[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 

[[Page 54749]]
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