[Federal Register Volume 62, Number 101 (Tuesday, May 27, 1997)]
[Notices]
[Pages 28748-28749]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-13693]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Rel. No. IC-22666; 812-10422]
Safeguard Scientifics, Inc.; Notice of Application
May 19, 1997.
AGENCY: Securities and Exchange Commission (``SEC'' or ``Commission'').
ACTION: Notice of application for exemption under the Investment
Company Act of 1940 (the ``Act'').
-----------------------------------------------------------------------
APPLICANT: Safeguard Scientifics, Inc.
RELEVANT ACT SECTION: Declaration of the Commission sought under
section 2(a)(9).
SUMMARY OF APPLICATION: Applicant requests an order declaring that it
controls Cambridge Technology Partners, Inc. (``Cambridge'') and USDATA
Corporation (``USDATA''), notwithstanding that applicant owns less than
25% of the voting securities of each company.
FILING DATES: The application was filed on November 12, 1996 and
amended on May 16, 1997.
HEARING OR NOTIFICATION OF HEARING: An order granting the application
will be issued unless the SEC orders a hearing. Interested persons may
request a hearing by writing to the SEC's Secretary and serving
applicants with a copy of the request, personally or by mail. Hearing
requests should be received by the SEC by 5:30 p.m. on June 13, 1997,
and should be accompanied by proof of service on applicants, in the
form of an affidavit or, for lawyers, a certificate of service. Hearing
requests should state the nature of the writer's interest, the reason
for the request, and the issues contested. Persons may request
notification of a hearing by writing to the SEC's Secretary.
ADDRESSED: Secretary, SEC, 450 5th Street N.W., Washington, D.C. 20549.
Applicant, 800 Safeguard Building, 435 Devon Park Drive, Wayne,
Pennsylvania 19087.
FOR FURTHER INFORMATION CONTACT: Elaine M. Boggs, Senior Counsel, at
(202) 942-0572, or Mary Kay French, Branch Chief, at (202) 942-0564
(Division of Investment Management, Office of Investment Company
Regulation).
SUPPLEMENTARY INFORMATION: The following is a summary of the
application. The complete application may be obtained for a fee at the
SEC's Public Reference Branch.
Applicant's Representations
1. Applicant, a Pennsylvania corporation, is engaged primarily in
the business of identifying, acquiring interests in, and developing
``partnership companies,'' most of which are engaged in information
technology businesses. Applicant is not required to register as an
investment company under the Act by virtue of rule 3a-1 under the
Act.\1\ Applicant's strategy is to invest in companies which are
capable of being market leaders in segments of the information
technology industry and which can benefit from applicant's business
development, management support, financing, and market knowledge.
Applicant generally invests in companies in which it can purchase a
large enough stake to enable it to have substantial influence over the
management and polices of the company.
---------------------------------------------------------------------------
\1\ Rule 3a-1 provides that an issuer meeting the statutory
definition of an investment company is not an investment company if:
(a) not more than 45% of the value of its total assets (exclusive of
government securities and cash items) consists of securities other
than government securities, securities issued by employee securities
companies, securities of certain majority-owned subsidiaries, and
securities issued by companies under the primary control of the
issuer that are not investment companies; and (b) no more than 45%
of its income after taxes (over the last four fiscal quarters
combined) is relieved from such securities. Applicant does not seek,
and any order would not grant, any relief with respect to
applicant's reliance on rule 3a-1.
---------------------------------------------------------------------------
2. Applicant is the largest single shareholder of Cambridge and
USDATA, owning 17% of the voting stock of Cambridge and 20% of the
voting stock of USDATA. Cambridge provides technical expertise to
organizations with large scale information processing needs. USDATA is
an international supplier of real-time software applications
development tools and related integration services. Five of the nine
members of the Cambridge board and five of the eight members of the
USDATA board are associated with applicant.
Applicant's Legal Analysis
1. Applicant requests an order under section 2(a)(9) declaring that
it controls Cambridge and USDATA even though Safeguard owns less than
25% of the voting securities of Cambridge and USDATA.
2. Section 2(a)(9) defines ``control'' as the power to exercise a
controlling influence over the management or policies of a company.
That section creates a presumption that owners of 25% or less of a
company's voting securities do not control such company. The
presumption may be rebutted by evidence of control.
3. Applicant argues that its controlling influence over Cambridge
and USDATA is demonstrated by the following:
a. Applicant is the largest single shareholder of Cambridge and
USDATA. Applicant states that the only other significant shareholders
of Cambridge are two registered mutual funds, each of which own
approximately 10% of Cambridge. Two venture funds affiliated with
applicant own 15% each of USDATA. Applicant submits that it has
significant links with both venture funds and that the funds have never
acted together in opposition to applicant's control of USDATA and it is
unlikely that they would do so in the future. Further, applicant states
that the only other significant shareholder of USDATA is its founder
and former CEO, who currently owns 13% of the company's stock.
b. Applicant asserts that it has been involved in managing
Cambridge and USDATA for years and has developed
[[Page 28749]]
and restructured both companies. For instance, applicant helped USDATA
go public in 1995 and also helped Cambridge to complete a secondary
public offering. Moreover, applicant submits that it is committed to
holding significant equity stakes in both companies and to
participating in their strategic management over the long-term, so long
as they fit within applicant's overall strategy.
c. Applicant states that it has developed numerous processes for
managing its own business which it shares with its partnership
companies, including Cambridge and USDATA. In addition, applicant
states that it encourages Cambridge and USDATA to collaborate and to do
business with each other and with other of applicant's partnership
companies. Cambridge and USDATA, along with other partnership
companies, assist each other and applicant in identifying or reviewing
potential candidates for acquisitions or investment, and recruiting new
managers and directors.
d. Applicant has chosen to style its relationship with each company
as a ``partnership'' to reflect the realities of the entrepreneurial
and rapidly changing information services industry. Applicant believes
that traditional corporate structures would inhibit the flexibility and
creativity necessary for growth and that giving entrepreneurs the power
to create their own wealth by increasing the value of their equity in
their company (without being affected by the results of other divisions
or subsidiaries of the ``parent'' company) maximizes the entrepreneurs'
incentive to fuel innovation and growth. Applicant states, however,
that despite its emphasis on ``partnership'' it is willing and able to
intervene directly and effectively in the management of Cambridge and
USDATA when either company fails to meet its expectations. For example,
in March 1997, applicant replaced the outgoing CEO of USDATA with one
of its officers as acting CEO and will be instrumental in the
recruitment and selection of the permanent CEO. Applicant argues that
this management change evidences its ability to assert its power to
control the direction and operation of USDATA.
e. Applicant's executives and staff provide assistance to both
companies in identifying and introducing potential new clients.
Applicant states that it assists USDATA in structuring and negotiating
business alliances, financial planning and reporting, and tax planning.
In addition, applicant states that it has helped Cambridge find and
secure clients, arranged for a new headquarters building, and helped
Cambridge recruit a new CEO, chief administrative officer, chief
technology officer, and six directors. Applicant submits that it
supports the managers at both Cambridge and USDATA with ongoing
programs and practical business and administrative guidance intended to
promote the development of each company. Further, applicant asserts
that managers of the companies have the freedom to use applicant's
resources in the manner and to the extent that suits their own style.
f. In addition, applicant states that it maintains control over
Cambridge and USDATA through a series of cross-directorships involving
individuals who are associated with applicant through their service as
current and former directors and officers of applicant or its other
partnership companies. Applicant states that these board members help
each company define its general business strategy and actively
participate in adopting operating plans and budgets. These board
members also participate in key corporate decisions.
For the Commission, by the Division of Investment Management,
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 97-13693 Filed 5-23-97; 8:45 am]
BILLING CODE 8010-01-M
