[Federal Register Volume 60, Number 67 (Friday, April 7, 1995)]
[Notices]
[Pages 17838-17840]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-8543]
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SECURITIES AND EXCHANGE COMMISSION
[Investment Company Act Rel. No. 20982; 812-9166]
Pitcairn Group L.P., et al.; Notice of Application
March 31, 1995.
AGENCY: Securities and Exchange Commission (``SEC'').
ACTION: Notice of application for exemption under the Investment
Company Act of 1940 (``Act'').
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APPLICANTS: Pitcairn Group L.P. (``Pitcairn''), and Johnstone L.P.
(``Johnstone'').
RELEVANT ACT SECTIONS: Exemption requested under section 23(c)(3) from
the provisions of section 23(c), and under section 57(c) from the
provisions of section 57(a)(2).
SUMMARY OF APPLICATION: Applicants seek an order permitting Pitcairn to
acquire 221,954 (approximately 39%) of its limited partnership units
(the ``Units'') from Johnstone, a limited partnership formed by former
Pitcairn unitholders to liquidate their ownership interests in
Pitcairn, in exchange for a pro rata portion of the total assets of
Pitcairn (the ``Redemption''). The order also would permit Johnstone to
acquire assets from Pitcairn in the Redemption and to acquire a pro
rata portion of the total assets of Moreland L.P. (``Moreland''), a
limited partnership controlled by Pitcairn, in exchange for the 222,553
Moreland limited partnership units owned by Johnstone (the ``Related
Transaction'').
FILING DATES: The application was filed on August 15, 1994, and amended
on December 9, 1994, and March 29, 1995.
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 25, 1995,
and should be accompanied by proof of service on 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 reason
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, N.W., Washington, D.C.
20549. Applicants: Pitcairn, One Pitcairn Place, Suite 3000, 165
Township Line Road, Jenkintown, Pennsylvania 19046; Johnstone, 75 James
Way, Southampton, Pennsylvania 18966.
FOR FURTHER INFORMATION CONTACT:
Courtney S. Thornton, Senior Attorney, at (202) 942-0583, or Barry D.
Miller, Senior Special Counsel, 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. Pitcairn, a Delaware limited partnership that has elected to be
regulated as a business development company (``BDC'') under section 54
of the Act, was organized in 1986 as a vehicle for private investments
for the Pitcairn family. It was capitalized with assets derived from
the liquidation of The Pitcairn Company, a Delaware corporation formed
in 1923 by members of the Pitcairn family to hold and manage the estate
of John Pitcairn, one of the founders of Pittsburgh Plate Glass
Company. Units in Pitcairn were distributed to the former shareholders
of The Pitcairn Company.\1\
\1\There are 576,124 units of general and limited partnership
interests of Pitcairn issued and outstanding, approximately 70% of
which are held in irrevocable trusts for members of the Pitcairn
family, and approximately 30% of which are owned directly by family
members and their churches. The units are registered under section
12 of the Securities Exchange Act of 1934, but there is no market
for the units, and there are generally fewer than ten transfers per
year. These transfers typically arise from terminating trusts or
estates, interfamily gifts, or similar transactions involving one or
more members of the Pitcairn family or trusts for their benefit.
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2. Pitcairn is the sole shareholder of Pitcairn Company
(``Pitco''), an investment adviser formed in 1986 and registered under
the Investment Advisers Act of 1940. Pitco serves as the managing
general partner of Pitcairn. Pitcairn also has four individual general
partners, each of whom is a member of the Pitcairn family. In addition,
Pitco serves as the general partner of Moreland, a Pennsylvania limited
partnership that owns undeveloped land in and near the Borough of Bryn
Athyn, Pennsylvania (where a large number of Pitcairn family members
reside), and One Place L. P. (``One Place''), a Pennsylvania limited
partnership that owns the land and building in which the offices of
Pitcairn, Pitco, and Pitcairn Trust Company (``PTC'') (a Pennsylvania
chartered trust company formed as a subsidiary of Pitco in 1987 to
provide trust and related services to the Pitcairn family and other
high net worth individuals) are situated.\2\
\2\Pitcairn was the sole initial limited partner of Moreland and
One Place; it spun off its interests in the partnerships to the
owners of its Units in 1992. As a result, ownership of Pitcairn,
Moreland, and One Place is nearly identical.
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3. As a result of general change in the Pitcairn family and
divergence of points of view as to investment philosophy, among other
things, it became apparent in the early 1990s that a separation of
family members from the family partnerships would occur. Consequently,
in February 1993, the board of directors of Pitco asked its management
to recommend a plan for a buy-out of the interests of certain Pitcairn
family members in certain family assets. This recommendation, through
arms' length negotiations, resulted in the proposed Redemption and
Related Transaction.
4. The series of transactions contemplated by the Redemption and
the Related Transaction are as follows:
a. Four individuals formed Johnstone, a Pennsylvania limited
partnership, for the purpose of receiving, with the intent to
liquidate, their and other Pitcairn family members' (collectively, the
``Separating Members'') limited partnership interests in Pitcairn,
Moreland, and One Place. The Separating Members, together with their
spouses and related trusts, are no longer clients of PTC and have
contributed their limited partnership interests in Pitcairn, Moreland,
and One Place to Johnstone in exchange for limited partnership
interests in Johnstone.\3\ Accordingly, Johnstone has become a
substitute limited partner in Pitcairn, Moreland, and One Place, owning
approximately 39%, 38.6%, and 39%, respectively, of the limited
partnership units. Assets received by Johnstone in the Redemption and
the Related Transaction are intended to be held by Johnstone only until
they can be liquidated and the proceeds distributed to the Separating
Members.
\3\The only connection of the Separating Members with the
remaining unitholders after consummation of the transactions
described herein will be that two of the Separating Members will
serve as trustees of trusts holding Units. These two Separating
Members will continue to serve as trustees at the request of the
beneficiaries of those trusts, notwithstanding their status as
Separating Members.
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b. In the Redemption, Johnstone will transfer to Pitcairn all of
the Units [[Page 17839]] owned by Johnstone, and Pitcairn will transfer
to Johnstone approximately 39% of its total assets (consisting of
certain limited partnership interests, a non-recourse note of Moreland
and a related mortgage, and cash) in redemption of the Units.
c. In the Related Transaction, Johnstone will transfer to Moreland
all the limited partnership interests in Moreland owned by Johnstone,
and Moreland will transfer to Johnstone approximately 38.6% of its
total assets (consisting of certain real estate, a mortgage, and cash)
in redemption of these limited partnership interests.\4\
\4\Prior to the redemption of the Moreland units owned by
Johnstone, Pitcairn will lend to Moreland a total of $3,450,000 in
exchange for two non-recourse notes. The first note, in the amount
of $2,250,000, will be secured by the portion of Moreland's real
estate that ultimately will be transferred to Johnstone in the
Related Transaction. The second note, in the amount of $1,200,000,
will be secured by a different parcel of real estate, which will
remain the property of Moreland. Using a portion of the proceeds of
the first note, Moreland will buy newly issued limited partnership
interests in One Place for cash, enabling One Place to redeem its
units owned by Johnstone for cash. In redeeming its units from
Johnstone, Moreland will transfer the mortgage liability on the
first parcel of real estate to Johnstone along with the real estate
itself. When Pitcairn redeems its Units from Johnstone, Pitcairn
will transfer to Johnstone the note secured by the mortgage on the
real estate Johnstone received from Moreland, and Johnstone will be
able to extinguish the mortgage and cancel the note.
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d. Johnstone will transfer to One Place all the limited partnership
interests in One Place owned by Johnstone, and One Place will transfer
cash in an amount equal to approximately 39% of the value of its total
assets to Johnstone in redemption of these limited partnership
interests.
e. Pitcairn has completed, in escrow, a private offering, in
reliance on section 4(2) of the Securities Act of 1993 (the
``Securities Act'') and rules 502 and 506 of Regulation D under the
Securities Act, and has received binding subscription agreements for
$5,337,000 from a small group of qualified investors for additional
Units. The proceeds of this offering will be used to replace capital
used in the Redemption and to provide for additional working capital.
5. The redemptions of the Johnstone-owned limited partnership
interests of Pitcairn, Moreland, and One Place will be effected at
values that have been agreed upon by representatives of those Pitcairn
family members who, with their spouses and related trusts, wish to
continue to be clients of PTC and owners of Pitcairn (the
``Remaindermen'') and by representatives of the separating Members in
arms' length negotiations conducted during 1993. A committee (the
``Sellers' Committee'') was formed to negotiate the value of the
Separating Members' interests; the potential group of family members
willing to buy the interests of the Separating Members also formed a
committee (the ``Buyers' Committee). All family members were informed
about the committees and were urged to contact them about buying or
selling their interests.
6. Various methods were used to determine the value of the
underlying assets held by Pitcairn, Moreland, and One Place.\5\
\5\Lists of all assets held by Pitcairn and Moreland and
information as to their allocation are contained in the application.
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a. The assets of Pitcairn were valued on the basis of the
methodologies utilized by its general partners in arriving at fair
values for purposes of periodically computing the net asset value of
the partnership. These methodologies included (i) valuation of limited
partnership interests by the general partners of such partnerships;
(ii) valuation of the stock of Pitco by an independent appraiser,
adjusted to reflect subsequent business changes; (iii) valuation of
land based upon values in a joint development agreement and the best
judgment of the Pitcairn general partners, taking all relevant factors
into consideration; (iv) valuation of a limited partnership interest in
a tree nursery based upon the catalogue price of the tree stock less
harvest and distribution costs; and (v) valuation of a limited
partnership interest in an office building based upon discontinued cash
flows from the rental stream generated by the property.
b. The land owned by Moreland was valued by Pitco as the general
partner of Moreland on the basis of values assigned in a 1993 market
research study by an independent firm familiar with the land and
transactions in the vicinity of the Moreland land. This study was
commissioned by the Real Estate Advisory Committee of the Pitco board,
a committee comprised of both Remaindermen and Separating Members. The
recommended values assigned in the study, together with data from an
appraisal conducted in 1989 and from comparable sales (where
appropriate), formed the basis of the values assigned by the parties.
c. With respect to One Place, Pitco obtained an independent
appraisal of the land and office building (the primary asset of One
Place), and the Sellers' Committee obtained its own independent
appraisal. The board of directors of Pitco subsequently engaged an
outside real estate consultant who, in June, 1993, reviewed the
independent appraisal obtained by Pitco and validated the assumptions
used by the appraiser.
7. On the evening of December 13, 1993, representatives from the
Buyers' Committee, the Sellers' Committee, and Pitco (as managing
general partner of Pitcairn and sole general partner of Moreland and
One Place) met to allocate the assets between the Remaindermen and the
Separating Members equitably. These negotiations, which were conducted
by persons who were fully aware of the attributes, both positive and
negative, of each of the assets of Pitcairn, Moreland, and One Place,
culminated in the Agreement in Principle (the ``Agreement''). The
Agreement provides for the allocation of assets and further provides
that the costs of forming Johnstone will be borne by Johnstone and that
all other transaction costs will be shared by Pitcairn (including
certain affiliated entities) and Johnstone on a pro rata basis. Since
it is anticipated that Johnstone will sell Pitcairn approximately 39%
of the Units and buy approximately 39% of Pitcairn's assets, it would
bear that percentage of the transaction costs (exclusive of any income
taxes that each party will bear separately and of any additional legal
expenses incurred by Johnstone) through the reduction in cash to be
paid by Pitcairn to Johnstone at the closing of the Redemption. The
Agreement was approved by Pitco (as managing general partner of
Pitcairn and sole general partner of Moreland and One Place) and by
individual representatives of the Remaindermen and Separating Members
who, together, represented over 86% of the outstanding Units. The
Remaindermen who did not sign the Agreement consisted of 94 ``persons''
who own approximately 13.9% of the Units.\6\ These unitholders were
informed, however, of the transactions contemplated by the Agreement
(including the proposed allocation of assets), and have not objected.
\6\Of these ``persons'' 61 are individuals owning approximately
10% of the Units; 4 are revocable trusts owning approximately 4% of
the Units; 20 are irrevocable trusts (out of a total of 295 trusts
that are Remaindermen) owning approximately .2%; one is a guardian
account owning approximately .05% of the Units; and 8 are charitable
organizations owning approximately 3% of the Units.
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8. There has been no vote of unitholders with respect to the
Redemption and the Related Transaction inasmuch as such a vote is not
required under the Pitcairn partnership agreement. However, a majority
of the respective general partners of Pitcairn and Johnstone have
approved the Redemption and the Related Transaction as being reasonable
[[Page 17840]] and fair to the unitholders, as not involving any
overreaching of Pitcairn or its unitholders, and as serving the broader
family purpose by permitting a complete separation of the Separating
Members. Applicants state that, with one exception, no person who
participated in the negotiations on behalf of Pitco or the Remaindermen
have interests on both sides of the Redemption and the Related
Transaction. One individual partner of Pitcairn, who has agreed to
resign as such, has been aligned with the Separating Members and is a
general and limited partner of Johnstone. Applicants represent that his
alignment with the Separating Members was recognized, and he was not a
member of the Sellers' Committee, nor did he participate in the
negotiations except as a facilitator for the December 1993 meetings. He
officially abstained from voting either on behalf of Pitcairn or
Johnstone with respect to the Redemption and the Related Transaction,
but has expressed his support for the transactions.
Applicants' Legal Conclusions
1. Section 23(c), made applicable to Pitcairn as a BDC by section
63 of the Act, generally prohibits BDCs from purchasing their
securities except in the open market or pursuant to a tender offer.
Absent such circumstances, section 23(c)(3) allows the SEC to issue an
order for the protection of investors to ensure that such purchases are
made in a way that does not unfairly discriminate against any holders
of the class of securities to be purchased.
2. Applicants concede that the Redemption does not fall within the
exceptions specified in section 23(c); consequently, Pitcairn must seek
exemptive relief under section 23(c)(3). Applicants submit that the
Redemption does not unfairly discriminate against either the
Remaindermen or the Separating Members, and that the liquidity provided
to Johnstone in the Redemption and the Related Transaction is not
inappropriate under the circumstances, given the fairness of the values
and the objectives of the Remaindermen to use the services of Pitco and
PTC as a family office.
3. Section 57(a)(2), in conjunction with section 57(b), prohibits
certain persons related to a BDC from purchasing any security or other
property (with the exception of securities of which the seller is the
issuer) from the BDC or a company controlled by the BDC. Section 57(b)
provides, in part, that the persons affected by section 57(a) include
any person that directly or indirectly controls the BDC. Section
2(a)(9) defines control as the power to exercise a controlling
influence over the management or policies of a company, and establishes
a rebuttable presumption that a person owning more than 25% of the
voting securities of a company controls that company. Since Johnstone,
which owns approximately 39% of the Units, could be deemed to control
Pitcairn, section 57(a)(2) would prohibit the Redemption absent an
exemption. As Moreland may be deemed to be controlled by Pitcairn by
virtue of the fact that Pitco (a wholly-owned subsidiary of Pitcairn)
is its sole general partner, section 57(a)(2) also would prohibit
Johnstone from buying assets from Moreland in the Related Transaction.
4. Section 57(c) provides that a person may file an application for
an exemption from the provisions of section 57(a) (1) through (3), and
that the SEC shall exempt a proposed transaction from the prohibitions
of section 57(a)(2) if: (a) The terms of the proposed transaction,
including the consideration to be paid or received, are reasonable and
fair and do not involve overreaching on the part of anyone involved;
(b) the proposed transaction is consistent with the policy of the BDC
as set forth in its filings with the SEC under the Securities Act and
the Securities Exchange Act of 1934 (the ``Exchange Act''), and its
reports to shareholders or partners; and (c) the proposed transaction
is consistent with the general purpose of the Act.
5. Applicants submit that the Redemption and the Related
Transaction meet the standards set forth in section 57(c) of the Act
because: (a) The terms of the proposed purchase of assets by Johnstone
in the Redemption and Related Transaction, including the consideration
to be paid, will be reasonable and fair, and no individual will derive
any personal financial gain from the proposed transaction other than
benefits that will be realized by all unitholders of Pitcairn on a pro
rata basis; (b) the proposed Redemption is consistent with Pitcairn's
policy as set forth in section 4.13 of the partnership agreement, which
specifically contemplates the withdrawal of limited partners on terms
approved by the general partners of Pitcairn (which approval has been
obtained), and also is consistent with Pitcairn's policy as recited in
its filings with the SEC under the Exchange Act and its reports to
unitholders; (c) the Redemption and the Related Transaction are both
consistent with the general purposes of the Act; and (d) given the
objective of the Remaindermen to continue to use Pitco and PTC as a
family office for the management of their financial affairs and the
concomitant desire of the Separating Members to terminate that
association, it would be impossible to effect the Redemption by
exchanging a portion of each of Pitcairn's assets for the Units held by
Johnstone on a pro rata basis or by selling the Units held by Johnstone
to a third party because no such market exists.
For the SEC, by the Division of Investment Management, under
delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 95-8543 Filed 4-6-95; 8:45 am]
BILLING CODE 8010-01-M