UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Securities Exchange Act of 1934
(Amendment (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 §240.14a-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. | |||||
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435 Devon Park Drive, Building 800
Wayne, PA 19087-1945
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Internet: www.safeguard.com
SAFEGUARD SCIENTIFICS, INC.
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
Dear Safeguard Shareholder:
You are invited to attend the Safeguard Scientifics, Inc. 20132014 Annual Meeting of Shareholders.
| May | |
| 22, 2014, 8:00 a.m. Eastern Time | |
PLACE: | Courtyard Philadelphia Valley Forge/King of Prussia 1100 Drummers Lane, Wayne, PA 19087
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RECORD DATE: | Only shareholders who owned stock at the close of business on March | |
ITEMS OF BUSINESS: |
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— Vote on a proposal to amend and restate our 2004 Equity Compensation Plan to increase the number of shares of our common stock reserved for issuance by 2,200,000 shares, or from 2,166,666 shares to 4,366,666 shares, and to make certain other clarifying changes and updates; | ||
— Vote on the ratification of the appointment of KPMG LLP as our independent registered public accounting firm for 2014; and — Consider such other business as may properly come before the meeting. | ||
If you do not vote your shares on proposals one (Election of Directors) and three (Executive Compensation), your brokerage firm will not be able to vote your shares for you. As a result, your shares will remain unvoted. Therefore, it is more important than ever that you vote your shares for all proposals.YOUR VOTE IS IMPORTANT TO US.
We encourage you to read the proxy statement and submit your proxy or voting instructions as soon as possible to ensure your representation at the annual meeting, regardless of whether you plan to attend in person.You may vote:person.
(1) by completing, signing, dating and returning your proxy card or voting instruction form in the prepaid envelope provided; or (in most cases)
| April 8, 2014 | By Order of the Board of Directors, | |
 | ||
| Deirdre Blackburn,Corporate Secretary |
(2) by telephone as follows:
Shareholders of Record: Within the U.S.A., U.S. territories and Canada, call1-800-652-VOTE (8683);
Owners of shares held in street name: call the number indicated on your voting instruction form;
or
(3) by Internet as follows:
Shareholders of Record: go towww.investorvote.com/SFEor scan the QR code on your proxy card with your smartphone;
Owners of shares held in street name: go to www.proxyvote.com.
For specific instructions on how to vote your shares, please refer to the section entitled “Questions and Answers about the Annual Meeting and the Proposals” beginning on page 1 of the proxy statement and the instructions on the proxy card or voting instruction form.
IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR THE
SHAREHOLDERS’ANNUAL MEETING OF SHAREHOLDERS TO BE HELD ON MAY 23, 201322, 2014
The proxy statementNotice of Annual Meeting, Proxy Statement and our annual reportAnnual Report for the fiscal year ended
December 31, 2012,2013, are available at www.safeguard.com/proxy.
www.safeguard.com/proxy.
This
PROXY STATEMENT
FOR ANNUAL MEETING OF SHAREHOLDERS
QUESTIONS AND ANSWERS ABOUT OUR ANNUAL MEETING
When and where is the annual meeting?
Safeguard’s annual meeting is being held on May 22, 2014, at 8:00 a.m. Eastern Time at Courtyard Philadelphia Valley Forge/King of Prussia, 1100 Drummers Lane, Wayne, PA 19087. You may obtain directions to the meeting at www.safeguard.com/annualmeeting.
Do I need a ticket or proof of Safeguard ownership to attend the annual meeting?
You will not need a ticket to attend the annual meeting. However, only persons with evidence of stock ownership, or who are guests of Safeguard, may attend and be admitted to the annual meeting. Photo identification, such as a valid driver’s license or passport, will be required. If you are not a shareholder of record but hold shares through a broker, trust company, bank or other nominee, you will need to provide proof of beneficial ownership on the record date, such as a legal proxy from your broker, trust company, bank or other nominee, your most recent brokerage account statement prior to March 28, 2014 (the record date for determining the shareholders entitled to vote at the annual meeting), a copy of the voting instruction form provided by your broker, trustee or other nominee, or other similar evidence of ownership. If you do not have photo identification and proof that you own Safeguard shares, you will not be admitted to the annual meeting.
Why am I receiving these materials?
You are receiving Safeguard’s annual report, notice of annual meeting, proxy statement accompanyingand a proxy card and 2012or voting instruction form because you owned shares of Safeguard stock on March 28, 2014. This proxy statement contains detailed information relating to the proposals on which we would like you, as a shareholder, to vote. The proxy card or voting instruction form is used for voting on the proposals. The annual report, will be mailed to shareholders beginningnotice of annual meeting and proxy statement also are available on or about April 16, 2013, in connection with the solicitation of proxies by our Board of Directors.Internet at www.safeguard.com/proxy.
By Order of the Board of Directors,
Deirdre Blackburn
Secretary
April 10, 2013
PROXY STATEMENT FOR ANNUAL MEETING OF SHAREHOLDERS
QUESTIONS AND ANSWERS ABOUT
THE ANNUAL MEETING AND THE PROPOSALS
| How many shares must be present to hold |
We also will consider other business that properly comes before the annual meeting.
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“FOR”the electionTo hold our annual meeting, a quorum must be present. A quorum is a majority of each Board nominee;
“FOR” the proposal to ratify KPMG LLP as Safeguard’s independent registered public accounting firm for the 2013 fiscal year; and
“FOR”the approval, in a non-binding, advisory vote, of Safeguard’s executive compensation as described in the proxy statement.
Our Board also requests discretionary authority to cumulate votes in the election of directors andour outstanding shares entitled to vote on any other matters that may properly ariseas of March 28, 2014, present in person or represented by proxy. Abstentions and broker non-votes are treated as present for quorum purposes.
Who can vote at the annual meeting?
You can vote your shares of common stock at our annual meeting if you were a shareholder at the close of business on March 28, 2014, the record date for our annual meeting. If our Board gives no recommendation on any such matter,On the proxy holders will vote in their own discretion.
Every shareholder may cast one vote for each share ownedmatter to be voted on the record date.at our annual meeting. In the election of directors, shareholders may elect to cumulate their votes as described below under“What does cumulative voting mean?”
What does cumulative voting mean?
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 nine directors are standing for election at the annual meeting, if you hold 100 shares of Safeguard stock, you may cast 900 votes (nine times 100) in the election of directors. You may distribute those votes among as few or as many of the nine nominees as you wish. In other words, in the example provided, you may cast all 900 votesFOR one nominee or allocate your 900 votes among two or more nominees, as long as the total equals 900 votes.
If you received a proxy card and wish to vote cumulatively, you must:
Check the appropriate box under item 1 on the proxy card; and
| — | Check the appropriate box under item 1 on the proxy card; and |
Write |
If you vote cumulatively, please check to be sure that the votes you cast add up to the number of shares you own multiplied by nine. If the number of votes does not add up correctly, your votes will not be counted until a properly completed proxy card has been received.
The cumulative voting feature for the election of directors also is available by voting in person at the annual meeting; however, it isnot available if you vote by telephone or the Internet. If you are thebeneficial owner of shares held in street name and wish to vote cumulatively, you will need to contact your broker, bank or other nominee holder of your shares.
| What is the difference between holding shares as a “shareholder of record” and as a “beneficial owner”? |
Most of Safeguard’s shareholders hold their shares through a broker, bank or other nominee rather than directly in their own name. There are important distinctions between shares held of record and those owned beneficially.
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Shareholder of Record
Record.If your shares are registered directly in your name with Safeguard’sour transfer agent, Computershare, you are considered theshareholder of record with respect to those shares, and these proxy materials are being sent to you directly by Safeguard. As ashareholder of record, youYou have the right to grant your voting proxy directly to Safeguard or to vote in person at the annual meeting. If you are ashareholder of record, Safeguard has enclosed a proxy card for your use in voting your shares.
Beneficial Owner
Owner.If your shares are held in street name (such as in a brokerage account or by another nominee, such as a bank or trust company), you are considered thebeneficial owner of the shares, and these proxy materials, together with a voting instruction form, are being forwarded to you by your broker or other nominee. As abeneficial owner, youYou have the right to direct your broker or other nominee how to vote your shares, but unless you receive a proxy from your broker, you cannot vote your shares directly or by proxy – you must instruct your broker or other nominee as to how to vote your shares. You also are invited to attend the annual meeting. ToHowever, to vote your shares at the annual meeting, you will need a legal proxy from your broker or other nominee authorizing you tonominee.
How do I vote at the annual meeting.my shares?
| If you are a shareholder of record |
By Internet or smartphone (24 hours a day) | www.investorvote.com/SFE or scan the QR code on your proxy card with your smartphone |
| By telephone (24 hours a day) | Call the toll-free number indicated on your voting instruction form | |||
| By mail | Return a properly executed and | Return a properly executed and dated voting instruction form by mail or by such other method(s) your broker or other nominee makes available | ||
| In person at our annual meeting | Instructions on attending our annual meeting in person can be found above | You must obtain a legal proxy from the organization that holds your shares if you wish to attend our annual meeting and vote in person. Additional instructions on attending our annual meeting in person can be found above |
Telephone and Internet voting will close at 11:59 p.m. Eastern Time the day prior to the annual meeting date.
How does Safeguard’s Board recommend I vote and what vote is required for adoption or approval of each matter to be voted on?
| Proposal | Directors’ Recommendation | Vote Required | ||
Board of Directors | FORall nominees | The nine nominees who receive the highest number ofFOR votes at the annual meeting will be elected as directors | ||
Advisory vote to approve executive compensation | FORthe resolution approving the compensation of our named executive officers | Affirmative vote of the majority of the votes cast by shareholders entitled to vote for the proposal | ||
Approval of the amended and restated 2004 Equity Compensation Plan | FORapproval of the amended and restated 2004 Equity Compensation Plan | Affirmative vote of the majority of the votes cast by shareholders entitled to vote for the proposal | ||
Ratification of appointment of independent registered public accounting firm | FORratification of the appointment of KPMG LLP | Affirmative vote of the majority of the votes cast by shareholders entitled to vote for the proposal |
Unless a contrary choice is specified, proxies solicited by our Board will be voted for the election of our director nominees and for each of the other proposals. Our Board requests discretionary authority to cumulate votes in the election of directors and to vote on any other matters that may properly arise at the annual meeting.
What are my choices for casting my vote on each matter to be voted on?
| Proposal | Voting Options | Effect of Withheld Votes or Abstentions | Broker Discretionary Voting Allowed? | Effect of Broker Non-votes | ||||
Election of Directors | FOR or WITHHOLD (for each director nominee) | No effect – not counted as a “vote cast” | No | No effect, assuming a quorum is present | ||||
Advisory vote to approve executive compensation | FOR, AGAINST or ABSTAIN | No effect – not counted as a “vote cast” | No | No effect, assuming a quorum is present | ||||
Approval of the amended and restated 2004 Equity Compensation Plan | FOR, AGAINST or ABSTAIN | No effect – not counted as a “vote cast” | No | No effect, assuming a quorum is present | ||||
Ratification of appointment of independent registered public accounting firm | FOR, AGAINST or ABSTAIN | No effect – not counted as a “vote cast” | Yes | No effect, assuming a quorum is present |
What is a broker non-vote?
A broker non-vote occurs when your broker submits a proxy for the meeting with respect to the ratification of the appointment of our independent registered public accounting firm but does not vote on non-discretionary matters because you did not provide voting instructions on those matters.
Will my shares be voted if I do not sign and return my proxy card or voting instruction form or give specific voting instructions when I deliver my proxy or voting instruction form?
Shareholder of Record.If you do not provide a proxy, your shares will not be voted unless you attend our annual meeting and vote your shares. If you return your proxy card and indicate that you wish to vote as recommended by our Board or if you sign your proxy card but do not mark any boxes showing how you wish to vote, Brian J. Sisko and Jeffrey B. McGroarty, asthen the proxiesproxy holders designated by our Board to act on behalf of shareholders will vote your shares and cumulate your votes as recommended by our Board and, in their discretion, will vote on any other matters which may properly arise at the annual meeting.
Beneficial Owner.If you do not provide your broker or other nominee with voting instructions, your broker may cast a vote on your behalf for ratification of the appointment of our independent registered public accounting firm or leave your shares unvoted. Your broker may not vote on your behalf on any other proposals, absent specific instructions from you.
What do I do if I change my mind after I vote my shares?
If you are theabeneficial ownershareholder of shares held in street name,record, you will receive a voting instruction form directly frommay change your broker, bank or other nominee describing howvote at any time prior to the vote your shares. This form will, in most cases, offer you three ways to vote:at our annual meeting by:
| — |
You should carefully follow any instructions sent by your broker, bank or other nominee to ensure that your instructions are received and your votes are cast as directed.
Whether you are a shareholder of record or the beneficial owner of the shares, you will need to have your proxy card or voting instruction form in hand when you call or log on to the Internet.
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| Re-voting by telephone or via the Internet (only your latest vote will be counted); note that telephone and Internet voting will close at 11:59 p.m. Eastern Time the day prior to |
| — | Submitting another proxy card with a later date (again, only your latest vote will be counted); |
| — | Sending written notice to our Corporate Secretary (which must be received at our corporate headquarters |
| — | Voting in person at |
If you are thebeneficial owner of shares held in street name, you may submit new voting instructions by following the instructions provided by your broker bank or other nominee. You also may vote in person at the annual meeting if you obtain a legal proxy from your broker or other nominee authorizing you to vote at theour annual meeting.
Attendance atWho will count the annual meetingvotes?
A representative of Safeguard will not cause your previously granted proxy to be revoked unless you specifically request such a revocation. If you are ashareholder of recordcount the votes and wish to vote at the annual meeting, you may do so by presenting your completed proxy card or ballot toact as the judge of election.
What is “householding” and how does it affect me?
If you and other residents at your mailing address are athebeneficial owner of shares held in street name, and wish to vote at the annual meeting, you must present a legal proxy from your broker or other nominee may have notified you that your household will receive only one annual report and proxy statement for each company in which you hold stock through that broker or other nominee. This practice is commonly referred to as “householding” and potentially provides extra convenience for shareholders and cost savings for companies. Unless you responded that you did not want to participate in householding, you were deemed to have consented to the judge of election along withprocess. Therefore, your ballot.
Other Proposals. For the ratification of the appointmentbroker or other nominee will send only one copy of our independent registered public accounting firm, the non-binding, advisory voteannual report and proxy statement to approve the compensation paidyour address; however, each shareholder in your household should continue to Safeguard’s named executive officers, and any other proposal that may be properly brought before the annual meeting, the affirmative vote ofreceive a majority of the votes cast by all the shareholders entitled to vote for the proposal will be required, so long as a quorum representing a majority of our outstandingseparate voting stock is present, either in person or by proxy.instruction form.
A properly executed proxy marked“ABSTAIN” with respect to any proposal will be counted for purposes of determining whether there is a quorum. However, under Pennsylvania law, a proxy marked“ABSTAIN” is not considered a vote cast. Accordingly, an abstention will have no effect on proposals included in this proxy statement. Broker non-votes (which are explained below) are not counted in the tally of votes“FOR” or“AGAINST” a proposal and, therefore, have no effect on the proposals, assuming a quorum is present.
According to the rules of the United States Securities and Exchange Commission (“SEC”), the advisory vote to approve the compensation of Safeguard’s named executive officers is not binding on Safeguard. However, Safeguard’s Board and Compensation Committee will consider the results of this advisory vote in making future decisions regarding Safeguard’s compensation policies and the compensation of Safeguard’s named executive officers.
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Computershare Trust Company, N.A.
P. O. Box 43078
Providence, RI 02940-3078
If you are ashareholder of record, you also can find information on transferring shares and other useful shareholder information on our transfer agent’s web site at www.computershare.com/investor.
If you are thebeneficial owner of shares held in street name and you would like to receive your own set of our annual report and proxy statement in the future, or if you share an address with another Safeguard shareholder and together both of you would like to receive only a single set of Safeguard annual documents, please contact Broadridge Financial Solutions, Inc. by telephone at 1-800-542-1061. Be sure to provide Broadridge with your name, the name of your brokerage firm, bankbroker or other nominee, and your account number.nominee.
If you are currently subject to householding and would like to receive an individual copy of this year’s annual report or proxy statement, we will promptly send a copy to you if you send a written request to Safeguard Scientifics, Inc., Attention: Investor Relations, 435 Devon Park Drive, Building 800, Wayne, PA 19087-194519087 or call 1-877-506-7371.
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STOCK OWNERSHIP OF CERTAIN BENEFICIAL OWNERS,
DIRECTORS AND OFFICERS
The following table shows the number of shares of Safeguard common stock beneficially owned as of March 27, 2013 (unless otherwise indicated), by each person known to us to be the beneficial owner of more than 5% of our outstanding shares of common stock, our directors, persons named in the Summary Compensation Table in this proxy statement, and our directors and executive officers as a group. For purposes of reporting total beneficial ownership, shares that may be acquired within 60 days of March 27, 2013, through the exercise of Safeguard stock options are included. On March 27, 2013, there were 20,976,963 shares of common stock outstanding and 1,102,838 shares underlying stock options held by executive officers and directors as a group that were exercisable within 60 days of March 27, 2013.
Name | Outstanding Shares | Options Exercisable | Shares Beneficially Owned Assuming Exercise of | Percent of Outstanding | Other Stock-Based Holdings (2) | |||||||||||||||||||||||||
| Owned | Within 60 Days | Options | Shares (1) | Vested | Unvested | |||||||||||||||||||||||||
Blackrock, Inc. 40 East 52nd Street New York, NY 10022 | 1,290,292 | — | 1,290,292 | 6.16 | % | — | — | |||||||||||||||||||||||
BMO Financial Corp. 111 W. Monroe St., P. O. Box 755 Chicago, IL 60690 | 1,838,524 | — | 1,838,524 | 8.78 | % | — | — | |||||||||||||||||||||||
Dimensional Fund Advisors LP Palisades West, Bldg. One 6300 Bee Cave Road Austin, TX 78746 | 1,119,115 | — | 1,119,115 | 5.34 | % | — | — | |||||||||||||||||||||||
First Manhattan Co. 437 Madison Avenue New York, NY 10022 | 1,298,588 | — | 1,298,588 | 6.18 | % | — | — | |||||||||||||||||||||||
T. Rowe Price Associates, Inc. 100 East Pratt Street Baltimore, MD 21202 | 2,377,227 | — | 2,377,227 | 11.00 | % | — | — | |||||||||||||||||||||||
The Vanguard Group, Inc. 100 Vanguard Boulevard Malvern, PA 19355 | 1,180,921 | — | 1,180,921 | 5.63 | % | — | — | |||||||||||||||||||||||
Peter J. Boni (3) | 126,528 | 438,656 | 565,184 | 2.64 | % | — | — | |||||||||||||||||||||||
Julie A. Dobson | 12,166 | 35,830 | 47,996 | * | 24,236 | 218 | ||||||||||||||||||||||||
Keith B. Jarrett | — | — | — | * | 630 | 157 | ||||||||||||||||||||||||
Andrew E. Lietz | 13,889 | 15,000 | 28,889 | * | 20,150 | — | ||||||||||||||||||||||||
George MacKenzie | 5,784 | 35,830 | 41,614 | * | 14,696 | — | ||||||||||||||||||||||||
George D. McClelland | 1,666 | 39,997 | 41,663 | * | 49,807 | — | ||||||||||||||||||||||||
Jack L. Messman | 10,833 | 35,830 | 46,663 | * | 47,818 | — | ||||||||||||||||||||||||
John J. Roberts | 4,927 | 18,332 | 23,259 | * | 20,376 | — | ||||||||||||||||||||||||
Robert J. Rosenthal | — | 31,665 | 31,665 | * | 16,134 | — | ||||||||||||||||||||||||
Stephen T. Zarrilli | 39,793 | 116,302 | 156,095 | * | — | — | ||||||||||||||||||||||||
James A. Datin | 86,875 | 218,459 | 305,334 | 1.44 | % | — | — | |||||||||||||||||||||||
Jeffrey B. McGroarty | 6,603 | 30,313 | 36,916 | * | — | — | ||||||||||||||||||||||||
Brian J. Sisko | 47,388 | 86,624 | 134,012 | * | — | — | ||||||||||||||||||||||||
Executive officers and directors as a group (13 persons) | 356,452 | 1,102,838 | 1,459,290 | 6.61 | % | 193,847 | 375 | |||||||||||||||||||||||
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ITEM 1 — ELECTION OF DIRECTORS
Item 1 on Proxy Card
Our directors are elected annually and serve until the next annual meeting of shareholders. Peter Boni, a current member of our Board, retired as Safeguard’s President and Chief Executive Officer in November 2012 and will not be standing for re-election at this year’s annual meeting. All of the nominees for this year’s election are currently serving as directors. Each nominee has consented to serve until the next annual meeting if elected. 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 votingvoted on the original director candidate will be cast for the substituted candidate.
Director Nominee Experience and Qualifications
TheOur Board believes that the Board should collectively possess a broad range of skills, expertise, industry and other knowledge, and business experience that meets the needs of our corporate strategy and provides effective oversight of our business. The Nominating & Corporate Governance Committee has developed a matrix of skills and experience which it has determined would be beneficial to have represented on our Board. The Nominating & Corporate Governance Committee regularly reviews the appropriate skills and experience required of directors in the context of the fit between Safeguard’s needs regarding its Board composition and the individual skills and experience of the current Board members.
The Nominating & Corporate Governance Committee does not have a formal policy with respect to diversity; however,diversity. However, the Nominating & Corporate Governance Committee’s charter provides in relevant part that the committee shall “seek members from diverse backgrounds” and goes on to say that the committee will evaluate nominees for election to our Board “with the objective of recommending a group that through its diversity of experience can provide relevant advice and counsel to management.” The Board and the Nominating & Corporate Governance Committee believe that it is essential that our Board members have diverse professional experience and differences in viewpoints and skills.
The Nominating & Corporate Governance Committee regularly reviews the appropriate skills and characteristics required of directors in the context of the fit between Safeguard’s needs regarding its Board composition and the individual skills and experience of the current Board members. In considering whether to recommend any candidate for inclusion in the Board’s slate of recommended director nominees, the Nominating & Corporate Governance Committee considers the needs of the Board as a whole as well as the staffing needs of each of its committees. With respect to the nomination of continuing directors for re-election, an individual’s past contributions to the Board also are considered. The Board monitors the effectiveness of this approach via an annual internal board and peer assessment, as well as ongoing director succession planning discussions by the Board and its Nominating & Corporate Governance Committee. From time to time, the Nominating & Corporate Governance Committee may conduct informal or formal searches and consider specific new candidates for potential nomination for election or for appointment to our Board. In considering potential director candidates, the Nominating & Corporate Governance Committee seeks the following attributes for director nominees:
| — | A strong record of personal integrity and ethical conduct; |
| — | A leader in the companies or institutions with which he or she is affiliated; |
| — | Competencies, skills and experiences that are complementary to the background and experience represented on Safeguard’s Board and that meet the needs of Safeguard’s strategy and business; |
| — | A willingness and ability to devote sufficient time to fulfill his or her responsibilities to Safeguard and our shareholders; |
| — | The ability to represent the long-term interests of our shareholders; and |
| — | The ability to provide relevant advice and counsel to management and best perpetuate the success of Safeguard’s business. |
As part of its ongoing review of Board composition, in late 2013, the Nominating & Corporate Governance Committee recommended to the Board that the retirement age of 75 specified in Safeguard’s Corporate Governance Guidelines be waived for Mr. Lietz for one year to allow him to stand for re-election at the 2014 annual meeting and provide continuity of leadership to the Board. The Board concurred with the Nominating & Corporate Governance Committee’s recommendation.
Our Board believes that all of the nominees named below are highly qualified and bring to the Board the executive leadership skills and experience required for service on theour Board. The biography of each of theour director nominees below contains information regarding the person’s service as a director, business experience, director positions held currently or at any time during the last five years, andincludes the specific experiences, qualifications, attributes and skills that caused the Nominating & Corporate Governance Committee and our Board to determine that the personindividual should be nominated to serve as a director until our 20142015 annual meeting, given our business and structure.
THE BOARD RECOMMENDS A VOTE “FOR” EACH NOMINEE. THE NINE NOMINEES WHO
RECEIVE THE HIGHEST NUMBER OF AFFIRMATIVE VOTES WILL BE ELECTED AS DIRECTORS.
Julie A. Dobson, age 56, has served on ourThe Board since 2003. Ms. Dobson also isrecommends a director of American Water Works Company, Inc., PNM Resources, Inc. and RadioShack Corporation and previously served as non-executive Chairperson ofvote FOR each nominee. The nine nominees who receive the Board of LCC International, Inc. Positions held include Chief Operating Officer (1998 until February 2002) of TeleCorp PCS, Inc., a wireless/mobile phone company that was acquired by AT&T Wireless, Inc. in late 2001; President of Bell Atlantic Corporation’s New York/ New Jersey Metro Region mobile phone operations (1997 to 1998); and ahighest number of executive positions during her 18-year career with Bell Atlanticaffirmative votes will be elected as directors.
Andrew E. Lietz, age 75 Chairman of the Board Director since: 2003 Safeguard Board Committees: Capital Management, Compensation | Other public directorships: Amphenol Corporation Former public directorships within past five years: DDi Corp. and Omtool Corporation |
Career Highlights:
| — | Managing Director and Founder, Rye Capital Management, private equity investment firm (2001 – 2008) |
| — | Executive Chairman, Clare Corporation, manufacturer of integrated circuits, solid-state relays and electronic switches (2000 – 2002) |
| — | President and Chief Executive Officer (1995 – 2000) and other executive positions (1985 – 1995), Hadco Corporation, global manufacturer of electronic interconnect products and services |
Experience and Qualifications:Mr. Lietz has more than 40 years of corporate management experience, including sales,strategic planning; operations management; capital markets transactions; debt and equity financings; merger and acquisition transactions; and more than 20 years’ service in public sector activities and on public company boards.
Stephen T. Zarrilli, age 52 President and Chief Executive Officer Director since:2012 Safeguard Board Committees:Capital Management | Other public directorships:Nutrisystem, Inc. Former public directorships within past five years: Clarient, Inc. |
Career Highlights:
| — | President and Chief Executive Officer (November 2012 – present); Senior Vice President and Chief Financial Officer (June 2008 – November 2012); and Acting Chief Administrative Officer and Acting Chief Financial Officer (December 2006 – June 2007), Safeguard Scientifics, Inc. |
| — | Co-founder and Managing Director, Penn Valley Group, a middle-market management advisory and private equity firm (2004 – June 2008) |
| — | Chief Financial Officer, Fiberlink Communications Corporation (2001 – 2004) |
| — | Chief Executive Officer, Concellera Software, Inc. (2000 – 2001) |
| — | Chief Executive Officer (1999 – 2000) and Chief Financial Officer (1994 – 1998), US Interactive, Inc. (a public company which filed for bankruptcy protection in 2001) |
| — | Deloitte & Touche (1983 – 1994) |
Experience and Qualifications:Mr. Zarrilli has more than 30 years of experience in corporate finance and accounting, general operations and strategic planningexecutive management; capital markets transactions; debt and development in the chief executive officer’s office. Ms. Dobson holds a BS degree from The College of Williamequity financings; merger and Maryacquisition transactions; and an MBA degree from the University of Pittsburgh. emerging ventures.
Julie A. Dobson, age 57 Director since: 2003 Safeguard Board Committees: Compensation (Chair), Nominating & Corporate Governance | Other public directorships: American Water Works Company Inc., PNM Resources, Inc. and RadioShack Corporation Former public directorships within past five years: LCC International, Inc. |
Career Highlights:
| — | Chief Operating Officer, Telecorp PCS, Inc., a wireless/mobile phone company that was acquired by AT&T Wireless, Inc. (1998 – 2002) |
| — | Various executive positions during her 18-year career with Bell Atlantic Corporation, including President, Bell Atlantic Corporation’s New York/New Jersey Metro Region mobile phone operations, Vice President of Bell Atlantic Enterprises Corporation, and President and Chief Executive Officer of Bell Atlantic Business Systems International |
Experience and Qualifications:Ms. Dobson has 22 years of corporate and entrepreneurial experience, including experience relevant to corporate finance and accounting matters; strategic planning, corporate development and operations management; capital markets transactions; and debt and equity financings. Ms. Dobson also has relevant experience growing businesses organically and through merger and acquisition transactions and experience serving on public company boards and the principal committees thereof.
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Keith B. Jarrett, Doctor of Business Administration, age 65 Director since: 2012 Safeguard Board Committees: Audit, Capital Management | Other public directorships: Trustee, Eagle Mutual Funds of Raymond James Financial Former public directorships within past five years: None |
Keith B.Career Highlights:
| — | Co-founder and Principal, Rockport Funding, LLC, a specialty finance start-up company incubator and private equity investment boutique (2003 – present) |
| — | Founding Executive, Thomson Financial, a leading vendor of information and technology solutions to the global financial community, including service as the CEO of Thomson Financial International for seven years, founding and directing its Corporate Venture Capital Group, and founding and developing many of its Straight Through Processing initiatives (1986 – 2001) |
Experience and Qualifications:Dr. Jarrett, age 64, has served on our Board since 2012.more than 25 years of experience in venture capital, private equity and finance technology. Dr. Jarrett also is a member of the Board of Trustees for the Raymond James Financial Eagle Funds. Since 2002, Dr. Jarrett has served as a private investor and active board representative to venture stage and other private growth equity organizations, as well as a corporate advisor providing strategic, organizational development and capital market advisory for selected organizations and private equity firms, with a focusdomain expertise in the financial and medical information technology sectors. Dr. Jarrett is a principal of Rockport Funding, LLC, a specialty finance start-up company incubatorsector and private equity investment boutique which he co-founded in 2003. Positions held include founding executive of Thomson Financial, a leading vendor of information and technology solutions to the global financial community (1986-2001), including service as the CEO of Thomson Financial International for seven years, founding and directing Thomson Financial’s Corporate Venture Capital Group, and founding and developing many of the products and services for Thomson Financial’s Straight Through Processing initiatives. Dr. Jarrett holds an MBA from the University of Massachusetts, Amherst and a Ph.D. in financial economics from Harvard Business School. Dr. Jarrett has extensiverelevant experience in venture capital/private equity; capital markets transactions; global strategic planning and business development; experienceand growing businesses organically and through merger and acquisition transactions;transactions.
George MacKenzie, age 65 Director since: 2003 Safeguard Board Committees: Audit (Chair), Nominating & Corporate Governance | Other public directorships: American Water Works Company Inc. (Chair) and Tractor Supply Company Former public directorships within past five years: C&D Technologies, Inc. |
Career Highlights:
| — | Interim Chief Executive Officer, American Water Works Company, Inc., a provider of water services in North America (January – April 2006) |
| — | Interim Chief Executive Officer, C&D Technologies, Inc., a technology company that markets systems for the conversion and storage of electrical power (March – July 2005) |
| — | Executive Vice President and Chief Financial Officer, P.H. Glatfelter Company, a manufacturer of specialty papers and engineered products (September 2001 – June 2002) |
| — | Vice Chairman (2000 – 2001) and Chief Financial Officer (1995 – 2001) of, and several other executive positions during his 22-year career with, Hercules, Incorporated, a global chemical specialties manufacturer |
Experience and domain expertise in the financial and medical information technology sectors.
Andrew E. LietzQualifications, age 74, has served on our Board since 2003 and was appointed Chairman of the Board in August 2009. Mr. Lietz also is a director of Amphenol Corporation and previously served as a director of DDi Corp. and Omtool Corporation. Positions held include Managing Director and Founder of Rye Capital Management, LLC, a private equity investment firm (2001 to 2008); Executive Chairman (late 2000 until mid-2002) of Clare Corporation, a designer and manufacturer of integrated circuits, solid-state relays and electronic switches, which was acquired by Ixys Corporation in June 2002; President and Chief Executive Officer (1995 to 2000) of, and several other executive positions during his 16-year career with, Hadco Corporation, a global manufacturer of electronic interconnect products and services; and a variety of positions at IBM Corporation. Mr. Lietz holds a BS degree from the Wayne State University Business Administration School. He has more than 40 years of corporate management experience, including strategic planning; operations management; capital markets transactions; debt and equity financings; merger and acquisition transactions; and more than 20 years’ service in public sector activities and on public company boards.
George MacKenzie:, age 64, has served on our Board since 2003. Mr. MacKenzie also is a director and non-executive Chairman of the Board of American Water Works Company, Inc. and a director of Tractor Supply Company, where he also serves as Chair of the Audit Committee. He previously served as a director of C&D Technologies, Inc. Positions held include interim Chief Executive Officer (January 2006 to April 2006) of American Water, a provider of water services in North America; interim Chief Executive Officer of C&D Technologies, Inc., a technology company that produces and markets systems for the conversion and storage of electrical power (March 2005 to July 2005); Executive Vice President and Chief Financial Officer of P.H. Glatfelter Company, a manufacturer of specialty papers and engineered products (September 2001 to June 2002); Vice Chairman (2000 to 2001) and Chief Financial Officer (1995 until his retirement in 2001) of, and several other executive positions during his 22-year career with, Hercules, Incorporated, a global chemical specialties manufacturer. Mr. MacKenzie holds a BS degree from the University of Delaware and an MBA degree from the University of Chicago. Mr. MacKenzie has extensive experience in corporate finance and accounting. He has served as the chief financial officer of a publicly traded company, and he is a certified public accountant. Mr. MacKenzie also has experience in capital markets transactions; debt and equity financings; global strategic planning and operations management; merger and acquisition transactions; and risk management. In addition, he has extensive public company board experience, including service on multiple audit, compensation and nominating and corporate governance committees.
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George D. McClelland, age 67 Director since: 2006 Safeguard Board Committees: Audit, Compensation, Nominating & Corporate Governance (Chair) | Other public directorships: None Former public directorships within past five years: None |
George D. McClellandCareer Highlights, age 66, has served on our Board since 2006. Positions held include co-founder,:
| — | Co-founder, Vice Chairman and Director of Business Development of F Squared Investments, an investment management company (2006 – 2013) |
| — | Chairman, CEO and co-founder of eSecLending, a provider of securities lending services to the pension industry (2000 – 2001) |
| — | Senior Vice President, United Asset Management Corporation, a public holding company (1994 –2001) |
| — | Multiple corporate management roles, FMC Corp., a diversified financial services company (1987 – 1991) |
| — | Corporate Treasurer, Data General Corporation, a technology company (1972 – 1987) |
Experience and Director of Business Development of F Squared Investments, an investment management company (2006 to present); Chairman, CEO and co-founder of eSecLending, a provider of securities lending services to the pension industry (2000 to 2001); a director of Riverstone Networks, Inc. and Storage Networks, Inc.; Senior Vice President, responsible for managing many of the portfolio companies of United Asset Management Corporation, a public holding company (1994 to 2001); multiple corporate management roles at FMR Corp., a diversified financial services company (1987 to 1991); and Corporate Treasurer of Data General Corporation, a technology company (1972 to 1987). Mr. McClelland holds a BA degree from Trinity College and an MBA degree from Harvard Business School. Qualifications:Mr. McClelland has extensive experience in corporate finance, treasury and accounting; capital markets transactions; debt and equity financings; venture investment; investment management; merger and acquisition transactions; and risk management. He also has entrepreneurial experience as a founding member of multiple companies; extensive domain expertise in the technology, healthcare and financial sectors; and public and private company board service experience.
Jack L. Messman, age 74 Director since: 1994 Safeguard Board Committees: Capital Management, Nominating & Corporate Governance | Other public directorships: AMG Advanced Metallurgical Group N.V. and RadioShack Corporation Former public directorships within past five years: Timminco Limited |
Jack L. MessmanCareer Highlights, age 73, has served on our Board since 1994. Mr. Messman also is a director of AMG Advanced Metallurgical Group N.V.:
| — | Chairman and Chief Executive Officer, Novell, Inc., a provider of infrastructure software products (2001 – 2006) |
| — | Chief Executive Officer and President of Cambridge Technology Partners, an e-business systems integration company (1999 – 2001) |
| — | Chairman and Chief Executive Officer, Union Pacific Resources Group, an oil and gas exploration and production company (1991 – 1999) |
| — | Chairman and Chief Executive Officer, USPCI, Inc., environmental services company (1988 – 1991) |
Experience and RadioShack Corporation. He previously served as a director of Timminco Limited. Positions held include Chairman of the Board and Chief Executive Officer of Novell, Inc., a provider of infrastructure software products focused around Linux and identity management (2001 to 2006); Chief Executive Officer and President of Cambridge Technology Partners (Massachusetts), Inc., an e-business systems integration company (August 1999 until its acquisition by Novell, Inc. in July 2001); Chairman and Chief Executive Officer of Union Pacific Resources Group Inc., an independent oil and gas exploration and production company (April 1991 to August 1999); and Chairman and Chief Executive Officer of USPCI, Inc., Union Pacific’s environmental services company (May 1988 to April 1991). Mr. Messman holds a BS degree from the University of Delaware and an MBA degree from Harvard Business School. Qualifications:Mr. Messman has extensive experience in treasury and financial planning matters; capital markets transactions; debt and equity financings; strategic planning and operations management; and merger and acquisition transactions. In addition, he possesses domain expertise in the technology sector and public and private company board service experience.
John J. Roberts, age 69 Director since: 2003 Safeguard Board Committees: Audit, Compensation | Other public directorships: Armstrong World Industries, Inc., Vonage Holdings Corp., Inc. and Trustee, Pennsylvania Real Estate Investment Trust Former public directorships within past five years: None |
John J. RobertsCareer Highlights, age 68, has served on our Board since 2003. :
| — | Global Managing Partner and a Member of the Leadership Team, PricewaterhouseCoopers LLP at the time of his retirement in June 2002, completing a35-year career with the professional services firm during which he served in a variety of client service and operating positions |
Experience and Qualifications:Mr. Roberts also is a director of Armstrong World Industries, Inc. and Vonage Holdings Corp. and a trustee of Pennsylvania Real Estate Investment Trust and previously served as a director of Sicor, Inc. Positions held include Global Managing Partner and a Member of the Leadership Team of PricewaterhouseCoopers LLP at the time of his retirement in June 2002, completing a 35-year career with the professional services firm during which he served in a variety of client service and operating positions. Mr. Roberts holds a BSBA degree from Drexel University and is a certified public accountant. Mr. Robertsaccountant and has extensive experience in corporate finance and accounting; capital markets transactions; debt and equity financings; global strategic planning, corporate development and operations management; management and technology consulting; risk management; and merger and acquisition transactions. He also has public and private company board service experience, including service on multiple audit committees.
Robert J. Rosenthal, PhD, age 57 Director since: 2007 Safeguard Board Committees: Audit, Capital Management (Chair) | Other public directorships: None Former public directorships within past five years: None |
Dr. Robert J. RosenthalCareer Highlights, age 56, has served on our Board since 2007. Dr. Rosenthal also is a director of Pathogenica, a director:
| — | Chairman and Chief Executive Officer, IMI Intelligent Medical Implants, AG, a medical technology company (2010 – 2012) |
| — | President and Chief Executive Officer, Magellan Biosciences, Inc., a provider of clinical diagnostics and life sciences research tools (October 2005 – 2009) |
| — | President and Chief Executive Officer, TekCel, Ltd., a provider of life sciences research tools (2003 – 2007) |
| — | President and Chief Executive Officer, Boston Life Sciences, Inc., a diagnostic and therapeutic development company (2002 – 2003) |
| — | President and Chief Executive Officer, Magellan Discovery Technologies, LLC, a life sciences acquisition company (2001 – 2002) |
| — | Senior Vice President, Perkin Elmer Corporation and President of its instrument division (1999 – 2000) |
| — | Various executive positions, Thermo Optek Corporation (1995 – 1999) |
Experience and Chairman of the Board of TraceBioAnalytics, and a director and Chairman of the Board of Sensorin. Positions held include Chairman of the Board and Chief Executive Officer of IMI Intelligent Medical Implants AG, a medical technology company that is developing an intelligent retinal implant system for degenerative retinal disorders (January 2010 to December 2012); President, Chief Executive Officer and a director of Magellan Biosciences, Inc., a provider of clinical diagnostics and life sciences research tools (October 2005 to December 2009); President, Chief Executive Officer and a director of TekCel, Ltd., a provider of life sciences research tools (October 2003 to January 2007); President and Chief Executive Officer of Boston Life Sciences, Inc., a diagnostic and therapeutic development company (July 2002 to October 2003); President and Chief Executive Officer of Magellan Discovery Technologies, LLC, a life sciences acquisition company (January 2001 to July 2002); Senior Vice President of PerkinElmer Corporation and President of its instrument division (March 1999 to November 2000); and in various executive positions at Thermo Optek Corporation (September 1995 to February 1999). Dr. Rosenthal holds a BS degree from the University of Maryland, an MS degree from State University of New York, and a PhD degree from Emory University; completed a post-doctoral fellowship at, and was a guest scientist of the Alexander von Humboldt Foundation, followed by an additional post-doctoral fellowship at UCLA; and he holds an AEA Executive MBA degree from Stanford University. Qualifications:Dr. Rosenthal has 20 years of experience relating to companies involved in the development of diagnostics, therapeutics, medical devices, and life sciences tools. His specific experience includes strategic planning and positioning; corporate and product development; operations management; capital markets transactions; debt and equity financings; fund-raising; merger and acquisition transactions; and corporate finance. Dr. Rosenthal also has significant public and private company board experience.
Skills and Qualifications of Board
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Stephen T. Zarrilli, age 51, has servedThe following table includes the skills and qualifications of each director that led our Board to conclude that the director is qualified to serve on our Board since November 2012. Mr. Zarrilli joined Safeguard as Senior Vice President and Chief Financial Officer in June 2008 and became President and Chief Executive Officer of Safeguard in November 2012. Mr. Zarrilli is a director and Chairman of the Audit Committee of NutriSystem, Inc. and previously served as a director of Clarient, Inc. Prior to joining Safeguard, Mr. Zarrilli co-founded, in 2004, the Penn Valley Group, a middle-market management advisory and private equity firm, and served as a Managing Director there until June 2008. Mr. Zarrilli also served as Acting Senior Vice President, Acting Chief Administrative Officer and Acting Chief Financial Officer of Safeguard from December 2006 to June 2007. Mr. Zarrilli also served as the Chief Financial Officer, from 2001 to 2004, of Fiberlink Communications Corporation, a provider of remote access VPN solutions for large enterprises; as the Chief Executive Officer, from 2000 to 2001, of Concellera Software, Inc., a developer of content management software; as the Chief Executive Officer, from 1999 to 2000, and Chief Financial Officer, from 1994 to 1998, of US Interactive, Inc. (at the time a public company), a provider of Internet strategy consulting, marketing and technology services (US Interactive filed for bankruptcy protection under Chapter 11 of the United States Bankruptcy Code in January 2001); and, previously, with Deloitte & Touche from 1983 to 1994. Mr. Zarrilli received a BA degree in accounting from LaSalle University and is a certified public accountant. Mr. Zarrilli has extensive experience in corporate finance and accounting; capital markets transactions; debt and equity financings; and merger and acquisition transactions.
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| Andrew Lietz | Stephen Zarrilli | Julie Dobson | Keith Jarrett | George MacKenzie | George McClelland | Jack Messman | John Roberts | Robert Rosenthal | ||||||||||
Operational / Direct Management Experience: | ü | ü ü | ü ü | ü | ü ü | ü | ü | ü | ||||||||||
Capital Markets Experience | ü | ü | ü | ü | ü | ü | ü | ü | ü | |||||||||
Private Equity / Venture Capital Industry Experience | ü | ü | ü | ü | ü | ü | ü | ü | ü | |||||||||
Financial Expertise / Literacy | ü | ü | ü | ü | ü | ü | ü | ü | ü | |||||||||
C-level Experience | ü | ü | ü | ü | ü | ü | ü | ü | ü | |||||||||
Other Public / Private Director Experience | ü | ü | ü | ü | ü | ü | ü | ü | ü |
CORPORATE GOVERNANCE AND BOARD MATTERS
Safeguard’s Corporate Governance Guidelines, and Code of Business Conduct and Ethics, and the charters for the Board’s Audit Committee Charter, Compensation Committee Charter and Nominating & Corporate Governance Committee Charter are available at www.safeguard.com/governance. The Code of Business Conduct and Ethics is applicable to all employees of Safeguard, including each of our executive and financial officers, and the members of our Board. Safeguard intends to post information regarding amendments to or waivers from our Code of Business Conduct and Ethics (to the extent applicable to Safeguard’s directors or executive officers) in the Corporate Governance section of our website. Our website is not part of this proxy statement. All references to our website address are intended to be inactive textual references only.
Board Independence.Safeguard’s common stock is listed on the NYSE.New York Stock Exchange (“NYSE”). To assist the Board in making independence determinations, the Board has adopted categorical standards which are reflected in our Corporate Governance Guidelines. Generally, under these standards, a director does not qualify as an independent director if any of the following relationships exist:
Currently or within the previous three years, the director has been employed by us; someone in the director’s immediate family has been one of our executive officers; or the director or someone in the director’s immediate family has been employed as an executive officer of another company where any of our present executive officers at the same time serves or served on that company’s compensation committee;
| — | Currently or within the previous three years, the director has been employed by us; someone in the director’s immediate family has been one of our executive officers; or the director or someone in the director’s immediate family has been employed as an executive officer of another company where any of our present executive officers at the same time serves or served on that company’s compensation committee; |
The director is a current partner or employee, or someone in the director’s immediate family is a current partner of, a firm that is our internal or external auditor; someone in the director’s immediate family is a current employee of the firm and personally works on our audit; or the director or someone in the director’s immediate family is a former partner or employee of such a firm and personally worked on our audit within the last three years;
| — | The director is a current partner or employee, or someone in the director’s immediate family is a current partner of, a firm that is our internal or external auditor; someone in the director’s immediate family is a current employee of the firm and personally works on our audit; or the director or someone in the director’s immediate family is a former partner or employee of such a firm and personally worked on our audit within the last three years; |
The director or someone in the director’s immediate family received, during any 12-month period within the last three years, more than $120,000 in direct compensation from us (other than director and committee fees and pension or other forms of deferred compensation for prior service that are not contingent in any way on continued service);
| — | The director or someone in the director’s immediate family received, during any 12-month period within the last three years, more than $120,000 in direct compensation from us (other than director and committee fees and pension or other forms of deferred compensation for prior service that are not contingent in any way on continued service); |
The director is a current employee or holder of more than 10% of the equity of another company, or someone in the director’s immediate family is a current executive officer or holder of more than 10% of the equity of another company, that has made payments to or received payments from us, in any of the last three fiscal years of the other company, that exceeds the greater of $1 million or 2% of such other company’s consolidated gross revenues; or
| — | The director is a current employee or holder of more than 10% of the equity of another company, or someone in the director’s immediate family is a current executive officer or holder of more than 10% of the equity of another company, that has made payments to or received payments from us, in any of the last three fiscal years of the other company, that exceeds the greater of $1 million or 2% of such other company’s consolidated gross revenues; or |
The director is a current executive officer of a charitable organization to which we have made charitable contributions in any of the charitable organization’s last three fiscal years that exceed the greater of $1 million or 2% of that charitable organization’s consolidated gross revenues.
| — | The director is a current executive officer of a charitable organization to which we have made charitable contributions in any of the charitable organization’s last three fiscal years that exceed the greater of $1 million or 2% of that charitable organization’s consolidated gross revenues. |
The Board has determined that Julie Dobson, Keith Jarrett, Andrew Lietz, George MacKenzie, George McClelland, Jack Messman, John Roberts and Robert Rosenthal have no direct or indirect material relationships with us other than their directorship and, therefore, are independent within the meaning of the NYSE listing standards and satisfy the categorical standards contained in our Corporate Governance Guidelines. Messrs. Boni andMr. Zarrilli, our CEO Emeritus and our President and Chief Executive Officer, respectively, areis our only non-independent directors.director.
Board Leadership Structure and Committee Composition.Director Attendance at Meetings.At the date of this proxy statement, Safeguard’s Board has 10nine members and four standing committees. The Board held sevensix meetings in 2012.2013 and committees of the Board held a total of 25 meetings. Each incumbent director attended at leastwell over 75% of the total number of meetings of the Board and committee(s)committees of which he or she was a member. Directorsmember during 2013. Overall attendance at such meetings was approximately 93%. Each year, the Board meets on the same day as the annual meeting of shareholders. Although there is no policy requiring Board members to attend the annual meeting, all Board members are invited and encouraged to attend and typically do so. Eight of our directors attended our 2013 annual meetingsmeeting.
Executive Sessions of Safeguard shareholders. Safeguard typically undertakes to schedule its annual meeting for a date, timethe Board.Under our Corporate Governance Guidelines and place that is coordinated with a normallyNYSE listing standards, non-employee directors meet in executive session at each regularly scheduled Board meeting, so as to encourage attendanceoutside of the presence of any management directors and any other members of Safeguard’s management. The Chairman of the Board presides at the annual meeting by all directors. All of our directors who were then standing for election to our Board attended our 2012 annual meeting of shareholders.these sessions.
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Leadership Structure and Committee Composition.Based upon the recommendation of our Nominating & Corporate Governance Committee, the Board has determined that separating the roles of the Chief Executive Officer and Chairman of the Board is in the best interests of the shareholders at the present time. The Board views the role of the Chief Executive Officer as having responsibility for the day-to-day leadership and performance of Safeguard, while the Chairman of the Board provides guidance to the Chief Executive Officer, sets the agenda for Board meetings and presides over meetings of the Board.
Under our Corporate Governance Guidelines and NYSE listing standards, non-employee directors meet in executive session at each regularly scheduled Board meeting, outside of the presence of any management directors and any other members of Safeguard’s management. The Chairman presides at these sessions.
The table below describes the membership of each of the current committees during 2012 and the number of meetings held by each of these committees during 2012.
| Audit | Capital Management | Compensation | Nominating & Corporate Governance | |||||
Number of Meetings held in 2012 | 9 | 13 | 7 | 2 | ||||
Membership: | ||||||||
Peter J. Boni | † (1) | |||||||
Julie A. Dobson | Chairperson | Ö | ||||||
Keith B. Jarrett | Ö (2) | Ö (2) | ||||||
Andrew E. Lietz | Ö | Ö | ||||||
George MacKenzie | Chairperson | Ö (2) | ||||||
George D. McClelland | Ö | Ö | Chairperson | |||||
Jack L. Messman | Ö | Ö | ||||||
John J. Roberts | Ö | Ö | ||||||
Robert J. Rosenthal | Ö | Chairperson | ||||||
Stephen T. Zarrilli | Ö (1) |
Based on the recommendation of our Nominating & Corporate Governance Committee, our Board has determined that our current Board committee structure is the most appropriate for Safeguard, at present.
Capital Management Committee.As described in detail in its charter, the Board has delegated to the Capital Management Committee the authority to approve, between regularly scheduled Board meetings, the following transactions:
Follow-on transactions in existing partner companies involving amounts between $5 million and $20 million;
New transactions involving amounts between $10 million and $20 million; and
Divestitures of existing partner companies involving amounts between $10 million and $20 million.
Audit Committee. The Audit Committee held five meetings during 2013. The Audit Committee’s responsibilities, which are described in detail in its charter, include, among other duties, the responsibility to:
Assist the Board in fulfilling its responsibilities regarding general oversight of the integrity of Safeguard’s financial statements, Safeguard’s compliance with legal and regulatory requirements, and the performance of Safeguard’s internal audit function;
| — | Assist the Board in fulfilling its responsibilities regarding general oversight of the integrity of Safeguard’s financial statements, Safeguard’s compliance with legal and regulatory requirements, and the performance of Safeguard’s internal audit function; |
Interact with and evaluate the performance, qualifications and independence of Safeguard’s independent registered public accounting firm;
| — | Interact with and evaluate the performance, qualifications and independence of Safeguard’s independent registered public accounting firm; |
Review and approve related party transactions; and
| — | Review and approve related party transactions; and |
Prepare the report required by SEC regulations to be included in the proxy statement.
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| — | Prepare the report required by SEC regulations to be included in the proxy statement. |
The Audit Committee has the sole authority to retain, set compensation and retention terms for, terminate and oversee the relationship with Safeguard’s independent registered public accounting firm (which reports directly to the Audit Committee). The Audit Committee also oversees the activities of the internal auditor, reviews the effectiveness of the internal audit function and approves the appointment of the internal auditor. The Audit Committee has the authority to obtain advice, counsel and assistance from internal and external legal, accounting or other advisors as the Audit Committee deems necessary to carry out its duties and to receive appropriate funding from Safeguard for such advice and assistance. The full responsibilities ofAlthough the Audit Committee arehas the powers and responsibilities set forth in its charter, its role is oversight, and management has primary responsibility for the Audit Committee Charter, which is reviewed annually by the Committee. The Audit Committee Charter is available through the Corporate Governance link on our website at www.safeguard.com/governance.financial reporting process of Safeguard.
The Board has determined that each member of the Audit Committee meets the independence requirements established by SEC regulations, the NYSE listing standards and by our Corporate Governance Guidelines. The Board has determined that Messrs. MacKenzie, McClelland and Roberts and Dr. Rosenthal are “audit committee financial experts” within the meaning of the SEC regulations, and the Board has determined that each member of the Audit Committee has accounting and related financial management expertise within the meaning of the NYSE listing standards. Mr. Roberts serves as a member of the audit committee of the board of directors of four publicly traded companies, including our Audit Committee. The Board has determined that such simultaneous service does not impair Mr. Roberts’ ability to effectively serve on our Audit Committee.
Capital Management Committee.The Capital Management Committee held 11 meetings during 2013. As described in detail in its charter, the Board has delegated to the Capital Management Committee the authority to approve, between regularly scheduled Board meetings, the following transactions:
| — | Follow-on transactions in existing partner companies involving amounts between $5 million and $20 million; |
| — | New transactions involving amounts between $10 million and $20 million; and |
| — | Divestitures of existing partner companies involving amounts between $10 million and $20 million. |
Compensation Committee. The Compensation Committee held six meetings during 2013. The Compensation Committee’s responsibilities, which are described in detail in its charter, include, among other duties, the responsibility to:
Approve the philosophy for compensation of our executives and other employees;
| — | Approve the philosophy for compensation of our executives and other employees; |
Establish compensation (including base salary, incentive compensation and equity-based programs) for our Chief Executive Officer and other executive officers;
| — | Establish compensation (including base salary, incentive compensation and equity-based programs) for our Chief Executive Officer and other executive officers; |
Administer the long- and short-term compensation and performance-based incentive plans (which are cash and equity based);
| — | Administer the long- and short-term compensation and performance-based incentive plans (which are cash and equity based); |
Approve employment agreements and perquisites provided to our executive officers;
| — | Approve employment agreements and perquisites provided to our executive officers; |
Review management’s recommendations for our broad-based employee benefit plans;
| — | Review management’s recommendations for our broad-based employee benefit plans; |
Evaluate and recommend to the Board the compensation for all non-employee directors for service on the Board and its committees; and
| — | Evaluate and recommend to the Board the compensation for all non-employee directors for service on the Board and its committees; and |
Review and discuss with management the Compensation Discussion and Analysis and recommend to the Board its inclusion in our Annual Report on Form 10-K and proxy statement.
| — | Review and discuss with management the Compensation Discussion and Analysis and recommend to the Board its inclusion in our Annual Report on Form 10-K and proxy statement. |
It also is the responsibility of the Compensation Committee to assess Safeguard’s compensation policies and practices insofar as they may create risk for Safeguard. The Compensation Committee constantly takes into account how the policiesevaluates this risk annually and practices that it utilizes may affect Safeguard. In 2010, the Committee specifically undertook to assess the potential effect of Safeguard’s compensation policies and practices on the Company andin early 2014 made the affirmative determination that the Committeeit does not believe that any of our compensation policies and practices are reasonably likely to have a material adverse effect on Safeguard. In early 2013, the Committee revisited its analysis and again determined that none of our compensation policies and practices are reasonably likely to have a material adverse effect on Safeguard. In both instances, Safeguard’s Audit Committee and our Board have concurred in that determination.
The Compensation Committee Charter is available through the Corporate Governance link on our website at www.safeguard.com/governance. The Board has determined that each member of the Compensation Committee meets the independence requirements established inby SEC regulations, the NYSE listing standards and by our Corporate Governance Guidelines. We also believe that each member of the Compensation Committee meets the NYSE independence requirements specific to listed company compensation committee membership that become effective July 1, 2013.
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A discussion of some of the Compensation Committee’s processes and procedures for the consideration and determination of executive compensation is contained in “Compensation Discussion and Analysis—Setting Executive Compensation.” Additional processes and procedures include the following:
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Nominating & Corporate Governance Committee. The Nominating & Corporate Governance Committee held two meetings during 2013. The Nominating & Corporate Governance Committee’s responsibilities, which are described in detail in its charter, include, among other duties, the responsibility to:
Establish criteria for the selection of directors;
| — | Establish criteria for the selection of directors; |
Evaluate and consider qualified Board candidates, including those recommended by shareholders;
| — | Evaluate and consider qualified Board candidates, including those recommended by shareholders; |
Recommend to the Board the nominees for director, including nominees for director in connection with Safeguard’s annual meeting of shareholders;
| — | Recommend to the Board the nominees for director, including nominees for director in connection with Safeguard’s annual meeting of shareholders; |
Conduct an annual evaluation of the Board and its members and oversee the evaluations of each of the Board committees;
| — | Conduct an annual evaluation of the Board and its members and oversee the evaluations of each of the Board committees; |
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Take a leadership role in shaping Safeguard’s corporate governance policies, including developing and recommending to the Board Safeguard’s Corporate Governance Guidelines and Code of Business Conduct and Ethics;
| — | Take a leadership role in shaping Safeguard’s corporate governance policies, including developing and recommending to the Board Safeguard’s Corporate Governance Guidelines and Code of Business Conduct and Ethics; |
Review with management Safeguard’s strategic direction and Safeguard’s strategic plan and the implementation of management’s long-term strategy and to report to the Board on such activities;
| — | Review with management Safeguard’s strategic direction and Safeguard’s strategic plan and the implementation of management’s long-term strategy and to report to the Board on such activities; |
Evaluate the performance of the Chief Executive Officer; and
| — | Evaluate the performance of the Chief Executive Officer; and |
| — | Monitor the process of succession planning for the Chief Executive Officer and executive management. |
Monitor the process of succession planning for the Chief Executive Officer and executive management.
The Nominating & Corporate Governance Committee Charter is available through the Corporate Governance link on our website at www.safeguard.com/governance. The Board has determined that each member of the Nominating & Corporate Governance Committee meets the independence requirements established in the NYSE listing standards and by our Corporate Governance Guidelines.
Annual Performance Evaluations.The Nominating & Corporate Governance Committee may use any number of methods to identify potential nominees, including personal, management and industry contacts; recruiting firms; and, as described below under the heading “Process for Nominating Potential Director Candidates,” candidates recommended by shareholders.
Annual Performance Evaluations.The directors and Nominating & Corporate Governance Committee annually assessassesses the performance of the Board based on input from all directors.directors and shares its assessment with the Board. The Audit Committee, Capital Management Committee, Compensation Committee and Nominating & Corporate Governance Committee also annually assess their respective performance and committee processes.
Review and Approval of Transactions with Related Persons.The Board has adopted a written policy which charges the Audit Committee with the responsibility of reviewing with management at each regularly scheduled meeting and determining whether to approve any transaction (other than a transaction that is available to all employees generally on a non-discriminatory basis) between us and our directors, director nominees and executive officers or their immediate family members. Between regularly scheduled meetings of the Audit Committee, management may preliminarily approve a related party transaction, subject to ratification of the transaction by the Audit Committee. If the Audit Committee does not ratify the transaction, management will make all reasonable efforts to cancel the transaction.
Risk Management.Our Board, as a whole and at the committee level, is actively involved in the oversight of risks that affect Safeguard’s business. The Compensation Committee is responsible for overseeing the management of risks relating to our compensation plans and arrangements. The Audit Committee oversees the management of financial related risks and related party transactions. The Nominating & Corporate Governance Committee manages risks associated with the independence of our Board and potential conflicts of interest. Although the oversight of certain risks is conducted through committees of the Board, our full Board retains responsibility for risk oversight and no individual committee has been delegated responsibility for such function. Our Board receives reports at each regularly scheduled Board meeting by each committee chair regarding each committee’s considerations and actions, as well as regular reports directly from our senior management team regarding particular risks that may impact Safeguard. This allows our Board and its committees to coordinate the risk oversight role and to keep our Board timely apprised of all risks that might impact Safeguard’s business.
Communications with Safeguard’s Board and Audit Committee.Board.Any shareholder or other interested party may communicate with our Board or any specified non-management director(s) by addressing the communication as follows:
c/o Corporate Secretary
Safeguard Scientifics, Inc.
435 Devon Park Drive, Building 800
Wayne, PA 19087-1945
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All communications are initially reviewed by our Secretary. The Chairperson of the Audit Committee is advised promptly of any communication that alleges misconduct on the part of Safeguard’s management or raises legal, ethical or compliance concerns about Safeguard’s policies or practices.
Safeguard’s Audit Committee also has established procedures for confidential, anonymous submission of complaints by employees and for receipt, retention and treatment of complaints, from whatever source, received by Safeguard, regarding accounting, internal accounting controls or auditing matters. All such communications are initially sent to the Chairperson of the Audit Committee and, if requested by the Chairperson, may be sent to the other members of the Audit Committee. Any person who desires to contact the Audit Committee may do so by addressing correspondence to Chairperson, Audit Committee, care of our Secretary at the address noted above.
The Chairperson of the Audit Committee also receives updatesguidelines for communications with our Board are available on other communications to the Board, Audit Committee or non-employee directors that raise issues related to the affairs of Safeguard but which do not fall into the two prior categories. The Chairperson of the Audit Committee determines which of these communications he would like to see.our website at www.safeguard.com/governance.
Our Secretary maintains a log of all communications, which is available for review upon request of any member of the Board. Typically, we do not forward to our non-management directors communications from our shareholders or other communications which are of a personal nature or not related to the duties and responsibilities of the Board, including, without limitation, business plan or other business opportunity submissions; inquiries related to products or services provided by Safeguard’s companies; spam, junk mail and mass mailings; resumes and other forms of job inquiries; surveys or polls; business solicitations or advertisements; and any material that relates to improper or irrelevant topics or is unduly hostile, threatening, illegal or similarly unsuitable.
Process for Nominating Potential Director Candidates. In addition to its other responsibilities, the Nominating & Corporate Governance Committee is responsible for screening potential director candidates and recommending qualified candidates to the Board for nomination. The Nominating & Corporate Governance Committee will consider director candidates proposed by the Chief Executive Officer, bymay use any director or by any shareholder,number of methods to identify and may, at times, retain a search firm to assist it in identifying and evaluatingevaluate potential director candidates. In considering potential director candidates, the Nominating & Corporate Governance Committee seeks the following attributes for director nominees:
A strong record ofnominees, including personal, integrity and ethical conduct;
A leader in the companies or institutions with which he or she is affiliated;
Competencies, skills and experiences that are complementary to the background and experience represented on Safeguard’s Board and that meet the needs of Safeguard’s strategy and business;
A willingness and ability to devote sufficient time to fulfill his or her responsibilities to Safeguard and our shareholders;
The ability to represent the long-term interests of our shareholders; and
The ability to provide relevant advice and counsel to management and best perpetuate the success of Safeguard’s business.industry contacts; recruiting firms; and candidates recommended by shareholders.
The Nominating & Corporate Governance Committee considers properly submitted shareholder recommendations of director candidates in substantially the same manner as it considers director candidate recommendations from other sources. Any shareholder recommendation must include the following: the nominee’s name and the information about the nominee that would be required in a proxy statement under the SEC’s rules; information about the relationship between the nominee and the nominating shareholder; proof of the number of shares of Safeguard common stock that the nominating shareholder owns and the length of time the shares of Safeguard common stock have been owned; and a letter from the nominee certifying his or her willingness to serve, if elected, as a director.
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Recommendations should be directed to:
addressed to the Chairperson, Nominating & Corporate Governance CommitteeCommittee:
c/o Corporate Secretary
Safeguard Scientifics, Inc.
435 Devon Park Drive, Building 800
Wayne, PA 19087-1945
Board Compensation.During 2012,2013, each of our non-employee directors was compensated for his or her service as a director through cash payments as shown in the table below:
Compensation Item | Amount ($) | |||
Annual Board Retainers (payable relative to a full year of Board | ||||
Chairman of the Board | 80,000 | |||
Other Directors | 50,000 | |||
Additional Annual Chairperson Retainers | ||||
Audit Committee | 15,000 | |||
Capital Management Committee | ||||
Compensation Committee | ||||
Nominating & Corporate Governance Committee | ||||
Meeting Attendance | ||||
Board – annual strategy meeting | 1,500 | |||
Committee | 1,500 | |||
We also reimburse our directors for expenses they incur to attend our Board and Committeecommittee meetings and for attendance at one director continuing education program during each calendar year or the reasonable cost of one year’s membership in an organization which is focused on director education. Mr. Boni does not receive meeting or other fees for his service as a Board member.
In MarchDecember 2013, at the Compensation Committee’s request, Semler Brossy assisted the Committeecommittee in assessing our Board compensation practices relative to current market practices. After reviewing Semler Brossy’s findings and recommendations, the Compensation Committee recommended that the Board increase the annual retainer for certain committee chairs, payable in arrears in equal quarterly installments, as follows: Capital Management Committee – $15,000; Compensation Committee – $10,000; andthe chair of the Nominating & Corporate Governance Committee – $7,500. The changes will befrom $7,500 to $10,000, effective asJanuary 1, 2014, in recognition of the date of our 2013 annual meeting of shareholders.increased workload and attention placed on director recruitment.
On May 24, 2012,23, 2013, each outsidenon-employee director who stood for re-election at the 20122013 annual meeting was awarded a recurring annual service grant which consisted of a stock option grant to purchase 5,000 shares of Safeguard common stock at an exercise price of $15.055 per share and 2,500 deferred stock units as more fully described below. Dr. Jarrett, who joined our Board following the 2012(“DSUs”). The annual meeting, was awarded an initial stock option grant on June 29, 2012 to purchase 8,333 shares of Safeguard common stock at an exercise price of $15.25 per share. Directors’ stock options have an eight-year term. Annual service stock option and deferred stock unitDSU grants fully vest on the first anniversary of the grant date or, for deferred stock units,if earlier, once a director reaches age 65, if earlier. Initial stock option grants vest 25% each year commencing on the first anniversary of the grant date.65. The exercise price of stock options is equal to the average of the high and low trading prices of our common stock, as reported on the NYSE composite tape, on the grant date. The deferred stock unitsDSUs represent the right to receive shares of Safeguard common stock, on a one-for-one basis, following the date upon which the director leaves the Board.
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Safeguard also maintains a Group Deferred Stock Unit Program for Directors (“Directors’ DSU Program”) which allows each outside director, at his or her election, to receive deferred stock unitsDSUs in lieu of cash retainer and meeting fees paid to each director, as described above, for service on the Board and its committees (“Directors’ Fees”). The deferral election applies to Directors’ Fees to be received for the calendar year following the year in which the election is made and remains in effect for each subsequent year unless the director elects otherwise by the end of the calendar year prior to the year in which the services are rendered. The number of deferred stock unitsDSUs awarded is determined by dividing the Directors’ Fees by the fair market value of Safeguard’s stock on the date on which the director would have otherwise received the Directors’ Fees. Each director also receives a number of matching share units,DSUs, based on the same fair market value calculation, equal to 25% of the Directors’ Fees deferred. A director is always fully vested in DSUs awarded in lieu of Directors’ Fees deferred; the matching share unitsDSUs vest fully on the first anniversary of the date the matching share units areDSUs were credited to the director’s account or, if earlier, once a director reaches age 65. Each deferred stock unitDSU entitles the director to receive one share of Safeguard common stock following the date upon which the director leaves the Board. A director also may elect to receive the stock in annual installments over a period of up to five years after leaving the Board.
Director Compensation – 2012.2013.The following table provides information on compensation earned for services provided during 20122013 by each non-employee director who served on our Board at any time during 2012:2013:
Name | Fees Earned or Paid in Cash ($)(1) | Stock Awards ($)(2)(3) | Option Awards ($)(3)(4) | All Other Compensation ($)(5) | Total ($)(6) | Fees Earned or Paid in Cash ($)(1) | Stock Awards ($)(2)(3) | Option Awards ($)(3) | All Other ($) | Total ($)(4) | ||||||||||||||||||||||||||||||
Julie A. Dobson | 72,500 | 41,988 | 36,494 | — | 150,982 | 74,018 | 83,982 | – | – | 158,000 | ||||||||||||||||||||||||||||||
Keith B. Jarrett | 48,220 | 1,482 | 61,608 | — | 111,310 | 75,500 | 83,068 | – | – | 158,568 | ||||||||||||||||||||||||||||||
Andrew E. Lietz | 108,500 | 44,138 | 36,494 | — | 189,132 | 105,500 | 85,999 | – | – | 191,499 | ||||||||||||||||||||||||||||||
George MacKenzie | 80,000 | 37,638 | 36,494 | — | 154,132 | 78,500 | 79,225 | – | – | 157,725 | ||||||||||||||||||||||||||||||
George D. McClelland | 79,000 | 45,899 | 36,494 | — | 161,393 | 77,518 | 89,216 | – | – | 166,734 | ||||||||||||||||||||||||||||||
Jack L. Messman | 72,500 | 41,511 | 36,494 | — | 150,505 | 72,500 | 79,225 | – | – | 151,725 | ||||||||||||||||||||||||||||||
John J. Roberts | 72,500 | 37,638 | 36,494 | — | 146,632 | 66,500 | 79,225 | – | – | 145,725 | ||||||||||||||||||||||||||||||
Robert J. Rosenthal | 85,000 | 38,267 | 36,494 | 1,200 | 160,961 | 86,571 | 79,225 | – | – | 165,796 | ||||||||||||||||||||||||||||||
| (1) | The amounts included in this column reflect Directors’ Fees earned for services provided during |
| (2) | These amounts do not represent compensation actually received. Rather, these amounts represent the grant date fair values of the matching |
| Grant Date Fair Value (in dollars) | ||||||||||||||||||||
Name | 1/15/12 | 4/15/12 | 5/24/12 | 7/15/12 | 10/15/12 | |||||||||||||||
Julie A. Dobson | 1,181 | 1,182 | 37,638 | 999 | 989 | |||||||||||||||
Keith B. Jarrett | — | — | — | 338 | 1,144 | |||||||||||||||
Andrew E. Lietz | 1,527 | 1,724 | 37,638 | 1,627 | 1,623 | |||||||||||||||
George MacKenzie | — | — | 37,638 | — | — | |||||||||||||||
George D. McClelland | 1,228 | 2,659 | 37,638 | 1,901 | 2,473 | |||||||||||||||
Jack L. Messman | 3,873 | — | 37,638 | — | — | |||||||||||||||
John J. Roberts | — | — | 37,638 | — | — | |||||||||||||||
Robert J. Rosenthal | 630 | — | 37,638 | — | — | |||||||||||||||
| Grant Date Fair Value ($) | ||||||||||||||||||||
| Name | 1/15/13 | 4/15/13 | 5/23/13 | 7/15/13 | 10/15/13 | |||||||||||||||
Julie A. Dobson | 1,367 | 1,268 | 79,225 | 1,003 | 1,120 | |||||||||||||||
Keith B. Jarrett | 921 | 998 | 79,225 | 919 | 1,004 | |||||||||||||||
Andrew E. Lietz | 1,813 | 1,711 | 79,225 | 1,537 | 1,712 | |||||||||||||||
George MacKenzie | – | – | 79,225 | – | – | |||||||||||||||
George D. McClelland | 2,838 | 2,662 | 79,225 | 1,938 | 2,552 | |||||||||||||||
Jack L. Messman | – | – | 79,225 | – | – | |||||||||||||||
John J. Roberts | – | – | 79,225 | – | – | |||||||||||||||
Robert J. Rosenthal | – | – | 79,225 | – | – | |||||||||||||||
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| (3) | The directors’ aggregate holdings of |
Name | Deferred Stock Units | Stock Options | DSUs (#) | Stock Options (#) | |||||||||||||||||||||||||||||
Julie A. Dobson | 23,994 | 35,830 | 30,498 | 31,664 | |||||||||||||||||||||||||||||
Keith B. Jarrett | 476 | 8,333 | 6,682 | 8,333 | |||||||||||||||||||||||||||||
Andrew E. Lietz | 19,540 | 15,000 | 26,673 | 15,000 | |||||||||||||||||||||||||||||
George MacKenzie | 14,696 | 35,830 | 19,696 | 31,664 | |||||||||||||||||||||||||||||
George D. McClelland | 48,851 | 39,997 | 57,000 | 39,997 | |||||||||||||||||||||||||||||
Jack L. Messman | 47,818 | 35,830 | 52,818 | 23,332 | |||||||||||||||||||||||||||||
John J. Roberts | 20,376 | 18,332 | 25,376 | 18,332 | |||||||||||||||||||||||||||||
Robert J. Rosenthal | 16,134 | 31,665 | 21,134 | 31,665 | |||||||||||||||||||||||||||||
| (4) |
| Directors also are eligible for reimbursement of expenses incurred in connection with attendance at Board and committee meetings. These amounts are not included in the table above. |
Stock Ownership Guidelines. Each non-employee director is expected to acquireown a number of shares of our stock having a value at least equal to a designated multiple of the annual retainer paid to such memberdirector for service on our Board. Such ownership is expected to be achieved within the later of five years after an individual’s election to our Board or the fifth anniversary following any increase in the required multiple of the annual retainer. InSince 2012, our Nominating & Corporate Governance Committee, which oversees our ownership guidelines, increased the equity position threshold in our stock that is required to be held by non-employee directors from two times tois three times the annual cash Board retainer. No sales of stock are permitted during the period in which the ownership requirement has not been met (except for limited stock sales to meet tax obligations), without the approval of the Board. Shares counted toward these guidelines include:
Shares beneficially owned by the director;
Vested shares of restricted stock;
Vested deferred stock units that have been credited to the director; and
Net value of shares underlying vested, in-the-money options (“Net Option Value”).
| — | Outstanding shares beneficially owned by the director; |
| — | Vested shares of restricted stock; |
| — | Vested DSUs that have been credited to the director; and |
| — | The net value of shares underlying vested, in-the-money options (“Net Option Value”). |
For purposes of calculating the value to be used in monitoring compliance with the ownership guidelines, we utilize (a) the greater of the current value or the cost basis of purchased sharesshares; (b) the greater of the current value or fees deferred in connection with vested RSAs/DSUs as to which the director has declared incomeDSUs; and paid taxes; and (b)(c) our trailing six-month average share price in determining Net Option Value.
Based on information they have provided to us, all of our outside directors, with the exception of Dr. Jarrett who joined our Board in 2012, have achieved the required ownership levels.
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PROPOSAL TO RATIFY KPMG LLP
The Audit Committee, composed entirely of independent, non-employee members of the Board, approved the appointment of KPMG LLP (“KPMG”) as Safeguard’s independent registered public accounting firm for the 2013 fiscal year, and the Board has recommended that our shareholders ratify the appointment. If the shareholders do not ratify the appointment, the Audit Committee may reconsider its recommendation and may retain KPMG or another accounting firm without resubmitting the matter to shareholders. Even if the shareholders ratify the appointment of KPMG, the Audit Committee may select another firm if it determines such selection to be in the best interest of Safeguard and its shareholders.
Services provided to Safeguard and its subsidiaries by KPMG in fiscal year 2012 and fiscal year 2011 are described below under “Independent Registered Public Accounting Firm—Audit Fees.” Representatives of KPMG are expected to attend the annual meeting. They will have an opportunity to make a statement if they desire to do so and will be available to respond to appropriate questions.
Ratification requires the affirmative vote of a majority of the votes cast by all shareholders entitled to vote on the proposal.
THE BOARD RECOMMENDS THAT SHAREHOLDERS VOTE “FOR” THE PROPOSAL TO RATIFY KPMG AS SAFEGUARD’S INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
FOR THE 2013 FISCAL YEAR.
Independent Registered Public Accounting Firm—Audit Fees
The following table presents fees for professional services rendered by KPMG for the audit of Safeguard’s consolidated financial statements for fiscal year 2012 and fiscal year 2011 and fees billed for audit-related services, tax services and all other services rendered by KPMG for fiscal year 2012 and fiscal year 2011. This table includes fees billed to Safeguard’s consolidated subsidiaries for services rendered by KPMG.
| 2012 | 2011 | |||||||
Audit Fees (1) | $ | 582,500 | $ | 500,000 | ||||
Tax Fees (2) | 87,000 | 105,556 | ||||||
All Other Fees | — | — | ||||||
|
|
|
| |||||
Total | $ | 669,500 | $ | 605,566 | ||||
|
|
|
| |||||
The Audit Committee pre-approves each service to be performed by KPMG at its regularly scheduled meetings. For any service that may require pre-approval between regularly scheduled meetings, the Audit Committee has delegated to the Chairperson of the Audit Committee the authority to pre-approve services not prohibited by law to be performed by Safeguard’s independent registered public accounting firm and associated fees up to a maximum of $100,000, and the Chairperson communicates such pre-approvals to the Audit Committee at its next regularly scheduled meeting.
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AUDIT COMMITTEE REPORT
The Audit Committee assists the Board of Directors in fulfilling its responsibilities regarding general oversight of the integrity of Safeguard’s consolidated financial statements, Safeguard’s compliance with legal and regulatory requirements, the performance of Safeguard’s internal audit function, review and approval of related party transactions, and the performance, qualifications and independence of Safeguard’s independent registered public accounting firm.
Safeguard’s management has primary responsibility for the financial reporting process, including the system of internal controls, and for preparation of Safeguard’s consolidated financial statements in accordance with U.S. generally accepted accounting principles. Safeguard’s independent registered public accounting firm is responsible for auditing those consolidated financial statements and issuing opinions as to the conformity of Safeguard’s audited consolidated financial statements with U.S. generally accepted accounting principles and the effectiveness of Safeguard’s internal control over financial reporting based on criteria established inInternal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.
Throughout the year, the Audit Committee regularly meets with management of Safeguard, Safeguard’s independent registered public accounting firm and Safeguard’s internal auditor. The Audit Committee also regularly meets with each of these groups separately in closed sessions. In this context, the Audit Committee hereby reports as follows:
Members of the Audit Committee:
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NON-BINDING,– ADVISORY VOTE ON EXECUTIVE COMPENSATION
Item 3 on Proxy Card
Section 14A of the Securities Exchange Act of 1934, as amended, requires us to permit our shareholders to cast, at least once every three years, a non-binding, advisory say-on-pay vote to approve the compensation of Safeguard’s named executive officers as disclosed in the Compensation Discussion and Analysis (beginning on page 23) and the accompanying compensation tables and narrative disclosure. Section 14A also requires us to permit our shareholders to cast a non-binding, advisory vote at least once every six years regarding whether we should hold future say-on-pay votes every year, every two years or every three years.
After careful consideration,In 2011, our Board determined in 2011 that an annual advisory say-on-pay“say-on-pay” vote on executive compensation would be the most appropriate alternative for Safeguard at this time. At our 2011 annual meeting of shareholders,and approximately 90% of the votes cast by our shareholders at our 2011 annual meeting were voted in favor of future non-binding, advisory “say-on-pay”say-on-pay votes being held annually.
In accordance with this policy, Accordingly, pursuant to Section 14A of the Securities Exchange Act of 1934, as amended, we are providing our shareholders with the opportunity to endorse or not endorse Safeguard’s 20122013 executive compensation as described in this proxy statement. Shareholders also may abstain from voting. The
In considering your vote, is intendedwe invite you to provide an overall assessment of our executive compensation program rather than focus on any specific item of compensation. This vote will not be binding on our Board orreview the Compensation CommitteeDiscussion and may not be construed as overruling a decision by our Board orAnalysis beginning on page 19 of this proxy statement. As described in the Compensation Committee nor imply any additional fiduciary duty on our Board. Further, it will not affect any compensation paid or awarded to any executive. At our 2012 annual meeting of shareholders, we held an advisory vote onDiscussion and Analysis, the compensation of our named executive officers, commonly referred to as a say-on-pay vote. Our shareholders overwhelmingly approved the compensation of our named executive officers, with approximately 91% of shareholder votes cast in favor of our say-on-pay resolution. The Compensation Committee believes that this strong support from our shareholders is evidence that our pay-for-performance policies are working and are aligned with our shareholders’ interests. Accordingly, after considering the results of the advisory vote on executive compensation in the context of its overall review of Safeguard’s compensation policies, the Compensation Committee determined not to implement any significant changes to our executive compensation program for 2012 and does not, at present, intend to make any significant changes to our executive compensation program in 2013. The Compensation Committee will continue to consider the outcome of our shareholders’ advisory votes on executive compensation when making future compensation decisions for our named executive officers.
The purpose of Safeguard’s compensation policies and procedures is to attract and retain experienced, highly qualified executives crucial to Safeguard’s long-term success and enhancement of shareholder value. The Compensation Committee has developed an executive compensation program designed to pay for performance and to align the long-term interests of our named executive officers with the long-term interests of our shareholders. We are askingThe vote is intended to provide an overall assessment of our executive compensation program rather than focus on any specific item of compensation.
Our Board recommends that shareholders to indicate their support for the 2013 executive compensation afforded to ourSafeguard’s named executive officers by voting “FOR”FOR the following resolution:
“RESOLVED, that the compensation paid to Safeguard’s named executive officers, as disclosed pursuant to the compensation disclosure rules of the Securities and Exchange Commission, including the Compensation Discussion and Analysis, the compensation tables and related narrative disclosure included in this proxy statement, is hereby APPROVED.”
This vote will not be binding on our Board or the Compensation Committee and may not be construed as overruling a decision by our Board or the Compensation Committee or imply any additional fiduciary duty on our Board. Further, it will not affect any compensation paid or awarded to any executive.
Unless our Board modifies its policy on the frequency of future advisory say-on-pay votes, the next advisory say-on-pay vote will be held at our 20142015 annual meeting of shareholders.
THE BOARD RECOMMENDS THAT SHAREHOLDERS VOTE “FOR” THE APPROVAL OF
SAFEGUARD’S EXECUTIVE COMPENSATION AS DESCRIBED IN THE COMPENSATION
DISCUSSION AND ANALYSIS AND THE ACCOMPANYING COMPENSATION TABLES AND
NARRATIVE DISCLOSURE IN THIS PROXY STATEMENT.
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COMPENSATION DISCUSSION AND ANALYSIS
TheOur Compensation Committee (for purposes of this Compensation Discussion and Analysis,discussion, the “Committee”) is responsible for establishing our company-wide compensation philosophy;philosophy and practices, for determining the compensation provided to the individuals who serve asfor our “named executive officers”;officers,” and for approving the compensation for our other senior executives, based on the recommendations of our President and Chief Executive Officer. This Compensation Discussion and Analysis describes our executive compensation program and the compensation decisions made for 2013 for our named executive officers. For purposesAt December 31, 2013, there were three individuals serving as named executive officers of Safeguard:
| Stephen T. Zarrilli | President and Chief Executive Officer | |
| Jeffrey B. McGroarty | Senior Vice President and Chief Financial Officer | |
| Brian J. Sisko | Executive Vice President, Managing Director and Chief Operating Officer |
Our senior executive group is currently comprised of a total of eight executives with the title of Senior Vice President or higher, including our named executive officers. This Compensation Discussion and Analysis also describes programs that apply to our senior executive group as a whole.
We want to highlight some of our key business developments during 2013, because it is an underlying philosophy of the “Summary Compensation Table,” we have five “named executive officers” included in this year’s proxy materials:Committee that a significant portion of our currentsenior executives’ compensation should relate to, and be variable based on, Safeguard’s performance.
Overall, the Committee believes that 2013 was a year of outstanding results for Safeguard. Under the leadership of our President and Chief Executive Officer, Stephen T. Zarrilli, (whowho was promoted to that position in November of 2012; Brian J. Sisko, Executive Vice President, Managing Director and Chief Operating Officer; and Jeffrey B. McGroarty, Senior Vice President and Chief Financial Officer, Safeguard showed strong results against many of the metrics that management and the Committee use to assess our performance. Some of the highlights are as follows:
| — | We deployed $34.1 million of capital into six new partner companies and two other early stage enterprises in 2013. The six new partner companies were balanced between our two principal operating sectors, healthcare (three) and technology (three). |
| — | We deployed an additional $15.3 million in capital to support the growth of our partner companies in which we already had an interest at December 31, 2012. |
| — | At the end of 2013, we had 22 partner companies in the healthcare and technology sectors, compared to 18 at the end of 2012. |
| — | We maintained a strong balance sheet and replenished cash during 2013, including adding approximately $36.4 million in initial proceeds (excluding an additional escrow of $4.1 million) related to the sale of our former partner company, ThingWorx, Inc., in late December 2013, and adding approximately $15.7 million in initial proceeds (excluding an additional escrow of $1.7 million) from the sale of former partner company, Alverix, Inc., in early January 2014. |
| — | We maintained corporate operating expenses (less interest income generated by participating interests in Penn Mezzanine loans and excluding stock-based compensation, severance expenses and transitional service costs paid to our former CEO) at approximately $15.0 million during 2013, while adding additional talent within our deal teams. |
| — | Overall, our stock price increased approximately 36% during 2013, outperforming the Russell 2000 Index. |
Change in Named Executive Officers and Responsibilities in 2013
During 2013, our Board promoted Jeffrey B. McGroarty, our then Senior Vice President, Finance, to also serve as our Chief Financial Officer during the majority of 2012);Officer. In addition, James A. Datin, ana former Executive Vice President and Managing Director; Jeffrey B. McGroarty,Director of Safeguard, resigned in June 2013. Mr. Datin’s severance payments and benefits upon termination of his employment are discussed below under “Severance and Change-in-Control Arrangements.”
Effective Corporate Governance Principles
We believe that our Senior Vice President – Finance; Brian J. Sisko, an Executive Vice Presidentexecutive compensation philosophy is reflected in the corporate governance principles that support our business and Managing Director;align with our shareholders’ long-term interests. Below is a summary of what we do and Peter J. Boni,what we don’t do relating to our former President and Chief Executive Officer who retired in late 2012. Our overall executive group, for purposes of this discussion, is currently comprised of a total of 10 persons, consisting of the named executive officers and five other company employees who each hold the title of vice president or higher. compensation philosophy.
WHAT WE DO:
| ü | Emphasize variable pay for performance by linking our named executive officers’ target incentive compensation to Safeguard’s financial performance and the attainment of specified metrics |
| ü | Maintain short-term and long-term incentive programs with distinct performance-based measures |
| ü | Apply double-trigger vesting of equity awards to our senior executives upon a change in control |
| ü | Retain an independent compensation consulting firm which provides no other services to Safeguard |
| ü | Maintain a compensation recoupment policy that will permit us to seek reimbursement of cash and incentive compensation and/or equity grants in certain instances of financial statement restatement |
| ü | Maintain meaningful stock ownership guidelines for our senior executives and Board members |
WHAT WE DON’T DO:
| U | Provide golden parachute excise tax or other tax gross-ups upon a change in control |
| U | Provide any material perquisites |
| U | Permit repricing of underwater options without shareholder approval |
| U | Grant stock option awards or stock appreciation rights (“SARs”) below 100% fair market value |
| U | Permit hedging or short-sales transactions in our stock by our senior executives, or permit the use of Safeguard stock as collateral for indebtedness by our executive officers |
| U | Provide a pension plan or special retirement program other than our 401(k) plan, which is available to all employees |
| U | Provide post-retirement health coverage |
The Committee reviews our compensation philosophy each year to ensure that its principles and objectives are aligned towith our overall business strategy and aligned with the interests of our shareholders in increasing the value of our common stock over the long term. We seek to apply a consistent philosophy across our executive rank,group, not just among our named executive officers.
Our overall goals in compensating our executives are to:as follows:
Attract, retain and motivate executives who are particularly qualified, as a result of their prior professional experience, to shape our business model and pursue our business plan, and whose experience and skills can be leveraged across our partner companies to facilitate the partner companies’ growth and success;
| — | Attract, retain and motivate executives who are particularly qualified, as a result of their prior professional experience, to shape our business model and pursue our business plan, and whose experience and skills can be leveraged across our partner companies to facilitate the partner companies’ growth and success; |
Promote and reward the achievement of short-term and long-term corporate and individual objectives that our Board and management believe will lead to long-term growth in shareholder value; and
| — | Promote and reward the achievement of short-term and long-term corporate and individual objectives that our Board and management believe will lead to long-term growth in shareholder value; and |
| — | Encourage meaningful equity ownership and the alignment of executive and shareholder interests as an incentive to increase shareholder value. |
Encourage meaningful equity ownership and the alignment of executive and shareholder interests as an incentive to increase shareholder value.
TheOur executive compensation program the Committee has created is intended to: provide an appropriatea mix of fixed and variable at-risk cash compensation; balance rewards for short-term performance with our ultimate goal of producing long-term shareholder value; link variable compensation to specific, identifiable metrics that demonstrate value creation;creation for Safeguard; and facilitate executive recruitment and retention. There are no pre-established targets, weighting, mix or position relative to competitors forAs has been the allocation between either cash or non-cash compensation payments; short-term or long-term compensation; and/or fixed or variable items of compensation. Rather, each year the Committee reviews information provided by its consultant (as well as information which may be provided by management) to determine the appropriate level, on an absolute and a relative basis, as well as a mix of each of these components. It is important to highlight that more thancase in recent years, in 2013, 75% of our executives’ long-term compensation opportunity is performance-based, linkedwas granted subject to capital-return based vesting, under which equity awards vest based on partner company monetizations and the aggregate cash returns produced for Safeguard by such monetizations. The Committee believes this capital-return based vesting directly to return to shareholders orlinks our executives’ compensation opportunity to the accomplishment of specific objectives which, it is believed, will result directly in share price appreciation. Therefore, when the Committee considers the relationships between the different components of our overall compensation philosophy, especially the relationship between fixed compensation and variable annual and long-term incentive compensation opportunity, the Committee carefully considers the challenging performance metrics it incorporates into all of our long-term incentive compensation programs.
Role of the Compensation Committee in Compensation Decisions
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During 2012, we usedThe Committee is responsible for the following principal elementsdesign of our executive compensation to meetprogram and for making decisions regarding our overall goals:
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Role of Named Executive Officers in Compensation Decisions
named executive officers’ compensation. The Committee also makes, or has final approval authority regarding, all compensation decisions for our other senior executives. Annually, the Committee reviews executive compensation practices, including the methodology for setting total named executive officers’ compensation, the goals of the program, and the overall compensation philosophy for Safeguard. In setting executive compensation and designing our overall compensation program, the Committee considers the data and advice provided by its independent compensation consultant (as well as information that may be provided by management) to determine the appropriate level, on an absolute and relative basis, of compensation, as well as the mix of compensation components. The Committee has looked to competitive information for guidance rather than rigid adherence to specific percentages. The Committee believes that the overall objectives of its compensation philosophy are better achieved through flexibility. The Committee ultimately makes decisions regarding executive compensation based on its assessment of Safeguard’s performance and the achievement of individual, partner company, and corporate goals.
The Committee is also responsible for approving and granting equity awards to our directors, executives, employees and advisory board members, with respectthe exception of certain limited authority which the Committee has delegated to allthe President and Chief Executive Officer to make equity grants between regularly scheduled Committee meetings (primarily to new hires and new advisory board members). The Committee’s responsibilities are more fully described in its charter, which is available at www.safeguard.com/governance.
Role of our executives. Executive Officers in Compensation Decisions
Within the parameters approved by the Committee each year, our named executive officers are responsible for evaluating and setting compensation with respect tofor our other employees.
Our President and Chief Executive Officer and our other named executive officers, withannually assesses the assistanceperformance of other Safeguard employees, provide support and prepare materials to assist the Committee in making its compensation decisions; conferring with the Committee and its consultant on the selection of peer companies and industries used for comparison purposes; providing suggestions and, in some cases, recommendations, to the Committee in the area of executive compensation, including suggestions in the context of terms of employment agreements, performance measures and targets under our management incentive plan, and equity awards; suggesting or recommending alternative approaches to certain elements of our executive compensation philosophy; and, ultimately, implementing the Committee’s compensation decisions. Management also provides the Committee with comprehensive tally sheets on an annual basis to facilitate the Committee’s review of the total compensation of our named executive officers and our other executives. The tally sheets include both historical data and estimated forward looking amounts for the current calendar year. The tally sheets summarize: cash compensation (salary, actual/target annual incentive awards and perquisites); the dollar value of benefits provided; potential severance amounts payable under various scenarios; and outstanding equity awards held by each executive.
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In determining the compensation of our Chief Executive Officer, the Committee’s usual process is to consider the results of the CEO performance assessment conducted each year by our Nominating & Corporate Governance Committee. The assessment typically includes our Chief Executive Officer’s self-assessment of the achievement of his individual prior year objectives as well as an assessment of his performance by each Board member. The Committee also typically discusses its compensation views with our Chief Executive Officer directly. Neither our Chief Executive Officer nor any other member of management is present when the Committee makes its determinations concerning our Chief Executive Officer’s compensation. In 2012, given ongoing discussions regarding Mr. Boni’s possible retirement, the Committee did not undertake its formal Chief Executive Officer assessment process.
Our Chief Executive Officer annually assesses each other named executive officer’s performanceofficer and each of his other senior executive direct reports and makes a recommendation to the Committee concerning the achievement by our other named executive officers and senior executives of their individual objectives. Our other named executive officers annually assess the other executives who report to them and make recommendations to our President and Chief Executive Officer concerning
the achievement of individual objectives by such executives. Our Chief Executive Officer makes recommendations to the Committee concerning salary adjustments and equity grants to the other named executive officers and, based on the recommendations of our other named executive officers, sometimes our other executives. In determining the compensation of our executives, the Committee considers our President and Chief Executive Officer’s assessment and recommendations. However, other than for compensation that has been established contractually or under quantitative formulas established by the Committee each year under our management incentive plan, the Committee exercises its own discretion in determining whether to accept or modify our President and Chief Executive Officer’s recommendations. These individuals are not present when the Committee and our President and Chief Executive Officer review their performance or when the Committee makes its determinations concerning their compensation.
From time to time during the year, our Chief Executive Officer may recommend toRole of Consultant
During 2013, as in recent years, the Committee one-time cash bonuses, stock option or other equity grantsengaged Semler Brossy Consulting Group, LLC, an independent compensation consulting firm, to certain executives or other employees relating to promotions, instances of superior individual or group performance and/or extraordinary corporate undertakings or events. The Committee acts on such recommendations on a case-by-case basis. During late 2012, following Mr. Boni’s retirement and Mr. Zarrilli’s promotion to Chief Executive Officer, in connection with the promotions discussed below, Mr. Zarrilli recommended, andassist the Committee approved, one-time stock optionby providing compensation expertise regarding peer group analysis and equity awards to two of our named executive officers. At such time,compensation data, helping the Committee also approved, in consultation with its consultant, one-time stock optionselect appropriate performance measures and equity awards to Mr. Zarrilli in connection with his promotion to Presidentgoals, and Chief Executive Officer. These awards are discussed below under “Change in Named Executive Officers and Responsibilities in 2012” and “Changes in 2012 Compensation Related to Changes in Our Named Executive Officers and Executive Officer Responsibilities.”
Role of Consultant
Semler Brossy assistedadvising the Committee in its deliberations regarding executiveevolving compensation best practices and director compensation matters during 2012.trends. Specifically, as it has in prior years, Semler Brossy provided information relating to competitiveness of pay levels, compensation plan design, specific equity grant matters, market trends, risk assessment and management and technical considerations concerning named executive officers, other executives and directors. In addition, Semler Brossy also provided information related to specific issues arising during the year. In 2012,2013, these included advising usthe Committee in connection with compensation adjustments and stock option and equity grants for Messrs. Zarrilli, Sisko and McGroarty in connection with their promotions, as well as transition arrangements for our retiring Chief Executive Officer.Board and regarding proposed changes to our 2004 Equity Compensation Plan, including an increase in the number of shares available for issuance under the plan. Semler Brossy also assisted the Committee with the reporting of executive compensation matters relating to 20122013 under applicable SEC disclosure rules. These services, which were provided in support of decision-making by the Committee, are the only services that Semler Brossy performed for Safeguard. Semler Brossy does not provide services to Safeguard other than those provided to support the Committee’s activities.Committee. Semler Brossy reported to and acted at the direction of, and attended selected meetings as requested by, the Chairperson of the Committee.
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The Committee, which has the sole authority to hire and terminate its consultant, evaluates the performance of its consultant annually. In 2012,2013, the Committee also considered whether Semler Brossy was “independent,” taking into account the factors set forth in Section 952 of the Dodd-Frank Wall Street Reformpursuant to SEC and Consumer Protection Act (“Dodd-Frank”), Section 10C(b) of the Securities Exchange Act,NYSE rules and Rule 10C-1(b)(4) promulgated thereunder. Utilizing these factors, the Committeeour corporate governance documents, and determined that Semler Brossy and theirits consultants are independent.meet those independence standards. In January 2013, the SEC approved new NYSE corporate governance standards for listed companies that include a requirement that compensation committees consider the independence of compensation consultants using enumerated factors. Although these new requirements are not yet applicable to Safeguard,addition, based on our prior analysis, we believeits evaluation of Semler Brossy’s independence and information provided by Semler Brossy, and their consultants would be “independent” using the new NYSE standard. The Committee intends to annually evaluate whether its compensation consultant is “independent” considering the appropriate factors, including those enumeratedalso determined in the NYSE listed company corporate governance standards.2013 that Semler Brossy’s services did not present any conflict of interest.
The Committee has utilized the services of Semler Brossy since 2008. Semler Brossy is compensated on an hourly billing basis. Invoices are directed to and reviewed and must be approved by the Committee Chairperson before payment by Safeguard.
Setting Executive Compensation
The Committee believes that a very significant portion of each executive’s total compensation should be variable or “at-risk.” It is the view of the Committee that the greater the ability of an executive (based on his role and responsibilities at Safeguard) to impact Safeguard’s achievement of its short- and long-term objectives, the greater the percentage of such executive’s overall compensation which should be “at-risk.” The Committee principally utilizes variable/at-risk cash compensation and performance-based equity compensationawards to accomplish its objectives in this regard. As described below under “2012 Compensation Program – Annual Incentives,” the Committee provides at-risk target bonus levels under Safeguard’s MIP (as defined below) to our executives. Payments against such targets are determined by the Committee based on corporate achievement as well as personal achievement. Payments may be made in cash and/or equity, in the Committee’s discretion. Neither the actual awards to be made under the MIP or otherwise nor the minimum long-term value of any equity grants made is guaranteed.
As described above,Safeguard management provides the Committee with comprehensive tally sheets on an annual basis to facilitate the Committee’s review of the total compensation of our named executive officers and other senior executives. The Committee has found these tally sheets to be useful in its evaluation of the total compensation program for our named executive officers and other senior executives. From time to time, the Committee requests that supplemental information be included in such tally sheets as its discussions require.
Specifically with regard to our named executive officers, the Committee from time to time, and at least annually has reviewed a comparison ofreviews each element of total compensation comparedand compares them to comparable elements at a group of specific companies and industries against which we believe we compete for talent and for shareholder investment, including the venture capital and private equity industries, as well asindustries. The Committee also reviews each element of compensation by reference to industry-specific compensation surveys. The analysis provided to the Committee by Semler Brossy to the Committee at its meeting in December 2011October 2012 for purposes of the Committee’s consideration of 20122013 cash and total compensation levels measured our compensation against data from the following sources:
Proxy Peer Group Data | g | Business development companies, registered investment companies and holding companies that are representative of the unique nature of our business model for a publicly owned company. Included in this group were: Capital Southwest Corporation; Harris & Harris Group, Inc.; Hercules Technology Growth Capital, Inc.; ICG Group, Inc.; KCAP Financial, Inc. | ||||
Venture Capital Survey Data | g | Surveys used included the following: Dow Jones Private Equity Analyst – Glocap Compensation Survey US Mercer Benchmark Database – Executive (Each of the surveys utilized is | ||||
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The Committee annually evaluates the companies and surveys used for comparison purposes to be certain that the comparables reviewed by the Committee remain appropriate given mergers/acquisitions that may have occurred and any changes in relevant business scope. In connection with the commencement of its process for its 20122013 compensation review, in July 2011,2012, the Committee determined that reviewing compensation from multiple perspectives was still appropriate given Safeguard’s unique business model. In reviewing the Proxy Peer Group in connection with that undertaking, the Committee determined that all peers in the peer group remained appropriate. The Committee is continually refining the comparables utilized as members of the Peer Group are acquired or merged, etc. The Committee does not focus on any one single peer or data point in setting compensation levels.
Recognizing that our business strategy, industry focus and diverse array of partner companies make comparisons to other companies difficult, and based on the inherent challenge in matching companies, job positions and skill sets, the Committee has looked to competitive information for general guidance rather than rigid adherence to specific percentages. The Committee has determined that the overall objectives of our compensation philosophy are better achieved through flexibility in determining pay levels to address differences in duties and responsibilities, individual experience, skill levels and achievements, and any retention concerns.
ChangeOutcome of the 2013 Say-on-Pay Vote and Shareholder Outreach
At our 2013 annual meeting of shareholders, approximately 78% of our shareholder votes were cast in Named Executive Officers and Responsibilitiesfavor of our say-on-pay proposal on executive compensation. This vote, while overwhelmingly positive, was a decline from the 91% vote in 2012
Effective November 1, 2012, Peter J. Boni retired asfavor in 2012. As part of Safeguard’s ongoing investor relations program, our senior management regularly engages with many of our largest shareholders. During 2013, certain of our senior executives, including our President and Chief Executive Officer, and we appointed Stephen T. Zarrilli, then our Senior Vice President and Chief Financial Officer, to succeed him as President and Chief Executive Officer. Mr. Zarrilli was appointed to Safeguard’s Board effective as of the same date. Pursuant to a written agreement, Mr. Boni continues to serve as our CEO Emeritus and will remain on our Board of Directors until our upcoming Annual Meeting of Shareholders to be held on May 23, 2013. Thereafter, through December 31, 2013, Mr. Boni will act as a special advisor to Safeguard. Also in November 2012, we promoted Jeffrey B. McGroarty to the position of Senior Vice President, – Finance,Investor Relations and Corporate Communications, met with approximately 28 of Safeguard’s largest shareholders, in many cases, multiple times. Safeguard management views this shareholder engagement as an important opportunity to develop strong relationships with our key investors over the long term, and to the roleengage in an open dialogue regarding our business strategy and our specific short-term and long-term objectives, as well as governance and compensation issues. As a result of our principal accounting officer. In addition to his former responsibilities for oversight of financial accounting and reporting, as Senior Vice President – Finance, Mr. McGroarty serves asshareholder outreach, we believe that our most senior finance professional and a member of our executive management team, and has assumed additional responsibilities related to our periodic reporting as a public company. Mr. McGroarty first joined Safeguard in December 2005, and most recently served as Vice President – Finance and Corporate Controller. Also in November 2012, we promoted Brian J. Sisko to the position of Executive Vice President and Managing Director, Strategy, Development and Operations. In his new position, Mr. Sisko remains responsible for the oversight of all legal functions of our business and continues to serve as a member of our executive management team, and has assumed additional responsibilities for managing our internal operations, the functional support services that we provide to our partner companies and activities related to our business development initiatives. Mr. Sisko first joined Safeguard as Senior Vice President and General Counsel in August 2007.
In connection with the promotion of Messrs. Zarrilli, McGroarty and Sisko, and consistent with their increased responsibilities, the Committee approved certain changes in base salary and annual incentive compensation for these named executive officers. In considering and approving these changes in compensation, the Committee consulted with, and reviewed the analysis of, its outside consultant, Semler Brossy, and, with respect to Mr. Sisko and Mr. McGroarty, we also considered Mr. Zarrilli’s recommendations regarding compensation. In addition, the Committee also approved one-time stock option and equity grants to each of Messrs. Zarrilli, McGroarty and Sisko in connection with their promotions. Additional details are provided below under “Changes in 2012 Compensation Related to Changes in Our Named Executive Officers and Executive Officer Responsibilities.”
We believe these changes continue to position Safeguard for further growth. Additional details about the terms of Mr. Boni’s retirement can be found under “Severance and Change-in-Control Arrangements – Arrangements with Peter J. Boni” below.
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Outcome of the 2012 Say-on-Pay Vote
At our 2012 annual meeting of shareholders, we held an advisory vote on the compensation of our named executive officers, commonly referred to as a say-on-pay vote. Our shareholders overwhelmingly approved the compensation of our named executive officers, with approximately 91% of shareholder votes cast in favor of our say-on-pay resolution. The Committee believes that this strong support from our shareholders is evidence that our pay-for-performance policies are working and are aligned with our shareholders' interests.compensation program. Accordingly, after considering the results of the advisory vote on executive compensation in the context of its overall review of Safeguard’s compensation policies, and considering our management’s discussions with significant shareholders, the Committee determinedhas not and does not expect to implement any significant changes to the structure of our executive compensation program for 2012 and does not, at present, intend to make any significant changes to our executive compensation program in 2013.2014. The Committee will continue to consider the outcome of our shareholders’ advisory votesvote on executive compensation and shareholder feedback when making future compensation decisions for our named executive officers.
During 2013, the Committee used the following principal elements of executive compensation to meet its overall goals:
| Base Pay | g | Fixed cash compensation, based on competitive market practices and existing salary levels, that rewards an executive’s core competencies relative to skills, experience, responsibilities and anticipated contributions to us and our partner companies. The Committee reviews salary levels annually in comparison to market data to insure competitive base pay; | ||
| Annual Incentives | g | Variable, at-risk, performance-based, short-term incentive compensation, based on competitive market practices and existing incentive compensation levels, that rewards an executive’s contributions towards the achievement of annual corporate objectives and an executive’s achievement of individual performance objectives. These incentives may be paid in the form of cash or equity at the Committee’s discretion, although these have been paid in cash in recent years; | ||
| Long-Term Incentives | g | Long-term incentive awards are principally equity-based awards that encourage executive ownership of our stock and promote continued employment with us through the use of vesting based on the achievement of milestones/results which by their nature are long term and/or which are based on extended tenure with Safeguard. These awards align our executives’ interests with those of our shareholders. The value of the awards to the executive is directly impacted by (i) cash-on-cash realized returns on our partner company deployments and/or (ii) our stock price increases; | ||
| Health and Welfare Benefits | g | Benefits that are part of our broad-based employee benefit programs, including medical, dental, life insurance, disability plans, and our 401(k) plan matching contributions; and | ||
Severance and Change- in-Control Arrangements | g | Severance benefits that are payable or which accrue if a particular executive’s employment is terminated by Safeguard “without cause” or by the executive for “good reason.” These benefits are intended to help us retain certain of our named executive officers and other executives, providing us with continuity of executive management. In the event of a change in control, in certain circumstances, these severance benefits may be increased, which functions as a further retention mechanism. | ||
Base Pay. Base pay is established initially on the basis of several factors, including market competitiveness; past practice; individual performance and experience; the level of responsibility assumed; the level of skills and experience that can be leveraged across our partner companies to facilitate their growth and success; and individual employment negotiations with executives. ThreeAll of our named executive officers have an employment agreement with us which sets a minimum base salary.
Base salaries typically are reviewed annually (at the end of one year and the beginning of the upcoming calendar year) by the Committee, as well as in connection with a promotion or other changes in job responsibilities. As noted above, Safeguard believes it competes for executive talent with venture capital and private equity firms, among others. In considering whether to adjust base salary levels of any of our executives for 2012,2013, the Committee took into account:
The proxy peer group and survey data provided by Semler Brossy;
| — | The proxy peer group and survey data provided by Semler Brossy; |
The Committee’s assessment of Safeguard’s overall performance during 2011
| — | The Committee’s assessment of Safeguard’s overall performance during 2012 and the ongoing individual performance of each of our named executive officers; |
| — | United States economic conditions, in general; and |
| — | Changes in scope of job responsibility. |
In late 2012, in connection with their promotions, the Committee reviewed the base salaries of Messrs. Zarrilli and McGroarty and approved an increase in each of their base salaries. No further adjustments to base salaries were made for our named executive officers for 2013.
Annual Incentives.
Incentive Opportunity. The Committee annually awards bonuses to our executives under Safeguard’s Management Incentive Program (“MIP”). The MIP is designed to provide a variable short-term incentive to each of our named executive officers;
United States economic conditions, in general;officers and
Changes in scope our other executives and employees based on Safeguard’s annual performance. These awards are approved annually following the end of job responsibility.
Basedeach year, based on the Committee’s reviewassessment of the foregoing; its desire to recognize professional growthachievement by each executive of corporate and accomplishments; additional responsibilities assumed by certain officers;individual performance objectives, as measured against the executive’s target personal and to maintain Safeguard’s competitivenesscorporate objectives established at the beginning of the year. Payments may be made in cash and/or equity, in the marketplace for executive talent,Committee’s discretion. Neither the actual awards to be made under the MIP nor the minimum long-term value of any equity grants made is guaranteed.
In early March 2013, the Committee approved the following changes in 2012 base salary levels for certain of our named executive officers, as shown below:
Name | 2011 Base Salary | 2012 Base Salary | ||||||
Stephen T. Zarrilli | $ | 400,000 | $ | 425,000 | (a) | |||
James A. Datin | $ | 425,000 | $ | 450,000 | ||||
Jeffrey B. McGroarty | $ | 225,000 | $ | 234,771 | (b) | |||
2012 base salaries for our other named executive officers were unchanged from the prior year.
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Annual Incentives.
Incentive Opportunity. In February 2012, the Committee adopted the particular corporate and personal objectives and target award levels for 20122013 for our named executive officers and also approved the individual objectives for our President and Chief Executive Officer under Safeguard’s Management Incentive Plan (the “MIP”)the 2013 MIP. The Committee further authorized our President and Chief Executive Officer to provide a variable incentive toapprove the 2013 individual objectives for our other senior executives, including our other named executive officers. Finally, the Committee also determined that each of our executivesnamed executive officers and other employees based on 2012 performance. The 2012senior executives was eligible to receive an award under the MIP program, which, consistent with our approach to annual incentives generally, emphasized teamwork among members of management to achieve key business objectives under our 2012 strategic plan, was based on the following mix of corporate and individual objectives for our named executive officers and our other executives (except as noted below):objectives:
80% on the achievement of corporate objectives; and
| — | 80% on the achievement of corporate objectives; and |
| — | 20% on the achievement of individual objectives. |
20% on the achievement of individual objectives.
For the 2012 MIP objectives, Mr. Boni, our then Chief Executive Officer, recommended to the Committee and the Committee agreed, that certain executives whose principal responsibilities related to partner company relationships would have a slightly modified mix of MIP objectives, based 60% on the achievement of corporate objectives, and 40% on the achievement of personal objectives. Our remaining employees also participated in our 20122013 MIP, with professional staff incentives being based on the same mix of corporate and individual objectives as our executives, and administrative employee incentives being based 50% on corporate objectives and 50% on individual objectives.
We believe that short-term compensation (such as base salary and annual incentive awards)awards under the MIP) should not be based solely on the short-term performance of our stock, whether favorable or unfavorable, but rather as well on our executives’ management of Safeguard towards achieving ourthe annual goals that we believe will contribute to long-term growth in shareholder value. Through 2011, under our MIP, it was our practice that all of our executives earned their incentive payments based onIn the samepast, the Committee has adjusted the relative weightingweightings of corporate and individual objectives (80%/20%). In 2012, all offor specified employees under our executives continued to have this same relative mix of corporate and individual objectives (80%/20%), except that the Committee adjusted these relative weightings to 60% corporate objectives/ 40% personal objectives for three executives, as described above. Upon his promotion to Chief Executive Officer, Mr. Zarrilli recommended,MIP, including our named executive officers, and the Committee agreed, to return all executives to the same relative weighting of 80% corporate/ 20% personal objectives for our 2013 MIP. The Committee may adjust such relative weightings of Safeguard’s MIPthese percentages in the future in light of Safeguard’s overall compensation goals.
2013 Performance Measures. To align the 2012 MIP with our 2012 business strategy,In March 2013, the Committee establishedreviewed and approved the 2013 MIP, including the corporate objectives and weightings (representingto align the portion ofshort-term incentive provided by the 20122013 MIP target based onwith our 2013 business strategy. Specifically, the Committee approved the following weighting for the corporate objectives) set forth below. (Certain of the referenced objectives are summarized versus stated in word for word detail below.)objectives:
Weighting | Corporate Objectives | |||
50% | 50% of | |||
50% - Overall Corporate Performance |
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| — capital deployments: specifically, a target of 25 partner companies (net of exited partner companies) as of December 31, 2013; target capital deployments totaling between $50 and $60 million in the — a target of — target net corporate operating expenses for 2013 of not greater than $16 million (less interest income generated by participating interests in Penn Mezzanine loans and The Committee also reserved the ability to consider its subjective analysis of the achievement of other corporate | |||
The Committee established the specific objectivesperformance-based corporate and partner company target metrics based on recommendations of management byand taking into consideration the stage of development of each of our partner companies; the anticipated relative levels of focus to be applied by management against the various aspects of our business model during the 2012 fiscal year; and the anticipated level of difficulty in achieving our 2012 business plan. By way of process, the Committee, consistent with recent historical practice, directed management in late 2011 to propose a set of partner company performance objectives and overall corporate performance objectives. The Committee and management then engaged in a back and forth dialogue regarding several variations of the original proposal before the Committee finally adopted the final objectives to be utilized.companies. Within the specific parameters of the 20122013 MIP, the Committee reserved for itself a significant level of discretion in reaching final determinations of achievement levels reached.attained, as described above. The determination to reserve such discretion and flexibility arose from the Committee’s realization,belief, based on prior years’ experiences, that, given Safeguard’s business activities, as circumstances change throughout a given fiscal year, on a macro and/or a micro level, specific/rigid formulas or guidelines for measuring achievement set in the beginning of a year, if strictly applied, may well incent activity that does not result in, or compensation grants that do not match, actual shareholder value creation. The award criteria finally adopted were designed to provide management with a meaningful guideline for meeting the Committee’s criteria for a target award but not guarantee achievement or make achievement somewhat inevitable or impossible. This approach is also intended to provide the possibility of exceeding target awards and some economic recognition, albeit reduced, for near achievement of the target.
The following table summarizes the specific types of performance metrics that we use to assess our partner companies included in the 2013 MIP, with our 2013 partner companies grouped into “A,” “B,” and “C” groupings as indicated and such groupings weighted 50%, 30% and 20%, respectively, of the total points available under the 2013 MIP attributable to partner company performance. The achievement of the specific performance objectives set for our partner companies represents the basis upon which the Committee determined corporate achievement attributable to our partner companies under the 2013 MIP.
| Partner Company | 2013 Objectives / Targets (may include one or more of the following performance metrics) | |
Partner Company Grouping A (Weighted 50%) | ||
AdvantEdge Healthcare Solutions MediaMath NovaSom NuPathe PixelOptics | — Achieve specified level of annual revenue — Achieve specified level of EBITDA or specified margin — Engage investment banker to assist with consideration of strategic alternatives — Complete additional equity or debt financing — Manage cash and expenditures to fund operations without additional capital infusion — Achieve commercial product launch | |
Partner Company Grouping B (Weighted 30%) | ||
Beyond.com Bridgevine Crescendo Bioscience Good Start Genetics Putney Spongecell ThingWorx | — Achieve specified level of annual revenue — Achieve specified level of EBITDA or specified margin — Engage investment banker to assist with consideration of strategic alternatives — Achieve specified level of commercial sales — Add additional revenue stream(s) and/or new product or service line(s) — Complete additional equity or debt financing — Manage cash and expenditures to fund operations without additional capital infusion | |
Partner Company Grouping C (Weighted 20%) | ||
Alverix AppFirst DriveFactor Hoopla Lumesis Medivo | — Build-out management team — Achieve specified level of annual revenue — Manage cash and expenditures to fund operations without additional capital infusion — Successful commercial sales of product(s) or service(s), or successful product implementation | |
In connection with the finalization of the 20122013 MIP corporate objectives, each executive also prepared written individual objectives. Our thenPresident and Chief Executive Officer’s individual objectives were reviewed and approved by the Committee. Each of our other then named executive officer’sofficers’ individual objectives and the individual objectives of our other senior executives were reviewed and approved by our President and Chief Executive Officer, and each other executive’s individual objectives were reviewed and approvedor by one of our thenother named executive officers. The individual objectives varied depending upon each participant’s roles and responsibilities.
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The following table describessummarizes the individual objectives establishedapproved for each of our current named executive officers:
Named Executive Officer | Personal Objectives | |
Stephen T. Zarrilli | (objectives consistent with role of President and Chief — Develop and — Work with the Board and committee Chairs to implement effective compensation structures and methodologies, and Board methods and processes relating to Safeguard’s core business — Further enhance communications within the Board and between the Board and management,
— Refine and enhance capital raising, cash management, and corporate talent resources — Enhance relations with
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Jeffrey B. McGroarty |
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(objectives consistent with role of Senior Vice President
— Continue professional development relative to strategic planning and initiatives, as appropriate — Revamp, as appropriate, Safeguard’s integrated long-term financial — Evaluate, model and analyze potential capital raising and other
— Enhance communications with significant investors | ||
Brian J. Sisko | (objectives consistent with role of
— Manage legal and
— Continue professional development relative to capabilities applicable to new role within organization — Pursue capital raising opportunities
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Consistent with their respective employment agreements and Safeguard’s overall compensation philosophy, the Committee set the following target MIP awards for 20122013 for our current named executive officers:
Name | 2011 MIP Target Variable Incentive (a) | 2012 MIP Target Variable Incentive | 2013 MIP Target Variable Incentive (a) | 2012 MIP Target Variable Incentive (1)(2) | 2013 MIP Target Variable Incentive | 2014 MIP Target Variable Incentive (1) | ||||||||||||
Stephen T. Zarrilli | $ | 400,000 | $ | 425,000 | (b) | $ | 550,000 | $ 425,000 | $ 550,000 | $ 550,000 | ||||||||
James A. Datin | $ | 425,000 | $ | 450,000 | $ | 450,000 | ||||||||||||
Jeffrey B. McGroarty | $ | 90,000 | $ | 147,125 | (c) | $ | 187,500 | $ 147,125 | $ 187,500 | $ 206,250 | ||||||||
Brian J. Sisko | $ | 281,250 | $ | 290,625 | (d) | $ | 337,500 | $ 290,625 | $ 337,500 | $ 337,500 | ||||||||
Peter J. Boni | $ | 700,000 | $ | 700,000 | (e) | |||||||||||||
| Represents |
Payouts.There wereare no mandatory minimum awards payable under the 2012 MIP. The actual incentive2013 MIP, and awards are paid to participants were determined based upon the Committee’s determination of the individual’s level of achievement of the quantitative and qualitative corporate and individual performance objectives and wereobjectives. Payouts are measured in the aggregate on a sliding scale basis (e.g., for executives and professional staff, achievementfrom 0% to a possible 150%.
Determination of objectives totaling 50 percent would result in payment of 50% of the target award, achievement of objectives totaling 100 percent would result in payment of 100% of the target award and achievement of objectives totaling 150 percent would result in payment of 150% of the target award). Payments under the 2012 MIP were limited to 150% of each individual’s target award.
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Under the terms of our 2012 MIP, the Committee had the ability to make payments to participants in cash and/or equity. There was no requirement that any particular portion of any payments be made in any particular form. In late 20122013 and early 2013,2014, the Committee reviewed ourSafeguard’s corporate performance against the quantitative and qualitative corporate objectives set forth above and preliminarily determined the following payout levels. The finalization oflevels (with the final payouts was conditioned upon the completion of the audit of our 20122013 consolidated financial statements and internal controlscontrol over financial reporting without any unexpected material adjustments.
adjustments). Overall, the Committee determined that 2013 was a year of significant positive results for Safeguard. The key factors upon which the Committee based its determination of the payout level are also summarized below.
| Corporate Objectives: | Payout Level (as a % of target) | |||
Partner Company Performance | 120% | |||
| 15 of |
| ||
— Aggregate revenue — Safeguard added six new partner companies and two other early stage enterprises in 2013; — Where partner companies were not performing as anticipated, Safeguard management took appropriate action, including leading successful efforts to replace underperforming partner company — The achievements of our partner companies | ||||
Overall Corporate Performance | ||||
— The sale of our former partner company, ThingWorx, Inc., in late 2013, with initial proceeds to Safeguard of approximately $36.4 million (excluding an additional escrow of $4.1 million) and the sale of former partner company, Alverix, Inc., with initial proceeds to Safeguard of approximately $15.7 million (excluding an additional escrow of $1.7 million); — Positive cash management activities, including
— The reorganization of our — A significant litigation victory and
| ||||
Total Percentage | 130% | |||
In the aggregate, the Committee concluded that Safeguard performed well beyond its “targeted” 2013 objectives for overall corporate performance.
Following the end of the 20122013 calendar year, the Committee also assessed each named executive officer’s achievement of his individual objectives (representing 20% of the total 2013 MIP target award). Each of Messrs. Zarrilli, Datin, McGroarty and Sisko completed a self-assessment of his achievement of individual objectives (representing 20% of the total 2012 MIP target award).objectives. With respect to our President and Chief Executive Officer, given Mr. Zarrilli’s promotion late in 2012, the Committee considered and reviewed Mr. Zarrilli’s self-assessment and his achievement of individual and corporate objectives in determining his 20122013 MIP achievement level. Regarding the performance of each of our other named executive officers, other than the CEO Emeritus, the Committee based its assessment of their achievements of individual objectives principally on the recommendation made by our President and Chief Executive Officer. In making the assessment regarding Mr. Boni, the Committee relied on its own internal discussions and evaluation. The Committee’s determinations regardingdetermination of the individual achievement levels of each of the 20122013 named executive officers werewas as follows. Mr. Zarrilli’s individual performance was determined to be 125% based principally upon his contributions on financings and cash management; his overall achievements in Board relationships; and his overall leadership in the management transition. Mr. Datin’s individual performance was determined to be 85% based upon his participation in the active management of partner companies; his role in the achievement by the partner companies of certain operational milestones; and the deployment of capital into new, high potential partner companies and follow-on deployment into existing partner companies; these achievements offset certain below-target performance metrics at certain partner companies. Mr. McGroarty’s individual performance was determined to be 100% based primarily on his participation in partner company financings, his increased role in investor relations and involvement with the Board, and his management of partner company financial risk. Mr. Sisko’s individual performance was determined to be 120% based principally upon his role in structuring and completing the refinancing of Safeguard’s convertible debentures at significant interest and dilution savings; his role in structuring and completing the 2012 NuPathe financing; his work on strategic initiatives; and his increased role as a board member of Advantedge Healthcare Solutions, Penn Mezzanine, Novasom and NuPathe. Mr. Boni’s individual performance was determined to be 100%, principally based upon his execution of the 2012 plan and his leadership regarding succession planning.
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| Named Executive Officer | Personal Achievements(including, but not limited to) | Payout Level (as a % of target) | ||
Stephen T. Zarrilli | — Contributions to short-term and long-term strategic planning for Safeguard; — Successful reorganization of Safeguard’s organizational structure; — Addition of talent to Safeguard’s deal teams; — Effective outreach to and interactions with significant Safeguard shareholders; — His overall achievements in Board relationships and communication; and — His overall leadership of Safeguard. | 150% | ||
Jeffrey B. McGroarty | — Effective management of cash and financial reporting; — The finance department’s support of the operations of Safeguard and our partner companies; — The finance department’s evaluation of financing opportunities for Safeguard and its partner companies; — Successful interactions with significant Safeguard investors; and — His overall leadership of the finance department and financial function of Safeguard. | 100% | ||
Brian J. Sisko | — Effective reorganization of the Safeguard legal and operational functions; — Operational support that Safeguard provided to partner companies; — Support provided by legal and operations on capital raising initiatives; and — His overall leadership of the legal and operations function of Safeguard. | 110% |
Based on its reviewassessment of the achievement of both quantitativethe 2013 MIP corporate and qualitative 2012 MIPpersonal objectives, the Committee authorized the following individual awards to Safeguard’s named executive officers. The Committee determined, based on consultations with the Committee’s independent consultant and analysis of data related to incentive payment practices being followed within Safeguard’s peer group and throughout the U.S. financial services industry as a whole, to pay 100% of 20122013 MIP payments to our executives in cash. The Committee recognizes that these MIP awards are part of the annual incentive component of our compensation policies and not part of long-term incentive compensation and, so long as Safeguard’s liquidity position is strong, the Committee will tend towards paying annual incentive amounts in cash rather than equity. The utilization of equity as part of the MIP award process will be considered on a year-by-year basis and will not be driven by any rigid guideline. The cash amounts paid to our named executive officers also are presented in the Summary Compensation Table under “Non-Equity Incentive Plan Compensation.”
Name | Payout Level (1) | Total Variable Incentive Payment | Payout Level (1) | Total Variable Incentive Payment | ||||||||||||
Stephen T. Zarrilli | 95.0% | $ | 403,750 | 134% | $ 737,000 | |||||||||||
James A. Datin | 87.0% | $ | 391,500 | |||||||||||||
Jeffrey B. McGroarty | 90.0% | $ | 132,413 | 124% | $ 232,500 | |||||||||||
Brian J. Sisko | 94.0% | $ | 273,188 | 126% | $ 425,250 | |||||||||||
Peter J. Boni | 90.0% | $ | 630,000 | |||||||||||||
| ||||||||||||||||
Named Executive Officers, as a group (5 persons) | 91.2% | $ | 1,830,851 | |||||||||||||
Named Executive Officers, as a group (3 persons) | 130% | $ 1,394,750 | ||||||||||||||
| (1) | In percentage terms versus targeted incentive amount. |
In April 2013, upon the recommendation of the Committee, the Board of Directors of Safeguard adopted a formal clawback policy that gives Safeguard the ability to recover portions of the compensation paid, including incentive compensation, to our named executive officers and other key employees under certain circumstances involving financial results restatements and ethical misconduct. This initiative was undertaken, not in response to any particular situation or circumstance, but as a natural extension of the Board’s commitment to sound executive compensation practices and effective corporate governance. See “Key Employee Compensation Recoupment Policy” below.
Long-Term Incentives. The principal approach utilized by the Committee to meet the need for a long-term incentive component to Safeguard’s executive compensation program has been the granting of significant amounts of equity to our named executive officers. Historically, this was accomplished almost exclusively in the form of stock options. More recently, the Committee has also issued equity in the form of restricted stock and performance stock units. Our equity compensation plans allow for the grant of options, restricted stock awards and such other equity-based awards as the Committee may determine to be appropriate from time to time. The mix of the types of equity basedequity-based awards may vary from time to time. In particular, in early 2013, the Committee determined that, at least for 2013, it would utilize more restricted stock than in prior years as long-term incentive compensation, based in part on a recommendation from the Committee’s compensation consultant, to further align management interests with our shareholders’ interests, and in recognition of the number of shares remaining available for grant under our equity compensation plans. (Since shares of restricted stock have a higher value than stock options on the date of grant, awards of restricted stock result in the use of a lower number of shares of stock for equivalent value awards.) It should be noted that, as described above under “2012 Compensation Program – Payouts,” and as they did regarding the 2010 and 2011 MIP awards, the Committee chose to pay all of the 2012 MIP awards in cash, but, by way of comparison, a portion of the 2009 MIP awards were paid in the form of stock grants, and a portion of the 2008 MIP awards were paid in the form of restricted stock.
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As noted above, we compete for executive talent with venture capital and private equity firms, and we reviewthe Committee reviews comparative information regarding venture capital and private equity industry compensation practices as part of ourits overall compensation analysis. In suchthese industries, executives (referred to as “managing partners” or “managing directors”) typically have compensation programs heavily weighted towards long-term incentive, structured as a share of the fund'sfund’s profits, payable in cash (referred to as “carry”). We currently do not provide our executives with a cash compensation program tied directly to gains from our sales of our partner company holdings. Instead, as part of our overall process of composing a complete approach to executive compensation program, we review our equity compensation plans in light of the type of economic benefit and performance metrics that would be included in a “carry” approach to compensation. We compare the initial equity awards made to our named executive officers against our assessment of the carry, which would typically be provided to executives in positions of comparable responsibility at private equity and/or venture capital firms at that time. Based upon information available to the Committee through its consultant, we continually reassess the competitiveness of our executives’ long-term compensation opportunity against a carry methodology as well as other relevant metrics from other types of businesses within our peer group. The ultimate potential value of thefor long-term equity grants is intended to be competitive with those held by comparable executives at companies included in the comparison data that is reviewed annually by the Committee (as adjusted for the senior executive’s experience).
In order to undertake a discussion of the Committee’s work regarding long-term incentives during 2012, it is relevant to revisit issues related to long-term incentives confronted in 2008 and 2009. The Committee’s deliberations with regard to long-term incentives during 2008 were made increasingly challenging by a variety of factors – the economic environment impacted the opportunity to realize the value of long-term incentives, and the retentive value of long-term incentive grants made to the named executives upon hire declined precipitously through the course of 2008. In an effort to better approximate a “carry” approach, the Committee considered a variety of alternatives for long-term incentives, including cash, restricted stock, and stock options, with all of these approaches tied to gains derived by Safeguard from sales of our partner company interests. At that time, the Committee decided to continue the use of options as the principal component of its long-term incentive program, but changed the performance criteria for new grants from the “market-based” approach (described below) which had been utilized since 2005, to the “capital-return” approach (described below). The Committee made this change in the belief that this vehicle best ties the reward to the factors critical to the creation of shareholder value. The Committee has used this approach since 2008.
All of our stock options are granted with an exercise price equal to the average of the high and low trading prices of our common stock on the date of grant. Therefore, the options will have value only if the market price increases after that date and, in the case of options that vest upon achievement of specified performance milestones, only if the specified performance milestones are achieved.
We refer to options, restricted stock and performance stock unitsPSUs that vest upon achievement of specified performance milestones as “performance-based.” At present, we have issued and outstanding two types of performance-based equity: “market-based vesting” (for awards made between 2005 and June 2008) and “capital-return based vesting” (initiated in(for awards made since September 2008). Both of these types of performance-based equity are described in detail below.
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In general, for executive personnel, the Committee has establishedused the following model for allocating equity grants (both initial and any annual grants) between equity grants which are subject to simple time-based vesting and performance-based equity:
| — | 25% of the total underlying shares are subject to time-based vesting; of such amount, 25% vests on or about the first anniversary date of the grant date and the remaining 75% vests in 36 equal monthly installments on the same date of each month thereafter; and |
| — | 75% of the total underlying shares are subject to performance-based vesting. |
The Committee believes that allocating equity grants in such a fashionthis way aligns the long-term interests of Safeguard management and our shareholders. The Committee may infrequently grant equity allocated in a different manner, in special circumstances. All equity grants to our named executive officers in 20122013 were allocated between time-based vesting and performance-basedcapital-return based vesting in the above manner.
Market-based Options. Our market-based vesting options vest as Safeguard’s per share price on the NYSE achieves certain specified levels. The Committee began utilizing these market-based vesting options duringDuring 2005 and continued to utilize themcontinuing through the second quarter of 2008. Our2008, the performance-based options that we granted vested based on the market price of Safeguard’s common stock on the NYSE over specified periods. We refer to this as the market-based vesting model. Safeguard executives will notreceive no benefit from such option grantsthese market-based options unless our common stock price achieves and sustains a targeted stocktarget market price (based on the average closing price of a share of our common stock as reported on the NYSE composite tape for 20 consecutive trading days).
The following table shows the per share stock price levels at which portions of the shares underlying the More information regarding outstanding market-based vesting options granted in 2005 to Messrs. Boni and Datin will vest:
Percentage of Shares Underlying Options That Vest | Per Share Stock Price | |||
First 10% | $ | 12.2154 | ||
Next 20% | $ | 18.9288 | ||
Next 30% | $ | 27.8796 | ||
Final 40% | $ | 39.0684 | ||
The market-based options issued to Mr. McGroarty in 2006, to Mr. Sisko in 2007 and to Mr. Zarrilli in 2008 will vest as follows:
Percentage of Shares Underlying Options That Vest | Per Share Stock Price | |||
First 20% | $ | 18.9288 | ||
Next 30% | $ | 27.8796 | ||
Next 40% | $ | 39.0684 | ||
Final 10% | $ | 43.3476 | ||
Market-based options also may vest on a pro rata basis if the per share stock priceour named executive officers is between the designated stock price levels set forth in the above tables for 20 consecutive trading days. We measure for these pro rata vestings every six months. For example, based on the stock price levels in the first table above, if the first 30% of the options had already vested and within the next six-month window, the highest average closing price of a share of our common stock as reported on the NYSE composite tape over 20 consecutive trading days equaled $23.4042, an additional 15% of the shares underlying the options would vest.below under “Executive Compensation – Outstanding Equity Awards at Fiscal Year-End 2013.”
We do not have any other forms of market-based equity grants besides our market-based options.
Capital-Return Model. DuringBeginning in the third quarter of 2008, based upon discussions with the Committee’s consultant and in an attempt to 1) formally incorporate the annual granting of equity as part of the annual total compensation package; 2) better approximate the “carry” concept described above; and 3) better link compensation to two principal elements of Safeguard’s business plan for producing enhanced shareholder value, increasing the value of our partner company interests and consummating exit transactions to realize such value, the Committee formulatedtransitioned to a performance-based vesting model for equity awards that we refer to as the following capital-return based vesting model. The principle behind the capital-return based vesting model isseeks to vest the underlying equity asawarded based on partner company exit transactions producemonetizations and the aggregate cash returns toproduced for Safeguard by such monetizations, in excess of certain predetermined levels. In order to create a starting point for the use of this vesting approach, the Committee formed a group consisting of all of Safeguard’s non-legacy partner companies existing as of September 30, 2008 (the “Initial Group”) and tied the vesting to predetermined levels of net cash proceeds returned to Safeguard based on exit transactions involving the Initial Group. The model calls for vesting to beVesting is calculated annually on September 30 of each calendar year. Vesting will only beginyear, and begins to occur after a hurdle amount of proceeds are produced (an amount
equal to 100% of aggregate cash deployed in the Initial Group,relevant group of partner companies, plus an amount approximating Safeguard’s annual cost of overhead). All instruments will become vestedvest upon achievement of a predetermined target amount of proceeds for a designated group of partner companies (an amount equal to three3 times aggregate cash deployed in the Initial Group)relevant group of partner companies for grants between 2008 and 2012, and 2.4 times aggregate cash deployed in the relevant group of partner companies for our 2013 grants). The Committee decided to use a vesting rate for 2013 grants equal to 2.4 times aggregate cash deployed in the relevant group of partner companies, rather than the 3 times cash multiple utilized in connection with prior years’ grants, based on the overall lower returns on capital deployments experienced generally by companies in the venture capital and private equity markets since 2008. After the hurdle amount is reached, the instruments willequity awards vest on a linear basis relative to additional proceeds produced beyond the hurdle amount until such time as 100% are vested when the target amount of proceeds is reached. Adjustments to the hurdle amount and the target amount will beare made if and when Safeguard deploys additional capital into any of the Initial Group.
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The Committee determined that the instruments issued in 2008 would all be options. Of the Initial Group of capital-return options, 20.25% have vested as of the date hereof. It was contemplated that, on an annual basis going forward, on or about the anniversary date of the formation of the Initial Group, the Committee would create an additional grouping of partner companies defined as companies into which Safeguard first deployed capital during the preceding 12 months. The vesting of any stock option or other equity issuances to be made at that time (or within the next 12 months) in the normal course of the Committee’s management of executive compensation equity matters would be tied to net proceeds produced from exit transactions involving such group of partner companies. Consistent with such expectations, in Fall 2009, the Committee issued additional capital-return options as well as performance stock units (which also vest based on the capital-return model) pegged to a group of partner companies first funded by Safeguard in the prior 12 months. During the Fall of 2010, as the Committee took under consideration additional equity grants consistent with this capital-return model, the Committee made a determination to expand the group of partner companies used for measurement purposes to include partner companies into which Safeguard first deployed capital in the last 24 months. This was done because of the small number of partners companies which were first funded in the prior 12 months. The Committee felt it inappropriate to link the vesting of the relevant equity grants to such a small pool of partner companies. During the Fall of 2011, the Committee undertook additional equity grants consistent with this capital return model, the vesting of which is linked to the partner companies into which we first deployed capital in the preceding 12 months. The Fall 2011 grants were split evenly, on a value basis, between options and restricted equity vehicles. During the Fall of 2012, the Committee considered and approved additional equity grants consistent with this capital return model, the vesting of which is linked to the partner companies into which we first deployed capital in the preceding 24 months. The Fall 2012 grants also were split evenly, on a value basis, between options and restricted equity vehicles. This practice, as it may be revised to accommodate specific circumstances, such as share availability under our equity plans, is expected to continue annually.
For the Fall 2009 through Fall 2012 grants, the hurdle amounts (the point at which vesting begins to occur) equal 100% of capital deployed into the relevant group of partner companies, plus an amount based on Safeguard’s annual cost of overhead. For such grants, the target amounts (the point at which all instruments become vested) equal three times capital deployedincluded in the relevant group of partner companies. The hurdle and target amounts approved by the Committee may vary from time to time.group.
The Committee annually reviews the equity awards held by our executives and other employees and also may consider awards periodically during a year in an effort to retain and motivate employees and to ensure continuing alignment of executive and shareholder interests. In 2012, the Committee approved certain one-time stock option and equity awards to three of our named executive officers in connection with their promotions and increased responsibilities. See “Changes in 2012 Compensation Related to Changes in Our Named Executive Officers and Executive Officer Responsibilities” below. Information regarding the equity grants made to our named executive officers during 2012 can be found below under “Executive Compensation — Grants of Plan-Based Awards – 2012.”
Subject to availability under our shareholder approved equity compensation plans, we expect to continue to use stock options and other equity awards as part of our executive compensation program, including performance-based options. Equity grants to our key employees may be subject to forfeiture in certain limited circumstances under our Key Employee Compensation Recoupment Policy. See “Key Employee Compensation Recoupment Policy” below.
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Stock Option/Equity Granting Process. The Committee is responsible for equity grants under our equity compensation plans. The Committee approves and grants all equity awards to our executives, employees and advisory board members, with the exception of those grants for which the Committee has delegated authority to the Chief Executive Officer which are described below. Equity grants to directors are generally approved by the Board; however, in those cases where the Board has approved the size and form of recurring annual service grants, the Committee may authorize grants without further Board approval.
Grants may be made at regularly scheduled meetings or at special meetings convened to approve compensation arrangements for newly hired executive officersexecutives or for executive officersexecutives who have been promoted or are otherwise subject to changes in responsibilities. During 2007,All of our stock options are granted with an exercise price equal to the Committee determined that, as a matteraverage of best practice, recurring grants to directors would be madethe high and low trading prices of our common stock on or about the date of Safeguard’s annual meeting of shareholders. Duringgrant. Since 2008, the Committee further determined that it would also begin utilizinghas utilized the end of Safeguard’s fiscal third quarter each year as an acceptable and administratively convenient time to make annual determinations regarding executive equity compensation matters. It is presently contemplated that, at that time in each calendar year going forward, and in connection with the process described above regarding Safeguard’s capital-return model,For administrative convenience, the Committee may issue additional options (or other formshas adopted a policy of incentive equity) to some or all of Safeguard’s executives. The Committee believes that granting equitygenerally issuing approved grants on an annual basis will 1) provide greater alignment between the performance achieved and the value realized; 2) reinforce equity value as an important component of each executive’s annual total compensation; and 3) recognize each executive’s ongoing role in achieving results rather than the point in time that he joined Safeguard.
The Committee has delegated to our Chief Executive Officer the authority to make equity grants between regularly scheduled Committee meetings (primarily to new hires and new advisory board members), provided that the aggregate number of shares granted may not exceed 50,000 shares, the maximum number of shares allocated to any one employee may not exceed 20,000 shares and the aggregate number of shares allocated to any one advisory board member may not exceed 1,000 shares. A report is made to the Committee at each of its regularly scheduled meetings regarding any grants that our Chief Executive Officer has approved since the datelast business day of the last report, following which the aggregate number of shares available is reset to 50,000 shares. The Chief Executive Officer is not authorized to make equity grants to executives or directors without prior Committee approval of the specific grant contemplated.
It recently has become our practice to make all employee and new director grants of options, subject to limited exceptionsquarter for new hires or advisory board grants and on fixed quarterly grant dates. Grants to newly retained consultants or advisors may be made on fixed quarterly grant dates, or the laterlast business day of the datemonth in which grants are approved by the award is approved or the date of commencement of services. The exercise priceCommittee for all stock options grantedother grants.
In 2013, the Committee decided to use 100% restricted equity awards as the principal component of its long-term incentive program, with 75% of the awards subject to the capital-return based vesting model and 25% of the awards subject to time-based vesting. The decision to use solely restricted equity awards was based, in part, on a recommendation from the Committee’s compensation consultant to further align management’s interests with our shareholders’ interests. The Committee also determined that the capital-return based vesting model, which the Committee initially implemented in 2008 (described above), best aligns the long-term incentive award to the factors critical to the creation of shareholder value. Our executive officers will receive value from these capital-return based vesting awards only if the pre-determined performance conditions are met.
In October 2013, the Compensation Committee approved the following grants of equity under our equity compensation plans is the average of the high and low trading prices of our common stock as reported on the NYSE composite tape on the date of grant, which we believe reflects a commonly utilized practice.
Nonqualified Deferred Compensation.Our executives may defer compensation under our qualified 401(k) plan (subject2004 Equity Compensation Plan to the limits imposed by the Internal Revenue Code) but generally, due to the structure of our 401(k) plan, the most highly compensated of our executives (including our named executive officers) were not eligible to receive matching company contributions under that plan for calendar years through 2008. In lieu of such a matching 401(k) contribution, such executives were eligible to participate in our nonqualified deferred compensation plan, which is an unfunded plan that did not allow participants to elect to defer compensation but did allow participants to obtain credits,officers:
| Named Executive Officer | Number of Restricted Shares (1) | Number of PSUs (2) | ||||||||
Stephen T. Zarrilli | 8,249 | 24,745 | ||||||||
Jeffrey B. McGroarty | 2,250 | 6,748 | ||||||||
Brian J. Sisko | 4,124 | 12,373 | ||||||||
| (1) | All of the shares of restricted stock granted vest 25% on November 15, 2014, and in 36 equal monthly installments commencing on the same date of each month thereafter, assuming the executive’s continued employment by Safeguard as of such dates. |
| (2) | All of the PSUs to acquire shares under the 2004 Equity Compensation Plan vest based upon the 2013 capital-return based vesting model adopted by the Committee and are payable in shares of Safeguard common stock, on a one-for-one basis, upon vesting (and payment of required withholding taxes). The partner companies against which the vesting under the 2013 capital-return based vesting model will be measured are Crescendo Bioscience, AppFirst, Sotera Wireless, Pneuron, Clutch Holdings, Quantia, Apprenda, Dabo Health and Noble. The initial hurdle amount is $67,380,000 and the initial target amount is $139,312,000. |
More information regarding the form of Safeguard contributions allocated to accounts for the benefit of participants. We offered this nonqualified deferred compensation plan to those executives excluded from matching contributions in light of their ineligibility to obtain a Safeguard matching contribution under our qualified 401(k) plan. During 2008, the Committee approved a changeequity grants made to our 401(k) plan which allowed matching contributions for all of our employees for calendar years beginning with 2009. Therefore, no further contributions are expected to be made under our nonqualified deferred compensation plan for calendar years beyond 2008. Amounts accrued for prior periods will remain credited, and earnings on those prior amounts will continue to be credited, to prior participants in accordance with the terms of the plan. Additional information regarding participation in this plan by named executive officers during 2013 can be found below under “Executive Compensation—Nonqualified Deferred Compensation — Grants of Plan-Based Awards – 2012.2013.”
Subject to availability under our shareholder approved equity compensation plan, we expect to continue to use stock options, restricted stock and other equity awards as part of our executive compensation program, including performance-based options and PSUs. Equity grants to our key employees may be subject to forfeiture in certain limited circumstances under our Key Employee Compensation Recoupment Policy.
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Perquisites (fringe benefits). We do not provide a defined benefit pension arrangement, post-retirement health coverage or similar benefits for any of our executives. During 2012,2013, we provided universal life insurance coverage ranging from $750,000 to $1,000,000 to each of our then named executive officers.
Changes in 2012 Compensation Related to Changes in Our Named Executive Officers and Executive Officer Responsibilities.As discussed above, in November 2012, we promoted Mr. Zarrilli to President and Chief Executive Officer, Mr. Sisko to Executive Vice President and Managing Director, Strategy, Development and Operations, and Mr. McGroarty to Senior Vice President—Finance and to the role of our principal accounting officer. In connection with those changes, in December 2012, the Committee also approved certain changes in the compensation of these three named executive officers in recognitionat an average annual cost to Safeguard of each of their expanded responsibilities. In particular, the Committee increased the base salary for Mr. Zarrilli and Mr. McGroarty and increased the MIP target variable incentive percentage for each of Mr. Zarrilli, Mr. Sisko and Mr. McGroarty, as follows:
Name | 2013 Base Salary | 2013 MIP Target Variable Incentive Percentage (1) | ||||
Stephen T. Zarrilli | $ | 550,000 | 100% | |||
Jeffrey B. McGroarty | $ | 250,000 | 75% | |||
Brian J. Sisko | $ | 375,000 | 90% | |||
In December 2012, the Committee also approved certain additional one-time stock option and equity awards to these threeapproximately $3,592 per named executive officer. Our named executive officers underalso are eligible to participate in the fringe benefits that Safeguard offers, from time to time, on a non-discriminatory basis to all of our 2004 Plan. These one-time awards were granted consistent with the Committee’s approach to long-term incentive compensation, as described above under “Long-Term Incentives,” and consist of incentive and non-qualified stock options, grants of restricted stock and grants of restricted stock units. These one-time equity grants are set forth below:employees.
Name | Number of Shares Underlying Options | Target Number of Shares Underlying Options | Number of Shares of Restricted Stock | Number of Shares Underlying Restricted Stock Units | ||||||||||||
Stephen T. Zarrilli | 19,813 | 59,437 | 9,906 | 29,719 | ||||||||||||
Jeffrey B. McGroarty | 1,800 | 5,400 | 900 | 2,700 | ||||||||||||
Brian J. Sisko | 810 | 2,430 | 405 | 1,215 | ||||||||||||
See “Executive Compensation – Grants of Plan-Based Awards – 2012” below for additional details.
In considering and approving these changes in compensation and one-time equity grants, the Committee consulted with, and reviewed the analysis of, its outside consultant, Semler Brossy. In adjusting Mr. Zarrilli’s compensation, the Committee reviewed and considered market data regarding total compensation and individual elements of compensation at companies and industries against which we compete for executive talent and shareholder investment. With respect to Mr. Sisko and Mr. McGroarty, the Committee also considered market data, as well as Mr. Zarrilli’s recommendations regarding compensation. The Committee believes that these changes in compensation are consistent with our overall philosophy toward compensation and reflective of the additional responsibilities that these executive officers have assumed in connection with these promotions. Additional information can be found above under “Base Pay” and “Annual Incentives” and in “Executive Compensation” below.
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Severance and Change-in-Control Arrangements
CertainAll of our executive officers are employed on an at-will basis. However, all of our named executive officers also have an agreement with Safeguard which provides specifiedfor certain severance benefits in the event of termination of his employment by Safeguard without “cause” or by the officer for “good reason” (as defined in the agreements).
Upon the occurrence of a termination event, each executive will be entitled to those benefits outlined in his agreement with us, which may include a multiple of his then current base salary, payment of his pro rata bonus for the year of termination, or a multiple of the greater of his target bonus for the year of termination or the average of his actual bonuses for up to the last three years, accelerated vesting of certain equity awards and extension of the post-termination exercise period within which some or all of the equity awards held by the executive may be exercised, coverage under our medical, health and life insurance plans for a designated period of time, and outplacement services or office space. See “Potential“Executive Compensation—Potential Payments upon Termination or Change in Control” elsewhere hereinbelow for a summary of the specific benefits that each named executive officer will receive upon the occurrence of a termination event.
All of the agreements under which our current named executive officers receive benefits in the event of a “change in control” require a “double trigger,” namely a change in control coupled with a loss of employment or a substantial change in job duties, other than a legacy agreement with our CEO Emeritus.duties. We believe a “double trigger” provides retention incentives as well as continuity of management in the event of an actual or threatened change in control. As discussed below,
James A. Datin, a legacyformer Executive Vice President and Managing Director of Safeguard, resigned in June 2013. We agreed with Mr. Datin that his resignation was for “good reason,” as defined under his agreement with our CEO Emeritus requires only a “single trigger”Safeguard dated December 31, 2008, as amended. Accordingly, Mr. Datin was entitled to and received certain severance payments and benefits upon termination of his employment. These severance arrangements are disclosed below under “Executive Compensation—Summary Compensation Table – that is, only a change in control – to trigger the vesting of certain equity grant awards. This arrangement was specifically negotiated by Mr. Boni as a condition to his agreement to join Safeguard. See “Arrangements with Peter J. Boni” below.
Arrangements with Peter J. Boni. Effective November 1, 2012 (the “Transition Date”), Peter J. Boni retired as our President and Chief Executive Officer. On the Transition Date, we entered into a letter agreement (the “Letter Agreement”) with Mr. Boni pursuant to which he serves as our CEO Emeritus and remains on our Board of Directors until the 2013 Annual Meeting of Shareholders. Under the Letter Agreement, Mr. Boni will also serve in the position of special advisor to Safeguard from the Transition Date toFiscal Years Ended December 31, 2013, (the “Retirement Date”) in order to facilitate the transition of responsibilities to Mr. Zarrilli2012 and may act on our behalf as a director of certain of our partner companies. Mr. Boni will continue to receive his annual base salary at its current rate from the Transition Date through the Retirement Date (or his earlier separation from service, if applicable) for his continued services to us (total of $816,667), coverage under our welfare benefit plans in which he currently participates (medical, dental, and health insurance plans), and eligibility to continue to participate in our retirement plan. In addition, Mr. Boni was eligible to receive a cash bonus under our MIP with respect to 2012, which was contingent on his attainment of the applicable performance metrics for the year. Early in 2013, for the reasons discussed above under “- 2012 Compensation Plan – Annual Incentives,2011.” the Committee approved a 90% payout level to Mr. Boni under our 2012 MIP, resulting in a total variable incentive payment to him of $630,000. See “2012 Compensation Plan – Annual Incentives.” Mr. Boni is not eligible for any award or payment under the MIP with respect to our 2013 fiscal year. We also agreed to provide Mr. Boni with office space and administrative support during the period in which he serves as CEO Emeritus or special advisor and, subject to the approval of the CEO, to reimburse him for all reasonable travel, entertainment or other expenses incurred in connection with his service under the Letter Agreement. Except to the extent of specified continued applicability, the Amended and Restated Employment Agreement between Safeguard and Mr. Boni, dated December 5, 2008 and filed with the SEC with Form 10-K on March 19, 2009, as since amended or supplemented (the “Employment Agreement”), was superseded upon effectiveness of the Letter Agreement.
The Letter Agreement provides that, generally contingent upon Mr. Boni’s remaining in the service of Safeguard through the Retirement Date, stock options held by Mr. Boni that are vested and exercisable as of the Transition Date will remain outstanding and exercisable until the earlier of their stated expiration date or the one year anniversary of Mr. Boni’s last date of service to Safeguard (the “Anniversary Date”). Consistent with the terms of those options, time-based stock options held by Mr. Boni (or the portion of such option) that are not vested and exercisable as of the Transition Date will become fully vested on the Retirement Date and will not terminate on the Retirement Date, but instead will remain outstanding and exercisable until the earlier of their stated expiration date or the Anniversary Date, subject to earlier exercise. Each outstanding performance-based stock option held by Mr. Boni as of the Transition Date will remain outstanding and eligible to vest, based on attainment of the applicable metrics, through the Retirement Date. As to any performance-based options which vest prior to such date, such options will remain outstanding and exercisable until the earlier of their stated expiration date or the Anniversary Date. Notwithstanding the foregoing, in the event of a change of control (as defined in the Employment Agreement) prior to the date on which Mr. Boni separates from service to Safeguard, then all unvested performance-based options will become fully vested and all such options will remain exercisable for at least 90 days following the change of control unless cashed out in the relevant transaction.
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All rights Mr. Boni may have to restricted stock options, restricted stock units payable in Safeguard stock, or deferred compensation under any of our plans or arrangements will be determined under the provisions of such plans and arrangements. Mr. Boni’s service through the last date of service to Safeguard under the Letter Agreement will be credited toward the vesting of any such awards.
The Letter Agreement also provides that if Mr. Boni fully performs his obligations under the Letter Agreement through the Retirement Date, he will be entitled to a cash payment equal to the sum of (i) five months’ of base salary at the rate in effect on the Transition Date ($291,667) plus (ii) 100% of his target bonus amount at the applicable rate as of the Transition Date ($700,000) (the sum of (i) and (ii), the “Severance Amount”), payable in a lump sum prior to January 31, 2014. Other than the Severance Amount, Mr. Boni is not entitled to receive from Safeguard any other severance pay or benefits or any retiree termination welfare benefits (other than health care continuation coverage that he may be entitled to elect pursuant to section 4980B of the Internal Revenue Code).
If the provision of severance, acceleration of benefits or any other amount or benefit under the Letter Agreement or otherwise would result in adverse tax consequences to us or Mr. Boni under Section 280G or 4999 of the Internal Revenue Code, the applicable provisions of the Employment Agreement will apply, which under some circumstances could result in reduction of amounts payable or benefits provided to Mr. Boni.
In the event of Mr. Boni’s death or disability (as defined in the Employment Agreement) prior to the Retirement Date, provided that Mr. Boni is otherwise in satisfactory service with Safeguard, Mr. Boni (or his estate) will be entitled to full vesting of all time-based stock options, plus an amount equal to the Severance Amount, plus Mr. Boni’s monthly base salary that would have been paid to him had he remained employed through the Retirement Date, paid in a lump sum.
Key Employee Compensation Recoupment Policy
In April 2013, the Board approved a Key Employee Compensation Recoupment Policy (the “Recoupment Policy”). Under the Recoupment Policy, we have the right to require any “key employee” to reimburse to Safeguard all or any part of an amount equal to any cash incentive award, and/or to forfeit all or any part of any equity grant (whether vested or not), awarded, paid, and/or made to such key employee within three years of a “Triggering Event” under the Recoupment Policy. For purposes of the Recoupment Policy, the term “key employee” means each of our named executive officers, each other Safeguard employee who holds the title of Vice President or above, and our controller and assistant controller. A “Triggering Event” is one or more of the following, as determined by the Board or the Committee, in its sole discretion: (i) it is determined that (a) a key employee engaged in any fraud, misconduct, gross negligence or ethical misconduct which resulted in a financial restatement by Safeguard, or any material adverse impact on Safeguard, and (b) the key employee received any cash incentive award or equity grant from Safeguard, the payment or issuance of which was based in whole or in part on such actions of the key employee; or (ii) it is determined that Safeguard’s consolidated financial statements or any other metric utilized by the Committee to establish, in whole or in part, a cash incentive award or equity grant to the key employee were inaccurate due, in whole or in part, to the fraud, misconduct, gross negligence or ethical misconduct of the key employee. The Committee will administer and enforce the Recoupment Policy on behalf of Safeguard and has broad, sole discretionary authority to interpret and to make determinations with respect to the Recoupment Policy. The Committee’s determinations will be final and binding on all key employees and other persons.
The Recoupment Policy was adopted in furtherance of the commitment by the Committee and the Board to sound executive compensation practices and effective corporate governance, and not in response to any particular situation or circumstance.
Section 954 of the Dodd-Frank Wall Street Reform and Consumer Protection Act requires the SEC to promulgate regulations applicable to public companies that require the recovery of incentive compensation in the event of a financial statement restatement and certain other circumstances. The Board intends to review our Recoupment Policy following SEC adoption of rules to implement Section 954 of Dodd-Frank to ensure compliance with those rules.42
Deductibility of Executive Compensation
The Committee considers the potential impact of Section 162(m) of the Internal Revenue Code in structuring executive compensation. Section 162(m)of 1986, as amended (the “Code”), disallows a tax deduction for any publicly held corporation for certain executive compensation exceeding $1,000,000 per personfor each “covered employee” in any taxable year, unless it is “performance based” within the meaning of Section 162(m). We believe the stock options and PSUs awarded under our equity compensation plansplan are in compliance with the provisions of Section 162(m). The portion of cash compensation paid to Messrs. Boni and DatinMr. Zarrilli in 20122013 in excess of $1,000,000 was not “performance-based” compensation within the meaning of Section 162(m) and, therefore, was not deductible by Safeguard. We believe that providing an appropriate level of cash compensation and maintaining flexibility in determining compensation may be more important than preserving this tax deduction. Therefore, the Committee does not currently plan to take any action to qualify any of our other incentive compensation plans under Section 162(m).
Our Board has established stock ownership guidelines effective December 31, 2005, that wereare designed to closely align the long-term interests of our named executive officers and other senior executives with the long-term interests of our shareholders. The original guidelines provided that each named executive officer should attain an equity position in our common stock equal to two times annual base salary; and that the ownership level should be achieved (i) within five years of December 31, 2005 for executive officers who were employed on that date or (ii) for individuals who were not employees on December 31, 2005, by the end of the fifth full calendar year following the year in which the executive officer was hired or became an executive officer. In late 2011, the Committee, based on consultations with its consultant, made recommendations regarding certain increases and other changes to our stockOur current ownership guidelines to address certain trends in the marketplace and to stay at the forefront of our peer group regarding ownership requirements. Based on the Committee’s recommendations, our Nominating & Corporate Governance Committee, which oversees our ownership guidelines, made changes as follows to our ownership guidelines in February 2012:are:
| Executive | Ownership Requirement | |
Chief Executive Officer |
| |
4X Base Salary | ||
| Executive Vice President / Chief Financial Officer | 3X Base Salary | |
| Senior Vice President | 2X Base Salary |
The Nominating & Corporate Governance Committee monitors compliance with the ownership requirements as of the end of each calendar year. Shares counted toward these guidelines include:
| — | Shares beneficially owned by the executive officer; |
| — | Vested portion of restricted stock units / restricted stock awards; |
| — | Vested DSUs that have been credited to the executive officer; and |
| — | Net value of shares underlying vested, in-the-money options (“Net Option Value”). |
For purposes of calculating the value to be used in monitoring compliance with the ownership guidelines, we utilize (a) the greater of the current value or the cost basis of purchased shares or vested RSAs/RSUsrestricted stock units/restricted stock awards as to which the executive has declared income and paid taxes; and (b) our trailing six-month average share price in determining Net Option Value.
In recognition of the significantly higher stock ownership requirements for our executive officers, theThe Nominating & Corporate Governance Committee also approved additionalthe time within which each executive must attain the required holding levels. The stock ownership guidelines as approved provide that each executive generally must meet the stock ownership requirement by December 31st of the year of the fifth anniversary of the event triggering the stock ownership requirement (or any increase in the stock ownership requirement). No sales of Safeguard stock by our named executive officers are permitted during the period in which the ownership requirement is not met (except for limited stock sales to meet tax obligations), without the approval of the Board. Based on information they have provided to us, asBoard or our Nominating & Corporate Governance Committee. As of the date of this proxy statement, one of our 20122013 named executive officers has achieved the required stock ownership level.
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Prohibition on Speculation in Safeguard Stock
Safeguard’s policy on securities trading by Safeguard personnel prohibits our named executive officers, directors and other employees from engaging in activities with regard to our stock that can be considered as speculative, including but not limited to, short selling (profiting if the market price of our securities decreases); buying or selling publicly traded options (e.g., a put option, which is an option or right to sell stock at a specific price prior to a specified date, or a call option, which is an option or right to buy stock at a specific price prior to a specified date); and hedging or any other type of derivative arrangement that has a similar economic effect. Our executive officers and directors also are prohibited from pledging, directly or indirectly, our common stock or the stock of any of our partner companies, as collateral for indebtedness.
We have reviewed and discussed the foregoing Compensation Discussion and Analysis with management. Based on our review and discussion with management, we have recommended to the Board of Directors that the Compensation Discussion and Analysis be included in Safeguard’s Annual Report on Form 10-K for fiscal year 20122013 and Safeguard’s proxy statement for its 20132014 annual meeting of shareholders.
Members of the Compensation Committee:
| Julie A. Dobson, Chairperson | Andrew E. Lietz | George D. McClelland | John J. Roberts | |||||||||
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Summary Compensation Table — Fiscal Years Ended December 31, 2013, 2012 2011 and 20102011
The table below is a summary of total compensation paid to or earned by our named executive officers for the fiscal years ended December 31, 2013, 2012 2011 and 2010.2011. At December 31, 2012,2013, there were fourthree individuals serving as executive officers of Safeguard.
Name and Principal Position | Year | Salary ($) | Bonus ($) | Stock Awards ($)(1)(2) | Option Awards ($)(1)(3) | Non-Equity Incentive Plan Compen-sation ($) | Change in Pension Value and Nonqualified Deferred Compensation Earnings ($) | All Other Compen- sation ($)(4) | Total ($) | |||||||||||||||||||||||||||
Stephen T. Zarrilli President and Chief Executive Officer |
| 2012 2011 2010 |
|
| 425,000 400,000 363,000 |
|
| — — 125,000 |
|
| 292,730 71,228 66,889 |
|
| 279,584 71,554 68,252 |
|
| 403,750 484,800 302,294 |
|
| — — — |
|
| 22,398 22,125 21,723 |
|
| 1,423,462 1,049,707 947,158 |
| |||||||||
James A. Datin Executive Vice President and Managing Director |
| 2012 2011 2010 |
|
| 450,000 425,000 413,000 |
|
| — — 175,000 |
|
| 61,988 71,228 83,553 |
|
| 59,198 71,554 85,320 |
|
| 391,500 524,200 464,134 |
|
| 9,703 1,164 6,802 |
|
| 20,528 19,855 19,834 |
|
| 992,917 1,113,001 1,247,643 |
| |||||||||
Jeffrey B. McGroarty (5) Senior Vice President – Finance | 2012 | 234,771 | — | 32,730 | 30,838 | 132,413 | 6,448 | 14,369 | 451,569 | |||||||||||||||||||||||||||
Brian J. Sisko Executive Vice President and Managing Director |
| 2012 2011 2010 |
|
| 375,000 375,000 363,000 |
|
| — — 125,000 |
|
| 56,956 56,236 66,889 |
|
| 54,397 56,488 68,252 |
|
| 273,188 340,875 302,294 |
|
| 4,973 505 2,953 |
|
| 20,817 20,567 20,534 |
|
| 785,331 849,671 948,922 |
| |||||||||
Peter J. Boni (6) CEO Emeritus and Former President and Chief Executive Officer |
| 2012 2011 2010 |
|
| 700,000 700,000 673,000 |
|
| — — 175,000 |
|
| 132,233 154,946 182,354 |
|
| 126,292 155,663 186,107 |
|
| 630,000 848,400 764,694 |
|
| 9,703 1,164 6,802 |
|
| 49,867 49,617 49,617 |
|
| 1,648,095 1,909,790 2,037,574 |
| |||||||||
Name and Principal Position | Year | Salary ($)(1) | Bonus ($) | Stock Awards ($)(2)(3) | Option Awards ($)(2) | Non-Equity Incentive Plan Compensation ($)(1) | Change in Pension Value and Nonqualified Deferred Compensation Earnings ($) | All Other Compensation ($)(4) | Total ($) | |||||||||||||||||||||||||
Stephen T. Zarrilli President and Chief Executive Officer | 2013 2012 2011 | 550,000 425,000 400,000 | — — — | 466,877 292,730 71,228 | — 279,584 71,554 | 737,000 403,750 484,800 | — — — | 19,727 22,398 22,125 | 1,773,604 1,423,462 1,049,707 | |||||||||||||||||||||||||
Jeffrey B. McGroarty Senior Vice President and Chief Financial Officer | 2013 2012 | 250,000 234,771 | — — | 127,327 32,730 | — 30,838 | 232,500 132,413 | 15,813 6,448 | 15,537 14,369 | 641,177 451,569 | |||||||||||||||||||||||||
Brian J. Sisko Executive Vice President, Managing Director and | 2013 2012 2011 | 375,000 375,000 375,000 | — — — | 233,436 56,956 56,236 | — 54,397 56,488 | 425,250 273,188 340,875 | 10,331 4,973 505 | 17,447 20,817 20,567 | 1,061,464 785,331 849,671 | |||||||||||||||||||||||||
James A. Datin Former Executive Vice President and Managing Director | 2013 2012 2011 | 225,000 450,000 425,000 | — — — | — 61,988 71,228 | — 59,198 71,554 | — 391,500 524,200 | 9,412 9,703 1,164 | 931,725 20,528 19,855 | 1,166,137 992,917 1,113,001 | |||||||||||||||||||||||||
| (1) | In November 2012, Mr. Zarrilli was promoted from the position of Senior Vice President and Chief Financial Officer to the position of President and Chief Executive Officer, Mr. McGroarty became an executive officer, and Mr. Sisko was promoted to the position of Executive Vice President and Managing Director (and was named to the position of Executive Vice President, Managing Director and Chief Operating Officer in January 2014). The Salary and Non-Equity Incentive Plan Compensation for 2012 for Messrs. Zarrilli, McGroarty and Sisko represent a blended rate based on certain compensation changes that the Compensation Committee approved in connection with their respective promotions. Mr. Datin resigned in June 2013. |
| (2) | Consistent with SEC rules, stock and option awards are required to be valued using the aggregate grant date fair value computed in accordance with stock-based compensation accounting rules (FASB ASC Topic 718). Even though awards may be forfeited, the amounts reported do not reflect this contingency. Amounts reported for these awards do not reflect our accounting expense for these awards during the year and may not represent the amounts that our named executive officers will actually realize from the awards. Whether, and to what extent, our named executive officers realize value will depend on (i) the achievement of the market-based or the |
| For |
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| (4) | For |
Name | 401(k) Matching Contribution ($) | Life Insurance Premiums ($) | Group Life Insurance Imputed Income ($) | Severance Benefits ($) | 401(k) Matching Contribution ($) | Life Insurance Premiums ($) | Group Life Insurance Imputed Income ($) | Severance Benefits ($) |
| ||||||||||||||||||||||||||||||||
Stephen T. Zarrilli | 12,500 | 989 | 8,909 | — | 12,750 | 5,735 | 1,242 | — | |||||||||||||||||||||||||||||||||
James A. Datin | 12,500 | 1,098 | 6,930 | — | |||||||||||||||||||||||||||||||||||||
Jeffrey B. McGroarty | 12,500 | 219 | 1,650 | — | 12,750 | 2,547 | 240 | — | |||||||||||||||||||||||||||||||||
Brian J. Sisko | 12,500 | 897 | 7,420 | — | 12,750 | 3,800 | 897 | — | |||||||||||||||||||||||||||||||||
Peter J. Boni | 12,500 | 6,858 | 30,509 | — | |||||||||||||||||||||||||||||||||||||
James A. Datin | 12,750 | 2,284 | 598 | 916,093 | |||||||||||||||||||||||||||||||||||||
Our named executive officers also have occasional personal use of tickets to various sporting events at no incremental cost to us and are eligible to receive matching charitable contributions under our program, which is available to all employees, subject to a maximum of $1,500 in matching contributions for each individual for each calendar year. The severance benefits reported for Mr. Datin represent the following lump-sum payments that he received under his agreement with us dated December 31, 2008, as amended: $450,000, equating to 12 months’ salary; his 2013 MIP payment, equating to the average of his target bonuses for the last three years; and $6,148 for health benefits.
ThreeEach of our current named executive officers havehas an employment agreement with us that sets their respectivehis initial base salary and respective initial minimum annual cash incentive target award. The initial base salary and initial minimum annual cash incentive target award for each of those named executive officers employed as of December 31, 2012, were as follows: Mr. Zarrilli ($340,000 salary; $195,000 target award); Mr. DatinMcGroarty ($375,000275,000 salary; $375,000$206,250 target award); and Mr. Sisko ($340,000 salary; $250,000 target award). Base salaries and annual cash incentive target awards for Messrs. Zarrilli and Sisko, which are reviewed by the Compensation Committee each year, currently exceed these contractual minimum amountsamounts. None of the employment agreements provide for a term of employment and each of those namedthese executive officers.officers is an “employee-at-will.” The primary focus of these agreements is to provide our executive officers with severance benefits in the event of a termination of employment involuntarily, for good reason or upon a change in control, as described below under “Potential Payments upon Termination or Change in Control.” None of the employment agreements provide for a term of employment and each of these executive officers is an “employee-at-will.”
The components of compensation reported in the Summary Compensation Table, including an explanation of the amount of salary and cash incentive compensation in proportion to total compensation, are described in detail under “Compensation Discussion and Analysis.”
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Grants of Plan-Based Awards—2012Awards — 2013
The following table shows non-equity and equity incentive plan awards, stock awards and option awards granted during 20122013 to our named executive officers.
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| Date of | Estimated Possible Payouts Under Non-Equity Incentive Plan Awards (1) | Estimated Future Payouts Under Equity Incentive Plan Awards (2) | All Other Stock Awards: Number of Shares of | All Other Option Awards: Number of Securities | Exercise or Base Price of | Closing Market Price on | Grant Date Fair Value of Stock and | |||||||||||||||||||||||||||||||||||||||||
| Name | Grant (2013) | Committee (2013) | Threshold ($) | Target ($) | Maximum ($) | Threshold (#) | Target (#) | Maximum (#) | Stock or (#)(2)(3) | Underlying (#)(2)(3) | Option Awards ($/Sh) | Date of ($/Sh) | Option ($)(4) | |||||||||||||||||||||||||||||||||||
Stephen T. Zarrilli | 03/05 10/31 10/31 | 03/05 10/21 10/21 |
| — — — |
|
| 550,000 — — |
|
| 825,000 — — |
|
| — — — |
|
| — — 24,745 |
(5) |
| — — — |
|
| — 8,249 — |
|
| — — — |
|
| — — — |
|
| — — — |
|
| — 144,770 322,107 |
| |||||||||||||
Jeffrey B. McGroarty | 03/05 10/31 10/31 | 03/05 10/21 10/21 |
| — — — |
|
| 187,500 — — |
|
| 281,250 — — |
|
| — — — |
|
| — — 6,748 |
(5) |
| — — — |
|
| — 2,250 — |
|
| — — — |
|
| — — — |
|
| — — — |
|
| — 39,488 87,839 |
| |||||||||||||
Brian J. Sisko | 03/05 10/31 10/31 | 03/05 10/21 10/21 |
| — — — |
|
| 337,500 — — |
|
| 506,250 — — |
|
| — — — |
|
| — — 12,373 |
(5) |
| — — — |
|
| — 4,124 — |
|
| — — — |
|
| — — — |
|
| — — — |
|
| — 72,376 161,060 |
| |||||||||||||
James A. Datin | 03/05 | 03/05 | — | 450,000 | 675,000 | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||
| (1) | These awards were made under our |
| (2) | The vesting of equity awards may be accelerated upon death, permanent disability, retirement on or after 65th birthday, termination of employment for good reason or without cause, or termination of employment in connection with a change in control. Further information regarding the equity awards that are subject to acceleration of vesting in each circumstance can be found below under “Potential Payments upon Termination or Change in Control.” |
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| (3) | The |
| (4) |
| The amounts in this column represent the grant date fair value of the awards computed in accordance with FASB ASC Topic 718. The assumptions used by us in calculating these amounts are incorporated by reference to Note 9 to our Consolidated Financial Statements in our Annual Report on Form 10-K. |
| As described in detail under “Compensation Discussion and Analysis — Long-Term Incentives,” these |
Year-End — 2013
The following table shows the equity awards we have made to our named executive officers that were outstanding at December 31, 2012.2013.
| Option Awards | Stock Awards | Option Awards | Stock Awards | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Grant | Number of Securities Underlying Unexercised Options (#)(1) | Number of Securities Underlying Unexercised Options (#)(1)(2) | Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options | Option Exercise Price | Option Expiration | Number of Shares or Units of Stock That Have Not Vested | Market Value of Shares or Units of Stock That Have Not Vested | Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested | Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested | Grant | Number of Securities Underlying Unexercised Options (#)(1) | Number of Securities Underlying Unexercised Options (#)(1)(2) | Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options | Option Exercise Price | Option Expiration | Number of Shares or Units of Stock That Have Not Vested | Market Value of Shares or Units of Stock That Have Not Vested | Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested | Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Name | Date | Exercisable | Unexercisable | (#)(2) | ($) | Date | (#)(2)(3) | ($)(5) | (#)(2)(4) | ($)(5) | Date | Exercisable | Unexercisable | (#)(2) | ($) | Date | (#)(2)(3) | ($)(4) | (#)(2)(5) | ($)(4) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Stephen T. Zarrilli |
| 06/30/08 06/30/08 09/30/08 09/30/08 10/30/09 10/30/09 10/30/09 11/05/10 11/05/10 11/05/10 11/05/10 09/30/11 09/30/11 09/30/11 09/30/11 10/02/12 10/02/12 10/02/12 10/02/12 12/05/12 12/05/12 12/05/12 12/05/12 |
|
| 62,500 43,993 1,458 886 2,870 — — 1,956 — — — 1,536 — — — — — — — — — — — |
|
| — — — — 755 — — 1,799 — — — 3,378 — — — 4,789 — — — 19,813 — — — |
|
| — 143,507 — 3,489 — 10,875 — — 11,265 — — — 14,741 — — — 14,368 — — — 59,437 — — | (8)
(7)
(7)
(7)
(7)
(7)
(7)
|
| 7.650 7.650 7.410 7.410 9.825 9.825 — 15.105 15.105 — — 15.070 15.070 — — 15.435 15.435 — — 13.890 13.890 — — |
|
| 06/30/16 06/30/16 09/30/16 09/30/16 10/30/17 10/30/19 — 11/05/18 11/05/20 — — 09/30/19 09/30/21 — — 10/02/20 10/02/22 — — 12/05/20 12/05/22 — — |
|
| — — — — — — — — — — 901 — — — 1,688 — — — 2,395 — — — 9,906 |
|
| — — — — — — — — — — 13,290 — — — 24,898 — — — 35,326 — — — 146,114 |
|
| — — — — — — 7,250 — — 5,630 — — — 7,371 — — — 7,184 — — — 29,719 — |
|
| — — — — — — 106,938 — — 83,043 — — — 108,722 — — — 105,964 — — — 438,355 — |
|
| 06/30/08 06/30/08 09/30/08 09/30/08 10/30/09 10/30/09 10/30/09 11/05/10 11/05/10 11/05/10 11/05/10 09/30/11 09/30/11 09/30/11 09/30/11 10/02/12 10/02/12 10/02/12 10/02/12 12/05/12 12/05/12 12/05/12 12/05/12 10/31/13 10/31/13 |
|
| 62,500 43,993 1,458 886 3,625 — — 2,895 — — — 2,764 — — — 1,398 — — — 4,954 — — — — — |
|
| — — — — — — — 860 — — — 2,150 — — — 3,391 — — — 14,859 — — — — — |
|
| — 143,507 — 3,489 — 10,875 — — 11,265 — — — 14,741 — — — 14,368 — — — 59,437 — — — — | (6)
(7)
(7)
(7)
(7)
(7)
(7)
|
| 7.650 7.650 7.410 7.410 9.825 9.825 — 15.105 15.105 — — 15.070 15.070 — — 15.435 15.435 — — 13.890 13.890 — — — — |
|
| 06/30/16 06/30/16 09/30/16 09/30/16 10/30/17 10/30/19 — 11/05/18 11/05/20 — — 09/30/19 09/30/21 — — 10/02/20 10/02/22 — — 12/05/20 12/05/22 — — — — |
|
| — — — — — — — — — — 431 — — — 1,074 — — — 1,696 — — — 7,429 — 8,249 |
|
| — — — — — — — — — — 8,659 — — — 21,577 — — — 34,073 — — — 149,249 — 165,722 |
|
| — — — — — — 7,250 — — 5,630 — — — 7,371 — — — 7,184 — — — 29,719 — 24,745 — |
|
| — — — — — — 145,653 — — 113,107 — — — 148,083 — — — 144,327 — — — 597,055 — 497,127 — |
| ||||||||||||||||||||||||||||||
Jeffrey B. McGroarty |
| 12/15/06 09/30/08 10/30/09 10/30/09 10/30/09 11/05/10 11/05/10 11/05/10 11/05/10 09/30/11 09/30/11 09/30/11 09/30/11 10/02/12 10/02/12 10/02/12 10/02/12 12/05/12 12/05/12 12/05/12 12/05/12 10/31/13 10/31/13 |
|
| 7,821 4,166 875 — — 675 — — — 492 — — — 255 — — — 450 — — — — — |
|
| — — — — — 200 — — — 383 — — — 620 — — — 1,350 — — — — — |
|
| 25,512 — — 2,625 — — 2,625 — — — 2,625 — — — 2,625 — — — 5,400 — — — — | (6)
(7)
(7)
(7)
(7)
(7)
|
| 14.010 7.410 9.825 9.825 — 15.105 15.105 — — 15.070 15.070 — — 15.435 15.435 — — 13.890 13.890 — — — — |
|
| 12/15/14 09/30/16 10/30/17 10/30/19 — 11/05/18 11/05/20 — — 09/30/19 09/30/21 — — 10/02/20 10/02/22 — — 12/05/20 12/05/22 — — — — |
|
| — — — — — — — — 100 — — — 191 — — — 310 — — — 675 — 2,250 |
|
| — — — — — — — — 2,009 — — — 3,837 — — — 6,228 — — — 13,561 — 45,203 |
|
| — — — — 1,750 — — 1,313 — — — 1,313 — — — 1,313 — — — 2,700 — 6,748 — |
|
| — — — — 35,158 — — 26,378 — — — 26,378 — — — 26,378 — — 54,243 — 135,567 — |
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
48
| Option Awards | Stock Awards | |||||||||||||||||||||||||||||||||||||||
| Grant | Number of Securities Underlying Unexercised Options (#)(1) | Number of Securities Underlying Unexercised Options (#)(1)(2) | Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options | Option Exercise Price | Option Expiration | Number of Shares or Units of Stock That Have Not Vested | Market Value of Shares or Units of Stock That Have Not Vested | Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested | Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested | |||||||||||||||||||||||||||||||
Name | Date | Exercisable | Unexercisable | (#)(2) | ($) | Date | (#)(2)(3) | ($)(5) | (#)(2)(4) | ($)(5) | ||||||||||||||||||||||||||||||
James A. Datin |
| 09/07/05 09/07/05 09/30/08 10/30/09 10/30/09 10/30/09 11/05/10 11/05/10 11/05/10 11/05/10 09/30/11 09/30/11 09/30/11 09/30/11 10/02/12 10/02/12 10/02/12 10/02/12 |
|
| 83,333 83,657 25,000 15,189 5,790 — — 2,445 — — — 1,536 — — — — — — — |
|
| — — — — 1,523 — — 2,250 — — 3,378 — — — 4,789 — — — |
|
| — 166,343 — 59,811 — 21,937 — — 14,080 — — — 14,741 — — — 14,368 — — | (6)
(7)
(7)
(7)
(7)
(7)
|
| 9.360 9.360 7.410 7.410 9.825 9.825 — 15.105 15.105 — — 15.070 15.070 — — 15.435 15.435 — — |
|
| 09/07/13 09/07/13 09/30/16 09/30/16 10/30/17 10/30/19 — 11/05/18 11/05/20 — — 09/30/19 09/30/21 — — 10/02/20 10/02/22 — — |
|
| — — — — — — — — — — 1,123 — — — 1,688 — — — 2,395 |
|
| — — — — — — — — — — 16,564 — — — 24,898 — — — 35,326 |
|
| — — — — — — 14,625 — — 7,040 — — — 7,371 — — — 7,184 — |
|
| — — — — — — 215,719 — — 103,840 — — — 108,722 — — — 105,964 — |
| ||||||||||
Jeffrey B. McGroarty |
| 12/05/05 12/15/06 09/30/08 10/30/09 10/30/09 10/30/09 11/05/10 11/05/10 11/05/10 11/05/10 09/30/11 09/30/11 09/30/11 09/30/11 10/02/12 10/02/12 10/02/12 10/02/12 12/05/12 12/05/12 12/05/12 12/05/12 |
|
| 16,666 7,821 4,166 693 — — 456 — — — 274 — — — — — — — — — — — |
|
| �� — — 182 — — 419 — — — 601 — — — 875 — — — 1,800 — — — |
|
| — 25,512 — — 2,625 — — 2,625 — — — 2,625 — — — 2,625 — — — 5,400 — — | (8)
(7)
(7)
(7)
(7)
(7)
|
| 12.060 14.010 7.410 9.825 9.825 — 15.105 15.015 — — 15.070 15.070 — — 15.435 15.435 — — 13.890 13.890 — — |
|
| 12/05/13 12/15/14 09/30/16 10/30/17 10/30/19 — 11/05/18 11/05/20 — — 09/30/19 09/30/21 — — 10/02/20 10/20/22 — — 12/05/20 12/05/22 — — |
|
| — — — — — — — — — 210 — — — 301 — — — 438 — — — 900 |
|
| — — — — — — — — — 3,098 — — — 4,440 — — — 6,461 — — — 13,275 |
|
| — — — — — 1,750 — — 1,313 — — — 1,313 — — — 1,313 — — — 2,700 — |
|
| — — — — — 25,813 — — 19,367 — — — 19,367 — — — — — — |
| ||||||||||
49
| Option Awards | Stock Awards | |||||||||||||||||||||||||||||||||||||||
| Grant | Number of Securities Underlying Unexercised Options (#)(1) | Number of Securities Underlying Unexercised Options (#)(1)(2) | Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options | Option Exercise Price | Option Expiration | Number of Shares or Units of Stock That Have Not Vested | Market Value of Shares or Units of Stock That Have Not Vested | Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested | Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested | |||||||||||||||||||||||||||||||
Name | Date | Exercisable | Unexercisable | (#)(2) | ($) | Date | (#)(2)(3) | ($)(5) | (#)(2)(4) | ($)(5) | ||||||||||||||||||||||||||||||
Brian J. Sisko |
| 08/20/07 08/20/07 09/30/08 09/30/08 10/30/09 10/30/09 10/30/09 11/05/10 11/05/10 11/05/10 11/05/10 09/30/11 09/30/11 09/30/11 09/30/11 10/02/12 10/02/12 10/02/12 10/02/12 12/05/12 12/05/12 12/05/12 12/05/12 |
|
| 41,666 29,329 5,250 3,324 2,870 — — 1,956 — — — 1,212 — — — — — — — — — — — |
|
| — — — — 755 — — 1,799 — — — 2,667 — — — 3,672 — — — 810 — — — |
|
| — 95,671 — 13,092 — 10,875 — — 11,265 — — — 11,638 — — — 11,015 — — — 2,430 — — | (8)
(7)
(7)
(7)
(7)
(7)
(7)
|
| 12.636 12.636 7.410 7.410 9.825 9.825 — 15.105 15.105 — — 15.070 15.070 — — 15.435 15.435 — — 13.890 13.890 — — |
|
| 08/20/15 08/20/15 09/30/16 09/30/16 10/30/17 10/30/19 — 11/05/18 11/05/20 — — 09/30/19 09/30/21 — — 10/02/20 10/02/22 — — 10/05/20 10/05/22 — — |
|
| — — — — — — — — — — 901 — — 1,334 — — — 1,836 — — — 405 |
|
| — — — — — — — — — — 13,290 — — — 19,677 — — — 27,081 — — — 5,974 |
|
| — — — — — — 7,250 — — 5,630 — — — 5,819 — — — 5,508 — — — 1,215 — |
|
| — — — — — — 106,938 — — 83,043 — — — 85,830 — — — 81,243 — — — 17,921 — |
| ||||||||||
Peter J. Boni (9) |
| 08/16/05 08/16/05 09/30/08 09/30/08 10/30/09 10/30/09 10/30/09 11/05/10 11/05/10 11/05/10 11/05/10 09/30/11 09/30/11 09/30/11 09/30/11 10/02/12 10/02/12 10/02/12 10/02/12 |
|
| 166,666 167,310 49,999 30,377 12,370 — — 5,333 — — — 3,341 — — — — — — — |
|
| — — — — 3,255 — — 4,907 — — — 7,349 — — — 10,217 — — — |
|
| — 332,690 — 119,623 — 46,875 — — 30,715 — — — 32,069 — — — 30,652 — — | (6)
(7)
(7)
(7)
(7)
(7)
|
| 7.650 7.650 7.410 7.410 9.825 9.825 — 15.105 15.105 — — 15.070 15.070 — — 15.435 15.435 — — |
|
| 08/16/13 08/16/13 09/30/16 09/30/16 10/30/17 10/30/19 — 11/05/18 11/05/20 — — 09/30/19 09/30/21 — — 10/02/20 10/02/22 — — |
|
| — — — — — — — — — 2,453 — — — 3,674 — — — — 5,109 |
|
| — — — — — — — — — 36,182 — — — 54,192 — — — — 75,358 |
|
| — — — — — — 31,250 — — — 15,360 — — — 16,034 — 15,325 — — |
|
| — — — — — — 460,938 — — — 226,560 — — — 236,502 — 226,044 — — |
| ||||||||||
| Option Awards | Stock Awards | |||||||||||||||||||||||||||||||||||||||||||||||||
| Grant | Number of Securities Underlying Unexercised Options (#)(1) | Number of Securities Underlying Unexercised Options (#)(1)(2) | Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options | Option Exercise Price | Option Expiration | Number of Shares or Units of Stock That Have Not Vested | Market Value of Shares or Units of Stock That Have Not Vested | Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested | Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested | |||||||||||||||||||||||||||||||||||||||||
| Name | Date | Exercisable | Unexercisable | (#)(2) | ($) | Date | (#)(2)(3) | ($)(4) | (#)(2)(5) | ($)(4) | ||||||||||||||||||||||||||||||||||||||||
Brian J. Sisko |
| 08/20/07 08/20/07 09/30/08 09/30/08 10/30/09 10/30/09 10/30/09 11/05/10 11/05/10 11/05/10 11/05/10 09/30/11 09/30/11 09/30/11 09/30/11 10/02/12 10/02/12 10/02/12 10/02/12 12/05/12 12/05/12 12/05/12 12/05/12 10/31/13 10/31/13 |
|
| 41,666 29,329 5,250 3,324 3,625 — — 2,895 — — — 2,182 — — — 1,071 — — — 203 — — — — — |
|
| — — — — — — — 860 — — — 1,697 — — — 2,601 — — — 607 — — — — — |
|
| — 95,671 — 13,092 — 10,875 — — 11,265 — — — 11,638 — — — 11,015 — — — 2,430 — — — — | (6)
(7)
(7)
(7)
(7)
(7)
(7)
|
| 12.636 12.636 7.410 7.410 9.825 9.825 — 15.105 15.105 — — 15.070 15.070 — — 15.435 15.435 — — 13.890 13.890 — — — — |
|
| 08/20/15 08/20/15 09/30/16 09/30/16 10/30/17 10/30/19 — 11/05/18 11/05/20 — — 09/30/19 09/30/21 — — 10/02/20 10/02/22 — — 12/05/20 12/05/22 — — — — |
|
| — — — — — — — — — — 431 — — 849 — — — 1,300 — — — 303 — 4,124 |
|
| — — — — — — — — — — 8,659 — — — 17,056 — — — 26,117 — — — 6,087 — 82,851 |
|
| — — — — — — 7,250 — — 5,630 — — — 5,819 — — — 5,508 — — — 1,215 — 12,373 — |
|
| — — — — — — 145,653 — — 113,107 — — — 116,904 — — — 110,656 — — — 24,409 — 248,574 — |
| ||||||||||||||||||||
James A. Datin (8) |
| 09/30/08 10/30/09 11/05/10 09/30/11 10/02/12 |
|
| 15,189 152 3,619 2,764 1,398 |
|
| — — — — — |
|
| — — — — — |
|
| 7.410 9.825 15.105 15.070 15.435 |
|
| 09/30/16 10/30/17 11/05/18 09/30/19 10/02/20 |
|
| — — — — — |
|
| — — — — — |
|
| — — — — — |
|
| — — — — — |
| ||||||||||||||||||||
| (1) | Unless otherwise identified by footnote, options are subject to time-based vesting, with 25% of the underlying shares vesting on the first anniversary date of the grant date and the remaining underlying shares vesting in 36 equal installments each month thereafter. |
| (2) | Vesting of equity awards may be accelerated upon death, permanent disability, retirement on or after 65th birthday, termination of employment for good reason or without cause, or termination of employment in connection with a change in control. Further information regarding the equity awards that are subject to acceleration of vesting in each circumstance can be found below under “Potential Payments upon Termination or Change in Control.” |
| (3) | The shares included in this column vest as follows: (i) awards granted before 2013 vest 25% on the first anniversary date of the grant date, with the remaining 75% of the shares vesting in equal monthly installments over the next 36 |
50
| (4) | Under SEC rules, the value is calculated based on the year-end closing stock price of $20.09, as reported on the NYSE composite tape, multiplied by the number of shares or the number of shares of stock underlying the PSUs that have not vested. |
| (5) | The PSUs included in this column are subject to |
| (6) | These options are market-based vesting options and vest upon the achievement of improvement in Safeguard’s stock price. Achievement is measured based on the average daily closing price of Safeguard common stock as reported on the NYSE composite tape for 20 consecutive trading days. The following table shows the per share stock prices at which portions of the shares underlying these market-based vesting options vest: |
Percentage of Shares Underlying Options That Vest | Per Share Stock Price | |||
First 10% | $ | 12.2154 | ||
Next 20% | $ | 18.9288 | ||
Next 30% | $ | 27.8796 | ||
Final 40% | $ | 39.0684 | ||
| Percentage of Shares Underlying Options That Vest | Per Share Stock Price | |||
First 20% | $18.9288 | |||
Next 30% | $27.8796 | |||
Next 40% | $39.0684 | |||
Final 10% | $43.3476 |
In addition to vesting upon the achievement of a specified per share stock price, the shares underlying the options may vest on a pro rata basis on each six-month anniversary of the grant date if the per share stock price is between the designated stock prices (based on the highest average closing price of a share of our common stock as reported on the NYSE composite tape for 20 consecutive trading days during each six-month period).
| In addition to vesting upon the achievement of a specified per share stock price, the shares underlying the options may vest on a pro rata basis on each six-month anniversary of the grant date if the per share stock price is between the designated stock prices (based on the highest average closing price of a share of our common stock as reported on the NYSE composite tape for 20 consecutive trading days during each six-month period). |
| (7) | These options are subject to |
Percentage of Shares Underlying Options That Vest | Per Share Stock Price | |||
First 20% | $ | 18.9288 | ||
Next 30% | $ | 27.8796 | ||
Next 40% | $ | 39.0684 | ||
Final 10% | $ | 43.3476 | ||
In addition to vesting upon the achievement of a specified per share stock price, the shares underlying the options may vest on a pro rata basis on each six-month anniversary of the grant date if the per share stock price is between the designated stock prices (based on the highest average closing price of a share of our common stock as reported on the NYSE composite tape for 20 consecutive trading days during each six-month period).
| Under the terms of Mr. |
51
Option Exercises and Stock Vested—2012Vested — 2013
The following table shows restricted stock awards that vested during 2012. There were no stock options that were exercised by the named executive officers during 2012.2013 and restricted stock awards that vested during 2013.
| Option Awards | Stock Awards | Option Awards | Stock Awards | |||||||||||||||||||||||||||||||||
Name | Number of Shares Acquired on Exercise (#) | Value Realized on Exercise ($) | Number of Shares Acquired on Vesting (#) | Value Realized on Vesting ($)(1) | Number of Shares Acquired on Exercise (#) | Value Realized on Exercise ($)(1) | Number of Shares Acquired on Vesting (#) | Value Realized on Vesting ($)(2) | ||||||||||||||||||||||||||||
Stephen Zarrilli | — | — | 1,239 | 19,437 | ||||||||||||||||||||||||||||||||
James A. Datin | — | — | 3,913 | 63,582 | ||||||||||||||||||||||||||||||||
Stephen T. Zarrilli | — | — | 4,260 | 73,275 | ||||||||||||||||||||||||||||||||
Jeffrey B. McGroarty | — | — | 543 | 8,951 | 16,666 | 102,163 | 573 | 9,599 | ||||||||||||||||||||||||||||
Brian J. Sisko | — | — | 2,772 | 44,945 | — | — | 1,593 | 25,459 | ||||||||||||||||||||||||||||
Peter J. Boni | — | — | 7,067 | 114,402 | ||||||||||||||||||||||||||||||||
James A. Datin | 199,151 | 1,189,177 | 1,899 | 30,060 | ||||||||||||||||||||||||||||||||
| (1) | The value realized on exercise is determined by multiplying the number of shares acquired on exercise by the difference between the exercise price and the average of the high and low trading prices of Safeguard’s common stock, as reported on the NYSE consolidated tape, on the exercise date, or, for those shares which were sold upon exercise of the options, the difference between the sales price of the shares underlying the options exercised and the applicable exercise price of those options. |
| (2) | The value realized on vesting is determined by multiplying the number of shares vested by the average of the high and low trading prices of Safeguard’s common stock, as reported on the NYSE consolidated tape, on each vesting date. |
Nonqualified Deferred Compensation—2012Compensation — 2013
In 2003, Safeguard adopted an Executive Deferred Compensation Plan, which is a nonqualified, unfunded plan that provided for a designated group of employees to obtain credits in the form of Safeguard contributions that were allocated to accounts for the benefit of each participant. Participants were not able to defer compensation under the plan. This plan was adopted in order to approximate matching contributions under our 401(k) plan which, based upon the terms and structure of our 401(k) plan, were not available to our most highly compensated personnel.
During 2008, the Compensation Committee approved a change to our 401(k) plan which allowed matching contributions for all of our employees beginning in 2009. Therefore, no contributions have been made to this plan since 2009, and we do not expect to make any future contributions under this plan. Amounts accrued for prior periods will remain credited, and earnings on those prior amounts will continue to be credited, to prior participants in accordance with the terms of the plan.
Lump sum distributions of the vested balance in a named executive officer’s account are made six months following termination.
A committee appointed by Safeguard’s Board selects the funds or indices that are used for purposes of calculating the earnings that are credited to each participant’s account based on a notional investment in the selected funds or indices. For 2012,Since July 2011, we have calculated earnings based on the performance of the notional investment in the Vanguard 500 Index Signal Fund (VIFSX), one of the investment choices available to participants in our 401(k) plan. The committee, in its discretion, may replace this fund and add new funds.
The following table shows earnings for 2012and distributions during 2013 and account balances at December 31, 2012,2013 for the named executive officers. There were no withdrawals by, or distributions to, the named executive officers during 2012.
Name | Registrant Contributions in Last Fiscal Year ($) | Aggregate Earnings in Last Fiscal Year ($)(1) | Aggregate Withdrawals/ Distributions ($) | Aggregate Balance at Last Fiscal Year End ($)(2) | Registrant Contributions in Last Fiscal Year ($) | Aggregate Earnings in Last Fiscal Year ($)(1) | Aggregate Withdrawals/ Distributions ($) | Aggregate Balance at Last Fiscal Year End ($)(2) | ||||||||||||||||||||||||||||
Stephen T. Zarrilli | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||
James A. Datin | — | 9,703 | — | 68,206 | ||||||||||||||||||||||||||||||||
Jeffrey B. McGroarty | — | 6,448 | — | 45,326 | — | 15,813 | — | 39,943 | ||||||||||||||||||||||||||||
Brian J. Sisko | — | 4,973 | — | 29,612 | — | 10,331 | — | 61,139 | ||||||||||||||||||||||||||||
Peter J. Boni | — | 9,703 | — | 68,206 | ||||||||||||||||||||||||||||||||
James A. Datin | — | 9,412 | 77,619 | — | ||||||||||||||||||||||||||||||||
| (1) | Earnings in the last fiscal year are included in the Summary Compensation Table under “Change in Pension Value and Nonqualified Deferred Compensation Earnings.” |
| (2) | The balance in each named executive officer’s account consists of contributions credited by us and notional accrued gains or losses. At December 31, |
52
Potential Payments upon Termination or Change in Control
Agreements with Mr. Boni
As described above under “Compensation Discussion and Analysis,” effective November 1, 2012, Peter J. Boni retired as our President and Chief Executive Officer, and we entered into a Letter Agreement with Mr. Boni pursuant to which he serves as our CEO Emeritus and remains on our Board until the 2013 Annual Meeting of Shareholders. Under the Letter Agreement, Mr. Boni also will serve in the position of special advisor to Safeguard until December 31, 2013. The components of compensation that are being paid to Mr. Boni in connection with his retirement and which would be payable to Mr. Boni in the event of a change in control prior to the date on which he separates from service to Safeguard are described in detail under “Compensation Discussion and Analysis –– Severance and Change-in-Control Arrangements – Arrangements with Peter J. Boni.”
Agreements with Messrs. Zarrilli, DatinMcGroarty and Sisko
Messrs. Zarrilli, DatinMcGroarty and Sisko each have agreements with us which provide for certain benefits upon termination of employment without cause or for good reason, either involuntarily or in connection with a change in control. Under these agreements, the following definitions apply:
| Cause | Violation of any of our written policies; appropriation of a material business opportunity of our company; misappropriation of company assets; conviction of a felony or any other crime with respect to which imprisonment is a possible punishment; or breach of any material term of the executive’s employment agreement or any other agreement with, or duty owed to, us or any of our partner companies. | |||
Good Reason | A material diminution, without the executive’s consent, in the nature or status of the executive’s position, title, reporting relationship, duties, responsibilities or authority; a material reduction of the executive’s base salary; a material breach by us of the executive’s agreement; the relocation of our principal office by more than 30 to 35 | |||
Change in Control | A change in control generally occurs when:
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Payments Made upon Involuntary Termination of Employment without Cause or for Good Reason
Messrs. Zarrilli, DatinMcGroarty and Sisko will receive the following benefits upon involuntary termination of employment without cause or for good reason:
| — | A lump sum payment equal to 1.5 times the executive’s then current base salary and the executive’s earned prorated bonus for the year of termination; |
| — | All time-vested stock options will fully vest and remain exercisable for 36 months and vested performance-based stock options will remain exercisable for 12 months; |
| — | 12 months’ continued coverage under our medical, dental and life insurance plans; and |
| — | Up to $20,000 for outplacement services or office space. |
Messrs. Zarrilli and Sisko:
A lump sum payment equal to 1.5 times the executive’s then current base salary and the executive’s earned prorated bonus for the year of termination;
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All time-vested stock options will fully vest and remain exercisable for 36 months and vested performance-based stock options will remain exercisable for 12 months;
12 months’ continued coverage under our medical, dental and life insurance plans; and
Up to $20,000 for outplacement services or office space.
Mr. Datin:
A lump sum payment equal to his then current annual base salary and the greater of his target bonus (not less than 100% of current base salary) for the year of termination or the average of his actual bonuses for the last three completed fiscal years;
All vested stock options will remain exercisable for 12 months; and
12 months’ continued coverage under our medical and dental plans.
Payments Made upon a Change in Control or Involuntary Termination of Employment without Cause or for Good Reason in Connection with a Change in Control
Messrs. Zarrilli, DatinMcGroarty and Sisko will not be entitled to any other payments or benefits (except those that are provided on a non-discriminatory basis to our employees generally upon termination of employment) unless the change in control is coupled with a loss of employment or a substantial change in job duties as described above.
Upon involuntary termination of employment without cause or for good reason within 18 months following a change in control, (for Messrs. Zarrilli and Sisko) or within six months before or 12 months following a change in control (for Mr. Datin), our named executive officers will receive the following benefits:
| — | A lump sum payment equal to 1.5 times the executive’s then current base salary and the executive’s earned prorated bonus for the year of termination; |
| — | All time-vested stock options will fully vest and remain exercisable for 36 months, all performance-based stock options that have not otherwise vested will vest and remain exercisable for 24 months, and all restricted stock awards and PSUs that have not otherwise vested will vest; |
| — | 12 months’ continued coverage under our medical, dental and life insurance plans; and |
| — | Up to $20,000 for outplacement services or office space. |
Messrs. Zarrilli and Sisko:
A lump sum payment equal to 1.5 times the executive’s then current base salary and the executive’s earned prorated bonus for the year of termination;
All time-vested stock options will fully vest and remain exercisable for 36 months, all performance-based stock options that have not otherwise vested will vest and remain exercisable for 24 months, and all restricted stock awards and performance stock units that have not otherwise vested will vest;
12 months’ continued coverage under our medical, health and universal life insurance plans; and
Up to $20,000 for outplacement services or office space.
Mr. Datin:
A lump sum payment equal to two times his then current base salary and two times the greater of his target bonus (not less than 100% of current base salary) for the year of termination or the average of his actual bonuses for the last three completed fiscal years;
All stock options, restricted stock awards and performance stock units that have not otherwise vested will fully vest and all stock options will remain exercisable for 24 months; and
Continued coverage under our medical and dental plans for 24 months.
Other Payments Made upon Termination of Employment
Regardless of the manner in which a named executive officer’s employment terminates, he also generally will receive payments and benefits that are provided on a non-discriminatory basis to our employees upon termination of employment, including the following:
Amounts earned during his term of employment;
| — | Amounts earned during his term of employment; |
Upon his death, disability or voluntary termination of employment, his accrued unused vacation pay;
| — | Upon his death, disability or voluntary termination of employment, his accrued unused vacation pay; |
Amounts contributed by us for the year of termination under our 401(k) plan (if he has completed the required hours of service, if any, and is an employee on the date as of which we make a contribution);
| — | Amounts contributed by us for the year of termination under our 401(k) plan (if he has completed the required hours of service, if any, and is an employee on the date as of which we make a contribution); |
Distribution of accrued and vested plan balances under our 401(k) plan and nonqualified deferred compensation plan;
| — | Distribution of accrued and vested plan balances under our 401(k) plan and nonqualified deferred compensation plan; |
Reimbursement of eligible dental expenses for services incurred prior to termination;
| — | Reimbursement of eligible dental expenses for services incurred prior to termination; |
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Upon his death, disability or retirement on or after his 65th birthday, accelerated vesting of stock options subject to time-based vesting that have not otherwise vested and extension of the post-termination exercise period for all stock options from 90 days to 12 months; and
| — | Upon his death, disability or retirement on or after his 65th birthday, accelerated vesting of stock options subject to time-based vesting that have not otherwise vested and extension of the post-termination exercise period for all stock options from 90 days to 12 months; and |
| — | Upon his death or disability, payment of benefits under our other broad-based employee benefit programs, including short-term and long-term disability plans, life insurance program, accidental death and dismemberment plan and business travel insurance plan, as applicable. |
Upon his death or disability, payment of benefits under our other broad-based employee benefit programs, including short-term and long-term disability plans, life insurance program, accidental death and dismemberment plan and business travel insurance plan, as applicable.
The following table shows the potential incremental payments and benefits which our current named executive officers would have been entitled to receive upon termination of employment in each situation listed in the table below under their respective agreements and our broad-based employee benefit programs. The agreement between Safeguard and Mr. McGroarty was entered into during January 2014. During 2013, Mr. McGroarty was not entitled to any payments and benefits except those provided on a non-discriminatory basis to all of our employees upon termination of employment. However, in the interest of providing transparent disclosure, for purposes of the following table, we show below the payments and benefits for which Mr. McGroarty would have been eligible if that agreement had been in place for 2013, based on his 2014 compensation. The amounts shown do not include certain payments and benefits available generally to salaried employees upon termination of employment, such as distributions from our 401(k) and deferred compensation plans. The amounts shown in the table are based on an assumed termination as of December 31, 2012,2013, and represent estimates of the maximum incremental amounts and benefits that would have been paid to each executive upon his termination which we have calculated: (i) by multiplying the 2012 annualized base salary forassuming each named executive officer by the multiplier in each scenario that is specified in each such executive’s agreement with us; (ii) for Mr. Datin, by multiplying his 2012 target incentive awards by the multiplier in each scenario that is specified in his agreement with us; (iii) for Messrs. Zarrilli and Sisko, by assuming they would have been entitled to theirhis respective 20122013 annualized target incentive award for the full year; and (iv)(ii) by using our 20132014 premium costs for calculating the value of the health and welfare benefits. TheWith the exception of Mr. Datin, who resigned in June 2013, the actual amounts to be paid to each executive would depend on the time and circumstances of an executive’s separation from Safeguard.
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Salary and Bonus ($) | Life Insurance Proceeds or Disability Income ($) | Health and Welfare Benefits ($) | Acceleration of Equity Awards ($)(1) | Total Termination Benefits ($) | ||||||||||||||||
Stephen T. Zarrilli | ||||||||||||||||||||
— Normal Retirement (65+) | — | — | — | — | — | |||||||||||||||
— Permanent disability | — | 3,685,400 | — | 122,990 | 3,808,390 | |||||||||||||||
— Death | — | 1,550,000 | — | 122,990 | 1,672,990 | |||||||||||||||
— Involuntary termination without cause or for good reason | 1,375,000 | — | 42,074 | 122,990 | 1,540,064 | |||||||||||||||
— Change-in-control termination, involuntarily or for good reason | 1,375,000 | — | 42,074 | 4,654,270 | 6,071,344 | |||||||||||||||
Jeffrey B. McGroarty | ||||||||||||||||||||
— Normal Retirement (65+) | — | — | — | — | — | |||||||||||||||
— Permanent disability | — | 3 439,288 | — | 14,175 | 3,453,463 | |||||||||||||||
— Death | — | 1,025,000 | — | 14,175 | 1,039,175 | |||||||||||||||
— Involuntary termination without cause or for good reason | 618,750 | — | 36,895 | 14,175 | 669,820 | |||||||||||||||
— Change-in-control termination | 618,750 | — | 36,895 | 643,134 | 1,298,779 | |||||||||||||||
Brian J. Sisko | ||||||||||||||||||||
— Normal Retirement (65+) | — | — | — | — | — | |||||||||||||||
— Permanent disability | — | 2,728,688 | — | 28,678 | 2,757,366 | |||||||||||||||
— Death | — | 1,125,000 | — | 28,678 | 1,153,678 | |||||||||||||||
— Involuntary termination without cause or for good reason | 900,000 | — | 34,891 | 28,678 | 963,569 | |||||||||||||||
— Change-in-control termination, involuntarily or for good reason | 900,000 | — | 34,891 | 2,100,438 | 3,035,329 | |||||||||||||||
James A. Datin | ||||||||||||||||||||
— Termination for good reason | 909,945 | — | 6,148 | — | 916,093 | |||||||||||||||
| (1) | Under SEC rules, the value related to the acceleration of equity awards in each scenario is calculated as of December 31, |
ITEM 3 – PROPOSAL TO AMEND AND RESTATE THE
55SAFEGUARD SCIENTIFICS, INC. 2004 EQUITY COMPENSATION PLAN
| — | rename the plan the 2014 Equity Compensation Plan (as amended and restated, the “2014 Plan”); |
| — | increase the number of shares of Safeguard common stock authorized for issuance under the 2014 Plan by 2,200,000 shares, from 2,166,666 to 4,366,666 shares; |
| — | remove authority to use shares that are reacquired by Safeguard upon a net issuance exercise of stock options, or settlement of a stock appreciation right (“SAR”) for less than the full number of shares, for further issuance under the 2014 Plan; |
| — | provide an annual limit of 50,000 shares on awards issued to non-employee directors; |
| — | enable compensation attributable to grants under the 2014 Plan to continue to qualify for an exemption from the $1 million deduction limit under Section 162(m) of the Code and to specify additional objective performance award criteria that may be considered by the Committee in granting awards; |
| — | provide specifically that Safeguard will not use cash to repurchase underwater options without shareholder approval; |
| — | extend the date on which the 2014 Plan expires to ten years following the effective date of the amendment and restatement (i.e., to March 5, 2024); and |
| — | make certain other ministerial changes and updates. |
The 2004 Plan, which was originally approved by Safeguard’s shareholders in June 2004, authorized Safeguard to issue up to 1,000,000 shares of common stock (as adjusted for certain changes in Safeguard’s capital structure). In August 2009, Safeguard’s shareholders approved an amendment and restatement of the 2004 Plan that increased the number of shares issuable under the 2004 Plan by 1,166,666 shares (i.e., to 2,166,666 shares). As of March 5, 2014, the date on which our Board adopted the proposed amendment and restatement of the 2004 Plan, without taking into account the share increase approved by our Board and being proposed in this proxy statement, only 602,121 shares of common stock remained available for issuance under the 2004 Plan, which is our only existing equity compensation plan.
As of March 5, 2014, there were 833,789 shares of Safeguard common stock subject to outstanding stock options; 182,182 shares underlying outstanding DSUs; 200,843 shares underlying outstanding PSUs; and 46,149 shares subject to unvested restricted stock awards under our 2004 Plan. For information regarding grants that were outstanding at December 31, 2013 under all of our equity compensation plans or arrangements, please see “Securities Authorized For Issuance Under Equity Compensation Plans” below.
In assessing the appropriate terms of the 2014 Plan and the importance of equity as a component of our compensation program, our Committee considered, among other items, our compensation philosophy and practices. The Committee also sought input from Semler Brossy, the Committee’s independent compensation consultant, based on their understanding of prevailing current market practices. Like many companies, Safeguard believes that in order to successfully attract, retain and motivate exceptional executives, employees, non-employee directors and consultants, we must continue to offer a competitive equity incentive program. As noted in our Compensation Discussion and Analysis, we compete for executive talent with venture capital and private equity firms, which typically have compensation programs heavily weighted towards the long-term incentive component, structured as a share of the fund’s profits, payable in cash. We currently do not provide our executives with a cash compensation program tied directly to gains from our sales of partner company holdings. Rather, the principal approach utilized by our Committee to meet the need for a long-term incentive component to our executive compensation program has been the granting of significant amounts of equity to our senior management team. In 2013, as in recent years, 75% of the grants made to our senior management team were subject to capital-return based vesting metrics.
After taking into account the recommendations of Semler Brossy, Safeguard’s anticipated equity compensation needs over the next five years, and the dilutive effect that future compensation awards would have on our shareholders, the Committee determined, and recommended to our Board, that it is in Safeguard’s best interests to increase the number of shares of common stock issuable under our 2004 Plan and also to amend certain other provisions of the 2004 Plan as outlined above. Based upon, and assuming that Safeguard continues to make awards consistent with, recent grant practices, the Committee anticipates that the proposed additional 2,200,000 shares of common stock to be authorized for issuance under the 2004 Plan should be sufficient to meet our needs for approximately the next five years. The Committee and management exercise discipline in granting equity awards, and historically our dilution and burn rate levels have been competitively positioned among our peers and industry. The proposed additional shares to be authorized for issuance under the 2004 Plan will enable us to continue to: (i) maintain this positioning; (ii) provide our senior management team, other employees, non-employee directors and consultants with compensation that is variable based on Safeguard’s performance over the long term, aligning their interests with those of our shareholders; and (iii) provide our executives with a potential value for long-term equity grants that is intended to be competitive with those held by comparable executives at companies included in the comparison data that is reviewed annually by the Committee.
Consistent with the approach in the 2004 Plan, the 2014 Plan includes several provisions that are designed to protect shareholder interests:
| ü | No “evergreen” provision, which, if included, would automatically increase the number of shares available for issuance under the 2014 Plan; |
| ü | No recycling of shares; |
| ü | No below market grants of stock options or SARs; |
| ü | No repricing of options or SARs or cancellation of options or SARs in exchange for cash, in either case without shareholder approval for that specific action; and |
| ü | A separate annual limit on the authorization of awards for non-employee directors. |
The Board has directed that the proposed 2014 Plan be submitted to our shareholders for their approval at the annual meeting. Shareholder approval of the amendment and restatement of the 2004 Plan is being sought so that: (i) compensation attributable to grants under the 2014 Plan may continue to qualify for an exemption from the $1,000,000 deduction limit under Section 162(m) of the Code; (ii) incentive stock options granted under the 2014 Plan will meet the requirements of the Code; and (iii) the NYSE listing requirements are met. If our shareholders do not approve the amendment and restatement of the 2004 Plan at the annual meeting, the amendment and restatement of the 2004 Plan will not become effective, and the number of shares authorized for issuance under the 2004 Plan will not be increased nor will any of the other proposed changes be made to the terms of the 2004 Plan.
The Board believes that the number of shares of Safeguard common stock currently available for issuance or transfer under the 2004 Plan is not sufficient in view of our compensation structure, strategy and succession planning process. The Board has concluded that our ability to attract, retain and motivate top quality management and employees is material to our success and would be enhanced by our continued ability to grant equity compensation under our shareholder-approved equity compensation plan. In addition, the Board believes that our interests and the interests of our shareholders will be advanced if we can continue to offer our employees, notably at the senior management level, advisors, consultants, and non-employee directors the opportunity to acquire or increase their proprietary interests in Safeguard. If the proposed 2014 Plan is not approved, Safeguard will not be able to grant any awards to eligible participants once all the shares reserved for issuance under the 2004 Plan have been used. The Board believes that the inability to grant sufficient equity incentives would significantly impair our ability to be competitive with the companies with which Safeguard competes for top talent.
Shareholders may cast a vote (i) FOR, (ii) AGAINST or (iii) ABSTAIN from voting on the proposal to approve the 2014 Plan. Approval of the 2014 Plan requires a majority of the votes cast at a meeting at which a quorum representing a majority of all outstanding voting stock is present, either in person or by proxy.
The Board believes that the 2014 Plan is in the best interests of Safeguard and its shareholders and, therefore, it recommends a vote FOR the 2014 Plan.
Summary of Material Terms of the 2014 Plan
The following summary of the material terms of the 2014 Plan is qualified in its entirety by reference to the complete text of the 2014 Plan, which is attached as Appendix A.
Purpose of the Plan.The 2014 Plan provides the employees of Safeguard and its affiliated entities, non-employee directors, and advisors who perform services at Safeguard’s request with an opportunity to receive grants of SARs, stock options, stock units, performance units, stock awards, dividend equivalents and other stock-based awards. The purpose of the 2014 Plan is to encourage participants to contribute materially to Safeguard’s growth, thereby benefiting Safeguard’s shareholders and aligning the economic interests of the participants with those of our shareholders.
Shares Subject to the Plan.Subject to adjustment as discussed below, as of March 5, 2014, the 2014 Plan authorizes the issuance of up to the sum of the following: (i) 2,200,000 new shares of Safeguard common stock, plus (ii) that number of shares of Safeguard common stock subject to outstanding grants under the 2004 Plan as of March 5, 2014, plus (iii) that number of shares remaining available for issuance under the 2004 Plan but not subject to previously exercised, vested or paid grants as of March 5, 2014. The 2014 Plan provides for the following maximum limits for grants to any individual during any calendar year: (i) the maximum number of shares subject to grants to any one individual participant (other than a non-employee director) is 250,000; (ii) the maximum number of shares subject to grants to non-employee directors is 50,000; (iii) the maximum dividend equivalents that may accrue to any one individual participant may not exceed $500,000; and (iv) the maximum amount payable to any one individual for grants expressed in dollar amounts is $1,000,000.
These limits will be adjusted by the Committee for stock splits, stock dividends, recapitalizations, mergers, consolidations or reorganizations, a reclassification or change in the par value of our stock, or other similar transactions affecting our stock.
Shares used to make grants may be issued directly by us or purchased on the open market and then transferred to participants by us. If and to the extent options granted under the 2014 Plan terminate, expire, or are canceled, forfeited, exchanged or surrendered without having been exercised, or if any SARs, stock units, performance units, stock awards, dividend equivalents or other stock-based awards are forfeited or terminated, the shares subject to such grants shall again be available for purposes of the 2014 Plan. Shares of stock surrendered or withheld in payment of the option price of an option or any withholding taxes shall not again be available for issuance or transfer under the 2014 Plan. If SARs are exercised, the full number of shares subject to the SARs shall be considered issued under the 2014 Plan, without regard to the number of shares issued upon settlement of the SARs and without regard to any cash settlement of the SARs.
Administration of the Plan.The Committee will administer the 2014 Plan. An administrative committee comprised of Safeguard employees appointed by the Committee will perform ministerial functions.
The Committee has the sole authority to administer and interpret the 2014 Plan, and the Committee’s determinations relating to the interpretation and operation of the 2014 Plan shall be conclusive and binding on all persons having any interest in the 2014 Plan or in any awards granted under the 2014 Plan. Specifically, the Committee is authorized to:
| — | determine the individuals to whom grants will be made; |
| — | determine the type, size and terms of the grants; |
| — | determine the time grants will be made and the duration of any applicable exercise or restriction period, including the criteria for exercisability and the acceleration of exercisability; |
| — | determine the form and timing of payment under grants; and |
| — | make factual determinations and adopt or amend appropriate rules, regulations, agreements, and instruments for implementing the 2014 Plan and the conduct of its business. |
Eligibility and Award Estimates.All employees of Safeguard and its affiliated companies (including employees who are officers or members of the Board) and certain advisors to Safeguard are eligible to receive grants under the 2014 Plan. Because the granting of awards under the 2014 Plan is at the discretion of the Committee, it is not possible to indicate which persons may receive grants under the 2014 Plan or to estimate the number of shares which may be subject to grants awarded under the 2014 Plan.
Type of Awards.Grants under the 2014 Plan may consist of the following:
| — | SARs; |
| — | incentive stock options; |
| — | nonqualified stock options; |
| — | stock units; |
| — | performance units; |
| — | stock awards; |
| — | dividend equivalents; or |
| — | other stock-based awards. |
Stock Appreciation Rights.The Committee may grant SARs. A SAR gives a participant the right to receive the appreciation in the value of Safeguard stock over a specified 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 SAR. The base amount of a SAR is equal to not less than the fair market value of a share of Safeguard common stock on the date the SAR is granted. The Committee may pay this benefit in cash, in stock, or in a combination of cash and stock.
The Committee may grant SARs separately or in tandem with 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. The base amount of the SAR cannot be less than the fair market value of a share of Safeguard common stock on the date of grant of the SAR. Upon the exercise of a tandem SAR, the related stock option terminates to the extent of an equal number of shares. SARs shall be subject to such vesting and other restrictions specified by the Committee, and the Committee may accelerate the exercisability of any or all outstanding SARs at any time for any reason.
SARs generally may only be exercised while the participant is employed by or providing services to Safeguard or during an applicable period after termination of employment. A tandem SAR is exercisable only during the period the associated option can be exercised.
Stock Options.
Grant of Stock Options. The Committee may grant incentive stock options or nonqualified stock options, or any combination of the two; however, incentive stock options may be granted only to employees of Safeguard or its subsidiaries.
Option Price. The option exercise price is determined by the Committee at the time of grant and may be equal to or greater than the fair market value on the grant date. Historically, stock options have been granted with an exercise price equal to the fair market value of the shares on the grant date.
Term and Exercisability of Stock Options. At the time of grant, the Committee in its sole discretion will determine when stock options are exercisable and when they expire. The Committee has the authority to accelerate vesting at any time for any reason. The Committee may allow an option to be exercised at a time prior to the time at which the option would otherwise be fully exercisable, in which event the participant would receive restricted shares or be granted interests in restricted shares in a book entry system.
Exercise of Options. A participant may exercise an option by delivering notice of exercise to Safeguard together with payment of the exercise price for the option. The exercise price may be paid in any of the following ways:
| — | in cash; |
| — | by delivering shares of Safeguard common stock already owned by the participant having a fair market value equal to the exercise price or by attestation to ownership of shares of stock having a fair market value equal to the exercise price, provided the tendered shares have been held by the participant long enough to avoid adverse accounting consequences to Safeguard; |
| — | by “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; or |
| — | any other method of payment the Committee, in its discretion, may approve (which currently includes a “net issuance exercise” of a stock option, which is effected by reducing the number of shares issued upon exercise by that number of shares, equal in fair market value, to the aggregate exercise price). |
Termination of Stock Options as a Result of Termination of Employment, Disability or Death. Generally, except as provided in the grant instrument or as otherwise may be determined by the Committee, an option may only be exercised while a participant is employed by or providing service to Safeguard or during an applicable period after termination of employment.
Stock Units.The Committee may grant stock units to an employee, non-employee director or advisor representing a right to receive a share of stock or an amount based on the value of a share of stock. The Committee shall determine the number of stock units to be granted and shall establish the terms and conditions for payment of stock units. Unless the Committee provides for a complete or partial exception, unvested stock units are forfeited if the participant’s employment or service to Safeguard is terminated or if other conditions of the grant are not met. The Committee may grant stock units contingent upon the participant’s taking certain specified actions or meeting other conditions the Committee specifies, including, but not limited to, deferral of compensation by the participant.
Performance Units.The Committee may grant performance units to an employee or non-employee director representing a right to receive a share of stock or an amount based on the value of a share of stock if specified performance goals are met. The Committee shall determine the number of performance units to be granted and shall establish the performance goals and other conditions for payment of performance units. Unless the Committee provides for a complete or partial exception, unvested performance units are forfeited if the participant’s employment or service to Safeguard is terminated or if conditions of the grant are not met.
Stock Awards.The Committee may issue or transfer shares pursuant to a stock award to an employee or non-employee director which may be subject to restrictions which lapse over a period of time or according to other criteria established by the Committee. The Committee shall determine whether a stock award will be granted, the
number of shares that will be awarded, the consideration to be paid for the shares, if any, the restrictions applicable to the stock award, and when and how the restrictions will lapse. Unless the Committee provides for a complete or partial exception, stock awards as to which the restrictions have not lapsed are forfeited if the participant’s employment or service to Safeguard is terminated or if other conditions of the grant are not met. Until the restrictions on transfer have lapsed, a participant may not sell, assign, transfer, pledge or otherwise dispose of the shares of restricted stock. The Committee shall determine to what extent and under what conditions a participant shall have the right to vote shares and receive any dividends or other distributions paid on the shares during the restriction period.
Dividend Equivalents.The Committee may grant dividend equivalents in connection with grants (other than options and SARs) under the 2014 Plan subject to such terms and conditions, including the achievement of performance goals, as the Committee deems appropriate. Dividend equivalents, which may be accrued as a cash obligation, converted to stock units, or paid in stock, may be paid to participants currently or may be deferred. The Committee shall determine whether dividend equivalents will accrue interest.
Other Stock-Based Grants.The Committee may grant other awards that are based on, measured by or payable in stock to employees or non-employee directors on such terms and conditions as the Committee deems appropriate.
Qualified Performance-Based Compensation.The Committee may determine that stock units, performance units, stock awards, dividend equivalents and other stock-based grants granted to an employee shall be considered qualified performance-based compensation. For grants that are intended to be qualified as performance-based compensation, the Committee must establish objective performance goals that must be met, the period during which performance will be measured, the maximum amounts that may be paid if the performance goals are met, and any other conditions that the Committee deems appropriate and consistent with the 2014 Plan and legal requirements. The Committee will establish the performance goals, in writing, at the beginning of the performance period, or during a period that is no later than the earlier of either 90 days after the beginning of the performance period or the date on which 25% of the performance period has been completed, or such other date that is permitted under the Code. The performance goals will be based on objectively determinable criteria, either in absolute terms or in comparison to publicly available industry standards or indices, such as stock price, earnings per share of common stock, return on assets, growth in assets, capital deployment, return on equity, change in net asset value, EBIT, EBITDA, earnings, revenue, operating margins and statistics, operating or net cash flows, financial return and leverage ratios, total shareholder returns, market share, or strategic business criteria consisting of one or more penetration goals, geographic business expansion goals, cost targets, revenue targets, customer satisfaction goals, product development goals, goals relating to acquisitions or divestitures, or any other objective measure derived from any of the foregoing criteria. The performance goals may relate to the participant’s business unit or the performance of Safeguard as a whole, the performance of one or more of Safeguard’s partner companies, or any combination of the foregoing. The Committee shall certify and announce the results for each performance period immediately following the announcement of Safeguard’s financial results for the performance period. If the performance goals are not met, the grants subject to such performance goals will be forfeited. The Committee may provide that grants shall be payable or restrictions shall lapse, in whole or in part, in the event of a participant’s death or disability during the performance period, a change of control or under other circumstances consistent with the Treasury regulations and rulings under Code Section 162(m).
Deferrals.The Committee may permit or require a participant to defer receipt of the payment of cash or delivery of shares that would otherwise be due to a participant in connection with any grant upon such terms and conditions as the Committee establishes consistent with Code Section 409A.
Termination or Amendment.The Board may amend or terminate the 2014 Plan at any time, provided, however, that the Board shall not amend the 2014 Plan without approval of the shareholders if such approval is required to comply with the Code or applicable laws or with applicable stock exchange requirements. The 2014 Plan will terminate on March 5, 2024, unless terminated earlier by the Board or extended by the Board with the approval of the shareholders. Grants made prior to termination will remain in effect after termination of the 2014 Plan unless the participant consents or unless the Committee revokes or amends a grant in accordance with the terms of the 2014 Plan. The termination of the 2014 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 2014 Plan, to appropriately reflect any of the following events:
| — | a stock dividend, spinoff, recapitalization, stock split, or combination or exchange of shares; |
| — | a merger, reorganization or consolidation; |
| — | a reclassification or change in par value; |
| — | any other extraordinary or unusual event affecting the outstanding common stock as a class without Safeguard’s receipt of consideration; or |
| — | 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. |
Change of Control.Subject to certain exclusions specified in the 2014 Plan, a Change of Control means the first to occur of any of the following events: (i) an acquisition by any individual, entity or group of beneficial ownership of 20% or more of either the then outstanding shares of Safeguard common stock or the combined voting power of the then outstanding voting securities of Safeguard entitled to vote in the election of directors; (ii) a change in the composition of the Board such that the individuals who constitute the Incumbent Board as defined in the 2014 Plan cease to constitute at least a majority of the Board; (iii) consummation of a reorganization, merger or consolidation or sale or other disposition of all or substantially all of the assets of Safeguard; or (iv) the approval by Safeguard’s shareholders of a complete liquidation or dissolution of Safeguard.
The Committee may modify the definition of Change of Control for a particular grant as the Committee deems appropriate to comply with Code Section 409A.
Upon a Change of Control, unless the Committee determines otherwise, (i) Safeguard will provide each participant who holds outstanding grants with written notice of the Change of Control; (ii) all outstanding options or SARs will become fully exercisable; (iii) the restrictions and conditions on all outstanding stock awards will lapse; (iv) all stock units and performance units will become payable in cash or in stock in an amount not less than the fair market value of the stock to which the units relate; and (v) dividend equivalents and other stock-based awards will become payable in full, in cash or in stock, in amounts determined by the Committee. Although our 2014 Plan does not specifically provide for double-trigger vesting of equity awards upon a Change of Control, all of our named executive officers’ grant agreements do provide for double-trigger vesting of equity awards upon a Change of Control.
Upon a Change of Control 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, or replaced with comparable options by, the surviving corporation (or a parent or subsidiary of the surviving corporation) and other outstanding grants will be converted to similar grants of the surviving corporation (or a parent or subsidiary of the surviving corporation).
Alternatively, in the event of a Change of Control, the Committee may take any of the following actions with respect to any or all outstanding grants without the consent of the participant: (i) require that participants surrender outstanding options and SARs in exchange for payment in cash or in stock, as determined by the Committee, in an amount by which the then fair market value of the underlying stock exceeds the exercise price of the options or the base amount of the SARs, if any; (ii) after giving participants an opportunity to exercise the options and SARs, terminate outstanding options and SARs, at such time as the Committee deems appropriate; or (iii) with respect to participants holding stock units, performance units, dividend equivalents or other stock-based awards, deliver to participants a payment in settlement of such awards in such amount and form as the Committee may determine.
Federal Income Tax Consequences.The current federal income tax treatment of grants under the 2014 Plan is generally described below. This is not a complete description of tax consequences. Local, state and other taxing authorities also may tax grants under the 2014 Plan, and there may be different tax consequences under certain circumstances.
Incentive Stock Options.There generally are no federal income tax consequences to a participant or to Safeguard upon the grant of an incentive stock option.
A participant will not recognize income for purposes of the regular federal income tax upon the exercise of an incentive stock option. However, for purposes of the alternative minimum tax, 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 and included in the computation of the recipient’s alternative minimum taxable income, which may result in current tax becoming payable by the participant.
A participant will recognize income when he or she sells stock acquired upon exercise of an incentive stock option. If the shares acquired upon exercise of an incentive stock option are disposed of after two years from the date the option was granted and after one year from the date the shares were transferred upon the exercise of the option, the participant will recognize long-term capital gain or loss in the amount of the difference between the amount realized on the sale and the exercise price. Safeguard will not be entitled to any corresponding tax deduction. In the event that the participant was subject to the alternative minimum tax on exercise, a different analysis may be applicable.
If a participant disposes of the shares acquired upon exercise of an incentive stock option before satisfying both holding period requirements (a disqualifying disposition), any gain recognized on the disposition will be taxed as ordinary income to the extent of the difference between the fair market value of the shares on the date of exercise (or the sale price, if less) and the exercise price. Safeguard generally will be entitled to a deduction in that amount. The gain, if any, in excess of the amount recognized as ordinary income will be a long-term or short-term capital gain, depending upon the length of time the shares were held before the disposition.
Nonqualified Stock Options.A participant who receives a nonqualified stock option will recognize no income at the time of the grant of the option. Upon exercise of a nonqualified stock option, a participant will recognize ordinary income in an amount equal to the excess of the fair market value of the shares of our stock on the date of exercise over the option price. The basis in shares acquired upon exercise of a nonqualified stock option will equal the fair market value of such shares at the time of exercise, and the holding period of the shares (for capital gain purposes) will begin on the date of exercise. In general, Safeguard will be entitled to a business expense deduction in the same amount and at the same time as the participant recognizes ordinary income.
Upon the sale of the shares acquired by the exercise of a nonqualified 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 (which will reflect the exercise price plus the amount of ordinary income recognized by the participant at the time of exercise of the nonqualified stock options).
Stock Units and Performance Units.A participant who receives a stock unit or performance unit will not recognize taxable income until the unit is paid to the participant; however, such grants may be subject to the requirements of Code Section 409A (see discussion below under “Section 409A”). When the unit is paid, the participant will recognize ordinary income in an amount equal to the fair market value of the stock and cash, if any, paid to the participant. Safeguard generally will be entitled to a business expense deduction in the same amount.
Stock Awards.A participant who receives a stock award generally will not recognize taxable income until the stock is transferable by the participant or is no longer subject to a substantial risk of forfeiture for federal tax purposes, whichever occurs first. When the stock is either transferable or is no longer subject to a substantial risk of forfeiture, the participant will recognize ordinary income in an amount equal to the fair market value of the shares at that time, less any amounts paid for the shares. A participant may elect to recognize ordinary income when a stock award is granted in an amount equal to the fair market value of the shares at the date of grant, determined without regard to the restrictions. Safeguard generally will be entitled to a corresponding business expense deduction in the year in which the participant recognizes ordinary income.
Dividend Equivalents and Other Stock-Based Grants.A participant will recognize ordinary income when dividend equivalents and other stock-based awards are paid to the participant in an amount equal to the cash and the fair market value of any shares paid to the participant; however, such grants may be subject to the requirements of Code Section 409A (see discussion below under “Section 409A”). Safeguard generally will be entitled to a corresponding business expense deduction when the participant recognizes ordinary income.
Stock Appreciation Rights.A participant generally will not recognize any income upon the grant of SARs. Upon exercise of a SAR, the participant will generally recognize ordinary income in an amount equal to any cash received and the fair market value of any shares received on the date of payment or delivery. In that taxable year, Safeguard will receive a federal income tax deduction in an amount equal to the ordinary income which the participant has recognized.
Transfer of Stock Options.The Committee may permit a participant to transfer nonqualified stock options to family members or one or more trusts or other entities for the benefit of family members, according to such terms as the Committee may determine. Generally, the participant will not recognize income at the time the participant makes a gift of a nonqualified stock option to family members, one or more trusts or other entities for the benefit of family members. When the transferee later exercises the option, the participant (and not the transferee) must recognize ordinary income on the difference between the fair market value of the stock and the exercise price, and appropriate arrangements must be made to satisfy applicable withholding requirements.
For federal gift tax purposes, if the participant transfers a stock option before the stock option has become exercisable, the transfer will not be considered by the Internal Revenue Service to be a completed gift until the stock option becomes exercisable. The value of the gift will be determined when the stock option becomes exercisable. Gifts of stock options may qualify for the gift tax annual exclusion. If the participant dies after transferring a stock option in a completed gift transaction, the transferred stock option may be excluded from the participant’s estate for estate tax purposes if the applicable estate tax requirements have been met.
Tax Withholding.All grants under the 2014 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 we 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 minimum marginal tax rate for federal (including FICA), state and local tax liabilities. The Committee also may permit a participant to tender other shares to supplement such withholding.
Million Dollar Deduction Limit.Section 162(m) of the Code limits our ability to deduct compensation of more than $1 million that is paid to an individual who, on the last day of the taxable year, is either our principal executive officer or among the three other most highly compensated executive officers for that taxable year as reported in our proxy statement. This limitation on deductions does not apply to certain types of compensation, including qualified performance-based compensation. Grants of stock options and SARs generally will meet the requirements of “performance-based compensation” if other requirements of Code Section 162(m) are met. Stock awards, stock units and dividend equivalents generally will not qualify as, and performance units may not qualify as, “performance-based compensation.”
Section 409A.Code Section 409A applies to nonqualified deferred compensation. Stock options and SARs granted under the 2014 Plan will generally not be subject to Code Section 409A because the exercise price of the stock options and the base amount of the SARs will not be less than fair market value on the date of grant and they will not contain a deferral feature. Stock awards also will generally not be subject to Code Section 409A. Stock units, dividend equivalents and other stock-based awards will generally be subject to the requirements of Code Section 409A if the recognition of income by the recipient of such awards occurs in any calendar year after the year in which such awards become vested. Grants made under the 2014 Plan that are subject to Code Section 409A are intended to comply with the requirements of Code Section 409A. If the requirements of Code Section 409A are not met with respect to grants subject to Code Section 409A, the participant may be required to currently include such amounts in the participant’s taxable income and additional taxes may be assessed on such amounts, including interest and a 20% penalty tax.
SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS
Our equity compensation plans provide a broad-based program designed to attract and retain talent while creating alignment with the long-term interests of our shareholders. Employees at all levels participate in our equity compensation plans. In addition, members of our Board and members of our Advisory Board receive equity grants for their service on our Board and Advisory Board, respectively. Members of our Board also receive DSU awards and are eligible to defer directors’ fees and receive DSUs with a value equal to the directors’ fees deferred and matching DSUs equal to 25% of the directors’ fees deferred.
Our 2001 Associates Equity Compensation Plan (“2001 Plan”) provided for the grant of nonqualified stock options, SARs, restricted stock, performance units, and other stock-based awards to employees, consultants or advisors of Safeguard and its subsidiaries, provided that no grants could be made under this plan to executive officers or directors of Safeguard. Under the NYSE rules that were in effect at the time this plan was adopted in 2001, shareholder approval of the plan was not required. Except for the persons eligible to participate in the 2001 Plan and the inability to grant incentive stock options under the 2001 Plan, the terms of the 2001 Plan are substantially the same as the other equity compensation plans approved by our shareholders (which are described herein or have been described in previous filings).
A total of 900,000 shares of our common stock were authorized for issuance under the 2001 Plan. At December 31, 2013, 260,313 shares were subject to outstanding options and PSUs, no shares were available for future issuance, and 497,211 shares had been issued under the 2001 Plan. The 2001 Plan expired by its terms on February 21, 2011. Equity grants previously awarded under this plan that have not yet expired or otherwise become unexercisable continue to be administered in accordance with the terms of the grants. Any portions of outstanding equity grants under the 2001 Plan that expire or become unexercisable for any reason shall be cancelled and shall be unavailable for future issuance.
During 2007, 2008, 2011 and 2013, the Committee granted “employee inducement” awards to four newly hired executives. The awards were granted outside of Safeguard’s existing equity compensation plans in accordance with NYSE rules and consisted of options to purchase up to an aggregate of 571,666 shares of Safeguard common stock. All of these “employee inducement” awards were granted with a per share exercise price equal to the average of the high and low prices of Safeguard common stock on the grant date. 455,416 of such awards were granted with an eight-year term and 116,250 of such awards were granted with a 10-year term. Of the shares underlying the “employee inducement” awards that were outstanding at December 31, 2013, 142,916 shares are subject to time-based vesting, with an aggregate of 33,543 shares vesting on the first anniversary of the grant date and 100,623 shares vesting in 36 equal monthly installments thereafter, and 2,188 shares vesting on the second anniversary of the grant date and 6,562 shares vesting in 36 equal monthly installments thereafter. Of the remaining shares underlying the “employee inducement” awards that were outstanding at December 31, 2013, 312,500 vest incrementally based upon the achievement of certain specified levels of increase in Safeguard’s stock price and 116,250 vest based on the aggregate cash produced as a result of monetizations involving certain of our partner companies relative to the amount of cash deployed in connection with such partner companies. With the exception of the market-based vesting or capital-return based vesting provisions, the terms and provisions of the employee inducement awards are substantially the same as options previously awarded to other executives under Safeguard’s equity compensation plans.
The following table provides information as of December 31, 2013 about the securities authorized for issuance under our equity compensation plans. The material features of our equity compensation plans are described in Note 9 to the Consolidated Financial Statements filed as part of our Annual Report on Form 10-K for the year ended December 31, 2013.
Equity Compensation Plan Information
| Plan Category | Number of Securities to (a) | Weighted-Average (b) | Number of Securities (c) | ||||||||||||
Equity compensation plans approved by security holders (3) | 1,487,469 | $ | 12.9612 | 597,829 | |||||||||||
Equity compensation plans not approved by security holders (4) | 831,979 | $ | 11.8962 | 0 | |||||||||||
|
|
|
| ||||||||||||
Total | 2,319,448 | $ | 12.5059 | 597,829 | |||||||||||
| (1) | Includes a total of 396,517 shares underlying PSUs and DSUs awarded for no consideration and 94,586 shares underlying DSUs awarded to directors in lieu of all or a portion of directors’ fees. |
| (2) | The weighted average exercise price calculation excludes 491,103 shares underlying outstanding DSUs and PSUs included in column (a) which are payable in stock, on a one-for-one basis. |
| (3) | Represents awards granted under the 1999 Equity Compensation Plan and the 2004 Plan and shares available for issuance under the 2004 Plan. |
| (4) | Includes awards granted under the 2001 Plan and 571,666 “employee inducement” awards. |
ITEM 4 – RATIFICATION OF APPOINTMENT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Audit Committee, composed entirely of independent, non-employee members of the Board, approved the appointment of KPMG LLP (“KPMG”) as Safeguard’s independent registered public accounting firm for the 2014 fiscal year, and the Board has recommended that our shareholders ratify the appointment. If the shareholders do not ratify the appointment, the Audit Committee may reconsider its recommendation and may retain KPMG or another accounting firm without resubmitting the matter to shareholders. Even if the shareholders ratify the appointment of KPMG, the Audit Committee may select another firm if it determines such selection to be in the best interests of Safeguard and its shareholders.
Services provided to Safeguard and its subsidiaries by KPMG in fiscal year 2013 and fiscal year 2012 are described below under “Independent Registered Public Accounting Firm—Audit Fees.” Representatives of KPMG are expected to attend the annual meeting. They will have an opportunity to make a statement if they desire to do so and will be available to respond to appropriate questions.
Ratification requires the affirmative vote of a majority of the votes cast by all shareholders entitled to vote on the proposal.
The Board recommends that shareholders vote FOR the proposal to ratify the appointment of KPMG as Safeguard’s independent registered public accounting firm for the 2014 fiscal year.
Independent Registered Public Accounting Firm—Audit Fees
The following table presents fees for professional services rendered by KPMG for the audit of Safeguard’s consolidated financial statements for fiscal year 2013 and fiscal year 2012 and fees billed for audit-related services, tax services and all other services rendered by KPMG for fiscal year 2013 and fiscal year 2012. This table includes fees billed to Safeguard’s consolidated subsidiaries for services rendered by KPMG.
| 2013 | 2012 | |||||||||||||||
Audit Fees (1) | $ | 535,000 | $ | 582,500 | ||||||||||||
Tax Fees (2) | 89,000 | 87,000 | ||||||||||||||
All Other Fees (3) | 9,564 | — | ||||||||||||||
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|
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Total | $ | 633,564 | $ | 669,500 | ||||||||||||
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| (1) | Audit fees include the aggregate fees for professional services rendered in connection with the audit of the consolidated financial statements included in our Annual Report on Form 10-K, the review of the condensed consolidated financial statements included in our Quarterly Reports on Form10-Q, and KPMG’s assurance services provided in connection with the assessment and testing of internal control over financial reporting pursuant to Section 404 of the Sarbanes-Oxley Act of 2002. |
| (2) | Tax fees include the aggregate fees billed by KPMG for tax consultation and tax compliance services. |
| (3) | All other fees for 2013 represent the aggregate fees billed for expert testimony provided by KPMG representatives in connection with litigation. |
The Audit Committee pre-approves each service to be performed by KPMG at its regularly scheduled meetings. For any service that may require pre-approval between regularly scheduled meetings, the Audit Committee has delegated to the Chairperson of the Audit Committee the authority to pre-approve services not prohibited by law to be performed by Safeguard’s independent registered public accounting firm and associated fees up to a maximum of $100,000, and the Chairperson communicates such pre-approvals to the Audit Committee at its next regularly scheduled meeting.
The Audit Committee assists the Board of Directors in fulfilling its responsibilities regarding general oversight of the integrity of Safeguard’s consolidated financial statements, Safeguard’s compliance with legal and regulatory requirements, the performance of Safeguard’s internal audit function, review and approval of related party transactions, and the performance, qualifications and independence of Safeguard’s independent registered public accounting firm.
Safeguard’s management has primary responsibility for the financial reporting process, including the system of internal controls, and for preparation of Safeguard’s consolidated financial statements in accordance with U.S. generally accepted accounting principles. Safeguard’s independent registered public accounting firm is responsible for auditing those consolidated financial statements and issuing opinions as to the conformity of Safeguard’s audited consolidated financial statements with U.S. generally accepted accounting principles and the effectiveness of Safeguard’s internal control over financial reporting based on criteria established inInternal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
Throughout the year, the Audit Committee regularly meets with management of Safeguard, Safeguard’s independent registered public accounting firm and Safeguard’s internal auditor. The Audit Committee also regularly meets with each of these groups separately in closed sessions. In this context, the Audit Committee hereby reports as follows:
| 1. | The Audit Committee reviewed Safeguard’s audited consolidated financial statements for fiscal year 2013 and met and held discussions with management and KPMG regarding the audited consolidated financial statements. |
| 2. | The Audit Committee discussed with KPMG the matters required to be discussed by Auditing Standard No. 16, as adopted by the Public Company Accounting Oversight Board. |
| 3. | The Audit Committee received the written disclosures and the letter from KPMG required by applicable requirements of the Public Company Accounting Oversight Board regarding the independent accountant’s communications with the Audit Committee concerning independence and discussed with KPMG its independence. |
| 4. | Based on the review and discussion referred to in paragraphs 1 through 3 above, the Audit Committee recommended to the Board that the audited consolidated financial statements be included in Safeguard’s Annual Report on Form 10-K for fiscal year 2013. |
Members of the Audit Committee:
George MacKenzie, Chairperson
| Keith B. Jarrett | George D. McClelland | John J. Roberts | Robert J. Rosenthal |
STOCK OWNERSHIP OF CERTAIN BENEFICIAL OWNERS,
DIRECTORS AND OFFICERS
The following table shows the number of shares of Safeguard common stock beneficially owned as of March 31, 2014 (unless otherwise indicated), by each person known to us to be the beneficial owner of more than 5% of our outstanding shares of common stock, our directors, persons named in the Summary Compensation Table in this proxy statement, and our directors and executive officers as a group. For purposes of reporting total beneficial ownership, shares that may be acquired within 60 days of March 31, 2014, through the exercise of Safeguard stock options are included. On March 31, 2014, there were 21,212,641 shares of common stock outstanding and 397,481 shares underlying stock options held by executive officers and directors as a group that were exercisable within 60 days of March 31, 2014.
Outstanding Shares Beneficially | Options Exercisable | Shares Beneficially Owned Assuming Exercise of | Percent of Outstanding | Other Stock-Based Holdings (2) | ||||||||||||||||||||
| Name | Owned | Within 60 Days | Options | Shares (1) | Vested | Unvested | ||||||||||||||||||
Blackrock, Inc. 40 East 52nd Street New York, NY 10022 | 1,526,496 | — | 1,526,496 | 7.10% | — | — | ||||||||||||||||||
Dimensional Fund Advisors LP Palisades West, Bldg. One 6300 Bee Cave Road Austin, TX 78746 | 1,168,491 | — | 1,168,491 | 5.43% | — | — | ||||||||||||||||||
First Manhattan Co. 437 Madison Avenue New York, NY 10022 | 1,526,414 | — | 1,526,414 | 7.09% | — | — | ||||||||||||||||||
T. Rowe Price Associates, Inc. 100 East Pratt Street Baltimore, MD 21202 | 2,442,063 | — | 2,442,063 | 11.00% | — | — | ||||||||||||||||||
Julie A. Dobson | 16,332 | 27,498 | 43,830 | * | 30,623 | 191 | ||||||||||||||||||
Keith B. Jarrett | — | 2,084 | 2,084 | * | 6,903 | — | ||||||||||||||||||
Andrew E. Lietz | 13,889 | 15,000 | 28,889 | * | 27,095 | — | ||||||||||||||||||
George MacKenzie | 7,192 | 31,664 | 38,856 | * | 19,696 | — | ||||||||||||||||||
George D. McClelland | 14,165 | 27,498 | 41,663 | * | 57,662 | — | ||||||||||||||||||
Jack L. Messman | 15,750 | 14,166 | 29,916 | * | 52,818 | — | ||||||||||||||||||
John J. Roberts | 2,491 | 14,166 | 16,657 | * | 25,376 | — | ||||||||||||||||||
Robert J. Rosenthal | — | 31,665 | 31,665 | * | 21,134 | — | ||||||||||||||||||
Stephen T. Zarrilli | 48,042 | 127,836 | 175,878 | * | — | — | ||||||||||||||||||
Jeffrey B. McGroarty | 14,471 | 15,178 | 29,649 | * | — | — | ||||||||||||||||||
Brian J. Sisko | 51,512 | 90,726 | 142,238 | * | — | — | ||||||||||||||||||
James A. Datin (3) | 99,129 | 23,122 | 122,251 | * | — | — | ||||||||||||||||||
Executive officers and directors as a group (11 persons) (4) | 183,844 | 397,481 | 581,325 | 2.69% | 241,307 | 191 | ||||||||||||||||||
| (1) | Each director and named executive officer has the sole power to vote and to dispose of the shares (other than shares held jointly with an individual’s spouse). An * indicates ownership of less than 1% of the outstanding shares. Shareholding information for BlackRock, Inc., Dimensional Fund Advisors LP, First Manhattan Co. and T. Rowe Price Associates, Inc. is based on information included in the Schedule 13G or Schedule 13G/A filed with the SEC by each such entity as of December 31, 2013. |
| (2) | The shares in this column represent DSUs that have been credited to each individual. The DSUs, which may not be voted or transferred, are payable, on a one-for-one basis, in shares of Safeguard common stock following an individual’s termination of service on the Board. See “Corporate Governance and Board Matters – Board Compensation.” |
| (3) | Mr. Datin resigned as a Safeguard employee in June 2013. |
| (4) | Excludes Mr. Datin who resigned in June 2013. |
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires our directors, executive officers and greater than 10% holders of our common stock to file with the SEC reports of ownership of our securities and changes in ownership of our securities. Based solely on our review of the copies of reports we have received and upon written representations from the reporting persons that no Form 5 reports were required to be filed by those persons, Safeguard believes there were no late filings by our directors and executive officers during 2012.2013. There were no known holders of greater than 10% of our common stock during 20122013 who failed to file the required reports.
Proxies will be solicited on behalf of the Board by mail, telephone, other electronic means or in person, and Safeguard will pay the entire costsolicitation costs. Copies of preparing, assembling, printing, mailing and distributing these proxy materials and the 2013 annual report will be supplied to brokers, dealers, banks and voting trustees, or their nominees for the purpose of soliciting votes. Upon request,proxies from beneficial owners, and we will reimburse brokerage houses and other custodians, nominees and fiduciariessuch record holders for forwarding proxy materials to our shareholders. If you choose to access the proxy materials and/or vote over the Internet, you are responsible for Internet access charges you may incur. If you choose to vote by telephone, you are responsible for telephone charges you may incur. In addition to the mailing of these proxy materials, the solicitation of proxies or votes may be made in person, by telephone or by electronic communication by our directors, officers and employees, who will not receive any additional compensation for such solicitation.their reasonable expenses.
Procedures for Submitting Shareholder Proposals
Proposals for Inclusion in the Proxy Statement.Under Rule 14a-8 under the Securities Exchange Act of 1934, as amended, shareholders may present proper proposals To be considered for inclusion in Safeguard’snext year’s proxy statement, for consideration at our next annual meeting of shareholders by submitting theshareholder proposals to Safeguardsubmitted in a timely manner. To be included in our proxy statement for our 2014 annual meeting, shareholder proposalsaccordance with SEC Rule 14a-8 must be received by Safeguardat our executive offices no later than the close of business on December 17, 2013. Such proposals9, 2014. Proposals should be sentaddressed to:
Safeguard Scientifics, Inc.
Attention: Corporate Secretary
435 Devon Park Drive, Building 800
Wayne, PA 19087-1945
Proposals not Included in the Proxy Statement.With respect to proposals not intended for inclusion in Safeguard’s proxy materials for next year’s annual meeting, if Safeguard does not receive notice of such a proposal by March 2, 2014February 28, 2015 and the matter is raised at that meeting, the proxy holders will have discretionary authority to vote on the matter. All proposals and notifications should be addressed to the Corporate Secretary at the above address.
Safeguard’s annual report to shareholders for the year ended December 31, 2012,2013, including consolidated financial statements and the related notes thereto and other information with respect to Safeguard and our partner companies, will be mailed, together with this proxy statement, on or about April 16, 2013,14, 2014, to shareholders of record as of the close of business on March 27, 2013.
56
Our Internet website address included in this proxy statement is provided for the convenience of our shareholders. The information contained therein or connected thereto are not intended to be incorporated into this proxy statement. All references to our website address are intended to be inactive textual references only.
Safeguard is not aware of any other business to be presented at the annual meeting. If matters other than those described in this proxy statement should properly arise at the annual meeting, the proxies will use their discretion to vote on such matters.
BY ORDER OF THE BOARD OF DIRECTORS
Deirdre Blackburn,
Corporate Secretary
April 8, 2014
2014 EQUITY COMPENSATION PLAN
As Amended and Restated Effective March 5, 2014,
Subject to Approval by the Company’s Stockholders
| 1. | Purpose |
The purpose of the Safeguard Scientifics, Inc. 2014 Equity Compensation Plan, as amended and restated, is to provide (i) designated Company employees, (ii) certain advisors who perform services for the Company, and (iii) Nonemployee Directors with the opportunity to receive grants of incentive stock options, nonqualified stock options, stock units, stock appreciation rights, performance units, stock awards, dividend equivalents and other stock-based awards. The Company believes that the Plan will encourage the participants to contribute materially to the Company’s growth, thereby benefiting the Company’s stockholders, and will align the economic interests of the participants with those of the stockholders. The Plan was originally established by the Company’s Board of Directors effective April 6, 2004 and approved by the stockholders on June 11, 2004. The Plan was amended and restated effective October 21, 2008 to reflect the applicable requirements of Section 409A of the Internal Revenue Code of 1986, as amended (“Code”) and to make certain other clarifying changes. The Plan was again amended and restated effective July 13, 2009, to reflect an increase in the number of shares of Stock authorized for issuance hereunder, and to make clarifying changes and certain other changes. Subject to approval by the stockholders of the Company, the Plan is hereby amended and restated to (i) change the name of the Plan from the 2004 Equity Compensation Plan to the 2014 Equity Compensation Plan, (ii) reflect an increase in the number of shares of Stock authorized for issuance hereunder, (iii) add an annual limit for the number of shares of Stock that may be subject to Grants made to Nonemployee Directors, (iv) revise the share counting methodology under the Plan, and (v) make certain other changes.
| 2. | Definitions |
Whenever used in this Plan, the following terms will have the respective meanings set forth below:
(a) “Board” means the Company’s Board of Directors as constituted from time to time.
(b) “Change of Control” means the first to occur of any of the following events:
(i) An acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act) (a “Person”) of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 20% or more of either (1) the then outstanding shares of Common Stock of the Company (“Common Stock”) or (2) the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of directors (the “Outstanding Company Voting Securities”) (a “Control Purchase”); excluding, however, the following: (A) any acquisition directly from the Company, other than an acquisition by virtue of the exercise of a conversion privilege unless the security being so converted was itself acquired directly from the Company; (B) any acquisition by the Company; (C) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company; or (D) any acquisition by any corporation pursuant to a transaction which complies with clauses (1), (2) and (3) of subsection (iii) of this definition; provided, however, that notwithstanding the foregoing, a Change of Control shall not be deemed to occur solely because any Person acquires beneficial ownership of more than 20% of the Common Stock or the Outstanding Company Voting Securities as a result of the acquisition of Common Stock or Outstanding Company Voting Securities by the Company which reduces the amount of Common Stock or Outstanding Company Voting Securities; provided, that if after such acquisition by the Company such Person becomes the beneficial owner of additional Common Stock or Outstanding Company Voting Securities that increases the percentage of Common Stock or Outstanding Company Voting Securities beneficially owned by such Person, a Change of Control shall then occur; or
(ii) A change in the composition of the Board such that the individuals who, as of the Effective Date, constitute the Board (such Board shall be hereinafter referred to as the “Incumbent Board”) cease for any reason to constitute at least a majority of the Board; provided, however, for purposes of this subsection (ii), that any individual who becomes a member of the Board subsequent to the Effective Date, whose election, or nomination for election by the Company’s stockholders, was approved by a vote of at least a majority of those individuals who are members of the Board and who were also members of the Incumbent Board (or whose membership on the Board was so approved by a board which itself consisted of a majority of directors elected by the Incumbent Board) shall be considered as though such individual were a member of the Incumbent Board; but, provided further, that any such individual whose initial assumption of office occurs as a result of either an actual or threatened election contest (as such terms are used in Rule 14a-11 of Regulation 14A promulgated under the Exchange Act) or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board shall not be so considered as a member of the Incumbent Board; or
(iii) Consummation of a reorganization, merger or consolidation or sale or other disposition of all or substantially all of the assets of the Company (“Corporate Transaction”); excluding, however, such a Corporate Transaction pursuant to which (1) all or substantially all of the individuals and entities who are the beneficial owners, respectively, of the Common Stock and Outstanding Company Voting Securities immediately prior to such Corporate Transaction will beneficially own, directly or indirectly, more than 50% of, respectively, the outstanding shares of common stock and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the corporation resulting from such Corporate Transaction (including, without limitation, a corporation which as a result of such transaction owns the Company or all or substantially all of the Company’s assets either directly or through one or more subsidiaries) in substantially the same proportions as their ownership, immediately prior to such Corporate Transaction, of the Common Stock and Outstanding Company Voting Securities, as the case may be, (2) no Person (other than the Company, any employee benefit plan (or related trust) of the Company or such corporation resulting from such Corporate Transaction) will beneficially own, directly or indirectly, 20% or more of, respectively, the outstanding shares of common stock of the corporation resulting from such Corporate Transaction or the combined voting power of the outstanding voting securities of such corporation entitled to vote generally in the election of directors except to the extent that such ownership existed prior to the Corporate Transaction, and (3) individuals who were members of the Incumbent Board will constitute at least a majority of the members of the board of directors of the corporation resulting from such Corporate Transaction; or
(iv) The approval by the stockholders of the Company of a complete liquidation or dissolution of the Company.
(v) Notwithstanding the foregoing, the Committee may modify the definition of Change of Control for a particular Grant as the Committee deems appropriate to comply with Code Section 409A.
(c) “Code” means the Internal Revenue Code of 1986, as amended, and the regulations promulgated thereunder.
(d) “Committee” means (i) with respect to Grants to Employees and Key Advisors, the Compensation Committee of the Board or its delegate or successor, or such other committee appointed by the Board to administer the Plan or its delegate or its successor, (ii) with respect to Grants made to Nonemployee Directors, the Board or its delegate, and (iii) with respect to Grants designated as “qualified performance-based compensation” under Code Section 162(m), a committee that consists of two or more persons appointed by the Board, all of whom shall be “outside directors” as defined under Code Section 162(m).
(e) “Company” means Safeguard Scientifics, Inc., any successor corporation, each corporation which is a member of a controlled group of corporations (within the meaning of Code Section 414(b)) of which the Company is a component member, any subsidiary at least 50% directly or indirectly owned by Safeguard Scientifics, Inc. (or any successor thereto) and any affiliate entity which, with the approval of the Committee, is deemed to constitute an entity controlled by Safeguard Scientifics, Inc.
(f) “Date of Grant” means the effective date of a Grant; provided, however, that no retroactive Grants will be made.
(g) “Dividend Equivalent” means an amount determined by multiplying the number of shares of Stock or Stock Units subject to a Grant by the per-share cash dividend, or the per-share fair market value (as determined by the Committee) of any dividend in consideration other than cash, paid by the Company on its Stock on a dividend payment date, plus any interest earned on such amount.
(h) “Effective Date” means March 5, 2014.
(i) “Employee” means, unless otherwise determined by the Committee, an employee of the Company (including an officer or director who is also an employee) other than an individual (a) employed in a casual or temporary capacity (i.e., those hired for a specific job of limited duration), (b) whose terms of employment are governed by a collective bargaining agreement that does not provide for participation in this Plan, (c) characterized as a “leased employee” within the meaning of Code Section 414(d) who is a non-resident alien, or (d) classified by the Company as a “contractor” or “consultant,” no matter how characterized by the Internal Revenue Service, other governmental agency or a court; provided, however, that the Committee shall have the discretion to determine on a case by case basis whether and to what extent an employee of an affiliate shall be deemed an Employee. Any change of characterization of an individual by any court or government agency shall have no effect upon the classification of an individual as an Employee for purposes of this Plan, unless the Committee determines otherwise.
(j) “Employed by, or providing service to, the Company” shall mean employment or service as an Employee of the Company, Key Advisor, or member of the Board (so that, for purposes of exercising Options and SARs and satisfying conditions with respect to Restricted Stock, Performance Units and Other Stock-Based Grants, a Participant shall not be considered to have terminated employment or service until the Participant ceases to be an Employee of the Company, 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.
(k) “Exchange Act” means the Securities Exchange Act of 1934, as amended.
(l) “Fair Market Value” means the average of the highest and lowest sales prices of a share of Stock on the New York Stock Exchange on the day on which Fair Market Value is being determined, as reported on the composite tape for transactions on the New York Stock Exchange. In the event that there are no Stock transactions on the New York Stock Exchange on such day, the Fair Market Value will be determined as of the immediately preceding day on which there were Stock transactions on that exchange. Notwithstanding the foregoing, in the case of a cashless exercise pursuant to Section 8(g), the Fair Market Value will be the actual sale price of the shares issued upon exercise of the Option.
(m) “Grant” means an Option, Stock Unit, Performance Unit, Stock Award, Dividend Equivalent, Stock Appreciation Right or Other Stock-Based Award granted under the Plan.
(n) “Grant Instrument” means the written agreement that sets forth the terms and conditions of a Grant, including all amendments thereto.
(o) “Incentive Stock Option” means a stock option that is intended to meet the requirements of Code Section 422, as described in Section 8.
(p) “Nonemployee Director” means a member of the Board who is not an employee of the Company.
(q) “Nonqualified Stock Option” means a stock option that is not intended to meet the requirements of Code Section 422, as described in Section 8.
(r) “Option” means an Incentive Stock Option or Nonqualified Stock Option to purchase Stock at the Option Price for a specified period of time.
(s) “Option Price” means an amount per share of Stock purchasable under an Option, as designated by the Committee.
(t) “Other Stock-Based Award” means any Grant based on, measured by or payable in Stock (other than Grants described in Sections 7, 8, 9, 10, 201311 and 12 of the Plan) as described in Section 13.
(u) “Participant” means an Employee, Nonemployee Director or Key Advisor designated by the Committee to participate in the Plan.
(v) “Performance Units” mean phantom units, as described in Section 10.
(w) “Plan” means this 2014 Equity Compensation Plan, as amended and restated, as in effect from time to time.
(x) “Stock” means the common stock of Safeguard Scientifics, Inc. or such other securities of Safeguard Scientifics, Inc. as may be substituted for Stock pursuant to Section 5(c) or Section 18.
(y) “Stock Appreciation Right” means an award of a stock appreciation right (“SAR”), as described in Section 7.
(z) “Stock Award” means an award of Stock, as described in Section 11.
(aa) “Stock Unit”means an award of a phantom unit, representing one or more shares of Stock, as described in Section 9.
| 3. | Administration |
(a) Committee. The Plan shall be administered and interpreted by the Committee or its successor; ministerial functions may be performed by an administrative committee comprised of Company employees appointed by 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 and conditions 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) amend the terms and conditions of any previously issued Grant, subject to the provisions of Section 21 below, and (v) deal with any other matters arising under the Plan.
(c) Committee Determinations. The Committee shall have full power and express discretionary 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.
| 4. | Grants |
Grants under the Plan may consist of grants of SARs as described in Section 7, Incentive Stock Options and Nonqualified Stock Options as described in Section 8, Stock Units as described in Section 9, Performance Units as described in Section 10, Stock Awards as described in Section 11, Dividend Equivalents as described in Section 12 and Other Stock-Based Awards as described in Section 13. All Grants shall be made conditional upon the Participant’s acknowledgement, in writing or by acceptance of the Grant, that all decisions and determinations of the Committee shall be final and binding on the Participant, his or her beneficiaries and any other person having or claiming an interest under such Grant. Grants under a particular Section of the Plan need not be uniform as among the Participants.
| 5. | Shares Subject to the Plan |
(a) Shares Authorized. Subject to adjustment as described below, as of the Effective Date, the total aggregate number of shares of Stock that may be issued under the Plan is the sum of the following (i) 2,200,000 new shares of Stock, plus (ii) that number of shares of Stock subject to outstanding Grants under the Plan as of March 5, 2014, plus (iii) that number of shares remaining available for issuance under the Plan but not subject to previously exercised, vested or paid Grants as of March 5, 2014. The shares may be authorized but unissued shares of Stock or reacquired shares of Stock, including shares purchased by the Company on the open market for purposes of the Plan. If and to the extent Options granted under the Plan terminate, expire, or are canceled, forfeited, exchanged or surrendered without having been exercised or if any SARs, Stock Awards, Stock Units, Performance Units, Dividend Equivalents or Other Stock-Based Awards are forfeited or terminated, the shares subject to such Grants shall again be available for purposes of the Plan. Shares of Stock surrendered or withheld in payment of the Option Price of an Option or any withholding taxes with respect to any Grant, shall not be available for issuance or transfer under the Plan. If SARs are exercised, the full number of shares subject to the SARs shall be considered issued under the Plan, without regard to the number of shares of Stock issued upon settlement of the SARs and without regard to any cash settlement of the SARs. To the extent that any other Grants are paid in cash, and not in shares of Stock, any shares previously reserved for issuance or transfer under the Plan with respect to such Grants shall again be available for issuance or transfer under the Plan. The preceding sentences of this Section shall apply only for purposes of determining the aggregate number of shares of Stock that may be issued under this Plan, but shall not apply for purposes of determining the maximum number of shares of Stock with respect to which Grants may be made to any Participant under this Plan. For the avoidance of doubt, if shares of Stock are repurchased by the Company on the open market with the proceeds of the Option Price of Options, such shares may not again be made available for issuance under this Plan.
(b) Individual Limits. Grants under the Plan may be expressed in cash, in shares of Stock or in a combination of the two, as the Committee determines. The maximum aggregate number of shares of Stock that shall be subject to Grants made under the Plan to any individual (other than a Nonemployee Director) during any calendar year shall be 250,000 shares, subject to adjustment as described below. A Participant may not accrue Dividend Equivalents during any calendar year in excess of $500,000. To the extent that Grants made under the Plan are expressed in dollar amounts, the maximum amount payable to any individual during any calendar year shall be $1,000,000. Notwithstanding anything to contrary herein, the maximum aggregate number of shares of Stock that shall be subject to Grants made under the Plan to any individual Nonemployee Director during any calendar year shall be 50,000, subject to adjustment as described below.
(c) Adjustments. If there is any change in the number or kind of shares of 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, (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 Stock as a class without the Company’s receipt of consideration, or if the value of outstanding shares of 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 Stock available for issuance under the Plan, the maximum number of shares of Stock with respect to which any individual may receive Grants in any year, the kind and number of shares covered by outstanding Grants, the kind and number of shares issued and to be issued under the Plan, and the price per share or the applicable market value of such Grants shall be equitably adjusted by the Committee, as the Committee deems appropriate, to reflect any increase or decrease in the number of, or change in the kind or value of, issued shares of 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 rounding any portion of a share down to the nearest whole number. In addition, the Committee shall have discretion to make the foregoing equitable adjustments
in any circumstances in which an adjustment is not mandated by this subsection (c) or applicable law, including in the event of a Change of Control. Any adjustments to outstanding Grants shall be consistent with Code Sections 409A or 422, to the extent applicable. Any adjustments determined by the Committee shall be final, binding and conclusive.
| 6. | Eligibility for Participation |
(a) Eligible Persons. All Employees, including Employees who are officers or members of the Board, and all Nonemployee Directors shall be eligible to participate in the Plan. Advisors who perform services at the Company’s request (“Key Advisors”) shall be eligible to participate in the Plan.
(b) Selection of Participants. The Committee shall select the eligible parties to receive Grants and shall determine the number of shares of Stock subject to each Grant.
| 7. | Stock Appreciation Rights |
(a) General Requirements. The Committee may grant SARs to Employees, Nonemployee Directors and Key Advisors 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 Option Price of the related Option or, if there is no related Option, the Fair Market Value of a share of Stock as of the Date of Grant of the SAR. In no event shall the base amount of the SAR be less than the Fair Market Value of a share of 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 Participant that shall be exercisable during a specified period shall not exceed the number of shares of Stock that the Participant may purchase upon the exercise of the related Option during such period. Upon the exercise of an Option, the SARs relating to the Stock purchased pursuant to such Option shall terminate. Upon the exercise of SARs, the related Option shall terminate to the extent of an equal number of shares of 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 Participant is employed by, or providing service to, the Company or during the applicable period after termination of employment. 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 Rule16b-3 under the Exchange Act.
(d) Value of SARs. When a Participant exercises SARs, the Participant 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, Stock or a combination thereof, as determined by the Committee. The stock appreciation for a SAR is the amount by which the Fair Market Value of the underlying 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 Stock, or a combination of the two, in such proportion as the Committee deems appropriate. For purposes of calculating the number of shares of Stock to be received, shares of Stock shall be valued at their Fair Market Value on the date of exercise of the SAR. If shares of Stock are to be received upon exercise of a SAR, cash shall be delivered in lieu of any fractional share.
| 8. | Options |
(a) General Requirements.The Committee may grant Options to Employees, Nonemployee Directors and Key Advisors upon such terms and conditions as the Committee deems appropriate under this Section 8.
(b) Number of Shares.The Committee shall determine the number of shares of Stock that will be subject to each Grant of Options.
(c) Type of Option and Price.
(i) The Committee may grant Incentive Stock Options or Nonqualified Stock Options, or any combination of Incentive Stock Options and Nonqualified Stock Options. Incentive Stock Options may be granted only to Employees of the Company or its parents or subsidiaries, as defined in Code Section 424. Nonqualified Stock Options may be granted to Employees, Nonemployee Directors and Key Advisors. If an Option is not specifically designated as an Incentive Stock Option, then the Option shall be a Nonqualified Stock Option.
(ii) The Option Price shall be determined by the Committee and may be equal to or greater than the Fair Market Value of a share of Stock on the Date of Grant; provided, however, that an Incentive Stock Option may not be granted to an Employee who, on the Date of Grant, owns stock possessing more than 10% of the total combined voting power of all classes of stock of the Company or any parent or subsidiary of the Company, as defined in Code Section 424, unless the Option Price per share is not less than 110% of the Fair Market Value of a share of Stock on the Date of Grant.
(d) Option Term. The Committee shall determine the term of each Option. The term of an Option shall not exceed ten years from the Date of Grant. However, an Incentive Stock Option that is granted to an Employee who, on the Date of Grant, owns stock possessing more than 10% of the total combined voting power of all classes of stock of the Company, or any parent or subsidiary of the Company, as defined in Code Section 424, may not have a term that exceeds five years from the Date of Grant.
(e) Exercisability of Options. Options shall become exercisable in accordance with such terms and conditions, as may be determined by the Committee and specified in the Grant Instrument. The Committee may accelerate the exercisability of any or all outstanding Options at any time for any reason. With the consent of the Committee, an Option may be exercised at a time prior to the time at which the Option would otherwise be fully exercisable, in which event the Participant shall receive shares of restricted stock (or be granted interests in restricted shares in a book entry system) on such terms and conditions as shall be determined by the Committee.
(f) Termination of Employment or Service. Except as provided in the Grant Instrument, or as otherwise may be determined by the Committee in its discretion, an Option may only be exercised while the Participant is employed by, or providing service to, the Company. The Committee shall specify in the Grant Instrument under what circumstances and during what time periods a Participant may exercise an Option after termination of employment or service.
(g) Exercise of Options. A Participant may exercise an Option that has become exercisable, in whole or in part, by delivering a notice of exercise to the Company or its designated agent. The Participant shall pay the Option Price and any withholding taxes for the Option:
(i) in cash,
(ii) with the approval of the Committee, by delivering shares of Stock owned by the Participant (including Stock acquired in connection with the exercise of an Option, subject to such restrictions as the Committee deems appropriate) and having an aggregate Fair Market Value on the date of exercise equal to the aggregate Option Price, or by attestation (on a form prescribed by the Committee) to ownership of shares of Stock having an aggregate Fair Market Value on the date of exercise equal to the aggregate Option Price,
(iii) by payment through a broker, provided the payment is made in accordance with procedures permitted by Regulation T of the Federal Reserve Board and such procedures do not violate applicable law, as determined by the Committee in its sole discretion, or
(iv) by such other method as the Committee may approve.
Shares of Stock used to exercise an Option shall have been held by the Participant for the requisite period of time to avoid adverse accounting consequences to the Company with respect to the Option. Payment for the shares pursuant to the Option, and any required withholding taxes, must be received by the time specified by the Committee depending on the type of payment being made.
(h) Limits on Incentive Stock Options. Each Incentive Stock Option shall provide that if the aggregate Fair Market Value on the Date of Grant with respect to which Incentive Stock Options are exercisable for the first time by a Participant during any calendar year, under the Plan or any other stock option plan of the Company or a parent or subsidiary, as defined in Code Section 424, 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, as defined in Code Section 424.
| 9. | Stock Units |
(a) General Requirements.The Committee may grant Stock Units to Employees, Nonemployee Directors and Key Advisors, upon such terms and conditions as the Committee deems appropriate under this Section 9. Each Stock Unit shall represent the right of the Participant to receive a share of Stock or an amount based on the value of a share of Stock. All Stock Units shall be credited to accounts on the Company’s records for purposes of the Plan.
(b) Terms of Stock Units. The Committee may grant Stock Units that are payable if specified performance goals or other conditions are met, or under other circumstances. Stock Units may be paid at the end of a specified period, or payment may be deferred to a date authorized by the Committee. The Committee shall determine the number of Stock Units to be granted, the requirements applicable to such Stock Units, and to the extent required by Code Section 409A, the specified payment events on which the Stock Units will be payable. Pursuant to the requirements of Section 12, the Committee may grant Dividend Equivalents with respect to Stock Units.
(c) Payment with respect to Stock Units. Payment with respect to Stock Units shall be made in cash, in Stock, or in a combination of the two, as determined by the Committee.
(d) Requirement of Employment, Service or Other Action.If a Participant ceases to be employed by, or providing service to the Company, or if other conditions established by the Committee are not met, the Participant’s unvested or contingent Stock Units shall be forfeited. The Committee may grant Stock Units contingent upon the Participant’s taking certain specified actions as the Committee sees fit, including, but not limited to, deferral of compensation by the Participant. The Committee may provide for complete or partial exceptions to the employment or service requirement as it deems appropriate.
| 10. | Performance Units |
(a) General Requirements.The Committee may grant Performance Units to an Employee or Nonemployee Director, upon such terms and conditions as the Committee deems appropriate under this Section 10. Each Performance Unit shall represent the right of the Participant to receive a share of Stock or an amount based on the value of a share of Stock, if specified performance goals are met. All Performance Units shall be credited to accounts on the Company’s records for purposes of the Plan.
(b) Terms of Performance Units.The Committee shall establish the performance goals and other conditions for payment of Performance Units. Performance Units may be paid at the end of a specified performance or other period, or payment may be deferred to a date authorized by the Committee. The Committee shall determine the number of Performance Units to be granted, the requirement applicable to such Performance Units, and to the extent required by Code Section 409A, the specified payment events on which the Performance Units will be paid. Pursuant to Section 12, the Committee may grant Dividend Equivalents with respect to Performance Units.
(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 have been 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 Stock, or in a combination of the two, as determined by the Committee. Payment of Performance Units shall be made as set forth in the Grant Instrument, and, if applicable, shall be structured to comply with Code Section 409A.
(d) Requirement of Employment or Service. If a Participant ceases to be employed by, or providing service to the Company, or if other conditions established by the Committee are not met, the Participant’s Performance Units shall be forfeited. The Committee may provide for complete or partial exceptions to the employment or service requirement as it deems appropriate.
| 11. | Stock Awards |
(a) General Requirements. The Committee may issue or transfer shares of Stock to an Employee or Nonemployee Director under a Stock Award, upon such terms and conditions as the Committee deems appropriate under this Section 11. Shares of Stock issued or transferred pursuant to Stock Awards may be issued or transferred for consideration or for no consideration (except as required by applicable law), and subject to restrictions or no restrictions, as determined by the Committee. The Committee may establish conditions under which restrictions on Stock Awards shall lapse over a period of time or according to such other criteria as the Committee deems appropriate, including restrictions based upon the achievement of specific performance goals. The period of time during which the Stock Award will remain subject to restrictions, if any, will be designated in the Grant Instrument as the “Restriction Period.”
(b) Number of Shares.The Committee shall determine the number of shares of Stock to be issued or transferred pursuant to a Stock Award and any restrictions applicable to such shares.
(c) Requirement of Employment or Service. If the Participant ceases to be employed by, or providing service to, the Company, or if other specified conditions are not met, the Stock Award shall terminate as to all shares covered by the Grant as to which the restrictions have not lapsed, and those shares of Stock must be immediately returned to the Company. The Committee may provide for complete or partial exceptions to the employment or service requirement as it deems appropriate.
(d) Restrictions on Transfer. During the Restriction Period, a Participant may not sell, assign, transfer, pledge or otherwise dispose of the shares of a Stock Award except upon death as described in Section 17. Each certificate for a share of Stock underlying a Stock Award shall contain a legend giving appropriate notice of the restrictions in the Grant. The Participant shall be entitled to have the legend removed from the stock certificate covering any shares as to which restrictions have lapsed. The Committee may determine that the Company will not issue certificates for shares of Stock underlying Stock Awards until all restrictions on such shares have lapsed, or that the Company will retain possession of certificates for shares of Stock underlying Stock Awards until all restrictions on such shares have lapsed. Alternatively, the Participant’s rights in the Stock Award shall be appropriately reflected in a book entry system maintained by the Company, and a stock certificate shall be issuable at the end of the Restriction Period.
(e) Right to Vote and to Receive Dividends. The Committee shall determine to what extent, and under what conditions, the Participant shall have the right to vote shares of Stock Awards and to receive any dividends or other distributions paid on such shares, during the Restriction Period. The Committee may determine that a Participant’s entitlement to dividends or other distributions with respect to a Stock Award shall be subject to achievement of performance goals or other conditions
| 12. | Dividend Equivalents |
The Committee may grant Dividend Equivalents in connection with Grants (other than Options and SARs) under the Plan, under such terms and conditions as the Committee deems appropriate under this Section 12. All Dividend Equivalents may be paid to Participants currently or may be deferred as determined by the Committee and set forth in the Grant Instrument. All Dividend Equivalents that are not paid currently shall be credited to accounts on the Company’s records for purposes of the Plan. Dividend Equivalents may be accrued as a cash obligation, or may be converted to Stock Units for the Participant. The Committee shall determine whether any deferred Dividend Equivalents will accrue interest. The Committee may provide that Dividend Equivalents shall be payable based on the achievement of specific performance goals. Dividend Equivalents may be payable in cash or shares of Stock or in a combination of two, as determined by the Committee.
| 13. | Other Stock-Based Grants |
The Committee may grant other awards that are based on, measured by or payable in Stock to Employees or Nonemployee Directors, on such terms and conditions as the Committee deems appropriate under this Section 13. Other Stock-Based Awards may be granted subject to achievement of performance goals or other conditions and may be payable in Stock or cash, or in a combination of the two, as determined by the Committee. The Committee may grant Dividend Equivalents with respect to Other Stock-Based Awards.
| 14. | Qualified Performance-Based Compensation |
(a) Designation as Qualified Performance-Based Compensation. The Committee may determine that Stock Units, Performance Units, Stock Awards, Dividend Equivalents or Other Stock-Based Awards granted to an Employee shall be considered “qualified performance-based compensation” under Code Section 162(m). The provisions of this Section 14 shall apply to any such Grants that are to be considered “qualified performance-based compensation” under Code Section 162(m). To the extent that Grants under this Plan designated as “qualified performance-based compensation” under Code Section 162(m) are made, no such Grant may be made as an alternative to another Grant that is not designated as “qualified performance-based compensation” but instead must be separate and apart from all other Grants made.
(b) Performance Goals. When Grants 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,
(ii) the period during which performance will be measured,
(iii) the maximum amounts that may be paid if the performance goals are met, and
(iv) any other conditions that the Committee deems appropriate and consistent with the Plan and the requirements of Code Section 162 for “qualified performance-based compensation.” 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 performance 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 that is payable upon achievement of the designated performance goals, but the Committee may reduce the amount of compensation that is payable upon achievement of the designated performance goals.
(c) Criteria Used for Objective Performance Goals. In setting the performance goals for Grants designated as “qualified performance-based compensation” pursuant to this Section 14, the Committee shall use objectively determinable performance goals based on one or more of the following objective criteria, either in absolute terms or in comparison to publicly available industry standards or indices: Stock price, earnings per share of Stock, return on assets, growth in assets, capital deployment, return on equity, change in net asset value, EBIT, EBITDA, earnings, revenue, operating margins and statistics, operating or net cash flows, financial return and leverage ratios, total stockholder returns, market share, or strategic business criteria consisting of one or more penetration goals, geographic business expansion goals, cost targets, revenue targets, customer satisfaction goals, product development goals, goals relating to acquisitions or divestitures, or any other objective measure derived from any of the foregoing criteria. In addition, in setting the performance goals for Grants not designated as “qualified performance-based compensation” for purposes of Code Section 162(m), the Committee may use such other goals as are developed in the Company’s operating plan for the performance period. The performance goals may relate to the Participant’s business unit, the performance of the Company as a whole, the performance of one or more of the Company’s partner companies, or any combination of the foregoing. Performance goals need not be uniform as among Participants.
(d) Timing of 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 Code Section 162(m).
(e) Announcement of Results. The Committee shall certify and announce the results for the performance period to all Participants after the Company announces 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 applicable Grants for the performance period shall be forfeited or shall not be paid as applicable.
(f) Death, Disability or Other Circumstances.The Committee may provide that Grants shall be payable or restrictions shall lapse, in whole or in part, in the event of the Participant’s death or disability during the performance period, a Change of Control or under other circumstances consistent with the Treasury regulations and rulings under Code Section 162(m).
| 15. | Deferrals |
The Committee may permit or require a Participant to defer receipt of the payment of cash or the delivery of shares that would otherwise be due to the Participant in connection with any Grant. If any such deferral election is permitted or required, the Committee shall establish rules and procedures for such deferrals as it shall determine in its sole discretion, consistent with the applicable requirements of Code Section 409A.
| 16. | 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 may require that the Participant or other person receiving or exercising Grants pay to the Company the amount of any federal, state or local taxes that the Company is required to withhold with respect to such Grants, or the Company may deduct from other wages paid by the Company the amount of any withholding taxes due with respect to such Grants.
(b) Share Withholding. At the Company’s election, or if the Committee so permits, with respect to a Participant, the Company’s tax withholding obligation with respect to Grants paid in Stock may be satisfied by having shares withheld, at the time such Grants become taxable, up to an amount that does not exceed the minimum applicable withholding tax rate for federal (including FICA), state and local tax liabilities, provided, however, that at the Company’s sole discretion, a Participant may be permitted to tender other shares of Stock to the Company to supplement such withholding, but only if such action is not in violation of applicable law and does not result in materially disadvantageous tax, accounting or financial results to the Company. If the Committee permits a Participant to elect share withholding, the Participant’s election must be in a form and manner prescribed by the Committee and may be subject to the prior approval of the Committee.
| 17. | Transferability of Options |
The transferability of Options granted under the Plan shall be governed by the following provisions:
(a) Incentive Stock Options. During the lifetime of the Participant, Incentive Stock Options shall be exercisable only by the Participant and shall not be assignable or transferable other than by will or the laws of inheritance following the Participant’s death.
(b) Nonqualified Stock Options — Limited Transferability. Except as otherwise specifically determined by the Committee, Nonqualified Stock Options shall be subject to the same limitation on transfer as Incentive Stock Options, except that the Committee may structure one or more Nonqualified Stock Options so that the Option may be assigned in whole or in part during the Participant’s lifetime to one or more family members of the Participant or to a trust established exclusively for one or more such family members, consistent with the applicable securities laws. The assigned portion may only be exercised by the person or persons who acquire a proprietary interest in the Option pursuant to the assignment. The terms applicable to the assigned portion shall be the same as those in effect for the Option immediately prior to such assignment and shall be set forth in such documents issued to the assignee as the Committee may deem appropriate.
(c) Beneficiary Designation. Notwithstanding the foregoing, the Participant may designate one or more persons as the beneficiary or beneficiaries of his or her outstanding Options, and those Options shall, in accordance with such designation, automatically be transferred to such beneficiary or beneficiaries upon the Participant’s death while holding those Options. Such beneficiary or beneficiaries shall take the transferred Options subject to all the terms and conditions of the applicable agreement evidencing each such transferred Option, including (without limitation) the limited time period during which the Option may be exercised following the Participant’s death.
| 18. | Consequences of a Change of Control |
(a) Notice and Acceleration. Upon a Change of Control, unless the Committee determines otherwise, (i) the Company shall provide each Participant who holds outstanding Grants with written notice of the Change of Control, (ii) all outstanding Options and SARs shall automatically accelerate and become fully exercisable, (iii) the restrictions and conditions on all outstanding Stock Awards shall immediately lapse, (iv) all Stock Units and Performance Units shall become payable in cash or in Stock in an amount not less than the Fair Market Value of the Stock or the Stock to which the units relate, as determined by the Committee, and (v) Dividend Equivalents and Other Stock-Based Awards shall become payable in full in cash or in Stock, in amounts determined by the Committee.
(b) Assumption of Grants. Upon a Change of Control where the Company is not the surviving corporation (or survives only as a subsidiary of another corporation), unless the Committee determines otherwise, all outstanding Options and SARs that are not exercised shall be assumed by, or replaced with comparable options by, the surviving corporation (or a parent or subsidiary of the surviving corporation), and other Grants that remain outstanding shall be converted to similar grants of the surviving corporation (or a parent or subsidiary of the surviving corporation).
(c) Other Alternatives. Notwithstanding the foregoing, subject to subsection (d) below, in the event of a Change of Control, the Committee may take any of the following actions with respect to any or all outstanding Grants, without the consent of any Participant: (i) the Committee may require that Participants surrender their outstanding Options or SARs in exchange for a payment by the Company, in cash or Stock as determined by the Committee, in an amount equal to the amount by which the then aggregate Fair Market Value subject to the Participant’s unexercised Options or SARs exceeds the aggregate Option Price or base amount, as applicable (if
any), or (ii) after giving Participants an opportunity to exercise their outstanding Options or SARs, the Committee may terminate any or all unexercised Options or SARs, at such time as the Committee deems appropriate, and (iii) with respect to Participants holding Stock Units, Performance Units, Dividend Equivalents or Other Stock-Based Awards, the Committee may determine that such Participants shall receive a payment in settlement of such Stock Units, Performance Units, Dividend Equivalents or other Stock-Based Awards, in such amount and form as may be determined by the Committee; provided, that the payment amount shall deliver an equivalent value for such settled award. Such surrender, termination or settlement shall take place as of the date of the Change of Control or such other date as the Committee may specify.
(d) Committee. The Committee making the determinations under this Section 18 following a Change of Control must be comprised of the same members as those members of the Committee immediately before the Change of Control. If the Committee members do not meet this requirement, the automatic provisions of subsections (a) and (b) shall apply, and the Committee shall not have discretion to vary them.
| 19. | Other Transactions |
The Committee may provide in a Grant Instrument that a sale or other transaction involving a subsidiary or other business unit of the Company shall be considered a Change of Control for purposes of a Grant or the Committee may establish other provisions that shall be applicable in the event of a specified transaction.
| 20. | Requirements for Issuance or Transfer of Shares |
No Stock shall be issued or transferred in connection with any Grant hereunder unless and until all legal requirements applicable to the issuance of such Stock have been complied with to the satisfaction of the Committee. The Committee shall have the right to condition any Grant made to any Participant hereunder on such Participant’s undertaking in writing to comply with such restrictions on the Participant’s subsequent disposition of such shares of Stock as the Committee shall deem necessary or advisable, and certificates representing such shares may be legended to reflect any such restrictions. Certificates representing shares of 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.
| 21. | Amendment and Termination of the Plan |
(a) Amendment. The Board may amend or terminate the Plan at any time; provided, however, that the Board shall not amend the Plan without approval of the stockholders of the Company if such approval is required in order to comply with the Code or applicable laws, or to comply with applicable stock exchange requirements. No amendment or termination of this Plan shall, without the consent of the Participant, impair any rights or obligations under any Grant previously made to the Participant, unless such right has been reserved in the Plan or the Grant Instrument, or except as provided in Section 23(b) below. Notwithstanding the preceding, the Board may amend the Plan at any time, without the consent of the Participant, to comply with applicable legal requirements or to ensure the various Grants awarded under this Plan maintain the designations given to them in the Plan, including, but not limited to, changes necessary to ensure an Option continues to be an Incentive Stock Option or to ensure qualified performance-based compensation continues to “qualified performance-based compensation” under Code Section 162(m).
(b) No Repricing without Stockholder Approval. Notwithstanding anything in the Plan to the contrary, the Committee may not reprice Options or SARs, or cancel outstanding Options or SARs in exchange for cash, nor may the Board amend the Plan to permit repricing or cancellation in exchange for cash of Options or SARs, unless the stockholders of the Company provide prior approval for such repricing or cancellation in exchange for cash. The term “repricing” shall have the meaning given that term in Section 303A(8) of the New York Stock Exchange Listed Company Manual, as in effect from time to time, or any other substantially equivalent successor rule.
(c) Stockholder Approval for “Qualified Performance-Based Compensation.” If Grants denominated as “qualified performance-based compensation” are awarded under Section 14 above, the Plan must be reapproved by the Company’s stockholders no later than the first stockholders’ meeting that occurs in the fifth year following the year in which the stockholders previously approved the provisions of Section 14, if additional Grants are to be made under Section 14 and if required by Code Section 162(m) or the regulations thereunder. Any such reapproval shall not affect outstanding Grants made within the five-year period following the year in which the previous approval was obtained.
(d) 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 stockholders. The termination of the Plan shall not impair the power and authority of the Committee with respect to an outstanding Grant.
| 22. | Effective Date of the Plan |
The Plan, as amended and restated herein, shall be effective on March 5, 2014, subject to the approval of the Company’s stockholders within 12 months of the Effective Date.
| 23. | 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, 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 in substitution for a grant made by such corporation. The terms and conditions of the substitute Grants may vary from the terms and conditions 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 the obligations of the Company to issue or transfer shares of Stock under Grants shall be subject to all applicable laws and to approvals by any governmental or regulatory agency as may be required. In addition, it is the intent of the Company that Incentive Stock Options comply with the applicable provisions of Code Section 422 and that, to the extent applicable, all other Grants comply with the requirements of Code Section 409A. To the extent that any legal requirement of Code Sections 422 or 409A as set forth in the Plan ceases to be required under Code Sections 422 or 409A, that Plan provision shall cease to apply. 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. In addition, it is the intent of the Company that the Plan and applicable Grants comply with the applicable provisions of Code Section 162(m). To the extent that any legal requirement of Section 16 of the Exchange Act or Code Section 162(m) as set forth in the Plan ceases to be required under Section 16 of the Exchange Act or Code Section 162(m), that Plan provision shall cease to apply. 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 without a Participant’s consent. The Committee may also adopt rules regarding the withholding of taxes on payments to Participants. The Committee may, in its sole discretion, agree to limit its authority under this Section.
(c) Code Section 409A. The Plan is intended to comply with the applicable requirements of Code Section 409A and the regulations promulgated thereunder, to the extent applicable, and shall be administered in accordance with Code Section 409A to the extent Code Section 409A is applicable to the Plan or any Grant hereunder. Each Grant shall be subject to such terms as the Committee determines and shall be construed and administered such that the Grant either (i) qualifies for an exemption from the requirements of Code Section 409A, or (ii) satisfies such requirements. Grants of Performance Units, Stock Units, and similar Other Stock-Based Awards shall be structured in a manner consistent with the requirements of Code Section 409A and distributions shall only be
made in a manner and upon an event permitted under Code Section 409A and, to the extent required under Code Section 409A, payments to a Participant who is a “specified employee” (within the meaning of such term under Code Section 40A) upon his or her separation from service shall be subject to a six-month delay and shall be paid within 15 days after the end of the six-month period following separation from service. All payments to be made upon a termination of employment or service shall only be made upon a “separation from service” under Code Section 409A. Except as permitted by Code Section 409A, in no event shall a Participant, directly or indirectly, designate the calendar year in which the distribution is made.
(d) Effect of Revisions to Accounting Standards or Applicable Law. In the event of revisions to accounting standards applicable to the Company or to applicable law, which revisions are viewed by the Committee as resulting in a material detriment to the Company, the Committee shall have the discretion to modify any Grant, Grant Instrument or related right or document issued under this Plan but only to the extent such modification does not result in a material detriment to the Participant.
(e) Enforceability. The Plan shall be binding upon and enforceable against the Company and its successors and assigns.
(f) Grants to Non-Exempt Employees. Options and SARs granted to persons who are non-exempt employees under the Fair Labor Standards Act of 1938, as amended, may not be exercisable for at least six months after the Date of Grant (except that Options and SARs may become exercisable, as determined by the Committee upon the Participant’s death, disability or retirement, or upon a Change of Control or other circumstances permitted by the applicable regulations).
(g) Funding of the Plan; Limitation on Rights. 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. Nothing contained in the Plan and no action taken pursuant hereto shall create or be construed to create a fiduciary relationship between the Company and any Participant or any other person. No Participant or any other person shall under any circumstances acquire any property interest in any specified assets of the Company. To the extent that any person acquires a right to receive payment from the Company hereunder, such right shall be no greater than the right of any unsecured general creditor of the Company.
(h) Rights of Participants. Nothing in this Plan shall entitle any Employee, Nonemployee Director or other person to any claim or right to receive 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 employment or service of the Company.
(i) No Fractional Shares. No fractional shares of 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.
(j) Employees Subject to Taxation Outside the United States. With respect to Participants who are subject to taxation in countries other than the United States, the Committee may make Grants on such terms and conditions as the Committee deems appropriate to comply with the laws of the applicable countries, and the Committee may create such procedures, addenda and subplans and make such modifications as may be necessary or advisable to comply with such laws.
(k) Governing Law. The validity, construction, interpretation and effect of the Plan and Grant Instruments issued under the Plan shall be governed and construed by and determined in accordance with the laws of the Commonwealth of Pennsylvania without giving effect to the conflict of laws provisions thereof.
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| IMPORTANT ANNUAL MEETING INFORMATION | ||||||||||||||
Electronic Voting Instructions Available 24 hours a day, 7 days a week! Instead of mailing your proxy, you may choose one of the voting methods outlined below to vote your proxy. VALIDATION DETAILS ARE LOCATED BELOW IN THE GRAY BAR. Proxies submitted by the Internet or telephone must be received by 11:59 p.m., Eastern Time, on May 21, 2014. | ||||||||||||||
 | Vote by Internet • Go towww.investorvote.com/SFE • Or scan the QR code with your smartphone • Follow the steps outlined on the secure website | |||||||||||||
Using ablack inkpen, mark your votes with anXas shown in this example. Please do not write outside the designated areas. | x | Vote by telephone • Call toll free 1-800-652-VOTE (8683) within the USA, US territories & Canada any time on a touch tone telephone. There isNO CHARGE to you for the call. • Follow the instructions provided by the recorded message The cumulative voting feature for the election of directors is available if you sign and return the proxy or vote in person at the annual meeting; however, it isnot available if you vote by telephone or the Internet. | ||||||||||||
Annual Meeting Proxy Card |
q IF YOU HAVE NOT VOTED VIA THE INTERNETOR TELEPHONE, FOLD ALONG THE PERFORATION, DETACH AND RETURN THE BOTTOM PORTION IN THE ENCLOSED ENVELOPE. q
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| A | Proposals — The Board recommends a vote FOR all nominees and FOR Proposals 2, 3 and 4. |
1. | ELECTION OF DIRECTORS—Nominees: | + | ||||||||||||||||||||||||
| For | Withhold | For | Withhold | For | Withhold | |||||||||||||||||||||
01 - Andrew E. Lietz | ¨ | ¨ | 02 - Stephen T. Zarrilli | ¨ | ¨ | 03 - Julie A. Dobson | ¨ | ¨ | ||||||||||||||||||
04 - Keith B. Jarrett | ¨ | ¨ | 05 - George MacKenzie | ¨ | ¨ | 06 - George D. McClelland | ¨ | ¨ | ||||||||||||||||||
07 - Jack L. Messman | ¨ | ¨ | 08 - John J. Roberts | ¨ | ¨ | 09 - Robert J. Rosenthal | ¨ | ¨ | ||||||||||||||||||
| ¨ | To cumulate votes, check box and write the name of the nominee(s) and the number of votes to be cast for each nominee in the space below. |
| For | Against | Abstain | For | Against | Abstain | |||||||||||||||
| 2. | Advisory resolution to approve the compensation of the Company’s named executive officers. | ¨ | ¨ | ¨ | 3. | Approval of the amended and restated 2004 Equity Compensation Plan. | ¨ | ¨ | ¨ | |||||||||||
| 4. | Ratification of the appointment of KPMG LLP as the Company’s independent registered public accounting firm for 2014. | ¨ | ¨ | ¨ | ||||||||||||||||
| B | Non-Voting Items |
| Change of Address— Please print new address below. | Comments— Please print your comments below. | |||
| C | Authorized Signatures — This section must be completed for your vote to be counted. — Date and Sign Below |
Please sign exactly as name(s) appear hereon. Joint owners should each sign. When signing as attorney, executor, administrator, corporate officer, trustee, guardian or custodian, please give full title.
Date (mm/dd/yyyy) — Please print date below. | Signature 1 — Please keep signature within the box. | Signature 2 — Please keep signature within the box. | ||||||
| / / | ||||||||
¢ | 1 UPX | + | ||||||||||||||||||||||||||
| 01T66B | ||||||||||||||||||||||||||||
Computershareis the stock transfer agent and registrar for Safeguard Scientifics, Inc.Computershareprovides you the flexibility to access information and process transactions using its toll-free shareholder services center, automated telephone support system and Internet capabilities.
Contacting Computershare
Please direct your inquiries and transaction requests toComputershareusing the options listed below:
| Telephone inquiries: | 1-800-736-3001 (U.S., Canada, Puerto Rico) | |
| 1-781-575-3100 (non U.S.) | ||
| 1-800-952-9245 (TDD) | ||
| E-mail inquiries: | web.queries@computershare.com | |
| Written requests: | Computershare Investor Services | |
| P.O. Box 43078 | ||
| Providence, RI 02940 |
Investor Centre
You also can manage your account online via Investor Centre, Computershare’s Web-based tool for
shareholders. Here you can view your account details, update your account information and process various
transactions. Registration is quick and easy. You can access The Investor Centre atwww.computershare.com/investor.
q IF YOU HAVE NOT VOTED VIA THE INTERNETOR TELEPHONE, FOLD ALONG THE PERFORATION, DETACH AND RETURN THE BOTTOM PORTION IN THE ENCLOSED ENVELOPE. q
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57
Proxy — Safeguard Scientifics, Inc.
THISPROXYIS SOLICITEDON BEHALFOF THE BOARD OF DIRECTORS OF SAFEGUARD SCIENTIFICS, INC.
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 Brian J. Sisko and Jeffrey B. McGroarty (or any substitutes they may appoint), as proxies to vote your shares, as you have instructed, at the annual meeting on May 22, 2014, 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 SIGN AND RETURN THE PROXY BUT DO NOT INDICATE HOW YOU WISH TO VOTE, THE PROXIES WILL VOTE (1) FOR ALL NOMINEES TO THE BOARD OF DIRECTORS; (2) FOR THE RESOLUTION TO APPROVE THE COMPENSATION OF THE COMPANY’S NAMED EXECUTIVE OFFICERS, AS DESCRIBED IN THE PROXY STATEMENT; (3) FOR APPROVAL OF THE AMENDED AND RESTATED 2004 EQUITY COMPENSATION PLAN; (4) FOR RATIFICATION OF THE APPOINTMENT OF KPMG LLP AS THE COMPANY’S INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR 2014; AND (5) AS THEY MAY DETERMINE, IN THEIR DISCRETION, WITH REGARD TO ANY OTHER MATTER PROPERLY PRESENTED AT THE MEETING.
IN THEIR DISCRETION, THE PROXIES ARE AUTHORIZED TO VOTE UPON SUCH OTHER MATTERS AS MAY PROPERLY COME BEFORE THE MEETING AND AT ANY ADJOURNMENTS OR POSTPONEMENTS OF THE MEETING.
UNLESS OTHERWISE INSTRUCTED, THIS PROXY WILL BE VOTED IN ACCORDANCE WITH THE RECOMMENDATIONS OF THE BOARD OF DIRECTORS.
(continued, and to be marked, signed and dated, on the reverse side)
