Grant of Individual Exemptions; Bank of America, N.A.
[02/17/2004]
Volume 69, Number 31, Page 7506-7510
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DEPARTMENT OF LABOR
Employee Benefits Security Administration
[Prohibited Transaction Exemption 2004-02 et al.; Exemption Application
No. D-11047 et al.]
Grant of Individual Exemptions; Bank of America, N.A.
AGENCY: Employee Benefits Security Administration, Labor.
ACTION: Grant of individual exemptions.
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SUMMARY: This document contains exemptions issued by the Department of
Labor (the Department) 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).
A notice was published in the Federal Register of the pendency
before the Department of a proposal to grant such exemption. The notice
set forth a summary of facts and representations contained in the
application for exemption and referred interested persons to the
application for a complete statement of the facts and representations.
The application has been available for public inspection at the
Department in Washington, DC. The notice also invited interested
persons to submit comments on the requested exemption to the
Department. In addition the notice stated that any interested person
might submit a written request that a public hearing be held (where
appropriate). The applicant has represented that it has complied with
the requirements of the notification to interested persons. No requests
for a hearing were received by the Department. Public comments were
received by the Department as described in the granted exemption.
The notice of proposed exemption was issued and the exemption is
being granted solely by the Department because, 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 proposed to the Secretary of Labor.
Statutory Findings
In accordance with section 408(a) of the Act and/or section
4975(c)(2) of the Code and the procedures set forth in 29 CFR Part
2570, Subpart B (55 FR 32836, 32847, August 10, 1990) and based upon
the entire record, the Department makes the following findings:
(a) The exemption is administratively feasible;
(b) The exemption is in the interests of the plan and its
participants and beneficiaries; and
(c) The exemption is protective of the rights of the participants
and beneficiaries of the plan.
Bank of America, N.A., Located in Charlotte, North Carolina
[Prohibited Transaction Exemption 2004-02; Exemption Application No. D-
11147]
Exemption
Section I--Covered Transactions
The restrictions of section 406(a) of the Act and the sanctions
resulting from the application of section 4975 of the Code, by reasons
of section 4975(c)(1)(A) through (D) of the Code, shall not apply, as
of January 1, 2003, to:
(A) The granting to Bank of America, N.A. (Bank), either as an
agent (the Agent) for a group of financial institutions (Lender(s)), or
as a sole Lender, that will fund a so-called ``credit facility''
(Credit Facility) providing credit to certain investment funds
(Fund(s)), by the Fund of a security interest in and lien on the
capital commitments (Capital Commitments), reserve amounts, and capital
contributions (Capital Contributions) of certain investors, including
employee benefit plans (a Covered Plan, as defined in Section III(A)),
investing in the Fund;
(B) Any collateral assignment and pledge by the Fund to the Agent,
or to the Bank as sole Lender, of its security interest in each
Investor's equity interest, including a Covered Plan's equity interest,
in the Fund;
(C) The granting by the Fund to the Agent, or to the Bank as sole
Lender, of
[[Page 7507]]
a security interest in a Collateral Account to which all Capital
Contributions in the Fund will be deposited when paid (except in
certain limited circumstances);\1\
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\1\ In most cases, all Investors will make Capital Contributions
into the Collateral Account. However, in some cases, investors that
are not plans may be directed to make Capital Contributions to the
Agent, for the benefit of the Lenders, after an event of default, in
some other manner.
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(D) The granting by the Fund to the Agent, or to the Bank as sole
Lender, of its right to make calls on Investors for Capital
Contributions (Capital Call), which shall be in cash, under the
operative Fund Agreements (as defined in Section III(C)), enforce the
Capital Calls, collect the Capital Contributions, and apply them to any
amount due under the Credit Facility;
(E) The execution by a Covered Plan of an agreement (Investor
Consent) consenting to the Fund's assignment to the Agent, or to the
Bank as sole Lender, of the Fund's right to make Capital Calls, which
may contain: (i) An acknowledgment by the Covered Plan of the Fund's
assignment to the Agent, or to the Bank as sole Lender, of the right to
make Capital Calls upon the Covered Plan, enforce the Capital Calls,
collect the Capital Contributions, and apply them to any amount due
under the Credit Facility; (ii) a consent (as either part of the Fund
Agreements or as a separate agreement) by the Covered Plan to make
Capital Contributions to the Fund without counterclaim, setoff, or
defense, for the purpose of repayment of the Credit Facility; (iii) a
representation that the Covered Plan has no knowledge of claims,
offsets or defenses that would adversely affect its obligation to fund
Capital Contributions under the Fund Agreements; and (iv) an agreement
that the Covered Plan will fund Capital Contributions only into the
Collateral Account; provided that with respect to all transactions
described above, the conditions set forth below in Section II are met.
Section II--Conditions
(A) The transaction is on terms that are no less favorable to the
Covered Plans than those which the Covered Plans could obtain in arm's-
length transactions with unrelated parties;
(B) The decision to invest in the Fund on behalf of each Covered
Plan and to execute an Investor Consent in favor of the Bank (either as
sole Lender or Agent), is made by fiduciaries of the Covered Plan that
are not included among, are independent of, and are unaffiliated with,
the Lenders (including the Bank) and the Fund. For purposes of this
exemption, a fiduciary of a Covered Plan is not included among, is
independent of, and unaffiliated with, a Lender (including the Bank) or
a Fund, as applicable, if: (i) The fiduciary is not, directly or
indirectly, through one or more intermediaries, controlling, controlled
by, or under common control with such Lender or Fund,\2\ (ii) the
fiduciary is not an officer, director, employee or relative of, or
partner in, such Lender or Fund; and (iii) no officer, director,
highly-compensated employee (within the meaning of section
4975(e)(2)(H) of the Code), or partner of the Fund, or any officer,
director or highly-compensated employee, or partner of the Lender who
is involved in the transactions described in Section I of the
exemption, is also an officer, director, highly-compensated employee,
or partner of the fiduciary. However, if such individual is a director
of the Lender, and if he or she abstains from participation in, and is
not otherwise involved with, the decision made by the Covered Plan to
invest in the Fund, then this condition shall be deemed satisfied;
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\2\ For purposes of determining whether a fiduciary is not
included among, is independent of, and unaffiliated with, a Fund,
the term ``Fund'' shall be deemed, as appropriate, to include the
governing entity of the Fund or a member of the governing body of
the Fund, as appropriate, e.g., a general partner of a partnership,
a manager of a limited liability company, a member of a member-
managed limited liability company, or a member of the board of
directors of a corporation.
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(C) At the time of the execution of an Investor Consent, the
Covered Plan has assets of not less than $100 million. In the case of
multiple plans maintained by the same employer, or by members of a
controlled group of corporations (within the meaning of Code section
414(b)) or members of a group of trades or businesses under common
control (within the meaning of Code section 414(c)) (hereafter,
referred to as ``members of a controlled group''), whose assets are
invested on a commingled basis (e.g., through a master trust), this
$100 million threshold applies to the aggregate assets of the
commingled entity;
(D) Not more than five (5) percent of the assets of any Covered
Plan, measured at the time of the execution of an Investor Consent, is
invested in the Fund. In the case of multiple plans maintained by the
same employer, or by members of a controlled group, whose assets are
invested on a commingled basis (e.g., through a master trust), the five
(5) percent limit applies to the aggregate assets of the commingled
entity;
(E) Neither the Bank nor any Lender has discretionary authority or
control with respect to a Covered Plan's investment in the Fund nor
renders investment advice (within the meaning of 29 CRF 2510.3-21(c))
with respect to such investment;
(F) Upon request, the Covered Plan fiduciaries receive from the
Bank a copy of this exemption, as published in the Federal Register, as
well as a copy of the notice of proposed exemption. In addition, all
appropriate fiduciaries of Covered Plans must receive a copy of this
exemption, as published in the Federal Register, for Covered
Transactions (as defined in Section III(D) below) that occurred during
the period from January 1, 2003 until the date of this exemption;
(G) The Bank receives from the Covered Plan fiduciaries a written
representation that the conditions set forth above in Section II(B),
(C), and (D) are satisfied for such transaction with respect to the
Covered Plan for which they are fiduciaries; and
(H) None of the Covered Transactions are part of an arrangement,
agreement or understanding, designed to benefit a party in interest
with respect to a Covered Plan.
Section III--Definitions
(A) The term ``Covered Plan'' means an investor in a Fund (as
defined below) that is an employee benefit plan, as defined in section
3(3) of the Act, that satisfies the conditions set forth herein in
Section II;
(B) The term ``Fund'' means an investment or venture capital fund
(organized as a corporation, limited partnership, limited liability
company, or another business entity authorized by applicable law) in
which one or more investors invest, including employee benefit plans or
special purpose entities holding ``plan assets'' subject to the Act, as
described herein, by making capital contributions in cash to such Fund,
pursuant to specific Capital Commitments as established by the Fund
Agreement(s) and other operative documents executed by the parties, for
purposes of making certain real estate investments (including real
estate-related investments, such as venture capital investments) or
non-real estate investments. The term ``Fund'' includes an entity
created by the Fund that may borrow or receive funds from the Credit
Facility, provided that such entity is considered an affiliate of the
Fund as a subsidiary or other controlled entity;
(C) The terms ``Fund Agreement'' or ``Fund Agreements'' mean the
written agreements under which a Fund (as defined above) is formed
(such as a limited partnership agreement, a limited liability company
agreement or articles of incorporation, together with ancillary
[[Page 7508]]
related agreements, such as subscription agreements) that obligate each
investor to make cash contributions of capital with respect to Capital
Commitments, upon receipt of a call for Capital Contributions;
(D) The terms ``Covered Transaction'' or ``Covered Transactions''
mean any combination of transactions described in Section I(A)-(D), in
conjunction with the Investor Consent described in Section I(E); and
(E) The term ``officer'' means a president, any vice president in
charge of a principal business unit, division or function (such as
sales, administration or finance), or any other officer who performs a
policy-making function for the entity.
EFFECTIVE DATE: This exemption is effective as of January 1, 2003.
For a more complete statement of the facts and representations
supporting the Department's decision to grant this exemption, refer to
the notice of proposed exemption published on September 29, 2003, at 68
FR 56008.
Written Comments: The applicant (referred to herein as the
``Bank'') submitted a number of comments on the notice of proposed
exemption (the Notice). These comments, and modifications to the
exemption made by the Department in response thereto, are discussed
below.
First, the Bank states that the term ``Borrower Collateral
Account'' appeared several times in the operative language of the
Notice (see 68 FR at 56008-56009, Section I(C) and I(E)) as well as in
the Summary of Facts and Representations (the Summary) in the Notice.
In particular, Paragraph 3 of the Summary states that the borrower
under the Credit Facility will be a Fund. However, the Bank states that
the account established for a borrower, referred to as a ``Borrower
Collateral Account,'' may be in the name of the Fund if the Fund is the
borrower, or it may be in the name of an affiliate of the Fund (i.e., a
subsidiary or other controlled entity) that is established for the
purpose of making a particular investment. Thus, in order to avoid any
confusion, the Bank suggested that the exemption should refer to such
accounts simply as the ``Collateral Account.''
In response to the Bank's comment, the Department has deleted the
term ``Borrower Collateral Account'' and substituted the term
``Collateral Account'' in Sections I(C) and I(E), as well as in
Footnote 1, of the exemption. In addition, the Department notes that
any references to the term ``Borrower Collateral Account'' in the
Summary (e.g., in the last paragraph of Paragraph 6, or in item (iv) of
Paragraph 7) should be replaced with the term ``Collateral Account'' as
clarified by the Bank.
Second, the Bank states that there are at least two additional
references in the Summary to a Fund as a borrower of funds (i.e.,
monies) under a Credit Facility (e.g., Paragraph 3 of the Summary (68
FR at 56009, third column) and Paragraph 6 of the Summary (68 FR at
56010, third column)). As noted above, the Bank represents that many of
these Funds actually establish special purpose entities to make
particular investments. In such instances, the Bank states that those
entities are the borrower of such funds, in which case the Fund may be
a guarantor or may be providing other credit support to the borrower
entity. As a result, the Bank requested a clarification to note that
such ``Funds'' may be borrowers under a Credit Facility as well as
guarantors or providers of other credit support.
The Department acknowledges the Bank's clarification. In addition,
in response to the Bank's comments, the Department has added a sentence
at the end of the definition of the term ``Fund'' in Section III(B) of
the exemption which states that such term includes an entity created by
a Fund that may borrow or receive funds from the Credit Facility,
provided that such entity is considered an affiliate of the Fund as a
subsidiary or other controlled entity.
Third, with respect to the definition of a ``Fund,'' the Bank
states that the Notice used the phrase ``investment opportunity fund''
to describe, in part, such investment vehicles (see 68 FR at 56009,
second line of Section III(B) and Paragraph 1 of the Summary). The Bank
represents that some persons may think that an ``investment opportunity
fund'' is a specific type of ``Fund,'' rather than a more general
investment fund that may be investing in real estate or other proper
investments. As a result, the Bank requested that the word
``opportunity'' be deleted from the phrase ``investment opportunity''
in the definition of the term ``Fund.''
In response to the Bank's comment, the Department has deleted the
word ``opportunity'' from the definition contained in Section III(B) of
the exemption.
Fourth, with respect to Paragraph 4 of the Summary (see 68 FR
56010, second column), there is a discussion of the independence of
Covered Plan fiduciaries from a Lender (including the Bank) or a Fund.
In this regard, the last sentence in Paragraph 4 of the Summary (just
prior to Paragraph 5) reads as follows:
``* * * (iii) the fiduciary is not a corporation or partnership
in which a person affiliated with the Fund or a Lender, as
appropriate, is an officer, director, partner, or employee.''
The Bank states that the three items included in the discussion in
Paragraph 4 of the Summary describe the circumstances for how
fiduciaries are ``independent of, or unaffiliated with'' a Lender
(including the Bank) or the Fund. The first item provides that the
fiduciary must not, directly or indirectly, control, be controlled by,
or be under common control with the Lender or a Fund. The second item
ensures that a fiduciary (if an individual) is not an officer,
director, employee, or relative of, or partner in, a Lender or a Fund.
The third item is intended to cover fiduciaries that are not
individuals, including a corporation or partnership. The Bank suggests
that, in order to clarify that a Covered Plan's fiduciary that is an
entity is not ``affiliated with'' a Lender (including the Bank) or a
Fund, the exemption should state, for purposes of item (iii) above,
that no officer or director of a fiduciary which is a corporation,
partnership, or other entity controls the Fund or a Lender, as
appropriate.
The Department is unable to concur with the Bank's suggestion for
clarifying the scope of affiliations between a Covered Plan's
fiduciary, that is an entity, and a Lender or Fund by limiting the
affiliations referred to in item (iii) to officers or directors of such
entities who would control the Lender or Fund. Such a clarification
would deem many individuals who have a significant interest or
relationship to both the Lender or Fund and the Covered Plan's
fiduciary as ``independent of, or unaffiliated with'' such entities.
However, upon further discussion with the Bank in order to
adequately address the concern raised by the comment, the Department
has added the following sentence to the conditions contained in Section
II(B) of the exemption:
``* * * For purposes of this exemption, a fiduciary of a Covered
Plan is not included among, is independent of, and unaffiliated
with, a Lender (including the Bank) or a Fund, as applicable, if:
(i) the fiduciary is not, directly or indirectly, through one or
more intermediaries, controlling, controlled by, or under common
control with such Lender or Fund, (ii) the fiduciary is not an
officer, director, employee or relative of, or partner in, such
Lender or Fund; and (iii) no officer, director, highly-compensated
employee (within the meaning of section 4975(e)(2)(H) of the Code),
or partner of the Fund, or any officer, director or highly-
compensated employee, or partner of the Lender who is involved in
the transactions
[[Page 7509]]
described in Section I of the exemption, is also an officer,
director, highly-compensated employee, or partner of the fiduciary.
However, if such individual is a director of the Lender, and if he
or she abstains from participation in, and is not otherwise involved
with, the decision made by the Covered Plan to invest in the Fund,
then this condition shall be deemed satisfied.'' [emphasis added]
In addition, the Department has added a definition of the term
``officer'' in Section III(E) of the exemption to more narrowly define
the number of individuals who could be covered by such term.
Finally, with respect to Section III(D) of the Notice, the Bank
states that the word ``with'' should be inserted after the phrase ``in
conjunction'' and before the phrase ``the Investor Consent.'' The
Department acknowledges the Bank's comment and has inserted the word
``with'' as indicated in Section III(D) of the exemption.
The Bank provided other minor clarifications relating to the
information contained in the Summary, which do not require further
changes or modifications to the operative language, conditions or
definitions of the exemption. Interested persons are directed to the
Bank's letter of November 19, 2003, contained in the exemption
application file D-11147, which is available for public
inspection in the Public Disclosure Room of the Employee Benefits
Security Administration, U.S. Department of Labor, Room N-1513, 200
Constitution Avenue, NW., Washington, DC 20210.
FOR FURTHER INFORMATION CONTACT: Janet L. Schmidt of the Department, at
telephone (202) 693-8540. (This is not a toll-free number.)
Lodgian, Inc. 401(k) Plan and Trust Agreement (the Plan), Located in
Atlanta, Georgia
[Prohibited Transaction Exemption No. 2004-03; Application No. D-11180]
Exemption
The restrictions of sections 406(a), 406(b)(1) and (b)(2) and
407(a) of the Act and the sanctions resulting from the application of
section 4975 of the Code, by reason of section 4975(c)(1)(A) through
(E) of the Code, shall not apply, effective December 3, 2002, to (1)
the past acquisition and holding by the Plan of certain warrants (the
Warrant(s)) issued by Lodgian, Inc. (Lodgian), a party in interest with
respect to the Plan, which would permit the purchase of new common
stock (New Lodgian Stock); (2) the cancellation payment (the
Cancellation Payment) by Lodgian to the Plan in exchange for the
Warrants (i) at the election of active participants (ii) at the
election of the terminated vested participants whose vested interests
exceed $5,000, or (iii) in accordance with the procedures for the
automatic cash out of the value of Warrants held in the accounts of
terminated vested participants whose vested interests are $5,000 or
less, for an amount that represents the highest value of the Warrants
determined by an independent, qualified, appraiser between December 31,
2002 and the date of the individual election; (3) the sale of the
Warrants from Plan participants to Lodgian to cash out active and
terminated vested participants; and (4) the potential exercise of the
Warrants into the New Lodgian Stock. This exemption is conditioned upon
the adherence to the material facts and representations described
herein and upon the satisfaction of the following requirements:
(a) The acquisition and holding of the Warrants by the Plan
occurred in connection with Lodgian's bankruptcy proceeding (the
Bankruptcy);
(b) The Plan had no ability to affect the Plan of Reorganization
filed by Lodgian on December 20, 2001 under Chapter 11 of Title 11 of
the United States Code (the Bankruptcy Code), or the First Amended Plan
of Reorganization, subsequently filed under the Bankruptcy Code by
Lodgian on November 1, 2002 (The First Amended Plan of Reorganization);
(c) The Warrants were acquired automatically and without any action
on the part of the Plan;
(d) The Warrants were acquired by the Plan with the same terms and
conditions as non-Plan shareholders;
(e) The Plan did not pay any fees or commissions in connection with
the acquisition of the Warrants;
(f) Any decision to cancel the Warrants and accept a Cancellation
Payment from Lodgian will be made by the participant in the case of
active participants and terminated vested participants whose vested
interests exceed $5,000;
(g) The Warrants have been and will continue to be valued annually
on the 31st of December by an independent, qualified, appraiser;
(h) With Respect to those Plan participants who cash out the
Warrants, the value of the Warrants will be determined by using the
highest value determined by an independent, qualified, appraiser
between December 31, 2002 and the most recent valuation date prior to
the date of the distribution;
(i) An independent fiduciary will monitor the Cancellation
Payments, and confirm the valuation of the Warrants;
(j) Lodgian is required to purchase the Warrants upon request by a
Plan participant provided that on the day of the request the price of
the New Lodgian Stock is less than the exercise price of the Warrants;
and
(k) If the Warrant is listed on an established trading market
Lodgian is not required to purchase the Warrant from the Plan.
EFFECTIVE DATE: This exemption is effective as of December 3, 2002.
For a more complete statement of the facts and representations
supporting the Department's decision to grant this exemption, refer to
the Notice of Proposed Exemption published on September 29, 2003 at 68
FR 56013.
FOR FURTHER INFORMATION CONTACT: Khalif Ford of the Department,
telephone (202) 693-8540 (this is not a toll-free number).
Bangs, McCullen, Butler, Foye & Simmons, L.L.P. Employees Profit
Sharing Plan (the Plan) Located in Rapid City, South Dakota
[Prohibited Transaction Exemption 2004-04; Exemption Application No. D-
11198]
Exemption
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, effective January 1, 2004, to the proposed lease by
the Plan (the New Lease) of certain improved real property (the
Property) located in Rapid City, South Dakota, to Bangs, McCullen,
Butler, Foye & Simmons, L.L.P. (the Employer), the sponsor of the Plan,
and a party in interest with respect to the Plan; provided that the
following conditions are satisfied:
(A) All terms and conditions of the New Lease are at least as
favorable to the Plan as those which the Plan could obtain in an arm's-
length transaction with an unrelated party;
(B) The New Lease is a triple net lease under which the Employer is
obligated to pay for all costs of maintenance, repair, and taxes
related to the Property;
(C) The interests of the Plan for all purposes under the New Lease
are represented by an independent fiduciary, Wells Fargo Bank, N.A.,
Rapid City, South Dakota;
(D) The rent paid by the Employer under the New Lease is no less
than the fair market rental value of the Property; and
[[Page 7510]]
(E) If the summary appraisal of the Property, due in mid-December
2003, contains a fair market rental value that is higher than the
current fair market rental value set forth in the New Lease, the
Employer will amend the New Lease to pay the Plan the higher amount,
retroactive to January 1, 2004.
EFFECTIVE DATE: This exemption is effective as of January 1, 2004.
For a more complete statement of the facts and representations
supporting the Department's decision to grant this exemption, refer to
the notice of proposed exemption published on December 17, 2003 at 68
FR 70308.
FOR FURTHER INFORMATION CONTACT: Ekaterina A. Uzlyan of the Department,
telephone (202) 693-8540.
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 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) This exemption is supplemental to and not in derogation of, any
other provisions of the Act and/or the Code, including statutory or
administrative exemptions and transactional 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
(3) The availability of this exemption is subject to the express
condition that the material facts and representations contained in the
application accurately describes all material terms of the transaction
which is the subject of the exemption.
Signed at Washington, DC, this 10th day of February, 2004.
Ivan Strasfeld,
Director of Exemption Determinations, Employee Benefits Security
Administration, U.S. Department of Labor.
[FR Doc. 04-3415 Filed 2-13-04; 8:45 am]
BILLING CODE 4510-29-P
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