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Proposed Exemptions; Adams Wood Products, Inc. Profit Sharing Plan [06/06/2002]
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Volume 67, Number 109, Page 39051-39063
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DEPARTMENT OF LABOR
Pension and Welfare Benefits Administration
[Application No. D-10959, et al.]
Proposed Exemptions; Adams Wood Products, Inc. Profit Sharing
Plan
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
requests 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 requests for a hearing (at least
three copies) should be sent to the Pension and Welfare Benefits
Administration (PWBA), Office of Exemption Determinations, Room N-5649,
U.S. Department of Labor, 200 Constitution Avenue, NW., Washington, DC
20210. Attention: Application No. ------, stated in each Notice of
Proposed Exemption. Interested persons are also invited to submit
comments and/or hearing requests to PWBA via e-mail or FAX. Any such
comments or requests should be sent either by e-mail to:
``moffittb@pwba.dol.gov'', or by FAX to (202) 219-0204 by the end of
the scheduled comment period. 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-1513, 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
[[Page 39052]]
accordance with procedures set forth in 29 CFR Part 2570, Subpart B (55
FR 32836, 32847, August 10, 1990). Effective December 31, 1978, section
102 of Reorganization Plan No. 4 of 1978, 5 U.S.C. App. 1 (1996),
transferred the authority of the Secretary of the Treasury to issue
exemptions of the type requested to the Secretary of Labor. Therefore,
these notices of proposed exemption are issued solely by the
Department.
The applications contain representations with regard to the
proposed exemptions which are summarized below. Interested persons are
referred to the applications on file with the Department for a complete
statement of the facts and representations.
Adams Wood Products, Inc. Profit Sharing Plan (the Plan),
Located in Morristown, Tennessee
[Application No. D-10959]
Proposed Exemption
The Department is considering granting an exemption under the
authority of section 408(a) of the Act and section 4975(c)(2) of the
Code and in accordance with the procedures set forth in 29 CFR Part
2570, Subpart B (55 FR 32836, 32847, August 10, 1990). If the exemption
is granted, the restrictions of sections 406(a), 406(b)(1) and (b)(2)
of the Act and the sanctions resulting from the application of section
4975 of the Code, by reason of section 4975(c)(1) (A) through (E) of
the Code, shall not apply to: (1) The proposed non-interest bearing
loan (the Loan) by Adams Wood Products, Inc. (AWP), the Plan sponsor,
to the Plan to reimburse the Plan for losses incurred concerning past
investments by the Plan in certain promissory notes (the Notes); and
(2) the potential repayment by the Plan to AWP of certain moneys if the
Plan recovers any of the investments in the Notes. This proposed
exemption is subject to the following conditions:
(a) The Plan pays no interest nor incurs any other expense relating
to the Loan;
(b) The amount of the Loan includes the following:
(1) $340,187.38, which represents the amount due on the
consolidated note (the Consolidated Note) on June 30, 2000;
(2) opportunity costs as follows: (a) The amount due on the
Consolidated Note from June 30, 2000, the last date when the Plan
received interest on the Consolidated Note to January 26, 2001, the
date when AWP placed funds in Certificates of Deposit (CDs); and (b) an
additional amount yet to be determined to provide the Plan with an
identical rate of return as AWP received as a result of AWP's
investment in the CDs for the period between January 26, 2001 and the
date the Plan receives the Loan amount; and
(3) $4,630.84 to reimburse the Plan for all interest on the 1st
note and 2nd note, due respectively, on April 20, 2001 and April 15,
2002.
(c) Any repayment by the Plan is restricted solely to the amount,
if any, recovered by the Plan with respect to the Loan.
Summary of Facts and Representations
1. The Plan is a profit sharing plan, sponsored by AWP, a Tennessee
subchapter S corporation, which is engaged in the production of wood
components for furniture. As of September 30, 2000, the Plan had total
assets of approximately $828,142.89 with approximately 68 participants
and beneficiaries. The only person having investment discretion over
the assets involved in the proposed transaction is the trustee of the
Plan, Larry Swinson, who is the sole limited partner of AWP.
2. As of December 31, 1999, the Plan held the Notes as part of its
investment portfolio. The value of the Notes is $340,187.38 or 41% of
the Plan's assets. The Plan invested in the Notes based on the advice
of a benefits advisor. The fiduciary to the Plan found the Notes to be
attractive investments for the Plan in light of the fact that they were
at a fixed rate and the Notes had a rate of return that was very
attractive at the time they were purchased.
The Plan purchased the 1st Note from the issuer, an unrelated third
party with respect to the Plan, on June 20, 1997 for $100,000 with a
12% interest rate, with BFM Leasing serving as the issuer of the Note.
The Plan received $58,644.85 in principal with a principal balance
remaining of $41,355.15 and received interest in the amount of
$24,144.95 for the 1st Note. The 1st Note was secured by auto leases
with various corporate entities. The terms of the Note called for the
payment of principal and interest on or before April 20, 2001.
The Plan purchased the 2nd Note from the issuer, an unrelated third
party with respect to the Plan, on April 15, 1998 for $55,000 with a
10% interest rate, with BFM Leasing serving as the issuer of the note.
The Plan received $13,041.99 in principal, with a principal balance
remaining of $41,958.01 and received interest in the amount of
$9,385.81 for the 2nd Note. The 2nd Note also was secured by auto
leases with various corporate entities. The terms of the Note called
for the payment of principal and interest on or before April 15, 2002.
The Plan purchased the 3rd Note from the issuer, an unrelated third
party with respect to the Plan, on July 5, 1999 for $120,000 with a 12%
interest rate, with BFM Leasing serving as the issuer of the Note. The
Plan received $8,876.91 in principal, with a principal balance
remaining of $111,123.09 and received interest in the amount of
$10,658.32 for the 3rd Note. The 3rd Note was secured by leases with
various corporate entities. The terms of the Note called for the
payment of principal and interest no later than July 5, 2003.
The Plan purchased the 4th Note from the issuer, an unrelated third
party with respect to the Plan, on December 31, 1999 for $150,000 with
a 10.5% interest rate, with Land Oak Capital serving as the issuer of
the Note. Land Oak Capital and BFM Leasing are related parties. The
Plan received $4,278.24 in principal, with a principal balance
remaining of $145,721.76 and received interest in the amount of
$4,804.39 for the 4th Note. The 4th Note however, was unsecured. The
terms of the Note called for payment of principal and interest no later
than December 31, 2003.
3. In the spring of 2000, the Plan agreed to the four notes being
consolidated into the Consolidated Note for $340,187.38.\1\ The
Interest rate on the Consolidated Note was 10%. The Consolidated Note
was not secured. The Notes were consolidated because the debtor
encountered financial difficulty and as a result it was necessary to
restructure the Notes into the Consolidated Note that called for
periodic payments of interest only with principal due on April 1, 2005,
at the end of the Consolidated Note.
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\1\ The Department notes that ERISA's general standards of
fiduciary conduct would apply to the Plan's acquisition and holding
of the Notes and the Consolidated Note. The Department expresses no
opinion herein as to whether the failure to secure collateral for
the 4th note or the Consolidated Note by the Plan violated section
404(a) of the Act. 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, and for the
exclusive purpose of providing benefits to participants and
beneficiaries when making investment decisions on behalf of the
plan.
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4. On September 29, 2000, the debtor informed the Plan that due to
fraud on the debtor by another company, there was a significant
probability that the debtor might default on the Consolidated Note. As
a result, the Plan was given two choices: (1) Keep the Consolidated
Note, or (2) exchange the Consolidated Note for another new note, which
also would be unsecured. The
[[Page 39053]]
Plan did not deem it advisable from a fiduciary standpoint or otherwise
to exchange the Consolidated Note for a new note. For that reason, the
Plan chose not to exchange the Consolidated Note for a new note.
5. Accordingly, AWP proposes to make the Plan whole by making an
interest-free loan to the Plan for:
(1) $340,187.38, which represents the amount due on the
Consolidated Note as of June 30, 2000;
(2) opportunity costs as follows: (a) $16,571.63,\2\ which
represents interest due on the Consolidated Note from June 30, 2000,
the last date when the Plan received interest on the Consolidated Note
to January 26, 2001, the date when AWP purchased CDs; \3\ and (b) an
additional amount starting January 26, 2001 to provide the Plan with a
rate of return on the $356,759.01 ($340,187.38 + 16,571.63) =
$356,759.01) based on the continued investment by AWP in the CD's and
ending on the date the Plan receives the complete Loan amount; and
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\2\ The calculated amount of interest due on January 26, 2001
(the date the first CD was purchased) was formulated by multiplying
the amount due on the Consolidated Note on June 30, 2000,
$340,187.38, by the interest rate on the Consolidated Note at 10%
per annum times a fraction with the numerator being the number of
days from June 30, 2000 to January 26, 2001 and the denominator
being 365 (representing the number of days within a year).
\3\ The CDs accrued interest at the rate of 5.35% per annum. The
first CD was purchased on January 26, 2001 for $185,000 and the
second CD was acquired on January 31, 2001 (the Original CDs) for
the balance owed to the Plan on that date. The Original CDs matured
at the end of April 2001 and have been reinvested in two three month
CDs.
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(3) $4,630.84, which reimburses the Plan for all interest on the
1st Note and 2nd Note, due respectively, on April 20, 2001 and April
15, 2002.
6. The Loan will be evidenced by a promissory note and all proceeds
will be paid to the Plan within 30 days of publication in the Federal
Register of the grant of this exemption.
7. The Loan will be repaid only to the extent of any amount
recovered by the Plan with respect to the Consolidated Note. The
potential Loan obligation on the part of the Plan serves the legitimate
purpose of preventing a ``double recovery'' by the Plan.
8. In summary, the applicant represents that the proposed
transactions satisfy the statutory criteria for an exemption under
section 408(a) of the Act for the following reasons:
(a) The Plan pays no interest nor incurs any other expense relating
to the Loan;
(b) The amount of the Loan includes the following:
(1) $340,187.38, which represents the amount due on the
Consolidated Note on June 30, 2000;
(2) opportunity costs as follows: (a) the amount due on the
Consolidated Note from June 30, 2000, the last date when the Plan
received principal and interest on the Consolidated Note to January 26,
2001, the date when AWP placed funds in CDs; and (b) an additional
amount yet to be determined to provide the Plan with an identical rate
of return as AWP received as a result of AWP's investment in the CDs
for the period between January 26, 2001 and the date the Plan receives
the Loan amount;
(3) $4,630.84 to reimburse the Plan for all interest on the 1st
note and 2nd note, due respectively, on April 20, 2001 and April 15,
2002; and
(c) Any repayment by the Plan is restricted solely to the amount,
if any, recovered by the Plan with respect to the Consolidated Note.
Notice to Interested Persons: Notice of the proposed exemption
shall be given to all interested persons in the manner agreed upon by
the applicant and Department within 15 days of the date of publication
in the Federal Register. Comments and requests for a hearing are due
forty-five (45) days after publication of the notice in the Federal
Register.
For Further Information Contact: Mr. Khalif Ford of the Department,
telephone (202) 693-8540. (This is not a toll-free number.)
The Banc Funds Company, LLC (TBFC) Located in Chicago, IL
[Application No. D-11083]
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, 32847, August 10, 1990.) \4\
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\4\ For purposes of this proposed exemption, references to the
provisions of Title I of the Act, unless otherwise specified, refer
also to corresponding provisions of the Code.
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Section I. Covered Transactions
If the exemption is granted, the restrictions of sections 406(a)
and 406(b) of the Act and the sanctions resulting from the application
of section 4975 of the Code, by reason of section 4975(c)(1)(A) through
(D) of the Code, shall not apply to (1) the purchase or redemption of
interests in the Banc Fund VI L.P. (the Partnership) by employee
benefit plans (the Plans) investing in the Partnership, where TBFC, a
party in interest with respect to the Plans, is the general partner of
MidBanc VI, L.P. (MidBanc VI), which is, in turn, the general partner
(the General Partner) of the Partnership; (2) the sale, for cash or
other consideration, by the Partnership of certain securities that are
held as Partnership assets to a party in interest with respect to a
Plan participating in the Partnership, where the party in interest
proposes to acquire or merge with the portfolio company (the Portfolio
Company) that issued such securities; and (3) the payment to the
General Partner, by Plans participating in the Partnership, of an
incentive fee (the Performance Fee) which is intended to reward the
General Partner for the superior performance of investments in the
Partnership.
This proposed exemption is subject to the following conditions as
set forth below in Section II.
Section II. General Conditions
(a) Prior to a Plan's investment in the Partnership, a Plan
fiduciary which is independent of TBFC and its affiliates (the
Independent Fiduciary) approves such investments on behalf of the Plan.
(b) Each Plan investing in the Partnership has total assets that
are in excess of $50 million.
(c) No Plan may invest more than 10 percent of its assets in the
Partnership, and the interests held by the Plan may not exceed 25
percent of the assets of the Partnership.
(d) No Plan may invest more than 25 percent of its assets in
investment vehicles (i.e., collective investment funds or separate
accounts) managed or sponsored by TBFC and/or its affiliates.
(e) Prior to investing in the Partnership, each Independent
Fiduciary contemplating investing therein receives a Private Placement
Memorandum and its supplement containing descriptions of all material
facts concerning the purpose, structure and the operation of the
Partnership.
(f) An Independent Fiduciary which expresses further interest in
the Partnership receives a copy of the Partnership Agreement describing
the organizational principles, investment objective and administration
of the Partnership, the manner in which the Partnership interests may
be redeemed, the manner in which Partnership assets are to be valued,
the duties and responsibilities of the General Partner, the rate of
remuneration of the General Partner, and the conditions under which the
General Partner may be removed.
(g) If accepted as an investor in the Partnership, the Independent
Fiduciary is--
[[Page 39054]]
(1) Furnished with the names and addresses of all other
participating Plan and non-Plan investors in the Partnership;
(2) Required to acknowledge, in writing, prior to purchasing an
interest in the Partnership as a limited partner (the Limited Partner)
that such Independent Fiduciary has received copies of such documents;
and
(3) Required to acknowledge, in writing, to the General Partner
that such fiduciary is independent of TBFC and its affiliates, capable
of making an independent decision regarding the investment of Plan
assets, knowledgeable with respect to the Plan in administrative
matters and funding matters related thereto, and able to make an
informed decision concerning participation in the Partnership.
(h) Each Plan receives the following written disclosures from the
General Partner with respect to its ongoing participation in the
Partnership:
(1) Within 90 days after the end of each fiscal year of the
Partnership as well as at the time of termination, an annual financial
report containing a balance sheet for the Partnership as of the end of
such fiscal year and a statement of changes in the financial position
for the fiscal year, as audited and reported upon by independent,
certified public accountants. The annual reports will also disclose the
remuneration that has accrued or is paid to the General Partner.
(2) Within 60 days after the end of each quarter (except in the
last quarter) of each fiscal year of the Partnership, an unaudited
quarterly financial report consisting of at least a balance sheet for
the Partnership as of the end of such quarter and a profit and loss
statement for such quarter. The quarterly report will also specify the
remuneration that is actually paid or accrued to the General Partner.
(3) Such other written information as may be needed by the Plans
(including copies of the proposed exemption and grant notice describing
the exemptive relief provided herein).
(i) At least annually, the General Partner will hold a meeting of
the Partnership, at which time, the Independent Fiduciaries of the
participating Plans will have the opportunity to decide on whether the
Partnership and/or the General Partner should be terminated as well
discuss any aspect of the Partnership and the agreements promulgated
thereunder with the General Partner.
(j) During each year of the Partnership, representatives of the
General Partner will be available to confer by telephone or in person
with Independent Fiduciaries of participating Plans to discuss matters
concerning the Partnership.
(k) The terms of all transactions that are entered into on behalf
of the Partnership remain at least as favorable to a Plan investing in
the Partnership as those obtainable in arm's length transactions with
unrelated parties. In this regard, the valuation of assets in the
Partnership that is done in connection with the distribution of any
part of the General Partner's Performance Fee will be based upon
independent market quotations or (where the same are unavailable)
determinations made by an independent appraiser (the Independent
Appraiser).
(l) In the case of the sale by the Partnership of Portfolio Company
securities to a party in interest with respect to a participating Plan
that occurs in connection with the acquisition of a Portfolio Company
represented in the Partnership's portfolio (the Portfolio), the party
in interest may not be the General Partner, TBFC, any employer of a
participating Plan, or any affiliated thereof, and the Partnership
receives the same terms as is offered to other shareholders of a
Portfolio Company.
(m) As to each Plan, the total fees paid to the General Partner and
its affiliates constitute no more than ``reasonable compensation''
within the meaning of section 408(b)(2) of the Act.
(n) Any increase in the General Partner's Performance Fee is based
upon a predetermined percentage of net realized gains minus net
unrealized losses determined annually between the date the first
contribution is made to the Partnership until the time the Partnership
disposes of its last investment. In this regard,
(1) Except as provided below in Section II(o), no part of the
General Partner's Performance Fee may be withdrawn before December 31,
2007, which represents the end of the Acquisition Phase (the
Acquisition Phase) for the Partnership, and not until Plans have
received distributions equal to 100 percent of their capital
contributions made to the Partnership.
(2) Prior to the termination of the Partnership, no more than 75
percent of the Performance Fee credited to the General Partner may be
withdrawn by the Partnership.
(3) The debit account established for the General Partner to
calculate the Performance Fee (the Performance Fee Account) is credited
annually with a predetermined percentage of net realized gains minus
net unrealized losses, minus Performance Fee distributions.
(4) No portion of the Performance Fee may be withdrawn if the
Performance Fee Account is in a deficit position.
(5) The General Partner repays all deficits in its Performance Fee
Account and it maintains a 25 percent cushion in such account prior to
receiving any further distribution.
(o) During the Acquisition Phase of the Partnership only,
(1) The General Partner is entitled to take distributions with
respect to the Performance Fee in the amount of any income tax
liability it or its affiliates become subject to with respect to net
capital gains of the Partnership, provided such gains are based upon
the sale of Portfolio Company securities that is initiated by a third
party in connection with a merger, tender offer or acquisition, and
does not involve the exercise of discretion by the General Partner.
(2) The tax distributions are deducted from the Performance Fee.
(3) The General Partner repays to the Partnership any tax refund
received to the extent a distribution has been made to such General
Partner.
(4) The General Partner provides the Plans with an annual report
and accounting of all distributions and repayments attributable to
income taxation of the General Partner and its affiliates, including
written evidence that the distributions have been utilized exclusively
to pay the income tax liability.
(p) The General Partner maintains, for a period of six years, the
records necessary to enable the persons described in paragraph (q) of
this Section II 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 the General
Partner, the records are lost or destroyed prior to the end of the six
year period; and
(2) No party in interest other than the General Partner shall be
subject to the civil penalty that may be assessed under section 502(i)
of the Act, or to the taxes imposed by section 4975(a) and (b) of the
Code, if the records are not maintained, or are not available for
examination as required by paragraph (q) below.
(q)(1) Except as provided in section (q)(2) of this paragraph and
notwithstanding any provisions of subsections (a)(2) and (b) of section
504 of the Act, the records referred to in paragraph (p) of this
Section II shall be unconditionally available at their customary
location during normal business hours by:
[[Page 39055]]
(A) Any duly authorized employee or representative of the
Department or the Internal Revenue Service (the Service);
(B) Any Independent Fiduciary of a participating Plan or any duly
authorized representative of such Independent Fiduciary;
(C) Any contributing employer to any participating Plan or any duly
authorized employee representative of such employer; and
(D) Any participant or beneficiary of any participating Plan, or
any duly authorized representative of such participant or beneficiary.
(q)(2) None of the persons described above in subparagraphs (B)-(D)
of this paragraph shall be authorized to examine the trade secrets of
the General Partner or TBFC or commercial or financial information
which is privileged or confidential.
Section III. Definitions
For purposes of this proposed exemption,
(a) The term ``TBFC'' means The Banc Funds Company, LLC and any
affiliate of TBFC as defined in paragraph (b) of Section III.
(b) An ``affiliate'' of TBFC includes--
(1) Any person directly or indirectly through one or more
intermediaries, controlling, controlled by, or under common control
with TBFC.
(2) Any officer, director or partner in such person, and
(3) Any corporation or partnership of which such person is an
officer, director or a 5 percent partner or owner.
(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) An ``Independent Fiduciary'' is a Plan fiduciary which is
independent of TBFC and its affiliates and is either a Plan
administrator, trustee, named fiduciary, as the recordholder of the
Limited Partner's interest in the Partnership or an investment manager.
(e) The term ``Portfolio Companies'' include commercial banks and
other depository institutions such as savings banks, savings and loan
associations, holding companies controlling those entities (together,
the Bank Companies), and companies providing financial services in the
United States, which include, but are not limited to, consumer finance
companies and demutualizing life insurance companies (together, the
Financial Services Companies).
(f) The term ``net realized gains'' refers to the excess of
realized gains over realized losses.
(g) The term ``net realized losses'' refers to the excess of
realized losses over realized gains.
(h) The term ``net unrealized losses'' refer to the excess of
unrealized losses over unrealized gains.
(i) The term ``net unrealized gains'' refers to the excess of
unrealized gains over unrealized losses.
For a gain or loss to be ``realized,'' an asset of the Partnership
must be sold for more than or less than its acquisition price. For a
gain or loss to be ``unrealized,'' the Partnership asset must increase
or decrease in value but not be sold.
Preamble
On September 22, 1993, the Department granted PTE 93-63 (58 FR
49322), a temporary exemption which was effective for a period of eight
years from the date of the grant. PTE 93-63 permitted a series of
transactions relating to the (a) sale by the Bank Fund III Group Trust
(the BF III Group Trust) in which Plans invested, of certain securities
which had been issued by Bank Companies and held in the BF III Group
Trust's Portfolio, to a party in interest with respect to a Plan, where
the party in interest proposed to acquire or merge with the Bank
Company that issued such securities. In addition, PTE 93-63 permitted
the BF III Group Trust to purchase Bank Company securities from the
Midwest Bank Fund I Limited Partnership (MBF I LP) and the Midwest Bank
Fund II, Limited Partnership (MBF II LP), two entities organized by The
Chicago Corporation (TCC), the company from which TBFC was spun off.
Further, PTE 93-63, allowed Plans investing in the BF III Group Trust
to pay a performance fee to TCC and subsequently to TBFC.
On March 5, 1997, the Department granted PTE 97-15 at 62 FR 10078.
PTE 97-15, which is still in effect, permits the Banc Fund IV Group
Trust (the BF IV Group Trust) in which Plans invest, to sell certain
securities that are held in the BF IV Group Trust Portfolio to a party
in interest with respect to a participating Plan, where the party in
interest proposes to acquire or merge with a bank company or a
financial services company. In addition, PTE 97-15 permitted TCC (and
currently permits TBFC, which was spun-off from TCC on April 30, 1997)
to receive a Performance Fee from Plans investing in the BF IV Group
Trust.
On August 10, 2000, the Department granted PTE 2000-37 at 65 FR
49018. PTE 2000-37 permits the purchase or redemption of interests in
the Banc Fund V, L.P. (BF V) by Plans investing in the Banc Fund V
Group Trust (the BF V Group Trust), where TBFC, a party in interest
with respect to such Plans, is the general partner of MidBanc V, L.P.,
which is, in turn, the general partner of BF V. In addition, PTE 2000-
37 permits the sale, for cash or other consideration, by BF V, of
certain securities that are held as assets of BF V, to a party in
interest with respect to a Plan participating in BF V through the BF V
Group Trust, where the party in interest proposes to acquire or merge
with a bank company or a financial services company that issued the
securities. Further, PTE 2000-37 permits TBFC to receive a Performance
Fee from Plans investing in the Partnership through the BF V Group
Trust.\5\
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\5\ In 1986, TCC organized the MBF I LP. The general partners of
MBF I LP were two partnerships (MidBanc I and MidBanc II), whose
general partners were corporate affiliates of TCC and whose limited
partners were members of TCC's staff. Less than 25 percent of the
assets of MBF I LP were provided by Plans. On December 31, 1994, MBF
I LP was liquidated.
In 1989, TCC organized the MBF II LP. This partnership had the
same general partners as MBF I LP. Also, less than 25 percent of the
assets of MBF II LP were provided by Plans. On December 31, 1997,
MBF II LP was liquidated.
Finally, in 1993, TCC completed the organization of Banc Fund
III (BF III) which was structured as both a limited partnership and
a group trust.
In 1996, TCC organized Banc Fund IV (BF IV) as a limited
partnership and as a group trust. Each entity has or had investment
policies and strategies similar to the proposed investment vehicle
(i.e., the Partnership).
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The pooled investment vehicle that is described herein is similar
to five investment funds that were organized by TCC or TBFC in 1986,
1989, 1993, 1996 and 1998 and described in PTEs 93-63, 97-15 and 2000-
37. As noted above, these vehicles have been operated by TCC and more
recently, by TBFC.
Summary of Facts and Representations
1. TBFC is a Chicago, Illinois-based investment advisory firm
founded in 1997 as a spin-off from, and by the individuals who managed
the financial services company advisory division of TCC.\6\ TBFC is a
registered investment adviser under the Investment Advisers Act of
1940, as amended, and it has a single line of business. TBFC currently
provides institutional investors with investment management services
through BF IV and BF V and it acts as a fiduciary with respect to these
clients. TBFC currently manages $126.2 million in assets of plans that
are covered under the Act, $195 million in the assets of
[[Page 39056]]
governmental plans and $128.8 million in non-Plan assets.
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\6\ During 1997, TCC's parent was acquired by ABN AMRO North
America, Inc., a subsidiary of ABN AMRO Bank N.V., a global bank
headquartered in the Netherlands. The acquisition did not involve
the purchase of the assets of TCC's parent and TCC retains its
separate corporate identity.
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TBFC's relevant specialty is its expertise in the financial
services and banking industries. In this regard, TBFC employees provide
management, investment and capital formation services to collective
investment vehicles which invest in commercial banks and other
financial institutions and expend significant resources to research
specific financial institutions.
As described below, TBFC requests an administrative exemption from
the Department with respect to the purchase or redemption of interests
in the Partnership by Plans investing in the Partnership, where TBFC, a
party in interest with respect to such Plans, is the general partner of
MidBanc VI, which is, in turn, the General Partner of the Partnership.
In addition, TBFC requests exemptive relief to permit the sale, for
cash or other consideration, by the Partnership of certain securities
that are held as Partnership assets to a party in interest with respect
to a Plan participating in the Partnership, where the party in interest
proposes to acquire or merge with the Portfolio Company that issued
such securities. Further, TBFC requests that the exemption apply to the
General Partner's receipt of a Performance Fee from the Partnership
that is based upon a debit account structure (i.e., the Performance Fee
Account) which will keep track of the General Partner's compensation
for managing the Partnership but will not represent actual dollars that
are reserved or set aside for the General Partner.
2. The Partnership is intended to be a ``pooled fund'' as that term
is defined in 29 CFR 2570.31(g). All employee benefit plan investors
that are Limited Partners of the Partnership must evidence the
following characteristics in order to acquire interests as Limited
Partners: (a) Each investor must commit to making at least $2 million
in initial capital contributions; (b) each Plan must have at least $50
million in assets; and (c) no Plan may invest more than 10 percent of
its assets in interests in the Partnership and such interests held by a
Plan may not exceed 25 percent of the Partnership; and (e) no Plan may
subscribe for a Limited Partner's interest which, when aggregated with
all other Plan assets that are subject to investment funds or separate
accounts managed by TBFC and/or its affiliates, is valued in excess of
25 percent of such Plan's net assets. The Partnership will not be
organized unless $50 million in capital contribution commitments is
subscribed for by investors.
3. Approximately 5-10 Plans may invest in the Partnership. An
additional 8 to 12 non-Plan investors are also expected to participate
in the Partnership. However, no Plan may invest more than 25 percent of
its assets in the Partnership and every other pooled investment vehicle
sponsored by TBFC, as measured on the date of such investment. Each
participating Plan must invest a minimum of $2 million in the
Partnership. Further, no Plan benefiting employees of TBFC will be
permitted to invest in the Partnership.\7\
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\7\ Although TBFC will not be affiliated with, or under the
control of, or controlling, any participating Plan, it is likely
that certain Plans will have a preexisting relationship with TBFC in
the form of an investment in BF IV or BF V, investment vehicles
managed by TBFC.
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4. Pooled investments for Plans investing in the Partnership will
be made through the Partnership. The maximum capital contribution
commitment of the Partnership will be $350 million. The primary purpose
of the Partnership is to engage in the business of providing capital
to, acquiring equity and debt interests in, and making available
consultative services to Portfolio Companies such as Bank Companies and
Financial Services Companies having assets under $10 billion. The
Partnership may also invest in demutualizing thrift institutions,
business services companies (providing outsourcing, transaction
processing and other information management services to Financial
Services Companies), insurance contracts, short term investments,
derivatives (for hedging purposes only) and covered put and call
options. Further, the Partnership may make loans of securities. In
short, it is anticipated that the Partnership will share the same basic
investment strategy as was held by MBF I, MBF II, BF III, BF IV and BF
V, and in many ways, the operations and fee structures of these
entities.\8\
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\8\ According to TBFC, there are circumstances militating
against investments by the Partnership in either BF IV or BF V.
First, the Partnership will be structured as a separate investment
entity apart from BF IV and BF V. BF IV, BF V and BF VI
(collectively, the Funds) will all have somewhat different charters
with respect to what investments each can make. Second, many
companies in which the Funds invest are (or will be acquired) by
larger banks within three years of the particular Fund making an
investment. Therefore, something acquired by an earlier Fund is
unlikely to be acquired by a later Fund. Third, the Partnership will
not come into existence until BF IV and BF V are fully invested, so
concurrent purchases are deemed impossible. Fourth, BF IV may
complete its wind-up and termination before the Partnership becomes
invested. Fifth, there is an outright prohibition against the
Partnership buying investments in BF IV and BF V and also against
investing directly in BF IV and BF V. Sixth, the Partnership will
invest in an area in which the availability of Portfolio Company
securities will be extremely limited. For the Partnership to invest
in any of the same investment vehicles as BF IV and BF V, it would
mean that none of the investment circumstances described above would
apply.
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5. The General Partner of the Partnership will be MidBanc VI LP.
The general partner of MidBanc VI LP will be TBFC and the Limited
Partners will be individuals employed by TBFC. The General Partner will
acquire a one percent interest in the Partnership, for cash. As
described later in this proposed exemption, all fees that are paid to
the General Partner and/or its affiliates will be paid by the
Partnership.
The principal place of business of the Partnership will be 208
LaSalle Street, Chicago, Illinois or at such other location as the
General Partner may select. The Partnership is expected to terminate on
December 31, 2011, unless terminated sooner.
6. Some of the Limited Partners of the Partnership will consist of
non-Plan investors, which will acquire, by making capital contributions
in cash directly to the Partnership, a Limited Partner's interest in
such Partnership. However, as noted above, other Limited Partners will
be Plans covered under the provisions of the Act, and governmental
plans. In the same manner, these Plans will acquire, for cash, a
Limited Partner's interest in the Partnership. It is expected that upon
the creation of this structure, the Plans will own a 75 percent equity
interest in the Partnership. Because none of the exceptions to the plan
asset regulations will apply, the assets of the Partnership will
constitute plan assets.\9\
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\9\ See 29 CFR 2510.3-101(a)(2)(ii) and (f).
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The General Partner will not have any control over the decision to
cause any Plan to invest in the Partnership. Under these circumstances,
the decision to participate in the Partnership will be made by a Plan
fiduciary which is independent of the General Partner. In each
instance, even though the General Partner may present a Plan fiduciary
with information concerning investment in the Partnership, the Plan
fiduciary who makes the investment decision will agree not to rely on
the advice of the General Partner as the primary basis for a Plan's
investment, and the Independent Fiduciary will be specifically required
to do so in every instance.\10\ The General Partner assumes
[[Page 39057]]
that a Plan will invest in the Partnership only if the fiduciaries of
the Plan determine that investment performance is anticipated to be
superior.\11\
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\10\ The Department notes that the general standards of
fiduciary conduct promulgated under the Act would apply to the
participation in the Partnership by an Independent Fiduciary.
Section 404 of the Act requires that a fiduciary discharge his
duties respecting a plan solely in the interest of the plan's
participants and beneficiaries and in a prudent fashion.
Accordingly, an Independent Fiduciary must act prudently with
respect to the decision to invest in the Partnership. The Department
expects that an Independent Fiduciary, prior to investing in the
Partnership, to fully understand all aspects of such investments
following disclosure by the General Partner of all relevant
information.
\11\ The Department is not expressing an opinion on whether the
Trustee or the General Partner would be deemed to be fiduciaries
under section 3(21)(A)(ii) of the Act with respect to a Plan's
investment in the Partnership. The Department is also not proposing
relief for the rendering of investment advice in connection with the
acquisition of interests in the Partnership.
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7. The contribution provisions for the Partnership will be
identical as between Plan and non-Plan investors. For example, capital
calls for Plans participating in the Partnership will be concurrent and
in the same proportional amount as are capital calls by the Partnership
from Limited Partners that are not Plans.\12\ The General Partner may
call any amount of the capital commitment upon 7 days' advance written
notice, and in increments of 3 percent or more, when cash is needed to
fund the acquisition of Portfolio Company securities by the
Partnership. However, there are two limitations upon the General
Partner's power to call contributions. First, no more than 50 percent
of the contribution commitment may be called in any twelve month
period. Second, the General Partner cannot call any contributions after
the sixth anniversary date of the inception of the Partnership (the
period running from the date on which initial capital contributions are
made to such sixth anniversary date being referred to as ``the
Acquisition Phase'').
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\12\ It is represented that capital calls will be handled as
follows:
On the same day, the General Partner will notify all Limited
Partners, including Plan investors that capital is being called. All
investors will have 7 days to forward the appropriate amount of
cash.
As a matter of practice, all Limited Partners will wire their
contributions to the Partnership on the same day.
All investors' contributions will be credited to the
Partnership's Capital Account.
The General Partner will then utilize the Partnership's Capital
Account to acquire the appropriate securities until the Partnership
account is exhausted, at which time, another capital call will be
made.
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If an investing Plan cannot or does not meet a capital call, the
Partnership Agreement provides that ten days after the investor
receives notice of default on a capital call, the General Partner may
(a) permit the investor's continued participation in the Partnership
with a commensurate reduction in both the investor's proportionate
interest in such Partnership and aggregate size of the Partnership;
\13\ (b) declare the investor's entire capital commitment due and
pursue collection of the same; or (c) expel, at fair market value, the
defaulting investor and offer its interest in the Partnership first to
the non-defaulting investors and then to non-investors who are
qualified to invest in such Partnership. In making the choice between
these alternatives, it is represented that the General Partner will be
guided by then-current investment strategies and the best interest of
the non-defaulting investors.
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\13\ Reductions in a Limited Partner's participations are based
upon the relative amount of capital contributions that are omitted.
For example, if a Limited Partner subscribes for a 10 percent
interest in the Partnership and neglects to honor 25 percent of its
commitment, the Limited Partner will only have a 7.5 percent
interest in the Partnership if it is permitted to continue its
investment.
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8. The terms of the Partnership control the duties and authority of
the General Partner. For example, the General Partner, at its own
expense, will provide the Partnership with personnel who are able to
undertake the investment strategies for these entities as well as
perform their clerical, bookkeeping and administrative functions. In
addition, the General Partner, at its own expense, will provide the
Partnership with office space, telephones, copying machines, postage
and all other necessary items of office services. Further, the General
Partner will control proxy voting on all Portfolio securities.\14\ The
Partnership Agreement permits the General Partner to allocate
securities transactions to broker-dealers of its choice.
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\14\ The Department is not providing exemptive relief herein for
any prohibited transactions that may arise as a result of proxy
voting on the part of the General Partner. The Department also notes
that the general standards of fiduciary conduct promulgated under
the Act would apply to such voting practices.
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The General Partner will prepare, or cause to be prepared on behalf
of the Partnership, the following reports: (a) annual audited financial
statements; and (b) quarterly unaudited financial statements. In
addition, the General Partner will keep the accounts of the
Partnership.\15\
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\15\ Some examples of the types of accounts that will be
maintained by the Partnership for each Limited Partner are (a) the
Capital Account, which reflects the original capital paid into the
Partnership by the Limited Partner and any adjustments thereto; (b)
the Income Account, to which will be credited income, interest,
dividends, fees for services (i.e., consulting services provided by
the Partnership to financial institutions) and any other income
items (other than gains or losses on the sale or other disposition
of securities or other assets and other than income from high yield
investments) and to which will be debited any expenses of the
Partnership other than those which are to be taken into account to
determine gains and losses; and (c) the Gain Account, to which will
be credited or debited gains or losses after expenses of sale, when
and as realized from the sale or other disposition by the
Partnership of securities or other assets, whether or not any such
gain or loss is recognized or constitutes long-term or short-term
capital gain or loss or ordinary income or loss for Federal income
tax purposes.
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9. Under the Partnership Agreement, two types of fees will be
payable to the General Partner by the Partnership. These fees are a
management fee (the Management Fee) and the Performance Fee, the
components of which are described below.
The General Partner's Management Fee is payable as a percentage of
the aggregate capital contributions to the Partnership. The fee will be
equal to 5 percent of the first $20 million in capital contributions,
1.79 percent of the next $280 million of capital contributions and 2
percent on amounts in excess of $300 million. On average, the fee will
not exceed 2 percent of committed capital when all capital is
contributed, even if the Partnership is capitalized at less than $300
million.\16\
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\16\ It is represented that the Management Fee is covered by the
statutory exemptive relief available under section 408(b)(2) of the
Act. However, the Department expresses no opinion herein on whether
the General Partner's receipt of the Management Fee will satisfy the
terms and conditions of section 408(b)(2) of the Act.
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Although Limited Partners will receive distributions from the
Partnership throughout its duration, if, as a result of distributions
to the Limited Partners, paid-in capital contributions are reduced to
50 percent or less of the original aggregate capital contributions to
the Partnership after December 31, 2008, the Management Fee will be
reduced to 70 percent of the amount otherwise payable, effective for
fiscal years subsequent to the year in which said reduction was
achieved. Upon the return to the Limited Partners of capital
contributions so as to reduce their capital contributions to 25 percent
or less of the total capital contributions paid-in, the Management Fee
will be reduced to 50 percent of the amount otherwise payable,
effective for fiscal years subsequent to the year in which said
reduction was achieved.
10. In addition to the Management Fee, the General Partner\17\ will
be entitled to receive the Performance Fee, which will accrue annually
in a debit account (i.e., the Performance Fee Account) between the date
the first contribution is made to the Partnership until the time the
Partnership disposes of its last investment. As noted above,
[[Page 39058]]
the Performance Fee Account will provide a mechanism for measuring the
General Partner's compensation for managing the Partnership. Such
account will be a ``moving'' balance that will reflect the activity of
the Partnership instead of actual dollars that are reserved or set
aside for the General Partner. Until distributions from the Performance
Fee Account are made, funds that the debit account credits represent
will be invested for the benefit of the Limited Partners.
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\17\ As briefly alluded to in Representation 1, certain
employees of TBFC, generally those who take an active part in the
management of the Partnership, are limited partners in MidBanc VI,
the General Partner of the Partnership. MidBanc VI will be entitled
to receive the Performance Fee to the extent that it is earned.
MidBanc VI will then allocate the Performance Fee among TBFC and the
employees of TBFC who are limited partners in MidBanc VI.
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The Performance Fee will be paid during the final three years of
the Partnership. Simply stated, the Performance Fee will equal 20
percent of the excess of net realized gains minus net unrealized losses
of the Partnership, minus allowed distributions determined annually
between the date of the first contribution to the Partnership until the
disposition of the last Partnership asset.
In addition, the General Partner's Performance Fee will subject to
the following terms and conditions:
(a) Fee Base. As noted above, the amount credited to the General
Partner as the Performance Fee will be equal to a percentage of net
realized gains minus net unrealized losses. The fee will be annually
credited to the General Partner.\18\
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\18\ Any payments of the Performance Fee will reflect realized
gains inuring to the Partnership. For the Partnership to make a
Performance Fee payment to the General Partner, it must sell a
Partnership investment for a price exceeding the purchase price for
such investment. Therefore, the proceeds of the sale will reflect
the source of Performance Fee payments.
After the Partnership has invested its capital, it will have two
sources of cash. One is income received from its investments, such
as dividends or interest. The other is money received when it sells
an investment.
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(b) Reduced Availability. Prior to the termination of the
Partnership, only 75 percent of the General Partner's Performance Fee
may be drawn from the Partnership. (This limit will also apply to
special income tax draws as described in Representation 12.)
(c) Limited Deferral/Return of Capital. Again, with the exception
of the General Partner's income tax liabilities that are described in
Representation 12, distributions of the Performance Fee cannot be made
until January 1, 2009, which is after the completion of the
Partnership's Acquisition Phase. Withdrawals with respect to the
Performance Fee cannot be paid until investors have received
distributions equal to 100 percent of their capital contributions.\19\
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\19\ Where a partnership, such as the Partnership described
herein, makes a distribution to the Limited Partners, that
distribution can include any of the following: Income, realized
gains, and/or return of capital. Income and gains can arise at any
time during the partnership's life. Although income and gains occur
after the initial investment phase of a partnership, in the case of
the Funds, such distributions have occurred during the Acquisition
Phase. However generally, the contributed capital that gives rise to
a gain attributed to the Partnership during the Acquisition Phase
will be reinvested by the General Partner. Conversely, the
contributed capital that gives rise to a gain attributed to the
Partnership after the Acquisition Phase has been completed, will be
distributed to a Limited Partner if the gain is realized after the
Acquisition Phase expires.
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(d) Debits. The General Partner's Performance Fee Account is
debited for the appropriate percentage of realized losses and net
unrealized losses and distributions pursuant to the formula. The
Performance Fee cannot be drawn when the Performance Fee Account is in
a deficit position. Thus, if a gain is realized when the Performance
Fee Account is in a deficit position, no Performance Fee can be paid to
the General Partner and accrue in the Performance Fee Account.
Sufficient gains must be realized to restore the deficit, restore the
25 percent cushion and generate surplus before any part of the
Performance Feet can eventually be drawn down.
(e) Unrealized Gains. Although net unrealized losses are subtracted
from net realized gains before the Performance Fee is calculated, net
unrealized gains are excluded from the calculation of the General
Partner's Performance Fee. In essence, the exclusion of net unrealized
gains serves as an additional reserve ensuring that the General Partner
will not be permitted withdrawals based on early gains that are subject
to offset by later losses. The exclusion of net unrealized gains and
the inclusion of net unrealized losses in the Performance Fee
calculation operate to create a moving threshold or hurdle. If the
General Partner draws on its Performance Fee Account and the
Partnership experiences a later loss, the General Partner cannot take
another fee until that loss is made up.
(f) Distribution Repayment. The General Partner must repay any
deficit in the Performance Fee Account such that if the Partnership
were to terminate at any time, the General Partner would not have
received a Performance Fee in excess of that which reflects the
Partnership's performance to that date.
11. The following examples illustrate the calculation of the
General Partner's Performance Fee. Although the Performance Fee may be
drawn annually for the specific purpose of satisfying the General
Partner's tax liabilities under certain limited circumstances (see
Section II(o) and Representation 12), generally the Performance Fee can
only be drawn during 2009 and 2011, the final three years of the
Partnership's anticipated term. However, for purposes of illustration,
four draw years have been assumed in the examples.
Example 1
----------------------------------------------------------------------------------------------------------------
Cumulative net Performance
Year position fee account Maximum draw Draw or Refund
----------------------------------------------------------------------------------------------------------------
1.............................................. $800 $160 $120 $120
2.............................................. 200 40 30 (90)
3.............................................. 1,000 200 150 120
4.............................................. 700 140 105 (45)
----------------------------------------------------------------------------------------------------------------
Year 1 Assume that when the Performance Fee first becomes
drawable in 2009 the Partnership's Cumulative Net Position is $800.
The General Partner's Performance Fee is 20% of $200 or $160. The
General Partner may draw 75% of the $160 or $120.\20\
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\20\ The assumption is, for purposes of this example, that all
Limited Partners investing in the Partnership have received a 100
percent return of their capital contributions.
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Year 2 The Partnership's Cumulative Net Position at the end of
Year 2 is $200. The General Partner's Performance Fee is 20% of $200
or $40. The General Partner is entitled to draw $30, but since it
has previously drawn $120, it must refund $90.
Year 3 The Partnership now has a Cumulative Net Position of
$1,000. The General Partner's Performance Fee is $200 with a
permitted draw of $150. Because the General Partner has previously
drawn a net amount of $30 at the end of Year 2 (i.e., $120 - $90),
it may now draw an additional $120.
Year 4 The Partnership's Cumulative Net Position falls to $700
and the General Partner's Performance Fee falls to $140. The 75%
draw equals $105, but the General Partner has previously drawn a
total of $150
[[Page 39059]]
(i.e., $120 - $90 + $120). Therefore, the General Partner must make
a refund to the Partnership of $45.
Example 2
----------------------------------------------------------------------------------------------------------------
Cumulative net Performance
Year position fee account Maximum draw Draw or Refund
----------------------------------------------------------------------------------------------------------------
1.............................................. $2,000 $400 $300 $300
2.............................................. 1,000 200 150 (150)
3.............................................. 500 100 75 (75)
4.............................................. 900 180 135 60
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Year 1 Assume that when the General Partner's Performance Fee
first becomes drawable in 2009, the Cumulative Net Position for the
Partnership is $2,000. The General Partner's Performance Fee is 20%
of $2,000 or $400. The General Partner may draw 75% of the $400 fee
or $300. $100 or 25% of the draw amount must be left in the
Partnership as a cushion.\21\
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\21\ The assumption is again, for purposes of this example, that
all Plans investing in the Partnership have received a 100 percent
return of their capital contributions.
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Year 2 The Cumulative Net Position for the Partnership at the
end of Year 2 has fallen to $1,000. The General Partner's
Performance Fee is 20% of $1,000 or $200. The General Partner is
entitled to draw $150, but since it has previously drawn $300, it
must refund $150.
Year 3 The Cumulative Net Position for the General Partner has
fallen to $500. The General Partner's Performance Fee now falls to
$100 (i.e., 20% of $500) with a permitted draw of $75 and a cushion
of $25. Because the General Partner has previously drawn $150 ($300
- $150), it must make a refund to the Partnership of $75.
Year 4 The Cumulative Net Position for the Partnership is $900
at the end of Year 4. The General Partner's Performance Fee is 20%
of $900 or $180. The General Partner's 75% draw on the Performance
Fee equals $135. However, since the General Partner has previously
drawn a total of $75 ($300 - $150 -$75), it may now draw a
Performance Fee of $60.
12. The General Partner has been informed by its counsel that gains
realized by the Partnership will, to the extent that they are allocable
to the General Partner's Performance Fee Account, be taxable to the
General Partner in the year gains are realized by the Partnership, even
though the distribution of gains attributable to the General Partner
will be deferred. Therefore, to enable the individual owners of the
General Partner or its affiliates (collectively, referred to as the
General Partner) to discharge their obligations to state or federal
taxing authorities, it is proposed that an amount sufficient to pay
taxes (representing approximately 5 percent of the gains of the
Partnership) be distributed to the General Partner solely during the
Partnership's Acquisition Phase. The sale of the Portfolio Company
securities that gives rise to the early distribution of such gains may
only occur in connection with a third party merger, acquisition or
tender offer and not through an exercise of discretion by the General
Partner.
Such distributions will be charged against the General Partner's
Performance Fee Account and will reduce the balance that is used to
calculate the 25 percent cushion required before actual distributions
can be made to the General Partner.\22\ In the event the General
Partner receives a tax refund, the amount will be repaid by the General
Partner to the Partnership to the extent a distribution has been made
to such General Partner.
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\22\ With the exception of the General Partner, all Limited
Partners will receive distributions of gains when they are realized.
(As noted previously, this could occur prior to the ending of the
Acquisition Phase for the Partnership.) For example, if at any time
during the Partnership's existence, a Portfolio Company security is
purchased for $1 million and sold by the General Partner for $3
million, a $2 million gain will be realized by the Partnership. The
Limited Partners will own $1.6 million of the gain while the General
Partner will own $400,000 of the gain (i.e., 20 percent of the
Performance Fee). Both Plan and non-Plan Limited Partners will
receive an aggregate distribution of $1.6 million which will be
allocated among such Limited Partners. Depending on whether the
Limited Partner receiving a portion of the $1.6 million gain is a
taxable or non-taxable entity, the amount allocated to the Limited
Partner will be taxed. Although the $400,000 gain attributable to
the General Partner will be deferred, the Service will view the
General Partner as having received taxable income of $400,000. If
the tax rate is 25 percent, the General Partner will owe the Service
$100,000. It is the $100,000 that the General Partner seeks to
obtain as a tax distribution. The General Partner's remaining
Performance Fee amount of $300,000 will stay in the Partnership even
though the Limited Partners will receive their proportionate share
of the $1.6 million.
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To ensure that tax refunds are repaid, the General Partner will
retain an independent accounting firm to calculate the tax liabilities
and credits. If a tax payment is owed by the General Partner, it will
appear as an asset (i.e., a receivable) on the Partnership's financial
reports that are given to the Limited Partners.
In addition, the tax distributions will be in the exact amount of
the General Partner's tax liability. All funds received in the
distribution will be forwarded to the Service and no portion will be
retained by either the General Partner or the Limited Partners.
Therefore, there will be no gain by the General Partner.
Finally, TBFC notes that all of the Limited Partners were made
aware of the tax distribution feature of the Partnership. TBFC states
that this disclosure was made before the Limited Partners determined to
commit capital to the Partnership.
13. The Partnership will terminate upon the earliest to occur of
(a) the complete distribution of its assets, (b) a vote in favor of
termination by 75 percent of the Limited Partners,\23\ or (c) December
31, 2011. If it would be to the financial benefit of the Limited
Partners to extend the term of the Partnership beyond 2011, extensions
of up to two years may be initiated by the General Partner. Any further
extension must be approved by the Limited Partners holding a majority
of the Limited Partnership interests. Neither the General Partner nor
the Partnership may acquire additional Partnership investments at the
time of an extension. The purpose of the extension will be to allow the
General Partner to liquidate the Partnership's existing investments,
distribute the cash proceeds received from the liquidation to the
Limited Partners, and terminate the Partnership.
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\23\ A vote of 75 percent of the Limited Partners to remove the
General partner will also result in the termination of the
Partnership.
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Upon termination of the Partnership, all Portfolio positions will
be liquidated, Partnership expenses will be paid and distributions will
be made (including any remaining portion of the General Partner's
Performance Fee). If all assets cannot be converted into cash or if it
would be disadvantageous to liquidate every asset, remaining assets may
be distributed in-kind, at the discretion of the General Partner. The
General Partner will then receive a fractional portion of its fee, in-
kind. To ensure that the General Partner will not select higher income-
generating Partnership assets for itself, each Limited Partner, as well
as the General Partner, will receive a
[[Page 39060]]
proportionate share of each Portfolio Company security that is
distributed in-kind.
14. The following example illustrates the manner in which in-kind
distributions will be made by the General Partner:
Assume that there are only two Limited Partners investing in the
Partnership and that each has received a full return of capital.
Non-Plan A investor has a Partnership interest worth $60 and Plan B
has a Partnership interest worth $40.
The Partnership holds 100 shares of Bank X stock which it
acquired for $5 per share. Upon termination of the Partnership, Bank
X stock is worth $7 per share.
The total unrealized gain attributable to Bank X stock is ($7--
$5) x 100 = $200.
The General Partner's Performance Fee is equal to $200 x 20% =
$40.
The General Partner receives $40 $7 = 5.7 shares of Bank X
stock.
The non-Plan investor receives 60% x 94.3 = 56.6 shares of Bank
X stock.
The Plan investor receives 40% x 94.3 = 37.7 shares of Bank X
stock.
15. In general, Partnership interests will not be assignable, and
no Limited Partner may assign or otherwise transfer, pledge or
otherwise encumber any or all of its interest in the Partnership
without the prior consent of the General Partner. However, a Limited
Partner may transfer its interest only after extending to the
Partnership and the other Limited Partners the right of ``first
offer.''
In addition, because the Partnership's investment philosophy is
inconsistent with at-will withdrawals, redemptions of Partnership
interests by Plan investors are limited to situations where (a) a
replacement Plan is available from either current Plans investing in
the Partnership or there are new, qualified investors; (b) a Plan
submits to the General Partner, a written opinion of counsel to the
effect that the Plan's continued participation in the Partnership would
violate the Act and that relief from the violation cannot be obtained;
and (c) the Partnership fails to obtain the exemptive relief proposed
herein necessary for its operation. This information will be disclosed
to investors.
16. The Partnership Agreement requires that the General Partner
provide the Independent Fiduciary of each Plan proposing to invest in
the Partnership with a copy of the Private Placement Memorandum by the
General Partner. The Private Placement Memorandum describes all
material facts concerning the purpose, structure and operation of the
Partnership.
If the Independent Fiduciary expresses further interest in
participating in the Partnership, such Independent Fiduciary will be
provided with copies of the Partnership Agreement outlining the
organizational principles, investment objectives and administration of
the Partnership, the manner in which Partnership interests can be
redeemed, the duties of the parties retained to administer the
Partnership and the manner in which Partnership assets will be valued,
the duties and responsibilities of the General Partner, the rate of
remuneration that the General Partner will be paid and the conditions
under which the General Partner may be removed. Once the Independent
Fiduciary has made a decision to invest in the Partnership, the General
Partner will provide such Independent Fiduciary with the names and
addresses of all other participating Plans as well as non-Plan
investors.
17. The Independent Fiduciary will be required to acknowledge, in
writing, prior to purchasing a Limited Partner's interest in the
Partnership that such fiduciary has received copies of the foregoing
documents. The Independent Fiduciary will also be required to
acknowledge, in writing, to the General Partner that such fiduciary is
independent of the General Partner and its affiliates, capable of
making an independent decision regarding the investment of Plan assets,
knowledgeable with respect to the Plan in administrative matters and
funding matters related thereto, and able to make an informed decision
concerning participation in the Partnership.
With respect to its ongoing participation in the Partnership, each
Plan will receive the following written disclosures from the General
Partner:
(a) Within 90 days after the end of each fiscal year of the
Partnership as well as at the time of termination, an annual
financial report containing a balance sheet for the Partnership as
of the end of such fiscal year and a statement of the changes in the
financial position for the fiscal year, as audited and reported upon
by independent, certified public accountants. The annual report will
also disclose the remuneration actually paid or accrued to the
General Partner.
(b) Within 60 days after the end of each quarter (except in the
last quarter) of each fiscal year of the Partnership, an unaudited
quarterly financial report consisting of at least a balance sheet
for the Partnership as of the end of such quarter and a profit and
loss statement for such quarter. The quarterly report will also
specify the remuneration that is actually paid or accrued to the
General Partner.
In addition to the foregoing reports, the General Partner will
prepare and distribute to each Plan such other information as may be
reasonably requested by the Plans to comply with the reporting
requirements of the Act or Code (including copies of the proposed
exemption and grant notice with respect to the exemptive relief granted
herein).
At least annually, the General Partner will hold a meeting of the
Partnership, at which time, the Independent Fiduciaries of
participating Plans will have the opportunity to decide on whether the
Partnership or the General Partner should be terminated as well as
discuss any aspect of the Partnership and Partnership Agreement under
which it is operated. Finally, during each year of the Partnership,
representatives of the General Partner will be available to confer by
telephone or in person with Independent Fiduciaries on matters
concerning the Partnership.
18. The terms of all transactions that are entered into on behalf
of the Partnership by the General Partner will be at least as favorable
to an investing Plan as those obtainable in arm's length transactions
with unrelated parties. In this regard, valuations of (and for) the
Partnership will be needed for general accounting purposes, to
determine the value of the Partnership's assets for reports to the
Limited Partners, for distributions of securities and to calculate the
General Partner's Performance Fee when the General Partner seeks to
draw upon it. The General Partner, subject to the review and approval
of the Valuation Committee, will determine the fair market value of the
assets and liabilities of the Partnership as of each fiscal date.\24\
The Valuation Committee, which is the same advisory committee that
served MBF I, MBF II and BF III, and currently serves BF IV and BF V,
will also serve as the Independent Appraiser. The Valuation Committee
is composed of three members who are experienced in valuing the
securities of Portfolio Companies. None of the members of the Valuation
Committee has an ownership
[[Page 39061]]
or creditor relationship with the General Partner.
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\24\ It is represented that the General Partner will gather all
requisite information to produce the valuation. This information may
include pricing information on any exchange-traded securities plus
more voluminous operating and financial data on the companies for
whose securities there is a thinner market. The General Partner will
then compile this infomraiton into a report which is submitted to
the Valuation Committee. After reviewing the submitted information,
the Committee will meet with the staff of the General partner to
discuss the valuation materials. At the end of this meeting, the
Valuation Committee will set the valuation for all Portfolio
hedgings. Thus, from both a legal and operative standpoints, the
partnership Agreement will control the valuation process and the
Valuation Committee will value the Fund.
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As the Independent Appraiser, each member of the Valuation
Committee must not be controlled by (or control) TBFC or the
Partnership and must not receive more than 5 percent of their lowest
annual income from the General Partner or the Partnership, either
during the term of the Partnership or in the three years preceding its
creation. Individual members of the Valuation Committee or the entire
committee may be removed by the General Partner only for cause and with
or without cause by Limited Partners holding a majority of the Limited
Partnership interests. A majority of the Limited Partners must approve
a replacement Independent Appraiser. If the Limited Partners and the
General Partner cannot agree upon a replacement Independent Appraiser,
the firm of KPMG Peat Marwick LLP will be appointed.
Although the General Partner will nominate the Independent
Appraiser, the Limited Partners will be given the option of either
approving or disapproving the nominee. The Independent Appraiser will
not be appointed absent the affirmative written approval of a majority
of the Limited Partners. However, the Limited Partners will have no
veto power over the General Partner's decision that an Independent
Appraiser is required.
If applicable, the Independent Appraiser will use the principles
set forth in Revenue Ruling 59-60 and any regulations that the
Department might propose to define ``Adequate Consideration'' to
determine fair market value. The valuations made by the Independent
Appraiser will be binding upon the General Partner. In addition, the
Independent Appraiser will issue a report to the General Partner which
sets forth the Independent Appraiser's pricing methodology and
rationale for securities it has been asked to value. Such report will
be issued after each required valuation and will comply with the
aforementioned regulations.
With respect to securities for which a market exists, the
Independent Appraiser will determine their value according to the
following principles:
(a) National Securities Exchange. Any security which is listed on a
national securities exchange generally will be valued based on its last
sales price on the national securities exchange on which the security
is principally traded on the valuation date.\25\ If no sale of a listed
security occurred on the valuation date, the value will be based on the
last bid price.
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\25\ TBFC explains that the phrase ``principally traded'' means
that if a security is traded on more than one exchange and if the
trade prices differ between exchanges, the value will be taken from
the exchange on which the largest volume of that security has
traded.
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(b) No Listing. Any security which is not listed on a national
securities exchange will be valued upon the last publicly available bid
price.\26\
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\26\ TBFC explains that the most recent trade price is not used
to value a security in this instance because it may be too dated to
provide an accurate estimate of value. Instead, TBFC considers the
bid price to be indicative of the current value at which someone
would be willing to acquire a security on the valuation date. TBFC
further notes that the use of the bid price rather than the previous
trading or closing price in valuing a security provides a
conservative valuation approach which will result, in most
instances, in a lower Performance Fee paid to the General Partner.
The Department assumes that the bid price described herein
represents active bids and is a true indicator of market prices.
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(c) Discount for Illiquidity. Anything herein to the contrary
notwithstanding, the Independent Appraiser in its discretion may apply
a discount for illiquidity, on the valuation of securities that have a
thin public market.
In the event that there is no independent market for a security or
the security is not listed on a national securities exchange, the
Independent Appraiser will be required to value such securities. Under
such circumstances, the securities will be valued at the time of
acquisition at their cost. The Independent Appraiser will continue
valuing the securities at their cost until a determination is made that
a different valuation level is indicated by the occurrence of (a) a
significant change in book value, (b) a significant change in a
Portfolio Company's business, (c) a significant third-party
transaction, or (d) any other significant change in the Financial
Company, its industry or the general market.
19. With respect to transactions that may arise during the
existence of the Partnership and which involve parties in interest with
respect to participating Plans, the General Partner requests exemptive
relief from the provisions of section 406(a) of the Act. Specifically,
TBFC requests exemptive relief where the Partnership sells securities
in the Partnership Portfolio for cash or other securities to a party in
interest with respect to a participating Plan in the context of an
acquisition or merger by the party in interest, provided the party in
interest is not an affiliate of the General Partner. TBFC represents
that the Partnership will receive the same offer that other
shareholders of Portfolio Companies will receive. Because the
Partnership will always be a minority shareholder in such situation,
TBFC states that the Partnership will be in the position of a
beneficiary of the acquisition offer, and it will not be in the
position of an active player in the merger or acquisition transactions.
20. In summary, it is represented that the proposed transactions
will satisfy the statutory criteria for an exemption under section
408(a) of the Act because:
(a) The participation by an Plan in the Partnership will be
approved by an Independent Fiduciary.
(b) Each Plan investing in the Partnership will have assets that
are in excess of $50 million.
(c) No Plan will invest more than 10 percent of its assets in the
Partnership and a Plan's respective interest in this entity will not
represent more than 25 percent of the assets of such Partnership.
(d) No Plan will invest more than 25 percent of its assets in
investment funds and separate accounts managed or sponsored by TBFC
and/or its affiliates.
(e) Prior to making an investment in the Partnership, each
Independent Fiduciary contemplating investing therein will receive
offering materials which disclose all material facts concerning the
purpose, structure and operation of the Partnership and the fees paid
to the General Partner.
(f) Each Plan investing in the Partnership will be required to
acknowledge, in writing, prior to purchasing interests that such
fiduciary has received copies of such documents and to acknowledge, in
writing, to the General Partner that such fiduciary is (1) independent
of the General Partner and its affiliates, (2) capable of making an
independent decision regarding the investment of Plan assets; and (3)
knowledgeable with respect to the Plan in administrative matters and
funding matters related thereto, and able to make an informed decision
concerning participation in the Partnership.
(g) The General Partner will make quarterly and annual written
disclosures to participating Plans with respect to the financial
condition of the Partnership and the total fees that it will receive
for services rendered to such Partnership.
(h) The General Partner will hold annual meetings and conduct
periodic discussions with Independent Fiduciaries to address matters
pertaining to the Partnership.
(i) The terms of all transactions that are entered into on behalf
of the Partnership by the General Partner shall remain at least as
favorable to an investing Plan as those obtainable in arm's length
transactions with unrelated parties. In this regard, the valuation of
assets of the Partnership will be based upon independent market
quotations or determinations made by an Independent Appraiser.
[[Page 39062]]
(j) As to each Plan, the total fees paid to the General Partner and
its affiliates will constitute no more than reasonable compensation.
(k) Any increase in the General Partner's Performance Fee will be
based upon a predetermined percentage of net realized gains minus net
unrealized losses. In this regard,
(1) Except as described below in paragraph (1) of this
Representation 20, no part of the General Partner's Performance Fee may
be withdrawn before December 31, 2009, which represents the completion
of the Acquisition Phase of the Partnership and not until the Limited
Partners have received distributions equal to 100 percent of their
capital contributions to the Partnership.
(2) Prior to the termination of the Partnership, no more than 75
percent of the Performance Fee credited to the General Partner may be
withdrawn from the Partnership.
(3) The Performance Fee Account established for the General Partner
will be credited with net realized gains and charged for net unrealized
losses and Performance Fee distributions.
(4) The General Partner will repay all deficits in its Performance
Fee Account and it will maintain a 25 percent cushion in such account
before receiving any further distribution.
(l) The General Partner will be entitled to take distributions with
respect to its Performance Fee in the amount of any income tax
liability it or its affiliates become subject to with respect to net
capital gains of the Partnership:
(i) only during the Partnership's Acquisition Phase; and
(ii) provided such gains are based on the sale of Portfolio Company
securities that is initiated by a third party in connection with a
merger, tender offer or acquisition.
(m) The General Partner will be obligated to repay to the
Partnership any tax refund received to the extent a distribution has
been made to such General Partner.
Notice to Interested Persons
Notice of the proposed exemption will be given to Plans intending
to invest in the Partnership within 3 days of the date of publication
of the notice of pendency 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 33 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) 693-8556. (This is not a toll-free number.)
Unifi, Inc. Retirement Savings Plan (the Plan) Located in Greensboro,
North Carolina
[Application No. D-11094]
Proposed Exemption
The Department is considering granting an exemption under the
authority of section 408(a) of the Act and section 4975(c)(2) of the
Code and in accordance with the procedures set forth in 29 CFR part
2570, Subpart B (55 FR 32836, 32847, August 10, 1990). If the exemption
is granted, the restrictions of sections 406(a), 406(b)(1) and (b)(2)
of the Act and the sanctions resulting from the application of section
4975 of the Code, by reason of section 4975(c)(1)(A) through (E) of the
Code, shall not apply to the proposed cash sale of a certain parcel of
improved real property (the Property) by the Plan to Unifi, Inc., the
Plan's sponsor and, as such, a party in interest with respect to the
Plan; provided that the following conditions are satisfied:
(a) The proposed sale is a one-time cash transaction;
(b) The Plan receives the greater of: (i) $7,500,000; or (ii) fair
market value for the Property, as established by an independent
qualified appraiser at the time of the sale;
(c) The Plan pays no commissions or other expenses associated with
the sale; and
(d) the applicant files Form 5330 with the Internal Revenue Service
(IRS) and pays all of the appropriate excise taxes within 60 days of
the date that the grant for this proposed exemption is published in the
Federal Register.
Summary of Facts and Representations
1. The Plan is a successor in interest to the Unifi, Inc. Profit
Sharing Plan and Trust, which was merged therein effective December 25,
2001. The Plan is a defined contribution profit sharing plan with a
safe harbor cash or deferred arrangement. As of December 31, 2001, the
Plan had 4,754 participants, and $169,680,792 in total assets. The
Plan's real estate trustee is Merrill Lynch Trust Company of North
Carolina (MLTC of N.C.), a North Carolina corporation, having its
principal office at 1600 Merrill Lynch Drive, MSC-0601, Pennington, New
Jersey. MLTC of N.C. is the current title holder of the Property.
Unifi, Inc. (Unifi) is the sponsor of the Plan. Unifi is a New York
corporation which is in the business of texturizing and producing
fabrics.
2. In 1987, Unifi contributed the Property to the Plan, and
subsequently leased (the Lease) such Property back from the Plan. These
transactions were the subject of an individual prohibited transaction
exemption (PTE) granted by the Department (see PTE 87-28, 52 FR 8380,
March 17, 1987). The Lease expired, by its terms, on March 12, 2002.
The applicant maintains that all terms and conditions of PTE 87-28 have
been met. The applicant, however, makes no representations as to
whether Wachovia Bank and Trust Company, N.A. (Wachovia) fulfilled all
of its obligations as the independent fiduciary (the I/F) under PTE 87-
28.\27\ The applicant states that at all times during the Lease, the
Plan received rent payments consistent with the fair market value of
the property, as required by the Lease. However, in a prior application
submitted to the Department on March 13, 2002, which requested relief
for a continuation of the Lease by Unifi,\28\ the applicant stated that
Wachovia, the I/F for the Lease under PTE 87-28, unilaterally elected
to cease functioning as an independent fiduciary for the Plan effective
on or before March 13, 2002. Therefore, as of that date, Unifi states
that it was engaging in a prohibited transaction by continuing the
Lease pursuant to a holdover provision contained therein. Unifi
represents that it was unsuccessful in locating a successor I/F for the
Lease or a new lease of the Property to Unifi. In this regard, Unifi
states that it will file Form 5330 with the IRS and pay all of the
appropriate excise taxes for the period that the Property remains
leased after March 12, 2002 to Unifi until the date of the proposed
sale of the Property to Unifi. Such excise taxes will be paid within
sixty (60) days of the date that the final exemption for this proposed
sale is published in the Federal Register.
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\27\ In this regard, the Department is providing no opinion, or
comments, at this time with respect to Wachovia's successful
completion of its duties and obligations as the I/F for the Lease.
\28\ This application was subsequently withdrawn by Unifi (see
Exemption Applicaiton No. D-11080).
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The applicant represents that the Plan has paid no expenses or
holding costs during the period of time it has owned the Property.
Unifi has paid all real estate taxes, the cost of improvements, repairs
or insurance during the time the Property has been owned by the Plan,
as
[[Page 39063]]
was required by the Lease under PTE 87-28.
4. The Property is located at 7201 West Friendly Street in
Greensboro, North Carolina. The Property consists of 8.52 acres of land
with improvements. These improvements are a one and two-story, single-
user professional office building, containing approximately 98,717
square feet of gross building area. The Property was appraised on March
7, 2002 (the Appraisal) by Mark A. Morgan and Fred H. Beck, Jr., MAI,
CCIM, both qualified independent real estate appraisers (collectively,
the Appraisers). The Appraisers are with Fred H. Beck and Associates,
LLC, Real Estate Appraisers and Consultants, which is located on 6525
Morrison Boulevard, Charlotte, North Carolina.
In determining the fee simple estate \29\ value of the Property,
the Appraisers considered the Cost Approach, the Income Approach, and
the Sales Comparison Approach. Based on their analysis, the Property
had a fair market value of approximately $7.5 million, as of March 7,
2002. In addition, the Appraisal states that the current fair market
rental rate for the entire Property, as would be leased to one tenant
on an absolute net basis, was $72,058 per month, as of March 7, 2002.
Unifi represents that it is currently paying this amount to the Plan
each month as rent for the Property.
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\29\ The Appraisal defines the term ``fee simple estate'' as ``*
* * absolute ownership unencumbered by any other interest or estate,
subject only to the limitations imposed by the government powers of
taxation, eminent domain, police power and escheat.''
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The applicant states that the Appraisal will be updated at the time
of the proposed transaction, in order to ensure that the Plan receives
no less than the current fair market value of the Property (i.e., the
fee simple estate) on the date of the sale. In any event, the applicant
represents that the purchase price of the Property to be paid by Unifi
will be the greater of: (i) $7,500,000, the fair market value as
currently appraised; or (ii) the fair market value of the Property as
determined by the updated Appraisal.
5. The applicant proposes that Unifi purchase the Property from the
Plan in a one-time cash transaction. The applicant represents that the
proposed transaction would be in the best interest and protective of
the Plan because, among other things, the Plan will pay no expenses or
commissions associated with the sale. Unifi will pay the Plan an amount
equal to the current fair market value of the Property, as established
by an independent, qualified appraiser. In this regard, the applicant
maintains that the Property is not adjacent to any other real estate
owned by Unifi or the Plan. The sale of the Property by the Plan to
Unifi will help to avoid the time and expense of locating an unrelated
third party buyer \30\ or lessee for the Property. In addition, the
applicant wants to avoid the time and expense of obtaining the
Department's approval for a new lease of the Property to Unifi,
pursuant to a new PTE with a new I/F.
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\30\ The applicant represents that the Plan has been
unsuccessful in locating an independent third party buyer for the
Property.
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6. In summary, the applicant represents that the transaction
satisfies the statutory criteria of section 408(a) of the Act and
section 4975(c)(2) of the Code because:
(a) the proposed sale will be a one-time cash transaction;
(b) the Plan will receive the greater of: (i) $7,500,000; or (ii)
the fair market value for the Property, as established by an
independent qualified appraiser at the time of the sale;
(c) the Plan will pay no commissions or other expenses associated
with the sale;
(d) the sale will enable the Plan to sell the Property, which is
currently subject to a lease that became a prohibited transaction under
the Act as of March, 2002; and
(e) the applicant will file Form 5330 with the IRS and pay
appropriate excise taxes within 60 days of the date of a grant of this
proposed exemption.
For Further Information Contact: Ekaterina A. Uzlyan of the
Department at (202) 693-8540. (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 3rd day of June, 2002.
Ivan Strasfeld,
Director of Exemption Determinations, Pension and Welfare Benefits
Administration, Department of Labor, Department of State.
[FR Doc. 02-14221 Filed 6-5-02; 8:45 am]
BILLING CODE 4510-29-P
