[Federal Register Volume 61, Number 88 (Monday, May 6, 1996)]
[Notices]
[Pages 20278-20287]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-11119]
-----------------------------------------------------------------------
DEPARTMENT OF LABOR
[Application No. D-10039, et al.
Proposed Exemptions; San Diego National Bank
AGENCY: Pension and Welfare Benefits Administration, Labor.
ACTION: Notice of proposed exemptions.
-----------------------------------------------------------------------
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
All interested persons are invited to submit written comments or
request for a hearing on the pending exemptions, unless otherwise
stated in the Notice of Proposed Exemption, within 45 days from the
date of publication of this Federal Register Notice. Comments and
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, NW., Washington, DC
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, NW., Washington, DC 20210.
Notice to Interested Persons
Notice of the proposed exemptions will be provided to all
interested persons in the manner agreed upon by the applicant and the
Department within 15 days of the date of publication in the Federal
Register. Such notice shall include a copy of the notice of proposed
exemption as published in the Federal Register and shall inform
interested persons of their right to comment and to request a hearing
(where appropriate).
SUPPLEMENTARY INFORMATION: The proposed exemptions were requested in
applications filed pursuant to section 408(a) of the Act and/or section
4975(c)(2) of the Code, and in 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.
San Diego National Bank Deferred Savings Plan (the Plan)
Located in San Diego, California
[Application No. D-10039]
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),
and 407(a) of the Act and the sanctions resulting from the application
of section 4975 of the Code, by reason of section 4975(c)(1) (A)
through (E) of the Code shall not apply to (1) The past acquisition by
the Plan of certain stock rights (the Rights) pursuant to a stock
rights offering (the Offering) by SDNB Financial Corp., a California
corporation (the Parent), which wholly-owns and is the parent company
of the San Diego National Bank (the Employer), the sponsor of the Plan
and a party in interest with respect to the Plan; (2) the
[[Page 20279]]
past holding of the Rights during the subscription period of the
Offering; and (3) the disposition or exercise of the Rights by the
Plan; provided the following conditions are satisfied: (a) The
acquisition and holding of the Rights by the Plan occurred in
connection with the Offering made available to all shareholders of the
common stock of the Parent; (b) all holders of the common stock of the
Parent were treated in a like manner, with respect to the Offering,
including the Plan; and (c) all decisions regarding the holding and
disposition of the Rights by the Plan were made in accordance with Plan
provisions for individually-directed investment of participant accounts
by the individual participant whose account in the Plan received Rights
in the Offering, and if no instructions were received the Rights were
sold.
EFFECTIVE DATE: If the proposed exemption is granted, the exemption
will be effective as of May 30, 1995.
Summary of Facts and Representations
1. The Parent is a registered bank holding company, incorporated in
the State of California in 1982, with its principal executive office
located in San Diego, California. The principal subsidiary of the
parent is the Employer, a national banking association located in San
Diego, California and organized in 1981, with deposits that are insured
up to the applicable limits by the Federal Deposit Insurance
Corporation. Through the Employer the Parent provides general banking
services. As of June 30, 1995, the Parent had consolidated assets of
approximately $156 million, consolidated liabilities of approximately
$145 million (which includes total deposits with the Employer of
approximately $125 million), and shareholders equity of approximately
$11 million.
As of May 30, 1995, the opening date of the Offering by the parent,
there were issued and outstanding 2,048,485 shares of the common stock
of the Parent (the Common Stock) held by approximately 800
shareholders, which included 61 participants of the Plan with account
balances invested in the Common Stock.
The Common Stock is publicly traded on the National Association of
Securities Dealers Automated Quotation National Market System (the
NASDAQ). The Rights were also traded on the NASDAQ, with three New York
City trading firms making a market in the Rights.
2. The Plan is a defined contribution plan that's intended to
satisfy the requirements of sections 401(a) and 401(k) of the Code. The
Plan had approximately 106 participants and beneficiaries and total
assets of $1,291,916, as of December 31, 1994. Sixty-one of the
participants had their individual account balances in the Plan invested
in 83,485 shares of the Common Stock, valued at $231,331.79, as of
December 31, 1994, and comprising approximately 18 percent of the total
assets in the Plan.
The Plan permits participants to contribute up to 10 percent of
their respective annual compensation to the Plan and the Employer may
match on a discretionary basis any percentage of each contribution by a
participant (the Matching Contribution). The last previous match made
by the Employer was for the plan year ended December 31, 1990. Also,
the employer may make annual-discretionary profit sharing
contributions, which have been made in varying amounts for each Plan
year through December 31, 1990.
The Plan provides that funding contributions received from Plan
participants are immediately vested; and the Matching Contributions and
profit sharing contributions from the Employer are vested according to
a schedule based on length of service with the Employer by the
respective participants. The proceeds received from the sale of the
Rights or the Common Stock received from exercising the Rights vested
according to the vesting schedule of the Plan.
In connection with the Offering, the Board of Directors of the
Employer adopted a resolution on April 26, 1995, authorizing a one-time
special match of contributions by the Employer for participants in the
Plan who were in the employment of the Employer on April 30, 1995. The
amount of the special match was equal to 50 percent of the amount of
employee contributions made to the Plan for the period from January 1,
1995, through April 30, 1995. The special match contributed by the
Employer totalled $20,657 and was paid in cash and made available for
the exercise of the Rights; or, if not so used, the remaining cash was
to be invested in the Common Stock.
The Plan permits its participants to direct the investments of
their individual accounts among four investment funds (the Funds),
which includes one fund primarily invested in shares of the Common
Stock (the Parent Stock Fund), and three other funds holding various
types of other assets. Also, the Plan allows the participants to elect
to establish an individually earmarked account if the participant pays
all the fees and other expenses necessary for the establishment and
maintenance of such account.
As to investing funding contributions in the Plan, the participant
may direct his individual account with respect to (a) the voluntary
contributions made by the participant and (b) those voluntary,
discretionary contributions made by the Employer from its annual
profits. However, the participant may not direct the Matching
Contributions of the Employer, other than the limited direction of the
one-time special match of April 26, 1995, because the Matching
Contributions of the Employer must be invested in the Common Stock.
Participants elect their investment options on written forms that
are delivered to the Administrative Committee, which is created by the
Board of Directors of the Employer to administer the Plan until
successors are appointed. Four individuals from the officers and staff
of the Employer currently make up the Administrative Committee. Among
their duties is included the selecting of the trustee of the Plan and
other professional and administrative aids.
The trustee of the Plan is the Union Bank (the Trustee), a
California corporation, located in San Francisco, California, and which
is a subsidiary of the Bank of Tokyo, a Japanese corporation.1 The
Trustee acts as custodian of Plan assets, holding legal title to the
assets, and executing investment directions received from the
Administrative Committee in accordance with the participant's written
instructions. The Administrative Committee reviews the investment
option forms executed by the participants for possible errors, such as
the failure of the participant to sign or give clear instructions.
---------------------------------------------------------------------------
1 The Trustee is expected to merge in April 1996 with the
Bank of California, N.A., located in San Francisco, California, and
a subsidiary of Mitsubishi Bank, a Japanese corporation.
---------------------------------------------------------------------------
3. The applicant represents that the Offering was conceived because
of an agreement entered into on January 31, 1995, by the Parent with
two limited partnerships of which WHR Management Corp. is the general
partner (collectively, WHR). The agreement provided that WHR was to
purchase by March 28, 1995, 24.9 percent of the Parent's issued and
outstanding Common Stock. The purchase was made as agreed with WHR
obtaining a total of 510,121 shares of Common Stock for $4.34 per share
or for a total sum of $2,213,925.
Since the purchase by WHR at less than the then current book value
afforded WHR an opportunity to purchase stock at a price that was
unavailable to the existing shareholders
[[Page 20280]]
through the public market, the Parent decided to make the Offering to
all the holders of the Common Stock, with the exception of WHR, at the
same price of $4.34 per share that WHR had paid.
However, after the Offering was completed WHR, in order to maintain
its parity of 24.9 percent ownership in the Parent, was given the
opportunity to purchase from the Parent 255,193 shares of additional
Common Stock at $4.34 per share for an aggregate purchase price of
$1,107,538.
4. After filing a preliminary Registration Statement (S-3) on March
31, 1995, the Parent commenced on May 30, 1995, the Offering by issuing
transferable subscription Rights to the holders of the Common Stock, as
of the close of business on May 5, 1995, (the Record Date).2 One
Right was issued for each two shares of Common Stock held by the
shareholders, and the number of Rights so distributed was rounded up to
the nearest whole Right. Each Right conferred upon its holder an
entitlement (the Basic Privilege) to purchase one share of the Common
Stock (an Additional Share) at the exercise price of $4.34 per share.
Each Right also conferred upon its holder (other than the Plan) a
second privilege (the Oversubscription Privilege), allowing the Right
holder, who had exercised in full the Basic Privilege, to subscribe for
Additional Shares not previously subscribed for in the Basic Privilege.
If there were an insufficient number of shares available to satisfy the
demands of the Oversubscription Privilege, the available shares would
be allocated on a pro rata basis among those requesting the
Oversubscription Privilege.
---------------------------------------------------------------------------
2 The Department notes that the Rights do not constitute
qualifying employer securities within the meaning of section
407(d)(5) of the Act.
---------------------------------------------------------------------------
When exercising the Oversubscription Privilege all funds submitted
by the holder of the Rights were deposited in an interest bearing,
escrow account with the Subscription Agent, the American Transfer &
Trust Company. All the interest earned in the escrow account was paid
to the Parent. Therefore, the Plan was excluded from participation in
the Oversubscription Privilege in order to avoid the prohibited
transactions under the Act arising from the payment to the Parent of
the interest earned in the escrow account.
In anticipation of the Offering, the Board of Directors of the
Employer amended the Plan on May 24, 1995, to permit each Plan
participant who had a Plan account invested in the Parent Stock Fund on
the Record Date to direct the Trustee to either exercise or sell all
the Rights attributable to their involved individual account in the
Plan.
Before the amendment of May 24, 1995, the participants of the Plan
that were involved in the Offering had no power or authority under the
Plan to select investments of the Matching Contributions of the
Employer, because these contributions were required to be allocated to
the purchase of the Common Stock. With the amendment the Employer acted
to permit the involved participants to elect the disposition of all
Rights allocated to their individual accounts in the Plan. This
decision to provide pass-through elections to Plan participants was to
place the involved participants of the Plan in a like position with
other shareholders of the Parent who were receiving the Rights. If
involved participants failed to make an election before the Election
Close-Out Date, or filed an invalid election, they were deemed to have
elected to sell their Rights and the Committee instructed the Trustee
to sell those Rights in the open market.
The amendment to the Plan on May 24, 1995, also established a
procedure for the participant to give instructions with respect to the
Offering, and also provided for the one-time special match of
contributions to the Plan by the Employer on behalf of participants
employed by the Employer on April 30, 1995.
In the initial stages of the Offering which had an expiration date
on July 21, 1995, a participant of the Plan could elect to exercise or
sell a Right by instructing the Committee to instruct the Trustee at
any time until July 12, 1995, (the Election Close-Out Date). The
Election Close-Out Date was established to permit sufficient time for
the Trustee to liquidate in an orderly manner the assets in the Funds
so that the necessary cash would be available to exercise the Rights
before the expiration date of July 21, 1995.
Each Plan participant involved in the Offering obtained his funds
for the $4.34 exercise price needed to acquire the Common Stock from
the following order of priority: (a) First from the one-time special
match of the Employer which was based on salary deferrals from January
1, 1995, through April 30, 1995; (b) second from any salary deferrals
to the Plan by Plan participants; and (c) third by redeeming
investments in the Funds, other than from the Parent Stock Fund, as
directed by the participant. Amounts that were redeemed or realized
from the sale of assets in the Funds prior to the expiration of the
Offering were invested by the Trustee in a short-term investment
account, which retained its earnings, pending use for the payment of
the exercise price for Additional Shares. Thus, Rights were exercisable
by Plan participants only to the extent cash was available from their
account balances in the Funds. If cash was not available from the
account balances to pay the exercise price for Additional Shares, the
Trustee was instructed to sell the Rights not exercised with the
proceeds from such sales credited to the account balances of the
respective involved participant.
6. All of the Rights were transferable, including those Rights
issued in the Oversubscription Privilege; and, although the Offering
did not guarantee that a market would develop or remain available
during the Offering, the Rights as separate securities from the Common
Stock, could be traded on the NASDAQ under their own symbol, SDNBR.
Meetings were held in April 1995 by the Employer to explain to the
Plan participants the Offering and its ramifications. The applicant
represents that questions from participants generally were concerned
with the following: (a) Why the cash used to exercise the Rights was to
come only from existing assets allocated to involved participants
individual accounts in the Plan, (b) could the Rights held by
participants' individual accounts be transferred outside of the Plan to
the individual participant; and (c) general questions about
contributions to the Plan.
There were 4 Post-Effective Amendments filed with the SEC before
the final filing was made effective on September 8, 1995, extending the
Offering to September 21, 1995. The second and third Post-Effective
Amendments provided, inter alia for payment to registered, securities
broker-dealers a commission of 5 percent of the aggregate subscription
price of the Rights that were exercised through their facilities. Post-
Effective Amendment number 4 provided, inter alia, for a best-efforts
underwriting agreement between the Parent and Torrey Pines Securities,
Inc., a California corporation (Torrey Pines). Torrey Pines agreed to
act on its best-efforts to underwrite the Offering by soliciting the
exercise of the Rights by 3rd parties, and by soliciting the sales of
any unsubscribed shares of Common Stock involved in the Offering at a
sales price of $4.34.
With the extension of the Offering to September 21, 1995, the
involved participants were notified that they had a new Election Close-
Out Date of September 19, 1995.
The applicant represents that at the beginning of the Offering the
Plan held a total of 42,322 Rights of which 1,634
[[Page 20281]]
were unallocated because some participants had terminated and were not
fully vested in accordance with the vesting schedule set forth in the
Plan.3 This left 40,688 Rights allocated to the individual
accounts of the involved participants in the Offering. Four of the
involved participants were part of the management of the Employer and
57 were from non-management. The management participants were allocated
30,512 Rights of which they exercised 12,786 Rights at the exercise
price of $4.34 for the total sum of $55,491.24. The non-management
involved participants were allocated 10,176 Rights of which 26
exercised 3,975 Rights at the exercise price of $4.34 for the total sum
of $17,251.50. All of the involved participants exercised the total of
16,761 Rights at the exercise price of $4.34 for a total sum of
$72,742.74.
---------------------------------------------------------------------------
3 These 1,634 unallocated Rights were then sold, and the
proceeds from their sale will be allocated at the end of the Plan
year as a forfeiture.
---------------------------------------------------------------------------
The 4 involved participants from management sold 17,726 Rights and
38 involved participants from non-management sold 6,201 Rights at an
average of in excess of $0.01 and less than $0.02 per Right.
The Offering resulted in all the Rights being eventually exercised
and the Parent receiving approximately $3,339,986, less underwriting
discounts and commissions, for the 769,582 Rights issued in the
Offering. In addition WHR purchased an additional 255,193 shares of
common Stock for $1,107,538. Thus, the Parent received, from the
Offering and the additional purchase by WHR, the total sum of
approximately $4,447,524.
The Oversubscription Privilege was exercised for 2,531 shares by
two shareholders who were unrelated to the Plan.
7. The applicant represents that the Offering and the resulting
transactions were in the best interests of and beneficial to the Plan
and its participants and beneficiaries. Also, the applicant represents
that the rights of the participants and beneficiaries of the plan were
protected in the Offering and subsequent transactions. The applicant
demonstrates that all involved participants were adequately notified in
advance of the Offering of the procedure for instructing the Trustee of
the participant's desires for execution under the Offering, and all
instructions given by the involved participants to the Trustee were
properly executed. Accordingly, the applicant represents all actions by
the Trustee with respect to the Offering were made pursuant to
expressed instructions except when the involved participant failed to
act or acted in violation of the published procedures and the Rights
were sold on behalf of the involved participant. These instructions as
to the disposition of the Rights upon the failure of the involved
participant to act or to give valid instructions were fully disclosed
in the procedural instructions given to the involved participants. The
applicant further represents that such instructions were consistent
with the nature of participant-directed investments under a Plan.
In addition, the applicant represents that there was no expense
incurred by the Plan from the Offering, and there was full disclosure
of the Offering in the public documents filed with the SEC.
8. In summary the applicants represent that the transactions
satisfied the statutory criteria of section 408(a) of the Act for the
following reasons: (a) The acquisition of the Rights by the Plan
resulted from an independent act by the Parent as a corporate act and
all holders of the Common Stock were treated in a like manner,
including the Plan; (b) all decisions with respect to the Rights were
controlled by involved participants accounts pursuant to Plan
provisions for individually-directed investments of such accounts; (c)
the Rights and the Common Stock were both traded on NASDAQ from which
current price information was readily ascertainable as were the terms
and conditions of the Offering from the public documents distributed to
the holders of the Common Stock and filed with the SEC; and (d) there
were no expenses incurred by the Plan or its participants and
beneficiaries from the Offering and the resulting transactions; and (e)
if no instructions were received, the Rights were sold.
FOR FURTHER INFORMATION CONTACT: Mr. C.E. Beaver of the Department,
telephone (202) 219-8881. (This is not a toll-free number.)
Fieldcrest Cannon, Inc. Retirement Savings Plan for Salaried Employees,
and Fieldcrest Cannon, Inc. Retirement Savings Plan for Hourly
Employees (the Plans) Located in Eden, North Carolina
[Application Nos. D-10180 & D-10181]
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 C.F.R. Part
2570, Subpart B (55 F.R. 32836, 32847, August 10, 1990). If the
exemption is granted the restrictions of sections 406(a), 406 (b)(1)
and (b)(2) of the Act and the sanctions resulting from the application
of section 4975 of the Code, by reason of section 4975(c)(1) (A)
through (E) of the Code, shall not apply to (1) the proposed guaranty
(the Guaranty) by Fieldcrest Cannon, Inc. (the Employer), the sponsor
of the Plans, of amounts due the Plans with respect to three guaranteed
investment contracts (the GICs) issued by Confederation Life Insurance
Company (Confederation); (2) the potential extensions of credit (the
Advances) to the Plans by the Employer pursuant to the Guaranty; (3)
the Plans' potential repayment of the Advances; and (4) the potential
purchase of the GICs from the Plans by the Employer for cash; provided
the following conditions are satisfied:
(A) All terms and conditions of such transactions are no less
favorable to the Plans than those which the Plans could obtain in
arm's-length transactions with unrelated parties;
(B) No interest and/or expenses are paid by the Plans in connection
with the transactions;
(C) The proceeds of the Advances are used solely in lieu of
payments due from Confederation with respect to the GICs;
(D) Repayment of the Advances will be restricted to the GIC
Proceeds, defined as the cash proceeds obtained by the Plans from or on
behalf of Confederation with respect to the GICs;
(E) Repayment of the Advances will be waived to the extent that the
Advances exceed the GIC Proceeds; and
(F) In any sale of a GIC to the Employer, the Plans will receive a
purchase price which is no less than the fair market value of the GIC
as of the sale date, and no less than the GIC's ``Book Value'' as
defined below, plus post-maturity interest, if applicable, at the FIF
Rate as defined below, less any Advances made pursuant to this
exemption and any GIC Proceeds received with respect to the GIC, as of
the sale date.
Summary of Facts and Representations
Introduction: The Plans' assets currently include three guaranteed
investment contracts (the GICs) issued by Confederation Life Insurance
Company (Confederation). Confederation has been placed in receivership
and, consequently, payments and withdrawals with respect to the GICs
are prohibited. The Plans' sponsor, Fieldcrest Cannon, Inc. (the
Employer), proposes to guarantee that in the eventual resolution of the
receivership the Plans will recover fully its investments in the GICs,
including interest guaranteed under the GICs through their maturity
dates and interest
[[Page 20282]]
after the maturity dates at a rate described below. The exemption
proposed herein would enable this guaranty under the terms and
conditions described below.
1. The Plans are defined contribution plans, the assets of which
are held in one master trust (the Trust), of which the trustee is
Harris Trust and Savings Bank (the Trustee) located in Chicago,
Illinois. Both Plans provide for individual participant accounts (the
Accounts) and participant-directed investment of the Accounts. The
Plans are sponsored by Fieldcrest Cannon, Inc. (the Employer), a
Delaware public corporation engaged in the design, manufacture and
marketing of a broad range of household textile products, with its
principal executive offices in Eden, North Carolina. The Accounts are
invested at the directions of individual Plan participants among
various investment funds, one of which is the Fixed Income Fund (the FI
Fund), which is invested primarily in guaranteed investment contracts
issued by insurance companies.
2. Among the assets in the FI Fund are three guaranteed investment
contracts (the GICs) issued by Confederation Life Insurance Company
(Confederation), a Canadian corporation doing business in the United
States through branches in Michigan and Georgia. The GICs are further
identified as follows: (a) Contract No. 62388 was issued to the Plans
by Confederation effective January 18, 1991, upon an initial principal
deposit of $2 million, and it provides for simple annual interest at
the rate of 8.74 percent, with a maturity date of January 17, 1996; (b)
Contract No. 62499 was issued to the Plans by Confederation effective
June 6, 1991, upon an initial principal deposit of $1 million and it
provides for simple annual interest at the rate of 8.18 percent, with a
maturity date of June 5, 1995; and (c) Contract No. 62710 was issued to
the Plans by Confederation effective October 15, 1992, upon an initial
principal deposit of $1 million and it provides for simple annual
interest at the rate of 6.21 percent, with a maturity date of October
14, 1997. The GICs are single-deposit contracts which permit
withdrawals (the Withdrawals) prior to maturity solely for purchasing
annuities for retiring Plan participants whose Accounts are invested in
the GICs. The terms of the GICs provide that interest at the rates
guaranteed by each GIC (the Contract Rates) will be credited to the
Plans daily, and will be paid annually (the Interest Payments) on the
anniversary of a date specified by each GIC for such Interest Payments.
Upon each GIC's maturity date, Confederation is obligated to make a
final cash payment to the Plans (the Maturity Payment) in the amount of
the GIC's principal plus interest at the Contract Rate, less previous
Withdrawals (the Maturity Value). The Employer represents that through
July 1994, all payments due under the GICs had been paid.
3. The Employer represents that on August 11, 1994, the Canadian
insurance regulatory authorities placed Confederation into a
liquidation and winding-up process, and on August 12, 1994, the
insurance authorities of the State of Michigan commenced legal action
to place the U.S. operations of Confederation into a rehabilitation
proceeding. As a result of these actions, all payments and withdrawals
with respect to the GICs have been suspended.4 The Employer
represents that it cannot be determined accurately whether, to what
extent, or at what time the Withdrawals and Interest Payments will be
resumed. The Employer desires to alleviate the Plans' participants of
the risks associated with continued investment in the GICs and to
prevent any losses of the FI Fund's investments in the GICs.
Accordingly, the Employer proposes to guarantee that the Plans will
recover all amounts due under the GICs, plus post-maturity interest at
a rate described below, and in its discretion to make advances to the
Plans, and potentially purchase the GICs, pursuant to this guaranty.
The Employer requests an exemption for these transactions under the
terms and conditions described herein.
---------------------------------------------------------------------------
\4\ The Department notes that the decisions to acquire and hold
the GICs are governed by the fiduciary responsibility requirements
of Part 4, Subtitle B, Title I of the Act. In this proposed
exemption, the Department is not proposing relief for any violations
of Part 4 which may have arisen as a result of the acquisition and
holding of the GICs.
---------------------------------------------------------------------------
4. The Guaranty: The Employer's proposed guaranty, including the
potential advances, repayments of the advances, and potential purchase
of the GICs, will be embodied in a written agreement between the
Trustee and the Employer (the Agreement). Under the Agreement, the
Employer undertakes a guaranty (the Guaranty) that the Plans will
recover with respect to each GIC no less than the ``Book Value'' of the
GIC through its Maturity Date plus post-maturity interest. The
Agreement defines the Book Value of each GIC as (a) The principal
amount invested in the GIC, less Withdrawals, plus (b) interest thereon
through the Maturity Date at the Contract Rate, plus (c) interest on
any unpaid interest due under the GIC (Interest-Payment Interest), from
the date such interest payment is due through the Maturity Date, at a
rate referred to and defined in the Agreement as the Fixed Income Fund
Rate (FIF Rate 5). The total amount to which the Employer becomes
obligated under the Agreement (the Guaranty Amount) with respect to
each GIC is the Book Value plus post-maturity interest on the Book
Value at the FIF Rate from the GIC's Maturity Date until (a) The entry
of a final rehabilitation, liquidation or other similar order by a
court of competent jurisdiction regarding Confederation's assets (the
Final Order), and (b) the Plans' receipt of the Guaranty Amount from
Confederation, state guaranty association funds, or other third parties
paying recovery on the GICs (the GIC Proceeds); but in no event later
than December 31, 2004.
---------------------------------------------------------------------------
5 The FIF Rate is defined as a varying rate equal to the
rate earned by the money market component of the FI Fund--
specifically excluding the GICs--managed by CoreStates Investment
Advisers, Inc. or a comparable rate as determined by the Trustee.
---------------------------------------------------------------------------
Accordingly, as each Interest Payment and each Maturity Payment
become due under each GIC, the Employer becomes obligated to pay the
Plans (not necessarily on the Maturity Date, but in no event later than
December 31, 2004, as explained below) the difference between the
amount of such payment then due and the amount of GIC Proceeds, if any,
actually received by the Plans with respect to such payment due (the
Payment Obligation). After an Interest Payment or Maturity Payment is
due, the amount of Payment Obligation then assumed by the Employer with
respect to such payment earns interest at the FIF Rate set forth in the
Agreement. The Agreement requires the Trustee to notify the Employer of
the amount of the Payment Obligation upon the Plans' failure to receive
in full any Interest Payment or Maturity Payment. As described below in
the discussion of ``Advances'', the Employer may from time to time at
its discretion make payments of amounts due the Plans under the
Agreement, thereby reducing the amount of the outstanding Payment
Obligation. However, the Agreement requires that the Plans receive the
total Payment Obligation no later than final resolution of the
Receivership and in no event later than December 31, 2004. If, by that
date, the Plans have not recovered all of the GIC Proceeds which are to
be paid with respect to a GIC, the Employer will discharge the Payment
Obligation with respect to that GIC by purchasing the GIC from the
Plans, as described below in the discussion of ``Potential Purchase''.
[[Page 20283]]
The Agreement provides that the Employer's Guaranty obligation with
respect to each GIC will continue until, and terminate upon, the
earlier of the following events: (a) Payment to the Plans of the
Guaranty Amount with respect to the GIC by Confederation or other third
parties; (b) the Employer's satisfaction of its Guaranty obligations
with respect to the GIC under the Agreement; or (c) transfer of
ownership of the GIC to the Employer pursuant to a purchase of the GIC
from the Plans, as described below.
5. Advances: The Agreement enables (but does not obligate) the
Employer at any time to make cash advances to the Plans (the Advances)
and thereby reduce the balance of amounts the Employer owes the Plans
under the Guaranty. The Advances are treated under the Agreement as
interest-free loans of amounts guaranteed by the Employer under the
Agreement. The Employer represents that Advances are anticipated only
in the event the Plans encounter unforeseen liquidity problems.
6. Repayments: Under the Agreement the Trustee takes on an
obligation to make repayment of the Advances (the Repayments) only in
the event the Plans receive GIC Proceeds plus Advances in excess of the
Guaranty Amount. The Repayments will be made only from the funds
received by the Plans as GIC Proceeds, and the Repayments will be
limited to the principal amount of any Advances made by the Employer.
However, the Trustee will have no obligation to make Repayments of
Advances with respect to any GICs which the Employer purchases, as
described below. In such case, any Advances made with respect to the
purchased GIC will be credited toward the purchase price.
The Trustee's obligation to make Repayments shall not apply until
the entry of the Final Order and the Plans' receipt of all GIC Proceeds
which are to be paid. Within sixty days thereafter, the total
Repayments shall be made to the Employer by the Trustee in a lump sum
or as agreed at that time by the parties. Under the Agreement, in the
event the amount of GIC Proceeds with respect to a GIC exceeds the
Guaranty Amount, any excess amount shall be retained as earnings of the
Plans and allocated to each Plan based on its proportionate interest in
the GIC. Under the Agreement the Employer waives Repayments with
respect to a GIC to the extent the the total GIC Proceeds is less than
the Repayments due under the Agreement. The Employer agrees that the
GIC Proceeds shall be the sole source of the Repayments and that it
will have no recourse against the Trustee, the Plans or their
participants or beneficiaries for the Repayments.
7. Potential Purchase: The Agreement provides that at any time
prior to the Plans' recovery of GIC Proceeds totalling an amount equal
to the Guaranty Amount, but in no event later than December 31, 2004,
the Employer may elect to purchase one or more of the GICs from the
Plans. The Agreement further provides that if the Plans have not
received full and final recovery of all GIC Proceeds which are to be
paid with respect to a GIC by December 31, 2004, the Employer shall be
required to purchase that GIC from the Plans. The purchase price of a
GIC in either event will be calculated as of the purchase date and will
equal the GIC's Book Value plus any Post Maturity Interest at the FIF
Rate through the purchase date, less GIC Proceeds and any Advances made
with respect to that GIC. The Employer may exercise its purchase option
with respect to each GIC separately. To the extent necessary under the
terms of the GIC, the Employer must obtain written approval of the
transfer from Confederation or its successor.
5. In summary, the Employer represents that the proposed
transactions satisfy the criteria of section 408(a) of the Act for the
following reasons: (1) The transactions will enable the Plans to
recover all amounts due under the terms of the GICs, plus post-maturity
interest; (2) Repayment of the Advances will be restricted to the GIC
Proceeds and will be limited to the principal amount of the Advances;
(3) The Repayments will be waived to the extent the Advances exceed the
GIC Proceeds; and (4) No interest and/or expenses will be incurred by
the Plans with respect to any of the transactions.
FOR FURTHER INFORMATION CONTACT: Ron Willett of the Department,
telephone (202) 219-8881. (This is not a toll-free number.)
AmSouth Bancorporation Thrift Plan (the Plan) Located in Birmingham,
Alabama
[Application No. D-10185]
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 sections 4975(c)(1) (A) through
(E) of the Code shall not apply to the proposed cash sale (the Sale) of
Guaranteed Investment Contract No. 62531 and Guaranteed Investment
Contract No. 62651 (collectively, the GICs), both issued by
Confederation Life Insurance of Atlanta, Georgia (Confederation), by
the Plan to AmSouth Bancorporation (AmSouth), a Delaware corporation,
the sponsor of the plan and a party in interest with respect to the
Plan; provided that (1) the Sale is a one-time transaction for cash;
(2) the Plan experiences no losses nor incurs any expenses from the
Sale; and (3) the Plan receives as consideration from the Sale an
amount, as expressed below in paragraph No. 4, that is equal to the
total amount expended by the Plan when acquiring the GICs plus all
interest earnings occurring under the terms of the GICs until the date
of the Sale.
Summary of Facts and Representations
1. AmSouth, a Delaware corporation incorporated in 1972, is a bank
holding company headquartered in Birmingham, Alabama and is the sponsor
of the Plan. The issued and outstanding common stock of AmSouth is
listed and traded on the New York Exchange. It holds five state banks,
of which two are incorporated and located in Alabama, and the remaining
three are located and incorporated in Georgia, Florida, and Tennessee,
respectively. Through its five wholly-owned subsidiaries, AmSouth
offers to the public full commercial banking services in the four
respective States.
2. The Plan is a defined contribution profit sharing plan with
individual accounts for the respective participants that utilizes a
thrift formula and contains a cash or deferred arrangement that is
intended to satisfy the qualification requirements of sections 401(a)
and 401(k) of the Code. As of September 30, 1995, there were the 5,748
participants in the Plan, and the approximate fair market value of the
assets in the Plan was $95,940,526. The GICs had a book value of
$2,687,290, as of September 30, 1995, which was approximately 2.8
percent of the total Plan assets.
The Plan offers the participants a choice of four different
investment funds (collectively, the Funds) in which they can direct the
investment of the assets held in their respective individual accounts.
The Funds consist of (a) the Fixed Fund that invests in AmSouth Bank of
Alabama's managed collective investment trust, GICs, notes, bills,
mortgages or other non-equity
[[Page 20284]]
securities, and money-market or other debt obligations; (b) the Equity
Fund that invests in common stock and other equity based investments;
(c) the Balanced Fund that invests in shares of mutual funds holding a
combination of stocks and bonds; and (d) the AmSouth Stock Fund that
invests in the common stock of the Employer.
No assets of the plan are invested in loans to the Employer or
property leased to the Employer. However, as of December 31, 1994,
approximately $13,444,564 or 16.4 percent of the assets of the Plan was
invested in common stock of the Employer.
The trustee of the plan is the Trust Division of AmSouth of Alabama
(the Trustee), one of the wholly-owned subsidiaries of the Employer,
whose officers have investment discretion over selecting for the Plan
the Funds in which the participants direct the assets of their
respective individual accounts to be invested.
3. The Fixed Fund of the Plan holds the two GICs, which were issued
by Confederation on July 15, 1991, and May 20, 1992, respectively, and
which are the subjects of the proposed exemption.6 With respect to
the GICs, Contract No. 62531, which matures on July 31, 1996, has a
guaranteed annual interest rate of 8.59 percent, and a book value, as
of September 30, 1995, of approximately $1,414,166. Contract No. 62651,
which matures on May 19, 1997, has a guaranteed interest rate of 7.41
percent, and a book value, as of September 30, 1995, of approximately
$1,272,124.
---------------------------------------------------------------------------
6 The Department notes that decisions to acquire and hold
the GICs are governed by fiduciary responsibility provisions of Part
4 of Title I of the Act. In this regard, the Department is not
proposing relief for any violations of Part 4 which may have arisen
as a result of the acquisition and holding of the GICs.
---------------------------------------------------------------------------
The book value represents the total amount deposited under the
terms of the GICs plus accrued interest as provided by the GICs. The
aggregated book value of two GICs represents, as of September 30, 1995,
approximately 7.3 percent of the total assets in the Fixed Fund. At
maturity the total aggregate value of the two GICs would be $2,945,277.
On August 12, 1994, the Ingham County Circuit Court, Lansing,
Michigan placed Confederation in conservatorship and rehabilitation,
causing Confederation to suspend all payments on its contracts,
including the GICs. The applicant represents that it is not known
whether, when, or under what circumstances Confederation will resume
payments on its contracts, including payment of the interest and the
principal on the GICs. Based upon estimates received with regard to the
final settlement, the applicant estimates that a settlement of both
GICs might pay the Plan between $2,042,977 and $2,338,347. If these
estimates are correct, the applicant represents that the participants
invested in the Fixed Fund would lose between $606,930 and $902,300;
and, additional losses would be experienced because of missed
investment opportunities if settlement of the GICs was delayed past
their respective maturity dates.
4. In order to eliminate the risk associated with the continued
investment in the GICs by the Plan and to allow the Plan to distribute
or otherwise invest assets currently invested in the GICs, the Employer
proposes to purchase the GICs from the Plan for cash in an amount equal
to their book value on the date of the Sale (i.e., the original
investment plus the accrued interest provided for by the GICs at the
time of Sale).7 The applicant represents that the elimination of
the risks inherent in the continued investment in the GICs by the Plan
would be in the best interests of the Plan and its participants and
would serve to protect their rights under the Plan. The Plan will incur
no expenses or losses from the proposed transaction.
---------------------------------------------------------------------------
\7\ The applicant represents that there have not been any
withdrawals from the GICs.
---------------------------------------------------------------------------
5. In summary, the applicant represents that the proposed
transaction will satisfy the criteria for an exemption under section
408(a) of the Act because (a) the Plan will receive from the Employer
in a one-time transaction cash equal to the total amount expended by
the Plan in acquiring the GICs plus all interest accruing under the
terms of the GICs until the date of the Sale; (b) the proposed
transaction will enable the Plan and its participants to avoid any risk
associated with the continued holding of the GICs; (c) the Plan will
not incur any losses or expenses from the proposed transaction; and (d)
the Trustee of the Plan has determined that the proposed transaction is
in the best interests of the Plan and its participants and would serve
to protect their rights under the Plan.
FOR FURTHER INFORMATION CONTACT: Mr. C. E. Beaver of the Department,
telephone (202) 219-8881. (This is not a toll-free number.)
The Masters, Mates and Pilots Pension Plan (the Pension Plan) and
Individual Retirement Account Plan (the IRAP; together, the Plans)
Located in Linthicum Heights, Maryland
[Application Nos. D-10198 and D-10199]
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)
and 407(a) of the Act and the sanctions resulting from the application
of section 4975 of the Code, by reason of section 4975(c)(1) (A)
through (E) of the Code, shall not apply to the continued holding by
the Plans of their shares of stock (the Stock) in American Heavy Lift
Shipping Company (AHL), provided that (a) the Plans' independent
fiduciary has determined that the Plans' holding of the Stock is
appropriate for the Plans and in the best interests of the Plans'
participants and beneficiaries; and (b) the Plans' independent
fiduciary continues to monitor the Plans' holding of the Stock and
determines at all times that such transaction remains in the best
interests of the Plans.
TEMPORARY NATURE OF EXEMPTION: If the proposed exemption is granted,
the exemption will be effective until the later of: (1) December 31,
1997, or (2) December 31, 1998 provided another application for
exemption is filed with the Department prior to December 31, 1997.
Summary of Facts and Representations
1. The Pension Plan is a defined benefit plan that currently has
approximately 5,800 participants. As of December 31, 1994, the Pension
Plan had approximately $597 million in assets. The IRAP is a defined
contribution plan that currently has approximately 4,700 participants.
As of December 31, 1994, the IRAP had approximately $86 million in
assets. The Plans principally cover members of the International
Organization of Masters, Mates and Pilots (the Union).
2. Bear Stearns Fiduciary Services, Inc. (BSFS) is a registered
investment advisor which serves as the Named Fiduciary for the Special
Assets Portfolio of the Plans. The Special Assets Portfolio consists of
various venture capital and other non-liquid investments which were
made by a former investment manager of the Plans, Tower Asset
Management, Inc. (Tower),
[[Page 20285]]
and which were the subject of protracted litigation (the Litigation)
between the Department, Tower, the Plans and certain of their trustees,
and certain plan participants.8 The Litigation ultimately was
settled pursuant to Court Order entered by the United States District
Court for the Southern District of New York (the Court).
---------------------------------------------------------------------------
\8\ In re Masters, Mates and Pilots Pension Plan and IRAP
Litigation, Lead File No. 85 Civ. 9545 (VLB) (S.D.N.Y.)
---------------------------------------------------------------------------
3. In the course of the Litigation, BSFS was appointed Named
Fiduciary for the Plans' Special Assets Portfolio by Court Order dated
September 18, 1990 (the Court Order). BSFS assumed its responsibilities
on November 8, 1990. The Court Order provided that the Named Fiduciary,
rather than the Plans' trustees, has the ``sole, exclusive, full and
complete authority and discretion concerning the control, management
and disposition of the Special Assets Portfolio''.
4. Since February 1987, the Plans have each owned 45 shares of the
Stock, which Stock represents all of the outstanding shares of AHL. AHL
is a Delaware corporation, headquartered in Houston, Texas, that is
engaged in the shipping industry. Its principal assets consist of four
single-hulled tankers, built in the 1950's, that are used primarily for
the transportation of petroleum products in the Jones Act trade (i.e.,
American-flagged tankers in the domestic intra-coastal trade). The
Plans' Stock can be traced back to certain prior investments made by
Tower and is held in the Plans' Special Assets Portfolio, along with
the Plans' other remaining Tower- initiated investments.
5. Since AHL is an employer of employees covered under the Plans,
the Stock constitutes employer securities under section 407(d)(1) of
the Act. The applicants represent that the Stock constituted qualifying
employer securities within the meaning of section 407(d)(5) of the Act
at the time of its acquisition, but as of January 1, 1993, the Stock
ceased to be a qualifying employer security because the Stock is
wholly-owned by the Plans and thus cannot meet the requirements of
section 407(f) of the Act. However, the Plans' continued holding of the
Stock was exempt from the prohibited transaction restrictions of the
Act pursuant to Prohibited Transaction Class Exemption No. 79-15 as a
result of a court order, dated November 2, 1992, entered in the
Litigation (the PTE 79-15 Order). Under the terms of the PTE 79- 15
Order, this exemption was effective until the later of: (a) December
31, 1993; or b) December 31, 1994, provided the Plans made application
to the Department for an exemption to permit the continued holding of
the Stock. The Plans did file a request for an exemption in timely
fashion, and thus the exemption provided under the PTE 79-15 Order was
automatically extended to December 31, 1994. On December 19, 1994, the
Department granted Prohibited Transaction Exemption 94-85 (PTE 94-85;
59 FR 65403), which continued the exemption for the holding of the
Stock by the Plans until the later of: (a) December 31, 1995, or (b)
December 31, 1996, provided another application for exemption was filed
with the Department prior to December 31, 1995. By filing the request
which is the subject of the exemption proposed herein, the exemption
provided under PTE 94-85 has been automatically extended to December
31, 1996.
6. While BSFS, in its capacity as Named Fiduciary, has ultimate
investment management responsibility for the Special Assets Portfolio,
it does not exercise investment management discretion over the
portfolio's assets on a day-to-day basis. Rather, as contemplated by
the Court Order, responsibility for the day-to-day management and
supervision of the portfolio's assets has been delegated at all times
to independent investment managers selected by BSFS. With respect to
the Plans' investment in the Stock, such responsibility was first
delegated to Sunwestern Advisors, L.P. (Sunwestern), which served as
the investment manager for this investment until July 14, 1992.
Effective that date, Sunwestern's responsibilities were assumed by a
new investment manager, Potomac Asset Management, Inc. (Potomac), which
continues to serve in that capacity.
7. Potomac, a registered investment adviser founded in 1978, is
owned by three principals, all of whom are analysts as well as
portfolio managers. In addition to the principals, Potomac has an
experienced fixed-income manager, equity manager, and corporate finance
consultant. In addition to its traditional investment management of
$165 million in bond and stock portfolios, Potomac maintains a
corporate finance business consisting of private placement consulting
and monitoring for pension funds, fair market value analysis for
various clients, restructuring and financing of private companies and
related activities. Potomac has had experience in managing investments
by multi-employer plans in privately-held companies, similar to the
situation involving the Plans' investment in the Stock.
8. Potomac represents that aggressive efforts were made by
Sunwestern to sell the Plans' Stock in 1991 and 1992. However, by the
spring of 1992, the purchase price under discussion with interested
parties had fallen to levels near the scrap value of AHL's ships. This
was the result of a number of adverse circumstances, including a marked
deterioration in the market for AHL's services, the inability of AHL's
then-current management to obtain more lucrative term (rather than
spot) charters, and the impact of the Oil Pollution Act of 1990 (OPA
1990) on AHL's operations, given the age and single-hull construction
of AHL's ships.9 By the time these sales efforts were discontinued
in mid-1992, no bona fide offers for any price above essentially scrap
value had materialized. When it became apparent that AHL could not be
sold in the short term without essentially forfeiting its going-concern
value, Sunwestern and AHL's Board concluded in June, 1992 that they
should discontinue the immediate sales effort and, instead, focus their
attention on improving profitability and better positioning the company
for a future disposition.
---------------------------------------------------------------------------
\9\ OPA 90 provides that petroleum products will eventually be
transported in United States intra-coastal trade only in double-
hulled tankers. Beginning in 1995 and each year thereafter, some
single-hulled vessels will be phased out of the domestic petroleum
trade, including two AHL vessels in 1996. Thus, OPA 90 has
effectively legislated AHL out of the petroleum business by January
1, 1997, unless AHL builds entirely new ships or rebuilds its
existing fleet to conform to the new specifications.
---------------------------------------------------------------------------
9. Shortly thereafter, Sunwestern was replaced as investment
manager by Potomac. After conducting its own review of AHL's assets and
operations, Potomac also concluded that a focus in the short term on
addressing operational problems offered a better opportunity for
realizing a reasonable return on the Plans' investment. Since 1992,
Potomac has pursued this focus on improving the profitability of AHL's
operations (while continuing to explore the possibility of
disposition). These efforts resulted in AHL's return to profitability
at the end of 1994. As of the end of 1994, Potomac was of the opinion
that a sale of AHL on terms favorable to the Plans could not be
achieved at that time. No buyers for AHL had appeared, and Potomac
believed that a significant reason for the lack of buyer interest was
the age of AHL's ships and the impact of OPA 90. Accordingly, Potomac
advised BSFS that, in its view, any sale or attempted sale of the
Plans' AHL investment at
[[Page 20286]]
that time was not in the Plans' financial interests.
10. However, Potomac and the AHL management were also concerned
about the impending obsolescence of the AHL single-hulled tankers (see
footnote 2, above). Preliminary analysis suggested that the cost of
building a new double-hulled vessel to comply with OPA 90 requirements
was approximately $65-70 million and it was unclear that projected
charter rates could justify such a capital expenditure. Based on a
proposal by Avondale Shipyard Division of Avondale Industries, Inc. of
New Orleans, Louisiana (Avondale), one of the nation's leading
shipbuilding companies, AHL's Board concluded that it would be more
cost effective to rebuild the single-hulled tankers by attaching a new,
double-hulled cargo body to the existing vessels. According to
Avondale, this would cost approximately 50% less than constructing new
ships. Based on its review of the decision of AHL's Board and its own
independent analysis, Potomac believed that this potential cost saving
(in the range of $30-40 million per ship) represented important
potential value for AHL's existing vessels that far exceeded their
scrap value and would be attractive to prospective buyers as a possible
competitive advantage.
11. Following careful consideration of (i) the technical and
financial feasibility of the rebuilding process, (ii) the possibility
of federally guaranteed funding by the Federal Maritime Administration
(MARAD) under Title XI of the Merchant Marine Act of 1936, and (iii)
the absence of alternatives other than the sale of the vessels for
their scrap value, Potomac concluded that the rebuilding project was in
the financial interest of the Plans. MARAD responded favorably to AHL's
initial application and indicated that AHL should act promptly for the
guarantee to proceed. Potomac considered MARAD's terms to be extremely
favorable to AHL, far more so than commercially available guarantees,
and believed MARAD's guarantee would enhance both the projected
cashflow and marketability of AHL. MARAD subsequently issued a
commitment to AHL to provide a federal MARAD guarantee on an amount up
to $139,364,000 of financing (out of a total cost of $159,273,686) to
be obtained by AHL to rebuild the four ships. The closing of the MARAD
guarantee and the issuance of the federally guaranteed debt occurred in
May 1995. Based on the closing of the financing agreements and with the
concurrence of Potomac, AHL directed Avondale to proceed with the
rebuilding project and entered into a construction contract on May 12,
1995. Design for construction on the new forebody hulls commenced at
Avondale shortly thereafter and fabrication of the first hull began in
late June, 1995.
12. The applicant represents that the Plans remain committed to
selling their interest in AHL. Potomac believes that the contractual
commitment that AHL has made to rebuild the ships will enhance the
long-term value of the AHL stock. However, even though the financial
position of AHL has been enhanced by significant operational
reorganization and the potentially valuable financing and construction
contracts, Potomac has concluded that a sale of AHL at the present time
is unlikely to garner the potential financial benefits resulting from
these events. Potomac is of the view that a sale within the forthcoming
year is unlikely to yield a price significantly in excess of the scrap
value of the vessels, perhaps including a small premium to reflect the
valuable contract rights. Accordingly, it has concluded that it is in
the Plans' best interests to continue to hold the AHL stock until the
rebuilding process is further along.10
---------------------------------------------------------------------------
\10\ Nonetheless, Potomac continues to discuss disposition of
the Plans' holdings in AHL with prospective buyers, including
venture capital funds.
---------------------------------------------------------------------------
13. Potomac has based this conclusion on several factors. First,
Potomac is of the opinion that the rebuilding process is at a
significantly sensitive juncture, and its ultimate success subject to
enough uncertainty, that AHL could not be disposed of in the most
advantageous way for the Plans at this time. The rebuilding process has
recently begun and is not expected to be finished before late 1997, at
the earliest. Potomac believes that it will be significantly easier
both to identify potential buyers for the Plans' AHL stock and to
obtain attractive offers for that stock once it becomes clear to buyers
how profitable AHL will be with the rebuilt vessels. Secondly AHL is
currently in the midst of labor negotiations, which could impact future
labor costs. The removal of uncertainties over these costs and other
expense items likewise should place AHL in a better sale posture.
Finally, uncertainties surrounding such variables as charter rates and
operational expenses should be substantially reduced as the rebuilding
process moves further along, and as the date approaches on which the
ships can return to operational status.
14. In view of these factors, Potomac does not believe it would be
in the best interests of the Plans to liquidate their AHL holdings
precipitously. Rather, based on the foregoing considerations, Potomac
is of the opinion that a disposition should not be commenced until
labor costs and other expense items have been resolved. This will
enable prospective buyers to determine how profitable AHL will be and,
therefore, how much they will be paying for the Plans' stock. While it
is conceivable that this could occur during 1996, Potomac believes that
there is a much greater likelihood that this may not occur until late
1997 or even 1998, i.e., the time at which the rebuilding project is
expected to have been completed.
15. BSFS represents that its obligations under the Court Order to
monitor and report on the activities of the investment managers for the
Special Assets Portfolio sharply restrict Potomac's opportunity to
perpetuate unduly the Plans' continued ownership of AHL. Pursuant to
the investment management agreement with Potomac that BSFS negotiated
on behalf of the Plans, Potomac is obligated to supply detailed
quarterly reports on each of the Special Assets it manages and to
comply with written investment guidelines. Those guidelines state that
Potomac ``shall seek, among other prudent objectives, to: (A) Maximize
the Plans' net, long-term investment return [and] (B) Liquidate each
such investment when and insofar as prudent * * * '' Furthermore, the
guidelines require Potomac to prepare and update on a quarterly basis
an ``action plan'' for each asset, including AHL. The action plan
requires the investment manager to state the timetable for achieving a
sale (if sale is intended) or for achieving any other stated objective.
In short, BSFS represents that significant mechanisms are in place to
prevent Potomac from improperly seeking to continue indefinitely to
manage the Plans' Stock in AHL. BSFS represents that in its capacity as
Named Fiduciary, it has reviewed in depth Potomac's analysis of the
various options available and has accepted Potomac's conclusion that
the continued ownership of the Stock is in the best interests of the
Plans. BSFS further represents that the applicant has fulfilled, or
continues to fulfill all conditions of PTE 94-85. Furthermore BSFS
confirms that the Plans have not provided any further investment in
AHL, nor guarantees of any financial obligations of AHL. Finally, the
applicant represents that the Plans will not provide any such
investment or guarantees during the term of the exemption proposed
herein, or any future exemption.
16. In summary, the applicant represents that the proposed
transaction
[[Page 20287]]
satisfies the criteria contained in section 408(a) of the Act because:
(a) The proposed exemption would continue for a limited period of time
a transaction originally permitted by the PTE 79-15 Order and currently
by PTE 94-85; (b) the Plans' independent investment manager, Potomac,
has reviewed the Plans' holding of the Stock and has determined that it
is in the best interest of both Plans to continue holding the Stock;
(c) Potomac will continue to monitor the transaction to determine
whether it remains in the Plans' best interests to retain the Stock;
(d) BSFS, which has the overall responsibility as Named Fiduciary over
the Plans' investment in the Stock, has reviewed Potomac's findings and
agrees with Potomac's determination that the Plans' continued holding
of the Stock is in the best interests of both Plans; and (e) the Plans
will make no additional investment in AHL, nor will they guarantee any
financing to AHL, for the purpose of double-hulling of the ships.
NOTICE TO INTERESTED PERSONS: The applicant represents that the notice
to interested persons required by 29 CFR 2570.43 will be effected by
publication of a copy of this notice of proposed exemption and the
required supplemental statement in The Master, Mate and Pilot. This
publication is a newspaper published by the Union and is received by
participants and beneficiaries of the Plans, including retirees. The
notice will be published within 30 days of the publication of this
notice of proposed exemption in the Federal Register. Comments and
requests for a public hearing are due within 60 days of the publication
of this notice of proposed exemption in the Federal Register.
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 that each application
accurately describes all material terms of the transaction which is the
subject of the exemption.
Signed at Washington, DC, this 30th day of April, 1996.
Ivan Strasfeld,
Director of Exemption Determinations, Pension and Welfare Benefits
Administration, U.S. Department of Labor.
[FR Doc. 96-11119 Filed 5-03-96; 8:45 am]
BILLING CODE 4510-29-P
