Item 9A. Controls and Procedures
Item 9A. Controls and Procedures
(a) Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures, as such term is defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934 (the “Exchange Act”), that are designed to provide reasonable assurance that the information required to be disclosed by us in reports filed under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and (ii) accumulated and communicated to our management, including the Principal Executive Officer and Principal Financial Officer, as appropriate to allow timely decisions regarding disclosure. A controls system cannot provide absolute assurance that the objectives of the controls system are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected. Our management, with the participation of our Principal Executive Officer and Principal Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of December 31, 2018 . Based on that evaluation, the Principal Executive Officer and Principal Financial Officer concluded that our disclosure controls and procedures as of December 31, 2018 are functioning effectively.
(b) Management’s Report on Internal Control Over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Our internal control over financial reporting includes those policies and procedures that pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets; provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of our assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2018 . In making this assessment, management used the framework established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). As a result of this assessment and based on the criteria in the COSO framework, management has concluded that, as of December 31, 2018 , the Company’s internal control over financial reporting was effective.
Our independent registered public accounting firm, KPMG LLP, has audited the effectiveness of our internal control over financial reporting as of December 31, 2018 . Their opinion on the effectiveness of our internal control over financial reporting and their opinion on our Consolidated Financial Statements are included in Item 8 in this Form 10-K.
(c) Change in Internal Control over Financial Reporting
No change in our internal control over financial reporting occurred during our most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Item 9B. Other Information
None.
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PART III
Item 10. Directors, Executive Officers and Corporate Governance
Incorporated by reference to the portions of our Definitive Proxy Statement entitled “Election of Directors,” “Corporate Governance and Board Matters” and “Section 16(a) Beneficial Ownership Reporting Compliance.” Information about our Executive Officers is included in Annex to Part I above.
Item 11. Executive Compensation
Incorporated by reference to the portions of our Definitive Proxy Statement entitled “Compensation Discussion and Analysis,” “Compensation Committee Report” and “Executive Compensation.”
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters - to be updated
Security ownership of certain beneficial owners is incorporated by reference to the portion of our Definitive Proxy Statement entitled “Stock Ownership of Certain Beneficial Owners, Directors and Officers.”
SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS
Our equity compensation plans provide a broad-based program designed to attract and retain talent while creating alignment with the long-term interests of our shareholders. Employees at all levels participate in our equity compensation plans. In addition, members of our Board receive equity grants for their service on our Board.
Our 2001 Associates Equity Compensation Plan (“2001 Plan”) provided for the grant of nonqualified stock options, stock appreciation rights, restricted stock, performance units, and other stock-based awards to employees, consultants or advisors of Safeguard and its subsidiaries, provided that no grants could be made under this plan to executive officers or directors of Safeguard. Under the NYSE rules that were in effect at the time this plan was adopted in 2001, shareholder approval of the plan was not required. Except for the persons eligible to participate in the 2001 Plan and the inability to grant incentive stock options under the 2001 Plan, the terms of the 2001 Plan are substantially the same as the other equity compensation plans approved by our shareholders (which are described herein or have been described in previous filings).
A total of 900,000 shares of our common stock were authorized for issuance under the 2001 Plan. At December 31, 2018, 105,556 shares were subject to outstanding options and performance stock units ("PSUs"), no shares were available for future issuance, and 585,025 shares had been issued under the 2001 Plan. The 2001 Plan expired by its terms on February 21, 2011. Equity grants previously awarded under this plan that remained outstanding at December 31, 2018, continue to be administered in accordance with the terms of the grants. Any portions of outstanding equity grants under the 2001 Plan that expire or become unexercisable for any reason shall be canceled and shall be unavailable for future issuance.
During 2013 and 2016, the Compensation Committee granted “employee inducement” awards to three then newly hired executives. The awards were granted outside of Safeguard’s existing equity compensation plans in accordance with NYSE rules. The employee inducement awards consisted of: (i) options that were outstanding at January 1, 2018 to purchase up to an aggregate of 70,000 shares of Safeguard common stock and (ii) 23,083 shares of restricted stock and 23,083 performance stock units that were granted as inducement awards during 2016. All of the “employee inducement” awards that were granted as stock options have a per share exercise price equal to the average of the high and low prices of Safeguard common stock on the grant date. 17,500 of such stock options were granted with an eight-year term and 52,500 of such stock options were granted with a 10-year term. The 23,083 performance stock units were granted with a 10-year term.
During 2018, there were no shares underlying inducement stock options that were exercised, 7,260 shares of restricted stock underlying inducement awards vested and 70,000 of the shares of underlying inducement stock options expired.
Of the shares underlying the “employee inducement” awards that were outstanding at December 31, 2018, (i) 5,900 shares of restricted stock were subject to time-based vesting in eight equal quarterly installments commencing on January 15, 2019, and (ii) 11,799 performance stock units vest based on the aggregate cash produced as a result of monetizations involving certain of our partner companies relative to the amount of cash deployed in connection with such partner companies. With the exception of the capital-return based vesting provisions, the terms and provisions of the employee inducement awards are substantially the same as equity grants previously awarded to other executives under Safeguard’s equity compensation plans.
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The following table provides information as of December 31, 2018 about the securities authorized for issuance under our equity compensation plans. The material features of our equity compensation plans are described in Note 7 to the Consolidated Financial Statements filed as part of our Annual Report on Form 10-K for the year ended December 31, 2018.
Equity Compensation Plan Information
Plan Category
Number of Securities to Be Issued Upon Exercise of Outstanding Options, Warrants and Rights (1)
(a)
Weighted-Average Exercise Price of Outstanding Options, Warrants and Rights (2)
(b)
Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans (Excluding Securities Reflected in Column (a))
(c)
Equity compensation plans approved by security holders (3)
985,821
$14.9245
2,063,088
Equity compensation plans not approved by security holders (4)
117,355
$13.2940
—
Total
1,103,176
$14.6607
2,063,088
(1)
Includes a total of 658,622 shares underlying PSUs and DSUs awarded for no consideration and 33,947 shares underlying DSUs awarded to directors in lieu of all or a portion of directors’ fees.
(2)
The weighted average exercise price calculation excludes 692,569 shares underlying outstanding DSUs and PSUs included in column (a) which are payable in stock, on a one-for-one basis.
(3)
Represents awards granted under the 1999 Equity Compensation Plan and the 2014 Plan and shares available for issuance under the 2014 Plan.
(4)
Includes awards granted under the 2001 Plan and 11,799 “employee inducement” awards.
Item 13. Certain Relationships and Related Transactions, and Director Independence
Incorporated by reference to the portions of the Definitive Proxy Statement entitled “Corporate Governance Principles and Board Matters – ‘Board Independence’ and “Review and Approval of Transactions with Related Persons.”
Item 14. Principal Accountant Fees and Services
Incorporated by reference to the portion of the Definitive Proxy Statement entitled “Independent Public Accountant – Audit Fees.”
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PART IV
Item 15. Exhibits and Financial Statement Schedules
(a) Consolidated Financial Statements and Schedules
Incorporated by reference to Item 8 of this Report on Form 10-K.
(b) Exhibits
The exhibits required to be filed as part of this Report are listed in the exhibit index below.
(c) Financial Statement Schedules
None.
Exhibits
The following is a list of exhibits required by Item 601 of Regulation S-K filed as part of this Report. For exhibits that previously have been filed, the Registrant incorporates those exhibits herein by reference. The exhibit table below includes the Form Type and Filing Date of the previous filing and the location of the exhibit in the previous filing which is being incorporated by reference herein. Documents which are incorporated by reference to filings by parties other than the Registrant are identified in footnotes to this table.
Incorporated Filing Reference
Exhibit
Number
Description
Form Type & Filing
Date
Original
Exhibit Number
1.a
Description
3.1.1
Seconded Amended and Restated Articles of Incorporation of Safeguard Scientifics, Inc.
Form 8-K
10/25/07
3.1
3.1.2
Amendment to Seconded Amended and Restated Articles of Incorporation of Safeguard Scientifics, Inc.
Form 8-K
8/27/09
3.1
3.1.3
Statement with Respect to Shares
Form 10-Q
4/25/14
3.1
3.1.4
Statement of Designation of Series B Junior Participating Preferred Stock
Form 8-K
2/20/18
3.1
3.2
Third Amended and Restated By-laws of Safeguard Scientifics, Inc.
Form 8-K
2/13/18
3.1
4.1
Section 382 Tax Benefits Preservation Plan, dated as of February 19, 2018, by and among Safeguard Scientifics, Inc. Computershare Inc. and Computershare Trust Company, N.A.
Form 8-K
2/20/18
4.1
10.1*
Safeguard Scientifics, Inc. 1999 Equity Compensation Plan, as amended and restated on October 21, 2008
Form 10-Q
11/6/08
10.4
10.2
Safeguard Scientifics, Inc. 2001 Associates Equity Compensation Plan, as amended and restated on October 21, 2008
Form 10-Q
11/6/08
10.5
10.3*
Safeguard Scientifics, Inc. 2014 Equity Compensation Plan, as amended and restated on March 5, 2014
Form 10-Q
7/25/14
10.1
10.4*
Safeguard Scientifics, Inc. Executive Deferred Compensation Plan (amended and restated as of January 1, 2009)
Form 10-K
3/19/09
10.4
10.5*
Management Incentive Plan
Form 8-K
4/25/08
10.1
10.6*
Amended and Restated Safeguard Scientifics, Inc. Transaction bonus plan
Form 8-K
2/19/19
99.1
10.7†
Compensation Summary — Non-employee Directors
—
—
10.8.1*
Agreement by and between Safeguard Scientifics, Inc. and Stephen Zarrilli dated as of May 28, 2008
Form 8-K
5/29/08
10.1
10.8.2*
Letter Amendment dated December 9, 2008, to Agreement by and between Safeguard Scientifics, Inc. and Stephen Zarrilli dated as of May 28, 2008
Form 10-K
3/19/09
10.9.2
10.8.3*
Compensation Agreement by and between Safeguard Scientifics, Inc. and Stephen T. Zarrilli dated December 28, 2012
Form 10-K
3/11/13
10.9.3
10.8.4*
Compensation Agreement by and between Safeguard Scientifics, Inc. and Stephen T. Zarrilli dated April 6, 2018
Form 8-K
4/10/18
99.8
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10.9.1*
Amended and Restated Letter Agreement by and between Safeguard Scientifics, Inc. and Brian J. Sisko dated December 3, 2008
Form 10-K
3/19/09
10.12
10.9.2*
Compensation Agreement by and between Safeguard Scientifics, Inc. and Brian J. Sisko dated December 14, 2009
Form 10-K
3/16/10
10.11.2
10.9.3*
Compensation Agreement by and between Safeguard Scientifics, Inc. and Brian J. Sisko dated December 28, 2012
Form 10-K
3/11/13
10.10.3
10.9.4*
Compensation Agreement by and between Safeguard Scientifics, Inc. and Brian J. Sisko dated April 6, 2018
Form 8-K
4/10/18
99.5
10.10.1*
Compensation Agreement by and between Safeguard Scientifics, Inc. and Jeffrey B. McGroarty dated January 6, 2014
Form 8-K
1/7/14
10.1
10.11.1*
Compensation Agreement by and between Safeguard Scientifics, Inc. and David Kille dated September 1, 2015
Form 8-K
4/10/18
99.6
10.11.2*
Compensation Agreement by and between Safeguard Scientifics, Inc. and David Kille dated April 6, 2018
Form 8-K
4/10/18
99.7
10.12*
Compensation Agreement by and between Safeguard Scientifics, Inc. and Mark Herndon dated September 17, 2018
Form 8-K
9/18/18
99.1
10.13*
Key Employee Compensation Recoupment Policy
Form 10-Q
7/26/13
10.2
10.14
Purchase and Sale Agreement dated as of December 9, 2005 by and among HarbourVest VII Venture Ltd., Dover Street VI L.P. and several subsidiaries and affiliated limited partnerships of Safeguard Scientifics, Inc.
Form 10-K
3/13/06
10.36
10.15
Consent Agreement, dated as of May 17, 2011, by and among Shire Pharmaceuticals, Inc. and certain stockholders of Advanced BioHealing, Inc.
Form 8-K
5/18/11
10.1
10.16.1
Loan and Guaranty Agreement dated as of May 11, 2017 among Safeguard Scientifics, Inc., Safeguard Scientifics (Delaware), Inc., Safeguard Delaware, Inc., Safeguard Technologies, Inc., SFE Properties, Inc., Safeguard Capital Management, Inc., SSI Partnership Holdings, (Pennsylvania), Inc., SSI Management Company, Inc., Safeguard Fund Management, Inc., Safeguard Delaware II, Inc. and Safeguard PM SPV, Inc. and HPS Investment Partners, LLC and certain other lenders party thereto
Form 8-K/A
5/12/17
10.1
10.16.2
Pledge and Security Agreement dated as of May 11, 2017 among Safeguard Scientifics, Inc., Safeguard Scientifics (Delaware), Inc., Safeguard Delaware, Inc., Safeguard Technologies, Inc., SFE Properties, Inc., Safeguard Capital Management, Inc., SSI Partnership Holdings, (Pennsylvania), Inc., SSI Management Company, Inc., Safeguard Fund Management, Inc., Safeguard Delaware II, Inc. and Safeguard PM SPV, Inc. and HPS Investment Partners, LLC and certain other lenders party thereto
Form 8-K/A
5/12/17
10.2
10.16.3
Second Amendment to Loan and Guaranty Agreement and Lien Reaffirmation Agreement dated as of May 11, 2018 among Safeguard Scientifics, Inc., Safeguard Scientifics (Delaware), Inc., Safeguard Delaware, Inc., Safeguard Technologies, Inc., SFE Properties, Inc., Safeguard Capital Management, Inc., SSI Partnership Holdings, (Pennsylvania), Inc., SSI Management Company, Inc., Safeguard Fund Management, Inc., Safeguard Delaware II, Inc. and Safeguard PM SPV, Inc. and HPS Investment Partners, LLC and certain other lenders party thereto
Form 8-K/A
5/15/18
10.1
10.17.1
Stock Repurchase Agreement dated as of July 2, 2018 between Safeguard Delaware, Inc. and MediaMath Holdings, Inc.
Form 8-K
7/9/18
10.1
10.17.2
Amendment No. 1 Stock Repurchase Agreement dated as of January 3, 2019 between Safeguard Delaware, Inc. and MediaMath Holdings, Inc.
Form 8-K
1/4/19
10.1
14.1 †
Code of Business Conduct and Ethics
—
—
21.1 †
List of Subsidiaries
—
—
23.1 †
Consent of Independent Registered Public Accounting Firm — KPMG LLP
—
—
31.1 †
Certification of Brian J. Sisko pursuant to Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934
—
—
31.2 †
Certification of Mark A. Herndon pursuant to Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934
—
—
32.1 ‡
Certification of Brian J. Sisko pursuant to 18 U.S.C. Section 1350, as Adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
—
—
32.2 ‡
Certification of Mark A. Herndon pursuant to 18 U.S.C. Section 1350, as Adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
—
—
101
The following materials from Safeguard Scientifics, Inc. Annual Report on Form 10-K for the year ended December 31, 2016, formatted in XBRL (eXtensible Business Reporting Language); (i) Consolidated Balance Sheets; (ii) Consolidated Statements of Operations; (iii) Consolidated Statements of Comprehensive Loss; (iv) Consolidated Statements of Changes in Equity; (v) Consolidated Statements of Cash Flows; and (vi) Notes to Consolidated Financial Statements.
—
—
†
Filed herewith
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Table of Contents
‡
Furnished herewith
*
These exhibits relate to management contracts or compensatory plans, contracts or arrangements in which directors and/or executive officers of the Registrant may participate.
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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.
S AFEGUARD S CIENTIFICS , I NC .
By:
BRIAN J. SISKO
Brian J. Sisko
President and Chief Executive Officer
Dated: March 1, 2019
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.
Signature
Title
Date
BRIAN J. SISKO
President and Chief Executive Officer and Director
(Principal Executive Officer)
March 1, 2019
Brian J. Sisko
MARK A. HERNDON
Senior Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
March 1, 2019
Mark A. Herndon
IRA LUBERT
Director
March 1, 2019
Ira Lubert
RUSSELL GLASS
Director
March 1, 2019
Russell Glass
MAUREEN MORRISON
Director
March 1, 2019
Maureen Morrison
J OHN J. R OBERTS
Director
March 1, 2019
John J. Roberts
R OBERT J. R OSENTHAL
Chairman of the Board of Directors
March 1, 2019
Robert J. Rosenthal
65