[Federal Register Volume 61, Number 251 (Monday, December 30, 1996)]
[Notices]
[Pages 68791-68801]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-33183]
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DEPARTMENT OF LABOR
[Application No. D-10253, et al.]
Proposed Exemptions; The Retirement Plan for Salaried and Certain
Hourly Employees of Keebler Company (the Plan)
AGENCY: Pension and Welfare Benefits Administration, Labor.
ACTION: Notice of Proposed Exemptions.
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SUMMARY: This document contains notices of pendency before the
Department of Labor (the Department) of proposed exemptions from
certain of the prohibited transaction restriction of the Employee
Retirement Income Security Act of 1974 (the Act) and/or the Internal
Revenue Code of 1986 (the Code).
Written Comments and Hearing Requests
Unless otherwise stated in the Notice of Proposed Exemption, all
interested persons are invited to submit written comments, and with
respect to exemptions involving the fiduciary prohibitions of section
406(b) of the Act, requests for hearing within 45 days from the date of
publication of this Federal Register Notice. Comments and request for a
hearing should state: (1) the name, address, and telephone number of
the person making the comment or request, and (2) the nature of the
person's interest in the exemption and the manner in which the person
would be adversely affected by the exemption. A request for a hearing
must also state the issues to be addressed and include a general
description of the evidence to be presented at the hearing. A request
for a hearing must also state the issues to be addressed and include a
general description of the evidence to be presented at the hearing.
ADDRESSES: All written comments and request for a hearing (at least
three copies) should be sent to the Pension and Welfare Benefits
Administration, Office of Exemption Determinations, Room N-5649, U.S.
Department of Labor, 200 Constitution Avenue, N.W., Washington, D.C.
20210. Attention: Application No. stated in each Notice of Proposed
Exemption. The applications for exemption and the comments received
will be available for public inspection in the Public Documents Room of
Pension and Welfare Benefits Administration, U.S. Department of Labor,
Room N-5507, 200 Constitution Avenue, N.W., Washington, D.C. 20210.
Notice to Interested Persons
Notice of the proposed exemptions will be provided to all
interested persons in the manner agreed upon by the applicant and the
Department within 15 days of the date of publication in the Federal
Register. Such notice shall include a copy of the notice of proposed
exemption as published in the Federal Register and shall inform
interested persons of their right to comment and to request a hearing
(where appropriate).
SUPPLEMENTARY INFORMATION: The proposed exemptions were requested in
applications filed pursuant to section 408(a) of the Act and/or section
4975(c)(2) of the Code, and in accordance with procedures set forth in
29 CFR Part 2570, Subpart B (55 FR 32836, 32847, August 10, 1990).
Effective December 31, 1978, section 102 of Reorganization Plan No. 4
of 1978 (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. Therefore, these notices of proposed
exemption are issued solely by the Department.
The applications contain representations with regard to the
proposed exemptions which are summarized below. Interested persons are
referred to the applications on file with the Department for a complete
statement of the facts and representations.
[[Page 68792]]
The Retirement Plan for Salaried and Certain Hourly Employees of
Keebler Company (the Plan), Located in Elmhurst, Illinois
[Application No. D-10253]
Proposed Exemption
The Department is considering granting an exemption under the
authority of section 408(a) of the Act and section 4975(c)(2) of the
Code and in accordance with the procedures set forth in 29 CFR Part
2570, Subpart B (55 FR 32836, 32847, August 10, 1990). If the exemption
is granted, the restrictions of sections 406(a), 406(b)(1) and (b)(2)
of the Act and the sanctions resulting from the application of section
4975 of the Code, by reason of section 4975(c)(1) (A) through (E) of
the Code, shall not apply to (1) the leasing by the Plan of certain
improved real property (the Property) to Keebler Company (the
Employer), a party in interest with respect to the Plan, (2) the
potential future purchase of the Property by the Employer pursuant to
the Employer's right of first refusal, as stipulated in the lease, and
(3) the ``make whole agreement,'' and any payments thereunder, whereby
the Employer will make the Plan whole, in the event that the Plan sells
the Property to an unrelated party at a net loss.
This proposed exemption is subject to the following conditions:
(1) The Plan is represented for all purposes with respect to the
lease by a qualified, independent fiduciary;
(2) The terms and conditions of the lease are and continue to be at
least as favorable to the Plan as those the Plan could obtain in a
comparable arm's length transaction with an unrelated party;
(3) The rent paid to the Plan under the lease is and continues to
be no less than the fair market rental value of the Property, as
established by a qualified, independent appraiser;
(4) The rent is adjusted, at a minimum, every three years (upwards
only), based upon an updated independent appraisal;
(5) The lease is a net lease, under which the Employer as the
tenant is obligated for all operating expenses, including maintenance,
taxes, insurance, and utilities;
(6) The independent fiduciary for the Plan represents that it has
reviewed the terms and conditions of the lease on behalf of the Plan
and believes the lease is in the best interests of and appropriate for
the Plan;
(7) The independent fiduciary monitors and enforces compliance with
the terms and conditions of the lease and of the exemption for the
duration of the lease;
(8) The independent fiduciary expressly approves any improvements
by the Employer over $100,000 to the Property and any renewal of the
lease beyond the initial term;
(9) In the event that the Employer exercises its right of first
refusal under the lease, the Employer purchases the Property from the
Plan for an amount which is the greater of: (a) the original
acquisition cost of the Property, plus the cost of any improvements,
paid by the Plan, or (b) the fair market value of the Property as of
the date of the sale, as established by a qualified, independent
appraiser selected by the independent fiduciary;
(10) In the event that the Plan sells the Property to an unrelated
party at a net loss (taking into account the cost of any improvements
and all selling expenses paid by the Plan), the Employer makes the Plan
whole, within 15 days after the date of such sale, by paying the Plan
cash in an amount equal to the difference between: (a) the original
acquisition cost of the Property, plus the cost of any improvements and
all selling expenses, paid by the Plan, and (b) the amount of the sale
proceeds received by the Plan; and
(11) At all times, the fair market value of the Property represents
no more than 25 percent of the total assets of the Plan.
EFFECTIVE DATE: This exemption, if granted, will be effective as of
April 15, 1996.
Summary of Facts and Representations
1. The Plan is a defined benefit plan sponsored by the Employer.
The Employer, a Delaware corporation, is engaged in the business of
making cookies, crackers, ice cream cones, and snacks and is located in
Elmhurst, Illinois. The Plan had total assets of $200,697,537, as of
December 31, 1994. The Plan had 7,496 participants and beneficiaries,
as of April 1, 1996. The trustee of the Plan is the Northern Trust
Company (Northern Trust). The Chicago Trust Company (Chicago Trust),
the successor to the Chicago Title & Trust company, is the Subtrustee
with respect to the Plan's investment in employer real property by
virtue of a Subtrust Agreement with Northern Trust, entered into as of
January 5, 1981 and amended as of April 10, 1985.
2. Among the assets of the Plan is the Property, which is currently
being leased to the Employer. The Property consists of a land area of
7.36 acres and a one-story multi-purpose warehouse and manufacturing
facility of 100,676 sq. ft. The Property is located at 2201 Cabot
Boulevard West, Langhorne, Pennsylvania. It is represented that the
Property is not near any other real property owned or used by the
Employer. It is further represented that the Property is not subject to
any debt.
3. The Property was appraised by Messrs. Christopher J. Hall and L.
Edward Klein, M.A.I., of Binswanger Real Estate Appraisal, both
independent general real estate appraisers certified in the State of
Pennsylvania. Messrs. Hall and Klein employed all three basic valuation
methodologies (cost, sales comparison, and income) utilized in the
appraisal field and concluded that the fair market value of the fee
simple interest of the Property was $2,550,000, as of December 1, 1995.
Messrs. Hall and Klein also examined four other comparable leases and
concluded, as of that same date, that the Property had a fair market
rental value of $3.25 per sq. ft. ($327,200 per annum, rounded), if
leased on a net basis. Finally, Messrs. Hall and Klein concluded that
the fair market value of the leased fee interest of the Property, which
is being leased to the Employer pursuant to a 15-year lease at above
market rent, was $4,100,000, as of December 1, 1995.
The appraisal states that the zoning of the Property is M-1, Light
Manufacturing, which restricts its use to various industrial and office
uses. The highest and best use of the Property, if vacant, is as an
industrial building. The highest and best use of the Property, as
improved, is its continued use as a warehouse/distribution facility.
4. As previously noted, the Property is being leased to the
Employer pursuant to a 15-year lease, whose term commenced on September
13, 1991. Until recently, the Plan was also leasing to the Employer a
second parcel of real property located in Valencia, California (the
California Property) for an 11-year term expiring on March 31, 1996. It
is represented that together such leases, because they involved
``qualifying employer real property,'' were statutorily exempt under
section 408(e) of the Act.1 However, on April 15, 1996, the
California Property was sold by the Plan to the Employer for
$2,350,000, again, pursuant to a statutory exemption under section
408(e) of the Act.2 Prior
[[Page 68793]]
to that date, the applicant submitted a request for an administrative
exemption from the Department for the continued leasing to the Employer
of the sole remaining parcel of real property in the Plan, retroactive
to the date of the sale of the California Property.
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1 Section 408(e) of the Act provides an exemption from
sections 406 and 407 of the Act for certain transactions involving
``qualifying employer real property,'' as that term is defined in
section 407(d)(4) of the Act. However, the Department expresses no
opinion herein as to whether the leasing of either the Property or
the California Property to the Employer complied with the
requirements of section 408(e) of the Act.
2 The Department expresses no opinion herein as to whether
the sale of the California Property complied with the requirements
of section 408(e) of the Act. Further, the Department expresses no
opinion herein as to whether the acquisition and holding of either
the Property or the California Property by the Plan violated any of
the provisions of Part 4 of Title I in the Act.
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5. The interests of the Plan with respect to the lease are
represented by the Subtrustee Chicago Trust, acting as an independent
fiduciary for the Plan. Chicago Trust, whose fees are paid by the Plan,
represents that it is unrelated to and independent of the Employer.
Chicago Trust represents that it has extensive experience as a
fiduciary under the Act, that it is knowledgeable as to the subject
transactions, and that it acknowledges and accepts its duties,
responsibilities, and liabilities in acting as a fiduciary with respect
to the Plan.
6. The lease provides for a primary term of 15 years, which may be
extended at the option of the lessee for three successive terms of five
years each, upon the express approval of the independent fiduciary. It
is represented that the Employer currently pays to the Plan rent in the
amount of $5.12 per sq. ft. ($515,497 per annum), which significantly
exceeds the fair market rental value of $327,200 per annum established
for the Property. The lease provides for annual rent increases based
upon a return of income as a percentage of the Plan's original
disbursement of $4.3 million for the Property (with such percentage
ranging from 10.0% in 1992 to 14.01% in 2006, the final lease year).
The fair market rental value of the Property is to be redetermined
every three years, based upon an updated independent appraisal. If the
appraised fair market rental value exceeds the rent being paid by the
Employer, the rent will be increased to a level that is not less than
the appraised fair market rental value. If the appraised value is less
than the rent being paid by the Employer, the then current rent will
remain in effect.
The lease is a net lease, under which the rent is an absolutely net
return to the Plan as landlord and is not subject to deductions for any
expenses relating to the Property. The Employer as tenant is obligated
for all operating expenses, including maintenance, taxes, insurance,
and utilities. The lease permits the Employer to remodel and make
structural changes and additions to the Property at the Employer's
expense, so long as such improvements comply with all applicable
governmental regulations. Any expense over $100,000 must be expressly
approved by the independent fiduciary. Any improvements or renovations
of the property will belong to the Plan upon termination of the lease.
The Employer will indemnify and hold the Plan harmless for all claims
and demands arising from or in any way relating to the Property.
7. In the event that the independent fiduciary determines it is in
the best interests of the Plan to sell the Property, the lease grants
the Employer the right of first refusal. If the Employer exercises its
right of first refusal, the Employer will purchase the Property from
the Plan for an amount which is the greater of: (a) the original
acquisition cost of the Property, plus the cost of any improvements,
paid by the Plan, or (b) the fair market value of the Property as of
the date of the sale, as established by a qualified, independent
appraiser selected by the independent fiduciary. Any such sale would be
a one-time transaction for cash, and the Plan would incur no expenses
relating to the sale.
If the Plan sells the Property to an unrelated party during the
term of the lease, the Employer will continue to be bound as tenant
under the lease for the duration of the lease. Further, if the Plan
sells the Property to an unrelated party at a net loss (taking into
account the cost of any improvements and all selling expenses paid by
the Plan), the Employer will make the Plan whole, within 15 days after
the date of such sale, by paying the Plan cash in an amount equal to
the difference between: (a) the original acquisition cost of the
Property, plus the cost of any improvements and all selling expenses,
paid by the Plan, and (b) the amount of the sale proceeds received by
the Plan.
8. Chicago Trust, acting as an independent fiduciary for the Plan,
represents that it has reviewed the terms and conditions of the lease
on behalf of the Plan and determined that such terms and conditions are
at least as favorable to the Plan as those the Plan could obtain in a
comparable arm's length transaction with an unrelated party. Chicago
Trust further represents it believes that the lease is in the best
interests of and appropriate for the Plan and that it will monitor and
enforce compliance with the terms and conditions of the lease and of
the exemption for the duration of the lease.
The initial decision to invest a portion of the Plan's assets in
real estate was made by the Employer. In its role as Subtrustee,
Chicago Trust has the exclusive authority to hold and manage the Plan's
employer real property. Accordingly, Chicago Trust made the decisions
to sell the California Property and to retain the Property for the
Plan. With respect to the latter, Chicago Trust took into account the
fact that a forced sale of the Property to an unrelated party would
have caused the Plan to incur a substantial loss, as well as depriving
the Plan of rental income at an above market rate (yielding a net
investment return not less than 10.0% in the first year and not less
than 14.01% in the final lease year). Chicago Trust has also examined
the financial viability of the Employer, determined that the Employer's
past performance under the lease has been in accordance with its
contractual obligations, and concluded that the Employer will continue
to be a good tenant.
9. In summary, the applicant represents that the proposed
transactions satisfy the statutory criteria for an exemption under
section 408(a) of the Act for the following reasons: (1) the Plan is
represented for all purposes with respect to the lease by a qualified,
independent fiduciary; (2) the terms and conditions of the lease are
and will continue to be at least as favorable to the Plan as those the
Plan could obtain in a comparable arm's length transaction with an
unrelated party; (3) the rent charged by the Plan under the lease is
and will continue to be no less than the fair market rental value of
the Property, as established by a qualified, independent appraiser; (4)
the rent will be adjusted, at a minimum, every three years (upwards
only), based upon an updated independent appraisal; (5) the lease is a
net lease, under which the Employer as the tenant is obligated for all
operating expenses, including maintenance, taxes, insurance, and
utilities; (6) the independent fiduciary for the Plan represents that
it has reviewed the terms and conditions of the lease on behalf of the
Plan and believes the lease is in the best interests of and appropriate
for the Plan; (7) the independent fiduciary will monitor and enforce
compliance with the terms and conditions of the lease and of the
exemption for the duration of the lease; (8) the independent fiduciary
will expressly approve any improvements by the Employer over $100,000
to the Property and any renewal of the lease beyond the initial term;
(9) in the event that the Employer exercises its right of first refusal
under the lease, the Employer will purchase the Property from the Plan
for an amount which is the greater of: (a) the original acquisition
cost of the Property, plus the cost of any improvements, paid by the
Plan, or (b) the fair market value of the Property as of the date of
the sale, as established by
[[Page 68794]]
a qualified, independent appraiser selected by the independent
fiduciary; (10) in the event that the Plan sells the Property to an
unrelated party at a net loss (taking into account the cost of any
improvements and all selling expenses paid by the Plan), the Employer
will make the Plan whole, within 15 days after the date of such sale,
by paying the Plan cash in an amount equal to the difference between:
(a) the original acquisition cost of the Property, plus the cost of any
improvements and all selling expenses, paid by the Plan, and (b) the
amount of the sale proceeds received by the Plan; and (11) at all
times, the fair market value of the Property will represent no more
than 25 percent of the total assets of the Plan.
Notice to Interested Persons
Notice of the proposed exemption shall be given to all interested
persons by first-class mail or by posting the required information at
the Employer's offices within 30 days of the date of publication of the
notice of pendency in the Federal Register. Such notice shall include a
copy of the notice of proposed exemption as published in the Federal
Register and shall inform interested persons of their right to comment
and/or request a hearing with respect to the proposed exemption.
Comments and requests for a hearing are due within 60 days of the date
of publication of this notice in the Federal Register.
FOR FURTHER INFORMATION CONTACT: Ms. Karin Weng of the Department,
telephone (202) 219-8881. (This is not a toll-free number.)
Travelers Group Inc. 401(k) Savings Plan (the Plan), Located in New
York, New York
[Exemption Application No. D-10269]
Proposed Exemption
The Department is considering granting an exemption under the
authority of section 408(a) of the Act and section 4975(c)(2) of the
Code and in accordance with the procedures set forth in 29 CFR Part
2570, Subpart B (55 FR 32836, 32847, August 10, 1990). If the exemption
is granted, the restrictions of sections 406(a)(1) (A) through (E),
406(a)(2), 406(b)(1), 406(b)(2), and 407(a)(1) of the Act and the
sanctions resulting from the application of section 4975 of the Code,
by reason of section 4975(c)(1) (A) through (E) of the Code 3
shall not apply, as of the effective date of this exemption: (1) to the
in-kind contribution by Travelers Group Inc. (TGI) of certain options
(the Stock Option or Stock Options) into the accounts in the Plan of
eligible employees of TGI and its subsidiaries and affiliates (the
Employees or Employee); (2) to the holding of the Stock Options by such
accounts; and (3) to the exercise of such Stock Options by Employees in
order to purchase shares of common stock of TGI (the Stock), provided
that: (a) all Employees will be treated in the same manner for the
purpose of the allocation of Stock Options to the accounts of such
Employees, except that certain highly-paid officers of TGI who are
subject to the reporting requirements of section 16(a) of the
Securities and Exchange Act of 1934 will not be eligible to receive
such contributions of Stock Options; (b) the allocation of the Stock
Options to the Plan and the acquisition of such options by the accounts
of Employees will occur automatically each year on a uniform basis
without any action required by such Employees, and the determination of
the number of Stock Options granted to the accounts of each such
Employee will be based solely on the compensation earned by such
Employee; (c) contributions of Stock Options by TGI to Employees'
accounts in the Plan will not be contingent upon contributions by
Employees to such Plan; (d) Employees acquire TGI Stock without using
cash balances from the Plan or selling assets of the Plan, other than
selling a portion of the TGI Stock acquired from the exercise of such
Stock Options; (e) no party, other than the individual Employee with
respect to his or her own account, or upon the death of such Employee,
his or her beneficiary(ies), or in the event of an assignment under a
qualified domestic relations order the alternative payee, will have any
discretion over the decision to exercise the Stock Options held in such
account; (f) the price at which the Stock Options can be exercised will
be established by the market value of the TGI Stock as listed on the
New York Stock Exchange (NYSE) at the close of the business day prior
to the date each Stock Option is granted; (g) the terms and conditions
of each of the Stock Options contributed by TGI into Employees'
accounts in the Plan will be no less favorable to the Plan than terms
obtainable by the Plan under similar circumstances when negotiated at
arm's length with unrelated third parties; (h) an independent trustee
(the Trustee) will facilitate the sale of the Stock in connection with
the exercise of the Stock Options under ``sell to cover'' transactions,
as described herein; (i) the Plan incurs no fees, commissions, or other
charges or expenses as a result of its acquisition, holding, or
exercise of the Stock Options, other than brokerage fees payable to an
unrelated third party broker; and (j) the terms and conditions
described herein are at all times satisfied.
\3\ For purposes of this exemption, references to specific
provisions of Title I of the Act, unless otherwise specified, refer
also to the corresponding provisions of the Code.
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EFFECTIVE DATE: This proposed exemption will be effective, as of the
beginning of the 1997 plan year.4
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\4\ It is represented that the plan year is the calendar year.
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Summary of Facts and Representations
1. The applicant is TGI, a Delaware corporation. TGI is a
diversified financial services holding company engaged, through its
subsidiaries, principally in four business segments: (a) investment
services; (b) consumer finance services; (c) life insurance services;
(d) property and casualty insurance services. TGI is a party in
interest with respect to the Plan, pursuant to section 3(14)(C) of the
Act. The principal subsidiaries of TGI may also be parties in interest
with respect to the Plan. These subsidiaries include but are not
limited to, Smith Barney Inc. (Smith Barney), Commercial Credit
Company, Primerica Financial Services, Travelers Insurance Company, and
Travelers/Aetna Property Casualty Corporation (TAP).
2. The Plan is sponsored and maintained by TGI for its Employees
and those of its participating affiliates and subsidiaries. The Plan is
an employee benefit plan qualified under section 401(a) of the Code and
401(k) of the Code and is a trust exempt from taxation under section
501(a) of the Code. The administrator of the Plan is a committee (the
Plan Administration Committee) appointed by the Board of Directors of
TGI.
It is represented that the proposed transactions will only affect
those individuals who are actively employed by TGI and its subsidiaries
and affiliates. As of April 30, 1996, it is represented that there were
60,000 active Employees of which approximately 70 percent (70%)
contributed to the Plan. Further, it is represented that there are
13,265 beneficiaries and participants in the Plan who are not actively
employed by TGI and its subsidiaries and affiliates.
It is represented that the Plan is invested in common stock and
preferred shares issued by TGI or its subsidiaries and affiliates,
fixed income contracts and certain mutual funds and collective trust
funds. Several of the fixed income contracts and mutual funds are
issued
[[Page 68795]]
and distributed by certain subsidiaries of TGI. As of January 31, 1996,
the date of the most recent Plan valuation, the approximate aggregate
fair market value of the assets of the Plan was $2,256,356,498. Of this
$2.3 billion in assets of the Plan, approximately $600 million is
invested in TGI Stock, $45 million is invested in common stock of TAP,
and $168 million is invested in preferred shares of TGI.
3. TGI requests an exemption from the prohibitions of the Act in
order to permit the contribution to the Plan of the Stock Options, the
holding by the Plan of such contributed Stock Options, and the
subsequent exercise of such Stock Options by eligible Employees under
certain conditions which are discussed below. The Stock Options
contributed to the Plan may not be sold, exchanged, assigned, or
otherwise transferred. In this regard, all or a portion of the Stock
Options contributed to the Plan either: (a) will be exercised by the
Employees; or (b) if unexercised, will expire at the end of the option
term, as discussed more fully below.
4. It is represented that Stock Options will be contributed
annually into the Plan beginning in the 1997 plan year. It is
represented that, in order to facilitate the proposed in-kind
contribution of the Stock Options to the Plan, the Plan Administration
Committee will create an account in the Plan for each Employee who is
eligible to participate in the Plan and is active on the date of each
grant of such Stock Options. An eligible Employee is one who had at
least one (1) year of service on December 31, of the plan year prior to
the year in which the Stock Options are granted, regardless of whether
such Employee is otherwise participating in the Plan. However, it is
represented that certain highly-paid officers who are subject to the
reporting requirements of section 16(a) of the Securities and Exchange
Act of 1934 will not be eligible to receive in-kind contributions of
Stock Options.
5. The Stock Options will permit each Employee to purchase TGI
Stock at the closing price of such Stock (the Exercise Price) on the
NYSE on the business day immediately preceding the date of the grant of
such Stock Option. The term of each Stock Option will be ten (10)
years. In this regard, each Stock Option will expire, if it has not
previously been exercised, on the tenth (10th) anniversary of the date
upon which such Stock Option was granted.
6. It is anticipated that the number of shares of TGI Stock
permitted to be purchased with each Stock Option contributed to an
Employee's account will be based on the compensation earned by such
Employee in the plan year prior to the year in which the Stock Option
is granted, regardless of whether such Employee is otherwise actively
participating in the Plan. In this regard, it is anticipated that the
number of shares of TGI Stock in a Stock Option contributed to an
Employee's account will equal ten percent (10%) of such Employee's
eligible pay, divided by the option price. For purposes of this
exemption, ``eligible pay'' is defined as an Employee's base pay and/or
commissions for the prior year, plus any bonus accrued by such Employee
for the prior year, which is paid in the plan year in which the Stock
Option is granted, not to include compensation in excess of $40,000.
For example, assume an Employee is employed on December 31, 1996,
and is otherwise eligible to participate in the Plan. Further, assume
the price of TGI Stock on the NYSE on March 28, 1997, at the close of
business is $60. If such Employee's compensation was $30,000, then 10
percent (10%) of such compensation would equal $3,000. Accordingly, TGI
would contribute to the Employee's account a Stock Option which would
entitle that Employee upon exercise of such Stock Option to purchase
fifty (50) shares of TGI Stock ($3,000 $60 per share).
7. It is represented that Stock Options will vest immediately upon
issuance to the Plan, but will not be immediately exercisable. In this
regard, it is represented that an Employee may exercise the Stock
Options only in accordance with certain conditions. Generally, once a
Stock Option has been contributed to the account of an Employee in the
Plan, such Stock Option may only be exercised while such Employee is
actively employed by TGI or by any of its subsidiaries or affiliates.
While actively employed, an Employee can exercise a Stock Option at a
rate of 20 percent (20%) a year, beginning as of the first anniversary
of the grant date of such Stock Option. It is represented that an
Employee can exercise eligible Stock Options at any time thereafter
until the end of the ten (10) year option term, as long as he or she is
employed by TGI or employed by any of TGI's subsidiaries or affiliates.
In the event of an Employee's separation from service for reasons other
than by disability, death, or retirement, all Stock Options which are
unexercised and unexpired shall remain in the Employee's account until
the later of: (a) the normal retirement age of 65 of the Employee; (b)
the tenth (10th) anniversary of such Employee's participation in the
Plan; or (c) the separation from service of the Employee with an
employer participating in the Plan; at which time the Stock Option
shall be distributed upon the request of such Employee, in accordance
with section 401(a)(14) of the Code.
After terminating employment with TGI or its subsidiaries or
affiliates, Employees may not exercise Stock Options, except in the
circumstances, as described below. In the event an Employee terminates
service by reason of his or her disability, any Stock Options that have
not expired and are exercisable immediately before disability shall
continue to be exercisable during the period of disability, until such
Stock Option expire. In the event of an involuntary termination of
employment of an employee, for a period of thirty days following their
involuntary termination, participants may exercise options that were
exercisable immediately before they were involuntarily terminated. Upon
the death of an Employee, prior to his or her termination of
employment, all Stock Options that have not expired and were
exercisable before such Employee's death continue to be exercisable by
the beneficiary(ies) of such Employee until such Stock Options expire.
However, the Stock Options will not continue to accrue exercisability
after death. In the event an Employee retires at the age of 55 with 5
years of service, all Stock Options that have not expired shall remain
exercisable in accordance with the exercisability percentage achieved
at the termination of service for a period of three (3) years, or until
such Stock Options expire, whichever is shorter. In the event an
Employee terminates service on or after attaining normal retirement age
of 65 or terminates service after attaining age 59\1/2\ with ten (10)
of service, all Stock Options that have not expired will continue to
accrue exercisability and can be exercised by such Employee for a
period of four (4) years or until such Stock Options expire, whichever
is shorter.
8. TGI believes that Employees will have the opportunity to
exercise eligible Stock Options on a daily basis, where all exercise
elections are received before a set time each day. However, should the
requirements imposed by the recordkeeper of the Plan prevent the daily
exercise of the Stock Options, then it is represented that the
frequency of the Employee's ability to exercise Stock Options will be
limited to a period of not more often than weekly and not less often
than monthly.
9. It is represented that the Employee's decision to exercise a
Stock Option will be carried out in the following manner. TGI will
designate an
[[Page 68796]]
agent to receive the exercise instructions from Employees. In this
regard, TGI anticipates that the recordkeeper for the Stock Options
will serve as its agent for this purpose. In order to exercise a Stock
Option, the Employee will contact the recordkeeper for the Stock
Options. Upon receipt of election requests from Employees, it is
represented that the recordkeeper intends to aggregate all exercise
requests.
It is represented that if an Employee contacts the recordkeeper by
the recordkeeper's deadline for aggregation, the entire transaction
from exercise request to settlement and receipt of the Stock by the
Plan, will require three (3) business days from such deadline. However,
if an Employee with an election request contacts the recordkeeper after
the recordkeeper's deadline for aggregation, it is represented that the
entire process will require, respectively, one (1), five (5), or twenty
(20) additional business day(s) for completion, depending on whether
the recordkeeper for the Plan establishes a daily, weekly, or monthly
deadline for aggregation.
10. After aggregating the Employees' requests to exercise Stock
Options, the recordkeeper will contact the Trustee to arrange for the
exercise of such Stock Options. Typically, when an option holder
exercises his or her right under an option to purchase shares of stock,
he or she must pay in cash the exercise price, as set forth in such
option. However, if this exemption is granted, Employees will only be
allowed to exercise contributed Stock Options through a cashless form
of exercise known as a ``sell to cover'' transaction and may not use
any other funds to exercise the Stock Options. Therefore, no other
assets that are in the accounts of Employees prior to the ``sell to
cover'' transactions will be used to exercise the Stock Options. In
this regard, a ``sell to cover'' transaction would permit any Employee
who decides to exercise one of the Stock Options contributed by TGI to
his or her account to authorize the Trustee of the Plan to sell the
appropriate number of shares received upon the exercise of such Stock
Option in order to obtain cash to pay the Exercise Price to TGI. In
this regard, the shares of Stock necessary to be sold to pay for the
exercise of Stock Options would be sold on the open market. TGI would
receive payment equal to the Exercise Price for the shares of such
Stock, and the Plan would receive from TGI the incremental shares of
Stock representing the gain realized from the exercise of the Stock
Option. In this regard, it is represented that TGI is the source of the
Stock transferred to the Plan as a result of the exercise of a Stock
Option, and that such Stock will be either treasury stock or previously
unissued stock of TGI.
For example, suppose an Employee has a Stock Option to purchase 100
shares of Stock from TGI at $60 per share, and the current market price
for such Stock is $75 per share. A ``sell to cover'' transaction would
involve the Employee's exercise of such Stock Option for an Exercise
Price of $6,000 (100 shares times $60 per share). To cover this
Exercise Price, the Employee would authorize the Trustee to sell on the
market eighty (80) of the 100 shares of Stock which were acquired by
the Employee from TGI through the exercise of the Stock Option at the
current market price of $75 per share ($6,000 $75). TGI would
receive cash in the amount of $6,000 (80 shares times $75 per share),
and the Employee's account in the Plan would retain twenty (20) of the
100 shares of Stock acquired from TGI through the exercise of such
Stock Option (100 shares minus 80 shares).
11. It is represented that all sales of Stock in connection with
``sell to cover'' transactions will be executed through a broker either
on the NYSE or other nationally recognized exchange on which shares of
TGI Stock are traded. In this regard, it is represented that the
exclusive purpose of the broker in the ``sell to cover'' transactions
will be to effect sales of the appropriate number of shares of the
Stock in order to obtain the Exercise Price in connection with the
exercise of Stock Options by the Plan.
It is represented that Smith Barney, a related broker, may be
selected by TGI to provide brokerage services to the Plan in connection
with the exercise of Stock Options and the sale of Stock to cover the
Exercise Price. If brokerage services are provided to the Plan by Smith
Barney or other related brokers, it is represented that such brokerage
services will be provided without the receipt of commissions, fees, or
other compensation by Smith Barney or such related brokers.5
---------------------------------------------------------------------------
\5\ TGI maintains that the statutory exemption, pursuant to
section 408(b)(2) of the Act, is available to provide exemptive
relief for the provision of brokerage services to the Plan by Smith
Barney or other related brokers, where Smith Barney or such related
brokers do not receive commissions, fees, or other compensation for
such services. The Department is offering no view, herein, as to
whether the provision of brokerage services to the Plan by Smith
Barney or other related brokers, as described, is covered by the
statutory exemption provided in section 408(b)(2), nor is the
Department providing any relief herein with respect to such
brokerage services.
---------------------------------------------------------------------------
In the event that Smith Barney is not chosen by TGI to effect sales
of TGI Stock in connection with the exercise of Stock Options by the
Plan and the sale of Stock to cover the Exercise Price, it is
represented that TGI will authorize the Trustee of the Plan to select a
broker, either related or unrelated, to execute such sales of Stock.
Once such authorization is given to the Trustee by TGI with respect to
a particular ``sell to cover'' transaction, such authorization will be
irrevocable. In this regard, it is represented that under no
circumstances will TGI or its subsidiaries and affiliates have the
ability to direct the Trustee's selection of which broker will receive
the brokerage business of the Plan.
If brokerage services are provided to the Plan by an independent,
unrelated broker, it is represented that the Plan will incur expenses
for the commission due to such broker. It is further represented that
brokerage commissions associated with such execution will be deducted
from the gross proceeds of the trade. In this regard, the amount of
commission expense incurred will depend on the number of shares of
Stock involved in a ``sell to cover'' transaction, as negotiated
between such independent, unrelated broker and the Trustee.
12. It is represented that the shares of TGI Stock realized by an
Employee through the exercise of the Stock Options in his or her
individual account in the Plan will be tradable at the direction of
such Employee and will not be subject to any restriction on the length
of time such shares of TGI Stock must be held before such shares are
sold and the proceeds invested in an alternative investment choice
within the Plan. In this regard, it is represented that at least
monthly Employees will have an opportunity to sell Stock acquired
through the exercise of the Stock Options in accordance with the terms
of the Plan.
13. TGI believes that the transactions which are the subject of
this proposed exemption may be prohibited, pursuant to sections
406(a)(1) (A) through (E), 406(a)(2), 406(b)(1), 406(b)(2), and
407(a)(1) of the Act and section 4975(c)(1) (A) through (E) of the
Code, and, accordingly, requests exemptive relief. In this regard, TGI
believes that its contribution of Stock Options to the Plan and the
holding of the Stock Options by the Plan may constitute violations of
section 407(a)(1), section 406(a)(1)(E), and section 406(a)(2) of the
Act, because the definition of a ``qualifying employer security,'' as
set forth in section 407(a) of the Act, includes stock, but does not
include stock options or other stock rights. In addition, because TGI
may be a fiduciary with respect to the Plan, TGI
[[Page 68797]]
believes that the exercise of the Stock Options contributed to the Plan
and the concurrent transfer of cash to TGI to pay for the exercise of
such Stock Options may violate section 406(b)(1) of the Act and section
4975(c)(1)(E) of the Code, for which relief is requested. With respect
to section 406(b)(2) of the Act, TGI does not believe that there is a
potential for conflicts of interest to occur with respect to the
proposed transactions, as the exercise of the Stock Options will be
transacted only at the direction of Employees and the necessary sales
of TGI Stock to cover the Exercise Price will occur on the open market.
Nevertheless, TGI requests relief from the prohibitions imposed by
section 406(b)(2) of the Act, in the event it is determined that a
transaction may occur with a party whose interests are adverse to the
interests of the Plan and of its participants and beneficiaries.
14. TGI maintains that the proposed transactions are in the
interest of the Plan and its participants and beneficiaries in that the
contribution of the Stock Options will enhance the value of the assets
of the Plan. Further, it is represented that the exercise of the Stock
Options by the accounts of Employees in the Plan offers an opportunity
for economic gain in that the Employees could exercise the Stock
Options and purchase Stock from TGI at favorable prices. In this
regard, it is represented that during the past nine (9) years TGI Stock
has appreciated at a compounded annual rate of nearly 23 percent (23%),
excluding dividends.
TGI believes that ownership of TGI Stock by Employees is desirable.
In this regard, it is represented that the proposed transactions
facilitate the acquisition of TGI Stock into the accounts of lower paid
Employees who otherwise would not have the resources to buy such Stock.
In addition, Employees acquire TGI Stock without using cash balances in
the Plan or the sale of assets of the Plan, other than the sale of the
Stock acquired from the exercise of the Stock Options. Further, in the
opinion of TGI the ``leveraging'' effect of the Stock Options, is such
that increases in the price of the Stock would create larger increases
in the values of the accounts of Employees' than the current match
formulas used by TGI in other programs that provide opportunities for
Employees to own shares of TGI Stock. In addition, the proposed
transactions would encourage long term retirement savings and would
permit an Employee to defer paying taxes on the appreciation of the
value of the Stock, thus, increasing his or her retirement savings.
15. It is represented that the exemption is protective of the
rights of participants and beneficiaries. In this regard, the timing of
the decision to exercise the Stock Options is at the discretion of the
Employee into whose account such Stock Options have been contributed or
is at the discretion of such Employee's beneficiary(ies) or alternative
payee, and is only subject to the restrictions on exercisability
imposed by TGI, the issuer.
It is further represented that the price at which the Stock Options
are exercised will be based on an objective third party source. In this
regard, the Exercise Price for the Stock Options will be established by
using the closing price for TGI Stock from the NYSE on the business day
prior to the grant of such Stock Option. All transactions with respect
to the exercise of the Stock Options and the subsequent sale of the TGI
Stock realized from such exercise will be executed through the NYSE or
other nationally recognized stock exchange.
TGI maintains that additional protection for the Plan and its
participants is provided by the appointment of an independent qualified
party to be responsible for certain aspects of the proposed
transactions. In this regard, as of December 31, 1994, TGI retained
Citibank, N.A., an independent party, to serve as the Trustee for the
Plan. It is represented that the Trustee's role with respect to the
proposed transactions will be to facilitate the sale of shares of Stock
in ``sell to cover'' transactions in connection with the exercise of
the Stock Options. In this regard, it is represented that the Trustee
will be responsible for selecting and retaining a broker to execute
such transactions, unless Smith Barney, a related broker, is selected
by TGI to provide brokerage services for the ``sell to cover''
transactions.
16. TGI maintains that the proposed transactions are
administratively feasible in that the level of monitoring required of
the Department with respect to this exemption will be minimal. In
addition, TGI will bear all of the costs of the exemption application,
and TGI will be responsible for the costs associated with notifying
interested persons.
17. In summary, TGI represents that the proposed transactions
satisfy the criteria of section 408(a) of the Act because: (a) All
Employees will be treated in the same manner for the purpose of the
allocation of Stock Options to the accounts of such Employees, except
that certain highly-paid officers will not be eligible to receive such
contribution of Stock Options; (b) lower paid Employees of TGI and its
subsidiaries and affiliates will be able to take advantage of the
opportunity to acquire TGI Stock; (c) contribution of Stock Options by
TGI to the accounts of Employees in the Plan will not be contingent on
contributions by Employees to such Plan; (d) the allocation of the
Stock Options to the Plan and the acquisition of such options by the
accounts of Employees will occur automatically each year on a uniform
basis without any action required by such Employees, and the
determination of the number of Stock Options granted to the accounts of
each Employee will be based solely on the compensation earned by such
Employee; (e) Employees will acquire TGI Stock without using cash
balances from the Plan or the proceeds from the sale of assets of the
Plan, other than the TGI Stock acquired from the exercise of the Stock
Options; (f) the contribution of the Stock Options will enhance the
value of the assets in the accounts of Employees in the Plan; (g) no
party, other than the individual Employee with respect to his or her
own account, or upon the death of such Employee his or her beneficiary
or in the event of an assignment under a qualified domestic relations
order the alternative payee, will have any discretion over the decision
to exercise the Stock Options held in such account; (h) the price at
which the Stock Options can be exercised will be established by the
market value of the TGI Stock as listed on NYSE at the close of
business on the day prior to the date each Stock Option is granted; (i)
the terms and conditions of each of the Stock Options contributed by
TGI into Employees' accounts in the Plan will be no less favorable to
the Plan than terms obtainable by the Plan under similar circumstances
when negotiated at arm's length with unrelated third parties; (j) the
Trustee will facilitate the purchase and sale of the Stock in
connection with the exercise of the Stock Options under ``sell to
cover'' transaction, as described herein; (k) the Plan will incur no
fees, commissions, or other charges or expenses as a result of its
acquisition, holding, or exercise of the Stock Options, other than
brokerage fees payable to the unrelated third party broker; (l) shares
of TGI Stock realized by an Employee through the exercise of the Stock
Options in his or her individual account in the Plan will be tradable
at the direction of such Employee at least monthly and will not be
subject to any restriction on the length of time such shares can be
held before being sold and the proceeds
[[Page 68798]]
invested in alternative investment choices in the Plan; and (m) the
terms and conditions described herein will at all times be satisfied.
Notice to Interested Persons
It is represented that the proposed transactions would affect only
participants in the Plan who are actively employed by TGI and its
subsidiaries and affiliates. Accordingly, all employees of TGI and its
subsidiaries and affiliates may be considered interested persons. TGI
represents that all interested persons will be provided with a copy of
the Notice of Proposed Exemption (the Notice), plus a copy of the
supplemental statement (Supplemental Statement), as required, pursuant
to 29 CFR 2570.43(b)(2) within fifteen (15) calendar days of
publication of the Notice in the Federal Register. Notification will be
provided to all interested persons by posting at all worksites a copy
of the Notice, plus a copy of the Supplemental Statement at those
locations within the principal places of employment of employees of TGI
which are customarily used for notices regarding labor-management
matters for review.
It is further represented that if the exemption is granted, TGI,
will, upon request, make available to all interested persons a copy of
the final exemption.
FOR FURTHER INFORMATION CONTACT: Angelena C. Le Blanc of the
Department, telephone (202) 219-8883 (This is not a toll-free number.)
Consolidated Lumber Corp., Pension Plan (the Plan), Located in Clifton,
New Jersey
[Application No. D-10344]
Proposed Exemption
The Department is considering granting an exemption under the
authority of section 408(a) of the Act and section 4975(c)(2) of the
Code and in accordance with the procedures set forth in 29 CFR Part
2570, Subpart B (55 FR 32836, 32847, August 10, 1990). If the exemption
is granted, the restrictions of sections 406 (a) and 406(b) (1) and
(b)(2) of the Act and the sanctions resulting from the application of
section 4975 of the Code, by reason of section 4975(c)(1) (A) through
(E) of the Code, shall not apply to the proposed sale for cash (the
Sale) by the Plan to Consolidated Lumber Corp. (the Employer), the
sponsor of the Plan, of certain whole life insurance policies (the
Policies) issued by Confederation Life Insurance Company of Canada
(Confederation); provided the following conditions are satisfied: (A)
All terms and conditions of the Sale are at least as favorable to the
Plan as those which the Plan could obtain in arm's-length transactions
with unrelated parties; (B) The Plan receives cash consideration from
each Sale that is no less than the greater of (1) the fair market value
of each of the Policies as of the date of the Sale, or (2) each of the
Policies' net cash surrender value as of the date of the Sale; and (C)
the Plan does not incur any expenses or suffer any losses with respect
to the proposed transactions.
Summary of Facts and Representations
1. The Employer, a New Jersey corporation, is in the business of
wholesale distribution of lumber and millwork products in the greater
metropolitan area of New York, New York. Messrs. Jess Shirvan, Mark
Shirvan, and Neil Shirvan each own 22.61 percent of the Employer and
the remaining 32.17 percent of the Employer is owned by Mr. Stanley
Shirvan.
The Plan was established by the Employer as of January 1, 1968. As
of December 31, 1990, Consolidated Pine, Inc., an Oregon corporation,
also became a sponsor of the Plan; and as of April 16, 1993,
Consolidated Distribution, Inc., a New Jersey corporation became a
sponsor of the Plan.\6\
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\6\ Consolidated Pine, Inc. is wholly owned by Mr. Stanley
Shirvan. Five percent of Consolidated Distribution, Inc. is owned by
Mr. Stanley Shirvan and Messrs. Neil Shirvan, Jess Shirvan, and Mark
Shirvan, each own 31.667 percent.
---------------------------------------------------------------------------
The Plan is a defined benefit pension plan with 32 participants and
total assets of approximately $218,551.44, as of December 16, 1996. The
trustee of the Plan is the First Fidelity Bank, N.A., New Jersey
located at Newark, New Jersey. The Boards of Directors of the three
sponsoring employers of the Plan have investment discretion over the
assets of the Plan and the trustee of the Plan expedites the
instructions of the Directors of the sponsoring employers.7
---------------------------------------------------------------------------
\7\ Mr. Stanley Shirvan is the sole director of the sponsoring
employers of the Plan. He is also a shareholder and president of the
sponsoring employers.
---------------------------------------------------------------------------
2. The Plan, which provided for the investment of Plan assets in
whole life insurance policies (the Policies), holds 32 Policies issued
by Confederation. The purchasing of Policies by the Plan was
discontinued as of December 31, 1990, and all existing Policies remain
in the Plan. Each Policy provides for death benefits and an investment
feature in the form of its cash surrender value.
On August 11, 1994, the Canadian insurance regulatory authorities
placed Confederation in receivership. On August 12, 1994, the assets of
Confederation in the United States were placed under the regulatory
supervision of the insurance authorities of the State of Michigan.
Rehabilitation proceedings (Proceedings) were instituted by Michigan in
order to protect the interest of all policy owners in the United
States, resulting in all Confederation Policies being subject to
restrictions which prohibit access to the cash surrender value of the
Policies. As a result of the restrictions imposed on Confederation, the
Plan is unable to surrender the Policies to Confederation for their
cash surrender value and make final distributions to Plan participants.
On August 10, 1995, the Plan notified its participants that the
Plan was to terminate as of October 15, 1995. Filings were made on
February 8, 1996, for approval of termination of the Plan with the
Pension Benefit Guaranty Corporation (PBGC) and the Internal Revenue
Service (IRS). The PBGC has a mandatory 60 day review period which
expired April 9, 1996, and thereafter the Plan is required to make
final distribution of its assets within 180 days unless an extension is
obtained from the PBGC. The applicant represents that an extension of
an additional six months until April 7, 1997, for final distribution of
assets was obtained by the Plan from PBGC. The IRS issued an approval
of termination of the Plan as of April 9, 1996.
3. Premium payments on Policies were discontinued by the Plan,
causing the decline in cash surrender values of the Policies as charges
are debited against the cash surrender values. As of November 7, 1996,
the 32 Policies involved in the proposed Sale had a cash surrender
value of $103,485.10 less the debits of $23,017.66 leaving a net cash
value of $80,467.44.
The Employer proposes to purchase the 32 Policies for not less than
the greater of their fair market value on the date of the Sale, or for
their net cash surrender value on the date of the Sale.
The Employer proposes this Sale because the Plan is unable to
determine when or to what extent it will be able to have access to the
net cash surrender values of the Policies under the Michigan
Proceedings. As stated above, the Employer and the affiliated
corporations that sponsor the Plan are in the process of terminating
the Plan and distributing the participants accrued benefits. In order
to accomplish this termination and distribution the Plan needs to
liquidate the Policies. Therefore the Employer is requesting the
proposed exemption in order to liquidate the Policies as soon as
possible. The Employer represents that the proposed transactions are
necessary
[[Page 68799]]
in order for the participants to avoid any risk associated with the
Plan continuing to hold the Policies. The applicant represents that the
Employer will bear all expenses which may be incurred with respect to
the Sale or the proposed exemption.
4. In summary, the applicant represents that the proposed
transaction will satisfy the criteria of section 408(a) of the Act
because (a) the Plan will not incur any expenses with respect to the
proposed transaction; (b) the Plan will receive on the date of Sale the
greater of either the net cash surrender value or the fair market value
of the Policies, and (c) the proposed transaction will enable the Plan
to avoid the possible losses associated with the continued holding of
the Policies.
FOR FURTHER INFORMATION CONTACT: Mr. C.E. Beaver of the Department,
telephone (202) 219-8881. (This is not a toll-free number.)
The Chase Manhattan Bank, N.A. (Chase), Located in New York, New York
[Application No. D-10348]
Proposed Exemption
The Department is considering granting an exemption under the
authority of section 408(a) of the Act and section 4975(c)(2) of the
Code and in accordance with the procedures set forth in 29 CFR Part
2570, Subpart B (55 FR 32836, 32847, August 10, 1990). If the exemption
is granted, the restrictions of 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, shall not
apply to (1) the proposed granting to Chase, as the representative of
lenders (the Lenders) participating in a credit facility, of security
interests in limited partnership interests in LF Strategic Real Estate
Investors, L.P. (the Partnership) owned by certain employee benefit
plans (the Plans) with respect to which some of the Lenders are parties
in interest; and (2) the proposed agreements by the Plans to honor
capital calls made by Chase in lieu of the Partnership's general
partner; provided that (a) the proposed grants and agreements are on
terms no less favorable to the Plans than those which the Plans could
obtain in arm's-length transactions with unrelated parties; and (b) the
decisions on behalf of each Plan to invest in the Partnership and to
execute such grants and agreements in favor of Chase are made by a
fiduciary which is not included among, and is independent of, the
Lenders and Chase.
Summary of Facts and Representations
1. The Partnership is a limited partnership the general partner of
which is LF Strategic Realty Investors L.L.C. (the General Partner).
The General Partner is a New York limited liability company, and all
outstanding membership interests in the General Partner are owned by
Lazard Freres and Company, L.L.C. (Lazard) or its affiliates; the
managers of the General Partner are individuals employed by the General
Partner. The General Partner (or an affiliate) will contribute not less
than $20,000,000 to the Partnership. The Partnership has been created
specifically to invest in a select portfolio of leading real estate
companies (the Selected Companies) which are diversified as to property
type and geographic location, and which have established track records,
experienced management, and large portfolios of high quality real
estate assets. The Partnership will have a maximum term of 10 years,
but it is intended that each real estate investment (an Investment)
will be liquidated within five to seven years.
2. The General Partner intends to raise a maximum of $650,000,000
of subscriptions for limited partnership interests. The minimum capital
commitment (or subscription amount) for each investor in the
Partnership (an Investor) is $25,000,000. Capital committed by an
Investor pursuant to a subscription agreement (the Subscription
Agreement) will be called (a Called Contribution) by the General
Partner from time to time as needed to be invested in Investments.
Investors will be obligated to fund their subscription amounts pursuant
to calls during a three- year period; the General Partner may extend
this period for an additional year, but at the end of the period, the
subscription agreements will be terminated and no further capital calls
may be made thereunder. There are currently 10 Investors having
irrevocable, unconditional capital commitments of at least
$645,000,000.
3. It is contemplated that the General Partner will incur
indebtedness to pay the Partnership's general costs and expenses
incurred in connection with many of its investments. In addition, the
Partnership may utilize borrowings from third parties (a) for the
acquisition of particular investments and for working capital purposes
(with the expectation that such acquisition indebtedness will be repaid
from the Investors' capital commitments and/or from mortgage debt), and
(b) financing and/or credit enhancement in connection with proposed
Investments, including providing financing to or on behalf of Selected
Companies. This indebtedness will take the form of a credit facility
(the Credit Facility) secured by a pledge and assignment of each
Investor's capital commitments and by a security in the Investors'
Partnership interests. This type of facility will allow the General
Partner to consummate Investments quickly without having to finalize
the debt/equity structure for an Investment or having to arrange for
interim or permanent financing prior to making an Investment. In
connection with this Credit Facility, each of the Investors is required
to execute documents customarily required in secured financings,
including an agreement to unconditionally honor capital calls.
4. Chase will become agent for a group of Lenders providing the
Credit Facility to the Partnership. Chase will also be a participating
Lender. Repayments will be made generally by the Partnership from
Called Contributions, the Investors' capital commitments, proceeds from
mortgage financings and proceeds from liquidation of the Partnership's
Investments. The Credit Facility is intended to be a 32-month revolving
credit with restricted availability levels. The Partnership can use its
credit under the Credit Facility either by direct or indirect
borrowings or by requesting that letters of credit be issued. All
Lenders will participate on a pro rata basis with respect to all cash
loans and letters of credit. All such loans and letters of credit will
be issued to the Partnership or an entity in which the Partnership owns
an interest (a Qualified Borrower), and not to any individual Investor.
All payments of principal and interest made by the Partnership or a
Qualified Borrower will be allocated pro rata among all Lenders. The
applicant represents that the aggregate capital commitments to be
pledged will be at least three times the maximum amount of the credit
available under the Credit Facility.
5. The stated maturity date for the Credit Facility will be
September 30, 1998. Until that time, interest only is payable on the
Facility. At the maturity date, the entire unpaid principal balance of
the Credit Facility will be due and payable, unless the Credit Facility
is extended. The Credit Facility will be a limited recourse obligation
of the Partnership, the repayment of which is secured primarily by the
assignment by the Partnership of a security interest in both the
Investors' capital commitments and the General Partner's right to make
capital calls. The capital commitments are fully recourse to all the
Investors and the General Partner.
[[Page 68800]]
The General Partner's right to make capital calls will be assigned by
the Partnership and General Partner to Chase, as agent under the Credit
Facility for the benefit of the Lenders. In the event of default under
the Credit Facility, the agent has the right to unilaterally make
capital calls on the Investors to pay their unfunded capital
commitments, and will apply cash received from such capital calls to
any outstanding debt.
6. Under the Credit Facility, it is contemplated that each Investor
will execute a security agreement (the Security Agreement) pursuant to
which it grants to Chase, for the benefit of each Lender, a security
interest and a lien in its Partnership interest. In addition, each
Investor will covenant with Chase for the benefit of the Lenders that
such Investor will unconditionally honor any capital call made by Chase
in accordance with the Subscription Agreement up to the unfunded
capital commitment of such Investor.
7. The trusts which hold assets of the Plans (the Trusts) own
limited partnership interests as Limited Partners in the Partnership.
Some of the Lenders may be parties in interest with respect to some of
the Plans in the Trusts by virtue of such Lenders' (or their
affiliates') provisions of fiduciary services to such Plans with
respect to Trust assets other than the Partnership interests. Chase is
requesting an exemption to permit the Trusts to enter into the Security
Agreements under the terms and conditions described herein. The Plans
and the other Limited Partners with the largest interests in the
Partnership and the extent of their respective capital commitments to
the Partnership are described as follows:
(a) Alcoa Master Trust. The Alcoa Master Trust holds the assets of
13 defined benefit plans (the Alcoa Plans). The total number of
participants is approximately 33,000, and the approximate fair market
value of the total assets of the Alcoa Plans held in the Master Trust
as of December 31, 1995 is $3.6 billion. The fiduciary of the Alcoa
Plans generally responsible for investment decisions is the Benefit
Investment Committee, which is responsible for reviewing and
authorizing the investment in the Partnership to which this proposed
exemption relates. The Alcoa Master Trust has made a capital commitment
of $25 million to the Partnership.
(b) Polaroid Pension Trust. The Polaroid Pension Trust holds the
assets of the Polaroid Pension Plan, a defined benefit plan with 13,775
participants and assets of approximately $760 million. The fiduciary of
the Polaroid Pension Trust responsible for reviewing and authorizing
the investment in the Partnership to which this proposed exemption
relates is Polaroid Fund Manager. The Polaroid Pension Trust has
undertaken a $25 million capital commitment to the Partnership.
(c) NYNEX Master Pension Trust. The NYNEX Master Pension Trust
holds the assets of the NYNEX Pension Plan and the NYNEX Management
Pension Plan, both defined benefit plans. As of December 31, 1994, the
NYNEX Pension Plan had 97,498 participants and approximately $6.6
billion in total assets. The NYNEX Management Pension Plan had 49,880
participants and approximately $7 billion in assets as of December 31,
1994. The fiduciary of the NYNEX Master Pension Trust generally
responsible for investment decisions is Mr. Frederick V. Salerno,
(Chief Financial Officer/Business Development of NYNEX Corporation).
Mr. Salerno is the fiduciary responsible for reviewing and authorizing
the investment in the Partnership to which this proposed exemption
relates. The NYNEX Master Pension Trust has undertaken a $25 million
capital commitment to the Partnership.
(d) General Motors. General Motors Corporation has established the
Third Plaza Trust (the TP Trust) of which Mellon Bank, N.A. is the
trustee, and the Fourth Plaza Trust (the FP Trust), of which Mellon
Bank, N.A. is also the trustee, to hold, manage and invest funds for
various Plans (the GM Plans). The GM Plans are as follows:
(1) The General Motors Hourly Plan (the GM Hourly Plan), a defined
benefit plan with 609,669 participants as of September 30, 1995, and
assets with a total value of approximately 37.8 billion dollars on that
date. Assets of the GM Hourly Plan are held in the TP Trust. Assets of
the Saturn Individual Retirement Plan for Represented Team Members (a
defined benefit plan with 7,138 participants as of September 30, 1995),
the Saturn Personal Choices Retirement Plan for Non-Represented Team
Members (a defined benefit plan with 1,977 participants as of September
30, 1995), the Employees' Retirement Plan for GMAC Mortgage Corporation
(a defined benefit plan with 3,106 participants as of December 31,
1995), the National Car Rental System Inc. Hourly Paid Employees
Pension Plan (a defined benefit plan with 3,106 participants as of
December 31, 1994) and the National Car Rental System Inc. Salaried
Employees Pension Plan (a defined benefit plan with 1,439 participants
as of December 31, 1994) are also held in the TP Trust. The TP Trust
has undertaken a $75 million commitment to the Partnership.
(2) The General Motors Retirement Program for Salaried Employees
(the Salaried Plan), a defined benefit pension plan with 218,299
participants as of September 30, 1995, and assets with a total value of
approximately 21.7 billion dollars as of that date. Assets of the GM
Salaried Plan are held in the FP Trust. The FP Trust has undertaken a
total capital commitment of $75,000,000 to the Partnership.
The fiduciary responsible for authorizing and overseeing the GM
Plans' investment in the Partnership and, subsequently, for monitoring
such investment, is the General Motors Investment Management
Corporation (GMIMC). GMIMC is a separately incorporated, wholly owned
subsidiary of General Motors Corporation.
(e) The applicant represents that as of the date of the filing of
its application for the exemption proposed herein, the only Plans which
are Investors are described in paragraphs (a) through (d) above, or are
eligible for relief under Prohibited Transaction Exemption 96-23 (PTE
96-23, 61 FR 15975, April 10, 1996), the class exemption for
transactions determined by in-house asset managers.8 The applicant
represents that it is possible that one or more other Plans may become
Investors at some time in the future, and requests relief for any such
Plan under the exemption proposed herein, provided the Plan meets the
standards and conditions set forth herein.
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\8\ The Department expresses no opinion herein with respect to
the applicability of PTE 96-23 to any such Plans.
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8. Investors which are not ERISA-covered plans:
(a) California State Teachers Retirement System, which has
undertaken a total capital commitment of $150,000,000;
(b) Commonwealth of Pennsylvania Public School Employees'
Retirement System, which has undertaken a total capital commitment of
$150,000,000;
(c) New York State Common Retirement Fund, which has undertaken a
total capital commitment of $50,000,000;
(d) Public Employees' Retirement Association of Colorado, which has
undertaken a total capital commitment of $50,000,000; and
(e) Lazard Freres Real Estate Investors, which has undertaken a
total capital commitment of $20,000,000.
9. Chase represents that the Partnership has obtained an opinion of
counsel that the Partnership will constitute a ``venture capital
operating
[[Page 68801]]
company'' under the Department's plan asset regulations [29 CFR 2510.3-
101(c)] if the Partnership is operated in accordance with the
Subscription Agreement and the private placement memorandum distributed
in connection with the private placement of the limited partnership
interests.9
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9 The Department expresses no opinion herein as to whether the
Partnership will constitute a venture capital operating company
under the regulations at 29 CFR 2510.3-101.
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10. Chase represents that the Security Agreement constitutes a form
of credit security which is customary among financing arrangements for
real estate limited partnerships, wherein the financing institutions do
not obtain security interests in the real property assets of the
partnership. Chase also represents that the obligatory execution of the
Security Agreement by the Investors for the benefit of the Lenders was
fully disclosed in the Offering as a requisite condition of investment
in the Partnership during the private placement of the limited
partnership interests. Chase represents that the only direct
relationship between any of the Investors and any of the Lenders is the
execution of the Security Agreements. All other aspects of the
transaction, including the negotiation of all terms of the Facility,
are exclusively between the Lenders and the Partnership. Chase
represents that the proposed executions of the Security Agreements will
not affect the abilities of the Trusts to withdraw from investment and
participation in the Partnership. The only Plan assets to be affected
by the proposed transaction are each Plan's limited partnership
interests in the Partnership and the related Plan obligations as
Investors to respond to drawdowns up to the total amount of each Plan's
capital commitment to the Partnership.
11. Chase represents that neither it nor any Lender acts or has
acted in any fiduciary capacity with respect to any Trust's investment
in the Partnership and that Chase is independent of and unrelated to
those fiduciaries (the Trust Fiduciaries) responsible for authorizing
and overseeing the Trusts' investments in the Partnership. Each Trust
Fiduciary represents independently that its authorization of Trust
investment in the Partnership was free of any influence, authority or
control by the Lenders. The Trust Fiduciaries represent that the
Trust's investments in and capital commitments to the Partnership were
made with the knowledge that each Investor would be required
subsequently to grant a security interest in the Partnership to the
Lenders and to honor drawdowns made on behalf of the Lenders without
recourse to any defenses against the General Partner. Each Trust
Fiduciary individually represents that it is independent of and
unrelated to Chase and the Lenders and that the investment by the Trust
for which that Trust Fiduciary is responsible continues to constitute a
favorable investment for the Plans participating in that Trust and that
the execution of the Security Agreement is in the best interests and
protective of the participants and beneficiaries of such Plans.
12. In summary, the applicants represent that the proposed
transactions satisfy the criteria of section 408(a) of the Act for the
following reasons: (1) The Plans' investments in the Partnership were
authorized and are overseen by the Trust Fiduciaries, which are
independent of the Lenders; (2) None of the Lenders have any influence,
authority or control with respect to the Plans' investments in the
Partnership or the Plans' executions of the Security Agreements; and
(3) The Trust Fiduciaries invested in the Partnership on behalf of the
Plans with the knowledge that the Security Agreements are required of
all Limited Partners investing in the Partnership.
FOR FURTHER INFORMATION CONTACT: Gary H. Lefkowitz of the Department,
telephone (202) 219-8881. (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 of disqualified
person from certain other provisions of the Act and/or the Code,
including any prohibited transaction provisions to which the exemption
does not apply and the general fiduciary responsibility provisions of
section 404 of the Act, which among other things require a fiduciary to
discharge his duties respecting the plan solely in the interest of the
participants and beneficiaries of the plan and in a prudent fashion in
accordance with section 404(a)(1)(b) of the act; nor does it affect the
requirement of section 401(a) of the Code that the plan must operate
for the exclusive benefit of the employees of the employer maintaining
the plan and their beneficiaries;
(2) Before an exemption may be granted under section 408(a) of the
Act and/or section 4975(c)(2) of the Code, the Department must find
that the exemption is administratively feasible, in the interests of
the plan and of its participants and beneficiaries and protective of
the rights of participants and beneficiaries of the plan;
(3) The proposed exemptions, if granted, will be supplemental to,
and not in derogation of, any other provisions of the Act and/or the
Code, including statutory or administrative exemptions and transitional
rules. Furthermore, the fact that a transaction is subject to an
administrative or statutory exemption is not dispositive of whether the
transaction is in fact a prohibited transaction; and
(4) The proposed exemptions, if granted, will be subject to the
express condition that the material facts and representations contained
in each application are true and complete and accurately describe all
material terms of the transaction which is the subject of the
exemption. In the case of continuing exemption transactions, if any of
the material facts or representations described in the application
change after the exemption is granted, the exemption will cease to
apply as of the date of such change. In the event of any such change,
application for a new exemption may be made to the Department.
Signed at Washington, DC, this 24th day of December, 1996.
Ivan Strasfeld,
Director of Exemption Determinations, Pension and Welfare Benefits
Administration, U.S. Department of Labor.
[FR Doc. 96-33183 Filed 12-27-96; 8:45 am]
BILLING CODE 4510-29-P
