[Federal Register Volume 65, Number 87 (Thursday, May 4, 2000)]
[Notices]
[Pages 25968-25969]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-11080]


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SECURITIES AND EXCHANGE COMMISSION

[Rel. No. IC-24425; 812-11752]


Cohesion Technologies, Inc.; Notice of Application

April 27, 2000.
AGENCY: Securities and Exchange Commission (``SEC'').

ACTION: Notice of application for an order under sections 6(c) and 6(e) 
of the Investment Company Act of 1940 (the ``Act'').

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SUMMARY OF APPLICATION: Applicant requests an order exempting it from 
all provisions of the Act, except sections 9, 17(e) (as modified in the 
application), 17(f) (as modified in the application), and 37 through 53 
of the Act, and the rules and regulations under those sections, from 
the date the requested order is issued until the earlier of (a) August 
18, 2001 or (b) the date applicant may no longer be deemed an 
investment company.

Filing Dates: The application was filed on August 18, 1999 and amended 
on November 18, 1999. Applicant has agreed to file an amendment, the 
substance of which is reflected in this notice, during the notice 
period.

Hearing or Notification of Hearing: An order granting the requested 
relief will be issued unless the SEC orders a hearing. Interested 
persons may request a hearing by writing to the SEC's Secretary and 
serving applicant with a copy of the request, personally or by mail. 
Hearing requests should be received by the SEC by 5:30 p.m. on May 22, 
2000 and should be accompanied by proof of service on applicant, 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 who wish to be 
notified of a hearing may request notification by writing to the SEC's 
Secretary.

ADDRESSES: Secretary, SEC, 450 Fifth Street, N.W., Washington, DC 
20549-0609. Applicant, Cohesion Technology, Inc., 2500 Faber Place, 
Palo Alto, CA 94303.

FOR FURTHER INFORMATION CONTACT: Mary T. Geffroy, Senior Counsel, at 
(202) 942-0553, or Nadya Roytblat, Assistant Director, at (202) 942-
0564 (Office of Investment Company Regulation, Division of Investment 
Management).

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, 450 Fifth Street, N.W., Washington, DC, 
20549-0102 (tel. 202-942-8090).

Applicant's Representations

    1. Applicant is a Delaware corporation that is engaged in the 
business of developing and commercializing proprietary surgical 
products. Applicant also is engaged directly or indirectly through 
majority-owned subsidiaries in the development and marketing of 
collagen-based biomaterials. Applicant became a public company on 
August 18, 1998, when it was spun-off from Collagen Aesthetics, Inc., 
formerly known as Collagen Corporation (``Collagen''). Collagen was 
engaged in the business of designing, developing, manufacturing, and 
marketing biomedical devices for the treatment of defective, diseased, 
traumatized or aging human tissues. Collagen currently focuses on the 
aesthetic and reconstructive cosmetic business. In anticipation of the 
spin-off, Collagen contributed several assets to applicant. Among the 
assets contributed to applicant by Collagen were minority interests in 
Boston Scientific Corporation (``Boston Scientific''), Innovasive 
Devices, Inc. (``Innovasive''), and Pharming, B.V. (``Pharming'').
    2. Boston Scientific is a leading manufacturer of catheter-based 
devices. Collagen acquired its interest in Boston Scientific in January 
1988 as a result of a joint venture between Collagen and Eli Lilly and 
Company. Since then, applicant has not acquired any additional shares 
of Boston Scientific and has continued to sell portions of its holdings 
in Boston Scientific to fund applicant's research and development 
activities. As of December 31, 1999, approximately 29% of applicant's 
total assets on an unconsolidated basis (exclusive of cash items and 
government securities) consisted of the stock of Boston Scientific. 
Applicant currently owns less than 1% of Boston Scientific's common 
stock. Applicant also acquired from Collagen certain rights and 
undertook certain obligations pursuant to various equity collar 
instruments to protect against fluctuations in the market value of its 
Boston Scientific stock.
    3. Collagen also transferred to applicant a minority interest in 
Innovasive, a company engaged in the development, manufacture and 
marketing of tissue and bone reattachment systems. Collagen acquired 
Innovasive stock in connection with a joint venture (``Innovasive 
Agreements'') between the two companies to develop tissue fixation 
devices. Applicant assumed Collagen's rights and obligations under the 
Innovasive Agreements. As of December 31, 1999, applicant has an 
approximately 9% ownership interest in Innovasive, which represented 
approximately 9.6% of applicant's total assets on an unconsolidated 
basis (exclusive of cash items and government securities).
    4. Finally, Collagen transferred to applicant a minority interest 
in Pharming, a company engaged in developing and commercializing human 
health care produced in transgenic animals. Collagen's investment in 
Pharming was made in connection with a collaborative agreement between 
the two companies for the development of a product to produce collagen 
in the milk of transgenic animals (``Pharming Agreement''). Applicant 
assumed Collagen's rights and obligations under the Pharming Agreement. 
As of December 31, 1999, applicant had an approximately 6% ownership 
interest in Pharming, which represented approximately 11.3% of 
applicant's total assets on an unconsolidated basis (exclusive of cash 
items and government securities).

Applicant's Legal Analysis

    1. Section 3(a)(1)(C) of the Act defines ``investment company'' to 
include any issuer which is engaged or proposes to engage in the 
business of investing, reinvesting, owning, holding, or trading in 
securities, and owns or proposes to acquire investment securities 
having a value exceeding 40% of the value of that issuer's total assets 
(exclusive of Government securities and cash items) on an 
unconsolidated basis. Under section 3(a)(2), ``investment securities'' 
included all securities except

[[Page 25969]]

Government securities and securities issued by employee's securities 
companies and certain majority-owned subsidiaries.
    2. Applicant's investments in Boston Scientific, Innovasive, and 
Pharming constitute ``investment securities'' within the meaning of 
section 3(a)(2) of the Act. Applicant states that as of December 31, 
1999, these investment securities constituted more than 40% of its 
total assets (exclusive of cash items and government securities) on an 
unconsolidated basis. Applicant, therefore, is an investment company 
within the meaning of section 3(a)(1)(C) of the Act. Rule 3a-2 under 
the Act generally provides that, for purposes of section 3(a)(1)(C), an 
issuer will not be deemed to be engaged in the business of investing, 
reinvesting, owning, holding, or trading in securities for a period not 
to exceed one year if the issuer has a bona fide intent to be engaged 
in a non-investment company business. Applicant relied on rule 3a-2 for 
the period August 18, 1998 to August 18, 1999.
    3. Section 6(c) of the Act permits the SEC to exempt any person, 
security, or transaction from any provision of the Act, if and to the 
extent that the exemption is necessary or appropriate in the public 
interest and consistent with the protection of investors and the 
purposes fairly intended by the policy and provisions of the Act. 
Section 6(e) permits the SEC to require companies exempted from 
registration requirements of the Act to comply with certain specified 
provisions of the Act as though the company were a registered 
investment company.
    4. Applicant requests an exemption under sections 6(c) and 6(e) 
from all provisions of the Act except, sections 9, 17(e) (as modified 
below), 17(f) (as modified below, and 37 through 53 of the Act, and the 
rules and regulations under those sections, from the date the requested 
order is issued until the earlier of August 18, 2001 or the date 
applicant no longer may be deemed an investment company (the 
``Exemption Period''). Applicant believes that within the Exemption 
Period it will be able to reduce its holdings of Boston Scientific 
stock so that applicant would no longer fall within the definition of 
investment company under section 3(a)(1)(C).
    5. Applicant contends that granting the order under section 6(c) 
would be appropriate in the public interest and consistent with the 
protection of investors. Applicant states that it is an operating 
company that was not designed to be regulated under the Act, and that 
the requested temporary exemption would enable applicant to resolve its 
transient status under the Act. As conditions to the requested order, 
applicant also agrees to comply with certain provisions of the Act 
while the requested order is in effect.
    6. Section 17(e) of the act generally makes it unlawful for any 
``affiliated person'' of a registered investment company, or any 
affiliated person of an affiliated person, acting as agent, to receive 
compensation (other than regular salary or wages) for the purchase and 
sale of any property to or from the investment company or any company 
controlled by the investment company, or, acting as broker for the 
investment company in the purchase or sale of securities, to receive 
remuneration exceeding certain amounts. Applicant requests that the 
section 17(e) restrictions apply only to those employees of applicant 
who are also officers and directors of applicant. Applicant believes 
that it would be overly burdensome for it to investigate and identify 
all affiliations of its 82 employees. Further, applicant contends that 
because the employees who are not also officers or directors generally 
are not in a position to determine or influence applicant's actions, no 
policy reason would be served by requiring those person to comply with 
section 17(e). Applicant also requests that the provisions of section 
17(e)(1) not apply to the occasional receipt by its employees, officers 
and directors of modest gifts and other forms of gratuity from third 
parties. Applicant contends that this relief is appropriate because it 
relates to routine business practices of companies that are not 
investment companies and because it involves items of de minimis value, 
such as non-lavish entertainment, holiday gifts and similar items. 
Applicant states that in all other respects, it will comply with 
section 17(e).
    7. Under section 17(f) of the Act, a registered investment company 
may maintain custody of its securities and similar investments with a 
member of a national securities exchange, subject to rule 17f-1 under 
the Act. Rule 17f-1 prohibits the assets of an investment company held 
by a member of a national securities exchange from being subject to any 
lien or charge of any kind in favor of the custodian or any persons 
claiming through the custodian. With respect to applicant's assets that 
are held by a member of a national securities exchange, applicant 
requests relief from the provisions of rule 17f-1(b)(3) to permit the 
custodian to continue to hold applicant's securities and similar assets 
as collateral in connection with certain loans it grants to applicant. 
Applicant believes that, for the limited time during which applicant 
would be subject to rule 17f-1, it would neither be necessary nor cost 
effective for applicant to establish an account with a separate 
custodian solely for the purpose of holding securities as collateral 
for loans. Applicant states that, in all other respects it will comply 
with rule 17f-1.

Applicant's Conditions

    Applicant agrees that the order granting the requested relief will 
be subject to the following conditions:
    a. Applicant will not purchase or otherwise acquire any 
``investment securities,'' as that term is defined in the Act, other 
than short-term investments including U.S. Government securities, money 
market funds, certificates of deposit, and commercial paper rated A-1/
P-1 that are consistent with the preservation of capital;
    b. Applicant will not hold itself out as being engaged primarily in 
the business of investing, reinvesting, or trading in securities;
    c. Applicant will allocate and utilize its accumulated cash and 
securities for the purpose of funding its business of developing and 
commercializing proprietary surgical products and other biomedical 
products;
    d. Applicant will not sell any of its investment securities (other 
than those described in condition (a) above) to any affiliated person 
of applicant, or any affiliated person of an affiliated person of 
applicant; and
    e. While any order is in effect, applicant's Form 10-K, Form 10-Q 
and annual reports to shareholders will state that an exemptive order 
has been granted under sections 6(c) and 6(e) of the Act and that 
applicant, and other persons in their transactions with applicant, are 
subject to sections 9, 17(e), 17(f) and 37 through 53 of the Act, and 
the rules and regulations under these sections, with certain exceptions 
as described in the application as if applicant were a registered 
investment company.

    For the Commission, by the Division of Investment Management, 
under delegated authority.
Jonathan G. Katz,
Secretary.
[FR Doc. 00-11080 Filed 5-3-00; 8:45 am]
BILLING CODE 8010-01-M