An article on the recent situation at SFE:
inq.philly.com
"Streamlining, resignations at Safeguard follow stocks' fall
The company, hurt by a drop in Internet stocks, is transferring its technology group. Several officials are said to have quit.
By Joseph N. DiStefano
INQUIRER STAFF WRITER
Transfers and resignations are changing the face of Safeguard Scientifics, the region's biggest investment holding company, as it responds to the collapse of Internet stocks. The sector's fall already has forced chairman Warren Musser to sell most of his shares in Safeguard.
Safeguard, of Wayne, has farmed out its information technology group, including 10 of the company's 90 employees, to one of its subsidiaries, Aligne Inc., also of Wayne.
The group's transfer is supposed to beef up Aligne, a wholly-owned "operating group" that Safeguard hopes will rebuild by selling business services to other Safeguard companies and outside clients.
Also, the transfer streamlines the parent company, which lost $25 million last quarter. Safeguard's expense levels recently were questioned by analysts such as Merrill Lynch's Henry Blodget.
"These are operations people, not deal people," Harry Wallaesa, Safeguard's president and Aligne's founder, said of the transferred group.
Wallaesa also confirmed that several Safeguard officials had tendered their resignations in recent days. Insiders said those departing included general counsel James A. Ounsworth, who did not return calls for comment.
Wallaesa said the transfers and resignations were not unusual, given the company's executive turnover. He also said they were not connected to Tuesday's news that Musser had sold of most of his Safeguard shares to repay at least $45 million in loans from Safeguard and others. The loans helped Musser meet margin calls on other Safeguard-backed stocks which have dropped sharply in value.
The company's share price has plunged from a high of $99 in March to $7.56 yesterday. But Wallaesa said Safeguard - which holds a controlling stake in other companies - still had ample cash reserves that should enable it to remain "financially strong" while waiting for the investment market to improve.
Safeguard routinely lends money to its executives to help pay their tax bills and other expenses, according to documents filed with the Securities and Exchange Commission. Safeguard has also provided loans and bond guarantees totaling $4.6 million to a company controlled by Musser's then-girlfriend, Hilary A. Grinker.
Wallaesa said these insider loans, which totaled less than $10 million when they were last reported in April, did not affect Safeguard's overall financial performance.
According to documents filed with the SEC earlier this year, the company regularly made six-figure loans to its senior executives to help pay taxes on their stock profits, and to new executives upon their agreeing to join Safeguard.
During the past two years, Safeguard also made $3 million in loans plus a $1.6 million bond guarantee to MegaSystems Inc., a Wayne-based movie-projection company controlled by Grinker.
Safeguard's financial statement reported that Grinker, 35, "has a personal relationship with" Musser, 73. The two were married last week, company officials said.
One of the loans to MegaSystems, for $1.5 million, was originally supposed to be paid in March 2000. The loan was extended until September 2000. Asked whether it had been paid, MegaSystems referred questions to Safeguard's chief financial officer, Gerald Blitstein, who did not return a call seeking comment.
Ounsworth, one of seven senior vice presidents who report to Wallaesa and Musser, left the Philadelphia law firm of Pepper, Hamilton & Scheetz to join Safeguard in 1991.
Working closely with Musser, Ounsworth was an architect of Safeguard's practice of selling stock in newly hatched tech companies to its own shareholders at the initial public offering price.
While Safeguard investors could buy in at the IPO price, executives had an even sweeter deal.
In the typical Safeguard deal, Musser, Ounsworth and other Safeguard executives enjoyed the same opportunities generally granted to venture capitalists: They were able to buy into new-company stocks at far below their IPO prices, increasing the probability they would profit by taking a company public - even if its stock did not do particularly well.
Safeguard's share price has dropped as the most valuable companies it invests in, including VerticalNet of Horsham and Internet Capital Group of Wayne, lost more than 90 percent of their value in the collapse of last winter's Internet stock bubble."
Morgan |
