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Secretary of Labor Thomas E. Perez
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:

----------------------------------------------------------------------------------------------------------------
                                                                      MV             Units          Unit value
----------------------------------------------------------------------------------------------------------------
Initial Balance (at close Day One)...........................     $10,000,000        1,000,000           $10.00
----------------------------------------------------------------------------------------------------------------

    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:

----------------------------------------------------------------------------------------------------------------
                                                                        MV             Units        Unit value
----------------------------------------------------------------------------------------------------------------
Opening Balance.................................................     $10,000,000       1,000,000          $10.00
E/ee Contributions..............................................               0               0           10.00
E/er Contributions..............................................               0               0           10.00
Transfers In....................................................               0               0           10.00
Distributions...................................................        (50,000)         (5,000)           10.00
Loans...........................................................         (5,000)           (500)           10.00
Transfers Out...................................................        (55,000)         (5,500)           10.00
                                                                 -----------------------------------------------
    (Sub-Total).................................................       9,890,000         989,000           10.00
----------------------------------------------------------------------------------------------------------------

    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

    The Department is considering granting an exemption under the 
authority of section 408(a) of the Act and section 4975(c)(2) of the 
Code and in accordance with the procedures set forth in 29 CFR part 
2570, subpart B (55 FR 32836, 32847, August 10, 1990). If the exemption 
is granted, the restrictions of sections 406(a), 406(b)(1) and (b)(2) 
and 407(a) of the Act and the sanctions resulting from the application

[[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