[Federal Register Volume 61, Number 90 (Wednesday, May 8, 1996)]
[Notices]
[Pages 20869-20871]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-11450]
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SECURITIES AND EXCHANGE COMMISSION
[Rel. No. IC-21935; 812-9950]
Indigo Group, Ltd., et al.; Notice of Application
May 2, 1996.
AGENCY: Securities and Exchange Commission (``SEC'').
ACTION: Notice of Application for Exemption under the Investment
Company Act of 1940 (the ``Act'').
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APPLICANTS: Indigo Group, Ltd. (``Indigo Group''), James P. Gorter
(``Gorter''), and Triangle V III, Limited Partnership (``Triangle'').
RELEVANT ACT SECTIONS: Order requested under section 17(b) of the Act
for an exemption from section 17(a)(2) of the Act.
SUMMARY OF APPLICATION: Applicants request an order that would permit
an affiliated person of an affiliated person of Baker, Fentress &
Company (``Baker Fentress''), a closed-end investment company, to
purchase a strip shopping center from a company controlled by Baker
Fentress.
FILING DATES: The application was filed on January 5, 1996 and amended
on May 1, 1996.
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 May 28, 1996,
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 notification by writing to the SEC's
Secretary.
ADDRESSES: Secretary, SEC, 450 Fifth Street, N.W., Washington, D.C.
20549. Applicants: c/o Bruce W. Teeters, President, Indigo Group, Inc.,
149 South Ridgewood Avenue, Dayton Beach, FL 32114; James P. Gorter,
Chairman of the Board, Baker, Fentress & Company, 200 West Madison
Street, Suite 3510, Chicago, IL 60606; c/o Andrew B. Widmark, Triangle
V III, Limited Partnership, 331 West Main Street, Durham, NC 27701.
FOR FURTHER INFORMATION CONTACT: Marianne H. Khawly, Staff Attorney, at
(202) 942-0562, 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 at the
SEC's Public Reference Branch.
Applicants' Representations
1. Baker Fentress is a closed-end management investment company
under the Act. Consolidated-Tomoka Land Co. (``Consolidated Tomoka'')
is a majority-owned subsidiary of Baker Fentress. Consolidated Tomoka
is engaged primarily in the business of commercial and residential real
estate development and sales through subsidiaries, and citrus
production. Gorter is chairman of the board of directors of Baker
Fentress and a director of Consolidated Tomoka.
2. Palms Del Mar, Inc. (``Palms Del Mar'') is a wholly-owned
subsidiary of Consolidated Tomoka. Palms Del Mar and Consolidated
Tomoka are the limited partners of Indigo Group, a partnership
primarily engaged in the business of real estate development.
[[Page 20870]]
Indigo Group, Inc., another wholly-owned subsidiary of Consolidated
Tomoka, is the sole general partner of Indigo Group. As a limited
partner, the sole stockholder of the only other limited partner, and
the sole stockholder of the sole general partner, Consolidated Tomoka
owns 100% of the equity interests in Indigo Group.
3. Triangle is a limited partnership established to invest in real
estate and acquire various properties from owners, banks, insurance
companies, developers, or builders. Triangle's primary investments are
in developed shopping centers. Acquisitions and overall control of
operations are handled by Triangle's general partner, Mark Realty Corp.
(``Mark Realty'').
4. Triangle has issued class A and class B limited partnership
interests. The class B limited partnership interests are owned by Mark
Realty and members of Mark Realty's management. The class A limited
partnership interests are owned by members of Mark Realty's management,
investors associated with Mark Realty, and Gorter. Gorter owns class A
limited partnership interests having a value of approximately 6% of
Triangle's aggregate capital.
5. On September 21, 1995, Indigo Group and Triangle, through their
respective general partners, entered into an agreement of purchase and
sale (the ``Agreement'') \1\ to permit Triangle to purchase Mariner
Village Center, a strip shopping center located in Spring Hill, Florida
(the ``Property''), from Indigo Group (the ``Sale''). The Sale was
approved by the officers of both Indigo Group, Inc. and Consolidated
Tomoka. Because the Sale is part of the implementation of a business
strategy established by Consolidated Tomoka's board of directors, no
specific review or authorization of the Sale by Consolidated Tomoka's
board of directors was required.
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\1\ The Agreement was amended on December 14, 1995 (the
``Amended Agreement'').
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6. Triangle's partnership agreement states that holders of class A
limited partnership interests may, by a vote of two thirds of the
outstanding class A limited partnership interests, ``expel'' the
general partner. Triangle's partnership agreement also gives the class
A limited partners the right to approve all proposed property
acquisitions by Triangle. Triangle is required to provide written
notice of each proposed acquisition to all class A limited partners for
their approval. If any class A limited partner objects to the proposed
acquisition within 15 days, Triangle will not complete the acquisition,
effectively giving each class A limited partner a ``veto right'' over
every acquisition. Triangle sent its required notice of the proposed
Sale to its class A limited partners, including Gorter, on October 11,
1995. No class A limited partner objected to the Sale.
7. Under the terms of the Amended Agreement, Triangle will purchase
the Property from Indigo Group and assume all the rights and privileges
belonging to the land. Triangle also will assume all rights, title, and
interests of Indigo Group in all the tenant leases relating to the
Property. The purchase price Triangle will pay to Indigo Group is $3.7
million but will be increased to $3.8 million if Indigo Group is
successful in securing a major tenant for the Property before the
closing of the Sale. The purchase price will consist of a $100,000
earnest money deposit and $1.2 million in additional cash or $1.3
million in additional cash if the purchase price is increased as
described above. In addition, Triangle is expected to assume Indigo
Group's liability under its existing mortgage loan on the Property of
$2.4 million. Alternatively, Triangle may seek financing elsewhere and
pay Indigo Group an additional $2.4 million in cash.\2\
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\2\ Prior to entering into the Agreement, Indigo received a firm
offer of $4,850,000 from Triangle to purchase the Property and
another smaller shopping center, Mariner Town Square, in a single
transaction. Indigo also received a preliminary offer of $4,500,000
for the two properties from a real estate firm not related to any
party to the application. Neither of these two offers resulted in a
sale of the two properties. Indigo sold Mariner Town Square as a
separate parcel in May 1995 for $1,225,000.
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Applicants' Legal Analysis
1. Applicants request an order under section 17(b) of the Act for
an exemption from section 17(a)(2) of the Act. The order would permit
Triangle, an affiliated person of an affiliated person of Baker
Fentress, to purchase the Property from Indigo Group, a company
controlled by Baker Fentress.
2. Section 17(a)(2) of the Act generally prohibits an affiliated
person of a registered investment company or any affiliated person of
such a person, acting as principal, knowingly to purchase from such
registered company, or from any company controlled by such registered
company, any security or other property. Section 2(a)(3)(D) defines
``affiliated person'' as, among other things, any officer, director,
partner, copartner, or employee of such other person. Thus, Gorter is
an affiliated person of Baker Fentress because he is chairman of Baker
Fentress's Board of directors.
3. Section 2(a)(3)(B) defines ``affiliated person'' as, among other
things, any person 5% or more of whose outstanding voting securities
are owned with power to vote by such other person. Section 2(a)(42)
defines ``voting security'' as any security presently entitling the
owner or holder thereof to vote for the election of directors of a
company. Since Triangle's class A limited partners have the right to
vote to ``expel'' the general partner and a ``veto right'' over every
acquisition, the class A limited partnership interests may represent an
interest that is tantamount to a voting security. Applicants,
therefore, believe that Triangle may be considered an affiliated person
of Gorter because he owns 6% of its class A limited partnership
interests. Thus, Triangle may be an affiliated person of an affiliated
person of Baker Fentress.
4. Section 2(a)(9) defines ``control'' as the power to exercise a
controlling influence over the management or policies of a company.
Section 2(a)(9) also establishes a rebuttable presumption that a person
who owns more than 25% of the voting securities of a company shall be
presumed to control such company. Applicants state that as a result of
the ownership by Baker Fentress of a majority of Consolidated Tomoka's
outstanding common stock, Consolidated Tomoka and its directly and
indirectly wholly-owned subsidiaries, including Indigo Group, are
controlled by Baker Fentress. Accordingly, Triangle's purchase of the
Property from Indigo Group may be prohibited by section 17(a)(2).
5. Section 17(b) provides that the SEC shall exempt a proposed
transaction from section 17(a) if evidence establishes that: (a) the
terms of the proposed transaction are reasonable and fair and do not
involve overreaching; (b) the proposed transaction is consistent with
the policies of the registered investment company involved; and (c) the
proposed transaction is consistent with the general provisions of the
Act.
6. Applicants believe that the Sale will benefit all of the
applicants and their respective investors. As Indigo Group's sole
equity owner, Consolidated Tomoka will benefit from the Sale and
therefore Baker Fentress and its stockholders will indirectly benefit
from the Sale. Indigo Group is in the business of real estate
development which necessarily means the willingness to dispose of
developed real estate at times and prices considered to be
advantageous. Triangle's primary business is to invest in real estate,
east of the Mississippi River, primarily in developed strip shopping
centers. The Property is considered by Triangle to be a desirable
example of property of the
[[Page 20871]]
type in which Triangle was formed to invest.
7. Applicants state that Gorter did not take part in any
negotiations surrounding the terms of the Sale. Gorter's involvement in
the Sale is due solely to his positions with Baker Fentress and
Consolidated Tomoka and his limited partnership interests in Triangle.
Gorter was unaware of the negotiations and Sale until he received
notice from Triangle, on October 11, 1995, in his capacity as a class A
limited partner. Applicants submit that Gorter did not exercise his
right as a class A limited partner of Triangle to object to the Sale
because Gorter and Indigo Group believe that to have done so might have
been a breach of his fiduciary duties to Consolidated Tomoka and Baker
Fentress by causing them to lose the benefit of a transaction believed
by them to be in their best interest. As a result, Indigo Group and
Gorter believe that avoidance of the need for the application by
Gorter's objection to the Sale was not a viable option.
8. Applicants state that although the policies of Baker Fentress
are not directly implicated by the Sale because Baker Fentress is not a
party to the Sale, the Sale is not inconsistent with any policies of
Baker Fentress. In addition, applicants believe that the terms of the
Amended Agreement, including the consideration to be paid and received
are reasonable and fair and do not involve overreaching by any of the
applicants. Triangle's general partner, Mark Realty, has had extensive
experience in valuing and negotiating transactions related to
investments in strip shopping malls. Applicants represent that the Sale
was negotiated by Mark Realty and Indigo at arms-length. As a result,
applicants believe that the purchase price is fair and reasonable both
as to amount and as to form of payment. Furthermore, the Sale will not
result in any ongoing relationship between Indigo Group and Triangle.
For the reasons discussed above, applicants believe that the proposed
transaction satisfies the criteria of section 17(b).
For the Commission, by the Division of Investment Management,
under delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 96-11450 Filed 5-7-96; 8:45 am]
BILLING CODE 8010-01-M