SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE
SECURITIES EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement [ ] Confidential, For use of the
Commission Only (as permitted
by Rule 14a-6(e)(2)
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
SAFEGUARD SCIENTIFICS, INC.
------------------------------------------------
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
Payment of Filing Fee (check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11(set forth the amount on which the
filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid
[ ] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the form or schedule and the date of its filing.
(1) Amount previously paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
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800 The Safeguard Building
435 Devon Park Drive
Wayne, PA 19087-1945
Phone: (610) 293-0600
Toll-Free: (888) SFE-1200
Fax: (610) 293-0601
Internet: www.safeguard.com
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
Dear Safeguard Stockholder:
You are invited to attend the Safeguard Scientifics, Inc. 1999 Annual Meeting of
Stockholders.
DATE: Thursday, May 20, 1999
TIME: 4:00 p.m. Eastern time
PLACE: The Desmond Great Valley Hotel and Conference Center
One Liberty Boulevard
Malvern, Pennsylvania 19355
(610) 296-9800 or (800) 575-1776
DIRECTIONS: Included on the last page
No admission tickets are required. If you cannot attend the meeting in person,
you may listen to the meeting over the Internet through Vcall, Inc. at
http://www.vcall.com. Please go to this web site approximately fifteen minutes
early to register and download any necessary audio software.
Only stockholders who owned stock at the close of business on March 25, 1999,
can vote at this meeting or any adjournments that may take place.
At the meeting, we will elect 14 directors, request approval of the 1999 Equity
Compensation Plan and an amendment to our Articles of Incorporation to increase
the authorized shares of common stock and preferred stock, and attend to any
other business properly presented at the meeting. We also will report on
Safeguard's 1998 business results and other matters of interest to our
stockholders. You will have an opportunity at the meeting to ask questions, make
comments, and meet our management team.
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Our board of directors is a vital resource. We consider your vote important, no
matter how many shares you hold, and we encourage you to vote as soon as
possible.
We have rewritten and reformatted our proxy statement to make it easier to read.
We encourage you to read this document, and we welcome your comments on the new
format.
The proxy statement, accompanying proxy card, and 1998 annual report are being
mailed to stockholders beginning April 12, 1999, in connection with the
solicitation of proxies by the board of directors.
Please contact Sandi Murtland, Investor Relations Coordinator, at (610) 293-0600
with any questions or concerns.
Sincerely,
/s/ Warren V. Musser /s/ James A. Ounsworth
------------------------- --------------------------------
Warren V. Musser James A. Ounsworth
Chairman of the Board Secretary
and Chief Executive Officer
April 12, 1999
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QUESTIONS AND ANSWERS
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Q: Who is entitled to vote?
A: Stockholders of record as of the close of business on March 25, 1999, may
vote at the annual meeting.
Q: How many shares can vote?
A: On March 25, 1999, there were 32,149,402 shares issued and outstanding.
Every stockholder may cast one vote for each share owned. In the election
of directors, stockholders have the right of cumulative voting (described
below).
Q: What may I vote on?
A: You may vote on the following items:
o the election of 14 directors who have been nominated to serve on our
board of directors,
o approval of our 1999 Equity Compensation Plan,
o a resolution to amend our Articles of Incorporation to increase the
number of shares of common stock and preferred stock authorized for
issuance, and
o any other business that is properly presented at the meeting.
Q: How does the board recommend I vote on each proposal?
A: The board recommends a vote
o FOR each board nominee,
o FOR approval of the 1999 Equity Compensation Plan, and
o FOR approval of the amendment to our Articles of Incorporation. The
board requests discretionary authority to cumulate votes.
Q: How do I vote?
A: Sign and date each proxy card you receive, mark the boxes indicating how
you wish to vote, and return the proxy card in the prepaid envelope
provided. In the election of directors, if you wish to vote cumulatively,
please follow the directions in the next question.
If you sign your proxy card but do not mark any boxes showing how you wish
to vote, Warren V. Musser and James A. Ounsworth will vote your shares as
recommended by the board of directors.
Q: What does cumulative voting mean?
A: Cumulative voting applies only in the election of directors. It means that
you may cast a number of votes equal to the number of Safeguard shares you
own multiplied by the number of directors to be elected. For example, since
14 directors are standing for election at this year's annual meeting, if
you hold 100 shares of Safeguard stock, you may cast 1,400 votes in the
election of directors. You may distribute those votes among the nominees as
you wish. In other words, in the example provided, you may cast all 1,400
votes for one nominee or allocate them among two or more nominees in any
amount you like, as long as the total equals 1,400 votes.
To vote cumulatively, you must
o write the words "cumulate for" in the space provided under item 1 of
the proxy card, and
o write the name of each nominee and the number of votes to be cast for
each nominee in that space.
If you vote cumulatively, please check to be sure that the number of votes
you cast adds up to the number of shares you own multiplied by 14. If the
number of votes does not add up correctly, our proxy tabulator will return
the proxy card to you for clarification and will not vote your shares until
a properly completed proxy card has been returned to them.
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Q: What if I hold my Safeguard shares in a brokerage account?
A: If you hold your Safeguard shares through a broker, bank or other nominee,
you will receive a voting instruction form directly from them describing
how to vote your shares. This form will, in most cases, offer you three
ways to vote:
1. by telephone,
2. via the Internet, or
3. by returning the form to your broker.
Q: What if I want to change my vote?
A: You may change your vote at any time before the meeting in any of the
following three ways: 1. notify our corporate secretary, James A.
Ounsworth, in writing, 2. vote in person at the meeting, or 3. submit a
proxy card with a later date.
If you hold your shares through a broker, bank or other nominee and wish to
vote at the meeting, you must obtain a legal proxy from that nominee
authorizing you to vote at the meeting. We will be unable to accept a vote
from you at the meeting without that form. If you hold your shares directly
and wish to vote at the meeting, no additional forms will be required.
Q: How will directors be elected?
A: The 14 nominees who receive the highest number of affirmative votes at a
meeting at which a quorum is present will be elected as directors.
Q: What vote is required to adopt the 1999 Equity Compensation Plan?
A: To approve the plan, a quorum must be present and voting on the plan, and a
majority of the votes cast must be in favor of the plan.
Q: What vote is required to approve the amendment to the Articles of
Incorporation?
A: To approve the amendment to the Articles of Incorporation, a quorum must be
present and a majority of the votes cast by the stockholders entitled to
vote on the proposal must be in favor of the amendment.
Q: Who will count the votes?
A: A representative of ChaseMellon Shareholder Services, L.L.C., our registrar
and transfer agent, will count the votes and act as the judge of election.
Q: What does it mean if I get more than one proxy card?
A: Your shares may be registered differently or may be in more than one
account. We encourage you to have all accounts registered in the exact same
name and address (whenever possible). You may obtain information about how
to do this by contacting our transfer agent:
ChaseMellon Shareholder Services
85 Challenger Road
Ridgefield Park, NJ 07660
Toll-free telephone 800-526-0801.
If you provide ChaseMellon with photocopies of the proxy cards that you
receive or with the account numbers that appear on each proxy card, it will
be easier to accomplish this.
You also can find information on transferring shares and other useful
stockholder information on their web site at www.chasemellon.com.
Q: What is a quorum?
A: A quorum is a majority of the outstanding shares. The shares may be
represented at the meeting either in person or by proxy. To hold the
meeting, there must be a quorum present.
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Q: What is the effect if I abstain or fail to give instructions to my broker?
A: If you submit a properly executed proxy, your shares will be counted as
part of the quorum even if you abstain from voting or withhold your vote
for a particular director.
Broker non-votes also are counted as part of the quorum. A broker non-vote
occurs when banks, brokers or other nominees holding shares on behalf of a
stockholder do not receive voting instructions from the stockholder by a
specified date before the meeting. In this event, banks, brokers and other
nominees may vote those shares on matters deemed routine by the New York
Stock Exchange, such as the election of directors. Approval of the 1999
Equity Compensation Plan and the amendment to our Articles of Incorporation
are considered non-routine matters. Therefore, brokers, banks or other
nominees will not be able to vote on those proposals without instructions
from the stockholder. This will result in a "broker non-vote" on that
matter equal to the number of shares for which they do not receive specific
voting instructions.
Broker non-votes and abstentions are not counted in the tally of votes FOR
or AGAINST a proposal. A WITHHELD vote is treated the same as an
abstention.
Q: Who can attend the meeting?
A: All stockholders are encouraged to attend the meeting. Admission tickets
are not required.
Q: What if I can't attend the meeting?
A: If you cannot attend the meeting in person, you may listen to the
proceedings over the Internet through Vcall, Inc. at http://www.vcall.com.
Please go to this web site approximately fifteen minutes early to register
and download any necessary audio software. If you cannot listen to the live
broadcast, Vcall will have a replay of the meeting available on its web
site beginning immediately after the meeting and a transcript of the
meeting available by approximately May 24.
Q: Are there any expenses associated with collecting the stockholder votes?
A: We will reimburse brokerage firms and other custodians, nominees and
fiduciaries for their reasonable out-of-pocket expenses for forwarding
proxy and other materials to our stockholders. We do not anticipate hiring
an agency to solicit votes at this time.
Q: What is a stockholder proposal?
A: A stockholder proposal is your recommendation or requirement that Safeguard
or our board of directors take action on a matter that you intend to
present at a meeting of stockholders. However, under applicable rules we
have the ability to exclude certain matters proposed, including those that
deal with matters relating to our ordinary business operations.
Q: Can anyone submit a stockholder proposal?
A: To be eligible to submit a proposal, you must have continuously held at
least $2,000 in market value, or 1% of our common stock, for at least one
year by the date you submit your proposal. You also must continue to hold
those securities through the date of the meeting.
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Q: If I wish to submit a stockholder proposal for the annual meeting in 2000,
what action must I take?
A: If you wish us to consider including a stockholder proposal in the proxy
statement for the annual meeting in 2000, you must submit the proposal, in
writing, so that our corporate secretary receives it no later than December
14, 1999. The proposal must meet the requirements established by the SEC.
Send your proposal to:
James A. Ounsworth, Sr. V.P.,
General Counsel and Secretary
Safeguard Scientifics, Inc.
800 The Safeguard Building
435 Devon Park Drive
Wayne, PA 19087-1945
Our bylaws provide that only proposals included in the proxy statement may
be considered at the annual meeting.
Q: Can a stockholder nominate someone to be a director of Safeguard?
A: The Nominating Committee will consider qualified candidates recommended by
stockholders. You should submit your recommendation, including a detailed
statement of the individual's qualifications, to:
Nominating Committee
Safeguard Scientifics, Inc.
800 The Safeguard Building
435 Devon Park Drive
Wayne, PA 19087
Q: Who are Safeguard's largest stockholders?
A: Mr. Musser, our chairman and chief executive officer, beneficially owns
9.5% of Safeguard. Other directors and executive officers beneficially own
a total of approximately 6.1% of Safeguard. At December 31, 1998, no other
stockholder owned more than 5% of our stock.
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ELECTION OF DIRECTORS
Item 1 on Proxy Card
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Directors are elected annually and serve a one-year term. There are 14 nominees
for election this year. Each nominee, with the exception of Carl Yankowski, is
currently serving as a director. Each nominee has consented to serve until the
next annual meeting if elected. You will find detailed information on each
nominee below. If any director is unable to stand for re-election after
distribution of this proxy statement, the board may reduce its size or designate
a substitute. If the Board designates a substitute, proxies voting on the
original director candidate will be cast for the substituted candidate.
The board recommends a vote FOR each nominee. The 14 nominees who receive the
highest number of affirmative votes will be elected as directors.
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WARREN V. MUSSER Director since 1953
Age 72
Mr. Musser has served as chairman and chief executive officer since 1953.
Mr. Musser is chairman of the board of Cambridge Technology Partners
(Massachusetts), Inc. and CompuCom Systems, Inc. He is also a director of
DocuCorp International, Inc. and Sanchez Computer Associates, Inc. and a trustee
of Brandywine Realty Trust. Mr. Musser serves on a variety of civic, educational
and charitable boards of directors, and serves as vice president/development,
Cradle of Liberty Council, Boy Scouts of America, vice chairman of The Eastern
Technology Council, and chairman of the Pennsylvania Partnership on Economic
Education.
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ROBERT E. KEITH, JR. Director since 1996
Age 57
Mr. Keith was elected vice chairman of the board in February 1999. Mr. Keith has
been a managing director of TL Ventures and its predecessor funds since 1988. He
has served as president, since 1991, and as chief executive officer, since
February 1996, of Technology Leaders Management, Inc., a venture capital
management company that is a subsidiary of Safeguard. Mr. Keith is a director of
Cambridge Technology Partners (Massachusetts), Inc. and SunSource, Inc.
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JUDITH AREEN Director since 1997
Age 54
Ms. Areen has been executive vice president for Law Center Affairs and dean of
the Law Center, Georgetown University, since 1989 and has been a professor of
law at Georgetown University since 1976. Ms. Areen is a director of MCI
WorldCom.
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VINCENT G. BELL, JR. Director since 1956
Age 73
Mr. Bell is president of Verus Corporation, a management investment firm he
formed in 1987. Before 1987, Mr. Bell was chairman of the board and chief
executive officer of Safeguard Business Systems, Inc., an information services
company.
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MICHAEL J. EMMI Director since 1998
Age 52
Mr. Emmi has been chairman of the board, president and chief executive officer
of Systems & Computer Technology Corporation, a provider of computer software
and services, since May 1985. Mr. Emmi is a director of CompuCom Systems, Inc.
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ROBERT A. FOX Director since 1981
Age 69
Mr. Fox has been president of R.A.F. Industries, Inc. and affiliates,
diversified manufacturing, distribution and service companies, since 1980.
Mr. Fox is a director of Prime Bancorp, Inc.
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DELBERT W. JOHNSON Director since 1992
Age 60
Mr. Johnson has been a vice president of Safeguard since 1980. Mr. Johnson
served as the president and chief executive officer of Pioneer Metal Finishing,
a division of Safeguard, from 1978 until October 1994, and as chairman of the
board and chief executive officer until October 1997. Mr. Johnson is a director
of CompuCom Systems, Inc., Ault, Inc., US Bancorp, and Tennant Company, Inc. Mr.
Johnson served as the chairman of the Ninth District Federal Reserve Bank from
1991 to 1993 and was the 1993 chairman of the Federal Reserve Board Conference
of Chairmen. Mr. Johnson is the brother of Jerry Johnson, a Safeguard executive
officer.
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JACK L. MESSMAN Director since 1994
Age 59
Mr. Messman has been chairman and chief executive officer of Union Pacific
Resources Group Inc., an energy company, since April 1991. From May 1988 to
April 1991, Mr. Messman was chairman and chief executive officer of USPCI, Inc.,
a provider of hazardous waste services and a subsidiary of Union Pacific
Corporation. Mr. Messman is a director of Cambridge Technology Partners
(Massachusetts), Inc., Metallurg, Inc., Novell, Inc., Tandy Corp., Union Pacific
Resources Group Inc., and USDATA Corporation.
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RUSSELL E. PALMER Director since 1989
Age 64
Mr. Palmer is chairman and chief executive officer of The Palmer Group, a
corporate investment firm he organized in 1990. From 1983 to June 1990, Mr.
Palmer was dean of The Wharton School of the University of Pennsylvania. From
1972 to 1983, he was managing partner and chief executive officer of Touche Ross
& Co. (now Deloitte & Touche). Mr. Palmer is a director of Allied-Signal, Inc.,
Bankers Trust New York Corporation, Federal Home Loan Mortgage Corporation, GTE
Corporation, and The May Department Stores Company.
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JOHN W. PODUSKA, SR., Ph.D. Director since 1987
Age 61
Dr. Poduska has served as of chairman of Advanced Visual Systems, Inc., a
provider of visualization software, since 1992. Before 1992, Dr. Poduska was
president and chief executive Officer of Stardent Computer, Inc, a computer
manufacturer, from December 1989 to December 1991. From December 1985 to
December 1989, Dr. Poduska was founder, chairman and chief executive officer of
Stellar Computer, Inc., a computer manufacturer and the predecessor of Stardent
Computer, Inc. Dr. Poduska is a director of Cambridge Technology Partners
(Massachusetts), Inc. and Union Pacific Resources Group, Inc.
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HEINZ C. SCHIMMELBUSCH, Ph.D. Director since 1989
Age 54
Dr. Schimmelbusch holds the following positions: managing director of Safeguard
International Fund, L.P., a private equity fund; chairman of Allied Resource
Corporation, a company pursuing technology-oriented, early-stage investment
opportunities in process industries; chairman of Metallurg, Inc., a global
producer and supplier of high quality metal alloys and specialty metals;
chairman of Wangner Systems Corporation, a supplier of engineered systems to the
paper industry; and president of Safeguard International Group, Inc., a
subsidiary of Safeguard. From 1973 to 1993, Dr. Schimmelbusch was associated
with Metallgesellschaft AG, a raw materials company of which he served as
chairman of the executive board from March 1989 to December 1993.
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HUBERT J.P. SCHOEMAKER, Ph.D. Director since 1993
Age 49
Dr. Schoemaker is chairman of the board and co-founder of Centocor, Inc., a
biotechnology company.
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HARRY WALLAESA Director since 1999
Age 48
Mr. Wallaesa became president and chief operating officer of Safeguard in March
1999. Before joining Safeguard, Mr. Wallaesa served as president and chief
executive officer of aligne incorporated, a strategic technology management
consulting firm which he co-founded in 1996. From 1985 through 1995, Mr.
Wallaesa was the chief information officer and vice president of management
information systems at Campbell Soup Company, a global manufacturer and marketer
of high quality, branded convenience food products. Mr. Wallaesa is a director
of CompuCom Systems, Inc. and is chairman of the board of aligne incorporated
and MegaSystems, Inc.
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CARL J. YANKOWSKI Director nominee
Age 50
Mr. Yankowski is president and chief executive officer of the Reebok Division
and executive vice president of Reebok International Ltd., a leading worldwide
designer, marketer and distributor of sports, fitness and casual footwear,
apparel and equipment. Principal operating units include the Reebok Division,
Greg Norman, Ralph Lauren Polo Footwear and the Rockport Company, Inc. Before
joining Reebok in September 1998, Mr. Yankowski was president and chief
operating officer, from December 1993 to January 1998, of Sony Electronics,
Inc., a diversified company that markets Sony's electronic products for
consumer, broadcast and industrial use in the United States. From December 1988
to November 1993, Mr. Yankowski held various senior management positions with
Polaroid Corporation, his last position being that of chairman of the
Asia-Pacific region. Mr. Yankowski is a director of Avidyne Corporation.
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BOARD OF DIRECTORS -- ADDITIONAL INFORMATION
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Board Meetings: The board of directors held five meetings in 1998. Each director
attended at least 75% of the total number of meetings of the board and
committees of which he or she was a member, with the exception of Dr.
Schoemaker, who attended 60% of the meetings.
Board Compensation: Directors employed by Safeguard or a wholly owned subsidiary
receive no additional compensation, other than their normal salary, for serving
on the board or its committees. Non-employee directors receive the following
compensation:
o $17,500 annually,
o $1,000 annually for chairing a committee,
o $1,000 for each board meeting attended,
o $500 for each telephonic special meeting attended,
o $500 for each committee meeting attended, and
o reimbursement of out-of-pocket expenses.
Additionally, each director who is not an executive officer of Safeguard
currently receives a stock option to purchase 30,000 shares of Safeguard common
stock upon initial election to the board. Each of these directors also receives
subsequent annual stock option grants which are discretionary and may vary as to
the number of shares.
Directors' options generally have an eight-year term and vest 25% each year
starting on the first anniversary of the grant date. The exercise price is equal
to the fair market value of a share of our common stock on the grant date.
In September 1998, Mr. Emmi received an initial grant to purchase 30,000 shares
at an exercise price of $28.25 per share. In December 1998, each director, other
than Mr. Musser, received an annual service grant to purchase 2,500 shares of
Safeguard common stock at an exercise price of $26.50 per share.
Deferred Charitable Donation Program: Safeguard established this program to
promote charitable giving. It is available to all directors and certain officers
and is funded by life insurance policies on each participant. Following the
death of a director, we will donate up to $1 million to one or more designated
charities in the Southeastern Pennsylvania area. Directors derive no financial
benefit from this program since all charitable deductions accrue solely to
Safeguard. The program results in nominal cost to us over time.
Deferred Compensation: Before 1989, we offered certain directors and officers a
deferred compensation plan. All contributions to the plan were completed by the
end of 1988. Upon retirement (or an earlier date in certain cases) or upon
termination of service as a director, each participant is entitled to receive,
as a level payment over 15 years or as a lump sum, an amount equal to the total
credits to his account plus an investment growth factor. Mr. Bell began
receiving a quarterly payment in February 1992 of $3,100, which was reduced to
$3,000 in February 1994. Safeguard is the beneficiary of the life insurance
contracts we purchased to cover our obligations under the plan. We expect to
recover an amount equal to all benefit payments under the plan, the premium
payments on the insurance contracts, and a portion of the interest earned on the
use of the premium payments.
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BOARD COMMITTEE MEMBERSHIP ROSTER
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Audit Compensation Executive Nominating
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Meetings held in 1998 4 1 0 0
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Warren V. Musser (check) (check)
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Judith Areen (check)
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Vincent G. Bell, Jr. (check) (check) (check)
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Robert A. Fox (check)* (check)*
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Jack L. Messman (check)
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Russell E. Palmer (check)* (check) (check)
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John W. Poduska, Sr. (check)
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Heinz C. Schimmelbusch (check)
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Hubert J.P. Schoemaker (check)*
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* Chairperson
Audit Committee:
o recommends the hiring and retention of our independent certified public
accountants
o discusses the scope and results of our audit with the independent certified
public accountants
o reviews with management and the independent certified public accountants
the interim and year-end operating results
o considers the adequacy of our internal accounting controls and audit
procedures
o reviews the non-audit services to be performed by the independent certified
public accountants
Compensation Committee:
o determines compensation levels for our officers, including incentive
compensation
o administers our stock option plans and long-term incentive plan
Executive Committee:
o acts upon all matters with respect to the management of our business, with
specified limits relating to investments
o authorizes and approves investments, other than investments made in the
normal course of business, within the following limits:
o $5 million per transaction for a particular company, entity or person
o $10 million in the aggregate between board meetings
Nominating Committee:
o recommends nominees for election to our board of directors
o considers qualified candidates recommended by stockholders
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ADOPTION OF 1999 EQUITY COMPENSATION PLAN
Item 2 on Proxy Card
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Background
Our current stock option plan, which was initially adopted in 1990, will expire
in 2000. Since less than 80,000 shares remained available for issuance under
that plan, in February 1999, our board adopted, subject to stockholder approval,
the 1999 Equity Compensation Plan. The 1990 Plan will terminate following
stockholder approval of the new plan, and any shares that remain available for
grant under the 1990 Plan will no longer be available for future issuance.
The board recommends a vote FOR approval of the 1999 Plan. Approval of this plan
requires a majority of the votes cast at a meeting at which a quorum
representing a majority of all outstanding voting stock is presenting, either in
person or by proxy, and voting on the 1999 Plan.
Purpose of the 1999 Plan
The 1999 Plan will provide participants with an opportunity to receive grants of
stock options, stock appreciation rights, restricted stock and performance
units. We have historically granted incentive stock options and non-qualified
stock options with an exercise price equal to the fair market value on the grant
date. We will most likely continue to do so in the future. However, to remain
competitive and to be able to continue attracting outstanding employees, we
believe that it is important to maintain flexibility under our incentive
compensation plans.
We believe the 1999 Plan will encourage the participants to contribute to our
growth, thus benefiting our stockholders, and will align the economic interests
of the participants with those of our stockholders.
The 1999 Plan is not qualified under section 401(a) of the Internal Revenue Code
and is not subject to the provisions of the Employee Retirement Income Security
Act.
Shares Subject to the 1999 Plan
The 1999 Plan authorizes the issuance of up to 3,000,000 shares of Safeguard
common stock, subject to adjustment as discussed below. The maximum number of
shares that may be granted to any individual during any calendar year is
500,000. If options or stock appreciation rights granted under the plan
terminate, expire or are canceled, forfeited, exchanged or surrendered without
being exercised, or if a restricted stock award or performance unit is
forfeited, those shares will again be available for purposes of the 1999 Plan.
No grants have been made under the 1999 Plan, and there are no current plans to
authorize any specific grants under the plan. The closing price of a share of
Safeguard common stock on March 25, 1999, was $66.5625 per share.
Administration of the 1999 Plan
The 1999 Plan is administered by the compensation committee, which is currently
composed of Messrs. Vincent G. Bell, Jr., Robert A. Fox, and Russell E. Palmer.
The committee currently satisfies the requirement of section 162(m) of the Code
that grants made under the 1999 Plan be approved by a committee appointed by the
board consisting of not less than two persons who are "outside directors."
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The committee has the authority to administer and interpret the 1999 Plan.
Specifically, the committee is authorized to
o determine the individuals to whom grants will be made,
o determine the type, size and terms of the grants,
o determine the time when the grants will be made and the duration of any
applicable exercise or restriction period, including the criteria for
exercisability and the acceleration of exercisability,
o make factual determinations and adopt or amend appropriate rules,
regulations, agreements, and instruments for implementing the 1999 Plan,
and
o deal with any other matters arising under the plan.
Eligibility for Participation and Grants
Those eligible to receive grants are employees (including officers or members of
the board), individuals to whom we have offered employment, non-employee
directors and certain advisors of Safeguard or any subsidiary. There are
approximately 74 employees, 11 directors, and no advisors currently eligible to
receive grants.
Grants may consist of incentive stock options, non-qualified stock options,
restricted stock awards, stock appreciation rights, or performance units. All
grants are subject to the terms and conditions of the 1999 Plan.
Grants will continue to vest and remain exercisable as long as a participant
remains in our service and for a period of time after termination. In
determining whether a participant will be considered to have terminated service
for purposes of exercising options and stock appreciation rights and satisfying
conditions with respect to restricted stock and performance units, a participant
will not be considered to have terminated service until the participant ceases
to serve as an employee, advisor and member of the board. The committee may
waive or modify these termination provisions.
Stock Options
Grant of Stock Options. The committee may grant options qualifying as incentive
stock options to employees. The committee may grant non-qualified stock options
to any participant. Grants to employees may be made in any combination of
incentive stock options and non-qualified stock options.
Option Price. The option exercise price is determined by the committee at the
time of grant. To qualify as an incentive stock option, the exercise price may
not be less than the fair market value of the common stock at the time of grant.
Also, the value (determined as of the grant date) of any incentive stock options
held by a participant that become exercisable for the first time during any
calendar year cannot exceed $100,000. If a grantee owns stock having more than
10% of the voting power of Safeguard, the exercise price of an incentive stock
option may not be less than 110% of the fair market value of the common stock on
the date of grant.
Term and Exercisability of Stock Options. The committee determines the term of
stock options granted under the 1999 Plan, although the term may not exceed ten
years. If a grantee owns stock having more than 10% of the voting power of
Safeguard, the term of an incentive stock option may not exceed five years. The
committee determines how stock options will become exercisable and may
accelerate vesting at any time for any reason.
Manner of Exercise of Stock Options. To exercise a stock option, a grantee must
deliver a written exercise notice specifying the number of shares to be
purchased together with payment of the option exercise price. The exercise price
may be paid in any of the following ways:
o in cash,
o by delivering shares of Safeguard common stock already owned by the
participant having a fair market value equal to the exercise price,
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<PAGE>
o in a combination of cash and shares, or
o any other method of payment the committee may approve, including a
"cashless exercise" of a stock option effected by delivering a notice of
exercise to Safeguard and a securities broker with instructions to the
broker to deliver to Safeguard out of the sale proceeds the amount
necessary to pay the exercise price.
For a non-qualified stock option, we are also required to withhold applicable
taxes. If approved by the committee, the income tax withholding obligation may
be satisfied by withholding shares of an equivalent market value.
Shares of common stock tendered in payment of the exercise price must have been
held by the participant long enough to avoid adverse accounting consequences to
Safeguard.
Termination of Stock Options as a Result of Termination of Employment,
Disability or Death. Generally, vested stock options will remain exercisable for
a period of time following termination of service as follows:
o one year following termination of service if an individual dies or is
disabled or
o 90 days following termination of service for any other reason.
The committee, either at or after grant, may provide for different termination
provisions. Options which are not exercisable at the termination of service are
terminated as of that date.
If service is terminated for cause, the committee may terminate all stock
options held by a participant at the date of termination. The committee also
may, upon refund of the exercise price, require the participant to forfeit all
shares underlying any exercised portion of an option for which Safeguard has not
yet delivered the share certificates.
Transferability of Stock Options. Generally, only a participant may exercise
rights under a stock option during his or her lifetime, and those rights may not
be transferred except by will or by the laws of descent and distribution. When a
participant dies, the personal representative or other person entitled to
succeed to his or her rights may exercise those rights upon furnishing
satisfactory proof of that person's right to receive the stock option. The
committee may nevertheless choose to provide with respect to non-qualified stock
options that a participant may transfer those options to family members or other
persons or entities.
Restricted Stock Grants
The committee may provide a participant with an opportunity to acquire shares of
our common stock contingent upon his or her continued service or the
satisfaction of other criteria. Restricted stock differs from a stock option in
that a participant must make an immediate decision whether to make an investment
in the stock. The committee determines the amount to be paid for the stock or
may decide to grant the stock for no consideration. The committee may specify
that the restrictions will lapse over a period of time or according to any other
factors or criteria. If a participant's service terminates during the period of
any restrictions, the restricted stock grant will terminate with respect to all
shares as to which the restrictions on transfer have not lapsed unless the
committee provides for an exception to this requirement. Until the restrictions
on transfer have lapsed, a participant may not in any way dispose of the shares
of common stock to which the restriction applies. All restrictions lapse upon
the expiration of the applicable restriction period. Unless the committee
determines otherwise, however, during the restriction period the participant has
the right to vote restricted shares and receive any dividends or other
distributions paid on them, subject to any restrictions specified by the
committee.
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<PAGE>
Stock Appreciation Rights
The committee may provide a participant with the right to receive a benefit
measured by the appreciation in a specified number of shares of our common stock
over a period of time. The amount of this benefit is equal to the difference
between the fair market value of the stock on the exercise date and the base
amount of the stock appreciation right (SAR). Generally, the base amount of a
SAR is equal to the per share exercise price of the related stock option or, if
there is no related option, the fair market value of a share of common stock on
the date the SAR is granted. The committee may pay this benefit in cash, in
stock, or any combination of the two.
The committee may grant a SAR either separately or in tandem with all or a
portion of a stock option. SARs may be granted when the stock option is granted
or later while it remains outstanding, although in the case of an incentive
stock option, SARs may be granted only at the time the option is granted. Tandem
SARs may not exceed the number of shares of common stock that the participant
may purchase upon the exercise of the related stock option during the period.
Upon the exercise of a stock option, the SARs relating to the common stock
covered by the stock option terminate. Upon the exercise of SARs, the related
stock option terminates to the extent of an equal number of shares of common
stock.
SARs are subject to the same termination provisions on death, disability or
termination of service as stock options. The committee may accelerate the
exercisability of any or all outstanding SARs.
Performance Units
The committee may grant performance units to a participant representing a right
to receive an amount based on the value of the performance unit if the
performance goals established by the committee are met. A performance unit may
be based on the fair market value of a share of common stock or on any other
measurement base that the committee deems appropriate. The committee will
determine the number of performance units to be granted, the requirements
applicable to the performance units, the period during which the performance
will be measured, the performance goals applicable to the performance units, and
any other conditions that the committee deems appropriate. At the end of each
performance period, the committee will determine to what extent the performance
goals and other conditions of the performance unit have been met and the amount,
if any, to be paid with respect to the performance units. Payments may be made
in cash, in common stock, or in a combination of the two, as determined by the
committee. Unless the committee provides for a complete or partial exception,
performance units are forfeited if the conditions of the grant are not met and
are subject to the same termination provisions on death, disability or
termination of service as stock options.
Qualified Performance-Based Compensation
The committee may designate performance units and restricted stock granted to an
employee as qualified performance-based compensation under section 162(m) of the
Code upon the establishment of appropriate performance goals and performance
periods as provided in section 162(m) of the Code. If restricted stock or
performance units measured with respect to the fair market value of Safeguard
common stock are granted, not more than 500,000 shares of the common stock may
be granted to an employee under the performance units or restricted stock for
any performance period. If performance units are measured with respect to other
criteria, the maximum amount that may be paid to an employee with respect to a
performance period is $1,000,000. The committee will certify and announce the
results for each performance
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<PAGE>
period to all participants immediately following the announcement of our
financial results for the performance period. To the extent the committee does
not certify that the performance goals have been met, the grants of restricted
stock or performance units for the performance period will be forfeited.
Termination of the 1999 Plan; Amendment of Options
The board may amend or terminate the 1999 Plan at any time. The 1999 Plan will
terminate, in any event, on February 10, 2009.
Grants made prior to termination will remain in effect after termination of the
1999 Plan unless the participant consents or unless the committee revokes or
amends a grant in accordance with the terms of the 1999 Plan. The termination of
the 1999 Plan will not impair the power and authority of the committee with
respect to outstanding grants.
Adjustment Provisions
The committee will adjust the number and exercise price of outstanding grants,
as well as the number and kind of shares available for grants and individual
limits for any single participant under the 1999 Plan, to appropriately reflect
any of the following events:
o a stock dividend, spinoff, recapitalization, stock split, or combination or
exchange of shares;
o a merger, reorganization or consolidation in which Safeguard is the
surviving corporation;
o a reclassification or change in par value;
o any other extraordinary or unusual event affecting the outstanding common
stock as a class without Safeguard's receipt of consideration; or
o a substantial reduction in the value of outstanding shares of common stock
as a result of a spinoff or Safeguard's payment of an extraordinary
dividend or distribution.
Reorganization; Change in Control
Upon a reorganization where Safeguard is not the surviving corporation, or
survives only as a subsidiary of another corporation, all outstanding stock
options and SARs that are not exercised will be assumed by the surviving
corporation or replaced with comparable options or rights.
Unless the committee determines otherwise, a change of control will not result
in the acceleration of vesting of outstanding stock options or SARs, the removal
of restrictions and conditions on outstanding restricted stock awards, or any
accelerated payments in connection with outstanding performance units.
However, the committee may elect to take the following actions:
o require that participants surrender their outstanding options and SARs in
exchange for a payment, in cash or common stock, in an amount equal to the
amount by which the then fair market value subject to the grants exceeds
the exercise price of the options or the base amount of the SARs or
o terminate any or all unexercised options or SARs after giving participants
an opportunity to exercise the options or SARs.
The committee does not have the right to take any actions that would make the
reorganization or change of control ineligible for pooling of interests
accounting treatment or desired tax treatment if the reorganization or change of
control would otherwise qualify for this treatment and we intend to use this
treatment with respect to the transaction.
Federal Income Tax Consequences
The current federal income tax treatment of grants under the 1999 Plan is
described
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<PAGE>
below. Local and state tax authorities also may tax incentive compensation
awarded under the 1999 Plan. Because of the complexities involved in the
application of tax laws to specific circumstances and the uncertainties as to
possible future changes in those laws, we urge participants to consult their own
tax advisors concerning the application of the general principles discussed
below to their own situations and the application of state and local tax laws.
Incentive Stock Options. A participant will not recognize taxable income for the
purpose of the regular income tax upon either the grant or exercise of an
incentive stock option. However, for purposes of the alternative minimum tax
imposed under the Code, in the year in which an incentive stock option is
exercised, the amount by which the fair market value of the shares acquired upon
exercise exceeds the exercise price will be treated as an item of adjustment.
If a participant disposes of the shares acquired under an incentive stock option
after at least two years following the date of grant and at least one year
following the date of exercise, the participant will recognize a long-term
capital gain or loss equal to the difference between the amount realized upon
the disposition and the exercise price. Safeguard will not be entitled to any
tax deduction by reason of the grant or exercise of the incentive stock option.
If a participant disposes of shares acquired upon exercise of an incentive stock
option before satisfying both holding period requirements (known as a
disqualifying disposition), the gain recognized on the disposition will be taxed
as ordinary income to the extent of the difference between the lesser of the
sale price or the fair market value of the shares on the date of exercise and
the exercise price. Safeguard will be entitled to a federal income tax deduction
in the same amount. The gain, if any, in excess of the amount recognized as
ordinary income on a disqualifying disposition will be long-term or short-term
capital gain, depending upon the length of time the participant held the shares
before the disposition.
If a participant tenders shares of common stock received upon the exercise of an
incentive stock option to pay the exercise price within either the two-year or
one-year holding periods described above, the disqualifying disposition of the
shares used to pay the exercise cost will result in income (or loss) to the
participant and, to the extent of a recognized gain, a tax deduction to
Safeguard. If, however, the holding period requirements are met and the number
of shares received on the exercise does not exceed the number of shares
surrendered, the participant will recognize no gain or loss with respect to the
surrendered shares and will have the same basis and holding period with respect
to the newly acquired shares as with respect to the surrendered shares. To the
extent that the number of shares received exceeds the number surrendered, the
participant's basis in the excess shares will equal the amount of cash paid by
the participant upon the original exercise of the stock option, and the
participant's holding period with respect to the excess shares will begin on the
date the shares are transferred to the participant. The tax treatment described
above for shares newly received upon exercise is not affected by using shares to
pay the exercise price.
Non-qualified Stock Options. There are no federal income tax consequences to a
participant or Safeguard upon the grant of a non-qualified stock option. Upon
the exercise of a non-qualified stock option, a participant will generally
recognize ordinary income in an amount equal to the excess of the fair market
value of the shares at the time of exercise over the exercise price, and
Safeguard will be entitled to a corresponding federal income tax deduction.
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<PAGE>
If a participant surrenders shares to pay the exercise price, and the number of
shares received on the exercise does not exceed the number of shares
surrendered, the participant will recognize no gain or loss on the surrendered
shares, and will have the same basis and holding period for the newly acquired
shares as for the surrendered shares. To the extent that the number of shares
received exceeds the number surrendered, the fair market value of the excess
shares on the date of exercise, reduced by any cash paid by the participant upon
exercise, will be includible in the gross income of the participant. The
participant's basis in the excess shares will equal the sum of the cash paid by
the participant upon the exercise of the stock option plus any amount included
in the participant's gross income as a result of the exercise of the stock
option.
The committee may permit a participant to elect to surrender or deliver shares
otherwise issuable upon exercise, or previously acquired shares, to satisfy the
federal income tax withholding, subject to the restrictions set forth in the
1999 Plan. Such an election will result in a disposition of the shares which are
surrendered or delivered, and an amount will be included in the participant's
income equal to the excess of the fair market value of the shares over the
participant's basis in the shares.
Upon the sale of the shares acquired by the exercise of a non-qualified stock
option, a participant will have a capital gain or loss (long-term or short-term
depending upon the length of time the shares were held) in an amount equal to
the difference between the amount realized upon the sale and the participant's
adjusted tax basis in the shares (the exercise price plus the amount of ordinary
income recognized by the participant at the time of exercise of the
non-qualified stock options).
Restricted Stock. A participant normally will not recognize taxable income upon
the award of a restricted stock grant, and Safeguard will not be entitled to a
deduction, until the stock is transferable by the participant or no longer
subject to a substantial risk of forfeiture for federal tax purposes, whichever
occurs earlier. When the common stock is either transferable or is no longer
subject to a substantial risk of forfeiture, the participant will recognize
ordinary compensation income in an amount equal to the fair market value of the
common stock at that time, less any consideration paid by the participant for
the shares, and Safeguard will be entitled to a federal income tax deduction in
the same amount. A participant may, however, elect to recognize ordinary
compensation income in the year the restricted stock grant is awarded in an
amount equal to the fair market value of the common stock at that time less any
consideration paid by the participant for the shares, determined without regard
to the restrictions. In such event, Safeguard generally will be entitled to a
corresponding federal income tax deduction in the same year. Any gain or loss
recognized by the participant upon a subsequent disposition of the shares will
be capital gain or loss. If, after making the election, any shares subject to a
restricted stock grant are forfeited, or if the market value declines during the
restriction period, the participant is not entitled to any tax deduction or tax
refund if the participant does not recover any consideration paid by the
participant for the restricted stock.
Stock Appreciation Rights. There are no federal income tax consequences to a
participant or to Safeguard upon the grant of a SAR. Upon the exercise of a SAR,
a participant will recognize ordinary compensation income in an amount equal to
the cash and the fair market value of the shares of common stock received upon
exercise. Safeguard generally will be entitled to a corresponding federal income
tax deduction at the time of exercise. Upon the sale of any shares acquired by
the exercise of a SAR, a participant will have a capital gain or loss (long-term
or short-term depending upon the length of time the
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<PAGE>
shares were held) in an amount equal to the difference between the amount
realized upon the sale and the participant's adjusted tax basis in the shares
(the amount of ordinary income recognized by the participant at the time of
exercise of the SAR).
Performance Units. A participant will not recognize any income upon the grant of
a performance unit. At the time the committee determines an amount, if any, to
be paid with respect to performance units, the participant will recognize
ordinary compensation income in an amount equal to the cash and the fair market
value of the shares of common stock authorized for payment by the committee.
Safeguard generally will be entitled to a corresponding federal income tax
deduction. Upon the sale of any shares acquired, a participant will have a
capital gain or loss (long-term or short-term depending upon the length of time
the shares were held) in an amount equal to the difference between the amount
realized upon the sale and the participant's adjusted tax basis in the shares
(the amount of ordinary income recognized by the participant upon payment of the
shares).
Tax Withholding. All grants under the 1999 Plan are subject to applicable tax
withholding requirements. We have the right to deduct from all grants paid in
cash, or from other wages paid to a participant, any taxes required by law to be
withheld with respect to the grant. If grants are paid in shares of common
stock, we may require a participant to pay the amount of any taxes that we are
required to withhold or may deduct the amount of withholding taxes from other
wages paid to the participant. If approved by the committee, the income tax
withholding obligation with respect to grants paid in common stock may be
satisfied by having shares withheld up to an amount that does not exceed the
participant's maximum marginal tax rate for federal (including FICA), state and
local tax liabilities. Our obligations under the 1999 Plan are conditional upon
the payment or arrangement for payment of any required withholding.
Section 162(m). Under section 162(m) of the Code, Safeguard may be precluded
from claiming a federal income tax deduction for total remuneration in excess of
$1,000,000 paid to the chief executive officer or to any of the other four most
highly compensated employees in any one year. Total remuneration may include
amounts received upon the exercise of stock options and SARs granted under the
1999 Plan, the value of shares subject to restricted stock grants when the
shares become nonforfeitable (or such other time when income is recognized) and
the amounts received pursuant to other grants under the 1999 Plan. An exception
does exist, however, for "performance-based compensation." Grants of stock
options and SARs generally will meet the requirements of "performance-based
compensation." Restricted stock grants generally will not qualify as, and
performance units may not qualify as, "performance-based compensation."
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ADOPTION OF AMENDMENTS TO THE
ARTICLES OF INCORPORATION
Item 3 on Proxy Card
- --------------------------------------------------------------------------------
Background and Proposed Amendment
Our board of directors has adopted, and is recommending to the stockholders for
their approval at the annual meeting, a resolution to amend Article 5th of our
Articles of Incorporation to increase the number of authorized shares of common
stock from 100,000,000 to 500,000,000 and to increase the number of authorized
shares of preferred stock from 55,423 to 1,000,000. The text of the board's
resolution is as follows:
RESOLVED, that Article 5th of the Company's Articles of Incorporation
be amended to read in its entirety as follows:
5th. The Corporation shall be authorized to issue 501,000,000 shares
of capital stock, which shall be divided into 500,000,000 shares of Common
Stock, with a par value of ten cents ($.10) per share (the "Common Stock"),
and 1,000,000 shares of Preferred Stock, with a par value of ten cents
($.10) per share (the "Preferred Stock").
The following is a statement of the voting rights, preferences,
limitations and special rights in respect of the authorized capital stock
of the Corporation.
I. PREFERRED STOCK
A. Description of Undesignated Preferred Stock
The Preferred Stock may be issued from time to time in one or more
classes or series. The Board of Directors of the Corporation shall have
authority to the fullest extent permitted under the Pennsylvania Business
Corporation Law to adopt by resolution from time to time one or more
Statements with Respect to Shares providing for the designation of one or
more classes or series of Preferred Stock and the voting rights,
preferences, limitations and special rights, if any, and to fix or alter
the number of shares comprising any such class or series, subject to any
requirements of the Pennsylvania Business Corporation Law and these
Articles of Incorporation, as amended from time to time.
The authority of the Board of Directors with respect to each such
class or series shall include, without limitation of the foregoing, the
right to determine and fix the following preferences and powers, which may
vary as between different classes or series of Preferred Stock:
(1) the distinctive designation of such class or series and the number
of shares to constitute such class or series;
(2) the rate at which dividends on the shares of such class or series
shall be declared and paid, or set aside for payment, whether dividends at
the rate so determined shall be cumulative or accruing, and whether the
shares of such class or series shall be entitled to any participating or
other dividends in addition to dividends at the rate so determined, and if
so, on what terms;
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(3) the right or obligation, if any, of the Corporation to redeem
shares of the particular class or series of Preferred Stock and, if
redeemable, the price, terms and manner of such redemption;
(4) the special and relative rights and preferences, if any, and the
amount or amounts per share which the shares of such class or series of
Preferred Stock shall be entitled to receive upon any voluntary or
involuntary liquidation, dissolution or winding up of the Corporation;
(5) the terms and conditions, if any, upon which shares of such class
or series shall be convertible into, or exchangeable for, shares of capital
stock of any other class or series, including the price or prices or the
rate or rates of conversion or exchange and the terms of adjustment, if
any;
(6) the obligation, if any, of the Corporation to retire, redeem or
purchase shares of such class or series pursuant to a sinking fund or fund
of a similar nature or otherwise, and the terms and conditions of such
obligation;
(7) voting rights, if any, including special voting rights with
respect to the election of directors and matters adversely affecting any
class or series of Preferred Stock;
(8) limitations, if any, on the issuance of additional shares of such
class or series or any shares of any other class or series of Preferred
Stock; and
(9) such other preferences, limitations, and special rights, if any,
thereof as the Board of Directors of the Corporation, by the vote of the
members of the Board of Directors then in office acting in accordance with
these Articles of Incorporation, as amended from time to time, or any
Preferred Stock, may deem advisable and which are not inconsistent with
law, the provisions of these Articles of Incorporation, as amended from
time to time, or the provisions of any such Statement with Respect to
Shares.
II. COMMON STOCK
A. Priority. All voting rights, preferences, limitations and special
rights, if any, of the Common Stock are expressly made subject to and
subordinate to those that may be fixed with respect to the Preferred Stock.
B. Voting Rights. Each holder of record of Common Stock shall be
entitled to one vote for each share of Common Stock standing in his name on
the books of the Corporation. Except as otherwise required by law, these
Articles of Incorporation, and any Statement with Respect to Shares with
respect to any Preferred Stock, the holders of Common Stock and Preferred
Stock shall vote together as a single class on all matters submitted to
stockholders for a vote.
C. Dividends. Subject to provisions of law, these Articles of
Incorporation, and any Statement with Respect to Shares with respect to any
Preferred Stock, the holders of Common Stock shall be entitled to receive
dividends out of funds legally available therefor at such times and in such
amounts as the Board of Directors may determine in their sole discretion.
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<PAGE>
D. Liquidation. Upon any liquidation, dissolution or winding up of the
Corporation, whether voluntary or involuntary, after the payment or
provision for payment of all debts and liabilities of the Corporation and
all preferential amounts to which the holders of the Preferred Stock are
entitled with respect to the distribution of assets in liquidation, the
holders of Common Stock shall be entitled to share ratably in the remaining
assets of the Corporation available for distribution, subject to any rights
of holders of Preferred Stock to participate with the holders of Common
Stock in any such distribution of remaining assets.
At the close of business on March 25, 1999, 32,799,342 shares of common stock
were issued, of which 649,940 shares of common stock were held in treasury,
5,015,803 shares of common stock were reserved for issuance pursuant to the
exercise of options granted or to be granted under our various stock option and
equity compensation plans, and 2,461,445 shares of common stock were reserved
for issuance upon the conversion of our 6% Convertible Subordinated Notes due
2006. No shares of preferred stock are issued, outstanding or reserved for
issuance.
The additional shares of common stock for which authorization is sought will be
identical to the shares of common stock now authorized. Holders of common stock
do not have preemptive rights to subscribe to additional securities that may be
issued by Safeguard.
The board of directors may issue the additional shares of preferred stock for
which authorization is sought in one or more classes or series. Prior to the
issuance of the shares, the board also may establish the number of preferred
shares in each class or series and the attributes of each class or series,
including dividend rates, liquidation preferences, conversion rights, voting
rights, redemption prices, and similar matters relating to preferences,
limitations or other special rights.
The board recommends a vote FOR approval of the amendments to the Articles of
Incorporation. Approval of this proposal requires the affirmative vote of a
majority of the votes cast by the holders of outstanding shares of common stock
entitled to vote on this matter. If approved by the stockholders, the Amendment
to the Articles of Incorporation will become effective upon filing Articles of
Amendment with the Secretary of State of the Commonwealth of Pennsylvania. We
presently intend to undertake that filing promptly after the annual meeting. If
the Amendment to our Articles is not approved, the Articles of Amendment will
not be filed, and the number of shares authorized for issuance will not exceed
100,000,000 shares of common stock and 55,423 shares of preferred stock.
Purpose and Effect of Amendment
The additional shares of common stock and preferred stock being authorized could
be issued publicly or privately for a variety of corporate purposes, including
in connection with financings, acquisitions, stock splits, stock dividends,
employment agreements, warrants, stock options, employee benefit plans, or for
purposes of augmenting the capital of Safeguard. We currently have no plans,
understandings or arrangements to issue any of the additional shares of common
stock or preferred stock authorized by the amendment or to effect any stock
split. However, because the need to issue shares can arise when it would be
inconvenient or impossible to hold a stockholders' meeting, our board believes
that it is prudent business planning to authorize the issuance of the additional
shares of common stock and preferred stock.
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<PAGE>
No further vote of the stockholders will be required prior to issuance of the
shares, except as otherwise required by applicable law or the rules of the New
York Stock Exchange. The NYSE rules require us to obtain stockholder approval in
the following instances:
1. the issuance of stock to officers and directors under certain types of
stock plans or arrangements,
2. certain stock issuances to related parties,
3. the issuance of new shares representing 20% or more of the outstanding or
voting shares of Safeguard, and
4. the issuance of stock which will result in a change of control.
The proposed amendment is not intended to have an anti-takeover effect. However,
the availability of additional shares of common stock and preferred stock could
make any attempt to gain control of Safeguard or our board of directors more
difficult, costly or time-consuming. Under certain circumstances, if the shares
were issued to a holder or holders who might oppose a takeover bid, the
additional shares could be used by our board to frustrate persons seeking to
takeover Safeguard.
The issuance of additional shares of common stock or preferred stock, whether or
not in connection with a contest for control, will, in most instances, dilute
the voting power of each stockholder, and may dilute earnings and book value on
a per share basis.
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<PAGE>
<TABLE>
<CAPTION>
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STOCK OWNERSHIP OF DIRECTORS AND OFFICERS
AS OF MARCH 25, 1999
- --------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------
Shares
Beneficially
Owned
Outstanding Options Assuming
Shares Exercisable Exercise Percent
Beneficially Within of of
Name Owned 60 Days Options Shares
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Warren V. Musser 3,053,028 0 3,053,028 9.5%
- --------------------------------------------------------------------------------------------
Robert E. Keith, Jr. 7,660 48,125 55,785 *
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Judith Areen 100 8,125 8,225 *
- --------------------------------------------------------------------------------------------
Vincent G. Bell, Jr. 476,568 6,125 482,693 1.5%
- --------------------------------------------------------------------------------------------
Donald R. Caldwell 75,698 0 75,698 *
- --------------------------------------------------------------------------------------------
Michael J. Emmi 1,000 0 1,000 *
- --------------------------------------------------------------------------------------------
Robert A. Fox 100,000 6,125 106,125 *
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Delbert W. Johnson 107,913 6,706 114,619 *
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Jack L. Messman 42,000 21,125 63,125 *
- --------------------------------------------------------------------------------------------
Russell E. Palmer 7,255 21,125 28,380 *
- --------------------------------------------------------------------------------------------
John W. Poduska, Sr. 174,000 6,125 180,125 *
- --------------------------------------------------------------------------------------------
Heinz C. Schimmelbusch 1,540 3,125 4,665 *
- --------------------------------------------------------------------------------------------
Hubert J.P. Schoemaker 63,250 1,875 65,125 *
- --------------------------------------------------------------------------------------------
Harry Wallaesa 183,966 0 183,966 *
- --------------------------------------------------------------------------------------------
Carl Yankowski 0 0 0
- --------------------------------------------------------------------------------------------
Jerry L. Johnson 38,054 73,424 111,478 *
- --------------------------------------------------------------------------------------------
Edward R. Anderson 1,200 0 1,200 *
- --------------------------------------------------------------------------------------------
Thomas C. Lynch 6,015 69,900 75,915 *
- --------------------------------------------------------------------------------------------
Executive officers and directors
as a group (22 persons)
4,586,398 497,405 5,083,803 15.6%
- --------------------------------------------------------------------------------------------
</TABLE>
* Less than 1% of Safeguard's outstanding shares of common stock
Each individual has the sole power to vote and to dispose of the shares (other
than shares held jointly with spouse) except as follows:
Warren V. Musser Includes 233,100 shares held by a charitable
foundation established by Mr. Musser and 115,500
shares held by two trusts of which Mr. Musser is a
co-trustee.
Vincent G. Bell, Jr. Includes 54,568 shares held by a charitable
foundation established by Mr. Bell.
Donald R. Caldwell Includes 300 shares held in a custodial account
for a minor child and 6,250 shares held in trust
for the benefit of his spouse, of which Mr.
Caldwell disclaims beneficial ownership.
Robert A. Fox Includes 30,000 shares held by a charitable
foundation established by Mr. Fox.
Delbert W. Johnson Includes 11,900 shares held by a charitable
remainder trust.
Robert E. Keith, Jr. Includes 300 shares held by his spouse. Mr. Keith
disclaims beneficial ownership of the shares held
by his spouse.
Russell E. Palmer Includes 3,000 shares held by his spouse. Mr.
Palmer disclaims beneficial ownership of the
shares held by his spouse.
Jerry L. Johnson Includes 20,000 shares held by two trusts of which
Mr. Johnson is co-trustee.
Thomas C. Lynch Includes 1,000 shares held by his spouse. Mr.
Lynch disclaims beneficial ownership of the shares
held by his spouse.
[LOGO] 22
<PAGE>
Shares of Subsidiary Corporations Owned by Safeguard Directors and Officers:
CompuCom Systems, Inc. and Tangram Enterprise Solutions, Inc. are majority owned
subsidiaries of Safeguard. As of March 25, 1999, executive officers and
directors of Safeguard beneficially owned the following percentage of shares of
common stock outstanding in each of these subsidiaries:
o CompuCom
Mr. Anderson, 2.6%
Mr. Lynch, 1.1%
Mr. Musser, 1.0%
all executive officers and directors of Safeguard as a group, other than
Messrs. Anderson, Lynch and Musser, less than 1%
o Tangram
all officers and directors of Safeguard as a group, less than 1%.
Section 16(a) Beneficial Ownership Reporting Compliance: The rules of the SEC
require that we disclose late filings of reports of stock ownership by our
directors and executive officers. To the best of our knowledge, the only late
filings during 1998 were a Form 5 filed late by each of Warren Musser and
Michael Miles and a Form 4 filed late by Delbert Johnson on two occasions.
- --------------------------------------------------------------------------------
STOCK PERFORMANCE GRAPHS
- --------------------------------------------------------------------------------
The following graph compares the cumulative total return on our common stock for
the period from December 31, 1993, through December 31, 1998, with the
cumulative total return on the Russell 2000 and the peer group index for the
same period.
[GRAPHIC]
In the printed version of the document, a line graph appears which depicts the
following plot points:
1993 1994 1995 1996 1997 1998
---- ---- ---- ---- ---- ----
Safeguard 100 144 619 794 784 686
Russell 2000 100 98 126 147 180 175
Peer Group 100 93 127 165 188 250
- ----------
1. The peer group consists of SIC Code 737--Computer Programming & Data
Processing Services and SIC Code 5045--Computer, Peripheral Equipment and
Software Wholesalers, with a 50% weighting for each SIC Code.
2. Assumes reinvestment of dividends. We have not distributed cash dividends
during this period. Assumes a value of zero for all rights issued in rights
offerings to our stockholders.
3. Assumes an investment of $100 on December 31, 1993.
[LOGO] 23
<PAGE>
The following graph compares the cumulative total return on our common stock
assuming an investment (as described below) in the stock offered in each of the
rights offerings to our stockholders, with the cumulative total return on the
Russell 2000 and the peer group index. Our primary method of providing
investment returns to our stockholders is through rights offerings and not
through dividends. This graph, based on the assumptions described below, should
provide a better indication of the cumulative total return to our stockholders
since it includes both the value of Safeguard's common stock and the value of
the various common stocks a stockholder could have obtained in the rights
offerings.
[GRAPHIC]
In the printed version of the document, a line graph appears which depicts the
following plot points:
1993 1994 1995 1996 1997 1998
---- ---- ---- ---- ---- ----
Safeguard 100 189 756 962 1175 1188
Russell 2000 100 113 157 208 323 337
Peer Group 100 108 159 232 329 466
- ----------
1. The peer group is the same as in the first graph.
2. The cumulative total return for Safeguard assumes a cash investment to
exercise all of the rights a holder of Safeguard common stock valued at
$100 on December 31, 1993, would have received in each rights offering made
to our stockholders since January 1, 1994.
3. Assumes additional investments in each comparison index are made at the end
of the month in which each rights offering became effective in an amount
equal to the amount of the assumed cash investment in the Safeguard index.
4. Assumes an initial investment of $100 on December 31, 1993, and additional
investments totaling $137.22 as follows: $13.89 in June 1994, $10.42 in
June 1995, $10.42 in April 1996, $13.75 in November 1996, $13.75 in
February 1997, $25.00 in July 1997, $25.00 in October 1997 and $25.00 in
February 1998.
5. Although we believe the assumptions made in calculating the values of the
chart are reasonable, other assumptions could be used that would result in
different cumulative total returns.
[LOGO] 24
<PAGE>
- --------------------------------------------------------------------------------
REPORT OF THE COMPENSATION COMMITTEE
ON EXECUTIVE COMPENSATION
- --------------------------------------------------------------------------------
COMPENSATION PHILOSOPHY
Safeguard's mission is to achieve maximum returns for our stockholders by
o providing active, strategic management, operating guidance, and innovative
financing to our partnership companies and venture funds,
o enabling our stockholders to participate directly in our partnership
companies via rights offering, and
o proactively working with our public partnership companies to continue to
increase the value of their shares.
Our philosophy is to align the compensation of senior management and other
employees with our mission and the long-term interests of our stockholders. This
philosophy also helps us to
o attract and retain outstanding employees who can thrive in a competitive
environment of continuous change,
o promote among our employees the economic benefits of stock ownership in
Safeguard and our partnership companies, and
o motivate and reward employees who, by their hard work, loyalty and
exceptional service, make contributions of special importance to the
success of our business.
COMPENSATION STRUCTURE
The compensation of our executives consists of
o base pay,
o annual cash incentives,
o stock options, and
o awards under our long-term incentive plan.
Two of the individuals named in the compensation tables, Edward R. Anderson and
Thomas C. Lynch, are executive officers of CompuCom Systems, a publicly traded
company that is a majority owned subsidiary of Safeguard and our largest
partnership company. Mr. Anderson does not participate in any of Safeguard's
compensation plans, and the committee does not review his compensation
arrangements. Therefore, this report does not cover Mr. Anderson's compensation.
Since Mr. Lynch was employed by Safeguard until October 1998, the committee did
review his 1998 compensation arrangements. However, future decisions regarding
Mr. Lynch's compensation will not be reviewed by the committee.
In 1998, Safeguard engaged an independent compensation consultant to help us
evaluate our executive compensation practices. As a result of this evaluation,
we adjusted target percentages for 1998 annual cash incentives to more
competitive levels.
Base Pay
Base pay is established initially on the basis of subjective factors, including
experience, individual achievements and the level of responsibility assumed at
Safeguard. Salary increases for 1998 were based on the following:
o increased levels of individual responsibility,
o the maintenance of an appropriate scale among executives based on relative
positions and responsibilities,
o competitiveness with pay levels with the largest companies in the
Philadelphia area, and
o general inflation levels.
[LOGO] 25
<PAGE>
Mr. Musser's 1998 base pay. Mr. Musser's base salary for 1998 was fixed in
December 1997 and represented a 5.2% increase from his prior base salary. The
increase was based in part on a review of CEO compensation among the largest
companies in the Philadelphia metropolitan area to keep Mr. Musser in the middle
one-third of that group.
Other highly compensated executives' 1998 base pay. Base pay was determined by
considering the factors discussed above and individual performance.
Annual Cash Incentives
Annual cash incentives are intended to motivate executives to achieve and exceed
annual corporate performance targets and strategic objectives. Our primary
objectives are to create or increase the value of our public and private
partnership companies, capitalize on the value derived from our relationship
with our associated venture capital funds, and complete new investments that
will continue to build our pipeline of potential rights offering candidates. We
measure our success by the market price of our stock, the operating performance
and market value of our public partnership companies, the operating performance
of our private partnership companies, and the successful completion of rights
offerings. Specific annual financial and strategic objectives may include
o adding a targeted number of new partnership companies,
o achieving pre-tax operating earnings targets,
o strengthening a partnership company's management/marketing team,
o building strategic alliances,
o helping our partnership companies grow through acquisitions,
o identifying and exploiting markets,
o increasing existing market share and penetration, and
o obtaining additional financing.
At the beginning of each year, the committee sets target levels of executive
cash incentives based on a percentage of base salary and the executive's ability
to impact Safeguard's performance. Following our recent compensation evaluation,
we adjusted the 1998 target percentages of annual cash incentives to more
competitive levels.
At the end of each year, the committee reviews the level of achievement of the
financial and strategic objectives contained in Safeguard's plan and the plans
of our partnership companies (including the publicly held partnership companies)
and individual performance. Cash incentives are paid based on a percentage of
target amounts and may exceed target amounts when, in the judgment of the
committee, performance levels are deemed to be superior.
Mr. Musser's 1998 cash incentive. Mr. Musser was awarded a cash incentive for
1998 of $305,000, or 100% of his target incentive. This decision was based on
Safeguard's achieving many of its strategic objectives, including:
o the successful completion of the DocuCorp International rights offering,
o positioning several companies as future rights offering candidates,
o completing seven new partnership company investments,
o assisting several partnership companies with mergers and acquisitions,
o completing fund raising for PA Early Stage Partners, and
o assisting Safeguard International Fund with its fund raising.
Other highly compensated executives' 1998 cash incentives. The committee
approved cash incentives for 1998 equal to 100% of the target amounts. The
committee considered the same factors they did in determining Mr. Musser's 1998
cash incentive as well as, to a lesser extent, each executive's individual
performance for the year.
[LOGO] 26
<PAGE>
Stock Options
Stock options align the interests of executives and employees with the long-term
interests of our stockholders and motivate executives and employees to remain in
our employ. The committee awards stock options based on a number of factors,
including
o the achievement of financial and strategic objectives,
o an individual's contributions in providing strategic leadership and
oversight for Safeguard and our partnership companies, and
o the amount and term of options already held by each individual.
1998 Stock Option Awards. The committee granted stock options during 1998 to
certain new employees and at year end to all executives and employees. The
number of options granted was based on each person's responsibilities.
Mr. Musser does not participate in stock option awards.
Long-Term Incentive Plan
Our long-term incentive plan supports our strategy of completing rights
offerings to our stockholders since the plan permits participants to share
directly in the growth of our partnership companies. This growth benefits our
stockholders in two ways--indirectly, by increasing the value of Safeguard's
holdings in the partnership companies, and directly, by increasing the value of
the stock previously acquired by our stockholders through rights offerings.
Each year, Safeguard has allocated up to 10% of each investment made during the
year for the benefit of the participants in the long-term incentive plan.
Reflecting the growth in senior management and professional staff required to
support our increasing number of partnership companies, this allocation was
increased to 12-1/2% for 1999. The plan permits the committee to award grants in
the form of interests in limited partnerships established by Safeguard to hold
the investments made by Safeguard in a given year, restricted stock in a
partnership company, or share units which entitle a participant to share in the
appreciation of the value of the stock of a partnership company above
established threshold levels. We intend primarily to grant limited partnership
interests to plan participants to more closely align the participants' interests
with Safeguard's interests.
All grants are subject to vesting over a period of years and the attainment of
specified threshold levels. Partnership interests are generally paid out in
stock of the partnership company after a fixed period of years. The committee
can accelerate vesting and payout upon the attainment of the threshold value.
Restricted stock awards are subject to certain restrictions and are held in
escrow until the attainment of the established threshold levels. Share units are
payable in cash or in stock of the partnership company after a fixed period of
years, subject to acceleration by the committee if the threshold levels are
achieved.
The committee believes that this policy of aligning the interests of the
participants with the long-term interests of our stockholders has been
successful, as evidenced by the cumulative total return on Safeguard's common
stock, assuming participation in rights offerings, as shown in the second stock
performance graph that appears on page 24.
1998 Long-Term Incentive Grants. In 1998, the committee approved the allocation
of partnership interests to executives and key employees in two limited
partnerships that were established to hold all initial or follow-on investments
made by Safeguard during 1998. These limited partnership interests provided the
participants, as a group, with the opportunity to receive distributions of up to
a total of 10% of the shares of stock held by each limited partnership if the
value of the
[LOGO] 27
<PAGE>
shares exceeds the established thresholds. Distributions generally will be made
in five years, unless accelerated by the committee. The partnership interests
were allocated to the participants based on their positions at Safeguard. Mr.
Musser does not participate in the long-term incentive plan.
IRS Limits on Deductibility of Compensation.
Section 162(m) of the Internal Revenue Code provides that publicly held
companies may not deduct in any taxable year compensation paid to any of the
individuals named in the Summary Compensation Table in excess of one million
dollars that is not "performance-based." To qualify as "performance-based"
compensation, the committee's discretion to grant incentive awards must be
strictly limited. Grants of stock options and SARs under our plans generally
will meet the requirements of "performance-based compensation." Restricted stock
grants generally will not qualify as, and performance units may not qualify as,
"performance-based compensation." The committee believes that the benefit of
retaining the ability to exercise discretion under Safeguard's incentive
compensation plans outweighs the limited risk of loss of tax deductions under
section 162(m). Therefore, the committee does not currently plan to take any
action to qualify any of the incentive compensation plans under section 162(m).
Submitted by the Compensation Committee:
Robert A. Fox
Vincent G. Bell, Jr.
Russell E. Palmer
[LOGO] 28
<PAGE>
- --------------------------------------------------------------------------------
EXECUTIVE COMPENSATION & OTHER ARRANGEMENTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1998 Annual Compensation for the Top Five Officers
- ------------------------------------------------------------------------------------------------------------------------------
Long Term Compensation
---------------------------------------
Annual Compensation Awards Payouts
------------------------------------------- ----------------------------- ---------
Other Securities All Other
Annual Restricted Underlying Long Term Compen-
Compen- Stock Options/ Incentive sation
Salary Bonus sation Award(s) SARS Payouts ($)(6)
Name and Position Year ($)(1) ($) ($)(2) ($)(3) (#)(4) ($)(5)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Warren V. Musser, 1998 $305,000 $305,000 $60,193 -- -- -- $12,000
Chairman of the 1997 290,000 290,000 63,004 -- -- -- 12,000
Board and Chief 1996 275,000 137,500 -- -- -- -- 11,250
Executive Officer(7)
- ------------------------------------------------------------------------------------------------------------------------------
Donald R. Caldwell, 1998 $265,000 $238,500 -- 0 0 $51,443 $16,149
Former President 1997 252,000 226,800 -- 0 30,000 -- 16,149
and Chief Operating 1996 240,000 117,998 -- 413,739 20,000 -- 15,398
Officer(8)
- ------------------------------------------------------------------------------------------------------------------------------
Jerry L. Johnson, 1998 $240,000 $182,000 -- 0 20,000 $38,258 $19,895
Senior Vice President, 1997 210,000 169,760 -- 0 30,000 -- 19,620
Operations 1996 200,000 154,039 46,110 379,079 -- -- 15,582
- ------------------------------------------------------------------------------------------------------------------------------
Edward R. Anderson, 1998 $360,000 $175,000 -- -- 0 -- $16,409
President and Chief 1997 360,000 530,122 -- -- 300,000(9) -- 11,875
Executive Officer of 1996 310,000 360,907 -- -- -- -- 2,673
CompuCom Systems, Inc.
- ------------------------------------------------------------------------------------------------------------------------------
Thomas C. Lynch, 1998 $242,385 $241,300 -- -- 500,000(9) $38,258 $16,584
Executive Vice 1997 210,000 169,760 -- 0 20,000 -- 24,484
President and Chief
Operating Officer of
CompuCom Systems,
Inc.(10)
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
[LOGO] 29
<PAGE>
Notes to Annual Compensation Table:
(1) Includes compensation that has been deferred by the top five officers under
voluntary savings plans.
(2) For Mr. Musser, this amount includes $46,171 for personal use of
Safeguard's plane in 1998. Mr. Musser's use of the plane increased starting
in 1997 following a determination by the board of directors requiring him
to travel on the company plane instead of commercial aircraft whenever
possible for safety reasons.
(3) Restricted stock will receive the same dividends paid to all stockholders.
At December 31, 1998, each individual held the following shares of
restricted stock granted in prior years:
<TABLE>
<CAPTION>
Company Donald R. Caldwell Jerry L. Johnson Thomas C. Lynch
--------------------------------------------------------------------------------------
<S> <C> <C> <C>
Multigen-Paradigm, Inc. 34,137 0 0
Intellisource 28,600 0 0
Internet Capital Group 130,000 97,500 97,500
Diablo Research 18,676 14,008 14,008
Whisper Communications 9,338 7,004 7,004
12/31/98 value of shares $582,866 $349,372 $349,372
</TABLE>
In June 1998, we released the shares of restricted stock of DocuCorp
International, Inc. previously awarded to Messrs. Caldwell, Johnson and
Lynch upon the satisfaction of the conditions of the grant.
In 1997, we amended our long-term incentive plan. In lieu of restricted
stock and share unit grants, we began offering participants an opportunity
to purchase interests in limited partnerships established by Safeguard to
hold its investments during a given year. See the table entitled "Long-Term
Incentive Plan" for information relating to the limited partnership
interests acquired by each named officer.
(4) Except as otherwise indicated in individual footnotes, options in this
table are to acquire shares of Safeguard common stock.
(5) The 1998 payout represents the value of shares of DocuCorp International,
Inc. distributed to Messrs. Caldwell, Johnson and Lynch based on their
limited partnership interests in Safeguard 97 Capital L.P.
(6) For 1998, all other compensation includes the following amounts:
<TABLE>
<CAPTION>
Defined Contribution Company Match Life Insurance
Name Pension Plan Voluntary Savings Plan Premiums Paid
------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Warren V. Musser $7,200 $4,800 $ 0
Donald R. Caldwell $7,200 $4,800 $ 4,149
Jerry L. Johnson $7,200 $4,800 $ 7,895
Edward R. Anderson $ 0 $3,423 $12,986
Thomas C. Lynch $ 0 $4,100 $12,484
</TABLE>
(7) Mr. Musser does not participate in our stock option plans or long-term
incentive plan.
(8) Mr. Caldwell served as president and chief operating officer of Safeguard
through February 1999.
(9) Option granted by CompuCom Systems, Inc. to acquire shares of CompuCom
common stock.
(10) Mr. Lynch served as senior vice president of Safeguard before joining
CompuCom in October 1998. Amounts included in this table reflect payments
made by Safeguard until October 1998 and by CompuCom for the balance of the
year.
[LOGO] 30
<PAGE>
1998 Stock Option Grants
The following tables relate to options to acquire Safeguard common stock
unless otherwise noted.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
Potential Realizable Value
at Assumed Annual Rates
Individual Grants of Stock Price
Appreciation
for Option Term(1)
- ------------------------------------------------------------------------------------------------------------------
Number of % of Total
Securities Options/
Underlying SARS
Options/ Granted to Exercise or
SARs Employees in Base Price Expiration 5% 10%
Name Granted (#)(2) Fiscal Year ($/Sh)(3) Date ($) ($)
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Warren V. Musser 0 -- -- -- -- --
- ------------------------------------------------------------------------------------------------------------------
Donald R. Caldwell 0 -- -- -- -- --
- ------------------------------------------------------------------------------------------------------------------
Jerry L. Johnson 20,000 8.8% $26.50 12/17/06 $ 253,051 $ 606,102
- ------------------------------------------------------------------------------------------------------------------
Edward R. Anderson 0 -- -- -- -- --
- ------------------------------------------------------------------------------------------------------------------
Thomas C. Lynch 500,000(4) 14.7% $ 3.1875 10/22/08 $1,002,301 $2,540,027
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) These values assume that the shares appreciate at the compounded annual
rate shown from the grant date until the end of the option term. These
values are not estimates of future stock price growth of Safeguard or
CompuCom Systems, Inc. Executives will not benefit unless the common stock
price increases above the stock option exercise price.
(2) The Safeguard options vest 25% each year commencing on December 17, 1999,
and have an eight-year term. The option exercise price may be paid in cash,
by delivery of previously acquired shares, subject to certain conditions,
or same-day sales (that is, a cashless exercise through a broker). The
compensation committee may modify the terms of outstanding options,
including acceleration of the exercise date.
(3) All options have an exercise price equal to the fair market value of the
shares subject to each option on the grant date.
(4) CompuCom granted an option to Mr. Lynch to acquire shares of CompuCom
common stock. The percentage of options granted represents the percentage
granted to Mr. Lynch in relation the total options granted by CompuCom
during 1998. The option was exercisable on the grant date and has a
ten-year term. Mr. Lynch exercised this stock option in December 1998. If
his employment is terminated, the shares purchased by Mr. Lynch may be
repurchased by CompuCom at the exercise price. This repurchase right
terminates as to 25% of the shares on October 22, 1999, and an additional
25% each year thereafter.
[LOGO] 31
<PAGE>
1998 Stock Option Exercises and Year-End Stock Option Values
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
Number of Securities
Underlying Unexercised Value of Unexercised
Options/SARs In-The-Money Options/SARs
Shares at Fiscal Year-End(#) at Fiscal Year-End($)(1)
Acquired on Value
Name Exercise(#) Realized($) Exercisable Unexercisable Exercisable Unexercisable
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Warren V. Musser 0 -- 0 0 -- --
- -----------------------------------------------------------------------------------------------------------------
Donald R. Caldwell 151,060 $3,554,160 41,440 37,500 $680,692 $ 0
- -----------------------------------------------------------------------------------------------------------------
Jerry L. Johnson 14,076 $ 161,874 73,424 62,500 $403,785 $141,250
- -----------------------------------------------------------------------------------------------------------------
Edward R. Anderson 775,000 $ 427,814 60,000 240,000 $ 0 $ 0
CompuCom Options
- -----------------------------------------------------------------------------------------------------------------
Thomas C. Lynch
Safeguard Options 14,500 $ 279,379 69,900 35,000 $352,894 $108,750
CompuCom Options 500,000 $ 31,250 0 0 $ 0 $ 0
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Value is calculated using the difference between the option exercise price
and the year-end stock price, multiplied by the number of shares subject to
an option. The year-end stock prices used were $27.4375 per share of
Safeguard common stock and $3.50 per share of CompuCom common stock.
[LOGO] 32
<PAGE>
Long-Term Incentive Plan
- --------------------------------------------------------------------------------
Performance
or Other
Period
Until
Percentage Maturation
Name/Partnership Interest(1) or Payout
- --------------------------------------------------------------------------------
Warren V. Musser -- --
- --------------------------------------------------------------------------------
Donald R. Caldwell
Safeguard 97 Capital L.P. (2) 0.9750% 5 years
Safeguard 98 Capital L.P. 0.9550% 5 years
Safeguard XL Capital L.P.:
1997 investment pool (2) 0.9256% 5 years
1998 investment pool 0.9550% 5 years
Safeguard Partners Capital L.P.
1996-A investment pool (3) 1.0000% 10 years
1996-B investment pool (3) 0.9750% 10 years
1997 investment pool (3) 0.9750% 10 years
1998 investment pool 0.9550% 10 years
- --------------------------------------------------------------------------------
Jerry L. Johnson
Safeguard 97 Capital L.P. (2) 0.7250% 5 years
Safeguard 98 Capital L.P. 0.7050% 5 years
Safeguard XL Capital L.P.:
1997 investment pool (2) 0.6925% 5 years
1998 investment pool 0.7050% 5 years
Safeguard Partners Capital L.P.
1996-A investment pool (3) 0.7500% 10 years
1996-B investment pool (3) 0.7250% 10 years
1997 investment pool (3) 0.7250% 10 years
1998 investment pool 0.7050% 10 years
- --------------------------------------------------------------------------------
Edward R. Anderson -- --
- --------------------------------------------------------------------------------
Thomas C. Lynch
Safeguard 97 Capital L.P. (2) 0.7250% 5 years
Safeguard 98 Capital L.P. 0.7050% 5 years
Safeguard XL Capital L.P.:
1997 investment pool (2) 0.6925% 5 years
1998 investment pool 0.7050% 5 years
Safeguard Partners Capital L.P.
1996-A investment pool (3) 0.7500% 10 years
1996-B investment pool (3) 0.7250% 10 years
1997 investment pool (3) 0.7250% 10 years
1998 investment pool 0.7050% 10 years
- --------------------------------------------------------------------------------
Notes to Long-Term Incentive Plan Table:
(1) Beginning in 1997, we established one or more limited partnerships to hold
all investments approved and made by Safeguard during any given year. Under
our long-term incentive plan, participants may purchase interests in these
limited partnerships. For 1997 and 1998, we allocated up to a 10% interest
for purchase by the participants. Safeguard, as the general partner of each
partnership, retains a 90% interest in each partnership. Partnership
interests vest 25% each year, generally starting on July 1 in the year
following the investment. The compensation committee has the authority to
accelerate vesting. A partnership will generally distribute the securities
it holds to its partners after five to ten years, but may distribute
securities earlier if the company has completed an IPO or has been sold.
Safeguard must receive two times the cost of the equity securities of a
company and repayment of any loans to the company before the limited
partners receive any of the securities of the company. If that threshold is
met, the limited partners will receive distributions of approximately 10%
of the equity securities of the company. The percentages allocable to each
named executive officer in each partnership are included in the above
table.
[LOGO] 33
<PAGE>
(2) Although these interests were attributable to services rendered in 1997,
they have been included in the above table since the partnership interests
were purchased in 1998.
(3) Messrs. Caldwell, Johnson and Lynch each previously acquired share units
under our long-term incentive plan that entitled them to participate in a
percentage of distributions made by EnerTech Capital Partners in excess of
$6.0 million, SCP Private Equity Partners, L.P. in excess of $40.0 million,
and TL Ventures III in excess of $20.6 million. In January 1999, Messrs.
Caldwell, Johnson and Lynch exchanged these share units for an equal
percentage of partnership interests in the 1996-A and 1996-B investment
pools of Safeguard Partners Capital L.P. The interests in the 1997
Investment Pool, although allocated for services rendered in 1997, were
purchased in 1999 and therefore have been included in this table.
[LOGO] 34
<PAGE>
Employment Contracts; Severance and Change-in-Control Arrangements
Edward Anderson entered into an employment agreement with CompuCom Systems, Inc.
that provides for his employment as an executive officer through October 24,
1999, subject to annual renewals, at a minimum monthly salary of $30,000. The
agreement entitles Mr. Anderson to a bonus of up to 120% of his base salary. In
February 1999, CompuCom amended the agreement to delete payment of an additional
bonus of $175,000 to Mr. Anderson on May 15, 1999 and, if the agreement is
extended, on May 15, 2000. Instead, CompuCom agreed to pay $109,375 to Mr.
Anderson in May 1999 covering the period of May through December 1998 and
increased his salary, effective January 1999, by $175,000. CompuCom purchased a
renewable term life insurance policy in the amount of $1,000,000, payable to Mr.
Anderson's designated beneficiary, and a comprehensive long-term disability
insurance policy and provides Mr. Anderson with other standard benefits
available to senior management. If his employment is terminated without cause,
or if CompuCom demotes him or reduces his salary or benefits below the level
described in his agreement, Mr. Anderson will be entitled to payment of his
salary for the remaining term of the agreement. Mr. Anderson has agreed not to
compete with CompuCom for two years after his voluntary termination of
employment, and if his employment is terminated for any reason other than due
cause, for the same period of time for which he receives compensation. Within 10
days of a change in control, all unvested stock options held by Mr. Anderson to
purchase shares of CompuCom and ClientLink, Inc. will be vested. If he
voluntarily leaves within six months of a change in control, he will be entitled
to receive, in a lump sum payment, all payments due to him for the remainder of
the agreement.
Relationships and Related Transactions with Management and Others
In connection with restricted stock awards made under our long-term incentive
plan in February 1997, Safeguard loaned each recipient an amount equal to the
related income taxes. These are full recourse loans secured by a pledge of the
restricted shares. The notes bear interest at an annual rate of 5.81%. Payment
of the principal and accrued interest, originally due on February 12, 1999, was
extended until February 12, 2000. The following table shows the amounts
outstanding for each executive officer or director:
- ----------------------------------------------------------
Name At 1/1/98 At 2/28/99
- ----------------------------------------------------------
D. Caldwell $201,241 $202,998
- ----------------------------------------------------------
J. Johnson $166,167 $167,726
- ----------------------------------------------------------
T. Lynch $184,382 $185,992
- ----------------------------------------------------------
J. Ounsworth $150,933 $152,251
- ----------------------------------------------------------
G. Rieger $120,746 $121,800
- ----------------------------------------------------------
M. Miles $120,746 $121,800
- ----------------------------------------------------------
D. Johnson $ 60,375 $ 60,902
- ----------------------------------------------------------
In October 1998, Safeguard loaned Donald Caldwell the sum of $500,000. The loan
is evidenced by a full recourse one-year promissory note. Interest on the note
accrues at a rate equal to two percent above the lesser of Safeguard's effective
lending rate from, or the announced prime rate of, PNC Bank, N.A. In December
1998, Mr. Caldwell paid $100,000. The balance due of $418,451 was paid in March
1999 by delivering 10,000 shares of Safeguard common stock and a cash payment of
$47,826.
In 1994, Edward Anderson exercised an option to purchase 350,000 shares of
CompuCom common stock and delivered to CompuCom a full recourse promissory note
in the amount of $1,181,250 in payment of the exercise price. Interest on the
note accrues at the rate of 6% per annum and was initially payable on an annual
basis. The note was replaced with a new note in February 1997 that extended the
due date to February 1999. That note was amended in February 1999 to extend the
due date to
[LOGO] 35
<PAGE>
October 22, 2001, and to provide for payment of interest at maturity rather than
on an annual basis. The highest outstanding balance during 1998, and the balance
outstanding at February 28, 1999, was $900,000. The note is secured by a pledge
of 266,667 shares of CompuCom common stock.
In October 1998, Edward Anderson exercised stock options to acquire 647,000
shares of CompuCom common stock and delivered to CompuCom in payment of the
exercise cost a note in the sum of $2,021,875. The note bears interest at the
annual rate of 5.1% and is secured by a pledge of the CompuCom shares. Interest
is payable annually commencing October 22, 1999. The principal and unpaid
accrued interest on the note is due on October 22, 2001.
In December 1998, CompuCom loaned Thomas Lynch the sum of $796,875 in connection
with his exercise of stock options to acquire 500,000 shares of CompuCom common
stock. The loan is evidenced by a full recourse promissory note which bears
interest at the annual rate of 4.33% and is secured by the 500,000 shares of
CompuCom common stock. Principal and accrued interest on the note is due on
December 31, 2001. Safeguard also loaned Mr. Lynch the sum of $806,078 which is
evidenced by a full recourse promissory note and contains the same terms as the
CompuCom note. This note is secured by securities and partnership interests
awarded to Mr. Lynch under our long-term incentive plan and a negative pledge of
certain property located in Radnor, Pennsylvania.
In February 1999, Safeguard purchased a majority interest in aligne
incorporated. Mr. Wallaesa, our president and COO, was a co-founder and
significant stockholder of aligne. The purchase price for the interest in aligne
was determined by negotiations between Safeguard and aligne and was based on an
analysis of aligne's financial position and a comparison with other similarly
situated companies. We also obtained a written report indicating the
reasonableness of the investment by Howard Lawson & Co., an investment banking
firm. This transaction was approved by our board of directors prior to Mr.
Wallaesa's appointment as president, COO and a director of Safeguard. Safeguard
exchanged 441,518 shares of Safeguard common stock, valued at $17.6 million, for
an 80% interest in aligne. Mr. Wallaesa received 183,966 of the Safeguard
shares, valued at $7.3 million, for his aligne shares. One-half of the Safeguard
shares issued in this transaction were delivered to the aligne stockholders at
closing. The remaining shares have been issued in their names but will be
retained by Safeguard until the established revenue targets for 1999 and 2000
have been achieved. If aligne fails to achieve the target revenues for each
year, one-half of the shares retained by Safeguard pending achievement of the
targets for each year will be returned to Safeguard.
Safeguard has invested $8.2 million for a minority ownership interest in
MegaSystems, Inc. and has guaranteed a $1.5 million loan. In March 1999,
Safeguard agreed to loan MegaSystems $1,555,556, of which $800,000 has been
funded to date. The loan bears interest at the annual rate of 8% and is secured
by the assets of MegaSystems. The outstanding principal and accrued interest
will become payable in March 2000. The loan is initially convertible into
1,555,556 shares of common stock of MegaSystems. In connection with this loan,
MegaSystems also issued to Safeguard warrants to purchase 518,518 shares of
MegaSystems preferred stock at an exercise price of $.01. Warren Musser, the
chairman, CEO and 9% stockholder in Safeguard, has a personal relationship with
the chief executive officer of MegaSystems.
[LOGO] 36
<PAGE>
Safeguard has participated in the organization of several venture capital funds
and participates in the management of these funds as a general partner and
through the management companies for the funds. Safeguard also invests in each
of the funds as a limited partner.
Robert Keith, vice chairman of our board of directors, is the president and CEO
of TL Ventures, the management company for TL Ventures III. Mr. Keith,
Safeguard, and Stephen Andriole, an executive officer of Safeguard, are general
partners in the TL Ventures funds and in EnerTech Capital Partners, and they
participate in the profits of these funds. TL Ventures receives management fees
from the TL Ventures funds and indirectly from EnerTech. TL Ventures pays
Safeguard up to $1 million each year for management and operational services to
TL Ventures and the funds and approximately $160,000 for the rental of office
space. Safeguard has invested or committed a total of $20.213 million in these
four funds. Safeguard owns less than 7% of the partnership interests of each of
these funds.
Mr. Keith and several other directors of Safeguard also have invested in one or
more of these funds. Their ownership interests do not exceed 1% of any fund
individually or 2% of any fund in the aggregate. Safeguard often invests in
companies together with the TL Ventures funds.
Safeguard made a capital commitment of $5 million to Cambridge Technology
Capital Fund I L.P., a $25 million fund in which TL Ventures III also invested.
Two directors of Safeguard have invested an aggregate of $1.2 million in this
fund.
Heinz Schimmelbusch, a Safeguard director, is a general partner of Safeguard
International Fund and participates in the profits of the fund. He also is the
president and CEO of the management company of the fund. Dr. Schimmelbusch also
has invested in the fund, and owns less than 1% of the fund. Safeguard has
invested or committed $25 million to date in this fund, and owns 12% of the
limited partnership interests.
Ken Fox, the son of Safeguard director, Robert Fox, is an executive officer,
director and 4% stockholder of Internet Capital Group, Inc., a
business-to-business e-commerce company. Safeguard invested $29.25 million in
Internet Capital Group and owns 26% of the company on a fully diluted basis.
Several directors and executive officers of Safeguard, either directly or
through related entities, also have invested in the company. Their ownership
interests do not exceed 4% individually or 7% in the aggregate.
A number of Safeguard executive officers hold stock in XL Vision, a Safeguard
partnership company, which they acquired through our long-term incentive plan.
As XL Vision stockholders, they generally invest, together with Safeguard, in
new companies spun out of XL Vision. In 1998, Safeguard invested $7.7 million in
Integrated Visions and $5.5 million in Who? Vision Systems, Inc. Safeguard's
executive officers acquired no more than 1% in each company individually and 2%
in each company in the aggregate.
Independent Public Accountants
KPMG LLP has been our independent public accountants since 1986. We intend to
retain them for 1999. Representatives of KPMG LLP are expected to be present at
the annual meeting, will have an opportunity to make a statement at the meeting
if they desire to do so, and will be available to respond to appropriate
questions.
[LOGO] 37
<PAGE>
[LOGO]
800 The Safeguard Building
435 Devon Park Drive
Wayne, PA 19087
(610) 293-0600
Toll-Free Number (888) SFE-1200
For more information about Safeguard, please visit our website at
www.safeguard.com
- --------------------------------------------------------------------------------
DIRECTIONS TO THE DESMOND GREAT VALLEY HOTEL
One Liberty Boulevard
Malvern, PA 19355
(610) 296-9800
- --------------------------------------------------------------------------------
From Philadelphia
Take the Schuylkill Expressway (I-76) West. Follow I-76 West to Route 202 South.
Take Route 202 South to the Great Valley/Route 29 North Exit. At the end of the
ramp, proceed straight through the traffic light onto Liberty Boulevard. The
hotel will be on the right.
- --------------------------------------------------------------------------------
From South New Jersey
Take I-95 South to Route 322 West. Take 322 West to US Route 1 South to Route
202 North. Take Route 202 North to Great Valley/Route 29 North Exit. Turn right
onto Route 29 North. Turn right at second light onto Liberty Boulevard. The
hotel will be on the left.
- --------------------------------------------------------------------------------
From Philadelphia Airport
Take I-95 South to 476 North. Follow 476 North to the Schuylkill Expressway
(I-76) West to Route 202 South. Take Route 202 South to the Great Valley/Route
29 North Exit. At the end of the ramp, proceed straight through the traffic
light onto Liberty Boulevard. The hotel will be on the right.
- --------------------------------------------------------------------------------
From Wilmington and Points South (Delaware and Maryland)
Take I-95 to Route 202 North. Follow Route 202 North to the Great Valley/Route
29 North Exit. Turn right onto Route 29 North. Turn right at the second light
onto Liberty Boulevard. The hotel will be on the left.
- --------------------------------------------------------------------------------
From Harrisburg and Points West
Take PA Turnpike East to Exit 24, Valley Forge. Take Route 202 South to Great
Valley/Route 29 North Exit. At the end of the ramp, proceed straight through
traffic light onto Liberty Boulevard. The hotel will be on the right.
- --------------------------------------------------------------------------------
From New York and Points North
Take the New Jersey Turnpike South to Exit 6, the Pennsylvania Turnpike
extension. Follow the Turnpike West to Exit 24, Valley Forge. Take Route 202
South to the Great Valley/Route 29 North Exit. At the end of the ramp, proceed
through the light onto Liberty Boulevard. The hotel is on the right.
- --------------------------------------------------------------------------------
SAFEGUARD SCIENTIFICS, INC.
1999 EQUITY COMPENSATION PLAN
The purpose of the Safeguard Scientifics, Inc. 1999 Equity Compensation
Plan (the "Plan") is to provide (i) designated employees of Safeguard
Scientifics, Inc. (the "Company") and its subsidiaries, (ii) individuals to whom
an offer of employment has been extended, (iii) certain advisors who perform
services for the Company or its subsidiaries, and (iv) non-employee members of
the Board of Directors of the Company (the "Board") with the opportunity to
receive grants of incentive stock options, nonqualified stock options, stock
appreciation rights, restricted stock and performance units. The Company
believes that the Plan will encourage the participants to contribute materially
to the growth of the Company, thereby benefiting the Company's shareholders, and
will align the economic interests of the participants with those of the
shareholders.
1. Administration
(a) Committee. The Plan shall be administered and interpreted by a
committee appointed by the Board (the "Committee"). The Committee shall
consist of two or more persons appointed by the Board, all of whom may be
"outside directors" as defined under section 162(m) of the Internal Revenue
Code of 1986, as amended (the "Code") and related Treasury regulations and
may be "non-employee directors" as defined under Rule 16b-3 under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"). Except to
the extent prohibited by applicable law or the applicable rules of a stock
exchange, the Committee may allocate all or any portion of its
responsibilities and powers to any one or more of its members or may
delegate all or any part of its responsibilities and powers to any person
or persons selected by it. Any such allocation or delegation may be revoked
by the Committee at any time. If the Committee does not exist, or for any
other reason determined by the Board, the Board may take any action under
the Plan that would otherwise be the responsibility of the Committee.
(b) Committee Authority. The Committee shall have the sole authority
to (i) determine the individuals to whom grants shall be made under the
Plan, (ii) determine the type, size and terms of the grants to be made to
each such individual, (iii) determine the time when the grants will be made
and the duration of any applicable exercise or restriction period,
including the criteria for exercisability and the acceleration of
exercisability, and (iv) deal with any other matters arising under the
Plan.
(c) Committee Determinations. The Committee shall have full power and
authority to administer and interpret the Plan, to make factual
determinations and to adopt or amend such rules, regulations, agreements
and instruments for implementing the Plan and for the conduct of its
business as it deems necessary or advisable, in its sole discretion. The
Committee's interpretations of the Plan and all determinations made by the
Committee pursuant to the powers vested in it hereunder shall be conclusive
and binding on all persons having any interest in the Plan or in any awards
granted hereunder. All powers of the Committee shall be executed in its
sole discretion, in the best interest of the Company, not as a fiduciary,
and in keeping with the objectives of the Plan and need not be uniform as
to similarly situated individuals.
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<PAGE>
2. Grants
Awards under the Plan may consist of grants of incentive stock options as
described in Section 5 ("Incentive Stock Options"), nonqualified stock options
as described in Section 5 ("Nonqualified Stock Options") (Incentive Stock
Options and Nonqualified Stock Options are collectively referred to as
"Options"), restricted stock as described in Section 6 (Restricted Stock"),
stock appreciation rights as described in Section 7 ("SARs"), and performance
units as described in Section 8 ("Performance Units") (hereinafter collectively
referred to as "Grants"). All Grants shall be subject to the terms and
conditions set forth herein and to such other terms and conditions consistent
with this Plan as the Committee deems appropriate and as are specified in
writing by the Committee to the individual in a grant instrument (the "Grant
Instrument") or an amendment to the Grant Instrument. The Committee shall
approve the basic form and provisions of each Grant Instrument. Grants under a
particular Section of the Plan need not be uniform as among the grantees.
3. Shares Subject to the Plan
(a) Shares Authorized. Subject to the adjustment specified below, the
aggregate number of shares of common stock of the Company ("Company Stock")
that may be issued or transferred under the Plan is 3,000,000 shares. The
maximum aggregate number of shares of Company Stock that shall be subject
to Grants made under the Plan to any individual during any calendar year
shall be 500,000 shares. The shares may be authorized but unissued shares
of Company Stock or reacquired shares of Company Stock, including shares
purchased by the Company on the open market for purposes of the Plan. If
and to the extent Options or SARs granted under the Plan terminate, expire,
or are canceled, forfeited, exchanged or surrendered without having been
exercised, or if any shares of Restricted Stock or Performance Units are
forfeited, the shares subject to such Grants shall again be available for
purposes of the Plan.
(b) Adjustments. If there is any change in the number or kind of
shares of Company Stock outstanding (i) by reason of a stock dividend,
spinoff, recapitalization, stock split or combination or exchange of
shares, (ii) by reason of a merger, reorganization or consolidation in
which the Company is the surviving corporation, (iii) by reason of a
reclassification or change in par value, or (iv) by reason of any other
extraordinary or unusual event affecting the outstanding Company Stock as a
class without the Company's receipt of consideration, or if the value of
outstanding shares of Company Stock is substantially reduced as a result of
a spinoff or the Company's payment of an extraordinary dividend or
distribution, the maximum number of shares of Company Stock available for
Grants, the maximum number of shares of Company Stock that any individual
participating in the Plan may be granted in any year, the number of shares
covered by outstanding Grants, the kind of shares issued under the Plan,
and the price per share or the applicable market value of such Grants shall
be appropriately adjusted by the Committee to reflect any increase or
decrease in the number of, or change in the kind or value of, issued shares
of Company Stock to preclude, to the extent practicable, the enlargement or
dilution of rights and benefits under such Grants; provided, however, that
any fractional shares resulting from such adjustment shall be eliminated by
2
<PAGE>
rounding any portion of a share equal to .5 or greater up, and any portion
of a share equal to less than .5 down, in each case to the nearest whole
number. Any adjustments determined by the Committee shall be final, binding
and conclusive.
4. Eligibility for Participation
(a) Eligible Persons. All employees of the Company and its
subsidiaries ("Employees"), including Employees who are officers or members
of the Board, individuals to whom an offer of employment has been extended
("New Hire"), and members of the Board who are not Employees ("Non-Employee
Directors") shall be eligible to participate in the Plan. Advisors who
perform services to the Company or any of its subsidiaries ("Key Advisors")
shall be eligible to participate in the Plan if the Key Advisors render
bona fide services and such services are not in connection with the offer
or sale of securities in a capital-raising transaction.
(b) Selection of Grantees. The Committee shall select the Employees,
New Hires, Non-Employee Directors and Key Advisors to receive Grants and
shall determine the number of shares of Company Stock subject to a
particular Grant in such manner as the Committee determines. Employees, New
Hires, Key Advisors, and Non-Employee Directors who receive Grants under
this Plan shall hereinafter be referred to as "Grantees."
5. Granting of Options
(a) Number of Shares. The Committee shall determine the number of
shares of Company Stock that will be subject to each Grant of Options to
Employees, New Hires, Non-Employee Directors, and Key Advisors.
(b) Type of Option and Price.
(i) The Committee may grant Incentive Stock Options that are
intended to qualify as "incentive stock options" within the meaning of
section 422 of the Code, Nonqualified Stock Options that are not
intended so to qualify, or any combination of Incentive Stock Options
and Nonqualified Stock Options, all in accordance with the terms and
conditions set forth herein. Incentive Stock Options may be granted
only to Employees. Nonqualified Stock Options may be granted to
Employees, New Hires, Non-Employee Directors, and Key Advisors.
(ii) The purchase price (the "Exercise Price") of Company Stock
subject to an Option shall be determined by the Committee and may be
equal to, greater than, or less than the Fair Market Value (as defined
below) of a share of Company Stock on the date the Option is granted,
provided, however, that (x) the Exercise Price of an Incentive Stock
Option shall be equal to, or greater than, the Fair Market Value of a
share of Company Stock on the date the Incentive Stock Option is
granted and (y) an Incentive Stock Option may not be granted to an
Employee who, at the time of grant, owns stock possessing more than 10
percent of the total combined voting power of all classes of stock of
the Company or any parent or subsidiary of the Company, unless the
3
<PAGE>
Exercise Price per share is not less than 110% of the Fair Market
Value of Company Stock on the date of grant.
(iii) If the Company Stock is publicly traded, then, except as
otherwise determined by the Committee, the following rules regarding
the determination of Fair Market Value per share apply:
(x) if the principal trading market for the Company Stock is
a national securities exchange or the Nasdaq National Market, the
mean between the highest and lowest quoted selling prices on the
relevant date or (if there were no trades on that date) the
latest preceding date upon which a sale was reported, or
(y) if the Company Stock is not principally traded on such
exchange or market, the mean between the last reported "bid" and
"asked" prices of Company Stock on the relevant date, as reported
on Nasdaq or, if not so reported, as reported by the National
Daily Quotation Bureau, Inc. or as reported in a customary
financial reporting service, as applicable and as the Committee
determines. If the Company Stock is not publicly traded or, if
publicly traded, is not subject to reported transactions or "bid"
or "asked" quotations as set forth above, the Fair Market Value
per share shall be as determined by the Committee.
(c) Option Term. The Committee shall determine the term of each
Option. The term of any Option shall not exceed ten years from the date of
grant. However, an Incentive Stock Option that is granted to an Employee
who, at the time of grant, owns stock possessing more than 10 percent of
the total combined voting power of all classes of stock of the Company, or
any parent or subsidiary of the Company, may not have a term that exceeds
five years from the date of grant.
(d) Exercisability of Options.
(i) Options shall become exercisable in accordance with such
terms and conditions, consistent with the Plan, as may be determined
by the Committee and specified in the Grant Instrument or an amendment
to the Grant Instrument. The Committee may accelerate the
exercisability of any or all outstanding Options at any time for any
reason.
(ii) Notwithstanding the foregoing, the Option may, but need not,
include a provision whereby the Grantee may elect at any time while an
Employee, Non-Employee Director, or Key Advisor to exercise the Option
as to any part or all of the shares subject to the Option prior to the
full vesting of the Option. Any unvested shares so purchased shall be
subject to a repurchase right in favor of the Company, with the
repurchase price to be equal to the original purchase price, and any
other restrictions the Committee determines to be appropriate.
4
<PAGE>
(e) Termination of Employment, Disability or Death.
(i) Except as provided below, an Option may only be exercised
while the Grantee is employed by the Company as an Employee, Key
Advisor or member of the Board. In the event that a Grantee ceases to
be employed by the Company for any reason other than a "disability,"
death or "termination for cause," any Option which is otherwise
exercisable by the Grantee shall terminate unless exercised within 90
days after the date on which the Grantee ceases to be employed by the
Company (or within such other period of time as may be specified by
the Committee), but in any event no later than the date of expiration
of the Option term. Any of the Grantee's Options that are not
otherwise exercisable as of the date on which the Grantee ceases to be
employed by the Company shall terminate as of such date.
(ii) In the event the Grantee ceases to be employed by the
Company on account of a "termination for cause" by the Company, any
Option held by the Grantee shall terminate as of the date the Grantee
ceases to be employed by the Company.
(iii) In the event the Grantee ceases to be employed by the
Company because the Grantee is "disabled," any Option which is
otherwise exercisable by the Grantee shall terminate unless exercised
within one year after the date on which the Grantee ceases to be
employed by the Company (or within such other period of time as may be
specified by the Committee), but in any event no later than the date
of expiration of the Option term. Any of the Grantee's Options which
are not otherwise exercisable as of the date on which the Grantee
ceases to be employed by the Company shall terminate as of such date.
(iv) If the Grantee dies while employed by the Company or within
90 days after the date on which the Grantee ceases to be employed on
account of a termination of employment specified in Section 5(e)(i)
above (or within such other period of time as may be specified by the
Committee), any Option that is otherwise exercisable by the Grantee
shall terminate unless exercised within one year after the date on
which the Grantee ceases to be employed by the Company (or within such
other period of time as may be specified by the Committee), but in any
event no later than the date of expiration of the Option term. Any of
the Grantee's Options that are not otherwise exercisable as of the
date on which the Grantee ceases to be employed by the Company shall
terminate as of such date.
(v) For purposes of Sections 5(e), 6, 7, and 8:
(A) "Company," when used in the phrase "employed by the
Company," shall mean the Company and its parent, subsidiary
corporations, and any business venture in which the Company has a
significant interest.
(B) "Employed by the Company" shall mean employment or
service as an Employee of Safeguard or any subsidiary or business
venture in which the Company has a significant interest, Key
Advisor, or member of the Board (so that, for purposes of
exercising Options and SARs and satisfying conditions with
respect to Restricted Stock and Performance Units, a Grantee
5
<PAGE>
shall not be considered to have terminated employment or service
until the Grantee ceases to be an Employee of Safeguard or any
subsidiary or business venture in which the Company has a
significant interest, Key Advisor, and member of the Board),
unless the Committee determines otherwise. The Committee's
determination as to a participant's employment or other provision
of services, termination of employment or cessation of the
provision of services, leave of absence, or reemployment shall be
conclusive on all persons unless determined to be incorrect.
(C) "Disability" shall mean a Grantee's becoming disabled
within the meaning of section 22(e)(3) of the Code.
(D) "Termination for cause" shall mean the determination of
the Committee that any one or more of the following events has
occurred:
(1) the Grantee's conviction of any act which
constitutes a felony under applicable federal or state law,
either in connection with the performance of the Grantee's
obligations on behalf of the Company or which affects the
Grantee's ability to perform his or her obligations as an
employee, board member or advisor of the Company or under
any employment agreement, non-competition agreement,
confidentiality agreement or like agreement or covenant
between the Grantee and the Company (any such agreement or
covenant being herein referred to as an "Employment
Agreement");
(2) the Grantee's willful misconduct in connection with
the performance of his or her duties and responsibilities as
an employee, board member or advisor of the Company or under
any Employment Agreement, which willful misconduct is not
cured by the Grantee within 10 days of his or her receipt of
written notice thereof from the Committee;
(3) the Grantee's commission of an act of embezzlement,
fraud or dishonesty which results in a loss, damage or
injury to the Company;
(4) the Grantee's substantial and continuing neglect,
gross negligence or inattention in the performance of his or
her duties as an employee, board member or advisor of the
Company or under any Employment Agreement which is not cured
by the Grantee within 10 days of his or her receipt of
written notice thereof from the Committee;
(5) the Grantee's unauthorized use or disclosure or any
trade secret or confidential information of the Company
which adversely affects the business of the Company,
provided that any disclosure of any trade secret or
confidential information of the Company to a third party in
the ordinary course of business who signs a confidentiality
agreement shall not be deemed a breach of this subparagraph;
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<PAGE>
(6) the Grantee's material breach of any of the
provisions of any Employment Agreement, which material
breach is not cured by the Grantee within 10 days of his or
her receipt of a written notice from the Company specifying
such material breach; or
(7) the Grantee has voluntarily terminated his or her
employment or service with the Company and breaches his or
her non-competition agreement with the Company.
(f) Exercise of Options. A Grantee may exercise an Option that has
become exercisable, in whole or in part, by delivering a notice of exercise
to the Company with payment of the Exercise Price. The Grantee shall pay
the Exercise Price for an Option as specified by the Committee:
(i) in cash,
(ii) by delivering shares of Company Stock owned by the Grantee
for the period necessary to avoid a charge to the Company's earnings
for financial reporting purposes (including Company Stock acquired in
connection with the exercise of an Option, subject to such
restrictions as the Committee deems appropriate) and having a Fair
Market Value on the date of exercise equal to the Exercise Price,
(iii) by payment through a broker in accordance with procedures
permitted by Regulation T of the Federal Reserve Board, or
(iv) by such other method of payment as the Committee may
approve.
Shares of Company Stock used to exercise an Option shall have been held by
the Grantee for the requisite period of time to avoid adverse accounting
consequences to the Company with respect to the Option. The Grantee shall pay
the Exercise Price and the amount of any withholding tax due (pursuant to
Section 9) at the time of exercise.
(g) Limits on Incentive Stock Options. Each Incentive Stock Option
shall provide that if the aggregate Fair Market Value of the stock on the
date of the grant with respect to which Incentive Stock Options are
exercisable for the first time by a Grantee during any calendar year, under
the Plan or any other stock option plan of the Company or a parent or
subsidiary, exceeds $100,000, then the option, as to the excess, shall be
treated as a Nonqualified Stock Option. An Incentive Stock Option shall not
be granted to any person who is not an Employee of the Company or a parent
or subsidiary (within the meaning of section 424(f) of the Code).
7
<PAGE>
6. Restricted Stock Grants
The Committee may issue or transfer shares of Company Stock to a Grantee
under a Grant of Restricted Stock upon such terms as the Committee deems
appropriate. The following provisions are applicable to Restricted Stock:
(a) General Requirements. Shares of Company Stock issued or
transferred pursuant to Restricted Stock Grants may be issued or
transferred for consideration or for no consideration, as determined by the
Committee. The Committee may establish conditions under which restrictions
on shares of Restricted Stock shall lapse over a period of time or
according to such other criteria as the Committee deems appropriate. The
period of time during which the Restricted Stock will remain subject to
restrictions will be designated in the Grant Instrument as the "Restriction
Period."
(b) Number of Shares. The Committee shall determine the number of
shares of Company Stock to be issued or transferred pursuant to a
Restricted Stock Grant and the restrictions applicable to such shares.
(c) Requirement of Employment. If the Grantee ceases to be employed by
the Company (as defined in Section 5(e)) during a period designated in the
Grant Instrument as the Restriction Period, or if other specified
conditions are not met, the Restricted Stock Grant shall terminate as to
all shares covered by the Grant as to which the restrictions have not
lapsed, and those shares of Company Stock must be immediately returned to
the Company. The Committee may, however, provide for complete or partial
exceptions to this requirement as it deems appropriate.
(d) Restrictions on Transfer and Legend on Stock Certificate. During
the Restriction Period, a Grantee may not sell, assign, transfer, pledge or
otherwise dispose of the shares of Restricted Stock except to a Successor
Grantee under Section 10(a). Each certificate for a share of Restricted
Stock shall contain a legend giving appropriate notice of the restrictions
in the Grant. The Grantee shall be entitled to have the legend removed from
the stock certificate covering the shares subject to restrictions when all
restrictions on such shares have lapsed. The Committee may determine that
the Company will not issue certificates for shares of Restricted Stock
until all restrictions on such shares have lapsed, or that the Company will
retain possession of certificates for shares of Restricted Stock until all
restrictions on such shares have lapsed.
(e) Right to Vote and to Receive Dividends. Unless the Committee
determines otherwise, during the Restriction Period, the Grantee shall have
the right to vote shares of Restricted Stock and to receive any dividends
or other distributions paid on such shares, subject to any restrictions
deemed appropriate by the Committee.
(f) Lapse of Restrictions. All restrictions imposed on Restricted
Stock shall lapse upon the expiration of the applicable Restriction Period
and the satisfaction of all conditions imposed by the Committee. The
Committee may determine, as to any or all Restricted Stock Grants, that the
restrictions shall lapse without regard to any Restriction Period.
8
<PAGE>
7. Stock Appreciation Rights
(a) General Requirements. The Committee may grant stock appreciation
rights ("SARs") to a Grantee separately or in tandem with any Option (for
all or a portion of the applicable Option). Tandem SARs may be granted
either at the time the Option is granted or at any time thereafter while
the Option remains outstanding; provided, however, that, in the case of an
Incentive Stock Option, SARs may be granted only at the time of the Grant
of the Incentive Stock Option. The Committee shall establish the base
amount of the SAR at the time the SAR is granted. Unless the Committee
determines otherwise, the base amount of each SAR shall be equal to the per
share Exercise Price of the related Option or, if there is no related
Option, the Fair Market Value of a share of Company Stock as of the date of
Grant of the SAR.
(b) Tandem SARs. In the case of tandem SARs, the number of SARs
granted to a Grantee that shall be exercisable during a specified period
shall not exceed the number of shares of Company Stock that the Grantee may
purchase upon the exercise of the related Option during such period. Upon
the exercise of an Option, the SARs relating to the Company Stock covered
by such Option shall terminate. Upon the exercise of SARs, the related
Option shall terminate to the extent of an equal number of shares of
Company Stock.
(c) Exercisability. A SAR shall be exercisable during the period
specified by the Committee in the Grant Instrument and shall be subject to
such vesting and other restrictions as may be specified in the Grant
Instrument. The Committee may accelerate the exercisability of any or all
outstanding SARs at any time for any reason. SARs may only be exercised
while the Grantee is employed by the Company or during the applicable
period after termination of employment as described in Section 5(e). A
tandem SAR shall be exercisable only during the period when the Option to
which it is related is also exercisable. No SAR may be exercised for cash
by an officer or director of the Company or any of its subsidiaries who is
subject to Section 16 of the Exchange Act, except in accordance with Rule
16b-3 under the Exchange Act.
(d) Value of SARs. When a Grantee exercises SARs, the Grantee shall
receive in settlement of such SARs an amount equal to the value of the
stock appreciation for the number of SARs exercised, payable in cash,
Company Stock or a combination thereof. The stock appreciation for a SAR is
the amount by which the Fair Market Value of the underlying Company Stock
on the date of exercise of the SAR exceeds the base amount of the SAR as
described in Subsection (a).
(e) Form of Payment. The Committee shall determine whether the
appreciation in a SAR shall be paid in the form of cash, shares of Company
Stock, or a combination of the two, in such proportion as the Committee
deems appropriate. For purposes of calculating the number of shares of
Company Stock to be received, shares of Company Stock shall be valued at
their Fair Market Value on the date of exercise of the SAR. If shares of
Company Stock are to be received upon exercise of an SAR, cash shall be
delivered in lieu of any fractional share.
9
<PAGE>
8. Performance Units
(a) General Requirements. The Committee may grant performance units
("Performance Units") to a Grantee. Each Performance Unit shall represent
the right of the Grantee to receive an amount based on the value of the
Performance Unit, if performance goals established by the Committee are
met. A Performance Unit shall be based on the Fair Market Value of a share
of Company Stock or on such other measurement base as the Committee deems
appropriate. The Committee shall determine the number of Performance Units
to be granted and the requirements applicable to such Units.
(b) Performance Period and Performance Goals. When Performance Units
are granted, the Committee shall establish the performance period during
which performance shall be measured (the "Performance Period"), performance
goals applicable to the Units ("Performance Goals") and such other
conditions of the Grant as the Committee deems appropriate. Performance
Goals may relate to the financial performance of the Company or its
operating units, the performance of Company Stock, individual performance,
or such other criteria as the Committee deems appropriate.
(c) Payment with respect to Performance Units. At the end of each
Performance Period, the Committee shall determine to what extent the
Performance Goals and other conditions of the Performance Units are met and
the amount, if any, to be paid with respect to the Performance Units.
Payments with respect to Performance Units shall be made in cash, in
Company Stock, or in a combination of the two, as determined by the
Committee.
(d) Requirement of Employment. If the Grantee ceases to be employed by
the Company (as defined in Section 5(e)) during a Performance Period, or if
other conditions established by the Committee are not met, the Grantee's
Performance Units shall be forfeited. The Committee may, however, provide
for complete or partial exceptions to this requirement as it deems
appropriate.
9. Qualified Performance Based Compensation.
(a) Designation as Qualified Performance Based Compensation. The
Committee may determine that Performance Units or Restricted Stock granted
to an Employee shall be considered "qualified performance based
compensation" under Section 162(m) of the Code. The provisions of this
Section 9 shall apply to Grants of Performance Units and Restricted Stock
that are to be considered "qualified performance based compensation" under
Section 162(m) of the Code.
(b) Performance Goals. When Performance Units or Restricted Stock that
are to be considered "qualified performance based compensation" are
granted, the Committee shall establish in writing (i) the objective
performance goals that must be met in order for restrictions on the
Restricted Stock to lapse or amounts to be paid under the Performance
Units, (ii) the Performance Period during which the performance goals must
be met, (iii) the threshold, target and maximum amounts that may be paid if
the performance goals are met, and (iv) any other conditions, including
10
<PAGE>
without limitation provisions relating to death, disability, other
termination of employment or Reorganization, that the Committee deems
appropriate and consistent with the Plan and Section 162(m) of the Code.
The performance goals may relate to the Employee's business unit or the
performance of the Company and its subsidiaries as a whole, or any
combination of the foregoing. The Committee shall use objectively
determinable performance goals based on one or more of the following
criteria: stock price, earnings per share, net earnings, operating
earnings, return on assets, shareholder return, return on equity, growth in
assets, unit volume, sales, market share, or strategic business criteria
consisting of one or more objectives based on meeting specific revenue
goals, market penetration goals, geographic business expansion goals, cost
targets or goals relating to acquisitions or divestitures.
(c) Establishment of Goals. The Committee shall establish the
performance goals in writing either before the beginning of the Performance
Period or during a period ending no later than the earlier of (i) 90 days
after the beginning of the Performance Period or (ii) the date on which 25%
of the Performance Period has been completed, or such other date as may be
required or permitted under applicable regulations under Section 162(m) of
the Code. The performance goals shall satisfy the requirements for
"qualified performance based compensation," including the requirement that
the achievement of the goals be substantially uncertain at the time they
are established and that the goals be established in such a way that a
third party with knowledge of the relevant facts could determine whether
and to what extent the performance goals have been met. The Committee shall
not have discretion to increase the amount of compensation tat is payable
upon achievement of the designated performance goals.
(d) Maximum Payment. If Restricted Stock, or Performance Units
measured with respect to the fair market value of the Company Stock, are
granted, not more than 500,000 shares may be Granted to any Grantee for any
Performance Period. If Performance Units are measured with respect to other
criteria, the maximum amount that may be paid to a Grantee with respect to
a Performance Period is $1,000,000.
(e) Announcement of Grants. The Committee shall certify and announce
the results for each Performance Period to all Grantees immediately
following the announcement of the Company's financial results for the
Performance Period. If and to the extent that the Committee does not
certify that the performance goals have been met, the grants of Restricted
Stock or Performance Units for the Performance Period shall be forfeited.
10. Withholding of Taxes
(a) Required Withholding. All Grants under the Plan shall be subject
to applicable federal (including FICA), state and local tax withholding
requirements. The Company shall have the right to deduct from all Grants
paid in cash, or from other wages paid to the Grantee, any federal, state
or local taxes required by law to be withheld with respect to such Grants.
In the case of Options and other Grants paid in Company Stock, the Company
may require the Grantee or other person receiving such shares to pay to the
Company the amount of any such taxes that the Company is required to
withhold with respect to such Grants, or the Company may deduct from other
11
<PAGE>
wages paid by the Company the amount of any withholding taxes due with
respect to such Grants.
(b) Election to Withhold Shares. If the Committee so permits, a
Grantee may elect to satisfy the Company's income tax withholding
obligation with respect to an Option, SAR, Restricted Stock or Performance
Units paid in Company Stock by having shares withheld up to an amount that
does not exceed the Grantee's maximum marginal tax rate for federal
(including FICA), state and local tax liabilities. The election must be in
a form and manner prescribed by the Committee and shall be subject to the
prior approval of the Committee.
11. Transferability of Grants
(a) Nontransferability of Grants. Except as provided below, only the
Grantee may exercise rights under a Grant during the Grantee's lifetime. A
Grantee may not transfer those rights except by will or by the laws of
descent and distribution or, with respect to Grants other than Incentive
Stock Options, if permitted in any specific case by the Committee, pursuant
to a domestic relations order (as defined under the Code or Title I of the
Employee Retirement Income Security Act of 1974, as amended, or the
regulations thereunder). When a Grantee dies, the personal representative
or other person entitled to succeed to the rights of the Grantee
("Successor Grantee") may exercise such rights. A Successor Grantee must
furnish proof satisfactory to the Company of his or her right to receive
the Grant under the Grantee's will or under the applicable laws of descent
and distribution.
(b) Transfer of Nonqualified Stock Options. Notwithstanding the
foregoing, the Committee may provide, in a Grant Instrument, that a Grantee
may transfer Nonqualified Stock Options to family members or other persons
or entities according to such terms as the Committee may determine;
provided that the Grantee receives no consideration for the transfer of an
Option and the transferred Option shall continue to be subject to the same
terms and conditions as were applicable to the Option immediately before
the transfer.
12. Reorganization of the Company.
(a) Reorganization. As used herein, a "Reorganization" shall be deemed
to have occurred if the shareholders of the Company approve (or, if
shareholder approval is not required, the Board approves) an agreement
providing for (i) the merger or consolidation of the Company with another
corporation where the shareholders of the Company, immediately prior to the
merger or consolidation, will not beneficially own, immediately after the
merger or consolidation, shares entitling such shareholders to more than
50% of all votes to which all shareholders of the surviving corporation
would be entitled in the election of directors (without consideration of
the rights of any class of stock to elect directors by a separate class
vote), (ii) the sale or other disposition of all or substantially all of
the assets of the Company, or (iii) a liquidation or dissolution of the
Company.
(b) Assumption of Grants. Upon a Reorganization where the Company is
not the surviving corporation (or survives only as a subsidiary of another
corporation), unless the Committee determines otherwise, all outstanding
12
<PAGE>
Options and SARs that are not exercised shall be assumed by, or replaced
with comparable options or rights by, the surviving corporation.
(c) Other Alternatives. Notwithstanding the foregoing, in the event of
a Reorganization, the Committee may take one or both of the following
actions: the Committee may (i) require that Grantees surrender their
outstanding Options and SARs in exchange for a payment by the Company, in
cash or Company Stock as determined by the Committee, in an amount equal to
the amount by which the then Fair Market Value of the shares of Company
Stock subject to the Grantee's unexercised Options and SARs exceeds the
Exercise Price of the Options or the base amount of the SARs, as
applicable, or (ii) after giving Grantees an opportunity to exercise their
outstanding Options and SARs, terminate any or all unexercised Options and
SARs at such time as the Committee deems appropriate. Such surrender or
termination shall take place as of the date of the Reorganization or such
other date as the Committee may specify.
(d) Limitations. Notwithstanding anything in the Plan to the contrary,
in the event of a Reorganization, the Committee shall not have the right to
take any actions described in the Plan (including without limitation
actions described in Subsection (b) above) that would make the
Reorganization ineligible for pooling of interests accounting treatment or
that would make the Reorganization ineligible for desired tax treatment if,
in the absence of such right, the Reorganization would qualify for such
treatment and the Company intends to use such treatment with respect to the
Reorganization.
13. Change of Control of the Company.
(a) As used herein, a "Change of Control" shall be deemed to have
occurred if:
(i) Any "person" (as such term is used in Sections 13(d) and
14(d) of the Exchange Act) becomes a "beneficial owner" (as defined in
Rule 13d 3 under the Exchange Act), directly or indirectly, of
securities of the Company representing a majority of the voting power
of the then outstanding securities of the Company except where the
acquisition is approved by the Board; or
(ii) Any person has commenced a tender offer or exchange offer
for a majority of the voting power of the then outstanding shares of
the Company.
(b) Notice and Acceleration. Unless the Committee determines
otherwise, a Change of Control shall not result in the acceleration of
vesting of outstanding Options and SARs, the removal of restrictions and
conditions on outstanding Restricted Stock grant, or any accelerated
payments in connection with outstanding Performance Units.
(c) Other Alternatives. Notwithstanding the foregoing, in the event of
a Change of Control, the Committee may take one or both of the following
actions: the Committee may (i) require that Grantees surrender their
13
<PAGE>
outstanding Options and SARs in exchange for a payment by the Company, in
cash or Company Stock as determined by the Committee, in an amount equal to
the amount by which the then Fair Market Value of the shares of Company
Stock subject to the Grantee's unexercised Options and SARs exceeds the
Exercise Price of the Options or the base amount of the SARs, as
applicable, or (ii) after giving Grantees an opportunity to exercise their
outstanding Options and SARs, terminate any or all unexercised Options and
SARs at such time as the Committee deems appropriate. Such surrender or
termination shall take place as of the date of the Change of Control or
such other date as the Committee may specify.
(s) Limitations. Notwithstanding anything in the Plan to the
contrary, in the event of a Change of Control, the Committee shall not
have the right to take any actions described in the Plan (including
without limitation actions described in Subsection (c) above) that
would make the Change of Control ineligible for pooling of interests
accounting treatment or that would make the Change of Control
ineligible for desired tax treatment if, in the absence of such right,
the Change of Control would qualify for such treatment and the Company
intends to use such treatment with respect to the Change of Control.
14. Requirements for Issuance or Transfer of Shares
(a) Shareholder's Agreement. The Committee may require that a Grantee
execute a shareholder's agreement, with such terms as the Committee deems
appropriate, with respect to any Company Stock distributed pursuant to this
Plan.
(b) Limitations on Issuance or Transfer of Shares. No Company Stock
shall be issued or transferred in connection with any Grant hereunder
unless and until all legal requirements applicable to the issuance or
transfer of such Company Stock have been complied with to the satisfaction
of the Committee. The Committee shall have the right to condition any Grant
made to any Grantee hereunder on such Grantee's undertaking in writing to
comply with such restrictions on his or her subsequent disposition of such
shares of Company Stock as the Committee shall deem necessary or advisable
as a result of any applicable law, regulation or official interpretation
thereof, and certificates representing such shares may be legended to
reflect any such restrictions. Certificates representing shares of Company
Stock issued or transferred under the Plan will be subject to such stop
transfer orders and other restrictions as may be required by applicable
laws, regulations and interpretations, including any requirement that a
legend be placed thereon.
15. Amendment and Termination of the Plan
(a) Amendment. The Board may amend or terminate the Plan at any time.
(b) Termination of Plan. The Plan shall terminate on the day
immediately preceding the tenth anniversary of its effective date, unless
the Plan is terminated earlier by the Board or is extended by the Board
with the approval of the shareholders.
14
<PAGE>
(c) Termination and Amendment of Outstanding Grants. A termination or
amendment of the Plan that occurs after a Grant is made shall not
materially impair the rights of a Grantee unless the Grantee consents. The
termination of the Plan shall not impair the power and authority of the
Committee with respect to an outstanding Grant. Whether or not the Plan has
terminated, an outstanding Grant may be terminated or amended in accordance
with the Plan or may be amended by agreement of the Company and the Grantee
consistent with the Plan.
(d) Governing Document. The Plan shall be the controlling document. No
other statements, representations, explanatory materials or examples, oral
or written, may amend the Plan in any manner. The Plan shall be binding
upon and enforceable against the Company and its successors and assigns.
16. Funding of the Plan
This Plan shall be unfunded. The Company shall not be required to establish
any special or separate fund or to make any other segregation of assets to
assure the payment of any Grants under this Plan. In no event shall interest be
paid or accrued on any Grant, including unpaid installments of Grants.
17. Rights of Grantees
Nothing in this Plan shall entitle any Grantee or other person to any claim
or right to be granted a Grant under this Plan. Neither this Plan nor any action
taken hereunder shall be construed as giving any individual any rights to be
retained by or in the employ of the Company or any other employment rights.
18. No Fractional Shares
No fractional shares of Company Stock shall be issued or delivered pursuant
to the Plan or any Grant. The Committee shall determine whether cash, other
awards or other property shall be issued or paid in lieu of such fractional
shares or whether such fractional shares or any rights thereto shall be
forfeited or otherwise eliminated.
19. Headings
Section headings are for reference only. In the event of a conflict between
a title and the content of a Section, the content of the Section shall control.
20. Effective Date of the Plan
Subject to the approval of the Company's shareholders, the Plan shall be
effective on February 11, 1999.
15
<PAGE>
21. Miscellaneous
(a) Grants in Connection with Corporate Transactions and Otherwise.
Nothing contained in this Plan shall be construed to (i) limit the right of
the Committee to make Grants under this Plan in connection with the
acquisition, by purchase, lease, merger, consolidation or otherwise, of the
business or assets of any corporation, firm or association, including
Grants to employees thereof who become Employees of the Company, or for
other proper corporate purposes, or (ii) limit the right of the Company to
grant stock options or make other awards outside of this Plan. Without
limiting the foregoing, the Committee may make a Grant to an employee of
another corporation who becomes an Employee by reason of a corporate
merger, consolidation, acquisition of stock or property, reorganization or
liquidation involving the Company or any of its subsidiaries in
substitution for a stock option or restricted stock grant made by such
corporation. The terms and conditions of the substitute grants may vary
from the terms and conditions required by the Plan and from those of the
substituted stock incentives. The Committee shall prescribe the provisions
of the substitute grants.
(b) Compliance with Law. The Plan, the exercise of Options and SARs
and the obligations of the Company to issue or transfer shares of Company
Stock under Grants shall be subject to all applicable laws and to approvals
by any governmental or regulatory agency as may be required. With respect
to persons subject to section 16 of the Exchange Act, it is the intent of
the Company that the Plan and all transactions under the Plan comply with
all applicable provisions of Rule 16b-3 or its successors under the
Exchange Act. The Committee may revoke any Grant if it is contrary to law
or modify a Grant to bring it into compliance with any valid and mandatory
government regulation. The Committee may also adopt rules regarding the
withholding of taxes on payments to Grantees. The Committee may, in its
sole discretion, agree to limit its authority under this Section.
(c) Governing Law. The validity, construction, interpretation and
effect of the Plan and Grant Instruments issued under the Plan shall
exclusively be governed by and determined in accordance with the law of the
Commonwealth of Pennsylvania.
<PAGE>
PROXY
SAFEGUARD SCIENTIFICS, INC.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
Please sign and date this proxy, and indicate how you wish to vote, on the back
of this card. Please return this card promptly in the enclosed envelope. Your
vote is important.
When you sign and return this proxy card, you
o appoint Warren V. Musser and James A. Ounsworth, and each of them (or any
substitutes they may appoint), as proxies to vote your shares, as you have
instructed, at the annual meeting on May 20, 1999, and at any adjournments
of that meeting,
o authorize the proxies to vote, in their discretion, upon any other business
properly presented at the meeting, and
o revoke any previous proxies you may have signed.
IF YOU DO NOT INDICATE HOW YOU WISH TO VOTE, THE PROXIES WILL VOTE FOR ALL
NOMINEES TO THE BOARD OF DIRECTORS, FOR ADOPTION OF THE 1999 EQUITY COMPENSATION
PLAN, FOR THE AMENDMENT TO THE ARTICLES OF INCORPORATION, AND AS THEY MAY
DETERMINE, IN THEIR DISCRETION, WITH REGARD TO ANY OTHER MATTER PROPERLY
PRESENTED AT THE MEETING.
FOLD AND DETACH HERE
<PAGE>
Please mark /X/
your votes as
indicated in
this example
The Board of Directors recommends a vote FOR proposals 1, 2 and 3.
<TABLE>
<CAPTION>
1. ELECTION OF DIRECTORS FOR [ ] WITHHELD [ ]
Nominees: FOR ALL
<S> <C> <C>
Warren V. Musser Jack L. Messman TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE WHILE VOTING FOR
Judith Areen Russell E. Palmer THE REMAINDER, STRIKE A LINE THROUGH THE NOMINEE'S NAME IN THE LIST.
Vincent G. Bell, Jr. John W. Poduska Sr.
Michael J. Emmi Heinz Schimmelbusch TO CUMULATE VOTES, WRITE "CUMULATE FOR" IN THE SPACE BELOW, FOLLOWED BY THE
Robert A. Fox Hubert J.P. Schoemaker NAME OF THE NOMINEE(S) AND THE NUMBER OF VOTES TO BE CAST FOR EACH NOMINEE.
Delbert W. Johnson Harry Wallaesa
Robert E. Keith, Jr. Carl J. Yankowski
---------------------------------------------------------------------------
<CAPTION>
2. ADOPTION OF THE 1999 EQUITY COMPENSATION PLAN 3. AMENDMENT TO ARTICLES OF INCORPORATION
<S> <C>
FOR [ ] AGAINST [ ] ABSTAIN [ ] FOR [ ] AGAINST [ ] ABSTAIN [ ]
</TABLE>
SIGNATURE(S)___________________________________________ DATE: ___________, 1999
YOU MUST SIGN EXACTLY AS YOUR NAME APPEARS ON THIS CARD. If shares are jointly
owned, you must both sign. Include title if you are signing as an attorney,
executor, administrator, trustee or guardian, or on behalf of a corporation or
partnership.
FOLD AND DETACH HERE
[SAFEGUARD LOGO]
800 The Safeguard Building
435 Devon Park Drive
Wayne, PA 19087-1945
Phone: (610) 293-0600
Toll-Free: (888) SFE-1200
Fax: (610) 293-0601
For more information about Safeguard,
please visit our website at www.safeguard.com
If you cannot attend the meeting in person,
you may listen to the meeting over the Internet through
Vcall, Inc. at http://www.vcall.com.
Please go to this web site approximately fifteen
minutes early to register and download any
necessary audio software.
