Securities and Exchange Commission
 Washington, D.C. 20549
FORM 10-K/A
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.

Yes X No
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 to this Form 10-K/A.
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 to this Form 10-K/A.	

2

ITEM 10. DISCLOSURE OF DELINQUENT FILERS PURSUANT TO ITEM 405 OF REGULATION S-K:
To our knowledge, the only late filings during 1999 of reports of stock ownership by our directors and executive officers were one transaction reported late on Form 4 by each of Thomas C. Lynch, Jack L. Messman and Harry Wallaesa.
ITEM 11. EXECUTIVE COMPENSATION
EXECUTIVE COMPENSATION
The following table provides summary information concerning the compensation earned by our chief executive officer and other executive officers employed by us during the fiscal year ended December 31, 1999.
SUMMARY COMPENSATION TABLE

                                                                                  LONG TERM COMPENSATION
                                                                            -----------------------------------
                                             ANNUAL COMPENSATION                    AWARDS             PAYOUTS
                                     ------------------------------------   -----------------------   ---------
                                                                                         SECURITIES     LONG
                                                                            RESTRICTED   UNDERLYING     TERM
                                                                OTHER         STOCK       OPTIONS/    INCENTIVE    ALL OTHER
                                      SALARY      BONUS      COMPENSATION    AWARD(S)       SARS       PAYOUTS    COMPENSATION
                              YEAR    ($)(1)      ($)(2)        ($)(3)        ($)(4)        (#)        ($)(5)        ($)(6)
                              ----   --------   ----------   ------------   ----------   ----------   ---------   ------------
Warren V. Musser............  1999   $413,731   $  827,500     $53,920           0               0           0      $12,000
Chairman of the Board and     1998    305,000      305,000      60,193           0               0           0       12,000
Chief Executive Officer       1997    290,000      290,000      63,004           0               0           0       12,000
Harry Wallaesa..............  1999   $330,770   $1,386,176          --           0       1,590,000           0      $10,970
President, Chief Operating    1998         --           --          --          --              --          --           --
Officer and Director(7)       1997         --           --          --          --              --          --           --
Stephen J. Andriole,
  Ph.D......................  1999   $260,577   $  730,151     $    --           0          90,000    $321,179      $20,746
Senior Vice President and     1998         --           --          --          --              --          --           --
Chief Technology Officer(7)   1997         --           --          --          --              --          --           --
John K. Halvey..............  1999   $150,000   $  635,713          --           0         210,000          --      $ 8,398
Senior Vice President(7)      1998         --           --          --          --              --          --           --
                              1997         --           --          --          --              --          --           --
Jerry L. Johnson............  1999   $283,462   $  416,469          --                      60,000    $905,722      $19,896
Executive Vice President      1998    240,000      182,000          --           0          60,000      38,258       19,895
                              1997    210,000      169,760          --           0          90,000           0       19,620
James A. Ounsworth..........  1999   $267,115   $  610,498          --           0          60,000    $905,722      $22,562
Senior Vice President,        1998    221,000      154,700          --           0          60,000      38,258       33,621
  General                     1997    210,000      147,000          --           0          60,000           0       23,009
Counsel and Secretary	

(1) Includes compensation that has been deferred by the named officers under voluntary savings plans.
(2) Includes discretionary payouts under our Long-Term Incentive Plan which were made to each of the named executive officers with the exception of Mr. Musser.
(3) For Mr. Musser, this amount includes $38,772 for personal use of our plane in 1999. Mr. Musser's use of the plane increased starting in 1997 following a determination by the board of directors requiring him to travel on the company plane instead of commercial aircraft whenever possible for safety reasons.
(4) In May 1999, we released the shares of restricted stock of Internet Capital Group, Inc. previously awarded to Mr. Johnson and Mr. Ounsworth upon the satisfaction of the conditions of the grant.
(5) The 1999 payout represents the value of shares of Internet Capital Group, Inc., U.S. Interactive, Inc., and Pac-West Telecomm, Inc. distributed to Messrs. Andriole, Johnson and Ounsworth based on their limited partnership interests in Safeguard 98 Capital L.P.
(6) For 1999, all other compensation includes the following amounts.

                                          DEFINED CONTRIBUTION       COMPANY MATCH        LIFE INSURANCE
NAME                                          PENSION PLAN       VOLUNTARY SAVINGS PLAN   PREMIUMS PAID
----                                      --------------------   ----------------------   --------------
Warren V. Musser........................         $7,200                  $4,800              $     0
Harry Wallaesa..........................         $7,200                  $   --              $ 3,770
Stephen J. Andriole.....................         $7,200                  $4,800              $ 8,746
John K. Halvey..........................         $6,750                  $   --              $ 1,648
Jerry L. Johnson........................         $7,200                  $4,800              $ 7,896
James A. Ounsworth......................         $7,200                  $4,800              $10,562	

(7) Messrs. Wallaesa, Andriole and Halvey became executive officers in March 1999, January 1999 and June 1999, respectively.
35

OPTION GRANTS DURING THE YEAR ENDED DECEMBER 31, 1999

                                                                                   POTENTIAL REALIZABLE VALUE AT
                                                                                      ASSUMED ANNUAL RATES OF
                                                                                    STOCK PRICE APPRECIATION FOR
                                             INDIVIDUAL GRANTS                             OPTION TERM(1)
                           -----------------------------------------------------   ------------------------------
                             NUMBER OF      % OF TOTAL
                            SECURITIES     OPTIONS/SARS   EXERCISE
                            UNDERLYING      GRANTED TO     OR BASE
                           OPTIONS/SARS    EMPLOYEES IN     PRICE     EXPIRATION
NAME                       GRANTED(#)(2)   FISCAL YEAR    ($/SH)(3)      DATE          5%($)           10%($)
----                       -------------   ------------   ---------   ----------   -------------   --------------
Warren V. Musser.........            0            0%            --           --             --               --
Harry Wallaesa...........    1,500,000        37.65%      $12.3542       3/1/07     $8,847,870      $21,192,187
                                90,000         2.26%       45.4687     12/15/07      1,953,835        4,679,775
Stephen J. Andriole,
  Ph.D...................       30,000          .75%      $26.3437      4/15/07     $  337,338      $   903,791
                                60,000         1.51%       45.4687     12/15/07      1,302,557        3,119,850
John K. Halvey...........      150,000         3.76%      $20.0938      6/15/07     $1,439,084      $ 3,446,857
                                60,000         1.51%       45.4687     12/15/07      1,302,557        3,119,850
Jerry L. Johnson.........       60,000         1.51%      $45.4687     12/15/07     $1,302,557      $ 3,119,850
James A. Ounsworth.......       60,000         1.51%      $45.4687     12/15/07     $1,302,557      $ 3,119,850	

(1) These values assume that the shares appreciate at the compounded annual rate shown from the grant date until the end of the option term. These values are not estimates of future stock price growth of Safeguard. Executives will not benefit unless our common stock price increases above the stock option exercise price.
(2) The options have an eight-year term and vest 25% each year commencing on the first anniversary of the grant. If an executive retires on or after his 65th birthday, the options will become fully vested on his retirement date. Certain of the options reported in the above table may be exercised at any time. If an executive exercises unvested options and his employment is terminated, we may repurchase the unvested shares at the exercise price. The option exercise price may be paid in cash, by delivery of previously acquired shares, subject to certain conditions, same day sales (that is, a cashless exercise through a broker) or such other method as the compensation committee may approve. The compensation committee may modify the terms of outstanding options, including acceleration of the exercise date.
(3) All options have an exercise price equal to the fair market value of the shares subject to each option on the grant date.
36

The following table sets forth information about option exercises by each of the officers named in the summary compensation table.
YEAR-END STOCK OPTION VALUES
 DECEMBER 31, 1999

                                                           NUMBER OF SECURITIES          VALUE OF UNEXERCISED
                                                          UNDERLYING UNEXERCISED             IN-THE-MONEY
                                                          OPTIONS/SARS AT FISCAL        OPTIONS/SARS AT FISCAL
                              SHARES                            YEAR-END(#)                 YEAR-END($)(1)
                            ACQUIRED ON      VALUE      ---------------------------   ---------------------------
NAME                        EXERCISE(#)   REALIZED($)   EXERCISABLE   UNEXERCISABLE   EXERCISABLE   UNEXERCISABLE
----                        -----------   -----------   -----------   -------------   -----------   -------------
Warren V. Musser..........          0             --            0               0              --             --
Harry Wallaesa............          0             --            0       1,590,000     $         0    $63,766,464
Stephen J. Andriole,
  Ph.D....................     37,500     $  462,952       45,000         187,500     $ 1,981,404    $ 5,675,622
John K. Halvey............          0             --            0         210,000     $         0    $ 5,667,801
Jerry L. Johnson..........     88,152     $1,847,211      229,620         150,000     $10,651,936    $ 4,537,812
James A. Ounsworth........    240,000     $4,518,012      465,000         135,000     $23,501,028    $ 3,885,000	

(1) Value is calculated using the difference between the option exercise price and the year-end stock price, multiplied by the number of shares subject to an option. The year-end stock price was $54.3333 per share.
LONG-TERM INCENTIVE PLAN
Beginning in 1997, we established one or more limited partnerships to hold all acquisitions approved and made by Safeguard during any given year. Under our long-term incentive plan, participants may purchase interests in these limited partnerships. We allocated up to a 10% interest for purchase by the participants for 1997 and 1998 and up to a 12.5% interest for 1999. Safeguard Scientifics, through a wholly-owned subsidiary acting as the general partner of each partnership, retains approximately a 90% interest in each partnership for 1997 and 1998 and approximately an 87.5% interest for each partnership in 1999. Partnership interests vest 25% each year, generally starting on July 1 in the year following the acquisition. The compensation committee has the authority to accelerate vesting. A partnership will generally distribute the securities it holds to its partners after five to ten years, but may distribute securities earlier if the company has completed an initial public offering or has been sold. We must receive two times the cost of the equity securities of a company and repayment of any loans to the company before the limited partners receive any of the securities of the company. If that threshold is met, the limited partners will receive distributions of approximately 10% to 12.5% of the equity securities of the company. The percentages allocated during 1999 to each named executive officer in each partnership are included in the following table.

                                                                            PERFORMANCE OR
                                                                             OTHER PERIOD
                                                                                 UNTIL
                                                              PERCENTAGE      MATURATION
NAME/PARTNERSHIP                                               INTEREST        OR PAYOUT
----------------                                              ----------    ---------------
Warren V. Musser                                                     0%(1)           --
Harry Wallaesa
  Safeguard 99 Capital LP                                       1.1250%         5 years
  Safeguard Partners Capital II L.P.                            1.1250%        10 years
Stephen J. Andriole, Ph.D.
  Safeguard 99 Capital LP                                       0.8310%         5 years
  Safeguard Partners Capital II L.P.                            0.8310%        10 years
John K. Halvey
  Safeguard 99 Capital LP(2)................................    0.5000%         5 years
  Safeguard Partners Capital II L.P.(2).....................    0.5000%        10 years
Jerry L. Johnson
  Safeguard 99 Capital LP...................................    0.8310%         5 years
  Safeguard Partners Capital II L.P.........................    0.8310%        10 years
James A. Ounsworth
  Safeguard 99 Capital LP...................................    0.8310%         5 years
  Safeguard Partners Capital II L.P.........................    0.8310%        10 years	

(1) Mr. Musser did not participate in the plan prior to the year 2000, but will participate in 2000 and thereafter.
(2) The percentage allocated to Mr. Halvey permits him to participate only in those acquisitions approved and made by Safeguard on or after June 1, 1999.
EMPLOYMENT CONTRACTS; SEVERANCE AND CHANGE-IN-CONTROL ARRANGEMENTS
At the time he joined Safeguard, we agreed to pay John Halvey's salary for a 12-month period if his employment is terminated without cause prior to December 31, 2000.
37

BOARD COMPENSATION
Directors employed by Safeguard or a wholly-owned subsidiary receive no additional compensation, other than their normal salary, for serving on the board or its committees. Non-employee directors receive the following compensation:
- $17,500 annually
- $1,000 annually for chairing a committee
- $1,000 for each board meeting attended
- $500 for each telephonic special meeting attended
- $500 for each committee meeting attended
- reimbursement of out-of-pocket expenses
Additionally, each director who is not an executive officer of Safeguard currently receives a stock option to purchase shares of Safeguard common stock upon initial election to the board. Each of these directors also receives subsequent annual stock option grants. All grants are discretionary and may vary as to the number of shares.
Directors' options generally have an eight-year term and vest 25% each year starting on the first anniversary of the grant date. The exercise price is equal to the fair market value of a share of our common stock on the grant date.
In May 1999, Mr. Yankowski received an initial grant to purchase 90,000 shares at an exercise price of $30.9792 per share. In February 2000, Mr. Buckley received an initial grant to purchase 90,000 shares at an exercise price of $50.9792 per share. In December 1999, each non-employee director received an annual service grant to purchase 9,000 shares of Safeguard common stock at an exercise price of $45.4687 per share.
DEFERRED CHARITABLE DONATION PROGRAM: Safeguard established this program to promote charitable giving. It is available to all directors and certain officers and is funded, in part, by life insurance policies on certain participants. Following the death of a director, we will donate up to $1 million to one or more designated charities in the Southeastern Pennsylvania area. Directors derive no financial benefit from this program since all charitable deductions accrue solely to Safeguard. We anticipate the program will result in nominal cost to us over time.
DEFERRED COMPENSATION: Before 1989, we offered certain directors and officers a deferred compensation plan. All contributions to the plan were completed by the end of 1988. Upon retirement (or an earlier date in certain cases) or upon termination of service as a director, each participant is entitled to receive, as a level payment over 15 years or as a lump sum, an amount equal to the total credits to his account plus an investment growth factor. Mr. Bell began receiving a quarterly payment in February 1992 of $3,100, which was reduced to $3,000 in February 1994. Safeguard is the beneficiary of the life insurance contracts we purchased to cover our obligations under the plan. We expect to recover an amount equal to all benefit payments under the plan, the premium payments on the insurance contracts, and a portion of the interest earned on the use of the premium payments.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Ken Fox, the son of the chairman of our Compensation Committee, Robert Fox, is an executive officer, director and 4.2% stockholder of Internet Capital Group. Safeguard owns approximately 14% of Internet Capital Group.
Our Chief Executive Officer, Warren V. Musser, serves on the Management Resource Committee (which performs the function of a compensation committee) of the Board of Cambridge Technology Partners, Inc., a Safeguard partner company. The Chief Executive Officer of Cambridge Technology Partners, Inc., Jack Messman, serves on our Board.
38

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding beneficial ownership of our common stock as of March 17, 2000 by:
- each person (or group of affiliated persons) who is known by us to own more than five percent of the outstanding shares of our common stock;
- each of our directors and our executive officers named in the summary compensation table; and
- all of our executive officers and directors as a group.
Beneficial ownership is determined in accordance with the rules of the SEC and generally includes voting or investment power with respect to securities. Unless otherwise noted, we believe that all persons named in the table have sole voting and sole investment power with respect to all shares beneficially owned by them. All figures include shares of our common stock issuable upon exercise of options or warrants exercisable within 60 days of March 17, 2000. These options and warrants are deemed to be outstanding and to be beneficially owned by the person holding them for the purpose of computing the percentage ownership of that person but are not treated as outstanding for the purpose of computing the percentage ownership of any other person.

                                                           NUMBER OF
                                                             SHARES
NAME AND ADDRESS OF 5% BENEFICIAL                         BENEFICIALLY              PERCENT
OWNERS, DIRECTORS AND EXECUTIVE OFFICERS                     OWNED             BENEFICIALLY OWNED
----------------------------------------                  ------------    ----------------------------
Warren V. Musser........................................    9,167,343(1)       8.5%
  800 The Safeguard Building
  435 Devon Park Drive
  Wayne, PA 19087
Robert E. Keith, Jr. ...................................      220,077(2)         *
Judith Areen............................................       26,550            *
Vincent G. Bell, Jr. ...................................    1,455,579(3)       1.4%
Steven J. Andriole......................................       88,791            *
Walter W. Buckley, III..................................       18,000            *
Michael J. Emmi.........................................       10,875            *
Robert A. Fox...........................................      250,875(4)         *
John K. Halvey..........................................          600            *
Jerry L. Johnson........................................      282,582            *
Jack L. Messman.........................................      160,875            *
James A. Ounsworth......................................      803,115            *
Russell E. Palmer.......................................       89,610            *
John W. Poduska, Sr. ...................................      547,875            *
Heinz C. Schimmelbusch..................................       12,513            *
Hubert J.P. Schoemaker..................................      137,370            *
Harry Wallaesa..........................................      926,898            *
Carl J. Yankowski.......................................           --           --
All executive officers and directors as a group (23
  persons)..............................................   14,460,549         13.3%	

* Less than 1%.
(1) Includes 699,300 shares held by a charitable foundation established by Mr. Musser and 346,500 shares held by a trust of which Mr. Musser is a co-trustee.
(2) Includes 900 shares held by his spouse. Mr. Keith disclaims beneficial ownership of the shares held by his spouse.
(3) Includes 337,704 shares held by a charitable foundation established by Mr.
Bell.
(4) Includes 15,000 shares held by a charitable foundation established by Mr.
Fox.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In connection with various restricted stock awards made under our long-term incentive plan, we loaned each recipient an amount equal to the related income taxes on each award. Each of the loans is a full-recourse loan secured by a pledge of the restricted shares. The interest rates and due dates on each loan are as follows:

Date of Loan                      Interest Rate               Due Date
------------                      -------------               --------
2/12/97                               5.81%                   2/12/00
6/11/00                               4.90%                   6/11/00
8/27/99                               5.43%                   8/31/00
11/3/99                               5.57%                   12/3/00
12/1/99                               5.74%                   12/31/00
2/3/00                                6.20%                   2/28/00	

The following table shows the largest aggregate loan amounts outstanding in connection with these tax loans for each executive officer who owed us in excess of $60,000 since January 1, 1999, and the aggregate amounts outstanding at March 17, 2000:

                              Largest Balance
  Name                         Since 1/1/99        Balance at 3/17/00
  ----                         ------------        ------------------
Harry Wallaesa                 $297,841                $297,841
Steve Andriole                 $ 77,634                $      0
John Halvey                    $159,427                $159,427
Jerry Johnson                  $172,852                $      0
Thomas Lynch                   $194,448                $      0
Jim Ounsworth                  $159,195                $      0	

In addition to the above loans, in December 1998, CompuCom loaned Thomas Lynch the sum of $796,875 in connection with his exercise of stock options to acquire 500,000 shares of CompuCom common stock. The loan is evidenced by a full recourse promissory note which bears interest at the annual rate of 4.33% and is secured by the 500,000 shares of CompuCom common stock. Principal and accrued interest on the note is due on December 31, 2001. We also loaned Mr. Lynch the sum of $806,078 which is evidenced by a full recourse promissory note and contains the same terms as the CompuCom note. This note is secured by securities and partnership interests awarded to Mr. Lynch under our long-term incentive plan and a negative pledge of certain real estate.
In July 1999, we loaned John Halvey the sum of $500,000 in connection with his joining Safeguard. The loan is evidenced by a full recourse promissory note which bears interest at the prime rate and is secured by a pledge of stock, vested stock options, long-term incentive plan grants, and any other compensation granted to Mr. Halvey by Safeguard. Principal and accrued interest on the note is due on July 22, 2002.
In February 2000, we agreed to loan Gerald Blitstein the sum of $200,000 in connection with his joining Safeguard. The loan will be evidenced by a full recourse promissory note, will bear interest at the prime rate, and will be payable on the fifth anniversary of the loan. The loan will be secured by a pledge of his vested stock options and long-term incentive plan grants, and any other awards of stock or options granted to Mr. Blitstein by Safeguard.
In February 1999, we purchased a majority interest in aligne incorporated. Mr. Wallaesa, our president and COO, was a co-founder and significant stockholder of aligne. The purchase price for the interest in aligne was determined by negotiations between us and aligne and was based on an analysis of aligne's financial position and a comparison with other similarly situated companies. We also obtained a written report indicating the reasonableness of the investment by Howard Lawson & Co., an investment banking firm. This transaction was approved by our board of directors prior to Mr. Wallaesa's appointment as president, COO and a director. We exchanged 1,324,554 shares of Safeguard common stock, (as adjusted for the March 2000 three-for-one stock split) valued at $17.6 million, for an 80% interest in aligne. Mr. Wallaesa received 551,898 of the Safeguard shares, valued at $7.3 million, for his aligne shares. One-half of the Safeguard shares issued in this transaction were delivered to the aligne stockholders at closing, and the remaining shares were issued in their names but held in escrow pending achievement of established revenue targets for 1999 and 2000. Upon the achievement of the established revenue targets for 1999, one-half of the escrowed shares were released. The remaining shares will be retained by Safeguard until the established revenue targets for 2000 have been achieved. If aligne fails to achieve the revenue targets for 2000, the remaining shares will be returned to Safeguard.
In connection with our acquisition of a minority ownership interest in MegaSystems, Inc. in 1998, we guaranteed a $1.5 million loan. In March 1999, we loaned MegaSystems $1,555,556. The loan bears interest at the annual rate of 8% and is secured by the assets of MegaSystems. Payment of the outstanding principal and accrued interest, originally due in March 2000, was extended until September 2000. The loan is initially convertible into 1,555,556 shares of common stock of MegaSystems. In connection with this loan, MegaSystems also issued to Safeguard warrants to purchase 518,518 shares of MegaSystems preferred stock at an exercise price of $.01. In June 1999, we guaranteed $1.6 million in performance bonds posted by MegaSystems with connection with a theatre construction project. Warren Musser, the chairman, CEO and an 8.5% stockholder of Safeguard, has a personal relationship with the chief executive officer of MegaSystems.
We currently intend to acquire for $1 million a 6% equity position in Neuronyx, Inc., a biotechnology company founded by one of our directors, Hubert J.P. Schoemaker. Dr. Schoemaker is President, Chairman and a significant stockholder of Neuronyx.
We participate in the management of nine private equity funds and have limited partnership interests in two additional private equity funds.
Robert Keith, vice chairman of our board of directors, is the president and CEO of TL Ventures, the management company for TL Ventures III, TL Ventures IV, EnerTech Capital Partners I, and EnterTech Capital Partners II. Mr. Keith and Safeguard are general partners of the TL Ventures and EnerTech Capital Partners funds, and they participate in the profits of these funds. TL Ventures receives management fees from the TL Ventures funds and indirectly from EnerTech. TL Ventures paid Safeguard $400,000 in 1999 for management and operational services to TL Ventures and the funds and approximately $190,000 for the rental of office space. Safeguard has invested or committed a total of $40.2 million in the six TL Ventures and EnerTech Capital funds. Safeguard owns less than 7% of the partnership interests of each of these funds.
Heinz Schimmelbusch, a Safeguard director, is a general partner of Safeguard International Fund and participates in the profits of the fund. He also is one of three members of the management company of the fund. Safeguard has invested or committed $29 million to date in this fund and owns 10% of the limited partnership interests.
In May 1999, we loaned $2.5 million to Allied Resource Corporation. The loan bears interest at an annual rate equal to the prime rate plus 1% and is due on the earlier of May 4, 2000 or 60 days following demand for payment. In connection with this loan, Allied Resource issued to Safeguard warrants to purchase 62,500 shares of class A common stock at an exercise price of $10.00. Mr. Schimmelbusch is Chairman and a significant stockholder in Allied Resource Corporation.
Safeguard is organizing Pennsylvania Early Stage Partners II as a newly formed private equity fund, and has committed to invest up to $25 million in this fund. Michael Bolton, a Safeguard executive officer, is a managing director of Pennsylvania Early Stage Partners II. Mr. Bolton will participate in the profits of this fund along with Safeguard.
Ken Fox, the son of Safeguard director, Robert Fox, is an executive officer, director and 4.2% stockholder of Internet Capital Group. Walter Buckley, a director of Safeguard, is an executive officer, director and 4.6% stockholder of Internet Capital Group. Safeguard has invested $29.25 million in Internet Capital Group and owns approximately 14% of the company.
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
39

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.
40

(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, are filed herewith as Exhibit 99.1.
41

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)	

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)	

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 August   , 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)	

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. *	

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 on March 22, 2000 as an exhibit to Form 10-K.
** These exhibits relate to compensatory plans, contracts or arrangements in which directors and/or executive officers of the registrant may participate.
*** Filed herewith
(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.

(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

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 30, 2000               SAFEGUARD SCIENTIFICS, INC.

                                      By: /s/ Warren V. Musser
                                         -----------------------------------
                                         Warren V. Musser,
                                         Chairman and Chief Executive Officer	

Exhibit 10.13
AMENDMENT TO AMENDED AND RESTATED
CREDIT AGREEMENT
THIS AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT (this
"Amendment"), dated as of March 29, 1999 by and among Safeguard Scientifics, Inc., a Pennsylvania corporation ("SSI" or a "Borrower"), Safeguard Scientifics (Delaware) Inc., a Delaware corporation ("SSD" or a "Borrower"), Safeguard Delaware, Inc., a Delaware corporation ("SDI" or a "Borrower" and, collectively with SSI and SSD, the "Borrowers") and PNC Bank, National Association ("PNC", as agent for the "Lenders" under the Loan Agreement (in such capacity, "Agent")).
BACKGROUND
A. The parties, together with the other Lenders identified therein, entered into that certain Amended and Restated Credit Agreement dated April 17, 1998 (as amended to date, the "Loan Agreement").
B. Lenders, through the Agent, and the Borrowers desire to amend the Loan Agreement in the manner hereinafter set forth.
C. Capitalized terms that are not defined herein shall have the meanings ascribed to them in the Loan Agreement.
D. Subject to compliance with all conditions specified herein, all amendments hereinafter set forth are effective as of the date hereof unless otherwise expressly stated herein to the contrary.
NOW, THEREFORE, intending to be legally bound, the parties agree as follows:
1. RELEASE OF LIEN. SSI and SSD are, on the date hereof, entering into a certain contract (the "Credit Suisse Contract") with Credit Suisse Financial Products ("Credit Suisse") pursuant to which SSI and SSD have agreed to deliver to Credit Suisse one million (1,000,000) shares of Tellabs Inc. (f/k/a Coherent Communications Systems Corporation) common stock. Agent hereby releases any and all liens on, and pledges of, the stock to be delivered pursuant to the Credit Suisse Contract, consisting of one million (1,000,000) shares of Tellabs Inc. common stock (hereinafter, the "Released Stock"), together with all proceeds thereof and all cash and noncash dividends and other distributions with respect thereto. Agent further agrees to hereafter release such additional shares of Tellabs Inc. common stock that pursuant to the Credit Suisse Contract are to be hereafter delivered by SSI and SSD to Credit Suisse, together with the proceeds thereof and all cash and noncash dividends and other distributions with respect thereto. All proceeds received by SSI and SSD from Credit Suisse on account of such delivery shall be applied by SSI and SSD against the principal balance of the Loans. Accordingly, the Released Stock shall no longer constitute either "Pledged Securities" or "Collateral Coverage Securities" for any purpose of the Credit Agreement. However, should, pursuant to the Credit Suisse Contract, SSI and/or SSD receive from or retain the Released Stock free of the rights of

Credit Suisse, the same shall be pledged to the Lenders pursuant to the Amended and Restated Pledge Agreement between the Borrowers and Agent, dated April 17, 1998.
2. WAIVER OF VIOLATIONS. Agent hereby waives any and all violations of the following provisions of the Loan Agreement by reason of the Credit Suisse Contract and the transactions effected thereby:
A. Section 6.3, "Indebtedness," to the extent it would prohibit the incurrence of SSI's and/or SSD's obligations to Credit Suisse;
B. Section 6.4, "Liens," to the extent it would prohibit the granting by SSI and/or SSD of a security interest in or other rights to the Released Stock;
C. Section 6.11, "Sale of Assets," to the extent it would prohibit the disposition of the Released Stock.
3. MISCELLANEOUS.
A. Construction. The provisions of this Amendment shall be in addition to those of the Loan Agreement, the Notes and the Security Documents, all of which shall be construed as integrated and complementary to each other. In the event of any express inconsistency between the terms hereof and those contained in the Loan Agreement, the terms hereof shall control. Except as modified by the terms hereof, all terms and provisions of the Loan Agreement remain unchanged and in full force and effect.
B. Binding Effect; Assignment and Entire Agreement. This Amendment shall inure to the benefit of, and shall be binding upon, the respective successors and permitted assigns of the parties hereto. Borrowers have no right to assign any of their rights or delegate any of their obligations hereunder without the prior written consent of Lenders. This Amendment, together with the Loan Agreement, the Notes and the Security Documents, constitute the entire agreement among the parties relating to the subject matter thereof. All exhibits referred to herein and attached hereto shall be deemed expressly incorporated herein by reference and made a part hereof.
C. Waiver of Jury Trial. BORROWERS AND LENDERS IRREVOCABLY WAIVE TRIAL BY JURY AND THE RIGHT THERETO IN ANY LITIGATION IN ANY COURT WITH RESPECT TO, IN CONNECTION WITH, OR ARISING OUT OF, THIS AMENDMENT, THE NOTES, SECURITY DOCUMENTS, OR ANY INSTRUMENT OR DOCUMENT DELIVERED PURSUANT TO THIS AMENDMENT, OR THE VALIDITY, PROTECTION, INTERPRETATION, COLLECTION OR ENFORCEMENT THEREOF.
D. Expenses. In addition to all other expense reimbursement obligations of the Borrowers contained in the Loan Agreement and the Security Documents, Borrowers will reimburse Lenders for all costs and expenses, including reasonable attorneys' fees, incurred by Lenders in the negotiation, preparation and consummation of this Amendment and the documents to be delivered pursuant hereto.
-2-

E. Reaffirmation and Release. Borrowers ratify and reaffirm all of their Obligations to Lenders and agree that the same are owing without set-off, counterclaim or other defense of any nature. Borrowers specifically ratify and reaffirm all waiver of jury trial provisions set forth in the Loan Agreement, the Notes and the Security Documents.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed and delivered by their duly authorized officers as of the day and year first above written.
LENDERS:
PNC BANK, NATIONAL ASSOCIATION, AS AGENT

By: /s/ Joseph G. Meterchick
   ----------------------------------------
   Name: Joseph G. Meterchick
   Title: Vice President	

BORROWERS:
SAFEGUARD SCIENTIFICS, INC.

By: /s/ Michael W. Miles
   ----------------------------------------
   Name: Michael W. Miles
   Title: Senior Vice President & CFO	

SAFEGUARD SCIENTIFICS (DELAWARE) INC.

By: /s/ Michael W. Miles
   ----------------------------------------
   Name: Michael W. Miles
   Title: Senior Vice President & CFO	

SAFEGUARD DELAWARE, INC.

By: /s/ Michael W. Miles
   ----------------------------------------
   Name: Michael W. Miles
   Title: Senior Vice President & CFO	

-3-

Exhibit 10.14
AMENDMENT TO AMENDED AND RESTATED
CREDIT AGREEMENT
THIS AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT (this
"Amendment"), dated as of August __, 1999 by and among Safeguard Scientifics, Inc., a Pennsylvania corporation ("SSI" or a "Borrower"), Safeguard Scientifics (Delaware) Inc., a Delaware corporation ("SSD" or a "Borrower"), Safeguard Delaware, Inc., a Delaware corporation ("SDI" or a "Borrower" and, collectively with SSI and SSD, the "Borrowers") and PNC Bank, National Association, as agent for the "Lenders" under the Loan Agreement (in such capacity, "Agent")).
BACKGROUND
A. The parties, together with the other Lenders identified therein, entered into that certain Amended and Restated Credit Agreement dated April 17, 1998 (as amended to date, the "Loan Agreement").
B. Lenders, through the Agent, and the Borrowers desire to amend the Loan Agreement in the manner hereinafter set forth.
C. Capitalized terms that are not defined herein shall have the meanings ascribed to them in the Loan Agreement.
D. Subject to compliance with all conditions specified herein, all amendments hereinafter set forth are effective as of the date hereof unless otherwise expressly stated herein to the contrary.
NOW, THEREFORE, intending to be legally bound, the parties agree as follows:
1. RELEASE OF LIEN. SSI and SSD are, on the date hereof, entering into a certain contract (the "Credit Suisse Contract") with Credit Suisse Financial Products ("Credit Suisse") pursuant to which SSI and SSD have agreed to deliver to Credit Suisse up to 1,387,000 shares of Tellabs Inc. (f/k/a Coherent Communications Systems Corporation) common stock. Agent hereby releases any and all liens on, and pledges of, the stock to be delivered pursuant to the Credit Suisse Contract, consisting of up to 1,387,000 shares of Tellabs Inc. common stock (hereinafter, the "Released Stock"), together with all proceeds thereof and all cash and noncash dividends and other distributions with respect thereto. Agent further agrees to hereafter release such additional shares of Tellabs Inc. common stock that pursuant to the Credit Suisse Contract are to be hereafter delivered by SSI and SSD to Credit Suisse, together with the proceeds thereof and all cash and noncash dividends and other distributions with respect thereto. All proceeds received by SSI and SSD from Credit Suisse on account of such delivery shall be applied by SSI and SSD against the principal balance of the Loans. Accordingly, the Released Stock shall no longer constitute either "Pledged Securities" or "Collateral Coverage Securities" for any purpose of the Credit Agreement. However, should, pursuant to the Credit Suisse Contract, SSI and/or SSD receive from or retain the Released Stock free of the rights of Credit Suisse, the same shall

be pledged to the Lenders pursuant to the Amended and Restated Pledge Agreement between the Borrowers and Agent, dated April 17, 1998.
2. WAIVER OF VIOLATIONS. Agent hereby waives any and all violations of the following provisions of the Loan Agreement by reason of the Credit Suisse Contract and the transactions effected thereby:
A. Section 6.3, "Indebtedness," to the extent it would prohibit the incurrence of SSI's and/or SSD's obligations to Credit Suisse;
B. Section 6.4, "Liens," to the extent it would prohibit the granting by SSI and/or SSD of a security interest in or other rights to the Released Stock;
C. Section 6.11, "Sale of Assets," to the extent it would prohibit the disposition of the Released Stock.
3. MISCELLANEOUS.
A. Construction. The provisions of this Amendment shall be in addition to those of the Loan Agreement, the Notes and the Security Documents, all of which shall be construed as integrated and complementary to each other. In the event of any express inconsistency between the terms hereof and those contained in the Loan Agreement, the terms hereof shall control. Except as modified by the terms hereof, all terms and provisions of the Loan Agreement remain unchanged and in full force and effect.
B. Binding Effect; Assignment and Entire Agreement. This Amendment shall inure to the benefit of, and shall be binding upon, the respective successors and permitted assigns of the parties hereto. Borrowers have no right to assign any of their rights or delegate any of their obligations hereunder without the prior written consent of Lenders. This Amendment, together with the Loan Agreement, the Notes and the Security Documents, constitute the entire agreement among the parties relating to the subject matter thereof. All exhibits referred to herein and attached hereto shall be deemed expressly incorporated herein by reference and made a part hereof.
C. Waiver of Jury Trial. BORROWERS AND LENDERS IRREVOCABLY WAIVE TRIAL BY JURY AND THE RIGHT THERETO IN ANY LITIGATION IN ANY COURT WITH RESPECT TO, IN CONNECTION WITH, OR ARISING OUT OF, THIS AMENDMENT, THE NOTES, SECURITY DOCUMENTS, OR ANY INSTRUMENT OR DOCUMENT DELIVERED PURSUANT TO THIS AMENDMENT, OR THE VALIDITY, PROTECTION, INTERPRETATION, COLLECTION OR ENFORCEMENT THEREOF.
D. Expenses. In addition to all other expense reimbursement obligations of the Borrowers contained in the Loan Agreement and the Security Documents, Borrowers will reimburse Lenders for all costs and expenses, including reasonable attorneys' fees, incurred by Lenders in the negotiation, preparation and consummation of this Amendment and the documents to be delivered pursuant hereto.
-2-

E. Reaffirmation and Release. Borrowers ratify and reaffirm all of their Obligations to Lenders and agree that the same are owing without set-off, counterclaim or other defense of any nature. Borrowers specifically ratify and reaffirm all waiver of jury trial provisions set forth in the Loan Agreement, the Notes and the Security Documents.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed and delivered by their duly authorized officers as of the day and year first above written.
LENDERS:
PNC BANK, NATIONAL ASSOCIATION, AS AGENT

By: /s/ Joseph G. Meterchick
   -------------------------------------
   Name:
   Title:	

BORROWERS:
SAFEGUARD SCIENTIFICS, INC.

By: /s/ Michael Miles
   -------------------------------------
   Name:
   Title:	

SAFEGUARD SCIENTIFICS (DELAWARE) INC.

By: /s/ Michael Miles
   -------------------------------------
   Name:
   Title:	

SAFEGUARD DELAWARE, INC.

By: /s/ Michael Miles
   -------------------------------------
   Name:
   Title:	

-3-

Exhibit 13
SELECTED CONSOLIDATED FINANCIAL DATA
Selected consolidated financial data for the Company are presented in the table below and should be read in conjunction with Management's Discussion and Analysis and the Company's consolidated financial statements included herein.

                                                                         YEAR ENDED DECEMBER 31,
                                                 -----------------------------------------------------------------------
                                                 1999            1998             1997             1996             1995
                                                 ----            ----             ----             ----             ----
                                                                (IN THOUSANDS, EXCEPT PER SHARE DATA)

CONSOLIDATED STATEMENT OF OPERATIONS DATA:

TOTAL REVENUE .......................        $ 2,953,270      $ 2,287,092      $ 1,995,683      $ 2,068,807      $ 1,523,422
OPERATING EXPENSES
Cost of revenue .....................          2,605,821        1,972,931        1,699,192        1,792,958        1,311,332
Selling, service, and general and
   administrative ...................            311,564          268,996          224,184          212,702          156,491
Depreciation and amortization .......             36,778           21,738           18,132           20,645           16,927
Restructuring .......................                387           16,437               --               --               --
                                             -----------      -----------      -----------      -----------      -----------
   Total operating expenses .........          2,954,550        2,280,102        1,941,508        2,026,305        1,484,750
                                             -----------      -----------      -----------      -----------      -----------
                                                  (1,280)           6,990           54,175           42,502           38,672
Gains on issuance of stock by partner
   companies ........................            175,662            3,782            5,772            5,582              701
Other income, net ...................            107,290          189,883           21,085           25,546           21,250
Interest, net .......................            (30,718)         (26,978)         (19,885)         (22,023)         (19,114)
                                             -----------      -----------      -----------      -----------      -----------
INCOME BEFORE INCOME TAXES, MINORITY
   INTEREST AND EQUITY INCOME (LOSS)             250,954          173,677           61,147           51,607           41,509
Income taxes ........................            (66,514)         (61,424)         (14,336)         (13,285)         (12,124)
Minority interest ...................             (8,936)             (47)         (25,727)         (19,934)         (13,853)
Equity income (loss) ................            (51,978)          (2,083)             417            1,539            2,731
                                             -----------      -----------      -----------      -----------      -----------
NET INCOME ..........................        $   123,526      $   110,123      $    21,501      $    19,927      $    18,263
                                             ===========      ===========      ===========      ===========      ===========

Net income per share(a)
   Basic.............................        $      1.22      $      1.15      $      0.23      $      0.22      $      0.21
   Diluted...........................        $      1.16      $      1.07      $      0.22      $      0.20      $      0.18
Weighted average shares
  outstanding(a)
   Basic.............................            101,134           95,499           93,747           89,700           87,156
   Diluted...........................            110,910          104,742           95,988           94,044           92,202	

                                                                            DECEMBER 31,
                                                 -----------------------------------------------------------------------
                                                 1999            1998             1997             1996             1995
                                                 ----            ----             ----             ----             ----

CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents............        $    49,813      $     6,257      $     5,382      $    12,881      $     7,267
Working capital......................            133,839          251,991          228,001          345,530          226,659
Total assets.........................          1,499,879        1,068,690          714,541          936,070          742,874
Long-term debt.......................             14,532          205,044          127,089          252,725          204,431
Other long-term liabilities..........            175,611            1,317            1,246              759            1,057
Convertible subordinated notes.......            200,000           71,345           90,881          102,131               --
Total shareholders' equity...........            574,701          342,859          207,070          169,011          154,309	

(a) Adjusted to reflect the 3-for-1 split of our common stock effective as of March 13, 2000.
No cash dividends have been declared in any of the years presented, and the Company has no present intention to declare cash dividends.
35

MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
We are a leading Internet company actively engaged in the Internet infrastructure business through our extensive network of partner companies. We acquire interests in developing Internet infrastructure companies and incubate and integrate these companies into our network. We focus on what we believe to be the most significant market sectors of the Internet infrastructure industry:
software, communications and eServices. We believe that our experience developing technology companies, our expertise in and focus on Internet infrastructure and the reach of our network, which includes Internet Capital Group's business- to-business electronic commerce companies, enable us to identify and attract companies with significant potential for success in the Internet infrastructure market. We intend to be the premier network of Internet infrastructure companies offering solutions, seamless connectivity and eServices to businesses engaged in electronic commerce.
Our principal mission is to promote long-term shareholder value. We believe shareholder value is maximized by retaining and promoting the entrepreneurial culture of our partner companies. The entrepreneurs of our partner companies generally retain significant equity interests in their businesses, and their interests as shareholders remain aligned with ours. We provide a full range of operational and management services to each of our partner companies through dedicated teams of Safeguard professionals. Each team has expertise in the areas of business and technology strategy, sales and marketing, operations, finance, legal and transactional support, and human resources, and provides hands-on assistance to the management of the partner company in support of its growth. The level of involvement varies and in some circumstances includes the provision of full-time interim personnel. Since we are a long-term partner, we pursue various alternatives to maximize the long-term value of our partner companies. These alternatives include preparing our partner companies for initial public offerings, assisting with mergers and acquisitions, and providing additional capital. We typically retain a significant ownership position in our partner companies after they complete their initial public offerings.
We developed the Safeguard Subscription Program to give our shareholders the opportunity to participate in the initial public offerings of our partner companies. The offering ratio varies, but is based on the number of shares being offered under the program by the partner company in relation to the number of Safeguard shares outstanding at the time of an offering. We completed Safeguard Subscription Programs in conjunction with the initial public offerings of Internet Capital Group, Inc., US Interactive, Inc. and Pac-West Telecomm, Inc. in 1999, and with the initial public offering of eMerge Interactive, Inc. in February 2000. In addition, another partner company, OPUS360 Corporation, is in registration for its initial public offering that will include a Safeguard Subscription Program.
Our net income could fluctuate significantly from quarter to quarter. There can be no guarantee that we will report net income in each period.
EFFECT OF VARIOUS ACCOUNTING METHODS ON THE CONSOLIDATED FINANCIAL STATEMENTS
The various interests that we acquire in our partner companies are accounted for under three broad methods: consolidation, equity and cost. The applicable accounting method is generally determined based on our voting interest in a partner company.
Consolidation. Partner companies in which we directly or indirectly own more than 50% of the outstanding voting securities are generally accounted for under the consolidation method of accounting. Under this method, a partner company's results of operations are included within our consolidated statements of operations. Participation of other partner company shareholders in the income or losses of a consolidated partner company is reflected in the caption "minority interest" in our consolidated statements of operations. Minority interest adjusts our consolidated net income to reflect only our share of the income or losses of the consolidated partner company. CompuCom Systems, Inc. and Tangram Enterprise Solutions, Inc. were consolidated in 1999, 1998 and 1997. During 1999, we 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 we acquired directly or indirectly more than 50% of the outstanding voting securities interest. We also consolidated Premier Solutions Ltd. and Pioneer Metal Finishing until they were sold in 1997.
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Equity Method. Partner companies whose results we do not consolidate, but over whom we exercise significant influence, are generally accounted for under the equity method of accounting. Whether or not we exercise significant influence with respect to a partner company depends on an evaluation of several factors including, among others, representation on the partner company's board of directors and ownership level, which is generally a 20% to 50% interest in the voting securities of the partner company, including voting rights associated with our holdings in common, preferred and other convertible instruments in the partner company. Under the equity method of accounting, a partner company's results of operations are not reflected within our consolidated statement of operations; however, our share of the income or losses of the partner company is reflected in the caption "equity income (loss)" in our consolidated statements of operations. The share of income or losses is generally based upon our voting ownership of the partner company's securities, which may be different from the percentage of the economic ownership of the partner company held by us. During 1999, we accounted for 29 of our partner companies under the equity method of accounting.
Our partner companies accounted for under the equity method of accounting at December 31, 1999 included:

                                                                          PARTNER
                                                                          COMPANY        VOTING
                                                                           SINCE        OWNERSHIP
                                                                           -----        ---------
PUBLICLY TRADED
     Cambridge Technology Partners (Massachusetts), Inc.................   1991              16%
     ChromaVision Medical Systems, Inc..................................   1996              27%
     DocuCorp International, Inc........................................   1995              17%
     eMerge Interactive, Inc............................................   1997              19%
     Internet Capital Group, Inc........................................   1996              14%
     LifeF/X, Inc.......................................................   1996              13%
     OAO Technology Solutions, Inc......................................   1996              31%
     Pac-West Telecomm, Inc.............................................   1998               7%
     Sanchez Computer Associates, Inc...................................   1986              26%
     USDATA Corporation.................................................   1994              38%
     US Interactive, Inc................................................   1998              13%

PRIVATELY HELD
     4anything.com, Inc.................................................   1999              28%
     Extant, Inc........................................................   1999              21%
     The Basketball Network LLC, d/b/a HoopsTV.com......................   1999              24%
     iMedium, Inc.......................................................   1999              23%
     Integrated Visions, Inc............................................   1998              49%(a)
     Kanbay LLC.........................................................   1998              28%
     PrivaSeek, Inc.....................................................   1999              33%
     QuestOne Decision Sciences Corporation.............................   1997              35%
     RealTIME Media, Inc................................................   1999              43%
     Vitts Networks, Inc................................................   1999              48%
     Who? Vision Systems, Inc...........................................   1998              29%(a)
     XL Vision, Inc.....................................................   1995              18%	

(a) We owned non-voting convertible securities in these companies. However, we believe we have the ability to exercise significant influence based on our representation on the board of directors and other factors. This percentage represents the voting ownership assuming the conversion of all non-voting convertible securities.
At December 31, 1999, we owned voting securities in all the privately held companies listed except Integrated Visions and Who? Vision Systems. We have representation on the board of directors of all of the above partner companies. Although we own less than 20% of the voting stock of some of the above companies, we believe we have the ability to exercise significant influence based on our representation on the board of directors and other factors. We also account for our interests in some private equity funds under the equity method of accounting, based on our general and limited partner interest. In addition to our
37

holdings in voting and non-voting equity and debt securities, we also periodically make advances to our partner companies in the form of promissory notes. We had advances to equity method partner companies totaling $36 million at December 31, 1999.
Many of our privately held, equity method partner companies are Internet-related companies with limited operating histories that have not generated significant revenues and incurred substantial losses in 1999. We expect these losses to continue in 2000. Our equity losses may also increase as a result of our acquisition of interests in, and operation of, additional Internet-related companies.
Cost Method. Partner companies and private equity funds that we do not account for under either the consolidation or the equity method of accounting are accounted for under the cost method of accounting. Under this method, our share of the earnings or losses of these companies is not included in our consolidated statements of operations. However, the effect of the change in market value of cost method holdings classified as trading securities is reflected in our results of operations during each reporting period.
EFFECT OF VARIOUS ACCOUNTING METHODS ON THE PRESENTATION OF OUR FINANCIAL STATEMENTS
The presentation of our financial statements may differ from period to period primarily due to the applicable accounting method used for recognizing our equity interests in the operating results of a partner company. For example, the presentation of our financial statements are significantly influenced by the consolidated results of operations of CompuCom which we consolidated based on our 60% voting interest. CompuCom accounted for over 98% of our consolidated revenues, but represented less than 5% of our consolidated net income in 1999.
To understand our net results of operations and financial position without the effect of consolidating our consolidated partner companies, please refer to note 18 to our consolidated financial statements, which summarizes our parent company statements of operations and balance sheets and presents our consolidated partner companies as if they were accounted for under the equity method of accounting for all periods presented. Our share of the income or losses of the consolidated partner companies is included in "equity income
(loss)" in the parent company statements of operations. The carrying value of these companies is included in "ownership interest in and advances to partner companies" in the parent company balance sheets.
Although the parent company statements of operations and balance sheets presented in note 18 reflect our historical results, they are not necessarily indicative of future parent company balance sheets and statements of operations.
NET RESULTS OF OPERATIONS
Our reportable segments include General Safeguard Operations, Partner Company Operations and CompuCom Operations. General Safeguard Operations represents the expenses of providing strategic and operational support to our partner companies, and the related administrative costs. General Safeguard Operations includes the effect of transactions and other events incidental to our ownership interests in our partner companies and our operations in general. Partner Company Operations reflect operations of all partner companies other than CompuCom. The partner companies included under Partner Company Operations have been accounted for under the consolidated, equity or cost method depending on their particular circumstances. CompuCom Operations reflect the consolidated results of CompuCom. All significant intersegment activity has been eliminated.
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The following table reflects consolidated operating data by reported segments (in thousands):

                                                                              YEAR  ENDED DECEMBER 31,
                                                                    ---------------------------------------------
                                                                    1999                 1998                1997
                                                                    ----                 ----                ----

SUMMARY OF CONSOLIDATED NET INCOME
General Safeguard Operations ..........................         $   158,553          $   109,689          $     3,599
Partner Company Operations ............................             (42,739)                 358                 (210)
CompuCom Operations ...................................               7,712                   76               18,112
                                                                -----------          -----------          -----------
                                                                $   123,526          $   110,123          $    21,501
                                                                ===========          ===========          ===========

GENERAL SAFEGUARD OPERATIONS
Revenue ...............................................         $    13,912          $    11,949          $    10,458
Operating expenses
   General and administrative .........................              43,429               24,413               22,308
   Depreciation and amortization ......................               7,914                1,443                1,309
                                                                -----------          -----------          -----------
   Total operating expenses ...........................              51,343               25,856               23,617
                                                                -----------          -----------          -----------
                                                                    (37,431)             (13,907)             (13,159)
   Gains on issuance of stock by partner companies ....             175,662                3,782                5,772
   Other income, net ..................................             107,290              189,883               18,253
   Interest, net ......................................              (7,193)              (7,964)              (4,656)
                                                                -----------          -----------          -----------
   Income before income taxes .........................             238,328              171,794                6,210
   Income taxes .......................................             (79,775)             (62,105)              (2,611)
                                                                -----------          -----------          -----------
Net Income from General Safeguard Operations ..........         $   158,553          $   109,689          $     3,599
                                                                ===========          ===========          ===========

PARTNER COMPANY OPERATIONS
Revenue ...............................................         $    27,469          $    20,678          $    35,423
Operating expenses
   Cost of sales ......................................               8,082                2,426               16,935
   Selling and service ................................               8,875                8,087                7,895
   General and administrative .........................              13,572                5,309                6,476
   Depreciation and amortization ......................               5,497                2,872                4,316
                                                                -----------          -----------          -----------
   Total operating expenses ...........................              36,026               18,694               35,622
                                                                -----------          -----------          -----------
                                                                     (8,557)               1,984                 (199)
   Interest, net ......................................                (330)                (272)                (282)
                                                                -----------          -----------          -----------
   Income (loss) before income taxes, minority interest
      and equity income (loss) ........................              (8,887)               1,712                 (481)
   Income taxes .......................................              18,192                  729                 (146)
   Minority interest ..................................                 (66)                  --                   --
   Equity income (loss) ...............................             (51,978)              (2,083)                 417
                                                                -----------          -----------          -----------
Net Income (Loss) from Partner Company Operations .....         $   (42,739)         $       358          $      (210)
                                                                ===========          ===========          ===========

COMPUCOM OPERATIONS
Revenue ...............................................         $ 2,911,889          $ 2,254,465          $ 1,949,802
Operating expenses
   Cost of sales ......................................           2,597,739            1,970,505            1,682,257
   Selling and service ................................             159,006              164,262              128,751
   General and administrative .........................              86,682               66,925               58,754
   Depreciation and amortization ......................              23,367               17,423               12,507
   Restructuring ......................................                 387               16,437                   --
                                                                -----------          -----------          -----------
   Total operating expenses ...........................           2,867,181            2,235,552            1,882,269
                                                                -----------          -----------          -----------
                                                                     44,708               18,913               67,533
   Other income, net ..................................                  --                   --                2,832
   Interest, net ......................................             (23,195)             (18,742)             (14,947)
                                                                -----------          -----------          -----------
   Income before income taxes and minority interest ...              21,513                  171               55,418
   Income taxes .......................................              (4,931)                 (48)             (11,579)
   Minority interest ..................................              (8,870)                 (47)             (25,727)
                                                                -----------          -----------          -----------
Net Income from CompuCom Operations ...................         $     7,712          $        76          $    18,112
                                                                ===========          ===========          ===========	

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NET RESULTS OF OPERATIONS--GENERAL SAFEGUARD OPERATIONS
Revenue. Revenue consists of administrative service fees charged to certain partner companies and private equity funds for operational and management services provided through a team of our professionals. Revenue was $13.9 million for the year ended December 31, 1999, $11.9 million for the year ended December 31, 1998 and $10.5 million for the year ended December 31, 1997. The increase in each year in the three-year period ended December 31, 1999 was the result of an increase in the number of partner companies.
General and Administrative. Our general and administrative costs consist primarily of employee compensation, outside services such as legal, accounting, marketing and consulting, and travel-related costs. General and administrative expenses were $43.4 million for the year ended December 31, 1999, $24.4 million for the year ended December 31, 1998 and $22.3 million for the year ended December 31, 1997. General and administrative expenses increased $19.0 million or 78% in 1999 from 1998 reflecting the growth in the number of partner companies to 37 in 1999 from 26 in 1998. The increase represents expenses incurred to support the growing number and related activities of our partner companies, primarily payroll-related and marketing costs. We expect these costs to continue to be higher compared to historical periods due to the increased resources needed to support the increasing number of partner companies.
Depreciation and Amortization. Increase in depreciation and amortization is due to accretion of the obligation related to the two forward sale contracts entered into in 1999 and an increase in depreciation related to campus office buildings acquired in 1998.
Gains on Issuance of Stock by Partner Companies. Gains on issuance of stock by partner companies represents gains or losses on the issuance of stock by our partner companies to reflect the change in our share of the net equity of these companies. Gains on issuance of stock by partner companies consisted of the following (in thousands):

                                             YEAR  ENDED DECEMBER 31,
                                        ------------------------------------
                                        1999            1998            1997
                                        ----            ----            ----
Internet Capital Group .........      $172,934         $   --         $   --
Cambridge Technology Partners...           326          3,598          3,579
Other ..........................         2,402            184          2,193
                                      --------         ------         ------
                                      $175,662         $3,782         $5,772
                                      ========         ======         ======	

Gains on issuance of stock by partner companies consisted primarily of the issuance by Internet Capital Group of 31 million shares of its common stock in its initial public offering in August 1999, seven million shares of its common stock in a follow-on public offering in December 1999, and approximately three million shares in private placements and acquisitions completed in the fourth quarter of 1999. The pretax gain represents the increase in our share of Internet Capital Group's net equity as a result of its stock issuances.
We recorded gains on stock issued by Cambridge Technology Partners as a result of employee stock option exercises.
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Other Income, net. Other income, net, consisted of the following (in thousands):

                                                                            YEAR  ENDED DECEMBER 31,
                                                                   -----------------------------------------
                                                                   1999              1998               1997
                                                                   ----              ----               ----
Gain on the Coherent Communications Systems
   Corporation/Tellabs, Inc. merger ......................      $      --          $ 245,261          $     --
Unrealized gain (loss) on Tellabs stock, net .............         78,163            (48,549)               --
Gain on sale of Diamond Technology Partners, Inc. stock...         41,108                 --             4,954
Gain on sale of Internet Capital Group stock .............          9,332                 --                --
Gain on sale of Pac-West Telecomm stock ..................          7,113                 --                --
Gain on sale of Cambridge Technology Partners stock ......             --             15,016            15,209
Gain on sale of other public holdings ....................          7,383              2,677             2,720
Gain on distributions from private equity funds ..........          4,590              9,945             2,261
Gain on First Consulting Group, Inc./Integrated
   Systems Consulting Group, Inc. merger .................             --              6,586                --
Other, primarily impairment charges ......................        (40,399)           (41,053)           (6,891)
                                                                ---------          ---------          --------
                                                                $ 107,290          $ 189,883          $ 18,253
                                                                =========          =========          ========	

In August 1998, Tellabs, Inc. acquired Coherent, and we received approximately seven million shares (adjusted for a 2-for-1 stock split in May 1999) of Tellabs in exchange for all of our Coherent shares. The market value of the Tellabs shares received on the date of exchange was used to determine the gain. Subsequent to the merger, our holdings in Tellabs were classified as trading securities and the effect of the change in market value of Tellabs was reflected in our results of operations as an unrealized gain (loss). In August 1999, we completed the pledge of all our remaining holdings in Tellabs under forward sale contracts that expire in 2002. As a result of the restrictions on the sale of these shares under these contracts, we changed the classification of these holdings to available-for-sale. Therefore, changes in the fair value of our remaining Tellabs holdings are now recorded as an adjustment to other comprehensive income in shareholders' equity.
For the years ended December 31, 1999, 1998 and 1997, we recorded impairment charges of $37.5 million, $35.8 million and $12.3 million for the other than temporary decline in the carrying value of some partner companies.
Interest, net. Interest expense, net, was $7.2 million for the year ended December 31, 1999, $8.0 million for the year ended December 31, 1998 and $4.7 million for the year ended December 31, 1997. The decrease in 1999 was a result of higher interest income and the elimination of interest due to the conversion of $71.3 million of our 1996 convertible subordinated notes, which was partially offset by interest associated with the $200 million 5% convertible subordinated notes issued in 1999. The increase in interest expense in 1998 was due to our increased borrowings primarily to fund acquisitions in new and existing partner companies.
Income Taxes. Our consolidated effective tax rate decreased to 35% in 1999 compared to 36% for 1998 due to the realization of previously unrecorded tax benefits attributable to the difference between the book basis and tax basis of some of our holdings as well as the application of lower tax rates against realized securities gains.
NET RESULTS OF OPERATIONS--PARTNER COMPANY OPERATIONS
Revenue. Revenue was $27.5 million for the year ended December 31, 1999, $20.7 million for the year ended December 31, 1998 and $35.4 million for the year ended December 31, 1997. The increase in revenue in 1999 was the result of the acquisitions of aligne and SOTAS during 1999. The decrease in revenue in 1998 was primarily due to the elimination of revenue as a result of the sale of Premier Solutions Ltd. and Pioneer Metal Finishing, Inc. in 1997.
Operating Expenses. Operating expenses were $36.0 million for the year ended December 31, 1999, $18.7 million for the year ended December 31, 1998 and $35.6 million for the year ended December 31, 1997. The increase in operating expenses in 1999 was the result of consolidating aligne, Arista and SOTAS. The decrease in operating expenses in 1998 was primarily due to the sale of Premier Solutions and Pioneer Metal Finishing in 1997.
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Equity Income (Loss). A significant portion of our net results of operations is derived from companies in which we hold a significant minority ownership interest. Equity income (loss) fluctuates with the number of companies accounted for under the equity method, our voting ownership percentage in these companies, the amortization of goodwill related to newly acquired equity method companies, and the net results of operations of these companies. During the year ended December 31, 1999, we accounted for 29 companies under the equity method of accounting compared to 14 companies during the comparable 1998 period.
The significant increase in equity losses in 1999 from 1998 reflects increased operating losses at some of our existing partner companies and an increase in the number of companies accounted for under the equity method in 1999, a majority of which have operating losses. Many of our partner companies accounted for under the equity method are Internet-related companies with substantial losses. We expect to continue to acquire interests in more Internet-related companies that may have operating losses and that we may account for under the equity method. Additionally, we expect certain of our existing partner companies to continue to invest in their products and services and to recognize operating losses. As a result, equity losses could continue to increase significantly.
The decrease in equity income in 1998 from 1997 is a result of discontinuing the accounting for our holdings in Coherent under the equity method of accounting, and recording our share of merger-related and other charges at certain partner companies. The decrease was also a result of increased operating losses at certain partner companies, partially offset by strong overall performance at Cambridge Technology Partners and Sanchez.
NET RESULTS OF OPERATIONS--COMPUCOM OPERATIONS
CompuCom provides people, process, and technology to deliver infrastructure solutions that optimize electronic business and enterprise applications. CompuCom's revenues are primarily derived from sales of distributed desktop computer products and configuration, network integration and technology support.
Revenue. Revenue was $2.9 billion for the year ended December 31, 1999, $2.3 billion for the year ended December 31, 1998 and $1.9 billion for the year ended December 31, 1997. The increase in revenue was primarily due to increased volume of product sales resulting from the acquisitions of the Technology Acquisition Services Division of Entex Information Services, Inc. during the second quarter of 1999 and Computer Integration Corporation and DataFlex Corporation during the second quarter of 1998.
Gross Margin. Gross margin was 10.8% for the year ended December 31, 1999, 12.6% for the year ended December 31, 1998 and 13.7% for the year ended December 31, 1997. The decrease in 1999 and 1998 was attributable to reduced gross margins on product sales due to heightened competition from direct marketers and other corporate resellers and a reduction in manufacturer sponsored incentives which was not fully offset by improved services gross margins.
Selling and Service Expenses. Selling and service expenses were 5.5% of revenue for the year ended December 31, 1999, 7.3% of revenue for the year ended December 31, 1998 and 6.6% of revenue for the year ended December 31, 1997. In 1999, the decrease in selling and service expense was primarily due to CompuCom's cost reduction efforts, partially offset by an increase in sales force as a result of the Entex acquisition. In 1998, the increase in selling and services expense was primarily due to an increase in sales force as a result of the Computer Integration Corporation and Dataflex acquisitions, the hiring of additional sales representatives, higher commission expense, and growth in the service business.
General and Administrative Expense. General and administrative expenses were 3.0% of revenue in 1999, 1998 and 1997. The dollar increase in 1999 was primarily due to expenditures to broaden CompuCom's eCommerce capabilities and costs associated with the integration of Computer Integration Corporation, Dataflex and Entex.
Depreciation and Amortization Expense. Depreciation and amortization expense was $23.4 million in 1999, $17.4 million in 1998 and $12.5 million in 1997. The increases in depreciation and amortization expense was a result of the Entex acquisition in 1999 and the Computer Integration Corporation and Dataflex acquisitions in 1998.
Restructuring Expense. In October 1998, CompuCom's Board of Directors approved a restructuring plan designed to reduce CompuCom's cost structure by closing branch facilities and reducing CompuCom's workforce by approximately 10%. As a result, CompuCom recorded a restructuring charge in 1998 of $16.4 million (pretax), which reduced our income by
42

approximately $8.1 million (pretax), after recording minority interest. The charge primarily consisted of costs associated with the closing of certain facilities and disposing of related fixed assets, as well as employee severance and benefits related to the reduction in workforce.
Interest, Net. The increase in interest expense, net was a result of increased borrowings at CompuCom to fund the acquisitions of Entex in 1999 and Computer Integration Corporation and Dataflex in 1998.
LIQUIDITY AND CAPITAL RESOURCES
We have funded our operations in recent years with our bank credit facility, proceeds from issuance of convertible notes, proceeds from forward sale contracts, borrowings under partner company revolving credit facilities, and proceeds from sales of partner companies.
In June 1999, we issued $200 million of 5% convertible subordinated notes due June 2006. At December 31, 1999, the notes are convertible into our common stock at approximately $25 per share, as adjusted to reflect a 3-for-1 stock split. We used approximately $111 million of the net proceeds to repay all of our outstanding indebtedness under our bank credit facility and borrowings from partner companies.
During 1999, we entered into two contracts relating to the forward sale of 3.4 million shares of our holdings in Tellabs. We pledged these shares for three years and in return received approximately $139 million of cash. At the end of the term, we have the option to deliver cash or Tellabs shares with a value determined by the stock price of Tellabs at maturity. The number of Tellabs shares to be delivered at maturity ranges from 2.7 million to 3.4 million shares (or the cash value thereof). The proceeds from this financing transaction were used to pay down a portion of our bank credit facility and to acquire interests in or make advances to new and existing partner companies and private equity funds.
Sales of equity securities generated proceeds of approximately $138 million in 1999, $95 million in 1998 and $71 million in 1997.
As of December 31, 1999, we have availability under our bank credit facilities of $200 million. Of the $200 million, $150 million matures in May 2002 and is secured by certain equity securities we hold in publicly traded companies. The value of these pledged securities exceeds the total availability under the bank credit facility. The remaining $50 million is unsecured, with availability limited to the lesser of $50 million or 10% of the value of the pledged securities. The $50 million facility matures in April 2000. There were no borrowings outstanding under the facilities at December 31, 1999. In 2000, we intend to increase the availability under our bank credit facilities to $300 million and extend the maturity on both facilities.
In 1999, we repaid $20 million of borrowings from certain partner companies. At December 31, 1999, there were no borrowings under agreements with these companies.
Cash and cash equivalents at December 31, 1999, availability under our bank credit facilities, proceeds from the potential sales of all or a portion of our minority interests, and other internal sources of cash flow are expected to be sufficient to fund our cash requirements through 2000, including commitments to our existing partner companies and private equity funds, and our general corporate requirements. At December 31, 1999, we were contingently obligated for approximately $29 million of guarantee commitments, and had committed capital of approximately $142 million to various partner companies and private equity funds, to be funded over the next several years.
Our current operating plan for the acquisition of new partner companies may change in the next 12 months which may make it necessary for us to raise additional funds. On February 29, 2000, we filed a Registration Statement on Form S-3, as amended, with the Securities and Exchange Commission to sell up to 11.5 million shares of our common stock to the public through which Merrill Lynch, Pierce, Fenner & Smith Incorporated, Deutsche Bank Securities, Inc., Lehman Brothers, Inc., Prudential Securities Incorporated, J.P. Morgan Securities, Inc. and Adams, Harkness & Hill, Inc. are acting as representatives. This Registration Statement has not yet been declared effective. Currently, we anticipate we will receive $868 million from the offering after deduction of all discounts, fees and expenses of the offering. On March 15, 2000, we filed a Registration Statement on Form S-3 with the Securities and Exchange Commission to sell up to 7.9 million shares of our common stock to certain strategic investors and institutional investors. This Registration Statement has not yet been declared effective. Currently, we anticipate we will receive $500 million from the offering. No assurance can be given that these underwritten offerings will be consummated at
43

all or on terms describe in the Registration Statements. The size of these offerings may be increased or decreased and the net proceeds therefrom would change accordingly.
Should this offering not be consummated, we will likely have to raise additional funds through the issuance of equity securities or obtain additional bank financing. If additional funds are raised through the issuance of equity securities, our existing shareholders may experience significant dilution.
Availability under our bank credit facility is determined by the market value of the publicly traded partner companies pledged as collateral. If the stock markets experience a significant decline, availability under the credit facilities could be reduced significantly and could have an adverse effect on our ability to borrow under the facilities. In addition, our ability to raise proceeds from sales of publicly traded partner companies could also be adversely affected. As a result, our ability to acquire interests in new partner companies and support our existing partner companies with additional funding could be limited.
CompuCom maintains separate, independent financing arrangements, which are non-recourse to us and are secured by certain assets of CompuCom. During recent years, CompuCom has utilized bank financing arrangements and internally generated funds to fund its cash requirements. During 1999 CompuCom sold its corporate headquarters building in a sale/leaseback transaction. The proceeds from the sale were approximately $40 million, of which $37 million was used to pay down long-term debt. As part of the transaction, CompuCom entered into a 20-year operating lease on the building.
CompuCom has a $250 million receivables securitization facility and a $200 million working capital facility. The securitization facility pricing is based on a designated short-term interest rate plus an agreed-upon spread. The receivables securitization facility, which matures in May 2002, was fully utilized as of December 31, 1999. The working capital facility will be reduced by $25 million in May 2000 and matures in May 2002. As of December 31, 1999 there were no outstanding borrowings on the working capital facility.
CompuCom's liquidity continues to be negatively affected by the increase in the dollar volume of the rebate programs of its principal suppliers. Under these programs, CompuCom is required to pay a higher initial price for product and claim a rebate to reduce that price. The collection of these rebates can take several months. Due to the increased volume of product sold under these programs, CompuCom's initial purchase price for the product is often higher than the sales price CompuCom obtains from its customers. As of December 1999, these programs are a major factor in CompuCom's financing needs. As of December 31, 1999, CompuCom was owed approximately $66 million under these programs.
Consolidated working capital decreased to $134 million at December 31, 1999 compared to $252 million at December 31, 1998. The decrease relates to the change in classification of the Tellabs holdings.
Cash provided by operating activities increased in 1999 compared to 1998 due to a decrease in accounts receivable. This decrease was due to CompuCom's accounting for its $75 million increase in its receivables securitization facility as "off-balance sheet" financing, which resulted in a reduction of accounts receivable and long-term debt.
Cash used in investing activities primarily reflects the acquisition of ownership interests in and advances to new and existing partner companies. Cash used in investing activities also reflects acquisitions by our subsidiaries, which in 1999 primarily represented CompuCom's acquisition of Entex for approximately $137 million. Partially offsetting these activities in the three year period ended December 31, 1999 were proceeds from the sales of equity securities.
During 1999, we committed approximately $123 million and funded $103 million to acquire interests in and make advances to 12 new partner companies, including the following Internet infrastructure partner companies: Extant, iMedium, OPUS360, SOTAS and Vitts Networks. We also funded approximately $125 million to acquire interests in and make advances to our existing private partner companies and private equity funds. In addition, we acquired an 80% interest in aligne in exchange for approximately 1.3 million shares of our common stock with a market value of approximately $17 million, and purchased approximately $41 million of shares of our publicly traded partner companies in the open market and in private transactions.
From January 1, 2000 through March 17, 2000, we funded $28 million of commitments made prior to December 31, 1999. Additionally, from January 1, 2000 through March 17, 2000, we committed $250 million and funded $121 million to
44

acquire ownership interests in or make advances to new and existing partner companies. Some of these new partner companies include the following Internet infrastructure companies: TechSpace LLC, NexTone Communications, Inc. and fob.com, Inc.
During 1999, we received approximately $8 million in proceeds from the issuance of our stock primarily as a result of stock options exercised. In 1999, we purchased 150,000 shares of our common stock in the open market for approximately $3 million. At December 31, 1999, we are authorized to purchase an additional $16 million of our common stock.
In January 2000, we announced the sale of approximately 2.2 million shares of our common stock to Textron Inc. for $100 million in a private transaction. The sale price was based on the closing price of our common stock on December 17, 1999 of approximately $46 per share. We completed the sale and received the proceeds from the sale in March 2000.
Capital expenditures in any year normally would not be significant in relation to our overall financial position. Capital asset requirements are generally funded through bank credit facilities, internally generated funds or other financing sources. There were no material capital asset purchase commitments at December 31, 1999.
RECENT ACCOUNTING PRONOUNCEMENTS
Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities," requires an entity to recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. The accounting for changes in the fair value of a derivative will depend on the intended use of the derivative and the resulting designation. SFAS 133 will be effective for us in 2001. We are currently evaluating the impact of SFAS 133.
We do not expect the adoption of other recently issued accounting pronouncements to have a significant impact on our results of operations, financial position or cash flow.
YEAR 2000 DISCLOSURE
We assessed our computer systems for year 2000 readiness, and replaced all systems and software we found to be not compliant. These replacements were generally part of our regular upgrade program. We then tested all of our systems and software. We also obtained verifications from our vendors that our systems that they supplied are year 2000 ready. We installed a back-up generator in our data center and have a contingency plan to provide for disaster recovery and continuation of critical computer and communications in case of a power loss. We have not incurred any material extraordinary expense in connection with our year 2000 program. We believe that any year 2000 problem is unlikely to arise in the future, and that if any problem does arise, we will be able to fix the problem quickly and without material expenses.
To date, neither we nor our partner companies have experienced any disruptions of operations due to year 2000 problems.
We have regularly surveyed our partner companies regarding their year 2000 issues. CompuCom spent approximately $1.4 million to assess, remediate, and test its systems for year 2000 compliance. CompuCom is a reseller of computer products. It makes no warranties regarding the year 2000 readiness of any products it sells, but only passes through to its customers the applicable vendor's warranties. If one of CompuCom's major vendors' products turn out to be not year 2000 compliant, CompuCom could experience a material adverse effect on its results of operations.
Some of our other partner companies are in the business of providing software products and services. Those companies all believe the current version of their products are year 2000 compliant. Older versions of some of our companies' products may not have been year 2000 compliant. These partner companies generally have attempted to limit their liability to their customers in their software license agreements and service agreements. Many of their customers have maintenance agreements under which the companies upgraded or offered to upgrade older software versions to year 2000 compliant versions. The companies generally encouraged their other customers to upgrade to compliant versions as well. We are not aware that any of our partner companies have received notice from any of their customers about problems resulting from non year 2000 compliant software or systems purchases from our companies.
45

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to equity price risks on the marketable portion of our securities. These securities include equity positions in companies in the Internet industry, many of which have experienced significant historical volatility in their stock prices. We typically do not attempt to reduce or eliminate our market exposure on securities. Based on closing market prices at December 31, 1999, the fair market value of our holdings in public securities was approximately $7.7 billion (excluding warrants that are unexercisable). Approximately $6.2 billion of these equity securities at December 31, 1999 consisted of our holdings in Internet Capital Group. A 20% decrease in equity prices would result in an approximate $1.5 billion decrease in the fair value of our publicly traded securities.
In 1999, we entered into two forward sale contracts related to our remaining holdings in Tellabs. We pledged 3.4 million shares of Tellabs for three years and in return received approximately $139 million in cash. At the end of the term, we have the option to deliver cash or Tellabs shares with a value determined by the stock price of Tellabs at maturity. The number of Tellabs shares to be delivered at maturity ranges from 2.7 million to 3.4 million shares (or the cash value thereof).
Availability under our bank credit facilities is determined by the market value of our publicly traded securities pledged as collateral. The market value of our publicly traded securities would have to decrease by more than 50% from their value on December 31, 1999 before the amount of our collateral would be insufficient to enable us to fully use this facility. Additionally, we are exposed to interest rate risk primarily through our bank credit facility. At December 31, 1999, there were no borrowings outstanding.
CompuCom is exposed to interest rate risk primarily through its receivables securitization and working capital facilities. CompuCom utilizes borrowings on these facilities to meet its working capital needs and other borrowing needs. At December 31, 1999, the securitization facility had borrowings of approximately $250 million, and there were no borrowings on the working capital facility. If CompuCom's effective interest rate were to increase 75 basis points, or 0.75%, CompuCom's interest expense would increase by approximately $2 million based on CompuCom's average borrowings during 1999. Our share of this increase would be approximately $1 million after deduction for minority interest but before income taxes.
SAFE HARBOR STATEMENT
Certain statements in this annual report describing the plans, goals, strategies, intentions, forecasts, and expectations of us or our partner companies constitute what are sometimes termed "forward-looking statements." The following important factors could cause actual results to differ materially from those in such forward-looking statements.
Our business depends on the performance of our partner companies, which is uncertain. In general, our partner companies depend on the continuing growth of the Internet as a medium for commercial transactions, and on the growth of the Internet infrastructure market in particular. The Internet infrastructure industry is intensely competitive, characterized by rapid changes in technology and customer demands, frequent new product introductions, and shifting distribution channels. Many of our partner companies are early-stage companies with limited operating history and no historical profits, and compete against companies with greater resources and name recognition.
Fluctuations in the price of the common stock of our publicly traded partner companies, especially Internet Capital Group, may affect the price of our common stock. On February 15, 2000, our equity interest in Internet Capital Group had a market value of approximately $4.3 billion, which was significant compared to our market value of $5.4 billion. The price of Internet Capital Group's common stock has been, and may continue to be, highly volatile. Our continuing growth is also dependent on the continuing strength of the market for securities of Internet infrastructure companies in general and initial public offerings of those companies in particular. Competition to acquire interests in Internet infrastructure companies is intense, which could reduce the returns we can achieve on our acquisitions.
46

SAFEGUARD SCIENTIFICS, INC.
CONSOLIDATED BALANCE SHEETS

                                                                            DECEMBER 31,
                                                                       -----------------------
                                                                       1999               1998
                                                                       ----               ----
                                                          (IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)
ASSETS
Current Assets
   Cash and cash equivalents ................................      $   49,813         $     6,257
   Trading securities .......................................              --             143,103
   Accounts receivable, less allowances
      ($5,604-1999; $4,769-1998) ............................         259,383             296,093
   Inventories ..............................................         129,826             138,551
   Prepaid expenses and other current assets ................          16,488               5,006
                                                                   ----------         -----------
Total current assets ........................................         455,510             589,010

Property and equipment, net .................................          56,234              96,840
Ownership interests in and advances to partner companies ....         529,381             218,999
Available-for-sale securities ...............................         302,940              84,977
Excess of cost over net assets of businesses acquired, net...         119,288              65,137
Other .......................................................          36,526              13,727
                                                                   ----------         -----------

TOTAL ASSETS ................................................      $1,499,879         $ 1,068,690
                                                                   ==========         ===========

LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
   Current maturities of long-term debt .....................      $   11,019         $     2,366
   Accounts payable .........................................         183,781             161,700
   Accrued expenses .........................................         126,871             124,578
   Deferred taxes ...........................................              --              48,375
                                                                   ----------         -----------
Total current liabilities ...................................         321,671             337,019

Long-term debt ..............................................          14,532             205,044
Deferred taxes ..............................................         110,556              12,562
Minority interest ...........................................         102,808              98,544
Other long-term liabilities .................................         175,611               1,317
Convertible subordinated notes ..............................         200,000              71,345

Commitments and contingencies

SHAREHOLDERS' EQUITY
Preferred stock, $10.00 par value; 1,000,000 and
   55,423 shares authorized in 1999 and 1998, respectively...              --                  --
Common stock, $0.10 par value--authorized 500,000,000
   and 100,000,000 shares in 1999 and 1998,
   respectively; 104,749,317 and 98,398,026 shares
   issued and outstanding in 1999 and 1998, respectively ....          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 (3,758,985 shares-1998) .............              --             (21,779)
                                                                   ----------         -----------

Total shareholders' equity ..................................         574,701             342,859
                                                                   ----------         -----------

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY ..................      $1,499,879         $ 1,068,690
                                                                   ==========         ===========	

See notes to consolidated financial statements.
47

SAFEGUARD SCIENTIFICS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS

                                                                            YEAR ENDED DECEMBER 31,
                                                                ----------------------------------------------
                                                                1999                 1998                 1997
                                                                ----                 ----                 ----
                                                                   (IN THOUSANDS EXCEPT PER SHARE AMOUNTS)

REVENUE
   Product sales ...................................         $ 2,621,124          $ 1,994,965          $ 1,724,220
   Service sales ...................................             318,234              280,178              261,005
   Other ...........................................              13,912               11,949               10,458
                                                             -----------          -----------          -----------
Total revenue ......................................           2,953,270            2,287,092            1,995,683

OPERATING EXPENSES
   Cost of sales--product ..........................           2,398,613            1,787,370            1,534,310
   Cost of sales--service ..........................             207,208              185,561              164,882
   Selling and service .............................             167,881              172,349              136,646
   General and administrative ......................             143,683               96,647               87,538
   Depreciation and amortization ...................              36,778               21,738               18,132
   Restructuring ...................................                 387               16,437                   --
                                                             -----------          -----------          -----------
Total operating expenses ...........................           2,954,550            2,280,102            1,941,508
                                                             -----------          -----------          -----------
                                                                  (1,280)               6,990               54,175
Gains on issuance of stock by partner companies.....             175,662                3,782                5,772
Other income, net ..................................             107,290              189,883               21,085
Interest income ....................................               4,839                2,742                2,474
Interest expense ...................................             (35,557)             (29,720)             (22,359)
                                                             -----------          -----------          -----------

INCOME BEFORE INCOME TAXES, MINORITY
   INTEREST AND EQUITY INCOME (LOSS) ...............             250,954              173,677               61,147
Income taxes .......................................             (66,514)             (61,424)             (14,336)
Minority interest ..................................              (8,936)                 (47)             (25,727)
Equity income (loss) ...............................             (51,978)              (2,083)                 417
                                                             -----------          -----------          -----------
NET INCOME .........................................         $   123,526          $   110,123          $    21,501
                                                             ===========          ===========          ===========

NET INCOME PER SHARE
   Basic ...........................................         $      1.22          $      1.15          $      0.23
   Diluted .........................................         $      1.16          $      1.07          $      0.22
WEIGHTED AVERAGE SHARES OUTSTANDING
   Basic ...........................................             101,134               95,499               93,747
   Diluted .........................................             110,910              104,742               95,988	

See notes to consolidated financial statements.
48

SAFEGUARD SCIENTIFICS, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

                                                                                ACCUMULATED
                                      COMMON STOCK       ADDITIONAL               OTHER        TREASURY STOCK
                                    -----------------     PAID-IN    RETAINED  COMPREHENSIVE  ------------------
                                    SHARES     AMOUNT     CAPITAL    EARNINGS     INCOME      SHARES      AMOUNT        TOTAL
                                    ------     ------     -------    --------     ------      ------      ------        -----
                                                             (IN THOUSANDS EXCEPT SHARE AMOUNTS)
BALANCE--DECEMBER 31, 1996....    98,398,026   $ 9,840    $ 29,006   $ 129,970   $  7,360    6,695,487   $ (7,165)    $ 169,011
Net income....................                                          21,501                                           21,501
Stock options exercised, net..                                 618                          (2,011,947)     2,035         2,653
Tax benefit of stock option
  exercises ..................                               3,166                                                        3,166
Repurchase of common stock....                                                               1,171,731     (9,488)       (9,488)
Conversion of convertible
  subordinated notes..........                               9,731                          (1,164,393)     1,279        11,010
Subsidiaries' equity
  transactions................                                 871                                                          871
Other comprehensive income....                                                      8,346                                 8,346
                                 -----------   -------    --------   ---------   --------   ----------   --------     ----------

BALANCE--DECEMBER 31, 1997....    98,398,026     9,840      43,392     151,471     15,706    4,690,878    (13,339)      207,070
Net income....................                                         110,123                                          110,123
Stock options exercised, net..                              (1,935)                         (1,204,893)     4,201         2,266
Tax benefit of stock
  option exercises............                               1,869                                                        1,869
Repurchase of common stock....                                                               2,295,000    (18,672)      (18,672)
Conversion of convertible
  subordinated notes..........                              13,189                          (2,022,000)     6,031        19,220
Subsidiaries' equity
  transactions................                                (605)                                                        (605)
Other comprehensive income....                                                     21,588                                21,588
                                 -----------   -------    --------   ---------   --------   ----------   --------     ----------

BALANCE--DECEMBER 31, 1998....    98,398,026     9,840      55,910     261,594     37,294    3,758,985    (21,779)      342,859
Net income....................                                         123,526                                          123,526
Stock options exercised, net..       735,597        74       1,700                            (815,808)     6,136         7,910
Tax benefit of stock
  option exercises............                               7,051                                                        7,051
Issuance of common stock for
  acquisition.................                               8,781                          (1,324,554)     7,721        16,502
Repurchase of common stock....                                                                 150,000     (2,695)       (2,695)
Conversion of convertible
  subordinated notes..........     5,615,694       561      60,384                          (1,768,623)    10,617        71,562
Subsidiaries' equity
  transactions................                                 143                                                          143
Other comprehensive income....                                                      7,843                                 7,843
                                 -----------   -------    --------   ---------   --------   ----------   --------     ----------

BALANCE--DECEMBER 31, 1999....   104,749,317   $10,475    $133,969   $ 385,120   $ 45,137           --   $    --      $ 574,701
                                 ===========   =======    ========   =========   ========   ==========   ========     ==========	

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

                                                                     YEAR ENDED DECEMBER 31,
                                                            -----------------------------------------
                                                            1999              1998               1997
                                                            ----              ----               ----
                                                                          (IN THOUSANDS)

NET INCOME .....................................         $ 123,526          $ 110,123          $ 21,501
                                                         ---------          ---------          --------

OTHER COMPREHENSIVE INCOME (LOSS), BEFORE TAXES:
   Unrealized holding gains ....................            59,631             43,676            10,706
   Reclassification adjustments ................           (47,565)           (10,103)            1,940
RELATED TAX (EXPENSE) BENEFIT:
   Unrealized holding gains ....................           (20,871)           (15,591)           (3,640)
   Reclassification adjustments ................            16,648              3,606              (660)
                                                         ---------          ---------          --------
OTHER COMPREHENSIVE INCOME .....................             7,843             21,588             8,346
                                                         ---------          ---------          --------
COMPREHENSIVE INCOME ...........................         $ 131,369          $ 131,711          $ 29,847
                                                         =========          =========          ========	

See notes to consolidated financial statements.
49

SAFEGUARD SCIENTIFICS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS

                                                                                      YEAR ENDED DECEMBER 31,
                                                                             -------------------------------------------
                                                                             1999               1998                1997
                                                                             ----               ----                ----
                                                                                           (IN THOUSANDS)
OPERATING ACTIVITIES

Net income ......................................................         $   123,526          $ 110,123          $  21,501
Adjustments to reconcile to net cash provided by operating
   activities:
   Depreciation and amortization ................................              36,778             21,738             18,132
   Deferred income taxes ........................................              45,397             28,909             (2,566)
   Equity (income) loss .........................................              51,978              2,083               (417)
   Gain on issuance of stock by partner companies ...............            (175,662)            (3,782)            (5,772)
   Other income, net ............................................            (107,290)          (189,883)           (21,085)
   Minority interest ............................................               5,151                 28             15,436
Changes in assets and liabilities, net of effect of acquisitions:
   Accounts receivable, net .....................................              41,595            (32,301)           210,578
   Inventories ..................................................             102,922             68,840             35,498
   Accounts payable, accrued expenses, and other ................               3,952             71,182           (120,593)
                                                                          -----------          ---------          ---------
      Net cash provided by operating activities .................             128,347             76,937            150,712
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             91,519             64,880
Advances to partner companies ...................................             (56,417)           (32,161)           (23,163)
Repayment of advances to partner companies ......................               8,150              7,689              1,582
Acquisitions of ownership interests in partner companies and
   subsidiaries, net of cash acquired ...........................            (212,294)          (112,903)           (56,831)
Acquisitions by subsidiaries, net of cash acquired ..............            (141,253)           (49,679)                --
Proceeds from sale of building ..................................              45,466                 --                 --
Capital expenditures ............................................             (10,191)           (17,582)           (31,314)
Other, net ......................................................              (7,931)            (1,988)               449
                                                                          -----------          ---------          ---------
      Net cash used in investing activities .....................            (236,383)          (111,786)           (37,959)
FINANCING ACTIVITIES
Borrowings on revolving credit facilities .......................           1,181,552            796,257            858,450
Repayments on revolving credit facilities .......................          (1,342,272)          (743,503)          (976,216)
Borrowings on long-term debt ....................................                  --                909              3,987
Repayments on long-term debt ....................................             (28,295)            (3,178)            (4,155)
Proceeds from issuance of convertible subordinated notes ........             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
Issuance of subsidiary common stock .............................               2,261              1,645              4,517
                                                                          -----------          ---------          ---------
      Net cash provided by (used in) financing activities .......             151,592             35,724           (120,252)
                                                                          -----------          ---------          ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ............              43,556                875             (7,499)
Cash and cash equivalents at beginning of period ................               6,257              5,382             12,881
                                                                          -----------          ---------          ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD ......................         $    49,813          $   6,257          $   5,382
                                                                          ===========          =========          =========	

See notes to consolidated financial statements.
50

SAFEGUARD SCIENTIFICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF THE COMPANY
Safeguard Scientifics, Inc. (the Company) is a leader in incubating and operating what it believes are the premier developing technology companies in the Internet infrastructure market with a focus on three sectors; software, communications and eServices. The Company believes that its experience developing technology companies, its expertise in and focus on the Internet infrastructure business, and the reach of its network enables it to identify and attract companies with the greatest potential for success in the Internet infrastructure market and to assist these companies in becoming market leaders.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company and its majority-owned subsidiaries, including CompuCom Systems, Inc. (CompuCom), Tangram Enterprise Solutions, Inc. (Tangram), aligne, incorporated (aligne), Arista Knowledge Systems, Inc. (Arista) and SOTAS, Inc. (SOTAS). The various interests that the Company acquires in its partner companies are accounted for under three broad methods: consolidation, equity and cost. The applicable accounting method is generally determined based on the Company's voting interest in a partner company. In 1997, the Company established limited partnerships to hold its ownership interests in partner companies. The Company allocates 10.0% to 12.5% interest in these partnerships for purchase by Company employees. The Company is the sole general partner and retains the remaining interest. Distributions to limited partners are subject to the achievement of certain thresholds.
Consolidation. Partner companies in which the Company directly or indirectly owns more than 50% of the outstanding voting securities are generally accounted for under the consolidation method of accounting. Under this method, a partner company's results of operations are included within the Company's consolidated statements of operations. All significant intercompany accounts and transactions have been eliminated. Participation of other partner company shareholders in the income or losses of a consolidated partner company is reflected in the caption "minority interest" in the Company's consolidated statements of operations.
Equity Method. Partner companies whose results are not consolidated, but over whom the Company exercises significant influence, are generally accounted for under the equity method of accounting. Whether or not the Company exercises significant influence with respect to a partner company depends on an evaluation of several factors including, among others, representation on the partner company's Board of Directors and ownership level, which is generally a 20% to 50% interest in the voting securities of the partner company, including voting rights associated with the Company's holdings in common, preferred and other convertible instruments in the partner company. Under the equity method of accounting, a partner company's results of operations are not reflected within the Company's consolidated statements of operations; however, the Company's share of the income or losses of the partner company is reflected in the caption "equity income (loss)" in the consolidated statements of operations. The Company's carrying value for a partner company accounted for under the equity method includes the unamortized excess of the cost of the Company's interest in the partner company over its equity in the underlying net assets determined at the date of acquisition. This excess is amortized on a straight-line basis generally over ten years and is included in "equity income (loss)" in the consolidated statements of operations.
Cost Method. Partner companies not consolidated or accounted for under the equity method are accounted for under the cost method of accounting. Under the cost method, the Company's share of the income or losses of such companies is not included in the Company's consolidated statements of operations.
The Company periodically evaluates the carrying value of its ownership interests in each of its partner companies for possible impairment based on achievement of business plan objectives and milestones, the value of each ownership interest in the partner company relative to its carrying value, the financial condition and prospects of the partner company, and other relevant factors. The business plan objectives and milestones the Company considers include, among others; achievement of planned financial results; completion of capital raising activities; hiring of key employees; and the value at which independent third parties have or have committed to invest in its partner companies. Management then determines whether there has been an
51

other than temporary impairment in the carrying value of its ownership interest in the partner companies. Impairment charges are recognized in the consolidated statements of operations. The new cost basis of a partner company is not written-up if circumstances suggest the value of the partner company has subsequently recovered.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid instruments with an original maturity of 90 days or less at the time of purchase to be cash equivalents. At December 31, 1999, cash and cash equivalents consist of commercial paper and other deposits that are readily convertible into cash.
MARKETABLE SECURITIES
Marketable securities consist of common stock held in publicly traded companies. Marketable securities are stated at market value as determined by the most recently traded price of each security at the balance sheet date. All marketable securities are defined as trading securities or available-for-sale securities under the provisions of Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities."
Management determines the appropriate classification of its holdings in marketable securities at the time of purchase and reevaluates such determination at each balance sheet date. Available-for-sale securities are carried at fair value, based on quoted market prices, with the unrealized gains and losses, net of tax, reported as a separate component of shareholders' equity. Trading securities are carried at fair value, based on quoted market prices, with the unrealized net gain or loss included in "other income, net" in the consolidated statements of operations.
RECEIVABLES SECURITIZATION
CompuCom has an agreement with a financial institution that allows CompuCom to sell, without recourse, and on a revolving basis, an interest in a portion of its accounts receivable. In accordance with Statement of Financial Accounting Standards No. 125, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities" (SFAS 125), these transactions are accounted for as a sale of receivables. Sales of receivables are reflected as a reduction in "accounts receivable less allowances" on the consolidated balance sheets. CompuCom is retained as servicer of the receivables; however, the cost to service the receivables is not material.
FINANCIAL INSTRUMENTS
The Company's financial instruments, principally cash, accounts receivable, accounts payable, and accrued expenses, are carried at cost which approximates fair value due to the short-term maturity of these instruments. The Company's long-term debt is carried at cost which approximates fair value as the debt bears interest at rates approximating current market rates. The fair value of the Company's forward sales contracts on its Tellabs holdings is $179 million, based on the amount the Company would have to pay to terminate these contracts. At December 31, 1999, the market value of the Company's convertible subordinated notes was approximately $452 million based on quoted market prices.
The Company may selectively enter into agreements to reduce the impact of stock market volatility on its ownership in publicly traded companies. These may include agreements to protect against a possible decline in the market value of the particular company. The Company does not enter into agreements for trading or speculative purposes. The counterparties to these agreements are major financial institutions.
INVENTORIES
Inventory consisted primarily of product inventory held by CompuCom. Inventory is stated at the lower of average cost or market. The Company continually assesses the appropriateness of the inventory valuations considering obsolete, slow-moving and non-salable inventory.
52

PROPERTY AND EQUIPMENT
Property and equipment are stated at cost less accumulated depreciation and amortization. Provision for depreciation and amortization is based on the estimated useful lives of the assets (buildings and leasehold improvements, 3 to 40 years; machinery and equipment, 3 to 12 years) and is computed using the straight-line method.
EXCESS OF COST OVER NET ASSETS OF BUSINESSES ACQUIRED
Goodwill is amortized on a straight-line basis generally over 3 to 20 years. Accumulated amortization at December 31, 1999 and 1998, was $40.8 million and $29.1 million, respectively. The Company periodically evaluates goodwill for indications of impairment based on the forecasted undiscounted cash flow from the related business activity (including possible proceeds from a sale of the business).
IMPAIRMENT OF LONG-LIVED ASSETS AND LONG-LIVED ASSETS TO BE DISPOSED OF
The Company reviews long-lived assets and certain identifiable intangibles for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to forecasted undiscounted cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets.
REVENUE RECOGNITION
Product sales are generally recognized upon shipment with provisions made for anticipated returns, which historically have not been material. Service sales are generally recognized when the service is rendered or ratably if performed over a service contract period. Administrative service fees (presented as other revenue) represent charges to partner companies for operational and management services provided through a team of Safeguard professionals. Administrative service fees are recognized ratably over the term of each administrative service fee contract.
The Company adopted Statement of Position (SOP) 97-2 Software Revenue Recognition for software transactions entered into beginning January 1, 1998. The adoption of this SOP did not have a material impact on the Company's revenue recognition policies. CompuCom derives software revenues in connection with the sale of personal computers with standard installed software packages. These revenues are recognized as a component of product revenues as computers are shipped. Tangram recognizes revenue from software licenses, postcontract customer support (PCS) and related consulting services. Revenue from software license agreements and product sales are recognized upon delivery, provided that all of the following conditions are met: a non-cancelable license agreement has been signed; the software has been delivered; no significant production, modification or customization of the software is required; the vendor's fee is fixed or determinable; and collection of the resulting receivable is deemed probable. In software arrangements that include rights to software products, specified upgrades or gateways, PCS, and/or other services, the Company allocates the total arrangement fee among each deliverable based on vendor-specific objective evidence. Revenue from maintenance agreements are recognized ratably over the term of the maintenance period, generally one year. Consulting and training services, which are not considered essential to the functionality of the software products, are recognized as the respective services are performed.
VENDOR PROGRAMS
CompuCom receives volume incentives and rebates from certain manufacturers related to sales of certain products which are recorded as a reduction of cost of sales when earned. CompuCom also receives manufacturer reimbursements for certain training, promotional, and marketing activities that offset the expenses incurred by CompuCom.
STOCK-BASED COMPENSATION
The Company applies Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" (APB 25) for stock options and other stock-based awards while disclosing pro forma net income and net income per share as if the fair value method had been applied in accordance with Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" (SFAS 123).
53

GAINS OR LOSSES ON ISSUANCE OF STOCK BY PARTNER COMPANIES
At the time a partner company accounted for under the consolidation or equity method of accounting sells its common stock at a price different from the Company's book value per share, the Company's share of the partner company's net equity changes. If at that time, the partner company is not a newly-formed, non-operating entity, nor a research and development, start-up or development stage company, nor is there question as to the partner company's ability to continue in existence, the Company records the change in its share of the partner company's net equity as a gain or loss in its consolidated statements of operations (note 12). Otherwise, the increase is reflected in "subsidiaries' equity transactions" in the Company's consolidated statements of shareholders' equity.
If gains have been recognized on issuances of a subsidiary's stock and shares of the subsidiary are subsequently repurchased by the subsidiary or by the Company, gain recognition does not occur on issuances subsequent to the date of a repurchase until such time as shares have been issued in an amount equivalent to the number of repurchased shares. Such transactions are reflected as equity transactions, and the net effect of these transactions is reflected in the consolidated statements of shareholders' equity.
DEFINED CONTRIBUTION PLANS
Defined contribution plans are contributory and cover eligible employees of the Company and certain subsidiaries. The Company and certain subsidiaries generally match from 50% to 75% of the first 4% to 6% of employee contributions to these plans. Additionally, the Company makes annual contributions to a non-contributory defined contribution pension plan based on 4.5% of a participant's eligible compensation. Amounts expensed relating to these plans were $3.1 million, $2.7 million and $1.9 million in 1999, 1998 and 1997, respectively.
INCOME TAXES
Income taxes are accounted for under the asset and liability method whereby deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which the temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.
NET INCOME PER SHARE
Net income per share (EPS) is computed on net income using the weighted average number of common shares outstanding during each year. Diluted EPS includes common stock equivalents (unless anti-dilutive) which would arise from the exercise of stock options and conversion of other convertible securities and is adjusted, if applicable, for the effect on net income of such transactions. Diluted EPS calculations adjust net income for the dilutive effect of common stock equivalents and convertible securities issued by the Company's public subsidiaries or equity affiliates.
COMMON STOCK
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.
ACCOUNTING ESTIMATES
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.
RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform to the current year presentation.
54

COMPREHENSIVE INCOME
Comprehensive income is the change in equity of a business enterprise during a period from transactions and other events and circumstances from non-owner sources. Excluding net income, the Company's source of other comprehensive income is from net unrealized appreciation on cost method holdings classified as available-for-sale. Reclassification adjustments result from the recognition in net income of unrealized gains or losses that were included in comprehensive income in prior periods.
SEGMENT INFORMATION
At December 31, 1998, the Company adopted Statement of Financial Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and Related Information" (SFAS 131) which requires companies to present financial and descriptive segment information.
RECENT ACCOUNTING PRONOUNCEMENTS
Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" (SFAS 133) will require that an entity recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. The accounting for changes in the fair value of a derivative will depend on the intended use of the derivative and the resulting designation. SFAS 133 will be effective for the Company in 2001. The Company is currently evaluating the impact of SFAS 133.
The Company does not expect the adoption of other recently issued accounting pronouncements to have a significant impact on the Company's results of operations, financial position or cash flows.
2. BUSINESS COMBINATIONS
ACQUISITIONS BY THE COMPANY
In February 1999, the Company acquired an 80% voting ownership in aligne in exchange for 1.3 million shares of the Company's common stock with a market value of $16.5 million. aligne is an information technology management-consulting firm that assists its clients in optimizing investments in technology.
In June 1999, the Company acquired a 75% voting ownership in SOTAS for $9.4 million and assumed certain liabilities. SOTAS develops, markets and sells telecommunications technology and related products and services.
ACQUISITIONS BY SUBSIDIARIES
In May 1999, CompuCom purchased from ENTEX Information Services, Inc. certain assets of its Technology Acquisition Services Division (Entex) in a cash transaction. This acquisition was structured as an asset purchase. Under the terms of the agreement, CompuCom paid approximately $137 million and assumed certain liabilities for the acquired assets, which consisted primarily of inventory, certain fixed assets and the Erlanger, Kentucky distribution center. The initial purchase price allocation for this acquisition is preliminary and may be adjusted upon completion of the final valuation work.
During 1998, CompuCom completed the acquisitions of DataFlex, Inc., Computer Integration Corporation, and ECC II Corporation, entities engaged in the sale of microcomputers and related services and solutions. The purchase consideration given for these acquisitions was cash of approximately $27 million, $17 million and $5 million, respectively. In addition, CompuCom assumed liabilities in connection with these acquisitions of approximately $22 million, $71 million and $3 million, respectively.
These transactions were accounted for as purchases and, accordingly, the consolidated financial statements reflect the operations of these companies since the date of acquisition. The Company and its subsidiaries allocated the purchase price to the assets and liabilities acquired based on estimated fair value as of the date of acquisition. The acquisitions resulted in goodwill of approximately $110 million which is being amortized over periods ranging from ten to twenty years.
The following unaudited pro forma financial information (in thousands except per share amounts) presents the combined results of operations of the Company as if the acquisitions had occurred as of January 1, 1998, after giving effect to
55

certain adjustments, including amortization of goodwill, increased interest expense on debt related to the acquisitions, and related income tax effects. The pro forma results of operations are not indicative of the actual results that would have occurred had the acquisitions been consummated at the beginning of the period presented and is not intended to be a projection of future results.

                                         YEAR ENDED DECEMBER 31,
                                         -----------------------
                                         1999               1998
                                         ----               ----
Revenues ....................         $3,577,199         $4,404,852
Net income ..................         $  117,705         $   95,064
Net income per share--diluted         $     1.10         $     0.93	

3. FINANCIAL INSTRUMENTS
In 1999, the Company entered into two forward sale contracts related to 3.4 million shares of its holdings in Tellabs. The Company pledged these shares of Tellabs for three years and in return received approximately $139 million of cash. At the end of the term, the Company has the option to deliver cash or Tellabs shares with a value determined by the stock price of Tellabs at maturity. The number of Tellabs shares to be delivered at maturity ranges from 2.7 million to 3.4 million shares (or the cash value thereof). The liability of $149.4 million related to these transactions is included in "other long-term liabilities" on the consolidated balance sheets.
In August 1999, the Company completed the pledge of all of its remaining holdings in Tellabs under forward sale contracts that expire in 2002. As a result of the restrictions on the sale of these shares under these contracts, the Company changed the classification of these holdings to available-for-sale at that time. Therefore, the Company's holdings in Tellabs are included in non-current assets under the caption "available-for-sale securities" as of December 31, 1999.
56

4. OWNERSHIP INTERESTS IN AND ADVANCES TO PARTNER COMPANIES
The following summarizes the Company's ownership interests in and advances to partner companies accounted for under the equity method or cost method of accounting (in thousands). The ownership interests are classified according to applicable accounting methods at December 31, 1999 and 1998. Market value reflects the price of publicly traded holdings at the close of business at the respective date, and exclude warrants that are not currently exercisable.

                                                     DECEMBER 31, 1999                      DECEMBER 31, 1998
                                          ----------------------------------------      ------------------------
                                          CARRYING        MARKET           VOTING       CARRYING          MARKET
                                           VALUE          VALUE           INTEREST        VALUE            VALUE
EQUITY METHOD
Cambridge Technology Partners.......    $   49,181      $  254,556           16%       $   35,248      $  190,217
ChromaVision Medical Systems........        13,626          81,201           27%           11,304          22,419
DocuCorp International..............         9,995          22,249           17%               --(b)           --(b)
Internet Capital Group..............       189,068       6,169,208           14%           19,183              --(a)
LifeF/X.............................            --          86,823(c)        23%               --              --(a)
OAO Technology Solutions............        16,448          42,853           31%           16,472          16,551
Sanchez Computer Associates.........        11,686         258,995           26%           10,620          91,965
Pac West Telecomm...................         7,613          62,943           7%             8,913              --(a)
USDATA Corporation..................        15,920          82,406           38%            7,053           5,545
US Interactive......................         9,769         107,795           13%           10,832              --(a)
Non-public companies................       169,331                                         80,867
                                        ----------                                     ----------
                                           492,637                                        200,492
COST METHOD
Non-public companies................        16,266                                          2,867
ADVANCES TO PARTNER COMPANIES.......        20,478                                         15,640
                                        ----------                                     ----------
                                        $  529,381                                     $  218,999
                                        ==========                                     ==========	

(a) These companies were not publicly traded until 1999.
(b) DocuCorp was included in available-for-sale securities at December 31, 1998. The Company increased its voting interest in DocuCorp during 1999.
(c) LifeF/X acquired all of the equity interests of Pacific Title/Mirage through a reverse triangular merger in 1999.
Internet-related stocks have experienced significant volatility in recent years. For example, at December 31, 1999, the market value of the Company's holdings in Internet Capital Group was $6.2 billion. Based on the high and low stock prices in 2000, through February 15, 2000, the market value of the Company's holdings in Internet Capital Group has ranged from $4.1 billion to $7.3 billion.
At December 31, 1999 and 1998, the Company's carrying value in its partner companies accounted for under the equity method exceeded its share of the underlying equity in the net assets of such companies by $99.1 million and $25.4 million, respectively. This excess is being amortized generally over a ten-year period. Amortization expense of $9.5 million, $3.3 million and $3.9 million, is included in "equity income (loss)" in the accompanying consolidated statements of operations for the years ended December 31, 1999, 1998 and 1997, respectively.
As of December 31, 1999 and 1998, the Company had advances to partner companies which mature on various dates through May 2004 and bear interest at fixed rates between 5.3% and 8% and variable rates consisting of the prime rate (8.5% at December 31, 1999) plus 1%. The Company also has short-term advances to partner companies of $15.0 million and $7.2 million at December 31, 1999 and 1998, respectively, which is included in "accounts receivable, less allowances" on the consolidated balance sheets.
57

The following summarized financial information for partner companies accounted for under the equity method at December 31, 1999, 1998 and 1997 has been compiled from the unaudited financial statements of the respective partner companies and reflects certain historical adjustments (in thousands). Revenue and net income of a partner company are excluded for years prior to the year of acquisition.

                                                                                                   DECEMBER 31,
                                                                                            -------------------------
                                                                                            1999                 1998
                                                                                            ----                 ----
BALANCE SHEETS
Current assets.................................................................         $   2,148,361        $  453,829
Non-current assets.............................................................             1,006,726           187,797
                                                                                        -------------        ----------
   Total assets................................................................         $   3,155,087        $  641,626
                                                                                        =============        ==========

Current liabilities............................................................         $     348,995        $  198,683
Non-current liabilities........................................................               740,983            26,106
Shareholders' equity...........................................................             2,065,109           416,837
                                                                                        -------------        ----------
   Total liabilities and shareholders' equity..................................         $   3,155,087        $  641,626
                                                                                        =============        ==========	

                                                                                      YEAR ENDED DECEMBER 31,
                                                                               --------------------------------------
                                                                               1999             1998             1997
                                                                               ----             ----             ----
RESULTS OF OPERATIONS
Revenue:
Public companies......................................................     $ 1,074,315       $   792,320     $  574,267
Non-public companies..................................................         135,262            49,734         41,797
                                                                           -----------       -----------     ----------
                                                                           $ 1,209,577       $   842,054     $  616,064
                                                                           ===========       ===========     ==========

Net income (loss).....................................................     $  (185,748)      $     7,503     $   11,857
                                                                           ===========       ===========     ==========	

5. AVAILABLE-FOR-SALE SECURITIES
Available-for-sale securities consisted of the following (in thousands):

                                                  DECEMBER 31, 1999                          DECEMBER 31, 1998
                                          ------------------------------                ----------------------------
                                          CARRYING                MARKET                CARRYING              MARKET
                                            VALUE                 VALUE                   VALUE               VALUE
                                            -----                 ------                  -----               -----
Tellabs..............................     $  212,731           $   216,595            $      --(a)         $       --(a)
Diamond Technology Partners..........            710                57,436                 3,120              21,337
First Consulting Group...............          9,115                 9,023                 8,490              11,308
e4L..................................          1,457                 1,532                 2,035              32,299
Brandywine Realty Trust..............          8,561                 8,177                 8,561               8,926
DocuCorp International...............             --(b)                 --(b)              3,226               8,035
Other public companies...............          6,480                10,177                 2,177               3,072
Unrealized appreciation..............         63,886                                      57,368
                                          ----------                                   ---------
                                          $  302,940                                   $  84,977
                                          ==========                                   =========	

(a) At December 31, 1998, Tellabs is included in "trading securities" on the consolidated balance sheets. (See note 3)
(b) In 1999, the Company acquired an additional ownership interest in DocuCorp. As a result, DocuCorp is accounted for under the equity method at December 31, 1999.
58

6. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following (in thousands):

                                                                                DECEMBER 31,
                                                                            ----------------------
                                                                            1999              1998
                                                                            ----              ----
Land, building and improvements......................................     $   36,642     $   75,204
Machinery and equipment..............................................         67,904         65,128
                                                                          ----------     ----------
                                                                             104,546        140,332
Accumulated depreciation and amortization............................        (48,312)       (43,492)
                                                                          ----------     ----------
                                                                          $   56,234     $   96,840
                                                                          ==========     ==========	

In 1999, CompuCom sold its corporate headquarters building in a sale/leaseback transaction for approximately $40 million. The proceeds from the sale were used to pay down CompuCom's long-term debt. As part of the transaction, CompuCom entered into a 20-year operating lease on the building.
7. LONG-TERM DEBT
The following is a summary of long-term debt (in thousands):

                                                                                DECEMBER 31,
                                                                            ----------------------
                                                                            1999              1998
                                                                            ----              ----
Parent Company and Other Recourse Debt
Revolving credit facilities.......................................        $       --     $  108,107
Other.............................................................            25,325         15,874
                                                                          ----------     ----------
                                                                              25,325        123,981
Subsidiary Debt (Non-Recourse to Parent)
CompuCom..........................................................                --         83,429
Other.............................................................               226             --
                                                                          ----------     ----------
                                                                                 226         83,429
Total debt........................................................            25,551        207,410
Current maturities of long-term debt..............................           (11,019)        (2,366)
                                                                          ----------     ----------
Long-term debt....................................................        $   14,532     $  205,044
                                                                          ==========     ==========	

The Company has available $200 million under its bank revolving credit facilities. Of the $200 million, $150 million matures in May 2002. Borrowing availability under the facility is based on the fair market value of the Company's holdings of certain publicly traded companies (the "Pledged Securities"). The remaining $50 million is unsecured, with availability limited to the lesser of $50 million or 10% of the value of the Pledged Securities. The $50 million facility matures in April 2000. The Company intends to renew the $50 million bank revolving credit facility in 2000. The bank revolving credit facility bears interest at the prime rate and/or, at the Company's option, at LIBOR (approximately 5.82% at December 31, 1999) plus 1.25% and is subject to a commitment fee ranging from 0.2% to 0.3% on the unused portion. There were no borrowings outstanding under the facilities at December 31, 1999. The Company borrowed a maximum of $146.6 million and $123.2 million during 1999 and 1998, respectively. The credit facilities generally require some or all of the following: the maintenance of specified levels of tangible net worth, debt to tangible net worth and net income, specified interest coverage ratios, and limitations on the amount available for acquisitions, dividends and capital expenditures.
During 1999, the Company had revolving credit facilities with certain partner companies whereby the Company borrowed up to $20 million from these partner companies on a revolving basis at a rate that varies with the Company's effective borrowing rate. As of December 31, 1999, there were no borrowings under these facilities.
Other long-term debt includes mortgage obligations and bank credit facilities of consolidated partner companies. These obligations bear interest at rates ranging from 7.75% to 9.75%.
At December 31, 1999, CompuCom has a $200 million working capital facility and a $250 million receivables securitization facility. The $200 million working capital facility bears interest at a rate of LIBOR plus an agreed upon spread and
59

is secured by certain assets of CompuCom. This facility is fully available subject to a borrowing base and compliance with certain financial covenants and ratios. As of December 31, 1999, CompuCom had sufficient collateral to enable it to fully utilize the working capital facility, and there were no amounts outstanding as of December 31, 1999. The working capital facility will be reduced by $25 million in May 2000, and matures in May 2002. The securitization facility allows CompuCom to sell, without recourse, an interest in its accounts receivable on a revolving basis and is accounted for as a sale of accounts receivable in accordance with SFAS 125. The effective rate on the $250 million receivables securitization is based on a designated short-term interest rate (6.26% at December 31, 1999) plus an agreed upon spread. This securitization matures in May 2002, and is subject to certain covenant compliance. The securitization facility was fully utilized at December 31, 1999.
Aggregate maturities of long-term debt during future years are (in millions): $11.0--2000; $0.8--2001; $1.0--2002; $1.2--2003; $1.0--2004; and $10.6--thereafter.
8. CONVERTIBLE SUBORDINATED NOTES
In June 1999, the Company issued $200 million of 5% convertible subordinated notes (1999 notes) due June 15, 2006. Interest is payable semi-annually. The 1999 notes are redeemable in whole or in part at the option of the Company on or after June 18, 2002, for a maximum of 102.5% of face value depending on the date of redemption and subject to certain restrictions. The 1999 notes are convertible into the Company's common stock subject to adjustment under certain conditions including rights offerings and Safeguard Subscription Programs to the Company's shareholders. Pursuant to the terms of the 1999 Note, the conversion rate of the Notes at December 31, 1999 was $25.0147 per share.
In April 1999, the Company notified the holders of its previously issued convertible subordinated notes (1996 notes) of its intent to redeem all of the outstanding 1996 notes on June 2, 1999. All holders converted the 1996 notes into common stock. In 1999, 1998 and 1997, $71.3 million, $19.5 million and $11.3 million of notes, respectively, were converted into 7.4 million, 2.0 million and 1.2 million shares, respectively, of the Company's common stock. The Company recorded in shareholder's equity the principal amount of the converted notes, as well as forfeited interest and a proportionate share of the related unamortized deferred financing charges.
9. ACCRUED EXPENSES
Accrued expenses consisted of the following (in thousands):

                                                                                DECEMBER 31,
                                                                            ----------------------
                                                                            1999              1998
                                                                            ----              ----

Accrued payroll and payroll taxes....................................      $   35,351     $   23,569
Accrued cost of software and licenses................................          24,083         18,903
Accrued restructuring charge.........................................           1,800         14,088
Accrued taxes........................................................              --         13,643
Other................................................................          65,637         54,375
                                                                           ----------     ----------
Total................................................................      $  126,871     $  124,578
                                                                           ==========     ==========	

10. SHAREHOLDERS' EQUITY
COMMON STOCK
The Company repurchased approximately $3 million and $19 million of its common stock in the open market in 1999 and 1998, respectively, at an average price of $17.97 in 1999 and $8.11 in 1998. The Company is authorized to purchase up to an additional $16 million at December 31, 1999.
60

PREFERRED STOCK
Shares of preferred stock, par value $10 per share, are voting and are issuable in one or more series with rights and preferences as to dividends, redemption, liquidation, sinking funds, and conversion determined by the Board of Directors. During 1999, the Company approved an increase in the number of authorized blank check preferred stock. At December 31, 1999, there were one million shares authorized and none outstanding.
SHAREHOLDERS' RIGHTS PLAN
In February 2000, the Company adopted a shareholders' rights plan. Under the plan, each shareholder of record on March 24, 2000 will receive the right to purchase 1/1000 of a share of the Company's Series A Junior Participating Preferred Stock at the rate of one right for each share of the Company's common stock then held of record. Each 1/1000 of a share of the Company's Series A Junior Participating Preferred Stock is designed to be equivalent in voting and dividend rights to one share of the Company's common stock. The rights will be exercisable only if a person or group acquires beneficial ownership of 15% or more of the Company's common stock or commences a tender or exchange offer that would result in such a person or group owning 15% or more of the Company's common stock. If the rights do become exercisable, the Company's shareholders, other than the shareholders that caused the rights to become exercisable, will be able to exercise each right at an exercise price of $300 and receive shares of the Company's common stock having a market value equal to approximately twice the exercise price. As an alternative to paying the exercise price in cash, if the directors of the Company so determine, shareholders may elect to exercise their rights and, without the payment of any exercise price, receive half the number of shares of common stock that would have been received had the exercise price been paid in cash.
STOCK BASED COMPENSATION
In 1999, the Company's shareholders approved the 1999 Equity Compensation Plan, which provides for the grant of stock options, restricted stock awards, stock appreciation rights and performance units to employees, directors, and consultants. Initially, 9,000,000 shares were reserved for issuance. Prior to this approval, stock options were granted under the 1990 Stock Option Plan. Additionally, in 1999, the Company granted 300,000 options outside of existing option plans. Generally, outstanding options vest over four years after the date of grant and expire eight years after the date of grant. To the extent allowable, all grants are incentive stock options. All options granted under the plans to date have been at prices which have been equal to the fair market value at the date of grant. At December 31, 1999, the Company reserved 13.9 million shares of common stock for possible future issuance under its stock option plans. Several subsidiaries and most partner companies also maintain stock option plans for their employees and directors.
At December 31, 1999, 1998 and 1997, outstanding options to purchase approximately 214,000, 240,000 and 1,506,000 shares of common stock at an average price of $34.01, $11.79 and $10.85 per share were anti-dilutive and are not included in the calculations of diluted EPS, because the options' exercise price was greater than the average market price of common shares for each respective period.
Option activity is summarized below (in thousands except per share amounts):

                                                           1999                     1998                      1997
                                                  ----------------------   ---------------------     -------------------
                                                              WEIGHTED                WEIGHTED                WEIGHTED
                                                               AVERAGE                 AVERAGE                 AVERAGE
                                                              EXERCISE                EXERCISE                EXERCISE
                                                  SHARES       PRICE       SHARES       PRICE      SHARES       PRICE
                                                  ------       -----       ------       -----      ------       ------
Outstanding at beginning of year............       4,791      $  7.36       5,211     $   5.86      6,234     $   3.61
Options granted.............................       4,056        27.59         936         9.12      1,050        10.53
Options exercised...........................      (1,615)        5.58      (1,323)        2.04     (2,019)        1.52
Options canceled............................        (135)       10.12         (33)       11.99        (54)        7.63
                                                 -------      -------      ------     --------    -------     --------
Outstanding at end of year..................       7,097      $ 19.28       4,791     $   7.36      5,211     $   5.86
                                                 -------      -------      ------     --------    -------     --------
Options exercisable at year-end.............       1,865                    2,589                   2,601
Shares available for future grant...........       6,759                    1,518                   2,421	

61

The following summarizes information about the Company's stock options outstanding at December 31, 1999:

                 OPTIONS OUTSTANDING                                               OPTIONS EXERCISABLE
 ----------------------------------------------------------        ------------------------------------------------
                                           WEIGHTED AVERAGE         WEIGHTED                               WEIGHTED
 RANGE OF               NUMBER                 REMAINING             AVERAGE               NUMBER           AVERAGE
 EXERCISE             OUTSTANDING          CONTRACTUAL LIFE         EXERCISE             EXERCISABLE       EXERCISE
  PRICES            (IN THOUSANDS)            (IN YEARS)              PRICE            (IN THOUSANDS)        PRICE
  ------            --------------            ----------              -----            --------------        -----
$0.90-$ 1.92              474                    1.80                $  1.35                 474            $  1.35
 7.00-  9.75            1,406                    5.51                   8.27                 806               7.83
10.33- 11.27            1,103                    5.52                  10.80                 551             10.84
11.96- 14.21            1,648                    7.08                  12.37                  34             13.25
20.09- 30.98              919                    7.49                  23.88                   -                 -
       45.47            1,547                    7.96                  45.47                   -                 -
------------           ------                   -----                -------              ------            ------
$0.90-$45.47            7,097                    6.42                $ 19.28               1,865            $ 7.17
============           ======                   =====                =======              ======            ======	

The Company, its subsidiaries, and its partner companies accounted for under the equity method apply APB 25 and related interpretations in accounting for stock option plans. Had compensation cost been recognized consistent with SFAS 123, the Company's consolidated net income and income per share would have been reduced to the pro forma amounts indicated below (in thousands except per share amounts):

                                                                               YEAR ENDED DECEMBER 31,
                                                                         ------------------------------------
                                                                         1999           1998             1997
                                                                         ----           ----             ----
Consolidated net income............     As reported..........          $ 123,526      $ 110,123        $ 21,501
                                        Pro forma............          $ 110,057      $  99,411        $ 17,314
Income per share
      Basic .......................     As reported..........          $    1.22      $    1.15        $   0.23
                                        Pro forma............          $    1.09      $    1.04        $   0.18
      Diluted .....................     As reported..........          $    1.16      $    1.07        $   0.22
                                        Pro forma............          $    1.04      $    0.97        $   0.18
Per share weighted average fair value of
      stock options issued on date of grant..................          $   15.95      $    4.38        $   4.99	

The following range of assumptions were used by the Company, and its subsidiaries, and its companies accounted for under the equity method to determine the fair value of stock options granted in 1999, 1998 and 1997 using the Black-Scholes option-pricing model:

                                                                       YEAR ENDED DECEMBER 31,
                                                               ------------------------------------------
                                                               1999              1998                1997
                                                               ----              ----                ----
COMPANY
Dividend yield.......................................               0%                 0%                   0%
Expected volatility..................................       60% to 75%                48%                  45%
Average expected option life.........................          5 years            5 years              5 years
Risk-free interest rate..............................     5.3% to 6.6%       4.4% to 5.8%         5.9% to 6.0%	

                                                                         YEAR ENDED DECEMBER 31,
                                                               ------------------------------------------
                                                               1999              1998                1997
                                                               ----              ----                ----
SUBSIDIARIES AND EQUITY METHOD COMPANIES
Dividend yield.......................................               0%                 0%                   0%
Expected volatility..................................       0% to 100%         0% to 100%           0% to 100%
Average expected option life.........................     4 to 5 years       4 to 6 years         4 to 6 years
Risk-free interest rate..............................     5.0% to 6.6%       4.2% to 5.9%         5.9% to 6.8%	

62

11. RESTRUCTURING
In October 1998, CompuCom's Board of Directors approved a restructuring plan designed to reduce CompuCom's cost structure by closing certain facilities and reducing CompuCom's workforce. As a result, CompuCom recorded a restructuring charge in the amount of $16.4 million. The following table provides a detail of the charges by category as a roll forward of the restructuring accrual through December 31, 1999 (in thousands):

                                                           RESTRUCTURING ACCRUAL AT      CASH                    ACCRUAL AT
                                                              CHARGE      12/31/98      OUTLAYS       OTHER       12/31/99
                                                              ------      --------      -------       -----       --------
Lease termination costs...................................    $  7,259     $  6,415     $  5,175     $     --      $ 1,240
Employee severance and related benefits...................       3,804        2,986        2,293          133          560
Disposal of assets, net of proceeds.......................       3,044        2,907           --        2,907           --
Other.....................................................       2,330        1,780        1,780           --           --
                                                              --------     --------     --------     --------      -------
Total.....................................................    $ 16,437     $ 14,088     $  9,248     $  3,040      $ 1,800
                                                              ========     ========     ========     ========      =======	

The $1.8 million and $14.1 million accrued at December 31, 1999 and 1998 are reflected in "accrued expenses" on the Company's consolidated balance sheet. CompuCom recorded approximately $0.4 million of additional costs relating to the restructuring primarily due to additional expenses for disposal of assets and other charges.
The lease termination costs represents the estimated costs for 65 facilities throughout the country to either fulfill CompuCom's obligation under a signed lease contract, the net expense expected to be incurred to sublet certain facilities, or the estimated amount to be paid to terminate the lease contract before the end of the term. Employee severance and related benefits represents the estimated costs for a reduction in workforce that included 457 associates in sales, service and administration, and 2 executive officers. Other restructuring charges primarily consists of costs incurred to ship fixed assets to CompuCom's headquarters. The remaining accrual relates to 16 leases that have not been sublet or terminated and the remaining severance payments to be made to an executive officer in 2000.
The remaining restructuring accrual at December 31, 1999 is not expected to differ significantly from actual amounts to be paid.
12. GAINS ON ISSUANCE OF STOCK BY PARTNER COMPANIES
Gains on issuance of stock by partner companies consisted of the following (in thousands):

                                                                                            YEAR ENDED DECEMBER 31,
                                                                                       ----------------------------------
                                                                                       1999           1998           1997
                                                                                       ----           ----           ----
Internet Capital Group.........................................................     $  172,934    $        --     $      --
Cambridge Technology Partners...................................................           326          3,598         3,579
Other...........................................................................         2,402            184         2,193
                                                                                    ----------    -----------    ----------
                                                                                    $  175,662    $     3,782    $    5,772
                                                                                    ==========    ===========    ==========	

Gains on issuance of stock by partner companies consisted primarily of issuance by Internet Capital Group of 31 million shares of its common stock in its IPO in August 1999, seven million shares of its common stock in a secondary public offering in December 1999, and approximately three million in private placements and acquisitions completed in the fourth quarter of 1999. The pretax gain represents the increase in the Company's share of Internet Capital Group's net equity as a result of its stock issuances. The Company provided for deferred income taxes resulting from the gain on issuance of stock by Internet Capital Group.
63

The Company recorded gains on stock issued by Cambridge Technology Partners as a result of employee stock option exercises. The Company provided for deferred income taxes resulting from the gain on issuance of stock by Cambridge.
13. OTHER INCOME, NET
Other income, net, consists of the following (in thousands):

                                                                                             YEAR ENDED DECEMBER 31,
                                                                                       ----------------------------------
                                                                                       1999           1998           1997
                                                                                       ----           ----           ----
Gain on the Coherent/Tellabs merger.............................................     $      --     $  245,261      $     --
Unrealized gain (loss) on Tellabs stock.........................................        78,163        (48,549)           --
Gain on sale of Diamond stock...................................................        41,108             --         4,954
Gain on sale of Internet Capital Group stock....................................         9,332             --            --
Gain on sale of Pac-West stock..................................................         7,113             --            --
Gain on sale of Cambridge Technology Partners stock.............................            --         15,016        15,209
Gain on sale of other public holdings...........................................         7,383          2,677         2,720
Gain on distributions from private equity funds.................................         4,590          9,945         2,261
Gain on First Consulting Group/Integrated Systems
    Consulting Group Merger.....................................................            --          6,586            --
Other, primarily impairment charges.............................................       (40,399)       (41,053)       (4,059)
                                                                                     ---------     ----------      --------
                                                                                     $ 107,290     $  189,883      $ 21,085
                                                                                     =========     ==========      ========	

In August 1998, Tellabs acquired Coherent, and the Company received approximately 7 million shares (adjusted for May 1999 two-for-one stock split) of Tellabs in exchange for all of its Coherent shares. The market value of the Tellabs shares received on the date of exchange was used to determine the gain. Subsequent to the merger, the Company's holdings in Tellabs were reflected in the Company's results of operations as an unrealized gain (loss). In August 1999, the Company completed the pledge of all its holdings in Tellabs under forward sale contracts that expire in 2002. As a result of the restrictions on the sale of these shares under these contracts, the Company changed the classification of these holdings to available-for-sale. Therefore, changes in the fair value of the Company's remaining Tellabs holdings are now recorded as an adjustment to other comprehensive income in shareholders' equity.
For the years ended December 31, 1999, 1998 and 1997, the Company recorded impairment charges of $37.5 million, $35.8 million and $12.3 million, respectively, for the other than temporary decline in the carrying value of certain partner companies.
14. INCOME TAXES
The provision (benefit) for income taxes is comprised of the following (in thousands):

                                                                     YEAR ENDED DECEMBER 31,
                                                                ----------------------------------
                                                                1999           1998           1997
                                                                ----           ----           ----
Current...................................................   $   21,117    $    32,515    $  16,902
Deferred..................................................       45,397         28,909       (2,566)
                                                             ----------    -----------    ----------
                                                             $   66,514    $    61,424    $  14,336
                                                             ==========    ===========    =========
State taxes on income included above......................   $      565    $       776    $   2,235
                                                             ==========    ===========    =========	

64

Total income tax expense differed from the amounts computed by applying the U.S. Federal income tax rate of 35% to income before income taxes as a result of the following:

                                                                                             YEAR ENDED DECEMBER 31,
                                                                                       -----------------------------------
                                                                                       1999           1998           1997
                                                                                       ----           ----           ----

Statutory tax provision.........................................................       35.0%          35.0%         35.0%
Increase (decrease) in taxes resulting from:
   Non-deductible goodwill amortization.........................................        1.0            0.9           3.4
   Book/tax basis difference on securities sold.................................       (1.7)          (0.4)           --
   State taxes, net of federal tax benefit......................................        0.2            0.4           4.1
   Income taxed at rates other than statutory rate..............................        0.5           (0.1)         (2.5)
                                                                                      -----         ------         -----
                                                                                       35.0%          35.8%         40.0%
                                                                                      =====         ======         =====	

The tax effects of temporary differences that give rise to significant portions of the non-current deferred tax assets and deferred tax liabilities are presented below (in thousands):

                                                                                                    DECEMBER 31,
                                                                                                 ------------------
                                                                                                 1999          1998
                                                                                                 ----          ----
Deferred tax assets:
Subsidiary/investee carrying values......................................................     $   22,010     $   3,656
Accounts receivable and inventories, reserves and tax capitalized costs..................         14,152         17,132
Other....................................................................................          3,400         15,865
                                                                                              ----------     ----------
Gross deferred tax assets................................................................         39,562         36,653
Less valuation allowance.................................................................             --           (850)
                                                                                              ----------     ----------
Deferred tax assets......................................................................         39,562         35,803
                                                                                              ----------     ----------
Deferred tax liabilities:
Subsidiary/investee carrying values......................................................       (123,709)       (16,472)
Accelerated depreciation.................................................................           (626)        (3,252)
Unrealized appreciation on holdings......................................................        (24,943)       (20,075)
Other....................................................................................           (840)        (8,566)
                                                                                              ----------     ----------
Deferred tax liabilities.................................................................       (150,118)       (48,365)
                                                                                              ----------     ----------
Net deferred tax liabilities.............................................................     $ (110,556)    $  (12,562)
                                                                                              ==========     ==========	

At December 31, 1998, the above table excluded $48.4 million of current deferred tax liabilities attributable to the difference between the book basis and tax basis of the Company's holdings in Tellabs.
The valuation allowance at December 31, 1998, related to the uncertainty surrounding the realization of tax benefits attributable to the difference between the book basis and tax basis of certain of the Company's partner holdings. Tax benefits relating to changes in the valuation allowance for deferred tax assets are reported as an income tax benefit in the consolidated statements of operations in the period recognized.
The Company has not recognized a deferred tax liability for the difference between the book basis and tax basis of its holdings in the common stock of its subsidiaries (such difference relates primarily to unremitted income of the subsidiaries), because the Company does not expect this basis difference to become subject to tax at the parent level. The Company believes it can implement certain tax strategies to recover its basis in these subsidiaries tax-free.
65

15. NET INCOME PER SHARE
The calculations of EPS were (in thousands except per share amounts):

                                                                                      YEAR ENDED DECEMBER 31,
                                                                                ----------------------------------
                                                                                1999            1998          1997
                                                                                ----            ----          ----
Basic EPS:
Net income...............................................................    $  123,526    $   110,123     $   21,501
                                                                             ==========    ===========     ==========

Average common shares outstanding........................................       101,134         95,499         93,747
                                                                             ==========    ===========    ===========

Basic EPS................................................................    $     1.22    $      1.15    $      0.23
                                                                             ==========    ===========    ===========

Diluted EPS:
Net income...............................................................    $  123,526    $   110,123     $  21,501

Effect of: Public holdings(a)............................................          (595)          (606)        (328)
           Dilutive securities(b)........................................         5,178          2,967             --
                                                                             ----------    -----------    -----------
Adjusted net income......................................................    $  128,109    $   112,484    $    21,173
                                                                             ==========    ===========    ===========

Average common shares outstanding........................................       101,134         95,499         93,747
Effect of: Dilutive options..............................................         2,605          1,662         2,241
           Dilutive securities(b)........................................         7,171          7,581             --
                                                                             ----------    -----------    -----------
Average number of common shares assuming dilution........................       110,910        104,742         95,988
                                                                             ==========    ===========    ===========

Diluted EPS..............................................................    $     1.16    $      1.07    $      0.22
                                                                             ==========    ===========    ===========	

(a) Represents the dilutive effect of public company common stock equivalents and convertible securities.
(b) For the year ended December 31, 1997, the 1996 convertible subordinated notes were anti-dilutive; therefore, they do not impact the calculation of diluted EPS in 1997.
16. RELATED PARTY TRANSACTIONS
The Company charges administrative service fees to certain partner companies for strategic and operational support that it provides in the normal course of its business. These services are generally provided by the Company's employees and outside consultants. In 1999, 1998 and 1997, the Company received $1.9 million, $2.1 million and $2.2 million, respectively, for these services. The costs related to these services are included in general and administrative expenses.
The Company's partner companies have transactions in the normal course of business with other partner companies. For example, CompuCom incurred consulting related expenses of $3.5 million for services provided by other Safeguard partner companies. Additionally, in 1999, the Company leased space to certain partner companies.
During 1999, the Company repaid aggregate indebtedness of $20 million under revolving credit facilities to certain partner companies. There were no borrowings under these revolving credit facilities at December 31, 1999.
In 1999, the Company purchased 367,866 shares of Tangram for approximately $800,000 from an officer and director of Tangram.
66

In 1999, the Company loaned an officer of the Company $500,000 evidenced by a term note receivable. Interest on the note accrues at the prime rate (8.5% at December 31, 1999), and principal and interest on the notes is due in July 2002. In 1999, the Company loaned an officer and a director of CompuCom $806,078 to exercise CompuCom stock options. Interest on the note accrues at a rate of 4.3% per annum, and principal on the note is due on December 31, 2001. Also in 1999, CompuCom loaned one of its officers $625,950 to exercise CompuCom stock options. Interest on the note accrues at a rate of 5.7% per annum, and the loan is due November 2000.
In 1998, the Company loaned an officer and director of the Company $500,000 evidenced by a term note receivable. The note was fully repaid in March 1999. Also in 1998, CompuCom loaned two officers and directors $796,875 and $2.0 million evidenced by term notes receivable. Interest on the notes accrue at rates of 4.3% and 5.1% per annum, respectively. Principal on the note is due on December 31, 2001, and October 22, 2001, respectively. The loan proceeds were used to exercise stock options.
17. COMMITMENTS AND CONTINGENCIES
The Company and its subsidiaries are involved in various claims and legal actions arising in the ordinary course of business. In the opinion of management, the ultimate disposition of these matters will not have a material adverse effect on the Company's consolidated financial position or results of operations.
The Company and its subsidiaries conduct a portion of its operations in leased facilities and leases machinery and equipment under leases expiring at various dates to 2019. Total rental expense under operating leases was $12.4 million, $11.7 million and $10.2 million in 1999, 1998 and 1997, respectively. Future minimum lease payments under non-cancelable operating leases with initial or remaining terms of one year or more at December 31, 1999, are (in millions):
$12.0--2000; $10.3--2001; $8.8--2002; $7.9--2003 and $6.1--2004.
At December 31, 1999, the Company was contingently obligated for approximately $29 million of guarantee commitments. In addition, the Company has committed capital of approximately $142 million to various partner companies and private equity funds, to be funded over the next several years.
The Company has informed the staff of the Federal Trade Commission (FTC) of the Company's inadvertent failure to file Premerger Notification Forms under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 in connection with acquisitions of stock of certain partner companies. The FTC has the right to seek a material fine in connection with the failure to file timely Forms for these transactions, but has not informed us to whether they intend to seek any fine or penalty from us. 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. The Company does not believe any such ultimate liability would have a material adverse effect on the Company.
Because many of its partner companies are not majority-owned subsidiaries, changes in the value of the Company's interests in partner companies and the income or loss attributable to them could require the Company to register under the Investment Company Act unless it takes action to avoid being required to register. However, the Company believes it can take steps to avoid being required to register under the Investment Company Act which would not adversely affect its operations or shareholder value.
18. PARENT COMPANY FINANCIAL INFORMATION
The Company's consolidated financial statements for the years ended December 31, 1999, 1998 and 1997 reflect certain entities accounted for under the consolidated method of accounting as discussed in Note 1.
Parent company financial information is provided to present the financial position and results of operations of the Company as if the consolidated companies were accounted for under the equity method of accounting for all periods presented during which the Company owned its interest in these companies.
67

BALANCE SHEETS

                                                                                      DECEMBER 31,
                                                                                 ----------------------
                                                                                 1999              1998
                                                                                 ----              ----
Assets
   Cash and cash equivalents..............................................    $    33,536       $  1,486
   Trading securities.....................................................             --         143,103
   Other current assets...................................................         39,204          29,280
   Ownership interests in and advances to partner companies...............        687,925         348,237
   Available-for-sale securities..........................................        302,940          84,977
   Other..................................................................         45,584          30,212
                                                                              -----------       ---------
Total assets..............................................................    $ 1,109,189       $ 637,295
                                                                              ===========       =========

Liabilities and Shareholders' Equity
   Current liabilities....................................................    $    35,621       $  80,824
   Long-term debt.........................................................         14,354         123,115
   Other long-term liabilities............................................        284,513          19,152
   Convertible subordinated notes.........................................        200,000          71,345
   Shareholders' equity...................................................        574,701         342,859
                                                                              -----------       ---------

Total liabilities and shareholders' equity................................    $ 1,109,189       $ 637,295
                                                                              ===========       =========	

The carrying value of its less than wholly owned subsidiaries, primarily CompuCom, Tangram, aligne, SOTAS and Arista at December 31, 1999, and CompuCom and Tangram at December 31, 1998 are included in "ownership interests in and advances to partner companies."
The carrying value and market value of CompuCom at December 31, 1999 was $128 million and $116 million, respectively. The carrying value and market value of Tangram at December 31, 1999 was $4 million and $85 million, respectively.
STATEMENTS OF OPERATIONS

                                                                                         YEAR ENDED DECEMBER 31,
                                                                                   ------------------------------------
                                                                                   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, net............................................................         (6,764)         (7,587)         (4,234)
                                                                              ----------      ----------       ---------
Income before income taxes 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
                                                                              ==========      ==========       =========	

The Company's share of the income or losses of CompuCom and Tangram for 1999, 1998 and 1997 and aligne, SOTAS and Arista for 1999 are reflected in the caption "equity income (loss)".
68

19. SUPPLEMENTAL NON-CASH FINANCING AND INVESTING ACTIVITIES
During the years ended December 31, 1999, 1998 and 1997, the Company converted $12.9 million, $10.8 million and $3.5 million, respectively, of advances to partner companies into ownership interests in partner companies. Additionally, in 1999, in connection with the reverse merger of Pacific Title/Mirage into LifeF/X, the Company received warrants convertible into approximately 10 million shares of LifeF/X in exchange for conversion of all of the outstanding debt of Pacific Title/Mirage.
Interest paid in 1999, 1998 and 1997 was $39.3 million, $31.5 million and $21.9 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.
Cash paid for taxes in the years ended December 31, 1999, 1998 and 1997 was $36.6 million, $9.8 million and $13.5 million, respectively.
As discussed in Note 2, the Company acquired an ownership interest in aligne in exchange for approximately 1.3 million shares of the Company's common stock.
In 1999, $71.3 million of convertible subordinated notes (1996 notes) were converted into 7.4 million shares of the Company's common stock.
During the years ended December 31, 1999, 1998 and 1997, the Company received stock distributions from its interests in venture funds with a fair value of $4.3 million, $1.8 million and $1.9 million, respectively.
During the year ended December 31, 1998, the Company exchanged all of its holdings in Coherent and Integrated Systems Consulting Group for shares of Tellabs and First Consulting Group, respectively.
20. OPERATING SEGMENTS
The Company's reportable segments determined in accordance with SFAS 131 are General Safeguard Operations, Partner Company Operations, and CompuCom Operations. General Safeguard Operations represents the expenses of providing strategic and operational support to the Company's partner companies, and the related administrative costs. General Safeguard Operations also includes the effect of transactions and other events incidental to the Company's ownership interests in our partner companies and the Company's operations in general. Partner Company Operations reflect operations of all partner companies other than CompuCom. CompuCom Operations reflect the results of operations of CompuCom.
69

The following summarizes information related to the Company's segments. All significant intersegment activity has been eliminated. Assets are the owned or allocated assets used by each operating segment.

                                                                              YEAR ENDED DECEMBER 31,
                                                                  ---------------------------------------------
                                                                  1999                 1998                1997
                                                                  ----                 ----                ----
SUMMARY OF CONSOLIDATED NET INCOME
General Safeguard Operations ........................         $   158,553          $   109,689          $     3,599
Partner Company Operations ..........................             (42,739)                 358                 (210)
CompuCom Operations .................................               7,712                   76               18,112
                                                              -----------          -----------          -----------
                                                              $   123,526          $   110,123          $    21,501
                                                              ===========          ===========          ===========

GENERAL SAFEGUARD OPERATIONS
Revenue .............................................         $    13,912          $    11,949          $    10,458
Operating expenses
   General and administrative .......................              43,429               24,413               22,308
   Depreciation and amortization ....................               7,914                1,443                1,309
                                                              -----------          -----------          -----------
   Total operating expenses .........................              51,343               25,856               23,617
                                                              -----------          -----------          -----------
                                                                  (37,431)             (13,907)             (13,159)
   Gain on issuance of stock by partner companies ...             175,662                3,782                5,772
   Other income, net ................................             107,290              189,883               18,253
   Interest, net ....................................              (7,193)              (7,964)              (4,656)
                                                              -----------          -----------          -----------
   Income before income taxes .......................             238,328              171,794                6,210
   Income taxes .....................................             (79,775)             (62,105)              (2,611)
                                                              -----------          -----------          -----------
Net Income from General Safeguard Operations ........         $   158,553          $   109,689          $     3,599
                                                              ===========          ===========          ===========

PARTNER COMPANY OPERATIONS
Revenue .............................................         $    27,469          $    20,678          $    35,423
Operating expenses
   Cost of Sales ....................................               8,082                2,426               16,935
   Selling and service ..............................               8,875                8,087                7,895
   General and administrative .......................              13,572                5,309                6,476
   Depreciation and amortization ....................               5,497                2,872                4,316
                                                              -----------          -----------          -----------
   Total operating expenses .........................              36,026               18,694               35,622
                                                              -----------          -----------          -----------
                                                                   (8,557)               1,984                 (199)
   Interest, net ....................................                (330)                (272)                (282)
                                                              -----------          -----------          -----------
   Income (loss) before income taxes,
      minority interest and equity income (loss) ....              (8,887)               1,712                 (481)
   Income taxes .....................................              18,192                  729                 (146)
   Minority interest ................................                 (66)                  --                   --
   Equity income (loss) .............................             (51,978)              (2,083)                 417
                                                              -----------          -----------          -----------
Net Income (Loss) from Partner Company Operations ...         $   (42,739)         $       358          $      (210)
                                                              ===========          ===========          ===========

COMPUCOM OPERATIONS
Revenue .............................................         $ 2,911,889          $ 2,254,465          $ 1,949,802

Operating expenses
   Cost of Sales ....................................           2,597,739            1,970,505            1,682,257
   Selling and service ..............................             159,006              164,262              128,751
   General and administrative .......................              86,682               66,925               58,754
   Depreciation and amortization ....................              23,367               17,423               12,507
   Restructuring ....................................                 387               16,437                   --
                                                              -----------          -----------          -----------
   Total operating expenses .........................           2,867,181            2,235,552            1,882,269
                                                              -----------          -----------          -----------
                                                                   44,708               18,913               67,533
   Other income, net ................................                  --                   --                2,832
   Interest, net ....................................             (23,195)             (18,742)             (14,947)
                                                              -----------          -----------          -----------
   Income before income taxes and minority interest .              21,513                  171               55,418
   Income taxes .....................................              (4,931)                 (48)             (11,579)
   Minority interest ................................              (8,870)                 (47)             (25,727)
                                                              -----------          -----------          -----------
Net Income from CompuCom Operations .................         $     7,712          $        76          $    18,112
                                                              ===========          ===========          ===========	

70

                                                                         DECEMBER 31,
                                                                    -----------------------
                                                                    1999               1998
                                                                    ----               ----
ASSETS
GENERAL SAFEGUARD OPERATIONS
Cash and cash equivalents ..............................         $   33,536         $    1,486
Other ..................................................             84,788             59,492
                                                                 ----------         ----------
                                                                    118,324             60,978
                                                                 ----------         ----------
PARTNER COMPANY OPERATIONS
Trading securities .....................................                 --            143,103
Ownership interests in and advances to partner companies            529,381            218,999
Available-for-sale securities ..........................            302,940             84,977
Other ..................................................             45,927             15,170
                                                                 ----------         ----------
                                                                    878,248            462,249
                                                                 ----------         ----------
COMPUCOM OPERATIONS ....................................            503,307            545,463
                                                                 ----------         ----------
                                                                 $1,499,879         $1,068,690
                                                                 ==========         ==========	

21. SUBSEQUENT EVENTS
In February 2000, the Company announced the sale of approximately 2.2 million shares of its common stock for $100 million to Textron Inc. in a private transaction.
From January 1, 2000 through February 15, 2000, we funded $12 million of commitments made prior to December 31, 1999. Additionally, from January 1, 2000 through February 15, 2000, we committed $224 million and funded $81 million to acquire ownership interests in or make advances to new and existing partner companies.
22. QUARTERLY FINANCIAL DATA
The following table presents unaudited supplementary quarterly financial data for the years ended December 31, 1999 and 1998 (in thousands, except per share data):

                                                            THREE MONTHS ENDED,
                                          -------------------------------------------------------
                                          MARCH 31        JUNE 30        SEPT. 30         DEC. 31
                                          --------        -------        --------         -------
1999
Revenue............................      $ 502,892       $  812,582     $   900,658     $  737,138
Net Income Before Income
   Taxes, Minority Interest
   and Equity Income (Loss)........         41,670           26,472          30,027        152,785
Net Income.........................         24,148           11,513           9,317         78,548
Net Income Per Share
   Basic...........................      $    0.25       $     0.11     $      0.09     $     0.75
   Diluted.........................      $    0.24       $     0.11     $      0.09     $     0.70
1998
Revenue............................      $ 444,666       $  605,646     $   611,829     $  624,951
Net Income Before Income
   Taxes, Minority Interest
   and Equity Income (Loss)........         10,037           10,781          97,096         55,763
Net Income.........................          5,060            6,026          59,242         39,795
Net Income Per Share
   Basic...........................      $    0.05       $     0.06     $      0.62     $     0.42
   Diluted.........................      $    0.05       $     0.06     $      0.57     $     0.39	

Net income per share calculations for each of the quarters is based on the weighted average number of shares outstanding in each period. Diluted income per share calculations adjust net income for the dilutive effect of public investee common stock equivalents and convertible securities. The Company's 1996 convertible subordinated notes are anti-dilutive for the three months ended March 31, 1998 and June 30, 1998. The Company's 1999 convertible subordinated notes (issued in June 1999) are anti-dilutive for the three months ended June 30, 1999 and September 30, 1999. Therefore, the sum of the quarters may not necessarily equal the year to date net income per share.
71

INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
Safeguard Scientifics, Inc.:
We have audited the accompanying consolidated balance sheets of Safeguard Scientifics, Inc. (the "Company") 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. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We did not audit the financial statements of a nonsubsidiary investee. The Company's ownership interest in the investee at December 31, 1998 was $35.2 million and its equity in earnings of this investee was $7.9 million for the year ended December 31, 1998. 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.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits and the report of the other auditors provide a reasonable basis for our opinion.
In our opinion, based on our audits and the report of the other auditors, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Safeguard Scientifics, Inc. and subsidiaries as of December 31, 1999 and 1998, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 1999, in conformity with generally accepted accounting principles.

/s/ KPMG LLP

Philadelphia, Pennsylvania
February 28, 2000	

72

REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of Cambridge Technology Partners (Massachusetts), Inc.:
In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of operations, stockholders' equity and cash flows present fairly, in all material respects, the financial position of Cambridge Technology Partners (Massachusetts), Inc. (the "Company") at December 31, 1999 and 1998, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1999, in conformity with accounting principles generally accepted in the United States. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Boston, Massachusetts
February 10, 2000, except for the first
paragraph of Note M, as to which the date is March 2, 2000
72a

STATEMENT OF MANAGEMENT'S FINANCIAL RESPONSIBILITY
Management has prepared and is responsible for the integrity and objectivity of the consolidated financial statements and related financial information in this Annual Report. The statements are prepared in conformity with generally accepted accounting principles. The financial statements reflect management's informed judgment and estimation as to the effect of events and transactions that are accounted for or disclosed.
Management maintains a system of internal control at each business unit. This system, which undergoes continual evaluation, is designed to provide reasonable assurance that assets are safeguarded and records are adequate for the preparation of reliable financial data. In determining the extent of the system of internal control, management recognizes that the cost should not exceed the benefits derived. The evaluation of these factors requires estimates and judgment by management.
KPMG LLP is engaged to render an opinion as to whether management's financial statements present fairly, in all material respects, Safeguard Scientifics, Inc.'s financial condition and operating results in accordance with generally accepted accounting principles. The scope of their engagement included a review of the internal control system, tests of the accounting records, and other auditing procedures to the extent deemed necessary to render their opinion on the financial statements. Their report is presented above.
The Audit Committee of the Board of Directors meets with the independent auditors and management to satisfy itself that they are properly discharging their responsibilities. The auditors have direct access to the Audit Committee.
Safeguard Scientifics, Inc.

/s/ Gerald A. Blitstein
Senior Vice President and Chief Financial Officer	

73

COMMON STOCK DATA
The Company's common stock is currently traded on the New York Stock Exchange under the symbol "SFE." The following table sets forth the high and low sale prices of the Company's common stock as reported on the New York Stock Exchange for the periods indicated as adjusted, to reflect a 3-for-1 split of the Company's common stock effective as of March 13, 2000.

                                                      1999                         1998
                                              --------------------         ------------------
                                               HIGH           LOW            HIGH         LOW
                                               ----           ---            ----         ---
First Quarter..........................       $24.63         $9.17          $12.81       $10.04
Second Quarter.........................        40.00         19.13           15.13        11.54
Third Quarter..........................        25.50         15.85           13.81         7.83
Fourth Quarter.........................        61.81         22.63           10.58         5.71	

The high and low sale prices reported in 2000 through February 15 were $63.67 and $43.71, respectively. On February 28, 2000, the closing price of the Company's common stock on the New York Stock Exchange Composite Tape was $48.17 per share. As of February 15, 2000, there were 104,943,726 shares of the Company's common stock outstanding. At February 15, 2000, the Company had approximately 58,000 beneficial holders of its common stock. No cash dividends have been declared in any of the years presented, and the Company has no present intention to declare cash dividends.
74

Exhibit 23.1
Consent of Independent Auditors
The Board of Directors
Safeguard Scientifics, Inc.:
We consent to incorporation by reference in the Registration Statements (No. 33-41853, 33-48579, 33-48462, 2-72362, 33-72559,33-72560, 333-75499, 333-75501 and 333-86777) on Form S-8 and in the Registration Statements (No. 333-86675, 333-31296, 333-32512) on Form S-3 of Safeguard Scientifics, Inc. of our report dated February 28, 2000, relating to the consolidated balance sheets of Safeguard Scientifics, Inc. and subsidiaries as of December 31, 1999 and 1998, 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 and related financial statement schedules, which reports are included or incorporated by reference in the December 1999 annual report on Form 10-K/A of Safeguard Scientifics, Inc. Our report makes reference to the other auditors who audited the 1998 financial statements of an investee and our opinion, insofar as it relates to the investee, is based solely on the report of the other auditors.

/S/ KPMG LLP

Philadelphia, Pennsylvania
March 29, 2000	

Exhibit 23.2
Consent of Independent Accountants
We consent to the incorporation by reference in the Registration Statements of Safeguard Scientifics, Inc. on Form S-8 (File Nos. 33-41853, 33-48579, 33-48462, 2-72362, 33-72559, 33-72560, 333-75499, 333-75501, and 333-86777) and on Form S-3 (File Nos. 333-86675, 333-31296 and 333-32512) of our report dated February 10, 2000, except for the first paragraph of Note M, as to which the date is March 2, 2000, on our audits of the consolidated financial statements of Cambridge Technology Partners (Massachusetts), Inc. as of December 31, 1999 and 1998, and for each of the three years in the period ended December 31, 1999, which report is included in the December 31, 1999 Annual Report of Safeguard Scientifics, Inc. on Form 10-K/A.

/s/ PricewaterhouseCoopers LLP
    -----------------------------

Boston, Massachusetts

March 29, 2000	

EXHIBIT 99.1
CAMBRIDGE TECHNOLOGY PARTNERS (MASSACHUSETTS), INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Report of Independent Accountants                                           F-2

Consolidated Balance Sheets as of December 31, 1999 and 1998                F-3

Consolidated Statements of Operations for the Years Ended
   December 31, 1999, 1998, and 1997                                        F-4

Consolidated Statements of Stockholders' Equity for
   the Years Ended December 31, 1999, 1998, and 1997                        F-5

Consolidated Statements of Cash Flows for the Years Ended
   December 31, 1999, 1998, and 1997                                        F-6

Notes to Consolidated Financial Statements                                  F-7	

F-1

REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of Cambridge Technology Partners (Massachusetts), Inc.:
In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of operations, stockholders' equity and cash flows present fairly, in all material respects, the financial position of Cambridge Technology Partners (Massachusetts), Inc. (the "Company") at December 31, 1999 and 1998, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1999, in conformity with accounting principles generally accepted in the United States. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Boston, Massachusetts
February 10, 2000, except for the first
paragraph of Note M, as to which the date is March 2, 2000
F-2

CAMBRIDGE TECHNOLOGY PARTNERS (MASSACHUSETTS), INC.
CONSOLIDATED BALANCE SHEETS
 (in thousands, except share data)

                                                                           DECEMBER 31,
                                                                        1999         1998
                                                                     ---------    ---------
ASSETS
Current assets:
    Cash and cash equivalents                                        $  62,288    $  80,051
    Investments held to maturity                                        28,659       24,918
    Accounts receivable, less allowance of $10,287 and $4,550
       at December 31, 1999 and 1998, respectively                     126,842      133,583
    Unbilled revenue on contracts                                       13,181       10,964
    Deferred income taxes                                                  247        2,179
    Prepaid expenses and other current assets                           38,465       33,284
                                                                     ---------    ---------
       Total current assets                                            269,682      284,979

Property and equipment, net                                             53,127       48,255
Deferred tax asset                                                       3,619           --
Other assets                                                            41,246       17,972
                                                                     ---------    ---------
       Total assets                                                  $ 367,674    $ 351,206
                                                                     =========    =========

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
    Accounts payable                                                 $  13,845    $  15,804
    Accrued expenses                                                    54,971       49,603
    Deferred revenue                                                     9,594       10,861
    Income taxes payable                                                12,054       30,635
    Obligations under capital leases, current                               71          147
                                                                     ---------    ---------
       Total current liabilities                                        90,535      107,050

Obligations under capital leases                                           103          197
Deferred income taxes                                                       --        1,809

Commitments and contingencies

Stockholders' equity:
    Preferred stock, par value $.01 per share, 2,000,000 shares
       authorized and none issued and outstanding
       at December 31, 1999 and 1998, respectively                          --           --
    Common stock, $.01 par value, authorized 250,000,000 shares at
       December 31, 1999 and 1998, respectively;
       issued and outstanding 62,065,028 and 58,856,401 shares
       at December 31, 1999 and 1998, respectively                         621          589
    Additional paid-in capital                                         159,738      115,662
    Retained earnings                                                  129,670      127,551
    Accumulated other comprehensive loss                                (9,331)      (1,652)
    Deferred compensation                                               (3,662)          --
                                                                     ---------    ---------
       Total stockholders' equity                                      277,036      242,150
                                                                     ---------    ---------
       Total liabilities and stockholders' equity                    $ 367,674    $ 351,206
                                                                     =========    =========	

The accompanying notes are an integral part of the consolidated financial statements.
F-3

CAMBRIDGE TECHNOLOGY PARTNERS (MASSACHUSETTS), INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
 (in thousands, except per share data)

                                                  YEARS ENDED DECEMBER 31,
                                              1999         1998         1997
                                           ---------    ---------    ---------

Revenues                                   $ 628,111    $ 612,041    $ 438,329

Costs and expenses:
    Project personnel                        316,931      272,263      203,928
    General and administration                94,590       66,454       47,445
    Sales and marketing                       66,042       56,947       40,668
    Other costs                              182,497      126,970       84,582
    Business combination costs                  --          8,400        4,760
                                           ---------    ---------    ---------
       Total operating expenses              660,060      531,034      381,383
                                           ---------    ---------    ---------

Income/(loss) from operations                (31,949)      81,007       56,946

Other income (expense):
    Interest income, net                       2,727        2,233        1,824
    Gain on equity investments                29,556          798          188
    Gain on sale of marketable
       equity securities                       2,228         --           --
    Foreign exchange gain/(loss)                 856         (934)        (122)
                                           ---------    ---------    ---------
       Total other income                     35,367        2,097        1,890
                                           ---------    ---------    ---------

Income before income taxes                     3,418       83,104       58,836
Provision for income taxes                     1,299       31,164       25,054
                                           ---------    ---------    ---------

Net income                                 $   2,119    $  51,940    $  33,782
                                           =========    =========    =========

Basic net income per share                 $     .04    $     .90    $     .62
                                           =========    =========    =========

Diluted net income per share               $     .03    $     .83    $     .55
                                           =========    =========    =========

Weighted average number of
    common shares outstanding                 60,004       58,079       54,632
                                           =========    =========    =========

Weighted average number of common and
    common equivalent shares outstanding      61,745       63,301       60,775
                                           =========    =========    =========	

The accompanying notes are an integral part of the consolidated financial statements.
F-4

CAMBRIDGE TECHNOLOGY PARTNERS (MASSACHUSETTS), INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
 (in thousands, except share data)

                                                                                    ACCUMULATED
                                                                        ADDITIONAL     OTHER
                                                      NUMBER OF   PAR    PAID-IN    COMPREHENSIVE    DEFERRED    RETAINED
                                                       SHARES    VALUE   CAPITAL    INCOME (LOSS)  COMPENSATION  EARNINGS    TOTAL
                                                     ----------  -----  ----------  -------------  ------------  --------  ---------
Balance, December 31, 1996                           53,367,636   $534   $ 49,532      $   125        $ --       $ 48,605  $ 98,796

    Comprehensive income/(loss):
      Net income                                             --     --         --           --          --         33,782    33,782
      Other comprehensive income:
        Foreign currency translation adjustment              --     --         --       (2,586)         --             --    (2,586)
                                                                                                                           --------
    Total comprehensive income                                                                                               31,196
    Exercise of stock options                         2,170,050     22     12,779           --          --             --    12,801
    Tax benefit related to stock option exercises            --     --      5,807           --          --             --     5,807
    Shares issued under employee stock purchase plan    211,734      2      4,934           --          --             --     4,936
    Exercise of stock warrants                          900,000      9      1,791           --          --             --     1,800
    Accretion of Peter Chadwick preferred stock              --     --        557           --          --           (557)       --
    Dividend distribution (Peter Chadwick)                   --     --         --           --          --         (4,085)   (4,085)
    Dividend distribution (Excell)                           --     --         --           --          --           (384)     (384)
                                                     ----------   ----   --------      -------     -------       --------  --------
Balance, December 31, 1997                           56,649,420    567     75,400       (2,461)         --         77,361   150,867

    Comprehensive income/(loss):
      Net income                                             --     --         --           --          --         51,940    51,940
      Other comprehensive income/(loss):
        Foreign currency translation adjustment              --     --         --         (446)         --             --      (446)
        Unrealized gain on investment, net of taxes          --     --         --        1,255          --             --     1,255
                                                                                                                           --------
      Other comprehensive income                                                                                                809
                                                                                                                           --------
    Total comprehensive income                                                                                               52,749
    Exercise of stock options                         1,975,616     20     18,656           --          --             --    18,676
    Tax benefit related to stock option exercises            --     --     12,238           --          --             --    12,238
    Shares issued under employee stock purchase plan    231,365      2      7,618           --          --             --     7,620
    Excell conversion to C Corporation                       --     --      1,750           --          --         (1,750)       --
                                                    -----------   ----   --------      -------     -------       --------  --------
Balance, December 31, 1998                           58,856,401    589    115,662       (1,652)         --        127,551   242,150

    Comprehensive income/(loss):
      Net income                                             --     --         --           --          --          2,119     2,119
      Other comprehensive income/(loss):
        Foreign currency translation adjustment              --     --         --       (6,489)         --             --    (6,489)
        Reclassification adjustment for gain on
          investment                                         --     --         --       (1,255)         --             --    (1,255)
        Unrealized gain on investment, net of taxes          --     --         --           65          --             --        65
                                                                                                                           --------
      Other comprehensive income/(loss)                                                                                      (7,679)
                                                                                                                           --------
    Total comprehensive income/(loss)                                                                                        (5,560)
    Exercise of stock options                         2,462,864     25     29,767           --          --             --    29,792
    Tax benefit related to stock option exercises            --     --      1,690           --          --             --     1,690
    Shares issued under employee stock purchase plan    445,763      4      8,291           --          --             --     8,295
    Issuance of restricted stock to employee at par     300,000      3      4,328           --      (4,328)            --         3
    Amortization of deferred compensation                                                              666                      666
                                                    -----------   ----   --------      -------     -------       --------  --------
Balance, December 31, 1999                           62,065,028   $621   $159,738      $(9,331)    $(3,662)      $129,670  $277,036
                                                    ===========   ====   ========      =======     =======       ========  ========	

The accompanying notes are an integral part of the consolidated financial statements.
F-5

CAMBRIDGE TECHNOLOGY PARTNERS (MASSACHUSETTS), INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
 (in thousands)

                                                                   YEARS ENDED DECEMBER 31,
                                                                1999        1998        1997
                                                              --------    --------    --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income                                                    $  2,119    $ 51,940    $ 33,782
Adjustments to reconcile net income to net cash
    (used in)/provided by operating activities:
    Depreciation and amortization                               16,609      12,846       8,762
    Stock based compensation                                       666        --          --
    Tax benefit from exercise of stock options                   1,690      12,238       5,807
    Gain on equity investment in Cambridge
       Technology Capital Fund                                 (29,556)       (798)       --
    Realized gain on sale of marketable equity securities       (2,228)       --          --
    Change in deferred income taxes                             (2,746)     (1,096)       (337)
    Changes in assets and liabilities:
      Decrease/(increase) in accounts receivable                 3,684     (27,574)    (45,346)
      Increase in unbilled revenue on contracts                 (2,766)     (1,880)     (4,756)
      Increase in prepaid expenses and other current assets     (5,957)     (5,214)    (10,533)
      Decrease/(increase) in other assets                        7,515      (6,689)     (2,346)
      (Decrease)/increase in accounts payable                   (1,640)     (3,422)      6,483
      Increase in accrued expenses                               5,226       8,331      13,680
      (Decrease)/increase in deferred revenue                   (1,223)      1,359       4,217
      (Decrease)/increase in income taxes payable              (20,521)     11,165      12,741
      Other, net                                                  --          --         1,129
                                                              --------    --------    --------
       Net cash (used in)/provided by operating activities     (29,128)     51,206      23,283
                                                              --------    --------    --------

CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment                            (21,377)    (24,048)    (23,089)
Purchase of investments held to maturity                       (36,758)    (32,288)    (18,261)
Maturity of investments held to maturity                        33,017      23,194      15,164
Proceeds from sale of Cambridge Technology
    Capital Fund distributions in kind                             888        --          --
Investment in Cambridge Technology Capital Fund                 (2,978)     (1,589)       (300)
Proceeds from sale of marketable securities                      2,324        --          --
                                                              --------    --------    --------
       Net cash used in investing activities                   (24,884)    (34,731)    (26,486)
                                                              --------    --------    --------

CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term loan arrangement                          --          --           875
Repayment of long-term debt and capital leases                    (170)     (1,013)       (250)
Dividend distributions                                            --        (1,193)     (3,340)
Proceeds from employee stock purchase plan                       8,295       7,620       4,936
Proceeds from exercise of stock options                         29,792      18,676      12,801
Proceeds from exercise of warrants                                --          --         1,800
                                                              --------    --------    --------
    Net cash provided by financing activities                   37,917      24,090      16,822
                                                              --------    --------    --------

Effect of foreign exchange rate changes on cash                 (1,668)       (163)       (426)

Net (decrease)/increase in cash and cash equivalents           (17,763)     40,402      13,193
Cash and cash equivalents at beginning of period                80,051      39,649      26,456
                                                              --------    --------    --------
Cash and cash equivalents at end of period                    $ 62,288    $ 80,051    $ 39,649
                                                              ========    ========    ========	

The accompanying notes are an integral part of the consolidated financial statements.
F-6

CAMBRIDGE TECHNOLOGY PARTNERS (MASSACHUSETTS), INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS DESCRIPTION
 Cambridge Technology Partners (Massachusetts), Inc. ("Cambridge" or the "Company") performs global technology and consulting services that accelerate its clients' transition to the New Economy. Founded in 1991, the Company combines electronic business and digital strategy consulting and cross-enterprise, software integration services to "Global 1000" organizations worldwide, delivering "end-to-end" business solutions usually on a fixed-time, fixed-price basis. Cambridge's services include digital business strategies, electronic commerce technical solutions consulting, Internet user experience design, advanced software application integration, custom software solutions, network solutions, enterprise resource solutions, change management consulting, and integrated management consulting across various industrial sectors and the entire scope of the value chain of the Company's clients.
BASIS OF REPORTING
 The accompanying consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All intercompany accounts and balances have been eliminated in consolidation. On August 31, 1998, the Company acquired all of the outstanding capital stock of Excell Data Corporation ("Excell"). The acquisition of Excell was accounted for using the pooling of interests method of accounting (see Note B). All prior period historical consolidated financial statements presented herein have been restated to include the financial position, results of operations, and cash flows of Excell. Certain prior period amounts have been reclassified to conform to current period presentation.
CASH AND CASH EQUIVALENTS
 Cash and cash equivalents consist of cash and highly liquid investments with maturities of three months or less from the date of purchase and whose carrying amount approximates market value due to the short maturity of the investments.
INVESTMENTS
 The Company holds investments in marketable securities which are classified as held to maturity and all have remaining maturities of twelve months or less from the balance sheet date. At December 31, 1999 and 1998, held to maturity securities consist of investment grade municipal bonds of $28.7 million and $24.9 million, respectively, which are reported at amortized cost which approximates market value.
The Company also holds marketable equity securities which are classified as available for sale within other assets and are recorded at fair value. At December 31, 1999, the Company had marketable securities at fair value of $1.3 million with a cost of $1.2 million, and an unrealized gain of $65,000, net of taxes. At December 31, 1998, the Company had marketable securities at fair value of $2.1 million with a cost of $96,000, and an unrealized gain of $1.3 million, net of taxes.
F-7

PROPERTY AND EQUIPMENT
 Property and equipment are stated at cost. Repairs and maintenance costs are charged to operations when incurred, while betterments are capitalized. Depreciation is computed using the straight-line method based on the estimated useful lives of the assets. Estimated useful life of equipment is three to five years, furniture and fixtures is five to seven years, motor vehicles is four years and software is three to five years. Leasehold improvements are amortized over the shorter of its useful life or the term of the lease. Buildings are being depreciated over an estimated useful life of forty years. Upon retirement or disposal, the cost of the asset disposed of and the related accumulated depreciation is removed from the accounts and any gain or loss is reflected in income.
INTANGIBLE ASSETS
 Goodwill of approximately $4.8 million, related to the acquisition of IOS Group AB (now CTP Scandinavia) in February 1994, is being amortized over six years on a straight-line basis. The Company recorded amortization expense of $798,000 for each of the years ended December 31, 1999, 1998, and 1997. As of December 31, 1999 and 1998, the accumulated amortization was $4.6 million and $3.9 million, respectively. The carrying value of goodwill is subject to periodic review of realizability.
INCOME TAXES
 The Company recognizes deferred tax assets and liabilities based on temporary differences between the financial statement and tax bases of assets and liabilities using the expected tax rates in the year in which the differences are expected to reverse. The Company may provide a valuation allowance against net deferred tax assets if, based on the available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized.
EQUITY METHOD INVESTMENTS
 The Company accounts for its investment in the Cambridge Technology Capital Fund I L.P. (the "Fund") under the equity method whereby the Company's share of the income or losses of the Fund is reflected in "Gain (loss) on equity investments" in the consolidated statements of operations. The Company's carrying value for its equity method investment in the Fund is included in "Other assets" in the consolidated balance sheets (see Note N). The Company records distributions from the Fund as a reduction in its investment in the Fund.
The Company owns both limited partner and general partner interests in the Fund. To date the Company has recognized income or loss based on its approximately 24% interest in the Fund. In 1999, the Fund's net income was primarily derived from unrealized gains based on changes in the fair value of the securities it has invested in, which are subject to market fluctuations (see Note N).
REVENUE RECOGNITION
 The Company operates in one industry segment, the design, development, and implementation of business solutions. Revenues from business solutions contracts are recognized primarily on the percentage of completion method. The cumulative impact of any revision in estimates of the
F-8

percent complete is reflected in the period in which the changes become known. Losses on projects in progress are recognized when known. Net revenues exclude reimbursable expenses charged to clients. Revenues from package software evaluation and implementation services are recognized as service is provided, principally on a time and materials basis.
Deferred revenue consists of amounts received or billed in advance of services to be provided. Unbilled revenue represents amounts recognized based on services performed in advance of billings in accordance with contract terms.
EARNINGS PER SHARE
 Earnings per share ("EPS") is presented as basic and diluted EPS. Basic EPS is computed by dividing net income available to common stockholders by the weighted average number of common shares outstanding for the period. Diluted EPS is computed using the weighted average number of common shares outstanding plus the dilutive effect of common stock equivalents (using the treasury stock method).
TRANSLATION OF FOREIGN CURRENCIES AND FOREIGN EXCHANGE TRANSACTIONS For non-U.S. operations, the functional currency is the applicable local currency. The translation of the functional currencies into U.S. dollars is performed for balance sheet accounts using current exchange rates in effect at the balance sheet date and for revenue and expense accounts using average rates of exchange prevailing during the reporting period. Adjustments resulting from the translation of foreign currency financial statements are accumulated in a separate component of stockholders' equity until the entity is sold or substantially liquidated. Gains or losses resulting from foreign currency transactions are included in the results of operations.
FOREIGN EXCHANGE CONTRACTS
 The Company maintains foreign exchange contracts to mitigate the risk of changes in foreign exchange rates associated with intercompany balances. The contracts generally have maturities of one month. The impact of exchange rate movements on contracts is recorded in other income in the period in which the exchange rates change, generally consistent with the term of the contract. As of December, 31, 1999 and 1998, the Company held foreign exchange forward contracts of approximately $10.2 million and $9.4 million, respectively, and there were no related deferred gains and losses. The Company does not hold foreign exchange contracts for trading purposes.
CONCENTRATION OF CREDIT RISK
 The Company provides its services primarily to Global 1000 companies. The Company performs ongoing credit evaluations of its major customers and maintains reserves for potential credit losses. Such losses have been immaterial and have been within management's expectation. No single customer accounted for 5% or more of total net revenues for the years ended 1999, 1998, and 1997.
The Company may be exposed to credit-related losses in the event of nonperformance by counterparties to hedging instruments. The counterparties to these contracts are major financial
F-9

institutions. The Company continually monitors its positions and credit ratings of its counterparties and limits the amount of contracts it enters into with any one party.
RISKS AND UNCERTAINTIES
 The preparation of financial statements in conformity with generally accepted accounting principles requires management to provide estimates and assumptions that affect the amounts reported in the financial statements and the related footnotes. Actual results could differ from those estimates and may impact future results of operations and cash flows. Estimates are inherent in determining revenue recognition and associated profits under the percentage of completion method. The value of the Company's investments in marketable securities and investment in the Fund may be subject to significant volatility resulting from fluctuations in capital markets.
NEW ACCOUNTING PRONOUNCEMENT
 In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133, ("SFAS 133"), "Accounting for Derivative Instruments and Hedging Activities." This statement establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts (collectively referred to as derivatives), and for hedging activities. The statement requires companies to recognize all derivatives as either assets or liabilities, with the instruments measured at fair value. The accounting for changes in fair value, recorded as a gain or loss, depends on the intended use of the derivative and its resulting designation. The statement initially was to be effective for all fiscal quarters of fiscal years beginning after June 15, 1999. In July 1999, the Financial Accounting Standards Board issued SFAS 137, "Accounting for Derivative Instruments and Hedging Activites-deferral of the Effective Date of FASB Statement No. 133, an amendment of FASB Statement No. 133." SFAS 137 defers the implementation of SFAS 133 by one year. SFAS 133, as amended by SFAS 137, is effective for the Company's fiscal quarters beginning after January 1, 2001. The Company is currently evaluating if the adoption of SFAS 137 will have a material effect on its financial position or results of operations.
B. ACQUISITIONS
In August 1998, the Company acquired all of the outstanding capital stock of Excell. This acquisition was accomplished through a merger of the Company's acquisition subsidiary and Excell in an exchange of 1,680,416 shares of the Company's common stock for all outstanding shares of capital stock of Excell. The acquisition has been accounted for using the pooling of
F-10

interests method of accounting. Transaction costs related to this acquisition which consist primarily of investment banking fees, accounting fees, legal fees and business integration costs were approximately $1.7 million and are included in business combination costs in the accompanying Consolidated Statements of Operations (also see Note G - "Excell Phantom Stock Plan").
In November 1997, the Company acquired all of the outstanding capital stock of Peter Chadwick Holdings Limited ("Peter Chadwick"). This acquisition was accomplished through an exchange of 3,255,731 shares of the Company's common stock for all outstanding shares of capital stock and options to purchase ordinary shares of Peter Chadwick. The acquisition has been accounted for using the pooling of interests method of accounting. Founded in 1987 and based in the United Kingdom, Peter Chadwick specialized in change implementation strategies and performance improvement programs. Peter Chadwick was renamed Cambridge Management Consulting Holdings Limited in July 1998.
The accompanying consolidated financial statements of the Company have been prepared to give retroactive effect to the acquisitions of Excell and Peter Chadwick in accordance with the pooling of interests requirements. All prior period historical consolidated financial statements presented herein have been restated to include the financial position, results of operations, and cash flows of these acquisitions. Costs related to these acquisitions have been charged to business combination costs in the consolidated statements of operations for the period in which the transaction was consummated.
F-11

The following information presents certain statement of operations data (in thousands) of the Company, Peter Chadwick, and Excell for the periods prior to the acquisitions. Peter Chadwick and Excell information are presented through September 30, 1997 and June 30, 1998, respectively, which represent the interim period ends nearest to the dates of these acquisitions.

                              Cambridge
                              Technology          Peter                           Combined
                               Partners         Chadwick          Excell            Total
                              ----------        --------         --------         --------
Net revenues for the:

  Nine months ended
   September 30, 1997          $250,501         $ 36,841         $ 22,217         $309,559
  Year ended
    December 31, 1997          $406,672                          $ 31,657         $438,329
  Six months ended
   June 30, 1998               $238,018                          $ 18,588         $256,606

Net income for the:
  Nine months ended
    September 30, 1997         $ 24,623         $  2,365         $    962         $ 27,950
  Year ended
    December 31, 1997          $ 32,929                          $    853         $ 33,782
  Six months ended
   June 30, 1998               $ 41,798                          $    397         $ 42,195	

C. ACCOUNTS RECEIVABLE
Accounts receivable consists of the following (in thousands):

                                                    December 31,
                                              ----------------------
                                                1999          1998
                                              --------      --------

Contracts in process                          $ 69,229      $ 78,767
Completed contracts                             67,900        59,366
                                              --------      --------
                                               137,129       138,133
Less: Allowance for doubtful accounts           10,287         4,550
                                              --------      --------
                                              $126,842      $133,583
                                              ========      ========	

The Company does not include client reimbursable expenses or other non-trade receivables as a component of net revenues. At December 31, 1999 and 1998, approximately $22.4 million and $19.2 million, respectively, of client reimbursable expenses and other non-trade receivables are included in prepaid expenses and other current assets.
F-12

D. PROPERTY AND EQUIPMENT
Property and equipment consists of the following (in thousands):

                                             December 31,
                                      -------------------------
                                        1999             1998
                                      --------         --------

Building                              $  1,414         $  1,406
Equipment                               66,912           54,591
Furniture and fixtures                  14,662           11,693
Leasehold improvements                  16,569           11,312
Motor vehicles                             690              880
Software and other                         897            1,443
                                      --------         --------
     Total cost                        101,144           81,325
Less accumulated depreciation           48,017           33,070
                                      --------         --------
                                      $ 53,127         $ 48,255
                                      ========         ========	

Depreciation expense for 1999, 1998, and 1997 was $15.6 million, $11.9 million, and $7.2 million, respectively.
E. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
Accrued expenses consist of the following (in thousands):

                                                        December 31,
                                                   -------------------
                                                     1999        1998
                                                   -------     -------

Accrued payroll and payroll related expenses       $21,562     $20,776
Contract reserve                                     4,786       5,082
Other accrued expenses                              23,898      17,877
Accrued value added tax                              4,725       5,868
                                                   -------     -------
                                                   $54,971     $49,603
                                                   =======     =======	

F. REVOLVING CREDIT FACILITY
In September 1998, the Company obtained a $50.0 million unsecured senior revolving credit facility (the "Facility") through a syndication arrangement committed equally by The Chase Manhattan Bank ("Chase") and Fleet National Bank ("Fleet Bank"). The Facility expires on September 10, 2001 and replaces the Company's previously maintained $20.0 million revolving credit facility that expired on June 30, 1998. The Facility is administered by Chase and carries a commitment fee, payable quarterly in arrears, calculated based on the unused portion of the Facility and a price grid as set forth in the credit agreement. The Facility permits the Company to elect any of three possible interest rate formulas as defined in the credit agreement. Interest is payable in arrears based on an interest period determined by the interest rate elected by the Company. The Facility requires, among other things, the Company to maintain certain financial ratios, including debt service coverage, debt to capital, and net worth. For the year ended
F-13

December 31, 1999, the Company was in compliance with the debt to capital and net worth ratio requirements but was not in compliance with the debt service coverage ratio. The Company received a waiver through March 31, 2000 regarding the non-compliance with the debt service coverage ratio. The Company is in the process of renegotiating the terms of the Facility. For the year ended December 31, 1998, the Company was in compliance with these financial ratio requirements. As of December 31, 1999 and 1998, the Company had no balance outstanding under the Facility.
G. STOCKHOLDERS' EQUITY AND OTHER STOCK-RELATED INFORMATION
AUTHORIZED SHARES
 On May 13, 1998, the stockholders of the Company voted to amend to the Company's corporate charter to increase the number of authorized shares of common stock from 120 million shares to 250 million shares.
STOCK OPTION PLANS
Under the Company's amended 1991 Stock Option Plan (the "1991 Option Plan"), the Company may grant incentive stock options to employees and nonqualified stock options to employees, directors, officers, and other key individuals. The Management Resource Committee (the "MRC") of the Board of Directors administers the 1991 Option Plan, subject to approval by the Board of Directors with respect to certain matters. Options granted under the 1991 Option Plan prior to 1997 generally vest ratably over a 48 month period and expire ten years from the date of grant. Options granted under the 1991 Option Plan in 1997 and thereafter generally vest ratably over a 48 month period and expire in installments five to eight years from the date of grant. At December 31, 1999, 1998, and 1997, there were 9,939,985, 13,204,447, and 11,677,140 options outstanding, respectively, under the 1991 Option Plan. At December 31, 1999, 1998, and 1997, options to purchase 4,906,435, 4,725,224, and 4,063,342 shares, respectively, were exercisable under the 1991 Option Plan. In December 1997 the Company's Board of Directors amended the 1991 Option Plan, with subsequent stockholder approval, to increase the number of shares of common stock authorized for issuance under the 1991 Option Plan from 19 million to 23 million.
During 1995, the Company established the 1995 Non-employee Director Stock Option Plan ("Non-employee Director Option Plan"). The Non-employee Director Option Plan authorizes the grant of nonqualified options for up to 150,000 shares of the Company's common stock. Each member of the Company's Board of Directors who was neither (i) an employee nor an officer of the Company or Safeguard Scientific, Inc. ("Safeguard") nor (ii) an affiliate of Technology Leaders II L.P. or any related entity, and was serving on the Company's Board of Directors on March 21, 1995, was granted an option to purchase 30,000 shares of the Company's common stock. Each person who is neither (i) an employee nor an officer of the Company or Safeguard nor (ii) an affiliate of Technology Leaders II L.P. or any related entity, and who is first elected to the Board of Directors after March 21, 1995, is automatically granted, on the date of such election without further action by the Board of Directors, an option to purchase 30,000 shares of the Company's common stock. Options granted under the Non-employee Director Option Plan generally vest ratably over a 48 month period and expire ten years from the date of grant. At
F-14

December 31, 1999 and 1998 there were 103,000 options outstanding, and at December 31, 1997 there were 120,000 options outstanding under the 1995 Option Plan. At December 31, 1999, 1998 and 1997, options to purchase 103,000, 95,136, and 73,121 shares, respectively, were exercisable under the Non-employee Director Option Plan.
In November 1997, the Board of Directors adopted the 1997 Stock Option Plan (the "1997 Option Plan") under which the Company may grant nonqualified stock options to purchase up to 450,000 shares of common stock to employees (other than officers) and consultants of the Company. The MRC administers the 1997 Option Plan, subject to approval by the Board of Directors with respect to certain matters. Options granted under the 1997 Option Plan generally vest ratably over a 48 month period and expire in installments five to eight years from the date of grant. At December 31, 1999, 1998, and 1997, there were 130,680, 139,095, and 260,000 options outstanding, respectively, under the 1997 Option Plan. At December 31, 1999, 1998 and 1997, options to purchase 64,882, 34,773 and zero shares, respectively, were exercisable under the 1997 Option Plan.
In October 1998, the Board of Directors adopted the 1998 Stock Option Plan (the "1998 Option Plan") under which the Company may grant nonqualified stock options to purchase up to 5.0 million shares of the Company's common stock to employees of the Company and other key individuals other than members of the Board of Directors or officers of the Company. In December 1999 the Company's Board of Directors amended the 1998 Option Plan to increase the number of shares of common stock authorized for issuance under the 1998 Option Plan from 5.0 million to 11.5 million. The MRC administers the 1998 Option Plan. Unless otherwise provided by the MRC at the time of grant, options granted under the 1998 Option Plan vest ratably over a 48 month period and expire four years from the last vesting date in each year. At December 31, 1999 and 1998, there were 6,886,401 and 1,905,182 options outstanding, respectively, under the 1998 Option Plan. At December 31, 1999 and 1998, options to purchase 1,203,854 and 31,732 shares, respectively, were exercisable under the 1998 Option Plan.
F-15

Stock option activity under the Company's stock option plans is summarized as follows:

                                                          Weighted Average
                                           Option          Exercise Price
                                           Shares             Per Share
                                         ----------       ----------------

Outstanding at December 31, 1996         10,713,955             13.27
    Granted                               6,281,988             29.89
    Exercised                             2,170,050              5.86
    Canceled                              2,768,753             26.31
                                         ----------            ------
Outstanding at December 31, 1997         12,057,140             20.16
    Granted                              12,189,805             22.14
    Exercised                             1,975,616              9.39
    Canceled                              6,919,605             33.65
                                         ----------            ------
Outstanding at December 31, 1998         15,351,724             17.39
    Granted                               8,512,910             18.72
    Exercised                             2,462,864             12.10
    Canceled                              4,341,704             18.86
                                         ----------            ------
Outstanding at December 31, 1999         17,060,066            $18.44
                                         ==========            ======	

In October of 1998, in order to re-establish the incentive nature of outstanding stock options with exercise prices greater than the then current fair market value of the Company's common stock, the Company offered to holders of outstanding stock options granted on or after April 24, 1997 the opportunity to exchange those options for options covering an equivalent number of shares with an exercise price of $15.50 per share, the then current fair market value. The Chief Executive Officer and directors of the Company were not eligible to participate in the exchange. The table above reflects the cancellation and re-issuance of options to purchase 5,236,670 shares of common stock in 1998 in connection with the option exchange. The new options vest in accordance with the vesting schedule of the options they replaced, but cannot be exercised until October 15, 1999, in the case of the Company's executive vice presidents, senior vice presidents, vice presidents, and associate vice presidents, and until April 15, 1999, in the case of all other employees who participated in the option exchange.
The above table also reflects the cancellation and re-issuance of options to purchase 2,051,286 shares of common stock in 1997 under the 1991 Option Plan. These re-issued options were granted in April 1997 at fair market value in exchange for options granted from October 1996 through March 1997 with exercise prices above April 1997 fair market values. Vesting schedules for these options re-started at April 1997 and option lives were shortened compared to the original grants.
F-16

The following summarizes information about the Company's stock options outstanding at December 31, 1999:

                              Options Outstanding                             Options Exercisable
-----------------------------------------------------------------------------------------------------
                                        Weighted Average     Weighted                        Weighted
                          Number            Remaining         Average          Number        Average
       Range of         Outstanding        Contractual       Exercise       Exercisable      Exercise
    Exercise Price      at 12/31/99           Life             Price        at 12/31/99       Price
-----------------------------------------------------------------------------------------------------

$  .16 - $ 1.67            240,792         2.4 Years           $ .69           240,792         $ .69
  3.09 -   6.32            364,957         4.2 Years           $5.53           364,957         $5.53
 10.00 -  14.44          2,237,880         7.3 Years          $13.75           313,790        $11.03
 15.34 -  22.88          9,921,216         5.9 Years          $17.68         4,924,354        $17.71
 23.19 -  34.00          3,863,927         7.7 Years          $23.53           224,085        $25.48
 35.00 -  49.60            431,294         5.9 Years          $35.57           210,193        $35.58
-----------------------------------------------------------------------------------------------------
$  .16 - $49.60         17,060,066         6.4 Years          $18.44         6,278,171        $16.89
=====================================================================================================	

The Company applies Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees", and related interpretations in accounting for its option plans. Accordingly, no compensation expense has been recognized. Had compensation expense for the Company's stock option plans and employee stock purchase plan been determined based on the fair value at the grant date for awards under these plans consistent with the methodology required under Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123"), the Company's consolidated net income and net income per share would have been reduced to the pro forma amounts indicated as follows for the years ended December 31, 1999, 1998, and 1997 (in thousands except per share data):

                                                                1999                1998               1997
                                                            ----------          ----------         ----------
As reported net income                                      $    2,119          $   51,940         $   33,782
Pro forma net income (loss) for SFAS 123                    $  (15,046)         $   24,133         $   27,092

Net income (loss) per share:
    As reported basic net income per share                  $      .04          $      .90         $      .62
    Pro forma basic net income (loss) per
        share for SFAS 123                                  $     (.25)         $      .42         $      .50

    As reported diluted net income (loss) per share         $      .03          $      .83         $      .55
    Pro forma diluted net income (loss) per
        share for SFAS 123                                  $     (.25)         $      .38         $      .45	

The effects of applying SFAS 123 in this disclosure are not indicative of future amounts. Additional grants in future years are anticipated.
F-17

The following weighted average assumptions were used by the Company to determine the fair value of stock options granted using the Black-Scholes options-pricing model:

                                         1999        1998        1997
                                        ------      ------      ------

Expected volatility                        73%         52%         45%
Average expected option life             4 Years     4 Years     5 Years
Average expected life for employee
    stock purchase plan shares           .5 Year     .5 Year     .5 Year
Risk-free interest rate                    5.8%        4.5%        6.2%
Dividend yield                              0%          0%          0%	

The weighted average grant date fair value of options granted under the stock option plans was $11.13 in 1999, $8.80 in 1998, and $12.59 in 1997. The weighted average fair value of shares issued under the employee stock purchase plan was $7.83 in 1999, $13.40 in 1998, and $4.81 in 1997. The pro forma expense amounts assume that the fair value assigned to the option grants was amortized over the vesting period of the options, which is approximately four years, while the fair value assigned to grants under the Employee Stock Purchase Plan was recognized in full at the various dates of grant.
EMPLOYEE STOCK PURCHASE PLAN
 On December 14, 1994, the Board of Directors adopted the Company's 1994 Employee Stock Purchase Plan (the "Stock Purchase Plan"), which was subsequently approved by stockholders at the annual meeting of stockholders in May 1995. The Company has authorized 1,500,000 shares of the Company's common stock for purchases under the Stock Purchase Plan. The Stock Purchase Plan permits eligible employees to purchase shares of common stock, subject to limitations provided by
Section 423(b) of the Internal Revenue Code, through accumulated payroll deductions. Each participating employee may purchase up to 1,500 shares per payment period and purchases by any one employee may not exceed $25,000 in fair market value of the stock purchased in any one year. The purchases are made twice per year at a price equal to the lesser of (i) 85% of the average market price of the Company's common stock on the first business day of the payment period and (ii) 85% of the average market price of the Company's common stock on the last day of the payment period. Annual payment periods consist of two six-month periods, January 15 through July 14 and July 15 through January 14. For the years ended December 31, 1999, 1998, and 1997, 445,763, 231,365, and 211,734 shares of common stock, respectively, were issued under the Stock Purchase Plan. At December 31, 1999 457,365 shares were available for future grant.
RESTRICTED STOCK
 On August 27, 1999 the Board of Directors approved the issuance of 300,000 shares of restricted stock to the Chief Executive Officer at par value. The restricted stock will vest as follows: (i) 100,000 shares on December 31, 2000,
(ii) 100,000 shares on the earlier to occur of either July 31, 2002 or the first date on which the closing price of the Company's common stock equals or exceeds $28.876, and (iii) 100,000 shares on the earlier to occur of either January 31, 2003 or the first date on which the closing price of the Company's common stock equals or exceeds $36.095.
F-18

The Company recorded deferred compensation of $4.3 million related to the hiring of its Chief Executive Officer and compensation expense of $666,000 was recognized for the year ended December 31, 1999.
PREFERRED STOCK
 The Company's certificate of incorporation was amended and restated, in December 1992, to increase the number of authorized shares of capital stock to include two million shares of preferred stock, par value $.01 per share, in one or more series. The Board of Directors is authorized, subject to certain limitations prescribed by law, to fix or alter the designations, preferences, rights and any qualifications, limitations or restrictions of the shares of each such series. The Company has not issued and, except pursuant to the preferred stock purchase rights described in the Rights Plan section of this note, has no present plans to issue any shares of preferred stock.
WARRANTS
 In December 1992, the Company issued warrants to Safeguard Scientifics, Inc. for the purchase of 900,000 shares of common stock at a price of $2.00 per share. The warrants vested immediately and were exercisable for a five-year period from the date of issuance. In December 1997, all warrants were exercised for common stock.
DIVIDENDS
 The Facility prohibits the Company from paying any dividends or making any distributions either in cash or in kind on any class of its capital stock without prior consent of Chase as administrator of the Facility (see Note F). The Company currently intends to retain future earnings for use in its business and, therefore, does not expect to pay dividends in the foreseeable future.
Dividends may also be restricted by the inability to liquidate ownership interests in the Fund to pay cash dividends. At December 31, 1999, approximately $17.1 million of consolidated retained earnings relates to undistributed gains on the Company's equity method investment in the Fund.
Dividend distributions made by Peter Chadwick were made in accordance with the Peter Chadwick shareholder agreements in effect prior to the acquisition, and amounted to $1.2 million and $3.0 million for the years ended December 31, 1998 and 1997, respectively. At December 31, 1997, the $1.2 million of dividend distribution paid in the first quarter of 1998 was included in other current liabilities reflecting Peter Chadwick's dividend obligations up to the date of acquisition in accordance with the Peter Chadwick shareholder agreements in effect prior to the acquisition.
Dividend distributions made by Excell prior to the acquisition were principally for reimbursement of income tax liabilities of its former stockholders due to Excell's S-Corporation tax status prior to the acquisition.
F-19

RIGHTS PLAN
On June 23, 1997, the Board of Directors of the Company approved and adopted a Rights Plan pursuant to a Rights Agreement which was amended on September 30, 1998, and in connection therewith, declared a dividend of one preferred stock purchase right for each outstanding share of the Company's common stock, which dividend was paid on July 3, 1997 to holders of record of the Company at the close of business on July 3, 1997. One preferred stock purchase right is also attached to each share of the Company's common stock issued after July 3, 1997. The rights are not presently transferable separate from the share of common stock with respect to which they were issued. The rights are subject to adjustment and become exercisable upon the occurrence of certain events described in the Rights Agreement. In general, the Company is entitled to redeem the rights at $.01 per right. The rights will expire on June 23, 2007, unless earlier redeemed or exchanged. As part of the Rights Plan, the Company designated 100,000 shares of its preferred stock as Series A Junior Participating Preferred Stock and reserved such shares for issuance upon exercise of the rights.
EXCELL PHANTOM STOCK PLAN
 Excell maintained a 1996 Class I Phantom Stock Plan ("Phantom Plan") under which Excell granted nonqualified phantom stock units to qualifying employees. The Phantom Plan entitled a holder to surrender the units for cash equal to the defined per-unit amount derived from net income of Excell over the holding period of the units. The Phantom Plan also provided for a five-year vesting period along with other restrictions regarding redemption. The Phantom Plan also contained provisions related to payments to holders of units based on a defined market value if Excell was sold or a major change in ownership (collectively a "change in control") occurred, as defined under the Phantom Plan agreement. The acquisition of Excell by the Company qualified as a change in control under the Phantom Plan. As a result, upon consummation of the acquisition, the Company recorded a charge to operations of $6.7 million for the year ended December 31, 1998, which is included in business combination costs, representing amounts owed to Phantom Plan participants as of the closing date of the Excell acquisition. In accordance with the Phantom Plan, as a result of the acquisition, the Phantom Plan was terminated.
H. LEASE COMMITMENTS
In January 1998, the Company entered into a lease for an approximately 177,000 square foot building, which is located in Cambridge, Massachusetts, and houses the Company's Northeast operations, new employee training facility, and corporate departments. The lease agreement is for a ten-year period, which commenced in June 1999, and is renewable for two additional five-year terms.
On June 4, 1992, the Company entered into, among other building and equipment leases, a lease for a building in Cambridge, Massachusetts. This facility previously housed part of its Northeast operations and corporate departments. The building is owned by a trust, the sole beneficiary of which is the Chairman of the Board of Directors of the Company. The initial lease term expires in August 2007. Beginning in 1999, this facility is being subleased through its remaining lease term. The Company's lease for its Allston, Massachusetts facility, which housed the remainder of its Northeast operations, terminated effective June 30, 1999.
F-20

Minimum future lease commitments under non-cancelable operating leases for buildings and equipment in effect at December 31, 1999, are presented as follows (in thousands):

2000                                     $  18,943
2001                                        17,149
2002                                        15,115
2003                                        12,472
2004                                         9,855
Thereafter                                  27,629
                                         ---------
     Total minimum lease payments        $ 101,163
                                         =========	

For the years ended December 31, 1999, 1998, and 1997, rental expense under all leases was approximately $17.0 million, $15.6 million and $11.0 million, respectively, of which approximately $833,000, $814,000 and $765,000, respectively, were paid to the trust described above.
I. OTHER COSTS
Other costs consist of the following (in thousands):

                                              1999             1998             1997
                                            --------         --------         --------

Facility costs and related expenses         $ 81,801         $ 58,881         $ 43,920
Non-billable project expenses                 38,617           34,597           19,080
Non-billable staff costs                      39,115           21,412           15,479
Education and training                        22,964           12,080            6,103
                                            --------         --------         --------
                                            $182,497         $126,970         $ 84,582
                                            ========         ========         ========	

F-21

J. INCOME TAXES
The components of income (loss) before income taxes and the related provision for income taxes for the years ended December 31, 1999, 1998, and 1997 are presented below (in thousands):

                                                1999              1998              1997
                                              --------          --------          --------
Income (loss) before income taxes:
         Domestic                             $(25,435)         $ 57,071          $ 49,340
         Foreign                                28,853            26,033             9,496
                                              --------          --------          --------
                                              $  3,418          $ 83,104          $ 58,836
                                              ========          ========          ========
Provision (benefit) for income taxes:
         Current:
              Federal                         $ (7,098)         $ 19,955          $ 17,769
              Foreign                           11,143             9,682             3,881
              State                               --               2,623             3,741
                                              --------          --------          --------
                                                 4,045            32,260            25,391
         Deferred:
              Federal                           (2,530)           (1,009)             (308)
              Foreign                             --                --                  10
              State                               (216)              (87)              (39)
                                              --------          --------          --------
                                                (2,746)           (1,096)             (337)
                                              --------          --------          --------
         Total                                $  1,299          $ 31,164          $ 25,054
                                              ========          ========          ========	

The Company's deferred tax assets and (liabilities) are comprised of the following as of December 31, 1999 and 1998 (in thousands):

                                        1999              1998
                                      --------          --------

Net operating losses                  $  7,677          $   --
Bad debt reserves                        1,196               838
Vacation accrual                         1,493               631
Contract reserves                        1,353              --
Research credits                         5,570              --
Fixed asset depreciation                (1,567)             (485)
Cash to accrual adjustments               (615)           (1,174)
Unrealized gain on investment          (11,505)           (1,033)
Other accruals                             264             1,593
                                      --------          --------
                                      $  3,866          $    370
                                      ========          ========	

Included in unrealized gain on investment at December 31, 1999 and 1998 is a deferred tax liability of $29,000 and $753,000, respectively, related to an increase in the basis of an investment recorded as part of comprehensive income reflected in the Consolidated Statements of Stockholders' Equity. In accordance with Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes," this deferred tax liability amount is not included in the provision for income taxes.
F-22

The table below reconciles the expected U.S. federal statutory income tax rate to the recorded income tax rate:

                                             1999              1998              1997
                                         --------          --------          --------
U.S. statutory tax rate @ 35%            $  1,196          $ 29,086          $ 20,593
State income taxes, net of
    federal income tax benefit                149             1,829             2,931
Goodwill amortization                         251               249               235
Meals and entertainment                     1,049             1,662               530
Foreign tax credits                           420              --                (824)
Research credits                           (1,735)           (1,662)             --
Non-taxable S-Corporation income             --                (416)             (353)
Other, net                                    (31)             (332)             (235)
                                         --------          --------          --------
Effective tax rate before non-
    deductible pooling costs                1,299            30,416            22,877
Non-deductible pooling costs                 --                 748             2,177
                                         --------          --------          --------
    Effective tax rate                   $  1,299          $ 31,164          $ 25,054
                                         ========          ========          ========	

At December 31, 1999 the Company has a $ 26.0 million net operating loss carryover of which $14.7 million relates to employee stock option deductions which do not benefit the tax provision. Any future benefit will be recorded as an increase to additional paid in capital.
During the period from April 1, 1996 through August 31, 1998 (the date of the Company's acquisition of Excell), Excell elected to be treated as an S-Corporation for income tax reporting purposes. Under this election, Excell's individual stockholders are deemed to have received a pro rata distribution of taxable income of Excell (whether or not an actual distribution was made), which is included in each stockholder's taxable income. Accordingly, Excell did not provide for income taxes during the period from April 1, 1996 through August 31, 1998. Excell's S-Corporation tax reporting status was terminated on the date of acquisition and therefore, the undistributed earnings of Excell, as of the date of acquisition, were reclassified to additional paid-in capital as of August 31, 1998. Pro forma net income per share data is presented below to reflect the pro forma increase to historical income taxes related to Excell as if Excell was a C-Corporation for tax reporting purposes during those periods.

                                                              1998            1997
                                                            -------         -------
Pro forma data (unaudited):
   Historical income before income taxes                    $83,104         $58,836
   Provision for income taxes:
      Historical income taxes                                31,164          25,054
      Pro forma increase to historical income taxes             195             437
                                                            -------         -------
   Pro forma net income                                     $51,745         $33,345
                                                            =======         =======

   Pro forma basic net income per share                     $   .90         $   .62
                                                            =======         =======
   Pro forma diluted net income per share                   $   .83         $   .55
                                                            =======         =======	

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K. NET INCOME PER SHARE
The following table presents the calculation of per share earnings for the years ended December 31, 1999, 1998, and 1997 (in thousands except per share data):

                                                         1999            1998            1997
                                                       -------         -------         -------

Net income                                             $ 2,119         $51,940         $33,782
                                                       =======         =======         =======

Basic:
    Weighted average common shares outstanding          60,004          58,079          54,632
                                                       =======         =======         =======
    Net income per common share                        $   .04         $   .90         $   .62
                                                       =======         =======         =======

Diluted:
    Weighted average common shares outstanding          60,004          58,079          54,632
    Dilutive effects of stock options,
         restricted stock, and warrants                  1,741           5,222           6,143
                                                       -------         -------         -------
    Weighted average common and common
        equivalent shares outstanding                   61,745          63,301          60,775
                                                       =======         =======         =======
    Net income per common and common
        equivalent share                               $   .03         $   .83         $   .55
                                                       =======         =======         =======	

At December 31, 1999, 1998 and 1997 outstanding options to purchase approximately 7,015,174, 4,906,686, and 2,825,606 shares, respectively, were excluded from the computation of diluted EPS because the effects of these option shares were anti-dilutive.
L. EMPLOYEE BENEFIT PLANS
In 1992, the Company established a savings and profit-sharing plan (the "401(k) Plan") covering substantially all of the Company's employees. The 401(k) Plan is qualified under Section 401(a) of the Internal Revenue Code of 1986, as amended. The Company may elect to make contributions under the 401(k) Plan. Starting in 1994, the Company elected to make matching contributions based on a percentage of employees' contributions, subject to limitations as defined in the 401(k) Plan. Company matching contributions made under the 401(k) Plan amounted to $2.9 million, $2.3 million, and $1.3 million in 1999, 1998, and 1997, respectively.
Cambridge-Switzerland sponsors a defined contribution retirement plan (the "Switzerland Plan") for its employees. Under the Switzerland Plan, employees can contribute between 5% to 11% of salary depending on age and other factors. All employee contributions are matched by Cambridge-Switzerland. Employer matching contributions amounted to $504,000, $225,000, and $188,000 for the years ended December 31, 1999, 1998, and 1997, respectively.
In 1992, Enterprise Resource Solutions, Inc. ("ERS"), a subsidiary of the Company, established a savings and profit-sharing plan (the "ERS Profit-sharing Plan") covering substantially all of
F-24

ERS' employees. The ERS Profit-sharing Plan was qualified under Section 401(a) of the Internal Revenue Code of 1986, as amended. ERS could elect to make contributions under the ERS Profit-sharing Plan. ERS elected to make matching contributions based on a percentage of employees' contributions. The Company completed the rollover of assets held under the ERS Profit-sharing Plan to the
401(k) Plan in January 1998. ERS' matching contributions amounted to $538,000 for the year ended December 31, 1997.
Excell maintains a qualified deferred compensation plan under Section 401(a) of the Internal Revenue Code of 1986, as amended. Under this plan, employees may elect to defer a portion of their compensation subject to Internal Revenue Code defined limitations. Employees are eligible to participate in the plan after they have worked for Excell for 90 days. Excell did not provide any matching based on employee contributions.
M. COMMITMENTS AND CONTINGENCIES
On August 31, 1998, the Company acquired Excell Data Corporation ("Excell"). On November 19, 1998, certain of the former shareholders of Excell filed a lawsuit against the Company in the United States District Court for the District of Massachusetts. The complaint alleged breach of contract, violation of federal securities laws, common law fraud, and negligent misrepresentation in connection with the Excell acquisition and sought unspecified damages. In February 1999, the Company filed a counterclaim against such former stockholders of Excell which alleges breach of contract. On March 2, 2000, the United States District Court for the District of Massachusetts granted Cambridge's motion for summary judgment, dismissing the complaints of the former shareholders of Excell in their entirety.
In March and April 1999, certain stockholders of the Company filed ten separate class action lawsuits against the Company and certain of the Company's officers in the United States District Court for the District of Massachusetts. These suits have since been consolidated by the court. The suits allege misrepresentations and omissions regarding the Company's future growth prospects and progress of the Company's reorganization in violation of federal securities laws. The suits seek unspecified damages. The Company believes that the plaintiffs' claims are without merit and intends to vigorously defend the lawsuits.
The Company is involved in litigation and various other legal matters, which have arisen in the ordinary course of business. The Company does not believe that the ultimate resolution of any such existing matter will have a material adverse effect on its financial condition, results of operations, or cash flows.
N. CAMBRIDGE TECHNOLOGY CAPITAL FUND I L.P.
The Fund was formed in October 1997 as a limited partnership with committed capital of approximately $25.3 million. The Fund's goal is capital appreciation and is intended to invest in expansion-stage, private companies providing products and services within the technology industry. A wholly owned subsidiary of the Company acts as the general partner of the Fund's general partner. The Company's ownership interest in the Fund, of approximately 24%, is
F-25

accounted for using the equity method of accounting. The Company's total capital commitment to the Fund is approximately $6.0 million, of which $4.9 million has been contributed through December 31, 1999. The carrying value of the Company's investment in the fund was approximately $33.2 million and $2.7 million respectively at December 31, 1999 and 1998 and is included in other assets in the consolidated balance sheet. The increase in the carrying value of the Company's investment in the Fund in 1999 is primarily a result of unrealized changes in the fair value of securities in the Fund's investment portfolio. During 1999, the Company has received approximately $2.2 million of distributions from the Fund in the form of securities.
Summarized financial information of the Fund is presented as follows (in thousands):

                                       December 31,
                                  1999             1998
                                --------         --------

Current assets                  $139,472         $ 11,141
Non-current assets                  --               --
                                --------         --------
Total assets                    $139,472         $ 11,141
                                ========         ========

Current liabilities             $     20         $     22
Non-current liabilities             --               --
                                --------         --------
Total liabilities               $     20         $     22
                                ========         ========	

                                                 Years Ended December 31,
                                             1999          1998          1997
                                          ---------     ---------     ---------

Net realized gains                        $   7,399     $    --       $    --
Net increase in unrealized
     appreciation of investments            118,336         4,012          --
Net loss from operations                       (656)         (685)         (129)
Cumulative effect of
     accounting change                         (151)         --            --
                                          ---------     ---------     ---------
Net increase in partners' capital         $ 124,928     $   3,327     $    (129)
                                          =========     =========     =========	

F-26

O. SUPPLEMENTAL CASH FLOW INFORMATION
Supplemental disclosures of cash flow information are presented as follows (in thousands):

                                          1999            1998            1997
                                       -------         -------         -------

Cash paid during the year for:
     Interest                          $   118         $   199         $   232
     Income taxes                       16,990          11,171           5,503	

P. OPERATING SEGMENT AND GEOGRAPHIC INFORMATION
In the fourth quarter of 1998, the Company adopted Statement of Financial Accounting Standard No. 131, "Disclosure About Segments of an Enterprise and Related Information." The Company is managed in two operating segments: North America and International. The North American operating segment consists of e-business, systems integration, and consulting services in the United States and Canada, while the International operating segment consists of e-business, systems integration, and consulting services outside of North America.
The Company evaluates each segment's performance based on revenues and income from operations. For 1999 segment reporting purposes, total corporate revenues, depreciation/amortization expense, income from operations, fixed asset additions and assets have been included in North America. The investment in the Fund of $33.2 million, $2.7 million and $295,000 is included in total assets for North America at December 31, 1999, 1998, and 1997, respectively. For segment reporting purposes in prior periods, corporate revenues, depreciation/amortization expense and income from operations had been allocated to each segment based on the proportionate operating income of each segment. Prior period revenues, depreciation/amortization expense, and income from operations have been reclassified to conform with current period presentation.
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Information about the Company's operating segments is presented as follows (in thousands):

                                             1999          1998         1997
                                           ---------     ---------    ---------

Revenues:
   North America                           $ 404,808     $ 421,608    $ 307,512
   International                             223,303       190,433      130,817
                                           ---------     ---------    ---------
Consolidated                               $ 628,111     $ 612,041    $ 438,329
                                           =========     =========    =========

Depreciation and amortization:
   North America                           $  13,130     $   9,386    $   6,547
   International                               3,479         3,460        2,215
                                           ---------     ---------    ---------
Consolidated                               $  16,609     $  12,846    $   8,762
                                           =========     =========    =========

Income (loss) from operations:
   North America                           $ (48,556)    $  54,184    $  46,150
   International                              16,607        26,823       10,796
                                           ---------     ---------    ---------
    Consolidated income (loss)
      from operations                        (31,949)       81,007       56,946
   Other income                               35,367         2,097        1,890
                                           ---------     ---------    ---------
Consolidated income before income taxes    $   3,418     $  83,104    $  58,836
                                           =========     =========    =========

Fixed asset additions:
   North America                           $  16,788     $  18,082    $  17,745
   International                               4,589         5,966        5,344
                                           ---------     ---------    ---------
Consolidated                               $  21,377     $  24,048    $  23,089
                                           =========     =========    =========

Total assets :
   North America                           $ 270,749     $ 257,617    $ 185,845
   International                              96,925        93,589       56,576
                                           ---------     ---------    ---------
Consolidated                               $ 367,674     $ 351,206    $ 242,421
                                           =========     =========    =========	

F-28

Geographic information of the Company is as follows (in thousands):

                                           1999           1998           1997
                                        ---------      ---------      ---------

Revenues:
   North America                        $ 404,808      $ 421,608      $ 307,512
   Europe                                 192,711        172,650        121,630
   Latin America                           15,679         11,795          8,852
   Asia Pacific                            14,913          5,988            335
                                        ---------      ---------      ---------
Consolidated                            $ 628,111      $ 612,041      $ 438,329
                                        =========      =========      =========

Income (loss) from operations:
   North America                        $ (48,556)     $  54,184      $  46,150
   Europe                                  17,093         28,402         13,470
   Latin America                           (2,409)        (1,778)          (827)
   Asia Pacific                             1,923            199         (1,847)
                                        ---------      ---------      ---------
Consolidated                            $ (31,949)     $  81,007      $  56,946
                                        =========      =========      =========

Total long-lived assets:
   North America                        $  84,799      $  53,214      $  34,176
   Europe                                  10,275         11,158          9,336
   Latin America                            1,030          1,249            322
   Asia Pacific                             1,888            606             32
                                        ---------      ---------      ---------
Consolidated                            $  97,992      $  66,227      $  43,866
                                        =========      =========      =========	

Revenues to external customers are based on the location of the customer. North American operations consist of services provided in the United States and Canada. European operations consist of services provided primarily in the United Kingdom, the Netherlands, Switzerland, Sweden, Norway, Denmark, Ireland, Germany, France, Austria, and Italy which have similar business environments. Latin American operations consist of services provided primarily in Mexico, Puerto Rico, Brazil, Venezuela, and Columbia. Asia Pacific operations consist of services provided primarily in Japan, Australia, and India. There are no intraenterprise sales for the periods presented. Corporate revenue, income from operations and long-lived assets have been included in North America. No customer of the Company accounted for 5% or more of the Company's revenues for any of the periods presented.
F-29

Q. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
The following table presents unaudited quarterly financial information for the years ended 1999 and 1998 (in thousands, except per share data):

                                                                       Quarters Ended
                                -----------------------------------------------------------------------------------------------
                                       March 31,               June 30,              September 30,            December 31,
                                ---------------------   ----------------------   ---------------------   ----------------------
                                   1999        1998        1999         1998        1999        1998        1999         1998
                                ---------   ---------   ---------    ---------   ---------   ---------   ---------    ---------

Revenues                        $ 151,373   $ 142,223   $ 163,496    $ 156,578   $ 168,235   $ 153,074   $ 145,007    $ 160,166

Income (loss) from operations      11,138      20,117      (1,538)      22,078      11,450      13,831     (52,999)      24,981

Income (loss) before
  income taxes                     12,031      20,529       1,917       22,577      17,317      14,821     (27,847)      25,177

Net income (loss)                   7,459      12,480       1,189       13,534      10,736       9,675     (17,265)      16,251

Basic net income (loss)
  per share                           .13         .22         .02          .23         .18         .17        (.28)         .28

Diluted net income (loss)
   per share                          .12         .20         .02          .21         .18         .16        (.28)         .26	

F-30