UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549        
______________________________________________________________________________________________
FORM 10-Q
(Mark One)
þ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended June 30, 2014
or

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period From ____________ to ___________
Commission File Number 1-5620       
______________________________________________________________________________________________
Safeguard Scientifics, Inc.
(Exact name of registrant as specified in its charter)       
______________________________________________________________________________________________

			
Pennsylvania	   	   	
(State or other jurisdiction of	   	23-1609753	
incorporation or organization)	   	(I.R.S. Employer ID No.)	
   	   	
435 Devon Park Drive	   	   	
Building 800	   	   	
Wayne, PA	   	19087	
(Address of principal executive offices)	   	(Zip Code)	
(610) 293-0600
Registrant’s telephone number, including area code       
______________________________________________________________________________________________
Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes   þ     No   ¨
Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit and post such files).
Yes   þ     No   ¨
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

	
				
Large accelerated filer   ¨	Accelerated filer   þ	Non-accelerated filer   ¨	Smaller reporting company   ¨	
(Do not check if a smaller reporting company)	
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes   ¨     No   þ
Number of shares outstanding as of July 24, 2014
Common Stock 20,457,170

	

SAFEGUARD SCIENTIFICS, INC.
QUARTERLY REPORT ON FORM 10-Q
TABLE OF CONTENTS

	
		
PART I  – FINANCIAL INFORMATION	   	
   	Page	
Item 1 – Financial Statements:	   	
   	   	
Consolidated Balance Sheets (unaudited) – June 30, 2014 and December 31, 201 3	3	
   	   	
Consolidated Statements of Operations (unaudited) – Three and Six Months Ended June 30, 2014 and 2013	4	
   	   	
Consolidated Statements of Comprehensive Income (Loss) (unaudited) - Three and Six Months Ended June 30, 2014 and 2013	5	
   	   	
Condensed Consolidated Statements of Cash Flows (unaudited) – Six Months Ended June 30, 2014 and 2013	6	
   	   	
Consolidated Statement of Changes in Equity (unaudited) – Six Months Ended June 30, 2014	7	
   	   	
Notes to Consolidated Financial Statements (unaudited)   	8	
   	   	
Item 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations   	20	
   	   	
Item 3 – Quantitative and Qualitative Disclosures About Market Risk   	39	
   	   	
Item 4 – Controls and Procedures   	39	
   	   	
PART II  – OTHER INFORMATION	   	
   	   	
Item 1 - Legal Proceedings	39	
 	 	
Item 1A – Risk Factors   	39	
 	 	
Item 2 - Unregistered Sales of Equity Securities and Use of Proceeds	40	
 	 	
Item 3 - Defaults Upon Senior Securities	40	
 	 	
Item 4 - Mine Safety Disclosures	40	
 	 	
Item 5 - Other Information	40	
 	 	
Item 6 – Exhibits   	41	
   	   	
Signatures   	42	

2

SAFEGUARD SCIENTIFICS, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share data)

	
								
   	June 30,
2014	 	December 31, 2013	
ASSETS	(Unaudited)	 	   	
Current Assets:	   	 	   	
Cash and cash equivalents	$	164,476		 	$	139,318		
Marketable securities	26,999		 	38,250		
Restricted marketable securities	—		 	5		
Prepaid expenses and other current assets	1,479		 	1,557		
Total current assets	192,954		 	179,130		
Property and equipment, net	110		 	138		
Ownership interests in and advances to partner companies and funds (of which $0 and $20,057 are measured at fair value at June 30, 2014 and December 31, 2013, respectively)	135,857		 	148,579		
Loan participations receivable	5,479		 	8,135		
Available-for-sale securities	11		 	15		
Long-term marketable securities	6,896		 	6,088		
Other assets	2,834		 	3,911		
Total Assets	$	344,141		 	$	345,996		
LIABILITIES AND EQUITY	   	 	 	
Current Liabilities:	   	 	 	
Convertible senior debentures—current	$	—		 	$	470		
Accounts payable	272		 	245		
Accrued compensation and benefits	2,375		 	5,028		
Accrued expenses and other current liabilities	2,307		 	2,431		
Total current liabilities	4,954		 	8,174		
Other long-term liabilities	3,522		 	3,683		
Convertible senior debentures—non-current	50,009		 	49,478		
Total Liabilities	58,485		 	61,335		
Commitments and contingencies			 			
Equity:	   	 	 	
Preferred stock, $0.10 par value; 1,000 shares authorized	—		 	—		
Common stock, $0.10 par value; 83,333 shares authorized; 21,573 and 21,553 shares issued and outstanding at June 30, 2014 and December 31, 2013, respectively	2,157		 	2,155		
Additional paid-in capital	823,079		 	822,103		
Treasury stock, at cost; 1,139 and 4 shares at June 30, 2014 and December 31, 2013, respectively	(23,954	)	 	—		
Accumulated deficit	(515,626	)	 	(539,597	)	
Total Equity	285,656		 	284,661		
Total Liabilities and Equity	$	344,141		 	$	345,996		
See Notes to Consolidated Financial Statements.

3

SAFEGUARD SCIENTIFICS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited—In thousands, except per share data)

	
																
   	Three months ended June 30,	 	Six months ended June 30,	
   	2014	 	2013	 	2014	 	2013	
General and administrative expense	$	5,069		 	$	6,715		 	$	10,308		 	$	12,089		
Operating loss	(5,069	)	 	(6,715	)	 	(10,308	)	 	(12,089	)	
Other income (loss), net	1,452		 	(2,724	)	 	31,826		 	(1,967	)	
Interest income	542		 	790		 	1,012		 	1,524		
Interest expense	(1,098	)	 	(1,074	)	 	(2,192	)	 	(2,143	)	
Equity income (loss)	(3,175	)	 	(18,400	)	 	3,633		 	(25,387	)	
Net income (loss) before income taxes	(7,348	)	 	(28,123	)	 	23,971		 	(40,062	)	
Income tax benefit (expense)	—		 	—		 	—		 	—		
Net income (loss)	$	(7,348	)	 	$	(28,123	)	 	$	23,971		 	$	(40,062	)	
Net income (loss) per share:	   		 	   		 	   		 	   		
Basic	$	(0.35	)	 	$	(1.33	)	 	$	1.13		 	$	(1.90	)	
Diluted	$	(0.35	)	 	$	(1.33	)	 	$	1.06		 	$	(1.90	)	
Weighted average shares used in computing income (loss) per share:	 	 	 	 	 	 	 	
Basic	20,771		 	21,128		 	21,226		 	21,119		
Diluted	20,771		 	21,128		 	24,653		 	21,119		
   
See Notes to Consolidated Financial Statements.

4

SAFEGUARD SCIENTIFICS, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Unaudited – In thousands)

	
																
   	Three months ended June 30,	 	Six months ended June 30,	
   	2014	 	2013	 	2014	 	2013	
Net income (loss)	$	(7,348	)	 	$	(28,123	)	 	$	23,971		 	$	(40,062	)	
Other comprehensive income (loss), before taxes:	   		 	   		 	   		 	   		
Unrealized net loss on available-for-sale securities	(1	)	 	(26	)	 	(4	)	 	(40	)	
Reclassification adjustment for other than temporary impairment of available-for-sale securities included in net income (loss)	1		 	26		 	4		 	40		
Total comprehensive income (loss)	$	(7,348	)	 	$	(28,123	)	 	$	23,971		 	$	(40,062	)	
See Notes to Consolidated Financial Statements.

5

SAFEGUARD SCIENTIFICS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited – In thousands)

	
								
   	Six months ended June 30,	
   	2014	 	2013	
Cash Flows from Operating Activities:	   	 	   	
Net cash used in operating activities	$	(12,778	)	 	$	(11,540	)	
Cash Flows from Investing Activities:	   	 	   	
Proceeds from sales of and distributions from companies and funds	81,203		 	1,403		
Acquisitions of ownership interests in companies and funds	(25,406	)	 	(15,131	)	
Advances and loans to companies	(7,618	)	 	(8,100	)	
Repayment of advances and loans to companies	4,097		 	928		
Origination fees on mezzanine loans	—		 	42		
Increase in marketable securities	(23,874	)	 	(29,913	)	
Decrease in marketable securities	34,444		 	92,552		
Capital expenditures	(11	)	 	(21	)	
Other	5		 	6,434		
Net cash provided by investing activities	62,840		 	48,194		
Cash Flows from Financing Activities:	   	 	   	
Issuance of Company common stock, net	573		 	92		
Repurchase of convertible senior debentures	(441	)	 	(43	)	
Repurchase of Company common stock	(25,036	)	 	—		
Net cash provided by (used in) financing activities	(24,904	)	 	49		
Net change in cash and cash equivalents	25,158		 	36,703		
Cash and cash equivalents at beginning of period	139,318		 	66,029		
Cash and cash equivalents at end of period	$	164,476		 	$	102,732		
See Notes to Consolidated Financial Statements.

6

SAFEGUARD SCIENTIFICS, INC.
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
(Unaudited – In thousands)

	
																										
   	 	 	Accumulated
Deficit	 	Common Stock	 	Additional
Paid-in
Capital	 	Treasury Stock	
   	Total			 	Shares	 	Amount	 		 	Shares	 	Amount	
Balance - December 31, 2013	$	284,661		 	$	(539,597	)	 	21,553		 	$	2,155		 	$	822,103		 	4		 	$	—		
Net income	23,971		 	23,971		 	—		 	—		 	—		 	—		 	—		
Stock options exercised, net	573		 	—		 	18		 	2		 	(338	)	 	(51	)	 	909		
Issuance of restricted stock, net	51		 	—		 	—		 	—		 	(122	)	 	(8	)	 	173		
Stock-based compensation expense	1,407		 	—		 	—		 	—		 	1,407		 	—		 	—		
Repurchase of common stock	(25,036	)	 	—		 	—		 	—		 	—		 	1,194		 	(25,036	)	
Conversion of 2014 Debentures to common stock	29		 	—		 	2		 	—		 	29		 	—		 	—		
Balance - June 30, 2014	$	285,656		 	$	(515,626	)	 	21,573		 	$	2,157		 	$	823,079		 	1,139		 	$	(23,954	)	
See Notes to Consolidated Financial Statements.

7

SAFEGUARD SCIENTIFICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. General
The accompanying unaudited interim Consolidated Financial Statements of Safeguard Scientifics, Inc. (“Safeguard” or the “Company”) were prepared in accordance with accounting principles generally accepted in the United States of America and the interim financial statement rules and regulations of the SEC. In the opinion of management, these statements include all adjustments (consisting only of normal recurring adjustments) necessary for a fair presentation of the Consolidated Financial Statements. The interim operating results are not necessarily indicative of the results for a full year or for any interim period. Certain information and note disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to such rules and regulations relating to interim financial statements. The Consolidated Financial Statements included in this Form 10-Q should be read in conjunction with Management’s Discussion and Analysis of Financial Condition and Results of Operations included elsewhere in this Form 10-Q and with the Company’s Consolidated Financial Statements and Notes thereto included in the Company’s 2013 Annual Report on Form 10-K.   

2. Ownership Interests in and Advances to Partner Companies and Funds
The following summarizes the carrying value of the Company’s ownership interests in and advances to partner companies and private equity funds.

	
								
   	June 30, 2014	 	December 31, 2013	
   	(In thousands)
(Unaudited)	
Fair value	$	—		 	$	20,057		
Equity Method:	   	 	 	
Partner companies	120,381		 	108,872		
Private equity funds	1,293		 	1,766		
   	121,674		 	110,638		
Cost Method:	   	 	 	
Partner companies	6,050		 	13,480		
Private equity funds	2,418		 	2,418		
   	8,468		 	15,898		
Advances to partner companies	5,715		 	1,986		
   	$	135,857		 	$	148,579		
Loan participations receivable	$	5,479		 	$	8,135		
Available-for-sale securities	$	11		 	$	15		

The Company’s share of the earnings or losses of partner companies, as well as any adjustments resulting from prior period finalizations of equity income or loss, are reflected in Equity income (loss) on the Consolidated Statements of Operations.  In the six months ended June 30, 2014, the amount related to prior periods was $1.7 million , of which $0.3 million related to 2012 and $1.4 million related to 2013. The adjustments primarily related to a change in revenue recognition accounting at a partner company. Management evaluated the quantitative and qualitative impact of the corrections on previously reported periods as well as on the six months ended June 30, 2014.  Based on this evaluation, management concluded that these adjustments were not material to the Company’s Consolidated Financial Statements.

In April 2014, the Company sold its ownership interests in Sotera Wireless, Inc., formerly a cost method partner company. The Company received $4.2 million in cash proceeds in connection with the transaction and recognized a gain of $1.5 million , which is included in Other income (loss), net in the Consolidated Statements of Operations for the three and six months ended June 30, 2014.

In February 2014, Crescendo Bioscience, Inc., formerly a cost method partner company, was acquired by Myriad Genetics, Inc. The Company received $38.4 million in cash proceeds in connection with the transaction, excluding $3.2 million which will be held in escrow until approximately May 2015. The Company recognized a gain of $27.4 million on the

8

SAFEGUARD SCIENTIFICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

transaction, which is included in Other income (loss), net in the Consolidated Statements of Operations for the six months ended June 30, 2014.
In February 2014, NuPathe Inc., formerly a fair value method partner company, was acquired by Teva Pharmaceutical Industries Ltd. for $3.65 per share in cash. In addition to the upfront cash payment, NuPathe shareholders received rights to receive additional cash payments of up to $3.15 per share if specified milestones are achieved over time. The Company received initial net cash proceeds of $23.1 million as a result of the transaction. Depending on the achievement of certain milestones, the Company may receive up to an additional $24.2 million . The Company recognized a gain of $3.0 million , which is included in Other income (loss), net in the Consolidated Statements of Operations for the six months ended June 30, 2014. For the three and six months ended June 30, 2013, the Company recognized an unrealized loss of $2.4 million and $1.6 million , respectively, on the mark-to-market of its holdings in NuPathe, which is included in Other income (loss), net in the Consolidated Statements of Operations.

In January 2014, Alverix, Inc., formerly an equity method partner company, was acquired by Becton, Dickinson and Company. The Company received cash proceeds of $15.7 million , excluding $1.7 million which will be held in escrow until approximately July 2015. The Company recognized a gain of $15.7 million on the transaction, which is included in Equity income (loss) in the Consolidated Statements of Operations for the six months ended June 30, 2014.

In the second quarter of 2014, the Company’s primary ownership interest in Bridgevine, Inc. decreased from 22.7% to 17.3% .  As a result, the Company recognized an unrealized loss of $0.3 million which is reflected in Equity income (loss) in the Consolidated Statements of Operations related to the decrease in its percentage ownership interest in Bridgevine.

In the six months ended June 30, 2014, the Company received cash proceeds of $2.9 million from the repayment of loan participations receivable and $0.9 million from the sale of an equity interest initiated by Penn Mezzanine. The Company recorded an impairment charge of $0.3 million related to its Penn Mezzanine debt and equity participations in the three months ended June 30, 2013 which is reflected in Other income (loss), net in the Consolidated Statements of Operations. The charge included $0.2 million related to loan participations and $0.1 million representing an adjustment to the fair value of the Company’s participation in warrants.

The Company recognized an impairment charge of $9.9 million related to PixelOptics Inc., formerly an equity method partner company, in the three months ended June 30, 2013 which is reflected in Equity income (loss) in the Consolidated Statements of Operations. The impairment was based on PixelOptics' inability to raise additional capital to continue its operations. As of September 30, 2013, the adjusted carrying value of PixelOptics was  $0  and the Company believes it will not recover any of its capital. On November 4, 2013, PixelOptics filed a voluntary petition for relief under Chapter 7 of the United States Bankruptcy Code in the United States Bankruptcy Court for the District of Delaware.  

The Company recognized an impairment charge of $0.2 million related to its interest in a legacy private equity fund in the six months ended June 30, 2013 which is reflected in Other income (loss), net in the Consolidated Statements of Operations.

3. Acquisitions of Ownership Interests in Partner Companies and Funds
In June 2014, the Company acquired a 27.0% interest in Syapse, Inc. for $5.8 million . Syapse provides a precision medicine data platform that enables laboratories, registries, and hospitals to use molecular profiling to diagnose and treat patients. The Company accounts for its interest in Syapse under the equity method. The difference between the Company's cost and its interest in the underlying net assets of Syapse was preliminarily allocated to intangible assets and goodwill and is reflected in the carrying value in Ownership interests in and advances to partner companies and funds on the Consolidated Balance Sheets.
In June and April 2014, the Company deployed an aggregate of $5.0 million into Putney, Inc. The Company had previously deployed an aggregate of $10.0 million in Putney. Putney is a specialty pharmaceutical company focused on providing generic medicines for pets. The Company accounts for its interest in Putney under the equity method. The difference between the Company's cost and its interest in the underlying net assets of Putney was preliminarily allocated to intangible assets and goodwill and is reflected in the carrying value in Ownership interests in and advances to partner companies and funds on the Consolidated Balance Sheets.
In May and January 2014, the Company deployed an aggregate of $1.7 million into Lumesis, Inc. The Company had previously deployed an aggregate of $3.9 million in Lumesis. Lumesis is a financial technology company that is dedicated to delivering software solutions and comprehensive, timely data to the municipal bond marketplace. The Company accounts for its interest in Lumesis under the equity method. The difference between the Company's cost and its interest in the underlying

9

SAFEGUARD SCIENTIFICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

net assets of Lumesis was allocated to goodwill and is reflected in the carrying value in Ownership interests in and advances to partner companies and funds on the Consolidated Balance Sheets.
In May 2014, the Company funded $0.1 million into New York Digital Health Accelerator II in exchange for a 12.5% limited partnership interest in the fund which is run by the New York eHealth Collaborative and the New York City Investment Fund for early- and growth-stage digital health companies that are developing technology products in care coordination, patient engagement, analytics and message alerts for healthcare providers. The Company accounts for its interest in New York Digital Health Accelerator II under the equity method.
In May 2014, the Company deployed an additional $2.0 million into Clutch Holdings, Inc. ("Clutch"). The Company had previously deployed an aggregate of $5.5 million in Clutch. Clutch is a provider of loyalty and gift card programs to retailers through its proprietary platform, and offers a mobile wallet application to consumers to track and store gift and loyalty cards, coupons and other retail shopping tools. The Company accounts for its interest in Clutch under the equity method. The difference between the Company's cost and its interest in the underlying net assets of Clutch was allocated to intangible assets and goodwill and is reflected in the carrying value in Ownership interests in and advances to partner companies and funds on the Consolidated Balance Sheets.
In May 2014, the Company funded $1.1 million of a convertible bridge loan to NovaSom, Inc. The Company had previously deployed an aggregate of $20.0 million in NovaSom. NovaSom provides diagnostic devices and services for home testing and evaluation of sleep-disordered breathing, including obstructive sleep apnea. The Company accounts for its interest in NovaSom under the equity method.
In May 2014, the Company deployed an additional $0.8 million into Dabo Health, Inc. ("Dabo"). The Company had previously deployed an aggregate of $0.8 million in Dabo. Dabo provides the healthcare community with a healthcare information platform that brings clarity to quality metrics, makes them actionable to hospitals and care providers, and facilitates collaboration for quality improvement. The Company accounts for its interest in Dabo under the cost method.
In May 2014, the Company deployed an additional $7.0 million into MediaMath, Inc. In connection with the May 2014 financing, the Company’s primary ownership interest decreased from 22.5% to 20.6% .  As a result, the Company recognized an unrealized gain of $7.0 million which is reflected in Equity income (loss) in the Consolidated Statements of Operations related to the decrease in its percentage ownership interest in MediaMath. The Company had previously deployed an aggregate of $18.6 million in MediaMath. MediaMath is an online media trading company that enables advertising agencies and their advertisers to optimize their ad spending across various exchanges through its proprietary algorithmic bidding platform and data integration technology. The Company accounts for its interest in MediaMath under the equity method.
In May 2014, the Company funded $2.1 million of a convertible bridge loan to AppFirst, Inc. The Company had previously deployed an aggregate of $6.5 million in AppFirst. AppFirst delivers application monitoring systems for development operations professionals and technology executives with visibility into systems, applications and business metrics. The Company accounts for its interest in AppFirst under the equity method.
In April 2014, the Company funded $2.0 million of a convertible bridge loan to Quantia, Inc. The Company had previously deployed an aggregate of $7.5 million in Quantia. Quantia provides a mobile and web-based physician relationship management platform, QuantiaMD, which enables principal participants throughout the healthcare spectrum, including health systems, payers, pharmaceutical companies and medical device companies, to engage and interact with their physicians. The Company accounts for its interest in Quantia under the equity method.
In March 2014, the Company acquired a 20.4% interest in InfoBionic Inc. for $4.0 million . InfoBionic is an emerging digital health company focused on creating patient monitoring solutions for chronic disease management with an initial market focus on cardiac arrhythmias. The Company accounts for its interest in InfoBionic under the equity method. The difference between the Company's cost and its interest in the underlying net assets of InfoBionic was preliminarily allocated to intangible assets and goodwill and is reflected in the carrying value in Ownership interests in and advances to partner companies and funds on the Consolidated Balance Sheets.
In March 2014, the Company funded $0.2 million of a convertible bridge loan to Sotera Wireless, Inc. The Company previously deployed $1.3 million into Sotera Wireless and acquired additional shares from a previous investor for $1.2 million . In April 2014, the Company sold its equity and debt interests in Sotera Wireless for $4.2 million . The Company accounted for its interest in Sotera Wireless under the cost method.
In January 2014, the Company deployed an additional $1.4 million into Hoopla Software, Inc. ("Hoopla"). The Company had previously deployed an aggregate of $1.8 million in Hoopla. Hoopla helps organizations create high performance sales cultures through software-as-a-service solutions that integrate with customer relationship management systems. The Company accounts for its interest in Hoopla under the equity method. The difference between the Company's cost and its interest in the underlying net assets of Hoopla was preliminarily allocated to intangible assets and goodwill and is reflected in the carrying value in Ownership interests in and advances to partner companies and funds on the Consolidated Balance Sheets.

10

SAFEGUARD SCIENTIFICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

4. Fair Value Measurements
The Company categorizes its financial instruments into a three-level fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). If the inputs used to measure fair value fall within different levels of the hierarchy, the category level is based on the lowest priority level input that is significant to the fair value measurement of the instrument. Financial assets recorded at fair value on the Company’s Consolidated Balance Sheets are categorized as follows:
Level 1—Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets.
Level 2—Include other inputs that are directly or indirectly observable in the marketplace.
Level 3—Unobservable inputs which are supported by little or no market activity.
The fair value hierarchy also requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.
The following table provides the carrying value and fair value of certain financial assets and liabilities of the Company measured at fair value on a recurring basis as of June 30, 2014 and December 31, 2013 : 

																
   	Carrying
Value	 	Fair Value Measurement at June 30, 2014	
   			Level 1	 	Level 2	 	Level 3	
 	(In thousands)
(Unaudited)	
Cash and cash equivalents	$	164,476		 	$	164,476		 	$	—		 	$	—		
Available-for-sale securities	11		 	11		 	—		 	—		
Warrant participations	615		 	—		 	—		 	615		
Marketable securities—held-to-maturity:	   	 	   	 	   	 	   	
Commercial paper	$	2,500		 	$	2,500		 	$	—		 	$	—		
Government agency bonds	13,949		 	13,949		 	—		 	—		
Certificates of deposit	17,446		 	17,446		 	—		 	—		
 Total marketable securities	$	33,895		 	$	33,895		 	$	—		 	$	—		

																
 	Carrying
Value	 	Fair Value Measurement at December 31, 2013	
   			Level 1	 	Level 2	 	Level 3	
 	(In thousands)
(Unaudited)	
Cash and cash equivalents	$	139,318		 	$	139,318		 	$	—		 	$	—		
Restricted marketable securities	5		 	5		 	—		 	—		
Ownership interest in common stock of NuPathe	16,874		 	16,874		 	—		 	—		
Ownership interest in warrants and options of NuPathe	3,183		 	—		 	—		 	3,183		
Available-for-sale securities	15		 	15		 	—		 	—		
Warrant participations	1,563		 	—		 	—		 	1,563		
Marketable securities—held-to-maturity:	   	 	 	 	 	 	 	
Commercial paper	$	13,599		 	$	13,599		 	$	—		 	$	—		
U.S. Treasury Bills	8,014		 	8,014		 	—		 	—		
Government agency bonds	9,945		 	9,945		 	—		 	—		
Certificates of deposit	12,780		 	12,780		 	—		 	—		
 Total marketable securities	$	44,338		 	$	44,338		 	$	—		 	$	—		
As of June 30, 2014 , $27.0 million of marketable securities had contractual maturities which were less than one year and $6.9 million of marketable securities had contractual maturities greater than one year. Held-to-maturity securities are carried at amortized cost, which, due to the short-term maturity of these instruments, approximates fair value using quoted prices in active markets for identical assets or liabilities defined as Level 1 inputs under the fair value hierarchy.

11

SAFEGUARD SCIENTIFICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The Company recorded an impairment charge of $9.9 million related to PixelOptics, formerly an equity method partner company, in the three months ended June 30, 2013 measured as the amount by which PixelOptics’ carrying value exceeded its estimated fair value.  As of September 30, 2013, the fair market value of the Company’s equity ownership in PixelOptics was  $0 and the Company believes it will not recover any of its capital. On November 4, 2013, PixelOptics filed a voluntary petition for relief under Chapter 7 of the United States Bankruptcy Code in the United States Bankruptcy Court for the District of Delaware.
The Company’s Penn Mezzanine warrant participations are carried at fair value. The value of the Company’s holdings in warrant participations is measured by reference to Level 3 inputs. The inputs and valuation techniques used include discounted cash flows and valuation of comparable public companies. The Company recorded an impairment charge of $0.3 million related to its Penn Mezzanine debt and equity participations in the three months ended June 30, 2013 measured as the amount by which the carrying value of the Company’s participation in the debt, equity and warrant interests acquired by Penn Mezzanine exceeded their estimated fair values.
The Company recognized an impairment charge of $0.2 million related to its interest in a legacy private equity fund in the six months ended June 30, 2013 measured as the amount by which the carrying value of the Company’s interest in the fund exceeded its estimated fair value. The fair market value of the Company’s interest in the fund was determined to be  $1.7 million  based on the fair value of the Company’s pro rata portion of the fund’s net assets, which is a Level 3 input under the fair value hierarchy.
5. Convertible Debentures and Credit Arrangements
The carrying values of the Company’s convertible senior debentures were as follows:

								
   	June 30, 2014	 	December 31, 2013	
 	(In thousands)
(Unaudited)	
Convertible senior debentures due 2018	$	50,009		 	$	49,478		
Convertible senior debentures due 2024	—		 	441		
Convertible senior debentures due 2014	—		 	29		
   	50,009		 	49,948		
Less: current portion	—		 	(470	)	
Convertible senior debentures – non current	$	50,009		 	$	49,478		
Convertible Senior Debentures due 2018
In November 2012, Safeguard issued $55.0 million principal amount of its 5.25% convertible senior debentures due 2018 (the “2018 Debentures”). Proceeds from the offering were used to repurchase substantially all of the Company’s then outstanding 10.125% convertible senior debentures due 2014 (the “2014 Debentures”). Interest on the 2018 Debentures is payable semi-annually on May 15 and November 15.
Holders of the 2018 Debentures may convert their notes prior to November 15, 2017 at their option only under the following circumstances:

•	during any calendar quarter commencing after the calendar quarter ending on December 31, 2012, if the last reported sale price of the common stock for at least 20 trading days during the period of 30 consecutive trading days ending on the last trading day of the immediately preceding calendar quarter is greater than or equal to 130% of the conversion price on each applicable trading day;	

•	during the five business day period after any five consecutive trading day period in which the trading price per $1,000 principal amount of notes for each trading day of the measurement period was less than 98% of the product of the last reported sale price of our common stock and the conversion rate on such trading day;	

•	if the notes have been called for redemption; or	

•	upon the occurrence of specified corporate events.	
On or after November 15, 2017, until the close of business on the second business day immediately preceding the maturity date, holders may convert their notes at any time, regardless of whether any of the foregoing conditions has been met. Upon conversion, the Company will satisfy its conversion obligation by paying or delivering, as the case may be, cash, shares of common stock or a combination of cash and shares of our common stock, at the Company’s election.

12

SAFEGUARD SCIENTIFICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The conversion rate of the 2018 Debentures is 55.17 shares of common stock per $1,000 principal amount of debentures, equivalent to a conversion price of approximately $18.13 per share of common stock. The closing price per share of the Company’s common stock at June 30, 2014 was $20.79 .
On or after November 15, 2016, the Company may redeem for cash any of the 2018 Debentures if the last reported sale price of the Company’s common stock exceeds 140% of the conversion price for at least 20 trading days during the period of 30 consecutive trading days ending on the trading day before the date that notice of redemption is given, including the last trading day of such period. Upon any redemption of the 2018 Debentures, the Company will pay a redemption price of 100% of their principal amount, plus accrued and unpaid interest to, but excluding, the date of redemption, and additional interest, if any.
The 2018 Debenture holders have the right to require the Company to repurchase the 2018 Debentures if the Company undergoes a fundamental change, which includes the sale of all or substantially all of the Company’s common stock or assets; liquidation; dissolution; a greater than 50% change in control; the delisting of the Company’s common stock from the New York Stock Exchange or the NASDAQ Global Market (or any of their respective successors); or a substantial change in the composition of the Company’s board of directors as defined in the governing agreement. Holders may require that the Company repurchase for cash all or part of their 2018 Debentures at a fundamental change repurchase price equal to 100% of the principal amount of the debentures to be repurchased, plus accrued and unpaid interest to, but excluding, the fundamental change repurchase date.
Because the 2018 Debentures may be settled in cash or partially in cash upon conversion, the Company separately accounts for the liability and equity components of the 2018 Debentures. The carrying amount of the liability component was determined at the transaction date by measuring the fair value of a similar liability that does not have an associated equity component. The carrying amount of the equity component represented by the embedded conversion option was determined by deducting the fair value of the liability component from the initial proceeds of the 2018 Debentures as a whole. At June 30, 2014 , the fair value of the $55.0 million outstanding 2018 Debentures was approximately $73.1 million , based on the midpoint of the bid and ask prices as of such date. At June 30, 2014 , the carrying amount of the equity component was $6.4 million , the principal amount of the liability component was $55.0 million , the unamortized discount was $5.0 million and the net carrying value of the liability component was $50.0 million . The Company is amortizing the excess of the face value of the 2018 Debentures over their carrying value over their term as additional interest expense using the effective interest method and recorded $0.5 million of such expense for both the six months ended June 30, 2014 and 2013 . The effective interest rate on the 2018 Debentures is 8.7% .
Convertible Senior Debentures due 2024
In 2004, the Company issued an aggregate of $150.0 million in face value of convertible senior debentures with a stated maturity date of March 15, 2024 (the "2024 Debentures") of which approximately $0.4 million remained outstanding as of December 31, 2013. The Company repurchased or redeemed all of the remaining 2024 Debentures in the second quarter of 2014.
Convertible Senior Debentures due 2014
In 2010, the Company issued an aggregate of $46.9 million of the 2014 Debentures. In November 2012, the Company repurchased substantially all of the 2014 Debentures for $58.7 million plus accrued interest. The remaining $29 thousand outstanding principal amount of the 2014 Debentures was converted into the Company's common stock in March 2014.  
Credit Arrangements
The Company is party to a loan agreement with a commercial bank which provides it with a revolving credit facility in the maximum aggregate amount of $50 million in the form of borrowings, guarantees and issuances of letters of credit (subject to a $20 million sublimit). Actual availability under the credit facility is based on the amount of cash maintained at the bank as well as the value of the Company’s public and private partner company interests. This credit facility bears interest at the prime rate for outstanding borrowings, subject to an increase in certain circumstances. Other than for limited exceptions, the Company is required to maintain all of its depository and operating accounts and the lesser of $80 million or 75% of its investment and securities accounts at the bank. The credit facility, as amended, matures on December 31, 2014 . Under the credit facility, the Company provided a $6.3 million letter of credit expiring on March 19, 2019 to the landlord of CompuCom Systems, Inc.’s Dallas headquarters which was required in connection with the sale of CompuCom Systems in 2004. Availability under the Company’s revolving credit facility at June 30, 2014 was $43.7 million .

13

SAFEGUARD SCIENTIFICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

6. Stock-Based Compensation
Stock-based compensation expense was recognized in the Consolidated Statements of Operations as follows:

	
																
   	Three months ended June 30,	 	Six months ended June 30,	
   	2014	 	2013	 	2014	 	2013	
 	(In thousands)
(Unaudited)	
General and administrative expense	$	887		 	$	922		 	$	1,407		 	$	1,298		
   	$	887		 	$	922		 	$	1,407		 	$	1,298		
The fair value of the Company’s stock-based awards to employees was estimated at the date of grant using the Black-Scholes option-pricing model. The risk-free rate was based on the U.S. Treasury yield curve in effect at the end of the quarter in which the grant occurred. The expected term of stock options granted was estimated using the historical exercise behavior of employees. Expected volatility was based on historical volatility measured using weekly price observations of the Company’s common stock for a period equal to the stock option’s expected term.
At June 30, 2014 , the Company had outstanding options that vest based on three different types of vesting schedules:

		
1)	market–based;	
2)	performance-based; and	
3)	service-based.	
Market-based awards entitle participants to vest in a number of options determined by achievement by the Company of certain target market capitalization increases (measured by reference to stock price increases on a specified number of outstanding shares) over an eight -year period. The requisite service periods for the market-based awards are based on the Company’s estimate of the dates on which the market conditions will be met as determined using a Monte Carlo simulation model. Compensation expense is recognized over the requisite service periods using the straight-line method but is accelerated if market capitalization targets are achieved earlier than estimated. During the six months ended June 30, 2014 and 2013, respectively, the Company did not issue any market-based option awards to employees. During the six months ended June 30, 2014 and 2013, 13 thousand and 0 options vested based on achievement of market capitalization targets. During the six months ended June 30, 2014, 48 thousand unvested market-based awards expired by their terms. The Company recorded compensation expense related to market-based option awards of $0.0 million and $0.1 million for the three months ended June 30, 2014 and 2013, and $0.0 million and $0.1 million for the six months ended June 30, 2014 and 2013, respectively. Depending on the Company’s stock performance, the maximum number of unvested shares at June 30, 2014 attainable under these grants was 340 thousand shares.
Performance-based awards entitle participants to vest in a number of awards determined by achievement by the Company of target capital returns based on net cash proceeds received by the Company on the sale, merger or other exit transaction of certain identified partner companies. Vesting may occur, if at all, once per year. The requisite service periods for the performance-based awards are based on the Company’s estimate of when the performance conditions will be met. Compensation expense is recognized for performance-based awards for which the performance condition is considered probable of achievement. Compensation expense is recognized over the requisite service periods using the straight-line method but is accelerated if capital return targets are achieved earlier than estimated. During the six months ended June 30, 2014 and 2013, respectively, the Company did not issue any performance-based awards to employees. During the six months ended June 30, 2014 and 2013, respectively, no performance-based awards vested. The Company recorded compensation expense related to performance-based option awards of $0.0 million and $0.1 million for the three months ended June 30, 2014 and 2013, and $0.1 million and $0.2 million for the six months ended June 30, 2014 and 2013, respectively. The maximum number of unvested shares at June 30, 2014 attainable under these option grants was 452 thousand shares.
All other outstanding options are service-based awards that generally vest over four years after the date of grant and expire eight years after the date of grant. Compensation expense is recognized over the requisite service period using the straight-line method. The requisite service period for service-based awards is the period over which the award vests. During the six months ended June 30, 2014 and 2013, respectively, the Company issued 0 and 28 thousand service-based option awards to employees. The Company recorded compensation expense related to service-based option awards of $0.1 million for both the three months ended June 30, 2014 and 2013, and $0.2 million for both the six months ended June 30, 2014 and 2013.
During the six months ended June 30, 2014 and 2013, respectively, the Company issued 42 thousand and 44 thousand deferred stock units to non-employee directors for annual service grants or fees earned during the preceding quarter. Deferred stock units issued to directors in lieu of directors fees are 100% vested at the grant date; matching deferred stock units equal to

14

SAFEGUARD SCIENTIFICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

25% of directors’ fees deferred vest one year following the grant date or, if earlier, upon reaching age 65 . Deferred stock units are payable in stock on a one-for-one basis. Payments related to the deferred stock units are generally distributable following termination of employment or service, death or permanent disability.
Total compensation expense for deferred stock units, performance-based stock units and restricted stock was approximately $0.8 million and $0.6 million for the three months ended June 30, 2014 and 2013, and $1.1 million and $0.7 million for the six months ended June 30, 2014 and 2013, respectively.

In May 2014, the Company’s shareholders approved an amendment and restatement of the 2004 Equity Compensation Plan to increase the number of shares of common stock reserved for issuance by 2.2 million shares, to rename the plan the 2014 Equity Compensation Plan, and to make certain other clarifying changes and updates to the plan.

7. Income Taxes
The Company’s consolidated income tax benefit (expense) was $0.0 million for the three and six months ended June 30, 2014 and 2013. The Company has recorded a valuation allowance to reduce its net deferred tax asset to an amount that is more likely than not to be realized in future years. Accordingly, the tax expense that would have been recognized in the six months ended June 30, 2014 was offset by changes in the valuation allowance. The benefit of the net operating loss that would have been recognized in the three months ended June 30, 2014 and 2013 and the six months ended June 30, 2013 was also offset by changes in the valuation allowance.
During the six months ended June 30, 2014 , the Company had no material changes in uncertain tax positions.

8. Net Income (Loss) Per Share
The calculations of net income (loss) per share were as follows:

																
   	Three months ended June 30,	 	Six months ended June 30,	
   	2014	 	2013	 	2014	 	2013	
 	(In thousands except per share data)
(Unaudited)	
Basic:	   	 	   	 	   	 	   	
Net income (loss)	$	(7,348	)	 	$	(28,123	)	 	$	23,971		 	$	(40,062	)	
Weighted average common shares outstanding	20,771		 	21,128		 	21,226		 	21,119		
Net income (loss) per share	$	(0.35	)	 	$	(1.33	)	 	$	1.13		 	$	(1.90	)	
 	 	 	 	 	 	 	 	
Diluted:	 	 	 	 	 	 	 	
Net income (loss)	$	(7,348	)	 	$	(28,123	)	 	$	23,971		 	$	(40,062	)	
Interest on convertible senior debentures	—		 	—		 	2,103		 	—		
Net income (loss) for dilutive share computation	$	(7,348	)	 	$	(28,123	)	 	$	26,074		 	$	(40,062	)	
 	 	 	 	 	 	 	 	
Number of shares used in basic per share computation	20,771		 	21,128		 	21,226		 	21,119		
Convertible senior debentures	—		 	—		 	3,034		 	—		
Unvested restricted stock and DSUs	—		 	—		 	22		 	—		
Employee stock options	—		 	—		 	371		 	—		
Weighted average common shares outstanding	20,771		 	21,128		 	24,653		 	21,119		
 	 	 	 	 	 	 	 	
Net income (loss) per share	$	(0.35	)	 	$	(1.33	)	 	$	1.06		 	$	(1.90	)	
 	 	 	 	 	 	 	 	
Basic and diluted average common shares outstanding for purposes of computing net income (loss) per share includes outstanding common shares and vested deferred stock units (DSUs).
If a consolidated or equity method partner company has dilutive stock options, unvested restricted stock, DSUs or warrants, diluted net income (loss) per share is computed by first deducting the income attributable to the potential exercise of

15

SAFEGUARD SCIENTIFICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

the dilutive securities of the partner company from net income (loss). Any impact is shown as an adjustment to net income (loss) for purposes of calculating diluted net income (loss) per share.
Diluted earnings per share for the three months ended June 30, 2014 and 2013 do not reflect the following potential shares of common stock that would have an anti-dilutive effect or have unsatisfied performance or market conditions:

•	At June 30, 2014 and 2013, options to purchase 1.8 million and 3.3 million shares of common stock at prices ranging from $3.93 to $18.80 for both periods were excluded from the calculations.	

•	At June 30, 2014 and 2013, unvested restricted stock, performance stock units and DSUs convertible into 0.3 million and 0.4 million shares of stock, respectively, were excluded from the calculations.	

•	At June 30, 2014 and 2013, 3.0 million shares of common stock, representing the effect of the assumed conversion of the 2018 Debentures, were excluded from the calculation.	
Diluted earnings per share for the six months ended June 30, 2014 and 2013 do not reflect the following potential shares of common stock that would have an anti-dilutive effect or have unsatisfied performance or market conditions:

•	At June 30, 2014 and 2013, options to purchase 0.8 million and 3.3 million shares of common stock at prices ranging from $7.41 to $18.78 and $3.93 to $18.80 , respectively, were excluded from the calculations.	

•	At June 30, 2014 and 2013, unvested restricted stock, performance stock units and DSUs convertible into 0.3 million and 0.4 million shares of stock, respectively, were excluded from the calculations.	

•	At June 30, 2013, 3.0 million shares of common stock, representing the effect of the assumed conversion of the 2018 Debentures, were excluded from the calculation.	
9. Operating Segments
As of June 30, 2014 , the Company held interests in 20 non-consolidated partner companies which are included in the Healthcare and Technology segments. Included in the Penn Mezzanine segment are the Company’s interests in the Penn Mezzanine management company and general partner and the Company’s participations in mezzanine loans and equity interests initiated by Penn Mezzanine.
The Company’s active partner companies by segment were as follows as of June 30, 2014 :

				
Healthcare	   	 	   	
Partner Company	Safeguard Primary Ownership as of June 30, 2014	 	Accounting Method	
AdvantEdge Healthcare Solutions, Inc.	40.1%	 	Equity	
Dabo Health, Inc.	12.9%	 	Cost	
Good Start Genetics, Inc.	30.0%	 	Equity	
InfoBionic Inc.	20.4%	 	Equity	
Medivo, Inc.	34.5%	 	Equity	
NovaSom, Inc.	30.3%	 	Equity	
Putney, Inc.	28.3%	 	Equity	
Quantia, Inc.	34.8%	 	Equity	
Syapse, Inc.	27.0%	 	Equity	

16

SAFEGUARD SCIENTIFICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

	
				
Technology	   	 	   	
Partner Company	Safeguard Primary Ownership as of June 30, 2014	 	Accounting Method	
AppFirst, Inc.	34.3%	 	Equity	
Apprenda, Inc.	21.7%	 	Equity	
Beyond.com, Inc.	38.2%	 	Equity	
Bridgevine, Inc.	17.3%	 	Cost (1)	
Clutch Holdings, Inc.	29.6%	 	Equity (2)	
DriveFactor, Inc.	40.6%	 	Equity	
Hoopla Software, Inc.	25.6%	 	Equity	
Lumesis, Inc.	48.5%	 	Equity	
MediaMath, Inc.	20.6%	 	Equity	
Pneuron Corporation	27.6%	 	Equity	
Spongecell, Inc.	23.0%	 	Equity	

(1) In the second quarter of 2014, the Company’s ownership interest in Bridgevine decreased from 22.7% to 17.3% , below the
threshold at which the Company believes it exercises significant influence. Accordingly, the Company changed its method of
accounting for Bridgevine from the equity method to the cost method.

(2) In the third quarter of 2013, the Company's ownership interest in Clutch increased from 6.5% to 24.0% , above the threshold at which the Company believes it exercises significant influence. Accordingly, the Company changed its method of accounting for Clutch from the cost method to the equity method.
As of June 30, 2014 , the Company has a 36% ownership interest in the management company and general partner of Penn Mezzanine L.P., which is included in the Penn Mezzanine segment. The Company accounts for its interest under the equity method.
Results of the Healthcare and Technology segments reflect the equity income (loss) of their respective equity method partner companies, other income (loss) associated with fair value method and cost method partner companies and the gains or losses on the sale of their respective partner companies. Results of the Penn Mezzanine segment include interest, dividends and participation fees earned on the mezzanine interests in which the Company participates as well as equity income (loss) associated with the Company’s management company and general partner interest in the Penn Mezzanine platform.
Management evaluates the Healthcare and Technology segments’ performance based on net income (loss) which is impacted by the number of partner companies accounted for under the equity method, the Company’s voting ownership percentage in these partner companies and the net results of operations of these partner companies, any impairment charges and gain (loss) on the sale of equity and cost method partner companies.
Management evaluates the Penn Mezzanine segment performance based on the performance of the mezzanine interests in which the Company participates. This includes an evaluation of the current and future cash flows associated with interest and dividend payments as well as estimated losses based on evaluating known and inherent risks in the investments in which the Company participates.
Other Items include certain expenses which are not identifiable to the operations of the Company’s operating business segments. Other Items primarily consist of general and administrative expenses related to corporate operations, including employee compensation, insurance and professional fees, including legal and finance, interest income, interest expense and other income (loss) and equity income (loss) related to certain private equity fund ownership interests. Other Items also include income taxes, which are reviewed by management independent of segment results.
As of June 30, 2014 and December 31, 2013 , all of the Company’s assets were located in the United States.
Segment assets in Other Items included primarily cash, cash equivalents, and marketable securities of $198.4 million and $183.7 million , at June 30, 2014 and December 31, 2013 , respectively.

17

SAFEGUARD SCIENTIFICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

	
																								
   	Three months ended June 30, 2014	
   	Healthcare	 	Technology	 	Penn
Mezzanine	 	Total
Segments	 	Other
Items	 	Total	
 	(In thousands)
(Unaudited)	
Operating loss	$	—		 	$	—		 	$	(3	)	 	$	(3	)	 	$	(5,066	)	 	$	(5,069	)	
Other income	1,452		 	—		 	—		 	1,452		 	—		 	1,452		
Interest income	—		 	—		 	394		 	394		 	148		 	542		
Equity income (loss)	(4,547	)	 	1,586		 	(213	)	 	(3,174	)	 	(1	)	 	(3,175	)	
Net income (loss)	(3,095	)	 	1,586		 	178		 	(1,331	)	 	(6,017	)	 	(7,348	)	
Segment Assets:	   		 	   		 	   		 	   		 	   		 	   		
June 30, 2014	50,558		 	81,599		 	8,584		 	140,741		 	203,400		 	344,141		
December 31, 2013	74,939		 	69,471		 	12,783		 	157,193		 	188,803		 	345,996		

																								
   	Three months ended June 30, 2013	
   	Healthcare	 	Technology	 	Penn
Mezzanine	 	Total
Segments	 	Other
Items	 	Total	
 	(In thousands)
(Unaudited)	
Operating loss	$	—		 	$	—		 	$	(4	)	 	$	(4	)	 	$	(6,711	)	 	$	(6,715	)	
Other income (loss), net	(2,425	)	 	—		 	(295	)	 	(2,720	)	 	(4	)	 	(2,724	)	
Interest income	—		 	—		 	380		 	380		 	410		 	790		
Equity loss	(14,850	)	 	(3,399	)	 	(94	)	 	(18,343	)	 	(57	)	 	(18,400	)	
Net loss	(17,275	)	 	(3,399	)	 	(13	)	 	(20,687	)	 	(7,436	)	 	(28,123	)	

	
																								
   	Six months ended June 30, 2014	
   	Healthcare	 	Technology	 	Penn
Mezzanine	 	Total
Segments	 	Other
Items	 	Total	
 	(In thousands)
(Unaudited)	
Operating loss	$	—		 	$	—		 	$	(5	)	 	$	(5	)	 	$	(10,303	)	 	$	(10,308	)	
Other income (loss), net	31,831		 	—		 	(5	)	 	31,826		 	—		 	31,826		
Interest income	—		 	—		 	780		 	780		 	232		 	1,012		
Equity income (loss)	6,075		 	(1,999	)	 	(438	)	 	3,638		 	(5	)	 	3,633		
Net income (loss)	37,906		 	(1,999	)	 	332		 	36,239		 	(12,268	)	 	23,971		

																								
   	Six months ended June 30, 2013	
   	Healthcare	 	Technology	 	Penn
Mezzanine	 	Total
Segments	 	Other
Items	 	Total	
 	(In thousands)
(Unaudited)	
Operating loss	$	—		 	$	—		 	$	(9	)	 	$	(9	)	 	$	(12,080	)	 	$	(12,089	)	
Other income (loss), net	(1,590	)	 	—		 	(223	)	 	(1,813	)	 	(154	)	 	(1,967	)	
Interest income	—		 	—		 	724		 	724		 	800		 	1,524		
Equity income (loss)	(20,750	)	 	(4,500	)	 	(164	)	 	(25,414	)	 	27		 	(25,387	)	
Net income (loss)	(22,340	)	 	(4,500	)	 	328		 	(26,512	)	 	(13,550	)	 	(40,062	)	

10. Commitments and Contingencies
The Company and its partner companies are involved in various claims and legal actions arising in the ordinary course of business. In the current opinion of the Company, the ultimate disposition of these matters will not have a material adverse effect on the Company’s consolidated financial position or results of operations, however, no assurance can be given as to the outcome of these actions, and one or more adverse rulings could have a material adverse effect on the Company’s consolidated financial position and results of operations or that of its partner companies. The Company records costs associated with legal fees as such services are rendered.

18

SAFEGUARD SCIENTIFICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The Company had outstanding guarantees of $3.8 million at June 30, 2014 which related to one of the Company's private equity holdings.
The Company also has committed capital of approximately $0.2 million to other private equity funds. These commitments are expected to be funded during the next 12 months .
Under certain circumstances, the Company may be required to return a portion or all the distributions it received as a general partner of a private equity fund (“clawback”). The maximum clawback the Company could be required to return due to its general partner interest is approximately $1.3 million , of which $1.0 million was reflected in Accrued expenses and other current liabilities and $0.3 million was reflected in Other long-term liabilities on the Consolidated Balance Sheets at June 30, 2014. The Company’s ownership in the fund is 19% . The clawback liability is joint and several; therefore the Company may be required to fund the clawback for other general partners should they default. The Company believes its potential liability due to the possibility of default by other general partners is remote.
 
In October 2001, the Company entered into an agreement with a former Chairman and Chief Executive Officer of the Company, to provide for annual payments of $0.65 million per year and certain health care and other benefits for life. The related current liability of $0.8 million was included in Accrued expenses and other current liabilities and the long-term portion of $2.5 million was included in Other long-term liabilities on the Consolidated Balance Sheet at June 30, 2014 .
The Company provided a $6.3 million letter of credit expiring on March 19, 2019 to the landlord of CompuCom Systems, Inc.’s Dallas headquarters as required in connection with the sale of CompuCom Systems in 2004.
The Company has agreements with certain employees that provide for severance payments to the employee in the event the employee is terminated without cause or an employee terminates his employment for “good reason.” The maximum aggregate exposure under the agreements was approximately $3.0 million at June 30, 2014 .

11. Equity
In February 2014, the Company's Board of Directors authorized the Company, from time to time and depending on market conditions, to repurchase up to $25.0 million of the Company's outstanding common stock. During the six months ended June 30, 2014, the Company repurchased 1.2 million shares at an aggregate cost of $25.0 million .

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Cautionary Note Concerning Forward-Looking Statements
This Quarterly Report on Form 10-Q contains forward-looking statements that are based on current expectations, estimates, forecasts and projections about Safeguard Scientifics, Inc. (“Safeguard” or “we”), the industries in which we operate and other matters, as well as management's beliefs and assumptions and other statements regarding matters that are not historical facts. These statements include, in particular, statements about our plans, strategies and prospects. For example, when we use words such as “projects,” “expects,” “anticipates,” “intends,” “plans,” “believes,” “seeks,” “estimates,” “should,” “would,” “could,” “will,” “opportunity,” “potential” or “may,” variations of such words or other words that convey uncertainty of future events or outcomes, we are making forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Our forward-looking statements are subject to risks and uncertainties. Factors that could cause actual results to differ materially, include, among others, our ability to make good decisions about the deployment of capital, the fact that our partner companies may vary from period to period, our substantial capital requirements and absence of liquidity from our partner company holdings, fluctuations in the market prices of our publicly traded partner company holdings, competition, our inability to obtain maximum value for our partner company holdings, our ability to attract and retain qualified employees, our ability to execute our strategy, market valuations in sectors in which our partner companies operate, our inability to control our partner companies, our need to manage our assets to avoid registration under the Investment Company Act of 1940, and risks associated with our partner companies and their performance, including the fact that most of our partner companies have a limited history and a history of operating losses, face intense competition and may never be profitable, the effect of economic conditions in the business sectors in which Safeguard's partner companies operate, compliance with government regulation and legal liabilities, all of which are discussed in Item 1A. “Risk Factors” in Safeguard's Annual Report on Form 10-K and updated, as applicable, in “Factors that May Affect Future Results” and Item 1A. “Risk Factors” below. Many of these factors are beyond our ability to predict or control. In addition, as a result of these and other factors, our past financial performance should not be relied on as an indication of future performance. All forward-looking statements attributable to us, or to persons acting on our behalf, are expressly qualified in their entirety by this cautionary statement. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law. In light of these risks and uncertainties, the forward-looking events and circumstances discussed in this report might not occur.
Business Overview
Safeguard’s charter is to build value in growth-stage businesses by providing capital as well as strategic, operational and management resources. Safeguard participates principally in growth and expansion financings and early-stage financings. Our vision is to be the preferred capital source for entrepreneurs and management teams in well defined industry sectors. Throughout this document, we use the term “partner company” to generally refer to those companies in which we have an equity interest and in which we are actively involved, influencing development through board representation and management support, in addition to the influence we exert through our equity ownership. From time to time, in addition to these partner companies, we also hold relatively small equity interests in other enterprises where we do not exert significant influence and do not participate in management activities. In some cases, these interests relate to former partner companies and in some cases they relate to entities which may later become partner companies.
We strive to create long-term value for our shareholders by helping our partner companies increase their market penetration, grow revenue and improve cash flow. Safeguard focuses principally on companies with initial capital requirements of between $5 million and $15 million, and follow-on financing needs of between $5 million and $10 million, with a total anticipated deployment up to $25 million from Safeguard. We will occasionally provide certain early stage financing in amounts generally up to $1 million to promising young companies with the goal to provide more capital once certain development milestones are achieved. Safeguard principally targets companies that operate in two sectors:
Healthcare  — companies focused on medical technology (“MedTech”), including diagnostics and devices; healthcare technology (“HealthTech”); and specialty pharmaceuticals. Within these areas, Safeguard targets companies that have lesser regulatory risk and have achieved or are near commercialization; and
Technology  — companies focused on digital media; financial technology (“FinTech”); and Enterprise 3.0, which includes mobile technology, cloud, the “Internet of Things” and big data. Within these areas, Safeguard targets companies that have transaction-enabling applications with a recurring revenue stream.
Principles of Accounting for Ownership Interests in Partner Companies
We account for our interests in our partner companies and private equity funds using one of the following methods: consolidation, fair value, equity, cost or available-for-sale. The accounting method applied is generally determined by the degree of our influence over the entity, primarily determined by our voting interest in the entity.

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Consolidation Method.  We account for partner companies in which we maintain a controlling financial interest, generally those in which we directly or indirectly own more than 50% of the outstanding voting securities, using the consolidation method of accounting. Upon consolidation of our partner companies, we reflect the portion of equity (net assets) in a subsidiary not attributable, directly or indirectly, to the parent company as a non-controlling interest in the Consolidated Balance Sheet. The non-controlling interest is presented within equity, separately from the equity of the parent company. Losses attributable to the parent company and the non-controlling interest may exceed their interest in the subsidiary’s equity. As a result, the non-controlling interest shall continue to be attributed its share of losses even if that attribution results in a deficit non-controlling interest balance as of each balance sheet date. Revenue, expenses, gains, losses, net income or loss are reported in the Consolidated Statements of Operations at the consolidated amounts, which include the amounts attributable to the parent company’s common shareholders and the non-controlling interest. As of June 30, 2014 , we did not hold a controlling interest in any of our partner companies.

Fair Value Method. Unrealized gains and losses on the mark-to-market of our holdings in fair value method companies and realized gains and losses on the sale of any holdings in fair value method companies are recognized in Other income (loss), net in the Consolidated Statements of Operations. We accounted for our holdings in NuPathe Inc., a former publicly traded partner company, under the fair value method of accounting. As of June 30, 2014 , we did not account for any of our partner companies under the fair value method.
Equity Method.  We account for partner companies whose results are not consolidated, but over whom we exercise significant influence, using the equity method of accounting. We also account for our interests in some private equity funds under the equity method of accounting, based on our non-controlling general and limited partner interests. Under the equity method of accounting, our share of the income or loss of the partner company is reflected in Equity income (loss) in the Consolidated Statements of Operations. We report our share of the income or loss of the equity method partner companies on a one quarter lag. We include the carrying value of equity method partner companies in Ownership interests in and advances to partner companies and funds on the Consolidated Balance Sheets.
When the carrying value of our holdings in an equity method partner company is reduced to zero, no further losses are recorded in our Consolidated Statements of Operations unless we have outstanding guarantee obligations or have committed additional funding to the equity method partner company. When the equity method partner company subsequently reports income, we will not record our share of such income until it equals the amount of our share of losses not previously recognized.
Cost Method.  We account for partner companies which are not consolidated or accounted for under the equity method or fair value method under the cost method of accounting. Under the cost method, our share of the income or losses of such partner companies is not included in our Consolidated Statements of Operations. We include the carrying value of cost method partner companies in Ownership interests in and advances to partner companies and funds on the Consolidated Balance Sheets.
Critical Accounting Policies and Estimates
Accounting policies, methods and estimates are an integral part of the Consolidated Financial Statements prepared by management and are based upon management’s current judgments. These judgments are normally based on knowledge and experience with regard to past and current events and assumptions about future events. Certain accounting policies, methods and estimates are particularly important because of their significance to the financial statements and because of the possibility that future events affecting them may differ from management’s current judgments. While there are a number of accounting policies, methods and estimates affecting our financial statements, areas that are particularly significant include the following:

•	Impairment of ownership interests in and advances to partner companies and funds;	
		
•	Accounting for participating interests in mezzanine loans receivable and related equity interests;	
		
•	Income taxes;	
		
•	Commitments and contingencies; and	
		
•	Stock-based compensation.	
Impairment of Ownership Interests In and Advances to Partner Companies and Funds
On a periodic basis, but no less frequently than at the end of each quarter, we evaluate the carrying value of our equity and cost method partner companies for possible impairment based on achievement of business plan objectives and milestones, the financial condition and prospects of the company, market conditions and other relevant factors. The business plan objectives and milestones we consider include, among others, those related to financial performance, such as achievement of planned financial results or completion of capital raising activities, and those that are not primarily financial in nature, such as hiring of key employees or the establishment of strategic relationships. We then determine whether there has been an other than temporary decline in the value of our ownership interest in the company. For our equity and cost method partner companies,

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impairment to be recognized is measured as the amount by which the carrying value of an asset exceeds its fair value. The adjusted carrying value of a partner company is not increased if circumstances suggest the value of the partner company has subsequently recovered.

The fair value of privately held partner companies is generally determined based on the value at which independent third parties have invested or have committed to invest in these companies, or based on other valuation methods including discounted cash flows, valuations of comparable public companies and valuations of acquisitions of comparable companies. The fair value of our ownership interests in private equity funds is generally determined based on the fair value of our pro rata portion of the funds’ net assets and estimated future proceeds from sales of investments provided by the funds’ managers.
Our partner companies operate in industries which are rapidly evolving and extremely competitive. It is reasonably possible that our accounting estimates with respect to the ultimate recoverability of the carrying value of ownership interests in and advances to partner companies and funds could change in the near term and that the effect of such changes on our Consolidated Financial Statements could be material. While we believe that the current recorded carrying values of our equity and cost method companies are not impaired, there can be no assurance that our future results will confirm this assessment or that a significant write-down or write-off will not be required in the future.

Impairment charges related to equity method partner companies are included in Equity income (loss) in the Consolidated Statements of Operations. Impairment charges related to cost method partner companies are included in Other income (loss), net in the Consolidated Statements of Operations.
Accounting for Participating Interests in Mezzanine Loans Receivable and Related Equity Interests
Through our relationship with Penn Mezzanine, we have acquired participating interests in mezzanine loans and related equity interests in the borrowers. In certain instances, these interests also included warrants to purchase common stock of the borrowers. Our accounting policies for these participating interests are as follows:
Loan Participations Receiva ble
Our participating interests in Penn Mezzanine loans are included in Loan participations receivable on the Consolidated Balance Sheets. On a periodic basis, but no less frequently than at the end of each quarter, we evaluate the carrying value of each loan participation receivable for impairment. A loan participation receivable is considered impaired when it is probable that we will be unable to collect all amounts (principal and interest) due according to the contractual terms of the participation agreement and related agreements with the borrowers. We maintain an allowance to provide for estimated loan losses based on known and inherent risks in the loans. The allowance is provided based upon our analysis of the pertinent factors underlying the quality of the loans. These factors include an analysis of the financial condition of the borrowers, delinquency levels, actual loan loss experience, current economic conditions and other relevant factors. Our analysis includes methods to estimate the fair value of loan collateral and the existence of potential alternative sources of repayment. We do not accrue interest when a loan is considered impaired. All cash receipts from impaired loans are applied to reduce the original principal amount of such loan, until the principal has been fully recovered and would be recognized as interest income thereafter.

Equity Participations
Our participations in equity interests acquired by Penn Mezzanine are accounted for under the cost method of accounting. On a periodic basis, but no less frequently than at the end of each quarter, we evaluate the carrying value of our participations in these equity interests for possible impairment based on achievement of business plan objectives and milestones, the fair value of the equity interests relative to their carrying value, the financial condition and prospects of the underlying company and other relevant factors. Our participating interests in equity interests acquired by Penn Mezzanine are included in Other assets on the Consolidated Balance Sheets.
Warrant Participations
We recognize our participations in warrants acquired by Penn Mezzanine based on the fair value of the warrants at the balance sheet date. The fair values of warrant participations are bifurcated from the related loan participation receivables based on the relative fair value of the respective instruments at the acquisition date. Any gain or loss associated with changes in the fair value of the warrants at the balance sheet date is recorded in Other income (loss), net in the Consolidated Statements of Operations. The fair value of the warrants is included in Other assets on the Consolidated Balance Sheets.
Income Taxes
We are required to estimate income taxes in each of the jurisdictions in which we operate. This process involves estimating our actual current tax exposure together with assessing temporary differences resulting from differing treatment of

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items for tax and accounting purposes. These differences result in deferred tax assets and liabilities, which are included within our Consolidated Balance Sheets. We must assess the likelihood that the deferred tax assets will be recovered from future taxable income and to the extent that we believe recovery is not likely, we must establish a valuation allowance. To the extent we establish a valuation allowance in a period, we must include an expense within the tax provision in the Consolidated Statements of Operations. We have recorded a valuation allowance to reduce our deferred tax assets to an amount that is more likely than not to be realized in future years. If we determine in the future that it is more likely than not that the net deferred tax assets would be realized, then the previously provided valuation allowance would be reversed.
Commitments and Contingencies
From time to time, we are a defendant or plaintiff in various legal actions which arise in the normal course of business. Additionally, we have received distributions as both a general partner and a limited partner from private equity funds. In certain circumstances, we may be required to return a portion or all the distributions we received as a general partner of a fund for a further distribution to such fund’s limited partners (“clawback”). We are also a guarantor of various third-party obligations and commitments and are subject to the possibility of various loss contingencies arising in the ordinary course of business (see Note 10 to our Consolidated Financial Statements). We are required to assess the likelihood of any adverse outcomes to these matters as well as potential ranges of probable losses. A determination of the amount of provision required for these commitments and contingencies, if any, which would be charged to earnings, is made after careful analysis of each matter. The provision may change in the future due to new developments or changes in circumstances. Changes in the provision could increase or decrease our earnings in the period the changes are made.
Stock-Based Compensation
We measure all employee stock-based compensation awards using a fair value method and record such expense in our Consolidated Statements of Operations.
We estimate the grant date fair value of stock options using the Black-Scholes option-pricing model which requires the input of various assumptions. These assumptions include estimating the expected term of the award and the estimated volatility of our stock price over the expected term. Changes in these assumptions and in the estimated forfeitures of stock option awards can materially affect the amount of stock-based compensation recognized in the Consolidated Statements of Operations. The requisite service periods for market-based stock option awards are based on our estimate of the dates on which the market conditions will be met as determined using a Monte Carlo simulation model. Changes in the derived requisite service period or achievement of market capitalization targets earlier than estimated can materially affect the amount of stock-based compensation recognized in the Consolidated Statements of Operations. The requisite service periods for performance-based awards are based on our best estimate of when the performance conditions will be met. Compensation expense is recognized for performance-based awards for which the performance condition is considered probable of achievement. Changes in the requisite service period or the estimated probability of achievement of performance conditions can materially affect the amount of stock-based compensation recognized in the Consolidated Statements of Operations in any one period.
Results of Operations
The results of operations of all of our partner companies are reported in our Healthcare and Technology segments. The Healthcare and Technology segments also include the gain or loss on the sale of interests in our respective partner companies.
Our management evaluates the Healthcare and Technology segments’ performance based on equity income (loss) which is based on the number of partner companies accounted for under the equity method, our voting ownership percentage in these partner companies and the net results of operations of these partner companies and Other income or loss associated with cost method partner companies.
Our management evaluates the Penn Mezzanine segment performance based in part on the performance of the debt and equity interests in which we participate. This includes an evaluation of the future cash flows associated with interest and dividend payments as well as estimated losses based on evaluating known and inherent risks in the debt and equity interests in which we participate.
Other items include certain expenses, which are not identifiable to the operations of our operating business segments. Other items primarily consist of general and administrative expenses related to corporate operations, including employee compensation, insurance and professional fees, interest income, interest expense, other income (loss) and equity income (loss) related to private equity holdings. Other items also include income taxes, which are reviewed by management independent of segment results.

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The following table reflects our consolidated operating data by reportable segment. Segment results include our share of income or losses for entities accounted for under the equity method, when applicable. Segment results also include impairment charges and gains or losses related to the disposition of interests in partner companies. All significant inter-segment activity has been eliminated in consolidation. Our operating results, including net income (loss) before income taxes by segment, were as follows:

																
   	Three months ended June 30,	 	Six months ended June 30,	
   	2014	 	2013	 	2014	 	2013	
   	(In thousands)	
Healthcare	$	(3,095	)	 	$	(17,275	)	 	$	37,906		 	$	(22,340	)	
Technology	1,586		 	(3,399	)	 	(1,999	)	 	(4,500	)	
Penn Mezzanine	178		 	(13	)	 	332		 	328		
Total segments	(1,331	)	 	(20,687	)	 	36,239		 	(26,512	)	
Other items:	   		 	   		 	   		 	   		
Corporate operations	(6,017	)	 	(7,436	)	 	(12,268	)	 	(13,550	)	
Income tax benefit (expense)	—		 	—		 	—		 	—		
Total other items	(6,017	)	 	(7,436	)	 	(12,268	)	 	(13,550	)	
Net income (loss)	$	(7,348	)	 	$	(28,123	)	 	$	23,971		 	$	(40,062	)	
There is intense competition in the markets in which our partner companies operate. Additionally, the markets in which these companies operate are characterized by rapidly changing technology, evolving industry standards, frequent introduction of new products and services, shifting distribution channels, evolving government regulation, frequently changing intellectual property landscapes and changing customer demands. Their future success depends on each company’s ability to execute its business plan and to adapt to its respective rapidly changing market.
As previously stated, throughout this document, we use the term “partner company” to generally refer to those companies in which we have an economic interest and in which we are actively involved influencing development, usually through board representation in addition to our equity ownership.
The following listings of our Healthcare and Technology partner companies only include entities which were considered partner companies as of June 30, 2014 . Certain entities which may have been partner companies in previous periods are omitted if, as of June 30, 2014 , they had been sold or are no longer considered a partner company.
Healthcare
The following active partner companies as of June 30, 2014 were included in Healthcare: 

						
   	Safeguard Primary Ownership as of June 30,	 	   	
Partner Company	2014	 	2013	 	Accounting Method	
AdvantEdge Healthcare Solutions, Inc.	40.1%	 	40.2%	 	Equity	
Dabo Health, Inc.	12.9%	 	NA	 	Cost	
Good Start Genetics, Inc.	30.0%	 	30.0%	 	Equity	
InfoBionic Inc.	20.4%	 	NA	 	Equity	
Medivo, Inc.	34.5%	 	34.5%	 	Equity	
NovaSom, Inc.	30.3%	 	30.3%	 	Equity	
Putney, Inc.	28.3%	 	27.6%	 	Equity	
Quantia, Inc.	34.8%	 	NA	 	Equity	
Syapse, Inc.	27.0%	 	NA	 	Equity	

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Results of operations for the Healthcare segment were as follows:    

																
   	Three months ended June 30,	 	Six months ended June 30,	
   	2014	 	2013	 	2014	 	2013	
   	(In thousands)	
Other income (loss), net	$	1,452		 	$	(2,425	)	 	$	31,831		 	$	(1,590	)	
Equity income (loss)	(4,547	)	 	(14,850	)	 	6,075		 	(20,750	)	
Net income (loss)	$	(3,095	)	 	$	(17,275	)	 	$	37,906		 	$	(22,340	)	
Three months ended June 30, 2014 versus the three months ended June 30, 2013
Other Income (Loss), Net . Other income (loss), net increased $3.9 million for the three months ended June 30, 2014 , compared to the prior year period. Other income (loss), net for the three months ended June 30, 2014 related to the recognition of a gain of $1.5 million on the sale of former cost method partner company Sotera Wireless, Inc. in April 2014. Other income (loss), net for the three months ended June 30, 2013 reflected an unrealized loss of $2.4 million on the mark-to-market of our holdings in NuPathe.
Equity Income (Loss). Equity income (loss) fluctuates with the number of Healthcare partner companies accounted for under the equity method, our voting ownership percentage in these partner companies and the net results of operations of these partner companies. We recognize our share of losses to the extent we have cost basis in the partner company or outstanding commitments or guarantees. Certain amounts recorded to reflect our share of the income or losses of our partner companies accounted for under the equity method are based on estimates and on unaudited results of operations of those partner companies and may require adjustments in the future when audits of these entities are made final. We report our share of the results of our equity method partner companies on a one quarter lag basis.
Equity income (loss) for the Healthcare segment decreased $10.3 million in the three months ended June 30, 2014 compared to the prior year period. Equity income (loss) for the three months ended June 30, 2013 reflected an impairment charge of $9.9 million related to PixelOptics, Inc., a former equity method partner company. The remaining decrease in equity income (loss) for the three months ended June 30, 2014 compared to the prior year period was due to smaller losses incurred by partner companies included in the Healthcare segment.
Six months ended June 30, 2014 versus the six months ended June 30, 2013
Other Income (Loss), Net . Other income (loss), net increased $33.4 million for the six months ended June 30, 2014 , compared to the prior year period. The increase primarily related to the recognition of gains of $27.4 million and $3.0 million on the sales of former cost method partner company Crescendo Bioscience, Inc. and former fair value method partner company NuPathe, respectively, in February 2014. The increase also related to the recognition of a gain of $1.5 million on the sale of former cost method partner company Sotera Wireless. Other income (loss), net for the six months ended June 30, 2013 reflected an unrealized loss of $1.6 million on the mark-to-market of our holdings in NuPathe.
Equity Income (Loss). Equity income (loss) for the Healthcare segment increased $26.8 million in the six months ended June 30, 2014 compared to the prior year period.  The increase primarily related to the recognition of a gain of $15.7 million on the sale of former equity method partner company Alverix, Inc. in January 2014. The increase in equity income (loss) was also due to smaller losses incurred by partner companies included in the Healthcare segment partially offset by a $1.7 million adjustment related to the change in revenue recognition accounting at a partner company as discussed below. Equity income (loss) for the six months ended June 30, 2013 included an impairment charge of $9.9 million related to PixelOptics, a former equity method partner company.
Our share of the earnings or losses of partner companies, as well as any adjustments resulting from prior period finalizations of equity income or loss, are reflected in Equity income (loss) on the Consolidated Statements of Operations.  In the six months ended June 30, 2014, the amount related to prior periods was $1.7 million, of which $0.3 million related to 2012 and $1.4 million related to 2013. The adjustments primarily related to a change in revenue recognition accounting at a partner company. We evaluated the quantitative and qualitative impact of the corrections on previously reported periods as well as on the six months ended June 30, 2014.  Based on this evaluation, we concluded that these adjustments were not material to our Consolidated Financial Statements.

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Technology
The following active partner companies as of June 30, 2014 were included in Technology:

						
   	Safeguard Primary Ownership as of June 30,	 	   	
Partner Company	2014	 	2013	 	Accounting Method	
AppFirst, Inc.	34.3%	 	35.0%	 	Equity	
Apprenda, Inc.	21.7%	 	NA	 	Equity	
Beyond.com, Inc.	38.2%	 	38.3%	 	Equity	
Bridgevine, Inc.	17.3%	 	22.5%	 	Cost (1)	
Clutch Holdings, Inc.	29.6%	 	6.5%	 	Equity (2)	
DriveFactor, Inc.	40.6%	 	35.4%	 	Equity	
Hoopla Software, Inc.	25.6%	 	25.3%	 	Equity	
Lumesis, Inc.	48.5%	 	44.2%	 	Equity	
MediaMath, Inc.	20.6%	 	22.2%	 	Equity	
Pneuron Corporation	27.6%	 	27.6%	 	Equity	
Spongecell, Inc.	23.0%	 	23.1%	 	Equity	
(1) In the second quarter of 2014, our ownership interest in Bridgevine decreased from 22.7% to 17.3%, below the
threshold at which we believe we exercise significant influence. Accordingly, we changed our method of
accounting for Bridgevine from the equity method to the cost method.

(2) In the third quarter of 2013, our ownership interest in Clutch increased from 6.5% to 24.0%, above the threshold at which we believe we exercise significant influence. Accordingly, we changed our method of accounting for Clutch from the cost method to the equity method.

Results of operations for the Technology segment were as follows:

																
   	Three months ended June 30,	 	Six months ended June 30,	
   	2014	 	2013	 	2014	 	2013	
   	(In thousands)	
Equity income (loss)	$	1,586		 	$	(3,399	)	 	$	(1,999	)	 	$	(4,500	)	
Net income (loss)	$	1,586		 	$	(3,399	)	 	$	(1,999	)	 	$	(4,500	)	
Three months ended June 30, 2014 versus the three months ended June 30, 2013
Equity Income (Loss). Equity income (loss) fluctuates with the number of Technology partner companies accounted for under the equity method, our voting ownership percentage in these partner companies and the net results of operations of these partner companies. We recognize our share of losses to the extent we have cost basis in the equity partner company or outstanding commitments or guarantees. Certain amounts recorded to reflect our share of the income or losses of our partner companies accounted for under the equity method are based on estimates and on unaudited results of operations of those partner companies and may require adjustments in the future when audits of these entities are made final. We report our share of the results of our equity method partner companies on a one quarter lag.
Equity income (loss) for the Technology segment increased $5.0 million in the three months ended June 30, 2014 , compared to the prior year period. The increase was primarily related to a $7.0 million unrealized gain on the decrease of our percentage ownership interest in MediaMath. This increase was partially offset by a $0.3 million unrealized loss on the decrease of our percentage ownership interest in Bridgevine and an increase in losses incurred by partner companies included in the Technology segment.
Six months ended June 30, 2014 versus the six months ended June 30, 2013
Equity Income (Loss). Equity income (loss) for the Technology segment decreased $2.5 million in the six months ended June 30, 2014 , compared to the prior year period. The decrease was primarily related to a $7.0 million unrealized gain on the decrease of our percentage ownership interest in MediaMath. This increase was partially offset by a $0.3 million unrealized loss on the decrease of our percentage ownership interest in Bridgevine and an increase in losses incurred by partner companies included in the Technology segment.

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Penn Mezzanine
Results for the Penn Mezzanine segment were as follows:

																
   	Three months ended June 30,	 	Six months ended June 30,	
   	2014	 	2013	 	2014	 	2013	
   	(In thousands)	
General and administrative expense	$	(3	)	 	$	(4	)	 	$	(5	)	 	$	(9	)	
Other income (loss), net	—		 	(295	)	 	(5	)	 	(223	)	
Interest income	394		 	380		 	780		 	724		
Equity loss	(213	)	 	(94	)	 	(438	)	 	(164	)	
Net income (loss)	$	178		 	$	(13	)	 	$	332		 	$	328		
Results of the Penn Mezzanine segment include interest, dividends, loan origination and other fees earned on the mezzanine interests in which we participate, gain (loss) on the mark-to-market of our warrant participations, any impairment on our debt and equity participation interests as well as equity income (loss) associated with our interest in the management company and general partner of Penn Mezzanine. As of June 30, 2014 , we had participating interests in five loans and seven equity investments initiated by Penn Mezzanine. We have determined that we will not be making any further new capital deployments in connection with Penn Mezzanine lending activities. We will continue to collect principal and interest payments from our existing participating interests in Penn Mezzanine loans.  
Three months ended June 30, 2014 versus the three months ended June 30, 2013
Other Income (Loss), Net.  Other income (loss), net for Penn Mezzanine decreased $0.3 million in the three months ended June 30, 2014 compared to the prior year period.  During the three months ended June 30, 2013 , we recorded an impairment charge associated with our equity and loan participations of $0.3 million.
Equity Loss. Equity loss increased $0.1 million in the three months ended June 30, 2014 , compared to the prior year period. The increase in equity loss relates to an increase in legal expenses incurred at the management company of Penn Mezzanin e.
General and administrative expense and interest income remained consistent in the three months ended June 30, 2014 , compared to the prior year period. We anticipate interest income will decrease in future periods as participating interests in existing mezzanine loans are repaid.
Six months ended June 30, 2014 versus the six months ended June 30, 2013
Other Income (Loss), Net.  Other income (loss), net for Penn Mezzanine decreased $0.2 million in the six months ended June 30, 2014 compared to the prior year period.  During the six months ended June 30, 2013 , we recorded an impairment charge associated with our equity and loan participations of $0.3 million which was partially offset by a gain on the sale of one of our participating equity interests of $0.1 million.
Equity Loss. Equity loss increased $0.3 million in the six months ended June 30, 2014 , compared to the prior year period. The increase in equity loss relates to an increase in legal expenses incurred at the management company of Penn Mezzanin e.
General and administrative expense and interest income remained consistent in the six months ended June 30, 2014 , compared to the prior year period. We anticipate interest income will decrease in future periods as participating interests in existing mezzanine loans are repaid.

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Corporate Operations

																
   	Three months ended June 30,	 	Six months ended June 30,	
   	2014	 	2013	 	2014	 	2013	
   	(In thousands)	
General and administrative expense	$	(4,161	)	 	$	(5,764	)	 	$	(8,856	)	 	$	(10,732	)	
Stock-based compensation	(887	)	 	(922	)	 	(1,407	)	 	(1,298	)	
Depreciation	(18	)	 	(25	)	 	(40	)	 	(50	)	
Other income (loss), net	—		 	(4	)	 	—		 	(154	)	
Interest income	148		 	410		 	232		 	800		
Interest expense	(1,098	)	 	(1,074	)	 	(2,192	)	 	(2,143	)	
Equity income (loss)	(1	)	 	(57	)	 	(5	)	 	27		
   	$	(6,017	)	 	$	(7,436	)	 	$	(12,268	)	 	$	(13,550	)	
Three months ended June 30, 2014 versus the three months ended June 30, 2013
General and Administrative Expense. Our general and administrative expenses consist primarily of employee compensation, insurance, travel-related costs, office rent and professional services such as consulting, legal, and accounting. General and administrative expense decreased $1.6 million in the three months ended June 30, 2014 compared to the prior year period primarily due to a decrease of $0.4 million in costs associated with a transitional services agreement with our previous Chief Executive Officer, a decrease in severance expense of $0.9 million related to a former executive and a decrease of $0.5 million in professional fees. These decreases were partially offset by a $0.2 million increase in employee costs.
Stock-Based Compensation. Stock-based compensation consists primarily of expense related to stock option grants and grants of restricted stock and deferred stock units to our employees and directors. Stock based compensation remained relatively consistent for the three months ended June 30, 2014 compared to the prior year period.
Interest Income. Interest income includes all interest earned on available cash and marketable security balances as well as interest earned on notes receivable from our partner companies. The decrease of $0.3 million in the three months ended June 30, 2014 compared to the prior year period was primarily attributable to lower average notes receivable from our partner companies.
Interest Expense. Interest expense is primarily related to our convertible senior debentures.  Interest expense remained relatively consistent compared to the prior year period.
Equity Income (Loss). Equity income (loss) for both periods relates to our private equity holdings accounted for under the equity method.
Six months ended June 30, 2014 versus the six months ended June 30, 2013
General and Administrative Expense. General and administrative expense decreased $1.9 million in the six months ended June 30, 2014 compared to the prior year period primarily due to a decrease of $0.8 million in costs associated with a transitional services agreement with our previous Chief Executive Officer, a decrease in severance expense of $0.9 million related to a former executive and a decrease of $0.8 million in professional fees. These decreases were partially offset by a $0.6 million increase in employee costs.
Stock-Based Compensation. Stock-based compensation increased $0.1 million when compared to the prior year period primarily due to an increase in expense associated with deferred stock units and restricted stock awards.
Other Income (Loss), Net. Other income (loss), net for the six months ended June 30, 2013 reflected an impairment charge of $0.2 million related to our interest in a legacy private equity fund.
Interest Income. The decrease in interest income of $0.6 million in the six months ended June 30, 2014 compared to the prior year period was primarily attributable to lower average notes receivable from our partner companies.
Interest Expense. Interest expense remained relatively consistent compared to the prior year period.
Equity Income (Loss). Equity income (loss) for both periods relates to our private equity holdings accounted for under the equity method.

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Income Tax Expense (Benefit)
Income tax expense (benefit) for the three and six months ended June 30, 2014 and 2013 was $0.  We have recorded a valuation allowance to reduce our net deferred tax asset to an amount that is more likely than not to be realized in future years. Accordingly, the tax expense that would have been recognized in the six months ended June 30, 2014 was offset by changes in the valuation allowance. The benefit of the net operating loss that would have been recognized in the three months ended June 30, 2014 and 2013 and the six months ended June 30, 2013 was also offset by changes in the valuation allowance.
Liquidity and Capital Resources
We fund our operations with cash on hand as well as proceeds from sales of and distributions from partner companies, private equity funds and marketable securities. In prior periods, we have also used sales of our equity and the issuance of debt as sources of liquidity and may do so in the future. Our ability to generate liquidity from sales of partner companies, sales of marketable securities and from equity and debt issuances has been adversely affected from time to time by adverse circumstances in the U.S. capital markets and other factors.
As of June 30, 2014 , we had $164.5 million of cash and cash equivalents and $33.9 million of marketable securities for a total of $198.4 million.
In April 2014, we sold our ownership interest in Sotera Wireless for approximately $4.2 million in cash proceeds.
In February 2014, Crescendo Bioscience was acquired by Myriad Genetics, Inc. We received $38.4 million in cash proceeds in connection with the transaction, excluding $3.2 million which will be held in escrow until approximately May 2015.
In February 2014, NuPathe was acquired by Teva Pharmaceutical Industries Ltd. for $3.65 per share in cash. In addition to the upfront cash payment, NuPathe shareholders received rights to receive additional cash payments of up to $3.15 per share if specified milestones are achieved over time. We received initial net cash proceeds of $23.1 million as a result of the transaction. Depending on the achievement of the milestones, we may receive up to an additional $24.2 million.
In January 2014, Alverix was acquired by Becton, Dickinson and Company. We received cash proceeds of $15.7 million, excluding $1.7 million which will be held in escrow until approximately July 2015.

In the six months ended June 30, 2014, we received cash proceeds of $2.9 million from the repayment of loan participations receivable and $0.9 million from the sale of an equity interest initiated by Penn Mezzanine.
In December 2013, ThingWorx, Inc. was acquired by PTC Inc. We received cash proceeds of $36.4 million, excluding $4.1 million which will be held in escrow until December 2015. Depending on the achievement of certain milestones, we may receive up to an additional $6.5 million in connection with the transaction.
In June 2011, Advanced BioHealing, Inc. was acquired by Shire plc. Prior to the expiration of the escrow period in March 2012, Shire plc filed a claim against $7.6 million held in escrow related to the sale. No further proceeds will be distributed to us or other former owners until the validity of such claims is determined. We presently view it as unlikely that we will receive any portion of such amount in the short or long-term.
Depending on the achievement of certain difficult commercial and regulatory milestones, we could receive additional proceeds of up to $54.0 million by the end of 2018 related to the December 2010 sale of our former partner company Avid Radiopharmaceuticals, Inc. We presently view it as unlikely that we will receive any significant portion of such amount in the short or long-term.
We have outstanding $55.0 million in face amount of our 5.25% convertible senior debentures due 2018 (the "2018 Debentures"). Interest on the 2018 Debentures is payable semi-annually. At the debentures holders’ option, the 2018 Debentures are convertible into our common stock prior to November 15, 2017 subject to certain conditions, and at any time after November 15, 2017. The conversion rate of the 2018 Debentures is 55.17 shares of common stock per $1,000 principal amount of debentures, equivalent to a conversion price of approximately $18.13 per share of common stock. The closing price per share of our common stock at June 30, 2014 was $20.79. The 2018 Debentures holders have the right to require us to repurchase the 2018 Debentures if we undergo a fundamental change as defined in the debenture agreement, including the sale of all or substantially all of our common stock or assets, liquidation, or dissolution; a change in control, the delisting of our common stock from the New York Stock Exchange or the NASDAQ Global Market (or any of their respective successors); or a substantial change in the composition of our board of directors as defined in the agreement. On or after November 15, 2016, we may redeem for cash some or all of the debentures, subject to certain conditions. Upon any redemption of the 2018 Debentures, we will pay a redemption price of 100% of their principal amount, plus accrued and unpaid interest. Upon the conversion of the 2018 Debentures we have the right to settle the conversion in stock, cash or a combination thereof.

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In February 2014, our Board of Directors authorized us, from time to time and depending on market conditions, to repurchase up to $25.0 million of our outstanding common stock. During the six months ended June 30, 2014, we repurchased 1.2 million shares at an aggregate cost of $25.0 million.
We are party to a loan agreement with a commercial bank which provides us with a revolving credit facility in the maximum aggregate amount of $50 million in the form of borrowings, guarantees and issuances of letters of credit (subject to a $20 million sublimit). Actual availability under the credit facility is based on the amount of cash maintained at the bank as well as the value of our public and private partner company interests. This credit facility bears interest at the prime rate for outstanding borrowings, subject to an increase in certain circumstances. Other than for limited exceptions, we are required to maintain all of our depository and operating accounts and the lesser of $80 million or 75% of our investment and securities accounts at the bank. The credit facility, as amended, matures on December 31, 2014. Under the credit facility, we provided a $6.3 million letter of credit expiring on March 19, 2019 to the landlord of CompuCom Systems, Inc.’s Dallas headquarters which was required in connection with our sale of CompuCom Systems in 2004. Availability under our revolving credit facility at June 30, 2014 was $43.7 million.
At June 30, 2014 , we had committed capital of approximately $0.2 million to private equity funds. These commitments are expected to be funded in the next 12 months.
The transactions we enter into in pursuit of our strategy could increase or decrease our liquidity at any point in time. As we seek to acquire interests in new partner companies, provide additional funding to existing partner companies, or commit capital to other initiatives, we may be required to expend our cash or incur debt, which will decrease our liquidity. Conversely, as we dispose of our interests in partner companies from time to time, we may receive proceeds from such sales, which could increase our liquidity. From time to time, we are engaged in discussions concerning acquisitions and dispositions which, if consummated, could impact our liquidity, perhaps significantly.
Under certain circumstances, we may be required to return a portion or all the distributions we received as a general partner of a private equity fund for further distribution to such fund’s limited partners (“clawback”). The maximum clawback we could be required to return related to our general partner interest is $1.3 million, of which $1.0 million was reflected in Accrued expenses and other current liabilities and $0.3 million was reflected in Other long-term liabilities on the Consolidated Balance Sheets at June 30, 2014 . Our ownership in the fund is 19%. The clawback liability is joint and several, such that we may be required to fund the clawback for other general partners should they default. We believe our potential liability due to the possibility of default by other general partners is remote.
For the reasons we have presented above, we believe our cash and cash equivalents at June 30, 2014 , availability under our revolving credit facility and other internal sources of cash flow will be sufficient to fund our cash requirements for at least the next 12 months, including interest payments, commitments to our existing partner companies and funds, possible additional funding of existing partner companies and our general corporate requirements. Our acquisition of new partner company interests is always contingent upon our availability of cash to fund such deployments, and our timing of monetization events directly affects our availability of cash.
Analysis of Consolidated Cash Flows
Cash flow activity was as follows:  

								
   	Six months ended June 30,	
   	2014	 	2013	
   	(In thousands)	
Net cash used in operating activities	$	(12,778	)	 	$	(11,540	)	
Net cash provided by investing activities	62,840		 	48,194		
Net cash provided by (used in) financing activities	(24,904	)	 	49		
   	$	25,158		 	$	36,703		
Net Cash Used In Operating Activities
Net cash used in operating activities increased by $1.2 million for the six months ended June 30, 2014 compared to the prior year period. The increase primarily related to an increase of $1.1 million related to final payments associated with a transitional services agreement with our previous Chief Executive Officer and an increase of $0.4 million in cash used for management incentive plan payments. These increases were partially offset by a $0.1 million decrease in cash used for professional fees.

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Net Cash Provided by Investing Activities
Net cash provided by investing activities increased by $14.6 million for the six months ended June 30, 2014 compared to the prior year period. The increase primarily related to a $79.8 million increase in proceeds from sales of and distributions from companies and funds, primarily related to the 2014 sales of our interests in Crescendo Bioscience, Alverix, NuPathe and Sotera Wireless, and an increase of $3.2 million in repayments of advances and loans to companies. These increases were partially offset by a $52.1 million decrease in cash proceeds from the net change in marketable securities, a $10.3 million increase in acquisitions of ownership interest in companies and funds and a decrease in proceeds from the sale of discontinued operations of $6.4 million which related to the release of escrow funds in June 2013.
Net Cash Provided by (Used In) Financing Activities
Net cash used in financing activities increased by $25.0 million for the six months ended June 30, 2014 compared to the prior year period. The increase primarily related to $25.0 million in repurchases of our common stock and the repurchase of $0.4 million of our 2024 Debentures in the six months ended June 30, 2014. These increases were partially offset by a $0.5 million increase in the proceeds received from the exercise of stock options.
Contractual Cash Obligations and Other Commercial Commitments
The following table summarizes our contractual obligations and other commercial commitments as of June 30, 2014 by period due or expiration of the commitment.   

																				
   	Payments Due by Period	
   	Total	 	Remainder of 2014	 	2015 and
2016	 	2017 and
2018	 	Due after
2018	
Contractual Cash Obligations:	   	 	   	 	   	 	   	 	   	
Convertible senior debentures (a)	$	55.0		 	$	—		 	$	—		 	$	55.0		 	$	—		
Interest payments on long-term debt	11.5		 	1.4		 	5.8		 	4.3		 	—		
Operating leases	0.7		 	0.3		 	0.4		 	—		 	—		
Funding commitments (b)	0.2		 	0.1		 	0.1		 	—		 	—		
Potential clawback liabilities (c)	1.3		 	1.0		 	—		 	0.3		 	—		
Other long-term obligations (d)	3.4		 	0.8		 	1.6		 	1.0		 	—		
Total Contractual Cash Obligations	$	72.1		 	$	3.6		 	$	7.9		 	$	60.6		 	$	—		

																				
   	Amount of Commitment Expiration by  Period	
   	Total	 	Remainder of 2014	 	2015 and
2016	 	2017 and
2018	 	Due after
2018	
Other Commitments:	   	 	   	 	   	 	   	 	   	
Letters of credit (e)	$	6.3		 	$	—		 	$	—		 	$	—		 	$	6.3		

(a)	We have outstanding $55.0 million of our 5.25% convertible senior debentures due May 15, 2018.	

(b)	This represents funding commitments to private equity funds based on estimated timing of capital calls provided to us by the funds' management.	

(c)	Under certain circumstances, we may be required to return a portion or all the distributions we received as a general partner of a private equity fund for a further distribution to such fund’s limited partners (“clawback”). The maximum clawback we could be required to return is approximately $1.3 million, of which $1.0 million was reflected in Accrued expenses and other current liabilities and $0.3 million was reflected in Other long-term liabilities on the Consolidated Balance Sheet as of June 30, 2014 .	

(d)	Reflects the estimated amount payable to a former Chairman and CEO under an ongoing agreement.	

(e)	A $6.3 million letter of credit is provided to the landlord of CompuCom’s Dallas headquarters lease as required in connection with our sale of CompuCom in 2004.	
We have agreements with certain employees that provide for severance payments to the employee in the event the employee is terminated without cause or if the employee terminates his employment for “good reason.” The maximum aggregate cash exposure under the agreements was approximately $3.0 million at June 30, 2014 .

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We 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 consolidated financial position or results of operations.
Factors That May Affect Future Results
You should carefully consider the information set forth below. The following risk factors describe situations in which our business, financial condition and/or results of operations could be materially harmed, and the value of our securities may be adversely affected. You should also refer to other information included or incorporated by reference in this report.
Our principal business depends upon our ability to make good decisions regarding the deployment of capital into new or existing partner companies and, ultimately, the performance of our partner companies, which is uncertain.
If we make poor decisions regarding the deployment of capital into new or existing partner companies, our business model will not succeed. Our success as a company ultimately depends on our ability to choose the right partner companies. If our partner companies do not succeed, the value of our assets could be significantly reduced and require substantial impairments or write-offs and our results of operations and the price of our common stock would be adversely affected. The risks relating to our partner companies include:
		
•	most of our partner companies have a history of operating losses and/or limited operating history;	
		
•	the intense competition affecting the products and services our partner companies offer could adversely affect their businesses, financial condition, results of operations and prospects for growth;	
		
•	the inability to adapt to changing marketplaces;	
		
•	the inability to manage growth;	
		
•	the need for additional capital to fund their operations, which we may not be able to fund or which may not be available from third parties on acceptable terms, if at all;	
		
•	the inability to protect their proprietary rights and/or infringing on the proprietary rights of others;	
		
•	that our partner companies could face legal liabilities from claims made against them based upon their operations, products or work;	
		
•	the impact of economic downturns on their operations, results and growth prospects;	
		
•	the inability to attract and retain qualified personnel;	
		
•	the existence of government regulations and legal uncertainties may place financial burdens on the businesses of our partner companies; and	
		
•	the inability to plan for and manage catastrophic events.	
These and other risks are discussed in detail under the caption “Risks Related to Our Partner Companies” below.
Our partner companies (and the nature of our interests in them) could vary widely from period to period.
As part of our strategy, we continually assess the value to our shareholders of our interests in our partner companies. We also regularly evaluate alternative uses for our capital resources. As a result, depending on market conditions, growth prospects and other key factors, we may at any time:
		
•	change the individual and/or types of partner companies on which we focus;	
		
•	sell some or all of our interests in any of our partner companies; or	
		
•	otherwise change the nature of our interests in our partner companies.	
Therefore, the nature of our holdings could vary significantly from period to period.
Our consolidated financial results also may vary significantly based upon which, if any, of our partner companies are included in our Consolidated Financial Statements.
Our business model does not rely upon, or plan for, the receipt of operating cash flows from our partner companies. Our partner companies generally provide us with no cash flow from their operations. We rely on cash on hand, liquidity events and our ability to generate cash from capital raising activities to finance our operations.
We need capital to develop new partner company relationships and to fund the capital needs of our existing partner companies. We also need cash to service and repay our outstanding debt, finance our corporate overhead and meet our existing funding commitments. As a result, we have substantial cash requirements. Our partner companies generally provide us with no cash flow from their operations. To the extent our partner companies generate any cash from operations, they generally retain the funds to develop their own businesses. As a result, we must rely on cash on hand, partner company liquidity events and new capital raising activities to meet our cash needs. If we are unable to find ways of monetizing our holdings or raising additional capital on attractive terms, we may face liquidity issues that will require us to curtail our new business efforts, constrain our ability to execute our business strategy and limit our ability to provide financial support to our existing partner companies.

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Fluctuations in the price of the common stock of our publicly traded holdings may affect the price of our common stock.
Fluctuations in the market prices of the common stock of our publicly traded holdings may affect the price of our common stock. The market prices of our publicly traded holdings have been highly volatile and subject to fluctuations unrelated or disproportionate to operating performance.
Intense competition from other capital providers for interests in companies could adversely affect our ability to deploy capital and result in higher valuations of partner company interests which could result in lower gains or possibly losses on our partner companies.
We face intense competition from other capital providers as we acquire and develop interests in our partner companies. Some of our competitors have more experience identifying, acquiring and selling companies and have greater financial and management resources, brand name recognition or industry contacts than we have. Competition from other capital providers could adversely affect our ability to deploy capital. In addition, despite making most of our acquisitions at a stage when our partner companies are not publicly traded, we may still pay higher prices for those equity interests because of higher valuations of similar public companies and competition from other acquirers and capital providers, which could result in lower gains or possibly losses.

We may be unable to obtain maximum value for our holdings or to sell our holdings on a timely basis.
We hold significant positions in our partner companies. Consequently, if we were to divest all or part of our holdings in a partner company, we may have to sell our interests at a relative discount to a price which may be received by a seller of a smaller portion. For partner companies with publicly traded stock, we may be unable to sell our holdings at then-quoted market prices. The trading volume and public float in the common stock of a publicly traded partner company may be small relative to our holdings. As a result, any significant open-market divestiture by us of our holdings in such a partner company, if possible at all, would likely have a material adverse effect on the market price of its common stock and on our proceeds from such a divestiture. Additionally, we may not be able to take our partner companies public as a means of monetizing our position or creating shareholder value.
Registration and other requirements under applicable securities laws and contractual restrictions also may adversely affect our ability to dispose of our holdings on a timely basis.
Our success is dependent on our senior management.
Our success is dependent on our senior management team’s ability to execute our strategy. A loss of one or more of the members of our senior management team without adequate replacement could have a material adverse effect on us.
Our business strategy may not be successful if valuations in the market sectors in which our partner companies participate decline.
Our strategy involves creating value for our shareholders by helping our partner companies build value and, if appropriate, accessing the public and private capital markets. Therefore, our success is dependent on the value of our partner companies as determined by the public and private capital markets. Many factors, including reduced market interest, may cause the market value of our partner companies to decline. If valuations in the market sectors in which our partner companies participate decline, their access to the public and private capital markets on terms acceptable to them may be limited.
Our partner companies could make business decisions that are not in our best interests or with which we do not agree, which could impair the value of our holdings.
Although we may seek a controlling or influential equity interest and participation in the management of our partner companies, we may not be able to control the significant business decisions of our partner companies. We may have shared control or no control over some of our partner companies. In addition, although we currently own a significant, influential interest in some of our partner companies, we do not maintain a controlling interest in any of our partner companies. Acquisitions of interests in partner companies in which we share or have no control, and the dilution of our interests in or loss of control of partner companies, will involve additional risks that could cause the performance of our interests and our operating results to suffer, including:
		
•	the management of a partner company having economic or business interests or objectives that are different from ours; and	
		
•	the partner companies not taking our advice with respect to the financial or operating issues they may encounter.	
Our inability to control our partner companies also could prevent us from assisting them, financially or otherwise, or could prevent us from liquidating our interests in them at a time or at a price that is favorable to us. Additionally, our partner

33

companies may not act in ways that are consistent with our business strategy. These factors could hamper our ability to maximize returns on our interests and cause us to incur losses on our interests in these partner companies.
We may have to buy, sell or retain assets when we would otherwise not wish to do so in order to avoid registration under the Investment Company Act.
The Investment Company Act of 1940 regulates companies which are engaged primarily in the business of investing, reinvesting, owning, holding or trading in securities. Under the Investment Company Act, a company may be deemed to be an investment company if it owns investment securities with a value exceeding 40% of the value of its total assets (excluding government securities and cash items) on an unconsolidated basis, unless an exemption or safe harbor applies. We refer to this test as the “40% Test.” Securities issued by companies other than consolidated partner companies are generally considered “investment securities” for purposes of the Investment Company Act, unless other circumstances exist which actively involve the company holding such interests in the management of the underlying company. We are a company that partners with growth-stage companies to build value; we are not engaged primarily in the business of investing, reinvesting or trading in securities. We are in compliance with the 40% Test. Consequently, we do not believe that we are an investment company under the Investment Company Act.
We monitor our compliance with the 40% Test and seek to conduct our business activities to comply with this test. It is not feasible for us to be regulated as an investment company because the Investment Company Act rules are inconsistent with our strategy of actively helping our partner companies in their efforts to build value. In order to continue to comply with the 40% Test, we may need to take various actions which we would otherwise not pursue. For example, we may need to retain a controlling interest in a partner company that we no longer consider strategic, we may not be able to acquire an interest in a company unless we are able to obtain a controlling ownership interest in the company, or we may be limited in the manner or timing in which we sell our interests in a partner company. Our ownership levels also may be affected if our partner companies are acquired by third parties or if our partner companies issue stock which dilutes our controlling ownership interest. The actions we may need to take to address these issues while maintaining compliance with the 40% Test could adversely affect our ability to create and realize value at our partner companies.

Economic disruptions and downturns may have negative repercussions for us.
Events in the United States and international capital markets, debt markets and economies may negatively impact our ability to pursue certain tactical and strategic initiatives, such as accessing additional public or private equity or debt financing for us or for our partner companies and selling our interests in partner companies on terms acceptable to us and in time frames consistent with our expectations.
We cannot provide assurance that material weaknesses in our internal control over financial reporting will not be identified in the future.
We cannot assure you that material weaknesses in our internal control over financial reporting will not be identified in the future. Any failure to maintain or implement required new or improved controls, or any difficulties we encounter in their implementation, could result in a material weakness, or could result in material misstatements in our Consolidated Financial Statements. These misstatements could result in a restatement of our Consolidated Financial Statements, cause us to fail to meet our reporting obligations and/or cause investors to lose confidence in our reported financial information, leading to a decline in our stock price.
Risks Related to Our Partner Companies
Most of our partner companies have a history of operating losses and/or limited operating history and may never be profitable.
Most of our partner companies have a history of operating losses and/or limited operating history, have significant historical losses and may never be profitable. Many have incurred substantial costs to develop and market their products, have incurred net losses and cannot fund their cash needs from operations. We expect that the operating expenses of certain of our partner companies will increase substantially in the foreseeable future as they continue to develop products and services, increase sales and marketing efforts, and expand operations.
Our partner companies face intense competition, which could adversely affect their business, financial condition, results of operations and prospects for growth.
There is intense competition in the technology and healthcare marketplaces, and we expect competition to intensify in the future. Our business, financial condition, results of operations and prospects for growth will be materially adversely affected if our partner companies are not able to compete successfully. Many of the present and potential competitors may have greater

34

financial, technical, marketing and other resources than those of our partner companies. This may place our partner companies at a disadvantage in responding to the offerings of their competitors, technological changes or changes in client requirements. Also, our partner companies may be at a competitive disadvantage because many of their competitors have greater name recognition, more extensive client bases and a broader range of product offerings. In addition, our partner companies may compete against one another.
The success or failure of many of our partner companies is dependent upon the ultimate effectiveness of newly-created information technologies, medical devices, healthcare diagnostics, etc.
Our partner companies’ business strategies are often highly dependent upon the successful launch and commercialization of an innovative information technology, medical device, healthcare diagnostic, or similar device or technology. Despite all of our efforts to understand the research and development underlying the innovation or creation of such technologies before we deploy capital into a partner company, sometimes the performance of the technology or device does not match our expectations or those of our partner company. In those situations, it is likely that we will incur a partial or total loss of the capital which we deployed in such partner company.
Our partner companies may fail if they do not adapt to changing marketplaces.
If our partner companies fail to adapt to changes in technology and customer and supplier demands, they may not become or remain profitable. There is no assurance that the products and services of our partner companies will achieve or maintain market penetration or commercial success, or that the businesses of our partner companies will be successful.

The healthcare and technology marketplaces are characterized by:
		
•	rapidly changing technology;	
		
•	evolving industry standards;	
		
•	frequently introducing new products and services;	
		
•	shifting distribution channels;	
		
•	evolving government regulation;	
		
•	frequently changing intellectual property landscapes; and	
		
•	changing customer demands.	
Our future success will depend on our partner companies’ ability to adapt to these evolving marketplaces. They may not be able to adequately or economically adapt their products and services, develop new products and services or establish and maintain effective distribution channels for their products and services. If our partner companies are unable to offer competitive products and services or maintain effective distribution channels, they will sell fewer products and services and forego potential revenue, possibly causing them to lose money. In addition, we and our partner companies may not be able to respond to the marketplace changes in an economically efficient manner, and our partner companies may become or remain unprofitable.
Our partner companies may grow rapidly and may be unable to manage their growth.
We expect some of our partner companies to grow rapidly. Rapid growth often places considerable operational, managerial and financial strain on a business. To successfully manage rapid growth, our partner companies must, among other things:
		
•	improve, upgrade and expand their business infrastructures;	
		
•	scale up production operations;	
		
•	develop appropriate financial reporting controls;	
		
•	attract and maintain qualified personnel; and	
		
•	maintain appropriate levels of liquidity.	
If our partner companies are unable to manage their growth successfully, their ability to respond effectively to competition and to achieve or maintain profitability will be adversely affected.
Based on our business model, some or all of our partner companies will need to raise additional capital to fund their operations at any given time. We may not be able to fund some or all of such amounts and such amounts may not be available from third parties on acceptable terms, if at all.
We cannot be certain that our partner companies will be able to obtain additional financing on favorable terms when needed, if at all. Because our resources and our ability to raise capital are not unlimited, we may not be able to provide partner companies with sufficient capital resources to enable them to reach a cash-flow positive position, even if we wish to do so. General economic disruptions and downturns may also negatively affect the ability of some of our partner companies to fund their operations from other stockholders and capital sources. We also may fail to accurately project the capital needs of partner

35

companies. If partner companies need capital but are not able to raise capital from us or other outside sources, then they may need to cease or scale back operations. In such event, our interest in any such partner company will become less valuable.
Economic disruptions and downturns may negatively affect our partner companies’ plans and their results of operations.
Many of our partner companies are largely dependent upon outside sources of capital to fund their operations. Disruptions in the availability of capital from such sources will negatively affect the ability of such partner companies to pursue their business models and will force such companies to revise their growth and development plans accordingly. Any such changes will, in turn, negatively affect our ability to realize the value of our capital deployments in such partner companies.

In addition, downturns in the economy as well as possible governmental responses to such downturns and/or to specific situations in the economy could affect the business prospects of certain of our partner companies, including, but not limited to, in the following ways: weaknesses in the financial services industries; reduced business and/or consumer spending; and/or systemic changes in the ways the healthcare system operates in the United States.
Some of our partner companies may be unable to protect their proprietary rights and may infringe on the proprietary rights of others.
Our partner companies assert various forms of intellectual property protection. Intellectual property may constitute an important part of partner company assets and competitive strengths. Federal law, most typically copyright, patent, trademark and trade secret laws, generally protects intellectual property rights. Although we expect that our partner companies will take reasonable efforts to protect the rights to their intellectual property, third parties may develop similar intellectual property independently. Moreover, the complexity of international trade secret, copyright, trademark and patent law, coupled with the limited resources of our partner companies and the demands of quick delivery of products and services to market, create a risk that partner company efforts to prevent misappropriation of their technology will prove inadequate.
Some of our partner companies also license intellectual property from third parties and it is possible that they could become subject to infringement actions based upon their use of the intellectual property licensed from those third parties. Our partner companies generally obtain representations as to the origin and ownership of such licensed intellectual property. However, this may not adequately protect them. Any claims against our partner companies’ proprietary rights, with or without merit, could subject the companies to costly litigation and divert their technical and management personnel from other business concerns. If our partner companies incur costly litigation and their personnel are not effectively deployed, the expenses and losses incurred by our partner companies will increase and their profits, if any, will decrease.
Third parties have and may assert infringement or other intellectual property claims against our partner companies based on their patents or other intellectual property claims. Even though we believe our partner companies’ products do not infringe any third party’s patents, they may have to pay substantial damages, possibly including treble damages, if it is ultimately determined that they do. They may have to obtain a license to sell their products if it is determined that their products infringe on another person’s intellectual property. Our partner companies might be prohibited from selling their products before they obtain a license, which, if available at all, may require them to pay substantial royalties. Even if infringement claims against our partner companies are without merit, defending these types of lawsuits takes significant time, is expensive and may divert management attention from other business concerns.
Certain of our partner companies could face legal liabilities from claims made against their operations, products or work.
Because manufacture and sale of certain partner company products entail an inherent risk of product liability, certain partner companies maintain product liability insurance. Although none of our current partner companies have experienced any material losses in this regard, there can be no assurance that they will be able to maintain or acquire adequate product liability insurance in the future and any product liability claim could have a material adverse effect on a partner company’s financial stability, revenues and results of operations. In addition, many of the engagements of our partner companies involve projects that are critical to the operation of their clients’ businesses. If our partner companies fail to meet their contractual obligations, they could be subject to legal liability, which could adversely affect their business, operating results and financial condition. Partner company contracts typically include provisions designed to limit their exposure to legal claims relating to their services and products. However, these provisions may not protect our partner companies or may not be enforceable. Also, some of our partner companies depend on their relationships with their clients and their reputation for high-quality services and integrity to retain and attract clients. As a result, claims made against our partner companies’ work may damage their reputation, which in turn could impact their ability to compete for new work and negatively impact their revenue and profitability.

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Our partner companies’ success depends on their ability to attract and retain qualified personnel.
Our partner companies depend upon their ability to attract and retain senior management and key personnel, including trained technical and marketing personnel. Our partner companies also will need to continue to hire additional personnel as they expand. Although our partner companies have not been the subject of a work stoppage, any future work stoppage could have a material adverse effect on their respective operations. A shortage in the availability of the requisite qualified personnel or work stoppage would limit the ability of our partner companies to grow, to increase sales of their existing products and services, and to launch new products and services.

Government regulations and legal uncertainties may place financial burdens on the businesses of our partner companies.
Failure to comply with applicable requirements of the FDA or comparable regulation in foreign countries can result in fines, recall or seizure of products, total or partial suspension of production, withdrawal of existing product approvals or clearances, refusal to approve or clear new applications or notices and criminal prosecution. Manufacturers of pharmaceuticals and medical diagnostic devices and operators of laboratory facilities are subject to strict federal and state regulation regarding validation and the quality of manufacturing and laboratory facilities. Failure to comply with these quality regulation systems requirements could result in civil or criminal penalties or enforcement proceedings, including the recall of a product or a “cease distribution” order. The enactment of any additional laws or regulations that affect healthcare insurance policy and reimbursement (including Medicare reimbursement) could negatively affect some of our partner companies. If Medicare or private payers change the rates at which our partner companies or their customers are reimbursed by insurance providers for their products, such changes could adversely impact our partner companies.
Some of our partner companies may be subject to significant environmental, health and safety regulation.
Some of our partner companies may be subject to licensing and regulation under federal, state and local laws and regulations relating to the protection of the environment and human health and safety, including laws and regulations relating to the handling, transportation and disposal of medical specimens, infectious and hazardous waste and radioactive materials, as well as to the safety and health of manufacturing and laboratory employees. In addition, the federal Occupational Safety and Health Administration has established extensive requirements relating to workplace safety. Compliance with such regulations could increase operating costs at certain of our partner companies, and the failure to comply could negatively affect the operations and results of some of our partner companies.
Catastrophic events may disrupt our partner companies’ businesses.
Some of our partner companies are highly automated businesses and rely on their network infrastructure, various software applications and many internal technology systems and data networks for their customer support, development, sales and marketing and accounting and finance functions. Further, some of our partner companies provide services to their customers from data center facilities in multiple locations. Some of these data centers are operated by third parties, and the partner companies have limited control over those facilities. A disruption or failure of these systems or data centers in the event of a natural disaster, telecommunications failure, power outage, cyber-attack, war, terrorist attack or other catastrophic event could cause system interruptions, reputational harm, delays in product development, breaches of data security and loss of critical data. Such an event could also prevent the partner companies from fulfilling customer orders or maintaining certain service level requirements, particularly in respect of their SaaS offerings. While certain of our partner companies have developed certain disaster recovery plans and maintain backup systems to reduce the potentially adverse effect of such events, a catastrophic event that resulted in the destruction or disruption of any of their data centers or their critical business or information technology systems could severely affect their ability to conduct normal business operations and, as a result, their business, operating results and financial condition could be adversely affected.
We cannot provide assurance that our partner companies’ disaster recovery plans will address all of the issues they may encounter in the event of a disaster or other unanticipated issue, and their business interruption insurance may not adequately compensate them for losses that may occur from any of the foregoing. In the event that a natural disaster, terrorist attack or other catastrophic event were to destroy any part of their facilities or interrupt their operations for any extended period of time, or if harsh weather or health conditions prevent them from delivering products in a timely manner, their business, financial condition and operating results could be adversely affected.

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Risks Related to Initiatives Outside Our Core Business
Our involvement in the mezzanine lending industry through our relationship with Penn Mezzanine could expose us to risks that differ from, and may be in addition to, to the risks that otherwise relate to our other business initiatives.
Borrowers may default on their payments, which may have a negative effect on our financial performance.
Through our relationship with Penn Mezzanine, we participate in long-term loans and in equity securities primarily in private middle-market companies, which may involve a high degree of repayment risk. These borrowers may have limited financial resources, may be highly leveraged and may be unable to obtain financing from traditional sources. Numerous factors may affect a borrower’s ability to repay its loan, including the failure to meet its business plan, a downturn in its industry or negative economic conditions. A borrower’s failure to satisfy financial or operating covenants imposed by Penn Mezzanine or other lenders could lead to defaults and, potentially, termination of its loans or foreclosure on its secured assets, which could trigger cross defaults under other agreements and jeopardize such borrower’s ability to meet its obligations under the participations in loans or debt interests that we hold. In addition, such borrowers may have, or may be permitted to incur, other debt that ranks senior to or equally with our interests. This means that payments on such senior-ranking securities may have to be made before we receive any payments on our interests in subordinated loans or other debt securities. Deterioration in a borrower’s financial condition and prospects may be accompanied by deterioration in any related collateral and may have a negative effect on our financial results.

We may become subject to additional laws and regulations, including the laws and regulations of other countries, as we engage in platform expansion activities.
In connection with our platform expansion activities, we may manage the deployment of capital that originates other than on our balance sheet, which could include capital originating from international sources. If we were engaged in such activities, we could become subject to additional laws and regulations, including the laws and regulations of countries other than the United States, which could increase our expenses and the costs associated with legal and regulatory compliance as well as the risk of noncompliance.
Subordination
The loans and other vehicles in which we participate will typically be subordinated to the senior obligations of our borrowers (all or a significant portion of which may be secured), either contractually or structurally, in the case of debt securities, or because of the nature of the security, in the case of preferred stock, common stock, warrants or other equity securities. Such subordinated instruments may be characterized by greater credit risk than those associated with senior obligations of the same borrower. Adverse changes in the financial condition of a borrower, general economic conditions, or both may impair the ability of such borrower to make payments on the subordinated instruments and result in defaults on such instruments more quickly than in the case of the senior obligations of such borrower.
Debt securities
Our participation in debt instruments and obligations entails normal credit risks ( i.e ., the risk of non-payment of interest and principal), as well as other creditor risks, including (i) the possible invalidation of an investment transaction as a “fraudulent conveyance” under relevant creditors’ rights laws, (ii) so-called “lender liability” claims by the borrower, and (iii) environmental liabilities that may arise with respect to collateral securing the obligations. A debt instrument or obligation may also be subject to prepayment or redemption at the option of the borrower. Pursuant to rights granted to Penn Mezzanine by borrowers, Penn Mezzanine will often oversee or play a role in the management of its borrowers. If a court were to find that Penn Mezzanine’s influence on the management of a borrower caused the borrower to take actions that were in Penn Mezzanine’s interests and not in the best interests of the creditors and stockholders of the borrower as a whole, the court could cause Penn Mezzanine’s claims, which normally would be subordinated only to any senior debt of the borrower, to be subordinated to the claims of all creditors of the borrower and, in certain circumstances, the claims of the stockholders. Since we participate in the loans and other transactions entered into by Penn Mezzanine, we would be adversely affected by any such circumstance.
Leverage
Our Penn Mezzanine participations include borrowers with significant levels of debt. Such situations are inherently more sensitive than others to declines in revenues and to increases in expenses and interest rates. The leveraged capital structure of such borrowers will increase the exposure of those borrowers to bad business planning, adverse economic factors (or other factors) such as downturns in the economy or deterioration in the condition of the borrower or its industry. Because these

38

participations involve subordinated obligations, among the most junior in a borrower’s capital structure, the inability of a borrower to service its debt obligations could result in a loss of our principal.
Minority positions
The loans in which we participate generally represent minority interests in borrowers. Penn Mezzanine will not likely be able to control or exercise substantial influence over such borrowers.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
At June 30, 2014 , we had $55.0 million outstanding of our 5.25% convertible senior debentures due May 15, 2018.

																																	
Liabilities	 	Remainder of 2014	 	2015	 	2016	 	2017	 	2018	 	Thereafter	 	Total	 	Fair
Value at June 30, 2014	
2018 Debentures due by year (in millions)	 	$	—		 	$	—		 	$	—		 	$	—		 	$	55.0		 	$	—		 	$	55.0		 	$	73.1		
Fixed interest rate	 	5.25	%	 	5.25	%	 	5.25	%	 	5.25	%	 	5.25	%	 	 	 	5.25	%	 	 	
Item 4.   Controls and Procedures
(a) Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures as of June 30, 2014 are functioning effectively to provide reasonable assurance that the information required to be disclosed by us in reports filed under the Securities Exchange Act of 1934 is (i) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and (ii) accumulated and communicated to our management, including the Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding disclosure. A controls system cannot provide absolute assurance that the objectives of the controls system are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected.
(b) Change in Internal Control over Financial Reporting
No change in our internal control over financial reporting occurred during our most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
PART II
OTHER INFORMATION
Item  1. Legal Proceedings
None   

Item 1A. Risk Factors
There have been no material changes in our risk factors from the information set forth above under the heading “Factors That May Affect Future Results” and in our Annual Report on Form 10-K for the year ended December 31, 2013.

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Item  2. Unregistered Sales of Equity Securities and Use of Proceeds
The following table provides information about our purchases of equity securities registered pursuant to Section 12 of the Securities Exchange Act of 1934, as amended, during the quarter ended June 30, 2014 :

														
Period	Total Number
of Shares
Purchased	 	Average
Price Paid
Per Share	 	Total Number of Shares
Purchased as Part of
Publicly Announced
Plan	 	Maximum Number (or Approximate Dollar Value) of
Shares that May Yet Be
Purchased Under the
Plan (a)	
April 1, 2014 - April 30, 2014	704,464		 	$	21.0526		 	1,092,868		 	$	2,140,253		
May 1, 2014 - May 31, 2014	101,445		 	$	21.0974		 	1,194,313		 	$	—		

(a) In February 2014, our Board of Directors increased the authorized amount of repurchases to $25.0 million. These repurchases may be made in open market or privately negotiated transactions, including under plans complying with Rule 10b5-1 of the Securities Exchange Act, based on market conditions, stock price, and other factors. The share repurchase program did not obligate the Company to acquire any specific number of shares. This share repurchase program was completed in May 2014.

Item  3. Defaults Upon Senior Securities
None

Item 4. Mine Safety Disclosures
Not applicable  

Item 5. Other Information
None

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Item 6.   Exhibits
(a) Exhibits.
The following is a list of exhibits required by Item 601 of Regulation S-K to be filed as part of this Report. For exhibits that previously have been filed, the Registrant incorporates those exhibits herein by reference. Documents which are incorporated by reference to filings by parties other than the Registrant are identified in a footnote to this table.

				
Exhibit Number	      	Description	   	
   	   	   	   	
10.1 † *	 	Safeguard Scientifics, Inc. 2014 Equity Compensation Plan	 	
 	 	 	 	
31.1 †	      	Certification of Stephen T. Zarrilli pursuant to Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934.	      	
   	   	   	   	
31.2 †	      	Certification of Jeffrey B. McGroarty pursuant to Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934.	      	
   	   	   	   	
32.1 ‡	      	Certification of Stephen T. Zarrilli pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.	      	
   	   	   	   	
32.2 ‡	      	Certification of Jeffrey B. McGroarty pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.	      	
   	   	   	   	
101  	      	The following materials from Safeguard Scientifics, Inc. Quarterly Report on Form 10-Q for the quarter ended June 30, 2014, formatted in XBRL (eXtensible Business Reporting Language); (i) Consolidated Balance Sheets (unaudited) – June 30, 2014 and December 31, 2013; (ii) Consolidated Statements of Operations (unaudited) – Three and six months ended June 30, 2014 and 2013; (iii) Consolidated Statements of Comprehensive Income (Loss) (unaudited) – Three and six months ended June 30, 2014 and 2013; (iv) Condensed Consolidated Statements of Cash Flows (unaudited) – Six months ended June 30, 2014 and 2013; (v) Consolidated Statement of Changes in Equity (unaudited) – Six months ended June 30, 2014; and (vi) Notes to Consolidated Financial Statements (unaudited).	      	

	
		
†	Filed herewith	

		
‡	Furnished herewith	

		
*	These exhibits relate to management contracts or compensatory plans, contracts or arrangements in which directors and/or executive officers of the Registrant may participate.	

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SIGNATURES
Pursuant to the requirements of 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.

	
			
   	 	SAFEGUARD SCIENTIFICS, INC.	
Date:	July 25, 2014	/s/    Stephen T. Zarrilli        	
   	 	Stephen T. Zarrilli	
   	 	President and Chief Executive Officer	
Date:	July 25, 2014	/s/    Jeffrey B. McGroarty        	
   	 	Jeffrey B. McGroarty	
   	 	Senior Vice President and Chief Financial Officer	

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SAFEGUARD SCIENTIFICS, INC.
2014 EQUITY COMPENSATION PLAN

As Amended and Restated Effective March 5, 2014,
Subject to Approval by the Company’s Stockholders

1.	Purpose	
The purpose of the Safeguard Scientifics, Inc. 2014 Equity Compensation Plan, as amended and restated, is to provide (i) designated Company employees, (ii) certain advisors who perform services for the Company, and (iii) Nonemployee Directors with the opportunity to receive grants of incentive stock options, nonqualified stock options, stock units, stock appreciation rights, performance units, stock awards, dividend equivalents and other stock-based awards. The Company believes that the Plan will encourage the participants to contribute materially to the Company’s growth, thereby benefiting the Company’s stockholders, and will align the economic interests of the participants with those of the stockholders. The Plan was originally established by the Company’s Board of Directors effective April 6, 2004 and approved by the stockholders on June 11, 2004. The Plan was amended and restated effective October 21, 2008 to reflect the applicable requirements of Section 409A of the Internal Revenue Code of 1986, as amended (“Code”) and to make certain other clarifying changes. The Plan was again amended and restated effective July 13, 2009, to reflect an increase in the number of shares of Stock authorized for issuance hereunder, and to make clarifying changes and certain other changes. Subject to approval by the stockholders of the Company, the Plan is hereby amended and restated to (i) change the name of the Plan from the 2004 Equity Compensation Plan to the 2014 Equity Compensation Plan, (ii) reflect an increase in the number of shares of Stock authorized for issuance hereunder, (iii) add an annual limit for the number of shares of Stock that may be subject to Grants made to Nonemployee Directors, (iv) revise the share counting methodology under the Plan, and (v) make certain other changes.

2.	Definitions	
Whenever used in this Plan, the following terms will have the respective meanings set forth below:

(a) “Board” means the Company’s Board of Directors as constituted from time to time.
(b) “Change of Control” means the first to occur of any of the following events:
(i) An acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act) (a “Person”) of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 20% or more of either (1) the then outstanding shares of Common Stock of the Company (“Common Stock”) or (2) the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of directors (the “Outstanding Company Voting Securities”) (a “Control Purchase”); excluding, however, the following: (A) any acquisition directly from the Company, other than an acquisition by virtue of the exercise of a conversion privilege unless the security being so converted was itself acquired directly from the Company; (B) any acquisition by the Company; (C) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company; or (D) any acquisition by any corporation pursuant to a transaction which complies with clauses (1), (2) and (3) of subsection (iii) of this definition; provided, however, that notwithstanding the foregoing, a Change of Control shall not be deemed to occur solely because any Person acquires beneficial ownership of more than 20% of the Common Stock or the Outstanding Company Voting Securities as a result of the acquisition of Common Stock or Outstanding Company Voting Securities by the Company which reduces the amount of Common Stock or Outstanding Company Voting Securities; provided, that if after such acquisition by the Company such Person becomes the beneficial owner of additional Common Stock or Outstanding Company Voting Securities that increases the percentage of Common Stock or Outstanding Company Voting Securities beneficially owned by such Person, a Change of Control shall then occur; or

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(ii) A change in the composition of the Board such that the individuals who, as of the Effective Date, constitute the Board (such Board shall be hereinafter referred to as the “Incumbent Board”) cease for any reason to constitute at least a majority of the Board; provided, however, for purposes of this subsection (ii), that any individual who becomes a member of the Board subsequent to the Effective Date, whose election, or nomination for election by the Company’s stockholders, was approved by a vote of at least a majority of those individuals who are members of the Board and who were also members of the Incumbent Board (or whose membership on the Board was so approved by a board which itself consisted of a majority of directors elected by the Incumbent Board) shall be considered as though such individual were a member of the Incumbent Board; but, provided further, that any such individual whose initial assumption of office occurs as a result of either an actual or threatened election contest (as such terms are used in Rule 14a-11 of Regulation 14A promulgated under the Exchange Act) or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board shall not be so considered as a member of the Incumbent Board; or
(iii) Consummation of a reorganization, merger or consolidation or sale or other disposition of all or substantially all of the assets of the Company (“Corporate Transaction”); excluding, however, such a Corporate Transaction pursuant to which (1) all or substantially all of the individuals and entities who are the beneficial owners, respectively, of the Common Stock and Outstanding Company Voting Securities immediately prior to such Corporate Transaction will beneficially own, directly or indirectly, more than 50% of, respectively, the outstanding shares of common stock and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the corporation resulting from such Corporate Transaction (including, without limitation, a corporation which as a result of such transaction owns the Company or all or substantially all of the Company’s assets either directly or through one or more subsidiaries) in substantially the same proportions as their ownership, immediately prior to such Corporate Transaction, of the Common Stock and Outstanding Company Voting Securities, as the case may be, (2) no Person (other than the Company, any employee benefit plan (or related trust) of the Company or such corporation resulting from such Corporate Transaction) will beneficially own, directly or indirectly, 20% or more of, respectively, the outstanding shares of common stock of the corporation resulting from such Corporate Transaction or the combined voting power of the outstanding voting securities of such corporation entitled to vote generally in the election of directors except to the extent that such ownership existed prior to the Corporate Transaction, and (3) individuals who were members of the Incumbent Board will constitute at least a majority of the members of the board of directors of the corporation resulting from such Corporate Transaction; or
(iv) The approval by the stockholders of the Company of a complete liquidation or dissolution of the Company.
(v) Notwithstanding the foregoing, the Committee may modify the definition of Change of Control for a particular Grant as the Committee deems appropriate to comply with Code Section 409A.
(c)     “Code” means the Internal Revenue Code of 1986, as amended, and the regulations promulgated thereunder.
(d)     “Committee” means (i) with respect to Grants to Employees and Key Advisors, the Compensation Committee of the Board or its delegate or successor, or such other committee appointed by the Board to administer the Plan or its delegate or its successor, (ii) with respect to Grants made to Nonemployee Directors, the Board or its delegate, and (iii) with respect to Grants designated as “qualified performance-based compensation” under Code Section 162(m), a committee that consists of two or more persons appointed by the Board, all of whom shall be “outside directors” as defined under Code Section 162(m).

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(e)     “Company” means Safeguard Scientifics, Inc., any successor corporation, each corporation which is a member of a controlled group of corporations (within the meaning of Code Section 414(b)) of which the Company is a component member, any subsidiary at least 50% directly or indirectly owned by Safeguard Scientifics, Inc. (or any successor thereto) and any affiliate entity which, with the approval of the Committee, is deemed to constitute an entity controlled by Safeguard Scientifics, Inc.
(f)     “Date of Grant” means the effective date of a Grant; provided, however, that no retroactive Grants will be made.
(g)     “Dividend Equivalent” means an amount determined by multiplying the number of shares of Stock or Stock Units subject to a Grant by the per-share cash dividend, or the per-share fair market value (as determined by the Committee) of any dividend in consideration other than cash, paid by the Company on its Stock on a dividend payment date, plus any interest earned on such amount.
(h)     “Effective Date ” means March 5, 2014.
(i)     “Employee” means, unless otherwise determined by the Committee, an employee of the Company (including an officer or director who is also an employee) other than an individual (a) employed in a casual or temporary capacity (i.e., those hired for a specific job of limited duration), (b) whose terms of employment are governed by a collective bargaining agreement that does not provide for participation in this Plan, (c) characterized as a “leased employee” within the meaning of Code Section 414(d) who is a non-resident alien, or (d) classified by the Company as a “contractor” or “consultant,” no matter how characterized by the Internal Revenue Service, other governmental agency or a court; provided, however, that the Committee shall have the discretion to determine on a case by case basis whether and to what extent an employee of an affiliate shall be deemed an Employee. Any change of characterization of an individual by any court or government agency shall have no effect upon the classification of an individual as an Employee for purposes of this Plan, unless the Committee determines otherwise.
(j)    “ Employed by, or providing service to, the Company ” shall mean employment or service as an Employee of the Company, Key Advisor, or member of the Board (so that, for purposes of exercising Options and SARs and satisfying conditions with respect to Restricted Stock, Performance Units and Other Stock-Based Grants, a Participant shall not be considered to have terminated employment or service until the Participant ceases to be an Employee of the Company, Key Advisor, and member of the Board), unless the Committee determines otherwise. The Committee’s determination as to a Participant’s employment or other provision of services, termination of employment or cessation of the provision of services, leave of absence, or reemployment shall be conclusive on all persons unless determined to be incorrect.
(k)     “Exchange Act” means the Securities Exchange Act of 1934, as amended.
(l)     “Fair Market Value” means the average of the highest and lowest sales prices of a share of Stock on the New York Stock Exchange on the day on which Fair Market Value is being determined, as reported on the composite tape for transactions on the New York Stock Exchange. In the event that there are no Stock transactions on the New York Stock Exchange on such day, the Fair Market Value will be determined as of the immediately preceding day on which there were Stock transactions on that exchange. Notwithstanding the foregoing, in the case of a cashless exercise pursuant to Section 8(g), the Fair Market Value will be the actual sale price of the shares issued upon exercise of the Option.
(m)     “Grant” means an Option, Stock Unit, Performance Unit, Stock Award, Dividend Equivalent, Stock Appreciation Right or Other Stock-Based Award granted under the Plan.

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(n)     “Grant Instrument” means the written agreement that sets forth the terms and conditions of a Grant, including all amendments thereto.
(o)     “Incentive Stock Option” means a stock option that is intended to meet the requirements of Code Section 422, as described in Section 8.
(p)     “Nonemployee Director” means a member of the Board who is not an employee of the Company.
(q)     “Nonqualified Stock Option” means a stock option that is not intended to meet the requirements of Code Section 422, as described in Section 8.
(r)     “Option” means an Incentive Stock Option or Nonqualified Stock Option to purchase Stock at the Option Price for a specified period of time.
(s)     “Option Price” means an amount per share of Stock purchasable under an Option, as designated by the Committee.
(t)     “Other Stock-Based Award” means any Grant based on, measured by or payable in Stock (other than Grants described in Sections 7, 8, 9, 10, 11 and 12 of the Plan) as described in Section 13.
(u)     “Participant” means an Employee, Nonemployee Director or Key Advisor designated by the Committee to participate in the Plan.
(v)     “Performance Units” mean phantom units, as described in Section 10.
(w)     “Plan” means this 2014 Equity Compensation Plan, as amended and restated, as in effect from time to time.
(x)     “Stock” means the common stock of Safeguard Scientifics, Inc. or such other securities of Safeguard Scientifics, Inc. as may be substituted for Stock pursuant to Section 5(c) or Section 18.
(y)    “ Stock Appreciation Right ” means an award of a stock appreciation right (“SAR”), as described in Section 7.
(z)     “Stock Award” means an award of Stock, as described in Section 11.
(aa)     “Stock Unit” means an award of a phantom unit, representing one or more shares of Stock, as described in Section 9.

3.	Administration	
(a)     Committee . The Plan shall be administered and interpreted by the Committee or its successor; ministerial functions may be performed by an administrative committee comprised of Company employees appointed by the Committee.
(b)     Committee Authority. The Committee shall have the sole authority to (i) determine the individuals to whom Grants shall be made under the Plan, (ii) determine the type, size and terms and conditions of the Grants to be made to each such individual, (iii) determine the time when the Grants will be made and the duration of any applicable exercise or restriction period, including the criteria for exercisability and the acceleration of exercisability, and (iv) amend the terms and conditions of any previously issued Grant, subject to the provisions of Section 21 below, and (v) deal with any other matters arising under the Plan.

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(c)     Committee Determinations. The Committee shall have full power and express discretionary authority to administer and interpret the Plan, to make factual determinations and to adopt or amend such rules, regulations, agreements and instruments for implementing the Plan and for the conduct of its business as it deems necessary or advisable, in its sole discretion. The Committee’s interpretations of the Plan and all determinations made by the Committee pursuant to the powers vested in it hereunder shall be conclusive and binding on all persons having any interest in the Plan or in any awards granted hereunder. All powers of the Committee shall be executed in its sole discretion, in the best interest of the Company, not as a fiduciary, and in keeping with the objectives of the Plan and need not be uniform as to similarly situated individuals.

4.	Grants	
Grants under the Plan may consist of grants of SARs as described in Section 7, Incentive Stock Options and Nonqualified Stock Options as described in Section 8, Stock Units as described in Section 9, Performance Units as described in Section 10, Stock Awards as described in Section 11, Dividend Equivalents as described in Section 12 and Other Stock-Based Awards as described in Section 13. All Grants shall be made conditional upon the Participant’s acknowledgement, in writing or by acceptance of the Grant, that all decisions and determinations of the Committee shall be final and binding on the Participant, his or her beneficiaries and any other person having or claiming an interest under such Grant. Grants under a particular Section of the Plan need not be uniform as among the Participants.

5.	Shares Subject to the Plan	
(a)     Shares Authorized.  Subject to adjustment as described below, as of the Effective Date, the total aggregate number of shares of Stock that may be issued under the Plan is the sum of the following (i) 2,200,000 new shares of Stock, plus (ii) that number of shares of Stock subject to outstanding Grants under the Plan as of March 5, 2014, plus (iii) that number of shares remaining available for issuance under the Plan but not subject to previously exercised, vested or paid Grants as of March 5, 2014. The shares may be authorized but unissued shares of Stock or reacquired shares of Stock, including shares purchased by the Company on the open market for purposes of the Plan. If and to the extent Options granted under the Plan terminate, expire, or are canceled, forfeited, exchanged or surrendered without having been exercised or if any SARs, Stock Awards, Stock Units, Performance Units, Dividend Equivalents or Other Stock-Based Awards are forfeited or terminated, the shares subject to such Grants shall again be available for purposes of the Plan. Shares of Stock surrendered or withheld in payment of the Option Price of an Option or any withholding taxes with respect to any Grant, shall not be available for issuance or transfer under the Plan. If SARs are exercised, the full number of shares subject to the SARs shall be considered issued under the Plan, without regard to the number of shares of Stock issued upon settlement of the SARs and without regard to any cash settlement of the SARs. To the extent that any other Grants are paid in cash, and not in shares of Stock, any shares previously reserved for issuance or transfer under the Plan with respect to such Grants shall again be available for issuance or transfer under the Plan. The preceding sentences of this Section shall apply only for purposes of determining the aggregate number of shares of Stock that may be issued under this Plan, but shall not apply for purposes of determining the maximum number of shares of Stock with respect to which Grants may be made to any Participant under this Plan. For the avoidance of doubt, if shares of Stock are repurchased by the Company on the open market with the proceeds of the Option Price of Options, such shares may not again be made available for issuance under this Plan.
(b)     Individual Limits . Grants under the Plan may be expressed in cash, in shares of Stock or in a combination of the two, as the Committee determines. The maximum aggregate number of shares of Stock that shall be subject to Grants made under the Plan to any individual (other than a Nonemployee Director) during any calendar year shall be 250,000 shares, subject to adjustment as described below. A Participant may not accrue Dividend Equivalents during any calendar year in excess of $500,000. To the extent that Grants made under the Plan are expressed in dollar amounts, the maximum amount payable to any individual during any calendar year shall be $1,000,000. Notwithstanding anything to contrary herein, the maximum aggregate number of shares of Stock

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that shall be subject to Grants made under the Plan to any individual Nonemployee Director during any calendar year shall be 50,000, subject to adjustment as described below.
(c)     Adjustments.  If there is any change in the number or kind of shares of Stock outstanding (i) by reason of a stock dividend, spinoff, recapitalization, stock split or combination or exchange of shares, (ii) by reason of a merger, reorganization or consolidation, (iii) by reason of a reclassification or change in par value, or (iv) by reason of any other extraordinary or unusual event affecting the outstanding Stock as a class without the Company’s receipt of consideration, or if the value of outstanding shares of Stock is substantially reduced as a result of a spinoff or the Company’s payment of an extraordinary dividend or distribution, the maximum number of shares of Stock available for issuance under the Plan, the maximum number of shares of Stock with respect to which any individual may receive Grants in any year, the kind and number of shares covered by outstanding Grants, the kind and number of shares issued and to be issued under the Plan, and the price per share or the applicable market value of such Grants shall be equitably adjusted by the Committee, as the Committee deems appropriate, to reflect any increase or decrease in the number of, or change in the kind or value of, issued shares of Stock to preclude, to the extent practicable, the enlargement or dilution of rights and benefits under such Grants; provided, however, that any fractional shares resulting from such adjustment shall be eliminated by rounding any portion of a share down to the nearest whole number. In addition, the Committee shall have discretion to make the foregoing equitable adjustments in any circumstances in which an adjustment is not mandated by this subsection (c) or applicable law, including in the event of a Change of Control. Any adjustments to outstanding Grants shall be consistent with Code Sections 409A or 422, to the extent applicable. Any adjustments determined by the Committee shall be final, binding and conclusive.

6.	Eligibility for Participation	
(a)     Eligible Persons . All Employees, including Employees who are officers or members of the Board, and all Nonemployee Directors shall be eligible to participate in the Plan. Advisors who perform services at the Company’s request (“Key Advisors”) shall be eligible to participate in the Plan.
(b)     Selection of Participants . The Committee shall select the eligible parties to receive Grants and shall determine the number of shares of Stock subject to each Grant.

7.	Stock Appreciation Rights	
(a)     General Requirements . The Committee may grant SARs to Employees, Nonemployee Directors and Key Advisors separately or in tandem with any Option (for all or a portion of the applicable Option). Tandem SARs may be granted either at the time the Option is granted or at any time thereafter while the Option remains outstanding; provided, however, that, in the case of an Incentive Stock Option, SARs may be granted only at the time of the Grant of the Incentive Stock Option. The Committee shall establish the base amount of the SAR at the time the SAR is granted. Unless the Committee determines otherwise, the base amount of each SAR shall be equal to the per share Option Price of the related Option or, if there is no related Option, the Fair Market Value of a share of Stock as of the Date of Grant of the SAR. In no event shall the base amount of the SAR be less than the Fair Market Value of a share of Stock as of the Date of Grant of the SAR.
(b)     Tandem SARs . In the case of tandem SARs, the number of SARs granted to a Participant that shall be exercisable during a specified period shall not exceed the number of shares of Stock that the Participant may purchase upon the exercise of the related Option during such period. Upon the exercise of an Option, the SARs relating to the Stock purchased pursuant to such Option shall terminate. Upon the exercise of SARs, the related Option shall terminate to the extent of an equal number of shares of Stock.
(c)     Exercisability . A SAR shall be exercisable during the period specified by the Committee in the Grant Instrument and shall be subject to such vesting and other restrictions as may be specified in the Grant

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Instrument. The Committee may accelerate the exercisability of any or all outstanding SARs at any time for any reason. SARs may only be exercised while the Participant is employed by, or providing service to, the Company or during the applicable period after termination of employment. A tandem SAR shall be exercisable only during the period when the Option to which it is related is also exercisable. No SAR may be exercised for cash by an officer or director of the Company or any of its subsidiaries who is subject to Section 16 of the Exchange Act, except in accordance with Rule 16b‑3 under the Exchange Act.
(d)     Value of SARs . When a Participant exercises SARs, the Participant shall receive in settlement of such SARs an amount equal to the value of the stock appreciation for the number of SARs exercised, payable in cash, Stock or a combination thereof, as determined by the Committee. The stock appreciation for a SAR is the amount by which the Fair Market Value of the underlying Stock on the date of exercise of the SAR exceeds the base amount of the SAR as described in Subsection (a).
(e)     Form of Payment . The Committee shall determine whether the appreciation in a SAR shall be paid in the form of cash, shares of Stock, or a combination of the two, in such proportion as the Committee deems appropriate. For purposes of calculating the number of shares of Stock to be received, shares of Stock shall be valued at their Fair Market Value on the date of exercise of the SAR. If shares of Stock are to be received upon exercise of a SAR, cash shall be delivered in lieu of any fractional share.

8.	Options	
(a)     General Requirements. The Committee may grant Options to Employees, Nonemployee Directors and Key Advisors upon such terms and conditions as the Committee deems appropriate under this Section 8.
(b)     Number of Shares. The Committee shall determine the number of shares of Stock that will be subject to each Grant of Options.
(c)     Type of Option and Price.
(i)    The Committee may grant Incentive Stock Options or Nonqualified Stock Options, or any combination of Incentive Stock Options and Nonqualified Stock Options. Incentive Stock Options may be granted only to Employees of the Company or its parents or subsidiaries, as defined in Code Section 424. Nonqualified Stock Options may be granted to Employees, Nonemployee Directors and Key Advisors. If an Option is not specifically designated as an Incentive Stock Option, then the Option shall be a Nonqualified Stock Option.
(ii)    The Option Price shall be determined by the Committee and may be equal to or greater than the Fair Market Value of a share of Stock on the Date of Grant; provided, however, that an Incentive Stock Option may not be granted to an Employee who, on the Date of Grant, owns stock possessing more than 10% of the total combined voting power of all classes of stock of the Company or any parent or subsidiary of the Company, as defined in Code Section 424, unless the Option Price per share is not less than 110% of the Fair Market Value of a share of Stock on the Date of Grant.
(d)     Option Term . The Committee shall determine the term of each Option. The term of an Option shall not exceed ten years from the Date of Grant. However, an Incentive Stock Option that is granted to an Employee who, on the Date of Grant, owns stock possessing more than 10% of the total combined voting power of all classes of stock of the Company, or any parent or subsidiary of the Company, as defined in Code Section 424, may not have a term that exceeds five years from the Date of Grant.
(e)     Exercisability of Options.  Options shall become exercisable in accordance with such terms and conditions, as may be determined by the Committee and specified in the Grant Instrument. The

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Committee may accelerate the exercisability of any or all outstanding Options at any time for any reason. With the consent of the Committee, an Option may be exercised at a time prior to the time at which the Option would otherwise be fully exercisable, in which event the Participant shall receive shares of restricted stock (or be granted interests in restricted shares in a book entry system) on such terms and conditions as shall be determined by the Committee.
(f)     Termination of Employment or Service . Except as provided in the Grant Instrument, or as otherwise may be determined by the Committee in its discretion, an Option may only be exercised while the Participant is employed by, or providing service to, the Company. The Committee shall specify in the Grant Instrument under what circumstances and during what time periods a Participant may exercise an Option after termination of employment or service.
(g)     Exercise of Options . A Participant may exercise an Option that has become exercisable, in whole or in part, by delivering a notice of exercise to the Company or its designated agent. The Participant shall pay the Option Price and any withholding taxes for the Option:
(i)    in cash,
(ii)    with the approval of the Committee, by delivering shares of Stock owned by the Participant (including Stock acquired in connection with the exercise of an Option, subject to such restrictions as the Committee deems appropriate) and having an aggregate Fair Market Value on the date of exercise equal to the aggregate Option Price, or by attestation (on a form prescribed by the Committee) to ownership of shares of Stock having an aggregate Fair Market Value on the date of exercise equal to the aggregate Option Price,
(iii)    by payment through a broker, provided the payment is made in accordance with procedures permitted by Regulation T of the Federal Reserve Board and such procedures do not violate applicable law, as determined by the Committee in its sole discretion, or
(iv)    by such other method as the Committee may approve.
Shares of Stock used to exercise an Option shall have been held by the Participant for the requisite period of time to avoid adverse accounting consequences to the Company with respect to the Option. Payment for the shares pursuant to the Option, and any required withholding taxes, must be received by the time specified by the Committee depending on the type of payment being made.

(h)     Limits on Incentive Stock Options . Each Incentive Stock Option shall provide that if the aggregate Fair Market Value on the Date of Grant with respect to which Incentive Stock Options are exercisable for the first time by a Participant during any calendar year, under the Plan or any other stock option plan of the Company or a parent or subsidiary, as defined in Code Section 424, exceeds $100,000, then the Option, as to the excess, shall be treated as a Nonqualified Stock Option. An Incentive Stock Option shall not be granted to any person who is not an Employee of the Company or a parent or subsidiary, as defined in Code Section 424.

9.	Stock Units	
(a)     General Requirements. The Committee may grant Stock Units to Employees, Nonemployee Directors and Key Advisors, upon such terms and conditions as the Committee deems appropriate under this Section 9. Each Stock Unit shall represent the right of the Participant to receive a share of Stock or an amount based on the value of a share of Stock. All Stock Units shall be credited to accounts on the Company’s records for purposes of the Plan.

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(b)     Terms of Stock Units.  The Committee may grant Stock Units that are payable if specified performance goals or other conditions are met, or under other circumstances. Stock Units may be paid at the end of a specified period, or payment may be deferred to a date authorized by the Committee. The Committee shall determine the number of Stock Units to be granted, the requirements applicable to such Stock Units, and to the extent required by Code Section 409A, the specified payment events on which the Stock Units will be payable. Pursuant to the requirements of Section 12, the Committee may grant Dividend Equivalents with respect to Stock Units.
(c)     Payment with respect to Stock Units.  Payment with respect to Stock Units shall be made in cash, in Stock, or in a combination of the two, as determined by the Committee.
(d)     Requirement of Employment, Service or Other Action. If a Participant ceases to be employed by, or providing service to the Company, or if other conditions established by the Committee are not met, the Participant’s unvested or contingent Stock Units shall be forfeited. The Committee may grant Stock Units contingent upon the Participant’s taking certain specified actions as the Committee sees fit, including, but not limited to, deferral of compensation by the Participant. The Committee may provide for complete or partial exceptions to the employment or service requirement as it deems appropriate.

10.	Performance Units	
(a)     General Requirements. The Committee may grant Performance Units to an Employee or Nonemployee Director, upon such terms and conditions as the Committee deems appropriate under this Section 10. Each Performance Unit shall represent the right of the Participant to receive a share of Stock or an amount based on the value of a share of Stock, if specified performance goals are met. All Performance Units shall be credited to accounts on the Company’s records for purposes of the Plan.
(b)     Terms of Performance Units. The Committee shall establish the performance goals and other conditions for payment of Performance Units. Performance Units may be paid at the end of a specified performance or other period, or payment may be deferred to a date authorized by the Committee. The Committee shall determine the number of Performance Units to be granted, the requirement applicable to such Performance Units, and to the extent required by Code Section 409A, the specified payment events on which the Performance Units will be paid. Pursuant to Section 12, the Committee may grant Dividend Equivalents with respect to Performance Units.
(c)     Payment with respect to Performance Units . At the end of each performance period, the Committee shall determine to what extent the performance goals and other conditions of the Performance Units have been met and the amount, if any, to be paid with respect to the Performance Units. Payments with respect to Performance Units shall be made in cash, in Stock, or in a combination of the two, as determined by the Committee. Payment of Performance Units shall be made as set forth in the Grant Instrument, and, if applicable, shall be structured to comply with Code Section 409A.
(d)     Requirement of Employment or Service.  If a Participant ceases to be employed by, or providing service to the Company, or if other conditions established by the Committee are not met, the Participant’s Performance Units shall be forfeited. The Committee may provide for complete or partial exceptions to the employment or service requirement as it deems appropriate.

11.	Stock Awards	
(a)     General Requirements.  The Committee may issue or transfer shares of Stock to an Employee or Nonemployee Director under a Stock Award, upon such terms and conditions as the Committee deems appropriate under this Section 11. Shares of Stock issued or transferred pursuant to Stock Awards may be issued or

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transferred for consideration or for no consideration (except as required by applicable law), and subject to restrictions or no restrictions, as determined by the Committee. The Committee may establish conditions under which restrictions on Stock Awards shall lapse over a period of time or according to such other criteria as the Committee deems appropriate, including restrictions based upon the achievement of specific performance goals. The period of time during which the Stock Award will remain subject to restrictions, if any, will be designated in the Grant Instrument as the “Restriction Period.”
(b)     Number of Shares. The Committee shall determine the number of shares of Stock to be issued or transferred pursuant to a Stock Award and any restrictions applicable to such shares.
(c)     Requirement of Employment or Service.  If the Participant ceases to be employed by, or providing service to, the Company, or if other specified conditions are not met, the Stock Award shall terminate as to all shares covered by the Grant as to which the restrictions have not lapsed, and those shares of Stock must be immediately returned to the Company. The Committee may provide for complete or partial exceptions to the employment or service requirement as it deems appropriate.
(d)     Restrictions on Transfer . During the Restriction Period, a Participant may not sell, assign, transfer, pledge or otherwise dispose of the shares of a Stock Award except upon death as described in Section 17. Each certificate for a share of Stock underlying a Stock Award shall contain a legend giving appropriate notice of the restrictions in the Grant. The Participant shall be entitled to have the legend removed from the stock certificate covering any shares as to which restrictions have lapsed. The Committee may determine that the Company will not issue certificates for shares of Stock underlying Stock Awards until all restrictions on such shares have lapsed, or that the Company will retain possession of certificates for shares of Stock underlying Stock Awards until all restrictions on such shares have lapsed. Alternatively, the Participant’s rights in the Stock Award shall be appropriately reflected in a book entry system maintained by the Company, and a stock certificate shall be issuable at the end of the Restriction Period.
(e)     Right to Vote and to Receive Dividends . The Committee shall determine to what extent, and under what conditions, the Participant shall have the right to vote shares of Stock Awards and to receive any dividends or other distributions paid on such shares, during the Restriction Period. The Committee may determine that a Participant’s entitlement to dividends or other distributions with respect to a Stock Award shall be subject to achievement of performance goals or other conditions

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12.	Dividend Equivalents	
The Committee may grant Dividend Equivalents in connection with Grants (other than Options and SARs) under the Plan, under such terms and conditions as the Committee deems appropriate under this Section 12. All Dividend Equivalents may be paid to Participants currently or may be deferred as determined by the Committee and set forth in the Grant Instrument. All Dividend Equivalents that are not paid currently shall be credited to accounts on the Company’s records for purposes of the Plan. Dividend Equivalents may be accrued as a cash obligation, or may be converted to Stock Units for the Participant. The Committee shall determine whether any deferred Dividend Equivalents will accrue interest. The Committee may provide that Dividend Equivalents shall be payable based on the achievement of specific performance goals. Dividend Equivalents may be payable in cash or shares of Stock or in a combination of two, as determined by the Committee.

13.	Other Stock-Based Grants	
The Committee may grant other awards that are based on, measured by or payable in Stock to Employees or Nonemployee Directors, on such terms and conditions as the Committee deems appropriate under this Section 13. Other Stock-Based Awards may be granted subject to achievement of performance goals or other conditions and may be payable in Stock or cash, or in a combination of the two, as determined by the Committee. The Committee may grant Dividend Equivalents with respect to Other Stock-Based Awards.

14.	Qualified Performance-Based Compensation	
(a)     Designation as Qualified Performance-Based Compensation.  The Committee may determine that Stock Units, Performance Units, Stock Awards, Dividend Equivalents or Other Stock-Based Awards granted to an Employee shall be considered “qualified performance-based compensation” under Code Section 162(m). The provisions of this Section 14 shall apply to any such Grants that are to be considered “qualified performance-based compensation” under Code Section 162(m). To the extent that Grants under this Plan designated as “qualified performance-based compensation” under Code Section 162(m) are made, no such Grant may be made as an alternative to another Grant that is not designated as “qualified performance-based compensation” but instead must be separate and apart from all other Grants made.
(b)     Performance Goals.  When Grants that are to be considered “qualified performance-based compensation” are granted, the Committee shall establish in writing:
(i)    the objective performance goals that must be met,
(ii)    the period during which performance will be measured,
(iii)    the maximum amounts that may be paid if the performance goals are met, and
(iv)    any other conditions that the Committee deems appropriate and consistent with the Plan and the requirements of Code Section 162 for “qualified performance-based compensation.” The performance goals shall satisfy the requirements for “qualified performance-based compensation,” including the requirement that the achievement of the goals be substantially uncertain at the time they are established and that the performance goals be established in such a way that a third party with knowledge of the relevant facts could determine whether and to what extent the performance goals have been met. The Committee shall not have discretion to increase the amount of compensation that is payable upon achievement of the designated performance goals, but the Committee may reduce the amount of compensation that is payable upon achievement of the designated performance goals.
(c)     Criteria Used for Objective Performance Goals . In setting the performance goals for Grants designated as “qualified performance-based compensation” pursuant to this Section 14, the Committee shall use objectively determinable performance goals based on one or more of the following objective criteria, either in

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absolute terms or in comparison to publicly available industry standards or indices: Stock price, earnings per share of Stock, return on assets, growth in assets, capital deployment, return on equity, change in net asset value, EBIT, EBITDA, earnings, revenue, operating margins and statistics, operating or net cash flows, financial return and leverage ratios, total stockholder returns, market share, or strategic business criteria consisting of one or more penetration goals, geographic business expansion goals, cost targets, revenue targets, customer satisfaction goals, product development goals, goals relating to acquisitions or divestitures, or any other objective measure derived from any of the foregoing criteria. In addition, in setting the performance goals for Grants not designated as “qualified performance-based compensation” for purposes of Code Section 162(m), the Committee may use such other goals as are developed in the Company’s operating plan for the performance period. The performance goals may relate to the Participant’s business unit, the performance of the Company as a whole, the performance of one or more of the Company’s partner companies, or any combination of the foregoing. Performance goals need not be uniform as among Participants.
(d)     Timing of Establishment of Goals.  The Committee shall establish the performance goals in writing either before the beginning of the performance period or during a period ending no later than the earlier of (i) 90 days after the beginning of the performance period or (ii) the date on which 25% of the performance period has been completed, or such other date as may be required or permitted under applicable regulations under Code Section 162(m).
(e)     Announcement of Results . The Committee shall certify and announce the results for the performance period to all Participants after the Company announces the Company’s financial results for the performance period. If and to the extent that the Committee does not certify that the performance goals have been met, the applicable Grants for the performance period shall be forfeited or shall not be paid as applicable.
(f)     Death, Disability or Other Circumstances. The Committee may provide that Grants shall be payable or restrictions shall lapse, in whole or in part, in the event of the Participant’s death or disability during the performance period, a Change of Control or under other circumstances consistent with the Treasury regulations and rulings under Code Section 162(m).

15.	Deferrals	
The Committee may permit or require a Participant to defer receipt of the payment of cash or the delivery of shares that would otherwise be due to the Participant in connection with any Grant. If any such deferral election is permitted or required, the Committee shall establish rules and procedures for such deferrals as it shall determine in its sole discretion, consistent with the applicable requirements of Code Section 409A.

16.	Withholding of Taxes	
(a)     Required Withholding . All Grants under the Plan shall be subject to applicable federal (including FICA), state and local tax withholding requirements. The Company may require that the Participant or other person receiving or exercising Grants pay to the Company the amount of any federal, state or local taxes that the Company is required to withhold with respect to such Grants, or the Company may deduct from other wages paid by the Company the amount of any withholding taxes due with respect to such Grants.
(b)     Share Withholding . At the Company’s election, or if the Committee so permits, with respect to a Participant, the Company’s tax withholding obligation with respect to Grants paid in Stock may be satisfied by having shares withheld, at the time such Grants become taxable, up to an amount that does not exceed the minimum applicable withholding tax rate for federal (including FICA), state and local tax liabilities, provided, however, that at the Company’s sole discretion, a Participant may be permitted to tender other shares of Stock to the Company to supplement such withholding, but only if such action is not in violation of applicable law and does not result in materially disadvantageous tax, accounting or financial results to the Company. If the Committee permits a

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Participant to elect share withholding, the Participant’s election must be in a form and manner prescribed by the Committee and may be subject to the prior approval of the Committee.

17.	Transferability of Options	
The transferability of Options granted under the Plan shall be governed by the following provisions:

(a)     Incentive Stock Options . During the lifetime of the Participant, Incentive Stock Options shall be exercisable only by the Participant and shall not be assignable or transferable other than by will or the laws of inheritance following the Participant’s death.
(b)     Nonqualified Stock Options — Limited Transferability . Except as otherwise specifically determined by the Committee, Nonqualified Stock Options shall be subject to the same limitation on transfer as Incentive Stock Options, except that the Committee may structure one or more Nonqualified Stock Options so that the Option may be assigned in whole or in part during the Participant’s lifetime to one or more family members of the Participant or to a trust established exclusively for one or more such family members, consistent with the applicable securities laws. The assigned portion may only be exercised by the person or persons who acquire a proprietary interest in the Option pursuant to the assignment. The terms applicable to the assigned portion shall be the same as those in effect for the Option immediately prior to such assignment and shall be set forth in such documents issued to the assignee as the Committee may deem appropriate.
(c)     Beneficiary Designation . Notwithstanding the foregoing, the Participant may designate one or more persons as the beneficiary or beneficiaries of his or her outstanding Options, and those Options shall, in accordance with such designation, automatically be transferred to such beneficiary or beneficiaries upon the Participant’s death while holding those Options. Such beneficiary or beneficiaries shall take the transferred Options subject to all the terms and conditions of the applicable agreement evidencing each such transferred Option, including (without limitation) the limited time period during which the Option may be exercised following the Participant’s death.

18.	Consequences of a Change of Control	
(a)      Notice and Acceleration.  Upon a Change of Control, unless the Committee determines otherwise, (i) the Company shall provide each Participant who holds outstanding Grants with written notice of the Change of Control, (ii) all outstanding Options and SARs shall automatically accelerate and become fully exercisable, (iii) the restrictions and conditions on all outstanding Stock Awards shall immediately lapse, (iv) all Stock Units and Performance Units shall become payable in cash or in Stock in an amount not less than the Fair Market Value of the Stock or the Stock to which the units relate, as determined by the Committee, and (v) Dividend Equivalents and Other Stock-Based Awards shall become payable in full in cash or in Stock, in amounts determined by the Committee.
(b)      Assumption of Grants. Upon a Change of Control where the Company is not the surviving corporation (or survives only as a subsidiary of another corporation), unless the Committee determines otherwise, all outstanding Options and SARs that are not exercised shall be assumed by, or replaced with comparable options by, the surviving corporation (or a parent or subsidiary of the surviving corporation), and other Grants that remain outstanding shall be converted to similar grants of the surviving corporation (or a parent or subsidiary of the surviving corporation).
(c)      Other Alternatives.  Notwithstanding the foregoing, subject to subsection (d) below, in the event of a Change of Control, the Committee may take any of the following actions with respect to any or all

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outstanding Grants, without the consent of any Participant: (i) the Committee may require that Participants surrender their outstanding Options or SARs in exchange for a payment by the Company, in cash or Stock as determined by the Committee, in an amount equal to the amount by which the then aggregate Fair Market Value subject to the Participant’s unexercised Options or SARs exceeds the aggregate Option Price or base amount, as applicable (if any), or (ii) after giving Participants an opportunity to exercise their outstanding Options or SARs, the Committee may terminate any or all unexercised Options or SARs, at such time as the Committee deems appropriate, and (iii) with respect to Participants holding Stock Units, Performance Units, Dividend Equivalents or Other Stock-Based Awards, the Committee may determine that such Participants shall receive a payment in settlement of such Stock Units, Performance Units, Dividend Equivalents or other Stock-Based Awards, in such amount and form as may be determined by the Committee; provided, that the payment amount shall deliver an equivalent value for such settled award. Such surrender, termination or settlement shall take place as of the date of the Change of Control or such other date as the Committee may specify.
(d)      Committee . The Committee making the determinations under this Section 18 following a Change of Control must be comprised of the same members as those members of the Committee immediately before the Change of Control. If the Committee members do not meet this requirement, the automatic provisions of subsections (a) and (b) shall apply, and the Committee shall not have discretion to vary them.

19.	Other Transactions	
The Committee may provide in a Grant Instrument that a sale or other transaction involving a subsidiary or other business unit of the Company shall be considered a Change of Control for purposes of a Grant or the Committee may establish other provisions that shall be applicable in the event of a specified transaction.

20.	Requirements for Issuance or Transfer of Shares	
No Stock shall be issued or transferred in connection with any Grant hereunder unless and until all legal requirements applicable to the issuance of such Stock have been complied with to the satisfaction of the Committee. The Committee shall have the right to condition any Grant made to any Participant hereunder on such Participant’s undertaking in writing to comply with such restrictions on the Participant’s subsequent disposition of such shares of Stock as the Committee shall deem necessary or advisable, and certificates representing such shares may be legended to reflect any such restrictions. Certificates representing shares of Stock issued or transferred under the Plan will be subject to such stop-transfer orders and other restrictions as may be required by applicable laws, regulations and interpretations, including any requirement that a legend be placed thereon.

21.	Amendment and Termination of the Plan	
(a)      Amendment.  The Board may amend or terminate the Plan at any time; provided, however, that the Board shall not amend the Plan without approval of the stockholders of the Company if such approval is required in order to comply with the Code or applicable laws, or to comply with applicable stock exchange requirements. No amendment or termination of this Plan shall, without the consent of the Participant, impair any rights or obligations under any Grant previously made to the Participant, unless such right has been reserved in the Plan or the Grant Instrument, or except as provided in Section 23(b) below. Notwithstanding the preceding, the Board may amend the Plan at any time, without the consent of the Participant, to comply with applicable legal requirements or to ensure the various Grants awarded under this Plan maintain the designations given to them in the Plan, including, but not limited to, changes necessary to ensure an Option continues to be an Incentive Stock Option or to ensure qualified performance-based compensation continues to “qualified performance-based compensation” under Code Section 162(m).
(b)      No Repricing without Stockholder Approval . Notwithstanding anything in the Plan to the contrary, the Committee may not reprice Options or SARs, or cancel outstanding Options or SARs in exchange for

14

cash, nor may the Board amend the Plan to permit repricing or cancellation in exchange for cash of Options or SARs, unless the stockholders of the Company provide prior approval for such repricing or cancellation in exchange for cash. The term “repricing” shall have the meaning given that term in Section 303A(8) of the New York Stock Exchange Listed Company Manual, as in effect from time to time, or any other substantially equivalent successor rule.
(c)      Stockholder Approval for “Qualified Performance-Based Compensation .” If Grants denominated as “qualified performance-based compensation” are awarded under Section 14 above, the Plan must be reapproved by the Company’s stockholders no later than the first stockholders’ meeting that occurs in the fifth year following the year in which the stockholders previously approved the provisions of Section 14, if additional Grants are to be made under Section 14 and if required by Code Section 162(m) or the regulations thereunder. Any such reapproval shall not affect outstanding Grants made within the five-year period following the year in which the previous approval was obtained.
(d)      Termination of Plan . The Plan shall terminate on the day immediately preceding the tenth anniversary of its Effective Date, unless the Plan is terminated earlier by the Board or is extended by the Board with the approval of the stockholders. The termination of the Plan shall not impair the power and authority of the Committee with respect to an outstanding Grant.

22.	Effective Date of the Plan	
The Plan, as amended and restated herein, shall be effective on March 5, 2014, subject to the approval of the Company’s stockholders within 12 months of the Effective Date.

23.	Miscellaneous	
(a)      Grants in Connection with Corporate Transactions and Otherwise . Nothing contained in this Plan shall be construed to (i) limit the right of the Committee to make Grants under this Plan in connection with the acquisition, by purchase, lease, merger, consolidation or otherwise, of the business or assets of any corporation, firm or association, including Grants to employees thereof who become Employees, or for other proper corporate purposes, or (ii) limit the right of the Company to grant stock options or make other awards outside of this Plan. Without limiting the foregoing, the Committee may make a Grant to an employee of another corporation who becomes an Employee by reason of a corporate merger, consolidation, acquisition of stock or property, reorganization or liquidation involving the Company in substitution for a grant made by such corporation. The terms and conditions of the substitute Grants may vary from the terms and conditions of the substituted stock incentives. The Committee shall prescribe the provisions of the substitute Grants.
(b)      Compliance with Law . The Plan, the exercise of Options and the obligations of the Company to issue or transfer shares of Stock under Grants shall be subject to all applicable laws and to approvals by any governmental or regulatory agency as may be required. In addition, it is the intent of the Company that Incentive Stock Options comply with the applicable provisions of Code Section 422 and that, to the extent applicable, all other Grants comply with the requirements of Code Section 409A. To the extent that any legal requirement of Code Sections 422 or 409A as set forth in the Plan ceases to be required under Code Sections 422 or 409A, that Plan provision shall cease to apply. With respect to persons subject to Section 16 of the Exchange Act, it is the intent of the Company that the Plan and all transactions under the Plan comply with all applicable provisions of Rule 16b-3 or its successors under the Exchange Act. In addition, it is the intent of the Company that the Plan and applicable Grants comply with the applicable provisions of Code Section 162(m). To the extent that any legal requirement of Section 16 of the Exchange Act or Code Section 162(m) as set forth in the Plan ceases to be required under Section 16 of the Exchange Act or Code Section 162(m), that Plan provision shall cease to apply. The Committee may revoke any Grant if it is contrary to law or modify a Grant to bring it into compliance with any valid and mandatory

15

government regulation without a Participant’s consent. The Committee may also adopt rules regarding the withholding of taxes on payments to Participants. The Committee may, in its sole discretion, agree to limit its authority under this Section.
(c)      Code Section 409A . The Plan is intended to comply with the applicable requirements of Code Section 409A and the regulations promulgated thereunder, to the extent applicable, and shall be administered in accordance with Code Section 409A to the extent Code Section 409A is applicable to the Plan or any Grant hereunder. Each Grant shall be subject to such terms as the Committee determines and shall be construed and administered such that the Grant either (i) qualifies for an exemption from the requirements of Code Section 409A, or (ii) satisfies such requirements. Grants of Performance Units, Stock Units, and similar Other Stock-Based Awards shall be structured in a manner consistent with the requirements of Code Section 409A and distributions shall only be made in a manner and upon an event permitted under Code Section 409A and, to the extent required under Code Section 409A, payments to a Participant who is a “specified employee” (within the meaning of such term under Code Section 40A) upon his or her separation from service shall be subject to a six-month delay and shall be paid within 15 days after the end of the six-month period following separation from service. All payments to be made upon a termination of employment or service shall only be made upon a “separation from service” under Code Section 409A. Except as permitted by Code Section 409A, in no event shall a Participant, directly or indirectly, designate the calendar year in which the distribution is made.
(d)      Effect of Revisions to Accounting Standards or Applicable Law . In the event of revisions to accounting standards applicable to the Company or to applicable law, which revisions are viewed by the Committee as resulting in a material detriment to the Company, the Committee shall have the discretion to modify any Grant, Grant Instrument or related right or document issued under this Plan but only to the extent such modification does not result in a material detriment to the Participant.
(e)      Enforceability.  The Plan shall be binding upon and enforceable against the Company and its successors and assigns.
(f)      Grants to Non-Exempt Employees . Options and SARs granted to persons who are non-exempt employees under the Fair Labor Standards Act of 1938, as amended, may not be exercisable for at least six months after the Date of Grant (except that Options and SARs may become exercisable, as determined by the Committee upon the Participant’s death, disability or retirement, or upon a Change of Control or other circumstances permitted by the applicable regulations).
(g)      Funding of the Plan; Limitation on Rights . This Plan shall be unfunded. The Company shall not be required to establish any special or separate fund or to make any other segregation of assets to assure the payment of any Grants under this Plan. Nothing contained in the Plan and no action taken pursuant hereto shall create or be construed to create a fiduciary relationship between the Company and any Participant or any other person. No Participant or any other person shall under any circumstances acquire any property interest in any specified assets of the Company. To the extent that any person acquires a right to receive payment from the Company hereunder, such right shall be no greater than the right of any unsecured general creditor of the Company.
(h)      Rights of Participants . Nothing in this Plan shall entitle any Employee, Nonemployee Director or other person to any claim or right to receive a Grant under this Plan. Neither this Plan nor any action taken hereunder shall be construed as giving any individual any rights to be retained by or in the employment or service of the Company.
(i)      No Fractional Shares . No fractional shares of Stock shall be issued or delivered pursuant to the Plan or any Grant. The Committee shall determine whether cash, other awards or other property shall be

16

issued or paid in lieu of such fractional shares or whether such fractional shares or any rights thereto shall be forfeited or otherwise eliminated.
(j)      Employees Subject to Taxation Outside the United States . With respect to Participants who are subject to taxation in countries other than the United States, the Committee may make Grants on such terms and conditions as the Committee deems appropriate to comply with the laws of the applicable countries, and the Committee may create such procedures, addenda and subplans and make such modifications as may be necessary or advisable to comply with such laws.
(k)      Governing Law . The validity, construction, interpretation and effect of the Plan and Grant Instruments issued under the Plan shall be governed and construed by and determined in accordance with the laws of the Commonwealth of Pennsylvania without giving effect to the conflict of laws provisions thereof.

17

Exhibit 31.1
   
CERTIFICATION
   
I, Stephen T. Zarrilli, certify that:

	
			
1.	I have reviewed this Quarterly Report on Form 10-Q of Safeguard Scientifics, Inc.;	
   	   	   	
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;	
   	   	   	
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;	
   	   	   	
4.	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:	
   	   	   	
   	a.	designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;	
   	   	   	
   	b.	designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;	
   	   	   	
   	c.	evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and	
   	   	   	
   	d.	disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and	
   	   	   	
5.	The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):	
   	   	   	
   	a.	all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and	
   	   	   	
   	b.	any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.	

	
			
   	 	SAFEGUARD SCIENTIFICS, INC.	
   	 	   	
Date:	July 25, 2014	/s/ Stephen T. Zarrilli	
   	 	Stephen T. Zarrilli	
   	 	President and Chief Executive Officer	

Exhibit 31.2
   
CERTIFICATION
   
I, Jeffrey B. McGroarty, certify that:

	
			
1.	I have reviewed this Quarterly Report on Form 10-Q of Safeguard Scientifics, Inc.;	
   	   	   	
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;	
   	   	   	
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;	
   	   	   	
4.	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:	
   	   	   	
   	a.	designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;	
   	   	   	
   	b.	designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;	
   	   	   	
   	c.	evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and	
   	   	   	
   	d.	disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and	
   	   	   	
5.	The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):	
   	   	   	
   	a.	all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and	
   	   	   	
   	b.	any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.	

	
			
   	 	SAFEGUARD SCIENTIFICS, INC.	
   	 	   	
Date:	July 25, 2014	/s/ Jeffrey B. McGroarty	
   	 	Jeffrey B. McGroarty	
   	 	Senior Vice President and Chief Financial Officer	

Exhibit 32.1
   
Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906
of the Sarbanes-Oxley Act of 2002
   
In connection with the Quarterly Report of Safeguard Scientifics, Inc. (“Safeguard”) on Form 10-Q for the three and six months ended June 30, 2014 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Stephen T. Zarrilli, President and Chief Executive Officer of Safeguard, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

	
		
1.	The Report fully complies with the requirements of section 13(a) of the Securities Exchange Act of 1934, (15 U.S.C. 78m(a)); and	
   	   	
2.	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Safeguard.	

	
			
   	 	SAFEGUARD SCIENTIFICS, INC.	
   	 	   	
Date:	July 25, 2014	/s/ Stephen T. Zarrilli	
   	 	Stephen T. Zarrilli	
   	 	President and Chief Executive Officer	

Exhibit 32.2
   
Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906
of the Sarbanes-Oxley Act of 2002
   
In connection with the Quarterly Report of Safeguard Scientifics, Inc. (“Safeguard”) on Form 10-Q for the three and six months ended June 30, 2014 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Jeffrey B. McGroarty, Senior Vice President and Chief Financial Officer of Safeguard, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

	
		
1.	The Report fully complies with the requirements of section 13(a) of the Securities Exchange Act of 1934, (15 U.S.C. 78m(a)); and	
   	   	
2.	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Safeguard.	

	
			
   	 	SAFEGUARD SCIENTIFICS, INC.	
   	 	   	
Date:	July 25, 2014	/s/ Jeffrey B. McGroarty	
   	 	Jeffrey B. McGroarty	
   	 	Senior Vice President and Chief Financial Officer