Federal Register / Vol. 62, No. 240 / Monday, December 15, 1997 / Notices 65721

8Rules Implementing Amendments to the

Investment Advisers Act of 1940, Investment

Advisers Act Release No. 1601 (Dec. 20, 1996), 61

FR 68480 at Section II.D.1 (release proposing rules

to implement amendments to the Advisers Act).

9The exempted pension consultants are those

that provide investment advice to employee benefit

plans with respect to assets having an aggregate

value of at least $50 million during the pension

consultant’s last fiscal year. See id. at Section II.D.2.

significant effects on the national

securities markets.

10. Applicant submits that the SEC

also has exempted NRSROs because the

SEC determined that their activities

have a significant effect on the national

securities markets and the operations of

the federal securities laws.8 Applicant

also notes that certain pension

consultants are exempt from the

prohibition on SEC registration because

the SEC determined that their activities

have a direct effect on the management

of billions of dollars of pension plan

assets and thereby substantially affect

national securities markets.9 Applicant

states that the SEC determined to

exempt these advisers because of its

belief that it would be inconsistent with

the purposes of the Coordination Act for

these advisers to be regulated by the

states rather than by the SEC.

11. Applicant believes that New York

should have little or no interest in

regulating applicant because the

majority of its clients for the Fixed

Income Pricing Service are institutional

clients. Applicant asserts that its client

base for the Fixed Income Pricing

Service is overwhelmingly institutional;

less than 10% of applicant’s total

number of clients for the Fixed Income

Pricing Service are natural persons.

Applicant states that it would be

inconsistent with the purposes of

section 203A for a state to regulate

investment advisers whose activities

involve little or no traditional state

interest. Applicant submit that there is

no strong state interest in regulating

investment advises with a

predominately national, institutional

client base.

12. Applicant states that, although the

Coordination Act generally preempted

state law with respect to SEC-registered

advisers, Congress preserved state law

with respect to certain of their

supervised persons referred to as

‘‘investment adviser representatives.’’

Applicant notes that under the SEC

definition, only investment adviser

representatives who work principally

with natural person clients rather than

institutional clients are subject to state

regulation. Applicant states that this

definition recognizes that, consistent

with the Coordination Act, the primary

interest of the states is not in

institutional clients but in maintaining

oversight of representatives with a retail

clientele.

13. Applicant states that if it were to

be regulated by New York, rather than

by the SEC, it would mean that a single

state would be charged with protecting

the interests of applicants’s clients and

of the clients’ customers located in all

fifty states. Applicant further maintains

that regulation by New York could

result in regulation with an eye

primarily to the interests of the state

rather than the interests of applicant’s

clients and such clients’ customers

throughout the country. Applicant

asserts that the nature of its activities in

valuing securities lends itself to

supervision and examination by one

regulatory body whose focus is national

rather than local.

By the Commission.

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 97–32652 Filed 12–12–97; 8:45 am]

BILLING CODE 8010–01–M

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’’).

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
65722 Federal Register / Vol. 62, No. 240 / Monday, December 15, 1997 / Notices

1 Investment Company Act Release Nos. 22626

(Apr. 21, 1997) (notice) and 22667 (May 19, 1997)

(order).

2Each 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.

3Mr. 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.

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.

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.

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.

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

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
Federal Register / Vol. 62, No. 240 / Monday, December 15, 1997 / Notices 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 timeconsuming 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 nonprimary 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,
65724 Federal Register / Vol. 62, No. 240 / Monday, December 15, 1997 / Notices

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 noninvestment 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 noninvestment 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
Federal Register / Vol. 62, No. 240 / Monday, December 15, 1997 / Notices 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

SECURITIES AND EXCHANGE

COMMISSION

[Rel. No. IA–1684/803–124]

Thomson Technical Data Corporation;

Notice of Application

December 9, 1997.

AGENCY: Securities and Exchange

Commission (‘‘SEC’’).

ACTION: Notice of Application for

Exemption under the Investment

Advisers Act of 1940. (‘‘Advisers Act’’).

APPLICANT: Thomson Technical Data

Corporation (‘‘Technical Data’’).

RELEVANT ADVISERS ACT SECTIONS:

Exemption requested under section

203A(c) from section 203A(a).

SUMMARY OF APPLICATION: Applicant

requests an order to permit it to register

with the SEC as an investment adviser.

Filing Dates: The application was

filed on September 25, 1997 and

amended on October 8, 1997.

Hearing or Notification of Hearing: An

order granting the application will be

issued unless the SEC orders a hearing.

Interested persons may request a

hearing by writing to the SEC’s