EBSA (Formerly PWBA) Federal Register Notice Proposed Exemptions; Key Trust Company of Ohio (Key Trust) et al. [09/07/2001]

EBSA (Formerly PWBA) Federal Register Notice

Proposed Exemptions; Key Trust Company of Ohio (Key Trust) et al. [09/07/2001]

[PDF Version]

Volume 66, Number 174, Page 46830-46843

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DEPARTMENT OF LABOR

Pension and Welfare Benefits Administration

[Application No. D-10762, et al.]

Proposed Exemptions; Key Trust Company of Ohio (Key Trust) 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, N.W., Washington, D.C.
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

[[Page 46831]]

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.

Key Trust Company of Ohio (Key Trust), Located in Cleveland, OH

[Application No. D-10762]

Proposed Exemption

The Department is considering granting an exemption under the
authority of section 408(a) of the Act and section 4975(c)(2) of the
Code and in accordance with the procedures set forth in 29 CFR part
2570, subpart B (55 FR 32836, August 10, 1990).\1\
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\1\ Unless otherwise noted, references to specific sections of
the Act refer also to the corresponding provisions of the Code.
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I. Covered Transactions
If the exemption is granted, the restrictions of sections 406(a),
406(b)(1) and (b)(2) of the Act and the sanctions resulting from the
application of section 4975 of the Code, by reason of section
4975(c)(1)(A) through (E) of the Code, shall not apply to the making of
interest-free loans to a defined contribution plan (the Plan) by its
respective sponsor (the Plan Sponsor) pursuant to the terms of a credit
facility arrangement (the Credit Facility Arrangement), established by
Key Trust and its affiliates (collectively, KeyBank), which enables
daily transactions, such as participant investment transfers,
distributions or participant loans, in connection with the Plan's
unitized employer stock fund (the Unitized Employer Stock Fund or Fund)
within KeyBank; and (2) the repayment, by the Plan to the Plan Sponsor,
of any interest-free loan within 90 days with cash proceeds received
from the sale of employer stock (Employer Stock) held in the Unitized
Employer Stock Fund.
II. General Conditions
(a) Each loan made under the Credit Facility Arrangement provides
short-term funds to the Plan for a period of no longer than 90 days for
the purpose of facilitating Plan participant transfers, distributions,
loans and other participant transactions involving the Plan's Unitized
Employer Stock Fund.
(b) The maximum amount of short-term funds available to a Plan
under the Credit Facility Arrangement, in the aggregate, does not
exceed 25 percent of the fair market value of the Plan's Unitized
Employer Stock Fund.
(c) Each loan made under the Credit Facility Arrangement is repaid
with proceeds from the sale of Employer Stock held in the Unitized
Employer Stock Fund.
(d) For purposes of repaying a loan under the Credit Facility
Arrangement, the sales price for the Employer Stock is based upon its
fair market value as determined on the New York Stock Exchange (the
NYSE) or other applicable securities exchange where such Employer Stock
is primarily traded on the date of the transaction, as calculated by an
independent pricing service.
(e) Each loan made under the Credit Facility Arrangement is
unsecured and no commitment fees, interest or commissions are paid by
the Plan.
(f) In the event of a loan default or delinquency, the Plan Sponsor
has no recourse against the Plan.
(g) Each loan is initiated, accounted for and administered by
KeyBank, the independent fiduciary, which will monitor the terms and
conditions of the exemption on behalf of the Plan, at all times.
(h) KeyBank maintains for a period of six years, in a manner that
is accessible for audit and examination, the records necessary to
enable the persons described in paragraph (i) to determine whether the
conditions of this exemption have been met, except that--
(1) A prohibited transaction will not be considered to have
occurred if, due to circumstances beyond the control of KeyBank, such
records are lost or destroyed prior to the end of such six year period;
and
(2) No party in interest, other than KeyBank, shall be subject to
the civil penalty that may be assessed under section 502(i), or the
taxes imposed by section 4975(a) and (b) of the Code, if the records
are not maintained, or are not available for examination as required by
paragraph (h).
(i)(1) Except as provided in paragraph (h)(2) and notwithstanding
anything to the contrary in sections 504(a)(2) and (b) of the Act, the
records referred to in paragraph (h) are unconditionally available for
examination during normal business hours by--
(A) Any duly authorized employees or representatives of the
Department or the Internal Revenue Service;
(B) Any fiduciary of a Plan or any duly authorized employee or
representative of such fiduciary; and
(C) Any participant or beneficiary of a Plan or any duly authorized
employee or representative of such participant or beneficiary.
(2) None of the persons described above in paragraph (i)(1)(B) or
(C) shall be authorized to examine the trade secrets of KeyBank or
commercial or financial information which is privileged or
confidential.
III. Definitions
(a) The term ``KeyBank'' refers Key Trust Company of Ohio and its
affiliates.
(b) An ``affiliate'' of KeyBank includes--
(1) Any person, directly or indirectly, through one or more
intermediaries, controlling, controlled by, or under common control
with KeyBank;
(2) Any officer, director, employee, relative or partner in
KeyBank; and
(3) Any corporation or partnership of which KeyBank is an officer,
director, partner or employee.
(c) The term ``control'' means the power to exercise a controlling
influence over the management or policies of a person other than an
individual.
(d) The term ``closing price'' means the final price at which
Employer Stock has traded on the NYSE (or such other exchange on which
Employer Stock is primarily traded) on the date of the transaction as
may be reported to KeyBank using an independent pricing service for the
reporting of final prices.
(e) The term ``Employer Stock'' refers to common stock issued by a
Plan Sponsor, an affiliate of the Plan Sponsor, a former Plan Sponsor,
or an affiliate of the former Plan Sponsor.\2\
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\2\ The Department notes that the term ``Employer Stock,'' as
defined in this proposal, may not satisfy the definition of
``employer security'' contained in section 407(d)(1) of the Act.
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(f) The term ``Plan Sponsor'' refers to an employer (or an
affiliate of the employer) sponsoring a defined contribution plan which
has entered into a Unitized Employer Stock Fund Investment Policy
Agreement (the Policy Agreement) with KeyBank in order to structure the
investment by the Plan's Unitized Employer Stock Fund in Employer
Stock.
(g) The term ``Unitized Employer Stock Fund'' refers to an
investment fund established by KeyBank whose assets will consist
primarily of shares of Employer Stock.
(h) The ``trading day'' refers to any day on which KeyBank and the
NYSE

[[Page 46832]]

are open for business and are able to transact trades involving
Employer Stock as a Plan investment. The close of trading day will be
the time of the close on the NYSE. In the event that either KeyBank or
the NYSE (or any other exchange on which the Employer Stock is
primarily traded) is incapable of processing trades involving Employer
Stock, or in the event trading in Employer Stock is suspended, the
close of the trading day will be the last time by which transactions
involving Employer Stock are processed on any such day.
(i) The term ``drift allowance'' refers to the range of
percentages, comprised of a maximum and minimum percentage, which is
determined and established by the Plan Sponsor as being the proper
percentages within which the liquidity component of the Unitized
Employer Stock Fund should represent of the entire market value of such
Fund on any given day.
(j) The term ``liquidity component'' means the short-term
investment vehicle which is selected by the Plan Sponsor and used to
invest any uninvested cash in the Plan's Unitized Employer Stock Fund.
(k) The term ``target percentage'' means the number, expressed as a
percentage, which is determined and established by the Plan Sponsor, as
being the proper percentage that the liquidity component of the
Unitized Employer Stock Fund will represent of the entire market value
of such Fund (including the liquidity component and the Employer
Stock). The target percentage will take into consideration factors such
as the daily market volume for trading in the Employer Stock and the
average daily trading activity of such stock in the Unitized Employer
Stock Fund.
(l) The term ``transaction valuation date'' refers to any day on
which KeyBank and the NYSE (or any other national securities exchange
on which Employer Stock is primarily traded) are open for business and
are able to transact trades.

Summary of Facts and Representations

1. KeyBank, which serves as trustee, custodian and/or recordkeeper
to employee benefit plans, includes Key Trust and its affiliates.
KeyBank maintains its principal place of business at 127 Public Square,
Cleveland, Ohio. Currently, KeyBank has tax-exempt assets under
management in excess of $53.6 billion and is trustee for more than
$14.5 billion in defined contribution plan assets.
KeyBank has been providing services to defined contribution plans
for more than 40 years. In this regard, KeyBank maintains records for
approximately 1,120 daily valued plans. KeyBank also serves as trustee
to 61 defined contribution plans which permit participant-directed
investments. As of December 31, 2000, these Plans had approximately
135,000 participants and beneficiaries. Although the fair market value
of each Plan's assets varies in amount, as of December 31, 2000, the
aggregate fair market value of Plan assets that were invested in
Unitized Employer Stock Funds under management by KeyBank was $1.76
billion. Further, KeyBank has experience in maintaining Unitized
Employer Stock Funds similar to those described herein.
As discussed in Representation 15 of this proposed exemption,
KeyBank has agreed to serve as the independent fiduciary for existing
and future client Plans wishing to participate in the Credit Facility
Arrangement described herein. KeyBank represents that it is (or will
be) independent of each Plan Sponsor and the fees that it receives from
a Plan or a Plan Sponsor for fiduciary, custodial or recordkeeping
services constitute (or will constitute) less than one percent of its
total fiduciary funds and fund management revenues. Further, KeyBank
represents that it will not receive any additional fees from a Plan as
a result of its oversight of a Credit Facility Arrangement.
2. Key Trust is a trust company also headquartered at 127 Public
Square, Cleveland, Ohio. Key Trust and its affiliates, which are
collectively referred to herein as ``KeyBank,'' are subsidiaries of
KeyCorp, a bank holding company.
3. The Plans that will engage in the subject Credit Facility
Arrangement will consist of defined contribution plans for which
KeyBank currently (or in the future) serves as trustee, custodian and/
or recordkeeper. Each Plan will permit participant-directed investment
of account balances among various investment funds, including a
Unitized Employer Stock Fund. Thus, each Plan will be an ``individual
account plan'' or a ``defined contribution plan'' within the meaning of
section 3(34) of the Act and will be subject to the provisions of
Titles I and II of the Act. Further, each Plan will be qualified under
section 401(a) of the Code and may have a cash or a deferred
compensation arrangement, as provided under section 401(k) of the Code.
Although a Plan is required to permit participant investment direction
of account balances, such Plan will not necessarily be subject to the
provisions of section 404(c) of the Act.
4. Each Unitized Employer Stock Fund \3\ established for a Plan
will be invested primarily in stock issued by a Plan's sponsor, an
affiliate of the Plan sponsor, a former Plan Sponsor, or an affiliate
of a former Plan Sponsor (collectively, the Plan Sponsor). A portion of
the Fund may be invested in cash or cash equivalents. (Alternatively,
the Unitized Employer Stock Fund may be funded solely with Employer
Stock.) The actual percentage of a Unitized Employer Stock Fund that is
invested in cash or cash equivalents will be determined by the Plan
Sponsor based on the liquidity needs of the Fund.\4\
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\3\ For a simplified example showing how the Unitized Employer
Stock Fund will operate, see the Appendix.
\4\ Sufficient liquidity is defined as having enough cash on
hand so that net daily activity may be transacted at the net asset
value (NAV) of the day the transactions are requested.
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If it is determined that the Unitized Employer Stock Fund is to
operate in a daily environment, sufficient liquidity must be created so
that participant requests may be settled on the day on which they are
requested. In other words, the Plan Sponsor must determine both a
``target percentage'' and a ``drift allowance'' for the ``liquidity
component.'' \5\ Then, funds consisting of cash and cash equivalents,
which have been allocated to the liquidity component, will be placed in
a money market fund selected by the Plan Sponsor.\6\ In making his or
her determinations, the Plan Sponsor will consider such factors as (a)
the last six months of trading activity for the Employer Stock, (b) the
total number of

[[Page 46833]]

shares in the Unitized Employer Stock Fund versus the total number of
shares held in the market, and (c) past and anticipated daily
transaction volumes.
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\5\ Section III(i)-(k) of this proposed exemption defines the
terms ``drift allowance,'' ``target percentage,'' and ``liquidity
component'' as follows:
(i) The term ``drift allowance'' refers to the range of
percentages, comprised of a maximum and minimum percentage, which is
determined and established by the Plan Sponsor as being the proper
percentages within which the liquidity component of the Unitized
Employer Stock Fund should represent of the entire market value of
such Fund on any given day.
(j) The term ``liquidity component'' means the short-term
investment vehicle which is selected by the Plan Sponsor and used to
invest any uninvested cash in the Plan's Unitized Employer Stock
Fund.
(k) The term ``target percentage'' means the number, expressed
as a percentage, which is determined and established by the Plan
Sponsor, as being the proper percentage that the liquidity component
of the Unitized Employer Stock Fund will represent of the entire
market value of such Fund (including the liquidity component and the
Employer Stock).
\6\ According to KeyBank, the Plan Sponsor generally will select
a KeyBank money market fund. Any interest earned on assets invested
in such fund will be used for the benefit of those participants who
have invested in a Plan's Unitized Employer Stock Fund. Although a
KeyBank money market fund will not charge a Plan any fees in
connection with the cash assets invested, KeyBank will receive an
account-level fee as part of its overall trustee compensation.
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5. A participant's interest in a Unitized Employer Stock Fund will
consist of ``units.'' The underlying Employer Stock of a Plan Sponsor
that is held on behalf of a Plan in the Unitized Employer Stock Fund
will constitute a security for which there is a ``generally-recognized
market'' within the meaning of section 3(18) of the Act. However, the
Employer Stock may be thinly-traded or considered appropriate to sell
in the market over a period of time.
6. KeyBank and the Plan Sponsor will enter into an individually-
customized, Policy Agreement in order to structure a Unitized Employer
Stock Fund's investment in Employer Stock. The Policy Agreement will be
developed in a manner which is consistent with the Plan, participant
self-direction, applicable provisions of the Act, and the Department's
regulations. In particular, the Policy Agreement will establish certain
administrative procedures that KeyBank will utilize in order to effect
Plan transactions involving a Unitized Employer Stock Fund, including
purchases or sales of Employer Stock held by such Fund. For example, a
Plan may provide that participants may sell (or purchase) units of the
Unitized Employer Stock Fund on a daily basis and buy (or sell) units
or shares of another investment fund under the Plan, with the sales and
purchases settling on a daily basis. In addition, a Plan may provide
that participants may sell units of the Unitized Employer Stock Fund to
receive participant distributions and loans. Further, the Policy
Agreement will define the target and drift allowance comprising the
liquidity component and include any rebalancing parameters that may be
applicable.
7. The Policy Agreement will also describe how KeyBank, as Plan
trustee, will process participant transactions. In this regard, the
Policy Agreement will set forth a cash position which the Plan Sponsor
believes will provide sufficient liquidity in the Unitized Employer
Stock Fund. This will enable KeyBank to effect participant transactions
on a daily basis. When a Plan participant sells units of a Unitized
Employer Stock Fund, the value of the units will be made available to
the participant on a specified transaction date. If the cash or cash
equivalents of the Unitized Employer Stock Fund are not sufficient,
after netting out participant purchases and sales with respect to the
Unitized Employer Stock Fund on the transaction date, Employer Stock
held in the Fund may be sold by KeyBank over a period of time in order
to complete the participant's transaction and to minimize, as much a
possible, a depressed price for Employer Stock.\7\
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\7\ To the extent that Employer Stock is sold to the Plan
Sponsor or an affiliate of an existing Plan Sponsor, KeyBank
represents that such sale will be conducted in accordance with
section 408(e) of the Act and the regulations promulgated
thereunder. However, the Department expresses no opinion herein on
whether the sale of Employer Stock to the Plan Sponsor or to an
affiliate of an existing Plan Sponsor will satisfy the terms and
conditions of section 408(e) of the Act.
In addition, the Department notes that the timing of such sales
will be subject to the general fiduciary responsibility provisions
of Part 4 of Title I of the Act. In this regard, section 404 of the
Act requires, among other things, that a fiduciary of a plan act
prudently and solely in the interest of the plan and its
participants and beneficiaries when making investment decisions on
behalf of the plan.
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In other words, if the percentage of the liquidity component falls
within the drift allowance specified in the Policy Agreement, KeyBank
will do nothing more. However, if the percentage rises above the
maximum drift allowance, KeyBank will purchase sufficient Employer
Stock in order to bring the liquidity component back into target.
Conversely, if the percentage of the liquidity component falls below
the minimum drift, KeyBank will sell Employer Stock sufficient to bring
the liquidity component back into target.
On most days, however, KeyBank notes that net participant activity
will not result in the liquidity component drifting above or below the
allowance range. As such, KeyBank will not have to go into the open
market each day to purchase or sell shares of Employer Stock.
8. On occasion, KeyBank represents that net participant activity
may exceed the balance of the liquidity component. If this happens, an
overdraft will occur in the Plan's Unitized Employer Stock Fund. Under
such circumstances, KeyBank states that it has several alternatives it
can pursue. For example, KeyBank may immediately--
Sell shares of Employer Stock sufficient in amount to
cover the overdraft and bring the liquidity component back to its
target. Such trades will ordinarily be transacted on a next business
day settlement period.
Sell shares of Employer Stock sufficient in amount to
cover the overdraft as well as bring the liquidity component back
within the drift allowance.
Request that the Plan Sponsor buy back sufficient shares
of Employer Stock to cover the overdraft as well as bring the liquidity
component back within the drift allowance for next day settlement. In
order to do so, KeyBank represents that the Plan Sponsor must (i) be
permitted to buy back shares of Employer Stock, (ii) be interested in
building its treasury position, (iii) have sufficient cash to do so,
(iv) pay a fair market price for the shares, and (v) not apply any
transaction costs. The overdraft will then be reflected on the Plan's
records for at least one business day.
Borrow money from an independent lender and charge the
cost of the temporary loan to the Plan's Unitized Employer Stock Fund.
Under this alternative, KeyBank states that once shares of Employer
Stock sufficient to cover the overdraft are sold and the liquidity
component is brought back to its target position, it will pay back the
third party lender for the amount of the loan as well as the loan fee.
Under this alternative, a loan agreement will be required which will
include parameters dictating whether KeyBank will be required to sell
shares of Employer Stock on a next day basis or within the standard
settlement time frame.
9. Assuming it must effect sales of Employer Stock in order to fund
participant requests in the event of an overdraft situation, KeyBank
proposes to adopt an interim solution. Under KeyBank's proposal, a Plan
Sponsor would be permitted to make periodic, short-term, interest-free
loans to its respective Plan under a Credit Facility Arrangement
established by KeyBank. The Credit Facility Arrangement, whose terms
will be embodied in the Policy Agreement, will be offered by KeyBank as
a service to help the Plan Sponsor address the liquidity needs of the
Plan's Unitized Employer Stock Fund in a daily trading environment. The
Credit Facility Arrangement will facilitate participant transfers
(e.g., the transfer of all or part of a participant's interest from the
Unitized Employer Stock Fund to another investment fund, or individual
shares of stock if permitted by the Plan), distributions, loans, and
other participant transactions within the Unitized Employer Stock Fund.
In other words, the Credit Facility Arrangement is directed at net
participant activity (i.e., the liquidity needs of the Unitized
Employer Stock Fund as a whole rather than individual participant
activity). The Credit Facility Arrangement will allow a Plan to--
Obtain short-term funds from the Plan Sponsor in order to
implement participant directions with respect to daily transactions
involving the Unitized Employer Stock Fund, as of a specified
transaction valuation date (see Representation 10).
Effect sales of Employer Stock held in the Unitized
Employer Stock Fund in

[[Page 46834]]

an orderly fashion. Without the Credit Facility Arrangement, the
KeyBank might be required to sell a large block of Employer Stock held
in the Plan's Unitized Employer Stock Fund on a specified date at a
depressed price.
Repay amounts borrowed from the Plan Sponsor with proceeds
received from the sale of Employer Stock.

By participating in the Credit Facility Arrangement, a Plan will not be
subject to restrictions that will impact on the transferability of
units in the Unitized Employer Stock Fund or curtail daily trading by
participants. Also, by participating in the Credit Facility
Arrangement, the Plan will not have to obtain credit from an unrelated,
third party and pay a loan fee to such lender. Accordingly, KeyBank
requests an administrative exemption from the Department with respect
to the implementation of such arrangement.
10. As noted in Representation 9, the proposed Credit Facility
Arrangement will facilitate daily trading of the Unitized Employer
Stock Fund by providing required liquidity. This will enable a Plan's
Unitized Employer Stock Fund to execute participant transactions at the
fair market value of the Fund units. The valuation will be based on a
specified transaction valuation date that has been established under
the Plan and the Policy Agreement.
Typically, the transaction valuation date for a Plan with daily
trading will be any day on which KeyBank and the NYSE (or any other
national securities exchange on which Employer Stock is primarily
traded) are open for business and are able to transact trades. The
value of units in a Unitized Employer Stock Fund (including the value
of Employer Stock, cash or cash equivalents and accrued, but not
payable, dividends or earnings) will be based on the closing price of
the Employer Stock for the trading day coinciding with, or immediately
proceeding the transaction valuation date. The closing price will be
the final price at which the Employer Stock has been traded on the NYSE
(or other applicable exchange on which Employer Stock is primarily
traded). KeyBank will determine a per unit value (i.e., the NAV) by
dividing the total value of the Unitized Employer Stock Fund by the
total number of units held by Plan participants. KeyBank will make
appropriate adjustments for accruals and expenses of the Unitized
Employer Stock Fund.
11. Generally, participant transactions that are initiated by
KeyBank on a given day (i.e., prior to 4:00 p.m.) will be processed
after the close of market at the day's NAV for the Unitized Employer
Stock Fund. Should a KeyBank representative become aware of an
overdraft problem at the beginning of the next business day, the
representative will determine if the overdraft situation is within the
parameters of the Policy Agreement. The KeyBank representative will
then inform the Plan Sponsor of the overdraft and the Plan Sponsor will
make an interest-free loan to the Plan under the Credit Facility
Arrangement in order to provide the necessary liquidity to the Plan's
Unitized Employer Stock Fund. The loan amount will be determined by
KeyBank and such loan will be made by the Plan Sponsor to the Plan
through wire transfer or account debit authorization.
12. For purposes of effecting sales of Employer Stock, KeyBank will
use unaffiliated brokers unless the Plan Sponsor specifically requires
the use of a KeyBank affiliated broker. If an affiliated broker is
utilized, KeyBank represents that it will comply with the terms and
conditions of Prohibited Transaction Class Exemption (PTCE) 86-128, 51
FR 41686 (November 18, 1986).\8\
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\8\ In pertinent part, PTCE 86-128 permits a plan fiduciary to
effect or execute securities transactions on behalf of a plan in
return for a fee, provided that certain enumerated conditions are
met. The Department is, however, providing no opinion on whether
such transactions satisfy the terms and conditions of PTCE 86-128.
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Thus, in most cases, KeyBank expects that it will sell Employer
Stock on a three day settlement basis and on the same day as the loan
is made to the Plan. However, in some cases, an orderly liquidation of
the Employer Stock may need to occur over a longer period of time.
Generally, the amount of Employer Stock sold by KeyBank at one time
will not be more than 25-30 percent of the daily trading activity in
the Employer Stock.\9\ However, in rare cases,\10\ an orderly
liquidation of the Employer Stock may need to occur over a period of
weeks or a few months depending upon the size of the block of Employer
Stock and the trading volume of such stock. It is expected that a
KeyBank broker will obtain the best execution and price for the sale of
the Employer Stock within a given time frame as well as within the
Plan's requirements.
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\9\ This percentage parameter also applies to KeyBank's
purchases of Employer Stock for a Plan. KeyBank has adopted an
internal policy to the effect that purchases of Employer Stock will
be made in accordance with Rule 10b-18 (Rule 10b-18) of the
Securities and Exchange Act of 1934 (the 1934 Act). Rule 10b-18
serves as a ``safe harbor'' for an issuer or affiliated purchaser to
purchase shares of the issuer without violating the anti-
manipulation (e.g., market-making) provisions of sections 9(a)(2) or
10(b) of the 1934 Act. In general, purchases are made in accordance
with Rule 10b-18 if each of the following conditions is met: (a) the
volume of purchases, other than block purchases, on any given day
does not exceed 25 percent of the trading volume of the security;
(b) the purchase price may not be more than (i) for listed stocks,
the higher of the current independent bid quotation or the last
independent sale price on the exchange, and (ii) for stocks traded
over the counter, the lowest current independent offer quotation;
(c) the purchases may not be the opening transaction on the market
or occur during the last half hour of the schedules close of trading
on the market; and (d) the purchases are made from or through one
broker on a single day, unless the purchase was not solicited on
behalf of the issuer or affiliated purchaser.
The percentage parameter for purchases or sales of Employer
Stock by KeyBank may be exceeded through an exception to Rule 10b-18
volume limitation. In this regard, Rule 10b-18 does not count block
purchases (i.e., a quantity of stock that either has a purchase
price of $200,000 or more or is at least 5,000 shares and has a
purchase price of at least $50,000) toward the volume limitation.
Normally, however, KeyBank will not exceed the percentage parameters
because its policy is not to open the market or move the market when
it trades Employer Stock.
\10\ The liquidity needs of the Unitized Employer Stock Fund and
the market for Employer Stock will necessitate the situation in
which an orderly liquidation of Employer Stock may need to occur
over a period of months or a few weeks. For example, (a) if it is
known that a 10 percent shareholder is liquidating his or her
interest in the Plan Sponsor in the market, large sales of Employer
Stock will typically yield a lower price than smaller sales over a
period of weeks or a few months; (b) if a large amount of Employer
Stock is to be sold by the Plan (e.g., part of the business is sold
and a large number of employees become eligible for and elect to
receive distributions from the Plan), an orderly sale of Employer
Stock by the Plan would normally yield a higher price; or (c) if the
Plan Sponsor determines that it would be imprudent or unlawful to
sell the Employer Stock at a particular time (e.g., it jeopardizes
the Plan's qualified tax status or it would violate a securities
law), then sales of Employer Stock would be made as prudent and
lawful as possible and would be extended over a period of time.
---------------------------------------------------------------------------

As noted above, the price at which the Employer Stock will be sold
by KeyBank will be determined on a transactional basis.\11\ Any
Employer

[[Page 46835]]

Stock sold on the open market by KeyBank will be at the market price.
Occasionally, KeyBank may sell the Employer Stock in a private sale.
The price will still be determined on a transactional basis and will
reflect such stock's current fair market value.
---------------------------------------------------------------------------

\11\ In contrast, participant transactions involving the
Unitized Employer Stock Fund, which are described above in
Representations 10 and 11 of this proposed exemption, will be made
after the close of market based on the unit value of the Unitized
Employer Stock Fund at the closing price of the Employer Stock held
by the Unitized Employer Stock Fund. Participants will also receive
confirmation of the unit price at which their transactions (e.g.,
distributions, transfers, etc.) are made.
---------------------------------------------------------------------------

13. The proposed exemption will be subject to a number of
structural safeguards. First, each loan made under the Credit Facility
Arrangement will provide short-term funds to the Plan for a period of
no longer than 90 days, and the purpose of each loan will be to
facilitate participant transfers, distributions, loans and other
participant transactions involving the Plan's Unitized Employer Stock
Fund. Second, to provide liquidity to facilitate daily transactions
with a Plan's Unitized Employer Stock Fund, the maximum amount of
short-term funds available to the Plan under the Credit Facility
Arrangement, in the aggregate, will not exceed 25 percent of the fair
market value of the Plan's Unitized Employer Stock Fund.\12\ Third,
each loan made under the Credit Facility Arrangement will be repaid
with proceeds from the sale of Employer Stock held in the Unitized
Employer Stock Fund. Fourth, each loan made under the Credit Facility
Arrangement will be unsecured and no commitment fees, interest or
commissions will be paid by the Plan. Fifth, in the event of a loan
default or delinquency, the Plan Sponsor will have no recourse against
the Plan. Sixth, as described in Representation 15, each loan will be
initiated, accounted for and administered by KeyBank, as the
independent fiduciary, which will maintain written records of each
Credit Facility Arrangement and monitor, on behalf of the affected
Plan, the terms and conditions of the exemption, at all times.
---------------------------------------------------------------------------

\12\ KeyBank notes that the percentage parameter for purchases
and sales of Employer Stock has no correlation to the referenced
condition.
---------------------------------------------------------------------------

14. Absent the requested exemption, KeyBank is concerned that loans
to the Plan from the Plan Sponsor and the repayment of such loans will
constitute prohibited transactions under sections 406(a) and 406(b) of
the Act, as such provisions relate to extensions of credit by a party
in interest to a plan, the transfer of assets between a plan and a
party in interest, and self-dealing by a plan fiduciary. In addition,
KeyBank represents that short-term extensions of credit to facilitate
securities transactions are covered under PTCE 80-26 (45 FR 28545,
April 29, 1980).\13\ However, KeyBank notes that PTCE 80-26 would cover
loans entered into under the Credit Facility Arrangement only if the
loan proceeds are used to pay benefits or if the loans are limited in
duration to three business days. Therefore, KeyBank states that an
individual exemption is needed to facilitate participant transfers and
loans with a Unitized Employer Stock Fund under the Credit Facility
Arrangement. This will allow loan periods to exceed three business days
and permit the sale of Employer Stock in an orderly fashion.
---------------------------------------------------------------------------

\13\ PTCE 80-26 permits parties in interest to make interest-
free loans to an employee benefit plan (a) to facilitate the payment
of ordinary operating expenses of the plan, including the payments
of benefits in accordance with the terms of the plan and periodic
premiums under an insurance or annuity contract or (b) for a period
of not more than three days, for a purpose incidental to the
ordinary operation of the plan.
---------------------------------------------------------------------------

15. As the independent fiduciary, KeyBank believes the Credit
Facility Arrangement will be in the best interests of a Plan and its
participants and beneficiaries. With the Credit Facility Arrangement,
KeyBank represents that the Plan will be able to obtain, without
payment of interest or costs associated under a similar arrangement
with an unrelated party, short-term funds from the Plan Sponsor which
will enable participants to make daily transactions to and from the
Unitized Employer Stock Fund as of the transaction valuation date. In
forming its opinion, KeyBank will consider the Plan's overall
investment portfolio, liquidity requirements and investment objectives
and policies. KeyBank will determine whether the Credit Facility
Arrangement is consistent with and furthers each of these aspects of a
Plan.
KeyBank agrees to monitor the Credit Facility Arrangement
throughout its duration on behalf of the Plan and take any appropriate
actions to safeguard the interests of the Plan. In this regard, KeyBank
will be given the authority to monitor, at all times, the Credit
Facility Arrangement as part of its arrangements with the Plan Sponsor
under the Policy Agreement regarding the structure of the Unitized
Employer Stock Fund. In this regard, KeyBank will--
Monitor the amount of cash contained in the Unitized
Employer Stock Fund and provide the Plan Sponsor with information
regarding this matter. In turn, the Plan Sponsor will determine the
amount of cash necessary to provide sufficient liquidity for KeyBank to
process Plan transactions.
Review and report the proportion of cash to Employer Stock
held within the Unitized Employer Stock Fund at the completion of each
transaction involving such Fund.
Sell sufficient shares of Employer Stock as are necessary
to bring the cash portion of the Fund within the target percentage.
Consent to a modification of the cash position of the
Unitized Employer Stock Fund if KeyBank and the Plan Sponsor determine
that such revised position is appropriate based on overall Plan
activity and KeyBank's standard operating procedures.
Have sole responsibility (i) with respect to the
unaffiliated broker and the primary exchange through which the purchase
and sale of Employer Stock will occur; and (ii) whether to execute the
transaction as one or a series of more than one trade.
Use best efforts to effectuate trades involving Employer
Stock in an efficient manner which is consistent with its obligations
under the Act.
In addition, KeyBank will provide each Plan fiduciary with an
Independent Fiduciary Statement reflecting KeyBank's determinations
prior to permitting the Credit Facility Arrangement to become
effective. Unless a particular application of the Credit Facility
Arrangement to an overdraft situation does not meet the standards set
forth in the Policy Agreement, the interest-free loan will be processed
in accordance with the Policy Agreement.
KeyBank represents that its ongoing independent involvement in, and
oversight of, the Credit Facility Arrangement program will also provide
protection for the Plan and its participants and beneficiaries.
Consistent with the relevant Plan provisions, KeyBank will be solely
responsible for determining when and how much to borrow under the
Credit Facility Arrangement as established by the Plan Sponsor pursuant
to the Policy Agreement between KeyBank and Plan Sponsor, and to cause
the Plan to repay loan amounts within the 90 day period. As stated
above, KeyBank will receive no additional fee or other compensation as
a result of the Credit Facility Arrangement.
16. KeyBank represents that the proposed transactions will satisfy
the statutory conditions for an exemption under section 408(a) of the
Act because:
(a) The Credit Facility Arrangement will enhance a Plan Sponsor's
ability to provide Plan participants with a Unitized Employer Stock
Fund featuring daily transactions and valuations, thereby affording
participants the

[[Page 46836]]

flexibility of moving into or out of the Fund on a daily basis, with
the fair market value of Fund units established as of an established
transaction valuation date.
(b) The Credit Facility Arrangement will allow the Plan Sponsor to
make short-term funds available to a Plan in order to facilitate Plan
participant transactions with the Unitized Employer Stock Fund.
(c) The Credit Facility Arrangement will permit the orderly sale of
Employer Stock thereby enhancing the Unitized Employer Stock Fund's
asset value for all Plan participants and permitting a better return to
the Fund than could be achieved if sales were to be made as of a given
trading day to complete participant transactions.
(d) Each loan made under the Credit Facility Arrangement will
provide short-term funds to the Plan for a period of no longer than 90
days and the purpose of each loan will be to facilitate participant
transfers, distributions, loans and other participant transactions
involving the Plan's Unitized Employer Stock Fund.
(e) The maximum amount of short-term funds available to the Plan
under the Credit Facility Arrangement will, in the aggregate, not
exceed 25 percent of the Plan's Unitized Employer Stock Fund.
(f) Each loan made under the Credit Facility Arrangement will be
repaid with proceeds from the sale of Employer Stock held in the
Unitized Employer Stock Fund.
(g) For purposes of repaying loans under the Credit Facility
Arrangement, the sales price for the Employer Stock will be based upon
its fair market value as determined on the NYSE or other applicable
securities exchange on which Employer Stock is primarily traded, as of
the date of the transaction.
(h) Each loan made under the Credit Facility Arrangement will be
unsecured and no commitment fees, interest, commissions will be paid by
the Plan.
(i) In the event of a loan default or delinquency, the Plan Sponsor
will have no recourse against the Plan.
(j) Each loan will be initiated, accounted for and administered by
KeyBank, the independent fiduciary, which will maintain written records
of each Credit Facility Arrangement and monitor the terms and
conditions of the exemption, on behalf of the affected Plan, at all
times.

Notice to Interested Persons

Notice of the proposed exemption will be provided by first-class
mail to each known Plan Sponsor within 30 days after the publication of
the notice of proposed exemption in the Federal Register. Such notice
will include a copy of the notice of proposed exemption, as published
in the Federal Register, as well as a supplemental statement, as
required pursuant to 29 CFR 2570.43(b)(2), which shall inform
interested persons of their right to comment on and/or to request a
hearing. Comments and hearing requests with respect to the proposed
exemption are due 60 days after the date of publication of the proposed
exemption 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.)

Appendix

Following is a simplified example illustrating the drift
allowance, the target position and the liquidity component.
Suppose that the initial funding of the ABC Company Stock Option
(Day One) is a cash and an in-kind contribution of $10 million.
At the establishment of the option, the Plan Sponsor, following
discussions with KeyBank, sets the liquidity component at 1 percent
and the drift allowance at 0.2 percent.
As such, the in-kind portion of the $10 million contribution is
$9.9 million. $100,000 of the contribution will be made in cash and
will be kept ``liquid.'' The $100,000 amount will be invested in a
short-term investment fund with KeyBank. Assuming shares of Employer
Stock cost $9 per share (closing price on Day One), the in-kind
contribution will be 1.1 million shares.
The Unitized Employer Stock Fund's balance sheet will be
created. In addition, an initial unit value will be determined. For
these purposes, KeyBank has assumed a $10 unit value to start, which
may bear no direct relationship to the actual value of the Employer
Stock. Thus:

On Day One, net participant activity received prior to the cut-off
time (i.e., 4:00 p.m.) including contributions, distributions and
transfers is acted upon and totaled after the close of the market on
Day One. Then, prior to the market opening on the next business day
(Day Two) such amount is either added or subtracted from the balance of
the Unitized Employer Stock Fund.
This may be illustrated as follows:

----------------------------------------------------------------------------------------------------------------
MV Units Unit value
----------------------------------------------------------------------------------------------------------------
Opening Balance................................................. $10,000,000 1,000,000 $10.00
E/ee Contributions.............................................. 5,000 500 10.00
E/er Contributions.............................................. 10,000 1,000 10.00
Transfers In.................................................... 7,000 700 10.00
Distributions................................................... (8,000) (800) 10.00
Loans........................................................... (3,000) (300) 10.00
Transfers Out................................................... (12,000) (1,200) 10.00
-----------------------------------------------
(Sub-Total)................................................. 9,999,000 999,000 10.00
----------------------------------------------------------------------------------------------------------------

Total Net Participant Activity = ($1,000) (i.e., $5,000 + 10,000 +
7,000 - [8,000 + 3,000 + 12,000]

KeyBank next determines the new balance in the liquidity component
by posting the net activity against it. In this example,
$100,000 (representing the cash portion of the in-kind
contribution)--$1,000 (representing net participant activity) =
$99,000.
Prior to market opening on the next business day (Day Two), the
liquidity component is $99,000/$9,999,000 or 0.0099009. Since the
liquidity component is within the 1 percent target, KeyBank does not
need to do anything on Day Two.
At the close of market on Day Two, KeyBank will determine the value
of the Unitized Employer Stock Fund (both in

[[Page 46837]]

terms of dollars and unit value) by pricing the shares of the Employer
Stock, adding the value of the liquidity component, adding any actual
or accrued earnings, and subtracting actual expenses occurring on Day
Two. Thus, using the following assumptions,

The 1.1 million shares, priced at $9.25 (the new closing price for the Employer Stock) = $10,175,000
The liquidity component = 99,000
Earnings = 5,000
Expenses (occurring on Day Two ) = (15,000)
---------------
$10,264,000

----------------------------------------------------------------------------------------------------------------
MV Units Unit value
----------------------------------------------------------------------------------------------------------------
Opening Balance................................................. $10,000,000 1,000,000 $10.00
E/ee Contributions.............................................. 5,000 500 10.00
E/er Contributions.............................................. 10,000 1,000 10.00
Transfers In.................................................... 7,000 700 10.00
Distributions................................................... (8,000) (800) 10.00
Loans........................................................... (3,000) (300) 10.00
Transfers Out................................................... (12,000) (1,200) 10.00
-----------------------------------------------
(Sub-Total)................................................. 9,999,000 999,900 10.00
Earnings........................................................ 5,000 .............. ..............
Expenses........................................................ (15,000) .............. ..............
Unrealized Apprec............................................... 275,000 .............. ..............
-----------------------------------------------
Closing Balance............................................. $10,264,000 999,900 10.2650
----------------------------------------------------------------------------------------------------------------

Net participant activity received prior to cut-off time on Day Two
would be processed after the close of the market on Day Two at the
$10.2650 unit value. Assume for purposes of the illustration that there
was no net participant activity on Day Two.
Once the Unitized Employer Stock Fund is valued, KeyBank will
determine what percentage of the liquidity component is the value of
the overall Fund. This is done so that KeyBank can determine whether it
is necessary to trade shares of the Employer Stock on Day Three in
order that the liquidity component can stay within its target
allowance. As such, $99,000/$10,264,000 = .0096453.
Since the liquidity component on Day Two is within the appropriate
range, i.e., less than 1.2 percent but more than 0.8 percent, KeyBank
will do nothing more to create (or reduce) additional liquidity.
On the other hand, if the net outflow of participant activity
received prior to the cut-off time on Day One is more than the
liquidity component, for example, $110,000, the following will happen:

KeyBank will then post the net activity against the liquidity
component of the Unitized Employer Stock Fund. Using the foregoing
example, the account is overdrawn by $10,000, i.e., $100,000 less net
activity of $110,000.
Prior to market opening on the next business day (Day Two), the
liquidity component is negative.
Under this circumstance, KeyBank will refer to the Policy Agreement
to determine what actions it should undertake to clear the overdraft
and restore the Unitized Employer Stock Fund's liquidity component back
to the target allowance.
KeyBank must determine how much liquidity the Unitized Employer
Stock Fund requires to bring it back to target. In addition, KeyBank
must clear the $10,000 overdraft. As such,

1% of $9,890,000 = $98,900 + $10,000 = $108,900.
1.2% of $9,890,000 = $118,680 + $10,000 = $128,680.

Thus, KeyBank will be required to sell shares of Employer Stock
sufficient in amount to be at least $108,900 but not exceeding
$128,680.

Brookshire Brothers, Ltd. (Brookshire), Located in Lufkin, Texas

[Application No. D-10894]

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 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, August 10, 1990).
Section I. Transaction
If the exemption is granted, the restrictions of section
406(a)(1)(A)

[[Page 46838]]

through (D) of the Act and the sanctions resulting from the application
of section 4975 of the Code, by reason of section 4975(c)(1)(A) through
(D) of the Code, shall not apply to the establishment by Brookshire of
a minimum price guarantee (the Minimum Price Guarantee) for the
valuation and purchase by Brookshire of Profit Sharing Stock owned by
the Brookshire Brothers Employee Stock Ownership Plan (the ESOP),
provided the conditions set forth in Section II are satisfied:
Section II. Conditions
A. The ESOP shall pay no consideration, interest or other fee or
expense in connection with the Minimum Price Guarantee.
B. The Minimum Price Guarantee shall expire on the first date after
December 22, 1999 upon which the fair market value of a share of the
Profit Sharing Stock exceeds the minimum price per share established by
the Minimum Price Guarantee.
Section III. Definitions
A. The term ``Brookshire'' means Brookshire Brothers, Ltd., a Texas
limited partnership with headquarters in Lufkin, Texas.
B. The term ``Profit Sharing Plan'' means the Brookshire Brothers
Profit Sharing Plan, as amended and restated effective April 30, 1988.
C. The term ``Profit Sharing Stock'' means approximately 600,182
shares of the common stock of Brookshire Brothers Holding, Inc.,
Brookshire's parent company, transferred from the Profit Sharing Plan
to the ESOP on December 19, 1999.
D. The term ``Minimum Price Guarantee'' means the guarantee
established pursuant to the ESOP whereby the value of the Profit
Sharing Stock will be equal to the price of such stock prior to
December 22, 1999 plus a 4% annual increase.
Effective Date: The proposed exemption, if granted, will be
effective December 19, 1999.

Summary of Facts and Representations

1. Brookshire Brothers, Ltd. (Brookshire), has its principal place
of business in Lufkin, Texas, and is engaged in the retail grocery
industry.
2. Brookshire is the sponsor of the Brookshire Brothers Employee
Stock Ownership Plan (the ESOP), adopted effective April 26, 1998. The
ESOP has approximately 6,416 participants and approximately $47,385,548
in assets.
3. Brookshire also sponsors the Brookshire Brothers Profit Sharing
Plan (the Profit Sharing Plan). As of December 19, 1999, the Profit
Sharing Plan held approximately 600,182 shares of the common stock (the
Stock) of Brookshire Brothers Holding, Inc. (Holding), Brookshire's
parent company. Holding's Stock is not publicly traded.
4. On December 19, 1999, the Stock was transferred from the Profit
Sharing Plan to the ESOP. Participants' respective interests in the
Stock were credited to separate profit sharing accounts in the name of
each participant established under the ESOP (Profit Sharing Accounts).
5. On December 22, 1999, the ESOP purchased 2,746,255 additional
shares of the Stock from approximately 300 to 350 stockholders (the
Historical Stockholders), which represented a controlling interest in
Holding, in a cash-out merger (Cash-Out Merger).\14\ To accomplish the
Cash-Out Merger, the ESOP formed a subsidiary which then merged with
and into Holding, with Holding surviving the merger. The Historical
Stockholders of Holding received approximately $15.46 in cash, $2.44 in
a note and .32 shares of Holding common stock for each share of the
Stock owned prior to the Cash-Out Merger.\15\ After the Cash-Out
Merger, the ESOP owned approximately 71.8% of Holding and the
Historical Stockholders owned 28.2% of Holding. In order to purchase
the shares, the ESOP borrowed $62,765,907 from Brookshire and
$9,900,000 from Holding, in transactions that Brookshire represents
complied with the statutory exemptions contained in section 408(b)(3)
of the Act and section 4975(d)(3) of the Code.\16\
6. The incurrence of debt in the Cash-Out Merger leveraged
Brookshire and has depressed Holding's stock price. The value of the
Stock as of April 22, 1999 was $22 per share, while the value of the
Stock immediately following the Cash-Out Merger was approximately $14
per share. As of April 29, 2000, the value of the Stock was $15.21 per
share. The 2000 appraisal was performed by Willamette Valuation
Services.
7. To counteract the effect of the debt on the Profit Sharing Plan
participants who had account balances prior to the Cash-Out Merger, the
ESOP was designed to guarantee that the value of the Stock in the
Profit Sharing Accounts would be at least equal to the price of such
Stock before the Cash-Out Merger transaction (i.e., $22 per share) plus
a 4% annual increase (the Minimum Price Guarantee). This would ensure
that in the short run the Profit Sharing Plan participants would not be
negatively impacted by the Cash-Out Merger transaction.
8. The Minimum Price Guarantee applies to the price per share that
will be received by ESOP participants and beneficiaries for the Stock
in their Profit Sharing Accounts upon a distribution of their Profit
Sharing Accounts due to their retirement, death, disability or
termination of employment. Participants do not have the right to a
distribution from their Profit Sharing Accounts in the form of Stock;
accordingly, if a distribution is to be made, the ESOP's trustee will
put the Stock to Brookshire and the value of the Profit Sharing Account
will be distributed to the participant in cash. Brookshire will bear
the cost of any difference between the

[[Page 46839]]

actual value of the Stock and its value pursuant to the Minimum Price
Guarantee.
---------------------------------------------------------------------------

\14\ Brookshire represents that the acquisition of Holding's
stock by the ESOP was exempt by reason of the statutory exemption
under section 408(e). In relevant part, section 408(e) of the Act
provides that sections 406 and 407 of the Act shall not apply to the
acquisition or sale by a plan of qualifying employer securities as
defined in section 407(d)(5) of the Act, if no commission is charged
and the plan is an eligible individual account plan. Section
407(d)(5) of the Act defines a ``qualifying employer security'' to
mean an employer security that is stock, a marketable obligation or
an interest in a publicly traded partnership. An ``employer
security'' is defined in section 407(d)(1) of the Act as a security
issued by an employer of employees covered by the plan, or by an
affiliate of such employer. Section 407(d)(7) of the Act sets forth
the circumstances under which an entity will be considered an
affiliate of another entity, and states in relevant part: ``A
corporation is an affiliate of an employer if it is a member of any
controlled group of corporations [as defined in section 1563(a) of
the Code] * * * of which the employer who maintains the plan is a
member. * * * An employer which is a person other than a corporation
shall be treated as affiliated with another person to the extent
provided by regulations of the Secretary.'' In this regard,
Brookshire represents that Brookshire and Holding are members of the
same controlled group of corporations under section 1563(a) of the
Code and, therefore, are affiliates for purposes of section
407(d)(7) of the Act. The Department expresses no opinion in this
proposed exemption as to whether the acquisition and holding by the
ESOP of Holding's common stock would be covered by section 408(e) of
the Act and the regulations thereunder. The Department is not
providing any relief herein for the acquisition and holding by the
ESOP of Holding's common stock.
\15\ The ESOP did not receive this consideration with respect to
the Profit Sharing Stock. The ESOP held the Profit Sharing Stock
prior to the Cash-Out Merger. The ESOP then acquired additional
shares in the Cash-Out Merger, which was treated as a stock purchase
for federal income tax purposes. Since the ESOP was the purchaser of
additional shares, the Profit Sharing Stock already held by the ESOP
was not cashed out.
\16\ The Department expresses no opinion as to whether the loans
satisfied section 408(b)(3) of the Act and section 4975(d)(3) of the
Code. The Department also wishes to note that ERISA's general
standards of fiduciary conduct would apply to the purchase of the
Stock by the ESOP and the accompanying extensions of credit, and
that satisfaction of the conditions of this proposal, if granted,
should not be viewed as an endorsement of the entire transaction by
the Department. Section 404(a) of the Act requires, among other
things, that a plan fiduciary discharge his duties with respect to a
plan solely in the interest of the plan's participants and
beneficiaries in a prudent fashion. Accordingly, the plan fiduciary
must act prudently with respect to the decision to enter into an
investment transaction.
---------------------------------------------------------------------------

9. The Minimum Price Guarantee will not take effect unless a
prohibited transaction exemption is received from the Department. The
Minimum Price Guarantee will expire as of the first date that the fair
market value of Holding Stock exceeds the minimum price established by
the guarantee following the Cash-Out Merger (i.e., $22 per share plus
the 4% annual increase).
10. Under the terms of the ESOP, the Stock will be valued by the
independent trustee at least annually on the last day of the plan year,
and on such other date or dates deemed necessary by the plan
administrator. The trustee is LaSalle Bank, N.A., which has no other
relationship with Brookshire or Holding. The trustee is required to
determine the value of the Stock in good faith and based on all
relevant factors for determining the fair market value of securities.
The trustee's determination will include an appraisal of the Stock by
an independent appraiser hired by the trustee.
11. In summary, it is represented that the proposed transaction
satisfies the statutory criteria for an exemption under section 408(a)
of the Act as follows:
(a) The exemption is administratively feasible because it involves
only the application of the Minimum Price Guarantee;
(b) the exemption is in the interests of the ESOP and its
participants and beneficiaries because such participants and
beneficiaries will be protected until the value of the Stock recovers;
and
(c) the exemption is protective of the rights of the ESOP's
participants and beneficiaries because the total cost of the Minimum
Price Guarantee will be borne by Brookshire.

Notice to Interested Persons

Notice of the proposed exemption will be provided to all interested
persons by first class mail or personal delivery within 30 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). Comments and requests for
a public hearing are due within sixty (60) days following the
publication of the proposed exemption in the Federal Register.

FOR FURTHER INFORMATION CONTACT: Karen Lloyd of the Department,
telephone (202) 219-8194. (This is not a toll-free number).

The Golden Comprehensive Security Program (the Security Program), The
Golden Retirement Savings Program (the Savings Program); and
(collectively, the Plans); Located in New York, New York

[Application Nos. D-10913; D-10914]

Proposed Exemption

The Department is considering granting an exemption under the
authority of section 408(a) of the Act and section 4975(c)(2) of the
Code and in accordance with the procedures set forth in 29 CFR part
2570, subpart B (55 FR 32836, August 10, 1990). If the exemption is
granted, the restrictions of sections 406(a), 406(b)(1) and (b)(2) and
407(a) of the Act and the sanctions resulting from the application of
section 4975 of the Code, by reason of section 4975(c)(1)(A) through
(E) of the Code, shall not apply, effective January 27, 2000, to the
past acquisition and holding by the Savings Program of 1,896.294
publicly traded warrants and by the Security Program of 2,073.554
publicly traded warrants (the Warrants) of Golden Books Family
Entertainment, Inc. (the Employer), a party in interest with respect to
the Plans, provided that the following conditions were met:
(a) The acquisition and holding of the Warrants by the Plans
occurred in connection with the Employer's bankruptcy proceeding (the
Bankruptcy) pursuant to which all holders of the old common stock (the
Old Stock) of the Employer were treated in the same manner;
(b) The Plans had little, if any, ability to affect the negotiation
of the Employer's plan of reorganization with respect to the bankruptcy
proceeding;
(c) The Warrants were acquired automatically and without any action
on the part of the Plans; and
(d) The Plans did not pay any fees or commissions in connection
with the receipt of the Warrants, nor did the Plans pay any fees or
commissions in connection with the holding of the Warrants.
Effective Date: This exemption, if granted, will be effective as of
January 27, 2000.

Summary of Facts and Representations

1. The Employer is a Delaware corporation with its principal place
of business in New York, New York. It publishes, produces, licenses and
markets an extensive range of children's and family-related media and
entertainment products. The Employer has two business segments, which
it operates primarily through its principal operating subsidiary,
Golden Books Publishing: (i) Consumer Products, which includes its
Children's Publishing division, and (ii) Entertainment, which operates
as the Golden Books Entertainment Group division. As of June 16, 2000,
the Employer employs approximately 560 individuals, calculated on a
full-time equivalent basis.
2. The Savings Program and the Security Program are both defined
contribution profit sharing plans maintained by Golden Books Publishing
pursuant to sections 401(a) and 401(k) of the Code. The Savings Program
covers groups of employees of Golden Books Publishing and any other
United States subsidiary of Golden Books Publishing to which the
Savings Program has been extended by his or her employer, either
unilaterally or through collective bargaining. Participants under the
Savings Program generally include part-time and full-time hourly
employees and retired hourly (collectively bargained and non-
collectively bargained) employees. The Savings Program is administered
by the GBPC Benefit Plans Administration Committee (the Committee)
appointed by the Employer. As of December 31, 1999, the Savings Program
had approximately 639 participants and total assets in excess of $31
million.
The Security Program generally covers salaried employees (i.e.,
employees whose basic compensation for services is paid in fixed
amounts at stated intervals without regard to the number of hours
worked) of Golden Books Publishing and any other United States
subsidiary of Golden Books Publishing to which the Security Program has
been extended by his or her employer. Employees who belong to a
collective bargaining unit of employees represented by a collective
bargaining representative are not eligible to participate in the
Security Program. The Security Program is administered by the
Committee. As of December 31, 1999, the Security Program had
approximately 822 participants and total assets in excess of $64
million.
At the time of the transaction, the percentage of the fair market
value of the total assets of the Security Program that was involved in
the transaction was less than 1%. The percentage of the fair market
value of the total assets of the Savings Program that was involved in
the transaction was less than 1%.
3. Putnam Fiduciary Trust Company (the Trustee), a trust company
having its principal place of business in Boston, Massachusetts, is the
trustee for the Plans. All money and such other property as shall be
acceptable to the Trustee as shall from time to time be paid or
delivered to the Trustee, all investments made therewith and

[[Page 46840]]

proceeds thereof and all earnings and profits thereon, less the
payments which shall have been made by the Trustee, are held under the
Western Publishing Group, Inc. Master Retirement Trust, the Plans'
trust. The Trustee exercises no investment discretion over the assets
involved in the transaction.
4. Under each of the Plans, participants previously could elect to
have a portion or all of their tax deferred contributions, employer
matching contributions and participant after-tax contributions invested
in one or more investment funds established by the Committee, including
the Parent Company Stock Fund, which invested solely in shares of Old
Common Stock. In addition, employer profit sharing contributions could
be, until the amendment of the Plans to eliminate the Parent Company
Stock Fund as an investment alternative, invested by the Committee in
the Parent Company Stock Fund. Approximately 473 participants out of a
total of approximately 1,461 participants in the Plans have assets
invested in the Parent Company Stock Fund.
5. In February 1999, the Employer reached an agreement with its
major creditors pursuant to which its then existing long-term debt
would be significantly reduced and its existing trade obligations would
be paid in full. In accordance with that agreement, the Employer, as
well as Golden Books Publishing and Golden Books Home Video, Inc. (the
Debtors) filed petitions for reorganization under Chapter 11 of the
United States Bankruptcy Code on February 26, 1999. Under an order
dated September 24, 1999, the Bankruptcy Court confirmed the Debtor's
Amended Joint Plan of Reorganization (the Reorganization Plan).
Significant components of the Reorganization Plan were approved by the
Bankruptcy Court on December 22, 1999. On January 27, 2000 (the
Effective Date), the Debtors formally emerged from protection under the
Bankruptcy Code upon the consummation of the Reorganization Plan.
The Reorganization Plan (i) divided claims and equity interests
into various classes, (ii) set forth the treatment afforded to each
class, and (iii) provided the means by which the Debtors would be
reorganized under Chapter 11 of the Bankruptcy Code. Under the
Reorganization Plan, the Debtors significantly reduced their long-term
debt, secured a $60 million financing arrangement and are paying all
trade debt in full with interest.
Specifically, the Reorganization Plan provided for, among other
things, the cancellation of all of the approximately 28 million shares
of Old Common Stock outstanding at January 27, 2000 and the issuance to
all holders of Old Common Stock, including the Plans, as of such date
of 175,000 Warrants, in the aggregate .\17\ The Warrants have normal
and customary terms for a security of this nature.
---------------------------------------------------------------------------

\17\ The Department also wishes to note that ERISA's general
standards of fiduciary conduct would apply to the past acquisition
and holding of the Old Stock by the Plans. In this regard, section
404(a) of the Act requires, among other things, that a plan
fiduciary discharge his duties with respect to a plan solely in the
interest of the plan's participants and beneficiaries in a prudent
fashion.
---------------------------------------------------------------------------

Approximately 473 participants (the Participants) under the Plans
were effected by the cancellation of the Old Common Stock and the
issuance of the Warrants. On the Effective Date, the Participants held
through the Parent Company Stock Fund 731,753.322 shares of Old Common
Stock and upon consummation of the Reorganization Plan the Participants
received in the aggregate 3,969.848 Warrants to purchase an equal
number of shares of New Common Stock. The Savings Program holds
1,896.294 Warrants and the Security Program holds 2073.554 Warrants.
The Reorganization Plan was approved by the affirmative vote of a
majority of the more than 28 million outstanding shares of Old Common
Stock entitled to vote on the Reorganization Plan. Because of the
nominal amount of Old Common Stock held by the Plans in relation to the
other stockholders of the Employer, the Plans had little, if any,
ability to affect the negotiation of the Reorganization Plan. The
acquisition and holding of the Warrants by the Plans occurred in
connection with the Employer's bankruptcy proceeding pursuant to which
all holders of the Old Stock of the Employer were treated in the same
manner as a result of the Reorganization Plan. The Warrants were
acquired by the Plans automatically and without any action on the part
of the Plans. The Plans did not pay any fees or commissions in
connection with the receipt and holding of the Warrants.
6. Currently, the disposition of the Warrants is pending the
Bankruptcy. To the extent that there is or will be any discretion to be
exercised regarding the Warrants, all decisions regarding the holding
and disposition of the Warrants by the Plans will be made by the
individual plan participants whose accounts in the Plans received the
Warrants in connection with the Bankruptcy proceeding.
7. It is represented that the Warrants do not constitute qualifying
employer securities for purposes of section 407(d)(5) of the Act. The
Employer represents that the Warrants held by the Plans would
constitute an ``employer security'' within the meaning of 407(d)(1) of
the Act but not a ``qualifying employer security'' under section
407(d)(5) of the Act inasmuch as the Warrants do not fall within any of
the covered categories. Therefore, the Employer requests retroactive
exemptive relief from the Department.
8. In summary, it is represented that the proposed transaction
meets the statutory criteria of section 408(a) of the Act because:
(a) The acquisition and holding of the Warrants by the Plans
occurred in connection with the Employer's bankruptcy proceeding
pursuant to which all holders of the Old Stock of the Employer were
treated in the same manner;
(b) The Plans had little, if any, ability to affect the negotiation
of the Employer's plan of reorganization with respect to the bankruptcy
proceeding;
(c) The Warrants were acquired automatically and without any action
on the part of the Plans; and
(d) The Plans did not pay any fees or commissions in connection
with the receipt of the Warrants, nor did the Plans pay any fees or
commissions in connection with the holding of the Warrants.
Notice to Interested Persons: Notice of the proposed exemption
shall be given to all interested persons in the manner agreed upon by
the Employer and Department within 15 days of the date of publication
in the Federal Register. Comments and requests for a hearing are due
forty-five (45) days after publication of the notice in the Federal
Register.

FOR FURTHER INFORMATION CONTACT: Khalif Ford of the Department,
telephone (202) 219-8883 (this is not a toll-free number).

The FHP International Corporation 401(k) Savings Plan (the Plan); and
The FHP International Corporation PAYSOP (the PAYSOP; together, the
Plans), Located in Santa Ana, California

[Application Nos. D-10916 and D-10917]

Proposed Exemption

[[Page 46841]]

of section 4975 of the Code, by reason of section 4975(c)(1)(A) through
(E) of the Code, shall not apply, from April 21, 1997 through May 20,
1997, to: (1) The past receipt by the Plans of certain rights (the
Talbert Rights) to purchase shares of common stock (the Talbert Common
Stock), par value $.01 per share, of Talbert Medical Management Holding
Corporation (Talbert); (2) the past holding of the Talbert Rights by
the Plans; and (3) the disposition or exercise of the Talbert Rights by
the Plans; provided that the following conditions are satisfied:
(A) The Plans' acquisition and holding of the Talbert Rights
resulted from independent acts of FHP International Corporation (FHP)
and Talbert as corporate entities, and all holders of common stock of
FHP (FHP Common Stock) were treated in a like manner, including the
Plans;
(B) With respect to Talbert Rights allocated to the Plans, the
Talbert Rights were acquired solely for the accounts of participants
who had directed investment of all or a portion of their account
balances in FHP Common Stock pursuant to Plan provisions for
individually-directed investment of participant accounts; and
(C) With respect to Talbert Rights allocated to the Plans, all
decisions regarding the holding, disposition or exercise of the Talbert
Rights were made, in accordance with Plan provisions for individually-
directed investment of participant accounts, by the individual Plan
participants whose accounts in the Plan received Talbert Rights,
including all determinations regarding the exercise or sale of the
Talbert Rights, except for those participants who failed to file timely
and valid instructions concerning the exercise of the Talbert Rights
(in which event the Talbert Rights were sold).
Effective Date: This exemption, if granted, will be effective from
April 21, 1997 through May 20, 1997.

Summary of Facts and Representations

1. Prior to February 14, 1997, PacifiCare Operations, Inc.
(formerly named ``PacifiCare Health Systems, Inc.'') (Old PacifiCare)
was a publicly traded corporation, with shares of its common stock
traded on the NASDAQ National Market. Old PacifiCare and its affiliated
employers were engaged in the operation of numerous health maintenance
organizations (HMOs), health plans and other similar businesses. Prior
to February 14, 1997, FHP was a publicly traded corporation, with
shares of its common stock traded on the NASDAQ National Market. FHP
and its affiliated employers were actively engaged in the operation of
numerous HMOs, health plans and other similar businesses.
2. Pursuant to the Amended and Restated Agreement and Plan of
Reorganization among Old PacifiCare, N-T Holdings, Inc., Neptune Merger
Corp., Tree Acquisition Corp. and FHP, dated as of November 20, 1996,
(the Merger Agreement), Old PacifiCare and FHP became subsidiaries of a
new corporation, PacifiCare Health Systems, Inc. (New PacifiCare) on
February 14, 1997 (the Merger).
3. Prior to the Merger, Old PacifiCare caused N-T Holdings, Inc.,
Neptune Merger Corp. and Tree Acquisition Corp. to be formed and
organized in anticipation of the Merger Agreement. Neptune Merger Corp.
and Tree Acquisition Corp. were each formed as wholly-owned
subsidiaries of N-T Holdings, Inc. Upon the consummation of the Merger
on February 14, 1997, Neptune Merger Corp. was merged into and with Old
PacifiCare, and Old PacifiCare became a wholly-owned subsidiary of New
PacifiCare. Simultaneously, Tree Acquisition Corp. was merged into and
with FHP, and FHP became a wholly-owned subsidiary of New PacifiCare.
N-T Holdings, Inc. was then renamed ``PacifiCare Health Systems,
Inc.,'' and, after the consummation of the Merger, was the parent
company of Old PacifiCare and FHP. Shares of common stock of New
PacifiCare are traded on the NASDAQ National Market.
4. As consideration for the Merger, holders of shares of FHP Common
Stock, par value $.05 per share, including the Plans, received cash,
shares of New Pacificare Class A common stock, par value $.01 per
share, shares of New Pacificare Class B common stock, par value $.01
per share, and were eligible to receive Talbert Rights in exchange for
the shares of FHP Common Stock held on the date of the Merger.
5. Also, in connection with the Merger, Talbert Medical Management
Corporation (TMMC) and Talbert Health Services Corporation (THSC),
which were indirect, wholly-owned subsidiaries of FHP prior to February
14, 1997, became wholly-owned subsidiaries of Talbert. Subsequent to
the Merger, Talbert became a privately held corporation with no
affiliation with FHP, Old PacifiCare or New PacifiCare. However, the
applicant represents that Talbert was an employer of employees covered
by the Plan at the time of the issuance of the Talbert Rights.\18\
---------------------------------------------------------------------------

\18\ Section 407(d)(1) of the Act defines the term ``employer
security'' as a security issued by an employer of employees covered
by the plan, or by an affiliate of such employer. Section 3(5) of
the Act defines the term ``employer'' to include any person acting
directly as an employer, or indirectly in the interest of an
employer, in relation to an employee benefit plan. In this regard,
the Department is providing no opinion in this proposed exemption as
to whether the Talbert Rights were considered an ``employer
security'' at the time of their issuance by Talbert.
---------------------------------------------------------------------------

6. The issuance of the Talbert Rights was commenced by Talbert
effective as of April 21, 1997. Talbert Rights were issued pursuant to
a public offering of such rights, and the Talbert Rights issued to the
Plans were registered with the Securities and Exchange Commission.
Participants (and the beneficiaries of deceased participants) in the
Plans were offered the opportunity to direct the independent trustee of
the Plans (the Trustee) to exercise or sell the Talbert Rights credited
to their accounts in the Plans in accordance with the Plans'
procedures, described below. Upon their issuance, and until the closing
of the Talbert Rights offering period on May 20, 1997, Talbert Rights
were tradable on the NASDAQ National Market. When the offering was
completed on May 20, 1997, all of the Talbert Rights held by the Plans
had been exercised or sold on or before that date. The shares of
Talbert Common Stock received upon the exercise of the Talbert Rights,
and the proceeds received upon the sale of the Talbert Rights, were
allocated to the accounts of participants and beneficiaries in
accordance with the terms of the Plans, described below.
7. In September, 1997, MedPartners, Inc., an unrelated party,
commenced a tender offer for the outstanding shares of Talbert Common
Stock, including the shares of Talbert Common Stock held by the Plans.
Participants (and the beneficiaries of deceased participants) in the
Plans were offered the opportunity to direct the Trustee with respect
to the tender of shares of Talbert Common Stock credited to their
accounts in the Plans in accordance with procedures described in the
Plans. The Plan Committees directed the Trustee with respect to the
tender of shares of Talbert Common Stock credited to the accounts of
participants and beneficiaries for which tender directions were not
received. The tender offer closed and the Plans received cash for
shares of Talbert Common Stock tendered by the Plans on September 19,
1997. Effective as of the closing of the tender offer, Talmed Merger
Corporation, a wholly-owned subsidiary of MedPartners, Inc., merged
into Talbert, and all of the remaining shares

[[Page 46842]]

of Talbert Common Stock held by the Plans were converted to cash.
Effective upon such merger, Talbert became a wholly-owned subsidiary of
MedPartners, Inc.
8. Prior to February 14, 1997, FHP and its affiliated employers
maintained the FHP International Corporation Employee Stock Ownership
Plan (the Prior Plan). The Prior Plan consisted of three separate, but
complementary, parts which were designed to satisfy the specific rules
applicable to each part. The first part was an employee stock ownership
plan intended to qualify under Code sections 401 and 4975(e)(7), the
second part was a stock bonus plan intended to qualify under Code
section 401, which included a cash or deferred arrangement intended to
qualify under section 401(k), and the third part was a payroll-based
tax credit employee stock ownership plan intended to qualify under Code
sections 41, 401, 409 and 4975(e)(7). No additional employer
contributions were allocated to the third part of the Prior Plan as of
any date after December 31, 1986.
9. Effective as of February 14, 1997, the third part of the Prior
Plan, which was a payroll-based tax credit employee stock ownership
plan, was ``spun off'' into the PAYSOP as a separate plan. The PAYSOP
was terminated effective as of February 14, 1997. FHP and certain of
its subsidiaries continue to maintain the PAYSOP pending the complete
termination and winding up of the PAYSOP. The estimated number of
PAYSOP participants affected by the exemption proposed herein is 771.
The percentage of the fair market value of the total assets of the
PAYSOP involved in the subject transaction is 2.75%.
10. The first and second parts of the Prior Plan were continued as
the Plan (which was renamed ``The FHP International Corporation 401(k)
Savings Plan'' at that time). Effective as of February 14, 1997, the
Plan was converted to a profit sharing plan intended to qualify under
section 401 of the Code which includes a cash or deferred arrangement
intended to qualify under Code section 401(k). Also, effective as of
February 14, 1997, the Plan was amended to eliminate those provisions
necessary for it to qualify as a stock bonus plan, an employee stock
ownership plan or payroll-based tax credit employee stock ownership
plan, to eliminate distributions in shares of FHP common stock, and to
change certain other provisions. The estimated number of Plan
participants affected by the exemption proposed herein is 9,060. The
percentage of the fair market value of the total assets of the Plan
involved in the subject transaction is 1.65%.
11. On or about April 1, 1999, account balances under the Plan not
attributable to ``Talbert Individuals'' (as defined in the Employee
Benefits and Compensation Allocation Agreement,\19\ dated as of
February 14, 1997) were transferred to the PacifiCare Health Systems,
Inc. Savings and Profit Sharing Plan. As of April 15, 1999, FHP's
sponsorship of the Plan terminated, and the then-members of the
Administrative Committee were removed. Under the Assumption Agreement
dated March 31, 1999, MedPartners, Inc. (MedPartners) became the
sponsor of the Plan, but FHP retained all liability for making required
filings relating to the period of time during which the FHP was a
participating employer in the Plan. After the assumption of the Plan by
MedPartners, MedPartners changed its name to ``CareMark Rx, Inc.,'' and
in May, 1999, the Plan was merged into another plan maintained by
CareMark Rx, Inc. called the CareSave 401(k) Retirement Plan.
---------------------------------------------------------------------------

\19\ Talbert Individuals are defined in that Agreement to
include, essentially, active employees and former employees of
Talbert, TMMC and THSC, their dependents, beneficiaries, and
alternate payees under qualified domestic relations orders.
---------------------------------------------------------------------------

12. The FHP International Corporation 401(k) Savings Plan and The
FHP International Corporation PAYSOP (i.e., the Plans) permitted
participants to direct the investments of their accounts in the Plans
into investment funds established under the Plans. Effective as of
February 14, 1997, the Plans provided for investment in shares of New
PacifiCare Class A Common Stock, shares of New PacifiCare Class C
Common Stock, Talbert Rights and shares of Talbert Common Stock in
accordance with the terms therein. The Plans provided that Talbert
Rights, when issued to each Plan's Trustee, were to be allocated to the
Talbert Common Stock Investment Fund, and were to be exercised or sold
in accordance with the Plans' provisions. The Plans provided that a
participant would have the opportunity to direct the exercise or sale
of some or all of the Talbert Rights credited to such participant's
accounts in the Plans. However, a physician in a position to make
referrals to Talbert Health Services Corporation was not provided the
opportunity to direct the exercise of the Talbert Rights credited to
his or her accounts, and the Talbert Rights credited to such a
participant's accounts were to be sold by the Plans if the Talbert
Rights had value at the time of the sale.
13. A participant entitled to direct the exercise or sale of the
Talbert Rights credited to his or her account could make such direction
in accordance with a telephonic procedure not later than 1 p.m. Pacific
Daylight Time on May 13, 1997.\20\ Materials were provided to the
participants by letter dated April 21, 1997. Thus, participants had
approximately 20 days in which to act. The materials received by the
participants included: (a) Final Prospectus dated April 21, 1997
relating to shares of Talbert Common Stock and the Talbert Rights
pursuant to the Talbert Rights offering; (b) Summary Plan Description
for the FHP International Corporation Employee Stock Ownership Plan
(the ESOP); (c) Prospectus Supplement dated April 21, 1997 for the Plan
and the PAYSOP; and (d) March 10, 1997 letter describing the changes in
the ESOP. In the case of a participant who failed to make a timely
direction in accordance with such telephonic procedure, the Plans
provided that the Talbert Rights credited to his or her account were to
be sold by the Plan if the Talbert Rights had value at the time of the
sale.
---------------------------------------------------------------------------

\20\ In the case of such a participant who was a resident of
Guam and who gave his or her direction in writing, such direction
had to have been received not later than May 8, 1997.
---------------------------------------------------------------------------

14. The Plans provided that in the case of a participant who
directed the exercise of some or all of the Talbert Rights credited to
his or her accounts, the amounts held in the other investment funds in
which such participant's accounts were invested (i.e, those investment
funds other than the investment funds in which the Talbert Rights or
shares of NewPacifiCare stock were held) would be liquidated
proportionately to the extent necessary to provide the exercise price
with respect to Talbert Rights being exercised. In the event all of
such investments were liquidated, the participant's Plan or PAYSOP
investments in New PacifiCare Class A Common Stock and New PacifiCare
Class B Common Stock would be liquidated to the extent necessary to
provide such exercise price.
15. The decision whether to sell the Talbert Rights allocated to a
particular participant's account was made by the participant. Once the
decision to sell had been made by the Plans' participants, the Plan
Committees then directed the Trustee when, during the five trading days
beginning on May 14, 1997 and ending on May 20, 1997, the Talbert
Rights would be sold (if they had value at the time of the sale). The
reason the Talbert Rights were sold over a five-day period (instead of
all at once) was to avoid adversely affecting the price of the rights.
The Plan

[[Page 46843]]

Committees, assisted by Buck Consultants (Buck), established a special
telephone line containing a menu driven voice response system. The line
was manned by employees of Buck. Participants were notified in writing
that their elections were to be made through the use of this telephone
system. The elections were collected by Buck, and aggregate results for
the Plans were forwarded to the Plans' Trustee, Wells Fargo Bank (the
Bank). The Bank then exercised and sold the appropriate number of
Talbert Rights in accordance with the Participants' directions. Each
Talbert Right sold was to be treated as having been sold for the
average sale price (net of selling expenses) of the Talbert Rights sold
by the Plans. The proceeds from the sale of the Talbert Rights credited
to a participant's accounts were to be invested in accordance with such
participant's existing investment directions applicable to new
contributions, and if there were no such directions, in an investment
fund designated under the Plan if the Talbert Rights had value at the
time of the sale. Talbert Rights held as unallocated forfeitures were
to be sold by the Plans if the Talbert Rights had value at the time of
the sale.
16. In summary, the applicant represents that the transactions
satisfy the criteria of section 408(a) of the Act for the following
reasons: (a) The Plans' acquisition of the Talbert Rights resulted from
the independent acts of FHP and Talbert as corporate entities; (b) all
holders of FHP Common Stock, including the Plans, were treated in a
like manner with respect to the Talbert Rights; (c) with respect to
Talbert Rights allocated to the Plans, the Talbert Rights were acquired
solely for the accounts of participants who had directed investment of
all or a portion of their account balances in FHP Common Stock pursuant
to plan provisions for individually-directed investment of participant
accounts; (d) the Talbert Rights offering period extended only from
April 21, 1997 through May 20, 1997, so the Talbert Rights were held by
the Plans for no more than 30 days; (e) the Plans' participants and
beneficiaries were afforded a reasonable opportunity to direct the sale
or exercise of the Talbert Rights credited to their accounts; (f) the
Plans' participant direction procedure was administered by an
independent fiduciary (i.e., the Bank); and (g) the Plan Committees
exercised investment discretion only with respect to undirected
investments in Talbert Rights and acted only in accordance with the
procedures specified in the disclosures made to the Plan participants
who received the Talbert Rights.

FOR FURTHER INFORMATION CONTACT: Gary H. Lefkowitz 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 4th day of September, 2001.
Ivan Strasfeld,
Director of Exemption Determinations, Pension and Welfare Benefits
Administration, U.S. Department of Labor.
[FR Doc. 01-22477 Filed 9-6-01; 8:45 am]
BILLING CODE 4510-29-P