SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE
SECURITIES EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement [ ] Confidential, For use of the
Commission Only (as permitted
by Rule 14a-6(e)(2)
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
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:
[SAFEGUARD SCIENTIFICS, INC. LOGO]
800 THE SAFEGUARD BUILDING
435 DEVON PARK DRIVE
WAYNE, PA 19087-1945
PHONE: (610) 293-0600
TOLL-FREE: (877) 506-7371
FAX: (610) 293-0601
AUTOMATED INVESTOR RELATIONS LINE: (888) 733-1200
INTERNET: www.safeguard.com
SAFEGUARD SCIENTIFICS, INC.
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
Dear Safeguard Stockholder:
You are invited to attend the Safeguard Scientifics, Inc. 2002 Annual Meeting of
Stockholders.
DATE: May 22, 2002
TIME: 9:00 a.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. For those of you unable to attend the meeting
in person, we invite you to participate over the Internet through our website at
http://www.safeguard.com.
Only stockholders who owned stock at the close of business on April 3, 2002, can
vote at this meeting or any adjournments that may take place.
At the meeting, we will elect eight directors and attend to any other business
properly presented at the meeting.
We also will report on Safeguard's 2001 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.
OUR BOARD OF DIRECTORS IS A VITAL RESOURCE. MAKE YOUR VOTE COUNT! NO MATTER HOW
MANY SHARES YOU HOLD, WE CONSIDER YOUR VOTE IMPORTANT AND ENCOURAGE YOU TO VOTE
AS SOON AS POSSIBLE.
The proxy statement, accompanying proxy card, and 2001 annual report are being
mailed to stockholders beginning April 19, 2002, in connection with the
solicitation of proxies by the Board of directors.
Please contact Mona Zeehandelaar, Director, Investor Relations, with any
questions or concerns.
Sincerely,
/s/ ANTHONY L. CRAIG /s/ DEIRDRE BLACKBURN
Anthony L. Craig Deirdre Blackburn
President and Chief Executive Officer Secretary
April 19, 2002
QUESTIONS AND ANSWERS
--------------------------------------------------------------------------------
Q: WHO IS ENTITLED TO VOTE?
A: Stockholders of record as of the close of business on April 3, 2002, may
vote at the annual meeting.
Q: HOW MANY SHARES CAN VOTE?
A: On April 3, 2002, there were 119,250,200 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 election of eight directors who have been nominated to
serve on our Board of directors and any other business that is properly
presented at the meeting
Q: HOW DOES THE BOARD RECOMMEND I VOTE?
A: The Board recommends a vote FOR each Board nominee. 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, Anthony L. Craig and N. Jeffrey Klauder will vote your shares and
will cumulate your votes 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
8 directors are standing for election at this year's annual meeting, if you
hold 100 shares of Safeguard stock, you may cast 800 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 800 votes for one
nominee or allocate them among two or more nominees in any amount you like,
as long as the total equals 800 votes.
To vote cumulatively, you must
- write the words "cumulate for" in the space provided under item 1 of the
proxy card, and
- 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 8. 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.
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.
Your vote by telephone or Internet will help Safeguard save money. Remember,
if you vote by telephone or Internet, do not return your voting instruction
form.
1
QUESTIONS AND ANSWERS
--------------------------------------------------------------------------------
Q: WHAT IF I WANT TO CHANGE MY VOTE?
A: A registered stockholder may change his or her vote at any time before the
meeting in any of the following three ways:
1. notify our corporate secretary, Deirdre Blackburn, 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
change your vote, you must deliver your change to that nominee. Also, if you
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 are a registered
stockholder and wish to vote at the meeting, no additional forms will be
required.
Q: HOW WILL DIRECTORS BE ELECTED?
A: The eight nominees who receive the highest number of affirmative votes at a
meeting at which a quorum is present will be elected as directors.
Q: WHO WILL COUNT THE VOTES?
A: A representative of Mellon Investor Services, 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 under different names or addresses. 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:
Safeguard Scientifics, Inc.
c/o Mellon Investor Services
P. O. Box 3315
South Hackensack, NJ 07606
If you provide Mellon Investor Services 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.melloninvestor.com.
Q: WHAT IS A QUORUM?
A: A quorum is a majority of the outstanding shares. The shares may be
represented at the meeting either in person or by proxy. To hold the
meeting, there must be a quorum present.
Q: WHAT IS THE EFFECT IF I ABSTAIN OR FAIL TO GIVE INSTRUCTIONS TO MY BROKER?
A: If you submit a properly executed proxy, your shares will be counted as part
of the quorum even if you abstain from voting or withhold your vote for a
particular director.
Broker non-votes also are counted as part of the quorum. A broker non-vote
occurs when banks, brokers or other nominees holding shares on behalf of a
stockholder do not receive voting instructions from the stockholder by a
specified date before the meeting. In this event, banks, brokers and other
nominees may vote those shares on matters deemed routine by the New York
Stock Exchange. The election of directors is considered a routine matter.
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.
2
QUESTIONS AND ANSWERS
--------------------------------------------------------------------------------
Q: WHO CAN ATTEND THE MEETING?
A: We encourage all stockholders to attend the meeting. Admission tickets are
not required.
Q: WHAT IF I CAN'T ATTEND THE MEETING?
A: If you are unable to attend the meeting in person, we invite you to
participate over the Internet through our website at
http://www.safeguard.com. Please go to our web site approximately fifteen
minutes early to register and download any necessary audio software.
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.
Q: IF I WISH TO SUBMIT A STOCKHOLDER PROPOSAL FOR THE ANNUAL MEETING IN 2003,
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 2003, you must submit the proposal, in
writing, so that we receive it no later than December 20, 2002. The proposal
must meet the requirements established by the SEC. Send your proposal to:
N. Jeffrey Klauder, Managing
Director and General Counsel
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 Corporate Governance Committee will consider qualified candidates
recommended by stockholders. You should submit your recommendation,
including a detailed statement of the individual's qualifications, to:
Corporate Governance Committee
Safeguard Scientifics, Inc.
800 The Safeguard Building
435 Devon Park Drive
Wayne, PA 19087-1945
Q: WHO ARE SAFEGUARD'S LARGEST STOCKHOLDERS?
A: At December 31, 2001, no stockholder owned more than 5% of our stock. In the
aggregate, our current directors and executive officers beneficially own a
total of approximately 3% of our stock.
3
ELECTION OF DIRECTORS
ITEM 1 ON PROXY CARD
Directors are elected annually and serve a one-year term. There are eight
nominees for election this year. Each nominee 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 EIGHT NOMINEES WHO RECEIVE THE
HIGHEST NUMBER OF AFFIRMATIVE VOTES WILL BE ELECTED AS DIRECTORS.
--------------------------------------------------------------------------------
ROBERT E. KEITH, JR. Director since 1996
Age 60
Mr. Keith was appointed chairman of the Board of Safeguard in October 2001,
prior to which he served as vice chairman since February 1999. Mr. Keith also
served as a member of the office of the chief executive of Safeguard from April
2001 to October 2001. 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 private equity capital management company that is a subsidiary of
Safeguard. Mr. Keith is also a senior adviser to, and co-founder of, EnerTech
Capital Partners, a private equity fund that targets technology companies that
benefit from deregulation of the utility industry. Mr. Keith is a director of
Internet Capital Group, Inc.
--------------------------------------------------------------------------------
ANTHONY L. CRAIG Director since 2001
Age 56
Mr. Craig became president and chief executive officer of Safeguard in October
2001. Before joining Safeguard, Mr. Craig was chief executive officer from
January 1999 to October 2001 and remains chairman of Arbinet Holdings, Inc., a
leading online trading exchange for the telecommunications industry. Before
Arbinet, he served as president and chief executive officer of Global Knowledge
Network, a premier provider of technology learning services, from January 1997
to February 1999. Mr. Craig has also served as corporate vice president for
Digital Equipment Corporation, senior vice president for Oracle Systems
Corporation, and president and chief executive officer of Prime Computer. Mr.
Craig has also held the positions of vice president of General Electric Company
and president and chief executive officer of GE Information Services, as well as
a series of executive assignments internationally at IBM Corporation. Mr. Craig
is a director of CompuCom Systems, Inc.
--------------------------------------------------------------------------------
VINCENT G. BELL, JR. Director since 1956
Age 76
Mr. Bell is president of Verus Corporation, a management investment firm he
formed in 1987. From April 2001 to October 2001, Mr. Bell served as acting chief
executive officer of Safeguard and as a member of the office of the chief
executive. Before 1987, Mr. Bell was chairman of the Board and chief executive
officer of Safeguard Business Systems, Inc., an information systems company.
4
--------------------------------------------------------------------------------
WALTER W. BUCKLEY, III Director since 2000
Age 42
Mr. Buckley is a co-founder and director of, and has served as chief executive
officer of, Internet Capital Group, Inc., an Internet company actively engaged
in business-to-business e-commerce through a network of partner companies, since
March 1996 and as chairman since December 2001. Mr. Buckley also served as
president of Internet Capital Group until December 2001. Prior to co-founding
Internet Capital Group, Mr. Buckley worked for Safeguard as vice president of
acquisitions from 1991 to February 1996. Mr. Buckley is a director of
Verticalnet, Inc.
--------------------------------------------------------------------------------
ROBERT A. FOX Director since 1981
Age 72
Mr. Fox has been chairman and chief executive officer of R.A.F. Industries,
Inc., a private investment company that acquires and manages a diversified group
of operating companies and venture capital investments, since 1979. Mr. Fox is a
trustee of the University of Pennsylvania and the Wistar Institute.
--------------------------------------------------------------------------------
JACK L. MESSMAN Director since 1994
Age 62
Mr. Messman is chairman of the Board, president and chief executive officer of
Novell, Inc., a leading provider of Net business solutions. Mr. Messman
previously served as chief executive officer and president of Cambridge
Technology Partners (Massachusetts), Inc., an e-business systems integration
company, from August 1999 until its acquisition by Novell in July 2001. From
April 1991 until August 1999, Mr. Messman was chairman and chief executive
officer of Union Pacific Resources Group Inc., an independent oil and gas
exploration and production company. From May 1988 to April 1991, Mr. Messman was
chairman and chief executive officer of USPCI, Inc., Union Pacific's
environmental services company. Mr. Messman is a director of RadioShack
Corporation and USDATA Corporation.
--------------------------------------------------------------------------------
RUSSELL E. PALMER Director since 1989
Age 67
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 Verizon
Communications, Honeywell International, Inc. and The May Department Stores
Company.
--------------------------------------------------------------------------------
JOHN W. PODUSKA, SR., PH.D. Director since 1987
Age 64
Dr. Poduska is an independent business consultant. From January 1992 until
December 2001, he served as chairman of Advanced Visual Systems, Inc., a
provider of visualization software and solutions. 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 eMerge Interactive, Inc., Novell,
Inc., and Anadarko Petroleum Corporation.
5
--------------------------------------------------------------------------------
BOARD OF DIRECTORS -- ADDITIONAL INFORMATION
BOARD MEETINGS: The Board held seven meetings in 2001. Each director attended at
least 75% of the total number of meetings of the Board and Committees of which
he was a member.
BOARD COMPENSATION: With the exception of Mr. Keith, who receives an annual
retainer of $75,000 for serving as chairman of the Board, 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:
- $17,500 annually
- $1,000 annually for chairing a Committee
- $1,000 for each Board meeting attended
- $500 for each telephonic special meeting attended
- $500 for each Committee meeting attended
- reimbursement of out-of-pocket expenses
Additionally, each director who is not a current executive officer of Safeguard
receives a stock option to purchase shares of Safeguard common stock upon
initial election to the Board. Each of these directors also generally receives
subsequent annual or other service stock option grants. All grants 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.
During 2001, Mr. Bell received an option in June 2001 to purchase 100,000 shares
of Safeguard common stock; Messrs. Fox and Palmer each received an option in
October 2001 to purchase 10,000 shares of Safeguard common stock; and Mr. Keith
received an option in June 2001 to purchase 25,000 shares of Safeguard common
stock and an option in October 2001 to purchase 75,000 shares of Safeguard
common stock. The options granted in June 2001 had a per share exercise price of
$4.785, were fully vested on the grant date, and have a four-year term. The
options granted in October 2001 had a per share exercise price of $2.115, vest
25% each year starting on the first anniversary of the grant date, and have an
eight-year term. These options were granted in recognition of the significant
efforts of these directors in connection with the search for a new Chief
Executive Officer and the oversight of the management of Safeguard during the
search.
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 payment.
6
BOARD COMMITTEE MEMBERSHIP ROSTER
The Board of Directors has four standing Committees. The following table
describes the membership of these Committees and the number of meetings held by
each of these Committees.
CORPORATE
AUDIT(1) COMPENSATION(2) EXECUTIVE(3) GOVERNANCE
------------------------ -------- --------------- ------------ ----------
MEETINGS HELD IN 2001 5 4 4 1
Vincent G. Bell, Jr. X
Walter W. Buckley, III X
Anthony L. Craig X X
Robert A. Fox X X
Robert E. Keith, Jr. X* X
Jack L. Messman X*
Russell E. Palmer X*
John W. Poduska, Sr. X X*
* Chairperson
(1) Each member of the Audit Committee qualifies as independent under the rules
of the New York Stock Exchange (the "NYSE"). Mr. Bell served as a member of
this Committee until May 2001. Michael Emmi and Carl Yankowski, who are not
standing for re-election to the Board, will serve as members of this
Committee until May 2002 at which time new members for the Audit Committee
will be appointed by the Board.
(2) Messrs. Bell and Palmer served as members of this Committee until October
2001.
(3) Messrs. Fox and Palmer served as members of this Committee until October
2001.
AUDIT COMMITTEE
- operates under a written Audit Committee Charter adopted by the Board of
directors
- recommends the hiring and retention of our independent certified public
accountants
- discusses the scope and results of our audit with the independent certified
public accountants
- reviews with management and the independent certified public accountants the
interim and year-end operating results
- considers the adequacy of our internal accounting controls and audit
procedures
- reviews the non-audit services to be performed by the independent certified
public accountants
COMPENSATION COMMITTEE
- assists the Board in developing and administering a system of employee
long-term and short-term compensation, performance-oriented incentives,
appropriate employee benefit plans and employment and retention arrangements
- administers our equity compensation plans
- evaluates the performance of the Chief Executive Officer and senior
management of Safeguard
EXECUTIVE COMMITTEE
- acts upon all Board matters with respect to the management of our business
except policy matters
CORPORATE GOVERNANCE COMMITTEE
- reviews and reports to the Board on corporate governance matters, including
the relationships of the Board, stockholders and management in determining
our direction and performance; director compensation; Board evaluation;
executive succession planning; Board retirement policies; and stockholder
rights
- recommends standards governing the selection of Board candidates
- considers qualified Board candidates recommended by stockholders
7
STOCK OWNERSHIP OF DIRECTORS AND OFFICERS
AS OF APRIL 3, 2002
SHARES
OUTSTANDING BENEFICIALLY
SHARES OPTIONS OWNED ASSUMING
BENEFICIALLY EXERCISABLE EXERCISE OF PERCENT OF
NAME OWNED WITHIN 60 DAYS OPTIONS SHARES
----------------------------- ------------ -------------- -------------- ----------
Robert E. Keith, Jr. 43,366 243,251 286,617 *
Anthony L. Craig 0 0 0 *
Vincent G. Bell, Jr. 1,438,704 138,250 1,576,954 1.27%
Walter W. Buckley, III 3,000 65,626 68,626 *
Robert A. Fox 235,875 21,375 257,250 *
Jack L. Messman 90,000 47,250 137,250 *
Russell E. Palmer 34,235 74,252 108,487 *
John W. Poduska, Sr. 0 28,875 28,875 *
Christopher J. Davis 297,852 15,000 312,852 *
N. Jeffrey Klauder 320,125 50,000 370,125 *
Gerald A. Blitstein 45,900 525,000 570,900 *
Jerry L. Johnson 106,880 544,620 651,500 *
Craig J. London 20,550 85,625 106,175 *
Warren V. Musser 454,349 1,000,000 1,454,349 1.22%
Harry Wallaesa 561,898 1,970,000 2,531,898 2.04%
Executive officers and
directors as a group (17
persons) 3,968,550 4,824,124 8,836,040 7.12%
* 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:
Robert E. Keith, Jr. Includes 900 shares held by his spouse. Mr. Keith
disclaims beneficial ownership of the shares held by
his spouse.
Vincent G. Bell, Jr. Includes 337,704 shares held by a charitable
foundation established by Mr. Bell, 256,068 shares
held by his spouse, and 300,000 shares held by two
trusts.
Warren V. Musser Includes 191,000 shares held by a trust of which Mr.
Musser is a co-trustee. Safeguard has a security
interest in the shares of common stock and the common
stock purchase options owned by Mr. Musser, excluding
the 191,000 shares held by the trust of which Mr.
Musser is a co-trustee.
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 April 3, 2002, all executive officers and
directors of Safeguard beneficially owned approximately one percent of the
shares of common stock outstanding of CompuCom Systems, Inc. and less than one
percent of the shares of common stock outstanding of Tangram Enterprise
Solutions, Inc.
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, there were no
late filings by our directors and executive officers during 2001, except for one
late filing by Dr. Poduska.
8
STOCK PERFORMANCE GRAPH
The following graph compares the cumulative total return on $100 invested in our
common stock for the period from December 31, 1996, through December 31, 2001,
with the cumulative total return on $100 invested in the Russell 2000 and the
peer group index for the same period.
[PERFORMANCE GRAPH]
COMPARISON OF CUMULATIVE TOTAL RETURNS
1996 1997 1998 1999 2000 2001
Safeguard 100 99 86 513 63 33
Russell 2000 100 122 119 145 140 144
Peer Group 100 119 186 325 198 187
- 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.
- 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 and all opportunities made available to our
stockholders to participate in Safeguard Subscription Programs.
- Assumes an investment of $100 on December 31, 1996.
9
REPORT OF THE COMPENSATION COMMITTEE
ON EXECUTIVE COMPENSATION
COMPENSATION PHILOSOPHY
Safeguard's mission is to achieve maximum returns for our stockholders by
- acquiring and operating technology and service companies
- utilizing the resources of our corporate staff and our extensive network to
meet the strategic and operational needs of our partner companies
- proactively working with our public partner companies to continue to build
their value; and
- at the appropriate time, realizing the value of the companies through exit
transactions, such as sales of the partner company or initial public
offerings (possibly with a Safeguard Subscription Program or rights offering
feature).
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
- attract and retain outstanding employees who can thrive in a competitive
environment of continuous change,
- promote among our employees the economic benefits of stock ownership in
Safeguard, and
- motivate and reward employees who, by their hard work, loyalty and
exceptional service, make contributions of special importance to the success
of our business.
RECENT DEVELOPMENTS
During 2001, in the face of management transition and market turmoil, the
Compensation Committee spent a significant amount of time addressing retention
and severance issues. In June and July 2001, the Committee approved retention
arrangements for a number of Safeguard's employees which consisted of equity
grants (in the form of restricted stock and options) and minimum severance
payments in the event the employee was terminated by Safeguard.
During December 2001 and January 2002, the Committee also addressed the problems
raised by a significant number of outstanding employee stock options which had
exercise prices ranging from $15 to nearly $70 per share at a time when
Safeguard's common stock traded at $3 per share. With the assistance and
guidance of its independent compensation consultant, the Committee approved an
option exchange program under which Safeguard's employees were given the
opportunity to exchange outstanding options for restricted stock. The exchange
ratio was based on the exercise price of the options exchanged; thus to get one
share of restricted stock, the employee had to exchange two options having an
exercise price of $15 to $30 per share, four options having an exercise price of
$30 to $40 per share, or six options having an exercise price above $40 per
share.
In addition to its normal activities, during 2002 the Compensation Committee
expects to consider the advisability of adopting management stock ownership
guidelines and formulating a revised director compensation program.
COMPENSATION STRUCTURE
The compensation of our executives consists of
- base pay,
- annual cash incentives,
- equity grants in the form of stock options or restricted stock grants, and
- awards under our long-term incentive plan.
10
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. During 2001, Safeguard did not grant any salary increases for its
executive officers except in connection with promotions. During 2001, Safeguard
engaged Mr. Bell, a director of Safeguard, to be Acting Chief Executive Officer
pending the completion of a search for a new Chief Executive Officer. Mr. Bell
was compensated through consulting fees at the rate of $5,000 per week. In
October 2001, after an extensive evaluation of a number of candidates, the Board
appointed Anthony Craig to the position of Chief Executive Officer at an annual
salary of $500,000.
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 partner
companies, capitalize on the value derived from our relationship with our
private equity funds, and acquire interests in new partner companies which,
through the application of our resources and talents, have the potential to
achieve a significant appreciation in value. We measure our success by the
market price of our stock, the financial condition and operations of our
company, the operating performance and market value of our partner companies,
and the successful completion of liquidity events involving our partner
companies (which may be through divestitures in company sale transactions or
through IPOs). Specific annual financial and strategic objectives may include
- positioning Safeguard to capitalize on emerging technology trends,
- developing and refining Safeguard's strategy and infrastructure,
- improving Safeguard's cash flow and generating funds sufficient to implement
Safeguard's strategy,
- adding new partner companies consistent with our strategy and capital model,
- strengthening our capacity and increasing our management and operational
skills to support the growth of our partner companies,
- strengthening a partner company's management/marketing team and working with
our partner companies to develop distribution channel partners,
- building strategic alliances,
- helping our partner companies grow through acquisitions, and
- creating increased stockholder value.
At the beginning of each bonus period (which may be a period of six months or a
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 and establishes management objectives for the bonus period which are
communicated to bonus plan participants.
At the end of each bonus period, the Committee reviews the level of achievement
of the financial and strategic objectives established for that period 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.
2001 CASH INCENTIVES. Mr. Bell was awarded a cash bonus of $130,000 for his
services as Acting Chief Executive Officer from April to October 2001. Mr. Craig
was awarded a bonus of $250,000 in connection with his assuming the position of
Chief Executive Officer and President of Safeguard in October 2001. Certain
retention cash bonuses were paid pursuant to the terms of retention agreements
made in 2000 for which the service period requirements had been fulfilled. Other
than these incentives, the Committee did not award discretionary cash incentives
for 2001 to persons who were executive officers of Safeguard at the time that
bonuses were considered.
11
STOCK OPTIONS AND RESTRICTED STOCK AWARDS
Stock options and restricted stock awards 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 and restricted stock based on a number of factors, including
- the need to create retention incentives in key personnel,
- the desire to align the executive's incentive compensation with the
interests of Safeguard's stockholders,
- the achievement of financial and strategic objectives,
- an individual's contributions in providing strategic leadership and
oversight for Safeguard and our partner companies,
- the amount and term of unvested options and restricted stock awards already
held by each individual and the price of Safeguard's common stock at the
time that grants are considered.
2001 STOCK OPTION AND RESTRICTED STOCK AWARDS. During 2001, the Committee
granted stock options to certain new employees and awarded stock options and
restricted stock to certain executives and key management personnel in
connection with retention agreements entered into with those individuals. The
number of options or shares of restricted stock granted was based on each
person's responsibilities and the goal of obtaining a target potential value of
unvested equity incentives to motivate and retain the executive.
OPTION EXCHANGE PROGRAM. In December 2001, the Committee approved a program to
exchange certain stock options for shares of restricted stock. The exchange
program was designed to restore the incentive and retentive value of the equity
compensation awards held by Safeguard's employees. The main purpose of
Safeguard's equity compensation plan is to assist Safeguard in attracting,
retaining, and motivating capable officers and employees. Awards under the
equity compensation plan encourage plan participants to contribute materially to
Safeguard's growth, thereby benefiting the stockholders, and align the economic
interests of the plan participants with those of Safeguard's stockholders.
The Committee determined that the large differential between the exercise price
of a significant number of the outstanding options in December 2001 and the then
current market price of Safeguard's common stock significantly reduced the
benefits Safeguard expected to realize in connection with its equity
compensation plans. Many of Safeguard's key personnel were recruited during a
period when the stock was trading at a significantly higher price than the
December 2001 market value, and none of the outstanding stock options held by
existing employees, other than the options granted in October 2001 to Mr. Craig,
were in the money. Based on the Committee's review of the analysis prepared by
an independent compensation consultant, the Committee determined that the
options with an exercise price in excess of $15 per share had lost nearly all of
their retentive and motivational effect and that the exchange program was a
necessary tool to retain key employees and management staff.
Under the exchange program, each employee with an outstanding stock option with
an exercise price in excess of $15.00 per share was offered the opportunity to
exchange the options for shares of restricted stock. Each option with an
exercise price of $15.00 to $29.99 was exchanged for one-half share of
restricted stock; each option with an exercise price of $30.00 to $40.00 was
exchanged for one-quarter share of restricted stock; and each option with an
exercise price greater than $40.00 was exchanged for one-sixth share of
restricted stock. The shares of restricted stock were issued on January 22,
2002, and vest on the later of July 22, 2002, or the date on which the unvested
eligible option exchanged for the restricted shares would have vested. Vesting
will be accelerated upon a change of control. Until the restricted stock vests,
the shares are generally subject to forfeiture in the event an employee leaves
Safeguard for a reason
12
other than a termination for cause. Safeguard will record a non-cash
compensation expense as the restricted stock vests based on the stock's value on
January 22, 2002.
A total of 2,038,071 outstanding options were exchanged, including 397,500
options held by persons who are currently executive officers, and Safeguard
issued 537,878 restricted shares.
LONG-TERM INCENTIVE PLAN
Our long-term incentive plan supports our strategy of completing IPOs with
Safeguard Subscription Programs to our stockholders since the plan permits
participants to share directly in the growth of our partner companies. This
growth benefits our stockholders in two ways--indirectly, by increasing the
value of Safeguard's holdings in the partner companies, and directly, by
increasing the value of the stock acquired by our stockholders through IPOs with
Safeguard Subscription Programs.
Each year, Safeguard has allocated a portion of the equity interests acquired
during the year for the benefit of the participants in the long-term incentive
plan. The plan permits the Committee to award grants in the form of interests in
limited partnerships established by Safeguard to hold the equity interests
acquired by Safeguard in a given year.
Grants are subject to vesting over a period of four years and generally to the
condition that Safeguard's equity holdings must double in value before the
participants can receive their equity participation. Partnership interests are
generally paid out in stock of the partner 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 partner company after a fixed
period of years, subject to acceleration by the Committee if the threshold
levels are achieved.
2001 LONG-TERM INCENTIVE GRANTS. In November 2000, the Committee approved the
acquisition of partnership interests by executives and key employees in limited
partnerships that were established to hold all equity interests acquired by
Safeguard during 2001 in new and existing partner companies. These limited
partnership interests provided the participants, as a group, with the
opportunity to receive distributions of up to a total of 15% of the equity
interests held by each limited partnership if the value of the interest 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 primarily on their positions at Safeguard.
In December 2001 the Compensation Committee and its independent compensation
consultant reviewed Safeguard's equity incentive plans and the long-term
incentive plan. The Compensation Committee determined that it would not
implement the long-term incentive plan arrangements for 2002 and would instead
focus on pursuing long-term incentive and retention goals through the use of
equity grants in the form of grants of Safeguard stock options and restricted
stock.
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
13
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:
Walter W. Buckley, III
Robert A. Fox
John W. Poduska, Sr.
Vincent G. Bell, Jr.*
Russell E. Palmer*
--------
*Former member of the Committee
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Walter Buckley, a member of our Compensation Committee, is an executive officer,
director and stockholder of Internet Capital Group. Warren Musser and Robert
Keith, members of our Board of Directors, are also members of the Board of
Directors of Internet Capital Group.
Warren Musser, served on the Management Resource Committee (which performed the
function of a Compensation Committee) of the Board of Cambridge Technology
Partners (Massachusetts), Inc., a Safeguard partner company until its
acquisition by Novell, Inc. in July 2001. Jack Messman, who serves on our Board,
was the chief executive officer of Cambridge Technology Partners.
14
EXECUTIVE COMPENSATION & OTHER ARRANGEMENTS
2001 ANNUAL COMPENSATION
LONG TERM COMPENSATION
-------------------------------------
ANNUAL COMPENSATION AWARDS PAYOUTS
---------------------------------------------- -------------------------- ---------
OTHER SECURITIES LONG
ANNUAL RESTRICTED UNDERLYING TERM
COMPEN- STOCK OPTIONS/ INCENTIVE ALL OTHER
SALARY BONUS SATION AWARD(S) SARS PAYOUTS COMPENSATION
NAME AND POSITION YEAR ($)(1) ($)(2) ($)(3) ($)(4) (#) ($) ($)(5)
---------------------- ---- ---------- ---------- ---------- ----------- ---------- ---------- -------------
MEMBERS OF CURRENT EXECUTIVE TEAM
Anthony L. Craig, 2001 $ 104,167 $ 250,000 -- -- 1,000,000 -- $ 70
President and Chief
Executive Officer(6)
Christopher J. Davis, 2001 $ 277,174 $ -- -- $ 274,754 100,000 -- $ 15,566
Managing Director and
Chief Financial
Officer(6)
N. Jeffrey Klauder, 2001 $ 317,844 $ 375,000 -- $ 654,500 250,000 $ -- $ 16,856
Managing Director 2000 198,153 705,000 -- -- 425,000 14,033 18,159
and General Counsel(6)
FORMER MEMBERS OF EXECUTIVE TEAM
Warren V. Musser, 2001 $ 486,980 $ 663,000 -- -- -- $ -- $ 23,909
Former Chairman of 2000 430,000 1,130,000 -- -- 1,000,000 36,032 22,144
the Board and Chief 1999 413,731 827,500 53,920 -- -- -- 12,000
Executive Officer(7)
Vincent G. Bell, Jr., 2001 $ 145,500 $ 130,000 -- -- 100,000 $ -- $ --
Former Acting
Chief Executive
Officer (7)
Harry Wallaesa, 2001 $ 327,036 $ -- -- -- -- $ -- $2,064,956
Former President 2000 400,000 1,260,000 -- -- 380,000 909,126 13,645
and Chief Operating 1999 330,770 1,386,176 -- -- 1,590,000 -- 10,970
Officer(7)
Gerald A. Blitstein, 2001 $ 237,164 $ -- 505,189 $ -- -- $ -- $1,570,505
Former Executive Vice 2000 248,076 905,000 141,435 3,434,250 525,000 14,033 12,382
President and Chief
Financial Officer(7)
Jerry L. Johnson, 2001 $ 318,036 $ -- -- $ 329,600 100,000 $ 103,999 $ 807,076
Former Executive 2000 310,000 217,000 -- -- 200,000 1,320,961 21,362
Vice President(7) 1999 283,462 416,469 -- -- 60,000 905,722 19,896
Craig J. London, 2001 $ 282,063 $ 82,500 -- $ 197,600 75,000 $ -- $ 16,681
Former Managing
Director, Technology
Products(6)(7)
15
NOTES TO ANNUAL COMPENSATION TABLE:
(1) Includes compensation that has been deferred by the named officers under
voluntary savings plans. In addition to the compensation disclosed for
acting as an executive officer, Mr. Bell received fees of $24,500 for acting
as a director of Safeguard during 2001.
(2) No member of the current executive team received a discretionary bonus for
2001. For Mr. Craig, this amount represents a signing bonus. For Mr.
Klauder, this amount includes retention bonus payments of $375,000 in each
of January 2001 and January 2002 that were authorized by the Compensation
Committee in 2000, subject to continued employment. For Mr. Musser, this
amount includes retention bonus payments of $500,000 in each of January 2001
and January 2002 that were authorized by the Compensation Committee in 2000,
subject to continued employment.
(3) Mr. Musser used Safeguard's plane and charter aircraft from time to time for
personal use as a result of determination by the Board of directors in 1997
requiring him to travel on Safeguard's plane instead of commercial aircraft
whenever possible for safety reasons. In the case of Mr. Blitstein, the
amount disclosed as other annual compensation includes relocation expenses
of approximately $499,000.
(4) Includes the value of shares of restricted stock issued on January 22, 2002,
in exchange for stock options having an exercise price of more than $15 per
share. The restricted shares held by each of the named executive officers
vest as follows: Mr. Davis: 12,500 on January 16, 2002; 12,500 on June 1,
2002; 5,314 on July 22, 2002; 2,812 on July 28, 2002; 834 on March 31, 2003;
417 on April 12, 2003; 25,000 on June 1, 2003; 2,813 on July 28, 2003; 833
on March 31, 2004; 416 on April 12, 2004; and 2,812 on July 28, 2004; Mr.
Klauder: 25,000 on January 16, 2002; 25,000 on June 1, 2002; 23,438 on July
22, 2002; 4,687 on July 28, 2002; 9,375 on April 17, 2003; 50,000 on June 1,
2003; 4,688 on July 28, 2003; 9,375 on April 17, 2004 and 4,687 on July 28,
2004; Mr. Johnson: 78,750 shares on January 4, 2002; Mr. London: 7,500 on
January 16, 2002; 7,500 on June 1, 2002; 4,845 on July 22, 2002; 781 on July
28, 2002; 1,562 on September 29, 2002; 1,250 on December 15, 2002; 15,000 on
June 1, 2003; 781 on July 28, 2003; 1,563 on September 29, 2003; 1,250 on
December 15, 2003; 781 on July 28, 2004; and 1,562 on September 29, 2004.
Mr. London's shares of restricted stock that vested after July 22, 2002 were
forfeited. At December 31, 2001, the value of restricted shares issued to
Messrs. Davis, Klauder, Johnson and London prior to December 31, 2001, was
$176,500, $353,000, $176,000, and $105,900, respectively. Vesting of the
restricted shares may be accelerated upon death, permanent disability,
retirement, termination of an executive's employment without cause, or a
change in control. Restricted stock will receive the same dividends paid to
all stockholders.
(5) For 2001, all other compensation includes the following amounts:
Company
Match
Retirement Voluntary Group Life Life
Plan Savings Insurance Insurance Severance
Name Contribution Plan Imputed Income Premiums Paid Payments
------------------------- ------------ --------- -------------- ------------- ----------
Anthony L. Craig $ -- $ -- $ 70 $ -- $ --
Christopher J. Davis $5,950 $6,800 $ 409 $2,407 $ --
N. Jeffrey Klauder $5,950 $6,800 $ 482 $3,624 $ --
Warren V. Musser $5,950 $6,800 $10,802 $ 357 $ --
Harry Wallaesa $ -- $6,800 $ 2,477 $4,910 $2,050,769
Gerald A. Blitstein $ -- $6,800 $ 153 $5,050 $1,308,500
Jerry L. Johnson $5,950 $6,800 $ 740 $3,086 $ 790,500
Craig J. London $5,950 $6,800 $ 1,197 $2,734 $ --
For Mr. Blitstein, all other compensation also includes consulting fees in
the amount of $250,002. Mr. Johnson's severance was paid in 2002.
(6) Mr. Craig joined Safeguard in October 2001; Mr. Klauder joined Safeguard in
April 2000; Messrs. Davis and London became executive officers of Safeguard
in August 2001 and December 2001, respectively.
(7) Messrs. Musser, Wallaesa, Blitstein, Johnson and London served as executive
officers of Safeguard until April 2001, October 2001, August 2001, January
2002, and March 2002, respectively. Mr. Bell served as acting chief
executive officer from April 2001 until October 2001.
16
2001 STOCK OPTION GRANTS
POTENTIAL REALIZABLE
VALUE
AT ASSUMED ANNUAL
RATES OF STOCK PRICE
APPRECIATION
INDIVIDUAL GRANTS FOR OPTION TERM(1)
----------------------------------------------------------------------------- --------------------------
% OF TOTAL
NUMBER OF OPTIONS/
SECURITIES SARS
UNDERLYING GRANTED TO
OPTIONS/ EMPLOYEES EXERCISE OR
SARS IN FISCAL BASE PRICE EXPIRATION 5% 10%
NAME GRANTED(#)(2) YEAR ($/SH)(3) DATE ($) ($)
-------------------- ------------- ---------- ----------- ---------- ---------- ----------
MEMBERS OF CURRENT EXECUTIVE TEAM
Anthony L. Craig 1,000,000 41.7% $ 2.115 10/12/09 $1,009,818 $2,418,690
Christopher J. Davis 75,000 3.1% $ 4.785 6/19/09 $ 171,347 $ 410,405
25,000 1.0% $ 3.505 8/28/09 $ 41,837 $ 100,207
N. Jeffrey Klauder 250,000 10.4% $ 4.430 7/10/09 $ 528,782 $1,266,525
FORMER MEMBERS OF EXECUTIVE TEAM
Warren V. Musser 0 -- -- -- -- --
Vincent G. Bell, Jr. 100,000(4) 4.2% $ 4.785 6/19/05 $ 103,120 $ 222,072
Harry Wallaesa 0 -- -- -- -- --
Gerald A. Blitstein 0 -- -- -- -- --
Jerry L. Johnson 100,000(4) 4.2% $ 4.430 7/10/09 $ 211,513 $ 506,610
Craig J. London 75,000 3.1% $ 4.785 6/19/09 $ 171,347 $ 410,405
(1) These values assume that the shares appreciate from the market price on
the grant date (which may be significantly in excess of the current
market price) 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. Executives will not benefit
unless the common stock price increases above the stock option exercise
price.
(2) Unless otherwise disclosed, the options have an eight-year term and vest
25% each year commencing on the first anniversary of the grant. Upon
death, disability, change of control, termination of employment without
cause, or retirement on or after an individual's 65th birthday, the
options will become fully vested on the date of the event. Certain of
the options reported in the above table may be exercised at any time. If
an executive exercises unvested options and his employment is terminated
for any reason other than cause, we may repurchase the unvested shares
at the exercise price. 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), or
such other method as the Compensation Committee may approve. 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) The option granted to Mr. Bell was fully vested at grant and has a
four-year term. The option granted to Mr. Johnson became fully vested in
January 2002 in connection with his termination of employment.
17
2001 STOCK OPTION EXERCISES AND YEAR-END STOCK OPTION VALUES
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
SHARES OPTIONS/SARs OPTIONS/SARs
ACQUIRED AT FISCAL YEAR-END(#)(1) AT FISCAL YEAR-END($)(2)
ON VALUE ----------------------------- --------------------------
NAME EXERCISE(#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
-------------------- ----------- ----------- ----------- ------------- ----------- -------------
MEMBERS OF CURRENT EXECUTIVE TEAM
Anthony L. Craig 0 -- 0 1,000,000 $0 $1,415,000
Christopher J. Davis 0 -- 33,750 201,250 $0 $ 625
N. Jeffrey Klauder 0 -- 106,250 568,750 $0 $ 0
FORMER MEMBERS OF EXECUTIVE TEAM
Warren V. Musser 0 -- 1,000,000 0 $0 $ 0
Vincent G. Bell, Jr. 0 -- 138,250 23,250 $0 $ 0
Harry Wallaesa 0 -- 1,970,000 0 $0 $ 0
Gerald A. Blitstein 0 -- 525,000 0 $0 $ 0
Jerry L. Johnson 0 -- 384,620 295,000 $0 $ 0
Craig J. London 0 -- 84,375 208,125 $0 $ 0
(1) The number of options reported in the table includes for Messrs. Davis,
Klauder, Johnson and London an aggregate of 75,000 shares (18,750 of which
were exercisable), 225,000 shares (56,250 of which were exercisable),
135,000 shares (48,750 of which were exercisable), and 55,000 shares (21,250
of which were exercisable), respectively, in connection with stock options
that were canceled in January 2002 in exchange for shares of restricted
stock.
(2) 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 price was $3.53 per share.
18
10-YEAR OPTION/SAR REPRICINGS
NUMBER OF LENGTH OF
SECURITIES MARKET PRICE EXERCISE NEW EXERCISE ORIGINAL
UNDERLYING OF STOCK AT PRICE AT TIME PRICE OPTION TERM
OPTIONS/SARs TIME OF OF REPRICING ($)(1) REMAINING AT
REPRICED OR REPRICING OR OR [NUMBER OF DATE OF
AMENDED AMENDMENT AMENDMENT RESTRICTED REPRICING OR
NAME DATE (#) ($) ($) SHARES] AMENDMENT
-------------------- ------ ------------ ------------ ------------- ------------ -------------
MEMBERS OF CURRENT EXECUTIVE TEAM
Anthony L. Craig, -- -- -- -- -- --
President and Chief
Executive Officer
Christopher J. 1/22/02 45,000 $ 3.76 $ 30.4688 11,250 6.52 years
Davis, Managing
Director and Chief 10,000 $ 3.76 $ 50.0313 1,667 6.22 years
Financial Officer 20,000 $ 3.76 $ 67.4375 3,334 6.19 years
N. Jeffrey Klauder, 1/22/02 75,000 $ 3.76 $ 30.4688 18,750 6.52 years
Managing Director
and General
Counsel 150,000 $ 3.76 $ 32.5000 37,500 6.24 years
FORMER MEMBERS OF EXECUTIVE TEAM
Warren V. Musser, -- -- -- -- -- --
Former Chairman of
the Board and Chief
Executive Officer
Vincent G. Bell, Jr., -- -- -- -- -- --
Former Acting Chief
Executive Officer
Harry Wallaesa, -- -- -- -- -- --
Former President
and Chief Operating
Officer
Gerald A. Blitstein, -- -- -- -- -- --
Former Executive
Vice President and
Chief Financial
Officer
Jerry L. Johnson, 1/22/02 75,000 $ 3.76 $ 30.4688 18,750 6.52 years
Former Executive
Vice President 60,000 $ 3.76 $ 45.4687 10,000 5.90 years
Craig J. London, 1/22/02 12,500 $ 3.76 $ 20.0000 6,250 6.69 years
Former Managing
Director, 12,500 $ 3.76 $ 30.4688 3,125 6.52 years
Technology Products 30,000 $ 3.76 $ 45.4687 5,000 5.90 years
(1) In January 2002, the individuals named in this table exchanged stock options
having an exercise price of more than $15 per share previously granted under
our equity compensation plans for shares of restricted stock. The numbers in
this column represent the number of shares of restricted stock issued upon
cancellation of the respective option. Each option with an exercise price of
$15.00 to $29.99 was exchanged for one-half share of restricted stock; each
option with an exercise price of $30.00 to $40.00 was exchanged for
one-quarter share of restricted stock; and each option with an exercise
price greater than $40.00 was exchanged for one-sixth share of restricted
stock. The shares of restricted stock vest on the later of July 22, 2002, or
the date on which the unvested eligible option exchanged for the restricted
shares would have vested.
19
LONG-TERM INCENTIVE PLAN
Beginning in 1997, we established one or more limited partnerships to
hold all acquisitions approved and made by Safeguard during any given year.
Under our long-term incentive plan, participants may purchase interests in these
limited partnerships. We allocated up to a 15% interest for purchase by the
participants for 2001. Safeguard, through a wholly owned subsidiary acting as
the general partner of each partnership, retains approximately an 85% interest
in the partnerships established for 2001. Partnership interests vest 25% each
year, generally starting on July 1 in the year following the acquisition. 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. We 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 15% of
the equity securities of the company. The percentages allocated during 2001 to
each named executive officer in each partnership are included in the following
table.
In December 2001, the Compensation Committee determined not to grant any
long-term incentive plan participations for 2002.
NAME PERCENTAGE INTEREST
---- -------------------
Anthony L. Craig 1.000%
Christopher J. Davis 0.750%
N. Jeffrey Klauder 0.750%
Warren V. Musser 1.850%
Vincent G. Bell, Jr. --
Harry Wallaesa --
Gerald A. Blitstein --
Jerry L. Johnson --
Craig J. London --
EMPLOYMENT CONTRACTS; SEVERANCE AND CHANGE-IN-CONTROL ARRANGEMENTS
At the time he joined Safeguard, we entered into an agreement with Mr. Craig
providing for, among other things, a base salary of $500,000 per year and a
grant of 1,000,000 options at a price per share of $2.115, the fair market value
on the date of grant. We also agreed to pay up to $220,000 of Mr. Craig's
relocation costs and afford him the right to use an equity membership in a
country club. The agreement also provides that we will pay him 1.5 times his
annual base salary plus his annual target bonus (100% of base salary) if his
employment is terminated without cause or if he terminates his employment for
good reason. The multiplier of base salary plus target bonus for purposes of
determining his severance payment increases to 2 if the termination occurs after
two years and to 3 if his termination of employment occurs after three years. In
the event of his termination of employment without cause or for good reason, we
also agreed to vest all of his unvested stock options, extend the expiration
date for option exercises until three years from his termination of employment,
and pay his COBRA premiums for insurance benefits for up to 36 months and up to
$20,000 for outplacement services or office space which Mr. Craig secures.
We entered into retention agreements with each of our four managing directors
that provide for a payment equal to 1.5 times the sum of the annual base salary
plus and annual target bonus if an individual's employment is terminated without
cause or if the individual terminates his employment for good reason prior to
the second anniversary of the date of the retention agreement. The retention
agreements also provide that upon the occurrence of such
20
an event, we will vest a portion of all unvested stock options and 50% of all
unvested restricted stock grants held by the executive, extend the expiration
date for option exercises until one year from the executive's termination of
employment, and pay COBRA premiums for insurance benefits for up to 18 months
and up to $20,000 for outplacement services or office space which the executive
secures.
In October 2001, we entered into an agreement with Mr. Musser providing for
annual payments of $650,000 per year for life.
Effective August 28, 2001, we entered into an agreement with Gerald Blitstein in
connection with his separation from Safeguard's employment. Mr. Blitstein's
separation agreement provided for a lump sum payment in the amount of
$1,308,500. Additionally, Mr. Blitstein agreed to be available to us for
consulting services for a six-month period for a base amount of $41,667 per
month. In consideration of Mr. Blitstein's execution of this separation
agreement, we also agreed to accelerate the vesting of all unvested stock
options held by Mr. Blitstein, extend the expiration date for option exercises
until three years from his termination of employment, pay his COBRA premiums for
insurance benefits for up to 18 months, and reimburse him for reasonable
relocation expenses, including any loss and expense on the sale of his current
Philadelphia residence, if he chooses to relocate to New York and lists his
Philadelphia property for sale before December 31, 2002.
In accordance with the terms of his retention agreement, Mr. Wallaesa received a
lump sum payment in the amount of $2,050,769 in connection with his separation
from Safeguard's employment on October 12, 2001. We also accelerated the vesting
of all unvested stock options held by Mr. Wallaesa, extended the expiration date
for option exercises until three years from his termination of employment, and
agreed to pay his COBRA premiums for insurance benefits for up to 24 months and
up to $25,000 for outplacement services or office space which Mr. Wallaesa
secures. We also agreed that if Mr. Wallaesa complies with all terms of the
release, on January 15, 2003, we will forgive his indebtedness to us in the
amount of $111,714 as of March 20, 2002, together with all interest which
accrues until January 15, 2003, in exchange for his transfer to us of 20,000
shares of common stock of eMerge Interactive, Inc. held by him.
RELATIONSHIPS AND RELATED TRANSACTIONS WITH MANAGEMENT AND OTHERS
We entered into a consulting agreement with Mr. Bell to serve as our acting
chief executive officer commencing in April 2001. Under that consulting
agreement, we paid Mr. Bell $5,000 per week during his tenure and a performance
bonus in March 2002 in the amount of $130,000. We also granted him a stock
option to purchase 100,000 shares of our stock, which was fully vested at grant
and has a term of four years. Mr. Bell served as our acting chief executive
officer until October 12, 2001.
In connection with various restricted stock awards made under our long-term
incentive plan, in prior years we loaned each recipient an amount equal to the
related income taxes on each award. Each of the loans is a full-recourse loan
secured by a pledge of the restricted shares. The interest rates and due dates
on each loan are as follows:
Interest
Date of Loan Rate Due Date
-------------------- ----------- ------------
11/3/99 5.57% 2/28/02
12/1/99 5.74% 2/28/02
2/3/00 6.20% 2/28/02
4/6/00 6.46% 5/6/02
The following table shows the largest aggregate loan amounts outstanding in
connection with these tax loans for each executive officer who owed us in excess
of $60,000 since January 1, 2001, and the aggregate amounts outstanding at March
20, 2002:
Largest
Balance
Since Balance at
Name 1/1/01 3/20/02
---- ----------- ------------
Harry Wallaesa $111,714 $111,714
Craig London $ 62,500 $ 0
In May 2001, we entered into a financial restructuring agreement with Mr. Musser
under which we loaned Mr. Musser $26.5 million to repay in full his margin loans
21
which were guaranteed by Safeguard and to pay certain tax obligations and
expenses. The loan bears interest at an annual rate of 7% and is payable on
demand at any time after January 1, 2003. Mr. Musser granted Safeguard security
interests in securities and real estate as collateral. Until April 30, 2006, we
will have recourse only against the collateral. After April 30, 2006, we will
have recourse against Mr. Musser personally, except with respect to certain
ongoing compensation to be received by Mr. Musser. We have the right to sell the
collateral at any time and apply the net after-tax proceeds from the sales of
collateral against amounts outstanding on the loan. The outstanding balance of
the loan at March 20, 2002, was approximately $24.0 million. There can be no
assurance that the proceeds realized by Safeguard from dispositions of the
collateral will be sufficient to repay the loan in full. The arrangements with
Mr. Musser were approved by the Board of Directors of Safeguard or a special
Committee thereof, with Mr. Musser recusing himself from the proceedings.
During 2001, MegaSystems, Inc. was merged into Pacific Title and Arts Studio,
Inc. ("PTA") in a transaction in which each holder of MegaSystems equity
received equity in PTA. Prior to the merger Safeguard owned approximately 59% of
PTA and 50% of MegaSystems. After the merger and the conversion of debt held by
Safeguard into equity, Safeguard owns approximately 84% of the combined company.
At the time of the merger, the chief executive officer of MegaSystems was Mr.
Musser's spouse, Hillary Grinker Musser. At the time of the merger, Mrs. Musser
resigned as an employee of MegaSystems, received a one-time $50,000 consulting
payment, and her 10% equity stake in MegaSystems was converted in the merger
into a 2% equity stake in PTA.
As part of our business, we participate in the management of private equity
funds.
Robert Keith, chairman of our Board of directors, is the president and CEO of TL
Ventures, the management company for TL Ventures III, TL Ventures IV, and TL
Ventures V, and the chairman of the management companies for EnerTech Capital
Partners and EnerTech Capital Partners II. Mr. Keith and Safeguard are partners
of the general partners of the TL Ventures and EnerTech Capital Partners funds,
and they participate in the profits of these private equity funds. TL Ventures
receives management fees from the TL Ventures funds and indirectly from
EnerTech. During 2001, Safeguard paid to TL Ventures management fees of
approximately $1.2 million in respect of Safeguard's capital contribution to the
various funds managed by TL Ventures. TL Ventures paid Safeguard $100,000 in
2001 for management and operational services to TL Ventures and the funds and
approximately $365,000 for the rental of office space. Safeguard has invested or
committed a total of $66.5 million in the seven TL Ventures and EnerTech Capital
funds. Safeguard owns less than 7% of the partnership interests of each of these
funds.
Safeguard owns approximately 14% of the outstanding common stock of Internet
Capital Group, Inc. and received approximately $459,000 in rent for office space
leased to Internet Capital during 2001. Walter Buckley, a director of Safeguard,
is a director and executive officer of Internet Capital Group, Inc.
22
AUDIT COMMITTEE REPORT
The Audit Committee of the Board of Directors (the "Audit Committee") has
reviewed and discussed Safeguard's audited consolidated financial statements for
fiscal 2001 with our management. The Audit Committee has discussed with KPMG LLP
("KPMG"), our independent auditors, the matters required to be discussed by
Statement on Auditing Standards No. 61. The Audit Committee has received the
written disclosures and the letter from KPMG required by Independence Standards
Board Standard No. 1 and has discussed with KPMG its independence. Based on the
review and discussions described above, among other things, the Audit Committee
recommended to the Board of Directors that the audited consolidated financial
statements be included in Safeguard's Annual Report on Form 10-K for fiscal
2001.
Each member of the Audit Committee qualifies as independent under the rules of
the NYSE. The Audit Committee has adopted a charter which was attached to the
2001 proxy statement.
Audit Fees. The aggregate fees billed by Safeguard's independent auditors for
professional services rendered in connection with the audit of our consolidated
financial statements included in our Annual Report on Form 10-K for fiscal year
2001, as well as for the review of our consolidated financial statements
included in Safeguard's Quarterly Reports on Form 10-Q during 2001, totaled
$1,162,000 (excluding expenses reimbursed by Safeguard).
Financial Information Systems Design and Implementation Fees. No fees other than
those described above under the caption "Audit Fees" and those described below
under the caption "All Other Fees" were billed to Safeguard by our independent
auditors for professional services in 2001.
All Other Fees. The only fees billed to Safeguard by its principal auditors
during 2001 other than those described above related to services provided with
regard to tax compliance and various miscellaneous matters, and such fees
totaled $286,000. The Audit Committee believes that the foregoing expenditures
are compatible with maintaining the independence of our principal auditors.
AUDIT COMMITTEE
Russell E. Palmer, Chairman
John W. Poduska, Sr.
Vincent G. Bell, Jr.*
Michael Emmi
Carl Yankowski
-------------------
* Former member of the Committee
The foregoing Audit Committee Report shall not be deemed to be incorporated by
reference into any of Safeguard's previous or future filings with the Securities
and Exchange Commission, except as otherwise explicitly specified by Safeguard
in any such filing.
INDEPENDENT PUBLIC ACCOUNTANTS
KPMG LLP has been our independent certified public accountants since 1986. We
intend to retain them for 2002. 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.
23
[SAFEGUARD SCIENTIFICS, INC. LOGO]
800 THE SAFEGUARD BUILDING
435 DEVON PARK DRIVE
WAYNE, PA 19087
(610) 293-0600
AUTOMATED INVESTOR RELATIONS LINE: (888) 733-1200
TOLL-FREE NUMBER (877) 506-7371
FOR MORE INFORMATION ABOUT SAFEGUARD, PLEASE VISIT OUR WEBSITE AT
www.safeguard.com
DIRECTIONS TO THE DESMOND GREAT VALLEY HOTEL AND CONFERENCE CENTER
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.
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. Our
board of directors is a vital resource. MAKE YOUR VOTE COUNT! No matter how many
shares you hold, we consider your vote important and encourage you to vote as
soon as possible.
When you sign and return this proxy card, you
- appoint Anthony L. Craig and N. Jeffrey Klauder, 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 22, 2002, and at any adjournments
of that meeting,
- authorize the proxies to vote, in their discretion, upon any other business
properly presented at the meeting, and
- 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 AND AS THEY MAY DETERMINE, IN THEIR
DISCRETION, WITH REGARD TO ANY OTHER MATTER PROPERLY PRESENTED AT THE MEETING.
* FOLD AND DETACH HERE *
Please mark [X]
your votes as
indicated in
this example
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ALL DIRECTORS.
1. ELECTION OF DIRECTORS
Nominees:
01 Vincent G. Bell, Jr.
02 Walter W. Buckley, III
03 Anthony L. Craig
04 Robert A. Fox
05 Robert E. Keith, Jr.
06 Jack L. Messman
07 Russell E. Palmer
08 John W. Poduska, Sr.
FOR [ ] WITHHELD [ ]
ALL FOR ALL
TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE WHILE VOTING FOR THE
REMAINDER, STRIKE A LINE THROUGH THE NOMINEE'S NAME IN THE LIST.
To cumulate votes, write "cumulate for" in the space below, followed by the name
of the nominee(s) and the number of votes to be cast for each nominee.
--------------------------------------------------------------------------------
SIGNATURE SIGNATURE DATE:
----------------------------------- --------------------------------- ----------------
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 SCIENTIFICS, INC. LOGO]
800 The Safeguard Building
435 Devon Park Drive
Wayne, PA 19087-1945
Phone: (610) 293-0600
Toll-Free: (877) 506-7371
Fax: (610) 293-0601
Automated Investor Relations Line: (888) 733-1200
================================================================================
FOR THOSE OF YOU UNABLE TO ATTEND THE MEETING IN PERSON,
WE INVITE YOU TO PARTICIPATE OVER THE INTERNET THROUGH OUR WEBSITE
AT http://www.safeguard.com.
================================================================================