Prohibited Transaction Exemption 200242; Grant of Individual
Exemptions; Provident Mutual Life Insurance Company (Provident) [09/04/2002]
Volume 67, Number 171, Page 56594-56600
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DEPARTMENT OF LABOR
Pension and Welfare Benefits Administration
[Exemption Application No. D11050 et al.]
Prohibited Transaction Exemption 200242; Grant of Individual
Exemptions; Provident Mutual Life Insurance Company (Provident)
AGENCY: Pension and Welfare Benefits Administration, Labor.
ACTION: Grant of individual exemption.
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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.
Provident Mutual Life Insurance Company (Provident) Located in Berwyn,
PA
[Prohibited Transaction Exemption 200242; Exemption Application No.
D11050]
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 reason
of section 4975(c)(1)(A) through (D) of the Code,\1\ shall not apply to
(1) the initial issuance, by Provident, of its common stock (Provident
Shares) to the conversion agent (the Conversion Agent), as stockholder
of record, on behalf of any eligible policyholder of Provident (the
Eligible Member), including any Eligible Member which is an employee
benefit plan (within the meaning of section 3(3) of the Act), an
individual retirement annuity (within the meaning of section 408 or
408A of the Code) or a tax sheltered annuity (within the meaning of
section 403(b) of the Code) (each, a Plan), including a Plan sponsored
by Provident for Provident employees (a Provident Plan); or (2) the
exchange, by the Conversion Agent, of Provident Shares for common stock
(Sponsor Class A Shares) issued by Nationwide Financial Services, Inc.,
(the Sponsor), or, the receipt of cash (Cash) or policy credits (Policy
Credits) by an Eligible Member, in exchange for such Eligible Member's
membership interest in Provident or in connection with the merger (the
Merger) between Provident and the Eagle Acquisition Corporation, a
wholly-owned subsidiary of the Sponsor, in accordance with the terms of
a plan of conversion (the Plan of Conversion) and merger agreement (the
Merger Agreement), adopted by Provident and implemented pursuant to the
Pennsylvania Insurance Company Mutual-to-Stock Conversion Act, as
amended, codified at 40 P.S. sections 911A to 929A (the Conversion Act)
and the applicable provisions of the Pennsylvania Business Corporation
Law of 1998.
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\1\ For purposes of this exemption, references to provisions of
Title I of the Act, unless otherwise specified, refer also to
corresponding provisions of the Code.
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In addition, the restrictions of section 406(a)(1)(E) and (a)(2)
and section 407(a)(2) of the Act shall not apply to the receipt and
holding, by a Provident Plan, of Sponsor Class A Shares, whose fair
market value exceeds 10 percent of the value of the total assets held
by such Plan.
This exemption is subject to the general conditions set forth below
in Section II.
Section II. General Conditions
(a) The Plan of Conversion, including the Merger Agreement, is
subject to approval, review and supervision by the Commissioner of
Insurance of the Commonwealth of Pennsylvania (the Commissioner) and is
implemented in accordance with procedural and substantive safeguards
that are imposed
[[Page 56595]]
under the laws of the Commonwealth of Pennsylvania.
(b) The Commissioner reviews the terms of the options that are
provided to Eligible Members of Provident as part of such
Commissioner's review of the Plan of Conversion and Merger, and
approves the Plan of Conversion and Merger following a determination
that such Plan of Conversion is fair and equitable to all Eligible
Members. The New York Superintendent of Insurance (the Superintendent)
may object to the Plan of Conversion if he or she finds that such Plan
of Conversion is not fair or equitable to all New York policyholders.
(c) As part of their separate determinations, both the Commissioner
and the Superintendent concur on the terms of the Plan of Conversion.
(d) Each Eligible Member has an opportunity to vote at a special
meeting to approve the Plan of Conversion and Merger after full written
disclosure is given to the Eligible Member by Provident.
(e) Any determination to receive Sponsor Class A Shares, Cash, or
Policy Credits by an Eligible Member which is a Plan, pursuant to the
terms of the Plan of Conversion, is made by one or more Plan
fiduciaries that are independent of Provident and its affiliates and
neither Provident nor any of its affiliates exercises any discretion or
provides investment advice, within the meaning of 29 CFR 2510.321(c),
with respect to such decisions.
(f) After each Eligible Member is allocated a fixed component
equivalent to approximately 20% of Provident Shares, additional
consideration is allocated to Eligible Members based on actuarial
formulas that take into account each policy's contributions to the
surplus and asset valuation reserve of Provident, which formulas have
been approved by the Commissioner.
(g) In the case of an Eligible Member who is entitled to receive
Provident Shares only upon consummation of the Merger, such Provident
Shares are exchanged for Sponsor Class A Shares, Cash or Policy Credits
in accordance with an election made by such Eligible Member.
(h) In the case of a Provident Plan, the independent Plan fiduciary
--
(1) Votes on whether to approve or not to approve the proposed
demutualization;
(2) Elects between consideration in the form of Sponsor Class A
Shares, Cash or Policy Credits on behalf of such Plans;
(3) Reviews and approves Provident's allocation of Sponsor Class A
Shares, Cash or Policy Credits received for the benefit of the
participants and beneficiaries of the Provident Plans;
(4) Votes on Sponsor Class A Shares that are held by the Provident
Plans and disposes of such shares held by the Retirement Pension Plan
for Certain Home Office, Managerial and Other Employees of Provident
Mutual Life Insurance Company, which exceeds the limitation of section
407(a)(2) of the Act, as soon as it is reasonably practicable, but in
no event later than six months after the effective date (the Effective
Date) of the Plan of Conversion and Merger;
(5) Provides the Department with a complete and detailed final
report as it relates to the Provident Plans prior to the Effective Date
of the demutualization; and
(6) Takes all actions that are necessary and appropriate to
safeguard the interests of the Provident Plans and their participants
and beneficiaries.
(i) All Eligible Members that are Plans participate in the
transactions on the same basis as all Eligible Members that are not
Plans.
(j) No Eligible Member pays any brokerage commissions or fees in
connection with the receipt of Sponsor Class A Shares or Policy Credits
or in connection with the implementation of the commission-free
purchase and sale program.
(k) All of Provident's policyholder obligations remain in force and
are not affected by the Plan of Conversion or Merger.
(l) The terms of the transactions are at least as favorable to the
Plans as an arm's length transaction with an unrelated party.
Section III. Definitions
For purposes of this exemption:
(a) The term ``Provident'' means Provident Mutual Life Insurance
Company and any of its affiliates as defined in paragraph (b) of this
Section III.
(b) An ``affiliate'' of Provident includes--
(1) Any person directly or indirectly through one or more
intermediaries, controlling, controlled by, or under common control
with Provident. (For purposes of this paragraph, the term ``control''
means the power to exercise a controlling influence over the management
or policies of a person other than an individual.); and
(2) Any officer, director or partner in such person.
(c) The term ``Allocable Provident Shares'' means the number of
Provident Shares determined in accordance with Section 3.1(c) of the
Merger Agreement, representing the total number of Provident Shares
that will be notionally allocated to Eligible Members in accordance
with the Plan of Conversion and the ``Actuarial Contribution
Memorandum'' (for purposes of allocating among Eligible Members the
consideration that is actually to be distributed to Eligible Members in
the form of Sponsor Class A Shares, Cash or Policy Credits). The
Actuarial Contribution Memorandum sets forth the principles,
assumptions and methodologies for the calculation of the Actuarial
Contribution of Eligible Policies, which is the estimated past
contribution of such Eligible Policy to Provident's statutory surplus
and asset valuation reserve, plus the contribution that such policy is
expected to make in the future, as calculated according to the
principles, assumptions and methodologies set forth in the Plan of
Conversion and its exhibits.
(d) The term ``Eligible Member'' means the owner of an ``eligible
policy,'' as provided by the records of Provident and by its articles
of incorporation and bylaws, on the adoption date of the Plan of
Conversion. (An ``Eligible Policy'' is defined as a policy that is in
force on the adoption date.) Provident and any of its subsidiaries will
not be Eligible Members with respect to any policy that entitles the
policyholder to receive consideration, unless the consideration is to
be utilized in whole or in part for a plan or program funded by that
policy for the benefit of participants or employees who have coverage
under that plan or program. Provident may deem a person to be an
Eligible Member in order to correct any immaterial administrative
errors or oversights.
(e) With respect to the conversion of Provident from a mutual life
insurance company to a stock insurance company (the Conversion), the
term ``Policy Credit'' means consideration to be paid in the form of an
increase in cash value, account value, dividend accumulations, face
amount, extended term period or benefit payment, as appropriate,
depending on the policy, or extension of the policy's expiration date.
With respect to the Merger, the term ``Policy Credit'' means
consideration to be paid in the form of an adjustment of policy values
for certain policies under the Plan of Conversion.
(f) The ``Effective Date'' means the date the actual Conversion and
Merger will transpire. It is expected to occur in the latter part of
the third quarter in 2002, however the exact date is not known at this
time.
For a more complete statement of the facts and representations
supporting the Department's decision to grant this exemption, refer to
the notice of
[[Page 56596]]
proposed exemption published on June 18, 2002 at 67 FR 41506.
Written Comments
The Department received one written comment with respect to the
proposed exemption. The comment, which was submitted by Provident, is
intended to inform the Department of certain developments in connection
with the insurer's proposed demutualization. In this regard, Provident
has provided the following additional information in order to update
the proposed exemption:
1. Number of Plan Policyholders. Representation 3 of the Summary of
Facts and Representations (the Summary) states, in relevant part, that,
as of December 31, 2000, Provident had over 1,050 outstanding policies
and contracts held in connection with Plans. Provident explains that
the number of benefit plan policyholders has been determined to be
higher than the 1,050 originally estimated, and it indicates that the
present estimate is approximately 3,500 benefit plan policyholders.
2. The Commissioner's Review of the Plan of Conversion.
Representation 8 of the Summary states, in part, that the Plan of
Conversion, including the Merger, must be approved by the Commissioner
who will approve it if, after holding a public hearing, he or she
determines that the Plan of Conversion complies with all provisions of
Pennsylvania law and is fair and equitable to the company and the
policyholders. Provident explains that the Commissioner approved the
Plan of Conversion on July 31, 2002, pursuant to the Conversion Act,
following a public hearing which was held on May 23, 2002.
3. Consultants Hired to Assist the Commissioner. Representation 9
of the Summary provides that the Commissioner may hire additional
consultants to assist in making his determination on Provident's
demutualization. Provident notes that the Commissioner has hired
Stevens & Lee as legal advisers and The Blackstone Group as financial
consultants.
4. Limitation on Payment of Cash or Policy Credits. Representation
14 of the Summary states that ``[u]nder the current terms of the Merger
Agreement, the amount of Cash or Policy Credits that may be paid or
funded with Cash supplied by the Sponsor is limited so that no more
than 20 percent of the total number of Eligible Members receiving
consideration provided or funded by the Sponsor (including Eligible
Members receiving Sponsor Class A Shares) will receive Cash of Policy
Credits.'' Representation 14 also states that ``the parties to the
Merger have agreed to waive this limitation if the Internal Revenue
Service (the Service) issues certain tax rulings.'' Provident explains
that the Service has issued such favorable rulings.
In response to Provident's comment letter, the Department notes the
foregoing clarifications and updates to the proposed exemption. For
further information regarding the comment and other matters discussed
herein, interested persons are encouraged to obtain copies of the
exemption application file (Exemption Application No. D11050) the
Department is maintaining in this case. The complete application file,
as well as all supplemental submissions received by the Department, are
made available for public inspection in the Public Disclosure Room of
the Pension and Welfare Benefits Administration, Room N1513, U.S.
Department of Labor, 200 Constitution Avenue, NW, Washington, DC 20210.
Accordingly, after giving full consideration to the entire record,
including the written comment, the Department has decided to grant the
exemption subject to the modifications described above.
FOR FURTHER INFORMATION CONTACT: Ms. Anna M.N. Mpras of the Department,
telephone (202) 6938565. (This is not a toll-free number.)
Chiquita Processed Foods 401(k) Retirement Savings Plan (the 401(k)
Plan) and the Chiquita Savings and Investment Plan (the Savings Plan;
collectively the Plans) Located in New Richmond, WI and Cincinnati, OH,
Respectively
[Prohibited Transaction Exemption 200243; Exemption Application Nos.
D11063 and D11064]
Exemption
The restrictions of sections 406(a), 406(b) and 407(a) of the Act
and the sanctions resulting from the application of section 4975 of the
Code,\2\ by reason of section 4975(c)(1)(A) through (E) of the Code,
shall not apply, effective March 19, 2002, to (1) the acquisition and
holding by the Plans of certain new warrants (the Warrants) to purchase
new common stock (the New Common Stock) issued by Chiquita Brands
International, Inc. (the Employer), a party in interest with respect to
the Plans; and (2) the subsequent exercise of the Warrants, as directed
by participants in the Plans.
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\2\ For purposes of this exemption, references to provisions of
Title I of the Act, unless otherwise specified, refer also to
corresponding provisions of the Code.
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This exemption is subject to the following conditions:
(a) The Plans had little, if any, ability to affect the negotiation
or confirmation of either the Plan of Reorganization of Chiquita filed
by the Employer on November 28, 2001 under Chapter 11 of Title 11 of
the United States Code (the Bankruptcy Code), the First Amended Plan of
Reorganization of Chiquita, subsequently filed under the Bankruptcy
Code by the Employer on January 18, 2002, or the Second Amended Plan of
Reorganization of Chiquita (the Second Amended POR), subsequently filed
under the Bankruptcy Code by the Employer on March 7, 2002.
(b) The acquisition and holding of the Warrants did not occur until
the Second Amended POR had been confirmed.
(c) The Plans acquired the Warrants automatically in connection
with the Employer's bankruptcy proceedings and without any unilateral
action on their part.
(d) All shareholders, including the Plans, were treated in a like
manner with respect to the issuance of the Warrants.
(e) The Warrants represented less than 25 percent of the assets of
either Plan.
(f) Any decision to exercise the Warrants acquired by the Plans in
connection with the Employer's bankruptcy will be made by the
participants in accordance with the terms of a warrant agreement, as
well as in accordance with the Plan provisions for individually-
directed investment of participant accounts.
(g) The Plans did not pay any fees or commissions in connection
with the receipt of the Warrants, nor will the Plans pay any fees or
commissions in connection with the holding or exercise of the Warrants.
(h) The trustees of the Plans will not allow participants to
exercise the Warrants held by their individual accounts in the Plans
unless the fair market value of the New Common Stock exceeds the
exercise price of the Warrants.
EFFECTIVE DATE: This exemption is effective as of March 19, 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 June 18, 2002 at 67 FR
41513.
FOR FURTHER INFORMATION CONTACT: Ms. Anna M.N. Mpras of the Department,
telephone (202) 6938565. (This is not a toll-free number.)
[[Page 56597]]
Goldman Sachs & Co. (Located in New York, NY) and its Affiliates
[Prohibited Transaction Exemption 200244; Application No. D11084]
Exemption
Section I--Transactions
The restrictions of section 406(a)(1)(A) through (D) of the Act and
the sanctions resulting from the application of section 4975 of the
Code, by reason of section 4975(c)(1)(A) through (D) of the Code,\3\
shall not apply as of March 22, 2002, to:
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\3\ For purposes of this exemption, references to specific
provisions of Title I of the Act, unless otherwise specified, refer
to the corresponding provisions of the Code.
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(a) The lending of securities, under certain exclusive borrowing
arrangements, to:
(1) Goldman, Sachs & Co. (Goldman) and any affiliate of Goldman
that, now or in the future, is a U.S. registered broker-dealer, a
government securities broker or dealer or U.S. bank (together with
Goldman, the ``U.S. Broker-Dealers'');
(2) Goldman Sachs Canada Inc., which is subject to regulation in
Canada by the Ontario Securities Commission and the Investment Dealers
Association;
(3) Goldman Sachs International and Goldman Sachs Equity Securities
(U.K.), which are subject to regulation in the United Kingdom by the
Financial Services Authority (the UK FSA) (formerly, the Securities and
Futures Authority (the UK SFA));
(4) Goldman, Sachs & Co. oHG, which is subject to regulation in
Germany by the Deutsche Bundesbank and the Federal Banking Supervisory
Authority, e.g., der Bundesaufsichtsamt fu[uuml]r das Kreditwesen (the
BAK);
(5) Goldman Sachs (Japan) Ltd., which is subject to regulation in
Japan by the Financial Services Agency and the Tokyo Stock Exchange;
(6) Goldman Sachs Australia Pty Limited, which is subject to
regulation in Australia by the Australian Securities & Investments
Commission (the ASIC);
(7) Goldman, Sachs & Co. Bank, which is subject to regulation in
Switzerland by the Swiss Federal Banking Commission; and
(8) Any broker-dealer or bank that, now or in the future, is an
affiliate of Goldman which is subject to regulation by the Ontario
Securities Commission and the Investment Dealers Association in Canada,
the UK FSA in the United Kingdom, the Deutsche Bundesbank and/or the
BAK in Germany, the Financial Services Agency and the Tokyo Stock
Exchange in Japan, the ASIC in Australia or the Swiss Federal Banking
Commission in Switzerland (each such affiliated foreign broker-dealer
or bank referred to as a ``Foreign Borrower,'' and, together with the
U.S. Broker-Dealers, collectively referred to as the ``Borrowers''), by
employee benefit plans, including commingled investment funds holding
assets of such plans (Plans) with respect to which Goldman or any of
its affiliates is a party in interest; and
(b) The receipt of compensation by Goldman or any of its affiliates
in connection with securities lending transactions, provided that the
following conditions set forth in Section II, below, are satisfied.
Section II--Conditions
(a) For each Plan, neither the Borrower nor any affiliate has or
exercises discretionary authority or control over the Plan's investment
in the securities available for loan, nor do they render investment
advice (within the meaning of 29 CFR 2510.321(c)) with respect to those
assets.
(b) The party in interest dealing with the Plan is a party in
interest with respect to the Plan (including a fiduciary) solely by
reason of providing services to the Plan, or solely by reason of a
relationship to a service provider described in section 3(14)(F), (G),
(H) or (I) of the Act.
(c) The Borrower directly negotiates an exclusive borrowing
agreement (the Borrowing Agreement) with a Plan fiduciary which is
independent of the Borrower and its affiliates.
(d) The terms of each loan of securities by a Plan to a Borrower
are at least as favorable to such Plan as those of a comparable arm's-
length transaction between unrelated parties, taking into account the
exclusive arrangement.
(e) In exchange for granting the Borrower the exclusive right to
borrow certain securities, the Plan receives from the Borrower either
(i) a flat fee (which may be equal to a percentage of the value of the
total securities subject to the Borrowing Agreement from time to time),
(ii) a periodic payment that is equal to a percentage of the value of
the total balance of outstanding borrowed securities, or (iii) any
combination of (i) and (ii) (collectively, the Exclusive Fee). If the
Borrower pledges cash collateral, any earnings generated by such cash
collateral shall be returned to the Borrower; provided that the
Borrower may, but shall not be obligated to, agree with the independent
fiduciary of the Plan that a percentage of the earnings on the
collateral may be retained by the Plan and/or the Plan may agree to pay
the Borrower a rebate fee and retain any earnings on the collateral
(the Shared Earnings Compensation). If the Borrower pledges non-cash
collateral, any earnings on the non-cash collateral shall be returned
to the Borrower; provided that the Borrower may, but shall not be
obligated to, agree to pay the Plan a lending fee (the ``Lending
Fee'')(the Lending Fee and the Shared Earnings Compensation are
referred to herein as the ``Transaction Lending Fee''). The Transaction
Lending Fee, if any, shall be either in addition to the Exclusive Fee
or an offset against such Exclusive Fee. The Exclusive Fee and the
Transaction Lending Fee may be determined in advance or pursuant to an
objective formula, and may be different for different securities or
different groups of securities subject to the Borrowing Agreement. Any
change in the Exclusive Fee or the Transaction Lending Fee that the
Borrower pays to the Plan with respect to any securities loan requires
the prior written consent of the independent fiduciary of the Plan,
except that consent is presumed where the Exclusive Fee or the
Transaction Lending Fee changes pursuant to an objective formula. Where
the Exclusive Fee or the Transaction Lending Fee changes pursuant to an
objective formula, the independent fiduciary of the Plan must be
notified at least 24 hours in advance of such change and such
independent Plan fiduciary must not object in writing to such change,
prior to the effective time of such change.
(f) The Borrower may, but shall not be required to, agree to
maintain a minimum balance of borrowed securities subject to the
Borrowing Agreement. Such minimum balance may be a fixed U.S. dollar
amount, a flat percentage of portfolio value or other percentage
determined pursuant to an objective formula.
(g) By the close of business on or before the day on which the
loaned securities are delivered to the Borrower, the Plan receives from
the Borrower (by physical delivery, book entry in a securities
depository located in the United States, wire transfer, or similar
means) collateral consisting of U.S. currency, securities issued or
guaranteed by the U.S. Government or its agencies or instrumentalities,
irrevocable bank letters of credit issued by a U.S. bank other than
Goldman or an affiliate of Goldman, or any combination thereof, or
other collateral permitted under Prohibited Transaction Exemption 816
(46 FR 7527, Jan. 23 1981, as amended at 52 FR 18754, May 19, 1987)
(PTE 816) (as amended or
[[Page 56598]]
superseded)\4\ having, as of the close of business on the preceding
business day, a market value or, in the case of letters of credit a
stated amount, equal to not less than 102 percent of the then market
value of the securities lent. Such collateral will be deposited and
maintained in an account which is separate from the Borrower's accounts
and will be maintained with an institution other than the Borrower. For
this purpose, the collateral may be held on behalf of the Plan by an
affiliate of the Borrower that is the trustee or a custodian of the
Plan. If maintained by an affiliate of the Borrower, the collateral
will be segregated from the assets of such affiliate.
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\4\ PTE 816 provides an exemption under certain conditions from
section 406(a)(1)(A) through (D) of the Act and the corresponding
provisions of section 4975(c) of the Code for the lending of
securities that are assets of an employee benefit plan to a U.S.
broker-dealer registered under the Securities Exchange Act of 1934
(the 1934 Act) (or exempted from registration under the 1934 Act as
a dealer in exempt Government securities, as defined therein) or to
a U.S. bank, that is a party in interest with respect to such plan.
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(h) If the market value of the collateral at any time falls below
100 percent (or such higher percentage as the Borrower and the
independent fiduciary of the Plan may agree upon) of the market value
of the loaned securities, the Borrower delivers additional collateral
on the following day to bring the level of the collateral back to at
least 102 percent. The level of the collateral is monitored daily by
the Plan or its designee, which may be Goldman or any of its affiliates
which provides custodial or directed trustee services in respect of the
securities covered by the Borrowing Agreement for the Plan. The
applicable Borrowing Agreement shall give the Plan a continuing
security interest in, title to, or the rights of a secured creditor
with respect to the collateral and a lien on the collateral.
(i) Before entering into a Borrowing Agreement, the Borrower
furnishes to the Plan the most recent publicly available audited and
unaudited statements of its financial condition, as well as any
publicly available information which it believes is necessary for the
independent fiduciary to determine whether the Plan should enter into
or renew the Borrowing Agreement.
(j) The Borrowing Agreement contains a representation by the
Borrower that, as of each time it borrows securities, there has been no
material adverse change in its financial condition since the date of
the most recently furnished statements of financial condition.
(k) The Plan receives the equivalent of all distributions made
during the loan period, including, but not limited to, any cash
dividends, interest payments, shares of stock as a result of stock
splits, and rights to purchase additional securities, that the Plan
would have received (net of tax withholdings) \5\ had it remained the
record owner of the securities.
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\5\ The Department notes the Applicants' representation that
dividends and other distributions on foreign securities payable to a
lending Plan are subject to foreign tax withholdings and that the
Borrower will always put the Plan back in at least as good a
position as it would have been had it not loaned securities.
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(l) The Borrowing Agreement and/or any securities loan outstanding
may be terminated by either party at any time without penalty (except
for, if the Plan has terminated its Borrowing Agreement, the return to
the Borrower of a pro-rata portion of the Exclusive Fee paid by the
Borrower to the Plan) whereupon the Borrower delivers securities
identical to the borrowed securities (or the equivalent thereof in the
event of reorganization, recapitalization, or merger of the issuer of
the borrowed securities) to the Plan within the lesser of five business
days of written notice of termination or the customary settlement
period for such securities.
(m) In the event that the Borrower fails to return securities in
accordance with the Borrowing Agreement and paragraph (l) above, the
Plan's remedy will be the right under the Borrowing Agreement to
purchase securities identical to the borrowed securities and apply the
collateral to payment of the purchase price. If the collateral is
insufficient to satisfy the Borrower's obligation to return the Plan's
securities, the Borrower will indemnify the Plan in the U.S. against
any losses resulting from its use of the borrowed securities equal to
the difference between the replacement cost of securities and the
market value of the collateral on the date the loan is declared in
default together with expenses incurred by the Plan plus applicable
interest at a reasonable rate including reasonable attorneys fees
incurred by the Plan for legal action arising out of default on the
loans, or failure by the Borrower to properly indemnify the Plan.
(n) Except as otherwise provided herein, all procedures regarding
the securities lending activities, at a minimum, conform to the
applicable provisions of PTE 816 (as amended or superseded), as well as
to applicable securities laws of the United States, Canada, the United
Kingdom, Germany, Japan, Australia, or Switzerland, as appropriate.
(o) Only Plans with total assets having an aggregate market value
of at least $50 million are permitted to lend securities to the
Borrower; provided, however, that--
(1) In the case of two or more Plans which are maintained by the
same employer, controlled group of corporations or employee
organization (the Related Plans), whose assets are commingled for
investment purposes in a single master trust or any other entity the
assets of which are ``plan assets'' under 29 CFR 2510.3101 (the Plan
Asset Regulation), which entity is engaged in securities lending
arrangements with the Borrower, the foregoing $50 million requirement
shall be deemed satisfied if such trust or other entity has aggregate
assets which are in excess of $50 million; provided that if the
fiduciary responsible for making the investment decision on behalf of
such master trust or other entity is not the employer or an affiliate
of the employer, such fiduciary has total assets under its management
and control, exclusive of the $50 million threshold amount attributable
to plan investment in the commingled entity, which are in excess of
$100 million.
(2) In the case of two or more Plans which are not maintained by
the same employer, controlled group of corporations or employee
organization (the Unrelated Plans), whose assets are commingled for
investment purposes in a group trust or any other form of entity the
assets of which are ``plan assets'' under the Plan Asset Regulation,
which entity is engaged in securities lending arrangements with the
Borrower, the foregoing $50 million requirement is satisfied if such
trust or other entity has aggregate assets which are in excess of $50
million (excluding the assets of any Plan with respect to which the
fiduciary responsible for making the investment decision on behalf of
such group trust or other entity or any member of the controlled group
of corporations including such fiduciary is the employer maintaining
such Plan or an employee organization whose members are covered by such
Plan). However, the fiduciary responsible for making the investment
decision on behalf of such group trust or other entity--
(i) Has full investment responsibility with respect to plan assets
invested therein; and
(ii) Has total assets under its management and control, exclusive
of the $50 million threshold amount attributable to plan investment in
the commingled entity, which are in excess of $100 million. (In
addition, none of the entities described above are formed
[[Page 56599]]
for the sole purpose of making loans of securities.)
(p) Prior to any Plan's approval of the lending of its securities
to the Borrower, a copy of this exemption (and the notice of pendency)
is provided to the Plan, and the Borrower informs the independent
fiduciary that the Borrower is not acting as a fiduciary of the Plan in
connection with its borrowing securities from the Plan.\6\
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\6\ The Department notes the Applicants' representation that,
under the exclusive borrowing arrangements, neither the Borrower nor
any of its affiliates will perform the essential functions of a
securities lending agent, e.g., the Applicants will not be the
fiduciary who negotiates the terms of the Borrowing Agreement on
behalf of the Plan, the fiduciary who identifies the appropriate
borrowers of the securities or the fiduciary who decides to lend
securities pursuant to an exclusive arrangement. However, the
Applicants or their affiliates may monitor the level of collateral
and the value of the loaned securities.
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(q) The independent fiduciary of the Plan receives monthly reports
with respect to the securities lending transactions, including but not
limited to the information set forth in the following sentence, so that
an independent Plan fiduciary may monitor such transactions with the
Borrower. The monthly report will list for a specified period all
outstanding or closed securities lending transactions. The report will
identify for each open loan position, the securities involved, the
value of the security for collateralization purposes, the current value
of the collateral, the rebate or premium (if applicable) at which the
security is loaned, and the number of days the security has been on
loan. At the request of the Plan, such a report will be provided on a
daily or weekly basis, rather than a monthly basis. Also, upon request
of the Plan, the Borrower will provide the Plan with daily
confirmations of securities lending transactions.
(r) In addition to the above conditions, all loans involving a
Foreign Borrower must satisfy the following supplemental requirements:
(1) Such Foreign Borrower is a registered broker-dealer subject to
regulation in Canada by the Ontario Securities Commission and the
Investment Dealers Association, in the United Kingdom by the UK FSA, in
Germany by the Deutsche Bundesbank and the BAK, in Japan by the
Financial Services Agency and the Tokyo Stock Exchange, in Australia by
the ASIC, or in Switzerland by the Swiss Federal Banking Commission;
(2) Such Foreign Borrower is in compliance with all applicable
provisions of Rule 15a6 (17 CFR 240.15a6) under the Securities Exchange
Act of 1934 (the 1934 Act) which provides foreign broker-dealers a
limited exception from United States registration requirements;
(3) All collateral is maintained in United States dollars or in
U.S. dollar-denominated securities or letters of credit or such other
collateral as may be permitted under PTE 816 (as amended or
superseded);
(4) All collateral is held in the United States and the situs of
the Borrowing Agreement is maintained in the United States under an
arrangement that complies with the indicia of ownership requirements
under section 404(b) of the Act and the regulations promulgated under
29 CFR 2550.404(b)1; and
(5) Prior to entering into a transaction involving a Foreign
Borrower, the Foreign Borrower must:
(i) Agree to submit to the jurisdiction of the United States;
(ii) Agree to appoint an agent for service of process in the United
States, which may be an affiliate (the Process Agent);
(iii) Consent to the service of process on the Process Agent; and
(iv) Agree that enforcement by a Plan of the indemnity provided by
the Foreign Borrower will occur in the United States courts.
(s) Goldman or the Borrower maintains, or causes to be maintained,
within the United States for a period of six years from the date of
such transaction, in a manner that is convenient and accessible for
audit and examination, such records as are necessary to enable the
persons described in paragraph (t)(1) to determine whether the
conditions of the 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 Goldman and/or
its affiliates, the records are lost or destroyed prior to the end of
the six year period; and
(2) No party in interest other than the Borrower shall be subject
to the civil penalty that may be assessed under section 502(i) of the
Act, or to the taxes imposed by section 4975(a) and (b) of the Code, if
the records are not maintained, or are not available for examination as
required below by paragraph (t)(1).
(t)(1) Except as provided in subparagraph (t)(2) of this paragraph
and notwithstanding any provisions of subsections (a)(2) and (b) of
section 504 of the Act, the records referred to in paragraph (s) are
unconditionally available at their customary location for examination
during normal business hours by --
(i) Any duly authorized employee or representative of the
Department, the Internal Revenue Service or the Securities and Exchange
Commission (SEC);
(ii) Any fiduciary of a participating Plan or any duly authorized
representative of such fiduciary;
(iii) Any contributing employer to any participating Plan or any
duly authorized employee representative of such employer; and
(iv) Any participant or beneficiary of any participating Plan, or
any duly authorized representative of such participant or beneficiary.
(2) None of the persons described above in subparagraphs
(t)(1)(ii)(t)(1)(iv) are authorized to examine the trade secrets of
Goldman or its affiliates or commercial or financial information which
is privileged or confidential.
Section III--Definitions
(a) An ``affiliate'' of a person means:
(i) any person directly or indirectly, through one or more
intermediaries, controlling, controlled by, or under common control
with the person. (For purposes of this paragraph, the term ``control''
means the power to exercise a controlling influence over the management
or policies of a person other than an individual);
(ii) any officer, director, employee or relative (as defined in
section 3(15) of the Act) of any such other person or any partner in
any such person; and
(iii) any corporation or partnership of which such person is an
officer, director or employee, or in which such person is a partner.
(b) The term ``Foreign Borrower'' or ``Foreign Borrowers'' means
Goldman Sachs Canada Inc. or any broker-dealer or bank, now or in the
future, that is an affiliate of Goldman subject to regulation in Canada
by the Ontario Securities Commission and the Investment Dealers
Association, Goldman Sachs International and Goldman Sachs Equity
Securities (U.K.) or any broker-dealer or bank, now or in the future,
that is an affiliate of Goldman subject to regulation in the United
Kingdom by the UK FSA, Goldman, Sachs & Co. oHG or any broker-dealer or
bank, now or in the future, that is an affiliate of Goldman subject to
regulation in Germany by the Deutsche Bundesbank and the BAK, Goldman
Sachs (Japan) Ltd. or any broker-dealer or bank, now or in the future,
that is an affiliate of Goldman subject to regulation in Japan by the
Financial Services Agency and the Tokyo Stock Exchange, Goldman Sachs
Australia Pty Limited or any broker-dealer or bank, now or in the
future, that
[[Page 56600]]
is an affiliate of Goldman subject to regulation in Australia by the
ASIC, Goldman, Sachs & Co. Bank or any broker-dealer or bank, now or in
the future, that is an affiliate of Goldman subject to regulation in
Switzerland by the Swiss Federal Banking Commission.
(c) The term ``Borrower'' includes Goldman, the U.S. Broker-
Dealers, and the Foreign Borrowers.
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 July 3, 2002 at 67 FR
44633.
EFFECTIVE DATE: This exemption is effective as of March 22, 2002.
FOR FURTHER INFORMATION CONTACT: Karen E. Lloyd, U.S. Department of
Labor, telephone (202) 6938540. (This is not a toll-free number.)
General Information
The attention of interested persons is directed to the following:
(1) The fact that a transaction is the subject of an exemption
under section 408(a) of the Act and/or section 4975(c)(2) of the Code
does not relieve a fiduciary or other party in interest or disqualified
person from certain other provisions 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 29th day of August, 2002.
Ivan Strasfeld,
Director of Exemption Determinations, Pension and Welfare Benefits
Administration, U.S. Department of Labor.
[FR Doc. 02-22540 Filed 9302; 8:45 am]
BILLING CODE 451029P
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