Proposed Exemptions; BNP Paribas S.A., (BNP Paribas) and Its
French Affiliates (the French Affiliates)
[05/13/2005]
Volume 70, Number 92, Page 25601-25614
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DEPARTMENT OF LABOR
Employee Benefits Security Administration
[Application No. D-11249, et al.]
Proposed Exemptions; BNP Paribas S.A., (BNP Paribas) and Its
French Affiliates (the Fren
[[Page 25602]]
ch Affiliates)
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-5649,
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.
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.
BNP Paribas S.A., (BNP Paribas) and Its French Affiliates (the French
Affiliates) Located in Paris, France
[Application No. D-11249]
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).\1\
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\1\ For purposes of this proposed exemption, references to
provisions of Title I of the Act, unless otherwise specified, refer
also to the corresponding provisions of the Code.
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Section I. Covered Transactions
A. If the exemption is granted, the restrictions of section
406(a)(1)(A) through (D) of the Act and the sanctions resulting from
the application of section 4975 of the Code, by reason of section
4975(c)(1)(A) through (D) of the Code, shall not apply to any purchase
or sale of a security between BNP Paribas, a bank established under the
laws of France and any French Affiliate or branch of BNP Paribas which
is a bank regulated by the Commission Bancaire (CB) or a broker-dealer
holding a securities dealers license issued by the Comit[eacute] des
Etablissements de Cr[eacute]dit et des Enterprises d'Investissement
(CECEI) or registered with the Autorite des March[eacute]s Financiers
(AMF) (each, a BNP Entity), and employee benefit plans (the Plans) with
respect to which the BNP Entity is a party in interest, including
options written by a Plan or the BNP Entity, provided that the
following conditions and the General Conditions of Section II, are
satisfied:
(1) The BNP Entity customarily purchases and sells securities for
its own account in the ordinary course of its business as a bank or
broker-dealer, as the case may be;
(2) The terms of any transaction are at least as favorable to the
Plan as those which the Plan could obtain in a comparable arm's length
transaction with an unrelated party; and
(3) Neither the BNP Entity nor any of its affiliates has
discretionary authority or control with respect to the investment of
the Plan assets involved in the transaction, or renders investment
advice (within the meaning of 29 CFR 2510.3-21(c)) with respect to
those assets, and the BNP Entity is a party in interest or disqualified
person with respect to the Plan assets involved in the transaction
solely by reason of section 3(14)(B) of the Act or section
4975(e)(2)(B) of the Code, or by reason of a relationship to a person
described in such sections. For purposes of this paragraph, the BNP
Entity shall not be deemed to be a fiduciary with respect to Plan
assets solely by reason of providing securities custodial services for
a Plan.
B. If the exemption is granted, the restrictions of sections
406(a)(1)(A) through (D) and 406(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 (D) of the Code, shall not apply to
any extension of credit to a Plan by a BNP Entity to permit the
settlement of securities transactions, regardless of whether they are
effected on an agency or a principal basis, or in connection with the
writing of options contracts, provided that the following conditions
and the General Conditions of Section II, are satisfied:
(1) The BNP Entity is not a fiduciary with respect to the Plan
assets involved in the transaction, unless no interest or other
consideration is received by the BNP Entity or any of its affiliates in
connection with such extension of credit; and
(2) Any extension of credit would be lawful under the Securities
Exchange Act of 1934, as amended (the 1934 Act), and any rules or
regulations thereunder, if the 1934 Act, rules or regulations were
applicable and is lawful under applicable foreign law.
C. If the exemption is granted, the restrictions of sections
406(a)(1)(A) through (D) of the Act and the sanctions resulting from
the application of section 4975 of the Code, by reason of section
4975(c)(1)(A) through (D) of the Code,
[[Page 25603]]
shall not apply to the lending of securities that are assets of a Plan
to a BNP Entity, provided that the following conditions and the General
Conditions of Section II are satisfied:
(1) Neither the BNP Entity nor any of its affiliates has
discretionary authority or control with respect to the investment of
Plan assets involved in the transaction, or renders investment advice
(within the meaning of 29 CFR 2510.3-21(c)) with respect to those
assets;
(2) The Plan receives from the BNP Entity, either by physical
delivery or by book entry in a securities depository located in the
U.S., by the close of business on the day on which the securities lent
are delivered to the BNP Entity, collateral consisting of U.S.
currency, securities issued or guaranteed by the U.S. Government or its
agencies or instrumentalities, or irrevocable U.S. bank letters of
credit issued by persons other than the BNP Entity (or any of its
affiliates), or any combination thereof having, as of the close of
business on the preceding business day, a market value (or, in the case
of letters of credit, a stated amount) equal to not less than 100
percent of the then market value of the securities lent. All collateral
shall be held in U.S. dollars, or dollar denominated securities or bank
letters of credit and shall be held in physical or book entry form in
the United States.
(3) The loan is made pursuant to a written loan agreement (the Loan
Agreement), which may be in the form of a master agreement covering a
series of securities lending transactions, and which contains terms at
least as favorable to the Plan as those the Plan could obtain in an
arm's length transaction with an unrelated party;
(4) In return for lending securities, the Plan either (a) receives
a reasonable fee which is related to the value of the borrowed
securities and the duration of the loan, or (b) has the opportunity to
derive compensation through the investment of cash collateral. In the
latter case, the Plan may pay a loan rebate or similar fee to the BNP
Entity, if such fee is not greater than the Plan would pay an unrelated
party in a comparable arm's length transaction with an unrelated party;
(5) The Plan receives at least the equivalent of all distributions
made to holders of the borrowed securities during the term of the loan,
including, but not limited to, cash dividends, interest payments,
shares of stock as a result of stock splits and rights to purchase
additional securities that the Plan would have received (net of tax
withholdings) had it remained the record owner of such securities.
Where dividends and other distributions on foreign securities payable
to a lending Plan are subject to foreign tax withholdings, the BNP
Entity will put the Plan back in at least as good a position as it
would have been in had it not lent the securities;
(6) If the market value of the collateral as of the close of
trading on a business day falls below 100% of the market value of the
borrowed securities as of the close of trading on that day, the BNP
Entity delivers additional collateral, by the close of business on the
following business day, to bring the level of the collateral back to at
least 100% of the market value of all the borrowed securities as of
such preceding day. Notwithstanding the foregoing, part of the
collateral may be returned to the BNP Entity if the market value of the
collateral exceeds 100% of the market value of the borrowed securities,
as long as the market value of the remaining collateral equals at least
100% of the market value of the borrowed securities;
(7) Prior to entering into a Loan Agreement, the BNP Entity
furnishes to the independent Plan fiduciary, who is making decisions on
behalf of the Plan with respect to the lending of securities: (a) The
most recent available audited and unaudited statements of its financial
condition, (b) the most recent available unaudited statement of its
financial condition (if more recent than the audited statement), and
(c) a representation by the BNP Entity that, as of each time it borrows
securities, there has been no material adverse change in its financial
condition since the date of the most recently furnished financial
statement that has not been disclosed to the Plan fiduciary. Such
representation may be made by the BNP Entity's agreeing that each loan
of securities shall constitute a representation that there has been no
such material adverse change;
(8) The Loan Agreement and/or any securities loan outstanding may
be terminated by the Plan at any time, whereupon the BNP Entity
delivers certificates for securities identical to the borrowed
securities (or the equivalent thereof in the event of reorganization,
recapitalization or merger of the issuer of the borrowed securities) to
the Plan within (a) the customary delivery period for such securities,
(b) five business days, or (c) the time negotiated for such delivery by
the Plan and the BNP Entity, whichever is lesser, or, alternatively,
such period as permitted by Prohibited Transaction Class Exemption
(PTCE) 81-6 (46 FR 7527, January 23, 1981, as amended at 52 FR 18754,
May 19, 1987), as it may be amended or superseded; \2\
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\2\ PTCE 81-6 provides an exemption under certain conditions
from section 406(a)(1)(A) through (D) of the Act and the
corresponding provisions of section 4975(c) of the Code for the
lending of securities that are assets of an employee benefit plan to
a U.S. broker-dealer registered under the 1934 Act (or exempted from
registration under the 1934 Act as a dealer in exempt Government
securities, as defined therein).
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(9) In the event that the loan is terminated and the BNP Entity
fails to return the borrowed securities or the equivalent thereof
within the time described in paragraph (8) above, then the Plan may
purchase securities identical to the borrowed securities (or their
equivalent as described above) and may apply the collateral to the
payment of the purchase price, any other obligations of the BNP Entity
under the Loan Agreement, and any expenses associated with the sale
and/or purchase. The BNP Entity is obligated to pay to the Plan the
amount of any remaining obligations and expenses not covered by the
collateral (the value of which shall be determined as of the date the
borrowed securities should have been returned to the Plan), plus
interest at a reasonable rate, as determined in accordance with an
independent market source. If replacement securities are not available,
the BNP Entity will pay the Plan an amount equal to (a) the value of
the securities as of the date such securities should have been returned
to the Plan, plus (b) all the accrued financial benefits derived from
the beneficial ownership of such borrowed securities as of such date,
plus (c) interest at a reasonable rate determined in accordance with an
independent market source from such date to the date of payment. The
amounts paid shall be reduced by the amount or value of the collateral
determined as of the date the borrowed securities should have been
returned to the Plan. The BNP entity is obligated to pay, under the
terms of the Loan Agreement, and does pay, to the Plan, the amount of
any remaining obligations and expenses not covered by the collateral,
plus interest at a reasonable rate. Notwithstanding the foregoing, the
BNP Entity may, in the event it fails to return borrowed securities as
described above, replace non-cash collateral with an amount of cash not
less than the then current market value of the collateral, provided
that such replacement is approved by the independent Plan fiduciary;
and
(10) The independent Plan fiduciary maintains the situs of the Loan
Agreement in accordance with the indicia of ownership requirements
under section 404(b) of the Act and the
[[Page 25604]]
regulations promulgated under 29 CFR 2550.404(b)-1. However, the BNP
Entity shall not be subject to the civil penalty, which may be assessed
under section 502(i) of the Act, or to the taxes imposed by section
4975(a) and (b) of the Code, if the independent Plan fiduciary fails to
comply with the requirements of 29 CFR 2550.404(b)-1.
If the BNP Entity fails to comply with any condition of this
exemption in the course of engaging in a securities lending
transaction, the Plan fiduciary which caused the Plan to engage in such
transaction shall not be deemed to have caused the Plan to engage in a
transaction prohibited by section 406(a)(1)(A) through (D) of the Act
solely by reason of the failure on the part of the BNP Entity to comply
with the conditions of the exemption.
Section II. General Conditions
A. The BNP Entity is a registered broker-dealer or bank subject to
regulation by a governmental agency, as described in Section III.B, and
is in compliance with all applicable rules and regulations thereof in
connection with any transactions covered by this exemption.
B. The BNP Entity, in connection with any transactions covered by
this exemption, is in compliance with all requirements of Rule 15a-6 of
the 1934 Act, and Securities and Exchange Commission (SEC)
interpretations thereof, providing foreign affiliates a limited
exemption from U.S. broker-dealers registration requirements (17 CFR
240.15a-6).
C. Prior to the transaction, the BNP Entity enters into a written
agreement with the Plan in which the BNP Entity consents to the
jurisdiction of the courts of the United States for any civil action or
proceeding brought in respect of the subject transactions.
D. Each BNP Entity located in the United States is fully
responsible for any judgment rendered by a United States court against
BNP Paribas, and the U.S. assets of BNP Paribas, including those of any
BNP Entities located in the U.S., are subject to the enforcement of any
such judgment.
E. The BNP Entity maintains, or causes to be maintained, within the
United States for a period of six years from the date of the covered
transactions, such records as are necessary to enable the persons
described in paragraph F. of this Section II to determine whether the
conditions of this exemption have been met, except that:
(1) If the records necessary to enable the persons described in
paragraph F. to determine whether the conditions of the exemption have
been met are lost or destroyed prior to the end of such year period,
due to circumstances beyond the control of the BNP Entity, then no
prohibited transaction will be considered to have occurred solely on
the basis of the unavailability of those records; and
(2) No party in interest, other than the BNP Entity and its
affiliates, shall be subject to the civil penalty that may be assessed
under section 502(i) of the Act or to the taxes imposed by section
4975(a) and (b) of the Code if the records are not maintained or are
not available for examination as required by paragraph F. of this
Section II.
F. Notwithstanding the provisions of subsections (a)(2) and (b) of
section 504 of the Act, the BNP Entity makes the records referred to
above in paragraph E. of this Section II, unconditionally available for
examination during normal business hours at their customary location to
the following persons or an authorized representative thereof:
(1) The Department, the Internal Revenue Service or the SEC;
(2) Any fiduciary of a participating Plan;
(3) Any contributing employer to a Plan;
(4) Any employee organization any of whose members are covered by a
Plan; and
(5) Any participant or beneficiary of a Plan.
However, none of the persons described above in paragraphs (2)-(5)
of this paragraph F. shall be authorized to examine trade secrets of
the BNP Entity, or any commercial or financial information which is
privileged or confidential.
G. Prior to any Plan's approval of any transaction with a BNP
Entity, the Plan is provided with copies of the proposed and final
exemption with respect to the exemptive relief granted herein.
Section III. Definitions
For purposes of this proposed exemption,
A. The term ``affiliate'' of another person shall include:
(1) Any person directly or indirectly, through one or more
intermediaries, controlling, controlled by, or under common control
with such other person;
(2) Any officer, director, or partner, employee or relative (as
defined in section 3(15) of the Act) of such other person; and
(3) Any corporation, partnership or other entity of which such
other person is an officer, director or partner. (For purposes of this
definition, the term ``control'' means the power to exercise a
controlling influence over the management or policies of a person other
than an individual.)
B. The term ``BNP Entity'' shall mean BNP Paribas or any branch or
affiliate thereof that is a broker-dealer or bank subject to regulation
by the (1) CB or (2) AMF.
C. The term ``security'' shall include equities, fixed income
securities, options on equity and on fixed income securities,
government obligations, and any other instrument that constitutes a
security under U.S. securities laws. The term ``security'' does not
include swap agreements or other notional principal contracts.
Summary of Facts and Representations
1. BNP Paribas, which maintains its principal offices in Paris,
France, is a publicly-held French bank that operates primarily in
France. BNP Paribas has additional activities in major banking and
securities markets worldwide. Through its branch offices and
affiliates, BNP Paribas provides a full line of depository, lending and
investment services to a broad base of clients and is engaged in a wide
range of banking, financial and related activities. As of December 31,
2004, BNP Paribas had consolidated assets of Euro 905.9 billion ($1.231
trillion) and stockholders equity of Euro 30.2 billion ($41.02
billion). As of close of business on March 29, 2005, BNP Paribas had a
market capitalization of over Euro 49 billion (over $63 billion). The
banking activities of BNP Paribas and its French Affiliates are
regulated by CB. The securities activities of BNP Paribas are regulated
by the AMF.
As of December 31, 2004, BNP Paribas reported that its presence in
the United States (excluding Banc West Corporation and its
subsidiaries) was valued in excess of $185 billion. Because it is a
single legal entity acting through various branches and other
subsidiaries in various locations, including the United States, BNP
Paribas states that each U.S.-based BNP Entity would be fully
responsible for any judgment rendered by a U.S. court against BNP
Paribas, and the U.S. assets of BNP Paribas, including those of any BNP
Entities, located in the U.S., would likely be subject to the
enforcement of any such judgment.\3\
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\3\ Alternatively, BNP Paribas has advised that if a judgment by
a U.S. court is rendered against a French Affiliate, the judgment
would be enforceable in France if the suing party has obtained an
exequatur (enforcement order) from a French court. Before it issues
an exequatur, the French court must determine that the judgment of
the U.S. court has satisfied the following requirements: (a) The
court must have subject-matter and personal jurisdiction over the
litigation; (b) the court proceedings must have been properly
followed (i.e., the proceedings must have conformed to basic French
legal notions of fundamental fairness and due process): (c) The
court must have used the correct choice of law; (d) enforcement of
the judgment must be consistent with French law; and (e) the
substance of the judgment must not be directly contrary to French
law. According to BNP Paribas, judgments from U.S. courts typically
satisfy these five requirements and French courts rarely have
refused to grant exequaturs to enforce U.S. judgments.
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[[Page 25605]]
2. BNP Paribas seeks prospective exemptive relief from the
Department to permit certain principal transactions, extensions of
credit, and securities borrowing transactions between employee benefit
plans subject to the Act and BNP Paribas acting through its French
Affiliates and French branches. The proposed exemption would solely
cover transactions affected by BNP Paribas and its French Affiliates
that are located in France and regulated by the CB or AMF. Aside from
BNP Paribas, such French Affiliates currently include BNP Paribas
Arbitrage of Paris, France which is regulated by the Autorit[eacute] de
March[eacute]s Financiers of France.
BNP Paribas requests an individual exemption on behalf of itself,
its French Affiliates, and others, which may in the future, be subject
to governmental regulation in France, to engage with Plans in the
securities transactions described herein because such entities may be
parties in interest with respect to the Plans under the Act, by virtue
of being fiduciaries (for assets of the Plans other than those involved
in the transactions) or service providers to such Plans, or by virtue
of their relationships to such fiduciaries or service providers.
3. BNP Paribas is subject to regulations established by the CB and
the AMF governing minimum capitalization, reporting requirements,
periodic examinations, client money and safe custody rules and books
and records requirements with respect to client accounts. These
regulations and the regulations established by the SEC share a common
objective of protecting investors through regulation of the securities
industry. The regulations of the CB and the AMF require BNP Paribas to
maintain a positive tangible net worth and be able to meet its
obligations as they may fall due. These rules establish comprehensive
financial resource and reporting and disclosure requirements regarding
capital adequacy. In addition, the regulations impose requirements with
respect to risk management, internal controls and transaction reporting
and record keeping and require such records to be produced at the
request of the CB and the AMF. Finally, these regulations impose
potential fines and penalties, which establish a comprehensive
disciplinary framework.
4. In addition to the requirements and protections imposed under
the regulations of the CB and the AMF, BNP Paribas will comply with all
applicable provisions of Rule 15a-6 of the 1934 Act, as amended. In
lieu of registration with the SEC, Rule 15a-6 provides an exemption
from SEC broker-dealer registration for a foreign broker-dealer that
induces or attempts to induce the purchase or sale of any security
(including over-the-counter equity and debt options) by a ``U.S.
institutional investor'' or a ``major U.S. institutional investor,''
provided that the foreign broker-dealer, among other things, enters
into these transactions through a U.S. registered broker or dealer
intermediary.
The term ``U.S. institutional investor'', as defined in Rule 15a-
6(b)(7), includes an employee benefit plan within the meaning of the
Act if:
(a) The investment decision is made by a plan fiduciary, as defined
in section 3(21) of the Act, which is either a bank, savings and loan
association, insurance company or registered investment adviser, or
(b) The employee benefit plan has total assets in excess of $5
million, or
(c) The employee benefit plan is a self-directed plan with
investment decisions made solely by persons that are ``accredited
investors,'' as defined in Rule 501(a)(1) of Regulation D of the
Securities Act of 1933, as amended.
The term ``major U.S. institutional investor'' is defined in Rule
15a-6(b)(4), as any entity that owns or controls (or, in the case of an
investment adviser, has under management) in excess of $100 million
aggregate financial assets.\4\ BNP Paribas represents that the
intermediation of the U.S. registered broker or dealer imposes upon the
foreign broker-dealer the requirement that the securities transaction
be effected in accordance with a number of U.S. securities laws and
regulations applicable to U.S. registered broker-dealers.
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\4\ Note that a SEC No-Action Letter has expanded the categories
of entities that qualify as ``major U.S. institutional investors.''
See SEC No-Action Letter issued to Cleary, Gottlieb, Steen &
Hamilton on April 9, 1997 (the April 9, 1997 No-Action Letter).
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5. BNP Paribas represents that under Rule 15a-6 of the 1934 Act, a
foreign broker-dealer that induces or attempts to induce the purchase
or sale of any security by a U.S. institutional or major institutional
investor in accordance with Rule 15a-6 must, among other things:
(a) Provide written consent to service of process for any civil
action brought by, or proceeding before the SEC or self-regulatory
organization;
(b) Provide the SEC with any information or documents within its
possession, custody or control, any testimony of any such foreign
associated persons, and any assistance in taking the evidence of other
persons, wherever located, that the SEC requests and that relates to
transactions effected pursuant to the Rule;
(c) Rely on the U.S. registered broker or dealer through which the
principal transactions with the U.S. institutional and major
institutional investors are effected to (among other things):
(1) Effect the transactions, other than negotiating their terms;
(2) Approve foreign associated personnel that contact U.S.
investors to verify that such individuals are not subject to a
``statutory disqualification'', as defined in Section 3(a)(39) of the
1934 Act or the non-U.S. equivalent of such disqualification (e.g.,
expulsion or suspension by a securities regulator).
(3) Issue all required confirmations and statements;
(4) As between the foreign broker-dealer and the U.S. registered
broker or dealer, extend or arrange for the extension of credit in
connection with the transactions;
(5) Maintain required books and records relating to the
transactions, including those required by Rules 17a-3 (Records to be
Made by Certain Exchange Members) and 17a-4 (Records to be Preserved by
Certain Exchange Members, Brokers and Dealers) of the 1934 Act; \5\
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\5\ BNP Paribas represents that all such requirements relating
to recordkeeping of principal transactions would be applicable to
any BNP Entity in a transaction that would be covered by this
proposed exemption.
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(6) Receive, deliver, and safeguard funds and securities in
connection with the transactions on behalf of the U.S. institutional
investor or major U.S. institutional investor in compliance with Rule
15c3-3 (Customer Protection--Reserves and Custody of Securities) of the
1934 Act; \6\ and
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\6\ Under certain circumstances described in the April 9, 1997
Letter, (e.g., clearance and settlement transactions), there may be
direct transfers of funds and securities between a Plan and a BNP
Entity. Please note that in such situations (as in other situations
covered by Rule 15a-6), the U.S. broker-dealer will not be acting as
a principal with respect to any duties it is required to undertake
pursuant to Rule 15a-6.
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(7) Participate in all oral communications (e.g., telephone calls),
subject to certain exceptions, between the foreign associated person
and the U.S. institutional investor (not the major
[[Page 25606]]
U.S. institutional investor), and accompany the foreign associated
person on all visits with U.S. institutional investors. By virtue of
this participation, the U.S. registered broker-dealer would become
responsible for the content of all these communications.
Description of the Exemption Transactions
6. The exemption will apply to transactions involving principal
transactions, extensions of credit and securities borrowing
transactions that would be exempt under Prohibited Transaction Class
Exemption 75-1 (PTCE 75-1, 40 FR 50845, October 31, 1975) and
Prohibited Transaction Class Exemption 81-6 (PTCE 81-6, 46 FR 7527,
January 23, 1981, amended at 52 FR 18754, May 19, 1987) but for the
fact that BNP Paribas and its French Affiliates are not supervised by
the U.S. government or registered under the Securities Exchange Act in
the manner required under PTCE 75-1 and PTCE 81-6.
The exemption will be applicable only to transactions effected by
BNP Paribas or any affiliated French broker-dealers holding a
securities dealers license issued by the CECEI or subject to the rules
and regulations of the CB and the AMF and compliant with Rule 15a-6.
Principal Transactions
7. BNP Paribas represents that in the ordinary course of business,
it customarily operates as a trader, dealer and market maker in
securities markets wherein it purchases and sells securities for its
own account and engages in purchases and sales of securities with its
clients. Such trades are referred to as principal transactions. Part II
of PTCE 75-1 provides exemptive relief from section 406(a) of the Act
and section 4975(c)(1)(A) through (D) of the Code for principal
transactions between plans and U.S. banks and broker-dealers which are
registered under the 1934 Act and are parties in interest with respect
to such plans, provided all requirements stated in part II are
satisfied. In the absence of an exemption for principal transactions,
such as PTCE 75-1, those responsible for trading activities on behalf
of plan investors would be prevented from engaging in transactions with
those broker-dealers and banks that provide the markets for the
securities and are most capable of handling such transactions. Like the
U.S. dealer markets, international equity and debt markets, including
the options markets, are no less dependent on a willingness of dealers
to trade as principals.
Over the past decade, plans have increasingly invested in foreign
equity and debt securities, including foreign government securities.
Plans seeking to enter into such investments may wish to increase the
number of trading partners available to them by trading with foreign
banks, such as BNP Paribas and certain of its French Affiliates.
However, where BNP Paribas or certain of its French Affiliates provide
services to such Plans which are covered by the Act, principal
transactions with BNP Paribas or certain of its French Affiliates would
be prohibited by the Act. Thus, the exemptive relief afforded U.S.
banks and U.S. broker-dealers by PTCE 75-1 would not be available with
respect to BNP Paribas because that class exemption is limited to (a)
banks supervised by the U.S. or a State thereof and (b) broker-dealers
registered with the SEC under the 1934 Act.\7\ The business carried out
by BNP Paribas and its French Affiliates is not so supervised or
registered.
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\7\ The Department notes that the proposed principal
transactions are subject to the general fiduciary responsibility
provisions of part 4 of Title I of the Act. Section 404(a) of the
Act requires, among other things, that a fiduciary of a plan act
prudently and solely in the interest of the participants and
beneficiaries of a plan, when making investment decisions on behalf
of the plan.
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Because of the conditions of PTCE 75-1 which require that a bank be
supervised by the U.S. or a U.S. State and a broker-dealer be
registered with the SEC, BNP Paribas is prevented from engaging in
principal transactions with Plans with respect to which it is a party
in interest. This is so even though BNP Paribas is subject to the
stringent regulations of the CB and AMF, and it is able to satisfy the
Rule 15a-6 requirements for an exemption from registration under the
Securities Exchange Act. Accordingly, BNP Paribas is requesting an
individual exemption to permit it and its French Affiliates
(collectively referred to herein as the BNP Entities) to engage in
principal transactions with Plans under the terms and conditions set
forth herein, which are equivalent to those set forth in PTCE 75-1.
The BNP Entities will comply with all conditions set forth in PTCE
75-1 other than the condition to be a U.S. bank or registered broker-
dealer under the Securities Exchange Act. With respect to principal
transactions, the BNP Paribas entities will engage in such transactions
only where (a) BNP Paribas or the relevant French Affiliates are not a
fiduciary with respect to the transaction (in other words, the BNP
Entity will have no discretionary authority or control with respect to
the investment of a Plan's assets involved in a principal transaction
or render investment advice (within the meaning of 29 CFR 2510.3-21(c))
with respect to those assets.); (b) the BNP Entity will customarily
purchase and sell securities for its own account in the ordinary course
of business as a bank or broker-dealer; (c) the transaction will be at
least as favorable to the Plan as an arm's length transaction with an
unrelated party would be; and (d) the BNP Entity will be a party in
interest or a disqualified person with respect to the Plan assets
involved in a principal transaction solely by reason of section
3(14)(B) of the Act or section 4975(e)(2)(B) of the Code (i.e., a
service provider to the Plan), or by reason of a relationship to such a
person as described in such sections.
Extensions of Credit
8. BNP Paribas represents that a normal part of the execution of
securities transactions by broker-dealer on behalf of clients,
including Plans, is the extension of credit to clients so as to permit
the settlement transactions in the customary settlement period. Such
extensions of credit are also customary in connection with the writing
of option contracts.
BNP requests that the proposed exemption include relief for
extensions of credit to the Plans by the BNP Entities in the ordinary
course of their purchases or sales of securities, regardless of whether
they are effected on an agency or a principal basis, or in connection
with the writing of options contracts. In this regard, an exemption for
such extensions of credit is provided under PTCE 75-1, Part V, only for
transactions between Plans and U.S. registered broker or dealers.\8\
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\8\ PTCE 75-1, part V, provides an exemption, under certain
conditions, from section 406 of the Act and section 4975(c)(1) of
the Code, for extensions of credit, in connection with the purchase
or sale of securities, between employee benefit plans and U.S.
registered broker-dealers that are parties in interest with respect
to such plans.
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Under the conditions of this proposed exemption, as in PTCE 75-1,
part V, BNP Paribas and its French Affiliates may not be fiduciaries
with respect to the Plan assets involved in the transaction. However,
an exception to such condition would be provided herein, as in PTCE 75-
1, if no interest or other consideration is received by the BNP Entity
or an affiliate thereof, in connection with any such extension of
credit. In addition, the extension of credit must be lawful under the
1934 Act and any rules or regulations thereunder, if the 1934 Act rules
or regulations were applicable, and such
[[Page 25607]]
extension of credit must not be a prohibited transaction under section
503(b) of the Code. If the 1934 Act would not be applicable, the
extension of credit must still be lawful under applicable French law,
where BNP Paribas and its French Affiliates are domiciled.
Securities Lending
9. BNP Paribas or its French Affiliates, acting as principals,
actively engage in the borrowing and lending of securities, typically
foreign securities, from various institutional investors, including
employee benefit plans.
Accordingly, BNP Paribas requests an exemption for securities
lending transactions between the BNP Entities and the Plans under terms
and conditions equivalent to those required in PTCE 81-6 (46 FR 7527,
January 23, 1981, as amended at 52 FR 18754, May 19, 1987). Because
PTCE 81-6 provides an exemption only for U.S. registered broker-dealers
and U.S. banks, the securities lending transactions at issue would fall
outside the scope of relief provided by PTCE 81-6.
10. BNP Paribas or its French Affiliates utilize borrowed
securities either to satisfy their own trading requirements or to re-
lend to other broker-dealers and entities which need a particular
security for a certain period of time. As described in the Federal
Reserve Board's Regulation T, borrowed securities are often used to
meet delivery obligations in the case of short sales or the failure to
receive securities that a broker-dealer is required to deliver. BNP
Paribas represents that foreign broker-dealers are those broker-dealers
most likely to seek to borrow foreign securities. Thus, the requested
exemption will increase the lending demand for such securities,
providing the Plans with increased securities lending opportunities,
which will earn such Plans additional rates of return on the borrowed
securities (as discussed below).
11. An institutional investor, such as a pension fund, lends
securities in its portfolio to a broker-dealer or bank in order to earn
a fee while continuing to enjoy the benefits of owning the securities,
(e.g., from the receipt of any interest, dividends, or other
distributions due on those securities and from an appreciation in the
value of the securities). The lender generally requires that the
securities loan be fully collateralized, and the collateral usually is
in the form of cash, irrevocable bank letters of credit, or high
quality liquid securities, such as U.S. Government or Federal Agency
obligations.
12. With respect to the subject securities lending transactions,
BNP Paribas or its French Affiliates will have no discretionary
authority or control with respect the investment of the Plan assets
involved in the transaction, or render investment advice (within the
meaning of 29 CFR 2510.3-21(c)) with respect to those assets.
13. By the close of business on the day the loaned securities are
delivered, the Plan will receive from the BNP Entity (by physical
delivery book entry in a securities depository, wire transfer, or
similar means) collateral consisting of cash, securities issued or
guaranteed by the U.S. Government or its agencies or instrumentalities,
irrevocable U.S. bank letters of credit issued by person other than the
BNP Entity or an affiliate of thereof, or any combination thereof. All
collateral will be in U.S. dollars, or dollar-denominated securities or
bank letters of credit, and will be held in the United Sates. The
collateral will have, as of the close of business on the business day
preceding the day it is posted by the BNP Entity, a market value equal
to at least 100% of the then market value of the loaned securities (or,
in the case of letter of credit, a stated amount equal to same).
14. The loan will be made pursuant to a written Loan Agreement,
which may in the form of a master agreement covering a series of
securities lending transactions between the Plan and the BNP Entity.
The terms of the Loan Agreement will be at least as favorable to the
Plan as those the Plan could obtain in a comparable arm's length
transaction with an unrelated party. The Loan Agreement will also
contain a requirement that the BNP Entity pay all transfer fees and
transfer taxes relating to the securities loans.
15. In return for lending securities, the Plan will either (a)
receive a reasonable fee, which is related to the value of the borrowed
securities and the duration of the loan, or (b) have the opportunity to
derive compensation through the investment of cash collateral. Where
the Plan has that opportunity, the Plan may pay a loan rebate of
similar fee to the BNP Entity, if such fee is not greater than what the
Plan would pay in comparable arm's length transaction with an unrelated
party. Earnings generated by non-cash collateral will be returned to
the BNP Entity. The Plan will be entitled to at least the equivalent of
all distributions on the borrowed securities made during the term of
the loan. Such distributions will include cash dividends, interest
payments, shares of stock as a result of stock splits, and rights to
purchase additional securities, that the Plan would have received (net
of any applicable tax withholdings) had it remained the record owner of
such securities.
16. If the market value of the collateral as of the close of
trading on a business day falls below 100 percent of the market value
of the borrowed securities as of the close of trading on that day, the
BNP Entity will deliver additional collateral, by the close of business
on the following business day, to bring the level of collateral back to
at least 100 percent. However, if the market value of the collateral
exceeds 100 percent of the market value of the borrowed securities, the
BNP Entity may require the Plan to return part of the collateral to
reduce the level of the collateral to 100 percent.
17. Before entering into a Loan Agreement, the BNP Entity will
furnish to the independent Plan fiduciary (a) the most recent available
audited statement of the BNP Entity's financial condition, (b) the most
recent available unaudited statement of its financial condition (if
more recent than the audited statement), and (c) a representation that,
at the time the loan is negotiated, there has been no material adverse
change in its financial condition that has not been disclosed since the
date of the most recent financial statement furnished to the
independent Plan fiduciary. Such representation may be made by the BNP
Entity agreeing that each loan of securities shall constitute a
representation that there has been no such material adverse change.
18. The Loan Agreement and/or any securities loan outstanding may
be terminated by the Plan at any time, whereupon the BNP Entity will
deliver certificates for securities identical to the borrowed
securities (or the equivalent thereof in the event of reorganization,
recapitalization, or merger of the issuer of the borrowed securities)
to the Plan within (a) the customary delivery period for such
securities, (b) five business days, or (c) the time negotiated for such
delivery by the Plan and the BNP Entity, whichever is least, or,
alternatively, such period as permitted by PTE 81-6, as it may be
amended or superseded. In the event the loan is terminated and the BNP
Entity fails to return the borrowed securities or the equivalent
thereof with the designated time, the Plan will have certain rights
under the Loan Agreement to realize upon the collateral. The Plan may
purchase securities identical to the borrowed securities, or the
equivalent thereof, and may apply the collateral to the payment of the
purchase price, any other obligations of the BNP Entity under the Loan
Agreement, and any
[[Page 25608]]
expenses associated with replacing the borrowed securities.
The BNP Entity is obligated to pay to the Plan the amount of any
remaining obligations and expenses not covered by the collateral (the
value of which shall be determined as of the date the borrowed
securities should have been returned to the Plan), plus interest at a
reasonable rate as determined in accordance with an independent market
source. If replacement securities are not available, the BNP Entity
will pay the Plan an amount equal to (a) the value of the securities as
of the date such securities should have been returned to the Plan, plus
(b) all the accrued financial benefits derived from the beneficial
ownership of such borrowed securities as of such date, plus (c)
interest at a reasonable rate determined in accordance with an
independent market source from such date to the date of payment. The
amounts paid shall be reduced by the amount or value of the collateral
determined as of the date the borrowed securities should have been
returned to the Plan. Notwithstanding the foregoing, the BNP Entity
may, in the event it fails to return borrowed securities as described
above, replace non-cash collateral with an amount of cash not less than
the then current market value of the collateral, provided that such
replacement is approved by the lending independent Plan fiduciary.
19. The independent Plan fiduciary will maintain the situs of the
Loan Agreement in accordance with the indicia of ownership requirement
under section 404(b) of the Act and the regulations promulgated under
29 CFR 2550.404(b)-1.\9\
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\9\ Section 404(b) of the Act states that no fiduciary may
maintain the indicia of ownership of any assets of a plan outside
the jurisdiction of the district courts of the United States, except
as authorized by regulation by the Secretary of Labor.
---------------------------------------------------------------------------
20. In summary, BNP Paribas represents that the subject
transactions will satisfy the statutory criteria for an exemption under
section 408(a) of the Act for the following reasons:
(a) With respect to principal transactions effected by the BNP
Entities, the proposed exemption will enable the Plans to realize the
same benefits of efficiency and convenience which derive such Plans
could derive from principal transactions executed by U.S. registered
broker-dealers or U.S. Banks, pursuant to PTCE 75-1, part II;
(b) With respect to extensions of credit by the BNP Entities in
connection with purchases or sales of securities, the proposed
exemption will enable the BNP Entities and the Plans to extend credit
in the ordinary course of business to effect agency or principal
transactions within the customary three-day settlement period, or in
connection with the writing of options contracts for transactions
between Plans and U.S. registered broker-dealers, pursuant to PTCE 75-
1, part V;
(c) With respect to securities lending transactions effected by the
BNP Entities, the proposed exemption will enable the Plans to realize a
low-risk return on securities that otherwise would remain idle, as in
securities lending transactions between plans and U.S. registered
broker-dealers or U.S. Banks, pursuant to PTCE 81-6; and
(d) The proposed exemption will provide the Plans with virtually
the same terms and conditions upon the transactions executed by the BNP
Entities as those imposed on U.S. banks and U.S. registered, pursuant
to PTCE 75-1 and PTCE 81-6.
Notice to Interested Persons
Notice of proposed exemption will be provided to all interested
persons by first class mail within 4 days of publication of the notice
of pendency in the Federal Register. Such notice shall include a copy
of the notice of pendency of the exemption as published in the Federal
Register and a supplemental statement, as required pursuant to 29 CFR
2570.43(b)(2), which will inform interested persons of their right to
comment on the proposed exemption and/or to request a hearing. Comments
and hearing requests are due within 34 days of the date of publication
of the proposed exemption in the Federal Register.
FOR FURTHER INFORMATION CONTACT: Ms. Silvia Quezada of the Department,
telephone (202) 693-8553. (This is not a toll-free number.)
Best Business Products Inc. Employee Stock Ownership Plan (the ESOP)
Located in Sioux Falls, SD
[Exemption Application No. D-11305]
Proposed Exemption
The Department is considering granting an exemption under the
authority of section 408(a) of the Employee Retirement Income Security
Act (the Act) and section 4975(c)(2) of the Internal Revenue Code of
1986 (the Code), and in accordance with the procedures set forth in 29
CFR Part 2570, Subpart B, 55 FR 32836, 32847 (August 10, 1990).\10\ If
the exemption is granted, the restrictions of sections 406(a)(1)(A)
through (D), 406(b)(1), and 406(b)(2) of the Act and the sanctions
resulting from the application of section 4975, by reason of section
4975(c)(1)(A) through (E) of the Code, shall not apply, effective July
7, 2004, to: (1) The purchase from the ESOP by Best Business Products,
Inc. (BBP), a party in interest with respect to the ESOP, of shares of
the voting common stock of BBP (the Stock) which were allocated to the
accounts of the participants in the ESOP; and (2) the transfer to BBP
of shares of the Stock which were held by the ESOP in a suspense
account in exchange for the assumption by BBP of the ESOP's obligation
to pay the balance of a note (the Note) to Betty B. Best (Ms. Best), a
party in interest with respect to the ESOP; provided that prior to
entering into the subject transactions: (a) An independent fiduciary
(the Independent Fiduciary) was responsible for each of the
transactions, and in accordance with the fiduciary provisions of the
Act, reviewed, analyzed, and determined that the ESOP should enter into
each of the transactions; (b) the Independent Fiduciary reviewed,
negotiated, and approved the terms of each of the transactions, and
determined on behalf of the ESOP and solely in the interest of the
ESOP, its participants, and beneficiaries that the terms of each of the
transactions were fair and reasonable; (c) the Independent Fiduciary
monitored compliance with the terms of each of the transactions by the
parties; (d) an independent qualified appraiser determined the fair
market value of the Stock as of the date each of the transactions were
entered; and (e) the ESOP incurred no fees, commissions, or other
charges or expenses as a result of its participation in each of the
transactions.
\10\ For purposes of this exemption, references to specific
provisions of Title I of the Act, unless otherwise specified, refer
also to the corresponding provisions of the Code.
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Effective Date: If the proposed exemption is granted, the exemption
will be effective July 7, 2004.
Summary of Facts and Representations
1. BBP, a South Dakota Corporation, located in Sioux Falls, SD,
sells, installs, and services electronic office equipment and sells
related supplies to customers throughout the state of South Dakota and
in southwestern Minnesota. It is represented that BBP has, at all
relevant times, been taxed pursuant to subchapter ``S'' tax provisions
of the Code. As of December 31, 2003, BBP had $5.7 million in assets,
$1.9 million in liabilities, and $3.8 million in shareholder equity.
Ms. Best is the major shareholder of BBP, the President of BBP, and
the sole director of BBP. As such, Ms. Best is a party in interest with
respect to the
[[Page 25609]]
ESOP, pursuant to section 3(14)(E) and 3(14)(H) of the Act.
2. For the benefit of its eligible employees and their
beneficiaries, BBP adopted the ESOP, effective January 1, 1997, as an
employee stock ownership plan, as amended and restated from time to
time, to meet the requirements of the Act and the Code. As an employer
any of whose employees are covered by the ESOP, BBP is a party in
interest with respect to the ESOP, pursuant to section 3(14)(C) of the
Act.
On December 31, 1997, BBP entered into a trust agreement with the
First National Bank in Sioux Falls (the Bank), a South Dakota Banking
Corporation, in which the Bank agreed to serve as the trustee of the
assets of the ESOP. As a trustee, the Bank is a fiduciary and party in
interest with respect to the ESOP, pursuant to section 3(14)(A) of the
Act. It is represented that the Bank served in this capacity as trustee
until replaced by Ms. Best on December 19, 2001. Since that time, Ms.
Best has been the sole trustee of the assets of the ESOP held in the
trust. As a trustee, Ms. Best is a fiduciary and party in interest with
respect to the ESOP, pursuant to section 3(14)(A) of the Act.
As of July 7, 2004, the date the subject transactions were entered,
there were 71 participants and beneficiaries in the ESOP. As of
December 31, 2003, the aggregate fair market value of the total assets
available to pay benefits to participants in the ESOP was $822,889. As
of the same date, the value of the ESOP's assets, after subtracting
liabilities was $338,681.
3. On June 12, 1998, it is represented that an Amendment to the
Articles of Incorporation of BBP was adopted which combined two classes
of shares (voting and non-voting) into a single class of shares of
voting common stock and which authorized a stock dividend converting
each single share of common stock then outstanding into 100 shares. It
is represented that in July 1998, there were 181,100 shares of Stock
issued and outstanding of which Ms. Best was the sole shareholder.
It is represented that the Stock that is the subject of this
exemption (i.e. the voting common stock of BBP) is the only class of
stock authorized or issued by BBP. The Stock is not publicly traded.
4. On July 17, 1998, the ESOP purchased a block of Stock from Ms.
Best for a purchase price of $2.6 million dollars.\11\ As a result of
this transaction, of the 181,100 shares of Stock issued and
outstanding, Ms. Best retained ownership to 126,770 shares, and the
ESOP acquired 54,330 shares of the Stock, representing approximately 70
percent (70%) and approximately 30 percent (30%), respectively of the
equity of BBP. It is represented that the acquisition of the block of
Stock by the ESOP provided equity ownership to employees so that such
employees had a direct stake in the success of BBP.
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\11\ The applicant maintains that the statutory exemption,
pursuant to section 408(e) of the Act, provided relief for the 1998
purchase by the ESOP of the block of Stock from Ms. Best, where the
shares of the Stock are qualifying employer securities, as defined
in section 407(d)(5) of the Act, the purchase of the shares of Stock
was made for adequate consideration, and no commission was charged
to the ESOP with respect thereto. The Department is offering no
view, herein, as to the applicant's reliance on section 408(e) of
the Act with respect to the purchase of the block of Stock by the
ESOP in 1998, nor has the Department made a determination that the
applicant satisfied all of the requirements of section 408(e) of the
Act. Further, the Department is not providing any relief, herein,
with respect to such purpose.
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On July 17, 1998, the ESOP acquired title to the block of Stock
(54,330 shares) in exchange for a loan (the Loan) \12\ in the amount of
$2.6 million dollars, representing the entire purchase price for such
block of Stock. The Loan was evidenced by a non-recourse Note payable
to Ms. Best. The Note was payable in annual installments of principal
and interest over a period of ten (10) years, beginning September 1,
1998. The interest rate applied to the outstanding balance on the Note
was the prime interest rate in effect from time to time as published by
the ``Wall Street Journal.'' Payment of the Loan was secured by a
pledge to Ms. Best of a security interest in the block of Stock
purchased by the ESOP. In addition, BBP guaranteed payment of the Note.
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\12\ The applicant maintains that the statutory exemption,
pursuant to section 408(b)(3) of the Act, provided relief for the
1998 Loan between the ESOP and Ms. Best, because the Loan: (a) was
primarily for the benefit of the participants and beneficiaries of
the ESOP; (b) contained an interest rate that was not in excess of a
reasonable rate; (c) was used to purchase employer stock; and (d)
satisfied the other requirements, as set forth in the Department's
regulations at 29 CFR 2550.408b-3. The Department is offering no
view, herein, as to the applicant's reliance on section 408(b)(3) of
the Act with respect to the 1998 Loan, nor has the Department made a
determination that the applicant satisfied all of the requirements
of section 408(b)(3) of the Act. Further, the Department is not
providing any relief, herein, with respect to such Loan transaction.
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5. In a letter dated, July 17, 1998, James L. Werness, JD (Mr.
Werness), a principal of the Hawthorne Company (Hawthorne), determined
that the purchase of the block of Stock by the ESOP for consideration
of $2.6 million dollars was fair and equitable and that the purchase
price paid was not more than the ``fair market value'' of such block of
Stock. In support of this opinion, Hawthorne prepared an appraisal
report, dated June 20, 1998, to establish the fair market value of the
block of Stock purchased by the ESOP.
It is represented that the professional staff of Hawthorne is
qualified to provide the 1998 valuation of the Stock. In addition,
Hawthorne has made similar statements regarding its qualifications with
respect to annual valuations of the Stock which Hawthorne prepared
during the period 1998 through 2004, as discussed more fully in
paragraph 8, below. In this regard, Mr. Werness is a member of the
Institute of Business Appraisers and a candidate member of the American
Society of Appraisers. Other principals of Hawthorne have earned the
following designations: (a) Accredited Senior Appraiser from the
American Society of Appraisers, (b) Certified Business Appraiser
through the Institute of Business Appraisers, and (c) Chartered
Financial Analyst.
Hawthorne certified that its research, analysis, and conclusions on
the value of the Stock were conducted on an independent basis. In this
regard, it is represented that neither Hawthorne, nor any employee of
Hawthorne owns any present or prospective future interest in BBP or its
affiliates. Further, Hawthorne represented that it does not know of any
other relationship that would prevent it from, in fact, acting
independently in connection with this valuation. Hawthorne made similar
statements regarding its independence with respect to annual valuations
of the Stock prepared by Hawthorne during the period from 1998 through
2004, as discussed more fully in paragraph 8, below.
It is represented that because the block of Stock purchased by the
ESOP in 1998 represented a small percentage of all the voting rights in
BBP, Hawthorne would normally have defined the fair market value of
such block of Stock as a ``minority interest value.'' However, as the
block of Stock was subject to a buy/sell agreement, discussed more
fully in paragraph 6, below, that entitled the holder to ``put'' the
shares of Stock back to BBP and required BBP to pay a price for such
shares equal to the pro-rata enterprise value, Hawthorne conducted its
analysis on the basis of an ``enterprise'' level of value. Accordingly,
in the opinion of Hawthorne, the fair market value of the ESOP's block
of Stock (54,330 shares), as of June 30, 1998, was $48.00 per share for
a total value of $2,607,840.\13\
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\13\ The Department, herein, is offering no view as to whether
the value per share of the block of Stock purchased by the ESOP in
1998, based on the methodology used by Hawthorne in appraising such
block of Stock constituted ``adequate consideration'' for purposes
of section 408(e) of the Act.
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[[Page 25610]]
6. On July 17, 1998, contemporaneously with the purchase of the
block of Stock by the ESOP, Ms. Best and BBP entered into a buy-sell
Agreement, referred to in paragraph 5, above. It is represented that
this agreement was entered in order to protect the election by BBP of
subchapter ``S'' corporation status and to ensure that possible future
transfers of ownership of Stock occur in a business-like manner.
Accordingly, Ms. Best and BBP contractually agreed to restrictions on
the transferability of the Stock and provided for the purchase of Stock
in certain events.
It is represented that the ESOP was not a party to such buy-sell
agreement. Notwithstanding the fact that the ESOP was not a party, it
is represented that the shares of Stock owned by the ESOP, its
assignees or distributees possesses all the benefits and advantages
contemplated in the buy-sell agreement, including but not limited to a
``put'' provision contained in such agreement.
7. It is represented that BBP from 1998 through 2003 made dividend
payments totaling approximately $489,278 to the ESOP as an owner of the
Stock. In addition, during the same period, BBP made periodic
contributions to the ESOP totaling approximately $1,851,037 that
enabled the ESOP to make installment payments on the Loan under the
terms of the Note held by Ms. Best. It is represented that as the ESOP
made installment payments, shares of Stock held in a suspense account
in the ESOP were allocated to the accounts of participants. In this
regard, 28,532.896 shares of Stock had been allocated, as of July 7,
2004, to the accounts of the participants in the ESOP (the Allocated
Shares), and as of the same date, 25,797.104 shares of Stock were in a
suspense account (the Unallocated Shares) held by the ESOP.
8. It is represented that, in 1998, BBP experienced a loss of
several key employees, some of whom were subsequently employed by
competitors. It is further represented that the electronic business
machine industry has become more competitive, and that the earnings of
BBP have suffered. In this regard, over the course of six (6) years
from 1998 through 2004, the value of the Stock declined.
The applicants submitted to the Department annual valuation reports
prepared by Hawthorne during the period from 1998 through 2003, and
working papers for the fiscal year ending December 31, 2004. According
to Hawthorne, the aggregate ``enterprise value'' (EV) \14\ or the
aggregate ``controlling interest value'' (CIV),\15\ and the per share
value of the Stock during the period from 1998 through 2004 was as
follows:
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\14\ Hawthorne defines ``enterprise value'' or ``EV'' in its
1998 appraisal report as the value attributable to the ownership of
100 percent of the common stock of a corporation.
\15\ Hawthorne defines ``controlling interest value'' or ``CIV''
in its 1998 appraisal report as the value attributable to the
ownership of a block of stock which maintains greater than 50
percent ownership, yet less than 100 percent ownership.
------------------------------------------------------------------------
Per share
Total value of value of the
Date 181,100 shares of stock (per
stock share)
------------------------------------------------------------------------
June 20, 1998..................... $8,700,000 EV....... $48.00
December 31, 1999................. $6,450,606 EV....... 35.62
December 31, 2000................. $5,833,910 CIV...... 32.21
December 31, 2001................. $5,816,940 CIV...... 32.12
December 31, 2002................. $5,475,453 CIV...... 30.14
December 31, 2003................. $5,222,109 CIV...... 28.84
Working papers 2004............... $5,118,699 CIV...... 28.26
------------------------------------------------------------------------
9. It is represented that given the loss of several key employees,
losses in earnings as a result of a more competitive industry, and the
costs of maintaining the ESOP, effective July 7, 2004, BBP decided to
terminate the ESOP. On September 24, 2004, BBP submitted to the
Internal Revenue Service (IRS) FORM 5310, Application for determination
for Terminating Plan, with respect to the ESOP. In connection with the
termination of the ESOP, it is represented that all participants became
100 percent (100%) vested, as of June 30, 2004. On January 14, 2005,
the IRS issued a favorable determination letter on the termination of
the ESOP.
10. In connection with the termination of the ESOP, BBP determined
to make lump sum distributions to each of the participants of the ESOP
in order to increase employee morale and to allow BBP to invest its
remaining resources in creating a more viable company. Accordingly,
under the terms of a Stock Purchase and Sale Agreement, dated July 7,
2004, BBP purchased the Allocated Shares (28,532.896 shares of Stock)
from the ESOP for an aggregate purchase price in cash of approximately
$900,000 at a price per share of $31.54.
It is further represented that since the ESOP was being terminated
and would receive no more contributions from BBP, it was expected that
the ESOP would default on the payments on the Note held by Ms. Best. In
order to avoid such default, on July 7, 2004, the Independent Fiduciary
(described more fully in paragraph 14, below) transferred the
Unallocated Shares (25,797.104 shares of the Stock) in the suspense
account held by the ESOP to BBP in exchange for an assumption by BBP of
the ESOP's responsibility to pay to Ms. Best the balance due under the
Note as of that date in the amount $1,234,538.
It is represented that as a result of the transactions which are
the subject of this proposed exemption, the ESOP's ownership interest
in BBP decreased from 30 percent (30%) to zero. It is further
represented that notwithstanding the transfer of title to the
Unallocated Shares to BBP, such shares continued to be subject to the
pledge securing the Note in favor of Ms. Best. Accordingly, it is
represented that after the subject transactions were completed, the
Unallocated Shares were still considered to be issued and outstanding.
11. The applicant has requested a retroactive administrative
exemption, effective July 7, 2004, the date when the subject
transactions were entered. In this regard, it is represented that
before entering into such transactions, the applicant was advised by
legal counsel. In this regard, legal counsel for the applicant has
certified in writing that he was aware that such transactions were
prohibited under section 406 of the Act, but that he believed the
statutory exemption, set forth in section 408(e) of the Act, applied to
the subject transactions and that an administrative
[[Page 25611]]
exemption, pursuant to section 408(a) of the Act was not necessary.
Further, legal counsel for the applicant has certified in writing that
because the applicant relied in good faith on the advice of counsel,
the applicant carried out the subject transactions with only the
precautions required by section 408(e) of the Act in place at the time
the transactions were entered. In this regard, it is represented that
the ESOP received not less than adequate consideration, as determined
by an independent appraiser, and no commission was charged with respect
to such transactions.
Legal counsel for the applicant has represented that upon further
review, he subsequently advised the applicant that the subject
transactions may have resulted in violations of sections 406(a)(1)(A)
and (D), 406(b)(1) and (b)(2) of the Act. In this regard, although
section 408(e) of the Act contains a statutory exemption for the sale
of ``qualifying employer securities'' (QES), as defined in section
407(d)(5) of the Act, by an ``eligible individual account plan,'' as
defined in section 407(d)(3)(A) of the Act, to a ``party in interest,''
as defined in section 3(14) of the Act, other sections of the Act
provide that this statutory exemption may not be available under
certain circumstances. Specifically, section 408(d) of the Act excludes
owner-employees (including shareholder-employees, such as Ms. Best),
and any corporation that is 50 percent (50%) or more owned by such
persons (such as BBP) from using the statutory exemption provided under
section 408(e) of the Act for purchases or sales of QES.
The applicant notes that, in the Taxpayer Relief Act of 1997,
Congress provided some relief from the exclusion, set forth in section
408(d) of the Act, (for taxable years beginning after December 31,
1997) with regard to subchapter ``S'' corporations that maintain ESOPS.
Specifically, section 408(d)(2)(B) of the Act provides an exception to
the exclusion under 408(d) of the Act for sales of QES to an employee
stock ownership plan by a shareholder-employee or related subchapter
``S'' corporation. The applicant maintains that the failure of Congress
to provide an exception for the purchase of QES by a subchapter ``S''
corporation from its employee stock ownership plan was a drafting
oversight. In the opinion of the applicant, there would seem to be more
need for protection of an employee stock ownership plan when purchasing
stock of a closely held corporation and taking on debt than when
selling such shares for cash.
Notwithstanding the argument presented in the paragraph above, the
applicant has acknowledged that BBP, even though it is a subchapter
``S'' corporation, is excluded from relying on the statutory exemption,
under section 408(e) of the Act, and that the purchase of the Allocated
Shares by BBP from the ESOP does not fall within the exception to the
exclusion found in section 408(d)(2)(B) of the Act. Accordingly, the
applicant has requested a retroactive administrative exemption for the
purchase of the Allocated Shares by BBP from the ESOP, pursuant to
408(a) of the Act.
It is the position of the applicant that the transfer of the
Unallocated Shares to BBP in exchange for the assumption by BBP of the
ESOP's obligation under the Note is not a new sale transaction, but
should be considered part of the original acquisition by the ESOP of
the block of Stock. In this regard, as part of the original
acquisition, the applicant points out that the block of Stock purchased
by the ESOP was pledged to Ms. Best, and that BBP guaranteed the debt
owed by the ESOP under the Note. It is the position of the applicant
that in order to avoid default on the Note once the ESOP was
terminated: (a) BBP, pursuant to its guaranty of the Note, assumed,
with the consent of Ms. Best, the ESOP's debt under the Note; and (b)
the ESOP transferred its interest in the Unallocated Stock to BBP,
subject to the pledge of the Stock to Ms. Best.
The applicant has requested that if the Department disagrees with
this analysis, relief should be provided for the transfer of the
Unallocated Stock to BBP and the assumption by BBP of the ESOP's
obligation under the Note. Accordingly, retroactive administrative
relief, pursuant to section 408(a) of the Act, has been proposed for
both: (a) The purchase of the Allocated Shares by BBP from the ESOP,
and (b) the transfer of the Unallocated Shares to BBP in exchange for
the assumption of the ESOP's obligation to pay Ms. Best under terms of
the Note.
12. BBP maintains that the subject transactions were in the
interest of the ESOP, because the ESOP received a price for the
Allocated Shares in excess of the fair market value of such shares. As
discussed more fully in the paragraphs below, the final negotiated
price paid by BBP for the Allocated Shares, was $31.54 per share.
13. The application file contains a letter dated April 15, 2004, to
the trustee of the ESOP prepared by Mr. Werness, one of the principals
of Hawthorne, the independent, qualified appraiser. The letter is
incorporated into an appraisal report, dated May 4, 2004, prepared by
Hawthorne that provided an annual update of the value of the Stock for
the year ended December 31, 2003. In this regard, it is represented
that Hawthorne established that the fair market value of the Stock
owned by the ESOP was $28.84 per share, as of December 31, 2003.
The file also contains a letter from Mr. Werness, dated July 7,
2004. In this letter, Mr. Werness offers an opinion regarding
``adequate consideration'' with respect to the subject transactions
that closed on July 7, 2004. In connection with this opinion, it is
represented that Hawthorne, among other things: (a) Reviewed the annual
financial statements of BBP prepared by Henry Scholten & Company, CPA
and reviewed the April 2004, interim financial statement of BBP; (b)
reviewed various documents involved with the subject transactions,
including the Stock Purchase and Sale Agreement, Consent Minutes of the
Board of Directors of BBP, Amendments to the Trust Agreement for the
ESOP, and Amendment to the ESOP; (c) held discussions with certain
members of the management of BBP and representatives of BBP regarding
the operations, financial condition, future prospects, and projected
performance of BBP; (d) reviewed Hawthorne's history of valuations
conducted on behalf of the trustee of the ESOP; and (e) conducted other
studies, analyses, and inquiries deemed appropriate. Based on the
business, economic, market, and other conditions as such existed on
July 7, 2004, the date of the letter and the date the subject
transactions closed, it is the opinion of Hawthorne that the aggregate
purchase price paid by BBP for the Stock was not less than the fair
market value of such Stock and that the ESOP received no less than
``adequate consideration.''
In addition to Hawthorne's opinion regarding ``adequate
consideration,'' on the date the subject transactions closed, as
discussed in the paragraph above, the application file also contains a
letter to counsel for BBP, dated November 11, 2004, from Mr. Werness,
which encloses working papers relating to the projected performance
schedule of BBP for the fiscal year ending December 31, 2004. In this
letter, Mr. Werness states that the working papers were provided to the
special trustee, as discussed in the paragraph below, prior to the date
when the subject transactions were entered. These working papers
indicate a per share value for the Stock of $28.26. Accordingly, it is
represented that the $31.54 per share price paid by BBP to the ESOP for
the Allocated Shares included an 11.6% premium over the
[[Page 25612]]
$28.26 per share fair market value for such shares of Stock.
14. The applicant maintains that safeguards were in place at the
time each of the transactions were entered which were designed to
protect the interests of the ESOP and its participants and
beneficiaries. It is represented that as early as May 2004, Stanton
Trust Company, N.A. (Stanton) and counsel for BBP had conversations
regarding the subject transactions. Subsequently, in an engagement
letter, dated June 3, 2004, BBP appointed Stanton to act as special
trustee on behalf of the ESOP.
According to its letter of engagement, Stanton agreed to act as the
Independent Fiduciary and to review, analyze, and determine whether or
not to accept the subject transactions on behalf of the ESOP in
accordance with fiduciary provisions of the Act. To assist in this
regard, Stanton retained the services of Lindquist & Vennum P.L.L.P.
(L&V) to act as its legal counsel and retained Hawthorne to act as a
financial advisor.
Based on Stanton's review of the opinion prepared by Hawthorne and
related documents and schedules, its review of documents and
information provided by BBP, and other documents deemed necessary and
appropriate, Stanton issued a letter, dated July 7, 2004, the date the
transactions were entered. In this letter, Stanton states that its role
as special trustee is limited to an evaluation of the proposed
transactions on behalf of, and solely in the interest of the
participants and beneficiaries of the ESOP and determining that the
transactions are fair and reasonable to the ESOP and its participants.
Further, Stanton stated in the July 7 letter that: (1) The sale of
28,532.896 shares of the Allocated Shares by the ESOP at a price of
$31.54 per share for a total purchase price of approximately $900,000,
and (2) the exchange by the ESOP of its outstanding debt in the amount
of $1,234,538 for transfer to BBP of the 25,797.104 Unallocated Shares
held in suspense is fair and reasonable to the ESOP and its
participants and beneficiaries.
The application file also contains letters, dated March 2, and
March 24, 2005, from Robert J. Hartman, JD (Mr. Hartman) of L&V, acting
as legal counsel to Stanton. In this regard, in a declaration under
penalty of perjury, dated April 1, 2005, the current President of
Stanton, confirms that Mr. Hartman and the law firm of L&V have
represented Stanton from the inception and throughout the engagement of
Stanton as special trustee to the ESOP and that representations made in
Mr. Hartman's March 2, and March 24, 2005, letters to the Department
are true and correct.
Mr. Hartman represents that the purpose of his letter of March 2,
2004, is to identify the actions taken by Stanton to complete the
transactions and confirm that such actions were taken in full
compliance with Stanton's obligations as a fiduciary to the ESOP and in
the best interest of the ESOP participants. Further, Mr. Hartman
represents that prior to Stanton issuing its July 7, 2004, opinion that
the transactions were fair and reasonable, Stanton, Hawthorne, and L&V
reviewed documents, including but not limited to those concerning the
establishment of the ESOP and the trust, those relevant to the subject
transactions, valuation reports prepared by Hawthorne for 2001, 2002,
and 2003, financial statements of BBP, and minutes of the Board of
Directors of BBP. It is further represented that interviews were
conducted with Mr. Werness of Hawthorne, the trust officer of the Bank,
the record keeper for the ESOP, and the counsel for BBP.
Based on the review of the foregoing documents and interviews with
the parties closely associated with BBP, Mr. Hartman represents that
Stanton concluded: (a) That financial records and appraisals confirmed
that BBP sales had declined for each of the three preceding years, and
the office products market had become increasingly competitive; (b)
that the value of BBP had declined and was likely to continue to
decline; (c) that Ms. Best had rejected an offer to sell BBP to an
unrelated third party and planned to turn over operations of BBP to her
grandson who had little or no experience in the company; and (d) that
BBP retained the ability to terminate the ESOP, distribute the Stock,
and allow the participants to put the shares back to BBP at $28.26 per
share.
Based on the conclusions in the paragraph above, Mr. Hartman
represents that Stanton determined that the best interest of the
participants were served by selling the Allocated Shares to BBP. To
this end, Mr. Hartman states that Stanton negotiated favorable terms in
connection with the sale for the exclusive purpose of protecting the
interest of the ESOP participants and enhancing the benefits to
participants. In this regard, it is represented that Stanton: (a)
Negotiated a sale price for the Allocated Shares that included a
premium over the interim valuation performed by Hawthorne; (b)
negotiated specific ``tag along'' rights for the ESOP in the event of a
subsequent sale of BBP at a higher price following the transactions;
and (c) obtained a representation from BBP that it would consider
regular profit sharing contributions following the termination of the
ESOP, subject to the financial circumstances of BBP. In light of the
foregoing, it is the opinion of Mr. Hartman that Stanton fully
discharged its fiduciary obligation to the ESOP in connection with the
subject transactions.
In his letter of March 2, 2005, Mr. Hartman also addresses the
issue of independence of both L&V and Stanton. In this regard, Mr.
Hartman represents that prior to the subject transactions neither L&V
nor Stanton had had any dealings with BBP. It is further represented by
Mr. Hartman that under the terms of Stanton's engagement letter with
BBP, Stanton was not required to complete the transactions, and
Stanton's fee was not conditioned upon such completion. Further, Mr.
Hartman represents that had Stanton concluded that the transactions
were not in the best interest of participants, Stanton would have
withdrawn from the engagement.
Mr. Hartman also enclosed with his letter of March 2, 2005,
information regarding his qualifications and those of Stanton. With
regard to his qualifications, Mr. Hartman represents that he practices
in the employee benefits area, with an emphasis on qualified and non-
qualified deferred compensation and on counseling clients on fiduciary
matters. Further, Mr. Hartman represents that he has extensive
experience with the creation and operation of employee stock ownership
plans and has served as a special counsel to trustees of such plans
with respect to fiduciary issues.
With regard to Stanton's qualifications, Mr. Hartman encloses
documents which state that Stanton has been providing trust, custody,
and other fiduciary services to institutions and individuals since 1919
and is dedicated to the professional management of its clients' assets.
In addition, it is represented that Stanton has extensive employee
stock ownership plan experience as an independent fiduciary for
leveraged and non-leveraged transactions.
In addition to his letter of March 2, 2005, Mr. Hartman submitted
another letter, dated March 24, 2005, to the Department in which he
clarified that Stanton was fully aware that the subject transactions
included both the sale of the Allocated Shares to BBP and the transfer
of the Unallocated Shares to BBP in exchange for assumption by BBP of
the ESOP's debt under the Note. Further, Mr. Hartman stated that the
actions taken by Stanton outlined in his letter of March 2, 2005, apply
with
[[Page 25613]]
equal effect to both of the subject transactions.
In addition in his March 24, 2005 letter, Mr. Hartman informed the
Department that, although no longer employed by Stanton, Richard Joseph
(Mr. Joseph), formerly the President of Stanton, was the individual who
analyzed and completed the subject transactions on behalf of Stanton.
However, both Stanton and Mr. Joseph agreed to the accuracy of the
discussion in Mr. Hartman's March 24 letter and confirmed the same by
signing such letter.
15. The applicant maintains that the requested exemption is
administratively feasible in that the application contains all of the
facts and law necessary for the Department to issue an exemption.
The applicant further maintains that the exemption is feasible in
that it involves a one-time transaction for cash in the case of the
purchase by BBP of the Allocated Shares and a one-time exchange of the
Unallocated Shares for the assumption by BBP of the ESOP's liability
under the Note.
Further, it is represented that the cash received by the ESOP in
the sale of the Allocated Shares was immediately credited to the
accounts of the each of the Participants in proportion to the shares of
Stock that were sold from each participant's account. It is represented
that each of the participants in the ESOP will be given the option to
elect a lump sum distribution in cash or to rollover the distribution
into a 401(k) plan sponsored by BBP or into such participant's
individual retirement account.
16. It is represented that were the sale to BBP of the Allocated
Shares rescinded, the Allocated Shares distributed to participants upon
termination of the ESOP, and the Allocated Shares purchased by BBP
directly from the participants at the then fair market value, the
participants might receive substantially less on such shares, than if
the exemption were to be granted.
17. In summary, the applicant represents that the subject
transactions met the statutory criteria of section 408(a) of the Act
and 4975(c)(2) of the Code because: (a) Stanton was responsible for
each of the transactions, and in accordance with the fiduciary
provisions of the Act, reviewed, analyzed, and determined that the ESOP
should enter into each of the transactions; (b) Stanton reviewed,
negotiated, and approved the terms of each of the transactions, and
determined on behalf of the ESOP and solely in the interest of the
ESOP, its participants, and beneficiaries that the terms of each of the
transactions were fair and reasonable; (c) Stanton monitored compliance
with the terms of each of the transactions by the parties; (d)
Hawthorne, acting as the independent qualified appraiser, determined
the fair market value of the Stock as of the date each of the
transactions were entered; (e) the ESOP incurred no fees, commissions,
or other charges or expenses as a result of its participation in each
of the transactions; (f) the subject transactions were one-time
transactions; (g) the purchase price which the ESOP received from sale
of the Allocated Shares to BBP included a premium over the fair market
value of such shares; (h) each of the participants in the ESOP will be
given the option to elect a lump sum distribution in cash or to
rollover the distribution into a 401(k) plan sponsored by BBP or into
such participant's individual retirement account; (i) the cash received
by the ESOP in the sale of the Allocated Shares was credited to the
accounts of the each of the Participants in proportion to the Allocated
Shares that were sold from each participant's account; (j) the proceeds
from the sale of the Allocated Shares provide participants with
additional investment liquidity and diversification.
Notice to Interested Persons
Those persons who may be interested in the pendency of the
requested exemption include participants and beneficiaries of the ESOP,
alternative payees, participants who are current employees but who are
absent from the work site, the employer, officers and employees of the
employer, fiduciaries of the ESOP, Stanton, and all other interested
persons or parties involved in the subject transactions. It is
represented that these various classes of interested persons will be
notified as follows.
All participants and beneficiaries and all other interested persons
will be provided with a copy of the notice of this proposed exemption
(the Notice), plus a copy of the supplemental statement (the
Supplemental Statement), as required, pursuant to 29 CFR 2570.43(b)(2),
which will advise such interested persons of their right to comment and
to request a hearing. The Notice and the Supplemental statement will be
provided to all interested persons within fifteen (15) days of the
publication of the Notice in the Federal Register.
The Notice and the Supplemental Statement will be personally
delivered to all participants who are current employees of BBP and who
are present at the work site on the date the Notice and Supplemental
Statement are provided. The Notice and the Supplemental Statement will
be sent by first class mail to all other participants and beneficiaries
or other interested persons. It is represented that for the purpose of
sending the Notice and Supplemental Statement by mail, the last known
addresses of such participants, beneficiaries, or other interested
persons maintained by the ESOP will be used.
The Department must receive written comments and requests for a
hearing no later than forty-five (45) days from the date of the
publication of the Notice in the Federal Register.
FOR FURTHER INFORMATION CONTACT: Angelena C. Le Blanc 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
[[Page 25614]]
(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 10th day of May, 2005.
Ivan Strasfeld,
Director of Exemption Determinations, Employee Benefits Security
Administration, U.S. Department of Labor.
[FR Doc. 05-9577 Filed 5-12-05; 8:45 am]
BILLING CODE 4510-29-P
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