EBSA (Formerly PWBA) Federal Register Notice Proposed Exemptions; The Walston &
High, P.A. Profit Sharing Plan (the Plan) et al. [06/28/2001]
PWBA Federal Register Notice Proposed Exemptions; The Walston &
High, P.A. Profit Sharing Plan (the Plan) et al. [06/28/2001]
Volume 66, Number 125, Page 34471-34484
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DEPARTMENT OF LABOR
Pension and Welfare Benefits Administration
[Application No. D-10935, et al.]
Proposed Exemptions; The Walston & High, P.A. Profit Sharing Plan
(the Plan) et al.
AGENCY: Pension and Welfare Benefits Administration, Labor.
ACTION: Notice of proposed exemptions.
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SUMMARY: This document contains notices of pendency before the
Department of Labor (the Department) of proposed exemptions from
certain of the prohibited transaction restrictions of the Employee
Retirement Income Security Act of 1974 (the Act) and/or the Internal
Revenue Code of 1986 (the Code).
Written Comments and Hearing Requests
All interested persons are invited to submit written comments or
request for a hearing on the pending exemptions, unless otherwise
stated in the Notice of Proposed Exemption, within 45 days from the
date of publication of this Federal Register notice. Comments and
requests for a hearing should state: (1) the name, address, and
telephone number of the person making the comment or request, and (2)
the nature of the person's interest in the exemption and the manner in
which the person would be adversely affected by the exemption. A
request for a hearing must also state the issues to be addressed and
include a general description of the evidence to be presented at the
hearing.
ADDRESSES: All written comments and request for a hearing (at least
three copies) should be sent to the Pension and Welfare Benefits
Administration, Office of Exemption Determinations, Room N-5649, U.S.
Department of Labor, 200 Constitution Avenue, NW., Washington, DC
20210. Attention: Application No. ______, stated in each Notice of
Proposed Exemption. The applications for exemption and the comments
received will be available for public inspection in the Public
Documents Room of the Pension and Welfare Benefits Administration, U.S.
Department of Labor, Room N-5638, 200 Constitution Avenue, NW.,
Washington, DC 20210.
Notice to Interested Persons
Notice of the proposed exemptions will be provided to all
interested persons in the manner agreed upon by the applicant and the
Department within 15 days of the date of publication in the Federal
Register. Such notice shall include a copy of the notice of proposed
exemption as published in the Federal Register and shall inform
interested persons of their right to comment and to request a hearing
(where appropriate).
SUPPLEMENTARY INFORMATION: The proposed exemptions were requested in
applications filed pursuant to section 408(a) of the Act and/or section
4975(c)(2) of the Code, and in accordance with procedures set forth in
29 CFR Part 2570, Subpart B (55 FR 32836, 32847, August 10, 1990).
Effective December 31, 1978, section 102 of Reorganization Plan No. 4
of 1978, 5 U.S.C. App. 1 (1996), transferred the authority of the
Secretary of the Treasury to issue exemptions of the type requested to
the Secretary of Labor. Therefore, these notices of proposed exemption
are issued solely by the Department.
The applications contain representations with regard to the
proposed exemptions which are summarized below. Interested persons are
referred to the applications on file with the Department for a complete
statement of the facts and representations.
The Walston & High, P.A. Profit Sharing Plan (the Plan) Located in
Wilson, North Carolina
[Application No. D-10935]
Proposed Exemption
The Department is considering granting an exemption under the
authority of section 408(a) of the Act and section 4975(c)(2) of the
Code and in accordance with the procedures set forth in 29 CFR part
2570, subpart B (55 FR 32836, 32847, August 10, 1990). If the exemption
is granted, the restrictions of sections 406(a), 406(b)(1) and (b)(2)
of the Act and the sanctions resulting from the application of section
4975 of the Code, by reason of section 4975(c)(1) (A) through (E) of
the Code, shall not apply to the Sale (the Sale) by the Plan to A.J.
Walston and Arthur T. High, the trustees of the Plan (the Trustees), of
three parcels of improved real property (the Parcels). This proposed
exemption is conditioned upon adherence to the material facts and
representations described herein
[[Page 34472]]
and upon the satisfaction of the following requirements:
(a) The Sale is a one-time transaction for cash;
(b) The Plan does not pay any commissions, costs or other expenses
in connection with the Sale; and
(c) The Plan will receive an amount equal to the greater of:
(i) $234,000; or (ii) The current fair market value of the
Property, as established by an independent, qualified, appraiser at the
time of the Sale.
Summary of Facts and Representations
1. Walston & High, P.A., the sponsor of the Plan, is a certified
public accounting company located in Wilson, North Carolina. The Plan
is a defined benefit pension plan which, as of September 27, 2000, has
5 participants. The Plan's assets have an aggregate fair market value
of $727,102.04.
2. The Plan's real property holdings consist of three parcels of
real property. The Parcels have an estimated fair market value of
$234,000 and constitutes approximately 32% of the total value of Plan
assets.
3. The Trustees represent that the Sale is in the interest of the
Plan, and its participants and beneficiaries. The Trustees represent
that they are seeking to terminate the Plan and that the Parcels cannot
be subdivided to achieve a distribution of assets. The Trustees have
attempted to sell the Parcels to unrelated third parties but have been
unsuccessful. As a result the Trustees are seeking to purchase the
Parcels from the Plan for cash, allowing the Plan to distribute the
assets upon termination. There will be no commissions, costs or other
expenses incurred by the Plan in connection with the Sale.
4. The Parcels consist of:
A 862 square foot parcel of improved real property located at 1112
Churchill Avenue, Wilson, North Carolina (Churchill). The property was
acquired by the Plan for investment purposes on September 12, 1979 for
$27,584.23 from an unrelated third party. The property has generated a
net income of $19,235 from 1990 through 1999;
A 1,670 square foot parcel of improved real property located at
401-403 Maplewood Avenue, Wilson, North Carolina (Maplewood). The
property was acquired by the Plan for investment purposes on August 27,
1976 for $35,600.86 from an unrelated third party. The property has
generated a net income of $37,987 from 1990 through 1999; and
A 3,264 square foot parcel of improved real property located on
2213 Candlewood Drive, Wilson, North Carolina (Candlewood). The
property was acquired by the Plan for investment purposes on January
30, 1981 for $132,500 from an unrelated third party. The property has
generated a net income of $112,781 from 1990 through 1999. \1\
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\1\ The applicant has provided consolidated net income
statements for the Parcels from 1977 through 1989. These statements
indicate that during this time period the Parcels generated net
income of $140,244.
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5. The Property was appraised (the Appraisal) on July 19, 2000, by
Fred W. Morgan (Mr. Morgan), a North Carolina state Certified
Residential Real Estate Appraiser. Mr. Morgan is independent of the
Employer and is an appraiser with the Bissette Appraisal Services
located in Wilson, North Carolina.
Mr. Morgan determined the best use and highest value of the
Property was associated with valuing the Property with the so-called
direct sales comparison method. In this method, sales of similar use
land in the market area are compared to the subject to arrive at an
indication of value. In arriving at value conclusions, the tracts are
compared as to the rights conveyed, financing terms, sale conditions,
market conditions, location, and physical characteristics. Therefore,
based on the valuation procedure, the fair market value of the Parcels
was determined as follows: (i) Churchill = $39,000; (ii) Maplewood =
$62,500; and (iii) Candlewood = $132,500. Therefore, the total fair
market value of the Parcels is $234,000 as of July 19, 2000 ($39,000 +
$62,500 + $132,500 = $234,000). The Plan will receive an amount equal
to the greater of: (i) $234,000; or (ii) The current fair market value
of the Property, as established by an independent, qualified, appraiser
at the time of the Sale.
6. In summary, the Trustees represent that the subject transaction
satisfies the statutory criteria contained in section 408(a) of the Act
and section 4975(c)(2) of the Code for the following reasons:
(a) The Sale is a one-time transaction for cash;
(b) The Plan does not pay any commissions, costs or other expenses
in connection with the Sale; and
(c) The Plan will receive an amount equal to the greater of:
(i) $234,000; or (ii) The current fair market value of the
Property, as established by an independent, qualified, appraiser at the
time of the Sale.
Notice to Interested Persons: Notice of the proposed exemption
shall be given to all interested persons in the manner agreed upon by
the applicant and Department within 15 days of the date of publication
in the Federal Register. Comments and requests for a hearing are due
forty-five (45) days after publication of the notice in the Federal
Register.
FOR FURTHER INFORMATION CONTACT: Khalif Ford of the Department,
telephone (202) 219-8883 (this is not a toll-free number).
Retirement Plan of Dime Bancorp, Inc. (The Dime Plan); Retirement
401(k) Plan of Dime Bancorp, Inc. (the Dime 401(k) Plan); North
American Mortgage Company Retirement and 401(k) Savings Plan (the
NAMCO Plan); and Lakeview Savings Bank Employee Stock Ownership
Plan (the ESOP; together, the Plans) Located in New York, New York
[Application Nos. D-10962 through D-10965]
Proposed Exemption
The Department is considering granting an exemption under the
authority of section 408(a) of the Act and section 4975(c)(2) of the
Code and in accordance with the procedures set forth in 29 CFR Part
2570, Subpart B (55 FR 32836, 32847, August 10, 1990). If the exemption
is granted, the restrictions of sections 406(a), 406(b)(1) and (b)(2)
and 407(a) of the Act and the sanctions resulting from the application
of section 4975 of the Code, by reason of section 4975(c)(1)(A) through
(E) of the Code, shall not apply, as of December 29, 2000, to: (1) The
past receipt by the Plans of certain Litigation Tracking Warrants (the
Warrants) pursuant to the distribution of Warrants (the Warrant
Distribution) by Dime Bancorp, Inc. (Dime) to all of its common
stockholders as of December 22, 2000 (the Record Date); \2\ (2) the
past and proposed future holding of the Warrants by the Plans; and (3)
the disposition or exercise of the Warrants by the Plans; provided that
the following conditions are satisfied:
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\2\ In addition to all of Dime's common stockholders as of
December 22, 2000 receiving Warrants pursuant to the Warrant
Distribution, any person or entity (including the Plans) who brought
the common stock of Dime (the Stock) during the period from December
20, 2000 through December 29, 2000 received such Stock with certain
accompanying ``due bills'' reflecting the seller's obligation to
deliver Warrants to the buyer upon the seller's receipt of such
Warrants pursuant to the Warrant Distribution, and therefore also
received Warrant's in connection with such purchases of Stock.
Accordingly, the exemption proposed herein shall also apply to the
acquisition, holding, disposition and exercise of Warrants acquired
by the Plans in connection with the purchase of Stock with due
bills.
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(A) The Plans' acquisition and holding of the Warrants resulted
from an independent act of Dime as a corporate entity, and all holders
of
[[Page 34473]]
Stock, including the Plans, were treated in a like manner with respect
to the Warrant Distribution (with the exception of one holder of Stock,
who did not receive Warrants);
(B) With respect to Warrants allocated to the Dime 401(k) Plan and
the NAMCO Plan, the Warrants were acquired solely for the accounts of
participants who had directed investment of all or a portion of their
account balances in Stock pursuant to Plan provisions for individually-
directed investment of participant accounts;
(C) With respect to Warrants allocated to the Dime Plan and the
ESOP, the authority for all decisions regarding the holding,
disposition or exercise of the Warrants by such Plans will be exercised
by an independent fiduciary acting on behalf of such Plans; and
(D) With respect to Warrants allocated to the Dime 401(k) Plan and
the NAMCO Plan, all decisions regarding the holding, disposition or
exercise of the Warrants have been, and will continue to be made, in
accordance with Plan provisions for individually-directed investment of
participant accounts, by the individual Plan participants whose
accounts in the Plan received Warrants in connection with the Warrant
Distribution, including all determinations regarding the exercise or
sale of the Warrants received through the Warrant Distribution,\3\
except for those participants who fail to file timely and valid
instructions concerning the exercise of the Warrants, with respect to
whom the Warrants allocated to their accounts will, to the extent a
public trading market for the Warrants exists, be sold.
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\3\ On January 1, 2001, the NAMCO Plan was merged with and into
the Dime 401(k) Plan. As a result, for a period of time, there was
temporary administrative freeze period (the Freeze Period) during
which former participants of the NAMCO Plan (the Former NAMCO
Participants) could not direct the investment of their accounts
under the Dime 401(k) Plan, including any Warrants allocated to such
accounts. During such Freeze Period, an independent fiduciary had
the authority to hold, sell or exercise (to the extent the Warrants
were then exercisable) all of the Warrants transferred from the
NAMCO Plan and allocated to the accounts of the Former NAMCO
Participants under the Dime 401(k) Plan. Once the Freeze Period
ceased, the Former NAMCO Participants immediately regained the
ability to direct the investment of their accounts under the Dime
401(k) Plan, including any Warrants allocated to such accounts.
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Effective Date: This exemption, if granted, will be effective as of
December 29, 2000.
Summary of Facts and Representations
1. Dime is a Delaware corporation and a savings and loan holding
company with its headquarters located in New York, New York. Dime is
the parent of the Dime Savings Bank of New York, FSB (Dime Savings), a
federally chartered bank currently serving consumers and businesses in
the greater New York City metropolitan area. Through Dime Savings and
its subsidiaries, including North American Mortgage Company (i.e.,
NAMCO), Dime provides consumer loans, insurance products and mortgage
banking services throughout the United States.
2. On December 29, 2000, Dime distributed the Warrants to all of
its holders of common stock (i.e., the Stock), par value $0.01 per
share.\4\ The Warrants are litigation tracking warrants to purchase
shares of Stock at an exercise price of $.01 per share of Stock that
will be issued in connection with a warrant exercise (the Exercise
Price) during a period of 60 days after the holders of the Warrants are
given notice of the occurrence of the Triggering Event (as defined in
representation 6, below). If the Warrants are not exercised by the end
of the 60-day period (the Expiration Date), they will lapse and be
canceled. The Warrants have been approved for listing as separately
tradeable on the NASDAQ National Market under the trading symbol
``DIMEZ.'' The Stock is currently traded on the New York Stock Exchange
under the trading symbol ``DME.''
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\4\ Warburg Pincus Equity Partners, L.P. (Warburg) recently made
an aggregate $238 million investment in Dime for which it received
13,607.664 shares of series B junior voting preferred stock (series
B Stock) of Dime, as well as warrants to purchase 8,142.738 shares
of Series C junior nonvoting preferred stock (Series C Stock) and
warrants to purchase 5,464.926 shares of Series D junior nonvoting
preferred stock (Series D Stock). Each share of Series B Stock has
the same economic rights equivalent to 1,000 shares of Stock subject
to antidilution adjustments. The shares of Series B Stock will
convert into restricted shares of Stock upon, among other events,
the distribution of the Warrants. Each share of Series C and Series
D Stock will also have the economic rights equivalent to 1,000
shares of Stock. However, one of the terms of Warburg's investment
was that it would not receive any Warrants with respect to the
shares it acquired or will thereby acquire.
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3. The Warrants are referred to as ``Litigation Tracking Warrants''
because the number of shares of Stock for which the Warrants will be
converted will depend upon Dime's recovery, if any, in connection with
a lawsuit that Dime, as the successor to Anchor Savings Bank FSB
(Anchor), maintains in the United States Court of Federal Claims (the
Claims Court) against the United States (U.S.) government, whereby it
alleges a breach of contract and the taking of property without
compensation in contravention of the Fifth Amendment to the U.S.
Constitution (the Goodwill Litigation). The action arose because of
Anchor's assertion that the passage of the Financial Institutions
Reform, Recovery, and Enforcement Act of 1989 (FIRREA) and the
regulations adopted by the Office of Thrift Supervision pursuant to
FIRREA, deprived Anchor of the ability to include supervisory goodwill
and certain other assets when computing its regulatory capital. The
Federal Savings and Loan Insurance Corporation had previously agreed to
let Anchor use such assets when computing its regulatory capital
ratios. The direct effect was to cause Anchor to go from an institution
that substantially exceeded its regulatory capital requirements to one
that was critically undercapitalized upon the effectiveness of the
FIRREA-mandated capital requirements. Dime has asked the Claims Court
to enter partial summary judgment against the U.S. government based on
the existence of a contract between the U.S. government and Dime and
the inconsistency of the government's actions with respect to that
contract. If the Claims Court grants Dime's request, Dime will then
present the evidence as to damages. It is believed that Dime may
receive a potentially large recovery of damages in connection with the
Goodwill Litigation.\5\
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\5\ By proposing this exemption, the Department is providing no
opinion or comment on, or support for, the merits of the allegations
made against the U.S. government with respect to the Goodwill
Litigation. The purpose of this proposed exemption, if granted, is
merely to facilitate the rights and benefits inuring to the Plans
through the receipt of the Warrants as holders of the Stock in order
to capitalize on whatever economic value the Warrants may have.
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4. The Warrants will, upon the Triggering Event, entitle the
holders thereof to purchase shares of Stock with an aggregate market
value equal to the Adjusted Litigation Recovery (as defined in
representation 5, below), if any. Each Warrant will be exercisable at a
fixed Exercise Price for the number of shares of Stock with a market
value equal to the Adjusted Litigation Recovery divided by the number
of Warrants issued or reserved for issuance on the Record Date, with
cash to be paid for fractional shares resulting from a holder's Warrant
exercise.
5. The ``Adjusted Litigation Recovery'' will equal 85% \6\ of the
amount obtained from the following equation:
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\6\ Dime will retain the remaining 15%, and will not issue
shares in connection with it.
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(a) The aggregate amount of any cash payment and the fair market
value of any property actually received by Dime pursuant to a final,
non-appealable judgment in or final settlement of the Goodwill
Litigation (including any post-judgment interest actually received by
[[Page 34474]]
Dime on any cash payment) (the Total Payment), minus
(b) The sum of the following: (i) The aggregate expenses incurred
previously and hereafter by Dime in prosecuting the Goodwill Litigation
and obtaining the Total Payment, (ii) the aggregate expenses incurred
by Dime in connection with the creation, issuance and trading of the
Warrants, and (iii) an amount equal to the net Total Payment (Total
Payment less the expenses described in the preceding clauses (i) and
(ii)) multiplied by the highest, combined statutory rate of federal,
state and local income taxes applicable to Dime during the tax year in
which the full total payment is received.
6. The ``Triggering Event'' is defined as the occurrence of all of
the following: (i) receipt by Dime of the full Total Payment, (ii)
calculation by Dime of the full amount of the Adjusted Litigation
Recovery, and (iii) Receipt of all regulatory approvals necessary to
issue the shares of Stock to be issued upon the exercise of the
Warrants, including the effectiveness of a registration statement
relating to the issuance of such Stock under the Securities Act of
1933, as amended.
7. Once the Triggering Event occurs, Dime will publicly announce,
by means of a press release and by written notice mailed to each holder
of Warrants: (i) That the Triggering Event has occurred, (ii) the
aggregate number of shares for which the Warrants are exercisable,
(iii) the number of shares of Stock for which each Warrant is
exercisable, (iv) the exercise price per Warrant, (v) the manner in
which the Warrants are exercisable, and (vi) the Expiration Date.
8. Dime sponsors the Dime Plan and the Dime 401(k) Plan, while Dime
Savings sponsors the Lakeview ESOP and NAMCO sponsors the NAMCO Plan.
Dime Savings is a wholly-owned subsidiary of Dime, and NAMCO is a
wholly-owned subsidiary of Dime Savings. All or a portion of the assets
of each of the Plans is invested in the Stock. The Dime Plan currently
has approximately 5,234 participants and $182,039,800 in total assets,
and the Stock represents approximately 10.5% of the assets of the Dime
Plan. The Dime 401(k) Plan has approximately 3,000 participants and
total assets of approximately $147,955,000, and the Stock represents
approximately 15% of its total assets. The NAMCO Plan had approximately
3,160 Former Participants at the time of its merger into the Dime
401(k) Plan. The NAMCO Plan had approximately $68,080,600 in total
assets, and the Stock represented approximately 0.72% of the NAMCO
Plan's assets. The ESOP has approximately 57 participants and
approximately $8,193,745 in total assets. The Stock represents
approximately 96% of the fair market value of the assets of the ESOP.
As shareholders of Dime, each of the Plans will receive Warrants in the
same manner as all other shareholders of Dime.\7\
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\7\ As noted in footnote 3, Warburg will not receive Warrants.
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9. The assets of the Dime 401(k) Plan and the NAMCO Plan are held
in accounts for which investments are participant-directed among
various investment funds, one of which is a fund invested in Stock.
With respect to accounts of participants in these two plans (which were
merged on January 1, 2001, as described in representation 10, below),
and except as provided below, participants will make all decisions
regarding the disposition or exercise of the Warrants allocated to
their accounts (with, and as is the case with other investments under
the Plans, absence of affirmative instruction deemed to be direction to
continue to hold the Warrants). If the participants do not direct the
disposition or exercise of the Warrants prior to the Expiration Date,
the Warrants will be sold by the trustee for the particular Plan so
that they do not lapse without receipt of some value, assuming there is
then a market for the Warrants.
10. As noted in footnote 2, on January 1, 2001, the NAMCO Plan was
merged with and into the Dime 401(k) Plan. As a result, for a period of
time, there was an administrative Freeze Period during which former
participants of the NAMCO Plan (the Former NAMCO Participants) could
not direct the investment of their accounts under the Dime 401(k) Plan,
including any Warrants allocated to such accounts. During the Freeze
Period, HSBC Bank USA (HSBC), acting as an independent fiduciary with
respect to such accounts, had the authority to hold, sell or exercise
(to the extent the Warrants were then exercisable) all of the Warrants
transferred from the NAMCO Plan and allocated to the accounts of the
Former NAMCO Participants under the Dime 401(k) Plan. Once the Freeze
Period ceased, the Former NAMCO Participants immediately regained the
ability to direct the investment of their accounts under the Dime
401(k) Plan, including any Warrants allocated to such accounts.
11. HSBC's U.S. headquarters are located in New York, NY. HSBC has
been in existence for 150 years. The trust department of HSBC has $15
billion of assets under management, of which $7 billion is held by HSBC
as fiduciary of approximately 400 plans that are subject to the Act.
HSBC is not in any way related to Dime, Dime Savings or NAMCO.
12. In contrast to the Dime 401(k) Plan and the NAMCO Plan, the
investments of the Dime Plan and the ESOP are not participant-directed.
The Dime Plan investments are managed either by investment managers
selected by Dime's Benefits Committee (the Benefits Committee) or are
directed by the Benefits Committee itself. The investment in the Stock
is directed by the Benefits Committee. The ESOP, which is required to
be invested primarily in Stock, has its investments directed by the
Benefits Committee or by the Plan's trustee, HSBC. In this regard, the
trust agreement for the ESOP has been amended to clarify that HSBC, as
the ESOP's trustee, will have all investment authority with respect to
the Warrants.
13. HSBC also has been retained by Dime for the purpose of acting
as the independent fiduciary on behalf of the Dime Plan with respect to
the Warrants to be received by that Plan. HSBC has the authority to
direct the holding, sale or exercise of the Warrants received by both
the Dime Plan and the ESOP.
14. HSBC has represented that it is fully aware of its duties and
responsibilities as a fiduciary under the Act with respect to the Dime
Plan, the Dime 401(k) Plan, and the ESOP. In fulfilling its duties,
HSBC reviewed the terms and conditions of the Warrants and the Warrant
Distribution and reviewed the most recent financial statements of Dime
and other material it considered appropriate to determine the financial
condition of Dime and the possible market value of the Warrants. Based
on this review, HSBC concluded, as of December 20, 2000, that it was in
the best interests of the participants and beneficiaries of the Dime
Plan, the ESOP and the Dime 401(k) Plan for such Plans to acquire and
retain all Warrants issued to such Plans pursuant to the Warrant
Distribution.
15. HSBC has represented that it will continue to monitor the
holding of the Warrants by the Dime Plan and the ESOP. In this regard,
HSBC represents that it monitored the holding of the Warrants by the
Dime 401(k) Plan during the Freeze Period. In exercising its discretion
as a fiduciary under the Act, HSBC will on an on-going basis review all
relevant financial information related to Dime and all relevant
information related to the market value of the Warrants to determine
whether those Plans should hold, sell, or, when exercisable, exercise
the Warrants.
[[Page 34475]]
16. In the event that HSBC is relieved of its obligation to act as
the independent fiduciary on behalf of the Dime Plan and the ESOP, Dime
and Dime Savings have established a process to replace HSBC as
independent fiduciary. Dime and Dime Savings represent that any new
independent fiduciary will be an established institution that has
substantial experience as a fiduciary of plans that are subject to the
Act, and that is not related to, or otherwise controlling of,
controlled by or under common control with Dime, Dime Savings or NAMCO.
Dime further represents that any new independent fiduciary will be in
place at the time HSBC's departure as independent fiduciary so that
there will be no period of time without an independent fiduciary acting
on behalf of the Dime Plan and the ESOP with respect to the Warrants.
17. The applicants represent that the Plans are all holders of
Stock. As a result of Dime's corporate business decision to distribute
the Warrants to all of its common stockholders, the Plans received
Warrants through no request or action on their part, but solely as a
result of their ownership of Stock. Thus, the Plans' acquisition of the
warrants was not volitional on the part of any of the Plans or their
respective trustees or other fiduciaries.
18. The applicants represent that each Plan's acquisition of the
Warrants enables its participants to have the same economic investment
opportunities offered to other holders of Stock. With respect to the
Dime 401(k) Plan and, to the extent applicable, the NAMCO 401(k) Plan,
the sale or exercise direction opportunities will be passed through
under each Plan to participants who had account balances invested in
the Plan's Stock Fund as of the Record Date, thereby affording them the
same rights and privileges as other holders of Stock as well as the
same investment rights and privileges they have with respect to other
amounts credited to their accounts. With respect to the Dime Plan and
the ESOP, the applicants state that participants will be able to reap
the potential economic rewards of their Plan's acquisition and ultimate
disposition or exercise of the warrants. To deny the Plans' ability to
participate in the warrant Distribution would deny participants the
opportunity to be treated in the same manner as other holders of Stock.
It is noted that, while the Warrants are expected to trade on a
national securities market, an exemption is not being requested to
permit the Plans to acquire additional Warrants on the market. Thus,
the requested exemption relates only to the past distribution of
Warrants to the Plans by Dime.
19. In summary, the applicants represent that the transactions
satisfy the criteria of section 408(a) of the Act for the following
reasons: (a) The Plans' acquisition of the Warrants resulted from an
independent act of Dime as a corporate entity, and all holders of
Stock, including the Plans, were treated in a like manner with respect
to the Warrant Distribution (with the exception of one holder of Stock
(i.e., Warburg), who did not receive Warrants); (b) with respect to
Warrants allocated to the Dime 401(k) Plan and the NAMCO Plan, the
Warrants were acquired solely for the accounts of participants who had
directed investment of all or a portion of their account balances in
Stock pursuant to plan provisions for individually-directed investment
of participant accounts; (c) with respect to Warrants allocated to the
Dime Plan and the ESOP, the authority for all decisions regarding the
holding, disposition or exercise of the Warrants by such Plans will be
exercised by an independent fiduciary (i.e., HSBC or its successor)
acting on behalf of such Plans; and (d) with respect to Warrants
allocated to the Dime 401(k) Plan and the NAMCO Plan, all decisions
regarding the holding, disposition or exercise of the Warrants have
been made (other than during the Freeze Period), and will continue to
be made, in accordance with Plan provisions for individually-directed
investment of participant accounts, by the individual Plan participants
whose accounts in the Plan received Warrants in connection with the
Warrant Distribution.
FOR FURTHER INFORMATION CONTACT: Gary H. Lefkowitz of the Department,
telephone (202) 219-8881. (This is not a toll-free number.
Barclays Bank PLC and Barclays Capital Inc. Located in London,
England and New York, New York
[Application No. D-10966]
Proposed Exemption
The Department of Labor is considering granting an exemption under
the authority of section 408(a) of the Act and section 4975(c)(2) of
the Code and in accordance with the procedures as set forth in 29
C.F.R. Part 2570, Subpart B (55 Fed. Reg. 32836, 32847, August 10,
1990).\8\
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\8\ For the purposes of this proposed exemption, references to
specific provisions of Title I of the Act, unless otherwise
specified, refer to the corresponding provisions of the Code.
---------------------------------------------------------------------------
Section I--Transactions
If the exemption is granted, the restrictions of section
406(a)(1)(A) through (D) of the Act and the sanctions resulting from
the application of section 4975 of the Code, by reason of section
4975(c)(1)(A) through (D) of the Code, shall not apply as of January
24, 2001, to:
(a) The lending of securities, under certain exclusive borrowing
arrangements, to:
(1) Barclays Bank PLC (Barclays);
(2) Barclays Capital Inc. (BCI) and any other affiliate of Barclays
that, now or in the future, is a U.S. registered broker-dealer or a
government securities broker or dealer or U.S. bank;
(3) Barclays Capital Securities Limited, which is subject to
regulation in the United Kingdom by the Securities and Futures
Authority of the United Kingdom (the UK SFA); and
(4) Any broker-dealer or bank that, now or in the future, is an
affiliate of Barclays which is subject to regulation by the UK SFA or
the Bank of England, (each such affiliated foreign broker-dealer or
bank referred to as a ``Foreign Borrower,'' and, together with Barclays
and BCI, collectively referred to as the ``Borrowers''), by employee
benefit plans, including commingled investment funds holding assets of
such plans (Plans), with respect to which Barclays or any of its
affiliates is a party in interest; and
(b) The receipt of compensation by Barclays or any of its
affiliates in connection with securities lending transactions, provided
that the following conditions set forth in Section II, below, are
satisfied.
Section II--Conditions
(a) For each Plan, neither the Borrower nor any affiliate has or
exercises discretionary authority or control over the Plan's investment
in the securities available for loan, nor do they render investment
advice (within the meaning of 29 CFR 2510.3-21(c)) with respect to
those assets.
(b) The party in interest dealing with the Plan is a party in
interest with respect to the Plan (including a fiduciary) solely by
reason of providing services to the Plan, or solely by reason of a
relationship to a service provider described in section 3(14)(F), (G),
(H) or (I) of the Act.
(c) The Borrower directly negotiates an exclusive borrowing
agreement (the Borrowing Agreement) with a Plan fiduciary which is
independent of the Borrower and its affiliates.
(d) The terms of each loan of securities by a Plan to a Borrower
are at
[[Page 34476]]
least as favorable to such Plan as those of a comparable arm's-length
transaction between unrelated parties, taking into account the
exclusive arrangement.
(e) In exchange for granting the Borrower the exclusive right to
borrow certain securities, the Plan receives from the Borrower either
(i) a flat fee (which may be equal to a percentage of the value of the
total securities subject to the Borrowing Agreement from time to time),
(ii) a periodic payment that is equal to a percentage of the value of
the total balance of outstanding borrowed securities, or (iii) any
combination of (i) and (ii) (collectively, the Exclusive Fee). If the
Borrower deposits cash collateral, all the earnings generated by such
cash collateral shall be returned to the Borrower; provided that the
Borrower may, but shall not be obligated to, agree with the independent
fiduciary of the Plan that a percentage of the earnings on the
collateral may be retained by the Plan or the Plan may agree to pay the
Borrower a rebate fee and retain the remaining earnings on the
collateral (the Shared Earnings Compensation). If the Borrower deposits
non-cash collateral, all earnings on the non-cash collateral shall be
returned to the Borrower; provided that the Borrower may, but shall not
be obligated to, agree to pay the Plan a lending fee (the Lending Fee)
(the Lending Fee and the Shared Earnings Compensation are collectively
referred to as the ``Transaction Lending Fee''). The Transaction
Lending Fee, if any, shall be either in addition to the Exclusive Fee
or an offset against such Exclusive Fee. The Exclusive Fee and the
Transaction Lending Fee may be determined in advance or pursuant to an
objective formula, and may be different for different securities or
different groups of securities subject to the Borrowing Agreement. Any
change in the Exclusive Fee or the Transaction Lending Fee that the
Borrower pays to the Plan with respect to any securities loan requires
the prior written consent of the independent fiduciary of the Plan,
except that consent is presumed where the Exclusive Fee or the
Transaction Lending Fee changes pursuant to an objective formula. Where
the Exclusive Fee or the Transaction Lending Fee changes pursuant to an
objective formula, the independent fiduciary of the Plan must be
notified at least 24 hours in advance of such change and such
independent Plan fiduciary must not object in writing to such change,
prior to the effective time of such change.
(f) The Borrower may, but shall not be required to, agree to
maintain a minimum balance of borrowed securities subject to the
Borrowing Agreement. Such minimum balance may be a fixed U.S. dollar
amount, a flat percentage or other percentage determined pursuant to an
objective formula.
(g) By the close of business on or before the day the loaned
securities are delivered to the Borrower, the Plan receives from the
Borrower (by physical delivery, book entry in a securities depository
located in the United States, wire transfer, or similar means)
collateral consisting of U.S. currency, securities issued or guaranteed
by the U.S. Government or its agencies or instrumentalities,
irrevocable bank letters of credit issued by a U.S. bank other than
Barclays or any affiliate thereof, or any combination thereof, or other
collateral permitted under Prohibited Transaction Exemption 81-6 (46 FR
7527, Jan. 23, 1981, as amended at 52 FR 18754, May 19, 1987) (PTE 81-
6) (as amended or superseded).\9\ Such collateral will be deposited and
maintained in an account which is separate from the Borrower's accounts
and will be maintained with an institution other than the Borrower. For
this purpose, the collateral may be held on behalf of the Plan by an
affiliate of the Borrower that is the trustee or custodian of the Plan.
---------------------------------------------------------------------------
\9\ PTE 81-6 provides an exemption under certain conditions from
section 406(a)(1)(A) through (D) of the Act and the corresponding
provisions of section 4975(c) of the Code for the lending of
securities that are assets of an employee benefit plan to a U.S.
broker-dealer registered under the Securities Exchange Act of 1934
(the 1934 Act) (or exempted from registration under the 1934 Act as
a dealer in exempt Government securities, as defined therein) or to
a U.S. bank, that is a party in interest with respect to such plan.
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(h) The market value (or in the case of a letter of credit, the
stated amount) of the collateral initially equals at least 102 percent
of the market value of the loaned securities on the close of business
on the day preceding the day of the loan and, if the market value of
the collateral at any time falls below 100 percent (or such higher
percentage as the Borrower and the independent fiduciary of the Plan
may agree upon) of the market value of the loaned securities, the
Borrower delivers additional collateral on the following day to bring
the level of the collateral back to at least 102 percent. The level of
the collateral is monitored daily by the Plan or its designee, which
may be Barclays or any of its affiliates which provides custodial or
directed trustee services in respect of the securities covered by the
Borrowing Agreement for the Plan. The applicable Borrowing Agreement
shall give the Plan a continuing security interest in and lien on the
collateral.
(i) Before entering into a Borrowing Agreement, the Borrower
furnishes to the Plan the most recent publicly available audited and
unaudited statements of its financial condition, as well as any
publicly available information which it believes is necessary for the
independent fiduciary to determine whether the Plan should enter into
or renew the Borrowing Agreement.
(j) The Borrowing Agreement contains a representation by the
Borrower that, as of each time it borrows securities, there has been no
material adverse change in its financial condition since the date of
the most recently furnished financial statements.
(k) The Plan receives the equivalent of all distributions made
during the loan period, including, but not limited to, cash dividends,
interest payments, shares of stock as a result of stock splits, and
rights to purchase additional securities, that the Plan would have
received (net of tax withholdings)\10\ had it remained the record owner
of the securities.
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\10\ The Department notes the Applicants' representation that
dividends and other distributions on foreign securities payable to a
lending Plan are subject to foreign tax withholdings and that the
Borrower will always put the Plan back in at least as good a
position as it would have been had it not loaned securities.
---------------------------------------------------------------------------
(l) The Borrowing Agreement and/or any securities loan outstanding
may be terminated by either party at any time without penalty (except
for, if the Plan has terminated its Borrowing Agreement, the return to
the Borrower of a pro-rata portion of the Exclusive Fee paid by the
Borrower to the Plan) whereupon the Borrower delivers securities
identical to the borrowed securities (or the equivalent thereof in the
event of reorganization, recapitalization, or merger of the issuer of
the borrowed securities) to the Plan within the lesser of five business
days of written notice of termination or the customary settlement
period for such securities.
(m) In the event that the Borrower fails to return securities in
accordance with the Borrowing Agreement, the Plan will have the right
under the Borrowing Agreement to purchase securities identical to the
borrowed securities and apply the collateral to payment of the purchase
price. If the collateral is insufficient to satisfy the Borrower's
obligation to return the Plan's securities, the Borrower will indemnify
the Plan in the U.S. with respect to the difference between the
replacement cost of securities and the market value of the collateral
on the date the loan is declared in default, together with
[[Page 34477]]
expenses incurred by the Plan plus applicable interest at a reasonable
rate, including reasonable attorneys' fees incurred by the Plan for
legal action arising out of default on the loans, or failure by the
Borrower to properly indemnify the Plan.
(n) Except as otherwise provided herein, all procedures regarding
the securities lending activities, at a minimum, conform to the
applicable provisions of PTE 81-6 (as amended or superseded), as well
as to applicable securities laws of the United States and/or the United
Kingdom, as appropriate.
(o) Only Plans with total assets having an aggregate market value
of at least $50 million are permitted to lend securities to the
Borrowers; provided, however, that--
(1) In the case of two or more Plans which are maintained by the
same employer, controlled group of corporations or employee
organization (the Related Plans), whose assets are commingled for
investment purposes in a single master trust or any other entity the
assets of which are ``plan assets'' under 29 CFR 2510.3-101 (the Plan
Asset Regulation), which entity is engaged in securities lending
arrangements with the Borrowers, the foregoing $50 million requirement
shall be deemed satisfied if such trust or other entity has aggregate
assets which are in excess of $50 million; provided that if the
fiduciary responsible for making the investment decision on behalf of
such master trust or other entity is not the employer or an affiliate
of the employer, such fiduciary has total assets under its management
and control, exclusive of the $50 million threshold amount attributable
to plan investment in the commingled entity, which are in excess of
$100 million.
(2) In the case of two or more Plans which are not maintained by
the same employer, controlled group of corporations or employee
organization (the Unrelated Plans), whose assets are commingled for
investment purposes in a group trust or any other form of entity the
assets of which are ``plan assets'' under the Plan Asset Regulation,
which entity is engaged in securities lending arrangements with the
Borrowers, the foregoing $50 million requirement is satisfied if such
trust or other entity has aggregate assets which are in excess of $50
million (excluding the assets of any Plan with respect to which the
fiduciary responsible for making the investment decision on behalf of
such group trust or other entity or any member of the controlled group
of corporations including such fiduciary is the employer maintaining
such Plan or an employee organization whose members are covered by such
Plan). However, the fiduciary responsible for making the investment
decision on behalf of such group trust or other entity--
(i) Has full investment responsibility with respect to plan assets
invested therein; and
(ii) Has total assets under its management and control, exclusive
of the $50 million threshold amount attributable to plan investment in
the commingled entity, which are in excess of $100 million. (In
addition, none of the entities described above are formed for the sole
purpose of making loans of securities.)
(p) Prior to any Plan's approval of the lending of its securities
to the Borrowers, a copy of this exemption, if granted, (and the notice
of pendency) is provided to the Plan, and the Borrower informs the
independent fiduciary that the Borrower is not acting as a fiduciary of
the Plan in connection with its borrowing securities from the Plan.\11\
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\11\ The Department notes the Applicants' representation that,
under the proposed exclusive borrowing arrangements, neither the
Borrower nor any of its affiliates will perform the essential
functions of a securities lending agent, i.e., the Applicants will
not be the fiduciary who negotiates the terms of the Borrowing
Agreement on behalf of the Plan, the fiduciary who identifies the
appropriate borrowers of the securities or the fiduciary who decides
to lend securities pursuant to an exclusive arrangement. However,
the Applicants or their affiliates may monitor the level of
collateral and the value of the loaned securities.
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(q) The independent fiduciary of the Plan receives monthly reports
with respect to the securities lending transactions, including but not
limited to the information set forth in the following sentence, so that
an independent Plan fiduciary may monitor such transactions with the
Borrowers. The monthly report will list for a specified period all
outstanding or closed securities lending transactions. The report will
identify for each open loan position, the securities involved, the
value of the security for collateralization purposes, the current value
of the collateral, the rebate or premium (if applicable) at which the
security is loaned, and the number of days the security has been on
loan. At the request of the Plan, such a report will be provided on a
daily or weekly basis, rather than a monthly basis. Also, upon request
of the Plan, the Borrower will provide the Plan with daily
confirmations of securities lending transactions.
(r) In addition to the above conditions, all loans involving
Foreign Borrowers must satisfy the following supplemental requirements:
(1) Such Foreign Borrower is a bank which is subject to regulation
by the Bank of England or is a registered broker-dealer subject to
regulation by the UK SFA;
(2) Such Foreign Borrower is in compliance with all applicable
provisions of Rule 15a-6 (17 CFR 240.15a-6) under the Securities
Exchange Act of 1934 (the 1934 Act) which provides foreign broker-
dealers a limited exception from United States registration
requirements;
(3) All collateral is maintained in United States dollars or in
U.S. dollar-denominated securities or letters of credit;
(4) All collateral is held in the United States and the situs of
the Borrowing Agreement is maintained in the United States under an
arrangement that complies with the indicia of ownership requirements
under section 404(b) of the Act and the regulations promulgated under
29 CFR 2550.404(b)-1; and
(5) Prior to entering into a transaction involving a Foreign
Borrower, Barclays or the Foreign Borrower must:
(i) Agree to submit to the jurisdiction of the United States;
(ii) Agree to appoint an agent for service of process in the United
States, which may be an affiliate (the Process Agent);
(iii) Consent to the service of process on the Process Agent; and
(iv) Agree that enforcement by a Plan of the indemnity provided by
Barclays or the Foreign Borrower will occur in the United States
courts.
(s) Barclays or the Borrower maintains, or causes to be maintained,
within the United States for a period of six years from the date of
such transaction, in a manner that is convenient and accessible for
audit and examination, such records as are necessary to enable the
persons described in paragraph (t)(1) to determine whether the
conditions of the exemption have been met, except that--
(1) A prohibited transaction will not be considered to have
occurred if, due to circumstances beyond the control of Barclays and/or
its affiliates, the records are lost or destroyed prior to the end of
the six year period; and
(2) No party in interest other than the Borrower shall be subject
to the civil penalty that may be assessed under section 502(i) of the
Act, or to the taxes imposed by section 4975(a) and (b) of the Code, if
the records are not maintained, or are not available for examination as
required below by paragraph (t)(1).
(t)(1) Except as provided in subparagraph (t)(2) of this paragraph
and notwithstanding any provisions of subsections (a)(2) and (b) of
section 504 of the Act, the records referred to in
[[Page 34478]]
paragraph (s) are unconditionally available at their customary location
for examination during normal business hours by--
(i) Any duly authorized employee or representative of the
Department, the Internal Revenue Service or the Securities and Exchange
Commission (SEC);
(ii) Any fiduciary of a participating Plan or any duly authorized
representative of such fiduciary;
(iii) Any contributing employer to any participating Plan or any
duly authorized employee representative of such employer; and
(iv) Any participant or beneficiary of any participating Plan, or
any duly authorized representative of such participant or beneficiary.
(2) None of the persons described above in subparagraphs
(t)(1)(ii)-(t)(1)(iv) are authorized to examine the trade secrets of
Barclays or its affiliates or commercial or financial information which
is privileged or confidential.
Section III--Definitions
(a) An ``affiliate'' of a person means:
(i) any person directly or indirectly, through one or more
intermediaries, controlling, controlled by, or under common control
with the person. (For purposes of this paragraph, the term ``control''
means the power to exercise a controlling influence over the management
or policies of a person other than an individual);
(ii) any officer, director, employee or relative (as defined in
section 3(15) of the Act) of any such other person or any partner in
any such person; and
(iii) any corporation or partnership of which such person is an
officer, director or employee, or in which such person is a partner.
(b) The term ``Foreign Borrower'' or ``Foreign Borrowers'' means
Barclays Capital Securities Limited and any broker-dealer or bank that,
now or in the future, is an affiliate of Barclays which is subject to
regulation by the UK SFA or the Bank of England.
(c) The term ``Borrower'' includes Barclays, BCI, the Foreign
Borrowers and any other affiliate of Barclays that, now or in the
future, is a U.S. registered broker-dealer or a government securities
broker or dealer or U.S. bank.
Effective Date: This proposed exemption, if granted, will be
effective as of January 24, 2001.
Summary of Facts and Representations
1. Barclays, a full-line investment service firm, is an authorized
institution under the Banking Act of 1987 of the United Kingdom and is
regulated by the Bank of England. As of June 30, 2000, Barclays (based
on its Consolidated Balance Sheet) had approximately
286,385 million in assets and 9,237 million in
stockholder's equity.
Barclays has several affiliates which are broker-dealers or banks.
BCI, a subsidiary of Barclays, is incorporated under the laws of the
State of Connecticut and is registered with and regulated by the
Securities and Exchange Commission (the SEC) as a U.S. broker-dealer
under Section 15 of the Securities Exchange Act of 1934, as amended
(the 1934 Act). As of November 2000, BCI had approximately $55 billion
in assets. The affiliated foreign broker-dealers of Barclays that will
be covered by this proposed exemption (i.e., the Foreign Borrowers),
and their respective regulating entities, are as follows: (a) Barclays
Capital Securities Limited (BCSL) is a foreign broker-dealer affiliate
of Barclays located in London, and is subject to regulation by the
United Kingdom Securities and Futures Authority (the UK SFA) and (b)
any broker-dealer or bank that, now or in the future, is an affiliate
of Barclays which is subject to regulation by the UK SFA or the Bank of
England. As of June 30, 2000, BCSL had approximately 18,942
million in assets. Barclays, BCI and the Foreign Borrowers are
collectively referred to as the Borrowers or the Applicants.
2. The Borrowers, acting as principal, actively engage in the
borrowing and lending of securities. The Borrowers utilize borrowed
securities either to satisfy their own trading requirements or to re-
lend to other broker-dealers and entities which need a particular
security for a certain period of time. The Applicants represent that in
the United States, as described in the Federal Reserve Board's
Regulation T, borrowed securities are often used in short sales, for
non-purpose loans to exempted borrowers, or in the event of a failure
to receive securities that a broker-dealer is required to deliver.
The Applicants wish to enter into exclusive borrowing arrangements
with employee benefit plans, including commingled investment funds
holding assets of such plans (Plans), for which Barclays or any
affiliate of Barclays may be a party in interest. For example, Barclays
or an affiliate of Barclays may be an investment manager for assets of
a Plan that are unrelated to the assets involved in the transaction.
Barclays or any of its affiliates may provide securities custodial
services, directed trustee services, clearing and/or reporting
functions in connection with securities lending transactions, or other
services to the Plan.
3. Barclays represents that it or any other Foreign Borrower that
is a bank is regulated by the Bank of England whose powers include
licensing banks in the United Kingdom, issuing directives to address
violations by or irregularities involving such banks, requiring
information from a bank or its auditor regarding supervisory matters
and revoking bank licenses. Barclays also states that the Bank of
England ensures that it has procedures for monitoring and controlling
its worldwide activities through various statutory and regulatory
standards. Among these standards are requirements for adequate internal
controls, oversight, administration and financial resources. Barclays
further states that it is required to provide the Bank of England on a
recurring basis with information regarding capital adequacy, country
risk exposure and foreign exchange exposures as well as periodic,
consolidated financial reports on the financial condition of Barclays
and its affiliates.
4. The Applicants represent that although the Foreign Borrowers
that are broker-dealers will not be registered with the SEC, their
activities are governed by the rules, regulations and membership
requirements of the UK SFA. In this regard, the Applicants state that
the Foreign Borrowers are subject to the UK SFA rules relating to,
among other things, minimum capitalization, reporting requirements,
periodic examinations, client money and safe custody rules, and books
and records requirements with respect to client accounts. The
Applicants represent that the rules and regulations set forth by the UK
SFA and the SEC share a common objective: the protection of the
investor by the regulation of the securities industry. The Applicants
represent that the UK SFA rules require each firm which employs
registered representatives or registered traders to have positive
tangible net worth and to be able to meet its obligations as they may
fall due, and that the UK SFA rules set forth comprehensive financial
resource and reporting/disclosure rules regarding capital adequacy. In
addition, to demonstrate capital adequacy, the Applicants state that
the UK SFA rules impose reporting/disclosure requirements on broker-
dealers with respect to risk management, internal controls, and
transaction reporting and recordkeeping requirements. In this regard,
required records must be produced at the request of the UK SFA at any
time. The Applicants further state that the rules and regulations of
the UK SFA for broker-dealers are backed up by
[[Page 34479]]
potential fines and penalties as well as a comprehensive disciplinary
system.
5. The Applicants represent that in addition to the protections
afforded by the Bank of England and the UK SFA, compliance by the
Applicants with the requirements of Rule 15a-6 of the 1934 Act (and the
amendments and interpretations thereof) will offer further protections
to the Plans.\12\ SEC Rule 15a-6 provides an exemption from U.S.
registration requirements for a foreign broker-dealer that induces or
attempts to induce the purchase or sale of any security (including
over-the-counter equity and debt options) by a ``U.S. institutional
investor'' or a ``major U.S. institutional investor,'' provided that
the foreign broker-dealer, among other things, enters into these
transactions through a U.S. registered broker-dealer intermediary. The
term ``U.S. institutional investor,'' as defined in Rule 15a-6(b)(7),
includes an employee benefit plan within the meaning of the Act if (a)
the investment decision is made by a plan fiduciary, as defined in
section 3(21) of the Act, which is either a bank, savings and loan
association, insurance company or registered investment advisor, or (b)
the employee benefit plan has total assets in excess of $5 million, or
(c) the employee benefit plan is a self-directed plan with investment
decisions made solely by persons that are ``accredited investors'' as
defined in Rule 501(a)(1) of Regulation D of the Securities Act of
1933, as amended. The term ``major U.S. institutional investor'' is
defined as a person that is a U.S. institutional investor that has, or
has under management, total assets in excess of $100 million or an
investment adviser registered under section 203 of the Investment
Advisers Act of 1940 that has total assets under management in excess
of $100 million.\13\ The Applicants represent that the intermediation
of the U.S. registered broker-dealer imposes upon the foreign broker-
dealer the requirement that the securities transaction be effected in
accordance with a number of U.S. securities laws and regulations
applicable to U.S. registered broker-dealers.
---------------------------------------------------------------------------
\12\ According to the Applicants, section 3(a)(4) of the 1934
Act defines ``broker'' to mean ``any person engaged in the business
of effecting transactions in securities for the account of others,
but it does not include a bank.'' Section 3(a)(5) of the 1934 Act
provides a similar exclusion for ``banks'' in the definition of the
term ``dealer.'' However, section 3(3)(6) of the 1934 Act defines
``bank'' to mean a banking institution organized under the laws of
the United States or a State of the United States. Further, Rule
15a-6(b)(3) provides that the term ``foreign broker-dealer'' means
``any non-U.S. resident person * * * whose securities activities, if
conducted in the United States, would be described by the definition
of `broker' or `dealer' in sections 3(a)(4) or 3(a)(5) of the [1934]
Act.'' Therefore, the test of whether an entity is a ``foreign
broker'' or ``dealer'' is based on the nature of such foreign
entity's activities and, with certain exceptions, only banks that
are regulated by either the United States or a State of the United
States are excluded from the definition of the term ``broker'' or
``dealer.'' Thus, for purposes of this exemption request, the
Applicants are willing to represent that they will comply with the
applicable provisions and relevant SEC interpretations and
amendments of Rule 15a-6.
\13\ Note that the categories of entities that qualify as
``major U.S. institutional investors'' has been expanded by a No-
Action letter issued by the SEC. See SEC No-Action Letter issued to
Cleary, Gottlieb, Steen & Hamilton on April 9, 1997 (April 9, 1997
No-Action Letter).
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The Applicants represent that under SEC Rule 15a-6, a foreign
broker-dealer that induces or attempts to induce the purchase or sale
of any security by a U.S. institutional or major U.S. institutional
investor in accordance with Rule 15a-6 \14\ must, among other things:
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\14\ If it is determined that applicable regulation under the
1934 Act does not require Barclays or the borrower to comply with
SEC Rule 15a-6, both entities will nevertheless comply with
subparagraphs (a) and (b) of Representation 5 above.
---------------------------------------------------------------------------
(a) Consent to service of process for any civil action brought by,
or proceeding before, the SEC or any self-regulatory organization;
(b) Provide the SEC with any information or documents within its
possession, custody or control, any testimony of any such foreign
associated persons, and any assistance in taking the evidence of other
persons, wherever located, that the SEC requests and that relates to
the transactions effected pursuant to the Rule;
(c) Rely on the U.S. registered broker-dealer through which the
transactions with the U.S. institutional and major U.S. institutional
investors are effected to (among other things):
(1) Effect the transactions, other than negotiating the terms;
(2) Issue all required confirmations and statements;
(3) As between the foreign broker-dealer and the U.S. registered
broker-dealer, extend or arrange for the extension of credit in
connection with the transactions;
(4) Maintain required books and records relating to the
transactions, including those required by SEC Rules 17a-3 (Records to
be Made by Certain Exchange Members) and 17a-4 (Records to be Preserved
by Certain Exchange Members, Brokers and Dealers) of the 1934 Act;
(5) Receive, deliver, and safeguard funds and securities in
connection with the transactions on behalf of the U.S. institutional
investor or major U.S. institutional investor in compliance with Rule
15c3-3 of the 1934 Act (Customer Protection--Reserves and Custody of
Securities)\15\ and
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\15\ Under certain circumstances described in the April 9, 1997
No-Action Letter (e.g., clearance and settlement transactions),
there may be direct transfers of funds and securities between a Plan
and Barclays or between a Plan and the Foreign Borrower. The
Applicants note that in such situations, the U.S. registered broker-
dealer will not be acting as principal with respect to any duties it
is required to undertake pursuant to Rule 15a-6.
---------------------------------------------------------------------------
(6) Participate in certain oral communications (e.g., telephone
calls) between the foreign associated person and the U.S. institutional
investor (not the major U.S. institutional investor), and accompany the
foreign associated person on certain visits with both U.S.
institutional and major U.S. institutional investors. The Applicants
represent that, under certain circumstances, the foreign associated
person may have direct communications and contact with the U.S.
Institutional Investor. \16\ (See April 9, 1997 No-Action Letter.)
---------------------------------------------------------------------------
\16\ The term ``foreign associated person'' as defined in Rule
15a-6(b)(2) means any natural person domiciled outside the United
States who is an associated person, as defined in section 3(a)(18)
of the 1934 Act, of the foreign broker or dealer, and who
participates in the solicitation of a U.S. institutional investor or
a major U.S. institutional investor under Rule 15a-6(a)(3)
---------------------------------------------------------------------------
6. An institutional investor, such as a pension fund, lends
securities in its portfolio to a broker-dealer or bank in order to earn
a fee while continuing to enjoy the benefits of owning the securities
(e.g., from the receipt of any interest, dividends, or other
distributions due on those securities and from any appreciation in the
value of the securities). The lender generally requires that the
securities loan be fully collateralized, and the collateral usually is
in the form of cash or high quality liquid securities, such as U.S.
Government or Federal Agency obligations or irrevocable bank letters of
credit. If the borrower deposits cash collateral, the lender invests
the collateral, and the borrowing agreement may provide that the lender
pay the borrower a previously-agreed upon amount or rebate fee and keep
the earnings on the collateral. If the borrower deposits government
securities, the borrower is entitled to the earnings on its deposited
securities and may pay the lender a lending fee. If the borrower
deposits irrevocable bank letters of credit as collateral, the borrower
pays the lender a fee as compensation for the loan of its securities.
These fees, defined below as the Transaction Lending Fee, may be
determined in advance or pursuant to an objective formula, and may be
different for different securities or
[[Page 34480]]
different groups of securities subject to the Borrowing Agreement.
7. The Borrowers request an exemption for the lending of
securities, under certain exclusive borrowing arrangements, by Plans
with respect to which Barclays or any of its affiliates is a party in
interest (including a fiduciary) solely by reason of providing services
to the Plan, or solely by reason of a relationship to a service
provider described in section 3(14)(F), (G), (H) or (I) of the Act. For
each Plan, neither the Borrowers nor any of its affiliates will have
discretionary authority or control over the Plan's investment in the
securities available for loan, nor will they render investment advice
(within the meaning of 29 CFR 2510.3-21(c)) with respect to those
assets. The Applicants represent that because the Borrowers, by
exercising their contractual rights under the proposed exclusive
borrowing arrangements, will have discretion with respect to whether
there is a loan of particular Plan securities to the Borrowers, the
lending of securities to the Borrowers may be outside the scope of
relief provided by PTE 81-6.\17\
---------------------------------------------------------------------------
\17\ PTE 81-6 requires in part that neither the borrower nor an
affiliate of the borrower may have discretionary authority or
control over the investment of the plan assets involved in the
transaction.
---------------------------------------------------------------------------
8. For each Plan, the Borrowers will directly negotiate a Borrowing
Agreement with a Plan fiduciary which is independent of the Borrowers.
Under the Borrowing Agreement, the Borrowers will have exclusive access
for a specified period of time to borrow certain securities of the Plan
pursuant to certain conditions. The Borrowing Agreement will specify
all material terms of the agreement, including the basis for
compensation to the Plan under each category of securities available
for loan. The Borrowing Agreement will also contain a requirement that
the Borrowers pay all transfer fees and transfer taxes relating to the
securities loans. The terms of each loan of securities by a Plan to a
Borrower will be at least as favorable to such Plan as those of a
comparable arm's-length transaction between unrelated parties, taking
into account the exclusive arrangement.
9. The Borrowers may, but shall not be required to, agree to
maintain a minimum balance of borrowed securities subject to the
Borrowing Agreement. Such minimum balance may be a fixed U.S. dollar
amount, a flat percentage or other percentage determined pursuant to an
objective formula.
10. In exchange for granting the Borrower the exclusive right to
borrow certain securities, the Borrower will pay the Plan either (i) a
flat fee (which may be equal to a percentage of the value of the total
securities subject to the Borrowing Agreement), (ii) a periodic payment
that is equal to a percentage of the value of the total balance
outstanding borrowed securities, or (iii) any combination of (i) and
(ii) (i.e., the Exclusive Fee).
If the Borrower deposits cash collateral, all the earnings
generated by such cash collateral shall be returned to the Borrower;
provided that the Borrower may, but shall not be obligated to, agree
with the independent fiduciary of the Plan that a percentage of the
earnings on the collateral may be retained by the Plan or the Plan may
agree to pay the Borrower a rebate fee and retain the remaining
earnings on the collateral (the Shared Earnings Compensation). If the
Borrower deposits non-cash collateral, all earnings on the non-cash
collateral shall be returned to the Borrower; provided that the
Borrower may, but shall not be obligated to, agree to pay the Plan a
lending fee. The Lending Fee, together with the Shared Earnings
Compensation, is referred to as the Transaction Lending Fee.
The Transaction Lending Fee, if any, may be in addition to the
Exclusive Fee or an offset against such Exclusive Fee. The Exclusive
Fee and the Transaction Lending Fee may be determined in advance or
pursuant to an objective formula, and may be different for different
securities or different groups of securities subject to the Borrowing
Agreement. For example, in addition to the Borrower paying different
fees to different Plans, the Borrower may pay different fees for
different portfolios of securities (i.e., the fee for a domestic
securities portfolio may be different than the fee for a foreign
securities portfolio). The Borrower may also pay different fees for
securities of issuers in different foreign countries; for example,
there may be a different fee for German securities than for French
securities. In addition, with respect to, for example, the French
securities, there may be different fees for liquid securities than for
illiquid securities.
Any change in the Exclusive Fee or the Transaction Lending Fee that
the Borrower pays to the Plan with respect to any securities loan
requires the prior written consent of the independent fiduciary of the
Plan, except that consent is presumed where the Exclusive Fee or the
Transaction Lending Fee changes pursuant to an objective formula. Where
the Exclusive Fee or the Transaction Lending Fee changes pursuant to an
objective formula, the independent fiduciary of the Plan must be
notified at least 24 hours in advance of such change and such
independent Plan fiduciary must not object in writing to such change,
prior to the effective time of such change.
The Plan will be entitled to the equivalent of all distributions
made to holders of the borrowed securities during the loan period,
including, but not limited to, cash dividends, interest payments,
shares of stock as a result of stock splits, and rights to purchase
additional securities that the Plan would have received (net of tax
withholdings in the case of foreign securities), had it remained the
record owner of the securities.
11. By the close of business on or before the day the loaned
securities are delivered to the Borrower, the Plan will receive from
the Borrower (by physical delivery, book entry in a securities
depository located in the United States, wire transfer, or similar
means) collateral consisting of U.S. currency, securities issued or
guaranteed by the U.S. Government or its agencies or instrumentalities,
irrevocable bank letters of credit issued by U.S. banks other than
Barclays or its affiliates, or other collateral permitted under PTE 81-
6 (as amended or superseded). Such collateral will be deposited and
maintained in an account on behalf of a Plan which is separate from the
Borrower's accounts and will be maintained with an institution other
than the Borrower. For this purpose, the collateral may be held on
behalf of the Plan by an affiliate of the Borrower that is the trustee
or custodian of the Plan. The market value (or in the case of a letter
of credit, a stated amount) of the collateral on the close of business
on the day preceding the day of the loan will be at least 102 percent
of the market value of the loaned securities. The Plan, its independent
fiduciary or its designee, which may be Barclays or any of its
affiliates which provides custodial or directed trustee services in
respect of the securities covered by the Borrowing Agreement for the
Plan, will monitor the level of the collateral daily and, if the market
value of the collateral on the close of a business day falls below 100
percent (or such higher percentage as the Borrower and the independent
fiduciary of the Plan may agree upon) of the market value of the loaned
securities at the close of business on such day, the Borrower will
deliver additional collateral by the close of business on the following
day to bring the level of the collateral back to at least 102 percent.
[[Page 34481]]
The applicable Borrowing Agreement will give the Plan a continuing
security interest in and lien on the collateral.
If the Borrower deposits cash collateral, the Plan invests the
collateral, and all earnings on such cash collateral shall be returned
to the Borrower; provided that the Borrowing Agreement may provide that
the Plan receive Shared Earnings Compensation, which, as discussed
above, may be a percentage of the earnings on the collateral which may
be retained by the Plan or the Plan may agree to pay the Borrower a
rebate fee and retain the remaining earnings on the collateral. The
terms of the rebate fee for each loan will be at least as favorable to
the Plan as those of comparable arm's length transactions between
unrelated parties taking into account the exclusive arrangement, and
will be based upon an objective methodology which takes into account
several factors, including potential demand for the loaned securities,
the applicable benchmark cost of fund indices (typically, the U.S.
Federal Funds rate established by the U.S. Federal Reserve System (the
Federal Funds), the overnight REPO \18\ rate, or the like) and
anticipated investment return on overnight investments permitted by the
independent fiduciary of the Plan. If the Borrower deposits non-cash
collateral, such as government securities or irrevocable bank letters
of credit, the Borrower shall be entitled to the earnings on its non-
cash collateral; provided that the Borrower may, but shall not be
obligated to, agree to pay the Plan a Lending Fee. The Exclusive Fee
and the Transaction Lending Fee may be determined in advance or
pursuant to an objective formula, and may be different for different
securities or different groups of securities subject to the Borrowing
Agreement.
---------------------------------------------------------------------------
\18\ An overnight REPO is an overnight repurchase agreement that
is an arrangement whereby securities dealers and banks finance their
inventories of Treasury bills, notes and bonds. The dealer or bank
sells securities to an investor with a temporary surplus of cash,
agreeing to buy them back the next day. Such transactions are
settled in immediately available Federal Funds, usually at a rate
below the Federal Funds rate (the rate charged by the banks lending
funds to each other).
---------------------------------------------------------------------------
The Borrower will provide a monthly report to the independent
fiduciary of the Plan which includes the following information. The
monthly report will list for a specified period all outstanding or
closed securities lending transactions. The report will identify for
each open loan position, the securities involved, the value of the
security for collateralization purposes, the current value of the
collateral, the rebate or premium (if applicable) at which the security
is loaned, and the number of days the security has been on loan. At the
request of the Plan, such a report will be provided on a daily or
weekly basis, rather than a monthly basis. Also, upon request of the
Plan, the Borrower will provide the Plan with daily confirmations of
securities lending transactions.
12. Before entering into a Borrowing Agreement, the Borrower will
furnish to the Plan the most recent publicly available audited and
unaudited statements of its financial condition, as well as any
publicly available information which it believes is necessary for the
independent fiduciary to determine whether the Plan should enter into
or renew the Borrowing Agreement. Further, the Borrowing Agreement will
contain a representation by the Borrower that as of each time it
borrows securities, there has been no material adverse change in its
financial condition since the date of the most recently furnished
financial statements.
13. Prior to any Plan's approval of the lending of its securities
to the Borrowers, a copy of this exemption, if granted, (and the notice
of pendency) is provided to the Plan, and the Borrower informs the
independent fiduciary that the Borrower is not acting as a fiduciary of
the Plan in connection with its borrowing securities from the Plan.
14. With regard to those Plans for which Barclays or any of its
affiliates provides custodial, directed trustee, clearing and/or
reporting functions relative to securities loans, Barclays and a Plan
fiduciary independent of Barclays and its affiliates will agree in
advance and in writing to any fee that Barclays or any of its
affiliates is to receive for such custodial, directed trustee, clearing
and/or reporting services. Such fees, if any, would be fixed fees
(e.g., Barclays or any of its affiliates might negotiate to receive a
fixed percentage of the value of the assets with respect to which it
performs these services, or to receive a stated dollar amount) and any
such fee would be in addition to any fee Barclays or any of its
affiliates has negotiated to receive from any such Plan for standard
custodial or other services unrelated to the securities lending
activity. The arrangement for Barclays or any of its affiliates to
provide such functions relative to securities loans to the Borrowers
will be terminable by the Plan within five (5) business days of the
receipt of written notice without penalty to the Plan, except for the
return to the Borrowers of a pro-rata portion of the Exclusive Fee paid
by the Borrowers to the Plan, if the Plan has also terminated its
exclusive borrowing arrangement with the Borrowers.
15. The Borrowing Agreement and/or any securities loan outstanding
may be terminated by either party at any time without penalty. Upon
termination of any securities loan, the Borrower will deliver
securities identical to the borrowed securities (or the equivalent
thereof in the event of reorganization, recapitalization, or merger of
the issuer of the borrowed securities) to the Plan within the lesser of
five business days of written notice of termination or the customary
settlement period for such securities.
16. In the event that the Borrower fails to return securities in
accordance with the Borrowing Agreement, the Plan will have the right
under the Borrowing Agreement to purchase securities identical to the
borrowed securities and apply the collateral to payment of the purchase
price. If the collateral is insufficient to satisfy the Borrower's
obligation to return the Plan's securities, the Borrower will indemnify
the Plan in the U.S. with respect to the difference between the
replacement cost of securities and the market value of the collateral
on the date the loan is declared in default, together with expenses
incurred by the Plan plus applicable interest at a reasonable rate,
including reasonable attorneys' fees incurred by the Plan for legal
action arising out of default on the loans, or failure by the Borrower
to properly indemnify the Plan.
17. Except as provided herein, all the procedures under the
Borrowing Agreement will, at a minimum, conform to the applicable
provisions of PTE 81-6 (as amended or superseded), as well as to
applicable securities laws of the U.S. and/or the U.K., as appropriate.
In addition, in order to ensure that the independent fiduciary
representing a Plan has the experience, sophistication, and resources
necessary to adequately review the Borrowing Agreement and the fee
arrangements thereunder, only Plans with total assets having an
aggregate market value of at least $50 million are permitted to lend
securities to the Borrowers; provided, however, that--
(a) In the case of two or more Plans which are maintained by the
same employer, controlled group of corporations or employee
organization (the Related Plans), whose assets are commingled for
investment purposes in a single master trust or any other entity the
assets of which are ``plan assets'' under 29 CFR 2510.3-101 (the Plan
Asset Regulation), which entity is engaged in securities lending
arrangements with the Borrowers, the foregoing $50 million requirement
shall be deemed satisfied if such trust or
[[Page 34482]]
other entity has aggregate assets which are in excess of $50 million;
provided that if the fiduciary responsible for making the investment
decision on behalf of such master trust or other entity is not the
employer or an affiliate of the employer, such fiduciary has total
assets under its management and control, exclusive of the $50 million
threshold amount attributable to plan investment in the commingled
entity, which are in excess of $100 million.
(b) In the case of two or more Plans which are not maintained by
the same employer, controlled group of corporations or employee
organization (the Unrelated Plans), whose assets are commingled for
investment purposes in a group trust or any other form of entity the
assets of which are ``plan assets'' under the Plan Asset Regulation,
which entity is engaged in securities lending arrangements with the
Borrowers, the foregoing $50 million requirement is satisfied if such
trust or other entity has aggregate assets which are in excess of $50
million (excluding the assets of any Plan with respect to which the
fiduciary responsible for making the investment decision on behalf of
such group trust or other entity or any member of the controlled group
of corporations including such fiduciary is the employer maintaining
such Plan or an employee organization whose members are covered by such
Plan). However, the fiduciary responsible for making the investment
decision on behalf of such group trust or other entity--
(i) Has full investment responsibility with respect to plan assets
invested therein; and
(ii) Has total assets under its management and control, exclusive
of the $50 million threshold amount attributable to plan investment in
the commingled entity, which are in excess of $100 million. (In
addition, none of the entities described above are formed for the sole
purpose of making loans of securities.)
The Applicants represent that the opportunity for the Plans to
enter into exclusive borrowing arrangements with the Borrowers under
the flexible fee structures described herein is in the interests of the
Plans because the Plans will then be able to choose among an expanded
number of competing exclusive borrowers, as well as maximizing the
volume of securities lent and the return on such securities.
18. In addition to the above conditions, all loans involving
Foreign Borrowers must satisfy the following supplemental requirements:
(i) Such Foreign Borrower is a bank which is subject to regulation
by the Bank of England or is a registered broker-dealer subject to
regulation by the UK SFA;
(ii) Such Foreign Borrower is in compliance with all applicable
provisions of Rule 15a-6 (17 C.F.R. 240.15a-6) under the 1934 Act which
provides foreign broker-dealers a limited exception from United States
registration requirements;
(iii) All collateral is maintained in United States dollars or in
U.S. dollar-denominated securities or letters of credit;
(iv) All collateral is held in the United States and the situs of
the Borrowing Agreement is maintained in the United States under an
arrangement that complies with the indicia of ownership requirements
under Section 404(b) of the Act and the regulations promulgated under
29 C.F.R. 2550.404(b)-1; and
(v) Prior to entering into a transaction involving a Foreign
Borrower, Barclays or the Foreign Borrower must:
(1) Agree to submit to the jurisdiction of the United States;
(2) Agree to appoint an agent for service of process in the United
States, which may be an affiliate (the Process Agent);
(3) Consent to the service of process on the Process Agent; and
(4) Agree that enforcement by a Plan of the indemnity provided by
Barclays or the Foreign Borrower will occur in the United States
courts.
19. In addition to the protections cited above, Barclays or the
Borrower will maintain, or cause to be maintained, within the United
States for a period of six years from the date of a transaction, such
records as are necessary to enable the Department and other persons (as
specified herein in Section II(t)(1)) to determine whether the
conditions of the exemption have been met.
20. In summary, the Applicants represent that the described
transactions satisfy the statutory criteria of section 408(a) of the
Act because:
(a) The Borrower will directly negotiate a Borrowing Agreement with
an independent fiduciary of each Plan;
(b) The Plans will be permitted to lend to the Borrower, a major
securities borrower who will be added to an expanded list of competing
exclusive borrowers, enabling the Plans to earn additional income from
the loaned securities on a secured basis, while continuing to enjoy the
benefits of owning the securities;
(c) In exchange for granting the Borrower the exclusive right to
borrow certain securities, the Borrower will pay the Plan the Exclusive
Fee, which as discussed above may be either (i) a flat fee (which may
be a percentage of the value of the total securities subject to the
Borrowing Agreement), (ii) a percentage of the value of the total
balance of outstanding borrowed securities, or (iii) any combination of
(i) and (ii);
(d) Any change in the Exclusive Fee or Shared Earnings Compensation
that the Borrower pays to the Plan with respect to any securities loan
will require the prior written consent of the independent fiduciary,
except that consent will be presumed where the Exclusive Fee or Shared
Earnings Compensation changes pursuant to an objective formula
specified in the Borrowing Agreement and the independent fiduciary is
notified at least 24 hours in advance of such change and does not
object in writing thereto, prior to the effective time of such change;
(e) The Borrower will provide sufficient information concerning its
financial condition to a Plan before a Plan lends any securities to the
Borrower;
(f) The collateral posted with respect to each loan of securities
to the Borrower initially will be at least 102 percent of the market
value of the loaned securities and will be monitored daily by the
independent fiduciary;
(g) The Borrowing Agreement and/or any securities loan outstanding
may be terminated by either party at any time without penalty, except
for the return to the Borrower of a pro-rata portion of the Exclusive
Fee paid by the Borrower to the Plan, and whereupon the Borrower will
return any borrowed securities (or the equivalent thereof in the event
of reorganization, recapitalization, or merger of the issuer of the
borrowed securities) to the Plan within the lesser of five business
days of written notice of termination or the customary settlement
period for such securities;
(h) Neither the Borrower nor any of its affiliates will have
discretionary authority or control over the Plan's investment in the
securities available for loan;
(i) The minimum Plan size requirement (as specified in Section
II(o) above) will ensure that the Plans will have the resources
necessary to adequately review and negotiate all aspects of the
exclusive borrowing arrangements; and
(j) All the procedures will, at a minimum, conform to the
applicable provisions of PTE 81-6 (as amended or superseded), as well
as applicable securities laws of the United States and/or the United
Kingdom, as appropriate.
FOR FURTHER INFORMATION CONTACT: Karen Lloyd of the Department,
telephone (202) 219-8194. (This is not a toll-free number.)
[[Page 34483]]
Gooch Enterprises, Inc. Money Purchase Pension Plan (the Plan)
Located in Thomasville, North Carolina
[Application No. D-10969]
Proposed Exemption
The Department is considering granting an exemption under the
authority of section 408(a) of the Act and section 4975(c)(2) of the
Code and in accordance with the procedures set forth in 29 CFR part
2570, subpart B (55 FR 32836, 32847, August 10, 1990). If the exemption
is granted, the restrictions of sections 406(a), 406(b)(1) and (b)(2)
of the Act and the sanctions resulting from the application of section
4975 of the Code, by reason of section 4975(c)(1)(A) through (E) of the
Code, shall not apply to the proposed sale of two tracts of land (the
Property) by the Plan to Harold L. Gooch, Jr. and Susan M. Gooch
(collectively; the Gooches), who are shareholders of the Plan sponsor,
the trustees of the Plan and, therefore, parties in interest with
respect to the Plan; provided that the following conditions are
satisfied:
(a) the proposed sale is a one-time cash transaction;
(b) the Plan receives the current fair market value for the
Property, as established by an independent qualified appraiser at the
time of the sale; and
(c) the Plan pays no commissions or other expenses associated with
the sale.
Summary of Facts and Representations
1. The Plan was established on February 1, 1983, and is a defined
contribution plan. As of February, 2001, the Plan had 15 participants
and beneficiaries. As of December 31, 1999, the Plan had $1,198,714 in
total assets. Gooch Enterprises Inc. (the Company) is the sponsor of
the Plan. The Plan's trustees are Harold L. Gooch, Jr. and Susan M.
Gooch (i.e., the Gooches). The Company was incorporated on November 24,
1982, and is a subchapter ``C'' North Carolina corporation which is in
the business of coordinating trade shows.
2. In 1984, the Plan purchased the Property from Austin T. and
Leena Batten, who were unrelated third parties, for the amount of
$25,000, of which $22,500 was financed by a loan, as evidenced by a
note and deed of trust, from North Carolina National Bank (now Bank of
America). The applicant represents that the note on the Property was
paid and cancelled as of November 1, 1988. It is represented that the
Gooches, as the Plan's trustees, made the decision to purchase the
Property as a investment for the Plan. The Gooches believed that the
Property would be a good investment for the Plan and would appreciate
in value. At the time of purchase, the Property represented
approximately 30% of the Plan's total assets. However, the applicant
states that as of the end of 1999, the Property represented
approximately 6.4% of the total value of the Plan's assets.
3. The applicant represents that the Property has not been used or
leased by anyone, including the parties in interest to the Plan
described herein. Since it was originally acquired by the Plan in 1984,
the Property has not been an income-producing asset. The Property is
undeveloped land that is adjacent to property owned by the Gooches.\19\
The applicant represents that the Plan paid no expenses or taxes during
the period of time the Property has been a Plan asset. All real estate
and related taxes and assessments were paid by the Gooches personally.
---------------------------------------------------------------------------
\19\ The Department is not providing any opinion in this
proposed exemption as to whether the acquisition and holding of the
Property by the Plan violated any of the provisions of Part 4 of
Title I of the Act.
---------------------------------------------------------------------------
4. The Property, which consists of Lots 2 and 3, is located on
Curtis Court in Thomasville, North Carolina. The Property is part of a
semi-developed residential area. The Property was appraised on March
14, 2001 (the Appraisal). The Appraisal was prepared by Gerry C.
Crowder, SRA (Mr. Crowder), who is an independent qualified appraiser.
Mr. Crowder is with Hylton-Crowder & Associates, Inc., located at 132
East Parris Avenue, P.O. Box 5174, in High Point, North Carolina. After
inspecting the Property and using a direct sales comparison analysis of
recent sales of similar properties (i.e., undeveloped land), Mr.
Crowder determined that the aggregate fair market value of the Property
was $77,000 (i.e., $38,500 for each Lot) as of March 7, 2001. Because
the Property is adjacent to property owned by the Gooches, Mr. Crowder
also considered whether the adjacency factor merits a premium above
fair market value for any sale of the Property to the Gooches. However,
Mr. Crowder determined that no adjustments are necessary because of the
adjacency issue.
The applicant represents that the Appraisal will be updated at the
time of the proposed transaction (the Update), in order to ensure that
the Plan receives no less than the current fair market value of the
Property on the date of the sale. The Update will take into
consideration any recent sales of similar properties in the local real
estate area which may affect the Appraisal's conclusion regarding the
fair market value of the Property.
5. The applicant proposes that the Gooches purchase the Property
from the Plan in a one-time cash transaction. The applicant represents
that the proposed transaction would be in the best interest and
protective of the Plan because, among other things, the Plan will pay
no expenses or commissions associated with the sale. The Gooches will
pay the Plan an amount equal to the current fair market value of the
Property, as established by an independent, qualified appraiser. The
sale of the Property to the Gooches will enable the Plan to sell an
illiquid, non-income producing asset and reinvest the sale proceeds in
other assets that may yield greater returns. Thus, the sale will
enhance the liquidity of the Plan's investment portfolio and allow the
trustees to further diversify the Plan's assets.
6. In summary, the applicant represents that the transaction
satisfies the statutory criteria of section 408(a) of the Act and
section 4975(c)(2) of the Code because:
(a) The proposed sale will be a one-time cash transaction;
(b) The Plan will receive the current fair market value for each
Property, as established by an independent qualified appraiser at the
time of the sale;
(c) The Plan will pay no commissions or other expenses associated
with the sale; and
(d) The sale will enable the Plan to sell an illiquid, non-income
producing asset and reinvest the sale proceeds in other assets that may
yield greater returns.
FOR FURTHER INFORMATION CONTACT: Ekaterina A. Uzlyan of the Department
at (202) 219-8883. (This is not a toll-free number.)
General Information
The attention of interested persons is directed to the following:
(1) The fact that a transaction is the subject of an exemption
under section 408(a) of the Act and/or section 4975(c)(2) of the Code
does not relieve a fiduciary or other party in interest or disqualified
person from certain other provisions of the Act and/or the Code,
including any prohibited transaction provisions to which the exemption
does not apply and the general fiduciary responsibility provisions of
section 404 of the Act, which, among other things, require a fiduciary
to discharge his duties respecting the plan solely in the interest of
the participants and beneficiaries of the plan and in a prudent fashion
in accordance with
[[Page 34484]]
section 404(a)(1)(b) of the Act; nor does it affect the requirement of
section 401(a) of the Code that the plan must operate for the exclusive
benefit of the employees of the employer maintaining the plan and their
beneficiaries;
(2) Before an exemption may be granted under section 408(a) of the
Act and/or section 4975(c)(2) of the Code, the Department must find
that the exemption is administratively feasible, in the interests of
the plan and of its participants and beneficiaries, and protective of
the rights of participants and beneficiaries of the plan;
(3) The proposed exemptions, if granted, will be supplemental to,
and not in derogation of, any other provisions of the Act and/or the
Code, including statutory or administrative exemptions and transitional
rules. Furthermore, the fact that a transaction is subject to an
administrative or statutory exemption is not dispositive of whether the
transaction is in fact a prohibited transaction; and
(4) The proposed exemptions, if granted, will be subject to the
express condition that the material facts and representations contained
in each application are true and complete, and that each application
accurately describes all material terms of the transaction which is the
subject of the exemption.
Signed at Washington, DC, this 25th day of June, 2001.
Ivan Strasfeld,
Director of Exemption Determinations, Pension and Welfare Benefits
Administration, Department of Labor.
[FR Doc. 01-16235 Filed 6-27-01; 8:45 am]
BILLING CODE 4510-29-P
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