[Federal Register Volume 60, Number 50 (Wednesday, March 15, 1995)]
[Notices]
[Pages 14048-14050]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-6356]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. IC-20949; 812-9442]
ML Venture Partners II, L.P. et al.; Notice of Application
March 9, 1995.
AGENCY: Securities and Exchange Commission (the ``SEC'').
ACTION: Notice of application for an order under the Investment Company
Act of 1940 (the ``Act'').
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APPLICANTS: ML Venture Partners II, L.P. (``MLCP II''), Merrill Lynch,
Pierce, Fenner & Smith Incorporated (``Merrill Lynch''), and Donaldson,
Lufkin & Jenrette Securities Corporation (``DLJ'').
RELEVANT ACT SECTIONS: Order requested under section 57(c) from section
57(a)(2).
SUMMARY OF APPLICATION: Applicants request an order relating to the
sale of shares of common stock of Corporate Express, Inc. by MLVP II in
an underwriting in which Merrill Lynch and/or DLJ are members of the
underwriting syndicate.
FILING DATE: The application was filed on January 20, 1995. Applicants
have agreed to file an amendment during the notice period, the
substance of which is incorporated herein.
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
applicants with a copy of the request, personally or by mail. Hearing
requests should be received by the SEC by 5:30 p.m. on April 3, 1995,
and should be accompanied by proof of service on the applicants, 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 reasons
for the request, and the issues contested. Persons who wish to be
notified of a hearing may request such notification by writing to the
SEC's Secretary.
ADDRESSES: Secretary, SEC, 450 Fifth Street NW., Washington, DC 20549.
MLCP II and Merrill Lynch, North Tower, World Financial Center, New
York, New York 10281.
FOR FURTHER INFORMATION CONTACT: Fran Pollack-Matz, Senior Attorney,
(202) 942-0570, or Robert A. Robertson, Branch Chief, (202) 942-0560
(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 from
the SEC's Public Reference Branch.
Applicants' Representations
1. MLVP II, a Delaware limited partnership, is a business
development company under the Act. The investment objective of MLVP II
is to seek long-term capital appreciation by making venture capital
investments. MLVP II has five general partners, consisting of four
individuals (the ``MLVP II Individual General Partners'') and one
managing general partner, MLVP II Co. L.P. (the [[Page 14049]] ``MLVP
II Managing General Partner''). The MLVP II Individual General Partners
include three MLVP II Independent General Partners (defined to be
individuals who are not ``interested persons'' of MLVP II) and one
general partner who is an individual and who is an affiliated person of
the MLVP II Managing General Partner. The MLVP II Managing General
Partner, is a limited partnership controlled by its general partner,
Merrill Lynch Venture Capital Inc. (the ``Management Company''). The
Management Company, an indirect subsidiary of Merrill Lynch & Co., Inc.
(``ML & Co.''), performs, or arranges for the performance of, the
management and administrative services necessary for the operation of
MLVP II. On May 23, 1991, MLVP II, the MLVP II Managing General
Partner, and the Management Company retained DLJ Capital Management
Corporation (the ``Sub-Manager''), an indirect wholly-owned subsidiary
of Donaldson, Lufkin & Jenrette, Inc., to provide management services
in connection with the venture capital investments of MLVP II pursuant
to a Sub-Management Agreement (the ``Sub-Management Agreement''). Under
the Sub-Management Agreement, the Sub-Manager is primarily responsible
for the venture capital investments of MLVP II. The agreement provides
that the Sub-Manager shall, subject to the overall supervision of the
MLVP II Individual General Partner, ``make all decisions regarding
Venture Capital Investments and, among other things, find evaluate,
structure, monitor and liquidate such investments.''
2. Merrill Lynch, a Delaware corporation, is the principal
subsidiary of ML & Co. ML & Co., a Delaware corporation, is a
diversified financial services holding company which, through its
subsidiaries, provides investment and financing, insurance, real
estate, and related services.
3. DLJ, a Delaware corporation, is a wholly-owned subsidiary of
Donaldson, Lufkin & Jenrette, Inc., a holding company which through its
subsidiaries engages in investment banking, merchant banking, public
finance, trading, distribution, and research. Donaldson, Lufkin &
Jenrette, Inc. is a subsidiary of The Equitable Companies Incorporated.
4. Corporate Express is a distributor of office supplies and
products that it sells directly to large corporate customers. Corporate
Express has expanded its operations significantly over the past three
years and currently has annualized revenues in excess of $600 million.
5. MLVP II made an initial investment in Corporate Express in May,
1992. At that time, MLVP II acquired 442,136 shares of common stock and
760,800 shares of Series A Convertible Preferred Stock for $1,392,838
($0.22 per common share and $1.70 per Series A Preferred Share). MLVP
II acquired these shares from the Management Company pursuant to the
terms and conditions contained in an SEC exemptive order dated May 11,
1992 (the ``Blanket Exemptive Order'') permitting co-investments
between MLVP II and certain entities managed by DLJ Capital
Corporation. In April, 1993, MLVP II acquired 153,450 shares of Series
B Convertible Preferred Stock for $537,075 ($3.50 per share) in a
follow-on investment in Corporate Express. MLVP II's follow-on
investment in Corporate Express was made in accordance with the terms
and conditions of the Blanket Exemptive Order.
6. On September 23, 1994, 7,500,000 shares of common stock of
Corporate Express were offered to the public in an underwritten
offering in which DLJ acted as a managing underwriter and Merrill Lynch
acted as an underwriter. In connection with that offering, MLVP II
exchanged its 914,250 Class A and B Preferred Shares for 914,250 shares
of common stock of Corporate Express. At the same time, Corporate
Express effected a one-for-two reverse split of its common stock. As a
result of that split, MLVP II exchanged its 1,356,386 shares of common
stock of Corporate Express for 678,193 shares of common stock. Since
the initial public offering, the common stock of Corporate Express has
traded in the NASDAQ National Market System (``NASDAQ''). In addition
to the purchasers in the public offering and in subsequent secondary
market transfers, the stockholders of Corporate Express include certain
affiliates of DLJ, members of management and other employees of
Corporate Express, and other institutional investors.
7. As of December 31, 1994, MLVP II owned 696,234 shares, or
approximately 2.7%, of the outstanding common stock of Corporate
Express. At such date, affiliates of DLJ (excluding MLVP II) owned
2,168,471 shares, or approximately 8.4%.
8. Although MLVP II has made no determination as to the time at
which it would like to sell its investment in Corporate Express, MLVP
II is now considering alternative methods of disposing of such
investment.
Applicants' Legal Analysis
1. Applicants request an order under section 57(c) exempting from
section 57(a)(2) sales of shares of common stock of Corporate Express
by MLVP II in underwritings in which Merrill Lynch and/or DLJ are
members of the underwriting syndicate.\1\
\1\Applicants do not believe that the proposed transactions
would constitute joint transactions under section 57(a)(4) and rule
17d-1 and therefore have not requested that the order include relief
under that section and rule. Applicants recognize that the
Commission expresses no opinion on this issue.
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2. Section 57(a)(2) prohibits certain affiliates of a business
development company from purchasing any security or other property on a
principal basis from the business development company or from any
company controlled by the business development company, except
securities of which the seller is the issuer. Section 57(b) provides,
in part, that the affiliates affected by section 57(a) include any
``person directly or indirectly either controlling, controlled by or
under common control with'' the business development company. Section
57(c) provides that a person may file an application with the SEC for
an order exempting a proposed transaction from one or more provisions
of section 57(a)(1) through (3), and that the SEC shall issue an order
if evidence establishes that: (a) the terms of the proposed
transaction, including the consideration to be paid or received, are
reasonable and fair and do not involve overreaching of the business
development company or its shareholders or partners on the part of any
person concerned; (b) the proposed transaction is consistent with the
policy of the business development company as recited in the filings
made by such company with the SEC under the Securities Act of 1933, its
registration statement and reports filed under the Securities Exchange
Act of 1934, and its report to shareholders or partners; and (c) the
proposed transaction is consistent with the general purposes of the
Act.
3. Applicants believe that the Management Company is controlled by
ML & Co. and that ML & Co. might be deemed to exercise and controlling
influence over MLVP II and Merrill Lynch. Likewise, applicants believe
that the Sub-Manager is controlled by Donaldson, Lufkin & Jenrette,
Inc. and that Donaldson, Lufkin & Jenrette, Inc. might be deemed to
exercise a controlling influence over MLVP II and DLJ. As a result of
these affiliations, sales of securities on a principal basis by MLVP II
to Merrill Lynch and/or DLJ are prohibited by section 57(a) and cannot
be effected unless an order is issued under section
57(c). [[Page 14050]]
4. Applicants believe that the statutory standards set forth above
will be satisfied with respect to the relief requested. In this
connection, applicants believe that the structure of the proposed
transaction has been designed to insure that the terms of the
transaction will be fair and reasonable, will not involve overreaching
on the part of any person concerned, and will eliminate the possibility
of abuses of the potential conflict of interest. The terms of the
proposed transaction provide that MLVP II will only sell shares in an
underwritten offering in which Merrill Lynch and/or DLJ are members of
the underwriting syndicate if certain conditions are met. The Sub-
Manager for MLVP II must initially evaluate the proposed transaction
and determine to recommend the sale of the investments.
5. The abuses that section 57(a)(2) is designed to deter are
limited with respect to the proposed transactions. The shares of
Corporate Express are traded on NASDAQ and the price to be paid for
shares in an underwritten offering will approximate the trading price
of such shares on NASDAQ less an underwriting discount. The
underwriting terms with respect to MLVP II's sale of shares must be on
the same terms applicable to any selling shareholder participating in
the offering, including terms applicable to affiliates of ML & Co. and/
or DLJ. The underwriting terms and arrangements, including the
underwriting discount, will be reviewed and passed upon by the
Individual General Partners, and separately by the Independent General
Partners.
6. Liquidity in portfolio investments is becoming increasingly
important as MLVP II approaches the ninth year of its ten year term.
The ability to sell shares in an underwritten offering in which Merrill
Lynch and/or DLJ are acting as underwriters may provide liquidity not
otherwise available to MLVP II. Due to its affiliation with Corporate
Express through Merrill Lynch, sales by MLVP II in the public market of
shares of Corporate Express are subject to the volume limitations
contained in rule 144 under the Securities Act of 1933. In addition,
because DLJ acted as managing underwriter for Corporate Express in its
initial public offering, it is likely that DLJ will be the managing
underwriter or otherwise a member of the underwriting syndicate in
future offerings of such company's securities. Thus, in the absence of
the requested relief, MLVP II will be at a substantial disadvantage
because it will be unable to liquidate its holdings at a time when
other institutional investors in Corporate Express are selling shares
in an underwritten offering for which Merrill Lynch and/or DLJ are
members of the underwriting syndicate.
7. MLVP II believes that the relief requested is consistent with
its purpose, its stated policies and the disclosure made to its
prospective investors. Applicants also believe that the proposed
transactions are in the best interests of MLVP II to the extent that
such transactions permit MLVP II to liquidate portfolio securities on
favorable terms and in a more expedited manner than would otherwise be
available.
Applicants' Conditions
Applicants agree that the order granting the requested relief shall
be subject to the following conditions:
1. If MLVP II is offered the opportunity to sell shares of common
stock of Corporate Express in an underwritten offering in which Merrill
Lynch and/or DLJ is a member of the underwriting syndicate, the Sub-
Manager will review the terms of the proposed offering. The Sub-Manager
will provide a written report to the independent General Partners which
will set forth the Sub-Manager's recommendation as to whether MLVP II
should sell shares in such underwritten offering based on the Sub-
Manager's analysis of all factors it deems relevant, including the
terms of the proposed underwritten offering.
2. MLVP II will be given the opportunity to sell shares in such
underwritten offering on at least a proportionate basis with affiliates
of DLJ and ML & Co. (if any), and on the same terms applicable to any
selling shareholders participating in the offering, including terms
applicable to affiliates of DLJ and ML & Co. (if any) selling shares in
such offering. In this regard, the underwriting discount with respect
to such offering will be no larger than the customary underwriting
discount charged by underwriters for equity securities in similar
transactions.
3. MLVP II will only participate in such underwritten offering if
the shares to be sold continue to be traded on NASDAQ or are listed on
a national securities exchange, as of the date of the offering and if
the offering price is determined by reference to, and approximates, the
price of the shares on NASDAQ, or a national securities exchange, at
the time the offering price is determined.
4. The underwriting terms and arrangements with respect to the
proposed transaction must be determined by the Individual General
Partners, and a majority of the Independent General Partners, to be
fair and reasonable.
5. If the Sub-Manager, on the basis of its evaluation described
above, recommends that MLVP II sell shares in such underwritten
offering, the Individual General Partners shall then determine whether,
in their view, it is in the best interests of MLVP II to sell shares in
such underwritten offering. MLVP II shall only sell shares in such
underwritten offering if the Individual General Partners, including a
majority of the Independent General Partners, determine that:
(i) the terms of the proposed transaction, including the
consideration to be paid to MLVP II, are reasonable and fair and do not
involve overreaching of MLVP II or its partners on the part of any
person concerned;
(ii) the proposed transaction is consistent with the policies of
MLVP II as indicated in its filings under the Securities Act of 1933
and the Securities Exchange Act of 1934, and its reports to its
partners; and
(iii) participation by MLVP II in the proposed transaction is in
the best interests of the partners of MLVP II.
6. MLVP II will maintain the records required by section 57(f)(3)
of the Act as if each of the transactions permitted under these
conditions were approved by the Independent General Partners under
section 57(f) of the Act.
For the SEC, by the Division of Investment Management, under
delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 95-6356 Filed 3-14-95; 8:45 am]
BILLING CODE 8010-01-M