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Secretary of Labor Thomas E. Perez
Proposed Exemptions; Adams Wood Products, Inc. Profit Sharing Plan [Notices] [06/06/2002]

EBSA (Formerly PWBA) Federal Register Notice

Proposed Exemptions; Adams Wood Products, Inc. Profit Sharing Plan [06/06/2002]

[PDF Version]

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.
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

    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\
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

    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\
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

    (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\
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

    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
----------------------------------------------------------------------------------------------------------------


    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\
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

    \23\ A vote of 75 percent of the Limited Partners to remove the 
General partner will also result in the termination of the 
Partnership.
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

    (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\
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

    (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.
---------------------------------------------------------------------------

    \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).
---------------------------------------------------------------------------

    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.''
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

    \30\ The applicant represents that the Plan has been 
unsuccessful in locating an independent third party buyer for the 
Property.
---------------------------------------------------------------------------

    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