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Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED
DECEMBER 31, 1999 Commission File Number 1-5620
SAFEGUARD SCIENTIFICS, INC.
(Exact name of Registrant as specified in its charter)
PENNSYLVANIA 23-1609753
(State or other jurisdiction of (I.R.S. Employer ID No.)
incorporation or organization)
800 THE SAFEGUARD BUILDING
435 DEVON PARK DRIVE, WAYNE, PA 19087
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (610) 293-0600
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of Each Class on which registered
- ------------------- -------------------
COMMON STOCK ($.10 PAR VALUE) NEW YORK STOCK EXCHANGE
Securities registered pursuant to Section 12(g) of the Act: NONE
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
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Yes X No
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
Aggregate market value of common stock held by non-affiliates (based on the
closing price on the New York Stock Exchange) on March 17, 2000 was
approximately $9.3 billion. For purposes of determining this amount only,
Registrant has defined affiliates as including (a) the executive officers named
in Part III of this 10-K report, (b) all directors of Registrant, and (c) each
stockholder that has informed Registrant by March 17, 2000 that it is the
beneficial owner of 10% or more of the outstanding common stock of Registrant.
The number of shares outstanding of the Registrant's Common Stock, as of March
17, 2000 was 107,329,089, taking into account a 3-for-1 split of our Common
Stock effective March 20, 2000. Unless otherwise specifically stated, the
information in this report reflects this 3-for-1 split.
DOCUMENTS INCORPORATED BY REFERENCE
The following documents are incorporated by reference in this Form 10-K:
PART I
Item 1(b) Note 20 on pages 69-71 of the Annual Report to
Stockholders for the year ended December 31, 1999, which pages
are filed as part of Exhibit 13 hereto.
PART II
Items 5, 6,
7 and 8 Pages 35 to 74 of the Annual Report to Stockholders for the
year ended December 31, 1999, which pages are filed as part of
Exhibit 13 hereto.
PART III
Items 10, 11,
12 and 13 Definitive Proxy Statement relative to the May 11, 2000 annual
meeting of stockholders of Registrant, to be filed within 120
days after the end of the year covered by this Form 10-K
Report.
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PART I
ITEM 1. BUSINESS
Safeguard is a leader in incubating and operating what we believe to be the
premier developing technology companies in the Internet infrastructure market
with a focus on three sectors: software, communications and eServices. We
believe that the depth of our experience developing technology companies, our
focus on and expertise in the Internet infrastructure industry, and the reach of
our network, enable us to identify and attract companies with significant
potential for success in our target sectors. We intend to achieve our goal of
operating the premier network of Internet infrastructure companies by continuing
to build and refine our network to offer solutions, seamless connectivity and
eServices to businesses engaged in electronic commerce. As of March 17, 2000,
our network was comprised of over 200 companies, including partner companies of
Internet Capital Group and our Internet holding companies, incubators and
private equity funds.
For the past twenty years, Safeguard has been developing, operating and
integrating leading-edge entrepreneurial technology companies into our network
of partner companies. We have successfully capitalized on the major trends in
successive waves of innovations in information technology. We founded and built
Novell, Inc. in the 1980s to lead the computer networking industry, Cambridge
Technology Partners (Massachusetts), Inc. in the 1990s to lead the client/server
systems integration industry, and Internet Capital Group in the late 1990s to
lead the Internet business-to-business electronic commerce industry. We are now
building the next generation of partner companies to lead the Internet
infrastructure industry.
During 1999 we expanded our network by acquiring interests in 12 new partner
companies, including EXTANT, iMedium, Opus 360, SOTAS, and Vitts, for an
aggregate purchase price of $139 million. We also purchased 80% of aligne in
exchange for stock. In February 2000 we purchased the remaining 20% of aligne.
We successfully restructured our rights offering program for IPOs of our partner
companies in order to have the partner company offer shares to our shareholders
simultaneously with a traditional underwritten IPO. We renamed the program the
"Safeguard Subscription Program." Four of our partner companies have gone public
to date with a Safeguard Subscription Program as part of the IPO: Internet
Capital Group, US Interactive, Pac-West Telecomm, and eMerge Interactive.
Two of our companies announced the creation of new Internet-oriented
subsidiaries during 1999. Sanchez created eProfile, and USDATA created eMake.
SOTAS completed the acquisition of S3Net in January 2000.
In December 1999, Pacific Title/Mirage completed a merger with a public shell
company, raised $18 million in a private placement, and change its name to
LifeF/X.
Diable Research Corp. was sold for cash during 1999, and MultiGen-Paradigm
agreed in February 2000 to a sale of all of its stock for cash. That transaction
is currently pending.
In March 2000, we closed the sale to Textron Inc. 2,181,819 shares of our
common stock for $100 million in
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a private placement. Safeguard and Textron intend to work together to offer
consulting services to each other and their respective partner companies and
subsidiaries and explore a variety of potential strategic relationships with
each other.
Since January 1, 2000, we have acquired or agreed to acquire interests in 13
new partner companies, including the following. In February 2000, we acquired a
29% interest in fob.com. fob.com is a developer, builder and manager of vertical
purchasing hub sites that enable the electronic procurement of manufacturing
materials. In February 2000, we acquired a 39% interest in NexTone
Communications. NexTone is a developer of an Internet-based system that
integrates voice and data communications. In March 2000, we acquired a 42%
interest in WebTelecom, a provider of voice, chat, video and collaboration for
Web-based customer contact. In March 2000, we acquired a 45% interest in
Wireless Online, a provider of smart antenna solutions for wireless data
networks worldwide. In March 2000, we agreed to acquire a 38% interest in Mi8
Corporation, an application service provider that rents leading business
software applications over the Internet.
INDUSTRY OVERVIEW
Growth of the Internet and Electronic Commerce
The Internet is fundamentally changing the competitive landscape of
virtually every industry, creating enormous opportunities for companies to
expand and improve their businesses. Companies have begun to use the Internet to
create business-to-consumer and business-to-business networks to streamline
complex processes, purchase and sell goods, and exchange information among
fragmented groups of customers, manufacturers and distributors. As a result,
companies are increasingly realizing the value of a global online marketplace
that aggregates purchasers and sellers.
While the business-to-consumer electronic commerce market is significant in
size, estimated by IDC at $15 billion in 1998, the business-to-business
electronic commerce market is larger and is predicted to grow much more
dramatically. Forrester Research estimates that United States
business-to-business electronic commerce will grow from $109 billion in 1999 to
$1.3 trillion in 2003, accounting for 90% of the dollar value of electronic
commerce in the United States by 2003. Forrester Research estimates that the
total electronic commerce market worldwide will reach $3.2 trillion by 2003.
We believe that advances in Internet infrastructure technology are driving
the rapid growth in business-to-consumer and business-to-business electronic
commerce. As Internet infrastructure develops, companies will increasingly be
able to use fast, reliable and secure networks to connect themselves with their
customers and business partners to reduce sales, marketing and related expenses,
and to integrate their systems more efficiently.
Internet Infrastructure is Driving Growth in Electronic Commerce
The Internet provides a platform that enables the creation of efficient,
cost-effective applications and networks that facilitate electronic commerce.
The increasing functionality of Internet infrastructure is enabling the
automation and integration of established business processes. Businesses are
compelled to rapidly adopt these technological advances in order to retain their
competitive position. Moreover, the development of increasingly powerful
Internet electronic commerce solutions is redefining the markets in which
businesses compete. Sellers are able to cost-effectively access global markets,
streamline their sales, marketing and distribution operations, reduce their time
to market and efficiently distribute updated product information. Buyers can
improve their purchasing process and easily access current product information
and a broad range of
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products and services. We believe that Internet infrastructure technology has
enabled this efficient interaction with business partners and customers, which
is leading to dramatic growth in electronic commerce.
Electronic commerce depends upon a highly functional, fast, reliable and
secure Internet infrastructure. Accordingly, both electronic commerce companies
and established businesses are investing significant amounts in developing and
deploying their Internet infrastructure platforms. IDC estimates that worldwide
Internet infrastructure spending will grow from $366 billion in 1999 to $1.5
trillion in 2003. To meet these needs, a growing number of new companies
exclusively devoted to developing Internet infrastructure products and services
are being formed and funded. In addition, established businesses are committing
significant resources to developing Internet infrastructure businesses.
Opportunities for Developing Internet Infrastructure Companies
We believe there are significant opportunities for companies that create the
infrastructure that enables electronic commerce. We call these companies
Internet infrastructure companies. These companies provide Internet technology
and services to support electronic commerce with the goal of maintaining and
expanding their customers' competitive advantage by improving operating
efficiencies, decreasing time-to-market and creating new market opportunities.
We believe that the following sectors of the Internet infrastructure market
provide the most significant opportunities:
- Software. Software providers develop and market software applications,
tools and related services that support electronic commerce and integrate
business functions. These include procurement platforms, distributed
content management, web-based customer relationship management and supply
chain management applications, dynamic pricing platforms, enterprise and
Internet application integration, billing and payment systems and
additional applications that enable electronic commerce.
- Communications. Communications providers develop networks and design and
market products and services to support the communications infrastructure
required for all electronic commerce. Products and services provided by
these companies include network security and quality measurement software,
communications services including wireline and wireless broadband access
to Internet protocol networks, optical and Internet protocol-based network
infrastructure software and network management and optimization solutions.
- eServices. Providers of Internet-related services, or eServices, develop,
deploy and manage applications and Web sites to enable electronic commerce
and automate business processes. eService providers may also offer the
infrastructure to host applications from a centrally managed site.
Services provided by these companies also include strategic guidance and
implementation services that enable companies to take competitive
advantage of the Internet.
Challenges Facing Developing Internet Infrastructure Companies
We believe that to succeed in this rapidly evolving and highly competitive
market, developing Internet infrastructure companies with leading-edge
technologies and solutions need to understand the electronic commerce market for
Internet infrastructure products and services. In order to
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establish market leadership, these companies must accelerate the process of
developing a sustainable enterprise, commercializing their core product or
service offerings and bringing these products and services to market. In
addition to capital, these companies require the resources to address the
following challenges in establishing market leadership:
- Technology. The strategic assessment of technology market opportunities
and the design, development and commercialization of proprietary
technology solutions, as well as access to complementary technologies and
strategic partnerships.
- Management. The recruitment and retention of an effective senior
management team.
- Legal and Financial. The development of appropriate corporate, legal and
financial structures and the expertise to execute transactions.
- Marketing. The identification of the company's strategic market position
and the implementation of effective branding, launch and marketing
strategies.
- Operations. The establishment of facilities and administrative processes
to support the growing enterprise.
- Business Development. The creation of relationships that provide initial
reference customers, external marketing channels and growth through
strategic partnerships, joint ventures or acquisitions.
We believe that inadequate resources to address these challenges prevent
many companies with leading-edge technology from capitalizing on their potential
opportunity. To date, venture capital firms, the traditional source of capital
for emerging technology companies, have primarily focused on providing capital
and have not generally offered significant operational resources and support to
entrepreneurs. In addition, because venture capital firms generally possess a
short term investment strategy designed to quickly capitalize on their
investments, their companies often do not develop the type of collaboration that
promotes the interests and development of the other companies in which they have
investments.
OUR SOLUTION AND STRATEGY
Our objective is to partner with, incubate, operate and integrate into our
network the leading companies in the Internet infrastructure market. We believe
that our experience in developing technology companies, our focus on and
expertise in Internet infrastructure, and the reach of our network, which
includes Internet Capital Group's network of business-to-business electronic
commerce partner companies, enable us to identify and attract companies with the
greatest potential for success in this market and to assist these companies to
become market leaders. In addition, we believe our affiliation with Internet
Capital Group helps us strengthen our own business model and provides us insight
into the fast-evolving business-to-business electronic commerce market. As a
result, we are better able to anticipate the industry's needs for new Internet
infrastructure products and services, and we can use that knowledge to guide our
existing partner companies and to select new Internet infrastructure companies
to fill out our network. We believe that our network of 45 partner companies and
over 160 associated companies in which we hold indirect interests through
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our Internet holding companies, incubators and private equity funds is a unique
resource that provides us with competitive advantages in the development of
Internet infrastructure companies. The Safeguard network is broad and deep and
supports our development process from beginning to end.
Our strategy is to utilize our extensive network to meet the strategic and
operational needs of developing Internet infrastructure companies. In addition
to providing our partner companies with capital, we draw on our network
resources to offer strategic and operational services in a collaborative
environment that serves to accelerate their development and allows them to
rapidly capitalize on market opportunities. We are also able to make connections
for our infrastructure partner companies with potential customers because our
network includes a large number of business-to-business and other electronic
commerce companies, including companies in Internet Capital Group's network.
After a company achieves market success, we operate as a long-term partner,
providing our partners with ongoing access to our network resources and industry
relationships.
We dedicate teams to each of the three Internet infrastructure sectors that
we target. Each team is led by a senior executive with extensive industry
experience in that sector. Each team is responsible for all elements of the
acquisition and development of our partner companies, providing consistency to
the relationship between Safeguard and the developing company and between the
developing company and our network resources. In the execution of each element
of our development process, the sector team coordinates the use of our network
resources to leverage Safeguard's own capital and management resources.
Our process for identifying, developing and operating the leading Internet
infrastructure companies consists of the following five elements: sourcing,
selection, planning, execution, and operation. The first two, sourcing and
selection, refer to our methodology for identifying and assessing acquisition
opportunities. The last three, planning, execution and operation, refer to our
post-acquisition process for enhancing the value of our partner companies.
Sourcing
We primarily partner with companies that are focused on providing Internet
infrastructure solutions. We believe the knowledge base of our management team,
the sector expertise and relationships of our business teams, and the market
presence of the companies in our broad network, including the networks of
Internet Capital Group and our other Internet holding companies, incubators and
private equity funds, enable us to understand industry and technology trends in
order to target potential infrastructure technology leaders. Our software,
communications and eServices teams identify compelling market segments and have
the mandate to acquire interests in companies with technologies that best
address the needs in that segment.
We identify potential candidates through three types of sourcing processes.
Acquisition opportunities may be directly sourced, co-sourced or outsourced. We
estimate that the acquisitions that we have made over the past two years have
been derived in approximately equal numbers from each of these three sourcing
processes. Directly sourced opportunities are identified through the efforts of
the Safeguard management team and their network of industry and financial
contacts. Co-sourced opportunities are developed with Safeguard's incubators and
private equity funds or result
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from spinouts from existing partner companies. eMerge Interactive, Inc., which
was incubated by XL Vision, Inc., is an example of a co-sourced deal. OPUS360
Corporation is another example of co-sourcing, where an early stage investment
was made by one of our affiliated private equity funds, prior to Safeguard
participating in a second round financing. Our relationships with 11 private
equity funds, 10 of which are located on our campus, significantly expand our
universe of co-sourced partner company acquisition opportunities. Outsourced
opportunities come from the referrals, contacts and relationships of companies,
entrepreneurs, managers and consultants that comprise our network of industry
relationships. The technology professionals employed by our eService partner
companies are particularly effective resources of our outsourced network.
Selection
Our infrastructure sector teams rapidly identify and acquire those companies
which we believe have the potential to be a leader in their market and are
potentially synergistic with our network. Our ability to quickly and accurately
screen business plans and select the ones we believe are the most likely to
succeed is enhanced by our focus on Internet infrastructure companies and the
sectoral expertise of our business teams. This selection process is supported by
Safeguard's internal market research and trend analysis. On a monthly basis, we
evaluate external analyses and reporting, applying a proprietary methodology,
based on content analysis, to identify and anticipate emerging trends in the
Internet infrastructure market. This input is used to refine our selection
criteria for our three business sector teams.
When we identify a company that appears to meet our current criteria, we
evaluate the company's potential, relying on both our management's own expertise
and rapid input from sources of expertise within our network. For example, we
may call upon the specific expertise or experience of management at our partner
companies or funds, or we may call upon one of our partner service companies,
such as aligne incorporated, US Interactive, Inc. or Cambridge Technology
Partners, to perform a rigorous technology assessment. We may also call upon a
company in our network to implement and evaluate a promising technology on a
trial basis. We believe that these resources permit us to make highly informed
judgments concerning a company's potential more rapidly than competitors that do
not have similar resources. As a result of our business model and extensive
experience, we believe that we are able to complete acquisitions quickly and
efficiently.
We screen potential partner companies using the following primary criteria:
- Industry-Leading Technology. We focus on companies which we believe have
the potential to be leaders in their market and whose technology or
processes provide them with a competitive advantage which prevents
competitors from easily entering their market. In addition, we look for
companies with accomplished technical teams that we believe have the
skills to bring their concept to market quickly.
- Markets. We focus on companies that offer products and services to large
and rapidly growing markets. We favor markets that are sufficiently
developed for the company to start aggressively building its customer
base, although we will also acquire companies whose market opportunity
anticipates important trends that we have identified. We attempt to
assess a company's potential market share within its addressable market
by evaluating the level of competition presented by other infrastructure
companies, traditional businesses and potential
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market entrants. We favor companies with strong competitive positions
where there is no dominant Internet infrastructure participant in that
company's addressable market.
- Compelling Business Model. We place an emphasis on companies with
compelling, sustainable business models that exploit the low variable
cost structure enabled by the Internet. We target companies that we
believe have the potential to achieve and sustain high profit margins.
- Management. We believe that entrepreneurial leadership is essential. The
identification and development of entrepreneurs is central to our
history and culture. We target entrepreneurs who we believe demonstrate
the leadership skills required to guide the strategy and development of
an early- stage company. In addition, we target companies with highly
qualified executive teams that will be able to manage the rapid
organizational development that we expect our partner companies to
achieve.
- Fit with Safeguard Network. As we continue to build our network, we look
for companies which will complement our existing partner companies and
fill out our offering of Internet infrastructure services and products.
In addition, we look for companies that can create synergy with and
provide support to other companies in our network.
Among the companies that satisfy these criteria, we focus on acquiring
interests in companies that can benefit from services provided by us and our
network. In view of the operating resources we devote to the development of
companies, we seek opportunities to take a meaningful ownership position and
exercise significant operational influence. Our objective is to maintain an
interest of more than 30%, either directly or through our affiliated partner
companies or funds, while ensuring that management and key personnel still
retain a significant equity stake in the company, although where necessary, we
can structure solutions to achieve significant influence with lower ownership
levels. Generally, we are the largest single shareholder, exercise significant
influence over the company and obtain significant board representation. We
believe that by limiting our acquisitions to situations in which we can
establish a substantial economic and operational relationship, we are able to
make more efficient use of our capital and management resources and derive a
greater benefit from the addition of new partner companies to our network.
Planning
Once we acquire an interest in a partner company, we take an active role in
its strategic direction and provide operational support. Through our experience
in incubating and operating technology companies, we have developed a
methodology for accelerating our partner companies' success. This methodology
begins with the creation of a plan for accelerated development that we call our
120 Day Plan. Prior to closing an acquisition, we begin to work with a
prospective partner company to:
- define its near term strategic goals;
- identify the key milestones to reaching these goals;
- identify the business metrics that will be applied by Safeguard and the
markets to measure their success; and
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- identify potential synergies with Safeguard's network of companies.
To implement the partner company's 120 Day Plan, we conduct a needs
assessment to determine the nature and timing of the resources required to help
the company achieve its goals. We then either provide the company with
appropriate services and support from within Safeguard and its network or help
them identify and negotiate to obtain these services from third-party suppliers
or strategic partners. During the 120-day period, we help our partner companies
measure their progress and continually reassess their objectives and
requirements. By helping our partner companies' management teams remain focused
on their critical objectives and providing them with resources not typically
available to early stage companies, we believe we are able to significantly
accelerate their development and success.
Once a company has completed its early development process, we engage in an
ongoing planning and assessment process. Safeguard executives serve on the board
of directors of each of our partner companies and work with them to develop
their annual strategic plans. Achievement of their annual plans is monitored
through monthly reporting of strategic performance metrics and financial results
through the Safeguard intranet, in a standard format that we call a performance
dashboard. This planning and reporting system for our more mature partner
companies provides an efficient means for our management to identify when
additional involvement and support may be required.
Execution
Our objective in the execution of a new partner company's 120 Day Plan is to
permit the entrepreneur to remain focused on the company's core business
objectives. If the partner company does not have sufficient access to the
resources required to execute its plan, the Safeguard business partner
responsible for the company will seek to utilize our network to obtain the
required resources. We believe these services provide our partner companies with
significant competitive advantages in competing in their individual markets. The
resources our partner companies draw upon to accelerate their development
include the following:
Technology. Our history as a developer of technology companies provides us
with ample resources to support the technology development of a new partner
company. We and our partner companies frequently call upon our eService
providers such as aligne, US Interactive and Cambridge Technology Partners to
perform strategic and operational technology assessments and to provide support
for the commercialization of technology solutions. In light of the demand for
qualified technology workers, the hundreds of consultants, developers,
integration experts and other Internet and information technology specialists
within our network provide our partner companies with a unique competitive
advantage. They also permit us to acquire companies that possess break-through
technologies that require substantial development to reach commercialization.
Through our network we are also able to identify and provide preferred access to
complementary technologies and promote strategic partnerships with technology
leaders.
Management. Through our network, we have access to a depth and breadth of
entrepreneurial and operational talent that is frequently called upon to serve
on the board of directors or advisory boards of our partner companies, or in
temporary executive capacities during the rapid development of a new partner
company. We call these management resources our "virtual bench." We may also
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call upon our virtual bench when existing management needs to be augmented or
replaced. To respond to growth of the network and the increasing challenge of
acquiring top-quality management, we have designated a full time executive to
manage our virtual bench and to assist our partner companies in acquiring
top-quality management. We can also assist a partner company to respond to
temporary demands for additional highly qualified personnel through our
consulting and service companies. To manage additional project-based demand for
knowledge workers across our network, we are planning to install the human
resources enterprise application and exchange products of our partner company,
OPUS360.
Legal and Financial. In addition to the business partner responsible for the
acquisition and overall development of each partner company, we assign a
financial and legal partner to each new partner company. These professional
partners are involved in the due diligence preceding the acquisition and are
responsible for assessing financial and legal issues to be addressed during the
execution of the 120 Day Plan, including the recommendation of best practices
within their areas of expertise. The expertise of dedicated professional
partners remains available to our partner companies when they are seeking to
execute major corporate or other financial transactions.
Marketing. We provide our partner companies with strategic guidance
regarding market positioning, product launch and marketing and public relations.
Insights concerning market position are obtained from our internal research and
trend analysis and the collective intelligence of the companies within our
network concerning the development of the Internet infrastructure market. We
have hired a full-time executive to manage our network's marketing and public
relations needs and to coordinate our marketing efforts. This coordination is
expected to include underwriting a portion of our partner companies' expense for
co-branded marketing initiatives. In addition, we have acquired an interest in
Zero to Five, a marketing consulting firm focused on supporting early-stage
technology companies.
Incubation Facilities. Our incubation facilities partner, TechSpace, is
developing flexible, technologically supported incubation space currently in New
York, with additional U.S. and international locations to be established this
year. Our corporate campus in suburban Philadelphia hosts 115,000 square feet of
flexible office space that is home to Safeguard, Internet Capital Group, 10
private equity funds, the Eastern Technology Council, and from time to time,
resident entrepreneurs.
Business Development. Our business and professional partners offer
assistance in identifying, evaluating, structuring and negotiating joint
ventures, strategic alliances, joint marketing agreements, acquisitions and
other corporate transactions. In addition, we offer our partner companies a
variety of services designed to reduce their operating costs, enable them to
focus on product development and marketing and accelerate their time-to-market
with new products and services. Most importantly, our network of approximately
200 companies provides opportunities for synergistic business development to new
partner companies. As part of the 120 Day Plan, new partner companies are asked
to identify and prioritize the business relationships that they would like to
establish within our network. Our business partners then work closely with the
partner company to support the formation of these relationships. This active
promotion of collaborative opportunities within our network is central to our
operating strategy and continues well beyond the 120 Day Plan.
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Operation
Our business model is to incubate, integrate and operate a network of
leading Internet infrastructure partner companies. We believe our operating
model gives us and each of our partner companies an advantage over other
developing companies that do not have access to the same network of resources.
We also believe our model provides advantages over large established companies
that do not have the necessary entrepreneurial agility to compete in an
emerging, rapidly changing market like the Internet infrastructure market. By
operating through independent companies, we can attract talented entrepreneurs
to run our businesses and we can partner with emerging companies that are
creating ground-breaking technologies and services. We insist that our
entrepreneurs own significant equity stakes in their companies to provide
maximum financial incentive for excellence to each member of our network. We
operate as partners, in a horizontal organizational structure, in order to
encourage our partners' entrepreneurial energy and creative talents.
We believe that our collaborative network is particularly effective in
benefiting Internet infrastructure companies. We promote the sharing of
knowledge, industry experience and business contacts that serve to accelerate
technology development and encourage cross-selling and marketing opportunities.
We believe that the sharing of information and development of strategic
relationships among our partner companies provides them with a competitive
advantage in the Internet infrastructure market. For example, CompuCom Systems,
Inc. and Cambridge Technology Partners have a substantial number of well
established customer relationships with businesses implementing electronic
commerce strategies, and can act as powerful marketing and distribution partners
for our Internet infrastructure partner companies. In addition, we seek to
leverage the aggregate purchasing power of our network of partner companies to
reduce their individual costs of obtaining third party services and products.
Our partner companies also capitalize on the industry relationships of our
management team and board of directors to facilitate strategic partnerships,
technology licensing agreements, distribution arrangements and co-marketing
relationships with other technology companies. In addition, we promote
collaboration through making introductions, conducting seminars and conferences,
identifying prospective alliances and monitoring the ongoing relationships among
our partner companies. Safeguard arranges several annual conferences for its
partner companies, including the "Think Again" annual conference, the annual
senior partners meeting, the annual chief financial officers' conference and
smaller on-campus and off-site conferences. We promote communication among our
partner companies through our extranet which we are continuing to develop to
more efficiently manage available resources and aggregate demand across our
network of partner companies.
We continually seek to promote ways for our more mature companies to
contribute to the strength of our network. Unlike venture capital funds, we
maintain significant ownership in and participate in the operations of our
partner companies after they go public, and we continue to engage them in our
network of companies. We may acquire additional interests in our public partner
companies if we believe they are undervalued, and have recently supported the
creation of public partner company spin-offs and development funds. We believe
our business model grows more effective with the addition of each new partner
company to our operating network.
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THE SAFEGUARD NETWORK
Our network consists of over 200 companies. We hold direct interests in 45
companies, which we call partner companies, and indirect interests in over 160
additional companies, which we call network companies, through Internet Capital
Group and our other Internet holding companies, incubators and private equity
funds.
Of our 45 partner companies, 26 companies are primarily engaged in the
Internet infrastructure business. Many of the remaining companies are engaged in
businesses which add value to our network or are repositioning to focus on the
Internet infrastructure business. The following overview provides a summary of
our Internet infrastructure companies, which are core to our operating strategy
and representative of our future acquisition strategy. This overview also
describes the role of our other partner companies in our strategy, including our
business-to-business electronic commerce companies, the companies that enhance
our operations, and the Internet holding companies, incubators and private
equity funds that, through their own growth strategies, continue to expand our
network.
We focus on developing and operating three types of Internet infrastructure
companies: software providers, communications providers, and eServices
providers. As of March 17, 2000, the following are our core Internet
infrastructure partner companies:
Software Communications eServices
Arista Extant aligne
e-Profile Integrated Visions Cambridge Technology Partners
eMake NexTone Communications iMedium
fob.com Pac-West Telecomm Mi8 Corporation
LifeF/X PrivaSeek OPUS360
RealTIME Media SOTAS TechSpace LLC
Sanchez Vitts Networks US Interactive
USDATA Who? Vision Zero to Five
WebTelecom
Wireless Online
e-Profile is currently a wholly-owned subsidiary of Sanchez and eMake is
currently a wholly-owned subsidiary of USDATA.
The following tables provide a summary of our Internet infrastructure
partner companies in our three core sectors. Our ownership positions in the
following tables have been calculated as of March 17, 2000, based on the issued
and outstanding voting securities of each partner company, assuming the issuance
of voting securities on the conversion or exercise of non-voting preferred
stock, but excluding the effect of options, warrants and convertible debt. Our
ownership percentages in certain of the partner companies described below
include equity interests that we have granted to our management subject to the
restrictions of our long-term incentive plan. Our ownership percentage assumes
the purchase by Safeguard of equity securities upon satisfaction or waiver of
all partner company funding conditions. See Notes 4, 5 and 18 of Notes to
Consolidated Financial Statements for information about the market value as of
December 31, 1999 of our holdings in our publicly traded partner companies and
publicly traded companies that we account for as available for
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sale.
Software
Software providers develop and market software applications, tools and
related services that support electronic commerce and integrate business
functions. These include distributed content management, web-based customer
relationship management applications and supply chain management applications,
procurement platforms, dynamic pricing platforms, enterprise and Internet
application integration, billing and payment systems and additional applications
that enable electronic commerce.
% OWNED
COMPANY DESCRIPTION OF BUSINESS BY US
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Arista Knowledge A provider of web-based infrastructure technology which 45%
Systems, Inc............... enables enterprises and web businesses to manage,
(www.aristasys.com) distribute, track, and sell educational and training content
in a user-friendly environment. The company is a
development stage company.
eMake Corporation.......... A wholly-owned subsidiary of USDATA that provides 38%(a)
(www.emake.com) Internet-based real-time manufacturing process control
applications to help manufacturers to determine what to
produce and the optimal way to produce, and to gain
insight into production processes along the supply chain.
The company commenced operations during the third
quarter of 1999 and has begun delivering its applications to
customers. The company currently plans to provide
application hosting services for companies that prefer not
to implement the application internally.
e-Profile, Inc............. A wholly-owned subsidiary of Sanchez Computer 26%(a)
(www.e-profile.com) Associates that provides outsourced data processing
operations, bank operations and vendor and integration
management services to direct and Internet banks based on
Sanchez's PROFILE/Anyware software. The company's
services enable a bank to become operational with Internet
banking services in as few as 90 days.
fob.com Inc................ A developer, builder and manager of business-to-business 29%
(www.fob.com) purchasing hub web sites that enable the electronic
procurement of manufacturing materials. The company's
proprietary software, called "Centralized Aggregate
Purchasing System," powers its purchasing hubs. The
company's first purchasing hub, fobchemicals.com, began
operations in November 1999 and currently plans to
introduce its second purchasing hub, fobpaper.com, in March 2000.
LifeF/X, Inc............... The successor to Pacific Title/Mirage, the company is 23%
(www.pactitle.com) developing a "face" for the Internet through photo-realistic
(OTC BB: LEFX.OB) digital human images, called "standins," that can be
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quickly downloaded from the company's web site and can
communicate over the Internet in real time at rates as low
as 28.8 kilobits per second. The company plans to offer
these standins to provide electronic commerce businesses
an increased level of customer service and personalization.
The company also currently plans to offer standins for use
by consumers as personalized models for chat, instant
message and email environments.
RealTIME Media, Inc........ A full-service online direct marketing company that uses 43%
(www.realtimemedia.com) innovative promotional techniques to create awareness,
build traffic, and generate leads for its Internet and
traditional clients. The company was originally formed
to be an Internet promotional services company and is an
industry pioneer in online promotions, instant-win, and
sweepstakes technologies. Since then, the company has
evolved into a full solution provider for attracting and
keeping customers for both online and combination
online/offline companies.
Sanchez Computer A global provider of comprehensive enterprise banking 26%
Associates, Inc............ software called PROFILE(R) for financial services
(www.sanchez.com) organizations worldwide. The primary module, called
(Nasdaq: SCAI) PROFILE/Anyware, is a multi-currency, multi-language,
multi-bank transaction processing system which supports
deposit, loan, customer and bank management requirements
through multiple distribution channels, including
the Internet.
USDATA Corporation......... A global supplier of component-based production software 38%
(www.usdata.com) designed to help customers reduce operating costs, shorten
(Nasdaq: USDC) cycle times and improve product quality in their
manufacturing operations. The company's software enables
manufacturers to access accurate and timely information -
whether they are on the plant floor, in the office, or
around the globe.
- --------------
(a) This company is a wholly-owned subsidiary of an existing partner company.
Our ownership percentage reflects our ownership position in its parent.
Communications
Communications providers develop networks and design and market products and
services to support the communications infrastructure required for all
electronic commerce. Products and services provided by these companies include
network security and quality measurement software, communications services
including wireline and wireless broadband access to Internet protocol networks,
optical and Internet protocol-based network infrastructure software and network
management and optimization solutions.
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% OWNED
COMPANY DESCRIPTION OF BUSINESS BY US
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Extant, Inc............. A global facilities-based provider of wholesale fiber 21%
(www.extant.net) backbone service, telecommunications interconnectivity and
clearinghouse solutions to a variety of communications
providers and Internet service providers. The company
offers its customer community simple ways to grow
their business, drive revenues and profits, and improve
performance.
Integrated Visions, An XL Vision company that provides network security 49%
Inc..................... solutions using biometric authentication, initially to the
(www.integratedvisions.com) healthcare industry. The company's solutions enable secure
and convenient access to computerized patient information
on intranets, extranets, and across the Internet. The
company's suite of products simplifies logon to
applications while increasing security. The company is
in the early stages of commercializing its products
and solutions.
NexTone A developer of an Internet-based system that allows 39%
Communications communications service providers to offer voice-data
Inc..................... integration services over broadband connections in a simple
(www.nextone.com) and cost-effective way. These value-added services include
Internet-based virtual private networks, distributed
private branch exchanges (PBXs) and PBX extensions.
The company is currently a development-stage company.
Pac-West An integrated communications provider committed to 7%
Telecomm, Inc........... providing usage-intensive customers, including Internet
(www.pacwest.com) service providers, medium and small businesses and enhanced
(Nasdaq: PACW) communications service providers, a single source for all
their communications needs. Pac-West provides Internet
access and other Internet infrastructure services to
Internet service providers, who can either co- locate
and maintain their own equipment at Pac-West's switching
sites, or subscribe to an integrated managed modems
service that includes access lines, modems, routers,
authentication service, and technical support. The
company currently offers service in California, Nevada and
Washington, and currently plans to continue to expand
its operations to cover the western U.S.
PrivaSeek, Inc.......... A provider of permission marketing and privacy management 33%
(www.privaseek.com) solutions for electronic commerce. PrivaSeek designs,
builds and manages systems and services that bring
businesses and consumers together in a permission-based
relationship. These systems and services enable
businesses to benefit from richer, more accurate consumer
information, thus optimizing the effectiveness of their
marketing investment. Consumers are empowered to
control, manage and benefit from this information exchange.
SOTAS, Inc.............. A provider of end-to-end telecommunications network 75%
(www.sotasinc.com) monitoring and integrity testing solutions that measure the
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quality and efficiency of service provided by communications
and Internet access providers. SOTAS provides flexible
and powerful information-based solutions in the network
signaling, data management and bandwidth management
arenas. bandwidth management arenas.
Vitts Networks, Inc..... An integrated communications provider that offers single 48%
(www.vitts.com) source business data communications services, including
high-speed Internet access, web and server hosting,
network management and outsourcing services and continuous
network monitoring coupled with technical support. The
company distributes its services through a direct sales
force, affiliated resellers and Internet service
providers and is deploying its advanced technology
Protected Service Network, which currently serves
customers throughout the New England area of the U.S.
WebTelecom, Inc. A provider of voice, chat, video, and collaboration for 42%
(www.webtele.com) Web-based customer contact. WebTelecom's ASP service
deploys voice-based customer support over the Internet.
This full-featured, standards-based service is
non-intrusive and delivers natural real-time voice
conversation.
Who? Vision An XL Vision company that is a provider of secure 29%
Systems, Inc............ identification technology that enables individuals to
(www.whovision.com) electronically authenticate ("e-Thenticate"(TM)) their
identities to access digital networks and maintain
digital privacy. The company applies patented imaging
technologies to create reliable, cost-effective
fingerprint authentication solutions and a secure
platform that manages digital identities including
digital certificate management for business-to-consumer
and business-to-business transactions. The company
is currently in the development stage.
Wireless Online, A provider of smart antenna solutions for wireless data 45%
Inc. networks worldwide. The company's solutions combine
(www.wireless- advance digital signal processing and radio frequency
online.com) technologies, next generation antenna design, and
proprietary software and electronics, enabling wireless
data service providers to greatly improve the coverage,
quality, and capacity of their networks.
eServices
Providers of Internet-related services, or eServices, develop, deploy and
manage applications and Web sites to enable electronic commerce and automate
business processes. eService providers may also offer the infrastructure to host
applications from a centrally managed site. Services provided by these companies
also include strategic guidance and implementation services that enable
companies to take competitive advantage of the Internet.
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% OWNED
COMPANY DESCRIPTION OF BUSINESS BY US
------- ----------------------- -----
aligne incorporated... An information technology management consulting firm that 100%
(www.aligne.com) assists senior executives in optimizing their companies'
investments in technology. aligne offers businesses a
variety of services ranging from electronic
business/electronic commerce strategy development
to applications development and infrastructure support
by leveraging the capabilities of the Safeguard partner
companies as an end-to-end solutions provider for
small, medium and large enterprises.
Cambridge A global provider of Internet professional services, 16%
Technology management consulting and system integration services to
Partners transform its clients into electronic businesses. Cambridge
(Massachusetts), believes it combines a deep understanding of electronic
Inc................... commerce issues with integrated, end-to-end services and a
(www.ctp.com) record of shared risk and rapid, guaranteed delivery.
(Nasdaq: CATP)
iMedium, Inc.......... A developer of an interactive visual platform for 30%
(www.imedium.com) conducting commerce on the Internet. Through its
patent-pending, proprietary see!Commerce(TM) technology,
iMedium's business-to-business and business-to-customer
customers can embed electronic commerce and advertising
links into contextual scenes, photos or still images on
the Internet, as well as in other visual content such
as product catalogs and technical illustrations. iMedium's
commerce infrastructure centrally manages the network
of content, merchant and advertiser links and hosts
all related media assets. This enables customers to
manage the deployment of their interactive presence
across the Internet through a single extranet
application and point of contact.
Mi8 Corporation An Application Service Provider (ASP) that rents leading 38%
(www.mi8.com) business software applications over the Internet. Mi8
supports access to such applications via secure, high
speed Internet connections and wireless devices. Mi8's
initial target market is small and medium sized
businesses. Working with Safeguard partner companies
including CompuCom and Extant, Mi8 is developing
a turnkey solution for netsourced IT, including
hardware, applications, connectivity, help desk services,
training and lease financing.
OPUS360 A provider of an integrated, web-based solution for putting 9%
Corporation........... people and projects together across the labor supply chain.
(www.opus360.com) The company provides a business-to-business electronic
commerce platform that enables free agents, such as
independent professionals, consultants and other
knowledge workers with technology, creative, strategic
consulting and
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other expertise, to connect with buyers of project-based
resources. The company also maintains a website,
freeagent.com, based on its solution, which operates as an
on-line marketplace for companies and workers. OPUS360 is
currently in registration for its initial public offering.
TechSpace LLC......... An incubator that provides facilities and Internet-based 49%
(www.techspace.com) support services to start-up Internet companies. TechSpace
is currently hosting 35 companies in approximately 40,000
square feet of space in New York and is developing
additional facilities in New York, San Francisco and
Boston. The company currently plans on developing
additional facilities internationally.
US Interactive, Inc... A provider of Internet professional services helping 13%
(www.usinteractive. companies take advantage of the business opportunities
com) presented by the Internet. The company provides integrated
(Nasdaq: USIT) Internet strategy consulting, marketing and technology
services that enable clients to align their people,
processes and systems to form an electronic enterprise
using its proprietary e-Roadmap(R) delivery platform,
IVL Methodology(SM), and CAPTURE(SM) -- an extranet
relationship management tool.
Zero to Five LLC...... A marketing and communications consulting firm focused on 33%(b)
(www.zeroto5ive.com) supporting early-stage technology companies to develop
their early brand and communications
strategy during the critical transition
from business plan to market launch.
- --------------
(b) Assumes the conversion into equity securities of a convertible loan
currently outstanding to Zero to Five by Safeguard
Other Companies That Enhance Our Network
An important part of our strategy is to maintain long-term relationships
with partner companies that add value to our network. Several of our companies
engage in business-to-business electronic commerce, which complements our
Internet infrastructure business in many ways. Certain partner companies can
provide services, technologies, or distribution channels to our other companies,
act as test sites for our companies' new products and services, or are potential
customers for them. Some of our partner companies follow Safeguard's operating
model of acquiring interests in, incubating, and operating their own network of
Internet companies, which expands the reach of our network. Still other
companies in our network help us to validate our market assumptions or obtain
competitive intelligence. Many of our partner companies fulfill more than one of
the above roles.
Internet Capital Group. Part of our existing business is developing and
operating our business-to-business electronic commerce partner companies, of
which Internet Capital Group is the most significant. These companies are an
important resource for our Internet infrastructure partner companies. Internet
Capital Group was founded in 1996 by Safeguard executives who anticipated the
transformational effect of Internet business-to-business electronic commerce
markets. The company
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has creatively adapted our operating model to establish itself as a leading
network of business-to-business electronic commerce companies. Internet Capital
Group's network consists of over 50 companies, including VerticalNet, Inc.,
which owns and operates over 50 online trading communities. Internet Capital
Group is headquartered on our corporate campus, we remain its largest
shareholder and executives from each company serve on the other's Board of
Directors. We believe our affiliation with Internet Capital Group helps us
strengthen our own business model and provides us insight into the fast-evolving
business-to-business electronic commerce market. As a result, we are better able
to anticipate the industry's needs for new Internet infrastructure products and
services, and we can use that knowledge to guide our existing partner companies
and to select new Internet infrastructure companies to fill out our network.
Internet Capital Group's network of business-to-business market-maker companies
also constitutes a significant group of potential customers for our Internet
infrastructure partner companies. In addition, Safeguard and Internet Capital
Group have collaborated in the funding and development of companies such as
eMerge Interactive, Inc., US Interactive and PrivaSeek. We believe that the
relationship between Safeguard and Internet Capital Group strengthens our
respective partner companies and creates a powerful combined network of
companies to enable the growth of electronic commerce.
Other Business-to-Business Electronic Commerce Companies. In addition to
Internet Capital Group and its network of business-to-business electronic
commerce companies, we also have direct interests in two significant
business-to-business electronic commerce partner companies: eMerge Interactive,
which completed its initial public offering in February 2000, and AgWeb.com,
Inc. These companies have powerful business models designed to capture large
segments of the livestock and agricultural markets for electronic commerce, and
add significant value to our electronic commerce business.
CompuCom. CompuCom Systems, Inc., our majority-owned subsidiary, plays a key
role in the implementation of our strategy. CompuCom is a leading provider of
information technology products and services to over 5,000 businesses throughout
the United States, including many Fortune 1000 companies, with over $2.9 billion
in 1999 revenues. CompuCom provides a substantial distribution channel and often
serves as a test site for our other partner companies' products and services.
CompuCom is also continuing to develop its own suite of Internet infrastructure
services, including distribution and configuration of Internet access devices
and network design and support.
Internet Holding Companies and Incubators. In addition to Internet Capital
Group, we are involved in the management of and maintain holdings in a number of
Internet holding companies and incubators that complement our operating strategy
and enhance the value of our network. These include: XL Vision, Inc., our
incubation laboratory that identifies or invents paradigm-shifting technologies
and incubates businesses built around those technologies; TechSpace Ventures
LLC, organized to fund the incubation of selected TechSpace LLC resident
companies; and Redleaf Group, LLC, an Internet holding company that engages in
the development of electronic commerce through a network of partner companies
which it incubates and operates. As each of these companies applies its
resources and capital to grow its own network of Internet companies, the growth
of Safeguard's network will continue to accelerate.
Additional Partner Companies. Our additional partner companies are primarily
providers of information technology products and services and
business-to-consumer electronic commerce companies. Several of these companies
are actively seeking to develop or expand their Internet
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infrastructure offerings. They include: 4anything.com, Inc., ChromaVision
Medical Systems, Inc., DocuCorp International, Inc., The Basketball Network LLC,
d/b/a HoopsTV.com, Kanbay LLC, Nextron Communications, Inc., OAO Technology
Solutions, Inc., QuestOne Decision Sciences Corporation and Tangram Enterprise
Solutions, Inc. Tangram, a majority-owned subsidiary of Safeguard, is a provider
of enterprise-wide information technology solutions including asset tracking and
electronic software distribution for large computing environments.
Private Equity Funds. In addition to our operating partner companies, we
participate in managing nine private equity funds, and we are a limited partner
in two additional private equity funds. These funds currently invest primarily
in early-stage, rapidly growing Internet and other technology companies. These
funds, ten of which are located on Safeguard's corporate campus, augment our
network by providing us with an expanded base to conduct our operations.
Investors in these funds increase our network's capital base and facilitate
strategic partner development. The funds also increase the geographic
penetration of our network, maintaining offices in Palo Alto, New York, Los
Angeles, Boston and Austin. The personal relationships and expertise of the
professionals employed by these funds are important resources for developing and
evaluating acquisition opportunities. Safeguard frequently refers opportunities
that do not fit Safeguard's Internet infrastructure operating strategy to an
appropriate fund. The funds may pursue broader investment strategies and may
invest at earlier stages and at less significant ownership percentages than
Safeguard. The diversification within the funds allows Safeguard, through its
network, to stay abreast of a broader range of emerging technologies, to
maintain relationships with a greater number of promising entrepreneurs and to
evaluate perceived shifts in technologies.
The aggregate capital commitment of these funds is $2.0 billion. The funds
made over 50 new investments in 1999 and had over 120 companies in their
portfolios at December 31, 1999. The funds typically have a seven to ten-year
life. Following is a list of these funds:
TL Ventures (4 funds)
SCP Private Equity Partners
Cambridge Technology Capital Fund
Invemed Catalyst Fund
Pennsylvania Early Stage Partners
EnerTech Capital Partners (2 funds)
Safeguard International Fund
MECHANISMS TO REALIZE SHAREHOLDER VALUE
Our principal mission is to promote long-term shareholder value for our own
shareholders and for shareholders of our partner companies. To promote the
entrepreneurial spirit upon which each partner company was founded, we encourage
our partner companies to go public. By going public, a partner company enables
its management and employees to realize the value they have created and continue
to create in the company, obtains an independent source of financing for further
growth, and creates a valuable currency for making strategic acquisitions. Our
preferred mechanism to reconcile our entrepreneurs' interest in accessing public
markets with the interests of our own shareholders is the Safeguard Subscription
Program.
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Safeguard Subscription Program
We assist a number of our partner companies to complete their initial public
offerings. Generally, in connection with our initial acquisition of our equity
interest in a partner company, our partner companies agree to offer shares to
our shareholders through what we call our Safeguard Subscription Program as part
of the partner company's initial public offering. The program enables our
eligible shareholders to subscribe to purchase, at the offering price, one share
of the partner company's common stock for a variable number of shares of our
common stock that the shareholder owns. This ratio is dependent upon the size of
the offering. Each of our shareholders that owns at least 100 shares of our
common stock is eligible to participate in the program. We purchase any shares
in the program that are not purchased by our shareholders.
Four of our partner companies, Internet Capital Group, US Interactive,
Pac-West Telecomm and eMerge Interactive, completed their initial public
offerings which included the Safeguard Subscription Program. One of our partner
companies, OPUS360, has filed a registration statement relating to its initial
public offering, which includes the Safeguard Subscription Program.
Rights Offerings
Historically, we assisted our partner companies with their initial public
offerings by offering rights to purchase a partner company's stock solely to
Safeguard shareholders in a "Rights Offering." A Rights Offering is an initial
public offering in which the shares of a partner company are purchased by our
shareholders by the exercise of rights which are obtained based upon the number
of shares of Safeguard common stock held by the purchasing shareholder. One or
more standby underwriters purchase shares not purchased upon the exercise of
rights. We completed Rights Offerings for Novell, Inc. and CompuCom in 1985,
Tangram Enterprise Solutions, in 1987, Cambridge Technology Partners in 1993,
Coherent Communications Systems Corporation in 1994, USDATA in 1995, Sanchez
Computer Associates and Integrated Systems Consulting Group, Inc. in 1996,
Diamond Technology Partners, ChromaVision Medical Systems and OAO Technology
Solutions in 1997 and DocuCorp International in 1998.
Mergers and Acquisitions
We have also historically assisted our partner companies in considering and
evaluating merger and acquisition opportunities to promote shareholder value. We
help our partner companies identify acquisition partners or targets, evaluate
these companies, negotiate terms and document the transactions. We have assisted
our partner companies in completing various mergers and acquisitions. For
example, we assisted with the mergers of Coherent with and into Tellabs,
Integrated Systems Consulting Group, Inc. with and into First Consulting Group,
Inc., and Pacific Title/Mirage, Inc. with and into LifeF/X.
Open Market Transactions
We have sold or purchased shares of our public partner companies in
open-market transactions from time to time. We generally engage in these
transactions when we believe the prices of the shares are attractive.
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REVENUES OF CORE INTERNET INFRASTRUCTURE PARTNER COMPANIES
Because we account for most of our partner companies under the equity
method, our consolidated revenue figures reported in our consolidated financial
statements do not reflect the aggregate revenue of our partner companies. The
aggregate revenue (adjusted as described below) of our 3 core Internet
infrastructure partner companies described in the preceding tables has grown
from $490 million in 1997 to $736 million in 1998 and to $887 million for 1999.
This data excludes revenues of our 18 other partner companies that we do not
categorize as Internet infrastructure companies, such as CompuCom, which had
revenues of $2.9 billion in 1999.
Growth in aggregate Internet infrastructure partner company revenue is not
indicative of growth in any particular partner company's revenue. The foregoing
data includes revenue of all our core Internet infrastructure partner companies
for all periods presented but excludes revenues of partner companies for years
prior to the year we acquired an interest in them. Our partner companies'
revenue figures are based on the unaudited financial statements prepared by each
partner company and, in some cases, adjustments by us to exclude discontinued
operations. We do not believe these adjustments have a significant impact on the
aggregate partner company revenue data disclosed above. In addition, these
figures are preliminary in nature and are subject to change. They may differ
from figures previously reported by each partner company due to any necessary
corrections, changes resulting from differing interpretations of accounting
principles upon review by the Securities and Exchange Commission or changes in
accounting literature. For these reasons, we cannot assure you of the accuracy
of the revenue figures. Also, since we do not consolidate the majority of our
partner companies for financial reporting purposes and we do not include our
largest consolidated subsidiary in the above table, the aggregate partner
company revenue data disclosed above is not intended to represent the revenues
that we have reported or will report on a consolidated basis in accordance with
generally accepted accounting principles. In each case, these revenues are
subject to the numerous risks and uncertainties elsewhere described in this
report.
GOVERNMENT REGULATIONS AND LEGAL UNCERTAINTIES
As of February 15, 2000, there were few laws or regulations directed
specifically at electronic commerce. However, because of the Internet's
popularity and increasing use, new laws and regulations may be adopted. These
laws and regulations may cover issues such as the collection and use of data
from Web site visitors and related privacy issues, pricing, content, copyrights,
online gambling, distribution and the quality of goods and services. The
enactment of any additional laws or regulations may impede the growth of the
Internet and the Internet infrastructure market, which could decrease the
revenue of our partner companies and place additional financial burdens on them.
Laws and regulations directly applicable to electronic commerce or Internet
communications are becoming more prevalent. For example, Congress recently
enacted laws regarding online copyright infringement and the protection of
information collected online from children. Although these laws may not have a
direct adverse effect on our business or those of our partner companies, they
add to the legal and regulatory burden faced by Internet infrastructure
companies. Other specific areas of legislative activity are:
Taxes. Congress recently enacted a three-year moratorium, ending on October
21, 2001, on the application of "discriminatory" or "special" taxes by the
states on Internet access or on products and
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services delivered over the Internet. Congress further declared that there would
be no federal taxes on electronic commerce until the end of the moratorium.
However, this moratorium does not prevent states from taxing activities or goods
and services that the states would otherwise have the power to tax. Furthermore,
the moratorium does not apply to certain state taxes that were in place before
the moratorium was enacted.
Online Privacy. Both Congress and the Federal Trade Commission are
considering regulating the extent to which companies should be able to use and
disclose information they obtain online from consumers. If any regulations are
enacted, Internet infrastructure companies may find certain marketing activities
restricted. The Federal Trade Commission has issued regulations enforcing the
Children's Online Privacy Protection Act, which take effect on April 21, 2000.
These regulations make it illegal to collect information online from children
under the age of 13 without first obtaining parental consent. These regulations
also require Web site operators to allow parents to inspect and remove their
children's information from any database. Compliance with these regulations
could pose a significant administrative burden for Web site operators whose
products and services are targeted to children or may be attractive to children.
Also, the European Union has directed its member nations to enact much more
stringent privacy protection laws than are generally found in the United States,
and has threatened to prohibit the export of certain personal data to United
States companies if similar measures are not adopted. Such a prohibition could
limit the growth of foreign markets for United States Internet infrastructure
companies. The Department of Commerce is negotiating with the European Union to
provide exemptions from the European Union regulations, but the outcome of these
negotiations is uncertain.
Regulation of Communications Facilities. To some extent, the rapid growth of
the Internet in the United States has been due to the relative lack of
government intervention in the marketplace for Internet access. Lack of
intervention may not continue in the future. For example, several
telecommunications carriers are seeking to have telecommunications over the
Internet regulated by the Federal Communications Commission in the same manner
as other telecommunications services. Additionally, local telephone carriers
have petitioned the Federal Communications Commission to regulate Internet
service providers in a manner similar to long distance telephone carriers and to
impose access fees on these providers. Some Internet service providers are
seeking to have broadband Internet access over cable systems regulated in much
the same manner as telephone services, which could slow the deployment of
broadband Internet access services. Because of these proceedings or others, new
laws or regulations could be enacted which could burden the companies that
provide the infrastructure on which the Internet is based, thereby slowing the
rapid expansion of the medium and its availability to new users.
Other Regulations. The growth of the Internet and electronic commerce may
lead to the enactment of more stringent consumer protection laws. The Federal
Trade Commission may use its existing jurisdiction to police electronic commerce
activities, and it is possible that the Federal Trade Commission will seek
authority from Congress to regulate certain online activities.
Generally applicable laws may affect us and our partner companies. The exact
applicability of many of these laws to the Internet infrastructure market,
however, is uncertain.
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PROPRIETARY RIGHTS
Our partner companies assert various forms of intellectual property
protection with respect to software, Web sites and other materials. These
materials may constitute an important part of our partner companies' assets and
competitive strengths. Our partner companies rely on a combination of patent,
trademark, copyright and trade secret laws, as well as confidentiality
agreements and non-compete agreements to establish and protect their proprietary
rights in their intellectual property.
We cannot be certain that the steps our partner companies have taken to
protect their proprietary information will be adequate. Policing unauthorized
use of technology is difficult. Additionally, our partner companies'
intellectual property may become known to, or independently developed by, third
parties. The laws of other countries may afford our partner companies little or
no protection of their intellectual property. Any litigation to enforce
intellectual property rights could result in substantial cost to our partner
companies.
COMPETITION
Competition from Other Capital Providers
Although we believe our network structure bolsters our ability to attract
Internet infrastructure companies, competition for acquiring interests in
Internet infrastructure companies remains intense. As the market for Internet
infrastructure grows, we expect that competition will intensify. We face
competition from numerous other capital providers seeking to acquire interests
in Internet-related businesses, including publicly traded Internet companies,
investment partnerships, large corporations, and other capital providers who
also offer support services to companies.
Traditionally, venture capital and private equity firms have dominated
investment in emerging technology companies, and many of these types of
competitors may have greater experience and financial resources than us. In
addition to competition from venture capital and private equity firms, several
public companies, as well as private companies, devote significant resources to
providing capital together with other resources to Internet companies.
Additionally, corporate strategic investors, including Fortune 500 and other
significant companies, are developing Internet strategies and capabilities. Many
of these competitors have greater financial resources and brand name recognition
than we do, and the barriers to entry for companies wishing to provide capital
and other resources to entrepreneurs and their emerging technology companies are
minimal. We expect that competition from both private and public companies with
business models similar to our own will intensify. Furthermore, private venture
capital firms and other capital providers who also offer support services to
companies who do not plan to go public can avoid regulation under the Investment
Company Act either by having less than 100 beneficial owners of their
securities, other than short-term paper, or by limiting the owners of their
securities to certain qualified purchasers. This exemption from the Investment
Company Act will provide these competitors with more flexibility regarding their
investment strategies, allowing them to take advantage of more opportunities or,
in some cases, permitting them to invest in companies on more favorable terms to
the companies than we are able to offer. Any of these competitors could limit
our opportunities to acquire interests in new partner companies. If we cannot
acquire controlling interests in attractive companies, our strategy to build a
collaborative network of partner companies will not succeed.
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Competition Facing our Partner Companies
Competition for Internet products and services is intense. As the market for
business-to-business electronic commerce grows, we expect that competition will
intensify. Our partner companies will encounter competition from existing
companies that offer competitive solutions and additional companies that develop
competitive solutions in the future. Our partner companies' competitors may
develop Internet products or services that are superior to, or have greater
market acceptance than, the solutions offered by our partner companies. If our
partner companies are unable to compete successfully against their competitors,
our partner companies may fail. In addition, our partner companies may compete
with each other for Internet infrastructure opportunities. If this type of
competition develops, it may deter companies from partnering with us and limit
our business opportunities.
Many of our partner companies will have to compete against companies with
greater brand recognition and greater financial, marketing and other resources.
Our partner companies may be at a disadvantage in responding to their
competitors' pricing strategies, technological advances, advertising campaigns,
strategic partnerships and other initiatives.
COMPUCOM
CompuCom Systems, Inc. is a leading provider of technology management services
and information technology products to large and medium sized businesses
throughout the United States. CompuCom helps Fortune 1000 companies manage
information technology to achieve their business goals by providing a wide range
of services in provisioning, support, and technology management. Products and
technology management services are sold through a direct sales force to over
5,200 business customers nationwide.
To meet the needs of its customers, CompuCom provides a variety of technology
management services including LAN/WAN project services, consulting, asset
tracking, network management, help desk, field engineering, configuration,
software management, distribution, and procurement utilizing network
applications such as Novell Netware, Windows NT, Windows 95 and Windows 98. In
addition, CompuCom is an authorized dealer of major personal computer products,
networking and related products, peripherals, and software for a number of
manufacturers, including Compaq Computer Corporation ("Compaq"), International
Business Machines Corporation ("IBM"), Hewlett-Packard Company ("HP"), Toshiba
America Information Systems, Intel Corporation and Microsoft Corporation.
During late 1998 and 1999, CompuCom restructured its operations to reduce costs
by closing its physical branch offices and moving to a virtual office model, and
reducing its workforce by approximately 10%. Sales and service representatives
who worked out of the branch offices continue to service customers in all of its
markets and the representatives access corporate information and support over
CompuCom's intranet and wireless communications facilities.
In May 1999 CompuCom purchased the Technology Acquisition Services Division
(TASD) of ENTEX Information Services, Inc. The acquisition included employees,
inventory, fixed assets, and a distribution center, and nearby doubled the size
of CompuCom's product business.
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In April 1999 CompuCom merged its ClientLink subsidiary into E-Certify
Corporation, an Internet security services company, in a stock-for-stock
transaction.
CompuCom's product sales accounted for 88% of Safeguard's total net sales in
1999, compared to 87% in 1998 and 86% in 1997. CompuCom's services sales
accounted for 10% of Safeguard's total net sales in 1999, compared to 12% in
1997 and 1998. CompuCom's business tends to be subject to seasonal fluctuations,
with the highest revenue levels generally occurring in the fourth quarter.
Backlog is not considered to be a meaningful indicator of CompuCom's future
business prospects due to the short order fulfillment cycle. Large corporate
businesses accounted for the majority of CompuCom's net sales in 1999. However,
no one customer accounted for more than 10% sales in either products or
services. In each of the last three years, more than 60% of CompuCom's product
revenues derived from sales of Compaq, IBM and HP products. CompuCom has
agreements with these vendors which have been regularly renewed. These
agreements are generally terminable by the vendor without cause on 30 to 90 days
notice. However, CompuCom believes its relationships with these vendors are
satisfactory.
CompuCom's customers generally require rapid fulfillment of product orders. To
meet these requirements and to assure itself of a continuous allotment of
products from its vendors, CompuCom maintains adequate levels of inventory
funded through credit facilities and vendor credit.
CompuCom provides product support to its customers primarily through inside
sales representatives ("ISRs") mostly based at its two corporate account
centers, located in Dallas, Texas and Mason, Ohio. Each ISR works closely with
CompuCom's direct sales representatives. The primary goal of the corporate
account centers is to provide greater support to CompuCom's customers while
allowing CompuCom's direct sales force to focus on soliciting new business and
providing the necessary support for the customers' more complex service needs.
As of December 31, 1999, CompuCom employed 372 full-time direct sales
representatives who sell both services and products, and 685 corporate account
center personnel. CompuCom also offers its customers the ability to create
custom configurations and price quotes and to order products and track order
status on the Internet.
CompuCom configures and ships desktop products at its center in Paulsboro, NJ,
at a Raleigh, North Carolina facility located near IBM's manufacturing plant,
and at an Irvine, California facility located near Toshiba's plant. CompuCom
closed its Stockton, California center during 1999 and closed it Compaq
co-location facility in February 2000. CompuCom provides services to its
customers through over 2,900 service personnel based at its configuration
centers and in the field.
CompuCom's industry is characterized by intense competition, primarily in the
areas of price, product availability and breadth of service and product line.
CompuCom competes for potential clients, including national accounts, with
numerous service providers, resellers and distributors. Many established desktop
computer manufacturers (including some of CompuCom's vendors), direct marketers,
systems integrators and resellers of distributed desktop or networking products
compete with CompuCom in the configuration and distribution of computer systems
and equipment. In addition, direct marketers have had a distinct pricing
advantage over resellers such as CompuCom. In response to the increased
competition, particularly from direct marketers, CompuCom implemented its cost
reduction restructuring and acquired TASD to increase its market share. The
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company expects consolidation in the industry will continue in 2000. In the
highly fragmented computer services business, CompuCom competes with several
larger competitors, other corporate resellers pursuing high-end service
opportunities, as well as smaller computer services companies. Some of these
competitors have financial, technical, manufacturing, sales, marketing and other
resources that are substantially greater than that of CompuCom. There can be no
assurance that CompuCom will be able to continue to compete successfully with
new or existing competition.
If CompuCom uses its stock for acquisitions or if some other dilutive event were
to occur, Safeguard's voting interest in CompuCom could be diluted below 50%, in
which event Safeguard would no longer consolidate CompuCom's financial results
under current generally accepted accounting principles. See "Management's
Discussion and Analysis - General."
CompuCom employed approximately 5,000 full-time employees as of December 31,
1999.
FINANCIAL INFORMATION ABOUT OPERATING SEGMENTS
Information on net sales, operating profit, and assets employed for each
operating segment of Safeguard's business for the three year period ended
December 31, 1999 is contained in Note 20 to the Consolidated Financial
Statements on pages 69-71 of Safeguard's Annual Report to Stockholders for the
year ended December 31, 1999, which is filed as part of Exhibit 13 hereto and is
incorporated herein by reference.
OTHER INFORMATION
Export sales in each segment for the three-year period ended December 31, 1999
were less than 5% of the segment's total sales in each of those years. Backlog
is not considered to be a meaningful indication of future business prospects for
any of the Company's operating segments.
The operations of Safeguard and its partnership companies are subject to
environmental laws and regulations. Safeguard does not believe that expenditures
relating to those laws and regulations will have a material adverse effect on
the business, financial condition or results of operations of Safeguard.
EMPLOYEES
At December 31, 1999, Safeguard and its consolidated subsidiaries have
approximately 5,400 employees, of which approximately 93% are employed by
CompuCom. Safeguard believes relations with employees are good.
EXECUTIVE OFFICERS
Information about Safeguard's executive officers can be found in Part III of
this report under "Item 10. Directors and Executive Officers of Registrant."
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ITEM 2. PROPERTIES
We own the office park in which our corporate headquarters and administrative
offices are located in Wayne, Pennsylvania. The office park contains
approximately 112,000 square feet, most of which we lease to our affiliated
private equity funds, certain partner companies including Internet Capital
Group, and other tenants. Our headquarters building is subject to a $3.6 million
mortgage bearing interest at 9.75%, which amortizes over a 30 year term ending
2022 and is callable by the lender at any time beginning in 2002. We believe the
properties are in good condition and repair and are adequate for the particular
operations for which they are used. Additionally, we lease approximately 2,400
square feet of office space in Palo Alto, California. Our partner companies have
various facilities throughout the United States, and they believe they can
readily obtain additional facilities as needed to support their anticipated
needs.
CompuCom's executive and administrative facility in Dallas, Texas contains
250,000 square feet of office space in two buildings on 20 acres. In 1999,
CompuCom sold this facility and leased it back for a 20 year term with two
five-year renewal options. CompuCom also leases 42,500 square feet of office
space in Mason, Ohio, which lease expires July 2005 with a five year renewal
option. CompuCom leases configuration, warehouse and distribution centers in New
Jersey, North Carolina and California under leases which expire in 2001 to 2004
with various renewal options.
ITEM 3. LEGAL PROCEEDINGS
We are not a party to any material legal proceedings. The Company has informed
the staff of the Federal Trade Commission (the "FTC") of the Company's
inadvertent failure to file certain Premerger Notification Forms under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR Act")
in connection with acquisitions of stock of certain partner companies. The FTC
staff has not informed us as to whether they intend to seek a fine or other
penalty from the Company in connection with the failure to file timely Forms for
these transactions. Because of the early stage of our discussions of this issue
with the staff of the FTC, we are unable to estimate the amount, if any, of the
Company's ultimate liability in connection with this matter. However, we do not
believe any such ultimate liability would have a material adverse effect on the
Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of security holders, through the solicitation
of proxies or otherwise, during the fourth quarter of 1999.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
Safeguard incorporates by reference the information contained under the caption
"Common Stock Data" on page 74 of its Annual Report to Stockholders for the year
ended December 31, 1999 which page is filed as part of Exhibit 13 hereto.
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In March 2000, we closed the sale to Textron Inc. 2,181,819 shares of our common
stock for $100 million in a private placement under Section 4(2) of the
Securities Act of 1933. We did not pay any commissions or fees to any
underwriter in connection with this sale. On February 29, 2000, we filed a
registration statement for the proposed sale in an underwritten public offering
of up to 11,500,000 shares of our common stock. On March 15, 2000, we filed an
additional registration statement for the proposed sale directly to certain
strategic and institutional investors of up to $500 million of our common stock.
ITEM 6. SELECTED FINANCIAL DATA
Safeguard incorporates by reference the information contained under this caption
on page 35 of its Annual Report to Stockholders for the year ended December 31,
1999 which page is filed as part of Exhibit 13 hereto.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Safeguard incorporates by reference the information contained under this caption
on pages 36 through 46 of its Annual Report to Stockholders for the year ended
December 31, 1999 which pages are filed as part of Exhibit 13 hereto.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Safeguard incorporates by reference the information contained under this caption
on page 46 of its Annual Report to Stockholders for the year ended December 31,
1999 which pages are filed as part of Exhibit 13 hereto.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Safeguard incorporates by reference the information on pages 47 through 73 of
its Annual Report to Stockholders for the year ended December 31, 1999 which
pages are filed as part of Exhibit 13 hereto.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Our executive officers and directors, their ages and their positions for the
last five years are as follows:
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DIRECTOR,
EXECUTIVE
OFFICER OR
KEY EMPLOYEE
NAME AGE POSITION(S) SINCE
- ---- --- ----------- -----
Warren V. Musser..................... 73 Chairman of the Board and Chief Executive 1953
Officer
Harry Wallaesa........................ 49 President, Chief Operating Officer and Director 1999
Jerry L. Johnson....................... 52 Executive Vice President 1995
Stephen J. Andriole, Ph.D............ 50 Senior Vice President and Chief Technology 1997
Officer
Gerald A. Blitstein.................... 40 Senior Vice President and Chief Financial 2000
Officer
Michael G. Bolton..................... 56 Senior Vice President 1999
John K. Halvey........................ 39 Senior Vice President 1999
James A. Ounsworth.................. 57 Senior Vice President, General Counsel and 1991
Secretary
Robert E. Keith........................ 58 Vice Chairman of the Board 1996
J. Edward Coleman................... 48 Chief Executive Officer of CompuCom 1999
Thomas C. Lynch..................... 57 President and Chief Operating Officer of 1998
CompuCom
Judith Areen........................... 55 Director 1997
Vincent G. Bell, Jr.................... 74 Director 1956
Walter W. Buckley III................ 39 Director 2000
Michael J. Emmi...................... 57 Director 1998
Robert A. Fox.......................... 70 Director 1981
Jack L. Messman...................... 59 Director 1994
Russell E. Palmer..................... 65 Director 1989
John W. Poduska, Sr., Ph.D......... 62 Director 1987
Heinz C. Schimmelbusch, Ph.D.... 55 Director 1989
Hubert J.P. Schoemaker, Ph.D...... 49 Director 1993
Carl J. Yankowski..................... 51 Director 1999
Warren V. Musser has served as Chairman and Chief Executive Officer since
1953. Mr. Musser is Chairman of the Board of Cambridge Technology Partners
(Massachusetts), Inc. and CompuCom Systems, Inc. He is also a Director of
DocuCorp International, Inc. and Sanchez Computer Associates, Inc. and a trustee
of Brandywine Realty Trust. Mr. Musser serves on a variety of civic, educational
and charitable boards of directors, and serves as Vice President/Development,
Cradle of Liberty Council, Boy Scouts of America, Vice Chairman of The Eastern
Technology Council, and Chairman of the Pennsylvania Partnership on Economic
Education.
Harry Wallaesa became a Director of Safeguard in February 1999 and President
and Chief Operating Officer of Safeguard in March 1999. Mr. Wallaesa served as
President and Chief Executive Officer of aligne incorporated, which he
co-founded in 1996, until Safeguard acquired a majority of the company in March
1999. From 1985 to 1995, Mr. Wallaesa was the Chief Information Officer and Vice
President of Management Information Systems at Campbell Soup Company, a global
manufacturer and marketer of branded food products. Mr. Wallaesa is the
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Chairman of the Board of CompuCom Systems, Inc. and a Director of Bowne, Inc.,
Redleaf Group LLC, aligne incorporated, iMedium, Inc., Allied Resource
Corporation, Pennsylvania Academy of Fine Arts, Atlas Commerce and University of
Pennsylvania Health Systems.
Jerry L. Johnson was promoted to Executive Vice President in March 1999 and
leads our Communications practice. He served as Senior Vice President from
September 1995 until March 1999. Prior to joining Safeguard, Mr. Johnson served
at US West, Inc., a regional Bell operating company, from 1985 through 1995,
most recently as Vice President of Network Technology Services, a division of US
West, Inc. Mr. Johnson is the Chairman of the Board of Pac-West Telecomm, Inc.,
and a Director of OAO Technology Solutions, Inc., Extant, Inc., SOTAS, Inc.,
QuestOne Decision Sciences Corporation and Vitts Networks, Inc.
Stephen J. Andriole, Ph.D. joined Safeguard in October 1997 from CIGNA
Corporation, where he was Senior Vice President for Technology Strategy and
Chief Technology Officer from 1995 to 1997. From 1990 to 1995, he was a
Professor of Information Systems and Computer & Electrical Engineering at Drexel
University. During the 1970s, Dr. Andriole was Director of Cybernetics
Technology at the Defense Advanced Research Projects Agency (ARPA), the agency
that developed much of the infrastructure for the Internet. Dr. Andriole is a
Director of iMedium, Inc., aligne incorporated, Integrated Visions, Inc., USDATA
Corporation, Broadreach Consulting and STORM Systems.
Gerald A. Blitstein was hired as Senior Vice President and Chief Financial
Officer on February 28, 2000. From 1994 until joining Safeguard, Mr. Blitstein
was a Managing Director of Painewebber Incorporated. While a Managing Director
at Painewebber, Mr. Blitstein served as Managing Director, Executive Assistant
to the Chairman from 1994-1996, Managing Director of Reengineering from
1997-1998, and Managing Director of Global Equities 1998-2000.
Michael G. Bolton was appointed to the position of Senior Vice President in
April 1999. Since January 1998, Mr. Bolton has served as the Managing Director
of Pennsylvania Early Stage Partners, one of Safeguard's affiliated private
equity funds. From February 1972 to July 1998, Mr. Bolton was the founding Chief
Executive of the Ben Franklin Technology Center located at Lehigh University,
Vice President of Lehigh University, co-founder of the NEPA Venture Funds, and
currently serves as a Director of several technology-oriented start-up
companies.
John K. Halvey was appointed a Senior Vice President in June 1999 and leads
our eServices practice. Prior to joining Safeguard, Mr. Halvey was a partner in
the law firm, Milbank, Tweed, Hadley and McCloy from 1994 to June 1999, where he
was the head of its Intellectual Property and Business Technology Group. Mr.
Halvey is a Director of OPUS360 Corporation, the Basketball Network LLC,
PrivaSeek, Inc., Zero to Five LLC and TechSpace LLC.
James A. Ounsworth has served as Vice President, Secretary and General
Counsel since December 1991 and was promoted to Senior Vice President in
November 1995. Prior to joining Safeguard, Mr. Ounsworth was a partner in the
Philadelphia law firm of Pepper, Hamilton & Scheetz, and before that he was a
nuclear engineer in the U.S. Navy. Mr. Ounsworth is a Director of Tangram
Enterprise Solutions, Inc., TechSpace LLC and Owosso Corporation.
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Robert E. Keith, Jr. was appointed Vice Chairman of the Board in February
1999. Mr. Keith has been a Managing Director of TL Ventures and its predecessor
funds since 1988. He has served as President since 1991, and as Chief Executive
Officer since February 1996, of Technology Leaders Management, Inc., a private
equity capital management company that is a subsidiary of Safeguard. Mr. Keith
is Chairman of Internet Capital Group, Inc. and a Director of Cambridge
Technology Partners (Massachusetts), Inc., SunSource, Inc. and US Interactive,
Inc.
J. Edward Coleman has been Chief Executive Officer of CompuCom Systems, Inc.
since December 1999 and a director of CompuCom since February 2000. Prior to
that time, Mr. Coleman served as Business Development Executive and Director of
Marketing for Computer Services Corporation, an information technology services
company, since March 1995. From September 1993 until March 1995, Mr. Coleman was
Executive Vice President of McCallister's Technical Services, Inc., a provider
of systems integration services.
Thomas C. Lynch has been the President and Chief Operating Officer of
CompuCom Systems, Inc. since December 1999. From October 1998 until becoming
President, Mr. Lynch had served as an Executive Vice President and Chief
Operating Officer of CompuCom. Prior to that time, Mr. Lynch was Senior Vice
President of Safeguard since November 1995. Mr. Lynch retired from the U.S. Navy
as an Admiral after 31 years, including serving as Superintendent of the U.S.
Naval Academy from 1991 through 1994 and Director of the Navy Staff from 1994
through 1995. Mr. Lynch is a trustee of the U.S. Naval Academy Foundation, and
is a Director of CompuCom, eMerge Interactive, Inc. and Sanchez Computer
Associates, Inc.
Judith Areen has been Executive Vice President for Law Center Affairs and
Dean of the Law Center, Georgetown University, since 1989 and has been a
Professor of Law at Georgetown University since 1976. Ms. Areen is a Director of
MCI WorldCom, Inc.
Vincent G. Bell, Jr. is President of Verus Corporation, a management
investment firm he formed in 1987. Before 1987, Mr. Bell was Chairman of the
Board and Chief Executive Officer of Safeguard Business Systems, Inc., an
information systems company.
Walter W. Buckley, III, was appointed as a director on February 10, 2000.
Mr. Buckley is a co-founder, and has served as President, Chief Executive
Officer and a director of Internet Capital Group, Inc. since March 1996. Prior
to co-founding Internet Capital Group, Mr. Buckley worked for Safeguard as Vice
President of Acquisitions from 1991 to February 1996. Mr. Buckley is a Director
of Breakaway Solutions, Inc., e-Chemicals, Inc., PrivaSeek, Inc., Sky Alland
Marketing, Inc., Syncra Software, Inc., VerticalNet, Inc. and Who?Vision
Systems, Inc.
Michael J. Emmi has been Chairman of the Board, President and Chief
Executive Officer of Systems & Computer Technology Corporation, a provider of
computer software and services, since May 1985. Mr. Emmi is a Director of
CompuCom Systems, Inc. and CDI Corp.
Robert A. Fox has been Chairman and Chief Executive Officer of R.A.F.
Industries, Inc., a private investment company which acquires and manages a
diversified group of operating companies and venture capital investments, since
1980. Mr. Fox is a Director of Zany Brainy, Inc. He is a Trustee of the
University of Pennsylvania and the Wistar Institute.
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Jack L. Messman has been Chief Executive Officer of Cambridge Technology
Partners (Massachusetts), Inc. since 1999. From April 1991 until 1999, Mr.
Messman was Chairman and Chief Executive Officer of Union Pacific Resources
Group Inc., an energy company. From May 1988 to April 1991, Mr. Messman was
Chairman and Chief Executive Officer of USPCI, Inc., a provider of hazardous
waste services and a subsidiary of Union Pacific Corporation. Mr. Messman is a
Director of Cambridge Technology Partners (Massachusetts), Inc., Metallurg,
Inc., Novell, Inc., Tandy Corp. and USDATA Corporation.
Russell E. Palmer is Chairman and Chief Executive Officer of The Palmer
Group, a corporate investment firm he organized in 1990. From 1983 to June 1990,
Mr. Palmer was Dean of The Wharton School of the University of Pennsylvania.
From 1972 to 1983, he was Managing Partner and Chief Executive Officer of Touche
Ross & Co. (now Deloitte & Touche). Mr. Palmer is a Director of Federal Home
Loan Mortgage Corporation, GTE Corporation, Honeywell International Inc. and The
May Department Stores Company.
John W. Poduska, Sr., Ph.D. has served as Chairman of Advanced Visual
Systems, Inc., a provider of visualization software, since 1992. Before 1992,
Dr. Poduska was President and Chief Executive Officer of Stardent Computer,
Inc., a computer manufacturer, from December 1989 to December 1991. From
December 1985 to December 1989, Dr. Poduska was founder, Chairman and Chief
Executive Officer of Stellar Computer, Inc., a computer manufacturer and the
predecessor of Stardent Computer. Dr. Poduska is a Director of Cambridge
Technology Partners (Massachusetts), Inc., Union Pacific Resources Group, Inc.,
XL Vision, Inc. and eMerge Interactive, Inc.
Heinz C. Schimmelbusch, Ph.D. has served as President and Chief Executive
Officer of Safeguard International Group, Inc. since 1994. Dr. Schimmelbusch
also serves as managing director of Safeguard International Fund, L.P., a
Safeguard affiliated private equity fund and is Chairman of: Allied Resource
Corporation, a company pursuing technology-oriented, early-stage investment
opportunities in process industries; Metallurg, Inc., New York, a global
producer and supplier of high quality metal alloys and specialty metals;
Becancour Silicon Inc., Montreal, Quebec, a silicon metal producer; and ALD
Vacuum Technology AG, Frankfurt, Germany, a global supplier of industrial vacuum
technology. From 1973 to 1993, Dr. Schimmelbusch was associated with
Metallgesellschaft AG, a raw materials company of which he served as Chairman of
the Executive Board from March 1989 to December 1993.
Hubert J. P. Schoemaker, Ph.D. is Chairman, Chief Executive Officer and
founder of NeurOnyx Inc., a biotechnology company he founded in 1999. Prior to
that, Dr. Schoemaker served as Chairman of the Board and co-founder of Centocor,
Inc., a biotechnology company from 1987 to 1994.
Carl J. Yankowski has been Chief Executive Officer of Palm, Inc., a leading
global provider of handheld computing devices since December 1999. Prior to
joining Palm, he was President and Chief Executive Officer of the Reebok
Division and Executive Vice President of Reebok International Ltd., a leading
worldwide designer, marketer and distributor of sports, fitness and casual
footwear, apparel and equipment. Before joining Reebok in September 1998, from
December 1993 to January 1998 Mr. Yankowski was President and Chief Operating
Officer of Sony Electronics, Inc., a diversified company that markets electronic
products for consumer, broadcast and industrial use in the United States. From
December 1988 to November 1993, Mr. Yankowski held
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various senior management positions with Polaroid Corporation, his last position
being that of Chairman of the Asia-Pacific region. Mr. Yankowski is a Director
of Avidyne, Inc. and Vitts Networks Inc.
DISCLOSURE OF DELINQUENT FILERS PURSUANT TO ITEM 405 OF REGULATION S-K:
Safeguard incorporates by reference the information contained under the caption
"Section 16(a) Beneficial Ownership Reporting Compliance" in its definitive
Proxy Statement relative to its May 11, 2000 annual meeting of stockholders, to
be filed within 120 days after the end of the year covered by this Form 10-K
Report.
ITEM 11. EXECUTIVE COMPENSATION
Safeguard incorporates by reference the information contained under the captions
"Board of Directors' -- Additional Information" and "Executive Compensation and
Other Arrangements" in its definitive Proxy Statement relative to its May 11,
2000 annual meeting of stockholders, to be filed within 120 days after the end
of the year covered by this Form 10-K Report.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Safeguard incorporates by reference the information contained under the caption
"Stock Ownership of Directors and Officers" in its definitive Proxy Statement
relative to its May 11, 2000 annual meeting of stockholders, to be filed within
120 days after the end of the year covered by this Form 10-K Report.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Safeguard incorporates by reference the information contained under the caption
"Relationships and Related Transactions with Management and Others" in its
definitive Proxy Statement relative to its May 11, 2000 annual meeting of
stockholders, to be filed within 120 days after the end of the year covered by
this Form 10-K Report.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) THE FOLLOWING FINANCIAL STATEMENTS AND SCHEDULES ARE FILED AS PART OF THIS
REPORT:
Consolidated Financial Statements
Balance Sheets - December 31, 1999 and 1998
Operations - years ended December 31, 1999, 1998, and 1997
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Shareholders' Equity - years ended December 31, 1999, 1998, and 1997
Comprehensive Income - years ended December 31, 1999, 1998, and 1997
Cash Flows - years ended December 31, 1999, 1998, and 1997
Notes to Consolidated Financial Statements
Independent Auditors' Report
Statement of Management's Financial Responsibility
Financial Statement Schedules
Independent Auditors' Report
Schedule I - Condensed Consolidated Financial Information of
Registrant
Schedule II - Valuation and Qualifying Accounts
The exhibits required to be filed as part of this Report are listed in the
exhibit index below.
(b) REPORTS ON FORM 8-K
No reports on Form 8-K were filed during the fourth quarter of 1999.
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(d) FINANCIAL STATEMENT SCHEDULES
SEPARATE FINANCIAL STATEMENTS OF SUBSIDIARIES NOT CONSOLIDATED
The 1999 consolidated financial statements of Cambridge Technology Partners
(Massachusetts), Inc., required to be included in this report pursuant to Rule
3-09 of Regulation S-X, will be included in an amendment to this report to be
filed within 90 days of the date of this report. The 1998 consolidated financial
statements of Cambridge Technology Partners (Massachusetts), Inc., required to
be included in our 1998 annual report on Form 10-K were included in our 1998
Form 10-K/A, filed on March 17, 2000.
FINANCIAL STATEMENT SCHEDULES
Independent Auditors' Report
The Board of Directors and Shareholders
Safeguard Scientifics, Inc.:
Under date of February 28, 2000, we reported on the consolidated balance sheets
of Safeguard Scientifics, Inc. and subsidiaries as of December 31, 1999 and
1998, and the related consolidated statements of operations, shareholders'
equity, comprehensive income, and cash flows for each of the years in the
three-year period ended December 31, 1999, as contained in the 1999 annual
report to shareholders. These consolidated financial statements and our report
thereon are included in the annual report on Form 10-K for the year 1999. In
connection with our audits of the aforementioned consolidated financial
statements, we also audited the related consolidated financial statement
schedules as listed in the accompanying index. These financial statement
schedules are the responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statement schedules based on our
audits. We did not audit the 1998 financial statements of a nonsubsidiary
investee. The financial statements of this investee were audited by other
auditors whose report has been furnished to us, and our opinion, insofar as it
relates to the amounts included for this investee, is based solely on the report
of the other auditors.
In our opinion, based on our audits and the report of the other auditors, such
financial statement schedules, when considered in relation to the basic
consolidated financial statements taken as a whole, present fairly, in all
material respects, the information set forth therein.
/s/ KPMG LLP
Philadelphia, Pennsylvania
February 28, 2000
37
38
SAFEGUARD SCIENTIFICS, INC.
SCHEDULE I
CONDENSED CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1999 AND 1998
(IN THOUSANDS)
ASSETS 1999 1998
- ------ ---- ----
CURRENT ASSETS
Cash and cash equivalents $ 33,536 $ 1,486
Trading securities -- 143,103
Notes and other receivables 32,275 27,783
Prepaid expenses and other current assets 6,929 1,497
---------- ----------
Total current assets 72,740 173,869
PROPERTY, PLANT AND EQUIPMENT, NET 24,865 24,455
OTHER ASSETS
Ownership interests in and advances to partner companies 687,925 348,237
Available-for-sale securities 302,940 84,977
Other 20,719 5,757
---------- ----------
Total other assets 1,011,584 438,971
---------- ----------
TOTAL ASSETS $1,109,189 $ 637,295
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
1999 1998
---- ----
CURRENT LIABILITIES
Current maturities of long-term debt $ 6,758 $ 866
Accounts payable 174 383
Accrued expenses 28,689 31,200
Deferred taxes -- 48,375
---------- ----------
Total current liabilities 35,621 80,824
LONG-TERM DEBT 14,354 123,115
DEFERRED TAXES 109,716 17,902
OTHER LONG-TERM LIABILITIES 174,797 1,250
CONVERTIBLE SUBORDINATED NOTES 200,000 71,345
SHAREHOLDERS' EQUITY
Common stock 10,475 9,840
Additional paid-in capital 133,969 55,910
Retained earnings 385,120 261,594
Accumulated other comprehensive income 45,137 37,294
Treasury stock, at cost -- (21,779)
---------- ----------
Total shareholders' equity 574,701 342,859
---------- ----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $1,109,189 $ 637,295
========== ==========
See notes to condensed consolidated financial statements.
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39
SAFEGUARD SCIENTIFICS, INC.
SCHEDULE I
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1999, 1998, AND 1997
(IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)
1999 1998 1997
---- ---- ----
Revenue $ 14,849 $ 12,769 $ 27,289
Operating Expenses 51,343 25,868 38,239
--------- --------- ---------
(36,494) (13,099) (10,950)
Gain on issuance of stock by partner
companies 175,662 3,782 5,772
Other income, net 107,290 189,883 18,253
Interest income 5,231 3,119 2,916
Interest expense (11,995) (10,706) (7,150)
--------- --------- ---------
INCOME BEFORE INCOME TAXES, MINORITY
INTEREST AND EQUITY INCOME (LOSS) 239,694 172,979 8,841
Income taxes (61,884) (61,010) (2,213)
Equity income (loss) (54,284) (1,846) 14,873
--------- --------- ---------
NET INCOME $ 123,526 $ 110,123 $ 21,501
========= ========= =========
Earnings Per Share
Basic
Diluted $ 1.22 $ 1.15 $ 0.23
$ 1.16 $ 1.07 $ 0.22
AVERAGE COMMON SHARES OUTSTANDING
Basic
Diluted 101,134 95,499 93,747
110,910 104,742 95,988
See notes to condensed consolidated financial statements.
39
40
SAFEGUARD SCIENTIFICS, INC.
SCHEDULE I
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1999, 1998, AND 1997
(IN THOUSANDS)
1999 1998 1997
---- ---- ----
OPERATING ACTIVITIES
Net income $ 123,526 $ 110,123 $ 21,501
Adjustments to reconcile to net cash (used) by operating activities:
Depreciation and amortization 7,914 1,443 2,169
Deferred income taxes 39,217 41,447 (2,313)
Equity (income) loss 54,284 1,846 (14,873)
Gain on issuance of stock by partner companies (175,662) (3,782) (5,772)
Other income, net (107,290) (189,883) (18,253)
Cash provided (used) by changes in working capital items:
Accounts receivable, net 2,998 (17,408) 3,349
Accounts payable, accrued expenses, and other (10,846) 34,180 5,804
--------- --------- ---------
Net cash used in operating activities (65,859) (22,034) (8,388)
INVESTING ACTIVITIES
Proceeds from sales of available-for-sale securities 53,565 3,319 6,438
Proceeds from sales of partner company ownership interests 84,522 89,888 60,856
Advances to partner companies (56,417) (32,161) (25,769)
Repayment of advances to partner companies 8,150 7,689 2,082
Acquisitions of ownership interests in partner companies (212,294) (112,903) (56,831)
Capital expenditures (2,882) (3,142) (7,871)
Other, net (6,209) (120) 3,408
--------- --------- ---------
Net cash used in investing activities (131,565) (47,430) (17,687)
FINANCING ACTIVITIES
Borrowings on revolving credit facilities 182,000 185,007 122,200
Repayments on revolving credit facilities (290,107) (99,100) (100,000)
Borrowings on term debt -- 909 3,987
Repayments on term debt (765) (140) (616)
Issuance of convertible subordinated notes, net 200,000 -- --
Payment of financing costs on convertible subordinated notes (6,178) -- --
Proceeds from financial instruments 139,309 -- --
Repurchase of Company common stock (2,695) (18,672) (9,488)
Issuance of Company common stock 7,910 2,266 2,653
--------- --------- ---------
Net cash provided by financing activities 229,474 70,270 18,736
--------- --------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 32,050 806 (7,339)
Cash and cash equivalents at beginning of period 1,486 680 8,019
--------- --------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 33,536 $ 1,486 $ 680
========= ========= =========
See notes to condensed consolidated financial statements
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41
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - PRINCIPLES OF CONSOLIDATION
The Condensed Consolidated (also referred to as "Parent Company") Financial
Statements include the accounts of Safeguard Scientifics, Inc. (the Company) and
its wholly owned subsidiaries. Parent Company Financial Statements are provided
to present the financial position and results of operations of the Company as if
the consolidated companies were accounted for on the equity method of accounting
for all periods presented during which the Company owned its interest in these
companies. CompuCom Systems, Inc. and Tangram Enterprise Solutions, Inc. were
consolidated in 1999, 1998 and 1997. During 1999, the Company acquired
controlling majority voting interests in aligne, incorporated, SOTAS, Inc. and
Arista Knowledge Systems, Inc. Each one of these partner companies was
consolidated from the date the Company acquired directly or indirectly more than
50% of the outstanding voting securities interest. The Company also consolidated
Premier Solutions Ltd. (Premier) and Pioneer Metal Finishing (Pioneer) until
they were sold in 1997.
Subsequent to the sale of Premier and Pioneer, the Company's revenue consists of
administrative service fees charged to certain partner companies and private
equity funds.
On February 28, 2000, the Board of Directors approved a three-for-one stock
split to the Company's shareholders of record on March 13, 2000. All share and
per share data have been restated to reflect a three-for-one split of the
Company's common stock as if the stock split had occurred as of December 31,
1996.
Certain prior year amounts have been reclassified to conform to the current year
presentation.
NOTE 2 - LONG-TERM DEBT
1999 1998
---------------- ---------------
(in thousands)
Revolving credit facilities $ - $108,107
Mortgage note, 9.75%, payable monthly through 2002 3,380 3,420
Mortgage notes, 6.1% to 7.8%, payable monthly through 2017 4,691 4,954
Mortgage note, 7.75%, payable monthly through 2021 6,130 6,239
Other 6,911 1,261
---------------- ---------------
Total debt 21,112 123,981
Current maturities of long-term debt (6,758) (866)
---------------- ---------------
Long-term debt $14,354 $123,115
================ ===============
Aggregate maturities of long-term debt during future years are as follows (in
millions): $6.8 - 2000; $.7 - 2001; $.8 - 2002; $1.2 - 2003; $1.1 - 2004 and
$10.5 - thereafter.
Interest paid in 1999, 1998, and 1997 was $14.0 million, $11.5 million, and $6.9
million, respectively, of which $7.3 million, $4.9 million, and $5.8 million in
1999, 1998, and 1997, respectively, related to the Company's Convertible
Subordinated Notes.
41
42
SAFEGUARD SCIENTIFICS, INC. AND SUBSIDIARIES
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
Balance Additions
Beginning Charged to Balance
DESCRIPTION of Year Operations Deductions Other End of Year
- ----------- ------- ---------- ---------- ----- -----------
Allowance for doubtful accounts (1)
Year ended December 31, 1997 $ 3,088 $ 2,183 $ 1,829 $ (570) (2) $ 2,872
Year ended December 31, 1998 $ 2,872 $ 3,049 $ 1,350 $ 198 (3) $ 4,769
Year ended December 31, 1999 $ 4,769 $ 2,719 $ 1,884 $ - $ 5,604
Inventory reserves
Year ended December 31, 1997 $ 8,934 $ 14,844 $ 13,854 $ - $ 9,924
Year ended December 31, 1998 $ 9,924 $ 14,204 $ 16,326 $ - $ 7,802
Year ended December 31, 1999 $ 7,802 $ 17,885 $ 15,319 $ - $ 10,368
Restructuring
Year ended December 31, 1998 $ - $ 16,437 $ - $ (2,349) (4) $ 14,088
Year ended December 31, 1999 $ 14,088 $ 387 $ - $(12,675) (4) $ 1,800
(1) Net write-offs.
(2) Sale of Pioneer Metal Finishing and Premier Solutions Ltd.
(3) Acquisition of Dataflex.
(4) Represents payments against restructuring reserve, non-cash charges for
disposal of fixed assets and adjustments for changes in estimates.
42
43
(a)(3) EXHIBITS
The following is a list of exhibits required by Item 601 of Regulation S-K filed
as part of this Report. Where so indicated by footnote, exhibits which were
previously filed are incorporated by reference. For exhibits incorporated by
reference, the location of the exhibit in the previous filing is indicated in
parentheses.
EXHIBIT NO. EXHIBIT
2.1 Asset Purchase Agreement, dated as of May 10, 1999 by and between CompuCom Systems, Inc. and Entex
Information Services, Inc.(15) (Exhibit 2.1)
3.1 Amended and Restated Articles of Incorporation of Safeguard(7) (Exhibit 3.1)
3.2* By-laws of Safeguard, as amended(19) (Exhibit 3)
4.1** 1990 Stock Option Plan, as amended(7) (Exhibit 4.3)
4.2** Stock Option Plan for Non-Employee Directors(4) (Exhibit 4.8)
4.3** Safeguard Scientifics, Inc. Amended and Restated Stock Savings Plan(5) (Exhibit 4.9)
4.4** First Amendment to Safeguard Scientifics, Inc. Stock Savings Plan(7) (Exhibit 4.6)
4.5** Safeguard Scientifics, Inc. Stock Savings Plan Trust Agreement(2) (Exhibit 4.2)
4.6 Safeguard Scientifics, Inc. 1999 Equity Compensation Plan(16) (Exhibit 4.1)
43
44
4.7 Indenture, dated as of June 9, 1999, between Safeguard Scientifics, Inc. and Chase Manhattan Trust
Company, National Association, as trustee, including the form of 5.0% Convertible Subordinated Note due
2006(17) (Exhibit 4.2)
4.8 Purchase Agreement of Safeguard Scientifics, Inc. to issue and sell to Credit Suisse First Boston
Corporation Convertible Subordinated Notes due June 15, 2006. (Exhibits omitted)(16) (Exhibit 4.3)
4.9 Registration Rights Agreement between Safeguard Scientifics, Inc. and Credit Suisse First Boston Corporation(17)
(Exhibit 4.4)
4.10 Rights Agreement dated as of March 1, 2000 between Safeguard Scientifics, Inc. and ChaseMellon Shareholder
Services LLC, as Rights Agent(19) (Exhibit 4)
4.11 Designation of Series A Junior Participating Preferred Shares*
10.1** Safeguard Scientifics Money Purchase Pension Plan(3) (Exhibit 10.3)
10.2** First Amendment to Safeguard Scientifics Money Purchase Pension Plan(4) (Exhibit 10.2)
10.3** Second Amendment to Safeguard Scientifics Money Purchase Pension Plan(5) (Exhibit 10.3)
10.4** Third Amendment to Safeguard Scientifics Money Purchase Pension Plan(6) (Exhibit 10.4)
10.5** Safeguard Scientifics Money Purchase Pension Plan Trust Agreement(3) (Exhibit 10.4)
10.6** Safeguard Scientifics, Inc. Long Term Incentive Plan, as amended and restated effective June 15, 1994(5)
(Exhibit 10.6)
10.7** Safeguard Scientifics, Inc. Deferred Compensation Plan(1) (Exhibit 10.12)
10.8 Asset Acquisition Agreement dated April 15, 1997 for the sale of certain assets of Premier Solutions
Ltd. to a subsidiary of Sungard Data Systems Inc. (exhibits omitted)(8) (Exhibit 10.1)
10.9 Stock Exchange Agreement dated as of February 26, 1999 among Safeguard Scientifics, Inc., aligne
incorporated, and the shareholders of aligne incorporated (exhibits and schedules omitted)(13) (Exhibit
10.12)
10.10 Transaction Agreement dated February 28, 2000 between Safeguard Scientifics, Inc. and Textron Inc. (19)
(Exhibit 10)
10.11 Amended and Restated Credit Agreement, dated April 17, 1998, among Safeguard Scientifics, Inc., Safeguard
Scientifics (Delaware), Inc., Safeguard Delaware, Inc. and PNC Bank, N.A. (exhibits omitted)(10) (Exhibit
10.1)
44
45
10.12 Amendment dated April 12, 1999 to Amended and Restated Credit Agreement among Safeguard Scientifics,
Inc., Safeguard Scientifics (Delaware), Inc., Safeguard Delaware, Inc. and PNC Bank, N.A. (Exhibits
omitted)(14) (Exhibit 10.1)
10.13 Amendment dated March 29, 1999 to Amended and Restated Credit Agreement***
10.14 Amendment dated July , 1999 to Amended and Restated Credit Agreement***
10.15 Amendment dated February 17, 2000 to Amended and Restated Credit Agreement*
10.16 Amended and Restated Credit Agreement, dated as of November 3, 1997, among CompuCom Systems, Inc., certain
lenders party hereto, and NationsBank of Texas, N.A., as administrative lender (exhibits and schedules omitted)(9)
(Exhibit 10.27)
10.17 Amendment No. 1 to Amended and Restated Credit Agreement, dated as of June 26, 1998, among CompuCom
Systems, Inc., certain lenders party hereto, and NationsBank of Texas, N.A., as administrative lender
(exhibits omitted)(11) (Exhibit 10.2)
10.18 Non-Competition, Referral and Non-Disclosure Agreement dated as of May 10, 1999, by and between CompuCom
Systems, Inc. and ENTEX Information Services, Inc.(15) (Exhibit 10.1)
10.19 CompuCom Receivables MasterTrust I Pooling and Servicing Agreement, dated as of May 7, 1999, between
Norwest Bank Minnesota National Association, CompuCom Systems, Inc., and CSI Funding, Inc.(16) (Exhibit
10.14)
10.20 CompuCom Receivables MasterTrust I Pooling and Servicing Agreement Series 1999-1 Supplement, dated as of
May 7, 1999, among PNC Bank, National Association, Market Street Capital Corporation, Norwest Bank
Minnesota, National Association, CompuCom Systems, Inc., and CSI Funding, Inc.(16) (Exhibit 10.5)
10.21 Inventory and Working Capital Financing Agreement, dated as of May 11, 1999, between IBM Credit
Corporation and CompuCom Systems, Inc.(16) (Exhibit 10.6)
10.22 Attachment A to Inventory and Working Capital Financing Agreement dated May 11, 1999.(16) (Exhibit 10.7)
10.23 Receivables Contribution and Sale Agreement dated May 7, 1999 between CompuCom Systems, Inc. and CSI Funding,
Inc. (16) (Exhibit 10.8)
10.24** Term Note dated October 22, 1998 from Edward Anderson to CompuCom Systems, Inc.(13) (Exhibit 10.25)
10.25** Pledge Agreement dated October 22, 1998 from Edward Anderson to CompuCom Systems, Inc.(13) (Exhibit 10.26)
45
46
10.26** First Amendment to Term Note dated February 19, 1999 from Edward Anderson to CompuCom Systems,
Inc.(13) (Exhibit 10.23)
10.27** Stock Option Grant Agreement between CompuCom Systems, Inc. and Thomas C. Lynch, dated as of October 22,
1998(12) (Exhibit 10.4)
10.28** Term Note dated December 23, 1998 from Thomas Lynch to CompuCom Systems, Inc.(13) (Exhibit 10.28)
10.29** Pledge Agreement dated December 23, 1998 from Thomas Lynch to CompuCom Systems, Inc.(13) (Exhibit 10.29)
10.30** Term Note dated December 23, 1998 from Thomas Lynch to Safeguard Scientifics, Inc.(13) (Exhibit 10.30)
10.31** Security Agreement dated December 23, 1998 between Thomas Lynch and Safeguard Scientifics,
Inc.(13) (Exhibit 10.31)
10.32** Form of Promissory Notes dated June 11, 1999 given by certain executives for advances by Safeguard of income tax
withholdings on restricted stock grants.(31) (Exhibit 10.2)
10.33** Form of Promissory Notes dated August 27, 1999 given by certain executives for advances by Safeguard of
income tax withholdings on restricted stock grants.(18) (Exhibit 10.9)
10.34** Term Note dated July 22, 1999, between Safeguard Delaware, Inc. and John Halvey(18) (Exhibit 10.10)
10.35** Form of Promissory Notes dated November 3, 1999 given by certain executives for advances by Safeguard of
income tax withholdings on restricted stock grants*
10.36** Form of Promissory Notes dated December 1, 1999 given by certain executives for advances by Safeguard of
income tax withholdings on restricted stock grants*
10.37** Form of Promissory Notes dated February 3, 2000 given by certain executives for advances by Safeguard of
income tax withholdings on restricted stock grants*
10.38** Stock option Grant by Safeguard Scientifics, Inc. to Harry Wallaesa dated March 1, 2000*
10.39** Executive Employment Agreement dated November 1, 1999 between J. Edward Coleman and CompuCom Systems,
Inc. *
46
47
11 Computation of Per Share Income * (included in Note 15 to the Consolidated Financial Statements on
page 66 of Safeguard's Annual Report to Stockholders for year ended December 31, 1999, which page is
filed as part of Exhibit 13 hereto)
13 Pages 35 to 74 of Annual Report to Stockholders for year ended December 31, 1999 *
21 List of Subsidiaries*
23.1 Consent of KPMG LLP, Independent auditors*
23.2 Consent of PricewaterhouseCoopers LLP, Independent accountants*
27 Financial Data Schedule for the year ended December 31, 1999*
99.1 Consolidated Financial Statements of Cambridge Technology Partners (Massachusetts), Inc. ***
- --------------------------------
* Filed herewith.
** These exhibits relate to compensatory plans, contracts or arrangements in
which directors and/or executive officers of the registrant may
participate.
*** To be filed by amendment
(1) Filed on March 30, 1987 as an exhibit to Annual Report on Form 10-K
(No. 1-5620) and incorporated herein by reference.
(2) Filed on December 13, 1991 as an exhibit to Form 8-K (No. 1-5620) and
incorporated herein by reference.
(3) Filed on March 30, 1992 as an exhibit to Form 10-K (No. 1-5620) and
incorporated herein by reference.
(4) Filed on March 30, 1994 as an exhibit to Form 10-K (No. 1-5620) and
incorporated herein by reference.
(5) Filed on March 30, 1995 as an exhibit to Form 10-K (No. 1-5620) and
incorporated herein by reference.
(6) Filed on April 1, 1996 as an exhibit to Form 10-K (No. 1-5620) and
incorporated herein by reference.
(7) Filed on March 31, 1997 as an exhibit to Form 10-K (No. 1-5620) and
incorporated herein by reference.
(8) Filed May 15, 1997 as an exhibit to Form 10-Q (No. 1-5620) and
incorporated herein by reference.
(9) Filed March 31, 1998 as an exhibit to Form 10-K (No. 1-5620) and
incorporated herein by reference.
(10) Filed on May 15, 1998 as an exhibit to Form 10-Q (No. 1-5620) and
incorporated herein by reference.
(11) Filed August 14, 1998 as an exhibit to Form 10-Q (No. 1-5620) and
incorporated herein by reference.
47
48
(12) Filed November 16, 1998 as an exhibit to Form 10-Q (No. 1-5620) and
incorporated herein by reference.
(13) Filed on March 31, 1999 as an exhibit to Form 10-K (No. 1-5620) and
incorporated herein by reference.
(14) Incorporated by reference from registrant's Form 10-Q for the quarter
ended March 31, 1999 dated May 17, 1999 and made a part hereof by such
reference.
(15) Incorporated by reference from registrant's 8-K dated May 10, 1999 and
made a part hereof by such reference.
(16) Incorporated by reference from registrant's Form 10-Q for the quarter
ended June 30, 1999 dated August 16, 1999 and made a part hereof by
such reference.
(17) Incorporated by reference from registrant's Form 10-Q/A for the quarter
ended June 30, 1999 dated September 2, 1999 and made a part hereof by
such reference.
(18) Incorporated by reference from registrant's Form 10-Q for the quarter
ended September 31, 1999 dated November 15, 1999 and made a part hereof
by such reference.
(19) Incorporated by reference from registrant's Current Report on Form 8-K
filed on February 29, 2000
48
49
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Dated: March 21, 2000 SAFEGUARD SCIENTIFICS, INC.
By: /s/ Warren V. Musser
-----------------------------------
Warren V. Musser,
Chairman and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Dated: March 21, 2000 /s/ Warren V. Musser
------------------------------------
Warren V. Musser,
Chairman and Chief Executive Officer
(Principal Executive Officer)
Dated: March 21, 2000 /s/ Gerald Blitstein
------------------------------------
Gerald Blitstein,
Senior Vice President and Chief
Financial Officer (Principal
Financial and Accounting Officer)
Dated: March 21, 2000 /s/ Judith Areen
------------------------------------
Judith Areen, Director
Dated: March 21, 2000 /s/ Vincent G. Bell, Jr.
------------------------------------
Vincent G. Bell, Jr., Director
Dated: March 21, 2000 /s/ Michael J. Emmi
------------------------------------
Michael J. Emmi, Director
Dated: March 21, 2000
------------------------------------
Walter W. Buckley, III, Director
Dated: March 21, 2000 /s/ Robert A. Fox
------------------------------------
Robert A. Fox, Director
Dated: March 21, 2000 /s/ Robert E. Keith, Jr.
------------------------------------
Robert E. Keith, Jr., Director
Dated: March 21, 2000 /s/ Jack L. Messman
------------------------------------
Jack L. Messman, Director
50
Dated: March 21, 2000 /s/ Russell E. Palmer
------------------------------------
Russell E. Palmer, Director
Dated: March ___, 2000
------------------------------------
John W. Poduska Sr., Director
Dated: March 21, 2000 /s/ Heinz Schimmelbusch
------------------------------------
Heinz Schimmelbusch, Director
Dated: March 16, 2000 /s/ Hubert J. P. Schoemaker
------------------------------------
Hubert J. P. Schoemaker, Director
Dated: March 21, 2000 /s/ Harry Wallaesa
------------------------------------
Harry Wallaesa, Director
Dated: March 21, 2000 /s/ Carl Yankowski
------------------------------------
Carl Yankowski, Director