Proposed Exemptions and Application Numbers: D-11272, Wells Fargo
& Company; D-11390, BSC Services Corp. 401(k) Profit Sharing Plan [07/02/2007]
Volume 72, Number 126, Page 36048-36061
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DEPARTMENT OF LABOR
Employee Benefits Security Administration
Proposed Exemptions and Application Numbers: D-11272, Wells Fargo
& Company; D-11390, BSC Services Corp. 401(k) Profit Sharing Plan (the
Plan); and D-11402 & D-11403, Owens Corning Savings Plan and Owens
Corning Savings and Security (Collectively the Plans)
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 (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 exemptions, unless otherwise
stated in the Notice of Proposed Exemption, within 45 days from the
date of publication of this Federal Register Notice. Comments and
requests for a hearing should state: (1) The name, address, and
telephone number of the person making the comment or request, and (2)
the nature of the person's interest in the exemption and the manner in
which the person would be adversely affected by the exemption. A
request for a hearing must also state the issues to be addressed and
include a general description of the evidence to be presented at the
hearing.
ADDRESSES: All written comments and requests for a hearing (at least
three copies) should be sent to the Employee Benefits Security
Administration (EBSA), Office of Exemption Determinations, Room N-5700,
U.S. Department of Labor, 200 Constitution Avenue, NW., Washington, DC
20210. Attention: Application No.----, stated in each Notice of
Proposed Exemption. Interested persons are also invited to submit
comments and/or hearing requests to EBSA via e-mail or FAX. Any such
comments or requests should be sent either by e-mail to:
Amoffitt.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.
Wells Fargo & Company (WFC)
Located in San Francisco, California
[Application No. D-11272]
Proposed Exemption
The Department of Labor (the Department) is considering granting an
exemption under the authority of section 408(a) of the Employee
Retirement Income Security Act of 1974 (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
[[Page 36049]]
2570, Subpart B (55 FR 32836, 32847, August 10, 1990).
Section I--Transactions
If the proposed exemption is granted, the restrictions of section
406 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
(F) of the Code, shall not apply to the purchase of certain securities
(the Securities), as defined, below in Section III(h), by an asset
management affiliate of WFC, as ``affiliate'' is defined, below, in
Section III(c), from any person other than such asset management
affiliate of WFC or any affiliate thereof, during the existence of an
underwriting or selling syndicate with respect to such Securities,
where a broker-dealer affiliated with WFC (the Affiliated Broker-
Dealer), as defined, below, in Section III(b), is a manager or member
of such syndicate and the asset management affiliate of WFC purchases
such Securities, as a fiduciary:
(a) On behalf of an employee benefit plan or employee benefit plans
(Client Plan(s)), as defined, below, in Section III(e); or
(b) On behalf of Client Plans, and/or In-House Plans, as defined,
below, in Section III(l), which are invested in a pooled fund or in
pooled funds (Pooled Fund(s)), as defined, below, in Section III(f);
provided that the conditions as set forth, below, in Section II, are
satisfied (An affiliated underwriter transaction (AUT)).\1\
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\1\ For purposes of this proposed exemption an In-House Plan may
engage in AUT's only through investment in a Pooled Fund.
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Section II--Conditions
The proposed exemption is conditioned upon adherence to the
material facts and representations described herein and upon
satisfaction of the following requirements:
(a)(1) The Securities to be purchased are either--
(i) Part of an issue registered under the Securities Act of 1933
(the 1933 Act) (15 U.S.C. 77a et seq.). If the Securities to be
purchased are part of an issue that is exempt from such registration
requirement, such Securities:
(A) Are issued or guaranteed by the United States or by any person
controlled or supervised by and acting as an instrumentality of the
United States pursuant to authority granted by the Congress of the
United States,
(B) Are issued by a bank,
(C) Are exempt from such registration requirement pursuant to a
federal statute other than the 1933 Act, or
(D) Are the subject of a distribution and are of a class which is
required to be registered under section 12 of the Securities Exchange
Act of 1934 (the 1934 Act) (15 U.S.C. 781), and are issued by an issuer
that has been subject to the reporting requirements of section 13 of
the 1934 Act (15 U.S.C. 78m) for a period of at least ninety (90) days
immediately preceding the sale of such Securities and that has filed
all reports required to be filed thereunder with the Securities and
Exchange Commission (SEC) during the preceding twelve (12) months; or
(ii) Part of an issue that is an Eligible Rule 144A Offering, as
defined in SEC Rule 10f-3 (17 CFR 270.10f-3(a)(4)). Where the Eligible
Rule 144A Offering of the Securities is of equity securities, the
offering syndicate shall obtain a legal opinion regarding the adequacy
of the disclosure in the offering memorandum;
(2) The Securities to be purchased are purchased prior to the end
of the first day on which any sales are made, pursuant to that
offering, at a price that is not more than the price paid by each other
purchaser of the Securities in that offering or in any concurrent
offering of the Securities, except that--
(i) If such Securities are offered for subscription upon exercise
of rights, they may be purchased on or before the fourth day preceding
the day on which the rights offering terminates; or
(ii) If such Securities are debt securities, they may be purchased
at a price that is not more than the price paid by each other purchaser
of the Securities in that offering or in any concurrent offering of the
Securities and may be purchased on a day subsequent to the end of the
first day on which any sales are made, pursuant to that offering,
provided that the interest rates, as of the date of such purchase, on
comparable debt securities offered to the public subsequent to the end
of the first day on which any sales are made and prior to the purchase
date are less than the interest rate of the debt Securities being
purchased; and
(3) The Securities to be purchased are offered pursuant to an
underwriting or selling agreement under which the members of the
syndicate are committed to purchase all of the Securities being
offered, except if--
(i) Such Securities are purchased by others pursuant to a rights
offering; or
(ii) Such Securities are offered pursuant to an over-allotment
option.
(b) The issuer of the Securities to be purchased pursuant to this
proposed exemption must have been in continuous operation for not less
than three years, including the operation of any predecessors, unless
the Securities to be purchased--
(1) Are non-convertible debt securities rated in one of the four
highest rating categories by Standard & Poor's Rating Services, Moody's
Investors Service, Inc., FitchRatings, Inc., Dominion Bond Rating
Service Limited, Dominion Bond Rating Service, Inc., or any successors
thereto (collectively, the Rating Organizations); provided that none of
the Rating Organizations rates such Securities in a category lower than
the fourth highest rating category; or
(2) Are debt securities issued or fully guaranteed by the United
States or by any person controlled or supervised by and acting as an
instrumentality of the United States pursuant to authority granted by
the Congress of the United States; or
(3) Are debt securities which are fully guaranteed by a person (the
Guarantor) that has been in continuous operation for not less than
three years, including the operation of any predecessors, provided that
such Guarantor has issued other securities registered under the 1933
Act; or if such Guarantor has issued other securities which are exempt
from such registration requirement, such Guarantor has been in
continuous operation for not less than three years, including the
operation of any predecessors, and such Guarantor:
(a) Is a bank; or
(b) Is an issuer of securities which are exempt from such
registration requirement, pursuant to a Federal statute other than the
1933 Act; or
(c) Is an issuer of securities that are the subject of a
distribution and are of a class which is required to be registered
under section 12 of the Securities Exchange Act of 1934 (the 1934 Act)
(15 U.S.C. 781), and are issued by an issuer that has been subject to
the reporting requirements of section 13 of the 1934 Act (15 U.S.C.
78m) for a period of at least ninety (90) days immediately preceding
the sale of such securities and that has filed all reports required to
be filed thereunder with the Securities and Exchange Commission (SEC)
during the preceding twelve (12) months.
(c) The aggregate amount of Securities of an issue purchased,
pursuant to this proposed exemption, by the asset management affiliate
of WFC with: (i) the assets of all Client Plans; and (ii) the assets,
calculated on a pro-rata basis, of all Client Plans and In-House Plans
investing in Pooled Funds managed by the asset management affiliate of
WFC; and (iii) the assets of plans to which the asset management
affiliate of WFC renders investment advice within the meaning of 29 CFR
2510.3-21(c) does not exceed:
[[Page 36050]]
(1) 10 percent (10%) of the total amount of the Securities being
offered in an issue, if such Securities are equity securities;
(2) 35 percent (35%) of the total amount of the Securities being
offered in an issue, if such Securities are debt securities rated in
one of the four highest rating categories by at least one of the Rating
Organizations; provided that none of the Rating Organizations rates
such Securities in a category lower than the fourth highest rating
category; or
(3) 25 percent (25%) of the total amount of the Securities being
offered in an issue, if such Securities are debt securities rated in
the fifth or sixth highest rating categories by at least one of the
Rating Organizations; provided that none of the Rating Organizations
rates such Securities in a category lower than the sixth highest rating
category; and
(4) The assets of any single Client Plan (and the assets of any
Client Plans and any In-House Plans investing in Pooled Funds) may not
be used to purchase any Securities being offered, if such Securities
are debt securities rated lower than the sixth highest rating category
by any of the Rating Organizations;
(5) Notwithstanding the percentage of Securities of an issue
permitted to be acquired, as set forth in Section II(c)(1), (2), and
(3), above, of this proposed exemption, the amount of Securities in any
issue (whether equity or debt securities) purchased, pursuant to this
proposed exemption, by the asset management affiliate of WFC on behalf
of any single Client Plan, either individually or through investment,
calculated on a pro-rata basis, in a Pooled Fund may not exceed three
percent (3%) of the total amount of such Securities being offered in
such issue, and;
(6) If purchased in an Eligible Rule 144A Offering, the total
amount of the Securities being offered for purposes of determining the
percentages, described, above, in Section II(c)(1)-(3) and (5), is the
total of:
(i) The principal amount of the offering of such class of
Securities sold by underwriters or members of the selling syndicate to
``qualified institutional buyers'' (QIBs), as defined in SEC Rule 144A
(17 CFR 230.144A(a)(1)); plus
(ii) The principal amount of the offering of such class of
Securities in any concurrent public offering.
(d) The aggregate amount to be paid by any single Client Plan in
purchasing any Securities which are the subject of this proposed
exemption, including any amounts paid by any Client Plan or In-House
Plan in purchasing such Securities through a Pooled Fund, calculated on
a pro-rata basis, does not exceed three percent (3%) of the fair market
value of the net assets of such Client Plan or In-House Plan, as of the
last day of the most recent fiscal quarter of such Client Plan or In-
House Plan prior to such transaction.
(e) The covered transactions are not part of an agreement,
arrangement, or understanding designed to benefit the asset management
affiliate of WFC or an affiliate.
(f) The Affiliated Broker-Dealer does not receive, either directly,
indirectly, or through designation, any selling concession, or other
compensation or consideration that is based upon the amount of
Securities purchased by any single Client Plan, or that is based on the
amount of Securities purchased by Client Plans or In-House Plans
through Pooled Funds, pursuant to this proposed exemption. In this
regard, the Affiliated Broker-Dealer may not receive, either directly
or indirectly, any compensation or consideration that is attributable
to the fixed designations generated by purchases of the Securities by
the asset management affiliate of WFC on behalf of any single Client
Plan or any Client Plan or In-House Plan in Pooled Funds.
(g)(1) The amount the Affiliated Broker-Dealer receives in
management, underwriting, or other compensation or consideration is not
increased through an agreement, arrangement, or understanding for the
purpose of compensating the Affiliated Broker-Dealer for foregoing any
selling concessions for those Securities sold pursuant to this proposed
exemption. Except as described above, nothing in this Section II(g)(1)
shall be construed as precluding the Affiliated Broker-Dealer from
receiving management fees for serving as manager of the underwriting or
selling syndicate, underwriting fees for assuming the responsibilities
of an underwriter in the underwriting or selling syndicate, or other
compensation or consideration that is not based upon the amount of
Securities purchased by the asset management affiliate of WFC on behalf
of any single Client Plan, or on behalf of any Client Plan or In-House
Plan participating in Pooled Funds, pursuant to this proposed
exemption; and
(2) The Affiliated Broker-Dealer shall provide to the asset
management affiliate of WFC a written certification, signed by an
officer of the Affiliated Broker-Dealer, stating the amount that the
Affiliated Broker-Dealer received in compensation or consideration
during the past quarter, in connection with any offerings covered by
this proposed exemption, was not adjusted in a manner inconsistent with
Section II(e), (f), or (g) of this proposed exemption.
(h) The covered transactions are performed under a written
authorization executed in advance by an independent fiduciary of each
single Client Plan (the Independent Fiduciary), as defined, below, in
Section III(g).
(i) Prior to the execution by an Independent Fiduciary of a single
Client Plan of the written authorization described, above, in Section
II(h), the following information and materials (which may be provided
electronically) must be provided by the asset management affiliate of
WFC to such Independent Fiduciary:
(1) A copy of the Notice of Proposed Exemption (the Notice) and a
copy of the final exemption as published in the Federal Register; and
(2) Any other reasonably available information regarding the
covered transactions that such Independent Fiduciary requests the asset
management affiliate of WFC to provide.
(j) Subsequent to the initial authorization by an Independent
Fiduciary of a single Client Plan permitting the asset management
affiliate of WFC to engage in the covered transactions on behalf of
such single Client Plan, the asset management affiliate of WFC will
continue to be subject to the requirement to provide within a
reasonable period of time any reasonably available information
regarding the covered transactions that the Independent Fiduciary
requests the asset management affiliate of WFC to provide.
(k)(1) In the case of an existing employee benefit plan investor
(or existing In-House Plan investor, as the case may be) in a Pooled
Fund, such Pooled Fund may not engage in any covered transactions
pursuant to this proposed exemption, unless the asset management
affiliate of WFC provides the written information, as described, below,
and within the time period described, below, in this Section II(k)(2),
to the Independent Fiduciary of each such plan participating in such
Pooled Fund (and to the fiduciary of each such In-House Plan
participating in such Pooled Fund).
(2) The following information and materials (which may be provided
electronically) shall be provided by the asset management affiliate of
WFC not less than 45 days prior to such asset management affiliate of
WFC engaging in the covered transactions on behalf of a Pooled Fund,
pursuant to this proposed exemption:
[[Page 36051]]
(i) A notice of the intent of such Pooled Fund to purchase
Securities pursuant to this proposed exemption, a copy of this Notice,
and a copy of the final exemption, as published in the Federal
Register;
(ii) Any other reasonably available information regarding the
covered transactions that the Independent Fiduciary of a plan (or
fiduciary of an In-House Plan) participating in a Pooled Fund requests
the asset management affiliate of WFC to provide; and
(iii) A termination form expressly providing an election for the
Independent Fiduciary of a plan (or fiduciary of an In-House Plan)
participating in a Pooled Fund to terminate such plan's (or In-House
Plan's) investment in such Pooled Fund without penalty to such plan (or
In-House Plan). Such form shall include instructions specifying how to
use the form. Specifically, the instructions will explain that such
plan (or such In-House Plan) has an opportunity to withdraw its assets
from a Pooled Fund for a period of no more than 30 days after such
plan's (or such In-House Plan's) receipt of the initial notice of
intent, described, above, in Section II(k)(2)(i), and that the failure
of the Independent Fiduciary of such plan (or fiduciary of such In-
House Plan) to return the termination form to the asset management
affiliate of WFC in the case of a plan (or In-House Plan) participating
in a Pooled Fund by the specified date shall be deemed to be an
approval by such plan (or such In-House Plan) of its participation in
the covered transactions as an investor in such Pooled Fund.
Further, the instructions will identify WFC, the asset management
affiliate of WFC, and the Affiliated Broker-Dealer and will provide the
address of the asset management affiliate of WFC. The instructions will
state that this proposed exemption may be unavailable, unless the
fiduciary of each plan participating in the covered transactions as an
investor in a Pooled Fund is, in fact, independent of WFC, the asset
management affiliate of WFC, and the Affiliated Broker-Dealer. The
instructions will also state that the fiduciary of each such plan must
advise the asset management affiliate of WFC, in writing, if it is not
an ``Independent Fiduciary,'' as that term is defined, below, in
Section III(g).
For purposes of this Section II(k), the requirement that the
fiduciary responsible for the decision to authorize the transactions
described, above, in Section I of this proposed exemption for each plan
be independent of the asset management affiliate of WFC shall not apply
in the case of an In-House Plan.
(l)(1) In the case of each plan (and in the case of each In-House
Plan) whose assets are proposed to be invested in a Pooled Fund after
such Pooled Fund has satisfied the conditions set forth in this
proposed exemption to engage in the covered transactions, the
investment by such plan (or by such In-House Plan) in the Pooled Fund
is subject to the prior written authorization of an Independent
Fiduciary representing such plan (or the prior written authorization by
the fiduciary of such In-House Plan, as the case may be), following the
receipt by such Independent Fiduciary of such plan (or by the fiduciary
of such In-House Plan, as the case may be) of the written information
described, above, in Section II(k)(2)(i) and (ii).
(2) For purposes of this Section II(l), the requirement that the
fiduciary responsible for the decision to authorize the transactions
described, above, in Section I of this proposed exemption for each plan
proposing to invest in a Pooled Fund be independent of WFC and its
affiliates shall not apply in the case of an In-House Plan.
(m) Subsequent to the initial authorization by an Independent
Fiduciary of a plan (or by a fiduciary of an In-House Plan) to invest
in a Pooled Fund that engages in the covered transactions, the asset
management affiliate of WFC will continue to be subject to the
requirement to provide within a reasonable period of time any
reasonably available information regarding the covered transactions
that the Independent Fiduciary of such plan (or the fiduciary of such
In-House Plan, as the case may be) requests the asset management
affiliate of WFC to provide.
(n) At least once every three months, and not later than 45 days
following the period to which such information relates, the asset
management affiliate of WFC shall furnish:
(1) In the case of each single Client Plan that engages in the
covered transactions, the information described, below, in this Section
II(n)(3)-(7), to the Independent Fiduciary of each such single Client
Plan.
(2) In the case of each Pooled Fund in which a Client Plan (or in
which an In-House Plan) invests, the information described, below, in
this Section II(n)(3)-(6) and (8), to the Independent Fiduciary of each
such Client Plan (and to the fiduciary of each such In-House Plan)
invested in such Pooled Fund.
(3) A quarterly report (the Quarterly Report) (which may be
provided electronically) which discloses all the Securities purchased
pursuant to this proposed exemption during the period to which such
report relates on behalf of the Client Plan, In-House Plan, or Pooled
Fund to which such report relates, and which discloses the terms of
each of the transactions described in such report, including:
(i) The type of Securities (including the rating of any Securities
which are debt securities) involved in each transaction;
(ii) The price at which the Securities were purchased in each
transaction;
(iii) The first day on which any sale was made during the offering
of the Securities;
(iv) The size of the issue of the Securities involved in each
transaction;
(v) The number of Securities purchased by the asset management
affiliate of WFC for the Client Plan, In-House Plan, or Pooled Fund to
which the transaction relates;
(vi) The identity of the underwriter from whom the Securities were
purchased for each transaction;
(vii) The underwriting spread in each transaction (i.e., the
difference, between the price at which the underwriter purchases the
Securities from the issuer and the price at which the Securities are
sold to the public);
(viii) The price at which any of the Securities purchased during
the period to which such report relates were sold; and
(ix) The market value at the end of the period to which such report
relates of the Securities purchased during such period and not sold;
(4) The Quarterly Report contains:
(i) a representation that the asset management affiliate of WFC has
received a written certification signed by an officer of the Affiliated
Broker-Dealer, as described, above, in Section II(g)(2), affirming
that, as to each AUT covered by this proposed exemption during the past
quarter, the Affiliated Broker-Dealer acted in compliance with Section
II(e), (f), and (g) of this proposed exemption, and
(ii) a representation that copies of such certifications will be
provided upon request;
(5) A disclosure in the Quarterly Report that states that any other
reasonably available information regarding a covered transaction that
an Independent Fiduciary (or fiduciary of an In-House Plan) requests
will be provided, including, but not limited to:
(i) The date on which the Securities were purchased on behalf of
the Client Plan (or the In-House Plan) to which the disclosure relates
(including Securities purchased by Pooled Funds in which such Client
Plan (or such In-House Plan) invests;
[[Page 36052]]
(ii) The percentage of the offering purchased on behalf of all
Client Plans (and the pro-rata percentage purchased on behalf of Client
Plans and In-House Plans investing in Pooled Funds); and
(iii) The identity of all members of the underwriting syndicate;
(6) The Quarterly Report discloses any instance during the past
quarter where the asset management affiliate of WFC was precluded for
any period of time from selling Securities purchased under this
proposed exemption in that quarter because of its status as an
affiliate of an Affiliated Broker-Dealer and the reason for this
restriction;
(7) Explicit notification, prominently displayed in each Quarterly
Report sent to the Independent Fiduciary of each single Client Plan
that engages in the covered transactions that the authorization to
engage in such covered transactions may be terminated, without penalty
to such single Client Plan, within five (5) days after the date that
the Independent Fiduciary of such single Client Plan informs the person
identified in such notification that the authorization to engage in the
covered transactions is terminated; and
(8) Explicit notification, prominently displayed in each Quarterly
Report sent to the Independent Fiduciary of each Client Plan (and to
the fiduciary of each In-House Plan) that engages in the covered
transactions through a Pooled Fund that the investment in such Pooled
Fund may be terminated, without penalty to such Client Plan (or such
In-House Plan), within such time as may be necessary to effect the
withdrawal in an orderly manner that is equitable to all withdrawing
plans and to the non-withdrawing plans, after the date that that the
Independent Fiduciary of such Client Plan (or the fiduciary of such In-
House Plan, as the case may be) informs the person identified in such
notification that the investment in such Pooled Fund is terminated.
(o) For purposes of engaging in covered transactions, each Client
Plan (and each In-House Plan) shall have total net assets with a value
of at least $50 million (the $50 Million Net Asset Requirement). For
purposes of engaging in covered transactions involving an Eligible Rule
144A Offering,\2\ each Client Plan (and each In-House Plan) shall have
total net assets of at least $100 million in securities of issuers that
are not affiliated with such Client Plan (or such In-House Plan, as the
case may be) (the $100 Million Net Asset Requirement).
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\2\ SEC Rule 10f-3(a)(4), 17 C.F.R. Sec. 270.10f-3(a)(4),
states that the term ``Eligible Rule 144A Offering'' means an
offering of securities that meets the following conditions:
(i) The securities are offered or sold in transactions exempt
from registration under section 4(2) of the Securities Act of 1933
[15 U.S.C. 77d(d)], rule 144A thereunder [Sec. 230.144A of this
chapter], or rules 501-508 thereunder [Sec. Sec. 230.501-230-508 of
this chapter];
(ii) The securities are sold to persons that the seller and any
person acting on behalf of the seller reasonably believe to include
qualified institutional buyers, as defined in Sec. 230.144A(a)(1)
of this chapter; and
(iii) The seller and any person acting on behalf of the seller
reasonably believe that the securities are eligible for resale to
other qualified institutional buyers pursuant to Sec. 230.144A of
this chapter.
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For purposes of a Pooled Fund engaging in covered transactions,
each Client Plan (and each In-House Plan) in such Pooled Fund shall
have total net assets with a value of at least $50 million.
Notwithstanding the foregoing, if each such Client Plan (and each such
In-House Plan) in such Pooled Fund does not have total net assets with
a value of at least $50 million, the $50 Million Net Asset Requirement
will be met, if 50 percent (50%) or more of the units of beneficial
interest in such Pooled Fund are held by Client Plans (or by In-House
Plans) each of which has total net assets with a value of at least $50
million. For purposes of a Pooled Fund engaging in covered transactions
involving an Eligible Rule 144A Offering, each Client Plan (and each
In-House Plan) in such Pooled Fund shall have total net assets of at
least $100 million in securities of issuers that are not affiliated
with such Client Plan (or such In-House Plan, as the case may be).
Notwithstanding the foregoing, if each such Client Plan (and each such
In-House Plan) in such Pooled Fund does not have total net assets of at
least $100 million in securities of issuers that are not affiliated
with such Client Plan (or In-House Plan, as the case may be), the $100
Million Net Asset Requirement will be met if 50 percent (50%) or more
of the units of beneficial interest in such Pooled Fund are held by
Client Plans (or by In-House Plans) each of which have total net assets
of at least $100 million in securities of issuers that are not
affiliated with such Client Plan (or such In-House Plan, as the case
may be), and the Pooled Fund itself qualifies as a QIB, as determined
pursuant to SEC Rule 144A (17 CFR 230.144A(a)(F)).
For purposes of the net asset requirements described, above, in
this Section II(o), where a group of Client Plans is maintained by a
single employer or controlled group of employers, as defined in section
407(d)(7) of the Act, the $50 Million Net Asset Requirement (or in the
case of an Eligible Rule 144A Offering, the $100 Million Net Asset
Requirement) may be met by aggregating the assets of such Client Plans,
if the assets of such Client Plans are pooled for investment purposes
in a single master trust.
(p) The asset management affiliate of WFC qualifies as a
``qualified professional asset manager'' (QPAM), as that term is
defined under Part V(a) of PTE 84-14. Notwithstanding the fact that the
asset management affiliate of WFC satisfies the requirements, as set
forth in Part V(a) of PTE 84-14, such asset management affiliate of WFC
must also have total client assets under its management and control in
excess of $5 billion, as of the last day of its most recent fiscal year
and shareholders' or partners' equity in excess of $1 million.
Furthermore, the requirement that the asset management affiliate of WFC
must have total client assets under its management and control in
excess of $5 billion, as of the last day of its most recent fiscal year
and shareholders' or partners' equity in excess of $1 million, as set
forth in this Section II(p), applies whether such asset management
affiliate of WFC, qualifies as a QPAM, pursuant to Part V(a)(1),
(a)(2), (a)(3) or (a)(4) of PTE 84-14.
(q) No more than 20 percent of the assets of a Pooled Fund at the
time of a covered transaction, are comprised of assets of In-House
Plans for which WFC, the asset management affiliate of WFC, the
Affiliated Broker-Dealer, or an affiliate exercises investment
discretion.
(r) The asset management affiliate of WFC, and the Affiliated
Broker-Dealer, as applicable, maintain, or cause to be maintained, for
a period of six (6) years from the date of any covered transaction such
records as are necessary to enable the persons, described, below, in
Section II(s), to determine whether the conditions of this proposed
exemption have been met, except that--
(1) No party in interest with respect to a plan which engages in
the covered transactions, other than WFC, the asset management
affiliate of WFC, and the Affiliated Broker-Dealer, as applicable,
shall be subject to a civil penalty under section 502(i) of the Act or
the taxes imposed by section 4975(a) and (b) of the Code, if such
records are not maintained, or not available for examination, as
required, below, by Section II(s); and
(2) A prohibited transaction shall not be considered to have
occurred solely because, due to circumstances beyond the control of the
asset management affiliate of WFC, or the Affiliated Broker-Dealer, as
applicable, such records are lost or destroyed prior to the end of the
six-year period.
(s)(1) Except as provided, below, in Section II(s)(2), and
notwithstanding any provisions of subsections (a)(2) and
[[Page 36053]]
(b) of section 504 of the Act, the records referred to, above, in
Section II(r) are unconditionally available at their customary location
for examination during normal business hours by--
(i) Any duly authorized employee or representative of the
Department, the Internal Revenue Service, or the SEC; or
(ii) Any fiduciary of any plan that engages in the covered
transactions, or any duly authorized employee or representative of such
fiduciary; or
(iii) Any employer of participants and beneficiaries and any
employee organization whose members are covered by a plan that engages
in the covered transactions, or any authorized employee or
representative of these entities; or
(iv) Any participant or beneficiary of a plan that engages in the
covered transactions, or duly authorized employee or representative of
such participant or beneficiary;
(2) None of the persons described, above, in Section II(s)(1)(ii)-
(iv) shall be authorized to examine trade secrets of the asset
management affiliate of WFC, or the Affiliated Broker-Dealer, or
commercial or financial information which is privileged or
confidential; and
(3) Should the asset management affiliate of WFC, or the Affiliated
Broker-Dealer refuse to disclose information on the basis that such
information is exempt from disclosure, pursuant to Section II(s)(2),
above, the asset management affiliate of WFC shall, by the close of the
thirtieth (30th) day following the request, provide a written notice
advising that person of the reasons for the refusal and that the
Department may request such information.
Section III--Definitions
(a) The term, ``the Applicant,'' means WFC.
(b) The term, ``Affiliated Broker-Dealer,'' means any broker-dealer
affiliate, as ``affiliate'' is defined, below, in Section III(c), of
the Applicant, as ``Applicant'' is defined, above, in Section III(a),
that meets the requirements of this proposed exemption. Such Affiliated
Broker-Dealer may participate in an underwriting or selling syndicate
as a manager or member. The term, ``manager,'' means any member of an
underwriting or selling syndicate who, either alone or together with
other members of the syndicate, is authorized to act on behalf of the
members of the syndicate in connection with the sale and distribution
of the Securities, as defined, below, in Section III(h), being offered
or who receives compensation from the members of the syndicate for its
services as a manager of the syndicate.
(c) The term ``affiliate'' of a person includes:
(1) Any person directly or indirectly through one or more
intermediaries, controlling, controlled by, or under common control
with such person;
(2) Any officer, director, partner, employee, or relative, as
defined in section 3(15) of the Act, of such person; and
(3) Any corporation or partnership of which such person is an
officer, director, partner, or employee.
(d) The term, ``control,'' means the power to exercise a
controlling influence over the management or policies of a person other
than an individual.
(e) The term, ``Client Plan(s),'' means an employee benefit plan(s)
that is subject to the Act and/or the Code, and for which plan(s) an
asset management affiliate of WFC exercises discretionary authority or
discretionary control respecting management or disposition of some or
all of the assets of such plan(s), but excludes In-House Plans, as
defined, below, in Section III(l).
(f) The term, ``Pooled Fund(s),'' means a common or collective
trust fund(s) or a pooled investment fund(s):
(1) In which employee benefit plan(s) subject to the Act and/or
Code invest,
(2) Which is maintained by an asset management affiliate of WFC,
(as the term, ``affiliate'' is defined, above, in Section III(c)), and
(3) For which such asset management affiliate of WFC exercises
discretionary authority or discretionary control respecting the
management or disposition of the assets of such fund(s).
(g)(1) The term, ``Independent Fiduciary,'' means a fiduciary of a
plan who is unrelated to, and independent of WFC, the asset management
affiliate of WFC, and the Affiliated Broker-Dealer. For purposes of
this proposed exemption, a fiduciary of a plan will be deemed to be
unrelated to, and independent of WFC, the asset management affiliate of
WFC, and the Affiliated Broker-Dealer, if such fiduciary represents
that neither such fiduciary, nor any individual responsible for the
decision to authorize or terminate authorization for the transactions
described, above, in Section I of this proposed exemption, is an
officer, director, or highly compensated employee (within the meaning
of section 4975(e)(2)(H) of the Code) of WFC, the asset management
affiliate of WFC, or the Affiliated Broker-Dealer, and represents that
such fiduciary shall advise the asset management affiliate of WFC
within a reasonable period of time after any change in such facts
occur.
(2) Notwithstanding anything to the contrary in this Section
III(g), a fiduciary of a plan is not independent:
(i) If such fiduciary directly or indirectly controls, is
controlled by, or is under common control with WFC, the asset
management affiliate of WFC, or the Affiliated Broker-Dealer;
(ii) If such fiduciary directly or indirectly receives any
compensation or other consideration from WFC, the asset management
affiliate of WFC, or the Affiliated Broker-Dealer for his or her own
personal account in connection with any transaction described in this
proposed exemption;
(iii) If any officer, director, or highly compensated employee
(within the meaning of section 4975(e)(2)(H) of the Code) of the asset
management affiliate of WFC responsible for the transactions described,
above, in Section I of this proposed exemption, is an officer,
director, or highly compensated employee (within the meaning of section
4975(e)(2)(H) of the Code) of the sponsor of the plan or of the
fiduciary responsible for the decision to authorize or terminate
authorization for the transactions described, above, in Section I.
However, if such individual is a director of the sponsor of the plan or
of the responsible fiduciary, and if he or she abstains from
participation in: (A) The choice of the plan's investment manager/
adviser; and (B) the decision to authorize or terminate authorization
for transactions described, above, in Section I, then Section
III(g)(2)(iii) shall not apply.
(3) The term, ``officer,'' means a president, any vice president in
charge of a principal business unit, division, or function (such as
sales, administration, or finance), or any other officer who performs a
policy-making function for WFC or any affiliate thereof.
(h) The term, ``Securities,'' shall have the same meaning as
defined in section 2(36) of the Investment Company Act of 1940 (the
1940 Act), as amended (15 U.S.C. 80a-2(36) (1996)). For purposes of
this proposed exemption, mortgage-backed or other asset-backed
securities rated by one of the Rating Organizations, as defined, below,
in Section III(k), will be treated as debt securities.
(i) The term, ``Eligible Rule 144A Offering,'' shall have the same
meaning as defined in SEC Rule 10f-3(a)(4) (17 CFR 270.10f-3(a)(4))
under the 1940 Act).
(j) The term, ``qualified institutional buyer,'' or the term,
``QIB,'' shall have the same meaning as defined in SEC
[[Page 36054]]
Rule 144A (17 CFR 230.144A(a)(1)) under the 1933 Act.
(k) The term, ``Rating Organizations,'' means Standard & Poor's
Rating Services, Moody's Investors Service, Inc., FitchRatings, Inc.,
Dominion Bond Rating Service Limited, and Dominion Bond Rating Service,
Inc., or any successors thereto.
(l) The term, ``In-House Plan(s),'' means an employee benefit
plan(s) that is subject to the Act and/or the Code, and that is
sponsored by the Applicant, as defined, above, in Section III(a) for
its own employees.
Summary of Facts and Representations
The Applicant
1. WFC (i.e., the Applicant) is a diversified financial services
company organized under the laws of Delaware and registered as a bank
holding company and financial holding company under the Bank Holding
Company Act of 1956. The Applicant engages in banking and a variety of
related financial services businesses. Retail, commercial and corporate
banking services are provided through banking stores in a number of
states. Other financial services are provided by subsidiaries engaged
in various businesses, such as wholesale banking, mortgage banking,
consumer finance, equipment leasing, agricultural finance, commercial
finance, securities brokerage and investment banking, insurance agency
services, computer and data processing services, trust services,
mortgage-backed securities servicing and venture capital investment.
Subsidiaries of the Applicant manage institutional portfolios for
mutual funds, corporations, pension plans, endowments, foundations,
health care organizations, public agencies, sovereign organizations,
insurance companies and Taft-Hartley plans. These affiliates act as
fiduciaries to employee benefit plans, providing trustee,
recordkeeping, consulting and investment management services. The
Applicant and its affiliates' activities are subject to oversight and
regulation by the Securities and Exchange Commission (the SEC), the
Federal Reserve Board and the Office of the Comptroller of the
Currency.
Requested Exemption
2. The Applicant requests a prohibited transaction exemption that
would permit the purchase of certain securities by an asset management
affiliate of WFC (the Asset Manager), acting on behalf of Client Plans
subject to the Act or Code, and acting on behalf of Client Plans and
In-House Plans which are invested in certain Pooled Funds for which an
Asset Manager acts as a fiduciary, from any person other than such
Asset Manager or any affiliate thereof, during the existence of an
underwriting or selling syndicate with respect to such Securities,
where an Affiliated Broker-Dealer is a manager or member of such
syndicate. Further, the Affiliated Broker-Dealer will receive no
selling concessions in connection with the Securities sold to such
plans.
3. The Applicant represents that if the Affiliated Broker-Dealer is
a member of an underwriting or selling syndicate, the Asset Manager may
purchase underwritten securities for Client Plans in accordance with
Part III of Prohibited Transaction Exemption (PTE) 75-1, (40 FR 50845,
October 31, 1975). Part III provides limited relief from the Act's
prohibited transaction provisions for plan fiduciaries that purchase
securities from an underwriting or selling syndicate of which the
fiduciary or an affiliate is a member. However, such relief is not
available if the Affiliated Broker-Dealer manages the underwriting or
selling syndicate.
4. In addition, regardless of whether a fiduciary or its affiliate
is a manager or merely a member of an underwriting or selling
syndicate, PTE 75-1 does not provide relief for the purchase of
unregistered securities. This includes securities purchased by an
underwriter for resale to a ``qualified institutional buyer'' (QIB)
pursuant to the SEC's Rule 144A under the Securities Act of 1933 (the
1933 Act). Rule 144A is commonly utilized in connection with sales of
securities issued by foreign corporations to U.S. investors that are
QIBs. Notwithstanding the unregistered nature of such shares, it is
represented that syndicates selling securities under Rule 144A (Rule
144A Securities) are the functional equivalent of those selling
registered securities.
5. The Applicant represents that the Affiliated Broker-Dealer
regularly serves as manager of underwriting or selling syndicates for
registered securities, and as a manager or a member of underwriting or
selling syndicates for Rule 144A Securities. Accordingly, the Asset
Manager is currently unable to purchase on behalf of the Client Plans
Rule 144A Securities sold in such offerings, resulting in such Client
Plans being unable to participate in significant investment
opportunities. In addition, since 1975, there has been a significant
amount of consolidation in the financial services industry in the
United States. As a result, there are more situations in which a plan
fiduciary may be affiliated with the manager of an underwriting
syndicate. Further, many plans have expanded investment portfolios in
recent years to include securities issued by foreign corporations. As a
result, the exemption provided in PTE 75-1, Part III, is often
unavailable for purchase of domestic and foreign securities that may
otherwise constitute appropriate plan investments.
Client Plan Investments in Offered Securities
6. The Applicant represents that the Asset Manager makes its
investment decisions on behalf of, or renders investment advice to,
Client Plans pursuant to the governing document of the particular
Client Plan or Pooled Fund and the investment guidelines and objectives
set forth in the management or advisory agreement. Because the Client
Plans are covered by Title I of the Act, such investment decisions are
subject to the fiduciary responsibility provisions of the Act.
7. The Applicant states, therefore, that the decision to invest in
a particular offering is made on the basis of price, value and a Client
Plan's investment criteria, not on whether the securities are currently
being sold through an underwriting or selling syndicate. The Applicant
further states that, because the Asset Manager's compensation for its
services is generally based upon assets under management, the Asset
Manager has little incentive to purchase securities in an offering in
which the Affiliated Broker Dealer is an underwriter unless such a
purchase is in the interests of Client Plans. If the assets under
management do not perform well, the Asset Manager will receive less
compensation and could lose clients, costs which far outweigh any gains
from the purchase of underwritten securities.\3\
---------------------------------------------------------------------------
\1\ In fact, under the terms of the proposed exemption set forth
herein, the Affiliated Broker-Dealer may receive no compensation or
other consideration, direct or indirect, in connection with any
transaction that would be permitted under the proposed exemption.
---------------------------------------------------------------------------
8. The Applicant states that the Asset Manager generally purchases
securities in large blocks because the same investments will be made
across several accounts. If there is a new offering of an equity or
fixed income security that the Asset Manager wishes to purchase, it may
be able to purchase the security through the offering syndicate at a
lower price than it would pay in the open market, without transaction
costs and with reduced market impact if it is buying a relatively large
quantity. This is because a large purchase in the open market can cause
an increase in the market price and, consequently, in the
[[Page 36055]]
cost of the securities. Purchasing from an offering syndicate can thus
reduce the costs to the Client Plans.
9. However, absent an exemption, if the Affiliated Broker-Dealer is
a manager of a syndicate that is underwriting a securities offering,
the Asset Manager will be foreclosed from purchasing any securities on
behalf of its Client Plans from that underwriting syndicate. This will
force the Asset Manager to purchase the same securities in the
secondary market. In such a circumstance, the Client Plans may incur
greater costs both because the market price is often higher than the
offering price, and because of transaction and market impact costs. In
turn, this will cause the Asset Manager to forego other investment
opportunities because the purchase price of the underwritten security
in the secondary market exceeds the price that the Asset Manager would
have paid to the selling syndicate.
Underwriting of Securities Offerings
10. The Applicant represents that the Affiliated Broker-Dealer
currently manages and participates in firm commitment underwriting
syndicates for registered offerings of both equity and debt securities.
While equity and debt underwritings may operate differently with regard
to the actual sales process, the basic structures are the same. In a
firm commitment underwriting, the underwriting syndicate acquires the
securities from the issuer and then sells the securities to investors.
11. The Applicant represents that while, as a legal matter, a
selling syndicate assumes the risk that the underwritten securities
might not be fully sold, as a practical matter, this risk is reduced,
in marketed deals, through ``building a book'' (i.e., taking
indications of interest from potential purchasers) prior to pricing the
securities. Accordingly, there is no incentive for the underwriters to
use their discretionary accounts (or the discretionary accounts of
their affiliates) to buy up the securities as a way to avoid
underwriting liabilities.
12. Each selling syndicate has a lead manager, who is the principal
contact between the syndicate and the issuer and who is responsible for
organizing and coordinating the syndicate. The syndicate may also have
co-managers, who generally assist the lead manager in working with the
issuer to prepare the registration statement to be filed with the SEC
and in distributing the underwritten securities. While equity
syndicates typically include additional members that are not managers,
more recently, membership in many debt syndicates has been limited to
lead and co-managers.
13. If more than one underwriter is involved in a selling
syndicate, the lead manager, who has been selected by the issuer of the
underwritten securities, contacts other underwriters, and the
underwriters enter into an ``Agreement Among Underwriters.'' Most lead
managers have a standing form of agreement. This document is then
supplemented for the particular deal by sending an ``invitation telex''
or ``terms telex'' that sets forth particular terms to the other
underwriters.
14. The arrangement between the syndicate and the issuer of the
underwritten securities is embodied in an underwriting agreement, which
is signed on behalf of the underwriters by one or more of the managers.
In a firm commitment underwriting, the underwriting agreement provides,
subject to certain closing conditions, that the underwriters are
obligated to purchase the underwritten securities from the issuer in
accordance with their respective commitments. This obligation is met by
using the proceeds received from the buyers of the securities in the
offering, although there is a risk that the underwriters will have to
pay for a portion of the securities in the event that not all of the
securities are sold.
15. The Applicant represents that, generally, the risk that the
securities will not be sold is small because the underwriting agreement
is not executed until after the underwriters have obtained sufficient
indications of interest to purchase the securities from a sufficient
number of investors to assure that all the securities being offered
will be acquired by investors. Once the underwriting agreement is
executed, the underwriters immediately begin contacting the investors
to confirm the sales, first orally and then by written confirmation,
and sales are finalized within hours and sometimes minutes. In
registered transactions, the underwriters are particularly anxious to
complete the sales as soon as possible because until they ``break
syndicate,'' they cannot enter the market. In many cases, the
underwriters will act as market-makers for the security. A market-maker
holds itself out as willing to buy or sell the security for its own
account on a regular basis.
16. The Applicant represents that the process of ``building a
book'' or soliciting indications of interest occurs as follows: In a
registered equity offering, after a registration statement is filed
with the SEC and, while it is under review by the SEC staff,
representatives of the issuer of the securities and the selling
syndicate managers conduct meetings with potential investors, who learn
about the company and the underwritten securities. Potential investors
also receive a preliminary prospectus. The underwriters cannot make any
firm sales until the registration statement is declared effective by
the SEC. Prior to the effective date, while the investors cannot become
legally obligated to make a purchase, they indicate whether they have
an interest in buying, and the managers compile a ``book'' of investors
who are willing to ``circle'' a particular portion of the issue. These
indications of interest are sometimes referred to as a ``soft circle''
because investors cannot be legally bound to buy the securities until
the registration statement is effective. However, the Applicant
represents that investors generally follow through on their indications
of interest, and would be expected to do so, barring any sudden adverse
developments (in which case it is likely that the offering would be
withdrawn or the price range modified and the process restarted),
because, if the investors that gave an indication of interest do not
follow through, the underwriters may be reluctant to include them in
future offerings.
17. Assuming that the marketing efforts have produced sufficient
indications of interest, the Applicant represents that the issuer of
the securities and the selling syndicate managers together will set the
price of the securities and ask the SEC to declare the registration
effective. After the registration statement becomes effective and the
underwriting agreement is executed, the underwriters contact those
investors that have indicated an interest in purchasing securities in
the offering to execute the sales. The Applicant represents that
offerings are often oversubscribed, and many have an over-allotment
option that the underwriters can exercise to acquire additional shares
from the issuer. Where an offering is oversubscribed, the underwriters
decide how to allocate the securities among the potential purchasers.
However, pursuant to the National Association of Securities Dealers
Rule 2790, new issue securities (as defined under such rule) may not be
sold directly to: officers, directors, general partners or associated
persons of any broker-dealer (other than limited business broker-
dealers); any person who has the authority to buy or sell securities
for: a bank, saving and loan institution, insurance and investment
companies, investment advisors and collective investment
[[Page 36056]]
accounts; and certain of the family members of such persons
(collectively, ``restricted persons''). Restricted persons may still
participate, to a limited extent, in allocations of ``new issues''
through pooled investment vehicles in which they invest and may receive
directly new issue allocations in certain other limited circumstances.
18. The Applicant represents that debt offerings may be
``negotiated'' offerings, ``competitive bid'' offerings, or ``bought
deals.'' ``Negotiated'' offerings, which often involve non-investment
grade securities, are conducted in the same manner as an equity
offering with regard to when the underwriting agreement is executed and
how the securities are offered. ``Competitive bid'' offerings, in which
the issuer determines the price for the securities through competitive
bidding rather than negotiating the price with the underwriting
syndicate, are performed under ``shelf'' registration statements
pursuant to the SEC's Rule 415 under the 1933 Act (17 CFR 230.415).\4\
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\4\ Rule 415 permits an issuer to sell debt as well as equity
securities under an effective registration statement previously
filed with the SEC by filing a post-effective amendment or
supplemental prospectus.
---------------------------------------------------------------------------
19. In a competitive bid offering, prospective lead underwriters
will bid against one another to purchase debt securities, based upon
their determinations of the degree of investor interest in the
securities. Depending on the level of investor interest and the size of
the offering, a bidding lead underwriter may bring in co-managers to
assist in the sales process. Most of the securities are frequently sold
within hours, or sometimes even less than an hour, after the securities
are made available for purchase.
20. Because of market forces and the requirements of Rule 415, the
competitive bid process is generally available only to issuers of
investment-grade securities who have been subject to the reporting
requirements of the 1934 Act for at least one (1) year.
21. Occasionally, in highly-rated debt issues, underwriters ``buy''
the entire deal off of a ``shelf registration'' before obtaining
indications of interest. These ``bought'' deals involve issuers whose
securities enjoy a deep and liquid secondary market, such that an
underwriter has confidence without pre-marketing that it can identify
purchasers for the bonds.
Structure of Diversified Financial Services Firms
22. The Applicant represents that there are internal policies in
place that restrict contact and the flow of information between
investment management personnel and non-investment management personnel
in the same or affiliated financial service firms. These policies are
designed to protect against ``insider trading,'' i.e., trading on
information not available to the general public that may affect the
market price of the securities. Diversified financial services firms
must be concerned about insider trading problems because one part of
the firm--e.g., the mergers and acquisitions group--could come into
possession of non-public information regarding an upcoming transaction
involving a particular issuer, while another part of the firm--e.g.,
the investment management group--could be trading in the securities of
that issuer for its clients.
23. The Applicant represents that the business separation policies
and procedures of WFC and its affiliates are also structured to
restrict the flow of any information to or from the Asset Manager that
could limit its flexibility in managing client assets, and of
information obtained or developed by the Asset Manager that could be
used by other parts of the organization, to the detriment of the Asset
Manager's clients.
24. The Applicant represents that major clients of the Affiliated
Broker-Dealer include investment management firms that are competitors
of the Asset Manager. Similarly, the Asset Manager deals on a regular
basis with broker-dealers that compete with the Affiliated Broker-
Dealer. If special consideration were shown to an affiliate, such
conduct would likely have an adverse effect on the relationships of the
Affiliated Broker-Dealer and of the Asset Manager with firms that
compete with such affiliate. Therefore, a goal of the Applicant's
business separation policy is to avoid any possible perception of
improper flows of information between the Affiliated Broker-Dealer and
the Asset Manager, in order to prevent any adverse impact on client and
business relationships.
Underwriting Compensation
25. The Applicant represents that the underwriters are compensated
through the ``spread,'' or difference, between the price at which the
underwriters purchase the securities from the issuer and the price at
which the securities are sold to the public. The spread is divided into
three components.
26. The first component includes the management fee, which
generally represents an agreed upon percentage of the overall spread
and is allocated among the lead manager and co-managers. Where there is
more than one managing underwriter, the way the management fee will be
allocated among the managers is generally agreed upon between the
managers and the issuer prior to soliciting indications of interest.
Thus, the allocation of the management fee is not reflective of the
amount of securities that a particular manager sells in an offering.
27. The second component is the underwriting fee, which represents
compensation to the underwriters (including the non-managers, if any)
for the risks they assume in connection with the offering and for the
use of their capital. This component of the spread is also used to
cover the expenses of the underwriting that are not otherwise
reimbursed by the issuer of the securities.
28. The first and second components of the ``spread'' are received
without regard to how the underwritten securities are allocated for
sales purposes or to whom the securities are sold. The third component
of the spread is the selling concession, which generally constitutes 60
percent or more of the spread. The selling concession compensates the
underwriters for their actual selling efforts. The allocation of
selling concessions among the underwriters generally follows the
allocation of the securities for sales purposes. However, a buyer of
the underwritten securities may designate other broker-dealers (who may
be other underwriters, as well as broker-dealers outside the syndicate)
to receive the selling concessions arising from the securities they
purchase.
29. Securities are allocated for sales purposes into two
categories. The first and larger category is the ``institutional pot,''
which is the pot of securities from which sales are made to
institutional investors. Selling concessions for securities sold from
the institutional pot are generally designated by the purchaser to go
to particular underwriters or other broker-dealers. If securities are
sold from the institutional pot, the selling syndicate managers
sometimes receive a portion of the selling concessions, referred to as
a ``fixed designation,'' \5\ attributable to securities sold in this
category, without regard to who sold the securities or to whom they
were sold. For securities covered by this proposed exemption, however,
the Affiliated Broker-Dealer may not receive, either directly or
indirectly, any compensation or consideration that is attributable to
the fixed designation generated by
[[Page 36057]]
purchases of securities by the Asset Manager on behalf of its Client
Plans.
---------------------------------------------------------------------------
\5\ A fixed designation is sometimes referred to as an ``auto
pot split.''
---------------------------------------------------------------------------
30. The second category of allocated securities is ``retail,''
which are the securities retained by the underwriters for sale to their
retail customers. The underwriters receive the selling concessions from
their respective retail retention allocations. Securities may be
shifted between the two categories based upon whether either category
is oversold or undersold during the course of the offering.
31. The Applicant asserts that the Affiliated Broker-Dealer's
inability to receive any selling concessions, or any compensation
attributable to the fixed designations generated by purchases of
securities by the Asset Manager's Client Plans, removes the primary
economic incentive for the Asset Manager to make purchases that are not
in the interests of its Client Plans from offerings for which the
Affiliated Broker-Dealer is an underwriter. The reason is that the
Affiliated Broker-Dealer will not receive any additional fees as a
result of such purchases by the Asset Manager.
Rule 144A Securities
32. The Applicant represents that a number of the offerings of Rule
144A Securities in which the Affiliated Broker-Dealer participates
represent good investment opportunities for the Asset Manager's Client
Plans. Particularly with respect to foreign securities, a Rule 144A
offering may provide the least expensive and most accessible means for
obtaining these securities. However, PTE 75-1, Part III, does not cover
Rule 144A Securities. Therefore, absent an exemption, the Asset Manager
is foreclosed from purchasing such securities for its Client Plans in
offerings in which the Affiliated Broker-Dealer participates.
33. The Applicant states that Rule 144A acts as a ``safe harbor''
exemption from the registration provisions of the 1933 Act for sales of
certain types of securities to QIBs. QIBs include several types of
institutional entities, such as employee benefit plans and commingled
trust funds holding assets of such plans, which own and invest on a
discretionary basis at least $100 million in securities of unaffiliated
issuers.
34. Any securities may be sold pursuant to Rule 144A except for
those of the same class or similar to a class that is publicly traded
in the United States, or certain types of investment company
securities. This limitation is designed to prevent side-by-side public
and private markets developing for the same class of securities as is
the reason that Rule 144A transactions are generally limited to debt
securities.
35. Buyers of Rule 144A Securities must be able to obtain, upon
request, basic information concerning the business of the issuer and
the issuer's financial statements, much of the same information as
would be furnished if the offering were registered. This condition does
not apply, however, to an issuer filing reports with the SEC under the
1934 Act, for which reports are publicly available. The condition also
does not apply to a ``foreign private issuer'' for whom reports are
furnished to the SEC under Rule 12g3-2(b) of the 1934 Act (17 CFR
240.12g3-2(b)), or to issuers who are foreign governments or political
subdivisions thereof and are eligible to use Schedule B under the 1933
Act (which describes the information and documents required to be
contained in a registration statement filed by such issuers).
36. Sales under Rule 144A, like sales in a registered offering,
remain subject to the protections of the anti-fraud rules of federal
and state securities laws. These rules include Section 10(b) of the
1934 Act and Rule 10b-5 thereunder (17 CFR 240.10b-5) and Section 17(a)
of the 1933 Act (15 U.S.C. 77a). Through these and other provisions,
the SEC may use its full range of enforcement powers to exercise its
regulatory authority over the market for Rule 144A Securities, in the
event that it detects improper practices.
37. The Applicant represents that this potential liability for
fraud provides a considerable incentive to the issuer of the securities
and the members of the selling syndicate to insure that the information
contained in a Rule 144A offering memorandum is complete and accurate
in all material respects. Among other things, the lead manager
typically obtains an opinion from a law firm, commonly referred to as a
``10b-5'' opinion, stating that the law firm has no reason to believe
that the offering memorandum contains any untrue statement of material
fact or omits to state a material fact necessary in order to make sure
the statements made, in light of the circumstances under which they
were made, are not misleading.
38. The Applicant represents that Rule 144A offerings generally are
structured in the same manner as underwritten registered offerings. The
major difference is that a Rule 144A offering uses an offering
memorandum rather than a prospectus that is filed with the SEC. The
marketing process is the same in most respects, except that the selling
efforts are limited to contacting QIBs and there are no general
solicitations for buyers (e.g., no general advertising). In addition,
the Affiliated Broker-Dealer's role in these offerings is typically
that of a lead or co-manager. Generally, there are no non-manager
members in a Rule 144A selling syndicate. However, the Applicant
requests that the proposed exemption extend to authorization for
situations where the Affiliated Broker-Dealer acts only as a syndicate
member, not as a manager.
Summary
39. In summary, the Applicant represents that the proposed
transactions will satisfy the statutory criteria for an exemption set
forth in section 408(a) of the Act because:
(a) The Client Plans will gain access to desirable investment
opportunities;
(b) In each offering, the Asset Manager will purchase the
securities for its Client Plans from an underwriter or broker-dealer
other than the Affiliated Broker-Dealer;
(c) Conditions similar to those of PTE 75-1, Part III, will
restrict the types of securities that may be purchased, the types of
underwriting or selling syndicates and issuers involved, and the price
and timing of the purchases;
(d) The amount of securities that the Asset Manager may purchase on
behalf of Client Plans will be subject to percentage limitations;
(e) The Affiliated Broker-Dealer will not be permitted to receive,
either directly, indirectly or through designation, any selling
concessions with respect to the securities sold to the Asset Manager
for the account of a Client Plan;
(f) Prior to any purchase of securities, the Asset Manager will
make the required disclosures to an Independent Fiduciary of each
Client Plan and obtain written authorization to engage in the covered
transactions;
(g) The Asset Manager will provide regular reporting to an
Independent Fiduciary of each Client Plan with respect to all
securities purchased pursuant to the exemption, if granted;
(h) Each Client Plan will be subject to net asset requirements,
with certain exceptions for Pooled Funds; and
(i) the Asset Manager must have total assets under management in
excess of $5 billion and shareholders' or partners' equity in excess of
$1 million, in addition to qualifying as a QPAM, pursuant to Part V(a)
of PTE 84-14.
Notice to Intersted Persons: The Applicant represents that because
those potentially interested Plans proposing to engage in the covered
transactions cannot all be identified, the only practical means of
notifying Independent Plan Fiduciaries or Plan Participants of such
affected Plans is by publication of the proposed exemption in the
Federal Register. Therefore, any
[[Page 36058]]
comments from interested persons must be received by the Department no
later than 30 days from the publication of this notice of proposed
exemption in the Federal Register.
FOR FURTHER INFORMATION CONTACT: Mr. Gary H. Lefkowitz of the
Department, telephone (202) 693-8546. (This is not a toll-free number.)
Owens Corning Savings Plan and Owens Corning Savings and Security Plan
(collectively, the Plans)
Located in Toledo, Ohio
[Exemption Application Numbers D-11402 and D-11403, respectively]
Proposed Exemption
The Department is considering granting an exemption under the
authority of section 408(a) of the Act and section 4975(c)(2) of the
Code and in accordance with the procedures set forth in 29 CFR Part
2570 Subpart B (55 FR 32836, 32847, August 10, 1990). If the exemption
is granted, the restrictions of sections 406(a), 406(b)(1), 406(b)(2),
and 407(a) of the Act and the sanctions resulting from the application
of section 4975 of the Code, by reason of section 4975(c)(1)(A) through
(E) of the Code, shall not apply, effective October 31, 2006, to: (1)
The acquisition by the Plans of certain warrants (the Warrants) issued
by Owens Corning (the Applicant), a party in interest with respect to
the Plans, where such Warrants have been issued in exchange for the
common stock (the Old Common Stock) of the Applicant incident to a
bankruptcy reorganization; (2) The holding of the Warrants by each of
the Plans pending the exercise or other disposition of said Warrants;
and (3) The exercise of the Warrants by participants in the Plans to
permit acquisition of shares of the Applicant's new common stock (the
New Common Stock), provided that the following conditions were
satisfied:
(a) The Plans had no ability to affect the provisions of the Sixth
Amended Joint Plan of Reorganization for Owens Corning and Its
Affiliated Debtors and Debtors-in-Possession (the Reorganization Plan)
approved by the United States Bankruptcy Court for the District of
Delaware (the Bankruptcy Court) on September 26, 2006 pursuant to
Chapter 11 of Title 11 of the United States Code (the Bankruptcy Code);
(b) The acquisition and holding of the Warrants by the Plans
occurred in connection with the Reorganization Plan, in which all
holders of the Applicant's stock of the same class have been and will
be treated similarly;
(c) The Warrants were acquired automatically and without any action
on the part of the Plans;
(d) The Plans did not pay any fees or commissions in connection
with the acquisition or holding of the Warrants;
(e) The Plans will not pay any fees or commissions in connection
with the exercise of the Warrants; and
(f) All decisions regarding the exercise or other disposition of
the Warrants have been and will be made by the individual participants
of the Plans in whose accounts the Warrants were allocated, in
accordance with the respective provisions of the Plans pertaining to
the individually-directed investment of such accounts.
Summary of Facts and Representations
1. The Applicant, a leading manufacturer of building materials
systems and composite solutions, is a Delaware corporation with
business headquarters in Toledo, Ohio. The Applicant sponsors the
Plans, each of which is a defined contribution plan established and
maintained pursuant to the requirements of section 401(a) of the Code.
In addition, each of the Plans provides for participant-directed
individual accounts in accordance with the provisions of section 404(c)
of the Act and the corresponding regulations located at 29 CFR
2550.404c-1. The Owens Corning Savings and Security Plan held
$158,009,167.04 in assets as of September 27, 2006, and included 3,160
participants as of October 19, 2006. The Owens Corning Savings Plan
held $452,290,359.36 in assets as of September 27, 2006, and included
1,130 participants as of October 19, 2006.
2. On October 5, 2000, the Applicant (including seventeen of its
United States subsidiaries) filed voluntary petitions for relief under
Chapter 11 of the Bankruptcy Code. The Applicant filed for relief under
Chapter 11 to address the substantial and growing demands on the
Applicant's cash flow resulting from asbestos-related litigation. On
September 26, 2006, the Bankruptcy Court approved a Reorganization Plan
for the Company. Holders of the Old Common Stock (including the Plans)
were permitted to vote on the Reorganization Plan, and individual
participants in the Plans were similarly allowed to direct the voting
of the Old Common Stock allocated to their accounts. The Reorganization
Plan became effective on October 31, 2006, at which time the Old Common
Stock was delisted from the New York Stock Exchange and all outstanding
shares of the Old Common Stock were cancelled. On October 31, 2006, the
Applicant issued the Warrants to stockholders (including the Plans) in
full satisfaction of the Old Common Stock interests previously held by
the stockholders. The Applicant represents that the Warrants do not
constitute qualifying employer securities as defined in section
407(d)(5) of the Act. Each Warrant permits the holder to purchase a
share of the New Common Stock issued by the Applicant at the price of
$45.25 per share (the Strike Price). The Applicant represents that
Warrants which are not exercised by their respective holders shall
expire seven (7) years after their date of issuance.
3. The Applicant represents that, prior to September 29, 2000,
participants in each of the Plans could elect to have all or a portion
of their accounts invested in the Owens Corning Stock Fund (the Stock
Fund), which consisted primarily of Old Common Stock. Matching
contributions by the Applicant under each of the Plans that were made
before September 29, 2000 were invested in the Stock Fund; in addition,
50 percent of the Applicant's profit-sharing contributions to the Plans
made prior to that date were invested in the Stock Fund. The Stock Fund
was closed to new investments as of September 29, 2000; after that
date, participants in the Plans were no longer permitted to invest new
contributions or to transfer their existing Plan balances into the
Stock Fund.\6\ However, participants in each of the Plans retained the
right to transfer all or a portion of the amounts they had invested in
the Stock Fund to any other investment fund available under the
respective Plans. This transfer right ceased to apply as of October 31,
2006, when shares of the Old Common Stock were extinguished.
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\6\ The Department expresses no opinion herein as to whether, on
or before September 29, 2000, the fiduciaries of the Plans were in
compliance with the general fiduciary responsibility provisions of
Part 4 of Title I of the Act in connection with monitoring the
investment options available to participants in the Plans, including
the option to invest participant contributions in the Stock Fund.
---------------------------------------------------------------------------
4. The Applicant represents that the Warrants are, by their terms,
transferable. A market for the Warrants currently exists; the Applicant
represents that, as of February 27, 2007, each participant in the Plans
have been able to direct (and some have directed) the trustee of their
respective Plans to sell the Warrants allocated to their accounts
through the Plans' broker, Fidelity Brokerage Services LLC (Fidelity).
Fidelity is not affiliated with the Applicant. Current trading of the
Warrants occurs on the Over-the-Counter (OTC) market, and bid and ask
prices for the Warrants on the OTC market are listed on a centralized,
[[Page 36059]]
electronic quotation service known as the Pink Sheets.\7\ As of May 4,
2007, the Warrants were selling on the OTC market at $5.10-$5.15.\8\
The Applicant represents that commissions and Securities and Exchange
Commission (SEC) fees associated with the sale of the Warrants have
been and will be paid by participants; the commissions are paid to
Fidelity for execution of the trades. The Applicant further represents
that the commission rate charged by Fidelity for real time trades of
such securities is generally 2.9 cents per unit. In addition, as
required by law, Fidelity has deducted the so-called ``SEC Fee'',
currently in the amount of 0.00153%, from the cash proceeds of all the
executed trades and submitted it to the SEC.
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\7\ The symbol for the Warrants, known as the Class A12-A in the
Reorganization Plan, is OCWAZ.
\8\ Based on the Applicant's representations, to the extent the
Warrants are publicly traded on a national exchange to unrelated
third parties, no exemptive relief is being provided by the
Department.
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5. If the Department approves this exemption application, the
Applicant represents that participants currently holding the Warrants
will be permitted to exercise them to purchase shares of the New Common
Stock, but not if the current market price of the New Common Stock
remains below the Strike Price.\9\ If a participant in one of the Plans
determines to exercise the Warrants allocated to his or her account,
funds will be transferred from the participant's other investment
options under the Plan to purchase the New Common Stock.\10\ At this
particular time, the Applicant represents that there is no option that
would permit a participant to invest in the New Common Stock.
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\9\ The New Common Stock currently trades on the New York Stock
Exchange under the symbol OC. As of the close of trading on May 10,
2007, the share price of the New Common Stock stood at $31.69.
\10\ The Applicant acknowledges that the appropriate fiduciaries
of the Plans shall be responsible for monitoring the investment
options available to participants in the Plans, and taking such
action as they deem appropriate under the circumstances. For
example, such action may include preventing participants from
exercising the Warrants if the current market price for the New
Common Stock is below the Strike Price, or causing the Plans to sell
the Warrants in the event that it becomes clear that they would
otherwise expire unexercised by participants.
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6. In summary, the Applicant represents that the proposed
transaction meets the statutory criteria of section 408(a) of the Act
because: (a) The Plans had no ability to affect the provisions of the
Reorganization Plan approved by the Bankruptcy Court on September 26,
2006 pursuant to Chapter 11 of the Bankruptcy Code; (b) the acquisition
and holding of the Warrants by the Plans occurred in connection with
the Reorganization Plan, in which all holders of the Applicant's stock
of the same class have been and will be treated similarly; (c) the
Warrants were acquired automatically and without any action on the part
of the Plans; (d) the Plans did not pay any fees or commissions in
connection with the acquisition or holding of the Warrants; (e) the
Plans will not pay any fees or commissions in connection with the
exercise of the Warrants; and (f) all decisions regarding the exercise
or other disposition of the Warrants have been and will be made by the
individual participants of the Plans in whose accounts the Warrants
were allocated, in accordance with the respective provisions of the
Plans pertaining to the individually-directed investment of such
accounts.
Notice to Interested Persons: Notice of the proposed exemption
shall be given 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. Comments and requests for a
hearing are due forty-five (45) days after publication of the notice in
the Federal Register.
FOR FURTHER INFORMATION CONTACT: Mr. Mark Judge of the Department,
telephone (202) 693-8339. (This is not a toll-free number).
BSC Services Corp. 401(k) Profit Sharing Plan (the Plan)
Located in Philadelphia, PA
[Application No. D-11390]
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).\11\
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\11\ 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
If the exemption is granted, the restrictions of sections 406(a),
406(b)(1) and (b)(2), and 407(a) of the Act and the sanctions resulting
from the application of section 4975 of the Code, by reason of section
4975(c)(1)(A) through (E) of the Code, shall not apply, effective April
27, 2006, to (1) The acquisition by the Plan of certain stock rights
(the Rights) pursuant to a stock rights offering (the Offering) from
First Bank of Delaware (the Bank), a party in interest and the parent
company of BSC Services Corp. (BSC or the Applicant), which is the Plan
sponsor as well as a party in interest with respect to the Plan; (2)
the holding of the Rights by the Plan during the subscription period of
the Offering; and (3) the disposition or exercise of the Rights by the
Plan.
Section II. Conditions
This proposed exemption is conditioned upon adherence to the
material facts and representations described herein and upon
satisfaction of the following conditions:
(a) The Rights were acquired by the Plan pursuant to Plan
provisions for the individually-directed investment of participant
accounts.
(b) The Plan's receipt of the Rights occurred in connection with
the Rights Offering made available to all shareholders of the Bank's
common stock (the Bank Stock).
(c) All decisions regarding the holding and disposition of the
Rights by the Plan were made in accordance with Plan provisions for the
individually-directed investment of participant accounts by the
individual participants whose accounts in the Plan received Rights in
the Offering, and if no instructions were received, the Rights expired.
(d) The Plan's acquisition of the Rights resulted from an
independent act of the Bank as a corporate entity, and all holders of
the Rights, including the Plan, were treated in the same manner with
respect to the acquisition, holding and disposition of such Rights.
(e) The Plan received the same proportionate number of the Rights
as other owners of Bank Stock.
Effective Date: If granted, this proposed exemption will be effective
as of April 27, 2006.
Summary of Facts and Representations
1. The Bank, which is located at 1000 Rocky Run Parkway,
Wilmington, Delaware, is a full-service, State-chartered commercial
bank that offers a variety of credit and depository banking services.
The Bank's commercial loan services are primarily offered to
individuals and business in the Delaware area. The Bank also makes
short-term consumer loans through third-party servicers in various
states and via the Internet, and it offers tax refund anticipation
loans in numerous states. Moreover, the Bank offers credit and debit
cards to customers nationally. The majority of loan balances from these
national products are sold on a non-recourse basis.
The Bank's deposits are insured by the Federal Deposit Insurance
Corporation (the FDIC). As a state
[[Page 36060]]
chartered bank which is not a member of the Federal Reserve System, the
Bank is subject to examination and comprehensive regulation by the
Delaware State Banking Commissioner as well as by the FDIC.
As of December 31, 2006, the Bank had total assets of $123,913,000,
total stockholders' equity of approximately $25,853,000, total deposits
of approximately $92,636,000 and net loans receivable of approximately
$67,697,000. The Bank's net income for the year ended December 31, 2005
was $3,434,000. The Bank Stock is listed for quotation on the OTC
Bulletin Board under the symbol FBOD (OBB). It is represented that the
Bank Stock is both an ``employer security'' \12\ and a ``qualifying
employer security.'' \13\
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\12\ Under section 407(d)(1) of the Act, the term ``employer
security'' means a security issued by an employer of employees
covered by a plan, or by an affiliate of such employer.
\13\ Under section 407(d)(5) of the Act, the term ``qualifying
employer security'' means an employer security which is stock, a
marketable obligation, or an interest in a publicly traded
partnership.
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The Bank was spun off as an independent company from Republic First
Bancorp., Inc. (RFB) through a distribution of the Bank's common stock
on January 31, 2005. Prior to the spin-off, the Bank was a subsidiary
of RFB, which was then a two-bank holding company. RFB's other
subsidiary was, and still is, Republic First Bank (the PA Bank), a
Pennsylvania chartered bank.
2. The Applicant is a wholly owned subsidiary of the Bank. The
Applicant is the employer of employees who work for the Bank. The
Applicant provides operations, accounting, compliance and human
resource staffing to the Bank and the PA Bank at 1608 Walnut Street,
Philadelphia, Pennsylvania.
3. FBD Capital Markets Group, Inc. (FBD Capital) is also a wholly
owned subsidiary of the Bank. FBD Capital was recently formed to offer
short-term, high-yield mezzanine financing primarily in Delaware. FBD
Capital operates out of the same facility as the Applicant.
4. The Plan, which was formerly known as the ``Republic First Bank
401(k) Profit Sharing Plan,'' was established on September 1, 1991 by
RFB. The Plan is a defined contribution plan that previously covered
full-time employees of the Bank and the PA Bank. Effective January 1,
2005, the Applicant became the new Plan sponsor as part of an
anticipated spin-off of the Bank, which occurred on February 1, 2005.
The Plan was also adopted by the Applicant, the Bank, the PA Bank and
RFB. As of May 23, 2007, the Plan had 229 participants and total assets
of approximately $8.1 million.
In addition, the Plan is a participant-directed individual account
plan intended to satisfy the requirements of section 404(c) of the Act.
The Plan offers participants 67 funds and a personal brokerage account
(the Personal Brokerage Account) in which participants can invest all
or a portion of their account balances in Bank Stock. As of April 27,
2006, the Plan was the record holder of 58,161 shares of Bank Stock
valued at $154,127 (or $2.65 per share) on such date, which were
allocated to the Personal Brokerage Accounts of all of the Plan
participants. At that time, the Bank Stock accounted for approximately
3.3 percent of the $4.6 million in total Plan assets and it represented
approximately 0.007 percent of the 7,943,720 shares of total
outstanding Bank Stock.
5. The Plan's trustees (the Trustees) are Harry Madonna, Chairman
of the Board for the Bank, and Paul Frenkiel, Chief Financial Officer
of the Bank. The Trustees also are members of the Plan Administrative
Committee, which is the fiduciary responsible for Plan matters.
Further, the custodian (the Custodian) of the Plan is John Hancock
Life Insurance Company, which is part of Manulife Financial. The
Custodian is located at 200 Bloor Street, East Toronto, Ontario,
Canada. The Custodian holds legal title to the Plan's assets and it
executes investment directions in accordance with participants' written
or electronic instructions. In offering a Personal Brokerage Account to
each Plan participant, the Custodian partners with TRUSOURCE Trust
Outsourcing Partners (Trusource) of Costa Mesa, California. TruSource
administers each Personal Brokerage Account and partners with
AmeriTrade, the designated broker (the Broker) for such accounts.
6. In an Offering Circular dated May 1, 2006 (the Offering
Circular), the Bank announced a special Rights Offering. The Rights
Offering would be an independent act of the Bank as a corporate entity
under which all shareholders of Bank Stock, including the Plan, were to
be treated in a like manner. The Rights Offering would allow the Bank
to raise equity capital for the operation of FBD Capital. The Rights
Offering would also afford its existing shareholders a preferential
opportunity to subscribe for up to 3.4 million in new shares of Bank
Stock and to maintain their proportionate ownership interests.
7. Holders of record of Bank Stock at 5 p.m. Eastern Daylight
Saving Time on April 27, 2006 (the Record Date) each were entitled to
receive a number of Rights determined by dividing (a) the number of
shares of the Bank Stock owned by the shareholder by (b) 2.33639,
except that, if the number so calculated included a fraction, the
number of Rights the shareholder would receive was rounded down to the
nearest whole number. Each Right consisted of a ``Basic Subscription
Right'' and an ``Over-Subscription Right.'' The Basic Subscription
Right entitled the holder to purchase one share of Bank Stock at a
purchase price of $2.25 per share, which was determined by the Bank's
Board of Directors. If the shareholder exercised all of his or her
Basic Subscription Rights, the shareholder was entitled to exercise
his/her Over-Subscription Right to purchase, for $2.25 per share, one
additional share of Bank Stock for every share of Bank Stock to which
the shareholder had subscribed. The Rights were not transferable.\14\
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\14\ Among other things, a fiduciary of a plan is prohibited
from allowing the plan to acquire any employer security which is not
a ``qualifying employer security.'' Although the Rights constituted
an ``employer security'' under section 407(d)(1) of the Act,
inasmuch as they were issued by the Applicant, which is an employer
of employees covered under the Plan, they did not represent a
``qualifying employer security'' under section 407(d)(5) of the Act.
This is because the Rights were not stock, a marketable obligation
or an interest in a publicly-traded partnership. Therefore, the
Applicant has requested a retroactive administrative exemption from
the Department with respect to the acquisition of the Rights by the
Plan and the subsequent holding and exercise of the Rights by the
Plan participants. If granted, the exemption would be effective as
of April 27, 2006, the Record Date.
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8. On May 8, 2006, all Plan participants (there were 210 at that
time) were mailed: (a) A copy of the Offering Circular for the Bank;
and (b) a letter from the Broker describing the procedures for
participant directions with respect to the Rights Offering.
Participants were required to call the toll-free number listed in the
letter to direct the Broker either to exercise the Rights allocable to
their Personal Brokerage Accounts or to opt out of the Rights Offering.
9. Plan participants were required to contact the Broker prior to 5
p.m. on June 19, 2006 (the Expiration Time). The Broker was responsible
for exercising the Rights at the direction of each participant. In
order for a participant's Rights to be exercised, RFB, the Subscription
Agent, had to receive an election form from the Broker, together with
payment for the shares which were to be purchased by the Expiration
Time. Rights not exercised prior to the Expiration Time
[[Page 36061]]
would, by their terms, terminate and have no value.
10. Thus, the Plan acquired the Rights pursuant to the Plan
provisions for the individually-directed investment of participants'
accounts. All decisions regarding the holding and disposition of the
Rights by the Plan were made in accordance with these Plan provisions.
The Plan participants were issued, and the Broker received from the
Plan participants, a total of 24,893 Rights, of which 8,822 were
exercised. This represented approximately 0.3 percent of the 3.4
million Rights that were issued and exercised for $2.25 per share. As
noted above, those Rights not exercised expired. Of the total Rights
issued and exercised, 2,347,272 Shares represented Basic Subscription
Rights and 1,052,728 Shares were attributed to Over-Subscription
Rights. The Rights were not listed for trading on any stock exchange or
on the OTC Bulletin Board. The total number of shares of Bank Stock
outstanding at the Expiration Time, as adjusted to give effect to the
shares issued pursuant to the Rights Offering, was 11,343,720 shares.
The Bank compensated the Subscription Agent for fees generated in
connection with the Rights Offering. Thus, no fees paid to the
Subscription Agent were attributable to Plan assets. Although all
shareholders of record were responsible for paying any other fees
associated with the exercise of the Rights, the Subscription Agent
waived all such fees.
11. For each Plan participant who directed the Broker to exercise
Rights attributable to his or her Personal Brokerage Account, the funds
which were needed to pay the $2.25 per share exercise price were
obtained by either selling specific investments at the participant's
direction or by using cash equivalents in such participant's account,
again at the participant's direction. Moreover, a participant who,
under the terms of the Plan, was eligible to elect to receive a taxable
distribution from his or her Plan account, was permitted, under the
terms of the Offering Circular, to direct the Broker to cause such
participant to be substituted for the record holder of the Bank Stock
held in the Plan and to exercise the Rights attributable to the Bank
Stock the participant beneficially owned. This was only permissible to
the extent the terms of the Plan permitted a distribution to a
participant and would be treated as a taxable distribution of a portion
of the participant's Plan account.
12. In summary, the Applicant represents that the transactions
satisfied the statutory criteria for an exemption under section 408(a)
of the Act because:
(a) The Rights were acquired by the Plan pursuant to Plan
provisions for the individually-directed investment of participant
accounts.
(b) The Plan's receipt of the Rights occurred in connection with
the Rights Offering that was made available to all shareholders of Bank
Stock.
(c) All decisions regarding the holding and disposition of the
Rights by the Plan were made in accordance with Plan provisions for the
individually-directed investment of participant accounts by the
individual participants whose accounts in the Plan received Rights in
the Offering, and if no instructions were received, the Rights expired.
(d) The Plan's acquisition of the Rights resulted from an
independent act of the Bank as a corporate entity, and all holders of
the Rights, including the Plan, were treated in the same manner with
respect to the acquisition, holding and disposition of such Rights.
(e) The Plan received the same proportionate number of the Rights
as other owners of Bank Stock.
Notice to Interested Persons: Notice of proposed exemption will be
provided to all interested persons by first class mail within 30 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. Comments
are due within 60 days of the date of publication of the proposed
exemption in the Federal Register.
FOR FURTHER INFORMATION CONTACT: Ms. Anna M. Vaughan of the Department,
telephone number (202) 693-8565. (This is not a toll-free number.)
General Information
The attention of interested persons is directed to the following:
(1) The fact that a transaction is the subject of an exemption
under section 408(a) of the Act and/or section 4975(c)(2) of the Code
does not relieve a fiduciary or other party in interest or disqualified
person from certain other provisions of the Act and/or the Code,
including any prohibited transaction provisions to which the exemption
does not apply and the general fiduciary responsibility provisions of
section 404 of the Act, which, among other things, require a fiduciary
to discharge his duties respecting the plan solely in the interest of
the participants and beneficiaries of the plan and in a prudent fashion
in accordance with section 404(a)(1)(b) of the Act; nor does it affect
the requirement of section 401(a) of the Code that the plan must
operate for the exclusive benefit of the employees of the employer
maintaining the plan and their beneficiaries;
(2) Before an exemption may be granted under section 408(a) of the
Act and/or section 4975(c)(2) of the Code, the Department must find
that the exemption is administratively feasible, in the interests of
the plan and of its participants and beneficiaries, and protective of
the rights of participants and beneficiaries of the plan;
(3) The proposed exemptions, if granted, will be supplemental to,
and not in derogation of, any other provisions of the Act and/or the
Code, including statutory or administrative exemptions and transitional
rules. Furthermore, the fact that a transaction is subject to an
administrative or statutory exemption is not dispositive of whether the
transaction is in fact a prohibited transaction; and
(4) The proposed exemptions, if granted, will be subject to the
express condition that the material facts and representations contained
in each application are true and complete, and that each application
accurately describes all material terms of the transaction which is the
subject of the exemption.
Signed at Washington, DC, this 26th day of June, 2007.
Ivan Strasfeld,
Director of Exemption Determinations, Employee Benefits Security
Administration, U.S. Department of Labor.
[FR Doc. E7-12672 Filed 6-29-07; 8:45 am]
BILLING CODE 4510-29-P
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