[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