, shall, in each case, lie within the sole discretion of the
Committee and shall be conclusive and binding upon all employees,
Participants, and persons claiming under or through any of them.
Section 8.04. The Committee has authority to supervise the Accounts
maintained by the Company pursuant to Article V hereof.
Section 8.05 Expenses. Members of the Committee shall serve
without compensation for services as such, unless otherwise determined
by the Board of Directors. All expenses of administering the Plan shall
be paid by the Company.
Section 8.06 Self Interest. No member of the Committee shall
participate in any decisions of the Committee (1) making an Award to such
member, or (2) involving any determination by the Committee with respect
to any of such member's Awards.
Section 8.07 Indemnity. Notwithstanding any other indemnification
obligations of the Company or pursuant to any insurance coverage which may
be applicable, the Company shall indemnify and hold harmless each member of
the Committee from any and all claims, losses, damages, expenses
(including counsel fees approved by the Committee), and liability
(including any amounts paid in settlement with the Committee's approval)
arising from any act or omission of such member, except when the same is
due to the gross negligence or willful misconduct of such member.
ARTICLE IX
MISCELLANEOUS
Section 9.01 Right of Company to Terminate Employment.
Nothing contained herein or in any Award made pursuant hereto shall
interfere in any way with the right of the Company or any Affiliate, as
the case may be, to terminate the employment of any Participant employed
by it at any time for any reason, without liability to the Participant
hereunder for having done so.
Section 9.02 Governing Law. The Plan shall be governed and
construed in accordance with the laws of the Commonwealth of Pennsylvania.
Section 9.03 Binding Effect. The obligations of the Company
under the Plan shall be binding upon any successor corporation or
organization which shall succeed to substantially all of the assets and
business of the Company, and the term "Company," whenever used in the Plan,
shall mean and include any such corporation or organization after such
succession. If the business conducted by the Company shall be discontinued,
any unpaid installments under the Plan shall become payable in a single sum
to the person or persons entitled such installments.
Section 9.04 Participant's Rights Unsecured. The right of any
Participant or beneficiary to receive a distribution or payment under
the Plan shall be an unsecured claim against the general assets of the
Company.
Section 9.05 Severability of Provisions. If any provision of the
Plan shall be held invalid or unenforceable, such invalidity or
unenforceability shall not affect any other provisions whereof, and the
Plan shall be construed and enforced as if such provisions had not been
included.
Section 9.06 Headings and Captions. The headings and captions
herein are provided for reference and convenience only, and shall not be
considered part of the Plan, and shall not be employed in the construction
of the Plan.
Section 9.07 Gender and Number. Except where otherwise clearly
indicated by the context, the masculine and the neuter shall include the
feminine and the neuter, the singular shall include the plural, and
vice-versa.
Section 9.08 Payments to Minors, Etc. Any benefit payable to or
for the benefit of a minor, an incompetent person, or any other person
incapable of receipting therefor shall be deemed paid when paid to such
person's guardian or to the party providing or reasonably appearing to
provide for the care of such person, and such payment shall fully
discharge the Company, the Committee, the Affiliates and all other parties
with respect thereto.
Section 9.09 Effective Date. The Plan shall be effective as of
December 1, 1983. If any Award is made under the Plan prior to approval by
the shareholders of the Company, such Award shall be contingent upon such
approval and shall not be final until such approval has occurred.
ARTICLE X
AMENDMENT AND TERMINATION
Section 10.01 Amendment and Termination. The Board of Directors
may at any time terminate the Plan, and, from time to time prior to any
such termination, may amend, modify or suspend the Plan.
PROMISSORY NOTE
$____________ December 22, 1994
In consideration of the loan (hereinafter referred to as a
"Loan") Safeguard Scientifics, Inc., a Pennsylvania corporation (the
"Lender"), has made to ______________ an individual residing at
______________________ (the "Borrower"), and for value received, the
Borrower hereby promises to pay to the order of the Lender, at the
Lender's office located at 800 The Safeguard Building, 435 Devon Park
Drive, Wayne, PA 19087-1945 or at such other place in the continental
United States as the Lender may designate in writing, in lawful money of
the United States, and in immediately available funds, the principal sum
of $_____________, together with interest thereon at the rate
hereinafter set forth.
The unpaid principal balance of the Note shall be paid in two
equal annual installments on the first and second anniversaries of the
date of this Note. Interest on the outstanding principal amount of the
Note shall accrue from the date hereof at a per annum rate equal to
6.55% and shall be paid on the first and second anniversaries of the
date of this Note. In the event of Borrower's termination of
employment, the unpaid principal balance and all accrued interest
thereon shall be paid in full.
This Note and all of the Borrower's obligations hereunder are
secured by the pledge by the Borrower of certain shares of common stock
acquired by the Borrower under the Lender's Long Term Incentive Plan
(the "Pledged Stock") pursuant to the terms and conditions of a Pledge
Agreement (the "Pledge Agreement") of even date herewith between the
Borrower and the Lender. Notwithstanding the foregoing, the Borrower
shall remain liable to the Lender for any deficiency remaining after any
foreclosure of the pledge pursuant to the Pledge Agreement.
All payments made on this Note (including, without limitation,
prepayments) shall be applied, at the option of the Lender, first to
late charges and collection costs, if any, then to accrued interest, if
any, and then to principal. Any interest payable hereunder shall be
calculated for actual days elapsed on the basis of a 360-day year.
The outstanding principal amount of this Note, together with
accrued interest, may be prepaid in whole or in part without any
prepayment penalty or premium at any time or from time to time by the
Borrower upon notice to the Lender.
Notwithstanding anything in this Note, the interest rate
charged hereon shall not exceed the maximum rate allowable by applicable
law. If any stated interest rate herein exceeds the maximum allowable
rate, then the interest rate shall be reduced to the maximum allowable
rate, and any excess payment of interest made by the Borrower at any
time shall be applied to the unpaid balance of any outstanding principal
of this Note.
An event of default hereunder shall consist of:
(i) a default in the payment by the Borrower to the Lender
of principal or interest under this Note as and when the same shall
become due and payable;
(ii) an event of default by the Borrower under any other
obligation, instrument, note or agreement with the Lender for borrowed
money, beyond any applicable notice and/or grace period;
(iii) any default in the performance of the Obligations of
the Borrower under the Pledge Agreement (the "Pledge Agreement") dated
the date hereof between the Borrower and the Lender, such default
continuing after 15 days notice thereof from the Lender to the Borrower;
(iv) any representation or warranty set forth in Paragraph
A of the Pledge Agreement proves to be untrue; provided, the Borrower
will have 48 hours after notice by the Lender to cure any untrue
representations and warranties unless the Lender, in its reasonable
discretion, will be materially and adversely affected by allowing such
cure period; or
(v) institution of any proceeding by or against the
Borrower under any present or future bankruptcy or insolvency statute or
similar law and, if involuntary, if the same are not stayed or dismissed
within 60 days, or the Borrower's assignment for the benefit of
creditors or the appointment of a receiver, trustee, conservator or
other judicial representative for the Borrower or the Borrower's
property or the Borrower's being adjudicated a bankrupt or insolvent.
Upon the occurrence of any event of default, interest shall
accrue on the outstanding balance of this Note at a per annum rate equal
to 8.55%, the entire unpaid principal amount of this Note and all unpaid
interest accrued thereon shall, at the sole option of the Lender,
without notice, become immediately due and payable, and the Lender shall
thereupon have all the rights and remedies provided hereunder or now or
hereafter available at law or in equity.
The Borrower hereby waives presentment, demand, protest and
notice of dishonor and protest, and also waives all other exemptions;
and agrees that extension or extensions of the time of payment of this
Note or any installment or part thereof may be made before, at or after
maturity by agreement by the Lender. The Borrower shall pay to the
Lender, upon demand, all costs and expenses, including, without
limitation, attorneys' fees and legal expenses, that may be incurred by
the Lender in connection with the enforcement of this Note.
Any failure by the Lender to exercise any right hereunder
shall not be construed as a waiver of the right to exercise the same or
any other right at any time. No amendment to or modification of this
Note shall be binding upon the Lender unless in writing and signed by
it.
Notices required to be given hereunder shall be deemed validly
given (i) three business days after sent, postage prepaid, by certified
mail, return receipt requested, (ii) one business day after sent,
charges paid by the sender, by Federal Express Next Day Delivery or
other guaranteed delivery service, (iii) when sent by facsimile
transmission, or (iv) when delivered by hand:
If to the Lender:
Safeguard Scientifics, Inc.
Attention: General Counsel
800 The Safeguard Building
435 Devon Park Drive
Wayne, PA 19087
If to the Borrower:
to the address set forth in the first
paragraph of this Note
or to such other address, or in care of such other person, as
holder or the Borrower shall hereafter specify to the other from time to
time by due notice.
Any provision hereof found to be illegal, invalid or
unenforceable for any reason whatsoever shall not affect the validity,
legality or enforceability of the remainder hereof.
This Note shall apply to and bind the successors of the
Borrower and shall inure to the benefit of the Lender, its successors
and assigns.
The Note shall be governed by and interpreted in accordance
with the laws of the Commonwealth of Pennsylvania.
The Borrower has duly executed this Note as of the date first
above written.
WITNESS:
The promissory note dated December 22, 1994 executed by certain of
the Company's executive officers and employee directors is identical in
all material respects except as to the borrower and the amount of the
note. The following schedule identifies the material details in which
such promissory notes differ from the promissory note which is filed
herewith:
Borrower Amount of Note
Donald R. Caldwell $34,133.11
Charles A. Root $34,133.11
Delbert W. Johnson $14,712.53
Gerald M. Wilk $23,735.40
PROMISSORY NOTE
$________ January 3, 1995
In consideration of the loan (hereinafter referred to as a "Loan")
Safeguard Scientifics, Inc., a Pennsylvania corporation (the "Lender"),
has made to ______________ an individual residing at
_______________________ (the "Borrower"), and for value received, the
Borrower hereby promises to pay to the order of the Lender, at the
Lender's office located at 800 The Safeguard Building, 435 Devon Park
Drive, Wayne, PA 19087-1945 or at such other place in the continental
United States as the Lender may designate in writing, in lawful money of
the United States, and in immediately available funds, the principal sum
of $________, together with interest thereon at the rate hereinafter set
forth.
Interest on the outstanding principal amount of the Note shall
accrue from the date hereof at a per annum rate equal to 7.07%. The
unpaid principal balance of the Note, together with accrued interest
thereon, shall be paid on January 3, 1997. In the event of Borrower's
termination of employment, the unpaid principal balance and all accrued
interest thereon shall be paid in full.
This Note and all of the Borrower's obligations hereunder are
secured by the pledge by the Borrower of certain shares of common stock
acquired by the Borrower under the Lender's Long Term Incentive Plan
(the "Pledged Stock") pursuant to the terms and conditions of a Pledge
Agreement (the "Pledge Agreement") of even date herewith between the
Borrower and the Lender. Notwithstanding the foregoing, the Borrower
shall remain liable to the Lender for any deficiency remaining after any
foreclosure of the pledge pursuant to the Pledge Agreement.
All payments made on this Note (including, without limitation,
prepayments) shall be applied, at the option of the Lender, first to
late charges and collection costs, if any, then to accrued interest, if
any, and then to principal. Any interest payable hereunder shall be
calculated for actual days elapsed on the basis of a 360-day year.
The outstanding principal amount of this Note, together with
accrued interest, may be prepaid in whole or in part without any
prepayment penalty or premium at any time or from time to time by the
Borrower upon notice to the Lender.
Notwithstanding anything in this Note, the interest rate charged
hereon shall not exceed the maximum rate allowable by applicable law.
If any stated interest rate herein exceeds the maximum allowable rate,
then the interest rate shall be reduced to the maximum allowable rate,
and any excess payment of interest made by the Borrower at any time
shall be applied to the unpaid balance of any outstanding principal of
this Note.
An event of default hereunder shall consist of:
(i) a default in the payment by the Borrower to the Lender of
principal or interest under this Note as and when the same shall become
due and payable;
(ii) an event of default by the Borrower under any other
obligation, instrument, note or agreement with the Lender for borrowed
money, beyond any applicable notice and/or grace period;
(iii) any default in the performance of the Obligations of the
Borrower under the Pledge Agreement (the "Pledge Agreement") dated the
date hereof between the Borrower and the Lender, such default continuing
after 15 days notice thereof from the Lender to the Borrower;
(iv) any representation or warranty set forth in Paragraph A of
the Pledge Agreement proves to be untrue; provided, the Borrower will
have 48 hours after notice by the Lender to cure any untrue
representations and warranties unless the Lender, in its reasonable
discretion, will be materially and adversely affected by allowing such
cure period; or
(v) institution of any proceeding by or against the Borrower
under any present or future bankruptcy or insolvency statute or similar
law and, if involuntary, if the same are not stayed or dismissed within
60 days, or the Borrower's assignment for the benefit of creditors or
the appointment of a receiver, trustee, conservator or other judicial
representative for the Borrower or the Borrower's property or the
Borrower's being adjudicated a bankrupt or insolvent.
Upon the occurrence of any event of default, interest shall accrue
on the outstanding balance of this Note at a per annum rate equal to
9.07%, the entire unpaid principal amount of this Note and all unpaid
interest accrued thereon shall, at the sole option of the Lender,
without notice, become immediately due and payable, and the Lender shall
thereupon have all the rights and remedies provided hereunder or now or
hereafter available at law or in equity.
The Borrower hereby waives presentment, demand, protest and notice
of dishonor and protest, and also waives all other exemptions; and
agrees that extension or extensions of the time of payment of this Note
or any installment or part thereof may be made before, at or after
maturity by agreement by the Lender. The Borrower shall pay to the
Lender, upon demand, all costs and expenses, including, without
limitation, attorneys' fees and legal expenses, that may be incurred by
the Lender in connection with the enforcement of this Note.
Any failure by the Lender to exercise any right hereunder shall not
be construed as a waiver of the right to exercise the same or any other
right at any time. No amendment to or modification of this Note shall
be binding upon the Lender unless in writing and signed by it.
Notices required to be given hereunder shall be deemed validly
given (i) three business days after sent, postage prepaid, by certified
mail, return receipt requested, (ii) one business day after sent,
charges paid by the sender, by Federal Express Next Day Delivery or
other guaranteed delivery service, (iii) when sent by facsimile
transmission, or (iv) when delivered by hand:
If to the Lender:
Safeguard Scientifics, Inc.
Attention: General Counsel
800 The Safeguard Building
435 Devon Park Drive
Wayne, PA 19087
If to the Borrower:
to the address set forth in the first
paragraph of this Note
or to such other address, or in care of such other person, as holder or
the Borrower shall hereafter specify to the other from time to time by
due notice.
Any provision hereof found to be illegal, invalid or unenforceable
for any reason whatsoever shall not affect the validity, legality or
enforceability of the remainder hereof.
This Note shall apply to and bind the successors of the Borrower
and shall inure to the benefit of the Lender, its successors and
assigns.
The Note shall be governed by and interpreted in accordance with
the laws of the Commonwealth of Pennsylvania.
The Borrower has duly executed this Note as of the date first above
written.
WITNESS:
The promissory note dated January 3, 1995 executed by certain of the
Company's executive officers and employee directors is identical in all
material respects except as to the borrower and the amount of the note.
The following schedule identifies the material details in which such
promissory notes differ from the promissory note which is filed
herewith:
Borrower Amount of Note
Donald R. Caldwell $50,342.18
Charles A. Root $50,342.18
Delbert W. Johnson $20,975.91
Gerald M. Wilk $37,756.64
SECOND AMENDED AND RESTATED CREDIT AGREEMENT
AGREEMENT made as of this 1st day of February, 1995, by and
among:
MIDLANTIC BANK, N.A. (successor by merger to Continental
Bank), a national banking association, with an office at 1500 Market
Street, Philadelphia, Pennsylvania 19102 ("Bank"); and
SAFEGUARD SCIENTIFICS, INC., a Pennsylvania corporation, with
an office at 800 The Safeguard Building, 435 Devon Park Drive, Wayne,
Pennsylvania 19087 ("SSI"); and
SAFEGUARD SCIENTIFICS (DELAWARE) INC., a Delaware corporation,
with an office at 103 Springer Building, 3411 Silverside Road,
Wilmington, DE 19810 ("SSD") (SSI and SSD, individually, a "Borrower"
and, collectively, the "Borrowers").
The Borrowers have requested Bank to establish a certain
secured credit facility, and Bank is willing to do so under and subject
to the terms hereof.
NOW, THEREFORE, the parties hereto, intending to be legally
bound hereby, promise and agree as follows:
Article 1. Definitions.
Section 1.1 Terms Defined.
As used in this Agreement, the following terms shall have the
following respective meanings set forth below or set forth in the
section referred to following such term:
"Business Day" - any day other than Saturday, Sunday or
any other day on which commercial banks in Pennsylvania are authorized
or required to close under the laws of the Commonwealth of Pennsylvania
or by executive order.
"Capitalized Lease Obligations" - as to any Person, any
obligations of such Person to pay rent or other amounts under a lease of
(or other agreement conveying the right to use) real and/or personal
property which obligations are required to be classified and accounted
for as a capital lease on a balance sheet of such Person under generally
accepted accounting principles. For purposes of this Agreement, the
amount of such obligations shall be the capitalized amount thereof,
determined in accordance with generally accepted accounting principles.
"Certificate" - a certificate executed either by the
president, the treasurer or controller or any vice president of any
Borrower.
"Closing" - the transactions provided for in Sections
4.1 and 4.2 hereof.
"Collateral" - the collateral provided for herein and
in the Security Documents.
"Collateral Coverage Base" - a dollar amount equal to the
following percentages of the value of the Collateral Coverage
Securities, in no event, however, to exceed the lesser of (i) as to
Collateral Coverage Securities which constitute "margin stock" pursuant
to Regulation U of the Board of Governors of the Federal Reserve System,
12 C.F.R. 221 et seq. ("Regulation U"), 50% (or the then maximum "loan
value" for margin stock pursuant to Regulation U) of the value of such
Collateral Coverage Securities, and (ii) the following dollar maximum
specified for each type of Collateral Coverage Securities:
Securities % Maximum $
CompuCom 33.33% $25 Million
Cambridge 40% $25 Million
Novell 50% N/A
Sybase 50% N/A
Coherent 33.33% $20 Million
Tangram 25% $5 Million
Gandalf 25% $5 Million
"Collateral Coverage Securities" - Pledged Securities
consisting of common stock issued by one or more of the following
corporations but only as long as such securities are traded on a
nationally recognized securities exchange or on the NASDAQ and OTC
markets:
(i) CompuCom Systems, Inc. ("CompuCom")
(ii) Cambridge Technology Partners, Inc. ("Cambridge")
(iii) Novell, Inc. ("Novell")
(iv) Sybase, Inc. ("Sybase")
(v) Coherent Communications Systems Corporation
("Coherent")
(vi) Tangram Enterprise Solutions, Inc.
("Tangram")
(vii) Gandalf Technologies, Inc. ("Gandalf")
"Commitment Termination Date" - January 31, 1998.
"Compliance Certificate" - as defined in Section 4.2(g)
hereof.
"Debt Instrument" - as defined in Section 7.4(a) hereof.
"Default" - an event which with notice or the lapse
of time or both would constitute an Event of Default.
"Dollars" and "$" - lawful money of the
United States of America.
"ERISA" - as defined in Section 3.14 hereof.
"Event of Default" - as defined in Article 7 hereof.
"Financial Statements" -
(a) The audited balance sheets of SSI, and its
Subsidiaries (including, without limitation, SSD) at December 31, 1993,
and the related audited consolidated statements of operations,
shareholder's equity and cash flows, and the notes thereto, of SSI, SSD
and Subsidiaries for the above mentioned year certified without
qualification or explanatory paragraphs by independent certified public
accountants satisfactory to the Bank;
(b) The unaudited consolidating balance sheets of SSI
and its Subsidiaries (including without limitation, SSD), as at
September 30, 1994, and the unaudited internal consolidating statement
of operations and cash flows, of SSI and its Subsidiaries (including,
without limitation, SSD) for the nine months then ended; and
(c) The unaudited consolidated balance sheets of SSI
and its Subsidiaries (including, without limitation, SSD) as at
September 30, 1994 and the related unaudited consolidated statement of
operations and cash flows, and the notes thereto, of SSI and its
Subsidiaries for the nine months then ended.
"Included Subsidiaries" - all Subsidiaries of SSI or of
SSD at any time, except for Compucom Systems, Inc., a Delaware
corporation ("Compucom"), Center Core, Inc., a Delaware corporation
("Center Core"), Coherent Communications Systems Corporation
("Coherent"), a Delaware corporation, Laser Communications, Inc., a
Pennsylvania corporation, Sky Alland Research, Inc., a Maryland
corporation, Micro Dynamics, Inc., a Delaware corporation, and their
respective successors and Subsidiaries.
"Indebtedness" - with respect to any Person, all (i)
liabilities or obligations which in accordance with generally accepted
accounting principles would be included in determining total liabilities
as shown on the liability side of a balance sheet of such Person at the
date as of which Indebtedness is to be determined, including, without
limitation, Capitalized Lease Obligations of such Person; and (ii)
liabilities or obligations secured by Liens on any assets of such
Person, whether or not such liabilities or obligations shall have been
assumed by it.
"Initial Advances" - Loan advances made at the first
Closing.
"Interest Coverage Ratio" - as of any date, the ratio of
(a) Pre Tax Earnings plus cash interest expense for the 12 months ending
on such date to (b) the cash interest expense for such 12 month period.
"Investments" - any loans, advances or extensions of
credit (other than guaranties) or any purchase of any debt or equity
security, including without limitation, capital stock, bonds,
debentures, notes, general partnership interests, limited partnership
interests, warrants or other rights, all whether certificated or
uncertificated.
"IRS" - as defined in Section 3.14 hereof.
"Leases" - leases and subleases (other than the leases or
subleases the obligation to pay rent or other amounts under which is a
Capitalized Lease Obligation), licenses, easements, grants, pole
attachment and conduit or trench agreements and other attachment rights
and similar instruments under which any Borrower or any of its Included
Subsidiaries has the right to use real or personal property or rights of
way.
"Lending Office" - 1500 Market Street, Philadelphia,
Pennsylvania or such other office as the Bank may from time to time
specify to the Borrowers as the office at which Revolving Loan Advances
are to be made.
"Liabilities" - for the purposes of calculating
Indebtedness to Tangible Net Worth and for the purposes of determining
"Liabilities" of Borrowers hereof, Liabilities shall not include
minority shareholder interest which may appear on a balance sheet of
SSI, prepared in accordance with generally accepted accounting
principles, consistently applied.
"Lien" - any interest in Property securing an obligation
owed to, or a claim by, a Person other than the owner of the Property,
whether such interest is based on the common law, statute or contract,
and including but not limited to the security interest or lien arising
from a mortgage, encumbrance, pledge, conditional sale or trust receipt
or a lease, consignment or bailment for security purposes. The term
"Lien" shall include reservations, exceptions, encroachments, easements,
rights-of-way, covenants, conditions, restrictions, leases and other
title exceptions and encumbrances affecting Property. For the purpose
of this Agreement, any Borrower or Subsidiary shall be deemed to be the
owner of any Property which it has acquired or holds subject to a
conditional sale agreement or other arrangement pursuant to which title
to the Property has been retained by or vested in some other person for
security purposes.
"Loan Documents" - this Agreement, the Note, the Security
Documents and all other documents executed and delivered in connection
herewith or therewith, including all amendments, modifications and
supplements of or to all such documents.
"Loan" - the Revolving Loan.
"Material Adverse Effect" - any specified event,
condition or occurrence as to any Borrower or Subsidiary, as applicable,
which individually or in the aggregate with any other such event,
condition or occurrence and whether through the effect on such
Borrower's or Subsidiary's business, property, prospects, profits or
condition (financial or otherwise) or otherwise could reasonably be
expected to (a) result in, to the extent not fully covered by insurance,
any liability, loss, forfeiture, penalty, costs, fine, expense, payment
or other monetary obligation or loss of property in excess of
$1,500,000.00 as to any Borrower or Subsidiary or as to all Borrowers
and Subsidiaries taken as a whole.
"Note" - the Revolving Loan Note.
"Person" - an individual, partnership, corporation, trust
or unincorporated organization, or a government or agency or political
subdivision thereof.
"Pledge Agreement" - The Pledge Agreement between Bank
and Borrowers dated October 7, 1991, as amended from time to time,
including by Amended and Restated Pledge Agreement dated June 30, 1994
and by Second Amended and Restated Pledge Agreement of even date
herewith.
"Pledged Securities" - Securities pledged as collateral
from time to time for the performance of the Borrowers' obligations
hereunder and under the Note.
"Post-Default Rate" - in respect of any amounts not paid
when due (whether at stated maturity, by acceleration or otherwise), a
rate per annum during the period commencing on the due date until such
amounts are paid in full equal to 2% per annum above the applicable rate
provided for in Section 2.9 hereof.
"Pre-Tax Earnings" shall mean gross revenues and other
proper income credits, plus any cash proceeds realized on the sale of
securities, less all proper income charges other than taxes on income,
all determined on a consolidated basis and in accordance with generally
accepted accounting principles; provided that there shall not be
included in such revenues or charges (a) any gains resulting from the
write-up of assets; (b) any proceeds of any life insurance policy; (c)
earnings (or losses) from minority interests of the Borrowers and their
Included Subsidiaries; (d) earnings (or losses) from equity investments
carried on an equity basis to the extent not received by the Borrowers
or any Included Subsidiary; (e) any gain or loss, other than a gain or
loss on the sale of stock, which is classified as "extraordinary" in
accordance with generally accepted accounting principles; (f) any book
gain (or loss) on the sale of securities; or (g) losses resulting from
CenterCore, Inc. in fiscal year 1994. Pre-Tax Earnings can be less than
zero for all purposes of this Agreement.
"Prime Rate" the interest rate which Bank announces from
time to time at its Principal Office as its prime rate. Each change in
any interest rate provided for herein based upon the Prime Rate
resulting from a change in the Prime Rate shall take effect at the time
of such change in the Prime Rate. The Borrowers acknowledge that such
Prime Rate is not tied to an external rate of interest or index and does
not necessarily reflect the lowest rate of interest actually charged by
the Bank to any particular class or category of customer.
"Principal Office" - Bank's principal office presently
located at 1500 Market Street, Philadelphia, Pennsylvania 19102.
"Property" - any interest in any kind of property or
asset, whether real, personal or mixed or tangible or intangible.
"Prior Agreement" - that certain Amended and Restated
Credit Agreement dated June 30, 1994, between Borrowers and Bank, as
amended to date.
"Quarterly Dates" - the last Business Day of each March,
June, September and December.
"Revolving Credit Period" - as defined in Section 2.1(a)
hereof.
"Revolving Loan" - as defined in Section 2.1 hereof.
"Revolving Loan Commitment" - $75,000,000, as the same
may be reduced pursuant to Section 2.2 hereof.
"Revolving Loan Note" - as defined in Section 2.9 hereof.
"Security Documents" - as defined in Section 2.15 hereof.
"Subsidiary" - any corporation at least a majority
(meaning in excess of 50%) of the securities of which having ordinary
voting power for the election of directors (other than securities having
such power only by reason of the occurrence of a contingency) are at the
time owned, directly or indirectly, by either of the Borrowers, by one
or more of their Subsidiaries, or by the Borrowers and one or more of
their subsidiaries.
"Tangible Net Worth" - the excess of total assets over
the sum of total liabilities and minority shareholder interests, to be
determined in accordance with generally accepted accounting principles
consistent with those applied in the preparation of the Financial
Statements, excluding, however, from the determination of total assets
(a) all assets which would be classified as intangible assets under
generally accepted accounting principles, including, without limitation,
goodwill (whether representing the excess of cost over book value of
assets acquired or otherwise), patents, trademarks, trade names,
copyrights, franchises, and deferred charges (including, without
limitation, unamortized debt discount and expense, organization costs
and research and development costs); (b) treasury stock; (c) cash set
apart and held in sinking or other analogous funds established for the
purpose of redemption or other retirement of capital stock; (d) to the
extent not already deducted from total assets, reserves for
depreciation, depletion, obsolescence and/or amortization of properties
and all other reserves or appropriations of retained earnings which, in
accordance with generally accepted accounting principles, should be
established in connection with the businesses conducted by the Borrowers
and their Subsidiaries; (e) any revaluation or other write-up in book
value of assets subsequent to December 31, 1993; (f) to the extent not
provided for in clause (a) or (e) above, the amount, if any, by which
the value of any assets or business hereafter acquired at the time of
the acquisition thereof unreasonably exceeds the book value thereof on
the books of the person from whom such assets or business were so
acquired (before any write-up of such book value by such Person in
contemplation of such acquisition if such write-up shall have occurred
within nine (9) months prior to the date of signing of any contract
relating to such acquisition); and (g) loans to employees for purchasing
stock of the Borrowers or any Subsidiaries.
Section 1.2 Directly or Indirectly.
Where any provision in this Agreement refers to action to be
taken by any Person, or which such Person is prohibited from taking,
such provisions shall be applicable whether such action is taken
directly or indirectly by such Person.
Section 1.3 Accounting Terms; Test Group.
(a) Any accounting terms used in this Agreement which
are not specifically defined shall have the meanings customarily given
thereto in accordance with generally accepted accounting principles. If
the generally accepted accounting principles in effect on the date
hereof shall change, the terms calculated herein under such principles
shall be changed accordingly.
(b) Except where specifically otherwise provided
herein, the financial covenants set forth in Sections 6.8, 6.9 and 6.10
hereof shall be computed on a consolidated basis, excluding, however,
all Subsidiaries other than Included Subsidiaries.
Article 2. Amount and Terms of Loan; Collateral.
Section 2.1 Revolving Loan.
(a) Bank shall, subject to the terms and conditions
of this Agreement, establish for Borrowers a revolving credit facility
(the "Revolving Loan") pursuant to which Bank will make loans
hereinafter provided for in this Section 2.1 (individually, a "Revolving
Loan Advance" and, collectively, together with the Initial Advance under
the Revolving Loan, the "Revolving Loan Advances") to the Borrowers, at
any time and from time to time during the period (the "Revolving Credit
Period") from the date hereof to and including the Commitment
Termination Date, in an aggregate principal amount at any one time
outstanding (including the face amount of all outstanding letters of
credit) up to but not exceeding the lesser of the Revolving Loan
Commitment as then in effect or the Collateral Coverage Base. Subject
to the terms of this Agreement, during the Revolving Credit Period the
Borrowers may borrow, repay and reborrow (all as provided herein).
(b) During the Revolving Credit Period, Borrowers may
obtain letters of credit from the Bank in an aggregate amount not to
exceed $5,000,000 (measured by the face amount thereof) at any time
outstanding, upon prior approval of the Bank, on such terms (including
without limitation the expiry date, which Borrowers agree will in no
event be twelve (12) months beyond the Commitment Termination Date) as
the Bank may require and with such documentation, including Bank's then
standard Letter of Credit Application and Security Agreement, as shall
be satisfactory in form and substance to the Bank. The Revolving Loan
Commitment shall be reduced by a dollar amount equal to the aggregate
face amount of the outstanding letters of credits issued hereunder,
provided, however that such reduction shall not be deemed to be a
reduction for purposes of calculating the commitment fee provided in
Section 2.4 herein. Borrowers will pay to Bank a letter of credit fee
for each letter of credit issued hereunder in the amount of 1% per annum
of the face amount of such letter of credit, payable quarterly in
advance (commencing upon issuance).
Section 2.2 Changes in Revolving Loan Commitment.
The Borrowers shall be entitled to terminate or reduce the
Revolving Loan Commitment, provided that the Borrowers shall give notice
of each such termination or reduction to the Bank as provided in Section
2.3 hereof and that any partial reduction of the Revolving Loan
Commitment shall be in an aggregate amount equal to $100,000 or an
integral multiple thereof. Any such termination or reduction shall be
permanent and irrevocable.
Section 2.3 Notices.
SSI, as agent hereunder for the Borrowers, shall give the Bank
telephonic and written notice of each termination or reduction of the
Revolving Loan Commitment, each borrowing, and repayment of the Loan.
All requests for borrowings shall be made available to Borrowers,
subject to the terms and conditions of this Agreement, by telephonic or
telegraphic request of any Borrower. Bank may rely upon any and all
telephonic, telegraphic and written requests purported to be made by
either Borrower through any of its officers. Each such written notice
shall be irrevocable and shall be effective only if received by the Bank
not later than 12 noon Philadelphia time, on the date which is: (a) in
the case of each notice of termination one Business Day prior to the
date of the related termination, and (b) in the case of a notice of
borrowing or reduction, the Business Day on which a request for a
borrowing or reduction is made, subject, as to borrowings for which the
LIBOR Rate is being selected, to the provisions of Section 2.08(c)
hereof.
Section 2.4 Fees. (a) The Borrowers shall pay to the Bank
a commitment fee at the rate of one-quarter of one percent (1/4%) per
annum on the daily average unused amount of the Revolving Loan
Commitment (which shall be calculated as the Revolving Loan Commitment
minus all outstanding cash advances on the date of such calculation)
during each calendar quarter for the period from the date hereof to and
including the earlier of the date on which the Revolving Loan Commitment
is terminated or the Commitment Termination Date. The commitment fee
shall be payable quarterly in arrears on the Quarterly Dates and on the
earlier of the date the Revolving Loan Commitment is terminated or the
Commitment Termination Date.
(b) The Borrowers shall pay to Bank on February 1 of
each year, commencing February 1, 1996, a non-refundable Agent Fee (the
"Agent Fee") in the amount of $75,000. On the date hereof, Borrower
shall pay to Bank an Agent Fee for the period from the date hereof
through January 31, 1996 in the amount of $66,666.00.
Section 2.5 Borrowings.
SSI, as agent hereunder for the Borrowers, shall give the Bank
telephonic or telegraphic and written notice of each borrowing of the
Loan hereunder as provided in Section 2.3 hereof. Subject to the terms
and conditions of this Agreement (including the notice provisions of
Section 2.08(c) hereof), on telephonic or telegraphic notice given not
later than 12:00 noon Philadelphia time on the date specified for each
borrowing thereunder, Bank shall make available the amount of the
Revolving Loan Advance to be made by it, on such date to the Borrowers
by depositing the proceeds thereof, in immediately available funds, in
an account of such of the Borrowers as shall have been designated by SSI
in the borrowing notice, maintained with the Bank at its Principal
Office. Within twenty four (24) hours of such borrowing, Borrowers
shall execute a Borrowing Base Certificate ("Borrowing Base
Certificate") prepared by Borrowers setting forth the present values of
the Collateral and Borrowers' compliance with the Collateral Coverage
Base.
Section 2.6 Use of Proceeds of Loan.
The proceeds of the Revolving Loan shall be used, initially,
for the purpose of repaying in full all outstanding principal and
interest on the Term Loan referred to in the Prior Agreement, and
thereafter solely for working capital of the Borrowers and their
Subsidiaries as the Borrowers shall determine, for Investments subject
to the limitations set forth in Section 6.6 hereof, and for capital
expenditures of the Borrowers not to exceed $3,000,000 in the aggregate.
Section 2.7 Payment of Loan. Unless sooner accelerated
pursuant to the terms hereof, the Revolving Loan shall be due and
payable on the Commitment Termination Date. Borrowers will, on the
Commitment Termination Date, provide Bank with cash collateral in an
amount equal to 105% of the face amount of all issued and outstanding
letters of credit issued under this Agreement.
Section 2.8 Interest.
(a) Subject to the provisions of subsection (c)
hereof, the Borrowers shall pay to Bank interest on the unpaid principal
amount of each Revolving Loan Advance for the period commencing on the
date of such Revolving Loan Advance until such Revolving Loan Advance
shall be paid in full, at a rate per annum equal to Bank's Prime Rate.
Notwithstanding the foregoing, the Borrowers shall pay interest on any
Revolving Loan Advance, and on any other amount payable by the Borrowers
hereunder (including, to the extent permitted by law, interest) which
shall not be paid in full when due (whether at stated maturity, by
acceleration or otherwise, and including all reimbursement obligations
on letters of credit which are not immediately repaid from a Revolving
Loan Advance or otherwise) for the period commencing on the due date
thereof until the payment in full at the Post-Default Rate. Except as
provided in the next sentence, accrued interest on the Loan shall be
payable (i) monthly in arrears within 10 days of Borrowers' receipt of a
bill therefor, (ii) upon the payment or prepayment thereof (but only on
the principal so paid or prepaid) and (iii) on the earlier of the date
the Revolving Loan Commitment is terminated or the Commitment
Termination Date. Interest payable at the Post-Default Rate shall be
payable from time to time on demand of the Bank. Interest shall
continue to accrue and be paid at the applicable rate provided herein
even after Default, an Event of Default, entry of judgment against
either or both of the Borrowers or the commencement of any bankruptcy,
reorganization or insolvency proceeding.
(b) Notwithstanding any provision herein or in the
Note, the total liability for payments of interest, or in the nature of
interest, shall not exceed the limits imposed by any applicable laws.
If the terms of this Agreement or the Security Documents, the Note, or
any other agreement or instrument entered into in connection herewith
require or shall require Borrowers to pay interest in excess of amounts
allowed by law, the rate of interest payable shall be reduced
immediately, without action by Bank, to the applicable maximum rate, and
any excess payment made by Borrowers at any time shall be immediately
and automatically applied to the unpaid balance of the outstanding
principal due hereunder and not to the payment of interest. In the
event of acceleration of sums due hereunder, the total charges for
interest and in the nature of interest shall not exceed the maximum
allowed by law, and any excess portions of such charges which may have
been prepaid and cannot be applied to repayment of principal shall be
refunded to Borrowers. Borrowers agree that in determining whether or
not any interest payable under this Agreement, the Note or the Security
Documents exceeds the highest applicable rate permitted by law, any non-
principal payment including, without limitation, fees, costs, Post-
Default Rate and late charges shall be deemed to the extent permitted by
law, to be an expense, fee or penalty not deemed interest by law.
(c) (A) As used in this Section 2.8(c), the
following terms shall have the following meanings:
(i) "Good Business Day" means any day when
both Bank and banks in London, England are open for business.
(ii) "LIBOR Rate" means for any day during
each Rate Period (a) the per annum rate of interest (computed on a basis
of a year of 360 days and actual days elapsed) determined by Bank as
being the composite rate available to Bank at approximately 11:00 a.m.
London time in the London Interbank Market, as referenced by Telerate
(page 3750), in accordance with the usual practice in such market, for
the Rate Period elected by Borrowers, in effect two (2) Good Business
Days prior to the funding date for a requested LIBOR Rate advance for
deposits of dollars in amounts equal (as nearly as may be estimated) to
the amount of the LIBOR Rate advance which shall then be loaned by the
Bank to Borrowers as of the time of such determination, as such rate
(the "Base Rate") may be adjusted by the reserve percentage applicable
during the Rate Period in effect (or if more than one such percentage
shall be applicable, the daily average of such percentages for those
days in such Rate Period during which any such percentage shall be so
applicable) under regulations issued from time to time by the Board of
Governors of the Federal Reserve System (or any successor) for
determining the maximum reserve requirement (including, without
limitation, any emergency, supplemental or other marginal reserve
requirement) for the Bank with respect to liabilities or assets
consisting of or including "Eurocurrency Liabilities" as such term is
defined in Regulation D of the Board of Governors of the Federal Reserve
System, as in effect from time to time, having a term equal to such Rate
Period ("Eurocurrency Reserve Requirement"), plus (b) 2.25 percentage
points. Such reserve adjustment shall be effectuated by calculating,
and the LIBOR Rate shall be equal to, (a) the quotient of (i) the Base
Rate divided by (ii) one minus the Eurocurrency Reserve Requirement,
plus (b) 2.25 percentage points.
(iii) "Notification" means telephonic
notice (which shall be irrevocable) by Borrowers to Bank that Borrowers
have requested that the LIBOR Rate, as quoted by Bank from time to time
upon Borrower's request for quotation made not less than one (1)
Business Day prior to the requested date of quotation, shall apply to
some portion of the principal amount of the Revolving Loan in accordance
with the provisions of Section 2.8(c) hereof, which notice shall be
given no later than 11:00 a.m. Philadelphia time, on the day which is at
least 2 Business Days prior to the Business Day on which such election
is to become effective, which notice shall specify (i) that the LIBOR
Rate option is being selected; (ii) the principal amount of cash
advances under the Loan to be subject to such rate; (iii) whether such
amount is a new advance, a renewal of a previous request of such rate, a
conversion from one interest rate to another, or a combination thereof;
(iv) the Rate Period(s) selected; and (v) the date on which such request
is to become effective (which date shall be a date selected in
accordance with Section 2.8(c)(B) hereof).
(iv) "Rate Period" means for any portion of
principal under the Loan for which Borrowers elect the LIBOR Rate the
period of time for which such rate shall apply to such principal
portion. Rate periods for principal earning interest at the LIBOR Rate
shall be for periods of 30, 60, 90 or 180 days and for no other length
of time, provided, that, no Rate Period may end on other than a Business
Day or after the Commitment Termination Date.
(v) "Repayment Premium" means the amount
which Borrowers shall pay to Bank as a premium in connection with a
repayment of outstanding principal of the Loan earning interest at the
LIBOR Rate at the time of repayment, which amount shall be the amount
determined by Bank (which determination shall be conclusive) to be the
difference between (a) the present value of the interest payments that
would have been paid for the balance of the Rate Period to Bank by
Borrowers on such repaid portion of principal accruing at the LIBOR Rate
but for such repayment, and (b) the present value of the interest
payments that would be paid for the balance of the Rate Period to Bank
at the United States Treasury Rate if on or about the date of repayment
Bank made a hypothetical investment of the repaid portion of principal
accruing at a fixed rate of interest in United States Treasury
securities maturing on or about the last date of the corresponding Rate
Period and bearing interest accruing from the date of repayment.
(vi) "United States Treasury Rate" means a
rate of interest per annum, equal to (rounded downward to the nearest
1/100 of 1%) the annual yield Bank could obtain by purchasing on the
date of repayment of a LIBOR Rate Loan United States Treasury Securities
with semi-annual interest payments, maturing on or about the last date
of the corresponding Rate Period, in amounts approximately equal to that
amount of the repaid portion which was applied to principal earning
interest at the LIBOR Rate at the time of repayment.
(B) (1) Subject to the terms of this Section
2.8(c)(B) (including without limitation the terms of Section
2.8(c)(B)(3)), by giving Notification, Borrowers may request to have all
or a portion of the outstanding principal of cash advances under the
Loan as hereinafter permitted earn interest at the LIBOR Rate as
follows: (i) with respect to the principal amount of any cash advance
under the Loan, from the date of such advance until the end of the Rate
Period specified in the Notification; and/or (ii) with respect to the
principal amount of any portion of cash advances under the Loan
outstanding and earning interest at the LIBOR Rate at the time of the
Notification related to such principal amount, from the expiration of
the then current Rate Period related to such principal amount until the
end of the Rate Period specified in the Notification; and/or (iii) with
respect to all or any portion of the principal amount of cash advances
under the Loan outstanding and earning interest at the Prime Rate at the
time of Notification, from the date set forth in the Notification until
the end of the Rate Period specified in the Notification.
(2) Borrowers understand and agree: (i)
that subject to the provisions of this Agreement, the Prime Rate and the
LIBOR Rate may apply simultaneously to different parts of the
outstanding principal of cash advances under the Loan, (ii) that the
LIBOR Rate applicable to any portion of outstanding principal may be
different from the LIBOR Rate applicable to any other portion of
outstanding principal, (iii) that no more than 3 portions of principal
of cash advances under the Loan bearing interest at the LIBOR Rate may
be outstanding at any one time, (iv) that the minimum amount of
principal for which any LIBOR Rate election may be made shall be
$2,000,000, and (v) that Bank shall have the right to terminate any Rate
Period, and the interest rate applicable thereto, prior to maturity of
such Rate Period, if Bank determines in good faith (which determination
shall be conclusive) that continuance of such interest rate has been
made unlawful by any Law, to which Bank may be subject, in which event
the principal to which such terminated Rate Period relates thereafter
shall earn interest at the Prime Rate.
(3) After expiration of any Rate Period,
any principal portion corresponding to such Rate Period which has not
been converted or renewed in accordance with this Section 2.8(c)(B)
shall earn interest automatically at the Prime Rate from the date of
expiration of such Rate Period until paid in full, unless and until the
Borrowers request and Bank approves a conversion to the LIBOR Rate in
accordance with this Section 2.8. With respect to any cash advances
(whether an advance of new funds or an already outstanding amount), if
Borrowers fail to request the LIBOR Rate option by giving Bank a
Notification, or if Bank fails to approve such request when made, such
principal amount shall earn interest at the Prime Rate.
(4) Borrowers shall indemnify Bank against
any and all loss or expense (including loss of margin) which Bank has
sustained or incurred as a consequence of: (a) any payment of any
principal amount earning interest at the LIBOR Rate on a day other than
the last day of the corresponding Rate Period (whether or not any such
payment is made pursuant to acceleration upon or after an Event of
Default, demand by Bank otherwise made under this Agreement, by reason
of an application of proceeds incident to an insured loss or
condemnation of property, or for any other reason, and whether or not
any such payment is consented to by Bank, unless Bank shall have
expressly waived such indemnity in writing); (b) any attempt by a
Borrower to revoke in whole or part any Notification given pursuant to
this Agreement; (c) any attempt by Borrowers to convert or renew any
principal amount earning interest at the LIBOR Rate on a day other than
the last day of the corresponding Rate Period (whether or not such
conversion or renewal is consented to by Bank, unless Bank shall have
expressly waived such indemnity in writing); or (d) any breach of or
default by any Borrower.
Section 2.9 Note.
Contemporaneously herewith, Borrowers shall execute and
deliver to Bank their Note ("Note") in the principal amount of
$75,000,000.00 ("Revolving Loan Note"), evidencing Borrowers'
unconditional joint and several obligations to repay the Revolving Loan.
Section 2.10 Payments.
All payments of principal, interest and other amounts payable
by the Borrowers hereunder will be made in Dollars, in immediately
available funds, to the Bank at its Principal Office not later than
12:00 noon Philadelphia time on the date on which such payment shall
become due.
Section 2.11 Computations; Application of Payments.
(a) Interest on the Loan and commitment fees shall be
computed on the basis of a year of 360 days and actual days elapsed
(including the first day but excluding the last) in the period for which
payable;
(b) Each payment of principal and interest made by
either Borrower hereunder shall be applied first on account of due and
unpaid interest and the balance, if any, toward reduction of the unpaid
principal balance of the Loan.
Section 2.12 Minimum Amounts of Borrowings.
Except for borrowings which exhaust the full remaining amount
of the Revolving Loan Commitment, each borrowing under the Revolving
Loan shall be in the amount of $100,000 or an integral multiple thereof.
Section 2.13 Set-Off.
Each of the Borrowers hereby agrees that, in addition to (and
without limitation of) any right of set-off, banker's lien or
counterclaim Bank may otherwise have, Bank, any participant of Bank in
the Loan and any affiliate of Bank or any such participant shall be
entitled, at its option, to offset balances held by it at any of its
offices against any principal of or interest on the Loan hereunder which
is not paid when due (regardless of whether such balances are then due
to such Borrower), in which case it shall promptly notify such Borrower
thereof, provided that its failure to give such notice shall not affect
the validity of any such offset.
Section 2.14 Prepayment.
The Loan may be prepaid in whole or in part and from time to
time, provided that (i) all unpaid accrued interest on the amount(s)
prepaid shall be paid concurrently with any such prepayment, and (ii) in
the event that such of the principal of the Loan earning interest at the
LIBOR Rate at the time of repayment is repaid prior to the last day of
the applicable Rate Period (whether or not any such repayment is made
pursuant to acceleration upon or after an Event of Default, demand by
Bank otherwise made under this Agreement, by reason of an application of
proceeds incident to an insured loss or condemnation of property, or for
any other reason), Borrowers shall, together with such repayment, pay to
Bank a Repayment Premium on the amount so repaid.
Section 2.15 Collateral.
(a) Borrowers hereby agree that their grant of a
security interest in the Collateral contained in the Pledge Agreement,
in other security and collateral agreements of Borrowers and of the
Guarantors (as defined herein) and all other agreements executed in
connection herewith and all collateral, liens, security interests and
pledges created by Borrowers and the Guarantors described therein cover
and secure all of Borrowers' existing and future obligations and
liabilities to Bank, including without limitation, Borrowers'
liabilities on the Revolving Loan (collectively, the "Obligations").
(b) The Pledge Agreement, and the aforesaid
agreements, instruments and documents, are sometimes hereinafter
referred to collectively as the "Security Documents."
Section 2.16 Valuation of Collateral Coverage
Securities; Sale.
The value of the Collateral Coverage Securities shall be based
on market value as determined on a nationally recognized exchange or by
the NASDAQ or OTC Markets, National Market Issues or by using the NASDAQ
bid quotations all as of the close of the last previous trading day.
Any determination of the value of the Collateral Coverage Securities by
the Bank through its brokerage services shall be conclusive and binding
on Borrowers absent manifest error. Borrowers may sell Collateral
Coverage Securities in accordance with the terms of the Pledge Agreement
so long as after giving effect to any such sale, Borrowers are not in
violation of the Collateral Coverage Base and the proceeds thereof shall
be paid over to Bank as provided in the Pledge Agreement.
SECTION 2.17 Participations. Borrowers acknowledge that
66.66% of the Revolving Loan (and each cash advance and letter of credit
made or issued thereunder) are being and are intended hereafter to be
funded by Meridian Bank, First Bank, National Association and PNC Bank,
National Association (each a "Participant") as participants of Bank in
the Loan, all as more fully set forth in that certain Amended and
Restated Participation Agreement dated as of February 1, 1995 (as
amended from time to time, the "Participation Agreement"). In this
regard, Borrowers agree that:
(A) Bank may from time to time provide financial and
other information concerning the Borrowers to each Participant and, with
Borrowers' prior consent, to any other prospective participant, and
(B) Should any Participant default under its obligations
to Bank to fund any portion of its participation in the Loan, or should
the participation of any Participant be terminated by Bank at either
Borrower's request (to the extent Bank has the right to do so under its
arrangements with such Participant), Bank will have no obligation to
fund (including by issuance of letters of credit) any Loan to the extent
of such Participant's share thereof.
Article 3. Representations and Warranties.
The Borrowers hereby represent and warrant to the Bank that:
Section 3.1 Organization.
(a) Each Borrower is a corporation duly organized,
validly existing and in good standing under the laws of its respective
state of incorporation, as set forth in Exhibit 3.1 hereto, and each of
their Included Subsidiaries is duly organized, validly existing and in
good standing under the laws of its respective state of incorporation,
as set forth in Exhibit 3.1 hereto; each such Borrower and Included
Subsidiary has the power to own its assets and to transact the business
in which it is presently engaged and in which it proposes to be engaged.
The authorized and outstanding shares of capital stock of each such
corporation, and the number of outstanding shares of capital stock of
each such corporation (other than SSI) owned by each of the Borrowers or
any Included Subsidiary thereof and the business in which each of such
corporations is engaged is accurately and completely listed in Exhibit
3.1. All such shares which are issued and outstanding have been duly
and validly issued and are fully paid and nonassessable, are owned by
the persons referred to on Exhibit 3.1, free and clear of any mortgage,
pledge, lien or encumbrance. Except as set forth in Exhibit 3.1, there
are not outstanding any warrants, options, contracts or commitments of
any kind entitling any person to purchase or otherwise acquire any
shares of capital stock owned by either Borrower or any Included
Subsidiary of SSD or SSI, nor are there outstanding any securities which
are convertible into or exchangeable for any shares of capital stock of
SSD or any Included Subsidiary of SSD or SSI. Except as set forth on
Exhibit 3.1, no Borrower has any Subsidiary.
(b) There are no jurisdictions other than as set
forth on Exhibit 3.1 hereto in which the character of the properties
owned or proposed to be owned by the Borrowers or any Included
Subsidiary or in which the transaction of the business of any of the
Borrowers or any Included Subsidiary of the Borrowers as now conducted
or as proposed to be conducted requires or will require any Borrower or
any Included Subsidiary of the Borrowers to qualify to do business in
any such other jurisdiction where the failure to do so would have a
material adverse effect on such Borrower or Included Subsidiary.
Section 3.2 Power, Authority, Consents.
Each Borrower has the power to execute, deliver and perform
this Agreement, the Note and the Security Documents to be executed by
it, and to borrow hereunder. Each such corporation has taken all
necessary action to authorize (i) the borrowing hereunder on the terms
and conditions of this Agreement, (ii) the execution, delivery and
performance of this Agreement, the Note, the Security Documents to be
executed by it and all other agreements, instruments and documents
provided for herein or therein. No consent or approval of any person
(including, without limitation, any stockholder of the Borrowers), no
consent or approval of any landlord or mortgagee, no waiver of any lien
or right of distraint or other similar right and no consent, license,
approval, authorization or declaration of any governmental authority,
bureau or agency, is or will be required in connection with the
execution, delivery or performance by any Borrower, as the case may be,
or the validity, enforcement or priority of, this Agreement, the Note,
the Security Documents (or any Lien created and granted thereunder) or
any other agreements, instruments or documents to be executed or
delivered pursuant hereto or thereto, except as set forth on Exhibit 3.2
annexed hereto, each of which either will have been duly and validly
obtained on or prior to the date hereof and will then be in full force
and effect, or is designated on Exhibit 3.2 as waived by the Bank.
Section 3.3 No Violation of Law or Agreements.
The execution and delivery by each Borrower of this Agreement,
the Note and the Security Documents executed by it and any other
agreements, instruments or documents to be executed and delivered by it
hereunder, and performance by it hereunder and thereunder will not
violate any provision of law and will not conflict with or result in a
breach of any order, writ, injunction, ordinance, resolution, decree, or
other similar document or instrument of any court or governmental
authority, bureau or agency, domestic or foreign, or certificate of
incorporation or by-laws of any Borrower or create (with or without the
giving of notice or lapse of time, or both) a default under or breach of
any agreement, bond, note or indenture to which any Borrower is a party,
or by which it is bound or any of its properties or assets is affected,
or result in the imposition of any Lien of any nature whatsoever upon
any of the properties or assets owned by or used in connection with the
business of such Borrower, except for the liens and security interests
created and granted pursuant to the Security Documents.
Section 3.4 Due Execution, Validity, Enforceability.
This Agreement has been duly executed and delivered by each
Borrower and constitutes, and the Note and each of the Security
Documents to be executed by a Borrower, upon execution and delivery by
such Borrower in accordance with the terms hereof, will constitute, the
valid and legally binding obligation and agreement of such Borrower, as
the case may be, enforceable in accordance with its terms.
Section 3.5 Properties, Priority of Liens.
Except as set forth in Exhibit 3.5 hereto, all of the
properties and assets owned by each of the Borrowers and their
Subsidiaries are owned by each of them, respectively, free and
clear of any Lien of any nature whatsoever, except as provided for
in the Security Documents to be executed and delivered pursuant hereto,
and as permitted by Section 6.4 hereof. The Liens which will be created
and granted by the Security Documents upon their execution and delivery
by the parties thereto, will thereupon and thereafter constitute valid
first Liens on the properties and assets covered by the Security
Documents, subject to no prior or equal Lien.
Section 3.6 Judgments, Actions, Proceedings.
There are no outstanding judgments, and no actions, suits or
proceedings pending or threatened before any court, governmental
authority, bureau, commission, board, instrumentality or agency, with
respect to or affecting any Borrower or any Subsidiary of any Borrower
or any of their Properties, which would have a Material Adverse Effect,
nor is there any reasonable basis for the institution of any such
action, suit or proceeding, whether or not covered by insurance, nor are
there any such actions or proceedings in which any Borrower or any
Subsidiary of any Borrower is a plaintiff or complainant, except as set
forth on Exhibit 3.6 annexed hereto.
Section 3.7 No Defaults.
None of the Borrowers nor any Subsidiary of any Borrower is in
default under any agreement, ordinance, resolution, decree, bond, note,
indenture, order or judgment to which it is a party or by which it is
bound, or any other agreement or other instrument by which any of the
properties or assets owned by it or used in the conduct of its business
is affected, and each Borrower and each Subsidiary of each Borrower has
complied and is in compliance with all applicable laws, ordinances and
regulations applicable to them, where any of the foregoing would have a
Material Adverse Effect.
Section 3.8 Burdensome Documents.
Except as set forth on Exhibit 3.8 annexed hereto, none of the
Borrowers or any Subsidiary of the Borrowers is a party to or bound by,
nor are any of the properties or assets owned by any of the Borrowers or
any Subsidiary of the Borrowers or used in the conduct of their
respective businesses affected by, any agreement, ordinance, resolution,
decree, bond, note, indenture, order or judgment, or subject to any
restriction, which would have a Material Adverse Effect.
Section 3.9 Financial Statements.
The Borrowers have delivered to the Bank, simultaneously with
the execution and delivery of this Agreement, initialled for
identification, the Financial Statements. Each of the Financial
Statements is true and complete and presents fairly the consolidated
financial position of SSI and its Subsidiaries, including, without
limitation, SSD, and the results of their respective operations and
changes in cash flows, as at the dates and for the period referred to
therein; and has been prepared in accordance with generally accepted
accounting principles applied on a basis consistent with that of the
prior period (except as disclosed therein or in the notes thereto, and
with respect to the unaudited financial statements as of September 30,
1994 and for the period then ended, subject to normal year-end audit
adjustments). There has been no material adverse change in the financial
position or operations of any Borrower or Subsidiary since September 30,
1994, except as set forth in Exhibit 3.9 hereto. No Borrower or any
Subsidiary of a Borrower has any material obligation, liability or
commitment, direct or contingent, which is not reflected in the
Financial Statements.
Section 3.10 Tax Returns.
Each of the Borrowers and their Subsidiaries has filed all
federal, state and local tax returns required to be filed by it and has
not failed to pay any taxes, or interest and penalties relating thereto,
on or before the due dates thereof. There are no waivers or agreements
by any Borrower or any of their Subsidiaries for the extension of time
for the assessment of any tax. Except for tax liabilities not in excess
of $250,000 in the aggregate with respect to the Borrowers and all
Subsidiaries and except to the extent that reserves therefor are
reflected in the Financial Statements, (a) there are no material
federal, state or local tax liabilities of any Borrower or any
Subsidiary thereof due or to become due for any tax year ended on or
prior to December 31, 1993 whether incurred in respect of or measured by
the income of such Borrower or any Subsidiary thereof, which are not
properly reflected in the Financial Statements, and (b) there are no
material claims pending or, to the knowledge of any Borrower, proposed
or threatened against the Borrower or any Subsidiary thereof for past
federal, state or local taxes, except those, if any, as to which proper
reserves are reflected in the Financial Statements.
Section 3.11 Intangible Assets.
Except as set forth in Exhibit 3.11 hereto, to Borrower's
knowledge, each of the Borrowers and their Subsidiaries possesses all
necessary franchises, patents, licenses, trademarks, trademark rights,
trade names, trade name rights and copyrights to conduct its business as
now conducted and as proposed to be conducted, without any conflict with
the franchises, patents, licenses, trademark rights, trade names, trade
name rights and copyrights of others.
Section 3.12 Name Changes.
Except as described in Exhibit 3.12 attached hereto and made a
part hereof, none of the Borrowers or Subsidiaries has within the six-
year period immediately preceding the date of this Agreement, changed
its name, been the surviving entity of a merger or consolidation, or
acquired all or substantially all of the assets of any Person.
Section 3.13 Full Disclosure.
None of the Financial Statements, nor any certificate,
opinion, or any other statement made or furnished in writing to the Bank
by or on behalf of any of the Borrowers in connection with this
Agreement or the transactions contemplated herein, contains any untrue
statement of a material fact, or omits to state a material fact
necessary in order to make the statements contained therein or herein
not misleading, as of the date such statement was made. There is no
fact known to any Borrower which has, or would in the now foreseeable
future have, a Material Adverse Effect, which fact has not been set
forth herein, in any of the Financial Statements or any certificate,
opinion, or other written statement so made or furnished to the Bank.
Section 3.14 ERISA.
(a) The Borrowers and their Subsidiaries have no
pension or other employee benefit plans which are subject to the
provisions of Title IV of ERISA (any such plans which have been or may
hereafter be adopted or assumed by the Borrowers and their Subsidiaries
are hereinafter referred to individually as a "Plan" and, collectively,
as the Plans"), the application of which could give rise to direct or
contingent liabilities of the Borrowers and their subsidiaries to the
Pension Benefit Guaranty Corporation ("PBGC"), the Department of Labor
or the Internal Revenue Service ("IRS"). None of the Borrowers nor any
of their Subsidiaries is a participating employer in any Plan under
which more than one employer makes contributions as described in
Sections 4063 and 4064 of ERISA. The Borrowers and their Subsidiaries
have no withdrawal liability to any multiemployer plan and no withdrawal
from any multiemployer plan is contemplated or pending by any of the
Borrowers or their Subsidiaries.
(b) The Borrowers and their Subsidiaries are and have
at all times been in full compliance with all applicable provisions of
ERISA.
(c) With respect to any of the Plans, Borrowers and
their Subsidiaries have no knowledge of any Reportable Event, as
described in Section 4043 of ERISA, except that there has or may have
occurred (1) a reduction in the number of active participants as
described in Section 4043(b) (3) of ERISA; (2) a termination or partial
termination; or (3) a merger or consolidation with, or transfer of
assets to, another plan. The Borrowers and their Subsidiaries have no
outstanding liability to the PBGC for reason of any such Reportable
Event, and the Borrowers and their Subsidiaries have not received any
notice from the PBGC that any of the Plans should be terminated or from
the Secretary of the Treasury that any partial or full termination of
any of the Plans has occurred.
(d) No termination proceedings with respect to any of
the Plans have been commenced and have not yet been concluded.
(e) With respect to any of the Plans, there has not
occurred any prohibited transaction (as defined in Section 406 of ERISA
or Section 4975 of the Internal Revenue Code) for which a prohibited
transaction exemption has not been provided by statute or regulation,
ruling or opinion issued by the Department of Labor or Internal Revenue
Service and which may result in the imposition upon the Borrowers or
their Subsidiaries of any prohibited transaction excise tax or civil
liability under Section 502(i) of ERISA.
(f) The Borrowers and their Subsidiaries have made
all required contributions under the Plans for all periods through and
including the date hereof or adequate accruals therefor have been
provided for as shown in the Financial Statements. No "accumulated
funding deficiency" (as defined in section 302 of ERISA) has occurred
with respect to any of the Plans.
For purposes of this Agreement, all references to "ERISA" shall be
deemed to refer to the Employee Retirement Income Security Act of 1974
(including any sections of the Internal Revenue Code of 1986 amended by
it), as heretofore amended and as it may hereafter be amended or
modified, and all regulations promulgated thereunder, and all references
to the Borrowers and their Subsidiaries in this Section 3.14, or in any
other Section of this Agreement relating to ERISA, shall be deemed to
refer to the Borrowers and their Subsidiaries, and all other entities
which are part of a controlled or affiliated group or under common
control with the Borrowers and their Subsidiaries within the meaning of
Sections 414(b), 414(c) and 415(h) of the Internal Revenue Code of 1986,
as amended, and Section 4001(a) (2) of ERISA.
Section 3.15 Employee Grievances.
There are no actions or proceedings pending or, to the best of
any Borrower's knowledge, threatened against any Borrower or any
Subsidiary thereof, by or on behalf of or with respect to its employees,
which would have a Material Adverse Effect.
Section 3.16 Indebtedness.
There is set forth on Exhibit 3.16 annexed hereto a true and
complete schedule of all Indebtedness for borrowed money (including
guaranties of borrowed money) and Capitalized Lease Obligations of the
Borrowers and each Included Subsidiary thereof in existence as of the
date of this Agreement, setting forth with respect to all such
indebtedness, the holders, the payment schedules and the interest or
other charges payable.
Article 4. The Closings; Conditions to the Loan.
Section 4.1 The Closing.
Subject to the satisfaction of the conditions precedent set
forth in Section 4.2 hereof, the Closing shall take place at the offices
of Blank, Rome, Comisky & McCauley, counsel to the Bank, simultaneously
with the execution and delivery of this Agreement.
Section 4.2 Conditions to Initial Advance.
The obligation of Bank to lend the initial advance pursuant to
the obligations made by it hereunder shall be subject to the fulfillment
(to the satisfaction of the Bank) of the following conditions precedent:
(a) Each Borrower shall have executed and delivered
to Bank the Note.
(b) SSI and SSD shall have executed and delivered to
the Bank the Pledge Agreement as required by Section 2.16 hereof.
(c) Pioneer Metal Finishing, Inc., an Arizona
corporation ("Pioneer"), and all other Subsidiaries of SSI of which the
Borrowers own at least 80% of the issued and outstanding common stock
(except for Premier Solutions Ltd.) (the "80% Subsidiaries" or the
"Guarantors"), shall have each executed and delivered to the Bank their
respective unconditional absolute guaranties of the obligations of the
Borrowers hereunder and under the Note substantially in the form of
Exhibit "4.2(c)" hereto, Provided, that with respect to 80% Subsidiaries
of which the Borrowers own less than 100% of the issued and outstanding
common stock, their guaranties shall be limited in amount to the amount
of Borrowers' loans from time to time outstanding to such 80%
Subsidiaries.
(d) Counsel to the Borrowers and counsel for
guarantors shall have delivered to the Bank their opinions, in form and
substance satisfactory to the Bank.
(e) The Bank shall have received copies of the
following:
(i) All of the consents, approvals and
waivers referred to on Exhibit 3.2 hereto, except only those which, as
stated on Exhibit 3.2, shall not be delivered and each such consent,
waiver and approval so delivered shall be in form and substance
satisfactory to the Bank;
(ii) The certificates of incorporation of
each Borrower, and each company that serves as a guarantor of Borrowers'
obligations, certified by the Secretary of State of its respective state
of incorporation;
(iii) By-laws of each Borrower and Pioneer
and any other guarantor certified by its respective secretary;
(iv) Copies of all corporate action
(including, without limitation, directors' resolutions and stockholders'
consents) taken by each Borrower and of Pioneer and any other guarantor
to authorize the execution, delivery and performance of any agreement,
instruments and documents to which it is a party pursuant hereto or in
connection herewith, and an incumbency certificate with respect to each
such corporation in each case, certified by its respective secretary;
(v) Good standing certificates or telegrams
as of dates not more than twenty (20) days prior to the date of the
Closing, with respect to each Borrower and each Subsidiary thereof from
the Secretary of State of its state of incorporation;
(vi) Such other documents, including UCC-1
Financing Statement and UCC-3 Amendment Statements (or other document
necessary to grant or perfect a lien on personal property or real estate
under the applicable law of a particular jurisdiction) as Bank may
require;
(f) (A) The Borrowers shall have complied and
shall then be in compliance with all of the terms, covenants and
conditions of this Agreement;
(B) There shall exist no Event of Default or
Default; and
(C) The representations and warranties contained
in Article 3 hereof shall be true in all material respects;
(g) The Bank shall have received a Certificate (a
"Compliance Certificate") of the president, a vice president, the
treasurer or the corporate controller of each Borrower dated the date of
the Closing certifying that the conditions set forth in Subsection
4.2(f) hereof are satisfied on such date;
(h) The Borrowers shall have delivered to the Bank,
initialled by SSI and SSD for identification, copies of the Financial
Statements; and
(i) All legal matters incident to the transactions
contemplated hereby shall be satisfactory to counsel to Bank.
Section 4.3 Conditions to Subsequent Advances.
The obligation of Bank to make each Revolving Loan Advance
subsequent to the Initial Advance shall be subject to the fulfillment
(to the satisfaction of the Bank) of the following conditions precedent:
(a) The Bank shall have received a request for a
borrowing as provided for in subsection 2.3 hereof.
(b) The Bank shall have received a Borrowing Base
Certificate dated the date of such advance and effective as of such
date, and the matters contained in Section 4.2(f) hereof shall be true
as of such date.
(c) All legal matters incident to such advance shall
be satisfactory to counsel for the Bank.
Article 5. Delivery of Financial Reports, Documents
and Other Information.
While the Revolving Loan Commitment or any Loan remains
outstanding, so long as any Borrower is indebted to the Bank and until
payment in full of the Note and full and complete performance of all of
their other obligations arising hereunder, the Borrowers shall deliver
to Bank:
Section 5.1 Annual Financial Statements.
(a) Annually, as soon as available, but in any event
within 90 days after the last day of each of its fiscal years, a
Consolidated Balance Sheet of SSI and its Subsidiaries as at such last
day of the fiscal year, and Consolidated Statements of operations,
shareholders' equity and cash flows of SSI and its Subsidiaries for such
fiscal year, each prepared in accordance with generally accepted
accounting principles consistently applied, each to be in reasonable
detail and certified without qualification or explanatory paragraphs by
KPMG Peat Marwick or another firm of independent certified public
accountants satisfactory to Bank.
(b) Annually, as soon as available, but in any event
within 120 days after the last day of each of its fiscal years,
unaudited Consolidating Balance Sheets of SSI and its Subsidiaries as at
such last day of the fiscal year, and unaudited Consolidating Statements
of operations and cash flows of SSI and its Subsidiaries, each to be in
reasonable detail.
(c) Annually, as soon as available, but in any event
within 120 days after the last day of each of its fiscal years, an
unaudited Consolidated Balance Sheet of SSI and its Subsidiaries
(excluding Compucom, CenterCore, Inc. ("CenterCore") and Coherent) and a
schedule showing the calculation of the covenants in Section 6.8, 6.9
and 6.10 of this Credit Agreement each to be in reasonable detail.
Section 5.2 Quarterly Financial Statements.
(a) As soon as available, but in any event within 45
days after the end of the first three fiscal quarterly periods of each
fiscal year, an unaudited Consolidated Balance Sheet of SSI and its
Subsidiaries, as at such last day of the fiscal quarter, and an
unaudited Consolidated Statement of Operations of SSI and its
Subsidiaries for such fiscal quarter, and with respect to the second and
third fiscal quarters such statements shall also include statements of
operations and cash flows for the period from the commencement of the
then current fiscal year to the end of such quarter, each to be in
reasonable detail and certified by the chief financial officer of the
Borrowers as having been prepared in accordance with generally accepted
accounting principles consistently applied, subject to year-end audit
adjustments.
(b) As soon as available, but in any event within 45
days after the end of the first three fiscal quarterly periods of each
fiscal year, unaudited Consolidating Balance Sheets of SSI and its
subsidiaries as at such last day of the fiscal quarter, and unaudited
consolidating statements of Operations of SSI and its Subsidiaries, for
such fiscal quarter, and with respect to the second and third fiscal
quarters such statements shall also include consolidating statements of
operations and cash flows for the period from the commencement of the
current fiscal year to the end of such quarter, each to be in reasonable
detail.
(c) As soon as available, but in any event within 45
days after the end of the first three fiscal quarterly periods of each
fiscal year, an unaudited Consolidated Balance Sheet of SSI (excluding
Compucom, Center Core and Coherent) and a schedule showing a calculation
of the covenants in Sections 6.8, 6.9 and 6.10 of this Credit Agreement
each to be in reasonable detail.
Section 5.3 Additional Information.
Promptly after a written request therefor, such other
financial data or information evidencing compliance with the
requirements of this Agreement, the Note and the Security Documents, as
the Bank may reasonably request from time to time.
Section 5.4 No Default Certificate.
At the same time as it delivers the financial statements
required under the provisions of Sections 5.1 and 5.2, a Certificate of
the president, treasurer, corporate controller or any vice president of
SSI, to the effect that no Event of Default hereunder, or Default, has
occurred and is continuing, or, if such cannot be so certified,
specifying in reasonable detail the exceptions, if any, to such
statement. Such certificate shall be accompanied by a detailed
calculation indicating compliance with the covenants contained in
Sections 6.8, 6.9 and 6.10 hereof.
Section 5.5 Copies of Other Reports.
Promptly upon receipt thereof, copies of all other final
reports submitted to the Borrowers by its independent accountants in
connection with any annual or interim audit of the books of the
Borrowers made by such accountants.
Section 5.6 Copies of Documents.
Promptly upon their becoming available, copies of any
(a) financial statements, notices (other than routine
correspondence), requests for waivers and proxy statements delivered by
any Borrower or any Subsidiary thereof to any other lending institution
or to its stockholders (as such); (b) material non-routine
correspondence or material official notices received by any Borrower or
any Subsidiary thereof from any federal, state or local governmental
authority which regulates the operations of such Borrower; (c)
registration statements and any amendments and supplements thereto, and
any regular and periodic reports, if any, filed by any Borrower or any
Subsidiary thereof with any securities exchange or with the Securities
and Exchange Commission or any governmental authority succeeding to any
or all of the functions of the said Commission (including without
limitation form 10-K not later than 90 days after the last day of each
fiscal year of SSI and form 10-Q not later than 45 days after the last
day of each fiscal quarter of SSI); (d) all form 8-Ks not later than 15
days after filing; and (e) letters of comment or material non-routine
correspondence sent to any Borrower or any Subsidiary thereof by any
such securities exchange or such Commission in relation to such
corporation and its affairs.
Section 5.7 Notice of Defaults.
Promptly, notice of the occurrence of an Event of Default
hereunder, or Default which would constitute or cause a material adverse
change in the condition, financial or otherwise, or the operations of
any Borrower or Subsidiary thereof.
Section 5.8 ERISA Notices.
(a) Concurrently with such filing, a copy of each
annual report which is filed with respect to each Plan with the
Secretary of Labor or the PBGC; and
(b) promptly, upon their becoming available, copies
of: (i) all non-routine correspondence with the PBGC, the Secretary of
Labor or any representative of the IRS with respect to any Plan; (ii)
copies of all reports received by any Borrower or Subsidiary from its
actuary with respect to any Plan; and (iii) copies of any notices of
Plan termination filed by any Plan Administrator (as those terms are
used in ERISA) with the PBGC and of any notices from the PBGC to any
Borrower or Subsidiary with respect to the intent of the PBGC to
institute involuntary termination proceedings; and (iv) copies of all
non-routine correspondence with the plan sponsor with respect to any
multiemployer plan.
Article 6. Covenants.
While the Revolving Loan Commitment or any Revolving Loan
Advance remains outstanding, so long as any Borrower is indebted to the
Bank and until payment in full of the Note and full and complete
performance of all of its other obligations arising hereunder:
Section 6.1 Payment of Taxes and Claims.
The Borrowers will pay and discharge, and will cause the
Subsidiaries to pay and discharge, before they become delinquent:
(a) all taxes, assessments, and governmental charges
or levies imposed upon each such corporation, its income or its
Property;
(b) all claims or demands of materialmen, mechanics,
carriers, warehousemen, landlords and other like persons which, if
unpaid, might result in the creation of a Lien upon any such
corporation's Property;
(c) all claims, assessments, or levies required to be
paid by any such entity pursuant to any agreement, contract, law,
ordinance, or governmental rule or regulation governing any pension,
retirement, profit-sharing or any similar plan of any such corporation;
and
(d) all other obligations and liabilities of each
such corporation;
provided that items of the foregoing description need not be paid
while being contested in good faith and by appropriate proceedings and
provided further that a bond is filed in cases where the filing of a
bond is necessary to avoid the creation of a Lien against the Property
of any such corporation.
Section 6.2 Maintenance of Properties, Insurance, Records
and Corporate Existence; Inspections and Audits; etc.
The Borrowers will, and will cause their Subsidiaries to:
(a) Property. Maintain their respective Properties
in good condition, working order and repair, subject to normal wear and
tear.
(b) Insurance.
(i) Maintain, with financially sound and
reputable insurers, insurance with respect to their respective
Properties and businesses against such casualties and contingencies of
such types and in such amounts as is customary in the case of
corporations of established reputations engaged in the same or a similar
business and file with the Bank upon its request a detailed list of the
insurance then in effect, stating the names of the insurance companies,
the amounts and rates of insurance, dates of the expiration thereof and
the properties and risks covered thereby.
(ii) Pay all premiums to the PBGC as may be
required for the plan termination and insolvency insurance provided by
the PBGC.
(c) Financial Records. Keep proper books of record
and account in a manner satisfactory to the Bank in which full, true and
correct entries in accordance with generally accepted accounting
principles shall be made of all dealings or transactions in relation to
its business activities.
(d) Maintenance of Existence. Subject to the terms
of Section 6.7 hereof, do or cause to be done all things necessary to
preserve and keep in full force and effect its and each Subsidiary's
corporate existence and all franchises, rights and privileges necessary
for the proper conduct of its and their respective businesses, continue
to engage, and cause each Subsidiary to continue to engage, in the same
type of business as it and they, respectively, are presently engaged.
(e) Delivery of Amendments. Promptly deliver to the
Bank copies of any amendments or modifications to its and each 80%
Subsidiary's and Additional 80% Subsidiary's (as defined in Section 6.18
hereof) certificate of incorporation or by-laws, certified, with respect
to the certificate of incorporation, by the Secretary of State of its
jurisdiction of incorporation and, with respect to the by-laws, by the
Secretary of the corporation.
(f) Notice of Disputes. Promptly notify the Bank in
writing of any litigation, legal proceeding or dispute which might
result in liability in excess of $500,000 whether or not fully covered
by insurance.
(g) Compliance with Law. Comply in all material
respects with all laws, ordinances, governmental rules and regulations
to which such entity is subject (including, without limitation, ERISA
and environmental laws) and obtain any licenses, permits, franchises, or
other governmental authorizations necessary to the ownership of their
respective Properties or to the conduct of their respective businesses.
For purposes of the preceding sentence, "comply in all material
respects" shall have the meaning provided for in Section 3.7 hereof.
(h) Inspections and Audits. Permit the Bank to make
or cause to be made, at the Borrowers' expense (which expense shall be
limited to a reasonable amount prior to any Default), inspections and
audits of any books, records and papers of each Borrower and Included
Subsidiary and to make extracts therefrom, or to make inspections and
examinations of any properties and facilities of any Borrower or
Included Subsidiary on reasonable notice, at all such reasonable times
and as often as any Bank may require.
Section 6.3 Indebtedness.
The Borrowers shall not, and shall not permit any Included
Subsidiary to, create, incur, permit to exist or have outstanding any
Indebtedness, except:
(a) Indebtedness of the Borrowers to the Bank under
this Agreement and the Note and Indebtedness of Included Subsidiaries to
the Borrowers arising from loans and intercompany advances as and to the
extent permitted under Section 6.6 hereof;
(b) Taxes, assessments and governmental charges,
current trade accounts payable, accrued expenses, customer payments
received in advance and deferred liabilities other than for borrowed
money (e.g., deferred compensation and deferred taxes), in each case
incurred and continuing in the ordinary course of business;
(c) Indebtedness set forth on Exhibit 3.16 annexed
hereto;
(d) Indebtedness in an aggregate amount for Borrowers
and all Included Subsidiaries not to exceed $8,000,000 at any time
outstanding; and
(e) Indebtedness of Borrowers owing to their 80%
Subsidiaries or to Persons in which Investments have been or hereafter
are made (as permitted in Section 6.6 hereof) in an aggregate amount not
to exceed $10,000,000 at any time outstanding.
Section 6.4 Liens.
No Borrower will, nor will the Borrowers permit any Included
Subsidiary to, cause or permit in the future (upon the happening of a
contingency or otherwise) any of their respective Properties, whether
now owned or hereafter acquired, to be subject to a Lien except:
(a) Liens created by the Security Documents;
(b) Liens for taxes or other governmental charges
which are not delinquent or which are being contested in good faith and
for which a reserve shall have been established as required in
accordance with generally accepted accounting principles;
(c) Pledges or deposits to secure obligations under
workmen's compensation laws or similar legislation; pledges or deposits
to secure performance in connection with bids, tenders, contracts (other
than contracts for the payment of money) or leases to which either of
the Borrowers or any Included Subsidiary is a party; deposits to secure
public or statutory obligations; materialmen's, mechanics', carriers',
workmen's, repairmen's or other like liens, or deposits to obtain the
release of such liens, in an aggregate amount with respect to the
Borrowers and all Included Subsidiaries not exceeding $100,000 at any
one time outstanding; and deposits to secure surety, appeal or customs
bonds on which either of the Borrowers or any Included Subsidiary is the
principal; as to all of the foregoing, however, only to the extent
arising and continuing in the ordinary course of business;
(d) As set forth on Exhibit 3.16 annexed hereto which
shall evidence indebtedness not to exceed $2,100,000 in the aggregate;
(e) Liens for purchase money financing of equipment
or real estate after the date hereof, which liens shall secure
Indebtedness not to exceed $1,500,000.00 in the aggregate at any one
time outstanding.
Section 6.5 Guaranties.
The Borrowers and their Included Subsidiaries shall not
assume, endorse, be or become liable for, or guarantee, the obligation
of any Person, except:
(a) by the endorsement of negotiable instruments for
deposit or collection in the ordinary course of business;
(b) guaranties in favor of the Bank of obligations of
others;
(c) guaranties existing on the date hereof, the
aggregate amount of which shall not exceed $14,643,000;
(d) future guaranties to the extent that, after
giving effect to such future guaranties, the aggregate amount of all
guaranties by the Borrowers and their Included Subsidiaries (including
those referred to in Paragraph (c) hereof and excluding those referred
to in Paragraphs (a) and (e) hereof) would not exceed Twenty Five
Million ($25,000,000.00) in the aggregate, provided that in no event
will any such guaranty(ies) issued for the indebtedness or obligations
of any one Person (other than XL Vision, Inc.) exceed $5,000,000 in the
aggregate and in no event will any such guaranty(ies) issued for the
indebtedness of XL Vision, Inc. exceed (when taken together with
additional guaranties permitted by subparagraph (e)) $6,800,000 in the
aggregate; and
(e) guaranties hereafter executed and delivered in
Borrowers' fiscal year 1995 for not more than $2,000,000 in the
aggregate of indebtedness of XL Vision, Inc. (which Bank acknowledges
will bring the total indebtedness of XL Vision, Inc. guaranteed by
Borrowers to $6,800,000) and for not more than $3,000,000 in the
aggregate of indebtedness of Premier Solutions Ltd.
For the purposes hereof, the term "guaranties" shall mean any
obligation to pay money on behalf of or in regard to another Person,
including without limitation any obligation as guarantor, surety,
purchaser, indemnitor, lessee, repurchaser, investor, contributor,
subscriber, lender or otherwise. It is intended that the term
"guaranties" be interpreted in the broadest sense possible and the
examples in the foregoing sentence are illustrations and not
limitations.
Furthermore, obligations with respect to letters of credit shall
not be "guaranties" which are permitted within the Twenty-Five Million
Dollars ($25,000,000) in accordance with this section 6.5.
Section 6.6 Investments and Loans.
The Borrowers and their Included Subsidiaries may make
Investments in other Persons, in addition to Investments existing on the
date of Closing and disclosed in Exhibit "6.6" hereto, subject to the
following limitations:
(a) (i) The aggregate of all Investments may
not exceed $20,000,000 for each of Borrowers' fiscal year 1995, fiscal
year 1996, fiscal year 1997 and fiscal year 1998.
(ii) Subject to the overall limit in
subsection (a)(i) and except as provided in subsection (a)(iii) below,
Borrowers may only invest up to $5,000,000.00 in any fiscal year for
each existing Investment or Subsidiary and may only invest up to
$6,000,000.00 in any fiscal year for each new Investment comprised of an
acquisition of assets or stock of a third Person.
(iii) Subject to the overall limitation
contained in subsection (a)(i) above and notwithstanding subsection
(a)(ii) above, Borrowers shall not invest more than $5,000,000.00 into
CompuCom and CenterCore, in the aggregate, in any one fiscal year.
(b) Borrowers shall notify the Bank of any Investment
in any Person in which no previous Investment has been made by any
Borrower, within a reasonable period after making such Investment, and
shall provide the Bank with full information on the Investment,
including without limitation, balance sheets, statements of income,
statements of stockholders equity and such other information as the Bank
may request.
Section 6.7 Consolidation and Merger.
No Borrower will, nor will the Borrowers permit any Included
Subsidiary to, consolidate with or merge into any other Person
(including, without limitation, either Borrower or any Subsidiary) or
permit any other Person to consolidate with or merge into any Borrower
or Included Subsidiary except that SSD may merge with and into SSI.
Section 6.8 Tangible Net Worth.
The Borrowers shall not permit Tangible Net Worth at any time
to be less than $75,000,000 plus 75% of after tax earnings for all
periods after September 30, 1994 (determined on a cumulative basis).
Section 6.9 Indebtedness to Tangible Net Worth.
The Borrowers shall not permit the ratio of the amount of
Indebtedness to Tangible Net Worth at any time to be greater than 2.5 to
1.
Section 6.10 Interest Coverage Ratio.
The Borrowers shall not permit the Interest Coverage Ratio to
be less than 1.25 to 1 at any time.
Section 6.11 Change of Business; Sale of Assets.
The Borrowers shall not, and shall not permit any Subsidiary,
to make any material change in its business or in the nature of its
operations or liquidate or dissolve itself (or suffer any liquidation or
dissolution) or convey, sell, lease, or otherwise dispose of any of its
Properties, assets or business, except in the ordinary course of
business for a fair consideration, or dispose of any shares of stock or
any Indebtedness of others owing to either Borrower or any Subsidiary
whether now owned or hereafter acquired; provided, however, that nothing
contained in this Section 6.11 shall prohibit (i) the sale of any
Investment, the stock of which Investment is not a part of the Pledged
Securities, so long as Bank has consented to the sale of such
Investment, in writing, or (ii) the making of any Investment permitted
under Section 6.6 hereof, or (iii) sales of Pledged Securities in the
ordinary course of either Borrower's business provided that Borrowers
are at all times in compliance with the Collateral Coverage Ratio and
subject to the terms of Section 4(c) of the Pledge Agreement, or (iv)
the sale by CenterCore, Inc. of substantially all of its assets provided
that the proceeds thereof are used to repay amounts outstanding under
the Revolving Loan.
Section 6.12 Leases.
The Borrowers shall not, and shall not permit their Included
Subsidiaries to, enter into any leases (other than leases giving rise to
Capitalized Lease Obligations) to the extent that, after giving effect
to any such lease, the aggregate amount of rental payments and all other
payments by the Borrowers and their Included Subsidiaries under such
leases in any fiscal year of SSI would exceed $5,000,000.
Section 6.13 Issuance of Stock.
The Borrowers will not permit SSD, or any Person who has
guaranteed Borrowers' obligations to the Bank pursuant to Sections
4.2(c) or 6.18 hereof, to, issue, sell or dispose of any shares of stock
of any class, excluding stock hereafter issued pursuant to outstanding
warrants, options, option plans, contracts or commitments listed in
Exhibit 3.1.
Section 6.14 Fiscal Year.
The Borrowers and their Included Subsidiaries shall not change
their fiscal year.
Section 6.15 [INTENTIONALLY OMITTED]
Section 6.16 ERISA Compliance; Obligations.
(a) The Borrowers and their Subsidiaries shall:
(i) comply in all material respects with
all applicable provisions of ERISA now or hereafter in effect;
(ii) promptly notify the Bank in writing of
the occurrence of any Reportable Event, as defined in ERISA together
with a description of such Reportable Event and a statement of the
action that any such Borrower or Subsidiary intends to take with respect
thereto, together with a copy of the notice (if any) thereof given to
the PBGC; and
(iii) promptly notify the Bank in writing
of any proposed withdrawal from a multiemployer plan.
(b) The Borrowers and their Subsidiaries will not:
(i) be or become obligated to the PBGC or
any multiemployer plan in excess of $50,000; or
(ii) be or become obligated to the IRS with
respect to excise or other penalty taxes provided for in those
provisions of the Internal Revenue Code which were enacted pursuant to
ERISA, as now in effect or hereafter amended or supplemented, in excess
of $50,000.
Section 6.17 Prepayments.
None of the Borrowers or any Included Subsidiary thereof will
make any voluntary or optional prepayment of any Indebtedness for
borrowed money incurred or permitted to exist under the terms of this
Agreement, other than Indebtedness evidenced by the Note, subject to the
prepayment terms hereof.
Section 6.18 Guarantees of Newly Acquired Subsidiaries.
If Borrowers should acquire any additional Subsidiaries, SSI
will not disburse any of the proceeds of the Loan to any such Subsidiary
unless and until, as to any Subsidiary in which any Borrower owns more
than 80% of the issued and outstanding common stock of such Subsidiary
("Additional 80% Subsidiaries" or "Guarantors"), such Additional 80%
Subsidiary shall have delivered an absolute unconditional guarantee of
the Loan and the obligations of the Borrowers hereunder and under the
Note (limited, however, in amount, with respect to Additional 80%
Subsidiaries in which Borrowers own less than 100% of the issued and
outstanding common stock, to the amount of Borrowers' loans from time to
time outstanding to such Additional 80% Subsidiaries) substantially in
the form of Exhibit "6.18", together with (i) the certificate of
incorporation of such corporation certified by its secretary, (ii) the
by-laws of such corporation certified by its secretary, (iii) copies of
all corporate action (including, without limitation, directors'
resolutions and stockholders' consents) to authorize the execution,
delivery and performance of such guarantee, (iv) a certificate of
incumbency of the officer executing such guarantee certified by such
corporation's secretary, and (v) a certificate of good standing or
telegram from the Secretary of State of such corporation dated not more
than ten (10) days prior to the date of the delivery of such guarantee.
Section 6.19 Letters of Credit.
Neither the Borrowers nor any Included Subsidiary shall obtain
any letters of credit or enter into any agreements or execute any
obligations with respect to letters of credit except with respect to
letters of credit issued by Bank pursuant hereto.
Section 6.20 Dispositions.
The Borrowers shall notify the Bank of the disposition of the
capital stock or other ownership interest in any Person by telephone at
the latest contemporaneously therewith followed promptly by written
notice. In the event of the disposition of Pledged Securities written
notice shall not be later than twenty-four (24) hours after the time
when the Bank is to deliver such Pledged Securities. The proceeds of
the sale of any Collateral shall be applied as set forth in Section 4(c)
of the Pledge Agreement.
Article 7. Events of Default.
If any one or more of the following events ("Events of
Default") shall occur and be continuing (except that, with respect to an
Event of Default under Section 7.2 below, whether or not such Event of
Default shall be continuing), the Revolving Loan Commitment shall
terminate and the entire unpaid balance of the principal of and interest
on the Note outstanding and all other obligations and Indebtedness of
the Borrowers to the Bank arising hereunder and under the other Loan
Documents shall immediately become due and payable upon written notice
to that effect given to SSI, as agent for the Borrowers, by the Bank
(except that in the case of the occurrence of any Event of Default
described in Section 7.6 no such notice shall be required), without
presentment or demand for payment, notice of non-payment, protest or
further notice or demand of any kind, all of which are expressly waived
by each of the Borrowers:
Section 7.1 Payments.
(a) Failure to make any payment of principal or
interest upon the Note, or to make any payment of the commitment fee,
within seven (7) days after the date upon which any such payment is due;
or
(b) Should the principal balance (including the face
amount of outstanding letters of credit) outstanding under the Loan at
any time exceed the Collateral Coverage Base; or
Section 7.2 Covenants.
Failure by any Borrower or Subsidiary (or Included Subsidiary,
as applicable) to perform or observe any of their respective agreements
contained in Article 6 hereof (except Sections 6.1, 6.2, 6.8, 6.9, 6.10
or 6.16(a) of Article 6); or
Section 7.3 Other Covenants.
Failure by any Borrower or any Subsidiary (or Included
Subsidiary, as applicable) to perform or observe any other term,
condition or covenant of this Agreement not described in Section 7.2
above, the Note, the Security Documents, or any other agreement or
document delivered pursuant hereto or thereto which shall remain
unremedied for a period of thirty (30) days after notice thereof shall
have been given by the Bank to SSI; or
Section 7.4 Other Defaults.
(a) Failure by any Borrower or Included Subsidiary to
perform or observe any term, condition or covenant of any bond, note,
debenture, loan agreement, indenture, guaranty, trust agreement,
mortgage or similar instrument (including, without limitation, any debt
which is subordinated to the obligations created pursuant to this
Agreement) to which any Borrower or Included Subsidiary is a party or by
which it is bound, or by which any of its Properties or assets may be
affected (a "Debt Instrument"), and, as a result thereof (assuming the
giving of appropriate notice thereof, if required), Indebtedness in
excess of $500,000 which is included therein or secured or covered
thereby shall have been declared due and payable prior to the date on
which such Indebtedness would otherwise become due and payable; or
(b) Any event or condition referred to in any Debt
Instrument shall have occurred or failed to occur, and, as a result
thereof, Indebtedness in excess of $500,000 which is included therein or
secured or covered thereby shall have been declared due and payable
prior to the date on which such Indebtedness would otherwise become due
and payable; or
(c) Failure to pay any Indebtedness for borrowed
money in excess of $500,000 due at final maturity or pursuant to demand
under any Debt Instrument.
Section 7.5 Representations and Warranties.
Any representation or warranty made in writing to the Bank in
any of the Loan Documents or in connection with the making of the Loan,
or any certificate, statement or report made or delivered in compliance
with this Agreement, shall have been false or misleading in any material
respect when made or delivered; or
Section 7.6 Bankruptcy.
(a) Any Borrower or Subsidiary shall make an
assignment for the benefit of creditors, file a petition in bankruptcy,
be adjudicated insolvent or bankrupt, suffer an order for relief under
any federal bankruptcy law, petition or apply to any tribunal for the
appointment of a receiver, custodian, or any trustee for it or a
substantial part of its assets, or shall commence any proceeding under
any bankruptcy, reorganization, arrangement, readjustment of debt,
dissolution or liquidation law or statute of any jurisdiction, whether
now or hereafter in effect; or there shall have been filed any such
petition or application, or any such proceeding shall have been
commenced against it, which remains undismissed for a period of sixty
(60) days or more; or any order for relief shall be entered in any such
proceeding; or any Borrower or Subsidiary by any act or omission shall
indicate its consent to, approval of or acquiesced in any such petition,
application or proceeding or the appointment of a custodian, receiver or
any trustee for it or any substantial part of any of its properties, or
shall suffer any custodianship, receivership or trusteeship to continue
undischarged for a period of sixty (60) days or more; or
(b) Any Borrower or Subsidiary shall generally not
pay its debts as such debts become due; or
(c) Any Borrower or Subsidiary shall have concealed,
removed, or permitted to be concealed or removed, any part of its
property, with intent to hinder, delay or defraud its creditors or any
of them, or made or suffered a transfer of any of its property which may
be fraudulent under any bankruptcy, fraudulent conveyance or similar
law; or shall have made any transfer of its property to or for the
benefit of a creditor at a time when other creditors similarly situated
have not been paid; or shall have suffered or permitted, while
insolvent, any creditor to obtain a lien upon any of its property
through legal proceedings or distraint which is not vacated within sixty
(60) days from the date thereof; or
Section 7.7 Judgments.
Any judgment against any Borrower or Subsidiary or any
attachment, levy of execution against any of their respective properties
for any amount in excess of $500,000 shall remain unpaid, unstayed on
appeal, undischarged, unbonded or undismissed for a period of sixty (60)
days or more; or
Section 7.8 ERISA.
(a) The termination of any Plan or the institution by
the PBGC of proceedings for the involuntary termination of any Plan, in
either case, with a vested unfunded liability in excess of $500,000; or
(b) Failure by any Borrower or Subsidiary to fund, in
accordance with the applicable provisions of ERISA, each of the Plans
hereafter established or assumed by it provided, that such failure to
fund shall not constitute an Event of Default hereunder unless such
failure shall continue for 5 days after the date on which such funding
was required; or
(c) The withdrawal by any Borrower or Subsidiary from
any multiemployer plan giving rise to a withdrawal liability in excess
of $500,000; or
Section 7.9 Liens.
Any of the Liens created and granted to the Bank under the
Security Documents shall at any time fail to be valid, first, perfected
Liens, subject to no prior or equal Lien; or
Section 7.10 Maintaining Ownership.
(a) SSI shall cease at any time to own beneficially
and of record: (i) 51% of the issued and outstanding voting stock and
securities convertible to voting stock of Compucom; and (ii) 80% of the
issued and outstanding shares of capital stock of Pioneer.
(b) Any Person shall acquire more than 30 percent of
the issued and outstanding capital stock of SSI.
Section 7.11 Remedies.
In the event an Event of Default shall have occurred and be
continuing (except that, with respect to an Event of Default under
Section 7.2 above, whether or not such Event of Default shall be
continuing), the Bank may thereupon or thereafter, in addition to its
other rights and remedies referred to herein, take any action at law or
in equity to collect the outstanding principal amount of and all
interest accrued on the Loan and all other obligations and Indebtedness
of the Borrowers to the Bank under this Agreement and the other Loan
Documents and to enforce performance and observance of such obligation
by the Borrowers and may, in connection therewith, exercise any and all
rights and remedies available at law or in equity or under the Security
Documents with respect to the collateral security created and granted
thereunder; provided, however, that the foregoing provisions of this
Article 7 shall not prevent Bank from enforcing its rights under the
Note or otherwise.
Article 8. Miscellaneous Provisions.
Section 8.1 Fees and Expenses.
The Borrowers, jointly and severally, will promptly (and in
any event within 30 days after receipt of an invoice or statement
therefor) pay all reasonable costs of preparing and complying with this
Agreement and all reasonable costs and expenses of the issue of the Note
and of the performance by all of the Borrowers of and compliance by all
of them with all agreements and conditions contained herein on their
part to be performed or complied with (including, without limitation,
all costs of filing or recording any assignment, mortgages, financing
statements and other documents), and the reasonable fees and expenses
and disbursements of counsel to the Bank in connection with the
preparation, execution and delivery, administration, interpretation and
enforcement of this Agreement, the Note, the Security Documents, the
other Loan Documents and all other agreements, instruments and documents
relating to this transaction. The Borrowers, jointly and severally,
shall at all times protect, indemnify, defend and save harmless the Bank
from and against any and all claims, actions, suits and other legal
proceedings (commenced or asserted by or against the Bank), and
liabilities, damages, costs, interest, charges, counsel fees and other
expenses and penalties which the Bank may, at any time, sustain or incur
by reason of or in consequence of or arising out of the execution and
delivery of this Agreement, the consummation of the transactions
contemplated hereby, the breach by Borrowers of any of their covenants
contained herein and/or the enforcement by Bank of its rights and
remedies herein and/or in the other Loan Documents, except and to the
extent that Borrowers prove that such claim, action, suit, liability,
etc. was caused by the gross negligence or willful misconduct or
manifest bad faith of the Bank. The provisions of this Section 8.1
shall survive the payment of the Note or any disposition thereof by the
Bank and the termination of this Agreement.
Section 8.2 Taxes.
If, under any law in effect on the date of the closing of the
Loan hereunder, or under any retroactive provision of any law
subsequently enacted, it shall be determined that any Federal, state or
local tax is payable in respect of the issuance of the Note, or in
connection with the filing or recording of any assignment, mortgages,
financing statements, or other documents (whether measured by the amount
of indebtedness secured or otherwise) as contemplated by this Agreement,
then the Borrowers will pay any such tax and all interest and penalties,
if any, and will indemnify the Bank against and save it harmless from
any loss or damage resulting from or arising out of the nonpayment or
delay in payment of any such tax. If any such tax or taxes shall be
assessed or levied against Bank, Bank may notify the Borrowers and make
immediate payment thereof, together with interest or penalties in
connection therewith, and shall thereupon be entitled to and shall
receive immediate reimbursement there for from the Borrowers.
Notwithstanding any other provision contained in this Agreement, the
covenants and agreements of the Borrowers in this Section 8.2 shall
survive payment of the Note and the termination of this Agreement.
Section 8.3 Payments.
All payments by the Borrowers on account of principal,
interest and other charges (including any indemnities) shall be made to
the Bank at its Principal Office, in lawful money of the United States
of America in immediately available funds, by wire transfer or
otherwise, not later than 12:00 noon Philadelphia time on the date such
payment is due. Any such payment made on such date but after such time
shall, if the amount paid bears interest, be deemed to have been made on
and interest shall continue to accrue and be payable thereon until the
next succeeding Business Day. If any payment of principal or interest
becomes due on a day other than a Business Day, such payment may be made
on the next succeeding Business Day and such extension shall be included
in computing interest in connection with such payment. All payments
hereunder and under the Note shall be made without set-off or
counterclaim and in such amounts as may be necessary in order that all
such payments shall not be less than the amounts otherwise specified to
be paid under this Agreement and the Note (after withholding for or on
account of (i) any present or future taxes, levies, imposts, duties or
other similar charges of whatever nature imposed by any government or
any political subdivision or taxing authority thereof, other than any
tax (except those referred to in clause (ii) below) on or measured by
the net income of the Bank pursuant to applicable federal, state and
local income tax laws, and (ii) deduction of an amount equal to the
taxes on or measured by the net income of Bank payable by Bank with
respect to the amount by which the payments required to be made under
this sentence exceed the amounts otherwise specified to be paid in this
Agreement and the Note). Upon payment in full of the Note, the Bank
shall mark the Note "Paid" and return it to SSI, as agent for the
Borrowers.
Section 8.4 Survival of Agreements and Representations;
Waiver of Trial by Jury.
All agreements, representations and warranties made herein
shall survive the delivery of this Agreement and the Note. EACH
BORROWER IRREVOCABLY WAIVES TRIAL BY JURY AND THE RIGHT THERETO IN ANY
LITIGATION IN ANY COURT WITH RESPECT TO, IN CONNECTION WITH, OR ARISING
OUT OF, THIS AGREEMENT, THE NOTE, THE SECURITY DOCUMENTS, ANY OF THE
OTHER LOAN DOCUMENTS, OR ANY INSTRUMENT OR DOCUMENT DELIVERED PURSUANT
TO THIS AGREEMENT, OR THE VALIDITY, PROTECTION, INTERPRETATION,
COLLECTION OR ENFORCEMENT THEREOF.
Section 8.5 Lien on and Set-off of Deposits.
As security for the due payment and performance of all the
Obligations, each Borrower hereby grants to the Bank a lien on and
security interest in any and all deposits or other sums at any time
credited by or due from the Bank to such Borrower, whether in regular or
special depository accounts or otherwise, and any and all monies,
securities and other property of such Borrower, and the proceeds
thereof, now or hereinafter held or received by or in transit to Bank
from or for such Borrower, whether for safekeeping, custody, pledge,
transmission, collection or otherwise, and any such deposits, sums,
monies, securities and other property, may at any time be set-off,
appropriated and applied by Bank against any of the obligations,
indebtedness or liabilities hereunder, under the Note and under the
Security Documents whether or not any of such obligations is then due or
is secured by any collateral, or, if it is so secured, whether or not
the collateral held by the Bank is considered to be adequate, all as set
forth in and pursuant to Section 2.15 hereof.
Section 8.6 Modifications, Consents and Waivers;
Entire Agreement.
No modification, amendment or waiver of or with respect to any
provision of this Agreement, the Note, the Security Documents, or any of
the other Loan Documents and all other agreements, instruments and
documents delivered pursuant hereto or thereto, nor consent to any
departure by any Borrower or Subsidiary from any of the terms or
conditions thereof, shall in any event be effective unless it shall be
in writing and signed by the Bank and then any such waiver or consent
shall be effective only in the specific instance and for the purpose for
which given. No consent to or demand on any Borrower or Subsidiary in
any case shall, of itself, entitle it to any other or further notice or
demand in similar or other circumstances. This Agreement embodies the
entire agreement and understanding among the Bank and the Borrowers and
supersedes all prior agreements and understandings relating to the
subject matter hereof, provided, that each Borrower hereby reaffirms all
liens and security interests, including that created by the Pledge
Agreement, heretofore granted to Bank, and agrees that the same remain
in full force and effect as security for the Obligations.
Section 8.7 Remedies Cumulative.
Each and every right granted to the Bank hereunder or under
any other document delivered hereunder or in connection herewith, or
allowed it by law or equity, shall be cumulative and may be exercised
from time to time. No failure on the part of the Bank to exercise, and
no delay in exercising, any right shall operate as a waiver thereof, nor
shall any single or partial exercise of any right preclude any other or
future exercise thereof or the exercise of any other right. The due
payment and performance of any Borrower's indebtedness, liabilities and
obligations under the Note and this Agreement shall be without regard to
any counterclaim, right of offset or any other claim whatsoever which
such Borrower may have against Bank and without regard to any other
obligation of any nature whatsoever which Bank may have to such Borrower
and no such counter-claim or offset shall be asserted by such Borrower
in any action, suit or proceeding instituted by Bank for payment or
performance of such Borrower's indebtedness, liabilities or obligation
under the Note, this Agreement, the Security Documents or otherwise.
Section 8.8 Further Assurances.
At any time and from time to time, upon the request of the
Bank, the Borrowers shall execute, deliver and acknowledge or cause to
be executed, delivered and acknowledged, such further documents and
instruments and do such other acts and things as the Bank may reasonably
request in order to fully effect the purposes of this Agreement, the
Note, the Security Documents, the other Loan Documents and any other
agreements, instruments and documents delivered pursuant hereto or in
connection with the Loan.
Section 8.9 Notices.
(a) All notices, requests, reports and other
communications pursuant to this Agreement shall be in writing, either by
letter (delivered by hand or sent by Certified mail, return receipt
requested, except for routine reports which shall be by ordinary first
class mail) or by telegram or telecopy, and, addressed as follows:
(i) If to any Borrower:
To the mailing address as set forth in the
heading of this Agreement;
Attention: Michael W. Miles,
Vice President/Controller
Telecopy No.: (610) 293-0601
(ii) If to Bank:
To its address set forth in the heading of
this Agreement;
Attention: Joseph G. Meterchick,
Vice President
Telecopy No.: (215) 564-7087
With a copy to:
Blank Rome, Comisky & McCauley
1200 Four Penn Center Plaza
Philadelphia, PA 19103
Attention: Bradley D. O'Brien, Esquire
Telecopy No.: (215) 569-5555
Any notice, request or communication hereunder shall be deemed to
have been given on the day on which it is delivered by hand to such
party at its address specified above, or, if sent by mail, on the third
Business Day after the day deposited in the mail, postage prepaid, or in
the case of telegraphic notice, when delivered to the telegraph company,
addressed as aforesaid, or, if by telecopy, when transmitted. Any party
may change the person or address to whom or which notices are to be
given hereunder, by notice duly given hereunder; provided, however, that
any such notice shall be deemed to have been given hereunder only when
actually received by the party to which it is addressed.
(b) Each of the Borrowers hereby revocably appoints
SSI as its agent to give and receive any notice, request, report and
other communication pursuant to this Agreement, and for such other
purposes as are provided for herein. Each of the Borrowers agrees that
the Bank may rely and act upon, without any investigation or inquiry as
to the authority or power to give, or accuracy or reasonableness of, and
each of the Borrowers will be unconditionally and irrevocably bound and
obligated by any instructions, notice, request, report or other
communications given by SSI to the Bank.
Section 8.10 Counterparts.
This Agreement may be signed in any number of counterparts
with the same effect as if the signatures thereto and hereto were upon
the same instrument.
Section 8.11 Construction; Governing Law; Jurisdiction.
The headings used in this Agreement are for convenience only
and shall not be deemed to constitute a part hereof. All uses herein of
the masculine gender or of the feminine or neuter gender or plural or
singular terms includes the other as the context may require. This
Agreement, the Note, the Security Documents, the other Loan Documents
and all other documents and instruments executed and delivered in
connection herewith and therewith, shall be governed by, and construed
and interpreted in accordance with, the laws of the Commonwealth of
Pennsylvania applicable to contracts executed and to be performed
therein. The Borrowers hereby irrevocably consent to the jurisdiction
of the Courts of Common Pleas of the Commonwealth of Pennsylvania and of
the United States District Court for the Eastern District of
Pennsylvania in any and all actions and proceedings in connection with
this Agreement, the Note or the Security Documents and irrevocably
consent, in addition to any method of service of process permissible
under applicable law, to service of process by certified mail, return
receipt requested to the addresses of Borrowers as set forth herein.
The Borrowers agree that in any action or proceeding brought by them in
connection with this Agreement or the transactions contemplated hereby,
exclusive jurisdiction shall be in the courts of the Courts of Common
Pleas of the Commonwealth of Pennsylvania, and the United States
District Court for the Eastern District of Pennsylvania.
Section 8.12 Severability.
The provisions of this Agreement are severable, and if any
clause or provision shall be held invalid or unenforceable in whole or
in part in any jurisdiction, then such invalidity or unenforceability
shall affect only such clause or provision, or part thereof, in such
jurisdiction and shall not in any manner affect such clause or provision
in any other jurisdiction, or any other clause or provision in this
Agreement in any jurisdiction. Each of the covenants, agreements and
conditions contained in this Agreement is independent and compliance by
any Borrower with any of them shall not excuse non-compliance by any
Borrower with any other.
Section 8.13 Binding Effect; No Assignment or Delegation.
This Agreement shall be binding upon and inure to the benefit
of each Borrower and its successors and to the benefit of the Bank and
its successors and assigns. The rights and obligations of each Borrower
under this Agreement shall not be assigned or delegated without the
prior written consent of the Bank, and any purported assignment or
delegation without such consent shall be void.
Section 8.14 Joint and Several Obligations.
(a) All of the Indebtedness, liabilities and
obligations of the Borrowers under this Agreement and the Loan Documents
shall be the joint and several obligations of the Borrowers.
(b) Each Borrower agrees that the Bank may, in its
discretion, without affecting or modifying the joint and several
obligations of each Borrower for all of the Indebtedness, liabilities
and obligations under this Agreement and the Loan Documents including,
without limitation, the Obligations, (i) release, discharge, compromise
or settle with, or grant indulgences to, refuse to proceed or take
action against, any one or more of the Borrowers with respect to their
respective obligations under this Agreement, including, without
limitation, the Obligations, (ii) release, surrender, modify, impair,
exchange, substitute or extend the period or duration of time for the
performance, discharge or payment of, refuse to enforce, compromise or
settle its Lien against, any and all deposits and other property or
assets on which the Bank may have a Lien or which secures any of the
Indebtedness, liabilities and obligations, including without limitation,
the Obligations of any Borrower under this Agreement, (iii) amend,
modify, alter or restate, in accordance with their respective terms,
this Agreement or any of the Loan Documents or otherwise, accept
deposits or other property from, or enter into transactions of any kind
or nature with, any one or more of the Borrowers, and (iv) disburse all
or part of the proceeds of the Loan as instructed by SSI as agent for
all of the Borrowers, without inquiry or investigation of any kind by
the Bank as to the use of such proceeds (each Borrower confirms that it
will be directly or indirectly benefitted by each and every Revolving
Loan Advance and any and all other advances under this Agreement or any
of the Loan Documents).
Section 8.15 Third Party.
No rights are intended to be created hereunder for the benefit
of any Third Party donee, creditor or incidental beneficiary.
MIDLANTIC BANK, N.A.
By:
SAFEGUARD SCIENTIFICS, INC.
By:
Attest:
SAFEGUARD SCIENTIFICS (DELAWARE) INC.
By:
Attest:
AMENDED AND RESTATED REVOLVING NOTE
$75,000,000.00 February 1, 1995
Philadelphia, Pennsylvania
FOR VALUE RECEIVED, SAFEGUARD SCIENTIFICS, INC., a Pennsylvania
corporation, and SAFEGUARD SCIENTIFICS (DELAWARE), INC., a Delaware
corporation (collectively, the "Borrowers"),
jointly and severally, promise to pay to the order of MIDLANTIC BANK,
N.A. (the "Bank") on January 31, 1998, the principal sum of SEVENTY FIVE
MILLION AND 00/100 DOLLARS ($75,000,000.00) (or such lesser amount as
shall equal the aggregate principal amount of the Revolving Loan
outstanding from time to time made by the Bank under the Credit
Agreement referred to below), in lawful money of the United States of
America and in immediately available funds, and to pay interest on the
unpaid principal amount of each such Loan, in like money and funds, at
the rates per annum and on the dates hereinafter provided.
This Note ("Note") is the Revolving Loan Note referred to in that
certain Second Amended and Restated Credit Agreement dated as of
February 1, 1995 between the Borrowers and the Bank, (said Credit
Agreement, as amended from time to time, being herein called the "Credit
Agreement"). This Note is entitled to certain security as further
described in the Credit Agreement. Capitalized terms used in this Note
have the respective meanings assigned to them in the Credit Agreement.
This Note shall bear interest and shall be repaid as set forth in
the Credit Agreement.
The Borrowers may at their option prepay all or any part of the
principal of this Note before maturity, subject to the terms provided in
the Credit Agreement.
This Note has been executed and delivered in Philadelphia,
Pennsylvania, and shall be governed by, and construed and interpreted in
accordance with, the laws of the Commonwealth of Pennsylvania applicable
to contracts executed and to be performed therein.
Each Borrower irrevocably waives trial by jury in any action or
proceeding in any court with respect to, in connection with, or arising
out of, this Note, the Credit Agreement, or any other instrument or
document delivered pursuant to the Credit Agreement, or the validity,
protection, interpretation, or collection thereof.
The parties hereto intend this Note to take effect as an instrument
under seal.
SAFEGUARD SCIENTIFICS, INC.
BY:______________________________
ATTEST:__________________________
SAFEGUARD SCIENTIFICS (DELAWARE) INC.
BY:______________________________
ATTEST:__________________________
NationsBank
NationsBank of Texas, N.A
FIRST AMENDMENT
to
FINANCING AND SECURITY AGREEMENT
This First Amendment to Financing and Security Agreement is
executed and entered into by COMPUCOM SYSTEMS, INC. ("Borrower") and
NATIONSBANK OF TEXAS, N.A. ("Lender"), effective as of the 31st day of
March, 1994, as follows:
Recitals
Borrower and Lender are parties to the certain Financing and
Security Agreement dated effective as of August 4, 1993 (hereinafter
called the "Financing and Security Agreement").
Borrower and Lender have agreed to amend the Financing and Security
Agreement as provided herein.
NOW THEREFORE, premises considered, for value received, Borrower
and Lender hereby agree as follows:
1. ARTICLE I ("DEFINITIONS") of the Financing and Security
Agreement hereby is amended to add the following definitions, which
shall be deemed added immediately following paragraph 1.61 thereof:
"1.62 "Adjusted LIBOR Rate" shall mean a rate per annum which
is the London Interbank Offered Rate (determined and fixed for the
duration of any Interest Period) as adjusted by Lender for the Reserve
Requirement. Determination of the Adjusted LIBOR Rate shall be made by
Lender in its discretion and shall be binding and conclusive in the
absence of manifest error.
1.63 "Category I Facility Balance" means that portion of the
outstanding balance of the Facility which is greater than zero dollars
and equal to, but not exceeding, Sixty Million and No/100 Dollars
($60,000,000.00).
1.64 "Category II Facility Balance" means that portion of the
outstanding balance of the Facility which is greater than the Category I
Facility Balance.
1.65 "Eurodollar Business Day" means any Business Day on which
dealings in United States Dollars are conducted in the London interbank
market.
1.66 "Interest Period" means the period commencing on the first
effective Eurodollar Business Day of a LIBOR Rate Option and ending one,
two, three or six months thereafter, as designated by Borrower at the
time of electing such LIBOR Rate Option, provided that (i) if any
Interest Period would otherwise end on a day which is not a Eurodollar
Business Day, then such Interest Period shall be extended to the next
succeeding Eurodollar Business Day unless to do so would extend such
Interest Period into a subsequent calendar month, in which event such
Interest Period shall end on the next preceding Eurodollar Business Day,
and (ii) any Interest Period that begins on the last day of a calendar
month, or on a day for which there is no numerically corresponding day
in the calendar month at the end of such Interest Period, shall end on
the last Eurodollar Business Day of the last calendar month of such
Interest Period, and provided further, that no Interest Period may end
on a day which is after the expiration of the Contract Term.
1.67 "Lender's Consequential Loss" means (a) with respect to
any prepayment of any LIBOR Loan, any loss or expense incurred by Lender
as a result of any such prepayment including, without limitation, an
amount equal to (i) the amount of interest Lender would have earned in
respect of the amount of such prepayment for the remaining period of the
Tranche applicable to such LIBOR Loan, determined as of the date of any
such prepayment, less (ii) the amount of interest, if any, Lender is
able to obtain by reloaning or reinvesting such amount for a period of
time equal or reasonably equivalent to such remaining period, determined
as of the date of any such prepayment, plus (iii) any expense or penalty
incurred by Lender on reinvesting such principal amount, and (b) with
respect to any prepayment in full (or any partial prepayment which may
be allowed by Lender under paragraph 2.4a(b)) of the Category I Facility
Balance, any loss or expense incurred by Lender as a result of any such
prepayment including, without limitation, an amount equal to (i) the
amount of interest Lender would have earned in respect of the amount of
such principal prepaid for the remaining period of the Contract Term,
determined as of the date of any such prepayment, less (ii) the amount
of interest, if any, Lender is able to obtain by reloaning or
reinvesting such amount for a period of time equal or reasonably
equivalent to such remaining period, determined as of the date of any
such prepayment, plus (iii) any expense or penalty incurred by Lender on
reinvesting such principal amount. Lender's calculation of the amount
of Lender's Consequential Loss, if any, shall be conclusive in the
absence of manifest error.
1.68 "LIBOR Fixed Rate" means the Adjusted LIBOR Rate plus two
and three-quarters percent (2.75%) per annum.
1.69 "LIBOR Loan" at any time means the aggregate portion, if
any, of the Category II Facility Balance which is subject to a LIBOR
Rate Option.
1.70 "LIBOR Rate Option" means any election by Borrower, in
accordance with paragraph 2.2.2, to have any Tranche bear interest at
the LIBOR Fixed Rate.
1.71 "London Interbank Offered Rate" shall mean, with respect
to each Interest Period, the rate per annum (determined and fixed for
the duration of such Interest Period) determined by Lender to be the per
annum rate at which dollar deposits (in amounts comparable to the
principal amount to be subject to the LIBOR Fixed Rate and for a period
of time equal or comparable to the such Interest Period) in immediately
available funds are offered (at approximately 9:00 a.m. Dallas, Texas
time) two Eurodollar Business Days prior to the first day of such
Interest Period by leading banks selected by Lender in the London
Interbank Eurodollar market for delivery on the first day of such
Interest Period.
1.72 "Prime Based Loan" at any time means the aggregate
portion, if any, of the Category II Facility Balance which bears
interest according to the Contract Rate.
1.73 "Reserve Requirement" shall mean, on any day, that
percentage which is in effect on such day, as provided by the Board of
Governors of the Federal Reserve System (or any successor governmental
body) applied for determining the reserve requirements (including
without limitation, basic, supplemental, marginal and emergency
reserves) under Regulation D (12 C.F.R. Part 24), or any successor or
other law or regulation relating to reserve requirements applicable to
Lender with respect to Eurocurrency liabilities or Eurocurrency funding.
1.74 "Tranche" means any portion of the Category II Facility
Balance which is designated to be subject to a LIBOR Rate Option, as
provided by paragraph 2.2.2, provided that no Tranche may exist with
respect to any principal amount less than $5,000,000.00."
2. Each of the following definitions contained in ARTICLE I
("DEFINITIONS") of the Financing and Security Agreement hereby is
amended to read in its entirety as follows:
"1.13 "Contract Rate" means, on any day, a floating annual rate
of interest calculated on the basis of actual days elapsed but computed
as if each year consists of 360 days, equal to the sum of the Prime Rate
effective as of the first day of the calendar month in which such day
falls plus one-half per cent (0.5%). Upon written notification to
Borrower at any time when any Event of Default exists, the Contract Rate
otherwise applicable hereunder shall automatically increase by an
additional two percent (2.0%) per annum, beginning on the effective date
specified in such written notice (which shall be on or after the date on
which any such Event of Default shall have first occurred) and
continuing thereafter for so long as any such Event of Default remains
uncured or until Lender may agree otherwise.
"1.14 "Contract Term" means the period beginning on the
effective date specified in the preamble of this Agreement and
continuing through March 31, 1997.
"1.15 "Credit Limit" means the amount of One Hundred Fifty
Million and no/100 Dollars ($150,000,000), less the amount, if any of
any applicable reduction in the Credit Limit pursuant to paragraph
2.11."
"1.36 "Lender's Maximum Amount" means the amount of Fifty
Million and no/100 Dollars ($50,000,000.00).
3. Paragraph 2.2 of the Financing and Security Agreement hereby
is amended to read in its entirety as follows:
"2.2 Interest. The unpaid principal from day to day
outstanding under the Facility shall bear interest as follows:
2.2.1 Applicable Rate.
(a) Fixed Rate. The unpaid principal of the Category I
Facility Balance from day to day outstanding under the Facility shall
bear interest at a fixed rate equal to seven and 18/100 percent (7.18%)
per annum.
(b) Contract Rate. Subject to any election by Borrower in
respect of the LIBOR Fixed Rate under paragraph 2.2.1(c), the unpaid
principal of the Category II Facility Balance from day to day
outstanding under the Facility shall bear interest at the lesser of (i)
the Contract Rate or (ii) the Maximum Rate, provided, however that,
subject to the provisions of paragraph 9.10, in the event that the
Contract Rate shall exceed the Maximum Rate at any time and thereafter
the Contract Rate shall be less than the Maximum Rate, the rate of
interest applicable hereunder shall remain at the Maximum Rate until the
aggregate accrued interest to date under the Facility
equals the amount that would have accrued had the Contract Rate at all
times remained in effect.
(c) LIBOR Fixed Rate. Subject to limitation by the
Maximum Rate and the terms and provisions of this Agreement, and in lieu
of the rate otherwise applicable under paragraph 2.2.1(b), Borrower
shall have the option (to be exercised in the manner provided by
paragraph 2.2.2) to elect the LIBOR Fixed Rate as being applicable to
any Tranche of the Category II Facility Balance, provided, that (i) any
such Tranche shall be in the minimum amount of $5,000,000.00, (ii) no
more than four (4) separate Tranches may exist in the aggregate at any
one time and (iii) the maximum aggregate amount of the Category II
Facility Balance that may be subject to a LIBOR Rate Option at any time
shall not exceed $75,000,000.00.
(d) Maximum Rate. All past due principal and all past due
accrued interest under the Facility shall accrue interest at the Maximum
Rate.
2.2.2 Election of LIBOR Rate Option. Borrower may elect a
LIBOR Rate Option at any time by written notice of election, in form
satisfactory to Lender, delivered to Lender no later than the close of
Lender's business on Tuesday of any calendar week, applicable for the
beginning of an Interest Period beginning on the following Thursday,
therein stating (i) the LIBOR Rate Option elected, (ii) the Interest
Period selected, and the date such Interest Period is to begin (which
shall be the Thursday following the Tuesday on which any such written
notice of election is delivered to Lender), and (iii) the principal
amount of the Tranche to be subject to such LIBOR Rate Option (which
shall be at least $5,000,000.00). Any such written notice of election
shall be irrevocable by Borrower unless Lender agrees otherwise. Any
unpaid principal of the Category II Facility Balance with respect to
which no election of an LIBOR Rate Option is timely made, as provided
herein, shall automatically be deemed to be subject to, and shall accrue
interest at, the applicable rate provided by paragraph 2.2.1(b).
2.2.3 Interest Payment Dates. Accrued interest under the
Facility shall be payable as follows: (a) accrued interest on the
Category I Facility Balance and on any Prime Based Loan shall be payable
monthly on the last day of each calendar month, and (b) accrued interest
on any LIBOR Loan shall be payable monthly on the last day of each
calendar month and on the last day of the Interest Period applicable to
such LIBOR Loan.
2.2.4 LIBOR Limitation. If, with respect to any LIBOR
Rate Option elected by Borrower, (a) Lender determines that deposits in
United States Dollars, in applicable amounts, are not being offered to
Lender, or other major United States banks of comparable size to Lender,
in the London interbank Eurodollar market for the applicable Interest
Period, or (b) Lender determines that the LIBOR Fixed Rate will not
adequately and fairly reflect the cost to Lender of maintaining or
funding the applicable portion of the Facility relative to such LIBOR
Rate Option for such Interest Period, then at Lender's option, Lender
may give notice to Borrower and thereby suspend Borrower's option to
elect a LIBOR Rate Option, pending any subsequent reinstatement in
Lender's discretion."
4. Two new paragraphs shall be added immediately following
paragraph 2.4 of the Financing and Security Agreement, which shall read
in their entirety as follows:
"2.4a Prepayment; Lender's Consequential Loss.
(a) Category II Facility Balance. Any and all prepayments
(including without limitation application of collections and proceeds of
Receivables under paragraph 3.8 and paragraph 2.4(b) of any portion of
any LIBOR Loan shall be subject to payment of Lender's Consequential
Loss, if any, which shall be payable to Lender at the time of such
prepayment.
(b) Category I Facility Balance. Prepayments of principal
of the Category I Facility Balance at any time (other than in connection
with full payment of all Obligations and termination of this Agreement)
are prohibited without Lender's prior written consent (which consent, if
requested by Borrower and granted by Lender, may be conditioned upon
payment of Lender's Consequential Loss in respect of any such
prepayment). Prepayment in full of the Category I Facility Balance in
connection with full payment of all Obligations and termination of this
Agreement shall be subject to payment of Lender's Consequential Loss, if
any, which shall be payable to Lender at the time of such prepayment (in
addition to any amounts payable under paragraph 2.5).
Borrower's obligations under this paragraph 2.4a are subject
to paragraph 9.10, but otherwise are in addition to Borrower's
obligations under paragraph 2.5."
"2.4b Application of Payments and Collections. Payments of
principal (including without limitation applications of collections and
proceeds of Receivables under paragraph 3.8) under the Facility shall be
applied first in reduction of the Prime Based Loan. Unless otherwise
agreed, all collections and proceeds of Receivables received by Lender
at any time (i) when a LIBOR Loan is outstanding but there is no Prime
Based Loan outstanding, or (ii) when the Category I Facility Balance, or
any portion thereof, is outstanding but there is no Category II Facility
balance outstanding shall be deposited into a special cash collateral
account with Lender (notwithstanding the provisions of paragraph 3.8).
Collected amounts, if any, from time to time on deposit in such special
cash collateral account shall continue as security for the Obligations,
and shall be held for application in reduction of any future Prime Based
Loan, provided, that in Lender's sole discretion, such amounts may be
applied at any time to any of the Obligations (including without
limitation any Category I Facility Balance or any existing or future
LIBOR Loan), without prior notice.
5. Paragraph 2.5 ("Early Termination of Facility by Borrower")
of the Financing and Security Agreement hereby is amended to read in its
entirety as follows:
"2.5 Early Termination of Facility by Borrower. Borrower
acknowledges that termination of the Facility by Borrower at any time
prior to expiration of the Contract Term would result in the loss by
Lender of benefits under this Agreement, and that the damages incurred
by Lender as a result of such termination would be difficult and
impractical to ascertain. Therefore, in the event Borrower notifies
Lender of intended termination of the Facility at any effective time
prior to expiration of the Contract Term (other than as a result of a
reduction in the Credit Limit under paragraph 2.11), then, for the
privilege of any such termination and as a condition to the
effectiveness thereof, Borrower agrees to pay to Lender a sum certain,
as liquidated damages, equal to the following applicable percentage of
the Credit Limit: (i) 1.0% at any time during the period following the
effective date of this Agreement through March 31, 1995, (ii) 0.5%
during the period beginning April 1, 1995 through March 31, 1996, and
(iii) 0.25% during the period beginning April 1, 1996 through expiration
of the contract term, which amount Borrower and Lender acknowledges to
be the best estimate of the amount necessary to fairly and reasonably
compensate Lender for its damages resulting from such termination."
6. Paragraph 6.24 ("Capital Expenditures") of the Financing and
Security Agreement hereby is amended to read in its entirety as follows:
"6.24 Capital Expenditures. Borrower's Capital Expenditures
during any fiscal year(including, with respect to the
current fiscal year, any CapitalExpenditures prior to
the effective date of this Agreement) shall not
exceed the aggregate amount of $6,000,000.00 (not including expenditures
for the purchase or acquisition of assets not otherwise prohibited by
paragraph 6.34)."
7. Clause (f) of paragraph 6.28 ("Limitation on Indebtedness")
of the Financing and Security Agreement hereby is amended to read in its
entirety as follows:
"...(f) real property leases established after August 4, 1993 (not
including renewals or replacements of leases existing prior to such date
to the extent they do not involve increased or additional rental),
provided that (i) the aggregate monthly lease obligations for such real
property leases on operating locations of Borrower established after
August 4, 1993 shall not exceed, at any time, $200,000.00 per calendar
month and (ii) the aggregate total lease obligations for such real
property leases on operating locations of Borrower established after
August 4, 1993 (over the entire unexpired term of each such lease,
respectively) shall not exceed, at any time $2,000,000.00,..."
8. Paragraph 6.32 ("Dividend, Distributions") of the Financing
and Security Agreement shall be amended to read in its entirety as
follows:
"6.32 Dividends, Distributions. Borrower will not
declare, pay or issue any dividends
or other distributions in respect of its capital stock, or distribute,
reserve, secure or otherwise make or commit distributions respect of its
capital stock, other than annual dividends on any "Series B Cumulative
Preferred Stock" of Borrower up to but not exceeding the aggregate
amount of $1,200,000.00 to Safeguard Scientifics, Inc. to the extent
allowed by paragraph 6.33 or, provided that no Event of Default is in
existence, to any other record owners thereof."
9. Paragraph 6.33 ("Transactions with Affiliates") of the
Financing and Security Agreement hereby is amended to read in its
entirety as follows:
"6.33 Transactions with Affiliates. The aggregate of all
amounts directly or indirectly paid or transferred by Borrower to or for
the benefit of any Affiliate during any fiscal year, whether by way of
extensions of credit, management or consulting fees, dividends, payments
on other obligations or other transfers of cash or cash equivalents
(including, with respect to the current fiscal year, all such amounts,
if any, made by Borrower prior to the effective date of this Agreement)
shall not exceed (i) $1,000,000.00 plus (ii) so long as no Event of
Default is in existence, up to the maximum amount of $1,200,000.00 for
the payment of dividends to Safeguard Scientifics, Inc. on the "Series B
Cumulative Preferred Stock" of Borrower. Borrower will not in any event
enter into any transaction with any Affiliate except in the ordinary
course of business on terms no less favorable to Borrower, nor more
favorable to such Affiliate, than would be obtainable in a comparable
arm's length transaction with a Person who is not an Affiliate, and any
such transaction which involves an amount in excess of $500,000.00 shall
first be specifically approved by Borrower's board of directors as being
an arm's length transaction on terms no less favorable to Borrower, nor
more favorable to such Affiliate, than would be obtainable in a
comparable arm's length transaction with a Person who is not an
Affiliate. At Lender's request, Borrower will provide Lender with a
written summary of transactions with Affiliates, containing such
information in respect of such transactions as Lender may require.
10. The first sentence of Paragraph 6.35 ("Limitation on
Investments") of the Financing and Security Agreement hereby is amended
to read in its entirety as follows:
"Borrower shall not invest in or otherwise purchase or acquire the
securities of any Person, the aggregate amount of which at any time
exceeds $3,000,000.00."
11. Borrower acknowledges that the Participation Agreement
between Lender and PNC Bank, National Association (the Participant's
Committed Amount of which was $10,000,000.00) has been terminated,
effective immediately prior to the effectiveness of this First
Amendment. Borrower acknowledges that effective simultaneously upon
execution hereof (i) Lender has entered into a Participation Agreement
with The Daiwa Bank, Ltd. (the Participant's Committed Amount of which
is $8,000,000.00) and (ii) Lender and certain other Participants have
agreed to amend the Participant's Committed Amount under their
respective Participation Agreements. Lender and Borrower acknowledge
and confirm the following in respect of Participants and the
Participant's Committed Amount relative to each, and Lender's Maximum
Amount, effective as of the date hereof:
<TABLE>
<CAPTION>
Participants
Participant Participant's Participant's
Committed Amount Change (+ or -) Committed Amount
(existing) (revised)
<S> <C> <C> <C>
Barnett Bank of $10,000,000.00 + $4,500,000.00 $14,500,000.00
Tampa
Continental Bank $20,000,000.00 - 0 - $20,000,000.00
The Daiwa Bank, Ltd. N/A + $8,000,000.00 $8,000,000.00
National Canada $15,000,000.00 - 0 - $15,000,000.00
Finance Corp.
Sanwa Business $12,500,000.00 + $10,000,000.00 $22,500,000.00
Credit Corporation
Union Bank $12,500,000.00 + $ 7,500,000.00 $20,000,000.00
Lender
Lender Lender's Maximum Change (+ or -) Lender's Maximum
Amount (existing) Amount (revised)
NationsBank of Texas, $45,000,000.00 + $5,000,000.00 $50,000,000.00
N.A.
</TABLE>
Borrower acknowledges its approval of The Daiwa Bank, Ltd. as a
Participant and waives the requirement of notice under paragraph 2.10 of
the Financing and Security Agreement. In consideration of this First
Amendment and increase of the Credit Limit as provided herein, Borrower
agrees to pay to Lender a Credit Limit increase fee in the amount of
$87,500.00 [which is calculated by multiplying the sum of (i) the
aggregate amount of increase of each Participant's Committed Amount
reflected above plus (ii) the amount of increase of Lender's Maximum
Amount by one quarter of one percent (.25%)], which shall be payable
upon execution hereof.
12. This First Amendment (i) shall be deemed effective
prospectively as of the effective date specified in the preamble, (ii)
contains the entire agreement among the parties and may not be amended
or modified except in writing signed by all parties, (iii) shall be
governed and construed according to the laws of the State of Texas and
(iv) may be executed in any number of counterparts, each of which shall
be valid as an original and all of which shall be one and the same
agreement. A telecopy of any executed counterpart shall be deemed valid
as an original.
THIS WRITTEN AGREEMENT REPRESENTS THE FINAL AGREEMENT BETWEEN THE
PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE
NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
EXECUTED as of the effective date specified in the preamble.
NATIONSBANK OF TEXAS, N.A.
By:
Dan Lane
Assistant Vice President
COMPUCOM SYSTEMS, INC.
By:
Robert J. Boutin
Senior Vice President, Finance
and Chief Financial Officer
CONSENT BY PARTICIPANTS
Each of the undersigned consents to Borrower's and Lender's
execution of the above First Amendment to Financing and Security
Agreement:
BARNETT BANK OF TAMPA CONTINENTAL BANK
By: By:
Name: Name:
Title: Title:
NATIONAL CANADA FINANCE CORP. UNION BANK
By: By:
Name: Name:
Title: Title:
SANWA BUSINESS CREDIT CORPORATION THE DAIWA BANK, LTD.
By: By:
Name: Name:
Title: Title:
By:
Name:
Title:
NationsBank
NationsBank of Texas, N.A
MASTER REVOLVING PROMISSORY NOTE
$150,000,000.00 Dated effective as of March 31,
1994
FOR VALUE RECEIVED, the undersigned, COMPUCOM SYSTEMS, INC. a
Delaware corporation (" Borrower") hereby promises to pay to the order
of NATIONSBANK OF TEXAS, N.A., a national bank with its principal office
located at NationsBank Plaza, 6th Floor, 901 Main Street, Dallas, Texas
75202 ("Lender"), the principal amount of ONE HUNDRED FIFTY MILLION AND
NO/100 DOLLARS ($150,000,000.00) or such lesser amount as may from time
to time be advanced and remain unpaid and outstanding hereunder,
together with accrued interest as provided hereinbelow.
This promissory note is executed and delivered by Borrower pursuant
to the certain Financing and Security Agreement dated effective as of
August 4, 1993, as amended by the certain First Amendment to Financing
and Security Agreement dated effective as of March 31,1994, each between
Lender and Borrower (hereinafter called the "Financing and Security
Agreement") and is the Revolving Note as defined therein. All terms
defined in the Financing and Security Agreement, wherever used herein,
shall have the same meaning prescribed by the Financing and Security
Agreement.
All loans from time to time requested by Borrower hereunder are
subject to the terms and provisions of the Financing and Security
Agreement. The maximum principal amount at any time outstanding
hereunder shall not at any time exceed the Availability. The unpaid
principal from day to day outstanding under this promissory note shall
bear interest at the applicable rate prescribed by the Financing and
Security Agreement. Lender's records shall be conclusive proof of loans,
payments and interest accruals thereunder, absent proof by Borrower of
error.
All unpaid principal and accrued interest under this promissory
note shall be payable as follows: (a) accrued interest on the Category I
Facility Balance and on any portion of the Category II Facility Balance
accruing interest according to the Contract Rate shall be payable
monthly on the last day of each calendar month, and (b) accrued interest
on any Tranche accruing interest according to a LIBOR Fixed Rate shall
be payable monthly on the last day of each calendar month and on the
last day of the Interest Period applicable to such Tranche. Subject to
Lender's rights under Article VIII of the Financing and Security
Agreement, all unpaid principal borrowed under the Facility and all
unpaid accrued interest thereon, and all other amounts payable hereunder
relative to the Facility, shall be due and payable to Lender in full on
the last day of the Contract Term. To the extent that any accrued
interest is not paid prior to the fifth day following its due date as
specified above, Lender may at its option (but with no obligation to do
so), add the amount of such accrued interest to the unpaid principal due
by Borrower under the Facility, in which event such amount will be
deemed paid and the aggregate amount thereof shall be treated as a loan
under the Facility. Any payment which is due on a day which is not a
Business Day shall instead be deemed to be due on the next succeeding
Business Day, and interest thereon shall accrue and be payable at the
then applicable rate during the time of such extension.
If at any time, from time to time, the aggregate unpaid principal
amount outstanding hereunder exceeds the Availability, Borrower shall
make an immediate payment of principal in an amount not less than the
amount of such excess and all such amounts, if any, shall be payable on
demand.
No delay by Lender in the exercise of any power or right hereunder
shall operate as a waiver or impair Lender's rights and remedies under
this promissory note or the Loan Documents. Except as specifically
provided in the Financing and Security Agreement, Borrower and each
other party ever liable hereunder severally hereby expressly waives
presentment, demand, notice of intention to demand, notice of intention
to accelerate, notice of acceleration, protest, notice of protest and
any other notice of any kind, and agrees that its liability hereunder
shall not be affected by any renewals, extensions or modifications, from
time to time, of the time or manner of payment hereof, or by any release
or modification of any Collateral.
This promissory note in all respects is subject to the Financing
and Security Agreement. All obligations and indebtedness from time to
time evidenced hereby are secured by continuing security interests and
liens in all Collateral. Proceeds of Collateral shall be subject to the
financing and Security Agreement.
Borrower hereby promises to pay to Lender all fees, costs and
expenses incurred by Lender in enforcement and collection of any amounts
under this promissory note, including without limitation, reasonable
attorneys fees.
In no contingency or event whatsoever shall the amount of interest
under this promissory note paid by Borrower, received by Lender, agreed
to be paid by Borrower, or requested or demanded to be paid by Lender,
exceed the Maximum Rate. In the event any such sums paid to Lender by
Borrower would exceed the maximum amount permitted by applicable law,
Lender shall automatically apply such excess to any unpaid principal or,
if the amount of such excess exceeds said unpaid principal, such excess
shall be paid to Borrower. All sums paid, or agreed to be paid, by
Borrower hereunder which are or hereafter may be construed to be
compensation for the use, forbearance, or detention of money shall be
amortized, prorated, spread and allocated in respect of the Obligations
throughout the full Contract Term until the Obligations are paid in
full. Notwithstanding any provisions contained in the Loan Documents or
herein, Lender shall never be entitled to receive, collect or apply as
interest any amount in excess of the Maximum Rate and, in the event
Lender ever receives, collects, or applies any amount that otherwise
would be in excess of the Maximum Rate, such amount shall automatically
be deemed to be applied in reduction of the unpaid principal balance of
the Obligations and, if such principal balance is paid in full, any
remaining excess shall forthwith be paid to Borrower. In determining
whether or not the interest paid or payable under any specific
contingency exceeds the Maximum Rate, Borrower and Lender shall, to the
maximum extent permitted under applicable law, (i) characterize any non-
principal payment as a standby fee, commitment fee, prepayment charge,
delinquency charge or reimbursement for a third-party expense rather
than as interest, (ii) exclude voluntary prepayments and the effect
thereof, and (iii) amortize, prorate, allocate and spread in equal parts
throughout the entire period during which the indebtedness was
outstanding the total amount of interest at any time contracted for,
charged or received. Nothing herein contained shall be construed or so
operate as to require Borrower to pay any interest, fees, costs, or
charges greater than is permitted by applicable law. Subject to the
foregoing, Borrower hereby agrees that the actual effective rate of
interest from time to time existing with respect to loans made by Lender
to Borrower hereunder, including all amounts agreed to by Borrower or
charged or received by Lender, which may
be deemed to be interest under applicable law, shall be deemed to be a
rate which is agreed to and stipulated by Borrower and Lender in
accordance with applicable law.
This promissory note is in renewal and increase of the certain
promissory note dated effective as of August 4, 1993 executed by
Borrower payable to the order of Lender in the face amount of
$125,000,000.00 (the "August 1993 Revolving Note"). All obligations and
indebtedness previously evidenced by the August 1993 Revolving Note
hereby is renewed and hereafter shall be deemed outstanding under, and
payable in accordance with, this promissory note.
This promissory note may not be changed, amended or modified except
in writing executed by Lender and Borrower.
This promissory note shall be governed by and construed according
to the laws of the State of Texas, except as to provisions relating to
the rate of interest to be charged on the unpaid principal hereof, in
which case, to the extent federal law otherwise would allow a higher
rate of interest than would be allowed by the laws of the State of
Texas, such federal law shall apply.
THIS WRITTEN AGREEMENT REPRESENTS THE FINAL AGREEMENT BETWEEN THE
PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE
NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
NATIONSBANK OF TEXAS, N.A. COMPUCOM SYSTEMS, INC.
By:__________________________________
By:_______________________________
Dan Lane Robert J. Boutin
Assistant Vice President Senior Vice President,
Finance
and Chief Financial Officer
COMPUCOM SYSTEMS, INC.
By:_______________________________
Robert J. Boutin
Senior Vice President, Finance
and Chief Financial Officer
TERM NOTE
$1,181,250.00 Dallas, Texas August 31, 1994
FOR VALUE RECEIVED, Edward R. Anderson, an individual, referred to
herein as "Borrower", promises to pay to the order of CompuCom Systems,
Inc., a Delaware corporation and referred to herein as "Lender", the
principal sum of One Million, One Hundred Eighty-one Thousand, Two
Hundred, Fifty Dollars ($1,181,250.00), together with interest on the
unpaid principal balance as set forth below. All sums hereunder are
payable to Lender at its principal office in Dallas, Dallas County,
Texas.
1. Definitions. Unless the context hereof otherwise requires
or provides, the terms used herein defined in that certain Pledge
Agreement between Borrower and Lender of even date herewith, as the same
has been or may be amended or supplemented from time to time (the
"Agreement") have the same meanings. In addition, the following terms
shall have the following meanings:
a. "Prime Rate" means that variable rate of interest per
annum established by NationsBank of Texas, N.A. (the "Bank") from time
to time as its "prime rate" (whether by that or any other name). The
Bank sets such rate as a general reference rate of interest and takes
into account such factors as the Bank may deem appropriate. Many of the
Bank's commercial or other loans are priced in relation to such rate,
but it is not necessarily the lowest or best rate actually charged to
any customer.
b. "Maximum Rate" means the higher of the maximum interest
rate allowed by applicable United States or Texas law as amended from
time to time and in effect on the date for which a determination of
interest accrued hereunder is made. The determination of the maximum
rate permitted by applicable Texas law shall be made pursuant to the
indicated rate ceiling as defined in Tex.Rev.Civ.Stat.Ann. art. 5069-
1.04, but Lender reserves the right to implement from time to time any
other rate ceiling permitted by such law.
2. Interest Rate.
a. The unpaid principal balance from the date hereof until
maturity (whether by acceleration or otherwise) shall bear interest at a
rate per annum equal to 6%.
b. All past-due payments of principal and interest under
this Note shall bear interest at the Maximum Rate (or if there is no
such Maximum Rate, then at the Prime Rate plus 3%) from maturity until
paid.
3. Payment of Principal and Interest.
a. Accrued interest only is payable on the earlier of the
date of repayment of all principal on this Note or each January 1
commencing on January 1, 1996. Principal is payable in two annual
installments of $590,625.00 each on August 31, 1996 and on August 31,
1997 and interest computed on the unpaid balance is payable annually as
it accrues on the same dates as and in addition to each of such
installments of principal.
b. Unless Lender in its sole discretion elects to apply
payments differently, each payment shall be first credited to the
discharge of interest accrued on the unpaid principal balance to the
date of the payment, and the remainder shall be credited to the
reduction of said principal.
c. The principal and interest due hereunder shall be
evidenced by Lender's records which, absent manifest error, shall be
conclusive evidence of the computation of principal and interest
balances owed by Borrower to Lender.
d. Notwithstanding anything contained in this Note or in
the Agreement to the contrary, in the event Borrower's employment with
Lender is terminated, whether such termination is voluntary or
involuntary, this Note shall be due and payable on the 30th day
immediately following the effective date of such termination. In the
event this Note becomes payable pursuant to the terms of this Section
3(d), Borrower at his option may elect to have Lender offset any amounts
owed to Lender by Borrower under this Note against any severance or
other payments to be made by Lender to Borrower as a result of
Borrower's termination of employment with Lender.
4. Default. Failure to pay this Note or any installment
hereunder as it becomes due, or failure of Borrower or any other person
to perform (after the expiration of any applicable cure period) any of
the terms or provisions set forth in, or the occurrence of any default
under the terms of the Agreement, or the occurrence of any default under
any other agreement between Borrower and Lender shall, at the election
of the holder hereof, without notice, demand or presentment, which are
hereby waived, mature the principal of this Note and all interest then
accrued, and the same shall at once become due and payable and subject
to those remedies of the holder hereof.
5. Prepayment. Borrower may at any time prepay in whole or in
part the unpaid principal of this Note without premium or penalty, and
the interest shall immediately cease on any amounts so prepaid.
Prepayments of principal shall be applied in the inverse order of
maturity.
6. Waiver. Each surety, endorser, guarantor and any other
party now or hereafter liable for the payment of this Note in whole or
in part ("Surety") and Borrower hereby severally (a) waive grace,
demand, presentment for payment, notice of nonpayment, protest, notice
of protest, non-payment or dishonor, notice of intent to accelerate,
notice of acceleration and all other notices (except as provided in the
Agreement), filing of suit and diligence in collecting this Note or
enforcing any other security with respect to same, (b) agree to any
substitution, surrender, subordination, waiver, modification, change,
exchange or release of any security or the release of the liability of
any parties primarily or secondarily liable hereon, (c) agree that
Lender is not required first to institute suit or exhaust its remedies
hereon against Borrower, any Surety or others liable or to become liable
hereon or to enforce its rights against them or any security with
respect to same or to join any of them in any suit against any others of
them, and (d) consent to any extension or postponement of time of
payment of this Note and to any other indulgence with respect hereto
without notice thereof to any of them. No failure or delay on the part
of Lender in exercising any right, power or privilege hereunder shall
operate as a waiver thereof.
7. Attorneys' Fees. If this Note is not paid at maturity,
regardless of how such maturity may be brought about, or is collected or
attempted to be collected through the initiation or prosecution of any
suit or through any probate, bankruptcy or any other judicial
proceedings, or is placed in the hands of an attorney for collection,
Borrower shall pay, in addition to all other amounts owing hereunder,
all actual expenses of collection, all court costs and reasonable
attorney's fees incurred by the holder hereof.
8. Limitation on Agreements. All agreements between Borrower
and Lender, whether now existing or hereafter arising, are hereby
limited so that in no event shall the amount paid, or agreed to be paid
to Lender for the use, forbearance, or detention of money or for the
payment or performance of any covenant or obligation contained herein or
in any other document evidencing, securing or pertaining to this Note,
exceed the Maximum Rate. If any circumstance otherwise would cause the
amount paid to exceed the Maximum Rate, the amount paid or agreed to be
paid to Lender shall be reduced to the Maximum Rate, and if Lender ever
receives interest which otherwise would exceed the Maximum Rate, such
amount which would be excessive interest shall be applied to the
reduction of the principal of this Note and not to the payment of
interest, or if such excessive interest otherwise would exceed the
unpaid balance of principal of this Note such excess shall be applied
first to other indebtedness of Borrower to Lender, and the balance, if
any, shall be refunded to Borrower. In determining whether the interest
paid or agreed to be paid hereunder exceeds the highest amount permitted
by applicable law, all sums paid or agreed to be paid to Lender for the
use, forbearance or detention of the indebtedness of Borrower to Lender
shall, to the extent permitted by applicable law, (i) be amortized,
prorated, allocated and spread throughout the full term of such
indebtedness until payment in full so that the actual rate of interest
on account of such indebtedness is uniform throughout such term, (ii) be
characterized as a fee, expense or other charge other than interest, and
(iii) exclude any voluntary prepayments and the effects thereof. The
terms and provisions of this paragraph shall control and supersede every
other provision of all agreements between Lender and Borrower in
conflict herewith.
9. Governing Law and Venue. This Note and the rights and
obligations of the parties hereunder shall be governed by the laws of
the United States of America and by the laws of the State of Texas, and
is performable in Dallas, Dallas County, Texas. Chapter 15 of the Texas
Credit Code (Tex. Rev. Civ. Stat. Ann. art 5069.1501 et seq.) does not
apply to this Note.
10. Business Day. If any action is required or permitted to be
taken hereunder on a Sunday, legal holiday or other day on which banking
institutions in the State of Texas are authorized or required to close
(a "Non-Business Day"), such action shall be taken on the next
succeeding day which is not a Non-Business Day, and, to the extent
applicable, interest on the unpaid principal balance shall continue to
accrue at the applicable rate.
11. Agreement. This Note is the Note referred to in the
Agreement, and is entitled to the benefits thereof and the security as
provided for therein. Reference is made to the Agreement for a
statement of the rights and obligations of Borrower, a description of
the nature and extent of the security and the rights of the parties in
respect to such security, and a statement of the terms and conditions
under which the due date of this Note may be accelerated.
Address:
Edward R. Anderson
PLEDGE AGREEMENT
PLEDGE AGREEMENT ("Pledge Agreement") made as of the 31st day of
August, 1994, between Edward R. Anderson ("Pledgor"), and CompuCom
Systems, Inc., a Delaware corporation ("Secured Party").
1. Definitions. In addition to the terms defined elsewhere in this
Pledge Agreement, the following terms shall have the following meanings
for purposes of this Pledge Agreement:
(a) The term "Event of Default" shall have the meaning ascribed
thereto in Section 9 of this Pledge Agreement.
(b) The term "Note" means and includes that certain Note, dated
of even date herewith, in the original principal amount of $1,181,250,
which Pledgor has executed, or is the process of executing payable to
the order of Secured Party, together with any and all concurrent or
subsequent extensions, amendments, or modifications thereto.
(c) The term "Obligations" means and includes all obligations
of Pledgor to Secured Party pursuant to the terms of the Note and this
Pledge Agreement.
(d) The term "Option Shares" means 350,000 shares of capital
stock of Secured Party being purchased by Pledgor with the proceeds of
the Note pursuant to the exercise of certain Non Qualified Stock Options
granted to Pledgor by Secured Party.
2. Pledge. Upon the terms hereof, Pledgor hereby pledges and grants
to Secured Party a lien on and security interest (the "Security
Interest") in and to all of the following instruments and property of
Pledgor (all of the following being herein sometimes called the
"Collateral"):
(a) Three hundred fifty thousand shares of capital stock of
Secured Party as described on Exhibit A attached hereto and incorporated
herein for all purposes representing the Option Shares being purchased
by Pledgor with the proceeds of the Note, together with all
certificates, options, rights or other distributions issued as an
addition to, in substitution or in exchange for, or on account of, any
such shares (collectively, the "Stock");
(b) All securities and other property, rights or interests of
any description at any time issued or issuable as an addition to, in
substitution or exchange for, with respect to, incident to or in lieu of
such shares described in Section 2(a) hereof or with respect to,
incident to or in lieu of the Collateral (i) due to any dividend, stock-
split, stock dividend or distribution on dissolution, on partial or
total liquidation, or other corporate reorganization or for any other
reason; (ii) in connection with a reduction of capital, capital surplus
or paid-in surplus; or (iii) in connection with any spin-off, split-off,
reclassification, readjustment, merger, consolidation, sale of assets,
combination of shares or any other plan of distribution affecting the
companies which have issued the shares described in Section 2(a) hereof;
(c) Any and all proceeds, monies, income and benefits arising
from or by virtue of, and all dividends and distributions (cash or
otherwise) payable and/or distributable with respect to, all or any of
the shares or other securities and rights and interests described in
clauses (a) through (c) of this Section 2.
3. Obligations Secured. This Pledge Agreement and the Security
Interest granted hereby secure the prompt satisfaction of the
Obligations.
4. Warranties. Pledgor represents and warrants that each of the
following statements is true and correct: (a) Pledgor is the legal and
beneficial owner of the Stock; (b) the Collateral is owned by Pledgor
free of any pledge, mortgage, hypothecation, lien, charge, encumbrance
or security interest or purchase right or option on the part of any
third person in such Collateral, except the Security Interest; (c)
Pledgor has the full power, authority and legal right to transfer and
pledge the Collateral free of any encumbrances and without obtaining the
consent of any other person or entity; and (d) upon delivery of the
Collateral to Secured Party, this Pledge Agreement will create a valid
and perfected first priority lien upon, and security interest in, the
Collateral and the proceeds thereof, securing the payment of the
Obligations. The delivery at any time by Pledgor to Secured Party of
Collateral shall constitute a representation and warranty by Pledgor
under this Pledge Agreement that, with respect to the Collateral and
each item thereof, Pledgor is the owner of the Collateral and the
matters heretofore warranted in clauses (a) through (d) of this Section
4 are true and correct.
5. Covenants. Pledgor covenants to do or not to do, as the case may
be, each of the following; provided, however, in the case of a negative
covenant, Pledgor will not undertake any of the proscribed activities
without the prior written consent of Secured Party: (a) from time to
time to do all other acts or things as Secured Party may reasonably
request in order more fully to evidence and perfect the Security
Interest; (b) after the occurrence of an Event of Default, to promptly
pay to Secured Party the amount of all court costs and reasonable
attorneys' fees incurred by Secured Party hereunder; and (c) except as
otherwise provided herein, to promptly deliver to Secured Party, in the
exact form received, all securities and other property described in
Section 2(b) and Section 2(c) hereof which come into the possession,
custody or control of Pledgor. Pledgor further covenants and agrees
that, without the prior written consent of Secured Party, Pledgor shall
not assign or transfer Pledgor's rights in the Collateral, or create any
other lien or security interest in or otherwise encumber any of the
Collateral, or permit any of the Collateral to ever be or become subject
to any lien, attachment, execution, sequestration, other legal or
equitable process, or any lien or encumbrance of any kind.
Notwithstanding anything contained in the preceding sentence to the
contrary, Pledgor shall be free to sell the Stock provided that Pledgor
complies with all applicable laws in effecting such sale and in the
event of any such sale the shares of Stock will be released from the
Security Interest created pursuant to this Pledge Agreement upon payment
to Secured Party of $3.375 for each share of Stock sold. All
assignments and endorsements by Pledgor shall be in such form and
substance as may be satisfactory to Secured Party. Should any covenant,
duty or agreement of Pledgor fail to be performed in accordance with its
terms hereunder, Secured Party may, but shall never be obligated to,
perform or attempt to perform such covenant, duty or agreement on behalf
of Pledgor, and any amount expended by Secured Party in such performance
or attempted performance shall become part of the Obligations, except
to the extent prohibited by applicable law, and Pledgor agrees to pay
such amount promptly to Secured Party.
6. Adjustments and Distributions Concerning Collateral. Should the
Collateral, or any part thereof, ever be converted in any manner by its
issuer into another type of property or any money or other proceeds ever
be paid or delivered to Pledgor as a result of Pledgor's rights in the
Collateral, then in any such event (except as provided in Section 7
hereof), all such property, money and other proceeds shall immediately
be and become part of the Collateral, and Pledgor covenants to forthwith
pay and deliver all such property, money or other proceeds so received
to Secured Party; and, if Secured Party deems it necessary and so
requests, to endorse properly or assign any and all such other proceeds
to Secured Party and to deliver to Secured Party any and all such other
proceeds which require perfection by possession under the Uniform
Commercial Code of the State of Texas or other appropriate jurisdiction
(the "UCC"). With respect to any of such property of a kind requiring
an additional security agreement, financing statement or other writing
to perfect a security interest therein in favor of Secured Party,
Pledgor will forthwith execute and deliver to Secured Party whatever
Secured Party shall deem necessary or proper for such purpose.
7. Cash Dividends and Voting Rights. Unless an Event of Default has
occurred and shall not have been waived by Secured Party, Pledgor is
entitled, (a) to exercise all voting rights with respect to the
Collateral and (b) to receive for his own use cash dividends on the
Collateral. Upon the occurrence of an Event of Default, Secured Party
may exercise all voting rights with respect to the Collateral subject to
all applicable rules and regulations and may require any such cash
dividends to be delivered to Secured Party as additional Collateral
hereunder or applied toward the satisfaction of the Obligations.
8. Registration of Collateral in Name of Secured Party. Upon the
occurrence of an Event of Default, Secured Party, at its option, may
have any or all of the Collateral registered in its name or that of its
nominee. Immediately and without further notice, upon the occurrence of
an Event of Default, whether or not the Collateral has been registered
in the name of Secured Party or its nominee, Secured Party or its
nominee shall have, with respect to the Collateral, the right to
exercise all voting rights and all conversion, exchange, subscription
or other rights, privileges or options pertaining thereto including,
without limitation, the right to exchange any or all of the Collateral
upon the merger, consolidation, reorganization, recapitalization or
other readjustment of the issuer thereof, or upon the exercise by such
issuer of any right, privilege, or option pertaining to any of the
Collateral, and, in connection therewith, to deliver any of the
Collateral to any committee, depositary, transfer agent, registrar or
other designated agency upon such terms and conditions as it may
determine, all without liability except to account for property actually
received by it; but Secured Party shall have no duty to exercise any of
the aforesaid rights, privileges or options and shall not be responsible
for any failure to do so, delay in doing so, or depreciation in the
value of the Collateral by reason of doing so. Thereafter, at such time
as (a) all Events of Defaults have been cured, and (b) there exists no
condition, event or act which, with the giving of notice or lapse of
time, or both, would constitute an Event of Default, then the right to
exercise all voting rights with respect to the Collateral shall revert
to Pledgor.
9. Events of Default. The occurrence of any one or more of the
following shall constitute an Event of Default: (a) the failure of
Pledgor to make timely payment of any portion of the principal or
interest of the Note or any portion of the Obligations when due subject
to any applicable cure periods; (b) the failure of Pledgor to perform
fully, faithfully and promptly any material agreements, covenants and
conditions contained in this Pledge Agreement; (c) the levy against the
Collateral, or any substantial part thereof, or any execution,
attachment, sequestration, distraint warrant or other like or similar
writ or the attachment to the Collateral of any lien other than the
Security Interest; (d) the entry of a decree or order for relief by a
court having jurisdiction in the premises in respect of Pledgor in an
involuntary case under the United States bankruptcy laws, as now or
hereafter constituted, or any other applicable federal or state
bankruptcy, insolvency or other similar law, or appointing a receiver,
liquidator, assignee, custodian, trustee, sequestrator (or similar
official) of Pledgor or of any substantial part of Pledgor's property,
or ordering the winding-up or liquidation of the affairs of Pledgor and
the continuance of any such decree or order unstayed and in effect for a
period of thirty (30) consecutive days; or (e) the commencement by
Pledgor of a voluntary case under the United States bankruptcy laws, as
now constituted or hereafter amended, or any other applicable federal or
state bankruptcy, insolvency or other similar law, or the consent by
Pledgor to the appointment of or taking possession by a receiver,
liquidator, assignee, trustee, custodian, sequestrator (or other similar
official) of Pledgor for any substantial part of Pledgor's property, or
the making by Pledgor of any assignment for the benefit of creditors, or
the inability of Pledgor generally to pay his debts as such debts become
due, or the taking of any action by Pledgor in furtherance of any of the
foregoing.
10. Remedies. Upon the occurrence of an Event of Default, Secured
Party may then exercise any and all rights to which it is entitled under
the UCC or otherwise. Pledgor hereby grants to Secured Party an
irrevocable proxy coupled with an interest to exercise as to such
Collateral, upon the occurrence of an Event of Default, all rights,
powers and remedies of an owner and all of the rights, powers and
remedies hereinabove set forth, the proxy herein granted to exist until
all of the Obligations have been paid and performed in full.
11. Application of Proceeds. The proceeds of any disposition of the
Collateral or other action by Secured Party shall be applied (a) first,
to the cost and expenses incurred in connection therewith or incidental
thereto or to the care or safekeeping of any of the Collateral or in any
way relating to the rights of Secured Party hereunder, including
reasonable attorneys' fees and legal expenses; (b) then, to the
satisfaction of the Obligations in such order and to such portions as
Secured Party may elect; (c) then, to the payment of any other amounts
required by applicable law; and (d) then, to Pledgor to the extent of
any surplus proceeds. Secured Party shall be under no duty to exercise
or to withhold the exercise of any of the rights, powers, privileges and
options expressly or implicitly granted to Secured Party in this Pledge
Agreement, and shall not be responsible for any failure to do so or
delay in so doing.
12. Notification of Sale. Reasonable notification of the time and
place of any public sale of the Collateral, or reasonable notification
of the time after which any private sale or other intended disposition
of the Collateral is to be made, shall be sent to Pledgor and to any
other person entitled under the UCC to notice; provided that if any of
the Collateral threatens to decline speedily in value or is of the type
customarily sold on a recognized market, Secured Party may sell or
otherwise dispose of the Collateral without notification, advertisement,
or other notice of any kind. It is agreed that notice sent or given not
less than five (5) calendar days prior to the taking of the action to
which the notice relates is reasonable notification and notice for the
purposes of this paragraph.
13. Satisfaction of Obligations and Release of Collateral. Upon the
satisfaction in full of the Obligations, and the satisfaction of all
additional costs and expenses of Secured Party as provided herein, this
Pledge Agreement shall terminate, and Secured Party shall deliver to
Pledgor, at Pledgor's expense, such of the Collateral as shall not have
been sold or otherwise applied pursuant to this Pledge Agreement which
Secured Party shall have in its possession. In addition and
notwithstanding any provision contained in this Pledge Agreement to the
contrary, Pledgor shall be entitled to obtain the release of shares of
Stock from the Security Interest created hereby by paying to Secured
Party the sum of $3.375 for each share of Stock which Pledgor desires be
released from the terms hereof and upon receipt of such payment, Secured
Party will promptly release the applicable number of shares of Stock to
Pledgor.
14. Notices. Any notice required or permitted by this Pledge
Agreement shall be deemed to have been given or made when deposited in
the United States Mail, postage prepaid, certified mail, return receipt
requested, addressed to the parties at the addresses set forth opposite
their respective signatures below, or, if hand delivered, upon actual
receipt.
15. Duties of Secured Party. Secured Party's duty with respect to
any Collateral now or hereafter in the possession of Secured Party is
solely to use reasonable care in the custody and preservation of the
Collateral. Secured Party shall be deemed to have exercised reasonable
care in the custody and preservation of the Collateral if the Collateral
is accorded treatment substantially equal to that which Secured Party
accords its own property, its being understood that Secured Party shall
not have any responsibility for ascertaining or taking action with
respect to calls, conversions, exchanges, maturities, tenders or other
matters relative to any Collateral or for informing Pledgor of such
matters whether or not Secured Party has or is deemed to have any
knowledge of such matters. Secured Party shall not be required to take
any steps necessary to preserve any rights in the Collateral against
prior parties or to protect, perfect, preserve or maintain any security
interest given to secure the Collateral, nor to invest any cash
constituting Collateral in any account or security or otherwise.
16. Indemnification. Pledgor hereby agrees to indemnify and to hold
Secured Party harmless from and against any loss (excluding any loss
attributable to a diminution in the value of the Stock), claim, demand
or expense (including attorneys' fees) by reason, or in any manner
related to, the Collateral, including any such claim as may arise by
reason of any alleged breach of warranty concerning the Collateral, by
reason of the failure of Pledgor to comply with any applicable state,
federal or foreign statute, rule, regulation, order or decree, or by
reason of Secured Party's efforts to enforce payment of the Obligations,
including expenses incurred in satisfying any applicable securities
laws.
17. Expenses. Pledgor will upon demand pay to Secured Party the
amount of any and all reasonable expenses, including the reasonable fees
and expenses of its counsel and of any experts and agents, which Secured
Party may incur in connection with the custody or preservation of, or
the sale of, collection from, or other realization upon, any of the
Collateral, the exercise or enforcement of any of the rights of Secured
Party hereunder, or the failure by Pledgor to perform or observe any of
the provisions hereof.
18. Security Interest Absolute. All rights of Secured Party and the
pledge and Security Interest hereunder, and all obligations of Pledgor
hereunder, shall be absolute and unconditional in all respects and shall
not be released, diminished, impaired, or affected for any reason,
including without limitation the occurrence of any one or more of the
following events: (a) the taking or accepting of any other security or
assurance for any or all of the Obligations; (b) any change in the time,
manner or place of payment of, or in any other term of, all or any of
the Obligations; (c) any exchange, release, subordination, surrender,
loss or nonperfection of any other collateral at any time existing in
connection with any or all of the Obligations, or any release or
amendment or waiver of or consent to departure from any guaranty, or
other security, for all or any of the Obligations; (d) any neglect,
delay, omission, failure, or refusal of Secured Party to take or
prosecute any action in connection with this Pledge Agreement; (e) the
insolvency or bankruptcy of Pledgor; or (f) any other circumstance which
might otherwise constitute a defense available to a discharge of Pledgor
in respect of the Obligations of Pledgor in respect of this Pledge
Agreement.
19. Waivers. Except as otherwise required by the terms hereof or by
applicable law, Pledgor hereby waives all notices, including but not
limited to demand, presentment for payment, notice of nonpayment,
protest, notice of protest, notice of intent to accelerate, notice of
acceleration and all other notices.
20. Remedies Cumulative. The rights and remedies provided herein
are cumulative and are in addition to and not exclusive of any rights or
remedies provided by law, including, but without limitation, the rights
and remedies of a secured party under the UCC.
21. Amendment. This Pledge Agreement may be amended only by written
instrument signed by all parties.
22. Invalidity of Any Provision. The invalidity of any one or more
phrases, sentences, clauses, paragraphs or sections hereof shall not
affect the remaining portions of this Pledge Agreement, all of which are
being inserted conditionally on its being held legally valid. In the
event that any one or more of the phrases, sentences, clauses,
paragraphs or sections contained herein should be invalid, or should
operate to render this Pledge Agreement invalid, then this Pledge
Agreement shall be construed as if such invalid phrase or phrases,
sentence or sentences, clause or clauses, paragraph or paragraphs, or
section or sections had not been inserted.
23. Assignment. This Pledge Agreement shall apply to, inure to the
benefit of and be binding upon and enforceable against the parties
hereto and their respective legal representatives, successors and
assigns, except that the rights and obligations of Pledgor contained
herein shall not be assignable.
24. Governing Law. The substantive laws of the State of Texas shall
govern the validity, construction, enforcement and interpretation of
this Pledge Agreement, unless the laws of another state or jurisdiction
require the application of the laws of such state or jurisdiction. This
Pledge Agreement is performable in Dallas County, Texas.
IN WITNESS WHEREOF, the parties have executed this Pledge Agreement
as of the date and year first above written.
PLEDGOR:
Address: ---------------------------------
Edward R. Anderson
10100 North Central Expressway
Dallas, Texas 75231
SECURED PARTY:
Address: COMPUCOM SYSTEMS, INC.
10100 North Central Expressway
Dallas, Texas 75231 By:------------------------------
Its:-----------------------------
EXHIBIT A
STOCK NUMBER OF
CERTIFICATE NO. SHARES
-------------- ---------
$217,000.00
Promissory Note Dated January 5, 1995
For value received, the sufficiency and receipt of which is hereby
acknowledged, James W. Dixon ("Borrower"), promises to pay to the order
of CompuCom Systems, Inc., a Delaware corporation ("Holder"), the
principal sum of Two Hundred Seventeen Thousand Dollars ($217,000.00)
with interest at Prime Rate plus one percent (1 %) thereon as provided
below. Payments due Holder under this Note shall be payable in cash in
the manner, and at the time provided below, at the office of Holder
located at 10100 North Central Expressway, Dallas, Texas 75231.
1. Payment of Principal
The principal and interest of this Note shall be due and payable
seven (7) days following the sale of residence in Marietta, Georgia.
However, in the event the employment of Borrower by Holder terminates
prior to the full payment, any unpaid balance shall become immediately
due and payable.
2. Right of Offset
If Borrower does not pay principal or interest on time, or in the
event the employment of Borrower terminates, Holder has the right to
offset any unpaid commissions, salary, vacation or bonuses owed against
any amount of unpaid principal.
3. Default
If Borrower shall fail to make the payment of principal and
interest when due, the amount thereof shall bear simple interest, from
and after the date such payment was due until payment is made, at a rate
per annum equal to four percentage points in excess of the Prime Rate of
NationsBank of Texas. N.A., which rate shall be adjusted for changes in
the Prime Rate effective on the date on which a change in the Prime Rate
occurs.
4. Prepayment
Borrower may prepay the principal of this Note, from time to time,
in whole or in part, without premium or penalty provided that all
accrued and unpaid interest thereon is paid at that time.
5. Events of Default
(a) Any of the following shall constitute an "Event of Default"
as the term is used herein:
(i) a default in the payment by Borrower to Holder of
principal under this Note after 10 days notice from Holder of the
failure of Borrower to make a payment required under this Note; or
(ii) institution of any proceedings by or against Borrower
under any Bankruptcy or insolvency statute or Borrower's assignment for
the benefit of creditors or the appointment of a receiver, trustee,
conservator or other judicial representative for Borrower or borrower's
property.
(b) Any notice by Holder sent to Borrower at the address
specified below, or such other address of Borrower as may from time to
time be shown on Holder's records, at least five days prior to the
action contemplated in such notice, shall constitute reasonable notice
to Borrower.
(c) Waiver by Holder of any Event of Default hereunder shall
not constitute a waiver of any subsequent Event of Default.
(d) Borrower hereby waives presentment for payment, notice of
demand, notice of nonpayment or dishonor, protest, notice of protest and
all other notices in connection with the delivery, acceptance,
performance, default or enforcement of payment of the Note, and thereby
waives all notice or right of approval of any extension, renewals,
modifications or forbearance which may be allowed.
6. Security for Note
This Note is secured by a second mortgage on residence as described
below:
965 Muirfield Drive
Marietta, Georgia 30068
7. Other
(a) Borrower irrevocably empowers Holder or his agent as
Borrower's agent for service of process in any and all such actions
which may be instituted against Borrower by Holder, provided that such
process be forwarded within five days by said agent to Borrower.
(b) All rights of Holder hereunder shall inure to the benefit
of his heirs, executors, administrators, successors and assigns and all
obligations of Borrower shall bind his heirs, executors, administrators,
successors and assigns.
(c) Borrower hereby agrees to pay all reasonable expenses
incurred by Holder incidental to or in any way relating to Holder's
enforcement of the obligations of the Borrower hereunder, including, but
not limited to reasonable Attorney's fees incurred by Holder.
(d) Notices required to be given hereunder shall be deemed
validly given if sent first class mail, postage prepaid to:
If to Holder: CompuCom Systems, Inc.
10100 N. Central Expwy.
Dallas, Texas 75231
Attention: Robert J. Boutin
If to Borrower: James W. Dixon
5447 Surrey Circle
Dallas, TX 75209
(e) Any provision hereof found to be illegal, invalid or
unenforceable for any reason whatsoever shall not affect the validity,
legality or enforceability of the remainder hereof.
(f) This Note shall be governed by the laws of the State of
Texas.
IN WITNESS WHEREOF, the undersigned has set his hand and seal as of
the date first above written.
James W. Dixon
WITNESS:
<TABLE>
<CAPTION>
SAFEGUARD SCIENTIFICS, INC.
Exhibit 11
Computation of Per Share Earnings
Years ended December 31, 1994, 1993 and 1992
(In thousands, except per share data)
1994 1993 1992
------- ------ ------
<S> <C> <C> <C>
Primary earnings per common share
Net earnings $15,740 $3,853 $8,864
Adjustment (1) (656) (737)
------- ------ ------
$15,084 $3,116 $8,864
======= ====== ======
Average common shares outstanding 9,448 9,812 10,058
Average common share equivalents 365 234 42
------- ------ ------
Average number of common shares and
common share equivalents outstanding 9,813 10,046 10,100
======= ====== ======
Primary earnings per common share $1.54 $.31 $.88
======= ====== ======
Fully diluted earnings per common share
Primary net earnings $15,740 $3,853 $8,864
Adjustment (1) (1,781) (1,745) (499)
------- ------ ------
$13,959 $2,108 $8,365
======= ====== ======
Average common shares outstanding 9,448 9,812 10,058
Average common share equivalents 445 324 144
------- ------ ------
Average number of common shares
assuming full dilution 9,893 10,136 10,202
======= ====== ======
Fully diluted earnings per common share $1.41 $.21 $.82
======= ====== ======
(1) Net earnings are adjusted for the dilutive effect of public
subsidiary common stock equivalents (primary) and convertible securities
(fully diluted).
Share and per share data have been retroactively restated to reflect the
two-for-one split of the Company's common shares effective September 7,
1994.
</TABLE>
SAFEGUARD SCIENTIFICS, INC.
Selected Financial Data
(in thousands except per share amounts)
<TABLE>
<CAPTION>
1994 1993 1992 1991 1990
----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net sales $1,412,026 $1,168,349 $845,018 $644,192 $449,067
Net earnings 15,740 3,853* 8,864 10,518 14,673
Earnings per share
Primary 1.54 .31 .88 1.03 1.43
Fully diluted 1.41 .21 .82 1.02 1.43
Total assets 617,155 542,824 416,299 379,955 292,742
Long-term debt 201,393 156,482 109,536 101,489 84,250
Commercial real estate debt 20,714 40,668 41,159 41,812 45,427
Shareholders' equity 110,547 88,767 91,685 84,316 74,110
</TABLE>
The Company's strategy is to reward shareholders by direct ownership of
common stock in selected companies which are ready for public ownership.
The Company has no present intention to pay cash dividends.
Per share amounts have been retroactively restated to reflect the two-
for-one split of the Company's common shares effective September 7,
1994.
*After goodwill write-off of $6,419 or $.64 per share.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Operations Review
The 1994 operating results reflect management's continued focus on
building value in each of the operating units through the identification
and exploitation of leading market opportunities. CompuCom posted record
sales and earnings for the sixth consecutive year demonstrating the
continuing success of their strategy of providing quality products and
service to corporate customers at competitive prices. Net sales
increases of 21% and 38% in 1994 and 1993, respectively, are primarily
attributable to CompuCom's (Microcomputer Systems) 24% and 42% sales
increases for the same periods. CompuCom has continued its sales and
earnings growth and in 1994 accounted for 89% of the Company's total
sales. As a result of the relative significance of CompuCom in the
consolidated results, fluctuations in the financial results of the other
business units have tended to have a minimal impact. Increased sales at
other business units in 1994 were more than offset by the reduction in
sales as a result of the first quarter sale of Micro Decisionware and
the mid-year rights offering of Coherent stock which reduced the
Company's ownership to under 50%.
The following after-tax data reflects the components of the Company's
net earnings:
Year Ended December 31
-------------------------------------------
1994 1993 1992
-------------------------------------------
Earnings $ 4,189 $ 2,207 $ 5,986
Security gains 14,501 5,038 5,664
Minority interest (2,950) (3,392) (2,786)
-------------------------------------------
Net earnings $15,740 $ 3,853 $ 8,864
===========================================
CompuCom's 28% increase in earnings was the main contributor to the 1994
earnings improvement augmented by improved earnings at Metal Finishing
and other business units. Offsetting these increases was the Company's
share of losses at CenterCore ($10.4 million). The Company does not
anticipate that it will incur any additional significant losses as a
result of its limited future involvement with CenterCore. The 1993
earnings were negatively impacted by a $6.4 million goodwill write-off
partially offset by profit improvement at CompuCom.
Two significant transactions accounted for the vast majority of 1994
security gains. In 1994, the Company sold its 55% interest in Micro
Decisionware, Inc. to Sybase, Inc. which resulted in an after-tax gain
of $7.1 million. This gain includes the value of Sybase stock received
at the closing plus additional stock earned based on the 1994
performance of Micro Decisionware subsequent to the sale. The Company
has the potential to earn an additional $3 million net after-tax based
upon the 1995 performance of Micro Decisionware. In July 1994, the
Company and its subsidiary Coherent Communications Systems, sold 2.7
million and 800 thousand shares, respectively, of Coherent stock at $5
per share in a rights offering to the Company's shareholders. After this
sale, which resulted in a $7.8 million after-tax gain, the Company began
using the equity method of accounting for its remaining interest in
Coherent.
Gains on sales of securities for 1993 and 1992 primarily reflect the
open market sale of a portion of the Company's holdings in Novell, Inc.
and the remaining stock holdings in QVC Network, Inc. In conjunction
with the rights offering of Cambridge Technology Partners stock in 1993
the Company also recorded an after-tax gain of $2.2 million. Security
gains of varying magnitude have been realized in recent years; prior
gains are not necessarily indicative of gains which may be realized in
the future.
Most equity investment companies showed improved earnings in
1994 compared to 1993 led by Cambridge Technology Partners, Coherent
Communications Systems and Sanchez Computer Associates. Coherent
reported significantly improved operating results as sales and earnings
increased 33% and 152%, respectively, in 1994 compared to 1993. The
earnings increase excludes the impact of Coherent's 1993 goodwill write-
off. Cambridge continued its strong growth trend by recording a 96%
increase in net earnings on an 82% sales increase in 1994. During 1994
and 1993 the Company made a number of minority ownership investments in
promising businesses that are accounted for under the equity method.
Recent investments have tended to be in more mature companies than
historically has been the case. Given the increase in the number of
companies now accounted for under the equity method, a large percentage
of future operating earnings of the Company will be achieved through its
participation in the growth of these companies.
Losses from equity investments were recognized in 1993 as two
investments experienced increased losses and a new investment was made
in XL Vision, an early stage company with significant potential.
Partially offsetting these losses was improved results at Cambridge.
Segment Trends
MICROCOMPUTER SYSTEMS (CompuCom) sales increased 24% in 1994 following a
42% increase in 1993 and a 35% increase in 1992. Taking into
consideration the sale of various non-core businesses early in 1994,
sales increased 29% over 1993. The growth in sales reflects the
increased demand by corporate customers for personal computers,
particularly 486-based machines, and CompuCom's continued focus on
expanding its network and technology services at competitive prices.
Also favorably impacting CompuCom's sales increase is the weakened
financial condition of certain competitors and its strategy of
increasing service sales. Due to the relatively quick order fulfillment
cycle, CompuCom's backlog is not considered to be a meaningful indicator
of future business prospects.
Microcomputer Systems product margins as a percentage of net sales
continued to be impacted by industry wide pricing pressures created by
intense competition. The gross margin percentage was 13.6% in 1994,
14.3% in 1993 and 14.7% in 1992. Partially offsetting the negative
impact of the product margin decline was the increase in gross margin
related to the service business, which on a weighted average basis, has
become a larger percentage of gross margins when compared to 1993.
CompuCom historically has been able to offset margin decline (on a
percentage of net revenue basis) through improved efficiencies and the
control of operating expenses. Product margins in the fourth quarter
improved slightly from the first half of 1994 as a result of price
reductions by certain major manufacturers and competitors realization of
the need to increase margins to achieve an acceptable level of
profitability. CompuCom participates in certain manufacturer-sponsored
programs designed to increase sales of specific products. These
programs, excluding volume rebates, are not material to CompuCom's
overall financial results. Future margins will be influenced by
manufacturers' pricing strategies together with pressures from
competition and CompuCom's ability to continue the growth of its service
business.
INFORMATION SOLUTIONS sales declined in 1994 due to the sale of Micro
Decisionware and Coherent being accounted for under the equity method of
accounting subsequent to its July 1994 rights offering. Premier
Solutions sales increased 58% reflecting growing market acceptance of
their software solutions for the global custody industry. Tangram
Enterprise Solutions' sales were essentially flat reflecting the
company's transition from a mainframe connectivity product company to a
full service provider of distributed resource management solutions
encompassing three major computer platforms (mainframe/MVS, mini/UNIX
and micro/LAN-Server).
Information Solutions operating profits were essentially flat in 1994
compared to the prior year after considering the sale and
deconsolidation of Micro Decisionware and Coherent, respectively, and
the 1993 goodwill write-off.
The WORKSTATION AND SECURITY SYSTEMS (CenterCore) sales increase of 26%
in 1994 compared to 1993 reflects the inclusion for the entire year in
1994 of the results of Maris Equipment Company. Offsetting the sales
increase related to Maris, which was acquired in September 1993, were 6%
lower furniture sales in 1994 compared to the prior year. The lower
furniture sales reflects the continued softening in government
procurements coupled with the inability to accelerate sales to commercial
customers. The sales increase in 1993 of 16% compared to the prior year
reflects the Maris acquisition offset by declines in furniture sales due
to reduced government sales.
CenterCore reported significant 1994 losses reflecting lower than
anticipated margins or losses incurred in an effort to complete many of
the major detention and other contracts in process at the time of the
September 1993 Maris acquisition. Included in these losses was the
write-off of $2.1 million of goodwill primarily related to the Maris
acquisition. As a result, CenterCore management is pursuing a strategy
of significantly downsizing the business. In addition, Safeguard is
negotiating an agreement whereby it will contribute a portion of its
CenterCore stock to CenterCore, will sell a significant portion of its
remaining interest to CenterCore management and will provide certain
advances to address current funding requirements of CenterCore.
Safeguard's participation in the 1994 after-tax, after minority interest
losses incurred by CenterCore was $10.4 million. These losses are not
anticipated to recur based on the Company's limited future involvement
with CenterCore.
CenterCore's 1993 loss was attributable to a combination of lower
domestic furniture sales, losses from foreign operations and expenses
incurred to consolidate parts of the Canadian operations into the
domestic operations.
The continued strength of automotive customers and increased cookware
sales accounted for most of the 13% and 12% sales increase at METAL
FINISHING in 1994 and 1993, respectively, compared to the prior year.
Operating profit improved 39% in 1994 compared to 1993 due to improved
plant efficiencies.
The 1993 decline in operating profit at Metal Finishing was primarily
attributable to competitive conditions which reduced margins, a less
favorable product mix and an increase in expenses incurred in
anticipation of future growth.
Occupancy levels in COMMERCIAL REAL ESTATE properties were 94% in 1994
after excluding three properties for which negotiations are proceeding
which will result in the transfer of these properties in early 1995 to
the lenders in full satisfaction of the related non-recourse debt.
Occupancy levels for all properties were 88% in 1993 and 83% in 1992. A
gain from the sale of one building accounts for the improved operating
results in 1994 compared to 1993. The business typically generates
pretax losses from operations because of mortgage interest and
depreciation, but operates on an approximate cash break-even basis.
Cost and Expenses
Gross margin as a percentage of sales was 17% in 1994 compared to 19.5%
in 1993 and 21.4% in 1992. The lower gross margin is primarily due to
the continuing increase in microcomputer sales as a percentage of total
sales. An increase in microcomputer sales tends to reduce consolidated
margins since microcomputer margins are lower than margins realized by
other operating units.
Selling expenses as a percentage of sales decreased from 10.3% in 1992
and 9.6% in 1993 to 8.8% in 1994. General and administrative expenses as
a percentage of sales decreased from 6.5% in 1992 and 5.9% in 1993 to
5.6% in 1994. The declines in 1994 compared to 1993 reflect the
elimination of expenses due to the second quarter sale of Micro
Decisionware and the deconsolidation of Coherent. On a relative basis,
these two businesses had higher selling, general and administrative
expenses than CompuCom and the remaining businesses of the Company. Also
contributing to the lower selling, general and administrative expenses
as a percentage of sales in recent years were the improved operating
efficiencies at CompuCom. General and administrative expenses at
CompuCom are reported net of reimbursements from certain manufacturers
for specific training and marketing programs. These reimbursements
offset the expenses incurred.
Depreciation and amortization decreased $1.1 million in 1994 compared to
1993 primarily due to the 1993 goodwill write-offs. The $1.5 million
increase in 1993 compared to 1992 primarily relates to CompuCom's
investments in equipment necessary to support their sales growth.
Interest expense increased in 1994, reflecting rising interest rates in
1994 and increased borrowings at CompuCom needed to support their
significant sales growth, and for investments by the Company in new
business opportunities.
Liquidity and Capital Resources
The Company and its two largest majority-owned, public company,
operating subsidiaries -- CompuCom and CenterCore -- each maintain
separate, independent bank credit facilities with several banks. The
subsidiaries' credit facilities are non-recourse to the Company, except
that the Company has provided a $2.4 million guarantee of CenterCore's
bank debt. The subsidiaries' bank debt prohibits the payment of
dividends while the credit lines remain outstanding.
In February 1995, availability under the Company's credit facility was
increased from $50 million to $75 million and the maturity was extended
to 1998. There was $44.1 million outstanding at December 31, 1994 under
the facility which bears interest at the prime rate and/or, at the
Company's option, at LIBOR plus 2.25%. The facility is secured by a
pledge of all of the Company's publicly traded equity securities,
including common stock in certain majority owned subsidiaries, which had
an aggregate market value in excess of $245 million at December 31,
1994. Proceeds from the sales of securities, borrowings under the credit
facility and cash generated from operations were used for additional
loans to and investments in existing and new partnership companies,
including the purchase of $20 million of CompuCom convertible preferred
stock, and other working capital requirements. The Company expects its
future corporate liquidity to be generated through internal cash flow,
the sale, as required, of selected minority-owned, publicly traded
securities and borrowing under the credit facility. These sources should
be sufficient to fund the Company's cash requirements through 1995.
Proceeds from the previously mentioned 1994 Coherent rights offering
netted the Company $12.6 million. The Company's continued ownership of
2.9 million shares of Coherent as well as 3.2 million shares of
Cambridge Technology Partners enables the Company to participate in the
future growth of these companies and provides the Company with
additional sources of liquidity.
CompuCom has been able to satisfy cash requirements through the
combination of a satisfactory relationship with several banks, proceeds
from the sales of securities, internally generated funds and
subordinated debt. In March 1994, CompuCom increased its separate bank
revolving credit facility from $125 million to $150 million and extended
the maturity to March 1997. Borrowings as of December 31, 1994 under
this facility were $115 million. In addition, during 1994 the Company
purchased $20 million of CompuCom convertible preferred stock.
Negotiations are currently underway to increase CompuCom's bank credit
facility to support its projected 1995 growth.
As a result of significant operating difficulties, CenterCore has a
severe liquidity problem. CenterCore is in default of its revolving loan
facility ($8.3 million at December 31, 1994) and its term note payable
($3.6 million at December 31, 1994) to the former owners of Maris. It
has turned to its bonding companies to assume and complete certain
construction contracts and has extended its payables to vendors.
CenterCore has withdrawn from the detention security business and is
undertaking to significantly downsize its business, which may include
the sale of some or all of CenterCore's business units. Proceeds from
the sale of assets as well as an anticipated federal tax refund of $1.6
million will be used to reduce outstanding bank debt. In anticipation of
these events, the bank continues to extend credit to CenterCore under
the existing borrowing base formula. CenterCore also is negotiating with
EMCOR Group, Inc. (successor of JWP Inc.) from whom it acquired Maris to
significantly restructure the original transaction. Except for a $2.4
million guarantee of bank debt, the Company is not contractually
obligated to satisfy any of CenterCore's obligations.
CenterCore is negotiating for a release of its obligations to the
bonding companies in exchange for a nominal amount of CenterCore stock.
Pending satisfactory resolution in all of the above negotiations, the
Company is negotiating an arrangement whereby it will contribute a
portion of its CenterCore stock to CenterCore, will sell a significant
portion of its CenterCore stock to CenterCore management and will
provide certain advances to CenterCore to address current funding
requirements of the downsized business. Should CenterCore be
unsuccessful in its multiple negotiations, its ability to continue
operations will be difficult to sustain. Nevertheless, given its limited
future involvement, the Company does not expect that such events will
have a material adverse effect on the Company's liquidity or capital
resources.
The Company's operations are not capital intensive. Capital expenditures
were $11.8 million in 1994 and $17.1 million in 1993. Capital additions
are generally funded through internally generated funds or other
financing sources. There were no material asset purchase commitments at
December 31, 1994.
Financial Information -- Industry Segments
(in thousands)
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------
1994 1993 1992
------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Sales
Information Technology
Microcomputer Systems $1,255,813 $1,015,482 $713,035
Information Solutions 53,962 67,320 56,933
Workstation and Security Systems 67,227 53,167 45,639
----------------------------------------------------------
1,377,002 1,135,969 815,607
Metal Finishing 31,135 27,650 24,654
Commercial Real Estate 3,889 4,730 4,757
----------------------------------------------------------
$1,412,026 $1,168,349 $845,018
==========================================================
Operating Profit (Loss)
Information Technology
Microcomputer Systems $ 34,702 $ 27,163 $ 18,787
Information Solutions 3,353 (1,946)* 2,640
Workstation and Security Systems (16,049) (395) 2,309
----------------------------------------------------------
22,006 24,822 23,736
Metal Finishing 2,688 1,937 2,559
Commercial Real Estate 2,565 2,237 2,413
----------------------------------------------------------
27,259 28,996 28,708
Gains on sales of securities, net 21,789 9,574 10,214
Income (loss) from equity investments 2,669 (818) (345)
Interest expense (17,468) (13,701) (13,099)
General corporate expense, net (6,171) (4,190) (4,446)
Minority interest (4,428) (6,523) (5,030)
----------------------------------------------------------
Earnings before taxes on income $ 23,650 $ 13,338 $ 16,002
==========================================================
Depreciation & Amortization
Information Technology
Microcomputer Systems $ 5,221 $ 4,640 $ 3,346
Information Solutions 6,129 8,060 8,085
Workstation and Security Systems 1,577 1,427 1,368
----------------------------------------------------------
12,927 14,127 12,799
Metal Finishing 2,044 1,837 1,578
Commercial Real Estate 1,699 1,892 1,879
General Corporate 640 566 617
----------------------------------------------------------
$ 17,310 $ 18,422 $ 16,873
==========================================================
Capital Expenditures
Information Technology
Microcomputer Systems $ 5,018 $ 6,584 $ 7,408
Information Solutions 4,066 3,354 1,872
Workstation and Security Systems 376 555 1,074
----------------------------------------------------------
9,460 10,493 10,354
Metal Finishing 1,428 4,623 3,474
Commercial Real Estate 130 468
General Corporate . 947 1,874 606
----------------------------------------------------------
$ 11,835 $ 17,120 $ 14,902
==========================================================
Assets Employed
Information Technology
Microcomputer Systems $ 434,545 $ 370,651 $259,542
Information Solutions 28,828 40,339 39,773
Workstation and Security Systems 26,413 42,371 24,058
----------------------------------------------------------
489,786 453,361 323,373
Metal Finishing 18,091 18,404 15,328
Commercial Real Estate 21,124 36,183 38,413
General Corporate 88,154 34,876 39,185
----------------------------------------------------------
$ 617,155 $ 542,824 $416,299
==========================================================
</TABLE>
Information Technology distributes personal computers, application
software and related products and services; and designs, develops and
sells strategic business applications systems software solutions, office
furnishings and air filtration systems and provides integration and
installation of advanced electronic security systems.
Metal Finishing provides specialty metal finishing services.
Commercial Real Estate engages in the ownership, leasing and management
of commercial real estate properties. Operating profit is before
interest expense of $2,998 in 1994, $3,451 in 1993 and $4,074 in 1992.
*After a goodwill write-off of $6,419.
Consolidated Statements of Operations
(in thousands except per share amounts)
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------
Year ended December 31
1994 1993 1992
-------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues
Net sales $1,412,026 $1,168,349 $845,018
Gains on sales of securities, net 21,789 9,574 10,214
Other income 4,616 2,698 2,430
--------------------------------------------------------
Total revenues 1,438,431 1,180,621 857,662
Costs and Expenses
Cost of sales 1,172,625 940,900 664,211
Selling 123,795 111,870 87,170
General and administrative 79,718 68,630 54,932
Depreciation and amortization 17,310 18,422 16,873
Interest 17,468 13,701 13,099
(Income) loss from equity investments (2,669) 818 345
Goodwill write-off 2,106 6,419
--------------------------------------------------------
Total costs and expenses 1,410,353 1,160,760 836,630
--------------------------------------------------------
Earnings Before Minority Interest and Taxes 28,078 19,861 21,032
Minority interest (4,428) (6,523) (5,030)
--------------------------------------------------------
Earnings Before Taxes On Income 23,650 13,338 16,002
Provision for taxes on income 7,910 9,485 7,138
--------------------------------------------------------
Net Earnings $15,740 $3,853 $8,864
========================================================
Earnings Per Share
Primary $1.54 $.31 $.88
Fully diluted $1.41 $.21 $.82
Average Common Shares Outstanding
Primary 9,813 10,046 10,100
Fully diluted 9,893 10,136 10,202
See notes to consolidated financial statements.
</TABLE>
Consolidated Balance Sheets
(in thousands except share and per share amounts)
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------
December 31
Assets 1994 1993
---------------------------------------------------------------------------------------------------
<S> <C> <C>
Current Assets
Cash $ 7,860 $ 9,796
Receivables less allowances ($6,466-1994; $5,480-1993) 276,034 258,734
Inventories 160,380 131,263
Other current assets 5,832 4,377
-------------------------------
Total current assets 450,106 404,170
Property, Plant and Equipment
Land 788 788
Buildings and improvements 24,183 23,689
Equipment and machinery 54,598 55,312
-------------------------------
79,569 79,789
Less accumulated depreciation and amortization 36,014 33,429
-------------------------------
43,555 46,360
Commercial Real Estate 25,538 47,460
Less accumulated depreciation 7,105 11,037
-------------------------------
18,433 36,423
Other Assets
Investments 66,310 16,663
Notes and other receivables 5,554 3,329
Excess of cost over net assets of businesses acquired 22,187 25,434
Other 11,010 10,445
-------------------------------
105,061 55,871
-------------------------------
$617,155 $542,824
===============================
See notes to consolidated financial statements.
</TABLE>
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------------
December 31
Liabilities and Shareholders' Equity 1994 1993
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Current Liabilities
Current commercial real estate debt $ 3,120 $ 11,038
Current debt obligations 14,041 5,461
Accounts payable 168,431 168,836
Accrued expenses 63,284 50,261
Taxes on income 374 3,078
----------------------------------
Total current liabilities 249,250 238,674
Long Term Debt 201,393 156,482
Commercial Real Estate Debt 17,594 29,630
Deferred Taxes 7,336 2,141
Other Liabilities 969 1,305
Minority Interest 30,066 25,825
Shareholders' Equity
Common stock, par value $.10 a share
Authorized 20,000,000 shares; Issued 10,933,114 shares 1,093 1,093
Additional paid-in capital 25,669 25,631
Retained earnings 91,780 76,040
Treasury stock, at cost (1994-1,449,596 shares; 1993-1,590,696 shares) (13,228) (13,997)
Net unrealized appreciation on investments 5,233
----------------------------------
110,547 88,767
----------------------------------
$617,155 $542,824
==================================
See notes to consolidated financial statements.
</TABLE>
Consolidated Statements of Cash Flows
(in thousands)
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------
Year ended December 31
1994 1993 1992
------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating Activities
Net earnings $ 15,740 $ 3,853 $ 8,864
Adjustments to reconcile net earnings to cash from operating activities
Depreciation and amortization 17,310 18,422 16,873
Deferred income taxes 2,500 2,598 6,670
(Income) loss from equity investments (2,669) 818 345
Gains on sales of securities, net (21,789) (9,574) (10,214)
Minority interest, net 1,536 3,933 3,057
Write-off of goodwill 2,106 6,419
------------------------------------------
14,734 26,469 25,595
Cash provided (used) by changes in working capital items
Receivables (30,828) (80,842) (18,362)
Inventories (34,350) (26,241) 586
Other current assets (555) (41) (943)
Accounts payable and accrued expenses 16,035 59,020 6,067
Taxes on income (3,280) 2,776 (1,451)
------------------------------------------
(52,978) (45,328) (14,103)
------------------------------------------
Cash provided (used) by operating activities (38,244) (18,859) 11,492
Proceeds from sales of securities, net 16,953 20,129 18,689
------------------------------------------
Cash provided (used) by operating activities and sales of securities, net (21,291) 1,270 30,181
Other Investing Activities
Business acquisitions, net of cash acquired (442) (2,202) (457)
Investments and notes acquired (19,379) (8,013) (11,059)
Expenditures for property, plant and equipment (11,835) (14,648) (14,434)
Commercial real estate costs (130) (468)
Other, net (5,719) (5,071) (4,537)
------------------------------------------
Cash (used) by other investing activities (37,375) (30,064) (30,955)
Financing Activities
Net borrowings (repayments) on revolving credit facilities 32,898 40,535 (11,682)
Net borrowings (repayments) on term debt 20,040 (4,077) 1,140
Issuance of subordinated debt, net 13,664
Repurchase of common stock (551) (8,000) (1,506)
Subsidiary repurchase of stock (1,625)
Stock options exercised 1,358 1,229 11
Stock issued by subsidiary 2,985
------------------------------------------
Cash provided by financing activities 56,730 29,687 2
------------------------------------------
Increase (Decrease) in Cash (1,936) 893 (772)
Cash -- beginning of year 9,796 8,903 9,675
------------------------------------------
Cash -- End of Year $ 7,860 $ 9,796 $ 8,903
==========================================
See notes to consolidated financial statements.
</TABLE>
Consolidated Statements of Shareholders' Equity
(in thousands except share amounts)
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------------------
Net
Unrealized
Common Stock Additional Treasury Stock Appreciation
------------------- Paide-in Retained -------------------- on
Shares Amount Capital Earnings Shares Amount Investments
-------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance -- December 31, 1991 10,933,114 $1,093 $25,698 $63,323 747,778 $ (5,798)
Net earnings 8,864
Stock options exercised (2,000) 11
Repurchase of common stock 241,000 (1,506)
--------------------------------------------------------------------------------------------
Balance -- December 31, 1992 10,933,114 1,093 25,698 72,187 986,778 (7,293)
Net earnings 3,853
Stock options exercised (67) (196,082) 1,296
Repurchase of common stock 800,000 (8,000)
--------------------------------------------------------------------------------------------
Balance -- December 31, 1993 10,933,114 1,093 25,631 76,040 1,590,696 (13,997)
Net earnings 15,740
Stock options exercised 38 (183,100) 1,320
Repurchase of common stock 42,000 (551)
Net unrealized appreciation
on investments $5,233
--------------------------------------------------------------------------------------------
Balance -- December 31, 1994 10,933,114 $1,093 $25,669 $91,780 1,449,596 $(13,228) $5,233
============================================================================================
See notes to consolidated financial statements.
</Table
Notes to Consolidated Financial Statements
NOTE 1 - SUMMARY OF ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION--The consolidated financial statements
include the accounts of the Company and its subsidiaries. Investments in
companies owned 50% or less, in which significant influence is
exercised, are accounted for on the equity method of accounting. In
1994, the Company adopted Statement of Financial Accounting Standard No.
115 (SFAS No. 115), "Accounting for Certain Investments in Debt and
Equity Securities." Certain investments accounted for under the cost
method of accounting are classified as available-for-sale and recorded
at fair value with net unrealized appreciation of $5,233,000 recorded as
a separate component of shareholders' equity, net of taxes of
$2,695,000, at December 31, 1994. All other investments are stated at
the lower of cost or net realizable value. All material intercompany
accounts and transactions have been eliminated.
INVENTORIES, primarily finished goods, are stated at the lower of
average cost or market.
PROPERTY, PLANT AND EQUIPMENT are carried at cost less accumulated
depreciation and amortization. Provision for depreciation and
amortization is based on the estimated useful lives of the assets
(buildings and improvements--3 to 33 years; equipment and machinery--3
to 12 years) and is computed primarily on the straight-line method.
COMMERCIAL REAL ESTATE construction costs and tenant required
improvements are capitalized. These costs are depreciated on the
straight-line method over a 10 or 30-year estimated useful life. Costs
incurred in connection with obtaining financing and tenant leases are
deferred and amortized over the term of the related financing or the
related lease.
EXCESS OF COST OVER NET ASSETS OF BUSINESS ACQUIRED is amortized on a
straight-line basis primarily over 10 years. Accumulated amortization at
December 31, 1994 and 1993 was $10.1 million and $8.2 million,
respectively. Assessment of the carrying amount of goodwill is made when
changing facts and circumstances suggest that the carrying value of
goodwill or other assets may be impaired using the forecasted
undiscounted cash flow from the related business activity (including
possible proceeds from a sale of the business).
TAXES ON INCOME are reduced by allowable tax credits. Deferred taxes are
accounted for using the asset and liability method of accounting for
income taxes. Under this method, deferred taxes are recognized for the
tax consequences of "temporary differences" by applying enacted
statutory tax rates applicable to future years to differences between
the financial statement carrying amounts and the tax basis of existing
assets and liabilities. The effect on deferred taxes of a change in tax
rates is recognized in income in the period the change occurs.
THRIFT PLANS are contributory and cover eligible employees of the
Company and certain subsidiaries. The Company and its subsidiaries
generally match from 50% to 75% of the first 4% of employee
contributions to the thrift plans. Annual contributions to a non-
contributory defined contribution pension plan are based on 4.5% of a
participant's eligible compensation. Amounts expensed relating to these
plans were $1,753,000, $1,491,000 and $1,529,000 in 1994, 1993 and 1992,
respectively.
EARNINGS PER SHARE of common stock are computed on adjusted net earnings
using the weighted-average number of common shares outstanding during
each year, including common stock equivalents (unless anti-dilutive)
which would arise from the exercise of stock options. Net earnings are
adjusted for the dilutive effect of common stock equivalents (primary)
and convertible securities (fully diluted) issued by the Company's
public subsidiaries.
VENDOR PROGRAMS--CompuCom receives volume rebates from manufacturers
related to sales of certain products which are recorded when earned as a
reduction of cost of goods sold. CompuCom also receives manufacturer
reimbursements for certain training and marketing activities, which are
recorded as earned as a reduction of general and administrative expense.
These reimbursements offset expenses incurred.
STOCK SPLIT--All share and per share data have been retroactively
adjusted to reflect the two-for-one split of the Company's common shares
effective September 7, 1994.
NOTE 2 - INVESTMENTS
In the following summary of investments, market value reflects the price
of minority-owned publicly-traded securities at the close of business on
December 31 of each year. In addition, unrealized appreciation primarily
reflects the net increase in the carrying value of Sybase, Inc., Novell,
Inc. and National Media Corporation as a result of the 1994 adoption of
SFAS No. 115.
1994 1993
---------------------------------------
Carrying Market Carrying Market
Value Value Value Value
---------------------------------------
($000 omitted)
Cambridge Technology Partners
(Massachusetts), Inc. $ 6,599 $75,029 $ 3,452 $50,978
Coherent Communications
Systems Corporation 4,479 47,713
Sybase, Inc. 14,923 16,340
Novell, Inc. 243 5,994 312 9,338
National Media
Corporation 2,018 3,197
Other companies 30,120 12,899
Unrealized appreciation 7,928
--------- -------
$66,310 $16,663
========= =======
The Company owns approximately 24% and 43% of Cambridge Technology
Partners and Coherent Communications Systems Corporation, respectively.
The Company's equity investees operate primarily in the information
technology industry segment. For the year ended December 31, 1994,
equity investees had aggregate net sales and net income of $219.8
million and $10 million, respectively.
Average cost is generally used to compute security gains. Security gains
are net of related costs, charges incurred in the disposition of the
investments and provisions for diminution in value of other investments.
The following summarizes significant pre-tax gains from security
transactions (in millions):
1994 1993 1992
-----------------------------------
Coherent Communications $11.7
Micro Decisionware 10.7
Cambridge Technology $ 4.2
Novell 1.6 5.4 $ 3.8
QVC Network 3.2 6.9
Other 2.9 .4
-----------------------------------
$26.9 $13.2 $10.7
===================================
In July 1994, the Company sold 2.7 million shares of Coherent common
stock at $5 per share in a rights offering to the Company's shareholders
which resulted in a pre-tax net gain of $11.7 million.
In April 1994, the Company sold its controlling interest in Micro
Decisionware, Inc. to Sybase, Inc. The transaction, including amounts
earned based on the performance of Micro Decisionware subsequent to the
sale, resulted in a pre-tax net gain of $10.7 million.
Offsetting these gains were pre-tax provisions for the diminution in
value of investments and notes of $5.1 million, $3.6 million and $.5
million in 1994, 1993 and 1992, respectively.
In connection with certain investments, the Company is contingently
obligated for approximately $9 million in bank loan and other guarantees
and $7.5 million for possible future investments.
NOTE 3 - DEBT
1994 1993
----------------------------
($000 omitted)
Revolving credit facility
and term note payable $ 44,100 $ 10,200
CompuCom secured
revolving credit facility 115,227 103,320
CompuCom 9% subordinated
obligations 18,214 17,880
CompuCom 8.10% mortgage note;
payable monthly through 2003 3,120 3,542
CenterCore secured revolving
credit facility 8,265 5,200
CenterCore secured term note
payable through 1996 3,607 3,714
Premier subordinated debentures 2,500 4,500
9.75% mortgage note;
payable monthly through 2002 3,543 3,568
Industrial Development Revenue Bonds,
due in installments through 2002 2,550 2,890
Demand notes payable to
equity investee companies 6,975
Capital lease obligations 2,296 2,648
Other 5,037 4,481
----------------------------
215,434 161,943
Current debt obligations (14,041) (5,461)
----------------------------
Long-term debt $201,393 $156,482
============================
In 1994, availability under the Company's revolving credit facility was
increased to $50 million. During 1994 and 1993, the Company borrowed a
maximum of $48.1 million and $10.9 million, respectively. The stock of
certain subsidiaries and investments is pledged as collateral for the
loan. The facility bears interest at the prime rate and/or, at the
Company's option, at the London Interbank Offered Rate ("LIBOR") plus
2.25%. The weighted average interest rate was approximately 7.1% in 1994
and 6% in 1993. In February 1995, the facility was renegotiated to
increase the availability to $75 million and extend the maturity to
January 1998.
In 1994, availability under CompuCom's bank revolving credit facility
was increased from $125 million to $150 million to fund the company's
working capital requirements associated with its continued growth. The
facility provides for a fixed rate of interest of 7.18% on up to $60
million of outstanding borrowings with an option to elect LIBOR plus
2.75% per annum, subject to certain limitations, and/or an interest rate
of .5% above the prime rate per annum for the remainder of the
outstanding borrowings. The facility matures in March 1997. During 1994
and 1993 CompuCom borrowed a maximum of $132 million and $114.6 million,
respectively, and the weighted average interest rates were 7.3% and
7.2%, respectively. The CompuCom credit facility is non-recourse to the
Company.
In 1992, CompuCom issued $18.5 million of 9% convertible subordinated
notes due September 2002. The notes are convertible into common stock at
$2.20 per share and if not converted require payments in five equal
annual installments of $3.7 million beginning in 1998. Under certain
conditions, CompuCom may prepay all or any part of the notes on or after
September 15, 1995 without prepayment penalties.
In 1994, CenterCore negotiated a new bank credit facility which matures
in May 1996. The maximum availability under the new facility is $10
million and the interest rate is prime plus 1.75%. During 1994 and 1993,
maximum borrowings under CenterCore's bank credit facility were $8.8
million and $5.7 million, respectively. The weighted average interest
rates were 8.1% in 1994 and 6.1% in 1993.
CenterCore is not in compliance with certain financial covenants under
its bank credit facility, therefore the entire balance at December 31,
1994, except for $2.4 million that is guaranteed by the Company, has
been reflected as a current obligation as the bank has the ability to
request immediate loan repayment. In addition, CenterCore has not made
the December 1994 principal and interest payment on its term loan and,
therefore, is in default on the note; accordingly, the entire balance is
due immediately and has been classified as current debt.
The credit facilities generally require some or all of the following:
the maintenance of specified levels of tangible net worth, debt to
tangible net worth and net earnings; specified interest and debt service
coverage ratios; and limitations on the amount available for dividends,
capital expenditures, investments and third party guarantees. The
aggregate net assets of subsidiaries which are restricted and
unavailable for dividends at December 31, 1994 is $57.2 million. The
credit facilities are secured by substantially all the assets of the
applicable borrower.
Premier non-interest bearing subordinated debentures of $2.5 million are
convertible into Premier common stock and are due in 1999.
The Company's variable rate Industrial Development Revenue Bonds require
sinking fund installments of $85,000 a quarter. The debentures provide a
one time option, at any time, to convert to a fixed rate of interest.
The effective interest rate in 1994 and 1993 was 5.4% and 5.2%,
respectively.
As of December 31, 1994, the Company has aggregate indebtedness of $7
million to two equity investee companies which is payable on demand.
Interest on the notes varies with prime, with a weighted average
interest rate at December 31, 1994 of 7.2%. The Company has the intent
and ability, if necessary, to repay these notes with proceeds from the
revolving credit facility; accordingly, they are classified as long
term.
Aggregate maturities of long-term debt during future years are as
follows: $14,041,000--1995; $5,523,000--1996; $116,853,000--1997;
$55,818,000--1998; $6,987,000--1999 and $16,212,000 thereafter.
Interest paid in 1994, 1993 and 1992 was $16.8 million, $14.0 million
and $13.3 million, respectively, of which $2.7 million, $3.5 million and
$4.1 million in 1994, 1993 and 1992, respectively, related to commercial
real estate debt.
NOTE 4 - COMMERCIAL REAL ESTATE DEBT
The Company has entered into loan agreements to provide financing for
its commercial real estate properties. All debt is secured by the
related property and $19.0 million of the debt at December 31, 1994 is
non-recourse financing. The following summarizes the loans as of
December 31:
1994 1993
---------------------
($000 omitted)
Permanent mortgage financing,
interest ranging from 9% to 10.5% $ 7,012 $26,823
Cash flow participation permanent
mortgage financing, interest at 7.125% 13,702 13,845
---------------------
20,714 40,668
Current real estate debt (3,120) (11,038)
---------------------
Long-term real estate debt $17,594 $29,630
=====================
Principal payments are due in future years as follows: $3,120,000--1995;
$234,000--1996; $1,686,000--1997; $170,000--1998; $13,048,000--1999 and
$2,456,000 thereafter.
The cash flow participation financing provides that the lender will
receive additional interest through participation in future cash flow of
the related property. Additional interest expense incurred was $201,000
in 1994, $78,000 in 1993 and $313,000 in 1992.
It is management's estimate that since these obligations are
substantially non-recourse the carrying value of the obligation
approximates the market value of the related properties.
In 1995 the Company has agreed to transfer three properties to the
mortgage holders in full satisfaction of the related non-recourse debt.
As a result, the carrying value of the properties and the related
mortgage debt have been offset, with the $1.6 million net credit
included in accrued expenses.
NOTE 5 - COMMERCIAL REAL ESTATE LEASES
The Company leases space in its Commercial Real Estate properties to
tenants under operating leases with terms ranging from one to ten years.
Minimum future rentals expected to be received under non-cancellable
leases are as follows: $2,070,000--1995; $1,203,000--1996; $580,000--
1997; $219,000--1998 and $176,000--1999.
The above amounts do not include additional rent from leases which
provide for pass-through of operating expenses or escalation based upon
increases in the consumer price index.
NOTE 6 - LEASES
The Company conducts a portion of its operations in leased facilities
and leases machinery and equipment under leases expiring at various
dates to 2013.
Future minimum lease payments under non-cancellable operating leases
with initial or remaining terms of one year or more at December 31, 1994
are: $7,929,000--1995; $6,787,000--1996; $5,421,000--1997; $4,096,000--
1998; $2,885,000--1999 and $5,257,000 thereafter. Total rental expense
under operating leases was $9,303,000 in 1994, $9,504,000 in 1993 and
$9,022,000 in 1992.
NOTE 7 - INCOME TAXES
The provision for income taxes at December 31 is comprised of:
1994 1993 1992
------------------------------
($000 omitted)
Currently payable $5,410 $6,694 $1,855
Tax credits (77) (197)
------------------------------
5,410 6,887 1,658
Deferred 2,500 2,598 5,480
------------------------------
$7,910 $9,485 $7,138
==============================
State taxes on income
included above $1,025 $1,378 $ 933
A reconciliation of the effective tax rate to the federal
statutory rate is as follows:
1994 1993 1992
------------------------------
($000 omitted)
Statutory tax provision $8,278 $4,668 $5,441
Increase (decrease) in
taxes resulting from:
Tax credits (77) (197)
Non-deductible goodwill
amortization/write-off 1,187 4,042 1,669
Book/tax basis difference
on securities sold (2,552)
State taxes, net of federal
tax benefit 666 896 616
Income taxed at rates other
than statutory rate 331 (44) (391)
------------------------------
$7,910 $9,485 $7,138
==============================
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at
December 31, 1994 and 1993 are presented below.
1994 1993
-----------------------------
($000 omitted)
Deferred tax assets:
Tax loss carryforwards of subsidiaries $ 33 $ 4,183
Subsidiary/investee losses
not currently deductible 7,571 6,247
Accounts receivable allowances 716 1,220
Inventories, reserves and tax
capitalized costs 3,483 3,173
Other 817 1,062
-----------------------------
Total gross deferred tax assets 12,620 15,885
Less valuation allowance (1,935) (2,221)
-----------------------------
Deferred tax assets 10,685 13,664
-----------------------------
Deferred tax liabilities:
Accelerated depreciation (5,583) (6,396)
Tax net operating loss in
excess of book (8,116) (6,812)
Unrealized appreciation on investments (2,695)
Other (1,627) (2,597)
-----------------------------
Deferred tax liabilities (18,021) (15,805)
-----------------------------
Net deferred tax liabilities $ (7,336) $ (2,141)
=============================
The net change in the valuation allowance for the year ended December
31, 1994 was a decrease of $286,000.
Subsequently recognized tax benefits relating to the valuation allowance
for deferred tax assets as of December 31, 1994 will be reported as an
income tax benefit in the consolidated statement of operations.
Income taxes paid were $11,242,000, $5,475,000 and $3,638,000 in 1994,
1993 and 1992 respectively.
NOTE 8 - COMMON STOCK
Options may be granted to key employees under various employee stock
option plans. Generally, outstanding options vest over periods not
exceeding four years after the date of grant and expire eight years
after the date of grant. To the extent allowable, all grants are
incentive stock options. All options granted under the plans to date
have been at prices which have been equal to the fair market value at
the date of grant.
A summary of employee stock options is as follows:
1994 1993
---------------------------
Shares under option beginning of year 802,694 906,800
Options granted 195,000 114,100
Options exercised (200,968) (208,356)
Options cancelled (8,035) (9,850)
---------------------------
Shares under option end of year 788,691 802,694
===========================
Options exercisable 310,397 301,204
Shares available for future grant 498,685 685,650
Average price of shares under option $9.46 $8.36
Average price of shares exercised $7.62 $6.84
Under the Non-Employee Directors Plan, 258,000 shares are reserved for
issuance. Options to non-employee directors are required to be granted
at fair market value with an initial 20,000 share grant upon election to
the Board. Subsequent service grants and incentive grants are awarded to
all non-employee directors in accordance with formulas based upon years
of service and compensation. During 1994, 48,000 options were granted at
prices ranging from $15.75 to $17.25 and 26,000 options were exercised
at prices ranging from $13.41 to $16.22. Under this plan, 166,000
options are outstanding at option prices ranging from $4.75 to $17.25
per share, of which 70,000 were exercisable at December 31, 1994. The
options vest either 25% or 50% per year beginning on the first
anniversary of the grant and expire after eight years.
In addition, each non-employee director elected to the Board prior to
the 1989 adoption of the Non-Employee Directors Plan was granted a non-
qualified stock option to purchase 20,000 shares of the Company's common
stock at option prices ranging from $7 to $7.63 a share, which was the
fair market value of the stock at the dates of grant. There are 80,000
outstanding and exercisable options at December 31, 1994 which expire
not later than 1996.
At December 31, 1994, the Company reserved 1,625,376 shares of common
stock for possible future issuance under all stock option plans and
grants. Several subsidiaries also maintain stock option plans for their
employees and directors.
In 1988, the Board of Directors adopted a Shareholders' Rights Plan and
declared a dividend of one right for each share of the Company's common
stock held of record on April 11, 1988. If a person or group acquires or
commences a tender offer for 20% or more of the outstanding common
stock, each right will become exercisable until April 11, 1996, subject
to certain exceptions, and will entitle each holder (other than the
acquiring person or group) to buy one share of common stock of the
Company at an exercise price of $30 per share. If any person or group
acquires 20% or more of the common stock and the Board does not redeem
the rights within 20 days thereafter, a holder of the right (other than
the acquiring person or group) will be able to buy, for the exercise
price, the number of shares of common stock which have an aggregate
market value of twice the exercise price. Similarly, if the Company is
involved in certain mergers or major sales of its assets, a holder of
the right will be able to purchase, for the exercise price, the number
of shares of the acquiring company's common stock which has an aggregate
value of twice the exercise price of the right.
NOTE 9 - PREFERRED STOCK
Shares of preferred stock, par value $10 a share, are voting and are
issuable in one or more series with rights and preferences as to
dividends, redemption, liquidation, sinking funds and conversion
determined by the Board of Directors. At December 31, 1994, there were
55,423 shares authorized and none outstanding.
NOTE 10 - ACQUISITIONS
On September 22, 1993, CenterCore purchased substantially all of the
assets and certain liabilities of Maris Equipment Company (Maris), a
wholly owned subsidiary of EMCOR. The purchase price was a fixed amount
of $4.3 million plus a contingent payment based on Maris' earnings
through June 1997 and the possible recovery of certain contract related
amounts reserved against the acquired assets. The fixed portion was
funded by a note payable to EMCOR for $3.95 million and $350,000 in cash
at closing. The acquisition was accounted for by the purchase method of
accounting, and accordingly, the purchase price was allocated to the
assets acquired and the liabilities assumed based on the estimated fair
values at the date of acquisition. The excess of cost over net assets of
businesses acquired increased $1,955,000 as a result of the acquisition.
NOTE 11 - GOODWILL WRITE-OFF
The Company acquired a majority interest in Premier Solutions Ltd. in
1990. In 1993, it became apparent that technological advances in
computer design, the rapidly accelerating movement toward client/server
computing and the development cost associated with re-engineering its
product impeded the ability of the existing product to generate adequate
future earnings to recover the unamortized goodwill. These changes
caused the Company to write-off the remaining intangible asset of $5.3
million in 1993.
The Company acquired a majority interest in Coherent Communications
System Corporation in 1981. In 1993, the Company identified a clear
deterioration of the analog business originally acquired in 1981. This
deterioration caused the Company to write-off the remaining intangible
asset of $1.1 million in 1993.
Due to the significant losses incurred at CenterCore in 1994, it became
apparent that prospective undiscounted cash flows would not be
sufficient to recover unamortized goodwill related to prior year
CenterCore acquisitions, primarily the September 1993 acquisition of
Maris. Accordingly, CenterCore wrote-off goodwill of $2.1 million in the
fourth quarter of 1994.
NOTE 12 - COMMITMENTS AND CONTINGENCIES
Safeguard is negotiating an agreement whereby it will contribute a
portion of its ownership in CenterCore to the company, sell a
significant portion of its remaining interest in CenterCore to its
management and provide certain advances to address current funding
requirements of CenterCore.
The Company and its subsidiaries are involved in various claims and
legal actions arising in the ordinary course of business. In the opinion
of management, the ultimate disposition of these matters will not have a
material adverse effect on the Company's consolidated financial
position.
Independent Auditors' Report
The Board of Directors and Shareholders
Safeguard Scientifics, Inc.
Wayne, Pennsylvania
Logo of KMPG in Italic in front of 4 boxes followed by Peat Marwick LLP
We have audited the accompanying consolidated balance sheets of
Safeguard Scientifics, Inc. and subsidiaries as of December 31, 1994 and
1993, and the related consolidated statements of operations, cash flows
and shareholders' equity for each of the years in the three-year period
ended December 31, 1994. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of
Safeguard Scientifics, Inc. and subsidiaries at December 31, 1994 and
1993, and the results of their operations and their cash flows for each
of the years in the three-year period ended December 31, 1994, in
conformity with generally accepted accounting principles.
As discussed in note 1, the Company changed its method of accounting for
investments by adopting the provisions of Statement of Financial
Accounting Standards No. 115, "Accounting for Certain Investments in
Debt and Equity Securities" as of January 1, 1994.
/s/ KPMG Peat Marwick LLP
Philadelphia, Pennsylvania
February 16, 1995
Statement of Management's Financial Responsibility
Logo of Eagle followed by Safeguard Scientifics, Inc.
Management has prepared and is responsible for the integrity and
objectivity of the consolidated financial statements and related
financial information in this Annual Report. The statements are prepared
in conformity with generally accepted accounting principles. The
financial statements reflect management's informed judgment and
estimation as to the effect of events and transactions that are
accounted for or disclosed.
Management maintains a system of internal control at each business unit.
This system, which undergoes continual evaluation, is designed to
provide reasonable assurance that assets are safeguarded and records are
adequate for the preparation of reliable financial data. In determining
the extent of the system of internal control, management recognizes that
the cost should not exceed the benefits derived. The evaluation of these
factors requires estimates and judgment by management.
KPMG Peat Marwick LLP is engaged to render an opinion as to whether
management's financial statements present fairly, in all mate-rial
respects, Safeguard Scientifics' financial condition and operating
results in accordance with generally accepted accounting principles. The
scope of their engagement included a review of the internal control
system, tests of the accounting records and other auditing procedures to
the extent deemed necessary to render their opinion on the financial
statements. Their report is presented above.
The Audit Committee of the Board of Directors meets with the independent
auditors and management to satisfy itself that they are properly
discharging their responsibilities. The auditors have direct access to
the Audit Committee.
Safeguard Scientifics, Inc.
/s/ Gerald M. Wilk
Gerald M. Wilk
Vice President-Finance
Quarterly Financial Data
(in thousands except per share data)
In the opinion of the Company, the following unaudited quarterly data
includes all adjustments (consisting of only normal recurring
adjustments) necessary for a fair presentation of operations for such
periods.
</TABLE>
<TABLE>
<CAPTION>
Quarter Ended
---------------------------------------------------------------
March 31 June 30 Sept. 30 Dec. 31
---------------------------------------------------------------
<S> <C> <C> <C> <C>
1994
Net Sales $324,646 $346,198 $343,366 $397,816
After-tax Operating Earnings (Loss)* 2,749 1,896 2,436 (2,892)
After-tax Security Gains 1,338 2,712 6,287 4,164
Net Earnings 3,283 3,808 7,569 1,080
Earnings Per Share
Primary .32 .37 .76 .09
Fully Diluted .30 .35 .73 .04
1993
Net Sales $232,343 $271,937 $291,083 $372,986
After-tax Operating Earnings (Loss)* 1,220 1,544 1,960 (2,517)
After-tax Security Gains 2,604 2,047 387
Net Earnings (Loss) 3,336 2,842 1,643 (3,968)
Earnings (Loss) Per Share
Primary .31 .26 .15 (.46)
Fully Diluted .30 .24 .12 (.50)
</TABLE>
*Before security gains and minority interest.
Included in the fourth quarter of 1994 are after tax, after minority
interest losses of approximately $7 million related to CenterCore which
are not expected to recur based on the Company's expected limited future
involvement with CenterCore.
Included in the fourth quarter of 1993 is a $6,419 goodwill write-off.
Net security gains of varying magnitude have been realized in recent
years; prior gains are not necessarily indicative of gains which might
be realized in the future.
Earnings per share calculations for each of the quarters are based on
the weighted average number of shares outstanding in each period and
adjust net earnings (loss) for the dilutive effect of public subsidiary
common stock equivalents (primary) and convertible securities (fully
diluted). Therefore, the sum of the quarters does not necessarily equal
the year-to-date earnings per share.
Sales are typically higher in the fourth quarter of each year,
reflecting the historically stronger fourth quarter results at CompuCom,
the Company's largest subsidiary.
Common Stock Data
Safeguard Scientifics, Inc.
Common Stock Listed on New York Stock Exchange
Symbol SFE
<TABLE>
<CAPTION>
1994 1993
-----------------------------------------------------------
High Low High Low
-----------------------------------------------------------
<S> <C> <C> <C> <C>
First Quarter 15 11 7/16 11 3/4 8 13/16
Second Quarter 17 1/2 12 11/16 11 3/16 8 1/2
Third Quarter 15 3/8 12 11/16 11 8 5/8
Fourth Quarter 17 7/8 13 3/8 13 10 5/8
</TABLE>
There are approximately 5,500 holders of the Company's common stock.
EXHIBIT 21
SUBSIDIARIES OF SAFEGUARD SCIENTIFICS, INC.
Exclusive of inactive subsidiaries and companies in which
Registrant holds a minority interest, Registrant as of March 23, 1995
had the following subsidiaries:
PLACE OF
NAME INCORPORATION
---- -------------
Safeguard Scientifics (Delaware), Inc. Delaware
CompuCom Systems, Inc. Delaware
CompuCom Properties, Inc. Delaware
The Computer Factory Inc. New York
ClientLink, Inc. Delaware
International Micronet Systems California
Pioneer Metal Finishing, Inc. Delaware
Premier Solutions Ltd. Pennsylvania
Safeguard International Group, Inc. Delaware
Safeguard Finanzierungen & Beteiligungen A.G. Austria
Safeguard Technologies, Inc. Delaware
SSI Management Company, Inc. Delaware
Tangram Enterprise Solutions, Inc. Pennsylvania
Technology Leaders Management, Inc. Delaware
XL Realty Corp. Delaware
Exhibit 23
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
Safeguard Scientifics, Inc.
We consent to incorporation by reference in the Registration Statements
(No. 33-41853, No. 33-31840, No. 2-79617, No. 2-63245, No. 33-48579, No.
33-48462, No. 2-72362, No. 33-72559 and No. 33-72560) on Form S-8 and
(No. 2-93525) on Form S-3 of Safeguard Scientifics, Inc. of our report
dated February 16, 1995, relating to the consolidated balance sheets of
Safeguard Scientifics, Inc. and subsidiaries as of December 31, 1994 and
1993, the related consolidated statements of operations, cash flows and
shareholders' equity and related schedules for each of the years in the
three-year period ended December 31, 1994, which reports are included or
incorporated by reference in the December 31, 1994 annual report on Form
10-K of Safeguard Scientifics, Inc.
Our reports refer to a change in the method of accounting for
investments to adopt the provisions of Statement of Financial Accounting
Standards No. 115, "Accounting for Certain Investments in Debt and
Equity Securities."
KPMG Peat Marwick LLP
Philadelphia, Pennsylvania
March 27, 1995
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> DEC-31-1994
<CASH> 7,860
<SECURITIES> 0
<RECEIVABLES> 282,500
<ALLOWANCES> 6,466
<INVENTORY> 160,380
<CURRENT-ASSETS> 450,106
<PP&E> 105,107
<DEPRECIATION> 43,119
<TOTAL-ASSETS> 617,155
<CURRENT-LIABILITIES> 249,250
<BONDS> 218,987
<COMMON> 1,093
0
0
<OTHER-SE> 109,454
<TOTAL-LIABILITY-AND-EQUITY> 617,155
<SALES> 1,412,026
<TOTAL-REVENUES> 1,438,431
<CGS> 1,172,625
<TOTAL-COSTS> 1,172,625
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 17,468
<INCOME-PRETAX> 25,409
<INCOME-TAX> 7,910
<INCOME-CONTINUING> 15,740
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 15,740
<EPS-PRIMARY> 1.54
<EPS-DILUTED> 1.41
</TABLE>
