[Federal Register Volume 64, Number 191 (Monday, October 4, 1999)]
[Notices]
[Pages 53736-53747]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-25709]
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DEPARTMENT OF LABOR
Pension and Welfare Benefits Administration
[Prohibited Transaction Exemption 99-38; Exemption Application No. D-
10621, et al.]
Grant of Individual Exemptions; MICO, Inc. (MICO), et al.
AGENCY: Pension and Welfare Benefits Administration, Labor.
ACTION: Grant of individual exemptions.
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SUMMARY: This document contains exemptions issued by the Department of
Labor (the Department) from certain of the prohibited transaction
restrictions of the Employee Retirement Income Security Act of 1974
(the Act) and/or the Internal Revenue Code of 1986 (the Code).
Notices were published in the Federal Register of the pendency
before the Department of proposals to grant such exemptions. The
notices set forth a summary of facts and representations contained in
each application for exemption and referred interested persons to the
respective applications for a complete statement of the facts and
representations. The applications have been available for public
inspection at the Department in Washington, D.C. The notices also
invited interested persons to submit comments on the requested
exemptions to the Department. In addition the notices stated that any
interested person might submit a written request that a public hearing
be held (where appropriate). The applicants have represented that they
have complied with the requirements of the notification to interested
persons. No public comments and no requests for a hearing, unless
otherwise stated, were received by the Department.
The notices of proposed exemption were issued and the exemptions
are being granted solely by the Department because, 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 proposed to the Secretary
of Labor.
Statutory Findings
In accordance with section 408(a) of the Act and/or section
4975(c)(2) of the Code and the procedures set forth in 29 CFR Part
2570, Subpart B (55 FR 32836, 32847, August 10, 1990) and based upon
the entire record, the Department makes the following findings:
(a) The exemptions are administratively feasible;
(b) They are in the interests of the plans and their participants
and beneficiaries; and
(c) They are protective of the rights of the participants and
beneficiaries of the plans.
MICO, Inc. (MICO) Located in North Mankato, Minnesota
[Prohibited Transaction Exemption 99-38; Exemption Application Number
D-10621]
Exemption
The restrictions of sections 406(a), 406(b)(1) and (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 sale (the Sale) of a certain parcel of unimproved real
property (the Property) from the MICO, Inc. Profit Sharing Plan (the
Plan) to MICO, a party in interest and disqualified person with respect
to the Plan, provided that the following conditions are met:
(a) The terms and conditions of the Sale are at least as favorable
to the Plan as those obtainable in an arm's length transaction with an
unrelated party;
(b) MICO purchases the Property for $362,000, which represents the
Property's current fair market value as determined by a qualified,
independent appraiser;
(c) MICO additionally pays to the Plan a premium of $36,200, as
determined by a qualified, independent appraiser, due to MICO's
ownership of improved real property which is located adjacent to the
Property;
(d) The Sale is a one-time transaction for cash; and
(e) The Plan pays no fees or commissions in connection with the
Sale.
For a more complete statement of the facts and representations
supporting this exemption, refer to the notice of proposed exemption
published on May 27, 1999 at 64 FR 28835.
FOR FURTHER INFORMATION CONTACT: Mr. Christopher Motta of the
Department, telephone (202) 219-8881 (This is not a toll-free number).
[[Page 53737]]
Fleet Bank (RI), National Association (Fleet)
Located in Providence, Rhode Island
[Prohibited Transaction Exemption 99-39;
Exemption Application No. D-10643]
Exemption
Section I--Transactions
A. Effective August 11, 1999, the restrictions of sections 406(a)
and 407(a) of the Act and the taxes imposed by section 4975(a) and (b)
of the Code, by reason of section 4975(c)(1)(A) through (D) of the
Code, shall not apply to the following transactions involving trusts
and certificates evidencing interests therein:
(1) The direct or indirect sale, exchange or transfer of
certificates in the initial issuance of certificates between the trust,
the sponsor or an underwriter and an employee benefit plan subject to
the Act or section 4975 of the Code (a plan) when the sponsor,
servicer, trustee or insurer of a trust, the underwriter of the
certificates representing an interest in the trust, or an obligor is a
party in interest with respect to such plan;
(2) The direct or indirect acquisition or disposition of
certificates by a plan in the secondary market for such certificates;
and
(3) The continued holding of certificates acquired by a plan
pursuant to Section I.A.(1) or (2).
Notwithstanding the foregoing, Section I.A. does not provide an
exemption from the restrictions of sections 406(a)(1)(E), 406(a)(2) and
407 for the acquisition or holding of a certificate on behalf of an
Excluded Plan, as defined in Section III.K. below, by any person who
has discretionary authority or renders investment advice with respect
to the assets of the Excluded Plan that are invested in
certificates.1
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\1\ Section I.A. provides no relief from sections 406(a)(1)(E),
406(a)(2) and 407 for any person rendering investment advice to an
Excluded Plan within the meaning of section 3(21)(A)(ii) and
regulation 29 CFR 2510.3-21(c).
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B. Effective August 11, 1999, the restrictions of sections
406(b)(1) and 406(b)(2) of the Act and the taxes imposed by section
4975(a) and (b) of the Code, by reason of section 4975(c)(1)(E) of the
Code, shall not apply to:
(1) The direct or indirect sale, exchange or transfer of
certificates in the initial issuance of certificates between the trust,
the sponsor or an underwriter and a plan when the person who has
discretionary authority or renders investment advice with respect to
the investment of plan assets in the certificates is (a) an obligor
with respect to receivables contained in the trust constituting 0.5
percent or less of the fair market value of the aggregate undivided
interest in the trust allocated to the certificates of the relevant
series, or (b) an affiliate of a person described in (a); if
(i) The plan is not an Excluded Plan;
(ii) Solely in the case of an acquisition of certificates in
connection with the initial issuance of the certificates, at least 50
percent of each class of certificates in which plans have invested is
acquired by persons independent of the members of the Restricted Group,
as defined in Section III.L., and at least 50 percent of the aggregate
undivided interest in the trust allocated to the certificates of a
series is acquired by persons independent of the Restricted Group;
(iii) A plan's investment in each class of certificates of a series
does not exceed 25 percent of all of the certificates of that class
outstanding at the time of the acquisition;
(iv) Immediately after the acquisition of the certificates, no more
than 25 percent of the assets of a plan with respect to which the
person has discretionary authority or renders investment advice is
invested in certificates representing the aggregate undivided interest
in a trust allocated to the certificates of a series and containing
receivables sold or serviced by the same entity; 2 and
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\2\ For purposes of this exemption, each plan participating in a
commingled fund (such as a bank collective trust fund or insurance
company pooled separate account) shall be considered to own the same
proportionate undivided interest in each asset of the commingled
fund as its proportionate interest in the total assets of the
commingled fund as calculated on the most recent preceding valuation
date of the fund.
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(v) Immediately after the acquisition of the certificates, no more
than 25 percent of the assets of a plan with respect to which the
person has discretionary authority or renders investment advice is
invested in certificates representing an interest in the trust, or
trusts containing receivables sold or serviced by the same entity. For
purposes of paragraphs B.(1)(iv) and B.(1)(v) only, an entity shall not
be considered to service receivables contained in a trust if it is
merely a subservicer of that trust;
(2) The direct or indirect acquisition or disposition of
certificates by a plan in the secondary market for such certificates,
provided that conditions set forth in Section I. B.(1)(i) and (iii)
through (v) are met; and
(3) The continued holding of certificates acquired by a plan
pursuant to Section I.B.(1) or (2).
C. Effective August 11, 1999, the restrictions of sections 406(a),
406(b) and 407(a) of the Act and the taxes imposed by section 4975(a)
and (b) of the Code, by reason of section 4975(c) of the Code, shall
not apply to transactions in connection with the servicing, management
and operation of a trust, including reassigning receivables to the
sponsor, removing from the trust receivables in accounts previously
designated to the trust, changing the underlying terms of accounts
designated to the trust, adding new receivables to the trust,
designating new accounts to the trust, the retention of a retained
interest by the sponsor in the receivables, the exercise of the right
to cause the commencement of amortization of the principal amount of
the certificates, or the use of any eligible swap transactions,
provided that:
(1) Such transactions are carried out in accordance with the terms
of a binding pooling and servicing agreement;
(2) The pooling and servicing agreement is provided to, or
described in all material respects in the prospectus or private
placement memorandum provided to, investing plans before they purchase
certificates issued by the trust; 3
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\3\ In the case of a private placement memorandum, such
memorandum must contain substantially the same information that
would be disclosed in a prospectus if the offering of the
certificates were made in a registered public offering under the
Securities Act of 1933. In the Department's view, the private
placement memorandum must contain sufficient information to permit
plan fiduciaries to make informed investment decisions. For purposes
of this exemption, all references to ``prospectus'' include any
related supplement thereto, and any documents incorporated by
reference therein, pursuant to which certificates are offered to
investors.
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(3) The addition of new receivables or designation of new accounts,
or the removal of receivables in previously-designated accounts, meets
the terms and conditions for such additions, designations or removals
as are described in the prospectus or private placement memorandum for
such certificates, which terms and conditions have been approved by
Standard & Poor's Ratings Services, Moody's Investors Service, Inc.,
Duff & Phelps Credit Rating Co., or Fitch IBCA, Inc., or their
successors (collectively, the Rating Agencies), and does not result in
the certificates receiving a lower credit rating from the Rating
Agencies than the then current rating of the certificates; and
(4) The series of which the certificates are a part will be subject
to an ``Economic Pay Out Event'' (as defined in Section III.BB.), which
is set forth in
[[Page 53738]]
the pooling and servicing agreement and described in the prospectus or
private placement memorandum associated with the series, the occurrence
of which will cause any revolving period, scheduled amortization period
or scheduled accumulation period applicable to the certificates to end,
and principal collections to be applied to monthly payments of
principal to, or the accumulation of principal for the benefit of, the
certificateholders of such series until the earlier of payment in full
of the outstanding principal amount of the certificates of such series
or the series termination date specified in the prospectus or private
placement memorandum.
Notwithstanding the foregoing, Section I.C. does not provide an
exemption from the restrictions of section 406(b) of the Act, or from
the taxes imposed under section 4975(a) and (b) of the Code, by reason
of section 4975(c)(1)(E) or (F) of the Code, for the receipt of a fee
by the servicer of the trust, in connection with the servicing of the
receivables and the operation of the trust, from a person other than
the trustee or sponsor, unless such fee constitutes a ``qualified
administrative fee'' as defined in Section III.U. below.
D. Effective August 11, 1999, the restrictions of sections 406(a)
and 407(a) of the Act and the taxes imposed by sections 4975(a) and (b)
of the Code, by reason of sections 4975(c)(1)(A) through (D) of the
Code, shall not apply to any transaction to which those restrictions or
taxes would otherwise apply merely because a person is deemed to be a
party in interest or disqualified person (including a fiduciary) with
respect to a plan by virtue of providing services to the plan (or by
virtue of having a relationship to such service provider as described
in section 3(14)(F), (G), (H) or (I) of the Act or section
4975(e)(2)(F), (G), (H) or (I) of the Code), solely because of the
plan's ownership of certificates.
Section II--General Conditions
A. The relief provided under Section I will be available only if
the following conditions are met:
(1) The acquisition of certificates by a plan is on terms
(including the certificate price) that are at least as favorable to the
plan as such terms would be in an arm's-length transaction with an
unrelated party;
(2) The rights and interests evidenced by the certificates are not
subordinated to the rights and interests evidenced by other
certificates of the same trust;
(3) The certificates acquired by the plan have received a rating at
the time of such acquisition that is either: (i) In one of the two
highest generic rating categories from any one of the Rating Agencies;
or (ii) for certificates with a duration of one year or less, the
highest short-term generic rating category from any one of the Rating
Agencies; provided that, notwithstanding such ratings, this exemption
shall apply to a particular class of certificates only if such class
(an Exempt Class) is at the time of such acquisition part of a series
in which credit support is provided to the Exempt Class through a
senior-subordinated series structure or other form of third-party
credit support which, at a minimum, represents five (5) percent of the
outstanding principal balance of certificates issued for the Exempt
Class, so that an investor in the Exempt Class will not bear the
initial risk of loss;
(4) The trustee is not an affiliate of any other member of the
Restricted Group. However, the trustee shall not be considered to be an
affiliate of a servicer solely because the trustee has succeeded to the
rights and responsibilities of the servicer pursuant to the terms of a
pooling and servicing agreement providing for such succession upon the
occurrence of one or more events of default by the servicer;
(5) The sum of all payments made to and retained by the
underwriters in connection with the distribution or placement of
certificates represents not more than reasonable compensation for
underwriting or placing the certificates; the consideration received by
the sponsor as a consequence of the assignment of receivables (or
interests therein) to the trust, to the extent allocable to the class
of certificates purchased by a plan, represents not more than the fair
market value of such receivables (or interests); and the sum of all
payments made to and retained by the servicer, to the extent allocable
to the class of certificates purchased by a plan, represents not more
than reasonable compensation for the servicer's services under the
pooling and servicing agreement and reimbursement of the servicer's
reasonable expenses in connection therewith;
(6) The plan investing in such certificates is an ``accredited
investor'' as defined in Rule 501(a)(1) of Regulation D of the
Securities and Exchange Commission (SEC) under the Securities Act of
1933;
(7) The trustee of the trust is a substantial financial institution
or trust company experienced in trust activities and is familiar with
its duties, responsibilities, and liabilities as a fiduciary under the
Act (i.e. ERISA). The trustee, as the legal owner of, or holder of a
perfected security interest in, the receivables in the trust, enforces
all the rights created in favor of certificateholders of such trust,
including plans;
(8) Prior to the issuance by the trust of any new series,
confirmation is received from the Rating Agencies that such issuance
will not result in the reduction or withdrawal of the then current
rating of the certificates held by any plan pursuant to this exemption;
(9) To protect against fraud, chargebacks or other dilution of the
receivables in the trust, the pooling and servicing agreement and the
Rating Agencies require the sponsor to maintain a seller interest of
not less than two (2) percent of the principal balance of the
receivables contained in the trust;
(10) Each receivable added to a trust is an eligible receivable,
based on criteria of the relevant Rating Agency(ies) and as specified
in the pooling and servicing agreement. The pooling and servicing
agreement requires that any change in the terms of the cardholder
agreements must be made applicable to the comparable segment of
accounts owned or serviced by the sponsor which are part of the same
program or have the same or substantially similar characteristics;
(11) The pooling and servicing agreement limits the number of the
sponsor's newly originated accounts to be designated to the trust,
unless the Rating Agencies otherwise consent in writing, to the
following: (i) with respect to any consecutive three-month period
commencing in January, April, July and October of each calendar year,
15 percent of the number of existing accounts designated to the trust
as of the first day of the calendar year during which such monthly
period commenced, and (ii) with respect to any calendar year, 20
percent of the number of existing accounts designated to the trust as
of the first day of such calendar year;
(12) The pooling and servicing agreement requires the sponsor to
deliver an opinion of counsel confirming the validity and perfection of
each transfer of receivables in newly originated accounts to the trust
for each interim addition;
(13) The pooling and servicing agreement requires the sponsor and
the trustee to receive confirmation from a Rating Agency that no
Ratings Effect will result from (i) a Required Addition (as defined in
Section III.MM.) in excess of the limits in paragraph B.(11) above, or
(ii) any Restricted Additions (as defined in Section III.NN.);
(14) If a particular class of certificates held by any plan
involves a Ratings
[[Page 53739]]
Dependent or Non-Ratings Dependent Swap entered into by the trust, then
each particular swap transaction relating to such certificates:
(a) shall be an Eligible Swap;
(b) shall be with an Eligible Swap Counterparty;
(c) in the case of a Ratings Dependent Swap, shall include as an
early payout event, as specified in the pooling and servicing
agreement, the withdrawal or reduction by any Rating Agency of the swap
counterparty's credit rating below a level specified by the Rating
Agency where the servicer (as agent for the trustee) has failed, for a
specified period after such rating withdrawal or reduction, to meet its
obligation under the pooling and servicing agreement to:
(i) obtain a replacement swap agreement with an Eligible Swap
Counterparty which is acceptable to the Rating Agency and the terms of
which are substantially the same as the current swap agreement (at
which time the earlier swap agreement shall terminate); or
(ii) cause the swap counterparty to establish any collateralization
or other arrangement satisfactory to the Rating Agency such that the
then current rating by the Rating Agency of the particular class of
certificates will not be withdrawn or reduced;
(d) in the case of a Non-Ratings Dependent Swap, shall provide
that, if the credit rating of the swap counterparty is withdrawn or
reduced below the lowest level specified in Section III.II. hereof, the
servicer, as agent for the trustee, shall within a specified period
after such rating withdrawal or reduction:
(i) obtain a replacement swap agreement with an Eligible Swap
Counterparty, the terms of which are substantially the same as the
current swap agreement (at which time the earlier swap agreement shall
terminate); or
(ii) cause the swap counterparty to post collateral with the
trustee of the trust in an amount equal to all payments owed by the
counterparty if the swap transaction were terminated; or
(iii) terminate the swap agreement in accordance with its terms;
and
(e) shall not require the trust to make any termination payments to
the swap counterparty (other than a currently scheduled payment under
the swap agreement) except from ``Excess Finance Charge Collections''
(as defined below in Section III.LL.) or other amounts that would
otherwise be payable to the servicer or the sponsor;
(15) Any class of certificates, to which one or more swap
agreements entered into by the trust applies, may be acquired or held
in reliance upon this exemption only by Qualified Plan Investors.
B. Neither any underwriter, sponsor, trustee, servicer, insurer,
nor any obligor, unless it or any of its affiliates has discretionary
authority or renders investment advice with respect to the plan assets
used by a plan to acquire certificates, shall be denied the relief
provided under Section I, if the provision in Section II.A.(6) above is
not satisfied for the acquisition or holding by a plan of such
certificates, provided that:
(1) Such condition is disclosed in the prospectus or private
placement memorandum; and
(2) In the case of a private placement of certificates, the trustee
obtains a representation from each initial purchaser which is a plan
that it is in compliance with such condition, and obtains a covenant
from each initial purchaser to the effect that, so long as such initial
purchaser (or any transferee of such initial purchaser's certificates)
is required to obtain from its transferee a representation regarding
compliance with the Securities Act of 1933, any such transferees shall
be required to make a written representation regarding compliance with
the condition set forth in Section II.A.(6).
Section III--Definitions
For purposes of this exemption:
A. ``Certificate'' means a certificate:
(1) That (i) represents a beneficial ownership interest in the
assets of a trust and entitles the holder to payments denominated as
principal, interest and/or other payments made as described in the
applicable prospectus or private placement memorandum and in accordance
with the pooling and servicing agreement in connection with the assets
of such trust, to the extent allocable to the series of certificates
purchased by a plan, either currently or after a revolving period
during which principal payments on assets of the trust are reinvested
in new assets, or (ii) is denominated as a debt instrument that
represents a regular interest in a financial asset securitization
investment trust (FASIT), within the meaning of section 860L(a) of the
Code, and is issued by and is an obligation of the trust.
For purposes of this exemption, references to ``certificates
representing an interest in a trust'' include certificates denominated
as debt which are issued by a trust; and
(2) With respect to which (a) Fleet or any of its affiliates is the
sponsor, and (b) Fleet, any of its affiliates, or an ``underwriter''
(as defined in Section III.C.) is the sole underwriter or the manager
or co-manager of the underwriting syndicate or a selling or placement
agent.
B. ``Trust'' means an investment pool, the corpus of which is held
in trust and consists solely of:
(1) Either:
(a) Receivables (as defined in Section III.V.); or
(b) Participations in a pool of receivables (as defined in Section
III.V.) where such beneficial ownership interests are not subordinated
to any other interest in the same pool of receivables; \4\
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\4\ The Department notes that no relief would be available under
the exemption if the participation interests held by the trust were
subordinated to the rights and interests evidenced by other
participation interests in the same pool of receivables.
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(2) Property which has secured any of the assets described in
paragraph B.(1) above; \5\
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\5\ Fleet states that it is possible for credit card receivables
to be secured by bank account balances or security interests in
merchandise purchased with credit cards. Thus, the exemption should
permit foreclosed property to be an eligible trust asset.
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(3) Undistributed cash or permitted investments made therewith
maturing no later than the next date on which distributions are to be
made to certificateholders, except during a Revolving Period (as
defined herein) when permitted investments are made until such cash can
be reinvested in additional receivables described in paragraph B.(1)(a)
above;
(4) Rights of the trustee under the pooling and servicing
agreement, and rights under any cash collateral accounts, insurance
policies, third-party guarantees, contracts of suretyship and other
credit support arrangements for any certificates, swap transactions, or
under any yield supplement agreements,\6\ yield maintenance agreements
or similar arrangements; and
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\6\ In a series involving an accumulation period (as defined in
Section III.Z.), a yield supplement agreement may be used by the
Trust to make up the difference between (i) the reinvestment yield
on permitted investments, and (ii) the interest rate on the
certificates of that series.
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(5) Rights to receive interchange fees received by the sponsor as
partial compensation for the sponsor's taking credit risk, absorbing
fraud losses and funding receivables for a limited period prior to
initial billing with respect to accounts designated to the trust.
Notwithstanding the foregoing, the term ``trust'' does not include
any investment pool unless: (i) the investment pool consists only of
receivables of the type which have been included in other investment
pools; (ii) certificates evidencing interests in such other investment
pools have been rated
[[Page 53740]]
in one of the two highest generic rating categories by at least one of
the Rating Agencies for at least one year prior to the plan's
acquisition of certificates pursuant to this exemption; and (iii)
certificates evidencing an interest in such other investment pools have
been purchased by investors other than plans for at least one year
prior to the plan's acquisition of certificates pursuant to this
exemption.
C. ``Underwriter'' means an entity which has received from the
Department an individual prohibited transaction exemption which
provides relief for the operation of asset pool investment trusts that
issue asset-backed pass-through securities to plans that is similar in
format and substance to this exemption (each, an Underwriter
Exemption); \7\ any person directly or indirectly, through one or more
intermediaries, controlling, controlled by or under common control with
such entity; and any member of an underwriting syndicate or selling
group of which such firm or affiliated person described above is a
manager or co-manager with respect to the certificates.
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\7\ For a listing of Underwriter Exemptions, see the description
provided in the text of the operative language of Prohibited
Transaction Exemption (PTE) 97-34 (62 FR 39021, July 21, 1997).
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D. ``Sponsor'' means Fleet, or an affiliate of Fleet that organizes
a trust by transferring credit card receivables or interests therein to
the trust in exchange for certificates.
E. ``Master Servicer'' means Fleet or an affiliate that is a party
to the pooling and servicing agreement relating to trust assets and is
fully responsible for servicing, directly or through subservicers, the
receivables in the trust pursuant to the pooling and servicing
agreement.
F. ``Subservicer'' means Fleet or an affiliate of Fleet, or an
entity unaffiliated with Fleet which, under the supervision of and on
behalf of the master servicer, services receivables contained in the
trust, but is not a party to the pooling and servicing agreement.
G. ``Servicer'' means Fleet or an affiliate which services
receivables contained in the trust, including the master servicer and
any subservicer or their successors pursuant to the pooling and
servicing agreement.
H. ``Trustee'' means an entity which is independent of Fleet and
its affiliates and is the trustee of the trust. In the case of
certificates which are denominated as debt instruments, ``trustee''
also means the trustee of the indenture trust.
I. ``Insurer'' means the insurer or guarantor of, provider of other
credit support for, or other contractual counterparty of, a trust.
Notwithstanding the foregoing, a swap counterparty is not an insurer,
and a person is not an insurer solely because it holds securities
representing an interest in a trust which are of a class subordinated
to certificates representing an interest in the same trust.
J. ``Obligor'' means any person, other than the insurer, that is
obligated to make payments with respect to any receivable included in
the trust.
K. ``Excluded Plan'' means any plan with respect to which any
member of the Restricted Group is a ``plan sponsor'' within the meaning
of section 3(16)(B) of the Act.
L. ``Restricted Group'' with respect to a class of certificates
means:
(1) Each underwriter;
(2) Each insurer;
(3) The sponsor;
(4) The trustee;
(5) Each servicer;
(6) Each swap counterparty;
(7) Any obligor with respect to receivables contained in the trust
constituting more than 0.5 percent of the fair market value of the
aggregate undivided interest in the trust allocated to the certificates
of a series, determined on the date of the initial issuance of such
series of certificates by the trust; or
(8) Any affiliate of a person described in paragraphs L.(1) through
(7) above.
M. ``Affiliate'' of another person includes:
(1) Any person directly or indirectly, through one or more
intermediaries, controlling, controlled by, or under common control
with such other person;
(2) Any officer, director, partner, employee, relative (as defined
in section 3(15) of the Act), a brother, a sister, or a spouse of a
brother or sister of such other person; and
(3) Any corporation or partnership of which such other person is an
officer, director or partner.
N. ``Control'' means the power to exercise a controlling influence
over the management or policies of a person other than an individual.
O. A person will be ``independent'' of another person only if:
(1) Such person is not an affiliate of that other person; and
(2) The other person, or an affiliate thereof, is not a fiduciary
who has investment management authority or renders investment advice
with respect to any assets of such person.
P. ``Sale'' includes the entrance into a forward delivery
commitment (as defined in Section III.Q. below), provided that:
(1) The terms of the forward delivery commitment (including any fee
paid to the investing plan) are no less favorable to the plan than they
would be in an arm's length transaction with an unrelated party;
(2) The prospectus or private placement memorandum is provided to
an investing plan prior to the time the plan enters into the forward
delivery commitment; and
(3) At the time of the delivery, all conditions of this exemption
applicable to sales are met.
Q. ``Forward Delivery Commitment'' means a contract for the
purchase or sale of one or more certificates to be delivered at an
agreed future settlement date. The term includes both mandatory
contracts (which contemplate obligatory delivery and acceptance of the
certificates) and optional contracts (which give one party the right
but not the obligation to deliver certificates to, or demand delivery
of certificates from, the other party).
R. ``Reasonable Compensation'' has the same meaning as that term is
defined in 29 CFR section 2550.408c-2.
S. ``Pooling and Servicing Agreement'' means the agreement or
agreements among a sponsor, a servicer and the trustee establishing a
trust and any supplement thereto pertaining to a particular series of
certificates. In the case of certificates which are denominated as debt
instruments, ``pooling and servicing agreement'' also includes the
indenture entered into by the trustee of the trust issuing such
certificates and the indenture trustee.
T. ``Series'' means an issuance of a class or various classes of
certificates by the trust all on the same date pursuant to the same
pooling and servicing agreement, and any supplement thereto and
restrictions therein.
U. ``Qualified Administrative Fee'' means a fee which meets the
following criteria:
(1) The fee is triggered by an act or failure to act by the obligor
other than the normal timely payment of amounts owing with respect to
the receivables;
(2) The servicer may not charge the fee absent the act or failure
to act referred to in paragraph U.(1) above;
(3) The ability to charge the fee, the circumstances in which the
fee may be charged, and an explanation of how the fee is calculated are
set forth in the pooling and servicing agreement or described in all
material respects in the prospectus or private placement memorandum
provided to the plan before it purchases certificates issued by the
trust; and
(4) The amount paid to investors in the trust is not reduced by the
amount of any such fee waived by the servicer.
[[Page 53741]]
V. ``Receivables'' means secured or unsecured obligations of credit
card holders which have arisen or arise in Accounts designated to a
trust. Such obligations represent amounts charged by cardholders for
merchandise and services and amounts advanced as cash advances, as well
as periodic finance charges, annual membership fees, cash advance fees,
late charges on amounts charged for merchandise and services and
certain other fees (such as bad check fees, cash advance fees, and
other fees specified in the cardholder agreements) designated by card
issuers (other than a qualified administrative fee as defined in
Section III.U.).
W. ``Accounts'' are revolving credit card accounts serviced by
Fleet or an affiliate, which were originated or purchased by Fleet or
an affiliate, and are designated to a trust such that receivables
arising in such accounts become assets of the trust.
X. ``Revolving Period'' means a period of time, as specified in the
pooling and servicing agreement, during which principal collections
allocated to a series are reinvested in newly generated receivables
arising in the accounts.
Y. ``Amortization Period'' means a period of time specified in the
pooling and servicing agreement during which a portion of the principal
collections allocated to a series will commence to be paid to the
certificateholders of such series in installments.
Z. ``Accumulation Period'' means a period of time specified in the
pooling and servicing agreement during which a portion of the principal
collections allocated to a series will be deposited in an account to be
distributed to certificateholders in a lump sum on the expected
maturity date.
AA. ``Pay Out Event'' means any of the events specified in the
pooling and servicing agreement or supplement thereto that results (in
some instances without further affirmative action by any party) in the
early commencement of either an amortization period or an accumulation
period, including (1) the failure of the sponsor or the servicer,
whichever is subject to the relevant obligation under the pooling and
servicing agreement, (i) to make any payment or deposit required under
the pooling and servicing agreement within five (5) business days after
such payment or deposit was required to be made, or (ii) to observe or
perform any of its other covenants or agreements set forth in the
pooling and servicing agreement, which failure has a material adverse
effect on holders of investor certificates of the relevant series and
continues unremedied for 60 days; (2) a breach of any representation or
warranty made by the sponsor or the servicer in the pooling and
servicing agreement that continues to be incorrect in any material
respect for 60 days; (3) the occurrence of certain bankruptcy events
relating to the sponsor or the servicer; (4) the failure by the sponsor
to convey to the trust additional receivables to maintain the minimum
seller interest that is required by the pooling and servicing agreement
and the Rating Agencies; (5) the failure to pay in full amounts owing
to investors on the expected maturity date; and (6) the Economic Pay
Out Event.
BB. An ``Economic Pay Out Event'' occurs automatically when the
portfolio yield for any series of certificates, averaged over three
consecutive months (or such other period approved by one of the Rating
Agencies) is less than the base rate of the series averaged over the
same period. Portfolio yield for a series of certificates for any
period is equal to the sum of the finance charge collections and other
amounts treated as finance charge collections less total defaults for
the series divided by the outstanding principal balance of the investor
certificates of the series, or such other measure approved by one of
the Rating Agencies. The base rate for a series of certificates for any
period is the sum of (i) amounts payable to certificateholders of the
series with respect to interest, (ii) servicing fees allocable to the
series payable to the servicer, and (iii) any credit enhancement fee
allocable to the series payable to a third party credit enhancer,
divided by the outstanding principal balance of the investor
certificates of the series, or such other measure approved by one of
the Rating Agencies.
CC. ``CCA'' or ``Cash Collateral Account'' means that certain
account established in the name of the trustee that serves as credit
enhancement with respect to the investor certificates and holds cash
and/or permitted investments (as defined below in Section III.KK.)
which conform to applicable provisions of the pooling and servicing
agreement.
DD. ``Group'' means a group of any number of series offered by the
trust that share finance charge and/or principal collections in the
manner described in the applicable prospectus or private placement
memorandum.
EE. ``Ratings Effect'' means the reduction or withdrawal by a
Rating Agency of its then current rating of the certificates held by
any plan pursuant to this exemption.
FF. ``Principal Receivables Discount'' means, with respect to any
account designated by the sponsor, the portion of the related principal
receivables that represents a discount from the face value thereof and
that is treated under the pooling and servicing agreement as finance
charge receivables.
GG. ``Ratings Dependent Swap'' means an interest rate swap, or (if
purchased by or on behalf of the trust) an interest rate cap contract,
that is part of the structure of a series of certificates where the
rating assigned by the Rating Agency to any senior class of
certificates held by any plan is dependent on the terms and conditions
of the swap and the rating of the swap counterparty, and if such
certificate rating is not dependent on the existence of the swap and
rating of the swap counterparty, such swap or cap shall be referred to
as a ``Non-Ratings Dependent Swap''. With respect to a Non-Ratings
Dependent Swap, each Rating Agency rating the certificates must
confirm, as of the date of issuance of the certificates by the trust,
that entering into an Eligible Swap with such counterparty will not
affect the rating of the certificates.
HH. ``Eligible Swap'' means a Ratings Dependent or Non-Ratings
Dependent Swap:
(1) which is denominated in U.S. Dollars;
(2) pursuant to which the trust pays or receives, on or immediately
prior to the respective payment or distribution date for the senior
class of certificates, a fixed rate of interest, or a floating rate of
interest based on a publicly available index (e.g. LIBOR or the U.S.
Federal Reserve's Cost of Funds Index (COFI)), with the trust receiving
such payments on at least a quarterly basis and obligated to make
separate payments no more frequently than the swap counterparty, with
all simultaneous payments being netted;
(3) which has a notional amount that does not exceed either (i) the
certificate balance of the class of certificates to which the swap
relates, or (ii) the portion of the certificate balance of such class
represented by receivables;
(4) which is not leveraged (i.e., payments are based on the
applicable notional amount, the day count fractions, the fixed or
floating rates designated in paragraph HH.(2) above, and the difference
between the products thereof, calculated on a one to one ratio and not
on a multiplier of such difference);
(5) which has a final termination date that is the earlier of the
date on which the trust terminates or the related class of certificates
is fully repaid; and
(6) which does not incorporate any provision which could cause a
unilateral alteration in any provision described in paragraphs HH.(1)
through
[[Page 53742]]
(4) above without the consent of the trustee.
II. ``Eligible Swap Counterparty'' means a bank or other financial
institution which has a rating, at the date of issuance of the
certificates by the trust, which is in one of the three highest long-
term credit rating categories, or one of the two highest short-term
credit rating categories, utilized by at least one of the Rating
Agencies rating the certificates; provided that, if a swap counterparty
is relying on its short-term rating to establish eligibility hereunder,
such counterparty must either have a long-term rating in one of the
three highest long-term rating categories or not have a long-term
rating from the applicable Rating Agency, and provided further that if
the senior class of certificates with which the swap is associated has
a final maturity date of more than one year from the date of issuance
of the certificates, and such swap is a Ratings Dependent Swap, the
swap counterparty is required by the terms of the swap agreement to
establish any collateralization or other arrangement satisfactory to
the Rating Agencies in the event of a ratings downgrade of the swap
counterparty.
JJ. ``Qualified Plan Investor'' means a plan investor or group of
plan investors on whose behalf the decision to purchase certificates is
made by an appropriate independent fiduciary that is qualified to
analyze and understand the terms and conditions of any swap transaction
used by the trust and the effect such swap would have upon the credit
ratings of the certificates. For purposes of the exemption, such a
fiduciary is either:
(1) A ``qualified professional asset manager'' (QPAM),8
as defined under Part V(a) of PTE 84-14 (49 FR 9494, 9506, March 13,
1984);
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\8\ PTE 84-14 provides a class exemption for transactions
between a party in interest with respect to an employee benefit plan
and an investment fund (including either a single customer or pooled
separate account) in which the plan has an interest, and which is
managed by a QPAM, provided certain conditions are met. QPAMs (e.g.,
banks, insurance companies, registered investment advisers with
total client assets under management in excess of $50 million) are
considered to be experienced investment managers for plan investors
that are aware of their fiduciary duties under ERISA.
---------------------------------------------------------------------------
(2) an ``in-house asset manager'' (INHAM),9 as defined
under Part IV(a) of PTE 96-23 (61 FR 15975, 15982, April 10, 1996); or
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\9\ PTE 96-23 permits various transactions involving employee
benefit plans whose assets are managed by an INHAM, an entity which
is generally a subsidiary of an employer sponsoring the plan which
is a registered investment adviser with management and control of
total assets attributable to plans maintained by the employer and
its affiliates which are in excess of $50 million.
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(3) a plan fiduciary with total assets under management of at least
$100 million at the time of the acquisition of such certificates.
KK. ``Permitted Investments'' means investments that either (i) are
direct obligations of, or obligations fully guaranteed as to timely
payment of principal and interest by, the United States or any agency
or instrumentality thereof, provided that such obligation is backed by
the full faith and credit of the United States, or (ii) have been rated
(or the obligor thereof has been rated) in one of the three highest
generic rating categories by a Rating Agency; are described in the
pooling and servicing agreement; and are permitted by the relevant
Rating Agency(ies).
LL. ``Excess Finance Charge Collections'' means, as of any day
funds are distributed from the trust, the amount by which the finance
charge collections allocated to certificates of a series exceed the
amount necessary to pay certificate interest, servicing fees and
expenses, to satisfy cardholder defaults or charge-offs, and to
reinstate credit support.
MM. ``Required Additions'' means accounts which are required to be
added to the trust when either the seller amount is less than the
minimum required seller amount or the principal amount is less than the
required principal amount.
NN. ``Restricted Additions'' means accounts which may be added to
the trust at the discretion of the sponsor only upon confirmation from
a Rating Agency that no Ratings Effect will result from the addition.
The Department notes that this exemption is included within the
meaning of the term ``Underwriter Exemption'' as it is defined in
Section V(h) of the Grant of the Class Exemption for Certain
Transactions Involving Insurance Company General Accounts, which was
published in the Federal Register on July 12, 1995 (see PTE 95-60, 60
FR 35925).
For a more complete statement of the facts and representations
supporting the Department's decision to grant this exemption refer to
the notice of proposed exemption published on August 11, 1999 at 64 FR
43742.
Effective Date: This exemption is effective August 11, 1999.
For Further Information Contact: Mr. Gary H. Lefkowitz of the
Department, telephone (202) 219-8881. (This is not a toll-free number.)
UNOVA, Inc. (UNOVA), Located in Beverly Hills, California
[Prohibited Transaction Exemption No. 99-40; Exemption Application Nos.
D-10663 and D-10664]
Exemption
The restrictions of section 406(a), 406(b)(1) and (b)(2), and
section 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, as of December
17, 1998, to: (1) the acquisition by the UNOVA, Inc. Pension Plan and
the Landis Tool Pension Plan (collectively, the Plans) of certain
improved real property (the Property) from an unrelated party for a
sales price of $15,250,000 (the Purchase); and (2) the leasing of a
portion of the Property (the Lease) by the Plans to UNOVA, a party in
interest with respect to the Plans, provided that the following
conditions are satisfied:
(a) The Plans paid an amount for the Property which was no more
than the fair market value of the Property at the time of the
transaction;
(b) The interest in the Property owned by each Plan represented no
more than 10% of the value of either Plan's total assets at the time of
the Purchase;
(c) The Property, including the amount of space in the Property
leased to UNOVA under the Lease (the Leased Space), represents no more
than 10% of the value of either Plan's total assets throughout the
duration of the Lease;
(d) The terms and conditions of the Lease are at least as favorable
to the Plans as those obtainable in an arm's-length transaction with an
unrelated party;
(e) The fair market rental value of the Leased Space has been, and
every three years during the Lease will continue to be, determined by a
qualified, independent appraiser;
(f) The amount of rent paid by UNOVA to the Plans for the Leased
Space throughout the duration of the Lease will be no less than the
greater of the initial rent paid by UNOVA or the current fair market
value of the Leased Space, as determined every three years by a
qualified independent appraiser;
(g) The Plans' independent fiduciary has determined that the
Purchase and Lease are appropriate for the Plans and in the best
interests of the Plans' participants and beneficiaries; and
(h) The Plans' independent fiduciary will monitor the Lease, as
well as the conditions of this exemption, and will take whatever
actions are necessary to safeguard the interests of the Plans
throughout the duration of the Lease.
[[Page 53743]]
Effective Date: This exemption is effective as of December 17,
1998.
For a more complete statement of the facts and representations
supporting the Department's decision to grant this exemption, refer to
the notice of proposed exemption published on May 13, 1999 at 64 FR
25921.
Written Comments
The Department received approximately 69 comment letters from
interested persons regarding the notice of proposed exemption (the
Notice). The Department also received three comment letters from the
applicant (i.e., UNOVA), one letter in response to the 69 comments
submitted by interested persons, another letter requesting certain
clarifications and modifications to the Notice, and a final letter
which provides a further statement regarding an appropriate limitation
on the percentage of each Plan's assets that the Property may
represent.
With respect to the 69 comments received by the Department from
interested persons, approximately 58 of the letters were similar or
identical in nature. One such letter had 22 different signatures
endorsing the comments made therein. All of these letters expressed
general opposition ``* * * to any plan that would allow unova inc.
[sic] to use any funds that have been accumulated by its employees for
retirement, for company related expenditures.'' Some of these letters
also expressed concerns regarding ``* * * a potential conflict of
interest'' and that ``* * * any money set aside for future retirement
should only be used to enhance that retirement fund to the fullest
extent possible.'' The remaining comment letters were not similar or
identical in nature and raised more specific issues. For example, one
comment stated that ``* * * the purchase of land from `arms length'
parties is suspect and not in the best interest of plan participants *
* *'' and that ``* * * investment in real property in Los Angles [sic]
is speculative at best * * *'' Other comments suggested that it would
have been more appropriate for UNOVA to buy the Property rather than
the Plans. Some of these comments also suggested that the rent being
paid by UNOVA for the Leased Space, and UNOVA's reimbursement of
leasing expenses to the Plans, is inadequate. Finally, most of these
comments raised concerns about the ``* * * security of the retirement
funds'' and the need for adequate protections from any investment
losses.
In response to these comments, the applicant states that the
Investment Committee of the Plans (the Committee) determined in 1998
that real estate should be part of the investments in the Plans'
portfolios in order to diversify the assets of the Plans. The applicant
notes that asset diversity can reduce risk to an investment portfolio
and can contribute to the growth of the Plans' assets. With respect to
the Plans' investment in the Property, the applicant represents that
the Committee determined that the Property would be an appropriate real
estate investment for the Plans in meeting the stated goal of
diversifying the Plans' assets into real estate. The applicant states
that the Lease adds to the value of the Property because it adds to the
income enjoyed by the Plans from the investment. Further, the requested
exemption contains safeguards, such as independent fiduciary review of
the fair market rental value of the Leased Space every three years,
adjustment of the rent to reflect cost of living increases, and
continued monitoring of the Lease's terms to ensure that the Lease does
not become disadvantageous to the Plans.
The applicant notes that the safeguards agreed to by UNOVA for the
Lease are similar to those required in other lease transactions for
which the Department has granted an exemption. In this regard, UNOVA
hired an independent fiduciary for the Plans to review the terms of
proposed transactions and to take whatever actions may be necessary to
safeguard the best interests of the Plans and its participants and
beneficiaries. In addition, an independent qualified real estate
appraiser was hired to review and appraise the Property (the Appraisal)
to determine its fair market value prior to its acquisition by the
Plans. The appraiser that produced the Appraisal also analyzed the
rental rate to be paid by UNOVA for the Leased Space and concluded that
an initial rental rate of $25.20 per square foot annually represented
the current fair market value of the Leased Space. The Appraisal was
also reviewed by certified real estate appraisers (the Reviewers) who
were independent of the parties involved in the transactions. The
Reviewers determined that the rental rate to be paid by UNOVA for the
Leased Space was at the high end of the range of rents being paid for
similar properties in the local real estate market.
Therefore, the applicant believes that given the goal of
diversification of plan assets and the independent safeguards discussed
above, the transactions are in the best interests of the Plans and
their participants and beneficiaries.
The Department agrees with the applicant that the conditions of the
proposed exemption contain adequate independent safeguards to protect
the interests of the Plans. The Department notes further that the total
value of the Property allocated to each of the Plans represented less
than 5% of each Plan's total assets at the time of the Purchase.
Therefore, based on the current facts and representations, the
Department is satisfied that the Plans' purchase of the Property and
subsequent leasing of part of the Property to UNOVA was consistent with
the Plans' investment objectives, and that the terms and conditions of
the Lease (as agreed to by the parties and approved by an independent
fiduciary) are in the interests of the Plans. Upon consideration of the
concerns raised by the comments, the applicant has agreed by letter
dated September 21, 1999 to further limit the percentage of each Plan's
total assets that the Property will represent throughout the duration
of the Lease to no more than 10%. As noted below, the Department has
modified conditions (b) and (c) of the exemption accordingly. In
addition, the applicant has also represented that no major expenditures
or renovations are contemplated for the Property except for certain
expenses associated with tenant installation.10
---------------------------------------------------------------------------
\10\ The Department notes that any expenses for tenant
installation, or other expenditures relating to the Property, made
by the Plans must be consistent with the fiduciary responsibility
provisions contained in Part 4 of Title I of the Act. In this
regard, the Department notes that section 404(a) of the Act
requires, among other things, that plan fiduciaries act prudently
and solely in the interest of the plan and its participants and
beneficiaries when making investment decisions for a plan, including
any decisions for reasonable expenditures that are necessary to
enhance the value of such investments.
---------------------------------------------------------------------------
The following is a discussion of the applicant's additional
comments regarding the Notice. These comments requested that:
(1) relief from the restrictions of section 407(a) of the Act be
provided in the exemption;
(2) condition (c), which imposes a limitation on the total Plan
assets that can be represented by the Property, be clarified; and
(3) certain clarifications be made to the information contained in
Paragraph 3 of the Summary of Facts and Representations in the Notice
(the Summary).
With respect to item (1) above, the applicant states that relief
from section 407(a) of the Act is necessary because the Property
represents a single parcel of ``employer real property'' (as defined in
section 407(d)(2) of the Act) and would not be considered ``qualifying
employer real property'' within the meaning of section 407(d)(4) of the
Act, since such a property would not meet
[[Page 53744]]
the requirement contained therein that such properties be
``geographically dispersed.'' Thus, in order to ensure that adequate
relief is provided by the final exemption, the applicant requests that
the Department clarify that the exemption provides relief from section
407(a).
The Department agrees with the applicant's analysis and has
modified the exemption to provide relief from the restrictions of
section 407(a) of the Act.
With respect to item (2) above, the applicant states that condition
(c) of the Notice states that:
The Property, and the amount of space in the Property leased to
UNOVA under the Lease (the Leased Space), represents no more than
15% of the value of either Plans's total assets throughout the
duration of the Lease. [emphasis added]
In this regard, the applicant asks the Department to confirm that this
condition does not double count the value of the Property and the value
of the Leased Space, but merely looks to the value of the Property
(including the value of the Leased Space) when determining whether this
condition is met.
The Department acknowledges the applicant's comment and, in order
to clarify the meaning of this condition in the final exemption, has
deleted the word ``and'' and substituted the word ``including'' in the
reference to the Leased Space contained in condition (c). In addition,
as noted above, the Department has modified conditions (b) and (c) of
the exemption by reducing the percentage limitation required therein
from 15% to 10%.
With respect to item (3) above, the applicant notes that the first
sentence in Paragraph 3 of the Summary states that:
After the Purchase, the Plans leased a portion of the Property
to UNOVA, effective as of December 17, 1998 (i.e., the Lease).
[emphasis added]
The applicant states that this sentence should state that the Plans
leased a portion of the Property to UNOVA, effective as of February 1,
1999.
The Department acknowledges this clarification to the information
contained in the Summary.
Accordingly, based on the entire record, the Department has
determined to grant the proposed exemption as modified herein.
For Further Information Contact: Christopher J. Motta of the
Department, telephone (202) 219-8194. (This is not a toll-free number.)
The Manufacturers Life Insurance Company (Manulife) Located in
Toronto, Canada
[Prohibited Transaction Exemption 99-41; Exemption Application No. D-
10738]
Exemption
Section I. Covered Transactions
The restrictions of section 406(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 (D) of the Code, shall not apply, to
(1) the receipt of common stock (the Common Shares) of Manulife
Financial Corporation, a newly-formed company that will be the holding
company (the Holding Company) for Manulife; or (2) the receipt of cash
or policy credits, by any plan policyholder (the Eligible Policyholder)
that is an employee benefit plan (the Plan), other than a policyholder
which is a Plan established by Manulife or an affiliate for its own
employees, in exchange for such Eligible Policyholder's membership
interest in Manulife, in accordance with a plan of reorganization (the
Plan of Demutualization) adopted by Manulife and implemented under the
insurance laws of Canada and the State of Michigan.
This exemption is subject to the conditions set forth below in
Section II.
Section II. General Conditions
(a) The Plan of Demutualization is implemented in accordance with
procedural and substantive safeguards that are imposed under the
insurance laws of Canada and the State of Michigan and is subject to
review and/or approval in Canada by the Office of the Superintendent of
Financial Institutions (OSFI) and the Minister of Finance (the Canadian
Finance Minister) and, in the State of Michigan, by the Commissioner of
Insurance (the Michigan Insurance Commissioner).
(b) OSFI, the Canadian Finance Minister and the Michigan Insurance
Commissioner review the terms of the options that are provided to
Eligible Policyholders of Manulife as part of their separate reviews of
the Plan of Demutualization. In this regard,
(1) OSFI (i) authorizes the release of the Plan of Demutualization
and all information to be sent to Eligible Policyholders; (ii) oversees
each step of the demutualization process; and (iii) makes a final
recommendation to the Canadian Finance Minister on the Plan of
Demutualization.
(2) The Canadian Finance Minister may consider such factors as
whether (i) the Plan of Demutualization is fair and equitable to
Eligible Policyholders; (ii) the Plan of Demutualization is in the best
interests of the financial system in Canada; and (iii) sufficient steps
had been taken to inform Eligible Policyholders of the Plan of
Demutualization and of the special meeting on demutualization.
(3) The Michigan Insurance Commissioner makes a determination that
the Plan of Demutualization is (i) fair and equitable to all Eligible
Policyholders and (ii) consistent with the requirements of Michigan
law.
(4) Both the Canadian Finance Minister and the Michigan Insurance
Commissioner concur on the terms of the Plan of Demutualization.
(c) Each Eligible Policyholder has an opportunity to vote to
approve the Plan of Demutualization after full written disclosure is
given to the Eligible Policyholder by Manulife.
(d) One or more independent fiduciaries of a Plan that is an
Eligible Policyholder receives Holding Company Common Shares, cash or
policy credits pursuant to the terms of the Plan of Demuutualization
and neither Manulife nor any of its affiliates exercises any discretion
or provides investment advice with respect to such acquisition.
(e) After each Eligible Policyholder is allocated 186 Common
Shares, additional consideration is allocated to Eligible Policyholders
who own eligible policies based on an actuarial formula that takes into
account the cash value, the death benefit (in the case of life
insurance policies and certain annuity policies) and the duration of
each such eligible policy. The actuarial formula has been reviewed by
the Canadian Finance Minister and the Michigan Insurance Commissioner.
(f) All Eligible Policyholders that are Plans participate in the
transactions on the same basis within their class groupings as other
Eligible Policyholders that are not Plans.
(g) No Eligible Policyholder pays any brokerage commissions or fees
in connection with the receipt of Common Shares.
(h) All of Manulife's policyholder obligations remain in force and
are not affected by the Plan of Demutualization.
Section III. Definitions
For purposes of this exemption:
(a) The term ``Manulife'' means The Manufacturers Life Insurance
Company and any affiliate of Manulife as defined in paragraph (b) of
this Section III.
(b) An ``affiliate'' of Manulife includes--
(1) Any person directly or indirectly through one or more
intermediaries, controlling, controlled by, or under common control
with Manulife. (For
[[Page 53745]]
purposes of this paragraph, the term ``control'' means the power to
exercise a controlling influence over the management or policies of a
person other than an individual.)
(2) Any officer, director or partner in such person, and (3) Any
corporation or partnership of which such person is an officer, director
or a 5 percent partner or owner.
(c) The term ``Eligible Policyholder'' means a policyholder who is
eligible to vote at the special meeting on demutualization and to
receive consideration under Manulife's Plan of Demutualization. More
specifically, an Eligible Policyholder is a policyholder of the mutual
insurer that had a voting policy on the day Manulife announced its
intention to prepare a plan of demutualization (the Eligibility Date)
or any policyholder that applied for a voting policy on or prior to
that day. Policyholders will also be deemed Eligible Policyholders if
they are holders of a voting policy that lapsed before the insurer's
Eligibility Date but was reinstated on or before 90 days prior to the
special meeting to consider demutualization. These policyholders will
be eligible to receive benefits upon demutualization.
(d) The term ``policy credit'' means whichever of the following is
applicable: (1) with respect to an individual life or individual
deferred annuity policy, and for a group policy (other than a group
annuity), where the owner has elected a paid-up addition option, an
increase in the paid-up addition value; (2) with respect to all other
individual life or individual deferred annuity policies, and for all
other group policies (other than group annuities), an increase in the
dividend accumulation account; (3) with respect to a settlement
annuity, a vested annuity or a group annuity, an increase in the
periodic income payment.
For a more complete statement of the facts and representations
supporting the Department's decision to grant this exemption, refer to
the notice of proposed exemption (the Notice) that was published July
22, 1999 at 64 FR 39539.
Written Comments
The Department received two written comments with respect to the
Notice. One comment was submitted by a Manulife policyholder. The other
comment was submitted by Manulife. Following is a discussion of these
comments.
Policyholder's Comment
The commenter expressed concern over the tax implications of the
cash distribution that would be made by Manulife to the policyholder's
Plan account as a result of the demutualization. The commenter
explained that he had not sought the demutualization nor was he taking
the distribution in his own name. Rather, he said he would reinvest the
cash consideration received with other assets held by his Plan account.
The commenter argued that to tax him would be unfair since the money he
would be receiving as a result of Manulife's demutualization would not
be in his actual possession and the tax would have to be paid to the
taxing authorities from his present income. The commenter further
explained that while he fully expected to pay taxes on the cash
consideration when he took distributions from his Plan account, to tax
him prematurely would be unfair and constitute unjust enrichment to the
taxing authorities.
In response to the commenter, Manulife indicated that it was
unaware of how the commenter acquired erroneous information that the
payment of the demutualization benefits to the commenter's Plan account
would constitute a taxable event. Manulife explained that under current
U.S. tax law, the payment of the demutualization benefits to a
qualified plan would not result in current taxation to a Plan
participant, such as the commenter, nor of the Plan, itself. To
emphasize this point, Manulife indicated that in the Information
Circular it mailed to policyholders on or before May 31, 1999, pages 51
and 52 of the document specifically state that the ``[r]eceipt of
Common Shares or cash by a pension or profit sharing trust (a plan
covered by section 401(a) of the U.S. Tax Code) will be tax-free to the
trust (assuming the trust is not otherwise subject to tax).''
Manulife's Comment
In its comment, Manulife recommended modifications or
clarifications to the operative language and the Summary of Facts and
Representations (the Summary) of the Notice in a number of areas.
Manulife explained that its comment was generated primarily because the
exemption application reflected a draft version of the Plan of
Demutualization rather than the final version that was approved by OSFI
and the Michigan Insurance Commissioner.
Discussed below are Manulife's concerns and the Department's
responses with respect to these areas of concern. Also included is a
discussion of the Department's revisions of certain typographical
errors appearing in the Summary and the Notice to Interested Persons.
1. Canadian Finance Minister Considerations. On page 39539 of the
Notice, Section II(b)(2) describes the various factors the Canadian
Finance Minister may take into account in deciding whether to approve a
plan of demutualization. Manulife represents that the first subclause
of Section II(b)(2) should be revised to read ``The Canadian Finance
Minister may consider such factors as whether (i) the Plan of
Demutualization is fair and equitable to policyholders.'' As for
subclauses (ii) and (iii) of Section II(b)(2), Manulife states that no
changes should be made.
The Department concurs with this modification to Section II(b)(2)
of the Notice.
2. Fixed and Variable Allocations of Demutualization Benefits. On
page 39539 of the Notice, Section II(e) states that the fixed
allocation of demutualization benefits will equal 184 Common Shares.
However, Manulife wishes to clarify that the fixed allocation is
actually equal to 186 Common Shares and, in response to this comment,
the Department has made the requested change. The Department has also
made a corresponding revision on page 39543 of the Notice in the second
paragraph of Representation 10 of the Summary.
In addition, Section II(e) of the Notice describes the variable
component of the demutualization benefits, in part, as follows:
``additional consideration is allocated to Eligible Policyholders who
own participating policies based on actuarial formulas that take into
account each participating policy's contribution to the surplus of
Manulife * * *'' Manulife represents that while some other insurance
companies have calculated the variable component of their
demutualization benefit in this manner, Manulife's variable allocation
will be calculated on a different basis. In this regard, Manulife
explains that under its Plan of Demutualization, the variable
allocation to eligible policies that are life insurance policies will
be calculated on the basis of the cash value, the death benefit and the
duration of each such eligible policy. Manulife further explains that
the variable allocation to eligible policies that are annuities will be
calculated using the same formula that will be used for life insurance
policies, except that the share allocation with respect to the death
benefit will generally be zero. According to Manulife, these allocation
formulas have been reviewed by the Canadian Finance Minister and the
Michigan Insurance Commissioner. In
[[Page 53746]]
light of the above, Manulife suggests that Section II(e) be revised to
read as follows:
After each Eligible Policyholder is allocated 186 Common Shares,
additional consideration is allocated to Eligible Policyholders who
own eligible policies based on an actuarial formula that takes into
account the cash value, the death benefit (in the case of life
insurance policies and certain annuity policies) and the duration of
each such eligible policy. The actuarial formula has been reviewed
by the Canadian Finance Minister and the Michigan Insurance
Commissioner.
The Department acknowledges Manulife's requested change and has
modified Section II(e) of the Notice.
3. Eligible Policyholder Definition. On page 39539 of the Notice,
Section III(c) defines the term ``Eligible Policyholder'' as--
A policyholder who is eligible to vote at annual meetings of the
mutual insurer and to receive consideration under Manulife's Plan of
Demutualization. More specifically, an Eligible Policyholder is a
policyholder of the mutual insurer that had a voting policy before
Manulife announced its intention to demutualize or any policyholder
that applied for a voting policy prior to that day. Policyholders
will also be deemed Eligible Policyholders if they are holders of a
voting policy that lapsed before the insurer's announcement date but
was reinstated on or before 90 days prior to the special meeting to
consider demutualization. These policyholders will be eligible to
receive benefits upon demutualization.
To reflect current revisions in its Plan of Demutualization, Manulife
requests that the definition of ``Eligible Policyholder'' as set forth
in Section III(c) of the Notice be revised to read as follows:
The term ``Eligible Policyholder'' means a policyholder who is
eligible to vote at the special meeting on demutualization and to
receive consideration under Manulife's Plan of Demutualization. More
specifically, an Eligible Policyholder is a policyholder of the
mutual insurer that had a voting policy on the day Manulife
announced its intention to prepare a plan of demutualization (the
Eligibility Date) or any policyholder that applied for a voting
policy on or prior to that day. Policyholders will also be deemed
Eligible Policyholders if they are holders of a voting policy that
lapsed before the insurer's Eligibility Date but was reinstated on
or before 90 days prior to the special meeting to consider
demutualization. These policyholders will be eligible to receive
benefits upon demutualization.
In response to this comment, the Department has made the requested
changes to Section III(c) of the Notice.
4. Policy Credit Definition. On page 39540 of the Notice Section
II(d) contains the following definition of the term ``policy credit'':
The term ``policy credit'' means whichever of the following is
applicable: (1) with respect to an individual life insurance policy,
an increase in the dividend accumulation amount; (2) with respect to
an individual deferred annuity policy where the owner has elected a
dividend accumulation option, an increase in the dividend
accumulation amount; (3) with respect to all other individual
deferred annuity policies, an increase in the dividend addition
value; and (4) with respect to a settlement annuity, an increase in
the contract reserve which shall provide for an increase in the
monthly income payment equal to the ratio of the reserve increase to
the then current contract reserve.
To reflect current revisions to its Plan of Demutualization, Manulife
suggests that the definition of the term ``policy credit'' be revised
to read as follows:
The term ``policy credit'' means whichever of the following is
applicable: (1) with respect to an individual life or individual
deferred annuity policy, and for a group policy (other than a group
annuity), where the owner has elected a paid-up addition option, an
increase in the paid-up addition value; (2) with respect to all
other individual life or individual deferred annuity policies, and
for all other group policies (other than group annuities), an
increase in the dividend accumulation account; (3) with respect to a
settlement annuity, a vested annuity or a group annuity, an increase
in the periodic income payment.
The Department concurs with this clarification and has modified
Section III(d) accordingly.
5. Subsidiary Ownership. On page 39540 of the Notice,
Representation 1 of the Summary states, in pertinent part, that
Manulife indirectly owns approximately 85 percent of The Manufacturers
Life Insurance Company of North America (Manulife/North America).
Manulife wishes to clarify however, that as a result of ManUSA's recent
acquisition of the 15 percent minority interest in Manulife/North
America, Manulife now indirectly owns 100 percent of that entity.
The Department notes this clarification to the Summary.
6. Stock Ownership Listings. On page 39541 of the Notice,
Representation 4 of the Summary states that Common Shares of the
Holding Company will be listed on the Montreal, Toronto or New York
Stock Exchanges. However, for purposes of clarification, Manulife
represents that Common Shares will be listed on each of the ``Montreal,
Toronto, Hong Kong, Philippines and New York Stock Exchanges.''
The Department acknowledges this clarification.
7. Holding Company Shares. On page 39541 of the Notice,
Representation 6 of the Summary describes the steps that will occur in
connection with Manulife's demutualization. Specifically, the third
sentence of Representation 6 states the following: ``Then, all of the
Holding Company's Common Shares held by Manulife immediately prior to
the effective date will be canceled.'' Manulife requests that this
sentence be revised by deleting the reference to the term ``Common
Shares'' and replacing it with the term ``shares.'' Therefore, the
revised sentence would read as follows: ``Then, all of the Holding
Company's shares held by Manulife immediately prior to the effective
date will be canceled.'' The Department does not object to this change
and has made the requested revision.
8. Footnote 13. On page 39542 of the Notice, Footnote 13 of the
Summary describes the treatment of the underwriters' discount under
Canadian law if Common Shares are sold by non-Canadian policyholders of
Manulife in a secondary offering by the Holding Company's underwriters
as part of the initial public offering. To clarify the language of the
footnote, Manulife suggests that the second and third sentences be
deleted and replaced with the following language:
Because the payment of the underwriters' discount is treated as
dividend in Canada, a withholding tax of 15 percent of the amount of
the dividend will be imposed. Manulife has concluded that there is
an applicable withholding tax exemption under the Canada/U.S. tax
treaty and, accordingly, it will not withhold any taxes from amounts
remitted to the Plans. Manulife has represented that even if its
conclusion is incorrect, it will not seek reimbursement from any
Plan policyholder under such circumstances.
The Department concurs with these revisions and has made the
requested changes.
9. Footnote 19. On page 39542 of the Notice, Footnote 19 of the
Summary discusses, in pertinent part, special rules applicable to an
insurance policy that is issued to a trust established by Manulife.
Because the last sentence of the second paragraph of Footnote 19 is in
error, Manulife suggests that the sentence be revised to read as
follows: ``The trustee of any such trust established by Manulife will
not be considered an Eligible Policyholder or owner and will not be
eligible to vote or receive consideration.''
The Department acknowledges this revision and has made the
requested change.
10. Eligible Policyholder. On page 39543 of the Notice,
Representation 10 of the Summary describes the criteria for an Eligible
Policyholder under Manulife's Plan of Demutualization. To
[[Page 53747]]
clarify the second parenthetical in the first paragraph of
Representation 10, which relates to certain status and time
requirements for the insurance policies, Manulife suggests that the
parenthetical be revised to read as follows:
(or applied for on or before that date or which are in lapse status
on that date and reinstated at least 90 days prior to the special
meeting of the Eligible Policyholders to vote on the Plan of
Demutualization).
The Department acknowledges this revision and has modified the
parenthetical.
11. Cash Elections/Non-Trusteed Policies. On page 39543 of the
Summary, the second sentence in the fourth paragraph of Representation
10 states that the cash election that is made by an Eligible
Policyholder who is entitled to receive Common Shares may be reduced if
the Board of Directors of the Holding Company determines that such
reduction is in Manulife's best interests. However, for purposes of
clarification, Manulife suggests that this sentence be deleted and the
following new sentence be inserted in lieu thereof:
If, in the judgment of the Board of Directors of the Holding
Company, it would not be in the best interests of Manulife to
conduct a public offering that fully funds cash elections, then the
Board of Directors shall determine the number of Common Shares by
which the aggregate cash elections shall be reduced, and such
reductions shall be pro-rated among all Eligible Policyholders who
have made a cash election.
In response to this comment, the Department has made the suggested
modification.
In addition, the fifth paragraph of Representation 10 refers to
Plans intending to qualify under section 403(a) of the Code as the
recipients of policy credits. Manulife requests that the sentence
should also make reference to Plans intending to qualify under section
401(a) of the Code. Accordingly, Manulife suggests that the sentence
should read as follows:
Other Eligible Policyholders, namely owners of individual
retirement annuities, tax sheltered annuities, certain other
policies issued directly to Plan participants in qualified pension
or profit sharing plans, or group policies issued in connection with
Plans intending to qualify under section 401(a) or 403(a) of the
Code that are not held in trust, will receive policy credits equal
in value to the shares allocated to such Eligible Policyholders.
The Department notes this change and has made the requested
revision.
12. Escrow Arrangement. On page 39543 of the Notice, Representation
12 of the Summary describes an escrow arrangement that Manulife will
implement in the event the exemption is not granted before the
effective date of the demutualization. Specifically, the first sentence
of Representation 12 provides that the escrow arrangement is subject to
terms and conditions approved by the Superintendent of OSFI. Manulife
wishes to clarify, however, that such terms and conditions will be
subject to approval by the Michigan Insurance Commissioner rather than
the Superintendent of OSFI.
In response, the Department notes this clarification and has made
the requested change.
Finally, the Department has revised certain typographical errors
appearing in the Summary and the Notice to Interested Persons. In this
regard, on page 39543 of the Notice, references to the citation ``29
CFR 2510.3-2(c)'' in the fifth paragraph of Representation 10 and in
paragraph (d) of Representation 12 should be revised to read ``29 CFR
2510.3-21(c).'' Also, the reference to ``20 CFR 2570.43(b)(2)'' in the
Notice to Interested Persons should be revised to read ``29 CFR
2570.43(b)(2).''
For further information regarding the comments or other matters
discussed herein, interested persons are encouraged to obtain copies of
the exemption application file (Exemption Application No. D-10738) the
Department is maintaining in this case. The complete application file,
as well as all supplemental submissions received by the Department, are
made available for public inspection in the Public Documents Room of
the Pension and Welfare Benefits Administration, Room N-5638, U.S.
Department of Labor, 200 Constitution Avenue, N.W., Washington, D.C.
20210.
Accordingly, after giving full consideration to the entire record,
including the written comments received, the Department has decided to
grant the exemption subject to the modifications and clarifications
described above.
For Further Information Contact: Ms. Jan D. Broady of the
Department, telephone (202) 219-8881. (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 to which the exemptions 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) These exemptions are supplemental to and not in derogation of,
any other provisions of the Act and/or the Code, including statutory or
administrative exemptions and transactional 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
(3) The availability of these exemptions is subject to the express
condition that the material facts and representations contained in each
application are true and complete and accurately describe all material
terms of the transaction which is the subject of the exemption. In the
case of continuing exemption transactions, if any of the material facts
or representations described in the application change after the
exemption is granted, the exemption will cease to apply as of the date
of such change. In the event of any such change, application for a new
exemption may be made to the Department.
Signed at Washington, DC, this 29th day of September, 1999.
Ivan Strasfeld,
Director of Exemption Determinations,
Pension and Welfare Benefits Administration,
Department of Labor.
[FR Doc. 99-25709 Filed 10-1-99; 8:45 am]
BILLING CODE 4510-29-P