[Federal Register: June 2, 2006 (Volume 71, Number 106)]
[Notices]
[Page 32128-32134]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr02jn06-123]
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DEPARTMENT OF LABOR
Employee Benefits Security Administration
[Application No. L-11258, et al.]
Proposed Exemptions; Retail Clerks Welfare Trust Health and
Welfare Plan (the Plan)
AGENCY: Employee Benefits Security 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 restrictions 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
requests 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
requests 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.
ADDRESSES: All written comments and requests for a hearing (at least
three copies) should be sent to the Employee Benefits Security
Administration (EBSA), Office of Exemption Determinations, Room N-5700,
U.S. Department of Labor, 200 Constitution Avenue, NW., Washington, DC
20210. Attention: Application No. -------- , stated in each Notice of
Proposed Exemption. Interested persons are also invited to submit
comments and/or hearing requests to EBSA via e-mail or FAX. Any such
comments or requests should be sent either by e-mail to:
moffitt.betty@dol.gov, or by FAX to (202) 219-0204 by the end of the
scheduled comment period. The applications for exemption and the
comments received will be available for public inspection in the Public
Documents Room of the Employee Benefits Security Administration, U.S.
Department of Labor, Room N-1513, 200 Constitution Avenue, NW.,
Washington, DC 20210.
[[Page 32129]]
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, 5 U.S.C. App. 1 (1996), 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.
Retail Clerks Welfare Trust Health and Welfare Plan (the Plan) Located
in Seattle, Washington
[Application No. L-11258]
Proposed Exemption
The Department is considering granting an exemption under the
authority of section 408(a) of the Act and in accordance with the
procedures set forth in 29 CFR part 2570, subpart B (55 FR 32836,
32847, August 10, 1990). If the exemption is granted, the restrictions
of section 406(a), 406(b)(1) and (b)(2) of the Act shall not apply,
effective July 1, 2005, to the purchase by Plan participants and
beneficiaries of prescription drugs from pharmacies established and
maintained by contributing employers to the Plan, or their affiliates
(the Custom Network), which are parties in interest with respect to the
Plan, provided the following conditions are satisfied:
(a) The terms of each transaction are at least as favorable to the
Plan as those the Plan could obtain in a similar arm's-length
transaction with an unrelated third party;
(b) All determinations regarding which party in interest
pharmacies, if any, may participate in the Custom Network, will be made
by the Plan's independent fiduciary based on objective standards
developed by the independent fiduciary in reliance on information
provided by NMHCrx, the Plan's Pharmacy Benefits Manager, an entity
which is independent of any contributing employer to the Plan, and the
Plan's independent actuarial consultants;
(c) At least 50% of the providers participating in the Custom
Network are pharmacies of contributing employers other than the
employer of any individual Plan participant;
(d) In the aggregate, on an on-going basis, the costs for each plan
year for the Plan from participants using the Custom Network pharmacies
will be at least one percentage point less than would be the costs
through the use of NMHCrx's preferred provider network pharmacies (the
PPN pharmacies);
(e) In the aggregate, on an on-going basis, the costs for each plan
year for the Plan from participants using the PPN pharmacies will be
significantly less than costs for the retail purchase of prescription
drugs from non-participating pharmacies;
(f) The Plan's independent fiduciary will monitor the subject
transactions to ensure that all conditions of the exemption, including
conditions (d) and (e) regarding pricing, continue to be satisfied
during each plan year; and
(g) All future updated summary plan descriptions, furnished to
participants, will state that the purchase price of a particular
prescription drug at Custom Network pharmacies may be less than the
purchase price that is available either through the use of the PPN
pharmacies or through retail non-participating pharmacies, and that the
cost of prescription drugs in the aggregate over the course of a 12-
month plan year will be: (i) Lower at Custom Network pharmacies than at
the PPN pharmacies and (ii) Significantly lower at the Custom Network
pharmacies than at non-participating retail pharmacies.
Effective Date: If the proposed exemption is granted, it will be
effective July 1, 2005.
Summary of Facts and Representations
1. The Plan is a multi-employer welfare benefit plan, which has
been in existence since June 18, 1957. The Plan was established to
provide health and welfare benefits, including life, sickness, accident
and other benefits for Plan participants and their beneficiaries. The
Plan is directed by a twelve-person Board of Trustees (the Trustees).
The six Trustees representing labor are appointed by the United Food
and Commercial Workers Local Union 1105 (the Union). The six employer
Trustees are appointed by Allied Employers, Inc., a trade association
of which the Plan's contributing employers are members. The Plan
currently has approximately 27,600 participants, and it covers
approximately 30,700 beneficiaries as well, so that the total number of
participants and related family members affected by the subject
transactions is approximately 58,300.
2. The applicant represents that the Plan has a long established
and on-going relationship with a third-party administrator, Zenith
Administrators, Inc. (Zenith). Prior to October 1, 1999, Zenith
processed all pharmacy benefit claims for the Plan. Participants paid
the total prescription cost and then submitted claim forms to Zenith
for reimbursement of the portion in excess of the required co-payment.
3. In 1999, the Plan's Board of Trustees asked the Plan's
consultants, Mercer Human Resource Consulting (Mercer) and The Segal
Company (together, the Consultants) \1\ to conduct a search for a
Pharmacy Benefits Manager (PBM) to take over as primary processor for
pharmacy benefit claims. Pursuant to that search, Pharmaceutical Care
Network (PCN) was selected as the entity most able to fill the needs of
the Plan. Effective October 1, 1999, PCN became the PBM for the Plan.
Effective September 1, 2003, National Medical Health Card Systems, Inc.
(NMHCrx) became the PBM for the Plan, replacing PCN. NMHCrx is not
affiliated with Zenith, the Plan or any contributing employer. The
agreement with NMHCrx includes a 90-day termination clause which
permits the Plan to terminate the contract, without cause, and without
penalty, upon 90 days advance written notice.
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\1\ In 2003, The Segal Corporation was replaced as one of the
Consultants by Cheiron, a firm of financial consultants and
actuaries with offices in Washington, DC, McLean, Virginia and
Charlotte, North Carolina. Cheiron and Mercer continue to provide
financial, acturial and general consulting to the Plan.
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4. NMHCrx, headquartered at Port Washington, New York, has been
managing prescription drug programs since 1981 and has a nationwide
network of over 53,000 pharmacies. It manages the prescription benefits
of more than 1.5 million participants in governmental, single employer
and multiemployer plans. NMHCrx is a public company with its shares
trading on NASDAQ. NMHCrx is an independent organization not related to
Zenith, the Plan or the employers
[[Page 32130]]
maintaining the Plan. The applicant represents that the transactions
described herein are not part of an agreement, arrangement or
understanding designed to benefit a party in interest.
5. NMHCrx maintains an extensive system of participating pharmacies
in its preferred provider network (i.e., the PPN pharmacies). In
addition, NMHCrx maintains a Custom Network consisting of pharmacies
that are, or are owned by, the Plan's participating employers or their
affiliates. Thus, some of the pharmacies in the Custom Network are part
of corporations that are employers of employees covered by the Plan;
the other pharmacies in the Custom Network are wholly-owned by
corporations that have affiliates whose employees are covered by the
Plan.
6. NMHCrx also receives rebates from the drug manufacturers and,
pursuant to the agreement with the Plan, pays over a portion of such
rebates to the Plan. The parties have also memorialized agreed-upon
terms regarding rebates due to the Plan from NHMCrx. The pricing and
rebates are disclosed by NMHCrx to the Plan as part of its mandatory
periodic reporting to the Plan. The records are open to examination
pursuant to the audit provisions of the contract. The Plan and NMHCrx
have agreed to specific dispensing fees and drug pricing. These terms
are stated in the contract. For purchases made at NMHCrx PPN
pharmacies, the Plan will pay the lower of (i) an agreed discount from
average wholesale price (brand) or maximum allowable cost (generic) and
(ii) the ``usual and customary'' charge for the drug. NMHCrx is
obligated to maintain records needed to establish the cost the Plan
pays for each drug. These records, which are to be maintained for the
year that the Plan pays for the drugs and the following seven years,
will be available for inspection or audit by the Plan at the offices of
NMHCrx on reasonable notice during regular business hours.\2\
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\2\ The Department is expressing no opinion herein as to whether
the pricing and rebate arrangements between NMHCrx and the Plan, and
the disclosures thereof, are in compliance with part 4 of title I of
the Act.
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7. Plan participants and beneficiaries may acquire their
prescription drugs through the regular PPN or the Custom Network
established by NMHCrx. This choice is described in the Plan's summary
plan description and other communication materials. NMHCrx adjudicates
prescription claims that have been submitted and performs claims-
related processing functions, not limited to determining the validity
and the accuracy of the claims submitted. NMHCrx receives a fee which
is paid by the Plan.\3\ The applicant represents that all Plan
fiduciaries are aware of fees and compensation to be paid by the Plan.
NMHCrx's performance and competitiveness are monitored by the Plan's
third party administrator, Zenith, and the Consultants.
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\3\ The provisions of services to a plan by a party in interest
with respect to the plan is a separate prohibited transaction under
section 406(a)(1)(C) of the Act. However, the provision of services
to a plan by a party in interest, which are necessary for the
operation of the plan, are statutorily exempt under section
408(b)(2) of the Act, if the conditions required therein are met.
The regulation, which defines the scope of the statutory exemption
contained in section 408(b)(2) of the Act, states that no relief is
provided for any arrangement for services which would violate
section 406(b) of the Act (see 29 CFR section 2550.408b-2).
Therefore, it should be noted that in this proposed exemption,
the Department is providing no relief beyond that provided by
section 408(b)(2) of the Act with respect to the provision of PBM
services to the Plan by NMHCrx or some other entity. In addition,
the Department is providing no opinion herein as to whether any
service arrangements between NMHCrx or some other entity and the
Plan would meet the conditions of section 408b(b)(2) of the Act and
the regulations thereunder. However, interested persons should
review DOL Adv. Op. 99-09A (May 21, 1999) for a discussion of issues
relating to such service arrangements.
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8. Plan participants who utilize the Custom Network of employer
pharmacies pay a co-payment and the pharmacies then submit their
charges, based on an agreed schedule, to NMHCrx. These charges are paid
by NMHCrx. NMHCrx, in turn, receives reimbursement from the Plan. The
payments and reimbursements are completed electronically. The applicant
represents that the cost of the prescription drugs through the Custom
Network is deeply discounted. The Consultants and NMHCrx have advised
that the discounts are greater than those for the PPN pharmacies and
also greater than for other pharmacy networks with which they are
familiar. The applicant represents that the difference in savings, when
comparing aggregate costs for the Plan from participants using the
Custom Network pharmacies and the NMHCrx's PPN pharmacies have been and
are expected to continue at approximately one percentage point. For
instance, during the period from September 1, 2003 through May 30,
2005, pricing of claims through the PPN network pharmacies would have
produced a discount of approximately 22% off retail prices, while
pricing through the Custom Network pharmacies resulted in a discount of
23% off retail prices. Actual Plan costs through the Custom Network for
this period were $45,348,737.97. The applicant further represents that
the retail price for drugs dispensed for Plan participants during this
period would have totaled $59,121,641.71 for 633,064 paid prescription
claims. NMHCrx estimates that had these claims been adjudicated through
its PPN, the Plan cost would have been approximately $45,722,245.73.
Thus, the applicant represents that not only is the Custom Network more
convenient for participants, and administratively more efficient for
the Plan, but it also results in savings for the Plan and its
participants when compared to the NMHCrx PPN. NMHCrx calculated cost
savings using actual Plan prescription utilization and comparing retail
prices with charges through NMHCrx's PPN network pharmacies and the
Custom Network pharmacies. Pharmacies eligible to do so were presented
with the opportunity to participate in both NMHCrx's PPN and the Custom
Network.
9. The Department, following a routine investigation, raised
concerns as to whether the employer pharmacy arrangements satisfy the
requirements of section 406 of the Act. After discussions between Plan
representatives and the Department, the Plan filed a request for the
exemption proposed herein. Subsequently, the Department issued a
closing letter, dated August 1, 2003, stating that no enforcement
action would be taken with respect to the past transactions described
herein.
10. To address concerns raised by the Department, the applicant
represents that on July 1, 2005, the Plan retained as an independent
fiduciary Nicholas Saakvitne, Esq. (the I/F), an employee benefits
attorney and professional ERISA fiduciary in Marina del Rey,
California. The I/F has 26 years of experience in benefits law, and
most of his current practice consists of serving as trustee, plan
administrator, or other plan fiduciary in plan terminations and in
other special ERISA plan situations, to assist in managing plan assets
and overseeing the operation of on-going plans. The cumulative total of
plan assets for which the I/F has had fiduciary responsibility exceeds
$500 million. The I/F represents that the gross income he will receive
from the Plan for his fiduciary services for each calendar year will
not exceed 5% of his expected annual gross income from all sources for
such year. Mr. Saakvitne does not receive any payment in connection
with his I/F duties from any contributing employer to the Plan, and
further represents that he is independent from any employer pharmacy or
affiliate thereof. The I/F will establish minimum standards and
objective criteria for selection of employer pharmacies and, based on
[[Page 32131]]
these standards and criteria, determine which pharmacies can
participate in the Custom Network. The I/F will then have an on-going
role for the Plan to periodically monitor the Custom Network pharmacies
to confirm continued compliance with those minimum standards and
objective criteria and the conditions of this proposed prohibited
transaction exemption. The Plan's trustees would have no involvement or
influence in the selection of pharmacies eligible to participate in the
Custom Network. The I/F represents that he will receive and consider
advice from the Plan's Consultants, as well as information from NMHCrx,
the Plan's PBM.
11. The I/F represents that he confirms the findings of NMHCrx that
the Plan fees in the aggregate (taking into account discounts) using
the NMHCrx PPN are less than total Plan fees in the aggregate would be
at standard retail prices. In addition, the Custom Network used by the
Plan creates a better overall discount than the PPN alone, providing
the Plan with improved cost management. In its December 2005 report to
the Trustees, NMHCrx advised that actual experience under the Custom
Network for the 12-month period ending August 31, 2005 (the most recent
period for which data was then available) produced an approximate 29%
overall discount for prescription drugs from ``usual and customary''
pricing--mail (20.99% for brand and 49.01% for generic) and retail
(15.32% for brand and 57.15% for generic). The estimated retail price
for the 320,877 prescriptions dispensed for Plan participants was
$32,529,495.97. Actual Plan costs through the Custom Network pharmacies
were $23,116,008.57. These findings are based on the average
reimbursement rates achieved through the negotiated discounts with the
represented pharmacies in these networks.
12. Minimum standards and objective criteria for the selection of
the employer pharmacies in the Custom Network would be developed by the
I/F, working with NMHCrx and the Plan's independent Consultants. The
minimum standards and objective criteria would be set forth in writing,
and would include: (a) The maximum average price of the prescription
drugs (considering both brand and generic options) and cost comparisons
with the PPN network pharmacies; (b) The quality and availability of
the prescription drugs (e.g., is there a choice between generic and
brand name drugs); (c) Geographic proximity of the pharmacy (e.g.,
pharmacies that are located closer to participants should be selected
over pharmacies that are further away, all else being equal); and (d)
Administrative efficiency (e.g., the length of time and the cost for
the Plan to process claims with the particular pharmacy).
13. There would be no restrictions, other than the minimum
standards and objective criteria, on the pharmacies that could be
selected for the Custom Network. Any such pharmacies would be, or would
be owned by, the Plan's participating employers or their affiliates
(see rep. 5, above). NMHCrx would screen applicant pharmacies for
compliance with the established standards and criteria and send the
qualifiers to the I/F. The I/F would not be required to select any of
the pharmacies currently participating in the Custom Network, but could
select the same participating employer pharmacies as long as they
satisfy the minimum standards and objective criteria. Eligible employer
pharmacies, as selected by the I/F, would negotiate Custom Network
contracts with NMHCrx. While all pharmacies in the Custom Network have
been asked to participate at specific rates and fees, some of these
pharmacies have chosen at their own discretion to participate at rates
and fees that are lower than the minimum pricing requirement.
14. Plan participants were provided a summary of material
modifications which explained the Custom Network pharmacy arrangement
at the time the benefit was introduced. The participants have also
received information about how to purchase their prescriptions through
both NMHCrx's PPN and the Custom Network pharmacies in various news and
``how to'' articles published in the Plan's newsletter, Benefits
Update. The applicant represents that all future updated summary plan
descriptions will inform participants that the purchase price of a
particular prescription drug at Custom Network pharmacies may be less
than the purchase price that is available either through the PPN
network pharmacies or through retail non-participating pharmacies, and
that the cost of prescription drugs in the aggregate over the course of
a 12-month plan year will be lower at Custom Network pharmacies than at
PPN pharmacies and significantly lower when compared to non-
participating retail pharmacies.
15. The applicant represents that Plan participants benefit from
the transactions described herein because: (a) Employees and their
family members who participate in the Plan benefit from the discounts
and convenience of the Custom Network through use of both their own
employers' pharmacies and the pharmacies of all the other contributing
employers with pharmacies in the network; and (b) Substantially more
than 50% of the pharmacies in the Custom Network are pharmacies not
affiliated with any particular participant's employer--that is,
participants or beneficiaries have an ample choice to use a pharmacy
unaffiliated with their employer to obtain the Custom Network benefits.
16. In summary, the applicant represents that the subject
transactions satisfy the criteria contained in section 408(a) of the
Act because: (a) The terms of the transactions are at least as
favorable to the Plan as those the Plan could obtain in similar arm's-
length transactions with an unrelated party; (b) All determinations
regarding which party in interest pharmacies, if any, may participate
in the Custom Network, will be made, by the Plan's independent
fiduciary based on objective standards developed by the independent
fiduciary in reliance on information provided by the Plan's Pharmacy
Benefits Manager, an entity which is independent of any contributing
employer to the Plan, and the Plan's independent actuarial consultants;
(c) At least 50% of the providers participating in the Custom Network
are pharmacies of contributing employers other than the employer of any
individual Plan participant, so that a participant is assured of having
an ample choice of pharmacies without loss of Custom Network benefits;
(d) In the aggregate, costs during each plan year for the Plan from
participants using the Custom Network pharmacies will be at least one
percent less than costs through the use of NMHCrx's PPN pharmacies,
which will in turn in the aggregate be significantly less than costs
for the retail purchase of such prescription drugs; (e) The Plan's
independent fiduciary will monitor the subject transactions to
determine that all conditions of the exemption, including conditions
(d) and (e) regarding pricing, continue to be satisfied; and (f) All
future updated summary plan descriptions furnished to participants will
state that the purchase price of a particular prescription drug at
Custom Network pharmacies may be less than the purchase price that is
available either through the PPN network pharmacies or through retail
non-participating pharmacies, and that the cost of prescription drugs
in the aggregate over the course of a 12-month plan year will be lower
at Custom Network pharmacies than at PPN pharmacies and significantly
lower when compared to non-participating retail pharmacies.
[[Page 32132]]
FOR FURTHER INFORMATION CONTACT: Gary H. Lefkowitz of the Department,
telephone (202) 693-8546. (This is not a toll-free number.)
The Revlon Employees Savings, Investment and Profit Sharing Plan (the
Plan) Located in New York, New York
[Application No. D-11355]
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, 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, effective February 17, 2006, to (1)
the acquisition of certain stock rights (Stock Right(s)) by the Plan in
connection with a Stock Rights offering by Revlon, Inc. (Revlon), a
holding company that wholly owns Revlon Consumer Products Corporation
(RCPC), a party in interest with respect to the Plan; (2) the holding
of the Stock Rights by the Plan during the subscription period of the
Stock Rights offering; and (3) the disposition or exercise of the Stock
Rights by the Plan, provided that the following conditions were met:
(a) The Stock Rights were acquired pursuant to Plan provisions for
individually-directed investment of such accounts;
(b) The Plan's receipt of the Stock Rights occurred in connection
with a Stock Rights offering made available on the same terms to all
shareholders of common stock of Revlon;
(c) All decisions regarding the holding and disposition of the
Stock Rights by the Plan were made, in accordance with the Plan
provisions for individually-directed investment of participant
accounts, by the individual Plan participants whose accounts in the
Plan received Stock Rights in connection with the Stock Rights
offering;
(d) The Plan's acquisition of the Stock Rights resulted from an
independent act of Revlon as a corporate entity, and all holders of the
Stock Rights, including the Plan, were treated in the same manner with
respect to the acquisition; and
(e) The price received by the Plan for the Stock Rights was no less
than the fair market value of the Stock Rights on the date of the Stock
Rights offering.
Effective Date: This exemption, if granted, will be effective as of
February 17, 2006.
Summary of Facts and Representations
RCPC is the sponsor of the Plan. The Plan is a tax-qualified,
defined contribution profit sharing plan that incorporates a cash or
deferred (i.e., 401(k)) arrangement. The trustee of the trust
established under the Plan is Fidelity Management Trust Company (the
Trustee).\4\
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\4\ Fidelity Management Trust Company became the trustee
effective January 3, 2006, at which time it replaced Putnam
Fiduciary Trust Company as trustee.
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Revlon is a world leader in cosmetics, skin care, fragrance and
personal care. MacAndrews & Forbes Holdings Inc. (together with its
affiliates, MacAndrews & Forbes), which is wholly owned by Ronald O.
Perelman, beneficially owns 190,160,641 shares of the Class A Common
Stock (including 32,599,374 shares of the Class A Common Stock
beneficially owned by a family member, with respect to which shares
MacAndrews & Forbes holds a voting proxy). Mr. Perelman, through
MacAndrews & Forbes, also beneficially owns all of the outstanding
31,250,000 shares of the Class B Common Stock, which, together with the
Class A Common Stock referenced above, represents approximately 60% of
the total outstanding shares of Revlon's outstanding Common Stock.
Based on the shares referenced above, Mr. Perelman, as of December 31,
2005, had approximately 77% of the combined voting power of the
outstanding shares of the Class A and the Class B Common Stock.\5\
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\5\ The 221,410,641 shares of Revlon's combined Class A common
stock and Class B common stock beneficially owned by Mr. Perelman
represented approximately 60% of the total 371,720,324 shares of
Revlon's combined Class A and Class B common stock that was issued
and outstanding.
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Class A common stock and Class B common stock are in all respects
identical except that (i) each share of Class A common stock entitles
the holder to one vote and each share of Class B common stock entitles
the holder to ten votes on all matters being voted on by Revlon's
stockholders, (ii) Class A common stock is publicly traded and held in
the Plan whereas Class B common stock is not publicly traded and not
held in the Plan, and (iii) certain transfer restrictions apply to
Class B common stock that do not apply to Class A common stock. These
restrictions provide that the Class B common stock (all of which is
currently held by MacAndrews & Forbes) can only be transferred to
affiliates of the current holder of Class B common stock.
The Plan provides for a variety of contributions in addition to
401(k) contributions, including after-tax employee contributions,
company-matching contributions, rollover contributions and profit-
sharing contributions. The Plan permits individual participants to
direct the investment of their entire account balance under the Plan to
the extent described below and is intended to satisfy the requirements
of section 404(c) of ERISA with respect to all such participant
investment directions.
One of the investments available under the Plan is Class A Common
Stock (the Common Stock Fund).\6\ Participants may allocate all
contributions made on their behalf (and any earnings thereon) among the
Common Stock Fund and all of the other investments available under the
Plan.\7\
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\6\ No other ``employer security,'' within the meaning of
section 407 of ERISA, is presently available as an investment under
the Plan.
\7\ Plan participants are effectively free to designate the
extent to which their Plan accounts will be invested in Class A
Common Stock.
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As of January 3, 2006, there were approximately 3,598 participants
in the Plan. The Plan's assets totaled approximately $136,435,045.12.
Approximately 1,560 Plan participants and beneficiaries held shares of
Class A Common Stock. The Plan holds approximately 940,004 shares of
Class A Common Stock, or approximately 0.28% of the then outstanding
shares of Class A Common Stock, with a value of approximately
$2,914,291.40 (based on the $3.10 opening price on the New York Stock
Exchange of Class A Common Stock on January 3, 2006), or approximately
2.1% of Plan assets.
Because the Plan holds Class A Common Stock, Stock Rights will be
allocated to Plan participants in proportion to their holdings of Class
A Common Stock under the Plan, and Plan participants will be entitled
to dispose of those Stock Rights on the terms and conditions described
more fully below. Participants in the Plan will receive the same
information regarding the Stock Rights offering as is provided to all
stockholders. In addition, participants will be provided a special
notice that describes some features of the Stock Rights offering in
easily understood language, together with additional information that
is peculiar to their status as holders of Class A Common Stock under
the Plan (for example, special rules relating to the payment of the
purchase price for shares under the Stock Rights offering).
If the Plan were denied participation in the Stock Rights offering,
Plan
[[Page 32133]]
participants would not receive the benefit of the Stock Rights which
other stockholders will receive, including the ability to realize value
by selling Stock Rights. Revlon is requesting this exemption so that
Plan participants may be eligible to participate in the Stock Rights
offering on the same basis as other stockholders.\8\
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\8\ The distribution of the Rights will be accomplished as a
dividend under Delaware corporate law. Accordingly, Revlon will be
required to distribute the Rights to all stockholders on a pro rata
basis. In exercising their fiduciary duties to all stockholders, the
Board of Directors of Revlon is required to treat all stockholders
(including the Plan) the same and cannot pay a dividend to some, but
not all, stockholders.
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Revlon launched the Stock Rights offering on February 17, 2006. The
Stock Rights will expire at 5 p.m., New York, New York local time on
the date that is approximately 30 days later (on/or about March 20,
2006). The amount of the Stock Rights offering will be $110 million
(the Maximum Amount). Each Stock Right entitles its holder to purchase
a number of shares of Class A Common Stock such that the aggregate
number of shares of Class A Common Stock to be offered in the Stock
Rights offering, multiplied by the Subscription Price, will equal the
Maximum Amount.\9\
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\9\ Revlon is required under its credit agreement to use the
proceeds of a $110 million equity issuance by Revlon, to be
completed on or before March 31, 2006, to promptly reduce its
indebtedness. Revlon has determined that a rights offering such as
the Stock Rights offering is the most appropriate way for it to
fulfill the capital commitment while providing an opportunity for
all stock holders of Revlon, including the Plan participants, to
retain their pro rata ownership in Revlon. Revlon will not be able
to timely fulfill its credit agreement commitment if the Stock
Rights offering is delayed until prospective exemptive relief is
provided.
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Revlon will pay all of the fees and expenses attributable to the
Stock Rights offering (other than any fees that may be charged by
brokers or nominees). For any Stock Rights sold by the Plan, a
commission of 2.9 cents per Stock Right is being charged to the Plan
account from which the Stock Right was sold. The commission was
disclosed to participants in the materials provided explaining the
Stock Rights Offering. The commission was not paid to Revlon but to the
broker-dealer, National Financial Services (NFS) of New York City, New
York, for the sale transaction. NFS is an affiliate of the Trustee and
is wholly owned by Fidelity Global Brokerage Group, Inc.
The Plan's investment committee established under the Plan (the
Investment Committee) considered whether it was appropriate and in the
best interests of the Plan to permit Fidelity to effect sales of Rights
under the Plan through NFS. The Investment Committee took the following
considerations into account, among others: (a) Brokerage services
required to effect the sales transactions are necessary services for
the operation of the Plan; (b) the reputation of NFS as a reputable
broker; (c) the already established procedures between Fidelity and NFS
for the prompt execution of sales transactions under the Plan; (d) the
ability of NFS to accept the engagement upon very short notice (i.e.,
the short notice provided by Revlon); (e) the reasonable price charged
for the brokerage services when compared with other unrelated brokers;
and (f) the short-term nature of the arrangement. Following discussion,
the Investment Committee authorized the use of NFS as broker for
effecting sales of Stock Rights under the Plan, subject to an attempt
being made to negotiate a more favorable commission rate. Although
Fidelity is affiliated with NFS, Fidelity did not use any discretion to
select NFS as broker for the Rights. Plan participants paid commissions
on the sale of their Stock Rights in the same manner as any other
similarly situated shareholder paid commissions on the sale of their
Rights.\10\
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\10\ The Department provides no opinion as to whether the
selection of the broker dealer meets the conditions set forth under
section 408(b)(2) of the Act.
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Each Stock Right carries with it a basic subscription privilege and
an over-subscription privilege. The basic subscription privilege
entitles a Stock Rights holder to subscribe for its pro rata share of
Class A Common Stock offered in the Stock Rights offering. MacAndrews &
Forbes has agreed, upon the consummation of the Stock Rights offering
and at the Subscription Price, to acquire the number of shares of Class
A Common Stock as equals the number of shares of Class A Common Stock
that MacAndrews & Forbes would otherwise have been entitled to purchase
in the Stock Rights offering pursuant to its basic subscription
privilege. Except for MacAndrews & Forbes, all holders of Common Stock
who elect to exercise their Stock Rights in full may also subscribe for
the remaining shares at the same Subscription Price per share, to the
extent that other shareholders do not exercise all of their Stock
Rights in full. Although MacAndrews & Forbes, as a holder of Common
Stock, would otherwise be entitled to such over-subscription privilege,
MacAndrews & Forbes has agreed to subordinate such Stock Rights in
order to enhance the over-subscription privilege of other stockholders.
If an insufficient number of shares is available to fully satisfy
the over-subscription privilege requests, the available shares will be
sold pro rata among Stock Rights holders who exercised their over-
subscription privilege based on the number of shares each Stock Rights
holder subscribed for under the basic subscription privilege. Any
excess subscription payments will be returned without interest or
deduction promptly after the expiration of the Stock Rights offering.
MacAndrews & Forbes has agreed to ``back-stop'' the Stock Rights
offering by purchasing, on the same terms as the Stock Rights offering,
such number of shares of Class A Common Stock as equals all of the
shares that are not otherwise subscribed for by the other holders of
Stock Rights under either their basic subscription privilege or their
over-subscription privilege. This will ensure that Revlon will receive
the Maximum Amount in the Stock Rights offering.
Any election to exercise a Stock Right (whether made with respect
to Stock Rights held under the Plan or otherwise) will be irrevocable
once made. Plan participants who want to exercise some or all of their
Stock Rights will be required to notify the Trustee on or before the
date that is approximately seven (7) calendar days before the
expiration of the Stock Rights offering (the Plan Election Date).\11\
Participants will also be entitled to direct the Trustee to sell the
Stock Rights allocated to them on the open market (to the extent a
trading market develops) by notifying the Trustee of such election on
or before the Plan Election Date; any such election will be irrevocable
once made and will be executed as soon as practicable after it is
received. To the extent that a participant does not elect to either
exercise or sell the Stock Rights credited to his or her account on or
before the Plan Election Date, the Investment Committee will instruct
the Trustee to sell such Stock Rights on the open market in the same
manner as if the participant had directed such a sale. The Investment
Committee will instruct the Trustee not to exercise Stock Rights where
the Subscription Price exceeds the per share public trading price of
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Class A Common Stock at the time for exercise (in which case an attempt
will be made to sell the Stock Rights instead, although the Stock
Rights likely will have no value in such a case and thus would expire
without value).
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\11\ This date is before the expiration date of the Offering in
order to enable the Trustee to review and implement participant
directions (including the liquidation of individual account balances
necessary to fund each participant's exercise price) and provide
such aggregate instructions to the subscription agent under the
Offering within the time constraints imposed generally with respect
to the Offering. Because it is expected that the Offering will
extend for at least thirty (30) calendar days, Revlon does not
anticipate that this requirement will be unduly restrictive for Plan
participants.
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Approximately three (3) calendar days before the expiration of the
Stock Rights offering, the Trustee will liquidate an amount sufficient
to pay a Plan participant's exercise price by selling a pro-rata
portion of the amounts held in such participant's various investment
funds (other than the Common Stock Fund) and transfer such funds to the
subscription agent in order to participate in the Stock Rights offering
on behalf of Plan participants who elect to exercise some or all of
their Stock Rights. No Stock Rights under the Plan will be exercised
before this date. The shares of Class A Common Stock purchased upon the
consummation of the Stock Rights offering will be allocated to the
accounts of Plan participants as soon as practicable thereafter.
8. In summary, it is represented that the proposed transaction
meets the statutory criteria of section 408(a) of the Act because: (a)
The Stock Rights were acquired pursuant to Plan provisions for
individually-directed investment of such accounts; (b) The Plan's
receipt of the Stock Rights occurred in connection with a Stock Rights
offering made available on the same terms available to all shareholders
of common stock of Revlon; (c) All decisions regarding the holding and
disposition of the Stock Rights by the Plan were made, in accordance
with the Plan provisions for individually-directed investment of
participant accounts, by the individual Plan participants whose
accounts in the Plan received Stock Rights in connection with the Stock
Rights offering; (d) The Plan's acquisition of the Stock Rights
resulted from an independent act of Revlon as a corporate entity; and
(e) The price received by the Plan for the Stock Rights was no less
than the fair market value of the Stock Rights on the date of the Stock
Rights offering.
Notice to Interested Persons: Notice of the proposed exemption
shall be given to all interested persons in the manner agreed upon by
the Employer and Department within 15 days of the date of publication
in the Federal Register. Comments and requests for a hearing are due
forty-five (45) days after publication of the notice in the Federal
Register.
FOR FURTHER INFORMATION CONTACT: Khalif Ford of the Department,
telephone (202) 693-8540 (this is not a toll-free number).
General Information
The attention of interested persons is directed to the following:
(1) The fact that a transaction is the subject of an exemption
under section 408(a) of the Act and/or section 4975(c)(2) of the Code
does not relieve a fiduciary or other party in interest or disqualified
person from certain other provisions 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.
Ivan Strasfeld,
Director of Exemption Determinations, Employee Benefits Security
Administration, U.S. Department of Labor.
[FR Doc. E6-8528 Filed 6-1-06; 8:45 am]
BILLING CODE 4510-29-P