[Federal Register Volume 60, Number 206 (Wednesday, October 25, 1995)]
[Notices]
[Pages 54746-54749]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-26380]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. IC-21424/812-9806]
Equitable Capital Partners, L.P., et al.; Notice of Application
October 17, 1995.
AGENCY: Securities and Exchange Commission (``SEC'').
[[Page 54747]]
ACTION: Notice of application for an order under the Investment Company
Act of 1940 (the ``Act'').
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Applicants: Equitable Capital Partners, L.P., and Equitable Capital
Partners (Retirement Fund), L.P. (the ``Funds''); and Donaldson, Lufkin
& Jenrette Securities Corporation (``DLJ'').
RELEVANT ACT SECTIONS: Order requested under section 57(c) of the Act
from section 57(a)(2) of the Act.
SUMMARY OF APPLICATION: Applicants request an order to permit the Funds
to sell shares of the common stock of Lexmark Holding, Inc.
(``Lexmark'') (to be renamed Lexmark International Group, Inc.) in an
initial public offering in which DLJ is a member of the underwriting
syndicate.
FILING DATE: The application was filed on October 10, 1995. Applicants
have agreed to file an amendment during the notice period, the
substance of which is included in this notice.
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 November 8,
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 request, the
reason for the request, and the issues contested. Persons may request
notification of a hearing by writing to the SEC's Secretary.
ADDRESSES: Secretary, SEC, 450 Fifth Street, NW., Washington DC 20549.
The Funds, 1345 Avenue of the Americas, New York, New York 10105. DLJ,
140 Broadway, New York, New York 10005.
FOR FURTHER INFORMATION CONTACT:
Sarah A. Wagman, Staff Attorney, at (202) 942-0654, or Robert A.
Robertson, Branch Chief, 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 from
the SEC's Public Reference Branch.
Applicants' Representations
1. The Funds are limited partnerships organized under Delaware law,
and are business development companies under the Act. The investment
objective of each Fund is to provide current income and capital
appreciation by investing in privately structured, friendly leveraged
buyouts, leveraged acquisitions, and leveraged recapitalizations.
2. The Funds each have five general partners, consisting of four
natural persons and one managing general partner, Alliance Corporate
Finance Group Incorporated (``Alliance Incorporated''), an indirect,
wholly-owned subsidiary of Alliance Capital Management, L.P.
(``Alliance Capital''). In 1993, Alliance Incorporated succeeded the
original managing general partner, Equitable Capital Management
Corporation. At that time, it also became the Funds' investment
adviser. The general partner and the limited partners of Alliance
Capital are indirect, wholly-owned subsidiaries of The Equitable
Companies Incorporated (``EQ'').
3. All of the Funds' individual general partners are not
``interested persons'' of the Funds within the meaning of section
2(a)(19) of the Act (the ``Independent General Partners''). The
Independent General Partners perform the same functions as directors of
a corporation and, as Independent General Partners, assume the
responsibilities that the Act and the rules thereunder impose on the
non-interested directors of a business development company.
4. DLJ, a Delaware corporation, is a wholly-owned subsidiary of
Donaldson, Lufkin & Jenrette, Inc., a holding company that, through its
subsidiaries, engages in investment banking, merchant banking, trading,
distribution, and research. Donaldson, Lufkin & Jenrette, Inc. is a
subsidiary of EQ. EQ currently owns 61.5% of the common stock of
Donaldson, Lufkin & Jenrette, Inc., but intends to sell a portion of
such stock, after which sale EQ would still own more than a majority of
Donaldson, Lufkin & Jenrette, Inc.'s common stock.
5. The Funds are shareholders of Lexmark (to be renamed Lexmark
International Group, Inc.), a privately-held developer, manufacturer,
and supplier of laser and inkjet printers and associated consumable
supplies for the office and home markets. The Funds acquired their
Lexmark shares on March 27, 1991 jointly with each other and three
affiliated persons of their investment adviser: The Equitable Life
Assurance Society of the United States (a wholly-owned subsidiary of
EQ) and two private investment partnerships, Equitable Deal Flow Fund,
L.P. and Equitable Capital Private Income and Equity Partnership II,
L.P. (together with the Funds, the ``Equitable Investors''). Alliance
Incorporated is the investment sub-adviser to the two private
investment partnerships. The 1991 investment was made pursuant to the
terms of an SEC order permitting certain co-investments among the Funds
and their affiliated persons.\1\
\1\Equitable Capital Partners, L.P., et al., Investment Company
Act Release Nos. 16483 (July 15, 1988) (notice) and 16522 (Aug. 11,
1988) (order), as amended by Investment Company Act Release Nos.
17894 (Dec. 5, 1990) (notice) and 17925 (Dec. 31, 1990) (order); and
Investment Company Act Release Nos. 19426 (Apr. 22, 1993) (notice)
and 19482 (May 18, 1993) (order).
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6. The Equitable Investors and other shareholders of Lexmark
(together, the ``Selling Shareholders'') intend to sell part of their
Lexmark holdings in an initial public offering. The Selling
Shareholders collectively own 68,798,805 shares of Lexmark's Class A
common stock.
7. The Funds together own 3,262,814 shares, or approximately 4.7%
of the shares held by the Selling Shareholders. The Equitable Investors
collectively own 8,250,000 shares, or 11.99% of shares held by the
Selling Shareholders. The Selling Shareholders also include The Clayton
& Dubilier Private Equity Fund IV Limited Partnership (``C&D Fund
IV''),\2\ which holds approximately 44.7% of the total number of shares
held by Selling Shareholders; Leeway & Co., as nominee for the AT&T
Master Pension Trust, which holds approximately 16.4% of the total; and
Mellon Bank, N.A., as trustee for First Plaza Group Trust, a trust for
the benefit of certain employee benefit plans for General Motors
Corporation, which holds approximately 16.4% of the total. Other than
the Equitable Investors, none of the Selling Shareholders is related to
either of the Funds in the manner described in section 57(b) of the
Act.
\2\The manager of C&D Fund IV is Clayton, Dubilier & Rice, Inc.,
a private investment firm (``CD&R''), that specializes in leveraged
buyouts. In recent years, companies formed by CD&R have acquired
divisions from IBM, DuPont, Xerox, and Phillip Morris, C&D Fund IV
is a $1.15 billion private equity investment fund established in
1989, which by 1994 had invested in nine companies with total 1994
revenues of several billion dollars.
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8. As the largest Selling Shareholder, C&D Fund IV has taken the
lead in developing the proposed offering, after consultation with
Lexmark, which has formed a pricing committee composed of three of its
directors.\3\ Lexmark selected the proposed lead and co-managers of the
U.S. underwriting syndicate. Goldman, Sachs & Co. (``Goldman'') was
chosen and approved to act as the lead managing underwriter. Merrill
Lynch & Co., Morgan Stanley & Co. Incorporated, DLJ, and Smith
[[Page 54748]]
Barney Inc. were each chosen and approved to act as co-managing
underwriters.
\3\The three directors are Marvin L. Mann, the Chairman,
President, and Chief Executive Officer of Lexmark; Donald J. Gogel,
who is also the Co-president of CD&R; and Joseph L. Rice, III, who
is also the Chairman and Chief Executive Officer of CD&R. None of
the members of the pricing committee is an affiliated person of DLJ.
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9. The Selling Shareholders currently anticipate that in the
aggregate they will sell in the offering approximately 15-30% of the
shares they now hold. Each of the Selling Shareholders, including the
Funds, will have the opportunity to sell shares in the offering on a
pro rata basis in proportion to its holdings in Lexmark. The Selling
Shareholders have agreed not to sell any additional shares of stock
they hold for 180 days after the offering.
Applicants' Legal Analysis
1. Applicants request an order under section 57(c) exempting them
from section 57(a)(2) to permit the Funds to sell shares of Lexmark
common stock in an initial public offering in which DLJ is a member of
the underwriting syndicate.\4\
\4\Applicants do not believe that the proposed transactions
require relief from sections 57(a)(3) and 57(i), and rule 17d-1, and
therefore have not requested that the order include relief under
those sections and that rule. Applicants recognize that the SEC
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) include any
person directly or indirectly controlling, controlled by, or under
common control with the business development company.
3. 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 the 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 policies of the business development company; and
(c) the proposed transaction is consistent with the general purposes of
the Act.
4. The persons listed in section 57(b)(2) include persons under
common control with Alliance Incorporated, the investment adviser to,
and managing general partner of, the Funds. Alliance Incorporated is
indirectly controlled by EQ. DLJ also is controlled by EQ. Accordingly,
DLJ and Alliance Incorporated are under the common control of EQ, and
DLJ is an affiliated person of the Funds' investment adviser. In
addition, because Alliance Incorporated controls the Funds, DLJ may be
deemed to be under common control with the Funds. Thus, under section
57(a)(2), DLJ may not purchase from the Funds securities or other
property without first receiving an order under section 57(c).
5. Applicants believe that the proposed transaction satisfies the
statutory standards for relief under section 57(c). In this connection,
applicants believe that the structure of the proposed transaction will
be designed to ensure 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.
6. The proposed transaction will be fair and reasonable to the
Funds, because the price of the offering will be determined in arms'-
length negotiations among Lexmark, the Selling Shareholders, and
Goldman, as representative of the co-managers and the underwriters.
Lexmark's pricing committee will take the lead in negotiating with the
underwriters the price at which the shares will be sold, and the
underwriters' compensation. All of the Selling Shareholders, including
the Funds, are sophisticated investors with significant investment
expertise and experience, which will ensure that the price to be
received by them is fair and reasonable, and that the composition of
the underwriting syndicate is in the best interests of the Selling
Shareholders.
7. In addition, although DLJ is a co-managing underwriter, Goldman
is the lead managing underwriter. In that role, Goldman has
responsibility for, among other things, managing the books associated
with the underwriting, recommending the price of the shares to the
public, recommending the underwriting discount, allocating the shares
to the syndicate members, and determining the composition of the
institutional participation in the purchase of the shares. DLJ, as a
co-managing underwriter, standing alone does not have authority to
determine the price of the offering.
8. The proposed transaction would be entirely consistent with the
policies of the Funds as recited in their filings with the SEC under
the Securities Act of 1933, their registration statements and reports
filed under the Securities Exchange Act of 1934, their reports to
partners, and with the Funds' prior exemptive orders. The Funds'
prospectuses expressly disclosed that one method of liquidating their
investments would be through public offerings in which other investors
also would sell their holdings. The proposed transaction also would be
consistent with the general purposes of the Act.
9. Liquidity in portfolio investments is becoming increasingly
important to the Funds and their limited partners. The Funds are now in
a liquidation mode and are not making new investments. Selling shares
in the proposed offering will provide liquidity not otherwise available
to the Funds. Since there now is no public market for Lexmark stock and
the shares of Lexmark held by the Funds have not been registered with
the SEC, an underwritten offering currently is the only opportunity for
sales by the Funds in the public market of Lexmark shares.
Applicants' Conditions
Applicants agree that any order granting the requested relief shall
be subject to the following conditions:
1. Alliance Incorporated will review the terms of the proposed
offering and provide a written report to the Independent General
Partners that will set forth Alliance Incorporated's recommendation as
to whether each Fund should sell shares in the offering based on
Alliance Incorporated's analysis of all factors it deems relevant,
including the terms of the offering.
2. The Funds will sell shares in such underwritten offering on the
same terms as each other Selling Shareholder. The price of the shares
to the public will be the price determined in arm's-length negotiations
among Lexmark, the Selling Shareholders and Goldman, as representative
of the co-managers and underwriters. The underwriting discount also
will be determined in arm's-length negotiations among Lexmark, the
Selling Shareholders and Goldman, as representative of the co-manager
and underwriters. The terms of DLJ's compensation will be the same as
the other co-managers'.
3. A majority of the Independent General Partners must find the
underwriting terms and arrangements with respect to the proposed
transaction to be fair and reasonable.
4. If Alliance Incorporated, on the basis of its evaluation
described above, recommends that a Fund sell shares in the offering,
the Individual General Partners shall then determine whether, in their
view, it is in the best interests of that Fund to sell shares in that
offering. Each Fund shall sell shares in such underwritten offering
only if a majority of the Independent General Partners determine that:
(a) The terms of
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the proposed transaction, including the consideration to be paid to the
Fund, are reasonable and fair and do not involve overreaching of the
Fund or its partners on the part of any person concerned; (b) the
proposed transaction is consistent with the policies of the fund 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
(c) participation by the Fund in the proposed transaction is in the
best interests of the Fund's limited partners.
5. Each Fund will maintain the records required by section 57(f)(3)
of the Act as if the transactions were approved by the Independent
General Partners under section 57(f) of the Act.
For the Commission, by the Division of Investment Management,
under delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 95-26380 Filed 10-24-95; 8:45 am]
BILLING CODE 8010-01-M