ANNEX TO PART I — EXECUTIVE OFFICERS OF THE REGISTRANT

Mr. ZarrilliSalzman joined Safeguard as Chief Restructuring Officer in April 2020.  Mr. Salzman began serving as the Chief Executive Officer in December 2020.  Mr. Salzman has a 25-year track record partnering with growth companies as an investor, board member and strategic advisor.  He has worked in M&A, restructuring, growth and special situations investing at a number of investment banks and private equity funds, including Credit Suisse and Lehman Brothers.  Mr. Salzman helped oversee the monetization of a $2 billion portfolio of illiquid assets in the Lehman Brothers Bankruptcy Estate and subsequently advised several investment funds on value-maximization strategies for their respective portfolios.  He currently serves as a director on a number of Safeguard portfolio companies as well as an independent director at publicly traded 8x8, Inc.  Mr. Salzman earned a B.A. Honors from the University of Michigan and an MBA from Harvard University

Mr. Herndon joined Safeguard as Senior Vice President and Chief Financial Officer in June 2008 and became President and Chief Executive Officer in November 2012.September 2018. Prior to joining Safeguard, Mr. Zarrilli co-founded,Herndon served in 2004, the Penn Valley Group, a middle-market management advisoryvariety of client service and private equity firm, and served as a Managing Director there until June 2008. Mr. Zarrilli also served as Acting Senior Vice President, Acting Chief Administrative Officer and Acting Chief Financial Officer of Safeguard from December 2006 to June 2007. Mr. Zarrilli also served as the Chief Financial Officer, from 2001 to 2004, of Fiberlink Communications Corporation, a provider of mobile access solutions for large enterprises; as the Chief Executive Officer, from 2000 to 2001, of Concellera Software, Inc., a developer of content management software; as the Chief Executive Officer, from 1999 to 2000, and Chief Financial Officer, from 1994 to 1998, of US Interactive, Inc. (at the time a public company), a provider of Internet strategy consulting, marketing and technology services; and, previously, with Deloitte & Touche from 1983 to 1994. Mr. Zarrilli is a director of Virtus Investment Partners, Inc. and currently serves as Chair of the Audit Committee and, until June 2015, was a director and Chairman of the Audit Committee of NutriSystem, Inc.

Mr. McGroarty joined Safeguard as Vice President and Corporate Controller in December 2005, subsequently became Vice President - Finance and Corporate Controller, and served as Senior Vice President - Finance from November 2012 until his promotion to Senior Vice President and Chief Financial Officer in April 2013. Prior to joining Safeguard, Mr. McGroarty served as Interim Controller of Cephalon, Inc. from October 2005 to December 2005; Vice President-Financial Planning & Analysis and previously Assistant Controllernational office roles at Exide Technologies from March 2002 to September 2005; and, previously, with PricewaterhouseCoopers from 1991 to 2001.2018, including his position as Assurance Partner from 2006 until 2018.

PART II

Mr. Sisko joined Safeguard as Senior Vice PresidentItem 5. Market for Registrant’s Common Equity, Related Stockholder Matters and General Counsel in August 2007 and served as Executive Vice President and Managing Director from November 2012 until his promotion to Chief Operating Officer, Executive Vice President and Managing Director in January 2014. Prior to joining Safeguard, Mr. Sisko served as Chief Legal Officer, Senior Vice President and General CounselIssuer Purchases of Traffic.com (atEquity Securities

Our common stock is listed on the time, a public company), a former partner company of Safeguard, from February 2006 until June 2007 (following its acquisition by NAVTEQ Corporation in March 2007); Chief Operating Officer from February 2005 to January 2006 of Halo Technology Holdings, Inc., a public holding company for enterprise software businesses (Halo Technology Holdings filed for bankruptcy protection under Chapter 11 of the United States Bankruptcy Code in August 2007); ran B/T Business and Technology, an advisor and strategic management consultant to a variety of public and private companies, from January 2002 to February 2005; and was a Managing Director from April 2000 to January 2002, of Katalyst, LLC, a venture capital and consulting firm. Mr. Sisko also previously served as Senior Vice President-Corporate Development and General Counsel of National Media Corporation, at the time a New York Stock Exchange-listed multi-media marketing company with operations in 70 countries,Exchange (Symbol: SFE). The high and low sale prices reported within each quarter of 2020 and 2019 were as a partnerfollows: 

The high and low sale prices reported in the corporate finance, mergers first quarter of 2021 through February 26, 2021 were $8.59 and acquisitions practice group$6.35 respectively, and the last sale price reported on February 26, 2021, was $7.65.  As of February 26, 2021, there were approximately 10,487 beneficial holders of our common stock.

Special Dividend

On November 7, 2019, the Board of Directors declared a special cash dividend of $1.00 per share, payable on December 30, 2019 to shareholders of record as of the Philadelphia-based law firm, Klehr, Harrison, Harvey, Branzburg LLP.close of business on December 23, 2019.

Skills and QualificationsIssuer Purchases of BoardEquity Securities

The following table includesprovides information about our purchases of equity securities during the skills and qualifications of each director that led our Boardquarter ended December 31, 2020 registered pursuant to conclude that the director is qualified to serve on our Board.

Audit Committee. The Audit Committee held four meetings during 2017. The Audit Committee’s responsibilities, which are described in detail in its charter, include, among other duties, the responsibility to:

The Audit Committee has the sole authority to retain, set compensation and retention terms for, terminate and oversee the relationship with Safeguard’s independent registered public accounting firm (which reports directly to the Audit Committee). The Audit Committee also oversees the activities of the internal auditor, reviews the effectiveness of the internal audit function and approves the appointment of the internal auditor. The Audit Committee has the authority to obtain advice, counsel and assistance from internal and external legal, accounting or other advisors as the Audit Committee deems necessary to carry out its duties and to receive appropriate funding from Safeguard for such advice and assistance. Although the Audit Committee has the powers and responsibilities set forth in its charter, its role is oversight, and management has primary responsibility for the financial reporting process of Safeguard.

The Board has determined that each member of the Audit Committee meets the independence requirements established by SEC regulations, the NYSE listing standards and our Corporate Governance Guidelines. The Board has determined that Ms. Morrison, Mr. Roberts and Dr. Rosenthal are “audit committee financial experts” within the meaning of the SEC regulations, and the Board has determined that each member of the Audit Committee has accounting and related financial management expertise within the meaning of the NYSE listing standards. The Board previously determined that Mr. MacKenzie, who is not standing for re-election at this year’s annual meeting, was an “audit committee financial expert” within the meaning of the SEC regulations. Mr. Roberts serves as a member of the audit committee of the board of directors of four publicly traded companies, including our Audit Committee. The Board has determined that such simultaneous service does not impair Mr. Roberts’ ability to effectively serve on our Audit Committee.

Code of Business Conduct and other Charters.

Safeguard’s Corporate Governance Guidelines, Code of Business Conduct and Ethics, Audit Committee Charter, Compensation Committee Charter and Nominating & Corporate Governance Committee Charter are available at www.safeguard.com/governance. The Code of Business Conduct and Ethics is applicable to all employees of Safeguard, including each of our executive and financial officers, and the members of our Board. Safeguard will post information regarding amendments to or waivers from our Code of Business Conduct and Ethics (to the extent applicable to Safeguard’s directors or executive officers) in the Corporate Governance section of our website. Our website is not part of this report. All references to our website address are intended to be inactive textual references only.

Section 16(a) Beneficial Ownership Reporting Compliance.

Section 16(a)12 of the Securities Exchange Act of 1934, requires our directors, executive officers and greater than 10% holdersas amended (the "Exchange Act"):

(a) During the fourth quarter of 2020, we repurchased an aggregate of approximately 1 thousand shares of our common stock initially issued as restricted stock awards to file withemployees and subsequently withheld from employees to satisfy the SEC reportsstatutory withholding tax liability upon the vesting of ownershipsuch restricted stock awards.

(b) In July 2015, our Board of Directors authorized us to repurchase shares of our securities and changesoutstanding common stock with an aggregate value of up to $25.0 million.  These repurchases may be made in ownership of our securities. Based solely on our reviewopen market or privately negotiated transactions, including under plans complying with Rule 10b5-1 of the copiesExchange Act, based on market conditions, stock price, and other factors.  The share repurchase program does not obligate us to acquire any specific number of reports we have received and upon written representations from the reporting persons that no Form 5 reports were required to be filed by those persons, Safeguard believes there were no late filings by our directors and executive officers during 2017. There were no known holders of greater than 10% of our common stock during 2017 who failed to file the required reports.shares.

Compensation Discussion and AnalysisItem 6. Selected Consolidated Financial Data

Executive SummaryNot applicable for a smaller reporting company.

Our Compensation Committee (for purposes of this discussion, the “Committee”) is responsible for establishing our company-wide compensation philosophy and practices, for determining the compensation for our “named executive officers,” and for approving the compensation for our other senior executives, based on the recommendations of our President and Chief Executive Officer. This CompensationItem 7. Management’s Discussion and Analysis describesof Financial Condition and Results of Operations

Cautionary Note Concerning Forward-Looking Statements

This Annual Report on Form 10-K 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 executive compensation programplans, 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 compensationmeaning 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 made for 2017about the deployment of capital, the fact that our ownership interests may vary from period to period, our substantial capital requirements and absence of liquidity from our holdings, competition, our inability to obtain maximum value for our named executive officers. At December 31, 2017, there were three individuals serving as named executive officersownership interests, our ability to attract and retain qualified employees, our ability to execute our strategy, market valuations in sectors in which our ownership interests operate, our inability to control our ownership interests companies, our need to manage our assets to avoid registration under the Investment Company Act of Safeguard:

Our senior executive group is currently comprised1940, and risks associated with our ownership interests and their performance, including the fact that most of the companies in which we have an ownership interest have a totallimited history and a history of six executivesoperating losses, face intense competition and may never be profitable, the effect of economic conditions in the business sectors in which they operate, compliance with the titlegovernment regulation and legal liabilities, all of Senior Vice Presidentwhich are discussed in Item 1A. “Risk Factors.” Many of these factors are beyond our ability to predict or higher, including our current three named executive officers. This Compensation Discussion and Analysis (“CD&A”) also describes programs that apply to our senior executive groupcontrol. In addition, as a whole.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.

Overview

Over the recent past, Safeguard has provided capital and relevant expertise to fuel the growth of technology-driven businesses. In January 2018, the Company announced that, effective immediately, the Company would cease making capital deployments into any new partner company opportunitiesmany, but not all cases, we are actively involved, influencing development through board representation and that it would focus its efforts on managing and financially supporting its existing partner companies to exit events, and ultimately returning the net proceeds of such efforts to its shareholders. This strategy is sometimes referred tomanagement support, in this CD&A as the “New Strategy.” Further, on April 6, 2018, the Company announced that the Company promoted Mr. Siskoaddition to the position of Presidentinfluence we exert through our equity ownership. We also continue to hold relatively small equity interests in other enterprises where we do not exert significant influence and Chief Executive Officer, effective as of July 1, 2018,do not participate in management activities. In some cases, those interests relate to succeed Mr. Zarrilli. Mr. Zarrilli will act as a special advisor to the Company through September 30, 2018 and then retire. In addition, Mr. McGroarty will departresidual interests from the Company, effective June 30, 2018. David Kille, currently the Company’s Corporate Controller, will assume the role of Chief Financial Officer, effective June 1, 2018.

Other than as specifically noted, the discussion set forthprior larger interests or from companies that acquired companies in this CD&A concerning the Company’s compensation policies and practices, relates to periods prior to the establishment of the New Strategy and, therefore, does not necessarily reflect policies and practices that will prevail or apply under the New Strategy. Set forth below under the heading “New Strategy - Changes in Compensation Policies and Practices” is a summary regarding changes in compensation policies and practices recently adopted by the Committee in the context of the New Strategy.

2017 Business Highlights

Highlights of the year are included below because the Committee believes senior executive compensation should correlate with Safeguard’s performance.

Overall, the Committee believes that Safeguard executed well against its 2017 strategic plan.

Key 2017 Compensation Decisions

Effective Corporate Governance Principles

Below is a summary of what we did and what we didn’t do relating to executive compensation during and related to 2017, and prior to our announcement of the New Strategy:had ownership interests.

The Committee reviews our compensation philosophy each year to ensure that its principles and objectives are aligned with our overall business strategy and aligned with the interests of our shareholders. We seek to apply a consistent philosophy across our executive group, not just among our named executive officers.

Compensation Philosophy and Objectives

Our overall goals in compensating our executives in 2017 were as follows:

Our executive compensation program in 2017 was intended to:

In January 2018, Safeguard announced that we will not deploy any capital into new opportunities and will focus on supporting our existing companies and maximizing monetization opportunities to enable returning value to shareholders. In that context, we have, are and will consider initiatives including, among others: the New Strategy. See “New Strategy - Changes in Compensation Policies and Practices” below.

Role of the Compensation Committee in Compensation Decisions

The Committee is responsible for the designsale of our executive compensation program and for making decisions regarding our named executive officers’ compensation. The Committee also makes, or has final approval authority regarding, all compensation decisions for our other senior executives. Annually,ownership interests, the Committee reviews executive compensation practices, including the methodology for setting total named executive officers’ compensation, the goals of the program, and the overall compensation philosophy for Safeguard. In setting executive compensation and designing our overall compensation program, the Committee considers the data and advice provided by its independent compensation consultant (as well as information that may be provided by management) to determine the appropriate level, on an absolute and relative basis, of compensation, as well as the mix of compensation components. The Committee has looked to competitive information for guidance rather than rigid adherence to specific percentages. The Committee believes that the overall objectives of its compensation philosophy are better achieved through flexibility. The Committee ultimately makes decisions regarding executive compensation based on its assessment of Safeguard’s performance and the achievement of individual, partner company and corporate goals.

The Committee is also responsible for approving and granting equity awards to our directors, executives, employees and, from time to time, other independent advisors and consultants, with the exceptionsale of certain limited authority that the Committee has delegated to the President and Chief Executive Officer to make small equity grants between regularly scheduled Committee meetings (primarily to new hires). The Committee’s responsibilities are more fully describedor all ownership interests in its charter, which is available at www.safeguard.com/governance.

Role of Executive Officers in Compensation Decisions

Within the parameters approved by the Committee each year, our named executive officers are responsible for evaluating and setting compensation for our other employees. Our President and Chief Executive Officer annually assesses the performance of each other named executive officer and each of his other senior executive direct reports. When applicable, he also makes recommendations to the Committee concerning the achievement by our other senior executives of their individual short-term objectivessecondary market transactions, or a combination thereof, as well as other performance achievements. In determiningopportunities to maximize shareholder value. We initiated the compensationreturn of our executives, the Committee considers our President and Chief Executive Officer’s assessment and recommendations. However, other than for compensation that has been established contractually or under quantitative formulas established by the Committee each year under our management incentive program, the Committee exercises its own discretionvalue to shareholders in determining whether to accept or modify our President and Chief Executive Officer’s recommendations. These individuals are not present when the Committee and our President and Chief Executive Officer review their performance or when the Committee makes its determinations concerning their compensation.

Role of Consultant

During 2017, as in recent years, the Committee engaged Semler Brossy Consulting Group, LLC, an independent compensation consulting firm, to assist the Committee by providing compensation expertise regarding peer group analysis and compensation data, helping the Committee select appropriate performance measures and goals and advising the Committee regarding evolving compensation best practices and trends. Specifically, Semler Brossy provided information relating to competitiveness of pay levels, compensation plan design, specific equity grant matters, market trends, risk assessment and management and technical considerations concerning named executive officers, other executives and directors. Semler Brossy also assisted the Committee2019 with the reporting of executive compensation matters relating to 2017 under applicable SEC disclosure rules. Semler Brossy does not provide services to Safeguard other than those provided to the Committee. Semler Brossy reported to and acted at the direction of, and attended selected meetings as requested by, the Chairperson of the Committee.

The Committee, which has the sole authority to hire and terminate its consultant, evaluates the performance of its consultant annually. In 2017, the Committee considered whether Semler Brossy was “independent,” pursuant to SEC and NYSE rules and our corporate governance documents, and determined that Semler Brossy and its consultants meet those independence standards. In addition, based on its evaluation of Semler Brossy’s independence and information provided by Semler Brossy, the Committee also determined in 2017 that Semler Brossy’s services did not present any conflict of interest.

The Committee has utilized the services of Semler Brossy since 2008. Semler Brossy is compensated on an hourly billing basis. Invoices are directed to and reviewed and approved by the Chairperson of the Committee before payment by Safeguard.

With respect to the New Strategy, Semler Brossy provided assistance to the Committee regarding compensation changes for executives and directors in support of the New Strategy, which included providing competitive information on similar initiatives, developing alternatives and working with the Committee’s other advisors to finalize executive employment agreements and long-term incentive programs.

Setting Executive Compensation

The Committee believes that a very significant portion of each executive’s total compensation should be variable or “at-risk.” It is the view of the Committee that the greater the ability of an executive (based on role and responsibilities at Safeguard) to impact Safeguard’s achievement of its short- and long-term objectives, the greater the percentage of such executive’s overall compensation that should be “at-risk.” In 2017, the Committee principally utilized variable/at-risk cash compensation and time-based equity awards to pursue its objectives in this regard. See “New Strategy - Changes in Compensation Policies and Practices” below.

Because no deployments were made in 2017 into new partner companies and, therefore, a pool of new partner companies to measure performance against does not exist, for the grants made in 2017, the Committee (1) chose to reduce the opportunity to earn long-term incentives by approximately 40% for each of Messrs. Zarrilli, McGroarty and Sisko as compared to the grants made in 2016 and (2) awarded such incentives solely$1.00 per share special dividend. Moving forward, we anticipate additional actions in the form of restricted stock grants subjectrepurchases and/or special dividends based on available cash resources, prevailing market conditions and other factors.

Principles of Accounting for Ownership Interests

We account for our ownership interests using one of the following methods: Equity or Other. 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.

Equity Method. We account for 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/or limited partner interests. Under the equity method of accounting, our share of the income or loss of the company is reflected in Equity income (loss), net in the Consolidated Statements of Operations. We report our share of the income or loss of the equity method companies on a one quarter lag. We include the carrying value of equity method companies in Ownership interests and advances on the Consolidated Balance Sheets.

When the carrying value of our holdings in an equity method company is reduced to time-based vesting. This compareszero, 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 company. When the equity method 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.

Other Method. We account for our equity interests in companies which are not accounted for under the equity method or fair value method as equity securities without readily determinable fair values. We account for these securities based on our original cost less impairments, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar securities of the same issuer. Under this method, our share of the income or losses of such companies is not included in our Consolidated Statements of Operations. We include the carrying value of these investments in Ownership interests and advances 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 as described in Note 1 to our Consolidated Financial Statements, the most significant relate to impairment of ownership interests and advances.

Impairment of Ownership Interests and Advances

On a periodic basis, but no less frequently than at the end of each quarter, we evaluate the carrying value of our ownership interests 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. Any 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 an ownership interest is not increased if circumstances suggest the value of the 2016 grantscompany has subsequently recovered.

The fair value of privately held 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.

Our 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 and advances 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 other 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.

Total impairment charges related to our Ownership interests and advances were awarded at a ratioas follows: 

Impairment charges related to equity method companies are included in Equity income (loss), net in the Consolidated Statements of 1/3Operations. Impairment charges related to other investments are included in time-based restricted stockOther income (loss), net in the Consolidated Statements of Operations.

Results of Operations

We operate as one operating segment based upon the similar nature of our technology-driven companies, the functional alignment of the organizational structure, and 2/3the reports that are regularly reviewed by the chief operating decision maker for the purpose of assessing performance and allocating resources.

There is intense competition in performance based stock units.the markets in which our 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.

The following graphs representis a listing of certain of our ownership interests as of December 31, 2020 and December 31, 2019.

* These entities were sold subsequent to December 31, 2020.  See Note 16 - Subsequent Events, of the percentageconsolidated financial statements.

Year ended December 31, 2020 versus year ended December 31, 2019

General and Administrative Expense. Our general and administrative expenses consist primarily of total 2017employee compensation, insurance, office costs, travel-related costs, depreciation, office rent and professional services such as consulting, legal, and accounting. General and administrative expense also includes stock-based compensation expense which consists primarily of expense related to grants of stock options, restricted stock and deferred stock units to our employees and directors. General and administrative expense decreased $0.5 million for the year ended December 31, 2020 compared to the prior year primarily due to decreases in depreciation of $0.8 million, employee compensation of $0.4 million, stock-based compensation of $0.3 million, lower office rental costs of $0.2 million, lower professional fees of $0.4 million, certain 2019 retirement costs that did not recur of $0.2 million and other various costs, which were partially offset by $1.8 million of higher severance charges and higher insurance costs of $0.3 million.  General and administrative expenses include amounts estimated for the Transaction Bonus Plan (the "LTIP"), which is a component of employee compensation.  As described in Note 12 in the accompany consolidated financial statements, the LTIP provides a cash bonus pool to employees based upon meeting certain thresholds of sales of the Company's ownership interests.  Expense recognized pursuant to the LTIP was $1.3 million and $0.5 million during the years ended December 31, 2020 and 2019, respectively.  No amounts have been paid yet according to the terms of the LTIP, however $1.5 million is presented as a current liability at December 31, 2020.  General and administrative expense also includes stock based compensation expense of $965,000 for the year ended December 31, 2020 as compared to $1,237,000 for the year ended December 31, 2019.  Stock based compensation for the various elements (assumingyear ended December 31, 2020 includes the short-term and long-term awards are paid at target levels) for our Chief Executive Officer (approximately 70%impact of hisa larger proportion of management's compensation, being variable/at-risk) andincluding a portion of previously existing accruals under the average percentage of total compensation for each of these elements for the other two named executive officers (approximately 59% of their collective compensation being variable/at-risk) in 2017, further illustrating our emphasis on pay for performance:

Safeguard management provides the Committee with comprehensive tally sheets on an annual basis to facilitate the Committee’s review of the total compensation of our named executive officers and other senior executives.

Specifically with regard to our named executive officers, the Committee annually reviews each element of total compensation and compares them to comparable elements at a group of specific companies and industries against which we believe we compete for talent and for shareholder investment, including the venture capital and private equity industries. The Committee also reviews each element of compensation by reference to industry-specific compensation surveys. The analysis provided to the Committee by Semler Brossy at its meeting in July 2016 for purposes of the Committee’s consideration of 2017 cash and total compensation levels measured our compensation against data from the following sources:

The Committee annually evaluates the companies and surveys used for comparison purposes to be certain that the comparables reviewed by the Committee remain appropriate given mergers/acquisitions that may have occurred and any changessettled in relevant business scope. In connection with the commencement of its process for its 2017 compensation review, in July 2016 the Committee determined that reviewing compensation from multiple perspectives was still appropriate given Safeguard’s unique business model. At such time, when the Committee prepared to conduct its annual review of total compensation levels for 2017, Semler Brossy did not recommend any changes to the proxy peer group. In July 2017, when the Committee prepared to conduct its annual review of total compensation levels for 2018, Semler Brossy recommended that the Committee remove American Capital Ltd. from the peer group (as American Capital Ltd. had been acquired). The Committee concurred with such recommendation and American Capital Ltd. was excluded in the competitive assessment used to determine the long-term incentive values for the named executive officers in connection with the December 2017 equity grants.

Recognizing that our business strategy, industry focus, and diverse array of partner companies make comparisons to other companies difficult, and based on the inherent challenge in matching companies, job positions and skill sets, the Committee has looked to competitive information for general guidance rather than rigid adherence to specific percentages. The Committee has determined that the overall objectives of our compensation philosophy are better achieved through flexibility in determining pay levels to address differences in duties and responsibilities, individual experience, skill levels and achievements and any retention concerns.

Outcome of the 2017 Say-on-Pay Vote and Shareholder Outreach

At our 2017 annual meeting of shareholders, our shareholders approved the compensation of our named executive officers, with approximately 82% of shareholder votes being cast in favor of our say-on-pay proposal on executive compensation. The Committee believes that this support from our shareholders is evidence that our pay-for-performance policies were aligned with our shareholders’ interests.

The Committee will continue to consider the outcome of our shareholders’ advisory vote on executive compensation and shareholder feedback when making future compensation decisions for our named executive officers.

2017 Compensation Program

During 2017, the Committee used the following principal elements of executive compensation to meet its overall goals:

* Note that this statement refers to grants made at the end of 2016 as we entered the 2017 calendar year. Because no deployments were made in 2017 into new partner companies and, therefore, a pool of new partner companies to measure performance against does not exist, for the grants made in 2017, long-term performance-based incentives were not awarded in 2017.

Base Pay. Base pay is established initially on the basis of several factors, including market competitiveness; past practice; individual performance and experience; the level of responsibility assumed; the level of skills and experience that can be leveraged across our partner companies to facilitate their growth and success; and individual employment negotiations with executives. Each of our named executive officers has an agreement with us that sets a minimum base salary.

Base salaries typically are reviewed annually (at the end of one year and the beginning of the upcoming calendar year) by the Committee, as well as Director compensation, which in connection with a promotion or other changes2020 was settled entirely in job responsibilities. As noted above, Safeguard believes it competesvested stock.

Other income (loss), net. Other income (loss), net decreased by $20.0 million for executive talent with venture capitalthe year ended December 31, 2020, compared to the prior year.  During the year ended December 31, 2020, the Company recorded impairments of $8.8 million related to the ownership interests of T-REX, b8ta and private equity firms, among others. In considering whether to adjust base salary levels of anyothers accounted for under the Other method. The impairments were determined based on declines in the fair value of our executivesownership interests resulting from reduced valuation expectations and extended exit timelines resulting from the more challenging mergers and acquisitions environment related to COVID-19 and the related uncertain economic impact.  The Company also recorded a $0.3 million reduction in the carrying value of an other equity security based on an observable price change. Partially offsetting these impairments, was a $1.5 million non-cash gain for 2017, the Committee took into account:

The Committee does not typically make adjustmentsincrease in the fair value our ownership interest in Flashtalking based upon an observable price change. Other income (loss), net for the year ended December 31, 2019 included $4.5 million of non-cash gains on the increase in the value of certain equity securities based upon observable price changes, $5.1 million of income related to the base salary levelsdecrease in the fair value of the Credit Facility repayment feature liability and a $1.7 million gain resulting from the elimination of the remaining estimated liability established related to the retirement for our executives based on cost-of-living typesa former Chairman and CEO of factors.

In December 2016, the Committee reviewedCompany. The Credit Facility was repaid in full during 2019 resulting in the base salarieselimination of our named executive officers, the individual performance of each of our named executive officers and the base salary compensation of our named executive officers relative to our proxy peers and, based on such review, the Committee determined that the base salaries of our named executive officers for 2017 would remain the same as the respective base salaries of our named executive officers for 2016.

Annual Incentives.Credit Facility repayment feature liability.

Incentive Opportunity.Interest Income. Interest income decreased $1.8 million for the year ended December 31, 2020 compared to the prior year primarily attributable to lower average notes receivable, lower average investment and cash equivalent balances at lower rates in 2020.

Interest Expense. Interest expense decreased $14.0 million for the year ended December 31, 2020 compared to the prior year due to the pay-off of borrowings under the Credit Facility in 2019.

Equity Income (Loss), net. The Committee annually awards bonusesEquity income (loss), net fluctuates with the number of companies accounted for under the equity method, our voting ownership percentage in those companies and the net results of operations of those companies. We recognize our share of losses to the extent we have cost basis in the equity of the company or we have outstanding commitments or guarantees. Certain amounts recorded to reflect our executives under Safeguard’s Management Incentive Program (“MIP”). The MIP is designed to provide a variable short-term incentive to eachshare of the income or losses of our named executive officers and our other executives and employees principallycompanies accounted for under the equity method are based on Safeguard’s annual performance. These awards are determined annually following the endestimates and on unaudited results of each calendar year, based on the Committee’s assessment of: (i) the achievement by Safeguardoperations of its objectives as a whole;those companies and (ii) if applicable, the achievement by certain executives of individual performance objectives, as measured against target personal and corporate objectives established at the beginning of the year. Payments may be made in cash and/or equity, in the Committee’s discretion. The awards have been paid solely in cash in recent years. Neither the actual awards to be made under the MIP nor the minimum long-term value of any equity grants made is guaranteed.

For 2017, the Committee determined that each of our named executive officers and other senior executives would be eligible to receive an award under the MIP based 100% on the achievement by Safeguard of corporate objectives. Other employees also participated in our 2017 MIP. These other participants were eligible for MIP awards based on varied ratios of corporate and individual achievement based upon each individual’s position within Safeguard. The Committee may adjust the relative weightings of corporate and individual objectives for specified employees under our MIP, including our named executive officers,require adjustments in the future in lightwhen audits of Safeguard’s overall compensation goals.these entities are made final. We report our share of the results of our equity method companies on a one quarter lag basis.

We believe that short-term compensation (suchEquity income (loss), net decreased $85.0 million for the year ended December 31, 2020 compared to the prior year. The components of equity income (loss), net for the years ended December 31, 2020 and 2019 were as base salary and annual incentive awards under the MIP) should not be based solely on the short-term performance of our stock, whether favorable or unfavorable, but also on our executives’ management of Safeguard towards achieving the annual goals that we believe will contribute to shareholder value.follows:

2017 Performance Measures. Specifically, the Committee approved the following weighting for the corporate objectives under the 2017 MIP:

The Committee established the specific performance-based corporate and partner company target metrics based on recommendations of management and taking into consideration the stage of development of each of our partner companies. Within the specific parameters of the 2017 MIP, the Committee reserved a significant level of discretion in reaching final determinations of achievement levels attained, as described above. The determination to reserve such discretion and flexibility arose from the Committee’s belief, based on prior experience, that, given Safeguard’s business activities, as circumstances change throughout a given fiscal year, on a macro and/or a micro level, specific/rigid formulas or guidelines for measuring achievement set in the beginning of a year, if strictly applied, may well incent activity that does not result in, or compensation grants that do not match, actual shareholder value creation. The award criteria finally adopted were designed to provide management with a meaningful guideline for meeting the Committee’s criteria for a target award, but not guarantee achievement or make achievement somewhat inevitable or impossible. This approach is also intended to provide the possibility of exceeding target awards and some economic recognition, albeit reduced, for near achievement of the target.

The following table summarizes the specific types of performance metrics that we used to assess our partner companies included in the 2017 MIP. The achievement of the specific performance objectives set for our partner companies represents the basis upon which the Committee determined corporate achievement attributable to our partner companies under the 2017 MIP.

Partner Companies

2017 Objectives / Targets (may include one or more of the following performance metrics)

Consistent with their respective employment agreements and Safeguard’s overall compensation philosophy, and based upon multiple factors reviewed by the Committee, including an assessment of competitive compensation data in the market in which Safeguard competes for executive talent and to better align the interests of Safeguard management and our shareholders, the Committee set the following target MIP awards for 2017 for our named executive officers:

There were no mandatory minimum awards payable undermaterial gains or losses on sales of ownership interests for the 2017 MIP, and awards were paid based uponyear ended December 31, 2020, however Sonobi was sold resulting in $6.6 million of cash proceeds.  The amounts reported as gains on sales of ownership interests for the Committee’s determinationyear ended December 31, 2019 are comprised primarily of the level of achievement of the corporate (and, for certain employees, individual performance) objectives. Payouts were measured in the aggregate on a sliding scale basis from 0% to a possible 150%.

Determination of 2017 Payouts.

In late 2017 and early 2018, the Committee reviewed Safeguard’s corporate performance against the corporate objectives set forth above and determined the following payout levels (with the final payouts conditioned upon the completion of the audit of our 2017 consolidated financial statements and internal control over financial reporting without any unexpected material adjustments, each of which has now occurred). Overall, the Committee determined that 2017 was a year of positive results for Safeguard, though not all goals were achieved. The key factors upon which the Committee based its determination of the payout level are also summarized below.

Based on its assessment of the partial achievement of the 2017 MIP corporate objectives, the Committee authorized the following individual awards to Safeguard’s named executive officers. The Committee determined, based on consultations with the Committee’s independent consultant and analysis of datagains related to incentive payment practices being followed within Safeguard’s peer groupthe sale of Propeller of $35.1 million and throughoutTransactis of $50.7 million, but also include the U.S. financial services industry as a whole,collection of escrow from various prior transactions, including $3.8 million related to pay 2017 MIP payments to our executives solely in cash.

Long-Term Incentives.

As noted above, we compete for executive talent with venture capital and private equity firms, and the Committee reviews and includes comparative information regarding venture capital and private equity industry compensation practices as part of its overall compensation analysis. In these industries, executives (referred to as “managing partners” or “managing directors”) typically have compensation programs heavily weighted towards long-term incentive, structured as a share of the fund’s profits, payable in cash (referred to as “carry”). We historically have not, and in 2017 did not, provide our executives with the equivalent of a “carry.” Instead, as part of our overall executive compensation program we review our equity compensation plans in light of the type of economic benefit and performance metrics that would be included in a “carry” approach to compensation. We compared the initial equity awards made to our named executive officers against our assessment of the carry, which would typically be provided to executives in positions of comparable responsibility at private equity and/or venture capital firms at that time. Based upon information available to the Committee through its consultant, we continually reassess the competitiveness of our executives’ long-term compensation opportunity against a carry methodology as well as other relevant metrics from other types of businesses within our peer group. The potential value for long-term equity grants is intended to be competitive with those held by comparable executives at companies included in the comparison data that is reviewed annually by the Committee (as adjusted for the senior executive’s experience).

Through 2017, the principal approach utilized by the Committee to meet the need for a long-term incentive component to Safeguard’s executive compensation program has been the granting of significant amounts of equity to our named executive officers. Our equity compensation plans allow for the grant of: (i) stock options, (ii) restricted stock, (iii) restricted stock units (which include deferred stock units (“DSUs”) and performance stock units (“PSUs”)) and (iv) such other equity-based awards as the Committee may determine to be appropriate from time to time. The mix of the types of equity-based awards have varied from time to time.

Beginning in 2013, the Committee decided that equity grants in the form of restricted stock and restricted stock units would be the principal component of Safeguard’s long-term incentive program, although stock options have been granted from time to time. The decision to use primarily restricted stock and restricted stock units, a significant percentage of which have been subject to performance-based vesting based on the capital-return based vesting model (which the Committee initially implemented in 2008 and is discussed in more detail below) was based, in part, on a recommendation from the Committee’s compensation consultant to further align management’s interests with our shareholders’ interests and to create an appropriate balance for our senior executives between incentive and retention. The Committee also determined at that time that such capital-return based vesting model best aligned the long-term incentive award to the factors critical to the creation of shareholder value.

Entering 2017, the Committee once again determined to allocate equity grants (both initial and any annual grants) between (i) equity grants subject to performance-based vesting using the capital-return based vesting model, as discussed in more detail below, and (ii) equity grants subject to simple time-based vesting. It was the Committee’s view that allocating equity grants in this way aligned the long-term interests of Safeguard management and our shareholders and created a balance for our senior executives between incentive and retention. The Committee has always reserved the right to allocate equity grants in a different manner as circumstances dictate.

Our performance-based equity grants that remain outstanding are all subject to “capital-return based vesting.”Cask Data.

The capital-return based vesting model vestsunrealized dilution gains for the particularyear ended December 31, 2020 were the result of Aktana, meQuilibrium, Moxe and Syapse, who each raised additional equity grants awardedcapital that diluted the Company's interest in those entities. The unrealized dilution gains for the year ended December 31, 2019 were related to meQuilibrium, Moxe, Syapse, Trice and T-REX.

During the year ended December 31, 2020 the Company recorded impairments of $11.3 million related to the ownership interests of WebLinc, Inc., QuanticMind, Inc. and Sonobi accounted for under the equity method. The impairments were determined based on aggregate cash returns received by Safeguarddeclines in the fair value of our ownership interests resulting from reduced valuation expectations and extended exit timelines resulting from the ultimate monetizations of phantom “pools” of Safeguard’s partner companies that were typically first funded duringmore challenging mergers and acquisitions environment related to COVID-19 and the same calendarrelated uncertain economic impact.  The loss on impairments for the year in which those equity grants were made.ended December 31, 2019 is due to NovaSom, Inc.'s August 2019 bankruptcy filing.

The capital-return based vesting model has evolved over time as conditionsdecrease in our share of losses of our equity method companies for the marketplace have changed and as the Committee has gained further experience with predicting intended or targeted outcomes. The basic capital-return based vesting model utilized entering 2017 provided that, subject to minimum time periods having expired with respect to grants that were granted on or after 2014, vesting will begin to occur once a minimum cash return hurdle with respect2020 year compared to the relevant partner company pool is reached and will continue to occur incrementally over time as cash returned on the relevant partner company pool approaches targeted levels. In all instances since the inception of the capital-return based vesting model, adjustments are made to the required cash return hurdle amounts if and when Safeguard deploys additional capital into any of the partner companies included in the relevant pool of partner companies.

For the performance-based equity grants that were granted through 2013, vesting of such grantsbegins to occur after cash proceeds received by Safeguard from the ultimate monetization of the pool of partner companies applicable to such grants equals the aggregate capital deployed by Safeguard in such pool of partner companies plus an amount approximating Safeguard’s annual overhead (“allocated overhead”). Proceeding on a linear basis from that point, all such grants will fully vest upon the achievement of a predetermined target amount of proceeds that must be received by Safeguard from the ultimate monetization of the pool of partner companies applicable to such grants. For such performance-based equity grants made through 2012, such predetermined target amounts of proceeds needed for full vesting are equal to 3 times the aggregate capital deployed by Safeguard in the relevant pool of partner companies (plus allocated overhead). For such performance-based equity grants made in 2013, such predetermined target amounts of proceeds needed for full vesting are equal to 2.4 times the aggregate capital deployed by Safeguard in the relevant pool of partner companies (plus allocated overhead). The foregoing change in target amounts for full vesting (i.e., 2.4 times capital deployed for 2013 deployments versus 3 times capital deployed for deployments through 2012)prior year period was due to the Committee’s determination that such a reduction was appropriate given the overall lower returns experienced generally within the venture capital and private equity markets since 2008. For the same reason, the Committee decided to further revise the predetermined target amounts of proceeds needed for initial vesting and full vesting for performance-based equity grants that were granted starting in 2014, and also considered the actual vesting that was occurring over time relating to the partner company pools previously createddecrease in the earliestnumber of ownership interests accounted for under the equity method and a decrease in losses associated with the remaining ownership interests, including the $1.8 million benefit that resulted from the recognition of revenue in the current period at one of our ownership interests upon the adoption of Accounting Standards Update 2014-09, Revenue from Contracts with Customers, which was considered deferred revenue at the beginning of their adoption period under the new standard.

Income Tax Benefit (Expense)

Income tax benefit (expense) was $0.0 million for the years ended December 31, 2020 and 2019. 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 benefit of the capital-return based vesting model as well as market feedback regarding Safeguard’s long-term incentive program.net operating loss that would have been recognized in each year was offset by changes in the valuation allowance.

For performance-based equity grants that were granted since 2014, the predetermined target amounts of proceeds that must be received by Safeguard from the ultimate monetizations of the applicable pool of partner companiesbefore any vesting occurs for such equity grants was raised to 1.25 times the aggregate capital deployed by Safeguard in the applicable pool of partner companies (plus allocated overhead).Subject to minimum time periods having been reached as described below, such performance-based equity grants will vest, as follows:Liquidity And Capital Resources

* Notwithstanding the above vesting thresholds, so as to ensure against the unlikely possibility that performance-based equity grants do not vest too quickly (for example, if cash proceeds relating to a particular pool are achieved very soon after the equity grant date), the Committee required that such performance-based equity grants not vest (or cash amounts be paid) more quickly than based upon the following schedule following grant:

In addition, recipients must be actively employed/providing service to Safeguard through such dates.

**Cash amounts will continue to accrue/be paid at the rate of 25% of performance grant values for each .25x of additional return of deployed capital in the applicable pool; provided, however, no cash amounts shall accrue/be payable to any participant who is considered a named executive officer (for reporting purposes under the Securities Exchange Act of 1934) relating to any returns of capital beyond 3x deployed capital in the applicable pool, effectively capping the combined equity and cash incentive payout for named executive officers at 200%. No further vesting or cash accruals/payments will be made beyond the term of the grant, which is 10 years following the grant date.

As referenced elsewhere in this CD&A, in January 2018, Safeguard announced its New Strategy, representing a significant change in its business strategy going forward. See also “New Strategy - Changes in Compensation Policies and Practices” below. Because no deployments were made in 2017 into new partner companies and, therefore, a pool of new partner companies to measure performance against does not exist, for the grants made in 2017, the Committee (1) chose to reduce the opportunity to earn long-term incentives by approximately 40% for each of Messrs. Zarrilli, McGroarty and Sisko as compared to the grants made in 2016 and (2) awarded such incentives solely in the form of restricted stock grants subject to time-based vesting. This compares to the value of the 2016 grants that were awarded at a ratio of 1/3 in time-based restricted stock and 2/3 in performance based stock units.

As of December 31, 2017,2020, the following vesting under capital-return based vesting grantsCompany had been achieved:$15.6 million of cash and cash equivalents.

During April 2019, the Company made a $24.0 million principal payment to its Lender and a related make-whole interest payment of $2.9 million. During July 2019, the Company made a $49.5 million payment to its Lender consisting of $44.5 million of principal, $4.1 million of make-whole interest and $0.9 million of accrued interest, which satisfied all obligations under the Credit Facility.

More information regardingIn January 2018, Safeguard announced that, from that date forward, we will not deploy any capital into new opportunities and will focus on supporting our existing companies and maximizing monetization opportunities to return value to shareholders. In that context, we have, are and will consider initiatives including, among others: the equity grants made tosale of our named executive officers during 2017 can be found below under “Executive Compensation — Grantsindividual ownership interests, the sale of Plan-Based Awards – 2017”certain ownership interests in secondary market transactions, or a combination thereof, as well as “New Strategy - Changes in Compensation Policies and Practices.”other opportunities to maximize shareholder value.

The Committee annually reviewsSubsequent to the equity awards held by our executivesdebt repayment, on November 7, 2019, the Company's Board of Directors declared a special cash dividend of $1.00 per share, payable on December 30, 2019 to shareholders of record as of the close of business on December 23, 2019. We anticipate continuing to return value to shareholders in the form of stock repurchases and/or dividends based on prevailing market conditions and other employeesfactors when and also may consider awards periodically during a year in an effort to retain and motivate employees and to ensure continuing alignment of executive and shareholder interests. Grants may be made at regularly scheduled meetings or at special meetings convened to approve compensation arrangements for newly hired executives or for executives who have been promoted or are otherwise subject to changes in responsibilities. Any stock options granted are granted with an exercise price equal to the average of the high and low trading prices of our common stock on the date of grant. For administrative convenience, the Committee has adopted a policy of generally issuing approved grants on the last business day of the quarter for new hires and on the last business day of the month in which grants are approved by the Committee for all other grants.if additional liquidity becomes available.

Perquisites (fringe benefits). During 2017, we provided life insurance coverage ranging from $750,000 to $1,000,000 to eachIn 2015, the Company's Board of our named executive officers at an average annual cost to Safeguard of approximately $2,466 per named executive officer. Our named executive officers also are eligible to participate in the fringe benefits that Safeguard may offer,Directors authorized us, from time to time and depending on a non-discriminatory basismarket conditions, to repurchase up to $25.0 million of the Company's outstanding common stock. During the years ended December 31, 2020 and 2019, we did not repurchase any shares under this authorization.

Our ability to generate liquidity from transactions involving our ownership interests has been adversely affected from time to time by adverse circumstances in the U.S. capital markets and other factors, including the impact of COVID-19.  We may be required to provide additional capital to our companies, which may cause us to face liquidity issues that will constrain our ability to execute our business strategy and limit our ability to provide financial support to all of our employees.existing companies in the amounts that we desire. 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 provide additional funding to existing companies where we have an ownership interest 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 our ownership interests, we may receive proceeds from such sales, which could increase our liquidity. From time to time, we are engaged in discussions concerning deployments and dispositions which, if consummated, could impact our liquidity, perhaps significantly. The Company believes that its cash and cash equivalents at December 31, 2020 will be sufficient to fund operations past one year from the issuance of these financial statements.

SeveranceAnalysis of Consolidated Cash Flows

Cash flow activity was as follows: 

Net Cash Used In Operating Activities

Year ended December 31, 2020 versus year ended December 31, 2019. Net cash used in operating activities decreased by $11.8 million for the year ended December 31, 2020 compared to the prior year. The activity during the year ended December 31, 2020 was primarily the result of various non-cash adjustments to net loss, including the $20.0 million impairment losses and Change-in-Control Arrangements$9.4 million of equity loss, which were partially offset by non-cash gains, net, of $1.2 million for observable price changes.  The Company did not make any cash interest payments for the year ended December 31, 2020 as compared to $11.5 million of cash interest payments for the year ended December 31, 2019. The activity during the year ended December 31, 2019 was primarily the result of various non-cash adjustments to net income, including $67.2 million of equity income, $3.0 million of impairments, a $5.1 million loss from the increase in the fair value of the repayment feature derivative, a $4.5 million gain for an observable price change, depreciation, and amortization of debt discount of $3.5 million.

Net Cash (Used in) provided by Investing Activities

Year ended December 31, 2020 versus year ended December 31, 2019. Net cash (used in) provided by investing activities decreased by $127.6 million for the year ended December 31, 2020 compared to the prior year.  The decrease primarily related to the prior year's $104.3 million of proceeds from the sale of ownership interests, primarily Propeller and Transactis in the previous year, as compared to the $6.6 million of proceeds from the sale of Sonobi in the third quarter of 2020.  In addition, the Company's investing outflows resulting from acquisitions of ownership interests and advances to ownership interests during the year ended December 31, 2020 were $7.5 million less than the prior year. The Company also did not have any marketable security activity during the year ended December 31, 2020 as compared to $37.9 million of marketable securities sales exceeding purchases during the year ended December 31, 2019.

Net Cash Used In Financing Activities

Year ended December 31, 2020 versus year ended December 31, 2019. Net cash used in financing activities increased by $89.4 million for the year ended December 31, 2020 compared to the prior year. There were no significant financing activities for the year ended December 31, 2020. The primary financing activities in 2019 were the $20.7 million special dividend and the repayment of the Credit Facility for $68.6 million. 

Contractual Cash Obligations and Other Commercial Commitments

(a)  In 2015, we entered into an agreement for the lease of our former principal executive offices which expires in April 2026.  Payments pursuant to this lease are approximately $3.2 million through expiration, however, in March 2019 we entered into a sublease for this office space which is also expected to result in future aggregate sublease receipts of $3.0 million through April 2026. 

(b)  The  maximum aggregate exposure under employment and severance agreements for remaining employees was approximately $2.3 million at December 31, 2020, which includes $0.5 million of annual bonus amounts that will be settled in 2021 in the normal course of business.  We are involved from time to time in various claims and legal actions arising in the ordinary course of business. In the opinion of management, the ultimate disposition of any of these matters which are currently pending will not have a material adverse effect on our consolidated financial position or results of operation.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Not applicable for a smaller reporting company.

Item 8. Financial Statements and Supplementary Data

The following Consolidated Financial Statements, and the related Notes thereto, of Safeguard Scientifics, Inc. and the Reports of Independent Registered Public Accounting Firm are filed as a part of this Form 10-K.

Report of Independent Registered Public Accounting Firm

To the Shareholders and Board of Directors
Safeguard Scientifics, Inc.:

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheets of Safeguard Scientifics, Inc. and subsidiaries (the Company) as of December 31, 2020 and 2019, the related consolidated statements of operations, comprehensive income (loss), changes in shareholders’ equity, and cash flows for the years then ended, and the related notes (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for the years then ended, in conformity with U.S. generally accepted accounting principles.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of a critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Impairment of Ownership interests and advances

As discussed in Note 1 and Note 2 to the consolidated financial statements, the Company’s ownership interests and advances balance as of December 31, 2020 was $50.4 million, of which $30.4 million is in equity method companies and $20.0 million is in other method companies and funds.  Impairment losses recognized in equity income (loss), net, and other income (loss), net, were $11.3 million and $8.8 million, respectively, for the year ended December 31, 2020. On a periodic basis, but no less frequently than quarterly, the Company evaluates the carrying value of its ownership interests and advances for impairment based on achievement of business plan objectives and milestones, the estimated fair value of each company relative to its carrying value, the financial condition and prospects of the company, and other relevant factors. The business plan objectives and milestones the company considers 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. Based on the above, management then determines whether there has been an other than temporary decline in the value of its ownership interest in the company. If it is determined that there has been an other than temporary decline in the value of its ownership interests in the company, impairment is measured as the amount by which the carrying value of an asset exceeds its estimated fair value. The measurement of fair value of privately held 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, valuation of comparable public companies, and the valuation of acquisitions of similar companies.

We identified the evaluation of impairment of ownership interests and advances as a critical audit matter. Specifically, the assessment encompassed the evaluation of management’s determination of the recognition of an other than temporary decline in value of its ownership interest in a company. The assessment also included the evaluation of the measurement of impairment. Both evaluations involved significant auditor judgment and subjectivity in assessing the results of the impairment analysis because the estimated fair value of certain ownership interests and advances approximate their carrying values, indicating a higher risk of impairment due to measurement uncertainty. The impairment analysis also involved evaluating the valuation methods used to estimate the fair value, which included significant assumptions based on future events that are not under the control of management. Those significant assumptions included projected revenues, likelihood of transaction scenarios, the selection of peer companies and their corresponding trading multiples and the weightings of different outcomes in developing the estimated fair value of the ownership interests. Changes to those assumptions could have a significant effect on the fair value.  In addition, the evaluation of impairment required the involvement of professionals with specialized skills and knowledge to assist in evaluating the audit evidence obtained from these procedures.

The following are the primary procedures we performed to address this critical audit matter. We evaluated the design of certain internal controls related to the Company’s impairment assessment. This included controls over the recognition of other than temporary declines in value and the impairment analysis, including financial condition, prospects and other factors present at the company as well as the identification and determination of the significant assumptions used in estimating the fair values. We evaluated the valuation methods and tested the significant assumptions used by management including projected revenue, likelihood of transaction scenarios, the selection of peer companies and their corresponding trading multiples, and the weightings of different outcomes in developing the estimated fair value. Evaluating management’s significant assumptions related to the projected revenue involved considering the equity investees’ historical revenues and prospects.  In evaluating the likelihood of transaction scenarios, we considered recent financing activities and proposed transactions. Professionals with specialized skills and knowledge were used to assist in evaluating the methods and assessing the peer companies and their corresponding trading multiples assumptions by considering public companies with similar business models that operate in similar industries and by independently obtaining market data for the corresponding peer companies and comparing key characteristics such as size and growth prospects.

/s/ KPMG LLP

We have served as the Company’s auditor since 1986.

Philadelphia, Pennsylvania
March 5, 2021

SAFEGUARD SCIENTIFICS, INC.

CONSOLIDATED BALANCE SHEETS

(In thousands, except per share data)