[Federal Register Volume 67, Number 99 (Wednesday, May 22, 2002)]
[Notices]
[Pages 36034-36037]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-12828]


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DEPARTMENT OF LABOR

Pension and Welfare Benefits Administration

[Application No. D-10987]


Proposed Exemption; Metropolitan Life Insurance Company (MetLife)

AGENCY: Pension and Welfare Benefits Administration, Labor.

ACTION: Notice of proposed exemption.

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SUMMARY: This document contains notices of pendency before the 
Department of Labor (the Department) of proposed exemption from certain 
of the prohibited transaction restrictions of the Employee Retirement 
Income Security Act of 1974 (the Act) and/or the Internal Revenue Code 
of 1986 (the Code).

Written Comments and Hearing Requests

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

ADDRESSES: All written comments and requests for a hearing (at least 
three copies) should be sent to the Pension and Welfare Benefits 
Administration (PWBA), Office of Exemption Determinations, Room N-5649, 
U.S. Department of Labor, 200 Constitution Avenue, NW., Washington, DC 
20210. Attention: Application No. ----, stated in each Notice of 
Proposed Exemption. Interested persons are also invited to submit 
comments and/or hearing requests to PWBA via e-mail or FAX. Any such 
comments or requests should be sent either by e-mail to: 
``[email protected]'', or by FAX to (202) 219-0204 by the end of 
the scheduled comment period. The applications for exemption and the 
comments received will be available for public inspection in the Public 
Documents Room of the Pension and Welfare Benefits Administration, U.S. 
Department of Labor, Room N-1513, 200 Constitution Avenue, NW., 
Washington, DC 20210.

Notice to Interested Persons

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

SUPPLEMENTARY INFORMATION: The proposed exemptions were requested in 
applications filed pursuant to section 408(a) of the Act and/or section 
4975(c)(2) of the Code, and in accordance with procedures set forth in 
29 CFR part 2570, subpart B (55 FR 32836, 32847, August 10, 1990). 
Effective December 31, 1978, section 102 of Reorganization Plan No. 4 
of 1978, 5 U.S.C. App. 1 (1996), transferred the authority of the 
Secretary of the Treasury to issue exemptions of the type requested to 
the Secretary of Labor. Therefore, these notices of proposed exemption 
are issued solely by the Department.
    The applications contain representations with regard to the 
proposed exemptions which are summarized below. Interested persons are 
referred to the applications on file with the Department for a complete 
statement of the facts and representations.

Metropolitan Life Insurance Company (MetLife) Located in New York, NY

[Application No. D-10987]

Proposed Exemption

    The Department is considering granting an exemption under the 
authority of section 408(a) of the Act (or ERISA) 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) 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, 
effective January 20, 2000 until May 18, 2000, to (1) the holding, by 
MetLife Separate Account R.I. (the Separate Account), an index fund 
managed by MetLife which holds plan assets, of 523 shares of common 
stock (the Common Shares), issued by the Conning Corporation (Conning), 
an affiliate of MetLife; (2) the acquisition, by MetLife, of certain 
certificates, representing 523 shares of cancelled Conning Common 
Shares (the Cancelled Conning Shares), from the Separate Account, 
pursuant to the terms of a tender offer (the Tender Offer) and merger 
agreement (the Merger Agreement); and (3) the delivery of the 
certificates representing the 523 Cancelled Conning Shares to 
ChaseMellon Shareholder Services, LLC (the Disbursing Agent), in 
exchange for certain cash consideration.
    This proposed exemption is subject to the following conditions:
    (a) The decision by a Plan to invest in the Separate Account was 
made by a Plan fiduciary which was independent of MetLife and its 
affiliates.
    (b) At all times, the Conning Common Shares represented less than 
one percent of the assets of the Separate Account and less than one 
percent of the value of the assets of the ERISA-covered Plans investing 
therein.
    (c) The exchange of the Cancelled Conning Shares by the Separate 
Account was a one-time transaction for cash.
    (d) The Separate Account and the Plans received the fair market 
value for each Cancelled Conning Share on the date of the exchange.
    (e) The consideration received by the Separate Account for its 
Cancelled Conning Shares was the same consideration that was received 
by (i) all shareholders who validly tendered their Conning Common 
Shares pursuant to a Tender Offer and (ii) all holders of Cancelled 
Conning Shares.

[[Page 36035]]

    (f) The Separate Account paid no commissions, fees or other 
expenses with respect to the exchange of the Cancelled Conning Shares 
for cash.
    (g) After the expiration of the Tender Offer and the consummation 
of the Merger, the Separate Account delivered certificates representing 
the Cancelled Conning Shares to the Disbursing Agent to exchange with 
MetLife and its affiliates for cash.
    (h) The terms of the exchange were no less favorable to the 
Separate Account and the Plans than those obtainable in an arm's length 
transaction engaged in by other similarly-situated holders of the 
Cancelled Conning Shares.
    Effective Date: If granted, this proposed exemption will be 
effective from January 20, 2000 until May 18, 2000.

Summary of Facts and Representations

    1. The parties to the transactions are described as follows:
    a. MetLife, which maintains its principal executive offices at One 
Madison Avenue, New York, New York, is a New York corporation that is 
subject to supervision and examination by the Superintendent of 
Insurance of the State of New York. MetLife is a wholly owned 
subsidiary of MetLife, Inc., a Delaware corporation. Through its 
subsidiaries and affiliates, MetLife, Inc. is a leading provider of 
insurance and other financial services to individual and group 
customers. MetLife and its affiliates serve approximately 9 million 
households in the U.S. and companies and institutions with 33 million 
employees and members.
    MetLife also has international insurance operations in 12 
countries. Among the variety of insurance products and service it 
offers, MetLife and certain of its affiliates provide funding, asset 
management and other services for thousands of employee benefit plans 
subject to the provisions of Title I of the Act.
    MetLife maintains pooled and single customer separate accounts in 
which Title I pension, profit sharing, welfare benefit plans and thrift 
plans invest. MetLife and/or its affiliates manage all or a portion of 
the assets of such separate accounts. Additionally, MetLife has a 
number of subsidiaries and affiliates that provide a variety of 
financial services, including investment management and brokerage 
services to Plans.
    In their capacities as fiduciaries of Plans, MetLife and its 
affiliates may be either directed by an independent Plan fiduciary or a 
Plan participant that has the ability to direct investments in his or 
her Plan account under the Plan document. Alternatively, in those cases 
in which a MetLife affiliate manages investments, such as the Separate 
Account described herein, MetLife represents that the affiliate does 
not exercise any discretionary authority over the decision to invest 
the Plan's assets in the Separate Account. Instead, an independent Plan 
fiduciary is responsible for such investment decisions.
    b. Conning, a Missouri corporation located in St. Louis, Missouri, 
provides asset management services primarily to insurance companies and 
institutional investors. In addition, Conning manages private equity 
funds investing in insurance and insurance-related companies and it 
conducts in-depth research on the insurance industry. On April 19, 
2000, as a result of a merger, Conning became an indirect, wholly owned 
subsidiary of MetLife and a privately-held corporation.
    c. CC Merger Sub, Inc. (CC Merger Sub), a Missouri corporation, was 
an indirect, wholly owned subsidiary of MetLife. Through CC Merger Sub, 
MetLife offered to purchase all of the outstanding Conning Common 
Shares that were not owned by MetLife or its affiliates under the terms 
of a Tender Offer and Merger described in detail below. On April 19, 
2000, CC Merger Sub was merged with and into Conning. As a result of 
the merger, CC Merger Sub ceased to exist.
    d. ChaseMellon Shareholder Services, LLC, otherwise referred to in 
this proposed exemption as the ``Disbursing Agent,'' was appointed by 
MetLife and Conning for purposes of receiving certificates representing 
Cancelled Conning Shares and transmitting cash payments to the holders 
of the surrendered certificates.
    2. MetLife is the investment manager of the Separate Account, which 
is an insurance company pooled separate account that seeks to replicate 
the performance of the Russell 2000 Index and is available for 
investment by Plans subject to the Act. The Separate Account is 
passively-managed in that the choice of stocks purchased and sold, and 
the volume purchased and sold, are made according to the Russell 2000 
Index rather than according to the active evaluation of investments.
    MetLife represents that the process for the establishment and 
operation of the Separate Account is disciplined in that objective 
rules are established. Moreover, MetLife states that the Separate 
Account is managed utilizing an analytical computer program that 
determines the appropriate rebalancing necessary to meet the investment 
objective.
    3. At the time of the transactions described herein, nine ERISA-
covered Plans (none of which were sponsored by MetLife and its 
affiliates) invested in the Separate Account, along with certain 
municipal plans that were not subject to ERISA. These Plans held 
undivided, pro rata interests in the Separate Account's assets, 
including the Conning Common Shares, which were acquired by the 
Separate Account on January 20, 2000 in an open market transaction. As 
of April 19, 2000, the Separate Account had total assets of 
approximately $45.6 million. Of the total assets, the Conning Common 
Shares represented 0.014 percent of the assets in the Separate Account 
and 0.075 percent of the value of the ERISA-covered Plans that were 
invested in such account.
    4. The Separate Account acquired the Conning Common Shares in a 
Nasdaq transaction that was executed by the program trading desk at 
Credit Suisse First Boston, which acted as broker. The Conning Common 
Shares were purchased on the same day as part of the regular portfolio 
rebalance occurring on that day. Of the 73,400 shares of Conning Common 
Shares traded on January 20, 2000, the Separate Account purchased 523 
shares of stock for an acquisition price of $11.239 per share or an 
aggregate acquisition price of $5,877.98.
    MetLife represents that the Conning Common Shares were purchased by 
the Separate Account in order to avoid a tracking error and to conform 
the Separate Account with the Russell 2000 Index. MetLife also 
represents that at no time did the Conning Common Shares represent more 
than 5 percent of the value of the Russell 2000 Index.
    5. MetLife requests an administrative exemption from the Department 
with respect to the holding of 523 Conning Common Shares (and 
subsequently, 523 Cancelled Conning Shares) by the Separate Account. As 
discussed below, MetLife also requests exemptive relief with respect to 
the delivery of certificates representing 523 Cancelled Conning Shares 
to the Disbursing Agent in exchange for cash consideration of $12.50 
per Cancelled Conning Share, resulting in the acquisition of such 
shares by MetLife. If granted, the exemption will be effective from 
January 20, 2000 until May 18, 2000.
    MetLife believes that retroactive exemptive relief is appropriate 
given the beneficial nature of the exchange, the fact that the 
transaction could not be avoided if applicable provisions of the 
Federal securities laws and relevant provisions of the Act that are the 
subject of this application were complied with, and the fact that the 
Conning Common

[[Page 36036]]

Shares held by the Separate Account constituted a de minimus portion of 
the exchange transaction.
    6. Prior to the Separate Account's acquisition of the Conning 
Common Shares, MetLife acquired control of 8.3 million Conning Common 
Shares when it purchased all of the issued and outstanding shares of 
capital stock of GenAmerica Corporation from General American Mutual 
Holding Company, a Missouri mutual holding company. The transaction 
took place on January 6, 2000. At the time of the transaction, 
GenAmerica Corporation owned all of the issued and outstanding shares 
of capital stock of General American Life Insurance Company, which 
owned all of the issued and outstanding shares of capital stock of 
GenAm Holding Company, the record owner of the 8.3 million Conning 
Common Shares. The Conning Common Shares acquired by MetLife 
represented approximately 60.4 percent of the outstanding Conning 
Common Shares.
    7. In accordance with the terms of the Merger Agreement by and 
between Conning, MetLife and CC Merger Sub, on March 20, 2000, MetLife 
(through CC Merger Sub) commenced the Tender Offer to acquire the 
remaining 39.6 percent of the outstanding Conning Common Shares that 
MetLife did not control. The purchase price was established at $12.50 
per Conning Common Share and the consideration was payable in cash. 
April 17, 2000 was fixed as the expiration date of the Tender Offer. 
However, this date could be extended by MetLife.
    Under the Merger Agreement, MetLife's acceptance of and payment for 
all of the Conning Common Shares tendered and not validly withdrawn in 
the Tender Offer were subject to the condition that Conning shareholder 
approval of the Merger would be ensured if the number of tendered 
Conning Common Shares, when combined with the Conning Common Shares 
that MetLife already controlled, exceeded two-thirds of the outstanding 
Conning Common Shares. Thus, the objective of the Tender Offer and the 
Merger was to make Conning an indirect, wholly owned subsidiary of 
MetLife.
    8. MetLife and CC Merger Sub believed that the consideration to be 
received in the Tender Offer and the Merger was fair (both in terms of 
price and procedure) to the Conning stockholders that were unaffiliated 
with MetLife for the following reasons:
    z The Conning Special Committee, which concluded that the Tender 
Offer and the Merger were fair to, advisable and in the best interests 
of Conning and its stockholders, had approved the Tender Offer and the 
Merger Agreement, following a thorough review with independent 
financial and legal advisers.
    z Based upon the recommendation of the Conning Special Committee 
and other considerations, the Conning Board of Directors determined 
that the Tender Offer and the Merger were fair to, advisable and in the 
best interests of Conning stockholders and unanimously approved the 
Tender Offer and the Merger Agreement.
    z On March 9, 2000, the Conning Special Committee received a 
written fairness opinion from Salomon Smith Barney to the effect that, 
subject to the various assumptions and limitations set forth in that 
opinion, as of the date thereof, the cash consideration of $12.50 per 
Conning Common Share which was to be received by Conning stockholders 
in the Tender Offer and the Merger was fair to Conning stockholders 
(other than MetLife or Conning and their respective wholly owned 
subsidiaries) from a financial point of view.
    z The Merger Agreement was negotiated at arm's length for over six 
weeks with the Conning Special Committee, which acted independently, 
with the assistance of financial and legal advisers and on behalf of 
Conning stockholders unaffiliated with MetLife.
    z Conning's historical financial performance and MetLife's 
projections of Conning's future financial performance took into account 
MetLife's assumption of investment management responsibility over the 
general account assets of General American Life Insurance Company.
    z Conning's business and earnings prospects, near- and long-term 
business risks, the competitive business environment in which Conning 
operated and business and valuation trends in Conning's business 
industry were considered.
    z The cash consideration of $12.50 per share to be paid in the 
Tender Offer and the Merger for the Conning Common Shares would 
represent (a) a premium of approximately 30.7 percent above the closing 
price of Conning Common Shares on the last trading day before MetLife 
announced its initial proposal to acquire Conning; (b) a premium of 
approximately 44 percent above the average of the closing prices for 
Conning Common Shares over the 20 trading days immediately before 
MetLife publicly announced the proposal to acquire Conning; and (c) a 
premium of approximately 48.1 percent above the closing price for 
Conning Common Shares on each of December 14, 15 and 16, 1999, 
approximately one month before MetLife announced its initial proposal 
to acquire Conning.
    z The structure of the transaction was designed to result in 
Conning stockholders, other than MetLife and its affiliates, receiving 
the consideration in the Tender Offer and the Merger at the earliest 
possible time; and
    z MetLife's internally-prepared financial analysis was considered. 
This analysis included the development of projections, a review of 
Credit Suisse First Boston's review of comparable current market prices 
and historical transaction prices of Conning's peer group, and a 
discounted cash flow analysis to determine the value of Conning Common 
Shares as supporting the fairness of the Tender Offer and the Merger to 
stockholders that were not affiliated with MetLife.
    9. At the expiration date of the Tender Offer on April 17, 2000, 
5.3 million Conning Common Shares were validly tendered and not 
withdrawn. When combined with the 8.3 million Conning Common Shares 
that MetLife already controlled, such shares then gave MetLife control 
of approximately 98 percent of the outstanding Conning Common Shares. 
Accordingly, pursuant to the Merger Agreement and Missouri law, on 
April 19, 2000, MetLife acquired all remaining Conning Common Shares 
that were the subject of the Tender Offer by consummating the Merger. 
In this regard, all outstanding Conning Common Shares that were the 
subject of the Tender Offer (except for those shares where the 
shareholders asserted their dissenters' rights under Missouri law) were 
automatically cancelled, retired and converted into the right to 
receive cash consideration equivalent to $12.50 per former Conning 
Common Share. (Such cancelled shares are referred to as the ``Cancelled 
Conning Shares.'') Also, the separate corporate existence of CC Merger 
Sub was terminated and Conning, as the surviving corporation in the 
Merger, became an indirect, wholly owned subsidiary of MetLife.
    Moreover, on April 19, 2000, MetLife caused Conning's share 
transfer books to be closed and all Conning Common Shares to be de-
listed from Nasdaq and de-registered under the Securities Exchange Act 
of 1934, as amended. As a result of these actions, there was no public 
market for any Conning Common Shares (all of which were now controlled 
by MetLife) or any Cancelled Conning Shares (523 of which were held by 
the Separate Account).
    10. To comply with applicable provisions of the Federal securities 
laws, MetLife deemed it inappropriate for the Separate Account to sell 
its Conning Common Shares on the open

[[Page 36037]]

market. Instead, the Separate Account continued to hold its 523 Conning 
Common Shares and it did not tender these shares in the Tender Offer. 
Subsequently, the 523 Conning Common Shares held by the Separate 
Account were converted into 523 Cancelled Common Shares.
    On May 18, 2000, the Separate Account delivered its 523 Cancelled 
Conning Shares to the Disbursing Agent in exchange for the same $12.50 
per share consideration that was received by all other Conning 
shareholders in the Tender Offer and the Merger. Thus, the Separate 
Account received $6,538 in cash from MetLife.\1\ The exchange caused 
the ERISA-covered Plans that were participating in the Separate Account 
to receive a premium for such shares. Had the Separate Account disposed 
of the Conning Common Shares on the open market at $8.44 per share 
approximately one month before MetLife announced its initial proposal 
to acquire all of the outstanding shares of such stock, the Separate 
Account would have received only $4,414. MetLife represents that this 
amount would have been further reduced by sales commissions.
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    \1\ The Separate Account had also received $26.15 in dividends 
from MetLife that were attributable to its ownership of the Conning 
Common Shares. This meant that the Separate Account's total net 
earnings with respect to the Conning Common shares was $685.68 
(6,537.50 - $5,877.98 + $26.15).
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    11. In summary, it is represented that the transactions satisfied 
the statutory criteria for an exemption under section 408(a) of the Act 
because:
    (a) The decision by a Plan to invest in the Separate Account was 
made by a Plan fiduciary which was independent of MetLife and its 
affiliates.
    (b) The Conning Common Shares represented less than one percent of 
the assets of the Separate Account and less than one percent of the 
assets of the ERISA-covered Plans investing therein.
    (c) The exchange of the Cancelled Conning Shares by the Separate 
Account was a one-time transaction for cash.
    (d) The Separate Account and the Plans received the fair market 
value for each Cancelled Conning Share on the date of the exchange.
    (e) The consideration received by the Separate Account for its 
Cancelled Conning Shares was the same consideration received by (i) all 
shareholders who validly tendered their Conning Common Shares pursuant 
to a Tender Offer and (ii) all holders of Cancelled Conning Shares.
    (f) The Separate Account paid no commissions, fees or other 
expenses in connection with the exchange of the Cancelled Conning 
shares to MetLife and its affiliates for cash.
    (g) After the expiration of the Tender Offer and the consummation 
of the exchange, the Separate Account delivered certificates to the 
Disbursing Agent representing the Cancelled Conning Shares.
    (h) The terms of the exchange were no less favorable to the 
Separate Account and the Plans than those obtainable in an arm's length 
transaction engaged in by other similarly-situated holders of the 
Cancelled Conning Shares.

FOR FURTHER INFORMATION CONTACT: Ms. Jan D. Broady of the Department, 
telephone (202) 693-8556. (This is not a toll-free number.)

General Information

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

    Signed at Washington, DC, this 17th day of May, 2002.
Ivan Strasfeld,
Director of Exemption Determinations, Pension and Welfare Benefits 
Administration, U.S. Department of Labor.
[FR Doc. 02-12828 Filed 5-21-02; 8:45 am]
BILLING CODE 4510-29-P