[Federal Register Volume 62, Number 240 (Monday, December 15, 1997)]
[Notices]
[Pages 65721-65725]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-32651]


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SECURITIES AND EXCHANGE COMMISSION

[Rel. No. IC-22930/812-10836]


MLX Corporation; Notice of Application

December 9, 1997.
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 under sections 6(c) 
and 6(e) of the Act that would exempt it from all of the provisions of 
the Act except sections 9, 17(a) (modified as discussed in the 
application), 17(d) (modified as discussed in the application), 17(e), 
17(f) (modified as discussed in the application), and 36 through 53 and 
the rules and regulations under the Act until the earlier of the date 
of the pending merger of applicant with Morton Metalcraft Holding Co., 
or June 30, 1998.

FILING DATE: The application was filed on October 27, 1997 and amended 
on December 3, 1997. Applicant has agreed to file an additional 
amendment, the substance of which is incorporated in this notice, 
during the notice period.
    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 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 
December 29, 1997, 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, NW., Washington, DC 20549. 
MLX Corporation, 1000 Center Place, Norcross, Georgia 30093.

FOR FURTHER INFORMATION CONTACT:
Deepak T. Pai, Staff Attorney, at (202) 942-0574, or Nadya B. Roytblat, 
Assistant Director, 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, 450 Fifth Street, NW., Washington, DC 
20549 (tel. 202-942-8090).

Applicant's Representation

    1. MLX Corporation (``MLX'') was formed in 1984 as part of the 
reorganization of McLouth Steel Company (``McLouth''), a maker of steel 
products that filed for bankruptcy in 1982. Under the terms of the 
organization, McLouth was renamed ``MLX Corporation'' and McLouth 
shares were exchanged for new MLX shares. As part of the 
reorganization, McLouth's operating business was sold to a separate 
entity. MLX's sole remaining asset is the net operating losses 
generated by McLouth's unprofitable operations. These net operating 
losses are still available to offset future taxable income from 
operations and are one of MLX's most important assets. MLX has 
approximately 8,500 shareholders.
    2. In 1985, MLX acquired S.K. Wellman Limited, Inc. (``Wellman''), 
a company engaged in the design and manufacture of high energy friction 
materials used primarily in aircraft brakes and heavy equipment brakes, 
transmissions, and clutches (the ``Wellman Business''). From 1985 
through 1987, MLX consummated various other acquisitions that 
complemented the Wellman Business (the ``Wellman Acquisitions''). In 
addition to the Wellman Acquisitions, in 1986, 1987, and 1988, MLX 
acquired

[[Page 65722]]

the companies and assets comprising Pameco Corporation (``Pameco''), a 
distributor of heating and air conditioning units. In 1992, MLX sold 
Pameco, which enabled MLX to focus its efforts exclusively on the 
Wellman Business.
    3. In August 1994, a foreign competitor approached MLX management 
with an unsolicited expression of interest in a business combination 
with Wellman. This led to negotiations for the sale of all the capital 
stock of its wholly-owned subsidiary, Wellman (the ``Wellman 
Transaction''). The Wellman Transaction, which closed June 30, 1995, 
left MLX with approximately $38 million in cash and cash equivalents, 
no debt, and federal net operating loss carryforwards (``NOLs'') of 
approximately $300 million available to offset future taxable income 
from operations.
    4. Since the Wellman Transaction, MLX has been engaged in the 
process of identifying and evaluating potential acquisition candidates 
for the purpose of acquiring a suitable operating business as soon as 
reasonably possible. MLX's president and chief executive officer, the 
only officer and one of only two employees, spends substantially all of 
his time seeking acquisition candidates for MLX. In addition, MLX's 
other employee spends substantially all of her time supporting the 
activities of MLX's president and attending to the ministerial 
functions of operating the company. MLX has developed financial and 
operational criteria as a basis for evaluating prospective target 
businesses and for narrowing the focus of its search. MLX's executive 
officers and board of directors have been in constant communications 
with professional groups, including investment bankers, lenders, 
attorneys and accountants (collectively ``Financial Intermediaries'') 
for the purposes of discussing MLX's acquisition criteria and exploring 
acquisition opportunities. MLX has discussed its acquisition criteria 
directly with over fifty Financial Intermediaries. Three Cities 
Research, Inc. (``Three Cities''), a New York investment banking firm 
that owns approximately 39% of MLX's outstanding common stock, has 
assisted MLX in identifying, evaluating and negotiating potential 
acquisitions. In addition, MLX has engaged, on a non-exclusive basis, 
the investment banking firm of Smith Barney to canvas the market of 
businesses for sale and analyze these against MLX's acquisition 
criteria.
    5. On May 19, 1997, MLX was granted an order (the ``Existing 
Order'') exempting it from most of the provisions of the Act during the 
period from the date of the Existing Order to December 31, 1997.\1\ 
However, in spite of its efforts, MLX has been unable to complete the 
acquisition of an operating business. MLX has recently signed a 
definitive merger agreement (the ``Pending Merger'') with Morton 
Metalcraft Holding Co. (``Morton''), a leading contract manufacturer 
and supplier of high quality fabricated sheet metal components and sub-
assemblies for construction, agricultural, and industrial equipment 
manufacturers. Preliminary proxy materials seeking shareholder approval 
for the Pending Merger were filed with the SEC on October 21, 1997.
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    \1\ Investment Company Act Release Nos. 22626 (Apr. 21, 1997) 
(notice) and 22667 (May 19, 1997) (order).
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    6. MLX currently has NOLs of approximately $275 million available 
to offset future taxable income from operations. In order for MLX to 
retain its NOLs after the Pending Merger, section 382 of the Internal 
Revenue Code of 1986, as amended (``Section 382'') requires existing 
MLX shareholders to own 50% or more of the equity in MLX after the 
Pending Merger. However, William D. Morton (``Mr. Morton''), President 
and Chief Executive Officer of Morton, stated that he would only 
consider a transaction which he would obtain voting control of the 
entity resulting from the Pending Merger. In order to give Mr. Morton 
effective voting control of MLX after the Pending Merger (i) MLX is 
proposing that its shareholders approve a recapitalization that will be 
structured to avoid an ownership change within the meaning of Section 
382 (the ``Recapitalization'') and (ii) the transactions associated 
with the Pending Merger, which includes a shareholders agreement and a 
voting agreement, must be consummated (the ``Related Transactions'').
    7. Under the Recapitalization, all existing common stock of MLX 
will be re-classified as MLX Class A Common Stock (``Class A Common 
Stock'') and a new class of 200,000 Shares of MLX Class B Common Stock 
(``Class B Common Stock'') will be created. Certain affiliates of Three 
Cities (``TCR Affiliates'') will own 100,000 shares of Class B Common 
Stock. Class A Common Stock and Class B Common Stock will have equal 
rights with respect to dividends and liquidation participation.\2\ 
Shareholders of Class A Common Stock and Class B Common Stock will vote 
as a single class on all matters with each share of Class A Common 
Stock entitled to one vote and each share of Class B Common Stock 
entitled to one vote per share and increasing votes per share as the 
shareholder disposes of certain shares \3\ of Class A Common Stock.
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    \2\ Each share of Class B Common Stock will be convertible, at 
the option of its holder, into one share of Class A Common Stock. 
Each share of Class B Common Stock will automatically convert into 
one share of Class A Common Stock (i) upon its sale or transfer to a 
party unaffiliated with Mr. Morton or the TCR Affiliates and (ii) on 
the tenth anniversary of the effective date of the Pending Merger.
    \3\ Mr. Morton's voting power will also be increased by 338,990 
shares of Class A Common Stock that are not taken into account in 
calculating the voting power of his Class B Common Stock.
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    8. Following the Pending Merger, Mr. Morton will own 1,218,990 
shares of Class A Common Stock and 100,000 shares of Class B Common 
Stock. TCR Affiliates will own 888,178 shares of Class A Common Stock 
and 100,000 shares of Class B Common Stock. As Mr. Morton and TCR 
Affiliates sell their shares of Class A Common Stock, the special 
voting rights of the Class B Common Stock will ensure that Mr. Morton's 
voting rights and the TCR Affiliates' voting rights will not be reduced 
below 24%. Thus, after the Recapitalization and Pending Merger, Mr. 
Morton and the TCR Affiliates together will have 56.5% of the voting 
rights of MLX common shares.
    9. In connection with the Pending Merger, Mr. Morton and TCR 
Affiliates entered into a shareholders agreement (the ``Shareholders 
Agreement'') whereby the benefits of the potential voting rights of 
Class B Common Stock enure entirely to Mr. Morton. Under the terms of 
the Shareholders Agreement, TCR Affiliates will grant Mr. Morton a 
proxy to vote all of the Class A Common Stock and the Class B Common 
Stock owned by TCR Affiliates. The proxy will cover all matters to be 
voted upon by MLX's shareholders after the Pending Merger except for 
the liquidation of MLX, and sale of MLX's assets, and certain 
mergers.\4\
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    \4\ In another Related Transaction, MLX has entered into a 
securities purchase agreement with certain holders of Morton common 
stock, options, and warrants whereby MLX will purchase shares of 
Morton common stock, options, and warrants. The Morton securities 
purchased by MLX will be cancelled by the Pending Merger.
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    10. In connection with the Pending Merger, TCR Affiliates and 
Morton have also entered into a voting agreement (the ``Voting 
Agreement'') under which TCR Affiliates have agreed that at any meeting 
of the MLX shareholders, TCR Affiliates will vote all the shares of MLX 
common stock owned by them in favor of (i) the Recapitalization, (ii) 
the Pending Merger, and (iii) a new employee stock option plan and each 
of the other actions contemplated by or

[[Page 65723]]

required in furtherance of such transactions.
    11. Until the Pending Merger, a substantial majority of the 
potential acquisitions were rejected by MLX because of valuation 
issues. In other instances, MLX was outbid for the target. As of 
September 30, 1997, MLX had evaluated 225 transactions and made thirty-
one offers or valuation proposals. If for any reason, the Pending 
Merger is not consummated, MLX plans to continue to be engaged in the 
process of identifying and evaluating potential acquisition candidates 
for the purpose of acquiring a suitable operating business as soon as 
reasonably possible.
    12. MLX states that there is no assurance that the Pending Merger 
will be completed, if at all, by December 31, 1997. Accordingly, it is 
necessary for MLX to seek a new order extending the time period of the 
Existing Order. MLX requests an order under sections 6(c) and 6(e) of 
the Act exempting it from all the provisions of the Act except sections 
9, 17(a) (modified as discussed in the application), 17(d) (modified as 
discussed in the application), 17(e), 17(f) (modified as discussed in 
the application), and 36 through 53 and the rules and regulations under 
the Act until the earlier of the date of the Pending Merger or June 30, 
1998. MLX also requests a limited and specific exemption for the same 
time period (i) under section 6(c) for an exemption from section 17(f) 
to permit MLX to continue its present custodial arrangement, (ii) under 
rule 17d-1 to grant an exemption from section 17(d) to permit MLX to 
maintain, operate and comply with its stock option plans and 
agreements, and (iii) under section 17(b) and rule 17d-1 for an 
exemption from section 17(a) and section 17(d), respectively, to permit 
MLX and TCR Affiliates to consummate the Pending Merger and Related 
Transactions.
    13. MLX's NOLs represent substantial value that may only be 
maximized by acquiring a profitable operating company at a fair price. 
The NOLs expire as follows: $144.3 million in 1997; $1.2 million in 
1998; $73.8 million in 1999; $2.7 million in 2000; $2.2 million in 
2002; $5.0 million in 2005; $2.0 million in 2006 and $47.3 million in 
2007. The existence of the NOLs, together with their expiration 
schedule, provide MLX with a strong incentive to close the acquisition 
of a profitable operating business as soon as possible. Though 
currently in transition, MLX expects to have acquired an operating 
business by no later than June 30, 1998 or sooner if the Pending Merger 
is completed. In the event that MLX is unable to acquire an operating 
business by June 30, 1998, MLX's board of directors will consider the 
alternatives available, including registration as an investment company 
or dissolution. These alternatives would be considered in advance of 
June 30, 1998 in order to allow sufficient time for the implementation 
of any board decision.
    14. Since the Wellman Transaction, MLX's revenues have been derived 
from the investment of substantially all of its assets in overnight 
repurchase agreements collateralized by United States Treasury and 
agency securities. MLX's overnight repurchase agreement investment 
program (the ``Program'') is administered by five large national banks 
approved by MLX's board of directors. The Program is designed to: (a) 
Maximize safety of capital, (b) assure availability of funds for the 
purpose of consummating an acquisition, and (c) relieve MLX management 
of the time-consuming management of those funds.
    15. Access to MLX's funds is severely restricted. MLX has one 
operating account for the purpose of executing routine operating 
disbursements and business expenses, including salaries, rent and 
taxes. The maximum amount of funds deposited in the account is limited 
to no more than the anticipated expense level for the upcoming two 
months, based on MLX's budget as approved by the board of directors. 
Any disbursements from the operating account must be approved by the 
chief executive officer and the account is reconciled on a monthly 
basis. In addition, MLX's board of directors receives a monthly summary 
report of expenses.
    16. Five national banks invest the remainder of MLX's funds as part 
of the Program, each of which is responsible for approximately equal 
portions of $7 million. MLX's board of directors has designated First 
Union National Bank as the primary bank. The non-primary banks are 
Wachovia Bank of Georgia, National Bank, SunTrust Bank, and National 
Bank of Detroit. All five banks are United States regulated banks and 
meet the qualifications prescribed in section 26(a)(1) of the Act. The 
non-primary banks have been instructed in writing to wire money only to 
MLX's account at First Union National Bank and not to any other person 
or entity. In addition, MLX's agreements with all of the banks (``Bank 
Agreements'') contain provisions requiring the banks to segregate and 
identify all securities owned by MLX as subject to the respective Bank 
Agreement.
    17. Transfers from any non-primary bank investment account in any 
amount must be approved by an MLX executive officer and the Funds 
Management Committee of the board of directors, and primary account 
transfers (including check disbursements) in amounts above $5,000 must 
be approved by an MLX executive officer and a member of the Committee. 
In addition, the bank must verify the authenticity of the wire transfer 
request by voice verification with a second, non-initiating MLX officer 
in a phone call initiated by the bank. MLX also has secured an 
executive protection policy from the Chubb Group of Insurance Companies 
insuring MLX for, among other things, losses of money, securities and 
other property caused by theft or forgery by any employee or agent of 
MLX or by any other person in an amount not to exceed $5 million.
    18. MLX has two stock option plans. Under the MLX Corporation Stock 
Option Plan, adopted in 1985 (the ``1985 Plan''), MLX granted stock 
options to certain officers, directors and key employees at prices not 
less than the market value on the date the options were granted. No new 
options may be granted under the 1985 Plan, although some options are 
still outstanding. Under the MLX Corporation Stock Option and Incentive 
Award Plan, adopted in 1995 (the ``1995 Plan''), stock-based awards may 
be issued to key employees (including directors who are also employees) 
and certain others. The awards may include incentive stock options, 
non-qualified stock options, restricted stock, and outright stock 
awards. A total of 125,000 shares of MLX common stock are reserved 
under the 1995 Plan. In addition, on February 11, 1991, MLX issued 
options to Brian R. Esher, its then Chief Executive Officer and 
currently a director of MLX, to acquire 190,400 shares of MLX common 
stock at a price of $5.00 per share, exercisable (subject to vesting 
schedules which have been satisfied) at any time prior to February 10, 
1998. Mr. Esher's options were converted to stock appreciation rights 
and exercised as of February 28, 1997. On October 3, 1993, December 29, 
1994 and July 26, 1995, MLX issued options to Thomas Waggoner, its then 
Chief Financial Officer and current Chief Executive Officer, to acquire 
50,000 shares of MLX common stock at prices ranging from $2.20 to $9.25 
per share, exercisable at any time prior to July 25, 2000. It is also 
possible for Mr. Waggoner's options to be converted to stock 
appreciation rights.

Applicant's Legal Analysis

    1. Section 3(a)(3) of the Act defines an investment company as an 
issuer who is engaged or proposes to engage in the business of 
investing, reinvesting,

[[Page 65724]]

owning, holding, or trading in securities and owns investment 
securities having a value in excess of 40% of the issuer's total assets 
(excluding Government securities and cash). MLX believes it may be an 
investment company under section 3(a)(1)(C). However, MLX contends 
that, if the Pending Merger is consummated, MLX would not be deemed to 
be an investment company under section 3(a)(1)(C) of the Act.
    2. Rule 3a-2 under the Act generally provides that, for purposes of 
section 3(a)(3), 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 exceeding one year if the issuer has a bona 
fide intent to be engaged in a noninvestment company business. For the 
period from July 1, 1995 through June 30, 1996, MLX operated under the 
exemption provided by rule 3a-2.
    3. Section 6(c) provides that the SEC may conditionally or 
unconditionally exempt any person, security or transaction, or any 
class thereof, from any provision of the Act, or of any rule or 
regulation, if and to the extent that an exemption is necessary or 
appropriate in the public interest and consistent with the protection 
of investors and the purposes fairly intended by the policies and 
provisions of the Act. Section 6(e) permits the SEC to require 
companies exempted from the registration requirements of the Act to 
comply with certain specified provisions thereof as though the company 
were a registered investment company.
    4. MLX asserts that registration under the Act would involve 
unnecessary burden and expense for MLX and its shareholders where there 
is no likelihood of abuse. MLX believes that registration would require 
costly changes in its financial reporting requirements, because the 
requirements are significantly different for investment companies. MLX 
contends that making these changes during this interim period, until it 
consummates the acquisition of an operating business, is likely to 
result in considerable and unwarranted confusion of its shareholders 
and the investing public. MLX states that many shareholders, as a 
result of this confusion, might sell their positions in MLX, an event 
which might have an adverse effect on the market price of MLX's 
securities and consequently on MLX's remaining shareholders. MLX 
asserts that those shareholders also would be deprived of the benefits 
of a potential acquisition.
    5. MLX contends that certain provisions of the Act also might 
impair its ability to carry out its stated intention to acquire an 
operating business. For example, MLX believes that (a) the shareholder 
approval requirement of section 13(a)(4) of the Act would be a 
significant obstacle to effecting any acquisition requiring rapid 
action, (b) the cross-ownership prohibition of section 20(c) of the Act 
would limit MLX's ability to attempt a takeover which was not favored 
by the target sought to be acquired, and (c) the debt limitations of 
section 18 of the Act might preclude bridge financing of an 
acquisition. Also, MLX asserts that, if MLX is unable to obtain 
shareholder approval for the Pending Merger and complete it prior to 
December 31, 1997, failure to obtain the requested order may prevent 
MLX from completing the Pending Merger after December 31, 1997.
    6. MLX states that it is a reporting company under the Securities 
Exchange Act of 1934 and is subject to extensive reporting and other 
requirements for the protection of its shareholders. Further, MLX 
asserts that its shareholders and the investing public have been 
informed on numerous occasions of its intention to acquire an operating 
business and the framework for its acquisition efforts. MLX also 
asserts that it has pursued and remains committed to the acquisition of 
a suitable operating business consistent with the best interests of its 
shareholders.
    7. MLX notes that, in determining whether to grant an exemption for 
a transient investment company, the SEC considers these factors: (1) 
Whether the failure of the company to become primarily engaged in a 
non-investment company business within one year was due to factors 
beyond its control; (2) whether the company's officers and employees 
during that period tried, in good faith, to effect the company's 
investment of its assets in a non-investment company business; and (3) 
whether the company invested in securities solely to preserve the value 
of its assets.
    8. MLX states that, while it is using its best efforts, in good 
faith, to acquire an operating business with the proceeds of the 
Wellman Transaction, it has been unable, notwithstanding the Pending 
Merger, to negotiate and complete a favorable transaction. MLX asserts 
that this is attributable solely to factors beyond its control, 
including the unavailability of suitable acquisition candidates and the 
unwillingness of certain candidates to accept what MLX believed to be 
reasonable offers. Moreover, MLX states that the purchase of a suitable 
operating business of the size being pursued often requires a long 
period of time. MLX contends that its ability to acquire an operating 
business will depend upon the availability of suitable acquisition 
candidates, the willingness of those candidates to accept MLX's offers 
and the time needed to negotiate the terms of the acquisition and other 
factors outside of its control.
    9. MLX submits that management's efforts to invest its assets in a 
non-investment company business are evident from the efforts of Three 
Cities and the other Financial Intermediaries to provide assistance in 
identifying acquisition candidates, which includes the Pending Merger, 
and the fact that MLX's management spends substantially all of its time 
on MLX's acquisition search and MLX's investments in overnight 
repurchases agreements are made solely to maximize the safety of its 
assets. MLX contends that its investments in overnight repurchase 
agreements, motivated primarily by a desire to consummate an 
acquisition and to preserve the value of capital pending consummation 
of the acquisition, should not be subject to registration and 
regulation under the Act.
    10. Section 17(a) provides, in relevant part, that it is unlawful 
for any affiliated person of a registered investment company or any 
affiliated person of such person, acting as principal, knowingly to 
sell any security or other property to such company or to purchase from 
such company any security or other property. Section 17(b) of the Act 
authorizes the SEC to issue an order of exemption from one or more of 
the provisions of section 17(a) if evidence establishes that the terms 
of the proposed transaction are reasonable and fair and do not involve 
overreaching on the part of any person concerned, the proposed 
transaction is consistent with the policy of each registered investment 
company concerned, and the proposed transaction is consistent with the 
general purposes of the Act. MLX believes that, because TCR Affiliates 
are affiliates of Three Cities that own 39% of existing MLX shares, TCR 
Affiliates may be deemed to be affiliated persons of MLX under section 
2(a)(3) of the Act. Thus, MLX requests an exemption from the provisions 
of section 17(a) to the extent necessary to permit the Pending Merger.
    11. MLX states that TCR Affiliates, unlike other existing MLX 
shareholders, will be receiving Class B Common Stock that permits TCR 
Affiliates to retain a significant voting interest in MLX. However, MLX 
contends that, despite the greater voting rights inherent in the Class 
B Common Stock, TCR Affiliates have agreed under the Shareholders

[[Page 65725]]

Agreement to be subject to substantial detriment compared with all 
other MLX shareholders. MLX asserts that the Pending Merger and Related 
Transactions were designed to satisfy Mr. Morton's conditions regarding 
control of MLX and to permit MLX to retain its major assets, the NOLs. 
MLX also states that the Pending Merger and Related Transactions were 
approved by MLX's board of directors, including MLX's disinterested 
directors, and will not be effective unless approved by a vote of MLX's 
shareholders. Further, MLX contends that TCR Affiliates are receiving 
no additional equity or any fee as a result of the Pending Merger. 
Finally, MLX asserts that the Pending Merger will permit MLX to acquire 
a suitable operating business that will result in MLX no longer being 
subject to the Act. Thus, MLX contends that the terms of the Pending 
Merger are reasonable and fair and do not involve overreaching.
    12. Section 17(d) and rule 17d-1 make it unlawful for any 
affiliated person of a registered investment company, acting as 
principal, to effect any transaction in which the company is a joint or 
joint and several participant with the affiliated person unless the 
transaction has been approved by order of the SEC. MLX requests an 
exemption pursuant to section 17(d) and rule 17d-1 to the extent 
necessary to permit MLX (i) to operate and comply with its stock option 
plans and agreements and (ii) to consummate the Pending Merger and 
Related Transactions.
    13. MLX believes that compliance with section 17(d) of the Act and 
the rules under the Act would prohibit operation of and compliance with 
the 1985 Plan, the 1995 Plan, and Mr. Waggoner's Option Agreement. MLX 
states that these options were granted as compensation to various 
executive officers and key employees at different times prior to the 
Wellman Transaction. MLX asserts that inability to realize the value of 
those options would be unfair to the officers without the result being 
necessary or appropriate in the public interest.
    14. MLX believes that the participation of TCR Affiliates in the 
Pending Merger and Related Transactions will be on a basis less 
advantageous than that of other MLX shareholders. MLX contends that TCR 
Affiliates will be giving up certain benefits retained by other MLX 
shareholders in order to induce Morton to agree to the Pending Merger 
and Related Transactions. MLX states that under the Shareholder 
Agreement, TCR Affiliates will be transferring their voting rights to 
Mr. Morton in order to give Mr. Morton voting control of MLX. In 
addition, MLX asserts that the Shareholders Agreement contains severe 
restrictions on TCR Affiliates' ability to transfer their shares. 
Further, MLX asserts that under the Voting Agreement, TCR Affiliates 
have agreed to vote their shares in MLX in favor of the Recaptalization 
and Pending Merger. MLX states that for the reasons stated above under 
section 17(a), MLX meets the standards of rule 17d-1. Thus, MLX 
contends that no regulatory purpose would be served by prohibiting MLX 
from consummating the Pending Merger and Related Transactions.
    15. Section 17(f) provides that the securities and similar 
investments of a registered management investment company must be 
placed in the custody of a bank, a member of a national securities 
exchange, or the company itself in accordance with SEC rules. MLX 
states that all assets invested under the Program are in the custody of 
qualified banks and the ability of the banks to transfer money in and 
out is subject to numerous restrictions and checks and balances. 
Furthermore, MLX states that those assets are insured up to $5 million, 
an amount substantially in excess of what would be required under a 
fidelity bond obtained under section 17(g) of the Act. MLX also states 
that its custodial arrangements are consistent with the substantive 
requirements of rule 17f-2 under the Act, except for paragraph (f) 
thereof regarding the requirement for MLX's independent accountants to 
conduct three actual examinations. MLX also submits that its financial 
statements are audited annually by its independent accountants.

Applicant's Conditions

    Applicant agrees that any order will be subject to the following 
conditions:
    1. During the period of time MLX is exempted from registration 
under the Act, MLX will not purchase or otherwise acquire any 
additional securities other than securities that are rated investment 
grade or higher by a nationally recognized statistical rating 
organization or, if unrated, deemed to be of comparable quality under 
guidelines approved by MLX's board of directors, except that MLX may 
make equity investments in issuers that are not investment companies, 
as defined in section 3(a) of the Act (unless an issuer is covered by a 
specific exclusion from the definition of investment company under 
section 3(c) other than sections 3(c)(1) and 3(c)(7)), in the following 
circumstances: (a) in connection with the consideration of the possible 
acquisition of an operating business as evidenced by a resolution 
approved by MLX's board of directors, and (b) in connection with the 
acquisition of majority-owned subsidiaries.
    2. MLX will allocate and utilize its accumulated cash and short-
term securities for the purpose of funding cash requirements for its 
existing businesses or far acquiring one or more new businesses.
    3. While any order is in effect, MLX's 10-K, 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 MLX and other 
persons, in their transactions and relations with MLX, are subject to 
sections 9, 17(a) (except as discussed in the application), 17(d) 
(except as discussed in the application), 17(e), 17(f) (except as 
discussed in the application), and 36 through 53 of the Act as if MLX 
were a registered investment company.
    4. MLX will obtain an amended order from the SEC prior to any 
material modification of MLX's custodial arrangement in a manner not 
described in the application.

    For the Commission, by the Division of Investment Management, 
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 97-32651 Filed 12-12-97; 8:45 am]
BILLING CODE 8010-01-M