Proposed Exemption; The DeRose Dental Offices, Inc., S.C. Profit
Sharing Plan (the Plan)
[03/22/2007]
Volume 72, Number 55, Page 13517-13519
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DEPARTMENT OF LABOR
Employee Benefits Security Administration
[Application No. D-11408, et al.]
Proposed Exemption; The DeRose Dental Offices, Inc., S.C. Profit
Sharing Plan (the Plan)
AGENCY: Employee Benefits Security Administration, Labor.
ACTION: Notice of Proposed Exemption.
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SUMMARY: This document contains notices of pendency before the
Department of Labor (the Department) of a proposed exemptions from
certain of the prohibited transaction restrictions of the Employee
Retirement Income Security Act of 1974 (ERISA or 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 exemption, unless otherwise
stated in the Notice of Proposed Exemption, within 45 days from the
date of publication of this Federal Register Notice. Comments and
requests for a hearing should state: (1) The name, address, and
telephone number of the person making the comment or request, and (2)
the nature of the person's interest in the exemption and the manner in
which the person would be adversely affected by the exemption. A
request for a hearing must also state the issues to be addressed and
include a general description of the evidence to be presented at the
hearing.
ADDRESSES: All written comments and requests for a hearing (at least
three copies) should be sent to the Employee Benefits Security
Administration (EBSA), Office of Exemption Determinations, Room N-5700,
U.S. Department of Labor, 200 Constitution Avenue, NW., Washington, DC
20210. Attention: Application No. ----, stated in each Notice of
Proposed Exemption. Interested persons are also invited to submit
comments and/or hearing requests to EBSA via e-mail or FAX. Any such
comments or requests should be sent either by e-mail to:
moffitt.betty@dol.gov, or by FAX to (202) 219-0204 by the end of the
scheduled comment period. The applications for exemption and the
comments received will be available for public inspection in the Public
Documents Room of the Employee Benefits Security Administration, U.S.
Department of Labor, Room N-1513, 200 Constitution Avenue, NW.,
Washington, DC 20210.
Notice to Interested Persons
Notice of the proposed exemption 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 exemption were requested in an
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 exemption 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.
The DeRose Dental Offices, Inc., S.C. Profit Sharing Plan (the Plan),
Located in Racine, Wisconsin
[Application No. D-11408]
Proposed Exemption
The Department is considering granting an exemption under the
authority of section 408(a) of the Act and in accordance with the
procedures set forth in 29 CFR part 2570, subpart B (55 FR 32836,
32847, August 10, 1990). If the exemption is granted, the restrictions
of section 406(a), 406(b)(1) and (b)(2) of the Act, and the sanctions
resulting from the application of section 4975(a) and (b) of the Code,
by reason of section 4975(c)(1)(A) through (E) of the Code, shall not
apply to the December 29, 2006 sale by the Plan of 2,174 shares of
stock (the Stock) in Wisconsin Bancshares, Inc. (the Company) each to
Francesca DeRose (Francesca) and Nicolet DeRose (Nicolet), parties in
interest with respect to the Plan, provided the following conditions
are satisfied:
(a) The sales of the Stock were one-time transactions for cash;
(b) The Plan paid no commissions or other fees in connection with
the sales;
(c) The terms of the transactions were at least as favorable to the
Plan as those the Plan could obtain in similar transactions with an
unrelated party; and
(d) the sales price of the Stock was determined by a qualified,
independent appraiser.
DATES: Effective Date: The proposed exemption, if granted, will be
effective as of December 29, 2006.
Summary of Facts and Representations
1. The Plan is an individual account plan established by DeRose
Dental Offices, Inc., S.C. (the Employer), a professional dental
corporation located in Racine, Wisconsin. As of December 31, 2005 (the
Last Valuation Date), the Plan had 10 participants and beneficiaries,
and had total assets of $1,951,401. Francesca and Nicolet, the only
dentists employed by the Employer, are participants in the Plan.
Francesca, along with Ronald S. Rizzo, is also the co-trustee of the
Plan. As of the Last Valuation Date, Francesca's account value was
$747,061.71, and Nicolet's account value was $986,336.53. These account
values constitute approximately 88.83% of the total assets of the Plan.
The applicants represent that since the Last Valuation Date, the values
of the participants' respective accounts have not significantly
changed.
2. Among other assets, the Plan held shares (i.e., the Stock) of
the Company, a closely-held bank holding company registered under the
Bank Holding Company Act of 1956, as amended, and a financial holding
company under the Gramm-Leach-Bliley Act of 1999. The Company is the
100% owner of Banks of Wisconsin (the Bank), a full service community
bank with four locations in Wisconsin. As of December 8, 2006, 535,594
shares of Stock were issued and outstanding.
3. The applicants represent that the Plan initially acquired shares
of common stock of the Bank in the secondary private stock offering by
the Bank on July 29, 2003 at a price of $23 per share, or an aggregate
purchase price of $100,004. On December 31, 2004, the Company was
formed as a holding company for all of the shares of the common stock
of the Bank. As of January 1, 2005, all of the shares of the Bank were
converted into shares of the Stock. The price per share in the
secondary offering was determined by the Board of Directors (the Board)
of the Bank. The shares were offered to
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existing shareholders of the Bank and to the Plan. The offer was not
underwritten by any third party. The applicants represent that the
Board determined the secondary offering price by calculating a
hypothetical fair return for a start up bank after three years of
operations and experience. All of the shares of the Bank were sold in
the secondary offering, which raised approximately $2.8 million for the
Bank. The Bank's initial private stock offering occurred on June 26,
2000 at a price of $20 per share. The Plan has not acquired any
additional shares of Stock since the acquisition on July 29, 2003. The
applicants represent that the Bank is, and at the time of the
acquisition of the Stock by the Plan was, an entity unrelated to the
Plan, and not a party in interest with respect to the Plan within the
meaning of section 3(14) of the Act. The Company has at all times been
an entity unrelated to the Plan.
4. Francesca also holds 3,950 shares of the Stock individually. In
addition, David Barnes, her husband and the Chairman of the Board of
the Bank, holds 37,777 shares of Stock individually and 2,050 shares as
trustee of one or more custodial accounts established under the Uniform
Transfer to Minors Act. Together, Mr. Barnes and Francesca hold
approximately 9.02% of the issued and outstanding shares of Stock.
Nicolet in her individual capacity holds 375 shares of Stock. Mr.
Rizzo, the co-trustee of the Plan, holds 15,616 shares of the Stock
individually, which represents approximately 2.92% of the issued and
outstanding Stock. The Stock held by the Plan represented 0.81% of the
issued and outstanding Stock. During the period of its ownership of the
Stock, the Plan earned no dividends or other income and incurred no
expenses with respect to the Stock. Except for Mr. Barnes, neither Mr.
Rizzo, nor any family member (including the Plan participants) is an
officer, director or controlling shareholder of the Bank or the
Company.
5. The applicants have requested a retroactive prohibited
transaction exemption for the purchase of 2,174 shares of the Stock by
Francesca, and the purchase of 2,174 shares of the Stock by Nicolet.
Both transactions occurred on December 29, 2006. The applicants
represent that due to business and income tax considerations, the
Company and Bank are both seeking to make a Subchapter S election, to
be effective as of January 1, 2007. Although a tax-exempt qualified
trust forming part of a stock bonus, pension or profit-sharing plan,
such as the Plan and its related trust, can be an S corporation
eligible shareholder, such exempt trust is required to pay the
unrelated business income tax (UBIT) on all income attributable to
ownership of stock of an S corporation, using the income tax rates.
UBIT is due whether or not the S corporation actually distributes the
income to the trust. In addition, any gain on the sale of the S
corporation stock by a trust is generally subject to UBIT. Because the
Plan would incur unfavorable tax consequences as a result of an S
corporation election and the continued holding of the Stock, Nicolet
and Francesca desired to purchase the Stock from the Plan. The decision
on behalf of the Plan to sell the Stock was made solely by Mr. Rizzo in
his capacity as co-trustee.
6. The Stock was independently appraised by an independent
appraiser, Mercer Capital (Mercer). Mercer is an independent financial
advisor experienced in the financial analysis and valuation of
financial institutions. The Company retained Mercer, in connection with
the S corporation election and related merger transaction, to assist
the Board in determining a fair price for the Stock. Mercer delivered
an appraisal to the Board at the Board's meeting on October 17, 2006,
using the Company's September 30, 2006 financial data, whereby it
determined the fair market value of the Stock to be $44 per share. On
November 1, 2006, Mercer issued an opinion to the Board that the cash
consideration to be received by the Bank's shareholders was fair to the
shareholders. In arriving at its opinion and appraisal, Mercer reviewed
and analyzed the Company's audited financial statements, quarterly
reports, the Company's financial forecasts, the historical trading
prices and activity for the Stock, the nature and financial terms of
certain other merger and acquisition transactions involving banks,
financial studies, analyses and investigations and relevant financial,
economic and market criteria. In addition, Mercer met with the
management of the Company to discuss past and current operations,
financial condition and prospects, as well as the result of regulatory
examinations.
7. On the date of the sale of the Stock to Francesca and Nicolet by
the Plan, Mr. Rizzo, in his capacity as co-trustee for the Plan,
contacted Mr. Andy Gibbs at Mercer in order to obtain an updated
appraisal of the Stock or a confirmation that the value of Stock since
the date of the appraisal had not changed. Mr. Gibbs advised Mr. Rizzo
that Mercer was aware of no circumstances that would change its
appraisal of the Stock as of September 30, 2006, and that the appraisal
report and appraised value of $44 per share of Stock remained current
as of the date of sale.
8. The applicants represent that there is no active trading market
for the Stock, and no market is expected to develop for the Stock upon
the consummation of the merger and the S corporation election. The sale
of the Stock to Francesca and Nicolet presented an opportunity to
provide better liquidity and diversification of investments in the Plan
at a fair price. The applicants represent that the Plan benefited from
significant appreciation in the value of the Stock since purchasing the
Stock in the secondary offering. As demonstrated by the appraisal by
Mercer, the value of the Stock as of September 30, 2006 ($44)
significantly exceeds the purchase price paid by the Plan for the Stock
($23 per share on July 23, 2003) and the value of the Stock on the Last
Valuation Date, which was determined to be $25 per share based on
recent private sale transactions.
9. In summary, the applicants represent that the subject
transactions satisfy the criteria contained in section 408(a) of the
Act because: (a) The terms of the transactions were at least as
favorable to the Plan as those the Plan could have obtained in similar
transactions with an unrelated party; (b) the sales of the Stock were
one-time transactions for cash, and the Plan paid no commissions or
other fees in connection with the sales; (c) the sales price of the
Stock was determined by a qualified, independent appraiser who
confirmed the fair market value as of the date of the sales; (d) the
Plan benefited from significant appreciation in the Stock since the
time of its acquisition in July, 2003; and (e) the sales of the Stock
provide better liquidity and diversification of investments in the
Plan.
FOR FURTHER INFORMATION CONTACT: Gary H. Lefkowitz of the Department,
telephone (202) 693-8546. (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
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duties respecting the plan solely in the interest of the participants
and beneficiaries of the plan and in a prudent fashion in accordance
with section 404(a)(1)(b) of the Act; nor does it affect the
requirement of section 401(a) of the Code that the plan must operate
for the exclusive benefit of the employees of the employer maintaining
the plan and their beneficiaries;
(2) Before an exemption may be granted under section 408(a) of the
Act and/or section 4975(c)(2) of the Code, the Department must find
that the exemption is administratively feasible, in the interests of
the plan and of its participants and beneficiaries, and protective of
the rights of participants and beneficiaries of the plan;
(3) The proposed exemptions, if granted, will be supplemental to,
and not in derogation of, any other provisions of the Act and/or the
Code, including statutory or administrative exemptions and transitional
rules. Furthermore, the fact that a transaction is subject to an
administrative or statutory exemption is not dispositive of whether the
transaction is in fact a prohibited transaction; and
(4) The proposed exemptions, if granted, will be subject to the
express condition that the material facts and representations contained
in each application are true and complete, and that each application
accurately describes all material terms of the transaction which is the
subject of the exemption.
Signed at Washington, DC, this 16th day of March, 2007.
Ivan Strasfeld,
Director of Exemption Determinations, Employee Benefits Security
Administration, U.S. Department of Labor.
[FR Doc. E7-5209 Filed 3-21-07; 8:45 am]
BILLING CODE 4510-29-P
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