Proposed Exemptions; Principal Mutual Holding Company (PMHC) et
al. [08/03/2001]
Volume 66, Number 150, Page 40736-40748
[[Page 40736]]
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DEPARTMENT OF LABOR
Pension and Welfare Benefits Administration
[Application No. D-10940, et al.]
Proposed Exemptions; Principal Mutual Holding Company (PMHC) 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.
Principal Mutual Holding Company (PMHC), Located in Des Moines, IA
[Application No. D-10940]
Proposed Exemption
Based on the facts and representations set forth in the
application, the Department is considering granting an exemption under
the authority of section 408(a) of the Act (or ERISA) 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).\1\
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\1\ For purposes of this proposed exemption, references to
provisions of Title I of the Act, unless otherwise specified, refer
also to corresponding provisions of the Code.
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Section I. Covered Transactions
If the exemption is granted, the restrictions of section 406(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 (D) of the
Code, shall not apply to (1) the receipt of shares of common stock
(Common Stock) issued by Principal Financial Group, Inc. (PFG), the
successor entity to PMHC,\2\ or (2) the receipt of cash (Cash) or
policy credits (Policy Credits) by any eligible policyholder (the
Eligible Policyholder) of Principal Life Insurance Company (Principal),
a subsidiary of PMHC, which is an employee benefit plan (the Plan),
including a Plan sponsored by Principal and its affiliates (the
Principal Plan), in exchange for such Eligible Policyholder's mutual
membership interest in PMHC, pursuant to a plan of conversion (the Plan
of Conversion) adopted by PMHC and implemented in accordance with Iowa
Insurance Law.
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\2\ For purposes of this proposed exemption, references to PMHC
will generally include references to PFG unless noted, or unless the
context requires otherwise.
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In addition, the restrictions of section 406(a)(1)(E) and (a)(2)
and section 407(a)(2) of the Act shall not apply to the receipt and
holding, by a Principal Plan, of Common Stock, whose fair market value
exceeds 10 percent of the value of the total assets held by such Plan.
The proposed exemption is subject to the general conditions set
forth below in Section II.
Section II. General Conditions
(a) The Plan of Conversion is implemented in accordance with
procedural and substantive safeguards that are imposed under Iowa
Insurance Law and is subject to review and approval by the Iowa
Commissioner of Insurance (the Commissioner).
(b) The Commissioner reviews the terms of the options that are
provided to Eligible Policyholders of PMHC as part of such
Commissioner's review of the Plan of Conversion, and only approves the
Plan following a determination that such Plan is fair and equitable to
all Eligible Policyholders. The New York Superintendent of Insurance
(the Superintendent) may object to the Plan of Conversion if he or she
finds that such Plan of Conversion is not fair and equitable to all
Eligible Policyholders.
(c) As part of their separate determinations, both the Commissioner
and the Superintendent concur on the terms of the Plan of Conversion.
(d) Each Eligible Policyholder has an opportunity to vote at a
special meeting to approve the Plan of Conversion after receiving full
written disclosure from PMHC and/or Principal.
(e) One or more independent fiduciaries of a Plan that is an
Eligible Policyholder elects to receive Common Stock, Cash or Policy
Credits pursuant to the terms of the Plan of Conversion and neither
PMHC nor any of its affiliates exercises any discretion or provides
``investment advice,'' within the meaning of 29 CFR 2510.3-21(c) with
respect to such acquisition.
(f) If Policy Credits are elected by a Plan policyholder holding a
group annuity contract, the policyholder may elect to have the policy
value increased by the amount of compensation allocated or to have the
policy enhanced with an interest in a separate account
[[Page 40737]]
(the Separate Account), which is maintained by Principal.
(1) If no election is made by a Plan policyholder, the ``default''
consideration for the policyholder is Policy Credits (in the form of an
interest in the Separate Account), unless the contract or regulatory
concerns preclude this form of compensation.
(2) Principal allocates the Policy Credit compensation received, on
a pro rata basis, among the participants of the Plan that is invested
in the Separate Account, in accordance with their account balances,
unless the policyholder directs otherwise, and neither PMHC nor its
affiliates provides investment advice or recommendations to the
policyholder on which option to choose or with respect to the default
consideration, in the event no choice is made.
(3) No purchases or sales of assets are made between Principal or
its affiliates and the Separate Account.
(4) Upon receiving a notice of withdrawal from a Plan policyholder,
Northern Trust Company (NTC), the custodian for shares of Common Stock
that are held in the Separate Account, sells such shares of Common
Stock on the open market at fair market value.
(5) Northern Trust Investments, Inc. (NTI), the independent trustee
for the Separate Account, (i) votes at the direction of the Plan
policyholders on routine matters (e.g., the appointment of
accountants); (ii) in the absence of receiving Plan policyholder
direction, causes the affected shares in the Separate Account to be
voted in the same proportion as shares for which specific instructions
have been received from other Plans holding interests in the Separate
Account; and (iii) exercises discretion on major issues (e.g., proxy
contests) involving the Separate Account.
(g) In the case of a Principal Plan, U.S. Trust, N.A. (U.S. Trust),
the independent fiduciary appointed to represent the Principal Plans--
(1) Votes on whether to approve or not to approve the proposed
demutualization;
(2) Elects between consideration in the form of Common Stock, Cash
or Policy Credits on behalf of such Plans;
(3) Determines how to apply the Common Stock, Cash or Policy
Credits received for the benefit of the participants and beneficiaries
of the Principal Plans;
(4) Votes on shares of Common Stock that are held by the Principal
Plans and disposes of such stock held by a Plan exceeding the
limitation of section 407(a)(2) of the Act as soon as it is reasonably
practicable, but in no event later than six months after the Effective
Date of the Plan of Conversion;
(5) Provides the Department with a complete and detailed final
report as it relates to the Principal Plans prior to the Effective Date
of the demutualization; and
(6) Takes all actions that are necessary and appropriate to
safeguard the interests of the Principal Plans and their participants
and beneficiaries.
(h) Each Eligible Policyholder entitled to receive Common Stock is
allocated at least 100 shares and additional consideration is allocated
to Eligible Policyholders who own participating policies based on
actuarial formulas that take into account each participating policy's
contribution to the surplus of Principal, which formulas have been
reviewed by the Commissioner.
(i) All Eligible Policyholders that are Plans participate in the
demutualization on the same basis and within their class groupings as
other Eligible Policyholders that are not Plans.
(j) No Eligible Policyholder pays any brokerage commissions or fees
in connection with the receipt of the demutualization consideration.
(k) All of Principal's policyholder obligations remain in force and
are not affected by the Plan of Conversion.
(l) The terms of the transactions are at least as favorable to the
Plans as an arm's length transaction with an unrelated party.
Section III. Definitions
For purposes of this proposed exemption:
(a) The term ``PMHC'' means Principal Mutual Holding Company, its
successor in interest, Principal Financial Group, Inc. and any of their
affiliates as defined in paragraph (b) of this Section III, unless
noted, or unless the context requires otherwise.
(b) An ``affiliate'' of PMHC includes--
(1) Any person directly or indirectly through one or more
intermediaries, controlling, controlled by, or under common control
with PMHC (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.); and
(2) Any officer, director or partner in such person.
(c) The ``Effective Date'' refers to the date on which the closing
of the initial public offering (the IPO) occurs, which will be a date
occurring after the approval of the Plan of Conversion by voting
policyholders and the Commissioner, provided that in no event will the
Effective Date be more than 12 months after the date on which the
Commissioner has approved or has conditionally approved the Plan of
Conversion, unless such period is extended by the Commissioner. The
Plan of Conversion will be deemed to become effective at 12:01 a.m.,
Central Time, on the Effective Date.
(d) The term ``Record Date'' means the date that is one year prior
to the Adoption Date.
(e) The ``Adoption Date'' refers to the date that PMHC's Board of
Directors adopted the Plan of Conversion. This date was March 31, 2001.
(f) The term ``Eligible Policyholder'' means a person who, on the
Record Date, is the owner of one or more policies and who, as reflected
in PMHC's or Principal Life's records, has a continuous membership
interest in PMHC through ownership of one or more policies from the
Record Date until and on the Effective Date. Members of PMHC who were
issued policies before April 8, 1980 and transferred ownership rights
of such policies on or before April 8, 1980 are Eligible Policyholders
so long as such policies remain in force on the Record Date.
(g) The term ``Policy Credit'' means consideration to be paid in
the form of an increase in cash value, account value, dividend
accumulations, face amount, extended term period or benefit payment, as
appropriate, depending upon the policy. If the policy is owned by a
qualified plan customer (the Qualified Plan Customer) [i.e., an owner
of a group annuity contract issued by Principal, which contract is
designed to fund benefits under a retirement plan which is qualified
under section 401(a) and section 403(a) of the Code (including a plan
covering employees described in section 401(c) of the Code, provided
such plan meets the requirements of Rule 180 promulgated under the
Securities Exchange Act of 1933, as amended) or which is a governmental
plan described in section 414(d) of the Code, excluding (1) group
annuity contracts that fund only guaranteed deferred annuities or
annuities in the course of payments and (2) group annuity contracts for
which Principal does not perform retirement plan recordkeeping services
and whose group annuity contracts do not provide for investments in
Principal's pooled unregistered separate accounts], the Policy Credit
may take the form of a Separate Account Policy Credit or an Account
Value Policy Credit. If the policy is owned by a Non-Rule 180 Qualified
Plan Customer, the Policy Credit will take the form of an Account Value
Policy Credit.
[[Page 40738]]
Summary of Facts and Representations
The Parties
1. PMHC, a mutual insurance holding company organized under Iowa
law, maintains its principal place of business at 711 High Street, Des
Moines, Iowa. Its indirect subsidiary, Principal, is authorized to sell
life and health insurance policies throughout the United States.
Specifically, Principal provides group annuities and group life and
health insurance to employers and life insurance and annuities to
individuals.\3\ As of December 31, 1999, Principal had total assets of
approximately $82 billion (on a statutory accounting basis) and had
more than $163 billion of life insurance in force. In addition,
Principal has received the following financial strength ratings from
firms which specialize in assessing insurance companies' performance:
an ``A+'' (or Superior) rating from the A.M. Best Company, as of
November 1999; an ``AA+'' (or Very High) rating from Fitch, as of June
2000; an ``Aa2'' (or Excellent) rating from Moody's Investors Service,
as of June 2000; and an ``AA'' (or Very Strong) rating from Standard &
Poor's, as of July 2000.
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\3\ Principal was originally organized in 1879 as Bankers Life
Association (Bankers Life). On October 26, 1911, Bankers Life was
converted to a mutual company called ``Bankers Life Company.'' In
1986, Bankers Life changed its name to ``Principal Mutual Life
Insurance Company.'' In 1998, Principal was converted to a stock
company called ``Principal Life Insurance Company.'' All of the
stock of Principal is owned indirectly by PMHC.
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2. As a mutual holding company, PMHC does not have capital stock.
Instead, it has members who are owners of policies and contracts issued
by Principal. PMHC was organized in 1998 as a part of the conversion of
Principal Mutual Life Insurance Company, then an Iowa mutual life
insurance company, to a stock life insurance company subsidiary
indirectly owned by a mutual insurance holding company under a plan of
reorganization approved by the Commissioner and by the members of
Principal Mutual Life Insurance Company.\4\ As required under Section
521A.14 of the Iowa Code, and as provided in such plan of
reorganization, Principal policyholders ceased to have membership
interests in Principal and became members of PMHC instead.
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\4\ At the time of the 1998 conversion, no demutualization
consideration was issued to policyholders who were previously mutual
members of Principal Mutual Life Insurance Company.
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A policyholder's membership interest in PMHC includes the right to
vote, and to participate in the distribution of PMHC's surplus in the
event of PMHC's voluntary dissolution or liquidation. Each member has
one vote.
3. Pursuant to Section 521A.14(5) of the Iowa Code, PMHC is treated
as a mutual entity and may be converted to a stock company (i.e.,
demutualized) under Chapter 508B of the Iowa Code, the same statutory
provisions that govern the demutualization of mutual life insurance
companies. In the event of such a demutualization, Eligible
Policyholders may receive consideration in the form of stock, cash, or
such other consideration permitted under Section 508B.3 of the Iowa
Code and approved by the Commissioner. A demutualization will not
affect the rights of Principal policyholders under their insurance and
annuity contracts.
4. Principal provides a variety of insurance products to ERISA-
covered employee benefit plans and to other plans described in section
4975(e)(1) of the Code. Principal has actively marketed its products to
Plans, and had, as of December 31, 1999, approximately 44,000 in force
policies and contracts held on behalf of employee pension and profit
sharing (including section 401(k) plans) and over 92,000 contracts
providing welfare benefit plan coverage such as group life, short-and
long-term disability, accidental death and dismemberment, and group
health coverage.
In addition, Principal provides certain administrative services and
recordkeeping services to many of the pension and profit sharing plans.
These services include the preparation of required tax forms, tracking
of contributions made to the various plans, provision of prototype plan
documents, and providing testing services to ensure plan compliance
with Code requirements. Although Principal is not a party in interest
with respect to any of its Plan policyholders merely because it has
issued an insurance policy to such Plans, its provision of the
foregoing services to the Plans may cause it to be considered a party
in interest under section 3(14)(A) and (B) of the Act.
5. Besides issuing insurance policies and providing services to
certain client Plans, Principal and its subsidiaries sponsor several
pension and welfare benefit plans which are expected to receive
consideration in connection with the Plan of Conversion described
herein. A description of each of the affected Principal Plans is
summarized in the following table:
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Approximate
number of Total assets (as
Name of plan and type participants (as of 12/31/00) Coverage
of 10/10/00)
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The Principal Welfare Benefit Plan 13,468 $95,101,000 Employees of Principal and its
for Employees (Welfare). affiliates*.
The Principal Long Term Disability 11,276 6,707,000 Employees of Principal and its
Plan for Employees (Welfare). affiliates*.
The Principal Welfare Benefit Plan 1,239 51,551,000 Agents, Managers, Brokerage General
for Individual Field (Welfare). Agents and Managing Directors.
The Principal Long Term Disability 1,042 2,483,000 Agents, Field Managers, Brokerage
Plan for Individual Field (Welfare). General Agents and Managing
Directors.
The Principal Welfare Benefit Plan 605 0 Employees of Two Principal
for Select Subsidiaries Field Affiliates.
(Welfare).
The Principal Pension Plan (Defined 18,932 989,797,000 Employees of Principals and Its
Benefit). Affiliates*.
The Principal Select Savings Plan 17,398 524,017,000 Employees of Principal and Its
for Employees (Defined Affiliates*.
Contribution).
The Principal Select Savings Plan 1,921 114,358,000 Agents, Field Managers and Their
for Agents, General Managers and Assistants
Management Assistants (Defined
Contribution).
Principal Health Care, Inc. Select 0 0 Employees of Principal Health Care,
Savings Plan (Defined Inc.
Contribution)*.
989,797,000
524,017,000
[[Page 40739]]
Principal Health Care, Inc. Pension 0 0 Employees of Principal Health Care,
Plan (Defined Benefit)*. Inc.
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* These Plans were terminated by Principal in 1998, so that as of December 31, 2000, each Plan had no assets or
participants. Single premium annuity contracts were purchased to fund benefits for participants at the time of
each Plan's termination. The single premium contracts may receive demutualization consideration.
Each of the Principal Plans has three trustees, all of whom are
officers of Principal. Investment decisions for each Principal Plan are
made by the Pension Plan Investment Committee, whose members also
consist of officers of Principal and its affiliates.
The PMHC Restructuring
6. On August 21, 2000, PMHC's Board of Directors authorized PMHC's
management to develop a plan of demutualization (i.e., the Plan of
Conversion) pursuant to which PMHC will be converted from a mutual
holding company to a stock holding company. Currently, PMHC owns
Principal Financial Group, Inc. (PFG), which owns all of the stock of
Principal Financial Services Inc. (PFS). These two subsidiaries will be
merged and the surviving company will be PFS. After PMHC is converted
into a stock company, it will be merged with and into PFS, which, in
turn, will merge into PFG, a publicly-traded holding company whose
common stock will be distributed to Eligible Policyholders and listed
on the New York Stock Exchange. Principal will then be a wholly owned
subsidiary of PFG.
As part of the demutualization process, Eligible Policyholders of
Principal will receive Common Stock of PFG, or, in certain cases, Cash
or Policy Credits. In return for such consideration, the membership
interests and rights in surplus of the Principal policyholders will be
extinguished.
7. An IPO, in which shares of Common Stock will be sold for cash,
is expected to occur on the Effective Date of the demutualization.
Under such circumstances, PFG will contribute a portion of the proceeds
from the IPO to Principal, within a reasonable period of time after
receipt, in an amount at least equal to the amount needed by Principal
to fund the payment and crediting (by Principal) of mandatory Cash
payments and Policy Credits to Eligible Policyholders, including the
expenses of the restructuring that will be borne by Principal and
allocated to PFG.
8. PMHC represents that the environment in which Principal operates
has changed in a number of ways since the mutual insurance holding
company structure was adopted in 1998. For example, the passage of the
Gramm-Leach-Bliley Act in 1999 has increased the number, size and
financial strength of Principal's potential competitors. Moreover, PMHC
points out that because other life insurance companies of Principal's
size have not adopted the mutual insurance holding company structure,
there is uncertainty about the receptivity and valuation of the stock
offered to the public by a company with this structure. While Principal
is presently financially stronger than it has been in the past, PMHC
states that this strength has led the PMHC's Board of Directors and
PMHC's management to conclude that achievement of the organization's
strategy will be enhanced through a demutualization.
PMHC represents that the flexibility to raise additional capital
and diversify into global financial services is maximized in a
demutualization. In this regard, a demutualization will benefit
Principal's policyholders by increasing the company's financial
resources and its ability to invest in new technology, products and
markets and improved customer service. In addition, PMHC states that
the conversion will provide Eligible Policyholders with an opportunity
to receive shares of Common Stock, Cash or Policy Credits in exchange
for their illiquid membership interests, which will be extinguished in
the conversion. Further, PMHC explains that Eligible Policyholders will
realize economic value from their membership interests that is not
currently available to them so long as the company remains a mutual
insurance company. Finally, PMHC states that all of Principal's
policyholder obligations will remain in force and will not be affected
by the Plan of Conversion.
9. Accordingly, PMHC requests an administrative exemption from the
Department which, if granted, will permit the receipt of Common Stock,
Cash, or Policy Credits, by an Eligible Policyholder that is a Plan,
including a Principal Plan,\5\ in exchange for Eligible Policyholder's
membership interest in PMHC, in accordance with the terms of the Plan
of Conversion adopted by PMHC and implemented pursuant to Section
521A.14(5)(b) and Chapter 508B of Title XIII of the Code of Iowa
(1999).
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\5\ PMHC represents that is aware that the Common Stock would
constitute ``qualifying employer securities'' within the meaning of
section the meaning of section 407(d)(5) of the Act, and that
section 408(e) of the Act would apply to such distributions.
Nevertheless, PMHC has specifically requested that the exemption
apply to the receipt of Common Stock by an of the Principal Plans,
if applicable, regardless of the ability by such Plan to utilize
section 408(e) of the Act. (The Department, however, expresses no
opinion herein on whether the Common Stock would constitute a
``qualifying employer security'' within the meaning of section
407(d)(5) of the Act and whether section 408(e) of the Act would
apply to such distributions.) PMHC believes that this expanded type
of exemptive relief will provide the greatest flexibility for U.S.
Trust, the independent fiduciary for the Principal Plans, to select
suitable types of consideration.
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PMHC represents that the receipt of the demutualization
consideration pursuant to the Plan of Conversion by an Eligible
Policyholder which is a Plan may be viewed as a prohibited sale or
exchange of property between the Plan and Principal or PMHC in
violation of section 406(a)(1)(A) of the Act. Moreover, PMHC states
that the transaction may also be construed as a transfer of plan assets
to, or a use of plan assets by or for the benefit of, a party in
interest in violation of section 406(a)(1)(D) of the Act.
In addition to the above, PMHC is requesting that the exemption
apply, for a period of up to 6 months following the Effective Date, to
the holding, by a Principal Plan, of Common Stock whose fair market
value exceeds 10 percent of the Principal Plan's assets, in violation
of sections 406(a)(1)(E) and (a)(2) and 407(a)(2) of the Act.\6\
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\6\ Section 406(a)(1)(E) of the Act prohibits the acquisition by
a plan of any employer security which would be in violation section
407(a) of the Act. Section 406(a)(2) of the Act states that no
fiduciary who has authority or discretion to control the assets of a
plan shall permit the plan to hold any employer security if he [or
she] knows that holding such security would violate section 407(a)
of the Act. Section 407(a)(1) of the Act prohibits the acquisition
by a plan of any employer security which is not a qualifying
employer security. Section 407(a)(2) of the Act provides that a plan
may not acquire any qualifying employer security, if immediately
after such acquisition, the aggregate fair market value of such
securities exceeds 10 percent of the fair market value of the plan's
assets.
In addition to the above, section 407(f) of the Act, which is
applicable to the holding of a qualifying employer security by a
plan other than an eligible individual account plan, requires that
(a) immediately following its acquisition by a plan, no more than 25
percent of the aggregate amount of stock of the same class issued
and outstanding at the time of acquisition is held by the plan; and
(b) at least 50 percent of the stock be held by persons who are
independent of the issuer. PMHC has confirmed to the best of its
knowledge that none of the shares of Common Stock which are issued
to the Principal Plans will violate the provisions of section 407(f)
of the Act.
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[[Page 40740]]
The proposed exemption is conditioned upon a number of substantive
safeguards. Among the safeguards is the requirement that distributions
to Plans pursuant to the exemption must be on terms no less favorable
to the Plans than Eligible Policyholders that are not Plans. In this
regard, Plans that are Eligible Policyholders must participate in the
demutualization transaction on the same basis and within their class
groupings as Eligible Policyholders that are not Plans.
In addition, to represent the interests of the Principal Plans with
respect to such activities as voting, the election of demutualization
consideration, or the disposition of Common Stock, PMHC has retained
U.S. Trust, to act as the independent fiduciary.
Procedural Requirements Under Iowa Law for Restructuring
10. Pursuant to Section 521A.14(5)(b) of the Iowa Code, PMHC, as a
mutual insurance holding company, is treated, under Iowa Insurance Law,
as a mutual life insurance company for purposes of demutualization and
is, thus, subject to the demutualization provisions of Chapter 508B of
the Iowa Code. Chapter 508B, which applies to the Plan of Conversion,
sets forth procedural and substantive requirements to ensure that the
restructuring will be fair and equitable to all Principal
policyholders. In this regard, Section 508B.2 of the Iowa Code
generally provides that a mutual life insurance company may become a
stock life insurance company under a plan of conversion established and
approved in the manner provided by Chapter 508B. Section 508B.2 and
Section 508B.3 also provide that, in lieu of selecting a plan of
conversion provided for in Chapter 508B, a mutual company may convert
to a stock company pursuant to a plan approved by the Commissioner. The
restructuring of PMHC will be conducted pursuant to these latter
provisions.
Under Section 508B.3 of the Iowa Code, the Commissioner must
determine the fairness and equity of a plan of conversion with respect
to policyholders of a company undergoing demutualization. More
specifically, Section 508B.7 of the Iowa Code requires that the
Commissioner review the plan of conversion to determine whether it
complies with all provisions of law and is fair and equitable to the
mutual company and its policyholders and whether the reorganized
company will have the amount of capital and surplus deemed by the
Commissioner to be reasonably necessary for its future solvency.
Additionally, this provision permits the Commissioner to order a
hearing on the fairness and equity of the terms of the plan of
conversion after giving written notice of the hearing to the mutual
company, its policyholders, and other interested persons, all of whom
have a right to appear at the hearing.
Section 508B.6 of the Iowa Code requires that a plan of conversion
be approved by two-thirds of the policyholders of the mutual company
who vote on it.\7\ The statute requires notice to be given to the
policyholders and permits voting by ballot, in person, or by proxy. The
notice of meeting and election must contain a copy of the plan of
conversion or a summary of the plan of conversion.
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\7\ In this regard, Section 508B.4 of the Iowa Code defines the
class of policyholders entitled to receive notice and to vote on the
plan of conversion as generally including policyholders whose
policies or contracts are in force on the date of adoption of the
plan of conversion.
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Finally, Section 508B.9 of the Iowa Code provides that, after the
plan of conversion has been approved by the Commissioner and the
policyholders, the reorganized company will be a continuation of the
mutual company and that the conversion will not annul or modify any of
the mutual company's existing suits, contracts, or liabilities except
as provided in the plan of conversion. Furthermore, all rights,
franchises, and interests of the mutual company in and to property,
assets, and other interest will be transferred to and vest in the
reorganized company, and the reorganized company will assume all
obligations and liabilities of the mutual company.
11. Consistent with the requirements of Chapter 508B, the Plan of
Conversion adopted by PMHC provides for PMHC to file an application
with the Commissioner under Section 508B.2 of the Iowa Code to
reorganize as a stock holding company. The Commissioner will hold a
public hearing on the fairness and equity of the terms of the Plan of
Conversion and on whether PMHC will have the amount of capital and
surplus necessary for its future solvency. The Plan of Conversion also
provides for PMHC members to be able to comment on the Plan of
Conversion at the hearing, for the voting policyholders to vote on the
Plan of Conversion at a members' meeting and for PMHC to provide notice
to its voting policyholders of both the public hearing and the members'
meeting.
It is anticipated that the Commissioner will engage the services of
experts (e.g., actuaries, investment bankers and outside counsel) to
assist in determining whether the Plan of Conversion meets the
requirements of the law. In this regard, the Commissioner has retained
the law firm of Baker & Daniels as legal counsel, Arthur Andersen as
actuarial advisors and The Blackstone Group as financial advisors.
A final order by the Commissioner to approve an application
pursuant to the Iowa demutualization statute is subject to judicial
review in the Iowa courts in accordance with the Iowa Administrative
Procedure Act, Chapter 17A, Iowa Code.
In addition to the Iowa regulatory requirements, PMHC has agreed to
file a copy of the Plan of Conversion with the New York Superintendent
of Insurance.\8\ The Superintendent may object to the Plan of
Conversion if he finds that it is not fair and equitable to New York
Eligible Policyholders. If the Superintendent opines unfavorably on the
Plan of Conversion, PMHC, as a practical matter, would either amend the
Plan of Conversion or work out a satisfactory solution with the
Superintendent. If the Superintendent were to require changes
unacceptable to the Commissioner, PMHC would, have to work with both
regulators to arrive at a satisfactory solution.
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\8\ Specifically, section 1106(i) of the New York Insurance Law
[Section 1106(i)] authorizes the Superintendent to review the
demutualization plan of a foreign life insurer licensed in New York
and to specify the conditions, if any, that the Superintendent would
impose in order for the foreign insurer to retain its New York
license following its demutualization. In this regard, Section
1106(i) requires that a foreign life insurer licensed in New York
file with the Superintendent a copy of the demutualization plan at
least 90 days prior to the earlier of (a) the date of any public
hearing required to be held on the plan of reorganization by the
insurer's state of domicile and (b) the proposed effective date of
the demutualization.
If, after examining the plan of reorganization, the
Superintendent finds that the plan is not fair or equitable to the
New York policyholders of the insurer, the Superintendent must set
forth the reasons for his findings. In addition, the Superintendent
must notify the insurer and its domestic state insurance regulator
of his findings and his reasons for such findings and advise of any
requirements he considers necessary for the protection of current
New York policyholders in order to permit the insurer to continue to
conduct business in New York as a stock life insurer after the
demutualization.
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PMHC's Plan of Conversion was adopted by its Board of Directors on
[[Page 40741]]
March 31, 2001. PMHC expects the special meeting of members will occur
in July 2001, with notice having been mailed during May 2001 to
approximately 130,000 Plan policyholders which are Eligible
Policyholders. (Approximately 940,000 policyholders will be eligible to
vote on the Plan of Conversion and each policyholder will be entitled
to only one vote, regardless of the number or size of the policies
owned.) Further, PMHC's hearing on the Plan of Conversion is expected
to be held during July 2001 in Des Moines, Iowa.
As for the IPO and the actual conversion, PMHC expects these events
will transpire during the fourth quarter of 2001. However, PMHC notes
the timing of these events may be delayed due to prevailing market
conditions, but they should occur within 12 months of approval of the
Plan of Conversion by the Commissioner, unless this period is extended
by PMHC, with the approval of the Commissioner.
Distributions to Eligible Policyholders
12. The Plan of Conversion provides for Eligible Policyholders,
whose membership interests in the holding company will be extinguished
in the demutualization, to receive Common Stock of PFG, Cash, or Policy
Credits. For this purpose, an Eligible Policyholder generally is the
owner of one or more policies in force on the Record Date (which is the
date one year prior to the date that PMHC's Board of Directors adopts
the Plan), and who maintains a membership interest in PMHC until and on
the Effective Date. Elections as to the form of consideration received
or as to any other matter in connection with the Plan of Conversion
will be made by one or more plan fiduciaries independent of Principal.
In this regard, neither PMHC nor its affiliates will exercise any
investment discretion or provide ``investment advice,'' as that term is
defined in 29 CFR 2510.3-2(c), with respect to any election made by any
Eligible Policyholder that is a Plan.\9\
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\9\ The proceeds of the demutualization will belong to the Plan
if they would be deemed to be owned by the Plan under ordinary
notions of property rights. See ERISA Advisory Opinion 92-02A,
January 17, 1992 (assets of plan generally are to be identified on
the basis of ordinary notions of property rights under non-ERISA
law). It is the view of the Department that, in the case of an
employee welfare benefit plan with respect to which participants pay
a portion of the premiums, the appropriate plan fiduciary must treat
as plan assets the portion of the demutualization proceeds
attributable to participant contributions. In determining what
portion of the proceeds are attributable to participant
contributions, the plan fiduciary should give appropriate
consideration to those facts and circumstances that the fiduciary
knows or should know are relevant to the determination, including
the documents and instruments governing the plan and the proportion
of total participant contributions to the total premiums paid over
an appropriate time period. In the case of an employee pension
benefit plan, or where any type of plan or trust is the
policyholder, or where the policy is paid for out of trust assets,
it is the view of the Department that all of the proceeds received
by the policyholder in connection with a demutualization would
constitute plan assets.'' See ERISA Advisory Opinion 2001-02A,
February 15, 2001.
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In order to determine the amount of consideration to which each
Eligible Policyholder is entitled (combinations of different forms of
consideration will not be permitted), each Eligible Policyholder will
be allocated (but not issued) a number of shares of Common Stock equal
to the sum of (a) a fixed minimum number of shares \10\ and (b) an
additional number of shares based on actuarial formulas that take into
account each policy's past and expected future contributions to the
surplus of Principal.
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\10\ PMHC expects 100 shares of Common Stock will be allocated
to the fixed component. However, the final number of shares thus
allocated will be subject to regulatory approval.
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13. In general, certain Eligible Policyholders will receive shares
of Common Stock which will be distributed to such Eligible
Policyholders without the payment of any brokerage fees or commissions.
Certain other Eligible Policyholders will receive consideration in the
form of Cash or Policy Credits, in lieu of Common Stock. The amount of
Cash or Policy Credits will be determined by reference to the price per
share at which the Common Stock of PFG is offered to the public in the
IPO.
An Eligible Policyholder whose mailing address is outside the
United States, or to whom mail is undeliverable at the address in
Principal's records, or whose policy is known by Principal to be
subject to a creditor lien will receive Cash in lieu of Common Stock,
in an amount equal to the value of the Common Stock such policyholder
would otherwise have received, based on the price of Common Stock in
the IPO contemplated by the Plan of Conversion.
Certain other Eligible Policyholders, namely owners of individual
retirement annuities, tax-sheltered annuities, individual life or
annuity policies issued directly to plan participants in qualified
pension or profit sharing plans, and certain group annuity policies
issued to fund qualified pension or profit sharing plans will receive
Policy Credits equal in value to the Common Stock allocated to such
Eligible Policyholders.
In the case of a group annuity contract issued to fund a qualified
plan (i.e., a Qualified Plan Customer), it is contemplated that the
policyholder will be able to elect to receive Policy Credits instead of
Common Stock or Cash. If Policy Credits are elected, the policyholder
will be given a further election--to have the policy value increased by
the amount of compensation involved or to have the policy enhanced with
an interest in the Separate Account that will be maintained by
Principal.\11\ The assets of the Separate Account will be invested
primarily in PFG Common Stock. Thus, in the absence of a policyholder
election, PMHC states that the ``default'' consideration for the
policyholder will be Policy Credits (in the form of an interest in the
Separate Account), unless the contract or regulatory concerns preclude
this form of compensation. As recordkeeper, Principal will allocate the
Policy Credit compensation received, on a pro rata basis, among the
participants of the Plan that is invested in the Separate Account, in
accordance with their account balances and not on a per capita basis,
unless the policyholder directs otherwise. In describing the default
allocation alternative to Plan policyholders in policyholder materials,
PMHC states that neither it nor its affiliates will be providing
investment advice or recommendations to the policyholder on which
option to choose.
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\11\ If the Qualified Plan Customer elects the have the policy
value increased by the amount of compensation involved, the Policy
Credits will be referred to as ``Account Value Policy Credits.'' If
the Qualified Plan Customer elects to have the policy enhanced with
an interest in the Separate Account, or in the absence of
policyholder election, the Policy Credits will be referred to as
``Separate Account Policy Credits.''
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PMHC represents that no purchases or sales of assets will be made
between Principal or its affiliates and the Separate Account.
Withdrawals will be permitted at any time, subject to ordinary
liquidity restraints. Upon receiving a notice of withdrawal from a Plan
policyholder, NTC, the custodian for shares of Common Stock that are
held in the Separate Account, will sell such shares of Common Stock on
the open market at their fair market value. NTI, the independent
trustee of the Separate Account and an affiliate of NTC, will vote, at
the direction of the Plan policyholders. Where no direction is received
from a Plan policyholder, NTI will use ``mirror'' voting for routine
issues (e.g., the appointment of accountants). In effect, NTI will
cause those shares in the Separate Account for which no instructions
have been received from a particular Plan to be
[[Page 40742]]
voted in the same proportion as shares for which specific instructions
have been received from other Plan policyholders holding interests in
the Separate Account. In addition, NTI will be authorized to exercise
its own discretion on major issues, such as proxy contests.\12\
---------------------------------------------------------------------------
\12\ The Department would expect that NTI, in implementing the
``mirror voting'' procedure under the Separate Account, to act
``prudently, solely in the interests of Plan participants, and for
the exclusive purpose of providing benefit to participants and
beneficiaries,'' within the meaning of section 404(a)(1) of the Act.
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Commission-Free Program
14. The Plan of Conversion provides that PFG may establish a
commission-free program that is to begin no earlier than the sixth
month anniversary following the Effective Date of the demutualization
and before the 12 month anniversary of such Effective Date at a time
determined by the PFG's Board of Directors to be appropriate and in the
best interests of the Holding Company and the Eligible Policyholders.
The program, which will continue at least for three months, will be
available to any Eligible Policyholder who receives fewer shares than
100 shares of Common Stock. Under the program, an Eligible Policyholder
will be entitled to sell, at prevailing market prices, all the shares
of Common Stock received by the Eligible Policyholder in the
demutualization. No brokerage commissions, mailing charges,
registration fees or other administrative or similar expenses will be
charged.
In addition, the commission-free program will afford an Eligible
Policyholder the opportunity to purchase additional shares of Common
Stock in order that the Eligible Policyholder may round-up his or her
holdings to 100 shares, again without the payment of any fees, charges
or commissions.
Independent Fiduciary
15. As noted above, U.S. Trust will serve as independent fiduciary
for all of the Principal Plans in connection with the implementation of
PMHC's Plan of Conversion. Generally, such transactions over which U.S.
Trust will exercise investment discretion may result in the
acquisition, holding or disposition of Common Stock by the Principal
Plans. U.S. Trust states that it is familiar with the Department's
independent fiduciary requirements and has acknowledged and accepted
such duties, responsibilities and liabilities to act on behalf of the
Principal Plans. In return for services rendered, U.S. Trust will be
compensated by either PMHC, a successor, or an affiliate.
U.S. Trust is the principal subsidiary of U.S. Trust Corporation, a
member of the Federal Reserve System and the Federal Deposit Insurance
Corporation, and an entity having approximately $5 billion in assets.
The parent corporation, U.S. Trust Corporation, was founded in 1853 in
New York and is subject to regulation as a trust company in the State
of New York. As of December 31, 1999, U.S. Trust Corporation had
approximately $5 billion in assets and over $75 billion in assets under
management, a significant portion of which consisted of the assets of
ERISA-covered Plans. In addition, U.S. Trust Corporation is a wholly
owned subsidiary of the Charles Schwab Corporation. U.S. Trust has
served as an independent fiduciary for a number of Plans that have
acquired or held employer securities and it has managed over $20
billion in employer securities held by such Plans. In managing such
investments, U.S. Trust has exercised discretionary authority over many
transactions involving the acquisition, retention and disposition of
employer securities.
U.S. Trust represents that it is independent of PMHC and its
affiliates. In this regard, U.S. Trust asserts that it has no business,
ownership or control relationship, nor is it otherwise affiliated with
PMHC and its affiliates. Further, U.S. Trust represents that it derives
less than one percent of its annual income from PMHC and its
affiliates.
As the independent fiduciary for the Principal Plans, U.S. Trust
will be required to (a) vote on whether to approve or not to approve
the proposed demutualization; (b) elect between consideration in the
form of Common Stock, Cash or Policy Credits on behalf of such Plans;
(c) determine how to apply the Common Stock, Cash or Policy Credits
received for the benefit of the participants and beneficiaries of the
Principal Plans; (d) vote on shares of Common Stock that are held by
the Principal Plans and dispose of such stock held by a Plan exceeding
the limitation of section 407(a)(2) of the Act as soon as it is
reasonably practicable, but in no event later than six months after the
effective date of the Plan of Conversion; and (e) take all actions that
are necessary and appropriate to safeguard the interests of the
Principal Plans and their participants and beneficiaries. In addition,
U.S. Trust will provide the Department with a complete and detailed
final report as it relates to the Principal Plans prior to the
Effective Date of the demutualization. Finally, U.S. Trust states that
it has conducted a preliminary review of PMHC's Plan of Conversion and
it sees nothing in the Plan that would preclude the Department from
proposing the requested exemption.
16. In summary, it is represented that the proposed transactions
will satisfy the statutory criteria for an exemption under section
408(a) of the Act because:
(a) The Plan of Conversion will be implemented in accordance with
stringent procedural and substantive safeguards that are imposed under
Iowa law and will be subject to review and supervision of the
Commissioner and the Superintendent.
(b) The Commissioner will review the terms and options that are
provided to Eligible Policyholders as part of such Commissioner's
review of the Plan of Conversion and the Commissioner will approve the
Plan of Conversion following a determination that such Plan is fair and
equitable to Eligible Policyholders (including Plans).
(c) The Superintendent will object to the Plan of Conversion if he
or she finds that such Plan is not fair and equitable to all New York
Eligible Policyholders.
(d) As part of their separate determinations, both the Commissioner
and the Superintendent must concur on the terms of the Plan of
Conversion.
(e) One or more independent Plan fiduciaries will have an
opportunity to vote to approve the terms of the Plan of Conversion (or
to comment on such Plan), and will be solely responsible for all such
decisions after receiving full and complete disclosure from PMHC and/or
Principal.
(f) The Plan of Conversion will provide Principal and PMHC with
access to new sources of capital that should help sustain Principal's
financial strength, increase its ability to conduct its business
efficiently and improve Principal's competitive position in the
insurance industry.
(g) The proposed exemption will allow Eligible Policyholders that
are Plans to receive shares of Common Stock, Cash or Policy Credits, in
exchange for their membership interests in PMHC and neither PMHC nor
any of its affiliates will exercise investment discretion or provide
``investment advice,'' within the meaning of 29 CFR 2510.3-21(c), with
respect to such decisions, options given, or the default consideration,
in the event no Plan policyholder choice is made.
(h) Each Eligible Policyholder will have an opportunity to
determine whether to vote to approve the terms of the Plan of
Conversion and will also be solely responsible for any decisions that
may be permitted under the Plan of
[[Page 40743]]
Conversion regarding the form of consideration to be received in the
demutualization.
(i) All Plans that are Eligible Policyholders will participate in
the transactions and on the same basis as Eligible Policyholders that
are not Plans.
(j) No Eligible Policyholder will pay any brokerage commissions or
fees in connection with the receipt of Common Stock or Policy Credits
or in connection with the implementation of the commission-free
program.
(k) The demutualization will not, in any way, change premiums or
reduce policy benefits, values, guarantees or other policy obligations
of Principal to its policyholders and contractholders.
FOR FURTHER INFORMATION CONTACT: Ms. Jan D. Broady of the Department,
telephone (202) 219-8881. (This is not a toll-free number.)
Anthem Insurance Companies, Inc. (Anthem), Located in Indianapolis,
IN
[Application No. D-10979]
Proposed Exemption
Based on the facts and representations set forth in the
application, the Department is considering granting an exemption under
the authority of section 408(a) of the Act (or ERISA) 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).\13\
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\13\ For purposes of this proposed exemption, references to
provisions of Title I of the Act, unless otherwise specified, refer
also to corresponding provisions of the Code.
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Section I. Covered Transactions
If the exemption is granted, the restrictions of section 406(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 (D) of the
Code, shall not apply to the receipt, by an employee benefit plan (the
Plan) or by a Plan participant (the Plan Participant) that is a member
of Anthem (together, the Eligible Members) by reason of the ownership
of an insurance policy or contract issued by Anthem, of common stock
(Common Stock) issued by Anthem, Inc. (the Parent Company), a newly-
formed holding company or cash (Cash), in exchange for such Plan's or
Plan Participant's mutual membership interest in Anthem, in accordance
with a plan of conversion (the Plan of Conversion) adopted by Anthem
and implemented under Indiana law.
This proposed exemption is subject to the following conditions set
forth below in Section II.
Section II. General Conditions
(a) The Plan of Conversion is subject to approval, review and
supervision by the Commissioner of Insurance of the Indiana Department
of Insurance (the Commissioner) and is implemented in accordance with
procedural and substantive safeguards imposed under Indiana law.
(b) The Commissioner reviews the terms and options that are
provided to Eligible Members as part of such Commissioner's review of
the Plan of Conversion, and the Commissioner approves the Plan of
Conversion following a determination that such Plan is fair, reasonable
and equitable to Eligible Members.
(c) Each Eligible Member has an opportunity to vote to approve the
Plan of Conversion after full written disclosure is given to the
Eligible Member by Anthem.
(d) Any determination to receive Common Stock or Cash by an
Eligible Member which is a Plan, pursuant to the terms of the Plan of
Conversion, is made by one or more Plan fiduciaries which are
independent of Anthem and its affiliates and neither Anthem nor any of
its affiliates exercises any discretion or provides ``investment
advice'' within the meaning of 29 CFR 2510.3-21(c), with respect to
such decisions.
(e) Any determination to receive Common Stock or Cash by an
Eligible Member which is a Plan Participant, pursuant to the terms of
the Plan of Conversion, is made by such participant and neither Anthem
nor any of its affiliates exercises any discretion or provides
``investment advice'' within the meaning of 29 CFR 2510.3-21(c), with
respect to such decisions.
(f) After each Eligible Member entitled to receive shares of Common
Stock is allocated at least 21 shares, additional consideration is
allocated to Eligible Members who own participating policies based on
actuarial formulas that take into account each participating policy's
contribution to Anthem's statutory surplus, which formulas are subject
to review and approval by the Commissioner.
(g) All Eligible Members that are Plans or Plan Participants
participate in the transactions on the same basis and within their
class groupings as all Eligible Members that are not Plans or Plan
Participants.
(h) No Eligible Member pays any brokerage commissions or fees in
connection with their receipt of Common Stock or in connection with the
implementation of the commission-free purchase and sale program.
(i) All of Anthem's policyholder obligations remain in force and
are not affected by the Plan of Conversion.
Section III. Definitions
For purposes of this proposed exemption,
(a) The term ``Anthem'' means Anthem Insurance Companies, Inc. and
any affiliate of Anthem, as defined in paragraph (b) of this Section
III.
(b) An ``affiliate'' of Anthem includes--
(1) Any person directly or indirectly through one or more
intermediaries, controlling, controlled by, or under common control
with Anthem; (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.) and
(2) Any officer, director or partner in such person.
(c) A ``policy'' is defined as (1) any individual insurance policy
or health care benefits contract that has been issued by Anthem and
under which the holder thereof has membership interests in Anthem; (2)
any certificate issued by Anthem under a group insurance policy or
health care benefits contract under which certificate the holder
thereof has membership interests in Anthem; or (3) certificates of
membership issued by Anthem in or under guaranty policies under which
certificate the holder thereof is a member of Anthem with membership
interests.
(d) The term ``membership interests'' means (1) voting rights of
Anthem's members as provided by law and Anthem's Articles of
Incorporation and Bylaws, and (2) the rights of members to receive
cash, stock, or other consideration in the event of conversion to a
stock insurance company under Indiana Demutualization Law or a
dissolution of Anthem as provided by Indiana insurance law and Anthem's
Articles of Incorporation and Bylaws.
(e) The term ``Eligible Member'' means a person or entity (1) whose
name appears on Anthem's records as the holder of one or more in force
policies issued by Anthem as of both the date the Board of Directors
adopts the Plan of Conversion and the effective date of the Plan of
Conversion, and (2) who has had continuous health care benefits
coverage with the same insuring company during the period between those
two dates under any policy without a break of more than one day.
(f) The term ``Parent Company'' refers to a corporation organized
and existing under the Indiana Business Corporation Law. Prior to the
conversion, the Parent
[[Page 40744]]
Company will be a wholly owned subsidiary of Anthem. Upon the
conversion of Anthem to a stock company, the Parent Company will serve
as the ``Indiana parent corporation'' of Anthem for purposes of Indiana
law. Upon the effective date of the Plan of Conversion, the Parent
Company will complete an initial public offering (the IPO) of shares of
Parent Company Common Stock for cash.
Summary of Facts and Representations
Description of the Parties
1. Anthem, which maintains its principal place of business in
Indianapolis, Indiana, is organized as a mutual insurance company under
the laws of the State of Indiana. Together with its subsidiaries
(collectively, the Company), Anthem is one of the nation's largest
health benefits companies. As an independent licensee of the Blue Cross
Blue Shield Association (BCBSA), the Company offers BCBSA-branded
products throughout Indiana, Ohio, Kentucky, Connecticut, Colorado,
Nevada, New Hampshire and Maine. The Company provides health care
coverage or services to over 7 million people in these states. As of
December 31, 2000, Anthem had approximately $5.7 billion in assets,
$3.8 billion in liabilities and surplus of $1.9 billion. Anthem's
current financial strength ratings are as follows: A.M. Best Company,
Inc., A-; Standard & Poor's Rating Service, A; Moody's Investors
Service, Inc., A3; and Fitch, Inc., A+.
2. The Company offers a diversified mix of managed care products,
including health maintenance organizations, preferred provider
organizations, and point of service plans, as well as traditional
indemnity products. In addition, the Company offers a full range of
managed care services and partially-insured products for self-funded
employer Plans, such as underwriting services, stop loss insurance,
actuarial services, network access, medial cost management, claims
processing, and administrative services. In nearly all cases, the
Company provides administrative, recordkeeping and other support
services to Plans that are funded by Anthem insurance policies. These
services include claims processing, premium collection, billing,
reporting, and managed care services (including medical case management
and utilization review services). Moreover, the Company provides
specialty products, including group life, disability, prescription
management, workers compensation, administrative and claims management
services, dental and vision care services, and allows customers to
choose from an array of funding alternatives.
3. As a mutual insurance company, Anthem does not have any
stockholders. Instead, Anthem has members who are deemed holders of
certain insurance policies and contracts which it has issued. As
members, the policyholders have the right to vote in the election of
Anthem's Board of Directors and to vote on any proposition that the
Board submits to a vote of the members in accordance with Indiana law,
including the right to vote on the conversion of Anthem from a mutual
insurance company to a stock company. The voting rights of Anthem
members are equal, with each member having only one vote regardless of
the size, type, or number of policies owned by such member. As
discussed herein, Anthem's members also have the right to vote and to
receive consideration in the event of the Anthem's demutualization.
Unlike most insurance companies, Anthem generally treats individual
certificate holders under its group contracts as members instead of as
group contract holders. Thus, in most cases, employers that fund their
Plans with Anthem group contracts are not members of Anthem. Instead,
the participants in these Plans are the members. Currently, Anthem has
approximately 1 million members who hold certificates under either
group plans or individual policies. Of these members, approximately
650,000 have received their membership interests through participation
in Plans.
However, in a small number of cases, Plan group contract holders,
which are generally employers rather than certificate holders, are
considered members of Anthem. The subject cases have arisen out of
mergers into Anthem of three Blue Cross Blue Shield (BCBS) licensees,
which were organized as mutual insurance companies prior to the
mergers.\14\ Currently, Anthem has approximately 7,000 members that are
Plan group policyholders. (These are generally employers that hold the
policies to provide benefits to their employees.)
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\14\ Specifically, the Kentucky BCBS licensee (Southeastern
Mutual Insurance Company) merged into Anthem in 1993. Community
Mutual Insurance Company, an Ohio Blue Cross Blue Shield licensee,
merged into Anthem in 1995. The Connecticut BCBS licensee (Blue
Cross & Blue Shield of Connecticut, Inc.) merged into Anthem in
1997. These ``grandfathered'' members are group policyholders that
(a) held contacts issued by the Kentucky, Ohio and Connecticut
companies before those companies merged into Anthem and (b) have
continuous coverage that meets specific requirements through the
Company since the merger. These group contract holders were
``grandfathered'' as members to preserve their membership interests
in the merging mutual companies. For any new group contracts issued
with respect to Plans by one of those companies since its merger
with Anthem, however, the group contract holders, are members of
Anthem.
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4. Anthem Holdings or the ``Parent Company'' will be a corporation
organized and existing under the Indiana Business Corporation Law.
Prior to the conversion, the Parent Company will be a wholly owned
subsidiary of Anthem. Upon the conversion of Anthem to a stock company,
the Parent Company will serve as the ``Indiana parent corporation'' of
Anthem for purposes of Indiana law. Upon the effective date of the Plan
of Conversion, the Parent Company will complete an IPO of shares of
Parent Company Common Stock for cash.\15\ It is anticipated that the
Common Stock will be traded on the New York Stock Exchange.
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\15\ At the present time, Anthem does not know the number of
shares of Parent Company Common Stock that will be issued at the
IPO. Anthem states that the exact number will not be known for some
time because the number of shares will depend, among other factors,
on market conditions at the time of the IPO (which is not expected
to occur until late October or early November 2001).
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The Anthem Conversion
5. On February 1, 2001, Anthem's Board of Directors announced the
appointment of a special committee to work with Anthem's management to
develop a Plan of Conversion, which with Amended and Restated Articles
of Incorporation, is expected to be approved by the Board of Directors
during June 2001. The principal purpose of the conversion is to benefit
Anthem's members and other customers by enhancing Anthem's financial
strength and flexibility and by distributing value to its Eligible
Members in the form of marketable common stock issued by Anthem
Holdings (i.e., the Parent Company) or Cash, in exchange for such
member's otherwise illiquid policyholders' membership interests. Thus,
Eligible Members will realize economic value from their membership
interests that is not currently available to them as long as Anthem
remains a mutual company. However, Anthem's conversion will not in any
way change premiums or reduce or change insurance or other health care
benefits or contractual obligations of Anthem to its members and
policyholders. Further, the conversion will provide Anthem with access
to additional capital that is not available under the mutual form of
corporate organization.
The Plan of Conversion is subject to the approval of the
Commissioner, the members of Anthem who are entitled to
[[Page 40745]]
vote on the Plan of Conversion,\16\ the other conditions set out in the
Plan of Conversion, and other applicable state and federal regulatory
approvals. Market conditions, regulatory requirements, and business
considerations may also influence the final sequence of events.
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\16\ The members eligible to vote will be the members of Anthem
as of the date Anthem's Board of Directors approves the Plan of
Conversion. That date will be the record date for the special
meeting of the members that will be held for purposes of voting on
the Plan of Conversion.
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6. Accordingly, Anthem requests, on behalf of itself, its
affiliates, and its future Parent Company, an administrative exemption
from the Department that will permit Eligible Members which are Plans
and Plan Participants to receive Common Stock issued by the Parent
Company or Cash in exchange for their existing membership interests in
Anthem. Anthem represents that although it and its affiliates generally
provide administrative, record-keeping, or other support services to
Plans in connection with the insurance policies and contracts sold to
such Plans, the sales of the insurance products do not, in and of
themselves, cause the insurer to be considered a party in interest.
However, Anthem understands that, because of the services it or its
affiliates provide to Plans that are funded through its insurance
products, it or its affiliates may be considered parties in interest or
even fiduciaries.
Therefore, Anthem represents that the receipt of Parent Company
Common Stock or Cash by a Plan or a Plan Participant can be viewed as a
prohibited sale or exchange of property between the insurer (or the
Parent Company) and the Plan or the Plan Participant, or it can be
construed as a transfer or use of plan assets by or for the benefit of
a party in interest in violation of section 406(a)(1)(A) and (D) of the
Act. Therefore, Anthem has requested administrative exemptive relief
from the Department in order to avoid any prohibited transactions that
may occur inadvertently in the course of the conversion.
The requested exemption is based upon a number of procedural and
substantive protections that Indiana insurance law provides to all
policyholders of a mutual insurance company that is undergoing
conversion to a stock company. In this regard, all Eligible Members
that are Plans (and Plan Participants) with respect to which Anthem or
any of its affiliates is a party in interest will participate on the
same basis and within their class groupings as all Eligible Members
that are not Plans or Plan Participants.
Anthem represents that neither it, the Parent Company, their
subsidiaries, nor any of the employees, officers, and directors of
Anthem, the Parent Company, or their subsidiaries are or will be
Eligible Members under any Plan established or maintained by Anthem,
the Parent Company, or their subsidiaries for the benefit of their
employees, officers or directors. Therefore, Anthem does not request
that the exemption apply to such Plans.
Indiana Insurance Law
7. Anthem anticipates that the following steps of the conversion
will occur pursuant to the Plan of Conversion:
Anthem will convert from a mutual company to a stock
company under Indiana law and will issue to the Parent Company all of
its outstanding Anthem capital stock.
All membership interests in Anthem will be extinguished,
and, in exchange, Eligible Members will receive shares of Parent
Company Common Stock or Cash.
The capital stock of the Parent Company owned by Anthem
will be canceled and cease to exist.
The effective date of the Plan of Conversion will be the
closing date of the Parent Company's IPO.
Eligible Members may elect to receive Parent Company
Common Stock or Cash. The Parent Company will issue shares of Parent
Company Common Stock to Eligible Members who affirmatively elect to
receive shares of Common Stock. The Parent Company will pay Cash to
Eligible Members who are deemed to elect Cash because they fail to make
a stock election or who are required to receive Cash because their
mailing address, as shown on Anthem's records, is outside of the United
States or because their receipt of stock would, in Anthem's judgment,
fail to comply with the securities registration requirements (or
applicable exemptions) of the Eligible Member's state of domicile. To
the extent that sufficient Cash is not available to pay Cash to all of
these Eligible Members, the Parent Company will pay Cash first to those
Eligible Members who are required to receive Cash because of their
domicile and then to those Eligible Members with the smallest share
allocations. Once the amount of Cash available is exhausted, the
remaining Eligible Members will be issued shares of Parent Company
Common Stock.
Procedural Requirements Under Indiana Demutualization Law
8. Indiana Demutualization Law (i.e., Indiana Code 27-15 et seq.),
establishes an approval process for the demutualization of domestic
mutual insurance companies. In this regard, the conversion of a mutual
insurance company to a stock company must be initiated by the board of
directors of the mutual insurance company. The board of directors may
approve a plan of conversion only upon a finding that the proposed
conversion is in the best interests of the converting mutual insurance
company, the Eligible Members, and the other policyholders of the
company.
Once the plan of conversion is approved by the company's board of
directors, the company must submit an application for the approval of
the plan of conversion to the Commissioner. The application must
contain the following information:
The plan of conversion and a certificate of the secretary
of the converting mutual insurance company certifying the approval of
the plan by the company's board of directors.
A statement of the reasons for the proposed conversion and
why the conversion is in the best interests of the converting mutual
insurance company, the Eligible Members, and the other policyholders.
The statement must include an analysis of the risks and benefits to the
converting mutual insurance company and its members of the proposed
conversion and a comparison of the risks and benefits of the conversion
with the risks and benefits of reasonable alternatives to a conversion.
A five year business plan and at least two years of
financial projections of the former mutual insurance company and any
parent company.
Any plans that the former mutual insurance company or any
parent company may have to:
Raise additional capital through the issuance of stock or
otherwise;
Sell or issue stock to any person, including any
compensation or benefit plan for directors, officers, or employees
under which stock may be issued;
Liquidate or dissolve any company or sell any material
assets;
Merge or consolidate or pursue any other form of
reorganization with any person; or
Make any other material change in investment policy,
business, corporate structure, or management.
Any plans for delayed distribution of consideration.
A plan of operation for a closed block,\17\ if a closed
block is used for the
[[Page 40746]]
preservation of the reasonable dividend expectations of Eligible
Members and other policyholders with policies that provide for the
distribution of policy dividends. (Anthem represents that it does not
have any policies for which there is a reasonable expectation of
dividends and, accordingly, a closed block will not be established.)
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\17\ Indiana Demutualization Law defines the term ``closed
block'' to mean an allocation of assets for a defined group of in
force policies which, together with the premiums of those policies
and related investment earnings, are expected to be sufficient to
maintain the payments of guaranteed benefits, certain expenses, and
continuation of the current dividend scale on the closed block, if
experience does not change.
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Copies of the amendment to the articles of incorporation
proposed by the board of directors and the proposed bylaws of the
former mutual insurance company and copies of the existing and any
proposed articles of incorporation and bylaws of any parent company.
A list of all individuals who are or have been selected to
become directors or officers of the former mutual insurance company and
any parent company, or the individuals who perform or will perform
duties customarily performed by a director or officer, as well as
specific biographical information about those individuals.
A fairness opinion addressed to the board of directors of
the converting mutual, from a qualified, independent financial advisor,
asserting (a) that the provision of stock, cash, policy benefits, or
other forms of consideration upon the extinguishing of the converting
mutual's membership interests under the plan of conversion and the
amendment to the articles of incorporation is fair to the Eligible
Members, as a group, from a financial point of view; and (b) whether
the total consideration under clause (a) is equal to or greater than
the surplus of the converting mutual.
An actuarial opinion as to the following:
The reasonableness and appropriateness of the methodology
or formulas used to allocate consideration among Eligible Members,
consistent with the statute.
The reasonableness of the plan of operation and the
sufficiency of the assets allocated to the closed block, if a closed
block is used for the preservation of the reasonable dividend
expectations of Eligible Members and other policyholders with policies
that provide for the distribution of policy dividends. (Anthem
represents that it does not have any policies for which there is a
reasonable expectation of dividends and again emphasizes that, a closed
block will not be established.)
Any additional information, documents, or materials that
the converting mutual insurance company determines to be necessary.
Any other additional information, documents, or materials
that the Commissioner requests in writing.
9. Upon determining that the application is complete, the
Commissioner must conduct a public hearing on the plan of conversion.
The purpose of the hearing is to receive comments and information to
aid the Commissioner in considering and approving or disapproving the
application for approval of the plan of conversion. Persons wishing to
make comments and submit information may submit written statements
before or at the public hearing and may also appear and be heard at the
public hearing. The converting mutual insurance company must provide at
least thirty days prior written notice of the hearing to its members
and policyholders. The converting mutual insurance company must also
cause notice of the public hearing to be published in a newspaper of
general circulation in the city where the principal office of the
converting mutual insurance company is located, in Indianapolis and in
any other city specified by the Commissioner. Both the written notice
and the form and content of the published notice must be pre-approved
by the Commissioner.
The Commissioner must fully consider any comments received at the
public hearing consistent with Indiana's Administrative Rules and
Procedures Act before making a determination on the Plan of Conversion.
After the public hearing, the Commissioner must approve the application
and permit the conversion under the plan of conversion if the
Commissioner finds the following:
That the amount and form of consideration is fair in the
aggregate and to each member class;
That the Plan of Conversion and the amendment to the
articles of incorporation:
Comply with the Indiana Demutualization Law and other
applicable laws;
Are fair, reasonable, and equitable to the Eligible
Members; and
Will not prejudice the interests of the other
policyholders of the converting mutual insurance company; and
That the total consideration provided to Eligible Members
upon the extinguishing of the converting mutual's membership interests
is equal to or greater than the surplus of the converting mutual. A
person who is aggrieved by an agency action of the Commissioner under
the Indiana Demutualization Law may petition for judicial review of the
action.
Indiana Demutualization Law also permits the Commissioner to employ
accountants, actuaries, attorneys, financial advisors, investment
bankers and other experts that are necessary to assist the Commissioner
in reviewing all matters under the Indiana Demutualization Law.
In addition to receiving Commissioner approval, the plan of
conversion must be approved by the converting mutual insurance
company's policyholders. The policyholders must be provided with notice
of the meeting called for the purpose of voting on the Plan of
Conversion. The converting mutual insurance company must also provide
explanatory information about the conversion to policyholders. The form
of the meeting notice, explanatory information, and any proxy
solicitation materials must be approved in advance by the Commissioner.
The Plan of Conversion must be approved by at least two-thirds of the
policyholders voting at the meeting.\18\
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\18\ It should be noted that Indiana law imposes stringent time
constraints on the distribution of demutualization consideration to
policyholders. Specifically, unless a very narrow exception applies,
which is authorized by the Commissioner, all demutualization
consideration must be distributed within six months after the
insurer's conversion to a stock company. The exception, which Anthem
states will not apply to the subject exemption request, would
require that a claim be filed by, or on behalf of, one or more
Anthem policyholders. The claim must assert, to the satisfaction of
the Commissioner, that (a) irreparable harm will result if
distribution occurs before the Department issues the requested
exemption, and (b) a trust should be established by the insurer to
hold the demutualization consideration until the exemption is
granted. (For a discussion of the trust requirement imposed under
Indiana Demutualization Law, see Representation 16 in the notice of
proposed exemption for Indianapolis Life Insurance Company, 66 FR
7802, January 25, 2001, at 7807.)
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10. As noted in Representation 5, Anthem's Board of Directors
approved Anthem's Plan of Conversion on June 18, 2001. As for the
policyholder meeting, Anthem indicates that the notice is tentatively
scheduled to be mailed beginning in mid- to late August 2001. When the
meeting is held, approximately 1 million Eligible Members (including
Plans and Plan Participants), will be able to vote on the Plan of
Conversion. However, each Eligible Member will be entitled to only one
vote. Anthem expects that the Commissioner will approve the Plan of
Conversion (after a public hearing in September 2001 by late October
2001, and that the demutualization will become effective in late
October (following Commissioner and member approvals) or during
November 2001, although delays in the regulatory process could further
affect these dates.
[[Page 40747]]
Distributions to Anthem's Members
11. As noted above, Anthem's Plan of Conversion provides for
Eligible Members to receive Common Stock of the Parent Company or Cash
as consideration for giving up their membership interest in the mutual
insurance company, which interests will be extinguished as a result of
the demutualization.\19\ Eligible Members may elect to receive Parent
Company Common Stock or Cash.\20\ The Parent Company will issue shares
of Parent Company Common Stock to Eligible Members who affirmatively
elect to receive such stock. The Parent Company will pay Cash to
Eligible Members who are deemed to elect Cash because their mailing
address, as shown on Anthem's records, is outside of the United States
or the receipt of stock, would, in Anthem's judgment, fail to comply
with the securities registration requirements (or applicable
exemptions) of the Eligible Member's state of domicile, or they fail to
make a stock election. To the extent that sufficient Cash is not
available to pay Cash to all of these Eligible Members, the Parent
Company will pay Cash first to those Eligible Members who are required
to receive Cash because of their domicile and then to those Eligible
Members with the smallest share allocations. Once the amount of Cash
available is exhausted, the remaining Eligible Members will be issued
shares of Parent Company Common Stock. The amount of Cash will be
determined by multiplying the number of shares of Common Stock
allocated to the Eligible Member by the price at which such Common
Stock is being offered to the public in the IPO.
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\19\ Because Anthem does not issue any policies to or in
connection with individual retirement accounts, tax-deferred
annuities, or tax-qualified plans, no consideration will be paid in
the form of ``policy credits.''
\20\ ``The proceeds of the demutualization will belong to the
Plan if they would be deemed to be owned by the Plan under ordinary
notions of property rights. See ERISA Advisory Opinion 92-02A,
January 17, 1992 (assets of plan generally are to be identified on
the basis of ordinary notions of property rights under non-ERISA
law). It is the view of the Department that, in the case of an
employee welfare benefit plan with respect to which participants pay
a portion of the premiums, the appropriate plan fiduciary must treat
as plan assets the portion of the demutualization proceeds
attributable to participant contributions. In determining what
portion of the proceeds are attributable to participant
contributions, the plan fiduciary should give appropriate
consideration to those facts and circumstances that the fiduciary
knows or should know are relevant to the determination, including
the documents and instruments governing the plan and the proportion
of total participant contributions to the total premiums paid over
an appropriate time period. In the case of an employee pension
benefit plan, or where any type of plan or trust is the
policyholder, or where the policy is paid for out of trust assets,
it is the view of the Department that all of the proceeds received
by the policyholder in connection with a demutualization would
constitute plan assets.'' See ERISA Advisory Opinion 2001-02A,
February 15, 2001.
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The total consideration to be distributed to Eligible Members will
be equal in value to a specified number of shares of Common Stock as
determined by the Board of Directors. As required by Indiana law, this
value is expected to be at least equal to the amount of Anthem's
statutory surplus. Each Eligible Member will be allocated a fixed
component of consideration, consisting of 21 shares of Parent Company
Common Stock. The remaining shares of Common Stock will then be
allocated to the Eligible Members based on the actuarial contribution
that each Eligible Member has made to Anthem's statutory surplus.
After shares of Common Stock have been allocated, actual
consideration will be paid as soon as practicable after the conversion
date to Eligible Members. The decision as to the form of consideration
to be received in exchange for membership interests in Anthem will be
made by one or more independent Plan fiduciaries in the case of a Plan,
or if applicable, by a Plan Participant. Under either circumstance,
neither Anthem nor its affiliates will provide the Plan fiduciary or
the Plan Participant with ``investment advice'' within the meaning of
29 CFR 2510.3-21(c) of the Act or exercise investment discretion with
respect to such decision.
Lock-Up Period and Commission-Free Sales and Purchase Program
12. To allow Anthem to create and maintain an orderly market for,
and improve the marketability of Parent Company Common Stock after the
IPO, Anthem will institute a 6 month ``lock-up'' period. The lock-up
period will also assure new investors who buy shares in the IPO that
the Eligible Members who are given shares in the demutualization will
not sell a large block of Parent Company Common Stock after the IPO.
During the lock-up period, Parent Company Common Stock issued to an
Eligible Member will be uncertified. The Eligible Member will have the
right to vote and to receive dividends and any other distributions
related to the stock. However, Eligible Members will not be able to
liquidate their stock holdings until the lock-up period is over. The
lock-up period will continue for 6 months after the effective date of
the Plan of Conversion. As soon as practicable after the expiration of
the lock-up period, Eligible Members will be entitled to receive a
certificate for the Parent Company Common Stock that is registered in
their name on the company books. Upon the expiration of the lock-up
period, the Parent Company Common Stock will be freely-tradeable and
may be disposed of on a stock exchange or in any other manner the
Eligible Member chooses, in compliance with securities laws.
13. Following the lock-up period, Anthem will establish a
commission-free sales and purchase program, although the exact contours
of such program have not yet been clearly-defined. Anthem, does,
however, expect that the program will commence no sooner than the first
business day after the 6 month anniversary, and no later than the last
business day before the 30 month anniversary, of the effective date of
the demutualization. Under the program, each shareholder owning 99 or
fewer shares of Parent Company Common Stock on the record date of the
program will have the opportunity, at any time during the term of the
program, to sell all, but not less than all, of those shares in one
transaction at prevailing market prices without paying brokerage or
other similar expenses. Simultaneously and in conjunction with the
commission-free sales program, Anthem will also offer each shareholder
eligible to participant in such program, the opportunity to purchase
additional shares of Parent Company Common Stock, as necessary, in
order that the shareholder may increase such share holdings to 100
share round lots without paying brokerage commissions or other similar
expenses.
14. In summary, it is represented that the proposed transaction
will satisfy the statutory criteria for an exemption under section
408(a) of the Act because:
(a) The Plan of Conversion will be implemented pursuant to
stringent procedural and substantive safeguards imposed under Indiana
law and supervised by the Commissioner.
(b) The Commissioner will only approve the Plan of Conversion
following a determination that, among other things, such Plan is fair,
reasonable, and equitable to all of Anthem's Eligible Members
(including Plans and Plan Participants).
(c) One or more independent fiduciaries of each Plan that is an
Eligible Member on the date the Plan of Conversion is adopted, and each
Plan Participant/certificate holder who is an Eligible Member on the
date the Plan of Conversion is adopted, will have an opportunity to
vote whether to approve the terms of the Plan of Conversion and will
also be solely responsible for any decisions that may be permitted
under the Plan of Conversion regarding the form of consideration to be
received in
[[Page 40748]]
return for their respective membership interests.
(d) Because of all of the protections afforded to Plans and Plan
Participants under Indiana law, no ongoing involvement by the
Department will be required in order to safeguard the interests of
Eligible Members that are Plans or Plan Participants.
(e) The Plan of Conversion will enable Plans or Plan Participants
to convert their illiquid membership interests in Anthem into Parent
Company Common Stock or Cash.
(f) Anthem's insurance contracts will remain in force and will not
be affected by the Plan of Conversion, and there will be no changing of
premiums or compromising any of the benefits, values, guarantees, or
other policy obligations of Anthem to its policyholders and
contractholders.
(g) Each Eligible Member that is a Plan or a Plan Participant will
have an opportunity to comment on the Plan of Conversion and, if such
Plan or Plan Participant is a voting member, to vote for or against the
Plan of Conversion after full disclosure by Anthem of the terms of the
Plan of Conversion.
Notice to Interested Persons
Pursuant to the requirements of Indiana Demutualization Law, during
August, 2001, Anthem will provide its members, including Plans and Plan
Participants, with an advance disclosure document relating to its
conversion to a stock company. The document, known as ``The Member
Information Statement'' (or MIS) will include, among other things, (a)
a notice of the date, time, and place for voting on the Plan of
Conversion; (b) a notice of the time, place, and purpose of a public
hearing on the Plan of Conversion, at which members can express their
views on the Plan of Conversion; (c) detailed information regarding
Anthem's Plan of Conversion; and (d) business and financial information
about Anthem and the Parent Company. The MIS will be provided in a form
and manner approved by the Commissioner and will be sent to over 1
million Anthem members, including Plans and Plan Participants who hold
certificates issued pursuant to their respective Plans. Anthem has
deemed such Plans and Plan Participants to be ``interested persons''
for purposes of this exemption.
In connection with the exemption request, Anthem wishes to provide
notice of the proposed exemption in a manner that takes into account
(a) the costs and administrative burdens of providing a separate notice
of the proposed exemption to all affected members; (b) the notices
required, and member protections accorded, under state law; and (c) the
limited scope of exemptive relief that it has requested. In this
regard, Anthem has incorporated the Department's required supplemental
statement describing the exemption proceeding (see 29 CFR 2570.43) in a
slightly modified form in the MIS under the special heading ``Notice of
Application for Prohibited Transaction Exemption'' (hereinafter, the
MIS Notice). The MIS Notice is intended to inform affected members of
the anticipated publication of the proposed exemption in the Federal
Register and their right to comment on the proposal. The MIS Notice
states that an affected member may call a toll-free number maintained
by Anthem (1-866-299-9628) or write to Anthem if the member wishes to
be provided with a copy of the proposed exemption when it is published
in the Federal Register. In addition, the MIS Notice indicates that the
proposed exemption will be posted on Anthem's website (www.anthem.com)
after publication.
Any Plan or Plan Participant requesting that Anthem provide a copy
of the proposed exemption will be sent a copy of such document within
15 days of its publication in the Federal Register. The copy of the
proposed exemption will be accompanied by another version of the
supplemental statement, as required under the Department's regulations.
In addition, the proposed exemption, together with a copy of the
supplemental statement, will be posted on Anthem's website within 15
days of publication. Anthem will give Plan members 45 days to file
comments with the Department. The comment period will commence on the
date the proposed exemption is published in the Federal Register.
FOR FURTHER INFORMATION CONTACT: Ms. Jan D. Broady of the Department,
telephone (202) 219-8881. (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 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 31st day of July, 2001.
Ivan Strasfeld,
Director of Exemption Determinations, Pension and Welfare Benefits
Administration, U.S. Department of Labor.
[FR Doc. 01-19489 Filed 8-2-01; 8:45 am]
BILLING CODE 4510-29-P
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