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Executives

Andy Lietz – Chairman

Deirdre Blackburn – Secretary

Peter Boni – Chief Executive Officer

Steve Zarrilli – Chief Financial Officer

Jim Datin – Executive Vice President, Life Sciences

Safeguard Scientifics, Inc. (SFE) Annual Shareholder Meeting Call May 24, 2012 8:00 AM ET

Andy Lietz – Chairman

Good morning. I’d like to welcome all of you here to the Annual Meeting of Shareholders. I am Andy Lietz, Chairman of the Board of Directors of Safeguard Scientifics and I will preside over the meeting this morning.

I hereby call the meeting to order. Now, before proceeding to the business of the meeting, I’d like to introduce the other directors and officers of Safeguard who are with us today as well as some other invited guests. The other members of Safeguard’s board who are present here today are Peter Boni, Julie Dobson, George MacKenzie, George McClelland, Jack Messman, John Roberts, and Robert Rosenthal.

Of the Safeguard officers that are present here today are Jim Datin, Executive Vice President and Managing Director of our Life Sciences Group; Brian Sisko, Vice President and General Counsel; Steve Zarrilli, Senior Vice President, Chief Financial Officer; and John Shave, Vice President of Business Development and Corporate Communications. I’d also like to introduce Mike Doyle, Brian Stewart, Gerry McGinnis, and David Green of KPMG Safeguard’s Registered Public Accounting Firm and Deirdre Blackburn, the company’s Secretary who will act as Secretary of the meeting.

I hereby appoint Deirdre Blackburn to act as judge of election. Deirdre?

Deirdre Blackburn – Secretary

Mr. Chairman notices this meeting has been sent to all shareholders entitled to vote at the meeting, the certified list of shareholders entitled to vote at this meeting is available and maybe examined by any shareholder present. More than a majority of the company’s outstanding shares entitled to vote are represented either in person or by proxy of this meeting, which is enough to constitute a quorum.

Andy Lietz – Chairman

Since the quorum is present, we can now proceed with the business of the meeting. If you have previously voted, you do not need to vote in person unless you wish to change your vote. Ballots have been made available to those shareholders who indicated a desire to vote in person. If any shareholder has not yet received a ballot and wishes to vote in person, please raise your hand so that we may distribute one to you at this time.

I will review the other matters to be voted upon and then we will open the polls for voting. The first order of business is to elect eight directors to whole office for the next year. The persons nominated by the board for election as directors are Peter Boni, Julie Dobson, George MacKenzie, George McClelland, Jack Messman, John Roberts, Robert Rosenthal, and me.

The second order of business is the proposal to ratify the appointment of KPMG as Safeguard’s Independent Registered Public Accounting Firm for 2012.

The third and final order of business is a vote on a non-binding advisory resolution as set forth in the proxy statement concerning the compensation of Safeguard’s named executives. Those being all the formal items that come before the meeting for a vote, the polls are now open for voting. If you are voting by ballot, please mark your ballots and raise your hand, so that your ballot can be picked up and your votes are counted. Are there any other ballots that have not yet been collected? Since all shareholders desiring to vote have done so, I declare the poll is closed. The judge of election will now tabulate the votes. Deirdre, thank you very much.

The judge of election says give me a preliminary report of the voting, the tabulation of proxies and balance indicate that the nominees from the board have all been elected. Congratulations to all of you, the appointment of KPMG as Safeguard’s independent audit and registered public accounting firm have been ratified. And the non-binding advisory resolution concerning the compensation of our executive officers has been approved.

A written certification of the exact tabulation of the votes will be included in the minutes of this meeting. That concludes the formal 2012 Annual Meeting of Shareholders. I hereby declare this meeting adjourned. Peter Boni, our CEO will now give a short presentation about the company. Peter?

Peter Boni – Chief Executive Officer

Thanks, Andy. That was exceptional Mr. Chairman.

Andy Lietz – Chairman

Thank you.

Peter Boni – Chief Executive Officer

Good morning and welcome. Alright, I trust you all make yourselves familiar with our forward-looking statements as well. While we have had quite a ride in Safeguard Scientifics with a 59-year rich and colorful history, Safeguard as you recall started in the 50s as an industrial products holding company and it’s been somewhat of a familiar because it’s been able to move as the world has moved. Data processing services in the 70s, technology in the 80s, hardware, communications, software, three innovative companies, the first one of its kind in the New York Stock Exchange that actually the first one to do a subscription rights offering of a high-tech company. This is how Novell, Cambridge Technology Partners, QVC, Kanbay, Docucorp, whole host of high profile firms actually got a public phase.

In the 90s, it positioned itself as an internet incubator and when light was good, it was very, very good until that bubble burst. And when the bubble burst, the company like many firms in the internet bubble era and so on some difficulty while they were able to regroup with some stability brought into the firm through a group from GE at all that took majority stakes and some stable services businesses. The notion was the stability in the aftermath as the burst of the bubble would be a good thing.

The valuation really didn’t feel that way, however, because low growth, low valuation businesses with high CapEx requirements didn’t capture any imagination. So, new team, new strategy, in beginning of 2006, what this team did is fundamentally build value in the legacy businesses. We realized that value with some well-timed exits and we had two goals, number one to rebuild our holdings to be higher growth, higher valuation metric, low CapEx requirements, and at the same time transformed our balance sheet, which was leveraged one-to-one debt equity.

Today, we have some high growth businesses, a strong cash-on-cash return for those businesses. We have a record amount of net cash on our balance sheet and our debt equity ratio is 1:8 as suppose to 1:1 so, proven results, strong balance sheet, great team and moving forward. So, why on Safeguard Scientific stuff while we have full value here that had yet to be realized. We have some ownership stakes and some very exciting companies and a top team are showing some proven performance. The company has great financial strength, flexibility, liquidity, and a strong alignment of interest between our shareholders and our management.

The stock options and restricted stock grants have a vesting schedule that really requires good appreciation on our price per share as well as strong cash-on-cash return. So, this team cannot this pass up the mirror for full year to gain investor, we have to show true value for our shareholders hence we are really well aligned with our shareholders.

Among the team are Jim Datin, Jim runs our capital management activity for both the technology in the life sciences arena, Steve Zarrilli, our Chief Financial Officer, Brian Sisko, General Counsel, and John Shave, Business Development and Corporate Communications VP. They share something in common with the remainder of our management team. This team has C level operational experience in addition to private equity, venture capital, investment banking or deal experience. In Jim’s team, he has MDs and PhDs that have run businesses and have that kind of deal experience. So, we are not sitting on some board of a company giving advice based upon some case study we read in business school. There are hard-knocks of experience on everyone’s backs positive experience that make us a really terrific team.

We also are going to be advising council that my mother gave me many years ago, so I mean you are judged by the company you keep. And we have some terrific company, great alliances and syndication partners with some real leaders in the fields who include the venture capital arms of Glaxo, Johnson & Johnson, Pfizer, Lilly and the like. We have an advisory board, technology and life sciences individuals with strong and domain experience in the areas that are strategic to us to help us cull through and qualify our deal flow. They sit on boards, oftentimes alongside of us, and get consult to our firms, and on top of that, they bring deal flow to us. And our Board of Directors equally experienced technology, life sciences, venture capital, private equity finance, and the like, so the team we just need.

Let me ask Steve Zarrilli our Chief Financial Officer to review our strategy number one and then Jim Datin to review the targeting of some of our companies and some examples of our companies. Go ahead please.

Steve Zarrilli – Chief Financial Officer

Thanks Peter. Good morning. Our strategy is to principally deploy equity capital and growth stage enterprises. We will occasionally augment equity capital with debt financing. We also further complement our core development or core deployment activities through strategic platform initiatives – expansion initiatives involving co-manage fund arrangements. Our involvement with Penn Mezzanine as an example is illustrative of our platform expansion strategies. We seek to put capital into certain types of life science and technology companies, where we have substantial domain expertise and focus on sectors that we find compelling from a value and growth perspective.

Our goal is to target well times, risk-adjusted exits targeting a two to five times cash-on-cash return within three to five years from the date in which we initially deploy capital in the partner company. Safeguard is unique. We provide our shareholders with the opportunity to invest in an alternative asset management platform involving unique sectors of the economy. These sectors are generally focused upon by private asset managers requiring their shareholders to provide multi-year long-term commitments of capital. Safeguard is neither a venture fund nor a private equity firm and there are some unique differences.

First, we generally do not tell those early as a venture capital firm in the pursuit of an opportunity nor do we pursue companies that are as mature as those pursued by private equity firm. Second, we provide a unique combination of capital and functional expertise, which is more substantial than that, which is generally provided by other capital providers. These professionals, typically Safeguard employees, have a combination of investment, operational, and functional expertise. And finally, we provide a high degree of liquidity for those who participate as investors in Safeguard, which is much different than other alternative asset management platforms that they may pursue thus providing an accessible asset management class for our investors.

Our go-to-market strategy involves principally deploying up to $25 million of capital in these growth stage enterprises. We generally do that over a series of tranches of capital. We also seek to be generally the largest institutional investor within these partner companies and we use this influence by virtue of our ownership, which is usually targeted between 20% and 50% to help in the evolution of the business. We like other capital providers focus on certain critical aspects of these businesses with regard to competitive advantage, scalability, innovation, management capabilities. We look for certain economic trends that will ultimately provide growth opportunities and value creation. But at the end of the day, we want to make sure that we are influential in the development of these businesses and ultimately steer them towards our goal and ultimately their goal of a successful exit.

We focus a lot of our time principally on the East Coast of the United States with a particular emphasis in the Mid-Atlantic region of the U.S. This branded footprint of Safeguard has allowed us to become a very well recognized player in providing this type of capital within this region of the country. However, we are opportunistic and we’ll look for opportunities throughout the United States.

With that, I’m going turn it over to Jim Datin, who will provide you with a summary of our assets and some of our recent performance. Jim?

Jim Datin – Executive Vice President, Life Sciences

Thanks, Steve. Safeguard primarily put capital to work in two segments, life sciences and technology. This diversified strategy is intended to benefit from the growth and countercyclicality of these two sectors providing shareholders with the opportunities to realize value, more consistently compared to a fund focused on one sector. Within the life science and technology areas, we have three verticals each. In the life sciences, Safeguard targets high value areas of diagnostics, device, specialty pharma, and selected healthcare services, which represents lower technological and regulatory risk along with the near-term revenue.

In the technology sector, Safeguard typically deploys capital in recurring revenue companies including three segments, Internet/New Media, Healthcare IT, Financial Services and selected business services with share of transaction enabling pieces in our near-term cash flow positive. You can see by virtue of where our companies are positioned and in one sectors at no one sector is over represented and therefore, risk is pretty well distributed throughout these six sectors.

Since this time last year at our Annual Shareholder Meeting, we realized two successful exits, Portico Systems and Advanced BioHealing. Portico Systems and Healthcare IT firm was acquired by McKesson for $90 million in cash. We played a very active role in helping support Portico’s management team to add value that brought back a 4x cash-on-cash return to Safeguard. The second one I’d like to highlight for you is Advanced BioHealing. ABH had grown from no revenue when we put capital to work initially to nearly $150 million in revenue over a 4-year period of time. One day away from pricing their IPO when Shire Pharmaceutical then in all cash offer of $750 million and 25% premium to the midpoint of the IPO range.

Actually, the Shire relationship with ABH was initiated by Safeguard Scientifics nearly two years earlier. Safeguard typically plays a very active role in helping our companies to add value and find the right strategic partnerships. A great example of that is Clarient and Avid Pharmaceuticals, which were acquired by GE Healthcare and Eli Lilly in 2010, that’s over $400 million of capital that’s been returned to Safeguard in the past two years. While we are pleased with those results, we believe that we have several further very exciting companies with great potential in the pipeline as well.

Safeguard typically will categorize our 16 companies into four buckets. On the far left hand side, you will see the initial development stage companies. Those are companies that primarily have no revenue, but they are maybe going to the final status of the FDA clinical trial process or data testing and product getting ready to launch.

We have some initial revenue companies typically at the $5 million in revenue just gaining penetration, gaining some testimonial customers building out their infrastructure and management teams. We have several expansion stage companies, which are typically $5 million to $20 million in revenue growing rapidly showing great leadership in their various niches and gain real traction. And finally, we have some high traction companies, $20 million to over $100 million in size making money, growing rapidly, and recognized as leaders in their space and on the edge of becoming profitable.

We can enter it any phase so, we can exit at any phase. If you remember Avid Radiopharmaceuticals entered at initial revenue or development stage company and exited there as well, they had no revenue. Eli Lilly had acquired Avid for a 3x cash-on-cash up front with potential to be an 8x cash-on-cash for Safeguard over the life of the earn-outs. We also had companies like Advanced BioHealing where we – they entered at a initial revenues stage company that grew very quickly to high traction growth stage really acquired by Shire Pharmaceuticals for a 13 plus x cash-on-cash.

I am going to take just a moment and share with you a couple of exciting companies that we have today, the first being NovaSom. NovaSom has produced the first at-home tests for sleep apnea. It’s a wireless device that can be used at home that’s FDA cleared and reimbursed by major insurance carriers to diagnose sleep apnea. Unfortunately, in the United States, 18 million Americans have sleep apnea and yet only 3 million have been diagnosed, that’s a $4 billion marketplace. Sleep apnea is commonly caused by symptoms related to diabetes, heart disease, and obesity. If you know people that snore have problems sleeping as they could be at risk for this. NovaSom has a very strong management team. They recently won contract with United, 38 million members, Aetna, Humira, and others. Safeguard has deployed $20 million of capital and has a 30% primary ownership in the past year.

The second company I’d like to share with you is Patni. Patni is a rapidly growing specialty pharmaceutical company developing the high-quality, cost-effective generic medicines for pets, while Americans still 78% of their prescriptions with generics, less than 10% of the drugs approved by the FDA for dogs and cats of a generic equivalent. Patni met key goals in 2011 including submissions to the FDA and continues to meet or exceed expectations including rapidly expanding its management team of several key hires including a recent COO that was hired that formally ran $800 million animal health business. The total global market for companion animal pharmaceuticals is estimated to be around $5.7 billion. Safeguard has deployed $10 million of capital on Patni in September 2011 and has a 28% primary ownership position.

On the technology side, Bridgevine is a leading e-commerce solution provider that acquires customers for internet, phone, television, wireless entertainment, and other service providers and advertisers through its intelligent online shopping engine and marketing platform. Partners include AT&T, Comcast, DIRECTV, American Express, and more. Improvements to Bridgevine’s technological platform help enhance the company’s profitability and drive 2011 revenue to $38 million, a 22% increase over year-over-year. The company’s business model is highly scalable enabling significant growth without a proportionate increase in cost. Safeguard has deployed $10 million of capital in Bridgevine since August 2007 has a 23% primary ownership.

The final company that I will highlight is the MediaMath. MediaMath is a digital advertising exchange that helps advertisers and major advertising agencies acquired digital display ads. It’s enhanced media-buying platform (indiscernible) of our market tiers to directly manage campaigns according to specific objectives. Major brands include American Express, Kellogg’s, Prudential, Intel, Kayak, and others. There is a huge migration going on.

In 2011, that was the first year when digital display advertising revenue exceeded that of all newspaper advertising combined. MediaMath was the first to market with its technology in 2007 and continues to build on its advantage. In late 2011, MediaMath was named the number one demand side platform vendor by Forrester Research at 36 companies, which were included in the report. MediaMath is headquartered in New York City that has the offices in Boston, Chicago, LA, San Francisco, London, and just recently launched in Australia. Safeguard has deployed $16.9 million of capital on MediaMath since July 2009 and has a 22% primary ownership position.

In closing, if you look at our revenue from 2007 with our 16 companies, we were just over $30 million. And as you compare that to our projections for 2012 or those companies are expected to generate between $160 million to $165 million. How do they do that? Remember those five strategic themes that Steve touched on, we are really serious about that. As I said earlier, we have 16 companies that are holding 25 board seats, so we are actively involved in each one of those companies. 15 of those companies are achieving – generating revenue. Handful of them are making revenue. One of them is in the final stages of the FDA approval process. In aggregate, we have deployed a $177 million of capital in those companies. We also realized $635 million of capital since January 2006.

And finally, we are not just a capital provider. We built strong partner company satisfaction as Safeguard routinely gets very high remarks from our CEO that we’ve been a top firm to partner with to provide capital.

And with that, I’ll turn it back over to Peter Boni.

Peter Boni – Chief Executive Officer

Thanks, Jim. Thanks, Steve. Some financial highlights we mentioned net cash and cash equivalents and marketable securities actually at a 59-year record of $188 million. We’ve advised that we would be using somewhere between $100 million and $150 million of capital in 2012. In Q1, we actually used $25.9 million. The capital is primarily used for deployment and our new partners number one, some follow on funding for our existing companies and some Penn Mezzanine participation number two, our corporate expenses number three, and opportunities for platform expansion number four.

So, what’s happened to our shareholder value and the time since this team came and began executing the strategy. And we’ll compare that with what’s going on in the external environment, the S&P 500, the Russell 2000, and the index of other diversified investment companies. You can see when we are doing well. We are really doing well and far exceeding the indices that are comparable or comparable. You can see when the capital markets are disrupted, we are disrupted too, and you can see when things come back, we come back, and then some. Right now, we’ve given up all Greek food and drink until they get their act together over there. So, that’s the Safeguard judgments. We envision ourselves as a catalyst to build terrific companies and we are well on our way to doing that. I’ll be happy to take any questions if you might have. On that note thanks very much for your support. This convenes the meeting.

Question-and-Answer Session

[No Q&A session for this event]

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