[Federal Register Volume 59, Number 189 (Friday, September 30, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-24184]


[[Page Unknown]]

[Federal Register: September 30, 1994]


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DEPARTMENT OF LABOR
Pension and Welfare Benefits Administration
[Application No. D-9767, et al.]

 

Proposed Exemptions; Del Monte Savings Plan; et al.

AGENCY: Pension and Welfare Benefits 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 restriction of the Employee 
Retirement Income Security Act of 1974 (the Act) and/or the Internal 
Revenue Code of 1986 (the Code).

Written Comments and Hearing Requests

    All interested persons are invited to submit written comments or 
request for a hearing on the pending exemptions, unless otherwise 
stated in the Notice of Proposed Exemption, within 45 days from the 
date of publication of this Federal Register Notice. Comments and 
request for a hearing should state: (1) The name, address, and 
telephone number of the person making the comment or request, and (2) 
the nature of the person's interest in the exemption and the manner in 
which the person would be adversely affected by the exemption. A 
request for a hearing must also state the issues to be addressed and 
include a general description of the evidence to be presented at the 
hearing. A request for a hearing must also state the issues to be 
addressed and include a general description of the evidence to be 
presented at the hearing.

ADDRESSES: All written comments and request for a hearing (at least 
three copies) should be sent to the Pension and Welfare Benefits 
Administration, Office of Exemption Determinations, Room N-5649, U.S. 
Department of Labor, 200 Constitution Avenue, N.W., Washington, D.C. 
20210. Attention: Application No. stated in each Notice of Proposed 
Exemption. The applications for exemption and the comments received 
will be available for public inspection in the Public Documents Room of 
Pension and Welfare Benefits Administration, U.S. Department of Labor, 
Room N-5507, 200 Constitution Avenue, N.W., Washington, D.C. 20210.

Notice to Interested Persons

    Notice of the proposed exemptions will be provided to all 
interested persons in the manner agreed upon by the applicant and the 
Department within 15 days of the date of publication in the Federal 
Register. Such notice shall include a copy of the notice of proposed 
exemption as published in the Federal Register and shall inform 
interested persons of their right to comment and to request a hearing 
(where appropriate).

SUPPLEMENTARY INFORMATION: The proposed exemptions were requested in 
applications filed pursuant to section 408(a) of the Act and/or section 
4975(c)(2) of the Code, and in accordance with procedures set forth in 
29 CFR Part 2570, Subpart B (55 FR 32836, 32847, August 10, 1990). 
Effective December 31, 1978, section 102 of Reorganization Plan No. 4 
of 1978 (43 FR 47713, October 17, 1978) transferred the authority of 
the Secretary of the Treasury to issue exemptions of the type requested 
to the Secretary of Labor. Therefore, these notices of proposed 
exemption are issued solely by the Department.
    The applications contain representations with regard to the 
proposed exemptions which are summarized below. Interested persons are 
referred to the applications on file with the Department for a complete 
statement of the facts and representations.

Del Monte Savings Plan, and Del Monte Certain Hourly Savings Plan 
(the Plans) Located in San Francisco, CA

[Application Nos. D-9767 & D-9768]

Proposed Exemption

    The Department is considering granting an exemption under the 
authority of section 408(a) of the Act and section 4975(c)(2) of the 
Code and in accordance with the procedures set forth in 29 CFR part 
2570, Subpart B (55 FR 32836, 32847, August 10, 1990). If the exemption 
is granted the restrictions of sections 406(a), 406(b)(1) and (b)(2) of 
the Act and the sanctions resulting from the application of section 
4975 of the Code, by reason of section 4975(c)(1) (A) through (E) of 
the Code, shall not apply to (1) The proposed extension of credit to 
the Plans (the Loan) by Del Monte Corporation (the Employer), the 
sponsor of the Plans, with respect to the Plans' interests in 
guaranteed investment contract No. CG01300B3A (the GIC) issued by 
Executive Life Insurance Company of California (Executive Life); and 
(2) the Plans' potential repayment of the Loan (the Repayments); 
provided that the following conditions are satisfied:
    (A) All terms and conditions of such transactions are no less 
favorable to the Plans than those which the Plans could obtain in 
arm's-length transactions with unrelated parties;
    (B) No interest or expenses are paid by the Plans;
    (C) The Loan is made in lieu of amounts to be paid to the Plan 
under the plan of rehabilitation resulting from the bankruptcy of 
Executive Life (the Rehab Plan);
    (D) The Repayments shall not exceed the principal amount of the 
Loan;
    (E) The Repayments shall not exceed the amounts actually received 
by the Plans under the Rehab Plan; and
    (F) Repayment of the Loan shall be waived to the extent that the 
amount of the Loan exceeds the amount of cash recovered by the Plans 
under the Rehab Plan.

Summary of Facts and Representations

    1. The Employer is a New York corporation engaged in the business 
of processing and marketing canned vegetables and fruit, with its 
corporate headquarters in San Francisco, California. The Employer is a 
wholly-owned subsidiary of Del Monte Foods Company (DMFC), a Maryland 
corporation. On behalf of its employees and those of its affiliates, 
the Employer sponsors both of the Plans, which are defined contribution 
pension plans providing for individual participant accounts (the 
Accounts) and participant-directed investment of the Accounts. As of 
December 31, 1993, the Plans had approximately 3,730 participants.
    2. The Plans' assets are held in a master trust (the Master Trust) 
of which the trustee is the Merrill Lynch Trust Company of California 
(the Trustee). The named fiduciary of each Plan is the Del Monte 
Investment Committee (the Committee), which consists of five employees 
of the Employer appointed by the Employer's board of directors. The 
Committee designates the investment options into which the Plans' 
participants may direct the investment of their Accounts. The Plans 
currently offer five investment options, one of which is the Interest 
Income Fund (the I Fund), which invests in, among other things, 
guaranteed investment contracts issued by insurance companies. As of 
December 31, 1993, the I Fund represented approximately 54 percent of 
the fair market value of the assets of the Master Trust. The assets of 
the I Fund include guaranteed investment contract No. CG01300B3A (the 
GIC). The GIC was issued to the Plans on or about December 1, 1990 by 
Executive Life Insurance Company of California (Executive Life) as part 
of an arrangement whereby Executive Life agreed to ``clone'' a contract 
previously held by the Plans' predecessor plans (the Predecessor 
Plans), in connection with the sale of the Employer to DMFC in 1990 and 
the Employer's agreement that the Plans would assume the assets and 
liabilities of the Predecessor Plans. The GIC is a benefit-responsive 
contract permitting withdrawals for plan benefits, loans, and 
participant-directed reallocations among investment options under the 
Plans, and was issued in the principal amount of $3,899,130.43, with a 
guaranteed simple annual interest rate of 9.22 percent (the Contract 
Rate) to the July 1, 1993 maturity date.
    The Committee has designated Merrill Lynch Asset Management, Inc. 
(MLAM) as the investment manager for the I Fund. MLAM and the Trustee 
are both subsidiaries of Merrill Lynch & Co. In accordance with 
investment guidelines provided by the Committee, MLAM generally invests 
and manages the I Fund's assets, which consist of Plan contributions, 
participant reallocations of Account balances to the I Fund, and 
proceeds of maturing investments. MLAM represents that it is not an 
investment manager within the meaning of Section 3(38) of the Act with 
respect to any ``cloned'' contracts, including the GIC, which were 
issued to the Plans as part of the asset transfer from the Predecessor 
Plans.1
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    \1\ In this proposed exemption, the Department expresses no 
opinion as to whether or not MLAM constitutes an investment manager 
within the meaning of Section 3(38) of the Act.
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    3. On April 11, 1991 (the Conservation Date), Executive Life was 
placed in conservatorship by the Commissioner of Insurance of the State 
of California.2 As of that date, payments under the GIC were 
suspended, and no withdrawals or payments from the GIC have been made 
since the Conservation Date. As of the Conservation Date, the GIC had a 
book value of $3,766,668, representing total principal deposits under 
the GIC plus accrued interest at the Contract Rate less previous 
withdrawals, and constituting approximately 2.4 percent of the assets 
of the I Fund at that time. Effective April 30, 1991, the Committee 
froze a proportionate share of each of the 2,918 Accounts invested in 
the I Fund. With respect to the frozen portion of each Account, the 
Committee has prohibited the crediting of earnings, the making of 
distributions, withdrawals and loans, and the reallocation of the 
frozen Account portions to other investment options of the Plans. 
Printed Account statements provided to the Plans participants have 
reported the frozen Account portions separately, indicating the frozen 
status.
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    \2\ The Department notes that the decision to acquire and hold 
the GIC is governed by the fiduciary responsibility requirements of 
Part 4, Subtitle B, Title I of the Act. In this proposed exemption, 
the Department is not proposing relief for any violations of Part 4 
which may have arisen as a result of the acquisition and holding of 
the GIC.
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    4. In September 1993, the Employer entered into a written agreement 
for the sale of substantially all the assets of one of the Employer's 
business units to Silgan Containers Corporation (Silgan). Pursuant to 
that agreement, the Employer is required to transfer to one or more 
individual account plans maintained by Silgan (the Silgan Plans) the 
assets and liabilities of the Plans with respect to the Accounts of the 
Plans' participants who transferred employment from the Employer to 
Silgan as a result of the sale of the business unit. The parties agreed 
that the asset transfer is to be made in cash. The asset transfer 
includes 288 Accounts which are subject to the proportionate freeze 
resulting from the Executive Life conservatorship.
    5. On August 13, 1993, the Los Angeles Superior Court approved the 
terms of the Rehabilitation/Liquidation Plan for Executive Life (the 
Rehab Plan) effective September 3, 1993. On or about December 29, 1993, 
each holder of an Executive Life contract was provided with an election 
form and summary of the Rehab Plan. Under the Rehab Plan, Executive 
Life's guaranteed investment contracts were reduced in value to 
approximately 79 percent of the book value as of the Conservation Date 
(the Rehab Value), and each holder of such contracts was paid an amount 
(the Interim Payment) for accumulated interest and fees for the period 
between the Conservation Date and September 3, 1993. Each contract 
holder, including the Plans, was informed that each contract holder 
could elect by February 12, 1994 to ``opt in'' or ``opt out'' of the 
Rehab Plan. The Employer represents that by ``opting in'', according to 
the Rehab Plan summary, a contract holder would be issued a new 5-year 
contract issued by Aurora National Life Assurance Company, the 
successor of Executive Life, in an amount equal to the Rehab Value less 
the amount of the Interim Payment, plus the right to receive possible 
distributions (Residual Payments) from certain trusts and settlements 
which may occur in the liquidation of Executive Life. The Employer 
states that, according to the Rehab Plan summary, ``opting out'' of the 
Rehab Plan results in a cash settlement, consisting of an immediate 
cash payment (the Initial Payment), and the right to receive any 
Residual Payments which become available. The Interim Payment was 
payable to all contract holders, whether they ``opt in'' or ``opt out'' 
of the Rehab Plan.
    6. The Employer states that after review and consideration of the 
Rehab Plan summary and the reports of outside consultants retained for 
analysis and advice, the Committee determined that the Plans should 
``opt out'' of the Rehab Plan. Accordingly, the Plans received the 
Initial Payment on the GIC on March 31, 1994. When combined with the 
Interim Payment, the Plans have received approximately 57 percent of 
the GIC's Conservation Date book value. The Employer states that the 
Residual Payments potentially available to the Plans, as a contract 
holder which ``opts out'' of the Rehab Plan, will consist of the net 
proceeds, if any, from the following: (a) An allocation holdback equal 
to approximately 11 percent of the GIC's Conservation Date book value; 
(b) liquidation of three trusts established under the Rehab Plan to 
liquidate Executive Life's non-investment grade securities and other 
assets, paid through an ``Opt-Out Trust''; and (c) remaining proceeds 
from another trust established under the Rehab Plan to deal with bond 
indemnification obligations shared by contract holders. The Employer 
states that the summary of the Rehab Plan reported that some Residual 
Payments may be made annually but others could take a substantial 
period of time to realize. The Employer represents that under the Rehab 
Plan, neither the timing nor the amount of any Residual Payments can be 
determined with certainty. However, the Employer represents that on the 
basis of the Rehab Plan summary and the analysis conducted by 
consultants retained to assist the Committee, the Committee estimates 
that the Plans will receive total Residual Payments of $1,073,500.30 
(the Estimated Residuals), or about 28.5 percent of the GIC's book 
value as of the Conservation Date.
    7. In order that the frozen portions of the Accounts may be 
released without the delay and uncertainty of awaiting the Residual 
Payments, and in order to enable the transfer of assets from the Plans 
to the Silgan Plans, the Employer proposes to loan the Plans the amount 
of the Estimated Residuals (the Loan), and is requesting an exemption 
to permit the Loan under the terms and conditions described 
herein.3 The Loan, pursuant to a written agreement, will be made 
in a lump sum in the amount of the Estimated Residuals less any 
Residual Payments which the Plans may have received prior to the Loan. 
The Loan will be made as soon as practicable after the Committee has 
obtained the exemption proposed herein, if granted, and a closing 
agreement with respect thereto has been consummated with the Internal 
Revenue Service. The repayment of the Loan (the Repayments) will be 
limited to the cash proceeds, if any, received by the Plan as Residual 
Payments after the date of the Loan. Repayments are due only as and 
when Residual Payments are received by the Plans. No interest will be 
paid on the Loan, and the Plans will incur no expenses with respect to 
the Loan. Under no circumstances will the Repayments exceed the Loan. 
At such time as the Trustee or Executive Life notifies the Employer 
that no further Residual Payments will be made, repayment of any 
outstanding Loan amount will be waived by the Employer.
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    \3\The Department notes that this exemption, if granted, will 
not affect the ability of any participant or beneficiary to bring a 
civil action against Plan fiduciaries for breaches of section 404 of 
the Act in connection with any aspect of the GIC transactions.
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    8. If the proposed exemption is granted, the Committee intends to 
revalue the Plans' investment in the GIC (the Adjusted Value) to equal 
the sum of the Initial Payment, the Interim Payment, the Loan, and any 
Residual Payments received prior to the Loan. Each frozen Account will 
also be adjusted to reflect the Adjusted Value accordingly, reducing 
the Plans' recorded investment in the GIC from the Conservation Date 
book value to the Adjusted Value, and a proportional percent of each 
frozen Account will be recorded as a loss. After the Loan is made and 
the Accounts are adjusted, the Committee will remove the freeze on the 
Accounts invested in the GIC and the Plans will resume distribution, 
withdrawals, loans and interfund transfers with respect to Account 
portions previously subject to the freeze. Additionally, the Plans will 
be able to complete the transfer of assets to the Silgan Plans, in 
accordance with the agreement of sale of the Employer's business unit 
to Silgan, by transferring the previously frozen Account portions on 
the basis of the Adjusted Value and by utilizing the cash made 
available by the Loan.
    9. In summary, the applicant represents that the proposed 
transaction satisfies the criteria of section 408(a) of the Act for the 
following reasons: (a) All terms and conditions of the Loan will be no 
less favorable to the Plans than those which the Plans could obtain in 
an arm's-length transaction with an unrelated party; (b) The Loan will 
enable the Plans to resume normal operations with respect to the frozen 
portion of the Accounts; (c) The Loan will enable the completion of the 
transfer of assets to the Silgan Plan with respect to 288 frozen 
Accounts; (d) No interest or expenses will be paid by the Plans; (e) 
The Repayments will be restricted to the Residual Payments received by 
the Plans pursuant to the Rehab Plan; (f) The Repayment will not exceed 
the Loan or the Residual Payments received after the Loan is made; and 
(g) The Repayments will be waived to the extent the Loan exceeds 
Residual Payments received by the Plans after the Loan is made.

FOR FURTHER INFORMATION CONTACT: Ronald Willett of the Department, 
telephone (202) 219-8881. (This is not a toll-free number.)

Xerox Corporation Profit Sharing and Savings Plan (the PSSP); Xerox 
Corporation Retirement Income Guarantee Plan (the RIGP); Profit Sharing 
Plan of Xerox Corporation and the Xerographic Division, A.C.T.W.U, AFL-
CIO (the Union PSP); and the Retirement Income Guarantee Plan of Xerox 
Corporation and the Xerographic Division, A.C.T.W.U, AFL-CIO (the Union 
RIGP; Collectively, the Plans) Located in Stamford, Connecticut

[Application Nos. D-9778 through D-9781]

Proposed Exemption

    The Department is considering granting an exemption under the 
authority of section 408(a) of the Act and section 4975(c)(2) of the 
Code and in accordance with the procedures set forth in 29 CFR part 
2570, subpart B (55 FR 32836, 32847, August 10, 1990). If the exemption 
is granted the restrictions of sections 406(a), 406(b)(1) and (b)(2) of 
the Act and the sanctions resulting from the application of section 
4975 of the Code, by reason of section 4975(c)(1) (A) through (E) of 
the Code, shall not apply to the proposed guarantees (the Guarantees) 
by the Xerox Corporation (the Employer), the sponsor of the Plans, of 
amounts payable to the Plans by the Aurora National Life Assurance 
Company (Aurora) with respect to five group annuity contracts (the 
GACs) originally issued by Executive Life Insurance Company of 
California (Executive Life); provided that the following conditions are 
satisfied:
    (A) All terms and conditions of such transactions are no less 
favorable to the Plans than those which the Plans could obtain in 
arm's-length transactions with unrelated parties;
    (B) The Guarantees are made solely with respect to the amounts 
which are due the Plans, but unpaid, with respect to the GACs; and
    (C) The Settlement Agreement described in the Summary of Facts and 
Representations, below, is approved by the U.S. District Court, 
District of Connecticut.

Summary of Facts and Representations

    Introduction: In 1994, the Xerox Corporation and other defendants 
to certain litigation entered into a settlement agreement which 
requires, among other things, that Xerox Corporation guarantee the 
Plans' receipt of certain payments in connection with the 
rehabilitation of Executive Life Insurance Company of California. Xerox 
Corporation also has undertaken to make a similar guarantee with 
respect to certain of the Plans' participants who were not parties to 
the litigation settlement agreement. Xerox Corporation is requesting an 
exemption to permit these guarantees, under the terms and conditions 
described herein.
    1. Xerox Corporation (the Employer) is a publicly-held New York 
corporation engaged in the development, manufacture, marketing, and 
servicing of document processing technology, with its corporate 
headquarters in Stamford, Connecticut. The Employer maintains various 
qualified employee benefit plans for its employees, including the 
Plans, the assets of which are held in the Xerox Corporation Trust 
Agreement to Fund Retirement Plans (the Master Trust), which had total 
assets of approximately $4.6 billion as of December 31, 1993. The Union 
PSP and the Union RIGP (the Union Plans) are maintained pursuant to 
collective bargaining agreements between the Employer and the 
Xerographic Division of the Amalgamated Clothing and Textile Workers' 
Union, A.F.L.-C.I.O. (the Union). The trustee of the Master Trust is 
the State Street Bank and Trust Company of North Quincy, Massachusetts 
(the Trustee), serving as a directed trustee according to directions of 
a delegee of a committee of representatives of the Employer's board of 
directors (the Committee). The PSSP and the Union PSP are defined 
contribution plans (the DC Plans) which provide for individual 
participant accounts and participant-directed investment of such 
accounts among investment options in the Master Trust (the MT Funds). 
The RIGP and Union RIGP are hybrid defined benefit plans (the DB Plans) 
in which certain participants may accrue benefits measured in part by 
reference to individual accounts consisting of contributions made on 
the participant's behalf. The individual accounts of the DB Plans are 
invested among the MT Funds.
    2. Included among the MT Funds as of April 1, 1991 was a guaranteed 
fund (the G Fund) which invested primarily in group annuity and 
guaranteed investment contracts issued by various insurance companies. 
As of April 1, 1991, the G Fund had approximately $65.6 million 
invested in group annuity contracts (the GACs) issued by Executive Life 
Insurance Company of California (ELIC), representing approximately 7.5 
percent of the assets in the G Fund as of that date. On April 11, 1991, 
the Insurance Commissioner of the State of California (the 
Commissioner) ordered a conservatorship (the Conservatorship) of ELIC, 
and halted all payments on ELIC's guaranteed contracts, including the 
GACs.4 The Employer represents that it took immediate protective 
action on behalf of the Plans' participants, by segregating the G Fund 
assets attributable to the GACs in a new segregated fund (the 
Segregated Fund), effective April 1, 1991. The account of each Plan 
participant with an interest in the G Fund as of April 1, 1991 was 
assigned an interest in the Segregated Fund, in proportion to the GACs' 
total value as of April 1, 1991.5 The remaining G Fund assets were 
placed in a new fund designated as the Income Fund. The Plan was 
amended, effective April 1, 1991, to prohibit distribution, withdrawal, 
and transfer of any account balance attributable to the Segregated 
Fund.
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    \4\The Department notes that the decision to acquire and hold 
the GACs are governed by the fiduciary responsibility requirements 
of Part 4, Subtitle B, Title I of the Act. In this proposed 
exemption, the Department is not proposing relief for any violations 
of Part 4 which may have arisen as a result of the acquisition and 
holding of the GACs.
    \5\Each participant's interest in the Segregated Fund was 
determined by multiplying his interest in the G Fund by a fraction, 
the numerator of which was the value of G Fund assets invested in 
the GACs as of April 1, 1991, and the denominator of which was the 
value of total assets in the G Fund as of April 1, 1991.
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    3. The Employer represents that on September 3, 1993 the assets and 
restructured liabilities of ELIC were assigned to Aurora Life National 
Assurance Company (Aurora), pursuant to the Commissioner's court-
approved rehabilitation plan (the Rehab Plan). Under the Rehab Plan, 
each ELIC contract holder was permitted to elect between (1) Opting in 
to the Rehab Plan, in which case Aurora would assume the ELIC contract, 
or (2) opting out of the Rehab Plan, in which case a cash settlement 
would be paid in exchange for the ELIC contract. A determination was 
made by a delegee of the Committee that the Plans would elect to opt 
out of the Rehab Plan, and the appropriate opt-out election forms were 
completed by the Trustee. Subsequently, the Plans received $37.9 
million (the Initial Recovery), approximately 58 percent of the 
Segregated Fund, as part of the Rehab Plan's provisions for ELIC 
contract holders who opted out of the Rehab Plan. The Employer 
represents that the Commissioner has estimated that such holders of 
ELIC contracts can expect to recover a total of about 85 percent of the 
Conservatorship Date value of the contracts. Accordingly, the Employer 
states that the Plans can expect to recover from Aurora another $17.8 
million on the contracts, approximately 27 percent of the Segregated 
Fund, over the remaining estimated four years of the Rehab Plan's 
operation.
    4. However, on April 6, 1992, a class action (the 1992 Litigation) 
was commenced on behalf of affected participants and beneficiaries of 
the RIGP and PSSP (the Plaintiffs) against the Employer and members of 
the Committee (collectively, the Defendants), Maureen Rose, et al., v. 
Joan Ganz Cooney, et al., Civil Action No. 5:92-CV-208, Federal 
District Court, District of Connecticut (the Court). The Plaintiffs 
alleged that the Defendants' actions in connection with the Plans' 
purchase of the GACs violated various provisions of the Act. On July 
15, 1994, Plaintiffs and Defendants executed an agreement in settlement 
of the 1992 Litigation (the Agreement), which provides as follows:
    (A) Defendants are to make an initial cash payment of $13 million 
to an interest-bearing escrow account (the Escrow). Amounts in the 
Escrow, including interest, less attorney's fees and administrative 
costs approved by the Court, are to be transferred to the Master Trust 
for the benefit of Plaintiffs no sooner than 10 days after the Court 
enters a final order approving the Agreement, but only if the 
transactions contemplated by the Agreement are approved by the 
Department, in the exemption proposed herein, and by the Internal 
Revenue Service (the Service). The Employer represents that it is 
expected that the Escrow payment to the Master Trust on behalf of 
Plaintiffs, after payment of costs and fees, will be approximately $9 
million, or about 15 percent of the Plaintiff's account balances in the 
Segregated Fund.
    (B) In the event that payments after June 3, 1994, and before 
January 1, 1999, from Aurora (and any other source related to the 
rehabilitation of ELIC, other than any state insurance guaranty 
associations) to the Master Trust for the benefit of Plaintiffs with 
respect to the GACs are less than $16.1 million, approximately 27 
percent of the Plaintiffs' account balances in the Segregated Fund, 
then the Employer shall pay the difference to the Master Trust on or 
before January 31, 1999. This undertaking by the Employer is referred 
to herein as the Settlement Guarantee. The Employer requests an 
exemption to permit the Settlement Guarantee under the terms and 
conditions of the Agreement and this proposed exemption.
    Each Plaintiff will have a pro rata share of the amounts paid under 
the Agreement in proportion to the Plaintiff's account's share of the 
Segregated Fund. The Employer represents that when added to the amounts 
already received from Aurora, the Employer's payments under the 
Agreement are expected to ensure that Plaintiffs will recover 100 
percent of their account balances in the Segregated Fund. The 
Agreement, after approval by the Court, will be in full satisfaction of 
all claims of Plaintiffs arising out of the subject matter of the 1992 
Litigation, and the 1992 Litigation will be dismissed with prejudice. 
The Agreement will be effective only if approved by the Court and only 
if the Employer obtains the exemption proposed herein by the Department 
and a favorable ruling on the Agreement by the Service. The Employer 
represents that the Court entered a preliminary approval of the 
Agreement on July 22, 1994, and rendered its final approval of the 
Agreement in a hearing on September 8, 1994.6
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    \6\In this proposed exemption, the Department is proposing 
exemptive relief solely for the Guarantees, and not for any other 
aspects of the GAC transactions or the Agreement. The Department 
notes that this exemption, if granted, will not affect the rights of 
any participant or beneficiary of the Plans with respect to any 
civil action against Plan fiduciaries for breaches of section 404 of 
the Act in connection with any aspect of the GAC transactions.
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    5. Participants in the Union Plans were not parties to the 1992 
Litigation. The Employer represents that since 1991, the Union has 
demanded that the Union Plans' participants with rights in the GACs 
(the Union Participants) be made whole for their losses on the GACs. On 
June 9, 1994, a class action lawsuit was filed against the Trustee (the 
1994 Litigation) on behalf of the Plaintiffs in the 1992 Litigation and 
the Union Participants, alleging that the Trutees' actions in 
connection with the Plans' purchase of the GACs violated various 
provisions of the Act. Although the proposed Agreement will provide 
that the 1994 Litigation be dismissed with prejudice as to the 1992 
Litigation Plaintiffs, it will provide that the 1994 Litigation be 
dismissed without prejudice as to the Union Participants. The terms of 
the Agreement do not require any payments by the Employer to the 
Segregated Fund on behalf of the Union Participants. In response to 
ongoing demands on behalf of the Union Participants, the Employer has 
agreed to make payments to the Master Trust with respect to the Union 
Participants in a manner similar to the Agreement's provisions for the 
1992 Litigation Plaintiffs. Specifically, the Employer will make an 
initial cash payment to the Master Trust on behalf of the Union 
Participants equal to 15 percent of the Segregated Fund account 
balances of the Union Participants. The Employer also guarantees to 
make additional payments to the extent that amounts received by the 
Master Trust from Aurora for the benefit of Union Participants after 
June 3, 1994 and before January 1, 1999 are less than $1.8 million, or 
27 percent of the Union Participants' account balances in the 
Segregated Fund. The Employer's guarantee to make such additional 
payments (the Union Guarantee) is included in the Guarantees for which 
the Employer requests an exemption, under the terms and conditions of 
the exemption proposed herein.7 The Employer represents that, when 
added to amounts already received from Aurora, the initial payments and 
contingent additional payments by the Employer pursuant to the Union 
Guarantee will ensure that the Union Participants recover 100 percent 
of their account balances in the Segregated Fund. The Employer's 
initial and contingent additional payments to the Union Participants 
are conditioned upon the grant of the exemption proposed herein and a 
favorable ruling by the Service.
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    \7\The Union Guarantee is not evidenced by a written agreement, 
like the Settlement Guarantee. Instead, the Employer's commitment to 
the Union Guarantee is evidenced in a public announcement by the 
Employer's chief executive officer, Paul A. Allaire, reported in the 
July 18, 1994 edition of a newsletter, Today at Xerox, which is 
published by the Employer.
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    8. In summary, the applicant represents that the proposed 
transaction satisfies the criteria of section 408(a) of the Act for the 
following reasons: (a) The Guarantees will protect the Plans 
participants and beneficiaries from losses on the GACs' value as of the 
commencement of the ELIC conservatorship; (b) The Guarantees will 
eliminate uncertainty with respect to the value of the GACs in the 
Segregated Fund; (c) The Settlement Guarantee will enable the 
settlement of Plaintiffs claims arising from the 1992 Litigation and 
the 1994 Litigation; and (d) the Union Guarantee will extend to the 
Union Participants the same protections with respect to the GACs as 
those extended to the Plaintiffs under the Settlement Guarantee.

FOR FURTHER INFORMATION CONTACT: Ronald Willett of the Department, 
telephone (202) 219-8881. (This is not a toll-free number.)

Vaquero Farms, Inc. Profit Sharing Plan and Agri-Bis, Inc. Profit 
Sharing Plan (the Plans) Located in Stockton, California

[Application Nos. D-9711 and D-9712]

Proposed Exemption

    The Department is considering granting an exemption under the 
authority of section 408(a) of the Act and section 4975(c)(2) of the 
Code and in accordance with the procedures set forth in 29 CFR Part 
2570, Subpart B (55 FR 32836, 32847, August 10, 1990). If the exemption 
is granted, the restrictions of sections 406(a), 406(b)(1) and (b)(2) 
of the Act and the sanctions resulting from the application of section 
4975 of the Code, by reason of section 4975(c)(1) (A) through (E) of 
the Code shall not apply to the past cash sale (the Sale) by the Plans 
of certain promissory notes (the Notes) to Vaquero Farms, Inc. (the 
Applicant) and Agri-Bis, Inc., a related company, provided that the 
following conditions were met at the time of the Sale: (1) The sales 
price of the Notes was not less than their aggregate fair market value 
on the date of the Sale; (2) the Sale was a one-time transaction for 
cash; (3) the Plans did not pay any fees or commissions in connection 
with the Sale; and (4) the Plans' independent fiduciary determined that 
the transaction was appropriate for and in the best interests of the 
Plans and their participants and beneficiaries.

EFFECTIVE DATE: If granted, this proposed exemption would be effective 
as of May 31, 1994, the date of the Sale.

Summary of Facts and Representations

    1. The Applicant operates a farming enterprise in the San Joaquin 
Valley area of California. Agri-Bis, Inc. is related to the Applicant 
by common ownership. The Plans are both defined contribution plans. As 
of September 30, 1992, the Vaquero Farms, Inc. Profit Sharing Plan had 
138 participants and total assets of approximately $4,531,364. As of 
January 31, 1993, the Agri-Bis, Inc. Profit Sharing Plan had 41 
participants and total assets of approximately $2,039,764.
    2. The Plans acquired their interests in the Notes in June of 1989 
when each Plan loaned $250,000 to Triad Pacific 1987 Investors (Triad), 
a California limited partnership, unrelated to the Applicant. The Notes 
are secured by second deeds of trust on industrial leased real property 
located at 192-252 West Larch Road, Tracey, California (Drew Centre) 
and 3008 East Hammer Lane, Stockton, California (the Pavilion). The 
Applicant represents that, prior to investing Plan assets in Triad, the 
Plans' trustees conducted a thorough investigation of the potential 
investment, including an examination of the properties and the 
financial condition of Triad. According to the Applicant, the 
investment was consistent with the Plans' investment policies. The 
Applicant represents that the Plans have invested from time to time in 
other deeds of trust and that they learned of this investment 
opportunity directly from the principals of Triad. In accordance with 
the terms of the Notes, the principal amount of the loans became due in 
June of 1993. The principal amount plus accrued interest from June 1993 
remains unpaid.8 In July of 1993, the borrower, Triad, filed a 
voluntary petition under Chapter 11 of the Bankruptcy Act. Union Bank, 
which holds a first deed of trust on the Drew Centre property securing 
a promissory note in the principal amount of $3,301,132, has filed a 
motion for relief from the automatic stay seeking to foreclose on its 
security interest in the Drew Centre property. Appraisals of the Drew 
Centre property indicate a range of values between $2,750,000 and 
$3,900,000. Gentra Financial, which holds a first deed of trust on the 
Pavilion Property securing a promissory note in the amount of 
$3,800,000 has also sought relief from the automatic stay to enable it 
to foreclose on its security interest in the Pavilion property. 
Appraisals of the Pavilion property indicate a range of values between 
$2,366,000 and $3,125,000. Consequently, the Applicant represents that 
the Plans are in jeopardy of losing the security for their loans. The 
Applicant also represents that full repayment of the loans is very 
unlikely.
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    \8\The Department notes that the decisions to acquire and hold 
the Notes, and all decisions regarding collection on the Notes when 
due, are governed by the fiduciary responsibility requirements of 
part 4, subtitle B, title I of the Act. In this regard, the 
Department is not herein proposing relief for any violations of part 
4 which may have arisen as a result of the acquisition and holding 
of the Notes.
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    3. On May 31, 1994, the Applicant purchased the Notes from the 
Plans for their full face value, plus interest at the rate provided in 
the Notes, through the date of purchase.9 The actual purchase 
price for each of the Notes was $269,823.91. The Applicant represents 
that the transaction was designed to protect the Plans' participants 
and beneficiaries from losses which would have resulted from the 
foreclosure of senior lienholders on the real property which secured 
the Plans' loans to Triad. The Applicant represents that it was 
necessary to purchase the Notes from the Plans prior to receiving an 
individual exemption for the transaction because foreclosure was 
imminent and the Notes would have been worthless to the Applicants if 
foreclosure had occurred prior to the purchase of the Notes.
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    \9\The Notes provided for interest at 2\1/2\ percentage points 
above the prime lending rate charged by the Bank of America.
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    4. Howard L. Seligman, an attorney licensed to practice in the 
State of California and a partner in the firm of Seligman and Willet, 
Inc., has agreed to serve as an independent fiduciary (the Independent 
Fiduciary) in connection with the transaction. The Independent 
Fiduciary has acknowledged his status as an ERISA fiduciary and 
represents that he understands and accepts his fiduciary duties, 
responsibilities and potential liabilities. The Independent Fiduciary 
maintains that he has no pre-existing business relationship with the 
Applicant or Agri-Bis, Inc. He also represents that, prior to the date 
the Sale took place, he reviewed the appraisals of the Pavilion and 
Drew Centre, the documents related to the outstanding security 
interests on those properties, and documents related to the pending 
Chapter 11 proceeding by Triad. Based on his review of these documents, 
the Independent Fiduciary represents that the ability of Triad to repay 
its obligation to the Plans was questionable. The Independent Fiduciary 
also represents that the purchase price for the Notes exceeded the fair 
market value of the Notes as of the date of the Sale. The Independent 
Fiduciary has determined that the purchase of the Notes by the Employer 
resulted in fully satisfying each of the obligations owed by Triad to 
the Plans, that the transaction was protective of the Plans' 
participants and beneficiaries, and that, therefore the transaction was 
in the best interests of the Plans' participants and beneficiaries.
    5. In summary, the applicant represents that the transaction meets 
the statutory criteria for an exemption under section 408(a) of the Act 
because: (a) the Plans' independent fiduciary reviewed the terms and 
conditions of the exemption and determined that the purchase of the 
Notes for full face value plus interest was in the best interest of the 
Plans' participants and beneficiaries; (b) the Plans received a price 
which was not less than the fair market value of the Notes; (c) the 
Sale was a one-time sale for cash; and (d) the Plans did not pay any 
expenses in connection with the Sale.

FOR FURTHER INFORMATION CONTACT: Ms. Virginia Miller of the Department, 
telephone (202) 219-8971. (This is not a toll-free number.)

General Information

    The attention of interested persons is directed to the following:
    (1) The fact that a transaction is the subject of an exemption 
under section 408(a) of the Act and/or section 4975(c)(2) of the Code 
does not relieve a fiduciary or other party in interest of disqualified 
person from certain other provisions of the Act and/or the Code, 
including any prohibited transaction provisions to which the exemption 
does not apply and the general fiduciary responsibility provisions of 
section 404 of the Act, which among other things require a fiduciary to 
discharge his duties respecting the plan solely in the interest of the 
participants and beneficiaries of the plan and in a prudent fashion in 
accordance with section 404(a)(1)(b) of the act; nor does it affect the 
requirement of section 401(a) of the Code that the plan must operate 
for the exclusive benefit of the employees of the employer maintaining 
the plan and their beneficiaries;
    (2) Before an exemption may be granted under section 408(a) of the 
Act and/or section 4975(c)(2) of the Code, the Department must find 
that the exemption is administratively feasible, in the interests of 
the plan and of its participants and beneficiaries and protective of 
the rights of participants and beneficiaries of the plan;
    (3) The proposed exemptions, if granted, will be supplemental to, 
and not in derogation of, any other provisions of the Act and/or the 
Code, including statutory or administrative exemptions and transitional 
rules. Furthermore, the fact that a transaction is subject to an 
administrative or statutory exemption is not dispositive of whether the 
transaction is in fact a prohibited transaction; and
    (4) The proposed exemptions, if granted, will be subject to the 
express condition that the material facts and representations contained 
in each application are true and complete, and that each application 
accurately describes all material terms of the transaction which is the 
subject of the exemption.

    Signed at Washington, DC, this 27 day of September, 1994.
Ivan Strasfeld,
Director of Exemption Determinations, Pension and Welfare Benefits 
Administration, U.S. Department of Labor.
[FR Doc. 94-24184 Filed 9-29-94; 8:45 am]
BILLING CODE 4510-29-P