Cloudflare, Inc., 17043-17045 [2023-05683]
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Federal Register / Vol. 88, No. 54 / Tuesday, March 21, 2023 / Notices
Interested persons are
invited to submit written comments on
the proposed information collection by
one of the following means:
• Federal Rulemaking Portal: https://
www.regulations.gov All submissions
received must include the agency name
and docket number for this Federal
Register document. The general policy
for comments and other submissions
from members of the public is to make
these submissions available for public
viewing on the internet at https://
www.regulations.gov as they are
received without change, including any
personal identifiers or contact
information.
• Email: bridget.dongarra@opm.gov.
Please put ‘‘USA Staffing, Onboarding’’
in the subject line of the email.
FOR FURTHER INFORMATION CONTACT: A
copy of this information collection
request, with applicable supporting
documentation, may be obtained by
contacting the USA Staffing, Office of
Personnel Management, 1900 E Street
NW, Washington, DC 20415, Attention:
Bridget Dongarra, or via electronic mail
to bridget.dongarra@opm.gov.
SUPPLEMENTARY INFORMATION: As
required by the Paperwork Reduction
Act of 1995, (Pub. L. 104–13, 44 U.S.C.
chapter 35) as amended by the ClingerCohen Act (Pub. L. 104–106), OPM is
soliciting comments for this collection.
USA Staffing is OPM’s talent acquisition
solution. Federal agencies use USA
Staffing to onboard candidates for
Federal positions while complying with
appropriate rules and procedures.
Federal agencies purchase the services
of USA Staffing through an Interagency
Agreement (IAA) under the provisions
of the Revolving Fund, 5 U.S.C. 1304 (e)
(1), which permits OPM to perform
human resources management services
for Federal agencies on a cost-recovery
basis.
USA Staffing’s public facing web page
for new hires provides a single interface
to submit data and forms required
during the Federal onboarding process.
New Hires are individuals selected for
Federal employment but who have not
yet entered on duty and authenticate at
USA Staffing using their USAJOBS.gov
accounts. USA Staffing captures the
essential information Federal agencies
require to onboard applicants for
Federal jobs under the authority of
sections 1104, 1302, 3301—3320, 3361,
3393, and 3394 of Title 5 United States
Code.
This information collection was
initially approved under an emergency
authorization in pursuit of compliance
with Executive Order (E.O.) 14043,
titled ‘‘Requiring Coronavirus Disease
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ADDRESSES:
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2019 Vaccination for Federal
Employees.’’ This action seeks to
reinstate the information collection
independent of that Executive Order
and instead focus on the regular
business of the USA Staffing
Onboarding system in gathering new
hire information in pursuit of timely
and efficient entry on duty actions. In
addition, this collection will clarify the
New Hire information elements
collected by USA Staffing under its own
OMB control number. This includes
questions about basic identity,
employment and service background,
benefits enrollments, and payroll.
Information for items which have their
own approvals (such as the OF 306 and
I–9 forms) are not included in this
collection. The initial emergency
clearance did not distinguish between
these two contexts. Therefore, we invite
comments that:
1. Evaluate whether the proposed
collection of information is necessary
for the proper performance of the
functions of the agency, including
whether the information will have
practical utility;
2. Evaluate the accuracy of the
agency’s estimate of the burden of the
proposed collection of information,
including the validity of the
methodology and assumptions used;
3. Enhance the quality, utility, and
clarity of the information to be
collected; and
4. Minimize the burden of the
collection of information on those who
are to respond, including through the
use of appropriate automated,
electronic, mechanical, or other
technological collection techniques or
other forms of information technology,
e.g., permitting electronic submissions
of responses.
Analysis
Agency: Office of Personnel
Management.
Title: USA Staffing, Onboarding.
OMB Number: 3206–0278.
Frequency: Annually.
Affected Public: Individuals.
Number of Respondents: 570,000.
Estimated Time per Respondent: 20
Minutes.
Total Burden Hours: 190,000.
U.S. Office of Personnel Management
Kellie Cosgrove Riley,
Executive Director, Office of Executive
Secretariat and Privacy and Information
Management.
[FR Doc. 2023–05765 Filed 3–20–23; 8:45 am]
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17043
SECURITIES AND EXCHANGE
COMMISSION
[Investment Company Act Release No.
34856; File No. 812–15441]
Cloudflare, Inc.
Securities and Exchange
Commission (‘‘Commission’’).
ACTION: Notice.
AGENCY:
Notice of application for an order
under section 3(b)(2) of the Investment
Company Act of 1940 (‘‘Act’’).
APPLICANT: Cloudflare, Inc.
SUMMARY OF APPLICATION: Applicant
seeks an order under section 3(b)(2) of
the Act declaring it to be primarily
engaged in a business other than that of
investing, reinvesting, owning, holding
or trading in securities. Applicant states
that it is in the business of providing
secure network cloud services.
DATES: Filing Dates: The application
was filed on March 3, 2023.
HEARING OR NOTIFICATION OF HEARING:
An order granting the requested relief
will be issued unless the Commission
orders a hearing. Interested persons may
request a hearing by emailing the
Commission’s Secretary at SecretarysOffice@sec.gov and serving applicants
with a copy of the request, by email if
an email address is listed for the
relevant Applicant below, or personally
or by mail, if a physical address is listed
for the relevant Applicant below.
Hearing requests should be received by
the Commission by 5:30 p.m. on April
10, 2023, and should be accompanied
by proof of service on the applicants, in
the form of an affidavit, or for lawyers,
a certificate of service. Pursuant to rule
0–5 under the Act, hearing requests
should state the nature of the writer’s
interest, any facts bearing upon the
desirability of a hearing on the matter,
the reason for the request, and the issues
contested. Persons who wish to be
notified of a hearing may request
notification by emailing the
Commission’s Secretary at SecretarysOffice@sec.gov.
ADDRESSES: The Commission:
Secretarys-Office@sec.gov. Applicant:
Thomas Seifert, Chief Financial Officer,
Cloudflare, Inc., at corporate-legal@
cloudflare.com; Amy Caiazza, at
acaiazza@wsgr.com.
FOR FURTHER INFORMATION CONTACT:
Jennifer O. Palmer, Senior Counsel, or
Terri G. Jordan, Branch Chief, at (202)
551–6825 (Division of Investment
Management, Chief Counsel’s Office).
SUPPLEMENTARY INFORMATION: The
following is a summary of the
application. For Applicant’s
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Federal Register / Vol. 88, No. 54 / Tuesday, March 21, 2023 / Notices
representations, legal analysis, and
conditions, please refer to Applicant’s
application, dated March 3, 2023, which
may be obtained via the Commission’s
website by searching for the file number
at the top of this document, or for an
Applicant using the Company name
search field, on the SEC’s EDGAR
system. The SEC’s EDGAR system may
be searched at https://www.sec.gov/
edgar/searchedgar/legacy/
companysearch.html. You may also call
the SEC’s Public Reference Room at
(202) 551–8090.
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Applicant’s Representations
1. Applicant states that it is a
Delaware corporation formed in 2009
that, directly and through its whollyowned subsidiaries,1 is engaged in the
business of providing secure network
cloud services.
2. Applicant states that its business is
highly capital intensive, requires R&D of
new technologies, and does not involve
the Applicant acquiring or retaining
significant ‘‘hard’’ operating assets.
Applicant states that it maintains
significant cash reserves that it seeks to
invest for purposes of conserving capital
and providing liquidity until the funds
are used in its cloud-based services and
technology business. As described more
fully in the application, Applicant states
that it requires significant liquid capital
primarily to: (i) fund R&D for new
products and services, (ii) otherwise
fund its operations, and (iii) make other
capital expenditures in keeping with the
growth of the Applicant’s cloud-based
services and technology business.
3. Applicant states that it has financed
operations primarily through offerings
of debt and equity securities, but
ultimately seeks to generate cash from
its operations to support its business.
Applicant states that it seeks to preserve
capital and maintain liquidity, pending
the use of such capital for its operations,
by investing in ‘‘Capital Preservation
Instruments.’’ 2 Applicant states that it
1 Applicant states that 13 of its 24 wholly-owned
subsidiaries conduct businesses that are integrally
related to the Applicant’s business, such as sales
and marketing or research and development
(‘‘R&D’’) activities in their respective jurisdictions.
Applicant states that its remaining 11 subsidiaries
are non-operating holding companies or nonoperating companies with de minimis assets.
Applicant further states that none of its subsidiaries
meet the definition of an ‘‘investment company’’ in
section 3(a) of the Act.
2 As used in Applicant’s application, Capital
Preservation Instruments refers collectively to any
cash items and securities that are held for the
purpose of conserving Applicant’s capital and
liquidity until they are used by Applicant to
support its business (as such business is described
in Applicant’s application). Such holdings are
liquid (i.e., can be readily sold), earn competitive
market returns and present a low level of credit
risk, including short-term investment grade
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may in the future make strategic
investments in ‘‘other investments’’
consistent with Rule 3a–8. Applicant
states that such securities will not be
acquired for speculative purposes.
Applicant’s Legal Analysis
1. Applicant seeks an order under
section 3(b)(2) of the Act declaring that
it is primarily engaged in a business
other than that of investing, reinvesting,
owning, holding or trading in securities
and therefore is not an investment
company as defined in the Act.
2. Section 3(a)(l)(A) of the Act defines
the term ‘‘investment company’’ to
include an issuer that is or holds itself
out as being engaged primarily, or
proposes to engage primarily, in the
business of investing, reinvesting or
trading in securities. Section 3(a)(l)(C) of
the Act further defines an investment
company as an issuer that 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 in excess of
40% of the value of the issuer’s total
assets (exclusive of Government
securities and cash items) on an
unconsolidated basis. Section 3(a)(2) of
the Act defines ‘‘investment securities’’
to include all securities except
Government securities, securities issued
by employees’ securities companies,
and securities issued by majority-owned
subsidiaries of the owner which (a) are
not investment companies and (b) are
not relying on the exclusions from the
definition of investment company in
section 3(c)(1) or section 3(c)(7) of the
Act. Applicant states that it has never
been, is not now, and does not propose
to be, primarily engaged in the business
of investing, reinvesting, owning,
holding, or trading in securities.
Applicant states, however, that it
historically held and currently holds
investment securities that exceed 40%
of its total assets on an unconsolidated
basis (exclusive of Government
securities and cash items). Applicant
states that it therefore may be an
‘‘investment company’’ pursuant to
section 3(a)(l)(C) of the Act absent an
exclusion or exemption.
3. Rule 3a–8 under the Act provides
an exclusion from the definition of
investment company if, among other
factors, a company’s R&D expenses are
a substantial percentage of its total
expenses for the last four fiscal quarters
combined. While Applicant states that it
securities, Government securities (as defined in
section 2(a)(16) of the Act), securities of money
market funds registered under the Act, and other
cash items; but excluding investments in equity or
speculative instruments.
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believes that it complies with the
conditions of Rule 3a–8, Applicant
states that it is concerned that its R&D
expenses, while substantial in absolute
terms, may not always be considered
substantial as a ratio of overall
expenses. Although Applicant states
that it anticipates R&D expenses to
increase in absolute terms, such
expenses are not anticipated to increase
proportionately with Applicant’s overall
expenses, particularly given increases in
expenses related to sales and marketing,
the administration of a rapidly
expanding employee base, and other
administrative expenses. Applicant
states that its R&D expenses have
fluctuated between 18.34% and 25.04%
of total expenses over the past six years,
and Applicant expects R&D expenses to
decrease relative to total expenses over
time.
4. Section 3(b)(2) of the Act provides
that, notwithstanding section 3(a)(l)(C)
of the Act, the Commission may issue
an order declaring an issuer to be
primarily engaged in a business other
than that of investing, reinvesting,
owning, holding, or trading in securities
directly, through majority-owned
subsidiaries, or controlled companies
conducting similar types of businesses.
Applicant requests an order under
section 3(b)(2) of the Act declaring that
it is primarily engaged in a business
other than that of investing, reinvesting,
owning, holding or trading in securities,
and therefore is not an investment
company as defined in the Act.
5. In determining whether an issuer is
‘‘primarily engaged’’ in a noninvestment company business under
section 3(b)(2) of the Act, the
Commission considers the following
factors: (a) the company’s historical
development, (b) its public
representations of policy, (c) the
activities of its officers and directors, (d)
the nature of its present assets, and (e)
the sources of its present income.3
6. Applicant submits that it satisfies
the criteria for issuance of an order
under section 3(b)(2) of the Act because
Applicant is primarily engaged in the
business of providing secure network
cloud services and is not in the business
of investing, reinvesting, owning,
holding or trading in securities.
a. Historical Development. Applicant
states that, since its inception in 2009,
Applicant has operated in the cloud
software sector to develop
comprehensive, scalable network cloud
services for business use. Applicant’s
business has focused on the
development of new such products, and
3 Tonopah Mining Company of Nevada, 26 SEC
426, 427 (1947).
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Applicant has received global
recognition as an innovative technology
company.
b. Public Representations of Policy.
Applicant states that it has consistently
represented that it is engaged in the
business of providing secure network
cloud services. Applicant further states
that it has never held and does not now
hold itself out as an investment
company within the meaning of the Act
or as engaging in the business of
investing, reinvesting, owning, holding,
or trading in securities. Applicant
explains that in its annual reports,
stockholder letters, prospectuses,
Commission filings, press releases,
marketing materials, and on its investor
website, its public representations
consistently state its mission to help
build a better internet by providing
solutions to managing individual
network hardware for companies of all
sizes and growth. Applicant submits
that its public representations make
clear that shareholders invest in the
Applicant’s securities with the
expectation of realizing gains from
Applicant’s development and sale of its
suite of cloud services and not from
returns on an investment portfolio.
Applicant states that its only public
representations regarding its investment
securities are those required to be
disclosed in public filings with the
Commission.
c. Activities of Officers and Directors.
Applicant represents that its officers
and directors spend substantially all of
their time managing the Applicant’s
cloud-based services and technology
business. Applicant states that its cash
management activities are managed
internally by its Chief Financial Officer
and externally by three investment
managers, whose activities are
supervised by the Chief Financial
Officer. In addition, of the Applicant’s
approximately 3,181 employees (as of
September 30, 2022), Applicant states
that only five employees spend time on
matters relating to the management of
Applicant’s Capital Preservation
Instruments. Applicant states that none
of its officers, directors or employees
spends or proposes to devote more than
1% of his or her time, if even that, to
management of Capital Preservation
Instruments on behalf of the Applicant.
d. Nature of Assets. Applicant states
that, as of September 30, 2022,
Applicant’s investment securities
constituted approximately 65.4% of its
total assets (excluding Government
securities and cash items) on an
unconsolidated basis.4 Furthermore,
4 Applicant states that none of its subsidiaries
hold any investment securities.
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Applicant states that as of September
30, 2022, 100% of its investment
securities consist of Capital Preservation
Instruments. Applicant uses its Capital
Preservation Instruments to finance its
continued operations. Applicant states
that it may in the future make strategic
investments in ‘‘other investments’’
consistent with Rule 3a–8. Applicant
states, however, that no more than 10%
of its total assets (exclusive of
Government securities and cash items,
including securities of money market
funds registered under the Act) will
consist of investment securities other
than Capital Preservation Instruments.5
Applicant uses current assets, including
its Capital Preservation Instruments, to
finance its continued R&D program and
operations in connection with the
development of the Applicant’s
software.
e. Sources of Income and Revenue.
Applicant represents that since its
inception it has carried net operating
losses. Applicant states that it does,
however, derive income from its
investment securities. Applicant states
that a review of its current source of
revenues provides a more accurate
review of its operating company status,
particularly given the upward trend in
recognizing substantially increased
revenues due to sales of new
subscriptions. Applicant states that it
recognizes substantially all of its
revenues from fees based on
subscriptions and support. Applicant
states that its revenues for the years
ended December 31, 2019, 2020 and
2021 were $287 million, $431.1 million,
and $656.4 million, respectively, on an
unconsolidated basis. By contrast,
Applicant states that its net investment
income in 2019, 2020, and 2021 was
$5.8 million, $6.6 million, and $2.0
million in, respectively. Applicant
states that all such income was derived
from Capital Preservation Instruments.6
Applicant states that if net investment
income were compared to its revenue, it
would be less than 1.0% of revenue for
the fiscal year ended December 31,
2021, and to less than 1.5% of revenue
for the fiscal year ended December 31,
2020.
For the fiscal nine months ended
September 30, 2022, Applicant earned
$6.6 million of net investment income,
an increase compared to $2.0 million for
the fiscal year ended December 31,
2021. This nonetheless represents less
than 1% of revenue for the fiscal nine
months ended September 30, 2022. The
increase in net investment income is
due to the increase in interest rates in
the fixed income markets.
7. Applicant asserts that its historical
development, its public representations
of policy, the activities of its officers
and directors, the nature of its assets
and its sources of revenue and income,
as discussed in the application,
demonstrate that it is engaged primarily
in a business other than that of
investing, reinvesting, owning, holding
or trading securities. Applicant thus
asserts that it satisfies the criteria for
issuing an order under section 3(b)(2) of
the Act.
Applicant’s Conditions
Applicant agrees that any order
granted pursuant to the application will
be subject to the following conditions:
1. Applicant will continue to use its
accumulated cash and securities to
support its primary business (as such
business is described in Applicant’s
application);
2. Applicant will refrain from
investing or trading in securities for
speculative purposes; and
3. No more than 10% of Applicant’s
total assets will consist of investment
securities other than Capital
Preservation Instruments (as such
capitalized term is defined in
Applicant’s application). For purposes
of this condition, total assets excludes
cash items (including securities issued
by money market funds registered under
the Act) and Government securities (as
defined in section 2(a)(16) of the Act).
This percentage is to be determined on
an unconsolidated basis, except that
Applicant should consolidate its
financial statements with the financial
statements of any wholly-owned
subsidiaries.
For the Commission, by the Division of
Investment Management, under delegated
authority.
Dated: March 15, 2023.
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023–05683 Filed 3–20–23; 8:45 am]
BILLING CODE 8011–01–P
5 Applicant
states that it intends to calculate this
percentage by consolidating its financial statement
with the financial statements of its wholly-owned
subsidiaries (but not with any majority-owned
subsidiary that may be acquired in the future).
6 Applicant states that it has not, and does not
expect to, earn investment income from strategic
investments.
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]]>Agencies
[Federal Register Volume 88, Number 54 (Tuesday, March 21, 2023)]
[Notices]
[Pages 17043-17045]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-05683]
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SECURITIES AND EXCHANGE COMMISSION
[Investment Company Act Release No. 34856; File No. 812-15441]
Cloudflare, Inc.
AGENCY: Securities and Exchange Commission (``Commission'').
ACTION: Notice.
-----------------------------------------------------------------------
Notice of application for an order under section 3(b)(2) of the
Investment Company Act of 1940 (``Act'').
APPLICANT: Cloudflare, Inc.
SUMMARY OF APPLICATION: Applicant seeks an order under section 3(b)(2)
of the Act declaring it to be primarily engaged in a business other
than that of investing, reinvesting, owning, holding or trading in
securities. Applicant states that it is in the business of providing
secure network cloud services.
DATES: Filing Dates: The application was filed on March 3, 2023.
HEARING OR NOTIFICATION OF HEARING: An order granting the requested
relief will be issued unless the Commission orders a hearing.
Interested persons may request a hearing by emailing the Commission's
Secretary at [email protected] and serving applicants with a
copy of the request, by email if an email address is listed for the
relevant Applicant below, or personally or by mail, if a physical
address is listed for the relevant Applicant below. Hearing requests
should be received by the Commission by 5:30 p.m. on April 10, 2023,
and should be accompanied by proof of service on the applicants, in the
form of an affidavit, or for lawyers, a certificate of service.
Pursuant to rule 0-5 under the Act, hearing requests should state the
nature of the writer's interest, any facts bearing upon the
desirability of a hearing on the matter, the reason for the request,
and the issues contested. Persons who wish to be notified of a hearing
may request notification by emailing the Commission's Secretary at
[email protected].
ADDRESSES: The Commission: [email protected]. Applicant: Thomas
Seifert, Chief Financial Officer, Cloudflare, Inc., at [email protected]; Amy Caiazza, at [email protected].
FOR FURTHER INFORMATION CONTACT: Jennifer O. Palmer, Senior Counsel, or
Terri G. Jordan, Branch Chief, at (202) 551-6825 (Division of
Investment Management, Chief Counsel's Office).
SUPPLEMENTARY INFORMATION: The following is a summary of the
application. For Applicant's
[[Page 17044]]
representations, legal analysis, and conditions, please refer to
Applicant's application, dated March 3, 2023, which may be obtained via
the Commission's website by searching for the file number at the top of
this document, or for an Applicant using the Company name search field,
on the SEC's EDGAR system. The SEC's EDGAR system may be searched at
https://www.sec.gov/edgar/searchedgar/legacy/companysearch.html. You
may also call the SEC's Public Reference Room at (202) 551-8090.
Applicant's Representations
1. Applicant states that it is a Delaware corporation formed in
2009 that, directly and through its wholly-owned subsidiaries,\1\ is
engaged in the business of providing secure network cloud services.
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\1\ Applicant states that 13 of its 24 wholly-owned subsidiaries
conduct businesses that are integrally related to the Applicant's
business, such as sales and marketing or research and development
(``R&D'') activities in their respective jurisdictions. Applicant
states that its remaining 11 subsidiaries are non-operating holding
companies or non-operating companies with de minimis assets.
Applicant further states that none of its subsidiaries meet the
definition of an ``investment company'' in section 3(a) of the Act.
---------------------------------------------------------------------------
2. Applicant states that its business is highly capital intensive,
requires R&D of new technologies, and does not involve the Applicant
acquiring or retaining significant ``hard'' operating assets. Applicant
states that it maintains significant cash reserves that it seeks to
invest for purposes of conserving capital and providing liquidity until
the funds are used in its cloud-based services and technology business.
As described more fully in the application, Applicant states that it
requires significant liquid capital primarily to: (i) fund R&D for new
products and services, (ii) otherwise fund its operations, and (iii)
make other capital expenditures in keeping with the growth of the
Applicant's cloud-based services and technology business.
3. Applicant states that it has financed operations primarily
through offerings of debt and equity securities, but ultimately seeks
to generate cash from its operations to support its business. Applicant
states that it seeks to preserve capital and maintain liquidity,
pending the use of such capital for its operations, by investing in
``Capital Preservation Instruments.'' \2\ Applicant states that it may
in the future make strategic investments in ``other investments''
consistent with Rule 3a-8. Applicant states that such securities will
not be acquired for speculative purposes.
---------------------------------------------------------------------------
\2\ As used in Applicant's application, Capital Preservation
Instruments refers collectively to any cash items and securities
that are held for the purpose of conserving Applicant's capital and
liquidity until they are used by Applicant to support its business
(as such business is described in Applicant's application). Such
holdings are liquid (i.e., can be readily sold), earn competitive
market returns and present a low level of credit risk, including
short-term investment grade securities, Government securities (as
defined in section 2(a)(16) of the Act), securities of money market
funds registered under the Act, and other cash items; but excluding
investments in equity or speculative instruments.
---------------------------------------------------------------------------
Applicant's Legal Analysis
1. Applicant seeks an order under section 3(b)(2) of the Act
declaring that it is primarily engaged in a business other than that of
investing, reinvesting, owning, holding or trading in securities and
therefore is not an investment company as defined in the Act.
2. Section 3(a)(l)(A) of the Act defines the term ``investment
company'' to include an issuer that is or holds itself out as being
engaged primarily, or proposes to engage primarily, in the business of
investing, reinvesting or trading in securities. Section 3(a)(l)(C) of
the Act further defines an investment company as an issuer that 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 in excess of
40% of the value of the issuer's total assets (exclusive of Government
securities and cash items) on an unconsolidated basis. Section 3(a)(2)
of the Act defines ``investment securities'' to include all securities
except Government securities, securities issued by employees'
securities companies, and securities issued by majority-owned
subsidiaries of the owner which (a) are not investment companies and
(b) are not relying on the exclusions from the definition of investment
company in section 3(c)(1) or section 3(c)(7) of the Act. Applicant
states that it has never been, is not now, and does not propose to be,
primarily engaged in the business of investing, reinvesting, owning,
holding, or trading in securities. Applicant states, however, that it
historically held and currently holds investment securities that exceed
40% of its total assets on an unconsolidated basis (exclusive of
Government securities and cash items). Applicant states that it
therefore may be an ``investment company'' pursuant to section
3(a)(l)(C) of the Act absent an exclusion or exemption.
3. Rule 3a-8 under the Act provides an exclusion from the
definition of investment company if, among other factors, a company's
R&D expenses are a substantial percentage of its total expenses for the
last four fiscal quarters combined. While Applicant states that it
believes that it complies with the conditions of Rule 3a-8, Applicant
states that it is concerned that its R&D expenses, while substantial in
absolute terms, may not always be considered substantial as a ratio of
overall expenses. Although Applicant states that it anticipates R&D
expenses to increase in absolute terms, such expenses are not
anticipated to increase proportionately with Applicant's overall
expenses, particularly given increases in expenses related to sales and
marketing, the administration of a rapidly expanding employee base, and
other administrative expenses. Applicant states that its R&D expenses
have fluctuated between 18.34% and 25.04% of total expenses over the
past six years, and Applicant expects R&D expenses to decrease relative
to total expenses over time.
4. Section 3(b)(2) of the Act provides that, notwithstanding
section 3(a)(l)(C) of the Act, the Commission may issue an order
declaring an issuer to be primarily engaged in a business other than
that of investing, reinvesting, owning, holding, or trading in
securities directly, through majority-owned subsidiaries, or controlled
companies conducting similar types of businesses. Applicant requests an
order under section 3(b)(2) of the Act declaring that it is primarily
engaged in a business other than that of investing, reinvesting,
owning, holding or trading in securities, and therefore is not an
investment company as defined in the Act.
5. In determining whether an issuer is ``primarily engaged'' in a
non-investment company business under section 3(b)(2) of the Act, the
Commission considers the following factors: (a) the company's
historical development, (b) its public representations of policy, (c)
the activities of its officers and directors, (d) the nature of its
present assets, and (e) the sources of its present income.\3\
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\3\ Tonopah Mining Company of Nevada, 26 SEC 426, 427 (1947).
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6. Applicant submits that it satisfies the criteria for issuance of
an order under section 3(b)(2) of the Act because Applicant is
primarily engaged in the business of providing secure network cloud
services and is not in the business of investing, reinvesting, owning,
holding or trading in securities.
a. Historical Development. Applicant states that, since its
inception in 2009, Applicant has operated in the cloud software sector
to develop comprehensive, scalable network cloud services for business
use. Applicant's business has focused on the development of new such
products, and
[[Page 17045]]
Applicant has received global recognition as an innovative technology
company.
b. Public Representations of Policy. Applicant states that it has
consistently represented that it is engaged in the business of
providing secure network cloud services. Applicant further states that
it has never held and does not now hold itself out as an investment
company within the meaning of the Act or as engaging in the business of
investing, reinvesting, owning, holding, or trading in securities.
Applicant explains that in its annual reports, stockholder letters,
prospectuses, Commission filings, press releases, marketing materials,
and on its investor website, its public representations consistently
state its mission to help build a better internet by providing
solutions to managing individual network hardware for companies of all
sizes and growth. Applicant submits that its public representations
make clear that shareholders invest in the Applicant's securities with
the expectation of realizing gains from Applicant's development and
sale of its suite of cloud services and not from returns on an
investment portfolio. Applicant states that its only public
representations regarding its investment securities are those required
to be disclosed in public filings with the Commission.
c. Activities of Officers and Directors. Applicant represents that
its officers and directors spend substantially all of their time
managing the Applicant's cloud-based services and technology business.
Applicant states that its cash management activities are managed
internally by its Chief Financial Officer and externally by three
investment managers, whose activities are supervised by the Chief
Financial Officer. In addition, of the Applicant's approximately 3,181
employees (as of September 30, 2022), Applicant states that only five
employees spend time on matters relating to the management of
Applicant's Capital Preservation Instruments. Applicant states that
none of its officers, directors or employees spends or proposes to
devote more than 1% of his or her time, if even that, to management of
Capital Preservation Instruments on behalf of the Applicant.
d. Nature of Assets. Applicant states that, as of September 30,
2022, Applicant's investment securities constituted approximately 65.4%
of its total assets (excluding Government securities and cash items) on
an unconsolidated basis.\4\ Furthermore, Applicant states that as of
September 30, 2022, 100% of its investment securities consist of
Capital Preservation Instruments. Applicant uses its Capital
Preservation Instruments to finance its continued operations. Applicant
states that it may in the future make strategic investments in ``other
investments'' consistent with Rule 3a-8. Applicant states, however,
that no more than 10% of its total assets (exclusive of Government
securities and cash items, including securities of money market funds
registered under the Act) will consist of investment securities other
than Capital Preservation Instruments.\5\ Applicant uses current
assets, including its Capital Preservation Instruments, to finance its
continued R&D program and operations in connection with the development
of the Applicant's software.
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\4\ Applicant states that none of its subsidiaries hold any
investment securities.
\5\ Applicant states that it intends to calculate this
percentage by consolidating its financial statement with the
financial statements of its wholly-owned subsidiaries (but not with
any majority-owned subsidiary that may be acquired in the future).
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e. Sources of Income and Revenue. Applicant represents that since
its inception it has carried net operating losses. Applicant states
that it does, however, derive income from its investment securities.
Applicant states that a review of its current source of revenues
provides a more accurate review of its operating company status,
particularly given the upward trend in recognizing substantially
increased revenues due to sales of new subscriptions. Applicant states
that it recognizes substantially all of its revenues from fees based on
subscriptions and support. Applicant states that its revenues for the
years ended December 31, 2019, 2020 and 2021 were $287 million, $431.1
million, and $656.4 million, respectively, on an unconsolidated basis.
By contrast, Applicant states that its net investment income in 2019,
2020, and 2021 was $5.8 million, $6.6 million, and $2.0 million in,
respectively. Applicant states that all such income was derived from
Capital Preservation Instruments.\6\ Applicant states that if net
investment income were compared to its revenue, it would be less than
1.0% of revenue for the fiscal year ended December 31, 2021, and to
less than 1.5% of revenue for the fiscal year ended December 31, 2020.
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\6\ Applicant states that it has not, and does not expect to,
earn investment income from strategic investments.
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For the fiscal nine months ended September 30, 2022, Applicant
earned $6.6 million of net investment income, an increase compared to
$2.0 million for the fiscal year ended December 31, 2021. This
nonetheless represents less than 1% of revenue for the fiscal nine
months ended September 30, 2022. The increase in net investment income
is due to the increase in interest rates in the fixed income markets.
7. Applicant asserts that its historical development, its public
representations of policy, the activities of its officers and
directors, the nature of its assets and its sources of revenue and
income, as discussed in the application, demonstrate that it is engaged
primarily in a business other than that of investing, reinvesting,
owning, holding or trading securities. Applicant thus asserts that it
satisfies the criteria for issuing an order under section 3(b)(2) of
the Act.
Applicant's Conditions
Applicant agrees that any order granted pursuant to the application
will be subject to the following conditions:
1. Applicant will continue to use its accumulated cash and
securities to support its primary business (as such business is
described in Applicant's application);
2. Applicant will refrain from investing or trading in securities
for speculative purposes; and
3. No more than 10% of Applicant's total assets will consist of
investment securities other than Capital Preservation Instruments (as
such capitalized term is defined in Applicant's application). For
purposes of this condition, total assets excludes cash items (including
securities issued by money market funds registered under the Act) and
Government securities (as defined in section 2(a)(16) of the Act). This
percentage is to be determined on an unconsolidated basis, except that
Applicant should consolidate its financial statements with the
financial statements of any wholly-owned subsidiaries.
For the Commission, by the Division of Investment Management,
under delegated authority.
Dated: March 15, 2023.
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-05683 Filed 3-20-23; 8:45 am]
BILLING CODE 8011-01-P
