EBSA Federal Register Notice
Notice of Proposed Individual Exemption Involving Kaiser Aluminum Corporation and Its Subsidiaries (Together, Kaiser) Located in Foothill Ranch, CA [10/26/2006]
[PDF Version]
Volume 71, Number 207, Page 62615-62624
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DEPARTMENT OF LABOR
Employee Benefits Security Administration
[Application No. L-11348]
Notice of Proposed Individual Exemption Involving Kaiser Aluminum
Corporation and Its Subsidiaries (Together, Kaiser) Located in Foothill
Ranch, CA
AGENCY: Employee Benefits Security Administration, U.S. Department of
Labor.
ACTION: Notice of proposed individual exemption.
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This document contains a notice of pendency before the Department
of Labor (the Department) of a proposed individual exemption from
certain prohibited transaction restrictions of the Employee Retirement
Income Security Act of 1974 (the Act or ERISA).\1\ If granted, the
proposed exemption would permit, effective July 6, 2006, (1) the
[[Page 62616]]
acquisition by the VEBA for Retirees of Kaiser Aluminum (the Hourly
VEBA) and by the Kaiser Aluminum Salaried Retirees VEBA (the Salaried
VEBA; together, the VEBAs) of certain publicly traded common stock
issued by Kaiser (the Stock or the Shares), through an in-kind
contribution to the VEBAs by Kaiser of such Stock, for the purpose of
prefunding VEBA welfare benefits; (2) the holding by the VEBAs of such
Stock acquired pursuant to the contribution; and (3) the management of
the Shares, including their voting and disposition, by an independent
fiduciary (the Independent Fiduciary) designated to represent the
interests of each VEBA with respect to the transactions. The proposed
exemption, if granted, would affect the VEBAs and their participants
and beneficiaries.
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\1\ Because the VEBAs are not qualified under section 401 of the
Internal Revenue Code of 1986, as amended (the Code) there is no
jurisdiction under Title II of the Act pursuant to section 4975 of
the Code. However, there is jurisdiction under Title I of the Act.
EFFECTIVE DATE: If granted, this proposed exemption will be effective
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as of July 6, 2006.
DATES: Written comments and requests for a public hearing on the
proposed exemption should be submitted to the Department by November
21, 2006.
ADDRESS: All written comments and requests for a public hearing
concerning the proposed exemption should be sent to the Office of
Exemptions Determinations, Employee Benefits Security Administration,
Room N-5700, U.S. Department of Labor, 200 Constitution Avenue, NW.,
Washington, DC 20210, Attention: Application No. D-11348.
Alternatively, interested persons are invited to submit comments or
hearing requests to the Department by e-mail to
chuksorji.blessed@dol.gov or by facsimile at (202) 219-0204.
The application pertaining to the proposed exemption and the
comments received will be 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: Ms. Blessed Chuksorji, Office of
Exemption Determinations, Employee Benefits Security Administration,
U.S. Department of Labor, telephone (202) 693-8567. (This is not a
toll-free number.)
SUPPLEMENTARY INFORMATION: This document contains a notice of proposed
individual exemption from the restrictions of sections 406(a)(1)(E),
406(a)(2), 406(b)(1), 406(b)(2) and 407(a) of the Act. The proposed
exemption has been requested in an application filed by Kaiser pursuant
to section 408(a) of the Act, and in accordance with the procedures set
forth in 29 CFR part 2570, Subpart B (55 FR 32836, August 10, 1990).
Effective December 31, 1978, section 102 of Reorganization Plan No. 4
of 1978, (43 FR 47713, October 17, 1978) transferred the authority of
the Secretary of the Treasury to issue exemptions of the type requested
to the Secretary of Labor. Accordingly, this proposed exemption is
being issued solely by the Department.
Summary of Facts and Representations
The Applicant
1. Kaiser is a U.S. manufacturer and distributor of fabricated
aluminum products. Kaiser's fabricated products business, which
operates 11 facilities, is a leading producer of rolled, extruded,
drawn and forged aluminum products, serving market segments with a
variety of transportation and industrial end uses. Kaiser has
approximately 2,300 employees in the United States, of which
approximately 1,134 are represented by the (USW) \2\ and other unions
(collectively, the Unions). As of June 30, 2006, Kaiser had total
assets of $1,579,900,000. Kaiser maintains its headquarters in Foothill
Ranch, California.
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\2\ The USW is the result of a merger that took effect April 12,
2005, between the Paper, Allied-Industrial, Chemical and Energy
Workers International Union, AFL-CLC (PACE) and the United
Steelworkers of America AFL-CIO-CLC (USWA). The resulting union is
known as the USW.
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The Bankruptcy Proceedings and Kaiser's Negotiations
2. On February 12, 2002, Kaiser and certain affiliates filed
voluntary petitions for relief under Chapter 11 of the U.S. Bankruptcy
Code (the Bankruptcy Code). Additional affiliates filed for similar
relief on March 15, 2002 and its remaining domestic affiliates filed on
January 14, 2003. The Chapter 11 cases were consolidated for procedural
purposes only, and were administered jointly in the United States
District Court for the District of Delaware (the Bankruptcy Court). On
July 6, 2006, Kaiser emerged from bankruptcy.\3\
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\3\ Following its emergence from bankruptcy, Kaiser retains a
49% interest in Anglesey, a United Kingdom corporation that owns and
operates an aluminum smelter in Holyhead, Wales.
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3. Kaiser explains that its ability to emerge from bankruptcy was
dependent on the achievement of a number of interrelated agreements
among its creditors, lenders, interested government agencies, and
employees. Kaiser indicates that the negotiation of modifications to
the collective bargaining agreements with the Unions was important to
its successful reorganization. A key issue in these negotiations was
the extent to which Kaiser could restructure retiree benefit
obligations in order to emerge as a viable entity. As a result, Kaiser
began negotiations with the International Association of Machinists and
Aerospace Workers (IAM), the United Automobile, Aerospace and
Agricultural Implement Workers of America (UAW), the International
Chemical Workers Union Council--United Food & Commercial Workers
(ICWU), PACE, the USW (collectively, Unions) and a committee of five
former Kaiser executives (the Salaried Committee) appointed pursuant to
the Bankruptcy Code as authorized representatives of current and future
salaried retirees.
These series of negotiations culminated in agreements to terminate
existing retiree welfare arrangements and establish the VEBAs described
herein. Kaiser, the Unions, and the respective VEBA Committees
recognized that terminating the existing retiree welfare arrangements
and establishing the VEBAs was the only viable alternative for funding
future welfare benefits for current and certain future retirees.
Therefore, all legacy retiree welfare benefit obligations were
discharged as of May 31, 2004, in connection with the Bankruptcy Court
order issued on June 1, 2004.
The Hourly VEBA
4. Pursuant to the Hourly Settlement Agreement, Kaiser and the
Unions created the Board of Trustees of the Hourly VEBA (the Hourly
Board) \4\ to implement new retiree medical arrangements through the
establishment of the Hourly Trust, which in turn funds benefits
provided under the Hourly Plan. Together, the Hourly Trust and the
Hourly Plan comprise the Hourly VEBA,\5\ which was established as of
June 1, 2004 through a series of court orders. National City Bank,
located in Pittsburgh, Pennsylvania, serves as the Hourly VEBA's
trustee (the Hourly Trustee).
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\4\ Kaiser explains that the Hourly Board was established
pursuant to the Hourly Settlement Agreement and consists of four
individuals, two appointed by Kaiser and two appointed by the USW.
The members serve until death, incapacity, resignation or removal by
unanimous vote of the remaining members as set forth in the Hourly
Trust Agreement, Section 9.3. In addition, both Kaiser and the USW
have the power to remove and replace the Hourly Board members it
appoints at any time.
\5\ Kaiser represents that the Hourly VEBA was negotiated to
provide medical benefits for current and future retirees who had
worked under union-negotiated collective bargaining agreements and
who previously had been entitled to medical coverage under plans
maintained by Kaiser that were terminated during the bankruptcy
proceedings.
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[[Page 62617]]
The Hourly VEBA is sponsored by the Hourly Board. The Hourly Board
is also the Hourly VEBA's named fiduciary and plan administrator. In
this regard, the Hourly Board determines the benefits to be provided
under the Hourly Plan, including, without limitation, which
participants are eligible to receive benefits, in what form, and in
what amount, and the contributions (if any) that the participants are
required to make to help defray the cost of their coverage. In
addition, the Hourly Board may retain independent professional service
providers that it deems necessary and appropriate to administer the
Hourly VEBA. The Hourly Board receives no compensation from the Hourly
VEBA. Kaiser's obligation to contribute to the Hourly VEBA will
terminate in 2012. As of July 31, 2006, the Hourly VEBA had 7,120
participants. Also, as of July 31, 2006, the Hourly VEBA had assets of
$102,338,684.35.
The Salaried VEBA
5. In January 2004, Kaiser and the Salaried Committee \6\ reached
and entered into the Salaried Settlement Agreement, which provided for
the creation of the Salaried VEBA. The Salaried Committee chose to form
a separate VEBA for the benefit of eligible salaried retirees in order
for them to receive partial recompense from Kaiser for the termination
of their retiree benefits, rather than to participate in a single VEBA
with the Unions. The Salaried VEBA is comprised of a trust, the
Salaried Trust, and a plan, the Salaried Plan. The Salaried Trust is
the funding vehicle for the Salaried Plan and together, these form the
Salaried VEBA.
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\6\ The Salaried Committee was dissolved effective July 6, 2006.
Its members consisted of five former executives of Kaiser who served
without compensation.
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On May 31, 2004, the Salaried Trust was formed under a Trust
Agreement entered into between the Salaried Board, consisting of three
salaried retired employees of Kaiser and Union Bank of California,
N.A., the Salaried Trustee. On this same date, the Salaried Board
adopted the Salaried Plan. The Salaried Trust was formed to hold and
distribute trust fund assets in the form of retiree benefits to
eligible salaried retirees of Kaiser and their spouses and dependents.
The Salaried Plan was formed for the purpose of providing retiree
benefits. The Salaried Board is the named fiduciary for the Salaried
VEBA. Kaiser states that the Salaried VEBA is intended to qualify as a
medical reimbursement plan within the meaning of section 105 of the
Code and an employee welfare benefit plan within the meaning of section
of 3(1) of the Act. The Salaried Board is both the sponsor and
administrator of the Salaried VEBA. Kaiser is obligated to make certain
cash contributions to the Salaried Trust and to pay a certain portion
of the Salaried VEBA's administrative costs.\7\
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\7\ Under the Salaried Settlement Agreement, Kaiser states it is
obligated to reimburse one-half of the Salaried VEBA's
administrative expenses, not to exceed $36,250.
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The Salaried Trustee receives all cash contributions on behalf of
the Salaried Trust. In turn, the Salaried Trustee, at the direction of
the Salaried Board, invests the proceeds, disburses funds to cover the
creation and administrative costs of both the Salaried Trust and the
Salaried Plan, and disburses funds to pay benefits, if and when the
benefits are distributed under the Salaried Plan. Kaiser explains that
the Salaried Board has engaged a professional employee benefits plan
administrator to carry out a majority of the tasks associated with the
day-to-day administration of the Salaried Plan.
As of December 31, 2005, the Salaried VEBA had 4,117 participants.
As of August 23, 2006, the Salaried VEBA had $77,901,362.49 in assets.
Funding Arrangements for the VEBAs
6. Under the terms of the Hourly Settlement Agreement and the
Salaried Settlement Agreement, Kaiser agreed to fund the Hourly Trust
and the Salaried Trust, which would, in turn, fund benefits provided by
the Hourly Plan and the Salaried Plan through (a) in-kind contributions
of Stock, (b) cash contributions in fixed amounts, and (c) profit
sharing pool contributions.
(a)(1) Contribution of Stock to the Hourly VEBA. On July 7, 2006,
Kaiser issued 8,809,000 shares of its common stock to the Hourly
Trust.\8\ This Stock contribution represented 44% of Kaiser's fully
diluted common equity. The Shares contributed to the Hourly Trust are
subject to provisions in the Stock Transfer Restriction Agreement and
the Registration Rights Agreement, each of which is discussed below.
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\8\ The Hourly VEBA was entitled to receive 11,439,900 Shares
(representing a 57.2% ownership interest in Kaiser) but sold,
pursuant to procedures approved by the Bankruptcy Court, rights to
2,630,000 of such Shares to unrelated third parties in pre-emergence
sales. For purposes of the percentage limitations contained in the
Stock Transfer Restriction Agreement described below, and unless
Kaiser later agrees otherwise or the IRS rules that these pre-
emergence sales do not count as sales on or after the Effective Date
for purposes of preserving net operating loss carryovers, the pre-
emergence sales are treated as if they occurred on or after the
Effective Date.
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The Stock Transfer Restriction Agreement, which was executed by and
between Kaiser and the Hourly Trustee and assented to and acknowledged
by the Hourly Independent Fiduciary, provides that, during the ten-year
period commencing on the Effective Date (i.e., July 6, 2006), the
Hourly Trustee is prohibited from disposing of any of the Shares,
unless at the time of the disposition, the number of Shares to be
included in the transfer, together with all such Shares included in
other transfers by the Hourly Trust that have occurred during the 12
months preceding the transfer, is not more than 15% of the total number
of Shares received by the Hourly Trust pursuant to the Plan of
Reorganization (except, at the outset, larger amounts of Shares may be
permitted to be sold in specified transactions). However, Kaiser's
Board of Directors may, but is not required to, allow dispositions by
the Hourly Trustee that would otherwise violate this restriction.
The principal purpose of the Stock Transfer Restriction Agreement
is to assure that Kaiser's net operating loss carryovers (the NOLs)
will continue to be available to Kaiser without limitation following
its emergence from bankruptcy. The NOLs will enable Kaiser to operate
without an excessive tax burden for a number of years.\9\ In order to
preserve the full value of the NOLs, Kaiser must not undergo another
change of ownership following the Effective Date while the NOLs are
still available for use by Kaiser.
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\9\ In the Disclosure Statement related to Kaiser's Plan of
Reorganization, the present value of the estimated tax savings from
the NOLs was estimated at approximately $65 million to $85 million.
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The Registration Rights Agreement, which was executed by and
between Kaiser and the Hourly Trustee and assented to and acknowledged
by the Independent Fiduciary for the Hourly VEBA (the Hourly
Independent Fiduciary) on the Effective Date, provides generally that,
during the period commencing on July 6, 2006 and ending March 31, 2007,
the Hourly Trustee may request (and shall request if the Hourly
Independent Fiduciary directs) that Kaiser effect a registration under
the Securities Exchange Act of 1933 to permit the resale of a portion
of the Shares held by the Hourly Trustee in an underwritten public
offering meeting specified requirements and that, at any time following
March 31, 2007, the Hourly Trustee may request (and shall request if
the Hourly Independent Fiduciary directs) that Kaiser effect a
registration to permit the
[[Page 62618]]
resale of the Shares held by the Hourly Trust on a continuous basis.
(a)(2) Contribution of Stock to the Salaried VEBA. On July 6, 2006,
Kaiser issued 999,867 shares of its common stock to the Salaried
Trust.\10\ This Stock contribution represented slightly less than 5% of
Kaiser's fully diluted common equity.
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\10\ The Salaried VEBA was entitled to receive 1,940,000 Shares
(representing a 9.7% ownership interest in Kaiser) but sold,
pursuant to procedures approved by the Bankruptcy Court, rights to
940,233 of such Shares to unrelated third parties in pre-emergence
sales.
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(b) Cash Contributions. After an initial one-time contribution to
the Trusts of $1.2 million in cash in June 2004 and continuing until
its emergence from bankruptcy, Kaiser contributed cash to the Trusts at
the rate of $1.9 million per month, with the initial and monthly cash
contributions to the Trusts aggregating $48.7 million as of the
Effective Date. These cash contributions were credited against $36
million in cash due to the Trusts on the Effective Date and will be
credited against the first approximately $12.7 million of variable cash
contributions that Kaiser is obligated to make to the Trusts from the
profit sharing pool described below.
Of the $48.7 million of cash contributions made to the Trusts prior
to the Effective Date, $41.0 million was contributed to the Hourly
Trust and $7.7 million was contributed to the Salaried Trust. In
addition, Kaiser made a one-time contribution to the Hourly Trust of $1
million in cash on March 31, 2005; such cash contribution has not been
and will not be credited against any of Kaiser's obligations to
contribute additional cash to the Hourly Trust. Any variable cash
contributions from the profit sharing pool described below will be made
85.5% to the Hourly Trust and 14.5% to the Salaried Trust.
(c) Profit Sharing Pool. Following the Effective Date, Kaiser
established a profit sharing pool (the Pool) and, subject to the $12.7
million credit described above, is required to distribute the Pool, if
any, for a fiscal year on the earlier of 120 days following the end of
the fiscal year or 15 days after Kaiser files the Annual Report on Form
10-K for the fiscal year with the SEC (or, if no such report is
required to be filed, within 15 days of the delivery of the independent
auditor's opinion of Kaiser's annual financial statements for the
fiscal year). The Pool, if any, for a fiscal year will be 10% of the
first $20 million of adjusted pre-tax profit, plus 20% of adjusted pre-
tax profit in excess of $20 million, provided that the Pool will not
exceed $20 million and the Pool will be limited (with no carryover to
future years) to the extent that the Pool would cause Kaiser's
liquidity to be less than $50 million. As indicated above, the Pool, if
any, will be distributed 85.5% to the Hourly Trust and 14.5% to the
Salaried Trust.
The Stock Valuation
7. Based on a valuation analysis performed by Lazard Frer[egrave]s
& Co., LLC (Lazard), an independent financial adviser and an investment
banker located in New York, New York, Kaiser's reorganized value (the
Reorganized Value) was estimated to be approximately $395 million to
$470 million, with a midpoint of approximately $430 million as of
September 30, 2005.
The Reorganized Value consisted of the theoretical enterprise value
of Kaiser, plus excess cash and other non-operating cash flows and
assets. Lazard estimated the Reorganized Value as of September 30,
2005, under the assumption that the Reorganized Value would not change
materially through the assumed Effective Date of December 31, 2005.
The imputed reorganized equity value (the Equity Value) of Kaiser,
which took into account estimated debt balances and other obligations
as of the assumed Effective Date, was estimated to range from
approximately $340 million to $415 million, with a midpoint of
approximately $380 million. Based on the imputed range on this
Effective Date, the Equity Value per share of the Stock was estimated
to be approximately $17.00 to $20.75, with a midpoint of approximately
$19.00.
Thus, the estimated Equity Value of the 11,439,900 Shares of Kaiser
common stock that were originally to be contributed to the Hourly VEBA
before the pre-emergence sales had an estimated value of between $194.5
million and $237.4 million, with a midpoint of $217.4 million. With
respect to the Salaried VEBA, the 1,940,000 Shares of Kaiser common
stock that were originally to be contributed to such VEBA before the
pre-emergence sales had an estimated value of between $33 million and
$40.3 million, with a midpoint of $36.9 million.
In preparing its estimate of the Reorganized Value of Kaiser,
Lazard: (a) Reviewed historical financial information concerning
Kaiser; (b) reviewed internal financial and operating data regarding
Kaiser and financial projections relating to Kaiser's business and
prospects; and (c) met with certain members of the senior management of
Kaiser to discuss Kaiser's operations and future prospects. Although
Lazard conducted a review and analysis of Kaiser's businesses,
operating assets and liabilities, and business plans, Lazard assumed
and relied on the accuracy and completeness of the information
furnished to it by Kaiser and by other firms retained by Kaiser as well
as publicly-available information.
In preparing its valuation analysis of Kaiser, Lazard analyzed the
enterprise values of public companies that it deemed to be generally
comparable to the operating businesses of Kaiser. In addition, Lazard
utilized a discounted cash flow approach in which it computed the
present value of Kaiser's free cash flows and terminal value. Further,
Lazard analyzed the financial terms of certain acquisitions of
companies that it believed were comparable to the operating businesses
of Kaiser.
Administrative Exemptive Relief
8. Accordingly, Kaiser requests an administrative exemption from
the Department with respect to: (1) The past contribution and the
acquisition by the VEBAs of the Shares; (2) the holding by the VEBAs of
such Shares acquired pursuant to the contributions; and (3) the
management of the Shares by an Independent Fiduciary. Kaiser explains
that the contribution of the Shares to the Hourly and Salaried Trusts
would violate sections 406(a)(1)(E), 406(a)(2), and 407(a) of the Act.
Section 406(a)(1)(E) of the Act provides that a fiduciary with
respect to a plan shall not cause the plan to engage in a transaction
if he knows or should know that such transaction constitutes a direct
or indirect ``acquisition, on behalf of the plan, of any employer
security * * * in violation of Section 407(a).'' Section 406(a)(2) of
the Act prohibits a fiduciary who has authority or discretionary
control of plan assets to permit the plan to hold any employer security
if he knows or should know that holding such security violates Section
407(a). Section 407(a)(1) of the Act states that a plan may not acquire
or hold any employer security which is not a qualifying employer
security. Section 407(a)(2) of the Act states that a plan may not
acquire any qualifying employer security, if immediately after such
acquisition the aggregate fair market value of the employer securities
held by the plan exceeds 10% of the fair market value of the assets of
the plan. Section 407(d)(5) of the Act defines the term ``qualifying
employer security'' to mean an employer security which is a stock, a
marketable obligation, or an interest in certain publicly traded
partnerships. After December 17, 1987,
[[Page 62619]]
in the case of a plan, other than an eligible individual account plan,
an employer security will be considered a qualifying employer security
only if such employer security satisfies the requirements of section
407(f)(1) of the Act. Section 407(f)(1) of the Act states that stock
satisfies the requirements of this paragraph if, immediately following
the acquisition of such stock no more than 25% of the aggregate amount
of the same class issued and outstanding at the time of acquisition is
held by the plan, and at least 50% of the aggregate amount of such
stock is held by persons independent of the issuer.
In this regard, Kaiser represents that the Stock held by the Trusts
would not comply with the requirements of section 407(f)(1) of the Act,
because at least 50% of the Shares would not be held by persons
``independent of Kaiser,'' and, in the case of the Hourly Trust, more
than 25% of the Shares issued and outstanding would be held by the
Hourly Trust immediately after their acquisition. In addition, even if
the Shares constituted qualifying employer securities as provided in
section 407(d)(5) of the Act, Kaiser states that the contribution of
the Shares would cause each of the Trusts to exceed the 10% assets
limitation under section 407(a)(2) of the Act.
If granted, the exemption would be effective as of July 6, 2006.
Rationale for Exemptive Relief
9. Without an administrative exemption, Kaiser states that it would
have contributed the maximum number of Shares allowable under sections
406 and 407 of the Act to the VEBAs, which in turn could retain the
Shares for the purpose of providing retiree welfare benefits. Kaiser
explains that because of the 10% asset limitation imposed by section
407(a)(2), it is likely that very few Shares would be contributed to
the Trusts. In this event, Kaiser represents that it would have been
necessary to develop a new agreement or an alternative means of
utilizing the Shares for the exclusive benefit of participants and
beneficiaries of the Trusts. As a result, Kaiser explains that this
would have unwound the Agreements already reached with the Unions, the
Hourly Board and the Salaried Committee. Kaiser represents that the
chain of events that this would set into effect would have jeopardized
Kaiser's ability to reorganize and would have rendered Kaiser unable to
make any contributions to fund health benefits for its retirees.
Lastly, Kaiser states that the Trustees would have had no choice
but to amend the Trusts to provide for a distribution of Shares to the
beneficiaries of both Trusts. Kaiser notes that this would be extremely
difficult to accomplish in the case of the uncertain number of future
retirees whose eligibility for future benefits depends upon the length
of credited service with Kaiser at the time they eventually retire or
terminate their employment. Furthermore, Kaiser states that if the
Shares were distributed in kind, each covered retiree would have
received a relatively small number of Shares, which would be fully
taxable upon receipt. Kaiser explains that retirees would likely sell
at least some of the Shares upon receipt to cover their tax liability.
If this occurred, Kaiser indicates that the resultant selling pressure
would likely adversely affect the market, so that the sale price for
the Shares would be less than their economic value. Finally, Kaiser
explains that individual retirees would not be able to manage the
Shares and replicate for themselves the benefits provided for under the
terms of the VEBAs.\11\
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\11\ The Department expresses no opinion on the application of
ERISA's prohibited transaction restrictions to the alternate uses of
the Shares as described above.
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Independent Fiduciary for the Hourly VEBA
10. (a) Duties and Responsibilities. Pursuant to the Plan of
Reorganization, on October 6, 2005, the Hourly Board entered into the
Hourly Independent Fiduciary Agreement with IFS of Washington, DC, to
serve as the Hourly VEBA's Independent Fiduciary. (The Department's
views on the duties of the Independent Fiduciary are presented in
Representation 12). IFS is a wholly owned Delaware corporation with no
subsidiaries or affiliates. IFS engages in structuring and monitoring
pension and welfare fund investment programs and fiduciary decision-
making on behalf of such funds. IFS represents that it is independent
from Kaiser, the USW, the Hourly Board and the Hourly Trustee. Prior to
its retention by the Hourly Board to serve as the Hourly Independent
Fiduciary, IFS states that it had no previous relationship with Kaiser
or any of its benefit plans or with any of the other parties who will
have fiduciary responsibilities to the Hourly Plan in connection with
the transactions described herein. IFS is engaged, and has been in the
past engaged, to provide investment consulting services to employee
benefit plans covering members of one or more of the Unions. However,
IFS states that none of these engagements has or had any relationship
to the covered transactions.
Under the terms of the Hourly Independent Fiduciary Agreement, IFS'
duties with respect to the Stock contribution include or have included:
(a) Conducting a due diligence review of the transactions for which
exemptive relief has been requested; (b) negotiating additional or
different terms on behalf of the Hourly VEBA, as appropriate, in
connection with Kaiser's application for exemptive relief; (c)
determining whether the Hourly VEBA should participate in the
transactions; (d) furnishing the Department a statement outlining such
determinations and the rationale; (e) effecting the transactions by
directing National City Bank, the institutional trustee, to accept and
maintain the Shares on behalf of the Hourly VEBA in accordance with the
relevant terms of the Plan of Reorganization, issued by the Bankruptcy
Court; (f) arranging for periodic valuations of the Shares that have
been contributed to the Hourly VEBA, including the selection and
retention of (i) the valuation firm to perform such services, or (ii)
upon IFS' advice to the Hourly Trustees, a financial advisory firm
(which may be the same firm as the valuation firm) to evaluate the
merits of a merger, acquisition, or tender offer affecting the value of
such Shares; (g) directing the Hourly Trustee to demand that Kaiser
prepare and file with the SEC a ``shelf'' registration statement
covering the resale of the Shares or to permit the Hourly VEBA to sell
the Shares without registration pursuant to Rule 144 under the 1933
Securities Act or otherwise; and (h) managing the Shares that have been
contributed to the Hourly VEBA, including the authority to direct the
Hourly Trustee as to the voting of the Shares and as to the effecting
of any purchase, sale, exchange, or liquidation of the Shares.
(b) Views about the Transactions. IFS believes that the
transactions were in the best interests of the Hourly VEBA's
participants and beneficiaries and protective of their interests
because a retiree welfare plan that is funded primarily with company
stock is preferable to a plan that is unfunded and preferable to no
plan at all. IFS states its determination on whether to acquire the
Shares was consistent with its fiduciary obligations since management
of the Shares would be in its sole discretion.
Since being hired as the Hourly Independent Fiduciary, IFS states
that it has been instrumental in several changes in the terms of the
Plan and the VEBA Trust that protect the interest of the Hourly Plan's
participants. Among these are clarifications to the Registration Rights
Agreement regarding the circumstances under which Kaiser
[[Page 62620]]
would be required to accede to IFS' demand for an underwritten
offering, and amendments to the Summary Plan Description and the VEBA
Trust Agreement to clarify that the Plan's benefit obligation would be
conditioned on available cash and that no fiduciary or other person
would be required to liquidate any plan asset to generate cash. In IFS'
view, both of these changes would reduce the likelihood that the Shares
would be liquidated at an inopportune time in terms of price or market
effect. In addition, IFS states that it sought and obtained approval
from the Hourly Board to hire professionals that might be needed in the
execution of IFS' responsibilities. Finally, IFS anticipates that it
would implement a program to liquidate the Hourly Plan's holdings of
the Shares over time to generate cash for the payment of benefits under
the Hourly Plan and to diversify the Hourly Plan's investment assets.
(c) Pricing of the Hourly VEBA's Shares. IFS retained an
independent corporate valuator, Empire Valuation Consultants (Empire),
to advise IFS in valuing the Shares that were to be contributed. In
this regard, Empire analyzed Lazard's estimate and on April 12, 2006,
completed a preliminary analysis of Kaiser's financial information in
light of the current and projected economic and industry climates,
using the discounted cash flow method and the guideline company method,
to reach an estimate of the fair market value of Kaiser (and thereby of
the Shares that were to be contributed to the Hourly VEBA). This
preliminary analysis was updated in a valuation report prepared by
Empire on August 18, 2006 \12\ to reflect the fair market value of the
Stock owned by the Hourly VEBA. The Hourly VEBA received its 8,809,000
Shares as of July 7, 2006. Empire placed the fair market value of such
Stock at $36.50 per Share as of July 7, 2006. The update also took into
account the restrictions on marketability under the Stock Transfer
Restriction Agreement and other benefits or detriments placed on the
Hourly VEBA's Shares. In the interim, the market-driven sales of pre-
emergence Shares described above provided a benchmark for assessing the
value of the Shares to which the Hourly VEBA was eventually entitled on
July 7, 2006.
---------------------------------------------------------------------------
\12\ Kaiser represents that the Stock was not listed on the
Effective Date. Kaiser explains that the Stock did not begin to
trade until the next day, July 7, 2006.
---------------------------------------------------------------------------
IFS, with its advisers, continued to monitor Kaiser's financial
status to determine whether additional steps were needed to value the
Shares as of the Effective Date. Thus, on July 7, 2006, the Stock was
listed on the NASDAQ exchange at an opening value of $45.00 per
share.\13\ At such time as IFS concludes that a sufficient market
exists for the Shares, it is anticipated that the NASDAQ trading price
will constitute a helpful reference point for determining the fair
market value of the Shares held by the Hourly VEBA. However, while the
Hourly VEBA continues to hold Shares constituting a large proportion of
the Stock, IFS may determine to apply a control premium, blockage
discount, marketability or liquidity discount (owing to the
restrictions in the Stock Transfer Restriction Agreement) or other
appropriate adjustments to the NASDAQ trading price of the Shares.
---------------------------------------------------------------------------
\13\ On July 7, 2006, the last reported sales price for the
Kaiser common stock on the NASDAQ Global Market was $42.20.
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(c) Views on the Stock Transfer Restriction Agreement and the
Registration Rights Agreement. IFS explains that although the Stock
Transfer Restriction Agreement and the Registration Rights Agreement
circumscribe its discretion, the limitations imposed therein are
designed to help assure an orderly market for the Shares and to prevent
the loss of Kaiser's NOLs. IFS explains that preserving these tax
credits would ease the tax burden on Kaiser thereby enhancing Kaiser's
ability to meet its cash obligations, including its obligations to the
Hourly Plan, and enhancing the value of Kaiser whose Shares the Hourly
Plan would own.
Concerning the Stock Transfer Restriction Agreement, IFS explains
that, generally, during the ten-year period commencing on the Effective
Date, the Hourly VEBA is prohibited from disposing of the Shares unless
at the time of disposition, the number of such Shares to be included in
the transfer, together with all such Shares included in other transfers
that occurred during the 12 months preceding the transfer, is not more
than 15% of the total number of Shares received by the Hourly Trust.
Notwithstanding this general rule, however, IFS notes that the Hourly
VEBA may sell as much as 30% of its Shares in the first year after the
Effective Date, as long as it does not sell more than 45% of its Shares
during the three-year period beginning on such Effective Date.\14\
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\14\ IFS represents that the Hourly VEBA may sell more than 15%
in any year if the Kaiser Board consents.
---------------------------------------------------------------------------
IFS acknowledges that the maximum restriction period of ten years,
pursuant to the Stock Transfer Restriction Agreement, is a long
duration. However, IFS explains that the overall restriction scheme is
on par with other previously granted individual exemptions and is less
restrictive in some respects, due to the sales permitted.\15\ For
example, after the first few years, IFS notes that the Hourly VEBA
would have had a substantial opportunity to sell the Stock on the open
market. If prudent to do so, IFS further explains that the Hourly VEBA
may sell 100% of its Stock in just over six years. More significantly,
IFS points out that the NOLs will be forfeited if, in any rolling
three-year period, a change of ownership occurs with respect to 50% or
more of Kaiser's Stock.
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\15\ For instance, IFS cites Navistar International
Transportation Corporation (PTE 93-69, 58 FR 51105 (September 30,
1993)) where the Navistar plan could sell no shares at all for five
years. Additionally, IFS states that in Wheeling-Pittsburgh Steel
Corporation (PTE 2005-04, 70 FR 5703 (February 2, 2005)) the plan
could sell no shares for two years, although the company consented
to a sale near the end of the restriction period. In both cases, IFS
explains that the plans after the first few years had to have
essentially the same number of shares that initially had been
contributed to their plans.
---------------------------------------------------------------------------
With respect to the Registration Rights Agreement, IFS explains
that between July 6, 2006 and March 31, 2007, it may direct the Hourly
Trustee to demand that Kaiser effect a registration to permit the sale
of a portion of the Shares held by the Hourly VEBA. At any time after
March 31, 2007, IFS states it may direct the Hourly VEBA Trustee to
demand that Kaiser effect a shelf registration, to permit the sale of
shares on a continuous basis. IFS further represents that all expenses
associated with effecting a demand or shelf registration, including
piggy-back rights, will be borne by Kaiser.\16\
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\16\ The Department notes that a shelf registration is a
registration of a new issue, which can be prepared up to two years
in advance, so that the issue can be offered as soon as funds are
needed or market conditions are available.
Piggy-back rights are the rights of an investor to register and
sell his/her unregistered stock in the event that the company
conducts an offering.
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IFS states that the terms of the Registration Rights Agreement are
comparable to the terms found in previously granted exemptions. For
example, IFS explains that the Hourly VEBA will not need to wait five
years before making a demand registration for an underwritten offering.
In addition, IFS states that the Hourly VEBA will not have
responsibility for the costs of effecting a demand registration. IFS
further represents that the Hourly VEBA may demand a shelf registration
(after the first year) that will allow it to market the Stock as
rapidly as possible under the Stock Transfer Restriction Agreement.
Under these circumstances, Kaiser will be responsible for paying
[[Page 62621]]
registration expenses, while the Hourly VEBA will be responsible for
paying underwriting commissions and other selling fees.
Finally, IFS states that the Hourly VEBA may participate on a
piggy-back basis if Kaiser proposes to file a registration statement,
whether or not for its own account. IFS explains that if the
marketability of Kaiser's offering is affected, the number of Hourly
VEBA shares that may be included is generally limited.
Independent Fiduciary for the Salaried VEBA
11. (a) Duties and Responsibilities. Pursuant to the Plan of
Reorganization, on September 6, 2005, the Salaried Board for the
Salaried VEBA entered into an agreement (the Salaried Independent
Fiduciary Agreement) with FCI of Washington, DC to serve as the
Salaried VEBA's Independent Fiduciary. The Salaried Board determined
that it was appropriate and desirable to retain the services of FCI to
exercise the Salaried Trust's responsibilities and control over all
matters concerning the Shares including, without limitation, control
over the acquisition, holding, management and disposition of the
Shares.
FCI, a Delaware corporation, explains that it is a pension
consultant and investment adviser registered under the Investment
Advisers Act of 1940. FCI primarily acts as an investment manager and
independent fiduciary for employee benefit plans covered by the Act.
FCI states that it is independent from Kaiser, the USW, the Salaried
Board and the Salaried Trustee. FCI is wholly owned by eight of its
employees and has no affiliates or subsidiaries. FCI explains that
prior to its engagement by the Salaried Board, FCI had no previous
relationship with Kaiser or any of its benefit plans or with any of the
other parties who will have fiduciary responsibility to the Salaried
VEBA in connection with the proposed exemptive relief from the
Department.
Pursuant to the Salaried Independent Fiduciary Agreement, FCI
agreed to: (a) Represent the Salaried Trust in discussions with the DOL
concerning administrative exemptive relief and any administrative
requirements imposed by the Department as a condition for exemptive
relief; (b) issue a determination of whether the Stock contribution
would be in the best interest of the Salaried VEBA and its current and
future participants and beneficiaries; (c) provide documentation to the
Department or satisfaction of such other conditions as may be required
in connection with obtaining the requested administrative relief; (d)
manage the Shares on an ongoing basis subject to the terms and
conditions of the Salaried Trust Agreement, the Salaried Independent
Fiduciary Agreement, and the Department's administrative relief; (e)
determine, in its sole discretion, whether and when to sell the Shares,
and in what amounts, and upon such terms and conditions that would be
in the best interests of the Salaried Plan and its current and future
participants and beneficiaries, but subject to the restrictions
contained in the Certificate of Incorporation; \17\ and (f) vote the
Shares in person or by proxy in such manner as the Independent
Fiduciary deems to be in the best interests of the Salaried Plan and
its current and future participants and beneficiaries on all matters
brought before the holders of Kaiser common stock for a vote.
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\17\ The Salaried VEBA, like all Kaiser shareholders, will be
prohibited from selling directly to a 5% shareholder (or one who
would become a 5% shareholder as a result of the sale) unless Kaiser
consents to the sale. This restriction, which is contained in the
Certificate of Incorporation, is intended to preserve Kaiser's NOLs.
---------------------------------------------------------------------------
FCI states that it would represent the interests of the Salaried
VEBA and its participants and beneficiaries for the duration of the
administrative relief granted for acquiring and holding of the Stock
and would take all necessary actions on behalf of the Plan in
accordance with the terms of the Salaried Independent Fiduciary
Agreement. FCI anticipates that the Salaried VEBA would implement a
program to liquidate its holdings of the Shares over time with the
objectives of generating cash for the payment of benefits under the
Salaried VEBA and diversifying the Salaried VEBA's investment assets.
Because the Shares would be freely tradable, FCI indicates that it
would value the Shares at the market price. In the event the Shares are
thinly-traded, FCI states that it would retain an independent firm to
provide a valuation. Such valuations would then be based on either of
three methodologies: (a) Comparable companies, (b) comparable
transactions, or (c) discounted cash flow.
(b) Views about the Transactions. FCI believes that the
transactions would be in the best interests of the Salaried VEBA and
protective of the participants and beneficiaries of such VEBA because a
retiree welfare plan that is funded primarily with Kaiser Stock is
preferable to a plan that is unfunded, and preferable to no plan at
all. FCI notes that Kaiser and the Salaried Committee bargained at
arm's length over the extent to which Kaiser would continue its pre-
bankruptcy retiree welfare programs and the nature of the post-
bankruptcy retiree welfare plans. Ultimately, FCI explains that the
bargaining parties agreed that the pre-bankruptcy programs would be
terminated and replaced with the Hourly VEBA and the Salaried VEBA.
With respect to the Salaried VEBA, FCI further explains that Kaiser
agreed to make certain cash contributions to the Salaried VEBA and to
contribute a substantial number of Shares.
In addition, FCI represents that the Plan of Reorganization
provides for the hiring of an independent fiduciary for the purpose of
determining whether to acquire the Shares, and assuming the independent
fiduciary's decision is to acquire the Shares, to manage the Shares.
FCI explains that it was hired by the Salaried Board to perform these
fiduciary services and that its determination to acquire the Shares
would be consistent with section 404 of the Act.
FCI further represents that management of the Shares would be in
its sole discretion, subject to the terms of the Salaried Trust, the
Salaried Plan, the Salaried Independent Fiduciary Agreement, and the
Certificate of Incorporation. FCI recognizes that while the Certificate
of Incorporation limits its discretion, it explains that in its
experience the limitations imposed by the Certificate of Incorporation
are typical of the terms of similar transactions between unrelated
parties acting at arm's length under similar circumstances to preserve
the value of the NOLs of a company emerging from bankruptcy. Moreover,
FCI states that preserving the NOLs would materially ease the tax
burden on Kaiser following its emergence from bankruptcy, thereby
enhancing Kaiser's ability to meet its cash contribution obligations,
including its obligations to the Salaried VEBA. FCI explains this would
enhance the value of Kaiser whose Shares the Salaried VEBA would then
own.
Finally, FCI represents that administrative relief from the
prohibited transaction provisions of the Act is critical to the
operation of the Salaried VEBA. If the relief sought is not granted,
the consequences for the Salaried VEBA's participants and beneficiaries
would likely be adverse, and would have required Kaiser to distribute
the Shares directly to the Salaried Plan participants and
beneficiaries, thereby frustrating the benefit objectives of the
Salaried VEBA and forcing the participants and beneficiaries to face
adverse tax consequences.
(c) Pricing of the Salaried VEBA's Shares. FCI represents that the
Shares received by the Salaried VEBA were
[[Page 62622]]
freely tradable when received on July 13, 2006, so no appraisal was
necessary. The Salaried VEBA trustees were able to sell a sufficient
amount of the Salaried VEBA's Shares during certain pre-emergence sales
so the Salaried VEBA received less than 5 percent of the outstanding
Stock and was therefore no longer subject to the NOL restrictions by
the time the Stock was distributed. The Salaried VEBA received its
999,867 Shares on July 13, 2006. Union Bank of California, the
custodian for the Salaried VEBA, booked the Shares at a total value of
$44,244,114.75 (or $44.25 per Share) on the NASDAQ. FCI states that it
sold 10,000 Shares on the open market that day at an average price of
$44.23 per Share.
Duties of the Independent Fiduciary
12. The Department notes that the appointment of Independent
Fiduciaries to represent the interests of the Hourly and Salaried VEBAs
with respect to the covered transactions described in this exemption
request is a material factor in its determination to propose exemptive
relief. The Department believes that it would be helpful to provide
general information regarding its views on the responsibilities of an
independent fiduciary in connection with the in kind contribution of
property to an employee benefit plan.
As noted in the Department's Interpretive Bulletin, 29 CFR 2509.94-
3(d) (59 FR 66736, December 28, 1994), apart from consideration of the
prohibited transaction provisions, plan fiduciaries must determine that
acceptance of an in kind contribution is consistent with the general
standards of fiduciary conduct under the Act. It is the view of the
Department that acceptance of an in kind contribution is a fiduciary
action subject to section 404 of the Act. In this regard, section
404(a)(1)(A) and (B) of the Act requires that fiduciaries discharge
their duties to a plan solely in the interests of the participants and
beneficiaries, for the exclusive purpose of providing benefits to
participants and beneficiaries and defraying reasonable administrative
expenses, and with the care, skill, prudence, and diligence under the
circumstances then prevailing that a prudent person acting in a like
capacity and familiar with such matters would use in the conduct of an
enterprise of a like character and with like aims. In addition, section
404(a)(1)(C) of the Act requires that fiduciaries diversify plan
investments so as to minimize the risk of large losses, unless under
the circumstances it is clearly prudent not to do so. Accordingly, the
fiduciaries of a plan must act ``prudently,'' ``solely in the
interest'' of the plan's participants and beneficiaries, and with a
view to the need to diversify plan assets when deciding whether to
accept an in kind contribution. If accepting an in kind contribution is
not ``prudent,'' or not ``solely in the interest'' of the participants
and beneficiaries of the plan, the responsible fiduciaries of the plan
would be liable for any losses resulting from such a breach of
fiduciary responsibility, even if the contribution in kind does not
constitute a prohibited transaction under section 406 of the Act.
13. In summary, Kaiser represents that the transactions have
satisfied or will satisfy the statutory criteria for an exemption under
section 408(a) of the Act because:
(a) An Independent Fiduciary has represented and will separately
represent each VEBA and its participants and beneficiaries for all
purposes with respect to the Shares and has determined or will
determine that each such transaction is in the interests of the VEBA it
represents.
(b) The Independent Fiduciary for the Hourly VEBA has discharged or
will discharge its duties consistent with the terms of the Hourly
Trust, the Stock Transfer Restriction Agreement, the Certificate of
Incorporation, the Registration Rights Agreement, the Hourly
Independent Fiduciary Agreement, and successors to these documents.
(c) The Independent Fiduciary for the Salaried VEBA has discharged
or will discharge its duties consistent with the terms of the Salaried
Trust, the Certificate of Incorporation, the Salaried Independent
Fiduciary Agreement, and successors to these documents.
(d) The Independent Fiduciaries have negotiated and approved or
will negotiate and approve on behalf of their respective VEBAs any
transactions between the VEBA and Kaiser involving the Shares that may
be necessary in connection with the transactions (including but not
limited to registration of the Shares contributed to the Hourly Trust).
(e) The VEBAs have not incurred or will not incur any fees, costs
or other charges (other than those described in the Hourly and Salaried
Trusts, the Independent Fiduciary Agreements, the Hourly Settlement
Agreement, and the Salaried Settlement Agreement) as a result of any of
the transactions described herein.
(f) The terms of the transactions have been and will be no less
favorable to the VEBAs than terms negotiated at arm's length under
similar circumstances between unrelated third parties.
(g) The Hourly Board and the Salaried Board have maintained and
will maintain for a period of six years from the date any Shares are
contributed to the VEBAs, the records necessary to enable certain
persons, such as the Salaried Board, VEBA participants, Kaiser or any
authorized employee or representative of the Department, to see whether
the conditions of this exemption have been met.
Notice to Interested Persons
Notice of the proposed exemption will be provided to all interested
persons by first class mail within 8 days of approval by the
Department. Such notice will include a copy of the notice of proposed
exemption, as well as a supplemental statement or ``Summary Notice,''
as required pursuant to 29 CFR 2570.43(b)(2), which shall inform
interested persons of their right to comment on the proposed exemption
and/or to request a hearing. Comments and hearing requests with respect
to the notice of proposed exemption are due within 29 days of the date
of approval of the notice of pendency by the Department.
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 does not relieve a fiduciary or other
party in interest or disqualified person from certain other provisions
of the Act, 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 require, among other
things, a fiduciary to discharge his or her 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;
(2) The proposed exemption, if granted, will not extend to
transactions prohibited under section 406(b)(3) of the Act;
(3) Before an exemption can be granted under section 408(a) of the
Act, the Department must find that the exemption is administratively
feasible, in the interest of the plan and of its participants and
beneficiaries and protective of the rights of participants and
beneficiaries of the plan; and
(4) The proposed exemption, if granted, will be supplemental to,
and not in derogation of, any other provisions of the Act, including
statutory or administrative exemptions. Furthermore, the fact that a
transaction
[[Page 62623]]
is subject to an administrative or statutory exemption is not
dispositive of whether the transaction is in fact a prohibited
transaction.
Written Comments and Hearing Requests
All interested persons are invited to submit written comments and/
or requests for a public hearing on the pending exemption to the
address above, within the time frame set forth above, after the
approval of this notice of pendency. All comments and hearing requests
will be made a part of the record. Comments and hearing requests should
state the reasons for the writer's interest in the proposed exemption.
Comments and hearing requests received will also be available for
public inspection with the referenced application at the address set
forth above.
Proposed Exemption
Based on the facts and representations set forth in the
application, the Department is considering granting the requested
exemption under the authority of section 408(a) of the Act and in
accordance with the procedures set forth in 29 CFR Part 2570, Subpart B
(55 FR 32836, August 10, 1990), as follows:
Section I. Covered Transactions
If the exemption is granted, the restrictions of sections
406(a)(1)(E), 406(a)(2), 406(b)(1), 406(b)(2), and 407(a) of the Act
shall not apply, effective July 6, 2006, to: (1) the acquisition by the
VEBA for Retirees of Kaiser Aluminum (the Hourly VEBA) and by the
Kaiser Aluminum Salaried Retirees VEBA (the Salaried VEBA; together,
the VEBAs) of certain publicly traded common stock issued by Kaiser
(the Stock or the Shares), through an in-kind contribution to the VEBAs
by Kaiser of such Stock, for the purpose of prefunding VEBA welfare
benefits; (2) the holding by the VEBAs of such Stock acquired pursuant
to the contributions; and (3) the management of the Shares, including
their voting and disposition, by an independent fiduciary (the
Independent Fiduciary) designated to represent the interests of each
VEBA with respect to the transactions.
Section II. Conditions
This proposed exemption is conditioned upon adherence to the
material facts and representations described herein and upon
satisfaction of the following conditions:
(a) An Independent Fiduciary has been appointed to separately
represent each VEBA and its participants and beneficiaries for all
purposes related to the contributions for the duration of each VEBA's
holding of the Shares and will have sole responsibility relating to the
acquisition, holding, disposition, ongoing management, and voting of
the Stock. The Independent Fiduciary has determined or will determine,
before taking any actions regarding the Shares, that each such action
or transaction is in the interests of the VEBA it represents.
(b) The Independent Fiduciary for the Hourly VEBA has discharged or
will discharge its duties consistent with the terms of the Hourly Trust
Agreement, the Stock Transfer Restriction Agreement, the Certificate of
Incorporation, the Registration Rights Agreement, the Hourly
Independent Fiduciary Agreement, and successors to these documents.
(c) The Independent Fiduciary for the Salaried VEBA has discharged
or will discharge its duties consistent with the terms of the Trust
Agreement between the Salaried Board of Trustees (the Salaried Board)
and the Salaried Trustee (the Salaried Trust Agreement), the
Certificate of Incorporation, the Salaried Independent Fiduciary
Agreement, and successors to these documents.
(d) The Independent Fiduciaries have negotiated and approved or
will negotiate and approve on behalf of their respective VEBAs any
transactions between the VEBA and Kaiser involving the Shares that may
be necessary in connection with the subject transactions (including,
but not limited to, registration of the Shares contributed to the
Hourly Trust), as well as the ongoing management and voting of such
Shares.
(e) The Independent Fiduciary has authorized or will authorize the
Trustee of the respective VEBA to accept or dispose of the Shares only
after such Independent Fiduciary determines, at the time of each
transaction, that such transaction is feasible, in the interest of the
Hourly or Salaried VEBA, and protective of the participants and
beneficiaries of such VEBAs.
(f) The VEBAs have incurred or will incur no fees, costs or other
charges (other than those described in the Hourly and Salaried Trusts,
the Independent Fiduciary Agreements, the Hourly Settlement Agreement,
and the Salaried Settlement Agreement) as a result of any of the
transactions described herein.
(g) The terms of any transactions between the VEBAs and Kaiser have
been or will be no less favorable to the VEBAs than terms negotiated at
arm's length under similar circumstances between unrelated third
parties.
(h) The Board of Trustees of the Hourly VEBA (the Hourly Board) and
the Board of Trustees of the Salaried Board have maintained or will
maintain for a period of six years from the date any Shares are
contributed to the VEBAs, any and all records necessary to enable the
persons described in paragraph (i) below to determine whether
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 Hourly Board and the
Salaried Board, the records are lost or destroyed prior to the end of
the six-year period, and (2) no party in interest other than the Hourly
Board and the Salaried Board shall be subject to the civil penalty that
may be assessed under section 502(i) of the Act if the records are not
maintained, or are not available for examination as required by
paragraph (i) below.
(i)(1) Except as provided in section (2) of this paragraph and not
withstanding any provisions of subsections (a)(2) and (b) of section
504 of the Act, the records referred to in paragraph (h) above have
been or shall be unconditionally available at their customary location
during normal business hours by:
(A) Any duly authorized employee or representative of the
Department;
(B) The United Steel, Paper and Forestry, Rubber, Manufacturing,
Energy, Allied Industrial and Service Workers International Union (the
USW) or any duly authorized representative of the USW, and other unions
or their duly authorized representatives, as to the Hourly VEBA only;
(C) The Salaried Board or any duly authorized representative of the
Salaried Board, as to the Salaried VEBA only;
(D) Kaiser or any duly authorized representative of Kaiser; and
(E) Any participant or beneficiary of the VEBAs, or any duly
authorized representative of such participant or beneficiary, as to the
VEBA in which such participant or beneficiary participates.
(2) None of the persons described above in subparagraph (1)(B),
(C), or (E) of this paragraph (i) has been or shall be authorized to
examine the trade secrets of Kaiser, or commercial or financial
information that is privileged or confidential.
Section III. Definitions
For purposes of this proposed exemption, the term--
(a) ``Certificate of Incorporation'' means the certificate of
incorporation of Kaiser as amended and restated as of the
[[Page 62624]]
Effective Date of Kaiser's Plan of Reorganization.
(b) ``Effective Date'' means July 6, 2006, which is also the
effective date of Kaiser's Plan of Reorganization.
(c) ``Hourly Board'' means the Board of Trustees of the Hourly
VEBA.
(d) ``Hourly Independent Fiduciary Agreement'' means the agreement
between the Hourly Independent Fiduciary and the Hourly Board.
(e) ``Hourly Settlement Agreement'' means the modified collective
bargaining agreements with various unions in the form of an agreement
under sections 1113 and 1114 of the United States Bankruptcy Code (the
Bankruptcy Code) between the USW and Kaiser.
(f) ``Hourly Trust'' means the trust established under the Trust
Agreement between the Hourly Board and the Hourly Trustee, effective
June 1, 2004.
(g) ``Hourly VEBA'' means ``The VEBA For Retirees of Kaiser
Aluminum'' and its associated voluntary employees' beneficiary
association trust.
(h) ``Independent Fiduciary'' means the Independent Fiduciary for
the Hourly VEBA (or the Hourly Independent Fiduciary) and the
Independent Fiduciary for the Salaried VEBA (or the Salaried
Independent Fiduciary). Such Independent Fiduciary is (1) independent
of and unrelated to Kaiser or its affiliates; and (2) appointed to act
on behalf of the VEBAs with respect to the acquisition, holding,
management, and disposition of the Shares. In this regard, the
fiduciary will not be deemed to be independent of and unrelated to
Kaiser if: (1) Such fiduciary directly or indirectly controls, is
controlled by or is under common control with Kaiser; (2) such
fiduciary directly or indirectly receives any compensation or other
consideration in connection with any transaction described in this
proposed exemption; except that the Independent Fiduciary may receive
compensation for acting as an Independent Fiduciary from Kaiser in
connection with the transactions described herein if the amount or
payment of such compensation is not contingent upon or in any way
affected by the Independent Fiduciary's ultimate decision, and (3) the
annual gross revenue received by the Independent Fiduciary, during any
year of its engagement, from Kaiser exceeds one percent (1%) of the
Independent Fiduciary's annual gross revenue from all sources (for
Federal income tax purposes) for its prior tax year. Finally, the
Hourly VEBA's Independent Fiduciary is Independent Fiduciary Services,
Inc. (IFS), which has been appointed by the Hourly Board; and the
Salaried VEBA's Independent Fiduciary is Fiduciary Counselors Inc.
(FCI), which has been appointed by the Salaried Board.
(i) ``Independent Fiduciary Agreements'' means the Hourly
Independent Fiduciary Agreement and the Salaried Independent Fiduciary
Agreement.
(j) ``Kaiser'' means Kaiser Aluminum Corporation and its wholly
owned subsidiaries.
(k) ``Registration Rights Agreement'' refers to the Registration
Rights Agreement between Kaiser, National City Bank, and the Pension
Benefit Guaranty Corporation, acknowledged by the Hourly Independent
Fiduciary with respect to management of the Stock held by the Hourly
Trust.
(l) ``Salaried Board'' means the Board of Trustees of the Kaiser
Aluminum Salaried Retirees VEBA.
(m) ``Salaried Independent Fiduciary Agreement'' means the
agreement between the Salaried Independent Fiduciary and the Salaried
Board.
(n) ``Salaried Settlement Agreement'' means the settlement, in the
form of an agreement under section 1114 of the Bankruptcy Code, between
Kaiser and a committee of five former executives of Kaiser appointed
pursuant to section 1114 of the Bankruptcy Code as authorized
representatives of current and future salaried retirees.
(o) ``Salaried Trust'' means the trust established under the Trust
Agreement between the Salaried Board and the Salaried Trustee,
effective May 31, 2004.
(p) ``Salaried VEBA'' means the Kaiser Aluminum Salaried Retirees
VEBA and its associated voluntary employees' beneficiary association
trust.
(q) ``Shares'' or ``Stock'' refers to shares of common stock of
reorganized Kaiser, par value $.01 per share.
(r) ``Stock Transfer Restriction Agreement'' means the agreement
between Kaiser, National City Bank, and the PBGC, acknowledged by the
Hourly Independent Fiduciary with respect to management of the Kaiser's
Stock held by the Hourly Trust.
(s) ``Trusts'' means the Salaried Trust and the Hourly Trust.
(t) ``USW'' means the United Steel, Paper and Forestry, Rubber,
Manufacturing, Energy, Allied Industrial and Service Workers
International Union.
(u) ``VEBA'' means a voluntary employees' beneficiary association.
(v) ``VEBAs'' refers to the Hourly VEBA and Salaried VEBA.
The availability of this exemption is subject to the express
condition that the material facts and representations contained in the
application for exemption are true and complete and accurately describe
all material terms of the transactions. In the case of continuing
transactions, if any of the material facts or representations described
in the applications change, the exemption will cease to apply as of the
date of such change. In the event of any such change, an application
for a new exemption must be made to the Department.
Ivan L. Strasfeld,
Director of Exemption Determinations, Employee Benefits Security
Administration, U.S. Department of Labor.
[FR Doc. E6-17921 Filed 10-25-06; 8:45 am]
BILLING CODE 4510-29-P