SAFEGUARD SCIENTIFICS INC ET AL, 10-K/A, 2000-03-30

SAFEGUARD SCIENTIFICS INC ET AL
10-K/A, 2000-03-30
COMPUTERS & PERIPHERAL EQUIPMENT & SOFTWARE

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<PAGE> 1
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:

<TABLE>
<CAPTION>
Name of each exchange
Title of Each Class on which registered
- ------------------- -------------------

<S> <C>
COMMON STOCK ($.10 PAR VALUE) NEW YORK STOCK EXCHANGE
</TABLE>

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.
<PAGE> 2
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
<PAGE> 3

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

<TABLE>
<CAPTION>
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)
---- -------- ---------- ------------ ---------- ---------- --------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
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
</TABLE>

- ---------------
(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.

<TABLE>
<CAPTION>
DEFINED CONTRIBUTION COMPANY MATCH LIFE INSURANCE
NAME PENSION PLAN VOLUNTARY SAVINGS PLAN PREMIUMS PAID
---- -------------------- ---------------------- --------------
<S> <C> <C> <C>
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
</TABLE>

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

35
<PAGE> 4

OPTION GRANTS DURING THE YEAR ENDED DECEMBER 31, 1999

<TABLE>
<CAPTION>
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%($)
- ---- ------------- ------------ --------- ---------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
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
</TABLE>

- ---------------
(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
<PAGE> 5
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

<TABLE>
<CAPTION>
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
- ---- ----------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
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
</TABLE>

- ---------------
(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.

<TABLE>
<CAPTION>
PERFORMANCE OR
OTHER PERIOD
UNTIL
PERCENTAGE MATURATION
NAME/PARTNERSHIP INTEREST OR PAYOUT
- ---------------- ---------- ---------------
<S> <C> <C>
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
</TABLE>

- ---------------
(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.

<PAGE> 6
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
<PAGE> 7

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
- ---------------------------------------- ------------ ----------------------------
<S> <C> <C>
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%
</TABLE>

- ---------------
* 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:

<TABLE>
<CAPTION>
Date of Loan Interest Rate Due Date
- ------------ ------------- --------
<S> <C> <C>
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
</TABLE>

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:

<TABLE>
<CAPTION>
Largest Balance
Name Since 1/1/99 Balance at 3/17/00
---- ------------ ------------------
<S> <C> <C>
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
</TABLE>

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
<PAGE> 8
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
<PAGE> 9
(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
<PAGE> 10

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.

<TABLE>
<CAPTION>
EXHIBIT NO. EXHIBIT

<S> <C>
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)

</TABLE>

<PAGE> 11
<TABLE>
<S> <C>
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)
</TABLE>

<PAGE> 12

<TABLE>
<S> <C>
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)
</TABLE>

<PAGE> 13

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. *
</TABLE>

<PAGE> 14

<TABLE>
<S> <C>
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. ***
</TABLE>

- --------------------------------

* 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.

<PAGE> 15

(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

<PAGE> 16
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

<PAGE> 1
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

<PAGE> 2

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-
<PAGE> 3

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-

<PAGE> 1

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

<PAGE> 2

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.

-2-

<PAGE> 3

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-

<PAGE> 1
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.

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

<S> <C> <C> <C> <C> <C>
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

</TABLE>

<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>

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
</TABLE>

(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
<PAGE> 2

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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<PAGE> 3

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:

<TABLE>
<CAPTION>
PARTNER
COMPANY VOTING
SINCE OWNERSHIP
----- ---------
<S> <C> <C>
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%
</TABLE>

(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
<PAGE> 4

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.

38
<PAGE> 5

The following table reflects consolidated operating data by reported
segments (in thousands):
<TABLE>
<CAPTION>

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

<S> <C> <C> <C>
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
=========== =========== ===========
</TABLE>

39
<PAGE> 6

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):

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
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
======== ====== ======
</TABLE>

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.

40
<PAGE> 7

Other Income, net. Other income, net, consisted of the following (in
thousands):

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
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
========= ========= ========
</TABLE>

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.

41
<PAGE> 8

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
<PAGE> 9

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
<PAGE> 10

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
<PAGE> 11

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
<PAGE> 12

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
<PAGE> 13

SAFEGUARD SCIENTIFICS, INC.

CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1999 1998
---- ----
(IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)
<S> <C> <C>
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
========== ===========
</TABLE>

See notes to consolidated financial statements.

47
<PAGE> 14

SAFEGUARD SCIENTIFICS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------
1999 1998 1997
---- ---- ----
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C>

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
</TABLE>

See notes to consolidated financial statements.

48
<PAGE> 15

SAFEGUARD SCIENTIFICS, INC.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

<TABLE>
<CAPTION>
ACCUMULATED
COMMON STOCK ADDITIONAL OTHER TREASURY STOCK
----------------- PAID-IN RETAINED COMPREHENSIVE ------------------
SHARES AMOUNT CAPITAL EARNINGS INCOME SHARES AMOUNT TOTAL
------ ------ ------- -------- ------ ------ ------ -----
(IN THOUSANDS EXCEPT SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
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
=========== ======= ======== ========= ======== ========== ======== ==========
</TABLE>

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------
1999 1998 1997
---- ---- ----
(IN THOUSANDS)

<S> <C> <C> <C>
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
========= ========= ========
</TABLE>

See notes to consolidated financial statements.

49
<PAGE> 16

SAFEGUARD SCIENTIFICS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------
1999 1998 1997
---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C>
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
=========== ========= =========
</TABLE>

See notes to consolidated financial statements.

50
<PAGE> 17

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
<PAGE> 18

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
<PAGE> 19

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
<PAGE> 20

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
<PAGE> 21

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
<PAGE> 22

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.

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

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
<PAGE> 23

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.

<TABLE>
<CAPTION>
DECEMBER 31, 1999 DECEMBER 31, 1998
---------------------------------------- ------------------------
CARRYING MARKET VOTING CARRYING MARKET
VALUE VALUE INTEREST VALUE VALUE
<S> <C> <C> <C> <C> <C>
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
========== ==========
</TABLE>

(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
<PAGE> 24

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.

<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1999 1998
---- ----
<S> <C> <C>
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
============= ==========
</TABLE>

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
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
=========== =========== ==========
</TABLE>

5. AVAILABLE-FOR-SALE SECURITIES

Available-for-sale securities consisted of the following (in
thousands):

<TABLE>
<CAPTION>
DECEMBER 31, 1999 DECEMBER 31, 1998
------------------------------ ----------------------------
CARRYING MARKET CARRYING MARKET
VALUE VALUE VALUE VALUE
----- ------ ----- -----
<S> <C> <C> <C> <C>
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
========== =========
</TABLE>

(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
<PAGE> 25

6. PROPERTY AND EQUIPMENT

Property and equipment consisted of the following (in thousands):

<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1999 1998
---- ----
<S> <C> <C>
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
========== ==========
</TABLE>

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):

<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1999 1998
---- ----
<S> <C> <C>
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
========== ==========
</TABLE>

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
<PAGE> 26

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):

<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1999 1998
---- ----
<S> <C> <C>

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
========== ==========
</TABLE>

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
<PAGE> 27

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):

<TABLE>
<CAPTION>
1999 1998 1997
---------------------- --------------------- -------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
------ ----- ------ ----- ------ ------
<S> <C> <C> <C> <C> <C> <C>
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
</TABLE>

61
<PAGE> 28

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

<TABLE>
<CAPTION>
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
------ -------------- ---------- ----- -------------- -----
<S> <C> <C> <C> <C> <C>
$0.90-$ 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
============ ====== ===== ======= ====== ======
</TABLE>

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):

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
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
</TABLE>

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:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
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%
</TABLE>

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
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%
</TABLE>

62
<PAGE> 29

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):

<TABLE>
<CAPTION>
RESTRUCTURING ACCRUAL AT CASH ACCRUAL AT
CHARGE 12/31/98 OUTLAYS OTHER 12/31/99
------ -------- ------- ----- --------
<S> <C> <C> <C> <C> <C>
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
======== ======== ======== ======== =======
</TABLE>

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):

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
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
========== =========== ==========
</TABLE>

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
<PAGE> 30

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):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
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
========= ========== ========
</TABLE>

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):

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
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
========== =========== =========

</TABLE>

64
<PAGE> 31

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:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------
1999 1998 1997
---- ---- ----

<S> <C> <C> <C>
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%
===== ====== =====
</TABLE>

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):

<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1999 1998
---- ----
<S> <C> <C>
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)
========== ==========
</TABLE>

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
<PAGE> 32

15. NET INCOME PER SHARE

The calculations of EPS were (in thousands except per share amounts):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
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
========== =========== ===========
</TABLE>

(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.

<PAGE> 33
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
<PAGE> 34

BALANCE SHEETS

<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1999 1998
---- ----
<S> <C> <C>
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
=========== =========
</TABLE>

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
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
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
========== ========== =========

</TABLE>

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
<PAGE> 35

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
<PAGE> 36

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.

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
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
=========== =========== ===========

</TABLE>

70
<PAGE> 37

<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1999 1998
---- ----
<S> <C> <C>
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
========== ==========
</TABLE>

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):

<TABLE>
<CAPTION>
THREE MONTHS ENDED,
-------------------------------------------------------
MARCH 31 JUNE 30 SEPT. 30 DEC. 31
-------- ------- -------- -------
<S> <C> <C> <C> <C>
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

</TABLE>

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
<PAGE> 38

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
<PAGE> 39
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
<PAGE> 40

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
<PAGE> 41

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.

<TABLE>
<CAPTION>
1999 1998
-------------------- ------------------
HIGH LOW HIGH LOW
---- --- ---- ---
<S> <C> <C> <C> <C>
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
</TABLE>

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.

<PAGE> 1
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

<PAGE> 1
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

<PAGE> 1
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
<PAGE> 2
REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Stockholders
of Cambridge Technology Partners (Massachusetts), Inc.:

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
<PAGE> 3
CAMBRIDGE TECHNOLOGY PARTNERS (MASSACHUSETTS), INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)

<TABLE>
<CAPTION>
DECEMBER 31,
1999 1998
--------- ---------
<S> <C> <C>
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
========= =========
</TABLE>

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

F-3
<PAGE> 4
CAMBRIDGE TECHNOLOGY PARTNERS (MASSACHUSETTS), INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>

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
========= ========= =========
</TABLE>

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

F-4
<PAGE> 5

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

<TABLE>
<CAPTION>
ACCUMULATED
ADDITIONAL OTHER
NUMBER OF PAR PAID-IN COMPREHENSIVE DEFERRED RETAINED
SHARES VALUE CAPITAL INCOME (LOSS) COMPENSATION EARNINGS TOTAL
---------- ----- ---------- ------------- ------------ -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
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
=========== ==== ======== ======= ======= ======== ========
</TABLE>

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

F-5

<PAGE> 6
CAMBRIDGE TECHNOLOGY PARTNERS (MASSACHUSETTS), INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
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
======== ======== ========
</TABLE>

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

F-6

<PAGE> 7
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

<PAGE> 8
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

<PAGE> 9
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

<PAGE> 10
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

<PAGE> 11
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

<PAGE> 12
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.

<TABLE>
<CAPTION>
Cambridge
Technology Peter Combined
Partners Chadwick Excell Total
---------- -------- -------- --------
<S> <C> <C> <C> <C>
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
</TABLE>

C. ACCOUNTS RECEIVABLE

Accounts receivable consists of the following (in thousands):

<TABLE>
<CAPTION>
December 31,
----------------------
1999 1998
-------- --------
<S> <C> <C>

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
======== ========
</TABLE>

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

<PAGE> 13
D. PROPERTY AND EQUIPMENT

Property and equipment consists of the following (in thousands):

<TABLE>
<CAPTION>
December 31,
-------------------------
1999 1998
-------- --------
<S> <C> <C>

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
======== ========
</TABLE>

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):

<TABLE>
<CAPTION>
December 31,
-------------------
1999 1998
------- -------
<S> <C> <C>

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
======= =======
</TABLE>

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

<PAGE> 14

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

<PAGE> 15
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

<PAGE> 16
Stock option activity under the Company's stock option plans is summarized as
follows:

<TABLE>
<CAPTION>
Weighted Average
Option Exercise Price
Shares Per Share
---------- ----------------
<S> <C> <C>

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
========== ======
</TABLE>

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

<PAGE> 17
The following summarizes information about the Company's stock options
outstanding at December 31, 1999:

<TABLE>
<CAPTION>
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
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>

$ .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
=====================================================================================================
</TABLE>

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):

<TABLE>
<CAPTION>
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
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
</TABLE>

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

F-17

<PAGE> 18
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:

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%
</TABLE>

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

<PAGE> 19
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

<PAGE> 20

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

<PAGE> 21
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):

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

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):

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
======== ======== ========
</TABLE>

F-21

<PAGE> 22
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):

<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
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
======== ======== ========
</TABLE>

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

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
======== ========
</TABLE>

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

<PAGE> 23
The table below reconciles the expected U.S. federal statutory income tax rate
to the recorded income tax rate:

<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
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
======== ======== ========
</TABLE>

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.

<TABLE>
<CAPTION>
1998 1997
------- -------
<S> <C> <C>
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
======= =======
</TABLE>

F-23

<PAGE> 24
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):

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
======= ======= =======
</TABLE>

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

<PAGE> 25
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

<PAGE> 26
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):

<TABLE>
<CAPTION>
December 31,
1999 1998
-------- --------
<S> <C> <C>

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
======== ========
</TABLE>

<TABLE>
<CAPTION>
Years Ended December 31,
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>

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)
========= ========= =========
</TABLE>

F-26

<PAGE> 27
O. SUPPLEMENTAL CASH FLOW INFORMATION

Supplemental disclosures of cash flow information are presented as follows (in
thousands):

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

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.

F-27

<PAGE> 28
Information about the Company's operating segments is presented as follows (in
thousands):

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
========= ========= =========
</TABLE>

F-28

<PAGE> 29
Geographic information of the Company is as follows (in thousands):

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
========= ========= =========
</TABLE>

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

<PAGE> 30
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):

<TABLE>
<CAPTION>
Quarters Ended
-----------------------------------------------------------------------------------------------
March 31, June 30, September 30, December 31,
--------------------- ---------------------- --------------------- ----------------------
1999 1998 1999 1998 1999 1998 1999 1998
--------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>

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
</TABLE>

F-30